WAREHOUSE RECEIPT TO MORTGAGE complaint for "Specific Performance with Damages and Application for

Writ of Attachment" against Noah's Ark Sugar Refinery, Alberto T.

Looyuko, Jimmy T. Go and Wilson T. Go, the last three being identified
G.R. No. 129918 July 9, 1998
as the sole proprietor, managing partner, and Executive Vice President
of Noah's Ark, respectively.
PHILIPPINE NATIONAL BANK, petitioner,
Respondent Judge Benito C. Se, Jr., [to] whose sala the case was
vs. raffled, denied the Application for Preliminary Attachment.
Reconsideration therefor was likewise denied.
HON. MARCELINO L. SAYO, JR., in his capacity as Presiding Judge of the Regional Trial
Court of Manila (Branch 45), NOAH'S ARK SUGAR REFINERY, ALBERTO T. LOOYUKO, Noah's Ark and its co-defendants filed an Answer with Counterclaim
JIMMY T. GO and WILSON T. GO, respondents. and Third-Party Complaint in which they claimed that they [were] the
owners of the subject quedans and the sugar represented therein,
averring as they did that:
In this special civil action for certiorari, actually the third dispute between the same private
parties to have reached this Court, 1 petitioner asks us to annul the orders 2 of 15 April
1997 and 14 July 1997 issued in Civil Case No. 90-53023 by the Regional Trial Court, 9. * * * In an agreement dated April 1, 1989,
Manila, Branch 45. The first order 3 granted private respondents' motion for execution to defendants agreed to sell to Rosa Ng Sy of RNS
satisfy their warehouseman's lien against petitioner, while the second order 4denied, with Merchandising and Teresita Ng of St. Therese
finality, petitioner's motion for reconsideration of the first order and urgent motion to lift Merchandising the total volume of sugar indicated in
garnishment, and private respondents' motion for partial reconsideration. the quedans stored at Noah's Ark Sugar Refinery for
a total consideration of P63,000,000.00, * * * The
corresponding payments in the form of checks
The factual antecedents until the commencement of G.R. No. 119231 were summarized in issued by the vendees in favor of defendants were
our decision therein, as follows: subsequently dishonored by the drawee banks by
reason of "payment stopped" and "drawn against
In accordance with Act No. 2137, the Warehouse Receipts Law, Noah's insufficient funds," * * * Upon proper notification to
Ark Sugar Refinery issued on several dates, the following Warehouse said vendees and plaintiff in due course, defendants
Receipts (Quedans): (a) March 1, 1989, Receipt No. 18062, covering refused to deliver to vendees therein the quantity of
sugar deposited by Rosa Sy; (b) March 7, 1989, Receipt No. 18080, sugar covered by the subject quedans.
covering sugar deposited by RNS Merchandising (Rosa Ng Sy); (c)
March 21, 1989, Receipt No. 18081, covering sugar deposited by St. 10. * * * Considering that the vendees and first
Therese Merchandising; (d) March 31, 1989, Receipt No. 18086, endorsers of subject quedans did not acquire
covering sugar deposited by St. Therese Merchandising; and (e) April ownership thereof, the subsequent endorsers and
1, 1989, Receipt No. 18087, covering sugar deposited by RNS plaintiff itself did not acquire a better right of
Merchandising. The receipts are substantially in the form, and contains ownership than the original vendees/first endorsers.
the terms, prescribed for negotiable warehouse receipts by Section 2 of
the law.
The Answer incorporated a Third-Party Complaint by Alberto T.
Looyuko, Jimmy T. Go and Wilson T. Go, doing business under the
Subsequently, Warehouse Receipts Nos. 18080 and 18081 were trade name and style Noah's Ark Sugar Refinery against Rosa Ng Sy
negotiated and endorsed to Luis T. Ramos, and Receipts Nos. 18086, and Teresita Ng, praying that the latter be ordered to deliver or return to
18087 and 18062 were negotiated and endorsed to Cresencia K. them the quedans (previously endorsed to PNB and the subject of the
Zoleta. Ramos and Zoleta then used the quedans as security for two suit) and pay damages and litigation expenses.
loan agreements — one for P15.6 million and the other for P23.5 million
— obtained by them from the Philippine National Bank. The
aforementioned quedans were endorsed by them to the Philippine The Answer of Rosa Ng Sy and Teresita Ng, dated September 6, 1990,
National Bank. one of avoidance, is essentially to the effect that the transaction
between them, on the one hand, and Jimmy T. Go, on the other,
concerning the quedans and the sugar stocks covered by them was
Luis T. Ramos and Cresencia K. Zoleta failed to pay their loans upon merely a simulated one being part of the latter's complex banking
maturity on January 9, 1990. Consequently, on March 16, 1990, the schemes and financial maneuvers, and thus, they are not answerable in
Philippine National Bank wrote to Noah's Ark Sugar Refinery demanding damages to him.
delivery of the sugar stocks covered by the quedans endorsed to it by
Zoleta and Ramos. Noah's Ark Sugar Refinery refused to comply with
the demand alleging ownership thereof, for which reason the Philippine
National Bank filed with the Regional Trial Court of Manila a verified

1
On January 31, 1991, the Philippine National Bank filed a Motion for On December 13, 1991, the Court of Appeals nullified and set aside the
Summary Judgment in favor of the plaintiff as against the defendants orders of May 2 and July 4, 1990 of the Regional Trial Court and
for the reliefs prayed for in the complaint. ordered the trial court to render summary judgment in favor of the PNB.
On June 18, 1992, the trial court rendered judgment dismissing
plaintiffs complaint against private respondents for lack of cause of
On May 2, 1991, the Regional Trial Court issued an order denying the
action and likewise dismissed private respondent's counterclaim
Motion for Summary Judgment. Thereupon, the Philippine National Bank
against PNB and of the Third-Party Complaint and the Third-Party
filed a Petition for Certiorari with the Court of Appeals, docketed as
Defendant's Counterclaim. On September 4, 1992, the trial court denied
CA-G.R. SP No. 25938 on December 13, 1997.
PNB's Motion for Reconsideration.

Pertinent portions of the decision of the Court of Appeals read:

On June 9, 1992, the PNB filed an appeal from the RTC decision with
the Supreme Court, G.R. No. 107243, by way of a Petition for Review
In issuing the questioned Orders, the respondent on Certiorari under Rule 45 of the Rules of Court. This Court rendered
Court ruled that "questions of law should be judgment on September 1, 1993, the dispositive portion of which reads:
resolved after and not before, the questions of fact
are properly litigated." A scrutiny of defendant's
WHEREFORE, the trial judge's decision in Civil Case No. 90-53023,
affirmative defenses does not show material
dated June 18, 7992, is reversed and set aside and a new one
questions of fact as to the alleged nonpayment of
rendered conformably with the final and executory decision of the Court
purchase price by the vendees/first endorsers, and
of Appeals in CA-G.R. SP No. 25938, ordering the private respondents
which nonpayment is not disputed by PNB as it
Noah's Ark Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go and
does not materially affect PNB's title to the sugar
Wilson T. Go, jointly and severally:
stocks as holder of the negotiable quedans.

(a) to deliver to the petitioner Philippine National

What is determinative of the propriety of summary
Bank, "the sugar stocks covered by the Warehouse
judgment is not the existence of conflicting claims
Receipts/Quedans which are now in the latter's
from prior parties but whether from an examination
possession as holder for value and in due course; or
of the pleadings, depositions, admissions and
alternatively, to pay (said) plaintiff actual damages
documents on file, the defenses as to the main
in the amount of P39.1 million," with legal interest
issue do not tender material questions of fact (see
thereon from the filing of the complaint until full
Garcia vs. Court of Appeals, 167 SCRA 815) or the
payment; and
issues thus tendered are in fact sham, fictitious,
contrived, set up in bad faith or so unsubstantial as
not to constitute genuine issues for trial. (See (b) to pay plaintiff Philippine National Bank
Vergara vs. Suelto, et al., 156 SCRA 753; attorney's fees, litigation expenses and judicial
Mercado, et al. vs. Court of Appeals, 162 SCRA 75). costs hereby fixed at the amount of One Hundred
[sic] The questioned Orders themselves do not Fifty Thousand Pesos (P150,000.00) as well as the
specify what material facts are in issue. (See Sec. 4, costs.
Rule 34, Rules of Court).
SO ORDERED.
To require a trial notwithstanding pertinent
allegations of the pleadings and other facts
On September 29, 1993, private respondents moved for reconsideration
appearing on the record, would constitute a waste
of this decision. A Supplemental/Second Motion for Reconsideration
of time and an injustice to the PNB whose rights to
with leave of court was filed by private respondents on November 8,
relief to which it is plainly entitled would be further
1993. We denied private respondent's motion on January 10, 1994.
delayed to its prejudice.

Private respondents filed a Motion Seeking Clarification of the Decision,

In issuing the questioned Orders, We find the
dated September 1, 1993. We denied this motion in this manner:
respondent Court to have acted in grave abuse of
discretion which justify holding null and void and
setting aside the Orders dated May 2 and July 4, It bears stressing that the relief granted in this
1990 of respondent Court, and that a summary Court's decision of September 1, 1993 is precisely
judgment be rendered forthwith in favor of the PNB that set out in the final and executory decision of
against Noah's Ark Sugar Refinery, et al., as prayed the Court of Appeals in CA-G.R. SP No. 25938,
for in petitioner's Motion for Summary Judgment. dated December 13, 1991, which was affirmed in

2
 toto by this Court and which became unalterable RESPONDENT RTC IS WITHOUT JURISDICTION TO HEAR PRIVATE
upon becoming final and executory. RESPONDENTS' OMNIBUS MOTION. THE CLAIMS SET FORTH IN SAID
MOTION: (1) WERE ALREADY REJECTED BY THE SUPREME COURT IN
ITS MARCH 9, 1994 RESOLUTION DENYING PRIVATE RESPONDENTS'
Private respondents thereupon filed before the trial court an Omnibus
"MOTION FOR CLARIFICATION OF DECISION" IN G.R. NO. 107243;
Motion seeking among others the deferment of the proceedings until
AND (2) ARE BARRED FOREVER BY PRIVATE RESPONDENTS' FAILURE
private respondents [were] heard on their claim for warehouseman's
TO INTERPOSE THEM IN THEIR ANSWER, AND FAILURE TO APPEAL
lien. On the other hand, on August 22, 1994, the Philippine National
FROM THE JUNE 18, 1992 DECISION IN CIVIL CASE NO. 90-52023.
Bank filed a Motion for the Issuance of a Writ of Execution and an
Opposition to the Omnibus Motion filed by private respondents.
III
The trial court granted private respondents' Omnibus Motion on
December 20, 1994 and set reception of evidence on their claim for RESPONDENT RTC'S ONLY JURISDICTION IS TO ISSUE THE WRIT TO
warehouseman's lien. The resolution of the PNB's Motion for Execution EXECUTE THE SUPREME COURT DECISION. THUS, PNB IS ENTITLED
was ordered deferred until the determination of private respondents' TO: (1) A WRIT OF CERTIORARI TO ANNUL THE RTC RESOLUTION
claim. DATED DECEMBER 20, 1994 AND THE ORDER DATED FEBRUARY 7,
1995 AND ALL PROCEEDINGS TAKEN BY THE RTC THEREAFTER; (2) A
WRIT OF PROHIBITION TO PREVENT RESPONDENT RTC FROM
On February 21, 1995, private respondents' claim for lien was heard
FURTHER PROCEEDING WITH CIVIL CASE NO. 90-53023 AND
and evidence was received in support thereof. The trial court thereafter
COMMITTING OTHER ACTS VIOLATIVE OF THE SUPREME COURT
gave both parties five (5) days to file respective memoranda.
DECISION IN G.R. NO. 107243; AND (3) A WRIT OF MANDAMUS TO
COMPEL RESPONDENT RTC TO ISSUE THE WRIT TO EXECUTE THE
On February 28, 1995, the Philippines National bank filed a SUPREME COURT JUDGMENT IN FAVOR OF PNB.
Manifestation with Urgent Motion to Nullify Court Proceedings. In
adjudication thereof, the trial court issued the following order on March
In our decision of 18 April 1996 in G.R. No. 119231, we held against herein petitioner as to
1, 1995:
these issues and concluded:

WHEREFORE, this court hereby finds that there

In view of the foregoing, the rule may be simplified thus: While the PNB
exists in favor of the defendants a valid
is entitled to the stocks of sugar as the endorsee of the quedans,
warehouseman's lien under Section 27 of Republic
delivery to it shall be effected only upon payment of the storage fees.
Act 2137 and accordingly, execution of the
judgment is hereby ordered stayed and/or precluded
until the full amount of defendants' lien on the sugar Imperative is the right of the warehouseman to demand payment of his
stocks covered by the five (5) quedans subject of lien at this juncture, because, in accordance with Section 29 of the
this action shall have been satisfied conformably Warehouse Receipts Law, the warehouseman loses his lien upon goods
with the provisions of Section 31 of Republic Act by surrendering possession thereof. In other words, the lien may be
2137. 5 lost where the warehouseman surrenders the possession of the goods
without requiring payment of his lien, because a warehouseman's lien
is possessory in nature.
Unsatisfied with the trial court's order of 1 March 1995, herein petitioner filed with us G.R.
No. 119231, contending:
We, therefore, uphold and sustain the validity of the assailed orders of
public respondent, dated December 20, 1994 and March 1, 1995.
I

In fine, we fail to see any taint of abuse of discretion on the part of the
PNB'S RIGHT TO A WRIT OF EXECUTION IS SUPPORTED BY TWO
public respondent in issuing the questioned orders which recognized
FINAL AND EXECUTORY DECISIONS: THE DECEMBER 13, 1991 COURT
the legitimate right of Noah's Ark, after being declared as
OF APPEALS [sic] DECISION IN CA-G.R. SP NO. 25938; AND, THE
warehouseman, to recover storage fees before it would release to the
NOVEMBER 9, 1992 SUPREME COURT DECISION IN G.R. NO. 107243.
PNB sugar stocks covered by the five (5) Warehouse Receipts. Our
RESPONDENT RTC'S MINISTERIAL AND MANDATORY DUTY IS TO
resolution, dated March 9, 1994, did not preclude private respondents'
ISSUE THE WRIT OF EXECUTION TO IMPLEMENT THE DECRETAL
unqualified right to establish its claim to recover storage fees which is
PORTION OF SAID SUPREME COURT DECISION.
recognized under Republic Act No. 2137. Neither did the Court of
Appeals' decision, dated December 13, 1991, restrict such right.
II

3
 Our Resolution's reference to the decision by the Court of Appeals, This Court consequently rejects PNB's claim of no
dated December 13, 1991, in CA-G.R. SP No. 25938, was intended to sugar no lien, since it is undisputed that the amount
guide the parties in the subsequent disposition of the case to its final of the accrued storage fees is substantially in
end. We certainly did not foreclose private respondents' inherent right excess of the alternative award of P39.1 Million in
as warehouseman to collect storage fees and preservation expenses as favor of PNB, including legal interest and
stipulated on the face of each of the Warehouse Receipts and as P150,000.00 in attorney's fees, which PNB is
provided for in the Warehouse Receipts Law (R.A. 2137). 6 however entitled to be credited . . . .

Petitioner's motion to reconsider the decision in G.R. No. 119231 was denied. x x x           x x x          x x x

After the decision in G.R. No. 119231 became final and executory, various incidents took WHEREFORE, premises considered and finding
place before the trial court in Civil Case No. 90-53023. The petition in this case merit in the defendants' motion for execution of their
summarizes these as follows: claim for lien as warehouseman, the same is hereby
GRANTED. Accordingly, let a writ of execution issue
for the amount of P662,548,611.50, in accordance
3.24 Pursuant to the abovementioned Supreme Court Decision, private
with the above disposition.
respondents filed a Motion for Execution of Defendants' Lien as
Warehouseman dated 27 November 1996. A photocopy of said Motion
for Execution is attached hereto as Annex "I". SO ORDERED. (Emphasis supplied.)

3.25 PNB opposed said Motion on the following grounds: 3.28 On 23 April 1997, PNB was immediately served with a Writ of
Execution for the amount of P662,548,611.50 in spite of the fact that it
had not yet been served with the Order of the court a quo dated 15
(a) The lien claimed by Noah's
April 1997. PNB thus filed an Urgent Motion dated 23 April 1997
Ark in the unbelievable amount of
seeking the deferment of the enforcement of the Writ of Execution. A
P734,341,595.06 is illusory; and
photocopy of the Writ of Execution is attached hereto as Annex "J".

(b) There is no legal basis for

3.29 Nevertheless, the Sheriff levied on execution several properties of
execution of defendants' lien as
PNB. Firstly, a Notice of Levy dated 24 April 1997 on a parcel of land
warehouseman unless and until
with an area of Ninety-Nine Thousand Nine Hundred Ninety-Nine
PNB compels the delivery of the
(99,999) square meters, covered by Transfer Certificate of Title No.
sugar stocks.
23205 in the name of PNB, was served upon the Register of Deeds of
Pasay City. Secondly, a Notice of Garnishment dated 23 April 1997 on
3.26 In their Reply to Opposition dated 18 January 1997, private fund deposits of PNB was served upon the Bangko Sentral ng Pilipinas.
respondents pointed out that a lien existed in their favor, as held by the Photocopies of the Notice of Levy and the Notice of Garnishment are
Supreme Court. In its Rejoinder dated 7 February 1997, PNB countered attached hereto as Annexes "K" and "L" respectively.
private respondents' argument, pointing out that the dispositive portion
of the court a quo's Order dated 1 March 1995 failed to state the
3.30 On 28 April 1997, petitioner filed a Motion for Reconsideration with
amount for which execution may be granted and, thus, the same could
Urgent Prayer for Quashal of Writ of Execution dated 15 April 1997.
not be the subject of execution; and (b) private respondents should
Petitioner's Motion was based on the following grounds:
instead file a separate action to prove the amount of its claim as
warehouseman.
(1) Noah's Ark is not entitled to a
warehouseman's lien in the
3.27 The court a quo, this time presided by herein public respondent,
humongous amount of
Hon. Marcelino L. Sayo Jr., granted private respondents' Motion for
P734,341,595.06 because the
Execution. In its questioned Order dated 15 April 1997 (Annex "A"), the
same has been waived for not
court a quo ruled in this wise:
having been raised earlier as
either counterclaim or defense
Accordingly, the computation of accrued storage against PNB;
fees and preservation charges presented in
evidence by the defendants, in the amount of
(2) Assuming said lien has not
P734,341,595.06 as of January 31, 1995 for the
been waived, the same, not
86,356.41, 50 kg. bags of sugar, being in order and
being registered, is already
with sufficient basis, the same should be granted.

4
 barred by prescription and/or abandoning its (PNB's) legal positions/contentions
laches, herein abovementioned.

(3) Assuming further that said 2. The Order dated April 15, 1997 granting the
lien has not been waived nor Motion for Execution by defendant Noah's Ark be
barred, still there was no set aside.
complaint ever filed in court to
effectively commence this
3. The execution proceedings already commenced
entirely new cause of action;
by said sheriffs be nullified at whatever stage of
accomplishment.
(4) There is no evidence on
record which would support and
A photocopy of petitioner's Motion for Reconsideration with Urgent
sustain the claim of
Prayer for Quashal of Writ of Execution is attached hereto and made
P734,341,595.06 which is
integral part hereof as Annex "M".
excessive, oppressive and
unconscionable;
3.32 Private respondents filed an Opposition with Motion for Partial
Reconsideration dated 8 May 1997. Still discontented with the
(5) Said claim if executed would
excessive and staggering amount awarded to them by the court a quo,
constitute unjust enrichment to
private respondents' Motion for Partial Reconsideration sought
the serious prejudice of PNB and
additional and continuing storage fees over and above what the
indirectly the Philippine
court a quo had already unjustly awarded. A photocopy of private
Government, who innocently
respondents' Opposition with Motion for Partial Reconsideration dated
acquired the sugar quedans
8 May 1997 is attached hereto as Annex "N".
through assignment of credit;

3.32.1 Private respondents prayed for the further

(6) In all respects, the decisions
amount of P227,375,472.00 in storage fees from 1
of both the Supreme Court and
February 1995 until 15 April 1997, the date of the
of the former Presiding Judge of
questioned Order granting their Motion for
the trial court do not contain a
Execution.
specific determination and/or
computation of warehouseman's
lien, thus requiring first and 3.32.2 In the same manner, private respondents
foremost a fair hearing of PNB's prayed for a continuing amount of P345,424.00 as
evidence, to include the true and daily storage fees after 15 April 1997 until the total
standard industry rates on sugar amount of the storage fees is satisfied.
storage fees, which if computed
at such standard rate of thirty
3.33 On 19 May 1997, PNB filed its Reply with Opposition (To
centavos per kilogram per month,
Defendants' Opposition with Partial Motion for Reconsideration),
shall result in the sum of about
containing therein the following motions: (i) Supplemental Motion for
Three Hundred Thousand Pesos
Reconsideration; (ii) Motion to Strike out the Testimony of Noah's Ark's
only.
Accountant Last February 21, 1995; and (iii) Motion for the Issuance of
a Writ of Execution in favor of PNB. In support of its pleading,
3.31 In its Motion for Reconsideration, petitioner prayed for the petitioner raised the following:
following reliefs:
(1) Private respondents failed to
1. PNB be allowed in the meantime to exercise its pay the appropriate docket fees
basic right to present evidence in order to prove the either for its principal claim or for
above allegations especially the true and reasonable its additional claim, as said
storage fees which may be deducted from PNB's claims for warehouseman's lien
judgment award of P39.1 Million, which storage fees were not at all mentioned in their
if computed correctly in accordance with standard answer to petitioner's Complaint;
sugar industry rates, would amount to only P300
Thousand Pesos, without however waiving or

5
 (2) The amount awarded by the 1997, together with all its related Motions are all
court a quo was grossly and DENIED with finality for lack of merit.
manifestly unreasonable,
excessive, and oppressive;
x x x           x x x          x x x

(3) It is the dispositive portion of

The Order of this Court dated April 15, 1997, the
the decision which shall be
final Writ of Execution likewise dated April 15, 1997
controlling in any execution
and the corresponding Garnishment all stand firm.
proceeding. If no specific award
is stated in the dispositive
portion, a writ of execution SO ORDERED.7
supplying an amount not
included in the dispositive
Aggrieved thereby, petitioners filed this petition, alleging as grounds therefor, the
portion of the decision being
following:
executed is null and void;

A. THE COURT A QUO ACTED WITHOUT OR IN EXCESS OF ITS

(4) Private respondents failed to
JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION WHEN IT
prove the existence of the sugar
ISSUED A WRIT OF EXECUTION IN FAVOR OF DEFENDANTS FOR THE
stocks in Noah's Ark's
AMOUNT OF P734,341,595.06.
warehouses. Thus, private
respondents' claims are mere
paper liens which cannot be the 4.1 The court a quo had no authority to issue a writ of execution in
subject of execution; favor of private respondents as there was no final and executory
judgment ripe for execution.
(5) The attendant circumstances,
particularly Judge Se's Order of 1 4.2 Public respondent judge patently exceeded the scope of his
March 1995 onwards, were authority in making a determination of the amount of storage fees due
tainted with fraud and absence private respondents in a mere interlocutory order resolving private
of due process, as PNB was not respondents' Motion for Execution.
given a fair opportunity to
present its evidence on the
matter of the warehouseman's 4.3 The manner in which the court a quo awarded storage fees in favor
lien. Thus, all orders prescinding of private respondents and ordered the execution of said award was
thereform, including the arbitrary and capricious, depriving petitioner of its inherent substantive
questioned Order dated 15 April and procedural rights.
1997 must perforce be set aside
and the execution proceedings B. EVEN ASSUMING ARGUENDO THAT THE COURT A QUO HAD
against PNB be permanently AUTHORITY TO GRANT PRIVATE RESPONDENTS' MOTION FOR
stayed. EXECUTION, THE COURT A QUO ACTED WITH GRAVE ABUSE OF
DISCRETION IN AWARDING THE HIGHLY UNREASONABLE,
3.34 On 6 May 1997, petitioner also filed an Urgent Motion to Lift UNCONSCIONABLE, AND EXCESSIVE AMOUNT OF P734,341,595.06 IN
Garnishment of PNB Funds with Bangko Sentral ng Pilipinas. FAVOR OF PRIVATE RESPONDENTS.

3.35 On 14 July 1997, respondent Judge issued the second Order 4.4 There is no basis for the court a quo's award of P734,341,595.06
(Annex "B"), the questioned part of the dispositive portion of which representing private respondents' alleged warehouseman's lien.
states:
4.5 PNB has sufficient evidence to show that the astronomical amount
WHEREFORE, premises considered, the plaintiff claimed by private respondents is very much in excess of the industry
Philippine National Bank's subject "Motion for rate for storage fees and preservation expenses.
Reconsideration With Urgent Prayer for Quashal of
Writ of Execution" dated April 28, 1997 and undated C. PUBLIC RESPONDENT JUDGE'S GRAVE ABUSE OF DISCRETION
"Urgent Motion to Lift Garnishment of PNB Funds BECOMES MORE PATENT AFTER A CLOSE PERUSAL OF THE
With Bangko Sentral ng Pilipinas" filed on May 6, QUESTIONED ORDER DATED 14 JULY 1997.

6
 4.6. The court a quo  resolved a significant and consequential matter not present in the instant case. Petitioner then cited the cases of Edward v. Arce, where
entirely relying on documents submitted by private respondents totally we ruled that the only portion of the decision which could be the subject of execution was
disregarding clearly contrary evidence submitted by PNB. that decreed in the dispositive part, 9 and Ex-Bataan Veterans Security Agency, Inc. v.
National Labor Relations Commission , 10 where we held that a writ of execution should
conform to the dispositive portion to be executed, otherwise, execution becomes void if in
4.7 The court a quo misquoted and misinterpreted the Supreme Court
excess of and beyond the original judgment.
Decision dated 18 April 1997.

Petitioner likewise emphasized that the hearing of 21 February 1995 was marred by
D. THE COURT A QUO ACTED WITH GRAVE ABUSE OF DISCRETION
procedural infirmities, narrating that the trial court proceeded with the hearing
IN NOT HOLDING THAT PRIVATE RESPONDENTS HAVE LONG WAIVED
notwithstanding the urgent motion for postponement of petitioner's counsel of record, who
THEIR RIGHT TO CLAIM ANY WAREHOUSEMAN'S LIEN.
attended a previously scheduled hearing in Pampanga. However, petitioner's lawyer-
representative was sent to confirm the allegations in said motion. To petitioner's dismay,
4.8 Private respondents raised the matter of their entitlement to a instead of granting a postponement, the trial court allowed the continuance of the hearing
warehouseman's lien for storage fees and preservation expenses for on the basis that there was "nothing sensitive about [the presentation of private
the first time only during the execution proceedings of the Decision in respondents' evidence]." 11 At the same hearing, the trial court admitted all the
favor of PNB. documentary evidence offered by private respondents and ordered the filing of the parties'
respective memoranda. Hence, petitioner was virtually deprived of its right to cross-
examine the witness, comment on or object to the offer of evidence and present
4.9 Private respondents' claim for warehouseman's lien is in the nature countervailing evidence. In fact, to date, petitioner's urgent motion to nullify the court
of a compulsory counterclaim which should have been included in proceedings remains unresolved.
private respondents' answer to the Complaint. Private respondents
failed to include said claim in their answer either as a counterclaim or
as an alternative defense to PNB's Complaint. To stress its point, petitioner underscores the conflicting views of Judge Benito C. Se, Jr.,
who heard and tried almost the entire proceedings, and his successor, Judge Marcelino L.
Sayo, Jr., who issued the assailed orders. In the resolution 12 of 1 March 1995, Judge Se
4.10 Private respondents' clam is likewise lost by virtue of a specific found private respondents' claim for warehouse lien in the amount of P734,341,595.06
provision of the Warehouse Receipts Law and barred by prescription unacceptable, thus:
and laches.

In connection with [private respondents'] claim for payment of

E. PUBLIC RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF warehousing fees and expenses, this Court cannot accept [private
DISCRETION IN REFUSING TO LIFT THE ORDER OF GARNISHMENT OF respondents'] pretense that they are entitled to storage fees and
THE FUNDS OF PNB WITH THE BANGKO SENTRAL NG PILIPINAS. preservation expenses in the amount of P734,341,595.06 as shown in
their Exhibits "1" to "11". There would, however, appear to be legal
4.11 Public respondent judge failed to consider PNB's arguments in basis for their claim for fees and expenses covered during the period
support of its Urgent motion to Lift Garnishment. 8 from the time of the issuance of the five (5) quedans until demand for
their delivery was made by [petitioner] prior to the institution of the
present action. [Petitioner] should not be made to shoulder the
In arguing its cause, petitioner explained that this Court's decision in G.R. No. 119231 warehousing fees and expenses after the demand was made. . . . 13
merely affirmed the trial court's resolutions of 20 December 1994 and 1 March 1995. The
earlier resolution set private respondents' reception of evidence for hearing to prove their
warehouseman's lien and, pending determination thereof, deferred petitioner's motion for Since it was deprived of a fair opportunity to present its evidence on the warehouseman's
execution of the summary judgment rendered in petitioner's favor in G.R. No. 107243. The lien due Noah's Ark, petitioner submitted the following documents: (1) an affidavit of
subsequent resolution recognized the existence of a valid warehouseman's lien without, petitioner's credit investigator 14 and his report 15 indicating that Noah's Ark only had
however, specifying the amount, and required its full satisfaction by petitioner prior to the 1,490, 50kg. bags, and not 86,356.41, 50kg. bags, of sugar in its warehouse; (2) Noah's
execution of the judgment in G.R. No. 107243. Ark's reports 16 for 1990-94 showing that it did not have sufficient sugar stock to cover
the quantity specified in the subject quedans, (3) Circular Letter No. 18 (s. 1987-88) 17 of
the Sugar Regulatory Administration requiring sugar mill companies to submit reports at
Under said circumstances, petitioner reiterated that neither this Court's decision nor the week's end to prevent the issuance of warehouse receipts not covered by actual inventory;
trial court's resolutions specified any amount for the warehouseman's lien, either in the and (4) an affidavit of petitioner's assistant vice president 18 alleging that Noah's Ark's
bodies or dispositive portions thereof. Petitioner therefore questioned the propriety of the daily storage fee of P4/bag exceeded the prevailing industry rate.
computation of the warehouseman's lien in the assailed order of 15 April 1997.

Petitioner, moreover, laid stress on the fact that in the questioned order of 14 July 1997,
Petitioner further characterized as highly irregular the trial court's final determination of the trial court relied solely on the Annual Synopsis of Production & Performance
such lien in a mere interlocutory order without explanation, as such should or could have Date/Annual Compendium of Performance by Philippine Sugar Refineries from 1989 to
been done only by way of a judgment on the merits. Petitioner likewise reasoned that a 1994, in disregard of Noah's Ark's certified reports that it did not have sufficient sugar
writ of execution was proper only to implement a final and executory decision, which was

7
stock to cover the quantity specified in the subject quedans. Between the two, petitioner Private respondents also raised the issue of res judicata as a bar to the instant
urged, the latter should have been accorded greater evidentiary weight. petition, i.e., the March resolution was already final and unappealable, having been
resolved in G.R. No. 119231, and the orders assailed here were issued merely to
implement said resolution.
Petitioner then argued that the trial court's second assailed order of 14 July 1997
misinterpreted our decision in G.R. No. 119231 by ruling that the Refining Contract under
which the subject sugar stock was produced bound the parties. According to petitioner, Private respondents then debunked the claim that petitioner was denied due process. In
the Refining Contract never existed, it having been denied by Rosa Ng Sy; thus, the trial that February hearing, petitioner was represented by counsel who failed to object to the
court could not have properly based its computation of the warehouseman's lien on the presentation and offer of their evidence consisting of the five quedans, Refining Contracts
Refining Contract. Petitioner maintained that a separate trial was necessary to settle the with petitioner and other quedan holders, and the computation resulting in the amount of
issue of the warehouseman's lien due Noah's Ark, if at all proper. P734,341,595.06, among other documents. Private respondents even attached a copy of
the transcript of stenographic notes 22 to their comment. In refuting petitioner's argument
that no writ of execution could issue in absence of a specific amount in the dispositive
Petitioner further asserted that Noah's Ark could no longer recover its lien, having raised
portion of this Court's decision in G.R. No. 119231, private respondents argued that any
the issue for the first time only during the execution proceedings of this Court's decision in
ambiguity in the decision could be resolved by referring to the entire record of the
G.R. No. 107243. As said claim was a separate cause of action which should have been
case, 23 even after the decision had become final.
raised in private respondents' answer with counterclaim to petitioner's complaint, private
respondents' failure to raise said claim should have been deemed a waiver thereof.
Private respondents next alleged that the award of P734,341,595.06 to satisfy their
warehouseman's lien was in accordance with the stipulations provided in the quedans and
Petitioner likewise insisted that under Section 29 19 of the Warehouse Receipts Law,
the corresponding Refining Contracts, and that the validity of said documents had been
private respondents were barred from claiming the warehouseman's lien due to their
recognized by this Court in our decision in G.R. No. 119231. Private respondents then
refusal to deliver the goods upon petitioner's demand. Petitioner further raised that private
questioned petitioner's failure to oppose or rebut the evidence they presented and
respondents failed to timely assert their claim within the five-year prescriptive
bewailed its belated attempts to present contrary evidence through its pleadings.
period, citing Article 1149 20 of the New Civil Code.
Nonetheless, said evidence was even considered by the trial court when petitioner sought
a reconsideration of the first assailed order of 15 April 1997, thus further precluding any
Finally, petitioner questioned the trial court's refusal to lift the garnishment order claim of denial of due process.
considering that the levy on its real property, with an estimated market value of
P6,000,000,000, was sufficient to satisfy the judgment award; and contended that the
Private respondents next pointed to the fact that they consistently claimed that they had
garnishment was contrary to Section 103 21 of the Bangko Sentral ng Pilipinas Law
not been paid for storing the sugar stock, which prompted them to file criminal charges of
(Republic Act No. 7653).
estafa and violation of Batas Pambansa (BP) Blg. 22 against Rosa Ng Sy and Teresita Ng.
In fact, Sy was eventually convicted of two counts of violation of BP Blg. 22. Private
On 8 August 1997, we required respondents to comment on the petition and issued a respondents, moreover, incurred, and continue to incur, expenses for the storage and
temporary restraining order enjoining the trial court form implementing its orders of 15 April preservation of the sugar stock; and denied having waived their warehouseman's lien, an
and 14 July 1997. issue already raised and rejected by this Court in G.R. No. 119231.

