1. [2004V859] LANDL & COMPANY (PHIL.) INC., PERCIVAL G.

LLABAN and MANUEL

P. LUCENTE, Petitioners,versus METROPOLITAN BANK & TRUST COMPANY,
Respondent.2004 Jul 301st DivisionG.R. No. 159622DECISION
YNARES-SANTIAGO, J.:
At issue in this petition for review on certiorari is whether or not, in a trust receipt transaction, an
entruster which had taken actual and juridical possession of the goods covered by the trust receipt may
subsequently avail of the right to demand from the entrustee the deficiency of the amount covered by the
trust receipt.
As correctly appreciated by the Court of Appeals, the undisputed facts of this case are as follows:
Respondent Metropolitan Bank and Trust Company (Metrobank) filed a complaint for sum of money
against Landl and Company (Phil.) Inc. (Landl) and its directors, Percival G. Llaban and Manuel P.
Lucente before the Regional Trial Court of Cebu City, Branch 19, docketed as Civil Case No. CEB-4895.
Respondent alleged that petitioner corporation is engaged in the business of selling imported welding rods
and alloys. On June 17, 1983, it opened Commercial Letter of Credit No. 4998 with respondent bank, in
the amount of US$19,606.77, which was equivalent to P218,733.92 in Philippine currency at the time the
transaction was consummated. The letter of credit was opened to purchase various welding rods and
electrodes from Perma Alloys, Inc., New York, U.S.A., as evidenced by a Pro-Forma Invoice dated
March 10, 1983. Petitioner corporation put up a marginal deposit of P50,414.00 from the proceeds of a
separate clean loan.
As an additional security, and as a condition for the approval of petitioner corporations application
for the opening of the commercial letter of credit, respondent bank required petitioners Percival G. Llaban
and Manuel P. Lucente to execute a Continuing Suretyship Agreement to the extent of P400,000.00,
excluding interest, in favor of respondent bank. Petitioner Lucente also executed a Deed of Assignment
in the amount of P35,000.00 in favor of respondent bank to cover the amount of petitioner corporations
obligation to the bank. Upon compliance with these requisites, respondent bank opened an irrevocable
letter of credit for the petitioner corporation.
To secure the indebtedness of petitioner corporation, respondent bank required the execution of a
Trust Receipt in an amount equivalent to the letter of credit, on the condition that petitioner corporation
would hold the goods in trust for respondent bank, with the right to sell the goods and the obligation to
turn over to respondent bank the proceeds of the sale, if any. If the goods remained unsold, petitioner
corporation had the further obligation to return them to respondent bank on or before November 23, 1983.
Upon arrival of the goods in the Philippines, petitioner corporation took possession and custody thereof.
On November 23, 1983, the maturity date of the trust receipt, petitioner corporation defaulted in the
payment of its obligation to respondent bank and failed to turn over the goods to the latter. On July 24,
1984, respondent bank demanded that petitioners, as entrustees, turn over the goods subject of the trust
receipt. On September 24, 1984, petitioners turned over the subject goods to the respondent bank.

On July 31, 1985, in the presence of representatives of the petitioners and respondent bank, the
goods were sold at public auction. The goods were sold for P30,000.00 to respondent bank as the highest
bidder.
The proceeds of the auction sale were insufficient to completely satisfy petitioners outstanding
obligation to respondent bank, notwithstanding the application of the time deposit account of petitioner
Lucente. Accordingly, respondent bank demanded that petitioners pay the remaining balance of their
obligation. After petitioners failed to do so, respondent bank instituted the instant case to collect the said
deficiency.
On March 31, 1997, after trial on the merits, the trial court rendered a decision, the dispositive
portion of which reads:
WHEREFORE, foregoing premises considered, Judgment is hereby rendered in favor of the plaintiff and
against the defendant by (1) ordering the defendant to pay jointly and severally to the plaintiff the sum of
P292,172.23 representing the defendants obligation, as of April 17, 1986; (2) to pay the interest at the
rate of 19% per annum to be reckoned from April 18, 1986 until [the] obligation is fully paid; (3) to pay
service charge at the rate of 2% per annum starting April 18, 1986; (4) to pay the sum equivalent to 10%
per annum of the total amount due collectible by way of Attorneys Fees; (5) to pay Litigation Expenses
of P3,000.00 and to pay the cost of the suit; and (6) to pay penalty charge of 12% per annum.
SO ORDERED.[1]
Petitioners appealed to the Court of Appeals, raising the issues of: (1) whether or not respondent
bank has the right to recover any deficiency after it has retained possession of and subsequently effected a
public auction sale of the goods covered by the trust receipt; (2) whether or not respondent bank is
entitled to the amount of P3,000.00 as and for litigation expenses and costs of the suit; and (3) whether or
not respondent bank is entitled to the award of attorneys fees.
On February 13, 2003, the Court of Appeals rendered a decision affirming in toto the decision of the trial
court.[2]
Hence, this petition for review on the following assignment of errors:
I.
THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN AFFIRMING THE TRIAL
COURTS RULING THAT RESPONDENT HAD THE RIGHT TO CLAIM THE DEFICIENCY FROM
PETITIONERS NOTWITHSTANDING THE FACT THAT THE GOODS COVERED BY THE TRUST
RECEIPT WERE FULLY TURNED OVER TO RESPONDENT.
II.
THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN AFFIRMING THE TRIAL
COURTS PATENTLY ERRONEOUS AWARD OF PRINCIPAL OBLIGATION, INTEREST,
ATTORNEYS FEES, AND PENALTY AGAINST THE PETITIONERS.[3]
The instant petition is partly meritorious.

The resolution of the first assigned error hinges on the proper interpretation of Section 7 of Presidential
Decree No. 115, or the Trust Receipts Law, which reads:
Sec. 7. Rights of the entruster. - The entruster shall be entitled to the proceeds from the sale of the goods,
documents or instruments released under a trust receipt to the entrustee to the extent of the amount owing
to the entruster or as appears in the trust receipt, or to the return of the goods, documents or instruments in
case of non-sale, and to the enforcement of all other rights conferred on him in the trust receipt provided
such are not contrary to the provisions of this Decree.
The entruster may cancel the trust and take possession of the goods, documents or instruments subject of
the trust or of the proceeds realized therefrom at any time upon default or failure of the entrustee to
comply with any of the terms and conditions of the trust receipt or any other agreement between the
entruster and the entrustee, and the entruster in possession of the goods, documents or instruments may,
on or after default, give notice to the entrustee of the intention to sell, and may, not less than five days
after serving or sending of such notice, sell the goods, documents or instruments at public or private sale,
and the entruster may, at a public sale, become a purchaser. The proceeds of any such sale, whether public
or private, shall be applied (a) to the payment of the expenses thereof; (b) to the payment of the expenses
of re-taking, keeping and storing the goods, documents or instruments; (c) to the satisfaction of the
entrustees indebtedness to the entruster. The entrustee shall receive any surplus but shall be liable to the
entruster for any deficiency. Notice of sale shall be deemed sufficiently given if in writing, and either
personally served on the entrustee or sent by post-paid ordinary mail to the entrustee's last known
business address.
There is no question that petitioners failed to pay their outstanding obligation to respondent bank. They
contend, however, that when the entrustee fails to settle his principal loan, the entruster may choose
between two separate and alternative remedies: (1) the return of the goods covered by the trust receipt, in
which case, the entruster now acquires the ownership of the goods which the entrustee failed to sell; or (2)
cancel the trust and take possession of the goods, for the purpose of selling the same at a private sale or at
public auction. Petitioners assert that, under this second remedy, the entruster does not acquire ownership
of the goods, in which case he is entitled to the deficiency. Petitioners argue that these two remedies are
so distinct that the availment of one necessarily bars the availment of the other. Thus, when respondent
bank availed of the remedy of demanding the return of the goods, the actual return of all the unsold goods
completely extinguished petitioners liability.[4]
Petitioners argument is bereft of merit.
A trust receipt is inextricably linked with the primary agreement between the parties. Time and
again, we have emphasized that a trust receipt agreement is merely a collateral agreement, the purpose of
which is to serve as security for a loan. Thus, in Abad v. Court of Appeals,[5] we ruled:
A letter of credit-trust receipt arrangement is endowed with its own distinctive features and
characteristics. Under that set-up, a bank extends a loan covered by the letter of credit, with the trust
receipt as security for the loan. In other words, the transaction involves a loan feature represented by the
letter of credit, and a security feature which is in the covering trust receipt. x x x.

A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a "security interest"
in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no
obligation.[6]
The Trust Receipts Law was enacted to safeguard commercial transactions and to offer an
additional layer of security to the lending bank. Trust receipts are indispensable contracts in international
and domestic business transactions. The prevalent use of trust receipts, the danger of their misuse and/or
misappropriation of the goods or proceeds realized from the sale of goods, documents or instruments held
in trust for entruster banks, and the need for regulation of trust receipt transactions to safeguard the rights
and enforce the obligations of the parties involved are the main thrusts of the Trust Receipts Law.[7]
The second paragraph of Section 7 provides a statutory remedy available to an entruster in the event
of default or failure of the entrustee to comply with any of the terms and conditions of the trust receipt or
any other agreement between the entruster and the entrustee. More specifically, the entruster "may cancel
the trust and take possession of the goods, documents or instruments subject of the trust or of the proceeds
realized therefrom at any time". The law further provides that"the entruster in possession of the goods,
documents or instruments may, on or after default, give notice to the entrustee of the intention to sell, and
may, not less than five days after serving or sending of such notice, sell the goods, documents or
instruments at public or private sale, and the entruster may, at a public sale, become a purchaser. The
proceeds of any such sale, whether public or private, shall be applied (a) to the payment of the expenses
thereof; (b) to the payment of the expenses of re-taking, keeping and storing the goods, documents or
instruments; (c) to the satisfaction of the entrustee's indebtedness to the entruster. The entrustee shall
receive any surplus but shall be liable to the entruster for any deficiency."
The trust receipt between respondent bank and petitioner corporation contains the following
relevant clauses:
The BANK/ENTRUSTER may, at any time, and only at its option, cancel this trust and take possession
of the goods/documents/instruments subject hereof or of the proceeds realized therefrom wherever they
may then be found, upon default or failure of the ENTRUSTEE to comply with any of the terms and
conditions of this Trust Receipt or of any other agreement between the BANK/ENTRUSTER and the
ENTRUSTEE;
and
the
BANK/ENTRUSTER
having
taken
repossession
of
the
goods/documents/instruments object hereof may, on or after default, give at least five (5) days previous
notice to the ENTRUSTEE of its intention to sell the goods/documents/instruments at public or private
sale, at which public sale, it may become a purchaser; Provided, that the proceeds of any such sale,
whether public or private, shall be applied: (a) to the payment of the expenses thereof; (b) to the payment
of the expenses of retaking, keeping and storing the goods/documents/instruments; (c) to the satisfaction
of all of the ENTRUSTEEs indebtedness to the BANK/ENTRUSTER; and Provided, further, that the
ENTRUSTEE shall receive any surplus thereof but shall, in any case, be liable to the
BANK/ENTRUSTER for any deficiency. x x x
No act or omission on the part of the BANK/ENTRUSTER shall be deemed and considered a waiver of
any of its rights hereunder or under any related letters of credit, drafts or other documents unless such
waiver is expressly made in writing over the signature of the BANK/ENTRUSTER.[8]

The afore-cited stipulations in the trust receipt are a near-exact reproduction of the second paragraph of
Section 7 of the Trust Receipts Law. The right of repossession and subsequent sale at public auction
which were availed of by respondent bank were rights available upon default, and which were conferred
by statute and reinforced by the contract between the parties.
The initial repossession by the bank of the goods subject of the trust receipt did not result in the full
satisfaction of the petitioners loan obligation. Petitioners are apparently laboring under the mistaken
impression that the full turn-over of the goods suffices to divest them of their obligation to repay the
principal amount of their loan obligation. This is definitely not the case. In Philippine National Bank v.
Hon. Gregorio G. Pineda and Tayabas Cement Company, Inc.,[9] we had occasion to rule:
PNBs possession of the subject machinery and equipment being precisely as a form of security for the
advances given to TCC under the Letter of Credit, said possession by itself cannot be considered payment
of the loan secured thereby. Payment would legally result only after PNB had foreclosed on said
securities, sold the same and applied the proceeds thereof to TCC's loan obligation. Mere possession does
not amount to foreclosure for foreclosure denotes the procedure adopted by the mortgagee to terminate
the rights of the mortgagor on the property and includes the sale itself.
Neither can said repossession amount to dacion en pago. Dation in payment takes place when property is
alienated to the creditor in satisfaction of a debt in money and the same is governed by sales. Dation in
payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of the obligation.
As aforesaid, the repossession of the
machinery and equipment in question was merely to secure the payment of TCC's loan obligation and not
for the purpose of transferring ownership thereof to PNB in satisfaction of said loan. Thus, no dacion en
pago was ever accomplished. (Citations omitted, underscoring supplied)[10]
Indeed, in the 1987 case of Vintola v. Insular Bank of Asia and America,[11] we struck down the position
of the petitioner-spouses that their obligation to the entruster bank had been extinguished when they
relinquished possession of the goods in question. Thus:
A trust receipt is a security agreement, pursuant to which a bank acquires a security interest in the
goods. It secures an indebtedness and there can be no such thing as security interest that secures no
obligation. As defined in our laws:
(h)
Security Interest means a property interest in goods, documents or instruments to secure
performance of some obligations of the entrustee or of some third persons to the entruster and includes
title, whether or not expressed to be absolute, whenever such title is in substance taken or retained for
security only.
xxx

xxx

xxx

Contrary to the allegations of the VINTOLAS, IBAA did not become the real owner of the goods.
It was merely the holder of a security title for the advances it had made to the VINTOLAS. The goods
the VINTOLAS had purchased through IBAA financing remain their own property and they hold it at
their own risk. The trust receipt arrangement did not convert the IBAA into an investor; the latter
remained a lender and creditor.

