trust receipts full cases

7/27/2019 Trust Receipts Full Cases

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G.R. No. 74886 December 8, 1992

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

DAVIDE, JR., J.:

Petitioner seeks to review and set aside the decision 1of public respondent; IntermediateAppellate Court (now Court of Appeals), dated 10 March 1986, in AC-G.R. No. 66733 whichaffirmed in toto the 15 June 1978 decision of Branch 9 (Quezon City) of the then Court of FirstInstance (now Regional Trial Court) of Rizal in Civil Case No. Q-19312. The latter involved anaction instituted by the petitioner for the recovery of a sum of money representing the amountpaid by it to the Nissho Company Ltd. of Japan for textile machinery imported by the defendant,now private respondent, Philippine Rayon Mills, Inc. (hereinafter Philippine Rayon), representedby co-defendant Anacleto R. Chi.

The facts which gave rise to the instant controversy are summarized by the public respondent asfollows:

On August 8, 1962, defendant-appellant Philippine Rayon Mills, Inc. enteredinto a contract with Nissho Co., Ltd. of Japan for the importation of textilemachineries under a five-year deferred payment plan (Exhibit B, Plaintiff'sFolder of Exhibits, p 2). To effect payment for said machineries, thedefendant-appellant applied for a commercial letter of credit with thePrudential Bank and Trust Company in favor of Nissho. By virtue of saidapplication, the Prudential Bank opened Letter of Credit No. DPP-63762 for$128,548.78 (Exhibit A, Ibid., p. 1). Against this letter of credit, drafts weredrawn and issued by Nissho (Exhibits X, X-1 to X-11, Ibid., pp. 65, 66 to76), which were all paid by the Prudential Bank through its correspondent inJapan, the Bank of Tokyo, Ltd. As indicated on their faces, two of thesedrafts (Exhibit X and X-1, Ibid., pp. 65-66) were accepted by the defendant-appellant through its president, Anacleto R. Chi, while the others were not(Exhibits X-2 to X-11, Ibid., pp. 66 to 76).

Upon the arrival of the machineries, the Prudential Bank indorsed theshipping documents to the defendant-appellant which accepted delivery ofthe same. To enable the defendant-appellant to take delivery of the

machineries, it executed, by prior arrangement with the Prudential Bank, atrust receipt which was signed by Anacleto R. Chi in his capacity asPresident (sic) of defendant-appellant company (Exhibit C, Ibid., p. 13).

At the back of the trust receipt is a printed form to be accomplished by twosureties who, by the very terms and conditions thereof, were to be jointlyand severally liable to the Prudential Bank should the defendant-appellantfail to pay the total amount or any portion of the drafts issued by Nissho andpaid for by Prudential Bank. The defendant-appellant was able to takedelivery of the textile machineries and installed the same at its factory site at69 Obudan Street, Quezon City.

Sometime in 1967, the defendant-appellant ceased business operation(sic). On December 29, 1969, defendant-appellant's factory was leased by

Yupangco Cotton Mills for an annual rental of P200,000.00 (Exhibit I, Ibid.,

p. 22). The lease was renewed on January 3, 1973 (Exhibit J, Ibid., p. 26).On January 5, 1974, all the textile machineries in the defendant-appellant'sfactory were sold to AIC Development Corporation for P300,000.00 (ExhibitK, Ibid., p. 29).

The obligation of the defendant-appellant arising from the letter of credit andthe trust receipt remained unpaid and unliquidated. Repeated formaldemands (Exhibits U, V, and W, Ibid., pp. 62, 63, 64) for the payment of thesaid trust receipt yielded no result Hence, the present action for thecollection of the principal amount of P956,384.95 was filed on October 3,

1974 against the defendant-appellant and Anacleto R. Chi. In theirrespective answers, the defendants interposed identical specialdefenses, viz., the complaint states no cause of action; if there is, the samehas prescribed; and the plaintiff is guilty of laches. 2

On 15 June 1978, the trial court rendered its decision the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered sentencing the defendantPhilippine Rayon Mills, Inc. to pay plaintiff the sum of P153,645.22, theamounts due under Exhibits "X" & "X-1", with interest at 6% per annumbeginning September 15, 1974 until fully paid.

Insofar as the amounts involved in drafts Exhs. "X" (sic) to "X-11", inclusive,the same not having been accepted by defendant Philippine Rayon Mills,Inc., plaintiff's cause of action thereon has not accrued, hence, the instantcase is premature.

Insofar as defendant Anacleto R. Chi is concerned, the case is dismissed.Plaintiff is ordered to pay defendant Anacleto R. Chi the sum of P20,000.00as attorney's fees.

With costs against defendant Philippine Rayon Mills, Inc.

SO ORDERED. 3

Petitioner appealed the decision to the then Intermediate Appellate Court. In urging the saidcourt to reverse or modify the decision, petitioner alleged in its Brief that the trial court erred in(a) disregarding its right to reimbursement from the private respondents for the entire unpaidbalance of the imported machines, the total amount of which was paid to the Nissho CompanyLtd., thereby violating the principle of the third party payor's right to reimbursement provided forin the second paragraph of Article 1236 of the Civil Code and under the rule against unjustenrichment; (b) refusing to hold Anacleto R. Chi, as the responsible officer of defendantcorporation, liable under Section 13 of P.D No 115 for the entire unpaid balance of the importedmachines covered by the bank's trust receipt (Exhibit "C"); (c) finding that the solidary guarantyclause signed by Anacleto R. Chi is not a guaranty at all; (d) controverting the judicialadmissions of Anacleto R. Chi that he is at least a simple guarantor of the said trust receiptobligation; (e) contravening, based on the assumption that Chi is a simple guarantor, Articles2059, 2060 and 2062 of the Civil Code and the related evidence and jurisprudence whichprovide that such liability had already attached; (f) contravening the judicial admissions ofPhilippine Rayon with respect to its liability to pay the petitioner the amounts involved in thedrafts (Exhibits "X", "X-l" to "X-11''); and (g) interpreting "sight" drafts as requiring acceptance byPhilippine Rayon before the latter could be held liable thereon. 4


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In its decision, public respondent sustained the trial court in all respects. As to the first and lastassigned errors, it ruled that the provision on unjust enrichment, Article 2142 of the Civil Code,applies only if there is no express contract between the parties and there is a clear showing thatthe payment is justified. In the instant case, the relationship existing between the petitioner andPhilippine Rayon is governed by specific contracts, namely the application for letters of credit,the promissory note, the drafts and the trust receipt. With respect to the last ten (10) drafts(Exhibits "X-2" to "X-11") which had not been presented to and were not accepted by PhilippineRayon, petitioner was not justified in unilaterally paying the amounts stated therein. The publicrespondent did not agree with the petitioner's claim that the drafts were sight drafts which did notrequire presentment for acceptance to Philippine Rayon because paragraph 8 of the trust receiptpresupposes prior acceptance of the drafts. Since the ten (10) drafts were not presented andaccepted, no valid demand for payment can be made.

Public respondent also disagreed with the petitioner's contention that private respondent Chi issolidarily liable with Philippine Rayon pursuant to Section 13 of P.D. No. 115 and based on hissignature on the solidary guaranty clause at the dorsal side of the trust receipt. As to the firstcontention, the public respondent ruled that the civil liability provided for in said Section 13attaches only after conviction. As to the second, it expressed misgivings as to whether Chi'ssignature on the trust receipt made the latter automatically liable thereon because the so-calledsolidary guaranty clause at the dorsal portion of the trust receipt is to be signed not by one (1)person alone, but by two (2) persons; the last sentence of the same is incomplete and unsignedby witnesses; and it is not acknowledged before a notary public. Besides, even granting that itwas executed and acknowledged before a notary public, Chi cannot be held liable thereforbecause the records fail to show that petitioner had either exhausted the properties of PhilippineRayon or had resorted to all legal remedies as required in Article 2058 of the Civil Code. As

provided for under Articles 2052 and 2054 of the Civil Code, the obligation of a guarantor ismerely accessory and subsidiary, respectively. Chi's liability would therefore arise only when theprincipal debtor fails to comply with his obligation. 5

Its motion to reconsider the decision having been denied by the public respondent in itsResolution of 11 June 1986, 6 petitioner filed the instant petition on 31 July 1986 submitting thefollowing legal issues:

I. WHETHER OR NOT THE RESPONDENT APPELLATE COURTGRIEVOUSLY ERRED IN DENYING PETITIONER'S CLAIM FOR FULLREIMBURSEMENT AGAINST THE PRIVATE RESPONDENTS FOR THEPAYMENT PETITIONER MADE TO NISSHO CO. LTD. FOR THE BENEFITOF PRIVATE RESPONDENT UNDER ART. 1283 OF THE NEW CIVILCODE OF THE PHILIPPINES AND UNDER THE GENERAL PRINCIPLE

