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G.R. No.

143772 November 22, 2005 of the said items and they were thus not part of the mortgaged assets that
could be legally ceded to DBP.
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, vs. PRUDENTIAL
BANK, Respondent. For the failure of Litex to pay its obligation, DBP extra-judicially foreclosed
on the real estate and chattel mortgages, including the articles claimed by
Development Bank of the Philippines (DBP) assails in this petition for Prudential Bank. During the foreclosure sale held on April 19, 1983, DBP
review on certiorari under Rule 45 of the Rules of Court the December 14, acquired the foreclosed properties as the highest bidder.
1999 decision1 and the June 8, 2000 resolution of the Court of Appeals in
CA-G.R. CV No. 45783. The challenged decision dismissed DBP’s appeal and Subsequently, DBP caused to be published in the September 2, 1984 issue
affirmed the February 12, 1991 decision of the Regional Trial Court of of the Times Journal an invitation to bid in the public sale to be held on
Makati, Branch 137 in Civil Case No. 88-931 in toto, while the impugned September 10, 1984. It called on interested parties to submit bids for the
resolution denied DBP’s motion for reconsideration for being pro forma. sale of the textile mill formerly owned by Litex, the land on which it was
built, as well as the machineries and equipments therein. Learning of the
In 1973, Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial intended public auction, Prudential Bank wrote a letter dated September
letter of credit with respondent Prudential Bank for US$498,000. This was 6, 1984 to DBP reasserting its claim over the items covered by "trust
in connection with its importation of 5,000 spindles for spinning machinery receipts" in its name and advising DBP not to include them in the auction.
with drawing frame, simplex fly frame, ring spinning frame and various It also demanded the turn-over of the articles or alternatively, the
accessories, spare parts and tool gauge. These were released to Litex payment of their value.
under covering "trust receipts" it executed in favor of Prudential Bank.
Litex installed and used the items in its textile mill located in Montalban, An exchange of correspondences ensued between Prudential Bank and
Rizal. DBP. In reply to Prudential Bank’s September 6, 1984 letter, DBP requested
documents to enable it to evaluate Prudential Bank’s claim. On September
On October 10, 1980, DBP granted a foreign currency loan in the amount 28, 1994, Prudential Bank provided DBP the requested documents. Two
of US$4,807,551 to Litex. To secure the loan, Litex executed real estate and months later, Prudential Bank followed up the status of its claim. In a letter
chattel mortgages on its plant site in Montalban, Rizal, including the dated December 3, 1984, DBP informed Prudential Bank that its claim had
buildings and other improvements, machineries and equipments there. been referred to DBP’s legal department and instructed Prudential Bank to
Among the machineries and equipments mortgaged in favor of DBP were get in touch with its chief legal counsel. There being no concrete action on
the articles covered by the "trust receipts." DBP’s part, Prudential Bank, in a letter dated July 30, 1985, made a final
demand on DBP for the turn-over of the contested articles or the payment
Sometime in June 1982, Prudential Bank learned about DBP’s plan for the
of their value. Without the knowledge of Prudential Bank, however, DBP
overall rehabilitation of Litex. In a July 14, 1982 letter, Prudential Bank
sold the Litex textile mill, as well as the machineries and equipments
notified DBP of its claim over the various items covered by the "trust
therein, to Lyon Textile Mills, Inc. (Lyon) on June 8, 1987.
receipts" which had been installed and used by Litex in the textile mill.
Prudential Bank informed DBP that it was the absolute and juridical owner
Since its demands remained unheeded, Prudential Bank filed a complaint a) ₱3,261,834.00, as actual damages, with interest thereon computed from
for a sum of money with damages against DBP with the Regional Trial 10 August 1985 until the entire amount shall have been fully paid;
Court of Makati, Branch 137, on May 24, 1988. The complaint was
docketed as Civil Case No. 88-931. b) ₱50,000.00 as exemplary damages; and

On February 12, 1991, the trial court decided2 in favor of Prudential Bank. c) 10% of the total amount due as and for attorney’s fees.
Applying the provisions of PD 115, otherwise known as the "Trust Receipts
SO ORDERED.
Law," it ruled:
Aggrieved, DBP filed an appeal with the Court of Appeals. However, the
When PRUDENTIAL BANK released possession of the subject properties,
appellate court dismissed the appeal and affirmed the decision of the trial
over which it holds absolute title to LITEX upon the latter’s execution of
court in toto. It applied the provisions of PD 115 and held that ownership
the trust receipts, the latter was bound to hold said properties in trust for
over the contested articles belonged to Prudential Bank as entrustor, not
the former, and (a) to sell or otherwise dispose of the same and to turn
to Litex. Consequently, even if Litex mortgaged the items to DBP and the
over to PRUDENTIAL BANK the amount still owing; or (b) to return the
latter foreclosed on such mortgage, DBP was duty-bound to turn over the
goods if unsold. Since LITEX was allowed to sell the properties being
proceeds to Prudential Bank, being the party that advanced the payment
claimed by PRUDENTIAL BANK, all the more was it authorized to mortgage
for them.
the same, provided of course LITEX turns over to PRUDENTIAL BANK all
amounts owing. When DBP, well aware of the status of the properties, On DBP’s argument that the disputed articles were not proper objects of a
acquired the same in the public auction, it was bound by the terms of the trust receipt agreement, the Court of Appeals ruled that the items were
trust receipts of which LITEX was the entrustee. Simply stated, DBP held no part of the trust agreement entered into by and between Prudential Bank
better right than LITEX, and is thus bound to turn over whatever amount and Litex. Since the agreement was not contrary to law, morals, public
was due PRUDENTIAL BANK. Being a trustee ex maleficio of PRUDENTIAL policy, customs and good order, it was binding on the parties.
BANK, DBP is necessarily liable therefor. In fact, DBP may well be
considered as an agent of LITEX when the former sold the properties being Moreover, the appellate court found that DBP was not a mortgagee in
claimed by PRUDENTIAL BANK, with the corresponding responsibility to good faith. It also upheld the finding of the trial court that DBP was a
turn over the proceeds of the same to PRUDENTIAL BANK.3 (Citations trustee ex maleficio of Prudential Bank over the articles covered by the
omitted) "trust receipts."

