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1. EDWARD C. ONG, petitioner, vs.

THE COURT OF APPEALS AND THE PEOPLE OF THE


PHILIPPINES, respondents.
DECISION
CARPIO, J.:

The Case

Petitioner Edward C. Ong (petitioner) filed this petition for review on certiorari[1] to nullify the Decision[2] dated 27
October 1994 of the Court of Appeals in CA-G.R. C.R. No. 14031, and its Resolution[3] dated 18 April 1995, denying
petitioners motion for reconsideration. The assailed Decision affirmed in toto petitioners conviction[4] by the Regional
Trial Court of Manila, Branch 35,[5] on two counts of estafa for violation of the Trust Receipts Law,[6] as follows:

WHEREFORE, judgment is rendered: (1) pronouncing accused EDWARD C. ONG guilty beyond reasonable doubt on two
counts, as principal on both counts, of ESTAFA defined under No. 1 (b) of Article 315 of the Revised Penal Code in relation
to Section 13 of Presidential Decree No. 115, and penalized under the 1st paragraph of the same Article 315, and
sentenced said accused in each count to TEN (10) YEARS of prision mayor, as minimum, to TWENTY (20) YEARS of
reclusion temporal, as maximum;

(2) ACQUITTING accused BENITO ONG of the crime charged against him, his guilt thereof not having been established
by the People beyond reasonable doubt;

(3) Ordering accused Edward C. Ong to pay private complainant Solid Bank Corporation the aggregate sum of
P2,976,576.37 as reparation for the damages said accused caused to the private complainant, plus the interest thereon at
the legal rate and the penalty of 1% per month, both interest and penalty computed from July 15, 1991, until the principal
obligation is fully paid;

(4) Ordering Benito Ong to pay, jointly and severally with Edward C. Ong, the private complainant the legal interest and
the penalty of 1% per month due and accruing on the unpaid amount of P1,449,395.71, still owing to the private offended
under the trust receipt Exhibit C, computed from July 15, 1991, until the said unpaid obligation is fully paid;

(5) Ordering accused Edward C. Ong to pay the costs of these two actions.

SO ORDERED.[7]

The Charge

Assistant City Prosecutor Dina P. Teves of the City of Manila charged petitioner and Benito Ong with two counts of estafa
under separate Informations dated 11 October 1991.

In Criminal Case No. 92-101989, the Information indicts petitioner and Benito Ong of the crime of estafa committed as
follows:

That on or about July 23, 1990, in the City of Manila, Philippines, the said accused, representing ARMAGRI International
Corporation, conspiring and confederating together did then and there willfully, unlawfully and feloniously defraud the
SOLIDBANK Corporation represented by its Accountant, DEMETRIO LAZARO, a corporation duly organized and
existing under the laws of the Philippines located at Juan Luna Street, Binondo, this City, in the following manner, to wit:
the said accused received in trust from said SOLIDBANK Corporation the following, to wit:

10,000 bags of urea

valued at P2,050,000.00 specified in a Trust Receipt Agreement and covered by a Letter of Credit No. DOM GD 90-009 in
favor of the Fertiphil Corporation; under the express obligation on the part of the said accused to account for said goods to
Solidbank Corporation and/or remit the proceeds of the sale thereof within the period specified in the Agreement or return
the goods, if unsold immediately or upon demand; but said accused, once in possession of said goods, far from complying
with the aforesaid obligation failed and refused and still fails and refuses to do so despite repeated demands made upon
him to that effect and with intent to defraud, willfully, unlawfully and feloniously misapplied, misappropriated and
converted the same or the value thereof to his own personal use and benefit, to the damage and prejudice of the said
Solidbank Corporation in the aforesaid amount of P2,050,000.00 Philippine Currency.

Contrary to law.

In Criminal Case No. 92-101990, the Information likewise charges petitioner of the crime of estafa committed as follows:

That on or about July 6, 1990, in the City of Manila, Philippines, the said accused, representing ARMAGRI International
Corporation, did then and there willfully, unlawfully and feloniously defraud the SOLIDBANK Corporation represented by
its Accountant, DEMETRIO LAZARO, a corporation duly organized and existing under the laws of the Philippines located
at Juan Luna Street, Binondo, this City, in the following manner, to wit: the said accused received in trust from said
SOLIDBANK Corporation the following goods, to wit:

125 pcs. Rear diff. assy RNZO 49


50 pcs. Front & Rear diff assy. Isuzu Elof
85 units 1-Beam assy. Isuzu Spz

all valued at P2,532,500.00 specified in a Trust Receipt Agreement and covered by a Domestic Letter of Credit No. DOM
GD 90-006 in favor of the Metropole Industrial Sales with address at P.O. Box AC 219, Quezon City; under the express
obligation on the part of the said accused to account for said goods to Solidbank Corporation and/or remit the proceeds of
the sale thereof within the period specified in the Agreement or return the goods, if unsold immediately or upon demand;
but said accused, once in possession of said goods, far from complying with the aforesaid obligation failed and refused and
still fails and refuses to do so despite repeated demands made upon him to that effect and with intent to defraud, willfully,
unlawfully and feloniously misapplied, misappropriated and converted the same or the value thereof to his own personal
use and benefit, to the damage and prejudice of the said Solidbank Corporation in the aforesaid amount of P2,532,500.00
Philippine Currency.

Contrary to law.

Arraignment and Plea

With the assistance of counsel, petitioner and Benito Ong both pleaded not guilty when arraigned. Thereafter, trial
ensued.

Version of the Prosecution

The prosecutions evidence disclosed that on 22 June 1990, petitioner, representing ARMAGRI International
Corporation[8] (ARMAGRI), applied for a letter of credit for P2,532,500.00 with SOLIDBANK Corporation (Bank) to
finance the purchase of differential assemblies from Metropole Industrial Sales. On 6 July 1990, petitioner, representing
ARMAGRI, executed a trust receipt[9] acknowledging receipt from the Bank of the goods valued at P2,532,500.00.

On 12 July 1990, petitioner and Benito Ong, representing ARMAGRI, applied for another letter of credit for P2,050,000.00
to finance the purchase of merchandise from Fertiphil Corporation. The Bank approved the application, opened the letter
of credit and paid to Fertiphil Corporation the amount of P2,050,000.00. On 23 July 1990, petitioner, signing for
ARMAGRI, executed another trust receipt[10] in favor of the Bank acknowledging receipt of the merchandise.

Both trust receipts contained the same stipulations. Under the trust receipts, ARMAGRI undertook to account for the
goods held in trust for the Bank, or if the goods are sold, to turn over the proceeds to the Bank. ARMAGRI also undertook
the obligation to keep the proceeds in the form of money, bills or receivables as the separate property of the Bank or to
return the goods upon demand by the Bank, if not sold. In addition, petitioner executed the following additional
undertaking stamped on the dorsal portion of both trust receipts:

I/We jointly and severally agreed to any increase or decrease in the interest rate which may occur after July 1, 1981, when
the Central Bank floated the interest rates, and to pay additionally the penalty of 1% per month until the amount/s or
installment/s due and unpaid under the trust receipt on the reverse side hereof is/are fully paid.[11]

Petitioner signed alone the foregoing additional undertaking in the Trust Receipt for P2,253,500.00, while both petitioner
and Benito Ong signed the additional undertaking in the Trust Receipt for P2,050,000.00.

When the trust receipts became due and demandable, ARMAGRI failed to pay or deliver the goods to the Bank despite
several demand letters.[12] Consequently, as of 31 May 1991, the unpaid account under the first trust receipt amounted to
P1,527,180.66,[13] while the unpaid account under the second trust receipt amounted to P1,449,395.71.[14]

Version of the Defense

After the prosecution rested its case, petitioner and Benito Ong, through counsel, manifested in open court that they were
waiving their right to present evidence. The trial court then considered the case submitted for decision.[15]

The Ruling of the Court of Appeals

Petitioner appealed his conviction to the Court of Appeals. On 27 October 1994, the Court of Appeals affirmed the trial
courts decision in toto. Petitioner filed a motion for reconsideration but the same was denied by the Court of Appeals in the
Resolution dated 18 April 1995.

The Court of Appeals held that although petitioner is neither a director nor an officer of ARMAGRI, he certainly comes
within the term employees or other x x x persons therein responsible for the offense in Section 13 of the Trust Receipts
Law. The Court of Appeals explained as follows:

It is not disputed that appellant transacted with the Solid Bank on behalf of ARMAGRI. This is because the Corporation
cannot by itself transact business or sign documents it being an artificial person. It has to accomplish these through its
agents. A corporation has a personality distinct and separate from those acting on its behalf. In the fulfillment of its
purpose, the corporation by necessity has to employ persons to act on its behalf.

Being a mere artificial person, the law (Section 13, P.D. 115) recognizes the impossibility of imposing the penalty of
imprisonment on the corporation itself. For this reason, it is the officers or employees or other persons whom the law holds
responsible.[16]

The Court of Appeals ruled that what made petitioner liable was his failure to account to the entruster Bank what he
undertook to perform under the trust receipts. The Court of Appeals held that ARMAGRI, which petitioner represented,
could not itself negotiate the execution of the trust receipts, go to the Bank to receive, return or account for the entrusted
goods. Based on the representations of petitioner, the Bank accepted the trust receipts and, consequently, expected
petitioner to return or account for the goods entrusted.[17]

The Court of Appeals also ruled that the prosecution need not prove that petitioner is occupying a position in ARMAGRI in
the nature of an officer or similar position to hold him the person(s) therein responsible for the offense. The Court of
Appeals held that petitioners admission that his participation was merely incidental still makes him fall within the
purview of the law as one of the corporations employees or other officials or persons therein responsible for the offense.
Incidental or not, petitioner was then acting on behalf of ARMAGRI, carrying out the corporations decision when he
signed the trust receipts.

The Court of Appeals further ruled that the prosecution need not prove that petitioner personally received and
misappropriated the goods subject of the trust receipts. Evidence of misappropriation is not required under the Trust
Receipts Law. To establish the crime of estafa, it is sufficient to show failure by the entrustee to turn over the goods or the
proceeds of the sale of the goods covered by a trust receipt. Moreover, the bank is not obliged to determine if the goods
came into the actual possession of the entrustee. Trust receipts are issued to facilitate the purchase of merchandise. To
obligate the bank to examine the fact of actual possession by the entrustee of the goods subject of every trust receipt will
greatly impede commercial transactions.

Hence, this petition.

The Issues

Petitioner seeks to reverse his conviction by contending that the Court of Appeals erred:

1. IN RULING THAT, BY THE MERE CIRCUMSTANCE THAT PETITIONER ACTED AS AGENT AND SIGNED FOR
THE ENTRUSTEE CORPORATION, PETITIONER WAS NECESSARILY THE ONE RESPONSIBLE FOR THE
OFFENSE; AND

2. IN CONVICTING PETITIONER UNDER SPECIFICATIONS NOT ALLEGED IN THE INFORMATION.

The Ruling of the Court

The Court sustains the conviction of petitioner.

First Assigned Error: Petitioner comes within


the purview of Section 13 of the Trust Receipts Law.

Petitioner contends that the Court of Appeals erred in finding him liable for the default of ARMAGRI, arguing that in
signing the trust receipts, he merely acted as an agent of ARMAGRI. Petitioner asserts that nowhere in the trust receipts
did he assume personal responsibility for the undertakings of ARMAGRI which was the entrustee.

Petitioners arguments fail to persuade us.

The pivotal issue for resolution is whether petitioner comes within the purview of Section 13 of the Trust Receipts Law
which provides:

x x x. If the violation 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 offense. (Emphasis supplied)

We hold that petitioner is a person responsible for violation of the Trust Receipts Law.

The relevant penal provision of the Trust Receipts Law reads:

SEC. 13. Penalty Clause. The failure of the entrustee to turn over the proceeds of the sale of the goods, documents or
instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt
or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the
trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three Hundred and Fifteen,
Paragraph One (b), of Act Numbered Three Thousand Eight Hundred and Fifteen, as amended, otherwise known as the
Revised Penal Code. If the violation or offense is committed by a corporation, partnership, association or other juridical
entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or
persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense.
(Emphasis supplied)
The Trust Receipts Law is violated whenever the entrustee fails to: (1) turn over the proceeds of the sale of the goods, or
(2) return the goods covered by the trust receipts if the goods are not sold.[18] The mere failure to account or return gives
rise to the crime which is malum prohibitum.[19] There is no requirement to prove intent to defraud.[20]

The Trust Receipts Law recognizes the impossibility of imposing the penalty of imprisonment on a corporation. Hence, if
the entrustee is a corporation, the law makes the officers or employees or other persons responsible for the offense liable to
suffer the penalty of imprisonment. The reason is obvious: corporations, partnerships, associations and other juridical
entities cannot be put to jail. Hence, the criminal liability falls on the human agent responsible for the violation of the
Trust Receipts Law.

In the instant case, the Bank was the entruster while ARMAGRI was the entrustee. Being the entrustee, ARMAGRI was
the one responsible to account for the goods or its proceeds in case of sale. However, the criminal liability for violation of
the Trust Receipts Law falls on the human agent responsible for the violation. Petitioner, who admits being the agent of
ARMAGRI, is the person responsible for the offense for two reasons. First, petitioner is the signatory to the trust receipts,
the loan applications and the letters of credit. Second, despite being the signatory to the trust receipts and the other
documents, petitioner did not explain or show why he is not responsible for the failure to turn over the proceeds of the sale
or account for the goods covered by the trust receipts.

The Bank released the goods to ARMAGRI upon execution of the trust receipts and as part of the loan transactions of
ARMAGRI. The Bank had a right to demand from ARMAGRI payment or at least a return of the goods. ARMAGRI failed
to pay or return the goods despite repeated demands by the Bank.

It is a well-settled doctrine long before the enactment of the Trust Receipts Law, that the failure to account, upon demand,
for funds or property held in trust is evidence of conversion or misappropriation.[21] Under the law, mere failure by the
entrustee to account for the goods received in trust constitutes estafa. The Trust Receipts Law punishes dishonesty and
abuse of confidence in the handling of money or goods to the prejudice of public order.[22] The mere failure to deliver the
proceeds of the sale or the goods if not sold constitutes a criminal offense that causes prejudice not only to the creditor, but
also to the public interest.[23] Evidently, the Bank suffered prejudice for neither money nor the goods were turned over to
the Bank.

The Trust Receipts Law expressly makes the corporations officers or employees or other persons therein responsible for the
offense liable to suffer the penalty of imprisonment. In the instant case, petitioner signed the two trust receipts on behalf
of ARMAGRI[24] as the latter could only act through its agents. When petitioner signed the trust receipts, he
acknowledged receipt of the goods covered by the trust receipts. In addition, petitioner was fully aware of the terms and
conditions stated in the trust receipts, including the obligation to turn over the proceeds of the sale or return the goods to
the Bank, to wit:

Received, upon the TRUST hereinafter mentioned from SOLIDBANK CORPORATION (hereafter referred to as the
BANK), the following goods and merchandise, the property of said BANK specified in the bill of lading as follows: x x x and
in consideration thereof, I/we hereby agree to hold said goods in Trust for the said BANK and as its property with liberty
to sell the same for its account but without authority to make any other disposition whatsoever of the said goods or any
part thereof (or the proceeds thereof) either by way of conditional sale, pledge, or otherwise.

In case of sale I/we agree to hand the proceeds as soon as received to the BANK to apply against the relative acceptance
(as described above) and for the payment of any other indebtedness of mine/ours to SOLIDBANK CORPORATION.

x x x.

I/we agree to keep said goods, manufactured products, or proceeds thereof, whether in the form of money or bills,
receivables, or accounts, separate and capable of identification as the property of the BANK.

I/we further agree to return the goods, documents, or instruments in the event of their non-sale, upon demand or within
_______ days, at the option of the BANK.
x x x. (Emphasis supplied)[25]

True, petitioner acted on behalf of ARMAGRI. However, it is a well-settled rule that the law of agency governing civil cases
has no application in criminal cases. When a person participates in the commission of a crime, he cannot escape
punishment on the ground that he simply acted as an agent of another party.[26] In the instant case, the Bank accepted
the trust receipts signed by petitioner based on petitioners representations. It is the fact of being the signatory to the two
trust receipts, and thus a direct participant to the crime, which makes petitioner a person responsible for the offense.

Petitioner could have raised the defense that he had nothing to do with the failure to account for the proceeds or to return
the goods. Petitioner could have shown that he had severed his relationship with ARMAGRI prior to the loss of the
proceeds or the disappearance of the goods. Petitioner, however, waived his right to present any evidence, and thus failed
to show that he is not responsible for the violation of the Trust Receipts Law.

