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SPECIAL SECOND DIVISION

[G.R. NO. 146717 : May 19, 2006]


TRANSFIELD PHILIPPINES, INC., Petitioner, v. LUZON HYDRO
CORPORATION, AUSTRALIA AND NEW ZEALAND BANKING
GROUP LIMITED and SECURITY BANK
CORPORATION, Respondents.
RESOLUTION
TINGA, J.:
The adjudication of this case proved to be a two-stage process as
its constituent parts involve two segregate but equally important
issues. The first stage relating to the merits of the case,
specifically the question of the propriety of calling on the securities
during the pendency of the arbitral proceedings, was resolved in
favor of Luzon Hydro Corporation (LHC) with the Court's
Decision1 of 22 November 2004. The second stage involving the
issue of forum-shopping on which the Court required the parties to
submit their respective memoranda 2 is disposed of in this
Resolution.
The disposal of the forum-shopping charge is crucial to the parties
to this case on account of its profound effect on the final outcome
of the international arbitral proceedings which they have chosen as
their principal dispute resolution mechanism.3
LHC claims that Transfield Philippines, Inc. (TPI) is guilty of forumshopping when it filed the following suits:
1. Civil Case No. 04-332 filed on 19 March 2004, pending before
the Regional Trial Court (RTC) of Makati, Branch 56 for
confirmation, recognition and enforcement of the Third Partial
Award in case 11264 TE/MW, ICC International Court of
Arbitration, entitled Transfield Philippines, Inc. v. Luzon Hydro
Corporation.4

LOMONGO, BASTIAN MIGUEL Y.

2. ICC Case No. 11264/TE/MW, Transfield Philippines, Inc. v.


Luzon Hydro Corporation filed before the International Court of
Arbitration, International Chamber of Commerce (ICC) a request
for arbitration dated 3 November 2000 pursuant to the Turnkey
Contract between LHC and TPI;
3. G.R. No. 146717, Transfield Philippines, Inc. v. Luzon Hydro
Corporation, Australia and New Zealand Banking Group
Limited and Security Bank Corp. filed on 5 February 2001, which
was an appeal bycertiorari with prayer for TRO/preliminary
prohibitory and mandatory injunction, of the Court of Appeals
Decision dated 31 January 2001 in CA-G.R. SP No. 61901.
A. CA-G.R. SP No. 61901 was a Petition for Review of the Decision
in Civil Case No. 00-1312, wherein TPI claimed that LHC's call on
the securities was premature considering that the issue of default
has not yet been resolved with finality; the petition was however
denied by the Court of Appeals;
b. Civil Case No. 00-1312 was a complaint for injunction with
prayer for temporary restraining order and/or writ of preliminary
injunction dated 5 November 2000, which sought to restrain LHC
from calling on the securities and respondent banks from
transferring or paying of the securities; the complaint was denied
by the RTC.
On the other hand, TPI claims that it is LHC which is guilty of
forum-shopping when it raised the issue of forum-shopping not
only in this case, but also in Civil Case No. 04-332, and even asked
for the dismissal of the other case based on this ground. Moreover,
TPI argues that LHC is relitigating in Civil Case No. 04-332 the
very same causes of action in ICC Case No. 11264/TE/MW, and
even manifesting therein that it will present evidence earlier
presented before the arbitral tribunal.5
Meanwhile, ANZ Bank and Security Bank moved to be excused
from filing a memorandum. They claim that with the finality of the
Court's Decision dated 22 November 2004, any resolution by the
Court on the issue of forum-shopping will not materially affect

their role as the banking entities involved are concerned. 6 The


Court granted their respective motions.

There is no identity of causes of action between and among the


arbitration case, the instant petition, and Civil Case No. 04-332.

On 1 August 2005, TPI moved to set the case for oral argument,
positing that the resolution of the Court on the issue of forumshopping may have significant implications on the interpretation of
the Alternative Dispute Resolution Act of 2004, as well as the
viability of international commercial arbitration as an alternative
mode of dispute resolution in the country.7 Said motion was
opposed by LHC in its opposition filed on 2 September 2005, with
LHC arguing that the respective memoranda of the parties are
sufficient for the Court to resolve the issue of forum-shopping. 8 On
28 October 2005, TPI filed its Manifestation and Reiterative
Motion9 to set the case for oral argument, where it manifested that
the International Chamber of Commerce (ICC) arbitral tribunal had
issued its Final Award ordering LHC to pay TPI US$24,533,730.00
(including the US$17,977,815.00 proceeds of the two standby
letters of credit). TPI also submitted a copy thereof with a
Supplemental Petition10 to the Regional Trial Court (RTC), seeking
recognition and enforcement of the said award. 11

The arbitration case, ICC Case No. 11264 TE/MW, is an arbitral


proceeding commenced pursuant to the Turnkey Contract between
TPI and LHC, to determine the primary issue of whether the delays
in the construction of the project were excused delays, which
would consequently render valid TPI's claims for extension of time
to finish the project. Together with the primary issue to be settled
in the arbitration case is the equally important question of
monetary awards to the aggrieved party.