In their comment, private respondents first sought the lifting of the temporary restraining Private respondents further claimed that the garnishment order was proper, only that it was
order, claiming that petitioner could no longer seek a stay of the execution of this Court's rendered ineffective. In a letter 24 received by the sheriff from the Bangko Sentral ng
decision in G.R. No. 119231 which had become final and executory; and the petition Pilipinas, it was stated that the garnishment could not be enforced since petitioner's
raised factual issues which had long been resolved in the decision in G.R. No. 119231, deposits with the Bangko Sentral ng Pilipinas consisted solely of legal reserves which were
thereby rendering the instant petition moot and academic. They underscored that CA-G.R. exempt from garnishment. Petitioner therefore suffered no damage from said garnishment.
No. SP No. 25938, G.R. No. 107243 and G.R. No. 119231 all sustained their claim for a Private respondents likewise deemed immaterial petitioner's argument that the writ of
warehouseman's lien, while the storage fees stipulated in the Refining Contract had the execution issued against its real property in Pasay City was sufficient, considering its
approval of the Sugar Regulatory Authority. Likewise, under the Warehouse Receipts Law, prevailing market value of P6,000,000,000 was in excess of the warehouseman's lien; and
full payment of their lien was a pre-requisite to their obligation to release and deliver the invoked Rule 39 of the 1997 Rules of Civil Procedure, which provided that the sheriff must
sugar stock to petitioner. levy on all the property of the judgment debtor, excluding those exempt from execution, in
the execution of a money judgment.
Anent the trial court's jurisdiction to determine the warehouseman's lien, private
respondents maintained that such had already been established. Accordingly, the Finally, private respondents accused petitioner of coming to court with unclean hands,
resolution of 1 March 1995 declared that they were entitled to a warehouseman's lien, for specifically citing its misrepresentation that the award of the warehouseman's lien would
which reason, the execution of the judgment in favor of petitioner was stayed until the result in the collapse of its business. This claim, private respondents asserted, was
latter's full payment of the lien. This resolution was then affirmed by this Court in our contradicted by petitioner's 1996 Audited Financial Statement indicating that petitioner's
decision in G.R. No. 119231. Even assuming the trial court erred, the error could only have assets amounted to billions of pesos, and its 1996 Annual Report to its stockholders where
been in the wisdom of its findings and not of jurisdiction, in which case, the proper petitioner declared that the pending legal actions arising from their normal course of
remedy of petitioner should have been an appeal and certiorari did not lie. business "will not materially affect the Group's financial position." 25

8
In reply, petitioner advocated that resort to the remedy of certiorari was proper since the against Noah's Ark for the latter's failure to comply with [petitioner's]
assailed orders were interlocutory, and not a final judgment or decision. Further, that it demand for the delivery of the sugar?
was virtually deprived of its constitutional right to due process was a valid issue to raise in
the instant petition; and not even the doctrine of res judicata could bar this petition as the
(4) Did respondent Judge commit grave abuse of discretion as
element of a final and executory judgment was lacking. Petitioner likewise disputed the
charged? 28
claim that the resolution of 1 March 1995 was final and executory, otherwise private
respondents would not have filed an opposition and motion for partial
reconsideration 26 two years later. Petitioner also contended that the issues raised in this In our resolution of 24 November 1997, we summarized the positions of the parties on
petition were not resolved in G.R. No. 119231, as what was resolved there was private these issues, thus:
respondents' mere entitlement to a warehouseman's lien, without specifying a
corresponding amount. In the instant petition, the issues pertained to the amount and
Expectedly, counsel for petitioner submitted that certiorari under Rule
enforceability of said lien based on the arbitrary manner the amount was determined by
65 of the Rules of Court is the proper remedy and not an ordinary
the trial court.
appeal, contending, among others, that the order of execution was not
final. On the other hand, counsel for respondents maintained that
Petitioner further argued that the refining contracts private respondents invoked could not petitioner PNB disregarded the hierarchy of courts as it bypassed the
bind the former since it was not a party thereto. In fact, said contracts were not even Court of Appeals when it filed the instant petition before this Court.
attached to the quedans when negotiated; and that their validity was repudiated by a
supposed party thereto, Rosa Ng Sy, who claimed that the contract was simulated, thus
On the second issue, counsel for petitioner submitted that the trial
void pursuant to Article 1345 of the New Civil Code. Should the refining contracts in turn
court had no authority to issue the writ of execution or if it had, it
be declared void, petitioner advocated that any determination by the court of the existence
denied PNB due process when it held PNB liable for the astronomical
and amount of the warehouseman's lien due should be arrived at using the test of
amount or P734,341,595.06 as warehouseman's lien or storage fees.
reasonableness. Petitioner likewise noted that the other refining contracts 27 presented by
Counsel for respondent, on the other hand, contended that the trial
private respondents to show similar storage fees were executed between the years 1996
court's authority to issue the questioned writ of execution is derived
and 1997, several years after 1989. Thus, petitioner concluded, private respondents could
from the decision in G.R. No. 119231 which decision allegedly provided
not claim that the more recent and increased rates where those which prevailed in 1989.
for ample or sufficient parameters for the computation of the storage
fees.
Finally, petitioner asserted that in the event that this Court should uphold the trial court's
determination of the amount of the warehouseman's lien, petitioner should be allowed to
On the third issue, counsel for petitioner while presupposing that PNB
exercise its option as a judgment obligor to specify which of its properties may be levied
may be held to answer for storage fees, contended that the same
upon, citing Section 9(b), Rule 39 of the 1997 Rules of Civil Procedure. Petitioner claimed
should start from the time the endorsees of the sugar quedans
to have been deprived of this option when the trial court issued the garnishment and levy
defaulted in their payments, i.e., 1990 because before that, respondent
orders.
Noah's Ark's claim was that it was the owner of the sugar covered by
the quedans. On the other hand, respondents' counsel pointed out that
The petition was set for oral argument on 24 November 1997 where the parties addressed PNB's liability should start from the issuance of the quedans in 1989.
the following issues we formulated for them to discuss:
The arguments on the fourth issue, hinge on the parties' arguments for
(1) Is this special civil action the appropriate remedy? or against the first three issues. Counsel for petitioner stressed that the
trial court indeed committed a grave abuse of discretion, while
respondents' counsel insisted that no grave abuse of discretion was
(2) Has the trial court the authority to issue a writ of execution on
committed by the trial court. 29
Noah's Ark's claims for storage fees considering that this Court in G.R.
No. 119231 merely sustained the trial court's order of 20 December
1994 granting the Noah's Ark Omnibus Motion and setting the reception Private respondents likewise admitted that during the pendency of the case, they failed to
of evidence on its claims for storage fees, and of 1 March 1995 finding avail of their options as a warehouseman. Concretely, they could have enforced their lien
that there existed in favor of Noah's Ark a warehouseman's lien under through the foreclosure of the goods or the filing of an ordinary civil action. Instead, they
Section 27 of R.A. No. 2137 and directing that the execution of the sought to execute this Court's judgment in G.R. No. 119231. They eventually agreed that
judgment in favor of PNB be stayed and/or precluded until the full petitioner's liability for the warehouseman's lien should be reckoned from the time it
amount of Noah's Ark's lien is satisfied conformably with Section 31 of stepped into the shoes of the original depositors. 30
R.A. No. 2137?
In our resolution of 24 November 1997, we required the parties to simultaneously submit
(3) Is [petitioner] liable for storage fees (a) from the issuance of the their respective memoranda within 30 days or, in the alternative, a compromise agreement
quedans in 1989 to Rosa Sy, St. Therese Merchandising and RNS should a settlement be achieved. Notwithstanding efforts exerted by the parties, no
Merchandising, up to their assignment by endorsees Ramos and Zoleta mutually acceptable solution was reached.
to [petitioner] for their loan; or (b) after [petitioner] has filed an action
for specific performance and damages (Civil Case No. 90-53023)
9
In their respective memoranda, the parties reiterated or otherwise buttressed the warehouseman to pay under Section 32 of the
arguments raised in their previous pleadings and during the oral arguments on 24 Warehouse Receipt Law; or such other remedies
November 1997, especially on the formulated issues. allowed by law for the enforcement of a lien against
personal property under Section 35 of said law. The
third remedy is sought judicially by suing for the
The petition is meritorious.
unpaid charges. 35

We shall take up the formulated issues in seriatim.

Initially, private respondents availed of the first remedy. However, when petitioner moved
to execute the judgment in G.R. No. 107243 before the trial court, private respondents, in
A. This Special Civil Action is an Appropriate Remedy . turn, moved to have the warehouse charges and fees due them determined and thereafter
sought to collect these from petitioners. While the most appropriate remedy for private
respondents was an action for collection, in G.R. No. 119231, we already recognized their
A careful perusal of the first assailed order shows that the trial court not only granted the right to have such charges and fees determined in Civil Case No. 90-53023. The import of
motion for execution, but also appreciated the evidence in the determination of the our holding in G.R. No. 119231 was that private respondents were likewise entitled to a
warehouseman's lien; formulated its computation of the lien; and adopted an offsetting of judgment on their warehouse charges and fees, and the eventual satisfaction thereof,
the parties' claims. Ineluctably, the order as in the nature of a final order for it left nothing thereby avoiding having to file another action to recover these charges and fees, which
else to be resolved thereafter. Hence, petitioner's remedy was to appeal would only have further delayed the resolution of the respective claims of the parties, and
therefrom. 31 Nevertheless, petitioner was not precluded from availing of the extraordinary as a corollary thereto, the indefinite deferment of the execution of the judgment in G.R.
remedy of certiorari under Rule 65 of the Rules of Court. It is well-settled that the No. 107243. Thus we note that petitioner, in fact, already acquiesced to the scheduled
availability of an appeal does not foreclose recourse to the extraordinary remedies dates previously set for the hearing on private respondents' warehouseman's charges.
of certiorari or prohibition where appeal is not adequate, or equally beneficial, speedy and
sufficient. 32
However, as will be shown below, it would be premature to execute the order fixing the
warehouseman's charges and fees.
Petitioner assailed the challenged orders as having been issued without or in excess of
jurisdiction or with grave abuse of discretion and alleged that it had no other plain, speedy
and adequate remedy in the ordinary course of law. As hereafter shown, these claims were C. Petitioner is Liable for Storage Fees.
not unfounded, thus the propriety of this special civil action is beyond question.
We confirmed petitioner's liability for storage fees in G.R. No. 119231. However,
This Court had original jurisdiction, concurrent with that of Regional Trial Courts and the petitioner's status as to the quedans must first be clearly defined and delineated to be
Court of Appeals, over petitions for certiorari, prohibition, mandamus, quo able to determine the extent of its liability.
warranto and habeas curpus, 33 and we entertain direct resort to us in cases where
special and important reasons or exceptional and compelling circumstances justify the
Petitioner insisted, both in its petition and during the oral arguments on 24 November
same. 34 These reasons and circumstances are present here.
1997, that it was a mere  pledgee as the quedans were used to secure two loans it
granted. 36 In our decision in G.R. No. 107243, we upheld this contention of petitioner,
B. Under the Special Circumstances in This Case, Private thus;
Respondents May Enforce Their Warehouseman 's Lien
in Civil Case No. 90-53023.
Zoleta and Ramos then used the quedans as security for loans
obtained by them from the Philippine National Bank (PNB) as security
The remedies available to a warehouseman, such as private respondents, to enforce his for loans obtained by them in the amounts of P23.5 million and P15.6
warehouseman's lien are: million, respectively. These quedans they indoors to the bank. 37

(1) To refuse to deliver the goods until his lien is As such, Martinez v. Philippine National Bank 38 becomes relevant:
satisfied, pursuant to Section 31 of the Warehouse
Receipt Law;
In conclusion, we hold that where a warehouse receipt or quedan is
transferred or endorsed to a creditor only to secure the payment of a
(2) To sell the goods and apply the proceeds loan or debt, the transferee or endorsee does not automatically
thereof to the value of the lien pursuant to Sections become the owner of the goods covered by the warehouse receipt or
33 and 34 of the Warehouse Receipts Law; and quedan but he merely retains the right to keep and with the consent of
the owner to sell them so as to satisfy the obligation from the proceeds
of the sale, this for the simple reason that the transaction involved is
(3) By other means allowed by law to a creditor not a sale but only a mortgage or pledge, and that if the property
against his debtor, for the collection from the covered by the quedans or warehouse receipts is lost without the fault
depositor of all charges and advances which the or negligence of the mortgagee or pledgee or the transferee or
depositor expressly or impliedly contracted with the

10
 endorsee of the warehouse receipt or quedan, then said goods are to (b) An offer to surrender the
be regarded as lost on account of the real owner, mortgagor or receipt, if negotiable, with such
pledgor. indorsements as would be
necessary for the negotiation of
the receipt; and
The indorsement and delivery of the warehouse receipts (quedans) by Ramos and Zoleta
to petitioner was not to convey "title" to or ownership of the goods but to secure (by way
of pledge) the loans granted to Ramos and Zoleta by petitioner. The indorsement of the (c) A readiness and willingness
warehouse receipts (quedans), to perfect the pledge, 39 merely constituted a symbolical or to sign, when the goods are
constructive delivery of the possession of the thing thus encumbered. 40 delivered, an acknowledgment
that they have been delivered, if
such signature is requested by
The creditor, in a contract of real security, like pledge, cannot appropriate without
the warehouseman.
foreclosure the things given by way of pledge. 41 Any stipulation to the contrary,
termed pactum commissorio, is null and void. 42The law requires foreclosure in order to
allow a transfer of title of the good given by way of security from its pledgor,  43 and In case the warehouseman refuses or fails to deliver the goods in
before any such foreclosure, the pledgor, not the pledgee, is the owner of the goods. compliance with a demand by the holder or depositor so accompanied,
In Philippine National Bank v. Atendido , 44 we said: the burden shall be upon the warehouseman to establish the existence
of a lawful excuse for such refusal.
The delivery of the palay being merely by way of security, it follows that
by the nature of the transaction its ownership remains with the pledgor Sec. 29. How the lien may be lost. — A warehouseman loses his lien
subject only to foreclosure in case of non-fulfillment of the obligation. upon goods;
By this we mean that if the obligation is not paid upon maturity the
most that the pledgee can do is to sell the property and apply the
(a) By surrendering possession
proceeds to the payment of the obligation and to return the balance, if
thereof, or.
any, to the pledgor (Art. 1872, Old Civil Code [Art. 2112, New Civil
Code]). This is the essence of this contract, for, according to law, a
pledgee cannot become the owner of, nor appropriate to himself, the (b) By refusing to deliver the
thing given in pledge (Article 1859, Old Civil Code [Art. 2088, New Civil goods when a demand is made
Code]). . . The fact that the warehouse receipt covering palay was with which he is bound to comply
delivered, endorsed in blank, to the bank does not alter the situation, under the provisions of this Act.
the purpose of such endorsement being merely to transfer the juridical
possession of the property to the pledgees and to forestall any
Sec. 31. Warehouseman need not deliver until lien is satisfied . — A
possible disposition thereof on the part of the pledgor. This is true
warehouseman having a lien valid against the person demanding the
notwithstanding the provisions of the Warehouse Receipt Law.
goods may refuse to deliver the goods to him until the lien is satisfied.

The warehouseman, nevertheless, is entitled to the warehouseman's lien that attaches to

Simply put, where a valid demand by the lawful holder of the quedans for the delivery of
the goods invokable against anyone who claims a right of possession thereon.
the goods is refused by the warehouseman, despite the absence of a lawful excuse
provided by the statute itself, the warehouseman's lien is thereafter concomitantly lost. As
The next issue to resolve is the duration of time the right of petitioner over the goods may to what the law deems a valid demand, Section 8 enumerates what must accompany a
be held subject to the warehouseman's lien. demand; while as regards the reasons which a warehouseman may invoke to legally refuse
to effect delivery of the goods covered by the quedans, these are:
Sec. 8, 29 and 31 of the Warehouse Receipts Law now come to fore. They provide, as
follows: (1) That the holder of the receipt does not satisfy the conditions
prescribed in Section 8 of the Act. (See Sec. 8, Act No. 2137)
Sec. 8. Obligation of warehousemen to deliver . — A warehouseman, in
the absence of some lawful excuse provided by this Act, is bound to (2) That the warehouseman has legal title in himself on the goods, such
deliver the goods upon a demand made either by the holder of a title or right being derived directly or indirectly from a transfer made by
receipt for the goods or by the depositor, if such demand is the depositor at the time of or subsequent to the deposit for storage, or
accompanied with: from the warehouseman's lien. (Sec. 16, Act No. 2137)

(a) An offer to satisfy (3) That the warehouseman has legally set up the title or right of third
warehouseman's lien; persons as lawful defense for non-delivery of the goods as follows:

11
 (a) Where the warehouseman has been requested, a personal liability of the owners, i.e., the pledgors, not the pledgee, in this case. But
by or on behalf of the person lawfully entitled to a even as to the owners-pledgors, the warehouseman fees and charges have ceased to
right of property of or possession in the goods, not accrue from the date of the rejection by Noah's Ark to heed the lawful demand by
to make such delivery (Sec. 10, Act No. 2137), in petitioner for the release of the goods.
which case, the warehouseman may, either as a
defense to an action brought against him for
The finality of our denial in G.R. No. 119231 of petitioner's petition to nullify the trial
nondelivery of the goods, or as an original suit,
court's order of 01 March 1995 confirms the warehouseman's lien; however, such lien,
whichever is appropriate, require all known
nevertheless, should be confined to the fees and charges as of the date in March 1990
claimants to interplead (Sec. 17, Act No. 2137);
when Noah's Ark refused to heed PNB's demand for delivery of the sugar stocks and in no
event beyond the value of the credit in favor of the pledgee (since it is basic that, in
(b) Where the warehouseman had information that foreclosures, the buyer does not assume the obligations of the pledgor to his other
the delivery about to be made was to one not creditors even while such buyer acquires title over the goods less any existing preferred
lawfully entitled to the possession of the goods lien thereover). 46 The foreclosure of the thing pledged, it might incidentally be mentioned,
(Sec. 14 Act No. 2137), in which case, the results in the full satisfaction of the loan liabilities to the pledgee of the pledgors. 47
warehouseman shall be excused from liability for
refusing to deliver the goods, either to the depositor
D. Respondent Judge Committed Grave Abuse of Discretion .
or person claiming under him or to the adverse
claimant, until the warehouseman has had a
reasonable time to ascertain the validity of the We hold that the trial court deprived petitioner of due process in rendering the challenged
adverse claims or to bring legal proceedings to order of 15 April 1996 without giving petitioner an opportunity to present its evidence.
compel all claimants to interplead (Sec. 18, Act No. During the final hearing of the case, private respondents commenced and concluded their
2137); and presentation of evidence as to the matter of the existence of and amount owing due to
their warehouseman's lien. Their exhibits were duly marked and offered and the trial court
thereafter ruled, to wit:
(c) Where the goods have already been lawfully sold
to third persons to satisfy a warehouseman's lien, or
have been lawfully sold or disposed of because of Court: Order.
their perishable or hazardous nature. (Sec. 36, Act
No. 2137).
With the admission of Exhibits "1" to "11", inclusive
of submarkings, as part of the testimony of Benigno
(4) That the warehouseman having a lien valid against the person Bautista, the defendant [private respondents] is
demanding the goods refuses to deliver the goods to him until the lien given five (5) days from today to file its
is satisfied. (Sec. 31 Act No. 2137) memorandum. Likewise, plaintiff [petitioner] is given
five (5) days, from receipt of defendants' [private
respondents'] memorandum, to file its comment
(5) That the failure was not due to any fault on the part of the
thereto. Thereafter the same shall be deemed
warehouseman, as by showing that, prior to demand for delivery and
submitted for decision.
refusal, the goods were stolen or destroyed by fire, flood, etc., without
any negligence on his part, unless he has contracted so as to be liable
in such case, or that the goods have been taken by the mistake of a SO ORDERED. 48
third person without the knowledge or implied assent of the
warehouseman, or some other justifiable ground for non-delivery. (67
Nowhere in the transcript of stenographic notes, however, does it show that petitioner was
C.J. 532) 45
afforded an opportunity to comment on, much less, object to, private respondents' offer of
exhibits, or even present its evidence on the matter in dispute. In fact, petitioner
Regrettably, the factual settings do not sufficiently indicate whether the demand to obtain immediately moved to nullify the proceedings conducted during that hearing, but its
possession of the goods complied with Section 8 of the law. The presumption, motion was ignored and never resolved by the trial court. Moreover, it cannot be said that
nevertheless, would be that the law was complied with, rather than breached, by petitioner. petitioner's filing of subsequent pleadings, where it attached its affidavits and documents
Upon the other hand, it would appear that the refusal of private respondents to deliver the to contest the warehouseman's lien, was sufficient to fully satisfy the requirements of due
goods was not anchored on a valid excuse, i.e., non-satisfaction of the warehouseman's process. The subsequent pleadings were filed only to show that petitioner had evidence to
lien over the goods, but on an adverse claim of ownership. Private respondents justified refute the claims of private respondents or that the latter were not entitled thereto, but
their refusal to deliver the goods, as stated in their Answer with Counterclaim and Third- could not have adequately substituted for a full-blown opportunity to present its evidence,
Party Complaint in Civil Case No. 90-53023, by claiming that they "are still the legal given the exorbitant amounts involved. This, when coupled with the fact that the motion to
owners of the subject quedans and the quantity of sugar represented therein." Under the postpone the hearing filed by petitioner's counsel was not unreasonable, leads us to
circumstances, this hardly qualified as a valid, legal excuse. The loss of the conclude that petitioner's right to fully present its case was rendered nugatory. It is thus
warehouseman's lien, however, does not necessarily mean the extinguishment of the evident to us that there was undue and unwarranted haste on the part of respondent court
obligation to pay the warehousing fees and charges which continues to be to rule in favor of private respondents. We do not hesitate to say that any tilt of the scales

12
of justice, no matter how slight, evokes suspicion and erodes a litigant's faith and hope in BANK OF AMERICA, NT & SA, petitioners, 
seeking recourse before courts of law. vs.
COURT OF APPEALS, INTER-RESIN INDUSTRIAL CORPORATION, FRANCISCO TRAJANO,
JOHN DOE AND JANE DOE, respondents.
Likewise do we refuse to give credence to private respondents' allegation that the parties
agreed that petitioner's presentation of evidence would be submitted on the basis of
affidavits, 49 without, however, specifying any order or written agreement to that effect. A "fiasco," involving an irrevocable letter of credit, has found the distressed parties coming
to court as adversaries in seeking a definition of their respective rights or liabilities
thereunder.
It is interesting to note that among the evidence petitioner wanted to present were reports
obtained from Noah's Ark, disclosing that the latter failed to maintain a sufficient inventory
to satisfy the sugar stock covered by the subject quedans. This was a serious allegation, On 05 March 1981, petitioner Bank of America, NT & SA, Manila, received by registered
and on that score alone, the trial court should have allowed a hearing on the matter, mail an Irrevocable Letter of Credit No. 20272/81 purportedly issued by Bank of Ayudhya,
especially in light of the magnitude of the claims sought. If it turns out to be true that the Samyaek Branch, for the account of General Chemicals, Ltd., of Thailand in the amount of
stock of sugar Noah's Ark had in possession was below the quantities specified in US$2,782,000.00 to cover the sale of plastic ropes and "agricultural files," with the
the quedans, then petitioner should not be made to pay for storage and preservation petitioner as advising bank and private respondent Inter-Resin Industrial Corporation as
expenses for non-existent goods. beneficiary.

It was likewise grave abuse of discretion on the part of respondent court to order On 11 March 1981, Bank of America wrote Inter-Resin informing the latter of the foregoing
immediate execution of the 15 April 1997 order. We ruled earlier that said order was in the and transmitting, along with the bank's communication,
nature of a final order fixing the amount of the warehouseman's charges and fees, and the latter of credit. Upon receipt of the letter-advice with the letter of credit, Inter-Resin
petitioner's net liability, after the set-off of the money judgment in its favor in G.R. No. sent Atty. Emiliano Tanay to Bank of America to have the letter of credit confirmed. The
107243. Section 1 of Rule 39 of the Rules of Court explicitly provides that execution shall bank did not. Reynaldo Dueñas, bank employee in charge of letters of credit, however,
issue as a matter of right, on motion, upon a judgment or order that disposes of the action explained to Atty. Tanay that there was no need for confirmation because the letter of
or proceeding upon the expiration of the period to appeal therefrom if no appeal has been credit would not have been transmitted if it were not genuine.
duly perfected. Execution pending appeal is, however, allowed in Section 2 thereof, but
only on motion with due notice to the adverse party, more importantly, only "upon good
Between 26 March to 10 April 1981, Inter-Resin sought to make a partial availment under
reasons shown in a special order." Here, there is no showing that a motion for execution
the letter of credit by submitting to Bank of America invoices, covering the shipment of
pending appeal was filed and that a special order was issued by respondent court. Verily,
24,000 bales of polyethylene rope to General Chemicals valued at US$1,320,600.00, the
the immediate execution only served to further strengthen our perception of undue and
corresponding packing list, export declaration and bill of lading. Finally, after being
unwarranted haste on the part of respondent court in resolving the issue of the
satisfied that Inter-Resin's documents conformed with the conditions expressed in the
warehouseman's lien in favor of private respondents.
letter of credit, Bank of America issued in favor of Inter-Resin a Cashier's Check for
P10,219,093.20, "the Peso equivalent of the draft (for) US$1,320,600.00 drawn by Inter-
In light of the above, we need not rule anymore on the fourth formulated issue. Resin, after deducting the costs for documentary stamps, postage and mail
issuance." 1 The check was picked up by Inter-Resin's Executive Vice-President Barcelina
Tio. On 10 April 1981, Bank of America wrote Bank of Ayudhya advising the latter of the
WHEREFORE, the petition is GRANTED. The challenged orders of 15 April and 14 July
availment under the letter of credit and sought the corresponding reimbursement therefor.
1997, including the notices of levy and garnishment, of the Regional Trial Court of Manila,
Branch 45, in Civil Case No. 90-53023 are REVERSED and SET ASIDE, and said court is
DIRECTED to conduct further proceedings in said case: Meanwhile, Inter-Resin, through Ms. Tio, presented to Bank of America the documents for
the second availment under the same letter of credit consisting of a packing list, bill of
lading, invoices, export declaration and bills in set, evidencing the second shipment of
(1) to allow petitioner to present its evidence on the
goods. Immediately upon receipt of a telex from the Bank of Ayudhya declaring the letter
matter of the warehouseman's lien;
of credit fraudulent, 2 Bank of America stopped the processing of Inter-Resin's
documents and sent a telex to its branch office in Bangkok, Thailand, requesting
(2) to compute the petitioner's warehouseman's lien assistance in determining the authenticity of the letter of credit. 3 Bank of America kept
in light of the foregoing observations; and Inter-Resin informed of the developments. Sensing a fraud, Bank of America sought the
assistance of the National Bureau of Investigation (NBI). With the help of the staff of the
Philippine Embassy at Bangkok, as well as the police and customs personnel of Thailand,
(3) to determine whether, for the relevant period, the NBI agents, who were sent to Thailand, discovered that the vans exported by Inter-
Noah's Ark maintained a sufficient inventory to cover Resin did not contain ropes but plastic strips, wrappers, rags and waste materials. Here at
the volume of sugar specified in the quedans. home, the NBI also investigated Inter-Resin's President Francisco Trajano and Executive
Vice President Barcelina Tio, who, thereafter, were criminally charged for estafa through
Costs against private respondents. falsification of commercial documents. The case, however, was eventually dismissed by
the Rizal Provincial Fiscal who found no prima facieevidence to warrant prosecution.
G.R. No. 05395 December 10, 1993

13
Bank of America sued Inter-Resin for the recovery of P10,219,093.20, the peso equivalent The issuing bank redeems the draft and pays cash to the seller if it finds that the
of the draft for US$1,320,600.00 on the partial availment of the now disowned letter of documents submitted by the seller conform with what the letter of credit requires. The
credit. On the other hand, Inter-Resin claimed that not only was it entitled to retain bank then obtains possession of the documents upon paying the seller. The transaction is
P10,219,093.20 on its first shipment but also to the balance US$1,461,400.00 covering the completed when the buyer reimburses the issuing bank and acquires the documents
second shipment. entitling him to the goods. Under this arrangement, the seller gets paid only if he delivers
the documents of title over the goods, while the buyer acquires said documents and
control over the goods only after reimbursing the bank.
On 28 June 1989, the trial court ruled for Inter-Resin, 4 holding that:
(a) Bank of America made assurances that enticed Inter-Resin to send the merchandise to
Thailand; (b) the telex declaring the letter of credit fraudulent was unverified and self- What characterizes letters of credit, as distinguished from other accessory contracts, is
serving, hence, hearsay, but even assuming that the letter of credit was fake, "the fault the engagement of the issuing bank to pay the seller of the draft and the required shipping
should be borne by the BA which was careless and negligent"  5 for failing to utilize its documents are presented to it. In turn, this arrangement assures the seller of prompt
modern means of communication to verify with Bank of Ayudhya in Thailand the payment, independent of any breach of the main sales contract. By this so-called
authenticity of the letter of credit before sending the same to Inter-Resin; (c) the loading "independence principle," the bank determines compliance with the letter of credit only by
of plastic products into the vans were under strict supervision, inspection and verification examining the shipping documents presented; it is precluded from determining whether the
of government officers who have in their favor the presumption of regularity in the main contract is actually accomplished or not. 11
performance of official functions; and (d) Bank of America failed to prove the participation
of Inter-Resin or its employees in the alleged fraud as, in fact, the complaint for estafa
There would at least be three (3) parties: (a) the buyer, 12 who procures the letter of credit
through falsification of documents was dismissed by the Provincial Fiscal of Rizal. 6
and obliges himself to reimburse the issuing bank upon receipts of the documents of title;
(b) the bank issuing the letter of credit, 13 which undertakes to pay the seller upon receipt
On appeal, the Court of Appeals 7 sustained the trial court; hence, this present recourse of the draft and proper document of titles and to surrender the documents to the buyer
by petitioner Bank of America. upon reimbursement; and, (c) the seller, 14 who in compliance with the contract of sale
ships the goods to the buyer and delivers the documents of title and draft to the issuing
bank to recover payment.
The following issues are raised by Bank of America: (a) whether it has warranted the
genuineness and authenticity of the letter of credit and, corollarily, whether it has acted
merely as an advising bank or as a confirming bank; (b) whether Inter-Resin has actually The number of the parties, not infrequently and almost invariably in international trade
shipped the ropes specified by the letter of credit; and (c) following the dishonor of the practice, may be increased. Thus, the services of an advising (notifying) bank 15 may be
letter of credit by Bank of Ayudhya, whether Bank of America may recover against Inter- utilized to convey to the seller the existence of the credit; or, of
Resin under the draft executed in its partial availment of the letter of credit. 8 a confirming bank 16 which will lend credence to the letter of credit issued by a lesser
known issuing bank; or, of a paying bank, 17 which undertakes to encash the drafts drawn
by the exporter. Further, instead of going to the place of the issuing bank to claim
In rebuttal, Inter-Resin holds that: (a) Bank of America cannot, on appeal, belatedly raise
payment, the buyer may approach another bank, termed the negotiating bank, 18 to have
the issue of being only an advising bank; (b) the findings of the trial court that the ropes
the draft discounted.
have actually been shipped is binding on the Court; and, (c) Bank of America cannot
recover from Inter-Resin because the drawer of the letter of credit is the Bank of Ayudhya
and not Inter-Resin. Being a product of international commerce, the impact of this commercial instrument
transcends national boundaries, and it is thus not uncommon to find a dearth of national
law that can adequately provide for its governance. This country is no exception. Our own
If only to understand how the parties, in the first place, got themselves into the mess, it
Code of Commerce basically introduces only its concept under Articles 567-572,
may be well to start by recalling how, in its modern use, a letter of credit is employed in
inclusive, thereof. It is no wonder then why great reliance has been placed on commercial
trade transactions.
usage and practice, which, in any case, can be justified by the universal acceptance of
the autonomy of contract rules. The rules were later developed into what is now known as
A letter of credit is a financial device developed by merchants as a convenient and the Uniform Customs and Practice for Documentary Credits ("U.C.P.") issued by the
relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable International Chamber of Commerce. It is by no means a complete text by itself, for, to be
interests of a seller, who refuses to part with his goods before he is paid, and a buyer, sure, there are other principles, which, although part of lex mercatoria, are not dealt with
who wants to have control of the goods before paying. 9 To break the impasse, the buyer the U.C.P.
may be required to contract a bank to issue a letter of credit in favor of the seller so that,
by virtue of the latter of credit, the issuing bank can authorize the seller to draw drafts and
In FEATI Bank and Trust Company v. Court of Appeals, 19 we have accepted, to the
engage to pay them upon their presentment simultaneously with the tender of documents
extent of their pertinency, the application in our jurisdiction of this international commercial
required by the letter of credit. 10 The buyer and the seller agree on what documents are
credit regulatory set of rules. 20 In Bank of Phil. Islands v. De Nery, 21 we have said that
to be presented for payment, but ordinarily they are documents of title evidencing or
the observances of the U.C.P. is justified by Article 2 of the Code of Commerce which
attesting to the shipment of the goods to the buyer.
expresses that, in the absence of any particular provision in the Code of Commerce,
commercial transactions shall be governed by usages and customs generally observed.
Once the credit is established, the seller ships the goods to the buyer and in the process We have further observed that there being no specific provisions which govern the legal
secures the required shipping documents or documents of title. To get paid, the seller complexities arising from transactions involving letters of credit not only between or
executes a draft and presents it together with the required documents to the issuing bank.

