Credit Trans

12/5/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 384
VOL. 384, JULY 11, 2002 535

Los Baños Rural Bank, Inc. vs. Africa
*
G.R. No. 143994. July 11, 2002.
LOS BAÑOS RURAL BANK, INC., petitioner, vs. PACITA O.

AFRICA, GLORIA AFRICA, ANTONIO AFRICA, ARISTEO
AFRICA, SOCORRO AFRICA, CONSUELO AFRICA, and
LOURDES AFRICA, respondents.
Remedial Law; Injunction; Injunction is a preservative remedy aimed

at no other purpose than to protect the complainant’s substantive rights and
interests during the pendency of the principal action.—Injunction is a
preservative remedy aimed at no other purpose than to protect the
complainant’s substantive rights and interests during the pendency of the
principal action. A preliminary injunction, as the term itself suggests, is
merely temporary. It is to be resorted to only when there is a pressing
necessity to avoid injurious consequences that cannot be remedied under
any standard of compensation.
Same; Same; It is proper only when the plaintiff appears to be entitled
to the relief demanded in the complaint; Requisites for the Issuance of a
Preliminary Injunction.—Injunction, like other equitable remedies, should
be issued only at the instance of a suitor who has sufficient interest in or title
to the right or the property sought to be protected. It is proper only when the
plaintiff appears to be entitled to the relief demanded in the complaint. In
particular, the existence of the right and the violation thereof must appear in
the allegations of the complaint and must constitute at least a prima facie
showing of a right to the final relief.Thus, there are two requisite conditions
for the issuance of a preliminary injunction; namely, (1) the right to be
protected exists prima facie, and (2) the acts
______________
* THIRD DIVISION.
536
536 SUPREME COURT REPORTS ANNOTATED

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sought to be enjoined are violative of that right. It must be proven that the
violation sought to be prevented would cause an irreparable injustice.
Same; Same; While a clear showing of the right is necessary, its
existence need not be conclusively established; To be entitled to the writ,
respondents are only required to show that they have the ostensible right to
the final relief prayed for in their complaint.—While a clear showing of the
right is necessary, its existence need not be conclusively established. In fact,
the evidence required to justify the issuance of a writ of preliminary
injunction in the hearing thereon need not be conclusive or complete. The
evidence need only be a “sampling” intended merely to give the court an
idea of the justification for the preliminary injunction, pending the decision
of the case on the merits. Thus, to be entitled to the writ, respondents are
only required to show that they have the ostensible right to the final relief
prayed for in their Complaint.
Same; Same; It is issued precisely to preserve threatened or continuous
irremediable injury to some of the parties before their claims can be
thoroughly studied and adjudicated.—A writ of preliminary injunction is
issued precisely to preserve threatened or continuous irremediable injury to
some of the parties before their claims can be thoroughly studied and
adjudicated. Denial of the application for the writ may make the Complaint
of respondents moot and academic. Furthermore, it would render ineffectual
a final judgment in their favor or, at the very least, compel them to litigate
needlessly with third persons who may have acquired an interest in the
property. Such a situation cannot be countenanced.
Civil Law; Actions; Lis Pendens; A notice of lis pendens serves as an
announcement to the whole world that a particular real property is in
litigation and as a warning that those who acquire an interest in the
property do so at their own risk; Cancellation of such notice may be ordered
by the court that has jurisdiction over it at any given time.—A notice of lis
pendens serves as an announcement to the whole world that a particular real
property is in litigation and as a warning that those who acquire an interest
in the property do so at their own risk—they gamble on the result of the
litigation over it. However, the cancellation of such notice may be ordered
by the court that has jurisdiction over it at any given time. Its continuance or
removal—like the continuance or the removal of a preliminary attachment
or injunction—is not contingent on the existence of a final judgment on the
action and ordinarily has no effect on the merits thereof. Thus, the notice of
lis pendens does not suffice to protect herein respondents’ rights over the
property. It does not provide complete and ample protection.
537
VOL. 384, JULY 11, 2002 537
Remedial Law; Injunction; Consummated acts can no longer be

restrained by injunction; Status Quo Defined.—It is a well-entrenched rule
that consummated acts can no longer be restrained by injunction whose sole
objective is to preserve the status quo until the merits of the case are fully
heard. Status quo is defined as the last actual peaceful uncontested situation
that precedes a controversy, and its preservation is the office of an injunctive
writ.
PETITION for review on certiorari of a decision of the Court of

Appeals.
The facts are stated in the opinion of the Court.

Oben, Ventura, Abola Law Office for petitioner.
De Borja, Medialdea, Bello, Guevarra & Gerodias for private
respondents.
PANGANIBAN, J.:
A writ of preliminary injunction is issued to preserve the status quo

ante, upon an applicant’s showing of two important requisite
conditions; namely, (1) the right to be protected exists prima facie,
and (2) the acts sought to be enjoined are violative of that right. It
must be proven that the violation sought to be prevented would
cause an irreparable injustice.
Statement of the Case
Before us is a Petition for Review under 1Rule 45 of the Rules of2

Court, assailing the June 30, 2000 Decision of the Court of Appeals
(CA) in CA-GR SP No. 53355. The decretal portion of the Decision
reads as follows:
“WHEREFORE, the petition is GRANTED. The Order dated April 19, 1999
insofar as it denied the petitioners’ application for the issuance of a writ of
preliminary injunction, is hereby RECALLED and SET ASIDE.
______________
1 Rollo, pp. 80-87.

2 Thirteenth Division. Written by Justice Delilah Vidallon-Magtolis (Division chairman);
concurred in by Justices Eloy R. Bello, Jr. and Elvi John S. Asuncion (members).
538

“Let a writ of preliminary injunction issue in this case to restrain the

respondent bank from proceeding with the foreclosure and consolidation of
the title over the subject property
3
upon posting by petitioners of a bond in
the amount of Php20,000.00.”
The Order of the Regional Trial Court (RTC) of Quezon City

(Branch 220), which was reversed by the CA, reads as follows:
“WHEREFORE, premises considered, the Order of the Court dated July 22,
1997 is hereby recalled and set aside. The application for issuance of writ of
preliminary injunction is hereby DENIED.
“Issues in this case having been joined, let this case be set for pretrial on
May 28, 1999 at 8:304 o’clock in the morning. Send notice of pretrial to the
parties and counsels.”
The Facts
The factual antecedents of the case are summarized by the Court of

Appeals in this wise:
“Petitioner Pacita Africa (Pacita for brevity) is the widow of Alberto Africa
and the rest of her co-petitioners are their children.
“Records disclose that sometime in June 1989, the Quezon City Hall
building where the Register of Deeds was then holding office was razed by
fire, destroying some of its records/documents among which was the
original Transfer Certificate of Title (TCT) No. 203492 covering a parcel of
land situated in Diliman, Quezon City, and registered in the name of
petitioner Pacita. The aforesaid property was part of the conjugal property
of petitioner Pacita and her late husband Alberto Africa.
“On request of Pacita, private respondent Macy Africa, the commonlaw
wife of petitioner Antonio Africa, worked for the reconstitution of the
aforesaid TCT No. 203492. The same was done and a new Transfer
Certificate of Title (TCT) No. RT-76140 (203492) PR-36463 was issued in
the name of Pacita Africa. While the reconstituted title was in her
possession, Macy allegedly forged, or caused the forgery of, Pacita’s
signature on a Deed of Absolute Sale dated December 29, 1992, purporting
to transfer ownership of the subject property to Macy. On the strength of the
forged
______________
3 CA Decision pp. 7-8; Rollo, pp. 86-87.

4 RTC Order, p. 4; Rollo, 141; penned by Judge Prudencio Altre Castillo, Jr.
539
VOL. 384, JULY 11, 2002 539

Deed of Absolute Sale, Macy was able to cause the issuance of TCT No.
81519 in her name, without the knowledge of any of herein petitioners.
“Still as part of the scheme to defraud petitioners, Macy caused the
preparation of a fake TCT No. 81519 in the name of Pacita, which the
former showed to the latter to make Pacita believe that the said title was
issued in her (Pacita’s) name.
“Sometime in March 1994, petitioners discovered private respondent’s
fraudulent act. They (petitioners) likewise came to know that the subject
property was mortgaged by Macy to the respondent bank. To protect their
interests over the subject property, petitioners lodged an action in court
against Macy and the respondent bank for Annulment of Title, Deed of
Absolute Sale and Deed of Mortgage. The case was originally assigned to
Branch 99 of the RTC of Quezon City and docketed as Civil Case No. Q-94-
20898.
“After the filing of the aforesaid case, the respondent bank in utter bad
faith, foreclosed the subject property on June 11, 1996 without due notice to
the petitioners, prompting the petitioners to amend [their] complaint, this
time incorporating therein a prayer for the issuance of a temporary
restraining order and/or writ of preliminary injunction, to stop the
respondent bank from, among others, consolidating title to the subject
property.
“On July 2, 1997, RTC Branch 99 issued an Order granting petitioners’
application for a temporary restraining order. Meanwhile, the respondent
bank filed its Manifestation, Opposition and Motion to Postpone dated July
11, 1997, praying, inter alia, for the denial of petitioner’s application for a
writ of preliminary injunction, or in the alternative, for the cancellation of
the hearing thereon. On July 18, 1997, the aforesaid court denied the
respondent bank’s motion to postpone and proceeded with the hearing of
petitioners’ application. Thereafter, petitioners’ application was considered
submitted for resolution.
“On July 22, 1997, the Court issued an Order granting petitioners’
application for a writ of preliminary injunction to which respondent bank
filed a Motion for Reconsideration dated July 11, 1997 followed by a
Motion for Inhibition on January 1, 1998 praying that Hon. Felix M. de
Guzman, presiding judge of RTC, Branch 99, inhibit himself from further
trying the case. This latter motion was granted, and the case was reraffled
and assigned to Branch 220.
“On April 19, 1999, 5
RTC Branch 220, public respondent herein, issued
the questioned Order.”
______________
5 CA Decision, pp. 2-4; Rollo, pp. 81-83.
540

Ruling of the Court of Appeals
The CA overturned the RTC Order dated April 19, 1999, and
granted the issuance of a preliminary injunction to restrain petitioner
from proceeding with the foreclosure and the consolidation of title
over the subject property. The CA ruled that respondents had title to
and possession of the property and were deprived thereof by
petitioner. Thus, respondents had6 a clear and unmistakable right to
protect their title and possession.
7
Hence, this Petition.
Issues
In its Memorandum, petitioner raises the following issues for the

Court’s consideration:
“Whether the Court of Appeals acted with patent grave abuse of discretion
in applying the ruling in Verzosa vs. Court of Appeals, (299 SCRA 100), to
the instant case to justify its reversal of the 19 April 1999 Order of Branch
220 of the Regional Trial Court of Quezon City in Civil Case No. Q-94-
20898[;]
II
“Whether the Court of Appeals acted with patent grave abuse of

discretion when it rationalized its decision by citing factual premises therein
that are not borne out by the records nor based on evidence and in fact
contrary to reality[;]
III
“Whether the Court of Appeals acted with patent grave abuse of

discretion when it ignored, disregarded and/or deviated from established
______________
6 CA Decision, p. 7; id., p. 86.

7 The case was deemed submitted for decision on June 20, 2001, upon the Court’s receipt of
respondents’ Memorandum, signed by Attys. Menardo I. Guevarra, Lorna Imelda M. Suarez
and Maria Cristina T. Suralvo. Petitioner’s Memorandum, filed on May 18, 2001, as signed by
Attys. Eulalio A. Ventura and Pablo Antonio A. Ventura.
541
VOL. 384, JULY 11, 2002 541

jurisprudence governing the issuance of preliminary injunction demanded

by private respondents against the petitioner bank[;]
IV
“Whether the Court [of] Appeals acted with patent grave abuse of
discretion when it disregarded the pertinent provisions of Section 3, Rule
58, of the Revised Rules8 of Court providing for the grounds for issuance of
preliminary injunction.”
In sum, the issues boil down to whether the appellate court erred in
issuing a writ of preliminary injunction to stop petitioner’s
consolidation of its title to the subject property.
This Court’s Ruling
The Petition is not meritorious; it has not shown any reversible error
in the CA’s Decision.
Main Issue:
Propriety of Preliminary Injunction
Petitioner argues that respondents do not have a right to the relief

demanded, because they merely have possession 9
of the property, as
the legal title is in the name of Macy Africa. Furthermore, it claims
that the consolidation of title in its name does not 10
constitute an
“invasion of a right that is material and substantial.”
On the other hand, respondents maintain that they would suffer
great irreparable
11
damage if the writ of preliminary injunction is not
granted. They likewise contend that if petitioner is allowed to
consolidate its title to the subject property, they would lose their
ancestral home, a loss that would result 12 in unnecessary and
protracted proceedings involving third parties.
We agree with respondents.
______________
8 Petitioner’s Memorandum, pp. 12-13; Rollo, pp. 256-257.

9 Ibid., p. 23; Rollo, p. 267.
10 Id., p. 22; Rollo, p. 266.
11 Respondents’ Memorandum, p. 12; Rollo, p. 312.
12 Ibid., p. 13; Rollo, p. 313.
542

The grounds for the issuance of a writ of preliminary injunction are

enumerated in Rule 58, Section 3 of the Revised Rules of Court,
which reads as follows:
“Sec. 3. Grounds for issuance of preliminary injunction.—A preliminary

injunction may be granted when it is established;
(a) That the applicant is entitled to the relief demanded, and the whole
or part of such relief consists in restraining the commission or
continuance of the act or acts complained of, or in requiring the
performance of an act or acts, either for a limited period or
perpetually;
(b) That the commission, continuance or non-performance of the act or
acts complained of during the litigation would probably work
injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is
attempting to do, or is procuring or suffering to be done, some act
or acts probably in violation of the rights of the applicant respecting
the subject of the action or proceeding, and tending to render the
judgment ineffectual.”
Injunction is a preservative remedy aimed at no other purpose 13

than
to protect the complainant’s substantive
14
rights and interests during
the pendency of the principal action. A preliminary
15
injunction, as
the term itself suggests, is merely temporary. It is to be resorted to
only when there is a pressing necessity to avoid injurious
consequences 16that cannot be remedied under any standard of
compensation.
Moreover, injunction, like other equitable remedies, should be
issued only at the instance of a suitor who has sufficient interest
17
in
or title to the right or the property sought to be protected. It is
proper only when the plaintiff
18
appears to be entitled to the relief
demanded in the complaint. In particular, the existence of the right
and the violation thereof must appear in the allegations of
______________
13 Idolor v. Court of Appeals, 351 SCRA 399, February 7, 2001.

14 Cagayan de Oro City Landless Residents Assoc., Inc. v. Court of Appeals, 254
SCRA 220, March 4, 1996.
15 Olalia v. Hizon, 196 SCRA 665, May 6, 1991.
16 Del Rosario v. Court of Appeals, 255 SCRA 152, March 15, 1996.
17 Saulog v. Court of Appeals, 262 SCRA 51, September 18, 1996.
18 Toyota Motor Philippines Corporation v. Court of Appeals, 216 SCRA 236,
December 7, 1992.
543
VOL. 384, JULY 11, 2002 543


19
the complaint and must constitute
20
at least a prima facie showing of
a right to the final relief. Thus, there are two requisite conditions
for the issuance of a preliminary injunction; namely, (1) the right to
be protected exists prima facie, and 21
(2) the acts sought to be
enjoined are violative of that right. It must be proven that the
violation sought to be prevented would cause an irreparable
injustice.
Further, while a clear showing of the right is22 necessary, its
existence need not be conclusively established. In fact, the
evidence required to justify the issuance of a writ of preliminary
injunction in the hearing thereon need not be conclusive or
complete. The evidence need only be a “sampling” intended merely
to give the court an idea of the justification for the preliminary
23
injunction, pending the decision of the case on the merits. Thus, to
be entitled to the writ, respondents are only required to show that
they have the
24
ostensible right to the final relief prayed for in their
Complaint.
First Requisite:
Existence of the Right
In the case at bar, we find ample 25
justification for the issuance of a
writ of preliminary injunction. Evidently, the question on whether
or not respondents possess the requisite right hinges on 26
the prima
facie existence of their legal title to the subject property. They have
shown that they have that right,
27
and that it is directly threatened by
the act sought to be enjoined.
______________
19 Lopez v. Court of Appeals, 322 SCRA 686, January 20, 2000.

20 Buayan Cattle Co., Inc. v. Quintillan, 128 SCRA 276, March 19, 1984; citing 43
CJS 433.
21 Lopez v. Court of Appeals, supra.
22 Developers Group of Companies, Inc. v. Court of Appeals, 219 SCRA 715,
March 8, 1993.
23 Saulog v. Court of Appeals, supra.
24 Ibid.
25 Id.
26 Id.
27 Angela Estate, Inc. v. Court of First Instance of Negros Occidental, 24 SCRA
500, July 31, 1968.
544

28
First, as alleged in the Complaint, Respondent Pacita Africa is the
registered owner of the subject property. Her ownership is evidenced
by the reconstituted Transfer 29
Certificate of Title (TCT) No. RT-
76140 (203492) PR-36463, issued by the Registry of Deeds 30
of
Quezon City. Second, the validity of the Deed of Sale dated
December 29, 1992, is still in dispute because Respondent Pacita
Africa 31claims that her signature was forged by the vendee, Macy
Africa. Third, there is doubt as to the validity of the mortgage in
favor of petitioner, because there exists on record 32
two TCTs
covering the mortgaged property: (1) TCT No. 81519 33
registered in
the name of Pacita Africa and (2) TCT No. 81519 registered in the
name of Macy Africa.
If indeed the Deed of Sale is a forgery,
34
no parcel of land was ever
transferred to the purported buyer who,35not being the owner, could
not have validly mortgaged the property. Consequently, neither has
petitioner—the buyer36
and mortgagee of the same lot—ever acquired
any title thereto. Significantly, no evidence was presented by
petitioner to controvert these allegations put forward by respondents.
Clearly then, on the basis of the evidence presented, respondents
possess the right to prevent petitioner from consolidating the title in
its name. The first37 requisite—the existence of a right to be protected
—is thus present.
Second Requisite:
Violation of Applicant’s Right
As to the second requisite, what is sought to be enjoined by
respondents is the consolidation of the title to the subject property in
______________
28 Annex “D”; Rollo, p. 106.

29 Annex “B”; CA Rollo, p. 23.
30 Annex “A”; Rollo, p. 114.
31 See Complaint, Annex “D”; ibid., p. 108.
32 Annex “C”; id., p. 116.
33 Annex “B”; id., p. 115.
34 Alarcon v. Court of Appeals, 323 SCRA 716, January 28, 2000.
35 Cruz v. Bancom Finance Corporation, G.R. No. 147788, March 19, 2002, 379
SCRA 490.
36 Ibid.
37 Development Bank of the Philippines v. Court of Appeals, 344 SCRA 492,
October 30, 2000.
545
VOL. 384, JULY 11, 2002 545

petitioner’s name. After having discovered that the property had

been mortgaged to petitioner, respondents filed on June 12, 1994 an
action for Annulment of Title, Deed38
of Sale, and Mortgage to protect
their rights over the property. This 39
notwithstanding, petitioner
foreclosed it on June 11, 1996. To enjoin petitioner from
consolidating the title40
in its name, respondents then filed an
Amended Complaint, praying for a writ of preliminary injunction.
Unless legally stopped, petitioner may consolidate title to the
property in its name and enjoy the unbridled freedom to dispose 41
of it
to third persons, to the damage and prejudice of respondents.
42
What
respondents stand to lose is material and substantial. They would 43
lose their ancestral home even without the benefit of a trial.
Clearly, the act sought 44to be enjoined is violative of their proprietary
right over the property.
A writ of preliminary injunction is issued precisely to preserve
threatened or continuous irremediable injury to some of the parties 45
before their claims can be thoroughly studied and adjudicated.
Denial of the application for the writ may make the Complaint of
respondents moot and academic. Furthermore, it would render
ineffectual a final judgment in their favor or, at the very least,
compel them to litigate needlessly with 46
third persons who may have
acquired an interest
47
in the property. Such a situation cannot be
countenanced.
Lis Pendens
Petitioner further contends that respondents are not entitled to the
relief prayed for, because they caused a notice of lis pendens to
______________
38 See Complaint, Annex “D”; Rollo, p. 106.

