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G.R. No.

73271 May 29, 1987

SPOUSES TIRSO I. VINTOLA and LORETO DY VINTOLA, defendants-appellants,


vs.
INSULAR BANK OF ASIA AND AMERICA, plaintiff-appellee.

MELENCIO-HERRERA, J.:

This case was appealed to the Intermediate Appellate Court which, however, certified the same to
this Court, the issue involved being purely legal.

The facts are not disputed.

On August 20, 1975 the spouses Tirso and Loreta Vintola (the VINTOLAS, for short), doing business
under the name and style "Dax Kin International," engaged in the manufacture of raw sea shells into
finished products, applied for and were granted a domestic letter of credit by the Insular Bank of Asia
and America (IBAA), Cebu City. 1 in the amount of P40,000.00. The Letter of Credit authorized the bank to negotiate for their
account drafts drawn by their supplier, one Stalin Tan, on Dax Kin International for the purchase of puka and olive seashells. In consideration
thereof, the VINTOLAS, jointly and severally, agreed to pay the bank "at maturity, in Philippine currency, the equivalent, of the
aforementioned amount or such portion thereof as may be drawn or paid, upon the faith of the said credit together with the usual charges."

On the same day, August 20, 1975, having received from Stalin Tan the puka and olive shells worth
P40,000.00, the VINTOLAS executed a Trust Receipt agreement with IBAA, Cebu City. Under that
Agreement, the VINTOLAS agreed to hold the goods in trust for IBAA as the "latter's property with
liberty to sell the same for its account, " and "in case of sale" to turn over the proceeds as soon as
received to (IBAA) the due date indicated in the document was October 19, 1975.

Having defaulted on their obligation, IBAA demanded payment from the VINTOLAS in a letter dated
January 1, 1976. The VINTOLAS, who were unable to dispose of the shells, responded by offering
to return the goods. IBAA refused to accept the merchandise, and due to the continued refusal of the
VINTOLAS to make good their undertaking, IBAA charged them with Estafa for having
misappropriated, misapplied and converted for their own personal use and benefit the aforesaid
goods. During the trial of the criminal case the VINTOLAS turned over the seashells to the custody
of the Trial Court.

On April 12, 1982, the then Court of First Instance of Cebu, Branch VII, acquitted the VINTOLAS of
the crime charged, after finding that the element of misappropriation or conversion was inexistent.
Concluded the Court:

Finally, it should be mentioned that under the trust receipt, in the event of default
and/or non-fulfillment on the part of the accused of their undertaking, the bank is
entitled to take possession of the goods or to recover its equivalent value together
with the usual charges. In either case, the remedy of the Bank is civil and not criminal
in nature. ... 2

Shortly thereafter, IBAA commenced the present civil action to recover the value of the goods before
the Regional Trial Court of Cebu, Branch XVI.

Holding that the complaint was barred by the judgment of acquittal in the criminal case, said Court
dismissed the complaint. However, on IBAA's motion, the Court granted reconsideration and:
1. Order(ed)defendants jointly and severally to pay the plaintiff the sum of Seventy
Two Thousand Nine Hundred Eighty Two and 27/100 (P72,982.27), Philippine
Currency, plus interest of 14% per annum and service charge of one (1%) per cent
per annum computed from judicial demand and until the obligation is fully paid;

2. Ordered defendants jointly and severally to pay attorney's fees to the plaintiff in the
sum of Four Thousand (P4,000.00) pesos, Philippine Currency, plus costs of the
suit. 3

The VINTOLAS rest their present appeal on the principal allegation that their acquittal in the Estafa
case bars IBAA's filing of the civil action because IBAA had not reserved in the criminal case its right
to enforce separately their civil liability. They maintain that by intervening actively in the prosecution
of the criminal case through a private prosecutor, IBAA had chosen to file the civil action impliedly
with the criminal action, pursuant to Section 1, Rule 111 of the 1985 Rules on Criminal Procedure,
reading:

Section 1. Institution of criminal and civil action. — When a criminal action is


instituted, the civil action for the recovery of civil liability arising from the offense
charged is impliedly instituted with the criminal action, unless the offended party
expressly waives the civil action or reserves his right to institute it separately. ...

and that since the judgment in the criminal case had made a declaration that the facts from which
the civil action might arise did not exist, the filing of the civil action arising from the offense is now
barred, as provided by Section 3-b of Rule 111 of the same Rules providing:

(b) Extinction of the penal action does not carry with it extinction of the civil, unless
the extinction proceeds from a declaration in a final judgment that the fact from which
the civil might arise did not exist. In other cases, the person entitled to the civil action
may institute it in the jurisdiction in the manner provided by law against the person
who may be liable for restitution of the thing and reparation or indemnity for the
damage suffered.

Further, the VINTOLAS take the position that their obligation to IBAA has been extinguished
inasmuch as, through no fault of their own, they were unable to dispose of the seashells, and that
they have relinguished possession thereof to the IBAA, as owner of the goods, by depositing them
with the Court.

The foregoing submission overlooks the nature and mercantile usage of the transaction involved. A
letter of credit-trust receipt arrangement is endowed with its own distinctive features and
characteristics. Under that set-up, a bank extends a loan covered by the Letter of Credit, with the
trust receipt as a security for the loan. In other words, the transaction involves a loan feature
represented by the letter of credit, and a security feature which is in the covering trust receipt.

Thus, Section 4 of P.D. No. 115 defines a trust receipt transaction as:

... any transaction by and between a person referred to in this Decree as the
entruster, and another person referred to in this Decree as the entrustee, whereby
the entruster, who owns or holds absolute title or security interests over certain
specified goods, documents or instruments, releases the same to the possession of
the entrustee upon the latter's execution and delivery to the entruster of a signed
document called a "trust receipt" wherein the entrustee binds himself to hold the
designated goods, documents or instruments in trust for the entruster and to sell or
otherwise dispose of the goods, documents or instrument thereof to the extent of the
amount owing to the entruster or as appears in the trust receipt or the goods,
documents or instruments themselves if they are unsold or not otherwise disposed
of, in accordance with the terms and conditions specified in the trust receipt, or for
other purposes substantially equivalent to any one of the following:

1. In the case of goods or documents, (a) to sell the goods or procure their sale, ...

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." 4As defined in our laws:

(h) "Security Interest"means a property interest in goods, documents or instruments


to secure performance of some obligations 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. 5

As elucidated in Samo vs. People6 "a trust receipt is considered 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."

Contrary to the allegation of the VINTOLAS, IBAA did not become the real 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 purchased through IBAA financing remain their own property and they hold it at
their own risk. The trust receipt arrangement did not convert the IBAA into an investor; the latter
remained a lender and creditor.

... for the bank has previously extended a loan which the L/C represents to the
importer, and by that loan, the importer should be the real owner of 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, for if it were so, it could dispose
of the goods in any manner it wants, which it cannot do, just to give consistency with
the 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. ... 7

Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that
because they have surrendered the goods to IBAA and subsequently deposited them in the custody
of the court, they are absolutely relieved of their obligation to pay their loan because of their 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 had made under the Letter of Credit. In so arguing, the
VINTOLAS conveniently close their eyes to their application for a Letter of Credit wherein they
expressly obligated themselves in these terms:

IN CONSIDERATION THEREOF, I/we promise and agree to pay you at maturity in


Philippine Currency the equivalent of the above amount or such portion thereof as
may be drawn or paid upon the faith of said credit together with the usual charges. ...
(Exhibit "A")

They further agreed that their marginal deposit of P8,000.00, later increased to P11,000.00
be applied, without further proceedings or formalities to pay or reduce our
obligation under this letter of credit or its corresponding Trust Receipt. (Emphasis
supplied) 8

The foregoing premises considered, it follows that the acquittal of the VINTOLAS in the Estafa case
is no bar to the institution of a civil action for collection. It is inaccurate for the VINTOLAS to claim
that the judgment in the estafa case had declared that the facts from which the civil action might
arise, did not exist, for, it will be recalled that the decision of acquittal expressly declared that "the
remedy of the Bank is civil and not criminal in nature." This amounts to a reservation of the civil
action in IBAA's favor, for the Court would not have dwelt on a civil liability that it had intended to
extinguish by the same decision. 9 The VINTOLAS are liable ex contractu for breach of the Letter of
Credit — Trust Receipt, whether they did or they did not "misappropriate, misapply or convert" the
merchandise as charged in the criminal case. 10 Their civil liability does not arise ex delicto, the action for the recovery of
which would have been deemed instituted with the criminal-action (unless waived or reserved) and where acquittal based on a judicial
declaration that the criminal acts charged do not exist would have extinguished the civil action. 11 Rather, the civil suit instituted by IBAA is
based ex contractu and as such is distinct and independent from any criminal proceedings and may proceed regardless of the result of the
latter. Under the situational circumstances of the parties, they are governed by Article 31 of the Civil Code, explicitly providing:

Art. 31. When the civil action is based on an obligation not arising from the act or
omission complained of as a felony, such civil action may proceed independently of
the criminal proceedings and regardless of the result of the latter.

WHEREFORE, finding no reversible error in the judgment appealed from, the same is hereby
AFFIRMED. No costs.

SO ORDERED.

Yap (Chairman), Narvasa, Cruz, Gancayco, and Sarmiento, JJ., concur.

Feliciano, J., is on leave.

Footnotes

1 The IBAA has since merged with the Philippine Commercial and Industrial Bank,
with the latter as the surviving bank.

2 Pp. 11 & 12, Original Record.

3 P.2, Appellants' Brief, p. 16, Rollo.

4 48 Cal. Jur. 633, section 4.

5 Section 3, P.D. No. 115.

6 L-17603-04, May 31, 1962, 5 SCRA 354, citing 53 Am. Jur. 961.

7 Sia vs. People, L-30896, April 28, 1983, 121 SCRA 655.

8 Application for Commercial Letter of Credit, Exhibit "A." p. 5, Original Record.


9 PNB vs. Catipon, L-6662, January 31, 1956, 98 Phil. 286.

10 PNB vs. Catipon, supra.

11 Section 3 (b) Rule 111, Rules of Court.


G. R. No. 164904 October 19, 2007

JOSE ANTONIO U. GONZALEZ, Petitioner,


vs.
HONGKONG & SHANGHAI BANKING CORPORATION, Respondent.

DECISION

CHICO-NAZARIO, J.:

In this petition for review on certiorari1 under Rule 45 of the Rules of Court, as amended, petitioner
Jose Antonio U. Gonzalez (Gonzalez) seeks; 1) the reversal of the 13 January 2004 Decision,2 and 6
August 2004 Resolution,3 both of the Court of Appeals in CA-G.R. SP No. 75469; and 2)
the dismissal of the complaint4 for violation of Presidential Decree No. 115, otherwise known as the
"Trust Receipts Law," in relation to Article 315(1)(b) of the Revised Penal Code, filed by respondent
Hongkong & Shanghai Banking Corporation (HSBC) against him before the City Prosecutor of
Makati and docketed as I.S. No. 00-G-24734-35.

The Court of Appeals, in its assailed decision and resolution, found no grave abuse of discretion on
the part of the Secretary and the succeeding Acting Secretary, both of the Department of Justice
(DOJ), in their denial of petitioner Gonzalez’s petition for review and motion for reconsideration,
respectively. Consequently, the appellate court affirmed the 17 October 2002,5 and 14 January
20036 twin resolutions of the DOJ, which in turn affirmed the 13 September 2000 Resolution,7 of the
City Prosecutor of Makati, recommending the filing of an Information for violation of Presidential
Decree No. 115, in relation to Article 315(1)(b) of the Revised Penal Code against petitioner
Gonzalez.

The case stemmed from a complaint filed by respondent HSBC against petitioner Gonzalez for
estafa, more particularly, the violation of Presidential Decree No. 115, in relation to Art. 315(1)(b) of
the Revised Penal Code.

The antecedents of the present petition are beyond dispute. They are:

At the time of the incident subject of the case at bar, petitioner Gonzalez was the Chairman and
Chief Executive Officer of Mondragon Leisure and Resorts Corporation (MLRC). MLRC is the owner,
developer and operator of Mimosa Leisure Estate8 located at the Clark Special Economic Zone
(CSEZ), Clark Field, Pampanga. On 1 August 1997, petitioner Gonzalez, for and in behalf of MLRC,
acknowledged receipt of various golfing equipments and assorted Walt Disney items, and signed the
corresponding two Trust Receipt agreements, i.e., Trust Receipt No. 001-016310-205,9 covering the
various golfing equipments, and Trust Receipt No. 001-016310-206,10 covering the assorted Walt
Disney items, both in favor of respondent HSBC.

The due date for Trust Receipt No. 001-016310-205, for the value of HK$85,540.00, was on 1
September 1997, while that of Trust Receipt No. 001-016310-206, for the value of HK$143,993.90,
was on 28 January 1998.

When the due dates of subject Trust Receipts came and went without word from MLRC, respondent
HSBC, through Paula L. Felipe (Felipe), Vice-President of respondent HSBC’s Credit Control
Department, in a letter11 dated 28 March 2000, demanded from MLRC the turnover of the proceeds
of the sale of the assorted goods covered by the Trust Receipts or the return of said goods. Despite
demand, however, MLRC failed to return the assorted goods or their value. Consequently, Felipe, for
respondent HSBC, filed a criminal complaint for estafa, i.e., for violation of Presidential Decree No.
115, the "Trust Receipts Law," in relation to Art. No. 315(1)(b) of the Revised Penal Code against
petitioner Gonzalez before the Office of the City Prosecutor of Makati, docketed as I.S. No. 00-G-
24734-35. The complaint-affidavit contained the following allegations:

4. On August 1, 1997, Mr. Antonio U. Gonzalez, Chairman and Chief Executive of Mondragon,
executed in favor of the Bank Trust Receipt No. 001-016310-205, by virtue of which he
acknowledged receipt from the Bank of "(Sporting Goods) Golf Equipments" (sic) with the value of
HK$85,540.00. Under this trust receipt, Mr. Gonzalez bound himself to turn over to the Bank the
proceeds of the sale of the goods or to return them in case of non-sale on January 28, 1998.

xxxx

5. On August 1, 1997, Mr. Gonzalez executed in favor of the Bank Trust Receipt No. 001-016310-
206, by virtue of which he acknowledged receipt from the Bank of "Assorted Disney Items" with the
value of HK$143,993.90. Under this trust receipt, Mr. Gonzalez bound himself to turn over to the
Bank the proceeds of the sale of the goods or to return them in case of non-sale on September 1,
1997.

xxxx

6. All the abovementioned trust receipts x x x executed by the respondents (sic) contain the following
provisions:

‘1. The Document and the goods and/or proceeds to which they relate ("The Goods") will be held for
your [HSBC] benefit and the entrustee will receive the Documents and take delivery of the Good
exclusively for the purpose of selling the Goods unless you [HSBC] shall direct otherwise.

2. The Documents, the Goods and the proceeds of their sale are and will be held by the entrustee in
trust for you [HSBC] as entruster and solely to your [HSBC] order and the entrustee shall pay the
proceeds to you [HSBC], immediately on receipt thereof or of each portion thereof, as the case may
be, without set-off or any deduction. The records of the entrustee shall properly record your [HSBC]
interest in the Goods.

xxxx

10. This Trust Receipt shall be governed and construed in all respects in accordance with P.D. 115
otherwise known as Trust Receipts Law.’

7. Despite repeated oral and written demands upon respondent, respondent has not turned over to
the Bank a single centavo of the proceeds of the sale of the abovementioned goods covered by the
Trust Receipts, or returned any of the goods.12

In his defense, petitioner Gonzalez countered that:

2. At the outset, it must be stressed that the transactions subject of the instant Complaint are
between the complainant bank and Mondragon Leisure and Resorts Corporation ("MLRC") and that
the officers of the latter, including respondent herein, in all of their official acts and transactions, are
not acting in their own personal capacity but, rather, are merely acting on behalf of the corporation
and performing a valid corporate act pursuant to a validly enacted resolution of the Board of
Directors.
3. Moreover, it is clear that I cannot be held criminally responsible for alleged violation of the Trust
Receipts subject hereof. The aforesaid transactions, while reportedly denominated as "Trust
Receipts" were not really intended by the parties to be trust receipt transaction within the purview of
P.D. 115. At best, they are loan transactions, for which the respondent cannot be held criminally
liable.

xxxx

6. x x x respondent, who merely performed a valid corporate act may not be held personally and
criminally liable therefore (sic), absent a clear showing of fault or negligence on his part x x x.

7. x x x it is required that the person charged with estafa pursuant to a trust receipt transaction must
be proved to have misappropriated, misused or converted to his own personal use to the damage of
the entruster, the proceeds of the goods covered by the trust receipts. Thus, mere failure to pay the
amounts covered by the trust receipts does not conclusively constitute estafa as defined under P.D.
115 and the Revised Penal Code.

8. x x x. [W]hile respondent may have failed on behalf of MLRC (which is actually the debtor) to
make payments on the due dates, such failure is neither attributable to respondent or due to his
wrongdoing or fault but on account of circumstances concerning the corporation x x x.

xxxx

13. x x x there was a tacit agreement among the parties that defendant, being a stable company with
good credit standing, would be accorded leniency and given enough leeway in the settlement of its
obligations.

xxxx

17. x x x the unlawful closure of the Casino by CDC and PAGCOR, coupled with the Asian economic
crisis, severely affected its ability to pay its creditors, including complainant bank herein, which have
an aggregate exposure of about P5.3 Billion in Mondragon. These events rendered it impossible for
MLRC to duly comply with its financial obligations. These events barred plaintiff bank from declaring
MLRC’s obligation due and demandable, and consequently from declaring MLRC in default. Thus,
since MLRC is not in default, respondents herein cannot be charged for estafa as the obligations on
the basis of which they are being charged are not yet due and demandable.13

Following the requisite preliminary investigation, in a Resolution dated 13 September 2000, the City
Prosecutor found probable cause to hold petitioner Gonzalez liable for two counts of estafa, more
specifically, the violation of Presidential Decree No. 115, in relation to Art. 315(1)(b) of the Revised
Penal Code. The City Prosecutor recommended that:

WHEREFORE, premises considered, it is respectfully recommended that respondent Jose Antonio


U. Gonzalez be indicted with two (2) counts of Violation of P.D. 115 and that the attached
Information for that purpose be approved for filing in court.14

In finding probable cause to prosecute petitioner Gonzalez for the crime supposedly committed, the
City Prosecutor held that:

After study, assessment and thorough evaluation of the evidence obtaining in this case at bar, the
undersigned finds probable cause to warrant respondent’s indictment with the offense charge (sic)
all the elements of which are obtaining under the aforementioned circumstances. This is so because
respondent admitted having executed the trust receipts subject matter of the case in point. The
defense raised by the respondent though it appears to be meritorious are (sic) matters of defense
best left for the court to consider and appreciate during trial of the case. As shown above, the failure
of the entrustee/respondent to account for the goods covered by the two (2) Trust Receipts which he
received after notice and demand caused him to be liable for two (2) counts of violation of P.D.
115.15

On 24 October 2000, petitioner Gonzalez appealed the foregoing resolution of the City Prosecutor to
the DOJ by means of a petition for review.

In a Resolution dated 17 October 2002, Honorable Hernando B. Perez, then Secretary of the DOJ,
denied said petition. In affirming the resolution of the City Prosecutor of Makati, the Secretary held
that:

The gravamen of violation of PD 115 is the failure to account, upon demand, for fund or property
held in trust by virtue of a trust receipt x x x. This failure, being clearly present in the instant case,
prima facie evidence of misappropriation lies. A fortiori, the charges of dishonesty and abuse of
confidence will hold.16

Further, the Secretary ruled that:

The allegation of respondent that he cannot be made liable for the offense as he was just performing
a valid corporate act is untenable x x x. The respondent being the Chairman and Chief Executive
Officer and the person who signed the trust receipts, there can be no doubt that there is no other
person who can be considered as more responsible than him. He appears to be the most
responsible person contemplated under the aforesaid provision of P.D. 115.

Finally, we agree with the Prosecutor’s findings that the other defenses raised by the respondent are
evidentiary in nature and best left to the sound appreciation of the court in the course of the trial.17

The dispositive of the resolution provides:

WHEREFORE, the assailed resolution is hereby AFFIRMED and consequently, the petition is
DENIED.18

Subsequently, on 14 January 2003, Hon. Merceditas N. Gutierrez, then Acting Secretary of the DOJ,
denied the motion for reconsideration of petitioner Gonzalez.

Undaunted, petitioner Gonzalez went to the Court of Appeals via a Petition for Review under Rule
4319 of the Rules of Court, as amended.

On 13 January 2004, the Court of Appeals promulgated its Decision denying petitioner Gonzalez’s
recourse for lack of merit.

The appellate court, notwithstanding the procedural infirmity, as the petition filed under Rule 43 of
the Rules of Court, as amended, was the wrong mode of appeal, took cognizance of and proceeded
to resolve the petition based on substantive grounds. In holding that no grave abuse of discretion
amounting to lack or excess of jurisdiction tainted the actions of the Secretary as well as the Acting
Secretary of the DOJ in denying petitioner Gonzalez’s petition, the decision explained that:
In the case at bar, it is decisively clear that petitioner executed the trust receipts in behalf of MLRC
and that there was a failure to turn over the proceeds from the goods sold and the goods themselves
subject of the trust receipts despite demand from the respondent bank. Such failure to account or
turn over the proceeds or to return the goods subject of the trust receipts gives rise to the crime
punished under the Trust Receipts Law. [Citation omitted.] Petitioner is ventilating before us the
merits of his causes or defenses, but this is not the occasion for the full and exhaustive display of
evidence. The presence or absence of the elements of the crime is evidentiary in nature and shall be
passed upon after a full-blown trial on the merits. Petitioner’s defenses are matters best left to the
discretion of the court during trial.20

The fallo of the preceding decision reads:

WHEREFORE, the petition is DENIED for lack of merit.21

Petitioner’s motion for reconsideration was likewise denied in a Resolution dated 6 August 2004.

Hence, the present petition filed under Rule 45 of the Rules of Court, as amended.

In the present petition, petitioner Gonzalez fundamentally seeks to reverse the ruling of the Court of
Appeals on the following grounds:

I.

THE HONORABLE COURT OF APPEALS COMMITTED MANIFEST ERROR IN NOT


FINDING THAT FOR A VALID INDICTMENT UNDER PRESIDENTIAL DECREE NO. 115
TO LIE, THE SAID LAW MUST BE READ IN CONJUNCTION WITH ARTICLE 315,
PARAGRAPH 1 (B) OF THE REVISED PENAL CODE WHICH REQUIRES THAT THE
PERSON CHARGED WITH ESTAFA PURSUANT TO A TRUST RECEIPT TRANSACTION
MUST BE PROVED TO HAVE MISAPPROPRIATED, MISUSED OR CONVERTED TO HIS
PERSONAL USE THE PROCEEDS OF THE GOODS COVERED BY THE TRUST
RECEIPTS TO THE DAMAGE OF THE ENTRUSTER; and

II.

NO PROBABLE CAUSE EXISTS TO WARRANT THE INDICTMENT OF PETITIONER FOR


VIOLATION OF SECTION 13 OF PRESIDENTIAL DECREE 115.22

On the whole, the basic issue presented before this Court in this petition is, given the facts of the
case, whether or not there is probable cause to hold petitioner Gonzalez liable to stand trial for
violation of Presidential Decree No. 115, in relation to Art. 315(1)(b) of the Revised Penal Code.

Petitioner Gonzalez contends that the Court of Appeals committed manifest error in ruling, that,
probable cause existed to hold him liable to stand trial merely on the basis of "his admission that he
executed the trust receipts subject matter of the case below and his failure to account for the goods
covered by the same."23 He argues that the City Prosecutor of Makati and the DOJ failed to
appreciate two important facts: 1) that the real transaction that led to the present controversy was in
fact a loan agreement; and 2) that MLRC simply extended to Best Price PX, Inc., the owner and
operator of Mimosa Mart at the CESZ, its credit line with respondent HSBC, such that Best Price
was the actual debtor of respondent bank. Paradoxically, he maintains that "the fact that (he) held a
high position in MLRC was not sufficient reason to charge him for alleged violation of trust
receipts."24 He insists further that he is not the person responsible for the offense allegedly
committed because of the absence of "a clear showing of fault or negligence on his part." According
to petitioner Gonzalez, "President (sic) Decree No. 115 must be read in conjunction with Article 315,
paragraph 1(b) of the Revised Penal Code x x x under both x x x it is required that the person
charged with estafa pursuant to a trust receipt transaction must be proved to have misappropriated,
misused or converted to his own personal use the proceeds of the goods covered by the trust
receipts to the damage of the entruster." Thus, petitioner concludes that "mere failure to pay the
amounts covered by the trust receipts does not conclusively constitute estafa as defined under
Presidential Decree No. 115 and Article 315, paragraph 1(b)."

Respondent HSBC, on the other hand, contends that "petitioner is criminally liable since he signed
the trust receipts x x x;"25 and, that, "[f]raud is not necessary for conviction for violation of the Trust
Receipts Law,"26 the latter being in the nature of a malum prohibitum decree. On the issue of
company reverses, Asian currency crisis and the closure of the Mimosa Regency Casino,
respondent HSBC counters that "[t]hey do not excuse petitioner for his failure to comply with his
obligations under the trust receipts,"27 because unlike "motor vehicles or parcels of land, which are
frequently purchased on credit or on installment basis,"28 the goods covered by the two trust
receipts, i.e., assorted Disney items and various golfing equipments, are usually paid for in cash
upon receipt by buyers; and if not sold, the merchandise should still be with MLRC. Hence, there
was no reason for petitioner Gonzalez’s failure to comply with his obligation under the two Trust
Receipts – to turn over the proceeds of the sale of the goods or to return the goods if they remained
unsold.