14
among banks themselves but also between banks and the seller or the buyer, as the case every least, with General Chemicals. 28 In the ordinary course of business, the perfection
may be, the applicability of the U.C.P. is undeniable. of contract precedes the issuance of a letter of credit.

The first issue raised with the petitioner, i.e., that it has in this instance merely been Bringing the letter of credit to the attention of the seller is the primordial obligation of an
advising bank, is outrightly rejected by Inter-Resin and is thus sought to be discarded for advising bank. The view that Bank of America should have first checked the authenticity of
having been raised only on appeal. We cannot agree. The crucial point of dispute in this the letter of credit with bank of Ayudhya, by using advanced mode of business
case is whether under the "letter of credit," Bank of America has incurred any liability to communications, before dispatching the same to Inter-Resin finds no real support in
the "beneficiary" thereof, an issue that largely is dependent on the bank's participation in U.C.P. Article 18 of the U.C.P. states that: "Banks assume no liability or responsibility for
that transaction; as a mere advising or notifying bank, it would not be liable, but as a the consequences arising out of the delay and/or loss in transit of any messages, letters
confirming bank, had this been the case, it could be considered as having incurred that or documents, or for delay, mutilation or other errors arising in the transmission of any
liability. 22 telecommunication . . ." As advising bank, Bank of America is bound only to check the
"apparent authenticity" of the letter of credit, which it did. 29 Clarifying its meaning,
Webster's Ninth New Collegiate Dictionary 30 explains that the word "APPARENT suggests
In Insular Life Assurance Co. Ltd. Employees Association — Natu vs. Insular Life
appearance to unaided senses that is not or may not be borne out by more rigorous
Assurance Co., Ltd., 23 the Court said: Where the issues already raised also rest on other
examination or greater knowledge."
issues not specifically presented, as long as the latter issues bear relevance and close
relation to the former and as long as they arise from the matters on record, the court has
the authority to include them in its discussion of the controversy and to pass upon them May Bank of America then recover what it has paid under the letter of credit when the
just as well. In brief, in those cases where questions not particularly raised by the parties corresponding draft for partial availment thereunder and the required documents were later
surface as necessary for the complete adjudication of the rights and obligations of the negotiated with it by Inter-Resin? The answer is yes. This kind of transaction is what is
parties, the interests of justice dictate that the court should consider and resolve them. commonly referred to as a discounting arrangement. This time, Bank of America has acted
The rule that only issues or theories raised in the initial proceedings may be taken up by a independently as a negotiating bank, thus saving Inter-Resin from the hardship of
party thereto on appeal should only refer to independent, not concomitant matters, to presenting the documents directly to Bank of Ayudhya to recover payment. (Inter-Resin, of
support or oppose the cause of action or defense. The evil that is sought to be course, could have chosen other banks with which to negotiate the draft and the
avoided, i.e., surprise to the adverse party, is in reality not existent on matters that are documents.) As a negotiating bank, Bank of America has a right to recourse against the
properly litigated in the lower court and appear on record. issuer bank and until reimbursement is obtained, Inter-Resin, as the drawer of the draft,
continues to assume a contingent liability thereon. 31
It cannot seriously be disputed, looking at this case, that Bank of America has, in fact,
only been an advising, not confirming, bank, and this much is clearly evident, among other While bank of America has indeed failed to allege material facts in its complaint that might
things, by the provisions of the letter of credit itself, the petitioner bank's letter of advice, have likewise warranted the application of the Negotiable Instruments Law and possible
its request for payment of advising fee, and the admission of Inter-Resin that it has paid then allowed it to even go after the indorsers of the draft, this failure, 32/ nonetheless,
the same. That Bank of America has asked Inter-Resin to submit documents required by does not preclude petitioner bank's right (as negotiating bank) of recovery from Inter-
the letter of credit and eventually has paid the proceeds thereof, did not obviously make it Resin itself. Inter-Resin admits having received P10,219,093.20 from bank of America on
a confirming bank. The fact, too, that the draft required by the letter of credit is to be the letter of credit and in having executed the corresponding draft. The payment to Inter-
drawn under the account of General Chemicals (buyer) only means the same had to be Resin has given, as aforesaid, Bank of America the right of reimbursement from the
presented to Bank of Ayudhya (issuing bank) for payment. It may be significant to recall issuing bank, Bank of Ayudhya which, in turn, would then seek indemnification from the
that the letter of credit is an engagement of the issuing bank, not the advising bank, to pay buyer (the General Chemicals of Thailand). Since Bank of Ayudhya disowned the letter of
the draft. credit, however, Bank of America may now turn to Inter-Resin for restitution.

No less important is that Bank of America's letter of 11 March 1981 has expressly stated Between the seller and the negotiating bank there is the usual
that "[t]he enclosure is solely an advise of credit opened by the abovementioned relationship existing between a drawer and purchaser of drafts. Unless
correspondent and conveys no engagement by us." 24This written reservation by Bank of drafts drawn in pursuance of the credit are indicated to be without
America in limiting its obligation only to being an advising bank is in consonance with the recourse therefore, the negotiating bank has the ordinary right of
provisions of U.C.P. recourse against the seller in the event of dishonor by the issuing
bank . . . The fact that the correspondent and the negotiating bank may
be one and the same does not affect its rights and obligations in either
As an advising or notifying bank, Bank of America did not incur any obligation more than
capacity, although a special agreement is always a possibility . . . 33
just notifying Inter-Resin of the letter of credit issued in its favor, let alone to confirm the
letter of credit. 25 The bare statement of the bank employees, aforementioned, in
responding to the inquiry made by Atty. Tanay, Inter-Resin's representative, on the The additional ground raised by the petitioner, i.e., that Inter-Resin sent waste instead of
authenticity of the letter of credit certainly did not have the effect of novating the letter of its products, is really of no consequence. In the operation of a letter of credit, the involved
credit and Bank of America's letter of advise, 26 nor can it justify the conclusion that the banks deal only with documents and not on goods described in those documents. 34
bank must now assume total liability on the letter of credit. Indeed, Inter-Resin itself
cannot claim to have been all that free from fault. As the seller, the issuance of the letter
The other issues raised in then instant petition, for instance, whether or not Bank of
of credit should have obviously been a great concern to it. 27 It would have, in fact, been
Ayudhya did issue the letter of credit and whether or not the main contract of sale that has
strange if it did not, prior to the letter of credit, enter into a contract, or negotiated at the
given rise to the letter of credit has been breached, are not relevant to this controversy.
15
They are matters, instead, that can only be of concern to the herein parties in an prayer for preliminary attachment was filed by Land Bank with the Regional Trial Court of
appropriate recourse against those, who, unfortunately, are not impleaded in these Manila, docketed as Civil Case No. 93-64350.12
proceedings.
In their joint Answer with Compulsory Counterclaim, 13 Monet and the Tagle spouses
In fine, we hold that — alleged that Land Bank failed and refused to collect the receivables on their export letter of
credit against Wishbone Trading Company of Hong Kong in the sum of US$33,434.00,
while it made unauthorized payments on their import letter of credit to Beautilike (H.K.) Ltd.
First, given the factual findings of the courts below, we conclude that petitioner Bank of
in the amount of US$38,768.40, which seriously damaged the business interests of Monet.
America has acted merely as a notifying bank and did not assume the responsibility of
a confirming bank; and
On July 15, 1997, the trial court rendered decision, 14 the dispositive portion of which
reads:
Second, petitioner bank, as a negotiating bank, is entitled to recover on Inter-Resin's
partial availment as beneficiary of the letter of credit which has been disowned by the
alleged issuer bank. WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:

No judgment of civil liability against the other defendants, Francisco Trajano and other 1. Recognizing the obligation of the defendants as stated in the "Schedule of Amortization
unidentified parties, can be made, in this instance, there being no sufficient evidence to from the Loans and Discount Department of LAND BANK" (Exh. "39"), as well as the
warrant any such finding. interest mentioned therein, but deleting the penalty thereof as no penalty should be
charged and sentencing defendants jointly and severally to pay the amounts stated therein
as verified;
WHEREFORE, the assailed decision is SET ASIDE, and respondent Inter-Resin Industrial
Corporation is ordered to refund to petitioner Bank of America NT & SA the amount of
P10,219,093.20 with legal interest from the filing of the complaint until fully paid. 2. Granting the counterclaim interposed by the defendants in the amount of US$30,000.00
payable in Philippine Pesos at the official exchange rate when payment is to be made, to
compensate for the defendants’ lost income opportunities occasioned by defendants’
No costs.
transaction with Wishbone Trading Corporation and with Beautilike, the same to be
deducted from the confirmed and computed obligation mentioned in No. 1 hereof; and
SO ORDERED.
3. Denying the claim for attorney’s fees for lack of merit. 15
G.R. No. 161865. March 10, 2005
From the foregoing decision, Land Bank filed an appeal 16 with the Court of Appeals.
LAND BANK OF THE PHILIPPINES, Petitioners, 
vs.
On October 9, 2003, the Court of Appeals promulgated the decision subject of the present
MONET’S EXPORT AND MANUFACTURING CORPORATION, SPOUSES VICENTE V. TAGLE,
petition for review. In affirming the trial court, the Court of Appeals found that, indeed,
SR. and MA. CONSUELO G. TAGLE, Respondents.
Land Bank was responsible for the mismanagement of the Wishbone and Beautilike
accounts of Monet. It held that because of the non-collection and unauthorized payment
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the made by Land Bank on behalf of Monet, and considering that the latter could no longer
October 9, 2003 Decision 1of the Court of Appeals2 in CA-G.R. CV No. 57436, and its draw from its credit line with Land Bank, it suffered from lack of financial resources
January 20, 2004 Resolution 3 denying petitioner’s motion for reconsideration. sufficient to buy the needed materials to fill up the standing orders from its customers.

The factual antecedents are as follows: The Court of Appeals disposed of Land Bank’s appeal in this wise:

On June 25, 1981, petitioner, Land Bank of the Philippines (Land Bank), and Monet’s WHEREFORE, premises considered, and finding no reversible error in the assailed
Export and Manufacturing Corporation (Monet) executed an Export Packing Credit Line Decision of the Regional Trial Court of Manila, Branch 49, in Civil Case No. 93-64350
Agreement4 under which Monet was given a credit line in the amount of P250,000.00, dated July 15, 1997, said Decision is hereby AFFIRMED and UPHELD and the appeal is
secured by the proceeds of its export letters of credit, 5 the continuing guaranty of the DISMISSED for lack of merit.
spouses Vicente V. Tagle, Sr. and Ma. Consuelo G. Tagle, 6 and the third party mortgage
executed by Pepita C. Mendigoria. 7
SO ORDERED.17

The credit line agreement was renewed and amended several times 8 until it was increased
Land Bank’s Motion for Reconsideration 18 was denied by the Court of Appeals on January
to P5,000,000.00.9Owing to the continued failure and refusal of Monet, notwithstanding
20, 2004,19 hence, this petition raising the following issues:
repeated demands, to pay its indebtedness to Land Bank, which have ballooned to
P11,464,246.1910 by August 31, 1992, a complaint11 for collection of sum of money with

16
1. Whether or not the respondent Court seriously erred in upholding the findings and included in the credit. Consequently, the undertaking of a bank to pay, accept and pay
conclusion of the trial court limiting the liability of private respondents based on [the] draft(s) or negotiate and/or fulfill any other obligation under the credit is not subject to
Summary of Availment and Schedule of Amortization and granting the latter opportunity claims or defenses by the applicant resulting from his relationships with the issuing bank
losses anchored on the theory that petitioner disrupted the cas[h] flow of respondent or the beneficiary.
MONET’s which led to its decline;
In particular, Article 15 of the UCP states:
2. Whether or not the respondent Court palpably erred in not clearly establishing
petitioner’s right to collect payment from private respondents’ loan validly obtained in the
Banks assume no liability or responsibility for the form, sufficiency, accuracy,
sum of P11,464,246.19 Million which has become long overdue and demandable. 20
genuineness, falsification or legal effect of any documents, or for the general and/or
particular conditions stipulated in the documents or superimposed thereon; nor do they
The petition is partly impressed with merit.  assume any liability or responsibility for the description, weight, quality, condition,
packing, delivery, value or existence of the goods represented by any documents,  or for
the good faith or acts and/or omissions, solvency, performance or standing of the
As regards the Beautilike account, the trial court and the Court of Appeals erred in holding
consignor, the carriers, or the insurers of the goods, or any other person whomsoever.
that Land Bank failed to protect Monet’s interest when it paid the suppliers despite
(Emphasis supplied)
discrepancies in the shipment vis-à-vis the order specifications of Monet. 

In Transfield Philippines, Inc. v. Luzon Hydro Corporation, et al.,22 we held that the
Our ruling in Bank of America, NT & SA v. Court of Appeals,21 is pertinent:
engagement of the issuing bank is to pay the seller or beneficiary of the credit once the
draft and the required documents are presented to it. The so-called "independence
A letter of credit is a financial device developed by merchants as a convenient and principle" assures the seller or the beneficiary of prompt payment independent of any
relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable breach of the main contract and precludes the issuing bank from determining whether the
interests of a seller, who refuses to part with his goods before he is paid, and a buyer, main contract is actually accomplished or not.
who wants to have control of the goods before paying. To break the impasse, the buyer
may be required to contract a bank to issue a letter of credit in favor of the seller so that,
For, if the letter of credit is drawable only after the settlement of any dispute on the main
by virtue of the letter of credit, the issuing bank can authorize the seller to draw drafts and
contract entered into by the applicant of the said letter of credit and the beneficiary, then
engage to pay them upon their presentment simultaneously with the tender of documents
there would be no practical and beneficial use for letters of credit in commercial
required by the letter of credit. The buyer and the seller agree on what documents are to
transactions.
be presented for payment, but ordinarily they are documents of title evidencing or attesting
to the shipment of the goods to the buyer.
Accordingly, we find merit in the contention of Land Bank that, as the issuing bank in the
Beautilike transaction involving an import letter of credit, it only deals in documents and it
Once the credit is established, the seller ships the goods to the buyer and in the process
is not involved in the contract between the parties. The relationship between the
secures the required shipping documents or documents of title. To get paid, the seller
beneficiary and the issuer of a letter of credit is not strictly contractual, because both
executes a draft and presents it together with the required documents to the issuing bank.
privity and a meeting of the minds are lacking. Thus, upon receipt by Land Bank of the
The issuing bank redeems the draft and pays cash to the seller if it finds that the
documents of title which conform with what the letter of credit requires, it is duty bound to
documents submitted by the seller conform with what the letter of credit requires. The
pay the seller, as it did in this case.
bank then obtains possession of the documents upon paying the seller. The transaction is
completed when the buyer reimburses the issuing bank and acquires the documents
entitling him to the goods. Under this arrangement, the seller gets paid only if he delivers Thus, no fault or acts of mismanagement can be attributed to Land Bank relative to
the documents of title over the goods, while the buyer acquires the said documents and Monet’s import letter of credit. Its actions find solid footing on the legal principles and
control over the goods only after reimbursing the bank. jurisprudence earlier discussed. Consequently, it was error for the trial court and for the
Court of Appeals to grant opportunity losses to the respondents on this account.
What characterizes letters of credit, as distinguished from other accessory contracts, is
the engagement of the issuing bank to pay the seller once the draft and the required On the matter, however, of the Wishbone transaction where it is alleged by respondents
shipping documents are presented to it. In turn, this arrangement assures the seller of that petitioner failed in its duty to protect its (Monet’s) interest in collecting the amount
prompt payment, independent of any breach of the main sales contract. By this so-called due to it from its customers, we find that the trial court and the Court of Appeals
"independence principle," the bank determines compliance with the letter of credit only by committed no reversible error in holding Land Bank liable for opportunity losses. The trial
examining the shipping documents presented; it is precluded from determining whether the court summarized the transaction in this manner:
main contract is actually accomplished or not. (Emphasis supplied)
The shipment to Wishbone Trading Company was for US16,119.00 on October 16, 1986.
Moreover, Article 3 of the Uniform Customs and Practice (UCP) for Documentary Credits Documents were submitted without requesting for purchase of export bills. This was sent
provides that credits, by their nature, are separate transactions from the sales or other by plaintiff (Land Bank) via telex to Hongkong Bank requesting advice to pay as there were
contract(s) on which they may be based and banks are in no way concerned with or discrepancies. On advice of Hongkong Bank plaintiff paid the first shipment. At this point
bound by such contract(s), even if any reference whatsoever to such contract(s) is defendants (Monet and the Tagle spouses) were reluctant to release the two subsequent

17
documents to the buyer until payment of the first shipment is made. When LANDBANK paid In fine, because of the non-collection … defendants-appellees suffered from a lack of
the defendants, believing that everything was in order, defendants released the documents financial resources sufficient to buy new materials. And since they also could no longer
for the two subsequent shipments, thinking that the LANDBANK’s international department draw on their existing credit line with Landbank, they could not purchase materials to fill up
had taken the necessary measures for them to be paid. Wishbone then came up with new the orders of their customers. Because of this the business reputation of Monet’s suffered
additional discrepancies not listed in the cable sent by LANDBANK. Defendants argue that which hastened its decline.25
if LANDBANK had acted prudently on this as it used to do, Mantruste Hongkong could not
have denied payment upon the first instructions of the buyer based on the cable of
The right of the respondents to be awarded opportunity losses having been established,
LANDBANK’s international department. Defendants therefore asked LANDBANK to share
we now go to the determination of the proper amount to be awarded to them under the
with them the burden of compelling the shrewd buyers to effect the payment of the export
circumstances obtaining in this case. The lower court awarded to herein respondents
bills. Furthermore, referring to the telex of Mantruste Hongkong the original documents to
opportunity losses in the amount of US$30,000.00 based on its findings of two (2) acts of
Wishbone were sent per requirement under the term of the Letter of Credit, but the goods
mismanagement committed by Land Bank. The Court of Appeals affirmed the amount of
were consigned to the order of Wells Fargo Bank. Defendants believed that Wells Fargo
the award in the assailed decision. In view of our findings that Land Bank is not guilty of
Bank should be responsible to the shipper. Thus the defendants requested for assistance
mismanagement in its handling of Monet’s import letter of credit relative to the Beautilike
to telex Wells Fargo Bank to inquire about the whereabouts of the merchandise shipped to
transaction, we hold that a reduction of the amount of the grant is in order. It is not
them as consignee. As early as November 30, 1986, Mantruste Hongkong sent a telex
possible for us to totally do away with the award of opportunity losses having affirmed the
addressed to the bank instructing it to pay MONET the sum of US$16,119.00 for the first
findings of the trial court and the Court of Appeals that Land Bank, as the attorney-in-fact
shipment despite discrepancies which were minor and properly corrected. The evidence
of Monet in its transaction with Wishbone Trading Company, committed acts of
indicates that in the Wishbone case the foreign buyer was actually putting one over the
mismanagement. On account of the foregoing reasons, we reduce the amount of
defendants, which LANDBANK could have properly prevented had it been more aggressive
opportunity losses granted to Monet to US$15,000.00 payable in Philippine pesos at the
as is expected of a bank.
official exchange rate when payment is to be made.

Exhibits "27" and "27-A" clearly show that the terms and conditions of the Letter of Credit
Anent the second issue, we find that the trial court erred in limiting the obligation of the
were substantially complied with by MONET. And the evidence shows that Wells Fargo
respondents to Land Bank to what was stated in the "Schedule of Amortization from the
Bank was included to receive the bills of lading, notifying only Style Up of California, and
Loans and Discounts Department of LANDBANK", or Exhibit "39", 26 for the respondents.
yet LANDBANK did not consider this for purposes of collection. These were testified to by
defendant Consuelo Tagle who explained what happened, including payments of account,
which LANDBANK failed to rebut. LANDBANK did not pursue collection on this despite the Prefatorily, we restate the time honored principle that in a petition for review under Rule
fact that the goods were acceptable merchandise. 23 45, only questions of law may be raised. It is not our function to analyze or weigh all over
again evidence already considered in the proceedings below, our jurisdiction is limited to
reviewing only errors of law that may have been committed by the lower court. 27 The
A careful review of the records reveal that the trial court correctly considered Land Bank as
resolution of factual issues is the function of lower courts, whose findings on these
the attorney-in-fact of Monet with regard to its export transactions with Wishbone Trading
matters are received with respect. A question of law which we may pass upon must not
Company. It was stipulated in the Deed of Assignment 24 executed between Monet and
involve an examination of the probative value of the evidence presented by the litigants. 28
Land Bank on June 26, 1981:

The above rule, however, admits of certain exceptions. The findings of fact of the Court of
That the ASSIGNOR/s (Monet) by these presents, does/do hereby appoint/s the ASSIGNEE
Appeals are generally conclusive but may be reviewed when: (1) the factual findings of the
(Land Bank) their/his/her true and lawful attorney-in-fact and in their/his/her place and
Court of Appeals and the trial court are contradictory; (2) the findings are grounded
stead, to demand, collect and receive the proceeds of the export letters of credit at a
entirely on speculation, surmises or conjectures; (3) the inference made by the Court of
loan value of 80% to be applied to the payment of the credit accommodation herein
Appeals from its findings of fact is manifestly mistaken, absurd or impossible; (4) there is
secured. (Underscoring supplied)
grave abuse of discretion in the appreciation of facts; (5) the appellate court, in making its
findings, goes beyond the issues of the case and such findings are contrary to the
Clearly, petitioner’s refusal to own its responsibility in the handling of the Wishbone admissions of both appellant and appellee; (6) the judgment of the Court of Appeals is
account fails against the aforequoted provision. premised on a misapprehension of facts; (7) the Court of Appeals fails to notice certain
relevant facts which, if properly considered, will justify a different conclusion; and (8) the
findings of fact of the Court of Appeals are contrary to those of the trial court or are mere
As the attorney-in-fact of Monet in transactions involving its export letters of credit, such
conclusions without citation of specific evidence, or where the facts set forth by the
as the Wishbone account, Land Bank should have exercised the requisite degree of
petitioner are not disputed by respondent, or where the findings of fact of the Court of
diligence in collecting the amount due to the former. The records of this case are bereft of
Appeals are premised on the absence of evidence but are contradicted by the evidence on
evidence showing that Land Bank exercised the prudence mandated by its contractual
record.29
obligations to Monet.

Our review of the records of this case reveal that the reversible error committed by the
The failure of Land Bank to judiciously safeguard the interest of Monet is not without any
lower court, and that of the Court of Appeals, partook of the form of over reliance and sole
repercussions vis-à-vis the viability of Monet as a business enterprise. As correctly
reliance on the figures contained in Exhibit "39", to the exclusion of other pieces of
observed by the Court of Appeals:
documentary evidence annexed by Land Bank to its complaint.

18
There is no doubt that the respondents indeed owed Land Bank a sum of money. This this case be remanded to the court of origin for the purpose of determining the amount
much was clearly established by the series of letters 30 written by the officers of Monet to due to petitioner. The dearth in the records of sufficient evidence with which we can utilize
Land Bank acknowledging the corporation’s indebtedness, albeit without specifying any in making a categorical ruling on the amount of indebtedness due to the petitioner
amount, and asking for understanding and more time within which they can settle their constrains us to remand this case to the trial court with instructions to receive additional
obligations. We note, however, that the respondents have been consistent and persistent evidence as needed in order to fully thresh out the issue and establish the rights and
in their stand that they do not harbor any intention of evading the payment of the amount obligations of the parties. From the amount ultimately determined by the trial court as the
they actually owed to the petitioner, provided that there be a reconciliation of the outstanding obligation of the respondents to the petitioner, will be deducted the award of
payments made by the respondents on their loan obligations. 31 opportunity losses granted to the respondents in the amount of US$ 15,000.00 payable in
Philippine pesos at the official exchange rate when payment is to be made.
Indeed, Exhibit "39" or the Summary of Availment and Schedule of Amortization, which was
made by the trial court as the basis in determining the amount of indebtedness of the WHEREFORE, the instant petition is GRANTED. The October 9, 2003 decision and the
respondents to the petitioner, is a document issued by the Loans and Discounts January 20, 2004 resolution of the Court of Appeals in CA-G.R. CV No. 57436, are
Department of Land Bank itself. Nevertheless, we note that the amount covered by the MODIFIED insofar as the award of the counterclaim to the respondents is concerned.
said summary pertains only to the indebtedness of Monet to Land Bank amounting to Accordingly, there being no basis to award opportunity costs to the respondents, Monet’s
P2,500,000.00, as covered by Promissory Note No. P-981. The amount reflected in Exhibit Export and Manufacturing Corporation and the spouses, Vicente V. Tagle, Sr. and Ma.
"39" is so small when compared to the P11,464,246.19 which Land Bank sought to collect Consuelo G. Tagle, relative to the Beautilike account, but finding good cause to sustain
from the respondents in its complaint before the trial court. The records of this case show the award of opportunity costs to the respondents on account of the failure of the
that respondents, in the course of their credit transactions with Land Bank, executed not petitioner to diligently perform its duties as the attorney-in-fact of the respondents in the
only one, but several promissory notes in varying amounts in favor of the bank. Wishbone Trading Company account, the amount of opportunity costs granted to the
respondents, is REDUCED to US$15,000.00 payable in Philippine pesos at the official
exchange rate when payment is to be made.
On the other hand, Land Bank submitted a Consolidated Statement of Account dated
August 31, 199232 in support of its claim as to the amount owed to it. The said document
illustrated how, based on the computations made by Land Bank, the indebtedness of Insofar as the amount of indebtedness of the respondents to the petitioner is concerned,
Monet ballooned to P11,464,246.19. Land Bank also submitted a Summary of Availments the October 9, 2003 decision and the January 20, 2004 resolution of the Court of Appeals
and Payments from 1981 to 1989 33 which detailed the series of availments and payments in CA-G.R. CV No. 57436, are SET ASIDE. The case is hereby remanded to its court of
made by Monet. origin, the Regional Trial Court of Manila, Branch 49, for the reception of additional
evidence as may be needed to determine the actual amount of indebtedness of the
respondents to the petitioner. The trial court is INSTRUCTED to deduct the award of
Notwithstanding the above facts, and considering that Monet’s Exhibit "39" was prepared
opportunity losses granted to the respondents, in the amount of US$15,000.00 payable in
before its due date of April 29, 1991, while Land Bank’s Consolidated Statement of
Philippine pesos at the official exchange rate when payment is to be made, from the
Account was prepared much later on August 31, 1992, the trial court chose to overlook
amount ultimately determined as the actual amount of indebtedness of the respondents to
them and conveniently held that the correct basis of Monet’s indebtedness to Land Bank
the petitioner. No pronouncement as to costs.
are the figures contained in Exhibit "39". Nonetheless, no explanation was proferred why it
used Exhibit "39" as basis in determining the actual indebtedness of Monet. We note that
instead of dealing squarely with the issue of resolving the total amount of indebtedness SO ORDERED.
due to Land Bank, the trial court and the Court of Appeals chose to expound on Land
Bank’s alleged acts of mismanagement.
G.R. No. 94209             April 30, 1991

In "discussing" this issue, all the trial court said was:

FEATI BANK & TRUST COMPANY (now CITYTRUST BANKING CORPORATION), petitioner, 
vs.
LANDBANK claims that as of August 31, 1992, the defendants owe them the sum of THE COURT OF APPEALS, and BERNARDO E. VILLALUZ, respondents.
P11,464,246.19 payable with interest at the rate of 10% per annum. But this is disputed by
the defendants as shown in their Summary of Availment and Schedule of Amortization
This is a petition for review seeking the reversal of the decision of the Court of Appeals
(Exh. "39").34
dated June 29, 1990 which affirmed the decision of the Regional Trial Court of Rizal dated
October 20, 1986 ordering the defendants Christiansen and the petitioner, to pay various
While both the petitioner and the respondents submitted their respective pieces of sums to respondent Villaluz, jointly and severally.
documentary evidence in support of their contentions as to the amount of indebtedness
due to petitioner, the trial court failed to calibrate and harmonize them.
The facts of the case are as follows:

Unfortunately, despite the pieces of evidence submitted by the parties, our review of the
On June 3, 1971, Bernardo E. Villaluz agreed to sell to the then defendant Axel
same is inconclusive in determining the total amount due to the petitioner. The petitioner
Christiansen 2,000 cubic meters of lauan logs at $27.00 per cubic meter FOB.
had failed to establish the effect of Monet’s Exhibit "39" to its own Consolidated Statement
of Account as of August 31, 1992, nor did the respondents categorically refute the said
statement of account vis-à-vis its Exhibit "39". The interest of justice will best be served if After inspecting the logs, Christiansen issued purchase order No. 76171.

19
On the arrangements made and upon the instructions of the consignee, Hanmi Trade The logs were thereafter loaded on the vessel "Zenlin Glory" which was chartered by
Development, Ltd., de Santa Ana, California, the Security Pacific National Bank of Los Christiansen. Before its loading, the logs were inspected by custom inspectors Nelo
Angeles, California issued Irrevocable Letter of Credit No. IC-46268 available at sight in Laurente, Alejandro Cabiao, Estanislao Edera from the Bureau of Customs (Records, Vol. I,
favor of Villaluz for the sum of $54,000.00, the total purchase price of the lauan logs. p. 124) and representatives Rogelio Cantuba and Jesus Tadena of the Bureau of Forestry
(Records, Vol. I, pp. 16-17) all of whom certified to the good condition and exportability
of the logs.
The letter of credit was mailed to the Feati Bank and Trust Company (now Citytrust) with
the instruction to the latter that it "forward the enclosed letter of credit to the beneficiary."
(Records, Vol. I, p. 11) After the loading of the logs was completed, the Chief Mate, Shao Shu Wang issued a
mate receipt of the cargo which stated the same are in good condition (Records, Vol. I, p.
363). However, Christiansen refused to issue the certification as required in paragraph 4 of
The letter of credit further provided that the draft to be drawn is on Security Pacific
the letter of credit, despite several requests made by the private respondent.
National Bank and that it be accompanied by the following documents:

Because of the absence of the certification by Christiansen, the Feati Bank and Trust
1. Signed Commercial Invoice in four copies showing the number of the
Company refused to advance the payment on the letter of credit.
purchase order and certifying that —

The letter of credit lapsed on June 30, 1971, (extended, however up to July 31, 1971)
a. All terms and conditions of the purchase order have been complied
without the private respondent receiving any certification from Christiansen.
with and that all logs are fresh cut and quality equal to or better than
that described in H.A. Christiansen's telex #201 of May 1, 1970, and
that all logs have been marked "BEV-EX." The persistent refusal of Christiansen to issue the certification prompted the private
respondent to bring the matter before the Central Bank. In a memorandum dated August
16, 1971, the Central Bank ruled that:
b. One complete set of documents, including 1/3 original bills of lading
was airmailed to Consignee and Parties to be advised by Hans-Axel
Christiansen, Ship and Merchandise Broker. . . . pursuant to the Monetary Board Resolution No. 1230 dated August 3, 1971,
in all log exports, the certification of the lumber inspectors of the Bureau of
Forestry . . . shall be considered final for purposes of negotiating documents.
c. One set of non-negotiable documents was airmailed to Han Mi
Any provision in any letter of credit covering log exports requiring certification of
Trade Development Company and one set to Consignee and Parties to
buyer's agent or representative that said logs have been approved for shipment
be advised by Hans-Axel Christiansen, Ship and Merchandise Broker.
as a condition precedent to negotiation of shipping documents shall not be
allowed. (Records, Vol. I, p. 367)
2. Tally sheets in quadruplicate.
Meanwhile, the logs arrived at Inchon, Korea and were received by the consignee, Hanmi
3. 2/3 Original Clean on Board Ocean Bills of Lading with Consignee and Parties Trade Development Company, to whom Christiansen sold the logs for the amount of
to be advised by Hans Axel Christiansen, showing Freight Prepaid and marked $37.50 per cubic meter, for a net profit of $10 per cubic meter. Hanmi Trade Development
Notify: Company, on the other hand sold the logs to Taisung Lumber Company at Inchon, Korea.
(Rollo, p. 39)
Han Mi Trade Development Company, Ltd., Santa Ana, California.
Since the demands by the private respondent for Christiansen to execute the certification
proved futile, Villaluz, on September 1, 1971, instituted an action for mandamus and
Letter of Credit No. 46268 dated June 7, 1971 specific performance against Christiansen and the Feati Bank and Trust Company (now
Citytrust) before the then Court of First Instance of Rizal. The petitioner was impleaded as
Han Mi Trade Development Company, Ltd., P.O. Box 10480, Santa Ana, defendant before the lower court only to afford complete relief should the court a
California 92711 and Han Mi Trade Development Company, Ltd., Seoul, Korea. quo order Christiansen to execute the required certification.