39 See Sheriffs Certificate of Sale, Annex “I”; ibid., p. 128.
40 See Amended Complaint, Annex “G”; id., p. 129.
41 Saulog v. Court of Appeals, supra.
42 Development Bank of the Philippines v. Court of Appeals, supra.
43 Ibid.
44 Id.
45 Republic v. Silerio, 272 SCRA 280, May 6, 1997.
46 Lizares v. Kintanar, 190 SCRA 585, October 18, 1990.
546

be annotated at the back of TCT No. 81519, registered in the name

of Macy P. Africa; thus,48 that notice provided ample protection of
their rights and interests.
We are not persuaded. A notice of lis pendens serves as an
announcement to the whole world that a particular real property is in
litigation and as a warning that those who acquire an interest in the
property do so at49 their own risk—they gamble on the result of the
litigation over it. However, the cancellation of such notice may be50
ordered by the court that has jurisdiction over it at any given time.
Its continuance or removal—like the continuance or the removal of a
preliminary attachment or injunction—is not contingent on the
existence of a final judgment 51
on the action and ordinarily has no
effect on the merits thereof. Thus, the notice of lis pendens does 52
not suffice to protect herein respondents’ rights over the property. It
does not provide complete and ample protection.
Status Quo Ante

Petitioner further claims that the RTC erred 53
in enjoining the
foreclosure sale of the subject property. It argues that the
foreclosure may no54 longer be enjoined, because it has long been
effected since 1996. We agree with petitioner.
It is a well-entrenched rule
55
that consummated acts can no longer
be restrained by injunction whose sole objective is 56to preserve the
status quo until the merits of the case are fully heard.
______________
48 Petitioner’s Memorandum, p. 21; Rollo, p. 265.

49 Villanueva v. Court of Appeals, 281 SCRA 298, November 5, 1997.
50 Heirs of Maria Marasigan v. Intermediate Appellate Court, 152 SCRA 253,
July 23, 1987; Tanchoco v. Aquino, 154 SCRA 1, September 15, 1987.
51 Magdalena Homeowners Association, Inc. v. Court of Appeals, 184 SCRA 325,
April 17, 1990.
54 Ibid.
55 Verzosa v. Court of Appeals, 299 SCRA 100, November 24, 1998.
56 Lim v. Pacquing, 240 SCRA 649, January 27, 1995; Knecht v. Court of Appeals,
228 SCRA 1, November 18, 1993; Unciano Paramedical
547
VOL. 384, JULY 11, 2002 547

Status quo is defined as the last actual peaceful uncontested situation

that precedes a57controversy, and its preservation is the office of an
injunctive writ.
In the instant case, the status quo was the situation

58
of the parties
at the time of the filing of the Amended Complaint with a prayer
for a writ of preliminary injunction. It was that point at which
petitioner had already foreclosed the subject property and, hence,
could no longer be enjoined from going on with the foreclosure.
However, the last actual uncontested status that preceded the
controversy was when the property in dispute was still registered in
the name of Macy Africa, 59
petitioner not having consolidated in its
name the title thereto. Thus, 60
the issuance of the writ would no
doubt preserve the status quo.
We cannot rule on the allegation of petitioner that this 61
case is a
“scam perpetrated by private respondents” to defraud it. The truth
or the falsity of that assertion cannot be ascertained by this Court at
this time. Verily, we refrain from expressing any opinion on the
merits of the case, pending a full 62consideration of the evidence that
would be presented by the parties.
WHEREFORE, the Petition is DENIED and the assailed
Decision of the Court of Appeals AFFIRMED. Costs against
petitioner.
SO ORDERED.
Puno (Chairman), Sandoval-Gutierrez and Carpio, JJ.,

concur.
Petition denied, judgment affirmed.
______________
College, Inc. v. CA, 221 SCRA 285, April 7, 1993; Rava Development
Corporation v. Court of Appeals, 211 SCRA 144, July 3, 1992.
57 Unciano Paramedical College v. Court of Appeals, supra; Searth Commodities
Corp. v. Court of Appeals, 207 SCRA 622, March 31, 1992; Rivas v. Securities and
Exchange Commission, 190 SCRA 295, October 4, 1990.
58 Annex “G”; Rollo, p. 129.
59 Searth Commodities Corp. v. Court of Appeals, supra.
60 Ibid.
62 Feliciano v. Court of Appeals, 287 SCRA 61, March 5, 1998.
548

Social Security System vs. Commission on Audit
Note.—The sole objective of a writ of preliminary injunction is

to preserve the status quo until the merits of the case can be heard
fully. (Heirs of Joaquin Asuncion vs. Gervacio, Jr., 304 SCRA 322
[1999])
——o0o——
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Province of Bataan vs. Villafuerte, Jr.
*
G.R. No. 129995. October 19, 2001.
THE PROVINCE OF BATAAN, petitioner-appellant, vs. HON.

PEDRO VILLAFUERTE, JR., as Presiding Judge of the Regional
Trial Court of Bataan (Branch 4), and THE PRESIDENTIAL
COMMISSION ON GOOD GOVERNMENT, respondents-
appellees.
Actions; Escrow; Words and Phrases; An escrow is a written

instrument which by its terms imports a legal obligation and which is
deposited by the grantor, promisor, or obligor, or his agent with a stranger
or third party, to be kept by the depositary until the performance of a
condition or the happening of a certain event, and then to be delivered over
to the grantee, promisee, or obligee.—An escrow fills a definite niche in the
body of the law; it has a distinct legal character. The usual definition is that
an escrow is a written instrument which by its terms imports a legal
obligation and which is deposited by the grantor, promisor, or obligor, or his
agent with a stranger or third party, to be kept by the depositary until the
performance of a condition or the happening of a certain event, and then to
be delivered over to the grantee, promisee, or obligee.
Same; Same; Same; While originally, the doctrine of escrow applied
only to deeds by way of grant, or as otherwise stated, instruments for the
conveyance of land, under modern theories of law, the term escrow is not
limited in its application to deeds, but is applied to the deposit of any
written instrument with a third person; It is no longer open to question that
money may be delivered in escrow.—While originally, the doctrine of
escrow applied only to deeds by way of grant, or as otherwise stated,
instruments for the conveyance of land, under modern theories of law, the
term escrow is not limited in its application to deeds, but is applied to the
deposit of any written instrument with a third person. Particular instruments
which have been held to be the subject of an escrow include bonds or
covenants, deeds, mortgages, oil and gas leases, contracts for the sale of
land or for the purchase of personal property, corporate stocks and stock
subscriptions, promissory notes or other commercial paper, insurance
applications and policies, contracts for the settlement of will-contest cases,
indentures of apprenticeship, receipts assigning concessions and
http://www.central.com.ph/sfsreader/session/000001677e99549e1ed5c4d8003600fb002c009e/t/?o=False 1/12
discontinuances and releases of causes of action. Moreover, it is no longer

open to question that money may be delivered in escrow.
_______________
* SECOND DIVISION.
621
VOL. 367, OCTOBER 19, 2001 621
Same; Same; Same; In our jurisdiction, an escrow order issued by a

court of law may find ample basis and support in the court’s intrinsic power
to issue orders and other ancillary writs and processes incidental or
reasonably necessary to the exercise of its main jurisdiction.—In our
jurisdiction, an escrow order issued by a court of law may find ample basis
and support in the court’s intrinsic power to issue orders and other ancillary
writs and processes incidental or reasonably necessary to the exercise of its
main jurisdiction. Evidently, judicial power connotes certain incidental and
inherent attributes reasonably necessary for an effective administration of
justice. In a manner of speaking, courts have not only the power to maintain
their life, but they have also the power to make that existence effective for
the purpose for which the judiciary was created. They can, by appropriate
means, do all things necessary to preserve and maintain every quality
needful to make the judiciary an effective institution of Government. Courts
have therefore inherent power to preserve their integrity, maintain their
dignity and to insure effectiveness in the administration of justice.
Same; Same; Same; The deposit of rentals in escrow with the bank, in
the name of the lower court, is only an incident in the main proceeding—to
be sure, placing property in litigation under judicial possession, whether in
the hands of a receiver, an administrator, or in a government bank, is an
ancient and accepted procedure.—To trace its source, the court’s authority
proceeds from its jurisdiction and power to decide, adjudicate and resolve
the issues raised in the principal suit. Stated differently, the deposit of the
rentals in escrow with the bank, in the name of the lower court, “is only an
incident in the main proceeding.” To be sure, placing property in litigation
under judicial possession, whether in the hands of a receiver, an
administrator, or as in this case, in a government bank, is an ancient and
accepted procedure. Consequently, we find no cogency to disturb the
questioned orders of the lower court and in effect uphold the propriety of the
subject escrow orders.

Appeals.

Cruz & Cruz Law Offices for petitioner-appellant.
Datu Omar S. Sinsuat for BASECO.
Ramon A. Gonzales for respondent.
622

BUENA, J.:
Sought to be reversed
1
in the instant Petition for Review on Certiorari
is the Decision of the Court of Appeals, dated 19 December 1996,
in CA-G.R. SP No. 33344, upholding the twin orders dated 28 July
1993 and 11 November 1993 of the Regional Trial Court (RTC) of
Bataan, Branch 4, in Civil Case No. 210-ML,
2
for annulment of sale.
In its order dated 28 July 1993, the lower court directed that
herein petitioner Province of Bataan remit to said court whatever
lease rentals petitioner may receive from lessees 7-R Port Services
and Marina Port Services, and that such lease rentals be placed
under a special time deposit with the Land Bank of the Philippines,
Balanga Branch, for the account of the RTC-Balanga, Branch 4, in
escrow, for the person or persons, natural or juridical, who may be
adjudged
3
lawfully entitled thereto. The order dated 11 November
1993, denied herein petitioner’s motion for reconsideration of the
28 July, 1993 order.
Involved in the present controversy is an expanse of real property
(hereinafter referred to as the BASECO property) situated at
Mariveles, Bataan and formerly registered and titled in the name of
either the Bataan Shipyard and Engineering Corporation
(BASECO), the Philippine Dockyard Corporation or the Baseco
Drydock and Construction Co., Inc.
Pursuant to Presidential Decree No. 464, otherwise known as the
Real Property Tax Code of 1974, the Provincial Treasurer of Bataan
advertised for auction sale the BASECO property due to real estate4
tax delinquency amounting to P7,914,281.72, inclusive of penalties.
At the auction sale held on 12 February 1988, no bidder vied for said
property as a result of which, the Provincial Treasurer of Bataan
adjudged the property to, and acquired the
_________________
1 Court of Appeals Decision in CA-G.R. SP No. 33344, promulgated on 19

December 1996, penned by Justice Cancio C. Garcia and concurred in by Justices
Eugenio S. Labitoria and Omar U. Amin; Rollo, p. 30-39.
2 Records, pp. 124-125; Annex “C”.
3 Records, pp. 60-61; Annex “E”.
4 Rollo, p. 31.
623
VOL. 367, OCTOBER 19, 2001 623

same for, and in the name of herein petitioner Province of Bataan.

Upon the expiration of the one-year redemption period, and without
the owner exercising its right to redeem the subject property, the
Provincial Government of Bataan consolidated its title thereon; the
corresponding certificates of title were then issued in the name of
herein petitioner Province of Bataan.
Eventually, petitioner, thru then Provincial Governor Enrique T.
Garcia, entered into a ten-year contract of lease with 7-R Port
Services, Inc., whereby portions of the BASECO property including
facilities and improvements thereon, were leased to the latter for a
minimum escalating annual rental of Eighteen Million Pesos (P18
million). On 10 May 1993, petitioner forged another contract of
lease with Marina Port Services, over a ten-hectare portion of the
BASECO property.
On 11 May 1993, The Presidential Commission on Good
Government (PCGG), for itself and on behalf of the Republic of the
Philippines and the BASECO, the Philippine Dockyard Corporation
and the Baseco Drydock and Construction Co.5 Inc., filed with the
RTC-Bataan a complaint for annulment of sale, principally assailing
the validity of the tax delinquency sale of the BASECO property in
favor of petitioner Province of Bataan. Among others, the complaint
alleged that the auction6 sale held on 12 February 1988, is void for
having been conducted:
“a) in defiance of an injunctive order issued by the PCGG in

the exercise of its powers under Executive Order No. 1,
Series of 1986;
“b) in contravention of the Real Property Tax Code of 1974;
“c) while the issue of ownership of the Baseco property and of
whether the same partakes of the nature of ill-gotten wealth
is pending litigation in Civil Case No. 0010 before the
Sandiganbayan; and
“d) despite the inscription of the sequestration order at the back
of each title of the BASECO property.”
In its prayer, the complaint asked for the following reliefs:
_______________
5 Docketed as Civil Case No. 210-ML; Rollo, pp. 41-56; Annex “C”.
6 Rollo, pp. 32-33.
624

“l) The tax delinquency sale held on February 12, 1988 be

declared null and void; and the defendant Province of
Bataan be ordered to reconvey all the properties thus sold to
its rightful owners, the Republic of the Philippines and/or
the other plaintiffs herein;
“2) The defendants be ordered to render an accounting to, and
pay plaintiffs all earnings, fruits and income which they
have received or could have received from the time they
claimed ownership and took possession and control of all
the auctioned properties; and to account and pay for all the
losses, deterioration and destruction thereof;
“3) The defendants be ordered, jointly and severally to pay
plaintiffs for all damages suffered by it/them by reason of
the unlawful actuations of the defendants, in the sum herein
claimed and proven at the trial of this case, including
attorney’s fees and costs of suit;
“4) The defendant 7-R Port Services, Inc. be ordered to
immediately cease and desist from paying any lease rentals
to the Province of Bataan, and instead to pay the same
directly to the plaintiffs;
“5) The Register of Deeds of Bataan be ordered to cancel the
Torrens titles it had issued in favor of the Province of
Bataan, and issue a new Torrens titles (sic) in favor of
plaintiffs in lieu of the cancelled ones.”
Herein respondent PCGG, upon learning of the lease contracts

entered into by and between petitioner and Marina Port Services,
filed with the RTC an urgent motion for the issuance of a writ of
preliminary injunction to enjoin herein petitioner “from entering into
a lease contract with Marina Port Services, Inc. (Marina), or any
other entity, and/or from implementing/enforcing such lease
contract, if one has already been executed, and to maintain the status
quo until further orders from the Court.”
On 06 July 1993, the lower court denied the motion ratiocinating
that the lease contract with Marina was already a fait accompli when
the motion was filed, and that Marina was not a party to the suit for
not having been impleaded as party-defendant.
On 30 June 1993, the PCGG filed with the lower court an
“Urgent Motion to Deposit Lease Rentals,” alleging inter alia that
the rentals amounting to “Hundreds of Millions of Pesos” are “in
danger of being unlawfully spent, squandered and dissipated to the

great and irreparable damage of plaintiffs who are the rightful
owners of the property leased.”
625
VOL. 367, OCTOBER 19, 2001 625

On 28 July 1993, the lower court granted the PCGG’s urgent motion
and issued its assailed order the dispositive portion of which reads:
“ACCORDINGLY, the defendant Province of Bataan is hereby ordered to

remit to this Court the lease rentals it may receive from the defendant 7-R
Port Services, Inc. and the Marina Port Services, Inc. to commence from its
receipt of this Order and for the Clerk of Court of this Branch to deposit said
amount under special time deposit with the Land Bank of the Philippines,
Balanga Branch, in Balanga, Bataan in the name and/or account of this
Court to be held in ESCROW for the person or persons, natural or juridical,
who may be finally adjudged
7
lawfully entitled thereto, and subject to further
orders from this Court.”
Petitioner moved to reconsider the aforementioned order, which

motion the lower8 court denied via its assailed order dated 11
November 1993. Aggrieved by the lower court’s twin orders,
petitioner filed before the Court of Appeals a petition for certiorari
with prayer for issuance9
of a temporary restraining order and writ of
preliminary injunction.
On 01 December 1995, the Bataan Shipyard and Engineering
Corporation, the Philippine Dockyard Corporation and the Baseco
Drydock and Construction Co., Inc., filed a motion for leave to
intervene before the Court of Appeals. In a Resolution dated 26
March 1996, the appellate court granted the motion.
On 16 April 1996, the intervenors-respondents filed their
Answer-in-Intervention praying for the dismissal of the petition
before the Court of Appeals and the dissolution
10
of the preliminary
injunction issued in favor of petitioners.
In its Decision dated 19 December 1996, the Court of Appeals
dismissed the petition to which a motion for reconsideration was
filed by petitioner. In a Resolution dated 21 July 1997, respondent
court likewise denied the motion for reconsideration, hence, the
________________
7 Records, pp. 50-51.

8 Records, pp. 60-61.
9 Docketed as CA-G.R. SP No. 33344; Records, pp. 2-20.
10 Rollo, pp. 36.
626

instant appeal where petitioner Province of Bataan imputes to the

Court of Appeals a lone assignment of error, to wit:
“The Court of Appeals manifestly erred in refusing to declare and/or hold

that the respondent judge acted without jurisdiction or with grave abuse of
discretion in ordering the deposit in escrow of the rental payments
pertaining to the petitioner province.”
In simpler terms, the sole issue for resolution revolves around the
propriety of the escrow order issued by the lower court in the civil
suit for annulment of sale.
The instant petition is devoid of merit.
In the main, petitioner insists that the issuance of the escrow
order by the trial court “was patently irregular, if not downright
anomalous,” reasoning that “nowhere in the Revised Rules of Court
is the trial court, or any court for that matter, authorized to issue
such escrow order, whether as a provisional or permanent remedy.”
According to petitioner, “the escrow orders in question are null and
void ab initio for having been issued absent any legal basis” and are
“merely calculated to prejudice the petitioner province without any
practical or worthwhile, much less11
legal objective.”
We do not agree. An escrow fills a 12definite niche in the body of
the law; it has a distinct legal character. The usual definition is that
an escrow is a written instrument which by its terms imports a legal
obligation and which is deposited by the grantor, promisor, or
obligor, or his agent with a stranger or third party, to be kept by the
depositary until the performance of a condition or the happening of a
certain event,
13
and then to be delivered over to the grantee, promisee,
or obligee.
_________________
11 The term “escrow” is derived from a French word meaning bond or writing;
Stonewall vs. Mcgown (Tex Civ App) 231 SW 850.
12 Squire vs. Branciforti, 131 Ohio St 344, 2 NE2d 878:28 Am Jur 2d, p. 3.
13 28 Am Jur 2d, p. 3; Gulf Petroleum, S.A. vs. Collazo (CA1 Puerto Rico) 316
F2d 257; Munger vs. Perlman Rim Corp. (CA2 NY) 275 F21 cert den 257 US 645,66
L ed 413, 42 S Ct 54; Ashford vs. Prewitt, 102 Ala 264, 14 So 663.
627
VOL. 367, OCTOBER 19, 2001 627

While originally,14
the doctrine of escrow applied only to deeds by
way of grant, or15 as otherwise stated, instruments for the
conveyance of land, under modern theories of law, the term escrow
is not limited in its application to deeds, but is applied to
16
the deposit
of any written instrument with a third person. Particular
instruments which have been held to be the subject of an escrow
include bonds or covenants, deeds, mortgages, oil and gas leases,
contracts for the sale of land or for the purchase of personal
property, corporate stocks and stock subscriptions, promissory notes
or other commercial paper, insurance applications and policies,
contracts for the settlement of will-contest cases, indentures of
apprenticeship, receipts assigning 17
concessions and discontinuances
and releases of causes of action. Moreover, it is 18
no longer open to
question that money may be delivered in escrow.
In our jurisdiction, an escrow order issued by a court of law may
find ample basis and support in the court’s intrinsic power to issue
orders and other ancillary writs and processes incidental or
reasonably necessary to the exercise of its main jurisdiction.
Evidently, judicial power connotes certain incidental and inherent
attributes
19
reasonably necessary for an effective administration of
justice.
In a manner of speaking, courts have not only the power to
maintain their life, but they have also the power to make that
existence effective for the purpose for which the judiciary was
created. They can, by appropriate means, do all things necessary to
preserve and maintain every quality needful to make the judiciary an
effective institution of Government. Courts have therefore in-
_______________
14 Jordan vs. Jordan, 78 Tenn (10 Lea) 124.

