G.R. No.

4015 August 24, 1908

ANGEL JAVELLANA, plaintiff-appellee,

vs.
JOSE LIM, ET AL., defendants-appellants.

R. Zaldarriaga for appellants.

B. Montinola for appellee.

TORRES, J.:

The attorney for the plaintiff, Angel Javellana, file a complaint on the 30th of October, 1906, with the
Court of First Instance of Iloilo, praying that the defendants, Jose Lim and Ceferino Domingo Lim, he
sentenced to jointly and severally pay the sum of P2,686.58, with interest thereon at the rate of 15 per
cent per annum from the 20th of January, 1898, until full payment should be made, deducting from
the amount of interest due the sum of P1,102.16, and to pay the costs of the proceedings.

Authority from the court having been previously obtained, the complaint was amended on the 10th of
January, 1907; it was then alleged, on the 26th of May, 1897, the defendants executed and
subscribed a document in favor of the plaintiff reading as follows:

We have received from Angel Javellana, as a deposit without interest, the sum of two thousand six
hundred and eighty-six cents of pesos fuertes, which we will return to the said gentleman, jointly and
severally, on the 20th of January, 1898. Jaro, 26th of May, 1897. Signed Jose Lim. Signed:
Ceferino Domingo Lim.

That, when the obligation became due, the defendants begged the plaintiff for an extension of time for
the payment thereof, building themselves to pay interest at the rate of 15 per cent on the amount of
their indebtedness, to which the plaintiff acceded; that on the 15th of May, 1902, the debtors paid on
account of interest due the sum of P1,000 pesos, with the exception of either capital or interest, had
thereby been subjected to loss and damages.

A demurrer to the original complaint was overruled, and on the 4th of January, 1907, the defendants
answered the original complaint before its amendment, setting forth that they acknowledged the facts
stated in Nos. 1 and 2 of the complaint; that they admitted the statements of the plaintiff relative to the
payment of 1,102.16 pesos made on the 15th of November, 1902, not, however, as payment of
interest on the amount stated in the foregoing document, but on account of the principal, and denied
that there had been any agreement as to an extension of the time for payment and the payment of
interest at the rate of 15 per cent per annum as alleged in paragraph 3 of the complaint, and also
denied all the other statements contained therein.

As a counterclaim, the defendants alleged that they had paid to the plaintiff sums which, together with
the P1,102.16 acknowledged in the complaint, aggregated the total sum of P5,602.16, and that,
deducting therefrom the total sum of P2,686.58 stated in the document transcribed in the complaint,
the plaintiff still owed the defendants P2,915.58; therefore, they asked that judgment be entered
absolving them, and sentencing the plaintiff to pay them the sum of P2,915.58 with the costs.
Evidence was adduced by both parties and, upon their exhibits, together with an account book having
been made of record, the court below rendered judgment on the 15th of January, 1907, in favor of the
plaintiff for the recovery of the sum of P5,714.44 and costs.

The defendants excepted to the above decision and moved for a new trial. This motion was overruled
and was also excepted to by them; the bill of exceptions presented by the appellants having been
approved, the same was in due course submitted to this court.

The document of indebtedness inserted in the complaint states that the plaintiff left on deposit with
the defendants a given sum of money which they were jointly and severally obliged to return on a
certain date fixed in the document; but that, nevertheless, when the document appearing as Exhibits
2, written in the Visayan dialect and followed by a translation into Spanish was executed, it was
acknowledged, at the date thereof, the 15th of November, 1902, that the amount deposited had not
yet been returned to the creditor, whereby he was subjected to losses and damages amounting to
830 pesos since the 20th of January, 1898, when the return was again stipulated with the further
agreement that the amount deposited should bear interest at the rate of 15 per cent per annum, from
the aforesaid date of January 20, and that the 1,000 pesos paid to the depositor on the 15th of May,
1900, according to the receipt issued by him to the debtors, would be included, and that the said rate
of interest would obtain until the debtors on the 20th of May, 1897, it is called a deposit consisted, and
they could have accomplished the return agreed upon by the delivery of a sum equal to the one
received by them. For this reason it must be understood that the debtors were lawfully authorized to
make use of the amount deposited, which they have done, as subsequent shown when asking for an
extension of the time for the return thereof, inasmuch as, acknowledging that they have subjected the
letter, their creditor, to losses and damages for not complying with what had been stipulated, and
being conscious that they had used, for their own profit and gain, the money that they received
apparently as a deposit, they engaged to pay interest to the creditor from the date named until the
time when the refund should be made. Such conduct on the part of the debtors is unquestionable
evidence that the transaction entered into between the interested parties was not a deposit, but a real
contract of loan.

Article 1767 of the Civil Code provides that

The depository can not make use of the thing deposited without the express permission of the
depositor.

Otherwise he shall be liable for losses and damages.

Article 1768 also provides that

When the depository has permission to make use of the thing deposited, the contract loses the
character of a deposit and becomes a loan or bailment.

The permission shall not be presumed, and its existence must be proven.

When on one of the latter days of January, 1898, Jose Lim went to the office of the creditor asking for
an extension of one year, in view of the fact the money was scare, and because neither himself nor
the other defendant were able to return the amount deposited, for which reason he agreed to pay
interest at the rate of 15 per cent per annum, it was because, as a matter of fact, he did not have in
his possession the amount deposited, he having made use of the same in his business and for his
own profit; and the creditor, by granting them the extension, evidently confirmed the express
permission previously given to use and dispose of the amount stated as having bee deposited, which,
in accordance with the loan, to all intents and purposes gratuitously, until the 20th of January, 1898,
and from that dated with interest at 15 per cent per annum until its full payment, deducting from the
total amount of interest the sum of 1,000 pesos, in accordance with the provisions of article 1173 of
the Civil Code.

Notwithstanding that it does not appear that Jose Lim signed the document (Exhibit 2) executed in the
presence of three witnesses on the 15th of November, 1902, by Ceferino Domingo Lim on behalf of
himself and the former, nevertheless, the said document has not been contested as false, either by a
criminal or by a civil proceeding, nor has any doubt been cast upon the authenticity of the signatures
of the witnesses who attested the execution of the same; and from the evidence in the case one is
sufficiently convinced that the said Jose Lim was perfectly aware of and authorized his joint codebtor
to liquidate the interest, to pay the sum of 1,000 pesos, on account thereof, and to execute the
aforesaid document No. 2. A true ratification of the original document of deposit was thus made, and
not the least proof is shown in the record that Jose Lim had ever paid the whole or any part of the
capital stated in the original document, Exhibit 1.

If the amount, together with interest claimed in the complaint, less 1,000 pesos appears as fully
established, such is not the case with the defendant's counterclaim for P5,602.16, because the
existence and certainty of said indebtedness imputed to the plaintiff has not been proven, and the
defendants, who call themselves creditors for the said amount have not proven in a satisfactory
manner that the plaintiff had received partial payments on account of the same; the latter alleges with
good reason, that they should produce the receipts which he may have issued, and which he did
issue whenever they paid him any money on account. The plaintiffs allegation that the two amounts of
400 and 1,200 pesos, referred to in documents marked "C" and "D" offered in evidence by the
defendants, had been received from Ceferino Domingo Lim on account of other debts of his, has not
been contradicted, and the fact that in the original complaint the sum of 1,102.16 pesos, was
expressed in lieu of 1,000 pesos, the only payment made on account of interest on the amount
deposited according to documents No. 2 and letter "B" above referred to, was due to a mistake.

Moreover, for the reason above set forth it may, as a matter of course, be inferred that there was no
renewal of the contract deposited converted into a loan, because, as has already been stated, the
defendants received said amount by virtue of real loan contract under the name of a deposit, since
the so-called bailees were forthwith authorized to dispose of the amount deposited. This they have
done, as has been clearly shown.

The original joint obligation contracted by the defendant debtor still exists, and it has not been shown
or proven in the proceedings that the creditor had released Joe Lim from complying with his obligation
in order that he should not be sued for or sentenced to pay the amount of capital and interest together
with his codebtor, Ceferino Domingo Lim, because the record offers satisfactory evidence against the
pretension of Jose Lim, and it further appears that document No. 2 was executed by the other debtor,
Ceferino Domingo Lim, for himself and on behalf of Jose Lim; and it has also been proven that Jose
Lim, being fully aware that his debt had not yet been settled, took steps to secure an extension of the
time for payment, and consented to pay interest in return for the concession requested from the
creditor.

