Nego.docx

SECOND DIVISION

MOF COMPANY, INC.,

G.R. No. 172822 Petitioner,

Present:

CARPIO,* J., Chairperson, - versus -

LEONARDO-DE CASTRO,**

BRION,

DEL CASTILLO, and

ABAD, JJ. SHIN YANG BROKERAGE

CORPORATION,

Promulgated: Respondent.

December 18, 2009 x-------------------------------------------------------------------x

DECISION

DEL CASTILLO, J.:

The necessity of proving lies with the person who sues.

The refusal of the consignee named in the bill of lading to pay the freightage on the claim that it is not privy to the contract of affreightment propelled the shipper to sue for collection of money, stressing that its sole evidence, the bill of lading, suffices to prove that the consignee is bound to pay. Petitioner now comes to us by way of Petition for Review on Certiorari[1] under Rule 45 praying for the reversal of the Court of Appeals' (CA) judgment that dismissed its action for sum of money for insufficiency of evidence.

Factual Antecedents

On October 25, 2001, Halla Trading Co., a company based in Korea, shipped to Manila secondhand cars and other articles on board the vessel Hanjin Busan 0238W. The bill of lading covering the shipment, i.e., Bill of Lading No. HJSCPUSI14168303,[2] which was prepared by the carrier Hanjin Shipping Co., Ltd. (Hanjin), named respondent Shin Yang Brokerage Corp. (Shin Yang) as the consignee and indicated that payment was on a Freight Collect basis, i.e., that the consignee/receiver of the goods would be the one to pay for the freight and other charges in the total amount of P57,646.00.[3]

The shipment arrived in Manila on October 29, 2001. Thereafter, petitioner MOF Company, Inc. (MOF), Hanjins exclusive general agent in the Philippines, repeatedly demanded the payment of ocean freight, documentation fee and terminal handling charges from Shin Yang. The latter, however, failed and refused to pay contending that it did not cause the importation of the goods, that it is only the Consolidator of the said shipment, that the ultimate consignee did not endorse in its favor the original bill of lading and that the bill of lading was prepared without its consent.

Thus, on March 19, 2003, MOF filed a case for sum of money before the Metropolitan Trial Court of Pasay City (MeTC Pasay) which was docketed as Civil Case No. 206-03 and raffled to Branch 48. MOF alleged that Shin Yang, a regular client, caused the importation and shipment of the goods and assured it that ocean freight and other charges would be paid upon arrival of the goods in Manila. Yet, after Hanjin's compliance, Shin Yang unjustly breached its obligation to pay. MOF argued that Shin Yang, as the named consignee in the bill of lading, entered itself as a party to the contract and bound itself to the Freight Collect arrangement. MOF thus prayed for the payment of P57,646.00 representing ocean freight, documentation fee and terminal handling charges as well as damages and attorneys fees.

Claiming that it is merely a consolidator/forwarder and that Bill of Lading No. HJSCPUSI14168303 was not endorsed to it by the ultimate consignee, Shin Yang denied any involvement in shipping the goods or in promising to shoulder the freightage. It asserted that it never authorized Halla Trading Co. to ship the articles or to have its name included in the bill of lading. Shin Yang also alleged that MOF failed to present supporting documents to prove that it was Shin Yang that caused the importation or the one that assured payment of the shipping charges upon arrival of the goods in Manila.

Ruling of the Metropolitan Trial Court

On June 16, 2004, the MeTC of Pasay City, Branch 48 rendered its Decision[4] in favor of MOF. It ruled that Shin Yang cannot disclaim being a party to the contract of affreightment because:

x x x it would appear that defendant has business transactions with plaintiff. This is evident from defendants letters dated 09 May 2002 and 13 May 2002 (Exhibits 1 and 2, defendants Position Paper) where it requested for the release of refund of container deposits x x x. [In] the mind of the Court, by analogy, a written contract need not be necessary; a mutual understanding [would suffice]. Further, plaintiff would have not included the name of the defendant in the bill of lading, had there been no prior agreement to that effect.

In sum, plaintiff has sufficiently proved its cause of action against the defendant and the latter is obliged to honor its agreement with plaintiff despite the absence of a written contract.[5]

The dispositive portion of the MeTC Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against the defendant, ordering the latter to pay plaintiff as follows:

1. P57,646.00 plus legal interest from the date of demand until fully paid, 2. P10,000.00 as and for attorneys fees and 3. the cost of suit.

SO ORDERED.[6]

Ruling of the Regional Trial Court

The Regional Trial Court (RTC) of Pasay City, Branch 108 affirmed in toto the Decision of the MeTC. It held that:

MOF and Shin Yang entered into a contract of affreightment which Blacks Law Dictionary defined as a contract with the ship owner to hire his ship or part of it, for the carriage of goods and generally take the form either of a charter party or a bill of lading.

The bill of lading contain[s] the information embodied in the contract.

Article 652 of the Code of Commerce provides that the charter party must be in writing; however, Article 653 says: If the cargo should be received without charter party having been signed, the contract shall be understood as executed in accordance with what appears in the bill of lading, the sole evidence of title with regard to the cargo for determining the rights and obligations of the ship agent, of the captain and of the charterer. Thus, the Supreme Court opined in the Market Developers, Inc. (MADE) vs. Honorable Intermediate Appellate Court and Gaudioso Uy, G.R. No. 74978, September 8, 1989, this kind of contract may be oral. In another case, Compania Maritima vs. Insurance Company of North America, 12 SCRA 213 the contract of affreightment by telephone was recognized where the oral agreement was later confirmed by a formal booking.

xxxx

Defendant is liable to pay the sum of P57,646.00, with interest until fully paid, attorneys fees of P10,000.00 [and] cost of suit.

Considering all the foregoing, this Court affirms in toto the decision of the Court a quo.

SO ORDERED.[7]

Ruling of the Court of Appeals

Seeing the matter in a different light, the CA dismissed MOFs complaint and refused to award any form of damages or attorneys fees. It opined that MOF failed to substantiate its claim that Shin Yang had a hand in the importation of the articles to the Philippines or that it gave its consent to be a consignee of the subject goods. In its March 22, 2006 Decision,[8] the CA said:

This Court is persuaded [that except] for the Bill of Lading, respondent has not presented any other evidence to bolster its claim that petitioner has entered [into] an agreement of affreightment with respondent, be it verbal or written. It is noted that the Bill of Lading was prepared by Hanjin Shipping, not the petitioner. Hanjin is the principal while respondent is the formers agent. (p. 43, rollo)

The conclusion of the court a quo, which was upheld by the RTC Pasay City, Branch 108 xxx is purely speculative and conjectural. A court cannot rely on speculations, conjectures or guesswork, but must depend upon competent proof and on the basis of the best evidence obtainable under the circumstances. Litigation cannot be properly resolved by suppositions, deductions or even presumptions, with no basis in evidence, for the truth must have to be determined by the hard rules of admissibility and proof (Lagon vs. Hooven Comalco Industries, Inc. 349 SCRA 363).

While it is true that a bill of lading serves two (2) functions: first, it is a receipt for the goods shipped; second, it is a contract by which three parties, namely, the shipper, the carrier and the consignee who undertake specific responsibilities and assume stipulated obligations (Belgian Overseas Chartering and Shipping N.V. vs. Phil. First Insurance Co., Inc., 383 SCRA 23), x x x if the same is not accepted, it is as if one party does not accept the contract. Said the Supreme Court:

A bill of lading delivered and accepted constitutes the contract of carriage[,] even though not signed, because the acceptance of a paper containing the terms of a proposed contract generally constitutes an acceptance of the contract and of all its terms and conditions of which the acceptor has actual or constructive notice (Keng Hua Paper Products Co., Inc. vs. CA, 286 SCRA 257).

In the present case, petitioner did not only [refuse to] accept the bill of lading, but it likewise disown[ed] the shipment x x x. [Neither did it] authorize Halla Trading Company or anyone to ship or export the same on its behalf.

It is settled that a contract is upheld as long as there is proof of consent, subject matter and cause (Sta. Clara Homeowners Association vs. Gaston, 374 SCRA 396). In the case at bar, there is not even any iota of evidence to show that petitioner had given its consent.

He who alleges a fact has the burden of proving it and a mere allegation is not evidence (Luxuria Homes Inc. vs. CA, 302 SCRA 315).

The 40-footer van contains goods of substantial value. It is highly improbable for petitioner not to pay the charges, which is very minimal compared with the value of the goods, in order that it could work on the release thereof.

For failure to substantiate its claim by preponderance of evidence, respondent has not established its case against petitioner.[9]

Petitioners filed a motion for reconsideration but it was denied in a Resolution[10] dated May 25, 2006. Hence, this petition for review on certiorari.

