G.R. No.

135462            December 7, 2001

SOUTH CITY HOMES, INC., FORTUNE MOTORS (PHILS.), PALAWAN

LUMBER MANUFACTURING CORPORATION, petitioners,
vs.
BA FINANCE CORPORATION, respondent.

Facts:
On January 17, 1983, Joseph L. G. Chua, President of Fortune Motors
Corporation, executed in favor of plaintiff-appellant a Continuing Suretyship
Agreement, in which he "jointly and severally unconditionally" guaranteed the
"full, faithful and prompt payment and discharge of any and all indebtedness" of
Fortune Motors Corporation to BA Finance Corporation. On February 3, 1983,
Palawan Lumber Manufacturing Corporation represented by Joseph L.G. Chua,
George D. Tan, Edgar C. Rodrigueza and Joselito C. Baltazar, executed in favor
of plaintiff-appellant a Continuing Suretyship Agreement in which, said
corporation "jointly and severally unconditionally" guaranteed the "full, faithful and
prompt payment and discharge of any and all indebtedness of Fortune Motors
Corporation to BA Finance Corporation (Folder of Exhibits, pp. 19-20). On the
same date, South City Homes, Inc. represented by Edgar C. Rodrigueza and
Aurelio F. Tablante, likewise executed a Continuing Suretyship Agreement in
which said corporation "jointly and severally unconditionally" guaranteed the "full,
faithful and prompt payment and discharge of any and all indebtedness" of
Fortune Motors Corporation to BA Finance Corporation.

Fortune Motors Corporation thereafter executed trust receipts covering the motor
vehicles delivered to it by CARCO under which it agreed to remit to the Entruster
(CARCO) the proceeds of any sale and immediately surrender the remaining
unsold vehicles. ). The drafts and trust receipts were assigned to plaintiff-
appellant, under Deeds of Assignment executed by CARCO.
Upon failure of the defendant-appellant Fortune Motors Corporation to pay the
amounts due under the drafts and to remit the proceeds of motor vehicles sold or
to return those remaining unsold in accordance with the terms of the trust receipt
agreements, BA Finance Corporation sent demand letter to Edgar C.
Rodrigueza, South City Homes, Inc., Aurelio Tablante, Palawan Lumber
Manufacturing Corporation, Joseph L. G. Chua, George D. Tan and Joselito C.
Baltazar (Folder of Exhibits, pp. 29-37). Since the defendants-appellants failed to
settle their outstanding account with plaintiff-appellant, the latter filed on
December 22, 1983 a complaint for a sum of money with prayer for preliminary
attachment, with the Regional Trial Court of Manila.

Issue: WON respondent BAFC has a valid cause of action for a sum of money
following the drafts and trust receipts transactions.
Held: As an entruster, respondent BAFC must first demand the return of the
unsold vehicles from Fortune Motors Corporation, pursuant to the terms of the
trust receipts. Having failed to do so, petitioners had no cause of action
whatsoever against Fortune Motors Corporation and the action for collection of
sum of money was, therefore, premature.
A trust receipt is a security transaction intended to aid in financing importers and
retail dealers who do not have sufficient funds or resources to finance the
importation or purchase of merchandise, and who may not be able to acquire
credit except through utilization, as collateral, of the merchandise imported or
purchased.9 In the event of default by the entrustee on his obligations under the
trust receipt agreement, it is not absolutely necessary that the entruster cancel
the trust and take possession of the goods to be able to enforce his rights
thereunder.

Ching v. CA, 423 SCRA 356, February 23, 2004

FACTS: Philippine Blooming Mills Company, Inc. (PBMCI) obtained two loans from the Allied
Banking Corporation (ABC). (PBMCI) Executive Vice-President Alfredo Ching executed a
continuing guaranty with the ABC for the payment of the said loan. The PBMCI defaulted in the
payment of all its loans so ABC filed a complaint for sum of money against the PBMCI. Trial
court issued a writ of preliminary attachment against Alfredo Ching requiring the sheriff of to
attach all the properties of said Alfredo Ching to answer for the payment of the loans.
Encarnacion T. Ching, wife of Alfredo Ching, filed a Motion to Set Aside the levy on attachment
allegeing inter alia that the 100,000 shares of stocks levied on by the sheriff were acquired by her
and her husband during their marriage out of conjugal funds. Petitioner spouses aver that the
source of funds in the acquisition of the levied shares of stocks is not the controlling factor when
invoking the presumption of the conjugal nature of stocks under Art. !21 and that such
presumption subsists even if the property is registered only in the name of one of the spouses, in
this case, petitioner Alfredo Ching. According to the petitioners, the suretyship obligation was
not contracted in the pursuit of the petitioner-husband’s profession or business.44

ISSUE: WON 100,000 shares of stocks may be levied on by the sheriff to answer for the loans
guaranteed by petitioner Alfredo Ching

HELD: No.
RATIO: The CA erred in holding that by executing a continuing guaranty and suretyship
agreement with the private respondent for the payment of the PBMCI loans, the petitioner-
husband was in the exercise of his profession, pursuing a legitimate business.

The shares of stocks are, thus, presumed to be the conjugal partnership property of the
petitioners. The private respondent failed to adduce evidence that the petitioner-husband
acquired the stocks with his exclusive money.
The appellate court erred in concluding that the conjugal partnership is liable for the said account
of PBMCI.
Article 121 provides: The conjugal partnership shall be liable for: (1) All debts and obligations
contracted by the husband for the benefit of the conjugal partnership, and those contracted by the
wife, also for the same purpose, in the cases where she may legally bind the partnership.

For the conjugal partnership to be liable for a liability that should appertain to the husband alone,
there must be a showing that some advantages accrued to the spouses.

In this case, the private respondent failed to prove that the conjugal partnership of the petitioners
was benefited by the petitioner-husband’s act of executing a continuing guaranty and suretyship
agreement with the private respondent for and in behalf of PBMCI. The contract of loan was
between the private respondent and the PBMCI, solely for the benefit of the latter. No
presumption can be inferred from the fact that when the petitioner-husband entered into an
accommodation agreement or a contract of surety, the conjugal partnership would thereby be
benefited. The private respondent was burdened to establish that such benefit redounded to the
conjugal partnership.

G.R. No. L-108638 March 11, 1994

Spouses RAMON R. NACU and LOURDES I. NACU, petitioners,

vs.
THE COURT OF APPEALS and PILIPINAS BANK, respondents.

Geofredo E. Mabunga and Froilan D. Cabaltera for petitioners.

Gella, Danguilan, Fuentes, Ferrer, Samson & Associates for private

respondent.

NOCON, J.:

The pith of the issues in this petition is the question of whether or not the
real estate mortgage undertaken by Spouses Ramon R. Nacu and Lourdes
Nacu, in favor of Home Construction — Joint Venture was extended,
amplified or modified to cover the loan transaction of Ramon R. Nacu, in
his capacity as one of the executive officers of the Joint Venture of JBS
Construction, Inc. and P.I. Construction and Services Co., Inc., by virtue
alone of the comprehensive provision in the mortgage contract that:

. . . it shall also stand as security for the payment of the said promissory
note or notes, and/or accommodations without the necessity of executing a
new contract and this mortgage shall have the same force and effect as if
the said promissory note or notes and/or accommodations were existing as
of the date thereof. . . .
1

Briefly, the facts established below show that petitionerse spouses are the
registered owners of the subject property covered by Transfer Certificate of
Title No. 276891 of the Registry of Deeds for Quezon City, located at 12
Yakan Street, La Vista Subdivision, Quezon City.

On July 12, 1982, respondent Pilipinas Bank extended to Home

Construction-Joint venture, represented by Horacio Mendoza, Julio Matias
and Ramon Nacu, Irrevocable Stand-by LC No. 82/408-HO in the amount
of P4,400,000.00 to guarantee the ten per cent (10%) mobilization fund to
be released by the Ministry of Public Works and Highways in connection
with a Lucana Fishing Port and Construction Project.

To secure this Home Construction-Joint Venture credit accommodation,

petitioners spouses, together with Spouses Horacio S. Mendoza and
Leonisa D. Mendoza and Spouses Julio D. Matias and Lydia Sison
constituted real estate mortgages on five (5) distinct properties in favor of
respondent Bank.

The subject deed of real estate mortgage dated June 7, 1982 executed by
petitioner spouses, together with the aforementioned co-mortgagors,
provides, among other things, that the mortgage shall secure the payment
of the said loan and those others that the mortgagee may extend to the
mortgagor including interest thereon and expenses incurred incidental
thereto and other obligations owing by the mortgagor to the mortgagee,
whether direct or indirect, principal or secondary as appearing in the
accounts, books and records of the mortgagee.

In due time, the principal obligation mentioned in the said real estate
mortgage extended to the Home Construction — Joint Venture was fully
paid and extinguished.

