Вы находитесь на странице: 1из 15

G.R. No. 74886 December 8, 1992 Sometime in 1967, the defendant-appellant ceased business operation (sic).

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).
PRUDENTIAL BANK, petitioner,
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
DAVIDE, JR., J.: 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.,
Petitioner seeks to review and set aside the decision 1 of public respondent; Intermediate Appellate Court (now Court of the complaint states no cause of action; if there is, the same has prescribed; and the plaintiff is guilty of
Appeals), dated 10 March 1986, in AC-G.R. No. 66733 which affirmed in toto the 15 June 1978 decision of Branch 9 laches. 2
(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 On 15 June 1978, the trial court rendered its decision the dispositive portion of which reads:
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.
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%
The facts which gave rise to the instant controversy are summarized by the public respondent as follows: per annum beginning September 15, 1974 until fully paid.

On August 8, 1962, defendant-appellant Philippine Rayon Mills, Inc. entered into a contract with Nissho Insofar as the amounts involved in drafts Exhs. "X" (sic) to "X-11", inclusive, the same not having been
Co., Ltd. of Japan for the importation of textile machineries under a five-year deferred payment plan accepted by defendant Philippine Rayon Mills, Inc., plaintiff's cause of action thereon has not accrued,
(Exhibit B, Plaintiff's Folder of Exhibits, p 2). To effect payment for said machineries, the defendant- hence, the instant case is premature.
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
Insofar as defendant Anacleto R. Chi is concerned, the case is dismissed. Plaintiff is ordered to pay
$128,548.78 (Exhibit A, Ibid., p. 1). Against this letter of credit, drafts were drawn and issued by Nissho
defendant Anacleto R. Chi the sum of P20,000.00 as attorney's fees.
(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 With costs against defendant Philippine Rayon Mills, Inc.
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
Petitioner appealed the decision to the then Intermediate Appellate Court. In urging the said court to reverse or modify the
delivery of the machineries, it executed, by prior arrangement with the Prudential Bank, a trust receipt
decision, petitioner alleged in its Brief that the trial court erred in (a) disregarding its right to reimbursement from the private
which was signed by Anacleto R. Chi in his capacity as President (sic) of defendant-appellant company
respondents for the entire unpaid balance of the imported machines, the total amount of which was paid to the Nissho
(Exhibit C, Ibid., p. 13).
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.
At the back of the trust receipt is a printed form to be accomplished by two sureties who, by the very Chi, as the responsible officer of defendant corporation, liable under Section 13 of P.D No 115 for the entire unpaid balance
terms and conditions thereof, were to be jointly and severally liable to the Prudential Bank should the of the imported machines covered by the bank's trust receipt (Exhibit "C"); (c) finding that the solidary guaranty clause
defendant-appellant fail to pay the total amount or any portion of the drafts issued by Nissho and paid signed by Anacleto R. Chi is not a guaranty at all; (d) controverting the judicial admissions of Anacleto R. Chi that he is at
for by Prudential Bank. The defendant-appellant was able to take delivery of the textile machineries least a simple guarantor of the said trust receipt obligation; (e) contravening, based on the assumption that Chi is a simple
and installed the same at its factory site at 69 Obudan Street, Quezon City. 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 V. WHETHER OR NOT AS THE SIGNATORY AND RESPONSIBLE OFFICER OF RESPONDENT
the provision on unjust enrichment, Article 2142 of the Civil Code, applies only if there is no express contract between the PHIL. RAYON RESPONDENT CHI IS PERSONALLY LIABLE PURSUANT TO THE PROVISION OF
parties and there is a clear showing that the payment is justified. In the instant case, the relationship existing between the SECTION 13, P.D. 115;
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 VII. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS RESPONDENT PHIL.

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 VIII. WHETHER OR NOT SIGHT DRAFTS REQUIRE PRIOR ACCEPTANCE FROM RESPONDENT
dorsal side of the trust receipt. As to the first contention, the public respondent ruled that the civil liability provided for in said PHIL. RAYON BEFORE THE LATTER BECOMES LIABLE TO PETITIONER. 7
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 In the Resolution of 12 March 1990, 8 this Court gave due course to the petition after the filing of the Comment thereto by
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 private respondent Anacleto Chi and of the Reply to the latter by the petitioner; both parties were also required to submit
incomplete and unsigned by witnesses; and it is not acknowledged before a notary public. Besides, even granting that it was their respective memoranda which they subsequently complied with.
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 As We see it, the issues may be reduced as follows:
merely accessory and subsidiary, respectively. Chi's liability would therefore arise only when the principal debtor fails to
comply with his obligation. 5 1. Whether presentment for acceptance of the drafts was indispensable to make
Philippine Rayon liable thereon;
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: 2. Whether Philippine Rayon is liable on the basis of the trust receipt;

I. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN 3. Whether private respondent Chi is jointly and severally liable with Philippine
DENYING PETITIONER'S CLAIM FOR FULL REIMBURSEMENT AGAINST THE PRIVATE Rayon for the obligation sought to be enforced and if not, whether he may be
RESPONDENTS FOR THE PAYMENT PETITIONER MADE TO NISSHO CO. LTD. FOR THE considered a guarantor; in the latter situation, whether the case should have
BENEFIT OF PRIVATE RESPONDENT UNDER ART. 1283 OF THE NEW CIVIL CODE OF THE been dismissed on the ground of lack of cause of action as there was no prior

II. WHETHER OR NOT RESPONDENT CHI IS SOLIDARILY LIABLE UNDER THE TRUST RECEIPT Both the trial court and the public respondent ruled that Philippine Rayon could be held liable for the two (2) drafts, Exhibits
(EXH. C); "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
III. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS OF RESPONDENT CHI HE acceptance. In short, both courts concluded that acceptance of the drafts by Philippine Rayon was indispensable to make
IS LIABLE THEREON AND TO WHAT EXTENT; 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
IV. WHETHER OR NOT RESPONDENT CHI IS MERELY A SIMPLE GUARANTOR; AND IF SO; HAS 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 Corollarily, they are, pursuant to Section 7 of the NIL, payable on demand. Section 7 provides:
obligated to pay plaintiff bank the amounts of the drafts drawn by Nisso (sic) Company, Ltd. against
said plaintiff bank together with any accruing commercial charges, interest, etc. pursuant to the terms
Sec. 7. When payable on demand. An instrument is payable on demand
and conditions stipulated in the Application and Agreement of Commercial Letter of Credit Annex "A".