In view of the foregoing, and adopting the findings in the judgment appealed from, it is our opinion
that the same should be and is hereby affirmed with the costs of this instance against the appellant,
provided that the interest agreed upon shall be paid until the complete liquidation of the debt. So
ordered.

G.R. Nos. L-26948 and L-26949 October 8, 1927

SILVESTRA BARON, plaintiff-appellant,

vs.
PABLO DAVID, defendant-appellant.

And

GUILLERMO BARON, plaintiff-appellant,

vs.
PABLO DAVID, defendant-appellant.

Jose Gutierrez David for plaintiff-appellant in case of No. 26948.

Gregorio Perfecto for defendant-appellant in both cases.
Francisco, Lualhati & Lopez and Jose Gutierrez David for plaintiff-appellant in case No. 26949.

STREET, J.:

These two actions were instituted in the Court of First Instance of the Province of Pampanga by the
respective plaintiffs, Silvestra Baron and Guillermo Baron, for the purpose of recovering from the
defendant, Pablo David, the value of palay alleged to have been sold by the plaintiffs to the defendant
in the year 1920. Owing to the fact that the defendant is the same in both cases and that the two
cases depend in part upon the same facts, the cases were heard together in the trial court and
determined in a single opinion. The same course will accordingly be followed here.

In the first case, i. e., that which Silvestra Baron is plaintiff, the court gave judgment for her to recover
of the defendant the sum of P5,238.51, with costs. From this judgment both the plaintiff and the
defendant appealed.
In the second case, i. e., that in which Guillermo Baron, is plaintiff, the court gave judgment for him to
recover of the defendant the sum of P5,734.60, with costs, from which judgment both the plaintiff and
the defendant also appealed. In the same case the defendant interposed a counterclaim in which he
asked credit for the sum of P2,800 which he had advanced to the plaintiff Guillermo Baron on various
occasions. This credit was admitted by the plaintiff and allowed by the trial court. But the defendant
also interposed a cross-action against Guillermo Baron in which the defendant claimed compensation
for damages alleged to have Ben suffered by him by reason of the alleged malicious and false
statements made by the plaintiff against the defendant in suing out an attachment against the
defendant's property soon after the institution of the action. In the same cross-action the defendant
also sought compensation for damages incident to the shutting down of the defendant's rice mill for
the period of one hundred seventy days during which the above-mentioned attachment was in force.
The trial judge disallowed these claims for damages, and from this feature of the decision the
defendant appealed. We are therefore confronted with five distinct appeals in this record.

Prior to January 17, 1921, the defendant Pablo David has been engaged in running a rice mill in the
municipality of Magalang, in the Province of Pampanga, a mill which was well patronized by the rice
growers of the vicinity and almost constantly running. On the date stated a fire occurred that
destroyed the mill and its contents, and it was some time before the mill could be rebuilt and put in
operation again. Silvestra Baron, the plaintiff in the first of the actions before us, is an aunt of the
defendant; while Guillermo Baron, the plaintiff in the other action; is his uncle. In the months of March,
April, and May, 1920, Silvestra Baron placed a quantity of palay in the defendant's mill; and this, in
connection with some that she took over from Guillermo Baron, amounted to 1,012 cavans and 24
kilos. During approximately the same period Guillermo Baron placed other 1,865 cavans and 43 kilos
of palay in the mill. No compensation has ever been received by Silvestra Baron upon account of the
palay delivered by Guillermo Baron, he has received from the defendant advancements amounting to
P2,800; but apart from this he has not been compensated. Both the plaintiffs claim that the palay
which was delivered by them to the defendant was sold to the defendant; while the defendant, on the
other hand, claims that the palay was deposited subject to future withdrawal by the depositors or
subject to some future sale which was never effected. He therefore supposes himself to be relieved
from all responsibility by virtue of the fire of January 17, 1921, already mentioned.

The plaintiff further say that their palay was delivered to the defendant at his special request, coupled
with a promise on his part to pay for the same at the highest price per cavan at which palay would sell
during the year 1920; and they say that in August of that year the defendant promised to pay them
severally the price of P8.40 per cavan, which was about the top of the market for the season,
provided they would wait for payment until December. The trial judge found that no such promise had
been given; and the incredulity of the court upon this point seems to us to be justified. A careful
examination of the proof, however, leads us to the conclusion that the plaintiffs did, some time in the
early part of August, 1920, make demand upon the defendant for a settlement, which he evaded or
postponed leaving the exact amount due to the plaintiffs undetermined.

It should be stated that the palay in question was place by the plaintiffs in the defendant's mill with the
understanding that the defendant was at liberty to convert it into rice and dispose of it at his pleasure.
The mill was actively running during the entire season, and as palay was daily coming in from many
customers and as rice was being constantly shipped by the defendant to Manila, or other rice
markets, it was impossible to keep the plaintiffs' palay segregated. In fact the defendant admits that
the plaintiffs' palay was mixed with that of others. In view of the nature of the defendant's activities
and the way in which the palay was handled in the defendant's mill, it is quite certain that all of the
plaintiffs' palay, which was put in before June 1, 1920, been milled and disposed of long prior to the
fire of January 17, 1921. Furthermore, the proof shows that when the fire occurred there could not
have been more than about 360 cavans of palay in the mill, none of which by any reasonable
probability could have been any part of the palay delivered by the plaintiffs. Considering the fact that
the defendant had thus milled and doubtless sold the plaintiffs' palay prior to the date of the fire, it
result that he is bound to account for its value, and his liability was not extinguished by the occurence
of the fire. In the briefs before us it seems to have been assumed by the opposing attorneys that in
order for the plaintiffs to recover, it is necessary that they should be able to establish that the plaintiffs'
palay was delivered in the character of a sale, and that if, on the contrary, the defendant should prove
that the delivery was made in the character of deposit, the defendant should be absolved. But the
case does not depend precisely upon this explicit alternative; for even supposing that the palay may
have been delivered in the character of deposit, subject to future sale or withdrawal at plaintiffs'
election, nevertheless if it was understood that the defendant might mill the palay and he has in fact
appropriated it to his own use, he is of course bound to account for its value. Under article 1768 of the
Civil Code, when the depository has permission to make use of the thing deposited, the contract
loses the character of mere deposit and becomes a loan or a commodatum; and of course by
appropriating the thing, the bailee becomes responsible for its value. In this connection we wholly
reject the defendant's pretense that the palay delivered by the plaintiffs or any part of it was actually
consumed in the fire of January, 1921. Nor is the liability of the defendant in any wise affected by the
circumstance that, by a custom prevailing among rice millers in this country, persons placing palay
with them without special agreement as to price are at liberty to withdraw it later, proper allowance
being made for storage and shrinkage, a thing that is sometimes done, though rarely.

In view of what has been said it becomes necessary to discover the price which the defendant should
be required to pay for the plaintiffs' palay. Upon this point the trial judge fixed upon P6.15 per cavan;
and although we are not exactly in agreement with him as to the propriety of the method by which he
arrived at this figure, we are nevertheless of the opinion that, all things considered, the result is
approximately correct. It appears that the price of palay during the months of April, May, and June,
1920, had been excessively high in the Philippine Islands and even prior to that period the
Government of the Philippine Islands had been attempting to hold the price in check by executive
regulation. The highest point was touched in this season was apparently about P8.50 per cavan, but
the market began to sag in May or June and presently entered upon a precipitate decline. As we have
already stated, the plaintiffs made demand upon the defendant for settlement in the early part of
August; and, so far as we are able to judge from the proof, the price of P6.15 per cavan, fixed by the
trial court, is about the price at which the defendant should be required to settle as of that date. It was
the date of the demand of the plaintiffs for settlement that determined the price to be paid by the
defendant, and this is true whether the palay was delivered in the character of sale with price
undetermined or in the character of deposit subject to use by the defendant. It results that the
plaintiffs are respectively entitle to recover the value of the palay which they had placed with the
defendant during the period referred to, with interest from the date of the filing of their several
complaints.
As already stated, the trial court found that at the time of the fire there were about 360 cavans of
palay in the mill and that this palay was destroyed. His Honor assumed that this was part of the palay
delivered by the plaintiffs, and he held that the defendant should be credited with said amount. His
Honor therefore deducted from the claims of the plaintiffs their respective proportionate shares of this
amount of palay. We are unable to see the propriety of this feature of the decision. There were many
customers of the defendant's rice mill who had placed their palay with the defendant under the same
conditions as the plaintiffs, and nothing can be more certain than that the palay which was burned did
not belong to the plaintiffs. That palay without a doubt had long been sold and marketed. The
assignments of error of each of the plaintiffs-appellants in which this feature of the decision is
attacked are therefore well taken; and the appealed judgments must be modified by eliminating the
deductions which the trial court allowed from the plaintiffs' claims.

