Case Digest: Rosario Textile Mills Corporation vs Home Bankers and Trust Company (GR No. 137232, June 29, 2005)

 Rosario Textile Mills Corporation vs Home Bankers and Trust Company (GR No. 137232, June 29, 2005) 

• In 1989, Rosario Textile Mills Corporation (RTMC) applied for a credit line of ₱10 million from Home Bankers Savings & Trust Co. but was approved for only ₱8 million.

• On March 2, 1989, the bank notified RTMC of the approved loan through a letter, with terms and conditions confirmed by Edilberto V. Yujuico, representing RTMC.

• On March 3, 1989, Yujuico signed a Surety Agreement, jointly and severally binding himself with RTMC for the payment of all RTMC’s indebtedness to the bank from 1989 to 1990.

• RTMC availed the credit line through numerous drawdowns, each covered by a separate promissory note and trust receipt, totaling eleven promissory notes.

• Despite demand letters and lapse of due dates, RTMC failed to repay its loans.

• In 1993, the bank to file a complaint for sum of money against RTMC and Yujuico.

• RTMC and Yujuico claimed they should be absolved from liability, arguing that the suretyship agreement was merely a formality.

• They state that the importation of raw materials under the credit line came with an option to turn over the materials to the bank if they failed to meet manufacturing requirements.

• RTMC offered to turn over the imported materials because they did not meet specifications, but the bank refused until the materials were destroyed by a fire at RTMC's premises.

• Trial Court: Ruled in favor of the bank, ordering RTMC and Yujuico to pay jointly and severally under the promissory notes, inclusive of interest and penalties.

• Court of Appeals: Affirmed the trial court’s judgment, stating that the goods purchased through the credit line belonged to RTMC and Yujuico, who held them at their own risk.

Issues:

1. Whether the Court of Appeals erred in holding that petitioners are not relieved of their obligation to pay their loan after they tried to tender the goods to the bank which refused to accept the same, and which goods were subsequently lost in a fire; NO

2. Whether the Court of Appeals erred when it ruled that petitioners are solidarily liable for the payment of their obligations to the bank; NO

3. Whether the Court of Appeals violated the Trust Receipts Law. NO

On the first issue, petitioners theorize that when petitioner RTMC imported the raw materials needed for its manufacture, using the credit line, it was merely acting on behalf of the bank, the true owner of the goods by virtue of the trust receipts. Hence, under the doctrine of res perit domino, the bank took the risk of the loss of said raw materials. RTMC’s role in the transaction was that of end user of the raw materials and when it did not accept those materials as they did not meet the manufacturing requirements, RTMC made a valid and effective tender of the goods to the bank. Since the bank refused to accept the raw materials, RTMC stored them in its warehouse. When the warehouse and its contents were gutted by fire, petitioners’ obligation to the bank was accordingly extinguished.

Petitioners’ stance, however, conveniently ignores the true nature of its transaction with the bank. We recall that RTMC filed with the bank an application for a credit line in the amount of ₱10 million, but only ₱8 million was approved. RTMC then made withdrawals from this credit line and issued several promissory notes in favor of the bank. In banking and commerce, a credit line is "that amount of money or merchandise which a banker, merchant, or supplier agrees to supply to a person on credit and generally agreed to in advance.” It is the fixed limit of credit granted by a bank, retailer, or credit card issuer to a customer, to the full extent of which the latter may avail himself of his dealings with the former but which he must not exceed and is usually intended to cover a series of transactions in which case, when the customer’s line of credit is nearly exhausted, he is expected to reduce his indebtedness by payments before making any further drawings.

It is thus clear that the principal transaction between petitioner RTMC and the bank is a contract of loan. RTMC used the proceeds of this loan to purchase raw materials from a supplier abroad. In order to secure the payment of the loan, RTMC delivered the raw materials to the bank as collateral. Trust receipts were executed by the parties to evidence this security arrangement. Simply stated, the trust receipts were mere securities.

In Samo vs. People, we described a trust receipt 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."

In Vintola vs. Insular Bank of Asia and America, we elucidated further that "a trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a ‘security interest’ in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no obligation."

Section 3 (h) of the Trust Receipts Law (P.D. No. 115) defines a "security interest" as follows:

"(h) Security Interest means a property interest in goods, documents, or instruments to secure performance of some obligation 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."

Petitioners’ insistence that the ownership of the raw materials remained with the bank is untenable.

In Sia vs. People, Abad vs. Court of Appeals, and PNB vs. Pineda, we held that:

"If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it wants, which it cannot do, just to give consistency with 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..."

Thus, petitioners cannot be relieved of their obligation to pay their loan in favor of the bank.

Anent the second issue, petitioner Yujuico contends that the suretyship agreement he signed does not bind him, the same being a mere formality.

We reject petitioner Yujuico’s contentions for two reasons.

1. First, there is no record to support his allegation that the surety agreement is a "mere formality;" and

2. Second, as correctly held by the Court of Appeals, the Suretyship Agreement signed by petitioner Yujuico binds him. 

The terms clearly show that he agreed to pay the bank jointly and severally with RTMC. The parole evidence rule under Section 9, Rule 130 of the Revised Rules of Court is in point, thus:

"SEC. 9. Evidence of written agreements. – When the terms of an agreement have been reduced in writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement.

However, a party may present evidence to modify, explain, or add to the terms of the written agreement if he puts in issue in his pleading:

(a) An intrinsic ambiguity, mistake, or imperfection in the written agreement;

(b) The failure of the written agreement to express the true intent and agreement of the parties thereto;

(c) The validity of the written agreement; or

(d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the written agreement.

x x x."

Under this Rule, the terms of a contract are rendered conclusive upon the parties and evidence aliunde is not admissible to vary or contradict a complete and enforceable agreement embodied in a document. We have carefully examined the Suretyship Agreement signed by Yujuico and found no ambiguity therein. Documents must be taken as explaining all the terms of the agreement between the parties when there appears to be no ambiguity in the language of said documents nor any failure to express the true intent and agreement of the parties

As to the third and final issue – At the risk of being repetitious, we stress that the contract between the parties is a loan. What respondent bank sought to collect as creditor was the loan it granted to petitioners. Petitioners’ recourse is to sue their supplier, if indeed the materials were defective.

WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 48708 are AFFIRMED IN TOTO. Costs against petitioners.