The essence of forum-shopping is the filing of multiple suits


involving the same parties for the same cause of action, either
simultaneously or successively, for the purpose of obtaining a
favorable judgment.12 Forum-shopping has likewise been defined
as the act of a party against whom an adverse judgment has been
rendered in one forum, seeking and possibly getting a favorable
opinion in another forum, other than by appeal or the special civil
action ofcertiorari, or the institution of two or more actions or
proceedings grounded on the same cause on the supposition that
one or the other court would make a favorable disposition. 13

While the ICC case thus calls for a thorough review of the facts
which led to the delay in the construction of the project, as well as
the attendant responsibilities of the parties therein, in contrast, the
present petition puts in issue the propriety of drawing on the
letters of credit during the pendency of the arbitral case, and of
course, absent a final determination by the ICC Arbitral tribunal.
Moreover, as pointed out by TPI, it did not pray for the return of
the proceeds of the letters of credit. What it asked instead is that
the said moneys be placed in escrow until the final resolution of
the arbitral case. Meanwhile, in Civil Case No. 04-332, TPI no
longer seeks the issuance of a provisional relief, but rather the
issuance of a writ of execution to enforce the Third Partial Award.

Thus, for forum-shopping to exist, there must be (a) identity of


parties, or at least such parties as represent the same interests in
both actions; (b) identity of rights asserted and relief prayed for,
the relief being founded on the same facts; and (c) the identity of
the two preceding particulars is such that any judgment rendered
in the other action will, regardless of which party is successful,
amount to res judicata in the action under consideration.14

LOMONGO, BASTIAN MIGUEL Y.

On the other hand, Civil Case No. 00-1312, the precursor of the
instant petition, was filed to enjoin LHC from calling on the
securities and respondent banks from transferring or paying the
securities in case LHC calls on them. However, in view of the fact
that LHC collected the proceeds, TPI, in its appeal and Petition for
Review asked that the same be returned and placed in escrow
pending the resolution of the disputes before the ICC arbitral
tribunal.15

Neither is there an identity of parties between and among the


three (3) cases. The ICC case only involves TPI and LHC logically
since they are the parties to the Turnkey Contract. In comparison,
the instant petition includes Security Bank and ANZ Bank, the
banks sought to be enjoined from releasing the funds of the letters
of credit. The Court agrees with TPI that it would be ineffectual to
ask the ICC to issue writs of preliminary injunction against Security

Bank and ANZ Bank since these banks are not parties to the
arbitration case, and that the ICC Arbitral tribunal would not even
be able to compel LHC to obey any writ of preliminary injunction
issued from its end.16 Civil Case No. 04-322, on the other hand,
logically involves TPI and LHC only, they being the parties to the
arbitration agreement whose partial award is sought to be
enforced.
As a fundamental point, the pendency of arbitral proceedings does
not foreclose resort to the courts for provisional reliefs. The Rules
of the ICC, which governs the parties' arbitral dispute, allows the
application of a party to a judicial authority for interim or
conservatory measures.17 Likewise, Section 14 of Republic Act
(R.A.) No. 876 (The Arbitration Law)18 recognizes the rights of any
party to petition the court to take measures to safeguard and/or
conserve any matter which is the subject of the dispute in
arbitration. In addition, R.A. 9285, otherwise known as the
"Alternative Dispute Resolution Act of 2004," allows the filing of
provisional or interim measures with the regular courts whenever
the arbitral tribunal has no power to act or to act effectively.19
TPI's verified petition in Civil Case No. 04-332, filed on 19 March
2004, was captioned as one "For: Confirmation, Recognition and
Enforcement of Foreign Arbitral Award in Case 11264 TE/MW, ICC
International Court of Arbitration, 'Transfield Philippines, Inc. v.
Luzon Hydro Corporation (Place of arbitration: Singapore)."20 In
the said petition, TPI prayed:
1. That the THIRD PARTIAL AWARD dated February 18, 2004
Case No. 11264/TE/MW made by the ICC International Court
Arbitration, the signed original copy of which is hereto attached
Annex "H" hereof, be confirmed, recognized and enforced
accordance with law.

in
of
as
in

2. That the corresponding writ of execution to enforce Question 31


of the said Third Partial Award, be issued, also in accordance with
law.
3. That TPI be granted such other relief as may be deemed just
and equitable, and allowed, in accordance with law.21

LOMONGO, BASTIAN MIGUEL Y.

The pertinent portion of the Third Partial Award 22 relied upon by


TPI were the answers to Questions 10 to 26, to wit:
"Question 30 Did TPI [LHC] wrongfully draw upon the security?

cralawlibrary

Yes
"Question 31 Is TPI entitled to have returned to it any sum
wrongfully taken by LHC for liquidated damages?
cralawlibrary

Yes
"Question 32 Is TPI entitled to any acceleration costs?

cralawlibrary

TPI is entitled to the reasonable costs TPI incurred after Typhoon


Zeb as a result of LHC's 5 February 1999 Notice to Correct. 23
According to LHC, the filing of the above case constitutes forumshopping since it is the same claim for the return of US$17.9
Million which TPI made before the ICC Arbitral Tribunal and before
this Court. LHC adds that while Civil Case No. 04-332 is styled as
an action for money, the Third Partial Award used as basis of the
suit does not authorize TPI to seek a writ of execution for the sums
drawn on the letters of credit. Said award does not even contain
an order for the payment of money, but instead has reserved the
quantification of the amounts for a subsequent determination, LHC
argues. In fact, even the Fifth Partial Award, 24 dated 30 March
2005, does not contain such orders. LHC insists that the
declarations or the partial awards issued by the ICC Arbitral
Tribunal do not constitute orders for the payment of money and
are not intended to be enforceable as such, but merely constitute
amounts which will be included in the Final Award and will be
taken into account in determining the actual amount payable to
the prevailing party.25
R.A. No. 9825 provides that international commercial arbitrations
shall be governed shall be governed by the Model Law on
International Commercial Arbitration ("Model Law") adopted by the
United Nations Commission on International Trade Law
(UNCITRAL).26 The UNCITRAL Model Law provides:

ARTICLE 35. Recognition and enforcement

6. Order

(1) An arbitral award, irrespective of the country in which it was


made, shall be recognized as binding and, upon application in
writing to the competent court, shall be enforced subject to the
provisions of this article and of article 36.