The trial judge also allowed a deduction from the claim of the plaintiff Guillermo Baron of 167 cavans
of palay, as indicated in Exhibit 12, 13, 14, and 16. This was also erroneous. These exhibits relate to
transactions that occurred nearly two years after the transactions with which we are here concerned,
and they were offered in evidence merely to show the character of subsequent transactions between
the parties, it appearing that at the time said exhibits came into existence the defendant had
reconstructed his mill and that business relations with Guillermo Baron had been resumed. The
transactions shown by these exhibits (which relate to palay withdrawn by the plaintiff from the
defendant's mill) were not made the subject of controversy in either the complaint or the cross-
complaint of the defendant in the second case. They therefore should not have been taken into
account as a credit in favor of the defendant. Said credit must therefore be likewise of course be
without prejudice to any proper adjustment of the rights of the parties with respect to these
subsequent transactions that they have heretofore or may hereafter effect.

The preceding discussion disposes of all vital contentions relative to the liability of the defendant upon
the causes of action stated in the complaints. We proceed therefore now to consider the question of
the liability of the plaintiff Guillermo Baron upon the cross-complaint of Pablo David in case R. G. No.
26949. In this cross-action the defendant seek, as the stated in the third paragraph of this opinion, to
recover damages for the wrongful suing out of an attachment by the plaintiff and the levy of the same
upon the defendant's rice mill. It appears that about two and one-half months after said action was
begun, the plaintiff, Guillermo Baron, asked for an attachment to be issued against the property of the
defendant; and to procure the issuance of said writ the plaintiff made affidavit to the effect that the
defendant was disposing, or attempting the plaintiff. Upon this affidavit an attachment was issued as
prayed, and on March 27, 1924, it was levied upon the defendant's rice mill, and other property, real
and personal. 1awph!l.net

Upon attaching the property the sheriff closed the mill and placed it in the care of a deputy.
Operations were not resumed until September 13, 1924, when the attachment was dissolved by an
order of the court and the defendant was permitted to resume control. At the time the attachment was
levied there were, in the bodega, more than 20,000 cavans of palay belonging to persons who held
receipts therefor; and in order to get this grain away from the sheriff, twenty-four of the depositors
found it necessary to submit third-party claims to the sheriff. When these claims were put in the sheriff
notified the plaintiff that a bond in the amount of P50,000 must be given, otherwise the grain would be
released. The plaintiff, being unable or unwilling to give this bond, the sheriff surrendered the palay to
the claimants; but the attachment on the rice mill was maintained until September 13, as above
stated, covering a period of one hundred seventy days during which the mill was idle. The ground
upon which the attachment was based, as set forth in the plaintiff's affidavit was that the defendant
was disposing or attempting to dispose of his property for the purpose of defrauding the plaintiff. That
this allegation was false is clearly apparent, and not a word of proof has been submitted in support of
the assertion. On the contrary, the defendant testified that at the time this attachment was secured he
was solvent and could have paid his indebtedness to the plaintiff if judgment had been rendered
against him in ordinary course. His financial conditions was of course well known to the plaintiff, who
is his uncle. The defendant also states that he had not conveyed away any of his property, nor had
intended to do so, for the purpose of defrauding the plaintiff. We have before us therefore a case of a
baseless attachment, recklessly sued out upon a false affidavit and levied upon the defendant's
property to his great and needless damage. That the act of the plaintiff in suing out the writ was
wholly unjustifiable is perhaps also indicated in the circumstance that the attachment was finally
dissolved upon the motion of the plaintiff himself.

The defendant testified that his mill was accustomed to clean from 400 to 450 cavans of palay per
day, producing 225 cavans of rice of 57 kilos each. The price charged for cleaning each cavan rice
was 30 centavos. The defendant also stated that the expense of running the mill per day was from
P18 to P25, and that the net profit per day on the mill was more than P40. As the mill was not
accustomed to run on Sundays and holiday, we estimate that the defendant lost the profit that would
have been earned on not less than one hundred forty work days. Figuring his profits at P40 per day,
which would appear to be a conservative estimate, the actual net loss resulting from his failure to
operate the mill during the time stated could not have been less than P5,600. The reasonableness of
these figures is also indicated in the fact that the twenty-four customers who intervened with third-
party claims took out of the camarin 20,000 cavans of palay, practically all of which, in the ordinary
course of events, would have been milled in this plant by the defendant. And of course other grain
would have found its way to this mill if it had remained open during the one hundred forty days when
it was closed.

But this is not all. When the attachment was dissolved and the mill again opened, the defendant
found that his customers had become scattered and could not be easily gotten back. So slow, indeed,
was his patronage in returning that during the remainder of the year 1924 the defendant was able to
mill scarcely more than the grain belonging to himself and his brothers; and even after the next
season opened many of his old customers did not return. Several of these individuals, testifying as
witnesses in this case, stated that, owing to the unpleasant experience which they had in getting back
their grain from the sheriff to the mill of the defendant, though they had previously had much
confidence in him.

As against the defendant's proof showing the facts above stated the plaintiff submitted no evidence
whatever. We are therefore constrained to hold that the defendant was damaged by the attachment to
the extent of P5,600, in profits lost by the closure of the mill, and to the extent of P1,400 for injury to
the good-will of his business, making a total of P7,000. For this amount the defendant must recover
judgment on his cross-complaint.

The trial court, in dismissing the defendant's cross-complaint for damages resulting from the wrongful
suing out of the attachment, suggested that the closure of the rice mill was a mere act of the sheriff
for which the plaintiff was not responsible and that the defendant might have been permitted by the
sheriff to continue running the mill if he had applied to the sheriff for permission to operate it. This
singular suggestion will not bear a moment's criticism. It was of course the duty of the sheriff, in
levying the attachment, to take the attached property into his possession, and the closure of the mill
was a natural, and even necessary, consequence of the attachment. For the damage thus inflicted
upon the defendant the plaintiff is undoubtedly responsible.

One feature of the cross-complaint consist in the claim of the defendant (cross-complaint) for the sum
of P20,000 as damages caused to the defendant by the false and alleged malicious statements
contained in the affidavit upon which the attachment was procured. The additional sum of P5,000 is
also claimed as exemplary damages. It is clear that with respect to these damages the cross-action
cannot be maintained, for the reason that the affidavit in question was used in course of a legal
proceeding for the purpose of obtaining a legal remedy, and it is therefore privileged. But though the
affidavit is not actionable as a libelous publication, this fact in no obstacle to the maintenance of an
action to recover the damage resulting from the levy of the attachment.

Before closing this opinion a word should be said upon the point raised in the first assignment of error
of Pablo David as defendant in case R. G. No. 26949. In this connection it appears that the deposition
of Guillermo Baron was presented in court as evidence and was admitted as an exhibit, without being
actually read to the court. It is supposed in the assignment of error now under consideration that the
deposition is not available as evidence to the plaintiff because it was not actually read out in court.
This connection is not well founded. It is true that in section 364 of the Code of Civil Procedure it is
said that a deposition, once taken, may be read by either party and will then be deemed the evidence
of the party reading it. The use of the word "read" in this section finds its explanation of course in the
American practice of trying cases for the most part before juries. When a case is thus tried the actual
reading of the deposition is necessary in order that the jurymen may become acquainted with its
contents. But in courts of equity, and in all courts where judges have the evidence before them for
perusal at their pleasure, it is not necessary that the deposition should be actually read when
presented as evidence.

From what has been said it result that judgment of the court below must be modified with respect to
the amounts recoverable by the respective plaintiffs in the two actions R. G. Nos. 26948 and 26949
and must be reversed in respect to the disposition of the cross-complaint interposed by the defendant
in case R. G. No. 26949, with the following result: In case R. G. No. 26948 the plaintiff Silvestra
Baron will recover of the Pablo David the sum of P6,227.24, with interest from November 21, 1923,
the date of the filing of her complaint, and with costs. In case R. G. No. 26949 the plaintiff Guillermo
Baron will recover of the defendant Pablo David the sum of P8,669.75, with interest from January 9,
1924. In the same case the defendant Pablo David, as plaintiff in the cross-complaint, will recover of
Guillermo Baron the sum of P7,000, without costs. So ordered.
G.R. No. 73271 May 29, 1987

SPOUSES TIRSO I. VINTOLA and LORETO DY VINTOLA, defendants-appellants,

vs.
INSULAR BANK OF ASIA AND AMERICA, plaintiff-appellee.

