1.) G.R. No.
90828 September 5, 2000 The trial court considered the transaction between PBC and Petitioners as a trust receipt transaction under Section 4, P.D. No.
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.
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
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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."29 Assuming
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.1âwphi1 What can you
say as to that?
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.
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 2.) G.R. No. 173905 April 23, 2010
ANTHONY L. NG, Petitioner,
vs.
PEOPLE OF THE PHILIPPINES, Respondent.
DECISION
VELASCO, JR.
The Case
This is a Petition for Review on Certiorari under Rule 45 seeking to reverse and set aside the August 29, 2003 Decision 1 and July
25, 2006 Resolution of the Court of Appeals (CA) in CA-G.R. CR No. 25525, which affirmed the Decision2 of the Regional
Trial Court (RTC), Branch 95 in Quezon City, in Criminal Case No. Q-99-85133 for Estafa under Article 315, paragraph 1(b) of
the Revised Penal Code (RPC) in relation to Section 3 of Presidential Decree No. (PD) 115 or the Trust Receipts Law.
The Facts
Sometime in the early part of 1997, petitioner Anthony Ng, then engaged in the business of building and fabricating
telecommunication towers under the trade name "Capitol Blacksmith and Builders," applied for a credit line of PhP 3,000,000
with Asiatrust Development Bank, Inc. (Asiatrust). In support of Asiatrust’s credit investigation, petitioner voluntarily submitted
the following documents: (1) the contracts he had with Islacom, Smart, and Infocom; (2) the list of projects wherein he was
commissioned by the said telecommunication companies to build several steel towers; and (3) the collectible amounts he has
with the said companies.3
On May 30, 1997, Asiatrust approved petitioner’s loan application. Petitioner was then required to sign several documents,
among which are the Credit Line Agreement, Application and Agreement for Irrevocable L/C, Trust Receipt Agreements, 4 and
Promissory Notes. Though the Promissory Notes matured on September 18, 1997, the two (2) aforementioned Trust Receipt
Agreements did not bear any maturity dates as they were left unfilled or in blank by Asiatrust. 5
After petitioner received the goods, consisting of chemicals and metal plates from his suppliers, he utilized them to fabricate the
communication towers ordered from him by his clients which were installed in three project sites, namely: Isabel, Leyte; Panabo,
Davao; and Tongonan.
As petitioner realized difficulty in collecting from his client Islacom, he failed to pay his loan to Asiatrust. Asiatrust then
conducted a surprise ocular inspection of petitioner’s business through Villarva S. Linga, Asiatrust’s representative appraiser.
Linga thereafter reported to Asiatrust that he found that approximately 97% of the subject goods of the Trust Receipts were
"sold-out and that only 3 % of the goods pertaining to PN No. 1963 remained." Asiatrust then endorsed petitioner’s account to its
Account Management Division for the possible restructuring of his loan. The parties thereafter held a series of conferences to
work out the problem and to determine a way for petitioner to pay his debts. However, efforts towards a settlement failed to be
reached.
On March 16, 1999, Remedial Account Officer Ma. Girlie C. Bernardez filed a Complaint-Affidavit before the Office of the City
Prosecutor of Quezon City. Consequently, on September 12, 1999, an Information for Estafa, as defined and penalized under
Art. 315, par. 1(b) of the RPC in relation to Sec. 3, PD 115 or the Trust Receipts Law, was filed with the RTC. The said
Information reads:
That on or about the 30th day of May 1997, in Quezon City, Philippines, the above-named petitioner, did then and there
willfully, unlawfully, and feloniously defraud Ma. Girlie C. Bernardez by entering into a Trust Receipt Agreement with said
complainant whereby said petitioner as entrustee received in trust from the said complainant various chemicals in the total sum
of P4.5 million with the obligation to hold the said chemicals in trust as property of the entruster with the right to sell the same
for cash and to remit the proceeds thereof to the entruster, or to return the said chemicals if unsold; but said petitioner once in
possession of the same, contrary to his aforesaid obligation under the trust receipt agreement with intent to defraud did then and
there misappropriated, misapplied and converted the said amount to his own personal use and benefit and despite repeated
demands made upon him, said petitioner refused and failed and still refuses and fails to make good of his obligation, to the
damage and prejudice of the said Ma. Girlie C. Bernardez in the amount of P2,971,650.00, Philippine Currency.
CONTRARY TO LAW.
Upon arraignment, petitioner pleaded not guilty to the charges. Thereafter, a full-blown trial ensued.
During the pendency of the abovementioned case, conferences between petitioner and Asiatrust’s Remedial Account Officer,
Daniel Yap, were held. Afterward, a Compromise Agreement was drafted by Asiatrust. One of the requirements of the
Compromise Agreement was for petitioner to issue six (6) postdated checks. Petitioner, in good faith, tried to comply by issuing
two or three checks, which were deposited and made good. The remaining checks, however, were not deposited as the
Compromise Agreement did not push through.
For his defense, petitioner argued that: (1) the loan was granted as his working capital and that the Trust Receipt Agreements he
signed with Asiatrust were merely preconditions for the grant and approval of his loan; (2) the Trust Receipt Agreement
corresponding to Letter of Credit No. 1963 and the Trust Receipt Agreement corresponding to Letter of Credit No. 1964 were
both contracts of adhesion, since the stipulations found in the documents were prepared by Asiatrust in fine print; (3)
unfortunately for petitioner, his contract worth PhP 18,000,000 with Islacom was not yet paid since there was a squabble as to
the real ownership of the latter’s company, but Asiatrust was aware of petitioner’s receivables which were more than sufficient
to cover the obligation as shown in the various Project Listings with Islacom, Smart Communications, and Infocom; (4) prior to
the Islacom problem, he had been faithfully paying his obligation to Asiatrust as shown in Official Receipt Nos. 549001,
549002, 565558, 577198, 577199, and 594986,6 thus debunking Asiatrust’s claim of fraud and bad faith against him; (5) during
the pendency of this case, petitioner even attempted to settle his obligations as evidenced by the two United Coconut Planters
Bank Checks7 he issued in favor of Asiatrust; and (6) he had already paid PhP 1.8 million out of the PhP 2.971 million he owed
as per Statement of Account dated January 26, 2000.
Ruling of the Trial Court
After trial on the merits, the RTC, on May 29, 2001, rendered a Decision, finding petitioner guilty of the crime of Estafa. The
fallo of the Decision reads as follows:
WHEREFORE, judgment is hereby rendered finding the petitioner, Anthony L. Ng GUILTY beyond reasonable doubt for the
crime of Estafa defined in and penalized by Article 315, paragraph 1(b) of the Revised Penal Code in relation to Section 3 of
Presidential Decree 115, otherwise known as the Trust Receipts Law, and is hereby sentenced to suffer the indeterminate penalty
of from six (6) years, eight (8) months, and twenty one (21) days of prision mayor, minimum, as the minimum penalty, to twenty
(20) years of reclusion temporal maximum, as the maximum penalty.
The petitioner is further ordered to return to the Asiatrust Development Bank Inc. the amount of Two Million, Nine Hundred
Seventy One and Six Hundred Fifty Pesos (P2,971,650.00) with legal rate of interest computed from the filing of the information
on September 21,1999 until the amount is fully paid.
IT IS SO ORDERED.
In rendering its Decision, the trial court held that petitioner could not simply argue that the contracts he had entered into with
Asiatrust were void as they were contracts of adhesion. It reasoned that petitioner is presumed to have read and understood and
is, therefore, bound by the provisions of the Letters of Credit and Trust Receipts. It said that it was clear that Asiatrust had
furnished petitioner with a Statement of Account enumerating therein the precise figures of the outstanding balance, which he
failed to pay along with the computation of other fees and charges; thus, Asiatrust did not violate Republic Act No. 3765 (Truth
in Lending Act). Finally, the trial court declared that petitioner, being the entrustee stated in the Trust Receipts issued by
Asiatrust, is thus obliged to hold the goods in trust for the entruster and shall dispose of them strictly in accordance with the
terms and conditions of the trust receipts; otherwise, he is obliged to return the goods in the event of non-sale or upon demand of
the entruster, failing thus, he evidently violated the Trust Receipts Law.
Ruling of the Appellate Court
Petitioner then elevated the case to the CA by filing a Notice of Appeal on August 6, 2001. In his Appellant’s Brief dated March
25, 2002, petitioner argued that the court a quo erred: (1) in changing the name of the offended party without the benefit of an
amendment of the Information which violates his right to be informed of the nature and cause of accusation against him; (2) in
making a finding of facts not in accord with that actually proved in the trial and/or by the evidence provided; (3) in not
considering the material facts which if taken into account would have resulted in his acquittal; (4) in being biased, hostile, and
prejudiced against him; and (5) in considering the prosecution’s evidence which did not prove the guilt of petitioner beyond
reasonable doubt.1avvphi1
On August 29, 2003, the CA rendered a Decision affirming that of the RTC, the fallo of which reads:
WHEREFORE, the foregoing considered, the instant appeal is DENIED. The decision of the Regional Trial Court of Quezon
City, Branch 95 dated May 29, 2001 is AFFIRMED.
SO ORDERED.
The CA held that during the course of the trial, petitioner knew that the complainant Bernardez and the other co-witnesses are all
employees of Asiatrust and that she is suing in behalf of the bank. Since petitioner transacted with the same employees for the
issuance of the subject Trust Receipts, he cannot feign ignorance that Asiatrust is not the offended party in the instant case. The
CA further stated that the change in the name of the complainant will not prejudice and alter the fact that petitioner was being
charged with the crime of Estafa in relation to the Trust Receipts Law, since the information clearly set forth the essential
elements of the crime charged, and the constitutional right of petitioner to be informed of the nature and cause of his accusations
is not violated.8
As to the alleged error in the appreciation of facts by the trial court, the CA stated that it was undisputed that petitioner entered
into a trust receipt agreement with Asiatrust and he failed to pay the bank his obligation when it became due. According to the
CA, the fact that petitioner acted without malice or fraud in entering into the transactions has no bearing, since the offense is
punished as malum prohibitum regardless of the existence of intent or malice; the mere failure to deliver the proceeds of the sale
or the goods if not sold constitutes the criminal offense.
3|Page
With regard to the failure of the RTC to consider the fact that petitioner’s outstanding receivables are sufficient to cover his
indebtedness and that no written demand was made upon him hence his obligation has not yet become due and demandable, the
CA stated that the mere query as to the whereabouts of the goods and/or money is tantamount to a demand.9
Concerning the alleged bias, hostility, and prejudice of the RTC against petitioner, the CA said that petitioner failed to present
any substantial proof to support the aforementioned allegations against the RTC.
After the receipt of the CA Decision, petitioner moved for its reconsideration, which was denied by the CA in its Resolution
dated July 25, 2006. Thereafter, petitioner filed this Petition for Review on Certiorari. In his Memorandum, he raised the
following issues:
Issues:
1. The prosecution failed to adduce evidence beyond a reasonable doubt to satisfy the 2nd essential element that there
was misappropriation or conversion of subject money or property by petitioner.
2. The state was unable to prove the 3rd essential element of the crime that the alleged misappropriation or
conversion is to the prejudice of the real offended property.
3. The absence of a demand (4th essential element) on petitioner necessarily results to the dismissal of the criminal
case.
The Court’s Ruling
We find the petition to be meritorious.
Essentially, the issues raised by petitioner can be summed up into one—whether or not petitioner is liable for Estafa under Art.
315, par. 1(b) of the RPC in relation to PD 115.