Petitioners Arguments

In assailing the CAs Decision, MOF argues that the factual findings of both the MeTC and RTC are entitled to great weight and respect and should have bound the CA. It stresses that the appellate court has no justifiable reason to disturb the lower courts judgments because their conclusions are wellsupported by the evidence on record.

MOF further argues that the CA erred in labeling the findings of the lower courts as purely speculative and conjectural. According to MOF, the bill of lading, which expressly stated Shin Yang as the consignee, is the best evidence of the latters actual participation in the transportation of the goods. Such document, validly entered, stands as the law among the shipper, carrier and the consignee, who are all bound by the terms stated therein. Besides, a carriers valid claim after it fulfilled its obligation cannot just be rejected by the named consignee upon a simple denial that it ever consented to be a party in a contract of affreightment, or that it ever participated in the preparation of the bill of lading. As against Shin Yangs bare denials, the bill of lading is the sufficient preponderance of evidence required to prove MOFs claim. MOF maintains that Shin Yang was the one that supplied all the details in the bill of lading and acquiesced to be named consignee of the shipment on a Freight Collect basis.

Lastly, MOF claims that even if Shin Yang never gave its consent, it cannot avoid its obligation to pay, because it never objected to being named as the consignee in the bill of lading and that it only protested when the shipment arrived in the Philippines, presumably due to a botched transaction between it and Halla Trading Co. Furthermore, Shin Yangs letters asking for the refund of container deposits highlight the fact that it was aware of the shipment and that it undertook preparations for the intended release of the shipment.

Respondents Arguments

Echoing the CA decision, Shin Yang insists that MOF has no evidence to prove that it consented to take part in the contract of affreightment. Shin Yang argues that MOF miserably failed to present any evidence to prove that it was the one that made preparations for the subject shipment, or that it is an actual shipping practice that forwarders/consolidators as consignees are the ones that provide carriers details and information on the bills of lading.

Shin Yang contends that a bill of lading is essentially a contract between the shipper and the carrier and ordinarily, the shipper is the one liable for the freight charges. A consignee, on the other hand, is initially a stranger to the bill of lading and can be liable only when the bill of lading specifies that the charges are to be paid by the consignee. This liability arises from either a) the contract of agency between the shipper/consignor and the consignee; or b) the consignees availment of the stipulation pour autrui drawn up by and between the shipper/ consignor and carrier upon the consignees demand that the goods be delivered to it. Shin Yang contends that the fact that its name was mentioned as the consignee of the cargoes did not make it automatically liable for the freightage because it never benefited from the shipment. It never claimed or accepted the goods, it was not the shippers agent, it was not aware of its designation as consignee and the original bill of lading was never endorsed to it.

Issue

The issue for resolution is whether a consignee, who is not a signatory to the bill of lading, is bound by the stipulations thereof. Corollarily, whether respondent who was not an agent of the shipper and who did not make any demand for the fulfillment of the stipulations of the bill of lading drawn in its favor is liable to pay the corresponding freight and handling charges.

Our Ruling

Since the CA and the trial courts arrived at different conclusions, we are constrained to depart from the general rule that only errors of law may be raised in a Petition for Review on Certiorari under Rule 45 of the Rules of Court and will review the evidence presented.[11]

The bill of lading is oftentimes drawn up by the shipper/consignor and the carrier without the intervention of the consignee. However, the latter can be bound by the stipulations of the bill of lading when a) there is a relation of agency between the shipper or consignor and the consignee or b) when the consignee demands fulfillment of the stipulation of the bill of lading which was drawn up in its favor.[12]

In Keng Hua Paper Products Co., Inc. v. Court of Appeals,[13] we held that once the bill of lading is received by the consignee who does not object to any terms or stipulations contained therein, it constitutes as an acceptance of the contract and of all of its terms and conditions, of which the acceptor has actual or constructive notice.

In Mendoza v. Philippine Air Lines, Inc.,[14] the consignee sued the carrier for damages but nevertheless claimed that he was never a party to the contract of transportation and was a complete stranger thereto. In debunking Mendozas contention, we held that:

x x x First, he insists that the articles of the Code of Commerce should be applied; that he invokes the provisions of said Code governing the obligations of a common carrier to make prompt delivery of goods given to it under a contract of transportation. Later, as already said, he says that he was never a party to the contract of transportation and was a complete stranger to it, and that he is now suing on a tort or a violation of his rights as a stranger (culpa aquiliana). If he does not invoke the contract of carriage entered into with the defendant company, then he would hardly have any leg to stand on. His right to prompt delivery of the can of film at the Pili Air Port stems and is derived from the contract of carriage under which contract, the PAL undertook to carry the can of film safely and to deliver it to him promptly. Take away or ignore that contract and the obligation to carry and to deliver and right to prompt delivery disappear. Common carriers are not obligated by law to carry and to deliver merchandise, and persons are not vested with the right to prompt delivery, unless such common carriers previously assume the obligation. Said rights and obligations are created by a specific contract entered into by the parties. In the present case, the findings of the trial court which as already stated, are accepted by the parties and which we must accept are to the effect that the LVN Pictures Inc. and Jose Mendoza on one side, and the defendant company on the other, entered into a contract of transportation (p. 29, Rec. on Appeal). One interpretation of said finding is that the LVN Pictures Inc. through previous agreement with Mendoza acted as the latter's agent. When he negotiated with the LVN Pictures Inc. to rent the film 'Himala ng Birhen' and show it during the Naga town fiesta, he most probably authorized and enjoined the Picture Company to ship the film for him on the PAL on September 17th. Another interpretation is that even if the LVN Pictures Inc. as consignor of its own initiative, and acting independently of Mendoza for the time being, made Mendoza a consignee. [Mendoza made himself a party to the contract of transportaion when he appeared at the Pili Air Port armed with the copy of the Air Way Bill (Exh. 1) demanding the delivery of the shipment to him.] The very citation made by appellant in his memorandum supports this view. Speaking of the possibility of a conflict between the order of the shipper on the one hand and the order of the consignee on the other, as when the shipper orders the shipping company to return or retain the goods shipped while the consignee demands their delivery, Malagarriga in his book Codigo de Comercio Comentado, Vol. 1, p. 400, citing a decision of the Argentina Court of Appeals on commercial matters, cited by Tolentino in Vol. II of his book entitled 'Commentaries and Jurisprudence on the Commercial Laws of the Philippines' p. 209, says that the right of the shipper to countermand the shipment terminates when the consignee or legitimate holder of the bill of lading appears with such bill of lading before the carrier and makes himself a party to the contract. Prior to that time he is a stranger to the contract.

Still another view of this phase of the case is that contemplated in Art. 1257, paragraph 2, of the old Civil Code (now Art. 1311, second paragraph) which reads thus:

Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment provided he has given notice of his acceptance to the person bound before the stipulation has been revoked.'

Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier contains the stipulations of delivery to Mendoza as consignee. His demand for the delivery of the can of film to him at the Pili Air Port may be regarded as a notice of his acceptance of the stipulation of the delivery in his favor contained in the contract of carriage and delivery. In this case he also made himself a party to the contract, or at least has come to court to enforce it. His cause of action must necessarily be founded on its breach.[15] (Emphasis Ours)

In sum, a consignee, although not a signatory to the contract of carriage between the shipper and the carrier, becomes a party to the contract by reason of either a) the relationship of agency between the consignee and the shipper/ consignor; b) the unequivocal acceptance of the bill of lading delivered to the consignee, with full knowledge of its contents or c) availment of the stipulation pour autrui, i.e., when the consignee, a third person, demands before the carrier the fulfillment of the stipulation made by the consignor/shipper in the consignees favor, specifically the delivery of the goods/cargoes shipped.[16]

In the instant case, Shin Yang consistently denied in all of its pleadings that it authorized Halla Trading, Co. to ship the goods on its behalf; or that it got hold of the bill of lading covering the shipment or that it demanded the release of the cargo. Basic is the rule in evidence that the burden of proof lies upon him who asserts it, not upon him who denies, since, by the nature of things, he who denies a fact cannot produce any proof of it.[17] Thus, MOF has the burden to controvert all these denials, it being insistent that Shin Yang asserted itself as the consignee and the one that caused the shipment of the goods to the Philippines.

