FIRST DIVISION

[G.R. No. 90828. September 5, 2000.]

MELVIN COLINARES and LORDINO VELOSO , petitioners, vs .

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

Romualdo Arnado Romualdo and Associates Law Office for petitioners.

Solicitor General for respondents.

SYNOPSIS

In 1979, petitioners Melvin Colinares and Lordino Veloso were contracted 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 various construction
materials from CM Builders Centre for the said project. The following day, petitioners
applied for a commercial letter of credit with the Philippine Banking Corporation (PBC),
Cagayan de Oro City Branch in favor of CM Builders Centre. PBC approved the letter of
credit to cover the full invoice value of the goods. Petitioners signed the pro-forma trust
receipt as security. The said loan was due on 29 January 1980. However, petitioners failed
to pay the whole amount on its due date. Several demand letters were sent to them.
Petitioners proposed that the terms of payment of the loan shall be modi ed. Pending
approval of the said proposal, petitioners paid some amounts. Concurrently with the
separate demand for attorney's fees by PBC's legal counsel, PBC continued to demand
payment of the balance. On 14 January 1983, petitioners were charged with violation of
P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of the Revised Penal Code.
During trial, petitioners insisted that the transaction was that of an ordinary loan.
Subsequently, the trial court convicted the petitioners for the offense charged. On appeal,
the Court of Appeals a rmed the conviction of petitioners and increased the penalty
imposed. Thus, petitioners raised the issue to this Court. Pending resolution, petitioners
led a Motion to Dismiss on the ground that they had already fully paid PBC. Attached
thereto was the affidavit of desistance executed by PBC. HCSDca

This Court ruled that a thorough examination of the facts obtaining in the case at bar
revealed that the transaction intended by the parties was a simple loan, not a trust receipt
agreement. Petitioners are not importers acquiring the good 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
impressed 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. 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 A davit
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 of Desistance.
Petitioners were ACQUITTED.

SYLLABUS

1. REMEDIAL LAW; CRIMINAL PROCEDURE; NEW TRIAL; GRANT THEREOF IS

DISCRETIONARY UPON THE JUDGE; GROUNDS. — 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.
2. ID.; ID.; ID.; NEWLY DISCOVERED EVIDENCE; REQUISITES. — 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. It
is essential that the offering party exercised reasonable diligence in seeking to locate the
evidence before or during trial but nonetheless failed to secure it.HIaSDc

3. ID.; ID.; ID.; A FORGOTTEN EVIDENCE IS NOT A NEWLY DISCOVERED

EVIDENCE; CASE AT BAR. — We nd 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."
Assuming Petitioners' copy was then unavailable, they could have compelled its
production in court, 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." Clearly, the
alleged newly discovered evidence is mere forgotten evidence that jurisprudence excludes
as a ground for new trial.
4. MERCANTILE LAW; PRESIDENTIAL DECREE NO. 115 (TRUST RECEIPTS LAW);
TRUST RECEIPT TRANSACTION; DEFINED. — Section 4, P.D. No. 115, the Trust Receipts
Law, de nes 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 speci ed
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 speci ed in the trust
receipt. DTcASE

5. ID.; ID.; ID.; TWO POSSIBLE SITUATIONS. — There are two possible situations
in a trust receipt transaction. The rst is covered by the provision which refers to money
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 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.HDaACI

6. ID.; ID.; ID.; FAILURE TO TURN OVER PROCEEDS OF SALE OR RETURN

UNDISPOSED GOODS CONSTITUTES ESTAFA. — 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, without need
of proving intent to defraud.
7. ID.; ID.; ID.; TRANSACTION IN CASE AT BAR, A SIMPLE LOAN NOT A TRUST
RECEIPT AGREEMENT. — 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 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. cSEAHa

8. ID.; ID.; ID.; TRUST RECEIPTS PARTAKE OF THE NATURE OF A CONDITIONAL

SALE. — 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. 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. 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. 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.
9. ID.; ID.; ID.; PURPOSE AND NATURE. — Trust receipt transactions are intended
to aid in nancing importers and retail dealers who do not have su cient funds or
resources to nance 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. 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.
10. ID.; ID.; ID.; PETITIONERS NOT BEING IMPORTERS ARE NOT COVERED BY
THE LAW. — 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. AHDTIE

