G.R. No.
166884               June 13, 2012 On September 30, 1999, Makati Assistant City Prosecutor Amador Y. Pineda issued a
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-complaint 5 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 affidavit 9 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.
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 certification21 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:
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.
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
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 The CA held that during the course of the trial, petitioner knew that the complainant Bernardez and the
crime of Estafa. The fallo of the Decision reads as follows: 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
WHEREFORE, judgment is hereby rendered finding the petitioner, Anthony L. Ng GUILTY beyond
change in the name of the complainant will not prejudice and alter the fact that petitioner was being
reasonable doubt for the crime of Estafa defined in and penalized by Article 315, paragraph 1(b) of the
charged with the crime of Estafa in relation to the Trust Receipts Law, since the information clearly set
Revised Penal Code in relation to Section 3 of Presidential Decree 115, otherwise known as the Trust
forth the essential elements of the crime charged, and the constitutional right of petitioner to be informed of
Receipts Law, and is hereby sentenced to suffer the indeterminate penalty of from six (6) years, eight (8)
the nature and cause of his accusations is not violated.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.
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
The petitioner is further ordered to return to the Asiatrust Development Bank Inc. the amount of Two
obligation when it became due. According to the CA, the fact that petitioner acted without malice or fraud
Million, Nine Hundred Seventy One and Six Hundred Fifty Pesos (P2,971,650.00) with legal rate of interest
in entering into the transactions has no bearing, since the offense is punished as malum
computed from the filing of the information on September 21,1999 until the amount is fully paid.
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.
IT IS SO ORDERED.
With regard to the failure of the RTC to consider the fact that petitioner’s outstanding receivables are
In rendering its Decision, the trial court held that petitioner could not simply argue that the contracts he had sufficient to cover his indebtedness and that no written demand was made upon him hence his obligation
entered into with Asiatrust were void as they were contracts of adhesion. It reasoned that petitioner is has not yet become due and demandable, the CA stated that the mere query as to the whereabouts of the
presumed to have read and understood and is, therefore, bound by the provisions of the Letters of Credit goods and/or money is tantamount to a demand. 9
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
Concerning the alleged bias, hostility, and prejudice of the RTC against petitioner, the CA said that
with the computation of other fees and charges; thus, Asiatrust did not violate Republic Act No. 3765
petitioner failed to present any substantial proof to support the aforementioned allegations against the
(Truth in Lending Act). Finally, the trial court declared that petitioner, being the entrustee stated in the
RTC.
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 After the receipt of the CA Decision, petitioner moved for its reconsideration, which was denied by the CA
evidently violated the Trust Receipts Law. in its Resolution dated July 25, 2006. Thereafter, petitioner filed this Petition for Review on Certiorari. In his
Memorandum, he raised the following issues:
Ruling of the Appellate Court
Issues:
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 1. The prosecution failed to adduce evidence beyond a reasonable doubt to satisfy the 2nd
name of the offended party without the benefit of an amendment of the Information which violates his right essential element that there was misappropriation or conversion of subject money or property by
to be informed of the nature and cause of accusation against him; (2) in making a finding of facts not in petitioner.
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,
2. The state was unable to prove the 3rd essential element of the crime that the alleged
and prejudiced against him; and (5) in considering the prosecution’s evidence which did not prove the guilt
misappropriation or conversion is to the prejudice of the real offended property.
of petitioner beyond reasonable doubt.1avvphi1

3. The absence of a demand (4th essential element) on petitioner necessarily results to the
On August 29, 2003, the CA rendered a Decision affirming that of the RTC, the fallo of which reads:
dismissal of the criminal case.

WHEREFORE, the foregoing considered, the instant appeal is DENIED. The decision of the Regional Trial
The Court’s Ruling
Court of Quezon City, Branch 95 dated May 29, 2001 is AFFIRMED.

We find the petition to be meritorious.

SO ORDERED.
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 Desistance 21 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.
G.R. No. 164051               October 3, 2012
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
LILIAN S. SORIANO, Respondent.
DECISION
PEREZ, J.:
We arc urged in this petition for review on certiorari to reverse and set aside the Decision of the Court of
Appeals in C A-G.R. SP No. 762431 finding no grave abuse of discretion in the ruling of the Secretary of
the Department of Justice ( DOJ) which, in turn, dismissed the criminal complaint for Estafa, i.e., violation
of Section 13 of Presidential Decree No. 1 15 (Trust Receipts Law), in relation to Article 315, paragraph (b)
of the Revised Penal Code, filed by petitioner Philippine National Bank (PNB) against respondent Lilian S.
Soriano (Soriano).2
First, the ostensibly simple facts as found by the Court of Appeals and adopted by PNB in its petition and
memorandum:
On March 20, 1997, [PNB] extended a credit facility in the form of [a] Floor Stock Line (FSL) in the
increased amount of Thirty Million Pesos (₱30 Million) to Lisam Enterprises, Inc. [LISAM], a family-owned
and controlled corporation that maintains Current Account No. 445830099-8 with petitioner PNB.
x x x. Soriano is the chairman and president of LISAM, she is also the authorized signatory in all LISAM’s
Transactions with [PNB].
On various dates, LISAM made several availments of the FSL in the total amount of Twenty Nine Million
Six Hundred Forty Five Thousand Nine Hundred Forty Four Pesos and Fifty Five Centavos (₱
29,645,944.55), the proceeds of which were credited to its current account with [PNB]. For each availment,
LISAM through [Soriano], executed 52 Trust Receipts (TRs). In addition to the promissory notes, showing
its receipt of the items in trust with the duty to turn-over the proceeds of the sale thereof to [PNB].
Sometime on January 21-22, 1998, [PNB’s] authorized personnel conducted an actual physical inventory
of LISAM’s motor vehicles and motorcycles and found that only four (4) units covered by the TRs
amounting to One Hundred Forty Thousand Eight Hundred Pesos (₱158,100.00) (sic) remained unsold.
Out of the Twenty Nine Million Six Hundred Forty Four Thousand Nine Hundred Forty Four Pesos and Fifty
Five Centavos (₱29,644,944.55) as the outstanding principal balance [of] the total availments on the line
covered by TRs, [LISAM] should have remitted to [PNB], Twenty Nine Million Four Hundred Eighty Seven
Thousand Eight Hundred Forty Four Pesos and Fifty Five Centavos (₱29,487,844.55). Despite several
formal demands, respondent Soriano failed and refused to turn over the said [amount to] the prejudice of
[PNB].3
Given the terms of the TRs which read, in pertinent part:
RECEIVED in Trust from the [PNB], Naga Branch, Naga City, Philippines, the motor vehicles ("Motor
Vehicles") specified and described in the Invoice/s issued by HONDA PHILIPPINES, INC. (HPI) to Lisam
Enterprises, Inc., (the "Trustee") hereto attached as Annex "A" hereof, and in consideration thereof, the
trustee hereby agrees to hold the Motor Vehicles in storage as the property of PNB, with the liberty to sell
the same for cash for the Trustee’s account and to deliver the proceeds thereof to PNB to be applied
against its acceptance on the Trustee’s account. Under the terms of the Invoices and (sic) the Trustee
further agrees to hold the said vehicles and proceeds of the sale thereof in Trust for the payment of said
acceptance and of any [of] its other indebtedness to PNB.
xxxx
For the purpose of effectively carrying out all the terms and conditions of the Trust herein created and to
insure that the Trustee will comply strictly and faithfully with all undertakings hereunder, the Trustee
hereby agrees and consents to allow and permit PNB or its representatives to inspect all of the Trustee’s
books, especially those pertaining to its disposition of the Motor Vehicles and/or the proceeds of the sale
hereof, at any time and whenever PNB, at its discretion, may find it necessary to do so.
The Trustee’s failure to account to PNB for the Motor Vehicles received in Trust and/or for the proceeds of
the sale thereof within thirty (30) days from demand made by PNB shall constitute prima facie evidence
that the Trustee has converted or misappropriated said vehicles and/or proceeds thereof for its benefit to
the detriment and prejudice of PNB.4
and Soriano’s failure to account for the proceeds of the sale of the motor vehicles, PNB, as previously
adverted to, filed a complaint-affidavit before the Office of the City Prosecutor of Naga City charging
Soriano with fifty two (52) counts of violation of the Trust Receipts Law, in relation to Article 315,
paragraph 1(b) of the Revised Penal Code.
In refutation, Soriano filed a counter-affidavit asserting that:
1. The obligation of [LISAM] which I represent, and consequently[,] my obligation, if any, is purely civil in
nature. All of the alleged trust receipt agreements were availments made by the corporation [LISAM] on
the PNB credit facility known as "Floor Stock Line" (FSL), which is just one of the several credit facilities
granted to [LISAM] by PNB. When my husband Leandro A. Soriano, Jr. was still alive, [LISAM] submitted
proposals to PNB for the restructuring of all of [LISAM’s] credit facilities. After exchanges of several letters
and telephone calls, Mr. Josefino Gamboa, Senior Vice President of PNB on 12 May 1998 wrote [LISAM]
informing PNB’s lack of objection to [LISAM’s] proposal of restructuring all its obligations. x x x.
2. On September 22, 1998 Mr. Avengoza sent a letter to [LISAM], complete with attached copy of PNB
Board’s minutes of meeting, with the happy information that the Board of Directors of PNB has approved
the conversion of [LISAM’s] existing credit facilities at PNB, which includes the FSL on which the Trust
receipts are availments, to [an] Omnibus Line (OL) available by way of Revolving Credit Line (RCL),
Discounting Line Against Post-Dated Checks (DLAPC), and Domestic Bills Purchased Line (DBPL) and
with a "Full waiver of penalty charges on RCL, FSL (which is the Floor Stock Line on which the trust
receipts are availments) and Time Loan. x x x.
3. The [FSL] and the availments thereon allegedly secured by Trust Receipts, therefore, was (sic) already
converted into[,] and included in[,] an Omnibus Line (OL) of ₱106 million on September 22, 1998, which
was actually a Revolving Credit Line (RCL)[.]5
PNB filed a reply-affidavit maintaining Soriano’s criminal liability under the TRs:
2. x x x. While it is true that said restructuring was approved, the same was never implemented because
[LISAM] failed to comply with the conditions of approval stated in B/R No. 6, such as the payment of the
interest and other charges and the submission of the title of the 283 sq. m. of vacant residential lot, x x x
Tandang Sora, Quezon City, as among the common conditions stated in paragraph V, of B/R 6. The
nonimplementation of the approved restructuring of the account of [LISAM] has the effect of reverting the
account to its original status prior to the said approval. Consequently, her claim that her liability for
violation of the Trust Receipt Agreement is purely civil does not hold water. 6
When this case was called for continuation of pre-trial, [Soriano’s] counsel appeared. However, Prosecutor
Edgar Imperial failed to appear.
Records show that a copy of the Resolution from the Department of Justice promulgated on October 28,
2002 was received by this Court, (sic) denying the Motion for Reconsideration of the Resolution No. 320,
series of 2002 reversing that of the City Prosecutor of Naga City and at the same time directing the latter
to move with leave of court for the withdrawal of the informations for Estafa against Lilian Soriano.
Accordingly, the prosecution is hereby given fifteen (15) days from receipt hereof within which to comply
with the directive of the Department of Justice.
2. 21 February 200312

