TRUST RECEIPT LAW

ALLIED BANKING vs. Sec. ORDONEZ, GR No. 82495, Dec. 10, 1990

FULL TEXT:

SECOND DIVISION[G.R. No. 82495 :  December 10, 1990.]

192 SCRA 246ALLIED BANKING CORPORATION, Petitioner, vs. HON. SECRETARY SEDFREY ORDOÑEZ (Public Respondent) and ALFREDO CHING (Private Respondent),

Respondents. 

D E C I S I O N 

PADILLA, J.: In this special civil action for Certiorari, the interpretation by the Department of Justice of the penal provision of PD 115, the Trust Receipts Law, is assailed by petitioner.The relevant facts are as follows:On 23 January 1981, Philippine Blooming Mills (PBM, for short) thru its duly authorized officer, private respondent Alfredo Ching, applied for the issuance of commercial letters of credit with petitioner's Makati branch to finance the purchase of 500 M/T Magtar Branch Dolomites and one (1) Lot High Fired Refractory Sliding Nozzle Bricks.Petitioner issued an irrevocable letter of credit in favor of Nikko Industry Co., Ltd. (Nikko) by virtue of which the latter drew four (4) drafts which were accepted by PBM and duly honored and paid by the petitioner bank. :- nad

To secure payment of the amount covered by the drafts, and in consideration of the transfer by petitioner of the possession of the goods to PBM, the latter as entrustee, thru private respondent, executed four (4) Trust Receipt Agreements with maturity dates on 19 May, 3 and 24 June 1981 acknowledging petitioner's ownership of the goods and its (PBM'S) obligation to turn over the proceeds of the sale of the goods, if sold, or to return the same, if unsold within the stated period.Out of the said obligation resulted an overdue amount of P1,475,274.09. Despite repeated demands, PBM failed and refused to either turn over the proceeds of the sale of the goods or to return the same.On 7 September 1984, petitioner filed a criminal complaint against private respondent for violation of PD 115 before the office of the Provincial Fiscal of Rizal. After preliminary investigation wherein private respondent failed to appear or submit a counter-affidavit and even refused to receive the subpoena, the Fiscal found a prima facie case for violation of PD 115 on four (4) counts and filed the corresponding information in court.Private respondent appealed the Fiscal's resolution to the Department of Justice on three (3) grounds:1. Lack of proper preliminary investigation;2. The Provincial Fiscal of Rizal did not have jurisdiction over the case, as respondent's obligation was purely civil;

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3. There had been a novation of the obligation by the substitution of the person of the Rehabilitation Receivers in place of both PBM and private respondent Ching.Then Secretary of Justice (now Senator) Neptali A. Gonzales, in a 24 September 1986 letter/resolution, 1 held:"Your contention that respondent's obligation was purely a civil one, is without any merit. The four (4) Trust Receipt Agreements entered into by respondent and complainant appear regular in form and in substance. Their agreement regarding interest, not being contrary to law, public policy or morals, public order or good custom, is a valid stipulation which does not change the character of the said Trust Receipt Agreements. Further, as precisely pointed out by complainant, raw materials for manufacture of goods to be ultimately sold are proper objects of a trust receipt. Thus, respondent's failure to remit to the complainant proceeds of the sale of the finished products if sold or the finished products themselves if not sold, at the maturity dates of the trust receipts, constitutes a violation of P.D. 115." 2A motion for reconsideration alleged that, as PBM was under rehabilitation receivership, no criminal liability can be imputed to herein respondent Ching. On 17 March 1987, Undersecretary Silvestre H. Bello III denied said motion. The pertinent portion of the denial resolution states::-cralaw

"It cannot be denied that the offense was consummated long before the appointment of rehabilitation receivers. The filing of a criminal case against respondent Ching is not only for the purpose of effectuating a collection of a debt but primarily for the purpose of punishing an offender for a crime committed not only against the complaining witness but also against the state. The crime of estafa for violation of the Trust Receipts Law is a special offense or mala prohibita. It is a fundamental rule in criminal law that when the crime is punished by a special law, the act alone, irrespective of its motives, constitutes the offense. In the instant case the failure of the entrustee to pay complainant the remaining balance of the value of the goods covered by the trust receipt when the same became due constitutes the offense penalized under Section 13 of P.D. No. 115; and on the basis of this failure alone, the prosecution has sufficient evidence to establish a prima facie case (Res. No. 671, s. 1981; Allied Banking Corporation vs.  Reinhard Sagemuller, et al., Provincial Fiscal of Rizal, September 18, 1981)."Likewise untenable is your contention that 'rehabilitation proceedings must stay the attempt to enforce a liability in view of Section 4 of P.D. No. 1758.' Section 4 of P.D. No. 1758, provides, among others: '. . . Provided, further, that upon appointment of a management committee, rehabilitation receiver, board or body, pursuant to this Decree, all actions for claims against corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or body shall be suspended accordingly."You will note that the term 'all actions for claims' refer only to actions for money claims but not to criminal liability of offenders." 3Another motion for reconsideration was filed by respondent on 9 April 1987 to which an opposition was filed by the petitioner. Private respondent also filed a supplemental request for reconsideration dated 28 December 1987 with two (2) additional grounds, namely:". . . 3) there is no evidence on record to show that respondent was in particeps criminis in the act complained of; and 4) there could be no violation of the trust receipt agreements because the articles imported by the corporation and subject of the trust receipts were fungible or consummable goods and do not form part of the steel product itself. These goods were not procured to be sold in whatever state or condition they were in or were supposed to be after the manufacturing process." 4Because of private respondent's clarification that the goods subject of the trust receipt agreements were dolomites which were specifically used for patching purposes over the

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surface of furnaces and nozzle bricks which are insulating materials in the lower portion of the ladle which do not form part of the steel product itself, Justice Secretary Sedfrey Ordoñez, on 11 January 1988, "rectified" his predecessor's supposed reversible error, and held::-cralaw

". . . it is clear that what the law contemplates or covers are goods which have, for their ultimate destination, the sale thereof or if unsold, their surrender to the entruster, this whether the goods are in their original form or in their manufactured/processed state. Since the goods covered by the trust receipts and subject matter of these proceedings are to be utilized in the operation of the equipment and machineries of the corporation, they could not have been contemplated as being covered by PD 115. It is axiomatic that penal statutes are strictly construed against the state and liberally in favor of the accused (People vs.  Purisima, 86 SCRA 542, People vs.  Terrado, 125 SCRA 648). This means that penal statutes cannot be enlarged or extended by intendment, implication, or any equitable consideration (People vs.  Garcia, 85 Phil. 651). Thus, not all transactions covered by trust receipts may be considered as trust receipt transactions defined and penalized under PD 115.

x  x  xApparently, the trust receipt agreements were executed as security for the payment of the drafts. As such, the main transaction was that of a loan. . . . In essence, therefore, the relationship between the Bank and the corporation, consequently, the respondent herein likewise included, is that of debtor and creditor.

x  x  xWHEREFORE, premises considered, our resolution dated September 24, 1986, recorded 119 Resolution No. 456, series of 1986, and that dated March 17, 1987, the latter being necessarily dependent upon and incidental to the former, are hereby abrogated and abandoned. You are hereby directed to move for the withdrawal of the informations and the dismissal of the criminal cases filed in court . . ." 5This time, petitioner Allied Bank filed a motion for reconsideration of the Ordoñez resolution, which was resolved by the Department of Justice on 17 February 1988, enunciating that PD 115 covers goods or components of goods which are ultimately destined for sale. It concluded that:". . . The goods subject of the instant case were shown to have been used and/or consumed in the operation of the equipment and machineries of the corporation, and are therefore outside the ambit of the provisions of PD 115 albeit covered by Trust Receipt agreements . . . Finally, it is noted that under the Sia vs.  People (121 SCRA 655 (1983), and Vintola vs.  Insular Bank of Asia and America (150 SCRA 578 (1987) rulings, the trend in the Supreme Court appears to be to the effect that trust receipts under PD 115 are treated as security documents for basically loan transactions, so much so that criminal liability is virtually obliterated and limiting liability of the accused to the civil aspect only.WHEREFORE, your motion for reconsideration is hereby DENIED." 6From the Department of Justice, petitioner is now before this Court praying for writs ofCertiorari and prohibition to annul the 11 January and 17 February 1988 DOJ rulings, mainly on two (2) grounds:1. public respondent is without power or authority to declare that a violation of PD 115 is not criminally punishable, thereby rendering a portion of said law inoperative or ineffectual. : nad

2. public respondent acted with grave abuse of discretion in holding that the goods covered by the trust receipts are outside the contemplation of PD 115.

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Private and public respondents both filed their comments on the petition to which a consolidated reply was filed. After the submission of the parties' respective memoranda, the case was calendared for deliberation.Does the penal provision of PD 115 (Trust Receipts Law) apply when the goods covered by a Trust Receipt do not form part of the finished products which are ultimately sold but are instead, utilized/used up in the operation of the equipment and machineries of the entrustee-manufacturer?The answer must be in the affirmative, Section 4 of said PD 115 says in part:"Sec. 4. What constitutes a trust receipt transaction. — A trust receipt transaction, within the meaning of this Decree, is any transaction by and between a person referred to in this Decree as the entrustee, and another person referred to in this Decree as the entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a 'trust receipt' wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or 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, . . ."Respondent Ching contends that PBM is not in the business of selling Magtar Branch Dolomites or High Fired Refractory Sliding Nozzle Bricks, it is a manufacturer of steel and steel products. But PBM, as entrustee under the trust receipts has, under Sec. 9 of PD 115, the following obligations, inter alia: (a) receive the proceeds of sale, in trust for the entruster and turn over the same to the entruster to the extent of the amount owing to him or as appears on the trust receipt; (b) keep said goods or proceeds thereof whether in money or whatever form, separate and capable of identification as property of the entruster; (c) return the goods, documents or instruments in the event of non-sale, or upon demand of the entruster; and (d) observe all other terms and conditions of the trust receipt not contrary to the provisions of said Decree. 7The trust receipts, there is an obligation to repay the entruster. 8 Their terms are to be interpreted in accordance with the general rules on contracts, the law being alert in all cases to prevent fraud on the part of either party to the transaction. 9 The entrustee binds himself to sell or otherwise dispose of the entrusted goods with the obligation to turn over to the entruster the proceeds if sold, or return the goods if unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt. A violation of this undertaking constitutes estafa under Sec. 13, PD 115.And even assuming the absence of a clear provision in the trust receipt agreement, Lee v. Rodil  10 and Sia v. CA  11 have held: Acts involving the violation of trust receipt agreements occurring after 29 January 1973 (when PD 115 was issued) would render the accused criminally liable for estafa under par. 1(b), Art. 315 of the Revised Penal Code, pursuant to the explicit provision in Sec. 13 of PD 115.  12 The act punishable is malum prohibitum. Respondent Secretary's prognostication of the Supreme Court's supposed inclination to treat trust receipts as mere security documents for loan transactions, thereby obliterating criminal liability, appears to be a misjudgment.  13In an attempt to escape criminal liability, private respondent claims PD 115 covers goods which are ultimately destined for sale and not goods for use in manufacture. But the wording of Sec. 13 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. Private respondent claims that at the time of PBM's application for the issuance of the LC's, it was not represented to the petitioner that the items were intended for sale,  14 hence,

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there was no deceit resulting in a violation of the trust receipts which would constitute a criminal liability. Again, we cannot uphold this contention. The non-payment of the amount covered by a trust receipt is an act violative of the entrustee's obligation to pay. There is no reason why the law should not apply to all transactions covered by trust receipts, except those expressly excluded.  15The Court takes judicial notice of customary banking and business practices where trust receipts are used for importation of heavy equipment, machineries and supplies used in manufacturing operations. We are perplexed by the statements in the assailed DOJ resolution that the goods subject of the instant case are outside the ambit of the provisions of PD 115 albeit covered by Trust Receipt Agreements (17 February 1988 resolution) and that not all transactions covered by trust receipts may be considered as trust receipt transactions defined and penalized under PD 115 (11 January 1988 resolution). A construction should be avoided when it affords an opportunity to defeat compliance with the terms of a statute.: nad

"A construction of a statute which creates an inconsistency should be avoided when a reasonable interpretation can be adopted which will not do violence to the plain words of the act and will carry out the intention of Congress.In the construction of statutes, the courts start with the assumption that the legislature intended to enact an effective law, and the legislature is not to be presumed to have done a vain thing in the enactment of a statute. Hence, it is a general principle, embodied in the maxim, 'ut res magis valeat quam pereat,' that the courts should, if reasonably possible to do so without violence to the spirit and language of an act, so interpret the statute to give it efficient operation and effect as a whole. An interpretation should, if possible, be avoided, under which a statute or provision being construed is defeated, or as otherwise expressed, nullified, destroyed, emasculated, repealed, explained away, or rendered insignificant, meaningless, inoperative, or nugatory."  16The penal provision of PD 115 encompasses any act violative of an obligation covered by the trust receipt; it 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.To uphold the Justice Department's ruling would contravene not only the letter but the spirit of PD 115."An examination of P.D. 115 shows the growing importance of trust receipts in Philippine business, the need to provide for the rights and obligations of parties to a trust receipt transaction, the study of the problems involved and the action by monetary authorities, and the necessity of regulating the enforcement of rights arising from default or violations of trust receipt agreements. The legislative intent to meet a pressing need is clearly expressed . . ."  17WHEREFORE, the petition is granted. The temporary restraining order issued on 13 April 1988 restraining the enforcement of the questioned DOJ resolutions dated 11 January 1988 and 17 February 1988 directing the provincial fiscal to move for the dismissal of the criminal case filed before the RTC of Makati, Branch 143 and the withdrawal of IS-No. 84-3140, is made permanent. Let this case be remanded to said RTC for disposition in accordance with this decision.SO ORDERED.Melencio-Herrera, Paras, Sarmiento and Regalado, JJ., concur. Endnotes

  1. No. 456, Series of 1986.  2. Rollo at 18.

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  3. Rollo at 20.  4. Rollo at 22.  5. Rollo at 25 and 26.  6. Ibid. at 27 and 28.  7. Sec. 9. Obligations of the entrustee. — The entrustee shall (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 this Decree.

  8. 53 Am Jur § 2.  9. Ibid. § 3.10. G.R. No. 80544, 5 July 1989, 175 SCRA 100.11. G.R. No. L-40324, 5 October 1988, 166 SCRA 263.12. 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.

13. Separate Opinions expressed by Justices, no matter how erudite or persuasive cannot override the majority's decision.

14. Rollo at 39-41.15. 68 Am Jur § 125.16. 50 Am Jur. § 366, 359, 358 cited in 29 SCRA 627, 628.17. Lee v. Rodil, supra.

 

DIGESTED:

Allied Banking Corporation v Ordonez GR No. 82495 : December 10, 1990.MARCH 15, 2014LEAVE A COMMENTThe crime of estafa for violation of the Trust Receipts Law is a special offense or mala prohibita. It is a fundamental rule in criminal law that when the crime is punished by a special law, the act alone, irrespective of its motives, constitutes the offense. In the instant case the failure of the entrustee to pay complainant the remaining

TRUST RECEIPT LAW

balance of the value of the goods covered by the trust receipt when the same became due constitutes the offense penalized under Section 13 of P.D. No. 115Facts: Philippine Blooming Mills (PBM, for short) thru its duly authorized officer, private respondent Alfredo Ching, applied for the issuance of commercial letters of credit with petitioner’s Makati branch to finance the purchase of 500 M/T Magtar Branch Dolomites and one (1) Lot High Fired Refractory Sliding Nozzle Bricks. Allied Bank issued an irrevocable letter of credit in favor of Nikko Industry Co., Ltd. (Nikko) by virtue of which the latter drew four (4) drafts which were accepted by PBM and duly honored and paid by the petitioner bank. To secure payment of the amount covered by the drafts, and in consideration of the transfer by petitioner of the possession of the goods to PBM, the latter as entrustee, thru private respondent, executed four (4) Trust Receipt Agreements with maturity dates on acknowledging petitioner’s ownership of the goods and its (PBM’S) obligation to turn over the proceeds of the sale of the goods, if sold, or to return the same, if unsold within the stated period.

