ACT NO.
2137 – THE WAREHOUSE RECEIPTS LAW (b) In any wise impair his obligation to exercise that degree of care in the
I – THE ISSUE OF WAREHOUSE RECEIPTS
Section 1. Persons who may issue receipts. – Warehouse receipts may
be issued by any warehouseman.
Sec. 2. Form of receipts; essential terms. – Warehouse receipts need not
be in any particular form but every such receipt must embody within its
written or printed terms:
(a) The location of the warehouse where the goods are stored,
(b) The date of the issue of the receipt,
(c) The consecutive number of the receipt,
(d) A statement whether the goods received will be delivered to the
bearer, to a specified person or to a specified person or his order,
(e) The rate of storage charges,
(f) A description of the goods or of the packages containing them,
(g) The signature of the warehouseman which may be made by his
authorized agent,
(h) If the receipt is issued for goods of which the warehouseman is
owner, either solely or jointly or in common with others, the fact of such
ownership, and
(i) A statement of the amount of advances made and of liabilities incurred
for which the warehouseman claims a lien. If the precise amount of such
advances made or of such liabilities incurred is, at the time of the issue
of, unknown to the warehouseman or to his agent who issues it, a
statement of the fact that advances have been made or liabilities incurred
and the purpose thereof is sufficient.
A warehouseman shall be liable to any person injured thereby for all
damages caused by the omission from a negotiable receipt of any of the
terms herein required.
Sec. 3. Form of receipts. – What terms may be inserted. – A
warehouseman may insert in a receipt issued by him any other terms and
conditions provided that such terms and conditions shall not:
(a) Be contrary to the provisions of this Act.
safe-keeping of the goods entrusted to him which is reasonably careful
man would exercise in regard to similar goods of his own.
Sec. 4. Definition of non-negotiable receipt. – A receipt in which it is
stated that the goods received will be delivered to the depositor or to any
other specified person, is a non-negotiable receipt.
Sec. 5. Definition of negotiable receipt. – A receipt in which it is stated
that the goods received will be delivered to the bearer or to the order of
any person named in such receipt is a negotiable receipt.
No provision shall be inserted in a negotiable receipt that it is non-
negotiable. Such provision, if inserted shall be void.
Sec. 6. Duplicate receipts must be so marked. – When more than one
negotiable receipt is issued for the same goods, the word “duplicate” shall
be plainly placed upon the face of every such receipt, except the first one
issued. A warehouseman shall be liable for all damages caused by his
failure so to do to any one who purchased the subsequent receipt for
value supposing it to be an original, even though the purchase be after
the delivery of the goods by the warehouseman to the holder of the
original receipt.
Sec. 7. Failure to mark “non-negotiable.” – A non-negotiable receipt shall
have plainly placed upon its face by the warehouseman issuing it “non-
negotiable,” or “not negotiable.” In case of the warehouseman’s failure so
to do, a holder of the receipt who purchased it for value supposing it to be
negotiable, may, at his option, treat such receipt as imposing upon the
warehouseman the same liabilities he would have incurred had the
receipt been negotiable.
This section shall not apply, however, to letters, memoranda, or written
acknowledgment of an informal character.
II – OBLIGATIONS AND RIGHTS OF WAREHOUSEMEN UPON THEIR
RECEIPTS
Sec. 8. Obligation of warehousemen to deliver. – A warehouseman, in
the absence of some lawful excuse provided by this Act, is bound to
deliver the goods upon a demand made either by the holder of a receipt
for the goods or by the depositor; if such demand is accompanied with:
(a) An offer to satisfy the warehouseman’s lien;
(b) An offer to surrender the receipt, if negotiable, with such indorsements
as would be necessary for the negotiation of the receipt; and
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(c) A readiness and willingness to sign, when the goods are delivered, an
acknowledgment that they have been delivered, if such signature is
requested by the warehouseman.
In case the warehouseman refuses or fails to deliver the goods in
compliance with a demand by the holder or depositor so accompanied,
the burden shall be upon the warehouseman to establish the existence of
a lawful excuse for such refusal.
Sec. 9. Justification of warehouseman in delivering. – A warehouseman
is justified in delivering the goods, subject to the provisions of the three
following sections, to one who is:
(a) The person lawfully entitled to the possession of the goods, or his
agent;
(b) A person who is either himself entitled to delivery by the terms of a
non-negotiable receipt issued for the goods, or who has written authority
from the person so entitled either indorsed upon the receipt or written
upon another paper; or
(c) A person in possession of a negotiable receipt by the terms of which
the goods are deliverable to him or order, or to bearer, or which has been
indorsed to him or in blank by the person to whom delivery was promised
by the terms of the receipt or by his mediate or immediate indorser.
Sec. 10. Warehouseman’s liability for misdelivery. – Where a
warehouseman delivers the goods to one who is not in fact lawfully
entitled to the possession of them, the warehouseman shall be liable as
for conversion to all having a right of property or possession in the goods
if he delivered the goods otherwise than as authorized by subdivisions (b)
and (c) of the preceding section, and though he delivered the goods as
authorized by said subdivisions, he shall be so liable, if prior to such
delivery he had either:
(a) Been requested, by or on behalf of the person lawfully entitled to a
right of property or possession in the goods, not to make such deliver; or
(b) Had information that the delivery about to be made was to one not
lawfully entitled to the possession of the goods.
Sec. 11. Negotiable receipt must be cancelled when goods delivered. –
Except as provided in section thirty-six, where a warehouseman delivers
goods for which he had issued a negotiable receipt, the negotiation of
which would transfer the right to the possession of the goods, and fails to
take up and cancel the receipt, he shall be liable to any one who
purchases for value in good faith such receipt, for failure to deliver the
goods to him, whether such purchaser acquired title to the receipt before
or after the delivery of the goods by the warehouseman.
Sec. 12. Negotiable receipts must be cancelled or marked when part of
goods delivered. – Except as provided in section thirty-six, where a
warehouseman delivers part of the goods for which he had issued a
negotiable receipt and fails either to take up and cancel such receipt or to
place plainly upon it a statement of what goods or packages have been
delivered, he shall be liable to any one who purchases for value in good
faith such receipt, for failure to deliver all the goods specified in the
receipt, whether such purchaser acquired title to the receipt before or
after the delivery of any portion of the goods by the warehouseman.
Sec. 13. Altered receipts. – The alteration of a receipt shall not excuse
the warehouseman who issued it from any liability if such alteration was:
(a) Immaterial,
(b) Authorized, or
(c) Made without fraudulent intent.
If the alteration was authorized, the warehouseman shall be liable
according to the terms of the receipt as altered. If the alteration was
unauthorized but made without fraudulent intent, the warehouseman shall
be liable according to the terms of the receipt as they were before
alteration.
Material and fraudulent alteration of a receipt shall not excuse the
warehouseman who issued it from liability to deliver according to the
terms of the receipt as originally issued, the goods for which it was issued
but shall excuse him from any other liability to the person who made the
alteration and to any person who took with notice of the alteration. Any
purchaser of the receipt for value without notice of the alteration shall
acquire the same rights against the warehouseman which such
purchaser would have acquired if the receipt had not been altered at the
time of purchase.
Sec. 14. Lost or destroyed receipts. – Where a negotiable receipt has
been lost or destroyed, a court of competent jurisdiction may order the
delivery of the goods upon satisfactory proof of such loss or destruction
and upon the giving of a bond with sufficient sureties to be approved by
the court to protect the warehouseman from any liability or expense,
which he or any person injured by such delivery may incur by reason of
the original receipt remaining outstanding. The court may also in its
discretion order the payment of the warehouseman’s reasonable costs
and counsel fees.
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The delivery of the goods under an order of the court as provided in this
section, shall not relieve the warehouseman from liability to a person to
whom the negotiable receipt has been or shall be negotiated for value
without notice of the proceedings or of the delivery of the goods.
Sec. 15. Effect of duplicate receipts. – A receipt upon the face of which
the word “duplicate” is plainly placed is a representation and warranty by
the warehouseman that such receipt is an accurate copy of an original
receipt properly issued and uncanceled at the date of the issue of the
duplicate, but shall impose upon him no other liability.
Sec. 16. Warehouseman cannot set up title in himself . – No title or right
to the possession of the goods, on the part of the warehouseman, unless
such title or right is derived directly or indirectly from a transfer made by
the depositor at the time of or subsequent to the deposit for storage, or
from the warehouseman’s lien, shall excuse the warehouseman from
liability for refusing to deliver the goods according to the terms of the
receipt.
Sec. 17. Interpleader of adverse claimants. – If more than one person
claims the title or possession of the goods, the warehouseman may,
either as a defense to an action brought against him for non-delivery of
the goods or as an original suit, whichever is appropriate, require all
known claimants to interplead.
Sec. 18. Warehouseman has reasonable time to determine validity of
claims. – If someone other than the depositor or person claiming under
him has a claim to the title or possession of goods, and the
warehouseman has information of such claim, the warehouseman shall
be excused from liability for refusing to deliver the goods, either to the
depositor or person claiming under him or to the adverse claimant until
the warehouseman has had a reasonable time to ascertain the validity of
the adverse claim or to bring legal proceedings to compel claimants to
interplead.
Sec. 19. Adverse title is no defense except as above provided. – Except
as provided in the two preceding sections and in sections nine and thirty-
six, no right or title of a third person shall be a defense to an action
brought by the depositor or person claiming under him against the
warehouseman for failure to deliver the goods according to the terms of
the receipt.
Sec. 20. Liability for non-existence or misdescription of goods. – A
warehouseman shall be liable to the holder of a receipt for damages
caused by the non-existence of the goods or by the failure of the goods to
correspond with the description thereof in the receipt at the time of its
issue. If, however, the goods are described in a receipt merely by a
statement of marks or labels upon them or upon packages containing
them or by a statement that the goods are said to be goods of a certain
kind or that the packages containing the goods are said to contain goods
of a certain kind or by words of like purport, such statements, if true, shall
not make liable the warehouseman issuing the receipt, although the
goods are not of the kind which the marks or labels upon them indicate or
of the kind they were said to be by the depositor.
Sec. 21. Liability for care of goods. – A warehouseman shall be liable for
any loss or injury to the goods caused by his failure to exercise such care
in regard to them as reasonably careful owner of similar goods would
exercise, but he shall not be liable, in the absence of an agreement to the
contrary, for any loss or injury to the goods which could not have been
avoided by the exercise of such care.
Sec. 22. Goods must be kept separate. – Except as provided in the
following section, a warehouseman shall keep the goods so far separate
from goods of other depositors and from other goods of the same
depositor for which a separate receipt has been issued, as to permit at all
times the identification and redelivery of the goods deposited.
Sec. 23. Fungible goods may be commingled if warehouseman
authorized. – If authorized by agreement or by custom, a warehouseman
may mingle fungible goods with other goods of the same kind and grade.
In such case, the various depositors of the mingled goods shall own the
entire mass in common and each depositor shall be entitled to such
portion thereof as the amount deposited by him bears to the whole.
Sec. 24. Liability of warehouseman to depositors of commingled goods. –
The warehouseman shall be severally liable to each depositor for the
care and redelivery of his share of such mass to the same extent and
under the same circumstances as if the goods had been kept separate.
Sec. 25. Attachment or levy upon goods for which a negotiable receipt
has been issued. – If goods are delivered to a warehouseman by the
owner or by a person whose act in conveying the title to them to a
purchaser in good faith for value would bind the owner, and a negotiable
receipt is issued for them, they can not thereafter, while in the possession
of the warehouseman, be attached by garnishment or otherwise, or be
levied upon under an execution unless the receipt be first surrendered to
the warehouseman or its negotiation enjoined. The warehouseman shall
in no case be compelled to deliver up the actual possession of the goods
until the receipt is surrendered to him or impounded by the court.
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Sec. 26. Creditor’s remedies to reach negotiable receipts. – A creditor
whose debtor is the owner of a negotiable receipt shall be entitled to such
aid from courts of appropriate jurisdiction, by injunction and otherwise, in
attaching such receipt or in satisfying the claim by means thereof as is
allowed at law or in equity in these islands in regard to property which
can not readily be attached or levied upon by ordinary legal process.
Sec. 27. What claims are included in the warehouseman’s lien. – Subject
to the provisions of section thirty, a warehouseman shall have a lien on
goods deposited or on the proceeds thereof in his hands, for all lawful
charges for storage and preservation of the goods; also for all lawful
claims for money advanced, interest, insurance, transportation, labor,
weighing, coopering and other charges and expenses in relation to such
goods, also for all reasonable charges and expenses for notice, and
advertisements of sale, and for sale of the goods where default had been
made in satisfying the warehouseman’s lien.
Sec. 28. Against what property the lien may be enforced. – Subject to the
provisions of section thirty, a warehouseman’s lien may be enforced:
(a) Against all goods, whenever deposited, belonging to the person who
is liable as debtor for the claims in regard to which the lien is asserted,
and
(b) Against all goods belonging to others which have been deposited at
any time by the person who is liable as debtor for the claims in regard to
which the lien is asserted if such person had been so entrusted with the
possession of goods that a pledge of the same by him at the time of the
deposit to one who took the goods in good faith for value would have
been valid.
Sec. 29. How the lien may be lost. – A warehouseman loses his lien upon
goods:
(a) By surrendering possession thereof, or
(b) By refusing to deliver the goods when a demand is made with which
he is bound to comply under the provisions of this Act.
Sec. 30. Negotiable receipt must state charges for which the lien is
claimed. – If a negotiable receipt is issued for goods, the warehouseman
shall have no lien thereon except for charges for storage of goods
subsequent to the date of the receipt unless the receipt expressly
enumerated other charges for which a lien is claimed. In such case, there
shall be a lien for the charges enumerated so far as they are within the
terms of section twenty-seven although the amount of the charges so
enumerated is not stated in the receipt.
Sec. 31. Warehouseman need not deliver until lien is satisfied. – A
warehouseman having a lien valid against the person demanding the
goods may refuse to deliver the goods to him until the lien is satisfied.
Sec. 32. Warehouseman’s lien does not preclude other remedies. –
Whether a warehouseman has or has not a lien upon the goods, he is
entitled to all remedies allowed by law to a creditor against a debtor for
the collection from the depositor of all charges and advances which the
depositor has expressly or impliedly contracted with the warehouseman
to pay.
Sec. 33. Satisfaction of lien by sale. – A warehouseman’s lien for a claim
which has become due may be satisfied as follows:
(a) An itemized statement of the warehouseman’s claim, showing the
sum due at the time of the notice and the date or dates when it becomes
due,
(b) A brief description of the goods against which the lien exists,
(c) A demand that the amount of the claim as stated in the notice of such
further claim as shall accrue, shall be paid on or before a day mentioned,
not less than ten days from the delivery of the notice if it is personally
delivered, or from the time when the notice shall reach its destination,
according to the due course of post, if the notice is sent by mail,
(d) A statement that unless the claim is paid within the time specified, the
goods will be advertised for sale and sold by auction at a specified time
and place.
In accordance with the terms of a notice so given, a sale of the goods by
auction may be had to satisfy any valid claim of the warehouseman for
which he has a lien on the goods. The sale shall be had in the place
where the lien was acquired, or, if such place is manifestly unsuitable for
the purpose of the claim specified in the notice to the depositor has
elapsed, and advertisement of the sale, describing the goods to be sold,
and stating the name of the owner or person on whose account the
goods are held, and the time and place of the sale, shall be published
once a week for two consecutive weeks in a newspaper published in the
place where such sale is to be held. The sale shall not be held less than
fifteen days from the time of the first publication. If there is no newspaper
published in such place, the advertisement shall be posted at least ten
days before such sale in not less than six conspicuous places therein.
From the proceeds of such sale, the warehouseman shall satisfy his lien
including the reasonable charges of notice, advertisement and sale. The
balance, if any, of such proceeds shall be held by the warehouseman and
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delivered on demand to the person to whom he would have been bound
to deliver or justified in delivering goods.
At any time before the goods are so sold, any person claiming a right of
property or possession therein may pay the warehouseman the amount
necessary to satisfy his lien and to pay the reasonable expenses and
liabilities incurred in serving notices and advertising and preparing for the
sale up to the time of such payment. The warehouseman shall deliver the
goods to the person making payment if he is a person entitled, under the
provision of this Act, to the possession of the goods on payment of
charges thereon. Otherwise, the warehouseman shall retain the
possession of the goods according to the terms of the original contract of
deposit.
Sec. 34. Perishable and hazardous goods. – If goods are of a perishable
nature, or by keeping will deteriorate greatly in value, or, by their order,
leakage, inflammability, or explosive nature, will be liable to injure other
property , the warehouseman may give such notice to the owner or to the
person in whose names the goods are stored, as is reasonable and
possible under the circumstances, to satisfy the lien upon such goods
and to remove them from the warehouse and in the event of the failure of
such person to satisfy the lien and to receive the goods within the time so
specified, the warehouseman may sell the goods at public or private sale
without advertising. If the warehouseman, after a reasonable effort, is
unable to sell such goods, he may dispose of them in any lawful manner
and shall incur no liability by reason thereof.
The proceeds of any sale made under the terms of this section shall be
disposed of in the same way as the proceeds of sales made under the
terms of the preceding section.
Sec. 35. Other methods of enforcing lien. – The remedy for enforcing a
lien herein provided does not preclude any other remedies allowed by law
for the enforcement of a lien against personal property nor bar the right to
recover so much of the warehouseman’s claim as shall not be paid by the
proceeds of the sale of the property.
Sec. 36. Effect of sale. – After goods have been lawfully sold to satisfy a
warehouseman’s lien, or have been lawfully sold or disposed of because
of their perishable or hazardous nature, the warehouseman shall not
thereafter be liable for failure to deliver the goods to the depositor or
owner of the goods or to a holder of the receipt given for the goods when
they were deposited, even if such receipt be negotiable.
III – NEGOTIATION AND TRANSFER OF RECEIPTS
Sec. 37. Negotiation of negotiable receipt of delivery. – A negotiable
receipt may be negotiated by delivery:
(a) Where, by terms of the receipt, the warehouseman undertakes to
deliver the goods to the bearer, or
(b) Where, by the terms of the receipt, the warehouseman undertakes to
deliver the goods to the order of a specified person, and such person or a
subsequent indorsee of the receipt has indorsed it in blank or to bearer.
Where, by the terms of a negotiable receipt, the goods are deliverable to
bearer or where a negotiable receipt has been indorsed in blank or to
bearer, any holder may indorse the same to himself or to any other
specified person, and, in such case, the receipt shall thereafter be
negotiated only by the indorsement of such indorsee.
Sec. 38. Negotiation of negotiable receipt by indorsement. – A negotiable
receipt may be negotiated by the indorsement of the person to whose
order the goods are, by the terms of the receipt, deliverable. Such
indorsement may be in blank, to bearer or to a specified person. If
indorsed to a specified person, it may be again negotiated by the
indorsement of such person in blank, to bearer or to another specified
person. Subsequent negotiation may be made in like manner.
Sec. 39. Transfer of receipt. – A receipt which is not in such form that it
can be negotiated by delivery may be transferred by the holder by
delivery to a purchaser or donee.
A non-negotiable receipt can not be negotiated, and the indorsement of
such a receipt gives the transferee no additional right.
Sec. 40. Who may negotiate a receipt. – A negotiable receipt may be
negotiated:
(a) By the owner thereof, or
(b) By any person to whom the possession or custody of the receipt has
been entrusted by the owner, if, by the terms of the receipt, the
warehouseman undertakes to deliver the goods to the order of the person
to whom the possession or custody of the receipt has been entrusted, or
if, at the time of such entrusting, the receipt is in such form that it may be
negotiated by delivery.
Sec. 41. Rights of person to whom a receipt has been negotiated. – A
person to whom a negotiable receipt has been duly negotiated acquires
thereby:
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(a) Such title to the goods as the person negotiating the receipt to him
had or had ability to convey to a purchaser in good faith for value, and
also such title to the goods as the depositor or person to whose order the
goods were to be delivered by the terms of the receipt had or had ability
to convey to a purchaser in good faith for value, and
(b) The direct obligation of the warehouseman to hold possession of the
goods for him according to the terms of the receipt as fully as if the
warehouseman and contracted directly with him.
Sec. 42. Rights of person to whom receipt has been transferred. – A
person to whom a receipt has been transferred but not negotiated
acquires thereby, as against the transferor, the title of the goods subject
to the terms of any agreement with the transferor.
If the receipt is non-negotiable, such person also acquires the right to
notify the warehouseman of the transfer to him of such receipt and
thereby to acquire the direct obligation of the warehouseman to hold
possession of the goods for him according to the terms of the receipt.
Prior to the notification of the warehouseman by the transferor or
transferee of a non-negotiable receipt, the title of the transferee to the
goods and the right to acquire the obligation of the warehouseman may
be defeated by the levy of an attachment or execution upon the goods by
a creditor of the transferor or by a notification to the warehouseman by
the transferor or a subsequent purchaser from the transferor of a
subsequent sale of the goods by the transferor.