Finding the Motion to Withdraw Informations filed by Pros. Edgar Imperial duly approved by the City
In a Resolution,7 the City Prosecutor of Naga City found, thus:
Prosecutor of Naga City to be meritorious the same is hereby granted. As prayed for, the Informations in
Crim. Cases Nos. RTC 2001-0641 to 2001-0693 entitled, People of the Philippines vs. Lilian S. Soriano,
WHEREFORE, the undersigned finds prima facie evidence that respondent LILIAN SORIANO is probably consisting of fifty-two (52) cases except for Crim. Case No. RTC 2001-0671 which had been previously
guilty of violation of [the] Trust Receipt Law, in relation to Article 315 par. 1 (b) of the Revised Penal Code, dismissed, are hereby ordered WITHDRAWN.
let therefore 52 counts of ESTAFA be filed against the respondent. 8
3. 15 July 200313
Consequently, on 1 August 2001, the same office filed Informations against Soriano for fifty two (52)
counts of Estafa (violation of the Trust Receipts Law), docketed as Criminal Case Nos. 2001-0641 to
The prosecution of the criminal cases herein filed being under the control of the City Prosecutor, the
2001-0693, which were raffled to the Regional Trial Court (RTC), Branch 21, Naga City.
withdrawal of the said cases by the Prosecution leaves this Court without authority to re-instate, revive or
refile the same.
Meanwhile, PNB filed a petition for review of the Naga City Prosecutor’s Resolution before the Secretary of
the DOJ.
Wherefore, the Motion for Reconsideration filed by the private complainant is hereby DENIED.

In January 2002, the RTC ordered the dismissal of one of the criminal cases against Soriano, docketed as
With the denial of its Motion for Reconsideration of the 25 June 2002 Resolution of the Secretary of the
Criminal Case No. 2001-0671. In March of the same year, Soriano was arraigned in, and pled not guilty to,
DOJ, PNB filed a petition for certiorari before the Court of Appeals alleging that:
the rest of the criminal cases. Thereafter, on 16 October 2002, the RTC issued an Order resetting the
continuation of the pre-trial on 27 November 2002.
A. THE SECRETARY OF THE DOJ COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO
9  WANT OR EXCESS OF JURISDICTION IN REVERSING AND SETTING ASIDE THE RESOLUTON OF
On the other litigation front, the DOJ, in a Resolution dated 25 June 2002, reversed and set aside the
THE CITY PROSECUTOR OF NAGA CITY FINDING A PRIMA FACIE CASE AGAINST PRIVATE
earlier resolution of the Naga City Prosecutor:
RESPONDENT [SORIANO], FOR THE SAME HAS NO LEGAL BASES AND IS NOT IN ACCORD WITH
THE JURISPRUDENTIAL RULINGS ON THE MATTER. 14
WHEREFORE, the questioned resolution is REVERSED and SET ASIDE and the City Prosecutor of Naga
City is hereby directed to move, with leave of court, for the withdrawal of the informations for estafa against
As stated at the outset, the appellate court did not find grave abuse of discretion in the questioned
Lilian S. Soriano in Criminal Case Nos. 2001-0641 to 0693 and to report the action taken thereon within
resolution of the DOJ, and dismissed PNB’s petition for certiorari.
ten (10) days from receipt thereof.10

Hence, this appeal by certiorari.

On various dates the RTC, through Pairing Judge Novelita Villegas Llaguno, issued the following Orders:

Before anything else, we note that respondent Soriano, despite several opportunities to do so, failed to file
1. 27 November 200211
a Memorandum as required in our Resolution dated 16 January 2008. Thus, on 8 July 2009, we resolved
to dispense with the filing of Soriano’s Memorandum.
In its Memorandum, PNB posits the following issues:
I. Whether or not the Court of Appeals gravely erred in concurring with the finding of the DOJ that the
approval by PNB of [LISAM’s] restructuring proposal of its account with PNB had changed the status of
[LISAM’s] obligations secured by Trust Receipts to one of an ordinary loan, non-payment of which does
not give rise to a criminal liability.
II. Whether or not the Court of Appeals gravely erred in concluding and concurring with the June 25, 2002
Resolution of the DOJ directing the withdrawal of the Information for Estafa against the accused in
Criminal Case Nos. 2001-0641 up to 0693 considering the well-established rule that once jurisdiction is
vested in court, it is retained up to the end of the litigation.
III. Whether or not the reinstatement of the 51 counts (Criminal Case No. 2001-0671 was already
dismissed) of criminal cases for estafa against Soriano would violate her constitutional right against double
jeopardy.15
Winnowed from the foregoing, we find that the basic question is whether the Court of Appeals gravely
erred in affirming the DOJ’s ruling that the restructuring of LISAM’s loan secured by trust receipts
extinguished Soriano’s criminal liability therefor.
It has not escaped us that PNB’s second and third issues delve into the three (3) Orders of the RTC which
are not the subject of the petition before us. To clarify, the instant petition assails the Decision of the
appellate court in CA-G.R. SP No. 76243 which, essentially, affirmed the ruling of the DOJ in I.S. Nos.
2000-1123, 2000-1133 and 2000-1184. As previously narrated, the DOJ Resolution became the basis of
the RTC’s Orders granting the withdrawal of the Informations against Soriano. From these RTC Orders,
the remedy of PNB was to file a petition for certiorari before the Court of Appeals alleging grave abuse of
discretion in the issuance thereof.
However, for clarity and to obviate confusion, we shall first dispose of the peripheral issues raised by PNB:
1. Whether the withdrawal of Criminal Cases Nos. 2001-0641 to 2001-0693 against Soriano as directed by
the DOJ violates the well-established rule that once the trial court acquires jurisdiction over a case, it is
retained until termination of litigation.
2. Whether the reinstatement of Criminal Cases Nos. 2001-0641 to 2001-0693 violate the constitutional
provision against double jeopardy.
We rule in the negative.
Precisely, the withdrawal of Criminal Cases Nos. 2001-0641 to 2001-0693 was ordered by the RTC. In
particular, the Secretary of the DOJ directed City Prosecutor of Naga City to move, with leave of court,
for the withdrawal of the Informations for estafa against Soriano. Significantly, the trial court gave the
prosecution fifteen (15) days within which to comply with the DOJ’s directive, and thereupon, readily
granted the motion. Indeed, the withdrawal of the criminal cases did not occur, nay, could not have
occurred, without the trial court’s imprimatur. As such, the DOJ’s directive for the withdrawal of the criminal
cases against Soriano did not divest nor oust the trial court of its jurisdiction.
Regrettably, a perusal of the RTC’s Orders reveals that the trial court relied solely on the Resolution of the
DOJ Secretary and his determination that the Informations for estafa against Soriano ought to be
withdrawn. The trial court abdicated its judicial power and refused to perform a positive duty enjoined by
law. On one occasion, we have declared that while the recommendation of the prosecutor or the ruling of
the Secretary of Justice is persuasive, it is not binding on courts. 16 We shall return to this point shortly.
In the same vein, the reinstatement of the criminal cases against Soriano will not violate her constitutional
right against double jeopardy.
Section 7,17 Rule 117 of the Rules of Court provides for the requisites for double jeopardy to set in: (1) a
first jeopardy attached prior to the second; (2) the first jeopardy has been validly terminated; and (3) a
second jeopardy is for the same offense as in the first. A first jeopardy attaches only (a) after a valid
indictment; (b) before a competent court; (c) after arraignment; (d) when a valid plea has been entered;
and (e) when the accused has been acquitted or convicted, or the case dismissed or otherwise
terminated without his express consent.18
In the present case, the withdrawal of the criminal cases did not include a categorical dismissal thereof by
the RTC. Double jeopardy had not set in because Soriano was not acquitted nor was there a valid and
legal dismissal or termination of the fifty one (51) cases against her. It stands to reason therefore that the
fifth requisite which requires conviction or acquittal of the accused, or the dismissal of the case without the
approval of the accused, was not met.
On both issues, the recent case of Cerezo v. People,19 is enlightening. In Cerezo, the trial court simply
followed the prosecution’s lead on how to proceed with the libel case against the three accused. The
prosecution twice changed their mind on whether there was probable cause to indict the accused for libel.
On both occasions, the trial court granted the prosecutor’s motions. Ultimately, the DOJ Secretary directed
the prosecutor to re-file the Information against the accused which the trial court forthwith reinstated.
Ruling on the same issues raised by PNB in this case, we emphasized, thus:
x x x. In thus resolving a motion to dismiss a case or to withdraw an Information, the trial court should not
rely solely and merely on the findings of the public prosecutor or the Secretary of Justice. It is the court’s
bounden duty to assess independently the merits of the motion, and this assessment must be embodied in
a written order disposing of the motion. x x x.
In this case, it is obvious from the March 17, 2004 Order of the RTC, dismissing the criminal case, that the
RTC judge failed to make his own determination of whether or not there was a prima facie case to hold
respondents for trial. He failed to make an independent evaluation or assessment of the merits of the case.
The RTC judge blindly relied on the manifestation and recommendation of the prosecutor when he should
have been more circumspect and judicious in resolving the Motion to Dismiss and Withdraw Information
especially so when the prosecution appeared to be uncertain, undecided, and irresolute on whether to
indict respondents.
The same holds true with respect to the October 24, 2006 Order, which reinstated the case. The RTC
judge failed to make a separate evaluation and merely awaited the resolution of the DOJ Secretary. This is
evident from the general tenor of the Order and highlighted in the following portion thereof:
As discussed during the hearing of the Motion for Reconsideration, the Court will resolve it depending on
the outcome of the Petition for Review. Considering the findings of the Department of Justice reversing the
resolution of the City Prosecutor, the Court gives favorable action to the Motion for Reconsideration.
of estafa through misappropriation or conversion where the relationship between the parties is simply that
of creditor and debtor, not as entruster and entrustee.
We cannot subscribe to the appellate court’s reasoning. The DOJ Secretary’s and the Court of Appeals
holding that, the supposed restructuring novated the loan agreement between the parties is myopic.
To begin with, the purported restructuring of the loan agreement did not constitute novation.

