SUPREME COURT

Baguio City

THIRD DIVISION

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 Decision1 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.
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?

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.
 SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 166884 June 13, 2012

LAND BANK OF THE PHILIPPINES, Petitioner,
vs.
LAMBERTO C. PEREZ, NESTOR C. KUN, MA.
ESTELITA P. ANGELES-PANLILIO, and NAPOLEON O.
GARCIA, Respondents.
DECISION
BRION, J.:
Before this Court is a petition for review on certiorari, 1 under Rule 45 of the Rules of
Court, assailing the decision2 dated January 20, 2005 of the Court of Appeals in CA-
G.R. SP No. 76588. In the assailed decision, the Court of Appeals dismissed the
criminal complaint for estafa against the respondents, Lamberto C. Perez, Nestor C.
Kun, Ma. Estelita P. Angeles-Panlilio and Napoleon Garcia, who allegedly violated
Article 315, paragraph 1(b) of the Revised Penal Code, in relation with Section 13 of
Presidential Decree No. (P.D.) 115 – the "Trust Receipts Law."
Petitioner Land Bank of the Philippines (LBP) is a government financial institution and
the official depository of the Philippines.3 Respondents are the officers and
representatives of Asian Construction and Development Corporation (ACDC), a
corporation incorporated under Philippine law and engaged in the construction
business.4
On June 7, 1999, LBP filed a complaint for estafa or violation of Article 315, paragraph
1(b) of the Revised Penal Code, in relation to P.D. 115, against the respondents before
the City Prosecutor’s Office in Makati City. In the affidavit-complaint5 of June 7, 1999,
the LBP’s Account Officer for the Account Management Development, Edna L. Juan,
stated that LBP extended a credit accommodation to ACDC through the execution of an
Omnibus Credit Line Agreement (Agreement)6 between LBP and ACDC on October 29,
1996. In various instances, ACDC used the Letters of Credit/Trust Receipts Facility of
the Agreement to buy construction materials. The respondents, as officers and
representatives of ACDC, executed trust receipts7 in connection with the construction
materials, with a total principal amount of ₱52,344,096.32. The trust receipts matured,
but ACDC failed to return to LBP the proceeds of the construction projects or the
construction materials subject of the trust receipts. LBP sent ACDC a demand
letter,8 dated May 4, 1999, for the payment of its debts, including those under the Trust
Receipts Facility in the amount of ₱66,425,924.39. When ACDC failed to comply with
the demand letter, LBP filed the affidavit-complaint.
The respondents filed a joint affidavit9 wherein they stated that they signed the trust
receipt documents on or about the same time LBP and ACDC executed the loan
documents; their signatures were required by LBP for the release of the loans. The trust
receipts in this case do not contain (1) a description of the goods placed in trust, (2)
their invoice values, and (3) their maturity dates, in violation of Section 5(a) of P.D. 115.
Moreover, they alleged that ACDC acted as a subcontractor for government projects
such as the Metro Rail Transit, the Clark Centennial Exposition and the Quezon Power
Plant in Mauban, Quezon. Its clients for the construction projects, which were the
general contractors of these projects, have not yet paid them; thus, ACDC had yet to
receive the proceeds of the materials that were the subject of the trust receipts and
were allegedly used for these constructions. As there were no proceeds received from
these clients, no misappropriation thereof could have taken place.
On September 30, 1999, Makati Assistant City Prosecutor Amador Y. Pineda issued a
Resolution10 dismissing the complaint. He pointed out that the evidence presented by
LBP failed to state the date when the goods described in the letters of credit were
actually released to the possession of the respondents. Section 4 of P.D. 115 requires
that the goods covered by trust receipts be released to the possession of the entrustee
after the latter’s execution and delivery to the entruster of a signed trust receipt. He
adds that LBP’s evidence also fails to show the date when the trust receipts were
executed since all the trust receipts are undated. Its dispositive portion reads:
WHEREFORE, premises considered, and for insufficiency of evidence, it is respectfully
recommended that the instant complaints be dismissed, as upon approval, the same
are hereby dismissed.11
LBP filed a motion for reconsideration which the Makati Assistant City Prosecutor
denied in his order of January 7, 2000.12
On appeal, the Secretary of Justice reversed the Resolution of the Assistant City
Prosecutor. In his resolution of August 1, 2002,13 the Secretary of Justice pointed out
that there was no question that the goods covered by the trust receipts were received
by ACDC. He likewise adopted LBP’s argument that while the subjects of the trust
receipts were not mentioned in the trust receipts, they were listed in the letters of credit
referred to in the trust receipts. He also noted that the trust receipts contained maturity
dates and clearly set out their stipulations. He further rejected the respondents’ defense
that ACDC failed to remit the payments to LBP due to the failure of the clients of ACDC
to pay them. The dispositive portion of the resolution reads:
WHEREFORE, the assailed resolution is REVERSED and SET ASIDE. The City
Prosecutor of Makati City is hereby directed to file an information for estafa under Art.
315 (1) (b) of the Revised Penal Code in relation to Section 13, Presidential Decree No.
115 against respondents Lamberto C. Perez, Nestor C. Kun, [Ma. Estelita P. Angeles-
Panlilio] and Napoleon O. Garcia and to report the action taken within ten (10) days
from receipt hereof.14
The respondents filed a motion for reconsideration of the resolution dated August 1,
2002, which the Secretary of Justice denied.15 He rejected the respondents’ submission
that Colinares v. Court of Appeals16 does not apply to the case. He explained that in
Colinares, the building materials were delivered to the accused before they applied to
the bank for a loan to pay for the merchandise; thus, the ownership of the merchandise
had already been transferred to the entrustees before the trust receipts agreements
were entered into. In the present case, the parties have already entered into the
Agreement before the construction materials were delivered to ACDC.
Subsequently, the respondents filed a petition for review before the Court of Appeals.
After both parties submitted their respective Memoranda, the Court of Appeals
promulgated the assailed decision of January 20, 2005. 17 Applying the doctrine in
Colinares, it ruled that this case did not involve a trust receipt transaction, but a mere
loan. It emphasized that construction materials, the subject of the trust receipt
transaction, were delivered to ACDC even before the trust receipts were executed. It
noted that LBP did not offer proof that the goods were received by ACDC, and that the
trust receipts did not contain a description of the goods, their invoice value, the amount
of the draft to be paid, and their maturity dates. It also adopted ACDC’s argument that
since no payment for the construction projects had been received by ACDC, its officers
could not have been guilty of misappropriating any payment. The dispositive portion
reads:
WHEREFORE, in view of the foregoing, the Petition is GIVEN DUE COURSE. The
assailed Resolutions of the respondent Secretary of Justice dated August 1, 2002 and
February 17, 2003, respectively in I.S. No. 99-F-9218-28 are hereby REVERSED and
SET ASIDE.18
LBP now files this petition for review on certiorari, dated March 15, 2005, raising the
following error:
THE COURT OF APPEALS GRAVELY ERRED WHEN IT REVERSED AND SET
ASIDE THE RESOLUTIONS OF THE HONORABLE SECRETARY OF JUSTICE BY
APPLYING THE RULING IN THE CASE OF COLINARES V. COURT OF APPEALS,
339 SCRA 609, WHICH IS NOT APPLICABLE IN THE CASE AT BAR.19
On April 8, 2010, while the case was pending before this Court, the respondents filed a
motion to dismiss.20 They informed the Court that LBP had already assigned to
Philippine Opportunities for Growth and Income, Inc. all of its rights, title and interests in
the loans subject of this case in a Deed of Absolute Sale dated June 23, 2005 (attached
as Annex "C" of the motion). The respondents also stated that Avent Holdings
Corporation, in behalf of ACDC, had already settled ACDC’s obligation to LBP on
October 8, 2009. Included as Annex "A" in this motion was a certification 21 issued by the
Philippine Opportunities for Growth and Income, Inc., stating that it was LBP’s
successor-in-interest insofar as the trust receipts in this case are concerned and that
Avent Holdings Corporation had already settled the claims of LBP or obligations of
ACDC arising from these trust receipts.
We deny this petition.
The disputed transactions are not trust receipts.
Section 4 of P.D. 115 defines a trust receipt transaction in this manner:
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[.]
There are two obligations in a trust receipt transaction. The first is covered by the
provision that refers to money under the obligation to deliver it (entregarla) to the owner
of the merchandise sold. The second is covered by the provision referring to
merchandise received under the obligation to return it (devolvera) to the owner. Thus,
under the Trust Receipts Law,22 intent to defraud is presumed when (1) the entrustee
fails to turn over the proceeds of the sale of goods covered by the trust receipt to the
entruster; or (2) when the entrustee fails to return the goods under trust, if they are not
disposed of in accordance with the terms of the trust receipts. 23
In all trust receipt transactions, both obligations on the part of the trustee exist in the
alternative – the return of the proceeds of the sale or the return or recovery of the
goods, whether raw or processed.24 When both parties enter into an agreement knowing
that the return of the goods subject of the trust receipt is not possible even without any
fault on the part of the trustee, it is not a trust receipt transaction penalized under
Section 13 of P.D. 115; the only obligation actually agreed upon by the parties would be
the return of the proceeds of the sale transaction. This transaction becomes a mere
loan,25 where the borrower is obligated to pay the bank the amount spent for the
purchase of the goods.
Article 1371 of the Civil Code provides that "[i]n order to judge the intention of the
contracting parties, their contemporaneous and subsequent acts shall be principally
considered." Under this provision, we can examine the contemporaneous actions of the
parties rather than rely purely on the trust receipts that they signed in order to
understand the transaction through their intent.
We note in this regard that at the onset of these transactions, LBP knew that ACDC was
in the construction business and that the materials that it sought to buy under the letters
of credit were to be used for the following projects: the Metro Rail Transit Project and
the Clark Centennial Exposition Project.26 LBP had in fact authorized the delivery of the
materials on the construction sites for these projects, as seen in the letters of credit it
attached to its complaint.27 Clearly, they were aware of the fact that there was no way
they could recover the buildings or constructions for which the materials subject of the
alleged trust receipts had been used. Notably, despite the allegations in the affidavit-
complaint wherein LBP sought the return of the construction materials, 28 its demand
letter dated May 4, 1999 sought the payment of the balance but failed to ask, as an
alternative, for the return of the construction materials or the buildings where these
materials had been used.29
The fact that LBP had knowingly authorized the delivery of construction materials to a
construction site of two government projects, as well as unspecified construction sites,
repudiates the idea that LBP intended to be the owner of those construction materials.
As a government financial institution, LBP should have been aware that the materials
were to be used for the construction of an immovable property, as well as a property of
the public domain. As an immovable property, the ownership of whatever was
constructed with those materials would presumably belong to the owner of the land,
under Article 445 of the Civil Code which provides:
Article 445. Whatever is built, planted or sown on the land of another and the
improvements or repairs made thereon, belong to the owner of the land, subject to the
provisions of the following articles.
Even if we consider the vague possibility that the materials, consisting of cement, bolts
and reinforcing steel bars, would be used for the construction of a movable property, the
ownership of these properties would still pertain to the government and not remain with
the bank as they would be classified as property of the public domain, which is defined
by the Civil Code as:
Article 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;
(2) Those which belong to the State, without being for public use, and are intended for
some public service or for the development of the national wealth.
In contrast with the present situation, it is fundamental in a trust receipt transaction that
the person who advanced payment for the merchandise becomes the absolute owner of
said merchandise and continues as owner until he or she is paid in full, or if the goods
had already been sold, the proceeds should be turned over to him or to her.30
Thus, in concluding that the transaction was a loan and not a trust receipt, we noted in
Colinares that the industry or line of work that the borrowers were engaged in was
construction. We pointed out that the borrowers were not importers acquiring goods for
resale.31 Indeed, goods sold in retail are often within the custody or control of the trustee
until they are purchased. In the case of materials used in the manufacture of finished
products, these finished products – if not the raw materials or their components –
similarly remain in the possession of the trustee until they are sold. But the goods and
the materials that are used for a construction project are often placed under the control
and custody of the clients employing the contractor, who can only be compelled to
return the materials if they fail to pay the contractor and often only after the requisite
legal proceedings. The contractor’s difficulty and uncertainty in claiming these materials
(or the buildings and structures which they become part of), as soon as the bank
demands them, disqualify them from being covered by trust receipt agreements.
Based on these premises, we cannot consider the agreements between the parties in
this case to be trust receipt transactions because (1) from the start, the parties were
aware that ACDC could not possibly be obligated to reconvey to LBP the materials or
the end product for which they were used; and (2) from the moment the materials were
used for the government projects, they became public, not LBP’s, property.
Since these transactions are not trust receipts, an action for estafa should not be
brought against the respondents, who are liable only for a loan. In passing, it is useful to
note that this is the threat held against borrowers that Retired Justice Claudio
Teehankee emphatically opposed in his dissent in People v. Cuevo, 32 restated in Ong v.
CA, et al.:33
The very definition of trust receipt x x x sustains the lower court’s rationale in dismissing
the information that the contract covered by a trust receipt is merely a secured loan. The
goods imported by the small importer and retail dealer through the bank’s financing
remain of their own property and risk and the old capitalist orientation of putting them in
jail for estafa for non-payment of the secured loan (granted after they had been fully
investigated by the bank as good credit risks) through the fiction of the trust receipt
device should no longer be permitted in this day and age.
As the law stands today, violations of Trust Receipts Law are criminally punishable, but
no criminal complaint for violation of Article 315, paragraph 1(b) of the Revised Penal
Code, in relation with P.D. 115, should prosper against a borrower who was not part of
a genuine trust receipt transaction.
Misappropriation or abuse of confidence is absent in this case.
Even if we assume that the transactions were trust receipts, the complaint against the
respondents still should have been dismissed. The Trust Receipts Law 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 or not. The law does not
singularly seek to enforce payment of the loan, as "there can be no violation of [the]
right against imprisonment for non-payment of a debt."34
In order that the respondents "may be validly prosecuted for estafa under Article 315,
paragraph 1(b) of the Revised Penal Code,35 in relation with Section 13 of the Trust
Receipts Law, the following elements must be established: (a) they received the subject
goods in trust or under the obligation to sell the same and to remit the proceeds thereof
to [the trustor], or to return the goods if not sold; (b) they misappropriated or converted
the goods and/or the proceeds of the sale; (c) they performed such acts with abuse of
confidence to the damage and prejudice of Metrobank; and (d) demand was made on