It is a well-recognized principle that factual findings of the trial court are entitled to great weight and respect by this Court, more
so when they are affirmed by the appellate court. However, the rule is not without exceptions, such as: (1) when the conclusion
is a finding grounded entirely on speculations, surmises, and conjectures; (2) the inferences made are manifestly mistaken; (3)
there is grave abuse of discretion; and (4) the judgment is based on misapprehension of facts or premised on the absence of
evidence on record.10 Especially in criminal cases where the accused stands to lose his liberty by virtue of his conviction, the
Court must be satisfied that the factual findings and conclusions of the lower courts leading to his conviction must satisfy the
standard of proof beyond reasonable doubt.
In the case at bar, petitioner was charged with Estafa under Art. 315, par. 1(b) of the RPC in relation to PD 115. The RPC
defines Estafa as:
ART. 315. Swindling (estafa).—Any person who shall defraud another by any of the means mentioned hereinbelow x x x
1. With unfaithfulness or abuse of confidence, namely:
a. x x x
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 x x x. 11
Based on the definition above, the essential elements of Estafa are: (1) that money, goods or other personal property is received
by the offender in trust or on commission, or for administration, or under any obligation involving the duty to make delivery of
or to return it; (2) that there be misappropriation or conversion of such money or property by the offender, or denial on his part
of such receipt; (3) that such misappropriation or conversion or denial is to the prejudice of another; and (4) there is demand by
the offended party to the offender.12
Likewise, Estafa can also be committed in what is called a "trust receipt transaction" under PD 115, 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.
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 other words, 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.13 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.)
A thorough examination of the facts obtaining in the instant case, however, reveals that the transaction between petitioner and
Asiatrust is not a trust receipt transaction but one of simple loan.
PD 115 Does Not Apply
It must be remembered that petitioner was transparent to Asiatrust from the very beginning that the subject goods were not being
held for sale but were to be used for the fabrication of steel communication towers in accordance with his contracts with
Islacom, Smart, and Infocom. In these contracts, he was commissioned to build, out of the materials received, steel
communication towers, not to sell them.
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.
As stressed in Samo v. People,14 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."15 The principle is of course not limited in its application to financing importations, since the principle is equally
applicable to domestic transactions.16 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. Similarly, we
held in State Investment House v. CA, et al. that the entruster is entitled "only to the proceeds derived from the sale of goods
released under a trust receipt to the entrustee."17
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.
In applying the provisions of PD 115, the trial court relied on the Memorandum of Asiatrust’s appraiser, Linga, who stated that
the goods have been sold by petitioner and that only 3% of the goods remained in the warehouse where it was previously stored.
But for reasons known only to the trial court, the latter did not give weight to the testimony of Linga when he testified that he
merely presumed that the goods were sold, viz:
COURT (to the witness)
Q So, in other words, when the goods were not there anymore. You presumed that, that is already sold?
4|Page
 A Yes, your Honor.
Undoubtedly, in his testimony, Linga showed that he had no real personal knowledge or proof of the fact that the goods were
indeed sold. He did not notify petitioner about the inspection nor did he talk to or inquire with petitioner regarding the
whereabouts of the subject goods. Neither did he confirm with petitioner if the subject goods were in fact sold. Therefore, the
Memorandum of Linga, which was based only on his presumption and not any actual personal knowledge, should not have been
used by the trial court to prove that the goods have in fact been sold. At the very least, it could only show that the goods were not
in the warehouse.
Having established the inapplicability of PD 115, this Court finds that petitioner’s liability is only limited to the satisfaction of
his obligation from the loan. The real intent of the parties was simply to enter into a simple loan agreement.
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.
Moreover, this Court finds that petitioner is not liable for Estafa both under the RPC and PD 115.
Goods Were Not Received in Trust
The first element of Estafa under Art. 315, par. 1(b) of the RPC requires that the money, goods or other personal property must
be 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 it. But as we already discussed, the goods received by petitioner were not held in trust. They were
also not intended for sale and neither did petitioner have the duty to return them. They were only intended for use in the
fabrication of steel communication towers.
No Misappropriation of Goods or Proceeds
The second element of Estafa requires that there be misappropriation or conversion of such money or property by the offender,
or denial on his part of such receipt.
This is the very essence of Estafa under Art. 315, par. 1(b). The words "convert" and "misappropriated" connote an act of using
or disposing of another’s property as if it were one’s own, or of devoting it to a purpose or use different from that agreed upon.
To misappropriate for one’s own use includes not only conversion to one’s personal advantage, but also every attempt to dispose
of the property of another without a right.18
Petitioner argues that there was no misappropriation or conversion on his part, because his liability for the amount of the goods
subject of the trust receipts arises and becomes due only upon receipt of the proceeds of the sale and not prior to the receipt of
the full price of the goods.
Petitioner is correct. Thus, assuming arguendo that the provisions of PD 115 apply, petitioner is not liable for Estafa because
Sec. 13 of PD 115 provides that an entrustee is only liable for Estafa when he fails "to turn over the proceeds of the sale of the
goods x x x covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt x x x in
accordance with the terms of the trust receipt."
The trust receipt entered into between Asiatrust and petitioner states:
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 ASIATRUST DEVELOPMENT BANK. 19
(Emphasis supplied.)
Clearly, petitioner was only obligated to turn over the proceeds as soon as he received payment. However, the evidence reveals
that petitioner experienced difficulties in collecting payments from his clients for the communication towers. Despite this fact,
petitioner endeavored to pay his indebtedness to Asiatrust, which payments during the period from September 1997 to July 1998
total approximately PhP 1,500,000. Thus, absent proof that the proceeds have been actually and fully received by petitioner, his
obligation to turn over the same to Asiatrust never arose.
What is more, under the Trust Receipt Agreement itself, no date of maturity was stipulated. The provision left blank by Asiatrust
is as follows:
x x x and in consideration thereof, I/we hereby agree to hold said goods in Trust for the said Bank and as its property with liberty
to sell the same for its account within ________ days from the date of execution of the Trust Receipt x x x20
In fact, Asiatrust purposely left the space designated for the date blank, an action which in ordinary banking transactions would
be noted as highly irregular. Hence, the only way for the obligation to mature was for Asiatrust to demand from petitioner to pay
the obligation, which it never did.
Again, it also makes the Court wonder as to why Asiatrust decided to leave the provisions for the maturity dates in the Trust
Receipt agreements in blank, since those dates are elemental part of the loan. But then, as can be gleaned from the records of this
case, Asiatrust also knew that the capacity of petitioner to pay for his loan also hinges upon the latter’s receivables from Islacom,
Smart, and Infocom where he had ongoing and future projects for fabrication and installation of steel communication towers and
not from the sale of said goods. Being a bank, Asiatrust acted inappropriately when it left such a sensitive bank instrument with a
void circumstance on an elementary but vital feature of each and every loan transaction, that is, the maturity dates. Without
stating the maturity dates, it was impossible for petitioner to determine when the loan will be due.
Moreover, Asiatrust was aware that petitioner was not engaged in selling the subject goods and that petitioner will use them for
the fabrication and installation of communication towers. Before granting petitioner the credit line, as aforementioned, Asiatrust
conducted an investigation, which showed that petitioner fabricated and installed communication towers for well-known
communication companies to be installed at designated project sites. In fine, there was no abuse of confidence to speak of nor
was there any intention to convert the subject goods for another purpose, since petitioner did not withhold the fact that they were
to be used to fabricate steel communication towers to Asiatrust. Hence, no malice or abuse of confidence and misappropriation
occurred in this instance due to Asiatrust’s knowledge of the facts.
Furthermore, Asiatrust was informed at the time of petitioner’s application for the loan that the payment for the loan would be
derived from the collectibles of his clients. Petitioner informed Asiatrust that he was having extreme difficulties in collecting
from Islacom the full contracted price of the towers. Thus, the duty of petitioner to remit the proceeds of the goods has not yet
arisen since he has yet to receive proceeds of the goods. Again, petitioner could not be said to have misappropriated or converted
the proceeds of the transaction since he has not yet received the proceeds from his client, Islacom.
This Court also takes judicial notice of the fact that petitioner has fully paid his obligation to Asiatrust, making the claim for
damage and prejudice of Asiatrust baseless and unfounded. Given that the acceptance of payment by Asiatrust necessarily
extinguished petitioner’s obligation, then there is no longer any obligation on petitioner’s part to speak of, thus precluding
Asiatrust from claiming any damage. This is evidenced by Asiatrust’s Affidavit of Desistance21 acknowledging full payment of
the loan.
Reasonable Doubt Exists
In the final analysis, the prosecution failed to prove beyond reasonable doubt that petitioner was guilty of Estafa under Art. 315,
par. 1(b) of the RPC in relation to the pertinent provision of PD 115 or the Trust Receipts Law; thus, his liability should only be
civil in nature.
While petitioner admits to his civil liability to Asiatrust, he nevertheless does not have criminal liability. It is a well-established
principle that person is presumed innocent until proved guilty. To overcome the presumption, his guilt must be shown by proof
beyond reasonable doubt. Thus, we held in People v. Mariano22 that while the principle does not connote absolute certainty, it
means the degree of proof which produces moral certainty in an unprejudiced mind of the culpability of the accused. Such proof
should convince and satisfy the reason and conscience of those who are to act upon it that the accused is in fact guilty. The
prosecution, in this instant case, failed to rebut the constitutional innocence of petitioner and thus the latter should be acquitted.
At this point, the ruling of this Court in Colinares v. Court of Appeals 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.23
Such is the situation in this case.
Asiatrust’s intention became more evident when, on March 30, 2009, it, along with petitioner, filed their Joint Motion for Leave
to File and Admit Attached Affidavit of Desistance to qualify the Affidavit of Desistance executed by Felino H. Esquivas, Jr.,
attorney-in-fact of the Board of Asiatrust, which acknowledged the full payment of the obligation of the petitioner and the
successful mediation between the parties.
From the foregoing considerations, we deem it unnecessary to discuss and rule upon the other issues raised in the appeal.
WHEREFORE, the CA Decision dated August 29, 2003 affirming the RTC Decision dated May 29, 2001 is SET ASIDE.
Petitioner ANTHONY L. NG is hereby ACQUITTED of the charge of violation of Art. 315, par. 1(b) of the RPC in relation to
the pertinent provision of PD 115.
SO ORDERED.
5|Page
 3.) G.R. No. 143772 November 22, 2005
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,
vs.
PRUDENTIAL BANK, Respondent.
DECISION
CORONA, J.:
Development Bank of the Philippines (DBP) assails in this petition for review on certiorari under Rule 45 of the Rules of Court
the December 14, 1999 decision1 and the June 8, 2000 resolution of the Court of Appeals in CA-G.R. CV No. 45783. The
challenged decision dismissed DBP’s appeal and affirmed the February 12, 1991 decision of the Regional Trial Court of Makati,
Branch 137 in Civil Case No. 88-931 in toto, while the impugned resolution denied DBP’s motion for reconsideration for being
pro forma.
In 1973, Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial letter of credit with respondent Prudential Bank for
US$498,000. This was in connection with its importation of 5,000 spindles for spinning machinery with drawing frame, simplex
fly frame, ring spinning frame and various accessories, spare parts and tool gauge. These were released to Litex under covering
"trust receipts" it executed in favor of Prudential Bank. Litex installed and used the items in its textile mill located in Montalban,
Rizal.
On October 10, 1980, DBP granted a foreign currency loan in the amount of US$4,807,551 to Litex. To secure the loan, Litex
executed real estate and chattel mortgages on its plant site in Montalban, Rizal, including the buildings and other improvements,
machineries and equipments there. Among the machineries and equipments mortgaged in favor of DBP were the articles covered
by the "trust receipts."