By relying solely on the manifestation of the public prosecutor and the resolution of the DOJ Secretary, the
Novation is one of the modes of extinguishment of obligations;21 it is a single juridical act with a diptych
trial court abdicated its judicial power and refused to perform a positive duty enjoined by law. The said
function. The substitution or change of the obligation by a subsequent one extinguishes the first, resulting
Orders were thus stained with grave abuse of discretion and violated the complainant’s right to due
in the creation of a new obligation in lieu of the old.22 It is not a complete obliteration of the obligor-obligee
process. They were void, had no legal standing, and produced no effect whatsoever.
relationship, but operates as a relative extinction of the original obligation.

xxxx
Article 1292 of the Civil Code which provides:

It is beyond cavil that double jeopardy did not set in. Double jeopardy exists when the following requisites
Art. 1292. In order that an obligation may be extinguished by another which substitutes the same, it is
are present: (1) a first jeopardy attached prior to the second; (2) the first jeopardy has been validly
imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every
terminated; and (3) a second jeopardy is for the same offense as in the first. A first jeopardy attaches only
point incompatible with each other.
(a) after a valid indictment; (b) before a competent court; (c) after arraignment; (d) when a valid plea has
been entered; and (e) when the accused has been acquitted or convicted, or the case dismissed or
otherwise terminated without his express consent. contemplates two kinds of novation: express or implied. The extinguishment of the old obligation by the
new one is a necessary element of novation, which may be effected either expressly or impliedly.
Since we have held that the March 17, 2004 Order granting the motion to dismiss was committed with
grave abuse of discretion, then respondents were not acquitted nor was there a valid and legal dismissal In order for novation to take place, the concurrence of the following requisites is indispensable:
or termination of the case. Ergo, the fifth requisite which requires the conviction and acquittal of the
accused, or the dismissal of the case without the approval of the accused, was not met. Thus, double
(1) There must be a previous valid obligation;
jeopardy has not set in.20 (Emphasis supplied)

(2) There must be an agreement of the parties concerned to a new contract;

We now come to the crux of the matter: whether the restructuring of LISAM’s loan account extinguished
Soriano’s criminal liability.
PNB admits that although it had approved LISAM’s restructuring proposal, the actual restructuring of
LISAM’s account consisting of several credit lines was never reduced into writing. PNB argues that the
stipulations therein such as the provisions on the schedule of payment of the principal obligation, interests,
and penalties, must be in writing to be valid and binding between the parties. PNB further postulates that
assuming the restructuring was reduced into writing, LISAM failed to comply with the conditions precedent
for its effectivity, specifically, the payment of interest and other charges, and the submission of the titles to
the real properties in Tandang Sora, Quezon City. On the whole, PNB is adamant that the events
concerning the restructuring of LISAM’s loan did not affect the TR security, thus, Soriano’s criminal liability
thereunder subsists.
(3) There must be the extinguishment of the old contract; and
(4) There must be the validity of the new contract.23
Novation is never presumed, and the animus novandi, whether totally or partially, must appear by express
agreement of the parties, or by their acts that are too clear and unmistakable. The contracting parties must
incontrovertibly disclose that their object in executing the new contract is to extinguish the old one. Upon
the other hand, no specific form is required for an implied novation, and all that is prescribed by law would
be an incompatibility between the two contracts.24 Nonetheless, both kinds of novation must still be clearly
proven.25

On the other hand, the appellate court agreed with the ruling of the DOJ Secretary that the approval of
LISAM’s restructuring proposal, even if not reduced into writing, changed the status of LISAM’s loan from
being secured with Trust Receipts (TR’s) to one of an ordinary loan, non-payment of which does not give
rise to criminal liability. The Court of Appeals declared that there was no breach of trust constitutive
In this case, without a written contract stating in unequivocal terms that the parties were novating the
original loan agreement, thus undoubtedly eliminating an express novation, we look to whether there is an
incompatibility between the Floor Stock Line secured by TR’s and the subsequent restructured Omnibus
Line which was supposedly approved by PNB.
Soriano is confident with her assertion that PNB’s approval of her proposal to restructure LISAM’s loan
novated the loan agreement secured by TR’s. Soriano relies on the following:
1. x x x. All the alleged trust receipt agreements were availments made by [LISAM] on the PNB credit
facility known as "Floor Stock Line," (FSL) which is just one of the several credit facilities granted to
[LISAM] by PNB. When my husband Leandro A. Soriano, Jr. was still alive, [LISAM] submitted proposals
to PNB for the restructuring of all of [LISAM’s] credit facilities. After exchanges of several letters and
telephone calls, Mr. Josefino Gamboa, Senior Vice President of PNB on 12 May 1998 wrote [LISAM]
informing PNB’s lack of objection to [LISAM’s] proposal of restructuring all its obligations. x x x.
novated by an instrument that expressly recognizes the old, changes only the terms of payment, adds
other obligations not incompatible with the old ones, or the new contract merely supplements the old
one.28 Besides, novation does not extinguish criminal liability.29 It stands to reason therefore, that Soriano’s
criminal liability under the TR’s subsists considering that the civil obligations under the Floor Stock Line
secured by TR’s were not extinguished by the purported restructured Omnibus Line.
In Transpacific Battery Corporation v. Security Bank and Trust Company,30 we held that the restructuring of
a loan agreement secured by a TR does not per se novate or extinguish the criminal liability incurred
thereunder:

2. On September 22, 1998, Mr. Avengoza sent a letter to [LISAM], complete with attached copy of PNB’s x x x Neither is there an implied novation since the restructuring agreement is not incompatible with the
Board’s minutes of meeting, with the happy information that the Board of Directors of PNB has approved trust receipt transactions.
the conversion of [LISAM’s] existing credit facilities at PNB, which includes the FSL on which the trust
receipts are availments, to [an] Omnibus Line (OL) available by way of Revolving Credit Line (RCL),
Indeed, the restructuring agreement recognizes the obligation due under the trust receipts when it required
Discounting Line Against Post-Dated Checks (DLAPC), and Domestic Bills Purchased Line (DBPL) and
"payment of all interest and other charges prior to restructuring." With respect to Michael, there was even a
with a "Full waiver of penalty charges on RCL, FSL (which is the Floor Stock Line on which the trust
proviso under the agreement that the amount due is subject to "the joint and solidary liability of Spouses
receipts are availments) and Time Loan. x x x.26
Miguel and Mary Say and Michael Go Say." While the names of Melchor and Josephine do not appear on
the restructuring agreement, it cannot be presumed that they have been relieved from the obligation. The
Soriano’s reliance thereon is misplaced. The approval of LISAM’s restructuring proposal is not the bone of old obligation continues to subsist subject to the modifications agreed upon by the parties.
contention in this case. The pith of the issue lies in whether, assuming a restructuring was effected, it
extinguished the criminal liability on the loan obligation secured by trust receipts, by extinguishing the
The circumstance that motivated the parties to enter into a restructuring agreement was the failure of
entruster-entrustee relationship and substituting it with that of an ordinary creditor-debtor relationship.
petitioners to account for the goods received in trust and/or deliver the proceeds thereof. To remedy the
Stated differently, we examine whether the Floor Stock Line is incompatible with the purported restructured
situation, the parties executed an agreement to restructure Transpacific's obligations.
Omnibus Line.

