Title
Bank of Commerce vs. Serrano
Case
G.R. No. 151895
Decision Date
Feb 16, 2005
Bank of Commerce sued Teresita Serrano for estafa over unpaid trust receipts; Supreme Court upheld her acquittal, ruling no personal liability as she acted as Via Moda’s representative.
trust receipt
misappropriation
conversion
A

Case Summary (G.R. No. 151895)

Factual Background

Via Moda obtained an export packing loan from Bank of Commerce in the amount of US$50,000 (P1,382,250). The loan was secured by a Deed of Assignment over Irrevocable Transferable Letter of Credit No. 100072119. Serrano, acting for Via Moda, executed Promissory Note No. 94/086 for US$50,000 dated May 6, 1994, with a maturity date of July 14, 1994. Via Moda also opened a deposit account for the loan proceeds.

On March 15, 1994, Bank of Commerce issued to Via Moda Irrevocable Letter of Credit No. BCZ-940051 in the amount of US$56,735 for the purchase and importation of fabric and textile products from Tiger Ear Fabric Co. Ltd. of Taiwan. To secure the release of the goods covered by this arrangement, Serrano, on behalf of Via Moda, executed Trust Receipt No. 94-22221 dated April 21, 1994 with a due date of July 20, 1994 for US$55,944.73 (P1,554,424.32).

Under the trust receipt terms, Via Moda agreed to hold the goods in trust for the bank as the bank’s property and to sell the same for the bank’s account. The trust receipt required that, upon sale, the proceeds be remitted to the bank as soon as received and not later than the maturity date. The same provisions also imposed steep interest and penalties—interest at 26% per annum and a penalty of 36% per annum of the total amount due in case of non-payment—until full payment, and it alternatively required the return of the goods if not sold.

The entrusted goods were shipped to the consignee in New Jersey, USA, and the consignee sent an Export Letter of Credit issued by the Bank of New York, in favor of BOC. The bank’s Regional Operations Officer signed the export declarations evidencing bank consent to the shipment. The total value of the entrusted goods shipped, as reflected in the export declaration, was US$81,987 (P2,246,443.80).

After the sale, the proceeds of the entrusted goods were not credited to the trust receipt. Instead, they were applied by the bank to the principal, penalties, and interest of Via Moda’s export packing loan. The bank’s application resulted in an excess payment of P472,114.85, which the bank applied to the trust receipt, thereby leaving a balance of P1,444,802.28 as of November 15, 1994. On November 16, 1994, the bank issued a demand letter to Via Moda to pay the stated amount plus interest and penalty charges, or to return the goods covered by Trust Receipt No. 94-22221 within five (5) days from receipt. The demand was not heeded. As of December 15, 1998, the bank asserted that Via Moda’s outstanding balance had reached P4,783,487.15.

Criminal Charge and Trial Court Ruling

On March 8, 1998, Serrano was charged with estafa under Article 315 (b) of the Revised Penal Code in relation to Presidential Decree No. 115. The RTC found Serrano guilty beyond reasonable doubt and imposed an indeterminate sentence ranging from eight (8) years and one (1) day of prision mayor as minimum to twenty (20) years of reclusion temporal as maximum, with accessory penalties.

The RTC also ordered Serrano to pay civil liability to Bank of Commerce in the amount of P4,783,487.15, with interest until fully paid, and costs of the suit.

Appellate Proceedings and Grounds for Acquittal

Serrano appealed to the Court of Appeals. The Court of Appeals reversed the RTC and acquitted Serrano. It also deleted the civil liability adjudged by the RTC. The Court of Appeals reasoned that an element necessary to establish estafa in the trust receipts context—specifically misappropriation or conversion in violation of P.D. No. 115, in relation to the estafa charge—was absent.

The Court of Appeals found that there was no misappropriation or conversion attributable to Serrano. It held that, while the proceeds of the entrusted goods were not credited to the trust receipt, such proceeds were received by the bank, and the bank applied them to other obligations arising from Via Moda’s export packing loan. The appellate court further concluded that the bank’s application of the proceeds to a different obligation was done by the bank on its own, and such action could not create criminal liability for Serrano where she did not take part and had no knowledge of that application.

On the civil aspect, the Court of Appeals held that Serrano could not be made civilly liable under the trust receipt because she was not personally made liable and was not a guarantor therein. It relied on the pre-trial stipulation that Serrano executed the trust receipt in representation of Via Moda, a separate juridical entity. It further found that the bank failed to show sufficient reason to pierce the corporate veil, and therefore concluded that the obligation remained with Via Moda, not Serrano personally. The Court of Appeals accordingly deleted Serrano’s civil liability.

Issues Raised Before the Supreme Court

Bank of Commerce came to the Supreme Court and framed two issues:

First, it asked whether Serrano was jointly and severally liable with Via Moda under the guarantee clause of LC No. [BCZ-940051] secured by Trust Receipt No. [94-22221].

Second, it asked whether the Court of Appeals committed a reversible error in deleting Serrano’s civil liability.

The Parties’ Contentions

As to the first issue, Bank of Commerce argued that the Court of Appeals made a manifestly mistaken inference from its findings or misapprehended facts and overlooked vital evidence on record, particularly the Guarantee Clause of the letter of credit. Bank of Commerce insisted that the guarantee clause provided for Serrano’s joint and solidary liability, so she should be held liable on the underlying obligation. Bank of Commerce’s stance also treated the guarantee clause as binding on Serrano notwithstanding the trust receipt’s separate role.

Serrano, through the Court of Appeals’ approach, treated the letter of credit and the trust receipt as distinct instruments reflecting different undertakings and distinct scopes of liability.

On the second issue, Bank of Commerce challenged the deletion of civil liability by contending, in substance, that Serrano should be held liable in light of the bank’s documentary theory and the transactional context.

Legal Basis and Reasoning of the Court

The Supreme Court held that the argument grounded on the guarantee clause could not be entertained because it had not been raised either at the trial court or before the Court of Appeals. The Court ruled that an issue not raised in the courts below could not be invoked for the first time on appeal without offending basic rules of fair play, justice and due process. The Court thus treated the guarantee-clause liability theory as procedurally barred.

The Supreme Court also addressed Bank of Commerce’s attempt to revisit the factual findings of the Court of Appeals. It reiterated the procedural limitation in an appeal via certiorari that only questions of law may be raised. It further explained that the Court does not automatically delve into the record to re-evaluate facts when the trial court and the Court of Appeals differ on the probative value of evidence. When the appellate findings are consistent with, and not palpably contrary to, the evidence on record, the Supreme Court declines to reweigh the evidence. Under the Court’s approach, the Court of Appeals’ factual findings remain final and conclusive.

Applying these standards, the Court found no cogent reason to disturb the Court of Appeals’ factual conclusions. Those conclusions included the holding that misappropriation or conversion was absent, because the bank had actually received the proceeds and had applied them to the export packing loan’s other charges. The Court further noted the Court of Appeals’ view that the bank’s application of the proceeds to other obligations should not give rise to criminal liability for Serrano, particularly in the absence of participation and knowledge attributable to her.

As to civil liability, the Supreme Court accepted the Court of Appeals’ legal footing that Serrano could not be held civilly liable under the trust receipt where the record showed execution in representation of Via Moda, a corporation with a separate personality, and where the bank failed to justify the piercing of the corporate fiction. The Court of Appeals’ conclusion that there was no personal obligation on Serrano’s p

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