6.1 General
166. This
quantum.

Fifth

Partial

Award

deals

with

many

issues

of

rbl rl l lbrr

(2) The party relying on an award or applying for its enforcement


shall supply the duly authenticated original award or a duly
certified copy thereof, and the original arbitration agreement
referred to in article 7 or a duly certified copy thereof. If the award
or agreement is not made in an official language of this State, the
party shall supply a duly certified translation thereof into such
language.
Moreover, the New York Convention,27 to which the Philippines is a
signatory, governs the recognition and enforcement of foreign
arbitral awards. The applicability of the New York Convention in the
Philippines was confirmed in Section 42 of R.A. 9285. Said law also
provides that the application for the recognition and enforcement
of such awards shall be filed with the proper RTC. While TPI's
resort to the RTC for recognition and enforcement of the Third
Partial Award is sanctioned by both the New York Convention and
R.A. 9285, its application for enforcement, however, was
premature, to say the least. True, the ICC Arbitral Tribunal had
indeed ruled that LHC wrongfully drew upon the securities, yet
there is no order for the payment or return of the proceeds of the
said securities. In fact, Paragraph 2142, which is the final
paragraph of the Third Partial Award, reads:
2142. All other issues, including any issues as to quantum and
costs, are reserved to a future award.28
Meanwhile, the tribunal issued its Fifth Partial Award 29 on 30 March
2005. It contains, among others, a declaration that while LHC
wrongfully drew on the securities, the drawing was made in good
faith, under the mistaken assumption that the contractor, TPI, was
in default. Thus, the tribunal ruled that while the amount drawn
must be returned, TPI is not entitled to any damages or interests
due to LHC's drawing on the securities. 30 In the Fifth Partial Award,
the tribunal ordered:

LOMONGO, BASTIAN MIGUEL Y.

However, it does not resolve them all. The outstanding quantum


issues will be determined in a future award. It will contain a
reconciliation of the amounts awarded to each party and a
determination of the net amount payable to Claimant or
Respondent, as the case may be.
167. In view of this the Tribunal will make no orders for payment
in this Fifth Partial Award. The Tribunal will make a number of
declarations concerning the quantum issues it has resolved in this
Award together with the outstanding liability issues. The
declarations do not constitute orders for the payment of
money and are not intended to be enforceable as such. They
merely constitute amounts which will be included in the
Final Award and will be taken into account in determining
the actual amount payable.31 (Emphasis Supplied.)
Further, in the Declarations part of the award, the tribunal held:
6.2 Declarations
168. The Tribunal makes the following declarations:
xxx
3. LHC is liable to repay TPI the face value of the securities drawn
down by it, namely, $17,977,815. It is not liable for any further
damages claimed by TPI in respect of the drawdown of the
securities.
x x x.32

Finally, on 9 August 2005, the ICC Arbitral tribunal issued its Final
Award, in essence awarding US$24,533,730.00, which included
TPI's claim of U$17,977,815.00 for the return of the securities
from LHC.33
The fact that the ICC Arbitral tribunal included the proceeds of the
securities
shows
that
it
intended
to
make
a
final
determination/award as to the said issue only in the Final Award
and not in the previous partial awards. This supports LHC's
position that when the Third Partial Award was released and Civil
Case No. 04-332 was filed, TPI was not yet authorized to seek the
issuance of a writ of execution since the quantification of the
amounts due to TPI had not yet been settled by the ICC Arbitral
tribunal. Notwithstanding the fact that the amount of proceeds
drawn on the securities was not disputed the application for the
enforcement of the Third Partial Award was precipitately filed. To
repeat, the declarations made in the Third Partial Award do not
constitute orders for the payment of money.
Anent the claim of TPI that it was LHC which committed forumshopping, suffice it to say that its bare allegations are not
sufficient to sustain the charge.
WHEREFORE, the Court RESOLVES to DISMISS the charges of
forum-shopping filed by both parties against each other.
No pronouncement as to costs.
SO ORDERED.

Endnotes:

LOMONGO, BASTIAN MIGUEL Y.

FEES AND PRESERVATION EXPENSES;


CASE AT BAR. - 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
warehousemans lien for storage fees and
preservation expenses. Petitioner may not now
retrieve the sugar stocks without paying the
lien
due
private
respondents
as
warehouseman.

FIRST DIVISION
[G.R. No. 119231. April 18, 1996]
PHILIPPINE
NATIONAL BANK,
petitioner,
vs. HON. PRES. JUDGE BENITO C. SE,
JR., RTC, BR. 45, MANILA;
NOAHS ARK SUGAR
REFINERY;
ALBERTO T. LOOYUKO, JIMMY T. GO and
WILSON T. GO, respondents.
SYLLABUS
1.

COMMERCIAL
LAW;
WAREHOUSE
RECEIPTS LAW; THE UNCONDITIONAL
PRESENTMENT OF THE RECEIPTS FOR
PAYMENT
CARRIED
WITH
IT
THE
ADMISSIONS 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
WAREHOUSEMANS LIEN FOR STORAGE

LOMONGO, BASTIAN MIGUEL Y.