Sec. 43. Transfer of negotiable receipt without indorsement. – Where a
negotiable receipt is transferred for value by delivery and the indorsement
of the transferor is essential for negotiation, the transferee acquires a
right against the transferor to compel him to indorse the receipt unless a
contrary intention appears. The negotiation shall take effect as of the time
when the indorsement is actually made.
Sec. 44. Warranties of a sale of receipt. – A person who, for value,
negotiates or transfers a receipt by indorsement or delivery, including one
who assigns for value a claim secured by a receipt, unless a contrary
intention appears, warrants:
(a) That the receipt is genuine,
(b) That he has a legal right to negotiate or transfer it,
(c) That he has knowledge of no fact which would impair the validity or
worth of the receipt, and
(d) That he has a right to transfer the title to the goods and that the goods
are merchantable or fit for a particular purpose whenever such warranties
would have been implied, if the contract of the parties had been to
transfer without a receipt of the goods represented thereby.
Sec. 45. Indorser not a guarantor. – The indorsement of a receipt shall
not make the indorser liable for any failure on the part of the
warehouseman or previous indorsers of the receipt to fulfill their
respective obligations.
Sec. 46. No warranty implied from accepting payment of a debt. – A
mortgagee, pledgee, or holder for security of a receipt who, in good faith,
demands or receives payment of the debt for which such receipt is
security, whether from a party to a draft drawn for such debt or from any
other person, shall not, by so doing, be deemed to represent or to
warrant the genuineness of such receipt or the quantity or quality of the
goods therein described.
Sec. 47. When negotiation not impaired by fraud, mistake or duress. –
The validity of the negotiation of a receipt is not impaired by the fact that
such negotiation was a breach of duty on the part of the person making
the negotiation or by the fact that the owner of the receipt was induced by
fraud, mistake or duress or to entrust the possession or custody of the
receipt to such person, if the person to whom the receipt was negotiated
or a person to whom the receipt was subsequently negotiated paid value
therefor, without notice of the breach of duty, or fraud, mistake or duress.
Sec. 48. Subsequent negotiation. – Where a person having sold,
mortgaged, or pledged goods which are in warehouse and for which a
negotiable receipt has been issued, or having sold, mortgaged, or
pledged the negotiable receipt representing such goods, continues in
possession of the negotiable receipt, the subsequent negotiation thereof
by the person under any sale or other disposition thereof to any person
receiving the same in good faith, for value and without notice of the
previous sale, mortgage or pledge, shall have the same effect as if the
first purchaser of the goods or receipt had expressly authorized the
subsequent negotiation.
Sec. 49. Negotiation defeats vendor’s lien. – Where a negotiable receipt
has been issued for goods, no seller’s lien or right of stoppage in transitu
shall defeat the rights of any purchaser for value in good faith to whom
such receipt has been negotiated, whether such negotiation be prior or
subsequent to the notification to the warehouseman who issued such
receipt of the seller’s claim to a lien or right of stoppage in transitu. Nor
shall the warehouseman be obliged to deliver or justified in delivering the
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goods to an unpaid seller unless the receipt is first surrendered for
cancellation.
IV – CRIMINAL OFFENSES
Sec. 50. Issue of receipt for goods not received. – A warehouseman, or
an officer, agent, or servant of a warehouseman who issues or aids in
issuing a receipt knowing that the goods for which such receipt is issued
have not been actually received by such warehouseman, or are not under
his actual control at the time of issuing such receipt, shall be guilty of a
crime, and, upon conviction, shall be punished for each offense by
imprisonment not exceeding five years, or by a fine not exceeding ten
thousand pesos, or both.
Sec. 51. Issue of receipt containing false statement. – A warehouseman,
or any officer, agent or servant of a warehouseman who fraudulently
issues or aids in fraudulently issuing a receipt for goods knowing that it
contains any false statement, shall be guilty of a crime, and upon
conviction, shall be punished for each offense by imprisonment not
exceeding one year, or by a fine not exceeding two thousand pesos, or
by both.
Sec. 52. Issue of duplicate receipt not so marked. – A warehouse, or any
officer, agent, or servant of a warehouseman who issues or aids in
issuing a duplicate or additional negotiable receipt for goods knowing that
a former negotiable receipt for the same goods or any part of them is
outstanding and uncanceled, without plainly placing upon the face thereof
the word “duplicate” except in the case of a lost or destroyed receipt after
proceedings are provided for in section fourteen, shall be guilty of a
crime, and, upon conviction, shall be punished for each offense by
imprisonment not exceeding five years, or by a fine not exceeding ten
thousand pesos, or by both.
Sec. 53. Issue for warehouseman’s goods or receipts which do not state
that fact. – Where they are deposited with or held by a warehouseman
goods of which he is owner, either solely or jointly or in common with
others, such warehouseman, or any of his officers, agents, or servants
who, knowing this ownership, issues or aids in issuing a negotiable
receipt for such goods which does not state such ownership, shall be
guilty of a crime, and, upon conviction, shall be punished for each offense
by imprisonment not exceeding one year, or by a fine not exceeding two
thousand pesos, or by both.
Sec. 54. Delivery of goods without obtaining negotiable receipt. – A
warehouseman, or any officer, agent, or servant of a warehouseman,
who delivers goods out of the possession of such warehouseman,
knowing that a negotiable receipt the negotiation of which would transfer
the right to the possession of such goods is outstanding and uncanceled,
without obtaining the possession of such receipt at or before the time of
such delivery, shall, except in the cases provided for in sections fourteen
and thirty-six, be found guilty of a crime, and, upon conviction, shall be
punished for each offense by imprisonment not exceeding one year, or by
a fine not exceeding two thousand pesos, or by both.
Sec. 55. Negotiation of receipt for mortgaged goods. – Any person who
deposits goods to which he has no title, or upon which there is a lien or
mortgage, and who takes for such goods a negotiable receipt which he
afterwards negotiates for value with intent to deceive and without
disclosing his want of title or the existence of the lien or mortgage, shall
be guilty of a crime, and, upon conviction, shall be punished for each
offense by imprisonment not exceeding one year, or by a fine not
exceeding two thousand pesos, or by both.
V – INTERPRETATION
Sec. 56. Case not provided for in Act. – Any case not provided for in this
Act shall be governed by the provisions of existing legislation, or in
default thereof, by the rule of the law merchant.
Sec. 57. Name of Act. – This Act may be cited as the Warehouse
Receipts Act.
Sec. 58. Definitions. – (a) In this Act, unless the content or subject matter
otherwise requires:
“Action” includes counterclaim, set-off, and suits in equity as provided by
law in these islands.
“Delivery” means voluntary transfer of possession from one person to
another.
“Fungible goods” means goods of which any unit is, from its nature by
mercantile custom, treated as the equivalent of any other unit.
“Goods” means chattels or merchandise in storage or which has been or
is about to be stored.
“Holder” of a receipt means a person who has both actual possession of
such receipt and a right of property therein.
“Order” means an order by indorsement on the receipt.
“Owner” does not include mortgagee.
7
“Person” includes a corporation or partnership or two or more persons
having a joint or common interest.
To “purchase” includes to take as mortgagee or as pledgee.
“Receipt” means a warehouse receipt.
“Value” is any consideration sufficient to support a simple contract. An
antecedent or pre-existing obligation, whether for money or not,
constitutes value where a receipt is taken either in satisfaction thereof or
as security therefor.
“Warehouseman” means a person lawfully engaged in the business of
storing goods for profit.
(b) A thing is done “in good faith” within the meaning of this Act when it is
in fact done honestly, whether it be done negligently or not.
Sec. 59. Application of Act. – The provisions of this Act do not apply to
receipts made and delivered prior to the taking effect hereof.
Sec. 60. Repeals. – All acts and laws and parts thereof inconsistent with
this Act are hereby repealed.
Sec. 61. Time when Act takes effect. – This Act shall take effect ninety
days after its publication in the Official Gazette of the Philippines shall
have been completed.
Enacted: February 5, 1912
THE WAREHOUSE RECEIPTS LAW
WHO MAY ISSUE WAREHOUSE RECEIPT?
> A warehouseman is a person lawfully engaged in the business of
storing goods for profit.
> Only a warehouseman may issue warehouse receipts
WHAT SHOULD BE DONE TO PUT THE RECEIPT WITHIN THE
PURVIEW OF WAREHOUSE RECEIPTS LAW?
> The warehouse receipt should be issued by the
warehouseman
FORM OF RECEIPTS; ESSENTIAL TERMS
1. The location of the warehouse where the goods are stored
2. The date of issue of the receipt
3. Consecutive number of the receipt
4. A statement whether the goods received will be delivered to the
bearer, to a specified person or to a specified person or his order
5. The rate of storage charges
6. A description of the goods or of the packages containing them
7. The signature of the warehouseman which may be made by his
authorized agent
8. If the receipt is issued for goods of which the
warehouseman is owner, either solely or jointly or in common with
others, the fact of such ownership
9. A statement of the amount of advances made and of
liabilities incurred for which the warehouseman claims as lien. If the
precise amount for such advances made or of such liabilities incurred is,
at the same time of the issue of the receipt, unknown to the
warehouseman or to his agent
who issues it, a statement of the fact that advances have been made or
liabilities incurred and the purpose thereof is sufficient
EFFECT OF OMISSION OF THE ESSENTIAL CONTENTS
> A warehouseman shall be liable to any person injured
thereby all damages caused by the omission from a negotiable
receipt of any of the terms herein required
> Validity of the receipt not affected
> Negotiability of the receipt not affected
TERMS THAT CANNOT BE INCLUDED IN THE WAREHOUSE
RECEIPT
1. Those contrary to any provision of the law
2. In any wise impair the warehouseman’s obligation to
exercise that degree of care in the safekeeping of the
goods entrusted to him which a reasonably careful man would
exercise with regard to similar goods of his own
NON-NEGOTIABLE WAREHOUSE RECEIPT
> Receipt in which it is stated that the goods received will be delivered to
the depositor or to any specified person
NEGOTIABLE WAREHOUSE RECEIPT
> Receipt in which it is stated that the goods received will be
delivered to the bearer or to the order of any person named in such
receipt
> No provision shall be inserted in a negotiable receipt that it is non-
negotiable. Such provision if inserted shall be void.
DUPLICATE RECEIPTS MUST BE MARKED
8
> When more than one is issued for the same goods, the
word “duplicate” shall be plainly placed upon the face of every such
receipt, except the first one issued
> A warehouseman shall be held liable for damages for failure to do
so to anyone who purchased the subsequent
receipt for value supposing it to be original, even though
the purchaser be after the delivery of the goods by the
warehouseman to the holder of the original receipt
OBLIGATIONS AND RIGHTS OF WAREHOUSEMAN UPON THEIR
RECEIPTS
PRINCIPAL OBLIGATIONS OF THE WAREHOUSEMAN
1. To take care of the goods entrusted to his safekeeping
2. To deliver them to the holder of the receipt or the
depositor provided the following conditions are fulfilled—there is
demand by the depositor accompanied by either
a. An offer to satisfy the warehouseman’s lien
b. An offer to surrender the receipt, if negotiable with
such indorsements as would be necessary for the negotiation of the
receipts
c. A readiness and willingness to sign, when the
goods are delivered, an acknowledgement that
they have been delivered, if such signature is requested by the
warehouseman
WHAT SHOULD ACCOMPANY THE DEMAND FOR THE RETURN OF
THE GOODS?
1. An offer to satisfy the warehouseman’s lien
2. An offer to surrender the receipt, if negotiable with such
indorsements as would be necessary for the negotiation of the receipts
3. A readiness and willingness to sign, when the goods are
delivered, an acknowledgement that they have been
delivered, if such signature is requested by the warehouseman
A WAREHOUSEMAN IS JUSTIFIED IN DELIVERING THE GOODS
TO ONE WHO IS—
1. Person lawfully entitled to the possession of the goods, or his agent
2. Person who either himself entitled to delivery by the terms of the non-
negotiable receipt issued for the goods, or who
has written authority from the person so entitled either endorsed
upon the receipt or written on another paper
3. Person in possession of a negotiable receipt by the terms
of which the goods are deliverable to him or order, or to bearer, or
which has been indorsed to him or in blank by the person to whom
delivery was promised by the terms of the receipt or by his mediate or
immediate indorser
WAREHOUSEMAN’S LIABILITY FOR MISDELIVERY
> Where a warehouseman delivers the goods to one who is not in fact
lawfully entitled to the possession of them, the
warehouseman shall be liable for conversion/estafa to all having a
right of property or possession in the goods if he delivered the goods
otherwise than as authorized
> And though he delivered the goods as authorized he shall be so liable if
prior to such delivery he had either—
o Been requested, by or on behalf of the person
lawfully entitled to a right of property or possession in the goods,
not to make such delivery
o Had information that the delivery about to be
made was to one not lawfully entitled to the possession of the
goods
WHAT IS CONVERSION?
> Unauthorized assumption and exercise of the right of
ownership over goods belonging to another through the alteration of
their condition or the exclusion of the owner’s right
NEGOTIABLE RECEIPTS MUST BE CANCELLED OR MARKED
WHEN GOODS DELIVERED OR WHEN PART OF IT IS
DELIVERED. FAILURE TO DO SO WILL MAKE THE
WAREHOUSEMAN LIABLE—
> The warehouseman is liable to any one who purchases for
value in good faith such receipt, for failure to deliver the goods to
him, whether such purchaser acquired title to
the receipt before or after the delivery of the goods by the
warehouseman
EFFECT OF ALTERATION ON LIABILITY OF WAREHOUSEMAN
1. Alteration immaterial—whether fraudulent or not, whether
authorized or not, the warehouseman is liable on the altered receipt
according to its original tenor
2. Alteration material—if the alteration is material, but
authorized, the warehouseman is liable according to the terms of the
receipt as altered
3. Material alteration innocently made—the warehouseman is liable on
the altered receipt according to its original receipt
9
4. Material alteration fraudulently made—warehouseman is
liable according to the original tenor of the receipt to a purchaser of
the receipt for value without notice, and even
to the alterer and subsequent purchasers with notice
except that as regards to the last two, the
warehouseman’s liability is limited only to delivery as he is excused from
any liability
NOTA BENE: it is clear that even a fraudulent alteration cannot
divest the title of the owner of stored goods and the
warehouseman is, therefore, liable to return them to the owner.
But a bona fide holder acquires no right to the goods under a
negotiable receipt which has been lost or stolen or to which the
endorsement of the depositor has been forged.
LOST OR DESTROYED RECEIPTS
> The court may order the delivery of the goods upon satisfactory
proof of such loss or destruction and upon the giving of a bond with
sufficient sureties to be approved by the court to protect the
warehouseman from any liability or expense, which he or any person
injured by such delivery
may incur by reason of the original receipt remaining outstanding
> The court may also in its discretion order the payment of the
warehouseman’s reasonable costs and counsel fees
> The order of the court shall not relieve the warehouseman
from liability to a person to whom the negotiable receipt as been or
shall be negotiated for value without notice of the proceedings or of the
delivery of the goods
LIABILITY OF WAREHOUSEMAN AS TO DUPLICATE—HE
WARRANTS
1. That the duplicate is an accurate copy of the original receipt
2. Such original receipt is uncancelled at the date of the issue of the
duplicate
WAREHOUSEMAN CANNOT SET UP TITLE IN HIMSELF
> The warehouseman cannot refuse to deliver the goods on
the ground that he has acquired title or right to the
possession of the same unless such title or right is derived—
o Directly or indirectly from a transfer made by the depositor at
the time of the deposit for storage or subsequent thereto
o From the warehouseman’s lien
INTERPLEADER OF ADVERSE CLAIMANTS
> If more than one person claims the title or possession of the
goods, the warehouseman may, either as a defense to
an action brought against him for non-delivery of the
goods, or as an original suit, whichever is appropriate, require all
known claimants to interplead
WAREHOUSEMAN HAS REASONABLE TIME TO DETERMINE
VALIDITY OF CLAIMS
> If someone other than the depositor or person claiming under him
has a claim to the title or possession of goods, and the warehouseman
has information of such claim, the warehouseman shall be excused
from liability for refusing
to deliver the goods, either to the depositor or person
claiming under him or to the adverse claimant, until the
warehouseman has had a reasonable time to ascertain the validity of the
adverse claim or to bring legal proceedings to compel all claimants to
interplead
LIABILITY OF WAREHOUSEMAN FOR NON-EXISTENCE OR
MISDESCRIPTION OF GOODS
> As a general rule, the warehouseman is under obligation to deliver the
identical property stored with him and if he fails to do so, he is liable
directly to the owner
> As against a bona fide holder of a warehouse receipt, the
warehouseman is estopped whether the receipt is negotiable or
not, to deny that he has received the goods described in it
LIABILITY OF WAREHOUSEMAN FOR LOSS DUE TO LACK OF
CARE
> The warehouseman is required to exercise ordinary or
reasonable care in the custody of the goods, that is, the
care is reasonably careful owner would exercise over similar goods
of his own.
> The warehouseman isn’t liable for any loss or injury to the
goods, which couldn’t have been avoided by the exercise
of such care. Of course, what constitutes ordinary or
reasonable care depends upon the circumstances such as the
character and value of the property and the character
and location of the warehouse.
COMMINGLING OF DEPOSITED GOODS
> As a general rule, a warehouseman may not mingle goods belonging to
depositors
> In case of fungible goods, the warehouseman may mingle them with
the goods of the same kind and grade provided that he authorized by
10
agreement or custom
> Commingling is intended for the benefit of the
warehouseman. It would, indeed be strange if the
warehouseman could escape his liability to the owner of
the goods by the simple process of commingling them without
authorization
ATTACHMENT OR LEVY OF A NEGOTIABLE RECEIPT
> The warehouseman has the direct obligation to hold
possession of the goods for the original owner or for the person
known the negotiable receipt of title has been duly negotiated.
> While in possession of such warehouseman, the goods
cannot be attached or levied upon under an execution unless—
o The document is first surrendered
o Its negotiation is enjoined
o The document is impounded by the court
> This shall not apply if the person depositing is not the owner of
the goods or one who has no right to convey title to the goods binding
upon the owner.
> Neither shall it apply to actions for recovery or manual delivery of
goods by the real owner nor to cases where the attachment is made
before the issuance of the negotiable receipt of title
CREDITOR’S REMEDIES TO REACH NEGOTIABLE RECEIPTS
> A creditor whose debtor is the owner of negotiable receipt
shall be entitled to such aid from courts of appropriate jurisdiction,
by injunction and otherwise, in attaching such
receipt or in satisfying the claim by means thereof as is
allowed by law or in equity in regard to property which
cannot be readily be attached or levied upon by ordinary legal
process
WHAT CLAIMS ARE INCLUDED IN THE WAREHOUSEMAN’S
LIEN
1. All lawful charges for storage and preservation of the goods
2. All lawful claims for money advanced—Interests,
Insurance, Transportation, Labor, Weighing, Cooperating and other
charges and expenses in relation to the goods
3. All reasonable charges and expenses for notice and
advertisements of sale
4. Sale of goods where default has been made in satisfying
warehouseman’s lien
AGAINST WHAT PROPERTY THE LIEN MAY BE ENFORCED
1. Against all goods, whenever deposited, belonging to the person
who is liable to the debtor for the claims in regard to which the lien is
asserted
2. Against all goods belonging to others which have been
deposited at any time by the person who is liable as debtor
for claims in regard to which the lien is asserted if such
person had been entrusted with the possession of the goods that a
pledge of the same by him at the time of the deposit to one who took the
goods in good faith for value would have been valid
HOW WAREHOUSEMAN LOSES HIS LIEN
1. By surrendering possession thereof
2. By refusing to deliver the goods when a demand is made
with which he is bound to comply under the provisions of the law
LIEN WHERE RECEIPT NEGOTIABLE
> With the exception of the charges for the storage or
preservation of goods for which a negotiable receipt has
been issued, the lien exists only for the other charges
expressly enumerated in the receipt so far as they are written
although the amount of the said charge isn’t stated
OTHER THINGS IN CONNECTION TO WAREHOUSEMAN’S LIEN
1. Warehouseman need not deliver lien is satisfied
2. Warehouseman’s lien doesn’t preclude other remedies
SATISFACTION OF LIEN BY SALE
1. The warehouseman shall give a written notice to the person on
whose account the goods are held, and to any
other person known by the warehouseman to claim an
interest in the goods. Such notice shall be given by
delivery in person or by registered mail addressed to the
last known place of business or abode of the person to be notified.
2. The notice shall contain—
a. An itemized statement of the claim, showing the
sum due at the time of the notice and the dates when it became
due
b. A brief description of the goods
c. A demand that such amount of the claim as stated shall be paid on or
before the day mentioned, not
less than 10 days from the delivery of the notice if
it is personally delivered, or from the time when
the notice shall reach its destination, according to due course of post, if
the notice is sent by mail
11
d. A statement that unless the claim is paid within the time specified, the
goods will be advertised for sale and sold by auction at a specified time
and place
ENFORCEMENT OF WAREHOUSEMAN’S LIEN
1. By refusing to deliver the goods until the lien is satisfied
2. By causing the extrajudicial sale of the property and applying the
proceeds to the value of the lien
3. By filing a civil action for collection of the unpaid charges
or by way of counterclaim in an action to recover the property from
him
EFFECT OF SALE OF GOODS
1. In case of sale of goods, the warehouseman is not liable
for nondelivery even if the receipt given for the goods when they
were deposited be negotiated.