them by [the trustor] for the remittance of the proceeds or the return of the unsold
goods."36
In this case, no dishonesty or abuse of confidence existed in the handling of the
construction materials.
In this case, the misappropriation could be committed should the entrustee fail to turn
over the proceeds of the sale of the goods covered by the trust receipt transaction or fail
to return the goods themselves. The respondents could not have failed to return the
proceeds since their allegations that the clients of ACDC had not paid for the projects it
had undertaken with them at the time the case was filed had never been questioned or
denied by LBP. What can only be attributed to the respondents would be the failure to
return the goods subject of the trust receipts.
We do not likewise see any allegation in the complaint that ACDC had used the
construction materials in a manner that LBP had not authorized. As earlier pointed out,
LBP had authorized the delivery of these materials to these project sites for which they
were used. When it had done so, LBP should have been aware that it could not possibly
recover the processed materials as they would become part of government projects,
two of which (the Metro Rail Transit Project and the Quezon Power Plant Project) had
even become part of the operations of public utilities vital to public service. It clearly had
no intention of getting these materials back; if it had, as a primary government lending
institution, it would be guilty of extreme negligence and incompetence in not foreseeing
the legal complications and public inconvenience that would arise should it decide to
claim the materials. ACDC’s failure to return these materials or their end product at the
time these "trust receipts" expired could not be attributed to its volition. No bad faith,
malice, negligence or breach of contract has been attributed to ACDC, its officers or
representatives. Therefore, absent any abuse of confidence or misappropriation on the
part of the respondents, the criminal proceedings against them for estafa should not
prosper.
In Metropolitan Bank,37 we affirmed the city prosecutor’s dismissal of a complaint for
violation of the Trust Receipts Law. In dismissing the complaint, we took note of the
Court of Appeals’ finding that the bank was interested only in collecting its money and
not in the return of the goods. Apart from the bare allegation that demand was made for
the return of the goods (raw materials that were manufactured into textiles), the bank
had not accompanied its complaint with a demand letter. In addition, there was no
evidence offered that the respondents therein had misappropriated or misused the
goods in question.
The petition should be dismissed because the OSG did not file it and the civil liabilities
have already been settled.
The proceedings before us, regarding the criminal aspect of this case, should be
dismissed as it does not appear from the records that the complaint was filed with the
participation or consent of the Office of the Solicitor General (OSG). Section 35,
Chapter 12, Title III, Book IV of the Administrative Code of 1987 provides that:
Section 35. Powers and Functions. — The Office of the Solicitor General shall represent
the Government of the Philippines, its agencies and instrumentalities and its officials
and agents in any litigation, proceedings, investigation or matter requiring the services
of lawyers. x x x It shall have the following specific powers and functions:
(1) Represent the Government in the Supreme Court and the Court of Appeals in all
criminal proceedings; represent the Government and its officers in the Supreme Court,
the Court of Appeals and all other courts or tribunals in all civil actions and special
proceedings in which the Government or any officer thereof in his official capacity is a
party. (Emphasis provided.)
In Heirs of Federico C. Delgado v. Gonzalez,38 we ruled that the preliminary
investigation is part of a criminal proceeding. As all criminal proceedings before the
Supreme Court and the Court of Appeals may be brought and defended by only the
Solicitor General in behalf of the Republic of the Philippines, a criminal action brought to
us by a private party alone suffers from a fatal defect. The present petition was brought
in behalf of LBP by the Government Corporate Counsel to protect its private interests.
Since the representative of the "People of the Philippines" had not taken any part of the
case, it should be dismissed.1âwphi1
On the other hand, if we look at the mandate given to the Office of the Government
Corporate Counsel, we find that it is limited to the civil liabilities arising from the crime,
and is subject to the control and supervision of the public prosecutor. Section 2, Rule 8
of the Rules Governing the Exercise by the Office of the Government Corporate
Counsel of its Authority, Duties and Powers as Principal Law Office of All Government
Owned or Controlled Corporations, filed before the Office of the National Administration
Register on September 5, 2011, reads:
Section 2. Extent of legal assistance – The OGCC shall represent the complaining
GOCC in all stages of the criminal proceedings. The legal assistance extended is not
limited to the preparation of appropriate sworn statements but shall include all aspects
of an effective private prosecution including recovery of civil liability arising from the
crime, subject to the control and supervision of the public prosecutor.
Based on jurisprudence, there are two exceptions when a private party complainant or
offended party in a criminal case may file a petition with this Court, without the
intervention of the OSG: (1) when there is denial of due process of law to the
prosecution, and the State or its agents refuse to act on the case to the prejudice of the
State and the private offended party;39 and (2) when the private offended party
questions the civil aspect of a decision of the lower court.40
In this petition, LBP fails to allege any inaction or refusal to act on the part of the OSG,
tantamount to a denial of due process. No explanation appears as to why the OSG was
not a party to the case. Neither can LBP now question the civil aspect of this decision as
it had already assigned ACDC’s debts to a third person, Philippine Opportunities for
Growth and Income, Inc., and the civil liabilities appear to have already been settled by
Avent Holdings Corporation, in behalf of ACDC. These facts have not been disputed by
LBP. Therefore, we can reasonably conclude that LBP no longer has any claims against
ACDC, as regards the subject matter of this case, that would entitle it to file a civil or
criminal action.
WHEREFORE, we DENY the petition and AFFIRM the January 20, 2005 decision of the
Court of Appeals in CA-G.R. SP No. 76588. No costs.
SO ORDERED.
 G.R. No. 90828 September 5, 2000
MELVIN COLINARES and LORDINO
VELOSO, petitioners,
vs.
HONORABLE COURT OF APPEALS, and THE PEOPLE
OF THE PHILIPPINES, respondents.
DECISION
DAVIDE, JR., C.J.:
In 1979 Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for
a consideration of ₱40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate
the latter’s convent at Camaman-an, Cagayan de Oro City.
On 30 October 1979, Petitioners obtained 5,376 SF Solatone acoustical board 2’x4’x½",
300 SF tanguile wood tiles 12"x12", 260 SF Marcelo economy tiles and 2 gallons
UMYLIN cement adhesive from CM Builders Centre for the construction project. 1 The
following day, 31 October 1979, Petitioners applied for a commercial letter of 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 credit3 for ₱22,389.80 to cover
the full invoice value of the goods. Petitioners signed a pro-forma trust receipt4 as
security. The loan was due on 29 January 1980.
On 31 October 1979, PBC debited ₱6,720 from Petitioners’ marginal deposit as partial
payment of the loan.5
On 7 May 1980, PBC wrote6 to Petitioners demanding that the amount be paid within
seven days from notice. Instead of complying with PBC’s demand, Veloso confessed
that they lost ₱19,195.83 in the Carmelite Monastery Project and requested for a grace
period of until 15 June 1980 to settle the account.7
PBC sent a new demand letter8 to Petitioners on 16 October 1980 and informed them
that their outstanding balance as of 17 November 1979 was ₱20,824.40 exclusive of
attorney’s fees of 25%.9
On 2 December 1980, Petitioners proposed10 that the terms of payment of the loan be
modified as follows: ₱2,000 on or before 3 December 1980, and ₱1,000 per month
starting 31 January 1980 until the account is fully paid. Pending approval of the
proposal, Petitioners paid ₱1,000 to PBC on 4 December 1980, 11 and thereafter ₱500
on 11 February 1981,12 16 March 1981,13 and 20 April 1981.14 Concurrently with the
separate demand for attorney’s fees by PBC’s legal counsel, PBC continued to demand
payment of the balance.15
On 14 January 1983, Petitioners were charged with the violation of P.D. No. 115 (Trust
Receipts Law) in relation to Article 315 of the Revised Penal Code in an Information
which was filed with Branch 18, Regional Trial Court of Cagayan de Oro City. The
accusatory portion of the Information reads:
That on or about October 31, 1979, in the City of Cagayan de Oro, Philippines, and
within the jurisdiction of this Honorable Court, the above-named accused entered into a
trust receipt agreement with the Philippine Banking Corporation at Cagayan de Oro City
wherein the accused, as entrustee, received from the entruster the following goods to
wit:
Solatone Acoustical board
Tanguile Wood Tiles
Marcelo Cement Tiles
Umylin Cement Adhesive
with a total value of P22,389.80, with the obligation on the part of the accused-entrustee
to hold the aforesaid items in trust for the entruster and/or to sell on cash basis or
otherwise dispose of the said items and to turn over to the entruster the proceeds of the
sale of said goods or if there be no sale to return said items to the entruster on or before
January 29, 1980 but that the said accused after receipt of the goods, with intent to
defraud and cause damage to the entruster, conspiring, confederating together and
mutually helping one another, did then and there wilfully, unlawfully and feloniously fail
and refuse to remit the proceeds of the sale of the goods to the entruster despite
repeated demands but instead converted, misappropriated and misapplied the proceeds
to their own personal use, benefit and gain, to the damage and prejudice of the
Philippine Banking Corporation, in the aforesaid sum of P22,389.80, Philippine
Currency.
Contrary to PD 115 in relation to Article 315 of the Revised Penal Code. 16
The case was docketed as Criminal Case No. 1390.
During trial, petitioner Veloso insisted that the transaction was a "clean loan" as per
verbal guarantee of Cayo Garcia Tuiza, PBC’s former manager. He and petitioner
Colinares signed the documents without reading the fine print, only learning of the trust
receipt implication much later. When he brought this to the attention of PBC, Mr. Tuiza
assured him that the trust receipt was a mere formality.17
On 7 July 1986, the trial court promulgated its decision18 convicting Petitioners of estafa
for violating P.D. No. 115 in relation to Article 315 of the Revised Penal Code and
sentencing each of them to suffer imprisonment of two years and one day of prision
correccional as minimum to six years and one day of prision mayor as maximum, and to
solidarily indemnify PBC the amount of ₱20,824.44, with legal interest from 29 January
1980, 12 % penalty charge per annum, 25% of the sums due as attorney’s fees, and
costs.
The trial court considered the transaction between PBC and Petitioners as a trust
receipt transaction under Section 4, P.D. No. 115. It considered Petitioners’ use of the
goods in their Carmelite monastery project an act of "disposing" as contemplated under
Section 13, P.D. No. 115, and treated the charge invoice19 for goods issued by CM
Builders Centre as a "document" within the meaning of Section 3 thereof. It concluded
that the failure of Petitioners to turn over the amount they owed to PBC constituted
estafa.
Petitioners appealed from the judgment to the Court of Appeals which was docketed as
CA-G.R. CR No. 05408. Petitioners asserted therein that the trial court erred in ruling
that they violated the Trust Receipt Law, and in holding them criminally liable therefor.
In the alternative, they contend that at most they can only be made civilly liable for
payment of the loan.
In its decision20 6 March 1989, the Court of Appeals modified the judgment of the trial
court by increasing the penalty to six years and one day of prision mayor as minimum to
fourteen years eight months and one day of reclusion temporal as maximum. It held that
the documentary evidence of the prosecution prevails over Veloso’s testimony,
discredited Petitioners’ claim that the documents they signed were in blank, and
disbelieved that they were coerced into signing them.
On 25 March 1989, Petitioners filed a Motion for New Trial/Reconsideration21 alleging
that the "Disclosure Statement on Loan/Credit Transaction"22 (hereafter Disclosure
Statement) signed by them and Tuiza was suppressed by PBC during the trial. That
document would have proved that the transaction was indeed a loan as it bears a 14%
interest as opposed to the trust receipt which does not at all bear any interest.
Petitioners further maintained that when PBC allowed them to pay in installment, the
agreement was novated and a creditor-debtor relationship was created.
In its resolution23 of 16 October 1989 the Court of Appeals denied the Motion for New
Trial/Reconsideration because the alleged newly discovered evidence was actually
forgotten evidence already in existence during the trial, and would not alter the result of
the case.
Hence, Petitioners filed with us the petition in this case on 16 November 1989. They
raised the following issues:
1. WHETHER OR NOT THE DENIAL OF THE MOTION FOR NEW TRIAL ON THE
GROUND OF NEWLY DISCOVERED EVIDENCE, NAMELY, "DISCLOSURE ON
LOAN/CREDIT TRANSACTION," WHICH IF INTRODUCED AND ADMITTED, WOULD
CHANGE THE JUDGMENT, DOES NOT CONSTITUTE A DENIAL OF DUE
PROCESS.
2. ASSUMING THERE WAS A VALID TRUST RECEIPT, WHETHER OR NOT THE
ACCUSED WERE PROPERLY CHARGED, TRIED AND CONVICTED FOR
VIOLATION OF SEC. 13, PD NO. 115 IN RELATION TO ARTICLE 315 PARAGRAPH
(I) (B) NOTWITHSTANDING THE NOVATION OF THE SO-CALLED TRUST RECEIPT
CONVERTING THE TRUSTOR-TRUSTEE RELATIONSHIP TO CREDITOR-DEBTOR
SITUATION.
In its Comment of 22 January 1990, the Office of the Solicitor General urged us to deny
the petition for lack of merit.
On 28 February 1990 Petitioners filed a Motion to Dismiss the case on the ground that
they had already fully paid PBC on 2 February 1990 the amount of ₱70,000 for the
balance of the loan, including interest and other charges, as evidenced by the different
receipts issued by PBC,24 and that the PBC executed an Affidavit of desistance.25
We required the Solicitor General to comment on the Motion to Dismiss.
In its Comment of 30 July 1990, the Solicitor General opined that payment of the loan
was akin to a voluntary surrender or plea of guilty which merely serves to mitigate
Petitioners’ culpability, but does not in any way extinguish their criminal liability.
In the Resolution of 13 August 1990, we gave due course to the Petition and required
the parties to file their respective memoranda.
The parties subsequently filed their respective memoranda.
It was only on 18 May 1999 when this case was assigned to the ponente. Thereafter,
we required the parties to move in the premises and for Petitioners to manifest if they
are still interested in the further prosecution of this case and inform us of their present
whereabouts and whether their bail bonds are still valid.
Petitioners submitted their Compliance.
The core issues raised in the petition are the denial by the Court of Appeals of
Petitioners’ Motion for New Trial and the true nature of the contract between Petitioners
and the PBC. As to the latter, Petitioners assert that it was an ordinary loan, not a trust
receipt agreement under the Trust Receipts Law.
The grant or denial of a motion for new trial rests upon the discretion of the judge. New
trial may be granted if: (1) errors of law or irregularities have been committed during the
trial prejudicial to the substantial rights of the accused; or (2) new and material evidence
has been discovered which the accused could not with reasonable diligence have
discovered and produced at the trial, and which, if introduced and admitted, would
probably change the judgment.26
For newly discovered evidence to be a ground for new trial, such evidence must be (1)
discovered after trial; (2) could not have been discovered and produced at the trial even
with the exercise of reasonable diligence; and (3) material, not merely cumulative,
corroborative, or impeaching, and of such weight that, if admitted, would probably
change the judgment.27 It is essential that the offering party exercised reasonable
diligence in seeking to locate the evidence before or during trial but nonetheless failed
to secure it.28
We find no indication in the pleadings that the Disclosure Statement is a newly
discovered evidence.
Petitioners could not have been unaware that the two-page document exists. The
Disclosure Statement itself states, "NOTICE TO BORROWER: YOU ARE ENTITLED
TO A COPY OF THIS PAPER WHICH YOU SHALL SIGN."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.
 SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 158649 February 18, 2013