15 Vaughan vs. Vaughan, 161 Ky 401, 170 SW 981; Moore Mill & Lumber Co. vs.
Curry County Bank, 200 Or 558, 267 P2d 202.
16 Gulf Petroleum, S.A. vs. Collazo (CA 1 Puerto Rico) 316 F2d 257; Vaughan vs.
Vaughan, 161 Ky 401, 170 SW 981; Ganser vs. Zimmerman (ND) 80 NW2d 828.
17 Am Jur 2d, pp. 5-6.
18 American Service Co. vs. Henderson (CA4 NC) 120 F2d 525, 135 ALR 1414.
19 People vs. Gutierrez, 36 SCRA 172 [1970].
628

herent power to preserve their integrity, maintain their

20
dignity and to
insure effectiveness in the administration of justice.
To lend flesh and blood to this legal aphorism, Rule 135 of the
Rules of Court explicitly provides:
“Section 5. Inherent powers of courts—Every court shall have power:

“x x x (g) To amend and control its process and orders so as to make
them conformable to law and justice.
“Section 6. Means to carry jurisdiction into effect—When by law
jurisdiction is conferred on a court or judicial officer, all auxiliary writs,
processes and other means necessary to carry it into effect may be employed
by such court or officer, and if the procedure to be followed in the exercise
of such jurisdiction is not specifically pointed out by law or by these rules,
any suitable process or mode of proceeding may be adopted which appears
conformable to the spirit of said law or rules.” (Emphasis ours)
It is beyond dispute that the lower court exercised jurisdiction over

the main action docketed as Civil Case No. 210-ML, which involved
the annulment of sale and reconveyance of the subject properties.
Under this circumstance, we are of the firm view that the trial court,
in issuing the assailed escrow orders, acted well within its province
and sphere of power inasmuch as the subject orders were adopted in
accordance with the Rules and jurisprudence and were merely
incidental to the court’s exercise of jurisdiction over the main case,
thus:
“x x x Jurisdiction attaching, the court’s powers as a necessary incident to

their general jurisdiction, to make such orders in relation to the cases
pending before them are as necessary to the progress of the cases and the
dispatch of business follow. Deming v. Foster, 42 N.H. 165, 178 cited in
Burleigh v. Wong Sung De Leon 139 A. 184,83 N.H. 115.
“x x x x x x x x x
“x x x A court is vested, not only with the powers expressly granted by
the statute, but also with all such powers as are incidentally necessary to the
effective exercise of the powers expressly conferred (In re McLure’s Estate,
68 Mont. 556, 220 P. 527) and to render its orders, made under
______________
20 Borromeo vs. Mariano, 41 Phil. 322, 332.
629
VOL. 367, OCTOBER 19, 2001 629

such express powers effective. Brown v. Clark, 102 Tex. 323, 116 S.W. 360,
24 L.R.A. (N.S.) 670 cited in State v. District Court, 272 P. 525.
“In the absence of prohibitive legislation, courts have inherent power to
provide themselves with appropriate procedures required for the
performance of their tasks. Ex parte Peterson, 253 U.S. 300, 312, 313, 40 S.
Ct. 543, 64 L. Ed. 919; Funk v. U.S., 290 U.S. 371, 381-384, 54 A. Ct. 212,
78 L.Ed. 369, 93 A.L.R. 1136 cited in Ex parte U.S. C.C.A. Wis., 101 F 2d
870.
“A court has inherent power to make such interlocutory orders as may be
necessary to protect its jurisdiction, and to make certain that its eventual
decree may not be ineffective. (Boynton v. Moffat Tunnel Improvement Dist.
C.C.A. Colo, 57 F, 2d 772.
“In the ordinary case the courts can proceed to the enforcement of the
plaintiff’s rights only after a trial had in the manner prescribed by the laws
of the land, which involves due notice, the right of the trial by jury, etc.
Preliminary to such an adjucation, the power of the court is generally to
preserve the subject matter of the litigation to maintain the status, or issue
some extraordinary writs provided by law, such as attachments, etc. None of
these powers, however, are exercised on the theory that the court should, in
advance of the final adjudication determine the rights of the parties in any
summary way and put either of them in the enjoyment thereof; but such
actions taken merely, as means for securing an effective adjudication and
enforcement of rights of the parties 21after such adjudication. Colby c.
Osgood Tex. Civ. App., 230 S.W. 459;)” (emphasis ours)
On this score, the incisive disquisition of the Court of Appeals is

worthy of mention, to wit:
“x x x Given the jurisdiction of the trial court to pass upon the raised
question of ownership and possession of the disputed property, there then
can hardly be any doubt as to the competence of the same court, as an
adjunct of its main jurisdiction, to require the deposit in escrow of the
rentals thereof pending final resolution of such question. To paraphrase the
teaching in Manila Herald Publishing Co., Inc. vs. Ramos (G.R. No. L-
4268, January 18, 1951, cited in Francisco, Revised Rules of Court, Vol. 1,
2 ed., p. 133), jurisdiction over an action carries with it jurisdiction over an
______________
21 Republic vs. Sandiganbayan, 186 SCRA 864 [1990].
630

interlocutory matter incidental to the cause and deemed essential to preserve

the subject matter of the suit or to protect the parties’ interest. x x x
“x x x the impugned orders appear to us as a fair response to the
exigencies and equities of the situation. Parenthetically, it is not disputed
that even before the institution of the main case below, the Province of
Bataan has been utilizing the rental payments on the Baseco Property to
meet its financial requirements. To us, this circumstance adds a more
compelling dimension for the issuance of the assailed orders. x x x”
Applying the foregoing principles and considering the peculiarities

of the instant case, the lower court, in the course of adjudicating and
resolving the issues presented in the main suit, is clearly empowered
to control the proceedings therein through the adoption, formulation
and issuance of orders and other ancillary writs, including the
authority to place the properties in custodia legis, for the purpose of
effectuating its judgment or decree and protecting further the
interests of the rightful claimants of the subject property.
To trace its source, the court’s authority proceeds from its
jurisdiction and power to decide, adjudicate and resolve the issues
raised in the principal suit. Stated differently, the deposit of the
rentals in escrow with the bank, in the name22of the lower court, “is
only an incident in the main proceeding.” To be sure, placing
property in litigation under judicial possession, whether in the hands
of a receiver,
23
an administrator, or as in this24 case, in a government
bank, is an ancient and accepted procedure. Consequently, we find
no cogency to disturb the questioned orders of the lower court and in
effect uphold the propriety of the subject escrow orders.(emphasis
ours)
IN VIEW WHEREOF, the instant petition is hereby DENIED for
lack of merit. ACCORDINGLY, the assailed decision of the Court of
Appeals is hereby AFFIRMED.
_______________
22 Ibid.
23 Land Bank of the Philippines, Balanga Branch.
24 Republic vs. Sandiganbayan, 186 SCRA 864, 872 (1990) citing Gustilo, et al.
vs. Math, et al., 11 Phil. 611, 615 [1908], per Chief Justice Cayetano Arellano.
631
VOL. 367, OCTOBER 19, 2001 631

Gener vs. De Leon
SO ORDERED.
Bellosillo, Mendoza, Quisumbing and De Leon, Jr., JJ.,

concur.
Petition denied; judgment affirmed.
Notes.—A receiver is a representative of the court appointing

him for the purpose of preserving and conserving the property under
receivership and preventing its possible destruction or dissipation.

(Salientes vs. Intermediate Appellate Court, 246 SCRA 150 [1995])
It is the legal duty of the Republic to return to the buyer of the
aircraft improperly sold the proceeds deposited in escrow, otherwise
the former would enrich itself unjustly. (Republic vs.
Sandiganbayan, 354 SCRA 756 [2001])
——o0o——
Petition denied, judgment and resolution reversed and set aside.
Note.—The constitutional limitation of “just compensation” is

considered to be the sum equivalent to the market value of the
property, broadly described to be the price fixed by the seller in open
market in the usual and ordinary course of legal action and
competition or the fair value of the property as between one who
receives, and one who desires to sell it, fixed at the time of the actual
taking by the government. (National Power Corporation vs. San
Pedro, 503 SCRA 333 [2006])
——o0o——
G.R. No. 173227. January 20, 2009.*
SEBASTIAN SIGA-AN, petitioner, vs. ALICIA VILLANUEVA,

respondent.
Obligations and Contracts; Interests; Words and Phrases; Interest is a

compensation fixed by the parties for the use or forbearance of money, and
this is referred to as monetary interest; Interest may also be imposed by law
or by courts as penalty or indemnity for damages, and this is called
compensatory interest; Article 1956 of the Civil Code refers to monetary
interest; Monetary interest shall be due only if it has been expressly
stipulated in writing.—Interest is a compensation fixed by the parties for the
use or forbearance of money. This is referred to as monetary interest.
Interest may also be imposed by law or by courts as penalty or indemnity
for damages. This is called compensatory interest. The right to interest
arises only by virtue of a contract or by virtue of damages for delay or
failure to pay the principal loan on which interest is demanded. Article 1956
of the Civil Code, which refers to monetary interest, specifically mandates
that no interest shall be due unless it has been expressly stipulated in
writing. As can be gleaned from the foregoing provision, payment of
monetary interest is allowed only if: (1) there was an express stipulation for
the payment of interest; and (2) the agreement for the payment of interest
was reduced in writing. The concurrence of the two conditions is required
for the payment of monetary interest. Thus, we have held
_______________
* THIRD DIVISION.
697
that collection of interest without any stipulation therefor in writing is

prohibited by law.
Same; Same; The interest under Arts. 2209 and 2212 of the Civil Code
may be imposed only as a penalty or damages for breach of contractual
obligations—it cannot be charged as a compensation for the use or
forbearance of money.—There are instances in which an interest may be
imposed even in the absence of express stipulation, verbal or written,
regarding payment of interest. Article 2209 of the Civil Code states that if
the obligation consists in the payment of a sum of money, and the debtor
incurs delay, a legal interest of 12% per annum may be imposed as
indemnity for damages if no stipulation on the payment of interest was
agreed upon. Likewise, Article 2212 of the Civil Code provides that interest
due shall earn legal interest from the time it is judicially demanded,
although the obligation may be silent on this point. All the same, the interest
under these two instances may be imposed only as a penalty or damages for
breach of contractual obligations. It cannot be charged as a compensation
for the use or forbearance of money. In other words, the two instances apply
only to compensatory interest and not to monetary interest. The case at bar
involves petitioner’s claim for monetary interest.
Same; Same; Solutio Indebiti; The principle of solutio indebiti applies
in case of erroneous payment of undue interest.—Under Article 1960 of the
Civil Code, if the borrower of loan pays interest when there has been no
stipulation therefor, the provisions of the Civil Code concerning solutio
indebiti shall be applied. Article 2154 of the Civil Code explains the
principle of solutio indebiti. Said provision provides that if something is
received when there is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises. In such a case, a creditor-
debtor relationship is created under a quasi-contract whereby the payor
becomes the creditor who then has the right to demand the return of
payment made by mistake, and the person who has no right to receive such
payment becomes obligated to return the same. The quasi-contract of solutio
indebiti harks back to the ancient principle that no one shall enrich himself
unjustly at the expense of another. The principle of solutio indebiti applies
where (1) a payment is made when there exists no binding relation between
the payor, who has no duty to pay, and the person who received the
payment; and (2) the payment is made through mistake, and not through
liberality or some other cause. We have held that the principle of solutio
indebiti applies in case of erroneous payment of undue interest.
698
Damages; Article 2216 of the Civil Code instructs that assessment of

damages is left to the discretion of the court according to the circumstances
of each case, which discretion is limited by the principle that the amount
awarded should not be palpably excessive as to indicate that it was the

result of prejudice or corruption on the part of the trial court.—Article 2217
of the Civil Code provides that moral damages may be recovered if the party
underwent physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation
and similar injury. Respondent testified that she experienced sleepless nights
and wounded feelings when petitioner refused to return the amount paid as
interest despite her repeated demands. Hence, the award of moral damages
is justified. However, its corresponding amount of P300,000.00, as fixed by
the RTC and the Court of Appeals, is exorbitant and should be equitably
reduced. Article 2216 of the Civil Code instructs that assessment of
damages is left to the discretion of the court according to the circumstances
of each case. This discretion is limited by the principle that the amount
awarded should not be palpably excessive as to indicate that it was the result
of prejudice or corruption on the part of the trial court. To our mind, the
amount of P150,000.00 as moral damages is fair, reasonable, and
proportionate to the injury suffered by respondent.
Same; In a quasi-contract, such as solutio indebiti, exemplary damages
may be imposed if the defendant acted in an oppressive manner, such as
when the creditor defendant acted oppressively by pestering debtor to pay
interest and threatening to block the latter’s transactions with a government
office if she would not pay interest.—Article 2232 of the Civil Code states
that in a quasi-contract, such as solutio indebiti, exemplary damages may be
imposed if the defendant acted in an oppressive manner. Petitioner acted
oppressively when he pestered respondent to pay interest and threatened to
block her transactions with the PNO if she would not pay interest. This
forced respondent to pay interest despite lack of agreement thereto. Thus,
the award of exemplary damages is appropriate. The amount of P50,000.00
imposed as exemplary damages by the RTC and the Court is fitting so as to
deter petitioner and other lenders from committing similar and other serious
wrongdoings.
Same; Attorney’s Fees; In awarding attorney’s fees, the trial court must
state the factual, legal or equitable justification for awarding the same.—
Jurisprudence instructs that in awarding attorney’s fees, the trial court must
state the factual, legal or equitable justification for awarding the same. In
the case under consideration, the RTC stated in its Decision that the award
of attorney’s fees equivalent to 25% of the amount paid as interest by
respon-
699
dent to petitioner is reasonable and moderate considering the extent of work

rendered by respondent’s lawyer in the instant case and the fact that it
dragged on for several years. Further, respondent testified that she agreed to
compensate her lawyer handling the instant case such amount. The award,
therefore, of attorney’s fees and its amount equivalent to 25% of the amount
paid as interest by respondent to petitioner is proper.
Interests; Where the obligation arose from a quasi-contract of solutio

indebiti and not from a loan or forbearance of money, the interest of 6% per
annum should be imposed on the amount to be refunded as well as on the
damages awarded and on the attorney’s fees, to be computed from the time
of the extrajudicial demand up to the finality of the Decision.—In Eastern
Shipping Lines, Inc. v. Court of Appeals, 234 SCRA 78 (1994), that when an
obligation, not constituting a loan or forbearance of money is breached, an
interest on the amount of damages awarded may be imposed at the rate of
6% per annum. We further declared that when the judgment of the court
awarding a sum of money becomes final and executory, the rate of legal
interest, whether it is a loan/forbearance of money or not, shall be 12% per
annum from such finality until its satisfaction, this interim period being
deemed equivalent to a forbearance of credit. In the present case,
petitioner’s obligation arose from a quasi-contract of solutio indebiti and not
from a loan or forbearance of money. Thus, an interest of 6% per annum
should be imposed on the amount to be refunded as well as on the damages
awarded and on the attorney’s fees, to be computed from the time of the
extrajudicial demand on 3 March 1998, up to the finality of this Decision. In
addition, the interest shall become 12% per annum from the finality of this
Decision up to its satisfaction.
PETITION for review on certiorari of the decision and resolution of

the Court of Appeals.
Voltaire Francisco B. Banzon for petitioner.
Jorge Roito N. Hirang, Jr. for respondent.
CHICO-NAZARIO, J.:
Before Us is a Petition1 for Review on Certiorari under Rule 45
of
_______________
1 Rollo, pp. 9-23.
700
the Rules of Court seeking to set aside the Decision,2 dated 16

December 2005, and Resolution,3 dated 19 June 2006 of the Court
of Appeals in CA-G.R. CV No. 71814, which affirmed in toto the
Decision,4 dated 26 January 2001, of the Las Piñas City Regional
Trial Court, Branch 255, in Civil Case No. LP-98-0068.
The facts gathered from the records are as follows:
On 30 March 1998, respondent Alicia Villanueva filed a
complaint5 for sum of money against petitioner Sebastian Siga-an
before the Las Piñas City Regional Trial Court (RTC), Branch 255,
docketed as Civil Case No. LP-98-0068. Respondent alleged that
she was a businesswoman engaged in supplying office materials and
equipments to the Philippine Navy Office (PNO) located at Fort

Bonifacio, Taguig City, while petitioner was a military officer and
comptroller of the PNO from 1991 to 1996.
Respondent claimed that sometime in 1992, petitioner
approached her inside the PNO and offered to loan her the amount
of P540,000.00. Since she needed capital for her business
transactions with the PNO, she accepted petitioner’s proposal. The
loan agreement was not reduced in writing. Also, there was no
stipulation as to the payment of interest for the loan.6
On 31 August 1993, respondent issued a check worth P500,000.00
to petitioner as partial payment of the loan. On 31 October 1993, she
issued another check in the amount of P200,000.00 to petitioner as
payment of the remaining balance of the loan. Petitioner told her that
since she paid a total amount of P700,000.00 for the P540,000.00
worth of loan, the excess amount of P160,000.00 would be applied
as interest for the loan. Not satisfied with the amount applied as
interest, petitioner pestered her to pay additional interest. Petitioner
_______________
2 Penned by Associate Justice Josefina Guevara-Salonga with Associate Justices

Eliezer R. de Los Santos and Fernanda Lampas-Peralta, concurring; Rollo, pp. 24-32.
3 Rollo, pp. 34-35.
4 Penned by Judge Florentino M. Alumbres; Records, pp. 510-516.
5 Records, pp. 1-5.
6 Id., at p. 2.
701
threatened to block or disapprove her transactions with the PNO if

she would not comply with his demand. As all her transactions with
the PNO were subject to the approval of petitioner as comptroller of
the PNO, and fearing that petitioner might block or unduly influence
the payment of her vouchers in the PNO, she conceded. Thus, she
paid additional amounts in cash and checks as interests for the loan.
She asked petitioner for receipt for the payments but petitioner told
her that it was not necessary as there was mutual trust and
confidence between them. According to her computation, the total
amount she paid to petitioner for the loan and interest accumulated
to P1,200,000.00.7
Thereafter, respondent consulted a lawyer regarding the propriety
of paying interest on the loan despite absence of agreement to that
effect. Her lawyer told her that petitioner could not validly collect
interest on the loan because there was no agreement between her and
petitioner regarding payment of interest. Since she paid petitioner a
total amount of P1,200,000.00 for the P540,000.00 worth of loan,
and upon being advised by her lawyer that she made overpayment to
petitioner, she sent a demand letter to petitioner asking for the return
of the excess amount of P660,000.00. Petitioner, despite receipt of

the demand letter, ignored her claim for reimbursement.8
Respondent prayed that the RTC render judgment ordering
petitioner to pay respondent (1) P660,000.00 plus legal interest from
the time of demand; (2) P300,000.00 as moral damages; (3)
P50,000.00 as exemplary damages; and (4) an amount equivalent to
25% of P660,000.00 as attorney’s fees.9
In his answer10 to the complaint, petitioner denied that he offered a
loan to respondent. He averred that in 1992, respondent approached
and asked him if he could grant her a loan, as she needed money to
finance her business venture with the PNO. At first, he was reluctant
to deal with respondent, because the latter had a spotty record as a
_______________
7 Id., at pp. 2-3.

