SECOND DIVISION

[G.R. No. 166884. June 13, 2012.]

LAND BANK OF THE PHILIPPINES, petitioner, vs. LAMBERTO C. PEREZ, NESTOR C. KUN, MA. ESTELITA P.
ANGELES-PANLILIO, and NAPOLEON O. GARCIA, respondents.

DECISION

BRION, J p:

Before this Court is a petition for review on certiorari, 1 under Rule 45 of the Rules of Court, assailing the decision 2 dated
January 20, 2005 of the Court of Appeals in CA-G.R. SP No. 76588. In the assailed decision, the Court of Appeals
dismissed the criminal complaint for estafa against the respondents, Lamberto C. Perez, Nestor C. Kun, Ma. Estelita P.
Angeles-Panlilio and Napoleon Garcia, who allegedly violated Article 315, paragraph 1 (b) of the Revised Penal Code, in
relation with Section 13 of Presidential Decree No. (P.D.) 115 — the "Trust Receipts Law."

Petitioner Land Bank of the Philippines (LBP) is a government financial institution and the official depository of the
Philippines. 3 Respondents are the officers and representatives of Asian Construction and Development
Corporation (ACDC), a corporation incorporated under Philippine law and engaged in the construction business. 4

On June 7, 1999, LBP filed a complaint for estafa or violation of Article 315, paragraph 1 (b) of the Revised Penal Code, in
relation to P.D. 115, against the respondents before the City Prosecutor's Office in Makati City. In the affidavit-
complaint 5 of June 7, 1999, the LBP's Account Officer for the Account Management Development, Edna L. Juan, stated
that LBP extended a credit accommodation to ACDC through the execution of an Omnibus Credit Line
Agreement (Agreement) 6 between LBP and ACDC on October 29, 1996. In various instances, ACDC used the Letters of
Credit/Trust Receipts Facility of the Agreement to buy construction materials. The respondents, as officers and
representatives of ACDC, executed trust receipts 7 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 Facility in the amount of P66,425,924.39. When
ACDC failed to comply with the demand letter, LBP filed the affidavit-complaint. TAcSaC

The respondents filed a joint affidavit 9 wherein they stated that they signed the trust receipt documents on or about the
same time LBP and ACDC executed the loan documents; their signatures were required by LBP for the release of the
loans. The trust receipts in this case do not contain (1) a description of the goods placed in trust, (2) their invoice values,
and (3) their maturity dates, in violation of Section 5 (a) of P.D. 115. Moreover, they alleged that ACDC acted as a
subcontractor for government projects such as the Metro Rail Transit, the Clark Centennial Exposition and the Quezon
Power Plant in Mauban, Quezon. Its clients for the construction projects, which were the general contractors of these
projects, have not yet paid them; thus, ACDC had yet to receive the proceeds of the materials that were the subject of the
trust receipts and were allegedly used for these constructions. As there were no proceeds received from these clients, no
misappropriation thereof could have taken place.

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

WHEREFORE, premises considered, and for insufficiency of evidence, it is respectfully recommended that the instant
complaints be dismissed, as upon approval, the same are hereby dismissed. 11

LBP filed a motion for reconsideration which the Makati Assistant City Prosecutor denied in his order of January 7,
2000. 12
On appeal, the Secretary of Justice reversed the Resolution of the Assistant City Prosecutor. In his resolution of August 1,
2002, 13 the Secretary of Justice pointed out that there was no question that the goods covered by the trust receipts were
received by ACDC. He likewise adopted LBP's argument that while the subjects of the trust receipts were not mentioned
in the trust receipts, they were listed in the letters of credit referred to in the trust receipts. He also noted that the trust
receipts contained maturity dates and clearly set out their stipulations. He further rejected the respondents' defense that
ACDC failed to remit the payments to LBP due to the failure of the clients of ACDC to pay them. The dispositive portion of
the resolution reads: ACIESH

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

The respondents filed a motion for reconsideration of the resolution dated August 1, 2002, which the Secretary of Justice
denied. 15 He rejected the respondents' submission that Colinares v. Court of Appeals 16 does not apply to the case. He
explained that in Colinares, the building materials were delivered to the accused before they applied to the bank for a loan
to pay for the merchandise; thus, the ownership of the merchandise had already been transferred to the entrustees before
the trust receipts agreements were entered into. In the present case, the parties have already entered into the Agreement
before the construction materials were delivered to ACDC.

Subsequently, the respondents filed a petition for review before the Court of Appeals.

After both parties submitted their respective Memoranda, the Court of Appeals promulgated the assailed decision of
January 20, 2005. 17 Applying the doctrine in Colinares, it ruled that this case did not involve a trust receipt transaction,
but a mere loan. It emphasized that construction materials, the subject of the trust receipt transaction, were delivered to
ACDC even before the trust receipts were executed. It noted that LBP did not offer proof that the goods were received by
ACDC, and that the trust receipts did not contain a description of the goods, their invoice value, the amount of the draft to
be paid, and their maturity dates. It also adopted ACDC's argument that since no payment for the construction projects
had been received by ACDC, its officers could not have been guilty of misappropriating any payment. The dispositive
portion reads:

WHEREFORE, in view of the foregoing, the Petition is GIVEN DUE COURSE. The assailed Resolutions of the
respondent Secretary of Justice dated August 1, 2002 and February 17, 2003, respectively in I.S. No. 99-F-9218-28 are
hereby REVERSED and SET ASIDE. 18

LBP now files this petition for review on certiorari, dated March 15, 2005, raising the following error: AEIDTc

THE COURT OF APPEALS GRAVELY ERRED WHEN IT REVERSED AND SET ASIDE THE RESOLUTIONS OF THE
HONORABLE SECRETARY OF JUSTICE BY APPLYING THE RULING IN THE CASE OF COLINARES V. COURT OF
APPEALS, 339 SCRA 609, WHICH IS NOT APPLICABLE IN THE CASE AT BAR. 19

On April 8, 2010, while the case was pending before this Court, the respondents filed a motion to dismiss. 20 They
informed the Court that LBP had already assigned to Philippine Opportunities for Growth and Income, Inc. all of its rights,
title and interests in the loans subject of this case in a Deed of Absolute Sale dated June 23, 2005 (attached as Annex "C"
of the motion). The respondents also stated that Avent Holdings Corporation, in behalf of ACDC, had already settled
ACDC's obligation to LBP on October 8, 2009. Included as Annex "A" in this motion was a certification 21 issued by the
Philippine Opportunities for Growth and Income, Inc., stating that it was LBP's successor-in-interest insofar as the trust
receipts in this case are concerned and that Avent Holdings Corporation had already settled the claims of LBP or
obligations of ACDC arising from these trust receipts.

We deny this petition.

The disputed transactions are not trust receipts.

Section 4 of P.D. 115 defines a trust receipt transaction in this manner:

Section 4. What constitutes a trust receipt transaction. — A trust receipt transaction, within the meaning of this Decree, is
any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this
Decree as entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified
goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and
delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the
designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods,
documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount
owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are
unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other
purposes substantially equivalent to any of the following: cCHITA

1. In the case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or process the
goods with the purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for the purpose
of manufacturing or processing before its ultimate sale, the entruster shall retain its title over the goods whether in its
original or processed form until the entrustee has complied fully with his obligation under the trust receipt; or (c) to load,
unload, ship or tranship or otherwise deal with them in a manner preliminary or necessary to their sale[.]

There are two obligations in a trust receipt transaction. The first is covered by the provision that refers to money under the
obligation to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision referring
to merchandise received under the obligation to return it (devolvera) to the owner. Thus, under the Trust Receipts
Law, 22 intent to defraud is presumed when (1) the entrustee fails to turn over the proceeds of the sale of goods covered
by the trust receipt to the entruster; or (2) when the entrustee fails to return the goods under trust, if they are not disposed
of in accordance with the terms of the trust receipts. 23

In all trust receipt transactions, both obligations on the part of the trustee exist in the alternative — the return of the
proceeds of the sale or the return or recovery of the goods, whether raw or processed. 24 When both parties enter into an
agreement knowing that the return of the goods subject of the trust receipt is not possible even without any fault on the
part of the trustee, it is not a trust receipt transaction penalized under Section 13 of P.D. 115; the only obligation actually
agreed upon by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere
loan, 25 where the borrower is obligated to pay the bank the amount spent for the purchase of the goods.