There is no dispute that on 6 July 1990 and on 23 July 1990, petitioner signed the two trust receipts[27] on behalf of
ARMAGRI. Petitioner, acting on behalf of ARMAGRI, expressly acknowledged receipt of the goods in trust for the Bank.
ARMAGRI failed to comply with its undertakings under the trust receipts. On the other hand, petitioner failed to explain
and communicate to the Bank what happened to the goods despite repeated demands from the Bank. As of 13 May 1991,
the unpaid account under the first and second trust receipts amounted to P1,527,180.60 and P1,449,395.71, respectively.
[28]

Second Assigned Error: Petitioners conviction under


the allegations in the two Informations for Estafa.

Petitioner argues that he cannot be convicted on a new set of facts not alleged in the Informations. Petitioner claims that
the trial courts decision found that it was ARMAGRI that transacted with the Bank, acting through petitioner as its
agent. Petitioner asserts that this contradicts the specific allegation in the Informations that it was petitioner who was
constituted as the entrustee and was thus obligated to account for the goods or its proceeds if sold. Petitioner maintains
that this absolves him from criminal liability.

We find no merit in petitioners arguments.

Contrary to petitioners assertions, the Informations explicitly allege that petitioner, representing ARMAGRI, defrauded
the Bank by failing to remit the proceeds of the sale or to return the goods despite demands by the Bank, to the latters
prejudice. As an essential element of estafa with abuse of confidence, it is sufficient that the Informations specifically
allege that the entrustee received the goods. The Informations expressly state that ARMAGRI, represented by petitioner,
received the goods in trust for the Bank under the express obligation to remit the proceeds of the sale or to return the
goods upon demand by the Bank. There is no need to allege in the Informations in what capacity petitioner participated to
hold him responsible for the offense. Under the Trust Receipts Law, it is sufficient to allege and establish the failure of
ARMAGRI, whom petitioner represented, to remit the proceeds or to return the goods to the Bank.

When petitioner signed the trust receipts, he claimed he was representing ARMAGRI. The corporation obviously acts only
through its human agents and it is the conduct of such agents which the law must deter.[29] The existence of the corporate
entity does not shield from prosecution the agent who knowingly and intentionally commits a crime at the instance of a
corporation.[30]

Penalty for the crime of Estafa.

The penalty for the crime of estafa is prescribed in Article 315 of the Revised Penal Code, as follows:

1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if the amount of
the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if such amount exceeds the latter sum, the penalty
provided in this paragraph shall be imposed in its maximum period, adding one year for each additional 10,000 pesos; but
the total penalty which may be imposed should not exceed twenty years. x x x.

In the instant case, the amount of the fraud in Criminal Case No. 92-101989 is P1,527,180.66. In Criminal Case No. 92-
101990, the amount of the fraud is P1,449,395.71. Since the amounts of the fraud in each estafa exceeds P22,000.00, the
penalty of prision correccional maximum to prision mayor minimum should be imposed in its maximum period as
prescribed in Article 315 of the Revised Penal Code. The maximum indeterminate sentence should be taken from this
maximum period which has a duration of 6 years, 8 months and 21 days to 8 years. One year is then added for each
additional P10,000.00, but the total penalty should not exceed 20 years. Thus, the maximum penalty for each count of
estafa in this case should be 20 years.

Under the Indeterminate Sentence Law, the minimum indeterminate sentence can be anywhere within the range of the
penalty next lower in degree to the penalty prescribed by the Code for the offense. The minimum range of the penalty is
determined without first considering any modifying circumstance attendant to the commission of the crime and without
reference to the periods into which it may be subdivided.[31] The modifying circumstances are considered only in the
imposition of the maximum term of the indeterminate sentence.[32] Since the penalty prescribed in Article 315 is prision
correccional maximum to prision mayor minimum, the penalty next lower in degree would be prision correccional
minimum to medium. Thus, the minimum term of the indeterminate penalty should be anywhere within 6 months and 1
day to 4 years and 2 months.[33]

Accordingly, the Court finds a need to modify in part the penalties imposed by the trial court. The minimum penalty for
each count of estafa should be reduced to four (4) years and two (2) months of prision correccional.

As for the civil liability arising from the criminal offense, the question is whether as the signatory for ARMAGRI,
petitioner is personally liable pursuant to the provision of Section 13 of the Trust Receipts Law.

In Prudential Bank v. Intermediate Appellate Court,[34] the Court discussed the imposition of civil liability for violation of
the Trust Receipts Law in this wise:

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 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: corporation, partnership, association or other
juridical entities cannot be put in jail. However, it is these entities which are made liable for the civil liabilities arising
from the criminal offense. This is the import of the clause without prejudice to the civil liabilities arising from the criminal
offense. (Emphasis supplied)

In Prudential Bank, the Court ruled that the person signing the trust receipt for the corporation is not solidarily liable
with the entrustee-corporation for the civil liability arising from the criminal offense. He may, however, be personally
liable if he bound himself to pay the debt of the corporation under a separate contract of surety or guaranty.

In the instant case, petitioner did not sign in his personal capacity the solidary guarantee clause[35] found on the dorsal
portion of the trust receipts. Petitioner placed his signature after the typewritten words ARMCO INDUSTRIAL
CORPORATION found at the end of the solidary guarantee clause. Evidently, petitioner did not undertake to guaranty
personally the payment of the principal and interest of ARMAGRIs debt under the two trust receipts.
In contrast, petitioner signed the stamped additional undertaking without any indication he was signing for ARMAGRI.
Petitioner merely placed his signature after the additional undertaking. Clearly, what petitioner signed in his personal
capacity was the stamped additional undertaking to pay a monthly penalty of 1% of the total obligation in case of
ARMAGRIs default.
In the additional undertaking, petitioner bound himself to pay jointly and severally a monthly penalty of 1% in case of
ARMAGRIs default.[36] Thus, petitioner is liable to the Bank for the stipulated monthly penalty of 1% on the outstanding
amount of each trust receipt. The penalty shall be computed from 15 July 1991, when petitioner received the demand
letter,[37] until the debt is fully paid.
WHEREFORE, the assailed Decision is AFFIRMED with MODIFICATION. In Criminal Case No. 92-101989 and in
Criminal Case No. 92-101990, for each count of estafa, petitioner EDWARD C. ONG is sentenced to an indeterminate
penalty of imprisonment from four (4) years and two (2) months of prision correccional as MINIMUM, to twenty (20) years
of reclusion temporal as MAXIMUM. Petitioner is ordered to pay SOLIDBANK CORPORATION the stipulated penalty of
1% per month on the outstanding balance of the two trust receipts to be computed from 15 July 1991 until the debt is fully
paid.
SO ORDERED.

2. LORENZO M. SARMIENTO, JR. and GREGORIO LIMPIN, JR., petitioners, vs. COURT OF APPEALS
and ASSOCIATED BANKING CORP., respondents.
DECISION
AUSTRIA-MARTINEZ, J.:

Filed with this court is the petition for review under Rule 45 of the Rules of Court assailing the July 31, 1995 Decision[1]
of the Court of Appeals in CA-G.R. CV No. 31568 which affirmed the Decision of the Regional Trial Court of Davao City
dated August 1, 1990 in Civil Case No. 19,272-88; and the October 25, 1995 Resolution[2] denying petitioners Motion for
Reconsideration.

The dispositive portion of the trial courts decision reads as follows:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered ordering defendants Lorenzo Sarmiento, Jr. and
Gregorio Limpin, Jr. to pay jointly and severally, the plaintiff bank the principal sum of P495,000.00 plus interest thereon
at the legal rate from December 6, 1978 until the full amount is paid; the sum of P49,500.00 as the agreed attorneys fees
and the costs of suit.

Defendant Sarmientos counterclaim is DISMISSED.

SO ORDERED.[3]

The facts of the case as found by the trial court and affirmed by the Court of Appeals are as follows:

On September 6, 1978, defendant Gregorio Limpin, Jr. and Antonio Apostol, doing business under the name and style of
Davao Libra Industrial Sales, filed an application for an Irrevocable Domestic Letter of Credit with the plaintiff Bank for
the amount of P495,000.00 in favor of LS Parts Hardware and Machine Shop (herein after referred to as LS Parts) for the
purchase of assorted scrap irons. Said application was signed by defendant Limpin and Apostol (Exh. A). The aforesaid
application was approved, and plaintiff Bank issued Domestic Letter of Credit No. DLC No. DVO-78-006 in favor of LS
Parts for P495,000.00 (Exh. B). Thereafter, a Trust Receipt dated September 6, 1978, was executed by defendant Limpin
and Antonio Apostol (Exh. C). In said Trust Receipt, the following stipulation, signed by defendant Lorenzo Sarmiento, Jr.
appears: -
In consideration of the Associated Banking Corporation releasing to Gregorio Limpin and Antonio Apostol goods
mentioned in the trust receipt, we hereby jointly and severally undertake and agree to pay, on demand, to the Associated
Bank Corporation all sums and amount of money which said Associated Banking Corporation may call upon us to pay
arising out of, pertaining to, and/or any manner connected with the trust receipt, WE FURTHER AGREE that our liability
in this undertaking shall be direct and immediate and not contingent upon the pursuit by the Associated Banking
Corporation of whatever remedies it may have against the aforesaid Gregorio Limpin and Antonio Apostol.

SGD. T/LORENZO SARMIENTO, JR.

Surety/Guarantor (Exh. C-1)

Among others, the Trust Receipt (Exh. C) provided that:

The defendants acknowledged to have received in trust from the plaintiff Bank the merchandise covered by the documents
and agreed to hold said merchandise in storage as the property of the Bank, with liberty to sell the same for cash for its
accounts provided the proceeds thereof are turned over in their entirety to the bank to be applied against acceptance and
any other indebtedness of the defendants to the bank. (Exh. C-2)

That the defendants shall immediately give notice to said Bank of any average damage, non-shipment, shortage, non-
delivery or other happening not in the usual and ordinary course of business (Exh. C-3).

That the due date of the Trust Receipt is December 5, 1978, (Exh. C-4).

The defendants failed to comply with their undertaking under the Trust Receipt. Hence as early as March, 1980, demands
were made for them to comply with their undertaking (Exhs. Q, R to R-2, S, T, D to D-1; F to F-2). However, defendants
failed to pay their account. Legal action against the defendants was deferred due to the proposed settlement of the account
(Exh U). However, no settlement was reached. Hence the bank, thru counsel, sent a final letter of demand on May 26, 1986
(Exh. E). On June 11, 1986, a complaint for Violation of the Trust Receipt Law was filed against the defendants before the
City Fiscals Office (Exh. L-3). Thereafter, the corresponding Information was filed against the defendants. Defendant
Lorenzo Sarmiento, Jr. was, however, dropped from the Information while defendant Gregorio Limpin, Jr. was convicted
(Exh. P to P-9).

The defendants claim that they cannot be held liable as the 825 tons of assorted scrap iron, subject of the trust receipt
agreement, were lost when the vessel transporting them sunk, and that said scrap iron were delivered to Davao Libra
Industrial Sales, a business concern over which they had no interest whatsoever.

They tried to show that the scrap irons were loaded on board Barge L-1853, owned and operated by Luzon Stevedoring, for
shipment to Toledo Atlas Pier in Cebu (Exh. 1; that the said Barge capsized on October 4, 1978 while on its way to Toledo
City, and a notice of Marine Protest was made by Capt. Jose C. Barrientos (Exh. 2); that Benigno Azarcon executed an
affidavit attesting to the fact that Barge L-1853, capsized on October 4, 1978 and all its cargoes were washed away (Exh.
3); that Charlie Torregoza, a security guard of L.S. Sarmiento and Company, Inc., who was one of those assigned to escort
Barge L-1853, prepared an Incident Report, showing that said Barge capsized on October 4, 1978 and that cargoes were
washed away (Exhs. 4 and 4-A).[4]

After trial, the lower court rendered judgment in favor of herein private respondent Associated Banking Corporation.

On appeal by herein petitioners Sarmiento, Jr. and Limpin, Jr., the Court of Appeals affirmed the judgment of the trial
court, and, denied the Motion for Reconsideration of herein petitioner.

Hence, herein petition assigning the following errors:

1. THE RESPONDENT COURT OF APPEALS IN ITS AFOREQUOTED RULING HAD DEPARTED FROM THE
APPLICABLE BASIC PRINCIPLE AND PROCEDURE TO THE INSTANT CIVIL CASE EMBODYING THE
OFFENDED PARTYS (ASSOCIATED BANK) CLAIM FOR THE CIVIL LIABILITY OF P495,000.00, NOT HAVING
BEEN EXPRESSLY RESERVED BY IT, HAS BEEN NOT ONLY IMPLIEDLY, BUT IN FACT EXPRESSLY INSTITUTED
ALREADY IN CRIMINAL CASE NO. 14,126, THE INFORMATION FOR WHICH HAD BEEN FILED AHEAD AND THE
PROCEEDINGS CONDUCTED PRIOR TO THE PRESENT CIVIL CASE BEFORE THE SAME REGIONAL TRIAL
COURT OF DAVAO CITY IS PROCEDURALLY BARRED.

2. THE RESPONDENT COURT OF APPEALS HAD DISREGARDED BY JUDICIAL FIAT THAT THE RTC OF DAVAO
CITY IN CRIMINAL CASE No. 14,126 HAD IN FACT ALREADY ADJUDGED CIVIL LIABILITY OF THE SAME CLAIM
AS HEREIN IN FAVOR OF COMPLAINANT ASSOCIATED BANK AS AGAINST PETITIONER GREGORIO LIMPIN,
JR.

3. THE RESPONDENT COURT OF APPEALS HAD IGNORED THE CLEAR ADMITTED FACT OF RECORD THAT
FORMAL APPEARANCE OF COMPLAINANT BANKS COUNSEL HAD BEEN ENTERED IN CRIMINAL CASE NO.
14,126.[5]

With respect to the second assigned error, we find no cogent reason to disturb the finding of the RTC of Davao City
(Branch 12) in its Order dated December 16, 1988[6] that the decision promulgated by the RTC of Davao City (Branch 15)
in Criminal Case No. 14,126 did not contain an award of civil liability as it appears in the dispositive portion of the latter
courts Decision dated July 14, 1988.[7]

Being interrelated, we shall discuss jointly the first and third assigned errors.

At the outset, it should be stated that in the Amended Information, dated April 1, 1987, filed in Criminal Case No. 14,126,
Lorenzo Sarmiento, Jr. was dropped as an accused.[8] Hence, with respect to Sarmiento Jr., Criminal Case No. 14,126
cannot, in any way, bar the filing by private respondent of the present civil action against him.

With respect to Limpin, Jr., petitioners claim that private respondents right to institute separately the civil action for the
recovery of civil liability is already barred on the ground that the same was not expressly reserved in the criminal action
earlier filed against said respondent.

Pertinent to this issue is the then prevailing Rule 111 of the 1985 Rules on Criminal Procedure. Section 1 thereof provides:

Section 1. Institution of criminal and civil actions. When a criminal action is instituted, the civil action for the recovery of
civil liability is impliedly instituted with the criminal action, unless the offended party waives the civil action, reserves his
right to institute it separately, or institutes the civil action prior to the criminal action.

Such civil action includes recovery of indemnity under the Revised Penal Code, and damages under Articles 32, 33, 34 and
2176 of the Civil Code of the Philippines arising from the same act or omission of the accused.

A waiver of any of the civil actions extinguishes the others. The institution of, or the reservation of the right to file, any of
said civil actions separately waives the others.

The reservation of the right to institute the separate civil actions shall be made before the prosecution starts to present its
evidence and under circumstances affording the offended party a reasonable opportunity to make such reservation.

x x x.

Under the Revised Rules of Criminal Procedure, effective December 1, 2000,[9] the same Section of the same Rule
provides:

Section 1. Institution of criminal and civil actions. -- (a) When a criminal action is instituted, the civil action for the
recovery of civil liability arising from the offense charged shall be deemed instituted with the criminal action unless the
offended party waives the civil action, reserves the right to institute it separately or institutes the civil action prior to the
criminal action.

The reservation of the right to institute separately the civil action shall be made before the prosecution starts presenting
its evidence and under circumstances affording the offended party a reasonable opportunity to make such reservation.

x x x.

While a reading of the aforequoted provisions shows that the offended party is required to make a reservation of his right
to institute a separate civil action, jurisprudence instructs that such reservation may not necessarily be express but may
be implied[10] which may be inferred not only from the acts of the offended party but also from acts other than those of the
latter.