Upon request, respondent Bank effected the cancellation/release of the

titles subject of the said real estate mortgage, particularly the properties of
the co-mortgagors, Horacio Mendoza and Julio Matias.
Petitioners spouses did not immediately request for the issuance of the
corresponding certificate of cancellation/release of mortgage of TCT No.
276891 from respondent Bank.

On February 24, 1983, two (2) corporations under the Joint Venture — JBS
Construction, Inc., represented by its president, Jose B. Sahagun and P.I.
Construction and Services Co., Inc., represented by its president, petitioner
Nacu secured from respondent Bank, under letters of credit (L/C) Nos.
83/13786-HO and 83/13801-HO, a loan accommodation for the importation
of several pieces of construction machinery and equipment to be used by
said joint venture in a construction project, located at Mindanao.

In consideration of this JBS and PI Construction Joint Venture credit

accommodation, Jose Sahagun and petitioner Nacu executed in their
capacities as executive officers thereof, a Continuing Security Agreement
in favor of respondent Bank. Said debtor corporations, represented by their
respective presidents, were also made to sign trust receipts in favor of
respondent Bank.

Later, petitioner spouses requested from respondent Bank the issuance of

the Certificate of Cancellation/Release of the Real Estate Mortgage on TCT
No. 276891. The respondent Bank refused despite its admission that the
Home Construction loan had been fully paid and despite the release of the
properties of the co-mortgagors, Horacio Mendoza and Julio Matias.

The demands in writing for the release of the questioned encumbrance

were not heeded. Petitioners spouses thereby decided to file an action
against respondent bank before the Regional Trial Court of Quezon City
docketed as Civil Case No. 49233 for cancellation of the encumbrance on
TCT No. 276891

After trial on the merits, the trial court, through Presiding Judge Ignacio L.
Salvador, rendered its decision in Civil Case No. 49233, the pertinent
portions of which, are quoted herein:

. . . as correctly pointed out by the plaintiffs, this loan accommodation which

was subsequently contracted by J.B.S. Construction Corporation on April
19, 1983 and in which TCT 272689 is allegedly made to answer is not duly
annotated on said title. And it is fundamental that real property constituted
to secure an obligation by way of mortgage, must be registered and shall
take effect upon the title only from the time of registration. (Sec. 60, Act
496)

Furthermore co-plaintiff, Lourdes Nacu (co-owner of the property covered

by TCT No. 276891) was not privy to the subsequent transactions
aforesaid.

Since the principal obligation covered by LC No. 82/408-HO in the amount

of P4,400,000.00 had subsequently been fully paid and the obligation
extinguised, as expressly admitted by defendant bank the real estate
mortgage is discharged, (Art. 2135) and consequently the defendant bank
may now be compelled to release . . . plaintiffs Transfer Certificate of Title
No. 276891.

PREMISES CONSIDERED", judgment is hereby rendered in favor of the

plaintiffs and against the defendant, ordering said defendant bank to
immediately release/discharge the second encumbrance annotated on TCT
No. 276891-Registry of Deeds of Quezon City and ordering said defendant
bank to pay plaintiffs attorney's fees in the amount of P5,000.00.2

The respondent Bank appealed from the aforesaid decision of the trial court
before respondent Court of Appeals on June 15, 1990.

On October 28, 1992, respondent Court rendered its decision reversing the
judgment of the trial court, the pertinent portions stating, thus:

Everything considered, plaintiffs' property stands as continuing security for

the subject credit accommodations guaranteed by plaintiff Ramon Nacu,
and the mortgage lien thereon cannot be discharged until these obligations
are fully settled.

WHEREFORE, judgment is hereby rendered reversing the appealed

decision and dismissing the complaint. Costs against appellees. 3

On November 18, 1992, petitioner spouses seasonably filed a motion for

reconsideration of the said assailed decision.

On January 25, 1993, respondent Court promulgated its resolution denying

petitioner spouses' motion for reconsideration. Hence, this instant petition
of petitioners spouses assigning the following as errors:
 A

THE RESPONDENT HONORABLE COURT OF APPEALS ERRED IN

FINDING THAT PETITIONERS SPOUSES' LA VISTA PROPERTY WAS
ENCUMBERED AS SECURITY NOT ONLY FOR THE (1982) HOME
CONSTRUCTION LOAN, BUT ALSO FOR THE (1983) JBS AND PIC
JOINT VENTURE LOAN;

THE RESPONDENT HONORABLE COURT OF APPEALS ERRED IN

FINDING THAT JBS CONSTRUCTION, INC. IS THE ONLY DEBTOR
CORPORATION, AND AS SUCH, IT COULD NOT HAVE
SIMULTANEOUSLY ASSUMED THE ROLE OF A SURETY/GUARANTOR
OF THE LOAN OBLIGATION WHICH ITSELF CONTRACTED;

THE RESPONDENT HONORABLE COURT OF APPEALS ERRED IN

FINDING THAT EXHIBIT "C"; "5"; "9"; AND, "10" CLEARLY REVEAL
THAT PETITIONER RAMON NACU SIGNED SAID DOCUMENTS IN HIS
PERSONAL CAPACITY AND NOT AS A REPRESENTATIVE OR
EXECUTIVE OFFICER OF THE DEBTOR CORPORATIONS;

THE RESPONDENT HONORABLE COURT OF APPEALS ERRED IN

GIVING WEIGHT AND CREDENCE TO EXHIBIT "4"; MINUTES OF THE
MEETING OF RESPONDENT BANK'S BOARD OF DIRECTORS AND
THE REPORT SUBMITTED BY THE BANK'S PRESIDENT PERTAINING
TO THE APPLICATION FOR LETTERS OF CREDIT BY THE DEBTOR
CORPORATIONS SHOWING THAT A SECOND REAL ESTATE
MORTGAGE ON PETITIONERS' LA VISTA PROPERTY WAS INTENDED
TO SECURE SAID (1983) JBS AND PIC JOINT VENTURE OBLIGATION;

RESPONDENT HONORABLE COURT OF APPEALS ERRED IN NOT

SUSTAINING THE TRIAL COURTS DECISION THAT PETITIONERS
SPOUSES ARE NOT PRIVY TO THE SUBSEQUENT TRANSACTIONS,
PARTICULARLY THE CONTRACTS ENTERED INTO BY (1983) JBS-PIC
CONSTRUCTION — JOINT VENTURE, THE DEBTOR CORPORATIONS
(JBS AND PIC) BEING SEPARATE AND DISTINCT JURIDICAL
PERSONALITIES FROM PETITIONERS SPOUSES;

RESPONDENT HONORABLE COURT OF APPEALS ERRED IN FINDING

THAT PETITIONER RAMON NACU SIGNED THE CONTINUING SURETY
AGREEMENT AND TRUST RECEIPTS IN HIS PERSONAL CAPACITY;

RESPONDENT HONORABLE COURT ERRED IN FINDING THAT THE

(1983) JBS-PIC JOINT VENTURE BOUND THE JUNE 7, 1982 REAL
ESTATE MORTGAGE DESPITE THE FACT THAT PETITIONER
LOURDES NACU DID NOT GIVE HER CONSENT THERETO;

RESPONDENT HONORABLE COURT OF APPEALS ERRED IN FINDING

THAT THERE WAS NO NEED TO ANNOTATE THE JULY 1983 LOAN
ACCOMMODATION ALLEGEDLY GUARANTEED BY PETITIONER
RAMON NACU ON TCT NO. 276891 SINCE THE SAME HAVE BEEN
EXPRESSLY COVERED BY THE MORTGAGE CONTRACT; AND,

RESPONDENT HONORABLE COURT OF APPEALS ERRED AND

ACTED IN GRAVE ABUSE OF DISCRETION WHEN IT "CREATED" AN
OBLIGATION ON THE PART OF PETITIONERS WHERE NONE
EXISTED.  4

Arising from the foregoing assignments of errors are the following issues:

1) Whether or not the (1983) JBS and PIC JOINT VENTURE loan
transaction is another direct or indirect, principal or secondary obligation
owing by the MORTGAGOR (HOME CONSTRUCTION — JOINT
VENTURE to the MORTGAGEE (RESPONDENT BANK);
2) Whether or not the 1983 LOAN DOCUMENTS, Surety Agreement and
Trust Receipts were executed by Petitioner Ramon Nacu in his personal
capacity or in behalf of a corporate entity;

3) Whether or not the TRUST RECEIPT is an extension of the Real Estate

Mortgage dated June 7, 1982;

4) Whether or not the JBS CONSTRUCTION, INC. is the only DEBTOR

CORPORATION in the 1983 loan transaction, and as such, it could not
have simultaneously assumed the role of a surety/guarantor of the loan
obligation which itself contracted;

5) Whether or not weight and credence to Exhibit "4", the minutes of the
meeting of Respondent Bank's Board of Directors and the Report submitted
by the bank's president pertaining to the application for letters of credit by
the debtor corporation, showing that a second real estate mortgage on
Petitioners' La Vista property was intended to secure said obligation, could
be given evidentiary weight and credence;

