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    G.R. No. 74886 December 8, 1992

    PRUDENTIAL BANK,petitioner,vs.INTERMEDIATE APPELLATE COURT, PHILIPPINE RAYON MILLS, INC. and

    ANACLETO R. CHI, respondents.

    DAVIDE, JR.,J.:

    Petitioner seeks to review and set aside the decision 1of public respondent; Intermediate AppellateCourt (now Court of Appeals), dated 10 March 1986, in AC-G.R. No. 66733 which affirmed intoto the 15 June 1978 decision of Branch 9 (Quezon City) of the then Court of First Instance (nowRegional Trial Court) of Rizal in Civil Case No. Q-19312. The latter involved an action instituted bythe petitioner for the recovery of a sum of money representing the amount paid by it to the NisshoCompany Ltd. of Japan for textile machinery imported by the defendant, now private respondent,Philippine Rayon Mills, Inc. (hereinafter Philippine Rayon), represented by co-defendant Anacleto R.Chi.

    The facts which gave rise to the instant controversy are summarized by the public respondent asfollows:

    On August 8, 1962, defendant-appellant Philippine Rayon Mills, Inc. enteredinto a contract with Nissho Co., Ltd. of Japan for the importation of textilemachineries under a five-year deferred payment plan (Exhibit B, Plaintiff'sFolder of Exhibits, p 2). To effect payment for said machineries, the defendant-appellant applied for a commercial letter of credit with the Prudential Bank andTrust Company in favor of Nissho. By virtue of said application, the PrudentialBank opened Letter of Credit No. DPP-63762 for $128,548.78 (ExhibitA,Ibid., p. 1). Against this letter of credit, drafts were drawn and issued by

    Nissho (Exhibits X, X-1 to X-11,Ibid., pp. 65, 66 to 76), which were all paidby the Prudential Bank through its correspondent in Japan, the Bank of Tokyo,Ltd. As indicated on their faces, two of these drafts (Exhibit X and X-1, Ibid.,

    pp. 65-66) were accepted by the defendant-appellant through its president,Anacleto R. Chi, while the others were not (Exhibits X-2 to X-11, Ibid., pp. 66

    to 76).

    Upon the arrival of the machineries, the Prudential Bank indorsed the shippingdocuments to the defendant-appellant which accepted delivery of the same. Toenable the defendant-appellant to take delivery of the machineries, it executed,

    by prior arrangement with the Prudential Bank, a trust receipt which wassigned by Anacleto R. Chi in his capacity as President (sic) of defendant-appellant company (Exhibit C,Ibid., p. 13).

    At the back of the trust receipt is a printed form to be accomplished by twosureties who, by the very terms and conditions thereof, were to be jointly andseverally liable to the Prudential Bank should the defendant-appellant fail to

    pay the total amount or any portion of the drafts issued by Nissho and paid forby Prudential Bank. The defendant-appellant was able to take delivery of the

    textile machineries and installed the same at its factory site at 69 ObudanStreet, Quezon City.

    Sometime in 1967, the defendant-appellant ceased business operation (sic). OnDecember 29, 1969, defendant-appellant's factory was leased by YupangcoCotton Mills for an annual rental of P200,000.00 (Exhibit I,Ibid., p. 22). Thelease was renewed on January 3, 1973 (Exhibit J, Ibid., p. 26). On January 5,1974, all the textile machineries in the defendant-appellant's factory were soldto AIC Development Corporation for P300,000.00 (Exhibit K,Ibid., p. 29).

    The obligation of the defendant-appellant arising from the letter of credit andthe trust receipt remained unpaid and unliquidated. Repeated formal demands(Exhibits U, V, and W, Ibid., pp. 62, 63, 64) for the payment of the said trustreceipt yielded no result Hence, the present action for the collection of the

    principal amount of P956,384.95 was filed on October 3, 1974 against thedefendant-appellant and Anacleto R. Chi. In their respective answers, thedefendants interposed identical special defenses, viz., the complaint states nocause of action; if there is, the same has prescribed; and the plaintiff is guilty oflaches. 2

    On 15 June 1978, the trial court rendered its decision the dispositive portion of which reads:

    WHEREFORE, judgment is hereby rendered sentencing the defendantPhilippine Rayon Mills, Inc. to pay plaintiff the sum of P153,645.22, theamounts due under Exhibits "X" & "X-1", with interest at 6% per annum

    beginning September 15, 1974 until fully paid.

    Insofar as the amounts involved in drafts Exhs. "X" (sic) to "X-11", inclusive,the same not having been accepted by defendant Philippine Rayon Mills, Inc.,

    plaintiff's cause of action thereon has not acc rued, hence, the instant case ispremature.

    Insofar as defendant Anacleto R. Chi is concerned, the case is dismissed.Plaintiff is ordered to pay defendant Anacleto R. Chi the sum of P20,000.00 asattorney's fees.

    With costs against defendant Philippine Rayon Mills, Inc.

    SO ORDERED. 3

    Petitioner appealed the decision to the then Intermediate Appellate Court. In urging the said court toreverse or modify the decision, petitioner alleged in its Brief that the trial court erred in (a)disregarding its right to reimbursement from the private respondents for the entire unpaid balance ofthe imported machines, the total amount of which was paid to the Nissho Company Ltd., therebyviolating the principle of the third party payor's right to reimbursement provided for in the second

    paragraph of Article 1236 of the Civil Code and under the rule against unjust enrichment; (b) refusingto hold Anacleto R. Chi, as the responsible officer of defendant corporation, liable under Section 13of P.D No 115 for the entire unpaid balance of the imported machines covered by the bank's trustreceipt (Exhibit "C"); (c) finding that the solidary guaranty clause signed by Anacleto R. Chi is not aguaranty at all; (d) controverting the judicial admissions of Anacleto R. Chi that he is at least a simple

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    guarantor of the said trust receipt obligation; (e) contravening, based on the assumption that Chi is asimple guarantor, Articles 2059, 2060 and 2062 of the Civil Code and the related evidence and

    jurisprudence which provide that such liability had already attached; (f) contravening the judicialadmissions of Philippine Rayon with respect to its liability to pay the petitioner the amounts involvedin the drafts (Exhibits "X", "X-l" to "X-11''); and (g) interpreting "sight" drafts as requiringacceptance by Philippine Rayon before the latter could be held liable thereon. 4

    In its decision, public respondent sustained the trial court in all respects. As to the first and lastassigned errors, it ruled that the provision on unjust enrichment, Article 2142 of the Civil Code,applies only if there is no express contract between the parties and there is a clear showing that the

    payment is justified. In the instant case, the relationship existing between the petitioner and PhilippineRayon is governed by specific contracts, namely the application for letters of credit, the promissorynote, the drafts and the trust receipt. With respect to the last ten (10) drafts (Exhibits "X-2" to "X-11")which had not been presented to and were not accepted by Philippine Rayon, petitioner was not

    justified in unilaterally paying the amounts stated therein. The public respondent did not agree withthe petitioner's claim that the drafts were sight drafts which did not require presentment foracceptance to Philippine Rayon because paragraph 8 of the trust receipt presupposes prior acceptanceof the drafts. Since the ten (10) drafts were not presented and accepted, no valid demand for paymentcan be made.

    Public respondent also disagreed with the petitioner's contention that private respondent Chi issolidarily liable with Philippine Rayon pursuant to Section 13 of P.D. No. 115 and based on hissignature on the solidary guaranty clause at the dorsal side of the trust receipt. As to the first

    contention, the public respondent ruled that the civil liability provided for in said Section 13 attachesonly after conviction. As to the second, it expressed misgivings as to whether Chi's signature on thetrust receipt made the latter automatically liable thereon because the so-called solidary guarantyclause at the dorsal portion of the trust receipt is to be signed not by one (1) person alone, but by two(2) persons; the last sentence of the same is incomplete and unsigned by witnesses; and it is notacknowledged before a notary public. Besides, even granting that it was executed and acknowledged

    before a notary public, Chi cannot be held liable therefor because the records fail to show thatpetitioner had either exhausted the properties of Philippine Rayon or had resorted to all legal remediesas required in Article 2058 of the Civil Code. As provided for under Articles 2052 and 2054 of theCivil Code, the obligation of a guarantor is merely accessory and subsidiary, respectively. Chi'sliability would therefore arise only when the principal debtor fails to comply with his obligation. 5

    Its motion to reconsider the decision having been denied by the public respondent in its Resolution of11 June 1986, 6 petitioner filed the instant petition on 31 July 1986 submitting the following legalissues:

    I. WHETHER OR NOT THE RESPONDENT APPELLATE COURTGRIEVOUSLY ERRED IN DENYING PETITIONER'S CLAIM FOR FULLREIMBURSEMENT AGAINST THE PRIVATE RESPONDENTS FOR THEPAYMENT PETITIONER MADE TO NISSHO CO. LTD. FOR THEBENEFIT OF PRIVATE RESPONDENT UNDER ART. 1283 OF THE NEWCIVIL CODE OF THE PHILIPPINES AND UNDER THE GENERALPRINCIPLE AGAINST UNJUST ENRICHMENT;

    II. WHETHER OR NOT RESPONDENT CHI IS SOLIDARILY LIABLEUNDER THE TRUST RECEIPT (EXH. C);

    III. WHETHER OR NOT ON THE BASIS OF THE JUDICIALADMISSIONS OF RESPONDENT CHI HE IS LIABLE THEREON AND TOWHAT EXTENT;

    IV. WHETHER OR NOT RESPONDENT CHI IS MERELY A SIMPLEGUARANTOR; AND IF SO; HAS HIS LIABILITY AS SUCH ALREADYATTACHED;

    V. WHETHER OR NOT AS THE SIGNATORY AND RESPONSIBLEOFFICER OF RESPONDENT PHIL. RAYON RESPONDENT CHI ISPERSONALLY LIABLE PURSUANT TO THE PROVISION OF SECTION13, P.D. 115;

    VI. WHETHER OR NOT RESPONDENT PHIL. RAYON IS LIABLE TOTHE PETITIONER UNDER THE TRUST RECEIPT (EXH. C);

    VII. WHETHER OR NOT ON THE BASIS OF THE JUDICIALADMISSIONS RESPONDENT PHIL. RAYON IS LIABLE TO THEPETITIONER UNDER THE DRAFTS (EXHS. X, X-1 TO X-11) AND TOWHAT EXTENT;

    VIII. WHETHER OR NOT SIGHT DRAFTS REQUIRE PRIORACCEPTANCE FROM RESPONDENT PHIL. RAYON BEFORE THELATTER BECOMES LIABLE TO PETITIONER. 7

    In the Resolution of 12 March 1990, 8 this Court gave due course to the petition after the filing of theComment thereto by private respondent Anacleto Chi and of the Reply to the latter by the petitioner;

    both parties were also required to submit their respective memoranda which they subsequentlycomplied with.