PBM defaulted on the payment of the trust receipts.. Despite repeated demands, PBM failed and refused to either turn over the proceeds of the sale of the goods or to return the same. Allied Bank filed a criminal complaint against private respondent for violation of PD 115 before the office of the Provincial Fiscal of Rizal. The Fiscal found a prima facie case for violation of PD 115 on four (4) counts and filed the corresponding information in court. PBM contended that since it was under rehabilitation receivership, no criminal liability can be imputed to Ching.

 Issue: Whether or not rehabilitation bars the filing of the estafa case against Ching

 Held: It cannot be denied that the offense was consummated long before the appointment of rehabilitation receivers. The filing of a criminal case against respondent Ching is not only for the purpose of effectuating a collection of a debt but primarily for the purpose of punishing an offender for a crime committed not only against the complaining witness but also against the state. The crime of estafa for violation of the Trust Receipts Law is a special offense or mala prohibita. It is a fundamental rule in criminal law that when the crime is

TRUST RECEIPT LAW

punished by a special law, the act alone, irrespective of its motives, constitutes the offense. In the instant case the failure of the entrustee to pay complainant the remaining balance of the value of the goods covered by the trust receipt when the same became due constitutes the offense penalized under Section 13 of P.D. No. 115; and on the basis of this failure alone, the prosecution has sufficient evidence to establish a prima facie case (Res. No. 671, s. 1981; Allied Banking Corporation vs.  Reinhard Sagemuller, et al., Provincial Fiscal of Rizal, September 18, 1981).

In examination of P.D. 115 shows the growing importance of trust receipts in Philippine business, the need to provide for the rights and obligations of parties to a trust receipt transaction, the study of the problems involved and the action by monetary authorities, and the necessity of regulating the enforcement of rights arising from default or violations of trust receipt agreements. The legislative intent to meet a pressing need is clearly expressed .

TRUST RECEIPT LAW

FULL TEXT:

G.R. No. 74886 December 8, 1992

PRUDENTIAL BANK, petitioner, vs.INTERMEDIATE APPELLATE COURT, PHILIPPINE RAYON MILLS, INC. and ANACLETO R. CHI, respondents.

 

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 defendant-appellant through its president, Anacleto R. Chi, while the others were not (Exhibits X-2 to X-11, Ibid., pp. 66 to 76).

Upon the arrival of the machineries, the Prudential Bank indorsed the shipping documents to the defendant-appellant which accepted delivery of the same. To enable the defendant-appellant to take delivery of the machineries, it executed, by prior arrangement with the Prudential Bank, a trust receipt which was signed by Anacleto R. Chi in his capacity as President (sic) of defendant-appellant company (Exhibit C, Ibid., p. 13).

TRUST RECEIPT LAW

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

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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;

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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

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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 Millsought 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 —

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(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

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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

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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. 25 Under 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 under fraud.

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. ChiANACLETO R. CHI 26

Petitioner insists that by virtue of the clear wording of the statement, specifically the clause ". . . we jointly and severally agree and undertake . . .," and the concluding sentence on exhaustion, Chi's liability therein is solidary.

In holding otherwise, the public respondent ratiocinates as follows:

With respect to the second argument, we have our misgivings as to whether the mere signature of defendant-appellee Chi of (sic) the guaranty agreement, Exhibit "C-1", will make it an actionable document. It should be noted that Exhibit "C-1" was prepared and printed by the plaintiff-appellant. A perusal of Exhibit "C-1" shows that it was to be signed and executed by two persons. It was signed only by defendant-appellee Chi. Exhibit "C-1" was to be witnessed by two persons, but no one signed in that capacity. The last sentence of the guaranty clause is incomplete. Furthermore, the plaintiff-appellant also failed to have the purported guarantee clause acknowledged before a notary public. All these show that the alleged guaranty provision was disregarded and, therefore, not consummated.

But granting arguendo that the guaranty provision in Exhibit "C-1" was fully executed and acknowledged still defendant-appellee Chi cannot be held liable thereunder because the records show that the plaintiff-appellant had neither exhausted the property of the defendant-appellant nor had it resorted to all legal remedies against

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the said defendant-appellant as provided in Article 2058 of the Civil Code. The obligation of a guarantor is merely accessory under Article 2052 of the Civil Code and subsidiary under Article 2054 of the Civil Code. Therefore, the liability of the defendant-appellee arises only when the principal debtor fails to comply with his obligation. 27

Our own reading of the questioned solidary guaranty clause yields no other conclusion than that the obligation of Chi is only that of a guarantor. This is further bolstered by the last sentence which speaks of waiver of exhaustion, which, nevertheless, is ineffective in this case because the space therein for the party whose property may not be exhausted was not filled up. Under Article 2058 of the Civil Code, the defense of exhaustion (excussion) may be raised by a guarantor before he may be held liable for the obligation. Petitioner likewise admits that the questioned provision is a solidary guaranty clause, thereby clearly distinguishing it from a contract of surety. It, however, described the guaranty as solidary between the guarantors; this would have been correct if two (2) guarantors had signed it. The clause "we jointly and severally agree and undertake" refers to the undertaking of the two (2) parties who are to sign it or to the liability existing between themselves. It does not refer to the undertaking between either one or both of them on the one hand and the petitioner on the other with respect to the liability described under the trust receipt. Elsewise stated, their liability is not divisible as between them, i.e., it can be enforced to its full extent against any one of them.

Furthermore, any doubt as to the import, or true intent of the solidary guaranty clause should be resolved against the petitioner. The trust receipt, together with the questioned solidary guaranty clause, is on a form drafted and prepared solely by the petitioner; Chi's participation therein is limited to the affixing of his signature thereon. It is, therefore, a contract of adhesion; 28 as such, it must be strictly construed against the party responsible for its preparation. 29

Neither can We agree with the reasoning of the public respondent that this solidary guaranty clause was effectively disregarded simply because it was not signed and witnessed by two (2) persons and acknowledged before a notary public. While indeed, the clause ought to have been signed by two (2) guarantors, the fact that it was only Chi who signed the same did not make his act an idle ceremony or render the clause totally meaningless. By his signing, Chi became the sole guarantor. The attestation by witnesses and the acknowledgement before a notary public are not required by law to make a party liable on the instrument. The rule is that contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present; however, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that it be proved in a certain way, that requirement is absolute and indispensable. 30 With respect to a guaranty, 31 which is a promise to answer for the debt or default of another, the law merely requires that it, or some note or memorandum thereof, be in writing. Otherwise, it would be unenforceable unless ratified. 32 While the acknowledgement of a surety before a notary public is required to make the same a public document, under Article 1358 of the Civil Code, a contract of guaranty does not have to appear in a public document.

And now to the other ground relied upon by the petitioner as basis for the solidary liability of Chi, namely the criminal proceedings against the latter for the violation of P.D. No. 115. Petitioner claims that because of the said criminal proceedings, Chi would be answerable for the civil liability arising therefrom pursuant to Section 13 of P.D. No. 115. Public respondent rejected this claim because such civil liability presupposes prior conviction as can be gleaned from the phrase "without prejudice to the civil liability arising from the criminal offense." Both are wrong. The said section reads:

Sec. 13. Penalty Clause. — The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in

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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 untilafter 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 co-defendant 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:

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Sec. 6. Permissive joinder of parties. — All persons in whom or against whom any right to relief in respect to or arising out of the same transaction or series of transactions is alleged to exist, whether jointly, severally, or in the alternative, may, except as otherwise provided in these rules, join as plaintiffs or be joined as defendants in one complaint, where any question of law or fact common to all such plaintiffs or to all such defendants may arise in the action; but the court may make such orders as may be just to prevent any plaintiff or defendant from being embarrassed or put to expense in connection with any proceedings in which he may have no interest.

This is the equity rule relating to multifariousness. It is based on trial convenience and is designed to permit the joinder of plaintiffs or defendants whenever there is a common question of law or fact. It will save the parties unnecessary work, trouble and expense. 35

However, Chi's liability is limited to the principal obligation in the trust receipt plus all the accessories thereof including judicial costs; with respect to the latter, he shall only be liable for those costs incurred after being judicially required to pay. 36 Interest and damages, being accessories of the principal obligation, should also be paid; these, however, shall run only from the date of the filing of the complaint. Attorney's fees may even be allowed in appropriate cases. 37

In the instant case, the attorney's fees to be paid by Chi cannot be the same as that to be paid by Philippine Rayon since it is only the trust receipt that is covered by the guaranty and not the full extent of the latter's liability. All things considered, he can be held liable for the sum of P10,000.00 as attorney's fees in favor of the petitioner.

Thus, the trial court committed grave abuse of discretion in dismissing the complaint as against private respondent Chi and condemning petitioner to pay him P20,000.00 as attorney's fees.

In the light of the foregoing, it would no longer necessary to discuss the other issues raised by the petitioner

WHEREFORE, the instant Petition is hereby GRANTED.

The appealed Decision of 10 March 1986 of the public respondent in AC-G.R. CV No. 66733 and, necessarily, that of Branch 9 (Quezon City) of the then Court of First Instance of Rizal in Civil Case No. Q-19312 are hereby REVERSED and SET ASIDE and another is hereby entered:

1. Declaring private respondent Philippine Rayon Mills, Inc. liable on the twelve drafts in question (Exhibits "X", "X-1" to "X-11", inclusive) and on the trust receipt (Exhibit "C"), and ordering it to pay petitioner: (a) the amounts due thereon in the total sum of P956,384.95 as of 15 September 1974, with interest thereon at six percent (6%) per annum from 16 September 1974 until it is fully paid, less whatever may have been applied thereto by virtue of foreclosure of mortgages, if any; (b) a sum equal to ten percent (10%) of the aforesaid amount as attorney's fees; and (c) the costs.

2. Declaring private respondent Anacleto R. Chi secondarily liable on the trust receipt and ordering him to pay the face value thereof, with interest at the legal rate, commencing from the date of the filing of the complaint in Civil Case No. Q-19312 until the same is fully paid as

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well as the costs and attorney's fees in the sum of P10,000.00 if the writ of execution for the enforcement of the above awards against Philippine Rayon Mills, Inc. is returned unsatisfied.

Costs against private respondents.

SO ORDERED.

DIGESTED:

Prudential Bank v Intermediate Appellate Court and Anacleto Chi G.R. No. 74886 December 8, 1992

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.Facts: Philippine Rayon Mills, Inc.(PRMI) entered into a contract with Nissho Co., Ltd. of Japan for the importation of textile machineries under a 5-year deferred payment plan. To effect the payment, PRMI applied for a commercial letter of credit with the Prudential Bank and Trust Company in favor of Nissho. Prudential Bank opened Letter of Credit No. DPP-63762 for $128,548.78 Against this letter of credit, drafts were drawn and issued by Nissho, which were all paid by the Prudential Bank through its correspondent in Japan, the Bank of Tokyo, Ltd. Two of the original drafts were accepted by PRMI through its president, Anacleto R. Chi, while the others were not. Upon the arrival of the machineries, the Prudential Bank indorsed the shipping documents to the PRMI which accepted delivery of the same. To enable PRMI 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 of PRMI company

At the back of the trust receipt was printed a form to be accomplished by 2 sureties who, by the very terms and conditions thereof, were to be jointly and severally liable to the Prudential Bank should the PRMI fail to pay the total amount or any portion of the drafts issued by Nissho and paid for by Prudential Bank. . PRMI was able to take delivery of the textile machineries and installed the same at its factory site. Chi argued that presentment for acceptance was

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necessary to make PRMI liable. The trial court ruled that that presentment for acceptance was an indispensable requisite for Philippine Rayon’s liability on the drafts to attach.

Issue : Whether or not presentment for acceptance was needed in order for PRMI to be liable under the draft.

HELD : Presentment for acceptance is defined an the production of a bill of exchange to a drawee for acceptance. Acceptance, however, was not even necessary in the first place because the drafts which were eventually issued were sight drafts. Even if these were not sight drafts, thereby necessitating acceptance, it would be the Bank (Bank of America) — and not Philippine Rayon — which had to accept the same for the latter was not the drawee.

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 upon Bank of America’s payment on the letter of credit. 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.

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).

In the instant case then, the drawee was necessarily the herein the Bank of America. It was to the latter that the drafts were presented for payment.

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FULL TEXT:

G.R. No. 110844             April 27, 2000

ALFREDO CHING, petitioner, vs.HON. COURT OF APPEALS, HON. ZOSIMO Z. ANGELES, RTC- BR. 58, MAKATI, METRO MANILA, PEOPLE OF THE PHILIPPINES AND ALLIED BANKING CORPORATION, respondents.

BUENA, J.:

Confronting the Court in this instant petition for review on certiorari under Rule 45 is the task of resolving the issue of whether the pendency of a civil action for damages and declaration of nullity of documents, specifically trust receipts, warrants the suspension of criminal proceedings instituted for

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violation of Article 315 1(b) of the Revised Penal Code, in relation to P.D. 115, otherwise known as the "Trust Receipts Law".

Petitioner Alfredo Ching challenges before us the decision1 of the Court of Appeals promulgated on 27 January 1993 in CA G.R. SP No. 28912, dismissing his "Petition for Certiorari and Prohibition with Prayer for Issuance of Temporary Restraining Order/ Preliminary Injunction", on the ground of lack of merit.

Assailed similarly is the resolution2 of the Court of Appeals dated 28 June 1993 denying petitioner's motion for reconsideration.

As borne by the records, the controversy arose from the following facts:

On 04 February 1992,3 petitioner was charged before the Regional Trial Court of Makati (RTC-Makati), Branch 58, with four counts of estafa punishable under Article 315 par. 1(b) of the Revised Penal Code, in relation to Presidential Decree 115, otherwise known as the "Trust Receipts Law".

The four separate informations4 which were couched in similar language except for the date, subject goods and amount thereof, charged herein petitioner in this wise:

That on or about the (18th day of May 1981; 3rd day of June 1981; 24th day of June 1981 and 24th day of June 1981), in the Municipality of Makati, Metro Manila, Philippines and within the jurisdiction of this Honorable Court, the above-named accused having executed a trust receipt agreement in favor of Allied Banking Corporation in consideration of the receipt by the said accused of goods described as "12 Containers (200 M/T) Magtar Brand Dolomites"; "18 Containers (Zoom M/T) Magtar Brand Dolomites"; "High Fired Refractory Sliding Nozzle Bricks"; and "High Fired Refractory Sliding Nozzle Bricks" for which there is now due the sum of (P278, 917.80; P419,719.20; P387, 551. 95; and P389,085.14 respectively) under the terms of which the accused agreed to sell the same for cash with the express obligation to remit to the complainant bank the proceeds of the sale and/or to turn over the goods, if not sold, on demand, but the accused, once in possession of said goods, far from complying with his obligation and with grave abuse of confidence, did then and there, willfully, unlawfully and feloniously misappropriate, misapply and convert to his own personal use and benefit the said goods and/or the proceeds of the sale thereof, and despite repeated demands, failed and refused and still fails and refuses, to account for and/or remit the proceeds of sale thereof to the Allied Banking Corporation to the damage and prejudice of the said complainant bank in the aforementioned amount of (P278,917.80; P419,719.20; P387,551.95; and P389,085.14).

On 10 February 1992, an "Omnibus Motion 5 to Strike Out Information, or in the Alternative to Require Public Prosecutor to Conduct Preliminary Investigation, and to Suspend in the Meantime Further Proceedings in these Cases," was filed by the petitioner.

In an order dated 13 February 1992, the Regional Trial Court of Makati, Branch 58, acting on the omnibus motion, required the prosecutor's office to conduct a preliminary investigation and suspended further proceedings in the criminal cases.

On 05 March 1992, petitioner Ching, together with Philippine Blooming Mills Co. Inc., filed a case6 before the Regional Trial Court of Manila (RTC-Manila), Branch 53, for declaration of nullity of documents and for damages docketed as Civil Case No. 92-60600, entitled "Philippine Blooming Mills, Inc. et. al. vs. Allied Banking Corporation.

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On 07 August 1992, Ching filed a petition7 before the RTC-Makati, Branch 58, for the suspension of the criminal proceedings on the ground of prejudicial question in a civil action.