AGAINST UNJUST ENRICHMENT;

II. WHETHER OR NOT RESPONDENT CHI IS SOLIDARILY LIABLEUNDER THE TRUST RECEIPT (EXH. C);

III. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONSOF RESPONDENT CHI HE IS LIABLE THEREON AND TO WHATEXTENT;

IV. WHETHER OR NOT RESPONDENT CHI IS MERELY A SIMPLEGUARANTOR; AND IF SO; HAS HIS LIABILITY AS SUCH ALREADY

ATTACHED;

V. WHETHER OR NOT AS THE SIGNATORY AND RESPONSIBLEOFFICER OF RESPONDENT PHIL. RAYON RESPONDENT CHI ISPERSONALLY LIABLE PURSUANT TO THE PROVISION OF SECTION13, P.D. 115;

VI. WHETHER OR NOT RESPONDENT PHIL. RAYON IS LIABLE TO THEPETITIONER UNDER THE TRUST RECEIPT (EXH. C);

VII. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONSRESPONDENT PHIL. RAYON IS LIABLE TO THE PETITIONER UNDERTHE DRAFTS (EXHS. X, X-1 TO X-11) AND TO WHAT EXTENT;

VIII. WHETHER OR NOT SIGHT DRAFTS REQUIRE PRIORACCEPTANCE FROM RESPONDENT PHIL. RAYON BEFORE THELATTER BECOMES LIABLE TO PETITIONER. 7

In the Resolution of 12 March 1990, 8 this Court gave due course to the petition after the filing ofthe Comment thereto by private respondent Anacleto Chi and of the Reply to the latter by thepetitioner; both parties were also required to submit their respective memoranda which theysubsequently complied with.

As We see it, the issues may be reduced as follows:

1. Whether presentment for acceptance of the draftswas indispensable to make Philippine Rayon liablethereon;

2. Whether Philippine Rayon is liable on the basis of thetrust receipt;

3. Whether private respondent Chi is jointly andseverally liable with Philippine Rayon for the obligationsought to be enforced and if not, whether he may beconsidered a guarantor; in the latter situation, whetherthe case should have been dismissed on the ground oflack of cause of action as there was no prior exhaustionof Philippine Rayon's properties.

Both the trial court and the public respondent ruled that Philippine Rayon could be held liable forthe two (2) drafts, Exhibits "X" and "X-1", because only these appear to have been accepted bythe latter after due presentment. The liability for the remaining ten (10) drafts (Exhibits "X-2" to"X-11" inclusive) did not arise because the same were not presented for acceptance. In short,both courts concluded that acceptance of the drafts by Philippine Rayon was indispensable tomake the latter liable thereon. We are unable to agree with this proposition. The transaction inthe case at bar stemmed from Philippine Rayon's application for a commercial letter of creditwith the petitioner in the amount of $128,548.78 to cover the former's contract to purchase andimport loom and textile machinery from Nissho Company, Ltd. of Japan under a five-yeardeferred payment plan. Petitioner approved the application. As correctly ruled by the trial court inits Order of 6 March 1975: 9

. . . By virtue of said Application and Agreement for Commercial Letter of

Credit, plaintiff bank 10was under obligation to pay through its


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correspondent bank in Japan the drafts that Nisso (sic) Company, Ltd.,periodically drew against said letter of credit from 1963 to 1968, pursuant toplaintiff's contract with the defendant Philippine Rayon Mills, Inc. In turn,defendant Philippine Rayon Mills, Inc., was obligated to pay plaintiff bankthe amounts of the drafts drawn by Nisso ( sic) Company, Ltd. against saidplaintiff bank together with any accruing commercial charges, interest, etc.pursuant to the terms and conditions stipulated in the Application and

Agreement of Commercial Letter of Credit Annex "A".

A letter of credit is defined as an engagement by a bank or other person made at the request of

a customer that the issuer will honor drafts or other demands for payment upon compliance withthe conditions specified in the credit. 11Through a letter of credit, the bank merely substitutes itsown promise to pay for one of its customers who in return promises to pay the bank the amountof funds mentioned in the letter of credit plus credit or commitment fees mutually agreedupon. 12In the instant case then, the drawee was necessarily the herein petitioner. It was to thelatter that the drafts were presented for payment. In fact, there was no need for acceptance asthe issued drafts are sight drafts. Presentment for acceptance is necessary only in the casesexpressly provided for in Section 143 of the Negotiable Instruments Law (NIL). 13The saidsection reads:

Sec. 143. When presentment for acceptance must be made. Presentment for acceptance must be made:

(a) Where the bill is payable after sight, or in any other case, where presentment for acceptance

is necessary in order to fix the maturity of the instrument; or

(b) Where the bill expressly stipulates that it shall be presented for acceptance; or

(c) Where the bill is drawn payable elsewhere than at the residence or place of business of thedrawee.

In no other case is presentment for acceptance necessary in order to render any party to the billliable.

Obviously then, sight drafts do not require presentment for acceptance.

The acceptance of a bill is the signification by the drawee of his assent to the order of the

drawer; 14this may be done in writing by the drawee in the bill itself, or in a separateinstrument. 15

The parties herein agree, and the trial court explicitly ruled, that the subject, drafts are sightdrafts. Said the latter:

. . . In the instant case the drafts being at sight, they are supposed to bepayable upon acceptance unless plaintiff bank has given the PhilippineRayon Mills Inc. time within which to pay the same. The first two drafts(Annexes C & D, Exh. X & X-1) were duly accepted as indicated on theirface (sic), and upon such acceptance should have been paid forthwith.These two drafts were not paid and although Philippine Rayon Millsought to have paid the same, the fact remains that until now they are stillunpaid. 16

Corollarily, they are, pursuant to Section 7 of the NIL, payable on demand. Section 7 provides:

Sec. 7. When payable on demand. An instrument is payable on demand

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

(b) In which no time for payment in expressed.

Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the personso issuing, accepting, or indorsing it, payable on demand. (emphasis supplied)

Paragraph 8 of the Trust Receipt which reads: "My/our liability for payment at maturityof any accepted draft, bill of exchange or indebtedness shall not be extinguished ormodified" 17does not, contrary to the holding of the public respondent, contemplateprior acceptance by Philippine Rayon, but by the petitioner. Acceptance, however,was not even necessary in the first place because the drafts which were eventuallyissued were sight drafts And even if these were not sight drafts, thereby necessitatingacceptance, it would be the petitioner and not Philippine Rayon which had toaccept the same for the latter was not the drawee. Presentment for acceptance isdefined an the production of a bill of exchange to a drawee for acceptance. 18The trialcourt and the public respondent, therefore, erred in ruling that presentment foracceptance was an indispensable requisite for Philippine Rayon's liability on the drafts

to attach. Contrary to both courts' pronouncements, Philippine Rayon immediatelybecame liable thereon upon petitioner's payment thereof. Such is the essence of theletter of credit issued by the petitioner. A different conclusion would violate theprinciple upon which commercial letters of credit are founded because in such a case,both the beneficiary and the issuer, Nissho Company Ltd. and the petitioner,respectively, would be placed at the mercy of Philippine Rayon even if the latter hadalready received the imported machinery and the petitioner had fully paid for it. Thetypical setting and purpose of a letter of credit are described in Hibernia Bank andTrust Co. vs. J. Aron & Co., Inc., 19thus:

Commercial letters of credit have come into general use in internationalsales transactions where much time necessarily elapses between the saleand the receipt by a purchaser of the merchandise, during which intervalgreat price changes may occur. Buyers and sellers struggle for theadvantage of position. The seller is desirous of being paid as surely and as

soon as possible, realizing that the vendee at a distant point has it in hispower to reject on trivial grounds merchandise on arrival, and causeconsiderable hardship to the shipper. Letters of credit meet this condition byaffording celerity and certainty of payment. Their purpose is to insure to aseller payment of a definite amount upon presentation of documents. Thebank deals only with documents. It has nothing to do with the quality of themerchandise. Disputes as to the merchandise shipped may arise and belitigated later between vendor and vendee, but they may not impedeacceptance of drafts and payment by the issuing bank when the properdocuments are presented.

The trial court and the public respondent likewise erred in disregarding the trust receipt and innot holding that Philippine Rayon was liable thereon. In People vs. Yu Chai Ho, 20this Courtexplains the nature of a trust receipt by quoting In re Dunlap Carpet Co., 21thus:


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By this arrangement a banker advances money to an intending importer,and thereby lends the aid of capital, of credit, or of business facilities andagencies abroad, to the enterprise of foreign commerce. Much of this tradecould hardly be carried on by any other means, and therefore it is of the firstimportance that the fundamental factor in the transaction, the banker'sadvance of money and credit, should receive the amplest protection.