8 Id., at pp. 3-4.
9 Id., at pp. 4-5.
10 Id., at pp. 150-160.
702
supplier of the PNO. However, since respondent was an

acquaintance of his officemate, he agreed to grant her a loan.
Respondent paid the loan in full.11
Subsequently, respondent again asked him to give her a loan. As
respondent had been able to pay the previous loan in full, he agreed
to grant her another loan. Later, respondent requested him to
restructure the payment of the loan because she could not give full
payment on the due date. He acceded to her request. Thereafter,
respondent pleaded for another restructuring of the payment of the
loan. This time he rejected her plea. Thus, respondent proposed to
execute a promissory note wherein she would acknowledge her
obligation to him, inclusive of interest, and that she would issue
several postdated checks to guarantee the payment of her obligation.
Upon his approval of respondent’s request for restructuring of the
loan, respondent executed a promissory note dated 12 September
1994 wherein she admitted having borrowed an amount of
P1,240,000.00, inclusive of interest, from petitioner and that she
would pay said amount in March 1995. Respondent also issued to
him six postdated checks amounting to P1,240,000.00 as guarantee
of compliance with her obligation. Subsequently, he presented the
six checks for encashment but only one check was honored. He
demanded that respondent settle her obligation, but the latter failed
to do so. Hence, he filed criminal cases for Violation of the
Bouncing Checks Law (Batas Pambansa Blg. 22) against
respondent. The cases were assigned to the Metropolitan Trial Court
of Makati City, Branch 65 (MeTC).12
Petitioner insisted that there was no overpayment because

respondent admitted in the latter’s promissory note that her
monetary obligation as of 12 September 1994 amounted to
P1,240,000.00 inclusive of interests. He argued that respondent was
already estopped from complaining that she should not have paid
any interest, because she was given several times to settle her
obligation but failed to do so. He maintained that to rule in favor of
respondent is tantamount to con-
_______________
11 Id., at pp. 3-4.

12 Id., at pp. 4-5.
703
cluding that the loan was given interest-free. Based on the foregoing
averments, he asked the RTC to dismiss respondent’s complaint.
After trial, the RTC rendered a Decision on 26 January 2001
holding that respondent made an overpayment of her loan obligation
to petitioner and that the latter should refund the excess amount to
the former. It ratiocinated that respondent’s obligation was only to
pay the loaned amount of P540,000.00, and that the alleged interests
due should not be included in the computation of respondent’s total
monetary debt because there was no agreement between them
regarding payment of interest. It concluded that since respondent
made an excess payment to petitioner in the amount of P660,000.00
through mistake, petitioner should return the said amount to
respondent pursuant to the principle of solutio indebiti.13
The RTC also ruled that petitioner should pay moral damages for
the sleepless nights and wounded feelings experienced by
respondent. Further, petitioner should pay exemplary damages by
way of example or correction for the public good, plus attorney’s
fees and costs of suit.
The dispositive portion of the RTC Decision reads:
“WHEREFORE, in view of the foregoing evidence and in the light of the

provisions of law and jurisprudence on the matter, judgment is hereby
rendered in favor of the plaintiff and against the defendant as follows:
(1) Ordering defendant to pay plaintiff the amount of P660,000.00 plus
legal interest of 12% per annum computed from 3 March 1998 until the
amount is paid in full;
(2) Ordering defendant to pay plaintiff the amount of P300,000.00 as
moral damages;
(3) Ordering defendant to pay plaintiff the amount of P50,000.00 as
exemplary damages;
(4) Ordering defendant to pay plaintiff the amount equivalent to 25%
of P660,000.00 as attorney’s fees; and
(5) Ordering defendant to pay the costs of suit.”14
_______________
13 Id., at pp. 514-515.

14 Id., at pp. 515-516.
704
Petitioner appealed to the Court of Appeals. On 16 December 2005,

the appellate court promulgated its Decision affirming in toto the
RTC Decision, thus:
“WHEREFORE, the foregoing considered, the instant appeal is hereby

DENIED and the assailed decision [is] AFFIRMED in toto.”15
Petitioner filed a motion for reconsideration of the appellate

court’s decision but this was denied.16 Hence, petitioner lodged the
instant petition before us assigning the following errors:
I.
THE RTC AND THE COURT OF APPEALS ERRED IN RULING THAT
NO INTEREST WAS DUE TO PETITIONER;
II.
THE RTC AND THE COURT OF APPEALS ERRED IN APPLYING THE
PRINCIPLE OF SOLUTIO INDEBITI.17
Interest is a compensation fixed by the parties for the use or

forbearance of money. This is referred to as monetary interest.
Interest may also be imposed by law or by courts as penalty or
indemnity for damages. This is called compensatory interest.18 The
right to interest arises only by virtue of a contract or by virtue of
damages for delay or failure to pay the principal loan on which
interest is demanded.19
Article 1956 of the Civil Code, which refers to monetary interest,20
specifically mandates that no interest shall be due unless it has been
expressly stipulated in writing. As can be gleaned from the
foregoing provision, payment of monetary interest is allowed only
if: (1) there was an express stipulation for the payment of interest;
and (2) the
_______________
15 Rollo, p. 32.
16 Id., at pp. 34-35.
17 Id., at p. 16.
18 Paras, Civil Code of the Philippines Annotated (13th Edition, 1995, Volume V),
p. 854; Caguioa, Comments and Cases on Civil Law (1st Edition, Volume VI), p. 260.
19 Baretto v. Santa Marina, 37 Phil. 568, 571 (1918).
20 Supra note 18.
705
agreement for the payment of interest was reduced in writing. The

concurrence of the two conditions is required for the payment of
monetary interest. Thus, we have held that collection of interest
without any stipulation therefor in writing is prohibited by law.21
It appears that petitioner and respondent did not agree on the
payment of interest for the loan. Neither was there convincing proof
of written agreement between the two regarding the payment of
interest. Respondent testified that although she accepted petitioner’s
offer of loan amounting to P540,000.00, there was, nonetheless, no
verbal or written agreement for her to pay interest on the loan.22
Petitioner presented a handwritten promissory note dated 12
September 199423 wherein respondent purportedly admitted owing
petitioner “capital and interest.” Respondent, however, explained
that it was petitioner who made a promissory note and she was told
to copy it in her own handwriting; that all her transactions with the
PNO were subject to the approval of petitioner as comptroller of the
PNO; that petitioner threatened to disapprove her transactions with
the PNO if she would not pay interest; that being unaware of the law
on interest and fearing that petitioner would make good of his
threats if she would not obey his instruction to copy the promissory
note, she copied the promissory note in her own handwriting; and
that such was the same promissory note presented by petitioner as
alleged proof of their written agreement on interest.24 Petitioner did
not rebut the foregoing testimony. It is evident that respondent did
not really consent to the payment of interest for the loan and that she
was merely tricked and coerced by petitioner to pay interest. Hence,
it cannot be gainfully said that such promissory note pertains to an
express stipulation of interest or written agreement of interest on the
loan between petitioner and respondent.
_______________
21 Ching v. Nicdao, G.R. No. 141181, 27 April 2007, 522 SCRA 316, 361; Tan v.
Valdehueza, 160 Phil. 760, 767; 66 SCRA 61, 66 (1975).
22 TSN, 18 April 2000, pp. 7-8.
23 Records, p. 321.
24 Rollo, pp. 70-71; TSN, 18 April 2000, pp. 17-18.
706
Petitioner, nevertheless, claims that both the RTC and the Court
of Appeals found that he and respondent agreed on the payment of
7% rate of interest on the loan; that the agreed 7% rate of interest
was duly admitted by respondent in her testimony in the Batas
Pambansa Blg. 22 cases he filed against respondent; that despite
such judicial admission by respondent, the RTC and the Court of
Appeals, citing Article 1956 of the Civil Code, still held that no
interest was due him since the agreement on interest was not
reduced in writing; that the application of Article 1956 of the Civil

Code should not be absolute, and an exception to the application of
such provision should be made when the borrower admits that a
specific rate of interest was agreed upon as in the present case; and
that it would be unfair to allow respondent to pay only the loan
when the latter very well knew and even admitted in the Batas
Pambansa Blg. 22 cases that there was an agreed 7% rate of interest
on the loan.25
We have carefully examined the RTC Decision and found that the
RTC did not make a ruling therein that petitioner and respondent
agreed on the payment of interest at the rate of 7% for the loan. The
RTC clearly stated that although petitioner and respondent entered
into a valid oral contract of loan amounting to P540,000.00, they,
nonetheless, never intended the payment of interest thereon.26 While
the Court of Appeals mentioned in its Decision that it concurred in
the RTC’s ruling that petitioner and respondent agreed on a certain
rate of interest as regards the loan, we consider this as merely an
inadvertence because, as earlier elucidated, both the RTC and the
Court of Appeals ruled that petitioner is not entitled to the payment
of interest on the loan. The rule is that factual findings of the trial
court deserve great weight and respect especially when affirmed by
the appellate court.27 We found no compelling reason to disturb the
ruling of both courts.
Petitioner’s reliance on respondent’s alleged admission in the Batas
Pambansa Blg. 22 cases that they had agreed on the payment of
_______________
25 Id., at pp. 17-18.

26 Records, p. 514.
27 Pantranco North Express, Inc. v. Standard Insurance Company, Inc., G.R. No.
140746, 16 March 2005, 453 SCRA 482, 490.
707
interest at the rate of 7% deserves scant consideration. In the said

case, respondent merely testified that after paying the total amount
of loan, petitioner ordered her to pay interest.28 Respondent did not
categorically declare in the same case that she and respondent made
an express stipulation in writing as regards payment of interest at the
rate of 7%. As earlier discussed, monetary interest is due only if
there was an express stipulation in writing for the payment of
interest.
There are instances in which an interest may be imposed even in
the absence of express stipulation, verbal or written, regarding
payment of interest. Article 2209 of the Civil Code states that if the
obligation consists in the payment of a sum of money, and the debtor
incurs delay, a legal interest of 12% per annum may be imposed as
indemnity for damages if no stipulation on the payment of interest

was agreed upon. Likewise, Article 2212 of the Civil Code provides
that interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent on this point.
All the same, the interest under these two instances may be
imposed only as a penalty or damages for breach of contractual
obligations. It cannot be charged as a compensation for the use or
forbearance of money. In other words, the two instances apply only
to compensatory interest and not to monetary interest.29 The case at
bar involves petitioner’s claim for monetary interest.
Further, said compensatory interest is not chargeable in the
instant case because it was not duly proven that respondent defaulted
in paying the loan. Also, as earlier found, no interest was due on the
loan because there was no written agreement as regards payment of
interest.
Apropos the second assigned error, petitioner argues that the
principle of solutio indebiti does not apply to the instant case. Thus,
he cannot be compelled to return the alleged excess amount paid by
respondent as interest.30
_______________
28 CA Rollo, p. 88.
29 Supra note 18 at pp. 856-857.
30 Rollo, pp. 18-20.
708
Under Article 1960 of the Civil Code, if the borrower of loan

pays interest when there has been no stipulation therefor, the
provisions of the Civil Code concerning solutio indebiti shall be
applied. Article 2154 of the Civil Code explains the principle of
solutio indebiti. Said provision provides that if something is received
when there is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises. In such a case, a
creditor-debtor relationship is created under a quasi-contract
whereby the payor becomes the creditor who then has the right to
demand the return of payment made by mistake, and the person who
has no right to receive such payment becomes obligated to return the
same. The quasi-contract of solutio indebiti harks back to the ancient
principle that no one shall enrich himself unjustly at the expense of
another.31 The principle of solutio indebiti applies where (1) a
payment is made when there exists no binding relation between the
payor, who has no duty to pay, and the person who received the
payment; and (2) the payment is made through mistake, and not
through liberality or some other cause.32 We have held that the
principle of solutio indebiti applies in case of erroneous payment of
undue interest.33
It was duly established that respondent paid interest to petitioner.

Respondent was under no duty to make such payment because there
was no express stipulation in writing to that effect. There was no
binding relation between petitioner and respondent as regards the
payment of interest. The payment was clearly a mistake. Since
petitioner received something when there was no right to demand it,
he has an obligation to return it.
We shall now determine the propriety of the monetary award and
damages imposed by the RTC and the Court of Appeals.
Records show that respondent received a loan amounting to
P540,000.00 from petitioner.34 Respondent issued two checks with a
_______________
31 Moreño-Lentfer v. Wolff, G.R. No. 152317, 10 November 2004, 441 SCRA

584, 591.
32 Id.
33 Velez v. Balzarza, 73 Phil. 630, 632 (1942).
34 TSN, 18 April 2000, p. 7.
709
total worth of P700,000.00 in favor of petitioner as payment of the

loan.35 These checks were subsequently encashed by petitioner.36
Obviously, there was an excess of P160,000.00 in the payment for
the loan. Petitioner claims that the excess of P160,000.00 serves as
interest on the loan to which he was entitled. Aside from issuing the
said two checks, respondent also paid cash in the total amount of
P175,000.00 to petitioner as interest.37 Although no receipts
reflecting the same were presented because petitioner refused to
issue such to respondent, petitioner, nonetheless, admitted in his
Reply-Affidavit38 in the Batas Pambansa Blg. 22 cases that
respondent paid him a total amount of P175,000.00 cash in addition
to the two checks. Section 26 Rule 130 of the Rules of Evidence
provides that the declaration of a party as to a relevant fact may be
given in evidence against him. Aside from the amounts of
P160,000.00 and P175,000.00 paid as interest, no other proof of
additional payment as interest was presented by respondent. Since
we have previously found that petitioner is not entitled to payment
of interest and that the principle of solutio indebiti applies to the
instant case, petitioner should return to respondent the excess
amount of P160,000.00 and P175,000.00 or the total amount of
P335,000.00. Accordingly, the reimbursable amount to respondent
fixed by the RTC and the Court of Appeals should be reduced from
P660,000.00 to P335,000.00.
As earlier stated, petitioner filed five (5) criminal cases for violation
of Batas Pambansa Blg. 22 against respondent. In the said cases, the
MeTC found respondent guilty of violating Batas Pambansa Blg. 22
for issuing five dishonored checks to petitioner. Nonetheless,

respondent’s conviction therein does not affect our ruling in the
instant case. The two checks, subject matter of this case, totaling
P700,000.00 which respondent claimed as payment of the
P540,000.00 worth of loan, were not among the five checks found to
be dishonored or bounced in the five criminal cases. Further, the
MeTC found that
_______________
35 Exhibits “A” & “B”; Records, pp. 367, 371 and 372.
36 CA Rollo, pp. 58-63.
37 TSN, 18 April 2000, p. 23.
38 CA Rollo, pp. 94-96.
710
respondent made an overpayment of the loan by reason of the

interest which the latter paid to petitioner.39
Article 2217 of the Civil Code provides that moral damages may
be recovered if the party underwent physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation and similar injury.
Respondent testified that she experienced sleepless nights and
wounded feelings when petitioner refused to return the amount paid
as interest despite her repeated demands. Hence, the award of moral
damages is justified. However, its corresponding amount of
P300,000.00, as fixed by the RTC and the Court of Appeals, is
exorbitant and should be equitably reduced. Article 2216 of the Civil
Code instructs that assessment of damages is left to the discretion of
the court according to the circumstances of each case. This
discretion is limited by the principle that the amount awarded should
not be palpably excessive as to indicate that it was the result of
prejudice or corruption on the part of the trial court.40 To our mind,
the amount of P150,000.00 as moral damages is fair, reasonable, and
proportionate to the injury suffered by respondent.
Article 2232 of the Civil Code states that in a quasi-contract,
such as solutio indebiti, exemplary damages may be imposed if the
defendant acted in an oppressive manner. Petitioner acted
oppressively when he pestered respondent to pay interest and
threatened to block her transactions with the PNO if she would not
pay interest. This forced respondent to pay interest despite lack of
agreement thereto. Thus, the award of exemplary damages is
appropriate. The amount of P50,000.00 imposed as exemplary
damages by the RTC and the Court is fitting so as to deter petitioner
and other lenders from committing similar and other serious
wrongdoings.41
Jurisprudence instructs that in awarding attorney’s fees, the trial

court must state the factual, legal or equitable justification for
award-
_______________
39 Records, pp. 510-516.

40 Philippine Airlines, Incorporated v. Court of Appeals, G.R. No. 123238, 22
September 2008, 566 SCRA 124, 138.
41 Id.
711
ing the same.42 In the case under consideration, the RTC stated in its
Decision that the award of attorney’s fees equivalent to 25% of the
amount paid as interest by respondent to petitioner is reasonable and
moderate considering the extent of work rendered by respondent’s
lawyer in the instant case and the fact that it dragged on for several
years.43 Further, respondent testified that she agreed to compensate
her lawyer handling the instant case such amount.44 The award,
therefore, of attorney’s fees and its amount equivalent to 25% of the
amount paid as interest by respondent to petitioner is proper.
Finally, the RTC and the Court of Appeals imposed a 12% rate of
legal interest on the amount refundable to respondent computed
from 3 March 1998 until its full payment. This is erroneous.
We held in Eastern Shipping Lines, Inc. v. Court of Appeals,45
that when an obligation, not constituting a loan or forbearance of
money is breached, an interest on the amount of damages awarded
may be imposed at the rate of 6% per annum. We further declared
that when the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether it is a
loan/for-bearance of money or not, shall be 12% per annum from
such finality until its satisfaction, this interim period being deemed
equivalent to a forbearance of credit.
In the present case, petitioner’s obligation arose from a quasi-
contract of solutio indebiti and not from a loan or forbearance of
money. Thus, an interest of 6% per annum should be imposed on the
amount to be refunded as well as on the damages awarded and on
the attorney’s fees, to be computed from the time of the extrajudicial
demand on 3 March 1998,46 up to the finality of this Decision. In
addi-
_______________
42 Serrano v. Gutierrez, G.R. No. 162366, 10 November 2006, 506 SCRA 712,
724; Buñing v. Santos, G.R. No. 152544, 19 September 2006, 502 SCRA 315, 321-
323; Ballesteros v. Abion, G.R. No. 143361, 9 February 2006, 482 SCRA 23, 39-40.
43 Records, p. 515.
44 TSN, 18 April 2000, pp. 35-36.
45 G.R. No. 97412, 12 July 1994, 234 SCRA 78, 95-97.

46 Records, p. 7.
712
tion, the interest shall become 12% per annum from the finality of
this Decision up to its satisfaction.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R.
CV No. 71814, dated 16 December 2005, is hereby AFFIRMED
with the following MODIFICATIONS: (1) the amount of
P660,000.00 as refundable amount of interest is reduced to THREE
HUNDRED THIRTY FIVE THOUSAND PESOS (P335,000.00);
(2) the amount of P300,000.00 imposed as moral damages is
reduced to ONE HUNDRED FIFTY THOUSAND PESOS
(P150,000.00); (3) an interest of 6% per annum is imposed on the
P335,000.00, on the damages awarded and on the attorney’s fees to
be computed from the time of the extrajudicial demand on 3 March
1998 up to the finality of this Decision; and (4) an interest of 12%
per annum is also imposed from the finality of this Decision up to its
satisfaction. Costs against petitioner.
SO ORDERED.
Ynares-Santiago (Chairperson), Austria-Martinez, Nachura

and Leonardo-De Castro,** JJ., concur.
Judgment affirmed with modifications.
Note.—Increases of interest rate unilaterally imposed by

respondent bank without petitioner’s assent are violative of the
principle of mutuality of contracts ordained in Article 1308 of the
Civil Code. (Floirendo, Jr. vs. Metropolitan Bank & Trust Company,
532 SCRA 43 [2007])
——o0o——
_______________
** Per Special Order No. 546, Associate Justice Teresita J. Leonardo-De Castro
was designated to sit as additional member in view of the retirement of Associate
Justice Ruben T. Reyes dated 5 January 2009.