2. When the sale was made without the publication
requirement and before the time specified by law, such
sale is void and the purchaser of the goods acquires no title in
them.
ACTS FOR WHICH WAREHOUSEMAN IS LIABLE
1. Failure to stamp duplicate on copies of negotiable receipt
2. Failure to place non-negotiable or not negotiable on the not
negotiable receipt
3. Misdelivery of the goods
4. Failure to effect cancellation of a negotiable receipt upon
delivery of the goods
5. Issuing receipt for non-existing goods or misdescribed goods
6. Failure to take care of the goods
7. Failure to give notice in case of sale of goods to satisfy the lien or
because the goods are perishable or hazardous
NEGOTIATION AND TRANSFER OF RECEIPTS
NEGOTIATION OF NEGOTIABLE RECEIPT BY DELIVERY
1. Where by the terms of the receipt, the warehouseman
undertakes to deliver the goods to the bearer
2. Where by the terms of the receipt, the warehouseman
undertakes to deliver the goods to the order of a specified person, and
such person or a subsequent indorsee of the receipt has indorsed it in
blank or to bearer
a. Where by the terms of the receipt, the goods are deliverable to
bearer or where a negotiable receipt
has been indorsed in blank or bearer, any holder
may indorse the same to himself or to any other
specified person, and in such case the receipt shall
thereafter be negotiated only by the indorsement by such indorsee
NEGOTIATION OF NEGOTIABLE RECEIPT BY INDORSEMENT
1. If indorsed in blank or to bearer, the document becomes
negotiable by delivery
2. If indorsed to a specified person, it may be again negotiated
by the indorsement of such person in blank, to bearer or to another
specified person. Delivery alone isn’t sufficient.
TRANSFER OF NON-NEGOTIABLE RECEIPT
> A non-negotiable receipt of title cannot be negotiated.
> Nevertheless, it can be transferred or assigned by delivery
> The assignee or transferee only acquires the rights of the transferor or
assignor
ADVANTAGES OF A NEGOTIABLE WAREHOUSE RECEIPT
1. It protects a purchaser for value and in good faith
2. The goods covered by the receipt cannot be garnished or
levied upon under execution unless it is surrendered, or impounded,
or its negotiation enjoined
3. In case of negotiation, the holder acquires the direct obligation of
the warehouseman to hold possession of the goods for him without notice
to such warehouseman
4. The goods it covers aren’t subject to seller’s lien or stoppage in
transitu
WHO MAY NEGOTIATE A RECEIPT
1. By the owner thereof
2. By any person to whom the possession or custody of the receipt
has been entrusted by the owner, if by the terms of
the receipt, the warehouseman undertakes to deliver the goods to
the order of the person to whom the possession or custody of the
receipt has been entrusted, or if at the
same time of such entrusting, the receipt is in such form that it may be
negotiated by delivery
RIGHTS OF PERSON TO WHOM RECEIPT HAS BEEN
NEGOTIATED
1. The title of the person negotiating the receipt over the goods
covered by the receipt
2. The title of the person to whose order by the terms of the receipt the
12
goods were to be delivered over such goods
3. The direct obligation of the warehouseman to hold
possession of the goods for him, as if the warehouseman directly
contracted with him
RIGHTS OF PERSON TO WHOM RECEIPT HAS BEEN
TRANSFERRED
1. Title to the goods as against the transferor
2. The right to notify the warehouseman of the transfer thereof
3. The right thereafter to acquire the obligation of the
warehouseman to hold the goods for him
RIGHTS OF TRANSFEREE OF NEGOTIABLE RECEIPT
1. The right to the goods as against the transferor
2. The right to compel the transferor to indorse the receipt
RULE WHERE RECEIPT IS SUBSEQUENTLY INDORSED
> For the purpose of determining whether the transferee is a
purchaser for value in good faith without notice, the
negotiation shall take effect as of the time when the indorsement is
actually made not at the time the receipt is delivered
> Reason for the rule: negotiation becomes complete only at the time of
indorsement
WARRANTIES ON SALE OF RECEIPT
1. That the receipt is genuine
2. That he has a legal right to negotiate or transfer it
3. That he has knowledge of no fact which would impair the validity of
the worth of the receipt
4. That he has a right to transfer the title to the goods and
that the goods are merchantable or fit for a particular
purpose, whenever such warranties would have been implied, if the
contract of the parties had been to transfer without a receipt of the goods
represented thereby
INDORSER, NOT A GUARANTOR
> The indorsement of a receipt doesn’t make the indorser liable
for any failure on the part of the warehouseman or
previous indorser of the receipt to fulfill their respective obligations
NO WARRANTY IMPLIED FROM ACCEPTING PAYMENT OF A
DEBT
> A mortgagee, pledgee or holder for security of a receipt
who, in good faith, demands or receives payment of the
debt for which such receipt is security, whether from a
party to a draft drawn for such debt or from any other person, shall
not, by so doing, be deemed to represent or
to warrant the genuineness of such receipt or the quantity or quality of the
goods therein described
> In other words, the holder of a security who in good faith accepts
payment of a debt from a person doesn’t warrant
thereby the genuineness of the receipt nor the quality or quantity of
the goods therein described
WHEN NEGOTIATION NOT IMPAIRED BY FRAUD, DURESS,
MISTAKE
> The validity of the negotiation of a receipt isn’t impaired by the fact that
such negotiation was a breach of duty on the part of the person making
the negotiation, or by the fact
that the owner of the receipt was induced by fraud, mistake or
duress to entrust the possession or custody of
the receipt to such person, if the person to whom the receipt was
negotiated, or to a person to whom the receipt
is subsequently negotiated paid value therefor, without notice of the
breach of duty, fraud, mistake or duress
EFFECT OF SUBSEQUENT NEGOTIATION BY SELLER, ETC.
> The purchaser, mortgagee, or pledgee of goods for which a
negotiable receipt has been issued, or of the negotiable receipt
itself, has the duty to require the negotiation of the
receipt to him otherwise, his failure will have the same effect as an
express authorization on his part to the seller,
mortgagor, or pledgor in possession of such receipt to make
subsequent negotiation
> The subsequent purchaser must have taken the receipt in good faith
and for value in order to acquire a better right
INDORSEE’S RIGHT SUPERIOR TO VENDOR’S LIEN
> An innocent holder of a negotiable receipt has a better right to the
goods for which the receipt is given than the vendor who has a vendor’s
lien upon such goods
> Warehouseman isn’t obliged to deliver or justified in delivering the
goods to an unpaid seller unless the receipt is first surrendered for
cancellation
HOW DO YOU ATTACH OR IMPOSE A LIEN OVER GOODS
COVERED BY A WAREHOUSE RECEIPT?
13
If it is not negotiable, the court would issue a writ of attachment. If it is
negotiable, the
court should require the surrender of the receipt and restrict further
negotiations.
G.R. No. 119231. April 18, 1996. *
PHILIPPINE NATIONAL BANK, petitioner, vs. HON. PRES.
JUDGE BENITO C. SE, JR., RTC, BR. 45, MANILA; NOAH’S
ARK SUGAR REFINERY; ALBERTO T. LOOYUKO, JIMMY T.
GO and WILSON T. GO, respondents.
Warehouse Receipts Law (R.A. 2137); Warehouseman’s
Liens;Actions; Judgments; A prior judgment holding that a party is a
warehouseman obligated to deliver sugar stocks covered by the
Warehouse Receipts does not necessarily carry with it a denial of the
warehouseman’s lien over the same sugar stocks.—We have carefully
examined our resolution, dated March 9, 1994, which denied Noah’s
Ark’s motion for clarification of our decision, dated September 1, 1993,
wherein we affirmed in full and adopted the Court of Appeals’ earlier
decision, dated December 13, 1991, in CA-G.R. SP No. 25938.
______________
*
FIRST DIVISION.
381
VOL. 256, APRIL 18, 1996 381
Philippine National Bank vs. Se, Jr.
We are not persuaded by the petitioner’s argument that our said
resolution carried with it the denial of the warehouseman’s lien over the
sugar stocks covered by the subject Warehouse Receipts. We have
simply resolved and upheld in our decision, dated September 1, 1993,
the propriety of summary judgment which was then assailed by private
respondents. In effect, we ruled therein that, considering the
circumstances obtaining before the trial court, the issuance of the
Warehouse Receipts not being disputed by the private respondents, a
summary judgment in favor of PNB was proper. We in effect further
affirmed the finding that Noah’s Ark is a warehouseman which was
obliged to deliver the sugar stocks covered by the Warehouse Receipts
pledged by Cresencia K. Zoleta and Luis T. Ramos to the petitioner
pursuant to the pertinent provisions of Republic Act 2137. In disposing
of the private respondents’ motion for clarification, we could not
contemplate the matter of warehouseman’s lien because the issue to
be finally resolved then was the claim of private respondents for
retaining ownership of the stocks of sugar covered by the endorsed
quedans. Stated otherwise, there was no point in taking up the issue of
warehouseman’s lien since the matter of ownership was as yet being
determined. Neither could storage fees be due then while no one has
been declared the owner of the sugar stocks in question.
Same; Same; Even in the absence of a provision in the
Warehouse Receipts, law and equity dictate the payment of the
warehouseman’s lien pursuant to Sections 27 and 31 of the Warehouse
Receipts Law.—Petitioner anchors its claim against private
respondents on the five (5) Warehouse Receipts issued by the latter to
third-party defendants Rosa Ng Sy of RNS Merchandising and Teresita
Ng of St. Therese Merchandising, which found their way to petitioner
after they were negotiated to them by Luis T. Ramos and Cresencia K.
Zoleta for a loan of P39.1 Million. Accordingly, petitioner PNB is legally
bound to stand by the express terms and conditions on the face of the
Warehouse Receipts as to the payment of storage fees. Even in the
absence of such a provision, law and equity dictate the payment of the
warehouseman’s lien pursuant to Sections 27 and 31 of the Warehouse
Receipts Law (R.A. 2137).
Same; Same; Contracts; Receipts; As contracts, warehouse
receipts must be respected by authority of Article 1159 of the Civil
Code.—Considering that petitioner does not deny the existence,
validity and genuineness of the Warehouse Receipts on which it
382
382 SUPREME COURT REPORTS
ANNOTATED
Philippine National Bank vs. Se, Jr.
anchors its claim for payment against private respondents, it
cannot disclaim liability for the payment of the storage fees stipulated
therein. As contracts, the receipts must be respected by authority of
Article 1159 of the Civil Code, to wit: “ART. 1159. Obligations arising
from contracts have the force of law between the contracting parties
and should be complied with in good faith.”
Same; Same; Same; Same; Estoppel; A party is in estoppel in
disclaiming liability for the payment of storage fees due the
warehouseman while claiming to be entitled to the sugar stocks
covered by the subject Warehouse Receipts on the basis of which it
anchors its claim for payment or delivery of the sugar stocks.—
Petitioner is in estoppel in disclaiming liability for the payment of storage
fees due the private respondents as warehouseman while claiming to
14
be entitled to the sugar stocks covered by the subject Warehouse
Receipts on the basis of which it anchors its claim for payment or
delivery of the sugar stocks. The unconditional presentment of the
receipts by the petitioner for payment against private respondents on
the strength of the provisions of the Warehouse Receipts Law (R.A.
2137) carried with it the admission of the existence and validity of the
terms, conditions and stipulations written on the face of the Warehouse
Receipts, including the unqualified recognition of the payment of
warehouseman’s lien for storage fees and preservation expenses.
Petitioner may not now retrieve the sugar stocks without paying the lien
due private respondents as warehouseman.
Same; Same; Imperative is the right of the warehouseman to
demand payment of his lien because he loses his lien upon goods by
surrendering possession thereof.—In view of the foregoing, the rule
may be simplified thus: While the PNB is entitled to the stocks of sugar
as the endorsee of the quedans, delivery to it shall be effected only
upon payment of the storage fees. Imperative is the right of the
warehouseman to demand payment of his lien at this juncture,
because, in accordance with Section 29 of the Warehouse Receipts
Law, the warehouseman loses his lien upon goods by surrendering
possession thereof. In other words, the lien may be 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.
PETITION to nullify a decision of the Regional Trial Court of
Manila, Br. 45.
383
VOL. 256, APRIL 18, 1996 383
Philippine National Bank vs. Se, Jr.
The facts are stated in the opinion of the Court.
Rolan A. Nieto for petitioner.
Madella & Cruz Law Offices for private respondents.
HERMOSISIMA, JR., J.:
The source of conflict herein is the question as to whether the
Philippine National Bank should pay storage fees for sugar stocks
covered by five (5) Warehouse Receipts stored in the warehouse
of private respondents in the face of the Court of Appeals’
decision (affirmed by the Supreme Court) declaring the Philippine
National Bank as the owner of the said sugar stocks and ordering
their delivery to the said bank. From the same facts but on a
different perspective, it can be said that the issue is: Can the
warehouseman enforce his warehouseman’s lien before
delivering the sugar stocks as ordered by the Court of Appeals or
need he file a separate action to enforce payment of storage
fees?
The herein petitioner seeks to annul: (1) the Resolution of
respondent Judge Benito C. Se, Jr. of the Regional Trial Court of
Manila, Branch 45, dated December 20, 1994, in Civil Case No.
90-53023, authorizing reception of evidence to establish the claim
of respondents Noah’s Ark Sugar Refinery, et al., for storage fees
and preservation expenses over sugar stocks covered by five (5)
Warehouse Receipts which is in the nature of a warehouseman’s
lien; and (2) the Resolution of the said respondent Judge, dated
March 1, 1995, declaring the validity of private respondents’
warehouseman’s lien under Section 27 of Republic Act No. 2137
and ordering that execution of the Court of Appeals’ decision,
dated December 13, 1991, be in effect held in abeyance until the
full amount of the warehouseman’s lien on the sugar stocks
covered by five (5) quedans subject of the action shall have been
satisfied conformably with the provisions of Section 31 of
Republic Act 2137.
Also prayed for by the petition is a Writ of Prohibition to require
respondent RTC Judge to desist from further proceeding
with Civil Case No. 90-53023, except order the execution
384
384 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Se, Jr.
of the Supreme Court judgment; and a Writ of Mandamus to
compel respondent RTC Judge to issue a Writ of Execution in
accordance with the said executory Supreme Court decision.
THE FACTS
In accordance with Act No. 2137, the Warehouse Receipts Law,
Noah’s Ark Sugar Refinery issued on several dates, the following
Warehouse Receipts (Quedans): (a) March 1, 1989, Receipt No.
18062, covering sugar deposited by Rosa Sy; (b) March 7, 1989,
Receipt No. 18080, covering sugar deposited by RNS
15
Merchandising (Rosa Ng Sy); (c) March 21, 1989, Receipt No.
18081, covering sugar deposited by St. Therese Merchandising;
(d) March 31, 1989, Receipt No. 18086, covering sugar deposited
by St. Therese Merchandising; and (e) April 1, 1989, Receipt No.
18087, covering sugar deposited by RNS Merchandising. The
receipts are substantially in the form, and contains the terms,
prescribed for negotiable warehouse receipts by Section 2 of the
law.
Subsequently, Warehouse Receipts Nos. 18080 and 18081
were negotiated and endorsed to Luis T. Ramos; and Receipts
Nos. 18086, 18087 and 18062 were negotiated and endorsed to
Cresencia K. Zoleta. Ramos and Zoleta then used the quedans
as security for two 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 National Bank.
Luis T. Ramos and Cresencia K. Zoleta failed to pay their
loans upon maturity on January 9, 1990. Consequently, on March
16, 1990, the Philippine National Bank wrote to Noah’s Ark Sugar
Refinery demanding 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 complaint for
“Specific Performance with Damages and Application for Writ of
Attachment” against Noah’s Ark Sugar Refinery, Alberto T.
Looyuko, Jimmy T. Go
385
VOL. 256, APRIL 18, 1996 385
Philippine National Bank vs. Se, Jr.
and Wilson T. Go, the last three being identified as the sole
proprietor, managing partner, and Executive Vice President of
Noah’s Ark, respectively.
Respondent Judge Benito C. Se, Jr., in whose sala the case
was raffled, denied the Application for Preliminary Attachment.
Reconsideration therefor was likewise denied.
Noah’s Ark and its co-defendants filed an Answer with
Counterclaim and Third-Party Complaint in which they claimed
that they are the owners of the subject quedans and the sugar
represented therein, averring as they did that:
“9. *** In an agreement dated April 1, 1989, defendants agreed to sell
to Rosa Ng Sy of RNS Merchandising and Teresita Ng of St. Therese
Merchandising the total volume of sugar indicated in 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
issued by the vendees in favor of defendants were subsequently
dishonored by the drawee banks by reason of ‘payment stopped’ and
‘drawn against insufficient funds,’ *** Upon proper notification to said
vendees and plaintiff in due course, defendants refused to deliver to
vendees therein the quantity of sugar covered by the subject quedans.
10. *** Considering that the vendees and first endorsers of subject
quedans did not acquire ownership thereof, the subsequent endorsers
and plaintiff itself did not acquire a better right of ownership than the
original vendees/first endorsers.” 1
The Answer incorporated a Third-Party Complaint by Alberto T.
Looyuko, Jimmy T. Go and Wilson T. Go, doing business under
the trade name and style Noah’s Ark Sugar Refinery against
Rosa Ng Sy and Teresita Ng, praying that the latter be ordered to
deliver or return to them the quedans (previously endorsed to
PNB and the subject of the suit) and pay damages and litigation
expenses.
The Answer of Rosa Ng Sy and Teresita Ng, dated September
6, 1990, one of avoidance, is essentially to the effect
_______________
1
Answer with Counterclaim and Third-Party Complaint, p. 3; Rollo, p. 47.
386
386 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Se, Jr.
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 merely a simulated one being part of the
latter’s complex banking schemes and financial maneuvers, and
thus, they are not answerable in damages to him.
On January 31, 1991, the Philippine National Bank filed a
Motion for Summary Judgment in favor of the plaintiff as against
the defendants for the reliefs prayed for in the complaint.
16
 On May 2, 1991, the Regional Trial Court issued an order
denying the Motion for Summary Judgment. Thereupon, the
Philippine National Bank filed a Petition for Certiorari with the
Court of Appeals, docketed as CA-G.R. SP No. 25938 on
December 13, 1991.
Pertinent portions of the decision of the Court of Appeals read:
“In issuing the questioned Orders, the respondent Court ruled that
‘questions of law should be resolved after and not before, the questions
of fact are properly litigated.’ A scrutiny of defendant’s affirmative
defenses does not show material questions of fact as to the alleged
nonpayment of purchase price by the vendees/first endorsers, and
which nonpayment is not disputed by PNB as it does not materially
affect PNB’s title to the sugar stocks as holder of the negotiable
quedans.
What is determinative of the propriety of summary judgment is not
the existence of conflicting claims from prior parties but whether from
an examination of the pleadings, depositions, admissions and
documents on file, the defenses as to the main issue do not tender
material questions of fact (see Garcia vs. Court of Appeals, 167 SCRA
815) or the 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 Vergara vs. Suelto, et al., 156 SCRA
753; Mercado, et al. vs. Court of Appeals, 162 SCRA 75). The
questioned Orders themselves do not specify what material facts are in
issue. (See Sec. 4, Rule 34, Rules of Court).
To require a trial notwithstanding pertinent allegations of the
pleadings and other facts appearing on the record, would constitute a
waste of time and an injustice to the PNB whose rights to relief to
387
VOL. 256, APRIL 18, 1996 387
Philippine National Bank vs. Se, Jr.
which it is plainly entitled would be further delayed to its prejudice.
In issuing the questioned Orders, We find the 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, 1990 of
respondent Court, and that a summary judgment be rendered forthwith
in favor of the PNB against Noah’s Ark Sugar Refinery, et al., as prayed
for in petitioner’s Motion for Summary Judgment.” 2
On December 13, 1991, the Court of Appeals nullified and set
aside the orders of May 2 and July 4, 1990 of the Regional Trial
Court and ordered the trial court to render summary judgment in
favor of the PNB. On June 18, 1992, the trial court rendered
judgment dismissing plaintiff’s complaint against private
respondents for lack of cause of action and likewise dismissed
private respondents’ counterclaim against PNB and of the Third-
Party Complaint and the Third-Party Defendant’s Counterclaim.
On September 4, 1992, the trial court denied PNB’s Motion for
Reconsideration.
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 on Certiorari under Rule 45 of the Rules of
Court. This Court rendered judgment on September 1, 1993, the
dispositive portion of which reads:
“WHEREFORE, the trial judge’s decision in Civil Case No. 90-53023,
dated June 18, 1992, is reversed and set aside and a new one rendered
conformably with the final and executory decision of the Court of
Appeals in CA-G.R. SP. No. 25938, ordering the private respondents
Noah’s Ark Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go and
Wilson T. Go, jointly and severally:
1. (a)to deliver to the petitioner Philippine National Bank, ‘the
sugar stocks covered by the Warehouse Receipts/Quedans
which are now in the latter’s possession as holder for value
and in due course; or alternatively, to pay (said) plaintiff actual
damages in the amount of P39.1 million,’ with legal interest
thereon from the filing of the complaint until full payment; and
(b)to pay plaintiff Philippine National Bank attorney’s fees,
litigation expenses and judicial costs hereby fixed at the
amount of One Hundred Fifty Thousand Pesos (P150,000.00)
as well as the costs.
