I. SHORT TITLE: BANK OF AMERICA V.

CA

II. FULL TITLE: Bank of America, NT & SA vs. Court of Appeals, Inter-Resin
Industrial Corporation, Francisco Trajano, John Doe and
Jane Doe - G.R. No. 105395, December 10, 1993, J. Vitug

III. TOPIC: Special Commercial Laws – Letters of Credit

IV. STATEMENT OF FACTS:

Bank of America received an Irrevocable Letter of Credit issued by Bank of Ayudhya for the
account of General Chemicals, Ltd., of Thailand in the amount of US$2,782,000.00 to cover the
sale of plastic ropes and "agricultural files," with Bank of America as advising bank and Inter-
Resin Industrial Corporation as beneficiary. Bank of America wrote Inter-Resin informing the
latter of the foregoing and transmitting the letter of credit. Upon receipt, Inter-Resin sent Atty.
Emiliano Tanay to Bank of America to have the letter of credit confirmed. The bank did not and
explained to Atty. Tanay that there was no need for confirmation because the letter of credit
would not have been transmitted if it were not genuine.

Inter-Resin sought to make a partial availment under the letter of credit by submitting to Bank
of America invoices, covering the shipment of 24,000 bales of polyethylene rope to General
Chemicals valued at US$1,320,600.00, the corresponding packing list, export declaration and bill
of lading. After being satisfied that Inter-Resin's documents conformed with the conditions
expressed in the letter of credit, Bank of America issued in favor of Inter-Resin a Cashier's
Check for P10,219,093.20, "the Peso equivalent of the draft (for) US$1,320,600.00 drawn by Inter-
Resin. Bank of America wrote Bank of Ayudhya advising the latter of the availment under the
letter of credit and sought the corresponding reimbursement therefor.

Meanwhile, Inter-Resin presented to Bank of America the documents for the second availment
under the same letter of credit evidencing the second shipment of goods. Upon receipt of a telex
from the Bank of Ayudhya declaring the letter of credit fraudulent, Bank of America stopped
the processing of Inter-Resin's documents and sent a telex to its branch office in Bangkok,
Thailand, requesting assistance in determining the authenticity of the letter of credit. Sensing a
fraud, Bank of America sought the assistance of NBI. The NBI agents discovered that the vans
exported by Inter-Resin did not contain ropes but plastic strips, wrappers, rags and waste
materials.

V. STATEMENT OF THE CASE

Bank of America sued Inter-Resin for the recovery of P10,219,093.20, the peso equivalent of the
draft for US$1,320,600.00 on the partial availment of the now disowned letter of credit. On the
other hand, Inter-Resin claimed that not only was it entitled to retain P10,219,093.20 on its first
shipment but also to the balance US$1,461,400.00 covering the second shipment. The trial court
ruled in favor of Inter-Resin. On appeal, the Court of Appeals sustained the trial court.

VI. ISSUE
1. Whether Bank of America has incurred any liability to the beneficiary under the letter of
credit
 2. Whether Bank of America may recover against Inter-Resin under the draft executed in
its partial availment of the letter of credit, following the dishonor of the letter of credit
by Bank of Ayudhya

VII. RULING
1. NO. Bank of America has not incurred any liability to the beneficiary under the letter of
credit. It cannot seriously be disputed that Bank of America has only been an advising bank,
and this much is clearly evident by the provisions of the letter of credit itself, the petitioner
bank's letter of advice, its request for payment of advising fee, and the admission of Inter-Resin
that it has paid the same. That Bank of America has asked Inter-Resin to submit documents
required by the letter of credit and eventually has paid the proceeds thereof, did not obviously
make it a confirming bank. The fact, too, that the draft required by the letter of credit is to be
drawn under the account of General Chemicals (buyer) only means the same had to be
presented to Bank of Ayudhya (issuing bank) for payment. It may be significant to recall that
the letter of credit is an engagement of the issuing bank, not the advising bank, to pay the draft.
No less important is that Bank of America's letter of 11 March 1981 has expressly stated that "the
enclosure is solely an advise of credit opened by the abovementioned correspondent and conveys
no engagement by us." This written reservation by Bank of America in limiting its obligation only
to being an advising bank is in consonance with the provisions of U.C.P. As an advising or
notifying bank, Bank of America did not incur any obligation more than just notifying Inter-
Resin of the letter of credit issued in its favor, let alone to confirm the letter of credit.