2.

ID.; ID.; ID.; WAREHOUSEMANS LIEN;


POSSESSORY IN NATURE. - 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 warehousemans lien is possessory in
nature.
APPEARANCES OF COUNSEL
Rolan A. Nieto for petitioner.
Madella & Cruz
respondents.

Law

Offices for

private

DECISION
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

LOMONGO, BASTIAN MIGUEL Y.

issue is: Can the warehouseman enforce his


warehousemans 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 petition 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. 9053023, authorizing reception of evidence to
establish the claim of respondents Noahs 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 warehousemans lien; and (2) the
Resolution of the said respondent Judge, dated
March 1, 1995, declaring the validity of private
respondents warehousemans 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 warehousemans 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 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.

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.

THE FACTS

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 Noahs Ark Sugar Refinery
demanding delivery of the sugar stocks covered
by the quedans endorsed to it by Zoleta and
Ramos. Noahs 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 Noahs Ark Sugar Refinery, Alberto T.
Looyuko, Jimmy T. Go and Wilson T. Go, the last
three being identified as the sole proprietor,
managing partner, and Executive Vice President of
Noahs Ark, respectively.

In accordance with Act No. 2137, the


Warehouse Receipts Law, Noahs 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
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

LOMONGO, BASTIAN MIGUEL Y.

Respondent Judge Benito C. Se, Jr., in whose


sala the case was raffled, denied the Application
for Preliminary Attachment. Reconsideration
therefor was likewise denied.
Noahs 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 Noahs 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

LOMONGO, BASTIAN MIGUEL Y.

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 Noahs 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 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 latters 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.
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
defendants 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 PNBs 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).

10

LOMONGO, BASTIAN MIGUEL Y.

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 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 Noahs Ark Sugar Refinery, et al., as
prayed for in petitioners 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 plaintiffs 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
Defendants Counterclaim. On September 4, 1992,
the trial court denied PNBs 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 judges 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 Noahs Ark
Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go
and Wilson T. Go, jointly and severally:
(a)
to deliver to the petitioner
Philippine National Bank, the sugar
stocks covered by the Warehouse
Receipts/ Quedans which are now in the
latters 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 attorneys fees, litigation
expenses and judicial costs hereby fixed
at the amount of One Hundred Fifty

11

LOMONGO, BASTIAN MIGUEL Y.

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. .
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
Courts 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
warehousemans 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
warehousemans lien. The resolution of the PNBs
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
warehousemans 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

12

LOMONGO, BASTIAN MIGUEL Y.

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
PNBs 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, THENOVEMBER 9, 1992 SUPREME COURT
DECISION IN G.R NO. 107243. RESPONDENT RTCS
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 RTCS 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
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

13

LOMONGO, BASTIAN MIGUEL Y.

warehouse covered by the endorsed quedans or


pay the value of the said stocks of sugar.
Petitioners submission is on a technicality,
that is, that private respondents have lost their
right to recover warehousemans 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 foreclosed private respondents right to
enforce their warehousemans 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 warehousemans 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 Noahs Arks
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
petitioners argument that our said resolution
carried with it the denial of the warehousemans
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

14

LOMONGO, BASTIAN MIGUEL Y.

favor of PNB was proper. We in effect further


affirmed the finding that Noahs 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 warehousemans 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 warehousemans 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 Noahs Arks right
to impose and collect warehousemans 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 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.

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 warehousemans lien.
xxx

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), to wit:
SECTION 27. What claims are included in the
warehousemans 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

15

LOMONGO, BASTIAN MIGUEL Y.

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 warehousemans 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:
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

16

LOMONGO, BASTIAN MIGUEL Y.

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 warehousemans 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 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 warehousemans
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 Noahs Ark, after being
declared as warehouseman, to recover storage
fees 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 Resolutions 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 n 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.

17

LOMONGO, BASTIAN MIGUEL Y.

SO ORDERED.
Padilla
(Chairman),
Vitug, and Kapunan, Jr., JJ., concur.

Bellosillo,

FIRST DIVISION

of Cebu City, Branch 19, docketed as Civil Case


No. CEB-4895.

[G.R. No. 159622. July 30, 2004]


LANDL & COMPANY (PHIL.) INC., PERCIVAL G.
LLABAN
and
MANUEL
P.
LUCENTE, petitioners,
vs. METROPOLITAN BANK & TRUST
COMPANY, respondent.
DECISION
YNARES-SANTIAGO, J.:
At issue in this petition for review
on certiorari is whether or not, in a trust receipt
transaction, an entruster which had taken actual
and juridical possession of the goods covered by
the trust receipt may subsequently avail of the
right to demand from the entrustee the deficiency
of the amount covered by the trust receipt.
As correctly appreciated by the Court of
Appeals, the undisputed facts of this case are as
follows:
Respondent Metropolitan Bank and Trust
Company (Metrobank) filed a complaint for sum of
money against Landl and Company (Phil.) Inc.
(Landl) and its directors, Percival G. Llaban and
Manuel P. Lucente before the Regional Trial Court

18

LOMONGO, BASTIAN MIGUEL Y.