11. ID.; ID.; ID.; FACT THAT THE GOODS WERE DELIVERED PREVIOUS TO THE
EXECUTION OF THE LETTER OF CREDIT AND TRUST RECEIPT SHOWS THAT THE
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 TRANSACTION WAS INDEED A LOAN. — 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
signi cance 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 nd 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 satis ed that the records of the case do
support the conclusions of the trial court.
12. ID.; ID.; DISHONESTY AND ABUSE OF CONFIDENCE IN THE HANDLING OF
MONEY OR GOODS TO THE PREJUDICE OF ANOTHER, NOT PRESENT IN CASE AT BAR. —
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. Here, it is crystal clear that on the
part of Petitioners there was neither dishonesty nor abuse of con dence 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.
13. ID.; ID.; PRACTICE OF BANKS REQUIRING BORROWERS TO SIGN TRUST
RECEIPTS UNDER THREAT OF CRIMINAL PROSECUTION SHOULD THEY BE UNABLE TO
PAY THEIR LOANS, REPREHENSIBLE AS THEY ARE CONTRACTS OF ADHESION. — 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 Resistance. DSETac

14. REMEDIAL LAW; EVIDENCE; TESTIMONY OF WITNESSES; LOAN

TRANSACTION ENTERED INTO BY PETITIONERS, NOT REFUTED. — Petitioners Veloso's
claim that they were made to believe that the transaction was a loan was also not denied
by PBC. . . 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.
15. CRIMINAL LAW; ESTAFA; INTENT TO DEFRAUD AND MISAPPROPRIATE THE
MONEY FOR PERSONAL USE, NOT ESTABLISHED IN CASE AT BAR. — 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 arti ce 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.

DECISION

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 DAVIDE, JR., C. J. : p

In 1979 Melvin Colinares and Lordino Veloso (hereafter Petitioners) were

contracted for a consideration of P40,000 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'x1/2", 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 credit 2 with
the Philippine Banking Corporation, Cagayan de Oro City branch (hereafter PBC) in favor of
CM Builders Centre. PBC approved the letter of credit 3 for P22,389.80 to cover the full
invoice value of the goods. Petitioners signed a pro-forma trust receipt 4 as security. The
loan was due on 29 January 1980.
On 31 October 1979, PBC debited P6,720 from Petitioners' marginal deposit as
partial payment of the loan. 5
On 7 May 1980, PBC wrote 6 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 P19,195.83 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 letter 8 to Petitioners on 16 October 1980 and informed
them that their outstanding balance as of 17 November 1979 was P20,824.40 exclusive of
attorney's fees of 25%. 9 ITSC ED

On 2 December 1980, Petitioners proposed 1 0 that the terms of payment of the loan
be modi ed as follows: P2,000 on or before 3 December 1980, and P1,000 per month
starting 31 January 1980 until the account is fully paid. Pending approval of the proposal,
Petitioners paid P1,000 to PBC on 4 December 1980, 1 1 and thereafter P500 on 11
February 1981, 1 2 16 March 1981, 1 3 and 20 April 1981. 1 4 Concurrently with the separate
demand for attorney's fees by PBC's legal counsel, PBC continued to demand payment of
the balance. 1 5
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 led 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
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 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, bene t 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. 1 6

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 ne 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. 1 7
On 7 July 1986, the trial court promulgated its decision 1 8 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 P20,824.44, with legal interest from 29 January
1980, 12% penalty charge per annum, 25% of the sums due as attorney's fees, and costs.
The trial court considered the transaction between PBC and Petitioners as a trust
receipt transaction under Section 4, P.D. No. 115. It considered Petitioners' use of the
goods in their Carmelite monastery project an act of "disposing" as contemplated under
Section 13, P.D. No. 115, and treated the charge invoice 1 9 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 decision 2 0 6 March 1989, the Court of Appeals modi ed 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. SIcTAC

On 25 March 1989, Petitioners led a Motion for New Trial/Reconsideration 2 1

alleging that the "Disclosure Statement on Loan/Credit Transaction" 2 2 (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.