Rosario Textile Mills Corporation vs. Home Bankers Savings and
Trust Company
*
G.R. No. 137232. June 29, 2005.
ROSARIO TEXTILE MILLS CORPORATION and EDILBERTO

YUJUICO, petitioners, vs. HOME BANKERS SAVINGS AND
TRUST COMPANY, respondent.
Trust Receipts Law; A trust receipt was described in Samo vs. People.
—In Samo vs. People, we described a trust receipt as “a security transaction
intended to aid in financing importers and retail dealers who do not have
sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to
_______________
* THIRD DIVISION.
89
VOL. 462, JUNE 29, 2005 89
Rosario Textile Mills Corporation vs. Home Bankers Savings and Trust
Company
acquire credit except through utilization, as collateral, of the merchandise

imported or purchased.”
Same; A trust receipt is a security agreement pursuant to which a bank
acquires a ‘security interest’ in the goods.—In Vintola vs. Insular Bank of
Asia and America, we elucidated further that “a trust receipt, therefore, is a
security agreement, pursuant to which a bank acquires a ‘security interest’
in the goods. It secures an indebtedness and there can be no such thing as
security interest that secures no obligation.”
Remedial Law; Evidence; Parol Evidence Rule; Under the rule, the
terms of a contract are rendered conclusive upon the parties and evidence
http://www.central.com.ph/sfsreader/session/000001677e9c3f1064d6e9eb003600fb002c009e/t/?o=False 1/9
aliunde is not admissible to vary or contradict a complete and enforceable

agreement embodied in a document.—Under the Parol Evidence Rule, the
terms of a contract are rendered conclusive upon the parties and evidence
aliunde is not admissible to vary or contradict a complete and enforceable
agreement embodied in a document. We have carefully examined the
Suretyship Agreement signed by Yujuico and found no ambiguity therein.
Documents must be taken as explaining all the terms of the agreement
between the parties when there appears to be no ambiguity in the language
of said documents nor any failure to express the true intent and agreement of
the parties.
PETITION for review on certiorari of the decision and resolution of


Leandro B. Lachica for petitioners.
Lorate C. Ata for respondent.
SANDOVAL-GUTIERREZ, J.:
For our resolution

1
is the petition for review on certiorari assailing
the Decision of the Court of Appeals dated March
_______________
1 Rollo, pp. 83-91. Penned by Associate Justice Ruben T. Reyes, with Associate
Justices Quirino D. Abad Santos, Jr., and Hilarion L. Aquino (both retired),
concurring.
90

Trust Company
31, 1998 in CA-G.R. CV No. 48708 and its Resolution dated

January 12, 1999.
The facts of the case as found by the Court of Appeals are:
“Sometime in 1989, Rosario Textile Mills Corporation (RTMC) applied

from Home Bankers Savings & Trust Co. for an Omnibus Credit Line for
P10 million. The bank approved RTMC’s credit line but for only P8 million.
The bank notified RTMC of the grant of the said loan thru a letter dated
March 2, 1989 which contains terms and conditions conformed by RTMC
thru Edilberto V. Yujuico. On March 3, 1989, Yujuico signed a Surety
Agreement in favor of the bank, in which he bound himself jointly and
severally with RTMC for the payment of all RTMC’s indebtedness to the
bank from 1989 to 1990. RTMC availed of the credit line by making
numerous drawdowns, each drawdown being covered by a separate
promissory note and trust receipt. RTMC, represented by Yujuico, executed

in favor of the bank a total of eleven (11) promissory notes.
Despite the lapse of the respective due dates under the promissory notes
and notwithstanding the bank’s demand letters, RTMC failed to pay its
loans. Hence, on January 22, 1993, the bank filed a complaint for sum of
money against RTMC and Yujuico before the Regional Trial Court, Br. 16,
Manila.
In their answer (OR, pp. 44-47), RTMC and Yujuico contend that they
should be absolved from liability. They claimed that although the grant of
the credit line and the execution of the suretyship agreement are admitted,
the bank gave assurance that the suretyship agreement was merely a
formality under which Yujuico will not be personally liable. They argue that
the importation of raw materials under the credit line was with a grant of
option to them to turn-over to the bank the imported raw materials should
these fail to meet their manufacturing requirements. RTMC offered to make
such turn-over since the imported materials did not conform to the required
specifications. However, the bank refused to accept the same, until the
materials were destroyed by a fire which gutted down RTMC’s premises.
For failure of the parties to amicably settle the case, trial on the merits
proceeded. After the trial, the Court a quo rendered a decision in favor of
the bank, the decretal part of which reads:
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VOL. 462, JUNE 29, 2005 91

Trust Company
‘WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor

of plaintiff and against defendants who are ordered to pay jointly and severally in
favor of plaintiff, inclusive of stipulated 30% per annum interest and penalty of 3%
per month until fully paid, under the following promissory notes:
90-1116 6-20-90 P737,088.25 9-18-90

(maturity)
90-1320 7-13-90 P650,000.00 10-11-90
90-1334 7-17-90 P422,500.00 10-15-90
90-1335 7-17-90 P422,500.00 10-15-90
90-1347 7-18-90 P795,000.00 10-16-90
90-1373 7-20-90 P715,900.00 10-18-90
90-1397 7-27-90 P773,500.00 10-20-90
90-1429 7-26-90 P425,750.00 10-24-90
90-1540 8-7-90 P720,984.00 11-5-90
90-1569 8-9-90 P209,433.75 11-8-90
90-0922 5-28-90 P747,780.00 8-26-90
The counterclaims of defendants are hereby DISMISSED.

2
SO ORDERED.” (OR, p. 323; Rollo, p. 73).”
Dissatisfied, RTMC and Yujuico, herein petitioners, appealed to the

Court of Appeals, contending that under the trust receipt contracts
between the parties, they merely held the goods described therein in
trust for respondent Home Bankers Savings and Trust Company (the
bank) which owns the same. Since the ownership of the goods
remains with the bank, then it should bear the loss. With the
destruction of the goods by fire, petitioners should have been
relieved of any obligation to pay.
_______________
2 Rollo, pp. 84-86.
92

Trust Company
The Court of Appeals, however, affirmed the trial court’s judgment,

holding that the bank is merely the holder of the security for its
advance payments to petitioners; and that the goods they purchased,
through the credit line extended by the bank, belong to them and
hold said goods at their own risk.
Petitioners then filed a motion for reconsideration but this was
denied by the Appellate Court in its Resolution dated January 12,
1999.
Hence, this petition for review on certiorari ascribing to the
Court of Appeals the following errors:
“I
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING

THAT THE ACTS OF THE PETITIONERS-DEFENDANTS WERE
TANTAMOUNT TO A VALID AND EFFECTIVE TENDER OF THE
GOODS TO THE RESPONDENT-PLAINTIFF.
II
THE HONORABLE COURT OF APPEALS ERRED IN NOT

APPLYING THE DOCTRINE OF ‘RES PERIT DOMINO’ IN THE CASE
AT BAR CONSIDERING THE VALID AND EFFECTIVE TENDER OF
THE DEFECTIVE RAW MATERIALS BY THE PETITIONERS-
DEFENDANTS TO THE RESPONDENT-PLAINTIFF AND THE
EXPRESS STIPULATION IN THEIR CONTRACT THAT OWNERSHIP
OF THE GOODS REMAINS WITH THE RESPONDENT-PLAINTIFF.
III
THE HONORABLE COURT OF APPEALS VIOLATED ARTICLE

1370 OF THE CIVIL CODE AND THE LONG-STANDING
JURISPRUDENCE THAT ‘INTENTION OF THE PARTIES IS
PRIMORDIAL’ IN ITS FAILURE TO UPHOLD THE INTENTION OF
THE PARTIES THAT THE SURETY AGREEMENT WAS A MERE
FORMALITY AND DID NOT INTEND TO HOLD PETITIONER
YUJUICO LIABLE UNDER THE SAME SURETY AGREEMENT.
IV
ASSUMING ARGUENDO THAT THE SURETYSHIP AGREEMENT

WAS VALID AND EFFECTIVE, THE HONORABLE COURT OF
93
VOL. 462, JUNE 29, 2005 93

Rosario Textile Mills Corporation vs. Home Bankers Savings and Trust
Company
APPEALS VIOLATED THE BASIC LEGAL PRECEPT THAT A

SURETY IS NOT LIABLE UNLESS THE DEBTOR IS HIMSELF
LIABLE.
THE HONORABLE COURT OF APPEALS VIOLATED THE

PURPOSE OF TRUST RECEIPT LAW IN HOLDING THE
PETITIONERS LIABLE TO THE RESPONDENT.”
The above assigned errors boil down to the following issues: (1)
whether the Court of Appeals erred in holding that petitioners are
not relieved of their obligation to pay their loan after they tried to
tender the goods to the bank which refused to accept the same, and
which goods were subsequently lost in a fire; (2) whether the Court
of Appeals erred when it ruled that petitioners are solidarily liable
for the payment of their obligations to the bank; and (3) whether the
Court of Appeals violated the Trust Receipts Law.
On the first issue, petitioners theorize that when petitioner RTMC
imported the raw materials needed for its manufacture, using the
credit line, it was merely acting on behalf of the bank, the true
owner of the goods by virtue of the trust receipts. Hence, under the
doctrine of res perit domino, the bank took the risk of the loss of
said raw materials. RTMC’s role in the transaction was that of end
user of the raw materials and when it did not accept those materials
as they did not meet the manufacturing requirements, RTMC made a
valid and effective tender of the goods to the bank. Since the bank
refused to accept the raw materials, RTMC stored them in its
warehouse. When the warehouse and its contents were gutted by
fire, petitioners’ obligation to the bank was accordingly
extinguished.
Petitioners’ stance, however, conveniently ignores the true nature

of its transaction with the bank. We recall that RTMC filed with the
bank an application for a credit line in the amount of P10 million,
but only P8 million was approved. RTMC then made withdrawals
from this credit line and is-
94

Trust Company
sued several promissory notes in favor of the bank. In banking and

commerce, a credit line is “that amount of money or merchandise
which a banker, merchant, or supplier agrees3 to supply to a person
on credit and generally agreed to in advance.” It is the fixed limit of
credit granted by a bank, retailer, or credit card issuer to a customer,
to the full extent of which the latter may avail himself of his
dealings with the former but which he must not exceed and is
usually intended to cover a series of transactions in which case,
when the customer’s line of credit is nearly exhausted, he is
expected to reduce 4
his indebtedness by payments before making any
further drawings.
It is thus clear that the principal transaction between petitioner
RTMC and the bank is a contract of loan. RTMC used the proceeds
of this loan to purchase raw materials from a supplier abroad. In
order to secure the payment of the loan, RTMC delivered the raw
materials to the bank as collateral. Trust receipts were executed by
the parties to evidence this security arrangement. Simply stated, the
trust receipts were mere5 securities.
In Samo vs. People, we described a trust receipt as “a security
transaction intended to aid in financing importers and retail dealers
who do not have sufficient funds or resources to finance the
importation or purchase of merchandise, and who may not be able to
acquire credit except through utilization,
6
as collateral, of the
merchandise imported or purchased.” 7
In Vintola vs. Insular Bank of Asia and America, we elucidated
further that “a trust receipt, therefore, is a security agreement,
pursuant to which a bank acquires a ‘security interest’ in the goods.
It secures an indebtedness and there
_______________
3 Black’s Law Dictionary (6th Ed. 1990) 368.

4 Modoc Meat & Cattle Co. vs. First State Bank of Oregon, 271 Or. 276, 532 P. 2d
21, 25.
5 115 Phil. 346; 5 SCRA 354 (1962).
6 Id., at p. 349.
7 G.R. No. 73271, May 29, 1987, 150 SCRA 578.
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Trust Company
8
can be no such thing as security interest that secures no obligation.”
Section 3 (h) of the Trust Receipts Law (P.D. No. 115) defines a
“security interest” as follows:
“(h) Security Interest means a property interest in goods, documents, or

instruments to secure performance of some obligation of the entrustee or of
some third persons to the entruster and includes title, whether or not
expressed to be absolute, whenever such title is in substance taken or
retained for security only.”
Petitioners’ insistence that the ownership of the raw9 materials

remained with the10 bank is untenable. In
11
Sia vs. People, Abad vs.
Court of Appeals, and PNB vs. Pineda, we held that:
“If under the trust receipt, the bank is made to appear as the owner, it was
but an artificial expedient, more of legal fiction than fact, for if it were
really so, it could dispose of the goods in any manner it wants, which it
cannot do, just to give consistency with purpose of the trust receipt of giving
a stronger security for the loan obtained by the importer. To consider the
bank as the true owner from the inception 12
of the transaction would be to
disregard the loan feature thereof . . . .”
Thus, petitioners cannot be relieved of their obligation to pay their

loan in favor of the bank.
Anent the second issue, petitioner Yujuico contends that the
suretyship agreement he signed does not bind him, the same being a
mere formality.
We reject petitioner Yujuico’s contentions for two reasons.
First, there is no record to support his allegation that the surety
agreement is a “mere formality”; and
_______________
8 Id., at p. 583.
9 G.R. No. 30896, April 28, 1983, 121 SCRA 655.
10 G.R. No. 42735, January 22, 1990, 181 SCRA 191.
11 G.R. No. 46658, May 13, 1991, 197 SCRA 1.
12 Sia vs. People, supra at p. 665.
96

Trust Company
Second, as correctly held by the Court of Appeals, the Suretyship

Agreement signed by petitioner Yujuico binds him. The terms
clearly show that he agreed to pay the bank jointly and severally
with RTMC. The parol evidence rule under Section 9, Rule 130 of
the Revised Rules of Court is in point, thus:
“SEC. 9. Evidence of written agreements.—When the terms of an agreement

have been reduced in writing, it is considered as containing all the terms
agreed upon and there can be, between the parties and their successors in
interest, no evidence of such terms other than the contents of the written
agreement.
However, a party may present evidence to modify, explain, or add to the
terms of the written agreement if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake, or imperfection in the written

agreement;
(b) The failure of the written agreement to express the true intent and
agreement of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their
successors in interest after the execution of the written agreement.
x x x.”
Under this Rule, the terms of a contract are rendered conclusive

upon the parties and evidence aliunde is not admissible to vary or
contradict 13a complete and enforceable agreement embodied in a
document. We have carefully examined the Suretyship Agreement
signed by Yujuico and found no ambiguity therein. Documents must
be taken as explaining all the terms of the agreement between the
parties when there appears to be no ambiguity in the language of
said
_______________
13 Magellan Mfg. Marketing Corp. vs. Court of Appeals, G.R. No. 95529, August
22, 1991, 201 SCRA 102, 112.
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VOL. 462, JUNE 29, 2005 97

Trust Company
documents nor 14
any failure to express the true intent and agreement
of the parties.
As to the third and final issue—At the risk of being repetitious,
we stress that the contract between the parties is a loan. What
respondent bank sought to collect as creditor was the loan it granted
to petitioners. Petitioners’ recourse is to sue their supplier, if indeed
the materials were defective.
WHEREFORE, the petition is DENIED. The assailed Decision
and Resolution of the Court of Appeals in CA-G.R. CV No. 48708
are AFFIRMED IN TOTO. Costs against petitioners.
SO ORDERED.
Panganiban (Chairman), Corona, Carpio-Morales and

Garcia, JJ., concur.
Petition denied, assailed decision and resolution affirmed in toto.
Note.—Under trust receipts arrangement, 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. (Metropolitan Bank and Trust
Company vs. Tonda, 338 SCRA 254 [2000])
——o0o——
_______________
14 Ortañez vs. Court of Appeals, G.R. No. 107232, January 23, 1997, 266 SCRA
551, 567.
98
G.R. No. 166884. June 13, 2012.*

LAND BANK OF THE PHILIPPINES, petitioner, vs. LAMBERTO
C. PEREZ, NESTOR C. KUN, MA. ESTELITA P. ANGELES-
PANLILIO, and NAPOLEON O. GARCIA, respondents.
Civil Law; Trusts; Under the Trust Receipts Law, intent to defraud is
presumed when (1) the entrustee fails to turn over the proceeds of the sale of
goods covered by the trust receipt to the entruster; or (2) when the entrustee
fails to return the goods under trust, if they are not disposed of in
accordance with the terms of the trust receipts.—There are two obligations
in a trust receipt transaction. The first is covered by the provision that refers
to money under the obligation to deliver it (entregarla) to the owner of the
merchandise sold. The second is covered by the provision referring to
merchandise received under the obligation to return it (devolvera) to the
owner. Thus, under the Trust Receipts Law, intent to defraud is presumed
when (1) the entrustee fails to turn over the proceeds of the sale of goods
covered by the trust receipt to the entruster; or (2) when the entrustee fails to
return the goods under trust, if they are not disposed of in accordance with
the terms of the trust receipts.
Same; Same; In all trust receipt transactions, both obligations on the
part of the trustee exist in the alternative—the return of the proceeds of the
sale or the return or recovery of the goods, whether raw or processed.—In
all trust receipt transactions, both obligations on the part of the trustee exist
in the alternative—the return of the proceeds of the sale or the return or
recovery of the goods, whether raw or processed. When both parties enter
into an agreement knowing that the return of the goods subject of the trust
receipt is not possible even without any fault on the part of the trustee, it is
not a trust receipt transaction penalized under Section 13 of P.D. 115; the
only obligation actually agreed upon by the parties would be the return of
the proceeds of the sale transaction. This transaction becomes a mere loan,
where the borrower is obligated to pay the bank the amount spent for the
purchase of the goods.
_______________
* SECOND DIVISION.
118
http://www.central.com.ph/sfsreader/session/000001677e9f7acb69833379003600fb002c009e/t/?o=False 1/17
Land Bank of the Philippines vs. Perez
Same; Contracts; Article 1371 of the Civil Code provides that “[i]n
order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.”—
Article 1371 of the Civil Code provides that “[i]n order to judge the
intention of the contracting parties, their contemporaneous and subsequent
acts shall be principally considered.” Under this provision, we can examine
the contemporaneous actions of the parties rather than rely purely on the
trust receipts that they signed in order to understand the transaction through
their intent.
Criminal Law; Estafa; Trust Receipts Law; Elements of estafa under
Article 315, paragraph 1(b) of the Revised Penal Code, in relation with
Section 13 of the Trust Receipts Law.—In order that the respondents “may
be validly prosecuted for estafa under Article 315, paragraph 1(b) of the
Revised Penal Code, in relation with Section 13 of the Trust Receipts Law,
the following elements must be established: (a) they received the subject
goods in trust or under the obligation to sell the same and to remit the
proceeds thereof to [the trustor], or to return the goods if not sold; (b) they
misappropriated or converted the goods and/or the proceeds of the sale; (c)
they performed such acts with abuse of confidence to the damage and
prejudice of Metrobank; and (d) demand was made on them by [the trustor]
for the remittance of the proceeds or the return of the unsold goods.”
Office of the Government Corporate Counsel (OGCC); The mandate
given to the Office of the Government Corporate Counsel is limited to the
civil liabilities arising from the crime, and is subject to the control and
supervision of the public prosecutor.—If we look at the mandate given to
the Office of the Government Corporate Counsel, we find that it is limited
to the civil liabilities arising from the crime, and is subject to the control and
supervision of the public prosecutor. Section 2, Rule 8 of the Rules
Governing the Exercise by the Office of the Government Corporate Counsel
of its Authority, Duties and Powers as Principal Law Office of All
Government Owned or Controlled Corporations, filed before the Office of
the National Administration Register on September 5, 2011, reads: Section
2. Extent of legal assistance—The OGCC shall represent the complaining
GOCC in all stages of the criminal proceedings. The legal assistance
extended is not limited to the preparation of appropriate sworn statements
but shall include all aspects of an effective private prose-
119
VOL. 672, JUNE 13, 2012 119
cution including recovery of civil liability arising from the crime, subject to
the control and supervision of the public prosecutor. Based on
jurisprudence, there are two exceptions when a private party complainant or

offended party in a criminal case may file a petition with this Court, without
the intervention of the OSG: (1) when there is denial of due process of law
to the prosecution, and the State or its agents refuse to act on the case to the
prejudice of the State and the private offended party; and (2) when the
private offended party questions the civil aspect of a decision of the lower
court.