Sometime in June 1982, Prudential Bank learned about DBP’s plan for the overall rehabilitation of Litex. In a July 14, 1982
letter, Prudential Bank notified DBP of its claim over the various items covered by the "trust receipts" which had been installed
and used by Litex in the textile mill. Prudential Bank informed DBP that it was the absolute and juridical owner of the said items
and they were thus not part of the mortgaged assets that could be legally ceded to DBP.
For the failure of Litex to pay its obligation, DBP extra-judicially foreclosed on the real estate and chattel mortgages, including
the articles claimed by Prudential Bank. During the foreclosure sale held on April 19, 1983, DBP acquired the foreclosed
properties as the highest bidder.
Subsequently, DBP caused to be published in the September 2, 1984 issue of the Times Journal an invitation to bid in the public
sale to be held on September 10, 1984. It called on interested parties to submit bids for the sale of the textile mill formerly
owned by Litex, the land on which it was built, as well as the machineries and equipments therein. Learning of the intended
public auction, Prudential Bank wrote a letter dated September 6, 1984 to DBP reasserting its claim over the items covered by
"trust receipts" in its name and advising DBP not to include them in the auction. It also demanded the turn-over of the articles or
alternatively, the payment of their value.
An exchange of correspondences ensued between Prudential Bank and DBP. In reply to Prudential Bank’s September 6, 1984
letter, DBP requested documents to enable it to evaluate Prudential Bank’s claim. On September 28, 1994, Prudential Bank
provided DBP the requested documents. Two months later, Prudential Bank followed up the status of its claim. In a letter dated
December 3, 1984, DBP informed Prudential Bank that its claim had been referred to DBP’s legal department and instructed
Prudential Bank to get in touch with its chief legal counsel. There being no concrete action on DBP’s part, Prudential Bank, in a
letter dated July 30, 1985, made a final demand on DBP for the turn-over of the contested articles or the payment of their value.
Without the knowledge of Prudential Bank, however, DBP sold the Litex textile mill, as well as the machineries and equipments
therein, to Lyon Textile Mills, Inc. (Lyon) on June 8, 1987.
Since its demands remained unheeded, Prudential Bank filed a complaint for a sum of money with damages against DBP with
the Regional Trial Court of Makati, Branch 137, on May 24, 1988. The complaint was docketed as Civil Case No. 88-931.
On February 12, 1991, the trial court decided 2 in favor of Prudential Bank. Applying the provisions of PD 115, otherwise known
as the "Trust Receipts Law," it ruled:
When PRUDENTIAL BANK released possession of the subject properties, over which it holds absolute title to LITEX upon the
latter’s execution of the trust receipts, the latter was bound to hold said properties in trust for the former, and (a) to sell or
otherwise dispose of the same and to turn over to PRUDENTIAL BANK the amount still owing; or (b) to return the goods if
unsold. Since LITEX was allowed to sell the properties being claimed by PRUDENTIAL BANK, all the more was it authorized
to mortgage the same, provided of course LITEX turns over to PRUDENTIAL BANK all amounts owing. When DBP, well
aware of the status of the properties, acquired the same in the public auction, it was bound by the terms of the trust receipts of
which LITEX was the entrustee. Simply stated, DBP held no better right than LITEX, and is thus bound to turn over whatever
amount was due PRUDENTIAL BANK. Being a trustee ex maleficio of PRUDENTIAL BANK, DBP is necessarily liable
therefor. In fact, DBP may well be considered as an agent of LITEX when the former sold the properties being claimed by
PRUDENTIAL BANK, with the corresponding responsibility to turn over the proceeds of the same to PRUDENTIAL BANK. 3
(Citations omitted)
The dispositive portion of the decision read:
WHEREFORE, judgment is hereby rendered ordering defendant DEVELOPMENT BANK OF THE PHILIPPINES to pay
plaintiff PRUDENTIAL BANK:
a) ₱3,261,834.00, as actual damages, with interest thereon computed from 10 August 1985 until the entire amount shall have
been fully paid;
b) ₱50,000.00 as exemplary damages; and
c) 10% of the total amount due as and for attorney’s fees.
SO ORDERED.
Aggrieved, DBP filed an appeal with the Court of Appeals. However, the appellate court dismissed the appeal and affirmed the
decision of the trial court in toto. It applied the provisions of PD 115 and held that ownership over the contested articles
belonged to Prudential Bank as entrustor, not to Litex. Consequently, even if Litex mortgaged the items to DBP and the latter
foreclosed on such mortgage, DBP was duty-bound to turn over the proceeds to Prudential Bank, being the party that advanced
the payment for them.
On DBP’s argument that the disputed articles were not proper objects of a trust receipt agreement, the Court of Appeals ruled
that the items were part of the trust agreement entered into by and between Prudential Bank and Litex. Since the agreement was
not contrary to law, morals, public policy, customs and good order, it was binding on the parties.
Moreover, the appellate court found that DBP was not a mortgagee in good faith. It also upheld the finding of the trial court that
DBP was a trustee ex maleficio of Prudential Bank over the articles covered by the "trust receipts."
DBP filed a motion for reconsideration but the appellate court denied it for being pro forma. Hence, this petition.
Trust receipt transactions are governed by the provisions of PD 115 which defines such a transaction as follows:
Section 4. What constitutes a trust receipt 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 tranship 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.
xxxxxxxxx
In a trust receipt transaction, the goods are released by the entruster (who owns or holds absolute title or security interests over
the said goods) to the entrustee on the latter’s execution and delivery to the entruster of a trust receipt. The trust receipt
evidences the absolute title or security interest of the entruster over the goods. As a consequence of the release of the goods and
the execution of the trust receipt, a two-fold obligation is imposed on the entrustee, namely: (1) to hold the designated goods,
documents or instruments in trust for the purpose of selling or otherwise disposing of them and (2) to turn over to the entruster
either 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. In the case of goods, they may also be released for other purposes substantially
equivalent to (a) their sale or the procurement of their sale; or (b) their manufacture or processing with the purpose of ultimate
sale, in which case the entruster retains his title over the said goods whether in their original or processed form until the entrustee
has complied fully with his obligation under the trust receipt; or (c) the loading, unloading, shipment or transshipment or
otherwise dealing with them in a manner preliminary or necessary to their sale. 4 Thus, in a trust receipt transaction, the release of
the goods to the entrustee, on his execution of a trust receipt, is essentially for the purpose of their sale or is necessarily
connected with their ultimate or subsequent sale.
6|Page
Here, Litex was not engaged in the business of selling spinning machinery, its accessories and spare parts but in manufacturing
and producing textile and various kinds of fabric. The articles were not released to Litex to be sold. Nor was the transfer of
possession intended to be a preliminary step for the said goods to be ultimately or subsequently sold. Instead, the
contemporaneous and subsequent acts of both Litex and Prudential Bank showed that the imported articles were released to
Litex to be installed in its textile mill and used in its business. DBP itself was aware of this. To support its assertion that the
contested articles were excluded from goods that could be covered by a trust receipt, it contended:
First. That the chattels in controversy were procured by DBP’s mortgagor Lirag Textile Mills ("LITEX") for the exclusive use
of its textile mills. They were not procured -
(a) to sell or otherwise procure their sale;
(b) to manufacture or process the goods with the
purpose of ultimate sale.5 (emphasis supplied)
Hence, the transactions between Litex and Prudential Bank were allegedly not trust receipt transactions within the meaning of
PD 115. It follows that, contrary to the decisions of the trial court and the appellate court, the transactions were not governed by
the Trust Receipts Law.
We disagree.
The various agreements between Prudential Bank and Litex commonly denominated as "trust receipts" were valid. As the Court
of Appeals correctly ruled, their provisions did not contravene the law, morals, good customs, public order or public policy.
The agreements uniformly provided:
Received, upon the Trust hereinafter mentioned from the PRUDENTIAL BANK (hereinafter referred to as BANK) the
following goods and merchandise, the property of said BANK specified in the bill of lading as follows:
Amount of Bill Description of Security Marks & Nos. Vessel
showed DBP’s fraudulent attempt to prevent Prudential Bank from asserting its rights. It smacked of bad faith, if not deceit.
Thus, the award of exemplary damages was in order. Due to the award of exemplary damages, the grant of attorney’s fees was
proper.15
DBP’s assertion that both the trial and appellate courts failed to address the issue of prescription is of no moment. Its claim that,
under Article 1146 (1) of the Civil Code, Prudential Bank’s cause of action had prescribed as it should be reckoned from
October 10, 1980, the day the mortgage was registered, is not correct. The written extra-judicial demand by the creditor
interrupted the prescription of action.16 Hence, the four-year prescriptive period which DBP insists should be counted from the
registration of the mortgage was interrupted when Prudential Bank wrote the extra-judicial demands for the turn over of the
articles or their value. In particular, the last demand letter sent by Prudential Bank was dated July 30, 1988 and this was received
by DBP the following day. Thus, contrary to DBP’s claim, Prudential Bank’s right to enforce its action had not yet prescribed
when it filed the complaint on May 24, 1988.
WHEREFORE, the petition is hereby DENIED. The December 14, 1999 decision and June 8, 2000 resolution of the Court of
Appeals in CA-G.R. CV No. 45783 are AFFIRMED.
Costs against the petitioner.
SO ORDERED.

and in consideration thereof, I/We hereby agree to hold said goods in trust for the BANK and 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.
x x x x x x x x x6 (Emphasis supplied)
The articles were owned by Prudential Bank and they were only held by Litex in trust. While it was allowed to sell the items,
Litex had no authority to dispose of them or any part thereof or their proceeds through conditional sale, pledge or any other
means.
Article 2085 (2) of the Civil Code requires that, in a contract of pledge or mortgage, it is essential that the pledgor or mortgagor
should be the absolute owner of the thing pledged or mortgaged. Article 2085 (3) further mandates that the person constituting
the pledge or mortgage must have the free disposal of his property, and in the absence thereof, that he be legally authorized for
the purpose.
Litex had neither absolute ownership, free disposal nor the authority to freely dispose of the articles. Litex could not have
subjected them to a chattel mortgage. Their inclusion in the mortgage was void7 and had no legal effect.8 There being no valid
mortgage, there could also be no valid foreclosure or valid auction sale.9 Thus, DBP could not be considered either as a
mortgagee or as a purchaser in good faith.10
No one can transfer a right to another greater than what he himself has. 11 Nemo dat quod non habet. Hence, Litex could not
transfer a right that it did not have over the disputed items. Corollarily, DBP could not acquire a right greater than what its
predecessor-in-interest had. The spring cannot rise higher than its source.12 DBP merely stepped into the shoes of Litex as trustee
of the imported articles with an obligation to pay their value or to return them on Prudential Bank’s demand. By its failure to pay
or return them despite Prudential Bank’s repeated demands and by selling them to Lyon without Prudential Bank’s knowledge
and conformity, DBP became a trustee ex maleficio.
On the matter of actual damages adjudged by the trial court and affirmed by the Court of Appeals, DBP wants this Court to
review the evidence presented during the trial and to reverse the factual findings of the trial court. This Court is, however, not a
trier of facts and it is not its function to analyze or weigh evidence anew.13 The rule is that factual findings of the trial court,
when adopted and confirmed by the CA, are binding and conclusive on this Court and generally will not be reviewed on
appeal.14 While there are recognized exceptions to this rule, none of the established exceptions finds application here.