The Bank only extended the repayment term of the trust receipts from 90 days to one year with monthly
The test of incompatibility is whether the two obligations can stand together, each one having its
installment at 5% per annum over prime rate or 30% per annum whichever is higher. Furthermore, the
independent existence. If they cannot, they are incompatible and the latter obligation novates the first.
interest rates were flexible in that they are subject to review every amortization due. Whether the terms
Corollarily, changes that breed incompatibility must be essential in nature and not merely accidental. The
appeared to be more onerous or not is immaterial.1âwphi1 Courts are not authorized to extricate parties
incompatibility must take place in any of the essential elements of the obligation, such as its object, cause
from the necessary consequences of their acts. The parties will not be relieved from their obligations as
or principal conditions thereof; otherwise, the change would be merely modificatory in nature and
there was absolutely no intention by the parties to supersede or abrogate the trust receipt transactions.
insufficient to extinguish the original obligation.27
The intention of the new agreement was precisely to revive the old obligation after the original period
expired and the loan remained unpaid. Well-settled is the rule that, with respect to obligations to pay a sum
We have scoured the records and found no incompatibility between the Floor Stock Line and the purported of money, the obligation is not novated by an instrument that expressly recognizes the old, changes only
restructured Omnibus Line. While the restructuring was approved in principle, the effectivity thereof was the terms of payment, adds other obligations not incompatible with the old ones, or the new contract
subject to conditions precedent such as the payment of interest and other charges, and the submission of merely supplements the old one. 31
the titles to the real properties in Tandang Sora, Quezon City. These conditions precedent imposed on the
restructured Omnibus Line were never refuted by Soriano who, oddly enough, failed to file a
Based on all the foregoing, we find grave error in the Court of Appeals dismissal of PNB’s petition
Memorandum. To our mind, Soriano’s bare assertion that the restructuring was approved by PNB cannot
for certiorari. Certainly, while the determination of probable cause to indict a respondent for a crime lies
equate to a finding of an implied novation which extinguished Soriano’s obligation as entrustee under the
with the prosecutor, the discretion must not be exercised in a whimsical or despotic manner tantamount to
TR’s.
grave abuse of discretion.

Moreover, as asserted by Soriano in her counter-affidavit, the waiver pertains to penalty charges on the
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. SP No. 76243
Floor Stock Line. There is no showing that the waiver extinguished Soriano’s obligation to "sell the
finding no grave abuse of discretion on the part of the Secretary of Justice is REVERSED and SET
[merchandise] for cash for [LISAM’s] account and to deliver the proceeds thereof to PNB to be applied
ASIDE.
against its acceptance on [LISAM’s] account." Soriano further agreed to hold the "vehicles and proceeds of
the sale thereof in Trust for the payment of said acceptance and of any of its other indebtedness to PNB."
Well-settled is the rule that, with respect to obligations to pay a sum of money, the obligation is not
The Resolution of the Secretary of Justice dated 25 June 2002, directing the City Prosecutor of Naga City
to move for the withdrawal of the Informations for estafa in relation to the Trust Receipts Law against
respondent Lilian S. Soriano, and his 29 October 2002 Resolution, denying petitioner's Motion for
Reconsideration, are ANNULLED and SET ASIDE for having been issued with grave abuse of discretion;
and the Resolution or the Naga City Prosecutor's Office dated 19 March 2001, finding probable cause
against herein respondent, is REINSTATED. Consequently, the Orders of the Regional Trial Court, Branch
21 of Naga City in Criminal Cases Nos. 2001-0641 to 2001-0693, except Criminal Case No. 2001-0671,
dated 27 November 2002, 21 February 2003 and 15 July 2003 are SET ASIDE and its Order of 16
October 2002 resetting the continuation or the pre-trial is REINSTATED. The RTC is further ordered to
conduct the pretrial with dispatch.

SO ORDERED.