We find no merit in the petition.

We agree with the Court of Appeals that no grave abuse of discretion amounting to lack or excess of
jurisdiction marred the assailed resolutions of the DOJ.

Herein, petitioner Gonzalez questions the finding of probable cause by the City Prosecutor to hold
him liable to stand trial for the crime complained of. Probable cause has been defined as the
existence of such facts and circumstances as would excite the belief in a reasonable mind, acting on
the facts within the knowledge of the prosecutor, that the person charged was guilty of the crime for
which he was prosecuted.29 A finding of probable cause merely binds over the suspect to stand trial.
It is not a pronouncement of guilt.30

To determine the existence of probable cause, there is a need to conduct preliminary investigation.
A preliminary investigation is an inquiry to determine whether (a) a crime has been committed; and
(b) whether there is probable cause to believe that the accused is guilty thereof. Such investigation
is designed to secure the (accused) against hasty, malicious and oppressive prosecution, the
conduct of which is executive in nature.31

The executive department of the government is accountable for the prosecution of crimes, its
principal obligation being the faithful execution of the laws of the land. A necessary component of the
power to execute the laws is the right to prosecute their violators.32 Corollary to this, the right to
prosecute vests the prosecutor with a wide range of discretion, the discretion of whether, what and
whom to charge, the exercise of which depends on a smorgasbord of factors which are best
appreciated by prosecutors.33

Having said the foregoing, this Court consistently adheres to the policy of non-interference in the
conduct of preliminary investigations, and to leave to the investigating prosecutor sufficient latitude
of discretion in the determination of what constitutes sufficient evidence as will establish probable
cause for the filing of an information against the supposed offender,34 courts can only review whether
or not the executive determination of probable cause was done without or in excess of jurisdiction
resulting from grave abuse of discretion. Thus, although it is entirely possible that the investigating
prosecutor may erroneously exercise the discretion lodged in him by law, this does not render his act
amenable to correction and annulment by the extraordinary remedy of certiorari, absent any showing
of grave abuse of discretion amounting to excess of jurisdiction.35

And for courts of law to grant the extraordinary writ of certiorari, so as to justify the reversal of the
finding on the existence of probable cause to file an information, the one seeking the writ must be
able to establish that the investigating prosecutor exercised his power in an arbitrary and despotic
manner, by reason of passion or personal hostility, and it must be patent and gross as would amount
to an evasion or to a unilateral refusal to perform the duty enjoined or to act in contemplation of law.
Grave abuse of discretion is not enough.36 Excess of jurisdiction signifies that he had jurisdiction
over the case but has transcended the same or acted without authority.37

Try as we might, this Court cannot find substantiation that the executive determination of probable
cause was done without or in excess of jurisdiction resulting from grave abuse of discretion, when
the City Prosecutor resolved to recommend the filing of the Information for two counts of violation of
Presidential Decree No. 115 against petitioner Gonzalez. Similarly, there is absolutely no showing
that the DOJ, in the exercise of its power to review on appeal the findings of the City Prosecutor of
Makati, acted in an arbitrary or despotic manner that amounted to an excess or lack of jurisdiction.

In the case at bar, petitioner Gonzalez is charged by respondent HSBC with violating Presidential
Decree No. 115. Section 4 of the "Trust Receipts Law" defines a trust receipt transaction as –

Section 4. What constitutes a trust receipts transaction. – A trust receipt transaction, within the
meaning of this Decree, is any transaction by and between a person referred to in this Decree as the
entruster, and another person referred to in this Decree as entrustee, whereby the entruster, who
owns or holds absolute title or security interests over certain specified goods, documents or
instruments, releases the same to the possession of the entrustee upon the latter’s execution and
delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds
himself to hold the designated goods, documents or instruments in trust for the entruster and to sell
or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the
entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in
the trust receipt or the goods, documents or instruments themselves if they are unsold or not
otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or
for other purposes substantially equivalent to any of the following:

1. In the case of goods or documents: (a) to sell the goods or procure their sale; or (b) to
manufacture or process the goods with the purpose of ultimate sale: Provided, That, in the
case of goods delivered under trust receipt for the purpose of manufacturing or processing
before its ultimate sale, the entruster shall retain its title over the goods whether in its original
or processed form until the entrustee has complied fully with his obligation under the trust
receipt; or (c) to load, unload, ship or transship or otherwise deal with them in a manner
preliminary or necessary to their sale; or

2. In the case of instruments: (a) to sell or procure their sale or exchange; or (b) to deliver
them to a principal; or (c) to effect the consummation of some transactions involving delivery
to a depository or register; or (d) to effect their presentation, collection or renewal.

The sale of good, documents or instruments by a person in the business of selling goods,
documents or instruments for profit who, at the outset of transaction, has, as against the buyer,
general property rights in such goods, documents or instruments, or who sells the same to the buyer
on credit, retaining title or other interest as security for the payment of the purchase price, does not
constitute a trust receipt transaction and is outside the purview and coverage of this Decree.

In general, a trust receipt transaction imposes upon the entrustee the obligation to deliver to the
entruster the price of the sale, or if the merchandise is not sold, to return the same to the entruster.
There are thus two obligations in a trust receipt transaction: the first, refers to money received under
the obligation involving the duty to turn it over (entregarla) to the owner of the merchandise
sold,38 while the second refers to merchandise received under the obligation to "return" it (devolvera)
to the owner.39 A violation of any of these undertakings constitutes estafa defined under Art.
315(1)(b) of the Revised Penal Code, as provided by Sec. 13 of Presidential Decree 115, viz:

Section 13. Penalty clause. – The failure of an entrustee to turn over the proceeds of the sale of the
goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the
entruster or as appears in the trust receipt or to return said goods, documents or instruments if they
were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the
crime of estafa, punishable under the provisions of Article Three Hundred and Fifteen, paragraph
one (b) of Act Numbered Three Thousand Eight Hundred and fifteen, as amended, otherwise known
as the Revised Penal Code. If the violation or offense is committed by a corporation, partnership,
association or other juridical entities, the penalty provided for in this Decree shall be imposed upon
the directors, officers, employees or other officials or persons therein responsible for the offense,
without prejudice to the civil liabilities arising from the criminal offense.

Article 315(1)(b) of the Revised Penal Code punishes estafa committed as follows:

1. With unfaithfulness or abuse of confidence, namely:

xxxx

(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other
personal property received by the offender in trust or on commission, or for administration, or under
any other obligation involving the duty to make delivery of or to return the same, even though such
obligation be totally or partially guaranteed by a bond; or by denying having received such money,
goods, or other property.

As found in the complaint-affidavit of respondent HSBC’s representative, petitioner Gonzalez is


charged with failing to turn over "to the Bank a single centavo of the proceeds of the sale of the
(assorted) goods covered by the Trust Receipts, or x x x"40 or to return any of the assorted goods.
From the evidence adduced before the City Prosecutor of Makati i.e., 1) the two Trust Receipts
bearing the acknowledgment signature of petitioner Gonzalez; 2) the official documents concerning
the transaction between MLRC and respondent HSBC; 3) the demand letter of respondent HSBC;
and, significantly, 4) the counter-affidavit of petitioner Gonzalez containing his initial admission that
on behalf of MLRC, he entered into a trust receipt transaction with respondent HSBC – the
investigating officer determined that there existed probable cause to hold petitioner Gonzalez for trial
for the crime charged. Time and again, this Court has stated that probable cause need not be based
on clear and convincing evidence of guilt, neither on evidence establishing guilt beyond reasonable
doubt and, definitely, not on evidence establishing absolute certainty of guilt; but it certainly
demands more than bare suspicion and can never be left to presupposition, conjecture, or even
convincing logic.41 In the present case, there being sufficient evidence to support the finding of
probable cause by the City Prosecutor of Makati, the same cannot be said to have resulted from
bare suspicion, presupposition, conjecture or logical deduction.
That petitioner Gonzalez neither had the intent to defraud respondent HSBC nor personally
misused/misappropriated the goods subject of the trust receipts is of no moment. The offense
punished under Presidential Decree No. 115 is in the nature of malum prohibitum. A mere failure to
deliver the proceeds of the sale or the goods if not sold, constitutes a criminal offense that causes
prejudice not only to another, but more to the public interest.42 This is a matter of public policy as
declared by the legislative authority. Moreover, this Court already held previously that failure of the
entrustee to turn over the proceeds of the sale of the goods, covered by the trust receipt, to the
entruster or to return said goods if they were not disposed of in accordance with the terms of the
trust receipt shall be punishable as estafa under Art. 315(1)(b) of the Revised Penal Code without
need of proving intent to defraud.43

As a last ditch effort to exculpate himself from the offense charged, petitioner Gonzalez posits that,
"the fact that (he) held a high position in MLRC was not sufficient reason to charge him for alleged
violation of trust receipts."44Unfortunately, it is but a futile attempt. Though petitioner Gonzalez
signed the Trust Receipts merely as a corporate officer of MLRC and had no physical possession of
the goods subject of such receipts, he cannot avoid responsibility for violation of Presidential Decree
No. 115 for two unpretentious reasons: first, that the last sentence of Section 13 of the "Trust
Receipts Law," explicitly imposes the penalty provided therein upon "directors, officers, employees
or other officials or persons therein responsible for the offense, without prejudice to the civil liabilities
arising from the criminal offense," of a corporation, partnership, association or other juridical entities
found to have violated the obligation imposed under the law. The rationale for making such officers
and employees responsible for the offense is that they are vested with the authority and
responsibility to devise means necessary to ensure compliance with the law and, if they fail to do so,
are held criminally accountable; thus, they have a responsible share in the violations of the
law.45 And second, a corporation or other juridical entity cannot be arrested and imprisoned; hence,
cannot be penalized for a crime punishable by imprisonment.46

Petitioner Gonzalez’s allegation that Best Price PX, Inc. is the real party in the trust receipt
transaction and his assertion that the real transaction between respondent HSBC and MLRC is a
loan agreement, are matters of defense best left to the trial court’s deliberation and contemplation
after conducting the trial of the criminal case. To reiterate, a preliminary investigation for the purpose
of determining the existence of probable cause is not part of the trial. A full and exhaustive
presentation of the parties’ evidence is not required, but only such as may engender a well-grounded
belief that an offense has been committed and that the accused is probably guilty thereof.47

In fine, the Court of Appeals committed no reversible error when it ruled that there was no grave
abuse of discretion on the part of the Secretary and Acting Secretary of the DOJ in directing the filing
of the Information against petitioner Gonzalez for violation of Presidential Decree No. 115 in relation
to Article 315(1)(b) of the Revised Penal Code.

WHEREFORE, premises considered, the instant petition is DENIED for lack of merit. The assailed
13 January 2004 Decision and 6 August 2004 Resolution, both of the Court of Appeals in CA-G.R.
SP No. 75469 are hereby AFFIRMED. Costs against petitioner.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:
CONSUELO YNARES-SANTIAGO
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ ANTONIO EDUARDO B. NACHURA


Associate Justice Associate Justice

RUBEN T. REYES
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairman’s Attestation, it is
hereby certified that the conclusions in the above Decision were reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

Footnotes

1 Rollo, pp. 11-38.

2Penned by Court of Appeals Associate Justice Perlita J. Tria-Tirona with Associate Justices
Portia Aliño-Hormachuelos and Rosalinda Asuncion-Vicente concurring; Annex "A" of the
Petition; id. at 39-46.

3 Annex "B" of the Petition; id. at 48-49.

4 Annex "E" of the Petition; id. at 53-54.

5 Annex "K" of the Petition; id. at 92-94.

6 Annex "M" of the Petition; id. at 111-112.

7 Annex "I" of the Petition; id. at 68-69.

8Composed of The Mimosa Golf and Country Club, the Holiday Inn Resort Clark Field, the
Monte Vista Hotel and the Mimosa Regency Casino.
9 Annex "1" of respondent HSBC’s Comment; rollo, p. 195.

10 Annex "2" of respondent HSBC’s Comment; id. at 196.

11 Annex "3" of respondent HSBC’s Comment; id. at 197-198.

12 Annex "E" of the Petition; id. at 53-54.

13 Petitioner Gonzalez’s Counter-Affidavit; Annex "F" of the Petition; id. at 55-57.

14 Id. at 69.

15 Id.

16 Id. at 93.

17 Id.

18 Id.

APPEALS FROM THE COURT OF TAX APPEALS AND QUASI-JUDICIAL AGENCIES


19

TO THE COURT OF APPEALS.

20 Rollo, pp. 44-45.

21 Id.

22 Petition, pp. 14-15; id. at 24-25.

23 Petitioner Gonzalez’s Memorandum, p. 14; id. at 309.

24 Petitioner Gonzalez’s Memorandum, p. 16; id. at 311.

25 Respondent HSBC’s Memorandum, p. 7; id. at 260.

26 Id.

27 Id. at 263.

28 Id. at 264.

29 R.R. Paredes v. Calilung, G.R. No. 156055, 5 March 2007, 517 SCRA 369, 394.

30 Webb v. Hon. De Leon, 317 Phil. 758, 789 (1995).

31 Lim, Sr. v. Felix, G.R. No. 94054-57, 19 February 1991, 194 SCRA 292, 304.

32 R.R. Paredes v. Calilung , supra note 29 at 394.


33 Webb v. Hon. De Leon, supra note 30 at 800.

34 Andres v. Cuevas, G.R. No. 150869, 9 June 2005, 460 SCRA 38, 52.

35 D.M. Consuji, Inc. v. Esguerra, 328 Phil. 1168, 1185 (1996).

36 R.R. Paredes v. Calilung , supra note 29 at 397.

37Sarigumba v. Sandiganbayan, G.R. Nos. 154239-41, 16 February 2005, 451 SCRA 533,
549.

38 People v. Cuevo, 191 Phil. 622, 630 (1981).

39 Id.

40 Rollo, pp. 53-54.

41 Kilosbayan, Inc. v. COMELEC, 345 Phil. 1141, 1174 (1997).

42 People v. Nitafan, G.R. Nos. 81559-60, 6 April 1992, 207 SCRA 726, 731.

43 Colinares v. Court of Appeals, 394 Phil. 106, 120 (2000).

44 Rollo, pp. 55-57.

45 Ching v. Secretary of Justice, G.R. No. 164317, 6 February 2006, 481 SCRA 609, 635,
citing U.S. v. Park, 421 U.S. 658, 95, S.Ct. 1903 (1975).

46 Ong v. Court of Appeals, 449 Phil. 691, 704 (2003).

47 Ledesma v. Court of Appeals, 344 Phil. 207, 226 (1997).


G.R. No. 195117 August 14, 2013

HUR TIN YANG, PETITIONER


vs.
PEOPLE OF THE PHILIPPINES, RESPONDENT.

RESOLUTION

VELASCO JR., J.:

This is a motion for reconsideration of our February 1, 2012 Minute Resolution1 sustaining the July
28, 2010 Decision2 and December 20, 2010 Resolution3 of the Court of Appeals (CA) in CA-G.R. CR
No. 30426, finding petitioner Hur Tin Yang guilty beyond reasonable doubt of the crime of Estafa
under A11icle 315, paragraph 1 (b) of the Revised Penal Code (RPC) in relation to Presidential
Decree No. 115 (PD 115) or the Trust Receipts Law.

In twenty-four (24) consolidated Informations, all dated March 15, 2002, petitioner Hur Tin Yang was
charged at the instance of the same complainant with the crime of Estafa under Article 315, par. 1(b)
of the RPC,4 in relation to PD 115,5 docketed as Criminal Case Nos. 04-223911 to 34 and raffled to
the Regional Trial Court of Manila, Branch 20. The 24 Informations––differing only as regards the
alleged date of commission of the crime, date of the trust receipts, the number of the letter of credit,
the subject goods and the amount––uniformly recite:

That on or about May 28, 1998, in the City of Manila, Philippines, the said accused being then the
authorized officer of SUPERMAX PHILIPPINES, INC., with office address at No. 11/F, Global Tower,
Gen Mascardo corner M. Reyes St., Bangkal, Makati City, did then and there willfully, unlawfully and
feloniously defraud the METROPOLITAN BANK AND TRUST COMPANY (METROBANK), a
corporation duly organized and existing under and by virtue of the laws of the Republic of the
Philippines, represented by its Officer in Charge, WINNIE M. VILLANUEVA, in the following manner,
to wit: the said accused received in trust from the said Metropolitan Bank and Trust Company
reinforcing bars valued at ₱1,062,918.84 specified in the undated Trust Receipt Agreement covered
by Letter of Credit No. MG-LOC 216/98 for the purpose of holding said merchandise/goods in trust,
with obligation on the part of the accused to turn over the proceeds of the sale thereof or if unsold, to
return the goods to the said bank within the specified period agreed upon, but herein accused once
in possession of the said merchandise/goods, far from complying with his aforesaid obligation, failed
and refused and still fails and refuses to do so despite repeated demands made upon him to that
effect and with intent to defraud and with grave abuse of confidence and trust, misappropriated,
misapplied and converted the said merchandise/goods or the value thereof to his own personal use
and benefit, to the damage and prejudice of said METROPOLITAN BANK AND TRUST COMPANY
in the aforesaid amount of ₱1,062,918.84, Philippine Currency.

Contrary to law.6

Upon arraignment, petitioner pleaded "not guilty." Thereafter, trial on the merits then ensued.

The facts of these consolidated cases are undisputed:

Supermax Philippines, Inc. (Supermax) is a domestic corporation engaged in the construction


business. On various occasions in the month of April, May, July, August, September, October and
November 1998, Metropolitan Bank and Trust Company (Metrobank), Magdalena Branch, Manila,
extended several commercial letters of credit (LCs) to Supermax. These commercial LCs were used
by Supermax to pay for the delivery of several construction materials which will be used in their
construction business. Thereafter, Metrobank required petitioner, as representative and Vice-
President for Internal Affairs of Supermax, to sign twenty-four (24) trust receipts as security for the
construction materials and to hold those materials or the proceeds of the sales in trust for Metrobank
to the extent of the amount stated in the trust receipts.

When the 24 trust receipts fell due and despite the receipt of a demand letter dated August 15, 2000,
Supermax failed to pay or deliver the goods or proceeds to Metrobank. Instead, Supermax, through
petitioner, requested the restructuring of the loan. When the intended restructuring of the loan did
not materialize, Metrobank sent another demand letter dated October 11, 2001. As the demands fell
on deaf ears, Metrobank, through its representative, Winnie M. Villanueva, filed the instant criminal
complaints against petitioner.

For his defense, while admitting signing the trust receipts, petitioner argued that said trust receipts
were demanded by Metrobank as additional security for the loans extended to Supermax for the
purchase of construction equipment and materials. In support of this argument, petitioner presented
as witness, Priscila Alfonso, who testified that the construction materials covered by the trust
receipts were delivered way before petitioner signed the corresponding trust receipts.7 Further,
petitioner argued that Metrobank knew all along that the construction materials subject of the trust
receipts were not intended for resale but for personal use of Supermax relating to its construction
business.8

The trial court a quo, by Judgment dated October 6, 2006, found petitioner guilty as charged and
sentenced him as follows:

His guilt having been proven and established beyond reasonable doubt, the Court hereby renders
judgment CONVICTING accused HUR TIN YANG of the crime of estafa under Article 315 paragraph
1 (a) of the Revised Penal Code and hereby imposes upon him the indeterminate penalty of 4 years,
2 months and 1 day of prision correccional to 20 years of reclusion temporal and to pay Metropolitan
Bank and Trust Company, Inc. the amount of Php13,156,256.51 as civil liability and to pay cost.

SO ORDERED.9

Petitioner appealed to the CA. On July 28, 2010, the appellate court rendered a Decision, upholding
the findings of the RTC that the prosecution has satisfactorily established the guilt of petitioner
beyond reasonable doubt, including the following critical facts, to wit: (1) petitioner signing the trust
receipts agreement; (2) Supermax failing to pay the loan; and (3) Supermax failing to turn over the
proceeds of the sale or the goods to Metrobank upon demand. Curiously, but significantly, the CA
also found that even before the execution of the trust receipts, Metrobank knew or should have
known that the subject construction materials were never intended for resale or for the manufacture
of items to be sold.10

The CA ruled that since the offense punished under PD 115 is in the nature of malum prohibitum, a
mere failure to deliver the proceeds of the sale or goods, if not sold, is sufficient to justify a
conviction under PD 115. The fallo of the CA Decision reads:

WHEREFORE, in view of the foregoing premises, the appeal filed in this case is hereby DENIED
and, consequently, DISMISSED. The assailed Decision dated October 6, 2006 of the Rregional Trial
Court, Branch 20, in the City of Manila in Criminal Cases Nos. 04223911 to 223934 is hereby
AFFIRMED.

SO ORDERED.
Petitioner filed a Motion for Reconsideration, but it was denied in a Resolution dated December 20,
2010. Not satisfied, petitioner filed a petition for review under Rule 45 of the Rules of Court. The
Office of the Solicitor General (OSG) filed its Comment dated November 28, 2011, stressing that the
pieces of evidence adduced from the testimony and documents submitted before the trial court are
sufficient to establish the guilt of petitioner.11

On February 1, 2012, this Court dismissed the Petition via a Minute Resolution on the ground that
the CA committed no reversible error in the assailed July 28, 2010 Decision. Hence, petitioner filed
the present Motion for Reconsideration contending that the transactions between the parties do not
constitute trust receipt agreements but rather of simple loans.

On October 3, 2012, the OSG filed its Comment on the Motion for Reconsideration, praying for the
denial of said motion and arguing that petitioner merely reiterated his arguments in the petition and
his Motion for Reconsideration is nothing more than a mere rehash of the matters already thoroughly
passed upon by the RTC, the CA and this Court.12

The sole issue for the consideration of the Court is whether or not petitioner is liable for Estafa under
Art. 315, par. 1(b) of the RPC in relation to PD 115, even if it was sufficiently proved that the
entruster (Metrobank) knew beforehand that the goods (construction materials) subject of the trust
receipts were never intended to be sold but only for use in the entrustee’s construction business.

The motion for reconsideration has merit.

In determining the nature of a contract, courts are not bound by the title or name given by the
parties. The decisive factor in evaluating such agreement is the intention of the parties, as shown not
necessarily by the terminology used in the contract but by their conduct, words, actions and deeds
prior to, during and immediately after executing the agreement. As such, therefore, documentary and
parol evidence may be submitted and admitted to prove such intention.13

In the instant case, the factual findings of the trial and appellate courts reveal that the dealing
between petitioner and Metrobank was not a trust receipt transaction but one of simple loan.
Petitioner’s admission––that he signed the trust receipts on behalf of Supermax, which failed to pay
the loan or turn over the proceeds of the sale or the goods to Metrobank upon demand––does not
conclusively prove that the transaction was, indeed, a trust receipts transaction. In contrast to the
nomenclature of the transaction, the parties really intended a contract of loan. This Court––in Ng v.
People14 and Land Bank of the Philippines v. Perez,15 cases which are in all four corners the same
as the instant case––ruled that the fact that the entruster bank knew even before the execution of
the trust receipt agreements that the construction materials covered were never intended by the
entrustee for resale or for the manufacture of items to be sold is sufficient to prove that the
transaction was a simple loan and not a trust receipts transaction.

The petitioner was charged with Estafa committed in what is called, under PD 115, a "trust receipt
transaction," which is defined as:

Section 4. What constitutes a trust receipts transaction.—A trust receipt transaction, within the
meaning of this Decree, is any transaction by and between a person referred to in this Decree as the
entruster, and another person referred to in this Decree as entrustee, whereby the entruster, who
owns or holds absolute title or security interests over certain specified goods, documents or
instruments, releases the same to the possession of the entrustee upon the latter’s execution and
delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds
himself to hold the designated goods, documents or instruments in trust for the entruster and to sell
or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the
entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in
the trust receipt or the goods, documents or instruments themselves if they are unsold or not
otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or
for other purposes substantially equivalent to any of the following:

1. In the case of goods or documents: (a) to sell the goods or procure their sale; or (b) to
manufacture or process the goods with the purpose of ultimate sale: Provided, That, in the
case of goods delivered under trust receipt for the purpose of manufacturing or processing
before its ultimate sale, the entruster shall retain its title over the goods whether in its original
or processed form until the entrustee has complied full with his obligation under the trust
receipt; or (c) to load, unload, ship or transship or otherwise deal with them in a manner
preliminary or necessary to their sale; or

2. In the case of instruments: (a) to sell or procure their sale or exchange; or (b) to deliver
them to a principal; or (c) to effect the consummation of some transactions involving delivery
to a depository or register; or (d) to effect their presentation, collection or renewal.