Appeals.
Office of the Government Corporate Counsel for petitioner.
Benedictine Law Center for respondents.
BRION, J.:
Before this Court is a petition for review on certiorari,1 under
Rule 45 of the Rules of Court, assailing the decision2 dated January
20, 2005 of the Court of Appeals in CA-G.R. SP No. 76588. In the
assailed decision, the Court of Appeals dismissed the criminal
complaint for estafa against the respondents, Lamberto C. Perez,
Nestor C. Kun, Ma. Estelita P. Angeles-Panlilio and Napoleon
Garcia, who allegedly violated Article 315, paragraph 1(b) of the
Revised Penal Code, in relation with Section 13 of Presidential
Decree No. (P.D.) 115—the “Trust Receipts Law.”
Petitioner Land Bank of the Philippines (LBP) is a government
financial institution and the official depository of the
_______________
1 Rollo, pp. 15-30.
2 Penned by Associate Justice Lucenito N. Tagle, and concurred in by Associate
Justices Martin S. Villarama, Jr. (now a member of this Court) and Regalado E.
Maambong; id., at pp. 35-48.
120

Philippines.3 Respondents are the officers and representatives of

Asian Construction and Development Corporation (ACDC), a
corporation incorporated under Philippine law and engaged in the
construction business.4
On June 7, 1999, LBP filed a complaint for estafa or violation of
Article 315, paragraph 1(b) of the Revised Penal Code, in relation to
P.D. 115, against the respondents before the City Prosecutor’s Office
in Makati City. In the affidavit-complaint5 of June 7, 1999, the
LBP’s Account Officer for the Account Management Development,
Edna L. Juan, stated that LBP extended a credit accommodation to
ACDC through the execution of an Omnibus Credit Line Agreement

(Agreement)6 between LBP and ACDC on October 29, 1996. In
various instances, ACDC used the Letters of Credit/Trust Receipts
Facility of the Agreement to buy construction materials. The
respondents, as officers and representatives of ACDC, executed trust
receipts7 in connection with the construction materials, with a total
principal amount of P52,344,096.32. The trust receipts matured, but
ACDC failed to return to LBP the proceeds of the construction
projects or the construction materials subject of the trust receipts.
LBP sent ACDC a demand letter,8 dated May 4, 1999, for the
payment of its debts, including those under the Trust Receipts
_______________
3 Id., at pp. 15-16.
4 Id., at p. 16.
5 Id., at pp. 89-91.
6 Id., at pp. 49-50.
7 The affidavit-complaint of June 7, 1999 and the resolution of Makati Assistant
City Prosecutor Amador Y. Pineda dated September 30, 1999 refer to eleven trust
receipts marked as Annexes “C” to “C-10.” However, the Annexes found in the
records of the Department of Justice, the Court of Appeals and the Supreme Court
show only ten trust receipts marked as “C” to “C-9.” The letters used for the markings
vary before each quasi-judicial or judicial office, but there are only ten trust receipts
attached. (Records, pp. 89-108; CA Rollo, pp. 75-93; and Rollo, pp. 69-88.)
8 CA Rollo, p. 94.
121
VOL. 672, JUNE 13, 2012 121

Facility in the amount of P66,425,924.39. When ACDC failed to

comply with the demand letter, LBP filed the affidavit-complaint.
The respondents filed a joint affidavit9 wherein they stated that
they signed the trust receipt documents on or about the same time
LBP and ACDC executed the loan documents; their signatures were
required by LBP for the release of the loans. The trust receipts in
this case do not contain (1) a description of the goods placed in trust,
(2) their invoice values, and (3) their maturity dates, in violation of
Section 5(a) of P.D. 115. Moreover, they alleged that ACDC acted as
a subcontractor for government projects such as the Metro Rail
Transit, the Clark Centennial Exposition and the Quezon Power
Plant in Mauban, Quezon. Its clients for the construction projects,
which were the general contractors of these projects, have not yet
paid them; thus, ACDC had yet to receive the proceeds of the
materials that were the subject of the trust receipts and were
allegedly used for these constructions. As there were no proceeds
received from these clients, no misappropriation thereof could have

taken place.
On September 30, 1999, Makati Assistant City Prosecutor
Amador Y. Pineda issued a Resolution10 dismissing the complaint.
He pointed out that the evidence presented by LBP failed to state the
date when the goods described in the letters of credit were actually
released to the possession of the respondents. Section 4 of P.D. 115
requires that the goods covered by trust receipts be released to the
possession of the entrustee after the latter’s execution and delivery
to the entruster of a signed trust receipt. He adds that LBP’s
evidence also fails to show the date when the trust receipts were
executed since all the trust receipts are undated. Its dispositive
portion reads:
_______________
9 Records, p. 32.
10 Rollo, pp. 92-95.
122

“WHEREFORE, premises considered, and for insufficiency of evidence,

it is respectfully recommended that the instant complaints be dismissed, as
upon approval, the same are hereby dismissed.”11
LBP filed a motion for reconsideration which the Makati

Assistant City Prosecutor denied in his order of January 7, 2000.12
On appeal, the Secretary of Justice reversed the Resolution of the
Assistant City Prosecutor. In his resolution of August 1, 2002,13 the
Secretary of Justice pointed out that there was no question that the
goods covered by the trust receipts were received by ACDC. He
likewise adopted LBP’s argument that while the subjects of the trust
receipts were not mentioned in the trust receipts, they were listed in
the letters of credit referred to in the trust receipts. He also noted that
the trust receipts contained maturity dates and clearly set out their
stipulations. He further rejected the respondents’ defense that ACDC
failed to remit the payments to LBP due to the failure of the clients
of ACDC to pay them. The dispositive portion of the resolution
reads:
“WHEREFORE, the assailed resolution is REVERSED and SET

ASIDE. The City Prosecutor of Makati City is hereby directed to file an
information for estafa under Art. 315 (1) (b) of the Revised Penal Code in
relation to Section 13, Presidential Decree No. 115 against respondents
Lamberto C. Perez, Nestor C. Kun, [Ma. Estelita P. Angeles-Panlilio] and
Napoleon O. Garcia and to report the action taken within ten (10) days from
receipt hereof.”14
The respondents filed a motion for reconsideration of the

resolution dated August 1, 2002, which the Secretary of Justice
denied.15 He rejected the respondents’ submission that
_______________
11 Id., at p. 95.
12 Id., at p. 96.
13 Id., at pp. 97-102.
14 Id., at p. 101.
15 Id., at pp. 103-105.
123
VOL. 672, JUNE 13, 2012 123

Colinares v. Court of Appeals16 does not apply to the case. He

explained that in Colinares, the building materials were delivered to
the accused before they applied to the bank for a loan to pay for the
merchandise; thus, the ownership of the merchandise had already
been transferred to the entrustees before the trust receipts
agreements were entered into. In the present case, the parties have
already entered into the Agreement before the construction materials
were delivered to ACDC.
Subsequently, the respondents filed a petition for review before
After both parties submitted their respective Memoranda, the
Court of Appeals promulgated the assailed decision of January 20,
2005.17 Applying the doctrine in Colinares, it ruled that this case did
not involve a trust receipt transaction, but a mere loan. It
emphasized that construction materials, the subject of the trust
receipt transaction, were delivered to ACDC even before the trust
receipts were executed. It noted that LBP did not offer proof that the
goods were received by ACDC, and that the trust receipts did not
contain a description of the goods, their invoice value, the amount of
the draft to be paid, and their maturity dates. It also adopted ACDC’s
argument that since no payment for the construction projects had
been received by ACDC, its officers could not have been guilty of
misappropriating any payment. The dispositive portion reads:
“WHEREFORE, in view of the foregoing, the Petition is GIVEN DUE

COURSE. The assailed Resolutions of the respondent Secretary of Justice
dated August 1, 2002 and February 17, 2003, respectively in I.S. No. 99-F-
9218-28 are hereby REVERSED and SET ASIDE.”18
_______________
16 394 Phil. 106; 339 SCRA 609 (2000).
17 Supra note 2.
18 Rollo, p. 47.
124

LBP now files this petition for review on certiorari, dated March
15, 2005, raising the following error:
THE COURT OF APPEALS GRAVELY ERRED WHEN IT REVERSED

AND SET ASIDE THE RESOLUTIONS OF THE HONORABLE
SECRETARY OF JUSTICE BY APPLYING THE RULING IN THE CASE
OF COLINARES V. COURT OF APPEALS, 339 SCRA 609, WHICH IS
NOT APPLICABLE IN THE CASE AT BAR.19
On April 8, 2010, while the case was pending before this Court,
the respondents filed a motion to dismiss.20 They informed the Court
that LBP had already assigned to Philippine Opportunities for
Growth and Income, Inc. all of its rights, title and interests in the
loans subject of this case in a Deed of Absolute Sale dated June 23,
2005 (attached as Annex “C” of the motion). The respondents also
stated that Avent Holdings Corporation, in behalf of ACDC, had
already settled ACDC’s obligation to LBP on October 8, 2009.
Included as Annex “A” in this motion was a certification21 issued by
the Philippine Opportunities for Growth and Income, Inc., stating
that it was LBP’s successor-in-interest insofar as the trust receipts in
this case are concerned and that Avent Holdings Corporation had
already settled the claims of LBP or obligations of ACDC arising
from these trust receipts.
We deny this petition.
The disputed transactions are not
trust receipts.
Section 4 of P.D. 115 defines a trust receipt transaction in this
manner:
_______________
19 Id., at p. 21.
20 Id., at pp. 265-279.
21 Id., at p. 273.
125
VOL. 672, JUNE 13, 2012 125

“Section 4. What constitutes a trust receipt transaction.—A trust

receipt transaction, within the meaning of this Decree, is any transaction by
and between a person referred to in this Decree as the entruster, and another
person referred to in this Decree as entrustee, whereby the entruster, who
owns or holds absolute title or security interests over certain specified
goods, documents or instruments, releases the same to the possession of the
entrustee upon the latter’s execution and delivery to the entruster of a signed
document called a “trust receipt” wherein the entrustee binds himself to hold
the designated goods, documents or instruments in trust for the entruster and
to sell or otherwise dispose of the goods, documents or instruments with the
obligation to turn over to the entruster the proceeds thereof to the extent of
the amount owing to the entruster or as appears in the trust receipt or the
goods, documents or instruments themselves if they are unsold or not
otherwise disposed of, in accordance with the terms and conditions specified
in the trust receipt, or for other purposes substantially equivalent to any of
the following:
1. In the case of goods or documents, (a) to sell the goods or procure
their sale; or (b) to manufacture or process the goods with the purpose of
ultimate sale: Provided, That, in the case of goods delivered under trust
receipt for the purpose of manufacturing or processing before its ultimate
sale, the entruster shall retain its title over the goods whether in its original
or processed form until the entrustee has complied fully with his obligation
under the trust receipt; or (c) to load, unload, ship or tranship or otherwise
deal with them in a manner preliminary or necessary to their sale[.]”
There are two obligations in a trust receipt transaction. The first

is covered by the provision that refers to money under the obligation
to deliver it (entregarla) to the owner of the merchandise sold. The
second is covered by the provision referring to merchandise received
under the obligation to return it (devolvera) to the owner. Thus,
under the Trust Receipts Law,22 intent to defraud is presumed when
(1) the
_______________
22 Section 13 of P.D. 115 reads:
Section 13. Penalty clause.—The failure of an entrustee to turn over the
proceeds of the sale of the goods, documents or instruments covered by a trust receipt
to the extent of the amount owing to
126

entrustee fails to turn over the proceeds of the sale of goods covered
by the trust receipt to the entruster; or (2) when the entrustee fails to
return the goods under trust, if they are not disposed of in

accordance with the terms of the trust receipts.23
In all trust receipt transactions, both obligations on the part of the
trustee exist in the alternative—the return of the proceeds of the sale
or the return or recovery of the goods, whether raw or processed.24
When both parties enter into an agreement knowing that the return
of the goods subject of the trust receipt is not possible even without
any fault on the part of the trustee, it is not a trust receipt transaction
penalized under Section 13 of P.D. 115; the only obligation actually
_______________
the entruster or as appears in the trust receipt or to return said goods, documents
or instruments if they were not sold or disposed of in accordance with the terms
of the trust receipt shall constitute the crime of estafa, punishable under the
provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered
Three thousand eight hundred and fifteen, as amended, otherwise known as the
Revised Penal Code. If the violation or offense is committed by a corporation,
partnership, association or other juridical entities, the penalty provided for in this
Decree shall be imposed upon the directors, officers, employees or other officials or
persons therein responsible for the offense, without prejudice to the civil liabilities
arising from the criminal offense. (Emphasis ours.)
23 Colinares v. Court of Appeals, supra note 16, at p. 120; pp. 619-620; and
Gonzales v. Hongkong and Shanghai Banking Corporation, G.R. No. 164904,
October 19, 2007, 537 SCRA 255, 272.
24 See Allied Banking Corporation v. Ordoñez, G.R. No. 82495, December 10,
1990, 192 SCRA 246, 254; and Ching v. The Secretary of Justice, 517 Phil. 151, 174-
175; 481 SCRA 609 (2006). We clarified in these two cases that a trust receipt
agreement covers materials used in manufacturing. It covers all the components of a
product that is ultimately sold, even if this component is fungible or comes in the
form of machineries and equipment. The fact that the raw material or process can no
longer be distinguished within the finished product does not remove it from the
protection of the Trust Receipts Law.
127
VOL. 672, JUNE 13, 2012 127

agreed upon by the parties would be the return of the proceeds of the
sale transaction. This transaction becomes a mere loan,25 where the
borrower is obligated to pay the bank the amount spent for the
purchase of the goods.
Article 1371 of the Civil Code provides that “[i]n order to judge
the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered.” Under this
provision, we can examine the contemporaneous actions of the
parties rather than rely purely on the trust receipts that they signed in
order to understand the transaction through their intent.
We note in this regard that at the onset of these transactions, LBP
knew that ACDC was in the construction business and that the
materials that it sought to buy under the letters of credit were to be
used for the following projects: the Metro Rail Transit Project and
the Clark Centennial Exposition Project.26 LBP had in fact
authorized the delivery of the materials on the construction sites for
these projects, as seen in the letters of credit it attached to its
complaint.27 Clearly, they were aware of the fact that there was no
way they could recover the buildings or constructions for which the
materials subject of the alleged trust receipts had been used.
Notably, despite the allegations in the affidavit-complaint wherein
LBP sought the return of the construction materials,28 its demand
letter dated May 4, 1999 sought the payment of the balance but
failed to ask, as an alternative, for the return of the construction
materials or the buildings where these materials had been used.29
_______________
25 Article 1953 of the Civil Code states that:
Article 1953. A person who receives a loan of money or any other fungible
thing acquires the ownership thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality.
26 Records, p. 29.
27 Rollo, pp. 55-68.
28 Id., at p. 90.
29 CA Rollo, p. 94. The crucial parts of the letter read:
128

The fact that LBP had knowingly authorized the delivery of

construction materials to a construction site of two government
projects, as well as unspecified construction sites, repudiates the
idea that LBP intended to be the owner of those construction
materials. As a government financial institution, LBP should have
been aware that the materials were to be used for the construction of
an immovable property, as well as a property of the public domain.
As an immovable property, the ownership of whatever was
constructed with those materials would presumably belong to the
owner of the land, under Article 445 of the Civil Code which
provides:
“Article 445. Whatever is built, planted or sown on the land of another

and the improvements or repairs made thereon, belong to the owner of the
land, subject to the provisions of the following articles.”
Even if we consider the vague possibility that the materials,

consisting of cement, bolts and reinforcing steel bars, would be used
for the construction of a movable property, the ownership of these
properties would still pertain to the government and not remain with
the bank as they would be classified as property of the public
domain, which is defined by the Civil Code as:
“Article 420. The following things are property of public dominion:
_______________
“Records indicate that your unpaid obligation under the Short Term Loan Line Facility as of
March 31, 1999 amounts to P44,392,455.58, including interest and penalties. Further,
availments under the Trust Receipt Facility as of said date amounts to P66,425,924.39 or an
aggregate total obligation of P110,818,379.97. Attached herewith is the Statement of Account
for your reference.
In view thereof, you are hereby given ten (10) days from receipt of this letter, to settle said
obligation, otherwise, we have no recourse but to file civil and criminal actions against you and
other officers of the corporation to protect the interest of our client.”
129
VOL. 672, JUNE 13, 2012 129

(1) Those intended for public use, such as roads, canals, rivers,

torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and
are intended for some public service or for the development of the national
wealth.”
In contrast with the present situation, it is fundamental in a trust

receipt transaction that the person who advanced payment for the
merchandise becomes the absolute owner of said merchandise and
continues as owner until he or she is paid in full, or if the goods had
already been sold, the proceeds should be turned over to him or to
her.30
Thus, in concluding that the transaction was a loan and not a trust
receipt, we noted in Colinares that the industry or line of work that
the borrowers were engaged in was construction. We pointed out
that the borrowers were not importers acquiring goods for resale.31
Indeed, goods sold in retail are often within the custody or control of
the trustee until they are purchased. In the case of materials used in
the manufacture of finished products, these finished products—if not
the raw materials or their components—similarly remain in the
possession of the trustee until they are sold. But the goods and the
materials that are used for a construction project are often placed
under the control and custody of the clients employing the
contractor, who can only be compelled to return the materials if they
fail to pay the contractor and often only after the requisite legal
proceedings. The contractor’s difficulty and uncertainty in claiming
these materials (or the buildings and structures which they become
part of), as soon as the bank demands them, disqualify them from
being covered by trust receipt agreements.
_______________
30 National Bank v. Viuda e Hijos de Angel Jose, 63 Phil. 814, 821 (1936).
31 Supra note 16, at p. 124.
130

Based on these premises, we cannot consider the agreements

between the parties in this case to be trust receipt transactions
because (1) from the start, the parties were aware that ACDC could
not possibly be obligated to reconvey to LBP the materials or the
end product for which they were used; and (2) from the moment the
materials were used for the government projects, they became
public, not LBP’s, property.
Since these transactions are not trust receipts, an action for estafa
should not be brought against the respondents, who are liable only
for a loan. In passing, it is useful to note that this is the threat held
against borrowers that Retired Justice Claudio Teehankee
emphatically opposed in his dissent in People v. Cuevo,32 restated in
Ong v. CA, et al.:33
“The very definition of trust receipt x x x sustains the lower court’s rationale
in dismissing the information that the contract covered by a trust receipt is
merely a secured loan. The goods imported by the small importer and retail
dealer through the bank’s financing remain of their own property and risk
and the old capitalist orientation of putting them in jail for estafa for
nonpayment of the secured loan (granted after they had been fully
investigated by the bank as good credit risks) through the fiction of the trust
receipt device should no longer be permitted in this day and age.”
As the law stands today, violations of Trust Receipts Law are

criminally punishable, but no criminal complaint for violation of
Article 315, paragraph 1(b) of the Revised Penal Code, in relation
with P.D. 115, should prosper against a borrower who was not part
of a genuine trust receipt transaction.
_______________
32 191 Phil. 622, 633; 104 SCRA 312, 321 (1981).
33 209 Phil. 475, 479; 124 SCRA 578, 582 (1983).
131
VOL. 672, JUNE 13, 2012 131