"x x x for the bank has previously extended a loan which the L/C represents to the importer, and by that
loan, the importer should be the real owner of the goods. If under the trust receipt, the bank is made to
appear as the owner, it was but an artificial expedient, more of a legal fiction than fact, for if it were so, it
could dispose of the goods in any manner it wants, which it cannot do, just to give consistency with the
purpose of the trust receipt of giving a stronger security for the loan obtained by the importer. To
consider the bank as the true owner from the inception of the transaction would be to disregard the loan
feature thereof. x x x"
Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that
because they have surrendered the goods to IBAA and subsequently deposited them in the custody of the
court, they are absolutely relieved of their obligation to pay their loan because of their inability to dispose
of the goods. The fact that they were unable to sell the seashells in question does not affect IBAAs right
to recover the advances it had made under the Letter of Credit. (Citations omitted.)[12]
Respondent banks repossession of the properties and subsequent sale of the goods were completely
in accordance with its statutory and contractual rights upon default of petitioner corporation.
The second paragraph of Section 7 expressly provides that the entrustee shall be liable to the
entruster for any deficiency after the proceeds of the sale have been applied to the payment of the
expenses of the sale, the payment of the expenses of re-taking, keeping and storing the goods, documents
or instruments, and the satisfaction of the entrustees indebtedness to the entruster.
In the case at bar, the proceeds of the auction sale were insufficient to satisfy entirely petitioner
corporations indebtedness to the respondent bank. Respondent bank was thus well within its rights to
institute the instant case to collect the deficiency.
We find, however, that there has been an error in the computation of the total amount of petitioners
indebtedness to respondent bank.
Although respondent bank contends that the error of computation is a question of fact which is beyond the
power of this Court to review,[13] the total amount of petitioners indebtedness in this case is not a
question of fact. Rather, it is a question of law, i.e., the application of legal principles for the computation
of the amount owed to respondent bank, and is thus a matter properly brought for our determination.
The first issue involves the amount of indebtedness prior to the imposition of interest and penalty
charges. The initial amount of the trust receipt of P218,733.92, was reduced to P192,265.92 as of June
14, 1984, as per respondents Statement of Past Due Trust Receipt dated December 1, 1993.[14] This
amount presumably includes the application of P35,000.00, the amount of petitioner Lucentes Deed of
Assignment, which amount was applied by respondent bank to petitioners obligation. No showing was
made, however, that the P30,000.00 proceeds of the auction sale on July 31, 1985 was ever applied to the
loan. Neither was the amount of P50,414.00, representing the marginal deposit made by petitioner
corporation, deducted from the loan. Although respondent bank contends that the marginal deposit
should not be deducted from the principal obligation, this is completely contrary to prevailing
jurisprudence allowing the deduction of the marginal deposit, thus:
The marginal deposit requirement is a Central Bank measure to cut off excess currency liquidity which
would create inflationary pressure. It is a collateral security given by the debtor, and is supposed to be

returned to him upon his compliance with his secured obligation. Consequently, the bank pays no interest
on the marginal deposit, unlike an ordinary bank deposit which earns interest in the bank. As a matter of
fact, the marginal deposit requirement for letters of credit has been discontinued, except in those cases
where the applicant for a letter of credit is not known to the bank or does not maintain a good credit
standing therein.
It is only fair then that the importers marginal deposit (if one was made, as in this case), should
be set off against his debt, for while the importer earns no interest on his marginal deposit, the bank, apart
from being able to use said deposit for its own purposes, also earns interest on the money it loaned to the
importer. It would be onerous to compute interest and other charges on the face value of the letter of
credit which the bank issued, without first crediting or setting off the marginal deposit which the importer
paid to the bank. Compensation is proper and should take place by operation of law because the
requisites in Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent
amount (Art. 1290, Civil Code). Although Abad is only a surety, he may set up compensation as regards
what the creditor owes the principal debtor, TOMCO (Art. 1280, Civil Code).[15]
The net amount of the obligation, represented by respondent bank to be P292,172.23 as of April 17, 1986,
would thus be P211,758.23.
To this principal amount must be imposed the following charges: (1) 19% interest per annum, in
keeping with the terms of the trust receipt;[16] and (2) 12% penalty per annum, collected based on the
outstanding principal obligation plus unpaid interest, again in keeping with the wording of the trust
receipt.[17] It appearing that petitioners have paid the interest and penalty charges until April 17, 1986,
the reckoning date for the computation of the foregoing charges must be April 18, 1986.

A perusal of the records reveals that the trial court and the Court of Appeals erred in imposing
service charges upon the petitioners. No such stipulation is found in the trust receipt. Moreover, the trial
court and the Court of Appeals erred in computing attorneys fees equivalent to 10% per annum, rather
than 10% of the total amount due. There is no basis for compounding the interest annually, as the trial
court and Court of Appeals have done. This amount would be unconscionable.
Finally, Lucente and Llabans contention that they are not solidarily liable with petitioner
corporation is untenable. As co-signatories of the Continuing Suretyship Agreement, they bound
themselves, inter alia, to pay the principal sum in the amount of not more than P400,000.00; interest due
on the principal obligation; attorneys fees; and expenses that may be incurred in collecting the credit.
The amount owed to respondent bank is the amount of the principal, interest, attorneys fees, and
expenses in collecting the principal amount. The Continuing Suretyship Agreement expressly states the
nature of the liability of Lucente and Llaban:
The liability of the SURETY shall be solidary, direct and immediate and not contingent upon the banks
pursuit of whatever remedies the BANK have [sic] against the Borrower or the securities or liens the
BANK may possess and the SURETY will at any time, whether due or not due, pay to the BANK with or
withour demand upon the Borrower, any of the instruments of indebtedness or other obligation hereby
guaranteed by the SURETY.[18]

Solidary liability is one of the primary characteristics of a surety contract,[19] and the Continuing
Suretyship Agreement expressly stipulates the solidary nature of Lucente and Llabans liability. All three
petitioners thus share the solidary obligation in favor of respondent bank, which is given the right, under
the Civil Code, to proceed against any one of the solidary debtors or some or all of them
simultaneously.[20]
WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. The decision of
the Court of Appeals in CA-G.R. CV No. 58193 dated February 13, 2003 is AFFIRMED with
MODIFICATIONS. Accordingly, petitioners are ordered to pay respondent bank the following: (1)
P211,758.23 representing petitioners net obligation as of April 17, 1986; (2) interest at the rate of 19%
per annum and penalty at the rate of 12% per annum reckoned from April 18, 1986; (3) attorneys fees
equivalent to 10% of the total amount due and collectible; and (4) litigation expenses in the amount of
P3,000.00. The service charge at the rate of 2% per annum beginning April 18, 1986 is deleted. Costs
against petitioners.
SO ORDERED.
2. [1991V539] DAMIAN ROBLES, petitioner, vs. THE COURT OF APPEALS and THE
PEOPLE OF THE PHILIPPINES, respondents.1991 Jul 153rd DivisionG.R. No. 59640
In an information dated 2 March 1978, petitioner Damian Robles was charged before the then Court of
First Instance of Manila with the crime of estafa, committed as follows:
"That in or about and during the penod comprised between November 19, 1976 to March 9, 1977,
inclusive, in the City of Manila, Philippines, the said accused did then and there wilfully, unlawfully and
feloniously defraud the Paramount Business Machines, a business firm duly organized and doing business
in said City, represented by Roberto Ng y Shiang Shee, in the following manner, to wit: the said accused
received in trust from the said Roberto Ng y Shiang Shee office equipments consisting of adding
machines, typewriters and calculators all amounting to P14,895.00 for the purpose of selling the same,
under the express obligation of turning over the proceeds of the sale, if sold, or of returning the said office
equipments if not sold, to the said Roberto Ng y Shiang Shee; but the said accused, once in possession of
the said office equipments and far from complying with his obligation as aforesaid, failed and refused and
still fails and refuses to remit the corresponding amount of the said office equipments or to return the said
office equipments, despite repeated demands made upon him to do so, and instead, with grave abuse of
confidence and with intent to defraud, did then and there wilfully, unlawfully and feloniously
misappropriate, misapply and convert the same to his own personal use and benefit, to the damage and
prejudice of the said Paramount Business Machines, in the said amount of P14,895.00, Philippine
Currency.
Contrary to law." 1
The trial court, in its decision dated 20 February 1979, convicted petitioner Robles of the crime charged.
The dispositive portion of this decision reads:
"WHEREFORE, the Court finds the accused Damian Robles guilty beyond reasonable doubt of the crime
of estafa defined and penalized under the provisions of Article 315 subdivision No. 1 (b) of the Revised
Penal Code and there being no aggravating or mitigating circumstance present and applying the

provisions of the Indeterminate Sentence Law, hereby sentences the said accused to suffer the penalty of
imprisonment ranging from TWO (2) YEARS, ELEVEN (11) MONTHS and TEN (10) DAYS of prision
correccional in its minimum and medium period as minimum, to SIX (6) YEARS, EIGHT (8) MONTHS
and TWENTY (20) DAYS of prision mayor medium, as maximum, together with the accessory penalties
provided for by law and to pay the costs.
The accused is further ordered to indemnify the complainant the amount of P14,895.00 without subsidiary
imprisonment in case of insolvency.
SO ORDERED." 2
Dissatisfied, petitioner Robles appealed to the Court of Appeals. On 17 September 1981, the appellate
court affirmed petitioner Robles' conviction but modified the penalty imposed by the trial court as
follows:
"WHEREFORE, with the modification that accused-appellant DAMIAN ROBLES shall suffer the
penalty of imprisonment from SIX (6) MONTHS of arresto mayor, as minimum, to TWO (2) YEARS,
ELEVEN (11) MONTHS and TEN (10) DAYS of prision correccional, as maximum, and to indemnify
the complainant the amount of P11,395.00, the appealed decision is hereby affirmed in all other respects,
and with costs against accused-appellant.
SO ORDERED." 3
The facts as found by respondent Court of Appeals are as follows:
"Roberto Ng is the owner and the sales manager of the Paramount Business Machines, a firm dealing in
office equipment and has offices located at 1027 Severino Reyes Street, Sta. Cruz, Manila (pp. 10, 11,
TSN, July 19, 1978).
On November 19, 1976, Roberto Ng entrusted to Damian Robles the following items:
one

Casio electronic calculator

one Victor adding machine

P800.00
600.00

which items were covered by a delivery trust receipt (Exhibit 'A,' Folder of Exhibits: pp. 14, 15, TSN.,
July 19, 1978).
On February 8, 1977, Roberto Ng again entrusted to Damian Robles several office equipment, to wit:
one