Article 1371 of the Civil Code provides that "[i]n order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered." Under this provision, we can examine the
contemporaneous actions of the parties rather than rely purely on the trust receipts that they signed in order to understand
the transaction through their intent. IAEcCa

We note in this regard that at the onset of these transactions, LBP knew that ACDC was in the construction business and
that the materials that it sought to buy under the letters of credit were to be used for the following projects: the Metro Rail
Transit Project and the Clark Centennial Exposition Project. 26 LBP had in fact authorized the delivery of the materials on
the construction sites for these projects, as seen in the letters of credit it attached to its complaint. 27 Clearly, they were
aware of the fact that there was no way they could recover the buildings or constructions for which the materials subject of
the alleged trust receipts had been used. Notably, despite the allegations in the affidavit-complaint wherein LBP sought
the return of the construction materials, 28 its demand letter dated May 4, 1999 sought the payment of the balance but
failed to ask, as an alternative, for the return of the construction materials or the buildings where these materials had been
used. 29

The fact that LBP had knowingly authorized the delivery of construction materials to a construction site of two government
projects, as well as unspecified construction sites, repudiates the idea that LBP intended to be the owner of those
construction materials. As a government financial institution, LBP should have been aware that the materials were to be
used for the construction of an immovable property, as well as a property of the public domain. As an immovable property,
the ownership of whatever was constructed with those materials would presumably belong to the owner of the land, under
Article 445 of the Civil Code which provides:

Article 445. Whatever is built, planted or sown on the land of another and the improvements or repairs made thereon,
belong to the owner of the land, subject to the provisions of the following articles.
Even if we consider the vague possibility that the materials, consisting of cement, bolts and reinforcing steel bars, would
be used for the construction of a movable property, the ownership of these properties would still pertain to the government
and not remain with the bank as they would be classified as property of the public domain, which is defined by the Civil
Code as:

Article 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State,
banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public service or for the
development of the national wealth. HAaScT

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. EHTIDA

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 . . . sustains the lower court's rationale in dismissing the information that the contract
covered by a trust receipt is merely a secured loan. The goods imported by the small importer and retail dealer through
the bank's financing remain of their own property and risk and the old capitalist orientation of putting them in jail for estafa
for non-payment of the secured loan (granted after they had been fully investigated by the bank as good credit risks)
through the fiction of the trust receipt device should no longer be permitted in this day and age.

As the law stands today, violations of Trust Receipts Law are criminally punishable, but no criminal complaint for violation
of Article 315, paragraph 1 (b) of the Revised Penal Code, in relation with P.D. 115, should prosper against a borrower
who was not part of a genuine trust receipt transaction.

Misappropriation or abuse of confidence is absent in this case.

Even if we assume that the transactions were trust receipts, the complaint against the respondents still should have been
dismissed. The Trust Receipts Law punishes the dishonesty and abuse of confidence in the handling of money or goods
to the prejudice of another, regardless of whether the latter is the owner or not. The law does not singularly seek to
enforce payment of the loan, as "there can be no violation of [the] right against imprisonment for non-payment of a
debt." 34 TCAScE

In order that the respondents "may be validly prosecuted for estafa under Article 315, paragraph 1 (b) of the Revised
Penal Code, 35 in relation with Section 13 of the Trust Receipts Law, the following elements must be established: (a) they
received the subject goods in trust or under the obligation to sell the same and to remit the proceeds thereof to [the
trustor], or to return the goods if not sold; (b) they misappropriated or converted the goods and/or the proceeds of the
sale; (c) they performed such acts with abuse of confidence to the damage and prejudice of Metrobank; and (d) demand
was made on them by [the trustor] for the remittance of the proceeds or the return of the unsold goods." 36

In this case, no dishonesty or abuse of confidence existed in the handling of the construction materials.

In this case, the misappropriation could be committed should the entrustee fail to turn over the proceeds of the sale of the
goods covered by the trust receipt transaction or fail to return the goods themselves. The respondents could not have
failed to return the proceeds since their allegations that the clients of ACDC had not paid for the projects it had undertaken
with them at the time the case was filed had never been questioned or denied by LBP. What can only be attributed to the
respondents would be the failure to return the goods subject of the trust receipts.

We do not likewise see any allegation in the complaint that ACDC had used the construction materials in a manner that
LBP had not authorized. As earlier pointed out, LBP had authorized the delivery of these materials to these project sites
for which they were used. When it had done so, LBP should have been aware that it could not possibly recover the
processed materials as they would become part of government projects, two of which (the Metro Rail Transit Project and
the Quezon Power Plant Project) had even become part of the operations of public utilities vital to public service. It clearly
had no intention of getting these materials back; if it had, as a primary government lending institution, it would be guilty of
extreme negligence and incompetence in not foreseeing the legal complications and public inconvenience that would
arise should it decide to claim the materials. ACDC's failure to return these materials or their end product at the time these
"trust receipts" expired could not be attributed to its volition. No bad faith, malice, negligence or breach of contract has
been attributed to ACDC, its officers or representatives. Therefore, absent any abuse of confidence or misappropriation
on the part of the respondents, the criminal proceedings against them for estafa should not prosper. CAcDTI

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. . . . It shall have the following specific powers and functions:

(1) Represent the Government in the Supreme Court and the Court of Appeals in all criminal proceedings;
represent the Government and its officers in the Supreme Court, the Court of Appeals and all other courts or tribunals in
all civil actions and special proceedings in which the Government or any officer thereof in his official capacity is a party.
(Emphasis provided.)

In Heirs of Federico C. Delgado v. Gonzalez, 38 we ruled that the preliminary investigation is part of a criminal
proceeding. As all criminal proceedings before the Supreme Court and the Court of Appeals may be brought and
defended by only the Solicitor General in behalf of the Republic of the Philippines, a criminal action brought to us by a
private party alone suffers from a fatal defect. The present petition was brought in behalf of LBP by the Government
Corporate Counsel to protect its private interests. Since the representative of the "People of the Philippines" had not taken
any part of the case, it should be dismissed. DSAICa

On the other hand, if we look at the mandate given to the Office of the Government Corporate Counsel, we find that it is
limited to the civil liabilities arising from the crime, and is subject to the control and supervision of the public prosecutor.
Section 2, Rule 8 of the Rules Governing the Exercise by the Office of the Government Corporate Counsel of its Authority,
Duties and Powers as Principal Law Office of All Government Owned or Controlled Corporations, filed before the Office of
the National Administration Register on September 5, 2011, reads:

Section 2. Extent of legal assistance. — The OGCC shall represent the complaining GOCC in all stages of the criminal
proceedings. The legal assistance extended is not limited to the preparation of appropriate sworn statements but shall
include all aspects of an effective private prosecution including recovery of civil liability arising from the crime, subject to
the control and supervision of the public prosecutor.

Based on jurisprudence, there are two exceptions when a private party complainant or offended party in a criminal case
may file a petition with this Court, without the intervention of the OSG: (1) when there is denial of due process of law to the
prosecution, and the State or its agents refuse to act on the case to the prejudice of the State and the private offended
party; 39 and (2) when the private offended party questions the civil aspect of a decision of the lower court. 40

In this petition, LBP fails to allege any inaction or refusal to act on the part of the OSG, tantamount to a denial of due
process. No explanation appears as to why the OSG was not a party to the case. Neither can LBP now question the civil
aspect of this decision as it had already assigned ACDC's debts to a third person, Philippine Opportunities for Growth and
Income, Inc., and the civil liabilities appear to have already been settled by Avent Holdings Corporation, in behalf of
ACDC. These facts have not been disputed by LBP. Therefore, we can reasonably conclude that LBP no longer has any
claims against ACDC, as regards the subject matter of this case, that would entitle it to file a civil or criminal
action. TacADE

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.
 THIRD DIVISION

[G.R. No. 173905. April 23, 2010.]