SPOUSES QUIRINO V. DELA CRUZ and GLORIA DELA

CRUZ, Petitioners,
vs.
PLANTERS PRODUCTS, INC., Respondents.

DECISION

BERSAMIN, J.:

If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control. 1 In determining
their intention, their contemporaneous and subsequent acts shall be principally
considered.2

Under review on certiorari are the Decision promulgated on April II, 2003 in C.A.-G.R.
No. CV No. 57446,3 whereby the Court of Appeals (CA) affirmed the judgment rendered
on October 29, 1997 by the Regional Trial Court, Branch 66, (R TC) in Makati City
(ordering the petitioners liable to pay the respondent the amount of ₱240,335.10 plus
16% interest per annum commencing from July 9, 1985 until full payment, and the sum
of ₱20,000.00 as attorney's fees and cost of litigation);4 and the resolution promulgated
on June 9, 2003, whereby the CA denied the motion for reconsideration of the
petitioners. 5

Antecedents
Spouses Quirino V. Dela Cruz and Gloria Dela Cruz, petitioners herein, operated the
Barangay Agricultural Supply, an agricultural supply store in Aliaga, Nueva Ecija
engaged in the distribution and sale of fertilizers and agricultural chemical products,
among others. At the time material to the case, Quirino, a lawyer, was the Municipal
Mayor of Aliaga, Nueva Ecija.6

On March 23, 1978, Gloria applied for and was granted by respondent Planters
Products, Inc. (PPI) a regular credit line of ₱200,000.00 for a 60- day term, with trust
receipts as collaterals.7 Quirino and Gloria submitted a list of their assets in support of
her credit application for participation in the Special Credit Scheme (SCS) of PPI.8 On
August 28, 1978, Gloria signed in the presence of the PPI distribution officer/assistant
sales representative two documents9 labelled "Trust Receipt/Special Credit Scheme,"
indicating the invoice number, quantity, value, and names of the agricultural inputs (i.e.,
fertilizer or agricultural chemicals) she received "upon the trust" of PPI. Gloria thereby
subscribed to specific undertakings, as follows:

For and in consideration thereof, I/We hereby agree to hold said goods in trust for PPI,
as its property, with liberty to deliver and sell the same for PPI’s account, in favor of
farmers accepted to participate in PPI’s Special Credit Scheme within 60 days from
receipt of inputs from PPI. In case of such delivery and sale, I/We agree to require the
execution of a Trust Agreement by the farmer-participants in my/our favor, which
Agreement will in turn be Assigned by me/us in favor of PPI with Recourse. In the event,
I/We cannot deliver/serve to the farmer-participants all the inputs as enumerated above
within 60 days, then I/We agree that the undelivered inputs will be charged to my/our
credit line, in which case, the corresponding adjustment of price and interests shall be
made by PPI.10

Gloria expressly agreed to: (a) "supervise the collection of the equivalent number of
cavanes of palay and/or corn from the farmer-participant" and to "turn over the proceeds
of the sale of the deposited palay and corn as soon as received, to PPI to be applied
against the listed invoices"; (b) "keep said fertilizer and pesticides insured at their full
value against fire and other casualties prior to delivery to farmer-participants, the sum
insured to be payable in case of loss to PPI, with the understanding that PPI is not to be
chargeable with the storage, insurance premium, or any other expenses incurred on
said goods"; (c) "keep the said fertilizer and pesticides, prior to delivery to the farmer-
participants, separate and capable of identification as the property of PPI inside my/our
warehouse"; and (d) "require the farmer-participants to deposit the palay or corn
sufficient to cover their respective accounts within 72 hours after the harvest of the
farmer-participants" and should the farmer-participants refuse to make the required
deposit, Gloria would notify PPI thereof within 24 hours. For that purpose, negligence on
her part would make her obligation under the Trust Receipt "direct and primary."11

Gloria further expressly agreed that her obligation as stipulated in the contract would
"continue in force and be applicable to all transactions, notwithstanding any change in
the individuals composing any firm, parties to or concerned x x x whether such change
shall arise from accession of one or more new partners or from the death or cession of
any partner or partners;" that her "liability for payment at maturity of the invoice(s) x x x
shall not be extinguished or modified" by the following, namely: (a) "any priority, act of
war, or restriction on the use, transportation, hypothecation, or disposal thereof imposed
by any administrative, political or legislative enactments, regulations or orders
whatsoever"; (b) "government appropriation of the same, or of any seizure or
destruction thereof or damage thereto, whether insured against or not"; and (c) "any
acts or regulation affecting this Trust Receipt or the inputs subject thereto."12

In addition, Gloria’s obligation included the following terms and conditions, to wit:

All obligations of the undersigned under this Trust Receipt shall bear interest at the rate
of twelve per cent (12%) per annum plus two percent (2%) service charges, reckoned
from the date Dealer delivers to farmer-participants the fertilizer and agchem products.
Where I/We have not delivered within 60 days, interest and service charges shall
become effective on the 61st day.

If there are two or more signatories, our obligations hereunder shall in all cases be joint
and several.

All expenses and charges incurred by PPI in re-possession of said fertilizer and agchem
products, and in securing delivery of the same to a bodega or storage place in Manila or
at some other place selected by it shall be for my/our account and shall be repaid to PPI
by me/us.

Should it become necessary for PPI to avail of the services of an attorney-at-law to

initiate legal steps to enforce any or all of its rights under this contract, we jointly and
severally, shall pay to PPI for and as attorney’s fees a sum equivalent to twenty per cent
(20%) per annum of the total amount involved, principal and interest, then unpaid, but in
no case less than FIVE HUNDRED PESOS (₱500.00), exclusive of all costs or fees
allowed by law.
In consideration of PPI complying with the foregoing we jointly and severally agree and
undertake to pay on demand to PPI all sums of money which PPI may call upon us to
pay arising out of or pertaining to and/or in any event connected with the default of
and/or non-fulfillment in any respect of the undertaking of the aforesaid.13

Gloria executed three more documents on September 14, 1978,14 and one document
each on September 28, 1978,15 September 18, 1978,16 and September 20, 1978.17
On the corresponding dates, Gloria filled up customer order forms for fertilizer and
agricultural chemical products.18 Written at the upper portion of each order form was
the following:

This invoice is subject to the terms and conditions stipulated in our contract. Under no
circumstance is this invoice to be used as a receipt for payment. Interest at 14% per
annum plus service and handling charges at the rate of 10% per annum shall be
charged on all overdue accounts, and in the event of judicial proceedings to enforce
collection, customer shall pay the Company an amount equivalent to 25% of the amount
due for and as attorney’s fees which in no case shall be less than ₱200 in addition to
cost of suit.