In civil cases, the party having the burden of proof must establish his case by preponderance of evidence,[18] which means evidence which is of greater weight, or more convincing than that which is offered in opposition to it.[19] Here, MOF failed to meet the required quantum of proof. Other than presenting the bill of lading, which, at most, proves that the carrier acknowledged receipt of the subject cargo from the shipper and that the consignee named is to shoulder the freightage, MOF has not adduced any other credible evidence to strengthen its cause of action. It did not even present any witness in support of its allegation that it was Shin Yang which furnished all the details indicated in the bill of lading and that Shin Yang consented to shoulder the shipment costs. There is also nothing in the records which would indicate that Shin Yang was an agent of Halla Trading Co. or that it exercised any act that would bind it as a named consignee. Thus, the CA correctly dismissed the suit for failure of petitioner to establish its cause against respondent.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated March 22, 2006 dismissing petitioners complaint and the Resolution dated May 25, 2006 denying the motion for reconsideration are AFFIRMED.

SO ORDERED.

G.R. No. L-17640

November 29, 1965

VIRGINIA I. VDA. DE LIMJOCO, petitioner-appellant, vs. THE DIRECTOR OF COMMERCE, respondent-appellee. Rafael L. Arcega for petitioner-appellant. Office of the Solicitor General for respondent-appellee.

MAKALINTAL, J.:

This case, filed as a petition for declaratory relief in the Court of First Instance of Manila, involves the interpretation of Section 2 of the General Bonded Warehousing Act (Act No. 3893 as amended by Republic Act No. 247), specifically in relation to the rice milling business of petitioner-appellant. Certain facts were stipulated in the Court below, and the following summarized statement in the decision appealed from is accepted by both parties: It appears that sometime prior to March 22, 1950, petitioner and her husband, the late Bonifacio T. Limjoco, were the owners of a rice mill commonly called "kiskisan" and were engaged in the business of milling palay belonging to their customers for the purpose of removing its hull and converting it into rice. (p. 30, RA). On July 31, 1952 Bonifacio T. Limjoco died, leaving the milling business in the hands of his surviving spouse, the petitioner in this case. The petitioner continued in the business, which prior to the death of her husband, was managed by the latter without, however, renewing the license which according to Exhibit "A" expired on December 31, 1950. Since then and up to the present, the petitioner refused to secure a license from the Bureau of Commerce claiming that her business does not fall within the provisions of Act 3893 as amended by Republic Act 247. From the testimony of the petitioner and from the stipulation of facts entered into by the parties, as well as the exhibits presented by the petitioner, it appears that the petitioner owns a rice mill of the

semicono type. The facilities of the rice mill are open to the public in the sense that anybody who wants his palay to be milled and converted into rice may deliver the same to the rice mill paying P0.40 per cavan of palay for the services of the petitioner in milling it. The mill itself is within a building which the petitioner calls a "camalig" about ten meters long, eight meters wide and five meters high. The "camalig" is totally enclosed partly by steelmatting, partly by wood and partly by galvanized iron sheets. From the stipulation of facts as well as from the testimony of appellant the trial Court further found that there were occasions when her customers brought more palay than could be milled in one day, whereupon they would leave the same in the custody of appellant, piled inside the "camalig" to await its turn to be milled; that sometimes the palay thus left in her possession amounted to as much as 100 cavans, and at other times as little as 10 cavans; that no charge was made by appellant for thus keeping the palay, the arrangement being, in accordance with the customs of the place, a favor done to the customers; and that, on the other hand, appellant was also benefited by such arrangement, for unless she acceded thereto the customers might take their palay for milling to her competitors. Section 2 of the law in question provides: As used in this Act, the term "Warehouse" shall be deemed to mean every building, structure, or other protected inclosure in which rice is kept for storage. The term "rice" shall be deemed to mean either palay, in bundles, or in grains, or clean rice, or both. "Person" includes a corporation or partnership or two or more persons having a joint or common interest; "warehouseman" means a person engaged in the business of receiving rice for storage; and "receipt" means any receipt issued by a warehouseman for rice delivered to him. For the purpose of this Act, the business of receiving rice for storage shall include (1) any contract or transaction wherein the warehouseman is obligated to return the very same rice delivered to him or pay its value; (2) any contract or transaction wherein the rice delivered is to be milled for and on account of the owner thereof; (3) any contract or transaction wherein the rice delivered is commingled with rice delivered by or belonging to other persons, and the warehouseman is obligated to return rice of the same kind or pay its value. The Director of Commerce ruled that appellant's rice milling business falls under the law just quoted, required her to secure the corresponding renewal license and started steps for her prosecution in view of her refusal to do so. The move, it seems, was subsequently held in abeyance upon the filing of the petition herein. The trial court upheld the Director of Commerce and ruled that the law in question is applicable in this case. Appellant submits, in substance, that the test to determine the applicability of Act No. 3893 as amended is whether or not she is engaged in the business of receiving palay for storage; that the clause in section 2 thereof which refers to "any contract or transaction wherein the rice, delivered is to be milled for and on account of the owners" must be understood in relation to the subject matter of the statute as expressed in its title, namely, "An Act to Regulate the Business of Receiving Commodity for Storage"; and that since her business is the milling of palay, the delivery thereof to her is merely incidental to such business and does not constitute storage within the meaning of the statute. Section 2, however, is too clear to permit of any exercise in construction or semantics. It does not stop at the bare use of the word "storage," but expressly provides that any contract or transaction wherein the palay delivered is to be milled for and on account of the owner shall be deemed included in the business of receiving rice for storage for the purpose of the Act. In other words, it is enough that the

palay is delivered, even if only to have it milled. Delivery connotes transfer of physical possession or custody; and it may indeed be seriously doubted if the concept of "storage" under the law would cover a situation where one merely utilizes the services of the mill but keeps the palay under his physical control all steps of the way. But in this case it is a fact that palay is delivered to appellant and sometimes piled inside her "camalig" in appreciable quantities, to wait for its turn in the milling process. This is precisely the situation covered by the statute. We agree with His Honor, the trial Judge, when he said: "There is a reason for the inclusion of the business of the petitioner within the operation of Act 3893 as amended by Republic Act 247. The main intention of the lawmaker is to give protection to the owner of the commodity against possible abuses (and we might add negligence) of the person to whom the physical control of his properties is delivered." This is not the first time this question has come before Us. It was raised in the case of People vs. Versola, G.R. No. L-5707, March 27, 1958, where this Court, speaking through Mr. Justice Roberto Concepcion, said: At any rate, whenever a rice mill engaged in the business of hulling palay for others, is housed in a "camarin" like that of appellant herein, the keeping of palay or rice therein follows as a necessary consequence. This is true, even if the grains were received therein exclusively for milling purposes. Hence, one way or the other, there is a form of storage, the duration of which may vary, depending upon circumstances. In any event, the ricemill operator is responsible for the palay or rice, while the same is in his possession, and public policy or public interest demands that the rights of the owners of the commodity — which is our main staple — be duly protected. Hence, the need of securing the license prescribed in Act No. 3893, in order that the Director of Commerce could determine the conditions under which the mill may be authorized to operate, conformably with the objectives of said legislation, and the amount of the bond to be required for the protection of the people who avail themselves of its services. Appellant contends that the inclusion of the business of milling palay in Act No. 3893 infringes the constitutional mandate that no law shall embrace more than one subject which shall be expressed in the title thereof. We believe the subject matter of said Act as expressed in its title, namely, the regulation of the business of receiving commodity for storage, is sufficiently broad to cover the business of milling palay where the palay is delivered to the mill operator and kept in a construction which serves the purpose of a warehouse, as in this case. Appellant says her "camalig" is neither adequate nor suitable for storage. But the inadequacy of the construction insofar as the safety of the palay is concerned is not a valid reason to remove it from the operation of the statute, for otherwise the very fact of noncompliance with the legal requirements in this respect would be its own excuse from the liabilities imposed. The decision appealed from is affirmed, with costs.

FIRST DIVISION [ G.R. No. 158649, February 18, 2013 ]

SPOUSES QUIRINO V. DELA CRUZ AND GLORIA DELA CRUZ, PETITIONERS, VS. PLANTERS PRODUCTS, INC., RESPONDENT.