Respondent alleged that petitioner corporation


is engaged in the business of selling imported
welding rods and alloys. On June 17, 1983, it
opened Commercial Letter of Credit No. 4998 with
respondent bank, in the amount of US$19,606.77,
which was equivalent to P218,733.92 in Philippine
currency at the time the transaction was
consummated. The letter of credit was opened to
purchase various welding rods and electrodes
from Perma Alloys, Inc., New York, U.S.A., as
evidenced by a Pro-Forma Invoice dated March 10,
1983. Petitioner corporation put up a marginal
deposit of P50,414.00 from the proceeds of a
separate clean loan.
As an additional security, and as a condition
for the approval of petitioner corporations
application for the opening of the commercial
letter of credit, respondent bank required
petitioners Percival G. Llaban and Manuel P.
Lucente to execute a Continuing Suretyship
Agreement to the extent of P400,000.00,
excluding interest, in favor of respondent
bank. Petitioner Lucente also executed a Deed of
Assignment in the amount of P35,000.00 in favor
of respondent bank to cover the amount of
petitioner
corporations
obligation
to
the
bank. Upon compliance with these requisites,

respondent bank opened an irrevocable letter of


credit for the petitioner corporation.
To secure the indebtedness of petitioner
corporation, respondent bank required the
execution of a Trust Receipt in an amount
equivalent to the letter of credit, on the condition
that petitioner corporation would hold the goods
in trust for respondent bank, with the right to sell
the goods and the obligation to turn over to
respondent bank the proceeds of the sale, if
any. If the goods remained unsold, petitioner
corporation had the further obligation to return
them to respondent bank on or before November
23, 1983.
Upon arrival of the goods in the Philippines,
petitioner corporation took possession and
custody thereof.
On November 23, 1983, the maturity date of
the trust receipt, petitioner corporation defaulted
in the payment of its obligation to respondent
bank and failed to turn over the goods to the
latter. On July 24, 1984, respondent bank
demanded that petitioners, as entrustees, turn
over the goods subject of the trust receipt. On
September 24, 1984, petitioners turned over the
subject goods to the respondent bank.

19

LOMONGO, BASTIAN MIGUEL Y.

On July 31, 1985, in the presence of


representatives of the petitioners and respondent
bank, the goods were sold at public auction. The
goods were sold for P30,000.00 to respondent
bank as the highest bidder.
The proceeds of the auction sale were
insufficient to completely satisfy petitioners
outstanding obligation to respondent bank,
notwithstanding the application of the time
deposit
account
of
petitioner
Lucente. Accordingly, respondent bank demanded
that petitioners pay the remaining balance of their
obligation. After petitioners failed to do so,
respondent bank instituted the instant case to
collect the said deficiency.
On March 31, 1997, after trial on the merits,
the trial court rendered a decision, the dispositive
portion of which reads:
WHEREFORE, foregoing premises considered,
Judgment is hereby rendered in favor of the
plaintiff and against the defendant by (1) ordering
the defendant to pay jointly and severally to the
plaintiff the sum of P292,172.23 representing the
defendants obligation, as of April 17, 1986; (2) to
pay the interest at the rate of 19% per annum to
be reckoned from April 18, 1986 until [the]
obligation is fully paid; (3) to pay service charge
at the rate of 2% per annum starting April 18,

1986; (4) to pay the sum equivalent to 10% per


annum of the total amount due collectible by way
of Attorneys Fees; (5) to pay Litigation Expenses
of P3,000.00 and to pay the cost of the suit; and
(6) to pay penalty charge of 12% per annum.

THE DEFICIENCY FROM PETITIONERS


NOTWITHSTANDING THE FACT THAT THE GOODS
COVERED BY THE TRUST RECEIPT WERE FULLY
TURNED OVER TO RESPONDENT.
II.

SO ORDERED.[1]
Petitioners appealed to the Court of Appeals,
raising the issues of: (1) whether or not
respondent bank has the right to recover any
deficiency after it has retained possession of and
subsequently effected a public auction sale of the
goods covered by the trust receipt; (2) whether or
not respondent bank is entitled to the amount of
P3,000.00 as and for litigation expenses and costs
of the suit; and (3) whether or not respondent
bank is entitled to the award of attorneys fees.
On February 13, 2003, the Court of Appeals
rendered a decision affirming in toto the decision
of the trial court.[2]
Hence, this petition for review on the following
assignment of errors:
I.
THE HONORABLE COURT OF APPEALS GROSSLY
ERRED IN AFFIRMING THE TRIAL COURTS RULING
THAT RESPONDENT HAD THE RIGHT TO CLAIM

20

LOMONGO, BASTIAN MIGUEL Y.

THE HONORABLE COURT OF APPEALS GROSSLY


ERRED IN AFFIRMING THE TRIAL COURTS
PATENTLY ERRONEOUS AWARD OF PRINCIPAL
OBLIGATION, INTEREST, ATTORNEYS FEES, AND
PENALTY AGAINST THE PETITIONERS.[3]
The instant petition is partly meritorious.
The resolution of the first assigned error
hinges on the proper interpretation of Section 7 of
Presidential Decree No. 115, or the Trust Receipts
Law, which reads:
Sec. 7.
Rights of the entruster. - The
entruster shall be entitled to the proceeds from
the sale of the goods, documents or instruments
released under a trust receipt to the entrustee to
the extent of the amount owing to the entruster or
as appears in the trust receipt, or to the return of
the goods, documents or instruments in case of
non-sale, and to the enforcement of all other
rights conferred on him in the trust receipt
provided such are not contrary to the provisions of
this Decree.