Accordingly, in order to secure that the banker shall be repaid at the criticalpoint that is, when the imported goods finally reach the hands of theintended vendee the banker takes the full title to the goods at the verybeginning; he takes it as soon as the goods are bought and settled for byhis payments or acceptances in the foreign country, and he continues tohold that title as his indispensable security until the goods are sold in theUnited States and the vendee is called upon to pay for them. This security isnot an ordinary pledge by the importer to the banker, for the importer hasnever owned the goods, and moreover he is not able to deliver thepossession; but the security is the complete title vested originally in thebankers, and this characteristic of the transaction has again and again beenrecognized and protected by the courts. Of course, the title is at bottom asecurity title, as it has sometimes been called, and the banker is alwaysunder the obligation to reconvey; but only after his advances have been fullyrepaid and after the importer has fulfilled the other terms of the contract.

As further stated in National Bank vs. Viuda e Hijos de Angel Jose, 22trust receipts:

. . . [I]n a certain manner, . . . partake of the nature of a conditional sale as

provided by the Chattel Mortgage Law, that is, the importer becomesabsolute owner of the imported merchandise as soon an he has paid itsprice. The ownership of the merchandise continues to be vested in theowner thereof or in the person who has advanced payment, until he hasbeen paid in full, or if the merchandise has already been sold, the proceedsof the sale should be turned over to him by the importer or by hisrepresentative or successor in interest.

Under P.D. No. 115, otherwise known an the Trust Receipts Law, which took effect on 29January 1973, a trust receipt transaction is defined as "any transaction by and between a personreferred to in this Decree as the entruster, and another person referred to in this Decree as theentrustee, whereby the entruster, who owns or holds absolute title or security interests' overcertain specified goods, documents or instruments, releases the same to the possession of theentrustee upon the latter's execution and delivery to the entruster of a signed document called

the "trust receipt" wherein the entrustee binds himself to hold the designated goods, documentsor instruments in trust for the entruster and to sell or otherwise dispose of the goods, documentsor instruments with the obligation to turn over to the entruster the proceeds thereof to the extentof the amount owing to the entruster or as appears in the trust receipt or the goods, instrumentsthemselves if they are unsold or not otherwise disposed of, in accordance with the terms andconditions specified in the trusts receipt, or for other purposes substantially equivalent to anyone of the following: . . ."

It is alleged in the complaint that private respondents "not only have presumably put saidmachinery to good use and have profited by its operation and/or disposition but very recentinformation that (sic) reached plaintiff bank that defendants already sold the machinery coveredby the trust receipt to Yupangco Cotton Mills," and that "as trustees of the property covered bythe trust receipt, . . . and therefore acting in fiduciary ( sic) capacity, defendants have willfullyviolated their duty to account for the whereabouts of the machinery covered by the trust receiptor for the proceeds of any lease, sale or other disposition of the same that they may have made,

notwithstanding demands therefor; defendants have fraudulently misapplied or converted to their

own use any money realized from the lease, sale, and other disposition of saidmachinery." 23While there is no specific prayer for the delivery to the petitioner by PhilippineRayon of the proceeds of the sale of the machinery covered by the trust receipt, such relief iscovered by the general prayer for "such further and other relief as may be just and equitable onthe premises." 24And although it is true that the petitioner commenced a criminal action for theviolation of the Trust Receipts Law, no legal obstacle prevented it from enforcing the civil liabilityarising out of the trust, receipt in a separate civil action. Under Section 13 of the Trust ReceiptsLaw, the failure of an entrustee to turn over the proceeds of the sale of goods, documents orinstruments covered by a trust receipt to the extent of the amount owing to the entruster or asappear in the trust receipt or to return said goods, documents or instruments if they were notsold or disposed of in accordance with the terms of the trust receipt shall constitute the crime ofestafa, punishable under the provisions of Article 315, paragraph 1(b) of the Revised PenalCode. 25Under Article 33 of the Civil Code, a civil action for damages, entirely separate anddistinct from the criminal action, may be brought by the injured party in cases of defamation,fraud and physical injuries. Estafa falls underfraud.

We also conclude, for the reason hereinafter discussed, and not for that adduced by the publicrespondent, that private respondent Chi's signature in the dorsal portion of the trust receipt didnot bind him solidarily with Philippine Rayon. The statement at the dorsal portion of the said trustreceipt, which petitioner describes as a "solidary guaranty clause", reads:

In consideration of the PRUDENTIAL BANK AND TRUST COMPANYcomplying with the foregoing, we jointly and severally agree and undertaketo pay on demand to the PRUDENTIAL BANK AND TRUST COMPANY allsums of money which the said PRUDENTIAL BANK AND TRUST

COMPANY may call upon us to pay arising out of or pertaining to, and/or inany event connected with the default of and/or non-fulfillment in any respectof the undertaking of the aforesaid:

PHILIPPINE RAYON MILLS, INC.

We further agree that the PRUDENTIAL BANK AND TRUST COMPANYdoes not have to take any steps or exhaust its remedy against aforesaid:

before making demand on me/us.

(Sgd.) Anacleto R. ChiANACLETO R. CHI 26

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

In holding otherwise, the public respondent ratiocinates as follows:

With respect to the second argument, we have our misgivings as to whetherthe mere signature of defendant-appellee Chi of (sic) the guarantyagreement, Exhibit "C-1", will make it an actionable document. It should benoted that Exhibit "C-1" was prepared and printed by the plaintiff-appellant.

A perusal of Exhibit "C-1" shows that it was to be signed and executed bytwo persons. It was signed only by defendant-appellee Chi. Exhibit "C-1"

was to be witnessed by two persons, but no one signed in that capacity.


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The last sentence of the guaranty clause is incomplete. Furthermore, theplaintiff-appellant also failed to have the purported guarantee clauseacknowledged before a notary public. All these show that the allegedguaranty provision was disregarded and, therefore, not consummated.

But granting arguendo that the guaranty provision in Exhibit "C-1" was fullyexecuted and acknowledged still defendant-appellee Chi cannot be heldliable thereunder because the records show that the plaintiff-appellant hadneither exhausted the property of the defendant-appellant nor had itresorted to all legal remedies against the said defendant-appellant as

provided in Article 2058 of the Civil Code. The obligation of a guarantor ismerely accessory under Article 2052 of the Civil Code and subsidiary underArticle 2054 of the Civil Code. Therefore, the liability of the defendant-appellee arises only when the principal debtor fails to comply with hisobligation. 27

Our own reading of the questioned solidary guaranty clause yields no other conclusion than thatthe obligation of Chi is only that of a guarantor. This is further bolstered by the last sentencewhich speaks of waiver of exhaustion, which, nevertheless, is ineffective in this case becausethe space therein for the party whose property may not be exhausted was not filled up. Under

Article 2058 of the Civil Code, the defense of exhaustion (excussion) may be raised by aguarantor before he may be held liable for the obligation. Petitioner likewise admits that thequestioned provision is a solidary guaranty clause, thereby clearly distinguishing it from acontract of surety. It, however, described the guaranty as solidary between the guarantors; thiswould have been correct if two (2) guarantors had signed it. The clause "we jointly and severally

agree and undertake" refers to the undertaking of the two (2) parties who are to sign it or to theliability existing between themselves. It does not refer to the undertaking between either one orboth of them on the one hand and the petitioner on the other with respect to the liabilitydescribed under the trust receipt. Elsewise stated, their liability is not divisible as betweenthem, i.e., it can be enforced to its full extent against any one of them.

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

Neither can We agree with the reasoning of the public respondent that this solidary guarantyclause was effectively disregarded simply because it was not signed and witnessed by two (2)

persons and acknowledged before a notary public. While indeed, the clause ought to have beensigned by two (2) guarantors, the fact that it was only Chi who signed the same did not make hisact an idle ceremony or render the clause totally meaningless. By his signing, Chi became thesole guarantor. The attestation by witnesses and the acknowledgement before a notary publicare not required by law to make a party liable on the instrument. The rule is that contracts shallbe obligatory in whatever form they may have been entered into, provided all the essentialrequisites for their validity are present; however, when the law requires that a contract be insome form in order that it may be valid or enforceable, or that it be proved in a certain way, thatrequirement is absolute and indispensable. 30With respect to a guaranty, 31which is a promise toanswer for the debt or default of another, the law merely requires that it, or some note ormemorandum thereof, be in writing. Otherwise, it would be unenforceable unlessratified. 32While the acknowledgement of a surety before a notary public is required to make thesame a public document, under Article 1358 of the Civil Code, a contract of guaranty does nothave to appear in a public document.