6) Whether or not the July 1983 loan accommodation allegedly guaranteed

by Petitioner Ramon Nacu should have been annotated on Petitioners' TCT
to bind their subject property;

7) Whether or not the want of Petitioner Lourdes Nacu's consent in the

1983 loan agreements signed by Petitioner Ramon Nacu renders the same
voidable;

8) Whether or not Petitioner Spouses are privy to the 1983 loan

transactions entered into by JBS-PI CONSTRUCTION JOINT VENTURE,
the debtor corporations being separate and distinct juridical personalities
from that of Spouses Petitioner; and,

9) Whether or not the ambiguity in the interpretation of the intention of the

parties in the case at bar should be resolved in favor of the Petitioners
Spouses. 5

The assailed decision of respondent Court held that in view of the

provisions of the real estate mortgage more particularly that which provides
that the real estate mortgage secures ". . . other obligations owing by the
Mortgagor to the Mortgagee, whether direct or indirect, principal or
secondary, as appearing in the accounts, books and records of the
Mortgagee," the bank may legally refuse to release the second mortgage
on TCT No. 276891 considering that the same was used as security for
another loan accommodation extended to P.I. Construction and Services
Co., Inc., headed by plaintiff Ramon R. Nacu, and J.B.S. Construction, Inc.,
headed by Jose B. Sahagun, a joint venture.

True, the real estate mortgage categorically provides that it shall also stand
as security for the payment of the said promissory note or notes; and/or
accommodations without the necessity of executing a new contract and
that the mortgage shall have the same force and effect as if the said
promissory note or notes and/or accommodations were existing on the date
thereof.

However, the July 12, 1982 Home Construction loan transaction and the
February 24, 1983 JBS and P.I. Construction — Joint Venture loan
transaction are totally alien to each other. Noteworthy is the fact that the
1982 loan transaction was extended to Home Construction — Joint
Venture, represented by Spouses Horacio S. Mendoza and Leonisia D.
Mendoza; Spouses Julio D. Matias and Lydia Sison and Spouses Ramon
R. Nacu and Lourdes I. Nacu. On the other hand, the 1983 loan transaction
was applied for and extended to the Joint Venture-JBS Construction, Inc.,
represented by its president, Ramon Nacu.

Clearly, the two (2) loan transaction involved different sets of parties. While
it is true that petitioner Nacu is a party in both transactions, he acted in
totally different capacities.

Thus, we find the findings of facts of the trial court accurate as they are
positively supported by documentary evidence, to wit:

. . . A carefully reading of the Continuing Surety Agreement (Exhibit "5") will

reveal the fact that plaintiff Ramon R. Nacu, and Jose B. Sahagun signed
said Continuing Surety Agreement in their capacities as Executive Officer
of the J.B.S. Construction Corporation. It is therefore the J.B.S.
Construction Corporation that is the Surety. The plaintiff Ramon N. Nacu,
and/or Jose B. Sahagun cannot be made answerable for the liability or
obligation or the corporation. If at all said Ramon R. Nacu and Jose B.
Sahagun can be liable only to the extent of their stocks in the corporation.
In other words, this contract (Exhibit "5") entered into by J.B.S.
Construction Corporation with defendant bank is a distinct contract and
cannot in any way be related to the provisions of the Real Estate Mortgage
(Exhibit "C" and Exhibit "6") because the parties thereto are different.
6

To allow the 1982 mortgage contract to be amplified to include the 1983

Continuing Surety Agreement would be stretching too far the former
contract's extent. Interpreting the same as respondent Bank would want us
to do would make the provision too comprehensive and all-encompassing
as to amount to absurdity.

Besides, there is nothing in the loan accommodation subsequently

contracted that TCT 276891 is mortgaged. Said loan was not even duly
annotated on said title. Under Section 60 of Act No. 496, a mortgage deed
and all instruments assigning discharging and otherwise dealing with the
mortgage are required to be registered. Without registration, they cannot
have any effect on the title.

The respondent Court in reversing the decision of the trial court, linked the
trust receipts, signed by petitioner Nacu, together with Jose Sahagun, with
the real estate mortgage dated June 7, 1982 by finding that under the
express terms of the trust receipts in favor of respondent Bank, petitioner
Nacu again bound himself "jointly and severally" with the Trustees (JBS
Corporation and PI Construction) for the value of the goods covered by the
instruments.

Rather than support the position of respondent Bank, the trust receipt
agreement shows that the 1982 real estate mortgage is no longer operative
because otherwise, there would have been no need for the execution of
said trust agreement to secure the second loan.

Under pertinent laws, the trust receipt is a separate and independent

security transaction intended to aid in financing importers whereby the
imported goods are held as security by the lending institution for the loan
obligation.

In the case and Vintola v. Insular bank of Asia and America   this Court
7

explained the nature and usage of trust receipts as follows:

. . . A letter of credit-trust receipt arrangement is endowed with its own

distinctive features and characteristics. Under that set-up, a bank extends a
loan covered by the letter of credit, with the trust receipt as a security for
the loan. In other words, the transaction involved a loan feature
represented by the letter of credit, and security feature which is in the
covering trust receipt. . . .

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.

. . . A trust receipt is considered as a security transaction intended to aid in

financing importers and retail dealers who do not have sufficient funds or
resources to finance the importation or purchase or merchandise, and who
may not be able to acquire credit except through utilization, as collateral, of
the merchandise imported or purchased. . . .

Moreover, by virtue of the trust receipt agreement, respondent Bank should

proceed against the same because the trust receipt theoretically
transferred the ownership of the imported personal property to respondent
Bank.

Worth mentioning is also the fact that the trust receipts and the Continuing
Surety Agreement were signed only by petitioner Nacu. Assuming that both
documents duly constituted a real estate mortgage on the property of
petitioners spouses, they are voidable for want of petitioner Lourdes Nacu's
acquiescence and/or consent thereto. Article 166 of the Civil Code, the law
then applicable, provides that unless the wife has been declared a non
compos mentis, a spendthrift, is under civil interdiction or is confined in a
leprosarium, the husband cannot alienate or encumber any real property of
the conjugal partnership without the wife's consent.

In resolving in favor of respondent Bank, respondent Court likewise

appreciated the weight of Exhibit "4," the purported minutes of the meeting
of respondent Bank's Board of Directors and Report pertaining to the
application for letters of credit by the JBS and P.I. Construction Joint
Venture. In giving evidentiary weight thereto, the decision of respondent
Court said:

Still another important consideration negates the trial court's finding that
plaintiffs' property could not be held as continuing security for the
obligations of the debtor corporation. The minutes of the meeting of
defendant bank's Board of Directors (Exhibit 4) and the report submitted by
the bank's president pertaining to the application for letters of credit by the
debtor corporation show that a second real estate mortgage on plaintiffs' La
Vista property was intended to secure such obligation. From the evidence
adduced, there is ample basis to hold plaintiff Ramon Nacu liable as surety
for the accommodation extended to the debtor corporation, and
consequently gives defendant bank reason to hold on to the subject
mortgaged property until the obligations are fully settled.
8

However, petitioner spouses were not privy to Exhibit "4" as these

documents are internal to respondent Bank. Whether or not they gave their
consent thereto cannot be ascertained.

Finally, if the parties intended the 1982 real estate mortgage to apply to the
1983 loan transaction, respondent Bank should have required petitioners
spouses to execute the proper loan documents clearly and categorically
constituting upon the same property a real estate mortgage. The
respondent Bank failed in this regard and must therefore suffer the
consequences. In Orient Air Services and Hotel Representatives v. Court
of Appeals,  this Court upheld the doctrine that any ambiguity in a contract
9

whose terms are susceptible of different interpretation, must be read

against the party who drafted it.

Indisputably, respondent Bank was the party responsible for the

preparation of the, 1982 and 1983 loan agreement which are contracts of
adhesion. Consequently, any ambiguity in the loan agreement should be
construed against it on the assumption that it could have avoided it by the
exercise of a little more care.

More emphatic and appropriate is our pronouncement in La Insular v.

Machuca Go Tanco, et al.   where we held:
10

It is undoubtedly true that the law looks upon the contract of suretyship with
a jealous eye, and the rule is settled that the obligation of the surety cannot
be extended by implication beyond specified limits.

It is crystal clear from the foregoing that respondent Bank's actuation in

refusing to cancel the encumbrance annotated on petitioners spouses'
Transfer Certificate of Title on the ground that the latter's property is still
liable for an unpaid loan obligation of J.B.S. Construction, Inc. and P.I.
Construction and Services Co., Inc. was a clever attempt to extend by
implication, beyond the terms of the real estate mortgage contract, the
latter's force and effect. Respondent Bank should not be allowed to take
this "short-cut" to collect an indebtedness due it. Principles of fair play
demand that it should not resort to the expedience of enforcing a real
estate mortgage when there is none duly constituted.