Misappropriation or abuse of
confidence is absent in this case.
Even if we assume that the transactions were trust receipts, the
complaint against the respondents still should have been dismissed.
The Trust Receipts Law punishes the dishonesty and abuse of
confidence in the handling of money or goods to the prejudice of
another, regardless of whether the latter is the owner or not. The law
does not singularly seek to enforce payment of the loan, as “there
can be no violation of [the] right against imprisonment for non-
payment of a debt.”34
In order that the respondents “may be validly prosecuted for
estafa under Article 315, paragraph 1(b) of the Revised Penal
Code,35 in relation with Section 13 of the Trust Receipts Law, the
following elements must be established: (a) they received the subject
goods in trust or under the obligation to sell the same and to remit
the proceeds thereof to [the trustor], or to return the goods if not
sold; (b) they misappropriated or converted the goods and/or the
proceeds of the sale; (c) they performed such acts with abuse of
confidence to the damage and prejudice of Metrobank; and (d)
demand was made on them by [the trustor] for the remittance of the
proceeds or the return of the unsold goods.”36
_______________
34 People v. Nitafan, G.R. Nos. 81559-60, April 6, 1992, 207 SCRA 726, 730.
35 Article 315. Swindling (estafa).—Any person who shall defraud another by
any of the means mentioned hereinbelow x x x:
xxxx
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.
36 Metropolitan Bank and Trust Company v. Go, G.R. No. 155647, November 23,
2007, 538 SCRA 337, 345-346.
132

In this case, no dishonesty or abuse of confidence existed in the

handling of the construction materials.
In this case, the misappropriation could be committed should the
entrustee fail to turn over the proceeds of the sale of the goods
covered by the trust receipt transaction or fail to return the goods
themselves. The respondents could not have failed to return the
proceeds since their allegations that the clients of ACDC had not
paid for the projects it had undertaken with them at the time the case
was filed had never been questioned or denied by LBP. What can
only be attributed to the respondents would be the failure to return
the goods subject of the trust receipts.
We do not likewise see any allegation in the complaint that
ACDC had used the construction materials in a manner that LBP
had not authorized. As earlier pointed out, LBP had authorized the
delivery of these materials to these project sites for which they were
used. When it had done so, LBP should have been aware that it
could not possibly recover the processed materials as they would
become part of government projects, two of which (the Metro Rail
Transit Project and the Quezon Power Plant Project) had even
become part of the operations of public utilities vital to public
service. It clearly had no intention of getting these materials back; if
it had, as a primary government lending institution, it would be
guilty of extreme negligence and incompetence in not foreseeing the
legal complications and public inconvenience that would arise
should it decide to claim the materials. ACDC’s failure to return
these materials or their end product at the time these “trust receipts”
expired could not be attributed to its volition. No bad faith, malice,
negligence or breach of contract has been attributed to ACDC, its
officers or representatives. Therefore, absent any abuse of
confidence or misappropriation on the part of the respondents, the
criminal proceedings against them for estafa should not prosper.
133
VOL. 672, JUNE 13, 2012 133

In Metropolitan Bank,37 we affirmed the city prosecutor’s

dismissal of a complaint for violation of the Trust Receipts Law. In
dismissing the complaint, we took note of the Court of Appeals’
finding that the bank was interested only in collecting its money and
not in the return of the goods. Apart from the bare allegation that
demand was made for the return of the goods (raw materials that
were manufactured into textiles), the bank had not accompanied its
complaint with a demand letter. In addition, there was no evidence
offered that the respondents therein had misappropriated or misused
the goods in question.
The petition should be dismissed

because the OSG did not file it and
the civil liabilities have already
been settled.
The proceedings before us, regarding the criminal aspect of this
case, should be dismissed as it does not appear from the records that
the complaint was filed with the participation or consent of the
Office of the Solicitor General (OSG). Section 35, Chapter 12, Title
III, Book IV of the Administrative Code of 1987 provides that:
“Section 35. Powers and Functions.—The Office of the Solicitor

General shall represent the Government of the Philippines, its agencies and
instrumentalities and its officials and agents in any litigation, proceedings,
investigation or matter requiring the services of lawyers. x x x It shall have
the following specific powers and functions:
(1) Represent the Government in the Supreme Court and the
Court of Appeals in all criminal proceedings; represent the Government
and its officers in the Supreme Court, the Court of Appeals and all other
courts or tribunals in all civil actions and special proceedings in which the
Government or any officer thereof in his official capacity is a party.”
(Emphasis provided.)
_______________
37 Id., at pp. 350-351.
134

In Heirs of Federico C. Delgado v. Gonzalez,38 we ruled that the

preliminary investigation is part of a criminal proceeding. As all
criminal proceedings before the Supreme Court and the Court of
Appeals may be brought and defended by only the Solicitor General
in behalf of the Republic of the Philippines, a criminal action
brought to us by a private party alone suffers from a fatal defect. The
present petition was brought in behalf of LBP by the Government
Corporate Counsel to protect its private interests. Since the
representative of the “People of the Philippines” had not taken any
part of the case, it should be dismissed.
On the other hand, if we look at the mandate given to the Office
of the Government Corporate Counsel, we find that it is limited to
the civil liabilities arising from the crime, and is subject to the
control and supervision of the public prosecutor. Section 2, Rule 8 of
the Rules Governing the Exercise by the Office of the Government
Corporate Counsel of its Authority, Duties and Powers as Principal
Law Office of All Government Owned or Controlled Corporations,
filed before the Office of the National Administration Register on

September 5, 2011, reads:
“Section 2. Extent of legal assistance.—The OGCC shall represent

the complaining GOCC in all stages of the criminal proceedings. The legal
assistance extended is not limited to the preparation of appropriate sworn
statements but shall include all aspects of an effective private prosecution
including recovery of civil liability arising from the crime, subject to the
control and supervision of the public prosecutor.”
Based on jurisprudence, there are two exceptions when a private

party complainant or offended party in a criminal case may file a
petition with this Court, without the intervention of the OSG: (1)
when there is denial of due process of law to the prosecution, and
the State or its agents refuse to act on
_______________
38 G.R. No. 184337, August 7, 2009, 595 SCRA 501, 522-524.
135
VOL. 672, JUNE 13, 2012 135

the case to the prejudice of the State and the private offended
party;39 and (2) when the private offended party questions the civil
aspect of a decision of the lower court.40
In this petition, LBP fails to allege any inaction or refusal to act
on the part of the OSG, tantamount to a denial of due process. No
explanation appears as to why the OSG was not a party to the case.
Neither can LBP now question the civil aspect of this decision as it
had already assigned ACDC’s debts to a third person, Philippine
Opportunities for Growth and Income, Inc., and the civil liabilities
appear to have already been settled by Avent Holdings Corporation,
in behalf of ACDC. These facts have not been disputed by LBP.
Therefore, we can reasonably conclude that LBP no longer has any
claims against ACDC, as regards the subject matter of this case, that
would entitle it to file a civil or criminal action.
WHEREFORE, we DENY the petition and AFFIRM the January
20, 2005 decision of the Court of Appeals in CA-G.R. SP No.
76588. No costs.
SO ORDERED.
Carpio (Chairperson), Perez, Sereno and Reyes, JJ., concur.
Petition denied, judgment affirmed.
Notes.—Trust receipt transaction defined in Presidential Decree

No. 115. (Metropolitan Bank & Trust Company vs. Gonzales, 584
SCRA 631 [2009])
_______________
39 Merciales v. Court of Appeals, 429 Phil. 70, 78-80; 379 SCRA 345 (2002);
Narciso v. Sta. Romana-Cruz, 385 Phil. 208, 221-224; 328 SCRA 505 (2000); and
People v. Calo, Jr., 264 Phil. 1007, 1012-1014; 186 SCRA 620 (1990).
40 Perez v. Hagonoy Rural Bank, Inc., 384 Phil. 322, 337; 327 SCRA 588 (2000);
and People v. Judge Santiago, 255 Phil. 851, 861-862; 174 SCRA 143 (1989).
136

Trust is the right to the beneficial enjoyment of property, the

legal title to which is vested in another—it is a fiduciary relationship
that obliges the trustee to deal with the property for the benefit of the
beneficiary. (Heirs of Tranquilino Labiste vs. Heirs of Jose Labiste,
587 SCRA 417 [2009])
——o0o——
G.R. No. 195117. August 14, 2013.*
HUR TIN YANG, petitioner, vs. PEOPLE OF THE PHILIPPINES,

respondent.
Civil Law; Contracts; In determining the nature of a contract, courts

are not bound by the title or name given by the parties.—In determining the
nature of a contract, courts are not bound by the title or name given by the
parties. The decisive factor in evaluating such agreement is the intention of
the parties, as shown not necessarily by the terminology used in the contract
but by their conduct, words, actions and deeds prior to, during and
immediately after executing the agreement. As such, therefore, documentary
and parol evidence may be submitted and admitted to prove such intention.
Mercantile Law; Trust Receipts; Words and Phrases; A trust receipt
transaction is one where the entrustee has the obligation to deliver to the
entruster the price of the sale, or if the merchandise is not sold, to return the
merchandise to the entruster.—Simply stated,
_______________
* THIRD DIVISION.
607
VOL. 703, AUGUST 14, 2013 607
Hur Tin Yang vs. People
a trust receipt transaction is one where the entrustee has the obligation to
deliver to the entruster the price of the sale, or if the merchandise is not sold,
to return the merchandise to the entruster. There are, therefore, two
obligations in a trust receipt transaction: the first refers to money received
under the obligation involving the duty to turn it over (entregarla) to the
owner of the merchandise sold, while the second refers to the merchandise
received under the obligation to “return” it (devolvera) to the owner. A
violation of any of these undertakings constitutes Estafa defined under Art.
315, par. 1(b) of the RPC, as provided in Sec. 13 of PD 115.
Same; Same; Loans; When both parties enter into an agreement
knowing fully well that the return of the goods subject of the trust receipt is
not possible even without any fault on the part of the trustee, it is not a trust
http://www.central.com.ph/sfsreader/session/000001677ea6e11eddfbba19003600fb002c009e/t/?o=False 1/15
receipt transaction penalized under Sec. 13 of PD 115 in relation to Art.

315, paragraph 1(b) of the Revised Penal Code, as the only obligation
actually agreed upon by the parties would be the return of the proceeds of
the sale transaction. This transaction becomes a mere loan, where the
borrower is obligated to pay the bank the amount spent for the purchase of
the goods.—When both parties enter into an agreement knowing fully well
that the return of the goods subject of the trust receipt is not possible even
without any fault on the part of the trustee, it is not a trust receipt transaction
penalized under Sec. 13 of PD 115 in relation to Art. 315, par. 1(b) of the
RPC, as the only obligation actually agreed upon by the parties would be the
return of the proceeds of the sale transaction. This transaction becomes a
mere loan, where the borrower is obligated to pay the bank the amount
spent for the purchase of the goods.
Same; Same; Same; The fact that the entruster bank, Metrobank in this
case, knew even before the execution of the alleged trust receipt agreements
that the covered construction materials were never intended by the entrustee
(petitioner) for resale or for the manufacture of items to be sold would take
the transaction between petitioner and Metrobank outside the ambit of the
Trust Receipts Law.—Since the factual milieu of Ng and Land Bank of the
Philippines are in all four corners similar to the instant case, it behooves this
Court, following the principle of stare decisis, to rule that the transactions in
the instant case are not trust receipts transactions but contracts of simple
loan. The fact that the entruster bank, Metrobank in this
608
case, knew even before the execution of the alleged trust receipt agreements
that the covered construction materials were never intended by the entrustee
(petitioner) for resale or for the manufacture of items to be sold would take
the transaction between petitioner and Metrobank outside the ambit of the
Trust Receipts Law.
MOTION FOR RECONSIDERATION of a minute resolution of the

Court of Appeals.
The facts are stated in the resolution of the Court.
Wilfred F. Neis for petitioner.
Perez, Calima, Maynigo & Roque Law Offices for private
complainant Metropolitan Bank & Trust Co.
RESOLUTION
VELASCO, JR., J.:
This is a motion for reconsideration of our February 1, 2012
Minute Resolution1 sustaining the July 28, 2010 Decision2 and
December 20, 2010 Resolution3 of the Court of Appeals (CA) in

CA-G.R. CR No. 30426, finding petitioner Hur Tin Yang guilty
beyond reasonable doubt of the crime of Estafa under Article 315,
paragraph 1 (b) of the Revised Penal Code (RPC) in relation to
Presidential Decree No. 115 (PD 115) or the Trust Receipts Law.
In twenty-four (24) consolidated Informations, all dated March
15, 2002, petitioner Hur Tin Yang was charged at the instance of the
same complainant with the crime of Estafa
_______________
1 Rollo, p. 252.
2 Id., at pp. 57-87. Penned by Associate Justice Isaias Dicdican and concurred in
by Associate Justices Stephen C. Cruz and Danton Q. Bueser.
3 Id., at pp. 88-89.
609
VOL. 703, AUGUST 14, 2013 609

under Article 315, par. 1(b) of the RPC,4 in relation to PD 115,5

docketed as Criminal Case Nos. 04-223911 to 34 and raffled to the
Regional Trial Court of Manila, Branch 20. The 24 Informations ––
differing only as regards the alleged date of commission of the
crime, date of the trust receipts, the number of the letter of credit, the
subject goods and the amount –– uniformly recite:
That on or about May 28, 1998, in the City of Manila, Philippines,

the said accused being then the authorized officer of SUPERMAX
PHILIPPINES, INC., with
_______________
4 Art. 315. Swindling (estafa).—Any person who shall defraud another by any of the
means mentioned hereinbelow shall be punished by:
xxxx
1. With unfaithfulness or abuse of confidence, namely:
xxx
(b) By misappropriating or convening, 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 another property.
5 Trust Receipts Law, Section 13. Penalty clause. The failure of an entrustee to turn over
the proceeds of the sale of the goods, documents or instruments covered by a trust receipt to the
extent of the amount owing to the entruster or as appears in the trust receipt or to return said
goods, documents or instruments if they were not sold or disposed of in accordance with the
terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of
Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight
hundred and fifteen, as amended, otherwise known as the Revised Penal Code. If the violation
or offense is committed by a corporation, partnership, association or other juridical entities, the
penalty provided for in this Decree shall be imposed upon the directors, officers, employees or
other officials or persons therein responsible for the offense, without prejudice to the civil
liabilities arising from the criminal offense.
610

office address at No. 11/F, Global Tower, Gen Mascardo corner

M. Reyes St., Bangkal, Makati City, did then and there willfully,
unlawfully and feloniously defraud the METROPOLITAN BANK
AND TRUST COMPANY (METROBANK), a corporation duly
organized and existing under and by virtue of the laws of the
Republic of the Philippines, represented by its Officer in Charge,
WINNIE M. VILLANUEVA, in the following manner, to wit: the
said accused received in trust from the said Metropolitan Bank and
Trust Company reinforcing bars valued at P1,062,918.84 specified in
the undated Trust Receipt Agreement covered by Letter of Credit No.
MG-LOC 216/98 for the purpose of holding said merchandise/goods
in trust, with obligation on the part of the accused to turn over the
proceeds of the sale thereof or if unsold, to return the goods to the
said bank within the specified period agreed upon, but herein accused
once in possession of the said merchandise/goods, far from
complying with his aforesaid obligation, failed and refused and still
fails and refuses to do so despite repeated demands made upon him
to that effect and with intent to defraud and with grave abuse of
confidence and trust, misappropriated, misapplied and converted the
said merchandise/goods or the value thereof to his own personal use
and benefit, to the damage and prejudice of said METROPOLITAN
BANK AND TRUST COMPANY in the aforesaid amount of
P1,062,918.84, Philippine Currency.
Contrary to law.6
Upon arraignment, petitioner pleaded “not guilty.” Thereafter,

trial on the merits then ensued.
The facts of these consolidated cases are undisputed:
Supermax Philippines, Inc. (Supermax) is a domestic corporation
engaged in the construction business. On various occasions in the
month of April, May, July, August, September, October and
November 1998, Metropolitan Bank and
_______________
6 Rollo, pp. 58-59.
611
VOL. 703, AUGUST 14, 2013 611

Trust Company (Metrobank), Magdalena Branch, Manila, extended

several commercial letters of credit (LCs) to Supermax. These
commercial LCs were used by Supermax to pay for the delivery of
several construction materials which will be used in their
construction business. Thereafter, Metrobank required petitioner, as
representative and Vice-President for Internal Affairs of Supermax,
to sign twenty-four (24) trust receipts as security for the construction
materials and to hold those materials or the proceeds of the sales in
trust for Metrobank to the extent of the amount stated in the trust
receipts.
When the 24 trust receipts fell due and despite the receipt of a
demand letter dated August 15, 2000, Supermax failed to pay or
deliver the goods or proceeds to Metrobank. Instead, Supermax,
through petitioner, requested the restructuring of the loan. When the
intended restructuring of the loan did not materialize, Metrobank
sent another demand letter dated October 11, 2001. As the demands
fell on deaf ears, Metrobank, through its representative, Winnie M.
Villanueva, filed the instant criminal complaints against petitioner.
For his defense, while admitting signing the trust receipts,
petitioner argued that said trust receipts were demanded by
Metrobank as additional security for the loans extended to Supermax
for the purchase of construction equipment and materials. In support
of this argument, petitioner presented as witness, Priscila Alfonso,
who testified that the construction materials covered by the trust
receipts were delivered way before petitioner signed the
corresponding trust receipts.7 Further, petitioner argued that
Metrobank knew all along that the construction materials subject of
the trust receipts were not intended for resale but for personal use of
Supermax relating to its construction business.8
_______________
7 TSN, April 24, 2006, p. 13.
8 Rollo, p. 40.
612

The trial court a quo, by Judgment dated October 6, 2006, found

petitioner guilty as charged and sentenced him as follows:
His guilt having been proven and established beyond reasonable

doubt, the Court hereby renders judgment CONVICTING accused
HUR TIN YANG of the crime of estafa under Article 315 paragraph
1 (a) of the Revised Penal Code and hereby imposes upon him the
indeterminate penalty of 4 years, 2 months and 1 day of prision
correccional to 20 years of reclusion temporal and to pay
Metropolitan Bank and Trust Company, Inc. the amount of
Php13,156,256.51 as civil liability and to pay cost.
SO ORDERED.9
Petitioner appealed to the CA. On July 28, 2010, the appellate

court rendered a Decision, upholding the findings of the RTC that
the prosecution has satisfactorily established the guilt of petitioner
beyond reasonable doubt, including the following critical facts, to
wit: (1) petitioner signing the trust receipts agreement; (2) Supermax
failing to pay the loan; and (3) Supermax failing to turn over the
proceeds of the sale or the goods to Metrobank upon demand.
Curiously, but significantly, the CA also found that even before the
execution of the trust receipts, Metrobank knew or should have
known that the subject construction materials were never intended
for resale or for the manufacture of items to be sold.10
_______________
9 Id., at p. 206. Penned by Judge Marivic T. Balisi-Umali.
10 Id., at pp. 79-80. The CA Decision dated July 28, 2010 reads, “The evidence
for the accused-appellant further tended to show that the transactions between
Metrobank and Supermax could not be considered trust receipts transactions within
the purview of PD No. 115 but rather loan transactions because the equipment and
construction materials, which were the goods subject of the trust receipts, were never
intended to be put up for sale or to be manufactured for ultimate sale as they would be
utilized by Supermax in the
613
VOL. 703, AUGUST 14, 2013 613