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

Sec. 13. Penalty Clause. The failure of an entrustee to turn over theproceeds of the sale of the goods, documents or instruments covered by a

trust receipt to the extent of the amount owing to the entruster or as appearsin the trust receipt or to return said goods, documents or instruments if theywere not sold or disposed of in accordance with the terms of the trustreceipt shall constitute the crime of estafa, punishable under the provisionsof Article Three hundred and fifteen, paragraph one (b) of Act NumberedThree thousand eight hundred and fifteen, as amended, otherwise knownas the Revised Penal Code. If the violation or offense is committed by acorporation, partnership, association or other juridical entities, the penaltyprovided for in this Decree shall be imposed upon the directors, officers,employees or other officials or persons therein responsible for the offense,without prejudice to the civil liabilities arising from the criminal offense.

A close examination of the quoted provision reveals that it is the last sentence which providesfor the correct solution. It is clear that if the violation or offense is committed by a corporation,partnership, association or other juridical entities, the penalty shall be imposed upon the

directors, officers, employees or other officials or persons therein responsible for the offense.The penalty referred to is imprisonment, the duration of which would depend on the amount ofthe fraud as provided for in Article 315 of the Revised Penal Code. The reason for this isobvious: corporations, partnerships, associations and other juridical entities cannot be put in jail.However, it is these entities which are made liable for the civil liability arising from the criminaloffense. This is the import of the clause "without prejudice to the civil liabilities arising from thecriminal offense." And, as We stated earlier, since that violation of a trust receipt constitutesfraud under Article 33 of the Civil Code, petitioner was acting well within its rights in filing anindependent civil action to enforce the civil liability arising therefrom against Philippine Rayon.

The remaining issue to be resolved concerns the propriety of the dismissal of the case againstprivate respondent Chi. The trial court based the dismissal, and the respondent Court itsaffirmance thereof, on the theory that Chi is not liable on the trust receipt in any capacity either as surety or as guarantor because his signature at the dorsal portion thereof was

useless; and even if he could be bound by such signature as a simple guarantor, he cannot,pursuant to Article 2058 of the Civi l Code, be compel led to pay unti lafter petitioner has exhausted and resorted to all legal remedies against the principal debtor,Philippine Rayon. The records fail to show that petitioner had done so 33Reliance is thus placedon Article 2058 of the Civil Code which provides:

Art. 2056. The guarantor cannot be compelled to pay the creditor unless thelatter has exhausted all the property of the debtor, and has resorted to allthe legal remedies against the debtor.

Simply stated, there is as yet no cause of action against Chi.

We are not persuaded. Excussion is not a condition sine qua non for the institution of an actionagainst a guarantor. In Southern Motors, Inc. vs. Barbosa, 34this Court stated:


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4. Although an ordinary personal guarantor not a mortgagor or pledgor may demand the aforementioned exhaustion, the creditor may, priorthereto, secure a judgment against said guarantor, who shall be entitled,however, to a deferment of the execution of said judgment against him untilafter the properties of the principal debtor shall have been exhausted tosatisfy the obligation involved in the case.

There was then nothing procedurally objectionable in impleading private respondent Chi as a co-defendant in Civil Case No. Q-19312 before the trial court. As a matter of fact, Section 6, Rule 3of the Rules of Court on permissive joinder of parties explicitly allows it. It reads:

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

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

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

In the instant case, the attorney's fees to be paid by Chi cannot be the same as that to be paidby Philippine Rayon since it is only the trust receipt that is covered by the guaranty and not thefull extent of the latter's liability. All things considered, he can be held liable for the sum ofP10,000.00 as attorney's fees in favor of the petitioner.

Thus, the trial court committed grave abuse of discretion in dismissing the complaint as against

private respondent Chi and condemning petitioner to pay him P20,000.00 as attorney's fees.

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

WHEREFORE, the instant Petition is hereby GRANTED.

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

1. Declaring private respondent Philippine Rayon Mills,

Inc. liable on the twelve drafts in question (Exhibits "X",

"X-1" to "X-11", inclusive) and on the trust receipt(Exhibit "C"), and ordering it to pay petitioner: (a) theamounts due thereon in the total sum of P956,384.95as of 15 September 1974, with interest thereon at sixpercent (6%) per annum from 16 September 1974 untilit is fully paid, less whatever may have been appliedthereto by virtue of foreclosure of mortgages, if any; (b)a sum equal to ten percent (10%) of the aforesaidamount as attorney's fees; and (c) the costs.

2. Declaring private respondent Anacleto R. Chisecondarily liable on the trust receipt and ordering himto pay the face value thereof, with interest at the legalrate, commencing from the date of the filing of thecomplaint in Civil Case No. Q-19312 until the same isfully paid as well as the costs and attorney's fees in thesum of P10,000.00 if the writ of execution for theenforcement of the above awards against PhilippineRayon Mills, Inc. is returned unsatisfied.

Costs against private respondents.

SO ORDERED.

G.R. No. 134436. August 16, 2000 METROPOLITAN BANK and TRUST COMPANYvs. JOAQUIN TONDA and MA. CRISTINA TONDA

D E C I S I O N

GONZAGA_REYES, J.:

This is a petition for review on certiorariunder Rule 45 of the Rules of Court seeking to setaside the Decision[1] of the Court of Appeals[2]

dated June 29, 1998 in CA-G.R. SP No. 38113which: (1) reversed Resolution No. 417, s. 1994, [3]dated June 1, 1994 of the Department ofJustice[4] directing to file the appropriate Information against herein respondents Joaquin P.

Tonda and Ma. Cristina V. Tonda for violation of P.D. 115 in relation to Article 315 (1) (b) of theRevised Penal Code; and (2) effectively set aside the Resolutions dated April 7, 1995 [5] and July12 1995[6] of the Department of Justice denying the motions for reconsideration.

Spouses Joaquin G. Tonda and Ma. Cristina U. Tonda, hereinafter referred to as theTONDAS, applied for and were granted commercial letters of credit by petitioner MetropolitanBank and Trust Company, hereinafter referred to as METROBANK for a period of eight (8)months beginning June 14, 1990 to February 1, 1991 in connection with the importation of rawtextile materials to be used in the manufacturing of garments. The TONDAS acting both in theircapacity as officers of Honey Tree Apparel Corporation (HTAC) and in their personal capacities,executed eleven (11) trust receipts to secure the release of the raw materials to HTAC. Theimported fabrics with a principal value of P2,803,000.00 were withdrawn by HTAC under the 11trust receipts executed by the TONDAS. Due to their failure to settle their obligations under thetrust receipts upon maturity, METROBANK through counsel, sent a letter dated August 10,1992, making its final demand upon the TONDAS to settle their past due TR/LC accounts on orbefore August 15, 1992. They were informed that by said date, the obligations would amount to

P4,870,499.13. Despite repeated demands therefor, the TONDAS failed to comply with their
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obligations stated in the trust receipts agreements, i.e. the TONDAS failed to account toMETROBANK the goods and/or proceeds of sale of the merchandise, subject of the trustreceipts.

Consequently, on November 9, 1992, Metrobank, through its account officer Eligio Labog,Jr., filed with the Provincial Prosecutor of Rizal a complaint/affidavit against the TONDAS forviolation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 (1) (b) of the RevisedPenal Code. On February 12, 1993, the assigned Assistant Prosecutor of Rizal submitted aMemorandum to the Provincial Prosecutor recommending that the complaint in I.S. No. 92-8703be dismissedon the ground that the complainants had failed to establish the existence of theessential elements of Estafa as charged. The recommendation was approved by Rizal

Provincial Prosecutor Mauro Castro on May 18, 1993.

METROBANK then appealed to the Department of Justice (DOJ). On June 1, 1994,Undersecretary Ramon. S. Esguerra reversed the findings of the Provincial Prosecutor of Rizaland ordered the latter to file the appropriate information against the TONDAS as charged in thecomplaint.

The TONDAS immediately sought a reconsideration of the DOJ Resolution but theirmotion was denied by the then acting Justice Secretary Demetrio G. Demetria in a Letter-Resolution dated April 7, 1995. A second motion for reconsideration by the TONDAS waslikewise denied by then Justice Secretary Teofisto Guingona on July 12, 1995.