WHEREFORE, the petition is GRANTED. The assailed decision of the

respondent Court of Appeals in CA-G.R. No. CV 276693 is hereby
REVERSED and the decision of the trial court in Civil Case No. Q-49223
ordering, among other things, respondent Pilipinas Bank to release and/or
discharge the encumbrance on Transfer Certificate of Title No. 276891 of
the Registry of Deeds of Quezon City is hereby REINSTATED in toto.

SO ORDERED.

[G.R. No. 59640. July 15, 1991.]

DAMIAN ROBLES, Petitioner, v. THE COURT OF APPEALS

and THE PEOPLE OF THE PHILIPPINES, Respondents.

SYLLABUS

1. CRIMINAL LAW; ESTAFA UNDER ARTICLE 315(1)(b) OF

REVISED PENAL CODE; FAILURE TO COMPLY WITH DELIVERY
TRUST RECEIPT SHOWING FIDUCIARY OBLIGATION TO RETURN
GOODS OR TO PAY OR ACCOUNT FOR PRICE THEREOF, IS
ESTAFA. — The delivery trust receipts evidencing the transactions
between Paramount Business Machines ("Paramount") and
petitioner state, in relevant part: "In trust for and as the property
of said Paramount Business Machines the above described
merchandise having been delivered to me/us for trial and with
the obligation on my/our part to return the same good order and
condition within 2 days from the date hereof unless before the
expiration of said period, I/we definitely purchase the same and
pay the price hereof . In the meantime, pending the sales of the
above described merchandise to me/us, I/we agree and
undertake to be absolutely responsible as insurer for the proper
care and conservation of said property and to be liable for any
loss or destruction. I/we further agree to keep the said property
in my/our residence or place of business at the address indicated
herein above and not to remove the same from said promise
without the previous knowledge and consent of Paramount
Business Machines." The quoted provisions of the trust receipts
show clearly (1) that Paramount retained ownership of the office
equipment covered by the receipts; (2) that possession of the
goods was conveyed to petitioner subject to a fiduciary obligation
either to return them within a specified period of time or to pay
or account for the price of proceeds thereof. Surrounding
circumstances also showed that the transactions were not
ordinary sales on trial basis. There were six (6) transactions
involved, not just one. In each transaction, there were several
items of equipment delivered to petitioner, instead of just one,
thereby indicating that petitioner was not an ordinary buyer who
would himself use the articles bought, but rather a commission
merchant. Additional items of equipment were delivered to
petitioner even before compliance with his duty under one trust
receipt to return within two (2) days the office equipment he had
received. He admitted in his Affidavit dated 21 October 1977 that
he was Paramount’s sales agent. Petitioner, however, failed to
return the machines upon demand by Paramount and at the same
time, failed to account for the sale proceeds thereof. The
petitioner is guilty of estafa under Subdivision No. 1 (B), Article
315 of the Revised Penal Code. The Court is not persuaded by
petitioner’s position that the delivery trust receipts are "mere
formalities" whose printed terms and conditions appearing therein
were not intended by the parties to govern their transactions;
that those transactions referred to were in fact sales on trial basis
for a period of two (2) days; and that, when he failed to return
the various pieces of equipment within the two-day period, he
was deemed to have purchased the same and his liability should
therefore be only civil, i.e., to pay the purchase price.

2. ID.; ID.; ID.; DELIVERY TRUST RECEIPT IN CASE AT BAR

CONSTITUTED TRUST RECEIPTS UNDER P.D. 115, "TRUST
RECEIPTS LAW." — We note in this connection that the delivery
trust receipts here involved in fact constituted trust receipts
within the meaning of Presidential Decree No. 115, known as the
"Trust Receipts Law," which took effect on 29 January 1973.
Section 4 thereof defines a "trust receipt" and a "trust receipt
transaction" for purposes of the decree in the following terms:
"Sec. 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, . . ." We note that under Section 13 of the Trust Receipts
Law, the violation by an entrustee of his obligations under a trust
receipt document, more specifically his failure to turnover the
proceeds of the sale of the goods covered by the trust receipt, or
to return said goods as they were not sold or disposed of, would
constitute the crime of estafa under Article (1)(b), Revised Penal
Code. In the case at bar, the acts of petitioner which were
complained of were committed between 19 November 1976 and 9
March 1977, that is, long after the beginning date of effectivity of
Presidential Decree No. 115. In accordance with the provisions of
Section 13, Presidential Decree No. 115, the failure of petitioner
Damian Robles to turn over to the entruster Paramount the
proceeds of the sale of goods covered by the delivery trust
receipts and to return the said goods, constituted estafa
punishable under Article 315 (1)(b) of the Revised Penal Code.
3. ID.; ID.; ID.; ID.; ESTAFA COMMITTED BY PETITIONER IN
CASE AT BAR EVEN WITHOUT PROVISIONS OF TRUST RECEIPTS
LAW. — Quite apart from and even in the absence of the
provisions of Section 13 of the Trust Receipt Law, the failure of
Damian Robles to comply with his fiduciary obligation under the
delivery trust receipts here involved, constituted the offense of
estafa punishable under Article 315 (1)(b) of the Revised Penal
Code. In other words, the elements of the offense of estafa set
out in Article 315 (1)(b) are present in the instant case. Those
elements are: (1) "unfaithfulness or abuse of confidence" ; (2)
"misappropriating . . . money or goods . . .; (3) received by the
offender in trust or on commission . . . or under any other
obligation involving the duty to make delivery of or to return the
same . . ." ; and (4) "to the prejudice of another." The delivery
trust receipts, in the case at bar, admittedly signed by petitioner
Damian Robles imposed on him the duty to return the articles or
the proceeds thereof to Paramount within (2) days from the
specified dates of the trust receipts. The failure to account, upon
demand, for funds or property held in trust is evidence of
misappropriation which, not having been explained away or
rebutted by petitioner Damian Robles, warranted his conviction
for estafa under the Revised Penal Code. This was settled
doctrine long before the promulgation of the Trust Receipts Law.

DECISION

FELICIANO, J.:

In an information dated 2 March 1978, petitioner Damian Robles

was charged before the then Court of First Instance of Manila
with the crime of estafa, committed as follows:jgc:chanrobles.com.ph

"That in or about and during the penod comprised between

November 19, 1976 to March 9, 1977, inclusive, in the City of
Manila, Philippines, the said accused did then and there wilfully,
unlawfully and feloniously defraud the Paramount Business
Machines, a business firm duly organized and doing business in
said City, represented by Roberto Ng y Shiang Shee, in the
following manner, to wit: the said accused received in trust from
the said Roberto Ng y Shiang Shee office equipments consisting
of adding machines, typewriters and calculators all amounting to
P14,895.00 for the purpose of selling the same, under the
express obligation of turning over the proceeds of the sale, if
sold, or of returning the said office equipments if not sold, to the
said Roberto Ng y Shiang Shee; but the said accused, once in
possession of the said office equipments and far from complying
with his obligation as aforesaid, failed and refused and still fails
and refuses to remit the corresponding amount of the said office
equipments or to return the said office equipments, despite
repeated demands made upon him to do so, and instead, with
grave abuse of confidence and with intent to defraud, did then
and there wilfully, unlawfully and feloniously misappropriate,
misapply and convert the same to his own personal use and
benefit, to the damage and prejudice of the said Paramount
Business Machines, in the said amount of P14,895.00, Philippine
Currency.

Contrary to law." 1

The trial court, in its decision dated 20 February 1979, convicted

petitioner Robles of the crime charged. The dispositive portion of
this decision reads: jgc:chanrobles.com.ph

"WHEREFORE, the Court finds the accused Damian Robles guilty

beyond reasonable doubt of the crime of estafa defined and
penalized under the provisions of Article 315 subdivision No. 1 (b)
of the Revised Penal Code and there being no aggravating or
mitigating circumstance present and applying the provisions of
the Indeterminate Sentence Law, hereby sentences the said
accused to suffer the penalty of imprisonment ranging from TWO
(2) YEARS, ELEVEN (11) MONTHS and TEN (10) DAYS of prision
correccional in its minimum and medium period as minimum, to
SIX (6) YEARS, EIGHT (8) MONTHS and TWENTY (20) DAYS of
prision mayor medium, as maximum, together with the accessory
penalties provided for by law and to pay the costs. The accused is
further ordered to indemnify the complainant the amount of
P14,895.00 without subsidiary imprisonment in case of
insolvency.

SO ORDERED." 2

Dissatisfied, petitioner Robles appealed to the Court of Appeals.