Demonstrative of the principle of implied reservation of a separate civil action are the cases of Vintola vs. Insular Bank of
Asia and America,[11] Bernaldes, Sr. vs. Bohol Land Transp., Inc.[12] and Jarantilla vs. Court of Appeals.[13]

In the Vintola case, Insular Bank of Asia and America (IBAA, for brevity) charged spouses Tirso and Loreta Vintola with
Estafa. The spouses were acquitted on the ground that the element of misappropriation or conversion was inexistent.
Subsequently, IBAA filed a civil case to recover the value of the goods allegedly misappropriated or converted. The lower
court initially dismissed the complaint holding that Vintolas acquittal in the criminal case barred the complaint, but on
motion for reconsideration filed by IBAA the lower court ruled in favor of the latter. On appeal, the Vintolas contended
that the civil action is already barred by the judgment in the criminal case because IBAA did not reserve in the criminal
case its right to enforce separately the Vintolas civil liability. They claim that by actively intervening in the prosecution of
the criminal case through a private prosecutor, IBAA had chosen to file the civil action impliedly with the criminal action,
pursuant to Section 1, Rule 111 of the 1985 Rules on Criminal Procedure. In ruling that the Estafa case is not a bar to the
institution of a civil action for collection, this Court held that:

[i]t is inaccurate for the VINTOLAS to claim that the judgment in the estafa case had declared that the facts from which
the civil action might arise, did not exist, for it will be recalled that the decision of acquittal expressly declared that the
remedy of the Bank is civil and not criminal in nature. This amounts to a reservation of the civil action in IBAAs favor for
the Court would not have dwelt on a civil liability that it had intended to extinguish by the same decision.

In the Bernaldes case, plaintiffs spouses Nicasio Bernaldes, Sr. and Perpetua Besas together with their minor son, Jovito,
filed a complaint for damages against defendant Bohol Land Transportation Co. for the death of Jovitos brother Nicasio,
Jr. and for serious physical injuries obtained by Jovito when the bus in which they were riding, fell off a deep precipice.
Defendant bus company moved to dismiss the complaint on the ground that in the criminal case earlier filed against its
bus driver, plaintiffs intervened through their counsel but did not reserve therein their right to file a separate action for
damages. The lower court sustained defendants motion to dismiss. On appeal, this Court held that the dismissal was
improper and ruled thus:

True, appellants, through private prosecutors, were allowed to intervene whether properly or improperly we do not decide
here in the criminal action against appellees driver, but if that amounted inferentially to submitting in said case their
claim for civil indemnity, the claim could have been only against the driver but not against appellee who was not a party
therein. As a matter of fact, however, inspite of appellees statements to the contrary in its brief, there is no showing in the
record before Us that appellants made of record their claim for damages against the driver or his employer; much less does
it appear that they had attempted to prove such damages. The failure of the court to make any pronouncement in its
decision concerning the civil liability of the driver and/or of his employer must therefore be due to the fact that the
criminal action did not involve at all any claim for civil indemnity.[14] (Emphasis supplied)

Later, in Jarantilla, this Court ruled that the failure of the trial court to make any pronouncement, favorable or
unfavorable, as to the civil liability of the accused amounts to a reservation of the right to have the civil liability litigated
and determined in a separate action, for nowhere in the Rules of Court is it provided that if the court fails to determine
the civil liability, it becomes no longer enforceable.[15]
Nothing in the records at hand shows that private respondent ever attempted to enforce its right to recover civil liability
during the prosecution of the criminal action against petitioners.

Petitioners correctly raised in their third assigned error that private respondents counsel made a formal entry of
appearance in Criminal Case No. 14,126.[16] However, it is undisputed that in the early proceedings of the criminal action,
private respondents counsel moved to withdraw his appearance. The trial court, in its Order dated September 4, 1987,
granted such motion. [17] This Court has previously held that the appearance of the offended party in the criminal case
through a private prosecutor may not per se be considered either as an implied election to have his claim for damages
determined in said proceedings or a waiver of his right to have it determined separately.[18] He must actually or actively
intervene in the criminal proceedings as to leave no doubt with respect to his intention to press a claim for damages in the
same action.[19] In the present case, it can be said with reasonable certainty that by withdrawal of appearance of its
counsel in the early stage of the criminal proceedings, the private respondent, indeed, had no intention of submitting its
claim for civil liability against petitioners in the criminal action filed against the latter.

Furthermore, private respondents right to file a separate complaint for a sum of money is governed by the provisions of
Article 31 of the Civil Code, to wit:

Article 31. When the civil action is based on an obligation not arising from the act or omission complained of as a felony,
such civil action may proceed independently of the criminal proceedings and regardless of the result of the latter.

In the present case, private respondents complaint against petitioners was based on the failure of the latter to comply with
their obligation as spelled out in the Trust Receipt executed by them.[20] This breach of obligation is separate and distinct
from any criminal liability for misuse and/or misappropriation of goods or proceeds realized from the sale of goods,
documents or instruments released under trust receipts, punishable under Section 13 of the Trust Receipts Law (P.D. 115)
in relation to Article 315(1), (b) of the Revised Penal Code. Being based on an obligation ex contractu and not ex delicto,
the civil action may proceed independently of the criminal proceedings instituted against petitioners regardless of the
result of the latter.[21]

WHEREFORE, the petition is denied and the assailed Decision and Resolution of the Court of Appeals are hereby
AFFIRMED.
No pronouncement as to costs.
SO ORDERED.

3. PILIPINAS BANK, petitioner, vs. ALFREDO T. ONG and LEONCIA LIM, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:

Petition for review on certiorari[1] of the Resolutions[2] dated January 9, 1998 and March 25, 1998 of the Court of Appeals
in CA-G.R. SP No. 42005, "Pilipinas Bank vs. The Honorable Secretary of Justice, the City Prosecutor of Makati City,
Alfredo T. Ong and Leoncia Lim," reversing its Decision dated August 29, 1997.

On April 1991, Baliwag Mahogany Corporation (BMC), through its president, respondent Alfredo T. Ong, applied for a
domestic commercial letter of credit with petitioner Pilipinas Bank (hereinafter referred to as the bank) to finance the
purchase of about 100,000 board feet of "Air Dried, Dark Red Lauan" sawn lumber.

The bank approved the application and issued Letter of Credit No. 91/725-HO in the amount of P3,500,000.00. To secure
payment of the amount, BMC, through respondent Ong, executed two (2) trust receipts[3] providing inter alia that it shall
turn over the proceeds of the goods to the bank, if sold, or return the goods, if unsold, upon maturity on July 28, 1991 and
August 4, 1991.

On due dates, BMC failed to comply with the trust receipt agreement. On November 22, 1991, it filed with the Securities
and Exchange Commission (SEC) a Petition for Rehabilitation and for a Declaration in a State of Suspension of Payments
under Section 6 (c) of P.D. No. 902-A,[4] as amended, docketed as SEC Case No. 4109. After BMC informed its creditors
(including the bank) of the filing of the petition, a Creditors' Meeting was held to:

(a) inform all creditor banks of the present status of BMC to avert any action which would affect the company's operations,
and (b) reach an accord on a common course of action to restore the company to sound financial footing.

On January 8, 1992, the SEC issued an order[5] creating a Management Committee wherein the bank is represented. The
Committee shall, among others, undertake the management of BMC, take custody and control of all its existing assets and
liabilities, study, review and evaluate its operation and/or the feasibility of its being restructured.

On October 13, 1992, BMC and a consortium of 14 of its creditor banks entered into a Memorandum of Agreement[6]
(MOA) rescheduling the payment of BMCs existing debts.

On November 27, 1992, the SEC rendered a Decision[7] approving the Rehabilitation Plan of BMC as contained in the
MOA and declaring it in a state of suspension of payments.

However, BMC and respondent Ong defaulted in the payment of their obligations under the rescheduled payment scheme
provided in the MOA. Thus, on April 1994, the bank filed with the Makati City Prosecutors Office a complaint[8] charging
respondents Ong and Leoncia Lim (as president and treasurer of BMC, respectively) with violation of the Trust Receipts
Law (PD No. 115), docketed as I.S. No. 94-3324. The bank alleged that both respondents failed to pay their obligations
under the trust receipts despite demand.[9]

On July 7, 1994, 3rd Assistant Prosecutor Edgardo E. Bautista issued a Resolution[10] recommending the dismissal of the
complaint. On July 11, 1994, the Resolution was approved by Provincial Prosecutor of Rizal Herminio T. Ubana, Sr.[11]
The bank filed a motion for reconsideration but was denied.

Upon appeal by the bank, the Department of Justice (DOJ) rendered judgment[12] denying the same for lack of merit. Its
motion for reconsideration was likewise denied.[13]

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

On August 29, 1997, the Court of Appeals rendered judgment, the dispositive portion of which reads:

"WHEREFORE, in view of all the foregoing, the assailed resolutions of the public respondents are hereby SET ASIDE and
in lieu thereof a new one rendered directing the public respondents to file the appropriate criminal charges for violation of
P.D. No. 115, otherwise known as The Trust Receipts Law, against private respondents.[15]

However, upon respondents motion for reconsideration, the Court of Appeals reversed itself, holding that the execution of
the MOA constitutes novation which "places petitioner Bank in estoppel to insist on the original trust relation and
constitutes a bar to the filing of any criminal information for violation of the trust receipts law."[16]

The bank filed a motion for reconsideration but was denied.[17] Hence this petition.

Petitioner bank contends that the MOA did not novate, much less extinguish, the existing obligations of BMC under the
trust receipt agreement. The bank, through the execution of the MOA, merely assisted BMC to settle its obligations by
rescheduling the same. Hence, when BMC defaulted in its payment, all its rights, including the right to charge
respondents for violation of the Trust Receipts Law, were revived.

Respondents Ong and Lim maintain that the MOA, which has the effect of a compromise agreement, novated BMCs
existing obligations under the trust receipt agreement. The novation converted the parties relationship into one of an
ordinary creditor and debtor. Moreover, the execution of the MOA precludes any criminal liability on their part which may
arise in case they violate any provision thereof.

The only issue for our determination is whether respondents can be held liable for violation of the Trust Receipts Law.

Section 4 of PD No. 115 (The Trust Receipts Law) defines a trust receipt as any transaction by and between a person
referred to as the entruster, and another person referred to as the entrustee, whereby the entruster who owns or holds
absolute title or security interest over certain specified goods, documents or instruments, releases the same to the
possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a "trust
receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments with the obligation
to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the
trust receipt, or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in
accordance with the terms and conditions specified in the trust receipt.[18]

Failure of the entrustee to turn over the proceeds of the sale of the goods covered by a trust receipt to the entruster or to
return the goods, if they were not disposed of, shall constitute the crime of estafa under Article 315, par. 1(b) of the
Revised Penal Code.[19] If the violation or offense is committed by a corporation, the penalty shall be imposed upon the
directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to the civil
liabilities arising from the criminal offense.[20] It is on this premise that petitioner bank charged respondents with
violation of the Trust Receipts Law.

Mere failure to deliver the proceeds of the sale or the goods, if not sold, constitutes violation of PD No. 115.[21] However,
what is being punished by the law is the dishonesty and abuse of confidence in the handling of money or goods to the
prejudice of another regardless of whether the latter is the owner. [22]

In this case, no dishonesty nor abuse of confidence can be attributed to respondents. Record shows that BMC failed to
comply with its obligations upon maturity of the trust receipts due to serious liquidity problems, prompting it to file a
Petition for Rehabilitation and Declaration in a State of Suspension of Payments. It bears emphasis that when petitioner
bank made a demand upon BMC on February 11, 1994 to comply with its obligations under the trust receipts, the latter
was already under the control of the Management Committee created by the SEC in its Order dated January 8, 1992.[23]
The Management Committee took custody of all BMCs assets and liabilities, including the red lauan lumber subject of the
trust receipts, and authorized their use in the ordinary course of business operations. Clearly, it was the Management
Committee which could settle BMCs obligations. Moreover, it has not escaped this Courts observation that respondent
Ong paid P21,000,000.00 in compliance with the equity infusion required by the MOA. The mala prohibita nature of the
offense notwithstanding, respondents intent to misuse or misappropriate the goods or their proceeds has not been
established by the records.[24]

Did the MOA novate the trust agreement between the parties?

In Quinto vs. People,[25] this Court held that there are two ways which could indicate the presence of novation, thereby
producing the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has
been stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on
every point. The test of incompatibility is whether or not the two obligations can stand together. If they cannot, they are
incompatible and the latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential
in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation,
such as its object, cause or principal conditions, otherwise, the change is merely modificatory in nature and insufficient to
extinguish the original obligation.

Contrary to petitioner's contention, the MOA did not only reschedule BMCs debts, but more importantly, it provided
principal conditions which are incompatible with the trust agreement. The undisputed points of incompatibility between
the two agreements are:

Points of incompatibility Trust Receipt MOA


1) Nature of contract Trust Receipt Loan[26]

2) Juridical relationship Trustor-Trustee Lender-Borrower

3) Status of obligation Matured Payable within 7 years[27]

4) Governing law Criminal Civil & Commercial[28]

5) Security offered Trust Receipts Real estate/chattel mortgages[29]

6) Interest rate per annum (Unspecified) 14%[30]

7) Default charges 24% 14%[31]

8) No. of parties 3 16

Hence, applying the pronouncement in Quinto, we can safely conclude that the MOA novated and effectively extinguished
BMC's obligations under the trust receipt agreement.

Petitioner bank's argument that BMC's non-compliance with the MOA revived respondents original liabilities under the
trust receipt agreement is completely misplaced. Section 8.4 of the MOA on termination reads:

"8.4 Termination. Any provision of this Agreement to the contrary notwithstanding, if the conditions for rescheduling
specified in Section 7 shall not be complied with on such later date as the Qualified Majority Lenders in their sole and
absolute discretion may agree in writing, then

(i) the obligation of the Lenders to reschedule the Existing Credits as contemplated hereby shall automatically terminate
on such date:

(ii) the Existing Agreements shall continue in full force and effect on the remaining loan balances as if this Agreement had
not been entered into;

(iii) all the rights of the lenders against the borrower and Spouses Ong prior to the agreement shall revest to the lenders."

Indeed, what is automatically terminated in case BMC failed to comply with the conditions under the MOA is not the
MOA itself but merely the obligation of the lender (the bank) to reschedule the existing credits. Moreover, it is erroneous
to assume that the revesting of "all the rights of lenders against the borrower" means that petitioner can charge
respondents for violation of the Trust Receipts Law under the original trust receipt agreement. As explained earlier, the
execution of the MOA extinguished respondents obligation under the trust receipts. Respondents liability, if any, would
only be civil in nature since the trust receipts were transformed into mere loan documents after the execution of the MOA.
This is reinforced by the fact that the mortgage contracts executed by the BMC survive despite its non-compliance with the
conditions set forth in the MOA.

All told, we find no reversible error committed by the Court of Appeals in rendering the assailed Resolutions.

WHEREFORE, the petition is DENIED. The assailed Resolutions of the Court of Appeals dated January 9, 1998 and
March 25, 1998 in CA-G.R. SP No. 42005 are hereby AFFIRMED.

SO ORDERED.

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

MICO METALS CORPORATION, petitioner, vs. COURT OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.
DECISION
DE LEON, JR., J:

Before us is the joint and consolidated petition for review of the Decision[1] dated June 15, 1994 of the Court of Appeals in
CA-G.R. CV No. 27480 entitled, Philippine Bank of Communications vs. Mico Metals Corporation, Charles Lee, Chua Siok
Suy, Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co, which reversed the decision of the Regional Trial Court
(RTC) of Manila, Branch 55 dismissing the complaint for a sum of money filed by private respondent Philippine Bank of
Communications against herein petitioners, Mico Metals Corporation (MICO, for brevity), Charles Lee, Chua Siok Suy,[2]
Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co.[3] The dispositive portion of the said Decision of the Court of
Appeals, reads:

WHEREFORE, the decision of the Regional Trial Court is hereby reversed and in lieu thereof, a new one is entered:

a) Ordering the defendants-appellees jointly and severally to pay plaintiff PBCom the sum of Five million four hundred
fifty-one thousand six hundred sixty-three pesos and ninety centavos (P5,451,663.90) representing defendants-appellees
unpaid obligations arising from ordinary loans granted by the plaintiff plus legal interest until fully paid.

b) Ordering defendants-appellees jointly and severally to pay PBCom the sum of Four hundred sixty-one thousand six
hundred pesos and sixty-six centavos (P46 1,600.66) representing defendants-appellees unpaid obligations arising from
their letters of credit and trust receipt transactions with plaintiff PBCom plus legal interest until fully paid.

c) Ordering defendants-appellees jointly and severally to pay PBCom the sum of P50,000.00 as attorneys fees.

No pronouncement as to costs.

The facts of the case are as follows:

On March 2, 1979, Charles Lee, as President of MICO wrote private respondent Philippine Bank of Communications
(PBCom) requesting for a grant of a discounting loan/credit line in the sum of Three Million Pesos (P3,000,000.00) for the
purpose of carrying out MICOs line of business as well as to maintain its volume of business.

On the same day, Charles Lee requested for another discounting loan/credit line of Three Million Pesos (P3,000,000.00)
from PBCom for the purpose of opening letters of credit and trust receipts.

