SPOUSES TIRSO I. VINTOLA AND LORETO DY VINTOLA, DEFENDANTS-APPELLANTS, VS. INSULAR BANK OF ASIA AND AMERICA, PLAINTIFF-APPELLEE.

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. x x x
“^[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.  Order(ed) 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 III 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. x x x “

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 III 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 relinquished 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:

“x x x any transaction by and between a person referred to in
this Decree as the entruster, and another person referred to in this Decree as
the entrustee, whereby the entruster, who owns or holds absolute title or
security interests over certain
specified goods, documents or instruments, releases the same to the possession of the entrustee upon
the latter’s execution and delivery to the entruster of a signed document
called a ‘trust receipt’ wherein the entrustee binds himself to hold the
designated goods, documents or instruments in trust for the entruster and to
sell or otherwise dispose of the goods, documents or instruments 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, x x x “

A trust receipt,
therefore, is a security agreement, pursuant to which a bank acquires a
“security interest” in the goods. “It secures an undebtedness 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.

“x x x 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, x x x “^[7]

Since the IBAA is not the
factual owner of the goods, the VTNTOLAS 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. x x x ” (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.” (Underlining 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.

Yap, (Chairman), Narvasa, Cruz, Gancayco, and Sarmiento, JJ., concur.

Feliciano, J., on leave.

^[1]
The IBAA has since merged with the Philippine Commercial and Industrial Bank,
with the latter as the surviving bank.

^[2]
pp. 11 & 12, Original Record.

^[3]
p. 2, Appellants’ Brief, p. 16, Rollo.

^[4]
48 Cal. Jur. 633, section 4.

^[5]
Section 3, P.D. No. 115.

^[6]
L-17603-04, May 31, 1962, 5 SCRA 354,
citing 53 Am. Jur. 961.

^[7]
Sia vs. People, L-30896, April
28, 1983, 121 SCRA 655.

^[8]
Application for Commercial Letter of Credit, Exhibit “A”, p. 5,
Original Record.

^[9]
PNB vs. Catipon, L-6662, January
31, 1956, 98 Phil. 286.

^[10]
PNB vs. Catipon, supra.

^[11]
Section 3 (b) Rule III, Rules of Court.