The entruster may cancel the trust and take


possession of the goods, documents or
instruments subject of the trust or of the proceeds
realized therefrom at any time upon default or
failure of the entrustee to comply with any of the
terms and conditions of the trust receipt or any
other agreement between the entruster and the
entrustee, and the entruster in possession of the
goods, documents or instruments may, on or after
default, give notice to the entrustee of the
intention to sell, and may, not less than five days
after serving or sending of such notice, sell the
goods, documents or instruments at public or
private sale, and the entruster may, at a public
sale, become a purchaser. The proceeds of any
such sale, whether public or private, shall be
applied (a) to the payment of the expenses
thereof; (b) to the payment of the expenses of retaking, keeping and storing the goods, documents
or instruments; (c) to the satisfaction of the
entrustees indebtedness to the entruster. The
entrustee shall receive any surplus but shall be
liable to the entruster for any deficiency. Notice of
sale shall be deemed sufficiently given if in
writing, and either personally served on the
entrustee or sent by post-paid ordinary mail to the
entrustee's last known business address.
There is no question that petitioners failed to
pay their outstanding obligation to respondent
bank. They contend, however, that when the

21

LOMONGO, BASTIAN MIGUEL Y.

entrustee fails to settle his principal loan, the


entruster may choose between two separate and
alternative remedies: (1) the return of the goods
covered by the trust receipt, in which case, the
entruster now acquires the ownership of the
goods which the entrustee failed to sell; or (2)
cancel the trust and take possession of the goods,
for the purpose of selling the same at a private
sale or at public auction. Petitioners assert that,
under this second remedy, the entruster does not
acquire ownership of the goods, in which case he
is entitled to the deficiency. Petitioners argue that
these two remedies are so distinct that the
availment of one necessarily bars the availment of
the other. Thus, when respondent bank availed of
the remedy of demanding the return of the goods,
the actual return of all the unsold goods
completely extinguished petitioners liability.[4]
Petitioners argument is bereft of merit.
A trust receipt is inextricably linked with the
primary agreement between the parties. Time
and again, we have emphasized that a trust
receipt agreement is merely a collateral
agreement, the purpose of which is to serve as
security for a loan. Thus, in Abad v. Court of
Appeals,[5] we ruled:
A letter of credit-trust receipt arrangement is
endowed with its own distinctive features and

characteristics. Under that set-up, a bank extends


a loan covered by the letter of credit, with the
trust receipt as security for the loan. In other
words, the transaction involves a loan feature
represented by the letter of credit, and a security
feature which is in the covering trust receipt. x x
x.
A trust receipt, therefore, is a security agreement,
pursuant to which a bank acquires a security
interest in the goods. It secures an indebtedness
and there can be no such thing as security
interest that secures no obligation.[6]
The Trust Receipts Law was enacted to
safeguard commercial transactions and to offer an
additional layer of security to the lending
bank. Trust receipts are indispensable contracts
in
international
and
domestic
business
transactions. The prevalent use of trust receipts,
the
danger
of
their
misuse
and/or
misappropriation of the goods or proceeds
realized from the sale of goods, documents or
instruments held in trust for entruster banks, and
the need for regulation of trust receipt
transactions to safeguard the rights and enforce
the obligations of the parties involved are the
main thrusts of the Trust Receipts Law.[7]
The second paragraph of Section 7 provides a
statutory remedy available to an entruster in the

22

LOMONGO, BASTIAN MIGUEL Y.

event of default or failure of the entrustee to


comply with any of the terms and conditions of
the trust receipt or any other agreement between
the entruster and the entrustee. More specifically,
the entruster may cancel the trust and take
possession
of
the goods,
documents
or
instruments subject of the trust or of the proceeds
realized therefrom at any time. The law further
provides that the entruster in possession of the
goods, documents or instruments may, on or after
default, give notice to the entrustee of the
intention to sell, and may, not less than five days
after serving or sending of such notice, sell the
goods, documents or instruments at public or
private sale, and the entruster may, at a public
sale, become a purchaser. The proceeds of any
such sale, whether public or private, shall be
applied (a) to the payment of the expenses
thereof; (b) to the payment of the expenses of retaking, keeping and storing the goods, documents
or instruments; (c) to the satisfaction of the
entrustee's indebtedness to the entruster. The
entrustee shall receive any surplus but shall be
liable to the entruster for any deficiency.
The trust receipt between respondent bank
and petitioner corporation contains the following
relevant clauses:
The BANK/ENTRUSTER may, at any time, and only
at its option, cancel this trust and take possession

of the goods/documents/instruments subject


hereof or of the proceeds realized therefrom
wherever they may then be found, upon default or
failure of the ENTRUSTEE to comply with any of
the terms and conditions of this Trust Receipt or of
any other agreement between the
BANK/ENTRUSTER and the ENTRUSTEE; and the
BANK/ENTRUSTER having taken repossession of
the goods/documents/instruments object hereof
may, on or after default, give at least five (5)
days previous notice to the ENTRUSTEE of its
intention to sell the goods/documents/instruments
at public or private sale, at which public sale, it
may become a purchaser; Provided, that the
proceeds of any such sale, whether public or
private, shall be applied: (a) to the payment of the
expenses thereof; (b) to the payment of the
expenses of retaking, keeping and storing the
goods/documents/instruments; (c) to the
satisfaction of all of the ENTRUSTEEs
indebtedness to the BANK/ENTRUSTER; and
Provided, further, that the ENTRUSTEE shall
receive any surplus thereof but shall, in any case,
be liable to the BANK/ENTRUSTER for any
deficiency. x x x
No act or omission on the part of the
BANK/ENTRUSTER shall be deemed and
considered a waiver of any of its rights hereunder
or under any related letters of credit, drafts or
other documents unless such waiver is expressly

