Tupaz IV vs.

Court of Appeals, 475 SCRA 398 (2005)

Signing as corporate representative, can it hold you personally liable for the debt you are
signing for in behalf of the company in a commercial credit transaction? Not if it's stipulated.

Facts: 

Jose C. Tupaz IV - VP for Operations and Petronila C. Tupaz  -VP/Treasurer of EL ORO Engraver

Corporation, entered into a contract with the AFP - Armed Forces Of The Philippines  to supply
the latter with “survival bolos.”  

To finance the purchase of the raw materials for the bolos, Jose Tupaz and Petronila Tupaz on
behalf of EL ORO Corporation, applied with respondent bank BPI - Bank of the Philippine
Islands  for 2 commercial Letters of Credit.  The LCs were in favor of El Oro Corporation’s
suppliers, TANCHAOCO Manufacturing Incorporated. 

Simultaneous with the issuance of the LCs, the 2 Tupazes (sama yata pakinggan) Jose Tupaz and
Petronila Tupaz.. ,(okay) petitioners hereto signed TRUST RECEIPTS in favor of respondent bank
BPI.  

Now here comes the issue. Jose C. Tupaz IV  signed, in his personal capacity, a trust receipt
corresponding to a Letter of Credit for P564,871.  

The problem was, petitioners did not comply with their undertaking under the TRUST RECEIPTS.
Respondent bank naturally made several demands for payments but EL ORO Corporation made
partial payments only. 

So as a consequence, respondent bank BPI sent final demand letters to EL ORO Corporation

where EL ORO replied that it could not fully pay its debt because the AFP (Armed Forces of the
Philippines) had delayed paying for the survival bolos. (in short, naipit sya)

Issue: 

Did Petitioners herein stated bind themselves personally with regard to the company debt
herein described when they signed the Trust Receipts?

Held: 

NO.
A CORPORATE REPRESENTATIVE signing as a solidary guarantee as corporate representative did
not undertake to guarantee personally the payment of the corporation’s debts. 
In the aforementioned trust receipt, petitioners signed below its clause as officers of El Oro
Corporation. Thus, under petitioner Petronila Tupaz’s signature are the words “Vice-Pres–
Treasurer” and under petitioner Jose Tupaz’s signature are the words “Vice-Pres–Operations.”
By so signing that trust receipt, PETITIONERS DID NOT BIND THEMSELVES PERSONALLY LIABLE
FOR EL ORO CORPORATION’S OBLIGATION. 

In Ong v. Court of Appeals, a corporate representative signed a solidary guarantee clause in two
trust receipts in his capacity as corporate representative. There, the Court held that the
corporate representative did not undertake to guarantee personally the payment of the
corporation’s debts.

A corporation, being a juridical entity, may act only through its directors, officers, and
employees. Debts incurred by these individuals, acting as such corporate agents, are not theirs
but the direct liability of the corporation they represent. 

(exception)

As an exception, directors or officers are personally liable for the corporation’s debts only if
they so contractually agree or stipulate.

Colinares vs. Court of Appeals, 339 SCRA 609 (2000)

FACTS:

In 1979, petitioners Melvin Colinares and Lordino Veloso were contracted 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 various construction materials from CM Builders Centre for the said
project. The following day, petitioners applied for a commercial letter of credit with the Philippine Banking
Corporation (PBC), Cagayan de Oro City Branch in favor of CM Builders Centre. PBC approved the
letter of credit to cover the full invoice value of the goods. Petitioners signed the pro-forma trust receipt
as security. The said loan was due on 29 January 1980. However, petitioners failed to pay the whole
amount on its due date. Several demand letters were sent to them. Petitioners proposed that the terms
of payment of the loan shall be modified. Pending approval of the said proposal, petitioners paid some
amounts. Concurrently with the separate demand for attorney's fees by PBC's legal counsel, PBC
continued to demand payment of the balance. On 14 January 1983, petitioners were charged with
violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of the Revised Penal Code.

During trial, petitioners insisted that the transaction was that of an ordinary loan. Subsequently, the trial
court convicted the petitioners for the offense charged.

On appeal, the Court of Appeals affirmed the conviction of petitioners and increased the penalty imposed.

ISSUE: WON the true nature of the contract was an ordinary loan or a trust receipt agreement.
RULING: The transaction was an ordinary loan.

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 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.

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, and who may not
be able to acquire credit except through utilization, as collateral, of the merchandise imported or
purchased.

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.

Petitioner Veloso's claim that they were made to believe that the transaction was a loan was also not
denied by PBC.

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 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.

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.