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 In its resolution 2 3 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 led 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 O ce of the Solicitor General urged us to
deny the petition for lack of merit.
On 28 February 1990 Petitioners led a Motion to Dismiss the case on the ground
that they had already fully paid PBC on 2 February 1990 the amount of P70,000 for the
balance of the loan, including interest and other charges, as evidenced by the different
receipts issued by PBC, 2 4 and that the PBC executed an Affidavit of desistance. 2 5
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. TAEcCS

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
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 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. 2 6
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. 2 7 It is essential that the offering party exercised reasonable diligence in
seeking to locate the evidence before or during trial but nonetheless failed to secure it. 2 8
We nd 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." 2 9 Assuming Petitioners' copy was then
unavailable, they could have compelled its production in court, 3 0 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." 3 1 Clearly, the alleged newly discovered evidence is mere forgotten evidence
that jurisprudence excludes as a ground for new trial. 3 2
However, the second issue should be resolved in favor of Petitioners.
Section 4, P.D. No. 115, the Trust Receipts Law, de nes 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 speci ed 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 rst 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. 3 3
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, 3 4 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.
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 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. 3 5 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. 3 6 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. 3 7 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. 3 8 aSTA HD

Trust receipt transactions are intended to aid in nancing importers and retail
dealers who do not have su cient funds or resources to nance 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. 3 9
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. 4 0
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 signi cance 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 nd 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 satis ed that the records of the case do support the conclusions of the
trial court. 4 1 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 xxx xxx
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 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. 4 2

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 xxx 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 interest. 4 3

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 was covered by trust receipt. In short it was
a special kind of loan. 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 loan. 4 4
aETA HD

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 con dence in the handling of money or goods to the
prejudice of another regardless of whether the latter is the owner. 4 5 Here, it is crystal clear
that on the part of Petitioners there was neither dishonesty nor abuse of con dence 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
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 notwithstanding, intent as a state of mind was not proved to be present in Petitioners'
situation. Petitioners employed no arti ce 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. 4 6
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-G.R. No. 05408 are REVERSED and SET ASIDE.
Petitioners are hereby ACQUITTED of the crime charged, i.e., for violation of P.D. No. 115 in
relation to Article 315 of the Revised Penal Code.
No costs.
SO ORDERED.
Kapunan and Pardo, JJ., concur.
Puno, J., took no part.
Ynares-Santiago, J., is on leave.

Footnotes

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

2. Exhibit "A," Id., 112.

3. Exhibit "B," OR, 113.

4. Exhibit "C," Id., 114.

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

6. Exhibit "4,"Id., 160.

7. Exhibits "3, 1," Id., 153.

8. Exhibit "E," Id., 116.

9. Exhibit "5," Id., 161.

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 10. Exhibit "F," Id., 117.

11. Exhibit "7," Id., 167.

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

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

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

15. Exhibit "G," Id., 118.

16. OR, 33.

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

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

19. Exhibit "D," supra note 1.

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

21. Rollo, 27-39.

22. Id., 177-178.
23. Id., 45.
24. Rollo, 127.
25. Id., 128.
26. Section 2, Rule 121, Revised Rules of Criminal Procedure.
27. See People v. Excija, 258 SCRA 424, 443 [1996]; People v. Tirona, 300 SCRA 431, 440
[1998]; Villanueva v. People, G.R. No. 135098, 12 April 2000, 7.

28. Tumang v. Court of Appeals, et al., 172 SCRA 328, 334 [1989]. See Garrido v. CA, et al.,
236 SCRA 450, 456 [1994].
29. Rollo, 178.
30. People v. Ducay, et al., 225 SCRA 1 [1993].
31. Motion for New Trial/Reconsideration; Rollo, 28.
32. People v. Hernando, et al., 108 SCRA 121 [1981]; People v. Ducay, supra note 30; People
v. Penones, 200 SCRA 624 [1991].
33. People v. Cuevo, 104 SCRA 312, 318 [1981].
34. Section 13, P.D. No. 115.

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

36. Prudential Bank v. NLRC, 251 SCRA 421 [1995], quoting National Bank v. Vda. de Hijos
de Angel Jose, 63 Phil. 814, 821 [1936].
37. People v. Yu Chai Ho, 53 Phil. 874 [1928], quoting In re: Dunlap Carpet Co., 207 Fed.
726.

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 38. Prudential Bank v. NLRC, supra note 36.
39. Ceferina Samo v. People, 115 Phil. 346, 349-350 [1962], citing 53 Am Jur. 961. See also
Prudential Bank v. NLRC, supra note 36.
40. Sia v. People, 121 SCRA 655 [1983].
41. People v. Vergara, et al., 270 SCRA 624 [1997].
42. TSN, 18 December 1986, 10-11.
43. Id., 21-22.
44. TSN, 21 May 1986, 3-4.

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

46. Sia v. People, supra note 40.

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