G.R. No. 145578 November 18, 2005
JOSE C. TUPAZ IV and PETRONILA C. TUPAZ, Petitioners, vs. THE COURT OF APPEALS and BANK OF THE PHILIPPINE ISLANDS, Respondents.

FACTS

Petitioners Jose C. Tupaz IV and Petronila C. Tupaz were officers of El Oro Engraver Corporation. To finance a contract to supply survival bolos to the Philippine Army, they applied for and were granted two commercial letters of credit by respondent Bank of the Philippine Islands (BPI) in favor of their suppliers. Simultaneously, they executed trust receipts in favor of BPI. Jose Tupaz signed one trust receipt in his personal capacity, while both petitioners signed the other in their corporate capacities. Upon delivery of the raw materials, BPI paid the suppliers. Petitioners failed to remit the proceeds or return the goods as stipulated. After BPI’s demands, El Oro Corporation replied that it could not pay due to the AFP’s delayed payments for the bolos. BPI charged petitioners with estafa under the Trust Receipts Law (PD 115).
The Regional Trial Court acquitted petitioners of estafa on reasonable doubt but held them solidarily liable with El Oro Corporation for the outstanding debt under the trust receipts. The Court of Appeals affirmed this ruling. Petitioners contended that their acquittal extinguished their civil liability and that they should not be personally liable for corporate debt.

ISSUE

Whether petitioners, as corporate officers who executed trust receipts, can be held personally and solidarily liable for the corporation’s civil obligation arising from the violation of the trust receipt agreements despite their acquittal in the criminal case for estafa.

RULING

Yes. The Supreme Court affirmed the rulings of the lower courts, holding petitioners solidarily liable. The civil liability in this case is based on contract (ex contractu), not on the crime (ex delicto). An acquittal in the criminal case for estafa under PD 115 does not extinguish the civil liability arising from the breach of the trust receipt agreement, as the civil action is separate and distinct. The Trust Receipts Law itself, in Section 13, contemplates this distinction by stating that the criminal action shall be without prejudice to the civil liability arising from the violation of the trust receipt agreement.
The Court examined the trust receipts and found that Jose Tupaz signed one in his personal capacity, thereby making him a direct party to the contract and personally liable. For the trust receipt signed in their corporate capacities, the Court applied the doctrine of piercing the corporate veil. Petitioners failed to prove that they acted in good faith and that the corporation had a separate and legitimate existence. Their act of diverting the raw materials, obtained under the trust receipts, for the benefit of the corporation without fulfilling the obligation to BPI constituted fraud and bad faith. This misuse of the corporate fiction to evade their contractual obligation justified holding them personally and solidarily liable with the corporation for the debt. The civil liability stands independently of the criminal prosecution’s outcome.