    As We see it, the issues may be reduced as follows:

    1. Whether presentment for acceptance of the drafts wasindispensable to make Philippine Rayon liable thereon;

    2. Whether Philippine Rayon is liable on the basis of thetrust receipt;

    3. Whether private respondent Chi is jointly andseverally liable with Philippine Rayon for the obligationsought to be enforced and if not, whether he may beconsidered a guarantor; in the latter situation, whetherthe case should have been dismissed on the ground oflack of cause of action as there was no prior exhaustionof Philippine Rayon's properties.

    Both the trial court and the public respondent ruled that Philippine Rayon could be held liable for thetwo (2) drafts, Exhibits "X" and "X-1", because only these appear to have been accepted by the latterafter due presentment. The liability for the remaining ten (10) drafts (Exhibits "X-2" to "X-11"

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    inclusive) did not arise because the same were not presented for acceptance. In short, both courtsconcluded that acceptance of the drafts by Philippine Rayon was indispensable to make the latterliable thereon. We are unable to agree with this proposition. The transaction in the case at barstemmed from Philippine Rayon's application for a commercial letter of credit with the petitioner inthe amount of $128,548.78 to cover the former's contract to purchase and import loom and textilemachinery from Nissho Company, Ltd. of Japan under a five-year deferred payment plan. Petitionerapproved the application. As correctly ruled by the trial court in its Order of 6 March 1975: 9

    . . . By virtue of said Application and Agreement for Commercial Letter ofCredit, plaintiff bank10was under obligation to pay through its correspondent

    bank in Japan the drafts that Nisso (sic) Company, Ltd., periodically drewagainst said letter of credit from 1963 to 1968, pursuant to plaintiff's contractwith the defendant Philippine Rayon Mills, Inc. In turn, defendant PhilippineRayon Mills, Inc., was obligated to pay plaintiff bank the amounts of the draftsdrawn by Nisso (sic) Company, Ltd. against said plaintiff bank together withany accruing commercial charges, interest, etc. pursuant to the terms andconditions stipulated in the Application and Agreement of Commercial Letterof Credit Annex "A".

    A letter of credit is defined as an engagement by a bank or other person made at the request of acustomer that the issuer will honor drafts or other demands for payment upon compliance with theconditions specified in the credit. 11Through a letter of credit, the bank merely substitutes its own

    promise to pay for one of its customers who in return promises to pay the bank the amount of funds

    mentioned in the letter of cr edit plus credit or commitment fees mutually agreed upon.12

    In the instantcase then, the drawee was necessarily the herein petitioner. It was to the latter that the drafts were

    presented for payment. In fact, there was no need for acceptance as the issued drafts are sight drafts.Presentment for acceptance is necessary only in the cases expressly provided for in Section 143 of the

    Negotiable Instruments Law (NIL). 13The said section reads:

    Sec. 143. When presentment for acceptance must be made . Presentment foracceptance must be made:

    (a) Where the bill is payable aftersight, or in any other case, where

    presentment for acceptance isnecessary in order to fix thematurity of the instrument; or

    (b) Where the bill expresslystipulates that it shall be presentedfor acceptance; or

    (c) Where the bill is drawnpayable elsewhere than at theresidence or place of business ofthe drawee.

    In no other case is presentment for acceptance necessary in order to render anyparty to the bill liable.

    Obviously then,sight drafts do not require presentment for acceptance.

    The acceptance of a bill is the signification by the drawee of his assent to the order of thedrawer; 14this may be done in writing by the drawee in the bill itself, or in a separate instrument. 15

    The parties herein agree, and the trial court explicitly ruled, that the subject, drafts are sight drafts.Said the latter:

    . . . In the instant case the drafts being at sight, they are supposed to be payableupon acceptance unless plaintiff bank has given the Philippine Rayon Mills Inc.

    time within which to pay the same. The first two drafts (Annexes C & D, Exh.X & X-1) were duly accepted as indicated on their face (sic), and upon suchacceptance should have been paid forthwith. These two drafts were not paidand although Philippine Rayon Millsought to have paid the same, the fact remains that until now they are stillunpaid. 16

    Corollarily, they are, pursuant to Section 7 of the NIL, payable on demand. Section 7 provides:

    Sec. 7. When payable on demand. An instrument is payable on demand

    (a) When so it is expressed to bepayable on demand, or at sight, oron presentation; or

    (b) In which no time for paymentin expressed.

    Where an instrument is issued, accepted, or indorsed when overdue, it is, asregards the person so issuing, accepting, or indorsing it, payable on demand.(emphasis supplied)

    Paragraph 8 of the Trust Receipt which reads: "My/our liability for payment at maturity ofany accepted draft, bill of exchange or indebtedness shall not be extinguished ormodified" 17does not, contrary to the holding of the public respondent, contemplate prioracceptance by Philippine Rayon, but by the petitioner. Acceptance, however, was not evennecessary in the first place because the drafts which were eventually issued were sight

    drafts And even if these were not sight drafts, thereby necessitating acceptance, it wouldbe the petitioner and not Philippine Rayon which had to accept the same for thelatter was not the drawee. Presentment for acceptance is defined an the production of a billof exchange to a drawee for acceptance. 18The trial court and the public respondent,therefore, erred in ruling that presentment for acceptance was an indispensable requisitefor Philippine Rayon's liability on the drafts to attach. Contrary to both courts'

    pronouncements, Philippine Rayon immediately became liable thereon upon petitioner'spayment thereof. Such is the essence of the letter of credit issued by the petitioner. Adifferent conclusion would violate the principle upon which commercial letters of creditare founded because in such a case, both the beneficiary and the issuer, Nissho CompanyLtd. and the petitioner, respectively, would be placed at the mercy of Philippine Rayoneven if the latter had already received the imported machinery and the petitioner had fully

    paid for it. The typical setting and purpose of a letter of credit are described inHiberniaBank and Trust Co. vs. J. Aron & Co., Inc., 19thus:

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    before making demand on me/us.26

    Petitioner insists that by virtue of the clear wording of the statement, specifically the clause ". . . wejointly and severally agree and undertake . . .," and the concluding sentence on exhaustion, Chi'sliability therein is solidary.

    In holding otherwise, the public respondent ratiocinates as follows:

    With respect to the second argument, we have our misgivings as to whether themere signature of defendant-appellee Chi of (sic) the guaranty agreement,Exhibit "C-1", will make it an actionable document. It should be noted thatExhibit "C-1" was prepared and printed by the plaintiff-appellant. A perusal ofExhibit "C-1" shows that it was to be signed and executed by two persons. Itwas signed only by defendant-appellee Chi. Exhibit "C-1" was to be witnessed

    by two persons, but no one signed in that capacity. The last sentence of theguaranty clause is incomplete. Furthermore, the plaintiff-appellant also failedto have the purported guarantee clause acknowledged before a notary public.All these show that the alleged guaranty provision was disregarded and,therefore, not consummated.

    But granting arguendo that the guaranty provision in Exhibit "C-1" was fullyexecuted and acknowledged still defendant-appellee Chi cannot be held liable

    thereunder because the records show that the plaintiff-appellant had neitherexhausted the property of the defendant-appellant nor had it resorted to all legalremedies against the said defendant-appellant as provided in Article 2058 ofthe Civil Code. The obligation of a guarantor is merely accessory under Article2052 of the Civil Code and subsidiary under Article 2054 of the Civil Code.Therefore, the liability of the defendant-appellee arises only when the principaldebtor fails to comply with his obligation. 27

    Our own reading of the questioned solidary guaranty clause yields no other conclusion than that theobligation of Chi is only that of a guarantor. This is further bolstered by the last sentence whichspeaks of waiver of exhaustion, which, nevertheless, is ineffective in this case because the spacetherein for the party whose property may not be exhausted was not filled up. Under Article 2058 ofthe Civil Code, the defense of exhaustion (excussion) may be raised by a guarantor before he may beheld liable for the obligation. Petitioner likewise admits that the questioned provision is a solidary

    guaranty clause, thereby clearly distinguishing it from a contract of surety. It, however, described the

    guaranty as solidary between the guarantors; this would have been correct if two (2) guarantors hadsigned it. The clause "we jointly and severally agree and undertake" refers to the undertaking of thetwo (2) parties who are to sign it or to the liability existing between themselves. It does not refer tothe undertaking between either one or both of them on the one hand and the petitioner on the otherwith respect to the liability described under the trust receipt. Elsewise stated, their liability is notdivisible as between them, i.e., it can be enforced to its full extent against any one of them.