With regard to the imposition of exemplary damages, the appellate court agreed with the trial court that the requirements for the
award thereof had been sufficiently established. Prudential Bank’s entitlement to compensatory damages was likewise amply
proven. It was also shown that DBP was aware of Prudential Bank’s claim as early as July, 1982. However, it ignored the latter’s
demand, included the disputed articles in the mortgage foreclosure and caused their sale in a public auction held on April 19,
1983 where it was declared as the highest bidder. Thereafter, in the series of communications between them, DBP gave
Prudential Bank the false impression that its claim was still being evaluated. Without acting on Prudential Bank’s plea, DBP
included the contested articles among the properties it sold to Lyon in June, 1987. The trial court found that this chain of events
7|Page
 4.) G. R. No. 164317 February 6, 2006 Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority to sell but not by way of
ALFREDO CHING, Petitioner, conditional sale, pledge or otherwise; and in case such goods were sold, to turn over the proceeds thereof as soon as received, to
vs. apply against the relative acceptances and payment of other indebtedness to respondent bank. In case the goods remained unsold
THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN BURGOS-VILLAVERT, JUDGE within the specified period, the goods were to be returned to respondent bank without any need of demand. Thus, said "goods,
EDGARDO SUDIAM of the Regional Trial Court, Manila, Branch 52; RIZAL COMMERCIAL BANKING CORP. and manufactured products or proceeds thereof, whether in the form of money or bills, receivables, or accounts separate and capable
THE PEOPLE OF THE PHILIPPINES, Respondents. of identification" were respondent bank’s property.
DECISION When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to return their value amounting to
CALLEJO, SR., J.: ₱6,940,280.66 despite demands. Thus, the bank filed a criminal complaint for estafa6 against petitioner in the Office of the City
Before the Court is a petition for review on certiorari of the Decision 1 of the Court of Appeals (CA) in CA-G.R. SP No. 57169 Prosecutor of Manila.
dismissing the petition for certiorari, prohibition and mandamus filed by petitioner Alfredo Ching, and its Resolution 2 dated June After the requisite preliminary investigation, the City Prosecutor found probable cause estafa under Article 315, paragraph 1(b)
28, 2004 denying the motion for reconsideration thereof. of the Revised Penal Code, in relation to Presidential Decree (P.D.) No. 115, otherwise known as the Trust Receipts Law.
Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime in September to October 1980, Thirteen (13) Informations were filed against the petitioner before the Regional Trial Court (RTC) of Manila. The cases were
PBMI, through petitioner, applied with the Rizal Commercial Banking Corporation (respondent bank) for the issuance of docketed as Criminal Cases No. 86-42169 to 86-42181, raffled to Branch 31 of said court.
commercial letters of credit to finance its importation of assorted goods.3 Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The appeal was dismissed in a
Respondent bank approved the application, and irrevocable letters of credit were issued in favor of petitioner. The goods were Resolution7 dated March 17, 1987, and petitioner moved for its reconsideration. On December 23, 1987, the Minister of Justice
purchased and delivered in trust to PBMI. Petitioner signed 13 trust receipts4 as surety, acknowledging delivery of the following granted the motion, thus reversing the previous resolution finding probable cause against petitioner. 8 The City Prosecutor was
goods: ordered to move for the withdrawal of the Informations.
This time, respondent bank filed a motion for reconsideration, which, however, was denied on February 24, 1988. 9 The RTC, for
T/R Date Granted Maturity Date Principal Description of Goods its part, granted the Motion to Quash the Informations filed by petitioner on the ground that the material allegations therein did
Nos. not amount to estafa.10
In the meantime, the Court rendered judgment in Allied Banking Corporation v. Ordoñez, 11 holding that the penal provision of
1845 12-05-80 03-05-81 P1,596,470.05 79.9425 M/T "SDK" Brand P.D. No. 115 encompasses any act violative of an obligation covered by the trust receipt; it is not limited to transactions
Synthetic Graphite Electrode involving goods which are to be sold (retailed), reshipped, stored or processed as a component of a product ultimately sold. The
Court also ruled that "the non-payment of the amount covered by a trust receipt is an act violative of the obligation of the
1853 12-08-80 03-06-81 P198,150.67 3,000 pcs. (15 bundles) entrustee to pay."12
Calorized Lance Pipes On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against petitioner before the Office of the City
Prosecutor of Manila. The case was docketed as I.S. No. 95B-07614.
1824 11-28-80 02-26-81 P707,879.71 One Lot High Fired Refractory Preliminary investigation ensued. On December 8, 1995, the City Prosecutor ruled that there was no probable cause to charge
Tundish Bricks petitioner with violating P.D. No. 115, as petitioner’s liability was only civil, not criminal, having signed the trust receipts as
surety.13 Respondent bank appealed the resolution to the Department of Justice (DOJ) via petition for review, alleging that the
1798 11-21-80 02-19-81 P835,526.25 5 cases spare parts for CCM City Prosecutor erred in ruling:
1. That there is no evidence to show that respondent participated in the misappropriation of the goods subject of the
1808 11-21-80 02-19-81 P370,332.52 200 pcs. ingot moulds
trust receipts;
2. That the respondent is a mere surety of the trust receipts; and
2042 01-30-81 04-30-81 P469,669.29 High Fired Refractory Nozzle
3. That the liability of the respondent is only civil in nature.14
Bricks
On July 13, 1999, the Secretary of Justice issued Resolution No. 250 15 granting the petition and reversing the assailed resolution
of the City Prosecutor. According to the Justice Secretary, the petitioner, as Senior Vice-President of PBMI, executed the 13
1801 11-21-80 02-19-81 P2,001,715.17 Synthetic Graphite Electrode
trust receipts and as such, was the one responsible for the offense. Thus, the execution of said receipts is enough to indict the
[with] tapered pitch filed nipples
petitioner as the official responsible for violation of P.D. No. 115. The Justice Secretary also declared that petitioner could not
contend that P.D. No. 115 covers only goods ultimately destined for sale, as this issue had already been settled in Allied Banking
1857 12-09-80 03-09-81 P197,843.61 3,000 pcs. (15 bundles calorized
Corporation v. Ordoñez,16 where the Court ruled that P.D. No. 115 is "not limited to transactions in goods which are to be sold
lance pipes [)]
(retailed), reshipped, stored or processed as a component of a product ultimately sold but covers failure to turn over the proceeds
of the sale of entrusted goods, or to return said goods if unsold or not otherwise disposed of in accordance with the terms of the
1895 12-17-80 03-17-81 P67,652.04 Spare parts for
trust receipts."
Spectrophotometer
The Justice Secretary further stated that the respondent bound himself under the terms of the trust receipts not only as a corporate
1911 12-22-80 03-20-81 P91,497.85 50 pcs. Ingot moulds official of PBMI but also as its surety; hence, he could be proceeded against in two (2) ways: first, as surety as determined by the
Supreme Court in its decision in Rizal Commercial Banking Corporation v. Court of Appeals;17 and second, as the corporate
2041 01-30-81 04-30-81 P91,456.97 50 pcs. Ingot moulds official responsible for the offense under P.D. No. 115, via criminal prosecution. Moreover, P.D. No. 115 explicitly allows the
prosecution of corporate officers "without prejudice to the civil liabilities arising from the criminal offense." Thus, according to
2099 02-10-81 05-11-81 P66,162.26 8 pcs. Kubota Rolls for rolling the Justice Secretary, following Rizal Commercial Banking Corporation, the civil liability imposed is clearly separate and
mills distinct from the criminal liability of the accused under P.D. No. 115.
Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13 Informations against petitioner for
2100 02-10-81 05-12-81 P210,748.00 Spare parts for Lacolaboratory violation of P.D. No. 115 before the RTC of Manila. The cases were docketed as Criminal Cases No. 99-178596 to 99-178608
Equipment5 and consolidated for trial before Branch 52 of said court. Petitioner filed a motion for reconsideration, which the Secretary of
Justice denied in a Resolution18 dated January 17, 2000.

8|Page
Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing the resolutions of the Secretary of
Justice on the following grounds:
1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN FACT, ARE ACTING
OPPRESSIVELY AGAINST ALFREDO CHING WHEN THEY ALLOWED HIS PROSECUTION DESPITE THE
FACT THAT NO EVIDENCE HAD BEEN PRESENTED TO PROVE HIS PARTICIPATION IN THE ALLEGED
TRANSACTIONS.
2. THE RESPONDENT SECRETARY OF JUSTICE COMMITTED AN ACT IN GRAVE ABUSE OF
DISCRETION AND IN EXCESS OF HIS JURISDICTION WHEN THEY CONTINUED PROSECUTION OF THE
PETITIONER DESPITE THE LENGTH OF TIME INCURRED IN THE TERMINATION OF THE
PRELIMINARY INVESTIGATION THAT SHOULD JUSTIFY THE DISMISSAL OF THE INSTANT CASE.
3. THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY PROSECUTOR ACTED IN
GRAVE ABUSE OF DISCRETION AMOUNTING TO AN EXCESS OF JURISDICTION WHEN THEY
CONTINUED THE PROSECUTION OF THE PETITIONER DESPITE LACK OF SUFFICIENT BASIS. 19
In his petition, petitioner incorporated a certification stating that "as far as this Petition is concerned, no action or proceeding in
the Supreme Court, the Court of Appeals or different divisions thereof, or any tribunal or agency. It is finally certified that if the
affiant should learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of
Appeals, or different divisions thereof, of any other tribunal or agency, it hereby undertakes to notify this Honorable Court
within five (5) days from such notice."20
In its Comment on the petition, the Office of the Solicitor General alleged that -
A.
THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT PETITIONER ALFREDO CHING
IS THE OFFICER RESPONSIBLE FOR THE OFFENSE CHARGED AND THAT THE ACTS OF PETITIONER
FALL WITHIN THE AMBIT OF VIOLATION OF P.D. [No.] 115 IN RELATION TO ARTICLE 315, PAR. 1(B)
OF THE REVISED PENAL CODE.
B.
THERE IS NO MERIT IN PETITIONER’S CONTENTION THAT EXCESSIVE DELAY HAS MARRED THE
CONDUCT OF THE PRELIMINARY INVESTIGATION OF THE CASE, JUSTIFYING ITS DISMISSAL.
C.
THE PRESENT SPECIAL CIVIL ACTION FOR CERTIORARI, PROHIBITION AND MANDAMUS IS NOT
THE PROPER MODE OF REVIEW FROM THE RESOLUTION OF THE DEPARTMENT OF JUSTICE. THE
PRESENT PETITION MUST THEREFORE BE DISMISSED.21
On April 22, 2004, the CA rendered judgment dismissing the petition for lack of merit, and on procedural grounds. On the
procedural issue, it ruled that (a) the certification of non-forum shopping executed by petitioner and incorporated in the petition
was defective for failure to comply with the first two of the three-fold undertakings prescribed in Rule 7, Section 5 of the
Revised Rules of Civil Procedure; and (b) the petition for certiorari, prohibition and mandamus was not the proper remedy of the
petitioner.
On the merits of the petition, the CA ruled that the assailed resolutions of the Secretary of Justice were correctly issued for the
following reasons: (a) petitioner, being the Senior Vice-President of PBMI and the signatory to the trust receipts, is criminally
liable for violation of P.D. No. 115; (b) the issue raised by the petitioner, on whether he violated P.D. No. 115 by his actuations,
had already been resolved and laid to rest in Allied Bank Corporation v. Ordoñez; 22 and (c) petitioner was estopped from raising
the
City Prosecutor’s delay in the final disposition of the preliminary investigation because he failed to do so in the DOJ.
Thus, petitioner filed the instant petition, alleging that:
I desired conclusion that respondent Secretary of Justice gravely abused its discretion in coming out with his assailed Resolutions.
THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON THE GROUND THAT THE
CERTIFICATION OF NON-FORUM SHOPPING INCORPORATED THEREIN WAS DEFECTIVE.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WAS COMMITTED BY THE SECRETARY OF
JUSTICE IN COMING OUT WITH THE ASSAILED RESOLUTIONS. 23
The Court will delve into and resolve the issues seriatim.