SO ORDERED.” 3
On September 29, 1993, private respondents moved for
reconsideration of this decision. A Supplemental/Second Motion
for Reconsideration with leave of court was filed by private
respondents on November 8, 1993. We denied private
respondents’ motion on January 10, 1994.
17
 Private respondents filed a Motion Seeking Clarification of the
Decision, dated September 1, 1993. We denied this motion in this
manner:
“It bears stressing that the relief granted in this Court’s decision of
September 1, 1993 is precisely that set out in the final and executory
decision of the Court of Appeals in CA-G.R. SP No. 25938, dated
December 13, 1991, which was affirmed in toto by this Court and which
became unalterable upon becoming final and executory.” 4
Private respondents thereupon filed before the trial court an
Omnibus Motion seeking among others the deferment of the
proceedings until private respondents are heard on their claim for
warehouseman’s lien. On the other hand, on August 22, 1994,
the Philippine National Bank filed a Motion for the Issuance of a
Writ of Execution and an Opposition to the Omnibus Motion filed
by private respondents.
The trial court granted private respondents’ Omnibus Motion
on December 20, 1994 and set reception of evidence on their
claim for warehouseman’s lien. The resolution of the PNB’s
Motion for Execution was ordered deferred until the determination
of private respondents’ claim.
On February 21, 1995, private respondents’ claim for lien was
heard and evidence was received in support thereof. The trial
court thereafter gave both parties five (5) days to file respective
memoranda.
On February 28, 1995, the Philippine National Bank filed a
Manifestation with Urgent Motion to Nullify Court Proceedings. In
adjudication thereof, the trial court issued the following order on
March 1, 1995:
“WHEREFORE, this court hereby finds that there exists in favor of the
defendants a valid warehouseman’s lien under Section 27 of Republic
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 stocks covered by the five (5) quedans subject of this action shall
have been satisfied conformably with the provisions of Section 31 of
Republic Act 2137.” 5
Consequently, the Philippine National Bank filed the herein
petition to seek the nullification of the above-assailed orders of
respondent judge.
The PNB submits that:
“I
PNB’S RIGHT TO A WRIT OF EXECUTION IS SUPPORTED BY TWO
FINAL AND EXECUTORY DECISIONS: THE DECEMBER 13, 1991
COURT OF APPEALS DECISION IN CA-G.R. SP NO. 25938; AND,
THE NOVEMBER 9, 1992 SUPREME COURT DECISION IN G.R. NO.
107243. RESPONDENT RTC’S MINISTERIAL AND MANDATORY
DUTY IS TO ISSUE THE WRIT OF EXECUTION TO IMPLEMENT
THE DECRETAL PORTION OF SAID SUPREME COURT DECISION
II
RESPONDENT RTC IS WITHOUT JURISDICTION TO HEAR
PRIVATE 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’ ‘MOTION FOR CLARIFICATION OF
DECISION’ IN G.R. NO. 107243; AND (2) ARE BARRED FOREVER
BY PRIVATE RESPONDENTS’ FAILURE TO INTERPOSE THEM IN
THEIR ANSWER, AND FAILURE TO APPEAL FROM THE JUNE 18,
1992 RTC DECISION IN CIVIL CASE NO. 90-52023
III
RESPONDENT RTC’S ONLY JURISDICTION IS TO ISSUE THE
WRIT TO EXECUTE THE SUPREME COURT DECISION. THUS, PNB
IS ENTITLED TO: (1) A WRIT OF CERTIORARI TO ANNUL THE RTC
RESOLUTION 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 FURTHER PROCEEDING
WITH CIVIL CASE NO. 90-53023 AND COMMITTING OTHER ACTS
VIOLATIVE OF THE SUPREME COURT DECISION IN G.R. NO.
107243; AND (3) A WRIT OF MANDAMUS TO COMPEL
RESPONDENT RTC TO ISSUE THE WRIT TO EXECUTE THE
SUPREME COURT JUDGMENT IN FAVOR OF PNB
18
The issues presented before us in this petition revolve around the
legality of the questioned orders of respondent judge, issued as
they were after we had denied with finality private respondents’
contention that the PNB could not compel them to deliver the
stocks of sugar in their warehouse covered by the endorsed
quedans or pay the value of the said stocks of sugar.
Petitioner’s submission is on a technicality, that is, that private
respondents have lost their right to recover warehouseman’s lien
on the sugar stocks covered by the five (5) Warehouse Receipts
for the reason that they failed to set up said claim in their Answer
before the trial court and that private respondents did not appeal
from the decision in this regard, dated June 18, 1992. Petitioner
asseverates that the denial by this Court on March 9, 1994 of the
motion seeking clarification of our decision, dated September 1,
1993, has
391
VOL. 256, APRIL 18, 1996 391
Philippine National Bank vs. Se, Jr.
foreclosed private respondents’ right to enforce their
warehouseman’s lien for storage fees and preservation expenses
under the Warehouse Receipts Act.
On the other hand, private respondents maintain that they
could not have claimed the right to a warehouseman’s lien in their
Answer to the complaint before the trial court as it would have
been inconsistent with their stand that they claim ownership of
the stocks covered by the quedans since the checks issued for
payment thereof were dishonored. If they were still the owners, it
would have been absurd for them to ask payment for storage fees
and preservation expenses. They further contend that our
resolution, dated March 9, 1994, denying their motion for
clarification did not preclude their right to claim their
warehouseman’s lien under Sections 27 and 31 of Republic Act
2137, as our resolution merely affirmed and adopted the earlier
decision, dated December 13, 1991, of the Court of Appeals (6th
Division) in CA-G.R. SP No. 25938 and did not make any finding
on the matter of the warehouseman’s lien.
We find for private respondents on the foregoing issue and so
the petition necessarily must fail.
We have carefully examined our resolution, dated March 9,
1994, which denied Noah’s Ark’s motion for clarification of our
decision, dated September 1, 1993, wherein we affirmed in full
and adopted the Court of Appeals’ earlier decision, dated
December 13, 1991, in CA-G.R. SP No. 25938. We are not
persuaded by the petitioner’s argument that our said resolution
carried with it the denial of the warehouseman’s lien over the
sugar stocks covered by the subject Warehouse Receipts. We
have simply resolved and upheld in our decision, dated
September 1, 1993, the propriety of summary judgment which
was then assailed by private respondents. In effect, we ruled
therein that, considering the circumstances obtaining before the
trial court, the issuance of the Warehouse Receipts not being
disputed by the private respondents, a summary judgment in
favor of PNB was proper. We in effect further affirmed the finding
that Noah’s Ark is a warehouseman which was obliged to deliver
the sugar stocks covered by the
392
392 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Se, Jr.
Warehouse Receipts pledged by Cresencia K. Zoleta and Luis T.
Ramos to the petitioner pursuant to the pertinent provisions of
Republic Act 2137.
In disposing of the private respondents’ motion for clarification,
we could not contemplate the matter of warehouseman’s lien
because the issue to be finally resolved then was the claim of
private respondents for retaining ownership of the stocks of sugar
covered by the endorsed quedans. Stated otherwise, there was
no point in taking up the issue of warehouseman’s lien since the
matter of ownership was as yet being determined. Neither could
storage fees be due then while no one has been declared the
owner of the sugar stocks in question.
Of considerable relevance is the pertinent stipulation in the
subject Warehouse Receipts which provides for respondent
Noah’s Ark’s right to impose and collect warehouseman’s lien:
“Storage of the refined sugar quantities mentioned herein shall be free
up to one (1) week from the date of the quedans covering said sugar
and thereafter, storage fees shall be charged in accordance with the
19
Refining Contract under which the refined sugar covered by this
Quedan was produced.” 6
It is not disputed, therefore, that, under the subject Warehouse
Receipts provision, storage fees are chargeable.
Petitioner anchors its claim against private respondents on the
five (5) Warehouse Receipts issued by the latter to third-party
defendants Rosa Ng Sy of RNS Merchandising and Teresita Ng
of St. Therese Merchandising, which found their way to petitioner
after they were negotiated to them by Luis T. Ramos and
Cresencia K. Zoleta for a loan of P39.1 Million. Accordingly,
petitioner PNB is legally bound to stand by the express terms and
conditions on the face of the Warehouse Receipts as to the
payment of storage fees. Even in the absence of such a provision,
law and equity dictate the payment of the warehouseman’s lien
pursuant to Sections 27 and
_______________
6
Comment, p. 5; Rollo, p. 92.
393
VOL. 256, APRIL 18, 1996 393
Philippine National Bank vs. Se, Jr.
31 of the Warehouse Receipts Law (R.A. 2137), to wit:
“SECTION 27. What claims are included in the warehouseman’s lien.—
Subject to the provisions of section thirty, a warehouseman shall have
lien on goods deposited or on the proceeds thereof in his hands, for all
lawful charges for storage and preservation of the goods; also for all
lawful claims for money advanced, interest, insurance, transportation,
labor, weighing, coopering and other charges and expenses in relation
to such goods; also for all reasonable charges and expenses for notice,
and advertisement of sale, and for sale of the goods where default has
been made in satisfying the warehouseman’s lien.
xxx xxx xxx
SECTION 31. Warehouseman need not deliver until lien is
satisfied.—A warehouseman having a lien valid against the person
demanding the goods may refuse to deliver the goods to him until the
lien is satisfied.”
After being declared not the owner, but the warehouseman, by
the Court of Appeals on December 13, 1991 in CA-G.R. SP No.
25938, the decision having been affirmed by us on December 1,
1993, private respondents cannot legally be deprived of their right
to enforce their claim for warehouseman’s lien, for reasonable
storage fees and preservation expenses. Pursuant to Section 31
which we quote hereunder, the goods under storage may not be
delivered until said lien is satisfied.
“SECTION 31. Warehouseman need not deliver until lien is satisfied.—
A warehouseman having a lien valid against the person demanding the
goods may refuse to deliver the goods to him until the lien is satisfied.”
Considering that petitioner does not deny the existence, validity
and genuineness of the Warehouse Receipts on which it anchors
its claim for payment against private respondents, it cannot
disclaim liability for the payment of the storage fees stipulated
therein. As contracts, the receipts must be respected by authority
of Article 1159 of the Civil Code, to wit:
394
394 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Se, Jr.
“ART. 1159. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good
faith.”
Petitioner is in estoppel in disclaiming liability for the payment of
storage fees due the private respondents as warehouseman
while claiming to be entitled to the sugar stocks covered by the
subject Warehouse Receipts on the basis of which it anchors its
claim for payment or delivery of the sugar stocks. The
unconditional presentment of the receipts by the petitioner for
payment against private respondents on the strength of the
provisions of the Warehouse Receipts Law (R.A. 2137) carried
with it the admission of the existence and validity of the terms,
conditions and stipulations written on the face of the Warehouse
Receipts, including the unqualified recognition of the payment of
warehouseman’s lien for storage fees and preservation
expenses. Petitioner may not now retrieve the sugar stocks
without paying the lien due private respondents as
warehouseman.
In view of the foregoing, the rule may be simplified thus: While
the PNB is entitled to the stocks of sugar as the endorsee of the
20
quedans, delivery to it shall be effected only upon payment of the
storage fees.
Imperative is the right of the warehouseman to demand
payment of his lien at this juncture, because, in accordance with
Section 29 of the Warehouse Receipts Law, the warehouseman
loses his lien upon goods by surrendering possession thereof. In
other words, the lien may be 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.
We, therefore, uphold and sustain the validity of the assailed
orders of public respondent, dated December 20, 1994 and
March 1, 1995.
In fine, we fail to see any taint of abuse of discretion on the
part of the public respondent in issuing the questioned orders
which recognized the legitimate right of Noah’s Ark, after being
declared as warehouseman, to recover storage fees
395
VOL. 256, APRIL 18, 1996 395
Philippine National Bank vs. Se, Jr.
before it would release to the PNB sugar stocks covered by the
five (5) Warehouse Receipts. Our resolution, dated March 9,
1994, did not preclude private respondents’ unqualified right to
establish its claim to recover storage fees which is recognized
under Republic Act No. 2137. Neither did the Court of Appeals’
decision, dated December 13, 1991, restrict such right.
Our Resolution’s reference to the decision by the Court of
Appeals, dated December 13, 1991, in CA-G.R. SP No. 25938,
was intended to guide the parties in the subsequent disposition
of the case to its final end. We certainly did not foreclose private
respondents’ inherent right as warehouseman to collect storage
fees and preservation expenses as stipulated on the face of each
of the Warehouse Receipts and as provided for in the Warehouse
Receipts Law (R.A. 2137).
WHEREFORE, the petition should be, as it is, hereby
dismissed for lack of merit. The questioned orders issued by
public respondent judge are affirmed.
Costs against the petitioner.
SO ORDERED.
Padilla (Chairman), Bellosillo, Vitug and Kapunan,
JJ., concur.
Petition dismissed. Orders affirmed.
Notes.—A receipt is merely presumptive evidence and is not
conclusive. (Philippine National Bank vs. Court of Appeals, 256
SCRA 309 [1996])
The relationship between the consignee and the arrastre
operator is much akin to that existing between the consignee or
owned of shipped goods and the common carrier, or that between
a depositor and a warehouseman. (Summa Insurance
Corporation vs. Court of Appeals, 253 SCRA 175 [1996])
G.R. No. 146717. November 22, 2004. *
TRANSFIELD PHILIPPINES, INC., petitioner, vs. LUZON
HYDRO CORPORATION, AUSTRALIA and NEW ZEALAND
BANKING GROUP LIMITED and SECURITY BANK
CORPORATION, respondents.
Commercial Law; Banks and Banking; Letters of Credit;Standby
Credits; Words and Phrases; In commercial transactions, a letter of
credit is a financial device developed by merchants as a convenient and
relatively safe mode of dealing with sales of goods to satisfy the
seemingly irreconcilable interests of a seller, who refuses to part with
his goods before he is paid, and a buyer, who wants to have control of
the goods before paying; Generally, credits in non-sale settings have
come to be known as standby credits.—The letter of credit evolved as
a mercantile specialty, and the only way to understand all its facets is
to recognize that it is an entity unto itself. The relationship between the
beneficiary and the issuer of a letter of credit is not strictly contractual,
because both privity and a meeting of the minds are lacking, yet strict
compliance with its terms is an enforceable right. Nor is it a third-party
beneficiary contract, because the issuer must honor drafts drawn
against a letter regardless of problems subsequently arising in the
underlying contract. Since the bank’s customer cannot draw on the
letter, it does not function as an assignment by the customer to the
beneficiary. Nor, if properly used, is it a contract of suretyship or
guarantee, because it entails a primary liability following a default.
Finally, it is not in itself a negotiable instrument, because it is not
payable to order or bearer and is generally conditional, yet the draft
presented under it is often negotiable. In commercial transactions, a
letter of credit is a financial device developed by merchants as a
21
convenient and relatively safe mode of dealing with sales of goods to
satisfy the seemingly irreconcilable interests of a seller, who refuses to
part with his goods before he is paid, and a buyer, who wants to have
control of the goods before paying. The use of credits in commercial
transactions serves to reduce the risk of nonpayment of the purchase
price under the contract for the sale of goods. However, credits are also
used in non-sale settings where they serve to reduce the risk of
nonperfor-
_______________
*
SECOND DIVISION.
308
308 SUPREME COURT REPORTS
ANNOTATED
Transfield Philippines, Inc. vs. Luzon Hydro
Corporation
mance. Generally, credits in the non-sale settings have come to
be known as standby credits.
Same; Same; Same; Same; Commercial Credits and Standby
Credits, Distinguished.—There are three significant differences
between commercial and standby credits. First, commercial credits
involve the payment of money under a contract of sale. Such credits
become payable upon the presentation by the seller-beneficiary of
documents that show he has taken affirmative steps to comply with the
sales agreement. In the standby type, the credit is payable upon
certification of a party’s nonperformance of the agreement. The
documents that accompany the beneficiary’s draft tend to show that the
applicant has not performed. The beneficiary of a commercial credit
must demonstrate by documents that he has performed his contract.
The beneficiary of the standby credit must certify that his obligor has
not performed the contract.
Same; Same; Same; A letter of credit changes its nature as
different transactions occur and if carried through to completion ends
up as a binding contract between the issuing and honoring banks
without any regard or relation to the underlying contract or disputes
between the parties thereto.—By definition, a letter of credit is a written
instrument whereby the writer requests or authorizes the addressee to
pay money or deliver goods to a third person and assumes
responsibility for payment of debt therefor to the addressee. A letter of
credit, however, changes its nature as different transactions occur and
if carried through to completion ends up as a binding contract between
the issuing and honoring banks without any regard or relation to the
underlying contract or disputes between the parties thereto.
Same; Same; Same; Uniform Customs and Practice (UCP) for
Documentary Credits; Since letters of credit have gained general
acceptability in international trade transactions, the International
Chamber of Commerce (ICC) has published from time to time updates
on the Uniform Customs and Practice for Documentary Credits to
standardize practices in the letter of credit area; The observance of the
UCP is justified by Article 2 of the Code of Commerce which provides
that in the absence of any particular provision in the Code of
Commerce, commercial transactions shall be governed by usages and
customs generally observed.—Since letters of credit have gained
general acceptability in international trade transactions, the ICC
309
VOL. 443, NOVEMBER 22, 2004 309
Transfield Philippines, Inc. vs. Luzon Hydro
Corporation
has published from time to time updates on the Uniform Customs
and Practice (UCP) for Documentary Credits to standardize practices
in the letter of credit area. The vast majority of letters of credit
incorporate the UCP. First published in 1933, the UCP for Documentary
Credits has undergone several revisions, the latest of which was in
1993. In Bank of the Philippine Islands v. De Reny Fabric Industries,
Inc., this Court ruled that the observance of the UCP is justified by
Article 2 of the Code of Commerce which provides that in the absence
of any particular provision in the Code of Commerce, commercial
transactions shall be governed by usages and customs generally
observed. More recently, in Bank of America, NT & SA v. Court of
Appeals, this Court ruled that there being no specific provisions which
govern the legal complexities arising from transactions involving letters
of credit, not only between or among banks themselves but also
between banks and the seller or the buyer, as the case may be, the
applicability of the UCP is undeniable.
Same; Same; Same; “Independence Principle”; Under the
“independence principle,” banks assume no liability or responsibility for
the form, sufficiency, accuracy, genuineness, falsification or legal effect
of any documents, or for the general and/or particular conditions
stipulated in the documents or superimposed thereon, nor do they
assume any liability or responsibility for the description, quantity,
weight, quality, condition, packing, delivery, value or existence of the
goods represented by any documents, or for the good faith or acts
and/or omissions, solvency, performance or standing of the consignor,
22
the carriers, or the insurers of the goods, or any other person
whomsoever.—Article 3 of the UCP provides that credits, by their
nature, are separate transactions from the sales or other contract(s) on
which they may be based and banks are in no way concerned with or
bound by such contract(s), even if any reference whatsoever to such
contract(s) is included in the credit. Consequently, the undertaking of a
bank to pay, accept and pay draft(s) or negotiate and/or fulfill any other
obligation under the credit is not subject to claims or defenses by the
applicant resulting from his relationships with the issuing bank or the
beneficiary. A beneficiary can in no case avail himself of the contractual
relationships existing between the banks or between the applicant and
the issuing bank. Thus, the 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 principle”
assures the seller or the
310
310 SUPREME COURT REPORTS
ANNOTATED
Transfield Philippines, Inc. vs. Luzon Hydro
Corporation
beneficiary of prompt payment independent of any breach of the
main contract and precludes the issuing bank from determining whether
the main contract is actually accomplished or not. Under this principle,
banks assume no liability or responsibility for the form, sufficiency,
accuracy, genuineness, falsification or legal effect of any documents,
or for the general and/or particular conditions stipulated in the
documents or superimposed thereon, nor do they assume any liability
or responsibility for the description, quantity, weight, quality, condition,
packing, delivery, value or existence of the goods represented by any
documents, or for the good faith or acts and/or omissions, solvency,
performance or standing of the consignor, the carriers, or the insurers
of the goods, or any other person whomsoever.
Same; Same; Same; Same; The independent nature of the letter
of credit may be: (a) independence in toto where the credit is
independent from the justification aspect and is a separate obligation
from the underlying agreement; or (b) independence may be only as to
the justification aspect, though in both cases the payment may be
enjoined if in the light of the purpose of the credit the payment of the
credit would constitute fraudulent abuse of the credit.—The
independent nature of the letter of credit may be: (a) independence in
toto where the credit is independent from the justification aspect and is
a separate obligation from the underlying agreement like for instance a
typical standby; or (b) independence may be only as to the justification
aspect like in a commercial letter of credit or repayment standby, which
is identical with the same obligations under the underlying agreement.