DECISION BERSAMIN, J.:

If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.[1] In determining their intention, their contemporaneous and subsequent acts shall be principally considered.[2]

Under review on certiorari are the Decision promulgated on April 11, 2003 in C.A.-G.R. No. CV No. 57446,[3] whereby the Court of Appeals (CA) affirmed the judgment rendered on October 29, 1997 by the Regional Trial Court, Branch 66, (RTC) in Makati City (ordering the petitioners liable to pay the respondent the amount of P240,335.10 plus 16% interest per annum commencing from July 9, 1985 until full payment, and the sum of P20,000.00 as attorney's fees and cost of litigation);[4] and the resolution promulgated on June 9, 2003, whereby the CA denied the motion for reconsideration of the petitioners.[5]

Antecedents

Spouses Quirino V. Dela Cruz and Gloria Dela Cruz, petitioners herein, operated the Barangay Agricultural Supply, an agricultural supply store in Aliaga, Nueva Ecija engaged in the distribution and sale of fertilizers and agricultural chemical products, among others. At the time material to the case, Quirino, a lawyer, was the Municipal Mayor of Aliaga, Nueva Ecija.[6]

On March 23, 1978, Gloria applied for and was granted by respondent Planters Products, Inc. (PPI) a regular credit line of P200,000.00 for a 60-day term, with trust receipts as collaterals.[7] Quirino and Gloria submitted a list of their assets in support of her credit application for participation in the Special Credit Scheme (SCS) of PPI.[8] On August 28, 1978, Gloria signed in the presence of the PPI distribution officer/assistant sales representative two documents[9] labelled "Trust Receipt/Special Credit Scheme," indicating the invoice number, quantity, value, and names of the agricultural inputs (i.e., fertilizer or agricultural chemicals) she received "upon the trust" of PPI. Gloria thereby subscribed to specific undertakings, as follows:

For and in consideration thereof, I/We hereby agree to hold said goods in trust for PPI, as its property, with liberty to deliver and sell the same for PPI's account, in favor of farmers accepted to participate in

PPI's Special Credit Scheme within 60 days from receipt of inputs from PPI. In case of such delivery and sale, I/We agree to require the execution of a Trust Agreement by the farmer-participants in my/our favor, which Agreement will in turn be Assigned by me/us in favor of PPI with Recourse. In the event, I/We cannot deliver/serve to the farmer-participants all the inputs as enumerated above within 60 days, then I/We agree that the undelivered inputs will be charged to my/our credit line, in which case, the corresponding adjustment of price and interests shall be made by PPI.[10]

Gloria expressly agreed to: (a) "supervise the collection of the equivalent number of cavanes of palay and/or corn from the farmer-participant" and to "turn over the proceeds of the sale of the deposited palay and corn as soon as received, to PPI to be applied against the listed invoices"; (b) "keep said fertilizer and pesticides insured at their full value against fire and other casualties prior to delivery to farmer-participants, the sum insured to be payable in case of loss to PPI, with the understanding that PPI is not to be chargeable with the storage, insurance premium, or any other expenses incurred on said goods"; (c) "keep the said fertilizer and pesticides, prior to delivery to the farmer-participants, separate and capable of identification as the property of PPI inside my/our warehouse"; and (d) "require the farmer-participants to deposit the palay or corn sufficient to cover their respective accounts within 72 hours after the harvest of the farmer-participants" and should the farmer-participants refuse to make the required deposit, Gloria would notify PPI thereof within 24 hours. For that purpose, negligence on her part would make her obligation under the Trust Receipt "direct and primary."[11]

Gloria further expressly agreed that her obligation as stipulated in the contract would "continue in force and be applicable to all transactions, notwithstanding any change in the individuals composing any firm, parties to or concerned x x x whether such change shall arise from accession of one or more new partners or from the death or cession of any partner or partners;" that her "liability for payment at maturity of the invoice(s) x x x shall not be extinguished or modified" by the following, namely: (a) "any priority, act of war, or restriction on the use, transportation, hypothecation, or disposal thereof imposed by any administrative, political or legislative enactments, regulations or orders whatsoever"; (b) "government appropriation of the same, or of any seizure or destruction thereof or damage thereto, whether insured against or not"; and (c) "any acts or regulation affecting this Trust Receipt or the inputs subject thereto."[12]

In addition, Gloria's obligation included the following terms and conditions, to wit:

All obligations of the undersigned under this Trust Receipt shall bear interest at the rate of twelve per cent (12%) per annum plus two percent (2%) service charges, reckoned from the date Dealer delivers to farmer-participants the fertilizer and agchem products. Where I/We have not delivered within 60 days, interest and service charges shall become effective on the 61st day.

If there are two or more signatories, our obligations hereunder shall in all cases be joint and several.

All expenses and charges incurred by PPI in re-possession of said fertilizer and agchem products, and in securing delivery of the same to a bodega or storage place in Manila or at some other place selected by it shall be for my/our account and shall be repaid to PPI by me/us.

Should it become necessary for PPI to avail of the services of an attorney-at-law to initiate legal steps to enforce any or all of its rights under this contract, we jointly and severally, shall pay to PPI for and as attorney's fees a sum equivalent to twenty per cent (20%) per annum of the total amount involved, principal and interest, then unpaid, but in no case less than FIVE HUNDRED PESOS (P500.00), exclusive of all costs or fees allowed by law.

In consideration of PPI complying with the foregoing we jointly and severally agree and undertake to pay on demand to PPI all sums of money which PPI may call upon us to pay arising out of or pertaining to and/or in any event connected with the default of and/or non-fulfillment in any respect of the undertaking of the aforesaid.[13]

Gloria executed three more documents on September 14, 1978,[14] and one document each on September 28, 1978,[15] September 18, 1978,[16] and September 20, 1978.[17] On the corresponding dates, Gloria filled up customer order forms for fertilizer and agricultural chemical products.[18] Written at the upper portion of each order form was the following:

This invoice is subject to the terms and conditions stipulated in our contract. Under no circumstance is this invoice to be used as a receipt for payment. Interest at 14% per annum plus service and handling charges at the rate of 10% per annum shall be charged on all overdue accounts, and in the event of judicial proceedings to enforce collection, customer shall pay the Company an amount equivalent to 25% of the amount due for and as attorney's fees which in no case shall be less than P200 in addition to cost of suit.

The products were released to Gloria under the supervision of Cristina G. Llanera of PPI.

The 60-day credit term lapsed without Gloria paying her obligation under the Trust Receipt/SCS. Hence, PPI wrote collection letters to her on April 24, 1979 and May 22, 1979. Receiving no response from her, Inocencio E. Ortega, PPI District Distribution Manager, sent her on June 8, 1979 a demand letter on her "long overdue account" of P191,205,25.[19]

On February 24, 1979, PPI sent Gloria a credit note for P127,930.60 with these particulars: "To transfer to dealer's regular line inputs withdrawn VS. SCS line still undelivered to farmers after 60 days."[20] Another credit note, also dated February 24, 1979 and with the same particulars, indicated the amount of P46,622.80.[21]

The follow-up letter of October 11, 1979 culminated in the final demand letter of May 30, 1980 from Atty. R. M. Rivera, PPI Collection Officer,[22] stating that the total accountability of Gloria as of April 25, 1980 was P156,755.00 "plus interest, service charges, and penalty charges," all of which she should pay by June 18, 1980. PPI warned that should she fail to do so, PPI would file the "necessary civil and criminal cases" against her "based on the Trust Receipts."

On November 17, 1981, PPI brought against Quirino and Gloria in the erstwhile Court of First Instance in Pasig, Metro Manila a complaint for the recovery of a sum of money with prayer for a writ of preliminary attachment.[23] PPI alleged that Gloria had violated the "fiduciary undertaking in the Trust Receipt agreement covering product withdrawals under the Special Credit Scheme which were subsequently charged to defendant dealer's regular credit line; therefore, she is guilty of fraudulently misapplying or converting to her own use the items delivered to her as contained in the invoices." It charged that Gloria did not return the goods indicated in the invoices and did not remit the proceeds of sales.

PPI prayed for judgment holding the petitioners liable for the principal amount of P161,203.60 as of October 25, 1981, "inclusive of interest and service charges"; additional "daily interest of P80.60 from October 26, 1981 until fully paid"; and 20% of the total amount due as attorney's fees. As of July 9, 1985, the statement of account showed a grand total liability of P240,355.10.[24]

In her answer, the petitioners alleged that Gloria was only a marketing outlet of PPI under its SCS Program, not a dealer primarily obligated to PPI for the products delivered to her; that she had not collected from the farmers participating in the SCS Program because of the October 27-28, 1979 typhoon Kading that had destroyed the participating farmers' crops; and that she had paid P50,000.00 to PPI despite the failure of the farmers to pay.[25]

Decision of the RTC

On October 29, 1997, the trial court, then already the RTC, rendered its judgment ordering the petitioners "to pay the plaintiff the amount of P240,335.10 plus 16% interest per annum commencing from July 9, 1985 until fully paid and the sum of P20,000.00 as attorney's fees and cost of litigation."[26]

The RTC found that based on the terms and conditions of the SCS Program, a creditor-debtor relationship was created between Gloria and PPI; that her liability was predicated on Section 4 of the Trust Receipts Law (Presidential Decree No. 115) and on the ruling in Robles v. Court of Appeals[27] to the effect that the failure of the entrustee (Gloria) to turn over to the entruster (plaintiff) the proceeds of the sale of goods covered by the delivery trust receipts or to return the goods constituted estafa punishable under Article 315(1)(b) of the Revised Penal Code; and that the petitioners could not use as a defense the occurrence of typhoon Kading because there was no privity of contract between the participating farmers and PPI.