The petitioner avers that the CA erred in dismissing his petition on a mere technicality. He claims that the rules of procedure
should be used to promote, not frustrate, substantial justice. He insists that the Rules of Court should be construed liberally
especially when, as in this case, his substantial rights are adversely affected; hence, the deficiency in his certification of non-
forum shopping should not result in the dismissal of his petition.
The Office of the Solicitor General (OSG) takes the opposite view, and asserts that indubitably, the certificate of non-forum
shopping incorporated in the petition before the CA is defective because it failed to disclose essential facts about pending actions
concerning similar issues and parties. It asserts that petitioner’s failure to comply with the Rules of Court is fatal to his petition.
The OSG cited Section 2, Rule 42, as well as the ruling of this Court in Melo v. Court of Appeals. 24
We agree with the ruling of the CA that the certification of non-forum shopping petitioner incorporated in his petition before the
appellate court is defective. The certification reads:
It is further certified that as far as this Petition is concerned, no action or proceeding in the Supreme Court, the Court of Appeals
or different divisions thereof, or any tribunal or agency.
It is finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending before the
Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it hereby undertakes to
notify this Honorable Court within five (5) days from such notice. 25
Under Section 1, second paragraph of Rule 65 of the Revised Rules of Court, the petition should be accompanied by a sworn
certification of non-forum shopping, as provided in the third paragraph of Section 3, Rule 46 of said Rules. The latter provision
reads in part:
SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. — The petition shall contain the full names
and actual addresses of all the petitioners and respondents, a concise statement of the matters involved, the factual background of
the case and the grounds relied upon for the relief prayed for.
xxx
The petitioner shall also submit together with the petition a sworn certification that he has not theretofore commenced any other
action involving the same issues in the Supreme Court, the Court of Appeals or different divisions thereof, or any other tribunal
or agency; if there is such other action or proceeding, he must state the status of the same; and if he should thereafter learn that a
similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions
thereof, or any other tribunal or agency, he undertakes to promptly inform the aforesaid courts and other tribunal or agency
thereof within five (5) days therefrom. xxx
Compliance with the certification against forum shopping is separate from and independent of the avoidance of forum shopping
itself. The requirement is mandatory. The failure of the petitioner to comply with the foregoing requirement shall be sufficient
ground for the dismissal of the petition without prejudice, unless otherwise provided. 26
Indubitably, the first paragraph of petitioner’s certification is incomplete and unintelligible. Petitioner failed to certify that he
"had not heretofore commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or the
different divisions thereof or any other tribunal or agency" as required by paragraph 4, Section 3, Rule 46 of the Revised Rules
of Court.
We agree with petitioner’s contention that the certification is designed to promote and facilitate the orderly administration of
justice, and therefore, should not be interpreted with absolute literalness. In his works on the Revised Rules of Civil Procedure,
former Supreme Court Justice Florenz Regalado states that, with respect to the contents of the certification which the pleader
may prepare, the rule of substantial compliance may be availed of. 27 However, there must be a special circumstance or
compelling reason which makes the strict application of the requirement clearly unjustified. The instant petition has not alleged
any such extraneous circumstance. Moreover, as worded, the certification cannot even be regarded as substantial compliance
with the procedural requirement. Thus, the CA was not informed whether, aside from the petition before it, petitioner had
commenced any other action involving the same issues in other tribunals.
On the merits of the petition, the CA ruled that the petitioner failed to establish that the Secretary of Justice committed grave
abuse of discretion in finding probable cause against the petitioner for violation of estafa under Article 315, paragraph 1(b) of the
Revised Penal Code, in relation to P.D. No. 115. Thus, the appellate court ratiocinated:
Be that as it may, even on the merits, the arguments advanced in support of the petition are not persuasive enough to justify the
Petitioner posits that, except for his being the Senior Vice-President of the PBMI, there is no iota of evidence that he was a
participes crimines in violating the trust receipts sued upon; and that his liability, if at all, is purely civil because he signed the
said trust receipts merely as a xxx surety and not as the entrustee. These assertions are, however, too dull that they cannot even
just dent the findings of the respondent Secretary, viz:
"x x x it is apropos to quote section 13 of PD 115 which states in part, viz:
‘xxx 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.’
"There is no dispute that it was the respondent, who as senior vice-president of PBM, executed the thirteen (13) trust receipts. As
such, the law points to him as the official responsible for the offense. Since a corporation cannot be proceeded against criminally
because it cannot commit crime in which personal violence or malicious intent is required, criminal action is limited to the
9|Page
corporate agents guilty of an act amounting to a crime and never against the corporation itself (West Coast Life Ins. Co. vs.
Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus, the execution by respondent of said receipts is enough to indict
him as the official responsible for violation of PD 115.
"Parenthetically, respondent is estopped to still contend that PD 115 covers only goods which are ultimately destined for sale and
not goods, like those imported by PBM, for use in manufacture. This issue has already been settled in the Allied Banking
Corporation case, supra, where he was also a party, when the Supreme Court ruled that PD 115 is ‘not limited to transactions in
goods which are to be sold (retailed), reshipped, stored or processed as a component or a product ultimately sold’ but ‘covers
failure to turn over the proceeds of the sale of entrusted goods, or to return said goods if unsold or disposed of in accordance
with the terms of the trust receipts.’
"In regard to the other assigned errors, we note that the respondent bound himself under the terms of the trust receipts not only as
a corporate official of PBM but also as its surety. It is evident that these are two (2) capacities which do not exclude the other.
Logically, he can be proceeded against in two (2) ways: first, as surety as determined by the Supreme Court in its decision in
RCBC vs. Court of Appeals, 178 SCRA 739; and, secondly, as the corporate official responsible for the offense under PD 115,
the present case is an appropriate remedy under our penal law.
"Moreover, PD 115 explicitly allows the prosecution of corporate officers ‘without prejudice to the civil liabilities arising from
the criminal offense’ thus, the civil liability imposed on respondent in RCBC vs. Court of Appeals case is clearly separate and
distinct from his criminal liability under PD 115.’"28
Petitioner asserts that the appellate court’s ruling is erroneous because (a) the transaction between PBMI and respondent bank is
not a trust receipt transaction; (b) he entered into the transaction and was sued in his capacity as PBMI Senior Vice-President; (c)
he never received the goods as an entrustee for PBMI, hence, could not have committed any dishonesty or abused the confidence
of respondent bank; and (d) PBMI acquired the goods and used the same in operating its machineries and equipment and not for
resale.
The OSG, for its part, submits a contrary view, to wit:
34. Petitioner further claims that he is not a person responsible for the offense allegedly because "[b]eing charged as the Senior
Vice-President of Philippine Blooming Mills (PBM), petitioner cannot be held criminally liable as the transactions sued upon
were clearly entered into in his capacity as an officer of the corporation" and that [h]e never received the goods as an entrustee
for PBM as he never had or took possession of the goods nor did he commit dishonesty nor "abuse of confidence in transacting
with RCBC." Such argument is bereft of merit.
35. Petitioner’s being a Senior Vice-President of the Philippine Blooming Mills does not exculpate him from any liability.
Petitioner’s responsibility as the corporate official of PBM who received the goods in trust is premised on Section 13 of P.D. No.
115, which provides:
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. (Emphasis supplied)
36. Petitioner having participated in the negotiations for the trust receipts and having received the goods for PBM, it was
inevitable that the petitioner is the proper corporate officer to be proceeded against by virtue of the PBM’s violation of P.D. No.
115.29
The ruling of the CA is correct.
In Mendoza-Arce v. Office of the Ombudsman (Visayas),30 this Court held that the acts of a quasi-judicial officer may be
assailed by the aggrieved party via a petition for certiorari and enjoined (a) when necessary to afford adequate protection to the
constitutional rights of the accused; (b) when necessary for the orderly administration of justice; (c) when the acts of the officer
are without or in excess of authority; (d) where the charges are manifestly false and motivated by the lust for vengeance; and (e)
when there is clearly no prima facie case against the accused.31 The Court also declared that, if the officer conducting a
preliminary investigation (in that case, the Office of the Ombudsman) acts without or in excess of his authority and resolves to
file an Information despite the absence of probable cause, such act may be nullified by a writ of certiorari.32
Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure,33 the Information shall be prepared by the
Investigating Prosecutor against the respondent only if he or she finds probable cause to hold such respondent for trial. The
Investigating Prosecutor acts without or in excess of his authority under the Rule if the Information is filed against the
respondent despite absence of evidence showing probable cause therefor. 34 If the Secretary of Justice reverses the Resolution of
the Investigating Prosecutor who found no probable cause to hold the respondent for trial, and orders such prosecutor to file the
Information despite the absence of probable cause, the Secretary of Justice acts contrary to law, without authority and/or in
excess of authority. Such resolution may likewise be nullified in a petition for certiorari under Rule 65 of the Revised Rules of
Civil Procedure.35
A preliminary investigation, designed to secure the respondent against hasty, malicious and oppressive prosecution, 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. It is a means of discovering the person or persons who may be reasonably charged with a crime. Probable cause
need not be based on clear and convincing evidence of guilt, as the investigating officer acts upon probable cause of reasonable
belief. Probable cause implies probability of guilt and requires more than bare suspicion but less than evidence which would
justify a conviction. A finding of probable cause needs only to rest on evidence showing that more likely than not, a crime has
been committed by the suspect.36
However, while probable cause should be determined in a summary manner, there is a need to examine the evidence with care to
prevent material damage to a potential accused’s constitutional right to liberty and the guarantees of freedom and fair play37 and
to protect the State from the burden of unnecessary expenses in prosecuting alleged offenses and holding trials arising from
false, fraudulent or groundless charges.38
In this case, petitioner failed to establish that the Secretary of Justice committed grave abuse of discretion in issuing the assailed
resolutions. Indeed, he acted in accord with law and the evidence.
Section 4 of P.D. No. 115 defines a trust receipt transaction, thus:
Section 4. What constitutes a trust receipt 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 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 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 goods, documents or instruments by a person in the business of selling goods, documents or instruments for profit
who, at the outset of the 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.
An entrustee is one having or taking possession of goods, documents or instruments under a trust receipt transaction, and any
successor in interest of such person for the purpose of payment specified in the trust receipt agreement. 39 The entrustee is obliged
to: (1) hold the goods, documents or instruments in trust for the entruster and shall dispose of them strictly in accordance with
the terms and conditions of the trust receipt; (2) receive the proceeds in trust for the entruster and turn over the same to the
entruster to the extent of the amount owing to the entruster or as appears on the trust receipt; (3) insure the goods for their total
value against loss from fire, theft, pilferage or other casualties; (4) keep said goods or proceeds thereof whether in money or
whatever form, separate and capable of identification as property of the entruster; (5) return the goods, documents or instruments
in the event of non-sale or upon demand of the entruster; and (6) observe all other terms and conditions of the trust receipt not
contrary to the provisions of the decree.40
The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released under a trust receipt
to the entrustee to the extent of the amount owing to the entruster or as appears in the trust receipt, or to the return of the goods,
documents or instruments in case of non-sale, and to the enforcement of all other rights conferred on him in the trust receipt;
provided, such are not contrary to the provisions of the document. 41
In the case at bar, the transaction between petitioner and respondent bank falls under the trust receipt transactions envisaged in
P.D. No. 115. Respondent bank imported the goods and entrusted the same to PBMI under the trust receipts signed by petitioner,
as entrustee, with the bank as entruster. The agreement was as follows:
10 | P a g e
And in consideration thereof, I/we hereby agree to hold said goods in trust for the said BANK as its property with liberty to sell
the same within ____days from the date of the execution of this Trust Receipt and for the Bank’s account, but without authority
to make any other disposition whatsoever of the said goods or any part thereof (or the proceeds) either by way of conditional
sale, pledge or otherwise.