2. YES. Bank of America can recover what it has paid under the letter of credit when the
corresponding draft for partial availment thereunder and the required documents were later
negotiated with it by Inter-Resin. This kind of transaction is what is commonly referred to as a
discounting arrangement. This time, Bank of America has acted independently as a negotiating
bank, thus saving Inter-Resin from the hardship of presenting the documents directly to Bank of
Ayudhya to recover payment. As a negotiating bank, Bank of America has a right to recourse
against the issuer bank and until reimbursement is obtained, Inter-Resin, as the drawer of the
draft, continues to assume a contingent liability thereon.

While bank of America has indeed failed to allege material facts in its complaint that might
have likewise warranted the application of the Negotiable Instruments Law and possible then
allowed it to even go after the indorsers of the draft, this failure, nonetheless, does not preclude
petitioner bank's right (as negotiating bank) of recovery from Inter-Resin itself. Inter-Resin
admits having received P10,219,093.20 from bank of America on the letter of credit and in
having executed the corresponding draft. The payment to Inter-Resin has given, as aforesaid,
Bank of America the right of reimbursement from the issuing bank, Bank of Ayudhya which, in
turn, would then seek indemnification from the buyer (the General Chemicals of Thailand).
Since Bank of Ayudhya disowned the letter of credit, however, Bank of America may now turn
to Inter-Resin for restitution.

VIII. DISPOSITIVE PORTION

WHEREFORE, the assailed decision is SET ASIDE, and respondent Inter-Resin Industrial
Corporation is ordered to refund to petitioner Bank of America NT & SA the amount of
P10,219,093.20 with legal interest from the filing of the complaint until fully paid.

I. SHORT TITLE: CONSOLIDATED BANK V. CA

II. FULL TITLE: The Consolidated Bank and Trust Corporation (Solidbank) vs. The
Court of Appeals, Continental Cement Corporation, Gregory T.
Lim And Spouse - G.R. No. 114286, April 19, 2001, J. Ynares-
Santiago

III. TOPIC: Special Commercial Laws – Trust Receipts Law

IV. STATEMENT OF FACTS:

On July 13, 1982, Continental Cement Corporation and Gregory T. Lim obtained from petitioner
Consolidated Bank and Trust Corporation Letter of Credit No. DOM-23277 in the amount of P
1,068,150.00 On the same date, respondent Corporation paid a marginal deposit of P320,445.00
to petitioner. The letter of credit was used to purchase around five hundred thousand liters of
bunker fuel oil from Petrophil Corporation, which the latter delivered directly to respondent
Corporation in its Bulacan plant. In relation to the same transaction, a trust receipt for the
amount of P 1,001,520.93 was executed by respondent Corporation, with respondent Lim as
signatory.

V. STATEMENT OF THE CASE

Claiming that respondents failed to turn over the goods covered by the trust receipt or the
proceeds thereof, petitioner filed a complaint for sum of money with application for
preliminary attachment before the Regional Trial Court of Manila. Respondents countered that
the transaction between them was a simple loan and not a trust receipt transaction, and that the
amount claimed by petitioner did not take into account payments already made by them.
Respondents likewise prayed for reimbursement of alleged overpayment to petitioner of the
amount of P490,228.90. The trial court dismissed the Complaint and ordered petitioner to pay
respondents the amount pertaining to their overpayment. Both parties appealed to the Court of
Appeals, which affirmed the decision of the trial court except as to the award of attorney’s fees.

VI: ISSUE
Whether or not the transaction at bar is a trust receipt transaction

VII: RULING
NO. The transaction at bar is not a trust receipt transaction. The recent case of Colinares v. Court
of Appeals appears to be foursquare with the facts obtaining in the case at bar. There, we found
that inasmuch as the debtor received the goods subject of the trust receipt before the trust
receipt itself was entered into, the transaction in question was a simple loan and not a trust
receipt agreement. Prior to the date of execution of the trust receipt, ownership over the goods
was already transferred to the debtor. This situation is inconsistent with what normally obtains
in a pure trust receipt transaction, wherein the goods belong in ownership to the bank and are
only released to the importer in trust after the loan is granted.

In the case at bar, the delivery to respondent Corporation of the goods subject of the trust
receipt occurred long before the trust receipt itself was executed. More specifically, delivery of
the bunker fuel oil to respondent Corporation's Bulacan plant commenced on July 7, 1982 and
was completed by July 19, 1982.  Further, the oil was used up by respondent Corporation in its
normal operations by August, 1982. On the other hand, the subject trust receipt was only
executed nearly two months after full delivery of the oil was made to respondent Corporation,
or on September 2, 1982.