MELENCIO-HERRERA, J.:

This case was appealed to the Intermediate Appellate Court which, however, certified the same to this
Court, the issue involved being purely legal.

The facts are not disputed.

On August 20, 1975 the spouses Tirso and Loreta Vintola (the VINTOLAS, for short), doing business
under the name and style "Dax Kin International," engaged in the manufacture of raw sea shells into
finished products, applied for and were granted a domestic letter of credit by the Insular Bank of Asia
and America (IBAA), Cebu City. 1 in the amount of P40,000.00. The Letter of Credit authorized the
bank to negotiate for their account drafts drawn by their supplier, one Stalin Tan, on Dax Kin
International for the purchase of puka and olive seashells. In consideration thereof, the VINTOLAS,
jointly and severally, agreed to pay the bank "at maturity, in Philippine currency, the equivalent, of the
aforementioned amount or such portion thereof as may be drawn or paid, upon the faith of the said
credit together with the usual charges."

On the same day, August 20, 1975, having received from Stalin Tan the puka and olive shells worth
P40,000.00, the VINTOLAS executed a Trust Receipt agreement with IBAA, Cebu City. Under that
Agreement, the VINTOLAS agreed to hold the goods in trust for IBAA as the "latter's property with
liberty to sell the same for its account, " and "in case of sale" to turn over the proceeds as soon as
received to (IBAA) the due date indicated in the document was October 19, 1975.

Having defaulted on their obligation, IBAA demanded payment from the VINTOLAS in a letter dated
January 1, 1976. The VINTOLAS, who were unable to dispose of the shells, responded by offering to
return the goods. IBAA refused to accept the merchandise, and due to the continued refusal of the
VINTOLAS to make good their undertaking, IBAA charged them with Estafa for having
misappropriated, misapplied and converted for their own personal use and benefit the aforesaid
goods. During the trial of the criminal case the VINTOLAS turned over the seashells to the custody of
the Trial Court.

On April 12, 1982, the then Court of First Instance of Cebu, Branch VII, acquitted the VINTOLAS of
the crime charged, after finding that the element of misappropriation or conversion was inexistent.
Concluded the Court:

Finally, it should be mentioned that under the trust receipt, in the event of default and/or
non-fulfillment on the part of the accused of their undertaking, the bank is entitled to
 take possession of the goods or to recover its equivalent value together with the usual
charges. In either case, the remedy of the Bank is civil and not criminal in nature. ... 2

Shortly thereafter, IBAA commenced the present civil action to recover the value of the goods before
the Regional Trial Court of Cebu, Branch XVI.

Holding that the complaint was barred by the judgment of acquittal in the criminal case, said Court
dismissed the complaint. However, on IBAA's motion, the Court granted reconsideration and:

1. Order(ed)defendants jointly and severally to pay the plaintiff the sum of Seventy Two
Thousand Nine Hundred Eighty Two and 27/100 (P72,982.27), Philippine Currency, plus
interest of 14% per annum and service charge of one (1%) per cent per annum
computed from judicial demand and until the obligation is fully paid;

2. Ordered defendants jointly and severally to pay attorney's fees to the plaintiff in the
sum of Four Thousand (P4,000.00) pesos, Philippine Currency, plus costs of the suit. 3

The VINTOLAS rest their present appeal on the principal allegation that their acquittal in the Estafa
case bars IBAA's filing of the civil action because IBAA had not reserved in the criminal case its right
to enforce separately their civil liability. They maintain that by intervening actively in the prosecution of
the criminal case through a private prosecutor, IBAA had chosen to file the civil action impliedly with
the criminal action, pursuant to Section 1, Rule 111 of the 1985 Rules on Criminal Procedure, reading:

Section 1. Institution of criminal and civil action. When a criminal action is instituted,
the civil action for the recovery of civil liability arising from the offense charged is
impliedly instituted with the criminal action, unless the offended party expressly waives
the civil action or reserves his right to institute it separately. ...

and that since the judgment in the criminal case had made a declaration that the facts from which the
civil action might arise did not exist, the filing of the civil action arising from the offense is now barred,
as provided by Section 3-b of Rule 111 of the same Rules providing:

(b) Extinction of the penal action does not carry with it extinction of the civil, unless the
extinction proceeds from a declaration in a final judgment that the fact from which the
civil might arise did not exist. In other cases, the person entitled to the civil action may
institute it in the jurisdiction in the manner provided by law against the person who may
be liable for restitution of the thing and reparation or indemnity for the damage suffered.

Further, the VINTOLAS take the position that their obligation to IBAA has been extinguished
inasmuch as, through no fault of their own, they were unable to dispose of the seashells, and that
they have relinguished possession thereof to the IBAA, as owner of the goods, by depositing them
with the Court.

The foregoing submission overlooks the nature and mercantile usage of the transaction involved. A
letter of credit-trust receipt arrangement is endowed with its own distinctive features and
characteristics. Under that set-up, a bank extends a loan covered by the Letter of Credit, with the trust
receipt as a security for the loan. In other words, the transaction involves a loan feature represented
by the letter of credit, and a security feature which is in the covering trust receipt.

Thus, Section 4 of P.D. No. 115 defines a trust receipt transaction as:

... 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 instrument 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 one of
the following:

1. In the case of goods or documents, (a) to sell the goods or procure their sale, ...

A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a "security
interest" in the goods. "It secures an indebtedness and there can be no such thing as security interest
that secures no obligation." 4 As defined in our laws:

(h) "Security Interest"means a property interest in goods, documents or instruments to

secure performance of some obligations of the entrustee or of some third persons to the
entruster and includes title, whether or not expressed to be absolute, whenever such
title is in substance taken or retained for security only. 5

As elucidated in Samo vs. People 6 "a trust receipt is considered as 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."

Contrary to the allegation of the VINTOLAS, IBAA did not become the real owner of the goods. It was
merely the holder of a security title for the advances it had made to the VINTOLAS The goods the
VINTOLAS had purchased through IBAA financing remain their own property and they hold it at their
own risk. The trust receipt arrangement did not convert the IBAA into an investor; the latter remained
a lender and creditor.

... for the bank has previously extended a loan which the L/C represents to the importer,
and by that loan, the importer should be the real owner of the goods. If under the trust
receipt, the bank is made to appear as the owner, it was but an artificial expedient, more
of a legal fiction than fact, for if it were so, it could dispose of the goods in any manner it
wants, which it cannot do, just to give consistency with the purpose of the trust receipt
of giving a stronger security for the loan obtained by the importer. To consider the bank
 as the true owner from the inception of the transaction would be to disregard the loan
feature thereof. ... 7

Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that
because they have surrendered the goods to IBAA and subsequently deposited them in the custody
of the court, they are absolutely relieved of their obligation to pay their loan because of their inability
to dispose of the goods. The fact that they were unable to sell the seashells in question does not
affect IBAA's right to recover the advances it had made under the Letter of Credit. In so arguing, the
VINTOLAS conveniently close their eyes to their application for a Letter of Credit wherein they
expressly obligated themselves in these terms:

IN CONSIDERATION THEREOF, I/we promise and agree to pay you at maturity in

Philippine Currency the equivalent of the above amount or such portion thereof as may
be drawn or paid upon the faith of said credit together with the usual charges. ... (Exhibit
"A")

They further agreed that their marginal deposit of P8,000.00, later increased to P11,000.00

be applied, without further proceedings or formalities to pay or reduce our

obligation under this letter of credit or its corresponding Trust Receipt. (Emphasis
supplied) 8

The foregoing premises considered, it follows that the acquittal of the VINTOLAS in the Estafa case is
no bar to the institution of a civil action for collection. It is inaccurate for the VINTOLAS to claim that
the judgment in the estafa case had declared that the facts from which the civil action might arise, did
not exist, for, it will be recalled that the decision of acquittal expressly declared that "the remedy of the
Bank is civil and not criminal in nature." This amounts to a reservation of the civil action in IBAA's
favor, for the Court would not have dwelt on a civil liability that it had intended to extinguish by the
same decision. 9 The VINTOLAS are liable ex contractu for breach of the Letter of Credit Trust
Receipt, whether they did or they did not "misappropriate, misapply or convert" the merchandise as
charged in the criminal case. 10 Their civil liability does not arise ex delicto, the action for the
recovery of which would have been deemed instituted with the criminal-action (unless waived or
reserved) and where acquittal based on a judicial declaration that the criminal acts charged do not
exist would have extinguished the civil action. 11 Rather, the civil suit instituted by IBAA is based ex
contractu and as such is distinct and independent from any criminal proceedings and may proceed
regardless of the result of the latter. Under the situational circumstances of the parties, they are
governed by Article 31 of the Civil Code, explicitly providing:

Art. 31. When the civil action is based on an obligation not arising from the act or
omission complained of as a felony, such civil action may proceed independently of the
criminal proceedings and regardless of the result of the latter.