In both cases the payment may be enjoined if in the light of the purpose
of the credit the payment of the credit would constitute fraudulent abuse
of the credit.
Same; Same; Same; Same; The independence principle liberates
the issuing bank from the duty of ascertaining compliance by the parties
in the main contract; As it is, the independence doctrine works to the
benefit of both the issuing bank and the beneficiary.—As discussed
above, in a letter of credit transaction, such as in this case, where the
credit is stipulated as irrevocable, there is a definite undertaking by the
issuing bank to pay the beneficiary provided that the stipulated
documents are presented and the conditions of the credit are complied
with. Precisely, the independence principle liberates the issuing bank
from the duty of ascertaining compliance by
311
VOL. 443, NOVEMBER 22, 2004 311
Transfield Philippines, Inc. vs. Luzon Hydro
Corporation
the parties in the main contract. As the principle’s nomenclature
clearly suggests, the obligation under the letter of credit is independent
of the related and originating contract. In brief, the letter of credit is
separate and distinct from the underlying transaction. Given the nature
of letters of credit, petitioner’s argument—that it is only the issuing bank
that may invoke the independence principle on letters of credit—does
not impress this Court. To say that the independence principle may only
be invoked by the issuing banks would render nugatory the purpose for
which the letters of credit are used in commercial transactions. As it is,
the independence doctrine works to the benefit of both the issuing bank
and the beneficiary.
Same; Same; Same; Same; Guarantee; Jurisprudence has laid
down a clear distinction between a letter of credit and a guarantee in
that the settlement of a dispute between the parties is not a prerequisite
for the release of funds under a letter of credit.—Petitioner’s argument
that any dispute must first be resolved by the parties, whether through
negotiations or arbitration, before the beneficiary is entitled to call on
the letter of credit in essence would convert the letter of credit into a
mere guarantee. Jurisprudence has laid down a clear distinction
between a letter of credit and a guarantee in that the settlement of a
dispute between the parties is not a pre-requisite for the release of
funds under a letter of credit. In other words, the argument is
23
incompatible with the very nature of the letter of credit. If a letter of credit
is drawable only after settlement of the dispute on the contract entered
into by the applicant and the beneficiary, there would be no practical
and beneficial use for letters of credit in commercial transactions.
Same; Same; Same; Same; Owing to the nature and purpose of
standby letters of credit, banks are left with little or no alternative but to
honor the credit or the call for payment.—While it is the bank which is
bound to honor the credit, it is the beneficiary who has the right to ask
the bank to honor the credit by allowing him to draw thereon. The
situation itself emasculates petitioner’s posture that LHC cannot invoke
the independence principle and highlights its puerility, more so in this
case where the banks concerned were impleaded as parties by
petitioner itself. Respondent banks had squarely raised the
independence principle to justify their releases of the amounts due
under the Securities. Owing to the nature and purpose of the standby
letters of credit, this Court rules that the
312
312 SUPREME COURT REPORTS
ANNOTATED
Transfield Philippines, Inc. vs. Luzon Hydro
Corporation
respondent banks were left with little or no alternative but to honor
the credit and both of them in fact submitted that it was “ministerial” for
them to honor the call for payment.
Same; Same; Same; Same; Contracts; A contract once
perfected, binds the parties not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which according
to their nature, may be in keeping with good faith, usage, and law.— A
contract once perfected, binds the parties not only to the fulfillment of
what has been expressly stipulated but also to all the consequences
which according to their nature, may be in keeping with good faith,
usage, and law. A careful perusal of the Turnkey Contract reveals the
intention of the parties to make the Securities answerable for the
liquidated damages occasioned by any delay on the part of petitioner.
The call upon the Securities, while not an exclusive remedy on the part
of LHC, is certainly an alternative recourse available to it upon the
happening of the contingency for which the Securities have been
proffered. Thus, even without the use of the “independence principle,”
the Turnkey Contract itself bestows upon LHC the right to call on the
Securities in the event of default.
Same; Same; Same; Same; Injunction; Requisites; Most writers
agree that fraud is an exception to the independence principle; The
remedy for fraudulent abuse is an injunction.—Most writers agree that
fraud is an exception to the independence principle. Professor Dolan
opines that the untruthfulness of a certificate accompanying a demand
for payment under a standby credit may qualify as fraud sufficient to
support an injunction against payment. The remedy for fraudulent
abuse is an injunction. However, injunction should not be granted
unless: (a) there is clear proof of fraud; (b) the fraud constitutes
fraudulent abuse of the independent purpose of the letter of credit and
not only fraud under the main agreement; and (c) irreparable injury
might follow if injunction is not granted or the recovery of damages
would be seriously damaged.
Same; Same; Same; Same; Same; The issuance of the writ of
preliminary injunction as an ancillary or preventive remedy to secure
the rights of a party in a pending case is entirely within the discretion of
the court taking cognizance of the case, the only limitation being that
this discretion should be exercised based upon the grounds and in the
manner provided by law.—Generally, injunction is a preservative
remedy for the protection of one’s substantive right or interest;
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VOL. 443, NOVEMBER 22, 2004 313
Transfield Philippines, Inc. vs. Luzon Hydro
Corporation
it is not a cause of action in itself but merely a provisional remedy,
an adjunct to a main suit. The issuance of the writ of preliminary
injunction as an ancillary or preventive remedy to secure the rights of a
party in a pending case is entirely within the discretion of the court
taking cognizance of the case, the only limitation being that this
discretion should be exercised based upon the grounds and in the
manner provided by law. Before a writ of preliminary injunction may be
issued, there must be a clear showing by the complaint that there exists
a right to be protected and that the acts against which the writ is to be
directed are violative of the said right. It must be shown that the invasion
of the right sought to be protected is material and substantial, that the
right of complainant is clear and unmistakable and that there is an
urgent and paramount necessity for the writ to prevent serious damage.
Moreover, an injunctive remedy may only be resorted to when there is
a pressing necessity to avoid injurious consequences which cannot be
remedied under any standard compensation.
Same; Same; Same; Same; It is premature and absurd to
conclude that the draws on the Securities were outright fraudulent
where the International Chamber of Commerce and the Construction
Industry Authority Commission have not ruled with finality on the
24
existence of default.—The pendency of the arbitration proceedings
would not per se make LHC’s draws on the Securities wrongful or
fraudulent for there was nothing in the Contract which would indicate
that the parties intended that all disputes regarding delay should first
be settled through arbitration before LHC would be allowed to call upon
the Securities. It is therefore premature and absurd to conclude that the
draws on the Securities were outright fraudulent given the fact that the
ICC and CIAC have not ruled with finality on the existence of default.
Same; Same; Same; Same; Actions; Appeals; Pleadings and
Practice; Matters, theories or arguments not brought out in the
proceedings below will ordinarily not be considered by a reviewing court
as they cannot be raised for the first time on appeal.—Nowhere in its
complaint before the trial court or in its pleadings filed before the
appellate court, did petitioner invoke the fraud exception rule as a
ground to justify the issuance of an injunction. What petitioner did assert
before the courts below was the fact that LHC’s draws on the Securities
would be premature and without basis in view of the
314
314 SUPREME COURT REPORTS
ANNOTATED
Transfield Philippines, Inc. vs. Luzon Hydro
Corporation
pending disputes between them. Petitioner should not be allowed
in this instance to bring into play the fraud exception rule to sustain its
claim for the issuance of an injunctive relief. Matters, theories or
arguments not brought out in the proceedings below will ordinarily not
be considered by a reviewing court as they cannot be raised for the first
time on appeal. The lower courts could thus not be faulted for not
applying the fraud exception rule not only because the existence of
fraud was fundamentally interwoven with the issue of default still
pending before the arbitral tribunals, but more so, because petitioner
never raised it as an issue in its pleadings filed in the courts below. At
any rate, petitioner utterly failed to show that it had a clear and
unmistakable right to prevent LHC’s call upon the Securities.
Same; Same; Same; Same; Obligations and
Contracts; Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good
faith.— Prudence should have impelled LHC to await resolution of the
pending issues before the arbitral tribunals prior to taking action to
enforce the Securities. But, as earlier stated, the Turnkey Contract did
not require LHC to do so and, therefore, it was merely enforcing its
rights in accordance with the tenor thereof. Obligations arising from
contracts have the force of law between the contracting parties and
should be complied with in good faith. More importantly, pursuant to the
principle of autonomy of contracts embodied in Article 1306 of the Civil
Code, petitioner could have incorporated in its Contract with LHC, a
proviso that only the final determination by the arbitral tribunals that
default had occurred would justify the enforcement of the Securities.
However, the fact is petitioner did not do so; hence, it would have to live
with its inaction.
Actions; Injunction; Settled is the rule that injunction would not lie
where the acts sought to be enjoined have already become fait
accompli or an accomplished or consummated act.—In
a Manifestation, dated 30 March 2001, LHC informed this Court that the
subject letters of credit had been fully drawn. This fact alone would have
been sufficient reason to dismiss the instant petition. Settled is the rule
that injunction would not lie where the acts sought to be enjoined have
already become fait accomplior an accomplished or consummated act.
In Ticzon v. Video Post Manila, Inc. this Court ruled that where the
period within which the former employees were
315
VOL. 443, NOVEMBER 22, 2004 315
Transfield Philippines, Inc. vs. Luzon Hydro
Corporation
prohibited from engaging in or working for an enterprise that
competed with their former employer—the very purpose of the
preliminary injunction—has expired, any declaration upholding the
propriety of the writ would be entirely useless as there would be no
actual case or controversy between the parties insofar as the
preliminary injunction is concerned. In the instant case, the
consummation of the act sought to be restrained had rendered the
instant petition moot—for any declaration by this Court as to propriety
or impropriety of the non-issuance of injunctive relief could have no
practical effect on the existing controversy. The other issues raised by
petitioner particularly with respect to its right to recover the amounts
wrongfully drawn on the Securities, according to it, could properly be
threshed out in a separate proceeding.
Same; Pleadings and Practice; Forum Shopping; Considering the
seriousness of the charge of forum shopping and the severity of the
sanctions for its violation, the Court will refrain from making any
definitive ruling on the issue until the party alleged to have committed
forum shopping has been given ample opportunity to respond to the
charge.—Forum Shopping is a very serious charge. It exists when a
party repetitively avails of several judicial remedies in different courts,
25
simultaneously or successively, all substantially founded on the same
transactions and the same essential facts and circumstances, and all
raising substantially the same issues either pending in, or already
resolved adversely, by some other court. It may also consist in the act
of a party against whom an adverse judgment has been rendered in
one forum, of seeking another and possibly favorable opinion in another
forum other than by appeal or special civil action of certiorari, or the
institution of two or more actions or proceedings grounded on the same
cause on the supposition that one or the other court might look with
favor upon the other party. To determine whether a party violated the
rule against forum shopping, the test applied is whether the elements
of litis pendentia are present or whether a final judgment in one case
will amount to res judicata in another. Forum Shopping constitutes
improper conduct and may be punished with summary dismissal of the
multiple petitions and direct contempt of court. Considering the
seriousness of the charge of forum Shopping and the severity of the
sanctions for its violation, the Court will refrain from making any
definitive ruling on this issue until after petitioner has been given ample
opportunity to respond to the charge.
316
316 SUPREME COURT REPORTS ANNOTATED
Transfield Philippines, Inc. vs. Luzon Hydro Corporation
PETITION for review on certiorari of a decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Romulo, Mabanta, Buenaventura, Sayoc and Delos
Angeles and M. B. Tomacruz & Associates Law Offices for
petitioner.
Castro, Yan Binas, Ortile, Samillano & Mangrobangfor
respondent Security Bank.
Quasha, Ancheta, Peña & Nolasco for respondent ANZ
Bank.
Sycip, Salazar, Hernandez & Gatmaitan for respondent
LHC.
TINGA, J.:
Subject of this case is the letter of credit which has evolved as
the ubiquitous and most important device in international trade. A
creation of commerce and businessmen, the letter of credit is also
unique in the number of parties involved and its supranational
character.
Petitioner has appealed from the Decision of the Court of
1
Appeals in CA-G.R. SP No. 61901 entitled “Transfield
Philippines, Inc. v. Hon. Oscar Pimentel, et al.,” promulgated on
31 January 2001. 2
On 26 March 1997, petitioner and respondent Luzon Hydro
Corporation (hereinafter, LHC) entered into a Turnkey
Contract whereby petitioner, as Turnkey Contractor, undertook
3
to construct, on a turnkey basis, a seventy (70)-Megawatt hydro-
electric power station at the Bakun River in the provinces of
Benguet and Ilocos Sur (hereinafter, the Project). Petitioner was
given the sole responsibility for the design, construction,
commissioning, testing and completion of the Project. 4
The Turnkey Contract provides that: (1) the target completion
date of the Project shall be on 1 June 2000, or such later date as
may be agreed upon between petitioner and respondent LHC or
otherwise determined in accordance with the Turnkey Contract;
and (2) petitioner is entitled to claim extensions of time (EOT) for
reasons enumerated in the Turn-key Contract, among which are
variations, force majeure, and delays caused by LHC
itself. Further, in case of dispute, the parties are bound to settle
5
their differences through mediation, conciliation and such other
means enumerated under Clause 20.3 of the Turnkey Contract. 6
To secure performance of petitioner’s obligation on or before
the target completion date, or such time for completion as may be
determined by the parties’ agreement, petitioner opened in favor
of LHC two (2) standby letters of credit both dated 20 March 2000
(hereinafter referred to as “the Securities”), to wit: Standby Letter
of Credit No. E001126/8400 with the local branch of respondent
Australia and New Zealand Banking Group Limited (ANZ
Bank) and Standby Letter of Credit No. IBDIDSB-00/4 with
7
respondent Security Bank Corporation (SBC) each in the amount
8
of US$8,988,907.00. 9
In the course of the construction of the project, petitioner
sought various EOT to complete the Project. The extensions were
requested allegedly due to several factors which prevented the
completion of the Project on target date, such as force
26
majeure occasioned by typhoon Zeb, barricades and
demonstrations. LHC denied the requests, however. This gave
rise to a series of legal actions between the parties which
culminated in the instant petition.
The first of the actions was a Request for Arbitration which
LHC filed before the Construction Industry Arbitration
Commission (CIAC) on 1 June 1999. This was followed by
10
another Request for Arbitration, this time filed by petitioner before
the International Chamber of Commerce (ICC) on 3 November
11
2000. In both arbitration proceedings, the common issues
presented were: [1) whether typhoon Zeb and any of its
associated events constituted force majeure to justify the
extension of time sought by petitioner; and [2) whether LHC had
the right to terminate the Turnkey Contract for failure of petitioner
to complete the Project on target date.
Meanwhile, foreseeing that LHC would call on the Securities
pursuant to the pertinent provisions of the Turnkey
Contract, petitioner—in two separate letters both dated 10
12 13
August 2000—advised respondent banks of the arbitration
proceedings already pending before the CIAC and ICC in
connection with its alleged default in the performance of its
obligations. Asserting that LHC had no right to call on the
Securities until the resolution of disputes before the arbitral
tribunals, petitioner warned respondent banks that any transfer,
release, or disposition of the Securities in favor of LHC or any
person claiming under LHC would constrain it to hold respondent
banks liable for liquidated damages.
As petitioner had anticipated, on 27 June 2000, LHC sent
notice to petitioner that pursuant to Clause 8.2 of the Turnkey
14
Contract, it failed to comply with its obligation to complete the
Project. Despite the letters of petitioner, however, both banks
informed petitioner that they would pay on the Securities if and
when LHC calls on them. 15
LHC asserted that additional extension of time would not be
warranted; accordingly it declared petitioner in default/delay in the
performance of its obligations under the Turnkey Contract and
demanded from petitioner the payment of US$75,000.00 for each
day of delay beginning 28 June 2000 until actual completion of
the Project pursuant to Clause 8.7.1 of the Turnkey Contract. At
the same time, LHC served notice that it would call on the
securities for the payment of liquidated damages for the delay. 16
On 5 November 2000, petitioner as plaintiff filed a Complaint
for Injunction, with prayer for temporary restraining order and writ
of preliminary injunction, against herein respondents as
defendants before the Regional Trial Court (RTC) of
Makati. Petitioner sought to restrain respondent LHC from
17
calling on the Securities and respondent banks from transferring,
paying on, or in any manner disposing of the Securities or any
renewals or substitutes thereof. The RTC issued a seventy-two
(72)-hour temporary restraining order on the same day. The case
was docketed as Civil Case No. 00-1312 and raffled to Branch
148 of the RTC of Makati.
After appropriate proceedings, the trial court issued
an Order on 9 November 2000, extending the temporary
restraining order for a period of seventeen (17) days or until 26
November 2000. 18
The RTC, in its Order dated 24 November 2000, denied
19
petitioner’s application for a writ of preliminary injunction. It ruled
that petitioner had no legal right and suffered noirreparable injury
to justify the issuance of the writ. Employing the principle of
“independent contract” in letters of credit, the trial court ruled that
LHC should be allowed to draw on the Securities for liquidated
damages. It debunked petitioner’s contention that the principle of
“independent contract” could be invoked only by respondent
banks since according to it respondent LHC is the ultimate
beneficiary of the Securities. The trial court further ruled that the
banks were mere custodians of the funds and as such they were
obligated to transfer the same to the beneficiary for as long as the
latter could submit the required certification of its claims.
Dissatisfied with the trial court’s denial of its application for a writ
of preliminary injunction, petitioner elevated the case to the Court
of Appeals via a Petition for Certiorariunder Rule 65, with prayer
for the issuance of a temporary restraining order and writ of
preliminary injunction. Petitioner submitted to the appellate court
20
that LHC’s call on the Securities was premature considering that
the issue of its default had not yet been resolved with finality by
27
the CIAC and/or the ICC. It asserted that until the fact of delay
could be established, LHC had no right to draw on the Securities
for liquidated damages.
Refuting petitioner’s contentions, LHC claimed that petitioner
had no right to restrain its call on and use of the Securities as
payment for liquidated damages. It averred that the Securities are
independent of the main contract between them as shown on the
face of the two Standby Letters of Credit which both provide that
the banks have no responsibility to investigate the authenticity or
accuracy of the certificates or the declarant’s capacity or
entitlement to so certify.
In its Resolution dated 28 November 2000, the Court of
Appeals issued a temporary restraining order, enjoining LHC from
calling on the Securities or any renewals or substitutes thereof
and ordering respondent banks to cease and desist from
transferring, paying or in any manner disposing of the Securities.
However, the appellate court failed to act on the application for
preliminary injunction until the temporary restraining order
expired on 27 January 2001. Immediately thereafter,
representatives of LHC trooped to ANZ Bank and withdrew the
total amount of US$4,950,000.00, thereby reducing the balance
in ANZ Bank to US$1,852,814.00.
On 2 February 2001, the appellate court dismissed the petition
for certiorari. The appellate court expressed conformity with the
trial court’s decision that LHC could call on the Securities
pursuant to the first principle in credit law that the credit itself is
independent of the underlying transaction and that as long as the
beneficiary complied with the credit, it was of no moment that he
had not complied with the underlying contract. Further, the
appellate court held that even assuming that the trial court’s
denial of petitioner’s application for a writ of preliminary injunction
was erroneous, it constituted only an error of judgment which is
not correctible by certiorari, unlike error of jurisdiction.
Undaunted, petitioner filed the instant Petition for
Review raising the following issues for resolution:
WHETHER THE “INDEPENDENCE PRINCIPLE” ON
LETTERS OF CREDIT MAY BE INVOKED BY A BENEFICIARY
THEREOF WHERE THE BENEFICIARY’S CALL THEREON IS
WRONGFUL OR FRAUDULENT.
WHETHER LHC HAS THE RIGHT TO CALL AND DRAW ON THE
SECURITIES BEFORE THE RESOLUTION OF PETITIONER’S AND
LHC’S DISPUTES BY THE APPROPRIATE TRIBUNAL.
WHETHER ANZ BANK AND SECURITY BANK ARE JUSTIFIED IN
RELEASING THE AMOUNTS DUE UNDER THE SECURITIES
DESPITE BEING NOTIFIED THAT LHC’S CALL THEREON IS
WRONGFUL.
WHETHER OR NOT PETITIONER WILL SUFFER GRAVE AND
IRREPARABLE DAMAGE IN THE EVENT THAT:
1. A.LHC IS ALLOWED TO CALL AND DRAW ON, AND ANZ
BANK AND SECURITY BANK ARE ALLOWED TO RELEASE,
THE REMAINING BALANCE OF THE SECURITIES PRIOR
TO THE RESOLUTION OF THE DISPUTES BETWEEN
PETITIONER AND LHC.
2. B.LHC DOES NOT RETURN THE AMOUNTS IT HAD
WRONGFULLY DRAWN FROM THE SECURITIES. 21
Petitioner contends that the courts below improperly relied on the
“independence principle” on letters of credit when this case falls
squarely within the “fraud exception rule.” Respondent LHC
deliberately misrepresented the supposed existence of delay
despite its knowledge that the issue was still pending arbitration,
petitioner continues.
Petitioner asserts that LHC should be ordered to return the
proceeds of the Securities pursuant to the principle against unjust
enrichment and that, under the premises, injunction was the
appropriate remedy obtainable from the competent local courts.
