G.R. No. 137232 ; June 29, 2005
Rosario Textile Mills Corporation and Edilberto Yujuico, petitioners, vs. Home Bankers Savings and Trust Company, respondent.

FACTS

Rosario Textile Mills Corporation (RTMC) obtained an ₱8 million credit line from Home Bankers Savings and Trust Company. Edilberto Yujuico signed a Surety Agreement binding himself jointly and severally with RTMC for the payment of all indebtedness. RTMC availed of the credit line through multiple drawdowns, each covered by promissory notes and trust receipts. Upon maturity, RTMC failed to pay its obligations despite demand.
RTMC and Yujuico defended by claiming the suretyship was a mere formality and that they had an option to return imported raw materials if these failed to meet specifications. They alleged they tendered defective materials to the bank, which refused acceptance. Subsequently, the materials were destroyed by fire. They argued that under the trust receipts, ownership remained with the bank, so the loss should be borne by the bank under the principle of res perit domino.

ISSUE

The core issues were: (1) whether petitioners were relieved of their loan obligation due to the tender and subsequent loss of the goods; (2) whether Yujuico was solidarily liable under the Surety Agreement; and (3) whether the Trust Receipts Law exempted petitioners from liability.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals. On the first issue, the Court clarified that the transaction was fundamentally a loan agreement. The trust receipts were merely security arrangements ancillary to the loan. The bank’s ownership interest under the trust receipts was by way of security and did not transform the bank into the absolute owner bearing the risk of loss. The principal contract of loan remained intact and unaffected by the destruction of the goods. Petitioners, as the entrustee-borrowers, held the goods at their own risk and remained liable for the money loaned.
On the second issue, the Court upheld Yujuico’s solidary liability. The Surety Agreement’s terms were clear, unambiguous, and conclusive. The parol evidence rule barred the alleged verbal assurance that the suretyship was a mere formality, as no ambiguity, mistake, or failure to express true intent was pleaded or proven. Yujuico was thus bound by the written contract.
On the third issue, the Court reiterated that the Trust Receipts Law did not alter the nature of the underlying loan obligation. The law governs the relationship concerning the goods held in trust but does not extinguish the debtor’s primary duty to pay the loan. Petitioners’ remedy, if the materials were indeed defective, was against their supplier, not against the creditor-bank. Therefore, petitioners were correctly held jointly and severally liable for the unpaid loan, inclusive of stipulated interest and penalty.