I/we agree to keep the said goods insured to their full value against loss from fire, theft, pilferage or other casualties as directed
by the BANK, the sum insured to be payable in case of loss to the BANK, with the understanding that the BANK is, not to be
chargeable with the storage premium or insurance or any other expenses incurred on said goods.
In case of sale, I/we further agree to turn over the proceeds thereof as soon as received to the BANK, to apply against the relative
acceptances (as described above) and for the payment of any other indebtedness of mine/ours to the BANK. In case of non-sale
within the period specified herein, I/we agree to return the goods under this Trust Receipt to the BANK without any need of
demand.
I/we agree to keep the said goods, manufactured products or proceeds thereof, whether in the form of money or bills,
receivables, or accounts separate and capable of identification as property of the BANK. 42
It must be stressed that P.D. No. 115 is a declaration by legislative authority that, as a matter of public policy, the failure of
person to turn over the proceeds of the sale of the goods covered by a trust receipt or to return said goods, if not sold, is a public
nuisance to be abated by the imposition of penal sanctions. 43
The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions involving goods procured as a
component of a product ultimately sold has been resolved in the affirmative in Allied Banking Corporation v. Ordoñez. 44 The
law applies to goods used by the entrustee in the operation of its machineries and equipment. The non-payment of the amount
covered by the trust receipts or the non-return of the goods covered by the receipts, if not sold or otherwise not disposed of,
violate the entrustee’s obligation to pay the amount or to return the goods to the entruster.
In Colinares v. Court of Appeals,45 the Court declared that 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.46 Thus, failure of the entrustee to turn over the proceeds of the sale of the goods
covered by the trust receipts to the entruster or to return said goods if they were not disposed of in accordance with the terms of
the trust receipt is a crime under P.D. No. 115, without need of proving intent to defraud. The law punishes dishonesty and abuse
of confidence in the handling of money or goods to the prejudice of the entruster, regardless of whether the latter is the owner or
not. A mere failure to deliver the proceeds of the sale of the goods, if not sold, constitutes a criminal offense that causes
prejudice, not only to another, but more to the public interest.47
The Court rules that although petitioner signed the trust receipts merely as Senior Vice-President of PBMI and had no physical
possession of the goods, he cannot avoid prosecution for violation of P.D. No. 115.
The penalty clause of the law, Section 13 of P.D. No. 115 reads:
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.1âwphi1 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.
The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph 1(b), Article 315 of the
Revised Penal Code, or estafa with abuse of confidence. It may be committed by a corporation or other juridical entity or by
natural persons. However, the penalty for the crime is imprisonment for the periods provided in said Article 315, which reads:
ARTICLE 315. Swindling (estafa). – Any person who shall defraud another by any of the means mentioned hereinbelow shall be
punished by:
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 shall not exceed twenty years. In such cases, and in
connection with the accessory penalties which may be imposed and for the purpose of the other provisions of this
Code, the penalty shall be termed prision mayor or reclusion temporal, as the case may be;
2nd. The penalty of prision correccional in its minimum and medium periods, if the amount of the fraud is over 6,000
pesos but does not exceed 12,000 pesos;
3rd. The penalty of arresto mayor in its maximum period to prision correccional in its minimum period, if such
amount is over 200 pesos but does not exceed 6,000 pesos; and
4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed 200 pesos, provided that in the four
cases mentioned, the fraud be committed by any of the following means; xxx
Though the entrustee is a corporation, nevertheless, the law specifically makes the officers, employees or other officers or
persons responsible for the offense, without prejudice to the civil liabilities of such corporation and/or board of directors,
officers, or other officials or employees responsible for the offense. The rationale is that such officers or employees 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. 48
If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or other officers thereof
responsible for the offense shall be charged and penalized for the crime, precisely because of the nature of the crime and the
penalty therefor. A corporation cannot be arrested and imprisoned; hence, cannot be penalized for a crime punishable by
imprisonment.49 However, a corporation may be charged and prosecuted for a crime if the imposable penalty is fine. Even if the
statute prescribes both fine and imprisonment as penalty, a corporation may be prosecuted and, if found guilty, may be fined. 50
A crime is the doing of that which the penal code forbids to be done, or omitting to do what it commands. A necessary part of
the definition of every crime is the designation of the author of the crime upon whom the penalty is to be inflicted. When a
criminal statute designates an act of a corporation or a crime and prescribes punishment therefor, it creates a criminal offense
which, otherwise, would not exist and such can be committed only by the corporation. But when a penal statute does not
expressly apply to corporations, it does not create an offense for which a corporation may be punished. On the other hand, if the
State, by statute, defines a crime that may be committed by a corporation but prescribes the penalty therefor to be suffered by the
officers, directors, or employees of such corporation or other persons responsible for the offense, only such individuals will
suffer such penalty.51 Corporate officers or employees, through whose act, default or omission the corporation commits a crime,
are themselves individually guilty of the crime.52
The principle applies whether or not the crime requires the consciousness of wrongdoing. It applies to those corporate agents
who themselves commit the crime and to those, who, by virtue of their managerial positions or other similar relation to the
corporation, could be deemed responsible for its commission, if by virtue of their relationship to the corporation, they had the
power to prevent the act.53 Moreover, all parties active in promoting a crime, whether agents or not, are principals.54 Whether
such officers or employees are benefited by their delictual acts is not a touchstone of their criminal liability. Benefit is not an
operative fact.
In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the cloak of the separate corporate
personality of PBMI. In the words of Chief Justice Earl Warren, a corporate officer cannot protect himself behind a corporation
where he is the actual, present and efficient actor.55
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioner.
SO ORDERED.
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 5.) G.R. No. 135462 December 7, 2001 August 2, 1983 244,269.00
SOUTH CITY HOMES, INC., FORTUNE MOTORS (PHILS.), PALAWAN LUMBER MANUFACTURING
CORPORATION, petitioners, August 5, 1983 275,079.00
vs. August 8, 1983 475,046.10
BA FINANCE CORPORATION, respondent.
PARDO, J.: "(Folder of Exhibits, pp. 1, 4, 7, 8, 11 and 14).
The Case "Fortune Motors Corporation thereafter executed trust receipts covering the motor vehicles delivered to it by CARCO
The case is a petition to set aside the decision1 of the Court of Appeals, the dispositive portion of which reads: under which it agreed to remit to the Entruster (CARCO) the proceeds of any sale and immediately surrender the
"WHEREFORE, premises considered, the appealed Decision (as amended by that Order of July 22, 1992) of the remaining unsold vehicles (Folder of Exhibits, pp. 2, 5, 7-A, 9, 12 and 15). The drafts and trust receipts were assigned
lower court in Civil Case No. 21944 is hereby AFFIRMED with the MODIFICATION that defendant-appellee South to plaintiff-appellant, under Deeds of Assignment executed by CARCO (Folder of Exhibits, pp. 3, 6, 7-B, 10, 13 and
City Homes, Inc. is hereby ordered to pay, jointly and severally, with Fortune Motors Corporation, Palawan Lumber 16).
Manufacturing Corporation and Joseph L. G. Chua, the outstanding amounts due under the six (6) drafts and trust "Upon failure of the defendant-appellant Fortune Motors Corporation to pay the amounts due under the drafts and to
receipts, with interest thereon at the legal rate from the date of filing of this case until said amounts shall have been remit the proceeds of motor vehicles sold or to return those remaining unsold in accordance with the terms of the trust
fully paid, as follows: receipt agreements, BA Finance Corporation sent demand letter to Edgar C. Rodrigueza, South City Homes, Inc.,
Aurelio Tablante, Palawan Lumber Manufacturing Corporation, Joseph L. G. Chua, George D. Tan and Joselito C.
Date of Draft Amount Balance Due Baltazar (Folder of Exhibits, pp. 29-37). Since the defendants-appellants failed to settle their outstanding account
July 26, 1983 P244,269.00 P198,659.52 with plaintiff-appellant, the latter filed on December 22, 1983 a complaint for a sum of money with prayer for
preliminary attachment, with the Regional Trial Court of Manila, Branch 1, which was docketed as Civil Case No.
July 27, 1983 967,765.50 324,767.41 83-21944 (Record, pp. 1-12). Plaintiff-appellant filed a surety bond in the amount of P3,391,546.56 and accordingly,
July 28, 1983 1,138,941.00 1,138,941.00 Judge Rosalio C. Segundo ordered the issuance of a writ of preliminary attachment on January 3, 1984 (Record, pp.
37-47). Defendants Fortune Motors Corporation, South City Homes, Inc., Edgar C. Rodrigueza, Aurelio F. Tablante,
August 2, 1983 244,269.00 244,269.00 Palawan Lumber Manufacturing Corporation, Joseph L. G. Chua, George D. Tan and Joselito C. Baltazar filed a
August 5, 1983 275,079.00 275,079.60 Motion to Discharge Attachment, which was opposed by plaintiff-appellant (Record, pp. 49-56). In an Order dated
January 11, 1984, Judge Segundo dissolved the writ of attachment except as against defendant Fortune Motors
August 8, 1983 475,046.10 475,046.10 Corporation and set the said incident for hearing (Record, p. 57). On January 19, 1984, the defendants filed a Motion
and the attorney's fees and costs of suit. to Dismiss. Therein, they alleged that conventional subrogation effected a novation without the consent of the debtor
"SO ORDERED."2 (Fortune Motors Corporation) and thereby extinguished the latter's liability; that pursuant to the trust receipt
The Facts transaction, it was premature under P. D. No. 115 to immediately file a complaint for a sum of money as the remedy
The facts, as found by the Court of Appeals, are as follows: of the entruster is an action for specific performance; that the suretyship agreements are null and void for having been
"The present controversy relates to the rights of an assignee (financing company) of drafts and trust receipts backed entered into without an existing principal obligation; and that being such sureties does not make them solidary
up by sureties, in the event of default by the debtor (car dealer) to whom the assignor creditor (car manufacturer) sold debtors (Record, pp. 58-64).
and delivered motor vehicles for resale. A consistent ruling on these cases is hereby reiterated: that a surety may "After due hearing, the court denied the motion to discharge attachment with respect to defendant Fortune Motors
secure obligations incurred subsequent to the execution of the surety contract. Corporation as well as the motion to dismiss by the defendants (Record, pp. 68 and 87). In their Answer, defendants
"Prior to the transactions covered by the subject drafts and trust receipts, defendant-appellant Fortune Motors stressed that their obligations to the creditor (CARCO) was extinguished by the assignment of the drafts and trust
Corporation (Phils.) has been availing of the credit facilities of plaintiff-appellant BA Finance Corporation. On receipts to plaintiff-appellant without their knowledge and consent, and pursuant to legal provision on conventional
January 17, 1983, Joseph L. G. Chua, President of Fortune Motors Corporation, executed in favor of plaintiff- subrogation a novation was effected, thereby extinguishing the liability of the sureties; that plaintiff-appellant failed
appellant a Continuing Suretyship Agreement, in which he "jointly and severally unconditionally" guaranteed the to immediately demand the return of the goods under the trust receipt agreements or exercise the courses of action by
"full, faithful and prompt payment and discharge of any and all indebtedness" of Fortune Motors Corporation to BA the entruster as provided for under P. D. No. 115; and that at the time the suretyship agreements were entered into,
Finance Corporation (Folder of Exhibits, pp. 21-22). there were no principal obligations, thus rendering them null and void. A counterclaim for the award of actual, moral
"On February 3, 1983, Palawan Lumber Manufacturing Corporation represented by Joseph L.G. Chua, George D. and exemplary damages was prayed for by defendants (Record, pp. 91-110).