Ruling of the CA

The petitioners appealed to the CA[28] upon the following assignment of errors, to wit:

THE LOWER COURT ERRED IN HOLDING THAT DEFENDANT GLORIA DELA CRUZ WAS AN ACCREDITED DEALER UNDER THE SPECIAL CREDIT SCHEME AND PURCHASED ON CREDIT FERTILIZERS AND CHEMICALS FROM PLAINTIFF.

THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANTS ARE PRIMARILY LIABLE FOR THE FERTILIZERS AND CHEMICALS COVERED BY THE ORDER FORMS, DELIVERY RECEIPTS AND TRUST RECEIPTS.

THE TRIAL COURT ERRED IN HOLDING THAT THE SPECIAL CREDIT SCHEME/LINE GRANTED TO DEFENDANT GLORIA DELA CRUZ WAS CONVERTED TO A REGULAR LINE.

THE TRIAL COURT ERRED IN FINDING FOR THE PLAINTIFF AND NOT FOR THE DEFENDANTS-APPELLANTS.

On April 11, 2003, the CA affirmed the judgment of the RTC,[29] viz:

WHEREFORE, premises considered, the instant appeal is hereby DENIED, and the impugned Decision dated 29 October 1997 of Regional Trial Court of Makati City, Branch 66 is hereby AFFIRMED in toto. Costs against Defendants-appellants.

SO ORDERED.

The CA held the petitioners liable to PPI "for the value of the fertilizers and agricultural chemical products covered by the trust receipts" because a creditor-debtor relationship existed between the parties when, pursuant to the credit line of P200,000.00 and the SCS Program, the petitioners "withdrew several fertilizers and agricultural chemical products on credit;" that the petitioners then came under obligation to pay the equivalent value of the withdrawn goods, "or to return the undelivered and/or unused products within the specified period." It elucidated thus:

The trust receipts covering the said fertilizers and agricultural chemical products under the special credit scheme, and signed by defendant-appellant Gloria de la Cruz specifically provides for their direct and primary liability over the same, to wit:

"x x x. In the event, I/We cannot deliver/serve to the farmer-participants all the inputs as enumerated above within 60 days, then I/We agree that the undelivered inputs will be charged to my/our regular credit line, in which case, the corresponding adjustment of price and interest shall be made by PPI."

and in case of failure on the part of Defendants-appellants to liquidate within the specified period the undelivered or unused fertilizers and agricultural chemical products, its corresponding value will be charged to the regular credit line of Defendants-appellants, which was eventually done by Plaintiffappellee, when it converted and/or credited Defendants-appellants' accounts payable under the special credit scheme to their regular credit line as per "credit notes."

Pursuant to said credit line account and trust receipts, plaintiff-appellee Planters Products, Inc. and defendants-appellants Spouses de la Cruz are bound to fulfill what has been expressly stipulated therein. It is well-settled in Barons Marketing Corporation v. Court of Appeals,[30] to wit:

"It may not be amiss to state that petitioner's contract with private respondent has the force of law between them. Petitioner is thus bound to fulfill what has been expressly stipulated therein. In the absence of any abuse of right, private respondent cannot be allowed to perform its obligation under such contract in parts. Otherwise, private respondent's right under Article 1248 will be negated, the sanctity of its contract with petitioner defiled. The principle of autonomy of contracts must be respected." (Emphasis supplied)

Moreover, Defendants-appellants cannot pass their obligation to pay the equivalent value of the undelivered and/or unused fertilizers and agricultural chemical products under the trust receipts to the farmers-participants considering that the "contract" was between plaintiff-appellee Planters Products Inc. and defendants-appellants Quirino and Gloria Dela Cruz, and the farmers-participants were never privy to the said transaction."[31]

In their motion for reconsideration,[32] the petitioners mainly contended that the farmers as participants in the SCS, not Gloria, were liable because the inputs had been delivered to them; that such was the tenor of the demand letters they had sent to the farmers; that PPI would not have made a second delivery if it had not been satisfied that they (petitioners) had delivered the products to the farmers, who, however, had not paid their "loan" because of typhoon Kading destroying their crops; that in the aftermath of the typhoon, PPI representatives led by one Noel David had inspected the Municipality of Aliaga, and had forged an agreement with the petitioners whereby they bound themselves to help PPI "in collecting from the farmers in the succeeding palay crop their indebtedness;" and that PPI had subsequently made them the "principal debtor" notwithstanding that they had not incurred any account with PPI because all the transactions had been "on a cash on delivery basis or cash withdrawal basis."

On June 9, 2003, the CA denied the petitioners' motion for reconsideration.

Issues

Hence, the petitioners are now before the Court via their petition for review on certiorari.

The petitioners ascribe to the CA grave reversible error in affirming the decision of the RTC notwithstanding that the award to PPI of the amount of P240,335.10 plus 16% interest per annum was based on hearsay evidence, leaving absolutely no other evidence to support the award. They assail the award of attorney's fees for its lack of factual and legal bases; and insist that the CA did not consider "certain facts and circumstances on record which would otherwise justify a different decision."

Ruling

The appeal has no merit.

I. Parties entered into a creditor-debtor relationship

The petitioners did not deny that Gloria applied with PPI for a credit line of P200,000.00; and that Gloria signed up for the SCS Program of PPI. The principal issue they now raise is whether the two transaction

documents signed by Gloria expressed the intent of the parties to establish a creditor-debtor relationship between them. The resolution of the issue is necessary to resolve the corollary issue of whether the petitioners were liable to PPI for the value of the fertilizers and agricultural chemical products delivered to Gloria, and, if so, by how much.

It is apparent, however, that the petitioners are focusing on the evidentiary value of Exhibit V, the statement of account showing that Gloria was liable in the total amount of P240,355.10 as of July 9, 1985, and are in the process avoiding the pivotal issue concerning the nature of the contract between them and PPI. Nonetheless, the issue of liability sprang from the terms of the contractual documents Gloria had signed. For them to question the amount of their liabilities without explaining why they should not be held liable veritably constituted their tacit admission of the existence of the loan but assailing only how much they should repay to PPI.

The petitioners aver that "in a surprising turn of events, when it appeared that no further collection could be had, [PPI] unilaterally and arbitrarily converted and charged its receivables from the farmersparticipants against petitioner's regular credit line," and PPI thereafter sent the demand letters to Gloria.[33] Considering that the documents signed by Gloria governed the relationship between her and PPI, the controversy can be resolved only by an examination of the contractual documents.

As earlier mentioned, Gloria signed the application for credit facilities on March 23, 1978, indicating that a trust receipt would serve as collateral for the credit line. On August 4, 1978, Gloria, as "dealer," signed together with Quirino the list of their assets having a total value of P260,000.00 (consisting of a residential house and lot, 10-hectare agricultural lands in Aliaga and Talavera, and two residential lots) that they tendered to PPI "to support our credit application in connection with our participation to your Special Credit Scheme."[34] Gloria further signed the Trust Receipt/SCS documents defining her obligations under the agreement, and also the invoices pursuant to the agreement with PPI, indicating her having received PPI products on various dates.

These established circumstances comprised by the contemporaneous and subsequent acts of Gloria and Quirino that manifested their intention to enter into the creditor-debtor relationship with PPI show that the CA properly held the petitioners fully liable to PPI. The law of contracts provides that in determining the intention of the parties, their contemporaneous and subsequent acts shall be principally considered.[35] Consequently, the written terms of their contract with PPI, being clear upon the intention of the contracting parties, should be literally applied.[36]

The first circumstance was the credit line of P200,000.00 that commenced the business relationship between the parties. A credit line is really a loan agreement between the parties. According to Rosario Textile Mills Corporation v. Home Bankers Savings and Trust Co.:[37]

x x x [A] credit line is "that amount of money or merchandise which a banker, a merchant, or supplier agrees to supply to a person on credit and generally agreed to in advance." It is a fixed limit of credit granted by a bank, retailer, or credit card issuer to a customer, to the full extent of which the latter may avail himself of his dealings with the former but which he must not exceed and is usually intended to cover a series of transactions in which case, when the customer's line of credit is nearly exhausted, he is expected to reduce his indebtedness by payments before making any further drawings.[38]

The second circumstance was the offer by Gloria of trust receipts as her collateral for securing the loans that PPI extended to her.[39] A trust receipt is "a security transaction 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."[40] It is a security agreement that "secures an indebtedness and there can be no such thing as security interest that secures no obligation."[41]

The third circumstance was the offer of Gloria and Quirino to have their conjugal real properties beef up the collaterals for the credit line. Gloria signed the list of the properties involved as "dealer," thereby ineluctably manifesting that Gloria considered herself a dealer of the products delivered by PPI under the credit line. In this connection, a dealer is "a person who makes a business of buying and selling goods, especially as distinguished from a manufacturer, without altering their condition." In other words, a dealer is "one who buys to sell again."[42]

The fourth circumstance had to do with the undertakings under the trust receipts. The position of the petitioners was that the farmers-participants alone were obligated to pay for the goods delivered to them by Gloria. However, such position had no factual and legal legs to prop it up. A close look at the Trust Receipt/SCS indicates that the farmer-participants were mentioned therein only with respect to the duties and responsibilities that Gloria personally assumed to undertake in holding goods "in trust for PPI." Under the notion of relativity of contracts embodied in Article 1311 of the Civil Code, contracts take effect only between the parties, their assigns and heirs. Hence, the farmer-participants, not being themselves parties to the contractual documents signed by Gloria, were not to be thereby liable.