The prosecution then filed an opposition to the petition for suspension, against which opposition, herein petitioner filed a reply.8

On 26 August 1992, the RTC-Makati issued an order9 which denied the petition for suspension and scheduled the arraignment and pre-trial of the criminal cases. As a result, petitioner moved to reconsider10 the order to which the prosecution filed an opposition.

In an order11 dated 04 September 1992, the RTC-Makati, before which the criminal cases are pending, denied petitioner's motion for reconsideration and set the criminal cases for arraignment and pre-trial.

Aggrieved by these orders12 of the lower court in the criminal cases, petitioner brought before the Court of Appeals a petition for certiorari and prohibition which sought to declare the nullity of the aforementioned orders and to prohibit the RTC-Makati from conducting further proceedings in the criminal cases.

In denying the petition,13 the Court of Appeals, in CA G.R. SP No. 28912, ruled:

. . . Civil Case No. 90-60600 pending before the Manila Regional Trial Court seeking (sic) the declaration of nullity of the trust receipts in question is not a prejudicial question to Criminal Case Nos. 92-0934 to 37 pending before the respondent court charging the petitioner with four counts of violation of Article 315, par. 1(b), RPC, in relation to PD 115 as to warrant the suspension of the proceedings in the latter . . . .

Consequently, petitioner filed a motion for reconsideration of the decision which the appellate court denied for lack of merit, via a resolution 14 dated 28 June 1993.

Notwithstanding the decision rendered by the Court of Appeals, the RTC-Manila, Branch 53 in an order dated 19 November 1993 in Civil Case No. 92-60600, admitted petitioner's amended complaint15 which, inter alia, prayed the court for a judgment:

x x x           x x x          x x x

1. Declaring the 'Trust Receipts," annexes D, F, H and J hereof, null and void, or otherwise annulling the same, for failure to express the true intent and agreement of the parties;

2. Declaring the transaction subject hereof as one of pure and simple loan without any trust receipt agreement and/or not one involving a trust receipt, and accordingly declaring all the documents annexed hereto as mere loan documents . . . (emphasis ours).

In its amended answer,16 herein private respondent Allied Banking Corporation submitted in riposte that the transaction applied for was a "letter of credit/trust receipt accommodation" and not a "pure and simple loan with the trust receipts as mere additional or side documents", as asserted by herein petitioner in its amended complaint.17

Through the expediency of Rule 45, petitioner seeks the intervention of this Court and prays:

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After due consideration, to render judgment reversing the decision and resolution, Annexes A and B hereof, respectively, and ordering the suspension of Criminal Cases (sic) Nos. 92-0934 to 92-0937, inclusive, entitled "People of the Philippines vs. Alfredo Ching" pending before Branch 58 of the Regional Trial Court of Makati, Metro Manila, until final determination of Civil Case No. 92-600 entitled Philippine Blooming Mills Co. Inc. and Alfredo Ching vs. Allied Banking Corporation" pending before Branch 53 of the Regional Trial Court of Manila.

The instant petition is bereft of merit.

We agree with the findings of the trial court, as affirmed by the Court of Appeals, that no prejudicial question exists in the present case.

As defined, a prejudicial question is one that arises in a case the resolution of which is a logical antecedent of the issue involved therein, and the cognizance of which pertains to another tribunal. The prejudicial question must be determinative of the case before the court but the jurisdiction to try and resolve the question must be lodged in another court or tribunal.18

It is a question based on a fact distinct and separate from the crime but so intimately connected with it that it determines the guilt or innocence of the accused, and for it to suspend the criminal action, it must appear not only that said case involves facts intimately related to those upon which the criminal prosecution would be based but also that in the resolution of the issue or issues raised in the civil case, the guilt or innocence of the accused would necessarily be determined.19 It comes into play generally in a situation where a civil action and a criminal action are both pending and there exists in the former an issue which must be preemptively resolved before the criminal action may proceed, because howsoever the issue raised in the civil action is resolved would be determinative juris et de jure of the guilt or innocence of the accused in the criminal case.20

More simply, for the court to appreciate the pendency of a prejudicial question, the law,21 in no uncertain terms, requires the concurrence of two essential requisites, to wit:

a) The civil action involves an issue similar or intimately related to the issue raised in the criminal action; and

b) The resolution of such issue determines whether or not the criminal action may proceed.

Verily, under the prevailing circumstances, the alleged prejudicial question in the civil case for declaration of nullity of documents and for damages, does not juris et de jure determine the guilt or innocence of the accused in the criminal action for estafa. Assuming arguendo that the court hearing the civil aspect of the case adjudicates that the transaction entered into between the parties was not a trust receipt agreement, nonetheless the guilt of the accused could still be established and his culpability under penal laws determined by other evidence. To put it differently, even on the assumption that the documents are declared of null, it does not ipso facto follow that such declaration of nullity shall exonerate the accused from criminal prosecution and liability.

Accordingly, the prosecution may adduce evidence to prove the criminal liability of the accused for estafa, specifically under Article 315 1(b) of the Revised Penal Code which explicitly provides that said crime is committed:

. . . (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 any other obligation involving the duty to make delivery of or to return the

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same, even though such obligation be totally or partially guaranteed by a bond; or by denying having received such money, goods, or other property.

Applying the foregoing principles, the criminal liability of the accused for violation of Article 315 1(b) of the Revised Penal Code, may still be shown through the presentation of evidence to the effect that: (a) the accused received the subject goods in trust or under the obligation to sell the same and to remit the proceeds thereof to Allied Banking Corporation, or to return the goods, if not sold; (b) that accused Ching misappropriated or converted the goods and/or the proceeds of the sale; (c) that accused Ching performed such acts with abuse of confidence to the damage and prejudice of Allied Banking Corporation; and (d) that demand was made by the bank to herein petitioner.

Presidential Decree 115, otherwise known as the "Trust Receipts Law", specifically Section 13 thereof, provides:

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 fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code.

We must stress though, that an act violative of a trust receipt agreement is only one mode of committing estafa under the abovementioned provision of the Revised Penal Code. Stated differently, a violation of a trust receipt arrangement is not the sole basis for incurring liability under Article 315 1 (b) of the Code.

In Jimenez vs. Averia,22 where the accused was likewise charged with estafa, this Court had occasion to rule that a civil case contesting the validity of a certain receipt is not a prejudicial question that would warrant the suspension of criminal proceedings for estafa. 1âwphi1.nêt

In the abovementioned case, a criminal charge for estafa was filed in the Court of First Instance of Cavite against the two accused. The information alleged that the accused, having received the amount of P20,000.00 from Manuel Jimenez for the purchase of a fishing boat, with the obligation on the part of the former to return the money in case the boat was not purchased, misappropriated the said amount to the damage and prejudice of Jimenez.23

Before arraignment, the accused filed a civil case contesting the validity of a certain receipt signed by them. In the receipt, the accused acknowledged having received the aforesaid sum, in addition to the amount of P240.00 as agent's commission. The complaint, however, alleged that the accused never received any amount from Jimenez and that the signatures on the questioned receipt were secured by means of fraud, deceit and intimidation.

In ruling out the existence of prejudicial question, we declared:

. . . It will be readily seen that the alleged prejudicial question is not determinative of the guilt or innocence of the parties charged with estafa, because even on the assumption that the execution of the receipt whose annulment they sought in the civil case was vitiated by fraud, duress or intimidation, their guilt could still be established by other evidence showing, to the degree required by law, that they had actually received from the complainant the sum of P20,000,00 with which to buy for him a fishing boat, and that, instead of doing so, they

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misappropriated the money and refused or otherwise failed to return it to him upon demand. . . .

Furthermore, petitioner submits that the truth or falsity of the parties' respective claims as regards the true nature of the transactions and of the documents, shall have to be first determined by the Regional Trial Court of Manila, which is the court hearing the civil case.

While this may be true, it is no less true that the Supreme Court may, on certain exceptional instances, resolve the merits of a case on the basis of the records and other evidence before it, most especially when the resolution of these issues would best serve the ends of justice and promote the speedy disposition of cases.

Thus, considering the peculiar circumstances attendant in the instant case, this Court sees the cogency to exercise its plenary power:

It is a rule of procedure for the Supreme Court to strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of future litigation. No useful purpose will be served if a case or the determination of an issue in a case is remanded to the trial court only to have its decision raised again to the Court of Appeals and from there to the Supreme Court (citing Board of Commissioners vs. Judge Joselito de la Rosa and Judge Capulong, G.R. Nos. 95122-23).

We have laid down the rule that the remand of the case or of an issue to the lower court for further reception of evidence is not necessary where the Court is in position to resolve the dispute based on the records before it and particularly where the ends of justice would not be subserved by the remand thereof (Escudero vs. Dulay, 158 SCRA 69). Moreover, the Supreme Court is clothed with ample authority to review matters, even those not raised on appeal if it finds that their consideration is necessary in arriving at a just disposition of the case. 24

On many occasions, the Court, in the public interest and for the expeditious administration of justice, has resolved actions on the merits instead of remanding them to the trial court for further proceedings, such as where the ends of justice would not be subserved by the remand of the case.25

Inexorably, the records would show that petitioner signed and executed an application and agreement for a commercial letter of credit to finance the purchase of imported goods. Likewise, it is undisputed that petitioner signed and executed trust receipt documents in favor of private respondent Allied Banking Corporation.

In its amended complaint, however, which notably was filed only after the Court of Appeals rendered its assailed decision, petitioner urges that the transaction entered into between the parties was one of "pure loan without any trust receipt agreement". According to petitioner, the trust receipt documents were intended merely as "additional or side documents covering the said loan" contrary to petitioner's allegation in his original complaint that the trust receipts were executed as collateral or security.

We do not agree. As Mr. Justice Story succinctly puts it: "Naked statements must be entitled to little weight when the parties hold better evidence behind the scenes. 26

Hence, with affirmance, we quote the findings of the Court of Appeals:

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The concept in which petitioner signed the trust receipts, that is whether he signed the trust receipts as such trust receipts or as a mere evidence of a pure and simple loan transaction is not decisive because precisely, a trust receipt is a security agreement of an indebtedness.

Contrary to petitioner's assertions and in view of jurisprudence established in this jurisdiction, a trust receipt is not merely an additional or side document to a principal contract, which in the instant case is alleged by petitioner to be a pure and simple loan.

As elucidated in Samo vs. People,27 a trust receipt is considered 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.

Further, a trust receipt is a document in which is expressed a security transaction whereunder the lender, having no prior title in the goods on which the lien is to be given and not having possession which remains in the borrower, lends his money to the borrower on security of the goods which the borrower is privileged to sell clear of the lien with an agreement to pay all or part of the proceeds of the sale to the lender.28 It 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.29

Clearly, a trust receipt partakes the nature of a security transaction. It could never be a mere additional or side document as alleged by petitioner. Otherwise, a party to a trust receipt agreement could easily renege on its obligations thereunder, thus undermining the importance and defeating with impunity the purpose of such an indispensable tool in commercial transactions.

Of equal importance is the fact that in his complaint in Civil Case No. 92-60600, dated 05 March 1992, petitioner alleged that the trust receipts were executed and intended as collateral or security. Pursuant to the rules, such particular allegation in the complaint is tantamount to a judicial admission on the part of petitioner Ching to which he must be bound.

Thus, the Court of Appeals in its resolution dated 28 June 1993, correctly observed:

It was petitioner himself who acknowledged the trust receipts as mere collateral and security for the payment of the loan but kept on insisting that the real and true transaction was one of pure loan. . . .

In his present motion, the petitioner alleges that the trust receipts are evidence of a pure loan or that the same were additional or side documents that actually stood as promissory notes and not a collateral or security agreement. He cannot assume a position inconsistent with his previous allegations in his civil complaint that the trust receipts were intended as mere collateral or security . . . .

Perhaps, realizing such flaw, petitioner, in a complete turn around, filed a motion to admit amended complaint before the RTC-Manila. Among others, the amended complaint alleged that the trust receipts stood as additional or side documents, the real transaction between the parties being that of a pure loan without any trust receipt agreement.

In an order dated 19 November 1993, the RTC-Manila, Branch 53, admitted the amended complaint. Accordingly, with the lower court's admission of the amended complaint, the judicial admission made in the original complaint was, in effect, superseded.

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Under the Rules, pleadings superseded or amended disappear from the record, lose their status as pleadings and cease to be judicial admissions. While they may nonetheless be utilized against the pleader as extrajudicial admissions, they must, in order to have such effect, be formally offered in evidence. If not offered in evidence, the admission contained therein will not be considered.30

Consequently, the original complaint, having been amended, lost its character as a judicial admission, which would have required no proof, and became merely an extrajudicial admission, the admissibility of which, as evidence, required its formal offer.31

In virtue thereof, the amended complaint takes the place of the original. The latter is regarded as abandoned and ceases to perform any further function as a pleading. The original complaint no longer forms part of the record.32

Thus, in the instant case, the original complaint is deemed superseded by the amended complaint. Corollarily, the judicial admissions in the original complaint are considered abandoned. Nonetheless, we must stress that the actuations of petitioner, as sanctioned by the RTC-Manila, Branch 53 through its order admitting the amended complaint, demands stern rebuke from this Court.

Certainly, this Court is not unwary of the tactics employed by the petitioner specifically in filing the amended complaint only after the promulgation of the assailed decision of the Court of Appeals. It bears noting that a lapse of almost eighteen months (from March 1992 to September 1993), from the filing of the original complaint to the filing of the amended complaint, is too lengthy a time sufficient to enkindle suspicion and enflame doubts as to the true intentions of petitioner regarding the early disposition of the pending cases.

Although the granting of leave to file amended pleadings is a matter peculiarly within the sound discretion of the trial court and such discretion would not normally be disturbed on appeal, it is also well to mention that this rule is relaxed when evident abuse thereof is apparent. 33

Hence, in certain instances we ruled that amendments are not proper and should be denied when delay would arise,34 or when the amendments would result in a change of cause of action or defense or change the theory of the case, 35 or would be inconsistent with the allegations in the original complaint.36

Applying the foregoing rules, petitioner, by filing the amended complaint, in effect, altered the theory of his case. Likewise, the allegations embodied in the amended complaint are inconsistent with that of the original complaint inasmuch as in the latter, petitioner alleged that the trust receipts were intended as mere collateral or security, the principal transaction being one of pure loan.

Yet, in the amended complaint, petitioner argued that the said trust receipts were executed as additional or side documents, the transaction being strictly one of pure loan without any trust receipt arrangement. Obviously these allegations are in discord in relation to each other and therefore cannot stand in harmony.

These circumstances, taken as a whole, lead this Court to doubt the genuine purpose of petitioner in filing the amended complaint.1âwphi1 Again, we view petitioner's actuations with abhorrence and displeasure.

Moreover, petitioner contends that the transaction between Philippine Blooming Mills (PBM) and private respondent Allied Banking Corporation does not fall under the category of a trust receipt

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arrangement claiming that the goods were not to be sold but were to be used, consumed and destroyed by the importer PBM.

To our mind, petitioner's contention is a stealthy attempt to circumvent the principle enunciated in the case of Alied Banking Corporation vs. Ordonez, 37 thus:

. . . In an attempt to escape criminal liability, private respondent claims P.D. 115 covers goods which are ultimately destined for sale and not goods for use in manufacture. But the wording of Section 13 covers failure to turn over the proceeds of the sale of the entrusted goods, or to return said goods if unsold or disposed of in accordance with the terms of the trust receipts. Private respondent claims that at the time of PBM's application for the issuance of the LC's, it was not represented to the petitioner that the items were intended for sale, hence, there was no deceit resulting in a violation of the trust receipts which would constitute a criminal liability. Again we cannot uphold this contention. The non-payment of the amount covered by a trust receipt is an act violative of the entrustee's obligation to pay. There is no reason why the law should not apply to all transactions covered by trust receipts, except those expressly excluded (68 Am.Jur. 125).

The Court takes judicial notice of customary banking and business practices where trust receipts are used for importation of heavy equipment, machineries and supplies used in manufacturing operations. We are perplexed by the statements in the assailed DOJ resolution that the goods subject of the instant case are outside the ambit of the provisions of PD 115 albeit covered by trust receipt agreements (17 February 1988 resolution) and that not all transactions covered by trust receipts may be considered as trust receipt transactions defined and penalized under P.D. 115 (11 January 1988 resolution). A construction should be avoided when it affords an opportunity to defeat compliance with the terms of a statute.

x x x           x x x          x x x

The penal provision of P.D. 115 encompasses any act violative of an obligation covered by the trust receipt; it 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.