Subsequently, the TONDAS filed with the Court of Appeals a special civil actionforcertiorariand prohibition with application for a temporary restraining order or a writ ofpreliminary injunction,[7]which was docketed as CA-G.R. SP No. 38113. They contended thereinthat the Secretary of Justice acted without or in excess of jurisdiction in issuing the

aforementioned Resolution dated July 12, 1995 denying with finality their motion for thereconsideration of the Resolution dated April 7, 1995 of the Acting Secretary of Justice, which inturn denied their motion for the reconsideration of Resolution No. 417, s. 94, dated June 1,1994, directing to file the appropriate Information against the TONDAS.

The Court of Appeals granted the TONDAS' petition and ordered the criminal complaintagainst them dismissed. The Court of Appeals held that METROBANK had failed to showaprima facie case that the TONDAS violated the Trust Receipts Law in relation to Art. 315 (1)(b) of the Revised Penal Code in the face of convincing proof that "that the amount of P2.8Million representing the outstanding obligation of the TONDAS under the trust receipts accounthad already been settled by them in compliance with the loan restructuring proposal; and that inthe absence of a loan restructuring agreement, METROBANK could still validly apply theamount as payment thereof." The relevant portions of the Court of Appeals decision are quotedas follows:

"Petitioners admitted that in 1991 their company, the Honey Tree Apparel Corporation (HTAC),had some financial reversals making it difficult for them to comply with their loan obligations withMetrobank. They were then constrained to propose a loan restructuring agreement with theprivate respondent to enable them to finally settle all outstanding obligations with the latter. In aletter dated 23 September 1991, petitioner Joaquin Tonda submitted a proposed LoanRestructuring Scheme to Metrobank. In said letter, petitioner Tonda proposed to immediatelypay in full the outstanding principal charges under the trust receipts account and the remainingobligations under a separate schedule of payment. Petitioners attached with said letter anitemized proposal (Attachment "A"), part of which reads:

1. Trust Receipts - The new management and. Mr. Joaquin G. Tonda will payimmediately the entire principal of the outstanding Trust Receipts amountingto P2,803,097.14. While the interest accrued up to September 13, 1991amounting to P409,601.57 plus the additional interest shall be re-structured

together with item no. 2 below. A joint sharing account in the name of Joaquin

G. Tonda and Wang Tien En equal to Trust Receipt amount of 1.8 Million will beopened at Metrobank Makati. (emphasis supplied)

It would appear that the aforestated amount of 1.8 Million was erroneously written since theintention of the petitioners was to open an account ofP2.8 Million to pay the entire principal ofthe outstanding trust receipts account. In fact, also on 23 September 1991, petitioner JoaquinTonda and Wang Tien En deposited four different checks with a total amount of P2,800,000.00with Metrobank. The checks were received by a certain Flor C. Naanep. Notably, thepetitioners had obtained a written acknowledgement of receipt of the checks totaling P2.8 Millionfrom the Metrobank officer in order to show proof of compliance with the loan restructuring

proposal. If the petitioners had intended it to be a simple deposit, then a deposit slip with amachine validation by the private respondent bank would have otherwise been sufficient.

In a letter dated 22 October 1991, Metrobank wrote to the petitioners informing them that thebank had accepted their proposal subject to certain conditions, the first of which referred to theimmediate payment of the amount of P2.8 Million, representing the outstanding trust receiptsaccount. The petitioners appeared to have offered a counter proposal such that no finalagreement had yet been reached.

However, the succeeding negotiations between petitioners and Metrobank, after the initial offerof 23 September 1991 was made, dealt with the other outstanding obligations while the matterregarding the trust receipts account remained unchanged; therefore, it was settled between theparties that the amount of P2.8 Million should be paid to cover all outstanding obligations underthe trust receipts account. Despite the inability of both parties to reach a mutually agreeable loan

restructured agreement, the amount of P2.8 Million which was deposited on 23 September 1991by the petitioners appears to remain intact and untouched as Metrobank had failed to showevidence that the money has been withdrawn from the savings account of the petitioners.

Moreover, the deposit made by the petitioners was made known to Metrobank clearly as acompliance with the proposed loan restructuring agreement. As shown in the correspondencemade by the petitioners on 28 February 1992 to Metrobank, after the latter had made a formaldemand for payment of all outstanding obligations, the deposit was mentioned, to wit:

"May we emphasize that to show sincerity and financial capability, soon after we received yourletter dated October 22, 1991 informing us of your approval of the restructuring andconsolidation of our firm's obligations, a personal account was opened by two (2) of ourstockholders in the amount equivalent to the TR/LC, Account of about P2.8 Million which depositis still maintained with your bank, free from any lien or encumbrance, and may be applied

anytime to the payment of the TR/LC Account upon the implementation by the parties of theterms of restructuring.""(emphasis supplied)

The contention of Metrobank that the money had not been actually applied as payment forpetitioners' outstanding obligation under the trust receipts account is absolutely devoid of merit,considering that the petitioners were still in the process of negotiating for a reasonable loanrestructuring arrangement with Metrobank when the latter abruptly abandoned all efforts tonegotiate and instantly demanded from the petitioners the fulfillment of all their outstandingobligations.

In the case ofTan Tiong Tick vs. American Apothecaries, 65 Phil. 414, the Supreme Court hadheld that:

When a depositor is indebted to a bank, and the debts are mutual - that is, between the same

parties and in the, same right - the bank may apply the deposit, or such portion thereof as may
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be necessary, to the payment of the debt due it by the depositor, provided there is no expressagreement to the contrary and the deposit is not specifically applicable to some other particularpurpose.

Applying the above-mentioned ruling in this case, if the parties therefore fail to reach anagreement regarding the restructuring of HTAC's loan, Metrobank can validly apply the amountdeposited by the petitioners as payment of the principal obligation under the trust receiptsaccount.

On the basis of all the evidence before Us, this Court is convinced that the amount of P2.8

Million representing the outstanding obligation of the petitioners under the trust receipts accounthad already been settled by the petitioners. The money remains deposited under the savingsaccount of the petitioners awaiting a final agreement with Metrobank regarding the loanrestructuring arrangement. Meanwhile, Metrobank has the right to use the deposited amount inconnection with any of its banking business.

With convincing proof that the amount of P2.8 Million deposited under petitioners' savingsaccount with Metrobank was indeed intended to be applied as payment for the outstandingobligations of HTAC under the trust receipts, Metrobank, therefore, had failed to show a primafacie case that the petitioners had violated the Trust Receipts Law (P.D. No. 115) in relation to

Art. 315 of the Revised Penal Code. Besides, there is absolutely no evidence suggesting thatMetrobank has been damaged by the proposal and the deposit made by the petitioners. Asnoted by the prosecutor:

It is clear from the evidence that complainant bank had, all the while, been informed of thesteps undertaken by the respondents relative to the trust receipts and other financial obligationsvis-a-vis HTAC's financial difficulties. Hardly therefore, could it be said that respondents wereunfaithfully, deceptively, deceitfully and fraudulently dealing with complainant bank to warrant anindictment for Estafa.[8]

Hence, this recourse to this Court where petitioner submits for the consideration of thisCourt the following issues:

I.WHETHER METROBANK HAS SHOWN A PRIMA FACIE VIOLATION OF THE TRUSTRECEIPTS LAW IN RELATION TO ART. 315 OF THE REVISED PENAL CODE

II.WHETHER AN AGREEMENT WAS FORGED BETWEEN THE PARTIES THAT THE 2.8MILLION DEPOSITED IN THE JOINT ACCOUNT OF JOAGUIN G. TONDA AND WANG

TIEN EN WOULD BE CONSIDERED AS PAYMENT FOR THE OUTSTANDINGOBLIGATIONS OF THE SPOUSES TONDA UNDER THE TRUST RECEIPTSIII.

WHETHER INSPITE OF THE FAILURE OF THE PARTIES TO AGREE UPON ARESTRUCTURING AGREEMENT, METROBANK CAN STILL APPLY THE P2.8 MILLIONDEPOSIT AS PAYMENT TO THE PRINCIPAL AMOUNT COVERED BY THE TRUSTRECEIPTS

IV.WHETHER DAMAGE HAS BEEN CAUSED TO METROBANK BECAUSE OF THEPROPOSAL AND OF THE DEPOSIT

V.WHETHER METROBANK HAS THE STANDING TO PROSECUTE THE CASE A QUO

VI.WHETHER THE ASSIGNED ERRORS IN THE PETITION FOR CERTIORARI FILEDWITH THIS HONORABLE COURT RAISES PURELY QUESTIONS OF FACTS [9]

In response to the foregoing, the TONDAS maintain that METROBANK has no legalstanding to file the present petition without the conformity or authority of the prosecutor as itdeals solely with the criminal aspect of the case, a separate action to recover civil liability havingalready been instituted; that the issues raised in the present petition are purely factual; and thatthe subject trust receipts obligations have been extinguished by payment or legal compensation.