In connection with the requests for discounting loan/credit lines, PBCom was furnished by MICO the following resolution
which was adopted unanimously by MICOs Board of Directors:

RESOLVED, that the President, Mr. Charles Lee, and the Vice-President and General Manager, Mr. Mariano A. Sio,
singly or jointly, be and they are duly authorized and empowered for and in behalf of this Corporation to apply for,
negotiate and secure the approval of commercial loans and other banking facilities and accommodations, such as, but not
limited to discount loans, letters of credit, trust receipts, lines for marginal deposits on foreign and domestic letters of
credit, negotiate out-of-town checks, etc. from the Philippine Bank of Communications, 216 Juan Luna, Manila in such
sums as they shall deem advantageous, the principal of all of which shall not exceed the total amount of TEN MILLION
PESOS (P10,000,000.00), Philippine Currency, plus any interests that may be agreed upon with said Bank in such loans
and other credit lines of the same kind and such further terms and conditions as may, upon granting of said loans and
other banking facilities, be imposed by the Bank; and to make, execute, sign and deliver any contracts of mortgage, pledge
or sale of one, some or all of the properties of the Company, or any other agreements or documents of whatever nature or
kind, including the signing, indorsing, cashing, negotiation and execution of promissory notes, checks, money orders or
other negotiable instruments, which may be necessary and proper in connection with said loans and other banking
facilities, or with their amendments, renewals and extensions of payment of the whole or any part thereof.[4]

On March 26, 1979, MICO availed of the first loan of One Million Pesos (P1,000,000.00) from PBCom. Upon maturity of
the loan, MICO caused the same to be renewed, the last renewal of which was made on May 21, 1982 under Promissory
Note BNA No. 26218.[5]

Another loan of One Million Pesos (P1,000,000.00) was availed of by MICO from PBCom which was likewise later on
renewed, the last renewal of which was made on May 21, 1982 under Promissory Note BNA No. 26219.[6] To complete
MICOs availment of Three Million Pesos (P3,000,000.00) discounting loan/credit line with PBCom, MICO availed of
another loan from PBCom in the sum of One Million Pesos (P1,000,000.00) on May 24, 1979. As in previous loans, this was
rolled over or renewed, the last renewal of which was made on May 25, 1982 under Promissory Note BNA No. 26253.[7]

As security for the loans, MICO through its Vice-President and General Manager, Mariano Sio, executed on May 16, 1979
a Deed of Real Estate Mortgage over its properties situated in Pasig, Metro Manila covered by Transfer Certificates of
Title (TCT) Nos. 11248 and 11250.

On March 26, 1979 Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and Richard Velasco, in their personal
capacities executed a Surety Agreement[8] in favor of PBCom whereby the petitioners jointly and severally, guaranteed the
prompt payment on due dates or at maturity of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of
exchange, trust receipts, and other obligations of every kind and nature, for which MICO may be held accountable by
PBCom. It was provided, however, that the liability of the sureties shall not at any one time exceed the principal amount of
Three Million Pesos (P3,000,000.00) plus interest, costs, losses, charges and expenses including attorneys fees incurred by
PBCom in connection therewith.

On July 14, 1980, petitioner Charles Lee, in his capacity as president of MICO, wrote PBCom and applied for an
additional loan in the sum of Four Million Pesos (P4,000,000.00). The loan was intended for the expansion and
modernization of the companys machineries. Upon approval of the said application for loan, MICO availed of the
additional loan of Four Million Pesos (P4,000,000.00) as evidenced by Promissory Note TA No. 094.[9]

As per agreement, the proceeds of all the loan availments were credited to MICOs current checking account with PBCom.
To induce the PBCom to increase the credit line of MICO, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard
Velasco and Alfonso Co (hereinafter referred to as petitioners-sureties), executed another surety agreement[10] in favor of
PBCom on July 28, 1980, whereby they jointly and severally guaranteed the prompt payment on due dates or at maturity
of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange, trust receipts and all other obligations
of any kind and nature for which MICO may be held accountable by PBCom. It was provided, however, that their liability
shall not at any one time exceed the sum of Seven Million Five Hundred Thousand Pesos (P7,500,000.00) including
interest, costs, charges, expenses and attorneys fees incurred by MICO in connection therewith.

On July 29, 1980, MICO furnished PBCom with a notarized certification issued by its corporate secretary, Atty. P.B.
Barrera, that Chua Siok Suy was duly authorized by the Board of Directors to negotiate on behalf of MICO for loans and
other credit availments from PBCom. Indicated in the certification was the following resolution unanimously approved by
the Board of Directors:

RESOLVED, AS IT IS HEREBY RESOLVED, That Mr. Chua Siok Suy be, as he is hereby authorized and empowered, on
behalf of MICO METALS CORPORATION from time to time, to borrow money and obtain other credit facilities, with or
without security, from the PHILIPPINE BANK OF COMMUNICATIONS in such amount(s) and under such terms and
conditions as he may determine, with full power and authority to execute, sign and deliver such contracts, instruments
and papers in connection therewith, including real estate and chattel mortgages, pledges and assignments over the
properties of the Corporation; and to renew and/or extend and/or roll-over and/or reavail of the credit facilities granted
thereunder, either for lesser or for greater amount(s), the intention being that such credit facilities and all securities of
whatever kind given as collaterals therefor shall be a continuing security.
RESOLVED FURTHER, That said bank is hereby authorized, empowered and directed to rely on the authority given
hereunder, the same to continue in full force and effect until written notice of its revocation shall be received by said Bank.
[11]

On July 2, 1981, MICO filed with PBCom an application for a domestic letter of credit in the sum of Three Hundred Forty-
Eight Thousand Pesos (P348,000.00).[12] The corresponding irrevocable letter of credit was approved and opened under
LC No. L-16060.[13] Thereafter, the domestic letter of credit was negotiated and accepted by MICO as evidenced by the
corresponding bank draft issued for the purpose.[14] After the supplier of the merchandise was paid, a trust receipt upon
MICOs own initiative, was executed in favor of PBCom.[15]

On September 14, 1981, MICO applied for another domestic letter of credit with PBCom in the sum of Two Hundred
Ninety Thousand Pesos (P290,000.00).[16] The corresponding irrevocable letter of credit was issued on September 22, 1981
under LC No. L-16334.[17] After the beneficiary of the said letter of credit was paid by PBCom for the price of the
merchandise, the goods were delivered to MICO which executed a corresponding trust receipt[18] in favor of PBCom.

On November 10, 1981, MICO applied for authority to open a foreign letter of credit in favor of Ta Jih Enterprises Co.,
Ltd.,[19] and thus, the corresponding letter of credit[20] was then issued by PBCom with a cable sent to the beneficiary, Ta
Jih Enterprises Co., Ltd. advising that said beneficiary may draw funds from the account of PBCom in its correspondent
banks New York Office.[21] PBCom also informed its corresponding bank in Taiwan, the Irving Trust Company, of the
approved letter of credit. The correspondent bank acknowledged PBComs advice through a confirmation letter[22] and by
debiting from PBComs account with the said correspondent bank the sum of Eleven Thousand Nine Hundred Sixty US
Dollars ($11 ,960.00).[23] As in past transactions, MICO executed in favor of PBCom a corresponding trust receipt.[24]

On January 4, 1982, MICO applied, for authority to open a foreign letter of credit in the sum of One Thousand Nine
Hundred US Dollars ($1,900.00), with PBCom.[25] Upon approval, the corresponding letter of credit denominated as LC
No. 62293[26] was issued whereupon PBCom advised its correspondent bank and MICO[27] of the same. Negotiation and
proper acceptance of the letter of credit were then made by MICO. Again, a corresponding trust receipt[28] was executed
by MICO in favor of PBCom.

In all the transactions involving foreign letters of credit, PBCom turned over to MICO the necessary documents such as
the bills of lading and commercial invoices to enable the latter to withdraw the goods from the port of Manila.

On May 21, 1982 MICO obtained from PBCom another loan in the sum of Three Hundred Seventy-Seven Thousand Pesos
(P377,000.00) covered by Promissory Note BA No. 7458.[29]

Upon maturity of all credit availments obtained by MICO from PBCom, the latter made a demand for payment.[30] For
failure of petitioner MICO to pay the obligations incurred despite repeated demands, private respondent PBCom
extrajudicially foreclosed MICOs real estate mortgage and sold the said mortgaged properties in a public auction sale held
on November 23, 1982. Private respondent PBCom which emerged as the highest bidder in the auction sale, applied the
proceeds of the purchase price at public auction of Three Million Pesos (P3,000,000.00) to the expenses of the foreclosure,
interest and charges and part of the principal of the loans, leaving an unpaid balance of Five Million Four Hundred Forty-
One Thousand Six Hundred Sixty-Three Pesos and Ninety Centavos (P5,441,663.90) exclusive of penalty and interest
charges. Aside from the unpaid balance of Five Million Four Hundred Forty-One Thousand Six Hundred Sixty-Three Pesos
and Ninety Centavos (P5,441,663.90), MICO likewise had another standing obligation in the sum of Four Hundred Sixty-
One Thousand Six Hundred Pesos and Six Centavos (P461,600.06) representing its trust receipts liabilities to private
respondent. PBCom then demanded the settlement of the aforesaid obligations from herein petitioners-sureties who,
however, refused to acknowledge their obligations to PBCom under the surety agreements. Hence, PBCom filed a
complaint with prayer for writ of preliminary attachment before the Regional Trial Court of Manila, which was raffled to
Branch 55, alleging that MICO was no longer in operation and had no properties to answer for its obligations. PBCom
further alleged that petitioner Charles Lee has disposed or concealed his properties with intent to defraud his creditors.
Except for MICO and Charles Lee, the sheriff of the RTC failed to serve the summons on herein petitioners-sureties since
they were all reportedly abroad at the time. An alias summons was later issued but the sheriff was not able to serve the
same to petitioners Alfonso Co and Chua Siok Suy who was already sickly at the time and reportedly in Taiwan where he
later died.

Petitioners (MICO and herein petitioners-sureties) denied all the allegations of the complaint filed by respondent PBCom,
and alleged that: a) MICO was not granted the alleged loans and neither did it receive the proceeds of the aforesaid loans;
b) Chua Siok Suy was never granted any valid Board Resolution to sign for and in behalf of MICO; c) PBCom acted in bad
faith in granting the alleged loans and in releasing the proceeds thereof; d) petitioners were never advised of the alleged
grant of loans and the subsequent releases therefor, if any; e) since no loan was ever released to or received by MICO, the
corresponding real estate mortgage and the surety agreements signed concededly by the petitioners-sureties are null and
void.

The trial court gave credence to the testimonies of herein petitioners and dismissed the complaint filed by PBCom. The
trial court likewise declared the real estate mortgage and its foreclosure null and void. In ruling for herein petitioners, the
trial court said that PBCom failed to adequately prove that the proceeds of the loans were ever delivered to MICO. The
trial court pointed out, among others, that while PBCom claimed that the proceeds of the Four Million Pesos
(P4,000,000.00) loan covered by promissory note TA 094 were deposited to the current account of petitioner MICO, PBCom
failed to produce the ledger account showing such deposit. The trial court added that while PBCom may have loaned to
MICO the other sums of Three Hundred Forty-Eight Thousand Pesos (P348,000.00) and Two Hundred Ninety Thousand
Pesos (P290,000.00), no proof has been adduced as to the existence of the goods covered and paid by the said amounts.
Hence, inasmuch as no consideration ever passed from PBCom to MICO, all the documents involved therein, such as the
promissory notes, real estate mortgage including the surety agreements were all void or nonexistent for lack of cause or
consideration. The trial court said that the lack of proof as regards the existence of the merchandise covered by the letters
of credit bolstered the claim of herein petitioners that no purchases of the goods were really made and that the letters of
credit transactions were simply resorted to by the PBCom and Chua Siok Suy to accommodate the latter in his financial
requirements.

The Court of Appeals reversed the ruling of the trial court, saying that the latter committed an erroneous application and
appreciation of the rules governing the burden of proof. Citing Section 24 of the Negotiable Instruments Law which
provides that Every negotiable instrument is deemed prima facie to have been issued for valuable consideration and every
person whose signature appears thereon to have become a party thereto for value, the Court of Appeals said that while the
subject promissory notes and letters of credit issued by the PBCom made no mention of delivery of cash, it is presumed
that said negotiable instruments were issued for valuable consideration. The Court of Appeals also cited the case of
Gatmaitan vs. Court of Appeals[31] which holds that "there is a presumption that an instrument sets out the true
agreement of the parties thereto and that it was executed for valuable consideration. The appellate court noted and found
that a notarized Certification was issued by MICOs corporate secretary, P.B. Barrera, that Chua Siok Suy, was duly
authorized by the Board of Directors of MICO to borrow money and obtain credit facilities from PBCom.

Petitioners filed a motion for reconsideration of the challenged decision of the Court of Appeals but this was denied in a
Resolution dated November 7, 1994 issued by its Former Second Division. Petitioners-sureties then filed a petition for
review on certiorari with this Court, docketed as G.R. No. 117913, assailing the decision of the Court of Appeals. MICO
likewise filed a separate petition for review on certiorari, docketed as G.R. No. 117914, with this Court assailing the same
decision rendered by the Court of Appeals. Upon motion filed by petitioners, the two (2) petitions were consolidated on
January 11, 1995.[32]

Petitioners contend that there was no proof that the proceeds of the loans or the goods under the trust receipts were ever
delivered to and received by MICO. But the record shows otherwise. Petitioners-sureties further contend that assuming
that there was delivery by PBCom of the proceeds of the loans and the goods, the contracts were executed by an
unauthorized person, more specifically Chua Siok Suy who acted fraudulently and in collusion with PBCom to defraud
MICO.

The pertinent issues raised in the consolidated cases at bar are: a) whether or not the proceeds of the loans and letters of
credit transactions were ever delivered to MICO, and b) whether or not the individual petitioners, as sureties, may be held
liable under the two (2) Surety Agreements executed on March 26, 1979 and July 28, 1980.
In civil cases, the party having the burden of proof must establish his case by preponderance of evidence.[33]
Preponderance of evidence means evidence which is more convincing to the court as worthy of belief than that which is
offered in opposition thereto. Petitioners contend that the alleged promissory notes, trust receipts and surety agreements
attached to the complaint filed by PBCom did not ripen into valid and binding contracts inasmuch as there is no evidence
of the delivery of money or loan proceeds to MICO or to any of the petitioners-sureties. Petitioners claim that under
normal banking practice, borrowers are required to accomplish promissory notes in blank even before the grant of the
loans applied for and such documents become valid written contracts only when the loans are actually released to the
borrower.

We are not convinced.

During the trial of an action, the party who has the burden of proof upon an issue may be aided in establishing his claim
or defense by the operation of a presumption, or, expressed differently, by the probative value which the law attaches to a
specific state of facts. A presumption may operate against his adversary who has not introduced proof to rebut the
presumption. The effect of a legal presumption upon a burden of proof is to create the necessity of presenting evidence to
meet the legal presumption or the prima facie case created thereby, and which if no proof to the contrary is presented and
offered, will prevail. The burden of proof remains where it is, but by the presumption the one who has that burden is
relieved for the time being from introducing evidence in support of his averment, because the presumption stands in the
place of evidence unless rebutted.

Under Section 3, Rule 131 of the Rules of Court the following presumptions, among others, are satisfactory if
uncontradicted: a) That there was a sufficient consideration for a contract and b) That a negotiable instrument was given
or indorsed for sufficient consideration. As observed by the Court of Appeals, a similar presumption is found in Section 24
of the Negotiable Instruments Law which provides that every negotiable instrument is deemed prima facie to have been
issued for valuable consideration and every person whose signature appears thereon to have become a party for value.
Negotiable instruments which are meant to be substitutes for money, must conform to the following requisites to be
considered as such a) it must be in writing; b) it must be signed by the maker or drawer; c) it must contain an
unconditional promise or order to pay a sum certain in money; d) it must be payable on demand or at a fixed or
determinable future time; e) it must be payable to order or bearer; and f) where it is a bill of exchange, the drawee must be
named or otherwise indicated with reasonable certainty. Negotiable instruments include promissory notes, bills of
exchange and checks. Letters of credit and trust receipts are, however, not negotiable instruments. But drafts issued in
connection with letters of credit are negotiable instruments.

Private respondent PBCom presented the following documentary evidence to prove petitioners credit availments and
liabilities:

1) Promissory Note No. BNA 26218 dated May 21, 1982 in the sum of P1,000,000.00 executed by MICO in favor of PBCom.

2) Promissory Note No. BNA 26219 dated May 21, 1982 in the sum of P1,000,000.00 executed by MICO in favor of PBCom.

3) Promissory Note No. BNA 26253 dated May 25, 1982 in the sum of P1,000,000.00 executed by MICO in favor of PBCom.

4) Promissory Note No. BNA 7458 dated May 21, 1982 in the sum of P377,000.00 executed by MICO in favor of PBCom.

5) Promissory Note No. TA 094 dated July 29, 1980 in the sum of P4,000.000.00 executed by MICO in favor of PBCom.

6) Irrevocable letter of credit No. L-16060 dated July 2,1981 issued in favor of Perez Battery Center for account of Mico
Metals Corp.