An examination of P.D. 115 shows the growing importance of trust receipts in Philippine business, the need to provide for the rights and obligations of parties to a trust receipt transaction, the study of the problems involved and the action by monetary authorities, and the necessity of regulating the enforcement of rights arising from default or violations of trust receipt agreements. The legislative intent to meet a pressing need is clearly expressed. 38

In fine, we reiterate that the civil action for declaration of nullity of documents and for damages does not constitute a prejudicial question to the criminal cases for estafa filed against petitioner Ching.

WHEREFORE, premises considered, the assailed decision and resolution of the Court of Appeals are hereby AFFIRMED and the instant petition is DISMISSED for lack of merit. Accordingly, the Regional Trial Court of Makati, Branch 58, is hereby directed to proceed with the hearing and trial on the merits of Criminal Case Nos. 92-0934 to 92-0937, inclusive, and to expedite proceedings therein, without prejudice to the right of the accused to due process. 1âwphi1.nêt

SO ORDERED.

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FIRST DIVISION

[G.R. No. 116863.  February 12, 1998]

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KENG HUA PAPER PRODUCTS CO. INC., petitioner, vs. COURT OF APPEALS; REGIONAL TRIAL COURT OF MANILA, BR. 21; and SEA-LAND SERVICE, INC., respondents.

D E C I S I O NPANGANIBAN, J.:

What is the nature of a bill of lading?  When does a bill of lading  become binding on a consignee?  Will an alleged overshipment justify the consignee’s refusal to receive the goods described in the bill of lading? When may interest be computed on unpaid demurrage charges?

Statement of the Case

These are the main questions raised in this petition assailing the Decision [1] of the Court of Appeals[2] promulgated on May 20, 1994 in C.A.-G.R. CV No. 29953 affirming in toto the decision[3] dated September 28, 1990 in Civil Case No. 85-33269 of the Regional Trial Court of Manila, Branch 21.  The dispositive portion of the said RTC decision reads:

“WHEREFORE, the Court finds by preponderance of evidence that Plaintiff has proved its cause of action and right to relief.  Accordingly, judgment is hereby rendered in favor of the Plaintiff and against Defendant, ordering the Defendant to pay plaintiff:

1.             The sum of P67,340.00 as demurrage charges, with interest at the legal rate from the date of the extrajudicial demand until fully paid;

2.             A sum equivalent to ten (10%) percent of the total amount due as Attorney’s fees and litigation expenses.

Send copy to respective counsel of the parties.

SO ORDERED.”[4]

The Facts

The factual antecedents of this case as found by the Court of Appeals are as follows:

“Plaintiff (herein private respondent), a shipping company, is a foreign corporation licensed to do business in the Philippines.  On June 29,

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1982, plaintiff received at its Hong Kong terminal a sealed container, Container No. SEAU 67523, containing seventy-six bales of “unsorted waste paper” for shipment to defendant (herein petitioner), Keng Hua Paper Products, Co. in Manila.  A bill of lading (Exh. A) to cover the shipment was issued by the plaintiff.

On July 9, 1982, the shipment was discharged at the Manila International Container Port.  Notices of arrival were transmitted to the defendant but the latter failed to discharge the shipment from the container during the “free time” period or grace period.  The said shipment remained inside the plaintiff’s container from the moment the free time period expired on July 29, 1982 until the time when the shipment was unloaded from the container on November 22, 1983, or a total of four hundred eighty-one (481) days.  During the 481-day period, demurrage charges accrued.  Within the same period, letters demanding payment were sent by the plaintiff to the defendant who, however, refused to settle its obligation which eventually amounted to P67,340.00.  Numerous demands were made on the defendant but the obligation remained unpaid.  Plaintiff thereafter commenced this civil action for collection and damages.

In its answer, defendant, by way of special and affirmative defense, alleged that it purchased fifty (50) tons of waste paper from the shipper in Hong Kong,  Ho Kee Waste Paper, as manifested in Letter of Credit No. 824858 (Exh. 7. p. 110.  Original Record) issued by Equitable Banking Corporation, with partial shipment permitted; that under the  letter of credit, the remaining balance of the shipment was only ten (10) metric tons as shown in Invoice No. H-15/82 (Exh. 8, p. 111, Original Record); that the shipment plaintiff was asking defendant to accept was twenty (20) metric tons which is ten (10) metric tons more than the remaining balance; that if defendant were to accept the shipment, it would be violating Central Bank rules and regulations and custom and tariff laws; that plaintiff had no cause of action against the defendant because the latter did not hire the former to carry the merchandise; that the cause of action should be against the shipper which contracted the plaintiff’s services and not against defendant; and that the defendant duly notified the plaintiff about the wrong shipment through a letter dated January 24, 1983 (Exh. D for plaintiff, Exh. 4 for defendant, p. 5.  Folder of Exhibits).”As previously mentioned, the RTC found petitioner liable for demurrage, attorney’s

fees and expenses of litigation.  The petitioner appealed to the Court of Appeals, arguing that the lower court erred in   (1) awarding the sum of P67,340 in favor

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of  the  private respondent,  (2) rejecting petitioner’s contention that there was overshipment,  (3) ruling that petitioner’s recourse was against the shipper,  and  (4)  computing legal interest from date of extrajudicial demand. [5]

Respondent Court of Appeals denied the appeal and affirmed the lower court’s decision in toto.  In a subsequent resolution,[6] it also denied the petitioner’s motion for reconsideration.

Hence, this petition for review.[7]

The Issues

In its memorandum, petitioner submits the following issues:

“I.        Whether or not petitioner had accepted the bill of lading;

II.        Whether or not the award of the sum of P67,340.00 to private respondent was proper;

III.       Whether or not petitioner was correct in not accepting the overshipment;

IV.      Whether or not the award of legal interest from the date of private respondent’s extrajudicial demand was proper;”[8]

In the main,  the case revolves around the question of whether petitioner was bound by the bill of lading.  We shall, thus, discuss the above four issues as they intertwine with this main question.

The Court’s Ruling

The petition is partly meritorious.  We affirm petitioner’s liability for demurrage, but modify the interest rate thereon.

Main Issue:  Liability Under the Bill of Lading

A bill of lading serves two functions.  First, it is a receipt for the goods shipped.  Second, it is a contract by which three parties, namely, the shipper, the carrier, and the consignee undertake specific responsibilities and assume stipulated obligations.[9] A “bill of lading delivered and accepted constitutes the contract of carriage even though not signed,” [10] because the “(a)cceptance of a paper   containing   the   terms  of  a proposed contract generally constitutes an

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acceptance of the contract and of all of its terms and conditions of which the acceptor has actual or constructive notice.” [11] In a nutshell, the acceptance of a bill of lading by the shipper and the consignee, with full knowledge of its contents, gives rise to the presumption that the same was a perfected and binding contract. [12]

In the case at bar, both lower courts held that the bill of lading was a valid and perfected contract between the shipper (Ho Kee), the consignee (Petitioner Keng Hua), and the carrier (Private Respondent Sea-Land).  Section 17 of the bill of lading provided that the shipper and the consignee were liable for the payment of demurrage charges for the failure to discharge the containerized shipment beyond the grace period allowed by tariff rules.  Applying said stipulation, both lower courts found petitioner liable.  The aforementioned section of the bill of lading reads:

“17.  COOPERAGE FINES.  The shipper and consignee shall be liable for, indemnify the carrier and ship and hold them harmless against, and the carrier shall have a lien on the goods for, all expenses and charges for mending cooperage, baling, repairing or reconditioning the goods, or the van, trailers or containers, and all expenses incurred in protecting, caring for or otherwise made for the benefit of the goods, whether the goods be damaged or not, and for any payment, expense, penalty fine, dues, duty, tax or impost, loss, damage, detention,demurrage, or liability of whatsoever nature, sustained or incurred by or levied upon the carrier or the ship in connection with the goods or by reason of the goods being or having been on board, or because of shipper’s failure to procure consular or other proper permits, certificates or any papers that may be required at any port or place or shipper’s failure to supply information or otherwise to comply with all laws, regulations and requirements of law in connection with the goods of from any other act or omission of the shipper or consignee:” (Underscoring supplied.)Petitioner contends, however, that it should not be bound by the bill of lading

because it never gave its consent thereto.  Although petitioner admits “physical acceptance” of the bill of lading, it argues that its subsequent actions belie the finding that it accepted the terms and conditions printed therein. [13] Petitioner cites as support the “Notice of Refused or On Hand Freight” it received on November 2, 1982 from private respondent, which acknowledged that petitioner declined to accept the shipment.  Petitioner adds that it sent a copy of the said notice to the shipper on December 29, 1982.  Petitioner points to its January 24, 1983 letter to the private respondent, stressing “that its acceptance of the bill of lading would be tantamount to an act of smuggling as the amount it had imported (with full documentary support) was only (at that time) for 10,000 kilograms and not for 20,313 kilograms as stated in the bill of lading” and “could lay them vulnerable to legal sanctions for violation of customs and tariff as well as Central Bank laws.” [14] Petitioner further argues that the demurrage “was a consequence of the shipper’s mistake” of shipping more than what was bought.  The discrepancy in the amount of waste paper it actually purchased, as reflected in the

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invoice vis-à-vis the excess amount in the bill of lading, allegedly justifies its refusal to accept the shipment.[15]

Petitioner Bound by the Bill of Lading

We are not persuaded.  Petitioner admits that it “received the bill of lading immediately after the arrival of the shipment” [16] on July 8, 1982.[17] Having been afforded an opportunity to examine the said document, petitioner did not immediately object to or dissent from any term or stipulation therein.  It was only six months later, on January 24, 1983, that petitioner sent a letter to private respondent saying that it could not accept the shipment.  Petitioner’s inaction for such a long period conveys the clear inference that it accepted the terms and conditions of the bill of lading. Moreover, said letter spoke only of petitioner’s inability to use the delivery permit, i.e. to pick up the cargo, due to the shipper’s failure to comply with the terms and conditions of the letter of credit, for which reason the bill of lading and other shipping documents were returned by the “banks” to the shipper.[18] The letter merely proved petitioner’s refusal to pick up the cargo, not its rejection of the bill of lading.

Petitioner’s reliance on the Notice of Refused or On Hand Freight, as proof of its nonacceptance of the bill of lading, is of no consequence.  Said notice was not written by petitioner; it was sent by private respondent to petitioner in November 1982, or four months after petitioner received the bill of lading.    If   the   notice   has   any   legal   significance at   all,   it  is to highlight petitioner’s prolonged failure to object to the bill of lading.  Contrary to petitioner’s contention,  the notice and the letter support – not belie – the findings of the two lower courts that the bill of lading was impliedly accepted by petitioner.

As aptly stated by Respondent Court of Appeals:

“In the instant case, (herein petitioner) cannot and did not allege non-receipt of its copy of the bill of lading from the shipper.  Hence, the terms and conditions as well as the various entries contained therein were brought to its knowledge.  (Herein petitioner) accepted the bill of lading without interposing any objection as to its contents.  This raises the presumption that (herein petitioner) agreed to the entries and stipulations imposed therein.

Moreover, it is puzzling that (herein petitioner) allowed months to pass, six (6) months to be exact, before notifying (herein private respondent) of the ‘wrong shipment.’  It was only on January 24, 1983 that (herein petitioner) sent (herein private respondent) such a letter of notification (Exh D for plaintiff, Exh. 4 for defendant; p. 5, Folder of Exhibits).  Thus, for the duration of those six months (herein private respondent never knew the reason for (herein petitioner’s) refusal to discharge the shipment.

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After accepting the bill of lading, receiving notices of arrival of the shipment, failing to object thereto, (herein petitioner) cannot now deny that it is bound by the terms in the bill of lading.  If it did not intend to be bound, (herein petitioner) would not have waited for six months to lapse before finally bringing the matter to (herein private respondent’s attention.  The most logical reaction in such a case would be to immediately verify the matter with the other parties involved.  In this case, however, (herein petitioner) unreasonably detained (herein private respondent’s) vessel to the latter’s prejudice.”[19]

Petitioner’s attempt to evade its obligation to receive the shipment on the pretext that this may cause it to violate customs, tariff and central bank laws must likewise fail.  Mere apprehension of violating said laws, without a clear demonstration that taking delivery of the shipment has become legally impossible,[20] cannot defeat the petitioner’s contractual obligation and liability under the bill of lading.

In any event, the issue of whether petitioner accepted the bill of lading was raised for the first time only in petitioner’s memorandum before this Court.   Clearly, we cannot now entertain an issue raised for the very first time on appeal, in deference to the well-settled doctrine that “(a)n issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is barred by estoppel.  Questions raised on appeal must be within the issues framed by the parties and, consequently, issues not raised in the trial court cannot be raised for the first time on appeal.” [21]

In the case at bar, the prolonged failure of petitioner to receive and discharge the cargo from the private respondent’s vessel constitutes a violation of the terms of the bill of lading.  It should thus be liable for demurrage to the former.

In The Apollon,[22] Justice Story made the following relevant comment on the nature of demurrage:

“In truth, demurrage is merely an allowance or compensation for the delay or detention of a vessel.  It is often a matter of contract, but not necessarily so.  The very circumstance that in ordinary commercial voyages, a particular sum is deemed by the parties a fair compensation for delays, is the very reason why it is, and ought to be, adopted as a measure of compensation, in cases ex delicto.  What fairer rule can be adopted than that which founds itself upon mercantile usage as to indemnity, and fixes a recompense upon the deliberate consideration of all the circumstances attending the usual earnings and expenditures in common voyages?  It appears to us that an allowance, by way of demurrage, is the true measure of damages in all cases of mere detention, for that allowance has reference to the ship’s expenses, wear and tear, and common employment.”[23]

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Amount of Demurrage Charges

Petitioner argues that it is not obligated to pay any demurrage charges because, prior to the filing of the complaint, private respondent made no demand for the sum of P67,340.  Moreover, private respondent’s loss and prevention manager, Loi Gillera, demanded P50,260, but its counsel, Sofronio Larcia, subsequently asked for a different amount of P37,800.

Petitioner’s position is puerile.  The amount of demurrage charges in the sum of P67,340 is a factual conclusion of the trial court that was affirmed by the Court of Appeals and, thus, binding on this Court. [24] Besides such factual finding is supported by the extant evidence.[25] The apparent discrepancy was a result of the variance of the dates when the two demands were made. Necessarily, the longer the cargo remained unclaimed, the higher the demurrage.  Thus, while in his letter dated April 24, 1983,[26] private respondent’s counsel demanded payment of onlyP37,800, the additional demurrage incurred by petitioner due to its continued refusal to receive delivery of the cargo ballooned to P67,340 by November 22, 1983.  The testimony of Counsel Sofronio Larcia as regards said letter of April 24, 1983 elucidates, viz:

“Q    Now, after you sent this letter, do you know what happened?

A     Defendant continued to refuse to take delivery of the shipment and the shipment stayed at the port for a longer period.

Q     So, what happened to the shipment?

A     The shipment incurred additional demurrage charges which amounted to P67,340.00 as of November 22, 1983 or more than a year after - almost a year after the shipment arrived at the port.

Q     So, what did you do?

A     We requested our collection agency to pursue the collection of this amount.”[27]

Bill of Lading Separate fromOther Letter of Credit Arrangements

In a letter of credit, there are three distinct and independent contracts:  (1)  the contract of sale between the buyer and the seller,  (2)  the contract of the buyer with the issuing bank, and  (3) the letter of credit proper in which the bank promises to pay the seller pursuant to the terms and conditions stated therein.   “Few things are more clearly settled in law than that the three contracts which make up the letter of credit arrangement are to be maintained in a state of perpetual separation.” [28] A transaction involving the purchase of goods may also require, apart from a letter of credit, a contract of transportation specially when the seller and the buyer are not in the same locale or country, and the goods purchased have to be transported to the latter. 