WHEREFORE, finding no reversible error in the judgment appealed from, the same is hereby
AFFIRMED. No costs.

SO ORDERED.
G.R. No. L-30896 April 28, 1983

JOSE O. SIA, petitioner,

vs.
THE PEOPLE OF THE PHILIPPINES, respondent.

DE CASTRO, J.:

Petition for review of the decision of the Court of Appeals affirming the decision of the Court of First
Instance of Manila convicting the appellant of estafa, under an information which reads:

That in, about or during the period comprised' between July 24, 1963 and December 31,
1963, both dates inclusive, in the City of Manila, Philippines, the said accused did then
and there willfully, unlawfully and feloniously defraud the Continental Bank, a banking
institution duly organized and doing business in the City of Manila, in the following
manner, to wit: the said accused, in his capacity as president and general manager of
the Metal Manufacturing of the Philippines, Inc. (MEMAP) and on behalf of said
company, obtained delivery of 150 M/T Cold Rolled Steel Sheets valued at P 71,023.60
under a trust receipt agreement under L/C No. 63/109, which cold rolled steel sheets
were consigned to the Continental Bank, under the express obligation on the part of
said accused of holding the said steel sheets in trust and selling them and turning over
the proceeds of the sale to the Continental Bank; but the said accused, once in
possession of the said goods, far from complying with his aforesaid obligation and
despite demands made upon him to do so, with intent to defraud, failed and refused to
 return the said cold rolled sheets or account for the proceeds thereof, if sold, which the
said accused willfully, unlawfully and feloniously misappropriated, misapplied and
converted to his own personal use and benefit, to the damage and prejudice of the said
Continental Bank in the total amount of P146,818.68, that is the balance including the
interest after deducting the sum of P28,736.47 deposited by the said accused with the
bank as marginal deposit and forfeited by the said from the value of the said goods, in
the said sum of P71,023.60. (Original Records, p. 1).

In reviewing the evidence, the Court of Appeals came up with the following findings of facts which the
Solicitor General alleges should be conclusive upon this Court:

There is no debate on certain antecedents: Accused Jose 0. Sia sometime prior to 24

May, 1963, was General Manager of the Metal Manufacturing Company of the
Philippines, Inc. engaged in the manufacture of steel office equipment; on 31 May,
1963, because his company was in need of raw materials to be imported from abroad,
he applied for a letter of credit to import steel sheets from Mitsui Bussan Kaisha, Ltd. of
Tokyo, Japan, the application being directed to the Continental Bank, herein
complainant, Exhibit B and his application having been approved, the letter of credit was
opened on 5 June, 1963 in the amount of $18,300, Exhibit D; and the goods arrived
sometime in July, 1963 according to accused himself, tsn. II:7; now from here on there
is some debate on the evidence; according to Complainant Bank, there was permitted
delivery of the steel sheets only upon execution of a trust receipt, Exhibit A; while
according to the accused, the goods were delivered to him sometime before he
executed that trust receipt in fact they had already been converted into steel office
equipment by the time he signed said trust receipt, tsn. II:8; but there is no question -
and this is not debated - that the bill of exchange issued for the purpose of collecting the
unpaid account thereon having fallen due (see Exh. B) neither accused nor his
company having made payment thereon notwithstanding demands, Exh. C and C-1,
dated 17 and 27 December, 1963, and the accounts having reached the sum in pesos
of P46,818.68 after deducting his deposit valued at P28,736.47; that was the reason
why upon complaint by Continental Bank, the Fiscal filed the information after
preliminary investigation as has been said on 22 October, 1964. (Rollo [CA], pp. 103-
104).

The first issue raised, which in effect combines the first three errors assigned, is whether petitioner
Jose O. Sia, having only acted for and in behalf of the Metal Manufacturing Company of the
Philippines (Metal Company, for short) as President thereof in dealing with the complainant, the
Continental Bank, (Bank for short) he may be liable for the crime charged.

In discussing this question, petitioner proceeds, in the meantime, on the assumption that the acts
imputed to him would constitute the crime of estafa, which he also disputes, but seeks to avoid
liability on his theory that the Bank knew all along that petitioner was dealing with him only as an
officer of the Metal Company which was the true and actual applicant for the letter of credit (Exhibit B)
and which, accordingly, assumed sole obligation under the trust receipt (Exhibit A). In disputing the
theory of petitioner, the Solicitor General relies on the general principle that when a corporation
commits an act which would constitute a punishable offense under the law, it is the responsible
officers thereof, acting for the corporation, who would be punished for the crime, The Court of Appeals
has subscribed to this view when it quoted approvingly from the decision of the trial court the
following:

A corporation is an artificial person, an abstract being. If the defense theory is followed

unscrupulously legions would form corporations to commit swindle right and left where
nobody could be convicted, for it would be futile and ridiculous to convict an abstract
being that can not be pinched and confined in jail like a natural, living person, hence the
result of the defense theory would be hopeless chose in business and finance. It is
completely untenable. (Rollo [CA], p. 108.)

The above-quoted observation of the trial court would seem to be merely restating a general principle
that for crimes committed by a corporation, the responsible officers thereof would personally bear the
criminal liability. (People vs. Tan Boon Kong, 54 Phil. 607. See also Tolentino, Commercial Laws of
the Philippines, p. 625, citing cases.)

The case cited by the Court of Appeals in support of its stand-Tan Boon Kong case, supra-may
however not be squarely applicable to the instant case in that the corporation was directly required by
law to do an act in a given manner, and the same law makes the person who fails to perform the act
in the prescribed manner expressly liable criminally. The performance of the act is an obligation
directly imposed by the law on the corporation. Since it is a responsible officer or officers of the
corporation who actually perform the act for the corporation, they must of necessity be the ones to
assume the criminal liability; otherwise this liability as created by the law would be illusory, and the
deterrent effect of the law, negated.

In the present case, a distinction is to be found with the Tan Boon Kong case in that the act alleged to
be a crime is not in the performance of an act directly ordained by law to be performed by the
corporation. The act is imposed by agreement of parties, as a practice observed in the usual pursuit
of a business or a commercial transaction. The offense may arise, if at all, from the peculiar terms
and condition agreed upon by the parties to the transaction, not by direct provision of the law. The
intention of the parties, therefore, is a factor determinant of whether a crime was committed or
whether a civil obligation alone intended by the parties. With this explanation, the distinction adverted
to between the Tan Boon Kong case and the case at bar should come out clear and meaningful. In
the absence of an express provision of law making the petitioner liable for the criminal offense
committed by the corporation of which he is a president as in fact there is no such provisions in the
Revised Penal Code under which petitioner is being prosecuted, the existence of a criminal liability on
his part may not be said to be beyond any doubt. In all criminal prosecutions, the existence of criminal
liability for which the accused is made answerable must be clear and certain. The maxim that all
doubts must be resolved in favor of the accused is always of compelling force in the prosecution of
offenses. This Court has thus far not ruled on the criminal liability of an officer of a corporation signing
in behalf of said corporation a trust receipt of the same nature as that involved herein. In the case
of Samo vs. People, L-17603-04, May 31, 1962, the accused was not clearly shown to be acting other
than in his own behalf, not in behalf of a corporation.

The next question is whether the violation of a trust receipt constitutes estafa under Art. 315 (1-[2]) of
the Revised Penal Code, as also raised by the petitioner. We now entertain grave doubts, in the light
of the promulgation of P.D. 115 providing for the regulation of trust receipts transaction, which is a
very comprehensive piece of legislation, and includes an express provision that if the violation or
offense is committed by a corporation, partnership, association or other juridical entities the penalty
provided for in this Decree shall be imposed upon the directors, officers, employees or other officials
or persons therein responsible for the offense, without prejudice to civil liabilities arising from the
criminal offense. The question that suggests itself is, therefore, whether the provisions of the Revised
Penal Code, Article 315, par. 1 (b) are not adequate to justify the punishment of the act made
punishable by P.D. 115, that the necessity was felt for the promulgation of the decree. To answer this
question, it is imperative to make an indepth analysis of the conditions usually embodied in a trust
receipt to best their legal sufficiency to constitute the basis for holding the violation of said conditions
as estafa under Article 315 of the Revised Penal Code which P.D. 115 now seeks to punish expressly.