Simply stated, a trust receipt transaction is one where the entrustee has the obligation to deliver to
the entruster the price of the sale, or if the merchandise is not sold, to return the merchandise to the
entruster. There are, therefore, two obligations in a trust receipt transaction: the first refers to money
received under the obligation involving the duty to turn it over (entregarla) to the owner of the
merchandise sold, while the second refers to the merchandise received under the obligation to
"return" it (devolvera) to the owner.16 A violation of any of these undertakings constitutes Estafa
defined under Art. 315, par. 1(b) of the RPC, as provided in Sec. 13 of PD 115, viz:

Section 13. Penalty Clause.—The failure of an entrustee to turn over the proceeds of the sale of the
goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the
entruster or as appears in the trust receipt or to return said goods, documents or instruments if they
were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the
crime of estafa, punishable under the provisions of Article Three hundred fifteen, paragraph one (b)
of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the
Revised Penal Code. x x x (Emphasis supplied.)

Nonetheless, when both parties enter into an agreement knowing fully well that the return of the
goods subject of the trust receipt is not possible even without any fault on the part of the trustee, it is
not a trust receipt transaction penalized under Sec. 13 of PD 115 in relation to Art. 315, par. 1(b) of
the RPC, as the only obligation actually agreed upon by the parties would be the return of the
proceeds of the sale transaction. This transaction becomes a mere loan, where the borrower is
obligated to pay the bank the amount spent for the purchase of the goods.17

In Ng v. People, Anthony Ng, then engaged in the business of building and fabricating
telecommunication towers, applied for a credit line of PhP 3,000,000 with Asiatrust Development
Bank, Inc. Prior to the approval of the loan, Anthony Ng informed Asiatrust that the proceeds would
be used for purchasing construction materials necessary for the completion of several steel towers
he was commissioned to build by several telecommunication companies. Asiatrust approved the
loan but required Anthony Ng to sign a trust receipt agreement. When Anthony Ng failed to pay the
loan, Asiatrust filed a criminal case for Estafa in relation to PD 115 or the Trust Receipts Law. This
Court acquitted Anthony Ng and ruled that the Trust Receipts Law was created to "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." Since Asiatrust knew that Anthony Ng was
neither an importer nor retail dealer, it should have known that the said agreement could not possibly
apply to petitioner, viz:

The true nature of a trust receipt transaction can be found in the "whereas" clause of PD 115 which
states that a trust receipt is to be utilized "as a convenient business device to assist importers and
merchants solve their financing problems." Obviously, the State, in enacting the law, sought to find a
way to assist importers and merchants in their financing in order to encourage commerce in the
Philippines.

[A] trust receipt is considered 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. Similarly, American Jurisprudence demonstrates that trust
receipt transactions always refer to a method of "financing importations or financing sales." The
principle is of course not limited in its application to financing importations, since the principle is
equally applicable to domestic transactions. Regardless of whether the transaction is foreign or
domestic, it is important to note that the transactions discussed in relation to trust receipts mainly
involved sales.

Following the precept of the law, such transactions affect situations wherein the entruster, who owns
or holds absolute title or security interests over specified goods, documents or instruments, releases
the subject goods to the possession of the entrustee. The release of such goods to the entrustee is
conditioned upon his execution and delivery to the entruster of a trust receipt wherein the former
binds himself to hold the specific goods, documents or instruments in trust for the entruster and to
sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to
the entruster the proceeds to the extent of the amount owing to the entruster or the goods,
documents or instruments themselves if they are unsold. x x x [T]he entruster is entitled "only to the
proceeds derived from the sale of goods released under a trust receipt to the entrustee."

Considering that the goods in this case were never intended for sale but for use in the fabrication of
steel communication towers, the trial court erred in ruling that the agreement is a trust receipt
transaction.

xxxx

To emphasize, the Trust Receipts Law was created to "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." Since Asiatrust knew that petitioner was neither an
importer nor retail dealer, it should have known that the said agreement could not possibly apply to
petitioner.18

Further, in Land Bank of the Philippines v. Perez, the respondents were officers of Asian
Construction and Development Corporation (ACDC), a corporation engaged in the construction
business. On several occasions, respondents executed in favor of Land Bank of the Philippines
(LBP) trust receipts to secure the purchase of construction materials that they will need in their
construction projects. When the trust receipts matured, ACDC failed to return to LBP the proceeds of
the construction projects or the construction materials subject of the trust receipts. After several
demands went unheeded, LBP filed a complaint for Estafa or violation of Art. 315, par. 1(b) of the
RPC, in relation to PD 115, against the respondent officers of ACDC. This Court, like in Ng,
acquitted all the respondents on the postulate that the parties really intended a simple contract of
loan and not a trust receipts transaction, viz:
When both parties enter into an agreement knowing that the return of the goods subject of the trust
receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt
transaction penalized under Section 13 of P.D. 115; the only obligation actually agreed upon by the
parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere
loan, where the borrower is obligated to pay the bank the amount spent for the purchase of the
goods.

xxxx

Thus, in concluding that the transaction was a loan and not a trust receipt, we noted in Colinares that
the industry or line of work that the borrowers were engaged in was construction. We pointed out
that the borrowers were not importers acquiring goods for resale. Indeed, goods sold in retail are
often within the custody or control of the trustee until they are purchased. In the case of materials
used in the manufacture of finished products, these finished products – if not the raw materials or
their components – similarly remain in the possession of the trustee until they are sold. But the
goods and the materials that are used for a construction project are often placed under the control
and custody of the clients employing the contractor, who can only be compelled to return the
materials if they fail to pay the contractor and often only after the requisite legal proceedings. The
contractor’s difficulty and uncertainty in claiming these materials (or the buildings and structures
which they become part of), as soon as the bank demands them, disqualify them from being covered
by trust receipt agreements.19

Since the factual milieu of Ng and Land Bank of the Philippines are in all four corners similar to the
instant case, it behooves this Court, following the principle of stare decisis,20 to rule that the
transactions in the instant case are not trust receipts transactions but contracts of simple loan. The
fact that the entruster bank, Metrobank in this case, knew even before the execution of the alleged
trust receipt agreements that the covered construction materials were never intended by the
entrustee (petitioner) for resale or for the manufacture of items to be sold would take the transaction
between petitioner and Metrobank outside the ambit of the Trust Receipts Law.

For reasons discussed above, the subject transactions in the instant case are not trust receipts
transactions. Thus, the consolidated complaints for Estafa in relation to PD 115 have really no leg to
1âwphi1

stand on.

The Court’s ruling in Colinares v. Court of Appeals21 is very apt, thus:

The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and
place them under the threats of criminal prosecution should they be unable to pay it may be unjust
and inequitable. if not reprehensible. Such agreements are contracts of adhesion which borrowers
have no option but to sign lest their loan be disapproved. The resort to this scheme leaves poor and
hapless borrowers at the mercy of banks and is prone to misinterpretation x x x.

Unfortunately, what happened in Colinares is exactly the situation in the instant case. This
reprehensible bank practice described in Colinares should be stopped and discouraged. For this
Court to give life to the constitutional provision of non-imprisonment for nonpayment of debts,22 it is
imperative that petitioner be acquitted of the crime of Estafa under Art. 315, par. 1 (b) ofthe RPC, in
relation to PD 115.

WHEREFORE, the Resolution dated February 1, 2012, upholding theCA's Decision dated July 28,
2010 and Resolution dated December 20, 2010 in CA-G.R. CR No. 30426, is hereby
RECONSIDERED. Petitioner Hur Tin Yang is ACQUITTED of the charge of violating Art. 315, par. 1
(b) of the RPC, in relation to the pertinent provision of PD 115 in Criminal Case Nos. 04-223911 to
34.

SO ORDERED.

PRESBITERO J. VELASCO, JR.


Associate Justice

WE CONCUR:

DIOSDADO M. PERALTA
Associate Justice

ROBERTO A. ABAD JOSE CATRAL MENDOZA


Associate Justice Associate Justice

MARVIC MARIO VICTOR F. LEONEN


Associate Justice

ATTESTATION

I attest that the conclusions in the above Resolution had been reached in consultation before the
case was assigned to the writer of the opinion of the Court's Division.

PRESBITERO J. VELASCO, JR.


Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify that the conclusions in the above Resolution had been reached in consultation before the
case was assigned to the writer of the opinion of the Court's Division.

MARIA LOURDES P. A. SERENO


Chief Justice

Footnotes

1 Rollo, p. 252.

2Id. at 57-87. Penned by Associate Justice lsaias Dicdican and concurred in by Associate
Justices Stephen C. Cruz and Danton Q. Bueser.

3 Id. at 88-89.
4Art. 315. Swindling (estafa). - Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by:

xxxxx

1. With unfaithfulness or abuse of confidence, namely:

xxx

(b) By misappropriating or convening to the prejudice of another, money, goods or


any other personal property received by the offender in trust, or on commission, or
for administration, or under any other obligation involving the duty to make delivery of
or to return the same, even though such obligation be totally or partially guaranteed
by a bond; or by denying having received such money, goods, or another property.

5 Trust Receipts Law, Section 13. Penalty clause. The failure of an entrustee to turn over the
proceeds of the sale of the goods, documents or instruments covered by a trust receipt to the
extent of the amount owing to the entruster or as appears in the trust receipt or to return said
goods, documents or instruments if they were not sold or disposed of in accordance with the
terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions
of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand
eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code. If the
violation or offense is committed by a corporation, partnership, association or other juridical
entities, the penalty provided for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense, without prejudice
to the civil liabilities arising from the criminal offense.

6 Rollo, pp. 58-59.

7 TSN, April 24, 2006, p. 13.

8 Rollo, p. 40.

9 Id. at 206. Penned by Judge Marivic T. Balisi-Umali.

10 Id. at 79-80. The CA Decision dated July 28, 2010 reads, "The evidence for the accused-
appellant further tended to show that the transactions between Metrobank and Supermax
could not be considered trust receipts transactions within the purview of PD No. 115 but
rather loan transactions because the equipment and construction materials, which were the
goods subject of the trust receipts, were never intended to be put up for sale or to be
manufactured for ultimate sale as they would be utilized by Supermax in the prosecution of
its various projects and that Metrobank knew beforehand that the proceeds of the loans
would be used to purchase constructions materials because, before the approval of such
loans, documents such as articles of incorporation, by-laws and financial reports of
Supermax were submitted to said bank."

11Id. at 243-244. The OSG Comment reads, "The following pieces of evidence adduced from
the testimony and documents submitted before the trial court are sufficient to establish the
guilt of petitioner, to wit:
First, the trust receipts bearing the genuine signatures of petitioner; second, the two
demand letters of Metrobank addressed to petitioner dated August 15, 2000 and
October 11, 20001; and third, the initial admission by petitioner that he signed as
Vice President for Internal Affairs of Supermax.

That petitioner did not sell the goods under trust receipts is of no moment. The
offense punished under Presidential Decree No. 115 is in the nature of malum
prohibitum. A mere failure to deliver the proceeds of the sale or the goods, if not sold,
constitutes a criminal offense that causes prejudice not only to another, but more to
the public interest x x x." (Emphasis supplied.)

12 Id. at 278.

13 Aguirre v. Court of Appeals, G.R. No. 131520, January 28, 2000, 323 SCRA 771, 774.

14 G.R. No. 173905, April 23, 2010, 619 SCRA 291.

15 G.R. No. 166884, June 13, 2012, 672 SCRA 117.

16 Ng v. People, supra note 14, at 304.

17 Land Bank of the Philippines v. Perez, supra note 15, at 126-127.

18 Supra note 14, at 305-307.

19 Supra note 15, at 126-127, 129.

20The doctrine "stare decisis et non quieta movere" (stand by the decisions and disturb not
what is settled) is firmly entrenched in our jurisprudence. Once this Court has laid down a
principle of law as applicable to a certain state of facts, it would adhere to that principle and
apply it to all future cases in which the facts are substantially the same as in the earlier
controversy. Agra v. Commission on Audit, G.R. No. 167807, December 6, 2011, 661 SCRA
563, 585.

21
G.R. No. 90828, September 5, 2000, 339 SCRA 609, 623-624.

22CONSTITUTION, Art. III, Sec. 20 provides, "No person shall be imprisoned for debt or
non-payment of poll tax."
G.R. No. 134436 August 16, 2000

METROPOLITAN BANK and TRUST COMPANY, petitioner,


vs.
JOAQUIN TONDA and MA. CRISTINA TONDA, respondents.

DECISION

GONZAGA REYES, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to set aside the
Decision1 of the Court of Appeals2 dated June 29, 1998 in CA-G.R. SP No. 38113 which: (1) reversed
Resolution No. 417, s. 1994,3dated June 1, 1994 of the Department of Justice4 directing to file the
appropriate Information against herein respondents Joaquin P. Tonda and Ma. Cristina V. Tonda for
violation of P.D. 115 in relation to Article 315 (1) (b) of the Revised Penal Code; and (2) effectively
set aside the Resolutions dated April 7, 19955 and July 12 19956 of the Department of Justice denying
the motions for reconsideration.

Spouses Joaquin G. Tonda and Ma. Cristina U. Tonda, hereinafter referred to as the TONDAS,
applied for and were granted commercial letters of credit by petitioner Metropolitan Bank and Trust
Company, hereinafter referred to as METROBANK for a period of eight (8) months beginning June
14, 1990 to February 1, 1991 in connection with the importation of raw textile materials to be used in
the manufacturing of garments. The TONDAS acting both in their capacity as officers of Honey Tree
Apparel Corporation (HTAC) and in their personal capacities, executed eleven (11) trust receipts to
secure the release of the raw materials to HTAC. The imported fabrics with a principal value of
P2,803,000.00 were withdrawn by HTAC under the 11 trust receipts executed by the TONDAS. Due
to their failure to settle their obligations under the trust receipts upon maturity, METROBANK through
counsel, sent a letter dated August 10, 1992, making its final demand upon the TONDAS to settle
their past due TR/LC accounts on or before August 15, 1992. They were informed that by said date,
the obligations would amount to P4,870,499.13. Despite repeated demands therefor, the TONDAS
failed to comply with their obligations stated in the trust receipts agreements, i.e. the TONDAS failed
to account to METROBANK the goods and/or proceeds of sale of the merchandise, subject of the
trust receipts.

Consequently, on November 9, 1992, Metrobank, through its account officer Eligio Labog, Jr., filed
with the Provincial Prosecutor of Rizal a complaint/affidavit against the TONDAS for violation of P.D.
No. 115 (Trust Receipts Law) in relation to Article 315 (1) (b) of the Revised Penal Code. On
February 12, 1993, the assigned Assistant Prosecutor of Rizal submitted a Memorandum to the
Provincial Prosecutor recommending that the complaint in I.S. No. 92-8703 be dismissed on the
ground that the complainants had failed to establish "the existence of the essential elements of
Estafa as charged." The recommendation was approved by Rizal Provincial Prosecutor Mauro
Castro on May 18, 1993.

METROBANK then appealed to the Department of Justice (DOJ). On June 1, 1994, Undersecretary
Ramon. S. Esguerra reversed the findings of the Provincial Prosecutor of Rizal and ordered the
latter to file the appropriate information against the TONDAS as charged in the complaint.

The TONDAS immediately sought a reconsideration of the DOJ Resolution but their motion was
denied by the then acting Justice Secretary Demetrio G. Demetria in a Letter-Resolution dated April
7, 1995. A second motion for reconsideration by the TONDAS was likewise denied by then Justice
Secretary Teofisto Guingona on July 12, 1995.
Subsequently, the TONDAS filed with the Court of Appeals a special civil action for certiorari and
prohibition with application for a temporary restraining order or a writ of preliminary injunction,7 which
was docketed as CA-G.R. SP No. 38113. They contended therein that the Secretary of Justice acted
without or in excess of jurisdiction in issuing the aforementioned Resolution dated July 12, 1995
denying with finality their motion for the reconsideration of the Resolution dated April 7, 1995 of the
Acting Secretary of Justice, which in turn denied their motion for the reconsideration of Resolution
No. 417, s. 94, dated June 1, 1994, directing to file the appropriate Information against the TONDAS.

The Court of Appeals granted the TONDAS' petition and ordered the criminal complaint against them
dismissed. The Court of Appeals held that METROBANK had failed to show a prima facie case that
the TONDAS violated the Trust Receipts Law in relation to Art. 315 (1) (b) of the Revised Penal
Code in the face of convincing proof that "that the amount of P2.8 Million representing the
outstanding obligation of the TONDAS under the trust receipts account had already been settled by
them in compliance with the loan restructuring proposal; and that in the absence of a loan
restructuring agreement, METROBANK could still validly apply the amount as payment thereof." The
relevant portions of the Court of Appeals decision are quoted as follows:

"Petitioners admitted that in 1991 their company, the Honey Tree Apparel Corporation (HTAC), had
some financial reversals making it difficult for them to comply with their loan obligations with
Metrobank. They were then constrained to propose a loan restructuring agreement with the private
respondent to enable them to finally settle all outstanding obligations with the latter. In a letter dated
23 September 1991, petitioner Joaquin Tonda submitted a proposed Loan Restructuring Scheme to
Metrobank. In said letter, petitioner Tonda proposed to immediately pay in full the outstanding
principal charges under the trust receipts account and the remaining obligations under a separate
schedule of payment. Petitioners attached with said letter an itemized proposal (Attachment "A"),
part of which reads:

1. Trust Receipts - The new management and. Mr. Joaquin G. Tonda will pay immediately the entire
principal of the outstanding Trust Receipts amounting to ₱2,803,097.14. While the interest accrued
up to September 13, 1991 amounting to ₱409,601.57 plus the additional interest shall be re-
structured together with item no. 2 below. A joint sharing account in the name of Joaquin G. Tonda
and Wang Tien En equal to Trust Receipt amount of 1.8 Million will be opened at Metrobank Makati.
(emphasis supplied)

It would appear that the aforestated amount of 1.8 Million was erroneously written since the intention
of the petitioners was to open an account of ₱2.8 Million to pay the entire principal of the outstanding
trust receipts account. In fact, also on 23 September 1991, petitioner Joaquin Tonda and Wang Tien
En deposited four different checks with a total amount of P2,800,000.00 with Metrobank. The checks
were received by a certain Flor C. Naanep. Notably, the petitioners had obtained a written
acknowledgement of receipt of the checks totaling P2.8 Million from the Metrobank officer in order to
show proof of compliance with the loan restructuring proposal. If the petitioners had intended it to be
a simple deposit, then a deposit slip with a machine validation by the private respondent bank would
have otherwise been sufficient.

In a letter dated 22 October 1991, Metrobank wrote to the petitioners informing them that the bank
had accepted their proposal subject to certain conditions, the first of which referred to the immediate
payment of the amount of P2.8 Million, representing the outstanding trust receipts account. The
petitioners appeared to have offered a counter proposal such that no final agreement had yet been
reached.

However, the succeeding negotiations between petitioners and Metrobank, after the initial offer of 23
September 1991 was made, dealt with the other outstanding obligations while the matter regarding
the trust receipts account remained unchanged; therefore, it was settled between the parties that the
amount of P2.8 Million should be paid to cover all outstanding obligations under the trust receipts
account. Despite the inability of both parties to reach a mutually agreeable loan restructured
agreement, the amount of P2.8 Million which was deposited on 23 September 1991 by the
petitioners appears to remain intact and untouched as Metrobank had failed to show evidence that
the money has been withdrawn from the savings account of the petitioners.

Moreover, the deposit made by the petitioners was made known to Metrobank clearly as a
compliance with the proposed loan restructuring agreement. As shown in the correspondence made
by the petitioners on 28 February 1992 to Metrobank, after the latter had made a formal demand for
payment of all outstanding obligations, the deposit was mentioned, to wit:

"May we emphasize that to show sincerity and financial capability, soon after we received your letter
dated October 22, 1991 informing us of your approval of the restructuring and consolidation of our
firm's obligations, a personal account was opened by two (2) of our stockholders in the amount
equivalent to the TR/LC, Account of about P2.8 Million which deposit is still maintained with your
bank, free from any lien or encumbrance, and may be applied anytime to the payment of the TR/LC
Account upon the implementation by the parties of the terms of restructuring.""(emphasis supplied)

The contention of Metrobank that the money had not been actually applied as payment for
petitioners' outstanding obligation under the trust receipts account is absolutely devoid of merit,
considering that the petitioners were still in the process of negotiating for a reasonable loan
restructuring arrangement with Metrobank when the latter abruptly abandoned all efforts to negotiate
and instantly demanded from the petitioners the fulfillment of all their outstanding obligations.

In the case of Tan Tiong Tick vs. American Apothecaries, 65 Phil. 414, the Supreme Court had held
that:

"When a depositor is indebted to a bank, and the debts are mutual - that is, between the same
parties and in the, same right - the bank may apply the deposit, or such portion thereof as may be
necessary, to the payment of the debt due it by the depositor, provided there is no express
agreement to the contrary and the deposit is not specifically applicable to some other particular
purpose."

Applying the above-mentioned ruling in this case, if the parties therefore fail to reach an agreement
regarding the restructuring of HTAC's loan, Metrobank can validly apply the amount deposited by the
petitioners as payment of the principal obligation under the trust receipts account.

On the basis of all the evidence before Us, this Court is convinced that the amount of P2.8 Million
representing the outstanding obligation of the petitioners under the trust receipts account had
already been settled by the petitioners. The money remains deposited under the savings account of
the petitioners awaiting a final agreement with Metrobank regarding the loan restructuring
arrangement. Meanwhile, Metrobank has the right to use the deposited amount in connection with
any of its banking business.

With convincing proof that the amount of P2.8 Million deposited under petitioners' savings account
with Metrobank was indeed intended to be applied as payment for the outstanding obligations of
HTAC under the trust receipts, Metrobank, therefore, had failed to show a prima facie case that the
petitioners had violated the Trust Receipts Law (P.D. No. 115) in relation to Art. 315 of the Revised
Penal Code. Besides, there is absolutely no evidence suggesting that Metrobank has been damaged
by the proposal and the deposit made by the petitioners. As noted by the prosecutor:
"It is clear from the evidence that complainant bank had, all the while, been informed of the steps
undertaken by the respondents relative to the trust receipts and other financial obligations vis-a-vis
HTAC's financial difficulties. Hardly therefore, could it be said that respondents were unfaithfully,
deceptively, deceitfully and fraudulently dealing with complainant bank to warrant an indictment for
Estafa."8

Hence, this recourse to this Court where petitioner submits for the consideration of this Court the
following issues:

I.

WHETHER METROBANK HAS SHOWN A PRIMA FACIE VIOLATION OF THE TRUST


RECEIPTS LAW IN RELATION TO ART. 315 OF THE REVISED PENAL CODE

II.

WHETHER AN AGREEMENT WAS FORGED BETWEEN THE PARTIES THAT THE 2.8
MILLION DEPOSITED IN THE JOINT ACCOUNT OF JOAGUIN G. TONDA AND WANG
TIEN EN WOULD BE CONSIDERED AS PAYMENT FOR THE OUTSTANDING
OBLIGATIONS OF THE SPOUSES TONDA UNDER THE TRUST RECEIPTS

III.

WHETHER INSPITE OF THE FAILURE OF THE PARTIES TO AGREE UPON A


RESTRUCTURING AGREEMENT, METROBANK CAN STILL APPLY THE P2.8 MILLION
DEPOSIT AS PAYMENT TO THE PRINCIPAL AMOUNT COVERED BY THE TRUST
RECEIPTS

IV.

WHETHER DAMAGE HAS BEEN CAUSED TO METROBANK BECAUSE OF THE


PROPOSAL AND OF THE DEPOSIT

V.

WHETHER METROBANK HAS THE STANDING TO PROSECUTE THE CASE A QUO

VI.

WHETHER THE ASSIGNED ERRORS IN THE PETITION FOR CERTIORARI FILED WITH
THIS HONORABLE COURT RAISES PURELY QUESTIONS OF FACTS 9

In response to the foregoing, the TONDAS maintain that METROBANK has no legal standing to file
the present petition without the conformity or authority of the prosecutor as it deals solely with the
criminal aspect of the case, a separate action to recover civil liability having already been instituted;
that the issues raised in the present petition are purely factual; and that the subject trust receipts
obligations have been extinguished by payment or legal compensation.

We find for petitioner bank.


Preliminarily, we shall resolve the issues raised by the TONDAS regarding the standing of
METROBANK to file the instant petition and whether the same raises questions of law.

The general rule is that it is only the Solicitor General who is authorized to bring or defend actions on
behalf of the People or the Republic of the Philippines once the case is brought before this Court or
the Court of Appeals. However, an exception has been made that "if there appears to be grave error
committed by the judge or lack of due process, the petition will be deemed filed by the private
complainants therein as if it were filed by the Solicitor General."10 In that case, the Court gave due
course to the petition and allowed the petitioners to argue their case in lieu of the Solicitor General.
We accord the same treatment to the instant petition on account of the grave errors committed by
the Court of Appeals. We add that no information having been filed yet in court, there is, strictly
speaking, no case yet for the People or the Republic of the Philippines. In answer to the second
issue raised by the TONDAS, while the jurisdiction of the Supreme Court in a petition for review
on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law,
not of fact, one exception to the rule is when the factual findings complained of are devoid of support
by the evidence on record or the assailed judgment is based on misappreciation of facts11 , as will be
shown to have happened in the instant case.

In the main, the issue is whether or not the dismissal by the Court of Appeals of the charge for
violation of the Trust Receipts Law in relation to Art. 315(1) (b) of the Revised Penal Code against
the TONDAS is warranted by the evidence at hand and by law.