(a) When so it is expressed to be payable on demand, or at

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
sight, or on presentation; or
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 (b) In which no time for payment in expressed.
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 Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so
necessary only in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL). 13 The said issuing, accepting, or indorsing it, payable on demand. (emphasis supplied)
section reads:

Paragraph 8 of the Trust Receipt which reads: "My/our liability for payment at maturity of any accepted draft, bill of
Sec. 143. When presentment for acceptance must be made. Presentment for acceptance must be exchange or indebtedness shall not be extinguished or modified" 17 does not, contrary to the holding of the public
made: 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
(a) Where the bill is payable after sight, or in any other if these were not sight drafts, thereby necessitating acceptance, it would be the petitioner and not Philippine
case, where presentment for acceptance is necessary in Rayon which had to accept the same for the latter was not the drawee. Presentment for acceptance is defined
order to fix the maturity of the instrument; or 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
(b) Where the bill expressly stipulates that it shall be
liable thereon upon petitioner's payment thereof. Such is the essence of the letter of credit issued by the
presented for acceptance; or
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,
(c) Where the bill is drawn payable elsewhere than at the would be placed at the mercy of Philippine Rayon even if the latter had already received the imported machinery
residence or place of business of the drawee. and the petitioner had fully paid for it. The typical setting and purpose of a letter of credit are described inHibernia
Bank and Trust Co. vs. J. Aron & Co., Inc., 19 thus:
In no other case is presentment for acceptance necessary in order to render any party to the bill liable.
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
Obviously then, sight drafts do not require presentment for acceptance.
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
The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer; this may be done in vendee at a distant point has it in his power to reject on trivial grounds merchandise on arrival, and
writing by the drawee in the bill itself, or in a separate instrument. 15 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
The parties herein agree, and the trial court explicitly ruled, that the subject, drafts are sight drafts. Said the latter: 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
. . . In the instant case the drafts being at sight, they are supposed to be payable upon acceptance when the proper documents are presented.
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 The trial court and the public respondent likewise erred in disregarding the trust receipt and in not holding that Philippine
Philippine Rayon Mills Rayon was liable thereon. In People vs. Yu Chai Ho, 20 this Court explains the nature of a trust receipt by quoting In re
ought to have paid the same, the fact remains that until now they are still unpaid. 16 Dunlap Carpet Co., 21 thus:
By this arrangement a banker advances money to an intending importer, and thereby lends the aid of sale of the machinery covered by the trust receipt, such relief is covered by the general prayer for "such further and other
capital, of credit, or of business facilities and agencies abroad, to the enterprise of foreign commerce. relief as may be just and equitable on the premises." 24 And although it is true that the petitioner commenced a criminal action
Much of this trade could hardly be carried on by any other means, and therefore it is of the first for the violation of the Trust Receipts Law, no legal obstacle prevented it from enforcing the civil liability arising out of the
importance that the fundamental factor in the transaction, the banker's advance of money and credit, trust, receipt in a separate civil action. Under Section 13 of the Trust Receipts Law, the failure of an entrustee to turn over the
should receive the amplest protection. Accordingly, in order to secure that the banker shall be repaid at proceeds of the sale of goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the
the critical point that is, when the imported goods finally reach the hands of the intended vendee entruster or as appear in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed
the banker takes the full title to the goods at the very beginning; he takes it as soon as the goods are of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of
bought and settled for by his payments or acceptances in the foreign country, and he continues to hold Article 315, paragraph 1(b) of the Revised Penal Code. 25 Under Article 33 of the Civil Code, a civil action for damages,
that title as his indispensable security until the goods are sold in the United States and the vendee is entirely separate and distinct from the criminal action, may be brought by the injured party in cases of defamation, fraud and
called upon to pay for them. This security is not an ordinary pledge by the importer to the banker, for physical injuries. Estafa falls under fraud.
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
We also conclude, for the reason hereinafter discussed, and not for that adduced by the public respondent, that private
transaction has again and again been recognized and protected by the courts. Of course, the title is at
respondent Chi's signature in the dorsal portion of the trust receipt did not bind him solidarily with Philippine Rayon. The
bottom a security title, as it has sometimes been called, and the banker is always under the obligation
statement at the dorsal portion of the said trust receipt, which petitioner describes as a "solidary guaranty clause", reads:
to reconvey; but only after his advances have been fully repaid and after the importer has fulfilled the
other terms of the contract.
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
As further stated in National Bank vs. Viuda e Hijos de Angel Jose, 22 trust receipts:
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
. . . [I]n a certain manner, . . . partake of the nature of a conditional sale as provided by the Chattel non-fulfillment in any respect of the undertaking of the aforesaid:
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. We further agree that the PRUDENTIAL BANK AND TRUST COMPANY does not have to take any
steps or exhaust its remedy against aforesaid:

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 before making demand on me/us.
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 Petitioner insists that by virtue of the clear wording of the statement, specifically the clause ". . . we jointly and severally
upon the latter's execution and delivery to the entruster of a signed document called the "trust receipt" wherein the entrustee agree and undertake . . .," and the concluding sentence on exhaustion, Chi's liability therein is solidary.
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 In holding otherwise, the public respondent ratiocinates as follows:
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: . . ." 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
It is alleged in the complaint that private respondents "not only have presumably put said machinery to good use and have document. It should be noted that Exhibit "C-1" was prepared and printed by the plaintiff-appellant. A
profited by its operation and/or disposition but very recent information that (sic) reached plaintiff bank that defendants perusal of Exhibit "C-1" shows that it was to be signed and executed by two persons. It was signed
already sold the machinery covered by the trust receipt to Yupangco Cotton Mills," and that "as trustees of the property only by defendant-appellee Chi. Exhibit "C-1" was to be witnessed by two persons, but no one signed
covered by the trust receipt, . . . and therefore acting in fiduciary (sic) capacity, defendants have willfully violated their duty to in that capacity. The last sentence of the guaranty clause is incomplete. Furthermore, the plaintiff-
account for the whereabouts of the machinery covered by the trust receipt or for the proceeds of any lease, sale or other appellant also failed to have the purported guarantee clause acknowledged before a notary public. All
disposition of the same that they may have made, notwithstanding demands therefor; defendants have fraudulently these show that the alleged guaranty provision was disregarded and, therefore, not consummated.
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
But granting arguendo that the guaranty provision in Exhibit "C-1" was fully executed and Sec. 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the
acknowledged still defendant-appellee Chi cannot be held liable thereunder because the records show goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the
that the plaintiff-appellant had neither exhausted the property of the defendant-appellant nor had it entruster or as appears in the trust receipt or to return said goods, documents or instruments if they
resorted to all legal remedies against the said defendant-appellant as provided in Article 2058 of the were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime
Civil Code. The obligation of a guarantor is merely accessory under Article 2052 of the Civil Code and of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one (b) of
subsidiary under Article 2054 of the Civil Code. Therefore, the liability of the defendant-appellee arises Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the
only when the principal debtor fails to comply with his obligation. 27 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
Our own reading of the questioned solidary guaranty clause yields no other conclusion than that the obligation of Chi is only
the civil liabilities arising from the criminal offense.
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 A close examination of the quoted provision reveals that it is the last sentence which provides for the correct solution. It is
held liable for the obligation. Petitioner likewise admits that the questioned provision is a solidary guaranty clause, thereby clear that if the violation or offense is committed by a corporation, partnership, association or other juridical entities, the
clearly distinguishing it from a contract of surety. It, however, described the guaranty as solidary between the guarantors; this penalty shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the
would have been correct if two (2) guarantors had signed it. The clause "we jointly and severally agree and undertake" refers offense. The penalty referred to is imprisonment, the duration of which would depend on the amount of the fraud as provided
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 for in Article 315 of the Revised Penal Code. The reason for this is obvious: corporations, partnerships, associations and
the undertaking between either one or both of them on the one hand and the petitioner on the other with respect to the other juridical entities cannot be put in jail. However, it is these entities which are made liable for the civil liability arising from
liability described under the trust receipt. Elsewise stated, their liability is not divisible as between them, i.e., it can be the criminal offense. This is the import of the clause "without prejudice to the civil liabilities arising from the criminal offense."
enforced to its full extent against any one of them. 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.
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 The remaining issue to be resolved concerns the propriety of the dismissal of the case against private respondent Chi. The
adhesion; 28 as such, it must be strictly construed against the party responsible for its preparation. 29 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
Neither can We agree with the reasoning of the public respondent that this solidary guaranty clause was effectively
Civil Code, be compelled to pay until
disregarded simply because it was not signed and witnessed by two (2) persons and acknowledged before a notary public.
after petitioner has exhausted and resorted to all legal remedies against the principal debtor, Philippine Rayon. The records
While indeed, the clause ought to have been signed by two (2) guarantors, the fact that it was only Chi who signed the same
fail to show that petitioner had done so 33 Reliance is thus placed on Article 2058 of the Civil Code which provides:
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 Art. 2056. The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all
into, provided all the essential requisites for their validity are present; however, when the law requires that a contract be in the property of the debtor, and has resorted to all the legal remedies against the debtor.
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
Simply stated, there is as yet no cause of action against Chi.
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. 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:

