Metropolitan Bank and Trust Company vs. Ley Construction and Development Corporation

A petition for review on certiorari under Rule 45 of the Rules of Court may raise only questions of law, not questions of fact; consequently, issues regarding the sufficiency of evidence to establish a cause of action by preponderance, which require an examination of the probative value of evidence, are improper subjects of review under said rule.

LCDC, a general contracting firm, applied with Philippine Banking Corporation (now Metropolitan Bank and Trust Company) for the opening of Letter of Credit No. DC 90-303-C in the amount of USD 802,500.00 to finance the importation of 15,000 metric tons of Iraqi cement from Global Enterprises Limited. The spouses Manuel and Janet Ley executed a Continuing Surety Agreement to guarantee LCDC’s obligations. After the LC was negotiated and the Bank’s account debited for USD 770,691.30, the Bank received shipping documents which were delivered to LCDC. LCDC executed a trust receipt acknowledging receipt of the documents. However, the cement shipment never arrived due to the United Nations trade embargo against Iraq. Despite demands, LCDC failed to pay the obligation.

• The Letter of Credit Transaction: LCDC applied for a commercial letter of credit to import Iraqi cement. The Bank issued LC No. DC 90-303-C for USD 802,500.00 in favor of supplier Global Enterprises Limited. After amendments, the beneficiary negotiated the LC with Credit Suisse, which sent a reimbursement claim to American Express Bank, New York. The Bank’s account was debited for USD 770,691.30.
• Receipt of Documents and Trust Receipt: On August 6, 1990, the Bank received shipping documents from Credit Suisse and delivered them to LCDC on August 16, 1990. LCDC executed Trust Receipt No. TRI432/90 acknowledging receipt of the documents and liability to the Bank.
• Failure of Importation: The cement never arrived due to the United Nations trade embargo against Iraq. LCDC informed the Bank that the shipment was held up and later negotiated for reimbursement from the supplier or replacement with Syrian cement, which also failed to materialize.
• Trial Proceedings: The Bank filed suit to recover the amount paid under the LC plus interest and penalties. At trial, the Bank presented only Fenelito Cabrera, Head of the Foreign Department of the Bank’s Head Office. However, Cabrera was assigned to the Dasmariñas Branch from March 1990 to June 1991, the period covering the transaction. He could not identify or authenticate documents pertaining to the Head Office transactions.
• Exclusion of Evidence: The trial court initially admitted Exhibits "A" to "N" but subsequently excluded Exhibits "D", "E", "H", "I", "J", "K", "L", and "M" on respondents’ motion for reconsideration because Cabrera was incompetent to testify regarding them. Only Exhibits "A" (Continuing Surety Agreement), "B" (Application for LC), "C"/"C-1" (LC), "F" (Register Copy), "G" (Trust Receipt), and "N"/"N-1" to "N-4" (Statements of Outstanding Obligations) remained admitted.
• Demurrer to Evidence: Respondents filed a demurrer arguing that Cabrera was incompetent and the remaining exhibits were insufficient to establish the Bank’s right to recover. The trial court granted the demurrer, noting that even if Exhibits "F", "G", and "G-1" to "G-2" were considered, the Bank failed to show that respondents were directly responsible for the improper negotiation of the LC.

• Preponderance of Evidence: Petitioner argued that even without the excluded exhibits, it proved by preponderant evidence its right to recover from respondents through the testimony of Cabrera and the admitted documents, particularly the Trust Receipt which established respondents’ liability.
• Admission of Documents: Petitioner contended that respondents effectively admitted the authenticity of excluded documents (Exhibits "D", "E", "H", "I") when they stated in their pre-trial brief that they "shall adopt" the documents submitted by petitioner.
• Misapprehension of Facts: Petitioner claimed that the trial and appellate courts misapprehended the facts by treating the Letter of Credit as the basis of the cause of action rather than the Trust Receipt, which it characterized as the "primary actionable document." It argued that the cause of action was for breach of the trust receipt, not improper negotiation of the LC.

• Question of Fact: Respondent countered that the petition raised questions of fact regarding the sufficiency of evidence and preponderance of evidence, which are prohibited in a Rule 45 petition.
• Incompetence of Witness: Respondent maintained that Cabrera was incompetent to testify on documents he did not handle or prepare, and that petitioner’s counsel admitted this incompetence during trial.
• No Admission of Documents: Respondent argued that the statement in the pre-trial brief that they "shall adopt" certain documents did not constitute an admission of authenticity or existence, and that the trial court correctly excluded documents not properly identified.
• Cause of Action Based on LC: Respondent asserted that the complaint clearly alleged a cause of action based on the Letter of Credit, not the Trust Receipt, and that petitioner failed to prove the terms and conditions of the LC contract.

• Nature of Review: Whether the petition raises questions of law proper for review under Rule 45, or questions of fact regarding the sufficiency of evidence.
• Misapprehension of Facts Exception: Whether the case falls under the exception where findings of fact are based on a misapprehension of facts, specifically regarding the determination of the basis of the cause of action (Letter of Credit vs. Trust Receipt).
• Establishment of Cause of Action: Whether the Bank established its cause of action by preponderant evidence against LCDC and the Spouses Ley.