Standard Imperial typewriter

16" carriage

one

Standard Imperial typewriter

26" carriage

one

P3,500.00

3,200.00

Olympia, standard electric typewriter,

13" carriage

2,800.00

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

Olivetti standard typewriter

15" carriage

one

P1,400.00

Olympia portable typewriter

10" carriage

995.00

which items were covered by delivery trust receipts (Exhibits 'F' and 'G,' Folder of Exhibits; pp. 39, 40,
41, 42, 45, TSN, July 19, 1978). For all these items delivered to Damian Robles, the latter agreed to sell
them and remit the proceeds of the sales to Roberto Ng, or to return the items if they are unsold (pp. 57,
58, 67, 68, TSN, July 19, 1978).
The postdated check PCIB Check No. 15655 dated March 15, 1977 for the amount of P4,200.00 issued by
Damian Robles was not honored by the drawee bank since Damian Robles caused the stoppage of its
payment (pp. 29, 30, 31, 46, TSN, July 19, 1978).
On the other hand, the accused-appellant admits having received from the complainant Roberto Ng the
business machines enumerated in the delivery receipts, Exhibits 'A,' 'B,' 'D,' 'E,' 'F,' and 'G,' (pp. 4, 8,
TSN, December 5, 1978) and admits likewise that it was his agreement with Roberto Ng that he (accused)
would sell the office equipment and to turn over the proceeds to Roberto Ng (p. 8, TSN, December 5,
1978). He however, claims that the Imperial Standard Typewriter worth P3,500.00 was returned to
Paramount as confirmed by the signature of Mr. Ng in Annex 'B' (Original Exhibits, p. 12) after the
notation 'return' was placed there by Fiscal Arranz (C.A. Decision, p. 11; Rollo, p. 38).
The total value of the office equipment received by accused-appellant Damian Robles from the
complainant is P14,895.00." 4
In this Petition for Review, petitioner Robles makes the following arguments:
1. the Court of Appeals gravely erred in law in ruling that under the delivery trust receipts petitioner
received the articles covered therein in trust or with the obligation to account for the proceeds thereof, or
to return the same; and

2. the Court of Appeals committed serious error in law in finding petitioner guilty of estafa under
Subdivision No. 1 (B), Article 315 of the Revised Penal Code.
Petitioner, in respect of the first ground, insist that the delivery trust receipts which he had signed were
"merely intended to evidence the fact that the articles therein listed were delivered to and received by
him." The documents do not, petitioner contends, reflect the true intention of the parties considering that
even before he could comply with the stipulations in those receipts, that is, to return the articles
enumerated therein within the period of two (2) days from the date of the receipt, the complainant
delivered to him other articles without demanding compliance with the condition imposed by the earlier
delivery trust receipts. In short, it is his position that the delivery trust receipts are "mere formalities"
whose printed terms and conditions appearing therein were not intended by the parties to govern their
transactions; that those transactions referred to were in fact sales on trial basis for a period of two (2)
days. Thus, when he failed to return the various pieces of equipment within the two-day period, he was
deemed to have purchased the same and his liability should therefore be only civil, i.e., to pay the
purchase price.
The Court is not persuaded. The delivery trust receipts evidencing the transactions between Paramount
Business Machines ("Paramount") and petitioner state, in relevant part:
"In trust for and as the property of said Paramount Business Machines the above described merchandise
having been delivered to me/us for trial and with the obligation on my/our part to return the same in good
order and condition within 2 days from the date hereof unless before the expiration of said period, I/we
definitely purchase the same and pay the price hereof .
In the meantime, pending the sales of the above described merchandise to me/us, I/we agree and
undertake to be absolutely responsible as insurer for the proper care and conservation of said property and
to be liable for any loss or destruction.
I/we further agree to keep the said property in my/our residence or place of business at the address
indicated herein above and not to remove the same from said promise without the previous knowledge
and consent of Paramount Business Machines." 5
The quoted provisions of the trust receipts show clearly (1) that Paramount retained ownership of the
office equipment covered by the receipts; (2) that possession of the goods was conveyed to petitioner
subject to a fiduciary obligation either to return them within a specified period of time or to pay or
account for the price of proceeds thereof. Surrounding circumstances also showed that the transactions
were not ordinary sales on trial basis. There were six (6) transactions involved, not just one. In each
transaction, there were several items of equipment delivered to petitioner, instead of just one, thereby
indicating that petitioner was not an ordinary buyer who would himself use the articles bought, but rather
a commission merchant. Additional items of equipment were delivered to petitioner even before
compliance with his duty under one trust receipt to return within two (2) days the office equipment he had
received. He admitted in his Affidavit 6 dated 21 October 1977 that he was Paramount's sales agent.
Petitioner, however, failed to return the machines upon demand by Paramount and at the same time, failed
to account for the sale proceeds thereof. We agree with the Court of Appeals and the trial court on this
matter. The Court of Appeals said in part:

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

xxx

xxx

The conditions (Exhibit A-1) stipulated on all the delivery trust receipts signed by the accused specifically
stated that the [items] were received by the accused from the complainant 'in trust for and as property of
the said Paramount Business Machines' and the further stipulation that the same is 'with the obligation on
my/our part to return the same in good order and condition within 2 days from the date hereof ' The
ordinary and accepted meaning of the phrase 'in trust' is an obligation upon a person arising out of a
confidence reposed in him to apply properly, faithfully and according to such confidence (Bouvier's Law
Dictionary, Baldwins Century Edition, page 1192.)
That whatever articles are received in trust by the accused if sold by him the proceeds thereof are to be
turned over to the owner, the complainant herein, and if not sold the same articles are to be returned to the
complainant within two days from receipt of the same.
The provisions of the conditions embodied in the trust receipts need no further interpretation or
elucidation for the same is clear, specific and explicit. The Court has observed the accused to be an
intelligent man far (sic) from his qualification of being a college professor and that he must have fully
understood the contents of the stipulations appearing on the face of the delivery trust receipts which he
actually signed upon receipt of the articles described therein. The period for him (accused) to return the
articles is clear which is '2 days from the date hereof,' meaning from the date he received the articles, the
period mentioned being specifically typed on the blank provided therefore (sic) which the Court believes
the accused could not have missed and is aware he signed these trust receipts." 7
We note in this connection that the delivery trust receipts here involved in fact constituted trust receipts
within the meaning of Presidential Decree No. 115, known as the "Trust Receipts Law," which took effect
on 29 January 1973.
Section 4 thereof defines a "trust receipt" and a "trust receipt transaction" for purposes of the decree in the
following terms:
"Sec. 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of
this Decree, is any transaction by and between a person referred to in this Decree as the entruster, and
another person referred to in this Decree as the entrustee, whereby the entrustee, who owns or holds
absolute title or security interests over certain specified goods documents or instruments, releases the
same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed
document called a 'trust receipt' wherein the entrustee binds himself to hold the designated goods,
documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods,
documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the
extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or

instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and
conditions specified in the trust receipt, . . ."
We note that under Section 13 of the Trust Receipts Law, the violation by an entrustee of his obligations
under a trust receipt document, more specifically his failure to turnover the proceeds of the sale of the
goods covered by the trust receipt, or to return said goods as they were not sold or disposed of, would
constitute the crime of estafa under Article 315 (1) (b), Revised Penal Code. Section 13 reads as follows:
"SEC. 13. Penalty clause. The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or
as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or
disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa,
punishable under the provisions of Article Three Hundred and Fifteen, paragraph one (b) of Act Number
Three Thousand Eight Hundred and Fifteen, as amended, otherwise known as the Revised Penal Code. If
the violation or offense is committed by a corporation, partnership, association or other juridical entities,
the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other
officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising
from the criminal offense."
In Lee v. Rodil, 8 which involved a criminal prosecution for estafa relating to goods covered by a trust
receipt alleged to have been committed on 26 July 1982, this Court affirmed the conviction for estafa
under paragraph 1 (b), Article 315 of the Revised Penal Code and in the process, upheld Section 13 of
Presidential Decree No. 115 against constitutional challenge. The Court, speaking through Mr. Justice
Gutierrez, Jr., said:
"Acts involving the violation of trust receipt agreements occurring after 29 January 1973 would make the
accused criminally liable for estafa under paragraph 1 (b), Article 315 of the Revised Penal Code,
pursuant to the explicit provision in Sec. 13 of P.D. 115 (Sia v. Court of Appeals, G.R. No. 40324,
October 5, 1988).
The petitioner questions the constitutionality of Sec. 13 of P.D. 115. She contends that it is violative of
the constitutional right that 'No person shall be imprisoned for debt or non-payment of a poll tax'.
The petitioner has failed to make out a strong case that P.D. 115 conflicts with the constitutional
prohibition against imprisonment for non-payment of debt. A convincing showing is needed to overcome
the presumption of the validity of an existing statute.
The criminal liability springs from the violation of the trust receipt.
We bear in mind the nature of a trust receipt agreement . . .
xxx

xxx

xxx

. . . The violation of a trust receipt committed by disposing of the goods covered thereby and failing to
deliver the proceeds of such sale has been squarely made to fall under Art. 315 (1) (b) of the Revised
Penal Code, . . ." 9

In the case at bar, the acts of petitioner which were complained of were committed between 19 November
1976 and 9 March 1977, that is, long after the beginning date of effectivity of Presidential Decree No.
115. In accordance with the provisions of Section 13, Presidential Decree No. 115, quoted above, the
failure of petitioner Damian Robles to turnover to the entruster Paramount the proceeds of the sale of
goods covered by the delivery trust receipts and to return the said goods, constituted estafa punishable
under Article 315 (1) (b) of the Revised Penal Code.
It is also pertinent to point out that quite apart from and even in the absence of the provisions of Section
13 of the Trust Receipt Law, the failure of Damian Robles to comply with his fiduciary obligation under
the delivery trust receipts here involved, constituted the offense of estafa punishable under Article 315 (1)
(b) of the Revised Penal Code. In other words, the elements of the offense of estafa set out in Article 315
(1) (b) are present in the instant case. Those elements are: (1) "unfaithfulness or abuse of confidence;" (2)
"misappropriating . . . money or goods . . . ; (3) received by the offender in trust or on commission . . . or
under any other obligation involving the duty to make delivery of or to return the same . . .;" and (4) "to
the prejudice of another." The delivery trust receipts, in the case at bar, admittedly signed by petitioner
Damian Robles imposed on him the duty to return the article or the proceeds thereof to Paramount within
two (2) days from the specified dates of the trust receipts. The failure to account, upon demand, for funds
or property held in trust is evidence of misappropriation 10 which, not having been explained away or
rebutted by petitioner Damian Robles, warranted his conviction for estafa under the Revised Penal Code.
This was settled doctrine long before the promulgation of the Trust Receipts Law. 11
WHEREFORE, the present Petition for Review is hereby DENIED for lack of merit and the Decision of
the Court of Appeals in C.A.-G.R. No. 23216-CR dated 17 September 1981, is hereby AFFIRMED. Costs
against petitioner.
SO ORDERED.
3. [2000V827] STATE INVESTMENT HOUSE, INCORPORATED, petitioner, vs. COURT
OF APPEALS, PHILIPPINE NATIONAL BANK and SPOUSES FEDERICO L. FRANCO
and FELICISIMA R. FRANCO, respondents.2000 Jul 141st DivisionG.R. No. 130365D E C
ISION
Private respondent spouses Federico and Felisisima Franco bought four (4) units of M.A.N. Diesel Long
Distance Touring Coaches from Delta Motor Corporation-M.A.N. Division (DMC). To secure payment
therefor, the spouses executed in favor of DMC four (4) promissory notes,1 [Exhibits "7" to "10" (SIHI)]
each with a face value of P800,000.00, as well as four (4) chattel mortgages over said vehicles.
The promissory notes executed by the Franco spouses subsequently became the subject of conflicting
claims by DMCs creditors, namely, the State Investment House, Inc. (SIHI), the Philippine National
Bank (PNB), and the Union Bank of the Philippines (UBP). To determine to whom they should continue
paying the amounts stated in the promissory notes, the spouses filed an action for interpleader in the
Regional Trial Court of Manila.
SIHIs claim
SIHI alleged that in 1979 it granted a twenty-five million peso (P25,000,000) credit line to DMC. In
consideration therefor, DMC bound itself to deliver and assign to SIHI all its contracts to sell, notes,