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 4. Although an ordinary personal guarantor not a mortgagor or pledgor may demand the
proceedings, Chi would be answerable for the civil liability arising therefrom pursuant to Section 13 of P.D. No. 115. Public aforementioned exhaustion, the creditor may, prior thereto, secure a judgment against said guarantor,
respondent rejected this claim because such civil liability presupposes prior conviction as can be gleaned from the phrase who shall be entitled, however, to a deferment of the execution of said judgment against him until after
"without prejudice to the civil liability arising from the criminal offense." Both are wrong. The said section reads: the properties of the principal debtor shall have been exhausted to satisfy the obligation involved in the
There was then nothing procedurally objectionable in impleading private respondent Chi as a co-defendant in Civil Case No. any; (b) a sum equal to ten percent (10%) of the aforesaid amount as attorney's
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 fees; and (c) the costs.
explicitly allows it. It reads:
2. Declaring private respondent Anacleto R. Chi secondarily liable on the trust
Sec. 6. Permissive joinder of parties. All persons in whom or against whom any right to relief in receipt and ordering him to pay the face value thereof, with interest at the legal
respect to or arising out of the same transaction or series of transactions is alleged to exist, whether rate, commencing from the date of the filing of the complaint in Civil Case No. Q-
jointly, severally, or in the alternative, may, except as otherwise provided in these rules, join as plaintiffs 19312 until the same is fully paid as well as the costs and attorney's fees in the
or be joined as defendants in one complaint, where any question of law or fact common to all such sum of P10,000.00 if the writ of execution for the enforcement of the above
plaintiffs or to all such defendants may arise in the action; but the court may make such orders as may awards against Philippine Rayon Mills, Inc. is returned unsatisfied.
be just to prevent any plaintiff or defendant from being embarrassed or put to expense in connection
with any proceedings in which he may have no interest.
Costs against private respondents.

This is the equity rule relating to multifariousness. It is based on trial convenience and is designed to permit the joinder of
plaintiffs or defendants whenever there is a common question of law or fact. It will save the parties unnecessary work,
trouble and expense. 35
G.R. No. 105395 December 10, 1993

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 BANK OF AMERICA, NT & SA, petitioners,
pay. 36 Interest and damages, being accessories of the principal obligation, should also be paid; these, however, shall run vs.
only from the date of the filing of the complaint. Attorney's fees may even be allowed in appropriate cases. 37 COURT OF APPEALS, INTER-RESIN INDUSTRIAL CORPORATION, FRANCISCO TRAJANO, JOHN DOE AND JANE
DOE, respondents.

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 VITUG, J.:
can be held liable for the sum of P10,000.00 as attorney's fees in favor of the petitioner.
A "fiasco," involving an irrevocable letter of credit, has found the distressed parties coming to court as adversaries in seeking
Thus, the trial court committed grave abuse of discretion in dismissing the complaint as against private respondent Chi and a definition of their respective rights or liabilities thereunder.
condemning petitioner to pay him P20,000.00 as attorney's fees.
On 05 March 1981, petitioner Bank of America, NT & SA, Manila, received by registered mail an Irrevocable Letter of Credit
In the light of the foregoing, it would no longer necessary to discuss the other issues raised by the petitioner 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.
WHEREFORE, the instant Petition is hereby GRANTED.

On 11 March 1981, Bank of America wrote Inter-Resin informing the latter of the foregoing and transmitting, along with the
The appealed Decision of 10 March 1986 of the public respondent in AC-G.R. CV No. 66733 and, necessarily,
bank's communication,
that of Branch 9 (Quezon City) of the then Court of First Instance of Rizal in Civil Case No. Q-19312 are hereby
the latter of credit. Upon receipt of the letter-advice with the letter of credit, Inter-Resin sent Atty. Emiliano Tanay to Bank of
REVERSED and SET ASIDE and another is hereby entered:
America to have the letter of credit confirmed. The bank did not. Reynaldo Dueas, 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
1. Declaring private respondent Philippine Rayon Mills, Inc. liable on the twelve been transmitted if it were not genuine.
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
Between 26 March to 10 April 1981, Inter-Resin sought to make a partial availment under the letter of credit by submitting to
total sum of P956,384.95 as of 15 September 1974, with interest thereon at six
Bank of America invoices, covering the shipment of 24,000 bales of polyethylene rope to General Chemicals valued at
percent (6%) per annum from 16 September 1974 until it is fully paid, less
US$1,320,600.00, the corresponding packing list, export declaration and bill of lading. Finally, after being satisfied that Inter-
whatever may have been applied thereto by virtue of foreclosure of mortgages, if
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 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,
Executive Vice-President Barcelina Tio. On 10 April 1981, Bank of America wrote Bank of Ayudhya advising the latter of the in its modern use, a letter of credit is employed in trade transactions.
availment under the letter of credit and sought the corresponding reimbursement therefor.
A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales
Meanwhile, Inter-Resin, through Ms. Tio, presented to Bank of America the documents for the second availment under the of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and
same letter of credit consisting of a packing list, bill of lading, invoices, export declaration and bills in set, evidencing the a buyer, who wants to have control of the goods before paying. 9 To break the impasse, the buyer may be required to
second shipment of goods. Immediately upon receipt of a telex from the Bank of Ayudhya declaring the letter of credit 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
fraudulent, 2 Bank of America stopped the processing of Inter-Resin's documents and sent a telex to its branch office in authorize the seller to draw drafts and engage to pay them upon their presentment simultaneously with the tender of
Bangkok, Thailand, requesting assistance in determining the authenticity of the letter of credit. 3Bank of America kept Inter- documents required by the letter of credit. 10 The buyer and the seller agree on what documents are to be presented for
Resin informed of the developments. Sensing a fraud, Bank of America sought the assistance of the National Bureau of payment, but ordinarily they are documents of title evidencing or attesting to the shipment of the goods to the buyer.
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
Once the credit is established, the seller ships the goods to the buyer and in the process secures the required shipping
contain ropes but plastic strips, wrappers, rags and waste materials. Here at home, the NBI also investigated Inter-Resin's
documents or documents of title. To get paid, the seller executes a draft and presents it together with the required
President Francisco Trajano and Executive Vice President Barcelina Tio, who, thereafter, were criminally charged for estafa
documents to the issuing bank. The issuing bank redeems the draft and pays cash to the seller if it finds that the documents
through falsification of commercial documents. The case, however, was eventually dismissed by the Rizal Provincial Fiscal
submitted by the seller conform with what the letter of credit requires. The bank then obtains possession of the documents
who found no prima facie evidence to warrant prosecution.
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
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 over the goods, while the buyer acquires said documents and control over the goods only after reimbursing the bank.
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
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,"
On 28 June 1989, the trial court ruled for Inter-Resin, 4 holding that: the bank determines compliance with the letter of credit only by examining the shipping documents presented; it is precluded
(a) Bank of America made assurances that enticed Inter-Resin to send the merchandise to Thailand; (b) the telex declaring from determining whether the main contract is actually accomplished or not. 11
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
There would at least be three (3) parties: (a) the buyer, 12 who procures the letter of credit and obliges himself to reimburse
communication to verify with Bank of Ayudhya in Thailand the authenticity of the letter of credit before sending the same to
the issuing bank upon receipts of the documents of title; (b) the bank issuing the letter of credit, 13 which undertakes to pay
Inter-Resin; (c) the loading of plastic products into the vans were under strict supervision, inspection and verification of
the seller upon receipt of the draft and proper document of titles and to surrender the documents to the buyer upon
government officers who have in their favor the presumption of regularity in the performance of official functions; and (d)
reimbursement; and, (c) the seller, 14 who in compliance with the contract of sale ships the goods to the buyer and delivers
Bank of America failed to prove the participation of Inter-Resin or its employees in the alleged fraud as, in fact, the complaint
the documents of title and draft to the issuing bank to recover payment.
for estafa through falsification of documents was dismissed by the Provincial Fiscal of Rizal. 6