The CA ruled that since the offense punished under PD 115 is in

the nature of malum prohibitum, a mere failure to deliver the
proceeds of the sale or goods, if not sold, is sufficient to justify a
conviction under PD 115.
The fallo of the CA Decision reads:
WHEREFORE, in view of the foregoing premises, the appeal

filed in this case is hereby DENIED and, consequently,
DISMISSED. The assailed Decision dated October 6, 2006 of the
Regional Trial Court, Branch 20, in the City of Manila in Criminal
Cases Nos. 04223911 to 223934 is hereby AFFIRMED.
SO ORDERED.
Petitioner filed a Motion for Reconsideration, but it was denied

in a Resolution dated December 20, 2010. Not satisfied, petitioner
filed a petition for review under Rule 45 of the Rules of Court. The
Office of the Solicitor General (OSG) filed its Comment dated
November 28, 2011, stressing that the pieces of evidence adduced
from the testimony and documents submitted before the trial court
are sufficient to establish the guilt of petitioner.11
_______________
prosecution of its various projects and that Metrobank knew beforehand that the
proceeds of the loans would be used to purchase constructions materials because,
before the approval of such loans, documents such as articles of incorporation, by-
laws and financial reports of Supermax were submitted to said bank.”
11 Id., at pp. 243-244. The OSG Comment reads, “The following pieces of
evidence adduced from the testimony and documents submitted before the trial court
are sufficient to establish the guilt of petitioner, to wit:
First, the trust receipts bearing the genuine signatures of petitioner; second, the
two demand letters of Metrobank addressed to petitioner dated August 15, 2000 and
October 11, 20001; and third, the initial admission by petitioner that he signed as Vice
President for Internal Affairs of Supermax.
614

On February 1, 2012, this Court dismissed the Petition via a

Minute Resolution on the ground that the CA committed no
reversible error in the assailed July 28, 2010 Decision. Hence,
petitioner filed the present Motion for Reconsideration contending
that the transactions between the parties do not constitute trust
receipt agreements but rather of simple loans.
On October 3, 2012, the OSG filed its Comment on the Motion
for Reconsideration, praying for the denial of said motion and
arguing that petitioner merely reiterated his arguments in the petition
and his Motion for Reconsideration is nothing more than a mere
rehash of the matters already thoroughly passed upon by the RTC,
the CA and this Court.12
The sole issue for the consideration of the Court is whether or not
petitioner is liable for Estafa under Art. 315, par. 1(b) of the RPC in
relation to PD 115, even if it was sufficiently proved that the
entruster (Metrobank) knew beforehand that the goods (construction
materials) subject of the trust receipts were never intended to be sold
but only for use in the entrustee’s construction business.
The motion for reconsideration has merit.
In determining the nature of a contract, courts are not bound by

the title or name given by the parties. The decisive factor in
evaluating such agreement is the intention of the parties, as shown
not necessarily by the terminology used in the contract but by their
conduct, words, actions and deeds prior to, during and immediately
after executing the agree-
_______________
That petitioner did not sell the goods under trust receipts is of no moment.
The offense punished under Presidential Decree No. 115 is in the nature of malum
prohibitum. 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 x x x.” (Emphasis supplied.)
12 Id., at p. 278.
615
VOL. 703, AUGUST 14, 2013 615

ment. As such, therefore, documentary and parol evidence may be

submitted and admitted to prove such intention.13
In the instant case, the factual findings of the trial and appellate
courts reveal that the dealing between petitioner and Metrobank was
not a trust receipt transaction but one of simple loan. Petitioner’s
admission –– that he signed the trust receipts on behalf of Supermax,
which failed to pay the loan or turn over the proceeds of the sale or
the goods to Metrobank upon demand –– does not conclusively
prove that the transaction was, indeed, a trust receipts transaction. In
contrast to the nomenclature of the transaction, the parties really
intended a contract of loan. This Court –– in Ng v. People14 and
Land Bank of the Philippines v. Perez,15 cases which are in all four
corners the same as the instant case –– ruled that the fact that the
entruster bank knew even before the execution of the trust receipt
agreements that the construction materials covered were never
intended by the entrustee for resale or for the manufacture of items
to be sold is sufficient to prove that the transaction was a simple loan
and not a trust receipts transaction.
The petitioner was charged with Estafa committed in what is
called, under PD 115, a “trust receipt transaction,” which is defined
as:
Section 4. What constitutes a trust receipts transaction.—A

trust receipt transaction, within the meaning of this Decree, is any
transaction by and between a person referred to in this Decree as the
entruster, and another person referred to in this Decree as entrustee,
whereby the entruster, who owns or holds absolute title or security
interests over certain specified goods, documents or instruments,

releases the same to
_______________
13 Aguirre v. Court of Appeals, G.R. No. 131520, January 28, 2000, 323 SCRA 771, 774.
14 G.R. No. 173905, April 23, 2010, 619 SCRA 291.
15 G.R. No. 166884, June 13, 2012, 672 SCRA 117.
616

the possession of the entrustee upon the latter’s execution and

delivery to the entruster of a signed document called a “trust receipt”
wherein the entrustee binds himself to hold the designated goods,
documents or instruments in trust for the entruster and to sell or
otherwise dispose of the goods, documents or instruments with the
obligation to turn over to the entruster the proceeds thereof to the
extent of the amount owing to the entruster or as appears in the trust
receipt or the goods, documents or instruments themselves if they are
unsold or not otherwise disposed of, in accordance with the terms
and conditions specified in the trust receipt, or for other purposes
substantially equivalent to any of the following:
1. In the case of goods or documents: (a) to sell the goods or
procure their sale; or (b) to manufacture or process the goods with
the purpose of ultimate sale: Provided, That, in the case of goods
delivered under trust receipt for the purpose of manufacturing or
processing before its ultimate sale, the entruster shall retain its title
over the goods whether in its original or processed form until the
entrustee has complied full with his obligation under the trust receipt;
or (c) to load, unload, ship or transship or otherwise deal with them
in a manner preliminary or necessary to their sale; or
2. In the case of instruments: (a) to sell or procure their sale or
exchange; or (b) to deliver them to a principal; or (c) to effect the
consummation of some transactions involving delivery to a
depository or register; or (d) to effect their presentation, collection or
renewal.
Simply stated, a trust receipt transaction is one where the

entrustee has the obligation to deliver to the entruster the price of the
sale, or if the merchandise is not sold, to return the merchandise to
the entruster. There are, therefore, two obligations in a trust receipt
transaction: the first refers to money received under the obligation
involving the duty to turn it over (entregarla) to the owner of the
merchandise sold, while the second refers to the merchandise
received under the
617
VOL. 703, AUGUST 14, 2013 617

obligation to “return” it (devolvera) to the owner.16 A violation of

any of these undertakings constitutes Estafa defined under Art. 315,
par. 1(b) of the RPC, as provided in Sec. 13 of PD 115, viz.:
Section 13. Penalty Clause.—The failure of an entrustee to

turn over the proceeds of the sale of the goods, documents or
instruments covered by a trust receipt to the extent of the amount
owing to the entruster or as appears in the trust receipt or to return
said goods, documents or instruments if they were not sold or
disposed of in accordance with the terms of the trust receipt shall
constitute the crime of estafa, punishable under the provisions of
Article Three hundred fifteen, paragraph one (b) of Act Numbered
Three thousand eight hundred and fifteen, as amended, otherwise
known as the Revised Penal Code. x x x (Emphasis supplied.)
Nonetheless, when both parties enter into an agreement knowing

fully well that the return of the goods subject of the trust receipt is
not possible even without any fault on the part of the trustee, it is
not a trust receipt transaction penalized under Sec. 13 of PD 115 in
relation to Art. 315, par. 1(b) of the RPC, as the only obligation
actually agreed upon by the parties would be the return of the
proceeds of the sale transaction. This transaction becomes a mere
loan, where the borrower is obligated to pay the bank the
amount spent for the purchase of the goods.17
In Ng v. People, Anthony Ng, then engaged in the business of
building and fabricating telecommunication towers, applied for a
credit line of PhP 3,000,000 with Asiatrust Development Bank, Inc.
Prior to the approval of the loan, Anthony Ng informed Asiatrust
that the proceeds would be used for purchasing construction
materials necessary for the completion of
_______________
16 Ng v. People, supra note 14, at p. 304.
17 Land Bank of the Philippines v. Perez, supra note 15, at pp. 126-127.
618

several steel towers he was commissioned to build by several

telecommunication companies. Asiatrust approved the loan but
required Anthony Ng to sign a trust receipt agreement. When
Anthony Ng failed to pay the loan, Asiatrust filed a criminal case for
Estafa in relation to PD 115 or the Trust Receipts Law. This Court

acquitted Anthony Ng and ruled that the Trust Receipts Law was
created to “to aid in financing importers and retail dealers who
do not have sufficient funds or resources to finance the
importation or purchase of merchandise, and who may not be
able to acquire credit except through utilization, as collateral, of
the merchandise imported or purchased.” Since Asiatrust knew
that Anthony Ng was neither an importer nor retail dealer, it should
have known that the said agreement could not possibly apply to
petitioner, viz.:
The true nature of a trust receipt transaction can be found in the

“whereas” clause of PD 115 which states that a trust receipt is to be
utilized “as a convenient business device to assist importers and
merchants solve their financing problems.” Obviously, the State, in
enacting the law, sought to find a way to assist importers and
merchants in their financing in order to encourage commerce in the
Philippines.
[A] trust receipt is considered a security transaction intended to
aid in financing importers and retail dealers who do not have
sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except
through utilization, as collateral, of the merchandise imported or
purchased. Similarly, American Jurisprudence demonstrates that trust
receipt transactions always refer to a method of “financing
importations or financing sales.” The principle is of course not
limited in its application to financing importations, since the
principle is equally applicable to domestic transactions. Regardless of
whether the transaction is foreign or domestic, it is important to note
that the transactions discussed in relation to trust receipts mainly
involved sales.
619
VOL. 703, AUGUST 14, 2013 619

Following the precept of the law, such transactions affect

situations wherein the entruster, who owns or holds absolute title or
security interests over specified goods, documents or instruments,
releases the subject goods to the possession of the entrustee. The
release of such goods to the entrustee is conditioned upon his
execution and delivery to the entruster of a trust receipt wherein the
former binds himself to hold the specific goods, documents or
instruments in trust for the entruster and to sell or otherwise dispose
of the goods, documents or instruments with the obligation to turn
over to the entruster the proceeds to the extent of the amount owing
to the entruster or the goods, documents or instruments themselves if
they are unsold. x x x [T]he entruster is entitled “only to the proceeds
derived from the sale of goods released under a trust receipt to the
entrustee.”
Considering that the goods in this case were never intended
for sale but for use in the fabrication of steel communication
towers, the trial court erred in ruling that the agreement is a
trust receipt transaction.
xxxx
To emphasize, the Trust Receipts Law was created to “to aid
in financing importers and retail dealers who do not have
sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire
credit except through utilization, as collateral, of the
merchandise imported or purchased.” Since Asiatrust knew that
petitioner was neither an importer nor retail dealer, it should
have known that the said agreement could not possibly apply to
petitioner.18
Further, in Land Bank of the Philippines v. Perez, the respondents

were officers of Asian Construction and Develop-
_______________
18 Supra note 14, at pp. 305-307.
620

ment Corporation (ACDC), a corporation engaged in the

construction business. On several occasions, respondents executed
in favor of Land Bank of the Philippines (LBP) trust receipts to
secure the purchase of construction materials that they will need in
their construction projects. When the trust receipts matured, ACDC
failed to return to LBP the proceeds of the construction projects or
the construction materials subject of the trust receipts. After several
demands went unheeded, LBP filed a complaint for Estafa or
violation of Art. 315, par. 1(b) of the RPC, in relation to PD 115,
against the respondent officers of ACDC. This Court, like in Ng,
acquitted all the respondents on the postulate that the parties really
intended a simple contract of loan and not a trust receipts
transaction, viz.:
When both parties enter into an agreement knowing that the

return of the goods subject of the trust receipt is not possible
even without any fault on the part of the trustee, it is not a trust
receipt transaction penalized under Section 13 of P.D. 115; the
only obligation actually agreed upon by the parties would be the
return of the proceeds of the sale transaction. This transaction
becomes a mere loan, where the borrower is obligated to pay the

bank the amount spent for the purchase of the goods.
xxxx
Thus, in concluding that the transaction was a loan and not a
trust receipt, we noted in Colinares that the industry or line of
work that the borrowers were engaged in was construction. We
pointed out that the borrowers were not importers acquiring
goods for resale. Indeed, goods sold in retail are often within the
custody or control of the trustee until they are purchased. In the case
of materials used in the manufacture of finished products, these
finished products — if not the raw materials or their components —
similarly remain in the possession of the trustee until they are sold.
But the goods and the materials that are used for a
621
VOL. 703, AUGUST 14, 2013 621

construction project are often placed under the control and custody of
the clients employing the contractor, who can only be compelled to
return the materials if they fail to pay the contractor and often only
after the requisite legal proceedings. The contractor’s difficulty and
uncertainty in claiming these materials (or the buildings and
structures which they become part of), as soon as the bank
demands them, disqualify them from being covered by trust
receipt agreements.19
Since the factual milieu of Ng and Land Bank of the Philippines

are in all four corners similar to the instant case, it behooves this
Court, following the principle of stare decisis,20 to rule that the
transactions in the instant case are not trust receipts transactions but
contracts of simple loan. The fact that the entruster bank, Metrobank
in this case, knew even before the execution of the alleged trust
receipt agreements that the covered construction materials were
never intended by the entrustee (petitioner) for resale or for the
manufacture of items to be sold would take the transaction between
petitioner and Metrobank outside the ambit of the Trust Receipts
Law.
For reasons discussed above, the subject transactions in the
instant case are not trust receipts transactions. Thus, the consolidated
complaints for Estafa in relation to PD 115 have really no leg to
stand on.
The Court’s ruling in Colinares v. Court of Appeals21 is very apt,
thus:
_______________
19 Supra note 15, at pp. 126-127, 129.
20 The doctrine “stare decisis et non quieta movere” (Stand by the decisions and
disturb not what is settled) is firmly entrenched in our jurisprudence. Once this Court
has laid down a principle of law as applicable to a certain state of facts, it would
adhere to that principle and apply it to all future cases in which the facts are
substantially the same as in the earlier controversy. Agra v. Commission on Audit,
G.R. No. 167807, December 6, 2011, 661 SCRA 563, 585.
21 G.R. No. 90828, September 5, 2000, 339 SCRA 609, 623-624.
622

The practice of banks of making borrowers sign trust receipts to

facilitate collection of loans and place them under the threats of
criminal prosecution should they be unable to pay it may be unjust
and inequitable, if not reprehensible. Such agreements are contracts
of adhesion which borrowers have no option but to sign lest their
loan be disapproved. The resort to this scheme leaves poor and
hapless borrowers at the mercy of banks, and is prone to
misinterpretation x x x.
Unfortunately, what happened in Colinares is exactly the

situation in the instant case. This reprehensible bank practice
described in Colinares should be stopped and discouraged. For this
Court to give life to the constitutional provision of non-
imprisonment for nonpayment of debts,22 it is imperative that
petitioner be acquitted of the crime of Estafa under Art. 315, par.
1(b) of the RPC, in relation to PD 115.
WHEREFORE, the Resolution dated February 1, 2012,
upholding the CA’s Decision dated July 28, 2010 and Resolution
dated December 20, 2010 in CA-G.R. CR No. 30426, is hereby
RECONSIDERED. Petitioner Hur Tin Yang is ACQUITTED of
the charge of violating Art. 315, par. 1(b) of the RPC, in relation to
the pertinent provision of PD 115 in Criminal Case Nos. 04-223911
to 34.
SO ORDERED.
Peralta, Abad, Mendoza and Leonen, JJ., concur.
Resolution reconsidered. Petitioner acquitted.
Notes.—An entrustee is one having or taking possession of

goods, documents or instruments under a trust receipt transaction,
and any successor-in-interest of such person for the purpose of
payment in the trust receipt agreement; Obliga-
_______________
22 C , Art. III, Sec. 20 provides, “No person shall be imprisoned for

debt or nonpayment of poll tax.”
623
VOL. 703, AUGUST 14, 2013 623

tions of an Entrustee. (Metropolitan Bank & Trust Company vs.

Gonzales, 584 SCRA 631 [2009])
Forbearance of money refers to the contractual obligation of the
lender or creditor to desist for a fixed period from requiring the
borrower or debtor to repay the loan or debt then due and for which
12% per annum is imposed as interest in the absence of a stipulated
rate. (Land Bank of the Philippines vs. Ong, 636 SCRA 266 [2010])
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12/5/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 384

VOL. 384, JULY 11, 2002 535

LOS BAÑOS RURAL BANK, INC., petitioner, vs. PACITA O.

Remedial Law; Injunction; Injunction is a preservative remedy aimed

536 SUPREME COURT REPORTS ANNOTATED

Los Baños Rural Bank, Inc. vs. Africa

VOL. 384, JULY 11, 2002 537

Los Baños Rural Bank, Inc. vs. Africa

Remedial Law; Injunction; Consummated acts can no longer be

PETITION for review on certiorari of a decision of the Court of

The facts are stated in the opinion of the Court.

A writ of preliminary injunction is issued to preserve the status quo

Statement of the Case

Before us is a Petition for Review under 1Rule 45 of the Rules of2

1 Rollo, pp. 80-87.

538 SUPREME COURT REPORTS ANNOTATED

“Let a writ of preliminary injunction issue in this case to restrain the

The Order of the Regional Trial Court (RTC) of Quezon City

The factual antecedents of the case are summarized by the Court of

3 CA Decision pp. 7-8; Rollo, pp. 86-87.

VOL. 384, JULY 11, 2002 539

5 CA Decision, pp. 2-4; Rollo, pp. 81-83.

540 SUPREME COURT REPORTS ANNOTATED

Ruling of the Court of Appeals

In its Memorandum, petitioner raises the following issues for the

“Whether the Court of Appeals acted with patent grave abuse of

“Whether the Court of Appeals acted with patent grave abuse of

6 CA Decision, p. 7; id., p. 86.

VOL. 384, JULY 11, 2002 541

jurisprudence governing the issuance of preliminary injunction demanded

This Court’s Ruling

Petitioner argues that respondents do not have a right to the relief

8 Petitioner’s Memorandum, pp. 12-13; Rollo, pp. 256-257.

542 SUPREME COURT REPORTS ANNOTATED

The grounds for the issuance of a writ of preliminary injunction are

“Sec. 3. Grounds for issuance of preliminary injunction.—A preliminary

Injunction is a preservative remedy aimed at no other purpose 13

13 Idolor v. Court of Appeals, 351 SCRA 399, February 7, 2001.

VOL. 384, JULY 11, 2002 543

Los Baños Rural Bank, Inc. vs. Africa

19 Lopez v. Court of Appeals, 322 SCRA 686, January 20, 2000.

544 SUPREME COURT REPORTS ANNOTATED

28 Annex “D”; Rollo, p. 106.

VOL. 384, JULY 11, 2002 545

petitioner’s name. After having discovered that the property had

38 See Complaint, Annex “D”; Rollo, p. 106.

546 SUPREME COURT REPORTS ANNOTATED

be annotated at the back of TCT No. 81519, registered in the name

Status Quo Ante

48 Petitioner’s Memorandum, p. 21; Rollo, p. 265.

VOL. 384, JULY 11, 2002 547

Status quo is defined as the last actual peaceful uncontested situation

In the instant case, the status quo was the situation

Puno (Chairman), Sandoval-Gutierrez and Carpio, JJ.,

Petition denied, judgment affirmed.

548 SUPREME COURT REPORTS ANNOTATED

Note.—The sole objective of a writ of preliminary injunction is

© Copyright 2018 Central Book Supply, Inc. All rights reserved.

620 SUPREME COURT REPORTS ANNOTATED

THE PROVINCE OF BATAAN, petitioner-appellant, vs. HON.

Actions; Escrow; Words and Phrases; An escrow is a written

discontinuances and releases of causes of action. Moreover, it is no longer

VOL. 367, OCTOBER 19, 2001 621

Province of Bataan vs. Villafuerte, Jr.