ANTHONY L. NG, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent.

DECISION

VELASCO, JR., J p:

The Case

This is a Petition for Review on Certiorari under Rule 45 seeking to reverse and set aside the August 29, 2003
Decision 1 and July 25, 2006 Resolution of the Court of Appeals (CA) in CA-G.R. CR No. 25525, which affirmed the
Decision 2 of the Regional Trial Court (RTC), Branch 95 in Quezon City, in Criminal Case No. Q-99-85133
for Estafa under Article 315, paragraph 1 (b) of the Revised Penal Code (RPC) in relation to Section 3 of Presidential
Decree No. (PD) 115 or the Trust Receipts Law. aEcDTC

The Facts

Sometime in the early part of 1997, petitioner Anthony Ng, then engaged in the business of building and fabricating
telecommunication towers under the trade name "Capitol Blacksmith and Builders," applied for a credit line of
PhP3,000,000 with Asiatrust Development Bank, Inc. (Asiatrust). In support of Asiatrust's credit investigation, petitioner
voluntarily submitted the following documents: (1) the contracts he had with Islacom, Smart, and Infocom; (2) the list of
projects wherein he was commissioned by the said telecommunication companies to build several steel towers; and (3)
the collectible amounts he has with the said companies. 3

On May 30, 1997, Asiatrust approved petitioner's loan application. Petitioner was then required to sign several
documents, among which are the Credit Line Agreement, Application and Agreement for Irrevocable L/C, Trust Receipt
Agreements, 4 and Promissory Notes. Though the Promissory Notes matured on September 18, 1997, the two (2)
aforementioned Trust Receipt Agreements did not bear any maturity dates as they were left unfilled or in blank by
Asiatrust. 5

After petitioner received the goods, consisting of chemicals and metal plates from his suppliers, he utilized them to
fabricate the communication towers ordered from him by his clients which were installed in three project sites, namely:
Isabel, Leyte; Panabo, Davao; and Tongonan.

As petitioner realized difficulty in collecting from his client Islacom, he failed to pay his loan to Asiatrust. Asiatrust then
conducted a surprise ocular inspection of petitioner's business through Villarva S. Linga, Asiatrust's representative
appraiser. Linga thereafter reported to Asiatrust that he found that approximately 97% of the subject goods of the Trust
Receipts were "sold-out and that only 3% of the goods pertaining to PN No. 1963 remained." Asiatrust then endorsed
petitioner's account to its Account Management Division for the possible restructuring of his loan. The parties thereafter
held a series of conferences to work out the problem and to determine a way for petitioner to pay his debts. However,
efforts towards a settlement failed to be reached.

On March 16, 1999, Remedial Account Officer Ma. Girlie C. Bernardez filed a Complaint-Affidavit before the Office of the
City Prosecutor of Quezon City. Consequently, on September 12, 1999, an Information for Estafa, as defined and
penalized under Art. 315, par. 1 (b) of the RPC in relation to Sec. 3, PD 115 or the Trust Receipts Law, was filed with the
RTC. The said Information reads: cSATDC

That on or about the 30th day of May 1997, in Quezon City, Philippines, the above-named petitioner, did then and there
willfully, unlawfully, and feloniously defraud Ma. Girlie C. Bernardez by entering into a Trust Receipt Agreement with said
complainant whereby said petitioner as entrustee received in trust from the said complainant various chemicals in the total
sum of P4.5 million with the obligation to hold the said chemicals in trust as property of the entruster with the right to sell
the same for cash and to remit the proceeds thereof to the entruster, or to return the said chemicals if unsold; but said
petitioner once in possession of the same, contrary to his aforesaid obligation under the trust receipt agreement with
intent to defraud did then and there misappropriated, misapplied and converted the said amount to his own personal use
and benefit and despite repeated demands made upon him, said petitioner refused and failed and still refuses and fails to
make good of his obligation, to the damage and prejudice of the said Ma. Girlie C. Bernardez in the amount of
P2,971,650.00, Philippine Currency.

CONTRARY TO LAW.

Upon arraignment, petitioner pleaded not guilty to the charges. Thereafter, a full-blown trial ensued.

During the pendency of the abovementioned case, conferences between petitioner and Asiatrust's Remedial Account
Officer, Daniel Yap, were held. Afterward, a Compromise Agreement was drafted by Asiatrust. One of the requirements of
the Compromise Agreement was for petitioner to issue six (6) postdated checks. Petitioner, in good faith, tried to comply
by issuing two or three checks, which were deposited and made good. The remaining checks, however, were not
deposited as the Compromise Agreement did not push through.

For his defense, petitioner argued that: (1) the loan was granted as his working capital and that the Trust Receipt
Agreements he signed with Asiatrust were merely preconditions for the grant and approval of his loan; (2) the Trust
Receipt Agreement corresponding to Letter of Credit No. 1963 and the Trust Receipt Agreement corresponding to Letter
of Credit No. 1964 were both contracts of adhesion, since the stipulations found in the documents were prepared by
Asiatrust in fine print; (3) unfortunately for petitioner, his contract worth PhP18,000,000 with Islacom was not yet paid
since there was a squabble as to the real ownership of the latter's company, but Asiatrust was aware of petitioner's
receivables which were more than sufficient to cover the obligation as shown in the various Project Listings with Islacom,
Smart Communications, and Infocom; (4) prior to the Islacom problem, he had been faithfully paying his obligation to
Asiatrust as shown in Official Receipt Nos. 549001, 549002, 565558, 577198, 577199, and 594986, 6 thus debunking
Asiatrust's claim of fraud and bad faith against him; (5) during the pendency of this case, petitioner even attempted to
settle his obligations as evidenced by the two United Coconut Planters Bank Checks 7 he issued in favor of Asiatrust; and
(6) he had already paid PhP1.8 million out of the PhP2.971 million he owed as per Statement of Account dated January
26, 2000. cAEaSC

Ruling of the Trial Court

After trial on the merits, the RTC, on May 29, 2001, rendered a Decision, finding petitioner guilty of the crime of Estafa.
The fallo of the Decision reads as follows:

WHEREFORE, judgment is hereby rendered finding the petitioner, Anthony L. Ng GUILTY beyond reasonable doubt for
the crime of Estafa defined in and penalized by Article 315, paragraph 1(b) of the Revised Penal Code in relation to
Section 3 of Presidential Decree 115, otherwise known as the Trust Receipts Law, and is hereby sentenced to suffer the
indeterminate penalty of from six (6) years, eight (8) months, and twenty one (21) days of prision mayor, minimum, as the
minimum penalty, to twenty (20) years of reclusion temporal maximum, as the maximum penalty.

The petitioner is further ordered to return to the Asiatrust Development Bank, Inc. the amount of Two Million, Nine
Hundred Seventy One and Six Hundred Fifty Pesos n (P2,971,650.00) with legal rate of interest computed from the filing
of the information on September 21, 1999 until the amount is fully paid.

IT IS SO ORDERED.