23

LOMONGO, BASTIAN MIGUEL Y.

made in writing over the signature of the


BANK/ENTRUSTER.[8]
The afore-cited stipulations in the trust receipt
are a near-exact reproduction of the second
paragraph of Section 7 of the Trust Receipts
Law. The right of repossession and subsequent
sale at public auction which were availed of by
respondent bank were rights available upon
default, and which were conferred by statute and
reinforced by the contract between the parties.
The initial repossession by the bank of the
goods subject of the trust receipt did not result in
the full satisfaction of the petitioners loan
obligation. Petitioners are apparently laboring
under the mistaken impression that the full turnover of the goods suffices to divest them of their
obligation to repay the principal amount of their
loan obligation. This is definitely not the
case. In Philippine National Bank v. Hon. Gregorio
G. Pineda and Tayabas Cement Company, Inc.,
[9]
we had occasion to rule:
PNBs possession of the subject machinery and
equipment being precisely as a form of security
for the advances given to TCC under the Letter of
Credit, said possession by itself cannot be
considered payment of the loan secured thereby.
Payment would legally result only after PNB had
foreclosed on said securities, sold the same and

applied the proceeds thereof to TCC's loan


obligation. Mere possession does not amount to
foreclosure for foreclosure denotes the procedure
adopted by the mortgagee to terminate the rights
of the mortgagor on the property and includes the
sale itself.
Neither can said repossession amount to dacion
en pago. Dation in payment takes place when
property is alienated to the creditor in satisfaction
of a debt in money and the same is governed by
sales. Dation in payment is the delivery and
transmission of ownership of a thing by the debtor
to the creditor as an accepted equivalent of the
performance of the obligation. As aforesaid, the
repossession of the machinery and equipment in
question was merely to secure the payment of
TCC's loan obligation and not for the purpose of
transferring ownership thereof to PNB in
satisfaction of said loan. Thus, no dacion en
pago was ever accomplished. (Citations omitted,
underscoring supplied)[10]
Indeed, in the 1987 case of Vintola v. Insular
Bank of Asia and America,[11] we struck down the
position of the petitioner-spouses that their
obligation to the entruster bank had been
extinguished when they relinquished possession
of the goods in question. Thus:

24

LOMONGO, BASTIAN MIGUEL Y.

A trust receipt is a security agreement, pursuant


to which a bank acquires a security interest in
the goods. It secures an indebtedness and there
can be no such thing as security interest that
secures no obligation. As defined in our laws:
(h)
Security Interest means a property
interest in goods, documents or instruments to
secure performance of some obligations of the
entrustee or of some third persons to the
entruster and includes title, whether or not
expressed to be absolute, whenever such title is in
substance taken or retained for security only.
xxx
x

xxx

xx

Contrary to the allegations of the VINTOLAS, IBAA


did not become the real owner of the goods. It
was merely the holder of a security title for the
advances it had made to the VINTOLAS. The
goods the VINTOLAS had purchased through IBAA
financing remain their own property and they hold
it at their own risk. The trust receipt arrangement
did not convert the IBAA into an investor; the
latter remained a lender and creditor.
x x x for the bank has previously extended a
loan which the L/C represents to the importer, and
by that loan, the importer should be the real
owner of the goods. If under the trust receipt, the

bank is made to appear as the owner, it was but


an artificial expedient, more of a legal fiction than
fact, for if it were so, it could dispose of the goods
in any manner it wants, which it cannot do, just to
give consistency with the purpose of the trust
receipt of giving a stronger security for the loan
obtained by the importer. To consider the bank as
the true owner from the inception of the
transaction would be to disregard the loan feature
thereof. x x x
Since the IBAA is not the factual owner of the
goods, the VINTOLAS cannot justifiably claim that
because they have surrendered the goods to IBAA
and subsequently deposited them in the custody
of the court, they are absolutely relieved of their
obligation to pay their loan because of their
inability to dispose of the goods. The fact that
they were unable to sell the seashells in question
does not affect IBAAs right to recover the
advances it had made under the Letter of Credit.
(Citations omitted.)[12]

entruster for any deficiency after the proceeds of


the sale have been applied to the payment of the
expenses of the sale, the payment of the
expenses of re-taking, keeping and storing the
goods, documents or instruments, and the
satisfaction of the entrustees indebtedness to the
entruster.
In the case at bar, the proceeds of the auction
sale were insufficient to satisfy entirely petitioner
corporations indebtedness to the respondent
bank. Respondent bank was thus well within its
rights to institute the instant case to collect the
deficiency.
We find, however, that there has been an error
in the computation of the total amount of
petitioners indebtedness to respondent bank.

Respondent banks repossession of the


properties and subsequent sale of the goods were
completely in accordance with its statutory and
contractual rights upon default of petitioner
corporation.

Although respondent bank contends that the


error of computation is a question of fact which is
beyond the power of this Court to review, [13] the
total amount of petitioners indebtedness in this
case is not a question of fact. Rather, it is a
question of law, i.e., the application of legal
principles for the computation of the amount
owed to respondent bank, and is thus a matter
properly brought for our determination.