7) Draft dated July 2, 1981 in the sum of P348,000.00 issued by Perez Battery Center, beneficiary of irrevocable Letter of
Credit No. No. L-16060 and accepted by MICO Metals corporation.
8) Letter dated July 2, 1981 from Perez Battery Center addressed to private respondent PBCom showing that proceeds of
the irrevocable letter of credit No. L- 16060 was received by Mr. Moises Rosete, representative of Perez Battery Center.

9) Trust receipt dated July 2, 1981 executed by MICO in favor of PBCom covering the merchandise purchased under Letter
of Credit No. 16060.

10) Irrevocable letter of credit No. L-16334 dated September 22, 1981 issued in favor of Perez Battery Center for account
of MICO Metals Corp.

11) Draft dated September 22, 1981 in the sum of P290,000.00 issued by Perez Battery Center and accepted by MICO.

12) Letter dated September 17, 1981 from Perez Battery addressed to PBCom showing that the proceeds of credit no. L-
16344 was received by Mr. Moises Rosete, a representative of Perez Battery Center.

13) Trust Receipt dated September 22, 1981 executed by MICO in favor of PBCom covering the merchandise under Letter
of Credit No. L-16334.

14) Irrevocable Letter of Credit no. 61873 dated November 10, 1981 for US$11,960.00 issued by PBCom in favor of TA JIH
Enterprises Co. Ltd., through its correspondent bank, Irving Trust Company of Taipei, Taiwan.

15) Trust Receipt dated December 15, 9181 executed by MICO in favor of PBCom showing that possession of the
merchandise covered by Irrevocable Letter of Credit no. 61873 was released by PBCom to MICO.

16) Letters dated March 2, 1979 from MICO signed by its president, Charles Lee, showing that MICO sought credit line
from PBCom in the form of loans, letters of credit and trust receipt in the sum of P7,500,000.00.

17) Letter dated July 14, 1980 from MICO signed by its president, Charles Lee, showing that MICO requested for
additional financial assistance in the sum of P4,000,000.00.

18) Board resolution dated March 6, 1979 of MICO authorizing Charles Lee and Mariano Sio singly or jointly to act and
sign for and in behalf of MICO relative to the obtention of credit facilities from PBCom.

19) Duly notarized Deed of Mortgage dated May 16, 1979 executed by MICO in favor of PBCom over MICO s real
properties covered by TCT Nos. 11248 and 11250 located in Pasig.

20) Duly notarized Surety Agreement dated March 26, 1979 executed by herein petitioners Charles Lee, Mariano Sio,
Alfonso Yap, Richard Velasco and Chua Siok Suy in favor of PBCom.

21) Duly notarized Surety Agreement dated July 28, 1980 executed by herein petitioners Charles Lee, Mariano Sio,
Alfonso Yap, Richard Velasco and Chua Siok Suy in favor of PBCom.

22) Duly notarized certification dated July 28, 1980 issued by MICO s corporate secretary, Mr. P.B. Barrera, attesting to
the adoption of a board resolution authorizing Chua Siok Suy to sign, for and in behalf of MICO, all the necessary
documents including contracts, loan instruments and mortgages relative to the obtention of various credit facilities from
PBCom.

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

Petitioners-sureties, for their part, presented the By-Laws[34] of Mico Metals Corporation (MICO) to prove that only the
president of MICO is authorized to borrow money, arrange letters of credit, execute trust receipts, and promissory notes
and consequently, that the loan transactions, letters of credit, promissory notes and trust receipts, most of which were
executed by Chua Siok Suy in representation of MICO were not allegedly authorized and hence, are not binding upon
MICO. A perusal of the By-Laws of MICO, however, shows that the power to borrow money for the company and issue
mortgages, bonds, deeds of trust and negotiable instruments or securities, secured by mortgages or pledges of property
belonging to the company is not confined solely to the president of the corporation. The Board of Directors of MICO can
also borrow money, arrange letters of credit, execute trust receipts and promissory notes on behalf of the corporation.[35]
Significantly, this power of the Board of Directors according to the by-laws of MICO, may be delegated to any of its
standing committee, officer or agent.[36] Hence, PBCom had every right to rely on the Certification issued by MICO's
corporate secretary, P.B. Barrera, that Chua Siok Suy was duly authorized by its Board of Directors to borrow money and
obtain credit facilities in behalf of MICO from PBCom.

Petitioners-sureties also presented a letter of their counsel dated October 9, 1982, addressed to private respondent PBCom
purportedly to show that PBCom knew that Chua Siok Suy allegedly used the credit and good names of the petitioner-
sureties for his benefit, and that petitioner-sureties were made to sign blank documents and were furnished copies of the
same. The letter, however, is in fact merely a reply of petitioners-sureties counsel to PBComs demand for payment of
MICOs obligations, and appears to be an inconsequential piece of self-serving evidence.

In addition to the foregoing, MICO and petitioners-sureties cited the decision of the trial court which stated that there was
no proof that the proceeds of the loans were ever delivered to MICO. Although the private respondents witness, Mr.
Gardiola, testified that the proceeds of the loans were deposited in MICOs current account with PBCom, his testimony was
allegedly not supported by any bank record, note or memorandum. A careful scrutiny of the record including the transcript
of stenographic notes reveals, however, that although private respondent PBCom was willing to produce the corresponding
account ledger showing that the proceeds of the loans were credited to MICOs current account with PBCom, MICO in fact
vigorously objected to the presentation of said document. That point is shown in the testimony of PBComs witness,
Gardiola, thus:

Q: Now, all of these promissory note Exhibits I and J which as you have said previously (sic) availed originally by
defendant Mico Metals Corp. sometime in 1979, my question now is, do you know what happened to the proceeds of the
original availment?

A: Well, it was credited to the current account of Mico Metals Corp.

Q: Why did it was credited to the proceeds to the account of Mico Metals Corp? (sic)

A: Well, that is our understanding.

ATTY. DURAN:

Your honor, may we be given a chance to object, the best evidence is the so-called current account...

COURT:

Can you produce the ledger account?

A: Yes, Your Honor, I will bring.


COURT:

The ledger or record of the current account of Mico Metals Corp.

A: Yes, Your Honor.

ATTY. ACEJAS:

Your Honor, these are a confidential record, and they might not be disclosed without the consent of the person concerned.
(sic)

ATTY. SANTOS:

Well, you are the one who is asking that.

ATTY. DURAN:

Your Honor, Im precisely want to show for the ... (sic)

COURT:

But the amount covered by the current account of defendant Mico Metals Corp. is the subject matter of this case.

xxx xxx xxx

Q: Are those availments were release? (sic)

A: Yes, Your Honor, to the defendant corporation.

Q: By what means?

A: By the credit to their current account.

ATTY. ACEJAS:

We object to that, your Honor, because the disclose is the secrecy of the bank deposit. (sic)

xxx xxx xxx

Q: Before the recess Mr. Gardiola, you stated that the proceeds of the three (3) promissory notes were credited to the
accounts of Mico Metals Corporation, now do you know what kind of current account was that which you are referring to?

ATTY. ACEJAS:

Objection your Honor, that is the disclose of the deposit of defendant Mico Metals Corporation and it cannot disclosed
without the authority of the depositor. (sic)[37]

That proceeds of the loans which were originally availed of in 1979 were delivered to MICO is bolstered by the fact that
more than a year later, specifically on July 14, 1980, MICO through its president, petitioner-surety Charles Lee, requested
for an additional loan of Four Million Pesos (P4,000,000.00) from PBCom. The fact that MICO was requesting for an
additional loan implied that it has already availed of earlier loans from PBCom.
Petitioners allege that PBCom presented no evidence that it remitted payments to cover the domestic and foreign letters of
credit. Petitioners placed much reliance on the erroneous decision of the trial court which stated that private respondent
PBCom allegedly failed to prove that it actually made payments under the letters of credit since the bank drafts presented
as evidence show that they were made in favor of the Bank of Taiwan and First Commercial Bank.

Petitioners allegations are untenable.

Modern letters of credit are usually not made between natural persons. They involve bank to bank transactions.
Historically, the letter of credit was developed to facilitate the sale of goods between, distant and unfamiliar buyers and
sellers. It was an arrangement under which a bank, whose credit was acceptable to the seller, would at the instance of the
buyer agree to pay drafts drawn on it by the seller, provided that certain documents are presented such as bills of lading
accompanied the corresponding drafts. Expansion in the use of letters of credit was a natural development in commercial
banking.[38] Parties to a commercial letter of credit include (a) the buyer or the importer, (b) the seller, also referred to as
beneficiary, (c) the opening bank which is usually the buyers bank which actually issues the letter of credit, (d) the
notifying bank which is the correspondent bank of the opening bank through which it advises the beneficiary of the letter
of credit, (e) negotiating bank which is usually any bank in the city of the beneficiary. The services of the notifying bank
must always be utilized if the letter of credit is to be advised to the beneficiary through cable, (f) the paying bank which
buys or discounts the drafts contemplated by the letter of credit, if such draft is to be drawn on the opening bank or on
another designated bank not in the city of the beneficiary. As a rule, whenever the facilities of the opening bank are used,
the beneficiary is supposed to present his drafts to the notifying bank for negotiation and (g) the confirming bank which,
upon the request of the beneficiary, confirms the letter of credit issued by the opening bank.

From the foregoing, it is clear that letters of credit, being usually bank to bank transactions, involve more than just one
bank. Consequently, there is nothing unusual in the fact that the drafts presented in evidence by respondent bank were
not made payable to PBCom. As explained by respondent bank, a draft was drawn on the Bank of Taiwan by Ta Jih
Enterprises Co., Ltd. of Taiwan, supplier of the goods covered by the foreign letter of credit. Having paid the supplier, the
Bank of Taiwan then presented the bank draft for reimbursement by PBComs correspondent bank in Taiwan, the Irving
Trust Company which explains the reason why on its face, the draft was made payable to the Bank of Taiwan. Irving
Trust Company accepted and endorsed the draft to PBCom. The draft was later transmitted to PBCom to support the
latters claim for payment from MICO. MICO accepted the draft upon presentment and negotiated it to PBCom.

Petitioners further aver that MICO never requested that legal possession of the merchandise be transferred to PBCom by
way of trust receipts. Petitioners insist that assuming that MICO transferred possession of the merchandise to PBCom by
way of trust receipts, the same would be illegal since PBCom, being a banking institution, is not authorized by law to
engage in the business of importing and selling goods.

A trust receipt is considered as a security transaction intended to aid in financing importers and retail dealers who do not
have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to
acquire credit except through utilization, as collateral of the merchandise imported or purchased.[39] A trust receipt,
therefor, is a document of security pursuant to which a bank acquires a security interest in the goods under trust receipt.
Under a letter of credit-trust receipt arrangement, a bank extends a loan covered by a letter of credit, with the trust
receipt as a security for the loan. The transaction involves a loan feature represented by a letter of credit, and a security
feature which is in the covering trust receipt which secures an indebtedness.

Petitioners averments with regard to the second issue are no less incredulous. Petitioners contend that the letters of
credit, surety agreements and loan transactions did not ripen into valid and binding contracts since no part of the
proceeds of the loan transactions were delivered to MICO or to any of the petitioners-sureties. Petitioners-sureties allege
that Chua Siok Suy was the beneficiary of the proceeds of the loans and that the latter made them sign the surety
agreements in blank. Thus, they maintain that they should not be held accountable for any liability that might arise
therefrom.

It has not escaped our notice that it was petitioner-surety Charles Lee, as president of MICO Metals Corporation, who first
requested for a discounting loan of Three Million Pesos (P3,000,000.00) from PBCom as evidenced by his letter dated
March 2, 1979.[40] On the same day, Charles Lee, as President of MICO, requested for a Letter of Credit and Trust
Receipt line in the sum of Three Million Pesos (P3,000,000.00).[41] Still, on the same day, Charles Lee again as President
of MICO, wrote another letter to PBCOM requesting for a financing line in the sum of One Million Five Hundred
Thousand Pesos (P1,500,000.00) to be used exclusively as marginal deposit for the opening of MICOs foreign and local
letters of credit with PBCom.[42] More than a year later, it was also Charles Lee, again in his capacity as president of
MICO, who asked for an additional loan in the sum of Four Million Pesos (P4,000,000.00). The claim therefore of
petitioners that it was Chua Siok Suy, in connivance with the respondent PBCom, who applied for and obtained the loan
transactions and letters of credit strains credulity considering that even the Deed of the Real Estate Mortgage in favor of
PBCom was executed by petitioner-surety Mariano Sio in his capacity as general manager of MICO[43] to secure the loan
accommodations obtained by MICO from PBCom.

Petitioners-sureties allege that they were made to sign the surety agreements in blank by Chua Siok Suy. Petitioner
Alfonso Yap, the corporate treasurer, for his part testified that he signed booklets of checks, surety agreements and
promissory notes in blank; that he signed the documents in blank despite his misgivings since Chua Siok Suy assured him
that the transaction can easily be taken cared of since Chua Siok Suy personally knew the Chairman of the Board of
PBCom; that he was not receiving salary as treasurer of Mico Metals and since Chua Siok Suy had a direct hand in the
management of Malayan Sales Corporation, of which Yap is an employee, he (Yap) signed the documents in blank as
consideration for his continued employment in Malayan Sales Corporation. Petitioner Antonio Co testified that he worked
as office manager for MICO from 1978-1982. As office manager, he was the one in charge of transacting business like
purchasing, selling and paying the salary of the employees. He was also in charge of the handling of documents pertaining
to surety agreements, trust receipts and promissory notes;[44] that when he first joined MICO Metals Corporation, he was
able to read the by-laws of the corporation and he came to know that only the chairman and the president can borrow
money in behalf of the corporation; that Chua Siok Suy once called him up and told him to secure an invoice so that a
credit line can be opened in the bank with a local letter of credit; that when the invoice was secured, he (Co) brought it
together with the application for a credit line to Chua Siok Suy, and that he questioned the authority of Chua Siok Suy
pointing out that he (Co) is not empowered to sign the document inasmuch as only the latter, as president, was authorized
to do so. However, Chua Siok Suy allegedly just said that he had already talked with the Chairman of the Board of
PBCom; and that Chua Siok Suy reportedly said that he needed the money to finance a project that he had with the Taipei
government. Co also testified that he knew of the application for domestic letter of credit in the sum of Three Hundred
Forty-Eight Thousand Pesos (P348,000.00); and that a certain Moises Rosete was authorized to claim the check covering
the Three Hundred Forty-Eight Thousand Pesos (P348,000.00) from PBCom; and that after claiming the check Rosete
brought it to Perez Battery Center for indorsement after which the same was deposited to the personal account of Chua
Siok Suy.[45]

We consider as incredible and unacceptable the claim of petitioners-sureties that the Board of Directors of MICO was so
careless about the business affairs of MICO as well as about their own personal reputation and money that they simply
relied on the say so of Chua Siok Suy on matters involving millions of pesos. Under Section 3 (d), Rule 131 of the Rules of
Court, it is presumed that a person takes ordinary care of his concerns. Hence, the natural presumption is that one does
not sign a document without first informing himself of its contents and consequences. Said presumption acquires greater
force in the case at bar where not only one but several documents were executed at different times and at different places
by the petitioner sureties and Chua Siok Suy as president of MICO.

MICO and herein petitioners-sureties insist that Chua Siok Suy was not duly authorized to negotiate for loans in behalf of
MICO from PBCom. Petitioners allegation, however, is belied by the July 28, 1980 Certification issued by the corporate
secretary of PBCom, Atty. P.B. Barrera, that MICO's Board of Directors gave Chua Siok Suy full authority to negotiate for
loans in behalf of MICO with PBCom. In fact, the Certification even provided that Chua Siok Suys authority continues
until and unless PBCom is notified in writing of the withdrawal thereof by the said Board. Notably, petitioners failed to
contest the genuineness of the said Certification which is notarized and to show any written proof of any alleged
withdrawal of the said authority given by the Board of Directors to Chua Siok Suy to negotiate for loans in behalf of
MICO.

There was no need for PBCom to personally inform the petitioners-sureties individually about the terms of the loans,
letters of credit and other loan documents. The petitioners-sureties themselves happen to comprise the Board of Directors
of MICO, which gave full authority to Chua Siok Suy to negotiate for loans in behalf of MICO. Notice to MICOs authorized
representative, Chua Siok Suy, was notice to MICO. The Certification issued by PBComs corporate secretary, Atty. P.B.
Barrera, indicated that Chua Siok Suy had full authority to negotiate and sign the necessary documents, in behalf of
MICO for loans from PBCom. Respondent PBCom therefore had the right to rely on the said notarized Certification of
MICOs Corporate Secretary.