The number of the parties, not infrequently and almost invariably in international trade practice, may be increased. Thus, the
On appeal, the Court of Appeals 7 sustained the trial court; hence, this present recourse by petitioner Bank of America.
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
The following issues are raised by Bank of America: (a) whether it has warranted the genuineness and authenticity of the bank, 17 which undertakes to encash the drafts drawn by the exporter. Further, instead of going to the place of the issuing
letter of credit and, corollarily, whether it has acted merely as an advising bank or as a confirming bank; (b) whether Inter- bank to claim payment, the buyer may approach another bank, termed the negotiating bank, 18 to have the draft discounted.
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
Being a product of international commerce, the impact of this commercial instrument transcends national boundaries, and it
of the letter of credit. 8
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
In rebuttal, Inter-Resin holds that: (a) Bank of America cannot, on appeal, belatedly raise the issue of being only an advising no wonder then why great reliance has been placed on commercial usage and practice, which, in any case, can be justified
bank; (b) the findings of the trial court that the ropes have actually been shipped is binding on the Court; and, (c) Bank of by the universal acceptance of the autonomy of contract rules. The rules were later developed into what is now known as the
America cannot recover from Inter-Resin because the drawer of the letter of credit is the Bank of Ayudhya and not Inter- 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 aforementioned, in responding to the inquiry made by Atty. Tanay, Inter-Resin's representative, on the authenticity of the
not dealt with the U.C.P. 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
In FEATI Bank and Trust Company v. Court of Appeals, 19 we have accepted, to the extent of their pertinency, the application
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
in our jurisdiction of this international commercial credit regulatory set of rules. 20 In Bank of Phil. Islands v. De Nery, 21 we
negotiated at the every least, with General Chemicals. 28 In the ordinary course of business, the perfection of contract
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
precedes the issuance of a letter of credit.
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 Bringing the letter of credit to the attention of the seller is the primordial obligation of an advising bank. The view that Bank of
between banks and the seller or the buyer, as the case may be, the applicability of the U.C.P. is undeniable. 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
The first issue raised with the petitioner, i.e., that it has in this instance merely been advising bank, is outrightly rejected by
any messages, letters or documents, or for delay, mutilation or other errors arising in the transmission of any
Inter-Resin and is thus sought to be discarded for having been raised only on appeal. We cannot agree. The crucial point of
telecommunication . . ." As advising bank, Bank of America is bound only to check the "apparent authenticity" of the letter of
dispute in this case is whether under the "letter of credit," Bank of America has incurred any liability to the "beneficiary"
credit, which it did. 29 Clarifying its meaning, Webster's Ninth New Collegiate Dictionary 30 explains that the word "APPARENT
thereof, an issue that largely is dependent on the bank's participation in that transaction; as a mere advising or notifying
suggests appearance to unaided senses that is not or may not be borne out by more rigorous examination or greater
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

May Bank of America then recover what it has paid under the letter of credit when the corresponding draft for partial
In Insular Life Assurance Co. Ltd. Employees Association Natu vs. Insular Life Assurance Co., Ltd., 23 the Court said:
availment thereunder and the required documents were later negotiated with it by Inter-Resin? The answer is yes. This kind
Where the issues already raised also rest on other issues not specifically presented, as long as the latter issues bear
of transaction is what is commonly referred to as a discounting arrangement. This time, Bank of America has acted
relevance and close relation to the former and as long as they arise from the matters on record, the court has the authority to
independently as a negotiating bank, thus saving Inter-Resin from the hardship of presenting the documents directly to Bank
include them in its discussion of the controversy and to pass upon them just as well. In brief, in those cases where questions
of Ayudhya to recover payment. (Inter-Resin, of course, could have chosen other banks with which to negotiate the draft and
not particularly raised by the parties surface as necessary for the complete adjudication of the rights and obligations of the
the documents.) As a negotiating bank, Bank of America has a right to recourse against the issuer bank and until
parties, the interests of justice dictate that the court should consider and resolve them. The rule that only issues or theories
reimbursement is obtained, Inter-Resin, as the drawer of the draft, continues to assume a contingent liability thereon. 31
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. 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.
It cannot seriously be disputed, looking at this case, that Bank of America has, in fact, only been an advising, not confirming,
Inter-Resin admits having received P10,219,093.20 from bank of America on the letter of credit and in having executed the
bank, and this much is clearly evident, among other things, by the provisions of the letter of credit itself, the petitioner bank's
corresponding draft. The payment to Inter-Resin has given, as aforesaid, Bank of America the right of reimbursement from
letter of advice, its request for payment of advising fee, and the admission of Inter-Resin that it has paid the same. That
the issuing bank, Bank of Ayudhya which, in turn, would then seek indemnification from the buyer (the General Chemicals of
Bank of America has asked Inter-Resin to submit documents required by the letter of credit and eventually has paid the
Thailand). Since Bank of Ayudhya disowned the letter of credit, however, Bank of America may now turn to Inter-Resin for
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. 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
No less important is that Bank of America's letter of 11 March 1981 has expressly stated that "[t]he enclosure issolely an
event of dishonor by the issuing bank . . . The fact that the correspondent and the negotiating bank
advise of credit opened by the abovementioned correspondent and conveys no engagement by us." 24This written
may be one and the same does not affect its rights and obligations in either capacity, although a
reservation by Bank of America in limiting its obligation only to being an advising bank is in consonance with the provisions
special agreement is always a possibility . . . 33
of U.C.P.