The Court of Appeals gravely erred in reversing the Department of Justice on the finding of probable
cause to hold the TONDAS for trial. The documentary evidence presented during the preliminary
investigation clearly show that there was probable cause to warrant a criminal prosecution for
violation of the Trust Receipts Law.

The relevant penal provision of P.D. 115 provides:

SEC. 13. Penalty Clause. - The failure of an entrustee to turn over the proceeds of the sale of the
goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the
entruster or as appears in the trust receipt or to return said goods, documents or instruments if they
were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the
crime of estafa, punishable under the provisions of Article Three Hundred and Fifteen, Paragraph
One (b), of Act Numbered Three Thousand Eight Hundred and Fifteen, as amended, otherwise
known as the Revised Penal Code. If the violation or offense is committed by a corporation,
partnership, association or other judicial entities, the penalty provided for in this Decree shall be
imposed upon the directors, officers, employees or other officials or persons therein responsible for
the offense, without prejudice to the civil liabilities arising from the criminal offense.

Section 1 (b), Article 315 of the Revised Penal Code under which the violation is made to fall, states:

"x x x Swindling (estafa). - Any person who shall defraud another by any of the mans mentioned
herein below x x x:

xxx xxx xxx

b. By misappropriating or converting, to the prejudice of another, money, goods, or any other


personal property received by the offender in trust or on commission, or for administration, or under
any other obligation involving the duty to make delivery of or to return the same, even though such
obligation be totally or partially guaranteed by a bond; or by denying having received such money,
goods, or other property."
Based on the foregoing, it is plain to see that the Trust Receipts Law declares the failure to turn over
the goods or the proceeds realized from the sale thereof, as a criminal offense punishable under
Article 315 (1) (b) of the Revised Penal Code. The law is violated whenever the entrustee or the
person to whom the trust receipts were issued in favor of fails to: (1) return the goods covered by the
trust receipts; or (2) return the proceeds of the sale of the said goods. The foregoing acts constitute
estafa punishable under Article 315 (1) (b) of the Revised Penal Code. Given that various trust
receipts were executed by the TONDAS and that as entrustees, they did not return the proceeds
from the goods sold nor the goods themselves to METROBANK, there is no dispute that that the
TONDAS failed to comply with the obligations under the trust receipts despite several demands from
METROBANK.

Finding favorably for the TONDAS, however, and ordering the dismissal of the complaint against
them, the Court of Appeals held that: (1) the TONDAS opened a savings account of P2.8 Million to
pay the entire principal of the outstanding trust receipts account; (2) the TONDAS obtained from a
METROBANK officer12 a written acknowledgement of receipt of checks totaling P2.8 Million in order
to show proof of compliance with the loan restructuring proposal; (3) it was settled between the
parties that the amount of 2.8 Million should be paid to cover all outstanding obligations under the
trust receipts account; (4) the money remains deposited under the savings account of petitioners
awaiting a final agreement with METROBANK regarding the loan restructuring arrangement; and
that (5) there is no evidence suggesting that METROBANK has been damaged by the proposal and
the deposit or that the TONDAS employed fraud and deceit in their dealings with the bank.

The foregoing findings and conclusions are palpably erroneous.

First, the amount of P2.8 million was not directly paid to METROBANK to settle the trust receipt
accounts, but deposited in a joint account of Joaquin G. Tonda and a certain Wang Tien En. In a
letter dated February 28, 1992, signed by HTAC's Vice President for Finance, METROBANK was
informed that the amount "may be applied anytime to the payment of the trust receipts account upon
implementation of the parties of the terms of the restructuring."13The parties failed to agree on the
terms of the loan restructuring agreement as the offer by the TONDAS to restructure the loan was
followed by a series of counter-offers which yielded nothing. It is axiomatic that acceptance of an
offer must be unqualified and absolute14 to perfect a contract. The alleged payment of the trust
receipts accounts never became effectual on account of the failure of the parties to finalize a loan
restructuring arrangement.

Second, the handwritten note by the METROBANK officer acknowledging receipt of the checks
amounting to P2.8 Million made no reference to the TONDAS' trust receipt obligations, and we
cannot presume that it was anything more than an ordinary bank deposit. The Court of Appeals
citing the case of Tan Tiong Tick vs. American Apothecories15 implied that in making the deposit, the
TONDAS are entitled to set off, by way of compensation, their obligations to METROBANK.
However, Article 1288 of the Civil Code provides that "compensation shall not be proper when one of
the debts consists in civil liability arising from a penal offense" as in the case at bar. The raison
d'etre for this is that, "if one of the debts consists in civil liability arising from a penal offense,
compensation would be improper and inadvisable because the satisfaction of such obligation is
imperative."16

Third, reliance on the negotiations for the settlement of the trust receipts obligations between the
TONDAS and METROBANK is simply misplaced. The negotiations pertain and affect only the civil
aspect of the case but does not preclude prosecution for the offense already committed. It has been
held that "[a]ny compromise relating to the civil liability arising from an offense does not
automatically terminate the criminal proceeding against or extinguish the criminal liability of the
malefactor."17 All told, the P2.8 Million deposit could not be considered as having settled the trust
receipts obligations of the TONDAS to the end of extinguishing any incipient criminal culpability
arising therefrom.

Hence, it has been held in Office of the Court Administrator vs. Soriano18 that:

"xxx it is too well-settled for any serious argument that whether in malversation of public funds or
estafa, payment, indemnification, or reimbursement of, or compromise as to, the amounts or funds
malversed or misappropriated, after the commission of the crime, affects only the civil liability of the
offender but does not extinguish his criminal liability or relieve him from the penalty prescribed by
law for the offense committed, because both crimes are public offenses against the people that must
be prosecuted and penalized by the Government on its own motion, though complete reparation
should have been made of the damage suffered by the offended parties. xxx."

As to the statement of the Court of Appeals that there is no evidence that METROBANK has
been damaged by the proposal and the deposit, it must be clarified that the damage can be traced
from the non-fulfillment of an entrustee's obligation under the trust receipts. The nature of trust
receipt agreements and the damage caused to trade circles and the banking community in case of
violation thereof was explained in Vintola vs. IBAA19 and echoed in People vs. Nitafan20 , as follows:

"[t]rust receipt arrangements do not involve a simple loan transaction between a creditor and a
debtor-importer. Apart from a loan feature, the trust receipt arrangement has a security feature that
is covered by the trust receipt itself. The second feature is what provides the much needed financial
assistance to traders in the importation or purchase of goods or merchandise through the use of
those goods or merchandise as collateral for the advancements made by the bank. The title of the
bank to the security is the one sought to be protected and not the loan which is a separate and
distinct agreement."

xxx xxx xxx

"Trust receipts are indispensable contracts in international and domestic business transactions. The1âw phi 1

prevalent use of trust receipts, the danger of their misuse and/or misappropriation of the goods or
proceeds realized from the sale of goods, documents or instruments held in trust for entruster-banks,
and the need for regulation of trust receipt transactions to safeguard the rights and enforce the
obligations of the parties involved are the main thrusts of P.D. 115. As correctly observed by the
Solicitor General, P.D. 115, like Bata Pambansa Blg. 22, punishes the act "not as an offense against
property, but as an offense against public order. x x x The misuse of trust receipts therefore should
be deterred to prevent any possible havoc in trade circles and the banking community. (citing
Lozano vs. Martinez, 146 SCRA 323 [1986]; Rollo, p. 57) It is in the context of upholding public
interest that the law now specifically designates a breach of a trust receipt agreement to be an act
that "shall" make one liable foe estafa."

The finding that there was no fraud and deceit is likewise misplaced Considering that the offense is
punished as a malum prohibitum regardless of the existence of intent or malice. A mere failure to
deliver the proceeds of the sale or the goods if not sold, constitutes a criminal offense that causes
prejudice not only to another, but more to the public interest.21

Finally, it is worthy of mention that a preliminary investigation proper - whether or not there is
reasonable ground to believe that the accused is guilty of the offense and therefore, whether or not
he should be subjected to the expense, rigors and embarrassment of trial - is the function of the
prosecutor.22 Preliminary investigation is an executive, not a judicial function.23 Such investigation is
not part of the trial, hence, a full and exhaustive presentation of the parties' evidence is not required,
but only such as may engender a well-grounded belief that an offense has been committed and that
the accused is probably guilty thereof.24

Section 4, Rule 112 of the Rules of Court recognizes the authority of the Secretary of Justice to
reverse the resolution of the provincial or city prosecutor or chief state prosecutor upon petition by a
proper party.25 Judicial review of the resolution of the Secretary of Justice is limited to a determination
of whether there has been a grave abuse of discretion amounting to lack or excess of jurisdiction
considering that the full discretionary authority has been delegated to the executive branch in the
determination of probable cause during a preliminary investigation. Courts are not empowered to
substitute their judgment for that of the executive branch; it may, however, look into the question of
whether such exercise has been made in grave abuse of discretion.26

Verily, there was no grave abuse of discretion on the part of the Secretary of Justice in directing the
filing of the Information against the TONDAS, end the Court of Appeals overstepped its boundaries
in reversing the same without basis in law and in evidence. We emphasize that for purposes of
preliminary investigation, it is enough that there is evidence showing that a crime has been
committed and that the accused is probably guilty thereof.27 By reason of the abbreviated nature of
preliminary investigations, a dismissal of the charges as a result thereof is not equivalent to a judicial
pronouncement of acquittal,28 a converso, the finding of a prima facie case to hold the accused for
trial is not equivalent to a finding of guilt.

WHEREFORE, the petition is hereby GRANTED. The assailed Decision is REVERSED and SET
ASIDE.

SO ORDERED.

Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.

Footnotes

1
Rollo, pp. 9-18.

2
Third Division, composed of J. Eubolo G. Verzola (member and ponente); and JJ. Jorge S.
Imperial (chairman) and Artemio G. Tuquero (member), concuring.

3
Rollo, pp. 68-71.

4
Per Undersecretary Ramon S. Esguerra as acting Secretary of the Department of Justice.

5
Per Acting Secretary Demetrio G. Demetria; rollo, pp. 66-67.

6
Per Secretary Teofisto T. Guingona, Jr.; rollo, p. 65.

7
Rollo, CA-G.R. SP No. 38113, pp. 2-21.

8
Rollo, pp. 13-17.
9
Rollo, pp. 267-268.

10
Columbia Pictures Entertainment, Inc. vs. Court of Appeals, 262 SCRA 219 (1996).

Congregation of the Religious of the Virgin Mary vs. Court of Appeals, 291 SCRA 385
11

(1998).

12
Flor C. Naanep.

13
Annex "D"; OR, p. 141.

First Philippine International Bank vs. Court of Appeals, 252 SCRA 259 (1996); Limketkai
14

Sons Milling, Inc. vs. Court of Appeals 255 SCRA 626 (1996).

15
Supra.

Arturo M. Tolentino, Civil Code of the Philippines (Quezon City: Central Lawbook
16

Publishing Co., Inc., 1997).

17
Chavez vs. Presidential Commission on Good Government, 299 SCRA 744 (1998).

18
136 SCRA 461 (1985).

19
150 SCRA 578 (1987).

20
207 SCRA 726 (1992).

21
Ibid.

22
Ho vs. People, 280 SCRA 365 (1997).

23
People vs. Navarro, 270 SCRA 393 (1997).

24
Ledesma vs. Court of Appeals, 278 SCRA 656 (1997).

25
Roberts, Jr. vs. Court of Appeals, 254 SCRA 307 (1996).

26
Ibid.

27
Flores vs. Sumaljag, 290 SCRA 568 (1998).

28
Ledesma case, supra.
G.R. No. 90828 September 5, 2000

MELVIN COLINARES and LORDINO VELOSO, petitioners,


vs.
HONORABLE COURT OF APPEALS, and THE PEOPLE OF THE PHILIPPINES, respondents.

DECISION

DAVIDE, JR., C.J.:

In 1979 Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a
consideration of ₱40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the latter’s
convent at Camaman-an, Cagayan de Oro City.

On 30 October 1979, Petitioners obtained 5,376 SF Solatone acoustical board 2’x4’x½", 300 SF
tanguile wood tiles 12"x12", 260 SF Marcelo economy tiles and 2 gallons UMYLIN cement adhesive
from CM Builders Centre for the construction project.1 The following day, 31 October 1979,
Petitioners applied for a commercial letter of credit2 with the Philippine Banking Corporation,
Cagayan de Oro City branch (hereafter PBC) in favor of CM Builders Centre. PBC approved the
letter of credit3 for ₱22,389.80 to cover the full invoice value of the goods. Petitioners signed a pro-
forma trust receipt4 as security. The loan was due on 29 January 1980.

On 31 October 1979, PBC debited ₱6,720 from Petitioners’ marginal deposit as partial payment of
the loan.5

On 7 May 1980, PBC wrote6 to Petitioners demanding that the amount be paid within seven days
from notice. Instead of complying with PBC’s demand, Veloso confessed that they lost ₱19,195.83 in
the Carmelite Monastery Project and requested for a grace period of until 15 June 1980 to settle the
account.7

PBC sent a new demand letter8 to Petitioners on 16 October 1980 and informed them that their
outstanding balance as of 17 November 1979 was ₱20,824.40 exclusive of attorney’s fees of 25%.9

On 2 December 1980, Petitioners proposed10 that the terms of payment of the loan be modified as
follows: ₱2,000 on or before 3 December 1980, and ₱1,000 per month starting 31 January 1980 until
the account is fully paid. Pending approval of the proposal, Petitioners paid ₱1,000 to PBC on 4
December 1980,11 and thereafter ₱500 on 11 February 1981,12 16 March 1981,13 and 20 April
1981.14 Concurrently with the separate demand for attorney’s fees by PBC’s legal counsel, PBC
continued to demand payment of the balance.15

On 14 January 1983, Petitioners were charged with the violation of P.D. 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 Court of Cagayan de Oro City. The accusatory portion of the Information
reads:

That on or about October 31, 1979, in the City of Cagayan de Oro, Philippines, and within the
jurisdiction of this Honorable Court, the above-named accused entered into a trust receipt
agreement with the Philippine Banking Corporation at Cagayan de Oro City wherein the accused, as
entrustee, received from the entruster the following goods to wit:
Solatone Acoustical board
Tanguile Wood Tiles
Marcelo Cement Tiles
Umylin Cement Adhesive

with a total value of P22,389.80, with the obligation on the part of the accused-entrustee to hold the
aforesaid items in trust for the entruster and/or to sell on cash basis or otherwise dispose of the said
items and to turn over to the entruster the proceeds of the sale of said goods or if there 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 defraud and cause damage to the entruster, conspiring,
confederating together and mutually helping one another, did then and there wilfully, unlawfully and
feloniously fail and refuse to remit the proceeds of the sale of the goods to the entruster despite
repeated demands but instead converted, misappropriated and misapplied the proceeds to their own
personal use, benefit and gain, to the damage and prejudice of the Philippine Banking Corporation,
in the aforesaid sum of P22,389.80, Philippine Currency.

Contrary to PD 115 in relation to Article 315 of the Revised Penal Code.16

The case was docketed as Criminal Case No. 1390.

During trial, petitioner Veloso insisted that the transaction was a "clean loan" as per verbal guarantee
of Cayo Garcia Tuiza, PBC’s former manager. He and petitioner Colinares signed the documents
without reading the fine print, only learning of the trust receipt implication much later. When he
brought this to the attention of PBC, Mr. Tuiza assured him that the trust receipt was a mere
formality.17

On 7 July 1986, the trial court promulgated its decision18 convicting Petitioners of estafa for violating
P.D. No. 115 in relation to Article 315 of the Revised Penal Code and sentencing each of them to
suffer imprisonment of two years and one day of prision correccional as minimum to six years and
one day of prision mayor as maximum, and to solidarily indemnify PBC the amount of ₱20,824.44,
with legal interest from 29 January 1980, 12 % penalty charge per annum, 25% of the sums due as
attorney’s fees, and costs.

The trial court considered the transaction between PBC and Petitioners as 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 "disposing" as contemplated under Section 13, P.D. No. 115, and
treated the charge invoice19 for goods issued by CM Builders Centre as a "document" within the
meaning of Section 3 thereof. It concluded that the failure of Petitioners to turn over the amount they
owed to PBC constituted estafa.

Petitioners appealed from the judgment to the Court of Appeals which was docketed as CA-G.R. CR
No. 05408. Petitioners asserted therein that the trial court erred in ruling that they violated the Trust
Receipt Law, and in holding them criminally liable therefor. In the alternative, they contend that at
most they can only be made civilly liable for payment of the loan.

In its decision20 6 March 1989, the Court of Appeals modified the 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 day of reclusion temporal as maximum. It held that the documentary evidence of
the prosecution prevails over Veloso’s testimony, discredited Petitioners’ claim that the documents
they signed were in blank, and disbelieved that they were coerced into signing them.
On 25 March 1989, Petitioners filed a Motion for New Trial/Reconsideration21 alleging that the
"Disclosure Statement on Loan/Credit Transaction"22 (hereafter Disclosure Statement) signed by
them and Tuiza was suppressed by PBC during the trial. That document would have proved that the
transaction was indeed a loan as it bears a 14% interest as opposed to the trust receipt which does
not at all bear any interest. Petitioners further maintained that when PBC allowed them to pay in
installment, the agreement was novated and a creditor-debtor relationship was created.

In its resolution23 of 16 October 1989 the Court of Appeals denied the Motion for New
Trial/Reconsideration because the alleged newly discovered evidence was actually forgotten
evidence already in existence during the trial, and would not alter the result of the case.

Hence, Petitioners filed with us the petition in this case on 16 November 1989. They raised the
following issues:

1. WHETHER OR NOT THE DENIAL OF THE MOTION FOR NEW TRIAL ON THE
GROUND OF NEWLY DISCOVERED EVIDENCE, NAMELY, "DISCLOSURE ON
LOAN/CREDIT TRANSACTION," WHICH IF INTRODUCED AND ADMITTED, WOULD
CHANGE THE JUDGMENT, DOES NOT CONSTITUTE A DENIAL OF DUE PROCESS.

2. ASSUMING THERE WAS A VALID TRUST RECEIPT, WHETHER OR NOT THE


ACCUSED WERE PROPERLY CHARGED, TRIED AND CONVICTED FOR VIOLATION OF
SEC. 13, PD NO. 115 IN RELATION TO ARTICLE 315 PARAGRAPH (I) (B)
NOTWITHSTANDING THE NOVATION OF THE SO-CALLED TRUST RECEIPT
CONVERTING THE TRUSTOR-TRUSTEE RELATIONSHIP TO CREDITOR-DEBTOR
SITUATION.

In its Comment of 22 January 1990, the Office of the Solicitor General urged us to deny the petition
for lack of merit.

On 28 February 1990 Petitioners filed a Motion to Dismiss the case on the ground that they had
already fully paid PBC on 2 February 1990 the amount of ₱70,000 for the balance of the loan,
including interest and other charges, as evidenced by the different receipts issued by PBC,24 and that
the PBC executed an Affidavit of desistance.25

We required the Solicitor General to comment on the Motion to Dismiss.

In its Comment of 30 July 1990, the Solicitor General opined that payment of the loan was akin to a
voluntary surrender or plea of guilty which merely serves to mitigate Petitioners’ culpability, but does
not in any way extinguish their criminal liability.

In the Resolution of 13 August 1990, we gave due course to the Petition and required the parties to
file their respective memoranda.

The parties subsequently filed their respective memoranda.

It was only on 18 May 1999 when this case was assigned to the ponente. Thereafter, we required
the parties to move in the premises and for Petitioners to manifest if they are still interested in the
further prosecution of this case and inform us of their present whereabouts and whether their bail
bonds are still valid.

Petitioners submitted their Compliance.


The core issues raised in the petition are the denial by the Court of Appeals of Petitioners’ Motion for
New Trial and the true nature of the contract between Petitioners and the PBC. As to the latter,
Petitioners assert that it was an ordinary loan, not a trust receipt agreement under the Trust Receipts
Law.

The grant or denial of a motion for new trial rests upon the discretion of 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 of the accused; or (2) new and material evidence has been discovered which the
accused could not with reasonable diligence have discovered and produced at the trial, and which, if
introduced and admitted, would probably change the judgment.26

For newly discovered evidence to be a ground for new trial, such evidence 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 (3) material, not merely cumulative, corroborative, or impeaching, and of
such weight that, if admitted, would probably change the judgment.27 It is essential that the offering
party exercised reasonable diligence in seeking to locate the evidence before or during trial but
nonetheless failed to secure it.28

We find no indication in the pleadings that the Disclosure Statement is a newly discovered evidence.

Petitioners could not have been unaware that the two-page document exists. The Disclosure
Statement itself states, "NOTICE TO BORROWER: YOU ARE ENTITLED TO A COPY OF THIS
PAPER WHICH YOU SHALL SIGN."29Assuming Petitioners’ copy was then unavailable, they could
have compelled its production in court,30 which they never did. Petitioners have miserably failed to
establish the second requisite of the rule on newly discovered evidence.

Petitioners themselves admitted that "they searched again their voluminous records, meticulously
and patiently, until they discovered this new and material evidence" only upon learning of the Court
of Appeals’ decision and after they were "shocked by the penalty imposed."31 Clearly, the alleged
newly discovered evidence is mere forgotten evidence that jurisprudence excludes as a ground for
new trial.32

However, the second issue should be resolved in favor of Petitioners.

Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt transaction as any
transaction by and between a person referred to as the entruster, and another person referred to as
the entrustee, whereby the entruster who owns or holds absolute title or security interest over certain
specified goods, documents or instruments, releases the same to the possession of the entrustee
upon the latter’s execution and delivery to the entruster of a signed document called a "trust receipt"
wherein the entrustee binds himself to hold the designated goods, documents or instruments with
the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to
the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if
they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified
in the trust receipt.

There are two possible situations in a trust receipt transaction. The first is covered by the provision
which refers to money received under the obligation involving the duty to deliver it (entregarla) to the
owner of the merchandise sold. The second is covered by the provision which refers to merchandise
received under the obligation to "return" it (devolvera) to the owner.33

Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by the trust
receipt to the entruster or to return said goods if they 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
Code,34 without need of proving intent to defraud.

A thorough examination of the facts obtaining in the case at bar reveals that the transaction intended
by the parties was a simple loan, not a trust receipt agreement.

Petitioners received the merchandise from CM Builders Centre on 30 October 1979. On that day,
ownership over the merchandise was already transferred to Petitioners who were to use the
materials for their construction project. It was only a day later, 31 October 1979, that they went to the
bank to apply for a loan to pay for the merchandise.

This situation belies what normally obtains in a pure trust receipt transaction where goods are owned
by the bank and only released to the importer in trust subsequent to the grant of the loan. The bank
acquires a "security interest" in the goods as holder of a security title for the advances it had made to
the entrustee.35 The ownership of the merchandise continues to be vested in the person who had
advanced payment until he has been paid in full, or if the merchandise has already been sold, the
proceeds of the sale should be turned over to him by the importer or by his representative or
successor in interest.36 To secure that the bank shall be 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 vendee is called upon to pay for them; hence, the importer has never owned the goods and is
not able to deliver possession.37 In a certain manner, trust receipts partake of the nature of a
conditional sale where the importer becomes absolute owner of the imported merchandise as soon
as he has paid its price.38

Trust receipt transactions are 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.39

The antecedent acts in a trust receipt transaction consist of the application 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.40

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 to such fact in the judgment. Despite the Court of
Appeals’ contrary view 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 speak volubly and this fact
remains uncontroverted. It is not uncommon 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
conclusions of the trial court.41 After such perusal Grego Mutia, PBC’s credit investigator, admitted
thus:

ATTY. CABANLET: (continuing)

Q Do you know if the goods subject matter of this letter of credit and trust receipt agreement were
received by the accused?

A Yes, sir

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?
A Yes, sir.

Q I am showing to you this charge invoice, are you referring to this document?

A Yes, sir.

xxx

Q What is the date of the charge invoice?

A October 31, 1979.

COURT:

Make it of record as appearing in Exhibit D, the zero in 30 has been superimposed with numeral 1.42

During the cross and re-direct examinations he also impliedly admitted that the transaction was
indeed a loan. Thus:

Q In short the amount stated in your Exhibit C, the trust receipt was a loan to the accused you admit
that?

A Because in the bank the loan is considered part of the loan.

xxx

RE-DIRECT BY ATTY. CABANLET:

ATTY. CABANLET (to the witness)

Q What do you understand by loan when you were asked?

A Loan is a promise of a borrower from the value received. The borrower will pay the bank on a
certain specified date with interest43

Such statement is akin to an admission against interest binding upon PBC.

Petitioner Veloso’s claim that they were made to believe that the transaction was a loan was also not
denied by PBC. He declared:

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?
1âw phi 1

A I don’t think that would be a trust receipt because we were made to understand by the manager
who encouraged us to avail of their facilities that they will be granting us a loan44

PBC could have presented its former bank manager, Cayo Garcia Tuiza, who contracted with
Petitioners, to refute Veloso’s testimony, yet it only presented credit investigator Grego Mutia.
Nowhere from Mutia’s testimony can it be gleaned that PBC represented to Petitioners that the
transaction they were entering into was not a pure loan but had trust receipt implications.
The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the
dishonesty and abuse of confidence in the handling 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 Petitioners
there was neither dishonesty nor abuse of confidence in the handling of money to the prejudice of
PBC. Petitioners continually endeavored to meet their obligations, as shown by several receipts
issued by PBC acknowledging payment of the loan.