The products were released to Gloria under the supervision of Cristina G. Llanera of
PPI.

The 60-day credit term lapsed without Gloria paying her obligation under the Trust
Receipt/SCS. Hence, PPI wrote collection letters to her on April 24, 1979 and May 22,
1979. Receiving no response from her, Inocencio E. Ortega, PPI District Distribution
Manager, sent her on June 8, 1979 a demand letter on her "long overdue account" of
₱191,205,25.19

On February 24, 1979, PPI sent Gloria a credit note for ₱127,930.60 with these
particulars: "To transfer to dealer’s regular line inputs withdrawn VS. SCS line still
undelivered to farmers after 60 days."20 Another credit note, also dated February 24,
1979 and with the same particulars, indicated the amount of ₱46,622.80.21

The follow-up letter of October 11, 1979 culminated in the final demand letter of May 30,
1980 from Atty. R. M. Rivera, PPI Collection Officer,22 stating that the total
accountability of Gloria as of April 25, 1980 was ₱156,755.00 "plus interest, service
charges, and penalty charges," all of which she should pay by June 18, 1980. PPI
warned that should she fail to do so, PPI would file the "necessary civil and criminal
cases" against her "based on the Trust Receipts."

On November 17, 1981, PPI brought against Quirino and Gloria in the erstwhile Court of
First Instance in Pasig, Metro Manila a complaint for the recovery of a sum of money
with prayer for a writ of preliminary attachment.23 PPI alleged that Gloria had violated
the "fiduciary undertaking in the Trust Receipt agreement covering product withdrawals
under the Special Credit Scheme which were subsequently charged to defendant
dealer’s regular credit line; therefore, she is guilty of fraudulently misapplying or
converting to her own use the items delivered to her as contained in the invoices." It
charged that Gloria did not return the goods indicated in the invoices and did not remit
the proceeds of sales.

PPI prayed for judgment holding the petitioners liable for the principal amount of
₱161,203.60 as of October 25, 1981, "inclusive of interest and service charges";
additional "daily interest of ₱80.60 from October 26, 1981 until fully paid"; and 20% of
the total amount due as attorney’s fees. As of July 9, 1985, the statement of account
showed a grand total liability of ₱240,355.10.24

In her answer, the petitioners alleged that Gloria was only a marketing outlet of PPI
under its SCS Program, not a dealer primarily obligated to PPI for the products
delivered to her; that she had not collected from the farmers participating in the SCS
Program because of the October 27-28, 1979 typhoon Kading that had destroyed the
participating farmers’ crops; and that she had paid ₱50,000.00 to PPI despite the failure
of the farmers to pay.25

Decision of the RTC

On October 29, 1997, the trial court, then already the RTC, rendered its judgment
ordering the petitioners "to pay the plaintiff the amount of ₱240,335.10 plus 16% interest
per annum commencing from July 9, 1985 until fully paid and the sum of ₱20,000.00 as
attorney’s fees and cost of litigation."26

The RTC found that based on the terms and conditions of the SCS Program, a creditor-
debtor relationship was created between Gloria and PPI; that her liability was predicated
on Section 4 of the Trust Receipts Law (Presidential Decree No. 115) and on the ruling
in Robles v. Court of Appeals27 to the effect that the failure of the entrustee (Gloria) to
turn over to the entruster (plaintiff) the proceeds of the sale of goods covered by the
delivery trust receipts or to return the goods constituted estafa punishable under Article
315(1)(b) of the Revised Penal Code; and that the petitioners could not use as a
defense the occurrence of typhoon Kading because there was no privity of contract
between the participating farmers and PPI.

Ruling of the CA

The petitioners appealed to the CA28 upon the following assignment of errors, to wit:

THE LOWER COURT ERRED IN HOLDING THAT DEFENDANT GLORIA DELA CRUZ
WAS AN ACCREDITED DEALER UNDER THE SPECIAL CREDIT SCHEME AND
PURCHASED ON CREDIT FERTILIZERS AND CHEMICALS FROM PLAINTIFF.

THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANTS ARE PRIMARILY

LIABLE FOR THE FERTILIZERS AND CHEMICALS COVERED BY THE ORDER
FORMS, DELIVERY RECEIPTS AND TRUST RECEIPTS.

THE TRIAL COURT ERRED IN HOLDING THAT THE SPECIAL CREDIT

SCHEME/LINE GRANTED TO DEFENDANT GLORIA DELA CRUZ WAS
CONVERTED TO A REGULAR LINE.

THE TRIAL COURT ERRED IN FINDING FOR THE PLAINTIFF AND NOT FOR THE
DEFENDANTS-APPELLANTS.

On April 11, 2003, the CA affirmed the judgment of the RTC,29 viz:

WHEREFORE, premises considered, the instant appeal is hereby DENIED, and the
impugned Decision dated 29 October 1997 of Regional Trial Court of Makati City,
Branch 66 is hereby AFFIRMED in toto. Costs against Defendants-appellants.
SO ORDERED.

The CA held the petitioners liable to PPI "for the value of the fertilizers and agricultural
chemical products covered by the trust receipts" because a creditor-debtor relationship
existed between the parties when, pursuant to the credit line of ₱200,000.00 and the
SCS Program, the petitioners "withdrew several fertilizers and agricultural chemical
products on credit;" that the petitioners then came under obligation to pay the equivalent
value of the withdrawn goods, "or to return the undelivered and/or unused products
within the specified period." It elucidated thus:

The trust receipts covering the said fertilizers and agricultural chemical products under
the special credit scheme, and signed by defendant-appellant Gloria de la Cruz
specifically provides for their direct and primary liability over the same, to wit:

"x x x. In the event, I/We cannot deliver/serve to the farmer-participants all the inputs as
enumerated above within 60 days, then I/We agree that the undelivered inputs will be
charged to my/our regular credit line, in which case, the corresponding adjustment of
price and interest shall be made by PPI."

and in case of failure on the part of Defendants-appellants to liquidate within the

specified period the undelivered or unused fertilizers and agricultural chemical products,
its corresponding value will be charged to the regular credit line of Defendants-
appellants, which was eventually done by Plaintiff-appellee, when it converted and/or
credited Defendants-appellants’ accounts payable under the special credit scheme to
their regular credit line as per "credit notes."

Pursuant to said credit line account and trust receipts, plaintiff-appellee Planters
Products, Inc. and defendants-appellants Spouses de la Cruz are bound to fulfill what
has been expressly stipulated therein. It is well-settled in Barons Marketing Corporation
v. Court of Appeals,30to wit:

"It may not be amiss to state that petitioner’s contract with private respondent has the
force of law between them. Petitioner is thus bound to fulfill what has been expressly
stipulated therein. In the absence of any abuse of right, private respondent cannot be
allowed to perform its obligation under such contract in parts. Otherwise, private
respondent’s right under Article 1248 will be negated, the sanctity of its contract with
petitioner defiled. The principle of autonomy of contracts must be respected." (Emphasis
supplied)

Moreover, Defendants-appellants cannot pass their obligation to pay the equivalent

value of the undelivered and/or unused fertilizers and agricultural chemical products
under the trust receipts to the farmers-participants considering that the "contract" was
between plaintiff-appellee Planters Products Inc. and defendants-appellants Quirino and
Gloria Dela Cruz, and the farmers-participants were never privy to the said
transaction."31

In their motion for reconsideration,32 the petitioners mainly contended that the farmers
as participants in the SCS, not Gloria, were liable because the inputs had been
delivered to them; that such was the tenor of the demand letters they had sent to the
farmers; that PPI would not have made a second delivery if it had not been satisfied that
they (petitioners) had delivered the products to the farmers, who, however, had not paid
their "loan" because of typhoon Kading destroying their crops; that in the aftermath of
the typhoon, PPI representatives led by one Noel David had inspected the Municipality
of Aliaga, and had forged an agreement with the petitioners whereby they bound
themselves to help PPI "in collecting from the farmers in the succeeding palay crop their
indebtedness;" and that PPI had subsequently made them the "principal debtor"
notwithstanding that they had not incurred any account with PPI because all the
transactions had been "on a cash on delivery basis or cash withdrawal basis."

On June 9, 2003, the CA denied the petitioners’ motion for reconsideration.

Issues

Hence, the petitioners are now before the Court via their petition for review on certiorari.

The petitioners ascribe to the CA grave reversible error in affirming the decision of the
RTC notwithstanding that the award to PPI of the amount of ₱240,335.10 plus 16%
interest per annum was based on hearsay evidence, leaving absolutely no other
evidence to support the award. They assail the award of attorney’s fees for its lack of
factual and legal bases; and insist that the CA did not consider "certain facts and
circumstances on record which would otherwise justify a different decision."
Ruling

The appeal has no merit.

I.
Parties entered into a creditor-debtor relationship

The petitioners did not deny that Gloria applied with PPI for a credit line of ₱200,000.00;
and that Gloria signed up for the SCS Program of PPI. The principal issue they now
raise is whether the two transaction documents signed by Gloria expressed the intent of
the parties to establish a creditor-debtor relationship between them. The resolution of
the issue is necessary to resolve the corollary issue of whether the petitioners were
liable to PPI for the value of the fertilizers and agricultural chemical products delivered
to Gloria, and, if so, by how much.

It is apparent, however, that the petitioners are focusing on the evidentiary value of
Exhibit V, the statement of account showing that Gloria was liable in the total amount of
₱240,355.10 as of July 9, 1985, and are in the process avoiding the pivotal issue
concerning the nature of the contract between them and PPI. Nonetheless, the issue of
liability sprang from the terms of the contractual documents Gloria had signed. For them
to question the amount of their liabilities without explaining why they should not be held
liable veritably constituted their tacit admission of the existence of the loan but assailing
only how much they should repay to PPI.

The petitioners aver that "in a surprising turn of events, when it appeared that no further
collection could be had, [PPI] unilaterally and arbitrarily converted and charged its
receivables from the farmers-participants against petitioner’s regular credit line," and
PPI thereafter sent the demand letters to Gloria.33 Considering that the documents
signed by Gloria governed the relationship between her and PPI, the controversy can
be resolved only by an examination of the contractual documents.

As earlier mentioned, Gloria signed the application for credit facilities on March 23,
1978, indicating that a trust receipt would serve as collateral for the credit line. On
August 4, 1978, Gloria, as "dealer," signed together with Quirino the list of their assets
having a total value of ₱260,000.00 (consisting of a residential house and lot, 10-
hectare agricultural lands in Aliaga and Talavera, and two residential lots) that they
tendered to PPI "to support our credit application in connection with our participation to
your Special Credit Scheme."34 Gloria further signed the Trust Receipt/SCS documents
defining her obligations under the agreement, and also the invoices pursuant to the
agreement with PPI, indicating her having received PPI products on various dates.

These established circumstances comprised by the contemporaneous and subsequent

acts of Gloria and Quirino that manifested their intention to enter into the creditor-debtor
relationship with PPI show that the CA properly held the petitioners fully liable to PPI.
The law of contracts provides that in determining the intention of the parties, their
contemporaneous and subsequent acts shall be principally considered.35
Consequently, the written terms of their contract with PPI, being clear upon the intention
of the contracting parties, should be literally applied.36

The first circumstance was the credit line of ₱200,000.00 that commenced the business
relationship between the parties. A credit line is really a loan agreement between the
parties. According to Rosario Textile Mills Corporation v. Home Bankers Savings and
Trust Co.:37

x x x [A] credit line is "that amount of money or merchandise which a banker, a

merchant, or supplier agrees to supply to a person on credit and generally agreed to in
advance." It is a fixed limit of credit granted by a bank, retailer, or credit card issuer to a
customer, to 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 reduce his indebtedness by payments before making any further
drawings.38

The second circumstance was the offer by Gloria of trust receipts as her collateral for
securing the loans that PPI extended to her.39 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."40 It is a security agreement that "secures an indebtedness and
there can be no such thing as security interest that secures no obligation."41

The third circumstance was the offer of Gloria and Quirino to have their conjugal real
properties beef up the collaterals for the credit line. Gloria signed the list of the
properties involved as "dealer," thereby ineluctably manifesting that Gloria considered
herself a dealer of the products delivered by PPI under the credit line. In this
connection, a dealer is "a person who makes a business of buying and selling goods,
especially as distinguished from a manufacturer, without altering their condition." In
other words, a dealer is "one who buys to sell again."42

The fourth circumstance had to do with the undertakings under the trust receipts. The
position of the petitioners was that the farmers-participants alone were obligated to pay
for the goods delivered to them by Gloria. However, such position had no factual and
legal legs to prop it up. A close look at the Trust Receipt/SCS indicates that the farmer-
participants were mentioned therein only with respect to the duties and responsibilities
that Gloria personally assumed to undertake in holding goods "in trust for PPI." Under
the notion of relativity of contracts embodied in Article 1311 of the Civil Code, contracts
take effect only between the parties, their assigns and heirs. Hence, the farmer-
participants, not being themselves parties to the contractual documents signed by
Gloria, were not to be thereby liable.