In rendering its Decision, the trial court held that petitioner could not simply argue that the contracts he had entered into
with Asiatrust were void as they were contracts of adhesion. It reasoned that petitioner is presumed to have read and
understood and is, therefore, bound by the provisions of the Letters of Credit and Trust Receipts. It said that it was clear
that Asiatrust had furnished petitioner with a Statement of Account enumerating therein the precise figures of the
outstanding balance, which he failed to pay along with the computation of other fees and charges; thus, Asiatrust did not
violate Republic Act No. 3765 (Truth in Lending Act). Finally, the trial court declared that petitioner, being the entrustee
stated in the Trust Receipts issued by Asiatrust, is thus obliged to hold the goods in trust for the entruster and shall
dispose of them strictly in accordance with the terms and conditions of the trust receipts; otherwise, he is obliged to return
the goods in the event of non-sale or upon demand of the entruster, failing thus, he evidently violated the Trust Receipts
Law. AacSTE

Ruling of the Appellate Court

Petitioner then elevated the case to the CA by filing a Notice of Appeal on August 6, 2001. In his Appellant's Brief dated
March 25, 2002, petitioner argued that the court a quo erred: (1) in changing the name of the offended party without the
benefit of an amendment of the Information which violates his right to be informed of the nature and cause of accusation
against him; (2) in making a finding of facts not in accord with that actually proved in the trial and/or by the evidence
provided; (3) in not considering the material facts which if taken into account would have resulted in his acquittal; (4) in
being biased, hostile, and prejudiced against him; and (5) in considering the prosecution's evidence which did not prove
the guilt of petitioner beyond reasonable doubt.

On August 29, 2003, the CA rendered a Decision affirming that of the RTC, the fallo of which reads:

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

SO ORDERED.

The CA held that during the course of the trial, petitioner knew that the complainant Bernardez and the other co-witnesses
are all employees of Asiatrust and that she is suing in behalf of the bank. Since petitioner transacted with the same
employees for the issuance of the subject Trust Receipts, he cannot feign ignorance that Asiatrust is not the offended
party in the instant case. The CA further stated that the change in the name of the complainant will not prejudice and alter
the fact that petitioner was being charged with the crime of Estafa in relation to the Trust Receipts Law, since the
information clearly set forth the essential elements of the crime charged, and the constitutional right of petitioner to be
informed of the nature and cause of his accusations is not violated. 8

As to the alleged error in the appreciation of facts by the trial court, the CA stated that it was undisputed that petitioner
entered into a trust receipt agreement with Asiatrust and he failed to pay the bank his obligation when it became due.
According to the CA, the fact that petitioner acted without malice or fraud in entering into the transactions has no bearing,
since the offense is punished as malum prohibitum regardless of the existence of intent or malice; the mere failure to
deliver the proceeds of the sale or the goods if not sold constitutes the criminal offense. HSaCcE

With regard to the failure of the RTC to consider the fact that petitioner's outstanding receivables are sufficient to cover his
indebtedness and that no written demand was made upon him hence his obligation has not yet become due and
demandable, the CA stated that the mere query as to the whereabouts of the goods and/or money is tantamount to a
demand. 9

Concerning the alleged bias, hostility, and prejudice of the RTC against petitioner, the CA said that petitioner failed to
present any substantial proof to support the aforementioned allegations against the RTC.

After the receipt of the CA Decision, petitioner moved for its reconsideration, which was denied by the CA in its Resolution
dated July 25, 2006. Thereafter, petitioner filed this Petition for Review on Certiorari. In his Memorandum, he raised the
following issues:

Issues:

1. The prosecution failed to adduce evidence beyond a reasonable doubt to satisfy the 2nd essential element that there
was misappropriation or conversion of subject money or property by petitioner.

2. The state was unable to prove the 3rd essential element of the crime that the alleged misappropriation or conversion is
to the prejudice of the real offended property.

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

The Court's Ruling

We find the petition to be meritorious.

Essentially, the issues raised by petitioner can be summed up into one — whether or not petitioner is liable
for Estafa under Art. 315, par. 1 (b) of the RPC in relation to PD 115.
It is a well-recognized principle that factual findings of the trial court are entitled to great weight and respect by this Court,
more so when they are affirmed by the appellate court. However, the rule is not without exceptions, such as: (1) when the
conclusion is a finding grounded entirely on speculations, surmises, and conjectures; (2) the inferences made are
manifestly mistaken; (3) there is grave abuse of discretion; and (4) the judgment is based on misapprehension of facts or
premised on the absence of evidence on record. 10 Especially in criminal cases where the accused stands to lose his
liberty by virtue of his conviction, the Court must be satisfied that the factual findings and conclusions of the lower courts
leading to his conviction must satisfy the standard of proof beyond reasonable doubt. STECAc

In the case at bar, petitioner was charged with Estafa under Art. 315, par. 1 (b) of the RPC in relation to PD 115.
The RPC defines Estafa as:

ART. 315. Swindling (estafa). — Any person who shall defraud another by any of the means mentioned hereinbelow . . .

1. With unfaithfulness or abuse of confidence, namely:

a. . . .

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 . . . . 11

Based on the definition above, the essential elements of Estafa are: (1) that money, goods or other personal property is
received by the offender in trust or on commission, or for administration, or under any obligation involving the duty to
make delivery of or to return it; (2) that there be misappropriation or conversion of such money or property by the offender,
or denial on his part of such receipt; (3) that such misappropriation or conversion or denial is to the prejudice of another;
and (4) there is demand by the offended party to the offender. 12

Likewise, Estafa can also be committed in what is called a "trust receipt transaction" under PD 115, which is defined as:

Section 4. What constitutes a trust receipts transaction. — A trust receipt transaction, within the meaning of this
Decree, is any transaction by and between a person referred to in this Decree as the entruster, and another person
referred to in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or security interests over
certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's
execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to
hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the
goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the
amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if
they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or
for other purposes substantially equivalent to any of the following: HacADE

1. In the case of goods or documents: (a) to sell the goods or procure their sale; or (b) to manufacture or process the
goods with the purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for the purpose
of manufacturing or processing before its ultimate sale, the entruster shall retain its title over the goods whether in its
original or processed form until the entrustee has complied full with his obligation under the trust receipt; or (c) to load,
unload, ship or transship or otherwise deal with them in a manner preliminary or necessary to their sale; or

2. In the case of instruments: (a) to sell or procure their sale or exchange; or (b) to deliver them to a principal; or (c) to
effect the consummation of some transactions involving delivery to a depository or register; or (d) to effect their
presentation, collection or renewal.

The sale of good, documents or instruments by a person in the business of selling goods, documents or instruments for
profit who, at the outset of transaction, has, as against the buyer, general property rights in such goods, documents or
instruments, or who sells the same to the buyer on credit, retaining title or other interest as security for the payment of the
purchase price, does not constitute a trust receipt transaction and is outside the purview and coverage of this Decree.
In other words, a trust receipt transaction is one where the entrustee has the obligation to deliver to the entruster the price
of the sale, or if the merchandise is not sold, to return the merchandise to the entruster. There are, therefore, two
obligations in a trust receipt transaction: the first refers to money received under the obligation involving the duty to turn it
over (entregarla) to the owner of the merchandise sold, while the second refers to the merchandise received under the
obligation to "return" it (devolvera) to the owner. 13 A violation of any of these undertakings constitutes Estafa defined
under Art. 315, par. 1 (b) of the RPC, as provided in Sec. 13 of PD 115, viz.:

Section 13. Penalty Clause. — The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in
the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance
with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three
hundred fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise
known as the Revised Penal Code. . . . (Emphasis supplied.) SAEHaC

A thorough examination of the facts obtaining in the instant case, however, reveals that the transaction between petitioner
and Asiatrust is not a trust receipt transaction but one of simple loan.

PD 115 Does Not Apply

It must be remembered that petitioner was transparent to Asiatrust from the very beginning that the subject goods were
not being held for sale but were to be used for the fabrication of steel communication towers in accordance with his
contracts with Islacom, Smart, and Infocom. In these contracts, he was commissioned to build, out of the materials
received, steel communication towers, not to sell them.

The true nature of a trust receipt transaction can be found in the "whereas" clause of PD 115 which states that a trust
receipt is to be utilized "as a convenient business device to assist importers and merchants solve their financing
problems." Obviously, the State, in enacting the law, sought to find a way to assist importers and merchants in their
financing in order to encourage commerce in the Philippines.