The Information charges Petitioners with intent to defraud and misappropriating the money for their
personal use. The mala prohibita nature of the alleged offense notwithstanding, intent as a state of
mind 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

The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and
place them under the threats of criminal prosecution should they be unable to pay it may be unjust
and inequitable, if not reprehensible. Such agreements are contracts of adhesion which borrowers
have no option but to sign lest their loan be disapproved. The 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. Eventually, PBC showed its true colors and admitted that it was only after collection of the
money, as manifested by its Affidavit of Desistance.

WHEREFORE, the challenged Decision of 6 March 1989 and the Resolution of 16 October 1989 of
the Court of Appeals in CA-GR. No. 05408 are REVERSED and SET ASIDE. Petitioners are hereby
ACQUITTED of the crime charged, i.e., for violation of P.D. No. 115 in relation to Article 315 of the
Revised Penal Code.

No costs.

SO ORDERED.

Kapunan, and Pardo, JJ., concur.


Puno, J., no part.
Ynares-Santiago, J., on leave.

Footnotes

1
Exhibit "D," Original Record (OR), 115.

2
Exhibit "A," Id., 112.

3
Exhibit "B," OR, 113.
4
Exhibit "C," Id., 114.

5
Exhibit "8-C," Id., 181.

6
Exhibit "4," Id., 160.

7
Exhibits "3, I," Id., 153.

8
Exhibit "E," Id., 116.

9
Exhibit "5," Id., 161.

10
Exhibit "F," Id., 117.

11
Exhibit "7," Id., 167.

12
Exhibit "7-A," Id., 168.

13
Exhibit "7-B," Id., 169.

14
Exhibit "7-C," Id., 170.

15
Exhibit "G," Id., 118.

16
OR, 33.

17
TSN, 21 May 1986, 21-22, 30.

18
Per Judge Senen C. Peñaranda. Rollo 12-17.

19
Exhibit "D," supra note 1.

Annex "A" of Petition, Rollo, 3-10. Per Imperial, J., J., with the concurrence of Puno, R. and
20

Francisco, C., JJ.

21
Rollo, 27-39.

22
Id., 177-178.

23
Id., 45.

24
Rollo, 127.

25
Id., 128.

26
Section 2, Rule 121, Revised Rules of Criminal Procedure.

27
See People v. Excija, 258 SCRA 424, 443 [1996]; People v. Tirona, 300 SCRA 431, 440
[1998]; Villanueva v. People, G.R. No. 135098, 12 April 2000, 7.
Tumang v. Court of Appeals, et al., 172 SCRA 328, 334 [1989]. See Garrido v. CA, et al.,
28

236 SCRA 450, 456 [1994].

29
Rollo, 178.

30
People v.Ducay, et al., 225 SCRA 1 [1993].

31
Motion for New Trial/Reconsideration; Rollo, 28.

People v. Hernando, et al., 108 SCRA 121 [1981]; People v. Ducay, supra note 30;
32

People v. Penones, 200 SCRA 624 [1991].

33
People v. Cuevo, 104 SCRA 312, 318 [1981].

34
Section 13, P.D. No. 115.

35
Vintola v. IBAA, 150 SCRA 578, 583 [1987].

Prudential Bank v. NLRC, 251 SCRA 421 [1995], quoting National Bank v. Vda. de Hijos de
36

Angel Jose, 63 Phil. 814, 821 [1936].

37
People v. Yu Chai Ho, 53 Phil. 874 [1928], quoting In re: Dunlap Carpet Co., 207 Fed. 726.

38
Prudential Bank v. NLRC, supra note 36.

Ceferina Samo v. People, 115 Phil. 346, 349-350 [1962], citing 53 Am Jur. 961. See also
39

Prudential Bank v. NLRC, supra note 36.

40
Sia v. People, 121 SCRA 655 [1983].

41
People v. Vergara, et al., 270 SCRA 624 [1997].

42
TSN, 18 December 1986, 10-11.

43
Id., 21-22.

44
TSN, 21 May 1986, 3-4

45
People v. Nitafan, et al., 207 SCRA 726 [1992].

46
Sia v. People, supra note 40.
G.R. No. L-27607 May 7, 1981

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee


vs.
BEN CUEVO, defendant-appellant.

AQUINO, J.: 1äwphï1.ñ ët

This case presents for reexamination the liability for estafa of the holder of a trust receipt who
disposed of the goods covered thereby and, in violation of its terms, failed to deliver to the bank the
proceeds of the sale as payment of the debt secured by the trust receipt.

We say reexamination because it is a well-entrenched rule in our jurisprudence that the conversion
by the importer of the goods covered by a trust receipt constitutes estafa through misappropriation
under article 315(l) (b) of the Revised Penal Code, (People vs. Yu Chai Ho 53 Phil. 874 and Samo
vs. People. 115 Phil. 346. As to civil cases, see National Bank vs. Viuda e Hijos de Angel Jose, 63
Phil. 814; Philippine National Bank vs. Catipon, 98 Phil. 286 and Philippine National Bank vs. Arrozal
103 Phil. 213).

In this case, an information dated July 27, 1966 was filed in the Court of First Instance of Manila,
charging Ben Cuevo with estafa committed as follows (Criminal Case No. 83309): 1äw phï1.ñët

That on or about the 16th day of February, 1964 in the City of Manila, Philippines, the
said accused did then and there willfully, unlawfully and feloniously defraud the
Prudential Bank and Trust Company in the following manner, to wit: the said accused
having received in trust from the Prudential Bank and Trust Company merchandise,
i.e., 1,000 bags of grind yellow corn and 1,000 bags of palay specified in a trust
receipt covered by Letter of Credit No. 5643, executed by him in favor of said bank,
of the total value of P24,000.00, to be sold by him, under the express obligation on
the part of the said accused to account for the said merchandise, or to deliver and
turn over to the Prudential Bank and Trust Company the proceeds of the sale
thereof;

But said accused once in possession of said merchandise, far from complying with
the aforesaid obligation, notwithstanding repeated demands made upon him, with
intent to defraud, willfully, unlawfully and feloniously misappropriated, misapplied and
converted the said merchandise or the value, thereof in the sum of P24,000.00 to his
own personal use and benefit, to the damage and prejudice of the Prudential Bank
and Trust Company in the aforesaid of P24,000.00, Philippine Currency. (p. 2, Rollo.)

Upon arraignment, the accused pleaded not guilty (p. 11, Record). Later, or on December 13, 1966,
before the trial had started, Cuevo filed a motion to dismiss on the ground that the facts alleged in
the information do not constitute an offense.

Judge Ruperto Kapunan, Jr., in his order of January 3, 1967, granted the motion and dismissed the
case but "without prejudice to whatever civil action the complaining bank may take to recover the
amount of P24,000" which it had advanced to cover the price of the merchandise delivered to the
accused (p. 7, Rollo). From that order of dismissal, the prosecution appealed to this Court.
The appeal is meritorious. Judge Kapunan, Jr. erred in holding that the accused did not commit
estafa under article 315(l) (b), which reads: 1äwphï1.ñët

(b) By misappropriating or converting, to the prejudice of another, money, goods, or


any other personal property received by the offender in trust or on commission, or for
administration, or under any other obligation involving the duty to make delivery of or
to return the same, even though such obligation be totally or partially guaranteed by
a bond; or by denying having received such money, goods, or other property.

Judge Kapunan, Jr., in sustaining the motion to dismiss, relied on the Spanish version of paragraph
(b) of article 315 wherein the expression used is "recibido en deposito". In his opinion, that phrase is
not accurately translated as "in trust" and, as he explained, it does not allegedly cover the
conversion or misappropriation of the goods covered by a trust receipt. The Spanish version reads: 1äw phï1.ñët

(b) Apropiandose o distrayendo, en perjuicio de otro dinero, efectos o cualquiera otra


cosa mueble, que hubiere recibido en deposito, commission o administracion o por
otro titulo que produzca obligacion de entregarla o devolveria, aungue dicha
obligacion estuviese afianzada total or parcialmente, o negando haberla recibido.

The lower court ratiocinated that the contract covered by a trust receipt is merely a secured loan
(U.S. vs. Tan Tok, 15 Phil. 538) where the borrower is allowed to dispose of the collateral, whereas,
in a deposit the depositary is not empowered to dispose of the property deposited. Hence, the lower
court concluded that the violation of the provisions of the trust receipt gives rise to a civil action and
not to a criminal prosecution for estafa.

The lower court also ventured the opinion that the other phrase in paragraph (b), por otro titulo que
produzca obligacion de entregarla o devolverla" ("under any other obligation involving the duty to
make delivery of or to return the same") is not applicable because that phrase allegedly refers to the
very "money, goods, or any other personal property received by the offender" as a deposit, and not
to the proceeds of the sale of the goods covered by the trust receipt.

The lower court observed further that the framers of the Spanish Penal Code could not have
contemplated the inclusion of the trust receipt in article 315(l) (b) because that transaction did not
exist in the nineteenth century. The usual form of a trust receipt is as follows: 1äwphï1.ñët

I/We hereby agree to hold said goods in trust for the said corporation (meaning the
bank as trustor), and as its property with liberty to sell the same for its account, but
without authority to make any other disposition whatever of the said goods or any
part thereof (or of proceeds thereof) either by way of conditional sale, pledge or
otherwise.

In case of sale I/We further agree to hand the proceeds, as soon as received, to the
International Banking Corporation to apply against the relative acceptances (as
described above) and for the payment of any other indebtedness of mine/ours to the
International Banking Corporation. (People vs. Yu Chai Ho 53 Phil. 874, 876.)

A trust receipt is considered 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" (53 Am. Jur. 961, cited in Samo vs. People, 115 Phil. 346,
349).
In the instant case, it is alleged in the indictment that the accused, by means of a trust receipt,
received from the Prudential Bank and Trust Company 1,000 bags of corn and 1,000 bags of palay
to be sold by him with the express obligation to deliver the proceeds of the sale to the bank or, if not
sold, to account for the merchandise and that, instead of complying with either obligation, he
misappropriated the merchandise or the value thereof (p. 2, Rollo).

We hold that even if the accused did not receive the merchandise for deposit, he is, nevertheless,
covered by article 315(l) (b) because after receiving the price of the sale, he did not deliver the
money to the bank or, if he did not sell the merchandise, he did not return it to the bank.

Those two situations are within the purview of article 315(l) (b). The first situation is covered by the
provision which refers to money received under the obligation involving the duty to deliver it
(entregarla) to the owner of the merchandise sold.

The other contingency is covered by the provision which refers to merchandise received under the
obligation to "return" it (devolvelra) to the owner.

The fact that in the first case the money was received from the purchaser of the merchandise and
not from the bank does not remove it from the operation of article 315(l) (b).

As noted by Justice Street in People vs. Yu Chai Ho, supra, the conversion by the trustee in a trust
receipt of the proceeds of the sale falls "most literally and directly under" the provisions of article
315(l) (b).

Thus, it was held that where, notwithstanding repeated oral and written demands by the bank, the
petitioner had failed either to turn over to the said bank the proceeds of the sale of the goods, or to
return said goods if they were not sold, the petitioner is guilty of estafa under article 315(l) (b) (Samo
vs. People, 115 Phil. 346).

In this connection, it is relevant to state that Presidential Decree No. 115, the Trust Receipts Law,
regulating trust receipts transactions, was issued on January 29, 1973.

One objective of that law is "to declare the misuse and/or misappropriation of goods or proceeds
realized from the sale of goods, documents or instruments released under trust receipts as a
criminal offense punishable under" article 315.

Section 13 of the decree provides that "the failure of an entrustee to turn over the proceeds of the
sale of the goods, documents or instruments covered by a trust receipt to the extent of the amount
owing to the entruster or as appears in the trust receipt or to return said goods, documents or
instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall
constitute the crime of estafa, punishable under the provisions" of article 315 of the Revised Penal
Code.

The enactment of the said penal provision is confirmatory of existing jurisprudence and should not
be construed as meaning that, heretofore, the misappropriation of the proceeds of a sale made
under a trust receipt was not punishable under article 315. That penal provision removed any doubt
as to the criminal liability of the holder of a trust receipt who misappropriated the proceeds of the
sale.

The other issue raised in the last part of accused Cuevo's brief is whether the lower court's
erroneous dismissal of the information against him amounts to an acquittal which placed him in
jeopardy and whether the return of the case to the lower court for trial would place him in double
jeopardy.

No person shall be twice put in jeopardy of punishment for the same offense" (Sec. 22, Art. IV of the
Constitution). The maxim is non bis in Idem (not twice for the same). The ban against double
jeopardy is similar to the rule on res judicata in civil cases.

Jeopardy attaches when an accused was charged with an offense (a) upon a valid complaint or
information sufficient in form and substance to sustain a conviction (b) in a court of competent
jurisdiction and (c) after the accused had been arraigned and entered his plea, he was convicted or
acquitted, or the case against him was "dismissed or otherwise terminated without his express
consent".

In such a case, his conviction or acquittal (autrefois convict or autrefois acquit) is a "bar to another
prosecution for the offense charged, or for any attempt to commit the same or frustration thereof, or
for any offense charged in the former complaint or information " (Sec. 9, Rule 117, Rules of Court).

The accused invokes the ruling that "where a trial court has jurisdiction but mistakenly dismisses the
complaint or information on the ground of lack of it, the order of dismissal is, after the prosecution
has presented its evidence, unappealable because an appeal by the government therefrom would
place the accused in second jeopardy for the same offense" (People vs. Duran, Jr., 107 Phil. 979).

That ruling has no application to this case because in the Duran case (as in People vs. Caderao 69
Phil. 327, also cited by the accused herein) the dismissal was made after the prosecution had
presented its evidence. The accused filed a demurrer to the evidence but the trial court dismissed
the case, not on the ground of insufficiency of evidence, but on the ground of lack of jurisdiction. In
the instant case, the prosecution has not commenced the presentation of its evidence. The dismissal
was with the consent of the accused because he filed a motion to dismiss.

In Esguerra vs. De la Costa, 66 Phil. 134, another case cited by the accused, the erroneous
dismissal on the ground of lack of jurisdiction was made by the lower court motu proprio. Hence, the
dismissal without the consent of the accused amounted to an acquittal which placed him in jeopardy.

Moreover, in the Duran case, it was expressly indicated that the erroneous dismissal on the ground
of lack of jurisdiction does not place the accused in jeopardy if the dismissal was made with the
consent of the accused, as held in People vs. Salico, 84 Phil. 722. As already stated, in the instant
case the dismissal was with the consent of accused Cuevo. The dismissal did not place him in
jeopardy.

The Chief Justice and six Justices voted to reverse the order of dismissal. Justices Teehankee and
De Castro dissented. As only seven Justices voted to reverse the order of dismissal, the same has
to be affirmed.

WHEREFORE, the order of dismissal is affirmed. Costs de oficio.

SO ORDERED.

Makasiar, Fernandez, Guerrero, Abad Santos, De Castro and Melencio-Herrera, JJ., concur. 1äwphï1.ñët

Fernando, CJ., concurs on the basis of absence of double jeopardy.


Barredo, J., and Concepcion Jr., J., took no part.

Separate Opinions

TEEHANKEE, J., dissenting:

I concur with the dissent of Mr. Justice De Castro insofar as it upholds the more liberal interpretation
to the trust receipt transaction which would give rise only to civil liability on the part of the offender.
The very definition of trust receipt as given in the main opinion (at pp. 4-5) to wit, "'(A) trust receipt is
considered 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' (53 Am. Jr. 961, cited in Samo vs. People, 115 Phil. 346, 349)," sustains the
lower court's rationale in dismissing the information that the contract covered by a trust receipt is
merely a secured loan. The goods imported by the small importer and retail dealer through the
bank's financing remain of their own property and risk and the old capitalist orientation of putting
them in jail for estafa for non-payment of the secured loan (granted after they had been fully
investigated by the bank as good credit risks) through the fiction of the trust receipt device should no
longer be permitted in this day and age.

DE CASTRO, J., dissenting:

I regret to have to dissent from the majority opinion.

The question is whether the violation of the terms of a trust receipt would constitute estafa. There is
no more doubt that under P.D. 115, the violation is defined as estafa, but before the promulgation of
said decree, I have entertained grave doubts to such an extent that I would acquit a person accused
of the crime allegedly committed before said decree, the promulgation of which serves to confirm my
doubts. For if there had been no such doubt, especially as some decisions had already been
rendered by this Court holding that estafa is committed when there is a violation of a trust receipt,
there would have been no need for P.D. 115.

One view is to consider the transaction as merely that of a security of a loan, and that the trust
element is but an inherent feature of the security aspect of the arrangement where the goods are
placed in the possession of the "entrustee," to use the term used in P.D. 115, violation of the
element of trust not being intended to be in the same concept as how it is understood in the criminal
sense. The other view is that the bank as the owner and "entrustor" delivers the goods to the
"entrustee " with the authority to sell the goods, but with the obligation to give the proceeds to the
"entrustor" or return the goods themselves if not sold, a trust being thus created in the full sense as
contemplated by Art. 315, par. 1(b)

I consider the view that the trust receipt arrangement gives rise only to civil liability as the more
feasible, before the promulgation of P.D. 115. The transaction being contractual, the intent of the
parties should govern. Since the trust receipt has, by its nature, to be executed upon the arrival of
the goods imported, and acquires legal standing as such receipt only upon acceptance by the
"entrustee," the trust receipt transaction itself, the antecedent acts consisting of the application of the
L/C the approval of the L/C and the making of the marginal deposit and the effective importation of
the goods, all through the efforts of the importer who has to find his supplier, arrange for the
payment and shipment of the imported goods – all these circumstances would negate any intent of
subjecting the importer to criminal prosecution, which could possibly give rise to a case of
imprisonment for non-payment of a debt. The parties, therefore, are deemed to have consciously
entered into a purely commercial transaction that could give rise only to civil liability, never to subject
the "entrustee" to criminal prosecution. Unlike, for instance, when several pieces of jewelry are
received by a person from the owner for sale on commission, and the former misappropriates for his
personal use and benefit, either the jewelries or the proceeds of the sale, instead of returning them
to the owner as is his obligation, the bank is not in the same concept as the jewelry owner with full
power of disposition of the goods, which the bank does not have, for the bank has previously
extended a loan which the L/C represents to the importer, and by that loan, the importer should be
the real owner of 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, for if it were really so, it could dispose
of the goods on any manner it wants, which is cannot do, just to give consistency with the 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, a feature totally absent in the case of the transaction between the jewel owner and his
agent.

Consequently, if only from the fact that the trust receipt transaction is susceptible to two (2)
reasonable interpretations, one as giving rise only to civil liability for the violation of the condition
thereof, and the other, as generating also criminal liability, the former should be adopted as more
favorable to the supposed offender. (Duran vs. CA, L-39758, May 7, 1976, 71 SCRA 68; People vs.
Parayno L-24804, July 5, 1968, 24 SCRA 3; People vs. Abendan, L-1481, January 28, 1949, 82 Phil.
711; People vs. Bautista. L- 1502, May 24, 1948, 81 Phil. 78; People v . Abana, L-39, February 1,
1946, 76 Phil. 1.)

Accordingly, I vote for the affirmance of the questioned order.

Separate Opinions

TEEHANKEE, J., dissenting:

I concur with the dissent of Mr. Justice De Castro insofar as it upholds the more liberal interpretation
to the trust receipt transaction which would give rise only to civil liability on the part of the offender.
The very definition of trust receipt as given in the main opinion (at pp. 4-5) to wit, "'(A) trust receipt is
considered 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' (53 Am. Jr. 961, cited in Samo vs. People, 115 Phil. 346, 349)," sustains the
lower court's rationale in dismissing the information that the contract covered by a trust receipt is
merely a secured loan. The goods imported by the small importer and retail dealer through the
bank's financing remain of their own property and risk and the old capitalist orientation of putting
them in jail for estafa for non-payment of the secured loan (granted after they had been fully
investigated by the bank as good credit risks) through the fiction of the trust receipt device should no
longer be permitted in this day and age.
DE CASTRO, J., dissenting:

I regret to have to dissent from the majority opinion.

The question is whether the violation of the terms of a trust receipt would constitute estafa. There is
no more doubt that under P.D. 115, the violation is defined as estafa, but before the promulgation of
said decree, I have entertained grave doubts to such an extent that I would acquit a person accused
of the crime allegedly committed before said decree, the promulgation of which serves to confirm my
doubts. For if there had been no such doubt, especially as some decisions had already been
rendered by this Court holding that estafa is committed when there is a violation of a trust receipt,
there would have been no need for P.D. 115.

One view is to consider the transaction as merely that of a security of a loan, and that the trust
element is but an inherent feature of the security aspect of the arrangement where the goods are
placed in the possession of the "entrustee," to use the term used in P.D. 115, violation of the
element of trust not being intended to be in the same concept as how it is understood in the criminal
sense. The other view is that the bank as the owner and "entrustor" delivers the goods to the
"entrustee " with the authority to sell the goods, but with the obligation to give the proceeds to the
"entrustor" or return the goods themselves if not sold, a trust being thus created in the full sense as
contemplated by Art. 315, par. 1(b)

I consider the view that the trust receipt arrangement gives rise only to civil liability as the more
feasible, before the promulgation of P.D. 115. The transaction being contractual, the intent of the
parties should govern. Since the trust receipt has, by its nature, to be executed upon the arrival of
the goods imported, and acquires legal standing as such receipt only upon acceptance by the
"entrustee," the trust receipt transaction itself, the antecedent acts consisting of the application of the
L/C the approval of the L/C and the making of the marginal deposit and the effective importation of
the goods, all through the efforts of the importer who has to find his supplier, arrange for the
payment and shipment of the imported goods – all these circumstances would negate any intent of
subjecting the importer to criminal prosecution, which could possibly give rise to a case of
imprisonment for non-payment of a debt. The parties, therefore, are deemed to have consciously
entered into a purely commercial transaction that could give rise only to civil liability, never to subject
the "entrustee" to criminal prosecution. Unlike, for instance, when several pieces of jewelry are
received by a person from the owner for sale on commission, and the former misappropriates for his
personal use and benefit, either the jewelries or the proceeds of the sale, instead of returning them
to the owner as is his obligation, the bank is not in the same concept as the jewelry owner with full
power of disposition of the goods, which the bank does not have, for the bank has previously
extended a loan which the L/C represents to the importer, and by that loan, the importer should be
the real owner of 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, for if it were really so, it could dispose
of the goods on any manner it wants, which is cannot do, just to give consistency with the 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, a feature totally absent in the case of the transaction between the jewel owner and his
agent.

Consequently, if only from the fact that the trust receipt transaction is susceptible to two (2)
reasonable interpretations, one as giving rise only to civil liability for the violation of the condition
thereof, and the other, as generating also criminal liability, the former should be adopted as more
favorable to the supposed offender. (Duran vs. CA, L-39758, May 7, 1976, 71 SCRA 68; People vs.
Parayno L-24804, July 5, 1968, 24 SCRA 3; People vs. Abendan, L-1481, January 28, 1949, 82 Phil.
711; People vs. Bautista. L- 1502, May 24, 1948, 81 Phil. 78; People v . Abana, L-39, February 1,
1946, 76 Phil. 1.)

Accordingly, I vote for the affirmance of the questioned order.


G.R. No. 112592 December 19, 1995

PRUDENTIAL BANK, petitioner,


vs.
NATIONAL LABOR RELATIONS COMMISSION, CECILIA ORQUELLO, et al., ZENAIDA UCHI, et
al., ALU-INTERASIA CONTAINER INDUSTRIES, INC., and RAUL REMODO, respondents.

BELLOSILLO, J.:

This petition for certiorari impugns the Resolutions of the National Labor Relations Commission
(NLRC) dated 18 August and 12 November 1993 in NLRC Cases Nos. RAB-III-580-82 (Orquillo v.
Interasia Container Industries, Inc.), RAB-III-3-585-82, (Uchi v. Interasia Container Industries, Inc.)
and RAB-III-08-0049-87, (ALU-Interasia Container Industries, Inc. v. Interasia Container Industries,
Inc.) dismissing the appeal of petitioner from the order of the Labor Arbiter denying its third-party
claim to the personal properties subject of levy on execution based on its trust receipts.

The records show that Interasia Container Industries, Inc. (INTERASIA), was embroiled in three (3)
labor cases which were eventually resolved against it. Thus in NLRC Cases Nos. RAB-III-03-580-82
and RAB-III-03-585-82 monetary awards consisting of 13th-month pay differentials and other
benefits were granted to complainants. Subsequently the monetary award was recomputed to
include separation pay in the total sum of P126,788.30 occasioned by the closure of operations of
INTERASIA. In RAB-03-08-0049-87 the Labor Arbiter declared the closure or shutdown of
operations effected by INTERASIA as illegal and awarded to complainants the sum of
P1,188,466.32 as wage differentials, separation pay and other benefits.

With the finality of the three (3) decisions, writs of execution were issued. The Sheriff levied on
execution personal properties located in the factory of INTERASIA thus — "For Case 580 and 585:
One (1) lot-plastic sacks (scrap, one (1) lot — sling sacks, one (1) lot — plastic in spools; and, For
Case 0049: Five hundred (500) bags — plastic resins, one (1) lot plastic resins sweaping (scrap)
and one (1) lot — all plastic linings."