The dispositive portion of the decision read: DBP filed a motion for reconsideration but the appellate court denied it for
being pro forma. Hence, this petition.
WHEREFORE, judgment is hereby rendered ordering defendant
DEVELOPMENT BANK OF THE PHILIPPINES to pay plaintiff PRUDENTIAL Trust receipt transactions are governed by the provisions of PD 115 which
BANK: defines such a transaction as follows:
Section 4. What constitutes a trust receipt transaction. – A trust receipt In a trust receipt transaction, the goods are released by the entruster (who
transaction, within the meaning of this Decree, is any transaction by and owns or holds absolute title or security interests over the said goods) to
between a person referred to in this Decree as the entruster, and another the entrustee on the latter’s execution and delivery to the entruster of a
person referred to in this Decree as entrustee, whereby the entruster, who trust receipt. The trust receipt evidences the absolute title or security
owns or holds absolute title or security interests over certain specified interest of the entruster over the goods. As a consequence of the release
goods, documents or instruments, releases the same to the possession of of the goods and the execution of the trust receipt, a two-fold obligation is
the entrustee upon the latter’s execution and delivery to the entruster of a imposed on the entrustee, namely: (1) to hold the designated goods,
signed document called a "trust receipt" wherein the entrustee binds documents or instruments in trust for the purpose of selling or otherwise
himself to hold the designated goods, documents or instruments in trust disposing of them and (2) to turn over to the entruster either the proceeds
for the entruster and to sell or otherwise dispose of the goods, documents thereof to the extent of the amount owing to the entruster or as appears
or instruments with the obligation to turn over to the entruster the in the trust receipt, or the goods, documents or instruments themselves if
proceeds thereof to the extent of the amount owing to the entruster or as they are unsold or not otherwise disposed of, in accordance with the terms
appears in the trust receipt or the goods, documents or instruments and conditions specified in the trust receipt. In the case of goods, they may
themselves if they are unsold or not otherwise disposed of, in accordance also be released for other purposes substantially equivalent to (a) their
with the terms and conditions specified in the trust receipt, or for other sale or the procurement of their sale; or (b) their manufacture or
purposes substantially equivalent to any of the following: processing with the purpose of ultimate sale, in which case the entruster
retains his title over the said goods whether in their original or processed
1. In the case of goods or documents, (a) to sell the goods or procure their form until the entrustee has complied fully with his obligation under the
sale; or (b) to manufacture or process the goods with the purpose of trust receipt; or (c) the loading, unloading, shipment or transshipment or
ultimate sale: Provided, That, in the case of goods delivered under trust otherwise dealing with them in a manner preliminary or necessary to their
receipt for the purpose of manufacturing or processing before its ultimate sale.4 Thus, in a trust receipt transaction, the release of the goods to the
sale, the entruster shall retain its title over the goods whether in its entrustee, on his execution of a trust receipt, is essentially for the purpose
original or processed form until the entrustee has complied fully with his of their sale or is necessarily connected with their ultimate or subsequent
obligation under the trust receipt; or (c) to load, unload, ship or tranship or sale.
otherwise deal with them in a manner preliminary or necessary to their
sale; or Here, Litex was not engaged in the business of selling spinning machinery,
its accessories and spare parts but in manufacturing and producing textile
2. In the case of instruments, (a) to sell or procure their sale or exchange; and various kinds of fabric. The articles were not released to Litex to be
or (b) to deliver them to a principal; or (c) to effect the consummation of sold. Nor was the transfer of possession intended to be a preliminary step
some transactions involving delivery to a depository or register; or (d) to for the said goods to be ultimately or subsequently sold. Instead, the
effect their presentation, collection or renewal. contemporaneous and subsequent acts of both Litex and Prudential Bank
showed that the imported articles were released to Litex to be installed in
xxxxxxxxx
its textile mill and used in its business. DBP itself was aware of this. To
support its assertion that the contested articles were excluded from goods of the said goods or any part thereof (or the proceeds thereof) either by
that could be covered by a trust receipt, it contended: way of conditional sale, pledge, or otherwise.

First. That the chattels in controversy were procured by DBP’s mortgagor The articles were owned by Prudential Bank and they were only held by
Lirag Textile Mills ("LITEX") for the exclusive use of its textile mills. They Litex in trust. While it was allowed to sell the items, Litex had no authority
were not procured - to dispose of them or any part thereof or their proceeds through
conditional sale, pledge or any other means.
(a) to sell or otherwise procure their sale;
Article 2085 (2) of the Civil Code requires that, in a contract of pledge or
(b) to manufacture or process the goods with the purpose of ultimate sale. mortgage, it is essential that the pledgor or mortgagor should be the
absolute owner of the thing pledged or mortgaged. Article 2085 (3) further
Hence, the transactions between Litex and Prudential Bank were allegedly
mandates that the person constituting the pledge or mortgage must have
not trust receipt transactions within the meaning of PD 115. It follows that,
the free disposal of his property, and in the absence thereof, that he be
contrary to the decisions of the trial court and the appellate court, the
legally authorized for the purpose.
transactions were not governed by the Trust Receipts Law.
Litex had neither absolute ownership, free disposal nor the authority to
We disagree.
freely dispose of the articles. Litex could not have subjected them to a
The various agreements between Prudential Bank and Litex commonly chattel mortgage. Their inclusion in the mortgage was void7 and had no
denominated as "trust receipts" were valid. As the Court of Appeals legal effect.8 There being no valid mortgage, there could also be no valid
correctly ruled, their provisions did not contravene the law, morals, good foreclosure or valid auction sale.9 Thus, DBP could not be considered
customs, public order or public policy. either as a mortgagee or as a purchaser in good faith.10

The agreements uniformly provided: No one can transfer a right to another greater than what he himself has.11
Nemo dat quod non habet. Hence, Litex could not transfer a right that it
Received, upon the Trust hereinafter mentioned from the PRUDENTIAL did not have over the disputed items. Corollarily, DBP could not acquire a
BANK (hereinafter referred to as BANK) the following goods and right greater than what its predecessor-in-interest had. The spring cannot
merchandise, the property of said BANK specified in the bill of lading as rise higher than its source.12 DBP merely stepped into the shoes of Litex as
follows: trustee of the imported articles with an obligation to pay their value or to
return them on Prudential Bank’s demand. By its failure to pay or return
Amount of Bill - Description of Security - Marks & Nos. - Vessel
them despite Prudential Bank’s repeated demands and by selling them to
and in consideration thereof, I/We hereby agree to hold said goods in trust Lyon without Prudential Bank’s knowledge and conformity, DBP became a
for the BANK and as its property with liberty to sell the same for its trustee ex maleficio.
account but without authority to make any other disposition whatsoever
On the matter of actual damages adjudged by the trial court and affirmed mortgage was interrupted when Prudential Bank wrote the extra-judicial
by the Court of Appeals, DBP wants this Court to review the evidence demands for the turn over of the articles or their value. In particular, the
presented during the trial and to reverse the factual findings of the trial last demand letter sent by Prudential Bank was dated July 30, 1988 and
court. This Court is, however, not a trier of facts and it is not its function to this was received by DBP the following day. Thus, contrary to DBP’s claim,
analyze or weigh evidence anew.13 The rule is that factual findings of the Prudential Bank’s right to enforce its action had not yet prescribed when it
trial court, when adopted and confirmed by the CA, are binding and filed the complaint on May 24, 1988.
conclusive on this Court and generally will not be reviewed on appeal.14
While there are recognized exceptions to this rule, none of the established WHEREFORE, the petition is hereby DENIED. The December 14, 1999
exceptions finds application here. decision and June 8, 2000 resolution of the Court of Appeals in CA-G.R. CV
No. 45783 are AFFIRMED.
With regard to the imposition of exemplary damages, the appellate court
agreed with the trial court that the requirements for the award thereof Costs against the petitioner.
had been sufficiently established. Prudential Bank’s entitlement to
SO ORDERED.
compensatory damages was likewise amply proven. It was also shown that
DBP was aware of Prudential Bank’s claim as early as July, 1982. However,
it ignored the latter’s demand, included the disputed articles in the
mortgage foreclosure and caused their sale in a public auction held on
April 19, 1983 where it was declared as the highest bidder. Thereafter, in
the series of communications between them, DBP gave Prudential Bank
the false impression that its claim was still being evaluated. Without acting
on Prudential Bank’s plea, DBP included the contested articles among the
properties it sold to Lyon in June, 1987. The trial court found that this
chain of events showed DBP’s fraudulent attempt to prevent Prudential
Bank from asserting its rights. It smacked of bad faith, if not deceit. Thus,
the award of exemplary damages was in order. Due to the award of
exemplary damages, the grant of attorney’s fees was proper.15