4. Certification from Han-Axel Christiansen, Ship and Merchandise Broker, The complaint prayed for the following:
stating that logs have been approved prior to shipment in accordance with terms
and conditions of corresponding purchase Order. (Record, Vol. 1 pp. 11-12) 1. Christiansen be ordered to issue the certification required of him under the
Letter of Credit;
Also incorporated by reference in the letter of credit is the Uniform Customs and Practice
for Documentary Credits (1962 Revision). 2. Upon issuance of such certification, or, if the court should find it unnecessary,
FEATI BANK be ordered to accept negotiation of the Letter of Credit and make
payment thereon to Villaluz;

20
 3. Order Christiansen to pay damages to the plaintiff. (Rollo, p. 39) same to the BANK together with the documents mentioned therein the said BANK
will pay the plaintiff the amount of the letter of credit. The Court is convinced that
it was upon the strength of this letter of credit and this implied representation of
On or about 1979, while the case was still pending trial, Christiansen left the Philippines
the defendant BANK that the plaintiff delivered the logs to defendant
without informing the Court and his counsel. Hence, Villaluz, filed an amended complaint
CHRISTIANSEN, considering that the issuing bank is a foreign bank with whom
to make the petitioner solidarily liable with Christiansen.
plaintiff had no business connections and CHRISTIANSEN had not offered any
other Security for the payment of the logs. Defendant BANK cannot now be
The trial court, in its order dated August 29, 1979, admitted the amended complaint. allowed to deny its commitment and liability under the letter of credit:

After trial, the lower court found: A holder of a promissory note given because of gambling who indorses
the same to an innocent holder for value and who assures said party
that the note has no legal defect, is in estoppel from asserting that
The liability of the defendant CHRISTIANSEN is beyond dispute, and the plaintiffs there had been an illegal consideration for the note, and so, he has to
right to demand payment is absolute. Defendant CHRISTIANSEN having accepted pay its value. (Rodriguez v. Martinez, 5 Phil. 67).
delivery of the logs by having them loaded in his chartered vessel the "Zenlin
Glory" and shipping them to the consignee, his buyer Han Mi Trade in Inchon,
South Korea (Art. 1585, Civil Code), his obligation to pay the purchase order had The defendant BANK, in insisting upon the certification of defendant
clearly arisen and the plaintiff may sue and recover the price of the goods (Art. CHRISTIANSEN as a condition precedent to negotiating the letter of credit,
1595, Id). likewise in the Court's opinion acted in bad faith, not only because of the clear
declaration of the Central Bank that such a requirement was illegal, but because
the BANK, with all the legal counsel available to it must have known that the
The Court believes that the defendant CHRISTIANSEN acted in bad faith and condition was void since it depended on the sole will of the debtor, the
deceit and with intent to defraud the plaintiff, reflected in and aggravated by, not defendant CHRISTIANSEN. (Art. 1182, Civil Code) (Rollo, pp. 29-31)
only his refusal to issue the certification that would have enabled without
question the plaintiff to negotiate the letter of credit, but his accusing the plaintiff
in his answer of fraud, intimidation, violence and deceit. These accusations said On the basis of the foregoing the trial court on October 20, 1986, ruled in favor of the
defendant did not attempt to prove, as in fact he left the country without even private respondent. The dispositive portion of its decision reads:
notifying his own lawyer. It was to the Court's mind a pure swindle.
WHEREFORE, judgment is hereby rendered for the plaintiff, ordering the
The defendant Feati Bank and Trust Company, on the other hand, must be held defendants to pay the plaintiff, jointly and severally, the following sums:
liable together with his (sic) co-defendant for having, by its wrongful act, i.e., its
refusal to negotiate the letter of credit in the absence of CHRISTIANSEN's
a) $54,000.00 (US), or its peso equivalent at the prevailing rate as of the time
certification (in spite of the Central Bank's ruling that the requirement was
payment is actually made, representing the purchase price of the logs;
illegal), prevented payment to the plaintiff. The said letter of credit, as may be
seen on its face, is irrevocable and the issuing bank, the Security Pacific
National Bank in Los Angeles, California, undertook by its terms that the same b) P17,340.00, representing government fees and charges paid by plaintiff in
shall be honored upon its presentment. On the other hand, the notifying bank, connection with the logs shipment in question;
the defendant Feati Bank and Trust Company, by accepting the instructions from
the issuing bank, itself assumed the very same undertaking as the issuing bank
c) P10,000.00 as temperate damages (for trips made to Bacolod and Korea).
under the terms of the letter of credit.

All three foregoing sums shall be with interest thereon at 12%  per annum from
x x x           x x x          x x x
September 1, 1971, when the complaint was filed, until fully paid:

The Court likewise agrees with the plaintiff that the defendant BANK may also be
d) P70,000.00 as moral damages;
held liable under the principles and laws on both trust and estoppel. When the
defendant BANK accepted its role as the notifying and negotiating bank for and
in behalf of the issuing bank, it in effect accepted a trust reposed on it, and e) P30,000.00 as exemplary damages; and
became a trustee in relation to plaintiff as the beneficiary of the letter of credit.
As trustee, it was then duty bound to protect the interests of the plaintiff under
f) P30,000.00 as attorney's fees and litigation expense.
the terms of the letter of credit, and must be held liable for damages and loss
resulting to the plaintiff from its failure to perform that obligation.
(Rollo, p. 28) 
Furthermore, when the defendant BANK assumed the role of a notifying and
negotiating BANK it in effect represented to the plaintiff that, if the plaintiff The petitioner received a copy of the decision on November 3, 1986. Two days thereafter,
complied with the terms and conditions of the letter of credit and presents the or on November 5, 1986, it filed a notice of appeal.

21
On November 10, 1986, the private respondent filed a motion for the immediate execution Feati Bank argues further that it would be considered as the negotiating bank
of the judgment on the ground that the appeal of the petitioner was frivolous and dilatory. only upon negotiation of the letter of credit. This stance is untenable. Assurance,
commitments or guaranties supposed to be made by notifying banks to the
beneficiary of a letter of credit, as defined above, can be relevant or meaningful
The trial court ordered the immediate execution of its judgment upon the private
only with respect to a future transaction, that is, negotiation. Hence, even before
respondent's filing of a bond.
actual negotiation, the notifying bank, by the mere act of notifying the beneficiary
of the letter of credit, assumes as of that moment the obligation of the issuing
The petitioner then filed a motion for reconsideration and a motion to suspend the bank.
implementation of the writ of execution. Both motions were, however, denied. Thus,
petitioner filed before the Court of Appeals a petition for certiorari and prohibition with
2. Since Feati Bank acted as guarantor of the issuing bank, and in effect also of
preliminary injunction to enjoin the immediate execution of the judgment.
the latter's principal or client, i.e. Hans Axel-Christiansen. (sic) Such being the
case, when Christiansen refused to issue the certification, it was as though
The Court of Appeals in a decision dated April 9, 1987 granted the petition and nullified refusal was made by Feati Bank itself. Feati Bank should have taken steps to
the order of execution, the dispositive portion of the decision states: secure the certification from Christiansen; and, if the latter should still refuse to
comply, to hale him to court. In short, Feati Bank should have honored Villaluz's
demand for payment of his logs by virtue of the irrevocable letter of credit issued
WHEREFORE, the petition for certiorari is granted. Respondent Judge's order of in Villaluz's favor and guaranteed by Feati Bank.
execution dated December 29, 1986, as well as his order dated January 14, 1987
denying the petitioner's urgent motion to suspend the writ of execution against
its properties are hereby annulled and set aside insofar as they are sought to be 3. The decision promulgated by this Court in CA-G.R. Sp No. 11051, which
enforced and implemented against the petitioner Feati Bank & Trust Company, contained the statement "Since Villaluz" draft was not drawn strictly in
now Citytrust Banking Corporation, during the pendency of its appeal from the compliance with the terms of the letter of credit, Feati Bank's refusal to negotiate
adverse decision in Civil Case No. 15121. However, the execution of the same it was justified," did not dispose of this question on the merits. In that case, the
decision against defendant Axel Christiansen did not appeal said decision may question involved was jurisdiction or discretion, and not judgment. The quoted
proceed unimpeded. The Sheriff s levy on the petitioner's properties, and the pronouncement should not be taken as a preemptive judgment on the merits of
notice of sale dated January 13, 1987 (Annex M), are hereby annulled and set the present case on appeal.
aside. Rollo p. 44)
4. The original action was for " Mandamus and/or specific performance." Feati
A motion for reconsideration was thereafter filed by the private respondent. The Court of Bank may not be a party to the transaction between Christiansen and Security
Appeals, in a resolution dated June 29, 1987 denied the motion for reconsideration. Pacific National Bank on the one hand, and Villaluz on the other hand; still, being
guarantor or agent of Christiansen and/or Security Pacific National Bank which
had directly dealt with Villaluz, Feati Bank may be sued properly on specific
In the meantime, the appeal filed by the petitioner before the Court of Appeals was given performance as a procedural means by which the relief sought by Villaluz may be
due course. In its decision dated June 29, 1990, the Court of Appeals affirmed the entertained. (Rollo, pp. 32-33)
decision of the lower court dated October 20, 1986 and ruled that:

The dispositive portion of the decision of the Court of Appeals reads:

1. Feati Bank admitted in the "special and negative defenses" section of its
answer that it was the bank to negotiate the letter of credit issued by the Security
Pacific National Bank of Los Angeles, California. (Record, pp. 156, 157). Feati WHEREFORE, the decision appealed from is affirmed; and accordingly, the
Bank did notify Villaluz of such letter of credit. In fact, as such negotiating bank, appeal is hereby dismissed. Costs against the petitioner. (Rollo, p. 33)
even before the letter of credit was presented for payment, Feati Bank had
already made an advance payment of P75,000.00 to Villaluz in anticipation of
Hence, this petition for review.
such presentment. As the negotiating bank, Feati Bank, by notifying Villaluz of
the letter of credit in behalf of the issuing bank (Security Pacific), confirmed such
letter of credit and made the same also its own obligation. This ruling finds The petitioner interposes the following reasons for the allowance of the petition.
support in the authority cited by Villaluz:
First Reason
A confirmed letter of credit is one in which the notifying bank gives its assurance
also that the opening bank's obligation will be performed. In such a case, the
THE RESPONDENT COURT ERRONEOUSLY CONCLUDED FROM THE
notifying bank will not simply transmit but will confirm the opening bank's
ESTABLISHED FACTS AND INDEED, WENT AGAINST THE EVIDENCE AND
obligation by making it also its own undertaking, or commitment, or guaranty or
DECISION OF THIS HONORABLE COURT, THAT PETITIONER BANK IS LIABLE ON
obligation. (Ward & Hatfield, 28-29, cited in Agbayani, Commercial Laws, 1978
THE LETTER OF CREDIT DESPITE PRIVATE RESPONDENTS NON-COMPLIANCE
edition, p. 77).
WITH THE TERMS THEREOF,

22
 Second Reason And even if the U.C.P. was not incorporated in the letter of credit, we have already ruled in
the affirmative as to the applicability of the U.C.P. in cases before us.
THE RESPONDENT COURT COMMITTED AN ERROR OF LAW WHEN IT HELD
THAT PETITIONER BANK, BY NOTIFYING PRIVATE RESPONDENT OF THE In Bank of P.I. v. De Nery  (35 SCRA 256 [1970]), we pronounced that the observance of
LETTER OF CREDIT, CONFIRMED SUCH CREDIT AND MADE THE SAME ALSO the U.C.P. in this jurisdiction is justified by Article 2 of the Code of Commerce. Article 2 of
ITS OBLIGATION AS GUARANTOR OF THE ISSUING BANK. the Code of Commerce enunciates that in the absence of any particular provision in the
Code of Commerce, commercial transactions shall be governed by the usages and
customs generally observed.
Third Reason

There being no specific provision which governs the legal complexities arising from
THE RESPONDENT COURT LIKEWISE COMMITTED AN ERROR OF LAW WHEN IT
transactions involving letters of credit not only between the banks themselves but also
AFFIRMED THE TRIAL COURT'S DECISION. (Rollo, p. 12)
between banks and seller and/or buyer, the applicability of the U.C.P. is undeniable.

The principal issue in this case is whether or not a correspondent bank is to be held liable
The pertinent provisions of the U.C.P. (1962 Revision) are:
under the letter of credit despite non-compliance by the beneficiary with the terms
thereof?
Article 3.
The petition is impressed with merit.
An irrevocable credit is a definite undertaking on the part of the issuing bank and
constitutes the engagement of that bank to the beneficiary and bona fide holders
It is a settled rule in commercial transactions involving letters of credit that the documents
of drafts drawn and/or documents presented thereunder, that the provisions for
tendered must strictly conform to the terms of the letter of credit. The tender of
payment, acceptance or negotiation contained in the credit will be duly
documents by the beneficiary (seller) must include all documents required by the letter. A
fulfilled,provided that all the terms and conditions of the credit are complied with .
correspondent bank which departs from what has been stipulated under the letter of
credit, as when it accepts a faulty tender, acts on its own risks and it may not thereafter
be able to recover from the buyer or the issuing bank, as the case may be, the money thus An irrevocable credit may be advised to a beneficiary through another bank (the
paid to the beneficiary Thus the rule of strict compliance. advising bank) without engagement on the part of that bank , but when an issuing
bank authorizes or requests another bank to confirm its irrevocable credit and the
latter does so, such confirmation constitutes a definite undertaking of the
In the United States, commercial transactions involving letters of credit are governed by
confirming bank. . . .
the rule of strict compliance. In the Philippines, the same holds true. The same rule must
also be followed.
Article 7.
The case of Anglo-South America Trust Co. v. Uhe et al . (184 N.E. 741 [1933])
expounded clearly on the rule of strict compliance. Banks must examine all documents with reasonable care to ascertain that they
appear on their face to be in accordance with the terms and conditions of the
credit,"
We have heretofore held that these letters of credit are to be strictly complied
with which documents, and shipping documents must be followed as stated in
the letter. There is no discretion in the bank or trust company to waive any Article 8.
requirements. The terms of the letter constitutes an agreement between the
purchaser and the bank. (p. 743)
Payment, acceptance or negotiation against documents which appear on their
face to be in accordance with the terms and conditions of a credit  by a bank
Although in some American decisions, banks are granted a little discretion to accept a authorized to do so, binds the party giving the authorization to take up
faulty tender as when the other documents may be considered immaterial or superfluous, documents and reimburse the bank which has effected the payment, acceptance
this theory could lead to dangerous precedents. Since a bank deals only with documents, or negotiation. (Emphasis Supplied)
it is not in a position to determine whether or not the documents required by the letter of
credit are material or superfluous. The mere fact that the document was specified therein
Under the foregoing provisions of the U.C.P., the bank may only negotiate, accept or pay,
readily means that the document is of vital importance to the buyer.
if the documents tendered to it are on their face in accordance with the terms and
conditions of the documentary credit. And since a correspondent bank, like the petitioner,
Moreover, the incorporation of the Uniform Customs and Practice for Documentary Credit principally deals only with documents, the absence of any document required in the
(U.C.P. for short) in the letter of credit resulted in the applicability of the said rules in the documentary credit justifies the refusal by the correspondent bank to negotiate, accept or
governance of the relations between the parties. pay the beneficiary, as it is not its obligation to look beyond the documents. It merely has
to rely on the completeness of the documents tendered by the beneficiary.

23
In regard to the ruling of the lower court and affirmed by the Court of Appeals that the the petitioner is only a notifying bank and not a confirming bank as ruled by the courts
petitioner is not a notifying bank but a confirming bank, we find the same erroneous. below.

The trial court wrongly mixed up the meaning of an irrevocable credit with that of a If the petitioner was a confirming bank, then a categorical declaration should have been
confirmed credit. In its decision, the trial court ruled that the petitioner, in accepting the stated in the letter of credit that the petitioner is to honor all drafts drawn in conformity
obligation to notify the respondent that the irrevocable credithas been transmitted to the with the letter of credit. What was simply stated therein was the instruction that the
petitioner on behalf of the private respondent, has confirmed the letter. petitioner forward the original letter of credit to the beneficiary.

The trial court appears to have overlooked the fact that an irrevocable credit is not Since the petitioner was only a notifying bank, its responsibility was solely to notify and/or
synonymous with a confirmed credit. These types of letters have different meanings and transmit the documentary of credit to the private respondent and its obligation ends there.
the legal relations arising from there varies. A credit may be an irrevocable credit and at
the same time a confirmed credit or vice-versa.
The notifying bank may suggest to the seller its willingness to negotiate, but this fact alone
does not imply that the notifying bank promises to accept the draft drawn under the
An irrevocable credit refers to the duration of the letter of credit. What is simply means is documentary credit.
that the issuing bank may not without the consent of the beneficiary (seller) and the
applicant (buyer) revoke his undertaking under the letter. The issuing bank does not
A notifying bank is not a privy to the contract of sale between the buyer and the seller, its
reserve the right to revoke the credit. On the other hand, a confirmed letter of credit
relationship is only with that of the issuing bank and not with the beneficiary to whom he
pertains to the kind of obligation assumed by the correspondent bank. In this case, the
assumes no liability. It follows therefore that when the petitioner refused to negotiate with
correspondent bank gives an absolute assurance to the beneficiary that it will undertake
the private respondent, the latter has no cause of action against the petitioner for the
the issuing bank's obligation as its own according to the terms and conditions of the
enforcement of his rights under the letter. (See Kronman and Co., Inc. v. Public National
credit. (Agbayani, Commercial Laws of the Philippines, Vol. 1, pp. 81-83)
Bank of New York, supra)

Hence, the mere fact that a letter of credit is irrevocable does not necessarily imply that
In order that the petitioner may be held liable under the letter, there should be proof that
the correspondent bank in accepting the instructions of the issuing bank has also
the petitioner confirmed the letter of credit.
confirmed the letter of credit. Another error which the lower court and the Court of Appeals
made was to confuse the obligation assumed by the petitioner.
The records are, however, bereft of any evidence which will disclose that the petitioner has
confirmed the letter of credit. The only evidence in this case, and upon which the private
In commercial transactions involving letters of credit, the functions assumed by a
respondent premised his argument, is the P75,000.00 loan extended by the petitioner to
correspondent bank are classified according to the obligations taken up by it. The
him.
correspondent bank may be called a notifying bank, a negotiating bank, or a confirming
bank.
The private respondent relies on this loan to advance his contention that the letter of credit
was confirmed by the petitioner. He claims that the loan was granted by the petitioner to
In case of a notifying bank, the correspondent bank assumes no liability except to notify
him, "in anticipation of the presentment of the letter of credit."
and/or transmit to the beneficiary the existence of the letter of credit. (Kronman and Co.,
Inc. v. Public National Bank of New York, 218 N.Y.S. 616 [1926]; Shaterian, Export-Import
Banking, p. 292, cited in Agbayani, Commercial Laws of the Philippines, Vol. 1, p. 76). A The proposition advanced by the private respondent has no basis in fact or law. That the
negotiating bank, on the other hand, is a correspondent bank which buys or discounts a loan agreement between them be construed as an act of confirmation is rather far-
draft under the letter of credit. Its liability is dependent upon the stage of the negotiation. fetched, for it depends principally on speculative reasoning.
If before negotiation, it has no liability with respect to the seller but after negotiation, a
contractual relationship will then prevail between the negotiating bank and the seller.
As earlier stated, there must have been an absolute assurance on the part of the petitioner
(Scanlon v. First National Bank of Mexico, 162 N.E. 567 [1928]; Shaterian, Export-Import
that it will undertake the issuing bank's obligation as its own. Verily, the loan agreement it
Banking, p. 293, cited in Agbayani, Commercial Laws of the Philippines, Vol. 1, p. 76)
entered into cannot be categorized as an emphatic assurance that it will carry out the
issuing bank's obligation as its own.
In the case of a confirming bank, the correspondent bank assumes a direct obligation to
the seller and its liability is a primary one as if the correspondent bank itself had issued the
The loan agreement is more reasonably classified as an isolated transaction independent
letter of credit. (Shaterian, Export-Import Banking, p. 294, cited in Agbayani Commercial
of the documentary credit.
Laws of the Philippines, Vol. 1, p. 77)

Of course, it may be presumed that the petitioner loaned the money to the private
In this case, the letter merely provided that the petitioner "forward the enclosed original
respondent in anticipation that it would later be paid by the latter upon the receipt of the
credit to the beneficiary." (Records, Vol. I, p. 11) Considering the aforesaid instruction to
letter. Yet, we would have no basis to rule definitively that such "act" should be construed
the petitioner by the issuing bank, the Security Pacific National Bank, it is indubitable that
as an act of confirmation.

24
The private respondent no doubt was in need of money in loading the logs on the ship as a notifying bank, its only obligation is to notify the private respondent of the existence
"Zenlin Glory" and the only way to satisfy this need was to borrow money from the of the letter of credit. How then can such create estoppel when that is its only duty under
petitioner which the latter granted. From these circumstances, a logical conclusion that the law?
can be gathered is that the letter of credit was merely to serve as a collateral.
We also find erroneous the statement of the Court of Appeals that the petitioner "acted as
At the most, when the petitioner extended the loan to the private respondent, it assumed a guarantor of the issuing bank and in effect also of the latter's principal or client,  i.e.,
the character of a negotiating bank. Even then, the petitioner will still not be liable, for a Hans Axel Christiansen."
negotiating bank before negotiation has no contractual relationship with the seller.
It is a fundamental rule that an irrevocable credit is independent not only of the contract
The case of Scanlon v. First National Bank (supra) perspicuously explained the between the buyer and the seller but also of the credit agreement between the issuing
relationship between the seller and the negotiating bank, viz: bank and the buyer. (See Kingdom of Sweden v. New York Trust Co., 96 N.Y.S. 2d 779
[1949]). The relationship between the buyer (Christiansen) and the issuing bank (Security
Pacific National Bank) is entirely independent from the letter of credit issued by the latter.
It may buy or refuse to buy as it chooses. Equally, it must be true that it owes no
contractual duty toward the person for whose benefit the letter is written to
discount or purchase any draft drawn against the credit. No relationship of agent The contract between the two has no bearing as to the non-compliance by the buyer with
and principal, or of trustee and cestui, between the receiving bank and the the agreement between the latter and the seller. Their contract is similar to that of a
beneficiary of the letter is established. (P.568) contract of services (to open the letter of credit) and not that of agency as was intimated
by the Court of Appeals. The unjustified refusal therefore by Christiansen to issue the
certification under the letter of credit should not likewise be charged to the issuing bank.
Whether therefore the petitioner is a notifying bank or a negotiating bank, it cannot be held
liable. Absent any definitive proof that it has confirmed the letter of credit or has actually
negotiated with the private respondent, the refusal by the petitioner to accept the tender of As a mere notifying bank, not only does the petitioner not have any contractual
the private respondent is justified. relationship with the buyer, it has also nothing to do with the contract between the issuing
bank and the buyer regarding the issuance of the letter of credit.
In regard to the finding that the petitioner became a "trustee in relation to the plaintiff
(private respondent) as the beneficiary of the letter of credit," the same has no legal basis. The theory of guarantee relied upon by the Court of Appeals has to necessarily fail. The
concept of guarantee vis-a-vis the concept of an irrevocable credit are inconsistent with
each other.
A trust has been defined as the "right, enforceable solely in equity, to the beneficial
enjoyment of property the legal title to which is vested to another." (89 C.J.S. 712)
In the first place, the guarantee theory destroys the independence of the bank's
responsibility from the contract upon which it was opened. In the second place, the nature
The concept of a trust presupposes the existence of a specific property which has been
of both contracts is mutually in conflict with each other. In contracts of guarantee, the
conferred upon the person for the benefit of another. In order therefore for the trust theory
guarantor's obligation is merely collateral and it arises only upon the default of the person
of the private respondent to be sustained, the petitioner should have had in its possession
primarily liable. On the other hand, in an irrevocable credit the bank undertakes a primary
a sum of money as specific fund advanced to it by the issuing bank and to be held in trust
obligation. (SeeNational Bank of Eagle Pass, Tex v. American National Bank of San
by it in favor of the private respondent. This does not obtain in this case.
Francisco, 282 F. 73 [1922])

The mere opening of a letter of credit, it is to be noted, does not involve a specific
The relationship between the issuing bank and the notifying bank, on the contrary, is more
appropriation of a sum of money in favor of the beneficiary. It only signifies that the
similar to that of an agency and not that of a guarantee. It may be observed that the
beneficiary may be able to draw funds upon the letter of credit up to the designated
notifying bank is merely to follow the instructions of the issuing bank which is to notify or
amount specified in the letter. It does not convey the notion that a particular sum of money
to transmit the letter of credit to the beneficiary. ( See Kronman v. Public National Bank of
has been specifically reserved or has been held in trust.
New York, supra). Its commitment is only to notify the beneficiary. It does not undertake
any assurance that the issuing bank will perform what has been mandated to or expected
What actually transpires in an irrevocable credit is that the correspondent bank does not of it. As an agent of the issuing bank, it has only to follow the instructions of the issuing
receive in advance the sum of money from the buyer or the issuing bank. On the contrary, bank and to it alone is it obligated and not to buyer with whom it has no contractual
when the correspondent bank accepts the tender and pays the amount stated in the letter, relationship.
the money that it doles out comes not from any particular fund that has been advanced by
the issuing bank, rather it gets the money from its own funds and then later seeks
In fact the notifying bank, even if the seller tenders all the documents required under the
reimbursement from the issuing bank.
letter of credit, may refuse to negotiate or accept the drafts drawn thereunder and it will
still not be held liable for its only engagement is to notify and/or transmit to the seller the
Granting that a trust has been created, still, the petitioner may not be considered a trustee. letter of credit.
As the petitioner is only a notifying bank, its acceptance of the instructions of the issuing
bank will not create estoppel on its part resulting in the acceptance of the trust. Precisely,

25
Finally, even if we assume that the petitioner is a confirming bank, the petitioner cannot be ALFREDO CHING, Petitioner, 
forced to pay the amount under the letter. As we have previously explained, there was a vs.
failure on the part of the private respondent to comply with the terms of the letter of credit. THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN BURGOS-VILLAVERT,
JUDGE EDGARDO SUDIAM of the Regional Trial Court, Manila, Branch 52; RIZAL
COMMERCIAL BANKING CORP. and THE PEOPLE OF THE PHILIPPINES, Respondents.
The failure by him to submit the certification was fatal to his case. 1âwphi1 The U.C.P.
which is incorporated in the letter of credit ordains that the bank may only pay the amount
specified under the letter if all the documents tendered are on their face in compliance Before the Court is a petition for review on certiorari of the Decision 1 of the Court of
with the credit. It is not tasked with the duty of ascertaining the reason or reasons why Appeals (CA) in CA-G.R. SP No. 57169 dismissing the petition for certiorari, prohibition
certain documents have not been submitted, as it is only concerned with the documents. and mandamus filed by petitioner Alfredo Ching, and its Resolution 2 dated June 28, 2004
Thus, whether or not the buyer has performed his responsibility towards the seller is not denying the motion for reconsideration thereof.
the bank's problem.
Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI).
We are aware of the injustice committed by Christiansen on the private respondent but we Sometime in September to October 1980, PBMI, through petitioner, applied with the Rizal
are deciding the controversy on the basis of what the law is, for the law is not meant to Commercial Banking Corporation (respondent bank) for the issuance of commercial letters
favor only those who have been oppressed, the law is to govern future relations among of credit to finance its importation of assorted goods. 3
people as well. Its commitment is to all and not to a single individual. The faith of the
people in our justice system may be eroded if we are to decide not what the law states but
Respondent bank approved the application, and irrevocable letters of credit were issued in
what we believe it should declare. Dura lex sed lex.
favor of petitioner. The goods were purchased and delivered in trust to PBMI. Petitioner
signed 13 trust receipts 4 as surety, acknowledging delivery of the following goods:
Considering the foregoing, the materiality of ruling upon the validity of the certificate of
approval required of the private respondent to submit under the letter of credit, has
become insignificant. T/R Date Maturity Principal Description of Goods
Nos. Granted Date
In any event, we affirm the earlier ruling of the Court of Appeals dated April 9, 1987 in
regard to the petition before it for certiorari and prohibition with preliminary injunction, to 1845 12-05-80 03-05-81 P1,596,470.05 79.9425 M/T "SDK"
wit: Brand Synthetic
Graphite Electrode
There is no merit in the respondent's contention that the certification required in
condition No. 4 of the letter of credit was "patently illegal." At the time the letter 1853 12-08-80 03-06-81 P198,150.67 3,000 pcs. (15
of credit was issued there was no Central Bank regulation prohibiting such a bundles) Calorized
condition in the letter of credit. The letter of credit (Exh. C) was issued on June Lance Pipes
7, 1971, more than two months before the issuance of the Central Bank
Memorandum on August 16, 1971 disallowing such a condition in a letter of 1824 11-28-80 02-26-81 P707,879.71 One Lot High Fired
credit. In fact the letter of credit had already expired on July 30, 1971 when the Refractory Tundish
Central Bank memorandum was issued. In any event, it is difficult to see how Bricks
such a condition could be categorized as illegal or unreasonable since all that
plaintiff Villaluz, as seller of the logs, could and should have done was to refuse 1798 11-21-80 02-19-81 P835,526.25 5 cases spare parts
to load the logs on the vessel "Zenlin Glory", unless Christiansen first issued the for CCM
required certification that the logs had been approved by him to be in
accordance with the terms and conditions of his purchase order. Apparently,
1808 11-21-80 02-19-81 P370,332.52 200 pcs. ingot moulds
Villaluz was in too much haste to ship his logs without taking all due precautions
to assure that all the terms and conditions of the letter of credit had been strictly
complied with, so that there would be no hitch in its negotiation. (Rollo, p. 8) 2042 01-30-81 04-30-81 P469,669.29 High Fired Refractory
Nozzle Bricks

WHEREFORE, the COURT RESOLVED to GRANT the petition and hereby NULLIFIES and
1801 11-21-80 02-19-81 P2,001,715.17 Synthetic Graphite
SETS ASIDE the decision of the Court of Appeals dated June 29, 1990. The amended
Electrode [with]
complaint in Civil Case No. 15121 is DISMISSED.
tapered pitch filed
nipples
SO ORDERED.
1857 12-09-80 03-09-81 P197,843.61 3,000 pcs. (15
G. R. No. 164317             February 6, 2006 bundles calorized
lance pipes [)]

26
 a product ultimately sold. The Court also ruled that "the non-payment of the amount
1895 12-17-80 03-17-81 P67,652.04 Spare parts for covered by a trust receipt is an act violative of the obligation of the entrustee to pay." 12
Spectrophotometer

On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against
1911 12-22-80 03-20-81 P91,497.85 50 pcs. Ingot moulds
petitioner before the Office of the City Prosecutor of Manila. The case was docketed as
I.S. No. 95B-07614.
2041 01-30-81 04-30-81 P91,456.97 50 pcs. Ingot moulds