We find for petitioner bank.

Preliminarily, we shall resolve the issues raised by the TONDAS regarding the standing ofMETROBANK to file the instant petition and whether the same raises questions of law.

The general rule is that it is only the Solicitor General who is authorized to bring or defendactions on behalf of the People or the Republic of the Philippines once the case is broughtbefore this Court or the Court of Appeals. However, an exception has been made that "if thereappears to be grave error committed by the judge or lack of due process, the petition will bedeemed filed by the private complainants therein as if it were filed by the Solicitor General."[10] Inthat case, the Court gave due course to the petition and allowed the petitioners to argue theircase in lieu of the Solicitor General. We accord the same treatment to the instant petition onaccount of the grave errors committed by the Court of Appeals. We add that no informationhaving been filed yet in court, there is, strictly speaking, no case yet for the People or theRepublic of the Philippines. In answer to the second issue raised by the TONDAS, while the

jurisdiction of the Supreme Court in a petition for review on certiorariunder Rule 45 of theRevised Rules of Court is limited to reviewing only errors of law, not of fact, one exception to therule is when the factual findings complained of are devoid of support by the evidence on recordor the assailed judgment is based on misappreciation of facts [11], as will be shown to havehappened in the instant case.

In the main, the issue is whether or not the dismissal by the Court of Appeals of thecharge for violation of the Trust Receipts Law in relation to Art. 315(1) (b) of the Revised PenalCode against the TONDAS is warranted by the evidence at hand and by law.

The Court of Appeals gravely erred in reversing the Department of Justice on the findingof probable cause to hold the TONDAS for trial. The documentary evidence presented duringthe preliminary investigation clearly show that there was probable cause to warrant a criminalprosecution for violation of the Trust Receipts Law.

The relevant penal provision of P.D. 115 provides:

SEC. 13. Penalty Clause. - The failure of an entrustee to turn over the proceeds of the sale ofthe goods, documents or instruments covered by a trust receipt to the extent of the amountowing to the entruster or as appears in the trust receipt or to return said goods, documents orinstruments if they were not sold or disposed of in accordance with the terms of the trust receipt

shall constitute the crime of estafa, punishable under the provisions of Article Three Hundredand Fifteen, Paragraph One (b), of Act Numbered Three Thousand Eight Hundred and Fifteen,as amended, otherwise known as the Revised Penal Code. If the violation or offense iscommitted by a corporation, partnership, association or other judicial entities, the penaltyprovided for in this Decree shall be imposed upon the directors, officers, employees or otherofficials or persons therein responsible for the offense, without prejudice to the civil liabilitiesarising from the criminal offense.

Section 1 (b), Article 315 of the Revised Penal Code under which the violation is made tofall, states:

"x x x Swindling (estafa). - Any person who shall defraud another by any of the mans mentionedherein below x x x:
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x x x x x x x x x

b. By misappropriating or converting, to the prejudice of another, money, goods, orany other personal property received by the offender in trust or on commission,or for administration, or under any other obligation involving the duty to makedelivery of or to return the same, even though such obligation be totally orpartially guaranteed by a bond; or by denying having received such money,goods, or other property.

Based on the foregoing, it is plain to see that the Trust Receipts Law declares the failureto turn over the goods or the proceeds realized from the sale thereof, as a criminal offense

punishable under Article 315 (1) (b) of the Revised Penal Code. The law is violated wheneverthe entrustee or the person to whom the trust receipts were issued in favor of fails to: (1) returnthe goods covered by the trust receipts; or (2) return the proceeds of the sale of the saidgoods. The foregoing acts constitute estafa punishable under Article 315 (1) (b) of the RevisedPenal Code. Given that various trust receipts were executed by the TONDAS and that asentrustees, they did not return the proceeds from the goods sold nor the goods themselves toMETROBANK, there is no dispute that that the TONDAS failed to comply with the obligationsunder the trust receipts despite several demands from METROBANK.

Finding favorably for the TONDAS, however, and ordering the dismissal of the complaintagainst them, the Court of Appeals held that: (1) the TONDAS opened a savings account ofP2.8 Million to pay the entire principal of the outstanding trust receipts account; (2) the TONDASobtained from a METROBANK officer[12]a written acknowledgement of receipt of checks totalingP2.8 Million in order to show proof of compliance with the loan restructuring proposal; (3) it wassettled between the parties that the amount of 2.8 Million should be paid to cover all outstandingobligations under the trust receipts account; (4) the money remains deposited under the savingsaccount of petitioners awaiting a final agreement with METROBANK regarding the loanrestructuring arrangement; and that (5) there is no evidence suggesting that METROBANKhasbeen damaged by the proposal and the deposit or that the TONDAS employed fraud and deceitin their dealings with the bank.

The foregoing findings and conclusions are palpably erroneous.

First, the amount of P2.8 million was not directly paid to METROBANK to settle the trustreceipt accounts, but deposited in a joint account of Joaquin G. Tonda and a certain Wang TienEn. In a letter dated February 28, 1992, signed by HTAC's Vice President for Finance,METROBANK was informed that the amount "may be applied anytime to the payment of thetrust receipts account upon implementation of the parties of the terms of therestructuring."[13]The parties failed to agree on the terms of the loan restructuring agreement asthe offer by the TONDAS to restructure the loan was followed by a series of counter-offers whichyielded nothing. It is axiomatic that acceptance of an offer must be unqualified and

absolute[14]

to perfect a contract. The alleged payment of the trust receipts accounts neverbecame effectual on account of the failure of the parties to finalize a loan restructuringarrangement.

Second, the handwritten note by the METROBANK officer acknowledging receipt of thechecks amounting to P2.8 Million made no reference to the TONDAS' trust receipt obligations,and we cannot presume that it was anything more than an ordinary bank deposit. The Court of

Appeals citing the case ofTan Tiong Tick vs. American Apothecories[15]implied that in makingthe deposit, the TONDAS are entitled to set off, by way of compensation, their obligations toMETROBANK. However, Article 1288 of the Civil Code provides that "compensation shall notbe proper when one of the debts consists in civil liability arising from a penal offense" as in thecase at bar. The raison d'etre for this is that, "if one of the debts consists in civil liability arisingfrom a penal offense, compensation would be improper and inadvisable because the satisfactionof such obligation is imperative."[16]

Third, reliance on the negotiations for the settlement of the trust receipts obligationsbetween the TONDAS and METROBANK is simply misplaced. The negotiations pertain andaffect only the civil aspect of the case but does not preclude prosecution for the offense alreadycommitted. It has been held that "[a]ny compromise relating to the civil liability arising from anoffense does not automatically terminate the criminal proceeding against or extinguish thecriminal liability of the malefactor."[17] All told, the P2.8 Million deposit could not be considered ashaving settled the trust receipts obligations of the TONDAS to the end of extinguishing anyincipient criminal culpability arising therefrom.

Hence, it has been held in Office of the Court Administrator vs. Soriano [18]that:

xxx it is too well-settled for any serious argument that whether in malversation of public funds orestafa, payment, indemnification, or reimbursement of, or compromise as to, the amounts orfunds malversed or misappropriated, after the commission of the crime, affects only the civilliability of the offender but does not extinguish his criminal liability or relieve him from the penaltyprescribed by law for the offense committed, because both crimes are public offenses againstthe people that must be prosecuted and penalized by the Government on its own motion, thoughcomplete reparation should have been made of the damage suffered by the offendedparties. xxx."

As to the statement of the Court of Appeals that there is no evidence that METROBANKhas beendamaged by the proposal and the deposit, it must be clarified that the damage can betraced from the non-fulfillment of an entrustee's obligation under the trust receipts. The nature oftrust receipt agreements and the damage caused to trade circles and the banking community incase of violation thereof was explained in Vintola vs. IBAA[19]and echoed in People

vs. Nitafan[20]

,as follows:

"[t]rust receipt arrangements do not involve a simple loan transaction between a creditor and adebtor-importer. Apart from a loan feature, the trust receipt arrangement has a security featurethat is covered by the trust receipt itself. The second feature is what provides the much neededfinancial assistance to traders in the importation or purchase of goods or merchandise throughthe use of those goods or merchandise as collateral for the advancements made by thebank. The title of the bank to the security is the one sought to be protected and not the loanwhich is a separate and distinct agreement."

xxx xxx xxx.