As stressed in Samo v. People, 14 a trust receipt is considered a security transaction intended to aid in financing
importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise
imported or purchased. Similarly, American Jurisprudence demonstrates that trust receipt transactions always refer to a
method of "financing importations or financing sales." 15 The principle is of course not limited in its application to financing
importations, since the principle is equally applicable to domestic transactions. 16 Regardless of whether the transaction
is foreign or domestic, it is important to note that the transactions discussed in relation to trust receipts mainly involved
sales.

Following the precept of the law, such transactions affect situations wherein the entruster, who owns or holds absolute
title or security interests over specified goods, documents or instruments, releases the subject goods to the possession of
the entrustee. The release of such goods to the entrustee is conditioned upon his execution and delivery to the entruster
of a trust receipt wherein the former binds himself to hold the specific goods, documents or instruments in trust for the
entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the
entruster the proceeds to the extent of the amount owing to the entruster or the goods, documents or instruments
themselves if they are unsold. Similarly, we held in State Investment House v. CA, et al. that the entruster is entitled "only
to the proceeds derived from the sale of goods released under a trust receipt to the entrustee." 17 caIETS

Considering that the goods in this case were never intended for sale but for use in the fabrication of steel communication
towers, the trial court erred in ruling that the agreement is a trust receipt transaction.

In applying the provisions of PD 115, the trial court relied on the Memorandum of Asiatrust's appraiser, Linga, who stated
that the goods have been sold by petitioner and that only 3% of the goods remained in the warehouse where it was
previously stored. But for reasons known only to the trial court, the latter did not give weight to the testimony of Linga
when he testified that he merely presumed that the goods were sold, viz.:

COURT (to the witness)

Q So, in other words, when the goods were not there anymore. You presumed that, that is already sold?

A Yes, your Honor.

Undoubtedly, in his testimony, Linga showed that he had no real personal knowledge or proof of the fact that the goods
were indeed sold. He did not notify petitioner about the inspection nor did he talk to or inquire with petitioner regarding the
whereabouts of the subject goods. Neither did he confirm with petitioner if the subject goods were in fact sold. Therefore,
the Memorandum of Linga, which was based only on his presumption and not any actual personal knowledge, should not
have been used by the trial court to prove that the goods have in fact been sold. At the very least, it could only show that
the goods were not in the warehouse.

Having established the inapplicability of PD 115, this Court finds that petitioner's liability is only limited to the satisfaction
of his obligation from the loan. The real intent of the parties was simply to enter into a simple loan agreement.

To emphasize, the Trust Receipts Law was created to "to aid in financing importers and retail dealers who do not
have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be
able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased." Since
Asiatrust knew that petitioner was neither an importer nor retail dealer, it should have known that the said agreement
could not possibly apply to petitioner.

Moreover, this Court finds that petitioner is not liable for Estafa both under the RPC and PD 115.

Goods Were Not Received in Trust

The first element of Estafa under Art. 315, par. 1 (b) of the RPC requires that the money, goods or other personal property
must be received by the offender in trust or on commission, or for administration, or under any other obligation involving
the duty to make delivery of, or to return it. But as we already discussed, the goods received by petitioner were not held in
trust. They were also not intended for sale and neither did petitioner have the duty to return them. They were only
intended for use in the fabrication of steel communication towers.

No Misappropriation of Goods or Proceeds

The second element of Estafa requires that there be misappropriation or conversion of such money or property by the
offender, or denial on his part of such receipt.

This is the very essence of Estafa under Art. 315, par. 1 (b). The words "convert" and "misappropriated" connote an act of
using or disposing of another's property as if it were one's own, or of devoting it to a purpose or use different from that
agreed upon. To misappropriate for one's own use includes not only conversion to one's personal advantage, but also
every attempt to dispose of the property of another without a right. 18 DaTICc

Petitioner argues that there was no misappropriation or conversion on his part, because his liability for the amount of the
goods subject of the trust receipts arises and becomes due only upon receipt of the proceeds of the sale and not prior to
the receipt of the full price of the goods.

Petitioner is correct. Thus, assuming arguendo that the provisions of PD 115 apply, petitioner is not liable
for Estafa because Sec. 13 of PD 115 provides that an entrustee is only liable for Estafa when he fails "to turn over the
proceeds of the sale of the goods . . . covered by a trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt . . . in accordance with the terms of the trust receipt."

The trust receipt entered into between Asiatrust and petitioner states:

In case of sale I/we agree to hand the proceeds as soon as received to the BANK to apply against the relative
acceptance (as described above) and for the payment of any other indebtedness of mine/ours to ASIATRUST
DEVELOPMENT BANK. 19 (Emphasis supplied.)

Clearly, petitioner was only obligated to turn over the proceeds as soon as he received payment. However, the evidence
reveals that petitioner experienced difficulties in collecting payments from his clients for the communication towers.
Despite this fact, petitioner endeavored to pay his indebtedness to Asiatrust, which payments during the period from
September 1997 to July 1998 total approximately PhP1,500,000. Thus, absent proof that the proceeds have been actually
and fully received by petitioner, his obligation to turn over the same to Asiatrust never arose.

What is more, under the Trust Receipt Agreement itself, no date of maturity was stipulated. The provision left blank by
Asiatrust is as follows:

. . . and in consideration thereof, I/we hereby agree to hold said goods in Trust for the said Bank and as its property with
liberty to sell the same for its account within _______ days from the date of execution of the Trust Receipt . . . 20

In fact, Asiatrust purposely left the space designated for the date blank, an action which in ordinary banking transactions
would be noted as highly irregular. Hence, the only way for the obligation to mature was for Asiatrust to demand from
petitioner to pay the obligation, which it never did. DSTCIa

Again, it also makes the Court wonder as to why Asiatrust decided to leave the provisions for the maturity dates in the
Trust Receipt agreements in blank, since those dates are elemental part of the loan. But then, as can be gleaned from the
records of this case, Asiatrust also knew that the capacity of petitioner to pay for his loan also hinges upon the latter's
receivables from Islacom, Smart, and Infocom where he had ongoing and future projects for fabrication and installation of
steel communication towers and not from the sale of said goods. Being a bank, Asiatrust acted inappropriately when it left
such a sensitive bank instrument with a void circumstance on an elementary but vital feature of each and every loan
transaction, that is, the maturity dates. Without stating the maturity dates, it was impossible for petitioner to determine
when the loan will be due.

Moreover, Asiatrust was aware that petitioner was not engaged in selling the subject goods and that petitioner will use
them for the fabrication and installation of communication towers. Before granting petitioner the credit line, as
aforementioned, Asiatrust conducted an investigation, which showed that petitioner fabricated and installed
communication towers for well-known communication companies to be installed at designated project sites. In fine, there
was no abuse of confidence to speak of nor was there any intention to convert the subject goods for another purpose,
since petitioner did not withhold the fact that they were to be used to fabricate steel communication towers to Asiatrust.
Hence, no malice or abuse of confidence and misappropriation occurred in this instance due to Asiatrust's knowledge of
the facts.

Furthermore, Asiatrust was informed at the time of petitioner's application for the loan that the payment for the loan would
be derived from the collectibles of his clients. Petitioner informed Asiatrust that he was having extreme difficulties in
collecting from Islacom the full contracted price of the towers. Thus, the duty of petitioner to remit the proceeds of the
goods has not yet arisen since he has yet to receive proceeds of the goods. Again, petitioner could not be said to have
misappropriated or converted the proceeds of the transaction since he has not yet received the proceeds from his client,
Islacom.

This Court also takes judicial notice of the fact that petitioner has fully paid his obligation to Asiatrust, making the claim for
damage and prejudice of Asiatrust baseless and unfounded. Given that the acceptance of payment by Asiatrust
necessarily extinguished petitioner's obligation, then there is no longer any obligation on petitioner's part to speak of, thus
precluding Asiatrust from claiming any damage. This is evidenced by Asiatrust's Affidavit of Desistance 21 acknowledging
full payment of the loan. DcAaSI

Reasonable Doubt Exists

In the final analysis, the prosecution failed to prove beyond reasonable doubt that petitioner was guilty of Estafa under Art.
315, par. 1 (b) of the RPC in relation to the pertinent provision of PD 115 or the Trust Receipts Law; thus, his liability
should only be civil in nature.