Preliminary investigation ensued. On December 8, 1995, the City Prosecutor ruled that
2099 02-10-81 05-11-81 P66,162.26 8 pcs. Kubota Rolls
there was no probable cause to charge petitioner with violating P.D. No. 115, as
for rolling mills
petitioner’s liability was only civil, not criminal, having signed the trust receipts as
surety.13 Respondent bank appealed the resolution to the Department of Justice (DOJ) via
2100 02-10-81 05-12-81 P210,748.00 Spare parts for petition for review, alleging that the City Prosecutor erred in ruling:
Lacolaboratory
Equipment5
1. That there is no evidence to show that respondent participated in the
misappropriation of the goods subject of the trust receipts;
Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with
authority to sell but not by way of conditional sale, pledge or otherwise; and in case such 2. That the respondent is a mere surety of the trust receipts; and
goods were sold, to turn over the proceeds thereof as soon as received, to apply against
the relative acceptances and payment of other indebtedness to respondent bank. In case
the goods remained unsold within the specified period, the goods were to be returned to 3. That the liability of the respondent is only civil in nature. 14
respondent bank without any need of demand. Thus, said "goods, manufactured products
or proceeds thereof, whether in the form of money or bills, receivables, or accounts On July 13, 1999, the Secretary of Justice issued Resolution No. 250 15 granting the
separate and capable of identification" were respondent bank’s property. petition and reversing the assailed resolution of the City Prosecutor. According to the
Justice Secretary, the petitioner, as Senior Vice-President of PBMI, executed the 13 trust
When the trust receipts matured, petitioner failed to return the goods to respondent bank, receipts and as such, was the one responsible for the offense. Thus, the execution of said
or to return their value amounting to ₱6,940,280.66 despite demands. Thus, the bank filed receipts is enough to indict the petitioner as the official responsible for violation of P.D.
No. 115. The Justice Secretary also declared that petitioner could not contend that P.D.
a criminal complaint for estafa 6 against petitioner in the Office of the City Prosecutor of
No. 115 covers only goods ultimately destined for sale, as this issue had already been
Manila.
settled in Allied Banking Corporation v. Ordoñez, 16 where the Court ruled that P.D. No. 115
is "not limited to transactions in goods which are to be sold (retailed), reshipped, stored or
After the requisite preliminary investigation, the City Prosecutor found probable cause processed as a component of a product ultimately sold but covers failure to turn over the
estafa under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to proceeds of the sale of entrusted goods, or to return said goods if unsold or not otherwise
Presidential Decree (P.D.) No. 115, otherwise known as the Trust Receipts Law. Thirteen disposed of in accordance with the terms of the trust receipts."
(13) Informations were filed against the petitioner before the Regional Trial Court (RTC) of
Manila. The cases were docketed as Criminal Cases No. 86-42169 to 86-42181, raffled to
The Justice Secretary further stated that the respondent bound himself under the terms of
Branch 31 of said court.
the trust receipts not only as a corporate official of PBMI but also as its surety; hence, he
could be proceeded against in two (2) ways: first, as surety as determined by the Supreme
Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. Court in its decision in Rizal Commercial Banking Corporation v. Court of Appeals; 17 and
The appeal was dismissed in a Resolution 7 dated March 17, 1987, and petitioner moved second, as the corporate official responsible for the offense under P.D. No. 115, via
for its reconsideration. On December 23, 1987, the Minister of Justice granted the motion, criminal prosecution. Moreover, P.D. No. 115 explicitly allows the prosecution of corporate
thus reversing the previous resolution finding probable cause against petitioner. 8 The City officers "without prejudice to the civil liabilities arising from the criminal offense." Thus,
Prosecutor was ordered to move for the withdrawal of the Informations. according to the Justice Secretary, following Rizal Commercial Banking Corporation, the
civil liability imposed is clearly separate and distinct from the criminal liability of the
accused under P.D. No. 115.
This time, respondent bank filed a motion for reconsideration, which, however, was denied
on February 24, 1988.9The RTC, for its part, granted the Motion to Quash the Informations
filed by petitioner on the ground that the material allegations therein did not amount to Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13
estafa.10 Informations against petitioner for violation of P.D. No. 115 before the RTC of Manila. The
cases were docketed as Criminal Cases No. 99-178596 to 99-178608 and consolidated
for trial before Branch 52 of said court. Petitioner filed a motion for reconsideration, which
In the meantime, the Court rendered judgment in Allied Banking Corporation v.
the Secretary of Justice denied in a Resolution18 dated January 17, 2000.
Ordoñez,11 holding that the penal provision of P.D. No. 115 encompasses any act violative
of an obligation covered by the trust receipt; it is not limited to transactions involving
goods which are to be sold (retailed), reshipped, stored or processed as a component of Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA,
assailing the resolutions of the Secretary of Justice on the following grounds:

27
 1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN FACT, ARE Section 5 of the Revised Rules of Civil Procedure; and (b) the petition for certiorari,
ACTING OPPRESSIVELY AGAINST ALFREDO CHING WHEN THEY ALLOWED HIS prohibition and mandamus was not the proper remedy of the petitioner.
PROSECUTION DESPITE THE FACT THAT NO EVIDENCE HAD BEEN PRESENTED
TO PROVE HIS PARTICIPATION IN THE ALLEGED TRANSACTIONS.
On the merits of the petition, the CA ruled that the assailed resolutions of the Secretary of
Justice were correctly issued for the following reasons: (a) petitioner, being the Senior
2. THE RESPONDENT SECRETARY OF JUSTICE COMMITTED AN ACT IN GRAVE Vice-President of PBMI and the signatory to the trust receipts, is criminally liable for
ABUSE OF DISCRETION AND IN EXCESS OF HIS JURISDICTION WHEN THEY violation of P.D. No. 115; (b) the issue raised by the petitioner, on whether he violated
CONTINUED PROSECUTION OF THE PETITIONER DESPITE THE LENGTH OF P.D. No. 115 by his actuations, had already been resolved and laid to rest in Allied Bank
TIME INCURRED IN THE TERMINATION OF THE PRELIMINARY INVESTIGATION Corporation v. Ordoñez;22 and (c) petitioner was estopped from raising the
THAT SHOULD JUSTIFY THE DISMISSAL OF THE INSTANT CASE.
City Prosecutor’s delay in the final disposition of the preliminary investigation because he
3. THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY failed to do so in the DOJ.
PROSECUTOR ACTED IN GRAVE ABUSE OF DISCRETION AMOUNTING TO AN
EXCESS OF JURISDICTION WHEN THEY CONTINUED THE PROSECUTION OF
Thus, petitioner filed the instant petition, alleging that:
THE PETITIONER DESPITE LACK OF SUFFICIENT BASIS.19

I
In his petition, petitioner incorporated a certification stating that "as far as this Petition is
concerned, no action or proceeding in the Supreme Court, the Court of Appeals or
different divisions thereof, or any tribunal or agency. It is finally certified that if the affiant THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON THE
should learn that a similar action or proceeding has been filed or is pending before the GROUND THAT THE CERTIFICATION OF NON-FORUM SHOPPING
Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal or INCORPORATED THEREIN WAS DEFECTIVE.
agency, it hereby undertakes to notify this Honorable Court within five (5) days from such
notice."20
II

In its Comment on the petition, the Office of the Solicitor General alleged that -
THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WAS
A. COMMITTED BY THE SECRETARY OF JUSTICE IN COMING OUT WITH THE
ASSAILED RESOLUTIONS.23
THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT
PETITIONER ALFREDO CHING IS THE OFFICER RESPONSIBLE FOR THE The Court will delve into and resolve the issues seriatim.
OFFENSE CHARGED AND THAT THE ACTS OF PETITIONER FALL WITHIN THE
AMBIT OF VIOLATION OF P.D. [No.] 115 IN RELATION TO ARTICLE 315, PAR.
The petitioner avers that the CA erred in dismissing his petition on a mere technicality. He
1(B) OF THE REVISED PENAL CODE.
claims that the rules of procedure should be used to promote, not frustrate, substantial
justice. He insists that the Rules of Court should be construed liberally especially when, as
B. in this case, his substantial rights are adversely affected; hence, the deficiency in his
certification of non-forum shopping should not result in the dismissal of his petition.
THERE IS NO MERIT IN PETITIONER’S CONTENTION THAT EXCESSIVE DELAY
HAS MARRED THE CONDUCT OF THE PRELIMINARY INVESTIGATION OF THE The Office of the Solicitor General (OSG) takes the opposite view, and asserts that
CASE, JUSTIFYING ITS DISMISSAL. indubitably, the certificate of non-forum shopping incorporated in the petition before the
CA is defective because it failed to disclose essential facts about pending actions
concerning similar issues and parties. It asserts that petitioner’s failure to comply with the
C.
Rules of Court is fatal to his petition. The OSG cited Section 2, Rule 42, as well as the
ruling of this Court in Melo v. Court of Appeals.24
THE PRESENT SPECIAL CIVIL ACTION FOR CERTIORARI, PROHIBITION AND
MANDAMUS IS NOT THE PROPER MODE OF REVIEW FROM THE RESOLUTION
We agree with the ruling of the CA that the certification of non-forum shopping petitioner
OF THE DEPARTMENT OF JUSTICE. THE PRESENT PETITION MUST THEREFORE
incorporated in his petition before the appellate court is defective. The certification reads:
BE DISMISSED.21

It is further certified that as far as this Petition is concerned, no action or proceeding in

On April 22, 2004, the CA rendered judgment dismissing the petition for lack of merit, and
the Supreme Court, the Court of Appeals or different divisions thereof, or any tribunal or
on procedural grounds. On the procedural issue, it ruled that (a) the certification of non-
agency.
forum shopping executed by petitioner and incorporated in the petition was defective for
failure to comply with the first two of the three-fold undertakings prescribed in Rule 7,

28
It is finally certified that if the affiant should learn that a similar action or proceeding has Be that as it may, even on the merits, the arguments advanced in support of the petition
been filed or is pending before the Supreme Court, the Court of Appeals, or different are not persuasive enough to justify the desired conclusion that respondent Secretary of
divisions thereof, of any other tribunal or agency, it hereby undertakes to notify this Justice gravely abused its discretion in coming out with his assailed Resolutions. Petitioner
Honorable Court within five (5) days from such notice. 25 posits that, except for his being the Senior Vice-President of the PBMI, there is no iota of
evidence that he was a participes crimines in violating the trust receipts sued upon; and
that his liability, if at all, is purely civil because he signed the said trust receipts merely as
Under Section 1, second paragraph of Rule 65 of the Revised Rules of Court, the petition
a xxx surety and not as the entrustee. These assertions are, however, too dull that they
should be accompanied by a sworn certification of non-forum shopping, as provided in
cannot even just dent the findings of the respondent Secretary, viz:
the third paragraph of Section 3, Rule 46 of said Rules. The latter provision reads in part:

"x x x it is apropos to quote section 13 of PD 115 which states in part, viz:

SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. —
The petition shall contain the full names and actual addresses of all the petitioners and
respondents, a concise statement of the matters involved, the factual background of the ‘xxx If the violation or offense is committed by a corporation, partnership, association or
case and the grounds relied upon for the relief prayed for. other judicial entities, the penalty provided for in this Decree shall be imposed upon the
directors, officers, employees or other officials or persons therein responsible for the
offense, without prejudice to the civil liabilities arising from the criminal offense.’
xxx

"There is no dispute that it was the respondent, who as senior vice-president of PBM,
The petitioner shall also submit together with the petition a sworn certification that he has
executed the thirteen (13) trust receipts. As such, the law points to him as the official
not theretofore commenced any other action involving the same issues in the Supreme
responsible for the offense. Since a corporation cannot be proceeded against criminally
Court, the Court of Appeals or different divisions thereof, or any other tribunal or agency; if
because it cannot commit crime in which personal violence or malicious intent is required,
there is such other action or proceeding, he must state the status of the same; and if he
criminal action is limited to the corporate agents guilty of an act amounting to a crime and
should thereafter learn that a similar action or proceeding has been filed or is pending
never against the corporation itself (West Coast Life Ins. Co. vs. Hurd, 27 Phil. 401; Times,
before the Supreme Court, the Court of Appeals, or different divisions thereof, or any other
[I]nc. v. Reyes, 39 SCRA 303). Thus, the execution by respondent of said receipts is
tribunal or agency, he undertakes to promptly inform the aforesaid courts and other
enough to indict him as the official responsible for violation of PD 115.
tribunal or agency thereof within five (5) days therefrom. xxx

"Parenthetically, respondent is estopped to still contend that PD 115 covers only goods
Compliance with the certification against forum shopping is separate from and
which are ultimately destined for sale and not goods, like those imported by PBM, for use
independent of the avoidance of forum shopping itself. The requirement is mandatory. The
in manufacture. This issue has already been settled in the Allied Banking Corporation case,
failure of the petitioner to comply with the foregoing requirement shall be sufficient ground
supra, where he was also a party, when the Supreme Court ruled that PD 115 is ‘not
for the dismissal of the petition without prejudice, unless otherwise provided. 26
limited to transactions in goods which are to be sold (retailed), reshipped, stored or
processed as a component or a product ultimately sold’ but ‘covers failure to turn over the
Indubitably, the first paragraph of petitioner’s certification is incomplete and unintelligible. proceeds of the sale of entrusted goods, or to return said goods if unsold or disposed of
Petitioner failed to certify that he "had not heretofore commenced any other action in accordance with the terms of the trust receipts.’
involving the same issues in the Supreme Court, the Court of Appeals or the different
divisions thereof or any other tribunal or agency" as required by paragraph 4, Section 3,
"In regard to the other assigned errors, we note that the respondent bound himself under
Rule 46 of the Revised Rules of Court.
the terms of the trust receipts not only as a corporate official of PBM but also as its surety.
It is evident that these are two (2) capacities which do not exclude the other. Logically, he
We agree with petitioner’s contention that the certification is designed to promote and can be proceeded against in two (2) ways: first, as surety as determined by the Supreme
facilitate the orderly administration of justice, and therefore, should not be interpreted with Court in its decision in RCBC vs. Court of Appeals, 178 SCRA 739; and, secondly, as the
absolute literalness. In his works on the Revised Rules of Civil Procedure, former Supreme corporate official responsible for the offense under PD 115, the present case is an
Court Justice Florenz Regalado states that, with respect to the contents of the certification appropriate remedy under our penal law.
which the pleader may prepare, the rule of substantial compliance may be availed
of.27However, there must be a special circumstance or compelling reason which makes the
"Moreover, PD 115 explicitly allows the prosecution of corporate officers ‘without prejudice
strict application of the requirement clearly unjustified. The instant petition has not alleged
to the civil liabilities arising from the criminal offense’ thus, the civil liability imposed on
any such extraneous circumstance. Moreover, as worded, the certification cannot even be
respondent in RCBC vs. Court of Appeals case is clearly separate and distinct from his
regarded as substantial compliance with the procedural requirement. Thus, the CA was not
criminal liability under PD 115.’"28
informed whether, aside from the petition before it, petitioner had commenced any other
action involving the same issues in other tribunals.
Petitioner asserts that the appellate court’s ruling is erroneous because (a) the transaction
between PBMI and respondent bank is not a trust receipt transaction; (b) he entered into
On the merits of the petition, the CA ruled that the petitioner failed to establish that the
the transaction and was sued in his capacity as PBMI Senior Vice-President; (c) he never
Secretary of Justice committed grave abuse of discretion in finding probable cause
received the goods as an entrustee for PBMI, hence, could not have committed any
against the petitioner for violation of estafa under Article 315, paragraph 1(b) of the
dishonesty or abused the confidence of respondent bank; and (d) PBMI acquired the
Revised Penal Code, in relation to P.D. No. 115. Thus, the appellate court ratiocinated:
goods and used the same in operating its machineries and equipment and not for resale.

29
The OSG, for its part, submits a contrary view, to wit: Justice acts contrary to law, without authority and/or in excess of authority. Such
resolution may likewise be nullified in a petition for certiorari under Rule 65 of the Revised
Rules of Civil Procedure.35
34. Petitioner further claims that he is not a person responsible for the offense allegedly
because "[b]eing charged as the Senior Vice-President of Philippine Blooming Mills
(PBM), petitioner cannot be held criminally liable as the transactions sued upon were A preliminary investigation, designed to secure the respondent against hasty, malicious
clearly entered into in his capacity as an officer of the corporation" and that [h]e never and oppressive prosecution, is an inquiry to determine whether (a) a crime has been
received the goods as an entrustee for PBM as he never had or took possession of the committed; and (b) whether there is probable cause to believe that the accused is guilty
goods nor did he commit dishonesty nor "abuse of confidence in transacting with RCBC." thereof. It is a means of discovering the person or persons who may be reasonably
Such argument is bereft of merit. charged with a crime. Probable cause need not be based on clear and convincing
evidence of guilt, as the investigating officer acts upon probable cause of reasonable
belief. Probable cause implies probability of guilt and requires more than bare suspicion
35. Petitioner’s being a Senior Vice-President of the Philippine Blooming Mills does not
but less than evidence which would justify a conviction. A finding of probable cause needs
exculpate him from any liability. Petitioner’s responsibility as the corporate official of PBM
only to rest on evidence showing that more likely than not, a crime has been committed by
who received the goods in trust is premised on Section 13 of P.D. No. 115, which
the suspect.36
provides:

However, while probable cause should be determined in a summary manner, there is a

Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the
need to examine the evidence with care to prevent material damage to a potential
sale of the goods, documents or instruments covered by a trust receipt to the extent of the
accused’s constitutional right to liberty and the guarantees of freedom and fair play 37 and
amount owing to the entruster or as appears in the trust receipt or to return said goods,
to protect the State from the burden of unnecessary expenses in prosecuting alleged
documents or instruments if they were not sold or disposed of in accordance with the
offenses and holding trials arising from false, fraudulent or groundless charges. 38
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 In this case, petitioner failed to establish that the Secretary of Justice committed grave
Code. If the violation or offense is committed by a corporation, partnership, association or abuse of discretion in issuing the assailed resolutions. Indeed, he acted in accord with law
other juridical entities, the penalty provided for in this Decree shall be imposed upon the and the evidence.
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
Section 4 of P.D. No. 115 defines a trust receipt transaction, thus:
supplied)

Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within
36. Petitioner having participated in the negotiations for the trust receipts and having
the meaning of this Decree, is any transaction by and between a person referred to in this
received the goods for PBM, it was inevitable that the petitioner is the proper corporate
Decree as the entruster, and another person referred to in this Decree as entrustee,
officer to be proceeded against by virtue of the PBM’s violation of P.D. No. 115. 29
whereby the entruster, who owns or holds absolute title or security interests over certain
specified goods, documents or instruments, releases the same to the possession of the
The ruling of the CA is correct. entrustee upon the latter’s execution and delivery to the entruster of a signed document
called a "trust receipt" wherein the entrustee binds himself to hold the designated goods,
documents or instruments in trust for the entruster and to sell or otherwise dispose of the
In Mendoza-Arce v. Office of the Ombudsman (Visayas), 30 this Court held that the acts of
goods, documents or instruments with the obligation to turn over to the entruster the
a quasi-judicial officer may be assailed by the aggrieved party via a petition for certiorari
proceeds thereof to the extent of the amount owing to the entruster or as appears in the
and enjoined (a) when necessary to afford adequate protection to the constitutional rights
trust receipt or the goods, documents or instruments themselves if they are unsold or not
of the accused; (b) when necessary for the orderly administration of justice; (c) when the
otherwise disposed of, in accordance with the terms and conditions specified in the trust
acts of the officer are without or in excess of authority; (d) where the charges are
receipt, or for other purposes substantially equivalent to any of the following:
manifestly false and motivated by the lust for vengeance; and (e) when there is clearly no
prima facie case against the accused. 31 The Court also declared that, if the officer
conducting a preliminary investigation (in that case, the Office of the Ombudsman) acts 1. In case of goods or documents, (a) to sell the goods or procure their sale; or
without or in excess of his authority and resolves to file an Information despite the (b) to manufacture or process the goods with the purpose of ultimate sale;
absence of probable cause, such act may be nullified by a writ of certiorari. 32 Provided, That, in the case of goods delivered under trust receipt for the purpose
of manufacturing or processing before its ultimate sale, the entruster shall retain
its title over the goods whether in its original or processed form until the
Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure, 33 the
entrustee has complied fully with his obligation under the trust receipt; or (c) to
Information shall be prepared by the Investigating Prosecutor against the respondent only
load, unload, ship or otherwise deal with them in a manner preliminary or
if he or she finds probable cause to hold such respondent for trial. The Investigating
necessary to their sale; or
Prosecutor acts without or in excess of his authority under the Rule if the Information is
filed against the respondent despite absence of evidence showing probable cause
therefor.34 If the Secretary of Justice reverses the Resolution of the Investigating 2. In the case of instruments a) to sell or procure their sale or exchange; or b) to
Prosecutor who found no probable cause to hold the respondent for trial, and orders such deliver them to a principal; or c) to effect the consummation of some
prosecutor to file the Information despite the absence of probable cause, the Secretary of

30
 transactions involving delivery to a depository or register; or d) to effect their I/we agree to keep the said goods, manufactured products or proceeds thereof, whether
presentation, collection or renewal. in the form of money or bills, receivables, or accounts separate and capable of
identification as property of the BANK.42
The sale of goods, documents or instruments by a person in the business of selling
goods, documents or instruments for profit who, at the outset of the transaction, has, as It must be stressed that P.D. No. 115 is a declaration by legislative authority that, as a
against the buyer, general property rights in such goods, documents or instruments, or matter of public policy, the failure of person to turn over the proceeds of the sale of the
who sells the same to the buyer on credit, retaining title or other interest as security for the goods covered by a trust receipt or to return said goods, if not sold, is a public nuisance
payment of the purchase price, does not constitute a trust receipt transaction and is to be abated by the imposition of penal sanctions. 43
outside the purview and coverage of this Decree.
The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions
An entrustee is one having or taking possession of goods, documents or instruments involving goods procured as a component of a product ultimately sold has been resolved
under a trust receipt transaction, and any successor in interest of such person for the in the affirmative in Allied Banking Corporation v. Ordoñez. 44 The law applies to goods
purpose of payment specified in the trust receipt agreement. 39 The entrustee is obliged to: used by the entrustee in the operation of its machineries and equipment. The non-
(1) hold the goods, documents or instruments in trust for the entruster and shall dispose payment of the amount covered by the trust receipts or the non-return of the goods
of them strictly in accordance with the terms and conditions of the trust receipt; (2) covered by the receipts, if not sold or otherwise not disposed of, violate the entrustee’s
receive the proceeds in trust for the entruster and turn over the same to the entruster to obligation to pay the amount or to return the goods to the entruster.
the extent of the amount owing to the entruster or as appears on the trust receipt; (3)
insure the goods for their total value against loss from fire, theft, pilferage or other
In Colinares v. Court of Appeals,45 the Court declared that there are two possible situations
casualties; (4) keep said goods or proceeds thereof whether in money or whatever form,
in a trust receipt transaction. The first is covered by the provision which refers to money
separate and capable of identification as property of the entruster; (5) return the goods,
received under the obligation involving the duty to deliver it (entregarla) to the owner of the
documents or instruments in the event of non-sale or upon demand of the entruster; and
merchandise sold. The second is covered by the provision which refers to merchandise
(6) observe all other terms and conditions of the trust receipt not contrary to the provisions
received under the obligation to return it (devolvera) to the owner. 46 Thus, failure of the
of the decree.40
entrustee to turn over the proceeds of the sale of the goods covered by the trust receipts
to the entruster or to return said goods if they were not disposed of in accordance with the
The entruster shall be entitled to the proceeds from the sale of the goods, documents or terms of the trust receipt is a crime under P.D. No. 115, without need of proving intent to
instruments released under a trust receipt to the entrustee to the extent of the amount defraud. The law punishes dishonesty and abuse of confidence in the handling of money
owing to the entruster or as appears in the trust receipt, or to the return of the goods, or goods to the prejudice of the entruster, regardless of whether the latter is the owner or
documents or instruments in case of non-sale, and to the enforcement of all other rights not. A mere failure to deliver the proceeds of the sale of the goods, if not sold, constitutes
conferred on him in the trust receipt; provided, such are not contrary to the provisions of a criminal offense that causes prejudice, not only to another, but more to the public
the document.41 interest.47

In the case at bar, the transaction between petitioner and respondent bank falls under the The Court rules that although petitioner signed the trust receipts merely as Senior Vice-
trust receipt transactions envisaged in P.D. No. 115. Respondent bank imported the goods President of PBMI and had no physical possession of the goods, he cannot avoid
and entrusted the same to PBMI under the trust receipts signed by petitioner, as entrustee, prosecution for violation of P.D. No. 115.
with the bank as entruster. The agreement was as follows:
The penalty clause of the law, Section 13 of P.D. No. 115 reads:
And in consideration thereof, I/we hereby agree to hold said goods in trust for the said
BANK as its property with liberty to sell the same within ____days from the date of the
Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the
execution of this Trust Receipt and for the Bank’s account, but without authority to make
sale of the goods, documents or instruments covered by a trust receipt to the extent of the
any other disposition whatsoever of the said goods or any part thereof (or the proceeds)
amount owing to the entruster or as appears in the trust receipt or to return said goods,
either by way of conditional sale, pledge or otherwise.
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
I/we agree to keep the said goods insured to their full value against loss from fire, theft, provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three
pilferage or other casualties as directed by the BANK, the sum insured to be payable in thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal
case of loss to the BANK, with the understanding that the BANK is, not to be chargeable Code. 1âwphi1 If the violation or offense is committed by a corporation, partnership,
with the storage premium or insurance or any other expenses incurred on said goods. 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
In case of sale, I/we further agree to turn over the proceeds thereof as soon as received
offense.
to the BANK, to apply against the relative acceptances (as described above) and for the
payment of any other indebtedness of mine/ours to the BANK. In case of non-sale within
the period specified herein, I/we agree to return the goods under this Trust Receipt to the The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under
BANK without any need of demand. paragraph 1(b), Article 315 of the Revised Penal Code, or estafa with abuse of
confidence. It may be committed by a corporation or other juridical entity or by natural

31
persons. However, the penalty for the crime is imprisonment for the periods provided in corporation but prescribes the penalty therefor to be suffered by the officers, directors, or
said Article 315, which reads: employees of such corporation or other persons responsible for the offense, only such
individuals will suffer such penalty. 51Corporate officers or employees, through whose act,
default or omission the corporation commits a crime, are themselves individually guilty of
ARTICLE 315. Swindling (estafa). – Any person who shall defraud another by any of the
the crime.52
means mentioned hereinbelow shall be punished by:

The principle applies whether or not the crime requires the consciousness of wrongdoing.
1st. The penalty of prision correccional in its maximum period to prision mayor in
It applies to those corporate agents who themselves commit the crime and to those, who,
its minimum period, if the amount of the fraud is over 12,000 pesos but does not
by virtue of their managerial positions or other similar relation to the corporation, could be
exceed 22,000 pesos; and if such amount exceeds the latter sum, the penalty
deemed responsible for its commission, if by virtue of their relationship to the corporation,
provided in this paragraph shall be imposed in its maximum period, adding one
they had the power to prevent the act.53 Moreover, all parties active in promoting a crime,
year for each additional 10,000 pesos; but the total penalty which may be
whether agents or not, are principals. 54 Whether such officers or employees are benefited
imposed shall not exceed twenty years. In such cases, and in connection with
by their delictual acts is not a touchstone of their criminal liability. Benefit is not an
the accessory penalties which may be imposed and for the purpose of the other
operative fact.
provisions of this Code, the penalty shall be termed prision mayor or reclusion
temporal, as the case may be;
In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind
the cloak of the separate corporate personality of PBMI. In the words of Chief Justice Earl
2nd. The penalty of prision correccional in its minimum and medium periods, if
Warren, a corporate officer cannot protect himself behind a corporation where he is the
the amount of the fraud is over 6,000 pesos but does not exceed 12,000 pesos;
actual, present and efficient actor.55

3rd. The penalty of arresto mayor in its maximum period to prision correccional in
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against
its minimum period, if such amount is over 200 pesos but does not exceed 6,000
the petitioner.
pesos; and

SO ORDERED.
4th. By arresto mayor in its medium and maximum periods, if such amount does not
exceed 200 pesos, provided that in the four cases mentioned, the fraud be committed by
any of the following means; xxx DEVELOPMENT BANK OF G.R. No. 143772

Though the entrustee is a corporation, nevertheless, the law specifically makes the THE PHILIPPINES,
officers, employees or other officers or persons responsible for the offense, without
prejudice to the civil liabilities of such corporation and/or board of directors, officers, or
Petitioner ,,
other officials or employees responsible for the offense. The rationale is that such officers
or employees are vested with the authority and responsibility to devise means necessary to
ensure compliance with the law and, if they fail to do so, are held criminally accountable; - v e r s u s - 
thus, they have a responsible share in the violations of the law. 48
PRUDENTIAL BANK,
If the crime is committed by a corporation or other juridical entity, the directors, officers,
employees or other officers thereof responsible for the offense shall be charged and
Respondent. Promulgated:
penalized for the crime, precisely because of the nature of the crime and the penalty
therefor. A corporation cannot be arrested and imprisoned; hence, cannot be penalized for
a crime punishable by imprisonment. 49 However, a corporation may be charged and Development Bank of the Philippines (DBP) assails in this petition for review on certiorari
prosecuted for a crime if the imposable penalty is fine. Even if the statute prescribes both under Rule 45 of the Rules of Court the December 14, 1999 decision  [1] and the June 8,
fine and imprisonment as penalty, a corporation may be prosecuted and, if found guilty, 2000 resolution of the Court of Appeals in CA-G.R. CV No. 45783. The challenged
may be fined.50 decision dismissed DBP's appeal and affirmed the February 12, 1991 decision of the
Regional Trial Court of Makati, Branch 137 in Civil Case No. 88-931 in toto, while the
impugned resolution denied DBP's motion for reconsideration for being pro forma. 
A crime is the doing of that which the penal code forbids to be done, or omitting to do
what it commands. A necessary part of the definition of every crime is the designation of
the author of the crime upon whom the penalty is to be inflicted. When a criminal statute In 1973, Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial letter of credit
designates an act of a corporation or a crime and prescribes punishment therefor, it with respondent Prudential Bank for US$498,000. This was in connection with its
creates a criminal offense which, otherwise, would not exist and such can be committed importation of 5,000 spindles for spinning machinery with drawing frame, simplex fly
only by the corporation. But when a penal statute does not expressly apply to frame, ring spinning frame and various accessories, spare parts and tool gauge. These
corporations, it does not create an offense for which a corporation may be punished. On were released to Litex under covering 'trust receipts' it executed in favor of Prudential
the other hand, if the State, by statute, defines a crime that may be committed by a Bank. Litex installed and used the items in its textile mill located in Montalban, Rizal. 

32
On October 10, 1980, DBP granted a foreign currency loan in the amount of US$4,807,551 authorized to mortgage the same, provided of course LITEX turns over
to Litex. To secure the loan, Litex executed real estate and chattel mortgages on its plant to PRUDENTIAL BANK all amounts owing. When DBP, well aware of the
site in Montalban, Rizal, including the buildings and other improvements, machineries and status of the properties, acquired the same in the public auction, it was
equipments there. Among the machineries and equipments mortgaged in favor of DBP bound by the terms of the trust receipts of which LITEX was the
were the articles covered by the 'trust receipts.  entrustee. Simply stated, DBP held no better right than LITEX, and is
thus bound to turn over whatever amount was due PRUDENTIAL BANK.
Being a trustee ex maleficio of PRUDENTIAL BANK, DBP is necessarily
Sometime in June 1982, Prudential Bank learned about DBP's plan for the overall
liable therefor. In fact, DBP may well be considered as an agent of
rehabilitation of Litex. In a July 14, 1982 letter, Prudential Bank notified DBP of its claim
LITEX when the former sold the properties being claimed by
over the various items covered by the 'trust receipts' which had been installed and used by
PRUDENTIAL BANK, with the corresponding responsibility to turn over
Litex in the textile mill. Prudential Bank informed DBP that it was the absolute and juridical
the proceeds of the same to PRUDENTIAL BANK. [3] (Citations
owner of the said items and they were thus not part of the mortgaged assets that could be
omitted) 
legally ceded to DBP. 

The dispositive portion of the decision read: 

For the failure of Litex to pay its obligation, DBP extra-judicially foreclosed on the real
estate and chattel mortgages, including the articles claimed by Prudential Bank. During the
foreclosure sale held on April 19, 1983, DBP acquired the foreclosed properties as the WHEREFORE, judgment is hereby rendered ordering defendant
highest bidder.  DEVELOPMENT BANK OF THE PHILIPPINES to pay plaintiff
PRUDENTIAL BANK:
 
Subsequently, DBP caused to be published in the September 2, 1984 issue of the Times
a)           P 3,261,834.00, as actual damages, with
Journal an invitation to bid in the public sale to be held on September 10, 1984. It called
interest thereon computed from 10 August 1985 until
on interested parties to submit bids for the sale of the textile mill formerly owned by Litex,
the entire amount shall have been fully paid;
the land on which it was built, as well as the machineries and equipments therein. Learning
 
of the intended public auction, Prudential Bank wrote a letter dated September 6, 1984 to
b)           P 50,000.00 as exemplary damages; and
DBP reasserting its claim over the items covered by 'trust receipts' in its name and
advising DBP not to include them in the auction. It also demanded the turn-over of the
articles or alternatively, the payment of their value.  

An exchange of correspondences ensued between Prudential Bank and DBP. In reply to c)            10% of the total amount due as and for
Prudential Bank's September 6, 1984 letter, DBP requested documents to enable it to attorney's fees.
evaluate Prudential Bank's claim. On September 28, 1994, Prudential Bank provided DBP  
the requested documents. Two months later, Prudential Bank followed up the status of its SO ORDERED.
claim. In a letter dated December 3, 1984, DBP informed Prudential Bank that its claim had
been referred to DBP's legal department and instructed Prudential Bank to get in touch
Aggrieved, DBP filed an appeal with the Court of Appeals. However, the appellate court
with its chief legal counsel. There being no concrete action on DBP's part, Prudential
dismissed the appeal and affirmed the decision of the trial court in toto. It applied the
Bank, in a letter dated July 30, 1985, made a final demand on DBP for the turn-over of the
provisions of PD 115 and held that ownership over the contested articles belonged to
contested articles or the payment of their value. Without the knowledge of Prudential Bank,
Prudential Bank as entrustor, not to Litex. Consequently, even if Litex mortgaged the items
however, DBP sold the Litex textile mill, as well as the machineries and equipments
to DBP and the latter foreclosed on such mortgage, DBP was duty-bound to turn over the
therein, to Lyon Textile Mills, Inc. (Lyon) on June 8, 1987.
proceeds to Prudential Bank, being the party that advanced the payment for them.