Anent petitioners-sureties contention that they obtained no consideration whatsoever on the surety agreements, we need
only point out that the consideration for the sureties is the very consideration for the principal obligor, MICO, in the
contracts of loan. In the case of Willex Plastic Industries Corporation vs. Court of Appeals,[46] we ruled that the
consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the
principal alone being sufficient. For a guarantor or surety is bound by the same consideration that makes the contract
effective between the parties thereto. It is not necessary that a guarantor or surety should receive any part or benefit, if
such there be, accruing to his principal.

Petitioners placed too much reliance on the rule in evidence that the burden of proof does not shift whereas the burden of
going forward with the evidence does pass from party to party. It is true that said rule is not changed by the fact that the
party having the burden of proof has introduced evidence which established prima facie his assertion because such
evidence does not shift the burden of proof; it merely puts the adversary to the necessity of producing evidence to meet the
prima facie case. Where the defendant merely denies, either generally or otherwise, the allegations of the plaintiffs
pleadings, the burden of proof continues to rest on the plaintiff throughout the trial and does not shift to the defendant
until the plaintiffs evidence has been presented and duly offered. The defendant has then no burden except to produce
evidence sufficient to create a state of equipoise between his proof and that of the plaintiff to defeat the latter, whereas the
plaintiff has the burden, as in the beginning, of establishing his case by a preponderance of evidence.[47] But where the
defendant has failed to present and marshall evidence sufficient to create a state of equipoise between his proof and that of
plaintiff, the prima facie case presented by the plaintiff will prevail.

In the case at bar, respondent PBCom, as plaintiff in the trial court, has in fact presented sufficient documentary and
testimonial evidence that proved by preponderance of evidence its subject collection case against the defendants who are
the petitioners herein. In view of all the foregoing, the Court of Appeals committed no reversible error in its appealed
Decision.

WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 27480 entitled, Philippine Bank of
Communications vs. Mico Metals Corporation, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco
and Alfonso Co, is AFFIRMED in toto.

Costs against the petitioners.

SO ORDERED.

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

The Case

The case is a petition to set aside the decision[1] of the Court of Appeals, the dispositive portion of which reads:

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

July 26, 1983 P 244,269.00 P 198,659.52

July 27, 1983 967,765.50 324,767.41

July 28, 1983 1,138,941.00 1,138,941.00

August 2, 1983 244,269.00 244,269.00

August 5, 1983 275,079.00 275,079.60

August 8, 1983 475,046.10 475,046.10

and the attorneys fees and costs of suit.

SO ORDERED.[2]

The Facts

The facts, as found by the Court of Appeals, are as follows:

The present controversy relates to the rights of an assignee (financing company) of drafts and trust receipts backed up by
sureties, in the event of default by the debtor (car dealer) to whom the assignor creditor (car manufacturer) sold and
delivered motor vehicles for resale. A consistent ruling on these cases is hereby reiterated: that a surety may secure
obligations incurred subsequent to the execution of the surety contract.

Prior to the transactions covered by the subject drafts and trust receipts, defendant-appellant Fortune Motors Corporation
(Phils.) has been availing of the credit facilities of plaintiff-appellant BA Finance Corporation. On January 17, 1983,
Joseph L. G. Chua, President of Fortune Motors Corporation, executed in favor of plaintiff-appellant a Continuing
Suretyship Agreement, in which he jointly and severally unconditionally guaranteed the full, faithful and prompt payment
and discharge of any and all indebtedness of Fortune Motors Corporation to BA Finance Corporation (Folder of Exhibits,
pp. 21-22).

On February 3, 1983, Palawan Lumber Manufacturing Corporation represented by Joseph L.G. Chua, George D. Tan,
Edgar C. Rodrigueza and Joselito C. Baltazar, executed in favor of plaintiff-appellant a Continuing Suretyship Agreement
in which, said corporation jointly and severally unconditionally guaranteed the full, faithful and prompt payment and
discharge of any and all indebtedness of Fortune Motors Corporation to BA Finance Corporation (Folder of Exhibits, pp.
19-20). On the same date, South City Homes, Inc. represented by Edgar C. Rodrigueza and Aurelio F. Tablante, likewise
executed a Continuing Suretyship Agreement in which said corporation jointly and severally unconditionally guaranteed
the full, faithful and prompt payment and discharge of any and all indebtedness of Fortune Motors Corporation to BA
Finance Corporation (Folder of Exhibits, pp. 17-18).

Subsequently, Canlubang Automotive Resources Corporation (CARCO) drew six (6) Drafts in its own favor, payable thirty
(30) days after sight, charged to the account of Fortune Motors Corporation, as follows:

Date of Draft Amount

July 26, 1983 P 244,269.00

July 27, 1983 967,765.50


July 28, 1983 1,138,941.00

August 2, 1983 244,269.00

August 5, 1983 275,079.00

August 8, 1983 475,046.10

(Folder of Exhibits, pp. 1, 4, 7, 8, 11 and 14).

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

Upon failure of the defendant-appellant Fortune Motors Corporation to pay the amounts due under the drafts and to remit
the proceeds of motor vehicles sold or to return those remaining unsold in accordance with the terms of the trust receipt
agreements, BA Finance Corporation sent demand letter to Edgar C. Rodrigueza, South City Homes, Inc., Aurelio
Tablante, Palawan Lumber Manufacturing Corporation, Joseph L. G. Chua, George D. Tan and Joselito C. Baltazar
(Folder of Exhibits, pp. 29-37). Since the defendants-appellants failed to settle their outstanding account with plaintiff-
appellant, the latter filed on December 22, 1983 a complaint for a sum of money with prayer for preliminary attachment,
with the Regional Trial Court of Manila, Branch 1, which was docketed as Civil Case No. 83-21944 (Record, pp. 1-12).
Plaintiff-appellant filed a surety bond in the amount of P3,391,546.56 and accordingly, Judge Rosalio C. Segundo ordered
the issuance of a writ of preliminary attachment on January 3, 1984 (Record, pp. 37-47). Defendants Fortune Motors
Corporation, South City Homes, Inc., Edgar C. Rodrigueza, Aurelio F. Tablante, Palawan Lumber Manufacturing
Corporation, Joseph L. G. Chua, George D. Tan and Joselito C. Baltazar filed a Motion to Discharge Attachment, which
was opposed by plaintiff-appellant (Record, pp. 49-56). In an Order dated January 11, 1984, Judge Segundo dissolved the
writ of attachment except as against defendant Fortune Motors Corporation and set the said incident for hearing (Record,
p. 57). On January 19, 1984, the defendants filed a Motion to Dismiss. Therein, they alleged that conventional subrogation
effected a novation without the consent of the debtor (Fortune Motors Corporation) and thereby extinguished the latters
liability; that pursuant to the trust receipt transaction, it was premature under P. D. No. 115 to immediately file a
complaint for a sum of money as the remedy of the entruster is an action for specific performance; that the suretyship
agreements are null and void for having been entered into without an existing principal obligation; and that being such
sureties does not make them solidary debtors (Record, pp. 58-64).

After due hearing, the court denied the motion to discharge attachment with respect to defendant Fortune Motors
Corporation as well as the motion to dismiss by the defendants (Record, pp. 68 and 87). In their Answer, defendants
stressed that their obligations to the creditor (CARCO) was extinguished by the assignment of the drafts and trust
receipts to plaintiff-appellant without their knowledge and consent, and pursuant to legal provision on conventional
subrogation a novation was effected, thereby extinguishing the liability of the sureties; that plaintiff-appellant failed to
immediately demand the return of the goods under the trust receipt agreements or exercise the courses of action by the
entruster as provided for under P. D. No. 115; and that at the time the suretyship agreements were entered into, there
were no principal obligations, thus rendering them null and void. A counterclaim for the award of actual, moral and
exemplary damages was prayed for by defendants (Record, pp. 91-110).

During the pre-trial, efforts to reach a compromise was not successful, and in view of the retirement of Judge Rosalio C.
Segundo of RTC Manila, Branch 1, the case was-re-raffled off to Branch XXXIII, presided over by Judge Felix V. Barbers
(Record, pp. 155-160).

Fortune Motors Corporation filed a motion to lift the writ of attachment covering three (3) vehicles described in the Third-
Party Claim filed with the Office of Deputy Sheriff Jorge C. Victorino (RTC, Branch 1) by Fortune Equipment, Inc. which
was opposed by plaintiff-appellant (Record, pp. 173-181). On June 15, 1984, Deputy Sheriff Jorge C. Victorino issued a
Notice of Levy Upon Personal Properties Pursuant to Order of Attachment which was duly served on defendant Fortune
Motors Corporation (Record, pp. 191-199). In an Order dated April 28, 1986, the court a quo denied the motion to lift the
writ of attachment on three (3) vehicles described in the Third-Party Claim filed by Fortune Equipment Inc. (Record, p.
207). On motion of their respective counsel, the trial court granted the parties time to sit down and appraise the
machineries and spare parts owned by defendant Fortune Motors Corporation which are now in the possession of plaintiff
corporation by virtue of the attachment. A series of conferences was allowed by the court, as means toward possible
compromise agreement. In an Order dated June 2, 1987, the case was returned to Branch I, now presided over by Judge
Rebecca G. Salvador (Record, p. 237). The pre-trial period was terminated and the case was set for trial on the merits
(Record, p. 259).

Acting on the motion to sell levied properties filed by defendant George D. Tan, the trial court ordered the public sale of
the attached properties (Record, p. 406). The court likewise allowed the complaint-in-intervention filed by Fortune
Equipment Inc. and South Fortune Motors Corporation who claimed ownership of four (4) vehicles earlier seized and
attached (Record, p. 471-475). Plaintiff corporation admitted the allegations contained in the complaint-in-intervention
only with respect to one truck so attached but denied the rest of intervenors allegations (Record, pp. 479-482). Thereafter,
the parties submitted their respective pre-trial briefs on the complaint-in-intervention, and after the submission of
evidence thereon, the case was submitted for decision (Record, pp. 573-577).

On November 25, 1991, the lower court rendered its judgment, the dispositive portion of which reads as follows:

WHEREFORE, judgment is hereby rendered:

1. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua, jointly and
severally to pay the plaintiff on the July 27, 1983 Draft, the sum of P324,767.41 with the interest thereon at the legal rate
from the date of filing of this case, December 21, 1983 until the amount shall have been fully paid;

2. Ordering defendants Fortune Motors, Palawan Manufacturing Corporation and Joseph Chua jointly and severally to pay
to the plaintiff on the July 26, 1983 Draft, the sum of P198,659.52 with interest thereon at the legal rate from the date of
filing of this case, until the amount shall have been fully paid;

3. Ordering defendant Fortune Motors, Palawan Manufacturing Corporation and Joseph Chua jointly and severally to pay
to the plaintiff on the July 28, 1983 Draft the sum of P1,138,941.00 with interest thereon at the legal rate from the date of
filing of this case, until the amount shall have been fully paid;

4. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and
severally to pay to the plaintiff on the August 2, 1983 Draft, the sum of P244,269.00 with interest thereon at the legal rate
from the date of filing of this case, until the amount shall have been fully paid;

5. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and
severally to pay to the plaintiff on the August 5, 1983 Draft the sum of P275,079.60 with interest thereon at the legal rate
from the date of the filing of this case, until the amount shall have been fully paid;

6. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and
severally to pay to the plaintiff on the August 8, 1983 Draft the sum of P475,046.10 with interest thereon at legal rate from
the date of the filing of this case, until the amount shall been fully paid;

7. Ordering defendant Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and
severally to pay the sum of P300,000.00 as attorneys fees and the costs of this suit;

8. Dismissing plaintiffs complaint against South City Homes, Aurelio Tablante, Joselito Baltazar, George Tan and Edgar
Rodrigueza and the latters counterclaim for lack of basis;

9. Ordering Deputy Sheriff Jorge Victorino to return to Intervenor Fortune Equipment the Mitsubishi Truck Canter with
Motor No. 310913 and Chassis No. 513234;
10. Dismissing the complaint-in-intervention in so far as the three other vehicles mentioned in the complaint-in-
intervention are concerned for lack of cause of action;

11. Dismissing the complaint-in-intervention against Fortune Motor for lack of basis; and

12. Ordering the parties-in-intervention to bear their respective damages, attorneys fees and the costs of the suit.

Upon execution, the sheriff may cause the judgment to be satisfied out of the properties attached with the exception of one
(1) unit Mitsubishi Truck Canter with Motor No. 310913 and Chassis No. 513234, if they be sufficient for that purpose.
The officer shall make a return in writing to the court of his proceedings. Whenever the judgment shall have been paid,
the officer, upon reasonable demand must return to the judgment debtor the attached properties remaining in his hand,
and any of the proceeds of the properties not applied to the judgment.

SO ORDERED.

On two (2) separate motions for reconsideration, one filed by plaintiffs-intervenors dated December 18, 1991 and the other
by plaintiff dated December 26, 1991, the trial court issued an Order dated July 22, 1992 amending its Decision dated
November 25, 1991. Specifically, said Order amended paragraphs 9 and 10 thereof and deleted the last paragraph of the
said Decision.

Paragraphs 9 and 10 now read:

9. Ordering Deputy Sheriff Jorge C. Victorino to return to Intervenor Fortune Equipment, Inc. the Mitsubishi Truck
Canter with Motor No. 310913 and Chassis No. 513234; Mitsubishi Truck Canter with Motor No. 4D30-313012 and
Chassis No. 513696, and Fuso Truck with Motor No. 006769 and Chassis No. 20756, and to Intervenor South Fortune
Motors Corporation the Cimaron Jeepney with Plate No. NET-849;

10. Ordering the plaintiff, in the event the motor vehicles could no longer be returned to pay the estimated value thereof,
i.e., P750,000.00 for the three trucks, and P5,000.00 for the Cimaron Jeepney, to the plaintiffs-intervenors.

x x x (Records, pp. 664-665)

Plaintiffs BA Finance Corporation, defendants Fortune Motors Corp. (Phils.) and Palawan Lumber Manufacturing
Corporation, and intervenors Fortune Equipment and South Fortune Motors, interposed the present appeal and filed their
respective Briefs.[3]

On September 8, 1998, the Court of Appeals promulgated a decision, the dispositive portion of which is quoted in the
opening paragraph of this decision.

Hence, this appeal.[4]

The Issues

The issues presented are: (1) whether the suretyship agreement is valid; (2) whether there was a novation of the obligation
so as to extinguish the liability of the sureties; and (3) whether respondent BAFC has a valid cause of action for a sum of
money following the drafts and trust receipts transactions.[5]

The Courts Ruling

On the first issue, petitioners assert that the suretyship agreement they signed is void because there was no principal
obligation at the time of signing as the principal obligation was signed six (6) months later. The Civil Code, however,
allows a suretyship agreement to secure future loans even if the amount is not yet known.
Article 2053 of the Civil Code provides that:

Art. 2053 A guaranty may also be given as security for future debts, the amount of which is not yet known. x x x

In Fortune Motors (Phils.) Corporation v. Court of Appeals,[6] we held:

To fund their acquisition of new vehicles (which are later retailed or resold to the general public), car dealers normally
enter into wholesale automotive financing schemes whereby vehicles are delivered by the manufacturer or assembler on
the strength of trust receipts or drafts executed by the car dealers, which are backed up by sureties. These trust receipts or
drafts are then assigned and/or discounted by the manufacturer to/with financing companies, which assume payment of
the vehicles but with the corresponding right to collect such payment from the car dealers and/or the sureties. In this
manner, car dealers are able to secure delivery of their stock-in-trade without having to pay cash therefor; manufacturers
get paid without any receivables/collection problems; and financing companies earn their margins with the assurance of
payment not only from the dealers but also from the sureties. When the vehicles are eventually resold, the car dealers are
supposed to pay the financing companies -- and the business goes merrily on. However, in the event the car dealer defaults
in paying the financing company, may the surety escape liability on the legal ground that the obligations were incurred
subsequent to the execution of the surety contract?

x x x Of course, a surety is not bound under any particular principal obligation until that principal obligation is born. But
there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid and binding
even before the principal obligation intended to be secured thereby is born, any more than there would be in saying that
obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition
precedent.

Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and commercial
practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular
company, commonly requires the projected principal debtor to execute a continuing surety agreement along with its
sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of
transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety
contract or bond for each financing or credit accommodation extended to the principal debtor.

Petitioners next posit (second issue) that a novation, as a result of the assignment of the drafts and trust receipts by the
creditor (CARCO) in favor of respondent BAFC without the consent of the principal debtor (Fortune Motors), extinguished
their liabilities.

An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause,
such as sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers his credit and
accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor
could enforce it against the debtor.[7] As a consequence, the third party steps into the shoes of the original creditor as
subrogee of the latter. Petitioners obligations were not extinguished. Thus:

x x x Moreover, in assignment, the debtors consent is not essential for the validity of the assignment (Art. 1624 in relation
to Art. 1475, Civil Code), his knowledge thereof affecting only the validity of the payment he might make (Article 1626,
Civil Code).