On 25 August 2003, petitioner filed a Supplement to the
Petition and Supplemental Memorandum, alleging that in the
22 23
course of the proceedings in the ICC Arbitration, a number of
documentary and testimonial evidence came out through the use
of different modes of discovery available in the ICC Arbitration. It
contends that after the filing of the petition facts and admissions
were discovered which demonstrate that LHC knowingly
misrepresented that petitioner had incurred delays—
notwithstanding its knowledge and admission that delays were
excused under the Turnkey Contract—to be able to draw against
the Securities. Reiterating that fraud constitutes an exception to
the independence principle, petitioner urges that this warrants a
28
ruling from this Court that the call on the Securities was wrongful,
as well as contrary to law and basic principles of equity. It avers
that it would suffer grave irreparable damage if LHC would be
allowed to use the proceeds of the Securities and not ordered to
return the amounts it had wrongfully drawn thereon.
In its Manifestation dated 8 September 2003, LHC contends
24
that the supplemental pleadings filed by petitioner present
erroneous and misleading information which would change
petitioner’s theory on appeal.
In yet another Manifestation dated 12 April 2004, petitioner
25
alleges that on 18 February 2004, the ICC handed down its Third
Partial Award, declaring that LHC wrongfully drew upon the
Securities and that petitioner was entitled to the return of the
sums wrongfully taken by LHC for liquidated damages.
LHC filed a Counter-Manifestation dated 29 June
2004, stating that petitioner’s Manifestation dated 12 April 2004
26
enlarges the scope of its Petition for Review of the 31 January
2001 Decision of the Court of Appeals. LHC notes that
the Petition for Review essentially dealt only with the issue of
whether injunction could issue to restrain the beneficiary of an
irrevocable letter of credit from drawing thereon. It adds that
petitioner has filed two other proceedings, to wit: (1) ICC
Case No. 11264/TE/MW, entitled “Transfield Philippines Inc. v.
Luzon Hydro Corporation,” in which the parties made claims and
counterclaims arising from petitioner’s
performance/misperformance of its obligations as contractor for
LHC; and (2) Civil Case No. 04-332, entitled “Transfield
Philippines, Inc. v. Luzon Hydro Corporation” before Branch 56 of
the RTC of Makati, which is an action to enforce and obtain
execution of the ICC’s partial award mentioned in
petitioner’s Manifestation of 12 April 2004.
In its Comment to petitioner’s Motion for Leave to File
Addendum to Petitioner’s Memorandum, LHC stresses that the
question of whether the funds it drew on the subject letters of
credit should be returned is outside the issue in this appeal. At
any rate, LHC adds that the action to enforce the ICC’s partial
award is now fully within the Makati RTC’s jurisdiction in Civil
Case No. 04-332. LHC asserts that petitioner is engaged in forum
shopping by keeping this appeal and at the same time seeking
the suit for enforcement of the arbitral award before the Makati
court.
Respondent SBC in its Memorandum, dated 10 March
2003 contends that the Court of Appeals correctly dismissed the
27
petition for certiorari. Invoking the independence principle, SBC
argues that it was under noobligation to look into the validity or
accuracy of the certification submitted by respondent LHC or into
the latter’s capacity or entitlement to so certify. It adds that the act
sought to be enjoined by petitioner was already fait accompli and
the present petition would no longer serve any remedial purpose.
In a similar fashion, respondent ANZ Bank in
its Memorandum dated 13 March 2003 posits that its actions
28
could not be regarded as unjustified in view of the prevailing
independence principle under which it had noobligation to
ascertain the truth of LHC’s allegations that petitioner defaulted
in its obligations. Moreover, it points out that since the Standby
Letter of Credit No. E001126/8400 had been fully drawn,
petitioner’s prayer for preliminary injunction had been rendered
moot and academic.
At the core of the present controversy is the applicability of the
“independence principle” and “fraud exception rule” in letters of
credit. Thus, a discussion of the nature and use of letters of credit,
also referred to simply as “credits,” would provide a better
perspective of the case.
The letter of credit evolved as a mercantile specialty, and the
only way to understand all its facets is to recognize that it is an
entity unto itself. The relationship between the beneficiary and the
issuer of a letter of credit is not strictly contractual, because both
privity and a meeting of the minds are lacking, yet strict
compliance with its terms is an enforceable right. Nor is it a third-
party beneficiary contract, because the issuer must honor drafts
drawn against a letter regardless of
_______________
Id., at pp. 598-607.
27
Id., at pp. 619-630.
28
326
326 SUPREME COURT REPORTS ANNOTATED
29
Transfield Philippines, Inc. vs. Luzon Hydro Corporation
problems subsequently arising in the underlying contract. Since
the bank’s customer cannot draw on the letter, it does not function
as an assignment by the customer to the beneficiary. Nor, if
properly used, is it a contract of suretyship or guarantee, because
it entails a primary liability following a default. Finally, it is not in
itself a negotiable instrument, because it is not payable to order
or bearer and is generally conditional, yet the draft presented
under it is often negotiable. 29
In commercial transactions, a letter of credit is a financial
device developed by merchants as a convenient and relatively
safe mode of dealing with sales of goods to satisfy the seemingly
irreconcilable interests of a seller, who refuses to part with his
goods before he is paid, and a buyer, who wants to have control
of the goods before paying. The use of credits in commercial
30
transactions serves to reduce the risk of nonpayment of the
purchase price under the contract for the sale of goods. However,
credits are also used in non-sale settings where they serve to
reduce the risk of nonperformance. Generally, credits in the non-
sale settings have come to be known as standby credits. 31
There are three significant differences between commercial
and standby credits. First, commercial credits involve the
payment of money under a contract of sale. Such credits become
payable upon the presentation by the seller-beneficiary of
documents that show he has taken affirmative steps to comply
with the sales agreement. In the standby type, the credit is
payable upon certification of a party's nonperformance of the
agreement. The documents that accompany the beneficiary’s
draft tend to show that the applicant has not performed. The
beneficiary of a commercial credit must demonstrate by
documents that he has performed his contract. The beneficiary of
the standby credit must certify that his obligor has not performed
the contract. 32
By definition, a letter of credit is a written instrument whereby
the writer requests or authorizes the addressee to pay money or
deliver goods to a third person and assumes responsibility for
payment of debt therefor to the addressee. A letter of credit,
33
however, changes its nature as different transactions occur and
if carried through to completion ends up as a binding contract
between the issuing and honoring banks without any regard or
relation to the underlying contract or disputes between the parties
thereto. 34
Since letters of credit have gained general acceptability in
international trade transactions, the ICC has published from time
to time updates on the Uniform Customs and Practice (UCP) for
Documentary Credits to standardize practices in the letter of
credit area. The vast majority of letters of credit incorporate the
UCP. First published in 1933, the UCP for Documentary Credits
35
has undergone several revisions, the latest of which was in
1993. 36
_______________
32
J. DOLAN, THE LAW OF LETTERS OF CREDIT, REVISED Ed. (2000).
33
24 A WORDS AND PHRASES 590, Permanent Edition.
34
Ibid.
35
JACKSON & DAVEY, INTERNATIONAL ECONOMIC RELATIONS, 53 (2nd
ed.).
36
ICC Publication No. 500.
328
328 SUPREME COURT REPORTS ANNOTATED
Transfield Philippines, Inc. vs. Luzon Hydro Corporation
In Bank of the Philippine Islands v. De Reny Fabric Industries,
Inc., this Court ruled that the observance of the UCP is justified
37
by Article 2 of the Code of Commerce which provides that in the
absence of any particular provision in the Code of Commerce,
commercial transactions shall be governed by usages and
customs generally observed. More recently, in Bank of America,
NT & SA v. Court of Appeals, this Court ruled that there
38
being no specific provisions which govern the legal complexities
arising from transactions involving letters of credit, not only
between or among banks themselves but also between banks
and the seller or the buyer, as the case may be, the applicability
of the UCP is undeniable.
Article 3 of the UCP provides that credits, by their nature, are
separate transactions from the sales or other contract(s) on which
they may be based and banks are in no way concerned with or
bound by such contract(s), even if any reference whatsoever to
30
such contract(s) is included in the credit. Consequently, the
undertaking of a bank to pay, accept and pay draft(s) or negotiate
and/or fulfill any other obligation under the credit is not subject to
claims or defenses by the applicant resulting from his
relationships with the issuing bank or the beneficiary. A
beneficiary can in no case avail himself of the contractual
relationships existing between the banks or between the
applicant and the issuing bank.
Thus, the 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
principle” assures the seller or the beneficiary of prompt payment
independent of any breach of the main contract and precludes
the issuing bank from determining whether the main contract is
actually accomplished or not. Under this principle, banks
assume no liability or responsibility for the form, sufficiency,
accuracy, genuineness, falsifica-
_______________
146 Phil. 269; 35 SCRA 256 (1970).
37
G.R. No. 105395, 10 December 1993, 228 SCRA 357.
38
329
VOL. 443, NOVEMBER 22, 2004 329
Transfield Philippines, Inc. vs. Luzon Hydro Corporation
tion or legal effect of any documents, or for the general and/or
particular conditions stipulated in the documents or
superimposed thereon, nor do they assume any liability or
responsibility for the description, quantity, weight, quality,
condition, packing, delivery, value or existence of the goods
represented by any documents, or for the good faith or acts
and/or omissions, solvency, performance or standing of the
consignor, the carriers, or the insurers of the goods, or any other
person whomsoever. 39
The independent nature of the letter of credit may be: (a)
independence in toto where the credit is independent from the
justification aspect and is a separate obligation from the
underlying agreement like for instance a typical standby; or (b)
independence may be only as to the justification aspect like in a
commercial letter of credit or repayment standby, which is
identical with the same obligations under the underlying
agreement. In both cases the payment may be enjoined if in the
light of the purpose of the credit the payment of the credit would
constitute fraudulent abuse of the credit. 40
Can the beneficiary invoke the independence principle?
Petitioner insists that the independence principle does not
apply to the instant case and assuming it is so, it is a defense
available only to respondent banks. LHC, on the other hand,
contends that it would be contrary to common sense to deny the
benefit of an independent contract to the very party for whom the
benefit is intended. As beneficiary of the letter of credit, LHC
asserts it is entitled to invoke the principle.
As discussed above, in a letter of credit transaction, such as
in this case, where the credit is stipulated as irrevocable, there is
a definite undertaking by the issuing bank to pay the beneficiary
provided that the stipulated documents are pre-
_______________
39
Article 15, UCP.
40
KURKELA, LETTERS OF CREDIT UNDER INTERNATIONAL TRADE LAW,
286-287 (1985).
330
330 SUPREME COURT REPORTS ANNOTATED
Transfield Philippines, Inc. vs. Luzon Hydro Corporation
sented and the conditions of the credit are complied
with. Precisely, the independence principle liberates the issuing
41
bank from the duty of ascertaining compliance by the parties in
the main contract. As the principle’s nomenclature clearly
suggests, the obligation under the letter of credit is independent
of the related and originating contract. In brief, the letter of credit
is separate and distinct from the underlying transaction.
Given the nature of letters of credit, petitioner’s argument—
that it is only the issuing bank that may invoke the independence
principle on letters of credit—does not impress this Court. To say
that the independence principle may only be invoked by the
issuing banks would render nugatory the purpose for which the
letters of credit are used in commercial transactions. As it is, the
31
independence doctrine works to the benefit of both the issuing
bank and the beneficiary.
Letters of credit are employed by the parties desiring to enter
into commercial transactions, not for the benefit of the issuing
bank but mainly for the benefit of the parties to the original
transactions. With the letter of credit from the issuing bank, the
party who applied for and obtained it may confidently present the
letter of credit to the beneficiary as a security to convince the
beneficiary to enter into the business transaction. On the other
hand, the other party to the business transaction, i.e., the
beneficiary of the letter of credit, can be rest assured of being
empowered to call on the letter of credit as a security in case the
commercial transaction does not push through, or the applicant
fails to perform his part of the transaction. It is for this reason that
the party who is entitled to the proceeds of the letter of credit is
appropriately called “beneficiary.”
Petitioner’s argument that any dispute must first be resolved
by the parties, whether through negotiations or arbitration, before
the beneficiary is entitled to call on the letter
_______________
Art. 10, UCP.
41
331
VOL. 443, NOVEMBER 22, 2004 331
Transfield Philippines, Inc. vs. Luzon Hydro Corporation
of credit in essence would convert the letter of credit into a mere
guarantee. Jurisprudence has laid down a clear distinction
between a letter of credit and a guarantee in that the settlement
of a dispute between the parties is not a prerequisite for the
release of funds under a letter of credit. In other words, the
argument is incompatible with the very nature of the letter of
credit. If a letter of credit is drawable only after settlement of the
dispute on the contract entered into by the applicant and the
beneficiary, there would be no practical and beneficial use for
letters of credit in commercial transactions.
Professor John F. Dolan, the noted authority on letters of
credit, sheds more light on the issue:
The standby credit is an attractive commercial device for many of the
same reasons that commercial credits are attractive. Essentially, these
credits are inexpensive and efficient. Often they replace surety
contracts, which tend to generate higher costs than credits do and are
usually triggered by a factual determination rather than by the
examination of documents.
Because parties and courts should not confuse the different
functions of the surety contract on the one hand and the standby credit
on the other, the distinction between surety contracts and credits merits
some reflection. The two commercial devices share a common
purpose. Both ensure against the obligor’s nonperformance. They
function, however, in distinctly different ways.
Traditionally, upon the obligor’s default, the surety undertakes to
complete the obligor’s performance, usually by hiring someone to
complete that performance. Surety contracts, then, often involve costs
of determining whether the obligor defaulted (a matter over which the
surety and the beneficiary often litigate) plus the cost of performance.
The benefit of the surety contract to the beneficiary is obvious. He
knows that the surety, often an insurance company, is a strong financial
institution that will perform if the obligor does not. The beneficiary also
should understand that such performance must await the sometimes
lengthy and costly determination that the obligor has defaulted. In
addition, the surety’s performance takes time.
332
332 SUPREME COURT REPORTS ANNOTATED
Transfield Philippines, Inc. vs. Luzon Hydro Corporation
The standby credit has different expectations. He reasonably expects
that he will receive cash in the event of nonperformance, that he will
receive it promptly, and that he will receive it before any litigation with
the obligor (the applicant) over the nature of the applicant’s
performance takes place. The standby credit has this opposite effect of
the surety contract: it reverses the financial burden of parties during
litigation.
In the surety contract setting, there is no duty to indemnify the
beneficiary until the beneficiary establishes the fact of the obligor’s
performance. The beneficiary may have to establish that fact in
litigation. During the litigation, the surety holds the money and the
beneficiary bears most of the cost of delay in performance.
In the standby credit case, however, the beneficiary avoids that
litigation burden and receives his money promptly upon presentation of
the required documents. It may be that the applicant has, in fact,
performed and that the beneficiary’s presentation of those documents
32
is not rightful. In that case, the applicant may sue the beneficiary in tort,
in contract, or in breach of warranty; but, during the litigation to
determine whether the applicant has in fact breached the obligation to
perform, the beneficiary, not the applicant, holds the money. Parties
that use a standby credit and courts construing such a credit should
understand this allocation of burdens. There is a tendency in some
quarters to overlook this distinction between surety contracts and
standby credits and to reallocate burdens by permitting the obligor or
the issuer to litigate the performance question before payment to the
beneficiary. 42
While it is the bank which is bound to honor the credit, it is the
beneficiary who has the right to ask the bank to honor the credit
by allowing him to draw thereon. The situation itself emasculates
petitioner’s posture that LHC cannot invoke the independence
principle and highlights its puerility, more so in this case where
the banks concerned were impleaded as parties by petitioner
itself.
Respondent banks had squarely raised the independence
principle to justify their releases of the amounts due under the
Securities. Owing to the nature and purpose of the
_______________
Supra note 32 at pp. 1-27.
42
333
VOL. 443, NOVEMBER 22, 2004 333
Transfield Philippines, Inc. vs. Luzon Hydro Corporation
standby letters of credit, this Court rules that the respondent
banks were left with little or no alternative but to honor the credit
and both of them in fact submitted that it was “ministerial” for them
to honor the call for payment. 43
Furthermore, LHC has a right rooted in the Contract to call on
the Securities. The relevant provisions of the Contract read, thus:
1. 4.2.1.In order to secure the performance of its obligations under
this Contract, the Contractor at its cost shall on the
Commencement Date provide security to the Employer in the
form of two irrevocable and confirmed standby letters of credit
(the “Securities”), each in the amount of US$8,988,907, issued
and confirmed by banks or financial institutions acceptable to
the Employer. Each of the Securities must be in form and
substance acceptable to the Employer and may be provided
on an annually renewable basis. 44
2. 8.7.1If the Contractor fails to comply with Clause 8.2, the
Contractor shall pay to the Employer by way of liquidated
damages (“Liquidated Damages for Delay”) the amount of
US$75,000 for each and every day or part of a day that shall
elapse between the Target Completion Date and the
Completion Date, provided that Liquidated Damages for Delay
payable by the Contractor shall in the aggregate not exceed
20% of the Contract Price. The Contractor shall pay Liquidated
Damages for Delay for each day of the delay on the following
day without need of demand from the Employer.
3. 8.7.2The Employer may, without prejudice to any other method
of recovery, deduct the amount of such damages from any
monies due, or to become due to the Contractor and/or by
drawing on the Security.” 45
A contract once perfected, binds the parties not only to the
fulfillment of what has been expressly stipulated but also to all the
consequences which according to their nature, may be in keeping
with good faith, usage, and law. A careful perusal
46
_______________
43
Rollo, pp. 604 and 624.
44
Italics supplied; Id., at p. 94.
45
Italics supplied; Id., at p. 132.
46
Art. 1315, Civil Code.
334
334 SUPREME COURT REPORTS ANNOTATED
Transfield Philippines, Inc. vs. Luzon Hydro Corporation
of the Turnkey Contract reveals the intention of the parties to
make the Securities answerable for the liquidated damages
occasioned by any delay on the part of petitioner. The call upon
the Securities, while not an exclusive remedy on the part of LHC,
is certainly an alternative recourse available to it upon the
happening of the contingency for which the Securities have been
proffered. Thus, even without the use of the “independence
principle,” the Turnkey Contract itself bestows upon LHC the right
to call on the Securities in the event of default.
33
 Next, petitioner invokes the “fraud exception” principle. It avers
that LHC’s call on the Securities is wrongful because it
fraudulently misrepresented to ANZ Bank and SBC that there is
already a breach in the Turnkey Contract knowing fully well that
this is yet to be determined by the arbitral tribunals. It asserts that
the “fraud exception” exists when the beneficiary, for the purpose
of drawing on the credit, fraudulently presents to the confirming
bank, documents that contain, expressly or by implication,
material representations of fact that to his knowledge are untrue.
In such a situation, petitioner insists, injunction is recognized as
a remedy available to it.
Citing Dolan’s treatise on letters of credit, petitioner argues
that the independence principle is not without limits and it is
important to fashion those limits in light of the principle’s purpose,
which is to serve the commercial function of the credit. If it does
not serve those functions, application of the principle is not
warranted, and the common law principles of contract should
apply.
It is worthy of note that the propriety of LHC’s call on the
Securities is largely intertwined with the fact of default which is
the self-same issue pending resolution before the arbitral
tribunals. To be able to declare the call on the Securities wrongful
or fraudulent, it is imperative to resolve, among others, whether
petitioner was in fact guilty of delay in the performance of its
obligation. Unfortunately for petitioner,
335
VOL. 443, NOVEMBER 22, 2004 335
Transfield Philippines, Inc. vs. Luzon Hydro Corporation
this Court is not called upon to rule upon the issue of default—
such issue having been submitted by the parties to the jurisdiction
of the arbitral tribunals pursuant to the terms embodied in their
agreement. 47
Would injunction then be the proper remedy to restrain the
alleged wrongful draws on the Securities?
Most writers agree that fraud is an exception to the
independence principle. Professor Dolan opines that the
untruthfulness of a certificate accompanying a demand for
payment under a standby credit may qualify as fraud sufficient to
support an injunction against payment. The remedy for
48
fraudulent abuse is an injunction. However, injunction should not
be granted unless: (a) there is clear proof of fraud; (b) the fraud
constitutes fraudulent abuse of the independent purpose of the
letter of credit and not only fraud under the main agreement; and
(c) irreparable injury might follow if injunction is not granted or the
recovery of damages would be seriously damaged. 49
In its complaint for injunction before the trial court, petitioner
alleged that it is entitled to a total extension of two hundred fifty-
three (253) days which would move the target completion date. It
argued that if its claims for extension would be found meritorious
by the ICC, then LHC would not be entitled to any liquidated
damages. 50
Generally, injunction is a preservative remedy for the
protection of one’s substantive right or interest; it is not a cause
of action in itself but merely a provisional remedy, an adjunct to a
main suit. The issuance of the writ of preliminary injunction as an
ancillary or preventive remedy to secure the rights of a party in a
pending case is entirely within the discretion of
_______________
47
Clause 20.4.1, Turnkey Contract, Rollo, p. 179.
