G.R. No. L-56077 - Republic vs. Court of Appeals

In 1989, Rosario Textile Mills Corporation (RTMC) applied for an omnibus credit line amounting to P10 million from Home Bankers Savings & Trust Co.
The bank approved RTMC’s credit line but limited it to P8 million, as evidenced by a letter dated March 2, 1989, which set forth the terms and conditions.
Edilberto V. Yujuico, representing RTMC, confirmed the terms by signing the letter as well as a surety agreement.

On March 3, 1989, Yujuico executed a Surety Agreement, thereby binding himself jointly and severally with RTMC for all indebtedness incurred under the credit line during 1989–1990.
RTMC availed itself of the credit line to import raw materials; withdrawals were made multiple times under separate transactions.
For each drawdown, RTMC issued promissory notes and executed corresponding trust receipts as collateral for the loan.

RTMC executed a total of eleven (11) promissory notes in favor of the bank, each covering different drawdowns from the credit line.
Despite the clear due dates on these promissory notes and the issuance of demand letters by the bank, RTMC failed to settle its obligations.

On January 22, 1993, the bank filed a complaint for a sum of money against both RTMC and Yujuico before the Regional Trial Court, Branch 16, Manila.
RTMC and Yujuico, in their answer, admitted to the grant of the credit line and the execution of the surety agreement but contended:

That the surety agreement was merely a “formality” intended not to hold Yujuico personally liable.
That the trust receipt contracts entailed that the imported raw materials were held in trust for the bank, making the bank the true owner of the goods.
That since the goods failed to meet manufacturing requirements and were tendered to the bank (which refused to accept the turnover), the subsequent loss due to a fire should absolve them of liability.

After trial on the merits, the trial court rendered its decision in favor of the bank, ordering RTMC and Yujuico to pay the amounts on the promissory notes with stipulated interest and penalties.

Their tender of the raw materials (which were later destroyed by fire) should have been accepted by the bank, invoking the doctrine of res perit domino.
The surety agreement was intended as a mere formality, thereby not personally binding Yujuico.
The trust receipt framework should have relieved them from liability since the bank was ostensibly the owner of the goods.

The Court of Appeals affirmed the trial court’s judgment, dismissing the petitioners’ counterclaims and denying their motion for reconsideration in its January 12, 1999 Resolution.
Petitioners then elevated the matter through a petition for review on certiorari, contesting several alleged errors committed by the Court of Appeals regarding:

The recognition or rejection of the tender of goods.
The interpretation of the loan and trust receipt relationship.
The application of the suretyship agreement and whether a surety is liable without the debtor’s liability.

Whether the court erred in ruling that RTMC and Yujuico remain liable for the loan despite their alleged tender of raw materials to the bank, which was refused and later destroyed by fire.
Whether the bank’s characterization of the transaction—as a contract of loan secured by trust receipts—precludes the application of the doctrine of res perit domino to relieve the petitioners from their payment obligations.
Whether the Court of Appeals erred in holding Yujuico liable under the surety agreement given his contention that it was merely a formal document and not intended to impose personal liability.
Whether the action of enforcing the trust receipts and the suretyship agreement violates principles of contract law, particularly under Article 1370 of the Civil Code and long-standing jurisprudence that the intention of the parties is paramount.
Whether the overall ruling improperly conflates the nature of the loan with that of a trust receipt, thereby misapplying the Trust Receipts Law.