At this juncture, the Court clarifies that the contract, its label notwithstanding, was not a trust receipt transaction in legal contemplation or within the purview of the Trust Receipts Law (Presidential Decree No. 115) such that its breach would render Gloria criminally liable for estafa. Under Section 4 of the Trust Receipts Law, the sale of goods by a person in the business of selling goods for profit who, at the outset of the transaction, has, as against the buyer, general property rights in such goods, or who sells the goods to the buyer on credit, retaining title or other interest as security for the payment of the purchase price, does not constitute a trust receipt transaction and is outside the purview and coverage of the law, to wit:

Section. 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this Decree, is any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as the entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following:

1. In the case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or process the goods with the purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has complied fully with his obligation under the trust receipt; or (c) to load, unload, ship or tranship or otherwise deal with them in a manner preliminary or necessary to their sale; or

2. In case of instruments x x x.

The sale of goods, documents or instruments by a person in the business of selling goods, documents or instruments for profit who, at the outset of the transaction, has, as against the buyer, general property rights in such goods, documents or instruments, or who sells the same to the buyer on credit, retaining title or other interest as security for the payment of the purchase price, does not constitute a trust receipt transaction and is outside the purview and coverage of this Decree. (Bold emphasis supplied.)

In Land Bank v. Perez,[43] the Court has elucidated on the coverage of Section 4, supra, to wit:

There are two obligations in a trust receipt transaction. The first is covered by the provision that refers to money under the obligation to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision referring to merchandise received under the obligation to return it (devolverla) to the owner. Thus, under the Trust Receipts Law, intent to defraud is presumed when (1) the entrustee fails to turn over the proceeds of the sale of goods covered by the trust receipt to the entruster; or (2) when the entrustee fails to return the goods under trust, if they are not disposed of in accordance with the terms of the trust receipts.

In all trust receipt transactions, both obligations on the part of the trustee exist in the alternative the return of the proceeds of the sale or the return or recovery of the goods, whether raw or processed. When both parties enter into an agreement knowing that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt transaction penalized under Section 13 of P.D. 115; the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere loan, where the borrower is obligated to pay the bank the amount spent for the purchase of the goods. (Bold emphasis supplied)

It is not amiss to point out that the RTC even erred in citing Section 4 of the Trust Receipts Law as its basis for ordering Gloria to pay the total amount of P240,355.10. Section 13 of the Trust Receipts Law considers the "failure of an entrustee to turn over the proceeds of the sale of the goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt" as constituting the crime of estafa under Article 315 (b) of the Revised Penal Code. However, had PPI intended to charge Gloria with estafa, it could have then done so. Instead, it brought this collection suit, a clear indication that the trust receipts were only collaterals for the credit line as agreed upon by the parties.

To be clear, the obligation assumed by Gloria under the Trust Receipt/SCS involved "the execution of a Trust Agreement by the farmer-participants" in her favor, which, in turn, she would assign "in favor of PPI with recourse" in case of delivery and sale to the farmer-participants. The term recourse as thus used means "resort to a person who is secondarily liable after the default of the person who is primarily liable."[44] An indorsement "with recourse" of a note, for instance, makes the indorser a general indorser, because the indorsement is without qualification. Accordingly, the term with recourse confirms the obligation of a general indorser, who has the same liability as the original obligor.[45] As the assignor "with recourse" of the Trust Agreement executed by the farmer participating in the SCS, therefore, Gloria made herself directly liable to PPI for the value of the inputs delivered to the farmerparticipants. Obviously, the signature of the representative of PPI found in the demand letters Gloria sent to the farmer-participants only indicated that the Trust Agreement was part of the SCS of PPI.

The petitioners could not validly justify the non-compliance by Gloria with her obligations under the Trust Receipt/SCS by citing the loss of the farm outputs due to typhoon Kading. There is no question that she had expressly agreed that her liability would not be extinguished by the destruction or damage of the crops. The use of the term with recourse was, in fact, consonant with the provision of the Trust Receipt/SCS stating that if Gloria could not deliver or serve "all the inputs" to the farmer-participants within 60 days, she agreed that "the undelivered inputs will be charged" to her "regular credit line." Under her arrangement with PPI, the trust receipts were mere securities for the credit line granted by

PPI,[46] having in fact indicated in her application for the credit line that the trust receipts were "collaterals" or separate obligations "attached to any other contract to guaranty its performance."[47]

It is worthwhile to note that the application for credit facilities was a form contract that Gloria filled out only with respect to her name, address, credit limit, term, and collateral. Her act of signing the application signified her agreement to be bound by the terms of the application, specifically her acquiescence to use trust receipts as collaterals, as well as by the terms and conditions of the Trust Receipt/SCS.

In this regard, whether or not the Trust Receipt/SCS was a contract of adhesion apparently prepared by PPI would neither dilute nor erase her liabilities. A contract of adhesion prepared by one party, usually a corporation, is generally not a one-sided document as long as the signatory is not prevented from studying it before signing. Gloria did not show that she was deprived of that opportunity to study the contract. At any rate, the social stature of the parties, the nature of the transaction, and the amount involved were also factors to be considered in determining whether the aggrieved party "exercised adequate care and diligence in studying the contract prior to its execution."[48] Thus, "[u]nless a contracting party cannot read or does not understand the language in which the agreement is written, he is presumed to know the import of his contract and is bound thereby."[49] Here, Gloria was married to a lawyer who was also then the Municipal Mayor of Aliaga. Both of them signed the list of conjugal assets that they used to support the application for the credit line.

The last circumstance was that the petitioners now focus on the amount of liabilities adjudged against them by the lower courts. They thereby bolster the finding that they fully knew and accepted the legal import of the documents Gloria had signed of rendering them personally liable towards PPI for the value of the inputs granted to the farmer-participants through them. The finding is further confirmed by her admission of paying to PPI the amount of P50,000.00, which payment, albeit allegedly made grudgingly, solidified the existence of a creditor-debtor relationship between them. Indeed, Gloria would not have paid that amount except in acknowledgement of an indebtedness towards PPI.

II. Statement of account was not hearsay

The petitioners insist that they could not be held liable for the balance stated in Exhibit V due to such document being hearsay as a "mere statement of account."[50] They argue that Cristina Llanera, the witness of PPI on the matter, was only a warehouse assistant who was not shown to be either an accountant, or bookkeeper, or auditor or a person knowledgeable in accounting. They posit that Llanera's testimony on Exhibit V was limited to stating that she had prepared the statement of account contained therein; that she did not affirm the correctness or veracity of the contents of the

document;[51] and that, consequently, Exhibit V had no evidentiary value as proof of their total liability for P240,355.10, the amount stated therein.

We do not agree with the petitioners.

With Exhibit V being a private document, authentication pursuant to the rules on evidence was a condition for its admissibility.[52] Llanera, admittedly the person who had prepared the document, was competent to testify on the due execution and authenticity of Exhibit V. Such authentication was done in accordance with Rule 132 of the Rules of Court, whose Section 20 states:

Section 20. Proof of private document. Before any private document offered as authentic is received in evidence, its due execution and authenticity must be proved either:

(a) By anyone who saw the document executed or written; or (b) By evidence of the genuineness of the signature or handwriting of the maker.

Any other private document need only be identified as that which it is claimed to be.

Further, the petitioners dispute the contents of Exhibit V by invoking Section 43, Rule 130 of the Rules of Court, to wit:

Section 43. Entries in the course of business. Entries made at, or near the time of the transactions to which they refer, by a person deceased, or unable to testify, who was in a position to know the facts therein stated, may be received as prima facie evidence, if such person made the entries in his professional capacity or in the performance of duty and in the ordinary or regular course of business.