Petitioner filed an Affidavit of Third-Party Claim asserting ownership over the seized properties on
the strength of trust receipts executed by INTERASIA in its favor. As a result, the Sheriff suspended
the public auction sale. But on 18 September 1992 the Labor Arbiter denied the claim of petitioner
and directed the Sheriff to proceed with the levy of the properties. Petitioner then filed separate
appeals to the NLRC.

On 14 October 1992 the Sheriff posted Notices of levy and Sale of the seized properties on 21
October 1992. However, no bidder appeared on the scheduled date hence the public auction sale
was postponed to 5 November 1992. At the rescheduled date the Sheriff declared Angel Peliglorio
the highest bidder with an offer of P128,000.00 on the properties levied in Cases Nos. 580 (RAB-III-
580-82) and 585 (RAB-III-3-585-82), and P1,191,110.00 in Case No. 0049 (RAB-111-08-0049-87).

On 12 December 1992 the Labor Arbiter ordered the release of the properties to Peliglorio prompting
INTERASIA to file a Motion to Set Aside and/or Declare Public Auction Sale Null and Void Ab
Initio for non-compliance with legal requisites. On 23 December 1992 the Labor Arbiter denied the
motion and directed the Sheriff to break open the plant of INTERASIA in order that Peliglorio could
enter and take possession of the auctioned properties. INTERASIA moved to reconsider the order.
On 12 January 1993 the Labor Arbiter inhibited himself from the case because of INTERASIAS's
accusation of partiality. The records were then forwarded to the NLRC. On the other hand, petitioner
filed a Third-Party Claimant's Appeal/Memorandum. On 18 August 1993 the NLRC dismissed
petitioner's appeal as well as INTERASIA's Motion for Reconsideration of the resolution dated 23
December 1992. INTERASIA and petitioner separately moved to reconsider the ruling but on 12
November 1993 their motions were denied.1 Hence petitioner brought this present recourse raising
questions on the validity not only of the NLRC resolutions of 18 August and 12 November 1993 but
also of the public auction sale.2

Petitioner rails against the public auction of 5 November 1992 which was allegedly conducted
without notice and in a place other than the premises of INTERASIA as required by the Manual of
Instructions for Sheriffs. It also raises issue on the extent of its security title over the properties
subject of the levy on execution, submitting that while it may not have absolute ownership over the
properties, still it has right, interest and ownership consisting of a security title which attaches to the
properties. Petitioner differentiates a trust receipt, which is a security for the payment of the
obligations of the importer, from a real estate mortgage executed as security for the payment of an
obligation of a borrower. Petitioner argues that in the latter the ownership of the mortgagor may not
necessarily have any bearing on its acquisition, whereas in the case of a trust receipt the acquisition
of the goods by the borrower results from the advances made by the bank. It concludes that the
security title of the bank in a trust receipt must necessarily be of the same or greater extent than the
nature of the security arising from a real estate mortgage. Petitioner maintains that it is a preferred
claimant to the proceeds from the foreclosure to the extent of its security title in the goods which are
valued at P46,100,253.92 otherwise its security title will become useless.3

In their comment, private respondents support the findings of the NLRC. They submit that
petitioner's negligence to immediately assert its right to cancel the Trust Receipt Agreements, upon
INTERASIA's failure to comply with its obligation, is fatal to its claim.

For its part, the NLRC claims to rely on our pronouncement on trust receipts in Vintola v. Insular
Bank of Asia and America. 4 It justifies the dismissal of petitioner's third-party claim on the ground
that trust receipts are mere security transactions which do not vest upon petitioner any title of
ownership, and that although the Trust Receipt Agreements described petitioner as owner of the
goods, there was no showing that it canceled the trust receipts and took possession of the goods.5

The petition is impressed with merit. We cannot subscribe to NLRC's simplistic interpretation of trust
receipt arrangements. In effect, it has reduced the Trust Receipt Agreements to a pure and simple
loan transaction. This perception was clearly dispelled in People v. Nitafan,6 citing the Vintola and
Samo cases, where we explained the nature of a trust receipt thus —

(A) trust receipt arrangement does not involve a simple loan transaction between a
creditor and debtor-importer. Apart from a loan feature, the trust receipt arrangement
has a security feature that is covered by the trust receipt itself. (Vintola v. Insular
Bank of Asia and America, 150 SCRA 578 [1987] That second feature is what
provides the much needed financial assistance to our traders in the importation or
purchase of goods or merchandise through the use of those goods or merchandise
as collateral for the advancements made by a bank (Samo v. People, 115 Phil 346
[1962]). The title of the bank to the security is the one sought to be protected and not
the loan which is a separate and distinct agreement.

Reliance cannot be placed upon the Vintola case as an excuse for the dismissal of petitioner's claim.
For in that case we sustained, rather than frustrated, the claim of the bank for payment of the
advances it had made to the purchaser of the goods, notwithstanding that it was not the factual
owner thereof and that petitioners had already surrendered the goods to it due to their inability to sell
them. We stated that the fact that the Vintolas were unable to sell the seashells in question did not
affect IBAA's right to recover the advances it had made under the loan covered by the Letter of
Credit, with the trust receipt as a security for the loan. Thus, except for our disquisition on the nature
of a trust receipt as restated in Nitafan, Vintola hardly has any bearing on the case at bench since
the issue here involves the effect and enforcement of the security aspect whereas the former case
deals with the loan aspect of a trust receipt transaction. Apparently, the NLRC was confused about
the nature of a trust receipt, specifically the security aspect thereof.

The mechanics and effects flowing from a trust receipt transaction, particularly the importance given
to the security held by the entruster, i.e., the person holding title over the goods, were fully discussed
in earlier decisions, as follows —

By this arrangement a banker advances money to an intending importer, and thereby


lends the aid of capital, of credit, or of business facilities and agencies abroad, to the
enterprise of foreign commerce. Much of this trade could hardly be carried on by any
other means, and therefore it is of the first importance that the fundamental factor in
the transaction, the banker's advance of money and credit, should receive the
amplest protection. Accordingly, in order to secure that the banker shall be repaid at
the critical point — that is, when the imported goods finally reach the hands of the
intended vendee — the banker takes the full title to the goods at the very
beginning; he takes it as soon as the goods are bought and settled for by his
payments or acceptances in the foreign country, and he continues to hold that title as
his indispensable security until the goods are sold in the United States and the
vendee is called upon to pay for them. This security is not an ordinary pledge by the
importer to the banker, for the importer has never owned the goods, and moreover,
he is not able to deliver the possession; but the security is the complete title vested
originally in the bankers, and this characteristic of the transaction has again and
again been recognized and protected by the courts. Of course, the title is at bottom a
security title, as it has sometimes been called, and the banker is always under the
obligation to reconvey; but only after his advances have been fully repaid and after
the importer has fulfilled the other terms of the contract (emphasis supplied). 7

. . . . [I]n a certain manner, (trust receipt contracts) partake of the nature of a


conditional sale as provided by the Chattel Mortgage Law, that is, the importer
becomes absolute owner of the imported merchandise as soon as he has paid its
price. The ownership of the merchandise continues to be vested in the owner thereof
or in the person who has advanced payment, until he has been paid in full, or if the
merchandise has already been sold, the proceeds of the sale should be turned over
to him by the importer or by his representative or successor in interest (emphasis
supplied). 8

More importantly, owing to the vital role trust receipts play in international and domestic commerce,
Sec. 12 of P.D. No. 1159 assures the entruster of the validity of his claim against all creditors —

Sec. 12. Validity of entruster's security interest as against creditors. — The


entruster's security interest in goods, documents, or instruments pursuant to the
written terms of a trust receipt shall be valid as against all creditors of the entrustee
for the duration of the trust receipt agreement.

From the legal and jurisprudential standpoint it is clear that the security interest of the entruster is not
merely an empty or idle title. To a certain extent, such interest, such interest becomes a "lien" on the
goods because the entruster's advances will have to be settled first before the entrustee can
consolidate his ownership over the goods. A contrary view would be disastrous. For to refuse to
recognize the title of the banker under the trust receipt as security for the advance of the purchase
price would be to strike down a bona fide and honest transaction of great commercial benefit and
advantage founded upon a well-recognized custom by which banking credit is officially mobilized for
manufacturers and importers of small means. 10

The NLRC argues that inasmuch as petitioner did not cancel the Trust Receipt Agreements and took
possession of the properties it could not claim ownership of the properties.

We do not agree. Significantly, the law uses the word "may" in granting to the entruster the right to
cancel the trust and take possession of the goods. 11 Consequently, petitioner has the discretion to
avail of such right or seek any alternative action, such as a third-party claim or a separate civil action
which it deems best to protect its right, at anytime upon default or failure of the entrustee to comply
with any of the terms and conditions of the trust agreement.

Besides, as earlier stated, the law warrants the validity of petitioner's security interest in the goods
pursuant to the written terms of the trust receipt as against all creditors of the trust receipt
agreement. 12 The only exception to the rule is when the properties are in the hands of an innocent
purchaser for value and in good faith. The records however do not show that the winning bidder is
such purchaser. Neither can private respondents plead preferential claims to the properties as
petitioner has the primary right to them until its advances are fully paid.

In fine, we hold that under the law and jurisprudence the NLRC committed grave abuse of discretion
in disregarding the third-party claim of petitioner. Necessarily the auction sale held on 5 November
1992 should be set aside. For there would be neither justice nor equity in taking the funds from the
party whose means had purchased the property under the contract. 13

WHEREFORE, the petition for certiorari is GRANTED. The Resolutions of the National Labor
Relations Commission dated 18 August and 12 November 1993 are SET ASIDE and a new
judgment is entered GRANTING the Third-Party Claim and ORDERING the Sheriff or his
representative to immediately deliver to petitioner PRUDENTIAL BANK the properties subject of the
Trust Receipt Agreements.

SO ORDERED.

Padilla, Davide, Jr., Kapunan and Hermosisima, Jr., JJ., concur.

Footnotes

1 Rollo, pp. 85-96.

2 Id., p.14.

3 Id., pp. 10-18; 230-239.

4 G.R. No. 73271, 29 May 1987, 150 SCRA 578.

5 Id., pp. 97-100.

6 G.R. Nos. 81559-60, 6 April 1992, 207 SCRA 726, 730.


7 People v. Yu Chai Ho. 53 Phil. 874, 876-877 (1929), quoting the case of In re
Dunlap Carpet Co., Fed. 726.

8 National Bank v. Viuda e Hijos de Angel Jose, 63 Phil. 814, 821 (1936).

9 Providing for the Regulation of Trust Receipts Transactions.

10 49 A.L.R. 285.

11 Sec. 7 Rights of the entruster. — . . . The entruster may cancel the trust and take
possession of the goods, documents or instruments subject of the trust or of the
proceeds realized 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
agreement between the entruster and the entrustee . . .

12 See Note 8.

13 Mershon v. Wheeler, 45 N.W. 95.


G.R. No. 119858 April 29, 2003

EDWARD C. ONG, petitioner,


vs.
THE COURT OF APPEALS AND THE PEOPLE OF THE PHILIPPINES, respondents.

CARPIO, J.:

The Case

Petitioner Edward C. Ong ("petitioner") filed this petition for review on certiorari1 to nullify the
Decision2 dated 27 October 1994 of the Court of Appeals in CA-G.R. C.R. No. 14031, and its
Resolution3 dated 18 April 1995, denying petitioner's motion for reconsideration. The assailed
Decision affirmed in toto petitioner's conviction4 by the Regional Trial Court of Manila, Branch 35,5 on
two counts of estafa for violation of the Trust Receipts Law,6 as follows:

WHEREFORE, judgment is rendered: (1) pronouncing accused EDWARD C. ONG guilty


beyond reasonable doubt on two counts, as principal on both counts, of ESTAFA defined
under No. 1 (b) of Article 315 of the Revised Penal Code in relation to Section 13 of
Presidential Decree No. 115, and penalized under the 1st paragraph of the same Article 315,
and sentenced said accused in each count to TEN (10) YEARS of prision mayor, as
minimum, to TWENTY (20) YEARS of reclusion temporal, as maximum;

(2) ACQUITTING accused BENITO ONG of the crime charged against him, his guilt thereof
not having been established by the People beyond reasonable doubt;

(3) Ordering accused Edward C. Ong to pay private complainant Solid Bank Corporation the
aggregate sum of P2,976,576.37 as reparation for the damages said accused caused to the
private complainant, plus the interest thereon at the legal rate and the penalty of 1% per
month, both interest and penalty computed from July 15, 1991, until the principal obligation is
fully paid;

(4) Ordering Benito Ong to pay, jointly and severally with Edward C. Ong, the private
complainant the legal interest and the penalty of 1% per month due and accruing on the
unpaid amount of P1,449,395.71, still owing to the private offended under the trust receipt
Exhibit C, computed from July 15, 1991, until the said unpaid obligation is fully paid;

(5) Ordering accused Edward C. Ong to pay the costs of these two actions.

SO ORDERED.7

The Charge

Assistant City Prosecutor Dina P. Teves of the City of Manila charged petitioner and Benito Ong with
two counts of estafa under separate Informations dated 11 October 1991.

In Criminal Case No. 92-101989, the Information indicts petitioner and Benito Ong of the crime
of estafa committed as follows:

That on or about July 23, 1990, in the City of Manila, Philippines, the said accused,
representing ARMAGRI International Corporation, conspiring and confederating together did
then and there willfully, unlawfully and feloniously defraud the SOLIDBANK Corporation
represented by its Accountant, DEMETRIO LAZARO, a corporation duly organized and
existing under the laws of the Philippines located at Juan Luna Street, Binondo, this City, in
the following manner, to wit: the said accused received in trust from said SOLIDBANK
Corporation the following, to wit:

10,000 bags of urea

valued at P2,050,000.00 specified in a Trust Receipt Agreement and covered by a Letter of


Credit No. DOM GD 90-009 in favor of the Fertiphil Corporation; under the express obligation
on the part of the said accused to account for said goods to Solidbank Corporation and/or
remit the proceeds of the sale thereof within the period specified in the Agreement or return
the goods, if unsold immediately or upon demand; but said accused, once in possession of
said goods, far from complying with the aforesaid obligation failed and refused and still fails
and refuses to do so despite repeated demands made upon him to that effect and with intent
to defraud, willfully, unlawfully and feloniously misapplied, misappropriated and converted
the same or the value thereof to his own personal use and benefit, to the damage and
prejudice of the said Solidbank Corporation in the aforesaid amount of P2,050,000.00
Philippine Currency.

Contrary to law.

In Criminal Case No. 92-101990, the Information likewise charges petitioner of the crime
of estafa committed as follows:

That on or about July 6, 1990, in the City of Manila, Philippines, the said accused,
representing ARMAGRI International Corporation, did then and there willfully, unlawfully and
feloniously defraud the SOLIDBANK Corporation represented by its Accountant, DEMETRIO
LAZARO, a corporation duly organized and existing under the laws of the Philippines located
at Juan Luna Street, Binondo, this City, in the following manner, to wit: the said accused
received in trust from said SOLIDBANK Corporation the following goods, to wit:

125 pcs. Rear diff. assy RNZO 49"

50 pcs. Front & Rear diff assy. Isuzu Elof

85 units 1-Beam assy. Isuzu Spz

all valued at P2,532,500.00 specified in a Trust Receipt Agreement and covered by a


Domestic Letter of Credit No. DOM GD 90-006 in favor of the Metropole Industrial Sales with
address at P.O. Box AC 219, Quezon City; under the express obligation on the part of the
said accused to account for said goods to Solidbank Corporation and/or remit the proceeds
of the sale thereof within the period specified in the Agreement or return the goods, if unsold
immediately or upon demand; but said accused, once in possession of said goods, far from
complying with the aforesaid obligation failed and refused and still fails and refuses to do so
despite repeated demands made upon him to that effect and with intent to defraud, willfully,
unlawfully and feloniously misapplied, misappropriated and converted the same or the value
thereof to his own personal use and benefit, to the damage and prejudice of the said
Solidbank Corporation in the aforesaid amount of P2,532,500.00 Philippine Currency.

Contrary to law.
Arraignment and Plea

With the assistance of counsel, petitioner and Benito Ong both pleaded not guilty when arraigned.
Thereafter, trial ensued.

Version of the Prosecution

The prosecution's evidence disclosed that on 22 June 1990, petitioner, representing ARMAGRI
International Corporation8 ("ARMAGRI"), applied for a letter of credit for P2,532,500.00 with
SOLIDBANK Corporation ("Bank") to finance the purchase of differential assemblies from Metropole
Industrial Sales. On 6 July 1990, petitioner, representing ARMAGRI, executed a trust
receipt9 acknowledging receipt from the Bank of the goods valued at P2,532,500.00.

On 12 July 1990, petitioner and Benito Ong, representing ARMAGRI, applied for another letter of
credit for P2,050,000.00 to finance the purchase of merchandise from Fertiphil Corporation. The
Bank approved the application, opened the letter of credit and paid to Fertiphil Corporation the
amount of P2,050,000.00. On 23 July 1990, petitioner, signing for ARMAGRI, executed another trust
receipt10 in favor of the Bank acknowledging receipt of the merchandise.

Both trust receipts contained the same stipulations. Under the trust receipts, ARMAGRI undertook to
account for the goods held in trust for the Bank, or if the goods are sold, to turn over the proceeds to
the Bank. ARMAGRI also undertook the obligation to keep the proceeds in the form of money, bills
or receivables as the separate property of the Bank or to return the goods upon demand by the
Bank, if not sold. In addition, petitioner executed the following additional undertaking stamped on the
dorsal portion of both trust receipts:

I/We jointly and severally agreed to any increase or decrease in the interest rate which may
occur after July 1, 1981, when the Central Bank floated the interest rates, and to pay
additionally the penalty of 1% per month until the amount/s or installment/s due and unpaid
under the trust receipt on the reverse side hereof is/are fully paid.11

Petitioner signed alone the foregoing additional undertaking in the Trust Receipt for P2,253,500.00,
while both petitioner and Benito Ong signed the additional undertaking in the Trust Receipt for
P2,050,000.00.

When the trust receipts became due and demandable, ARMAGRI failed to pay or deliver the goods
to the Bank despite several demand letters.12 Consequently, as of 31 May 1991, the unpaid account
under the first trust receipt amounted to P1,527,180.66,13 while the unpaid account under the second
trust receipt amounted to P1,449,395.71.14

Version of the Defense

After the prosecution rested its case, petitioner and Benito Ong, through counsel, manifested in open
court that they were waiving their right to present evidence. The trial court then considered the case
submitted for decision.15

The Ruling of the Court of Appeals

Petitioner appealed his conviction to the Court of Appeals. On 27 October 1994, the Court of
Appeals affirmed the trial court's decision in toto. Petitioner filed a motion for reconsideration but the
same was denied by the Court of Appeals in the Resolution dated 18 April 1995.
The Court of Appeals held that although petitioner is neither a director nor an officer of ARMAGRI,
he certainly comes within the term "employees or other x x x persons therein responsible for the
offense" in Section 13 of the Trust Receipts Law. The Court of Appeals explained as follows:

It is not disputed that appellant transacted with the Solid Bank on behalf of ARMAGRI. This
is because the Corporation cannot by itself transact business or sign documents it being an
artificial person. It has to accomplish these through its agents. A corporation has a
personality distinct and separate from those acting on its behalf. In the fulfillment of its
purpose, the corporation by necessity has to employ persons to act on its behalf.

Being a mere artificial person, the law (Section 13, P.D. 115) recognizes the impossibility of
imposing the penalty of imprisonment on the corporation itself. For this reason, it is the
officers or employees or other persons whom the law holds responsible.16

The Court of Appeals ruled that what made petitioner liable was his failure to account to the
entruster Bank what he undertook to perform under the trust receipts. The Court of Appeals held that
ARMAGRI, which petitioner represented, could not itself negotiate the execution of the trust receipts,
go to the Bank to receive, return or account for the entrusted goods. Based on the representations of
petitioner, the Bank accepted the trust receipts and, consequently, expected petitioner to return or
account for the goods entrusted.17

The Court of Appeals also ruled that the prosecution need not prove that petitioner is occupying a
position in ARMAGRI in the nature of an officer or similar position to hold him the "person(s) therein
responsible for the offense." The Court of Appeals held that petitioner's admission that his
participation was merely incidental still makes him fall within the purview of the law as one of the
corporation's "employees or other officials or persons therein responsible for the offense." Incidental
or not, petitioner was then acting on behalf of ARMAGRI, carrying out the corporation's decision
when he signed the trust receipts.

The Court of Appeals further ruled that the prosecution need not prove that petitioner personally
received and misappropriated the goods subject of the trust receipts. Evidence of misappropriation is
not required under the Trust Receipts Law. To establish the crime of estafa, it is sufficient to show
failure by the entrustee to turn over the goods or the proceeds of the sale of the goods covered by a
trust receipt. Moreover, the bank is not obliged to determine if the goods came into the actual
possession of the entrustee. Trust receipts are issued to facilitate the purchase of merchandise. To
obligate the bank to examine the fact of actual possession by the entrustee of the goods subject of
every trust receipt will greatly impede commercial transactions.

Hence, this petition.

The Issues

Petitioner seeks to reverse his conviction by contending that the Court of Appeals erred:

1. IN RULING THAT, BY THE MERE CIRCUMSTANCE THAT PETITIONER ACTED AS


AGENT AND SIGNED FOR THE ENTRUSTEE CORPORATION, PETITIONER WAS
NECESSARILY THE ONE RESPONSIBLE FOR THE OFFENSE; AND

2. IN CONVICTING PETITIONER UNDER SPECIFICATIONS NOT ALLEGED IN THE


INFORMATION.
The Ruling of the Court

The Court sustains the conviction of petitioner.

First Assigned Error: Petitioner comes


within the purview of Section 13 of the Trust Receipts Law.

Petitioner contends that the Court of Appeals erred in finding him liable for the default of ARMAGRI,
arguing that in signing the trust receipts, he merely acted as an agent of ARMAGRI. Petitioner
asserts that nowhere in the trust receipts did he assume personal responsibility for the undertakings
of ARMAGRI which was the entrustee.

Petitioner's arguments fail to persuade us.

The pivotal issue for resolution is whether petitioner comes within the purview of Section 13 of the
Trust Receipts Law which provides:

x x x . If the violation is committed by a corporation, partnership, association or other juridical


entities, the penalty provided for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense, without prejudice
to the civil liabilities arising from the offense. (Emphasis supplied)

We hold that petitioner is a person responsible for violation of the Trust Receipts Law.

The relevant penal provision of the Trust Receipts Law reads:

SEC. 13. Penalty Clause. - The failure of the entrustee to turn over the proceeds of the sale
of the goods, documents or instruments covered by a trust receipt to the extent of the
amount owing to the entruster or as appears in the trust receipt or to return said goods,
documents or instruments if they were not sold or disposed of in accordance with the terms
of the trust receipt shall constitute the crime of estafa, punishable under the provisions of
Article Three Hundred and Fifteen, Paragraph One (b), of Act Numbered Three Thousand
Eight Hundred and Fifteen, as amended, otherwise known as the Revised Penal Code. If the
violation or offense is committed by a corporation, partnership, association or other juridical
entities, the penalty provided for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense, without prejudice
to the civil liabilities arising from the criminal offense. (Emphasis supplied)

The Trust Receipts Law is violated whenever the entrustee fails to: (1) turn over the proceeds of the
sale of the goods, or (2) return the goods covered by the trust receipts if the goods are not
sold.18 The mere failure to account or return gives rise to the crime which is malum
prohibitum.19 There is no requirement to prove intent to defraud.20

The Trust Receipts Law recognizes the impossibility of imposing the penalty of imprisonment on a
corporation. Hence, if the entrustee is a corporation, the law makes the officers or employees
or other persons responsible for the offense liable to suffer the penalty of imprisonment. The reason
is obvious: corporations, partnerships, associations and other juridical entities cannot be put to jail.
Hence, the criminal liability falls on the human agent responsible for the violation of the Trust
Receipts Law.
In the instant case, the Bank was the entruster while ARMAGRI was the entrustee. Being the
entrustee, ARMAGRI was the one responsible to account for the goods or its proceeds in case of
sale. However, the criminal liability for violation of the Trust Receipts Law falls on the human agent
responsible for the violation. Petitioner, who admits being the agent of ARMAGRI, is the person
responsible for the offense for two reasons. First, petitioner is the signatory to the trust receipts, the
loan applications and the letters of credit. Second, despite being the signatory to the trust receipts
and the other documents, petitioner did not explain or show why he is not responsible for the failure
to turn over the proceeds of the sale or account for the goods covered by the trust receipts.

The Bank released the goods to ARMAGRI upon execution of the trust receipts and as part of the
loan transactions of ARMAGRI. The Bank had a right to demand from ARMAGRI payment or at least
a return of the goods. ARMAGRI failed to pay or return the goods despite repeated demands by the
Bank.

It is a well-settled doctrine long before the enactment of the Trust Receipts Law, that the failure to
account, upon demand, for funds or property held in trust is evidence of conversion or
misappropriation.21 Under the law, mere failure by the entrustee to account for the goods received in
trust constitutes estafa. The Trust Receipts Law punishes dishonesty and abuse of confidence in the
handling of money or goods to the prejudice of public order.22The mere failure to deliver the
proceeds of the sale or the goods if not sold constitutes a criminal offense that causes prejudice not
only to the creditor, but also to the public interest.23 Evidently, the Bank suffered prejudice for neither
money nor the goods were turned over to the Bank.