accounts, checks, bills of exchange, and choses of actions evidencing actual sales of its merchandise to
DMCs clients. The agreement between SIHI and DMC is embodied in a Continuing Deed of Assignment
of Receivables2 [Exhibit "4" (SIHI)] executed on December 23, 1981.
By March 24, 1992, DMCs availment of the credit line had amounted to P24,010,269.32. Of this sum,
P12,846,939.36 was due and payable. The loan to DMC was subsequently restructured, resulting in a
Memorandum of Agreement3 [Exhibit "5" (SIHI)] whereby DMC agreed to sell P8,000,000 worth of its
receivables to SIHI, the proceeds of which shall be used to pay the loans past due.
On September 13, 1983, DMC executed in favor of SIHI a Deed of Sale4 [Exhibit "6" (SIHI)] of various
accounts receivables amounting to P18,909,100, including the subject promissory notes.
SIHI later sent demand letters dated March 29, 19845 [Exhibit "11" (SIHI)] and June 27, 19846 [Exhibit
"12" (SIHI)] informing the Franco spouses of the assignment and directing that they make payments to
SIHIs office.
PNB's claim
PNBs claim over the promissory notes, on the other hand, is based on a letter of credit7 [Exhibit "1"
(PNB)] granted by PNB to DMC to finance the importation of 325 units of M.A.N. CKD Diesel Bus
Chassis. The imported units supposedly include the four (4) units sold by DMC to the Francos. After
DMC took possession of the units, DMC and PNB entered into a Trust Receipt Agreement8 [Exhibits "4
to 11-D" (PNB)] whereby DMC agreed to hold said merchandise in storage as property of said Bank, with
the liability to sell the same for cash, for its account and to hand the proceeds thereof to the said Bank to
be applied against its acceptance on account of the undersigned, and/or under the terms of the Letter of
Credit noted below; and further agrees to hold said merchandise and the proceeds thereof in trust for the
payment of said acceptance and of any other indebtedness of the undersigned to the said Bank.
A Credit Agreement9 [Exhibit "6" (SIHI)] dated February 17, 1981 was also executed providing that:
(a) The CLIENT shall open and maintain a Special Deposit Account (SDA) with the Bank; (b) All
collections of the CLIENT on the sales of the units and other goods imported under the Letter of Credit as
well as sales of the units subsequently imported out of the aforesaid collections shall be deposited to the
SDA.
In a Deed of Assignment10 [Exhibit "13" (PNB)] dated February 27, 1981, PNB and DMC stipulated
that:
Should the sums of money, credits, receivables or other properties assigned, be in the possession of, or
due or to be due from a third party, then it is hereby agreed that the same shall be remitted by such third
party direct to the ASSIGNEE to be disposed of in accordance with the terms and conditions thereof. The
ASSIGNOR shall obtain the conformity of such third party to this condition.
PNB claimed that the subject promissory notes were covered by this Deed of Assignment, the notes
representing the consideration for the sale of the units imported from the proceeds of the Letter of Credit.
In a Demand Letter11 [Exhibit "E."] dated May 20, 1984, PNB informed the Francos of the assignment
and enjoined payment to PNB.

UBPs claim
UBP, in turn, obtained a Writ of Garnishment as a result of a judgment against DMC. UBP asserted rights
over the promissory notes by virtue of said writ.
Ruling on these conflicting claims, the RTC held that SIHIs claims over the promissory notes were
superior to those of PNB and UBP. The dispositive portion of the RTCs decision states:
WHEREFORE, judgment is hereby rendered as follows:
(1) Granting this action for interpleader;
(2) Declaring defendant-claimant State Investment House Inc. as the one with superior right over the
obligation (unpaid as of March 29, 1984) of plaintiffs as covered by their promissory notes and chattel
mortgages executed in favor of Delta Motors Corporation, M-A-N Division (Exhs. 7, 8, 9 and 10-SIHI);
(3) Lifting and setting aside the Writ of Preliminary Injunction previously issued;
(4) Dismissing and denying defendants Philippine National Banks and Union Bank of the Philippines
claims;
(5) After the finality of this Decision, defendant SIHI shall be allowed to cause the withdrawal of the
deposit now totaling P634,090.24 to be applied to plaintiffs said allegation;
(6) Plaintiffs and SIHI shall resolve as early as possible the matter concerning the balance of the oft-stated
accounts, and henceforth, plaintiffs shall discharge their remaining obligations (Exhs. 7, 8, 9 and 10-SIHI)
by paying to SIHI.
There shall be pronouncement as to costs.
SO ORDERED.12 [Rollo, p. 82.]
It does not appear that UBP questioned the decision of the RTC. PNB, for its part, appealed to the Court
of Appeals.
In a Decision dated September 10, 1996, the Court of Appeals reversed the decision of the RTC and
declared PNBs claims superior to those of SIHI. It held that under Section 9 of the Trust Receipts
Law,13 [Presidential Decree No. 115.] DMC was merely an entrustee of the products imported and, thus,
obliged to turn over to its entruster, PNB, the proceeds of the sale of said products. The dispositive
portion of said decision is reproduced hereunder:
WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and SET ASIDE. A
new one is hereby rendered.
1. Declaring defendant-appellant PNB as the one having superior rights over the obligation of plaintiffsappellees as covered by their promissory notes and chattel mortgages.

2. After finality of decision, defendant-claimant-appellant PNB shall be allowed to withdraw the proceeds
of the sale deposited by the plaintiffs-spouses Federico L. Franco and Felicisima Franco with the trial
court, to be applied to their and DMC-MANs obligations.
3. Plaintiff-appellee shall discharge their remaining obligation by paying defendant-claimant-appellant
PNB.
4. Dismissing and denying defendant-appellee SIHIs and defendant-appellant UBPs claims.
5. Lifting and setting aside the Writ of Preliminary injunction previously issued by the trial court.
No pronouncement as to cost.14 [Rollo, p. 42.]
The Court of Appeals denied SIHIs motion for reconsideration.
Seeking a review of the adverse decision of the Court of Appeals, SIHI filed in this Court the present
petition for certiorari under Rule 45 of the Rules of Court.
Petitioner SIHI alleges that the vehicles sold by DMC to the Francos were not covered by the trust
receipts agreement between PNB and DMC. Assuming that said vehicles were the subject of said receipts,
SIHI contends that its rights are superior to those of PNB since the former is a purchaser in good faith,
having no notice or knowledge of PNBs interest over the notes. SIHI likewise imputes gross negligence
in PNBs handling of DMCs accounts. The subject vehicles were supposedly released to DMC as early
as 1980 and were sold to the Francos in 1981-1982. It was only in May 1984, however, when PNB
asserted its claim over the promissory notes, long after DMC had assigned the notes to SIHI.
The petition is meritorious.
Section 7 of the Trust Receipts Law provides that the entruster shall be entitled to the proceeds from the
sale of the goods released under a trust receipt to the entrustee to the extent of the amount owing to the
entruster or as appears in the trust receipt.15 [Section 7 states in full:
SEC. 7. Rights of the entruster. - The entruster shall be entitled to the proceeds from the sale of the goods,
documents or instruments released under a trust receipt to the entrustee to the extent of the amount owing
to the entruster or as appears in the trust receipt, or to the return of the goods, documents or instruments in
case of non-sale, and to the enforcement of all other rights conferred on him in the trust receipt provided
such are not contrary to the provisions of this Decree.
The entruster may cancel the trust and take possession of the goods, documents or instruments subject of
the trust or of the proceeds realized therefrom at any time upon default or failure of the entrustee to
comply with any of the terms and conditions of the trust receipt or any other agreement between the
entruster and the entrustee, and the entruster in possession of the goods, documents or instruments may,
on or after default, give notice to the entrustee of the intention to sell, and may, not less than five days
after serving or sending of such notice, sell the goods, documents or instruments at public or private sale,
and the entruster may, at a public sale, become a purchaser. The proceeds of any such sale, whether public
or private, shall be applied (a) to the payment of the expenses thereof; (b) to the payment of the expenses
of re-taking, keeping and storing the goods, documents or instruments; (c) to the satisfaction of the
entrustees indebtedness to the entruster. The entrustee shall receive any surplus but shall be liable to the

entruster for any deficiency. Notice of sale shall be deemed sufficiently given if in writing, and either
personally served on the entrustee or sent by post-paid ordinary mail to the entrustee's last known
business address.] The pivotal issue, therefore, is whether the goods released under the trust receipt
include the vehicles purchased by the Franco spouses from DMC and for which the promissory notes
were issued.
PNB contends that this issue is a question of fact. It submits that both the RTC and the Court of Appeals
found that the vehicles are covered by the trust receipts agreement and such findings are conclusive upon
this Court.16 [Rollo, pp. 136-137.]
We are not impressed.
It is true that the decision of the RTC states that PNB "financed Deltas importation of 325 units of
M.A.N. CKD Diesel Bus Chassis - which includes the four (4) units which were sold to plaintiffs."17 [Id.,
at 78. Italics ours.] This statement, however, appears in the recital of the allegations of the parties, and not
in the rationale of its decision.
The Court of Appeals, for its part, held that the "[e]vidence clearly showed that the vehicles sold to
plaintiffs were covered by a Trust Receipt Agreement executed between DMC-MAN and defendant
appellant-PNB."18 [Id., at 38.] The appellate court, however, did not refer to any evidence that would
justify its findings. As such, the present case constitutes an exception to the rule on the conclusiveness of
findings of facts.19 [See Cang vs. Court of Appeals, 296 SCRA 128 (1998)]
In any case, this Court has the authority to review and reverse the factual findings of the lower courts if,
as in this case, it finds that such findings do not conform to the evidence on record.20 [Ibid.]
The evidence for PNB fails to establish that the vehicles sold to the Francos were among those covered by
the trust receipts. As petitioner points out, neither the trust receipts covering the units imported nor the
corresponding bills of lading contain the chassis and engine numbers of the vehicles in question.21
[Rollo, pp. 12, 146-154.]
PNB asseverates that "the records of the case - is replete with evidence to show that the subject vehicles
are indeed covered by the trust receipts issued by DMC to PNB."22 [Id., at 137.] However, it has not
pointed out which evidence specifically supports its claim. It does not even explain why the bills of lading
for the imported units do not contain the chassis numbers and serial numbers of the subject vehicles.
PNB further asserts that assuming its evidence does not expressly and definitely identify the subject
properties the properties were nevertheless substantially described in PNBs documents, particularly the
Deed of Assignment dated February 27, 1981.23 [Rollo, pp. 138-139.]
We find no such substantial description in said Deed of Assignment. On the contrary, the Deed of
Assignment begs the question. The Deed states that a lien was thereby constituted
from the sale on installments of units assembled from CKDs to be imported from the proceeds of the
letter of credit accommodation granted by the ASSIGNEE to the ASSIGNOR as well as those imported
from subsequent collection from the proceeds of the sale thereof.24 [See Note 10.]

But just what is the specific description of the units imported by the assignor DMC? Does the Deed of
Assignment include the subject vehicles? The Deed of Assignment does not say.
PNB adds that the Deed of Assignment could not have expressly and definitely mentioned the promissory
notes since said deed, executed on February 27, 1981, predates the notes, which were dated July 18, 1981,
September 23, 1981, February 12, 1982, and March 23, 1982, respectively.25 [Rollo, pp. 138-139.] This
is beside the point, however, for it is not the identity of the promissory that is at issue but that of the units
so imported.
Verily, PNB has failed to prove its claim by a preponderance of evidence, the weakness of its evidence
betrayed by the weakness of its arguments. SIHI, for its part, has successfully discharged its burden. It is
undisputed that the subject notes were covered by the Deed of Sale of receivables executed by DMC in
petitioners favor. Accordingly, SIHI is entitled to the promissory notes in question.
WHEREFORE, the petition is hereby given DUE COURSE and the Decision of the Court of Appeals is
REVERSED. The Decision of the Regional Trial Court is REINSTATED.
SO ORDERED.
4. [1990V1057] ALLIED BANKING CORPORATION, petitioner, vs. HON. SECRETARY
SEDFREY ORDOEZ (Public Respondent) and ALFREDO CHING (Private Respondent),
respondents.1990 Dec 102nd DivisionG.R. No. 82495D E C I S I O N
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.
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:
"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 Ordoez, on 11 January 1988, "rectified" his predecessor's
supposed reversible error, and held:
". . . 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.
xxx

xxx

xxx

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.
xxx

xxx

xxx

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 Ordoez 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.
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.

"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.
5. [1958V283E] RAMON GONZALES, plaintiff-appellee, vs. GO TIONG and LUZON
SURETY CO., INC., defendants-appellants.1958 Aug 30En BancG.R. No. L-11776D E C I S
ION
MONTEMAYOR, J.:
Defendants Go Tiong and Luzon Surety Co. are appealing from the decision of the Court of First Instance
of Manila, Judge Magno S. Gatmaitan presiding, the dispositive part of which reads as follows:
"In view whereof, judgment is rendered condemning defendant Go Tiong and Luzon Surety Co., jointly
and severally, to pay plaintiff the sum of P4,920 with legal interest from the date of the filing of the
complaint until fully paid; judgment is also rendered against Go Tiong to pay the sum of P3,680 unto
plaintiff, also with legal interest from the date of the filing of the complaint until fully paid. Go Tiong is
also condemned to pay the sum of P1,000 as attorney's fees, plus costs."