The invocation of the rule is misplaced, however, because the rule speaks of a situation where the person who made the entries is dead or unable to testify, which was not the situation here. Regardless, we have to point out that entries made in the course of business enjoy the presumption of regularity.[53] If properly authenticated, the entries serve as evidence of the status of the account of the petitioners. In Land Bank v. Monet's Export and Manufacturing Corporation,[54] the Court has explained that such entries are accorded unusual reliability because their regularity and continuity are calculated to discipline record keepers in the habit of precision; and that if the entries are financial, the records are routinely balanced and audited; hence, in actual experience, the whole of the business world function in reliance of such kind of records.

Nor have the petitioners proved that the entries contained in Exhibit V were incorrect and untruthful. They cannot be permitted to do so now at this stage of final appeal, especially after the lower courts found and accepted the statement of account contained therein to be properly authenticated and trustworthy. Indeed, the Court is in no position to review and overturn the lower courts' unanimous finding and acceptance without strong and valid reasons because they involved an issue of fact.[55]

III. Interest of 16% per annum, being usurious, must be reversed

The statement of account discloses that the interest rate was 14% per annum for the "SCS Account from the invoice date to 7/09/85"; and that the interest rate was 16% per annum for the "Reg. Account from 8/16/80 to 7/09/85." The petitioners assail the interest charged on the principal obligation as usurious.

The matter of interest, being a question of law, must have to dealt with and resolved.

In 1978, when Gloria and PPI entered into the credit line agreement, the Usury Law (Act No. 2655) was still in effect. Section 2 of the Usury Law prescribed an interest rate of 12% per annum on secured loans, while Section 1 provided that "[t]he rate of interest for the loan or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be six per centum per annum or such rate as may be prescribed by the Monetary Board of the Central Bank."

It is noted, of course, that the Usury Law allowed the parties in a loan agreement to exercise discretion on the interest rate to be charged. Once a judicial demand for payment has been made, however, Article 2212 of the Civil Code should apply, that is: "Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point."

The Central Bank circulars on interest rates granted to the parties leeway on the rate of interest agreed upon. In this regard, the Court has said:

The Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3 December 1982 of the Monetary Board of the Central Bank, and later by Central Bank Circular No. 905 which took effect on 1 January 1983. These circulars removed the ceiling on interest rates for secured and unsecured loans

regardless of maturity. The effect of these circulars is to allow the parties to agree on any interest that may be charged on a loan. The virtual repeal of the Usury Law is within the range of judicial notice which courts are bound to take into account. Although interest rates are no longer subject to a ceiling, the lender does not have an unbridled license to impose increased interest rates. The lender and the borrower should agree on the imposed rate, and such imposed rate should be in writing.[56]

Accordingly, the interest rate agreed upon should not be "excessive, iniquitous, unconscionable and exorbitant;" otherwise, the Court may declare the rate illegal.[57]

Considering that the credit line agreement was entered into in 1978, the rate of interest was still governed by the Usury Law. The 16% per annum interest imposed by the RTC was erroneous, therefore, because the loan was secured by the Trust Receipt/SCS. In view of this, 12% per annum is the legal rate of interest that should apply, to be reckoned from the filing of the action. This rate accords with Eastern Shipping Lines, Inc. v. Court of Appeals,[58] whereby the Court has defined the following formula for the computation of legal interest for the guidance of the Bench and the Bar, viz:

TOTAL AMOUNT DUE = [principal partial payments made] + [interest + interest on interest], where

Interest = remaining balance x 12% per annum x no. of years from due date until date of sale to a third party (payment).

Interest on interest = interest computed as of the filing of the complaint x no. of years until date of sale to a third party (payment).[59]

Relevantly, the likelihood of the aggregate interest charged exceeding the principal indebtedness is not remote. In Apo Fruits Corporation v. Land Bank of the Philippines,[60] a case involving just compensation for landholdings with legal interest, however, the Court has appropriately observed that the realization of such likelihood was not necessarily inequitable or unconscionable due to its resulting directly from the application of law and jurisprudence, to wit:

That the legal interest due is now almost equivalent to the principal to be paid is not per se an inequitable or unconscionable situation, considering the length of time the interest has remained unpaid almost twelve long years. From the perspective of interest income, twelve years would have been sufficient for the petitioners to double the principal, even if invested conservatively, had they been promptly paid the principal of the just compensation due them. Moreover, the interest, however enormous it may be, cannot be inequitable and unconscionable because it resulted directly from the

application of law and jurisprudence standards that have taken into account fairness and equity in setting the interest rates due for the use or forbearance of money.

That is true herein. Although this case was commenced in 1981, the decision of the trial court was rendered only in 1997, or more than 15 years ago. By appealing to the CA and then to this Court, the petitioners chose to prolong the final resolution of the case; hence, they cannot complain, but must bear the consequences to them of the application of the pertinent law and jurisprudence, no matter how unfavorable to them.

IV. Attorney's fees to be deleted

In granting attorney's fees, the RTC merely relied on and adverted to PPI's allegation that the failure of the petitioners to comply with their obligations under the contracts had "compelled [them] to hire the services of a counsel for which it had agreed to an attorney's fee equivalent to 25% of the total amount recovered exclusive of appearance fee of P1,500.00" as its sole basis for holding the petitioners liable to pay P20,000.00 "as attorneys' fee and cost of litigation." In affirming the RTC thereon, the CA did not even mention or deal with the matter of attorney's fees in its own decision.

The award of attorney's fees is deleted because of the absence of any factual and legal justification being expressly stated by the CA as well as by the RTC. To start with, the Court has nothing to review if the CA did not tender in its decision any justification of why it was awarding attorney's fees. The award of attorney's fees must rest on a factual basis and legal justification stated in the body of the decision under review. Absent the statement of factual basis and legal justification, attorney's fees are to be disallowed.[61] In Abobon v. Abobon,[62] the Court has expounded on the requirement for factual basis and legal justification in order to warrant the grant of attorney's fees to the winning party, viz:

As to attorney's fees, the general rule is that such fees cannot be recovered by a successful litigant as part of the damages to be assessed against the losing party because of the policy that no premium should be placed on the right to litigate. Indeed, prior to the effectivity of the present Civil Code, such fees could be recovered only when there was a stipulation to that effect. It was only under the present Civil Code that the right to collect attorney's fees in the cases mentioned in Article 2208 of the Civil Code came to be recognized. Such fees are now included in the concept of actual damages.

Even so, whenever attorney's fees are proper in a case, the decision rendered therein should still expressly state the factual basis and legal justification for granting them. Granting them in the dispositive portion of the judgment is not enough; a discussion of the factual basis and legal justification

for them must be laid out in the body of the decision. Considering that the award of attorney's fees in favor of the respondents fell short of this requirement, the Court disallows the award for want of the factual and legal premises in the body of the decision. The requirement for express findings of fact and law has been set in order to bring the case within the exception and justify the award of the attorney's fees. Otherwise, the award is a conclusion without a premise, its basis being improperly left to speculation and conjecture.

The lack of any assignment of error upon the matter of attorney's fees is of no moment, for the award, being devoid of any legal and factual basis, can be corrected and removed as a matter of law.

Finally, the petitioners charge that the CA "failed to consider certain facts and circumstances on record which would otherwise justify a different decision." The "facts and circumstances" pertained to details relevant to the nature of the agreement of the petitioners, and to the amount of their liabilities. However, an examination reveals that the "facts and circumstances" do not warrant a conclusion that they were not debtors of PPI under the credit line agreement.

WHEREFORE, the Court AFFIRMS the Decision promulgated on April 11, 2003 by the Court of Appeals, subject to the MODIFICATIONS that: (a) the rate of interest is 12% per annum reckoned from the filing of the complaint until full payment; and (b) the award of attorney's fees is deleted.

The petitioners shall pay the costs of suit.