Hence, the contract of carriage, as stipulated in the bill of lading in the present case, must be treated independently of the contract of sale between the seller and the buyer, and the contract for the issuance of a letter of credit between the buyer and the issuing bank.  Any discrepancy between the amount of the goods described in the commercial

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invoice in the contract of sale and the amount allowed in the letter of credit will not affect the validity and enforceability of the contract of carriage as embodied in the bill of lading.  As the bank cannot be expected to look beyond the documents presented to it by the seller pursuant to the letter of credit, [29] neither can the carrier be expected to go beyond the representations of the shipper in the bill of lading and to verify their accuracy vis-à-vis the commercial invoice and the letter of credit.  Thus, the discrepancy between the amount of goods indicated in the invoice and the amount   in   the   bill   of  lading cannot negate petitioner’s obligation to private respondent arising from the contract of transportation.  Furthermore, private respondent, as carrier, had no knowledge of the contents of the container.   The contract of carriage was under the arrangement known as “Shipper’s Load And Count,”  and the shipper was solely responsible for the loading of the container while the carrier was oblivious to the contents of the shipment.  Petitioner’s remedy in case of overshipment lies against the seller/shipper, not against the carrier.

Payment of Interest

Petitioner posits that it “first knew” of the demurrage claim of P67,340 only when it received, by summons, private respondent’s complaint.  Hence, interest may not be allowed to run from the date of private respondent’s extrajudicial demands on March 8, 1983 for P50,260 or on April 24, 1983 for P37,800, considering that, in both cases, “there was no demand for interest.”[30] We agree.

Jurisprudence teaches us:

“2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.  No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.  Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained).  The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3.  When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality

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until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.”[31]

The case before us involves an obligation not arising from a loan or forbearance of money; thus, pursuant to Article 2209 of the Civil Code, the applicable interest rate is six percent per annum.  Since the bill of lading did not specify the amount of demurrage, and the sum claimed by private respondent increased as the days went by, the total amount demanded cannot be deemed to have been established with reasonable certainty until the trial court rendered its judgment.  Indeed, “(u)nliquidated damages or claims, it is said, are those which are not or cannot be known until definitely ascertained, assessed and determined by the courts after presentation of proof.”[32] Consequently, the legal interest rate is six percent, to be computed from September 28, 1990, the date of the trial court’s decision.  And in accordance with Philippine Natonal Bank[33] and Eastern Shipping,[34] the rate of twelve percent per annum shall be charged on the total then outstanding, from the time the judgment becomes final and executory until its satisfaction.

Finally, the Court notes that the matter of attorney’s fees was taken up only in the dispositive portion of the trial court’s decision.  This falls short of the settled requirement that the text of the decision should state the reason for the award of attorney’s fees, for without such justification, its award would be a “conclusion without a premise, its basis being improperly left to speculation and conjecture.” [35]

WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that the legal interest of six percent per annum shall be computed from September 28, 1990 until its full payment before finality of judgment.  The rate of interest shall be adjusted to twelve percent per annum, computed from the time said judgment became final and executory until full satisfaction. The award of attorney’s fees is DELETED.

SO ORDERED. 

G.R. No. 187268               September 4, 2013

JOVITO C. PLAMERAS, Petitioner, vs.PEOPLE OF THE PHILIPPINES, Respondent.

D E C I S I O N

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PEREZ, J.:

This resolves the appeal interposed by petitioner Jovito C. Plameras (petitioner), who at the time relevant to the case at bench was discharging the duties of a Governor of the Province of Antique, from the Decision 1promulgated on 2 December 2008 by the Sandiganbayan in Criminal Case No. 26172 entitled People of the Philippines v. Jovita C. Plameras. The dispositive portion of the decision appealed from is hereunder quoted as follows:

WHEREFORE, finding accused Jovito C. Plameras, Jr. Guilty beyond reasonable doubt of the offense of violation of Section 3(e) of Republic Act No. 3019 (R.A. No. 3019), judgment is hereby rendered sentencing the said accused to an indeterminate prison term of SIX ( 6) years and ONE (1) month as minimum to TEN (10) years as maximum, and to suffer perpetual disqualification from public office.2

The Facts

This case stems from the implementation of a project known as the "Purchase of School Desks Program" piloted by the Department of Education, Culture and Sports (DECS) Central Office, through the Poverty Alleviation Fund (PAF) for the purpose of giving assistance to the most depressed provinces in the country. The Province of Antique was among the beneficiaries, with a budget allocation of P5,666,667.00.

It was on 12 March 1997, during his incumbency as Provincial Governor of the Province of Antique, that petitioner Plameras received two(2) checks from the DECS-PAF in the total amount of P5,666,667.00 drawn against the Land Bank of the Philippines (LBP), for the purchase of school desks and armchairs. The checks were deposited with the LBP, San Jose, Antique Branch, where the Province of Antique maintains an account. Later on, the Province of Antique, through the petitioner, issued a check drawn against its account at the LBP San Jose, Antique Branch in the same amount and deposited it to the LBP Pasig City Branch.

On 8 April 1997, petitioner signed a Purchaser-Seller Agreement for the Supply and Delivery of Monoblock Grader’s Desks3 with CKL Enterprises, as represented by Jesusa T. Dela Cruz (Dela Cruz), the same enterprise which the DECS Central Office had entered into, through a negotiated contract for the supply of desks, sometime in 1996.

Consequently, on 21 April 1997, petitioner applied with the LBP Head Office for the opening of an Irrevocable Domestic Letter of Credit4 in behalf of the Provincial School Board of Antique in the amount of P5,666,600.00 in favor of CKL Enterprises/Dela Cruz. Such application was approved by the LBP; thus, the issuance of Letter of Credit No.97073/D5 was issued on 22 April 1997 in favor of Dela Cruz.

In both the LBP application form and Letter of Credit, it was duly noted that "All documents dated prior to LC opening date acceptable. This L/C is transferable and withdrawable."

On 24 April 1997, the petitioner signed Sales Invoice No. 02206 and accepted LBP Draft No. DB97121.7 The sales invoice stated that the petitioner received and accepted 1,354 grader’s desks and 5,246 table armchairs in good order and condition for the total value of P5,666,600.00.

On even date, Dela Cruz of CKL Enterprises submitted the said sales invoice and draft to the LBP Head Office. Thereupon, the said bank fully negotiated the letter of credit for the full amount and remitted its proceeds to Land Bank Pasig City Branch for credit to the account of CKL

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Enterprises/Dela Cruz, charging the full payment to the Provincial School Board/Governor Jovito Plameras, Jr. Province of Antique.

On 2 March 1998,8 upon inquiry by the petitioner, the Office of the Provincial Committee On Award reported that CKL had delivered only 1,294 pieces of grader’s desks and 1,838 pieces of tablet armchairs as of 9July 1997.

In a letter dated 4 March 1998,9 the petitioner demanded from CKL Enterprises/Dela Cruz, the complete delivery of the purchased items. Unheeded, the petitioner, in a letter dated 5 March 1998,10 requested the LBP for the copies of pertinent documents pertaining to the Letter of Credit in favor of CKL Enterprises as well as debit memos or status of the fund deposited therein. In addition, the petitioner, in a separate letter dated 26 November 1998,11asked assistance from the LBP to compel CKL Enterprises to complete the delivery of the purchased items under the Letter of Credit and to settle the case amicably, claiming some deception or misrepresentation in the execution of the sales invoice.

For failure to settle the matter, a case was filed by the Province of Antique, represented by its new Governor, Exequiel B. Javier before the Regional Trial Court (RTC), Branch 12 of San Jose, Antique docketed as Civil Case No. 99-5-312112 to compel CKL Enterprises to refund the amount of P5,666,600.00 with interests at the legal rate.

While the civil case was pending in court, Governor Javier likewise instituted a criminal complaint before the Office of the Ombudsman against petitioner Plameras for Violation of Section 3(e) of R.A. No. 3019.

In its Resolution13 dated 18 May 2000, the Office of the Ombudsman for Visayas found probable cause to indict petitioner for the offense charged. It concluded, among others, that:

The purchase of 1,356 desks and 5,246 armchairs by the Province of Antique was made in apparent violation of existing rules and regulations as evident [sic] by the following facts:

1. Payment was made before the desks and chairs were delivered;

2. Procurement was made without the required authorization from the Provincial School Board;

3. Proper procedure was disregarded, there being no bidding process.

As a result thereof, delivery of desks and armchairs was delayed and the said desks and armchairs delivered are defective. Moreover, the remaining 3,468 desks and chairs amounting to P2,697,168.00 have not been delivered by the supplier despite demands. Unwarranted benefit was thus given to the supplier and undue injury was caused to the government.

Respondent’s evident bad faith and manifest partiality are indicated by the fact that the purchase and payment of the desks and chairs were made in clear violation of existing COA rules and regulations.

The pending civil case filed by the Province of Antique for the reimbursement of the amount of P5,666,600.00 is not determinative of the guilt or innocence of respondent in this case. The issues in the civil case are independent of the issue of whether or not there is a prima facie case against

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respondent for Violation of Sec. 3(e) of R.A. 3019, as amended. No prejudicial question therefore, need be resolved in this case.14

Consequently, an Information15 was filed before the Sandiganbayan, the accusatory portion of which reads:

That in or about the month of April 1997, at the Municipality of San Jose, Province of Antique, Philippines, and within the jurisdiction of this Honorable Court, above-named accused, a public officer, being then the Provincial Governor of the Province of Antique, in such capacity and committing the offense in relation to office, with deliberate intent, with manifest partiality and evident bad faith, did then and there willfully, unlawfully and feloniously disburse or cause the payment of the amount of FIVE MILLION SIX HUNDRED SIXTY-SIX THOUSAND SIXHUNDRED PESOS (P5,666,600.00), Philippine Currency, to Jesusa T.Dela Cruz/CKL Enterprises,) for the purchase of 1,356 desks and 5,246armchairs, without authorization from the Provincial School Board and without observance of the proper procedure, there being no bidding process, and before delivery of the said desks and chairs purchased by the Province of Antique, resulting in delayed delivery of desks and armchairs which are defective, and non-delivery of sixty (60) desks valued at SEVENTY THREE THOUSAND THREE HUNDRED SIXTY PESOS(P73,360.00), Philippine Currency, and three thousand four hundred eight(3,408) armchairs, valued at TWO MILLION SIX HUNDRED NINETY-SEVEN ONE HUNDRED SIXTY-EIGHT PESOS (P2,697,168.00),Philippine Currency, thus, accused in the course of the performance of his official functions had given unwarranted benefit to Jesusa T. Dela Cruz/CKL Enterprises, to the damage and injury of the Province of Antique, and detriment public interest.16

Prior to his arraignment, or on 16 August 2000, petitioner filed a Motion for Reinvestigation and/or Suspend Proceedings17 which was granted in the 23 August 2000 Resolution of the Sandiganbayan canceling the arraignment and further directing the Office of the Special Prosecutor (OSP)to reevaluate its findings and conclusions of the case. As a result, the OSP issued the 29 May 2001 Order,18 recommending the withdrawal of the Information due to the existence of undisputed facts that led to irrefutable conclusions negating criminal liability on the part of the petitioner.19 However, upon review, the Office of the Ombudsman in its 18 July 2001Memorandum,20 set aside and ignored said recommendation ratiocinating that the grounds, as set forth, are matters of evidence to be ventilated in court.

Thus, arraignment proceeded where the petitioner pleaded not guilty.21

Thereafter, trial on the merits ensued.

The prosecution presented seven (7) witnesses, namely: Exequiel V.Javier, Zyril D. Arroyo, Cesar Maranon, Pedro B. Juluat, Jr., Sherlita Mahandog, Atty. Eufracio R. Rara, Jr. and Elizabeth Arevalo, whose testimonies primarily supported the allegations in the complaint.

After the prosecution had rested its case, the petitioner filed a Motion for Leave of Court to File Demurrer to Evidence,22 which the Sandiganbayan granted in its Resolution dated 30 August 2006.23 However, in its Resolution dated 15 January 2007,24 the Sandiganbayan denied the Demurrer to Evidence25 filed by the petitioner. Likewise, the Motion for Reconsideration thereof was denied in the Sandiganbayan’s Resolution of 12 April 2007.26

The petitioner thereby proceeded with the presentation of his testimonial and documentary evidence. Petitioner offered his testimony27 and that of his two (2) witnesses, namely: Florante Moscoso (Moscoso), theformer Head Executive Assistant28 of petitioner, and Atty. Marciano G.Delson,29 Legal Counsel of former DECS Undersecretary Antonio B. Nachura (Nachura) and the late former DECS

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Secretary Ricardo T. Gloria(Gloria). Taken together, the testimonies of both the petitioner and Moscoso as summarized by the court a quo, hereto quoted in part, show that:

x x x. On March 12, 1997, he [Moscoso] was in the governor’s office when an unidentified Tagalog-speaking DECS lady representative and Jesusa dela Cruz of CKL Enterprises visited the accused in the latter’s office to personally hand, and in fact they handed, to the governor two checks worth P5,666,667.00, as the share of the province from the Poverty Alleviation Fund of DECS from the national government. The checks were intended for the Antique Provincial School Board for the procurement of chairs and desks to be used by the elementary and high school students of the different municipalities of Antique. In answer to the question of the governor, the DECS representative told the governor that there was no need for a public bidding inasmuch as a public bidding was already held in the Central Office of DECS, and it failed because there was only one bidder, CKL Enterprises, in view of which the DECS resorted to a negotiated contract with the lone bidder. When asked by the accused if there was still a need for public bidding inasmuch as the fund was from the national government, the provincial treasurer said the procurement entered into by the national government should be resorted to inasmuch as those were national funds and do not involve the local procedures. Thereupon, on the instruction of the accused, he called some of the members of the provincial school board at the office of the accused for consultation. The accused informed the members of the school board present about the funds received from DECS and that in as much as it was only a consultation dialogue that they were having, the procurement system by the national government would be followed like rest of the recipient provinces had done.

After almost a month later, or on April 8, 1997, the same DECS representative and Jesusa dela Cruz returned to the office of the accused bringing with them the Purchaser-Seller Agreement, which the accused, after reading, signed. After that, the accused gave him a copy of the agreement. In a matter of days thereafter, or on April 12, 1997, the two ladies came back handing two documents that is, the sales invoice and the bank draft, for the signature of the accused. Because of the voluminous routine work of the accused, and because the DECS representative and Jesusa dela Cruz told him that the sales invoice and the bank draft would satisfy the conditions of the Purchaser-Seller Agreement, the accused just immediately signed the sales invoice and the bank draft30 x x x.