On 17 September 1981, the appellate court affirmed petitioner
Robles’ conviction but modified the penalty imposed by the trial
court as follows: jgc:chanrobles.com.ph

"WHEREFORE, with the modification that accused-appellant

DAMIAN ROBLES shall suffer the penalty of imprisonment from
SIX (6) MONTHS of arresto mayor, as minimum, to TWO (2)
YEARS, ELEVEN (11) MONTHS and TEN (10) DAYS of prision
correccional, as maximum, and to indemnify the complainant the
amount of P11,395.00, the appealed decision is hereby affirmed
in all other respects, and with costs against Accused-Appellant.

SO ORDERED." 3

The facts as found by respondent Court of Appeals are as

follows:
jgc:chanrobles.com.ph

"Roberto Ng is the owner and the sales manager of the

Paramount Business Machines, a firm dealing in office equipment
and has offices located at 1027 Severino Reyes Street, Sta. Cruz,
Manila (pp. 10, 11, TSN, July 19, 1978).

On November 19, 1976, Roberto Ng entrusted to Damian Robles

the following items: chanrob1es virtual 1aw library

one — Casio electronic calculator P800.00

one — Victor adding machine 600.00

which items were covered by a delivery trust receipt (Exhibit ‘A,’
Folder of Exhibits: pp. 14, 15, TSN., July 19, 1978).

On February 8, 1977, Roberto Ng again entrusted to Damian

Robles several office equipment, to wit: chanrob1es virtual 1aw library

one — Standard Imperial typewriter

16" carriage P3,500.00

one — Standard Imperial typewriter

26" carriage 3,200.00

one — Olympia, standard electric typewriter,

13" carriage 2,800.00

which items were covered by another delivery trust receipt

(Exhibit ‘B,’ Folder of Exhibits; pp. 23, 24, 25, 26, TSN, July 19,
1978). For these items, Damian Robles gave Roberto Ng two
postdated checks, PCIB Checks No. 15654 and 15655 dated
March 25, 1977 and March 15, 1977, respectively (Exhibits ‘C’
and ‘C-1,’ Folder of Exhibits; pp. 226, 27, TSN, July 19, 1978),
for the respective amounts of P3,200.00 and P4,200.00 (id.). On
February 10, 1977, Damian Robles was again entrusted by
Roberto Ng with an Olivetti Manual typewriter, 11" carriage worth
P1,000.00, which item was covered by another delivery receipt
(Exhibit ‘D,’ Folder of Exhibits; p. 33, TSN, July 19, 1978). On
March 7, 1977, Damian Robles received from Roberto Ng one
Olivetti adding machine worth P600.00 which item was covered
by another delivery receipt (Exhibit ‘E,’ Folder of Exhibits; pp. 37,
38, TSN, July 19, 1978). And on March 8, 1977 and March 9,
1977, the same Damian Robles was again entrusted by Roberto
Ng the following:chanrob1es virtual 1aw library

one — Olivetti standard typewriter

15" carriage P1,400.00

one — Olympia portable typewriter

10" carriage 995.00

which items were covered by delivery trust receipts (Exhibits ‘F’

and ‘G,’ Folder of Exhibits; pp. 39, 40, 41, 42, 45, TSN, July 19,
1978). For all these items delivered to Damian Robles, the latter
agreed to sell them and remit the proceeds of the sales to
Roberto Ng, or to return the items if they are unsold (pp. 57, 58,
67, 68, TSN, July 19, 1978).

The postdated check PCIB Check No. 15655 dated March 15,
1977 for the amount of P4,200.00 issued by Damian Robles was
not honored by the drawee bank since Damian Robles caused the
stoppage of its payment (pp. 29, 30, 31, 46, TSN, July 19, 1978).

On the other hand, the accused-appellant admits having received

from the complainant Roberto Ng the business machines
enumerated in the delivery receipts, Exhibits ‘A,’ ‘B,’ ‘D,’ ‘E,’ ‘F,’
and ‘G,’ (pp. 4, 8, TSN, December 5, 1978) and admits likewise
that it was his agreement with Roberto Ng that he (accused)
would sell the office equipment and to turn over the proceeds to
Roberto Ng (p. 8, TSN, December 5, 1978). He however, claims
that the Imperial Standard Typewriter worth P3,500.00 was
returned to Paramount as confirmed by the signature of Mr. Ng in
Annex ‘B’ (Original Exhibits, p. 12) after the notation ‘return’ was
placed there by Fiscal Arranz (C.A. Decision, p. 11; Rollo, p. 38).

The total value of the office equipment received by accused-

appellant Damian Robles from the complainant is P14,895.00." 4

In this Petition for Review, petitioner Robles makes the following

arguments: chanrob1es virtual 1aw library

1. the Court of Appeals gravely erred in law in ruling that under

the delivery trust receipts petitioner received the articles covered
therein in trust or with the obligation to account for the proceeds
thereof, or to return the same; and

2. the Court of Appeals committed serious error in law in finding

petitioner guilty of estafa under Subdivision No. 1 (B), Article 315
of the Revised Penal Code.

Petitioner, in respect of the first ground, insist that the delivery

trust receipts which he had signed were "merely intended to
evidence the fact that the articles therein listed were delivered to
and received by him." The documents do not, petitioner
contends, reflect the true intention of the parties considering that
even before he could comply with the stipulations in those
receipts, that is, to return the articles enumerated therein within
the period of two (2) days from the date of the receipt, the
complainant delivered to him other articles without demanding
compliance with the condition imposed by the earlier delivery
trust receipts. In short, it is his position that the delivery trust
receipts are "mere formalities" whose printed terms and
conditions appearing therein were not intended by the parties to
govern their transactions; that those transactions referred to
were in fact sales on trial basis for a period of two (2) days. Thus,
when he failed to return the various pieces of equipment within
the two-day period, he was deemed to have purchased the same
and his liability should therefore be only civil, i.e., to pay the
purchase price.

The Court is not persuaded. The delivery trust receipts evidencing

the transactions between Paramount Business Machines
("Paramount") and petitioner state, in relevant part: jgc:chanrobles.com.ph

"In trust for and as the property of said Paramount Business

Machines the above described merchandise having been delivered
to me/us for trial and with the obligation on my/our part to return
the same in good order and condition within 2 days from the date
hereof unless before the expiration of said period, I/we definitely
purchase the same and pay the price hereof .
In the meantime, pending the sales of the above described
merchandise to me/us, I/we agree and undertake to be
absolutely responsible as insurer for the proper care and
conservation of said property and to be liable for any loss or
destruction.

I/we further agree to keep the said property in my/our residence

or place of business at the address indicated herein above and
not to remove the same from said promise without the previous
knowledge and consent of Paramount Business Machines." 5
(Emphasis supplied).

The quoted provisions of the trust receipts show clearly (1) that
Paramount retained ownership of the office equipment covered by
the receipts; (2) that possession of the goods was conveyed to
petitioner subject to a fiduciary obligation either to return them
within a specified period of time or to pay or account for the price
of proceeds thereof. Surrounding circumstances also showed that
the transactions were not ordinary sales on trial basis. There
were six (6) transactions involved, not just one. In each
transaction, there were several items of equipment delivered to
petitioner, instead of just one, thereby indicating that petitioner
was not an ordinary buyer who would himself use the articles
bought, but rather a commission merchant. Additional items of
equipment were delivered to petitioner even before compliance
with his duty under one trust receipt to return within two (2) days
the office equipment he had received. He admitted in his Affidavit
6 dated 21 October 1977 that he was Paramount’s sales agent.
Petitioner, however, failed to return the machines upon demand
by Paramount and at the same time, failed to account for the sale
proceeds thereof. We agree with the Court of Appeals and the
trial court on this matter. The Court of Appeals said in part:
jgc:chanrobles.com.ph

"We hereby agree in full and quote hereunder the following

findings and conclusions of the court a quo in the appealed
decision because the same are in accordance with the evidence
and the law.
A scrutiny of the evidence presented, the Court is more inclined
to give more weight and credibility to the evidence of the
prosecution. The printed conditions are clearly inscribed and
forms [sic] part of the agreement between the accused and the
complainant, for on the delivery trust receipts (Exh. A-1) of the
Paramount Business Machines . . .: chanrob1es virtual 1aw library

x           x          x

The conditions (Exhibit A-1) stipulated on all the delivery trust

receipts signed by the accused specifically stated that the [items]
were received by the accused from the complainant ‘in trust for
and as property of the said Paramount Business Machines’ and
the further stipulation that the same is ‘with the obligation on
my/our part to return the same in good order and condition
within 2 days from the date hereof ‘ The ordinary and accepted
meaning of the phrase ‘in trust’ is an obligation upon a person
arising out of a confidence reposed in him to apply properly,
faithfully and according to such confidence (Bouvier’s Law
Dictionary, Baldwins Century Edition, page 1192.) That whatever
articles are received in trust by the accused if sold by him the
proceeds thereof are to be turned over to the owner, the
complainant herein, and if not sold the same articles are to be
returned to the complainant within two days from receipt of the
same.