As executed, the trust receipt in question reads:

I/WE HEREBY AGREE TO HOLD SAID GOODS IN TRUST FOR THE SAID BANK as
its property with liberty to sell the same for its account but without authority to make any
other disposition whatsoever of the said goods or any part thereof (or the proceeds
thereof) either way of conditional sale, pledge or otherwise;

In case of sale I/we further agree to hand the proceeds as soon as received to the
BANK to apply against the relative acceptance (as described above) and for the
payment of any other indebtedness of mine/ours to CONTINENTAL BANK. (Original
Records, p. 108)

One view is to consider the transaction as merely that of a security of a loan, and that the trust
element is but and inherent feature of the security aspect of the arrangement where the goods are
placed in the possession of the "entrustee," to use the term used in P.D. 115, violation of the element
of trust not being intended to be in the same concept as how it is understood in the criminal sense.
The other view is that the bank as the owner and "entrustor" delivers the goods to the "entrustee, "
with the authority to sell the goods, but with the obligation to give the proceeds to the "entrustor" or
return the goods themselves if not sold, a trust being thus created in the full sense as contemplated
by Art. 315, par. 1 (b).

We consider the view that the trust receipt arrangement gives rise only to civil liability as the more
feasible, before the promulgation of P.D. 115. The transaction being contractual, the intent of the
parties should govern. Since the trust receipt has, by its nature, to be executed upon the arrival of the
goods imported, and acquires legal standing as such receipt only upon acceptance by the
"entrustee," the trust receipt transaction itself, the antecedent acts consisting of the application of the
L/C, the approval of the L/C and the making of the marginal deposit and the effective importation of
the goods, all through the efforts of the importer who has to find his supplier, arrange for the payment
and shipment of the imported goods-all these circumstances would negate any intent of subjecting
the importer to criminal prosecution, which could possibly give rise to a case of imprisonment for non-
payment of a debt. The parties, therefore, are deemed to have consciously entered into a purely
commercial transaction that could give rise only to civil liability, never to subject the "entrustee" to
criminal prosecution. Unlike, for instance, when several pieces of jewelry are received by a person
from the owner for sale on commission, and the former misappropriates for his personal use and
benefit, either the jewelries or the proceeds of the sale, instead of returning them to the owner as is
his obligation, the bank is not in the same concept as the jewelry owner with full power of disposition
of the goods, which the bank does not have, for the bank has previously extended a loan which the
L/C represents to the importer, and by that loan, the importer should be the real owner of the goods. If
under the trust receipt the bank is made to appear as the owner, it was but an artificial expedient,
more of a legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it
wants, which it cannot do, just to give consistency with the purpose of the trust receipt of giving a
stronger security for the loan obtained by the importer. To consider the bank as the true owner from
the inception of the transaction would be to disregard the loan feature thereof, a feature totally absent
in the case of the transaction between the jewel-owner and his agent.

Consequently, if only from the fact that the trust receipt transaction is susceptible to two reasonable
interpretation, one as giving rise only to civil liability for the violation of the condition thereof, and the
other, as generating also criminal liability, the former should be adopted as more favorable to the
supposed offender. (Duran vs. CA, L-39758, May 7, 1976, 71 SCRA 68; People vs. Parayno, L-
24804, July 5, 1968, 24 SCRA 3; People vs. Abendan, L-1481, January 28,1949,82 Phil. 711; People
vs. Bautista, L-1502, May 24, 1948, 81 Phil. 78; People vs. Abana, L-39, February 1, 1946, 76 Phil.
1.)

There is, moreover, one circumstance appearing on record, the significance of which should be
properly evaluated. As stated in petitioner's brief (page 2), not denied by the People, "before the
Continental Bank approved the application for a letter of credit (Exhibit 'D'), subsequently covered by
the trust receipt, the Continental Bank examined the financial capabilities of the applicant, Metal
Manufacturing Company of the Philippines because that was the bank's standard procedure
(Testimony of Mr. Ernesto Garlit, Asst. Manager of the Foreign Department, Continental Bank, t.s.n.,
August 30, 1965). The Continental Bank did not examine the financial capabilities of herein petitioner,
Jose O. Sia, in connection with the same letter of credit. (Ibid). " From this fact, it would appear as
positively established that the intention of the parties in entering into the "trust receipt" agreement is
merely to afford a stronger security for the loan evidenced by the letter of credit, may be not as an
ordinary pledge as observed in P.N.B. vs. Viuda e Hijos de Angel Jose, et al., 63 Phil. 814, citing In re
Dunlap C (206 Fed. 726) but neither as a transaction falling under Article 315-1 (b) of the Revised
Penal Code giving rise to criminal liability, as previously explained and demonstrated.

It is worthy of note that the civil liability imposed by the trust receipt is exclusively on the Metal
Company. Speaking of such liability alone, as one arising from the contract, as distinguished from the
civil liability arising out of a crime, the petitioner was never intended to be equally liable as the
corporation. Without being made so liable personally as the corporation is, there would then be no
basis for holding him criminally liable, for any violation of the trust receipt. This is made clearly so
upon consideration of the fact that in the violation of the trust agreement and in the absence of
positive evidence to the contrary, only the corporation benefited, not the petitioner personally, yet, the
allegation of the information is to effect that the misappropriation or conversion was for the personal
use and benefit of the petitioner, with respect to which there is variance between the allegation and
the evidence.

It is also worthy of note that while the trust receipt speaks of authority to sell, the fact is undisputed
that the imported goods were to be manufactured into finished products first before they could be
sold, as the Bank had full knowledge of. This fact is, however, not embodied in the trust agreement,
thus impressing on the trust receipt vagueness and ambiguity which should not be the basis for
criminal prosecution, in the event of a violation of the terms of the trust receipt. Again, P.D. 115 has
express provision relative to the "manufacture or process of the good with the purpose of ultimate
sale," as a distinct condition from that of "to sell the goods or procure their sale" (Section 4, (1). Note
that what is embodied in the receipt in question is the sale of imported goods, the manufacture
thereof not having been mentioned. The requirement in criminal prosecution, that there must be strict
harmony, not variance, between the allegation and the evidence, may therefore, not be said to have
been satisfied in the instance case.

FOR ALL THE FOREGOING, We reverse the decision of the Court of Appeals and hereby acquit the
petitioner, with costs de oficio.

SO ORDERED.
G.R. No. L-11776 August 30, 1958

RAMON GONZALES, plaintiff-appellee,

vs.
GO TIONG and LUZON SURETY CO., INC., defendants-appellants.

Rustico V. Nazareno for appellee.

David, Abel and Ysip for appellant Go Tiong.
Tolentino, Garcia and D. R. Cruz for appellant Luzon Surety Co., Inc.

MONTEMAYOR, J.:

Defendants Go Tiong and Luzon Surety Co. are appealing from the decision of the Court of First
Instance of Manila, Judge Magno S. Gatmaitan presiding, the dispositive part of which reads as
follows:

In view whereof, judgment is rendered condemning defendant Go Tiong and Luzon Surety Co.,
jointly and severally, to pay plaintiff the sum of P4,920 with legal interest from the date of the
filing of the complaint until fully paid; judgment is also rendered against Go Tiong to pay the
sum of P3,680 unto plaintiff, also with legal interest from the date of the filing of the complaint
until fully paid. Go Tiong is also condemned to pay the sum of P1,000 as attorney's fees, plus
costs.

The appeal was first taken to the Court of Appeals, the latter indorsing the case to us later under the
provisions of Section 17 (6) of Republic Act No. 296, on the ground that the issues raised were purely
questions of law.

Go Tiong owned a rice mill and warehouse, located at Mabini, Urdaneta, Pangasinan. On February 4,
1953, he obtained a license to engage in the business of a bonded warehouseman (Exhibit N). To
secure the performance of his obligations as such bonded warehouseman, the Luzon Surety Co.
executed Guaranty Bond No. 294 in the sum of P18,334 (Exhibit O), conditioned particularly on the
fulfillment by Go Tiong of his duty or obligation to deliver to the depositors in his storage warehouse,
the palay received by him for storage, at any time demand is made, or to pay the market value
thereof, in case he was unable to return the same. The bond was executed on January 26, 1953. Go
Tiong insured the warehouse and the palay deposited therein with the Alliance Surety and Insurance
Company.