Tan, Edgar C. Rodrigueza and Joselito C. Baltazar, executed in favor of plaintiff-appellant a Continuing Suretyship "During the pre-trial, efforts to reach a compromise was not successful, and in view of the retirement of Judge
Agreement in which, said corporation "jointly and severally unconditionally" guaranteed the "full, faithful and Rosalio C. Segundo of RTC Manila, Branch 1, the case was-re-raffled off to Branch XXXIII, presided over by Judge
prompt payment and discharge of any and all indebtedness of Fortune Motors Corporation to BA Finance Felix V. Barbers (Record, pp. 155-160).
Corporation (Folder of Exhibits, pp. 19-20). On the same date, South City Homes, Inc. represented by Edgar C. "Fortune Motors Corporation filed a motion to lift the writ of attachment covering three (3) vehicles described in the
Rodrigueza and Aurelio F. Tablante, likewise executed a Continuing Suretyship Agreement in which said corporation Third-Party Claim filed with the Office of Deputy Sheriff Jorge C. Victorino (RTC, Branch 1) by Fortune Equipment,
"jointly and severally unconditionally" guaranteed the "full, faithful and prompt payment and discharge of any and all Inc. which was opposed by plaintiff-appellant (Record, pp. 173-181). On June 15, 1984, Deputy Sheriff Jorge C.
indebtedness" of Fortune Motors Corporation to BA Finance Corporation (Folder of Exhibits, pp. 17-18). Victorino issued a "Notice of Levy Upon Personal Properties Pursuant to Order of Attachment" which was duly
"Subsequently, Canlubang Automotive Resources Corporation (CARCO) drew six (6) Drafts in its own favor, served on defendant Fortune Motors Corporation (Record, pp. 191-199). In an Order dated April 28, 1986, the court a
payable thirty (30) days after sight, charged to the account of Fortune Motors Corporation, as follows: quo denied the motion to lift the writ of attachment on three (3) vehicles described in the Third-Party Claim filed by
Date of Draft Amount Fortune Equipment Inc. (Record, p. 207). On motion of their respective counsel, the trial court granted the parties
time to sit down and appraise the machineries and spare parts owned by defendant Fortune Motors Corporation which
July 26, 1983 P244,269.00 are now in the possession of plaintiff corporation by virtue of the attachment. A series of conferences was allowed by
July 27, 1983 967,765.50 the court, as means toward possible compromise agreement. In an Order dated June 2, 1987, the case was returned to
Branch I, now presided over by Judge Rebecca G. Salvador (Record, p. 237). The pre-trial period was terminated and
July 28, 1983 1,138,941.00 the case was set for trial on the merits (Record, p. 259).

12 | P a g e
"Acting on the motion to sell levied properties filed by defendant George D. Tan, the trial court ordered the public
sale of the attached properties (Record, p. 406). The court likewise allowed the complaint-in-intervention filed by
Fortune Equipment Inc. and South Fortune Motors Corporation who claimed ownership of four (4) vehicles earlier
seized and attached (Record, p. 471-475). Plaintiff corporation admitted the allegations contained in the complaint-in-
intervention only with respect to one truck so attached but denied the rest of intervenors' allegations (Record, pp. 479-
482). Thereafter, the parties submitted their respective pre-trial briefs on the complaint-in-intervention, and after the
submission of evidence thereon, the case was submitted for decision (Record, pp. 573-577).
"On November 25, 1991, the lower court rendered its judgment, the dispositive portion of which reads as follows:
"WHEREFORE, judgment is hereby rendered:
"1. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua, jointly and
severally to pay the plaintiff on the July 27, 1983 Draft, the sum of P324,767.41 with the interest thereon at the legal
rate from the date of filing of this case, December 21, 1983 until the amount shall have been fully paid;
"2. Ordering defendants Fortune Motors, Palawan Manufacturing Corporation and Joseph Chua jointly and severally
to pay to the plaintiff on the July 26, 1983 Draft, the sum of P198,659.52 with interest thereon at the legal rate from
the date of filing of this case, until the amount shall have been fully paid;
"3. Ordering defendant Fortune Motors, Palawan Manufacturing Corporation and Joseph Chua jointly and severally
to pay to the plaintiff on the July 28, 1983 Draft the sum of P1,138,941.00 with interest thereon at the legal rate from
the date of filing of this case, until the amount shall have been fully paid;
"4. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and
severally to pay to the plaintiff on the August 2, 1983 Draft, the sum of P244,269.00 with interest thereon at the legal
rate from the date of filing of this case, until the amount shall have been fully paid;
"5. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and
severally to pay to the plaintiff on the August 5, 1983 Draft the sum of P275,079.60 with interest thereon at the legal
rate from the date of the filing of this case, until the amount shall have been fully paid;
"6. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and
severally to pay to the plaintiff on the August 8, 1983 Draft the sum of P475,046.10 with interest thereon at legal rate
from the date of the filing of this case, until the amount shall been fully paid;
"7. Ordering defendant Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and
severally to pay the sum of P300,000.00 as attorney's fees and the costs of this suit;
"8. Dismissing plaintiff's complaint against South City Homes, Aurelio Tablante, Joselito Baltazar, George Tan and
Edgar Rodrigueza and the latter's counterclaim for lack of basis;
"9. Ordering Deputy Sheriff Jorge Victorino to return to Intervenor Fortune Equipment the Mitsubishi Truck Canter
with Motor No. 310913 and Chassis No. 513234;
"10. Dismissing the complaint-in-intervention in so far as the three other vehicles mentioned in the complaint-in-
intervention are concerned for lack of cause of action;
"11. Dismissing the complaint-in-intervention against Fortune Motor for lack of basis; and
"12. Ordering the parties-in-intervention to bear their respective damages, attorneys fees and the costs of the suit.
"Upon execution, the sheriff may cause the judgment to be satisfied out of the properties attached with the exception
of one (1) unit Mitsubishi Truck Canter with Motor No. 310913 and Chassis No. 513234, if they be sufficient for that
purpose. The officer shall make a return in writing to the court of his proceedings. Whenever the judgment shall have
been paid, the officer, upon reasonable demand must return to the judgment debtor the attached properties remaining
in his hand, and any of the proceeds of the properties not applied to the judgment.
"SO ORDERED.
"On two (2) separate motions for reconsideration, one filed by plaintiffs-intervenors dated December 18, 1991 and
the other by plaintiff dated December 26, 1991, the trial court issued an Order dated July 22, 1992 amending its
Decision dated November 25, 1991. Specifically, said Order amended paragraphs 9 and 10 thereof and deleted the
last paragraph of the said Decision.
"Paragraphs 9 and 10 now read:
"9. Ordering Deputy Sheriff Jorge C. Victorino to return to Intervenor Fortune Equipment, Inc. the
Mitsubishi Truck Canter with Motor No. 310913 and Chassis No. 513234; Mitsubishi Truck Canter with
Motor No. 4D30-313012 and Chassis No. 513696, and Fuso Truck with Motor No. 006769 and Chassis
No. 20756, and to Intervenor South Fortune Motors Corporation the Cimaron Jeepney with Plate No.
NET-849;
"10. Ordering the plaintiff, in the event the motor vehicles could no longer be returned to pay the
estimated value thereof i.e., P750,000.00 for the three trucks, and P5,000.00 for the Cimaron Jeepney, to
the plaintiffs-intervenors.
"x x x" (Records, pp. 664-665)
"Plaintiffs BA Finance Corporation, defendants Fortune Motors Corp. (Phils.) and Palawan Lumber Manufacturing
Corporation, and intervenors Fortune Equipment and South Fortune Motors, interposed the present appeal and filed
their respective Briefs."3
On September 8, 1998, the Court of Appeals promulgated a decision, the dispositive portion of which is quoted in the opening
paragraph of this decision.
Hence, this appeal.4
The Issues
The issues presented are: (1) whether the suretyship agreement is valid; (2) whether there was a novation of the obligation so as
to extinguish the liability of the sureties; and (3) whether respondent BAFC has a valid cause of action for a sum of money
following the drafts and trust receipts transactions.5
The Court's Ruling
On the first issue, petitioners assert that the suretyship agreement they signed is void because there was no principal obligation at
the time of signing as the principal obligation was signed six (6) months later. The Civil Code, however, allows a suretyship
agreement to secure future loans even if the amount is not yet known.
Article 2053 of the Civil Code provides that:
"Art. 2053. A guaranty may also be given as security for future debts, the amount of which is not yet known. x x x"
In Fortune Motors (Phils.) Corporation v. Court of Appeals,6 we held:
"To fund their acquisition of new vehicles (which are later retailed or resold to the general public), car dealers
normally enter into wholesale automotive financing schemes whereby vehicles are delivered by the manufacturer or
assembler on the strength of trust receipts or drafts executed by the car dealers, which are backed up by sureties.
These trust receipts or drafts are then assigned and/or discounted by the manufacturer to/with financing companies,
which assume payment of the vehicles but with the corresponding right to collect such payment from the car dealers
and/or the sureties. In this manner, car dealers are able to secure delivery of their stock-in-trade without having to pay
cash therefor; manufacturers get paid without any receivables/collection problems; and financing companies earn
their margins with the assurance of payment not only from the dealers but also from the sureties. When the vehicles
are eventually resold, the car dealers are supposed to pay the financing companies — and the business goes merrily
on. However, in the event the car dealer defaults in paying the financing company, may the surety escape liability on
the legal ground that the obligations were incurred subsequent to the execution of the surety contract?
"x x x Of course, a surety is not bound under any particular principal obligation until that principal obligation is born.
But there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid and
binding even before the principal obligation intended to be secured thereby is born, any more than there would be in
saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the
condition precedent.
"Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and
commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with
a particular company, commonly requires the projected principal debtor to execute a continuing surety agreement
along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the
projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a
separate surety contract or bond for each financing or credit accommodation extended to the principal debtor."
Petitioners next posit (second issue) that a novation, as a result of the assignment of the drafts and trust receipts by the creditor
(CARCO) in favor of respondent BAFC without the consent of the principal debtor (Fortune Motors), extinguished their
liabilities.
An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal
cause, such as sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers his credit
and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the
assignor could enforce it against the debtor.7 As a consequence, the third party steps into the shoes of the original
creditor as subrogee of the latter. Petitioners' obligations were not extinguished. Thus:
"x x x Moreover, in assignment, the debtor's consent is not essential for the validity of the assignment (Art. 1624 in
relation to Art. 1475, Civil Code), his knowledge thereof affecting only the validity of the payment he might make
(Article 1626, Civil Code).
13 | P a g e
 "Article 1626 also shows that payment of an obligation which is already existing does not depend on the consent of
the debtor. It, in effect, mandates that such payment of the existing obligation shall already be made to the new
creditor from the time the debtor acquires knowledge of the assignment of the obligation.
"The law is clear that the debtor had the obligation to pay and should have paid from the date of notice whether or not
he consented.
"We have ruled in Sison & Sison vs. Yap Tico and Avanceña, 37 Phil. 587 [1918] that definitely, consent is not
necessary in order that assignment may fully produce legal effects. Hence, the duty to pay does not depend on the
consent of the debtor. Otherwise, all creditors would be prevented from assigning their credits because of the
possibility of the debtor's refusal to give consent.