The provisions of the conditions embodied in the trust receipts

need no further interpretation or elucidation for the same is clear,
specific and explicit. The Court has observed the accused to be an
intelligent man far (sic) from his qualification of being a college
professor and that he must have fully understood the contents of
the stipulations appearing on the face of the delivery trust
receipts which he actually signed upon receipt of the articles
described therein. The period for him (accused) to return the
articles is clear which is ‘2 days from the date hereof,’ meaning
from the date he received the articles, the period mentioned
being specifically typed on the blank provided therefore (sic)
which the Court believes the accused could not have missed and
is aware he signed these trust receipts." 7 (Emphasis supplied).

We note in this connection that the delivery trust receipts here

involved in fact constituted trust receipts within the meaning of
Presidential Decree No. 115, known as the "Trust Receipts Law,"
which took effect on 29 January 1973. Section 4 thereof defines a
"trust receipt" and a "trust receipt transaction" for purposes of
the decree in the following terms: jgc:chanrobles.com.ph

"Sec. 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 entrustee, 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, . . ." (Emphasis supplied).

We note that under Section 13 of the Trust Receipts Law, the

violation by an entrustee of his obligations under a trust receipt
document, more specifically his failure to turnover the proceeds
of the sale of the goods covered by the trust receipt, or to return
said goods as they were not sold or disposed of, would constitute
the crime of estafa under Article 315 (1) (b), Revised Penal Code.
Section 13 reads as follows:jgc:chanrobles.com.ph
"SEC. 13. Penalty clause. — The failure of an entrustee to turn
over the proceeds of the sale of the goods, documents or
instruments covered by a trust receipt to the extent of the
amount owing to the entruster or as appears in the trust receipt
or to return said goods, documents or instruments if they were
not sold or disposed of in accordance with the terms of the trust
receipt shall constitute the crime of estafa, punishable under the
provisions of Article Three Hundred and Fifteen, paragraph one
(b) of Act Number 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).

In Lee v. Rodil, 8 which involved a criminal prosecution for estafa

relating to goods covered by a trust receipt alleged to have been
committed on 26 July 1982, this Court affirmed the conviction for
estafa under paragraph 1 (b), Article 315 of the Revised Penal
Code and in the process, upheld Section 13 of Presidential Decree
No. 115 against constitutional challenge. The Court, speaking
through Mr. Justice Gutierrez, Jr., said:
jgc:chanrobles.com.ph

"Acts involving the violation of trust receipt agreements occurring

after 29 January 1973 would make the accused criminally liable
for estafa under paragraph 1 (b), Article 315 of the Revised Penal
Code, pursuant to the explicit provision in Sec. 13 of P.D. 115
(Sia v. Court of Appeals, G.R. No. 40324, October 5, 1988).

The petitioner questions the constitutionality of Sec. 13 of P.D.

115. She contends that it is violative of the constitutional right
that ‘No person shall be imprisoned for debt or non-payment of a
poll tax’.

The petitioner has failed to make out a strong case that P.D. 115
conflicts with the constitutional prohibition against imprisonment
for non-payment of debt. A convincing showing is needed to
overcome the presumption of the validity of an existing statute.

The criminal liability springs from the violation of the trust

receipt.

We bear in mind the nature of a trust receipt agreement . . .

x           x          x

. . . The violation of a trust receipt committed by disposing of the

goods covered thereby and failing to deliver the proceeds of such
sale has been squarely made to fall under Art. 315 (1) (b) of the
Revised Penal Code, . . ." 9

In the case at bar, the acts of petitioner which were complained

of were committed between 19 November 1976 and 9 March
1977, that is, long after the beginning date of effectivity of
Presidential Decree No. 115. In accordance with the provisions of
Section 13, Presidential Decree No. 115, quoted above, the
failure of petitioner Damian Robles to turnover to the entruster
Paramount the proceeds of the sale of goods covered by the
delivery trust receipts and to return the said goods, constituted
estafa punishable under Article 315 (1) (b) of the Revised Penal
Code.

It is also pertinent to point out that quite apart from and even in
the absence of the provisions of Section 13 of the Trust Receipt
Law, the failure of Damian Robles to comply with his fiduciary
obligation under the delivery trust receipts here involved,
constituted the offense of estafa punishable under Article 315 (1)
(b) of the Revised Penal Code. In other words, the elements of
the offense of estafa set out in Article 315 (1) (b) are present in
the instant case. Those elements are: (1) "unfaithfulness or
abuse of confidence;" (2) "misappropriating . . . money or
goods . . .; (3) received by the offender in trust or on commission
. . . or under any other obligation involving the duty to make
delivery of or to return the same . . .;" and (4) "to the prejudice
of another." The delivery trust receipts, in the case at bar,
admittedly signed by petitioner Damian Robles imposed on him
the duty to return the article or the proceeds thereof to
Paramount within two (2) days from the specified dates of the
trust receipts. The failure to account, upon demand, for funds or
property held in trust is evidence of misappropriation 10 which,
not having been explained away or rebutted by petitioner Damian
Robles, warranted his conviction for estafa under the Revised
Penal Code. This was settled doctrine long before the
promulgation of the Trust Receipts Law. 11

WHEREFORE, the present Petition for Review is hereby DENIED

for lack of merit and the Decision of the Court of Appeals in C.A.-
G.R. No. 23216-CR dated 17 September 1981, is hereby
AFFIRMED. Costs against petitioner.

SO ORDERED.

Allied Banking Corporation v Ordonez GR No. 82495 :

December 10, 1990.
MARCH 15, 2014
LEAVE A COMMENT
The crime of estafa for violation of the Trust Receipts Law is a
special offense or mala prohibita. It is a fundamental rule in
criminal law that when the crime is punished by a special law,
the act alone, irrespective of its motives, constitutes the offense.
In the instant case the failure of the entrustee to pay complainant
the remaining balance of the value of the goods covered by the
trust receipt when the same became due constitutes the offense
penalized under Section 13 of P.D. No. 115

Facts: Philippine Blooming Mills (PBM, for short) thru its duly
authorized officer, private respondent Alfredo Ching, applied for the
issuance of commercial letters of credit with petitioner’s Makati branch
to finance the purchase of 500 M/T Magtar Branch Dolomites and one
(1) Lot High Fired Refractory Sliding Nozzle Bricks. Allied Bank issued
an irrevocable letter of credit in favor of Nikko Industry Co., Ltd.
(Nikko) by virtue of which the latter drew four (4) drafts which were
accepted by PBM and duly honored and paid by the petitioner bank.
To secure payment of the amount covered by the drafts, and in
consideration of the transfer by petitioner of the possession of the
goods to PBM, the latter as entrustee, thru private respondent,
executed four (4) Trust Receipt Agreements with maturity dates on
acknowledging petitioner’s ownership of the goods and its (PBM’S)
obligation to turn over the proceeds of the sale of the goods, if sold, or
to return the same, if unsold within the stated period.

PBM defaulted on the payment of the trust receipts.. Despite repeated

demands, PBM failed and refused to either turn over the proceeds of
the sale of the goods or to return the same. Allied Bank filed a criminal
complaint against private respondent for violation of PD 115 before
the office of the Provincial Fiscal of Rizal. The Fiscal found a prima
facie case for violation of PD 115 on four (4) counts and filed the
corresponding information in court. PBM contended that since it was
under rehabilitation receivership, no criminal liability can be imputed to
Ching.

 Issue: Whether or not rehabilitation bars the filing of the estafa case

against Ching

 Held: It cannot be denied that the offense was consummated long

before the appointment of rehabilitation receivers. The filing of a
criminal case against respondent Ching is not only for the purpose of
effectuating a collection of a debt but primarily for the purpose of
punishing an offender for a crime committed not only against the
complaining witness but also against the state. The crime of estafa for
violation of the Trust Receipts Law is a special offense or mala
prohibita. It is a fundamental rule in criminal law that when the crime is
punished by a special law, the act alone, irrespective of its motives,
constitutes the offense. In the instant case the failure of the entrustee
to pay complainant the remaining balance of the value of the goods
covered by the trust receipt when the same became due constitutes
the offense penalized under Section 13 of P.D. No. 115; and on the
basis of this failure alone, the prosecution has sufficient evidence to
establish a prima facie case (Res. No. 671, s. 1981; Allied Banking
Corporation vs.  Reinhard Sagemuller, et al., Provincial Fiscal of Rizal,
September 18, 1981).

In examination of P.D. 115 shows the growing importance of trust

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

ANTHONY L. NG v. PEOPLE, GR No. 173905, 2010-04-23

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.
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.
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.
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.
Issues:
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.
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.
The absence of a demand (4th essential element) on petitioner necessarily
results to the dismissal of the criminal case.
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.
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.
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

Prudential Bank v Intermediate Appellate Court and

Anacleto Chi G.R. No. 74886 December 8, 1992
MARCH 15, 2014
LEAVE A COMMENT
Through a letter of credit, the bank merely substitutes its own
promise to pay for one of its customers who in return promises
to pay the bank the amount of funds mentioned in the letter of
credit plus credit or commitment fees mutually agreed upon.