At this juncture, the Court clarifies that the contract, its label notwithstanding, was not a
trust receipt transaction in legal contemplation or within the purview of the Trust
Receipts Law (Presidential Decree No. 115) such that its breach would render Gloria
criminally liable for estafa. Under Section 4 of the Trust Receipts Law, the sale of goods
by a person in the business of selling goods for profit who, at the outset of the
transaction, has, as against the buyer, general property rights in such goods, or who
sells the goods 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 the law, to wit:

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 the
entrustee, whereby the entruster, who owns or holds absolute title or security interests
over certain specified goods, documents or instruments, releases the same to the
possession of the entrustee upon the latter’s execution and delivery to the entruster of a
signed document called a "trust receipt" wherein the entrustee binds himself to hold the
designated goods, documents or instruments in trust for the entruster and to sell or
otherwise dispose of the goods, documents or 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 case of instruments x x x.

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. (Bold emphasis supplied.)

In Land Bank v. Perez,43 the Court has elucidated on the coverage of Section 4, supra,
to wit:

There are two obligations in a trust receipt transaction. The first is covered by the
provision that refers to money under the obligation to deliver it (entregarla) to the owner
of the merchandise sold. The second is covered by the provision referring to
merchandise received under the obligation to return it (devolverla) to the owner. Thus,
under the Trust Receipts Law, intent to defraud is presumed when (1) the entrustee fails
to turn over the proceeds of the sale of goods covered by the trust receipt to the
entruster; or (2) when the entrustee fails to return the goods under trust, if they are not
disposed of in accordance with the terms of the trust receipts.

In all trust receipt transactions, both obligations on the part of the trustee exist in the
alternative – the return of the proceeds of the sale or the return or recovery of the
goods, whether raw or processed. When both parties enter into an agreement knowing
that the return of the goods subject of the trust receipt is not possible even without any
fault on the part of the trustee, it is not a trust receipt transaction penalized under
Section 13 of P.D. 115; the only obligation actually agreed upon by the parties would be
the return of the proceeds of the sale transaction. This transaction becomes a mere
loan, where the borrower is obligated to pay the bank the amount spent for the
purchase of the goods. (Bold emphasis supplied)

It is not amiss to point out that the RTC even erred in citing Section 4 of the Trust
Receipts Law as its basis for ordering Gloria to pay the total amount of ₱240,355.10.
Section 13 of the Trust Receipts Law considers 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" as constituting the crime of
estafa under Article 315 (b) of the Revised Penal Code. However, had PPI intended to
charge Gloria with estafa, it could have then done so. Instead, it brought this collection
suit, a clear indication that the trust receipts were only collaterals for the credit line as
agreed upon by the parties.

To be clear, the obligation assumed by Gloria under the Trust Receipt/SCS involved
"the execution of a Trust Agreement by the farmer-participants" in her favor, which, in
turn, she would assign "in favor of PPI with recourse" in case of delivery and sale to the
farmer-participants. The term recourse as thus used means "resort to a person who is
secondarily liable after the default of the person who is primarily liable."44 An
indorsement "with recourse" of a note, for instance, makes the indorser a general
indorser, because the indorsement is without qualification. Accordingly, the term with
recourse confirms the obligation of a general indorser, who has the same liability as the
original obligor.45 As the assignor "with recourse" of the Trust Agreement executed by
the farmer participating in the SCS, therefore, Gloria made herself directly liable to PPI
for the value of the inputs delivered to the farmer-participants. Obviously, the signature
of the representative of PPI found in the demand letters Gloria sent to the farmer-
participants only indicated that the Trust Agreement was part of the SCS of PPI.

The petitioners could not validly justify the non-compliance by Gloria with her obligations
under the Trust Receipt/SCS by citing the loss of the farm outputs due to typhoon
Kading. There is no question that she had expressly agreed that her liability would not
be extinguished by the destruction or damage of the crops. The use of the term with
recourse was, in fact, consonant with the provision of the Trust Receipt/SCS stating that
if Gloria could not deliver or serve "all the inputs" to the farmer-participants within 60
days, she agreed that "the undelivered inputs will be charged" to her "regular credit
line." Under her arrangement with PPI, the trust receipts were mere securities for the
credit line granted by PPI,46 having in fact indicated in her application for the credit line
that the trust receipts were "collaterals" or separate obligations "attached to any other
contract to guaranty its performance."47
It is worthwhile to note that the application for credit facilities was a form contract that
Gloria filled out only with respect to her name, address, credit limit, term, and collateral.
Her act of signing the application signified her agreement to be bound by the terms of
the application, specifically her acquiescence to use trust receipts as collaterals, as well
as by the terms and conditions of the Trust Receipt/SCS.

In this regard, whether or not the Trust Receipt/SCS was a contract of adhesion
apparently prepared by PPI would neither dilute nor erase her liabilities. A contract of
adhesion prepared by one party, usually a corporation, is generally not a one-sided
document as long as the signatory is not prevented from studying it before signing.
Gloria did not show that she was deprived of that opportunity to study the contract. At
any rate, the social stature of the parties, the nature of the transaction, and the amount
involved were also factors to be considered in determining whether the aggrieved party
"exercised adequate care and diligence in studying the contract prior to its
execution."48 Thus, "[u]nless a contracting party cannot read or does not understand
the language in which the agreement is written, he is presumed to know the import of
his contract and is bound thereby."49 Here, Gloria was married to a lawyer who was
also then the Municipal Mayor of Aliaga. Both of them signed the list of conjugal assets
that they used to support the application for the credit line.

The last circumstance was that the petitioners now focus on the amount of liabilities
adjudged against them by the lower courts. They thereby bolster the finding that they
fully knew and accepted the legal import of the documents Gloria had signed of
rendering them personally liable towards PPI for the value of the inputs granted to the
farmer-participants through them. The finding is further confirmed by her admission of
paying to PPI the amount of ₱50,000.00, which payment, albeit allegedly made
grudgingly, solidified the existence of a creditor-debtor relationship between them.
Indeed, Gloria would not have paid that amount except in acknowledgement of an
indebtedness towards PPI.

II.
Statement of account was not hearsay

The petitioners insist that they could not be held liable for the balance stated in Exhibit V
due to such document being hearsay as a "mere statement of account."50 They argue
that Cristina Llanera, the witness of PPI on the matter, was only a warehouse assistant
who was not shown to be either an accountant, or bookkeeper, or auditor or a person
knowledgeable in accounting. They posit that Llanera’s testimony on Exhibit V was
limited to stating that she had prepared the statement of account contained therein; that
she did not affirm the correctness or veracity of the contents of the document;51 and
that, consequently, Exhibit V had no evidentiary value as proof of their total liability for
₱240,355.10, the amount stated therein.

We do not agree with the petitioners.

With Exhibit V being a private document, authentication pursuant to the rules on

evidence was a condition for its admissibility.52 Llanera, admittedly the person who had
prepared the document, was competent to testify on the due execution and authenticity
of Exhibit V. Such authentication was done in accordance with Rule 132 of the Rules of
Court, whose Section 20 states:

Section 20. Proof of private document. – Before any private document offered as
authentic is received in evidence, its due execution and authenticity must be proved
either:

(a)By anyone who saw the document executed or written; or

(b)By evidence of the genuineness of the signature or handwriting of the maker.

Any other private document need only be identified as that which it is claimed to be.

Further, the petitioners dispute the contents of Exhibit V by invoking Section 43, Rule
130 of the Rules of Court, to wit:

Section 43. Entries in the course of business. – Entries made at, or near the time of the
transactions to which they refer, by a person deceased, or unable to testify, who was in
a position to know the facts therein stated, may be received as prima facie evidence, if
such person made the entries in his professional capacity or in the performance of duty
and in the ordinary or regular course of business.
The invocation of the rule is misplaced, however, because the rule speaks of a situation
where the person who made the entries is dead or unable to testify, which was not the
situation here. Regardless, we have to point out that entries made in the course of
business enjoy the presumption of regularity.53 If properly authenticated, the entries
serve as evidence of the status of the account of the petitioners. In Land Bank v.
Monet’s Export and Manufacturing Corporation,54 the Court has explained that such
entries are accorded unusual reliability because their regularity and continuity are
calculated to discipline record keepers in the habit of precision; and that if the entries
are financial, the records are routinely balanced and audited; hence, in actual
experience, the whole of the business world function in reliance of such kind of records.

Nor have the petitioners proved that the entries contained in Exhibit V were incorrect
and untruthful. They cannot be permitted to do so now at this stage of final appeal,
especially after the lower courts found and accepted the statement of account contained
therein to be properly authenticated and trustworthy. Indeed, the Court is in no position
to review and overturn the lower courts’ unanimous finding and acceptance without
strong and valid reasons because they involved an issue of fact.55

III.
Interest of 16% per annum, being usurious, must be reversed

The statement of account discloses that the interest rate was 14% per annum for the
"SCS Account – from the invoice date to 7/09/85"; and that the interest rate was 16%
per annum for the "Reg. Account – from 8/16/80 to 7/09/85." The petitioners assail the
interest charged on the principal obligation as usurious.

The matter of interest, being a question of law, must have to dealt with and resolved.

In 1978, when Gloria and PPI entered into the credit line agreement, the Usury Law (Act
No. 2655) was still in effect. Section 2 of the Usury Law prescribed an interest rate of
12% per annum on secured loans, while Section 1 provided that "[t]he rate of interest for
the loan or forbearance of any money, goods, or credits and the rate allowed in
judgments, in the absence of express contract as to such rate of interest, shall be six
per centum per annum or such rate as may be prescribed by the Monetary Board of the
Central Bank."
It is noted, of course, that the Usury Law allowed the parties in a loan agreement to
exercise discretion on the interest rate to be charged. Once a judicial demand for
payment has been made, however, Article 2212 of the Civil Code should apply, that is:
"Interest due shall earn legal interest from the time it is judicially demanded, although
the obligation may be silent upon this point."

The Central Bank circulars on interest rates granted to the parties leeway on the rate of
interest agreed upon. In this regard, the Court has said:

The Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3
December 1982 of the Monetary Board of the Central Bank, and later by Central Bank
Circular No. 905 which took effect on 1 January 1983. These circulars removed the
ceiling on interest rates for secured and unsecured loans regardless of maturity. The
effect of these circulars is to allow the parties to agree on any interest that may be
charged on a loan. The virtual repeal of the Usury Law is within the range of judicial
notice which courts are bound to take into account. Although interest rates are no longer
subject to a ceiling, the lender does not have an unbridled license to impose increased
interest rates. The lender and the borrower should agree on the imposed rate, and such
imposed rate should be in writing.56

Accordingly, the interest rate agreed upon should not be "excessive, iniquitous,
unconscionable and exorbitant;" otherwise, the Court may declare the rate illegal.57

Considering that the credit line agreement was entered into in 1978, the rate of interest
was still governed by the Usury Law. The 16% per annum interest imposed by the RTC
was erroneous, therefore, because the loan was secured by the Trust Receipt/SCS. In
view of this, 12% per annum is the legal rate of interest that should apply, to be
reckoned from the filing of the action. This rate accords with Eastern Shipping Lines,
Inc. v. Court of Appeals,58 whereby the Court has defined the following formula for the
computation of legal interest for the guidance of the Bench and the Bar, viz:

TOTAL AMOUNT DUE = [principal – partial payments made] + [interest + interest on

interest], where

Interest = remaining balance x 12% per annum x no. of years from due date until date of
sale to a third party (payment).
Interest on interest = interest computed as of the filing of the complaint x no. of years
until date of sale to a third party (payment).59

Relevantly, the likelihood of the aggregate interest charged exceeding the principal
indebtedness is not remote. In Apo Fruits Corporation v. Land Bank of the
Philippines,60 a case involving just compensation for landholdings with legal interest,
however, the Court has appropriately observed that the realization of such likelihood
was not necessarily inequitable or unconscionable due to its resulting directly from the
application of law and jurisprudence, to wit:

That the legal interest due is now almost equivalent to the principal to be paid is not per
se an inequitable or unconscionable situation, considering the length of time the interest
has remained unpaid – almost twelve long years. From the perspective of interest
income, twelve years would have been sufficient for the petitioners to double the
principal, even if invested conservatively, had they been promptly paid the principal of
the just compensation due them. Moreover, the interest, however enormous it may be,
cannot be inequitable and unconscionable because it resulted directly from the
application of law and jurisprudence – standards that have taken into account fairness
and equity in setting the interest rates due for the use or forbearance of money.