The additional ground raised by the petitioner, i.e., that Inter-Resin sent waste instead of its products, is really of no
As an advising or notifying bank, Bank of America did not incur any obligation more than just notifying Inter-Resin of the
consequence. In the operation of a letter of credit, the involved banks deal only with documents and not on goods described
letter of credit issued in its favor, let alone to confirm the letter of credit. 25 The bare statement of the bank employees,
in those documents. 34
The other issues raised in then instant petition, for instance, whether or not Bank of Ayudhya did issue the letter of credit and and, to compensate Reliance therefor, bound itself to reduce the price by US$1 to US$2 per metric ton of pig iron for
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 succeeding orders. This undertaking was made part of the 2 May 1980 contract. However, that contract was not
controversy. They are matters, instead, that can only be of concern to the herein parties in an appropriate recourse against consummated and was later superseded by still another contract dated 31 July 1980.
those, who, unfortunately, are not impleaded in these proceedings.
The 31 July 1980 contract read as follows:
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 SALES NOTE No. HSB-SN/S001-R
a notifying bank and did not assume the responsibility of a confirming bank; and
To Messrs: Reliance Commodities, Inc.
Second, petitioner bank, as a negotiating bank, is entitled to recover on Inter-Resin's partial availment as beneficiary of the 161, 9th Street, 10th Avenue
letter of credit which has been disowned by the alleged issuer bank. Caloocan City
Reference: HSB-PI/8019-R
Contracted through:
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.
Order No.:
Commodity: Foundry Pig Iron
WHEREFORE, the assailed decision is SET ASIDE, and respondent Inter-Resin Industrial Corporation is ordered to refund
Spec.: JIS G 2202 Class 1-1C
to petitioner Bank of America NT & SA the amount of P10,219,093.20 with legal interest from the filing of the complaint until
Quantity: 2,000MT
fully paid.
Price: US $190.30/MT C&F Manila
Amount: US $380,600.00
No costs. Packing: Bare Loose
Shipment: August
SO ORDERED. Destination: Manila
Payment: By an irrevocable of sight letter of credit in favor of Daewoo Industrial Co., Ltd., 541 5th
Street, namdaemunro, Jung-Gu, Seoul, Korea.
G.R. No. L-100831 December 17, 1993

Remarks: Other terms and conditions as per attached sheet.

DAEWOO INDUSTRIAL CO., LTD., respondent. We confirm our sales as specified herein. Subject to the terms and conditions set forth herein, this
confirmation of order ("the Contract") constitutes a contract between Daewoo Industrial Co. Ltd.
("Seller") and the addressee ("Buyer"). Other terms and conditions of the Contract are on the back
FELICIANO, J.: hereof. If you find anything herein not in order, please let us know immediately, if necessary by telex,
cable or telegram. Kindly sign and return the duplicate after confirming the above.
On 9 January 1980, petitioner Reliance Commodities, Inc. ("reliance") and private respondent Daewoo Industrial Co., Ltd.
("Daewoo") entered into a contract of sale under the terms of which the latter undertook to ship and deliver to the former Read and agreed to:
2,000 metric tons of foundry pig iron for the price of US$404,000.00. Pursuant to this contract, Daewoo shipped from
Pohang, Republic of Korea, 2,000 metric tons of foundry pig iron on board the M/S Aurelio III under Bill of Lading No. PIP-1
for carriage to and delivery in Manila to its consignee, Reliance. The shipment was fully paid for. Upon arrival in Manila, the Name of addressee: Daewoo Industrial Co., Ltd.
subject cargo was found to be short of 135.655 metric tons as only 1,864.345 metric tons were discharged and delivered to
Date: July 31, 1980 Date: July 31, 1980 1
On 2 May 1980, another contract was entered into between the same parties for the purchase of another 2,000 metric tons
of foundry pig iron. Daewoo acknowledged the short shipment of 135.655 metric tons under the 9 January 1980 contract The attached sheet referred to above set out the following:
Reliance Commodities, Inc. Daewoo rejected the proposed L/C for the reason that the covered quantity fell short of the contracted tonnage. Thus,
Our Reference No. HSB-PI/SO19-R Reliance withdrew the application for the L/C on 14 August 1980.

1. Invoicing: Actual Weight Subsequently, Daewoo leaned that the failure of Reliance to open the L/C as stipulated in the 31 July 1980 contract was due
to the fact that as early as May 1980, Reliance has already exceeded its foreign exchange allocation for 1980. Because of
the failure of Reliance to comply with its undertaking under the 31 July 1980 contract, Daewoo was compelled to sell the
2. Chemical Composition (%):
2,000 metric tons to another buyer at a lower price, to cut losses and expenses Daewoo had begun to incur due to its
Carbon: 3.30 min. (aiming 3.80 min.)
inability to ship the 2000 metric tons to Reliance under their contract.
Silicon: 2.21-2.60 (aiming 2.60)
Manganese: 0.30-1.00
Phosphorous: 0.45 max. (aiming 0.25 max.) On 3 September 1980, Reliance, through its counsel, wrote Daewoo requesting payment of the amount of P226,370.48,
Sulfur: 0.05 max. representing the value of the short delivery of 135.655 metric tons of foundry pig iron under the contract of 9 January 1980.
Not being heeded, Reliance filed an action for damages against Daewoo with the trial court. Daewoo responded, inter
alia, with a counterclaim for damages, contending that Reliance was guilty of breach of contract when it failed to open an L/C
3. Quantity Tolerance: +10 percent of total quantity should be allowed.
as required in the 31 July 1980 contract.

4. Unit Weight: 5 kgs. + 1 kg. (one notch)

After trial, the trial court ruled that:

5. Broken pieces of twenty (20%) percent should be allowed.

(1) the 31 July 1980 contract did not extinguish Daewoo's obligation for short delivery pursuant to the 9
January 1980 contract and must therefore pay Reliance P226,370.48 representing the value of the
6. All disputes, controversies, or differences which may arise between the parties, out of or in relation short delivered goods plus interest and attorney's fees; and
to or in connection with this contract, or for the breach thereof, shall be finally settled by arbitration in
Korea in accordance with the rules and regulations of Korea commercial arbitration association or in
(2) Reliance is in turn liable for breach of contract for its failure to open a letter of credit in favor of
the Philippines in accordance with the Philippine arbitration rules.
Daewoo pursuant to the 31 July 1980 contract and must therefore pay the latter P331,920.97 as actual
damages with legal interest plus attorney's fees.
7. Letter of credit should be opened on or before August 7, 1980.