While petitioner admits to his civil liability to Asiatrust, he nevertheless does not have criminal liability. It is a well-
established principle that person is presumed innocent until proved guilty. To overcome the presumption, his guilt must be
shown by proof beyond reasonable doubt. Thus, we held in People v. Mariano 22 that while the principle does not
connote absolute certainty, it means the degree of proof which produces moral certainty in an unprejudiced mind of the
culpability of the accused. Such proof should convince and satisfy the reason and conscience of those who are to act
upon it that the accused is in fact guilty. The prosecution, in this instant case, failed to rebut the constitutional innocence
of petitioner and thus the latter should be acquitted.
At this point, the ruling of this Court in Colinares v. Court of Appeals is very apt, thus:

The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them under the
threats of criminal prosecution should they be unable to pay it may be unjust and inequitable, if not reprehensible. Such
agreements are contracts of adhesion which borrowers have no option but to sign lest their loan be disapproved. The
resort to this scheme leaves poor and hapless borrowers at the mercy of banks, and is prone to misinterpretation . . . . 23

Such is the situation in this case.

Asiatrust's intention became more evident when, on March 30, 2009, it, along with petitioner, filed their Joint Motion for
Leave to File and Admit Attached Affidavit of Desistance to qualify the Affidavit of Desistance executed by Felino H.
Esquivas, Jr., attorney-in-fact of the Board of Asiatrust, which acknowledged the full payment of the obligation of the
petitioner and the successful mediation between the parties.

From the foregoing considerations, we deem it unnecessary to discuss and rule upon the other issues raised in the
appeal. HSCATc

WHEREFORE, the CA Decision dated August 29, 2003 affirming the RTC Decision dated May 29, 2001 is SET ASIDE.
Petitioner ANTHONY L. NG is hereby ACQUITTED of the charge of violation of Art. 315, par. 1 (b) of the RPC in relation
to the pertinent provision of PD 115.

SO ORDERED.
 THIRD DIVISION

[G.R. NO. 155647. November 23, 2007.]

METROPOLITAN BANK & TRUST COMPANY, petitioner, vs. JIMMY GO and BENJAMIN GO BAUTISTA alias
BENJAMIN GO, respondents.

DECISION

NACHURA, J p:

Petitioner Metropolitan Bank & Trust Company (Metrobank) urges this Court to review on certiorari under Rule 45 of
the 1997 Rules of Civil Procedure the Decision dated August 15, 2002 and the Resolution dated October 15, 2002, both
of the Court of Appeals in CA-G.R. SP No. 61544. 1

The Facts of the Case

On September 30, 1988, Metrobank, through its Assistant Vice-President Leonardo B. Lejano, executed a Credit Line
Agreement 2 in favor of its client, BGB Industrial Textile Mills, Inc. (BGB) in the total amount of P10,000,000.00. As
security for the obligation, private respondent Benjamin Go (now deceased), being an officer of BGB, executed a
Continuing Surety Agreement 3 in favor of Metrobank, binding himself solidarily with BGB to pay Metrobank the said
amount of P10,000,000.00. cDCEIA

In November 1988, private respondent Jimmy Go, as general manager of BGB, applied for eleven (11) commercial letters
of credit to cover the shipment of raw materials and spare parts. Accordingly, Metrobank issued the 11 irrevocable letters
of credit to BGB. The merchandise/shipments were delivered to and accepted by BGB on different dates. Consequently,
11 trust receipts were executed by BGB thru Jimmy Go and Benjamin Go, as entrustees, in favor of Metrobank as
entruster. The letters of credit and their corresponding trust receipts are listed below:

Letter of Credit No. Expiry Date of Trust Amount of Trust

Receipt Receipt

DIV88-1941NC 4 Feb. 18, 1989 P1,625,395.38 5

DIV88-1940NC 6 March 04, 1989 P3,011,249.71 7
DIV88-1925NC 8 March 07, 1989 P508,252.16 9
DIV88-1926NC 10 March 07, 1989 P626,165.28 11
DIV88-1924NC 12 March 14, 1989 P452,289.55 13
DIV88-1930NC 14 April 04, 1989 P660,348.00 15
DIV88-1931NC 16 April 04, 1989 P594,313.20 17
DIV88-1923NC 18 April 10, 1989 P358,113.33 19
DIV88-1951NC 20 April 12, 1989 P1,720,882.07 21
DIV88-1932NC 22 April 19, 1989 P244,250.26 23
DIV88-1952NC 24 May 25, 1989 P1,413,999.11 25
By the terms of the trust receipts, BGB agreed to hold the goods in trust for Metrobank and, in case of sale of the goods,
to hand the proceeds to the bank to be applied against the total obligation object of the trust receipts.

On maturity dates of the trust receipts, because the goods remained unsold, BGB and Jimmy and Benjamin Go failed to
satisfy their obligation. Metrobank filed three (3) separate complaints against BGB, for collection of sum of money
equivalent to the value of the goods subject of the trust receipts. The cases were filed with the Makati Regional Trial Court
and docketed as Civil Case Nos. 93-496, 93-509, and 93-910. TSAHIa

Later, Metrobank instituted 11 criminal charges against Jimmy and Benjamin Go for violation of Presidential Decree No.
115 (Trust Receipts Law) before the Office of the City Prosecutor of Manila.

After preliminary investigation, the Office of the City Prosecutor of Manila issued a Resolution 26 in I.S. Nos. 94D-09945-
55 dated May 31, 1995 recommending the dismissal of the case, viz.:

The liability of respondents is only civil in nature in the absence of commission and misappropriation. Respondents are
liable ex-contractu for breach of the Letters of Credit — Trust Receipt.
In the instant case, the goods subject of the trust receipts have not been sold, so there is (sic) no proceeds to deliver to
the bank.

Granting for the sake of argument that respondents failed to account for said goods, the failure is only a mere disputable
presumption which has been overturned by the submission of an inventory showing that the goods are intact and in the
warehouse in Bataan.

Considering that the goods are still intact in the [respondents'] warehouse at the Bataan Export Processing Zone,
considering further the fact that the goods were never processed, and considering finally that the goods have not been
sold, ergo, there is no violation of [the] Presidential Decree. As already stated, respondents' liability is only civil in nature.

On June 22, 1995, Metrobank filed a motion for reconsideration, but the same was denied for lack of merit in the Review
Resolution 27 dated October 25, 1999. Metrobank appealed to the Department of Justice. On September 5, 2000, then
Acting Secretary of Justice, Ramon J. Liwag, rendered a Resolution 28 dismissing the appeal on two grounds: (1) the
resolution issued by the City Fiscal is in accord with law and evidence; and (2) Metrobank failed to submit proof of service
of a copy of the appeal to the prosecutor either by personal service or registered mail as required by Section 3 of
Department Order No. 223. IcEaST

Metrobank went to the Court of Appeals via a petition for certiorari under Rule 65 of the 1997 Rules of Civil Procedure.
However, the Court of Appeals dismissed the petition for lack of merit. Metrobank moved to reconsider the dismissal, but
the motion was denied. Hence, this petition.

The Issues

The reasons given by Metrobank for the allowance of its petition are as follows:

First Reason

BOTH THE RESOLUTION AND THE DECISION OF THE COURT OF APPEALS DELIBERATELY IGNORED THE
GLARING VIOLATION COMMITTED BY THE RESPONDENTS OF BOTH THE PROVISIONS OF THE SUBJECT
TRUST RECEIPTS AND OF PRESIDENTIAL DECREE NO. 115.