That is true herein. Although this case was commenced in 1981, the decision of the trial
court was rendered only in 1997, or more than 15 years ago. By appealing to the CA
and then to this Court, the petitioners chose to prolong the final resolution of the case;
hence, they cannot complain, but must bear the consequences to them of the
application of the pertinent law and jurisprudence, no matter how unfavorable to them.

IV.
Attorney’s fees to be deleted

In granting attorney’s fees, the RTC merely relied on and adverted to PPI’s allegation
that the failure of the petitioners to comply with their obligations under the contracts had
"compelled [them] to hire the services of a counsel for which it had agreed to an
attorney’s fee equivalent to 25% of the total amount recovered exclusive of appearance
fee of ₱1,500.00" as its sole basis for holding the petitioners liable to pay ₱20,000.00
"as attorneys’ fee and cost of litigation." In affirming the RTC thereon, the CA did not
even mention or deal with the matter of attorney’s fees in its own decision.
The award of attorney’s fees is deleted because of the absence of any factual and legal
justification being expressly stated by the CA as well as by the RTC. To start with, the
Court has nothing to review if the CA did not tender in its decision any justification of
why it was awarding attorney’s fees. The award of attorney’s fees must rest on a factual
basis and legal justification stated in the body of the decision under review. Absent the
statement of factual basis and legal justification, attorney’s fees are to be disallowed.61
In Abobon v. Abobon,62 the Court has expounded on the requirement for factual basis
and legal justification in order to warrant the grant of attorney’s fees to the winning
party, viz:

As to attorney’s fees, the general rule is that such fees cannot be recovered by a
successful litigant as part of the damages to be assessed against the losing party
because of the policy that no premium should be placed on the right to litigate. Indeed,
prior to the effectivity of the present Civil Code, such fees could be recovered only when
there was a stipulation to that effect. It was only under the present Civil Code that the
right to collect attorney’s fees in the cases mentioned in Article 2208 of the Civil Code
came to be recognized. Such fees are now included in the concept of actual
damages.1âwphi1

Even so, whenever attorney’s fees are proper in a case, the decision rendered therein
should still expressly state the factual basis and legal justification for granting them.
Granting them in the dispositive portion of the judgment is not enough; a discussion of
the factual basis and legal justification for them must be laid out in the body of the
decision. Considering that the award of attorney’s fees in favor of the respondents fell
short of this requirement, the Court disallows the award for want of the factual and legal
premises in the body of the decision. The requirement for express findings of fact and
law has been set in order to bring the case within the exception and justify the award of
the attorney’s fees. Otherwise, the award is a conclusion without a premise, its basis
being improperly left to speculation and conjecture.

The lack of any assignment of error upon the matter of attorney’s fees is of no moment,
for the award, being devoid of any legal and factual basis, can be corrected and
removed as a matter of law.

Finally, the petitioners charge that the CA "failed to consider certain facts and
circumstances on record which would otherwise justify a different decision." The "facts
and circumstances" pertained to details relevant to the nature of the agreement of the
petitioners, and to the amount of their liabilities. However, an examination reveals that
the "facts and circumstances" do not warrant a conclusion that they were not debtors of
PPI under the credit line agreement.

WHEREFORE, the Court AFFIRMS the Decision promulgated on April 11, 2003 by the
Court of Appeals, subject to the MODIFICATIONS that: (a) the rate of interest is 12%
per annum reckoned from the filing of the complaint until full payment; and (b) the award
of attorney’s fees is deleted.

The petitioners shall pay the costs of suit.

SO ORDERED.
 G.R. No. 137232 June 29, 2005
ROSARIO TEXTILE MILLS CORPORATION and
EDILBERTO YUJUICO, petitioners,
vs.
HOME BANKERS SAVINGS AND TRUST
COMPANY, respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the petition for review on certiorari assailing the Decision1 of the
Court of Appeals dated March 31, 1998 in CA-G.R. CV No. 48708 and its Resolution
dated January 12, 1999.
The facts of the case as found by the Court of Appeals are:
"Sometime in 1989, Rosario Textile Mills Corporation (RTMC) applied from Home
Bankers Savings & Trust Co. for an Omnibus Credit Line for ₱10 million. The bank
approved RTMC’s credit line but for only ₱8 million. The bank notified RTMC of the
grant of the said loan thru a letter dated March 2, 1989 which contains terms and
conditions conformed by RTMC thru Edilberto V. Yujuico. On March 3, 1989, Yujuico
signed a Surety Agreement in favor of the bank, in which he bound himself jointly and
severally with RTMC for the payment of all RTMC’s indebtedness to the bank from 1989
to 1990. RTMC availed of the credit line by making numerous drawdowns, each
drawdown being covered by a separate promissory note and trust receipt. RTMC,
represented by Yujuico, executed in favor of the bank a total of eleven (11) promissory
notes.
Despite the lapse of the respective due dates under the promissory notes and
notwithstanding the bank’s demand letters, RTMC failed to pay its loans. Hence, on
January 22, 1993, the bank filed a complaint for sum of money against RTMC and
Yujuico before the Regional Trial Court, Br. 16, Manila.
In their answer (OR, pp. 44-47), RTMC and Yujuico contend that they should be
absolved from liability. They claimed that although the grant of the credit line and the
execution of the suretyship agreement are admitted, the bank gave assurance that the
suretyship agreement was merely a formality under which Yujuico will not be personally
liable. They argue that the importation 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 should these
fail to meet their manufacturing requirements. RTMC offered to make such turn-over
since the imported materials did not conform to the required specifications. However,
the bank refused to accept the same, until the materials were destroyed by a fire which
gutted down RTMC’s premises.
For failure of the parties to amicably settle the case, trial on the merits proceeded. After
the trial, the Court a quo rendered a decision in favor of the bank, the decretal part of
which reads:
‘WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of
plaintiff and against defendants who are ordered to pay jointly and severally in favor of
plaintiff, inclusive of stipulated 30% per annum interest and penalty of 3% per month
until fully paid, under the following promissory notes:

90-1116 6-20-90 ₱737,088.25 9-18-90

(maturity)

90-1320 7-13-90 ₱650,000.00 10-11-90

90-1334 7-17-90 ₱422,500.00 10-15-90

90-1335 7-17-90 ₱422,500.00 10-15-90

90-1347 7-18-90 ₱795,000.00 10-16-90

90-1373 7-20-90 ₱715,900.00 10-18-90

90-1397 7-27-90 ₱773,500.00 10-20-90

90-1429 7-26-90 ₱425,750.00 10-24-90

90-1540 8-7-90 ₱720,984.00 11-5-90

90-1569 8-9-90 ₱209,433.75 11-8-90

90-0922 5-28-90 ₱747,780.00 8-26-90

The counterclaims of defendants are hereby DISMISSED.

SO ORDERED." (OR, p. 323; Rollo, p. 73)."2
Dissatisfied, RTMC and Yujuico, herein petitioners, appealed to the Court of Appeals,
contending that under the trust receipt contracts between the parties, they merely held
the goods described therein in trust for respondent Home Bankers Savings and
Trust Company (the bank) which owns the same. Since the ownership of the goods
remains with the bank, then it should bear the loss. With the destruction of the goods by
fire, petitioners should have been relieved of any obligation to pay.
The Court of Appeals, however, affirmed the trial court’s judgment, holding that the bank
is merely the holder of the security for its advance payments to petitioners; and that the
goods they purchased, through the credit line extended by the bank, belong to them and
hold said goods at their own risk.
Petitioners then filed a motion for reconsideration but this was denied by the Appellate
Court in its Resolution dated January 12, 1999.
Hence, this petition for review on certiorari ascribing to the Court of Appeals the
following errors:
"I
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
ACTS OF THE PETITIONERS-DEFENDANTS WERE TANTAMOUNT TO A VALID
AND EFFECTIVE TENDER OF THE GOODS TO THE RESPONDENT-PLAINTIFF.
II
THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE
DOCTRINE OF ‘RES PERIT DOMINO’ IN THE CASE AT BAR CONSIDERING THE
VALID AND EFFECTIVE TENDER OF THE DEFECTIVE RAW MATERIALS BY THE
PETITIONERS-DEFENDANTS TO THE RESPONDENT-PLAINTIFF AND THE
EXPRESS STIPULATION IN THEIR CONTRACT THAT OWNERSHIP OF THE
GOODS REMAINS WITH THE RESPONDENT-PLAINTIFF.
III
THE HONORABLE COURT OF APPEALS VIOLATED ARTICLE 1370 OF THE CIVIL
CODE AND THE LONG-STANDING JURISPRUDENCE THAT ‘INTENTION OF THE
PARTIES IS PRIMORDIAL’ IN ITS FAILURE TO UPHOLD THE INTENTION OF THE
PARTIES THAT THE SURETY AGREEMENT WAS A MERE FORMALITY AND DID
NOT INTEND TO HOLD PETITIONER YUJUICO LIABLE UNDER THE SAME
SURETY AGREEMENT.
IV
ASSUMING ARGUENDO THAT THE SURETYSHIP AGREEMENT WAS VALID AND
EFFECTIVE, THE HONORABLE COURT OF APPEALS VIOLATED THE BASIC
LEGAL PRECEPT THAT A SURETY IS NOT LIABLE UNLESS THE DEBTOR IS
HIMSELF LIABLE.
V
THE HONORABLE COURT OF APPEALS VIOLATED THE PURPOSE OF TRUST
RECEIPT LAW IN HOLDING THE PETITIONERS LIABLE TO THE RESPONDENT."
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 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
Receipts Law.
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,
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
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 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 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 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 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 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 proceeds of this loan to purchase raw materials from a
supplier abroad. In order to secure the payment of the loan, RTMC 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.
 G. R. No. 164317 February 6, 2006
ALFREDO CHING, Petitioner,
vs.
THE SECRETARY OF JUSTICE, ASST. CITY
PROSECUTOR ECILYN BURGOS-VILLAVERT, JUDGE
EDGARDO SUDIAM of the Regional Trial Court,
Manila, Branch 52; RIZAL COMMERCIAL BANKING
CORP. and THE PEOPLE OF THE
PHILIPPINES, Respondents.
DECISION
CALLEJO, SR., J.:
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 dismissing the petition for certiorari, prohibition
and mandamus filed by petitioner Alfredo Ching, and its Resolution2 dated June 28,
2004 denying the motion for reconsideration thereof.
Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI).
Sometime in September to October 1980, PBMI, through petitioner, applied with the
Rizal Commercial Banking Corporation (respondent bank) for the issuance of
commercial letters of credit to finance its importation of assorted goods.3
Respondent bank approved the application, and irrevocable letters of credit were issued
in favor of petitioner. The goods were purchased and delivered in trust to PBMI.
Petitioner signed 13 trust receipts4 as surety, acknowledging delivery of the following
goods:

T/R Date Granted Maturity Date Principal Description of Goods

Nos.