In his own testimony, petitioner added that:

x x x. The DECS representative told him that such Purchaser-Seller Agreement was the standard format of the DECS that was followed by all the beneficiary provinces. The DECS representative informed him that sometime in November 1996, DECS conducted a public bidding for the purchase of desks and armchairs but it resulted to a failure and so DECS resorted to a negotiated contract and awarded the contract to CKL Enterprises. He forgot the name of the lady DECS representative. Although the DECS representative told him that the resolution of Provincial School Board may no longer be necessary, after he had signed the Purchaser-Seller Agreement, he still consulted the members of the Provincial School Board about the Purchaser-Seller Agreement and about the assistance from the Poverty Alleviation Fund of the DECS. He knew and was aware that an important condition of the Purchaser-Seller Agreement was that payment shall be effected upon submission of delivery receipts, inspection report, acceptance report, sales invoice and letter to the bank to effect payment equal to the equivalent amounts of the units delivered. After signing the agreement, he applied for a letter of credit with Land Bank, Pasig Branch, and he attached to the application a copy of the Purchaser-Seller Agreement to inform Land Bank of the conditions of payment, because it was Land Bank that would pay the supplier. He paid Land Bank for the letter of credit the amount of P5,666,600.00 through a check on April 16, 1997. The application was approved by the Land Bank the day after he filed it, which approval he came to know because Land Bank informed CKL about it through the Irrevocable Domestic Letter of Credit No. 97073/D. Land Bank also issued a draft. On April 24, 1997, Jesusa dela Cruz returned to the accused’s office and

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had him sign Sales Invoice No. 0220 as well as assured him that "the other required documents will follow", referring to the delivery receipt, acceptance report, sales invoice and letter of the bank which will prove performance of the seller under the contract and which performance will be the basis of payment by Land Bank. He signed the sales invoice and the bank draft upon this assurance of Jesusa dela Cruz thinking that the required documents will pass his office. On March 2,1998 Provincial General Services Officer Pedro Juluat, Jr. gave him a Summary Report on the desks and armchairs delivered to the province by CKL showing a shortage of delivery. Meanwhile, on the same day that he signed the sales invoice and the bank draft on April 24, 1997 CKL Enterprises/Jesusa T. dela Cruz negotiated the letter of credit and Land Bank fully paid CKL which he came to know after writing Land Bank on November 26, 1998, and which full negotiation and full payment Land Bank certified on December 4, 1998. Land Bank Pasig branch, through its manager Leila C. Martin, informed him through a letter, dated December 11, 1998, that the negotiation was based on the bank draft and the sales invoice. 1âwphi1 There was misrepresentation in securing his signature on the sales invoice because he was assured that the other (required) documents will follow, only to realize that the letter of credit was fully negotiated that same day. Gov. Exequiel Javier filed a case against him at the Office of the Ombudsman.31

For his part, Atty. Marciano G. Delson stated that:

He handled the administrative case of former DECS Undersecretary Nachura and the late former Secretary Gloria before the Office of the Ombudsman in connection with the purchase of armchairs and desks from CKL Enterprises through a negotiated contract. There was a failed bidding so the DECS proceeded with the execution of the negotiated contract. The Poverty Alleviation Program of the DECS was a project for the acquisition of school desks for the poorest provinces around the country. The mode of payment in that contract was a letter of credit opened by the DECS Central Office with the Land Bank, with the payment to CKL conditioned that delivery of the desks to the recepients.32

In rebuttal, the prosecution presented another witness named Lydia de Asis,33 Head of International Banking Department of the LBP who testified that when her department received the Letter of Credit Application Form from LBP Pasig Branch, only the application with the sales invoice and the duly accepted beneficiary’s draft were received without any copy of the Purchaser-Seller Agreement. Under the Letter of Credit, only those two documents were required, with the draft duly accepted by the petitioner.

After assessing the facts and evidence of the case, the Sandiganbayan issued its 2 December 2008 Decision, now being assailed in this petition.

In questioning the ruling contained in the assailed decision, the petitioner claims misappreciation of facts and evidence. Petitioner contends that he never profited from the transaction. The school desk procurement program was implemented by the then DECS, with the Province of Antique where petitioner was then Governor, as a mere beneficiary. Petitioner insists that he had no hand in choosing the procurement method and the means of effecting payment through Letter of Credit adopted by DECS as the implementing agency. Also, petitioner did not actually pay the supplier since by the terms of the Letter of Credit, it was the LBP that was tasked to release the payment only after compliance with some requirements, such as the delivery receipts, among others. According to him, there was patent collusion with the DECS and LBP personnel that enabled the supplier to immediately negotiate and encash the Letter of Credit without his knowledge and without the required documents for the release of payment. Yet, the DECS people are scot-free, the LBP personnel got off the hook, and the supplier was spared. The petitioner, on the other hand, was convicted.

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Hence, this petition at bench assigning as errors the following:

A.

THE HONORABLE SANDIGANBAYAN GRAVELY ERRED INTREATING THE PURCHASER-SELLER AGREEMENTENTERED INTO BY CKL WITH THE PROVINCE OF ANTIQUESEPARATE AND INDEPENDENT OF THE MOTHER CONTRACTENTERED INTO BY CKL WITH THE DEPARTMENT OFEDUCATION, CULTURE AND SPORTS. THESE TWO (2) AGREEMENTS WERE COMPONENTS OF ONLY ONE PROJECTWHICH WAS THE POVERTY ALLEVIATION FUND (PAF) PURCHASE OF SCHOOL DESKS PROGRAM OF THEDEPARTMENT OF EDUCATION CULTURE AND SPORTS TOASSIST THE MOST DEPRESSED PROVINCES IN THECOUNTRY.

B.

THE HONORABLE SANDIGANBAYAN ERRED IN FINDINGTHAT PETITIONER PLAMERAS VIOLATED THEPROCUREMENT RULES ON PUBLIC BIDDING. IT WAS THEDECS AS IMPLEMENTING AGENCY THAT WAS REQUIREDTO CONDUCT THE BIDDING, THE FAILURE OF WHICHRESULTED TO PROCUREMENT BY NEGOTIATEDCONTRACT. THE PROVINCE OF ANTIQUE WAS ONLY ABENEFICIARY.

C.

THE HONORABLE SANDIGANBAYAN ERRED IN FINDINGTHAT PETITIONER PLAMERAS VIOLATED SECTION 338 OFRA 6170, WHICH PROHIBITS ADVANCE PAYMENT. IN THEFIRST PLACE, PETITIONER DID NOT PAY CKL. THERE WASNO ADVANCE PAYMENT SINCE THE OPENING OF THELETTER OF CREDIT WITH THE LAND BANK OF THEPHILIPPINES IS NOT TANTAMOUNT TO AND CANNOT BEEQUATED TO PAYMENT IN FAVOR OF CKL IN VIEW OF THESTRICT INSTRUCTIONS PRESCRIBED FOR THE RELEASE BYTHE BANK OF PAYMENT. SINCE THE OFFICE OF THEOMBUDSMAN EXONERATED DECS OFFICIALS WHO USEDTHE SAME SCHEME IN THE INITIAL IMPLEMENTATION OFTHE PROGRAM, THERE IS NO REASON WHY THE SAMETREATMENT CANNOT BE ACCORDED TO PETITIONER.

D.

THE HONORABLE SANDIGANBAYAN ERRED IN FINDINGBEYOND REASONABLE DOUBT THAT PETITIONERPLAMERAS ACTED WITH EVIDENT BAD FAITH ANDMANIFEST PARTIALITY. PETITIONER WAS OBVIOUSLY THEVICTIM OF THE COLLUSION AMONG CKL, DECS, AND LANDBANK PERSONNEL.

E.

THE HONORABLE SANDIGANBAYAN ERRED IN FINDINGPETITIONER PLAMERAS GUILTY OF GIVINGUNWARRANTED BENEFITS, ADVANTAGE OR PREFERENCEIN THE DISCHARGE OF HIS FUNCTIONS TO CKL. IT WAS NOT PETITIONER BUT THE LAND BANK OF THEPHILIPPINES PERSONNEL WHO PAID THE MONEY TO CKLIN VIOLATION OF THE TERMS OF THE LETTER OF CREDIT.THE CONCLUSION OF THE HONORABLE SANDIGANBAYANTHAT PETITIONER DID NOT ATTACH A COPY OF THEPURCHASER-SELLER AGREEMENT TO HIS APPLICATIONFOR A LETTER OF CREDIT HAS NO BASIS. ON THECONTRARY, IT WAS STIPULATED BY THE PARTIES THATTHE DELIVERY RECEIPT,

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ACCEPTANCE AND INSPECTIONREPORTS AND A LETTER OF AUTHORITY AREREQUIREMENTS FOR THE RELEASE OF THE FUND.34

Our Ruling

The petition must fail.

Petitioner, in the main, insists that the questionable transaction that gave rise to the present controversy is related to the mother contract between the DECS and CKL Enterprises involving the purchase of desks and armchairs utilizing the PAF, which culminated in a case filed with the Office of the Ombudsman, entitled: "Fact Finding and Intelligence Bureau v. Ricardo T. Gloria, Antonio E.B. Nachura & Blanquita D. Bautista "docketed as OMB-0-97-0694.35 Such case pertains to the award of the contract for the purchase of desks and armchairs in favor of CKL Enterprises sometime in 1996 through negotiated contract in the total amount of P81,788,170.70. The manner in which payment thereof was effected, likewise followed the scheme of opening a Letter of Credit with the LBP. However, unlike the present case, the Office of the Ombudsman in its 14 April 1998 Resolution, exonerated the DECS officials declaring that: (1) fault cannot be ascribed on therein respondents in view of the failure of LBP to uphold the conditions set forth in the Letter of Credit; (2) the irregularity in the payment for the contract ascribes liability to the officials of the LBP and; (3) that, in view of the need to determine the identity of those LBP officials liable for the irregularity, the Ombudsman required the conduct of further investigation by its Fact Finding and Intelligence Bureau which at such time is yet to be complied with.

Being a mere component of the said contract, the Province of Antique as represented by the petitioner should only be considered as a mere beneficiary, thereby, exonerating him of any liability for merely following the scheme observed by the DECS in allowing a negotiated contract, instead of a public bidding. This is not to mention the recommendation of the OSP in withdrawing the Information for insufficiency of evidence.

In other words, the petitioner wants us to uphold the validity of the contract he had entered into and the procedure undertaken therefor, on the basis of the exoneration of the DECS Officials in OMB-ADM-0-97-0694.

At the outset, we must say that OMB-ADM-0-97-0694 pertains to a separate transaction, the validity of which has yet to be fully determined. It has no bearing in this case where it was proved, without any doubt, that the Province of Antique was prejudiced by the non-delivery of the most needed school desks and armchairs.

Notably, the stand of the OSP for the dismissal of this case was already overturned by the Office of the Ombudsman. The Sandiganbayan in its 16 December 2002 Resolution,36 followed suit denying the Motion for Judicial Determination of Probable Cause with Prayer to Throw Out Information, on the ground that all the elements of the offense charged are sufficiently alleged and that there exists probable cause. Eventually, the issues as presented were then fully litigated and the facts and evidence were exhaustively examined leading to petitioner’s conviction.

At any rate, whether the questioned transaction entered into by the petitioner with the CKL Enterprises/Dela Cruz was part of a mother contract referred to as DECS Project, such that, the payment made was not his fault, but rather an error of the LBP, are matters of fact and does not involve a question of law. As defined, a question of fact also known as a point of fact, is "a question which must be answered by reference to facts and evidence, and inferences arising from those facts. Such a question is distinct from a question of law, which must be answered by applying

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relevant legal principles. The answer to a question of fact is usually dependent on a particular circumstances or factual situations."37

We cannot, as a rule, re-evaluate the facts.

Section 1, Rule 45 of the Rules of Court states that petitions for review on certiorari "shall raise only questions of law which must be distinctly set forth." In Pagsibigan v. People,38 the Court held that:

A petition for review under Rule 45 of the Rules of Court should cover only questions of law. Questions of fact are not reviewable. A question of law exists when the doubt centers on what the law is on a certain set of facts. A question of fact exists when the doubt centers on the truth or falsity of the alleged facts.

In another case, the Court also held that:

There is a question of law if the issue raised is capable of being resolved without need of reviewing the probative value of the evidence. The issue to be resolved must be limited to determining what the law is on a certain set of facts. Once the issue invites a review of the evidence, the question posed is one of fact.39

Neither can we go into a re-evaluation as an exception to the rule.

The Court reiterates the well-settled rule that, absent any clear showing of abuse, arbitrariness or capriciousness committed by the lower court, its findings of facts, especially when affirmed by the Court of Appeals, are binding and conclusive upon this Court.40 As held in the case of

Navallo v. Sandiganbayan,41 the Court ruled that "xxx Findings of fact made by a trial court are accorded the highest degree of respect by an appellate tribunal and, absent a clear disregard of the evidence before it that can otherwise affect the results of the case, those findings should not be ignored xxx."(Italics supplied)

Indeed, even if the foregoing rules were, to be relaxed in the interest of substantial justice, this Court, nevertheless finds no reason to disagree with the comparative analysis of the Sandiganbayan between the 1996DECS contract and the contract subject matter of this case, which resulted in the conclusion that the two contracts are different, separate and distinct from one another. Otherwise, there would have been no need for a separate check issued to the petitioner and for the opening of a letter of credit in favor of CKL Enterprise, in the same way, that it becomes unnecessary to draft another Purchaser-Seller Agreement – the same being already covered by the prior contract where CKL Enterprises/Dela Cruz was fully paid in the amount of P81,788,170.70 under Check No. 247768 dated 24 December 1996.42

In all, the petitioner failed to demonstrate that the Sandiganbayan committed reversible errors in finding him guilty of the offense charged.

Section 3(e) of Republic Act 3019, provides:

Section 3. Corrupt practices of public officers. - In addition to acts or omissions of public officers already penalized by existing law, the following shall constitute corrupt practices of any public officer and are hereby declared to be unlawful:

x x x x

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(e) Causing any undue injury to any party, including the Government, or giving any private party any unwarranted benefits, advantage or preference in the discharge of his official administrative or judicial functions through manifest partiality, evident bad faith or gross in excusable negligence. This provision shall apply to officers and employees of offices or government corporations charged with the grant of licenses or permits or other concessions.

For the aforecited provision to lie against the petitioner, the following elements must concur:

1) The accused must be a public officer discharging administrative, judicial or official functions;

2) He must have acted with manifest partiality, evident bad faith or gross inexcusable negligence; and

3) That his action caused undue injury to any party, including the government, or giving any private party unwarranted benefits, advantage or preference in the discharge of his functions.43

We focus on the next elements, there being no dispute that the first element of the offense is present.

The second element provides the different modes by which the crime may be committed, that is, through "manifest partiality," "evident bad faith, "or "gross inexcusable negligence."44 In Uriarte v. People,45 this Court explained that Section 3(e) of RA 3019 may be committed either by dolo, as when the accused acted with evident bad faith or manifest partiality, or by culpa, as when the accused committed gross inexcusable negligence. There is "manifest partiality" when there is clear, notorious, or plain inclination or predilection to favor one side or person rather than another.46 "Evident bad faith" connotes not only bad judgment but also palpably and patently fraudulent and dishonest purpose to do moral obliquity or conscious wrongdoing for some perverse motive or ill will.47 "Evident bad faith "contemplates a state of mind affirmatively operating with furtive design or with some motive of self-interest or ill will or for ulterior purposes.48 "Gross in excusable negligence" refers to negligence characterized by the want of even the slightest care, acting or omitting to act in a situation where there is a duty to act, not inadvertently but willfully and intentionally, with conscious indifference to consequences insofar as other persons may be affected.49

As correctly observed by the Sandiganbayan, certain established rules, regulations and policies of the Commission on Audit and those mandated under the Local Government Code of 1991 (R.A. No. 7160) were knowingly sidestepped and ignored by the petitioner which enabled CKL Enterprises/Dela Cruz to successfully get full payment for the school desks and armchairs, despite non-delivery – an act or omission evidencing bad faith and manifest partiality.

It must be borne to mind that any procurement or "acquisition of supplies or property by local government units shall be through competitive public bidding"50 This was reiterated in the Local Government Code of 1991 on procurement of supplies which provides:

Sec. 356. General Rule in Procurement or Disposal. – Except as otherwise provided herein, acquisition of supplies by local government units shall be through competitive public bidding. x x x

The petitioner admitted in his testimony51 that he is aware of such requirement, however, he proceeded just the same due to the alleged advice of the unnamed DECS representative that there

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was already a negotiated contract – a representation or misrepresentation he willfully believed in, without any verification. As a Governor, he must know that negotiated contract can only be resorted to in case of failure of a public bidding. As it is, there is no public bidding to speak of that has been conducted. Intentionally or not, it is his duty to act in a circumspect manner to protect government funds. To do otherwise is gross inexcusable negligence, at the very least, especially so, that petitioner acted on his own initiative and without authorization from the Provincial School Board. This can be proved by his failure to present even a single witness from the members of the Board whom he consulted as he claimed.

The same thing can be said about the act of petitioner in signing the sales invoice and the bank draft knowing that such documents would cause the withdrawal by CKL Enterprises/Dela Cruz of the corresponding amount covered by the Irrevocable Domestic Letter of Credit. A Letter of Credit in itself, is not a prohibited form of payment. It is simply a promise to pay. Banks issue Letters of Credit as a way to ensure sellers that they will get paid as long as they do what they've agreed to do.52 The problem arises when the money or fund covered by the Letter of Credit is withdrawn irregularly, such as in this case at bench. It must be noted that any withdrawal with the LBP must be accompanied by the appropriate document evidencing deliveries. In signing the draft and sales invoice, petitioner made it possible for CKL Enterprises/Dela Cruz to withdraw the entire P5,666,600.00 without any delivery of the items.