Facts: Philippine Rayon Mills, Inc.(PRMI) entered into a contract with

Nissho Co., Ltd. of Japan for the importation of textile machineries
under a 5-year deferred payment plan. To effect the payment, PRMI
applied for a commercial letter of credit with the Prudential Bank and
Trust Company in favor of Nissho. Prudential Bank opened Letter of
Credit No. DPP-63762 for $128,548.78 Against this letter of credit,
drafts were drawn and issued by Nissho, which were all paid by the
Prudential Bank through its correspondent in Japan, the Bank of
Tokyo, Ltd. Two of the original drafts were accepted by PRMI through
its president, Anacleto R. Chi, while the others were not. Upon the
arrival of the machineries, the Prudential Bank indorsed the shipping
documents to the PRMI which accepted delivery of the same. To
enable PRMI to take delivery of the machineries, it executed, by prior
arrangement with the Prudential Bank, a trust receipt which was
signed by Anacleto R. Chi in his capacity as President of PRMI
company

At the back of the trust receipt was printed a form to be accomplished

by 2 sureties who, by the very terms and conditions thereof, were to
be jointly and severally liable to the Prudential Bank should the PRMI
fail to pay the total amount or any portion of the drafts issued by
Nissho and paid for by Prudential Bank. . PRMI was able to take
delivery of the textile machineries and installed the same at its factory
site. Chi argued that presentment for acceptance was necessary to
make PRMI liable. The trial court ruled that that presentment for
acceptance was an indispensable requisite for Philippine Rayon’s
liability on the drafts to attach.

Issue : Whether or not presentment for acceptance was needed in

order for PRMI to be liable under the draft.

HELD : Presentment for acceptance is defined an the production of a

bill of exchange to a drawee for acceptance. Acceptance, however,
was not even necessary in the first place because the drafts which
were eventually issued were sight drafts. Even if these were not sight
drafts, thereby necessitating acceptance, it would be the Bank (Bank
of America) — and not Philippine Rayon — which had to accept the
same for the latter was not the drawee.

The trial court and the public respondent, therefore, erred in ruling that
presentment for acceptance was an indispensable requisite for
Philippine Rayon’s liability on the drafts to attach. Contrary to both
courts’ pronouncements, Philippine Rayon immediately became liable
upon Bank of America’s payment on the letter of credit. Such is the
essence of the letter of credit issued by the petitioner. A different
conclusion would violate the principle upon which commercial letters
of credit are founded because in such a case, both the beneficiary and
the issuer, Nissho Company Ltd. and the petitioner, respectively,
would be placed at the mercy of Philippine Rayon even if the latter
had already received the imported machinery and the petitioner had
fully paid for it.

In fact, there was no need for acceptance as the issued drafts are
sight drafts. Presentment for acceptance is necessary only in the
cases expressly provided for in Section 143 of the Negotiable
Instruments Law (NIL).

In the instant case then, the drawee was necessarily the herein the
Bank of America. It was to the latter that the drafts were presented for
payment.

Colinares v CA G.R. No. 90828. September 5, 2000

MARCH 15, 2014
LEAVE A COMMENT
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.

Facts: Melvin Colinares and Lordino Veloso (hereafter Petitioners)

were contracted for a consideration of P40,000 by the Carmelite
Sisters of Cagayan de Oro City to renovate the latter’s convent at
Camaman-an, Cagayan de Oro City. Colinares applied for a
commercial letter of credit  with the Philippine Banking Corporation,
Cagayan de Oro City branch (hereafter PBC) in favor of CM Builders
Centre. PBC approved the letter of credit  for P22,389.80 to cover the
full invoice value of the goods. Petitioners signed a pro-forma trust
receipt  as security.

PBC debited P6,720 from Petitioners’ marginal deposit as partial

payment of the loan.  After the initial payment, the spouses defaulted. 
PBC wrote  to Petitioners demanding that the amount be paid within
seven days from notice. Instead of complying with PBC’s demand,
Veloso confessed that they lost P19,195.83 in the Carmelite
Monastery Project and requested for a grace period of until 15 June
1980 to settle the account.  Colinares proposed  that the terms of
payment of the loan be modified P2,000 on or before 3 December
1980, and P1,000 per month . Pending approval of the proposal,
Petitioners paid P1,000 to PBC on 4 December 1980, and
thereafter P500 on 11 February 1981, 16 March 1981, and 20 April
1981. Concurrently with the separate demand for attorney’s fees by
PBC’s legal counsel, PBC continued to demand payment of the
balance.  On 14 January 1983, Petitioners were charged with the
violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315
of the Revised Penal Code

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. The Trust
Receipts Law does not seek to enforce payment of the loan, rather it
punishes the dishonesty and abuse of confidence in the handling of
money or goods to the prejudice of another regardless of whether the
latter is the owner. Here, it is crystal clear that on the part of
Petitioners there was neither dishonesty nor abuse of 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.

Issue: Whether or not the transaction of Colinares falls within the

ambit of the Law on Trust Receipt

Held: Colinares 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. The
ownership of the merchandise continues to be vested in the person
who had advanced payment until he has been paid in full, or if the
merchandise has already been sold, the proceeds of the sale should
be turned over to him by the importer or by his representative or
successor in interest. To secure that the bank shall be paid, it takes
full title to the goods at the very beginning and continues to hold that
title as his indispensable security until the goods are sold and the
vendee is called upon to pay for them; hence, the importer has never
owned the goods and is not able to deliver possession. In a certain
manner, trust receipts partake of the nature of a conditional sale
where the importer becomes absolute owner of the imported
merchandise as soon as he has paid its price. 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. Failure of the entrustee to turn over the
proceeds of the sale of the goods, covered by the trust receipt to the
entruster or to return said goods if they were not disposed of in
accordance with the terms of the trust receipt shall be punishable as
estafa under Article 315 (1) of the Revised Penal Code, without need
of proving intent to defraud.PHILIPPINE BLOOMING MILLS v. CA,
GR No. 142381, 2003-10-15