Article 1626 also shows that payment of an obligation which is already existing does not depend on the consent of the
debtor. It, in effect, mandates that such payment of the existing obligation shall already be made to the new creditor from
the time the debtor acquires knowledge of the assignment of the obligation.

The law is clear that the debtor had the obligation to pay and should have paid from the date of notice whether or not he
consented.
We have ruled in Sison & Sison vs. Yap Tico and Avancea, 37 Phil. 587 [1918] that definitely, consent is not necessary in
order that assignment may fully produce legal effects. Hence, the duty to pay does not depend on the consent of the debtor.
Otherwise, all creditors would be prevented from assigning their credits because of the possibility of the debtors refusal to
give consent.

What the law requires in an assignment of credit is not the consent of the debtor but merely notice to him. A creditor may,
therefore, validly assign his credit and its accessories without the debtors consent (National Investment and Development
Co. v. De Los Angeles, 40 SCRA 489 [1971]. The purpose of the notice is only to inform that debtor from the date of the
assignment, payment should be made to the assignee and not to the original creditor.[8]

Petitioners finally posit (third issue) that as an entruster, respondent BAFC must first demand the return of the unsold
vehicles from Fortune Motors Corporation, pursuant to the terms of the trust receipts. Having failed to do so, petitioners
had no cause of action whatsoever against Fortune Motors Corporation and the action for collection of sum of money was,
therefore, premature. A trust receipt is a security transaction intended to aid in financing importers and retail dealers
who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be
able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased.[9] In the event of
default by the entrustee on his obligations under the trust receipt agreement, it is not absolutely necessary that the
entruster cancel the trust and take possession of the goods to be able to enforce his rights thereunder. We ruled:

x x x Significantly, the law uses the word may in granting to the entruster the right to cancel the trust and take possession
of the goods. Consequently, petitioner has the discretion to avail of such right or seek any alternative action, such as a
third party claim or a separate civil action which it deems best to protect its right, at any time upon default or failure of
the entrustee to comply with any of the terms and conditions of the trust agreement.[10]

The Judgment

WHEREFORE, the appealed decision is hereby AFFIRMED. However, the award of attorneys fees is deleted.

No costs.

SO ORDERED.

TRUST RECEIPTS Case Digests


[G.R. No. 119858. April 29, 2003]

EDWARD C. ONG, petitioner, vs. THE COURT OF APPEALS AND THE PEOPLE OF THE PHILIPPINES, respondents.

Facts:

Assistant City Prosecutor Dina P. Teves of the City of Manila charged petitioner and Benito Ong with two counts of estafa
under separate Informations dated 11 October 1991.

In Criminal Case No. 92-101989, the Information indicts petitioner and Benito Ong of the crime of estafa committed as
follows:

That on or about July 23, 1990, in the City of Manila, Philippines, the said accused, representing ARMAGRI International
Corporation, conspiring and confederating together did then and there willfully, unlawfully and feloniously defraud the
SOLIDBANK Corporation represented by its Accountant, DEMETRIO LAZARO, a corporation duly organized and
existing under the laws of the Philippines located at Juan Luna Street, Binondo, this City, in the following manner, to wit:
the said accused received in trust from said SOLIDBANK Corporation the following, to wit: 10,000 bags of urea valued at
P2,050,000.00 specified in a Trust Receipt Agreement and covered by a Letter of Credit No. DOM GD 90-009 in favor of
the Fertiphil Corporation.
In Criminal Case No. 92-101990, the Information likewise charges petitioner of the crime of estafa committed as follows:

That on or about July 6, 1990, in the City of Manila, Philippines, the said accused, representing ARMAGRI International
Corporation, defraud the SOLIDBANK Corporation represented by its Accountant, DEMETRIO LAZARO. The said
accused received in trust from said SOLIDBANK Corporation the following goods, to wit: 125 pcs. Rear diff. assy RNZO
49 50 pcs. Front & Rear diff assy. Isuzu Elof, 85 units 1-Beam assy. Isuzu Spz all valued at P2,532,500.00 specified in a
Trust Receipt Agreement and covered by a Domestic Letter of Credit No. DOM GD 90-006 in favor of the Metropole
Industrial Sales with address at P.O. Box AC 219, Quezon City.

Issue: WON PETITIONER WAS NECESSARILY THE ONE RESPONSIBLE FOR THE OFFENSE, BY THE MERE
CIRCUMSTANCE THAT PETITIONER ACTED AS AGENT AND SIGNED FOR THE ENTRUSTEE CORPORATION.

Held: Section 13 of the Trust Receipts Law which provides: x x x. If the violation 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 offense. We hold that petitioner is a person responsible for violation of the Trust Receipts Law.

The Trust Receipts Law is violated whenever the entrustee fails to: (1) turn over the proceeds of the sale of the goods, or
(2) return the goods covered by the trust receipts if the goods are not sold.[18] The mere failure to account or return gives
rise to the crime which is malum prohibitum.[19] There is no requirement to prove intent to defraud.[20]

The Trust Receipts Law recognizes the impossibility of imposing the penalty of imprisonment on a corporation. Hence, if
the entrustee is a corporation, the law makes the officers or employees or other persons responsible for the offense liable to
suffer the penalty of imprisonment. The reason is obvious: corporations, partnerships, associations and other juridical
entities cannot be put to jail. Hence, the criminal liability falls on the human agent responsible for the violation of the
Trust Receipts Law.
_________________________________________________________________________

[G.R. No. 122502. December 27, 2002]

LORENZO M. SARMIENTO, JR. and GREGORIO LIMPIN, JR., petitioners, vs. COURT OF APPEALS and
ASSOCIATED BANKING CORP., respondents.

Facts:

On September 6, 1978, defendant Gregorio Limpin, Jr. and Antonio Apostol, doing business under the name and style of
Davao Libra Industrial Sales, filed an application for an Irrevocable Domestic Letter of Credit with the plaintiff Bank for
the amount of P495,000.00 in favor of LS Parts Hardware and Machine Shop (herein after referred to as LS Parts) for the
purchase of assorted scrap irons. Said application was signed by defendant Limpin and Apostol (Exh. A). The aforesaid
application was approved, and plaintiff Bank issued Domestic Letter of Credit No. DLC No. DVO-78-006 in favor of LS
Parts for P495,000.00 (Exh. B). Thereafter, a Trust Receipt dated September 6, 1978, was executed by defendant Limpin
and Antonio Apostol (Exh. C). The defendants acknowledged to have received in trust from the plaintiff Bank the
merchandise covered by the documents and agreed to hold said merchandise in storage as the property of the Bank.

The defendants failed to comply with their undertaking under the Trust Receipt. Hence as early as March, 1980, demands
were made for them to comply with their undertaking. The defendants claim that they cannot be held liable as the 825
tons of assorted scrap iron, subject of the trust receipt agreement, were lost when the vessel transporting them sunk, and
that said scrap iron were delivered to Davao Libra Industrial Sales, a business concern over which they had no interest
whatsoever.
Thereafter, the corresponding Information was filed against the defendants. Defendant Lorenzo Sarmiento, Jr. was,
however, dropped from the Information while defendant Gregorio Limpin, Jr. was convicted.

Issue: WON private respondents have the right to institute a separate civil action against Sarmiento for civil liability?

Held: Article 31 of the Civil Code provides that When the civil action is based on an obligation not arising from the act or
omission complained of as a felony, such civil action may proceed independently of the criminal proceedings and regardless
of the result of the latter.

In the present case, private respondents complaint against petitioners was based on the failure of the latter to comply
with their obligation as spelled out in the Trust Receipt executed by them.[20] This breach of obligation is separate and
distinct from any criminal liability for misuse and/or misappropriation of goods or proceeds realized from the sale of
goods, documents or instruments released under trust receipts, punishable under Section 13 of the Trust Receipts Law
(P.D. 115) in relation to Article 315(1), (b) of the Revised Penal Code.

Being based on an obligation ex contractu and not ex delicto, the civil action may proceed independently of the criminal
proceedings instituted against petitioners regardless of the result of the latter.
_________________________________________________________________________________

[G.R. No. 133176. August 8, 2002]

PILIPINAS BANK, petitioner, vs. ALFREDO T. ONG and LEONCIA LIM, respondents.

Facts:
On April 1991, Baliwag Mahogany Corporation (BMC), through its president, respondent Alfredo T. Ong, applied for a
domestic commercial letter of credit with petitioner Pilipinas Bank (hereinafter referred to as the bank) to finance the
purchase of about 100,000 board feet of "Air Dried, Dark Red Lauan" sawn lumber.

The bank approved the application and issued Letter of Credit No. 91/725-HO in the amount of P3,500,000.00. To secure
payment of the amount, BMC, through respondent Ong, executed two (2) trust receipts[3] providing inter alia that it shall
turn over the proceeds of the goods to the bank, if sold, or return the goods, if unsold, upon maturity on July 28, 1991 and
August 4, 1991.

On due dates, BMC failed to comply with the trust receipt agreement. On November 22, 1991, it filed with the Securities
and Exchange Commission (SEC) a Petition for Rehabilitation and for a Declaration in a State of Suspension of Payments
under Section 6 (c) of P.D. No. 902-A,[4] as amended, docketed as SEC Case No. 4109. On November 27, 1992, the SEC
rendered a Decision[7] approving the Rehabilitation Plan of BMC as contained in the MOA and declaring it in a state of
suspension of payments.

However, BMC and respondent Ong defaulted in the payment of their obligations under the rescheduled payment scheme
provided in the MOA.

Issue: WON respondents Ong and Leoncia Lim (as president and treasurer of BMC, respectively) violated the Trust
Receipts Law (PD No. 115).

Held: NO. The execution of the MOA constitutes a novation which "places petitioner Bank in estoppel to insist on the
original trust relation and constitutes a bar to the filing of any criminal information for violation of the trust receipts law."

It has the effect of a compromise agreement, novated BMCs existing obligations under the trust receipt agreement. The
novation converted the parties relationship into one of an ordinary creditor and debtor. Moreover, the execution of the
MOA precludes any criminal liability on their part which may arise in case they violate any provision thereof.
The execution of the MOA extinguished respondents obligation under the trust receipts. Respondents liability, if any,
would only be civil in nature since the trust receipts were transformed into mere loan documents after the execution of the
MOA. This is reinforced by the fact that the mortgage contracts executed by the BMC survive despite its non-compliance
with the conditions set forth in the MOA.

_________________________________________________________________________________

[G.R. NO. 117913. February 1, 2002]

CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD VELASCO and ALFONSO CO,
petitioners, vs. COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.

Facts:
On March 2, 1979, Charles Lee, as President of MICO wrote private respondent Philippine Bank of Communications
(PBCom) requesting for a grant of a discounting loan/credit line in the sum of Three Million Pesos (P3,000,000.00) for the
purpose of carrying out MICOs line of business as well as to maintain its volume of business.
On the same day, Charles Lee requested for another discounting loan/credit line of Three Million Pesos (P3,000,000.00)
from PBCom for the purpose of opening letters of credit and trust receipts.
As per agreement, the proceeds of all the loan availments were credited to MICOs current checking account with PBCom.
To induce the PBCom to increase the credit line of MICO, petitioners executed another surety agreement in favor of
PBCom on July 28, 1980, whereby they jointly and severally guaranteed the prompt payment on due dates or at maturity
of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange, trust receipts and all other obligations
of any kind and nature for which MICO may be held accountable by PBCom
Upon maturity of all credit availments obtained by MICO from PBCom, the latter made a demand for payment. Private
respondent PBCom extrajudicially foreclosed MICOs real estate mortgage upon repeated demands & emerged as the
highest bidder. For the unpaid balance, PBCom then demanded the settlement of the aforesaid obligations from herein
petitioners-sureties who, however, refused to acknowledge their obligations to PBCom under the surety agreements.
Hence, PBCom filed a complaint with prayer for writ of preliminary attachment before the Regional Trial Court of Manila.
Petitioners (MICO and herein petitioners-sureties) denied all the allegations of the complaint filed by respondent PBCom,
and alleged that: a) MICO was not granted the alleged loans and neither did it receive the proceeds of the aforesaid loans;
b) Chua Siok Suy was never granted any valid Board Resolution to sign for and in behalf of MICO; c) PBCom acted in bad
faith in granting the alleged loans and in releasing the proceeds thereof; d) petitioners were never advised of the alleged
grant of loans and the subsequent releases therefor, if any; e) since no loan was ever released to or received by MICO, the
corresponding real estate mortgage and the surety agreements signed concededly by the petitioners-sureties are null and
void.

Issue: WON the proceeds of the loans or the goods under the trust receipts were ever delivered to and received by MICO.

Held: It is clear that letters of credit, being usually bank to bank transactions, involve more than just one bank.
Consequently, there is nothing unusual in the fact that the drafts presented in evidence by respondent bank were not
made payable to PBCom.

A trust receipt is considered as a security transaction intended to aid in financing importers and retail dealers who do not
have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to
acquire credit except through utilization, as collateral of the merchandise imported or purchased.

A trust receipt, therefor, is a document of security pursuant to which a bank acquires a security interest in the goods
under trust receipt. Under a letter of credit-trust receipt arrangement, a bank extends a loan covered by a letter of credit,
with the trust receipt as a security for the loan. The transaction involves a loan feature represented by a letter of credit,
and a security feature which is in the covering trust receipt which secures an indebtedness.
________________________________________________________________________
G.R. No. 135462 December 7, 2001

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

Facts:
On January 17, 1983, Joseph L. G. Chua, President of Fortune Motors Corporation, executed in favor of plaintiff-appellant
a Continuing Suretyship Agreement, in which he "jointly and severally unconditionally" guaranteed the "full, faithful and
prompt payment and discharge of any and all indebtedness" of Fortune Motors Corporation to BA Finance Corporation. On
February 3, 1983, Palawan Lumber Manufacturing Corporation represented by Joseph L.G. Chua, George D. Tan, Edgar
C. Rodrigueza and Joselito C. Baltazar, executed in favor of plaintiff-appellant a Continuing Suretyship Agreement in
which, said corporation "jointly and severally unconditionally" guaranteed the "full, faithful and prompt payment and
discharge of any and all indebtedness of Fortune Motors Corporation to BA Finance Corporation (Folder of Exhibits, pp.
19-20). On the same date, South City Homes, Inc. represented by Edgar C. Rodrigueza and Aurelio F. Tablante, likewise
executed a Continuing Suretyship Agreement in which said corporation "jointly and severally unconditionally" guaranteed
the "full, faithful and prompt payment and discharge of any and all indebtedness" of Fortune Motors Corporation to BA
Finance Corporation.

Fortune Motors Corporation thereafter executed trust receipts covering the motor vehicles delivered to it by CARCO under
which it agreed to remit to the Entruster (CARCO) the proceeds of any sale and immediately surrender the remaining
unsold vehicles. ). The drafts and trust receipts were assigned to plaintiff-appellant, under Deeds of Assignment executed
by CARCO.
Upon failure of the defendant-appellant Fortune Motors Corporation to pay the amounts due under the drafts and to remit
the proceeds of motor vehicles sold or to return those remaining unsold in accordance with the terms of the trust receipt
agreements, BA Finance Corporation sent demand letter to Edgar C. Rodrigueza, South City Homes, Inc., Aurelio
Tablante, Palawan Lumber Manufacturing Corporation, Joseph L. G. Chua, George D. Tan and Joselito C. Baltazar
(Folder of Exhibits, pp. 29-37). Since the defendants-appellants failed to settle their outstanding account with plaintiff-
appellant, the latter filed on December 22, 1983 a complaint for a sum of money with prayer for preliminary attachment,
with the Regional Trial Court of Manila.

Issue: WON respondent BAFC has a valid cause of action for a sum of money following the drafts and trust receipts
transactions.

Held: As an entruster, respondent BAFC must first demand the return of the unsold vehicles from Fortune Motors
Corporation, pursuant to the terms of the trust receipts. Having failed to do so, petitioners had no cause of action
whatsoever against Fortune Motors Corporation and the action for collection of sum of money was, therefore, premature.
A trust receipt is a security transaction intended to aid in financing importers and retail dealers who do not have sufficient
funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except
through utilization, as collateral, of the merchandise imported or purchased.9 In the event of default by the entrustee on
his obligations under the trust receipt agreement, it is not absolutely necessary that the entruster cancel the trust and
take possession of the goods to be able to enforce his rights thereunder.
________________________________________________________________________
G.R. No. 119723 February 23, 2001

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,


vs.
HON. COURT OF APPEALS and FILIPINAS TEXTILE MILLS, INC., respondents.

Facts:
petitioner, on April 8, 1991, of a Complaint against private respondent Bernardino Villanueva, private respondent
Filipinas Textile Mills and one Sochi Villanueva (now deceased) before the Regional Trial Court of Manila. In the said
Complaint, petitioner sought the payment of P2,244,926.30 representing the proceeds or value of various textile goods, the
purchase of which was covered by irrevocable letters of credit and trust receipts executed by petitioner with private
respondent Filipinas Textile Mills as obligor; which, in turn, were covered by surety agreements executed by private
respondent Bernardino Villanueva and Sochi Villanueva. In their Answer, private respondents admitted the existence of
the surety agreements and trust receipts but countered that they had already made payments on the amount demanded
and that the interest and other charges imposed by petitioner were onerous.
On May 31, 1993, petitioner filed a Motion for Attachment, contending that violation of the trust receipts law constitutes
estafa, thus providing ground for the issuance of a writ of preliminary attachment.