Since its demands remained unheeded, Prudential Bank filed a complaint for a sum of
On DBP's argument that the disputed articles were not proper objects of a trust receipt
money with damages against DBP with the Regional Trial Court of Makati, Branch 137, on
agreement, the Court of Appeals ruled that the items were part of the trust agreement
May 24, 1988. The complaint was docketed as Civil Case No. 88-931.
entered into by and between Prudential Bank and Litex. Since the agreement was not
contrary to law, morals, public policy, customs and good order, it was binding on the
On February 12, 1991, the trial court decided [2] in favor of Prudential Bank. Applying the parties. 
provisions of PD 115, otherwise known as the 'Trust Receipts Law, it ruled: 
Moreover, the appellate court found that DBP was not a mortgagee in good faith. It also
When PRUDENTIAL BANK released possession of the subject upheld the finding of the trial court that DBP was a trustee ex maleficio of Prudential Bank
properties, over which it holds absolute title to LITEX upon the latter's over the articles covered by the 'trust receipts. 
execution of the trust receipts, the latter was bound to hold said
properties in trust for the former, and (a) to sell or otherwise dispose of
DBP filed a motion for reconsideration but the appellate court denied it for being  pro
the same and to turn over to PRUDENTIAL BANK the amount still owing;
forma. Hence, this petition. 
or (b) to return the goods if unsold. Since LITEX was allowed to sell the
properties being claimed by PRUDENTIAL BANK, all the more was it

33
Trust receipt transactions are governed by the provisions of PD 115 which defines such a transaction, the release of the goods to the entrustee, on his execution of a trust receipt,
transaction as follows: is essentially for the purpose of their sale or is necessarily connected with their ultimate or
subsequent sale.
Section 4. What constitutes a trust receipt transaction.  ' A trust receipt
transaction, within the meaning of this Decree, is any transaction by  
and between a person referred to in this Decree as the entruster, and
another person referred to in this Decree as entrustee, whereby the
Here, Litex was not engaged in the business of selling spinning machinery, its accessories
entruster, who owns or holds absolute title or security interests over
and spare parts but in manufacturing and producing textile and various kinds of fabric. The
certain specified goods, documents or instruments, releases the same
articles were not released to Litex to be sold. Nor was the transfer of possession intended
to the possession of the entrustee upon the latter's execution and
to be a preliminary step for the said goods to be ultimately or subsequently sold. Instead,
delivery to the entruster of a signed document called a 'trust receipt
the contemporaneous and subsequent acts of both Litex and Prudential Bank showed that
wherein the entrustee binds himself to hold the designated goods,
the imported articles were released to Litex to be installed in its textile mill and used in its
documents or instruments in trust for the entruster and to sell or
business. DBP itself was aware of this. To support its assertion that the contested articles
otherwise dispose of the goods, documents or instruments with the
were excluded from goods that could be covered by a trust receipt, it contended: 
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 First . That the chattels in controversy were procured by DBP's
unsold or not otherwise disposed of, in accordance with the terms and mortgagor Lirag Textile Mills (LITEX') for the exclusive use of its textile
conditions specified in the trust receipt, or for other purposes mills. They were not procured - 
substantially equivalent to any of the following:  (a) to sell or otherwise procure their sale; 
  (b) to manufacture or process the goods with the 
1. In the case of goods or documents, (a) to sell the goods or purpose of ultimate sale. [5] (emphasis supplied)
procure their sale; or (b) to manufacture or process the goods
with the purpose of ultimate sale: Provided, That, in the case
Hence, the transactions between Litex and Prudential Bank were allegedly not trust receipt
of goods delivered under trust receipt for the purpose of
transactions within the meaning of PD 115. It follows that, contrary to the decisions of the
manufacturing or processing before its ultimate sale, the
trial court and the appellate court, the transactions were not governed by the Trust
entruster shall retain its title over the goods whether in its
Receipts Law.
original or processed form until the entrustee has complied
fully with his obligation under the trust receipt; or (c) to load,
unload, ship or tranship or otherwise deal with them in a
manner preliminary or necessary to their sale; or 
 
2. In the case of instruments, (a) to sell or procure their sale We disagree. 
or exchange; or (b) to deliver them to a principal; or (c) to
effect the consummation of some transactions involving The various agreements between Prudential Bank and Litex commonly denominated as
delivery to a depository or register; or (d) to effect their trust receipts' were valid. As the Court of Appeals correctly ruled, their provisions did not
presentation, collection or renewal. contravene the law, morals, good customs, public order or public policy. 
xxxxxxxxx
The agreements uniformly provided:
In a trust receipt transaction, the goods are released by the entruster (who owns or holds
absolute title or security interests over the said goods) to the entrustee on the latter's
execution and delivery to the entruster of a trust receipt. The trust receipt evidences the Received, upon the Trust hereinafter mentioned from the PRUDENTIAL
absolute title or security interest of the entruster over the goods. As a consequence of the BANK (hereinafter referred to as BANK) the following goods and
release of the goods and the execution of the trust receipt, a two-fold obligation is merchandise, the property of said BANK specified in the bill of lading
imposed on the entrustee, namely: (1) to hold the designated goods, documents or as follows:
instruments in trust for the purpose of selling or otherwise disposing of them and (2) to  
turn over to the entruster either the proceeds thereof to the extent of the amount owing to Amount of Bill Description of Security Marks & Nos. Vessel
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. In the case of goods, they may also be and in consideration thereof, I/We hereby agree to hold said goods in
released for other purposes substantially equivalent to (a) their sale or the procurement of trust for the BANK and as its property with liberty to sell the same for
their sale; or (b) their manufacture or processing with the purpose of ultimate sale, in its account but without authority to make any other disposition
which case the entruster retains his title over the said goods whether in their original or whatsoever of the said goods or any part thereof (or the proceeds
processed form until the entrustee has complied fully with his obligation under the trust thereof) either by way of conditional sale, pledge, or otherwise.
receipt; or (c) the loading, unloading, shipment or transshipment or otherwise dealing with  
them in a manner preliminary or necessary to their sale. [4] Thus, in a trust receipt x x x x x x x x x [6] (Emphasis supplied)
34
   DBP's assertion that both the trial and appellate courts failed to address the issue of
prescription is of no moment. Its claim that, under Article 1146 (1) of the Civil Code,
Prudential Bank's cause of action had prescribed as it should be reckoned from October
The articles were owned by Prudential Bank and they were only held by Litex in trust. While
10, 1980, the day the mortgage was registered, is not correct. The written extra-judicial
it was allowed to sell the items, Litex had no authority to dispose of them or any part
demand by the creditor interrupted the prescription of action. [16] Hence, the four-year
thereof or their proceeds through conditional sale, pledge or any other means. 
prescriptive period which DBP insists should be counted from the registration of the
mortgage was interrupted when Prudential Bank wrote the extra-judicial demands for the
Article 2085 (2) of the Civil Code requires that, in a contract of pledge or mortgage, it is turn over of the articles or their value. In particular, the last demand letter sent by
essential that the pledgor or mortgagor should be the absolute owner of the thing pledged Prudential Bank was dated July 30, 1988 and this was received by DBP the following day.
or mortgaged. Article 2085 (3) further mandates that the person constituting the pledge or Thus, contrary to DBP's claim, Prudential Bank's right to enforce its action had not yet
mortgage must have the free disposal of his property, and in the absence thereof, that he prescribed when it filed the complaint on May 24, 1988. 
be legally authorized for the purpose.
WHEREFORE , the petition is hereby DENIED. The December 14, 1999 decision and June
Litex had neither absolute ownership, free disposal nor the authority to freely dispose of 8, 2000 resolution of the Court of Appeals in CA-G.R. CV No. 45783 are AFFIRMED.
the articles. Litex could not have subjected them to a chattel mortgage. Their inclusion in
the mortgage was void [7] and had no legal effect. [8] There being no valid mortgage,
[G.R. No. 128669. October 4, 2002.]
there could also be no valid foreclosure or valid auction sale. [9] Thus, DBP could not be
considered either as a mortgagee or as a purchaser in good faith. [10]
MAMERTA VDA. DE JAYME, and her children and/or heirs of the late GRACIANO JAYME,
namely: WILFREDO, MARCIAL, MANUEL, ANTONIO, all surnamed JAYME; the heirs of
No one can transfer a right to another greater than what he himself has. [11] Nemo dat DOMINADOR JAYME, namely: SUPREMA (surviving spouse) and his children, namely:
quod non habet. Hence, Litex could not transfer a right that it did not have over the ARMANDO, NICANOR, ZENAIDA, CATHERINE, ROSALINE, DORIS, VICKY and MARILYN, all
disputed items. Corollarily, DBP could not acquire a right greater than what its surnamed JAYME; and the heirs of the late NILIE JAYME SANCHEZ, namely, INOCENCIO
predecessor-in-interest had. The spring cannot rise higher than its source. [12] DBP SANCHEZ (surviving spouse) and her children: ELSA, CONCEPCION, CLEOFE,
merely stepped into the shoes of Litex as trustee of the imported articles with an obligation ALEJANDRO, EFREN and MACRINA, all surnamed SANCHEZ; and FLORA JAYME
to pay their value or to return them on Prudential Bank's demand. By its failure to pay or RAVANES, assisted by her husband, CESAR RAVANES, Petitioners, v. HON. COURT OF
return them despite Prudential Bank's repeated demands and by selling them to Lyon APPEALS, SIXTEENTH DIVISION, CEBU ASIANCARS INC., GEORGE NERI, CONNIE NERI,
without Prudential Bank's knowledge and conformity, DBP became a trustee ex maleficio.  WILLIAM LEONG KOC LEE, EDUARD JAMES LEE, ROBERTO UY KIM, AND CHARLES UY
KIM; 1 METROPOLITAN BANK AND TRUST COMPANY, RENE NATIVIDAD AND/OR JOHN
DOE in substitution of MAXIMO PEREZ, sued in his capacity as City Sheriff of Mandaue
On the matter of actual damages adjudged by the trial court and affirmed by the Court of City, Respondents.
Appeals, DBP wants this Court to review the evidence presented during the trial and to
reverse the factual findings of the trial court. This Court is, however, not a trier of facts
and it is not its function to analyze or weigh evidence anew. [13] The rule is that factual
findings of the trial court, when adopted and confirmed by the CA, are binding and This petition assails the decision 2 dated September 19, 1996, of the Court of Appeals in
conclusive on this Court and generally will not be reviewed on appeal. [14] While there CA-G.R. CV No. 46496 and its resolution 3 dated February 21, 1997, denying the motion
are recognized exceptions to this rule, none of the established exceptions finds for reconsideration. Said decision had affirmed that of the Regional Trial Court of Cebu
application here. City, Branch 15, in Civil Case No. CEB-21369 for Annulment of Contract and Damages
with Prayer for the Issuance of Preliminary Injunction. 4 
With regard to the imposition of exemplary damages, the appellate court agreed with the
The following facts are borne by the records:chanrob1es virtual 1aw library
trial court that the requirements for the award thereof had been sufficiently established.
Prudential Bank's entitlement to compensatory damages was likewise amply proven. It was
The spouses Graciano and Mamerta Jayme are the registered owners of Lot 2700, situated
also shown that DBP was aware of Prudential Bank's claim as early as July, 1982.
in the Municipality of Mandaue (now Mandaue City), Cebu, consisting of 2,568 sq.m. and
However, it ignored the latter's demand, included the disputed articles in the mortgage
covered by Transfer Certificate of Title No. 8290.
foreclosure and caused their sale in a public auction held on April 19, 1983 where it was
declared as the highest bidder. Thereafter, in the series of communications between them,
On January 8, 1973, they entered into a Contract of Lease 5 with George Neri, president of
DBP gave Prudential Bank the false impression that its claim was still being evaluated.
Airland Motors Corporation (now Cebu Asiancars Inc.), covering one-half of Lot 2700. The
Without acting on Prudential Bank's plea, DBP included the contested articles among the
lease was for twenty (20) years.
properties it sold to Lyon in June, 1987. The trial court found that this chain of events
showed DBP's fraudulent attempt to prevent Prudential Bank from asserting its rights. It
The terms and conditions of the lease contract 6 stipulated that Cebu Asiancars Inc.
smacked of bad faith, if not deceit. Thus, the award of exemplary damages was in order.
(hereafter, Asiancars) may use the leased premises as a collateral to secure payment of a
Due to the award of exemplary damages, the grant of attorney's fees was proper. [15]
loan which Asiancars may obtain from any bank, provided that the proceeds of the loan
shall be used solely for the construction of a building which, upon the termination of the
  lease or the voluntary surrender of the leased premises before the expiration of the
contract, shall automatically become the property of the Jayme spouses (the
lessors).chanrob1es virtua1 1aw 1ibrary

35
 library
A Special Power of Attorney 7 dated January 26, 1974, was executed in favor of
respondent George Neri, who used the lot to secure a loan of P300,000 from the General WHEREFORE, in view of the foregoing evidences, arguments and considerations, this
Bank and Trust Company. The loan was fully paid on August 14, 1977. 8  Court hereby renders judgment as follows:chanrob1es virtual 1aw library

In October 1977, Asiancars obtained a loan of P6,000,000 from the Metropolitan Bank and 1. Declaring the Real Estate Mortgage executed by the Jaymes in favor of Metrobank as
Trust Company (MBTC). The entire Lot 2700 was offered as one of several properties valid and binding;
given as collateral for the loan. As mortgagors, the spouses signed a Deed of Real Estate
Mortgage 9 dated November 21, 1977 in favor of MBTC. It stated that the deed was to 2. Declaring the Undertaking executed by George Neri, Benny Leongben Lee already
secure the payment of a loan obtained by Asiancars from the bank. deceased, William Leong Koc, Connie U. Neri, Edward James Lee, Roberto Uykim, and
Charles P. Uykim on November 7, 1977 to be valid and binding as well upon the
To assure the Jayme spouses, Neri and the other officers of Asiancars, namely Benny signatories thereof;
Liongben Lee, William Leong Koc Lee, Connie U. Neri, Edward James Lee, Roberto Uykim
and Charles P. Uykim, executed an undertaking 10 dated November 7, 1977. In it they 3. Allowing the Jaymes to redeem the mortgaged property, Lot 2700 covered by TCT 8290
promised, in their personal capacities and/or in representation of Cebu Asiancars, Inc., "to of the Register of Deeds of Mandaue City for the amount of P2,942,448.66 plus interest at
compensate Mr. & Mrs. Graciano Jayme for any and all or whatever damage they may the rate of 6% per annum within ninety (90) days from date of finality of this judgment until
sustain or suffer by virtue and arising out of the mortgage to MBTC of the aforestated paid. However, if the plaintiffs fail to redeem said property, then let a Certificate of
parcel of land." 11 In addition, Neri wrote a letter dated September 1, 1981 12 addressed Sale/definite Deed of Sale be issued in favor of Metropolitan Bank and Trust Co. covering
to Mamerta Jayme acknowledging her "confidence and help" extended to him, his family said Lot 2700;
and Asiancars. He promised to pay their indebtedness to MBTC before the loan was due.
4. Holding the defendants George Neri, William Leong Koc, Connie U. Neri, Edward James
Meeting financial difficulties and incurring an outstanding balance on the loan, Asiancars Lee, Roberto Uykim, and Charles Uykim jointly liable on their Undertaking dated November
conveyed ownership of the building on the leased premises to MBTC, by way of "dacion 7, 1977 as they are hereby required to reimburse the Jaymes the amount that the Jaymes
en pago." 13 The building was valued at P980,000 and the amount was applied as partial will pay to Metropolitan Bank and Trust Co. for the redemption;
payment for the loan. There still remained a balance of P2,942,449.66, which Asiancars
failed to pay.chanrob1es virtua1 1aw 1ibrary 5. Requiring the defendants George Neri, William Leong Koc, Connie U. Neri, Edward
James Lee, Roberto Uykim and Charles Uykim to pay jointly attorneys fees to the Jaymes
Eventually, MBTC extrajudicially foreclosed the mortgage. A public auction was held on in the amount of P50,000.00;
February 4, 1981. MBTC was the highest bidder for P1,067,344.35. A certificate of sale
was issued and was registered with the Register of Deeds on February 23, 1981. 6. Requiring the defendants George Neri, William Leong Koc, Connie U. Neri, Edwards
James Lee, Roberto Uykim and Charles Uykim to pay jointly the cost of this suit.
Meanwhile, Graciano Jayme died, survived by his widow Mamerta and their children. As a
result of the foreclosure, Graciano’s heirs filed a civil complaint, 14 in January of 1982, for SO ORDERED. 15 
Annulment of Contract with Damages with Prayer for Issuance of Preliminary Injunction,
against respondent Asiancars, its officers and incorporators and MBTC. Later, in 1999, Petitioners and respondent MBTC elevated the case to the Court of Appeals, which
Mamerta Jayme also passed away. affirmed the ruling of the RTC, with modifications stated in this wise:chanrob1es virtual
1aw library
Petitioners claim that Neri and Asiancars did not tell them that the indebtedness secured
by the mortgage was for P6,000,000 and that the security was the whole of Lot 2700. 1. Declaring valid and binding the Real Estate Mortgage executed by plaintiffs in favor of
Petitioners allege that the deed presented to the Jayme spouses was in blank, without defendant MBTC;
explanation on the stipulations contained therein, except that its conditions were identical
to those of the stipulations when they mortgaged half the lot’s area previously with General 2. Declaring valid the foreclosure of the mortgage and the foreclosure sale;
Bank. Petitioners also alleged that the Jayme spouses were illiterate and only knew how to
sign their names. That because they did not know how to read nor write, and had given 3. Declaring that the period to redeem Lot 2700 had expired on February 23, 1982 without
their full trust and confidence to George Neri, the spouses were deceived into signing the plaintiffs redeeming it;
Deed of Real Estate Mortgage. Their intention as well as consent was only to be bound as
guarantors. 4. Ordering the Sheriff of Mandaue City to issue a definite Deed of Sale covering Lot 2700
in favor of defendant MBTC;
Respondents deny that any fraud was employed, nor was there a scheme to make the
spouses sign as mortgagors instead of guarantors. They aver that the spouses were fully 5. Declaring valid and binding the dacion en pago executed by defendant Asiancars in
advised and compensated for the use of their property as collateral with MBTC; that they favor of defendant MBTC;
voluntarily signed the deed of mortgage upon the request of George Neri, whom they
previously trusted and who fulfilled his promise to pay the loan to General Bank and who 6. Declaring defendant MBTC as owner of the building on Lot 2700;
obtained the release of the same property by faithfully paying his indebtedness with
General Bank.cralaw : red 7. Ordering defendant MBTC to pay to plaintiffs the amount of P92,083.33 for the use of
the land from December 18, 1981 to February 23, 1982, with six percent (6%) interest per
After trial, the RTC rendered a decision, disposing as follows:chanrob1es virtual 1aw annum until paid;chanrob1es virtua1 1aw library
36
 V
8. Ordering defendant Asiancars, Neris, Uykims, Lee and Koc to pay jointly and severally
the plaintiffs the (a) actual value of the lot in the amount of P3,852,000.00; (b)
P400,000.00 moral damages; (c) P150,000.00 exemplary damages and P100,000.00 THAT THE LOWER COURT COMMITTED GRAVE ABUSE OF DISCRETION, AMOUNTING TO
attorney’s fee, all with six percent (6%) interest per annum until fully paid; EXCESS OF JURISDICTION, IN DECLARING VALID AND BINDING THE MORTGAGE AND
THE CORRESPONDING FORECLOSURE, FOR SAID DECLARATION IS ILLEGAL, IN
9. Cost against defendants Asiancars, Neris, Uykims, Lee and Koc. VIOLATION OF ARTS. 1231 (5), 1245 AND 1255, CIVIL CODE AND BY THE INDUBITABLE
EVIDENCE OF ALL THE PARTIES TESTIMONIAL AND DOCUMENTARY, TO THE EFFECT
SO ORDERED. 16  THAT THE SIX (6) MILLION INDEBTEDNESS OF CEBU ASIANCARS WAS OVERPAID, THUS
MBTC ALSO VIOLATED ARTS. 2142, CIVIL CODE OF THE PHILIPPINES;
Petitioners filed a motion for reconsideration, which the CA denied. Hence, this petition
which assigns the following errors:chanrob1es virtual 1aw library VI

I
THAT WITH GRAVE ABUSE OF DISCRETION, THE LOWER COURT ERRED BY VIOLATING
EXH. "C", THE CONTRACT OF LEASE, WHICH IS THE LAW BETWEEN THE PARTIES, AND
THAT WITH GRAVE ABUSE OF DISCRETION, AMOUNTING TO EXCESS OF JURISDICTION, INSTEAD, DELIBERATELY DECLARED VALID AND BINDING THE MORTGAGE EXH. "G",
THE LOWER COURT GROSSLY AND SERIOUSLY ERRED IN DECLARING VALID AND AND THE FORECLOSURE OF MORTGAGE, AND IN NOT ORDERING MBTC TO VACATE
BINDING THE REAL ESTATE MORTGAGE EXECUTED BY THE PLAINTIFFS IN FAVOR OF THE PREMISES UPON THE TERMINATION OF THE CONTRACT OF LEASE ON JANUARY 9,
THE MBTC, FOR SAID DECLARATION IS ILLEGAL AND NOT WELL-FOUNDED IN LAW 1993 PURSUANT. TO EXH. "C", AND LIKEWISE PAY RENTAL THEREAFTER, FOR ITS USE
BECAUSE IT ULTIMATELY VIOLATED ARTS. 2058, 2076 AND 2077, CIVIL CODE OF THE AT P96,300.00 MONTHLY UNTIL MBTC ACTUALLY VACATES THE PREMISES. 17 
PHILIPPINES, SINCE THE REAL ESTATE MORTGAGE, EXH. "G", IS NOT LEGALLY A REAL
ESTATE MORTGAGE, BUT RATHER A DEED OF GUARANTY, CONSIDERING THAT THE On March 13, 2002, the Court set a hearing on this petition, and parties were given thirty
PLAINTIFF MAMERTA VDA. DE JAYME AND HER HUSBAND GRACIANO JAYME, NOW days for simultaneous submission of their respective memoranda. Petitioners additionally
DECEASED, SIGNED INNOCENTLY THE SAID DOCUMENT AS submitted "reply/rejoinder" and respondent MBTC also submitted its "rejoinder — sur-
GUARANTORS/ACCOMODATORS ONLY AND DEFINITELY NOT AS rejoinder."cralaw virtua1aw library
DEBTORS/MORTGAGORS;
Two main issues are for our resolution. First, whether or not the REM should be annulled
II on the ground of vitiated consent; and second, whether or not the dacion en pago by
Asiancars in favor of MBTC is valid and binding despite the stipulation in the lease
THAT WITH GRAVE ABUSE OF DISCRETION, THE LOWER COURT ERRED IN DECLARING contract that ownership of the building will vest on the Jaymes at the termination of the
THE PERIOD TO REDEEM LOT NO. 2700 HAD EXPIRED ON FEBRUARY 23, 1982, lease.
WITHOUT THE PLAINTIFFS REDEEMING IT FOR SUCH DECLARATION IS NOT WELL-
FOUNDED IN LAW AND IN FACT;chanrob1es virtua1 1aw 1ibrary The facts show that the spouses affixed their signature on the Deed of Real Estate
Mortgage, in the presence of two instrumental witnesses, and duly notarized by Atty.
Rodolfo Y. Cabrera. As a notarized document, it has in its favor the presumption of
III regularity, and to overcome this presumption, there must be evidence that is clear,
convincing and more than merely preponderant that there was irregularity in its execution;
otherwise, the document should be upheld. 18 
THAT WITH GRAVE ABUSE OF DISCRETION, THE LOWER COURT ERRED IN DECLARING
VALID AND BINDING THE DACION EN PAGO EXECUTED BY DEFENDANT CEBU The Deed of Real Estate Mortgage entered into by the Jayme spouses partake of a Third
ASIANCARS IN FAVOR OF DEFENDANT MBTC, FOR SAID DECLARATION IS ILLEGAL AND Party Mortgage under Art. 2085 (3) of the Civil Code which reads:chanrob1es virtual 1aw
IS CLEARLY FOUNDED ON WANTON BAD FAITH COMMITTED BY BOTH PARTIES, IN library
VIOLATION OF ART. 1312, CIVIL CODE OF THE PHILIPPINES AND SEC. 10, ART. III,
CONSTITUTION OF THE PHILIPPINES; The following requisites are essential to the contracts of pledge and mortgage: . . . (3)
That the persons constituting the pledge or mortgage have the free disposal of their
IV property, and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by
GRANTING ARGUENDO THAT THE DACION EN PAGO IS VALID, STILL THE LOWER COURT pledging or mortgaging their own property.chanrob1es virtua1 1aw 1ibrary
COMMITTED GRAVE ABUSE OF DISCRETION, BY NOT DECLARING THAT THE
P574,690.00 INDEBTEDNESS, INCLUDING INTEREST AND ADDITIONAL CHARGES OF In the case of Lustan v. CA, Et Al., 19 this Court recognized the abovecited provision and
CEBU ASIANCARS WAS COMPLETELY EXTINGUISHED OR PAID OFF, BY WAY OF DACION held that "so long as valid consent was given, the fact that the loans were solely for the
EN PAGO PURSUANT TO ARTS. 1255, 2076 AND 2077 OF THE CIVIL CODE OF THE benefit of (the debtor) would not invalidate the mortgage with respect to petitioner’s
PHILIPPINES. property. In consenting thereto even granting that petitioner may not be assuming personal
liability for the debt, her property shall nevertheless secure and respond for the

37
performance of the principal obligation."
Clearly, the law recognizes instances when persons not directly parties to a loan Much as we sympathize with petitioners’ plight, we are unable to find merit in their plea for
agreement may give as security their own properties for the principal transaction. In this the annulment of the deed of sale covering Lot 2700 as a result of foreclosure of
case, the spouses should not be allowed to disclaim the validity of a transaction they mortgage. Petitioners failed to show the required quantum of evidence that they were
voluntarily and knowingly entered into for the simple reason that such transaction turned fraudulently made to sign as mortgagors. As early as Vales v. Villa, 35 Phil. 769 (1916),
out prejudicial to them later on. this Court has sounded a note of warning to litigants:chanrob1es virtual 1aw library

Both the trial and appellate courts found that no fraud attended the execution of the deed . . . The law furnishes no protection to the inferior simply because he is inferior any more
of mortgage. This is a factual finding that binds this Court. Further, the records clearly than it protects the strong because he is strong. The law furnishes protection to both alike
show that the spouses Jayme agreed to use their property as collateral for Neri’s loan — to one no more or less than the other. It makes no distinction between the wise and the
because Neri had their full trust and confidence. Mamerta herself testified that she and her foolish, the great and the small, the strong and the weak. The foolish may lose all they
husband were assured by Neri’s promise that he would take full responsibility for whatever have to the wise; but that does not mean that the law will give it back to them again.
happens to the property of the spouses and that he would comply with his obligations to Courts cannot follow one every step of his life and extricate him from bad bargains,
the bank. 20  protect him from unwise investments, relieve him from one-sided contracts, or annul the
effects of foolish acts. 27 
The spouses were assisted by their own lawyer, Atty. Cirilo Sanchez, in all their
transactions, including the ones with Asiancars and MBTC. Atty. Sanchez even signed as Petitioners however, are not without recourse for the loss of their property. Although they
an instrumental witness to a Special Power of Attorney executed by the spouses in favor of cannot go after respondent MBTC, they have in their favor the undertaking executed by
Neri, authorizing the latter to mortgage the same property to MBTC. Although the said SPA George Neri and other members of his family. The undertaking also bound respondent
was eventually not used because MBTC required that the spouses themselves execute the Asiancars, as well as its officers who were signatories to the aforesaid Undertaking, to
REM, still, the fact remains that the spouses were already set on allowing the mortgage. In reimburse petitioners for the damages they suffered by reason of the mortgage.
addition, we note that Nelia Sanchez, the daughter of the spouses and one of the
petitioners herein, admitted that their parents consulted her and her siblings before their The alienation of the building by Asiancars in favor of MBTC for the partial satisfaction of
parents executed the Deed. 21  its indebtedness is, in our view, also valid. The ownership of the building had been
effectively in the name of the lessee-mortgagor (Asiancars), though with the provision that
With the assistance of a lawyer and consultation with their literate children, the spouses said ownership be transferred to the Jaymes upon termination of the lease or the voluntary
though illiterate could not feign ignorance of the stipulations in the deed. Patently, theirs surrender of the premises. The lease was constituted on January 8, 1973 and was to
was not a vitiated consent. It could not now be justifiably asserted by petitioners that the expire 20 years thereafter, or on January 8, 1993. The alienation via dacion en pago was
Jayme spouses only intended to be bound as guarantors and not as made by Asiancars to MBTC on December 18, 1980, during the subsistence of the lease.
mortgagors.chanrob1es virtua1 1aw 1ibrary At this point, the mortgagor, Asiancars, could validly exercise rights of ownership,
including the right to alienate it, as it did to MBTC.
In this jurisdiction, when the property of a third person which has been expressly
mortgaged to guarantee an obligation to which the said person is a stranger, said property Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to
is directly and jointly liable for the fulfillment thereof, in the same manner as the mortgaged the creditor as an accepted equivalent of the performance of the obligation. 28 It is a
property of the debtor himself. 22  special mode of payment where the debtor offers another thing to the creditor who
accepts it as equivalent of payment of an outstanding debt. The undertaking really
In the case at bar, when Asiancars failed to pay its obligations with MBTC, the properties partakes in one sense of the nature of sale, that is the creditor is really buying the thing or
given as security (one of them being the land owned by the Jaymes) became subject to property of the debtor, payment for which is to be charged against the debtor’s debt. As
foreclosure. When several things are given to secure the same debt in its entirety, all of such, the essential elements of a contract of sale, namely, consent, object certain, and
them are liable for the debt, and the creditor does not have to divide his action by cause or consideration must be present. In its modern concept, what actually takes place
distributing the debt among the various things pledged or mortgaged. Even when only a in dacion en pago is an objective novation of the obligation where the thing offered as an
part of the debt remains unpaid, all the things are liable for such balance. 23  accepted equivalent of the performance of an obligation is considered as the object of the
contract of sale, while the debt is considered as the purchase price. In any case, common
At the time of the foreclosure, Asiancars had a remaining balance of P2,010,633.28. Thus, consent is an essential prerequisite, be it sale or novation, to have the effect of totally
MBTC had every right to effect the extrajudicial foreclosure of the mortgaged properties to extinguishing the debt or obligation. 29 
satisfy its claim.chanrob1es virtua1 1aw 1ibrary
We also find that the Court of Appeals did not err in considering MBTC as a purchaser in
The appellate court found that the spouses lost their right to redeem their property. Under good faith. MBTC had no knowledge of the stipulation in the lease contract. Although the
Section 78 of the General Banking Act then in force, 24 the mortgagor or debtor whose same lease was registered and duly annotated on the certificate of title of Lot 2700, MBTC
real property has been foreclosed and sold at public auction, has the right to redeem the was charged with constructive knowledge only of the fact of lease of the land and not of
property within one year from the sale of the real estate as a result of the foreclosure. The the specific provision stipulating transfer of ownership of the building to the Jaymes upon
reckoning date in the case of a registered land is from the date of registration of the termination of the lease. There was no annotation on the title of any encumbrance. 30
certificate of sale. 25 If no redemption is timely made, the buyer in a foreclosure sale While the alienation was in violation of the stipulation in the lease contract between the
becomes the absolute owner of the property purchased. 26 In this case, the certificate of Jaymes and Asiancars, MBTC’s own rights could not be prejudiced by Asiancars’ actions
sale was registered on February 23, 1981, giving petitioners until February 23, 1982 to unbeknownst to MBTC. Thus, the transfer of the building in favor of MBTC was properly
redeem the property. This they failed to do, hence, ownership of the property already held valid and binding by respondent Court of Appeals.
vested in the purchaser, private respondent MBTC.
38
One point, however, has to be cleared. The appellate court ordered MBTC to pay rentals to
petitioners at the rate of P25.00 monthly per square meter. For the Asiancars’ building On January 8, 1973, they entered into a Contract of Lease 5 with George Neri, president of
stood on the lot owned by the petitioners, until the time MBTC also consolidated its Airland Motors Corporation (now Cebu Asiancars Inc.), covering one-half of Lot 2700. The
ownership over the lot. Rentals would have to be paid starting on December 18, 1980, lease was for twenty (20) years.
when the building’s ownership was transferred to MBTC, until February 23, 1982, when
MBTC finally consolidated its ownership over Lot 2700. Hence, we agree that there was The terms and conditions of the lease contract 6 stipulated that Cebu Asiancars Inc.
error in the computation of rentals by the CA .31 From December 18, 1980 until February (hereafter, Asiancars) may use the leased premises as a collateral to secure payment of a
23, 1982, is a period of 1 year, 2 months and 5 days. Thus, MBTC should pay to loan which Asiancars may obtain from any bank, provided that the proceeds of the loan
petitioners rentals for the use of the occupied lot, 32 consisting of 1,700 sq. m. at the shall be used solely for the construction of a building which, upon the termination of the
monthly rate of P25.00 per sq. m. for that period, in the total amount of P602,083.33, with lease or the voluntary surrender of the leased premises before the expiration of the
six (6) percent interest per annum until fully paid. contract, shall automatically become the property of the Jayme spouses (the
lessors).chanrob1es virtua1 1aw 1ibrary
Finally, we are in agreement that bad faith attended Asiancars’ transfer of the building to
MBTC. Asiancars was well aware of its covenant with the Jaymes that the building’s A Special Power of Attorney 7 dated January 26, 1974, was executed in favor of
ownership was to be transferred to the Jaymes upon termination of the lease. Indeed, respondent George Neri, who used the lot to secure a loan of P300,000 from the General
petitioners suffered mental anxiety and nervous shock upon learning that the ownership of Bank and Trust Company. The loan was fully paid on August 14, 1977. 8 
the building standing on their property had already been transferred to MBTC. The
apparent disregard of petitioners’ right by Asiancars and other private respondents In October 1977, Asiancars obtained a loan of P6,000,000 from the Metropolitan Bank and
provides enough basis for an award of moral as well as exemplary damages 33 by the Trust Company (MBTC). The entire Lot 2700 was offered as one of several properties
appellate court.chanrob1es virtua1 1aw 1ibrary given as collateral for the loan. As mortgagors, the spouses signed a Deed of Real Estate
Mortgage 9 dated November 21, 1977 in favor of MBTC. It stated that the deed was to
WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED with the secure the payment of a loan obtained by Asiancars from the bank.
MODIFICATION that private respondent MBTC is ordered to pay petitioners rentals in the
total amount of P602,083.33, with six (6) percent interest per annum until fully paid. In all To assure the Jayme spouses, Neri and the other officers of Asiancars, namely Benny
other respects, the assailed decision and resolution of the Court of Appeals are Liongben Lee, William Leong Koc Lee, Connie U. Neri, Edward James Lee, Roberto Uykim
AFFIRMED. and Charles P. Uykim, executed an undertaking 10 dated November 7, 1977. In it they
promised, in their personal capacities and/or in representation of Cebu Asiancars, Inc., "to
SO ORDERED. compensate Mr. & Mrs. Graciano Jayme for any and all or whatever damage they may
[G.R. No. 128669. October 4, 2002.] sustain or suffer by virtue and arising out of the mortgage to MBTC of the aforestated
parcel of land." 11 In addition, Neri wrote a letter dated September 1, 1981 12 addressed
MAMERTA VDA. DE JAYME, and her children and/or heirs of the late GRACIANO JAYME, to Mamerta Jayme acknowledging her "confidence and help" extended to him, his family
namely: WILFREDO, MARCIAL, MANUEL, ANTONIO, all surnamed JAYME; the heirs of and Asiancars. He promised to pay their indebtedness to MBTC before the loan was due.
DOMINADOR JAYME, namely: SUPREMA (surviving spouse) and his children, namely:
ARMANDO, NICANOR, ZENAIDA, CATHERINE, ROSALINE, DORIS, VICKY and MARILYN, all Meeting financial difficulties and incurring an outstanding balance on the loan, Asiancars
surnamed JAYME; and the heirs of the late NILIE JAYME SANCHEZ, namely, INOCENCIO conveyed ownership of the building on the leased premises to MBTC, by way of "dacion
SANCHEZ (surviving spouse) and her children: ELSA, CONCEPCION, CLEOFE, en pago." 13 The building was valued at P980,000 and the amount was applied as partial
ALEJANDRO, EFREN and MACRINA, all surnamed SANCHEZ; and FLORA JAYME payment for the loan. There still remained a balance of P2,942,449.66, which Asiancars
RAVANES, assisted by her husband, CESAR RAVANES, Petitioners, v. HON. COURT OF failed to pay.chanrob1es virtua1 1aw 1ibrary
APPEALS, SIXTEENTH DIVISION, CEBU ASIANCARS INC., GEORGE NERI, CONNIE NERI,
WILLIAM LEONG KOC LEE, EDUARD JAMES LEE, ROBERTO UY KIM, AND CHARLES UY Eventually, MBTC extrajudicially foreclosed the mortgage. A public auction was held on
KIM; 1 METROPOLITAN BANK AND TRUST COMPANY, RENE NATIVIDAD AND/OR JOHN February 4, 1981. MBTC was the highest bidder for P1,067,344.35. A certificate of sale
DOE in substitution of MAXIMO PEREZ, sued in his capacity as City Sheriff of Mandaue was issued and was registered with the Register of Deeds on February 23, 1981.
City, Respondents.
Meanwhile, Graciano Jayme died, survived by his widow Mamerta and their children. As a
result of the foreclosure, Graciano’s heirs filed a civil complaint, 14 in January of 1982, for
Annulment of Contract with Damages with Prayer for Issuance of Preliminary Injunction,
This petition assails the decision 2 dated September 19, 1996, of the Court of Appeals in against respondent Asiancars, its officers and incorporators and MBTC. Later, in 1999,
CA-G.R. CV No. 46496 and its resolution 3 dated February 21, 1997, denying the motion Mamerta Jayme also passed away.
for reconsideration. Said decision had affirmed that of the Regional Trial Court of Cebu
City, Branch 15, in Civil Case No. CEB-21369 for Annulment of Contract and Damages Petitioners claim that Neri and Asiancars did not tell them that the indebtedness secured
with Prayer for the Issuance of Preliminary Injunction. 4  by the mortgage was for P6,000,000 and that the security was the whole of Lot 2700.
Petitioners allege that the deed presented to the Jayme spouses was in blank, without
The following facts are borne by the records:chanrob1es virtual 1aw library explanation on the stipulations contained therein, except that its conditions were identical
to those of the stipulations when they mortgaged half the lot’s area previously with General
The spouses Graciano and Mamerta Jayme are the registered owners of Lot 2700, situated Bank. Petitioners also alleged that the Jayme spouses were illiterate and only knew how to
in the Municipality of Mandaue (now Mandaue City), Cebu, consisting of 2,568 sq.m. and sign their names. That because they did not know how to read nor write, and had given
covered by Transfer Certificate of Title No. 8290. their full trust and confidence to George Neri, the spouses were deceived into signing the
39
Deed of Real Estate Mortgage. Their intention as well as consent was only to be bound as
guarantors. 4. Ordering the Sheriff of Mandaue City to issue a definite Deed of Sale covering Lot 2700
in favor of defendant MBTC;
Respondents deny that any fraud was employed, nor was there a scheme to make the
spouses sign as mortgagors instead of guarantors. They aver that the spouses were fully 5. Declaring valid and binding the dacion en pago executed by defendant Asiancars in
advised and compensated for the use of their property as collateral with MBTC; that they favor of defendant MBTC;
voluntarily signed the deed of mortgage upon the request of George Neri, whom they
previously trusted and who fulfilled his promise to pay the loan to General Bank and who 6. Declaring defendant MBTC as owner of the building on Lot 2700;
obtained the release of the same property by faithfully paying his indebtedness with
General Bank.cralaw : red 7. Ordering defendant MBTC to pay to plaintiffs the amount of P92,083.33 for the use of
the land from December 18, 1981 to February 23, 1982, with six percent (6%) interest per
After trial, the RTC rendered a decision, disposing as follows:chanrob1es virtual 1aw annum until paid;chanrob1es virtua1 1aw library
library
8. Ordering defendant Asiancars, Neris, Uykims, Lee and Koc to pay jointly and severally
WHEREFORE, in view of the foregoing evidences, arguments and considerations, this the plaintiffs the (a) actual value of the lot in the amount of P3,852,000.00; (b)
Court hereby renders judgment as follows:chanrob1es virtual 1aw library P400,000.00 moral damages; (c) P150,000.00 exemplary damages and P100,000.00
attorney’s fee, all with six percent (6%) interest per annum until fully paid;
1. Declaring the Real Estate Mortgage executed by the Jaymes in favor of Metrobank as
valid and binding; 9. Cost against defendants Asiancars, Neris, Uykims, Lee and Koc.