"What the law requires in an assignment of credit is not the consent of the debtor but merely notice to him. A creditor
may, therefore, validly assign his credit and its accessories without the debtor's consent (National Investment and
Development Co. v. De Los Angeles, 40 SCRA 489 [1971]. The purpose of the notice is only to inform that debtor
from the date of the assignment, payment should be made to the assignee and not to the original creditor." 8
Petitioners finally posit (third issue) that as an entruster, respondent BAFC must first demand the return of the unsold vehicles
from Fortune Motors Corporation, pursuant to the terms of the trust receipts. Having failed to do so, petitioners had no cause of
action whatsoever against Fortune Motors Corporation and the action for collection of sum of money was, therefore, premature.
A trust receipt is 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.9 In the event of default by the entrustee on his obligations
under the trust receipt agreement, it is not absolutely necessary that the entruster cancel the trust and take possession of the
goods to be able to enforce his rights thereunder. We ruled:
"x x x Significantly, the law uses the word "may" in granting to the entruster the right to cancel the trust and take
possession of the goods. 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 any time upon
default or failure of the entrustee to comply with any of the terms and conditions of the trust agreement." 10
The Judgment
Davide, Jr., C .J ., Puno, Kapunan and Ynares-Santiago, JJ ., concur.

14 | P a g e
 6.) G.R. No. 137232 June 29, 2005 SO ORDERED." (OR, p. 323; Rollo, p. 73)."2
ROSARIO TEXTILE MILLS CORPORATION and EDILBERTO YUJUICO, petitioners, Dissatisfied, RTMC and Yujuico, herein petitioners, appealed to the Court of Appeals, contending that under the trust receipt
vs. contracts between the parties, they merely held the goods described therein in trust for respondent Home Bankers Savings
HOME BANKERS SAVINGS AND TRUST COMPANY, respondent. and Trust Company (the bank) which owns the same. Since the ownership of the goods remains with the bank, then it should
DECISION bear the loss. With the destruction of the goods by fire, petitioners should have been relieved of any obligation to pay.
SANDOVAL-GUTIERREZ, J.: The Court of Appeals, however, affirmed the trial court’s judgment, holding that the bank is merely the holder of the security for
For our resolution is the petition for review on certiorari assailing the Decision1 of the Court of Appeals dated March 31, 1998 its advance payments to petitioners; and that the goods they purchased, through the credit line extended by the bank, belong to
in CA-G.R. CV No. 48708 and its Resolution dated January 12, 1999. them and hold said goods at their own risk.
The facts of the case as found by the Court of Appeals are: Petitioners then filed a motion for reconsideration but this was denied by the Appellate Court in its Resolution dated January 12,
"Sometime in 1989, Rosario Textile Mills Corporation (RTMC) applied from Home Bankers Savings & Trust Co. for an 1999.
Omnibus Credit Line for ₱10 million. The bank approved RTMC’s credit line but for only ₱8 million. The bank notified RTMC Hence, this petition for review on certiorari ascribing to the Court of Appeals the following errors:
of the grant of the said loan thru a letter dated March 2, 1989 which contains terms and conditions conformed by RTMC thru "I
Edilberto V. Yujuico. On March 3, 1989, Yujuico signed a Surety Agreement in favor of the bank, in which he bound himself THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ACTS OF THE PETITIONERS-
jointly and severally with RTMC for the payment of all RTMC’s indebtedness to the bank from 1989 to 1990. RTMC availed of DEFENDANTS WERE TANTAMOUNT TO A VALID AND EFFECTIVE TENDER OF THE GOODS TO THE
the credit line by making numerous drawdowns, each drawdown being covered by a separate promissory note and trust receipt. RESPONDENT-PLAINTIFF.
RTMC, represented by Yujuico, executed in favor of the bank a total of eleven (11) promissory notes. II
Despite the lapse of the respective due dates under the promissory notes and notwithstanding the bank’s demand letters, RTMC THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF ‘RES PERIT DOMINO’ IN
failed to pay its loans. Hence, on January 22, 1993, the bank filed a complaint for sum of money against RTMC and Yujuico THE CASE AT BAR CONSIDERING THE VALID AND EFFECTIVE TENDER OF THE DEFECTIVE RAW MATERIALS
before the Regional Trial Court, Br. 16, Manila. BY THE PETITIONERS-DEFENDANTS TO THE RESPONDENT-PLAINTIFF AND THE EXPRESS STIPULATION IN
In their answer (OR, pp. 44-47), RTMC and Yujuico contend that they should be absolved from liability. They claimed that THEIR CONTRACT THAT OWNERSHIP OF THE GOODS REMAINS WITH THE RESPONDENT-PLAINTIFF.
although the grant of the credit line and the execution of the suretyship agreement are admitted, the bank gave assurance that the III
suretyship agreement was merely a formality under which Yujuico will not be personally liable. They argue that the importation THE HONORABLE COURT OF APPEALS VIOLATED ARTICLE 1370 OF THE CIVIL CODE AND THE LONG-
of raw materials under the credit line was with a grant of option to them to turn-over to the bank the imported raw materials STANDING JURISPRUDENCE THAT ‘INTENTION OF THE PARTIES IS PRIMORDIAL’ IN ITS FAILURE TO UPHOLD
should these fail to meet their manufacturing requirements. RTMC offered to make such turn-over since the imported materials THE INTENTION OF THE PARTIES THAT THE SURETY AGREEMENT WAS A MERE FORMALITY AND DID NOT
did not conform to the required specifications. However, the bank refused to accept the same, until the materials were destroyed INTEND TO HOLD PETITIONER YUJUICO LIABLE UNDER THE SAME SURETY AGREEMENT.
by a fire which gutted down RTMC’s premises. IV
For failure of the parties to amicably settle the case, trial on the merits proceeded. After the trial, the Court a quo rendered a ASSUMING ARGUENDO THAT THE SURETYSHIP AGREEMENT WAS VALID AND EFFECTIVE, THE HONORABLE
decision in favor of the bank, the decretal part of which reads: COURT OF APPEALS VIOLATED THE BASIC LEGAL PRECEPT THAT A SURETY IS NOT LIABLE UNLESS THE
‘WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff and against defendants who are DEBTOR IS HIMSELF LIABLE.
ordered to pay jointly and severally in favor of plaintiff, inclusive of stipulated 30% per annum interest and penalty of 3% per V
month until fully paid, under the following promissory notes: THE HONORABLE COURT OF APPEALS VIOLATED THE PURPOSE OF TRUST RECEIPT LAW IN HOLDING THE
PETITIONERS LIABLE TO THE RESPONDENT."
90-1116 6-20-90 ₱737,088.25 9-18-90 The above assigned errors boil down to the following issues: (1) whether the Court of Appeals erred in holding that petitioners
are not relieved of their obligation to pay their loan after they tried to tender the goods to the bank which refused to accept the
(maturity)
same, and which goods were subsequently lost in a fire; (2) whether the Court of Appeals erred when it ruled that petitioners are
solidarily liable for the payment of their obligations to the bank; and (3) whether the Court of Appeals violated the Trust
90-1320 7-13-90 ₱650,000.00 10-11-90
Receipts Law.
90-1334 7-17-90 ₱422,500.00 10-15-90 On the first issue, petitioners theorize that when petitioner RTMC imported the raw materials needed for its manufacture, using
the credit line, it was merely acting on behalf of the bank, the true owner of the goods by virtue of the trust receipts. Hence,
90-1335 7-17-90 ₱422,500.00 10-15-90 under the doctrine of res perit domino, the bank took the risk of the loss of said raw materials. RTMC’s role in the transaction
was that of end user of the raw materials and when it did not accept those materials as they did not meet the manufacturing
90-1347 7-18-90 ₱795,000.00 10-16-90 requirements, RTMC made a valid and effective tender of the goods to the bank. Since the bank refused to accept the raw
materials, RTMC stored them in its warehouse. When the warehouse and its contents were gutted by fire, petitioners’ obligation
90-1373 7-20-90 ₱715,900.00 10-18-90 to the bank was accordingly extinguished.
Petitioners’ stance, however, conveniently ignores the true nature of its transaction with the bank. We recall that RTMC filed
90-1397 7-27-90 ₱773,500.00 10-20-90 with the bank an application for a credit line in the amount of ₱10 million, but only ₱8 million was approved. RTMC then made
withdrawals from this credit line and issued several promissory notes in favor of the bank. In banking and commerce, a credit
90-1429 7-26-90 ₱425,750.00 10-24-90 line is "that amount of money or merchandise which a banker, merchant, or supplier agrees to supply to a person on credit and
generally agreed to in advance."3 It is the fixed limit of credit granted by a bank, retailer, or credit card issuer to a customer, to
90-1540 8-7-90 ₱720,984.00 11-5-90 the full extent of which the latter may avail himself of his dealings with the former but which he must not exceed and is usually
intended to cover a series of transactions in which case, when the customer’s line of credit is nearly exhausted, he is expected to
90-1569 8-9-90 ₱209,433.75 11-8-90 reduce his indebtedness by payments before making any further drawings.4
It is thus clear that the principal transaction between petitioner RTMC and the bank is a contract of loan. RTMC used the
90-0922 5-28-90 ₱747,780.00 8-26-90 proceeds of this loan to purchase raw materials from a supplier abroad. In order to secure the payment of the loan, RTMC
The counterclaims of defendants are hereby DISMISSED.

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delivered the raw materials to the bank as collateral. Trust receipts were executed by the parties to evidence this security
arrangement. Simply stated, the trust receipts were mere securities.
In Samo vs. People,5 we described a trust receipt 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." 6
In Vintola vs. Insular Bank of Asia and America,7 we elucidated further that "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."8 Section 3 (h) of the Trust Receipts Law (P.D. No. 115) defines a "security
interest" as follows:
"(h) Security Interest means a property interest in goods, documents, or instruments to secure performance of some obligation 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."
Petitioners’ insistence that the ownership of the raw materials remained with the bank is untenable. In Sia vs. People,9 Abad vs.
Court of Appeals,10 and PNB vs. Pineda,11 we held that:
"If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of legal fiction than
fact, for if it were really so, it could dispose of the goods in any manner it wants, which it cannot do, just to give consistency
with 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..." 12
Thus, petitioners cannot be relieved of their obligation to pay their loan in favor of the bank.
Anent the second issue, petitioner Yujuico contends that the suretyship agreement he signed does not bind him, the same being a
mere formality.
We reject petitioner Yujuico’s contentions for two reasons.
First, there is no record to support his allegation that the surety agreement is a "mere formality;" and
Second, as correctly held by the Court of Appeals, the Suretyship Agreement signed by petitioner Yujuico binds him. The terms
clearly show that he agreed to pay the bank jointly and severally with RTMC. The parole evidence rule under Section 9, Rule
130 of the Revised Rules of Court is in point, thus:
"SEC. 9. Evidence of written agreements. – When the terms of an agreement have been reduced in writing, it is considered as
containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such
terms other than the contents of the written agreement.
However, a party may present evidence to modify, explain, or add to the terms of the written agreement if he puts in issue in his
pleading:
(a) An intrinsic ambiguity, mistake, or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the
written agreement.
x x x."
Under this Rule, the terms of a contract are rendered conclusive upon the parties and evidence aliunde is not admissible to vary
or contradict a complete and enforceable agreement embodied in a document.13 We have carefully examined the Suretyship
Agreement signed by Yujuico and found no ambiguity therein. Documents must be taken as explaining all the terms of the
agreement between the parties when there appears to be no ambiguity in the language of said documents nor any failure to
express the true intent and agreement of the parties.14
As to the third and final issue – At the risk of being repetitious, we stress that the contract between the parties is a loan. What
respondent bank sought to collect as creditor was the loan it granted to petitioners. Petitioners’ recourse is to sue their supplier, if
indeed the materials were defective.
WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No.
48708 are AFFIRMED IN TOTO. Costs against petitioners.
SO ORDERED.

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