Reliance appealed the second part of the trial court's judgment. Public respondent Court of Appeals found no merit in the
8. Other terms and conditions, if necessary, are to be solved later by mutual agreement. appeal and in affirming the decision of the trial court ruled that:

9. Mill sheets and copies of non-negotiable documents to be sent to buyer by airmail immediately after 1) the trial court's finding that Reliance could not have opened the Letter of Credit in favor of Daewoo
shipment. because it had already exhausted its foreign exchange allocation at the time of its application, was
amply supported by evidence; and
10. This Sales Note No. HSB-SN/S001R cancels Sales Note No. HSB-SN/8001 dated May 2, 1980. 2
2) the opening of a letter of credit is not such a future and uncertain event as to make it a suspensive
On August 1, 1980, Reliance, through its Mrs. Samuel Chuason, filed with the China Banking Corporation, an application for condition within the contemplation of law; but, only mode of payment agreed upon by the parties, and a
a Letter of Credit (L/C) in favor of Daewoo covering the amount of US$380,600.00. The application was endorsed to the Iron standard mode at that when one of the parties to the transaction is a foreigner and the consideration is
and Steel Authority (ISA) or approval but the application was denied. Reliance was instead asked to submit purchase orders payable in foreign exchange.
from end-users to support its application for a Letter of Credit. However, Reliance was not able to raise purchase orders for
2,000 metric tons. Reliance alleges that it was able to raise purchase orders for 1,900 metric tons. 3 Daewoo, upon the other In the present Petition for Review, Reliance assails the award of damages in favor of Daewoo. Reliance contends a) that its
hand, contends that Reliance was only able to raise purchase orders for 900 metric tons. 4 An examination of the failure to open a Letter of Credit was due to the failure of Daewoo to accept the purchase orders for 1,900 metric tons
exhibits 5 presented by Reliance in the trial court shows that only purchase orders for 900 metric tons were stamped instead of 2,000 metric tons; b) that the opening of the Letter of Credit was a condition precedent to the effectivity of the
"Received" by the ISA. The other purchase orders for 1,000 metric tons allegedly sent by prospective end users to Reliance contract between Reliance and Daewoo; and c) that since such condition had not occurred, the contract never came into
were not shown to have been duly sent and exhibited to the ISA. Whatever the exact amount of the purchase orders was, existence and, therefore, Reliance should not have been held liable for damages.
The issue before us is whether or not the failure of an importer (Reliance) to open a letter of credit on the date agreed upon account party among other things, applies to the issuing bank for a specified L/C and agrees to
makes him liable to the exporter (Daewoo) for damages. reimburse the bank for amounts paid by that bank pursuant to the L/C.

In addressing this issue, it is useful to recall the nature of a Letter of Credit, and the mechanics involved in applying for a (c) The third contract relationship is established between the issuing bank and the beneficiary, in order
Letter of Credit. to support the contract, under
(a) above, of the account party and the beneficiary to, inter alia, pay certain monies to the latter.
The nature of a letter of credit was extensively discussed in Bank of America, NT & SA v. Court of Appeals, et al. 6by Vitug, J.
in the following terms: Certain other parties may be added to the foregoing, but the above three are the indispensable ones.

A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode The issue raised in the Petition at bar relates principally to the first component contractual relation above: that between
of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses account party or importer Reliance and beneficiary or exporter Daewoo.
to part with his goods before he is paid, and a buyer, who wants to have control of the goods before
paying. To break the impasse, the buyer may be required to contract a bank to issue a letter of credit in
Examining the actual terms of that relationship as set out in the 31 July 1980 contract quoted earlier (and notsimply the
favor of the seller so that, by virtue of the letter of credit, the issuing bank can authorize the seller to
summary inaccurately rendered by the trial court), the Court considers that under that instrument, the opening of an L/C
draw drafts and engage to pay them upon their presentment simultaneously with the tender of
upon application of Reliance was not a condition precedent for the birth of the obligation of Reliance to purchase foundry pig
documents required by the letter of credit. The buyer and seller agree on what documents are to be
iron from Daewoo. We agree with the Court of Appeals that Reliance and Daewoo, having reached "a meeting of minds" in
presented for payment, but ordinarily they are documents of title evidencing or attesting to the
respect of the subject matter of the contract (2000 metric tons of foundry pig iron with a specified chemical composition), the
shipment of the goods to the buyer.
price thereof (US $380,600.00), and other principal provisions, "they had a perfected contract." 9 The failure of Reliance to
open, the appropriate L/C did not prevent the birth of that contract, and neither did such failure extinguish that contract. The
Once the credit is established, the seller ships the goods to the buyer and in the process secures the opening of the L/C in favor of Daewoo was an obligation of Reliance and the performance of that obligation by Reliance was
required shipping documents or documents of title. To get paid, the seller executes a draft and pays a condition of enforcement of the reciprocal obligation of Daewoo to ship the subject matter of the contract the foundry pig
cash to the seller if it finds that the documents submitted by the seller conform with what the letter of iron to Reliance. But the contract itself between Reliance and Daewoo had already sprung into legal existence and was
credit requires. The bank then obtains possession of the documents upon paying the seller. The enforceable.
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
The L/C provided for in that contract was the mode or mechanism by which payment was to be effected by Reliance of the
documents of title over the goods, while the goods only after reimbursing the bank. 7 (footnotes
price of the pig iron. In undertaking to accept or pay the drafts presented to it by the beneficiary according to the tenor of an
L/C, and only later on being reimbursed by the account party, the issuing bank in effect extends a loan to the account party.
This loan feature, combined with the bank's undertaking to accept the beneficiary's drafts drawn on the bank, constitutes the
A letter of credit is one of the modes of payment, set out in Sec. 8, Central Bank Circular No. 1389, "Consolidated Foreign L/C as a mode of payment. 10 Logically, before the issuing bank open an L/C, it will take steps to ensure that it would indeed
Exchange Rules and Regulations," dated 13 April 1993, by which commercial banks sell foreign exchange to service be reimbursed when the time comes. Before an L/C can be opened, specific legal requirements must be complied with.
payments for, e.g., commodity imports. The primary purpose of the letter of credit is to substitute for and therefore support,
the agreement of the buyer/importer to pay money under a contract or other arrangement. 8 It creates in the seller/exporter a
The Central Bank of the Philippines has established the following requirements for opening a letter of credit:
secure expectation of payment.