    Furthermore, any doubt as to the import, or true intent of the solidary guaranty clause should beresolved against the petitioner. The trust receipt, together with the questioned solidary guarantyclause, is on a form drafted and prepared solely by the petitioner; Chi's participation therein is limitedto the affixing of his signature thereon. It is, therefore, a contract of adhesion; 28as such, it must bestrictly construed against the party responsible for its preparation. 29

    Neither can We agree with the reasoning of the public respondent that this solidary guaranty clausewas effectively disregarded simply because it was not signed and witnessed by two (2) persons andacknowledged before a notary public. While indeed, the clause ought to have been signed by two (2)guarantors, the fact that it was only Chi who signed the same did not make his ac t an idle ceremony orrender the clause totally meaningless. By his signing, Chi became the sole guarantor. The attestation

    by witnesses and the acknowledgement before a notary public are not required by law to make a partyliable on the instrument. The rule is that contracts shall be obligatory in whatever form they may have

    been entered into, provided all the essential requisites for their validity a re present; however, whenthe law requires that a contract be in some form in order that it may be valid or enforceable, or that it

    be proved in a certain way, that requirement is absolute and indispensable.30

    With respect to aguaranty, 31which is a promise to answer for the debt or default of another, the law merely requiresthat it, or some note or memorandum thereof, be in writing. Otherwise, it would be unenforceableunless ratified. 32While the acknowledgement of a surety before a notary public is required to makethe same a public document, under Article 1358 of the Civil Code, a contract of guaranty does nothave to appear in a public document.

    And now to the other ground relied upon by the petitioner as basis for the solidary liability of Chi,namely the criminal proceedings against the latter for the violation of P.D. No. 115. Petitioner claimsthat because of the said criminal proceedings, Chi would be answerable for the civil liability arisingtherefrom pursuant to Section 13 of P.D. No. 115. Public respondent rejected this claim because suchcivil liability presupposes prior conviction as can be gleaned from the phrase "without prejudice to thecivil liability arising from the criminal offense." Both are wrong. The said section reads:

    Sec. 13. Penalty Clause. The failure of an entrustee to turn over theproceeds of the sale of the goods, documents or instruments covered by a trustreceipt to the extent of the amount owing to the entruster or as appears in thetrust receipt or to return said goods, documents or instruments if they were notsold or disposed of in accordance with the terms of the trust receipt shallconstitute the crime of estafa, punishable under the provisions of Article Threehundred and fifteen, paragraph one (b) of Act Numbered Three thousand eighthundred and fifteen, as amended, otherwise known as the Revised Penal Code.If the violation or offense is committed by a corporation, partnership,association or other juridical entities, the penalty provided for in this Decreeshall be imposed upon the directors, officers, employees or other officials or

    persons therein responsible for the offense, without prejudice to the civilliabilities arising from the criminal offense.

    A close examination of the quoted provision reveals that it is the last sentence which provides for the

    correct solution. It is clear that if the violation or offense is committed by a corporation, partnership,association or other juridical entities, the penalty shall be imposed upon the directors, officers,employees or other officials or persons therein responsible for the offense. The penalty referred to isimprisonment, the duration of which would depend on the amount of the fraud as provided for inArticle 315 of the Revised Penal Code. The reason for this is obvious: corporations, partnerships,associations and other juridical entities cannot be put in jail. However, it is these entities which aremade liable for the civil liability arising from the criminal offense. This is the import of the clause"without prejudice to the civil liabilities arising from the criminal offense." And, as We stated earlier,since that violation of a trust receipt constitutes fraud under Article 33 of the Civil Code, petitionerwas acting well within its rights in filing an independent civil action to enforce the civil liabilityarising therefrom against Philippine Rayon.

    The remaining issue to be resolved concerns the propriety of the dismissal of the case against privaterespondent Chi. The trial court based the dismissal, and the respondent Court its affirmance thereof,

    on the theory that Chi is not liable on the trust receipt in any capacity either as surety or as

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    G.R. No. 116863 February 12, 1998

    KENG HUA PAPER PRODUCTS CO. INC.,petitioner,vs.COURT OF APPEALS; REGIONAL TRIAL COURT OF MANILA, BR. 21; and SEA-LAND

    SERVICE, INC.,respondents.

    PANGANIBAN,J.:

    What is the nature of a bill of lading? When does a bill of lading become binding on a consignee?Will an alleged overshipment justify the consignee's refusal to receive the goods described in the billof lading? When may interest be computed on unpaid demurrage charges?

    Statement of the Case

    These are the main questions raised in this petition assailing the Decision 1of the Court ofAppeals 2promulgated on May 20, 1994 in C.A.-G.R. CV No. 29953 affirming in toto thedecision 3dated September 28, 1990 in Civil Case No. 85-33269 of the Regional Trial Court ofManila, Branch 21. The dispositive portion of the said RTC decision reads:

    WHEREFORE, the Court finds by preponderance of evidence that Plaintiff hasproved its cause of action and right to relief. Accordingly, judgment is herebyrendered in favor of the Plaintiff and against Defendant, ordering the Defendantto pay plaintiff:

    1. The sum of P67,340.00 as demurrage charges, with interest at the legal ratefrom the date of the extrajudicial demand until fully paid;

    2. A sum equivalent to ten (10%) percent of the total amount due as Attorney'sfees and litigation expenses.

    Send copy to respective counsel of the parties.

    SO ORDERED. 4

    The Facts

    The factual antecedents of this case as found by the Court of Appeals are as follows:

    Plaintiff (herein private respondent), a shipping company, is a foreigncorporation licensed to do business in the Philippines. On June 29, 1982,

    plaintiff received at its Hong Kong terminal a sealed container, Container No.SEAU 67523, containing seventy-six bales of "unsorted waste paper" forshipment to defendant (herein petitioner), Keng Hua Paper Products, Co. inManila. A bill of lading (Exh. A) to cover the shipment was issued by the

    plaintiff.

    On July 9, 1982, the shipment was discharged at the Manila InternationalContainer Port. Notices of arrival were transmitted to the defendant but thelatter failed to discharge the shipment from the container during the "free time"

    period or grace period. The said shipment remained inside the plaintiff'scontainer from the moment the free time period expired on July 29, 1982 untilthe time when the shipment was unloaded from the container on November 22,1983, or a total of four hundred eighty-one (481) days. During the 481-day

    period, demurrage charges accrued. Within the same period, letters demandingpayment were sent by the plaintiff to the defendant who, however, refused to

    settle its obligation which eventually amounted to P67,340.00. Numerousdemands were made on the defendant but the obligation remained unpaid.Plaintiff thereafter commenced this civil action for collection and damages.

    In its answer, defendant, by way of special and affirmative defense, alleged thatit purchased fifty (50) tons of waste paper from the shipper in Hong Kong, HoKee Waste Paper, as manifested in Letter of Credit No. 824858 (Exh. 7. p. 110.Original Record) issued by Equitable Banking Corporation, with partialshipment permitted; that under the letter of credit, the remaining balance of theshipment was only ten (10) metric tons as shown in Invoice No. H-15/82 (Exh.8, p. 111, Original Record); that the shipment plaintiff was asking defendant toaccept was twenty (20) metric tons which is ten (10) metric tons more than theremaining balance; that if defendant were to accept the shipment, it would beviolating Central Bank rules and regulations and custom and tariff laws; that

    plaintiff had no cause of action against the defendant because the latter did not

    hire the former to carry the merchandise; that the cause of action should beagainst the shipper which contracted the plaintiff's services and not againstdefendant; and that the defendant duly notified the plaintiff about the wrongshipment through a letter dated January 24, 1983 (Exh. D for plaintiff, Exh. 4for defendant, p. 5. Folder of Exhibits).

    As previously mentioned, the RTC found petitioner liable for demurrage; attorney's fees and expensesof litigation. The petitioner appealed to the Court of Appeals, arguing that the lower court erred in (1)awarding the sum of P67,340 in favor of the private respondent, (2) rejecting petitioner's contentionthat there was overshipment, (3) ruling that petitioner's recourse was against the shipper, and (4)computing legal interest from date of extrajudicial demand. 5

    Respondent Court of Appeals denied the appeal and affirmed the lower court's decision in toto. In asubsequent resolution, 6 it also denied the petitioner's motion for reconsideration.

    Hence, this petition for review. 7

    The Issues

    In its memorandum, petitioner submits the following issues:

    I. Whether or not petitioner had accepted the bill oflading;

    II. Whether or not the award of the sum of P67,340.00 toprivate respondent was proper;

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    III. Whether or not petitioner was correct in notaccepting the overshipment;

    IV. Whether or not the award of legal interest from thedate of private respondent's extrajudicial demand was

    proper; 8

    In the main, the case revolves around the question of whether petitioner bound by the bill of lading.

    We shall, thus, discuss the above four issues as they intertwine with this main question.

    The Court's Ruling

    The petition is partly meritorious. We affirm petitioner's liability for demurrage, but modify theinterest rate thereon.