DBP’s assertion that both the trial and appellate courts failed to address
the issue of prescription is of no moment. Its claim that, under Article 1146
(1) of the Civil Code, Prudential Bank’s cause of action had prescribed as it
should be reckoned from October 10, 1980, the day the mortgage was
registered, is not correct. The written extra-judicial demand by the creditor
interrupted the prescription of action.16 Hence, the four-year prescriptive
period which DBP insists should be counted from the registration of the
G.R. No. 159622 July 30, 2004 extent of P400,000.00, excluding interest, in favor of respondent bank.
Petitioner Lucente also executed a Deed of Assignment in the amount of
LANDL & COMPANY (PHIL.) INC., PERCIVAL G. LLABAN and MANUEL P. P35,000.00 in favor of respondent bank to cover the amount of petitioner
LUCENTE, petitioners, vs. METROPOLITAN BANK & TRUST COMPANY, corporation's obligation to the bank. Upon compliance with these
respondent. requisites, respondent bank opened an irrevocable letter of credit for the
petitioner corporation.
At issue in this petition for review on certiorari is whether or not, in a trust
receipt transaction, an entruster which had taken actual and juridical To secure the indebtedness of petitioner corporation, respondent bank
possession of the goods covered by the trust receipt may subsequently required the execution of a Trust Receipt in an amount equivalent to the
avail of the right to demand from the entrustee the deficiency of the letter of credit, on the condition that petitioner corporation would hold
amount covered by the trust receipt. the goods in trust for respondent bank, with the right to sell the goods and
the obligation to turn over to respondent bank the proceeds of the sale, if
As correctly appreciated by the Court of Appeals, the undisputed facts of
any. If the goods remained unsold, petitioner corporation had the further
this case are as follows:
obligation to return them to respondent bank on or before November 23,
Respondent Metropolitan Bank and Trust Company (Metrobank) filed a 1983.
complaint for sum of money against Landl and Company (Phil.) Inc. (Landl)
Upon arrival of the goods in the Philippines, petitioner corporation took
and its directors, Percival G. Llaban and Manuel P. Lucente before the
possession and custody thereof.
Regional Trial Court of Cebu City, Branch 19, docketed as Civil Case No.
CEB-4895. On November 23, 1983, the maturity date of the trust receipt, petitioner
corporation defaulted in the payment of its obligation to respondent bank
Respondent alleged that petitioner corporation is engaged in the business
and failed to turn over the goods to the latter. On July 24, 1984,
of selling imported welding rods and alloys. On June 17, 1983, it opened
respondent bank demanded that petitioners, as entrustees, turn over the
Commercial Letter of Credit No. 4998 with respondent bank, in the amount
goods subject of the trust receipt. On September 24, 1984, petitioners
of US$19,606.77, which was equivalent to P218,733.92 in Philippine
turned over the subject goods to the respondent bank.
currency at the time the transaction was consummated. The letter of
credit was opened to purchase various welding rods and electrodes from On July 31, 1985, in the presence of representatives of the petitioners and
Perma Alloys, Inc., New York, U.S.A., as evidenced by a Pro-Forma Invoice respondent bank, the goods were sold at public auction. The goods were
dated March 10, 1983. Petitioner corporation put up a marginal deposit of sold for P30,000.00 to respondent bank as the highest bidder.
P50,414.00 from the proceeds of a separate clean loan.
The proceeds of the auction sale were insufficient to completely satisfy
As an additional security, and as a condition for the approval of petitioner petitioners' outstanding obligation to respondent bank, notwithstanding
corporation's application for the opening of the commercial letter of the application of the time deposit account of petitioner Lucente.
credit, respondent bank required petitioners Percival G. Llaban and Accordingly, respondent bank demanded that petitioners pay the
Manuel P. Lucente to execute a Continuing Suretyship Agreement to the
remaining balance of their obligation. After petitioners failed to do so, GOODS COVERED BY THE TRUST RECEIPT WERE FULLY
respondent bank instituted the instant case to collect the said deficiency. TURNED OVER TO RESPONDENT.
II. THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN
On March 31, 1997, after trial on the merits, the trial court rendered a AFFIRMING THE TRIAL COURT'S PATENTLY ERRONEOUS
decision, the dispositive portion of which reads: AWARD OF PRINCIPAL OBLIGATION, INTEREST, ATTORNEY'S
FEES, AND PENALTY AGAINST THE PETITIONERS.3
WHEREFORE, foregoing premises considered, Judgment is hereby rendered
in favor of the plaintiff and against the defendant by (1) ordering the The instant petition is partly meritorious.
defendant to pay jointly and severally to the plaintiff the sum of
P292,172.23 representing the defendant's obligation, as of April 17, 1986; The resolution of the first assigned error hinges on the proper
(2) to pay the interest at the rate of 19% per annum to be reckoned from interpretation of Section 7 of Presidential Decree No. 115, or the Trust
April 18, 1986 until [the] obligation is fully paid; (3) to pay service charge at Receipts Law, which reads:
the rate of 2% per annum starting April 18, 1986; (4) to pay the sum
equivalent to 10% per annum of the total amount due collectible by way of Sec. 7. Rights of the entruster. - The entruster shall be entitled to the
Attorney's Fees; (5) to pay Litigation Expenses of P3,000.00 and to pay the proceeds from the sale of the goods, documents or instruments released
cost of the suit; and (6) to pay penalty charge of 12% per annum. under a trust receipt to the entrustee to the extent of the amount owing to
the entruster or as appears in the trust receipt, or to the return of the
Petitioners appealed to the Court of Appeals, raising the issues of: (1) goods, documents or instruments in case of non-sale, and to the
whether or not respondent bank has the right to recover any deficiency enforcement of all other rights conferred on him in the trust receipt
after it has retained possession of and subsequently effected a public provided such are not contrary to the provisions of this Decree.
auction sale of the goods covered by the trust receipt; (2) whether or not
respondent bank is entitled to the amount of P3,000.00 as and for The entruster may cancel the trust and take possession of the goods,
litigation expenses and costs of the suit; and (3) whether or not documents or instruments subject of the trust or of the proceeds realized
respondent bank is entitled to the award of attorney's fees. therefrom at any time upon default or failure of the entrustee to comply
with any of the terms and conditions of the trust receipt or any other
On February 13, 2003, the Court of Appeals rendered a decision affirming agreement between the entruster and the entrustee, and the entruster in
in toto the decision of the trial court. possession of the goods, documents or instruments may, on or after
default, give notice to the entrustee of the intention to sell, and may, not
Hence, this petition for review on the following assignment of errors: less than five days after serving or sending of such notice, sell the goods,
documents or instruments at public or private sale, and the entruster may,
I. THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN
at a public sale, become a purchaser. The proceeds of any such sale,
AFFIRMING THE TRIAL COURT'S RULING THAT RESPONDENT
whether public or private, shall be applied (a) to the payment of the
HAD THE RIGHT TO CLAIM THE DEFICIENCY FROM
expenses thereof; (b) to the payment of the expenses of re-taking, keeping
PETITIONERS NOTWITHSTANDING THE FACT THAT THE
and storing the goods, documents or instruments; (c) to the satisfaction of
the entrustee's indebtedness to the entruster. The entrustee shall receive represented by the letter of credit, and a security feature which is in the
any surplus but shall be liable to the entruster for any deficiency. Notice of covering trust receipt. x x x.
sale shall be deemed sufficiently given if in writing, and either personally
served on the entrustee or sent by post-paid ordinary mail to the A trust receipt, therefore, is a security agreement, pursuant to which a
entrustee's last known business address. 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
There is no question that petitioners failed to pay their outstanding obligation.
obligation to respondent bank. They contend, however, that when the
entrustee fails to settle his principal loan, the entruster may choose The Trust Receipts Law was enacted to safeguard commercial transactions
between two separate and alternative remedies: (1) the return of the and to offer an additional layer of security to the lending bank. Trust
goods covered by the trust receipt, in which case, the entruster now receipts are indispensable contracts in international and domestic business
acquires the ownership of the goods which the entrustee failed to sell; or transactions. The prevalent use of trust receipts, the danger of their
(2) cancel the trust and take possession of the goods, for the purpose of misuse and/or misappropriation of the goods or proceeds realized from
selling the same at a private sale or at public auction. Petitioners assert the sale of goods, documents or instruments held in trust for entruster
that, under this second remedy, the entruster does not acquire ownership banks, and the need for regulation of trust receipt transactions to
of the goods, in which case he is entitled to the deficiency. Petitioners safeguard the rights and enforce the obligations of the parties involved are
argue that these two remedies are so distinct that the availment of one the main thrusts of the Trust Receipts Law.
necessarily bars the availment of the other. Thus, when respondent bank
The second paragraph of Section 7 provides a statutory remedy available
availed of the remedy of demanding the return of the goods, the actual
to an entruster in the event of default or failure of the entrustee to comply
return of all the unsold goods completely extinguished petitioners' liability.
with any of the terms and conditions of the trust receipt or any other
Petitioners' argument is bereft of merit. agreement between the entruster and the entrustee. More specifically, the
entruster "may cancel the trust and take possession of the goods,
A trust receipt is inextricably linked with the primary agreement between documents or instruments subject of the trust or of the proceeds realized
the parties. Time and again, we have emphasized that a trust receipt therefrom at any time". The law further provides that "the entruster in
agreement is merely a collateral agreement, the purpose of which is to possession of the goods, documents or instruments may, on or after
serve as security for a loan. Thus, in Abad v. Court of Appeals,5 we ruled: default, give notice to the entrustee of the intention to sell, and may, not
less than five days after serving or sending of such notice, sell the goods,
documents or instruments at public or private sale, and the entruster may,
at a public sale, become a purchaser. The proceeds of any such sale,
A letter of credit-trust receipt arrangement is endowed with its own
whether public or private, shall be applied (a) to the payment of the
distinctive features and characteristics. Under that set-up, a bank extends
expenses thereof; (b) to the payment of the expenses of re-taking, keeping
a loan covered by the letter of credit, with the trust receipt as security for
and storing the goods, documents or instruments; (c) to the satisfaction of
the loan. In other words, the transaction involves a loan feature
the entrustee's indebtedness to the entruster. The entrustee shall receive and which were conferred by statute and reinforced by the contract
any surplus but shall be liable to the entruster for any deficiency." between the parties.