All L/C's must be opened on or before the date of shipment with maximum validity of one (1) year.
A letter of credit transaction may thus be seen to be a composite of at least three (3) distinct but intertwined relationships
Likewise, only one L/C should be opened for each import transaction. for purposes of opening an L/C,
being concretized in a contract:
importers shall submit to the commercial bank the following documents:

(a) One contract relationship links the party applying for the L/C (the account party or buyer or
a) the duly accomplished L/C application;
importer) and the party for whose benefit the L/C is issued (the beneficiary or seller or exporter). In this
contract, the account party, here Reliance, agrees, among other things and subject to the terms and
conditions of the contract, to pay money to the beneficiary, here Daewoo. b) firm offer/proforma invoice which shall contain information on the specific
quantity of the importation, unit cost and total cost, complete
description/specification of the commodity and the Philippine Standard
(b) A second contract relationship is between the account party and the issuing bank. Under this
Commodity Classification statistical code;
contract, (sometimes called the "Application and Agreement" or the "Reimbursement Agreement"), the
c) permits/clearances from the appropriate government agencies, whenever WHEREFORE, in view of the foregoing, the Petition for Review is hereby DENIED for lack of merit and the decision of the
applicable;and Court of Appeals dated 8 February 1991 is hereby AFFIRMED. Costs against petitioner.

d) duly accomplished Import Entry Declaration (IED) form which shall serve as SO ORDERED.
basis for payment of advance duties as required under PD 1853. 11 (Emphasis
[G.R. No. 109087. May 9, 2001]

The need for permits or clearances from appropriate government agencies arises when regulated commodities are to be
RODZSSEN SUPPLY CO. INC., petitioner, vs. FAR EAST BANK & TRUST CO., respondent.
imported. 12 Certain commodities are classified as "regulated commodities" for purposes of their importation, "for reasons of
public health and safety, national security, international commitments, and development/rationalization of local
industry." 13 The petitioner in the instant case entered into a transaction to import foundry pig iron, a regulated commodity. In DECISION
respect of the importation of this particular commodity, the Iron and Steel Authority (ISA) is the government agency
designated to issue the permit or clearance. 14 Prior to the issuance of such permit or clearance, ISA asks the buyer/importer PANGANIBAN, J.:
to comply with particular requirements, such as to show the availability of foreign exchange allocations. The issuance of an
L/C becomes, among other things, an indication of compliance by the buyer/importer with his own government's regulations
relating to imports and to payment thereof. 15 When both parties to a transaction are mutually negligent in the performance of their obligations, the fault of one
cancels the negligence of the other. Thus, their rights and obligations may be determined equitably. No one shall enrich
oneself at the expense of another.
The records shows that the opening of the L/C in the instant case became very difficult because Reliance had exhausted its
dollar allocation. Reliance knew that it had already exceeded its dollar allocation for the year 1980 when it entered into the The Case
31 July 1980 transaction with Daewoo. 16 As a rule, when the importer has exceeded its foreign exchange allocation, his
application would be denied. However, ISA could reconsider such application on a case to case basis. 17 Thus, in the instant
case, ISA required Reliance to support its application by submitting purchase orders from end-users for the same quantity Before us is a Petition for Review on Certiorari [1] under Rule 45 of the Rules of Court, assailing the January 21, 1993
the latter wished to import. As earlier noted, Reliance was able to present purchase orders for only 900 metric tons of the Decision[2] of the Court of Appeals [3] (CA) in CA-GR CV No. 26045. The challenged Decision affirmed with modification the
subject pig iron. 18 For having exceeded its foreign exchange allocation before it entered into the 31 July 1980 contract with ruling of the Regional Trial Court of Bacolod City in Civil Case No. 2296. The CA ruled as follows:
Daewoo, petitioner Reliance can hold only itself responsible. for having failed to secure end-users purchase orders
equivalent to 2,000 metric tons, only Reliance should be held responsible.
WHEREFORE, the decision under appeal should be, as it is hereby affirmed in all its aspects, except for the deletion of
paragraph 2 of its dispositive portion, which paragraph shall be replaced by a new paragraph which shall read as follows:
Daewoo rejected Reliance's proposed reduced tonnage. It had the right to demand compliance with the terms of the basic
contract and had no duty to accept any unilateral modification of that contract. Compliance with Philippine legal requirements
2. ordering the defendant to pay the plaintiff the sum equivalent to 10% of the total amount due and collectible, as attorneys
was the duty of Reliance; it is not disputed that ISA's requirements were legal and valid, and not arbitrary or capricious.
fees; and
Compliance with such requirements, like keeping within one's dollar allocation and complying with the requirements of ISA,
were within the control of Reliance and not of Daewoo. The Court is compelled to agree with the Court of Appeals that the
non-opening of the L/C was due to the failure of Reliance to comply with its duty under the contract. No pronouncement as to costs.[4]

We believe and so hold that failure of a buyer seasonably to furnish an agreed letter of credit is a breach of he contract On the other hand, the trial court had rendered this judgment:
between buyer and seller. Where the buyer fails to open a letter of credit as stipulated, the seller or exporter is entitled to
claim damages for such breach. Damages for failure to open a commercial credit may, in appropriate cases, include the loss 1. Ordering the defendant to pay the plaintiff the sum of P76,000.00, representing the principal amount being claimed
of profit which the seller would reasonably have made had the transaction been carried out. 19 in this action, plus interest thereon at the rate of 12% per annum counted from October 1979 until fully paid;

We hold, further, that the Court of Appeals committed no reversible error when it ruled that the damages incurred by Daewoo 2. Ordering the defendant to pay the plaintiff the sum equivalent to 25% of the total amount due and collectible; and
were sufficiently proved with the testimony of Mr. Ricardo Fernandez and "the various documentary evidence showing the
loss suffered by the defendant when it was compelled to sell the subject goods at a lower price." 20
3. Ordering the defendant to pay the costs of the suit. [5]
The Facts
The CA rejected petitioners imputation of bad faith and negligence to respondent bank for paying for the two hydraulic
loaders, which had been delivered after the expiration of the subject letter of credit.The appellate court pointed out that
petitioner received the equipment after the letter of credit had expired. To absolve defendant from liability for the price of the
The factual and procedural antecedents of the case are summarized by the Court of Appeals as follows:
same, the CA explained, is to allow it to get away with its unjust enrichment at the expense of the plaintiff.

In the complaint from which the present proceedings originated, it is alleged that on January 15, 1979, defendant Rodzssen
Hence, this Petition.[7]
Supply, Inc. opened with plaintiff Far East Bank and Trust Co. a 30-day domestic letter of credit, LC No. 52/0428/79-D, in the
amount of P190,000.00 in favor of Ekman and Company, Inc. (Ekman) for the purchase from the latter of five units of
hydraulic loaders, to expire on February 15, 1979; that subsequent amendments extended the validity of said LC up to
October 16, 1979; that on March 16, 1979, three units of the hydraulic loaders were delivered to defendant for which plaintiff
on March 26, 1979, paid Ekman the sum of P114,000.00, which amount defendant paid plaintiff before the expiry date of the
Petitioner presents the following issues for resolution:
LC; that the shipment of the remaining two units of hydraulic loaders valued at P76,000.00 sent by Ekman was readily
received by the defendant before the expiry date [of] subject LC; that upon Ekmans presentation of the documents for the
P76,000.00 representing final negotiation on the LC before the expiry date, and after a series of negotiations, plaintiff paid to 1. Whether or not it is proper for a banking institution to pay a letter of credit which has long expired or been cancelled.
Ekman the amount of P76,000.00; and that upon plaintiffs demand on defendant to pay for said amount (P76,000.00),
defendant refused to pay ... without any valid reason. Plaintiff prays for judgment ordering defendant to pay the 2. Whether or not respondent courts were correct in their conclusion that there was a consummated sale between petitioner
abovementioned P76,000.00 plus due interest thereon, plus 25% of the amount of the award as attorneys fees. and Ekman Co.