48
Supra note 32 at pp. 2-63.
49
M. KURKELA, LETTERS OF CREDIT UNDER INTERNATIONAL TRADE
LAW, 309 (1985).
50
Rollo, p. 391.
336
336 SUPREME COURT REPORTS ANNOTATED
Transfield Philippines, Inc. vs. Luzon Hydro Corporation
the court taking cognizance of the case, the only limitation being
that this discretion should be exercised based upon the grounds
and in the manner provided by law. 51
Before a writ of preliminary injunction may be issued, there
must be a clear showing by the complaint that there exists a right
to be protected and that the acts against which the writ is to be
directed are violative of the said right. It must be shown that the
52
invasion of the right sought to be protected is material and
substantial, that the right of complainant is clear and
unmistakable and that there is an urgent and paramount
necessity for the writ to prevent serious damage. Moreover, an
53
34
injunctive remedy may only be resorted to when there is a
pressing necessity to avoid injurious consequences which cannot
be remedied under any standard compensation. 54
In the instant case, petitioner failed to show that it has a clear
and unmistakable right to restrain LHC’s call on the Securities
which would justify the issuance of preliminary injunction. By
petitioner’s own admission, the right of LHC to call on the
Securities was contractually rooted and subject to the express
stipulations in the Turnkey Contract. Indeed, the Turnkey
55
Contract is plain and unequivocal in that it conferred upon LHC
the right to draw upon the Securities in case
_______________
51
Batangas Laguna Tayabas Bus Company, Inc. v. Bitanga, 415 Phil. 43; 362
SCRA 635, 651 (2001).
52
Shin v. Court of Appeals, G.R. No. 113627, 6 February 2001, 351 SCRA 257.
53
Zabat v. Court of Appeals, G.R. No. 122089, 23 August 2000, 338 SCRA
551; Philippine Economic Zone Authority v. Vianzon, G.R. No. 131020, 20 July
2000, 336 SCRA 309; Valencia v. Court of Appeals, G.R. No. 119118, 19 February
2001, 352 SCRA 72; Crystal v. Cebu International School, G.R. No. 135433, 4
April 2001, 356 SCRA 296; Ong Ching Kian Chuan v. Court of Appeals, 415 Phil.
365; 363 SCRA 145(2001).
54
Philippine National Bank v. Ritratto Group, Inc., 414 Phil. 494; 362 SCRA
216 (2001).
55
Rollo, p. 31.
337
VOL. 443, NOVEMBER 22, 2004 337
Transfield Philippines, Inc. vs. Luzon Hydro Corporation
of default, as provided in Clause 4.2.5, in relation to Clause 8.7.2,
thus:
1. “4.2.5The Employer shall give the Contractor seven days’ notice
of calling upon any of the Securities, stating the nature of the
default for which the claim on any of the Securities is to be
made, provided that nonotice will be required if the Employer
calls upon any of the Securities for the payment of Liquidated
Damages for Delay or for failure by the Contractor to renew or
extend the Securities within 14 days of their expiration in
accordance with Clause 4.2.2. 56
2. 8.7.2The Employer may, without prejudice to any other method
of recovery, deduct the amount of such damages from any
monies due, or to become due, to the Contractor and/or by
drawing on the Security.” 57
The pendency of the arbitration proceedings would not per
se make LHC’s draws on the Securities wrongful or fraudulent for
there was nothing in the Contract which would indicate that the
parties intended that all disputes regarding delay should first be
settled through arbitration before LHC would be allowed to call
upon the Securities. It is therefore premature and absurd to
conclude that the draws on the Securities were outright fraudulent
given the fact that the ICC and CIAC have not ruled with finality
on the existence of default.
Nowhere in its complaint before the trial court or in its
pleadings filed before the appellate court, did petitioner invoke
the fraud exception rule as a ground to justify the issuance of an
injunction. What petitioner did assert before the courts below
58
was the fact that LHC’s draws on the Securities would be
premature and without basis in view of the pending disputes
between them. Petitioner should not be allowed in
_______________
56
Italics supplied; Id., at pp. 94-95.
57
Id., at p. 132.
58
Vide Annex “L”, Rollo. pp. 392-399; Petition for Certiorari, CA Rollo, pp. 7-43.
338
338 SUPREME COURT REPORTS ANNOTATED
Transfield Philippines, Inc. vs. Luzon Hydro Corporation
this instance to bring into play the fraud exception rule to sustain
its claim for the issuance of an injunctive relief. Matters, theories
or arguments not brought out in the proceedings below will
ordinarily not be considered by a reviewing court as they cannot
be raised for the first time on appeal. The lower courts could thus
59
not be faulted for not applying the fraud exception rule not only
because the existence of fraud was fundamentally interwoven
with the issue of default still pending before the arbitral tribunals,
but more so, because petitioner never raised it as an issue in its
pleadings filed in the courts below. At any rate, petitioner utterly
failed to show that it had a clear and unmistakable right to prevent
LHC’s call upon the Securities.
35
 Of course, prudence should have impelled LHC to await
resolution of the pending issues before the arbitral tribunals prior
to taking action to enforce the Securities. But, as earlier stated,
the Turnkey Contract did not require LHC to do so and, therefore,
it was merely enforcing its rights in accordance with the tenor
thereof. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in
good faith. More importantly, pursuant to the principle of
60
autonomy of contracts embodied in Article 1306 of the Civil
Code, petitioner could have incorporated in its Contract with
61
LHC, a proviso that only the final determination by the arbitral
tribunals that default had occurred would justify the enforcement
of the
_______________
59
Salafranca v. Philamlife Village Homeowners Association, Inc., 360 Phil.
652; 300 SCRA 469 (1998); Ruby Industrial Corporation v. Court of Appeals, 348
Phil. 480; 284 SCRA 445 (1998); Victorias Milling Co., Inc. v. Court of
Appeals, 389 Phil. 184; 333 SCRA 663 (2000).
60
Article 1159, Civil Code.
61
Art. 1306. The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary
to law, morals, good customs, public order, or public policy.
339
VOL. 443, NOVEMBER 22, 2004 339
Transfield Philippines, Inc. vs. Luzon Hydro Corporation
Securities. However, the fact is petitioner did not do so; hence, it
would have to live with its inaction.
With respect to the issue of whether the respondent banks
were justified in releasing the amounts due under the Securities,
this Court reiterates that pursuant to the independence principle
the banks were under no obligation to determine the veracity of
LHC’s certification that default has occurred. Neither were they
bound by petitioner’s declaration that LHC’s call thereon was
wrongful. To repeat, respondent banks’ undertaking was simply
to pay once the required documents are presented by the
beneficiary.
At any rate, should petitioner finally prove in the pending
arbitration proceedings that LHC’s draws upon the Securities
were wrongful due to the non-existence of the fact of default, its
right to seek indemnification for damages it suffered would not
normally be foreclosed pursuant to general principles of law.
Moreover, in a Manifestation, dated 30 March 2001, LHC
62
informed this Court that the subject letters of credit had been fully
drawn. This fact alone would have been sufficient reason to
dismiss the instant petition.
Settled is the rule that injunction would not lie where the acts
sought to be enjoined have already become fait accompli or an
accomplished or consummated act. In Ticzon v. Video Post
63
Manila, Inc. this Court ruled that where the period within which
64
the former employees were prohibited from engaging in or
working for an enterprise that competed with their former
employer—the very purpose of the preliminary
_______________
62
Rollo, p. 493.
63
Aznar Brothers Realty Company v. Court of Appeals, G.R. No. 128102, 7
March 2000, 327 SCRA 359; Soriano v. Court of Appeals, 416 Phil. 226; 363
SCRA 725 (2001); Rodil Enterprises v. Court of Appeals,G.R. No. 129609, 29
November 2001, 371 SCRA 79; Unionbank of the Philippines v. Court of
Appeals, 370 Phil. 837; 311 SCRA 795 (1999).
64
389 Phil. 20; 333 SCRA 472 (2000).
340
340 SUPREME COURT REPORTS ANNOTATED
Transfield Philippines, Inc. vs. Luzon Hydro Corporation
injunction—has expired, any declaration upholding the propriety
of the writ would be entirely useless as there would be no actual
case or controversy between the parties insofar as the
preliminary injunction is concerned.
In the instant case, the consummation of the act sought to be
restrained had rendered the instant petition moot—for any
declaration by this Court as to propriety or impropriety of the non-
issuance of injunctive relief could have no practical effect on the
existing controversy. The other issues raised by petitioner
65
particularly with respect to its right to recover the amounts
wrongfully drawn on the Securities, according to it, could properly
be threshed out in a separate proceeding.
One final point. LHC has charged petitioner of forum shopping.
It raised the charge on two occasions. First, in its Counter-
36
Manifestation dated 29 June 2004 LHC alleges that petitioner
66
presented before this Court the same claim for money which it
has filed in two other proceedings, to wit: ICC Case No.
11264/TE/MW and Civil Case No. 04-332 before the RTC of
Makati. LHC argues that petitioner’s acts constitutes forum
shopping which should be punished by the dismissal of the claim
in both forums. Second, in its Comment to Petitioner’s Motion for
Leave to File Addendum to Petitioner’s Memorandum dated 8
October 2004, LHC alleges that by maintaining the present
appeal and at the same time pursuing Civil Case No. 04-332—
wherein petitioner pressed for judgment on the issue of whether
the funds LHC drew on the Securities should be returned—
petitioner resorted to forum shopping. In both instances, however,
petitioner has apparently opted not to respond to the charge.
Forum shopping is a very serious charge. It exists when a
party repetitively avails of several judicial remedies in different
courts, simultaneously or successively, all substantially
_______________
65
BLACK’S LAW DICTIONARY, p. 1008, citing Leonhart v. McCormick, D.C.
Pa., 395 F. Supp. 1073.
66
Vol. II, Rollo, pp. 666-669.
341
VOL. 443, NOVEMBER 22, 2004 341
Transfield Philippines, Inc. vs. Luzon Hydro Corporation
founded on the same transactions and the same essential facts
and circumstances, and all raising substantially the same issues
either pending in, or already resolved adversely, by some other
court. It may also consist in the act of a party against whom an
67
adverse judgment has been rendered in one forum, of seeking
another and possibly favorable opinion in another forum other
than by appeal or special civil action of certiorari, or the institution
of two or more actions or proceedings grounded on the same
cause on the supposition that one or the other court might look
with favor upon the other party. To determine whether a party
68
violated the rule against forum shopping, the test applied is
whether the elements of litis pendentia are present or whether a
final judgment in one case will amount to res judicata in
another. Forum shopping constitutes improper conduct and may
69
be punished with summary dismissal of the multiple petitions and
direct contempt of court. 70
Considering the seriousness of the charge of forum shopping
and the severity of the sanctions for its violation, the Court will
refrain from making any definitive ruling on this issue until after
petitioner has been given ample opportunity to respond to the
charge.
Colinares vs. Court of Appeals
G.R. No. 90828. September 5, 2000. *
MELVTN COLINARES and LORDINO VELOSO,
petitioners, vs. HONORABLE COURT OF APPEALS, and THE
PEOPLE OF THE PHILIPPINES, respondents.
Actions; New Trial; The grant or denial of a motion for new trial
rests upon the discretion of the judge.—The grant or denial of a motion
for new trial rests upon the discretion of the judge. New trial may be
granted if: (1) errors of law or irregularities have been committed during
the trial prejudicial to the substantial rights of the accused; or (2) new
and material evidence has been discovered which the accused could
not with reasonable diligence have discovered and produced at the trial,
and which, if introduced and admitted, would probably change the
judgment.
Same; Same; Newly Discovered Evidence; It is essential that the
offering party exercise reasonable diligence in seeking to locate the
evidence before or during trial but nonetheless failed to secure it.—For
newly discovered evidence to be a ground for new trial, such evidence
must be (1) discovered after trial; (2) could not have been discovered
and produced at the trial even with the exercise of reasonable diligence;
and (3) material, not merely cumulative, corroborative, or impeaching,
and of such weight that, if admitted, would probably change the
judgment. It is essential that the offering party exercised reasonable
diligence in seeking to locate the evidence before or during trial but
nonetheless failed to secure it.
Same; Same; Same; Alleged newly discovered evidence which is
mere forgotten evidence is excluded as a ground for new trial.—
Petitioners could not have been unaware that the two-page document
exists. The Disclosure Statement itself states, “NOTICE TO
BORROWER: YOU ARE ENTITLED TO A COPY OF THIS PAPER
WHICH YOU SHALL SIGN.” Assuming Petitioners’ copy was then
unavailable, they could have compelled its production in court, which
they never did. Petitioners have miserably failed to establish the second
37
requisite of the rule on newly discovered evidence. Petitioners
themselves admitted that “they searched again their voluminous
records, meticulously and patiently, until they discovered this new and
material evidence” only upon learning of the Court of Appeals’ decision
and after they were “shocked by the penalty imposed.” Clearly, the
alleged newly discovered evidence is mere forgotten evidence that
jurisprudence excludes as a ground for new trial.
________________
*
FIRST DIVISION.
610
610 SUPREME COURT REPORTS
ANNOTATED
Colinares vs. Court of Appeals
Criminal Law; Trust Receipts Law (P.D. 115); Words and
Phrases; “Trust Receipt Transaction,” Defined.—Section 4, P.D. No.
115, the Trust Receipts Law, defines a trust receipt transaction as any
transaction by and between a person referred to as the entruster, and
another person referred to as the entrustee, whereby the entruster who
owns or holds absolute title or security interest over certain specified
goods, documents or instruments, releases the same to the possession
of the entrustee upon the latter’s execution and delivery to the entruster
of a signed document called a “trust receipt” wherein the entrustee
binds himself to hold the designated goods, documents or instruments
with the obligation to turn over to the entruster the proceeds thereof to
the extent of the amount owing to the entruster or as appears in the
trust receipt or the goods, documents or instruments themselves if they
are unsold or not otherwise disposed of, in accordance with the terms
and conditions specified in the trust receipt.
Same; Same; Estafa; Failure of the entrustee to turn over the
proceeds of the sale of the goods, covered by the trust receipt to the
entruster or to return said goods if they were not disposed of in
accordance with the terms of the trust receipt is punishable as estafa.—
There are two possible situations in a trust receipt transaction. The first
is covered by the provision which refers to money received under the
obligation involving the duty to deliver it (entregarla) to the owner of the
merchandise sold. The second is covered by the provision which refers
to merchandise received under the obligation to “return” it (devolvera)
to the owner. Failure of the entrustee to turn over the proceeds of the
sale of the goods, covered by the trust receipt to the entruster or to
return said goods if they were not disposed of in accordance with the
terms of the trust receipt shall be punishable as estafa under Article 315
(1) of the Revised Penal Code, without need of proving intent to
defraud.
Same; Same; Same; In a pure trust receipt transaction, the goods
are owned by the bank and only released to the importer in trust
subsequent to the grant of the loan—the bank acquires a “security
interest” in the goods as holder of a security title for the advances it had
made to the entrustee; In a certain manner, trust receipts partake of the
nature of a conditional sale where the importer becomes absolute
owner of the imported merchandise as soon as he has paid its price.—
Petitioners received the merchandise from CM Builders Centre on 30
October 1979. On that day, ownership over the merchandise was
already transferred to Petitioners who were to use the materials for their
construction project. It was only a day later, 31 October 1979, that they
went to the bank to apply for a loan to pay for the merchandise. This
situation belies what normally obtains in a pure trust
611
VOL. 339, SEPTEMBER 5, 2000 611
Colinares vs. Court of Appeals
receipt transaction where goods are owned by the bank and only
released to the importer in trust subsequent to the grant of the loan.
The bank acquires a “security interest” in the goods as holder of a
security title for the advances it had made to the entrustee. The
ownership of the merchandise continues to be vested in the person who
had advanced payment until he has been paid in full, or if the
merchandise has already been sold, the proceeds of the sale should
be turned over to him by the importer or by his representative or
successor in interest. To secure that the bank shall be paid, it takes full
title to the goods at the very beginning and continues to hold that title
as his indispensable security until the goods are sold and the vendee
is called upon to pay for them; hence, the importer has never owned
the goods and is not able to deliver possession. In a certain manner,
trust receipts partake of the nature of a conditional sale where the
importer becomes absolute owner of the imported merchandise as
soon as he has paid its price.
Same; Same; The Trust Receipts Law does not seek to enforce
the payment of the loan, rather it punishes the dishonesty and abuse of
confidence in the handling of money or goods to the prejudice of
another.—The Trust Receipts Law does not seek to enforce payment
of the loan, rather it punishes the dishonesty and abuse of confidence
in the handling of money or goods to the prejudice of another regardless
of whether the latter is the owner. Here, it is crystal clear that on the
38
part of Petitioners there was neither dishonesty nor abuse of confidence
in the handling of money to the prejudice of PBC. Petitioners continually
endeavored to meet their obligations, as shown by several receipts
issued by PBC acknowledging payment of the loan.
Same; Same; The mala prohibita nature of the alleged offense
notwithstanding, intent as a state of mind was not proved to be present
in the situation of the accused—they employed no artifice in dealing
with the bank and never did they evade payment of their obligation nor
attempt to abscond.—The Information charges Petitioners with intent to
defraud and misappropriating the money for their personal use.
The mala prohibita nature of the alleged offense notwithstanding, intent
as a state of mind was not proved to be present in Petitioners’ situation.
Petitioners employed no artifice in dealing with PBC and never did they
evade payment of their obligation nor attempt to abscond. Instead,
Petitioners sought favorable terms precisely to meet their obligation.
Same; Same; The fact that the accused are not importers
acquiring the goods for re-sale, contrary to the express provision
embodied in the trust receipt and at no time did the title pass to the bank
impresses upon the
612
612 SUPREME COURT REPORTS
ANNOTATED
Colinares vs. Court of Appeals
trust receipt in question vagueness and ambiguity which should
not be the basis for criminal prosecution in the event of violation of its
provisions.—Also noteworthy is the fact that Petitioners are not
importers acquiring the goods for re-sale, contrary to the express
provision embodied in the trust receipt. They are contractors who
obtained the fungible goods for their construction project. At no time did
title over the construction materials pass to the bank, but directly to the
Petitioners from CM Builders Centre. This impresses upon the trust
receipt in question vagueness and ambiguity, which should not be the
basis for criminal prosecution in the event of violation of its provisions.
Same; Same; Banks and Banking; Contracts; Contracts of
Adhesion; The practice of banks of making borrowers sign trust receipts
to facilitate collection of loans and place them under the threats of
criminal prosecution should they be unable to pay it may be unjust and
inequitable, if not reprehensible.—The practice of banks of making
borrowers sign trust receipts to facilitate collection of loans and place
them under the threats of criminal prosecution should they be unable
to pay it may be unjust and inequitable, if not reprehensible. Such
agreements are contracts of adhesion which borrowers have no option
but to sign lest their loan be disapproved. The resort to this scheme
leaves poor and hapless borrowers at the mercy of banks, and is prone
to misinterpretation, as had happened in this case. Eventually, PBC
showed its true colors and admitted that it was only after collection of
the money, as manifested by its Affidavit of Desistance.
PETITION for review on certiorari of a decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Romualdo, Amado, Romualda and Associates Law
Office for petitioners.
The Solicitor General for the People.
DAVIDE, JR., C.J.:
In 1979 Melvin Colinares and Lordino Veloso (hereafter
Petitioners) were contracted for a consideration of P40,000 by the
Carmelite Sisters of Cagayan de Oro City to renovate the latter’s
convent at Camaman-an, Cagayan de Oro City.
On 30 October 1979, Petitioners obtained 5,376 SF Solatone
acoustical board 2’x4’x1/2”, 300 SF tanguile Wood tiles 12”x 12”,
613
VOL. 339, SEPTEMBER 5, 2000 613
Colinares vs. Court of Appeals
260 SF Marcelo economy tiles and 2 gallons UMYLIN cement
adhesive from CM Builders Centre for the construction
project. The following day, 31 October 1979, Petitioners applied
1
for a commercial letter of credit with the Philippine Banking
2
Corporation, Cagayan de Oro City branch (hereafter PBC) in
favor of CM Builders Centre. PBC approved the letter of credit for 3
P22,389.80 to cover the full invoice value of the goods.
Petitioners signed a pro-forma trust receipt as security. The loan
4
was due on 29 January 1980.