The appeal was first taken to the Court of Appeals, the latter indorsing the case to us later under the
provisions of Section 17 (6) of Republic Act No. 296, on the ground that the issues raised were purely
questions of law.
Go Tiong owned a rice mill and warehouse, located at Mabini, Urdaneta, Pangasinan. On February 4,
1953, he obtained a license to engage in the business of a bonded warehouseman (Exhibit N). To secure
the performance of his obligations as such bonded warehouseman, the Luzon Surety Co. executed
Guaranty Bond No. 294 in the sum of P18,334 (Exhibit O), conditioned particularly on the fulfillment by
Go Tiong of his duty or obligation to deliver to the depositors in his storage warehouse, the palay
received by him for storage, at any time demand is made, or to pay the market value thereof, in case he
was unable to return the same. The bond was executed on January 26, 1953. Go Tiong insured the
warehouse and the palay deposited therein with the Alliance Surety and Insurance Company.
But prior to the issuance of the license to Go Tiong to operate as bonded warehouseman, he had on
several occasions received palay for deposit from plaintiff Ramon Gonzales, totalling 368 sacks, for
which he issued receipts, Exhibits A, B, C, and D. After he was licensed as bonded warehouseman, Go
Tiong again received various deliveries of palay from plaintiff, totalling 492 sacks, for which he issued
the corresponding receipts, all the deliveries having a grand total of 860 sacks, valued at P8,600 at the rate
of P10 per sack.
On or about March 15, 1953, plaintiff demanded from Go Tiong the value of his deposits in the amount of
P8,600, but he was told to return after two days, which he did, but Go Tiong again told him to come back.
A few days later, the warehouse burned to the ground. Before the fire, Go Tiong had been accepting
deliveries of palay from other depositors and at the time of the fire, there were 5,847 sacks of palay in the
warehouse, in excess of the 5,000 sacks authorized under his license. The receipts issued by Go Tiong to
the plaintiff were ordinary receipts, not the "warehouse receipts" defined by the Warehouse Receipts Act
(Act No. 2137).
After the burning of the warehouse, the depositors of palay, including plaintiff, filed their claims with the
Bureau of Commerce, and it would appear that with the proceeds of the insurance policy, the Bureau of
Commerce paid off some of the claims. Plaintiff's counsel later withdrew his claim with the Bureau of
Commerce, according to Go Tiong, because his claim was denied by the Bureau, but according to the
decision of the trial court, because nothing came from plaintiff's efforts to have his claim paid. Thereafter,
Gonzales filed the present action against Go Tiong and the Luzon Surety for the sum of P8,600, the value
of his palay, with legal interest, damages in the sum of P5,000 and P1,500 as attorney's fees. Gonzales
later renewed his claim with the Bureau of Commerce (Exhibit S).
While the case was pending in court, Gonzales and Go Tiong entered into a contract of amicable
settlement to the effect that upon the settlement of all accounts due to him by Go Tiong, he, Gonzales,
would have all actions pending against Go Tiong dismissed. Inasmuch as Go Tiong failed to settle the
accounts, Gonzales prosecuted his court action.
For purposes of reference, we reproduce the assignment of errors of Go Tiong, as well as the assignment
of errors of the Luzon Surety, all reading thus:

"I. The trial court erred in finding that plaintiff-appellee's claim is covered by the Bonded Warehouse
Law, Act 3893, as amended, and not by the Civil Code.
"II. The trial court erred in not exempting defendant-appellant Go Tiong for the loss of the palay
deposited, pursuant to the provisions of the New Civil Code."
xxx

xxx

xxx

"I. The trial court erred in not declaring that the amicable settlement by and between plaintiff-appellee
and defendant Go Tiong constituted a material alteration of the surety bond of appellant Luzon Surety
which extinguished and discharged its liability.
"II. The trial court erred in holding that the receipts for the palay received by Go Tiong, though not in
the form of "quedans" or warehouse receipts are chargeable against the surety bond filed under the
provisions of the General Bonded Warehouse Act (Act No. 3893 as amended by Republic Act No. 247)
as a result of a loss.
"III. The trial court erred in not holding that the plaintiff had renounced and abandoned his rights under
the Bonded Warehouse Act by the withdrawal of his claim from the Bureau of Commerce and the
execution of the 'amicable settlement'.
"IV. The trial court erred in not holding that the palay delivered to Go Tiong constitutes gratuitous
deposit which was extinguished upon the loss and destruction of the subject-matter.
"V. The trial court erred in not declaring that the transaction between defendant Go Tiong and plaintiff
was more of a sale rather than a deposit.
"VI. The trial court erred in declaring that the Luzon Surety Co., Inc., had not complied with its
undertaking despite the liquidation of all the claims by the Bureau of Commerce.
"VII. The lower court erred in adjudging the herein surety liable under the terms of the Bond."
We shall discuss the assigned errors at the same time, considering the close relation between them,
although we do not propose to discuss and rule upon all of them. Both appellants urge that plaintiff's
claim is governed by the Civil Code and not by the Bonded Warehouse Act (Act No. 3893, as amended
by Republic Act No. 247), for the reason that, as already stated, what Go Tiong issued to plaintiff were
ordinary receipts, not the warehouse receipts contemplated by the Warehouse Receipts Law, and because
the deposits of palay of plaintiff were gratuitous.
Act No. 3893 as amended is a special law regulating the business of receiving commodities for storage
and defining the rights and obligations of a bonded warehouseman and those transacting business with
him. Consequently, any deposit made with him as a bonded warehouseman must necessarily be governed
by the provisions of Act No. 3893. The kind or nature of the receipts issued by him for the deposits is not
very material, much less decisive. Though it is desirable that receipts issued by a bonded warehouseman
should conform to the provisions of the Warehouse Receipts Law, said provisions in our opinion are not
mandatory and indispensable in the sense that if they fell short of the requirements of the Warehouse
Receipts Act, then the commodities delivered for storage become ordinary deposits and will not be
governed by the provisions of the Bonded Warehouse Act. Under Section 1 of the Warehouse Receipts

Act, one would gather the impression that the issuance of a warehouse receipt in the form provided by it
is merely permissive and directory and not obligatory:
"SECTION 1.
Persons who may issue receipts. - Warehouse receipts may be issued by any
warehouseman.",
and the Bonded Warehouse Act as amended permits the warehouseman to issue any receipt, thus:
". . . receipt' as any receipt issued by a warehouseman for commodity delivered to him."
As the trial court well observed, as far as Go Tiong was concerned, the fact that the receipts issued by him
were not "quedans" is no valid ground for defense because he was the principal obligor. Furthermore, as
found by the trial court, Go Tiong had repeatedly promised plaintiff to issue to him "quedans" and had
assured him that he should not worry; and that Go Tiong was in the habit of issuing ordinary receipts (not
"quedans") to his depositors.
As to the contention that the deposits made by the plaintiff were free because he paid no fees therefor, it
would appear that Go Tiong induced plaintiff to deposit his palay in the warehouse free of charge in order
to promote his business and to attract other depositors, it being understood that because of this
accommodation, plaintiff would convince other palay owners to deposit with Go Tiong.
Appellants contend that the burning of the warehouse was a fortuitous event and not due to any fault of
Go Tiong and that consequently, he should not be held liable, appellants supporting the contention with
the ruling in the case of La Sociedad Dalisay vs. De los Reyes, 55 Phil. 452, reading as follows:
"Inasmuch as the fire, according to the judgment appealed from, was neither intentional nor due to the
negligence of the appellant company or its officials; and it appearing from the evidence that the then
manager attempted to save the palay, the appellant company should not be held responsible for damages
resulting from said fire. . . ."
The trial court correctly disposed of this same contention, thus:
"The defense that the palay was destroyed by fire neither does the Court consider to be good for while the
contract was in the nature of a deposit and the loss of the thing would exempt the obligor in a contract of
deposit to return the goods, this exemption from the responsibility for the damages must be conditioned in
his proof that the loss was by force majeure, and without his fault. The Court does not see from the
evidence that the proof is clear on the legal exemption. On the contrary, the fact that he exceeded the limit
of the authorized deposit must have increased the risk and would militate against his defense of
nonliability. For this reason the Court does not follow La Sociedad vs. De Los Santos, 55 Phil. 42 quoted
by Go Tiong." (p. 3, Decision)
Considering the fact, as already stated, that prior to the burning of the warehouse, plaintiff demanded the
payment of the value of his palay from Go Tiong on two occasions but was put off without any valid
reason, under the circumstances, the better rule which we accept is the following:
". . . This rule proceeds upon the theory that the facts surrounding the care of the property by a bailee are
peculiarly within his knowledge and power to prove, and that the enforcement of any other rule would
impose great difficulties upon the bailors. . . . It is illogical and unreasonable to hold that the presumption

of negligence in case of this kind is rebutted by the bailee by simply proving that the property bailed was
destroyed by an ordinary fire which broke out on the bailee's own premises, without regard to the care
exercised by the latter to prevent the fire, or to save the property after the commencement of the fire. All
the authorities seem to agree that the rule that there shall be a presumption of negligence in bailment cases
like the present one, where there is default in delivery or accounting, for the goods is just a necessary one.
. . ." (9 A.L.R. 566; see also Hanes vs. Shapiro, 84 S.E. 33; J. Russel Mfg. Co. vs. New Haven, S.B. Co.,
50 N.Y. 211; Beck vs. Wilkins-Ricks Co., 102 S.E. 313; Fleishman vs. Southern R. Co., 56 S.E. 974)
Besides, as observed by the trial court, the defendant violated the terms of his license by accepting for
deposit palay in excess of the limit authorized by his license, which fact must have increased the risk.
The Luzon Surety claims that the amicable settlement by and between Gonzales and Go Tiong constituted
a material alteration of its bond, thereby extinguishing and discharging its liability. It is evident, however,
that while there was an attempt to settle the case amicably, the settlement was never consummated
because Go Tiong failed to settle the accounts of Gonzales to the latter's satisfaction. Consequently, said
nonconsummated compromise settlement does not discharge the surety:
"A compromise or settlement between the creditor or obligee and the principal, boy which the latter is
discharged from liability, discharges the surety, . . .. But an unconsummated . . . agreement to
compromise, falling short of an effective settlement, will not discharge the surety." (50 C. J. 185)
In relation to the failure of Go Tiong to issue the warehouse receipts contemplated by the Warehouse
Receipts Act, which failure, according to appellants, precluded plaintiff from suing on the bond, reference
may be made to Section 2 of Act No. 3893, defining receipt as any receipt issued by a warehouseman for
commodity delivered to him, showing that the law does not require as indispensable that a warehouse
receipt be issued. Furthermore, Section 7 of said law provides that as long as the depositor is injured by a
breach of any obligation of the warehouseman, which obligation is secured by a bond, said depositor may
sue on said bond. In other words, the surety cannot avoid liability from the mere failure of the
warehouseman to issue the prescribed receipt. In the case of Andreson vs. Krueger, 212 N.W. 198, 199, it
was held:
"The surety company concedes that the bond which it gave contains the statutory conditions. The statute .
. . requires that the bond - 'shall be conditioned upon the faithful performance of the public local grain
warehouseman of all the provisions of law relating to the storage of grain by such warehouseman.'
"The surety company thereby made itself responsible for the performance by the warehouseman of all the
duties and obligations imposed upon him by the statute; and, if he failed to perform any such duty to the
loss or detriment of those who delivered grain for storage, the surety company became liable therefor.
Where the warehouseman receives grain for storage and refuses to return or pay it, the fact that he failed
to issue the receipt, when the statute required him to issue on receiving it, is not available to the surety as
a defense against an action on the bond. The obligation of the surety covers the duty of the warehouseman
to issue the prescribed receipt, as well as the other duties imposed upon him by the statute."
We deem it unnecessary to discuss and rule upon the other questions raised in the appeal.
In view of the foregoing, the appealed decision is hereby affirmed, with costs.