Issue: WON there was a sufficient basis for the issuance of the writ of preliminary attachment.

Held: NO. The Motion for Attachment filed by petitioner and its supporting affidavit did not sufficiently establish the
grounds relied upon in applying for the writ of preliminary attachment. While the Motion refers to the transaction
complained of as involving trust receipts, the violation of the terms of which is qualified by law as constituting estafa, it
does not follow that a writ of attachment can and should automatically issue. private respondents claimed that substantial
payments were made on the proceeds of the trust receipts sued upon. They also refuted the allegations of fraud,
embezzlement and misappropriation by averring that private respondent Filipinas Textile Mills could not have done these
as it had ceased its operations starting in June of 1984 due to workers' strike.

_______________________________________________________________________

ONG VS CA (1983)
124 SCRA 578

Facts:
Under an agreement between petitioner and Tramat Mercantile, Inc., several units of machineries was obtained and
received in trust by petitioner for the purpose of displaying and selling the machineries for cash, under the express
obligation on the part of said petitioner of turning over to said Tramat Mercantile, Inc., the proceeds from the sale thereof,
if sold, or of returning to the latter the said goods, if not sold, within ninety (90) days, or immediately upon demand.
Petitioner was charged with a criminal case of estafa for allegedly faing to turn over the proceeds of the sale several units
of machineries or to return the goods to Tramat Mercantile, Inc. under the aforesaid covenant.
Petitioner was later charged with a complaint for collection of sum of money with the then CFI of Manila wherein both
parties entered a compromise agreement to settle the claim. Petitioner subsequently filed a motion to dismiss the criminal
case against him on the ground of novation because of the compromise agreement entered into between him and the
complainant.
CFI of Manila denied the motion to dismiss. On petition for certiorari with the then Court of Appeals the petition was
dismissed on the grounds, among others, that novation does not extinguish the criminal liability if the crime of estafa has
been completed. (2 REYES 670, 1975 ed., citing People vs. Clemente, CA, 65 O.G. 6892). In the instant case, the crime of
estafa had been consummated long before the compromise agreement was agreed upon. In fact, the criminal case had
already been filed in the court. Therefore , the subsequent agreement did not affect the criminal culpability of the
petitioner. (p. 16, Rollo)
Hence, the filing of the instant petition for certiorari, mandamus, prohibition and for a writ of preliminary injunction ,
with prayer that the Decision of the respondent Court of Appeals be reversed and set aside; and that respondent judge of
the First Instance be prohibited permanently from further proceeding in said criminal case and to command him to
dismiss said case after due hearing of this petition x x x. (p. 11, Rollo)
It is the position of herein petitioner that the compromise agreement in the civil case novated the contract embodied in the
trust receipts on which the information in the Criminal Case No.43423 was based, inasmuch as there was a change of
object or principal conditions, under Article 1291 of the Civil Code. There being a novation, it is respectfully submitted
that even if the novation took place after the filing of the Information in the criminal case, the transaction had
nonetheless been converted from a criminal violation to civil obligation, which would therefore necessitate the consequent
dismissal of the criminal case. (p. 8, Rollo).

Issue: Whether or not the compromise agreement made after the filing of the criminal case novated the trust receipt
agreement.

Ruling:
We are not persuaded. The Court, speaking through Justice J.B.L. Reyes, in People vs. Nery, 10 SCRA 244, said that:
The novation theory may perhaps apply to the filing of the criminal information in court by the state prosecutors because
up to that time the original trust relation may be converted by the parties into an ordinary creditor-debtor situation,
thereby placing the complainant in estoppel to insist on the original trust. But after the justice authorities have taken
cognizance of the crime and instituted action in court, the offended party may no longer divest the prosecution of its power
to exact criminal liability, as distinguished from the civil. The crime being an offense against the state, only the latter can
renounce it, (People vs. Gervacio, 54 Off. Gaz. 2898; People vs. Velasco, 42 Phil. 76; U.S. vs. Montaes, 8 Phil. 620).
It may be observed in this regard that novation is not one of the means recognized by the ,Penal Code whereby criminal
liability can be extinguished; hence the role of novation may be either to prevent the rise of criminal liability or to cast
doubt on the true nature of the original basic transaction, whether or not it was such that its breach would not give rise to
penal responsibility, as when money loaned is made to appear as a deposit, or other similar disguise is resorted to (cf.
Abeto vs. People, 90 Phil. 581; U.S. vs. Villareal, 27 Phil. 481).
Thus it is clear that the respondent Court of Appeals did not abuse its discretion amounting to lack of jurisdiction in
denying petitioners motion to dismiss the criminal case of estafa on the basis of a compromise agreement made after the
filing of the information.
ACCORDINGLY, the petition is DISMISSED for lack of merit.
____________________________________________________________________________________________

SPOUSES TIRSO VINTOLA AND LORETA DY VS INSULAR BANK OF ASIA ANDAMERICA, (1987)
150 SCRA 578

FACTS:
Petitioner spouses Vintola owns and manages manufacturing of raw seashells into finished products, under their business
name, Dax kin International. They applied for domestic letter of credit by respondent Insular Bank of Asia and America
which was granted. Then, executed a Trust Receipt Agreement with Insular bank stipulating that the Vintolas shall hold
the goods in trust for IBAA. Having defaulted in its payment, the Vintolas offered to return the goods to IBAA, but the
latter refused. Due to their continued refusal, IBAA charged them with estafa. The Court acquitted the Vintolas.

ISSUE: Whether or not IBAA became the real owners of the goods held in trust by the Vintolas.

RULING: No. Insular bank of Asia and America did not become the holder or real owner of the goods. The Vintolas
retained ownership of the goods. TheCourt held that the trust receipt arrangement did not convert the IBAA intoan
investor, it remained a lendor and creditor. Under the law, a trust receipt is a document wherein the entrustee binds
himself to hold thedesignated goods, documents or instruments in trust for the entruster to sell or otherwise dispose of the
goods, to the amount owing to the entruster.
____________________________________________________________________________________________

ALLIED BANKING CORPORATION VS SECRETARY SEDFREY ORDOEZ AND ALFREDOCHING


192 SCRA 246 (1990)

FACTS: Respondent Alfredo Ching duly authorized officer of Philippine Blooming Mills(PBM) applied for the issuance of
commercial letters of credit with petitioner Allied banking Corporation. The latter issued an irrevocable letter of credit
infavor of Nikko Industry wherein it drew four (4) drafts which were accepted by Blooming Mills and duly honored and
paid by Allied Bank. In order to secure the payment of the loan, Blooming Mills as entrustee, executed four (4) Trust
Receipt Agreements acknowledging Allied banks ownership of the goods and Blooming Mills obligation to turn over the
proceeds of the sale of the goods if sold or to return the same within the stated period. Blooming Mills failed to pay
itsobligation, thereby prompting petitioner bank to file a criminal complaint for violation of Presidential Decree 115.

ISSUE: Whether or not the penal provision of Presidential decree 115 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 in the operation of the equipment
of entrustee-manufacturer?

RULING: Yes. In trust receipts, there is an obligation to repay the entruster. 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 according to the terms and conditions of the trust receipt. Petition granted.

_________________________________________________________________________________

G.R. No. L-39922-25 August 21, 1987

TRINIDAD RAMOS, petitioner,


vs.THE HONORABLE COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
NARVASA, J.:

Facts:
This is an appeal of Trinidad Ramos seeking reversal of the judgment of the Court of Appeals which affirmed her
conviction of four felonies of estafa handed down by the Court of First Instance of Manila.
Petitioner applied for four letters of credit with Philippine National Cooperative Bank (PNCB) supported by commercial
invoices. After the applications were processed and approved, domestic letters of credit were opened on the same dates of
the applications and in the amounts applied for . The different suppliers then drew sight drafts against the petitioner
payable to the order of the PNCB, also bearing the same dates as the respective applications and for the same amounts.
The PNCB then drew its own drafts against the petitioner as the buyer of the merchadise and which drafts were accepted
by the accused also on the same dates of the respective applications. After such acceptance, the corresponding trust
receipts were signed by the petitioner also on the same dates of the respective applications.
The four trust receipts signed by the accused uniformly contain the following stipulation:
The undersigned hereby acknowledges to have received in trust from the ... (PNCB) the merchandise covered by the above-
mentioned documents and agrees to hold said merchandise in storage as the property of said bank, with the liberty to sell
the same for cash and for its account provided the proceeds thereof are turned over in their entirety to the said bank to be
applied against any acceptance(s) and any other indebtedness of the undersigned to the said bank.
PNCB claimed that no payments were made excepting partial payments of P3,900.00 and P2,000, inclusive of interests on
one of the letters of credit. These partial payments were evidently in pursuance of written demands for payment addressed
by the PNCB to the petitioner October 5, 1965. A last formal demand was addressed to the petitioner in a letter of counsel
for the PNCB dated January 26,1967.
Trinidad Ramos contends, in her case (1) that there is no adequate proof of her receipt of the goods subject of the trust
receipts in question or of her having paid anything on account thereof or in connection therewith; (2) that complainant
Bank had suffered no damage whatever, since it had made no payment at all on account of the commercial invoices for
which the trust receipts were issued; and (3) that under the laws at the time, transactions involving trust receipts could
only give rise to purely civil liability.

Issue: Whether or not the trust receipts signed by petitioner is sufficient to convict her of the crime of estafa.

Ruling:
Petitioner is not guilty of estafa. Conviction was reversed.
Examined against the evidence of record, the assailed factual findings as to the receipt of the merchandise and the
damage sustained by the Bank cannot stand. The proofs are indeed inadequate on these propositions of fact. It is difficult
to accept the prosecution's theory that it has furnished sufficient proof of delivery by the introduction in evidence of the
commercial invoices attached to the applications for the letters of credit and of the trust receipts. The invoices are actually
nothing more than lists of the items sought to be purchased and their prices; and it can scarcely be believed that goods
worth no mean sum actually transferred hands without the unpaid vendor requiring the vendee to acknowledge this fact in
some way, even by a simple signature on these documents alone if not in fact by the execution of some appropriate
document, such as a delivery receipt.
The trust receipts do not fare any better as proofs of the delivery to Ramos of the goods. Except for the invoices, an
documents relating to each trust receipt agreement, including the trust receipts themselves, appear to be standard Bank
forms accomplished by the Bank personnel, and were all signed by Ramos in one sitting, no doubt with a view to
facilitating the pending transactions between the parties. If, as she claims, Ramos was made to believe that bank usage or
regulations require the signing of the papers in this way, i.e., on a single occasion, there was neither reason nor
opportunity for her to question the statement therein of receipt of the goods since it was evidently assumed that delivery
to her of the goods would shortly come to pass.
At any rate, Ramos has categorically and consistently denied ever having received the goods either from the Bank or the
suppliers. And this was because, according to her, the suppliers simply refused to part with the goods as no payment had
been made therefore by the Bank.
_____________________________________________________________________________________________
G.R. No. L-46658 May 13, 1991

PHILIPPINE NATIONAL BANK, petitioner,


vs.HON. GREGORIO G. PINEDA, in his capacity as Presiding Judge of the Court of First Instance of Rizal, Branch XXI
and TAYABAS CEMENT COMPANY, INC., respondents.

Facts:
In this petition for certiorari, petitioner Philippine National Bank (PNB) seeks to annul and set aside the orders dated
March 4, 1977 and May 31, 1977 rendered in Civil Case No. 24422 1 of the Court of First Instance of Rizal, Branch XXI,
respectively granting private respondent Tayabas Cement Company, Inc.'s application for a writ of preliminary injunction
to enjoin the foreclosure sale of certain properties in Quezon City and Negros Occidental and denying petitioner's motion
for reconsideration thereof.

In 1963, Ignacio Arroyo and Tuason Arroyo (the Arroyo Spouses), obtained a loan of P580,000.00 from PNB secured by La
Vista, a parcel of land in order too purchase 60% of the subscribed capital stock, and thereby acquire the controlling
interest of private respondent Tayabas Cement Company, Inc. (TCC).
Thereafter, TCC filed with petitioner bank an application and agreement for the establishment of an eight (8) year
deferred letter of credit (L/C) for $7,000,000.00 in favor of Toyo Menka Kaisha, Ltd. of Tokyo, Japan, to cover the
importation of a cement plant machinery and equipment.
Upon approval of said application and opening of an L/C by PNB in favor of Toyo Menka Kaisha, Ltd. for the account of
TCC, the Arroyo spouses executed the following documents to secure this loan accommodation: Surety Agreement dated
August 5, 1964 and Covenant dated August 6, 1964.
The imported cement plant machinery and equipment arrived from Japan and were released to TCC under a trust receipt
agreement. Subsequently, Toyo Menka Kaisha, Ltd. made the corresponding drawings against the L/C as scheduled. TCC,
however, failed to remit and/or pay the corresponding amount covered by the drawings. Thus, on May 19, 1968, pursuant
to the trust receipt agreement, PNB notified TCC of its intention to repossess, as it later did, the imported machinery and
equipment for failure of TCC to settle its obligations under the L/C.
The Arroyos failed to settle their obligations the La Vista property was foreclosed with PNB winning the bid.
However, when said property was about to be awarded to PNB, the representative of the mortgagor-spouses objected and
demanded from the PNB the difference between the bid price of P1,000,001.00 and the indebtedness of P499,060.25 of the
Arroyo spouses on their personal account. It was the contention of the spouses Arroyo's representative that the foreclosure
proceedings referred only to the personal account of the mortgagor spouses without reference to the account of TCC.
To remedy the situation, PNB filed a supplemental petition on August 13, 1975 requesting the Sheriff's Office to proceed
with the sale of the subject real properties to satisfy not only the amount of P499,060.25 owed by the spouses Arroyos on
their personal account but also the amount of P35,019,901.49 exclusive of interest, commission charges and other expenses
owed by said spouses as sureties of TCC. Said petition was opposed by the spouses Arroyo and the other bidder, Jose L.
Araneta.
On October 5, 1976, the CFI, thru respondent Judge Gregorio Pineda, issued a restraining order and on March 4, 1977,
granted a writ of preliminary injunction. PNB's motion for reconsideration was denied, hence this petition.
Issue: Whether or not TCC's liability has been extinguished by the repossession of PNB of the imported cement plant
machinery and equipment.

Ruling:
We rule for the petitioner PNB. It must be remembered that PNB took possession of the imported cement plant
machinery and equipment pursuant to the trust receipt agreement executed by and between PNB and TCC giving the
former the unqualified right to the possession and disposal of all property shipped under the Letter of Credit until such
time as all the liabilities and obligations under said letter had been discharged.
PNB's possession of the subject machinery and equipment being precisely as a form of security for the advances given to
TCC under the Letter of Credit, said possession by itself cannot be considered payment of the loan secured thereby.
Payment would legally result only after PNB had foreclosed on said securities, sold the same and applied the proceeds
thereof to TCC's loan obligation. Mere possession does not amount to foreclosure for foreclosure denotes the procedure
adopted by the mortgagee to terminate the rights of the mortgagor on the property and includes the sale itself.

Neither can said repossession amount to dacion en pago. Dation in payment takes place when property is alienated to the
creditor in satisfaction of a debt in money and the same is governed by sales. Dation in payment is the delivery and
transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the
obligation. As aforesaid, the repossession of the machinery and equipment in question was merely to secure the payment
of TCC's loan obligation and not for the purpose of transferring ownership thereof to PNB in satisfaction of said loan.
Thus, no dacion en pago was ever accomplished.

Proceeding from this finding, PNB has the right to foreclose the mortgages executed by the spouses Arroyo as sureties of
TCC. A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the
obligation of the latter, and their liabilities are interwoven as to be inseparable. 21 As sureties, the Arroyo spouses are
primarily liable as original promissors and are bound immediately to pay the creditor the amount outstanding.
Under Presidential Decree No. 385 which took effect on January 31, 1974, government financial institutions like herein
petitioner PNB are required to foreclose on the collaterals and/or securities for any loan, credit or accommodation
whenever the arrearages on such account amount to at least twenty percent (20%) of the total outstanding obligations,
including interests and charges, as appearing in the books of account of the financial institution concerned. 23 It is further
provided therein that "no restraining order, temporary or permanent injunction shall be issued by the court against any
government financial institution in any action taken by such institution in compliance with the mandatory foreclosure
provided in Section 1 hereof, whether such restraining order, temporary or permanent injunction is sought by the
borrower(s) or any third party or parties . . ."
WHEREFORE, the instant petition is hereby granted.