The trust receipt between respondent bank and petitioner corporation The initial repossession by the bank of the goods subject of the trust
contains the following relevant clauses: receipt did not result in the full satisfaction of the petitioners' loan
obligation. Petitioners are apparently laboring under the mistaken
The BANK/ENTRUSTER may, at any time, and only at its option, cancel this impression that the full turn-over of the goods suffices to divest them of
trust and take possession of the goods/documents/instruments subject their obligation to repay the principal amount of their loan obligation. This
hereof or of the proceeds realized therefrom wherever they may then be is definitely not the case. In Philippine National Bank v. Hon. Gregorio G.
found, upon default or failure of the ENTRUSTEE to comply with any of the Pineda and Tayabas Cement Company, Inc., we had occasion to rule:
terms and conditions of this Trust Receipt or of any other agreement
between the BANK/ENTRUSTER and the ENTRUSTEE; and the PNB's possession of the subject machinery and equipment being precisely
BANK/ENTRUSTER having taken repossession of the as a form of security for the advances given to TCC under the Letter of
goods/documents/instruments object hereof may, on or after default, give Credit, said possession by itself cannot be considered payment of the loan
at least five (5) days' previous notice to the ENTRUSTEE of its intention to secured thereby. Payment would legally result only after PNB had
sell the goods/documents/instruments at public or private sale, at which foreclosed on said securities, sold the same and applied the proceeds
public sale, it may become a purchaser; Provided, that the proceeds of any thereof to TCC's loan obligation. Mere possession does not amount to
such sale, whether public or private, shall be applied: (a) to the payment of foreclosure for foreclosure denotes the procedure adopted by the
the expenses thereof; (b) to the payment of the expenses of retaking, mortgagee to terminate the rights of the mortgagor on the property and
keeping and storing the goods/documents/instruments; (c) to the includes the sale itself.
satisfaction of all of the ENTRUSTEE's indebtedness to the
BANK/ENTRUSTER; and Provided, further, that the ENTRUSTEE shall Neither can said repossession amount to dacion en pago. Dation in
receive any surplus thereof but shall, in any case, be liable to the payment takes place when property is alienated to the creditor in
BANK/ENTRUSTER for any deficiency. x x x satisfaction of a debt in money and the same is governed by sales. Dation
in payment is the delivery and transmission of ownership of a thing by the
No act or omission on the part of the BANK/ENTRUSTER shall be deemed debtor to the creditor as an accepted equivalent of the performance of the
and considered a waiver of any of its rights hereunder or under any related obligation. As aforesaid, the repossession of the machinery and equipment
letters of credit, drafts or other documents unless such waiver is expressly in question was merely to secure the payment of TCC's loan obligation and
made in writing over the signature of the BANK/ENTRUSTER. not for the purpose of transferring ownership thereof to PNB in
satisfaction of said loan. Thus, no dacion en pago was ever accomplished.
The afore-cited stipulations in the trust receipt are a near-exact
reproduction of the second paragraph of Section 7 of the Trust Receipts Indeed, in the 1987 case of Vintola v. Insular Bank of Asia and America, we
Law. The right of repossession and subsequent sale at public auction which struck down the position of the petitioner-spouses that their obligation to
were availed of by respondent bank were rights available upon default,
the entruster bank had been extinguished when they relinquished absolutely relieved of their obligation to pay their loan because of their
possession of the goods in question. Thus: inability to dispose of the goods. The fact that they were unable to sell the
seashells in question does not affect IBAA's right to recover the advances it
A trust receipt… is a security agreement, pursuant to which a bank acquires had made under the Letter of Credit.
a "security interest" in the goods. It secures an indebtedness and there can
be no such thing as security interest that secures no obligation. As defined Respondent bank's repossession of the properties and subsequent sale of
in our laws: the goods were completely in accordance with its statutory and
contractual rights upon default of petitioner corporation.
(h) Security Interest means a property interest in goods, documents or
instruments to secure performance of some obligations of the entrustee or The second paragraph of Section 7 expressly provides that the entrustee
of some third persons to the entruster and includes title, whether or not shall be liable to the entruster for any deficiency after the proceeds of the
expressed to be absolute, whenever such title is in substance taken or sale have been applied to the payment of the expenses of the sale, the
retained for security only. payment of the expenses of re-taking, keeping and storing the goods,
documents or instruments, and the satisfaction of the entrustee's
Contrary to the allegations of the VINTOLAS, IBAA did not become the real indebtedness to the entruster.
owner of the goods. It was merely the holder of a security title for the
advances it had made to the VINTOLAS. The goods the VINTOLAS had In the case at bar, the proceeds of the auction sale were insufficient to
purchased through IBAA financing remain their own property and they satisfy entirely petitioner corporation's indebtedness to the respondent
hold it at their own risk. The trust receipt arrangement did not convert the bank. Respondent bank was thus well within its rights to institute the
IBAA into an investor; the latter remained a lender and creditor. instant case to collect the deficiency.