    Main Issue:Liability Under the Bill of Lading

    A bill of lading serves two functions.First, it is a receipt for the goods shipped. Second, it is acontract by which three parties, namely, the shipper, the carrier, and the consignee undertake specificresponsibilities and assume stipulated obligations. 9A "bill of lading delivered and acceptedconstitutes the contract of carriage even though not signed," 10because the "(a)cceptance of a paper

    containing the terms of a proposed contract generally constitutes an acceptance of the contract and ofall of its terms and conditions of which the acceptor has actual or constructive notice." 11In a nutshell,the acceptance of a bill of lading by the shipper and the consignee, with full knowledge of itscontents, gives rise to the presumption that the same was a perfected and binding contract. 12

    In the case at bar, both lower courts held that the bill of lading was a valid and perfected contractbetween the shipper (Ho Kee), the consignee (Petitioner Keng Hua), and the carrier (PrivateRespondent Sea-Land). Section 17 of the bill of lading provided that the shipper and the consigneewere liable for the payment of demurrage charges for the failure to discharge the containerizedshipment beyond the grace period allowed by tariff rules. Applying said stipulation, both lower courtsfound petitioner liable. The aforementioned section of the bill of lading reads:

    17. COOPERAGE FINES. The shipper and consignee shall be liable for,indemnify the carrier and ship and hold them harmless against, and the carrier

    shall have a lien on the goods for, all expenses and charges for mendingcooperage, baling, repairing or reconditioning the goods, or the van, trailers orcontainers, and all expenses incurred in protecting, caring for or otherwisemade for the benefit of the goods, whether the goods be damaged or not, andfor any payment, expense, penalty fine, dues, duty, tax or impost, loss, damage,detention, demurrage, or liability of whatsoever nature, sustained or incurred

    by or levied upon the ca rrier or the ship in connection with the goods or byreason of the goods being or having been on board, or because of shipper'sfailure to procure consular or other proper permits, certificates or any papersthat may be required at any port or place or shipper's failure to supplyinformation or otherwise to comply with all laws, regulations and requirementsof law in connection with the goods of from any other act or omission of theshipper or consignee: (Emphasis supplied.)

    Petitioner contends, however, that it should not be bound by the bill of lading because it never gaveits consent thereto. Although petitioner admits "physical acceptance" of the bill of lading, it arguesthat its subsequent actions belie the finding that it accepted the terms and conditions printedtherein. 13Petitioner cites as support the "Notice of Refused or On Hand Freight" it received on

    November 2, 1982 from private respondent, which acknowledged that petitioner declined to acceptthe shipment. Petitioner adds that it sent a copy of the said notice to the shipper on December 23,1982. Petitioner points to its January 24, 1983 letter to the private respondent, stressing "that itsacceptance of the bill of lading would be tantamount to an act of smuggling as the amount it hadimported (with full documentary support) was only (at that time) for 10,000 kilograms and not for

    20,313 kilograms as stated in the bill of lading" and "could lay them vulnerable to legal sanctions forviolation of customs and tariff as well as Central Bank laws." 14Petitioner further argues that thedemurrage "was a consequence of the shipper's mistake" of shipping more than what was bought. Thediscrepancy in the amount of waste paper it actually purchased, as reflected in the invoice vis-a-vis the excess amount in the bill of lading, allegedly justifies its re fusal to accept the shipment. 15

    Petitioner Bound bythe Bill of Lading

    We are not persuaded. Petitioner admits that it "received the bill of lading immediately after thearrival of the shipment" 16on July 8, 1982. 17Having been afforded an opportunity to examine the saiddocument, petitioner did not immediately object to or dissent from any term or stipulation therein. Itwas only six months later, on January 24, 1983, that petitioner sent a letter to private respondentsaying that it could not accept the shipment. Petitioner's inaction for such a long period conveys the

    clear inference that it accepted the terms and conditions of the bill of lading. Moreover, said letterspoke only of petitioner's inability to use the delivery permit, i.e. to pick up the cargo, due to theshipper's failure to comply with the terms and conditions of the letter of credit, for which reason the

    bill of lading and other shipping documents were returned by the "banks" to the shipper. 18The lettermerely proved petitioner's refusal to pick up the cargo, not its rejection of the bill of lading.

    Petitioner's reliance on the Notice of Refused or On Hand Freight, as proof of its nonacceptance ofthe bill of lading, is of no consequence. Said notice was not written by petitioner; it was sent by

    private respondent to petitioner in November 1982, or four months after petitioner received the bill oflading. If the notice has any legal significance at all, it is to highlight petitioner's prolonged failure toobject to the bill of lading. Contrary to petitioner's contention, the notice and the letter support not

    belie the findings of the two lower courts that the bill of lading was impliedly accepted bypetitioner.

    As aptly stated by Respondent Court of Appeals:

    In the instant case, (herein petitioner) cannot and did not allege non-receipt ofits copy of the bill of lading from the shipper. Hence, the terms and conditionsas well as the various entries contained therein were brought to its knowledge.(Herein petitioner) accepted the bill of lading without interposing any objectionas to its contents. This raises the presumption that (herein petitioner) agreed tothe entries and stipulations imposed therein.

    Moreover, it is puzzling that (herein petitioner) allowed months to pass, six (6)months to be exact, before notifying (herein private respondent) of the "wrongshipment". It was only on January 24, 1983 that (herein petitioner) sent (herein

    private respondent) such a letter of notification (Exh D for plaintiff, Exh. 4 fordefendant; p. 5, Folder of Exhibits). Thus, for the duration of those six months

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    (herein private respondent never knew the reason for (herein petitioner's)refusal to discharge the shipment.

    After accepting the bill of lading, receiving notices of arrival of the shipment,failing to object thereto, (herein petitioner) cannot now deny that it is bound bythe terms in the bill of lading. If it did not intend to be bound, (herein

    petitioner) would not have waited for six months to lapse before finallybringing the matter to (herein private respondent's a ttention. The most logicalreaction in such a case would be to immediately verify the matter with the other

    parties involved. In this case, however, (herein petitioner) unreasonablydetained (herein private respondent's) vessel to the latter's prejudice. 19

    Petitioner's attempt to evade its obligation to receive the shipment on the pretext that this may cause itto violate customs, tariff and central bank laws must likewise fail. Mere apprehension of violatingsaid laws, without a clear demonstration that taking delivery of the shipment has become legallyimpossible, 20 cannot defeat the petitioner's contractual obligation and liability under the bill of lading.

    In any event, the issue of whether petitioner accepted the bill of lading was raised for the first timeonly in petitioner's memorandum before this Court. Clearly, we cannot now entertain an issue raisedfor the very first time on appeal, in deference to the well-settled doctrine that "(a)n issue raised for thefirst time on appeal and not raised timely in the proceedings in the lower court is barred by estoppel.Questions raised on appeal must be within the issues framed by the parties and, consequently, issuesnot raised in the trial court cannot be raised for the f irst time on appeal." 21

    In the case at bar, the prolonged failure of petitioner to receive and discharge the cargo from theprivate respondent's vessel constitutes a violation of the terms of the bill of lading. I t should thus beliable for demurrage to the former.

    In The Apollon, 22 Justice Story made the following relevant comment on the nature of demurrage:

    In truth, demurrage is merely an allowance or compensation for the delay ordetention of a vessel. It is often a matter of contract, but not necessarily so. Thevery circumstance that in ordinary commercial voyages, a particular sum isdeemed by the parties a fair compensation for delays, is the very reason why itis, and ought to be, adopted as a measure of compensation, in cases ex delicto.What fairer rule can be adopted than that which founds itself upon mercantile

    usage as to indemnity, and fixes a recompense upon the deliberateconsideration of all the circumstances attending the usual earnings andexpenditures in common voyages? It appears to us that an allowance, by way ofdemurrage, is the true measure of damages in all cases of mere detention, forthat allowance has reference to the ship's expenses, wear and tear, and commonemployment.23

    Amount of Demurrage Charges

    Petitioner argues that it is not obligated to pay any demurrage charges because, prior to the filing ofthe complaint, private respondent made no demand for the sum of P67,340. Moreover, privaterespondent's loss and prevention manager, Loi Gillera, demanded P50,260; but its counsel, SofronioLarcia, subsequently asked for a different amount of P37,800.

    Petitioner's position is puerile. The amount of demurrage charges in the sum of P67,340 is a factualconclusion of the trial court that was affirmed by the Court of Appeals and, thus, binding on thisCourt. 24Besides, such factual finding is supported by the extant evidence. 25The apparentdiscrepancy was a result of the variance of the dates when the two demands were made. Necessarily,the longer the cargo remained unclaimed, the higher the demurrage. Thus, while in his letter datedApril 24, 1983, 26 private respondent's counsel demanded payment of only P37,800, the additionaldemurrage incurred petitioner due to its continued refusal to receive delivery of the cargo balloonedto P67,340 by November 22, 1983. The testimony of Counsel Sofronio Larcia as regards said letter ofApril 24, 1983 elucidates, viz:

    Q Now, after you sent this letter, do you know whathappened?

    A Defendant continued to refuse to take delivery of theshipment and the shipment stayed at the port for a longer

    period.

    Q So, what happened to the shipment?

    A The shipment incurred additional demurrage chargeswhich amounted to P67,340.00 as of November 22, 1983or more than a year after almost a year after the

    shipment arrived at the port.

    Q So, what did you do?

    A We requested our collection agency to pursue thecollection of this amount. 27

    Bill of Lading Separate from

    Other Letter of Credit Arrangements

    In a letter of credit, there are three distinct and independent contracts:

    (1) the contract of sale between the buyer and the seller, (2) the contract of the buyer with the issuing

    bank, and (3) the letter of credit proper in which the bank promises to pay the seller pursuant to theterms and conditions stated therein. "Few things are more clearly settled in law than that the threecontracts which make up the letter of credit arrangement are to be maintained in a state of perpetualseparation." 28A transaction involving the purchase of goods may also require, apart from a letter ofcredit, a contract of transportation specially when the seller and the buyer are not in the same locale orcountry, and the goods purchased have to be transported to the latter.