2. Declaring the Undertaking executed by George Neri, Benny Leongben Lee already SO ORDERED. 16 
deceased, William Leong Koc, Connie U. Neri, Edward James Lee, Roberto Uykim, and
Charles P. Uykim on November 7, 1977 to be valid and binding as well upon the Petitioners filed a motion for reconsideration, which the CA denied. Hence, this petition
signatories thereof; which assigns the following errors:chanrob1es virtual 1aw library

3. Allowing the Jaymes to redeem the mortgaged property, Lot 2700 covered by TCT 8290 I
of the Register of Deeds of Mandaue City for the amount of P2,942,448.66 plus interest at
the rate of 6% per annum within ninety (90) days from date of finality of this judgment until
paid. However, if the plaintiffs fail to redeem said property, then let a Certificate of THAT WITH GRAVE ABUSE OF DISCRETION, AMOUNTING TO EXCESS OF JURISDICTION,
Sale/definite Deed of Sale be issued in favor of Metropolitan Bank and Trust Co. covering THE LOWER COURT GROSSLY AND SERIOUSLY ERRED IN DECLARING VALID AND
said Lot 2700; BINDING THE REAL ESTATE MORTGAGE EXECUTED BY THE PLAINTIFFS IN FAVOR OF
THE MBTC, FOR SAID DECLARATION IS ILLEGAL AND NOT WELL-FOUNDED IN LAW
4. Holding the defendants George Neri, William Leong Koc, Connie U. Neri, Edward James BECAUSE IT ULTIMATELY VIOLATED ARTS. 2058, 2076 AND 2077, CIVIL CODE OF THE
Lee, Roberto Uykim, and Charles Uykim jointly liable on their Undertaking dated November PHILIPPINES, SINCE THE REAL ESTATE MORTGAGE, EXH. "G", IS NOT LEGALLY A REAL
7, 1977 as they are hereby required to reimburse the Jaymes the amount that the Jaymes ESTATE MORTGAGE, BUT RATHER A DEED OF GUARANTY, CONSIDERING THAT THE
will pay to Metropolitan Bank and Trust Co. for the redemption; PLAINTIFF MAMERTA VDA. DE JAYME AND HER HUSBAND GRACIANO JAYME, NOW
DECEASED, SIGNED INNOCENTLY THE SAID DOCUMENT AS
5. Requiring the defendants George Neri, William Leong Koc, Connie U. Neri, Edward GUARANTORS/ACCOMODATORS ONLY AND DEFINITELY NOT AS
James Lee, Roberto Uykim and Charles Uykim to pay jointly attorneys fees to the Jaymes DEBTORS/MORTGAGORS;
in the amount of P50,000.00;

6. Requiring the defendants George Neri, William Leong Koc, Connie U. Neri, Edwards II
James Lee, Roberto Uykim and Charles Uykim to pay jointly the cost of this suit.

SO ORDERED. 15  THAT WITH GRAVE ABUSE OF DISCRETION, THE LOWER COURT ERRED IN DECLARING
THE PERIOD TO REDEEM LOT NO. 2700 HAD EXPIRED ON FEBRUARY 23, 1982,
Petitioners and respondent MBTC elevated the case to the Court of Appeals, which WITHOUT THE PLAINTIFFS REDEEMING IT FOR SUCH DECLARATION IS NOT WELL-
affirmed the ruling of the RTC, with modifications stated in this wise:chanrob1es virtual FOUNDED IN LAW AND IN FACT;chanrob1es virtua1 1aw 1ibrary
1aw library
III
1. Declaring valid and binding the Real Estate Mortgage executed by plaintiffs in favor of
defendant MBTC;
THAT WITH GRAVE ABUSE OF DISCRETION, THE LOWER COURT ERRED IN DECLARING
2. Declaring valid the foreclosure of the mortgage and the foreclosure sale; VALID AND BINDING THE DACION EN PAGO EXECUTED BY DEFENDANT CEBU
ASIANCARS IN FAVOR OF DEFENDANT MBTC, FOR SAID DECLARATION IS ILLEGAL AND
3. Declaring that the period to redeem Lot 2700 had expired on February 23, 1982 without IS CLEARLY FOUNDED ON WANTON BAD FAITH COMMITTED BY BOTH PARTIES, IN
plaintiffs redeeming it;
40
VIOLATION OF ART. 1312, CIVIL CODE OF THE PHILIPPINES AND SEC. 10, ART. III,
CONSTITUTION OF THE PHILIPPINES; The following requisites are essential to the contracts of pledge and mortgage: . . . (3)
That the persons constituting the pledge or mortgage have the free disposal of their
IV property, and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by
GRANTING ARGUENDO THAT THE DACION EN PAGO IS VALID, STILL THE LOWER COURT pledging or mortgaging their own property.chanrob1es virtua1 1aw 1ibrary
COMMITTED GRAVE ABUSE OF DISCRETION, BY NOT DECLARING THAT THE
P574,690.00 INDEBTEDNESS, INCLUDING INTEREST AND ADDITIONAL CHARGES OF In the case of Lustan v. CA, Et Al., 19 this Court recognized the abovecited provision and
CEBU ASIANCARS WAS COMPLETELY EXTINGUISHED OR PAID OFF, BY WAY OF DACION held that "so long as valid consent was given, the fact that the loans were solely for the
EN PAGO PURSUANT TO ARTS. 1255, 2076 AND 2077 OF THE CIVIL CODE OF THE benefit of (the debtor) would not invalidate the mortgage with respect to petitioner’s
PHILIPPINES. property. In consenting thereto even granting that petitioner may not be assuming personal
liability for the debt, her property shall nevertheless secure and respond for the
performance of the principal obligation."cralaw virtua1aw library
V
Clearly, the law recognizes instances when persons not directly parties to a loan
agreement may give as security their own properties for the principal transaction. In this
THAT THE LOWER COURT COMMITTED GRAVE ABUSE OF DISCRETION, AMOUNTING TO case, the spouses should not be allowed to disclaim the validity of a transaction they
EXCESS OF JURISDICTION, IN DECLARING VALID AND BINDING THE MORTGAGE AND voluntarily and knowingly entered into for the simple reason that such transaction turned
THE CORRESPONDING FORECLOSURE, FOR SAID DECLARATION IS ILLEGAL, IN out prejudicial to them later on.
VIOLATION OF ARTS. 1231 (5), 1245 AND 1255, CIVIL CODE AND BY THE INDUBITABLE
EVIDENCE OF ALL THE PARTIES TESTIMONIAL AND DOCUMENTARY, TO THE EFFECT Both the trial and appellate courts found that no fraud attended the execution of the deed
THAT THE SIX (6) MILLION INDEBTEDNESS OF CEBU ASIANCARS WAS OVERPAID, THUS of mortgage. This is a factual finding that binds this Court. Further, the records clearly
MBTC ALSO VIOLATED ARTS. 2142, CIVIL CODE OF THE PHILIPPINES; show that the spouses Jayme agreed to use their property as collateral for Neri’s loan
because Neri had their full trust and confidence. Mamerta herself testified that she and her
VI husband were assured by Neri’s promise that he would take full responsibility for whatever
happens to the property of the spouses and that he would comply with his obligations to
the bank. 20 
THAT WITH GRAVE ABUSE OF DISCRETION, THE LOWER COURT ERRED BY VIOLATING
EXH. "C", THE CONTRACT OF LEASE, WHICH IS THE LAW BETWEEN THE PARTIES, AND The spouses were assisted by their own lawyer, Atty. Cirilo Sanchez, in all their
INSTEAD, DELIBERATELY DECLARED VALID AND BINDING THE MORTGAGE EXH. "G", transactions, including the ones with Asiancars and MBTC. Atty. Sanchez even signed as
AND THE FORECLOSURE OF MORTGAGE, AND IN NOT ORDERING MBTC TO VACATE an instrumental witness to a Special Power of Attorney executed by the spouses in favor of
THE PREMISES UPON THE TERMINATION OF THE CONTRACT OF LEASE ON JANUARY 9, Neri, authorizing the latter to mortgage the same property to MBTC. Although the said SPA
1993 PURSUANT. TO EXH. "C", AND LIKEWISE PAY RENTAL THEREAFTER, FOR ITS USE was eventually not used because MBTC required that the spouses themselves execute the
AT P96,300.00 MONTHLY UNTIL MBTC ACTUALLY VACATES THE PREMISES. 17  REM, still, the fact remains that the spouses were already set on allowing the mortgage. In
addition, we note that Nelia Sanchez, the daughter of the spouses and one of the
On March 13, 2002, the Court set a hearing on this petition, and parties were given thirty petitioners herein, admitted that their parents consulted her and her siblings before their
days for simultaneous submission of their respective memoranda. Petitioners additionally parents executed the Deed. 21 
submitted "reply/rejoinder" and respondent MBTC also submitted its "rejoinder — sur-
rejoinder."cralaw virtua1aw library With the assistance of a lawyer and consultation with their literate children, the spouses
though illiterate could not feign ignorance of the stipulations in the deed. Patently, theirs
Two main issues are for our resolution. First, whether or not the REM should be annulled was not a vitiated consent. It could not now be justifiably asserted by petitioners that the
on the ground of vitiated consent; and second, whether or not the dacion en pago by Jayme spouses only intended to be bound as guarantors and not as
Asiancars in favor of MBTC is valid and binding despite the stipulation in the lease mortgagors.chanrob1es virtua1 1aw 1ibrary
contract that ownership of the building will vest on the Jaymes at the termination of the
lease. In this jurisdiction, when the property of a third person which has been expressly
mortgaged to guarantee an obligation to which the said person is a stranger, said property
The facts show that the spouses affixed their signature on the Deed of Real Estate is directly and jointly liable for the fulfillment thereof, in the same manner as the mortgaged
Mortgage, in the presence of two instrumental witnesses, and duly notarized by Atty. property of the debtor himself. 22 
Rodolfo Y. Cabrera. As a notarized document, it has in its favor the presumption of
regularity, and to overcome this presumption, there must be evidence that is clear, In the case at bar, when Asiancars failed to pay its obligations with MBTC, the properties
convincing and more than merely preponderant that there was irregularity in its execution; given as security (one of them being the land owned by the Jaymes) became subject to
otherwise, the document should be upheld. 18  foreclosure. When several things are given to secure the same debt in its entirety, all of
them are liable for the debt, and the creditor does not have to divide his action by
The Deed of Real Estate Mortgage entered into by the Jayme spouses partake of a Third distributing the debt among the various things pledged or mortgaged. Even when only a
Party Mortgage under Art. 2085 (3) of the Civil Code which reads:chanrob1es virtual 1aw part of the debt remains unpaid, all the things are liable for such balance. 23 
library
41
At the time of the foreclosure, Asiancars had a remaining balance of P2,010,633.28. Thus, consent is an essential prerequisite, be it sale or novation, to have the effect of totally
MBTC had every right to effect the extrajudicial foreclosure of the mortgaged properties to extinguishing the debt or obligation. 29 
satisfy its claim.chanrob1es virtua1 1aw 1ibrary
We also find that the Court of Appeals did not err in considering MBTC as a purchaser in
The appellate court found that the spouses lost their right to redeem their property. Under good faith. MBTC had no knowledge of the stipulation in the lease contract. Although the
Section 78 of the General Banking Act then in force, 24 the mortgagor or debtor whose same lease was registered and duly annotated on the certificate of title of Lot 2700, MBTC
real property has been foreclosed and sold at public auction, has the right to redeem the was charged with constructive knowledge only of the fact of lease of the land and not of
property within one year from the sale of the real estate as a result of the foreclosure. The the specific provision stipulating transfer of ownership of the building to the Jaymes upon
reckoning date in the case of a registered land is from the date of registration of the termination of the lease. There was no annotation on the title of any encumbrance. 30
certificate of sale. 25 If no redemption is timely made, the buyer in a foreclosure sale While the alienation was in violation of the stipulation in the lease contract between the
becomes the absolute owner of the property purchased. 26 In this case, the certificate of Jaymes and Asiancars, MBTC’s own rights could not be prejudiced by Asiancars’ actions
sale was registered on February 23, 1981, giving petitioners until February 23, 1982 to unbeknownst to MBTC. Thus, the transfer of the building in favor of MBTC was properly
redeem the property. This they failed to do, hence, ownership of the property already held valid and binding by respondent Court of Appeals.
vested in the purchaser, private respondent MBTC.
One point, however, has to be cleared. The appellate court ordered MBTC to pay rentals to
Much as we sympathize with petitioners’ plight, we are unable to find merit in their plea for petitioners at the rate of P25.00 monthly per square meter. For the Asiancars’ building
the annulment of the deed of sale covering Lot 2700 as a result of foreclosure of stood on the lot owned by the petitioners, until the time MBTC also consolidated its
mortgage. Petitioners failed to show the required quantum of evidence that they were ownership over the lot. Rentals would have to be paid starting on December 18, 1980,
fraudulently made to sign as mortgagors. As early as Vales v. Villa, 35 Phil. 769 (1916), when the building’s ownership was transferred to MBTC, until February 23, 1982, when
this Court has sounded a note of warning to litigants:chanrob1es virtual 1aw library MBTC finally consolidated its ownership over Lot 2700. Hence, we agree that there was
error in the computation of rentals by the CA .31 From December 18, 1980 until February
. . . The law furnishes no protection to the inferior simply because he is inferior any more 23, 1982, is a period of 1 year, 2 months and 5 days. Thus, MBTC should pay to
than it protects the strong because he is strong. The law furnishes protection to both alike petitioners rentals for the use of the occupied lot, 32 consisting of 1,700 sq. m. at the
— to one no more or less than the other. It makes no distinction between the wise and the monthly rate of P25.00 per sq. m. for that period, in the total amount of P602,083.33, with
foolish, the great and the small, the strong and the weak. The foolish may lose all they six (6) percent interest per annum until fully paid.
have to the wise; but that does not mean that the law will give it back to them again.
Courts cannot follow one every step of his life and extricate him from bad bargains, Finally, we are in agreement that bad faith attended Asiancars’ transfer of the building to
protect him from unwise investments, relieve him from one-sided contracts, or annul the MBTC. Asiancars was well aware of its covenant with the Jaymes that the building’s
effects of foolish acts. 27  ownership was to be transferred to the Jaymes upon termination of the lease. Indeed,
petitioners suffered mental anxiety and nervous shock upon learning that the ownership of
Petitioners however, are not without recourse for the loss of their property. Although they the building standing on their property had already been transferred to MBTC. The
cannot go after respondent MBTC, they have in their favor the undertaking executed by apparent disregard of petitioners’ right by Asiancars and other private respondents
George Neri and other members of his family. The undertaking also bound respondent provides enough basis for an award of moral as well as exemplary damages 33 by the
Asiancars, as well as its officers who were signatories to the aforesaid Undertaking, to appellate court.chanrob1es virtua1 1aw 1ibrary
reimburse petitioners for the damages they suffered by reason of the mortgage.
WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED with the
The alienation of the building by Asiancars in favor of MBTC for the partial satisfaction of MODIFICATION that private respondent MBTC is ordered to pay petitioners rentals in the
its indebtedness is, in our view, also valid. The ownership of the building had been total amount of P602,083.33, with six (6) percent interest per annum until fully paid. In all
effectively in the name of the lessee-mortgagor (Asiancars), though with the provision that other respects, the assailed decision and resolution of the Court of Appeals are
said ownership be transferred to the Jaymes upon termination of the lease or the voluntary AFFIRMED.
surrender of the premises. The lease was constituted on January 8, 1973 and was to
expire 20 years thereafter, or on January 8, 1993. The alienation via dacion en pago was SO ORDERED.
made by Asiancars to MBTC on December 18, 1980, during the subsistence of the lease.
At this point, the mortgagor, Asiancars, could validly exercise rights of ownership,
G.R. No. 167724             June 27, 2006
including the right to alienate it, as it did to MBTC.

Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to BPI FAMILY SAVINGS BANK, INC., Petitioner, 
the creditor as an accepted equivalent of the performance of the obligation. 28 It is a vs.
special mode of payment where the debtor offers another thing to the creditor who MARGARITA VDA. DE COSCOLLUELA, Respondent.
accepts it as equivalent of payment of an outstanding debt. The undertaking really
partakes in one sense of the nature of sale, that is the creditor is really buying the thing or
property of the debtor, payment for which is to be charged against the debtor’s debt. As Assailed before this Court is a Petition for Review under Rule 45 of the Rules of Court of
the Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 69732 granting
such, the essential elements of a contract of sale, namely, consent, object certain, and
respondent’s petition for certiorari, and its resolution denying petitioner’s motion for
cause or consideration must be present. In its modern concept, what actually takes place
reconsideration.
in dacion en pago is an objective novation of the obligation where the thing offered as an
accepted equivalent of the performance of an obligation is considered as the object of the
contract of sale, while the debt is considered as the purchase price. In any case, common The Antecedents
42
Respondent Margarita Coscolluela and her husband Oscar Coscolluela obtained an
agricultural sugar crop loan from the Far East Bank & Trust Co. (FEBTC) Bacolod City 17.  02-052-970087 17 January 1997 170,000
Branch (later merged with petitioner Bank of the Philippine Islands) for crop years 1997
and 1998.2 However, in the book of FEBTC, the loan account of the spouses was treated
as a single account,3 which amounted to P13,592,492.00 as evidenced by 67 Promissory 18.  02-052-970131 23 January 1997 180,000
Notes4executed on various dates, from August 29, 1996 to January 23, 1998, to wit:
19.  02-052-970163 31 January 1997 220,000
1avvphil.net

Amount  20.  02-052-970190 7 February 1997 110,000

Promissory Note No. Date (in Phil.
Peso) 21.  02-052-970215 13 February 1997 170,000

1.  02-052-960971 29 August 1996 148,000 22.  02-052-970254 20 February 1997 140,000

2.  02-052-961095 23 September 1996 1,200,000 23.  02-052-970293 28 February 1997 130,000

3.  02-052-961122 27 September 1996 550,000 24.  02-052-970345 7 March 1997 90,000

4.  02-052-961205 11 October 1996 180,000 25.  02-052-970367 13 March 1997 50,000

5.  02-052-961231 18 October 1996 155,000 26.  02-052-970402 21 March 1997 160,000

6.  02-052-961252 24 October 1996 190,000 27.  02-052-970422 26 March 1997 190,000

7.  02-052-961274 30 October 1996 115,000 28.  02-052-970453 4 April 1997 82,000

8.  02-052-961310 8 November 1996 90,000 29.  02-052-970478 11 April 1997 150,000

9.  02-052-961373 21 November 1996 125,000 30.  02-052-970502 17 April 1997 80,000

10.  02-052-961442 6 December 1996 650,000 31.  02-052-970539 25 April 1997 145,000

11.  02-052-961464 12 December 1996 240,000 32.  02-052-970558 30 April 1997 135,000

12.  02-052-961498 19 December 1996 164,000 33.  02-052-970589 8 May 1997 54,000

13.  02-052-961542 27 December 1996 200,000 34.  02-052-970770 25 June 1997 646,492

14.  02-052-970018 3 January 1997 120,000 35.  02-052-970781 27 June 1997 160,000

15.  02-052-970052 10 January 1997 185,000 36.  02-052-970819 4 July 1997 250,000

16.  02-052-970078 15 January 1997 80,000

43
37.  02-052-970852 11 July 1997 350,000 57.  02-052-971527 25 November 1997 620,000

38.  02-052-970926 1 August 1997 170,000 58.  02-052-971538 28 November 1997 130,000

39.  02-052-970949 5 August 1997 200,000 59.  02-052-971569 4 December 1997 140,000

40.  02-052-970975 8 August 1997 120,000 60.  02-052-971604 12 December 1997 220,000

41.  02-052-970999 15 August 1997 150,000 61.  02-052-971642 18 December 1997 185,000

42.  02-052-971028 22 August 1997 110,000 62.  02-052-971676 23 December 1997 117,000

43.  02-052-971053 29 August 1997 130,000 63.  02-052-971688 29 December 1997 100,000

44.  02-052-971073 4 September 1997 90,000 64.  02-052-980019 7 January 1998 195,000

45.  02-052-971215 12 September 1997 160,000 65.  02-052-980032 8 January 1998 170,000

46.  02-052-971253 19 September 1997 190,000 66.  02-052-980064 15 January 1998 225,000

47.  02-052-971280 26 September 1997 140,000 67.  02-052-980079 23 January 1998 176,000

48.  02-052-971317 2 October 1997 115,000

The promissory notes listed under Nos. 1 to 33 bear the maturity date of February 9, 1998,
with a 30-day extension of up to March 11, 1998, while those listed under Nos. 34 to 67
49.  02-052-971340 10 October 1997 115,000 bear December 28, 1998 as maturity date.

50.  02-052-971351 15 October 1997 700,000 Meanwhile, on June 13, 1997, the spouses Coscolluela executed a real estate mortgage in
favor of FEBTC over their parcel of land located in Bacolod City covered by Transfer
Certificate of Title (TCT) No. T-109329 as security of loans on credit accommodation
51.  02-052-971362 16 October 1997 90,000 obtained by the spouses from FEBTC and those that may be obtained by the mortgagees
which was fixed at P7,000,000.00, as well as those that may be extended by the
mortgagor to the mortgagees.5
52.  02-052-971394 24 October 1997 185,000

Under the terms and conditions of the real estate mortgage, in the event of failure to pay
53.  02-052-971407 29 October 1997 170,000 the mortgage obligation or any portion thereof when due, the entire principal, interest,
penalties and other charges then outstanding, shall become immediately due; upon such
breach or violation of the terms and conditions thereof, FEBTC may, at its absolute
54.  02-052-971449 6 November 1997 105,000 discretion foreclose the same extrajudicially in accordance with the procedure prescribed
by Act No. 3135, as amended, and for the purpose appointed FEBTC as its attorney-in-
fact with full power and authority to enter the premises where the mortgaged property is
55.  02-052-971464 13 November 1997 170,000
located and to take actual possession and control thereof without need of any order of any
court, nor written permission from the spouses, and with special power to sell the
56.  02-052-971501 20 November 1997 150,000 mortgaged property at a public or private sale at the option of the mortgagee; and that the
spouses expressly waived the term of 30 days or any other terms granted by law as the
period which must elapse before the mortgage agreement may be foreclosed and, in any
case, such period has already lapsed.

44
The mortgage was registered with the Registry of Deeds of Bacolod and was annotated in
the title of the land on June 20, 1997.6 Meantime, Oscar died intestate and was survived 2-052-971501 November 20, 1997 150,000.00 L
by his widow, herein respondent.
2-052-971464 November 13, 1997 170,000.00 M
For failure to settle the outstanding obligation on the maturity dates, FEBTC sent a final
demand letter7 to respondent on March 10, 1999 demanding payment, within five days
from notice, of the principal of the loan amounting to P13,481,498.68, with past due 2-052-971449 November 06, 1997 105,000.00 N
interests and penalties or in the total amount of P19,482,168.31 as of March 9,
1999.8 Respondent failed to settle her obligation.
2-052-971407 October 29, 1997 170,000.00 O

On June 10, 1999, FEBTC filed a petition for the extrajudicial foreclosure of the mortgaged
property, significantly only for the total amount of P4,687,006.68 exclusive of balance, 2-052-971394 October 24, 1997 185,000.00 P
interest and penalty, covered by promissory notes from 1 to 33, except nos. 2 and 10. 9
2-052-971362 October 16, 1997 90,000.00 Q
While the extrajudicial foreclosure proceeding was pending, petitioner FEBTC filed a
complaint10 with the Regional Trial Court (RTC) of Makati City, Branch 64, against
respondent for the collection of the principal amount of P8,794,492.00 plus interest and 2-052-971351 October 15, 1997 700,000.00 R
penalty, or the total amount of P12,672,000.31, representing the amounts indicated in the
rest of the promissory notes, specifically Promissory Note Nos. 34 to 67, as well as those
2-052-971340 October 15, 1997 115,000.00 S
dated December 6, 1996 and September 23, 1996:

2-052-971317 October 02, 1997 115,000.00 T

PN No. Date Amount Annex
2-052-971280 September 26, 1997 140,000.00 U
2-052-980079 January 02, 1998 176,000.00 A
2-052-971253 September 19, 1997 190,000.00 V
2-052-980064 January 15, 1998 225,000.00 B
2-052-971215 September 12, 1997 160,000.00 W
2-052-980032 January 08, 1998 170,000.00 C
2-052-971073 September 04, 1997 90,000.00 X
2-052-980019 January 07, 1998 195,000.00 D
2-052-971053 August 29, 1997 130,000.00 Y
2-052-971688 December 29, 1997 100,000.00 E
2-052-971028 August 22, 1997 110,000.00 Z
2-052-971676 December 23, 1997 117,000.00 F
2-052-970999 August 15, 1997 150,000.00 AA
2-052-971642 December 18, 1997 185,000.00 G
2-052-970975 August 08, 1997 120,000.00 BB
2-052-971604 December 12, 1997 220,000.00 H
2-052-970949 August 05, 1997 200,000.00 CC
2-052-971569 December 04, 1997 140,000.00 I
2-052-970926 August 01, 1997 170,000.00 DD
2-052-971538 November 28, 1997 130,000.00 J
2-052-970852 July 11, 1997 350,000.00 EE
2-052-971527 November 25, 1997 620,000.00 K

45
 11) That there is another action pending between the same parties for the same
2-052-970819 July 04, 1997 250,000.00 FF cause;

2-052-970781 June 27, 1997 160,000.00 GG 12) That the claim or demand set forth in the plaintiff’s complaint has either been
waived, abandoned or otherwise extinguished. 13

2-052-970770 June 25, 1997 646,492.00 HH

Petitioner presented Emmanuel Ganuelas, its loan officer in its Bacolod City Branch, as
sole witness. He testified that the spouses Coscolluela were granted an agricultural sugar
2-052-961442 December 06, 1996 650,000.00 II loan which is designed to finance the cultivation and plantation of sugar farms of the
borrowers.14 Borrowers were allowed to make successive drawdowns or availments
against the loan as their need arose. Each drawdown is covered by a promissory note with
2-052-961095 September 23, 1996 1,200,000.00 JJ11 uniform maturity dates.15 The witness also testified that the loan account of the spouses
was a "single loan account."16

Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus: After petitioner rested its case, respondent filed a demurrer to evidence 17 contending,
among others, that, with Ganuelas’ admission, there is only one loan account secured by
WHEREFORE, it is respectfully prayed that, after trial, judgment be rendered in its favor the real estate mortgage, that the promissory notes were executed as evidence of the
and against defendants ordering them to pay the following: loans. Plaintiff was thus barred from instituting a personal action for collection of the
drawdowns evidenced by Promissory Note Nos. 2, 10, and 34 to 67 after instituting a
petition for extrajudicial foreclosure of the real estate mortgage for the amount covered by
a. The amount TWELVE MILLION SIX HUNDRED SEVENTY-TWO THOUSAND Promissory Note Nos. 1, 3 to 9, and 11 to 33. Respondent insisted that by filing a
PESOS and 31/100 (P12,672,000.31), with additional stipulated interest and complaint for a sum of money, petitioner thereby split its cause of action against her;
penalty equivalent to one (1%) percent of the amount due for every thirty (30) hence, the complaint must perforce be dismissed on the ground of litis pendentia.
days or fraction thereof, until fully paid;

Petitioner opposed the demurrer arguing that while the loans were considered as a single
b. Expense of litigation amounting to P50,000.00; account, each promissory note executed by respondent constituted a separate contract. It
reiterated that its petition for the extrajudicial and foreclosure of the real estate mortgage
c. The amount of P500,000.00 as attorney’s fees. before the Ex-Oficio Provincial Sheriff involves obligations different and separate from
those in its action for a sum of money before the court. Thus, petitioner could avail of the
personal action for the collection of the amount evidenced by the 36 promissory notes not
Other reliefs just and equitable in the premises are similarly prayed for. 12 subject of its petition for the extrajudicial foreclosure of the real estate mortgage.
Petitioner insists that the promissory notes subject of its collection suit should be treated
In her answer, respondent alleged, by way of special and affirmative defense, that the separately from the other set of obligations, that is, the 31 promissory notes subject of its
complaint was barred by litis pendentia, specifically, the pending petition for the extrajudicial foreclosure petition. 18
extrajudicial foreclosure of the real estate mortgage, thus:
In its Order19 dated January 10, 2002, the trial court denied the demurrer on the ground
8) That plaintiff is guilty of forum shopping, in that some of the promissory notes that the promissory notes executed by respondent and her deceased husband contained
attached to plaintiff’s complaint are also the same promissory notes which were different amounts, and each note covered a loan distinct from the others. Thus, petitioner
made the basis of the plaintiff in their extrajudicial foreclosure of mortgage filed had the option to file a petition for the extrajudicial foreclosure of the real estate mortgage
against the defendant-spouses and also marked in evidence in support of their covering 31 of the promissory notes, and, as to the rest, to file an ordinary action for
opposition to the issuance of the preliminary injunction in Civil Case No. 99- collection. Petitioner, thus, merely opted to institute an action for collection of the debt on
10864; the 36 promissory notes, and waived its action for the foreclosure of the security given on
these notes.