"x x x for the bank has previously extended a loan which the L/C represents We find, however, that there has been an error in the computation of the
to the importer, and by that loan, the importer should be the real owner of total amount of petitioners' indebtedness to respondent bank.
the goods. If under the trust receipt, the bank is made to appear as the
owner, it was but an artificial expedient, more of a legal fiction than fact, Although respondent bank contends that the error of computation is a
for if it were so, it could dispose of the goods in any manner it wants, question of fact which is beyond the power of this Court to review,13 the
which it cannot do, just to give consistency with the purpose of the trust total amount of petitioners' indebtedness in this case is not a question of
receipt of giving a stronger security for the loan obtained by the importer. fact. Rather, it is a question of law, i.e., the application of legal principles
To consider the bank as the true owner from the inception of the for the computation of the amount owed to respondent bank, and is thus a
transaction would be to disregard the loan feature thereof. x x x" matter properly brought for our determination.

Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot The first issue involves the amount of indebtedness prior to the imposition
justifiably claim that because they have surrendered the goods to IBAA and of interest and penalty charges. The initial amount of the trust receipt of
subsequently deposited them in the custody of the court, they are P218,733.92, was reduced to P192,265.92 as of June 14, 1984, as per
respondent's Statement of Past Due Trust Receipt dated December 1,
1993.14 This amount presumably includes the application of P35,000.00, The net amount of the obligation, represented by respondent bank to be
the amount of petitioner Lucente's Deed of Assignment, which amount P292,172.23 as of April 17, 1986, would thus be P211,758.23.
was applied by respondent bank to petitioners' obligation. No showing was
made, however, that the P30,000.00 proceeds of the auction sale on July To this principal amount must be imposed the following charges: (1) 19%
31, 1985 was ever applied to the loan. Neither was the amount of interest per annum, in keeping with the terms of the trust receipt;16 and
P50,414.00, representing the marginal deposit made by petitioner (2) 12% penalty per annum, collected based on the outstanding principal
corporation, deducted from the loan. Although respondent bank contends obligation plus unpaid interest, again in keeping with the wording of the
that the marginal deposit should not be deducted from the principal trust receipt.17 It appearing that petitioners have paid the interest and
obligation, this is completely contrary to prevailing jurisprudence allowing penalty charges until April 17, 1986, the reckoning date for the
the deduction of the marginal deposit, thus: computation of the foregoing charges must be April 18, 1986.