Second Reason

BOTH THE RESOLUTION AND THE DECISION OF THE COURT OF APPEALS DELIBERATELY IGNORED THE FACT
THAT THE OFFER MADE BY THE RESPONDENTS TO ALLEGEDLY RETURN THE SUBJECT MERCHANDISE IS A
MERE AFTERTHOUGHT.

Third Reason

BOTH THE RESOLUTION AND THE DECISION DELIBERATELY IGNORED THE FACT THAT A VIOLATION
OF PRESIDENTIAL DECREE NO. 115, AS SETTLED JURISPRUDENCE HOLD, IS AN OFFENSE AGAINST PUBLIC
ORDER AND NOT MERELY AGAINST PROPERTY. 29

Petitioner Metrobank ascribed error to the Office of the City Prosecutor of Manila when it found that the liability of
respondents Jimmy and Benjamin Go was only civil in nature, i.e., to return the merchandise subject of the 11 trust
receipts, considering that they were never sold, and to pay their obligation under the letters of credit. Citing
jurisprudence, 30 it contends that Section 13, 31 the penal provision of the Trust Receipts Law, encompasses any act
violative of an obligation covered by the trust receipt and is not limited to transactions in goods which are to be sold
(retailed), reshipped, stored, and processed as a component of a product ultimately sold. It posits that a violation of
the Trust Receipts Law can be committed by mere failure of the entrustee to discharge any of the obligations imposed
upon him under Section 9 32 of the said law.

According to Metrobank, Jimmy and Benjamin Go's offer to deliver the merchandise subject of the trust receipts cannot
exculpate them from criminal liability because they failed to offer to surrender and to actually surrender the goods upon
maturity of the trust receipts and even when several demands were made upon them. Stated differently, it was
Metrobank's position that there was already a violation of the Trust Receipts Law committed by Jimmy and Benjamin Go
even before they made their offer to return the merchandise to Metrobank in their pleadings before the Office of the City
Prosecutor of Manila. Metrobank claimed that the belated offer of Jimmy and Benjamin Go to return the goods was a
mere afterthought in order to evade indictment and prosecution. HAIaEc

Metrobank further argues that the dismissal by the Office of the City Prosecutor of Manila of the 11 criminal charges for
violation of the Trust Receipts Law against Jimmy and Benjamin Go for want of probable cause, grounded on the absence
of conversion or misappropriation, is tantamount to holding that a violation of the Trust Receipts Law is merely a crime
against property and not against public order, contrary to prevailing jurisprudence.

The Ruling of the Court

After a judicious study of the records of this case, this Court does not find any cogent reason to reverse the assailed
Decision and Resolution of the Court of Appeals, and the Resolutions of the Office of the City Prosecutor of Manila and of
the Secretary of Justice.

First. The issues raised in this petition are substantially factual. Essentially, Metrobank urges this Court to determine
whether or not Jimmy and Benjamin Go failed to turn over the proceeds of the sale of the goods or to return them, if
unsold, in accordance with the terms of the 11 trust receipts. This failure, Metrobank adds, amounts to a violation of
Section 13 of the Trust Receipts Law and warrants the prosecution of respondents for estafa under Article 315, paragraph
1 (b) 33 of the Revised Penal Code.

In an appeal via certiorari, only questions of law may be raised because this Court is not a trier of facts. 34 Metrobank
wants to make this case an exception to the rule, as it attributes to the Office of the City Prosecutor of Manila, the
Secretary of Justice, and the Court of Appeals a misapprehension of the facts. Unfortunately, there is no adequate
support for this imputation. HETDAC

In order that respondents Jimmy and Benjamin Go may be validly prosecuted for estafa under Article 315, paragraph 1 (b)
of the Revised Penal Code, in relation to 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 Metrobank, 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 Metrobank for the remittance of the proceeds or the return of the unsold goods. 35

The Office of the City Prosecutor and the Secretary of Justice had identical findings that the element of misappropriation
or conversion is absent, and that Jimmy and Benjamin Go could not deliver the proceeds of the sale of the merchandise
to Metrobank because the goods remained unsold. Both offices similarly found that the failure of the respondents to
account for the proceeds of the sale or of the goods only created a disputable presumption that either the proceeds or the
goods themselves were converted or misappropriated, but the presumption was overturned when the goods were offered
to be inventoried and returned as they remained intact in the warehouse at the Bataan Export Processing Zone.
Accordingly, they both ruled that the liability of Jimmy and Benjamin Go was merely civil in nature, and the criminal
complaints were dismissed for lack of probable cause.

Declaring that the Office of the City Prosecutor did not commit grave abuse of discretion, the Court of Appeals likewise
made a factual finding that Jimmy and Benjamin Go offered to return the goods even prior to the filing of the civil cases
against them, although the offer was not accepted because Metrobank appeared more interested in collecting the amount
it advanced under the letters of credit. It also found that Metrobank failed to prove its demand for the return of the
goods. EcDSHT

Thus, even if we accommodate the petitioner's plea to review the case's factual milieu, we still have to agree with the
findings of fact of the Office of the City Prosecutor and of the Court of Appeals. These findings appear to be supported by
the evidence on record. The prosecution for estafa under Article 315, paragraph 1 (b) of the Revised Penal code, cannot
prosper because the second (misappropriation/conversion) and the fourth (demand) elements of the offense are not
present.

Under the pro-forma trust receipts subject of this case, Jimmy and Benjamin Go, as entrustees, agreed to hold the goods
(whether in their original, processed or manufactured state, and irrespective of the fact that a different merchandise is
used in completing such manufacture) in trust for Metrobank, as its exclusive property, with liberty to sell them for cash
only for the latter's account, but without authority to make any other disposition whatsoever of the said goods or any part
(or the proceeds) thereof by way of conditional sale, pledge, or otherwise. They further agreed that in case of sale of the
goods, or if the goods are used for the manufacture of finished products and are sold, they will turn over the proceeds to
Metrobank to be applied against their total obligation under the trust receipts and for the payment of other debts to
Metrobank.

It is noteworthy that Jimmy and Benjamin Go processed the goods into textiles, to be sold for cash only, and that not all of
the merchandise were sold such that they were able to remit only enough proceeds to fully settle their accounts under
Letters of Credit-Trust Receipt Nos. 1922 and 1939, which were not subject of the 11 criminal complaints filed by
Metrobank. Metrobank wants us to interpret this as confirmation that Jimmy and Benjamin Go had sold all the other
merchandise but deliberately failed to turn over their corresponding proceeds. However, the Court sees this circumstance
for what it simply and truly is, i.e., that Jimmy and Benjamin Go exerted efforts to comply with their obligation to sell the
merchandise and remit the proceeds thereof. Unfortunately, the rest of the merchandise remained unsold in the
warehouse at the Bataan Export Processing Zone, such that no proceeds thereof could be remitted to
Metrobank. caADSE

This Court also observes that the same trust receipts provide that Metrobank has the option to take possession of the
goods upon default of Jimmy and Benjamin Go on any of their obligations and to sell them, with the proceeds thereof to
be applied to the principal obligation and also to the expenses to be incurred by Metrobank in selling the same. 36 But
Metrobank did not exercise this option. Instead, it filed three (3) complaints to collect the value of the merchandise. Jimmy
and Benjamin Go offered to return the merchandise to Metrobank even before these civil cases were filed. Then, Jimmy
and Benjamin Go reiterated the offer to return the goods in their answer to the civil complaints. Again, Metrobank did not
accept the offer, and instead filed the 11 criminal complaints for alleged violation of the Trust Receipts Law to be
prosecuted as estafa under Article 315, paragraph 1 (b) of the Revised Penal Code. This chain of events validates the
finding of the Court of Appeals that Metrobank is not interested in the return of the goods but only in collecting the money
it extended to the respondents.