G.R. No. 110844             April 27, 2000
ALFREDO CHING, petitioner,
vs.
HON. COURT OF APPEALS, HON. ZOSIMO Z. ANGELES, RTC- BR. 58, MAKATI, METRO MANILA,
PEOPLE OF THE PHILIPPINES AND ALLIED BANKING CORPORATION, respondents.
BUENA, J.:
Confronting the Court in this instant petition for review on certiorari under Rule 45 is the task of resolving
the issue of whether the pendency of a civil action for damages and declaration of nullity of documents,
specifically trust receipts, warrants the suspension of criminal proceedings instituted for violation of Article
315 1(b) of the Revised Penal Code, in relation to P.D. 115, otherwise known as the "Trust Receipts Law".
Petitioner Alfredo Ching challenges before us the decision1 of the Court of Appeals promulgated on 27
January 1993 in CA G.R. SP No. 28912, dismissing his "Petition for Certiorari and Prohibition with Prayer
for Issuance of Temporary Restraining Order/ Preliminary Injunction", on the ground of lack of merit.
Assailed similarly is the resolution2 of the Court of Appeals dated 28 June 1993 denying petitioner's motion
for reconsideration.
As borne by the records, the controversy arose from the following facts:
3 
On 04 February 1992, petitioner was charged before the Regional Trial Court of Makati (RTC-Makati),
Branch 58, with four counts of estafa punishable under Article 315 par. 1(b) of the Revised Penal Code, in
relation to Presidential Decree 115, otherwise known as the "Trust Receipts Law".
The four separate informations4 which were couched in similar language except for the date, subject goods
and amount thereof, charged herein petitioner in this wise:
That on or about the (18th day of May 1981; 3rd day of June 1981; 24th day of June 1981 and
24th day of June 1981), in the Municipality of Makati, Metro Manila, Philippines and within the
jurisdiction of this Honorable Court, the above-named accused having executed a trust receipt
agreement in favor of Allied Banking Corporation in consideration of the receipt by the said
accused of goods described as "12 Containers (200 M/T) Magtar Brand Dolomites"; "18
Containers (Zoom M/T) Magtar Brand Dolomites"; "High Fired Refractory Sliding Nozzle Bricks";
and "High Fired Refractory Sliding Nozzle Bricks" for which there is now due the sum of (P278,
917.80; P419,719.20; P387, 551. 95; and P389,085.14 respectively) under the terms of which
the accused agreed to sell the same for cash with the express obligation to remit to the
complainant bank the proceeds of the sale and/or to turn over the goods, if not sold, on demand,
but the accused, once in possession of said goods, far from complying with his obligation and
with grave abuse of confidence, did then and there, willfully, unlawfully and feloniously
misappropriate, misapply and convert to his own personal use and benefit the said goods and/or
the proceeds of the sale thereof, and despite repeated demands, failed and refused and still fails
and refuses, to account for and/or remit the proceeds of sale thereof to the Allied Banking
Corporation to the damage and prejudice of the said complainant bank in the aforementioned
amount of (P278,917.80; P419,719.20; P387,551.95; and P389,085.14).
On 10 February 1992, an "Omnibus Motion 5 to Strike Out Information, or in the Alternative to Require
Public Prosecutor to Conduct Preliminary Investigation, and to Suspend in the Meantime Further
Proceedings in these Cases," was filed by the petitioner.
In an order dated 13 February 1992, the Regional Trial Court of Makati, Branch 58, acting on the omnibus
motion, required the prosecutor's office to conduct a preliminary investigation and suspended further
proceedings in the criminal cases.
On 05 March 1992, petitioner Ching, together with Philippine Blooming Mills Co. Inc., filed a case 6 before
the Regional Trial Court of Manila (RTC-Manila), Branch 53, for declaration of nullity of documents and for
damages docketed as Civil Case No. 92-60600, entitled "Philippine Blooming Mills, Inc. et. al. vs. Allied
Banking Corporation.
On 07 August 1992, Ching filed a petition7 before the RTC-Makati, Branch 58, for the suspension of the
criminal proceedings on the ground of prejudicial question in a civil action.
The prosecution then filed an opposition to the petition for suspension, against which opposition, herein
petitioner filed a reply.8
On 26 August 1992, the RTC-Makati issued an order9 which denied the petition for suspension and
scheduled the arraignment and pre-trial of the criminal cases. As a result, petitioner moved to
reconsider10 the order to which the prosecution filed an opposition.
In an order11 dated 04 September 1992, the RTC-Makati, before which the criminal cases are pending,
denied petitioner's motion for reconsideration and set the criminal cases for arraignment and pre-trial.
Aggrieved by these orders12 of the lower court in the criminal cases, petitioner brought before the Court of
Appeals a petition for certiorari and prohibition which sought to declare the nullity of the aforementioned
orders and to prohibit the RTC-Makati from conducting further proceedings in the criminal cases.
In denying the petition,13 the Court of Appeals, in CA G.R. SP No. 28912, ruled:
. . . Civil Case No. 90-60600 pending before the Manila Regional Trial Court seeking (sic) the
declaration of nullity of the trust receipts in question is not a prejudicial question to Criminal
Case Nos. 92-0934 to 37 pending before the respondent court charging the petitioner with four
 counts of violation of Article 315, par. 1(b), RPC, in relation to PD 115 as to warrant the
suspension of the proceedings in the latter . . . .
Consequently, petitioner filed a motion for reconsideration of the decision which the appellate court denied
for lack of merit, via a resolution 14 dated 28 June 1993.
Notwithstanding the decision rendered by the Court of Appeals, the RTC-Manila, Branch 53 in an order
dated 19 November 1993 in Civil Case No. 92-60600, admitted petitioner's amended
complaint15 which, inter alia, prayed the court for a judgment:
x x x           x x x          x x x
1. Declaring the 'Trust Receipts," annexes D, F, H and J hereof, null and void, or otherwise
annulling the same, for failure to express the true intent and agreement of the parties;
2. Declaring the transaction subject hereof as one of pure and simple loan without any trust
receipt agreement and/or not one involving a trust receipt, and accordingly declaring all the
documents annexed hereto as mere loan documents . . . (emphasis ours).
In its amended answer,16 herein private respondent Allied Banking Corporation submitted in riposte that the
transaction applied for was a "letter of credit/trust receipt accommodation" and not a "pure and simple loan
with the trust receipts as mere additional or side documents", as asserted by herein petitioner in its
amended complaint.17
Through the expediency of Rule 45, petitioner seeks the intervention of this Court and prays:
After due consideration, to render judgment reversing the decision and resolution, Annexes A
and B hereof, respectively, and ordering the suspension of Criminal Cases (sic) Nos. 92-0934 to
92-0937, inclusive, entitled "People of the Philippines vs. Alfredo Ching" pending before Branch
58 of the Regional Trial Court of Makati, Metro Manila, until final determination of Civil Case No.
92-600 entitled Philippine Blooming Mills Co. Inc. and Alfredo Ching vs. Allied Banking
Corporation" pending before Branch 53 of the Regional Trial Court of Manila.
The instant petition is bereft of merit.
We agree with the findings of the trial court, as affirmed by the Court of Appeals, that no prejudicial
question exists in the present case.
As defined, a prejudicial question is one that arises in a case the resolution of which is a logical antecedent
of the issue involved therein, and the cognizance of which pertains to another tribunal. The prejudicial
question must be determinative of the case before the court but the jurisdiction to try and resolve the
question must be lodged in another court or tribunal. 18
It is a question based on a fact distinct and separate from the crime but so intimately connected with it that
it determines the guilt or innocence of the accused, and for it to suspend the criminal action, it must appear
not only that said case involves facts intimately related to those upon which the criminal prosecution would
be based but also that in the resolution of the issue or issues raised in the civil case, the guilt or innocence
of the accused would necessarily be determined. 19 It comes into play generally in a situation where a civil
action and a criminal action are both pending and there exists in the former an issue which must be
preemptively resolved before the criminal action may proceed, because howsoever the issue raised in the
civil action is resolved would be determinative juris et de jure of the guilt or innocence of the accused in the
criminal case.20
More simply, for the court to appreciate the pendency of a prejudicial question, the law,21 in no uncertain
terms, requires the concurrence of two essential requisites, to wit:
a) The civil action involves an issue similar or intimately related to the issue raised in the criminal
action; and
b) The resolution of such issue determines whether or not the criminal action may proceed.
Verily, under the prevailing circumstances, the alleged prejudicial question in the civil case for declaration
of nullity of documents and for damages, does not juris et de jure determine the guilt or innocence of the
accused in the criminal action for estafa. Assuming arguendo that the court hearing the civil aspect of the
case adjudicates that the transaction entered into between the parties was not a trust receipt agreement,
nonetheless the guilt of the accused could still be established and his culpability under penal laws
determined by other evidence. To put it differently, even on the assumption that the documents are
declared of null, it does not ipso facto follow that such declaration of nullity shall exonerate the accused
from criminal prosecution and liability.
Accordingly, the prosecution may adduce evidence to prove the criminal liability of the accused for estafa,
specifically under Article 315 1(b) of the Revised Penal Code which explicitly provides that said crime is
committed:
. . . (b) By misappropriating or converting, to the prejudice of another, money; goods, or any
other personal property received by the offender in trust or on commission, or for administration,
or any other obligation involving the duty to make delivery of or to return the same, even though
such obligation be totally or partially guaranteed by a bond; or by denying having received such
money, goods, or other property.
Applying the foregoing principles, the criminal liability of the accused for violation of Article 315 1(b) of the
Revised Penal Code, may still be shown through the presentation of evidence to the effect that: (a) the
accused received the subject goods in trust or under the obligation to sell the same and to remit the
proceeds thereof to Allied Banking Corporation, or to return the goods, if not sold; (b) that accused Ching
misappropriated or converted the goods and/or the proceeds of the sale; (c) that accused Ching performed
such acts with abuse of confidence to the damage and prejudice of Allied Banking Corporation; and (d)
that demand was made by the bank to herein petitioner.
Presidential Decree 115, otherwise known as the "Trust Receipts Law", specifically Section 13 thereof,
provides:
The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or
instruments covered by a trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return said goods, documents or instruments if they were not
sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of
estafa, punishable under the provisions of Article Three hundred fifteen, paragraph one (b) of
Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the
Revised Penal Code.
We must stress though, that an act violative of a trust receipt agreement is only one mode of committing
estafa under the abovementioned provision of the Revised Penal Code. Stated differently, a violation of a
trust receipt arrangement is not the sole basis for incurring liability under Article 315 1 (b) of the Code.
In Jimenez vs. Averia,22 where the accused was likewise charged with estafa, this Court had occasion to
rule that a civil case contesting the validity of a certain receipt is not a prejudicial question that would