The marginal deposit requirement is a Central Bank measure to cut off A perusal of the records reveals that the trial court and the Court of
excess currency liquidity which would create inflationary pressure. It is a Appeals erred in imposing service charges upon the petitioners. No such
collateral security given by the debtor, and is supposed to be returned to stipulation is found in the trust receipt. Moreover, the trial court and the
him upon his compliance with his secured obligation. Consequently, the Court of Appeals erred in computing attorney's fees equivalent to 10% per
bank pays no interest on the marginal deposit, unlike an ordinary bank annum, rather than 10% of the total amount due. There is no basis for
deposit which earns interest in the bank. As a matter of fact, the marginal compounding the interest annually, as the trial court and Court of Appeals
deposit requirement for letters of credit has been discontinued, except in have done. This amount would be unconscionable.
those cases where the applicant for a letter of credit is not known to the
Finally, Lucente and Llaban's contention that they are not solidarily liable
bank or does not maintain a good credit standing therein.
with petitioner corporation is untenable. As co-signatories of the
It is only fair then that the importer's marginal deposit (if one was made, as Continuing Suretyship Agreement, they bound themselves, inter alia, to
in this case), should be set off against his debt, for while the importer pay the principal sum in the amount of not more than P400,000.00;
earns no interest on his marginal deposit, the bank, apart from being able interest due on the principal obligation; attorney's fees; and expenses that
to use said deposit for its own purposes, also earns interest on the money may be incurred in collecting the credit. The amount owed to respondent
it loaned to the importer. It would be onerous to compute interest and bank is the amount of the principal, interest, attorney's fees, and expenses
other charges on the face value of the letter of credit which the bank in collecting the principal amount. The Continuing Suretyship Agreement
issued, without first crediting or setting off the marginal deposit which the expressly states the nature of the liability of Lucente and Llaban:
importer paid to the bank. Compensation is proper and should take place
The liability of the SURETY shall be solidary, direct and immediate and not
by operation of law because the requisites in Article 1279 of the Civil Code
contingent upon the bank's pursuit of whatever remedies the BANK have
are present and should extinguish both debts to the concurrent amount
[sic] against the Borrower or the securities or liens the BANK may possess
(Art. 1290, Civil Code). Although Abad is only a surety, he may set up
and the SURETY will at any time, whether due or not due, pay to the BANK
compensation as regards what the creditor owes the principal debtor,
TOMCO (Art. 1280, Civil Code).
with or withour demand upon the Borrower, any of the instruments of
indebtedness or other obligation hereby guaranteed by the SURETY.18

Solidary liability is one of the primary characteristics of a surety


contract,19 and the Continuing Suretyship Agreement expressly stipulates
the solidary nature of Lucente and Llaban's liability. All three petitioners
thus share the solidary obligation in favor of respondent bank, which is
given the right, under the Civil Code, to proceed against any one of the
solidary debtors or some or all of them simultaneously.20

WHEREFORE, premises considered, the instant petition is PARTIALLY


GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 58193
dated February 13, 2003 is AFFIRMED with MODIFICATIONS. Accordingly,
petitioners are ordered to pay respondent bank the following: (1)
P211,758.23 representing petitioners' net obligation as of April 17, 1986;
(2) interest at the rate of 19% per annum and penalty at the rate of 12%
per annum reckoned from April 18, 1986; (3) attorney's fees equivalent to
10% of the total amount due and collectible; and (4) litigation expenses in
the amount of P3,000.00. The service charge at the rate of 2% per annum
beginning April 18, 1986 is deleted. Costs against petitioners.

SO ORDERED.
G.R. No. 90828. September 5, 2000 and P1,000 per month starting 31 January 1980 until the account is fully
paid. Pending approval of the proposal, Petitioners paid P1,000 to PBC on 4
MELVIN COLINARES and LORDINO VELOSO, petitioners, vs. HONORABLE December 1980,[11] and thereafter P500 on 11 February 1981,[12] 16
COURT OF APPEALS, and THE PEOPLE OF THE PHILIPPINES, respondents. March 1981,[13] and 20 April 1981.[14] Concurrently with the separate
demand for attorneys fees by PBCs legal counsel, PBC continued to
In 1979 Melvin Colinares and Lordino Veloso (hereafter Petitioners) were
demand payment of the balance.
contracted for a consideration of P40,000 by the Carmelite Sisters of
Cagayan de Oro City to renovate the latters convent at Camaman-an, On 14 January 1983, Petitioners were charged with the violation of P.D.
Cagayan de Oro City. No. 115 (Trust Receipts Law) in relation to Article 315 of the Revised Penal
Code in an Information which was filed with Branch 18, Regional Trial
On 30 October 1979, Petitioners obtained 5,376 SF Solatone acoustical
Court of Cagayan de Oro City. The accusatory portion of the Information
board 2x4x, 300 SF tanguile wood tiles 12x12, 260 SF Marcelo economy
reads:
tiles and 2 gallons UMYLIN cement adhesive from CM Builders Centre for
the construction project.[1] The following day, 31 October 1979, That on or about October 31, 1979, in the City of Cagayan de Oro,
Petitioners applied for a commercial letter of credit[2] with the Philippine Philippines, and within the jurisdiction of this Honorable Court, the above-
Banking Corporation, Cagayan de Oro City branch (hereafter PBC) in favor named accused entered into a trust receipt agreement with the Philippine
of CM Builders Centre. PBC approved the letter of credit[3] for P22,389.80 Banking Corporation at Cagayan de Oro City wherein the accused, as
to cover the full invoice value of the goods. Petitioners signed a pro-forma entrustee, received from the entruster the following goods to wit:
trust receipt[4] as security. The loan was due on 29 January 1980.
Solatone Acoustical board
On 31 October 1979, PBC debited P6,720 from Petitioners marginal deposit
as partial payment of the loan. Tanguile Wood Tiles