    Hence, the contract of carriage, as stipulated in the bill of lading in the present case, must be treatedindependently of the contract of sale between the seller and the buyer, and the contract for theissuance of a letter of credit between the buyer and the issuing bank. Any discrepancy between theamount of the goods described in the commercial invoice in the contract of sale and the amountallowed in the letter of credit will not affect the validity and enforceability of the contract of carriageas embodied in the bill of lading. As the bank cannot be expected to look beyond the documents

    presented to it by the seller pursuant to the letter of c redit, 29neither can the carrier be expected to go

    beyond the representations of the shipper in the bill of lading and to verify their accuracy vis-a-vizthe

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    commercial invoice and the letter of a credit. Thus, the discrepancy between the amount of goodsindicated in the invoice and the amount in the bill of lading cannot negate petitioner's obligation to

    private respondent arising f rom the contract of transportation. Furthermore, private respondent, ascarrier, had no knowledge of the contents of the container. The contract of carriage was under thearrangement known as "Shipper's Load And Count," and shipper was solely responsible for theloading of the container while carrier was oblivious to the contents of the shipment. Petitioner'sremedy in case of overshipment lies against the seller/shipper, not against the carrier.

    Payment of Interest

    Petitioner posits that it "first knew" of the demurrage claim of P67,340 only when it received, bysummons, private respondent's complaint. Hence, interest may not be allowed to run from the date of

    private respondent's extrajudicial demands on March 8, 1983 for P50,260 or on April 24, 1983 forP37,800, considering that, in both cases, "there was no demand for interest." 30We agree.

    Jurisprudence teaches us:

    2. When an obligation, not constituting a loan or forbearance of money , isbreached, an interest on the amount of damages awarded may be imposed atthe discretion of the court at the rate of 6% per annum. No interest, however,shall be adjudged on unliquidated claims or damages except when or until thedemand can be established with reasonable certainty. Accordingly, where the

    demand is established with reasonable certainty, the interest shall begin to runfrom the time the claim is made judicially or extrajudicially (Art. 1169, CivilCode) but when such certainty cannot be so reasonably established at the timethe demand is made, the interest shall begin to run only from the date the

    judgment of the court is made ( at which time the quantification of damagesmay be deemed to have been reasonably ascertained). The actual base for thecomputation of legal interest shall, in any case, be on the amount finallyadjudged.

    3. When the judgment of the court awarding a sum of money becomes final andexecutory, the rate of legal interest, whether the case falls under paragraph 1 or

    paragraph 2, above, shall be 12% per annum from such finality until itssatisfaction, this interim period being deemed to be by then an equivalent to aforbearance of credit. 31

    The case before us involves an obligation not arising from a loan or forbearance of money; thus,pursuant to Article 2209 of the Civil Code, the applicable interest rate is six percent per annum. Sincethe bill of lading did not specify the amount of demurrage, and the sum claimed by private respondentincreased as the days went by, the total amount demanded cannot be deemed to have been establishedwith reasonable certainty until the trial court rendered its judgment. Indeed, "(u)nliquidated damagesor claims, it is said, are those which are not or cannot be known until definitely ascertained, assessedand determined by the courts after presentation of proof. " 32Consequently, the legal interest rate is six

    percent, to be computed from September 28, 1990, the date of the trial court's decision. And inaccordance withPhilippine National Bank33 andEastern Shipping, 34the rate of twelve percent perannum shall be charged on the total then outstanding, from the time the judgment becomes final andexecutory until its satisfaction.

    Finally, the Court notes that the matter of attorney's fees was taken up only in the dispositive portionof the trial court's decision. This falls short of the settled requirement that the text of the decision

    should state the reason for the award of attorney's fees, for without such justification, its award wouldbe a "conclusion without a premise, its basis being improperly left to speculation and conjecture."35

    WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that the legalinterest of six percent per annum shall be computed from September 28, 1990 until its full payment

    before finality of judgment. The rate of interest shall be adjusted to twelve percent per annum,computed from the time said judgment became final and executory until full satisfaction. The awardof attorney's fees is DELETED.

    SO ORDERED.

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    G.R. No. L-47011 September 30, 1981

    FEATI BANK & TRUST COMPANY,petitioner,

    vs.COURT OF APPEALS AND QUALITY TOBACCO CORPORATION, respondents.

    ABAD SANTOS,J.:

    On June 13, 1973, the Court of First Instance of Manila, Branch XVI, rendered a decision in CivilCase No. 84509, brought by Quality Tobacco Corporation (formerly U.S. Tobacco Corporation)against Feati Bank and Trust Co., with the following dispositive portion:

    IN VIEW OF THE FOREGOING, the Court renders judgment as follows:

    1) Plaintiff's claim for the amount of P30,312.29 is hereby denied;

    2) Defendant is entitled to there turn of $110,000.00 and plaintiff is ordered toreturn the same to defendant upon reimbursement of the amount ofP471,600.00 paid by plaintiff to the defendant. No cost or attorney's fees.

    On appeal by Quality Tobacco Corporation to the Court of Appeals (CA-G.R. No. 53640-R), thedecision of the trial court was reversed; the counter-claim was dismissed; and the appellee wasordered to pay the appellant the sum of P30,312.29, and the costs. Its motion for reconsideration ofthe judgment having been denied, Feati Bank elevated the ca se to Us for review.

    The antecedents are the following:

    On December 7, 1967, U.S. Tobacco Corporation (predecessor of Quality Tobacco Corporation)opened with Feati Bank and Trust Co. a letter of credit No. 67-571 for US $120,000.00 in favor ofTatran Corporation, in the principality of Liechtenstein to cover the freight charges in its exportationof 1,980.194 kilos of local Virginia leaf tobacco, to be shipped "C & F" to Tatran Corporation.(Shipment under "C & F" basis, symbol for "cost" and "freight," means that the seller or shipper paysfor freight charges from the point of origin to the point of destination, as the price quoted to the buyerincludes the cost and freight.)

    U.S. Tobacco Corporation paid P471,600.00 at P3.939 for every dollar for the letter of credit. Of theamount covered by the letter of credit, Feati Bank (through the National Bank of North America),remitted to Tatran Corporation US $110,000.00, leaving an unremitted amount of US $10,000.00.After the remittance to Tatran Feati Bank's account with the National Bank of North America wasdebited in the amount of $110,221.00 including charges.

    On January 18, 1968, U.S. Tobacco Corporation shipped the tobacco to Switzerland and as a resultletter of Credit No. 20678 was issued by Swiss Credit Bank in its favor upon application of TatranCorporation. The said letter of credit showed that the tobacco shipment was made on "FOB Manila"

    basis. ("FOB" stands for "free on board," wherein the seller shall deliver and load the goods at seller'spoint at his expense or free of charge to the buyer but the duty to pay freight charges from seller'spoint to the point of destination is on the buyer.)

    The discrepancy was discovered by the auditors of the Central Bank and both the Feati Bank and U.S.Tobacco were asked to explain. Whereupon, in a letter to Feati Bank, U.S. Tobacco explained that a

    mistake was made when Swiss Credit Bank, on order of Tatran Corporation, issued Letter of CreditNo. 20678 in that it appeared that the shipment of tobacco was made on "FOB Manila" basis, insteadof "C & F" basis.

    The foregoing explanation did not satisfy the Central Bank which accordingly issued Monetary BoardResolution No. 1054, dated July 1, 1969, directing the Feati Bank to advise U.S. Tobacco to have theamount of $110,000.00 remitted back to the Philippines under pain of having its foreign exchange

    privileges suspended.

    In compliance with the resolution, U.S. Tobacco repatriated on April 7, 1971, the $110,000.00through Commercial Bank and Trust Co. which paid it P6,402 for every dollar.

    On April 14, 1971, Quality Tobacco Corporation (successor lo U.S. Tobacco) requested Feati Bank to

    pay back the amount of P30,312.29 corresponding to P10,000.00 which was not remitted to Tatran.Feati Bank replied thus:

    This is to acknowledge receipt of your letter dated April 14, 1971, requestingthat we refund to you the excess payment of P30,312.29.

    However, before we make any refund and/or reimbursement to you, we requestthat the dollar proceeds of our LC No. 67-511 in the amount of $110,000.00which was debited from our account when said LC was negotiated, be remittedto us in accordance with the Central Bank Monetary Board Resolution No.1054 and not to the Commercial Bank and Trust Company. Please note that the$110,000.00 had been debited from Feati Bank and Trust Company's dollaraccount with the negotiating bank abroad and in compliance with the MonetaryBoard Resolution No. 1054, and the letter of the Director, Foreign Exchange

    Department dated December 6, 1968, the same should be remitted to FeatiBank and Trust Company.

    We, therefore, suggest that you request Commercial Bank and Trust Companyto credit the account of Feati Bank and Trust Company for $110,000.00 withChase Manhattan and we shall in turn reimburse you for the fun peso value ofthe aforementioned dollar amount (US $110,000.00) computed at the rate of P3.93 together with the unutilized portion of LC No. 67-51 1, computed at thesame rate. (Record on Appeal, pp. 20-21.)

    Quality Tobacco rejected Feati Bank's suggestion and insisted on the payment of P30,312.29. Sincethe parties could not agree, Quality Tobacco filed suit on September 14, 1971, in the Court of FirstInstance of Manila against Feati Bank praying for the return of P30,312.29, with interest in additionto damages, attorney's fees and costs.