warrant the suspension of criminal proceedings for estafa.1âwphi1.nêt
In the abovementioned case, a criminal charge for estafa was filed in the Court of First Instance of Cavite
against the two accused. The information alleged that the accused, having received the amount of
P20,000.00 from Manuel Jimenez for the purchase of a fishing boat, with the obligation on the part of the
former to return the money in case the boat was not purchased, misappropriated the said amount to the
damage and prejudice of Jimenez. 23
Before arraignment, the accused filed a civil case contesting the validity of a certain receipt signed by
them. In the receipt, the accused acknowledged having received the aforesaid sum, in addition to the
amount of P240.00 as agent's commission. The complaint, however, alleged that the accused never
received any amount from Jimenez and that the signatures on the questioned receipt were secured by
means of fraud, deceit and intimidation.
In ruling out the existence of prejudicial question, we declared:
. . . It will be readily seen that the alleged prejudicial question is not determinative of the guilt or
innocence of the parties charged with estafa, because even on the assumption that the
execution of the receipt whose annulment they sought in the civil case was vitiated by fraud,
duress or intimidation, their guilt could still be established by other evidence showing, to the
degree required by law, that they had actually received from the complainant the sum of
P20,000,00 with which to buy for him a fishing boat, and that, instead of doing so, they
misappropriated the money and refused or otherwise failed to return it to him upon demand. . . .
Furthermore, petitioner submits that the truth or falsity of the parties' respective claims as regards the true
nature of the transactions and of the documents, shall have to be first determined by the Regional Trial
Court of Manila, which is the court hearing the civil case.
While this may be true, it is no less true that the Supreme Court may, on certain exceptional instances,
resolve the merits of a case on the basis of the records and other evidence before it, most especially when
the resolution of these issues would best serve the ends of justice and promote the speedy disposition of
cases.
Thus, considering the peculiar circumstances attendant in the instant case, this Court sees the cogency to
exercise its plenary power:
It is a rule of procedure for the Supreme Court to strive to settle the entire controversy in a single
proceeding leaving no root or branch to bear the seeds of future litigation. No useful purpose will
be served if a case or the determination of an issue in a case is remanded to the trial court only
to have its decision raised again to the Court of Appeals and from there to the Supreme Court
(citing Board of Commissioners vs. Judge Joselito de la Rosa and Judge Capulong, G.R. Nos.
95122-23).
We have laid down the rule that the remand of the case or of an issue to the lower court for
further reception of evidence is not necessary where the Court is in position to resolve the
dispute based on the records before it and particularly where the ends of justice would not be
subserved by the remand thereof (Escudero vs. Dulay, 158 SCRA 69). Moreover, the Supreme
Court is clothed with ample authority to review matters, even those not raised on appeal if it
finds that their consideration is necessary in arriving at a just disposition of the case. 24
On many occasions, the Court, in the public interest and for the expeditious administration of justice, has
resolved actions on the merits instead of remanding them to the trial court for further proceedings, such as
where the ends of justice would not be subserved by the remand of the case. 25
Inexorably, the records would show that petitioner signed and executed an application and agreement for
a commercial letter of credit to finance the purchase of imported goods. Likewise, it is undisputed that
petitioner signed and executed trust receipt documents in favor of private respondent Allied Banking
Corporation.
In its amended complaint, however, which notably was filed only after the Court of Appeals rendered its
assailed decision, petitioner urges that the transaction entered into between the parties was one of "pure
loan without any trust receipt agreement". According to petitioner, the trust receipt documents were
intended merely as "additional or side documents covering the said loan" contrary to petitioner's allegation
in his original complaint that the trust receipts were executed as collateral or security.
We do not agree. As Mr. Justice Story succinctly puts it: "Naked statements must be entitled to little weight
when the parties hold better evidence behind the scenes. 26
Hence, with affirmance, we quote the findings of the Court of Appeals:
The concept in which petitioner signed the trust receipts, that is whether he signed the trust
receipts as such trust receipts or as a mere evidence of a pure and simple loan transaction is
not decisive because precisely, a trust receipt is a security agreement of an indebtedness.
Contrary to petitioner's assertions and in view of jurisprudence established in this jurisdiction, a trust
receipt is not merely an additional or side document to a principal contract, which in the instant case is
alleged by petitioner to be a pure and simple loan.
As elucidated in Samo vs. People,27 a trust receipt is considered a security transaction intended to aid in
financing importers and retail dealers who do not have sufficient funds or resources to finance the
importation or purchase of merchandise, and who may not be able to acquire credit except through
utilization, as collateral, of the merchandise imported or purchased.
Further, a trust receipt is a document in which is expressed a security transaction whereunder the lender,
having no prior title in the goods on which the lien is to be given and not having possession which remains
in the borrower, lends his money to the borrower on security of the goods which the borrower is privileged
to sell clear of the lien with an agreement to pay all or part of the proceeds of the sale to the lender. 28 It is a
security agreement pursuant to which a bank acquires a "security interest" in the goods. It secures an
indebtedness and there can be no such thing as security interest that secures no obligation. 29
Clearly, a trust receipt partakes the nature of a security transaction. It could never be a mere additional or
side document as alleged by petitioner. Otherwise, a party to a trust receipt agreement could easily renege
on its obligations thereunder, thus undermining the importance and defeating with impunity the purpose of
such an indispensable tool in commercial transactions.
Of equal importance is the fact that in his complaint in Civil Case No. 92-60600, dated 05 March 1992,
petitioner alleged that the trust receipts were executed and intended as collateral or security. Pursuant to
the rules, such particular allegation in the complaint is tantamount to a judicial admission on the part of
petitioner Ching to which he must be bound.
Thus, the Court of Appeals in its resolution dated 28 June 1993, correctly observed:
It was petitioner himself who acknowledged the trust receipts as mere collateral and security for
the payment of the loan but kept on insisting that the real and true transaction was one of pure
loan. . . .
In his present motion, the petitioner alleges that the trust receipts are evidence of a pure loan or
that the same were additional or side documents that actually stood as promissory notes and not
a collateral or security agreement. He cannot assume a position inconsistent with his previous
allegations in his civil complaint that the trust receipts were intended as mere collateral or
security . . . .
Perhaps, realizing such flaw, petitioner, in a complete turn around, filed a motion to admit amended
complaint before the RTC-Manila. Among others, the amended complaint alleged that the trust receipts
stood as additional or side documents, the real transaction between the parties being that of a pure loan
without any trust receipt agreement.
In an order dated 19 November 1993, the RTC-Manila, Branch 53, admitted the amended complaint.
Accordingly, with the lower court's admission of the amended complaint, the judicial admission made in the
original complaint was, in effect, superseded.
Under the Rules, pleadings superseded or amended disappear from the record, lose their status as
pleadings and cease to be judicial admissions. While they may nonetheless be utilized against the pleader
as extrajudicial admissions, they must, in order to have such effect, be formally offered in evidence. If not
offered in evidence, the admission contained therein will not be considered. 30
Consequently, the original complaint, having been amended, lost its character as a judicial admission,
which would have required no proof, and became merely an extrajudicial admission, the admissibility of
which, as evidence, required its formal offer. 31
In virtue thereof, the amended complaint takes the place of the original. The latter is regarded as
abandoned and ceases to perform any further function as a pleading. The original complaint no longer
forms part of the record.32
Thus, in the instant case, the original complaint is deemed superseded by the amended complaint.
Corollarily, the judicial admissions in the original complaint are considered abandoned. Nonetheless, we
must stress that the actuations of petitioner, as sanctioned by the RTC-Manila, Branch 53 through its order
admitting the amended complaint, demands stern rebuke from this Court.
Certainly, this Court is not unwary of the tactics employed by the petitioner specifically in filing the
amended complaint only after the promulgation of the assailed decision of the Court of Appeals. It bears
noting that a lapse of almost eighteen months (from March 1992 to September 1993), from the filing of the
original complaint to the filing of the amended complaint, is too lengthy a time sufficient to enkindle
suspicion and enflame doubts as to the true intentions of petitioner regarding the early disposition of the
pending cases.
Although the granting of leave to file amended pleadings is a matter peculiarly within the sound discretion
of the trial court and such discretion would not normally be disturbed on appeal, it is also well to mention
that this rule is relaxed when evident abuse thereof is apparent. 33
Hence, in certain instances we ruled that amendments are not proper and should be denied when delay
would arise,34 or when the amendments would result in a change of cause of action or defense or change
the theory of the case, 35 or would be inconsistent with the allegations in the original complaint. 36
Applying the foregoing rules, petitioner, by filing the amended complaint, in effect, altered the theory of his
case. Likewise, the allegations embodied in the amended complaint are inconsistent with that of the
original complaint inasmuch as in the latter, petitioner alleged that the trust receipts were intended as mere
collateral or security, the principal transaction being one of pure loan.
Yet, in the amended complaint, petitioner argued that the said trust receipts were executed as additional or
side documents, the transaction being strictly one of pure loan without any trust receipt arrangement.
Obviously these allegations are in discord in relation to each other and therefore cannot stand in harmony.
These circumstances, taken as a whole, lead this Court to doubt the genuine purpose of petitioner in filing
the amended complaint.1âwphi1 Again, we view petitioner's actuations with abhorrence and displeasure.
Moreover, petitioner contends that the transaction between Philippine Blooming Mills (PBM) and private Court of Makati, Branch 58, is hereby directed to proceed with the hearing and trial on the merits of
respondent Allied Banking Corporation does not fall under the category of a trust receipt arrangement Criminal Case Nos. 92-0934 to 92-0937, inclusive, and to expedite proceedings therein, without prejudice
claiming that the goods were not to be sold but were to be used, consumed and destroyed by the importer to the right of the accused to due process.1âwphi1.nêt
PBM.
SO ORDERED.
To our mind, petitioner's contention is a stealthy attempt to circumvent the principle enunciated in the case
of Alied Banking Corporation vs. Ordonez, 37 thus:

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

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

x x x           x x x          x x x

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

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

In fine, we reiterate that the civil action for declaration of nullity of documents and for damages does not
constitute a prejudicial question to the criminal cases for estafa filed against petitioner Ching.

WHEREFORE, premises considered, the assailed decision and resolution of the Court of Appeals are
hereby AFFIRMED and the instant petition is DISMISSED for lack of merit. Accordingly, the Regional Trial

G.R. No. 90828               September 5, 2000
MELVIN COLINARES and LORDINO VELOSO, petitioners,
vs.
HONORABLE COURT OF APPEALS, and THE PEOPLE OF THE PHILIPPINES, respondents.
DECISION
DAVIDE, JR., C.J.:
In 1979 Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a consideration of
₱40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the latter’s convent at Camaman-an,
Cagayan de Oro City.
On 30 October 1979, Petitioners obtained 5,376 SF Solatone acoustical board 2’x4’x½", 300 SF tanguile
wood tiles 12"x12", 260 SF Marcelo economy tiles and 2 gallons UMYLIN cement adhesive from CM
Builders Centre for the construction project.1 The following day, 31 October 1979, Petitioners applied for a
commercial letter of credit2 with the Philippine Banking Corporation, Cagayan de Oro City branch (hereafter
PBC) in favor of CM Builders Centre. PBC approved the letter of credit 3 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 decision 18 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/Reconsideration 21 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
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
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 Q Do you have evidence to show that these goods subject matter of this letter of credit and trust receipt
proving intent to defraud. were delivered to the accused?

A thorough examination of the facts obtaining in the case at bar reveals that the transaction intended by A Yes, sir.
the parties was a simple loan, not a trust receipt agreement.
Q I am showing to you this charge invoice, are you referring to this document?
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
A Yes, sir.
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.
xxx
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 Q What is the date of the charge invoice?
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 A October 31, 1979.
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 COURT:
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 Make it of record as appearing in Exhibit D, the zero in 30 has been superimposed with numeral 1. 42
owner of the imported merchandise as soon as he has paid its price.38
During the cross and re-direct examinations he also impliedly admitted that the transaction was indeed a was not proved to be present in Petitioners’ situation. Petitioners employed no artifice in dealing with PBC
loan. Thus: and never did they evade payment of their obligation nor attempt to abscond. Instead, Petitioners sought
favorable terms precisely to meet their obligation.
Q In short the amount stated in your Exhibit C, the trust receipt was a loan to the accused you admit that?
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
A Because in the bank the loan is considered part of the loan.
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
xxx and ambiguity, which should not be the basis for criminal prosecution in the event of violation of its
provisions.46
RE-DIRECT BY ATTY. CABANLET:
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
ATTY. CABANLET (to the witness) 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
Q What do you understand by loan when you were asked? 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.
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
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
Such statement is akin to an admission against interest binding upon PBC. ACQUITTED of the crime charged, i.e., for violation of P.D. No. 115 in relation to Article 315 of the
Revised Penal Code.
Petitioner Veloso’s claim that they were made to believe that the transaction was a loan was also not
denied by PBC. He declared: No costs.

Q Testimony was given here that that was covered by trust receipt. In short it was a special kind of SO ORDERED.
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

SECOND DIVISION
[G.R. No. 82495 :  December 10, 1990.]
192 SCRA 246
ALLIED BANKING CORPORATION, Petitioner, vs. HON. SECRETARY SEDFREY
ORDOÑEZ (Public Respondent) and ALFREDO CHING (Private Respondent),
Respondents.
DECISION
PADILLA, J.:
 