On 7 May 1980, PBC wrote[6] to Petitioners demanding that the amount Marcelo Cement Tiles
be paid within seven days from notice. Instead of complying with PBCs
demand, Veloso confessed that they lost P19,195.83 in the Carmelite Umylin Cement Adhesive
Monastery Project and requested for a grace period of until 15 June 1980
with a total value of P22,389.80, with the obligation on the part of the
to settle the account.
accused-entrustee to hold the aforesaid items in trust for the entruster
PBC sent a new demand letter to Petitioners on 16 October 1980 and and/or to sell on cash basis or otherwise dispose of the said items and to
informed them that their outstanding balance as of 17 November 1979 turn over to the entruster the proceeds of the sale of said goods or if there
was P20,824.40 exclusive of attorneys fees of 25%. be no sale to return said items to the entruster on or before January 29,
1980 but that the said accused after receipt of the goods, with intent to
On 2 December 1980, Petitioners proposed that the terms of payment of defraud and cause damage to the entruster, conspiring, confederating
the loan be modified as follows: P2,000 on or before 3 December 1980, together and mutually helping one another, did then and there wilfully,
unlawfully and feloniously fail and refuse to remit the proceeds of the sale Petitioners appealed from the judgment to the Court of Appeals which was
of the goods to the entruster despite repeated demands but instead docketed as CA-G.R. CR No. 05408. Petitioners asserted therein that the
converted, misappropriated and misapplied the proceeds to their own trial court erred in ruling that they violated the Trust Receipt Law, and in
personal use, benefit and gain, to the damage and prejudice of the holding them criminally liable therefor. In the alternative, they contend
Philippine Banking Corporation, in the aforesaid sum of P22,389.80, that at most they can only be made civilly liable for payment of the loan.
Philippine Currency.
In its decision[20] 6 March 1989, the Court of Appeals modified the
Contrary to PD 115 in relation to Article 315 of the Revised Penal Code. judgment of the trial court by increasing the penalty to six years and one
day of prision mayor as minimum to fourteen years eight months and one
The case was docketed as Criminal Case No. 1390. day of reclusion temporal as maximum. It held that the documentary
evidence of the prosecution prevails over Velosos testimony, discredited
During trial, petitioner Veloso insisted that the transaction was a clean loan
Petitioners claim that the documents they signed were in blank, and
as per verbal guarantee of Cayo Garcia Tuiza, PBCs former manager. He
disbelieved that they were coerced into signing them.
and petitioner Colinares signed the documents without reading the fine
print, only learning of the trust receipt implication much later. When he On 25 March 1989, Petitioners filed a Motion for New
brought this to the attention of PBC, Mr. Tuiza assured him that the trust Trial/Reconsideration[21] alleging that the Disclosure Statement on
receipt was a mere formality.[17] Loan/Credit Transaction[22] (hereafter Disclosure Statement) signed by
them and Tuiza was suppressed by PBC during the trial. That document
On 7 July 1986, the trial court promulgated its decision[18] convicting
would have proved that the transaction was indeed a loan as it bears a
Petitioners of estafa for violating P.D. No. 115 in relation to Article 315 of
14% interest as opposed to the trust receipt which does not at all bear any
the Revised Penal Code and sentencing each of them to suffer
interest. Petitioners further maintained that when PBC allowed them to
imprisonment of two years and one day of prision correccional as
pay in installment, the agreement was novated and a creditor-debtor
minimum to six years and one day of prision mayor as maximum, and to
relationship was created.
solidarily indemnify PBC the amount of P20,824.44, with legal interest
from 29 January 1980, 12 % penalty charge per annum, 25% of the sums In its resolution[23]of 16 October 1989 the Court of Appeals denied the
due as attorneys fees, and costs. Motion for New Trial/Reconsideration because the alleged newly
discovered evidence was actually forgotten evidence already in existence
The trial court considered the transaction between PBC and Petitioners as
during the trial, and would not alter the result of the case.
a trust receipt transaction under Section 4, P.D. No. 115. It considered
Petitioners use of the goods in their Carmelite monastery project an act of Hence, Petitioners filed with us the petition in this case on 16 November
disposing as contemplated under Section 13, P.D. No. 115, and treated the 1989. They raised the following issues:
charge invoice[19] for goods issued by CM Builders Centre as a document
within the meaning of Section 3 thereof. It concluded that the failure of I. WHETHER OR NOT THE DENIAL OF THE MOTION FOR NEW TRIAL ON THE
Petitioners to turn over the amount they owed to PBC constituted estafa. GROUND OF NEWLY DISCOVERED EVIDENCE, NAMELY, DISCLOSURE ON
LOAN/CREDIT TRANSACTION, WHICH IF INTRODUCED AND ADMITTED, of this case and inform us of their present whereabouts and whether their
WOULD CHANGE THE JUDGMENT, DOES NOT CONSTITUTE A DENIAL OF bail bonds are still valid.
DUE PROCESS.
Petitioners submitted their Compliance.
2. ASSUMING THERE WAS A VALID TRUST RECEIPT, WHETHER OR NOT THE
ACCUSED WERE PROPERLY CHARGED, TRIED AND CONVICTED FOR The core issues raised in the petition are the denial by the Court of Appeals
VIOLATION OF SEC. 13, PD NO. 115 IN RELATION TO ARTICLE 315 of Petitioners Motion for New Trial and the true nature of the contract
PARAGRAPH (I) (B) NOTWITHSTANDING THE NOVATION OF THE SO-CALLED between Petitioners and the PBC. As to the latter, Petitioners assert that it
TRUST RECEIPT CONVERTING THE TRUSTOR-TRUSTEE RELATIONSHIP TO was an ordinary loan, not a trust receipt agreement under the Trust
CREDITOR-DEBTOR SITUATION. Receipts Law.