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    G.R. No. 105387 November 11, 1993

    JOHANNES SCHUBACK & SONS PHILIPPINE TRADING CORPORATION,petitioner,vs.THE HON. COURT OF APPEALS, RAMON SAN JOSE, JR., doing business under the name

    and style "PHILIPPINE SJ INDUSTRIAL TRADING," respondents.

    Hernandez, Velicaria, Vibar & Santiago for petitioner.

    Ernesto M. Tomaneng for private respondent.

    ROMERO,J.:

    In this petition for review on certiorari, petitioner questions the reversal by the Court of Appeals 1ofthe trial court's ruling that a contract of sale had been perfected between petitioner and privaterespondent over bus spare parts.

    The facts as quoted from the decision of the Court of Appeals are as follows:

    Sometime in 1981, defendant 2established contact with plaintiff3through thePhilippine Consulate General in Hamburg, West Germany, because he wantedto purchase MAN bus spare parts from Germany. Plaintiff communicated withits trading partner. Johannes Schuback and Sohne Handelsgesellschaft m.b.n. &Co. (Schuback Hamburg) regarding the spare parts defendant wanted to order.

    On October 16, 1981, defendant submitted to plaintiff a list of the parts(Exhibit B) he wanted to purchase with specific part numbers and description.Plaintiff referred the list to Schuback Hamburg for quotations. Upon receipt ofthe quotations, plaintiff sent to defendant a letter dated 25 November, 1981

    (Exh. C) enclosing its offer on the items listed by defendant.

    On December 4, 1981, defendant informed plaintiff that he preferred genuineto replacement parts, and requested that he be given 15% on all items (Exh. D).

    On December 17, 1981, plaintiff submitted its formal offer (Exh. E) containingthe item number, quantity, part number, description, unit price and total todefendant. On December, 24, 1981, defendant informed plaintiff of his desireto avail of the prices of the parts at that time and enclosed Purchase Order No.0101 dated 14 December 1981 (Exh. F to F-4). Said Purchase Order containedthe item number, part number and description. Defendant promised to submitthe quantity per unit he wanted to order on December 28 or 29 (Exh. F).

    On December 29, 1981, defendant personally submitted the quantities hewanted to Mr. Dieter Reichert, General Manager of plaintiff, at the latter'sresidence (t.s.n., 13 December, 1984, p. 36). The quantities were written in ink

    by defendant in the same Purchase Order previously submitted. At the bottomof said Purchase Order, defendant wrote in ink above his signature: "NOTE:Above P.O. will include a 3% discount. The above will serve as our initialP.O." (Exhs. G to G-3-a).

    Plaintiff immediately ordered the items needed by defendant from Schuback

    Hamburg to enable defendant to avail of the old prices. Schuback Hamburg inturn ordered (Order No. 12204) the items from NDK, a supplier of MAN spare

    parts in West Germany. On January 4, 1982, Schuback Hamburg sent plaintiffa proforma invoice (Exhs. N-1 to N-3) to be used by defendant in applying fora letter of credit. Said invoice required that the letter of credit be opened infavor of Schuback Hamburg. Defendant acknowledged receipt of the invoice(t.s.n., 19 December 1984, p. 40).

    An order confirmation (Exhs. I, I-1) was later sent by Schuback Hamburg toplaintiff which was forwarded to and received by defendant on February 3,1981 (t.s.n., 13 Dec. 1984, p. 42).

    On February 16, 1982, plaintiff reminded defendant to open the letter of creditto avoid delay in shipment and payment of interest (Exh. J). Defendant replied,

    mentioning, among others, the difficulty he was encountering in securing: therequired dollar allocations and applying for the letter of credit, procuring a loanand looking for a partner-financier, and of finding ways 'to proceed with ourorders" (Exh. K).

    In the meantime, Schuback Hamburg received invoices from, NDK for partialdeliveries on Order No.12204 (Direct Interrogatories., 07 Oct, 1985, p. 3).Schuback Hamburg paid NDK. The latter confirmed receipt of payments madeon February 16, 1984 (Exh.C-Deposition).

    On October 18, 1982, Plaintiff again reminded defendant of his order andadvised that the case may be endorsed to its lawyers (Exh. L). Defendantreplied that he did not make any valid Purchase Order and that there was nodefinite contract between him and plaintiff (Exh. M). Plaintiff sent a rejoinder

    explaining that there is a valid Purchase Order and suggesting that defendanteither proceed with the order and open a letter of credit or cancel the order and

    pay the cancellation fee of 30% of F.O.B. value, or plaintiff will endorse thecase to its lawyers (Exh. N).

    Schuback Hamburg issued a Statement of Account (Exh. P) to plaintiffenclosing therewith Debit Note (Exh. O) charging plaintiff 30% cancellationfee, storage and interest charges in the total amount of DM 51,917.81. Saidamount was deducted from plaintiff's account with Schuback Hamburg (DirectInterrogatories, 07 October, 1985).

    Demand letters sent to defendant by plaintiff's counsel dated March 22, 1983and June 9, 1983 were to no avail (Exhs R and S).

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    G.R. No. L-42735 January 22, 1990

    RAMON L. ABAD,petitioner,vs.HON. COURT OF APPEALS & THE PHILIPPINE COMMERCIAL AND INDUSTRIAL

    BANK, respondents.

    Manuel T. De Guia for petitioner.

    San Juan, Africa, Gonzales & San Agustin Law Offices for private respondent.

    GRINO-AQUINO,J.:

    The bone of contention in this petition for review of the decision dated November 21, 1975 of theCourt of Appeals in C.A. G.R. No. 51649-R entitled, "Philippine Commercial and Industrial Bank vs.TOMCO, Inc., Oregon Industries, Inc., and Ramon L. Abad" is whether the debtor (or its surety) isentitled to deduct the debtor's cash marginal deposit from the principal obligation under a letter ofcredit and to have the interest charges computed only on the balance of the said obligation.

    On October 31, 1963, TOMCO, Inc., now known as Southeast Timber Co. (Phils.), Inc., applied for,and was granted by the Philippine Commercial and Industrial Bank (hereafter called "PCIB"), adomestic letter of credit for P 80,000 in favor of its supplier, Oregon Industries, Inc., to pay for oneSkagit Yarder with accessories. PCIB paid to Oregon Industries the cost of the machinery against a

    bill of exchange for P 80,000, with recourse, presentment and notice of dishonor waived, and withdate of maturity on January 4, 1964.

    After making the required marginal deposit of P28,000 on November 5, 1963, TOMCO, Inc. signed

    and delivered to the bank a trust receipt acknowledging receipt of the merchandise in trust for thebank, with the obligation "to hold the same in storage" as property of PCIB, with a right to sell thesame for cash provided that the entire proceeds thereof are turned over to the bank, to be appliedagainst acceptance(s) and any other indebtedness of TOMCO, Inc.

    In consideration of the release to TOMCO, Inc. by PCIB of the machinery covered by the trustreceipt, petitioner Ramon Abad signed an undertaking entitled, "Deed of Continuing Guaranty"appearing on the back of the trust receipt, whereby he promised to pay the obligation jointly andseverally with TOMCO, Inc.

    Except for TOMCO's P28,000 marginal deposit in the bank, no payment has been made to PCIB byeither TOMCO, Inc. or its surety, Abad, on the P80,000 letter of credit.

    Consequently, the bank sued TOMCO, Inc. and Abad in Civil Case No. 75767-CFI Manila entitled,"Philippine Commercial and Industrial Bank vs. TOMCO, Inc. and Ramon Abad." PCIB presented inevidence a "Statement of Draft Drawn" showing that TOMCO was obligated to it in the total sum ofP125,766.13 as of August 26, 1970.

    TOMCO did not deny its liability to PCIB under the letter of credit but it alleged that inasmuch as itmade a marginal deposit of P28,000, this amount should have been deducted from its principalobligation, leaving a balance of P52,000 only, on which the bank should have computed the interest,

    bank charges, and attorney's fees.

    On February 5, 1972, the trial court rendered judgment in favor of PCIB ordering TOMCO, Inc. andAbad to pay jointly and severally to the bank the sum of P125,766.13 as of August 26, 1970, withinterest and other charges until complete payment is made, plus attorney's fees and costs.

    Abad appealed to the Court of Appeals which, in a decision dated November 21, 1975, affirmed intoto the decision of the trial court.

    Abad filed this petition for review raising the issue of whether TOMCO's marginal deposit of P28,000in the possession of the bank should first be deducted from its principal indebtedness beforecomputing the interest and other charges due. Petitioner alleges that by not deducting the marginaldeposit from TOMCO's indebtedness, the bank unjustly enriched itself at the expense of the debtor(TOMCO) and its surety (Abad).

    The petition is impressed with merit.

    The nature and mercantile usage of a trust receipt was explained in the case ofPNB vs. GeneralAcceptance & Finance Corporation, et al., G.R. No. L-30751, 24 May 1988 and Vintola vs.InsularBank of Asia and America, 150 SCRA 578, as follows:

    . . . . A trust receipt is considered as a security transaction intended to aid infinancing importers and retail dealers who do not have sufficient funds orresources to finance the importation or purchase of merchandise, and who maynot be able to acquire credit except through utilization, as collateral of themerchandise imported or purchased, ... . The bank does not become the realowner of the goods. It is merely the holder of a security title for the advances ithad made to the importer. The goods the importer had purchased through the

    bank financing, remain the importer's property and he holds it at his own risk.The trust receipt arrangement does not convert the bank into an investor; itremains a lender and creditor. This is so because the bank had previouslyextended a loan which the letter of credit represents to the importer, and by thatloan, the importer should be the real owner of the goods. If under the trustreceipt, the bank is made to appear as the owner, it was but an artificialexpedient, more of a legal fiction than fact, for if it were so, it could dispose ofthe goods in any manner it wants, which it cannot do, just to give consistencywith the purpose of the trust receipt of giving a stronger security for the loanobtained by the importer. To consider the bank as the true owner from theinception of the transaction would be to disregard the loan feature involved.