The Trust Receipts Law expressly makes the corporation's officers or employees or other persons
therein responsible for the offense liable to suffer the penalty of imprisonment. In the instant case,
petitioner signed the two trust receipts on behalf of ARMAGRI 24 as the latter could only act through
its agents. When petitioner signed the trust receipts, he acknowledged receipt of the goods covered
by the trust receipts. In addition, petitioner was fully aware of the terms and conditions stated in the
trust receipts, including the obligation to turn over the proceeds of the sale or return the goods to the
Bank, to wit:

Received, upon the TRUST hereinafter mentioned from SOLIDBANK CORPORATION


(hereafter referred to as the BANK), the following goods and merchandise, the property of
said BANK specified in the bill of lading as follows: x x x and in consideration thereof, I/we
hereby agree to hold said goods in Trust for the said BANKand as its property with liberty to
sell the same for its account but without authority to make any other disposition whatsoever
of the said goods or any part thereof (or the proceeds thereof) either by way of conditional
sale, pledge, or otherwise.

In case of sale I/we agree to hand the proceeds as soon as received to the BANK to apply
against the relative acceptance (as described above) and for the payment of any other
indebtedness of mine/ours to SOLIDBANK CORPORATION.

xxx xxx xxx.

I/we agree to keep said goods, manufactured products, or proceeds thereof, whether in the
form of money or bills, receivables, or accounts, separate and capable of identification as the
property of the BANK.

I/we further agree to return the goods, documents, or instruments in the event of their non-
sale, upon demand or within ____ days, at the option of the BANK.
xxx xxx xxx. (Emphasis supplied)25

True, petitioner acted on behalf of ARMAGRI. However, it is a well-settled rule that the law of agency
governing civil cases has no application in criminal cases. When a person participates in the
commission of a crime, he cannot escape punishment on the ground that he simply acted as an
agent of another party.26 In the instant case, the Bank accepted the trust receipts signed by petitioner
based on petitioner's representations. It is the fact of being the signatory to the two trust
receipts, and thus a direct participant to the crime, which makes petitioner a person responsible for
the offense.

Petitioner could have raised the defense that he had nothing to do with the failure to account for the
proceeds or to return the goods. Petitioner could have shown that he had severed his relationship
with ARMAGRI prior to the loss of the proceeds or the disappearance of the goods. Petitioner,
however, waived his right to present any evidence, and thus failed to show that he is not responsible
for the violation of the Trust Receipts Law.

There is no dispute that on 6 July 1990 and on 23 July 1990, petitioner signed the two trust
receipts27 on behalf of ARMAGRI. Petitioner, acting on behalf of ARMAGRI, expressly acknowledged
receipt of the goods in trust for the Bank. ARMAGRI failed to comply with its undertakings under the
trust receipts. On the other hand, petitioner failed to explain and communicate to the Bank what
happened to the goods despite repeated demands from the Bank. As of 13 May 1991, the unpaid
account under the first and second trust receipts amounted to P1,527,180.60 and P1,449,395.71,
respectively.28

Second Assigned Error: Petitioner's conviction under the


allegations in the two Informations for Estafa.

Petitioner argues that he cannot be convicted on a new set of facts not alleged in the Informations.
Petitioner claims that the trial court's decision found that it was ARMAGRI that transacted with the
Bank, acting through petitioner as its agent. Petitioner asserts that this contradicts the specific
allegation in the Informations that it was petitioner who was constituted as the entrustee and was
thus obligated to account for the goods or its proceeds if sold. Petitioner maintains that this absolves
him from criminal liability.

We find no merit in petitioner's arguments.

Contrary to petitioner's assertions, the Informations explicitly allege that petitioner, representing
ARMAGRI, defrauded the Bank by failing to remit the proceeds of the sale or to return the goods
despite demands by the Bank, to the latter's prejudice. As an essential element of estafa with abuse
of confidence, it is sufficient that the Informations specifically allege that the entrustee received the
goods. The Informations expressly state that ARMAGRI, represented by petitioner, received the
goods in trust for the Bank under the express obligation to remit the proceeds of the sale or to return
the goods upon demand by the Bank. There is no need to allege in the Informations in what capacity
petitioner participated to hold him responsible for the offense. Under the Trust Receipts Law, it is
sufficient to allege and establish the failure of ARMAGRI, whom petitioner represented, to remit the
proceeds or to return the goods to the Bank.

When petitioner signed the trust receipts, he claimed he was representing ARMAGRI. The
corporation obviously acts only through its human agents and it is the conduct of such agents which
the law must deter.29 The existence of the corporate entity does not shield from prosecution the
agent who knowingly and intentionally commits a crime at the instance of a corporation.30
Penalty for the crime of Estafa.

The penalty for the crime of estafa is prescribed in Article 315 of the Revised Penal Code, as
follows:

1st. The penalty of prision correccional in its maximum period to prision mayor in its
minimum period, if the amount of the fraud is over 12,000 pesos but does not exceed 22,000
pesos; and if such amount exceeds the latter sum, the penalty provided in this paragraph
shall be imposed in its maximum period, adding one year for each additional 10,000 pesos;
but the total penalty which may be imposed should not exceed twenty years. x x x .

In the instant case, the amount of the fraud in Criminal Case No. 92-101989 is P1,527,180.66. In
Criminal Case No. 92-101990, the amount of the fraud is P1,449,395.71. Since the amounts of the
fraud in each estafa exceeds P22,000.00, the penalty of prision correccional maximum to prision
mayor minimum should be imposed in its maximum period as prescribed in Article 315 of the
Revised Penal Code. The maximum indeterminate sentence should be taken from this maximum
period which has a duration of 6 years, 8 months and 21 days to 8 years. One year is then added for
each additional P10,000.00, but the total penalty should not exceed 20 years. Thus, the maximum
penalty for each count of estafa in this case should be 20 years.

Under the Indeterminate Sentence Law, the minimum indeterminate sentence can be anywhere
within the range of the penalty next lower in degree to the penalty prescribed by the Code for the
offense. The minimum range of the penalty is determined without first considering any modifying
circumstance attendant to the commission of the crime and without reference to the periods into
which it may be subdivided.31 The modifying circumstances are considered only in the imposition of
the maximum term of the indeterminate sentence.32 Since the penalty prescribed in Article 315
is prision correccional maximum to prision mayor minimum, the penalty next lower in degree would
be prision correccional minimum to medium. Thus, the minimum term of the indeterminate penalty
should be anywhere within 6 months and 1 day to 4 years and 2 months.33

Accordingly, the Court finds a need to modify in part the penalties imposed by the trial court. The
minimum penalty for each count of estafa should be reduced to four (4) years and two (2) months
of prision correccional.

As for the civil liability arising from the criminal offense, the question is whether as the signatory for
ARMAGRI, petitioner is personally liable pursuant to the provision of Section 13 of the Trust
Receipts Law.

In Prudential Bank v. Intermediate Appellate Court,34 the Court discussed the imposition of civil
liability for violation of the Trust Receipts Law in this wise:

It is clear that if the violation or offense is committed by a corporation, partnership,


association or other juridical entities, the penalty shall be imposed upon the directors,
officers, employees or other officials or persons responsible for the offense. The penalty
referred to is imprisonment, the duration of which would depend on the amount of the fraud
as provided for in Article 315 of the Revised Penal Code. The reason for this is obvious:
corporation, partnership, association or other juridical entities cannot be put in jail. However,
it is these entities which are made liable for the civil liabilities arising from the criminal
offense. This is the import of the clause 'without prejudice to the civil liabilities arising from
the criminal offense'. (Emphasis supplied)
In Prudential Bank, the Court ruled that the person signing the trust receipt for the corporation is not
solidarily liable with the entrustee-corporation for the civil liability arising from the criminal offense.
He may, however, be personally liable if he bound himself to pay the debt of the corporation under a
separate contract of surety or guaranty.

In the instant case, petitioner did not sign in his personal capacity the solidary guarantee clause 35
found on the dorsal portion of the trust receipts. Petitioner placed his signature after the typewritten
words "ARMCO INDUSTRIAL CORPORATION" found at the end of the solidary guarantee clause.
Evidently, petitioner did not undertake to guaranty personally the payment of the principal and
interest of ARMAGRI's debt under the two trust receipts.

In contrast, petitioner signed the stamped additional undertaking without any indication he was
signing for ARMAGRI. Petitioner merely placed his signature after the additional undertaking.
Clearly, what petitioner signed in his personal capacity was the stamped additional undertaking to
pay a monthly penalty of 1% of the total obligation in case of ARMAGRI's default.

In the additional undertaking, petitioner bound himself to pay "jointly and severally" a monthly penalty
of 1% in case of ARMAGRI's default. 35 Thus, petitioner is liable to the Bank for the stipulated
monthly penalty of 1% on the outstanding amount of each trust receipt. The penalty shall be
computed from 15 July 1991, when petitioner received the demand letter, 36 until the debt is fully
paid.

WHEREFORE, the assailed Decision is AFFIRMED with MODIFICATION. In Criminal Case No. 92-
101989 and in Criminal Case No. 92-101990, for each count of estafa, petitioner EDWARD C. ONG
is sentenced to an indeterminate penalty of imprisonment from four (4) years and two (2) months
of prision correctional as MINIMUM, to twenty (20) years of reclusion temporal as MAXIMUM.
Petitioner is ordered to pay SOLIDBANK CORPORATION the stipulated penalty of 1% per month on
the outstanding balance of the two trust receipts to be computed from 15 July 1991 until the debt is
fully paid.

SO ORDERED.

Davide, Jr., C .J ., Vitug, Ynares-Santiago and Azcuna, JJ ., concur.

Footnotes

1 Under Rule 45 of the Rules of Court.

2Penned by Associate Justice Antonio M. Martinez with Associate Justices Fermin A. Martin,
Jr. and Conrado M. Vasquez, Jr. concurring, Rollo, pp. 19-29.

3 Rollo, p. 31.

4In Criminal Case Nos. 92-101989 & 92-101990, entitled "People v. Benito Ong & Edward C.
Ong."

5 Penned by Judge Ramon Makasiar, CA Records, pp. 10-16.


6 Section 13 of PD No. 115, the Trust Receipts Law.

7 CA Records, p. 16.

8 Formerly ARMCO Industrial Corporation, Rollo, p. 21, CA Decision, p. 3.

9 Exhibit B, Records, p. 103.

10 Exhibit C, ibid., p. 104.

11 Exhibits B-3 & B-4, Records, p. 103; Exhibits C-3 & C-4, Records, p. 104.

12 Exhibits D, H & 1, ibid., pp. 105 & 108-A.

13 Exhibit E, ibid., p. 106.

14 Exhibit F, ibid., p. 107.

15 Records, p. 116.

16 Rollo, pp. 24-25.

17 Ibid., p. 25.

Metropolitan Bank and Trust Company v. Tonda, G.R. No. 134436, 16 August 2000, 338
18

SCRA 254.

19 People v. Nitafan, G.R. Nos. 81559-60, 6 April 1992, 207 SCRA 726.

20 Colinares v. Court of Appeals, G.R. No. 90828, 5 September 2000, 339 SCRA 609.

Hayco v. CA, Nos. L-55775-86, 26 August 1995, 138 SCRA 227; Dayawon v. Badilla, A.M.
21

No. MTJ-00-1309, 6 September 2000, 339 SCRA 702.

22 Supra, see note 18.

23 Supra, see note 20.

24 Exhibits B-1 & C-2, Records, pp. 103 & 104.

25 Exhibits B & C, Records, pp. 103 & 104.

26 People v. Chowdury, G.R. Nos. 129577-80, 15 February 2000, 325 SCRA 572.

27 Supra, see notes 9 & 10.

28 Supra, see notes 13 & 14.

29 Supra, see note 26.


30 Supra, see note 26.

31 People v. Gabres, 335 Phil. 242 (1997).

32 Ibid.

People v. Bautista, 311 Phil. 227 (1995); Dela Cruz v. CA, 333 Phil. 126 (1996); People v.
33

Ortiz-Miyake, 344 Phil. 598 (1997); People v. Saley, 353 Phil. 897 (1998).

34 G.R. No. 74886, 8 December 1992, 216 SCRA 257.

35This clause states: "In consideration of SOLIDBANK CORPORATION complying with the
foregoing, we jointly and severally agree and undertake to pay on demand to SOLIDBANK
CORPORATION, all sums of money which the said SOLIDBANK CORPORATION may call
upon us to pay arising out of or pertaining to, and/or in any event connected with the default
of and/or non-fulfillment in any respect of the undertaking of the aforesaid: x x x ."

36 Supra, see note 11.

37 Supra, see note 12.


G.R. No. 110844 April 27, 2000

ALFREDO CHING, petitioner,


vs.
HON. COURT OF APPEALS, HON. ZOSIMO Z. ANGELES, RTC- BR. 58, MAKATI, METRO
MANILA, PEOPLE OF THE PHILIPPINES AND ALLIED BANKING CORPORATION, respondents.

BUENA, J.:

Confronting the Court in this instant petition for review on certiorari under Rule 45 is the task of
resolving the issue of whether the pendency of a civil action for damages and declaration of nullity of
documents, specifically trust receipts, warrants the suspension of criminal proceedings instituted for
violation of Article 315 1(b) of the Revised Penal Code, in relation to P.D. 115, otherwise known as
the "Trust Receipts Law".

Petitioner Alfredo Ching challenges before us the decision1 of the Court of Appeals promulgated on
27 January 1993 in CA G.R. SP No. 28912, dismissing his "Petition for Certiorari and Prohibition
with Prayer for Issuance of Temporary Restraining Order/ Preliminary Injunction", on the ground of
lack of merit.

Assailed similarly is the resolution2 of the Court of Appeals dated 28 June 1993 denying petitioner's
motion for reconsideration.

As borne by the records, the controversy arose from the following facts:

On 04 February 1992,3 petitioner was charged before the Regional Trial Court of Makati (RTC-
Makati), Branch 58, with four counts of estafa punishable under Article 315 par. 1(b) of the Revised
Penal Code, in relation to Presidential Decree 115, otherwise known as the "Trust Receipts Law".

The four separate informations4 which were couched in similar language except for the date, subject
goods and amount thereof, charged herein petitioner in this wise:

That on or about the (18th day of May 1981; 3rd day of June 1981; 24th day of June 1981
and 24th day of June 1981), in the Municipality of Makati, Metro Manila, Philippines and
within the jurisdiction of this Honorable Court, the above-named accused having executed a
trust receipt agreement in favor of Allied Banking Corporation in consideration of the receipt
by the said accused of goods described as "12 Containers (200 M/T) Magtar Brand
Dolomites"; "18 Containers (Zoom M/T) Magtar Brand Dolomites"; "High Fired Refractory
Sliding Nozzle Bricks"; and "High Fired Refractory Sliding Nozzle Bricks" for which there is
now due the sum of (P278, 917.80; P419,719.20; P387, 551. 95; and P389,085.14
respectively) under the terms of which the accused agreed to sell the same for cash with the
express obligation to remit to the complainant bank the proceeds of the sale and/or to turn
over the goods, if not sold, on demand, but the accused, once in possession of said goods,
far from complying with his obligation and with grave abuse of confidence, did then and
there, willfully, unlawfully and feloniously misappropriate, misapply and convert to his own
personal use and benefit the said goods and/or the proceeds of the sale thereof, and despite
repeated demands, failed and refused and still fails and refuses, to account for and/or remit
the proceeds of sale thereof to the Allied Banking Corporation to the damage and prejudice
of the said complainant bank in the aforementioned amount of (P278,917.80; P419,719.20;
P387,551.95; and P389,085.14).

On 10 February 1992, an "Omnibus Motion 5 to Strike Out Information, or in the Alternative to


Require Public Prosecutor to Conduct Preliminary Investigation, and to Suspend in the Meantime
Further Proceedings in these Cases," was filed by the petitioner.

In an order dated 13 February 1992, the Regional Trial Court of Makati, Branch 58, acting on the
omnibus motion, required the prosecutor's office to conduct a preliminary investigation and
suspended further proceedings in the criminal cases.

On 05 March 1992, petitioner Ching, together with Philippine Blooming Mills Co. Inc., filed a
case6 before the Regional Trial Court of Manila (RTC-Manila), Branch 53, for declaration of nullity of
documents and for damages docketed as Civil Case No. 92-60600, entitled "Philippine Blooming
Mills, Inc. et. al. vs. Allied Banking Corporation.

On 07 August 1992, Ching filed a petition7 before the RTC-Makati, Branch 58, for the suspension of
the criminal proceedings on the ground of prejudicial question in a civil action.

The prosecution then filed an opposition to the petition for suspension, against which opposition,
herein petitioner filed a reply.8

On 26 August 1992, the RTC-Makati issued an order9 which denied the petition for suspension and
scheduled the arraignment and pre-trial of the criminal cases. As a result, petitioner moved to
reconsider10 the order to which the prosecution filed an opposition.

In an order11 dated 04 September 1992, the RTC-Makati, before which the criminal cases are
pending, denied petitioner's motion for reconsideration and set the criminal cases for arraignment
and pre-trial.

Aggrieved by these orders12 of the lower court in the criminal cases, petitioner brought before the
Court of Appeals a petition for certiorari and prohibition which sought to declare the nullity of the
aforementioned orders and to prohibit the RTC-Makati from conducting further proceedings in the
criminal cases.

In denying the petition,13 the Court of Appeals, in CA G.R. SP No. 28912, ruled:

. . . Civil Case No. 90-60600 pending before the Manila Regional Trial Court seeking (sic) the
declaration of nullity of the trust receipts in question is not a prejudicial question to Criminal
Case Nos. 92-0934 to 37 pending before the respondent court charging the petitioner with
four counts of violation of Article 315, par. 1(b), RPC, in relation to PD 115 as to warrant the
suspension of the proceedings in the latter . . . .

Consequently, petitioner filed a motion for reconsideration of the decision which the appellate court
denied for lack of merit, via a resolution 14 dated 28 June 1993.

Notwithstanding the decision rendered by the Court of Appeals, the RTC-Manila, Branch 53 in an
order dated 19 November 1993 in Civil Case No. 92-60600, admitted petitioner's amended
complaint15 which, inter alia, prayed the court for a judgment:

xxx xxx xxx


1. Declaring the 'Trust Receipts," annexes D, F, H and J hereof, null and void, or otherwise
annulling the same, for failure to express the true intent and agreement of the parties;

2. Declaring the transaction subject hereof as one of pure and simple loan without any trust
receipt agreement and/or not one involving a trust receipt, and accordingly declaring all the
documents annexed hereto as mere loan documents . . . (emphasis ours).

In its amended answer,16 herein private respondent Allied Banking Corporation submitted in riposte
that the transaction applied for was a "letter of credit/trust receipt accommodation" and not a "pure
and simple loan with the trust receipts as mere additional or side documents", as asserted by herein
petitioner in its amended complaint.17

Through the expediency of Rule 45, petitioner seeks the intervention of this Court and prays:

After due consideration, to render judgment reversing the decision and resolution, Annexes
A and B hereof, respectively, and ordering the suspension of Criminal Cases (sic) Nos. 92-
0934 to 92-0937, inclusive, entitled "People of the Philippines vs. Alfredo Ching" pending
before Branch 58 of the Regional Trial Court of Makati, Metro Manila, until final determination
of Civil Case No. 92-600 entitled Philippine Blooming Mills Co. Inc. and Alfredo Ching vs.
Allied Banking Corporation" pending before Branch 53 of the Regional Trial Court of Manila.

The instant petition is bereft of merit.

We agree with the findings of the trial court, as affirmed by the Court of Appeals, that no prejudicial
question exists in the present case.

As defined, a prejudicial question is one that arises in a case the resolution of which is a logical
antecedent of the issue involved therein, and the cognizance of which pertains to another tribunal.
The prejudicial question must be determinative of the case before the court but the jurisdiction to try
and resolve the question must be lodged in another court or tribunal.18

It is a question based on a fact distinct and separate from the crime but so intimately connected with
it that it determines the guilt or innocence of the accused, and for it to suspend the criminal action, it
must appear not only that said case involves facts intimately related to those upon which the criminal
prosecution would be based but also that in the resolution of the issue or issues raised in the civil
case, the guilt or innocence of the accused would necessarily be determined.19 It comes into play
generally in a situation where a civil action and a criminal action are both pending and there exists in
the former an issue which must be preemptively resolved before the criminal action may proceed,
because howsoever the issue raised in the civil action is resolved would be determinative juris et de
jure of the guilt or innocence of the accused in the criminal case.20

More simply, for the court to appreciate the pendency of a prejudicial question, the law,21 in no
uncertain terms, requires the concurrence of two essential requisites, to wit:

a) The civil action involves an issue similar or intimately related to the issue raised in the
criminal action; and

b) The resolution of such issue determines whether or not the criminal action may proceed.

Verily, under the prevailing circumstances, the alleged prejudicial question in the civil case for
declaration of nullity of documents and for damages, does not juris et de jure determine the guilt or
innocence of the accused in the criminal action for estafa. Assuming arguendo that the court hearing
the civil aspect of the case adjudicates that the transaction entered into between the parties was not
a trust receipt agreement, nonetheless the guilt of the accused could still be established and his
culpability under penal laws determined by other evidence. To put it differently, even on the
assumption that the documents are declared of null, it does not ipso facto follow that such
declaration of nullity shall exonerate the accused from criminal prosecution and liability.

Accordingly, the prosecution may adduce evidence to prove the criminal liability of the accused for
estafa, specifically under Article 315 1(b) of the Revised Penal Code which explicitly provides that
said crime is committed:

. . . (b) By misappropriating or converting, to the prejudice of another, money; goods, or any


other personal property received by the offender in trust or on commission, or for
administration, or any other obligation involving the duty to make delivery of or to return the
same, even though such obligation be totally or partially guaranteed by a bond; or by
denying having received such money, goods, or other property.

Applying the foregoing principles, the criminal liability of the accused for violation of Article 315 1(b)
of the Revised Penal Code, may still be shown through the presentation of evidence to the effect
that: (a) the accused received the subject goods in trust or under the obligation to sell the same and
to remit the proceeds thereof to Allied Banking Corporation, or to return the goods, if not sold; (b)
that accused Ching misappropriated or converted the goods and/or the proceeds of the sale; (c) that
accused Ching performed such acts with abuse of confidence to the damage and prejudice of Allied
Banking Corporation; and (d) that demand was made by the bank to herein petitioner.

Presidential Decree 115, otherwise known as the "Trust Receipts Law", specifically Section 13
thereof, provides:

The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or
instruments covered by a trust receipt to the extent of the amount owing to the entruster or
as appears in the trust receipt or to return said goods, documents or instruments if they were
not sold or disposed of in accordance with the terms of the trust receipt shall constitute the
crime of estafa, punishable under the provisions of Article Three hundred fifteen, paragraph
one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise
known as the Revised Penal Code.

We must stress though, that an act violative of a trust receipt agreement is only one mode of
committing estafa under the abovementioned provision of the Revised Penal Code. Stated
differently, a violation of a trust receipt arrangement is not the sole basis for incurring liability under
Article 315 1 (b) of the Code.

In Jimenez vs. Averia,22 where the accused was likewise charged with estafa, this Court had occasion
to rule that a civil case contesting the validity of a certain receipt is not a prejudicial question that
would warrant the suspension of criminal proceedings for estafa. 1âwphi 1.nêt

In the abovementioned case, a criminal charge for estafa was filed in the Court of First Instance of
Cavite against the two accused. The information alleged that the accused, having received the
amount of P20,000.00 from Manuel Jimenez for the purchase of a fishing boat, with the obligation on
the part of the former to return the money in case the boat was not purchased, misappropriated the
said amount to the damage and prejudice of Jimenez.23
Before arraignment, the accused filed a civil case contesting the validity of a certain receipt signed
by them. In the receipt, the accused acknowledged having received the aforesaid sum, in addition to
the amount of P240.00 as agent's commission. The complaint, however, alleged that the accused
never received any amount from Jimenez and that the signatures on the questioned receipt were
secured by means of fraud, deceit and intimidation.

In ruling out the existence of prejudicial question, we declared:

. . . It will be readily seen that the alleged prejudicial question is not determinative of the guilt
or innocence of the parties charged with estafa, because even on the assumption that the
execution of the receipt whose annulment they sought in the civil case was vitiated by fraud,
duress or intimidation, their guilt could still be established by other evidence showing, to the
degree required by law, that they had actually received from the complainant the sum of
P20,000,00 with which to buy for him a fishing boat, and that, instead of doing so, they
misappropriated the money and refused or otherwise failed to return it to him upon demand. .
..

Furthermore, petitioner submits that the truth or falsity of the parties' respective claims as regards
the true nature of the transactions and of the documents, shall have to be first determined by the
Regional Trial Court of Manila, which is the court hearing the civil case.

While this may be true, it is no less true that the Supreme Court may, on certain exceptional
instances, resolve the merits of a case on the basis of the records and other evidence before it, most
especially when the resolution of these issues would best serve the ends of justice and promote the
speedy disposition of cases.