In its Comment of 22 January 1990, the Office of the Solicitor General The grant or denial of a motion for new trial rests upon the discretion of
urged us to deny the petition for lack of merit. the judge. New trial may be granted if: (1) errors of law or irregularities
have been committed during the trial prejudicial to the substantial rights
On 28 February 1990 Petitioners filed a Motion to Dismiss the case on the of the accused; or (2) new and material evidence has been discovered
ground that they had already fully paid PBC on 2 February 1990 the which the accused could not with reasonable diligence have discovered
amount of P70,000 for the balance of the loan, including interest and other and produced at the trial, and which, if introduced and admitted, would
charges, as evidenced by the different receipts issued by PBC,[24] and that probably change the judgment.
the PBC executed an Affidavit of desistance.
For newly discovered evidence to be a ground for new trial, such evidence
We required the Solicitor General to comment on the Motion to Dismiss. must be (1) discovered after trial; (2) could not have been discovered and
produced at the trial even with the exercise of reasonable diligence; and
In its Comment of 30 July 1990, the Solicitor General opined that payment (3) material, not merely cumulative, corroborative, or impeaching, and of
of the loan was akin to a voluntary surrender or plea of guilty which merely such weight that, if admitted, would probably change the judgment.[27] It
serves to mitigate Petitioners culpability, but does not in any way is essential that the offering party exercised reasonable diligence in
extinguish their criminal liability. seeking to locate the evidence before or during trial but nonetheless failed
to secure it.
In the Resolution of 13 August 1990, we gave due course to the Petition
and required the parties to file their respective memoranda. We find no indication in the pleadings that the Disclosure Statement is a
newly discovered evidence.
The parties subsequently filed their respective memoranda.
Petitioners could not have been unaware that the two-page document
It was only on 18 May 1999 when this case was assigned to the ponente.
exists. The Disclosure Statement itself states, NOTICE TO BORROWER: YOU
Thereafter, we required the parties to move in the premises and for
ARE ENTITLED TO A COPY OF THIS PAPER WHICH YOU SHALL SIGN.[29]
Petitioners to manifest if they are still interested in the further prosecution
Assuming Petitioners copy was then unavailable, they could have
compelled its production in court,[30] which they never did. Petitioners Failure of the entrustee to turn over the proceeds of the sale of the goods,
have miserably failed to establish the second requisite of the rule on newly covered by the trust receipt to the entruster or to return said goods if they
discovered evidence. were not disposed of in accordance with the terms of the trust receipt
shall be punishable as estafa under Article 315 (1) of the Revised Penal
Petitioners themselves admitted that they searched again their Code, without need of proving intent to defraud.
voluminous records, meticulously and patiently, until they discovered this
new and material evidence only upon learning of the Court of Appeals A thorough examination of the facts obtaining in the case at bar reveals
decision and after they were shocked by the penalty imposed. Clearly, the that the transaction intended by the parties was a simple loan, not a trust
alleged newly discovered evidence is mere forgotten evidence that receipt agreement.
jurisprudence excludes as a ground for new trial.
Petitioners received the merchandise from CM Builders Centre on 30
However, the second issue should be resolved in favor of Petitioners. October 1979. On that day, ownership over the merchandise was already
transferred to Petitioners who were to use the materials for their
Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt construction project. It was only a day later, 31 October 1979, that they
transaction as any transaction by and between a person referred to as the went to the bank to apply for a loan to pay for the merchandise.
entruster, and another person referred to as the entrustee, whereby the
entruster who owns or holds absolute title or security interest over certain This situation belies what normally obtains in a pure trust receipt
specified goods, documents or instruments, releases the same to the transaction where goods are owned by the bank and only released to the
possession of the entrustee upon the latters execution and delivery to the importer in trust subsequent to the grant of the loan. The bank acquires a
entruster of a signed document called a trust receipt wherein the security interest in the goods as holder of a security title for the advances
entrustee binds himself to hold the designated goods, documents or it had made to the entrustee. The ownership of the merchandise continues
instruments with the obligation to turn over to the entruster the proceeds to be vested in the person who had advanced payment until he has been
thereof to the extent of the amount owing to the entruster or as appears paid in full, or if the merchandise has already been sold, the proceeds of
in the trust receipt or the goods, documents or instruments themselves if the sale should be turned over to him by the importer or by his
they are unsold or not otherwise disposed of, in accordance with the terms representative or successor in interest. To secure that the bank shall be
and conditions specified in the trust receipt. paid, it takes full title to the goods at the very beginning and continues to
hold that title as his indispensable security until the goods are sold and the
There are two possible situations in a trust receipt transaction. The first is vendee is called upon to pay for them; hence, the importer has never
covered by the provision which refers to money received under the owned the goods and is not able to deliver possession.[37] In a certain
obligation involving the duty to deliver it (entregarla) to the owner of the manner, trust receipts partake of the nature of a conditional sale where
merchandise sold. The second is covered by the provision which refers to the importer becomes absolute owner of the imported merchandise as
merchandise received under the obligation to return it (devolvera) to the soon as he has paid its price.
owner.
Trust receipt transactions are intended to aid in financing importers and A Yes, sir.
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 Q What is the date of the charge invoice?
acquire credit except through utilization, as collateral, of the merchandise
A October 31, 1979.
imported or purchased.
COURT:Make it of record as appearing in Exhibit D, the zero in 30 has been
The antecedent acts in a trust receipt transaction consist of the application
superimposed with numeral 1.
and approval of the letter of credit, the making of the marginal deposit and
the effective importation of goods through the efforts of the importer. During the cross and re-direct examinations he also impliedly admitted
that the transaction was indeed a loan. Thus:
PBC attempted to cover up the true delivery date of the merchandise, yet
the trial court took notice even though it failed to attach any significance Q In short the amount stated in your Exhibit C, the trust receipt was a loan
to such fact in the judgment. Despite the Court of Appeals contrary view to the accused you admit that?
that the goods were delivered to Petitioners previous to the execution of
the letter of credit and trust receipt, we find that the records of the case A Because in the bank the loan is considered part of the loan.
speak volubly and this fact remains uncontroverted. It is not uncommon
RE-DIRECT BY ATTY. CABANLET:
for us to peruse through the transcript of the stenographic notes of the
proceedings to be satisfied that the records of the case do support the ATTY. CABANLET (to the witness)
conclusions of the trial court.[41] After such perusal Grego Mutia, PBCs
credit investigator, admitted thus: Q What do you understand by loan when you were asked?

ATTY. CABANLET: (continuing) A Loan is a promise of a borrower from the value received. The borrower
will pay the bank on a certain specified date with interest[43]
Q Do you know if the goods subject matter of this letter of credit and trust
receipt agreement were received by the accused? Such statement is akin to an admission against interest binding upon PBC.

A Yes, sir Petitioner Velosos claim that they were made to believe that the
transaction was a loan was also not denied by PBC. He declared:
Q Do you have evidence to show that these goods subject matter of this
letter of credit and trust receipt were delivered to the accused? Q Testimony was given here that that was covered by trust receipt. In
short it was a special kind of loan. What can you say as to that?
A Yes, sir.
A I dont think that would be a trust receipt because we were made to
Q I am showing to you this charge invoice, are you referring to this understand by the manager who encouraged us to avail of their facilities
document? that they will be granting us a loan[44]
PBC could have presented its former bank manager, Cayo Garcia Tuiza, The practice of banks of making borrowers sign trust receipts to facilitate
who contracted with Petitioners, to refute Velosos testimony, yet it only collection of loans and place them under the threats of criminal
presented credit investigator Grego Mutia. Nowhere from Mutias prosecution should they be unable to pay it may be unjust and inequitable,
testimony can it be gleaned that PBC represented to Petitioners that the if not reprehensible. Such agreements are contracts of adhesion which
transaction they were entering into was not a pure loan but had trust borrowers have no option but to sign lest their loan be disapproved. The
receipt implications. resort to this scheme leaves poor and hapless borrowers at the mercy of
banks, and is prone to misinterpretation, as had happened in this case.
The Trust Receipts Law does not seek to enforce payment of the loan, Eventually, PBC showed its true colors and admitted that it was only after
rather it punishes the dishonesty and abuse of confidence in the handling collection of the money, as manifested by its Affidavit of Desistance.
of money or goods to the prejudice of another regardless of whether the
latter is the owner.[45] Here, it is crystal clear that on the part of WHEREFORE, the challenged Decision of 6 March 1989 and the Resolution
Petitioners there was neither dishonesty nor abuse of confidence in the of 16 October 1989 of the Court of Appeals in CA-GR. No. 05408 are
handling of money to the prejudice of PBC. Petitioners continually REVERSED and SET ASIDE. Petitioners are hereby ACQUITTED of the crime
endeavored to meet their obligations, as shown by several receipts issued charged, i.e., for violation of P.D. No. 115 in relation to Article 315 of the
by PBC acknowledging payment of the loan. Revised Penal Code.

The Information charges Petitioners with intent to defraud and No costs.


misappropriating the money for their personal use. The mala prohibita
nature of the alleged offense notwithstanding, intent as a state of mind SO ORDERED.
was not proved to be present in Petitioners situation. Petitioners
employed no artifice in dealing with PBC and never did they evade
payment of their obligation nor attempt to abscond. Instead, Petitioners
sought favorable terms precisely to meet their obligation.

Also noteworthy is the fact that Petitioners are not importers acquiring the
goods for re-sale, contrary to the express provision embodied in the trust
receipt. They are contractors who obtained the fungible goods for their
construction project. At no time did title over the construction materials
pass to the bank, but directly to the Petitioners from CM Builders Centre.
This impresses upon the trust receipt in question vagueness and ambiguity,
which should not be the basis for criminal prosecution in the event of
violation of its provisions.[46]

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