The second paragraph of Section 7 expressly


provides that the entrustee shall be liable to the

The first issue involves the amount of


indebtedness prior to the imposition of interest

25

LOMONGO, BASTIAN MIGUEL Y.

and penalty charges. The initial amount of the


trust receipt of P218,733.92, was reduced to
P192,265.92 as of June 14, 1984, as per
respondents Statement of Past Due Trust Receipt
dated
December
1,
1993.[14] This
amount
presumably
includes
the
application
of
P35,000.00, the amount of petitioner Lucentes
Deed of Assignment, which amount was applied
by respondent bank to petitioners obligation. No
showing was made, however, that the P30,000.00
proceeds of the auction sale on July 31, 1985 was
ever applied to the loan. Neither was the amount
of P50,414.00, representing the marginal deposit
made by petitioner corporation, deducted from
the loan. Although respondent bank contends
that the marginal deposit should not be deducted
from the principal obligation, this is completely
contrary to prevailing jurisprudence allowing the
deduction of the marginal deposit, thus:
The marginal deposit requirement is a Central
Bank measure to cut off excess currency liquidity
which would create inflationary pressure. It is a
collateral security given by the debtor, and is
supposed to be returned to him upon his
compliance with his secured
obligation. Consequently, the bank pays no
interest on the marginal deposit, unlike an
ordinary bank deposit which earns interest in the
bank. As a matter of fact, the marginal deposit
requirement for letters of credit has been

26

LOMONGO, BASTIAN MIGUEL Y.

discontinued, except in those cases where the


applicant for a letter of credit is not known to the
bank or does not maintain a good credit standing
therein.
It is only fair then that the importers marginal
deposit (if one was made, as in this case), should
be set off against his debt, for while the importer
earns no interest on his marginal deposit, the
bank, apart from being able to use said deposit for
its own purposes, also earns interest on the
money it loaned to the importer. It would be
onerous to compute interest and other charges on
the face value of the letter of credit which the
bank issued, without first crediting or setting off
the marginal deposit which the importer paid to
the bank. Compensation is proper and should
take place by operation of law because the
requisites in Article 1279 of the Civil Code are
present and should extinguish both debts to the
concurrent amount (Art. 1290, Civil
Code). Although Abad is only a surety, he may set
up compensation as regards what the creditor
owes the principal debtor, TOMCO (Art. 1280, Civil
Code).[15]
The net amount of the obligation, represented
by respondent bank to be P292,172.23 as of April
17, 1986, would thus be P211,758.23.

To this principal amount must be imposed the


following charges: (1) 19% interest per annum, in
keeping with the terms of the trust receipt; [16] and
(2) 12% penalty per annum, collected based on
the outstanding principal obligation plus unpaid
interest, again in keeping with the wording of the
trust receipt.[17] It appearing that petitioners have
paid the interest and penalty charges until April
17, 1986, the reckoning date for the computation
of the foregoing charges must be April 18, 1986.
A perusal of the records reveals that the trial
court and the Court of Appeals erred in imposing
service charges upon the petitioners. No such
stipulation is found in the trust receipt. Moreover,
the trial court and the Court of Appeals erred in
computing attorneys fees equivalent to 10% per
annum, rather than 10% of the total amount
due. There is no basis for compounding the
interest annually, as the trial court and Court of
Appeals have done. This amount would be
unconscionable.
Finally, Lucente and Llabans contention that
they are not solidarily liable with petitioner
corporation is untenable. As co-signatories of the
Continuing Suretyship Agreement, they bound
themselves, inter alia, to pay the principal sum in
the amount of not more than P400,000.00;
interest due on the principal obligation; attorneys
fees; and expenses that may be incurred in

27

LOMONGO, BASTIAN MIGUEL Y.

collecting the credit. The amount owed to


respondent bank is the amount of the principal,
interest, attorneys fees, and expenses in
collecting the principal amount. The Continuing
Suretyship Agreement expressly states the nature
of the liability of Lucente and Llaban:
The liability of the SURETY shall be solidary, direct
and immediate and not contingent upon the
banks pursuit of whatever remedies the BANK
have [sic] against the Borrower or the securities or
liens the BANK may possess and the SURETY will
at any time, whether due or not due, pay to the
BANK with or withour demand upon the Borrower,
any of the instruments of indebtedness or other
obligation hereby guaranteed by the SURETY.[18]
Solidary liability is one of the primary
characteristics of a surety contract,[19] and the
Continuing Suretyship Agreement expressly
stipulates the solidary nature of Lucente and
Llabans liability. All three petitioners thus share
the solidary obligation in favor of respondent
bank, which is given the right, under the Civil
Code, to proceed against any one of the solidary
debtors or some or all of them simultaneously.[20]
WHEREFORE, premises considered, the
instant petition is PARTIALLY GRANTED. The
decision of the Court of Appeals in CA-G.R. CV No.
58193 dated February 13, 2003 is AFFIRMED with

MODIFICATIONS. Accordingly,
petitioners
are
ordered to pay respondent bank the following: (1)
P211,758.23
representing
petitioners
net
obligation as of April 17, 1986; (2) interest at the
rate of 19% per annumand penalty at the rate of
12% per annum reckoned from April 18, 1986; (3)
attorneys fees equivalent to 10% of the total
amount due and collectible; and (4) litigation
expenses in the amount of P3,000.00. The service

28

LOMONGO, BASTIAN MIGUEL Y.

charge at the rate of 2% per annum beginning


April 18, 1986 is deleted. Costs against
petitioners.
SO ORDERED.