In the Answer, defendant interposed, inter alia, by way of special and affirmative defenses that plaintiff ha[d] no cause of 3. Whether or not Respondent Court of Appeals was correct in evading the issues raised in the appeal that under the trust
action against defendant; that there was a breach of contract by plaintiff who in bad faith paid Ekman, knowing that the two receipt, petitioner was merely the depositary of private respondent with respect to the goods covered by the trust receipt. [8]
units of hydraulic loaders had been delivered to defendant after the expiry date of subject LC; and that in view of the breach
of contract, defendant offered to return to plaintiff the two units of hydraulic loaders, presently still with the defendant but The Courts Ruling
plaintiff refused to take possession thereof.

The trial courts ruling that plaintiff [was] entitled to recover from defendant the amount of P76,000.00 was based on its We affirm the Court of Appeals, but lower the interest rate to only 6 percent and delete the award of attorneys fees.
following findings/conclusions: (1) under the contract of sale of the five loaders between Ekman and defendant, upon
Ekmans delivery to, and acceptance by, defendant of the two remaining units of the five loaders, defendant became liable to First Issue:

Ekman for the payment of said two units.However, as defendant did not pay Ekman, the latter pressed plaintiff for the
payment of said two loaders in the amount of P76,000.00. In the honest belief that it was still under obligation to Ekman for Efficacy of Letter of Credit
said amount, considering that Ekman had presented all the necessary documents, plaintiff voluntarily paid the said amount
to Ekman. Plaintiffs x x x voluntary and lawful act of payment g[a]ve rise to a quasi-contract between plaintiff and defendant;
and if defendant should escape liability for said amount, the result would be to allow defendant to enrich itself at plaintiffs Petitioner asserts that respondent bank was negligent in paying for the two hydraulic loaders, when it no longer had
expense x x x. any obligation to do so in view of the expiration and cancellation of the Letter of Credit.

x x x. While defendant, indeed offered to return the two loaders to plaintiff, x x x this offer was made 3 years after defendants Petitioner Rodzssen Supply Inc. applied for and obtained an irrevocable 30-day domestic Letter of Credit from Far
receipt of the goods, when plaintiff pressed for payment. By said voluntary acceptance of the two loaders, estoppel works East Bank and Trust Company Inc. on January 15, 1979, in favor of Ekman and Company Inc., in order to finance the
against defendant who should have refused delivery of, and/or immediately offered to return, the goods. purchase of five units of hydraulic loaders in the amount of P190,000. Originally set to expire on February 15, 1979, the
subject Letter of Credit was amended several times to extend its validity until October 16, 1979.

Accordingly, judgment was rendered in favor of the plaintiff and against the defendant x x x. [6]
The Letter of Credit expressly restricted the negotiation to respondent bank and specifically instructed Ekman and
The CA Ruling Company Inc. to tender the following documents: (1) delivery receipt duly acknowledged by the buyer, (2) accepted draft,
and (3) duly signed commercial invoices. Likewise, the instrument contained a provision with regard to its expiration date. [9]

For the first three hydraulic loaders that were delivered, the bank paid the amount specified in the letter of credit. The
present dispute pertains only to the last two hydraulic loaders.
Payment of Interest
Clearly, the bank paid Ekman when the former was no longer bound to do so under the subject Letter of Credit. The
records show that respondent paid the latter P76,000 for the last two hydraulic loaders on March 14, 1980, [10] five
months after the expiration of the Letter of Credit on October 16, 1979. [11] In fact, on December 27, 1979, the bank had
We, however, disagree with both the CA and the trial courts imposition of 12 percent interest on the sum to be paid by
informed Rodzssen of the cancellation of the commercial paper and credited P22,800 to the account of the latter. The
petitioner. In Eastern Shipping Lines v. CA,[14] the Court laid down the following guidelines in the imposition of interest:
amount represented the marginal deposit, which petitioner had been required to put up for the unnegotiated portion of the
Letter of Credit --P76,000 for the two hydraulic loaders.[12]
The subject Letter of Credit had become invalid upon the lapse of the period fixed therein. Thus, respondent should
not have paid Ekman; it was not obliged to do so. In the same vein, of no moment was Ekmans presentation, within the 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
prescribed period, of all the documents necessary for collection, as the Letter of Credit had already expired and had in fact awarded may be imposed at the discretion of the court at the rate of 6% per annum.No interest, however, shall be adjudged
been cancelled. 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
Second Issue:
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
Was Petitioner Liable to Respondent?
for the computation of legal interest shall, in any case, be on the amount finally adjudged.

Be that as it may, we agree with the CA that petitioner should pay respondent bank the amount the latter expended for 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether
the equipment belatedly delivered by Ekman and voluntarily received and kept by petitioner. the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.
Respondent banks right to seek recovery from petitioner is anchored, not upon the inefficacious Letter of Credit, but
on Article 2142 of the Civil Code which reads as follows: Although the sum of money involved in this case was payable to a bank, the present factual milieu clearly shows that
it was not a loan or forbearance of money. Thus, pursuant to established jurisprudence and Article 2009 of the Civil Code,
petitioner is bound to pay interest at 6 percent per annum, computed from April 7, 1983, the time respondent bank
Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be
demanded payment from petitioner. From the finality of the judgment until its satisfaction, the interest shall be 12 percent per
unjustly enriched or benefited at the expense of another.

Indeed, equitable considerations behoove us to allow recovery by respondent. True, it erred in paying Ekman, but Attorneys Fees
petitioner itself was not without fault in the transaction. It must be noted that the latter had voluntarily received and kept the
loaders since October 1979.
Considering that negligence is imputable to both parties, both should bear their respective costs of the suit. We also
delete the award of attorneys fees in favor of respondent bank. [15]
Petitioner claims that it accepted the late delivery of the equipment, only because it was bound to accept it under the
companys trust receipt arrangement with respondent bank.
WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals AFFIRMED with the
Granting that petitioner was bound under such arrangement to accept the late delivery of the equipment, we note its
unexplained inaction for almost four years with regard to the status of the ownership or possession of the
loaders. Bewildering was its lack of action to validate the ownership and possession of the loaders, as well as its stolidity 1. Petitioner Rodzssen Supply Co., Inc. is ORDERED to reimburse Respondent Far East Bank and Trust Co., Inc. P76,000
over the purported failed sales transaction. Significant too is the fact that it formalized its offer to return the two pieces of plus interest thereon at the rate of 6 percent per annum computed from April 7, 1983. After this judgment becomes final, the
equipment only after respondents demand for payment, which came more than three years after it accepted delivery. interest shall be 12 percent per annum.

When both parties to a transaction are mutually negligent in the performance of their obligations, the fault of one 2. The award of attorneys fees in favor of respondent is DELETED.
cancels the negligence of the other and, as in this case, their rights and obligations may be determined equitably under the
law proscribing unjust enrichment.
3. No pronouncement as to costs.

(.) Anacleto R. Chi