1845 12-05-80 03-05-81 P1,596,470.05 79.9425 M/T "SDK" Brand

Synthetic Graphite
Electrode

1853 12-08-80 03-06-81 P198,150.67 3,000 pcs. (15 bundles)

Calorized Lance Pipes
 1824 11-28-80 02-26-81 P707,879.71 One Lot High Fired
Refractory Tundish Bricks

1798 11-21-80 02-19-81 P835,526.25 5 cases spare parts for

CCM

1808 11-21-80 02-19-81 P370,332.52 200 pcs. ingot moulds

2042 01-30-81 04-30-81 P469,669.29 High Fired Refractory

Nozzle Bricks

1801 11-21-80 02-19-81 P2,001,715.17 Synthetic Graphite

Electrode [with] tapered
pitch filed nipples

1857 12-09-80 03-09-81 P197,843.61 3,000 pcs. (15 bundles

calorized lance pipes [)]

1895 12-17-80 03-17-81 P67,652.04 Spare parts for

Spectrophotometer

1911 12-22-80 03-20-81 P91,497.85 50 pcs. Ingot moulds

2041 01-30-81 04-30-81 P91,456.97 50 pcs. Ingot moulds

2099 02-10-81 05-11-81 P66,162.26 8 pcs. Kubota Rolls for

rolling mills

2100 02-10-81 05-12-81 P210,748.00 Spare parts for

Lacolaboratory
Equipment5

Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with
authority to sell but not by way of conditional sale, pledge or otherwise; and in case
such goods were sold, to turn over the proceeds thereof as soon as received, to apply
against the relative acceptances and payment of other indebtedness to respondent
bank. In case the goods remained unsold within the specified period, the goods were to
be returned to respondent bank without any need of demand. Thus, said "goods,
manufactured products or proceeds thereof, whether in the form of money or bills,
receivables, or accounts separate and capable of identification" were respondent bank’s
property.
When the trust receipts matured, petitioner failed to return the goods to respondent
bank, or to return their value amounting to ₱6,940,280.66 despite demands. Thus, the
bank filed a criminal complaint for estafa6 against petitioner in the Office of the City
Prosecutor of Manila.
After the requisite preliminary investigation, the City Prosecutor found probable cause
estafa under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to
Presidential Decree (P.D.) No. 115, otherwise known as the Trust Receipts Law.
Thirteen (13) Informations were filed against the petitioner before the Regional Trial
Court (RTC) of Manila. The cases were docketed as Criminal Cases No. 86-42169 to
86-42181, raffled to Branch 31 of said court.
Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice.
The appeal was dismissed in a Resolution7 dated March 17, 1987, and petitioner moved
for its reconsideration. On December 23, 1987, the Minister of Justice granted the
motion, thus reversing the previous resolution finding probable cause against
petitioner.8 The City Prosecutor was 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 its part, granted the Motion to Quash the
Informations filed by petitioner on the ground that the material allegations therein did 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 P.D. No. 115 encompasses any act
violative of an obligation covered by the trust receipt; it is not limited to transactions
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 entrustee
to pay."12
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.
Preliminary investigation ensued. On December 8, 1995, the City Prosecutor ruled that
there was no probable cause to charge 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 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 trust receipts;
2. That the respondent is a mere surety of the trust receipts; and
3. That the liability of the respondent is only civil in nature.14
On July 13, 1999, the Secretary of Justice issued Resolution No. 25015 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
trust receipts and as such, was the one responsible for the offense. Thus, the execution
of said receipts is enough to indict the 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 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 (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 trust receipts."
The Justice Secretary further stated that the respondent bound himself under the terms
of the trust receipts not only as a corporate 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 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 the Justice Secretary, following Rizal Commercial
Banking Corporation, the civil liability imposed is clearly separate and 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 violation of P.D. No. 115 before the RTC of Manila.
The cases were docketed as Criminal Cases No. 99-178596 to 99-178608 and
consolidated for trial before Branch 52 of said court. Petitioner filed a motion for
reconsideration, which the Secretary of Justice denied in a Resolution 18 dated January
17, 2000.
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
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 desired conclusion that respondent Secretary of
Justice gravely abused its discretion in coming out with his assailed Resolutions.
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 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:
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.
 G.R. No. 159622 July 30, 2004
LANDL & COMPANY (PHIL.) INC., PERCIVAL G.
LLABAN and MANUEL P. LUCENTE, petitioners,
vs.
METROPOLITAN BANK & TRUST
COMPANY, respondent.