"Trust receipts are indispensable contracts in international and domestic businesstransactions. The prevalent use of trust receipts, the danger of their misuse and/ormisappropriation of the goods or proceeds realized from the sale of goods, documents orinstruments held in trust for entruster-banks, and the need for regulation of trust receipttransactions to safeguard the rights and enforce the obligations of the parties involved are themain thrusts of P.D. 115. As correctly observed by the Solicitor General, P.D. 115, like BataPambansa Blg. 22, punishes the act "not as an offense against property, but as an offenseagainst public order. x x x The misuse of trust receipts therefore should be deterred to preventany possible havoc in trade circles and the banking community. (citing Lozano vs. Martinez, 146SCRA 323 [1986]; Rollo, p. 57) It is in the context of upholding public interest that the law nowspecifically designates a breach of a trust receipt agreement to be an act that "shall" make oneliable foe estafa."

The finding that there was no fraud and deceit is likewise misplaced Considering that theoffense is punished as a malum prohibitumregardless of the existence of intent or malice. Amere failure to deliver the proceeds of the sale or the goods if not sold, constitutes a criminal

offense that causes prejudice not only to another, but more to the public interest.[21]
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Finally, it is worthy of mention that a preliminary investigation proper - whether or not thereis reasonable ground to believe that the accused is guilty of the offense and therefore, whetheror not he should be subjected to the expense, rigors and embarrassment of trial - is the functionof the prosecutor.[22]Preliminary investigation is an executive, not a judicial function. [23]Suchinvestigation is not part of the trial, hence, a full and exhaustive presentation of the parties'evidence is not required, but only such as may engender a well-grounded belief that an offensehas been committed and that the accused is probably guilty thereof. [24]

Section 4, Rule 112 of the Rules of Court recognizes the authority of the Secretary ofJustice to reverse the resolution of the provincial or city prosecutor or chief state prosecutorupon petition by a proper party.[25] Judicial review of the resolution of the Secretary of Justice is

limited to a determination of whether there has been a grave abuse of discretion amounting tolack or excess of j urisdiction considering that the full discretionary authority has been delegatedto the executive branch in the determination of probable cause during a preliminaryinvestigation. Courts are not empowered to substitute their judgment for that of the executivebranch; it may, however, look into the question of whether such exercise has been made ingrave abuse of discretion.[26]

Verily, there was no grave abuse of discretion on the part of the Secretary of Justice indirecting the filing of the Information against the TONDAS, end the Court of Appealsoversteppedits boundaries in reversing the same without basis in law and in evidence. Weemphasize that for purposes of preliminary investigation, it is enough that there is evidenceshowing that a crime has been committed and that the accused is probably guilty thereof. [27]Byreason of the abbreviated nature of preliminary investigations, a dismissal of the charges as aresult thereof is not equivalent to a judicial pronouncement of acquittal, [28] a converso, the findingof aprima facie case to hold the accused for trial is not equivalent to a finding of guilt.

WHEREFORE, the petition is hereby GRANTED. The assailed Decision is REVERSEDand SET ASIDE.

SO ORDERED.

Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.

G.R. No. 134436. August 16, 2000 METROPOLITAN BANK and TRUST COMPANYvs. JOAQUIN TONDA and MA. CRISTINA TONDA

D E C I S I O N

GONZAGA_REYES, J.:

This is a petition for review on certiorariunder Rule 45 of the Rules of Court seeking to setaside the Decision[1] of the Court of Appeals[2]dated June 29, 1998 in CA-G.R. SP No. 38113which: (1) reversed Resolution No. 417, s. 1994, [3]dated June 1, 1994 of the Department ofJustice[4] directing to file the appropriate Information against herein respondents Joaquin P.Tonda and Ma. Cristina V. Tonda for violation of P.D. 115 in relation to Article 315 (1) (b) of theRevised Penal Code; and (2) effectively set aside the Resolutions dated April 7, 1995 [5] and July12 1995[6] of the Department of Justice denying the motions for reconsideration.

Spouses Joaquin G. Tonda and Ma. Cristina U. Tonda, hereinafter referred to as theTONDAS, applied for and were granted commercial letters of credit by petitioner Metropolitan

Bank and Trust Company, hereinafter referred to as METROBANK for a period of eight (8)

months beginning June 14, 1990 to February 1, 1991 in connection with the importation of rawtextile materials to be used in the manufacturing of garments. The TONDAS acting both in theircapacity as officers of Honey Tree Apparel Corporation (HTAC) and in their personal capacities,executed eleven (11) trust receipts to secure the release of the raw materials to HTAC. Theimported fabrics with a principal value of P2,803,000.00 were withdrawn by HTAC under the 11trust receipts executed by the TONDAS. Due to their failure to settle their obligations under thetrust receipts upon maturity, METROBANK through counsel, sent a letter dated August 10,1992, making its final demand upon the TONDAS to settle their past due TR/LC accounts on orbefore August 15, 1992. They were informed that by said date, the obligations would amount toP4,870,499.13. Despite repeated demands therefor, the TONDAS failed to comply with theirobligations stated in the trust receipts agreements, i.e. the TONDAS failed to account to

METROBANK the goods and/or proceeds of sale of the merchandise, subject of the trustreceipts.

Consequently, on November 9, 1992, Metrobank, through its account officer Eligio Labog,Jr., filed with the Provincial Prosecutor of Rizal a complaint/affidavit against the TONDAS forviolation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 (1) (b) of the RevisedPenal Code. On February 12, 1993, the assigned Assistant Prosecutor of Rizal submitted aMemorandum to the Provincial Prosecutor recommending that the complaint in I.S. No. 92-8703be dismissedon the ground that the complainants had failed to establish the existence of theessential elements of Estafa as charged. The recommendation was approved by RizalProvincial Prosecutor Mauro Castro on May 18, 1993.

METROBANK then appealed to the Department of Justice (DOJ). On June 1, 1994,Undersecretary Ramon. S. Esguerra reversed the findings of the Provincial Prosecutor of Rizaland ordered the latter to file the appropriate information against the TONDAS as charged in the

complaint.The TONDAS immediately sought a reconsideration of the DOJ Resolution but their

motion was denied by the then acting Justice Secretary Demetrio G. Demetria in a Letter-Resolution dated April 7, 1995. A second motion for reconsideration by the TONDAS waslikewise denied by then Justice Secretary Teofisto Guingona on July 12, 1995.

Subsequently, the TONDAS filed with the Court of Appeals a special civil actionforcertiorariand prohibition with application for a temporary restraining order or a writ ofpreliminary injunction,[7]which was docketed as CA-G.R. SP No. 38113. They contended thereinthat the Secretary of Justice acted without or in excess of jurisdiction in issuing theaforementioned Resolution dated July 12, 1995 denying with finality their motion for thereconsideration of the Resolution dated April 7, 1995 of the Acting Secretary of Justice, which inturn denied their motion for the reconsideration of Resolution No. 417, s. 94, dated June 1,1994, directing to file the appropriate Information against the TONDAS.

The Court of Appeals granted the TONDAS' petition and ordered the criminal complaintagainst them dismissed. The Court of Appeals held that METROBANK had failed to showaprima facie case that the TONDAS violated the Trust Receipts Law in relation to Art. 315 (1)(b) of the Revised Penal Code in the face of convincing proof that "that the amount of P2.8Million representing the outstanding obligation of the TONDAS under the trust receipts accounthad already been settled by them in compliance with the loan restructuring proposal; and that inthe absence of a loan restructuring agreement, METROBANK could still validly apply theamount as payment thereof." The relevant portions of the Court of Appeals decision are quotedas follows:

"Petitioners admitted that in 1991 their company, the Honey Tree Apparel Corporation (HTAC),had some financial reversals making it difficult for them to comply with their loan obligations withMetrobank. They were then constrained to propose a loan restructuring agreement with theprivate respondent to enable them to finally settle all outstanding obligations with the latter. In aletter dated 23 September 1991, petitioner Joaquin Tonda submitted a proposed Loan
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Restructuring Scheme to Metrobank. In said letter, petitioner Tonda proposed to immediatelypay in full the outstanding principal charges under the trust receipts account and the remainingobligations under a separate schedule of payment. Petitioners attached with said letter anitemized proposal (Attachment "A"), part of which reads:

1. Trust Receipts - The new management and. Mr. Joaquin G. Tonda will payimmediately the entire principal of the outstanding Trust Receipts amountingto P2,803,097.14. While the interest accrued up to September 13, 1991amounting to P409,601.57 plus the additional interest shall be re-structuredtogether with item no. 2 below. A joint sharing account in the name of Joaquin

G. Tonda and Wang Tien En equal to Trust Receipt amount of 1.8 Million will beopened at Metrobank Makati. (emphasis supplied)

It would appear that the aforestated amount of 1.8 Million was erroneously written since theintention of the petitioners was to open an account ofP2.8 Million to pay the entire principal ofthe outstanding trust receipts account. In fact, also on 23 September 1991, petitioner JoaquinTonda and Wang Tien En deposited four different checks with a total amount of P2,800,000.00with Metrobank. The checks were received by a certain Flor C. Naanep. Notably, thepetitioners had obtained a written acknowledgement of receipt of the checks totaling P2.8 Millionfrom the Metrobank officer in order to show proof of compliance with the loan restructuringproposal. If the petitioners had intended it to be a simple deposit, then a deposit slip with amachine validation by the private respondent bank would have otherwise been sufficient.