Facts:
Ching was the Senior Vice President of PBM. In his personal capacity and
not as a corporate officer, Ching signed a Deed of Suretyship dated 21 July
1977 binding himself
On 24 March and 6 August 1980, TRB granted PBM letters of credit on
application of Ching in his capacity as Senior Vice President of PBM. Ching
later accomplished and delivered to TRB trust receipts, which acknowledged
receipt in trust for TRB of the merchandise subject of the... letters of credit.
Under the trust receipts, PBM had the right to sell the merchandise for cash
with the obligation to turn over the entire proceeds of the sale to TRB as
payment of PBM's indebtedness.
On 27 April 1981, PBM obtained a P3,500,000 trust loan from TRB. Ching
signed as co-maker in the notarized Promissory Note evidencing this trust
loan.
On 1 April 1982, PBM and Ching filed a petition for suspension of payments
with the Securities and Exchange Commission ("SEC"), docketed as SEC
Case No. 2250.
The petition sought to suspend payment of PBM's obligations and prayed that
the SEC allow PBM... to continue its normal business operations free from
the interference of its creditors. One of the listed creditors of PBM was TRB.
[11]
On 9 July 1982, the SEC placed all of PBM's assets, liabilities, and
obligations under the rehabilitation receivership of Kalaw, Escaler and
Associates.
On 13 May 1983, ten months after the SEC placed PBM under rehabilitation
receivership, TRB filed with the trial court a complaint for collection against
PBM and Ching.
On 25 May 1983, TRB moved to withdraw the complaint against PBM on the
ground that the SEC had already placed PBM under receivership.
Issues:
T
HE COURT OF APPEALS COMMITTED AN ERROR WHEN IT RULED
THAT THE PETITIONERS WERE LIABLE FOR THE TRUST RECEIPTS
DESPITE THE FACT THAT PRIVATE RESPONDENT HAD
PREVENTED THEIR FULFILLMENT.
HE COURT OF APPEALS COMMITTED AN ERROR WHEN IT FOUND
PETITIONER ALFREDO CHING LIABLE FOR P15,773,708.78 WITH
LEGAL INTEREST AT 12% PER ANNUM UNTIL FULLY PAID
DESPITE THE FACT THAT UNDER THE REHABILITATION PLAN OF
PETITIONER PBM
Ruling:
The petition has no merit.
The case before us is an offshoot of the trial court's denial of Ching's motion
to have the case dismissed against him. The petition is a thinly veiled attempt
to make this Court reconsider its decision in the prior case of Traders Royal
Bank v. Court of Appeals.
[48] This Court has already resolved the issue of Ching's separate liability as
a surety despite the rehabilitation proceedings before the SEC.
Ching can be sued separately to enforce his liability as surety for PBM, as
expressly provided by Article 1216 of the New Civil Code.
It is elementary that a corporation has a personality distinct and separate from
its individual stockholders and members. Being an officer or stockholder of a
corporation does not make one's property the property also of the corporation,
for they are separate entities (Adelio
Cruz vs. Quiterio Dalisay, 152 SCRA 482).
Ching's act of joining as a co-petitioner with PBM in SEC Case No. 2250 did
not vest in the SEC jurisdiction over his person or property, for jurisdiction
does not depend on the consent or acts of the parties but upon express
provision of law
Traders Royal Bank has fully resolved the issue regarding Ching's liability as
a surety of the credit accommodations TRB extended to PBM.
Whether Ching is liable for obligations PBM contracted after execution of the
Deed of Suretyship
Ching is liable for credit obligations contracted by PBM against TRB before
and after the execution of t... he 21 July 1977 Deed of Suretyship.
The law expressly allows a suretyship for "future debts". Article 2053 of the
Civil Code provides:
A guaranty may also be given as security for future debts, the amount of
which is not yet known; there can be no claim against the guarantor until the
debt is liquidated. A conditional obligation may also be secured.
Ching would like this Court to rule that his liability is limited, at most, to the
amount stated in PBM's rehabilitation plan.
In granting the loan to PBM, TRB required Ching's surety precisely to insure
full recovery of the loan in case PBM becomes insolvent or fails to pay in
full. This was the very purpose of the surety. Thus, Ching cannot use PBM's
failure to pay in full as justification for his own... reduced liability to TRB.
As surety, Ching agreed to pay in full PBM's loan in case PBM fails to pay in
full for any reason, including its insolvency.
TRB, as creditor, has the right under the surety to proceed against Ching for
the entire amount of PBM's loan. This is clear from Article 1216 of the Civil
Code:
ART. 1216. The creditor may proceed against any one of the solidary debtors
or some or all of them simultaneously. The demand made against one of them
shall not be an obstacle to those which may subsequently be directed against
the others, so long as the debt has not... been fully collected
Ching's attempts to have this Court review the factual issues of the case are
improper. It is not a function of the Supreme Court to assess and evaluate
again the evidence, testimonial and evidentiary, adduced by the parties
particularly where the findings of both the trial... court and the appellate court
coincide on the matter.
Ching is still liable for the amounts stated in the letters of credit covered by
the trust receipts. Other than his bare allegations, Ching has not shown proof
of payment or settlement with TRB. Atty. Vicente Aranda, TRB's corporate
secretary and First Vice
President of its Human Resource Management Department, testified that the
conditions in the TRB board resolution presented by Ching were not met or
implemented
The trial court found and the appellate court affirmed that the outstanding
principal amounts as of the filing of the complaint with the trial court on 13
May 1983
WHEREFORE, we AFFIRM the decision of the Court of Appeals with
MODIFICATION

Sarmiento v Court of Appeals G.R. No. 122502.

December 27, 2002
MARCH 15, 2014
LEAVE A COMMENT
Breach of obligation is separate and distinct from any criminal
liability for “misuse and/or misappropriation of goods or
proceeds realized from the sale of goods, documents or
instruments released under trust receipts”, punishable under
Section 13 of the Trust Receipts Law (P.D. 115)

Facts: Gregorio Limpin, Jr. and Antonio Apostol, doing business under
the name and style of ‘Davao Libra Industrial Sales,’ filed an
application for an Irrevocable Domestic Letter of Credit with the
plaintiff Bank for the amount of P495,000.00 in favor of LS Parts
Hardware and Machine Shop (herein after referred to as LS Parts) for
the purchase of assorted scrap irons. Said application was signed by
defendant Limpin and Apostol. The aforesaid application was
approved, and plaintiff Bank issued Domestic Letter of Credit No. DLC
No. DVO-78-006 in favor of LS Parts for P495,000.00.  Thereafter, a
Trust Receipt dated September 6, 1978, was executed by defendant
Limpin and Antonio Apostol (Exh. ‘C’). In said Trust Receipt, the
following stipulation, signed by defendant Lorenzo Sarmiento, Jr. The
defendants failed to comply with their undertaking under the Trust
Receipt. The defendants claim that they cannot be held liable as the
825 tons of assorted scrap iron, subject of the trust receipt agreement,
were lost when the vessel transporting them sunk, and that said scrap
iron were delivered to ‘Davao Libra Industrial Sales’, a business
concern over which they had no interest whatsoever.

Issue: Whether or not Sarmiento is liable nowithstanding the loss of

the scrap iron 

Held: Yes In the present case, private respondent’s complaint against

petitioners was based on the failure of the latter to comply with their
obligation as spelled out in the Trust Receipt executed
by them.This breach of obligation is separate and distinct from any
criminal liability for “misuse and/or misappropriation of goods or
proceeds realized from the sale of goods, documents or instruments
released under trust receipts”, punishable under Section 13 of the
Trust Receipts Law (P.D. 115) in relation to Article 315(1), (b) of the
Revised Penal Code. Being based on an obligation ex contractu and
not ex delicto, the civil action may proceed independently of the
criminal proceedings instituted against petitioners regardless of the
result of the latterRizal Commercial Banking Corp. vs Alfa RTW
Manufacturing Corp. et. al.

Rizal Commercial Banking Corp. vs Alfa RTW Manufacturing Corp. et. al.
G.R. No. 133877
November 14, 2001

Facts:

It appears that defendant Alfa RTW Manufacturing Corporation (Alfa RTW), on separate
instances, had applied for and was granted by the plaintiff Rizal Commercial Banking
Corporation (RCBC) four Letters of Credit to facilitate its purchase of raw materials for
its garments business. Upon such letters of credit, corresponding bills of exchange of
various amounts were drawn, and charged to the account of said defendants.
The defendant Alfa RTW, in turn, had executed four Trust Receipts, stipulating that it
had received in trust for the plaintiff bank the goods and merchandise described therein,
and which were purchased with the drawings upon the letters of credit.
When the obligations upon the said commercial documents became due, the plaintiff
demanded payment of the defendants’ undertakings, citing two documents allegedly
executed by the individual defendants Johnny Teng, Ramon Lee, Antonio D. Lacdao
and Ramon Uy and Alfa Integrated Textile Mills Inc. (Alfa ITM), labeled Comprehensive
Surety Agreements dated September 8, 1978 and October 10, 1979.

Under such Comprehensive Surety Agreements, it was essentially agreed that for and
in consideration of any existing indebtedness to plaintiff bank of defendant Alfa RTW
and/or in order to induce the plaintiff bank at any time thereafter to make loans or
advances or increases thereof or to extend credit in any other manner to or for the
account of defendant, Alfa ITM and the signatory officers agreed to guarantee in joint
and several capacity the punctual payment at maturity to plaintiff bank of any and all
such indebtedness and/or other obligations and also any and all indebtedness of every
kind which was then or may thereafter become due or owing to plaintiff bank by the
defendant Alfa RTW, together with any and all expenses of collection, etc., provided,
however, that the liability of individual defendants and defendant Alfa Integrated Textile
Mills, Inc. thereunder shall not exceed the sum of P4,000,000.00 and P7,500,000.00
and such interest as may accrue thereon and expenses as may be incurred by plaintiff
bank.

Held:

Petitioner for review on certiorari assailing the decision of the Court of Appeals.
The award of interest, in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.."

RTC Decision

On March 12, 1982, Rizal Banking Corporation (RCBC) filed with the Regional Trial
Court of Makati, for a sum of money against Alfa RTW Manufacturing Corporation,
Johnny Teng, Ramon Lee, Antonio Lacdao, Ramon Luy and Alfa Integrated Textile
Mills. Asserting a superior right over the property involved in the suit, North Atlantic
Garments Corporation filed a complaint in intervention. BA Finance Corporation,
claiming as mortgagee of the same property, filed an answer in intervention. After
hearing, the trial court rendered judgment on August 19, 1991.

It was held at RTC that the judgment is rendered in favor of plaintiff on the following
grounds: (1) Ordering all defendants to pay, jointly and severally, to plaintiff the amount
of P18,961,372.43 (inclusive of interest, service charges, litigation expenses and
attorney’s fees), with interest thereon at the legal rate from February 15, 1988 until fully
paid. The proceeds from the sale of defendant Alfa’s ready to wear apparel, in the sum
of P73,133.70, should be deducted from the principal obligation of P18,961,372.43. And
(2) Declaring that the respective liens of intervenors BA Finance Corporation and North
American Garments Corporation over the properties attached by the sheriff are inferior
to that of plaintiff.

CA Decision

However, when the case was brought to the CA, On appeal, the Court of Appeals
affirmed with modification the RTC decision, in which the decision appealed from was
AFFIRMED, with the modification that instead of P18,961,372.43, all the defendants are
hereby ordered to pay, jointly and severally to plaintiff the amount of P3,060,406.25.