6. [2002V754] PILIPINAS BANK, petitioner, vs. ALFREDO T. ONG and LEONCIA LIM,
respondents.2002 Aug 83rd DivisionG.R. No. 133176D E C I S I O N
SANDOVAL-GUTIERREZ, J.:
Petition for review on certiorari[1] of the Resolutions[2] dated January 9, 1998 and March 25, 1998 of the
Court of Appeals in CA-G.R. SP No. 42005, "Pilipinas Bank vs. The Honorable Secretary of Justice, the
City Prosecutor of Makati City, Alfredo T. Ong and Leoncia Lim," reversing its Decision dated August
29, 1997.
On April 1991, Baliwag Mahogany Corporation (BMC), through its president, respondent Alfredo T.
Ong, applied for a domestic commercial letter of credit with petitioner Pilipinas Bank (hereinafter
referred to as the bank) to finance the purchase of about 100,000 board feet of "Air Dried, Dark Red
Lauan" sawn lumber.
The bank approved the application and issued Letter of Credit No. 91/725-HO in the amount of
P3,500,000.00. To secure payment of the amount, BMC, through respondent Ong, executed two (2) trust
receipts[3] providing inter alia that it shall turn over the proceeds of the goods to the bank, if sold, or
return the goods, if unsold, upon maturity on July 28, 1991 and August 4, 1991.
On due dates, BMC failed to comply with the trust receipt agreement. On November 22, 1991, it filed
with the Securities and Exchange Commission (SEC) a Petition for Rehabilitation and for a Declaration in
a State of Suspension of Payments under Section 6 (c) of P.D. No. 902-A,[4] as amended, docketed as
SEC Case No. 4109. After BMC informed its creditors (including the bank) of the filing of the petition, a
Creditors' Meeting was held to:
(a) inform all creditor banks of the present status of BMC to avert any action which would affect the
company's operations, and (b) reach an accord on a common course of action to restore the company to
sound financial footing.
On January 8, 1992, the SEC issued an order[5] creating a Management Committee wherein the bank is
represented. The Committee shall, among others, undertake the management of BMC, take custody and
control of all its existing assets and liabilities, study, review and evaluate its operation and/or the
feasibility of its being restructured.
On October 13, 1992, BMC and a consortium of 14 of its creditor banks entered into a Memorandum of
Agreement[6] (MOA) rescheduling the payment of BMCs existing debts.
On November 27, 1992, the SEC rendered a Decision[7] approving the Rehabilitation Plan of BMC as
contained in the MOA and declaring it in a state of suspension of payments.
However, BMC and respondent Ong defaulted in the payment of their obligations under the rescheduled
payment scheme provided in the MOA. Thus, on April 1994, the bank filed with the Makati City
Prosecutors Office a complaint[8] charging respondents Ong and Leoncia Lim (as president and treasurer
of BMC, respectively) with violation of the Trust Receipts Law (PD No. 115), docketed as I.S. No. 943324. The bank alleged that both respondents failed to pay their obligations under the trust receipts
despite demand.[9]

On July 7, 1994, 3rd Assistant Prosecutor Edgardo E. Bautista issued a Resolution[10] recommending the
dismissal of the complaint. On July 11, 1994, the Resolution was approved by Provincial Prosecutor of
Rizal Herminio T. Ubana, Sr.[11] The bank filed a motion for reconsideration but was denied.
Upon appeal by the bank, the Department of Justice (DOJ) rendered judgment[12] denying the same for
lack of merit. Its motion for reconsideration was likewise denied.[13]
On July 5, 1996, the bank filed with this Court a petition for certiorari and mandamus seeking to annul the
resolution of the DOJ. In a Resolution dated August 21, 1996, this Court referred the petition to the Court
of Appeals for proper determination and disposition.[14]
On August 29, 1997, the Court of Appeals rendered judgment, the dispositive portion of which reads:
"WHEREFORE, in view of all the foregoing, the assailed resolutions of the public respondents are hereby
SET ASIDE and in lieu thereof a new one rendered directing the public respondents to file the appropriate
criminal charges for violation of P.D. No. 115, otherwise known as The Trust Receipts Law, against
private respondents.[15]
However, upon respondents motion for reconsideration, the Court of Appeals reversed itself, holding that
the execution of the MOA constitutes novation which "places petitioner Bank in estoppel to insist on the
original trust relation and constitutes a bar to the filing of any criminal information for violation of the
trust receipts law."[16]
The bank filed a motion for reconsideration but was denied.[17] Hence this petition.
Petitioner bank contends that the MOA did not novate, much less extinguish, the existing obligations of
BMC under the trust receipt agreement. The bank, through the execution of the MOA, merely assisted
BMC to settle its obligations by rescheduling the same. Hence, when BMC defaulted in its payment, all
its rights, including the right to charge respondents for violation of the Trust Receipts Law, were revived.
Respondents Ong and Lim maintain that the MOA, which has the effect of a compromise agreement,
novated BMCs existing obligations under the trust receipt agreement. The novation converted the
parties relationship into one of an ordinary creditor and debtor. Moreover, the execution of the MOA
precludes any criminal liability on their part which may arise in case they violate any provision thereof.
The only issue for our determination is whether respondents can be held liable for violation of the Trust
Receipts Law.
Section 4 of PD No. 115 (The Trust Receipts Law) defines a trust receipt 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.[18]

Failure of the entrustee to turn over the proceeds of the sale of the goods covered by a trust receipt to the
entruster or to return the goods, if they were not disposed of, shall constitute the crime of estafa under
Article 315, par. 1(b) of the Revised Penal Code.[19] If the violation or offense is committed by a
corporation, the penalty shall be imposed upon the directors, officers, employees or other officials or
persons therein responsible for the offense, without prejudice to the civil liabilities arising from the
criminal offense.[20] It is on this premise that petitioner bank charged respondents with violation of the
Trust Receipts Law.
Mere failure to deliver the proceeds of the sale or the goods, if not sold, constitutes violation of PD No.
115.[21] However, what is being punished by the law is 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. [22]
In this case, no dishonesty nor abuse of confidence can be attributed to respondents. Record shows that
BMC failed to comply with its obligations upon maturity of the trust receipts due to serious liquidity
problems, prompting it to file a Petition for Rehabilitation and Declaration in a State of Suspension of
Payments. It bears emphasis that when petitioner bank made a demand upon BMC on February 11, 1994
to comply with its obligations under the trust receipts, the latter was already under the control of the
Management Committee created by the SEC in its Order dated January 8, 1992.[23] The Management
Committee took custody of all BMCs assets and liabilities, including the red lauan lumber subject of the
trust receipts, and authorized their use in the ordinary course of business operations. Clearly, it was the
Management Committee which could settle BMCs obligations. Moreover, it has not escaped this Courts
observation that respondent Ong paid P21,000,000.00 in compliance with the equity infusion required by
the MOA. The mala prohibita nature of the offense notwithstanding, respondents intent to misuse or
misappropriate the goods or their proceeds has not been established by the records.[24]
Did the MOA novate the trust agreement between the parties?
In Quinto vs. People,[25] this Court held that there are two ways which could indicate the presence of
novation, thereby producing the effect of extinguishing an obligation by another which substitutes the
same. The first is when novation has been stated and declared in unequivocal terms. The second is when
the old and the new obligations are incompatible on every point. The test of incompatibility is whether or
not the two obligations can stand together. If they cannot, they are incompatible and the latter obligation
novates the first. Corollarily, changes that breed incompatibility must be essential in nature and not
merely accidental. The incompatibility must take place in any of the essential elements of the obligation,
such as its object, cause or principal conditions, otherwise, the change is merely modificatory in nature
and insufficient to extinguish the original obligation.
Contrary to petitioner's contention, the MOA did not only reschedule BMCs debts, but more importantly,
it provided principal conditions which are incompatible with the trust agreement. The undisputed points
of incompatibility between the two agreements are:
Points of incompatibility Trust Receipt MOA
1) Nature of contract Trust Receipt Loan[26]
2) Juridical relationship Trustor-Trustee Lender-Borrower

3) Status of obligation Matured Payable within 7 years[27]

4) Governing law Criminal Civil & Commercial[28]
5) Security offered Trust Receipts Real estate/chattel mortgages[29]
6) Interest rate per annum (Unspecified) 14%[30]
7) Default charges 24% 14%[31]
8) No. of parties 3 16
Hence, applying the pronouncement in Quinto, we can safely conclude that the MOA novated and
effectively extinguished BMC's obligations under the trust receipt agreement.
Petitioner bank's argument that BMC's non-compliance with the MOA revived respondents original
liabilities under the trust receipt agreement is completely misplaced. Section 8.4 of the MOA on
termination reads:
"8.4 Termination. Any provision of this Agreement to the contrary notwithstanding, if the conditions for
rescheduling specified in Section 7 shall not be complied with on such later date as the Qualified Majority
Lenders in their sole and absolute discretion may agree in writing, then
(i) the obligation of the Lenders to reschedule the Existing Credits as contemplated hereby shall
automatically terminate on such date:
(ii) the Existing Agreements shall continue in full force and effect on the remaining loan balances as if
this Agreement had not been entered into;
(iii) all the rights of the lenders against the borrower and Spouses Ong prior to the agreement shall revest
to the lenders."
Indeed, what is automatically terminated in case BMC failed to comply with the conditions under the
MOA is not the MOA itself but merely the obligation of the lender (the bank) to reschedule the existing
credits. Moreover, it is erroneous to assume that the revesting of "all the rights of lenders against the
borrower" means that petitioner can charge respondents for violation of the Trust Receipts Law under the
original trust receipt agreement. As explained earlier, the execution of the MOA extinguished
respondents obligation under the trust receipts. Respondents liability, if any, would only be civil in
nature since the trust receipts were transformed into mere loan documents after the execution of the
MOA. This is reinforced by the fact that the mortgage contracts executed by the BMC survive despite its
non-compliance with the conditions set forth in the MOA.
All told, we find no reversible error committed by the Court of Appeals in rendering the assailed
Resolutions.
WHEREFORE, the petition is DENIED. The assailed Resolutions of the Court of Appeals dated January
9, 1998 and March 25, 1998 in CA-G.R. SP No. 42005 are hereby AFFIRMED.
SO ORDERED.

7. Vintola vs. IBAA Insular Bank of Asia and America

No. L-73271, 150 SCRA 578, May 29, 1987

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. People 6 "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.
8. [G.R. No. 82495 : December 10, 1990.]
192 SCRA 246
ALLIED BANKING CORPORATION, Petitioner, vs. HON. SECRETARY SEDFREY ORDOEZ
(Public Respondent) and ALFREDO CHING (Private Respondent), Respondents.
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 Ordoez, 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 Ordoez 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 ofCertiorari 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.

9. People vs. Cuevo

No. L-27607, 104 SCRA 312, May 07, 1981
G.R. No. L-27607 May 7, 1981
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee
vs.
BEN CUEVO, defendant-appellant.
AQUINO, J.:
This case presents for reexamination the liability for estafa of the holder of a trust receipt who disposed of
the goods covered thereby and, in violation of its terms, failed to deliver to the bank the proceeds of the
sale as payment of the debt secured by the trust receipt.
We say reexamination because it is a well-entrenched rule in our jurisprudence that the conversion by the
importer of the goods covered by a trust receipt constitutes estafa through misappropriation under article
315(l) (b) of the Revised Penal Code, (People vs. Yu Chai Ho 53 Phil. 874 and Samo vs. People. 115
Phil. 346. As to civil cases, see National Bank vs. Viuda e Hijos de Angel Jose, 63 Phil. 814; Philippine
National Bank vs. Catipon, 98 Phil. 286 and Philippine National Bank vs. Arrozal 103 Phil. 213).
In this case, an information dated July 27, 1966 was filed in the Court of First Instance of Manila,
charging Ben Cuevo with estafa committed as follows (Criminal Case No. 83309):
That on or about the 16th day of February, 1964 in the City of Manila, Philippines, the said accused did
then and there willfully, unlawfully and feloniously defraud the Prudential Bank and Trust Company in
the following manner, to wit: the said accused having received in trust from the Prudential Bank and Trust
Company merchandise, i.e., 1,000 bags of grind yellow corn and 1,000 bags of palay specified in a trust
receipt covered by Letter of Credit No. 5643, executed by him in favor of said bank, of the total value of
P24,000.00, to be sold by him, under the express obligation on the part of the said accused to account for
the said merchandise, or to deliver and turn over to the Prudential Bank and Trust Company the proceeds
of the sale thereof;
But said accused once in possession of said merchandise, far from complying with the aforesaid
obligation, notwithstanding repeated demands made upon him, with intent to defraud, willfully,
unlawfully and feloniously misappropriated, misapplied and converted the said merchandise or the value,
thereof in the sum of P24,000.00 to his own personal use and benefit, to the damage and prejudice of the
Prudential Bank and Trust Company in the aforesaid of P24,000.00, Philippine Currency. (p. 2, Rollo.)
Upon arraignment, the accused pleaded not guilty (p. 11, Record). Later, or on December 13, 1966,
before the trial had started, Cuevo filed a motion to dismiss on the ground that the facts alleged in the
information do not constitute an offense.
Judge Ruperto Kapunan, Jr., in his order of January 3, 1967, granted the motion and dismissed the case
but "without prejudice to whatever civil action the complaining bank may take to recover the amount of
P24,000" which it had advanced to cover the price of the merchandise delivered to the accused (p. 7,
Rollo). From that order of dismissal, the prosecution appealed to this Court.
The appeal is meritorious. Judge Kapunan, Jr. erred in holding that the accused did not commit estafa
under article 315(l) (b), which reads:
(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.
Judge Kapunan, Jr., in sustaining the motion to dismiss, relied on the Spanish version of paragraph (b) of
article 315 wherein the expression used is "recibido en deposito". In his opinion, that phrase is not
accurately translated as "in trust" and, as he explained, it does not allegedly cover the conversion or
misappropriation of the goods covered by a trust receipt. The Spanish version reads:
(b) Apropiandose o distrayendo, en perjuicio de otro dinero, efectos o cualquiera otra cosa mueble, que
hubiere recibido en deposito, commission o administracion o por otro titulo que produzca obligacion de
entregarla o devolveria, aungue dicha obligacion estuviese afianzada total or parcialmente, o negando
haberla recibido.
The lower court ratiocinated that the contract covered by a trust receipt is merely a secured loan (U.S. vs.
Tan Tok, 15 Phil. 538) where the borrower is allowed to dispose of the collateral, whereas, in a deposit
the depositary is not empowered to dispose of the property deposited. Hence, the lower court concluded
that the violation of the provisions of the trust receipt gives rise to a civil action and not to a criminal
prosecution for estafa.
The lower court also ventured the opinion that the other phrase in paragraph (b), por otro titulo que
produzca obligacion de entregarla o devolverla" ("under any other obligation involving the duty to make
delivery of or to return the same") is not applicable because that phrase allegedly refers to the very
"money, goods, or any other personal property received by the offender" as a deposit, and not to the
proceeds of the sale of the goods covered by the trust receipt.
The lower court observed further that the framers of the Spanish Penal Code could not have contemplated
the inclusion of the trust receipt in article 315(l) (b) because that transaction did not exist in the nineteenth
century. The usual form of a trust receipt is as follows:
I/We hereby agree to hold said goods in trust for the said corporation (meaning the bank as trustor), and
as its property with liberty to sell the same for its account, but without authority to make any other
disposition whatever of the said goods or any part thereof (or of proceeds thereof) either by way of
conditional sale, pledge or otherwise.
In case of sale I/We further agree to hand the proceeds, as soon as received, to the International Banking
Corporation to apply against the relative acceptances (as described above) and for the payment of any
other indebtedness of mine/ours to the International Banking Corporation. (People vs. Yu Chai Ho 53
Phil. 874, 876.)
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" (53 Am. Jur. 961, cited in Samo vs. People, 115 Phil. 346, 349).
In the instant case, it is alleged in the indictment that the accused, by means of a trust receipt, received
from the Prudential Bank and Trust Company 1,000 bags of corn and 1,000 bags of palay to be sold by
him with the express obligation to deliver the proceeds of the sale to the bank or, if not sold, to account
for the merchandise and that, instead of complying with either obligation, he misappropriated the
merchandise or the value thereof (p. 2, Rollo).
We hold that even if the accused did not receive the merchandise for deposit, he is, nevertheless, covered
by article 315(l) (b) because after receiving the price of the sale, he did not deliver the money to the bank
or, if he did not sell the merchandise, he did not return it to the bank.
Those two situations are within the purview of article 315(l) (b). The first situation 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 other contingency is covered by the provision which refers to merchandise received under the
obligation to "return" it (devolvelra) to the owner.
The fact that in the first case the money was received from the purchaser of the merchandise and not from
the bank does not remove it from the operation of article 315(l) (b).