As the records would bear, the CKL Enterprises Invoice dated 16 April 1997, contains the signature of the accused as customer. Above the customer's signature is the phrase: "Received and accepted the above items in good condition. " The significance of the customer's signature on the invoice is that it initiates the process of releasing the payment to the seller. This is all that the LBP needs in order to release the money allotted for the purchase. Unfortunately, despite receipt of payment, it was almost a year after when delivery of the items was made on a piece meal basis- some of which were even defective.

This Court, therefore, is not persuaded that petitioner deserves to be exonerated. On the contrary, evidence of undue injury caused to the Province of Antique and giving of unwarranted benefit, advantage or preference to CKL Enterprises/Dela Cruz committed through gross in excusable negligence was beyond reasonable doubt, proven.

WHEREFORE, premises considered, the petition is DENIED. The Decision dated 2 December 2008 of the Sandiganbayan in Criminal Case No. 26172 is AFFIRMED.

SO ORDERED.

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Bank of America, NT & SA vs. Court of Appeals, G.R. No. 105395, 228 SCRA 357 , December 10, 1993

G.R. No. 105395 December 10, 1993BANK OF AMERICA, NT & SA, petitioners,vs.

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COURT OF APPEALS, INTER-RESIN INDUSTRIAL CORPORATION, FRANCISCO TRAJANO, JOHN DOE AND JANE DOE, respondents.Agcaoili & Associates for petitioner.Valenzuela Law Center, Victor Fernandez and Ramon Guevarra for private respondents.

VITUG, J.:A "fiasco," involving an irrevocable letter of credit, has found the distressed parties coming to court as adversaries in seeking a definition of their respective rights or liabilities thereunder.On 05 March 1981, petitioner Bank of America, NT & SA, Manila, received by registered mail an Irrevocable Letter of Credit No. 20272/81 purportedly issued by Bank of Ayudhya, Samyaek Branch, for the account of General Chemicals, Ltd., of Thailand in the amount of US$2,782,000.00 to cover the sale of plastic ropes and "agricultural files," with the petitioner as advising bank and private respondent Inter-Resin Industrial Corporation as beneficiary.On 11 March 1981, Bank of America wrote Inter-Resin informing the latter of the foregoing and transmitting, along with the bank's communication,the latter of credit. Upon receipt of the letter-advice with the letter of credit, Inter-Resin sent Atty. Emiliano Tanay to Bank of America to have the letter of credit confirmed. The bank did not. Reynaldo Dueñas, bank employee in charge of letters of credit, however, explained to Atty. Tanay that there was no need for confirmation because the letter of credit would not have been transmitted if it were not genuine.Between 26 March to 10 April 1981, Inter-Resin sought to make a partial availment under the letter of credit by submitting to Bank of America invoices, covering the shipment of 24,000 bales of polyethylene rope to General Chemicals valued at US$1,320,600.00, the corresponding packing list, export declaration and bill of lading. Finally, after being satisfied that Inter-Resin's documents conformed with the conditions expressed in the letter of credit, Bank of America issued in favor of Inter-Resin a Cashier's Check for P10,219,093.20, "the Peso equivalent of the draft (for) US$1,320,600.00 drawn by Inter-Resin, after deducting the costs for documentary stamps, postage and mail issuance." 1 The check was picked up by Inter-Resin's Executive Vice-President Barcelina Tio. On 10 April 1981, Bank of America wrote Bank of Ayudhya advising the latter of the availment under the letter of credit and sought the corresponding reimbursement therefor.Meanwhile, Inter-Resin, through Ms. Tio, presented to Bank of America the documents for the second availment under the same letter of credit consisting of a packing list, bill of lading, invoices, export declaration and bills in set, evidencing the second shipment of goods. Immediately upon receipt of a telex from the Bank of Ayudhya declaring the letter of credit fraudulent, 2 Bank of America stopped the processing of Inter-Resin's documents and sent a telex to its branch office in Bangkok, Thailand, requesting assistance in determining the authenticity of the letter of credit. 3 Bank of America kept Inter-Resin informed of the developments. Sensing a fraud, Bank of America sought the assistance of the National Bureau of Investigation (NBI). With the help of the staff of the Philippine Embassy at Bangkok, as well as the police and customs personnel of Thailand, the NBI agents, who were sent to Thailand, discovered that the vans exported by Inter-Resin did not contain ropes but plastic strips, wrappers, rags and waste materials. Here at home, the NBI also investigated Inter-Resin's President Francisco Trajano and Executive Vice President Barcelina Tio, who, thereafter, were criminally charged for estafa through falsification of commercial documents. The case, however, was eventually dismissed by the Rizal Provincial Fiscal who found no prima facieevidence to warrant prosecution.Bank of America sued Inter-Resin for the recovery of P10,219,093.20, the peso equivalent of the draft for US$1,320,600.00 on the partial availment of the now disowned letter of credit. On the other hand, Inter-Resin claimed that not only was it entitled to retain P10,219,093.20 on its first shipment but also to the balance US$1,461,400.00 covering the second shipment.On 28 June 1989, the trial court ruled for Inter-Resin, 4 holding that:(a) Bank of America made assurances that enticed Inter-Resin to send the merchandise to Thailand; (b) the telex declaring the letter of credit fraudulent was unverified and self-serving, hence, hearsay, but even assuming that the letter of credit was fake, "the fault should be borne by the BA which was careless and negligent" 5 for failing to utilize its modern means of communication to verify with Bank of Ayudhya in Thailand the authenticity of the letter of credit before sending the same to Inter-Resin; (c) the loading of plastic products into the vans were under strict supervision, inspection and verification of government officers who have in their favor the presumption of regularity in the performance of official functions; and (d) Bank of America failed to prove the participation of Inter-Resin or its employees in the alleged fraud as, in fact, the complaint for estafa through falsification of documents was dismissed by the Provincial Fiscal of Rizal. 6

On appeal, the Court of Appeals 7 sustained the trial court; hence, this present recourse by petitioner Bank of America.The following issues are raised by Bank of America: (a) whether it has warranted the genuineness and authenticity of the letter of credit and, corollarily, whether it has acted merely as an advising bank or as a confirming bank; (b) whether Inter-Resin has actually shipped the ropes specified by the letter of credit; and (c) following the dishonor of the letter of credit by Bank of Ayudhya, whether Bank of America may recover against Inter-Resin under the draft executed in its partial availment of the letter of credit. 8

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In rebuttal, Inter-Resin holds that: (a) Bank of America cannot, on appeal, belatedly raise the issue of being only an advising bank; (b) the findings of the trial court that the ropes have actually been shipped is binding on the Court; and, (c) Bank of America cannot recover from Inter-Resin because the drawer of the letter of credit is the Bank of Ayudhya and not Inter-Resin.If only to understand how the parties, in the first place, got themselves into the mess, it may be well to start by recalling how, in its modern use, a letter of credit is employed in trade transactions.A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying. 9 To break the impasse, the buyer may be required to contract a bank to issue a letter of credit in favor of the seller so that, by virtue of the latter of credit, the issuing bank can authorize the seller to draw drafts and engage to pay them upon their presentment simultaneously with the tender of documents required by the letter of credit. 10 The buyer and the seller agree on what documents are to be presented for payment, but ordinarily they are documents of title evidencing or attesting to the shipment of the goods to the buyer.Once the credit is established, the seller ships the goods to the buyer and in the process secures the required shipping documents or documents of title. To get paid, the seller executes a draft and presents it together with the required documents to the issuing bank. The issuing bank redeems the draft and pays cash to the seller if it finds that the documents submitted by the seller conform with what the letter of credit requires. The bank then obtains possession of the documents upon paying the seller. The transaction is completed when the buyer reimburses the issuing bank and acquires the documents entitling him to the goods. Under this arrangement, the seller gets paid only if he delivers the documents of title over the goods, while the buyer acquires said documents and control over the goods only after reimbursing the bank.What characterizes letters of credit, as distinguished from other accessory contracts, is the engagement of the issuing bank to pay the seller of the draft and the required shipping documents are presented to it. In turn, this arrangement assures the seller of prompt payment, independent of any breach of the main sales contract. By this so-called "independence principle," the bank determines compliance with the letter of credit only by examining the shipping documents presented; it is precluded from determining whether the main contract is actually accomplished or not. 11

There would at least be three (3) parties: (a) the buyer, 12 who procures the letter of credit and obliges himself to reimburse the issuing bank upon receipts of the documents of title; (b) the bank issuing the letter of credit, 13which undertakes to pay the seller upon receipt of the draft and proper document of titles and to surrender the documents to the buyer upon reimbursement; and, (c) the seller, 14 who in compliance with the contract of sale ships the goods to the buyer and delivers the documents of title and draft to the issuing bank to recover payment.The number of the parties, not infrequently and almost invariably in international trade practice, may be increased. Thus, the services of an advising (notifying) bank 15 may be utilized to convey to the seller the existence of the credit; or, of a confirming bank 16 which will lend credence to the letter of credit issued by a lesser known issuing bank; or, of a paying bank, 17 which undertakes to encash the drafts drawn by the exporter. Further, instead of going to the place of the issuing bank to claim payment, the buyer may approach another bank, termed thenegotiating bank, 18 to have the draft discounted.Being a product of international commerce, the impact of this commercial instrument transcends national boundaries, and it is thus not uncommon to find a dearth of national law that can adequately provide for its governance. This country is no exception. Our own Code of Commerce basically introduces only its concept under Articles 567-572, inclusive, thereof. It is no wonder then why great reliance has been placed on commercial usage and practice, which, in any case, can be justified by the universal acceptance of the autonomy of contract rules. The rules were later developed into what is now known as the Uniform Customs and Practice for Documentary Credits ("U.C.P.") issued by the International Chamber of Commerce. It is by no means a complete text by itself, for, to be sure, there are other principles, which, although part of lex mercatoria, are not dealt with the U.C.P.In FEATI Bank and Trust Company v. Court of Appeals, 19 we have accepted, to the extent of their pertinency, the application in our jurisdiction of this international commercial credit regulatory set of rules. 20 In Bank of Phil.Islands v. De Nery, 21 we have said that the observances of the U.C.P. is justified by Article 2 of the Code of Commerce which expresses that, in the absence of any particular provision in the Code of Commerce, commercial transactions shall be governed by usages and customs generally observed. We have further observed that there being no specific provisions which govern the legal complexities arising from transactions involving letters of credit not only between or among banks themselves but also between banks and the seller or the buyer, as the case may be, the applicability of the U.C.P. is undeniable.The first issue raised with the petitioner, i.e., that it has in this instance merely been advising bank, is outrightly rejected by Inter-Resin and is thus sought to be discarded for having been raised only on appeal. We cannot agree. The crucial point of dispute in this case is whether under the "letter of credit," Bank of America has incurred any liability to the "beneficiary" thereof, an issue that largely is dependent on the bank's participation in that transaction; as a mere advising or notifying bank, it would not be liable, but as a confirming bank, had this been the case, it could be considered as having incurred that liability. 22

In Insular Life Assurance Co. Ltd. Employees Association — Natu vs. Insular Life Assurance Co., Ltd., 23 the Court said: Where the issues already raised also rest on other issues not specifically presented, as long as the latter issues bear relevance and close relation to the former and as long as they arise from the matters on record, the court has the authority to include them in its discussion of the controversy and to pass upon them just as well. In brief, in those cases where questions not particularly raised

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by the parties surface as necessary for the complete adjudication of the rights and obligations of the parties, the interests of justice dictate that the court should consider and resolve them. The rule that only issues or theories raised in the initial proceedings may be taken up by a party thereto on appeal should only refer to independent, not concomitant matters, to support or oppose the cause of action or defense. The evil that is sought to be avoided, i.e., surprise to the adverse party, is in reality not existent on matters that are properly litigated in the lower court and appear on record.It cannot seriously be disputed, looking at this case, that Bank of America has, in fact, only been an advising, not confirming, bank, and this much is clearly evident, among other things, by the provisions of the letter of credit itself, the petitioner bank's letter of advice, its request for payment of advising fee, and the admission of Inter-Resin that it has paid the same. That Bank of America has asked Inter-Resin to submit documents required by the letter of credit and eventually has paid the proceeds thereof, did not obviously make it a confirming bank. The fact, too, that the draft required by the letter of credit is to be drawn under the account of General Chemicals (buyer) only means the same had to be presented to Bank of Ayudhya (issuing bank) for payment. It may be significant to recall that the letter of credit is an engagement of the issuing bank, not the advising bank, to pay the draft.No less important is that Bank of America's letter of 11 March 1981 has expressly stated that "[t]he enclosure issolely an advise of credit opened by the abovementioned correspondent and conveys no engagement by us." 24This written reservation by Bank of America in limiting its obligation only to being an advising bank is in consonance with the provisions of U.C.P.As an advising or notifying bank, Bank of America did not incur any obligation more than just notifying Inter-Resin of the letter of credit issued in its favor, let alone to confirm the letter of credit. 25 The bare statement of the bank employees, aforementioned, in responding to the inquiry made by Atty. Tanay, Inter-Resin's representative, on the authenticity of the letter of credit certainly did not have the effect of novating the letter of credit and Bank of America's letter of advise, 26 nor can it justify the conclusion that the bank must now assume total liability on the letter of credit. Indeed, Inter-Resin itself cannot claim to have been all that free from fault. As the seller, the issuance of the letter of credit should have obviously been a great concern to it. 27 It would have, in fact, been strange if it did not, prior to the letter of credit, enter into a contract, or negotiated at the every least, with General Chemicals. 28 In the ordinary course of business, the perfection of contract precedes the issuance of a letter of credit.Bringing the letter of credit to the attention of the seller is the primordial obligation of an advising bank. The view that Bank of America should have first checked the authenticity of the letter of credit with bank of Ayudhya, by using advanced mode of business communications, before dispatching the same to Inter-Resin finds no real support in U.C.P. Article 18 of the U.C.P. states that: "Banks assume no liability or responsibility for the consequences arising out of the delay and/or loss in transit of any messages, letters or documents, or for delay, mutilation or other errors arising in the transmission of any telecommunication . . ." As advising bank, Bank of America is bound only to check the "apparent authenticity" of the letter of credit, which it did. 29 Clarifying its meaning, Webster's Ninth New Collegiate Dictionary 30 explains that the word "APPARENT suggests appearance to unaided senses that is not or may not be borne out by more rigorous examination or greater knowledge."May Bank of America then recover what it has paid under the letter of credit when the corresponding draft for partial availment thereunder and the required documents were later negotiated with it by Inter-Resin? The answer is yes. This kind of transaction is what is commonly referred to as a discounting arrangement. This time, Bank of America has acted independently as a negotiating bank, thus saving Inter-Resin from the hardship of presenting the documents directly to Bank of Ayudhya to recover payment. (Inter-Resin, of course, could have chosen other banks with which to negotiate the draft and the documents.) As a negotiating bank, Bank of America has a right to recourse against the issuer bank and until reimbursement is obtained, Inter-Resin, as the drawer of the draft, continues to assume a contingent liability thereon. 31

While bank of America has indeed failed to allege material facts in its complaint that might have likewise warranted the application of the Negotiable Instruments Law and possible then allowed it to even go after the indorsers of the draft, this failure, 32/ nonetheless, does not preclude petitioner bank's right (as negotiating bank) of recovery from Inter-Resin itself. Inter-Resin admits having received P10,219,093.20 from bank of America on the letter of credit and in having executed the corresponding draft. The payment to Inter-Resin has given, as aforesaid, Bank of America the right of reimbursement from the issuing bank, Bank of Ayudhya which, in turn, would then seek indemnification from the buyer (the General Chemicals of Thailand). Since Bank of Ayudhya disowned the letter of credit, however, Bank of America may now turn to Inter-Resin for restitution.Between the seller and the negotiating bank there is the usual relationship existing between a drawer and purchaser of drafts. Unless drafts drawn in pursuance of the credit are indicated to be without recourse therefore, the negotiating bank has the ordinary right of recourse against the seller in the event of dishonor by the issuing bank . . . The fact that the correspondent and the negotiating bank may be one and the same does not affect its rights and obligations in either capacity, although a special agreement is always a possibility . . . 33

The additional ground raised by the petitioner, i.e., that Inter-Resin sent waste instead of its products, is really of no consequence. In the operation of a letter of credit, the involved banks deal only with documents and not on goods described in those documents. 34

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The other issues raised in then instant petition, for instance, whether or not Bank of Ayudhya did issue the letter of credit and whether or not the main contract of sale that has given rise to the letter of credit has been breached, are not relevant to this controversy. They are matters, instead, that can only be of concern to the herein parties in an appropriate recourse against those, who, unfortunately, are not impleaded in these proceedings.In fine, we hold that —First, given the factual findings of the courts below, we conclude that petitioner Bank of America has acted merely as a notifying bank and did not assume the responsibility of a confirming bank; andSecond, petitioner bank, as a negotiating bank, is entitled to recover on Inter-Resin's partial availment as beneficiary of the letter of credit which has been disowned by the alleged issuer bank.No judgment of civil liability against the other defendants, Francisco Trajano and other unidentified parties, can be made, in this instance, there being no sufficient evidence to warrant any such finding.WHEREFORE, the assailed decision is SET ASIDE, and respondent Inter-Resin Industrial Corporation is ordered to refund to petitioner Bank of America NT & SA the amount of P10,219,093.20 with legal interest from the filing of the complaint until fully paid.No costs.SO ORDERED.Feliciano, Bidin, Romero and Melo, JJ., concur.