    . . . . A letter of credit-trust receipt arrangement is endowed with its owndistinctive features and characteristics. Under that set-up, a bank extends a loancovered by the letter of c redit, with the trust receipt as a security for the loan. In

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    as may accrue thereon and expenses as may be incurred by plaintiff bank. (p. 4,Complaint)"

    Petitioner RCBC contends that the Court of Appeals erred in awarding to it the minimal sum ofP3,060,406.25 instead of P18,961,372.43 granted by the trial court.

    The rule is well settled that the jurisdiction of this Court in cases brought before it from the Court ofAppeals via Rule 45 of the 1997 Rules of Civil Procedure, as amended, is limited to reviewing errors

    of law. Findings of fact of the latter court are conclusive, except in a number of instances. In Siguanvs. Lim3 this Court enumerated those instances when the factual findings of the Court of Appeals arenot deemed conclusive, to wit: (1) when the conclusion is a finding grounded entirely on speculations,surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible;(3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension offacts; (5) when the findings of facts are conflicting; (6) when the Court of Appeals, in making itsfindings, went beyond the issues of the case and the same is contrary to the admissions of both theappellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when thefindings are conclusions without citation of specific evidence on which they are based; (9) when thefacts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by therespondent; and (10) when the findings of fact are premised on the supposed absence of evidence andcontradicted by the evidence on record.

    In the case at bar, exception No. 6 is present. Here, the Court of Appeals made findings "contrary tothe admissions" of the parties. We refer to the terms and conditions agreed upon by petitioner RCBC

    and respondent borrowers in the Trust Receipts 4 and the Comprehensive Surety Agreements.5

    Significantly, the validity of those contracts is not being questioned. It follows that the very terms andconditions of the same contracts become the law between the parties.

    Herein lies the reversible error on the part of the Court of Appeals. When it ruled that onlyP3,060,406.25 should be awarded to petitioner RCBC, the Appellate Court disregarded the partiesstipulations in their contracts of loan, more specifically, those pertaining to the agreed (1) interestrates, (2) service charges and (3) penalties in case of any breach thereof. 6 Indeed, the Court ofAppeals failed to apply this time-honored doctrine:

    "That which is agreed to in a contract is the law between the parties. Thus, obligationsarising from contracts have the force of law between the contracting parties and should becomplied with in good faith."7

    "The Court cannot vary the terms and conditions therein stipulated unless such stipulationis contrary to law, morals, good customs, public order or public policy."8

    In relation to the determination and computation of interest payments, this Court, in Eastern ShippingLines, Inc. vs. Court of Appeals,9 through Mr. Justice Jose C. Vitug, held:

    "The ostensible discord is not difficult to explain. The factual circumstances may havecalled for different applications, guided by the rule that the courts are vested withdiscretion, depending on the equities of each case, on the award of interest. Nonetheless, itmay not be unwise, by way of clarification and reconciliation, to suggest the followingrules of thumb for future guidance.

    I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delictsor quasi-delicts is breached, the contravenor can be held liable for damages. The

    provisions under Title XVIII on "Damages" of the Civil Code govern in determining themeasure of recoverable damages.

    II. With regard particularly to an award of interest, in the concept of actual andcompensatory damages, the rate of interest, as well as the accrual thereof, is imposed, asfollows:

    1. When the obligation is breached, and it consists in the payment of a sum ofmoney, i.e., a loan or forbearance of money, the interest due should be thatwhich may have been stipulated in writing. Furthermore, the interest due

    shall itself earn legal interest from the time it is judicially demanded. In

    the absence of stipulation, the rate of interest shall be 12% per annum to

    be computed from default, i.e., from judicial or extrajudicial demand

    under and subject to the provisions of Article 1169 of the Civil Code.

    2. When an obligation, not constituting a loan or forbearance of money, isbreached, an interest on the amount of damages awarded may be imposed atthe discretion of the court at the rate of 6%per annum. No interest, however,shall be adjudged on unliquidated claims or damages except when or until thedemand can be established with reasonable certainty. Accordingly, where thedemand is established with reasonable certainty, the interest shall begin to run

    from the time the claim is made judicially or extrajudicially (Art. 1169, CivilCode) but when such certainty cannot be so reasonably established at the timethe demand is made, the interest shall begin to run only from the date the

    judgment of the court is made (at which time the quantification of damagesmay be deemed to have been reasonably ascertained). The actual base for thecomputation of legal interest shall, in any case, be on the amount finallyadjudged.

    3. When the judgment of the court awarding a sum of money becomesfinal and executory, the rate of legal interest whether the case falls under

    paragraph 1 or paragraph 2, above, shall be 12% per annum from such

    finality until its satisfaction, this interim period being deemed to be by thenan equivalent to a forbearance of credit.." (Emphasis supplied).

    The case now before us involves an obligation arising from a letter of credit-trust receipt transaction.Under this arrangement, a bank extends to a borrower a loan covered by the letter of credit, with thetrust receipt as security of the loan.10 A trust receipt is "a security transaction intended to aid infinancing importers and retail dealers who do not have sufficient funds or resources to finance theimportation or purchase of merchandise, and who may not be able to acquire credit except thruutilization, as collateral, of the merchandise imported or purchased."11

    In contracts contained in trust receipts, the contracting parties may establish agreements, terms andconditions they may deem advisable, provided they are not contrary to law, morals or publicorder.12 In the case at bar, there are specific amounts of interest, service charges and penalties agreedupon by the parties. Pertinent provisions in the four (4) trust receipts (TR. No. 1909, TR. No. 1932,TR. No. 1732, and TR No. 2065)13 read:

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    "All obligations of the undersigned under this Trust Receipt shall bear interest at the rateof sixteenper centum (16%) per annum plus service charge of twoper centum (2%) perannum from the date of the execution of this Trust Receipt until paid. It is expresslyagreed and understood that regardless of the maturity date hereof, I/we hereby authorizethe said Bank to correspondingly increase the interest of this Trust Receipt to the extentallowed by law without notice to me/us whenever the Central Bank of the Philippinesraises the interest on borrowings of Banks or the interest provided for in the Usury Law, orwhenever, in the sole judgment of the holder of this Trust Receipt is warranted by theincrease in money market rates or by similar events.

    Without prejudice to the criminal action that may be brought by the Bank against theentrustee by reason of default or breach of this Trust Receipt, I/we agree to pay a penaltyand/or liquidated damages equivalent to sixper centum (6%) per annum of the amount dueand unpaid.

    In the event of the bringing of any action or suit by you or any default of the undersignedhereunder: I/we shall on demand pay you reasonable attorneys and other fees and cost ofcollection, which shall in no case be less than tenper centum (10%) of the value of the

    property and the amount involved by the action or suit.

    If there are two or more signatories on this Trust Receipt, our obligations hereunder shallin all cases be joint and several."

    Applying the above-quoted rules of thumb in the computation of interest, as enunciated by this Courtin Eastern Shipping Lines, Inc., 14 the principal amount of loans corresponding to each trust receiptmust earn an interest at the rate of sixteen percent (16%) per annum15 with the stipulated servicecharge of two percent (2%) per annum on the loan principal or the outstanding balance thereof, 16 fromthe date of execution until finality of this Decision. 17 A penalty of six percent (6%) per annum of theamount due and unpaid must also be imposed computed from the date of demand (in this case onMarch 9, 1982),18 until finality of Judgment.19 The interest of 16% percent per annum, as long asunpaid, also earns interest, computed from the date of the filing of the complaint (March 12, 1982)until finality of this Courts Dec ision.20 From such date of finality, the total unpaid amount (principal+ interest + service charge + penalty + interest on the interest) computed shall earn interest of 12%

    per annum until satisfied.1wphi1.nt

    The Court of Appeals awarded only the sum of P3,060,406.25 as it was the amount prayed for in thecomplaint. The Appellate Court, however, failed to consider that the complaint was filed on March

    12, 1982, or just a year after the execution of the trust receipts. The computed interests then, theservice charge, the penalty and the attorneys fees corresponded only to one year. The interest on theinterest could not have been computed then since the finality of judgment could not yet beascertained. Significantly, from the filing of the complaint on March 12, 1982 up to the time theAppellate Courts decision was promulgated, on May 14, 1998, there had been a lapse of sixteenyears. The computed interest in 1982 would no longer be true in 1998. What the Appellate Courtshould have done then was to compute the total amount due in accordance with the rules of thumblaid down by this Court inEastern Shipping Lines, Inc.,21 the resulting formula of which is as follows:

    TOTAL AMOUNT DUE = principal + interest + service charge + penalty + interest oninterest

    Interest = principal x 16 % per annum x no. of years from date of execution until finalityof judgment

    Service charge = principal x 2% per annum x no. of years from date of execution untilfinality of judgment

    Penalty = principal x 6% per annum x no. of years from demand (March 9, 1982) untilfinality of judgment

    Interest on interest = Interest computed as of the filing of the complaint (March 12, 1982)x 12% x no. of years until finality of judgment

    Attorneys fees is 10% of the total amount computed as of finality of judgment

    Total amount due as of the date of finality of judgment will earn an interest of 12% perannum until fully paid.