In this special civil action for Certiorari, the interpretation by the Department of Justice of
the penal provision of PD 115, the Trust Receipts Law, is assailed by petitioner.
The relevant facts are as follows:
On 23 January 1981, 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.
Petitioner 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.:- nad
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 19 May, 3
and 24 June 1981 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.
Out of the said obligation resulted an overdue amount of P1,475,274.09. Despite repeated
demands, PBM failed and refused to either turn over the proceeds of the sale of the goods or
to return the same.
On 7 September 1984, petitioner filed a criminal complaint against private respondent for
violation of PD 115 before the office of the Provincial Fiscal of Rizal. After preliminary
investigation wherein private respondent failed to appear or submit a counter-affidavit and
even refused to receive the subpoena, the Fiscal found a prima facie case for violation of PD
115 on four (4) counts and filed the corresponding information in court.
Private respondent appealed the Fiscal's resolution to the Department of Justice on three (3)
grounds:
1. Lack of proper preliminary investigation;
2. The Provincial Fiscal of Rizal did not have jurisdiction over the case, as respondent's
obligation was purely civil;
3. There had been a novation of the obligation by the substitution of the person of the
Rehabilitation Receivers in place of both PBM and private respondent Ching.
Then Secretary of Justice (now Senator) Neptali A. Gonzales, in a 24 September 1986
letter/resolution, 1 held:
"Your contention that respondent's obligation was purely a civil one, is without any merit.
The four (4) Trust Receipt Agreements entered into by respondent and complainant appear
regular in form and in substance. Their agreement regarding interest, not being contrary to
law, public policy or morals, public order or good custom, is a valid stipulation which does
not change the character of the said Trust Receipt Agreements. Further, as precisely pointed
out by complainant, raw materials for manufacture of goods to be ultimately sold are proper
objects of a trust receipt. Thus, respondent's failure to remit to the complainant proceeds of
the sale of the finished products if sold or the finished products themselves if not sold, at the
maturity dates of the trust receipts, constitutes a violation of P.D. 115." 2
A motion for reconsideration alleged that, as PBM was under rehabilitation receivership, no
criminal liability can be imputed to herein respondent Ching. On 17 March 1987,
Undersecretary Silvestre H. Bello III denied said motion. The pertinent portion of the denial
resolution states::-cralaw
"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).
"Likewise untenable is your contention that 'rehabilitation proceedings must stay the attempt
to enforce a liability in view of Section 4 of P.D. No. 1758.' Section 4 of P.D. No. 1758,
provides, among others: '. . . Provided, further, that upon appointment of a management
committee, rehabilitation receiver, board or body, pursuant to this Decree, all actions for
claims against corporations, partnerships or associations under management or receivership
pending before any court, tribunal, board or body shall be suspended accordingly.
"You will note that the term 'all actions for claims' refer only to actions for money claims but
not to criminal liability of offenders." 3
Another motion for reconsideration was filed by respondent on 9 April 1987 to which an
opposition was filed by the petitioner. Private respondent also filed a supplemental request
for reconsideration dated 28 December 1987 with two (2) additional grounds, namely:
". . . 3) there is no evidence on record to show that respondent was in particeps criminis in
the act complained of; and 4) there could be no violation of the trust receipt agreements
because the articles imported by the corporation and subject of the trust receipts were
fungible or consummable goods and do not form part of the steel product itself. These goods
were not procured to be sold in whatever state or condition they were in or were supposed to
be after the manufacturing process." 4
Because of private respondent's clarification that the goods subject of the trust receipt
agreements were dolomites which were specifically used for patching purposes over the
surface of furnaces and nozzle bricks which are insulating materials in the lower portion of
the ladle which do not form part of the steel product itself, Justice Secretary Sedfrey
Ordoñez, on 11 January 1988, "rectified" his predecessor's supposed reversible error, and
held::-cralaw
". . . it is clear that what the law contemplates or covers are goods which have, for their
ultimate destination, the sale thereof or if unsold, their surrender to the entruster, this
whether the goods are in their original form or in their manufactured/processed state. Since
the goods covered by the trust receipts and subject matter of these proceedings are to be
utilized in the operation of the equipment and machineries of the corporation, they could not
have been contemplated as being covered by PD 115. It is axiomatic that penal statutes are
strictly construed against the state and liberally in favor of the accused (People vs.  Purisima,
86 SCRA 542, People vs.  Terrado, 125 SCRA 648). This means that penal statutes cannot be
enlarged or extended by intendment, implication, or any equitable consideration (People
vs.  Garcia, 85 Phil. 651). Thus, not all transactions covered by trust receipts may be
considered as trust receipt transactions defined and penalized under PD 115.
x  x  x
Apparently, the trust receipt agreements were executed as security for the payment of the
drafts. As such, the main transaction was that of a loan. . . . In essence, therefore, the
relationship between the Bank and the corporation, consequently, the respondent herein
likewise included, is that of debtor and creditor.
x  x  x
WHEREFORE, premises considered, our resolution dated September 24, 1986, recorded 119
Resolution No. 456, series of 1986, and that dated March 17, 1987, the latter being
necessarily dependent upon and incidental to the former, are hereby abrogated and
abandoned. You are hereby directed to move for the withdrawal of the informations and the
dismissal of the criminal cases filed in court . . ." 5
This time, petitioner Allied Bank filed a motion for reconsideration of the Ordoñez resolution,
which was resolved by the Department of Justice on 17 February 1988, enunciating that PD
115 covers goods or components of goods which are ultimately destined for sale. It
concluded that:
". . . The goods subject of the instant case were shown to have been used and/or consumed
in the operation of the equipment and machineries of the corporation, and are therefore
outside the ambit of the provisions of PD 115 albeit covered by Trust Receipt
agreements . . . Finally, it is noted that under the Sia vs.  People (121 SCRA 655 (1983), and
Vintola vs.  Insular Bank of Asia and America (150 SCRA 578 (1987) rulings, the trend in the
Supreme Court appears to be to the effect that trust receipts under PD 115 are treated as
security documents for basically loan transactions, so much so that criminal liability is
virtually obliterated and limiting liability of the accused to the civil aspect only.
WHEREFORE, your motion for reconsideration is hereby DENIED." 6
From the Department of Justice, petitioner is now before this Court praying for writs
of Certiorari and prohibition to annul the 11 January and 17 February 1988 DOJ rulings,
mainly on two (2) grounds:
1. public respondent is without power or authority to declare that a violation of PD 115 is not
criminally punishable, thereby rendering a portion of said law inoperative or ineffectual.: nad
2. public respondent acted with grave abuse of discretion in holding that the goods covered
by the trust receipts are outside the contemplation of PD 115.
Private and public respondents both filed their comments on the petition to which a
consolidated reply was filed. After the submission of the parties' respective memoranda, the
case was calendared for deliberation.
Does the penal provision of PD 115 (Trust Receipts Law) apply when the goods covered by a
Trust Receipt do not form part of the finished products which are ultimately sold but are
instead, utilized/used up in the operation of the equipment and machineries of the entrustee-
manufacturer?
The answer must be in the affirmative, Section 4 of said PD 115 says in part:
"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 entrustee, 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, . . ."
Respondent Ching contends that PBM is not in the business of selling Magtar Branch
Dolomites or High Fired Refractory Sliding Nozzle Bricks, it is a manufacturer of steel and
steel products. But PBM, as entrustee under the trust receipts has, under Sec. 9 of PD 115,
the following obligations, inter alia: (a) receive the proceeds of sale, in trust for the entruster
and turn over the same to the entruster to the extent of the amount owing to him or as
appears on the trust receipt; (b) keep said goods or proceeds thereof whether in money or
whatever form, separate and capable of identification as property of the entruster; (c) return
the goods, documents or instruments in the event of non-sale, or upon demand of the
entruster; and (d) observe all other terms and conditions of the trust receipt not contrary to
the provisions of said Decree. 7
The trust receipts, there is an obligation to repay the entruster. 8 Their terms are to be
interpreted in accordance with the general rules on contracts, the law being alert in all cases
to prevent fraud on the part of either party to the transaction. 9 The entrustee binds himself
to sell or otherwise dispose of the entrusted goods with the obligation to turn over to the
entruster the proceeds if sold, or return the goods if unsold or not otherwise disposed of, in
accordance with the terms and conditions specified in the trust receipt. A violation of this
undertaking constitutes estafa under Sec. 13, PD 115.
And even assuming the absence of a clear provision in the trust receipt agreement, Lee v.
Rodil  10 and Sia v. CA  11 have held: Acts involving the violation of trust receipt
agreements occurring after 29 January 1973 (when PD 115 was issued) would render the
accused criminally liable for estafa under par. 1(b), Art. 315 of the Revised Penal Code,
pursuant to the explicit provision in Sec. 13 of PD 115.  12 The act punishable is malum
prohibitum. Respondent Secretary's prognostication of the Supreme Court's supposed
inclination to treat trust receipts as mere security documents for loan transactions, thereby
obliterating criminal liability, appears to be a misjudgment.  13
In an attempt to escape criminal liability, private respondent claims PD 115 covers goods
which are ultimately destined for sale and not goods for use in manufacture. But the wording
of Sec. 13 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.
Private respondent claims that at the time of PBM's application for the issuance of the LC's, it
was not represented to the petitioner that the items were intended for sale,  14 hence, there
was no deceit resulting in a violation of the trust receipts which would constitute a criminal
liability. Again, we cannot uphold this contention. The non-payment of the amount covered
by a trust receipt is an act violative of the entrustee's obligation to pay. There is no reason
why the law should not apply to all transactions covered by trust receipts, except those
expressly excluded.  15
The Court takes judicial notice of customary banking and business practices where trust
receipts are used for importation of heavy equipment, machineries and supplies used in
manufacturing operations. We are perplexed by the statements in the assailed DOJ
resolution that the goods subject of the instant case are outside the ambit of the provisions
of PD 115 albeit covered by Trust Receipt Agreements (17 February 1988 resolution) and
that not all transactions covered by trust receipts may be considered as trust receipt
transactions defined and penalized under PD 115 (11 January 1988 resolution). A
construction should be avoided when it affords an opportunity to defeat compliance with the
terms of a statute.: nad
"A construction of a statute which creates an inconsistency should be avoided when a
reasonable interpretation can be adopted which will not do violence to the plain words of the
act and will carry out the intention of Congress.
In the construction of statutes, the courts start with the assumption that the legislature
intended to enact an effective law, and the legislature is not to be presumed to have done a
vain thing in the enactment of a statute. Hence, it is a general principle, embodied in the
maxim, 'ut res magis valeat quam pereat,' that the courts should, if reasonably possible to
do so without violence to the spirit and language of an act, so interpret the statute to give it
efficient operation and effect as a whole. An interpretation should, if possible, be avoided,
under which a statute or provision being construed is defeated, or as otherwise expressed,
nullified, destroyed, emasculated, repealed, explained away, or rendered insignificant,
meaningless, inoperative, or nugatory."  16
The penal provision of PD 115 encompasses any act violative of an obligation covered by the
trust receipt; it is not limited to transactions in goods which are to be sold (retailed),
reshipped, stored or processed as a component of a product ultimately sold.
To uphold the Justice Department's ruling would contravene not only the letter but the spirit
of PD 115.
"An examination of P.D. 115 shows the growing importance of trust receipts in Philippine
business, the need to provide for the rights and obligations of parties to a trust receipt
transaction, the study of the problems involved and the action by monetary authorities, and
the necessity of regulating the enforcement of rights arising from default or violations of
trust receipt agreements. The legislative intent to meet a pressing need is clearly expressed .
. ."  17
WHEREFORE, the petition is granted. The temporary restraining order issued on 13 April
1988 restraining the enforcement of the questioned DOJ resolutions dated 11 January 1988
and 17 February 1988 directing the provincial fiscal to move for the dismissal of the criminal
case filed before the RTC of Makati, Branch 143 and the withdrawal of IS-No. 84-3140, is
made permanent. Let this case be remanded to said RTC for disposition in accordance with
this decision.
SO ORDERED.
G.R. No. 73271 May 29, 1987
SPOUSES TIRSO I. VINTOLA and LORETO DY VINTOLA, defendants-appellants,
vs.
INSULAR BANK OF ASIA AND AMERICA, plaintiff-appellee.
MELENCIO-HERRERA, J.:
This case was appealed to the Intermediate Appellate Court which, however, certified the same to this
Court, the issue involved being purely legal.
The facts are not disputed.
On August 20, 1975 the spouses Tirso and Loreta Vintola (the VINTOLAS, for short), doing business
under the name and style "Dax Kin International," engaged in the manufacture of raw sea shells into
finished products, applied for and were granted a domestic letter of credit by the Insular Bank of Asia and
America (IBAA), Cebu City. 1 in the amount of P40,000.00. The Letter of Credit authorized the bank to
negotiate for their account drafts drawn by their supplier, one Stalin Tan, on Dax Kin International for the
purchase of puka and olive seashells. In consideration thereof, the VINTOLAS, jointly and severally,
agreed to pay the bank "at maturity, in Philippine currency, the equivalent, of the aforementioned amount
or such portion thereof as may be drawn or paid, upon the faith of the said credit together with the usual
charges."
On the same day, August 20, 1975, having received from Stalin Tan the puka and olive shells worth
P40,000.00, the VINTOLAS executed a Trust Receipt agreement with IBAA, Cebu City. Under that
Agreement, the VINTOLAS agreed to hold the goods in trust for IBAA as the "latter's property with liberty
to sell the same for its account, " and "in case of sale" to turn over the proceeds as soon as received to
(IBAA) the due date indicated in the document was October 19, 1975.
Having defaulted on their obligation, IBAA demanded payment from the VINTOLAS in a letter dated
January 1, 1976. The VINTOLAS, who were unable to dispose of the shells, responded by offering to
return the goods. IBAA refused to accept the merchandise, and due to the continued refusal of the
VINTOLAS to make good their undertaking, IBAA charged them with Estafa for having misappropriated,
misapplied and converted for their own personal use and benefit the aforesaid goods. During the trial of
the criminal case the VINTOLAS turned over the seashells to the custody of the Trial Court.
On April 12, 1982, the then Court of First Instance of Cebu, Branch VII, acquitted the VINTOLAS of the
crime charged, after finding that the element of misappropriation or conversion was inexistent. Concluded
the Court:
Finally, it should be mentioned that under the trust receipt, in the event of default
and/or non-fulfillment on the part of the accused of their undertaking, the bank is
entitled to take possession of the goods or to recover its equivalent value together
with the usual charges. In either case, the remedy of the Bank is civil and not criminal
in nature. ... 2
Shortly thereafter, IBAA commenced the present civil action to recover the value of the goods before the
Regional Trial Court of Cebu, Branch XVI.
Holding that the complaint was barred by the judgment of acquittal in the criminal case, said Court
dismissed the complaint. However, on IBAA's motion, the Court granted reconsideration and:
1. Order(ed)defendants jointly and severally to pay the plaintiff the sum of Seventy
Two Thousand Nine Hundred Eighty Two and 27/100 (P72,982.27), Philippine
Currency, plus interest of 14% per annum and service charge of one (1%) per cent
per annum computed from judicial demand and until the obligation is fully paid;
2. Ordered defendants jointly and severally to pay attorney's fees to the plaintiff in the
sum of Four Thousand (P4,000.00) pesos, Philippine Currency, plus costs of the suit. 3
The VINTOLAS rest their present appeal on the principal allegation that their acquittal in the Estafa case
bars IBAA's filing of the civil action because IBAA had not reserved in the criminal case its right to enforce
separately their civil liability. They maintain that by intervening actively in the prosecution of the criminal
case through a private prosecutor, IBAA had chosen to file the civil action impliedly with the criminal
action, pursuant to Section 1, Rule 111 of the 1985 Rules on Criminal Procedure, reading:
Section 1. Institution of criminal and civil action. — When a criminal action is
instituted, the civil action for the recovery of civil liability arising from the offense
charged is impliedly instituted with the criminal action, unless the offended party
expressly waives the civil action or reserves his right to institute it separately. ...
and that since the judgment in the criminal case had made a declaration that the facts from which the civil
action might arise did not exist, the filing of the civil action arising from the offense is now barred, as
provided by Section 3-b of Rule 111 of the same Rules providing:
(b) Extinction of the penal action does not carry with it extinction of the civil, unless the
extinction proceeds from a declaration in a final judgment that the fact from which the
civil might arise did not exist. In other cases, the person entitled to the civil action may
institute it in the jurisdiction in the manner provided by law against the person who
may be liable for restitution of the thing and reparation or indemnity for the damage
suffered.
Further, the VINTOLAS take the position that their obligation to IBAA has been extinguished inasmuch as,
through no fault of their own, they were unable to dispose of the seashells, and that they have relinguished
possession thereof to the IBAA, as owner of the goods, by depositing them with the Court.
The foregoing submission overlooks the nature and mercantile usage of the transaction involved. A letter
of credit-trust receipt arrangement is endowed with its own distinctive features and characteristics. Under
that set-up, a bank extends a loan covered by the Letter of Credit, with the trust receipt as a security for
the loan. In other words, the transaction involves a loan feature represented by the letter of credit, and a
security feature which is in the covering trust receipt.
Thus, Section 4 of P.D. No. 115 defines a trust receipt transaction as:
... any transaction by and between a person referred to in this Decree as the entruster,
and another person referred to in this Decree as the entrustee, whereby the entruster,
who owns or holds absolute title or security interests over certain specified goods,
documents or instruments, releases the same to the possession of the entrustee upon
the latter's execution and delivery to the entruster of a signed document called a "trust
receipt" wherein the entrustee binds himself to hold the designated goods, documents
or instruments in trust for the entruster and to sell or otherwise dispose of the goods,
documents or instrument thereof to the extent of the amount owing to the entruster or
as appears in the trust receipt or the goods, documents or instruments themselves if
they are unsold or not otherwise disposed of, in accordance with the terms and
conditions specified in the trust receipt, or for other purposes substantially equivalent
to any one of the following:
1. In the case of goods or documents, (a) to sell the goods or procure their sale, ...
A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a "security interest" in
the goods. "It secures an indebtedness and there can be no such thing as security interest that secures no
obligation." 4 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. 5
As elucidated in Samo vs. People6 "a trust receipt is considered as a security transaction intended to aid in
financing importers and retail dealers who do not have sufficient funds or resources to finance the
importation or purchase of merchandise, and who may not be able to acquire credit except through
utilization, as collateral of the merchandise imported or purchased."
Contrary to the allegation of the VINTOLAS, IBAA did not become the real owner of the goods. It was
merely the holder of a security title for the advances it had made to the VINTOLAS The goods the
VINTOLAS had purchased through IBAA financing remain their own property and they hold it at their own
risk. The trust receipt arrangement did not convert the IBAA into an investor; the latter remained a lender
and creditor.
... for the bank has previously extended a loan which the L/C represents to the
importer, and by that loan, the importer should be the real owner of the goods. If under
the trust receipt, the bank is made to appear as the owner, it was but an artificial
expedient, more of a legal fiction than fact, for if it were so, it could dispose of the
goods in any manner it wants, which it cannot do, just to give consistency with the
purpose of the trust receipt of giving a stronger security for the loan obtained by the
importer. To consider the bank as the true owner from the inception of the transaction
would be to disregard the loan feature thereof. ... 7
Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that because
they have surrendered the goods to IBAA and subsequently deposited them in the custody of the court,
they are absolutely relieved of their obligation to pay their loan because of their inability to dispose of the
goods. The fact that they were unable to sell the seashells in question does not affect IBAA's right to
recover the advances it had made under the Letter of Credit. In so arguing, the VINTOLAS conveniently
close their eyes to their application for a Letter of Credit wherein they expressly obligated themselves in
these terms:
IN CONSIDERATION THEREOF, I/we promise and agree to pay you at maturity in
Philippine Currency the equivalent of the above amount or such portion thereof as
may be drawn or paid upon the faith of said credit together with the usual charges. ...
(Exhibit "A")
They further agreed that their marginal deposit of P8,000.00, later increased to P11,000.00
 be applied, without further proceedings or formalities to pay or reduce our
obligation under this letter of credit or its corresponding Trust Receipt. (Emphasis
supplied) 8

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

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

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

SO ORDERED.