# Footnotes1 Decision in Civil Case No. 41021 of Regional Trial Court, Branch 134, Makati,p. 15.2 The Bank of Ayudhya expressed impossibility of availment against the above-mentioned letter of credit because the same had been issued, for the account of Siam Union Metal L.P. (not General Chemicals of Thailand), for a different amount covering "zinc highgrade," and in favor of Electrolytic Zinc Co. of Australasia Ltd. (not Inter-Resin) (Exh. "Q", Record, p. 27).3 The Bank of America, Bangkok, in an answer to the inquiry of the Bank of America, Manila, stated that General Chemicals of Thailand received the bill of lading but denied having ordered them. However, Bank of America, Bangkok, doubted that it could hold the merchandise in favor of Bank of America, Manila, as it did not have the documents (Exhs. "R" and "R-1," Record, pp. 28-29).4 The dispositive portion reads : "WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows: 1. ordering the dismissal of the complaint for lack of merit; 2. defendant's counterclaim with the Court found to be tenable and meritorious; 3. plaintiff BA is hereby ordered to pay the defendants the Peso equivalent of US$1,461,400.00 with interests counted from April 21, 1981, until fully paid; 4. plaintiff is hereby ordered to pay the defendants attorney's fees in the amount of P30,000.00; 5. ordering the dissolution and lifting of the attachment issued by the Court against defendants' properties' and 6. with costs against plaintiff" (Decision in Civil case No. 41021, p. 209).5 Decision in Civil Case No. 41021, p. 21.6 Decision in Civil Case No. 41021, pp. 23-24.7 CA-G.R. CV No. 24236, prom. 28 January 1992; Lapeña, Jr., ponente, Guingona and Santiago, concurring.8 Petition, pp. 13-14.9 See extensive discussions in William S. Shaterian Export-Import Banking: The Instruments and Operations Utilized by American Exporters and Importers and their Banks in Financing Foreign Trade (The Ronal Press Company: New York, 1947, pp. 284-374), James J. White and Robert S. Summers (eds) Uniform Commercial Code (West Publishing Co.: St. Paul, 1988) pp. 806-883, and John H. Jackson and William J. Davey Legal Problems of International Economic Relations: Cases, Materials and Text on the National and International Economic Relations, 2nd Ed. (West Publishing Co., St. Paul, pp. 52-63).10 Article 10 of the U.C.P. defines an irrevocable letter of credit as one that "constitutes a definite undertaking of the issuing bank, provided that the stipulated documents are presented and that the terms and conditions of the credit are complied with: i. if the credit provides for sight payment — to pay, or that payment will be made; ii. if the credit provides for deferred payment — to pay, or that payment will be made, on the date(s) determinable in accordance with the stipulations of the credit; iii. if the credit provides for acceptance — to accept drafts drawn by the beneficiary if he credit stipulates that they are to be drawn on the issuing bank, or to be responsible for their acceptance and payment at maturity if the credit stipulates that they are to be drawn on the applicant for the credit or any other drawee stipulated in the credit; iv. if the credit provides for negotiation — to pay without recourse to drawers and/or bona fide holders, draft(s) drawn by the beneficiary, at sight or at a tenor, on the applicant for the credit or on any other drawee stipulated in the credit other than the issuing bank itself, or to provide for negotiation by another bank and to pay, as above, if such negotiation is not effected.11 Article 17 of the U.C.P. states: "Banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general and/or particular conditions stipulated in the documents or superimposed thereon; nor do they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented by any documents, or for the good faith or acts and/or

TRUST RECEIPT LAW

omissions, solvency, performance or standing of the consignor, the carriers, or the insurers of the goods, or any other person whomsoever."According to White and Summers, op. cit.: ". . . Bankers . . . (describe) the transaction between the bank and the beneficiary as a "paper transaction." By that they mean the bank issuer's agent should be able to sit with a necktie and a white shirt at a desk in a bank and by looking at papers that are presented to him determine whether the bank is obliged to make payment or not. He is not obligated and, indeed, is foreclosed from donning his overalls and going into the field to determine whether the underlying contract has been performed. This is the principal reason why careful courts and lawyers state that the letter of credit is not a guarantee. In a typical guarantee the guarantor will are to make payments if, and openly if, the customer has failed to fulfill his obligation on the underlying contract. If his obligation has been avoided because of the acts of the beneficiary, typically there would be no obligation to guarantee and thus no duty on the guarantor to pay. Letters of credit are different, and they are explicitly and consciously designed to be different in this respect. In effect, the beneficiary under a letter of credit has bargained for the right to be paid and thus often to be the defendant instead of the plaintiff in the ensuing litigation on the underlying contract, to be sued at home instead of being a plaintiff abroad . . . ."12 "The buyer of the merchandise, who is also the buyer of the credit instrument, is the party who initiates the operation. His contract is with the bank which is to issue the instrument and is represented by the Commercial Credit of Agreement form which he signs, supported by a mutually made promises contained in the Agreement" (Shaterian, op. cit. pp. 291-292).13 "The Opening Bank, usually the buyer's bank, is the bank which actually issues the instrument. It is also known as the Issuing Bank. The selection of the opening bank is important. It should be a strong bank, well known and well regarded in international trading circles. This is the reason . . . smaller banks do not attempt to issue their own commercial credit instruments but take advantage of the facilities of . . . much larger, stronger, and better known correspondent banks . . . The purpose of commercial credit may not be readily accomplished unless the opening bank is well known and well regarded" (Shaterian, op. cit., p. 292).14 "The seller of the merchandise is called the Beneficiary of the credit instrument. The instrument is addressed to him and in his favor. It is a written contract of the bank which cannot compel the beneficiary to ship and avail himself of the benefits of the instrument, the seller may recover from the bank the value of his shipment if made within the terms of the instrument, even though he has not given the bank any direct consideration for the bank's promises contained in the instrument. By a stretch of imagination, as in order to support the instrument as a two-sided contract, supported by mutually given considerations, the courts seem to hold that the commission paid or to be paid by the buyer of the bank is also the consideration flowing from the seller to the bank" (Shaterian, op. cit., p. 292).15 "Whenever the instrument is not delivered to the buyer and by him mailed to the beneficiary, the opening bank will advise the existence of the credit to the beneficiary through its corresponding bank operating in the same locality as the seller. Such correspondent bank becomes the Notifying Bank. The services of a notifying bank must always be utilized if the credit is to be advised to the beneficiary by cable . . ." (Shaterian, op. cit., p. 292).16 "Whenever the beneficiary stipulates that the obligation of the opening bank shall be also made the obligation of a bank himself, we have what is known as the a confirmed commercial credit and the bank local to the beneficiary becomes the Confirming Bank. In view of the fact that commercial credits issued by American banks in favor of foreign sellers are invariably issued only by . . . larger well known banks, no seller requests that they be confirmed by another bank. The standing of the . . . opening bank is good enough. But many foreign banks are not particularly strong or well known, compared with . . . banks issuing these credit instruments. Indeed, many banks operating abroad are only known through the Banker's Almanac. They serve a useful purpose in their own small communities and perhaps maintain dollars account with the larger . . . banks. But their names are quite meaningless to the . . . . exporter, and when the foreign buyer offers to his . . . seller a credit instrument issued by such a bank, the seller may not receive the protection and other facilities which an instrument issued by a large, strong, and well known bank will give him. To overcome this, he requests that the credit as issued by the local bank of the foreign buyer be confirmed by a well known . . . bank, which will turn out to be (a) . . . bank with which the local bank of the buyer carries a dollar account. The liability of the confirming bank is a primary one and is not contingent in any sense of the word. It is as if the credit were issued by the opening and confirming banks jointly, thus giving the beneficiary or a holder for value of drafts drawn under the credit, the right to proceed against either or both banks, the moment the credit instrument has been breached. The confirming bank receives a commission for its confirmation from the opening bank which the opening bank, in turn, passes on to the buyer of the merchandise" (Shaterian, op. cit., pp. 294-295).17 "The Paying Bank is the bank on which the drafts are to be drawn. It may be the opening bank, it may be a bank other than the opening bank and not inn the city of the beneficiary, or it may be a bank in the city of the beneficiary, usually the advising bank. If the beneficiary is to draw and receive payment in his own currency, the notifying bank will be indicated as the paying bank also. When the draft is to be paid in this manner, the paying bank assumes no responsibility but merely pays the beneficiary and debits the payment immediately to the account which the opening bank has with it. If the opening bank maintains no account with the paying bank, the paying bank reimburses itself by drawing a bill of exchange on the opening bank, in dollars, for the equivalent of the local currency paid to the beneficiary, at its buying rate for dollar exchange. The beneficiary is entirely out of the transaction because his draft is completely discharged by payment, and the credit arrangement between the paying bank and the opening bank does not concern him" (Shaterian, op. cit., pp. 293-294).

TRUST RECEIPT LAW

18 "If the draft contemplated by the credit instrument is to be drawn on the opening bank or on another designated bank not in the city of the seller, any bank in the city of the seller which buys or discounts the draft of the beneficiary becomes a Negotiating Bank. As a rule, whenever the facilities of a notifying bank are used, the beneficiary is apt to offer his drafts to the notifying bank for negotiation, thus giving the notifying bank the character of a negotiating bank also. By negotiating the beneficiary's drafts, the negotiating bank becomes "an endorser and bona fide holder" of the drafts and within the protection of the credit instrument. It is also protected by the drawer's a signature, as the drawer's contingent liability, as drawer, continues until discharged by the actual payment of the bills of exchange" (Shaterian, op. cit., p. 293).19 G.R. No. 94209, prom. 30 April 1991; 196 SCRA 576.20 "The Uniform Customs and Practices for documentary credits were first published in 1933. The current version was adopted by the International Chamber of Commerce Council in 1983 and published as Publication No. 400 in July of that year. This current version has the blessing of the United Nations Commission on International Trade Law (UNCITRAL). The Uniform Customs and Practices are not 'law' because of the act of any legislature or court, but because they have been explicitly and implicitly made part of the contract of letters of credit. . . . [M]any of the letters of credit in the United States are governed by the Uniform Custom and Practices and not by the UCC (Uniform Commercial Code) . . ."In general, the UCP is much more detailed than the UCC. It clearly shows the tracks of many bankers and bank lawyers walking back and forth across its surface . . ."Every lawyer who deals at any time with a letter of credit should have read the UVCP at least once. The lawyer who deals routinely with such letters or who advises a bank or beneficiary in a circumstance where litigation is threatened or commenced should look more closely at the UCP." (White and Summers, op. cit., pp. 881-883).21 No. L-24821, 16 October 1970; 35 SCRA 256.22 See Feati Bank vs. Court of Appeals, 196 SCRA 576.23 76 SCRA 61; see also Roman Catholic Archbishop vs. Court of Appeals, 198 SCRA 300; Macenas vs. Court of Appeals, 180 SCRA 83; Sociedad Europea de Financiacion vs. Court of Appeals, 193 SCRA 105; Lianga Lumber Co. vs. Lianga Timber Co., Inc. 76 SCRA 223.24 Exh. "C," Records, p. 17.25 "The banks involved charge a modest commission for their various services. The higher the risk that the bank assumes, the higher the commission (e.g., to confirm an L/C is riskier than merely transmitting an advise of credit) (Jackson and Davey, op. cit., p. 53).26 See Art. 1878 (9) and (11) of the Civil Code, respectively, provides that a special power of attorney is required "[T]o bind the principal to render some service without compensation" and "[T]o obligate the principal as a guarantor or surety." Art. 1887 states that "the agent shall act in accordance with the instructions of the principal". Moreover, Art. 1888 enjoins the agent from carrying out "an agency if its execution would manifestly result in loss or damage to the principal."27 In fact, Inter-Resin's pro forma invoice (Exh. "A") sent to General Chemicals, on the basis of which the letter of credit was apparently issued, demanded for a confirmed and irrevocable letter of credit.28 The suspicion that no contract of sale was perfected between Inter-Resin and General Chemicals may find support in the absence of a written memorandum of the sale or any other document showing that General Chemicals ordered the goods, and the Comment of Inter-Resin detailing the material events of this case but, surprisingly, failed to categorically state or show that such contract was consented to by the parties.29 Article 8 of U.C.P. states : "A credit may be advised to a beneficiary through another bank (the advising bank) without engagement on the part of the advising bank, but that bank shall take reasonable care to check the apparent authenticity of the credit which it advises. (Revised 1983, ICC No. 400; reproduced in Jackson and Davey, op. cit., p. 54); TSN, 13 May 1982, Darley Wijiesekara on cross-examination.30 1983 ed., p. 96.31 See Shaterian, op. cit., p. 293.32 In this respect, its belated theory before us and its motion for reconsideration of the assailed decision should be rejected for being iniquitous under the circumstances. In fact, Bank of America has failed to present the draft and, more substantially, Inter-Resin has not been afforded full opportunity to refute by evidence this new argument of Bank of America. In short, we find the records insufficient to arrive at a just determination on this fact that can allow us to apply the Negotiable Instruments Law thereon.33 Philip W. Thayer, "Irrevocable Credits on International Commerce: Their Legal Effects," Columbia Law Review (1937), vol. 37, pp. 1357-1358.34 "Both in the application form for import credits and in the regulations governing our export credits, it is definitely provided that the banks involved shall not be made responsible for the genuineness of the documents submitted under commercial credits. If the buyer of merchandise has sufficient confidence in the integrity of the seller against shipping documents to be tendered to the bank by the seller, as provided by the credit instrument, it follows that the same confidence should extend to the tendering of genuine documents. If the seller is dishonest, he need not attempt to defraud the buyer by the tender of forged documents. he can obtain the desired evil end with less opportunity for prompt detection by shipping inferior goods or no goods at all. The carrier does not pry into the cases and packages to make sure that the merchandise is, in fact, as described

TRUST RECEIPT LAW

in the bill of lading and invoices which are prepared by the shipper. The tender of forged documents for the purpose of obtaining money is a crime and the seller who commits such crime is prosecuted and jailed.". . . Neither can the interested banks assume responsibility for the character or quality of the goods shipped nor for the terms of the sale contract not incorporated and made part of the credit instrument. How could they? While the parties to the sale contract may be experts as to the involved merchandise the banks are not, generally speaking, sufficiently versed in the fine points of each and every class of merchandise which they finance. Even assuming the bank has men in its employ who can qualify as experts in certain lines of merchandising, it would not wish to extend this sort of service without adequate compensation but such service is not a banking function.". . . Because of this credit should describe the goods in general terms only and the buyer should trust that the seller will ship the exact merchandise ordered. If the buyer is not satisfied with the moral standing of the seller, he should not open the credit but buy on open account basis, or subject the draft terms with the additional requirement that the draft need not be paid until after the buyer has had an opportunity to examine the gods to make sure that he has received exactly what he ordered" (Shaterian, op. cit., pp. 352-354)