SO ORDERED

[G.R. No. 151895. February 16, 2005]

BANK OF COMMERCE, petitioner, vs. TERESITA S. SERRANO, respondent. DECISION QUISUMBING, J.:

For our review on certiorari is the civil aspect of the Court of Appeals Decision,[1] dated September 28, 2001, in CA-G.R. CR No. 24570 as well as its Resolution,[2] dated January 17, 2002, denying petitioners motion for reconsideration. The Court of Appeals set aside the Decision[3] dated May 31, 2000, of the Regional Trial Court (RTC) Branch 105 of Quezon City. The facts are as follows: Petitioner Bank of Commerce (formerly Boston Bank of the Philippines) is a private domestic banking institution. Respondent Teresita S. Serrano is the General Manager and Treasurer of Via Moda International, Inc., a domestic business entity primarily engaged in the import and export of textile materials and fabrics. Via Moda International, represented by respondent, obtained an export packing loan from petitioner, Bank of Commerce (BOC)-Diliman, Quezon City Branch, in the amount of US$50,000 (P1,382,250), secured by a Deed of Assignment over Irrevocable Transferable Letter of Credit No. 100072119. Respondent Serrano executed in favor of BOC Promissory Note No. 94/086 for US$50,000 dated May 6, 1994 with maturity date on July 14, 1994. Via Moda then opened a deposit account for the proceeds of the said loan.[4] On March 15, 1994, BOC issued to Via Moda, Irrevocable Letter of Credit No. BCZ-940051, in the amount of US$56,735, for the purchase and importation of fabric and textile products from Tiger Ear Fabric Co. Ltd. of Taiwan. To secure the release of the goods covered, respondent, in representation of Via Moda, executed Trust Receipt No. 94-22221 dated April 21, 1994 with due date on July 20, 1994 for US$55,944.73 (P1,554,424.32).[5] Under the terms of the trust receipt, Via Moda agreed to hold the goods in trust for petitioner as the latters property and to sell the same for the latters account. In case of sale, the proceeds are to be remitted to the bank as soon as it is received, but not later than the maturity date. Said proceeds are to be applied to the relative acceptances, with interest at the rate of 26% per annum, with a penalty of 36% per annum of the total amount due until fully paid in case of non-payment of the trust receipt and relative acceptance at maturity date or, in the alternative, to return the goods in case of non-sale.[6] The goods covered by the trust receipt were shipped by Via Moda to its consignee in New Jersey, USA, who sent an Export Letter of Credit issued by the Bank of New York, in favor of BOC. The Regional Operations Officer of BOC signed the export declarations to show consent to the shipment. The total value of the entrusted goods which were shipped per export declaration was US$81,987 (P2,246,443.80). The proceeds of the entrusted goods sold were not credited to the trust receipt but, were applied by the bank to the principal, penalties and interest of the export packing loan. The excess P472,114.85 was applied to the trust receipt, leaving a balance of P1,444,802.28 as of November 15, 1994.[7] On November 16, 1994, petitioner sent a demand letter to Via Moda to pay the said amount plus interest and penalty charges, or to return the goods covered by Trust Receipt No. 94-22221 within 5 days from receipt. The demand was not heeded. As of December 15, 1998, the outstanding balance of Via Moda was P4,783,487.15.[8] On March 8, 1998, respondent was charged with the crime of estafa under Article 315 (b) of the Revised Penal Code in relation to Presidential Decree No. 115.[9]

On May 31, 2000, the trial court rendered judgment and the dispositive portion of which reads: WHEREFORE, in the light of the foregoing, the Court finds accused Teresita S. Serrano GUILTY beyond reasonable doubt of the crime charged in the Information filed in this case and sentences her to serve the indeterminate penalty of imprisonment from EIGHT (8) YEARS AND ONE (1) DAY OF PRISION MAYOR, AS MINIMUM, TO TWENTY (20) YEARS OF RECLUSION TEMPORAL, AS MAXIMUM, including the accessory penalties. She is ordered to pay her civil liability to Bank of Commerce in the amount of P4,783,487.15, with interest until fully paid, and the costs of this suit. SO ORDERED.[10] Respondent appealed to the Court of Appeals which rendered a decision dated September 28, 2001, reversing the trial courts decision. The Court of Appeals held that the element of misappropriation or conversion in violation of P.D. No. 115, in relation to the crime of estafa, was absent in this case, thereby acquitting the respondent and deleting her civil liability. The decretal portion of the decision reads as follows: WHEREFORE, premises considered, the appealed decision is hereby REVERSED, and the accusedappellant ACQUITTED of the crime charged. The civil liability adjudged by the court a quo is hereby deleted, there being no showing that accused-appellant bound herself personally liable with respect to the loan secured by the trust receipt. SO ORDERED.[11] Petitioner filed a Motion for Reconsideration which was denied. Petitioner now comes to this Court submitting the following issues for our resolution: I. WHETHER RESPONDENT IS JOINTLY AND SEVERALLY LIABLE WITH VIA MODA UNDER THE GUARANTEE CLAUSE OF LC NO. [BCZ-940051] (EXHIBIT A) SECURED BY TRUST RECEIPT NO. [94-22221] (EXHIBIT C).[12] II. WHETHER THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN DELETING THE CIVIL LIABILITY OF RESPONDENT SERRANO IN ITS DECISION DATED SEPTEMBER 28, 2001.[13] On the first issue, petitioner contends that the Court of Appeals made a manifestly mistaken inference from its findings or a misapprehension of facts and overlooked a vital piece of evidence on record, particularly, the Guarantee Clause of the Letter of Credit secured by the Trust Receipt. Petitioner further alleges that the said Guarantee Clause provides that the liability of respondent is joint and solidary; hence, she should be held liable on the obligation. A letter of credit is a separate document from a trust receipt. While the trust receipt may have been executed as a security on the letter of credit, still the two documents involve different undertakings and obligations. A letter of credit is an engagement by a bank or other person made at the request of a customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit. Through a letter of credit, the bank merely substitutes its own promise to pay for the promise to pay of one of its customers who in return promises to pay the bank the amount of funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon.[14] By contrast, a trust receipt transaction is one where the entruster, who holds an absolute title or security interests over certain goods, documents or instruments, released the same to the entrustee,

who executes a trust receipt binding himself to hold the goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents and instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster, or as appears in the trust receipt, or return the goods, documents or instruments themselves if they are unsold, or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt.[15] However, the question of the liability of respondent based on the Guarantee Clause of the Letter of Credit, was not raised either at the trial court or before the Court of Appeals. A question that was never raised in the courts below cannot be allowed to be raised for the first time on appeal without offending basic rules of fair play, justice and due process. Such an issue was not brought to the fore either in the trial court or the appellate court, and would have been disregarded by the latter tribunal for the reasons previously stated. With more reason, the same does not deserve consideration by this Court.[16] On the second issue, the Court of Appeals held that respondent Serrano cannot be held civilly liable under the trust receipt since she was not made personally liable nor was she a guarantor therein. The parties stipulated during the pre-trial that respondent Serrano executed the trust receipt in representation of Via Moda, Inc., which has a separate personality from Serrano, and petitioner BOC failed to show sufficient reason to justify the piercing of the veil of corporate fiction. It thus ruled that this was not Serranos personal obligation but that of Via Moda and there was no basis of finding her solidarily liable with Via Moda.[17] Worthy of mention at this point is the Court of Appeals finding that there was no misappropriation or conversion by the respondent of the proceeds of the sale in the goods, subject of the trust receipt since the proceeds were actually received by petitioner but the latter applied the same to Via Modas other obligations under the export packing loan. It further stated that such application of payment to another obligation was done by petitioner on its own and should not create a criminal liability on the part of respondent who did not take part nor had any knowledge thereof. It is on this premise that the respondent was acquitted of the crime charged.[18] Incidentally, petitioner urged this Court to review the factual findings of the case due to contradictory findings of the trial court and the Court of Appeals arising from misappreciation of facts by the Court of Appeals. Such plea must be rejected. It is a well established rule that in an appeal via certiorari, only questions of law may be raised,[19] and we find petitioners averments insufficient to disregard this wellentrenched rule. This Court does not, of itself, automatically delve into the record of a case to determine the facts anew where there is disagreement between the findings of fact by the trial court and by the Court of Appeals. When the disagreement is merely on the probative value of the evidence, i.e., which is more credible of two versions, we limit our review to only ascertaining if the findings of the Court of Appeals are supported by the records. So long as the findings of the appellate court are consistent with and not palpably contrary to the evidence on record, we shall decline to make a review on the probative value of such evidence. The findings of fact of the Court of Appeals, and not those of the trial court, will be considered final and conclusive, even in this Court.[20] In this case, we find no cogent reason to disturb the foregoing factual findings of the Court of Appeals. At any rate, petitioner BOC is not precluded from filing a separate civil action against the responsible party where the abovementioned issues could be properly resolved or determined. The issues raised by herein petitioner involve a determination of facts and require the admission and examination of

additional evidence for its resolution. That cannot be done in a petition for review on certiorari by merely appealing the civil aspect of an acquittal in a criminal case. WHEREFORE, the petition is DENIED for lack of merit. The Decision dated September 28, 2001 and the Resolution dated January 17, 2002, of the Court of Appeals in CA-G.R. CR No. 24570, are AFFIRMED. SO ORDERED.