In a letter dated 22 October 1991, Metrobank wrote to the petitioners informing them that the

bank had accepted their proposal subject to certain conditions, the first of which referred to theimmediate payment of the amount of P2.8 Million, representing the outstanding trust receiptsaccount. The petitioners appeared to have offered a counter proposal such that no finalagreement had yet been reached.

However, the succeeding negotiations between petitioners and Metrobank, after the initial offerof 23 September 1991 was made, dealt with the other outstanding obligations while the matterregarding the trust receipts account remained unchanged; therefore, it was settled between theparties that the amount of P2.8 Million should be paid to cover all outstanding obligations underthe trust receipts account. Despite the inability of both parties to reach a mutually agreeable loanrestructured agreement, the amount of P2.8 Million which was deposited on 23 September 1991by the petitioners appears to remain intact and untouched as Metrobank had failed to showevidence that the money has been withdrawn from the savings account of the petitioners.

Moreover, the deposit made by the petitioners was made known to Metrobank clearly as acompliance with the proposed loan restructuring agreement. As shown in the correspondencemade by the petitioners on 28 February 1992 to Metrobank, after the latter had made a formaldemand for payment of all outstanding obligations, the deposit was mentioned, to wit:

"May we emphasize that to show sincerity and financial capability, soon after we received yourletter dated October 22, 1991 informing us of your approval of the restructuring andconsolidation of our firm's obligations, a personal account was opened by two (2) of ourstockholders in the amount equivalent to the TR/LC, Account of about P2.8 Million which depositis still maintained with your bank, free from any lien or encumbrance, and may be appliedanytime to the payment of the TR/LC Account upon the implementation by the parties of theterms of restructuring.""(emphasis supplied)

The contention of Metrobank that the money had not been actually applied as payment forpetitioners' outstanding obligation under the trust receipts account is absolutely devoid of merit,

considering that the petitioners were still in the process of negotiating for a reasonable loanrestructuring arrangement with Metrobank when the latter abruptly abandoned all efforts tonegotiate and instantly demanded from the petitioners the fulfillment of all their outstandingobligations.

In the case ofTan Tiong Tick vs. American Apothecaries, 65 Phil. 414, the Supreme Court hadheld that:

When a depositor is indebted to a bank, and the debts are mutual - that is, between the sameparties and in the, same right - the bank may apply the deposit, or such portion thereof as may

be necessary, to the payment of the debt due it by the depositor, provided there is no expressagreement to the contrary and the deposit is not specifically applicable to some other particularpurpose.

Applying the above-mentioned ruling in this case, if the parties therefore fail to reach anagreement regarding the restructuring of HTAC's loan, Metrobank can validly apply the amountdeposited by the petitioners as payment of the principal obligation under the trust receiptsaccount.

On the basis of all the evidence before Us, this Court is convinced that the amount of P2.8Million representing the outstanding obligation of the petitioners under the trust receipts accounthad already been settled by the petitioners. The money remains deposited under the savingsaccount of the petitioners awaiting a final agreement with Metrobank regarding the loanrestructuring arrangement. Meanwhile, Metrobank has the right to use the deposited amount in

connection with any of its banking business.

With convincing proof that the amount of P2.8 Million deposited under petitioners' savingsaccount with Metrobank was indeed intended to be applied as payment for the outstandingobligations of HTAC under the trust receipts, Metrobank, therefore, had failed to show a primafacie case that the petitioners had violated the Trust Receipts Law (P.D. No. 115) in relation to

Art. 315 of the Revised Penal Code. Besides, there is absolutely no evidence suggesting thatMetrobank has been damaged by the proposal and the deposit made by the petitioners. Asnoted by the prosecutor:

It is clear from the evidence that complainant bank had, all the while, been informed of thesteps undertaken by the respondents relative to the trust receipts and other financial obligationsvis-a-vis HTAC's financial difficulties. Hardly therefore, could it be said that respondents wereunfaithfully, deceptively, deceitfully and fraudulently dealing with complainant bank to warrant an

indictment for Estafa.[8]

Hence, this recourse to this Court where petitioner submits for the consideration of thisCourt the following issues:

I.WHETHER METROBANK HAS SHOWN A PRIMA FACIE VIOLATION OF THE TRUSTRECEIPTS LAW IN RELATION TO ART. 315 OF THE REVISED PENAL CODE

II.WHETHER AN AGREEMENT WAS FORGED BETWEEN THE PARTIES THAT THE 2.8MILLION DEPOSITED IN THE JOINT ACCOUNT OF JOAGUIN G. TONDA AND WANGTIEN EN WOULD BE CONSIDERED AS PAYMENT FOR THE OUTSTANDINGOBLIGATIONS OF THE SPOUSES TONDA UNDER THE TRUST RECEIPTS

III.WHETHER INSPITE OF THE FAILURE OF THE PARTIES TO AGREE UPON ARESTRUCTURING AGREEMENT, METROBANK CAN STILL APPLY THE P2.8 MILLION
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DEPOSIT AS PAYMENT TO THE PRINCIPAL AMOUNT COVERED BY THE TRUSTRECEIPTS

IV.WHETHER DAMAGE HAS BEEN CAUSED TO METROBANK BECAUSE OF THEPROPOSAL AND OF THE DEPOSIT

V.WHETHER METROBANK HAS THE STANDING TO PROSECUTE THE CASE A QUO

VI.WHETHER THE ASSIGNED ERRORS IN THE PETITION FOR CERTIORARI FILEDWITH THIS HONORABLE COURT RAISES PURELY QUESTIONS OF FACTS [9]

In response to the foregoing, the TONDAS maintain that METROBANK has no legal

standing to file the present petition without the conformity or authority of the prosecutor as itdeals solely with the criminal aspect of the case, a separate action to recover civil liability havingalready been instituted; that the issues raised in the present petition are purely factual; and thatthe subject trust receipts obligations have been extinguished by payment or legal compensation.

We find for petitioner bank.

Preliminarily, we shall resolve the issues raised by the TONDAS regarding the standing ofMETROBANK to file the instant petition and whether the same raises questions of law.

The general rule is that it is only the Solicitor General who is authorized to bring or defendactions on behalf of the People or the Republic of the Philippines once the case is broughtbefore this Court or the Court of Appeals. However, an exception has been made that "if thereappears to be grave error committed by the judge or lack of due process, the petition will bedeemed filed by the private complainants therein as if it were filed by the Solicitor General."[10] Inthat case, the Court gave due course to the petition and allowed the petitioners to argue theircase in lieu of the Solicitor General. We accord the same treatment to the instant petition onaccount of the grave errors committed by the Court of Appeals. We add that no informationhaving been filed yet in court, there is, strictly speaking, no case yet for the People or theRepublic of the Philippines. In answer to the second issue raised by the TONDAS, while the

jurisdiction of the Supreme Court in a petition for review on certiorariunder Rule 45 of theRevised Rules of Court is limited to reviewing only errors of law, not of fact, one exception to therule is when the factual findings complained of are devoid of support by the evidence on recordor the assailed judgment is based on misappreciation of facts [11], as will be shown to havehappened in the instant case.

In the main, the issue is whether or not the dismissal by the Court of Appeals of thecharge for violation of the Trust Receipts Law in relation to Art. 315(1) (b) of the Revised PenalCode against the TONDAS is warranted by the evidence at hand and by law.

The Court of Appeals gravely erred in reversing the Department of Justice on the finding

of probable cause to hold the TONDAS for trial. The documentary evidence presented duringthe preliminary investigation clearly show that there was probable cause to warrant a criminalprosecution for violation of the Trust Receipts Law.

The relevant penal provision of P.D. 115 provides:

SEC. 13. Penalty Clause. - The failure of an entrustee to turn over the proceeds of the sale ofthe goods, documents or instruments covered by a trust receipt to the extent of the amountowing to the entruster or as appears in the trust receipt or to return said goods, documents orinstruments if they were not sold or disposed of in accordance with the terms of the trust receiptshall constitute the crime of estafa, punishable under the provisions of Article Three Hundredand Fifteen, Paragraph One (b), of Act Numbered Three Thousand Eight Hundred and Fifteen,as amended, otherwise known as the Revised Penal

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