9) That plaintiff-bank has not only charged but over charged the defendant-
spouses with excessive and exorbitant interest over and above those authorized Respondent filed a motion for reconsideration, 20 which the trial court denied in its February
by law. And in order to add more injury to the defendants, plaintiff also included 19, 2002 Order,21prompting her to file a certiorari petition 22 under Rule 65 with the CA,
other charges not legally collectible from the defendant-spouses; assailing the January 10, 2002 and February 19, 2002 Orders of the trial court. Respondent
alleged that:

10) That the act of the plaintiff-bank in seeking to collect twice on the same
promissory notes is not only unfair and unjust but also condemnable as plaintiff 1. PUBLIC RESPONDENT GRAVELY ABUSED HER DISCRETION TANTAMOUNT
seek to unjustly enrich itself at the expense of the defendants; TO LACK AND/OR EXCESS OF JURISDICTION IN HOLDING THAT THE
RESPONDENT BANK CAN FILE SIMULTANEOUS ACTIONS FOR FORECLOSURE
AND FOR COLLECTION.

46
Meanwhile, on January 6, 2003, the parcel of land subject of the aforementioned real non-performing loan accounts pursuant to Republic Act No. 9182 entitled "The Special
estate mortgage was sold at public auction where petitioner emerged as the highest Purpose Vehicle Act of 2002."
bidder.23
The issues raised in this case are (1) whether the petition for certiorari under Rule 65 of
On September 30, 2004, the CA rendered its Decision 24 granting the petition, holding, the Rules of Court filed by respondent in the CA was the proper remedy to assail the
under prevailing jurisprudence, the remedies – either a real action to foreclose the January 10, 2002 Order of the trial court; (2) whether the appellate court issued its January
mortgage or a personal action to collect the debt – of a mortgage creditor are alternative 10, 2002 Order with grave abuse of its discretion amounting to excess or lack of
and not cumulative. Since respondent availed of the first one, it was deemed to have jurisdiction.
waived the second. Further, the filing of both actions results in a splitting of a single cause
of action. Thus, in denying her Demurrer to Evidence, the RTC committed grave abuse of
Petitioner avers that the January 10, 2002 Order of the RTC denying the Demurrer to
discretion as it overruled settled judicial pronouncements. The dispositive part of the
Evidence of respondent was interlocutory, and as such could not be the subject of a
decision states: 
petition for certiorari.30 The RTC did not commit a grave abuse of its discretion in issuing
its January 10, 2002 Order. Petitioner maintains that respondent executed 67 separate loan
WHEREFORE, the instant petition is GRANTED. The assailed Orders dated January 10, obligations evidenced by 67 separate promissory notes, with different amounts and
2002 and February 19, 2002 are SET ASIDE. maturity dates. It avers that each of the loans, as evidenced by each of the promissory
notes, may properly be the subject of a separate action; thus, each promissory note is an
actionable document. Moreover, the real estate mortgage executed by the spouses
SO ORDERED.
secured an obligation only to a fixed amount of P7,000,000.00 which is covered by
Promissory Note Nos. 1 to 31, whereas the loans secured by the spouses covered by the
The CA cited the ruling of this Court in Bachrach Motor Co., Inc. v. Esteban Icarañgal and Promissory Note Nos. 32 to 67 for the total amount of P12,672,000.31 were not secured
Oriental Commercial Co., Inc.25 by the real estate mortgage. Petitioner insists that it was proper to file the petition for
extrajudicial foreclosure of the real estate mortgage only for respondent’s loan account
covered by the 36 promissory notes for the amount of P7,755,733.64. It was not barred
Aggrieved, petitioner filed a motion for reconsideration 26 on October 12, 2004. from filing a separate action for the collection of the P12,672,000.31 against respondent
Respondent filed her opposition27 to the motion on October 26, 2004. The CA thereafter in the RTC for the drawdowns as evidenced by Promissory Note Nos. 34 to 67. What
denied the motion in a resolution promulgated on April 6, 2005. 28 should apply, petitioner asserts, is the ruling of this Court in Caltex Philippines, Inc. v.
Intermediate Appellate Court31 and Quiogue v. Bautista,32 and not the ruling of this Court
Petitioner filed the instant petition for review on certiorari, alleging that: in Bachrach which involves only one promissory note.

I. Petitioner insists that, although respondent and her husband had a joint account with it,
they had separate loan obligations as evidenced by the promissory notes; hence, it had
separate causes of action for each and every drawdown evidenced by a promissory note.
THE COURT OF APPEALS ERRED IN GRANTING THE PETITION FOR CERTIORARI OF
RESPONDENT ON THE GROUND OF GRAVE ABUSE OF DISCRETION.
For her part, respondent admits having executed the promissory notes. However, as
testified to by Ganuelas, the witness for petitioner, she and her husband only have one
xxxx loan account with petitioner, hence, the latter had only one cause of action against her
either for the collection of the entire loan account or for the extrajudicial foreclosure of the
The Trial Court did not commit grave abuse of discretion amounting to lack or excess of real estate mortgage, also for the entire amount of the loan. Petitioner cannot split her
jurisdiction in denying the Demurrer to Evidence filed by the respondents. Petitioner, in single loan account by filing a simple collection suit and a petition for extrajudicial
instituting a petition for the Extra Judicial Foreclosure of the Mortgage of respondents foreclosure of the real estate mortgage without violating the rule against splitting a single
based on 31 promissory notes executed by respondents and another action to collect on a cause of action.
separate set of 36 promissory notes, did not split their cause of action.
Respondent asserts that the real estate mortgage executed by respondent and her
xxxx deceased husband was a security not only of their loan account in the amount
of P7,000,000.00 but for all other loans that may have been extended to them in excess of
that amount.
The trial court did not commit grave abuse of discretion amounting to lack or excess of
jurisdiction when it denied respondents’ Demurrer to Evidence. In this wise, the Petition for
Certiorari filed by respondents should not have been granted. 29 The petition is unmeritorious.

During the pendency of this appeal, petitioner filed with this Court on December 2, 2005 a On the first issue, we agree with petitioner’s contention that the general rule is that an
manifestation and joint motion for substitution, informing the court that petitioner bank has order denying a motion to dismiss or demurrer to evidence is interlocutory and is not
assigned to the Philippine Asset Investment, Inc. all its rights, title and interest over its appealable. Consequently, defendant must go to trial and adduce its evidence, and
appeal, in due course, from an adverse decision of the trial court. However, the rule

47
admits of exceptions. Where the denial by the trial court of a motion to dismiss or It was held in the case of Bendernagle v. Cocks, 19 Wend. 207 (32 Am.Dec. 448), that
demurrer to evidence is tainted with grave abuse of discretion amounting to excess or lack where a party had several demands or existing causes of action growing out of the same
of jurisdiction, the aggrieved party may assail the order of dismissal on a petition for contract or resting in matter of account, which may be joined and sued for in the same
certiorari under Rule 65 of the Rules of Court. A wide breadth of discretion is granted in action, they must be joined; and if the demands or causes of action be split up, and a suit
certiorari proceedings in the interest of substantial justice and to prevent a substantial brought for part only, and subsequently a second suit for the residue is brought, the first
wrong.33 As the Court held in Preferred Home Specialties, Inc. v. Court of Appeals: 34 action may be pleaded in abatement or in bar of the second action. x x x41

It bears stressing that a writ of certiorari is of the highest utility and importance for curbing The rule against splitting causes of action is not altogether one of original legal right but is
excessive jurisdiction and correcting errors and most essential to the safety of the people one of interposition based upon principles of public policy and of equity to prevent the
and the public welfare. Its scope has been broadened and extended, and is now one of inconvenience and hardship incident to repeated and unnecessary litigation. 42
the recognized modes for the correction of errors by this Court. The cases in which it will
lie cannot be defined. To do so would be to destroy its comprehensiveness and limit its
It is not always easy to determine whether in a particular case under consideration, the
usefulness.
cause of action is single and entire or separate. The question must often be determined,
not by the general rules but by reference to the facts and circumstances of the particular
The appropriate function of a certiorari writ is to relieve aggrieved parties from the injustice case. Where deeds arising out of contract are distinct and separate, they give rise to
arising from errors of law committed in proceedings affecting justiciable rights when no separate cause of action for which separate action may be maintained; but it is also true
other means for an adequate and speedy relief is open. It is founded upon a sense of that the same contract may give rise to different causes of action either by reason of
justice, to release against wrongs otherwise irreconcilable, wrongs which go unredressed successive breaches thereof or by reason of different stipulations or provisions of the
because of want of adequate remedy which would be a grave reproach to any system of contract.43 The true rule which determines whether a party has only a single and entire
jurisprudence.35 cause of action for all that is due him, and which must be sued for in one action, or has a
severable demand for which he may maintain separate suits, is whether the entire amount
arises from one and the same act or contract or the several parts arise from distinct and
The aggrieved party is entitled to a writ of certiorari where the trial court commits a grave
different acts or contracts.44
abuse of discretion amounting to excess or lack of jurisdiction in denying a motion to
dismiss a complaint on the ground of litis pendentia. An appeal while available eventually
is cumbersome and inadequate for it requires the parties to undergo a useless and time- Where there are entirely distinct and separate contracts, they give rise to separate causes
consuming and expensive trial. The second case constitutes a rude if not debilitating of action for which separate actions may be instituted and presented. When money is
imposition on the trial and the docket of the judiciary.36 payable by installments, a distinct cause of action assails upon the following due by each
installment and they may be recovered in successive action. On the other hand, where
several claims payable at different times arise out of the same transactions, separate
In the present case, we agree with the ruling of the CA that the RTC acted with grave
actions may be brought as each liability accounts. But where no action is brought until
abuse of discretion amounting to excess or lack of jurisdiction when it denied the
more than one is due, all that are due must be included in one action; and that if an action
Demurrer to Evidence of respondent and, in the process, ignored applicable rulings of this
is brought to recover upon one or more that are due but not upon all that are due, a
Court. Although respondent had the right to appeal the decision of the trial court against
recovery in such action will be a bar to a several or other actions brought to recover one
her after trial, however, she, as defendant, need not use up funds and undergo the
or more claims of the other claims that were due at the time the first action was brought. 45
tribulations of a trial and thereafter appeal from an adverse decision.

The weight of authority is that in the absence of special controlling circumstances, an

Section 3, Rule 2 of the 1997 Rules of Civil Procedure provides that a party may not
open or continuous running account between the same parties constitutes a single and
institute more than one suit for a single cause of action and, if two or more suits are
indivisible demand, the aggregate of all the items of the account constituting the amount
instituted on the basis of the same cause of action, the filing of one on a judgment upon
due. But the rule is otherwise where it affirmatively appears that the parties regarded the
the merits in any one is available as ground for the dismissal of the other or others. 37 A
different items of the account as separate transactions and not parts of an ordinary
party will not be permitted to split up a single cause of action and make it a basis for
running account. And there may also be, even between the same parties, distinct and
several suits.38 A party seeking to enforce a claim must present to the court by the
separate actions upon which separate actions may be maintained. 46 In fine, what is
pleadings or proofs or both, all the grounds upon which he expects a judgment in his
decisive is that there be either an express contract, or the circumstances must be such as
favor. He is not at liberty to split up his demands and prosecute it by piecemeal, or
to raise an implied contract embracing all the items to make them, when they arise, at
present only a portion of the grounds upon which special relief is sought, and leave the
different times, a single or entire demand or cause of action. 47
rest to be presented in a second suit if the first fails. 39 The law does not permit the owner
of a single or entire cause of action or an entire or indivisible demand to divide and split
the cause or demand so as to make it the subject of several actions. The whole cause Decisive of the principal issue is the ruling of this Court in Bachrach Motor Co., Inc. v.
must be determined in one action. Esteban Icarañgal and Oriental Commercial Co., Inc. 48 in which it ruled that on the
nonpayment of a note secured by a mortgage, the creditor has a single cause of action
against the debtor. The single cause of action consists in the recovery of the credit with
Indeed, in Goldberg v. Eastern Brewing Co.,40 the New York Supreme Court emphasized
execution of the suit. In a mortgage credit transaction, the credit gives rise to a personal
that:
action for collection of the money. The mortgage is the guarantee which gives rise to a
mortgage foreclosure suit to collect from the very property that secured the debt. 49

48
The action of the creditor is anchored on one and the same cause: the nonpayment by the the entire principal, interest, penalties and other charges then outstanding shall become
debtor of the debt to the creditor-mortgagee. Though the debt may be covered by a immediately due, payable and defaulted," thus:
promissory note or several promissory notes and is covered by a real estate mortgage, the
latter is subsidiary to the former and both refer to one and the same obligation.
3. The terms and conditions of the Mortgage have been violated when the
Mortgagors failed and/or refused to pay, notwithstanding repeated demands, the
A mortgage creditor may institute two alternative remedies against the mortgage debtor, installment and/or maturity amount of the Mortgage obligation which became due
either a personal action for the collection of debt, or a real action to foreclose the and payable on the said date;
mortgage, but not both. Each remedy is complete by itself. As explained by this Court:
4. Under the terms and conditions of the Mortgage Agreement, in the event the
We hold, therefore, that, in the absence of express statutory provisions, a mortgage Mortgagors fail and/or refuse to pay the Mortgage obligation or any portion
creditor may institute against the mortgage debtor either a personal action for debt or a thereof when due, the entire principal, interest, penalties and other charges then
real action to foreclose the mortgage. In other words, he may pursue either of the two outstanding, shall, without need for demand, notice, or any other act or deed,
remedies, but not both. By such election, his cause of action can by no means be become immediately due, payable and defaulted;
impaired, for each of the two remedies is complete in itself. Thus, an election to bring a
personal action will leave open to him all the properties of the debtor for attachment and
5. The Mortgage Agreement provides that upon such breach or violation of the
execution, even including the mortgaged property itself. And, if he waives such personal
terms and conditions thereof, the Mortgagee may, at its absolute discretion
action and pursues his remedy against the mortgaged property, an unsatisfied judgment
foreclose the same extrajudicially in accordance with the procedure prescribed
thereon would still give him the right to sue for a deficiency judgment, in which case, all
by Act No. 3135, as amended, and for the purpose appointed the Mortgagee as
the properties of the defendant, other than the mortgaged property, are again open to him
its attorney-in-fact with full power and authority to enter the premises where the
for the satisfaction of the deficiency. In either case, his remedy is complete, his cause of
Mortgaged property is located and to take actual possession and control thereof
action undiminished, and any advantages attendant to the pursuit of one or the other
without need of any order of any Court, nor written permission from the
remedy are purely accidental and are all under his right of election. On the other hand, a
Mortgagors, and with special power to sell the Mortgaged Property at a public or
rule that would authorize the plaintiff to bring a personal action against the debtor and
private sale at the option of the Mortgagee. 53
simultaneously or successively another action against the mortgaged property, would
result not only in multiplicity of suits so offensive to justice (Soriano v. Enriques, 24 Phil.
584) and obnoxious to law and equity (Osorio v. San Agustin, 25 Phil. 404), but also in Petitioner cannot split the loan account of respondent by filing a petition for the
subjecting the defendant to the vexation of being sued in the place of his residence or of extrajudicial foreclosure of the real estate mortgage for the principal amount
the residence of the plaintiff, and then again in the place where the property lies. 50 of P4,687,006.68 covered by the first set of promissory notes, and a personal action for
the collection of the principal amount of P12,672,000.31 covered by the second set of
promissory notes without violating the proscription against splitting a single cause of
If the mortgagee opts to foreclose the real estate mortgage, he thereby waives the action
action against respondent.
for the collection of the debt and vice versa. 51 If the creditor is allowed to file its separate
complaints simultaneously or successively, one to recover his credit and another to
foreclose his mortgage, he will, in effect, be authorized plural redress for a single breach The contention of petitioner that respondent’s loan account that was secured by the real
of contract at so much costs to the court and with so much vexation and oppressiveness estate mortgage was limited only to those covered by the Promissory Note Nos. 1 to 33 or
to the debtor.52 for the total amount of P7,000,000.00 is belied by the real estate mortgage and by its own
evidence.
In the present case, petitioner opted to file a petition for extrajudicial foreclosure of the
real estate mortgage but only for the principal amount of P4,687,006.08 or in the total Under the deed, the mortgage was to secure the payment of a credit accommodation
amount of P7,755,733.64 covering only 31 of the 67 promissory notes. By resorting to the already obtained by respondent, the principal of all of which was fixed at  P7,000,000.00,
extrajudicial foreclosure of the real estate mortgage, petitioner thereby waived its personal as well as any other obligation that may be extended to respondent, including interest and
action to recover the amount covered not only by said promissory notes but also of the expenses, to wit:
rest of the promissory notes. This is so because when petitioner filed its petition before
the Ex-Oficio Provincial Sheriff on June 10, 1999, the entirety of the loan account of
That for and in consideration of credit accommodation obtained from the MORTGAGEE,
respondent under the 67 promissory notes was already due. The obligation of respondent
and to secure the payment of the same and those that may hereafter be obtained, the
under Promissory Note Nos. 1 to 33 became due on February 9, 1998 but was extended
principal of all of which is hereby fixed at SEVEN MILLION PESOS ONLY (P7,000,000.00),
up to March 11, 1998, whereas, those covered by Promissory Note Nos. 34 to 67 matured
Philippine Currency, as well as those that the MORTGAGEE may extend to the
on December 28, 1998. Petitioner should have caused the extrajudicial foreclosure of the
MORTGAGOR, including interest and expenses or any other obligation owing to the
real estate mortgage for the recovery of the entire obligation of respondent, on all the
MORTGAGEE, whether direct or indirect, principal or secondary, as appears in the
promissory notes. By limiting the account for which the real estate mortgage was being
accounts, books and records of the MORTGAGEE, the MORTGAGOR does hereby transfer
foreclosed to the principal amount of P4,687,006.68, exclusive of interest and penalties,
and convey by way of mortgage unto the MORTGAGEE, its successors or assigns, the
petitioner thereby waived recovery of the rest of respondent’s agricultural loan account.
parcels of land which are described in the list inserted on the back of this document
and/or appended herein, together with all the buildings and improvements now existing or
It must be stressed that the parties agreed in the Real Estate Mortgage that in the event which may hereafter be erected or constructed thereon, of which the MORTGAGOR
that respondent shall fail to pay the mortgage obligation "or any portion thereof when due, declares that he/it is the absolute owner free from all liens and encumbrances. However, if

49
the MORTGAGOR shall pay to the MORTGAGEE, its successors or assigns, the obligation A Yes, Sir.55 (Emphasis supplied)
secured by this mortgage when due, together with interest, and shall keep and perform all
and singular the covenants and agreements herein contained for the MORTGAGOR to keep
As gleaned from the plain terms of the real estate mortgage, the real estate of respondent
and perform, then this mortgage shall be void, otherwise, it shall remain in full force and
served as continuing security liable for future advancements or obligations beyond the
effect.54 (Emphasis supplied)
amount of P7,000,000.00. The mortgage partakes of the nature of contract for future
advancements. As explained by this Court in the early case of Lim Julian v. Lutero: 56
The testimony of Ganuelas in the RTC relative to the real estate mortgage follows:
The rule, of course, is well settled that an action to foreclose a mortgage must be limited
Q The real estate mortgage states: "That for and in consideration of credit accommodation to the amount mentioned in the mortgage. The exact amount, however, for which the
obtained from the mortgagee." This simply means, Mr. Witness, that this mortgage is mortgage is given need not always be specifically named. The amount for which the
offered to secure loans already obtained by the mortgagor from the mortgagee Far East mortgage is given may be stated in definite or general terms, as is frequently the case in
Bank and Trust Company. I am referring only to that phrase, obtained from the mortgagee, mortgages to secure future advancements. The amount named in the mortgage does not
is that correct? limit the amount for which it may stand as security, if, from the four corners of the
document, the intent to secure future indebtedness or future advancements is apparent.
Where the plain terms, of the mortgage, evidence such an intent, they will control as
A Yes, Sir.
against a contention of the mortgagor that it was the understanding of the parties that the
mortgage was security only for the specific amount named. (Citizens’ Savings Bank v.
Q So from this phrase in the real estate mortgage, this mortgage was constituted to secure Kock, 117 Mich. 225). In that case, the amount mentioned in the mortgage was $7,000.
the credit accommodation already obtained by the mortgagor, the defendant spouses, as The mortgage, however, contained a provision that "the mortgagors agree to pay said
of the time of the execution of the real estate mortgage, is that correct? mortgagee any sum of money which they may now or hereafter owe said mortgagee." At
the time the action of foreclosure was brought, the mortgagors owed the mortgagee the
sum of $21,522. The defendants contended that the amount to be recovered in an action
A Yes, Sir. to foreclose should be limited to the amount named in the mortgage. The court held that
the amount named as consideration for the mortgage did not limit the amount for which
Q Now since the loan secured by the defendants are evidenced by promissory notes, will the mortgage stood as security, if, from the whole instrument the intent to secure future
you agree with me, Mr. Witness, that this real estate mortgage was executed for indebtedness could be gathered. The court held that a mortgage to cover future advances
promissory notes already executed by the defendant spouses as of the time of the is valid. (Michigan Insurance Co. v. Brown, 11 Mich. 265; Jones on Mortgages, 1, sec.
execution of the mortgage on June 13, 1997, is that correct? 373; Keyes v. Bump’s Administrator, 59 Vt. 391; Fisher v. Otis, 3 Pin. 78; Brown v. Kiefer,
71 N.Y. 610; Douglas v. Reynolds, 7 Peters [U.S.] 113; Shores v. Doherty, 65 Wis. 153)
A Yes, Sir.
Literal accuracy in describing the amount due, secured by a mortgage, is not required, but
the description of the debt must be correct and full enough to direct attention to the
ATTY. MIRANO: sources of correct information in regard to it, and be such as not to mislead or deceive as
to the amount of it, by the language used. Reading the mortgage before us from its four
For purposes of identification, we respectfully request that this phrase: "that for and in corners, we find that the description of the debt is full enough to give information
consideration of the credit accommodation obtained from the mortgagee" be bracketed concerning the amount due. The mortgage recites that it is given to secure the sum
and mark as Exhibit 6-B. (Acting court interpreter marking said phrase as Exhibit 6-B.) of P12,000, interest, commissions, damages, and all other amounts which may be found
to be due at maturity. The terms of the contract are sufficiently clear to put all parties who
may have occasion to deal with the property mortgaged upon inquiry. The parties
Q Now in accordance with the terms of this real estate mortgage, this real estate mortgage themselves from the very terms of the mortgage could not be in ignorance at any time of
was executed by the defendant spouses not only to secure the loan already obtained by the amount of their obligation and the security held to guarantee the payment.
the said spouses as of the time of the execution of the mortgage on June 13, 1997 but
also all other loans that may be extended by Far East Bank and Trust Company to the
defendant spouses after the execution of the mortgage as stated in this portion of the real When a mortgage is given for future advancements and the money is paid to the
estate mortgage which we quote: "to secure the payment as and those that may hereafter mortgagor "little by little" and repayments are made from time to time, the advancements
be obtained," is that correct? and the repayments must be considered together for the purpose of ascertaining the
amount due upon the mortgage at maturity. Courts of equity will not permit the
consideration of the repayments only for the purpose of determining the balance due upon
A Yes, Sir. the mortgage. (Luengo & Martinez v. Moreno, 26 Phil. 111) The mere fact that, in contract
of advancements, the repayments at any one time exceeds the specific amount mentioned
Q So from your statement, Mr. Witness, this real estate mortgage was offered by the in the mortgage will not have the effect of discharging the mortgage when the
defendant spouses as a security for the loans they already secured as of the time of the advancements at that particular time are greatly in excess of the repayments; especially is
execution of the mortgage but also for the loans that they will secure thereafter, is that this true when the contract of advancement or mortgage contains a specific provision that
correct? the mortgage shall cover all "such other amounts as may be then due." Such a provision is
added to the contract of advancements or mortgage for the express purpose of covering

50
advancements in excess of the amount mentioned in the mortgage. (Luengo & Martinez v. a fresh chattel mortgage or by amending the old contract conformably with the form
Moreno, supra) prescribed by the Chattel Mortgage Law. 11 Refusal on the part of the borrower to execute
the agreement so as to cover the after-incurred obligation can constitute an at of default
on the part of the borrower of the financing agreement whereon the promise is written but,
The sum found to be owing by the debtor at the termination of the contract of
of course, the remedy of foreclosure can only cover the debts extant at the time of
advancements between him and the mortgagee, during continuing credit, is still secured
constitution and during the life of the chattel mortgage sought to be foreclosed.
by the mortgage on the debtor’s property, and the mortgagee is entitled to bring the
proper action for the collection of the amounts still due and to request the sale of the
A chattel mortgage, as hereinbefore so intimated, must comply substantially with the form
property covered by the mortgage. (Luengo & Martinez v. Moreno, supra; Russell v. Davey,
prescribed by the Chattel Mortgage Law itself. One of the requisites, under Section 5
7 Grant Ch. 13; Patterson First National Bank v. Byard, 26 N.J. Equity 225)
thereof, is an affidavit of good faith. While it is not doubted that if such an affidavit is not
appended to the agreement, the chattel mortgage would still be valid between the parties
Under a mortgage to secure the payment of future advancements, the mere fact that the (not against third persons acting in good faith 12), the fact, however, that the statute has
repayments on a particular day equal the amount of the mortgage will not discharge the provided that the parties to the contract must execute an oath that —
mortgage before maturity so long as advancements may be demanded and are being
received. (Luengo & Martinez v. Moreno, supra)57 ". . . (the) mortgage is made for the purpose of securing the obligation specified in the
conditions thereof, and for no other purpose, and that the same is a just and valid
obligation, and one not entered into for the purpose of fraud." 13 
Moreover, the series of loan advancements herein cannot be likened to the credit line
discussed in Caltex Philippines, Inc. v. Intermediate Appellate Court, 58 as petitioner makes it obvious that the debt referred to in the law is a current, not an obligation that is
posited in its reply59 filed before this Court. In Caltex, unlike the instant case, the real yet merely contemplated. In the chattel mortgage here involved, the only obligation
estate mortgage executed did not contain a "dragnet" clause 60 that would subsume all specified in the chattel mortgage contract was the P3,000,000.00 loan which petitioner
past and future debts. The mortgage therein specifically secured only the loans extended corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the
prior to the mortgage. Thus, in the said case, the future debts were deemed as payment of the obligation automatically rendered the chattel mortgage void or terminated.
constituting a separate transaction from the past debts secured by the mortgage. In Belgian Catholic Missionaries, Inc., v. Magallanes Press, Inc., Et Al., 14 the Court said—

The ruling of the Court in Quiogue v. Bautista 61 is likewise inapplicable. In that case, the ". . . A mortgage that contains a stipulation in regard to future advances in the credit will
Court deemed the loan transactions as separate, considering that those were two separate take effect only from the date the same are made and not from the date of the mortgage."
loans secured by two separate mortgages. In this case, however, there is only one 15 
mortgage securing all 67 drawdowns made by respondent.
The significance of the ruling to the instant problem would be that since the 1978 chattel
mortgage had ceased to exist coincidentally with the full payment of the P3,000,000.00
In fine, for the failure of respondent to pay her loan obligation, petitioner had only one loan, 16 there no longer was any chattel mortgage that could cover the new loans that
cause of action arising from such non-payment. This single cause of action consists in were concluded thereafter.
the recovery of the credit with execution of the security. 62Petitioner is proscribed from
splitting its single cause of action by filing an extrajudicial foreclosure proceedings on We find no merit in petitioner corporation’s other prayer that the case should be remanded
June 10, 1999 with respect to the amounts in the 31 promissory notes, and, during the to the trial court for a specific finding on the amount of damages it has sustained "as a
pendency thereof, file a collection case on June 23, 1999, with respect to the amounts in result of the unlawful action taken by respondent bank against it." 17 This prayer is not
the remaining 36 promissory notes. reflected in its complaint which has merely asked for the amount of P3,000,000.00 by way
of moral damages. 18 In LBC Express, Inc. v. Court of Appeals, 19 we have
Considering, therefore, that, in the case at bar, petitioner had already instituted said:jgc:chanrobles.com.ph
extrajudicial foreclosure proceedings of the mortgaged property, it is now barred from
availing itself of a personal action for the collection of the indebtedness. "Moral damages are granted in recompense for physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation,
and similar injury. A corporation, being an artificial person and having existence only in
IN VIEW OF ALL THE FOREGOING, the instant petition is DISMISSED for lack of merit. legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot
Costs against petitioner. experience physical suffering and mental anguish. Mental suffering can be experienced
only by one having a nervous system and it flows from real ills, sorrows, and griefs of life
SO ORDERED. — all of which cannot be suffered by respondent bank as an artificial person." 20 

While a pledge, real estate mortgage, or antichresis may exceptionally secure after- While Chua Pac is included in the case, the complaint, however, clearly states that he has
incurred obligations so long as these future debts are accurately described, 10 a chattel merely been so named as a party in representation of petitioner corporation.
mortgage, however, can only cover obligations existing at the time the mortgage is
constituted. Although a promise expressed in a chattel mortgage to include debts that are Petitioner corporation’s counsel could be commended for his zeal in pursuing his client’s
yet to be contracted can be a binding commitment that can be compelled upon, the cause. It instead turned out to be, however, a source of disappointment for this Court to
security itself, however, does not come into existence or arise until after a chattel read in petitioner’s reply to private respondent’s comment on the petition his so-called
mortgage agreement covering the newly contracted debt is executed either by concluding "One Final Word;" viz:jgc:chanrobles.com.ph

51
"In simply quoting in toto the patently erroneous decision of the trial court, respondent
Court of Appeals should be required to justify its decision which completely disregarded
the basic laws on obligations and contracts, as well as the clear provisions of the Chattel
Mortgage Law and well-settled jurisprudence of this Honorable Court; that in the event
that its explanation is wholly unacceptable, this Honorable Court should impose
appropriate sanctions on the erring justices. This is one positive step in ridding our courts
of law of incompetent and dishonest magistrates especially members of a superior court
of appellate jurisdiction." 21 (Emphasis supplied.)

The statement is not called for. The Court invites counsel’s attention to the admonition in
Guerrero v. Villamor; 22 thus:jgc:chanrobles.com.ph

"(L)awyers . . . should bear in mind their basic duty ‘to observe and maintain the respect
due to the courts of justice and judicial officers and . . . (to) insist on similar conduct by
others.’ This respectful attitude towards the court is to be observed, ‘not for the sake of
the temporary incumbent of the judicial office, but for the maintenance of its supreme
importance.’ And it is ‘through a scrupulous preference for respectful language that a
lawyer best demonstrates his observance of the respect due to the courts and judicial
officers . . ..’" 23 

The virtues of humility and of respect and concern for others must still live on even in an
age of materialism.

WHEREFORE, the questioned decisions of the appellate court and the lower court are set
aside without prejudice to the appropriate legal recourse by private respondent as may still
be warranted as an unsecured creditor. No costs.

Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect in

dealing with the courts.

SO ORDERED.

52