By all indications, then, it is apparent that there was really no trust receipt transaction that took
place. Evidently, respondent Corporation was required to sign the trust receipt simply to
facilitate collection by petitioner of the loan it had extended to the former.

VIII: DISPOSITIVE PORTION

WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The
Decision of the Court of Appeals dated July 26, 1993 in CA-G.R. CY No.29950 is AFFIRMED.

I. SHORT TITLE: TUPAZ V. CA

II. FULL TITLE: Jose C. Tupaz IV And Petronila C. Tupaz vs. The Court of Appeals
and Bank of the Philippine Islands - G.R. No. 145578 November
18, 2005, J. Carpio

III. TOPIC: Special Commercial Laws – Trust Receipts Law

IV. STATEMENT OF FACTS:

Petitioners were Vice-President for Operations and Vice-President/Treasurer, respectively, of El
Oro Engraver Corporation. El Oro had a contract with the Philippine Army to supply the latter
with survival bolos. To finance the purchase of the raw materials for the survival bolos,
petitioners, on behalf of El Oro, applied with BPI for two commercial letters of credit. The letters
of credit were in favor of El Oro’s suppliers, Tanchaoco Manufacturing Incorporated and
Maresco Rubber and Retreading Corporation. BPI granted petitioners’ application and issued
Letter of Credit No. 2-00896-3 for ₱564,871.05 to Tanchaoco and Letter of Credit No. 2-00914-5
for ₱294,000 to Maresco.

Simultaneous with the issuance of the letters of credit, petitioners signed trust receipts in favor
of BPI. Petitioner Jose C. Tupaz IV signed, in his personal capacity, a trust receipt corresponding
to Letter of Credit No. 2-00896-3. Jose Tupaz bound himself to sell the goods covered by the
letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if
not sold, on or before 29 December 1981. Subsequently, petitioners signed, in their capacities as
officers of El Oro Corporation, a trust receipt corresponding to Letter of Credit No. 2-00914-5.
Petitioners bound themselves to sell the goods covered by that letter of credit and to remit the
proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before 8 December
1981.

After Tanchaoco and Maresco delivered the raw materials to El Oro Corporation, respondent
bank paid the former ₱564,871.05 and ₱294,000, respectively. Petitioners did not comply with
their undertaking under the trust receipts. Respondent bank made several demands for
payments but El Oro Corporation made partial payments only. BPI sent final demand letters to
El Oro but the latter replied that it could not fully pay its debt because the Armed Forces of the
Philippines had delayed paying for the survival bolos.
V. STATEMENT OF THE CASE
Respondent bank charged petitioners with estafa. The trial court rendered judgment acquitting
petitioners on reasonable doubt. However, the trial court found petitioners solidarily liable with
El Oro for the balance of El Oro’s principal debt under the trust receipts. The Court of Appeals
affirmed the trial court’s ruling.

VI: ISSUE
Whether or not petitioners bound themselves personally liable for El Oro Corporation’s debts
under the trust receipts

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

In the trust receipt dated 9 October 1981, petitioners signed below this 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. Hence, for the trust receipt dated 9 October 1981, we sustain
petitioners’ claim that they are not personally liable for El Oro Corporation’s obligation.

For the trust receipt dated 30 September 1981, the dorsal portion of which petitioner Jose Tupaz
signed alone, we find that he did so in his personal capacity. Petitioner Jose Tupaz did not
indicate that he was signing as El Oro Corporation’s Vice-President for Operations. Hence,
petitioner Jose Tupaz bound himself personally liable for El Oro Corporation’s debts. Not being
a party to the trust receipt dated 30 September 1981, petitioner Petronila Tupaz is not liable
under such trust receipt.

VIII: DISPOSITIVE PORTION

WHEREFORE, we GRANT the petition in part. We AFFIRM the Decision of the Court of
Appeals dated 7 September 2000 and its Resolution dated 18 October 2000 with the
following MODIFICATIONS:
1) El Oro Engraver Corporation is principally liable for the total amount due under the trust
receipts dated 30 September 1981 and 9 October 1981, as computed by the Regional Trial Court,
Makati, Branch 144, upon finality of this Decision, based on the formula provided above;
2) Petitioner Jose C. Tupaz IV is liable for El Oro Engraver Corporation’s total debt under the
trust receipt dated 30 September 1981 as thus computed by the Regional Trial Court, Makati,
Branch 144; and
3) Petitioners Jose C. Tupaz IV and Petronila C. Tupaz are not liable under the trust receipt
dated 9 October 1981.