But prior to the issuance of the license to Go Tiong to operate as bonded warehouseman, he had on
several occasions received palay for deposit from plaintiff Gonzales, totaling 368 sacks, for which he
issued receipts, Exhibits A, B, C, and D. After he was licensed as bonded warehouseman, Go Tiong
again received various deliveries of palay from plaintiff, totaling 492 sacks, for which he issued the
corresponding receipts, all the grand total of 860 sacks, valued at P8,600 at the rate of P10 per sack.

On or about March 15, 1953, plaintiff demanded from Go Tiong the value of his deposits in the
amount of P8,600, but he was told to return after two days, which he did, but Go Tiong again told him
to come back. A few days later, the warehouse burned to the ground. Before the fire, Go Tiong had
been accepting deliveries of palay from other depositors and at the time of the fire, there were 5,847
sacks of palay in the warehouse, in excess of the 5,000 sacks authorized under his license. The
receipts issued by Go Tiong to the plaintiff were ordinary receipts, not the "warehouse receipts"
defined by the Warehouse Receipts Act (Act No. 2137).

After the burning of the warehouse, the depositors of palay, including plaintiff, filed their claims with
the Bureau of Commerce, and it would appear that with the proceeds of the insurance policy, the
Bureau of Commerce paid off some of the claim. Plaintiff's counsel later withdrew his claim with the
Bureau of Commerce, according to Go Tiong, because his claim was denied by the Bureau, but
according to the decision of the trial court, because nothing came from plaintiff's efforts to have his
claim paid. Thereafter, Gonzales filed the present action against Go Tiong and the Luzon Surety for
the sum of P8,600, the value of his palay, with legal interest, damages in the sum of P5,000 and
P1,500 as attorney's fees. Gonzales later renewed his claim with the Bureau of Commerce (Exhibit
S).

While the case was pending in court, Gonzales and Go Tiong entered into a contract of amicable
settlement to the effect that upon the settlement of all accounts due to him by Go Tiong, he,
Gonzales, would have all actions pending against Go Tiong dismissed. Inasmuch as Go Tiong failed
to settle the accounts, Gonzales prosecuted his court action..

For purposes of reference, we reproduce the assignment of errors of Go Tiong, as well as the
assignment of errors of the Luzon Surety, all reading thus:

I. The trial court erred in finding that plaintiff-appellee's claim is covered by the Bonded
Warehouse Law, Act 3893, as amended, and not by the Civil Code.

II. The trial court erred in not exempting defendant-appellant Go Tiong for the loss of the palay
deposited, pursuant to the provisions of the New Civil Code.".

xxx xxx xxx

I. The trial court erred in not declaring that the amicable settlement by and between plaintiff-
appellee and defendant Go Tiong constituted a material alteration of the surety bond of
appellant Luzon Surety which extinguished and discharged its liability.

II. The trial court erred in bolding that the receipts for the palay received by Go Tiong, though
not in the form of "quedans" or warehouse receipts are chargeable against the surety bond
filed under the provisions of the General Bonded Warehouse Act (Act No. 3893 as amended by
Republic Act No. 247) as a result of a loss.

III. The trial court erred in not holding that the plaintiff had renounced and abandoned his rights
under the Bonded Warehouse Act by the withdrawal of his claim from the Bureau of Commerce
and the execution of the "amicable settlement".

IV. The trial court erred in not holding that the palay delivered to Go Tiong constitutes
gratuitous deposit which was extinguished upon the loss and destruction of the subject matter.
 V. The trial court erred in not declaring that the transaction between defendant Go Tiong and
plaintiff was more of a sale rather than a deposit.

VI. The trial court erred in declaring that the Luzon Surety Co., Inc., had not complied with its
undertaking despite the liquidation of all the claims by the Bureau of Commerce.

VII. The lower court erred in adjudging the herein surety liable under the terms of the Bond.

We shall discuss the assigned errors at the same time, considering the close relation between them,
although we do not propose to discuss and rule upon all of them. Both appellants urge that plaintiff's
claim is governed by the Civil Code and not by the Bonded Warehouse Act (Act No. 3893, as
amended by Republic Act No. 247), for the reason that, as already stated, what Go Tiong issued to
plaintiff were ordinary receipts, not the warehouse receipts contemplated by the Warehouse Receipts
Law, and because the deposits of palay of plaintiff were gratuitous.

Act No. 3893 as amended is a special law regulating the business of receiving commodities for
storage and defining the rights and obligations of a bonded warehouseman and those transacting
business with him. Consequently, any deposit made with him as a bonded warehouseman must
necessarily be governed by the provisions of Act No. 3893. The kind or nature of the receipts issued
by him for the deposits is not very material much less decisive. Though it is desirable that receipts
issued by a bonded warehouseman should conform to the provisions of the Warehouse Receipts
Law, said provisions in our opinion are not mandatory and indispensable in the sense that if they fell
short of the requirements of the Warehouse Receipts Act, then the commodities delivered for storage
become ordinary deposits and will not be governed by the provisions of the Bonded Warehouse Act.
Under Section 1 of the Warehouse Receipts Act, one would gather the impression that the issuance
of a warehouse receipt in the form provided by it is merely permissive and directory and not
obligatory:

SECTION 1. Persons who may issue receipts. Warehouse receipts may be issued by any
warehouseman.,

and the Bonded Warebouse Act as amended permits the warehouseman to issue any receipt, thus:

. . . . "receipt" as any receipt issued by a warehouseman for commodity delivered to him.

As the trial court well observed, as far as Go Tiong was concerned, the fact that the receipts issued
by him were not "quedans" is no valid ground for defense because he was the principal obligor.
Furthermore, as found by the trial court, Go Tiong had repeatedly promised plaintiff to issue to him
"quedans" and had assured him that he should not worry; and that Go Tiong was in the habit of
issuing ordinary receipts (not "quedans") to his depositors.

As to the contention that the deposits made by the plaintiff were free because he paid no fees
therefor, it would appear that Go Tiong induced plaintiff to deposit his palay in the warehouse free of
charge in order to promote his business and to attract other depositors, it being understood that
because of this accommodation, plaintiff would convince other palay owners to deposit with Go Tiong.
Appellants contend that the burning of the warehouse was a fortuitous event and not due to any fault
of Go Tiong and that consequently, he should not be held liable, appellants supporting the contention
with the ruling in the case of La Sociedad Dalisay vs. De los Reyes, 55 Phil. 452, reading as follows:

Inasmuch as the fire, according to the judgment appealed from, was neither intentional nor due
to the negligence of the appellant company or its officials; and it appearing from the evidence
that the then manager attempted to save the palay, the appellant company should not be held
responsible for damages resulting from said fire. . . . .

The trial court correctly disposed of this same contention, thus:

The defense that the palay was destroyed by fire neither does the Court consider to be good
for while the contract was in the nature of a deposit and the loss of the thing would exempt the
obligor in a contract of deposit to return the goods, this exemption from the responsibility for
the damages must be conditioned in his proof that the loss was by force majeure, and without
his fault. The Court does not see from the evidence that the proof is clear on the legal
exemption. On the contrary, the fact that he exceeded the limit of the authorized deposit must
have increased the risk and would militate against his defense of non-liability. For this reason,
the Court does not follow La Sociedad vs. De Los Santos, 55 Phil. 42 quoted by Go Tiong. (p.
3, Decision).

Considering the fact, as already stated, that prior to the burning of the warehouse, plaintiff demanded
the payment of the value of his palay from Go Tiong on two occasions but was put off without any
valid reason, under the circumstances, the better rule which we accept is the following:

. . . . This rule proceeds upon the theory that the facts surrounding the care of the property by
a bailee are peculiarly within his knowledge and power to prove, and that the enforcement of
any other rule would impose great difficulties upon the bailors. ... It is illogical and
unreasonable to hold that the presumption of negligence in case of this kind is rebutted by the
bailee by simply proving that the property bailed was destroyed by an ordinary fire which broke
out on the bailee's own premises, without regard to the care exercised by the latter to prevent
the fire, or to save the property after the commencement of the fire. All the authorities seem to
agree that the rule that there shall be a presumption of negligence in bailment cases like the
present one, where there is default in delivery or accounting, for the goods is just a necessary
one. . . . (9 A.L.R. 566; see also Hanes vs. Shapiro, 84 S.E. 33; J. Russel Mfg. Co. vs. New
Haven, S.B. Co., 50 N.Y. 211; Beck vs. Wilkins-Ricks Co., 102 S.E. 313,
Fleishman vs. Southern R. Co., 56 S.E. 974).