Thus, considering the peculiar circumstances attendant in the instant case, this Court sees the
cogency to exercise its plenary power:

It is a rule of procedure for the Supreme Court to strive to settle the entire controversy in a
single proceeding leaving no root or branch to bear the seeds of future litigation. No useful
purpose will be served if a case or the determination of an issue in a case is remanded to the
trial court only to have its decision raised again to the Court of Appeals and from there to the
Supreme Court (citing Board of Commissioners vs. Judge Joselito de la Rosa and Judge
Capulong, G.R. Nos. 95122-23).

We have laid down the rule that the remand of the case or of an issue to the lower court for
further reception of evidence is not necessary where the Court is in position to resolve the
dispute based on the records before it and particularly where the ends of justice would not be
subserved by the remand thereof (Escudero vs. Dulay, 158 SCRA 69). Moreover, the
Supreme Court is clothed with ample authority to review matters, even those not raised on
appeal if it finds that their consideration is necessary in arriving at a just disposition of the
case. 24

On many occasions, the Court, in the public interest and for the expeditious administration of justice,
has resolved actions on the merits instead of remanding them to the trial court for further
proceedings, such as where the ends of justice would not be subserved by the remand of the case.25

Inexorably, the records would show that petitioner signed and executed an application and
agreement for a commercial letter of credit to finance the purchase of imported goods. Likewise, it is
undisputed that petitioner signed and executed trust receipt documents in favor of private
respondent Allied Banking Corporation.
In its amended complaint, however, which notably was filed only after the Court of Appeals rendered
its assailed decision, petitioner urges that the transaction entered into between the parties was one
of "pure loan without any trust receipt agreement". According to petitioner, the trust receipt
documents were intended merely as "additional or side documents covering the said loan" contrary
to petitioner's allegation in his original complaint that the trust receipts were executed as collateral or
security.

We do not agree. As Mr. Justice Story succinctly puts it: "Naked statements must be entitled to little
weight when the parties hold better evidence behind the scenes. 26

Hence, with affirmance, we quote the findings of the Court of Appeals:

The concept in which petitioner signed the trust receipts, that is whether he signed the trust
receipts as such trust receipts or as a mere evidence of a pure and simple loan transaction is
not decisive because precisely, a trust receipt is a security agreement of an indebtedness.

Contrary to petitioner's assertions and in view of jurisprudence established in this jurisdiction, a trust
receipt is not merely an additional or side document to a principal contract, which in the instant case
is alleged by petitioner to be a pure and simple loan.

As elucidated in Samo vs. People,27 a trust receipt is considered 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.

Further, a trust receipt is a document in which is expressed a security transaction whereunder the
lender, having no prior title in the goods on which the lien is to be given and not having possession
which remains in the borrower, lends his money to the borrower on security of the goods which the
borrower is privileged to sell clear of the lien with an agreement to pay all or part of the proceeds of
the sale to the lender.28 It 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.29

Clearly, a trust receipt partakes the nature of a security transaction. It could never be a mere
additional or side document as alleged by petitioner. Otherwise, a party to a trust receipt agreement
could easily renege on its obligations thereunder, thus undermining the importance and defeating
with impunity the purpose of such an indispensable tool in commercial transactions.

Of equal importance is the fact that in his complaint in Civil Case No. 92-60600, dated 05 March
1992, petitioner alleged that the trust receipts were executed and intended as collateral or security.
Pursuant to the rules, such particular allegation in the complaint is tantamount to a judicial admission
on the part of petitioner Ching to which he must be bound.

Thus, the Court of Appeals in its resolution dated 28 June 1993, correctly observed:

It was petitioner himself who acknowledged the trust receipts as mere collateral and security
for the payment of the loan but kept on insisting that the real and true transaction was one of
pure loan. . . .

In his present motion, the petitioner alleges that the trust receipts are evidence of a pure loan
or that the same were additional or side documents that actually stood as promissory notes
and not a collateral or security agreement. He cannot assume a position inconsistent with his
previous allegations in his civil complaint that the trust receipts were intended as mere
collateral or security . . . .

Perhaps, realizing such flaw, petitioner, in a complete turn around, filed a motion to admit amended
complaint before the RTC-Manila. Among others, the amended complaint alleged that the trust
receipts stood as additional or side documents, the real transaction between the parties being that of
a pure loan without any trust receipt agreement.

In an order dated 19 November 1993, the RTC-Manila, Branch 53, admitted the amended complaint.
Accordingly, with the lower court's admission of the amended complaint, the judicial admission made
in the original complaint was, in effect, superseded.

Under the Rules, pleadings superseded or amended disappear from the record, lose their status as
pleadings and cease to be judicial admissions. While they may nonetheless be utilized against the
pleader as extrajudicial admissions, they must, in order to have such effect, be formally offered in
evidence. If not offered in evidence, the admission contained therein will not be considered.30

Consequently, the original complaint, having been amended, lost its character as a judicial
admission, which would have required no proof, and became merely an extrajudicial admission, the
admissibility of which, as evidence, required its formal offer.31

In virtue thereof, the amended complaint takes the place of the original. The latter is regarded as
abandoned and ceases to perform any further function as a pleading. The original complaint no
longer forms part of the record.32

Thus, in the instant case, the original complaint is deemed superseded by the amended complaint.
Corollarily, the judicial admissions in the original complaint are considered abandoned. Nonetheless,
we must stress that the actuations of petitioner, as sanctioned by the RTC-Manila, Branch 53
through its order admitting the amended complaint, demands stern rebuke from this Court.

Certainly, this Court is not unwary of the tactics employed by the petitioner specifically in filing the
amended complaint only after the promulgation of the assailed decision of the Court of Appeals. It
bears noting that a lapse of almost eighteen months (from March 1992 to September 1993), from the
filing of the original complaint to the filing of the amended complaint, is too lengthy a time sufficient
to enkindle suspicion and enflame doubts as to the true intentions of petitioner regarding the early
disposition of the pending cases.

Although the granting of leave to file amended pleadings is a matter peculiarly within the sound
discretion of the trial court and such discretion would not normally be disturbed on appeal, it is also
well to mention that this rule is relaxed when evident abuse thereof is apparent. 33

Hence, in certain instances we ruled that amendments are not proper and should be denied when
delay would arise,34 or when the amendments would result in a change of cause of action or defense
or change the theory of the case, 35 or would be inconsistent with the allegations in the original
complaint.36

Applying the foregoing rules, petitioner, by filing the amended complaint, in effect, altered the theory
of his case. Likewise, the allegations embodied in the amended complaint are inconsistent with that
of the original complaint inasmuch as in the latter, petitioner alleged that the trust receipts were
intended as mere collateral or security, the principal transaction being one of pure loan.
Yet, in the amended complaint, petitioner argued that the said trust receipts were executed as
additional or side documents, the transaction being strictly one of pure loan without any trust receipt
arrangement. Obviously these allegations are in discord in relation to each other and therefore
cannot stand in harmony.

These circumstances, taken as a whole, lead this Court to doubt the genuine purpose of petitioner in
filing the amended complaint. Again, we view petitioner's actuations with abhorrence and
1âw phi 1

displeasure.

Moreover, petitioner contends that the transaction between Philippine Blooming Mills (PBM) and
private respondent Allied Banking Corporation does not fall under the category of a trust receipt
arrangement claiming that the goods were not to be sold but were to be used, consumed and
destroyed by the importer PBM.

To our mind, petitioner's contention is a stealthy attempt to circumvent the principle enunciated in the
case of Alied Banking Corporation vs. Ordonez, 37 thus:

. . . In an attempt to escape criminal liability, private respondent claims P.D. 115 covers
goods which are ultimately destined for sale and not goods for use in manufacture. But the
wording of Section 13 covers failure to turn over the proceeds of the sale of the entrusted
goods, or to return said goods if unsold or disposed of in accordance with the terms of the
trust receipts. Private respondent claims that at the time of PBM's application for the
issuance of the LC's, it was not represented to the petitioner that the items were intended for
sale, hence, there was no deceit resulting in a violation of the trust receipts which would
constitute a criminal liability. Again we cannot uphold this contention. The non-payment of
the amount covered by a trust receipt is an act violative of the entrustee's obligation to pay.
There is no reason why the law should not apply to all transactions covered by trust receipts,
except those expressly excluded (68 Am. Jur. 125).

The Court takes judicial notice of customary banking and business practices where trust
receipts are used for importation of heavy equipment, machineries and supplies used in
manufacturing operations. We are perplexed by the statements in the assailed DOJ
resolution that the goods subject of the instant case are outside the ambit of the provisions of
PD 115 albeit covered by trust receipt agreements (17 February 1988 resolution) and that
not all transactions covered by trust receipts may be considered as trust receipt transactions
defined and penalized under P.D. 115 (11 January 1988 resolution). A construction should
be avoided when it affords an opportunity to defeat compliance with the terms of a statute.

xxx xxx xxx

The penal provision of P.D. 115 encompasses any act violative of an obligation covered by
the trust receipt; it is not limited to transactions in goods which are to be sold (retailed),
reshipped, stored or processed as a component of a product ultimately sold.

An examination of P.D. 115 shows the growing importance of trust receipts in Philippine business,
the need to provide for the rights and obligations of parties to a trust receipt transaction, the study of
the problems involved and the action by monetary authorities, and the necessity of regulating the
enforcement of rights arising from default or violations of trust receipt agreements. The legislative
intent to meet a pressing need is clearly expressed. 38

In fine, we reiterate that the civil action for declaration of nullity of documents and for damages does
not constitute a prejudicial question to the criminal cases for estafa filed against petitioner Ching.
WHEREFORE, premises considered, the assailed decision and resolution of the Court of Appeals
are hereby AFFIRMED and the instant petition is DISMISSED for lack of merit. Accordingly, the
Regional Trial Court of Makati, Branch 58, is hereby directed to proceed with the hearing and trial on
the merits of Criminal Case Nos. 92-0934 to 92-0937, inclusive, and to expedite proceedings therein,
without prejudice to the right of the accused to due process. 1âwphi1.nêt

SO ORDERED.

Bellosillo, Mendoza, Quisumbing and De Leon, Jr., JJ., concur.

Footnotes

1
Court of Appeals Decision (Eleventh Division) penned by J. Gloria C. Paras and concurred
in by J. Luis L. Victor and J. Fermin A. Martin, Jr.; Rollo, pp. 42-47.

2
CA G.R. SP No. 28912, promulgated on 28 June 1993; Rollo, pp. 49-55.

3
Rollo, p. 42.

4
Ibid., pp. 42-43; Records, pp. 25-28 (Annexes A, A-1, A-2, and A-3, respectively).

5
Ibid., Records, pp. 29-32.

6
Ibid., pp. 56-63.

7
Rollo, p. 43.

8
Ibid.

9
Ibid.

10
Ibid., p. 44.

11
Ibid.

12
Ibid., p. 42.

13
CA Decision in CA G.R. SP No. 28912, p. 3; Rollo, p. 44.

14
Rollo, pp. 49-55.

15
Rollo, pp. 343-351.

16
Rollo, pp. 354.

Amended complaint in Civil Case No. 92-60600 filed before the RTC-Manila, Branch
17

53; Rollo, pp. 343-351.

Tuanda vs. Sandiganbayan, 249 SCRA 342; Yap vs. Paras, 205 SCRA 625; Quiambao vs.
18

Osorio, 158 SCRA 674; Donato vs. Luna, 160 SCRA 441; Ras vs. Rasul, 100 SCRA 125.
19
Tuanda vs. Sandiganbayan, 249 SCRA 342.

Tuanda vs. Sandiganbayan, 249 SCRA 342 citing Librodo vs. Coscolluela, Jr., 116 SCRA
20

303.

21
Sec. 5, Rule 111 of the Rules of Court.

22
22 SCRA 1380 [1968].

23
Jimenez vs. Averia, 22 SCRA 1380 [1968].

Golangco vs. Court of Appeals, 283 SCRA 493 [1997], citing Heirs of Crisanta Y. Gabriel-
24

Almoradie vs. Court of Appeals, 229 SCRA 15 [1994].

25
Roman Catholic Archbishop of Manila vs. Court of Appeals, 198 SCRA 300 [1991].

Republic vs. Sandiganbayan, 255 SCRA 438, 472 [1996] citing The Ship Francis, 1 Gall.
26

[US] 618, 9 Fed. Cas. No. 5, 035. Moore on Facts, Vol. 1, p. 579.

27
5 SCRA 354 [1962].

28
Black's Law Dictionary.

29
Vintola vs. Insular Bank of Asia and America, 150 SCRA 578 [987].

Evidence, 3rd ed., 1996, R.J. Francisco, p. 35; Director of Lands vs. Court of Appeals, 196
30

SCRA 94 [1991].

31
Javellana vs. D.O. Plaza, Enterprises, Inc. 32 SCRA 261 [1970].

32
Torres vs. Court of Appeals, 131 SCRA 24 [1984].

33
Torres vs. Tomacruz, 49 Phil. 913 [1927].

34
Lerma vs. Reyes, 103 Phil. 1027, 1031-1032 [1958].

35
Torres vs. Tomacruz; 49 Phil. 913 [1927].

36
Guzman-Castillo vs. Court of Appeals, G.R. No. 52008, March 25, 1988.

37
192 SCRA 246 [1990].

38
Lee vs. Rodil, 175 SCRA 100 [1989].
G.R. No. 133176 August 8, 2002

PILIPINAS BANK, petitioner,


vs.
ALFREDO T. ONG and LEONCIA LIM, respondents.

DECISION

SANDOVAL-GUTIERREZ, J.:

Petition for review on certiorari1 of the Resolutions2 dated January 9, 1998 and March 25, 1998 of the
Court of Appeals in CA-G.R. SP No. 42005, "Pilipinas Bank vs. The Honorable Secretary of Justice,
the City Prosecutor of Makati City, Alfredo T. Ong and Leoncia Lim," reversing its Decision dated
August 29, 1997.

On April 1991, Baliwag Mahogany Corporation (BMC), through its president, respondent Alfredo T.
Ong, applied for a domestic commercial letter of credit with petitioner Pilipinas Bank (hereinafter
referred to as the bank) to finance the purchase of about 100,000 board feet of "Air Dried, Dark Red
Lauan" sawn lumber.

The bank approved the application and issued Letter of Credit No. 91/725-HO in the amount of
P3,500,000.00. To secure payment of the amount, BMC, through respondent Ong, executed two (2)
trust receipts3 providing inter alia that it shall turn over the proceeds of the goods to the bank, if sold,
or return the goods, if unsold, upon maturity on July 28, 1991 and August 4, 1991.

On due dates, BMC failed to comply with the trust receipt agreement. On November 22, 1991, it filed
with the Securities and Exchange Commission (SEC) a Petition for Rehabilitation and for a
Declaration in a State of Suspension of Payments under Section 6 (c) of P.D. No. 902-A,4 as
amended, docketed as SEC Case No. 4109. After BMC informed its creditors (including the bank) of
the filing of the petition, a Creditors' Meeting was held to:

(a) inform all creditor banks of the present status of BMC to avert any action which would affect the
company's operations, and (b) reach an accord on a common course of action to restore the
company to sound financial footing.

On January 8, 1992, the SEC issued an order5 creating a Management Committee wherein the bank
is represented. The Committee shall, among others, undertake the management of BMC, take
custody and control of all its existing assets and liabilities, study, review and evaluate its operation
and/or the feasibility of its being restructured.

On October 13, 1992, BMC and a consortium of 14 of its creditor banks entered into a Memorandum
of Agreement6(MOA) rescheduling the payment of BMC’s existing debts.

On November 27, 1992, the SEC rendered a Decision7 approving the Rehabilitation Plan of BMC as
contained in the MOA and declaring it in a state of suspension of payments.

However, BMC and respondent Ong defaulted in the payment of their obligations under the
rescheduled payment scheme provided in the MOA. Thus, on April 1994, the bank filed with the
Makati City Prosecutor’s Office a complaint8 charging respondents Ong and Leoncia Lim (as
president and treasurer of BMC, respectively) with violation of the Trust Receipts Law (PD No. 115),
docketed as I.S. No. 94-3324. The bank alleged that both respondents failed to pay their obligations
under the trust receipts despite demand.9

On July 7, 1994, 3rd Assistant Prosecutor Edgardo E. Bautista issued a Resolution10 recommending
the dismissal of the complaint. On July 11, 1994, the Resolution was approved by Provincial
Prosecutor of Rizal Herminio T. Ubana, Sr.11 The bank filed a motion for reconsideration but was
denied.

Upon appeal by the bank, the Department of Justice (DOJ) rendered judgment12 denying the same
for lack of merit. Its motion for reconsideration was likewise denied.13

On July 5, 1996, the bank filed with this Court a petition for certiorari and mandamus seeking to
annul the resolution of the DOJ. In a Resolution dated August 21, 1996, this Court referred the
petition to the Court of Appeals for proper determination and disposition.14

On August 29, 1997, the Court of Appeals rendered judgment, the dispositive portion of which reads:

"WHEREFORE, in view of all the foregoing, the assailed resolutions of the public respondents are
hereby SET ASIDE and in lieu thereof a new one rendered directing the public respondents to file
the appropriate criminal charges for violation of P.D. No. 115, otherwise known as The Trust
Receipts Law, against private respondents."15

However, upon respondents’ motion for reconsideration, the Court of Appeals reversed itself, holding
that the execution of the MOA constitutes novation which "places petitioner Bank in estoppel to insist
on the original trust relation and constitutes a bar to the filing of any criminal information for violation
of the trust receipts law."16

The bank filed a motion for reconsideration but was denied.17 Hence this petition.

Petitioner bank contends that the MOA did not novate, much less extinguish, the existing obligations
of BMC under the trust receipt agreement. The bank, through the execution of the MOA, merely
assisted BMC to settle its obligations by rescheduling the same. Hence, when BMC defaulted in its
payment, all its rights, including the right to charge respondents for violation of the Trust Receipts
Law, were revived.

Respondents Ong and Lim maintain that the MOA, which has the effect of a compromise agreement,
novated BMC’s existing obligations under the trust receipt agreement. The novation converted the
parties’ relationship into one of an ordinary creditor and debtor. Moreover, the execution of the MOA
precludes any criminal liability on their part which may arise in case they violate any provision
thereof.

The only issue for our determination is whether respondents can be held liable for violation of the
Trust Receipts Law.

Section 4 of PD No. 115 (The Trust Receipts Law) defines a trust receipt as any transaction by and
between a person referred to as the entruster, and another person referred to as the entrustee,
whereby the entruster who owns or holds absolute title or security interest over certain specified
goods, documents or instruments, releases the same to the possession of the entrustee upon the
latter's execution and delivery to the entruster of a signed document called a "trust receipt" wherein
the entrustee binds himself to hold the designated goods, documents or instruments with the
obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the
entruster or as appears in the trust receipt, or the goods, documents or instruments themselves if
they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified
in the trust receipt.18

Failure of the entrustee to turn over the proceeds of the sale of the goods covered by a trust receipt
to the entruster or to return the goods, if they were not disposed of, shall constitute the crime of
estafa under Article 315, par. 1(b) of the Revised Penal Code.19 If the violation or offense is
committed by a corporation, the penalty shall be imposed upon the directors, officers, employees or
other officials or persons therein responsible for the offense, without prejudice to the civil liabilities
arising from the criminal offense.20 It is on this premise that petitioner bank charged respondents with
violation of the Trust Receipts Law. 1âwphi1

Mere failure to deliver the proceeds of the sale or the goods, if not sold, constitutes violation of PD
No. 115.21However, what is being punished by the law is the dishonesty and abuse of confidence in
the handling of money or goods to the prejudice of another regardless of whether the latter is the
owner. 22

In this case, no dishonesty nor abuse of confidence can be attributed to respondents. Record shows
that BMC failed to comply with its obligations upon maturity of the trust receipts due to serious
liquidity problems, prompting it to file a Petition for Rehabilitation and Declaration in a State of
Suspension of Payments. It bears emphasis that when petitioner bank made a demand upon BMC
on February 11, 1994 to comply with its obligations under the trust receipts, the latter was already
under the control of the Management Committee created by the SEC in its Order dated January 8,
1992.23 The Management Committee took custody of all BMC’s assets and liabilities, including the
red lauan lumber subject of the trust receipts, and authorized their use in the ordinary course of
business operations. Clearly, it was the Management Committee which could settle BMC’s
obligations. Moreover, it has not escaped this Court’s observation that respondent Ong paid
P21,000,000.00 in compliance with the equity infusion required by the MOA. The mala
prohibita nature of the offense notwithstanding, respondents’ intent to misuse or misappropriate the
goods or their proceeds has not been established by the records.24

Did the MOA novate the trust agreement between the parties?

In Quinto vs. People,25 this Court held that there are two ways which could indicate the presence of
novation, thereby producing the effect of extinguishing an obligation by another which substitutes the
same. The first is when novation has been stated and declared in unequivocal terms. The second is
when the old and the new obligations are incompatible on every point. The test of incompatibility is
whether or not the two obligations can stand together. If they cannot, they are incompatible and the
latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in
nature and not merely accidental. The incompatibility must take place in any of the essential
elements of the obligation, such as its object, cause or principal conditions, otherwise, the change is
merely modificatory in nature and insufficient to extinguish the original obligation.

Contrary to petitioner's contention, the MOA did not only reschedule BMC’s debts, but more
importantly, it provided principal conditions which are incompatible with the trust agreement. The
undisputed points of incompatibility between the two agreements are:

Points of incompatibility Trust Receipt MOA

1) Nature of contract Trust Receipt Loan26

2) Juridical relationship Trustor-Trustee Lender-Borrower


3) Status of obligation Matured Payable within 7 years27

4) Governing law Criminal Civil & Commercial28

5) Security offered Trust Receipts Real estate/chattel mortgages29

6) Interest rate per annum (Unspecified) 14%30

7) Default charges 24% 14%31

8) No. of parties 3 16

Hence, applying the pronouncement in Quinto, we can safely conclude that the MOA novated and
effectively extinguished BMC's obligations under the trust receipt agreement.

Petitioner bank's argument that BMC's non-compliance with the MOA revived respondents’ original
liabilities under the trust receipt agreement is completely misplaced. Section 8.4 of the MOA on
termination reads:

"8.4 Termination. Any provision of this Agreement to the contrary notwithstanding, if the conditions
for rescheduling specified in Section 7 shall not be complied with on such later date as the Qualified
Majority Lenders in their sole and absolute discretion may agree in writing, then

(i) the obligation of the Lenders to reschedule the Existing Credits as contemplated
hereby shall automatically terminate on such date:

(ii) the Existing Agreements shall continue in full force and effect on the remaining
loan balances as if this Agreement had not been entered into;

(iii) all the rights of the lenders against the borrower and Spouses Ong prior to the
agreement shall revest to the lenders."

Indeed, what is automatically terminated in case BMC failed to comply with the conditions under the
MOA is not the MOA itself but merely the obligation of the lender (the bank) to reschedule the
existing credits. Moreover, it is erroneous to assume that the revesting of "all the rights of lenders
against the borrower" means that petitioner can charge respondents for violation of the Trust
Receipts Law under the original trust receipt agreement. As explained earlier, the execution of the
MOA extinguished respondents’ obligation under the trust receipts. Respondents’ liability, if any,
would only be civil in nature since the trust receipts were transformed into mere loan documents
after the execution of the MOA. This is reinforced by the fact that the mortgage contracts executed
by the BMC survive despite its non-compliance with the conditions set forth in the MOA.

All told, we find no reversible error committed by the Court of Appeals in rendering the assailed
Resolutions.

WHEREFORE, the petition is DENIED. The assailed Resolutions of the Court of Appeals dated
January 9, 1998 and March 25, 1998 in CA-G.R. SP No. 42005 are hereby AFFIRMED.

SO ORDERED.

Puno, (Chairman), Panganiban, and Carpio, JJ., concur.


Footnotes

1
Under Rule 45 of the 1997 Rules of Civil Procedure, as amended.

2
Penned by Associate Justice Consuelo Ynares-Santiago, now Associate Justice of the
Supreme Court, and concurred in by Associate Justices Emeterio E. Cui and Conrado
Vasquez, Jr.

3
Rollo, pp. 48, 49.

4
The Securities and Exchange Commission Reorganization Act.

5
Id., p. 56.

6
Id., p. 65.

7
Id., p. 134.

8
Through an Affidavit8 of its Assistant Vice President Diosdado B. Articona dated April 8,
1994, Rollo, pp. 149-151.

9
Rollo, p. 179.

10
Id., p. 160.

11
Id., pp. 159, 164.

12
Id., p. 205.

13
Id., p. 221.

14
Rollo, p. 240.

15
Rollo, p. 275.

16
CA Resolution dated January 9, 1998, Rollo, p. 315.

17
CA Resolution dated March 25, 1998, Rollo, p. 6.

18
Colinares vs. Court of Appeals, 339 SCRA 609, 619 (2000).

19
Section 13, P.D. No. 115 (Trust Receipts Law).

20
Ibid.

21
Metropolitan Bank and Trust Company vs. Tonda, 338 SCRA 254, 270 (2000).
22
Colinares vs. Court of Appeals, supra, p. 623.

23
CA Resolution, Rollo, p. 318.

24
Colinares vs. Court of Appeals, supra.

25
305 SCRA 708, 715-716 (1999).

26
Rollo, p. 74.

27
Id., p. 141.

28
Id., p. 87.

29
Id., p. 80.

30
Id., pp. 76-77.

31
Id., pp. 76-77.