    The total amount due corresponding to each of the four (4) contracts of loan may be easily determinedby the trial court through a simple mathematical computation based on the formula specified above.Mathematics is an exact science, the application of which needs no further proof from the parties.

    WHEREFORE, the petition is hereby GRANTED. The assailed decision of the Court of Appealsis MODIFIED in the sense that the award to petitioner RCBC of P3,060,406.25 is SET ASIDE andsubstituted with an amount to be computed by the trial court, upon finality of this Decision, in

    accordance with the formula indicated above.

    SO ORDERED.

    Melo, Vitug, Panganiban, and Carpio, JJ., concur.

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    G.R. No. L-24821 October 16, 1970

    BANK OF THE PHILIPPINE ISLANDS,plaintiff-appellee,vs.DE RENY FABRIC INDUSTRIES, INC., AURORA T. TUYO and AURORA CARCERENY

    alias AURORA C. GONZALES, defendants-appellants.

    Aviado and Aranda for plaintiff-appellee.

    S. Emiliano Calma for defendants-appellants.

    CASTRO,J.:.

    This is an appeal from the decision of the Court of First Instance of Manila ordering the defendants-appellants to pay to the Bank of the Philippine Islands (hereinafter referred to as the Bank), jointlyand severally, the value of the credit it extended to them in several letters of credit which the Bankopened at the behest of the defendants appellants to finance their importation of dyestuffs from theUnited States, which however turned out to be mere colored chalk upon arrival and inspection thereofat the port of Manila.

    The record shows that on four (4) different occasions in 1961, the De Reny Fabric Industries, Inc., aPhilippine corporation through its co-defendants-appellants, Aurora Carcereny alias Aurora C.Gonzales, and Aurora T. Tuyo, president and secretary, respectively of the corporation, applied to theBank for four (4) irrevocable commercial letters of credit to cover the purchase by the corporation ofgoods described in the covering L/C applications as "dyestuffs of various colors" from its Americansupplier, the J.B. Distributing Company. All the applications of the corporation were approved, andthe corresponding Commercial L/C Agreements were executed pursuant to banking procedures.Under these agreements, the aforementioned officers of the corporation bound themselves personallyas joint and solidary debtors with the corporation. Pursuant to banking regulations then in force, thecorporation delivered to the Bank peso marginal deposits as each letter of credit was opened.

    The dates and amounts of the L/Cs applied for and approved as well as the peso marginal depositsmade were, respectively, as follows:.

    Date Application Amount Marginal& L/C No. Deposit

    Oct. 10, 1961 61/1413 $57,658.38 P43,407.33

    Oct. 23, 1961 61/1483 $25,867.34 19,473.64

    Oct. 30, 1961 61/1495 $19,408.39 14,610.88

    Nov. 10, 1961 61/1564 $26,687.64 20,090.90

    TOTAL .... $129,621.75 P97,582.75

    By virtue of the foregoing transactions, the Bank issued irrevocable commercial letters of creditaddressed to its correspondent banks in the United States, with uniform instructions for them to notifythe beneficiary thereof, the J.B. Distributing Company, that they have been authorized to negotiate thelatter's sight drafts up to the amounts mentioned the respectively, if accompanied, upon presentation,

    by a full set of negotiable clean "on board" ocean bills of lading covering the merchandise appearingin the LCs that is, dyestuffs of various colors. Consequently, the J.B. Distributing Company drewupon, presented to and negotiated with these banks, its sight drafts covering the amounts of themerchandise ostensibly being exported by it, together with clean bills of lading, and collected the fullvalue of the drafts up to the amounts appearing in the L/Cs as above indicated. These correspondent

    banks then debited the account of the Bank of the Philippine Islands with them up to the full value ofthe drafts presented by the J.B. Distributing Company, plus commission thereon, and, thereafter,endorsed and forwarded all documents to the Bank of the Philippine Islands.

    In the meantime, as each shipment (covered by the above-mentioned letters of credit) arrived in thePhilippines, the De Reny Fabric Industries, Inc. made partial payments to the Bank amounting, in theaggregate, to P90,000. Further payments were, however, subsequently discontinued by thecorporation when it became established, as a result of a chemical test conducted by the NationalScience Development Board, that the goods that arrived in Manila were colored chalks instead ofdyestuffs.

    The corporation also refused to take possession of these goods, and for this reason, the Bank causedthem to be deposited with a bonded warehouse paying therefor the amount of P12,609.64 up to thefiling of its complaint with the court below on December 10, 1962.

    On October 24, 1963 the lower court rendered its decision ordering the corporation and its co-defendants (the herein appellants) to pay to the plaintiff-appellee the amount of P291,807.46, withinterest thereon, as provided for in the L/C Agreements, at the rate of 7% per annum from October 31,1962 until fully paid, plus costs.

    It is the submission of the defendants-appellants that it was the duty of the foreign correspondentbanks of the Bank of the Philippine Islands to take the necessary precaution to insure that the goodsshipped under the covering L/Cs conformed with the item appearing therein, and, that the foregoing

    banks having failed to perform this duty, no claim for recoupment against the defendants-appellants,arising from the losses incurred for the non-delivery or defective delivery of the articles ordered,could accrue.

    We can appreciate the sweep of the appellants' argument, but we also find that it is nestled hopelesslyinside a salient where the valid contract between the parties and the internationally accepted customsof the banking trade must prevail.1

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    Under the terms of their Commercial Letter of Credit Agreements with the Bank, the appellantsagreed that the Bank shall not be responsible for the "existence, character, quality, quantity,conditions, packing, value, or delivery of the property purporting to be represented by documents; forany difference in character, quality, quantity, condition, or value of the property from that expressedin documents," or for "partial or incomplete shipment, or failure or omission to ship any or all of the

    property referred to in the Credit," as well as "for any deviation from instructions, delay, default orfraud by the shipper or anyone else in connection with the property the shippers or vendors andourselves [purchasers] or any of us." Having agreed to these terms, the appellants have, therefore, norecourse but to comply with their covenant. 2

    But even without the stipulation recited above, the appellants cannot shift the burden of loss to theBank on account of the violation by their vendor of its prestation.

    It was uncontrovertibly proven by the Bank during the trial below that banks, in providing financingin international business transactions such as those entered into by the appellants, do not deal with the

    property to be exported or shipped to the importer, but deal only with documents. The Bankintroduced in evidence a provision contained in the "Uniform Customs and Practices for CommercialDocumentary Credits Fixed for the Thirteenth Congress of International Chamber of Commerce," towhich the Philippines is a signatory nation. Article 10 thereof provides: .

    In documentary credit operations, all parties concerned deal in documents and

    not in goods. Payment, negotiation or acceptance against documents inaccordance with the terms and conditions of a credit by a Bank authorized to do

    so binds the party giving the authorization to take up the documents andreimburse the Bank making the payment, negotiation or acceptance.

    The existence of a custom in international banking and financing circles negating any duty on the partof a bank to verify whether what has been described in letters of credits or drafts or shippingdocuments actually tallies with what was loaded aboard ship, having been positively proven as a fact,the appellants are bound by this established usage. They were, after all, the ones who tapped thefacilities afforded by the Bank in order to engage in international business.

    ACCORDINGLY, the judgment a quo is affirmed, at defendants-appellants' cost. This is withoutprejudice to the Bank, in proper proceedings in the court below in this same case proving and beingreimbursed additional expenses, if any, it has incurred by virtue of the continued storage of the goodsin question up to the time this decision becomes final and executory.

    Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Villamor andMakasiar, JJ., concur.

    Concepcion, C.J., is on leave.

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    Respondent Timoteo Sevilla, proprietor and General Manager of the Philippine Associated Resources(PAR) together with two other entities, namely, the Nationwide Agro-Industrial Development Corp.and the Consolidated Agro-Producers Inc. were awarded in a public bidding the right to importVirginia leaf tobacco for blending purposes and exportation by them of PVTA and farmer's low-gradetobacco at a rate of one (1) kilo of imported tobacco for every nine (9) kilos of leaf tobacco actuallyexported. Subsequently, the other two entities assigned their rights to PVTA and respondent remainedthe only private entity accorded the privilege.

    The contract entered into between the petitioner and respondent Sevilla was for the importation of 85

    million kilos of Virginia leaf tobacco and a counterpart exportation of 2.53 million kilos of PVTA and5.1 million kilos of farmer's and/or PVTA at P3.00 a kilo. (Annex "A," p. 55 and Annex "B," Rollo,

    p. 59) In accordance with their contract respondent Sevilla purchased from petitioner and ac tuallyexported 2,101.470 kilos of tobacco, paying the PVTA the sum of P2,482,938.50 and leaving a

    balance of P3,713,908.91. Before respondent Sevilla could import the counterpart blending Virginiatobacco, amounting to 525,560 kilos, Republic Act No. 4155 was passed and took effec t on June 20, 1964, authorizing the PVTA to grant import privileges at the ratio of 4 to 1 instead of 9 to 1 and todispose of all its tobacco stock at the best price available.

    Thus, on September 14, 1965 subject contract which was already amended on December 14, 1963because of the prevailing export or world market price under which respondent will be exporting at aloss, (Complaint, Rollo, p. 3) was further amended to grant respondent the privileges under aforesaidlaw, subject to the following conditions: (1) that on the 2,101.470 kilos already purchased, andexported, the purchase price of about P3.00 a kilo was maintained; (2) that the unpaid balance ofP3,713,908.91 was to be liquidated by paying PVTA the sum of P4.00 for every kilo of importedVirginia blending tobacco and; (3) that