Besides, as observed by the trial court, the defendant violated the terms of his license by accepting
for deposit palay in excess of the limit authorized by his license, which fact must have increased the
risk.

The Luzon Surety claims that the amicable settlement by and between Gonzales and Go Tiong
constituted a material alteration of its bond, thereby extinguishing and discharging its liability. It is
evident, however, that while there was an attempt to settle the case amicably, the settlement was
never consummated because Go Tiong failed to settle the accounts of Gonzales to the latter's
satisfaction. Consequently, said non-consummated compromise settlement does not discharge the
surety:

A compromise or settlement between the creditor or obligee and the principal, by which the
latter is discharged from liability, discharges the surety, . . . . But an unconsummated . . .
agreement to compromise, falling short of an effective settlement, will not discharge the surety.
(50 C. J. 185)

In relation to the failure of Go Tiong to issue the warehouse receipts contemplated by the Warehouse
Receipts Act, which failure, according to appellants, precluded plaintiff from suing on the bond,
reference may be made to Section 2 of Act No. 3893, defining receipt as any receipt issued by a
warehouseman for commodity delivered to him, showing that the law does not require as
indispensable that a warehouse receipt be issued. Furthermore, Section 7 of said law provides that
as long as the depositor is injured by a breach of any obligation of the warehouseman, which
obligation is secured by a bond, said depositor may sue on said bond. In other words, the surety
cannot avoid liability from the mere failure of the warehouseman to issue the prescribed receipt. In
the case of Andreson vs. Krueger, 212 N.W. 198, 199, it was held:

The surety company concedes that the bond which it gave contains the statutory conditions.
The statute . . . requires that the bond shall be conditioned upon the faithful performance of
the public local grain warehouseman of all the provisions of law relating to the storage of grain
by such warehouseman.

The surety company thereby made itself responsible for the performance by the
warehouseman of all the duties and obligations imposed upon him by the statute; and, if he
failed to perform any such duty to the loss or detriment of those who delivered grain for
storage, the surety company became liable therefor. Where the warehouseman receives grain
for storage and refuses to return or pay it, the fact that he failed to issue the receipt, when the
statute required him to issue on receiving it, is not available to the surety as a defense against
an action on the bond. The obligation of the surety covers the duty of the warehouseman to
issue the prescribed receipt, as well as the other duties imposed upon him by the statute.

We deem it unnecessary to discuss and rule upon the other questions raised in the appeal.

In view of the foregoing, the appealed decision is hereby affirmed, with costs.
G.R. No. L-25748 March 10, 1975

CONSOLIDATED TERMINALS, INC., plaintiff-appellant,

vs.
ARTEX DEVELOPMENT CO., INC., defendant-appellee.!1

Consolidated Terminals, Inc. (CTI) appealed from the order of Judge Jesus Y. Perez of the Court of
First Instance of Manila, dismissing its amended complaint for damages against Artex Development
Co., Inc. (Artex for short). The dismissal was predicated on lack of cause of action.

The following ultimate facts, which were hypothetically admitted in the motion to dismiss, were
alleged in the amended complaint:

CTI was the operator of a customs bonded warehouse located at Port Area, Manila. It received on
deposit one hundred ninety-three (193) bales of high density compressed raw cotton valued at
P99,609.76. It was understood that CTI would keep the cotton in behalf of Luzon Brokerage
Corporation until the consignee thereof, Paramount Textile Mills, Inc., had opened the corresponding
letter of credit in favor of shipper, Adolph Hanslik Cotton of Corpus Christi, Texas.

Allegedly by virtue of a forged permit to deliver imported goods, purportedly issued by the Bureau of
Customs, Artex was able to obtain delivery of the bales of cotton on November 5 and 6, 1964 after
paying CTI P15,000 as storage and handling charges. At the time the merchandise was released to
Artex, the letter of credit had not yet been opened and the customs duties and taxes due on the
shipment had not been paid. (That delivery permit, Annex A of the complaint, was not included by CTI
in its record on appeal).

CTI, in its original complaint, sought to recover possession of the cotton by means of a writ of
replevin. The writ could not be executed. CTI then filed an amended complaint by transforming its
original complaint into an action for the recovery from Artex of P99,609.76 as compensatory
damages, P10,000 as nominal and exemplary damages and P20,000 as attorney's fees.

It should be clarified that CTI in its affidavit for manual delivery of personal property (Annex B of its
complaint not included in its record on appeal) and in paragraph 7 of its original complaint alleged that
Artex acquired the cotton from Paramount Textile Mills, Inc., the consignee. Artex alleged in its motion
to dismiss that it was not shown in the delivery permit that Artex was the entity that presented that
document to the CTI. Artex further averred that it returned the cotton to Paramount Textile Mills, Inc.
when the contract of sale between them was rescinded because the cotton did not conform to the
stipulated specifications as to quality (14-15, Record on Appeal). No copy of the rescissory
agreement was attached to Artex's motion to dismiss.

In sustaining Artex's motion to dismiss, which CTI did not oppose in writing, Judge Perez said:t.
hqw

Since the plaintiff (CTI) is only a warehouseman and according to the amended
complaint, plaintiff was already paid the warehousing and handling charges of the 193
bales of high density compressed raw cotton mentioned in the complaint, the plaintiff
can no longer recover for its services as warehouseman.

The fact that the delivery of the goods was obtained by the defendant without opening
the corresponding letter of credit cannot be the basis of a cause of action of the plaintiff
because such failure of the defendant to open the letter of credit gives rise to a cause of
action in favor of the shipper of the goods and not in favor of the plaintiff.

With respect to the allegation of the amended complaint that the goods were taken by
the defendant without paying the customs duties and other revenues (sic) assessed
thereon, this does not give rise to a cause of action in favor of the plaintiff for the party
aggrieved is the government.

Likewise, the alleged presentation of a forged permit to deliver imported goods by the
defendant did not give rise to a cause of action in favor of the plaintiff but in favor of the
Bureau of Customs and of the consignee. (18-19, Record on Appeal).

Judge Perez was guided more by logic and common sense than by any specific rule of law or
jurisprudence.

CTI in this appeal contends that, as warehouseman, it was entitled to the possession (should be
repossession) of the bales of cotton; that Artex acted wrongfully in depriving CTI of the possession of
the merchandise because Artex presented a falsified delivery permit, and that Artex should pay
damages to CTI.
The only statutory rule cited by CTI is section 10 of the Warehouse Receipts Law which provides that
"where a warehouseman delivers the goods to one who is not in fact lawfully entitled to the
possession of them, the warehouseman shall be liable as for conversion to all having a right of
property or possession in the goods ...".

We hold that CTI's appeal has not merit. Its amended complaint does not clearly show that, as
warehouseman, it has a cause of action for damages against Artex. The real parties interested in the
bales of cotton were Luzon Brokerage Corporation as depositor, Paramount Textile Mills, Inc. as
consignee, Adolph Hanslik Cotton as shipper and the Commissioners of Customs and Internal
Revenue with respect to the duties and taxes. These parties have not sued CTI for damages or for
recovery of the bales of cotton or the corresponding taxes and duties.

The case might have been different if it was alleged in the amended complaint that the depositor,
consignee and shipper had required CTI to pay damages, or that the Commissioners of Customs and
Internal Revenue had held CTI liable for the duties and taxes. In such a case, CTI might logically and
sensibly go after Artex for having wrongfully obtained custody of the merchandise.

But that eventuality has not arisen in this case. So, CTI's basic action to recover the value of the
merchandise seems to be untenable. It was not the owner of the cotton. How could it be entitled to
claim the value of the shipment?

In other words, on the basis of the allegations of the amended complaint, the lower court could not
render a valid judgment in accordance with the prayer thereof. It could not render such valid judgment
because the amended complaint did not unequivocally allege what right of CTI was violated by Artex,
or, to use the familiar language of adjective law, what delict or wrong was committed by Artex against
CTI which would justify the latter in recovering the value of bales of cotton even if it was not the owner
thereof. (See Ma-ao Sugar Central Co., Inc. vs. Barrios, 79 Phil. 666; 1 Moran's Comments on the
Rules of Court, 1970 Ed., pp. 259, 495).

WHEREFORE, the order of dismissal is affirmed with costs against the plaintiff-appellant.