DECISION

YNARES-SANTIAGO, J.:
At issue in this petition for review on certiorari is whether or not, in a trust receipt
transaction, an entruster which had taken actual and juridical possession of the goods
covered by the trust receipt may subsequently avail of the right to demand from the
entrustee the deficiency of the amount covered by the trust receipt.
As correctly appreciated by the Court of Appeals, the undisputed facts of this case are
as follows:
Respondent Metropolitan Bank and Trust Company (Metrobank) filed a complaint for
sum of money against Landl and Company (Phil.) Inc. (Landl) and its directors, Percival
G. Llaban and Manuel P. Lucente before the Regional Trial Court of Cebu City, Branch
19, docketed as Civil Case No. CEB-4895.
Respondent alleged that petitioner corporation is engaged in the business of selling
imported welding rods and alloys. On June 17, 1983, it opened Commercial Letter of
Credit No. 4998 with respondent bank, in the amount of US$19,606.77, which was
equivalent to P218,733.92 in Philippine currency at the time the transaction was
consummated. The letter of credit was opened to purchase various welding rods and
electrodes from Perma Alloys, Inc., New York, U.S.A., as evidenced by a Pro-Forma
Invoice dated March 10, 1983. Petitioner corporation put up a marginal deposit of
P50,414.00 from the proceeds of a separate clean loan.
As an additional security, and as a condition for the approval of petitioner corporation's
application for the opening of the commercial letter of credit, respondent bank required
petitioners Percival G. Llaban and Manuel P. Lucente to execute a Continuing
Suretyship Agreement to the extent of P400,000.00, excluding interest, in favor of
respondent bank. Petitioner Lucente also executed a Deed of Assignment in the amount
of P35,000.00 in favor of respondent bank to cover the amount of petitioner
corporation's obligation to the bank. Upon compliance with these requisites, respondent
bank opened an irrevocable letter of credit for the petitioner corporation.
To secure the indebtedness of petitioner corporation, respondent bank required the
execution of a Trust Receipt in an amount equivalent to the letter of credit, on the
condition that petitioner corporation would hold the goods in trust for respondent bank,
with the right to sell the goods and the obligation to turn over to respondent bank the
proceeds of the sale, if any. If the goods remained unsold, petitioner corporation had the
further obligation to return them to respondent bank on or before November 23, 1983.
Upon arrival of the goods in the Philippines, petitioner corporation took possession and
custody thereof.
On November 23, 1983, the maturity date of the trust receipt, petitioner corporation
defaulted in the payment of its obligation to respondent bank and failed to turn over the
goods to the latter. On July 24, 1984, respondent bank demanded that petitioners, as
entrustees, turn over the goods subject of the trust receipt. On September 24, 1984,
petitioners turned over the subject goods to the respondent bank.
On July 31, 1985, in the presence of representatives of the petitioners and respondent
bank, the goods were sold at public auction. The goods were sold for P30,000.00 to
respondent bank as the highest bidder.
The proceeds of the auction sale were insufficient to completely satisfy petitioners'
outstanding obligation to respondent bank, notwithstanding the application of the time
deposit account of petitioner Lucente. Accordingly, respondent bank demanded that
petitioners pay the remaining balance of their obligation. After petitioners failed to do so,
respondent bank instituted the instant case to collect the said deficiency.
On March 31, 1997, after trial on the merits, the trial court rendered a decision, the
dispositive portion of which reads:
WHEREFORE, foregoing premises considered, Judgment is hereby rendered in favor of
the plaintiff and against the defendant by (1) ordering the defendant to pay jointly and
severally to the plaintiff the sum of P292,172.23 representing the defendant's obligation,
as of April 17, 1986; (2) to pay the interest at the rate of 19% per annum to be reckoned
from April 18, 1986 until [the] obligation is fully paid; (3) to pay service charge at the rate
of 2% per annum starting April 18, 1986; (4) to pay the sum equivalent to 10% per
annum of the total amount due collectible by way of Attorney's Fees; (5) to pay Litigation
Expenses of P3,000.00 and to pay the cost of the suit; and (6) to pay penalty charge of
12% per annum.
SO ORDERED.1
Petitioners appealed to the Court of Appeals, raising the issues of: (1) whether or not
respondent bank has the right to recover any deficiency after it has retained possession
of and subsequently effected a public auction sale of the goods covered by the trust
receipt; (2) whether or not respondent bank is entitled to the amount of P3,000.00 as
and for litigation expenses and costs of the suit; and (3) whether or not respondent bank
is entitled to the award of attorney's fees.
On February 13, 2003, the Court of Appeals rendered a decision affirming in toto the
decision of the trial court.2
Hence, this petition for review on the following assignment of errors:
I.
THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN AFFIRMING THE
TRIAL COURT'S RULING THAT RESPONDENT HAD THE RIGHT TO CLAIM THE
DEFICIENCY FROM PETITIONERS NOTWITHSTANDING THE FACT THAT THE
GOODS COVERED BY THE TRUST RECEIPT WERE FULLY TURNED OVER TO
RESPONDENT.
II.
THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN AFFIRMING THE
TRIAL COURT'S PATENTLY ERRONEOUS AWARD OF PRINCIPAL OBLIGATION,
INTEREST, ATTORNEY'S FEES, AND PENALTY AGAINST THE PETITIONERS.3
The instant petition is partly meritorious.
The resolution of the first assigned error hinges on the proper interpretation of Section 7
of Presidential Decree No. 115, or the Trust Receipts Law, which reads:
Sec. 7. Rights of the entruster. - 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 this Decree.
The entruster may cancel the trust and take possession of the goods, documents or
instruments subject of the trust or of the proceeds realized therefrom at any time upon
default or failure of the entrustee to comply with any of the terms and conditions of the
trust receipt or any other agreement between the entruster and the entrustee, and the
entruster in possession of the goods, documents or instruments may, on or after default,
give notice to the entrustee of the intention to sell, and may, not less than five days after
serving or sending of such notice, sell the goods, documents or instruments at public or
private sale, and the entruster may, at a public sale, become a purchaser. The proceeds
of any such sale, whether public or private, shall be applied (a) to the payment of the
expenses thereof; (b) to the payment of the expenses of re-taking, keeping and storing
the goods, documents or instruments; (c) to the satisfaction of the entrustee's
indebtedness to the entruster. The entrustee shall receive any surplus but shall be liable
to the entruster for any deficiency. Notice of sale shall be deemed sufficiently given if in
writing, and either personally served on the entrustee or sent by post-paid ordinary mail
to the entrustee's last known business address.
There is no question that petitioners failed to pay their outstanding obligation to
respondent bank. They contend, however, that when the entrustee fails to settle his
principal loan, the entruster may choose between two separate and alternative
remedies: (1) the return of the goods covered by the trust receipt, in which case, the
entruster now acquires the ownership of the goods which the entrustee failed to sell; or
(2) cancel the trust and take possession of the goods, for the purpose of selling the
same at a private sale or at public auction. Petitioners assert that, under this second
remedy, the entruster does not acquire ownership of the goods, in which case he is
entitled to the deficiency. Petitioners argue that these two remedies are so distinct that
the availment of one necessarily bars the availment of the other. Thus, when
respondent bank availed of the remedy of demanding the return of the goods, the actual
return of all the unsold goods completely extinguished petitioners' liability.4
Petitioners' argument is bereft of merit.
A trust receipt is inextricably linked with the primary agreement between the parties.
Time and again, we have emphasized that a trust receipt agreement is merely a
collateral agreement, the purpose of which is to serve as security for a loan. Thus,
in Abad v. Court of Appeals,5 we ruled:
A letter of credit-trust receipt arrangement is endowed with its own distinctive features
and characteristics. Under that set-up, a bank extends a loan covered by the letter of
credit, with the trust receipt as security for the loan. In other words, the transaction
involves a loan feature represented by the letter of credit, and a security feature which is
in the covering trust receipt. x x x.
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.6
The Trust Receipts Law was enacted to safeguard commercial transactions and to offer
an additional layer of security to the lending bank. Trust receipts are indispensable
contracts in international and domestic business transactions. The prevalent use of trust
receipts, the danger of their misuse and/or misappropriation of the goods or proceeds
realized from the sale of goods, documents or instruments held in trust for entruster
banks, and the need for regulation of trust receipt transactions to safeguard the rights
and enforce the obligations of the parties involved are the main thrusts of the Trust
Receipts Law.7
The second paragraph of Section 7 provides a statutory remedy available to an
entruster in the event of default or failure of the entrustee to comply with any of the
terms and conditions of the trust receipt or any other agreement between the entruster
and the entrustee. More specifically, the entruster "may cancel the trust and take
possession of the goods, documents or instruments subject of the trust or of the
proceeds realized therefrom at any time". The law further provides that "the entruster in
possession of the goods, documents or instruments may, on or after default, give notice
to the entrustee of the intention to sell, and may, not less than five days after serving or
sending of such notice, sell the goods, documents or instruments at public or private
sale, and the entruster may, at a public sale, become a purchaser. The proceeds of any
such sale, whether public or private, shall be applied (a) to the payment of the expenses
thereof; (b) to the payment of the expenses of re-taking, keeping and storing the goods,
documents or instruments; (c) to the satisfaction of the entrustee's indebtedness to the
entruster. The entrustee shall receive any surplus but shall be liable to the entruster for
any deficiency."
The trust receipt between respondent bank and petitioner corporation contains the
following relevant clauses:
The BANK/ENTRUSTER may, at any time, and only at its option, cancel this trust and
take possession of the goods/documents/instruments subject hereof or of the proceeds
realized therefrom wherever they may then be found, upon default or failure of the
ENTRUSTEE to comply with any of the terms and conditions of this Trust Receipt or of
any other agreement between the BANK/ENTRUSTER and the ENTRUSTEE; and the
BANK/ENTRUSTER having taken repossession of the goods/documents/instruments
object hereof may, on or after default, give at least five (5) days' previous notice to the
ENTRUSTEE of its intention to sell the goods/documents/instruments at public or
private sale, at which public sale, it may become a purchaser; Provided, that the
proceeds of any such sale, whether public or private, shall be applied: (a) to the
payment of the expenses thereof; (b) to the payment of the expenses of retaking,
keeping and storing the goods/documents/instruments; (c) to the satisfaction of all of the
ENTRUSTEE's indebtedness to the BANK/ENTRUSTER; and Provided, further, that the
ENTRUSTEE shall receive any surplus thereof but shall, in any case, be liable to the
BANK/ENTRUSTER for any deficiency. x x x
No act or omission on the part of the BANK/ENTRUSTER shall be deemed and
considered a waiver of any of its rights hereunder or under any related letters of credit,
drafts or other documents unless such waiver is expressly made in writing over the
signature of the BANK/ENTRUSTER.8
The afore-cited stipulations in the trust receipt are a near-exact reproduction of the
second paragraph of Section 7 of the Trust Receipts Law. The right of repossession and
subsequent sale at public auction which were availed of by respondent bank were rights
available upon default, and which were conferred by statute and reinforced by the
contract between the parties.
The initial repossession by the bank of the goods subject of the trust receipt did not
result in the full satisfaction of the petitioners' loan obligation. Petitioners are apparently
laboring under the mistaken impression that the full turn-over of the goods suffices to
divest them of their obligation to repay the principal amount of their loan obligation. This
is definitely not the case. In Philippine National Bank v. Hon. Gregorio G. Pineda and
Tayabas Cement Company, Inc.,9 we had occasion to rule:
PNB's possession of the subject machinery and equipment being precisely as a form of
security for the advances given to TCC under the Letter of Credit, said possession by
itself cannot be considered payment of the loan secured thereby. Payment would legally
result only after PNB had foreclosed on said securities, sold the same and applied the
proceeds thereof to TCC's loan obligation. Mere possession does not amount to
foreclosure for foreclosure denotes the procedure adopted by the mortgagee to
terminate the rights of the mortgagor on the property and includes the sale itself.
Neither can said repossession amount to dacion en pago. Dation in payment takes
place when property is alienated to the creditor in satisfaction of a debt in money and
the same is governed by sales. Dation in payment is the delivery and transmission of
ownership of a thing by the debtor to the creditor as an accepted equivalent of the
performance of the obligation. As aforesaid, the repossession of the machinery and
equipment in question was merely to secure the payment of TCC's loan obligation and
not for the purpose of transferring ownership thereof to PNB in satisfaction of said loan.
Thus, no dacion en pago was ever accomplished. (Citations omitted, underscoring
supplied)10
Indeed, in the 1987 case of Vintola v. Insular Bank of Asia and America,11 we struck
down the position of the petitioner-spouses that their obligation to the entruster bank
had been extinguished when they relinquished possession of the goods in question.
Thus:
A trust receipt… 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. As defined in our laws:
(h) Security Interest means a property interest in goods, documents or instruments to
secure performance of some obligations of the entrustee or of some third persons to the
entruster and includes title, whether or not expressed to be absolute, whenever such
title is in substance taken or retained for security only.
xxx xxx xxx
Contrary to the allegations of the VINTOLAS, IBAA did not become the real owner of
the goods. It was merely the holder of a security title for the advances it had made to
the VINTOLAS. The goods the VINTOLAS had purchased through IBAA financing
remain their own property and they hold it at their own risk. The trust receipt
arrangement did not convert the IBAA into an investor; the latter remained a lender and
creditor.
"x x x for the bank has previously extended a loan which the L/C represents to the
importer, and by that loan, the importer should be the real owner of the goods. If under
the trust receipt, the bank is made to appear as the owner, it was but an artificial
expedient, more of a legal fiction than fact, for if it were so, it could dispose of the goods
in any manner it wants, which it cannot do, just to give consistency with the purpose of
the trust receipt of giving a stronger security for the loan obtained by the importer. To
consider the bank as the true owner from the inception of the transaction would be to
disregard the loan feature thereof. x x x"
Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably
claim that because they have surrendered the goods to IBAA and subsequently
deposited them in the custody of the court, they are absolutely relieved of their
obligation to pay their loan because of their inability to dispose of the goods. The fact
that they were unable to sell the seashells in question does not affect IBAA's right to
recover the advances it had made under the Letter of Credit. (Citations omitted.)12
Respondent bank's repossession of the properties and subsequent sale of the goods
were completely in accordance with its statutory and contractual rights upon default of
petitioner corporation.
The second paragraph of Section 7 expressly provides that the entrustee shall be liable
to the entruster for any deficiency after the proceeds of the sale have been applied to
the payment of the expenses of the sale, the payment of the expenses of re-taking,
keeping and storing the goods, documents or instruments, and the satisfaction of the
entrustee's indebtedness to the entruster.
In the case at bar, the proceeds of the auction sale were insufficient to satisfy entirely
petitioner corporation's indebtedness to the respondent bank. Respondent bank was
thus well within its rights to institute the instant case to collect the deficiency.
We find, however, that there has been an error in the computation of the total amount of
petitioners' indebtedness to respondent bank.
Although respondent bank contends that the error of computation is a question of fact
which is beyond the power of this Court to review,13 the total amount of petitioners'
indebtedness in this case is not a question of fact. Rather, it is a question of law, i.e.,
the application of legal principles for the computation of the amount owed to respondent
bank, and is thus a matter properly brought for our determination.
The first issue involves the amount of indebtedness prior to the imposition of interest
and penalty charges. The initial amount of the trust receipt of P218,733.92, was
reduced to P192,265.92 as of June 14, 1984, as per respondent's Statement of Past
Due Trust Receipt dated December 1, 1993.14 This amount presumably includes the
application of P35,000.00, the amount of petitioner Lucente's Deed of Assignment,
which amount was applied by respondent bank to petitioners' obligation. No showing
was made, however, that the P30,000.00 proceeds of the auction sale on July 31, 1985
was ever applied to the loan. Neither was the amount of P50,414.00, representing the
marginal deposit made by petitioner corporation, deducted from the loan. Although
respondent bank contends that the marginal deposit should not be deducted from the
principal obligation, this is completely contrary to prevailing jurisprudence allowing the
deduction of the marginal deposit, thus:
The marginal deposit requirement is a Central Bank measure to cut off excess currency
liquidity which would create inflationary pressure. It is a collateral security given by the
debtor, and is supposed to be returned to him upon his compliance with his secured
obligation. Consequently, the bank pays no interest on the marginal deposit, unlike an
ordinary bank deposit which earns interest in the bank. As a matter of fact, the marginal
deposit requirement for letters of credit has been discontinued, except in those cases
where the applicant for a letter of credit is not known to the bank or does not maintain a
good credit standing therein.
It is only fair then that the importer's marginal deposit (if one was made, as in this case),
should be set off against his debt, for while the importer earns no interest on his
marginal deposit, the bank, apart from being able to use said deposit for its own
purposes, also earns interest on the money it loaned to the importer. It would be
onerous to compute interest and other charges on the face value of the letter of credit
which the bank issued, without first crediting or setting off the marginal deposit which
the importer paid to the bank. Compensation is proper and should take place by
operation of law because the requisites in Article 1279 of the Civil Code are present and
should extinguish both debts to the concurrent amount (Art. 1290, Civil Code). Although
Abad is only a surety, he may set up compensation as regards what the creditor owes
the principal debtor, TOMCO (Art. 1280, Civil Code). 15
The net amount of the obligation, represented by respondent bank to be P292,172.23
as of April 17, 1986, would thus be P211,758.23.
To this principal amount must be imposed the following charges: (1) 19% interest per
annum, in keeping with the terms of the trust receipt;16 and (2) 12% penalty per annum,
collected based on the outstanding principal obligation plus unpaid interest, again in
keeping with the wording of the trust receipt.17 It appearing that petitioners have paid the
interest and penalty charges until April 17, 1986, the reckoning date for the computation
of the foregoing charges must be April 18, 1986.
A perusal of the records reveals that the trial court and the Court of Appeals erred in
imposing service charges upon the petitioners. No such stipulation is found in the trust
receipt. Moreover, the trial court and the Court of Appeals erred in computing attorney's
fees equivalent to 10% per annum, rather than 10% of the total amount due. There is no
basis for compounding the interest annually, as the trial court and Court of Appeals
have done. This amount would be unconscionable.
Finally, Lucente and Llaban's contention that they are not solidarily liable with petitioner
corporation is untenable. As co-signatories of the Continuing Suretyship Agreement,
they bound themselves, inter alia, to pay the principal sum in the amount of not more
than P400,000.00; interest due on the principal obligation; attorney's fees; and
expenses that may be incurred in collecting the credit. The amount owed to respondent
bank is the amount of the principal, interest, attorney's fees, and expenses in collecting
the principal amount. The Continuing Suretyship Agreement expressly states the nature
of the liability of Lucente and Llaban:
The liability of the SURETY shall be solidary, direct and immediate and not contingent
upon the bank's pursuit of whatever remedies the BANK have [sic] against the Borrower
or the securities or liens the BANK may possess and the SURETY will at any time,
whether due or not due, pay to the BANK with or withour demand upon the Borrower,
any of the instruments of indebtedness or other obligation hereby guaranteed by the
SURETY.18
Solidary liability is one of the primary characteristics of a surety contract, 19 and the
Continuing Suretyship Agreement expressly stipulates the solidary nature of Lucente
and Llaban's liability. All three petitioners thus share the solidary obligation in favor of
respondent bank, which is given the right, under the Civil Code, to proceed against any
one of the solidary debtors or some or all of them simultaneously.20
WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED.
The decision of the Court of Appeals in CA-G.R. CV No. 58193 dated February 13,
2003 is AFFIRMED with MODIFICATIONS. Accordingly, petitioners are ordered to pay
respondent bank the following: (1) P211,758.23 representing petitioners' net obligation
as of April 17, 1986; (2) interest at the rate of 19% per annum and penalty at the rate of
12% per annum reckoned from April 18, 1986; (3) attorney's fees equivalent to 10% of
the total amount due and collectible; and (4) litigation expenses in the amount of
P3,000.00. The service charge at the rate of 2% per annum beginning April 18, 1986 is
deleted. Costs against petitioners.
SO ORDERED.