As noted by Justice Street in People vs. Yu Chai Ho, supra, the conversion by the trustee in a trust receipt
of the proceeds of the sale falls "most literally and directly under" the provisions of article 315(l) (b).
Thus, it was held that where, notwithstanding repeated oral and written demands by the bank, the
petitioner had failed either to turn over to the said bank the proceeds of the sale of the goods, or to return
said goods if they were not sold, the petitioner is guilty of estafa under article 315(l) (b) (Samo vs. People,
115 Phil. 346).
In this connection, it is relevant to state that Presidential Decree No. 115, the Trust Receipts Law,
regulating trust receipts transactions, was issued on January 29, 1973.
One objective of that law is "to declare the misuse and/or misappropriation of goods or proceeds realized
from the sale of goods, documents or instruments released under trust receipts as a criminal offense
punishable under" article 315.
Section 13 of the decree provides that "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 315 of the Revised Penal Code.
The enactment of the said penal provision is confirmatory of existing jurisprudence and should not be
construed as meaning that, heretofore, the misappropriation of the proceeds of a sale made under a trust
receipt was not punishable under article 315. That penal provision removed any doubt as to the criminal
liability of the holder of a trust receipt who misappropriated the proceeds of the sale.
The other issue raised in the last part of accused Cuevo's brief is whether the lower court's erroneous
dismissal of the information against him amounts to an acquittal which placed him in jeopardy and
whether the return of the case to the lower court for trial would place him in double jeopardy.
No person shall be twice put in jeopardy of punishment for the same offense" (Sec. 22, Art. IV of the
Constitution). The maxim is non bis in Idem (not twice for the same). The ban against double jeopardy is
similar to the rule onres judicata in civil cases.
Jeopardy attaches when an accused was charged with an offense (a) upon a valid complaint or
information sufficient in form and substance to sustain a conviction (b) in a court of competent
jurisdiction and (c) after the accused had been arraigned and entered his plea, he was convicted or
acquitted, or the case against him was "dismissed or otherwise terminated without his express consent".
In such a case, his conviction or acquittal (autrefois convict or autrefois acquit) is a "bar to another
prosecution for the offense charged, or for any attempt to commit the same or frustration thereof, or for
any offense charged in the former complaint or information " (Sec. 9, Rule 117, Rules of Court).
The accused invokes the ruling that "where a trial court has jurisdiction but mistakenly dismisses the
complaint or information on the ground of lack of it, the order of dismissal is, after the prosecution has
presented its evidence, unappealable because an appeal by the government therefrom would place the
accused in second jeopardy for the same offense" (People vs. Duran, Jr., 107 Phil. 979).
That ruling has no application to this case because in the Duran case (as in People vs. Caderao 69 Phil.
327, also cited by the accused herein) the dismissal was made after the prosecution had presented its
evidence. The accused filed a demurrer to the evidence but the trial court dismissed the case, not on the
ground of insufficiency of evidence, but on the ground of lack of jurisdiction. In the instant case, the
prosecution has not commenced the presentation of its evidence. The dismissal was with the consent of
the accused because he filed a motion to dismiss.
In Esguerra vs. De la Costa, 66 Phil. 134, another case cited by the accused, the erroneous dismissal on
the ground of lack of jurisdiction was made by the lower court motu proprio. Hence, the dismissal
without the consent of the accused amounted to an acquittal which placed him in jeopardy.
Moreover, in the Duran case, it was expressly indicated that the erroneous dismissal on the ground of lack
of jurisdiction does not place the accused in jeopardy if the dismissal was made with the consent of the
accused, as held in People vs. Salico, 84 Phil. 722. As already stated, in the instant case the dismissal was
with the consent of accused Cuevo. The dismissal did not place him in jeopardy.

The Chief Justice and six Justices voted to reverse the order of dismissal. Justices Teehankee and De
Castro dissented. As only seven Justices voted to reverse the order of dismissal, the same has to be
affirmed.
WHEREFORE, the order of dismissal is affirmed. Costs de oficio.
SO ORDERED.

10. 10. [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 P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the latters convent
at Camaman-an, Cagayan de Oro City.
On 30 October 1979, Petitioners obtained 5,376 SF Solatone acoustical board 2x4x, 300 SF
tanguile wood tiles 12x12, 260 SF Marcelo economy tiles and 2 gallons UMYLIN cement adhesive
from CM Builders Centre for the construction project.[1] The following day, 31 October 1979, Petitioners
applied for a commercial letter of credit[2] with the Philippine Banking Corporation, Cagayan de Oro City
branch (hereafter PBC) in favor of CM Builders Centre. PBC approved the letter of
credit[3] for P22,389.80 to cover the full invoice value of the goods.Petitioners signed a pro-forma trust
receipt[4] as security. The loan was due on 29 January 1980.
On 31 October 1979, PBC debited P6,720 from Petitioners marginal deposit as partial payment of
the loan.[5]
On 7 May 1980, PBC wrote[6] to Petitioners demanding that the amount be paid within seven days
from notice. Instead of complying with PBCs demand, Veloso confessed that they lost P19,195.83 in the
Carmelite Monastery Project and requested for a grace period of until 15 June 1980 to settle the
account.[7]
PBC sent a new demand letter[8]to Petitioners on 16 October 1980 and informed them that their
outstanding balance as of 17 November 1979 was P20,824.40 exclusive of attorneys fees of 25%.[9]
On 2 December 1980, Petitioners proposed[10] that the terms of payment of the loan be modified as
follows: P2,000 on or before 3 December 1980, and P1,000 per month starting 31 January 1980 until the
account is fully paid. Pending approval of the proposal, Petitioners paid P1,000 to PBC on 4 December
1980,[11] and thereafter P500 on 11 February 1981,[12] 16 March 1981,[13] and 20 April
1981.[14]Concurrently with the separate demand for attorneys fees by PBCs 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, PBCs 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 P20,824.44, with legal
interest from 29 January 1980, 12 % penalty charge per annum, 25% of the sums due as attorneys fees,
and costs.
The trial court considered the transaction between PBC and Petitioners as a trust receipt transaction
under Section 4, P.D. No. 115. It considered Petitioners use of the goods in their Carmelite monastery
project an act of disposing as contemplated under Section 13, P.D. No. 115, and treated the charge
invoice[19] for goods issued by CM Builders Centre as a document within the meaning of Section 3
thereof. It concluded that the failure of Petitioners to turn over the amount they owed to PBC constituted
estafa.
Petitioners appealed from the judgment to the Court of Appeals which was docketed as CA-G.R. CR
No. 05408. Petitioners asserted therein that the trial court erred in ruling that they violated the Trust
Receipt Law, and in holding them criminally liable therefor. In the alternative, they contend that at most
they can only be made civilly liable for payment of the loan.
In its decision[20] 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 Velosos 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 resolution[23]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:
I. 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 P70,000 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 latters execution
and delivery to the entruster of a signed document called a trust receipt wherein the entrustee binds
himself to hold the designated goods, documents or instruments with the obligation to turn over to the
entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust
receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of,
in accordance with the terms and conditions specified in the trust receipt.
There are two possible situations in a trust receipt transaction. The first is covered by the provision
which refers to money received under the obligation involving the duty to deliver it (entregarla) to the
owner of the merchandise sold. The second is covered by the provision which refers to merchandise
received under the obligation to return it (devolvera) to the owner.[33]
Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by the trust receipt
to the entruster or to return said goods if they were not disposed of in accordance with the terms of the
trust receipt shall be punishable as estafa under Article 315 (1) of the Revised Penal Code, [34] without
need of proving intent to defraud.
A thorough examination of the facts obtaining in the case at bar reveals that the transaction intended
by the parties was a simple loan, not a trust receipt agreement.

Petitioners received the merchandise from CM Builders Centre on 30 October 1979. On that day,
ownership over the merchandise was already transferred to Petitioners who were to use the materials for
their construction project. It was only a day later, 31 October 1979, that they went to the bank to apply for
a loan to pay for the merchandise.
This situation belies what normally obtains in a pure trust receipt transaction where goods are owned
by the bank and only released to the importer in trust subsequent to the grant of the loan. The bank
acquires a security interest in the goods as holder of a security title for the advances it had made to the
entrustee.[35] The ownership of the merchandise continues to be vested in the person who had advanced
payment until he has been paid in full, or if the merchandise has already been sold, the proceeds of the
sale should be turned over to him by the importer or by his representative or successor in interest. [36] To
secure that the bank shall be paid, it takes full title to the goods at the very beginning and continues to
hold that title as his indispensable security until the goods are sold and the vendee is called upon to pay
for them; hence, the importer has never owned the goods and is not able to deliver possession. [37] In a
certain manner, trust receipts partake of the nature of a conditional sale where the importer becomes
absolute owner of the imported merchandise as soon as he has paid its price.[38]
Trust receipt transactions are intended to aid in financing importers and retail dealers who do not
have sufficient funds or resources to finance the importation or purchase of merchandise, and who may
not be able to acquire credit except through utilization, as collateral, of the merchandise imported or
purchased.[39]
The antecedent acts in a trust receipt transaction consist of the application and approval of the letter
of credit, the making of the marginal deposit and the effective importation of goods through the efforts of
the importer.[40]
PBC attempted to cover up the true delivery date of the merchandise, yet the trial court took notice
even though it failed to attach any significance to such fact in the judgment. Despite the Court of
Appeals contrary view that the goods were delivered to Petitioners previous to the execution of the letter
of credit and trust receipt, we find that the records of the case speak volubly and this fact remains
uncontroverted. It is not uncommon for us to peruse through the transcript of the stenographic notes of the
proceedings to be satisfied that the records of the case do support the conclusions of the trial
court.[41] After such perusal Grego Mutia, PBCs credit investigator, admitted thus:
ATTY. CABANLET: (continuing)
Q Do you know if the goods subject matter of this letter of credit and trust receipt agreement were
received by the accused?
A Yes, sir
Q Do you have evidence to show that these goods subject matter of this letter of credit and trust
receipt were delivered to the accused?
A Yes, sir.
Q I am showing to you this charge invoice, are you referring to this document?
A Yes, sir.
xxx
Q What is the date of the charge invoice?
A October 31, 1979.
COURT:

Make it of record as appearing in Exhibit D, the zero in 30 has been superimposed with numeral 1.[42]
During the cross and re-direct examinations he also impliedly admitted that the transaction was
indeed a loan. Thus:
Q In short the amount stated in your Exhibit C, the trust receipt was a loan to the accused you admit
that?
A Because in the bank the loan is considered part of the loan.
xxx
RE-DIRECT BY ATTY. CABANLET:
ATTY. CABANLET (to the witness)
Q What do you understand by loan when you were asked?
A Loan is a promise of a borrower from the value received. The borrower will pay the bank on a
certain specified date with interest[43]
Such statement is akin to an admission against interest binding upon PBC.
Petitioner Velosos claim that they were made to believe that the transaction was a loan was also not
denied by PBC. He declared:
Q Testimony was given here that that was covered by trust receipt. In short it was a special kind of
loan. What can you say as to that?
A I dont think that would be a trust receipt because we were made to understand by the manager who
encouraged us to avail of their facilities that they will be granting us a loan[44]
PBC could have presented its former bank manager, Cayo Garcia Tuiza, who contracted with Petitioners,
to refute Velosos testimony, yet it only presented credit investigator Grego Mutia. Nowhere from
Mutias testimony can it be gleaned that PBC represented to Petitioners that the transaction they were
entering into was not a pure loan but had trust receipt implications.
The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the
dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another
regardless of whether the latter is the owner.[45] Here, it is crystal clear that on the part of Petitioners there
was neither dishonesty nor abuse of confidence in the handling of money to the prejudice of
PBC. Petitioners continually endeavored to meet their obligations, as shown by several receipts issued by
PBC acknowledging payment of the loan.
The Information charges Petitioners with intent to defraud and misappropriating the money for their
personal use. The mala prohibita nature of the alleged offense notwithstanding, intent as a state of mind
was not proved to be present in Petitioners situation. Petitioners employed no artifice in dealing with
PBC and never did they evade payment of their obligation nor attempt to abscond. Instead, Petitioners
sought favorable terms precisely to meet their obligation.
Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale, contrary
to the express provision embodied in the trust receipt. They are contractors who obtained the fungible
goods for their construction project. At no time did title over the construction materials pass to the bank,
but directly to the Petitioners from CM Builders Centre. This impresses upon the trust receipt in question
vagueness and ambiguity, which should not be the basis for criminal prosecution in the event of violation
of its provisions.[46]

The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and
place them under the threats of criminal prosecution should they be unable to pay it may be unjust and
inequitable, if not reprehensible. Such agreements are contracts of adhesion which borrowers have no
option but to sign lest their loan be disapproved. The resort to this scheme leaves poor and hapless
borrowers at the mercy of banks, and is prone to misinterpretation, as had happened in this
case. Eventually, PBC showed its true colors and admitted that it was only after collection of the money,
as manifested by its Affidavit of Desistance.
WHEREFORE, the challenged Decision of 6 March 1989 and the Resolution of 16 October 1989 of
the Court of Appeals in CA-GR. No. 05408 are REVERSED and SET ASIDE. Petitioners are hereby
ACQUITTED of the crime charged, i.e., for violation of P.D. No. 115 in relation to Article 315 of the
Revised Penal Code.
No costs.
SO ORDERED.

11. [1992V232] PEOPLE OF THE PHILIPPINES, (public petitioner) and ALLIED BANKING
CORPORATION (private petitioner), vs. HON. JUDGE DAVID G. NITAFAN (public
respondent) and BETTY SIA ANG (private respondent).1992 Apr 63rd DivisionG.R. Nos.
81559-60
This petition for certiorari involves an issue that has been raised before this Court several times in the
past. The petitioner, in effect, is asking for a re-examination of our decisions on the issue of whether or
not an entrustee in a trust receipt agreement who fails to deliver the proceeds of the sale or to return the
goods if not sold to the entruster-bank is liable for the crime of estafa.
Petitioner Allied Banking Corporation charged Betty Sia Ang with estafa in
Criminal Case No. 87-53501 in an information which alleged:
"That on or about July 18, 1980, in the City of Manila, Philippines, the said accused, being then the
proprietress of Eckart Enterprises, a business entity located at 756 Norberto Amoranto Avenue, Quezon
City, did then and there wilfully, unlawfully and feloniously defraud the Allied Banking Corporation, a
banking institution, represented by its Account Officer, Raymund S. Li, in the following manner, to wit:
the said accused received in trust from the aforesaid bank Gordon Plastics, plastic sheeting and Hook
Chromed, in the total amount of P398,000.00, specified in a trust receipt and covered by Domestic Letter
of Credit No. DLC-002-801254, under the express obligation on the part of said accused to sell the same
and account for the proceeds of the sale thereof, if sold, or to return said merchandise, if no sold, on or
before October 16, 1980, or upon demand, but the said accused, once in possession of the said articles, far
from complying with the aforesaid obligation, notwithstanding repeated demands made upon her to that
effect, paid only the amount of P283,115.78, thereby leaving unaccounted for the amount of P114,884.22
which, once in her possession, with intent to defraud, she misappropriated, misapplied and converted to
her own personal use and benefit, to the damage and prejudice of said Allied Banking Corporation in the
aforesaid sum of P114,884.22, Philippine Currency." (Rollo, pp. 13-14)
The accused filed a motion to quash the information on the ground that the facts charged do not constitute
an offense.

On January 7, 1988, the respondent judge granted the motion to quash. The order was anchored on the
premise that a trust receipt transaction is an evidence of a loan being secured so that there is, as between
the parties to it, a creditor-debtor relationship. The court ruled that the penal clause of Presidential Decree
No. 115 on the Trust Receipts Law is inoperative because it does not actually punish an offense mala
prohibita. The law only refers to the relevant estafa provision in the Revised Penal Code. The Court relied
on the judicial pronouncement in People v. Cuevo, 104 SCRA 312 [1981] where, for lack of the required
number of votes, this Court upheld the dismissal of a charge for estafa for a violation of a trust receipt
agreement; and in Sia v. People, 121 SCRA 655 [1983] where we held that the violation merely gives rise
to a civil obligation. At the time the order to quash was issued or on January 7, 1988, these two decisions
were the only most recent ones. Hence, this petition.
The private respondent adopted practically the same stance of the lower court. She likewise asserts that
P.D. 115 is unconstitutional as it violates the constitutional prohibition against imprisonment for nonpayment of a debt. She argues that where no malice exists in a breach of a purely commercial
undertaking, P.D. 115 imputes it.
This Court notes that the petitioner bank brought a similar case before this Court in G.R. No. 82495,
entitled Allied Banking Corporation v. Hon. Secretary Sedfrey Ordoez and Alfredo Ching which we
decided on December 10, 1990 (192 SCRA 246). In that case, the petitioner additionally questioned, and
we accordingly reversed, the pronouncement of the Secretary of Justice limiting the application of the
penal provision of P.D. 115 only to goods intended to be sold to the exclusion of those still to be
manufactured.
As in G.R. No. 82495, we resolved the instant petition in the light of the Court's ruling in Lee v. Rodil,
175 SCRA 100 [1989] and Sia v. Court of Appeals, 166 SCRA 263 [1988]. We have held in the latter
cases that acts involving the violation of trust receipt agreements occuring after 29 January 1973 (date of
enactment of P.D. 115) would make the accused criminally liable for estafa under paragraph 1 (b), Article
315 of the Revised Penal Code (RPC) pursuant to the explicit provision in Section 13 of P.D. 115.
The relevant penal provision of P.D. 115 provides:
"SEC. 13 of P.D. No. 115 provides:
". . . Penalty clause.
The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or
as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or
disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa,
punishable under the provisions of Article Three Hundred and Fifteen, paragraph one (b) of Act
Numbered Three Thousand Eight Hundred and Fifteen, as amended, otherwise known as the Revised
Penal Code. If the violation or offense is committed by a corporation, partnership, association or other
juridical entities, the penalty provided for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense, without prejudice to the civil
liabilities arising from the criminal offense."
Section 1 (b), Article 315 of the RPC under which the violation is made to fall, states:

". . . Swindling (estafa).

below . . .:
xxx

xxx

Any person who shall defraud another by any of the means mentioned herein

xxx

"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."
The factual circumstances in the present case show that the alleged violation was committed sometime in
1980 or during the effectivity of P.D. 115. The failure, therefore, to account for the P114,884.22 balance
is what makes the accused-respondent criminally liable for estafa. The Court reiterates its definitive ruling
that, in the Cuevo and Sia (1983) cases relied upon by the accused, P.D. 115 was not applied because the
questioned acts were committed before its effectivity. (Lee v. Rodil, supra, p. 108) At the time those cases
were decided, the failure to comply with the obligations under the trust receipt was susceptible to two
interpretations. The Court in Sia adopted the view that a violation gives rise only to a civil liability as the
more feasible view "before the promulgation of P.D. 115," notwithstanding prior decision where we ruled
that a breach also gives rise to a liability for estafa. (People v. Yu Chai Ho, 53 Phil. 874 [1929]; Samo v.
People, 115 Phil. 346 [1962]; Philippine National Bank v. Arrozal, 103 Phil. 213 [1958]; Philippine
National Bank v. Viuda e Hijos de Angel Jose, 63 Phil. 814 [1936]).
Contrary to the reasoning of the respondent court and the accused, a trust receipt arrangement does not
involve a simple loan transaction between a creditor and a debtor-importer. Apart from a loan feature, the
trust receipt arrangement has a security feature that is covered by the trust receipt itself. (Vintola v.
Insular Bank of Asia and America, 151 SCRA 578 [1987]) That second feature is what provides the much
needed financial assistance to our traders in the importation or purchase of goods or merchandise through
the use of those goods or merchandise as collateral for the advancements made a bank. (Samo v. People,
supra). The title of the bank to the security is the one sought to be protected and not the loan which is a
separate and distinct
agreement.
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
seek to enforce payment of the loan. Thus, there can be no violation of a right against imprisonment for
non-payment of a debt.
Trust receipts are indispensable contracts in international and domestic business transactions. The
prevalent use of trust receipts, the danger of their misuse and/or misappropriation of the goods or
proceeds realized from the sale of goods, documents or instruments held in trust for entruster-banks, and
the need for regulation of trust receipt transactions to safeguard the rights and enforce the obligations of
the parties involved are the main thrusts of P.D. 115. As correctly observed by the Solicitor General, P.D.
115, like Batas Pambansa Blg. 22, punishes the act "not as an offense against property, but as an offense
against public order. . . . The misuse of trust receipts therefore should be deterred to prevent any possible

havoc in trade circles and the banking community (citing Lozano v. Martinez, 146 SCRA 323 [1986];
Rollo, p. 57) It is in the context of upholding public interest that the law now specifically designates a
breach of a trust receipt agreement to be an act that "shall" make one liable for estafa.
The offense is punished as a malum prohibitum regardless of the existence of intent or malice. A mere
failure to deliver the proceeds of the sale or the goods if not sold, constitutes a criminal offense that
causes prejudice not only to another, but more to the public interest.
We are continually re-evaluating the opposite view which insists that the violation of a trust receipt
agreement should result only in a civil action for collection. The respondent contends that there is no
malice involved. She cites the dissent of the late Chief Justice Claudio Teehankee in Ong v. Court of
Appeals, (124 SCRA 578 [1983]) to wit:
"The old capitalist orientation of putting importers in jail for supposed estafa or swindling for nonpayment of the price of the imported goods released to them under trust receipts (a purely commercial
transaction) under the fiction of the trust receipt device, should no longer be permitted in this day and
age."
As earlier stated, however, the law punishes the dishonesty and abuse of confidence in the handling of
money or goods to the prejudice of the bank.
The Court reiterates that the enactment of P.D. 115 is a valid exercise of the police power of the State and
is, thus, constitutional. (Lee v. Rodil, supra; Lozano v. Martinez, supra) The arguments of the respondent
are appropriate for a repeal or modification of the law and should be directed to Congress. But until the
law is repealed, we are constrained to apply it.

WHEREFORE, the petition is hereby GRANTED. The Order of the respondent Regional Trial Court of
Manila, Branch 52 dated January 7, 1988 is SET ASIDE. Let this case be remanded to the said court for
disposition in accordance with this decision.
SO ORDERED.