• Prohibition on Questions of Fact: The petition was dismissed for raising questions of fact. The issue of whether the Bank established its cause of action by preponderant evidence requires an examination of the probative value of the evidence presented, which is a factual determination not proper under Rule 45. Preponderance of evidence concerns the probability of truth of factual matters, necessitating a review of the truth or falsity of alleged facts.
• No Misapprehension of Facts: The Court found no misapprehension of facts regarding the basis of the cause of action. The nature of a cause of action is determined by the facts alleged in the complaint, not by the party’s subsequent characterization. The complaint’s allegations prominently featured the Letter of Credit in almost all paragraphs of the Statement of Cause of Action, whereas the Trust Receipt was mentioned only incidentally in one paragraph as a manifestation of acceptance of the LC negotiation. The Trust Receipt was not even pleaded as an actionable document under Section 7, Rule 8 of the Rules of Court (substance not set forth, only attached as annex), while the Letter of Credit had its substance set forth in the complaint.
• Failure to Prove Cause of Action: Even assuming the cause of action was for collection under the Letter of Credit, the Bank failed to discharge its burden of proof. The Application and Agreement for Commercial Letter of Credit (Exhibit "B"), which contained the provisions governing the relationship between the Bank and LCDC, had nothing on its reverse side where the terms and conditions were supposed to be printed. Without proof of the specific terms and conditions of the LC contract, the Bank could not establish the legal right and correlative duty necessary for a cause of action against LCDC, and consequently against the sureties (Spouses Ley).

• Question of Law vs. Question of Fact — A question of law exists when the doubt arises as to what the law is on a certain state of facts without examining probative value; a question of fact exists when the doubt arises as to the truth or falsity of alleged facts.
• Rule 45 Limitation — A petition for review on certiorari under Rule 45 shall raise only questions of law because the Supreme Court is not a trier of facts, and findings of fact by the trial court affirmed by the Court of Appeals are conclusive.
• Preponderance of Evidence — Defined as the weight, credit, and value of the aggregate evidence on either side; synonymous with "greater weight of evidence" or "probability to truth"; evidence more convincing to the court as worthier of belief than that offered in opposition.
• Cause of Action Determination — The nature of a cause of action is determined by the facts alleged in the complaint, not by the party’s designation or subsequent claims. It consists of three elements: (1) a legal right in favor of the plaintiff; (2) a correlative legal duty of the defendant to respect such right; and (3) an act or omission by the defendant in violation of the right causing injury or damage.
• Actionable Document — Under Section 7, Rule 8 of the Rules of Court, when an action is based on a written instrument, the substance must be set forth in the pleading and the original or copy attached as an exhibit, or the document may be set forth verbatim.
• Letter of Credit Tripartite Relationship — A letter of credit transaction involves three distinct and independent contracts: (1) the contract of sale between the buyer and seller; (2) the contract of the buyer with the issuing bank; and (3) the letter of credit proper where the bank promises to pay the seller.

• "There is a 'question of law' when the doubt or difference arises as to what the law is on a certain state of facts, and which does not call for an examination of the probative value of the evidence presented by the parties-litigants. On the other hand, there is a 'question of fact' when the doubt or controversy arises as to the truth or falsity of the alleged facts."
• "Preponderance of evidence is the weight, credit, and value of the aggregate evidence on either side and is usually considered to be synonymous with the term 'greater weight of evidence' or 'greater weight of the credible evidence.' Preponderance of evidence is a phrase which, in the last analysis, means probability to truth."
• "The nature of the cause of action is determined by the facts alleged in the complaint. A party’s cause of action is not what the party says it is, nor is it what the designation of the complaint states, but what the allegations in the body define and describe."
• "In a letter of credit, there are three distinct and independent contracts: (1) the contract of sale between the buyer and the seller, (2) the contract of the buyer with the issuing bank, and (3) the letter of credit proper in which the bank promises to pay the seller pursuant to the terms and conditions stated therein."

• Keng Hua Paper Products Co., Inc. v. Court of Appeals, 349 Phil. 925 (1998) — Cited for the principle that a letter of credit involves three distinct and independent contracts.
• Development Bank of the Philippines v. Licuanan, 545 Phil. 544 (2007) — Cited for the enumeration of exceptions to the rule that only questions of law may be raised in Rule 45 petitions.
• Heirs of Abadilla v. Galarosa, 527 Phil. 264 (2006) — Cited for the rule that the nature of the cause of action is determined by the facts alleged in the complaint.
• De la Cruz v. Court of Appeals, 539 Phil. 158 (2006) — Cited for the principle that a party's cause of action is not what the party says it is but what the allegations in the body define.
• Turner v. Lorenzo Shipping Corporation, G.R. No. 157479 (2010) — Cited for the definition and elements of a cause of action.

• Rule 45, Section 1, Rules of Court — Limits petitions for review on certiorari to questions of law.
• Rule 8, Section 7, Rules of Court — Governs the pleading of actionable documents.
• Rule 2, Section 2, Rules of Court — Defines cause of action.
• Rule 131, Section 1, Rules of Court — Defines burden of proof.
• Rule 133, Section 1, Rules of Court — Defines preponderance of evidence and how determined.
• Rule 128, Section 1, Rules of Court — Defines evidence.

Maria Lourdes P.A. Sereno (Chief Justice), Lucas P. Bersamin, Jose P. Perez, Estela M. Perlas-Bernabe.