On 31 October 1979, PBC debited P6,720 from Petitioners’
marginal deposit as partial payment of the loan. 5
On 7 May 1980, PBC wrote to Petitioners demanding that the
6
amount be paid within seven days from notice. Instead of
complying with PBC’s demand, Veloso confessed that they lost
39
P19,195.83 in the Carmelite Monastery Project and requested for
a grace period of until 15 June 1980 to settle the account. 7 misapplied the proceeds to their own personal use, benefit and gain, to
PBC sent a new demand letter to Petitioners on 16 October
8 the damage and prejudice of the Philippine Banking Corporation, in the
1980 and informed them that their outstanding balance as of 17
November 1979 was P20,824.40 exclusive of attorney s fees of
25%. 9
On 2 December 1980, Petitioners proposed that the terms of
10
payment of the loan be modified as follows: P2,000 on or before
3 December 1980, and P1,000 per month starting 31 January
1980 until the account is fully paid. Pending approval of the
proposal, Petitioners paid P1,000 to PBC on 4 December
1980, and thereafter P500 on 11 February 1981, 16 March
11 12
1981, and 20 April 1981. Concurrently with the separate
13 14
demand for attorney’s fees by PBC’s legal counsel, PBC
continued to demand payment of the balance. 15
On 14 January 1983, Petitioners were charged with the
violation of P.D. No. 115 (Trust Receipts Law) in relation to Article
315 of the Revised Penal Code in an Information which was filed
with Branch 18, Regional Trial Court of Cagayan de Oro City. The
accusatory portion of the Information reads:
That on or about October 31, 1979, in the City of Cagayan de Oro,
Philippines, and within the jurisdiction of this Honorable Court, the
above-named accused entered into a trust receipt agreement with the
Philippine Banking Corporation at Cagayan de Oro City wherein the
accused, as entrustee, received from the entruster the following goods
to wit:
Solatone Acoustical board
Tanguile Wood Tiles
Marcelo Cement Tiles
Umylin Cement Adhesive
with a total value of P22,389.80, with the obligation on the part of
the accused-entrustee to hold the aforesaid items in trust for the
entruster and/or to sell on cash basis or otherwise dispose of the said
items and to turn over to the entruster the proceeds of the sale of said
goods or if there be no sale to return said items to the entruster on or
before January 29, 1980 but that the said accused after receipt of the
goods, with intent to defraud and cause damage to the entruster,
conspiring, confederating together and mutually helping one another,
did then and there wilfully, unlawfully and feloniously fail and refuse to
remit the proceeds of the sale of the goods to the entruster despite
repeated demands but instead converted, misappropriated and
aforesaid sum of P22,389.80, Philippine Currency.
Contrary to PD 115 in relation to Article 315 of the Revised Penal
Code. 16
________________
14
Exhibit “7-C,” Id., 170.
15
Exhibit “G,” Id., 118.
16
OR, 33.
615
VOL. 339, SEPTEMBER 5, 2000 615
Colinares vs. Court of Appeals
The case was docketed as Criminal Case No. 1390.
During trial, petitioner Veloso insisted that the transaction was
a “clean loan” as per verbal guarantee of Cayo Garcia Tuiza,
PBC’s former manager. He and petitioner Colinares signed the
documents without reading the fine print, only learning of the trust
receipt implication much later. When he brought this to the
attention of PBC, Mr. Tuiza assured him that the trust receipt was
a mere formality. 17
On 7 July 1986, the trial court promulgated its
decision convicting Petitioners of estafa for violating P.D. No.
18
115 in relation to Article 315 of the Revised Penal Code and
sentencing each of them to suffer imprisonment of two years and
one day of prision correccional as minimum to six years and one
day of prision mayor as maximum, and to solidarity indemnify
PBC the amount of P20,824.44, with legal interest from 29
January 1980, 12% penalty charge per annum, 25% of the sums
due as attorney’s fees, and costs.
The trial court considered the transaction between PBC and
Petitioners as a trust receipt transaction under Section 4,
P.D. No. 115. It considered Petitioners’ use of the goods in their
Carmelite monastery project an act of “disposing” as
contemplated under Section 13, P.D. No. 115, and treated the
charge invoice for goods issued by CM Builders Centre as a
19
“document” within the meaning of Section 3 thereof. It concluded
40
that the failure of Petitioners to turn over the amount they owed
to PBC constituted estafa.
Petitioners appealed from the judgment to the Court of
Appeals which was docketed as CA-G.R. CR No. 05408.
Petitioners asserted therein that the trial court erred in ruling that
they violated the Trust Receipt Law, and in holding them
criminally liable therefor. In the alternative, they contend that at
most they can only be made civilly liable for payment of the loan.
________________
17
TSN, 21 May 1986, 21-22, 30.
18
Per Judge Senen C. Peñaranda. Rollo 12-17.
19
Exhibit “D,” supra note 1.
616
616 SUPREME COURT REPORTS ANNOTATED
Colinares vs. Court of Appeals
In its decision 6 March 1989, the Court of Appeals modified the
20
judgment of the trial court by increasing the penalty to six years
and one day of prision mayor as minimum to fourteen years eight
months and one day of reclusion temporal as maximum. It held
that the documentary evidence of the prosecution prevails over
Veloso’s testimony, discredited Petitioners’ claim that the
documents they signed were in blank, and disbelieved that they
were coerced into signing them.
On 25 March 1989, Petitioners filed a Motion for New
Trial/Reconsideration alleging that the “Disclosure Statement on
21
Loan/Credit Transaction” (hereafter Disclosure Statement)
22
signed by them and Tuiza was suppressed by PBC during the
trial. That document would have proved that the transaction was
indeed a loan as it bears a 14% interest as opposed to the trust
receipt which does not at all bear any interest. Petitioners further
maintained that when PBC allowed them to pay in installment, the
agreement was novated and a creditor-debtor relationship was
created.
In its resolution of 16 October 1989 the Court of Appeals
23
denied the Motion for New Trial/Reconsideration because the
Hence, Petitioners filed with us the petition in this case on 16
November 1989. They raised the following issues:
1. 1.WHETHER OR NOT THE DENIAL OF THE MOTION FOR
NEW TRIAL ON THE GROUND OF NEWLY DISCOVERED
EVIDENCE, NAMELY, “DISCLOSURE ON LOAN/CREDIT
TRANSACTION,” WHICH IF INTRODUCED AND ADMITTED,
WOULD CHANGE THE JUDGMENT, DOES NOT
CONSTITUTE A DENIAL OF DUE PROCESS.
2. 2.ASSUMING THERE WAS A VALID TRUST RECEIPT,
WHETHER OR NOT THE ACCUSED WERE PROPERLY
CHARGED,
________________
20
Annex “A” Petition, Rollo, 3-10. Per Imperial, J., J., with the concurrence of
Puno, R. and Francisco, C, JJ.
21
Rollo, 27-39.
22
Id., 177-178.
23
Id., 45.
617
VOL. 339, SEPTEMBER 5, 2000 617
Colinares vs. Court of Appeals
1. TRIED AND CONVICTED FOR VIOLATION OF SEC. 13,
PD NO. 115 IN RELATION TO ARTICLE 315 PARAGRAPH
(I) (B) NOTWITHSTANDING THE NOVATION OF THE SO-
CALLED TRUST RECEIPT CONVERTING THE TRUSTOR-
TRUSTEE RELATIONSHIP TO CREDITORDEBTOR
SITUATION.
In its Comment of 22 January 1990, the Office of the Solicitor
General urged us to deny the petition for lack of merit.
On 28 February 1990 Petitioners filed a Motion to Dismiss the
case on the ground that they had already fully paid PBC on 2
February 1990 the amount of P70,000 for the balance of the loan,
including interest and other charges, as evidenced by the
different receipts issued by PBC, and that the PBC executed an
24

alleged newly discovered evidence was actually forgotten Affidavit of desistance. 25

evidence already in existence during the trial, and would not alter We required the Solicitor General to comment on the Motion
the result of the case. to Dismiss.

41
 In its Comment of 30 July 1990, the Solicitor General opined
that payment of the loan was akin to a voluntary surrender or plea
of guilty which merely serves to mitigate Petitioners’ culpability,
but does not in any way extinguish their criminal liability.
In the Resolution of 13 August 1990, we gave due course to
the Petition and required the parties to file their respective
memoranda.
The parties subsequently filed their respective memoranda.
It was only on 18 May 1999 when this case was assigned to
the ponente. Thereafter, we required the parties to move in the
premises and for Petitioners to manifest if they are still interested
in the further prosecution of this case and inform us of their
present whereabouts and whether their bail bonds are still valid.
Petitioners submitted their Compliance.
The core issues raised in the petition are the denial by the
Court of Appeals of Petitioners’ Motion for New Trial and the true
nature of the contract between Petitioners and the PBC. As to the
latter,
________________
Rollo, 127.
24
Id., 128.
25
618
618 SUPREME COURT REPORTS ANNOTATED
Colinares vs. Court of Appeals
Petitioners assert that it was an ordinary loan, not a trust receipt
agreement under the Trust Receipts Law.
The grant or denial of a motion for new trial rests upon the
discretion of the judge. New trial may be granted if: (1) errors of
law or irregularities have been committed during the trial
prejudicial to the substantial rights of the accused; or (2) new and
material evidence has been discovered which the accused could
not with reasonable diligence have discovered and produced at
the trial, and which, if introduced and admitted, would probably
change the judgment. 26
For newly discovered evidence to be a ground for new trial,
such evidence must be (1) discovered after trial; (2) could not
have been discovered and produced at the trial even with the
exercise of reasonable diligence; and (3) material, not merely
cumulative, corroborative, or impeaching, and of such weight
that, if admitted, would probably change the judgment. It is 27
essential that the offering party exercised reasonable diligence in
seeking to locate the evidence before or during trial but
nonetheless failed to secure it. 28
We find no indication in the pleadings that the Disclosure
Statement is a newly discovered evidence.
Petitioners could not have been unaware that the two-page
document exists. The Disclosure Statement itself states,
“NOTICE TO BORROWER: YOU ARE ENTITLED TO A COPY
OF THIS PAPER WHICH YOU SHALL SIGN.” Assuming 29
Petitioners’ copy was then unavailable, they could have
compelled its production in court, which they never did.
30
Petitioners have miserably failed to establish the second requisite
of the rule on newly discovered evidence.
________________
26
Section 2, Rule 121, Revised Rules of Criminal Procedure.
27
See People v. Excija, 258 SCRA 424, 443 [1996]; People v. Tirona, 300
SCRA 431, 440 [1998]; Villanueva v. People, G.R. No. 135098, 12 April 2000,
7, 330 SCRA 695.
28
Tumang v. Court of Appeals, et al., 172 SCRA 328, 334 [1989]. SeeGarrido
v. CA, et al., 236 SCRA 450, 456 [1994].
29
Rollo, 178.
30
People v. Ducay, et al., 225 SCRA 1 [1993].
619
VOL. 339, SEPTEMBER 5, 2000 619
Colinares vs. Court of Appeals
Petitioners themselves admitted that “they searched again their
voluminous records, meticulously and patiently, until they
discovered this new and material evidence” only upon learning of
the Court of Appeals’ decision and after they were “shocked by
the penalty imposed.” Clearly, the alleged newly discovered
31
evidence is mere forgotten evidence that jurisprudence excludes
as a ground for new trial. 32
However, the second issue should be resolved in favor of
Petitioners.
Section 4, P.D. No. 115, the Trust Receipts Law, defines a
trust receipt transaction as any transaction by and between a
42
person referred to as the entruster, and another person referred
to as the entrustee, whereby the entruster who owns or holds
absolute title or security interest over certain specified goods,
documents or instruments, releases the same to the possession
of the entrustee upon the latter’s execution and delivery to the
entruster of a signed document called a “trust receipt” wherein
the entrustee binds himself to hold the designated goods,
documents or instruments with the obligation to turn over to the
entruster the proceeds thereof to the extent of the amount owing
to the entruster or as appears in the trust receipt or the goods,
documents or instruments themselves if they are unsold or not
otherwise disposed of, in accordance with the terms and
conditions specified in the trust receipt.
There are two possible situations in a trust receipt transaction.
The first is covered by the provision which refers
to money received under the obligation involving the duty to
deliver it (entregarla) to the owner of the merchandise sold. The
second is covered by the provision which refers to merchandise
received under the obligation to “return” it (devolvera) to the
owner. 33
Failure of the entrustee to turn over the proceeds of the sale
of the goods, covered by the trust receipt to the entruster or to
return said goods if they were not disposed of in accordance with
the terms of the trust receipt shall be punishable as estafa under
Arti-
________________
31
Motion for New Trial/Reconsideration; Rollo, 28.
32
People v. Hernando, et al., 108 SCRA 121 [1981]; People v.
Ducay, supra note 30; People v. Penones, 200 SCRA 624 [1994].
33
People v. Cuevo, 104 SCRA 312, 318 [1981].
620
620 SUPREME COURT REPORTS ANNOTATED
Colinares vs. Court of Appeals
cle 315 (1) of the Revised Penal Code, without need of proving
34
intent to defraud.
A thorough examination of the facts obtaining in the case at
bar reveals that the transaction intended by the parties was a
simple loan, not a trust receipt agreement.
Petitioners received the merchandise from CM Builders
Centre on 30 October 1979. On that day, ownership over the
merchandise was already transferred to Petitioners who were to
use the materials for their construction project. It was only a day
later, 31 October 1979, that they went to the bank to apply for a
loan to pay for the merchandise.
This situation belies what normally obtains in a pure trust
receipt transaction where goods are owned by the bank and only
released to the importer in trust subsequent to the grant of the
loan. The bank acquires a “security interest” in the goods as
holder of a security title for the advances it had made to the
entrustee. The ownership of the merchandise continues to be
35
vested in the person who had advanced payment until he has
been paid in full, or if the merchandise has already been sold, the
proceeds of the sale should be turned over to him by the importer
or by his representative or successor in interest. To secure that
36
the bank shall be paid, it takes full title to the goods at the very
beginning and continues to hold that title as his indispensable
security until the goods are sold and the vendee is called upon to
pay for them; hence, the importer has never owned the goods
and is not able to deliver possession. In a certain manner, trust
37
receipts partake of the nature of a conditional sale where the
importer becomes absolute owner of the imported merchandise
as soon as he has paid its price. 38
_______________
34
Section 13, P.D. No. 115.
35
Vintola v. IBAA, 150 SCRA 578, 583 [1987].
36
Prudential Bank v. NLRC, 251 SCRA 421 [1995], quoting National Bank v.
Vda. de Hijos de Angel Jose, 63 Phil. 814, 821 [1936].
37
People v. Yu Chai Ho, 53 Phil. 874 [1928], quoting In re: Dunlap Carpet Co.,
207 Fed. 726.
38
Prudential Bank v. NLRC, supra note 36.
621
VOL. 339, SEPTEMBER 5, 2000 621
Colinares vs. Court of Appeals
Trust receipt transactions are intended to aid in financing
importers and retail dealers who do not have sufficient funds or
resources to finance the importation or purchase of merchandise,
43
and who may not be able to acquire credit except through
utilization, as collateral, of the merchandise imported or
purchased. 39
The antecedent acts in a trust receipt transaction consist of the
application and approval of the letter of credit, the making of the
marginal deposit and the effective importation of goods through
the efforts of the importer. 40
PBC attempted to cover up the true delivery date of the
merchandise, yet the trial court took notice even though it failed
to attach any significance to such fact in the judgment. Despite
the Court of Appeals’ contrary view that the goods were delivered
to Petitioners previous to the execution of the letter of credit and
trust receipt, we find that the records of the case speak volubly
and this fact remains uncontroverted. It is not uncommon for us
to peruse through the transcript of the stenographic notes of the
proceedings to be satisfied that the records of the case do
support the conclusions of the trial court. After such perusal
41
Grego Mutia, PBC’s credit investigator, admitted thus:
ATTY. CABANLET: (continuing)
Q Do you know if the goods subject matter of this letter
of credit and trust receipt agreement were received
by the accused?
A Yes, sir.
Q Do you have evidence to show that these goods
subject matter of this letter of credit and trust receipt
were delivered to the accused?
A Yes, sir.
Q I am showing to you this charge invoice, are you
referring to this document?
A Yes, sir.
_______________
39
Ceferina Samo v. People, 115 Phil. 346, 349-350; 5 SCRA 354, 356357,
[1962], citing 53 Am Jur. 961. See also Prudential Bank v. NLRC, supra note 36.
40
Sia v. People, 121 SCRA 655 [1983].
41
People v. Vergara, et al., 270 SCRA 624 [1997].
622
622 SUPREME COURT REPORTS ANNOTATED
Colinares vs. Court of Appeals
xxx
Q What is the date of the charge invoice?
A October 31, 1979.
COURT:
Make it of record as appearing in Exhibit D, the
zero in 30 has been superimposed with numeral 1. 42
During the cross and re-direct examinations he also impliedly
admitted that the transaction was indeed a loan. Thus:
Q In short the amount stated in your Exhibit C, the trust
receipt was a loan to the accused you admit that?
A Because in the bank the loan is considered part of
the loan.
xxx
RE-DIRECT BY ATTY. CABANLET.
ATTY. CABANLET (to the witness)
Q What do you understand by loan when you were
asked?
A Loan is a promise of a borrower from the value
received. The borrower will pay the bank on a certain
specified date with interest 43
Such statement is akin to an admission against interest binding
upon PBC
Petitioner Veloso’s claim that they were made to believe that
the transaction was a loan was also not denied by PBC. He
declared:
Q Testimony was given here that that was covered by
trust receipt. In short it was a special kind of loan.
What can you say as to that?
A I don’t think that would be a trust receipt because we
were made to understand by the manager who
encouraged us to avail of their facilities that they will
be granting us a loan 44
PBC could have presented its former bank manager, Cayo Garcia
Tuiza, who contracted with Petitioners, to refute Veloso’s
44
testimony, yet it only presented credit investigator Grego
Mutia. No-
_______________
42
TSN, 18 December 1986, 10-11.
43
Id., 21-22.
44
TSN, 21 May 1986, 3-4.
623
VOL. 339, SEPTEMBER 5, 2000 623
Colinares vs. Court of Appeals
where from Mutia’s testimony can it be gleaned that PBC
represented to Petitioners that the transaction they were entering
into was not a pure loan but had trust receipt implications.
The Trust Receipts Law does not seek to enforce payment of
the loan, rather it punishes the dishonesty and abuse of
confidence in the handling of money or goods to the prejudice of
Another regardless of whether the latter is the owner. Here, it is
45
crystal clear that on the part of Petitioners there was neither
dishonesty nor abuse of confidence in the handling of money to
the prejudice of PBC. Petitioners continually endeavored to meet
their obligations, as shown by several receipts issued by PBC
acknowledging payment of the loan.
The Information charges Petitioners with intent to defraud and
misappropriating the money for their personal use. The mala
prohibita nature of the alleged offense notwithstanding, intent as
a state of mind was not proved to be present in Petitioners’
situation. Petitioners employed no artifice in dealing with PBC
and never did they evade payment of their obligation nor attempt
to abscond. Instead, Petitioners sought favorable terms precisely
to meet their obligation.
Also noteworthy is the fact that Petitioners are not importers
acquiring the goods for re-sale, contrary to the express provision
embodied in the trust receipt. They are contractors who obtained
the fungible goods for their construction project. At no time did
title over the construction materials pass to the bank, but directly
to the Petitioners from CM Builders Centre. This impresses upon
the trust receipt in question vagueness and ambiguity, which
should not be the basis for criminal prosecution in the event of
violation of its provisions. 46
The practice of banks of making borrowers sign trust receipts
to facilitate collection of loans and place them under the threats
of criminal prosecution should they be unable to pay it may be
unjust and inequitable, if not reprehensible. Such agreements are
contracts of adhesion which borrowers have no option but to sign
lest their loan be disapproved. The resort to this scheme leaves
poor and hapless borrowers at the mercy of banks, and is prone
to misinterpretation, as had happened in this case. Eventually,
PBC showed its true colors and admitted that it was only after
collection of the money, as manifested by its Affidavit of
Desistance.
WHEREFORE, the challenged Decision of 6 March 1989 and
the Resolution of 16 October 1989 of the Court of Appeals in CA-
G.R. No. 05408 are REVERSED and SET ASIDE. Petitioners are
hereby ACQUITTED of the crime charged, i.e., for violation of
P.D. No. 115 in relation to Article 315 of the Revised Penal Code.
No costs.
SO ORDERED.
Kapunan and Pardo, JJ., concur.
Puno, J., No part.
Ynares-Santiago, J., On leave.
Judgment reversed and set aside. Petitioners acquitted.
Notes.—At the pith of the requirements for newly discovered
evidence as ground for new trial is that what is essential is that
the offering party had exercised reasonable diligence in
producing or locating such evidence before or during trial but had
nonetheless failed to secure it. (Garrido vs. Court of Appeals, 236
SCRA 450 [1994])
An affidavit of desistance can not be said to be newly
discovered evidence. (People vs. Delabajan, 280 SCRA
696[1997])
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WHEREFORE, the instant petition is DENIED, with costs
against petitioner.
Petitioner is hereby required to answer the charge of forum
shopping within fifteen (15) days from notice.
45
SO ORDERED.
Puno (Chairman), Austria-Martinez, Callejo,
Sr.and Chico-Nazario, JJ., concur.
Petition denied.
Notes.—Being a product of international commerce, it is not
uncommon to find a dearth of national law that can adequately
provide for the governance of letters of credit. (Bank of America,
NT & SA vs. Court of Appeals, 228 SCRA 357 [1993])
Matters, theories or arguments not brought out in the
proceedings below will ordinarily not be considered by a
reviewing court, as they cannot be raised for the first time on
appeal. (Salafranca v. Philamlife (Pamplona) Village
Homeowners Association, Inc., 300 SCRA 469 [1998])

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46