Furthermore, the trust receipts uniformly contain the following provision:

Failure on the part of the ENTRUSTEE to account to the BANK/ENTRUSTER for the goods/documents/instruments
received in trust and/or for the proceeds of the sale thereof within thirty (30) days from demand made by the
BANK/ENTRUSTER shall constitute an admission that the ENTRUSTEE has converted or misappropriated said
goods/documents/instruments for the personal benefit of the ENTRUSTEE and to the detriment and prejudice of the
BANK/ENTRUSTER, and the BANK/ENTRUSTER is forthwith authorized to file and prosecute the corresponding and
appropriate action, civil or criminal, against the ENTRUSTEE. 37

Yet, not one of the 11 criminal complaints was accompanied by a demand letter to show that Metrobank demanded the
remittance of the proceeds of the sale of the goods or the return of goods, if unsold. We find this deficiency exceptionally
revealing, especially considering that the said trust receipts had different maturity dates. AaEcDS

Second. The trust receipts subject of this case partake of the nature of contracts of adhesion. A contract of adhesion is
defined as one in which one party imposes a ready-made form of contract which the other party may accept or reject, but
which the latter cannot modify; one party prepares the stipulations in the contract, while the other party merely affixes his
signature or his "adhesion" thereto, giving no room for negotiation, and resulting in deprivation of the latter of the
opportunity to bargain on equal footing. 38

In this case, the trust receipts were prepared solely by Metrobank with Jimmy and Benjamin Go having no choice but to
adhere entirely to their provisions. In fact, the trust receipts stipulated that the goods subject thereof were the exclusive
property of Metrobank, contrary to the essence of a trust receipt.

A trust receipt is considered a security transaction designed to provide financial assistance to 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. It is a document
in which is expressed a security transaction where the lender, having no prior title to the goods on which the lien is to be
constituted, and not having possession over the same since possession thereof remains in the borrower, lends his money
to the borrower on security of the goods which the borrower is privileged to sell, clear of the lien, with an agreement to pay
all or part of the proceeds of the sale to the lender. It is a security agreement pursuant to which a bank acquires a
"security interest" in the goods. It secures a debt, and there can be no such thing as security interest that secures no
obligation. 39

The subject trust receipts, being contracts of adhesion, are not per se invalid and inefficacious. But should there be
ambiguities therein, such ambiguities are to be strictly construed against Metrobank, the party that prepared them. 40

There is no doubt as to the obligation of Jimmy and Benjamin Go to turn over the proceeds of the sale of the goods or to
return the unsold goods. However, an ambiguity exists as to when this obligation arises, whether upon maturity of the trust
receipts or upon demand by Metrobank. A strict construction of the provisions of the contracts of adhesion dictates that
the reckoning point should be the demand made by Metrobank. AIcECS

As already discussed above, Jimmy and Benjamin Go turned over the proceeds of the goods sold under the two letters of
credit/trust receipts which were not subject of the criminal cases. They also made the offer to return the unsold goods
covered by the eleven trust receipts even before the three civil cases were filed against them. The offer was reiterated in
their answer. More importantly, the unsold goods remained intact, contrary to the claim of Metrobank that they had
misappropriated or converted the same. While there was a stipulation of a presumptive admission on the part of Jimmy
and Benjamin Go of misappropriation or conversion upon failure to account for the goods or for the proceeds of the sale
thereof within 30 days from demand, which will authorize Metrobank to pursue legal remedies in court, the fact of demand
made by Metrobank was not established by competent evidence. Except for the bare allegation that it did so in the 11
criminal complaints, no letter of demand accompanied all of the criminal complaints.

As to the other obligations under the trust receipts adapted from Section 9 of the Trust Receipts Law, there is no sufficient
evidence proffered by Metrobank that Jimmy and Benjamin Go had actually violated them. What the law punishes is the
dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another, whether the latter is
the owner. 41 The malum prohibitum nature of the offense notwithstanding, the intent to misuse or misappropriate the
goods or their proceeds on the part of Jimmy and Benjamin Go should have been proved. Unfortunately, no such proof
appears on record. 42

In the prosecution of criminal cases, it is the complainant who has the burden to prove the elements of the crime which
the respondents are probably guilty of. 43 Obviously, Metrobank failed to discharge this burden. AacCIT

Indeed, there is neither error nor grave abuse of discretion which can be attributed to the Office of the City Prosecutor of
Manila when it dismissed the criminal complaints for lack of probable cause. In the absence of grave abuse of discretion
on the part of the Office of the City Prosecutor of Manila, this Court must not interfere in its findings, considering that full
discretionary authority has been delegated to the latter in determining whether or not a criminal charge should be
instituted. 44 With greater reason should we respect this finding, as it had been uniformly affirmed not only by the
reviewing prosecutor but also by the Secretary of Justice and by the Court of Appeals.

WHEREFORE, the petition is DENIED for lack of merit. Accordingly, the assailed Decision dated August 15, 2002 and the
Resolution dated October 15, 2002 of the Court of Appeals in CA-G.R. SP No. 61544 are AFFIRMED.

SO ORDERED.
 THIRD DIVISION

[G.R. No. 180165. April 7, 2009.]

METROPOLITAN BANK & TRUST COMPANY, petitioner, vs. HON. SECRETARY OF JUSTICE RAUL M. GONZALES,
OLIVER T. YAO and DIANA T. YAO, respondents.

DECISION

CHICO-NAZARIO, J p:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court filed by petitioner
Metropolitan Bank and Trust Company, seeking to reverse and set aside the Decision 1 dated 30 March 2007 and the
Resolution 2 dated 16 October 2007 of the Court of Appeals in CA-G.R. SP No. 91892. In its assailed Decision and
Resolution, the appellate court affirmed the Resolution 3 of the Secretary of Justice directing the City Prosecutor of Manila
to move for the withdrawal of the Informations for Estafa filed against private respondents Oliver T. Yao and Diana T. Yao.

The factual and procedural antecedents of this present petition are as follows:

Petitioner is a banking institution duly authorized to engage in the banking business under Philippine laws.

Private respondents were the duly authorized representatives of Visaland Inc. (Visaland), likewise a domestic corporation
engaged in the real estate development business. CaSAcH

In order to finance the importation of materials necessary for the operations of its sister company, Titan Ikeda
Construction and Development Corporation (TICDC), private respondents, on behalf of Visaland, applied with petitioner
for 24 letters of credit, the aggregate amount of which reached the sum of P68,749,487.96. Simultaneous with the
issuance of the letters of credit, private respondents signed trust receipts 4 in favor of petitioner. Private respondents
bound themselves to sell the goods covered by the letters of credit and to remit the proceeds to petitioner, if sold, or to
return the goods, if not sold, on or before their agreed maturity dates.

When the trust receipts matured, private respondents failed to return the goods to petitioner, or to return their value
amounting to P68,749,487.96 despite demand. Thus, petitioner filed a criminal complaint 5 for estafa 6 against Visaland
and private respondents with the Office of the City Prosecutor of Manila (City Prosecutor). 7

In their Counter-Affidavit, 8 private respondents denied having entered into trust receipt transactions with petitioner.
Instead, private respondents claimed that the contract entered into by the parties was a Contract of Loan secured by a
Real Estate Mortgage over two parcels of land situated at Tagaytay City and registered under the name of the spouses
Wilbert and Isabelita King (the spouses King). 9 According to private respondents, petitioner made them sign documents
bearing fine prints without apprising them of the real nature of the transaction involved. Private respondents came to know
of the trust receipt transaction only after they were served a copy of the Affidavit-Complaint of the petitioner. aATESD

After the requisite preliminary investigation, the City Prosecutor found that no probable cause existed and dismissed
Information Sheet (I.S.) No. 02G-30918 in a Resolution 10 dated 23 January 2003. While the City Prosecutor was not
persuaded by the defense proffered by private respondents that no trust receipt transaction existed, it nonetheless,
dismissed the case for lack of evidence that prior demand was made by petitioner. The City Prosecutor underscored that
for a charge of estafa with grave abuse of confidence to prosper, previous demand is an indispensable requisite.

To prove that a demand was made prior to the institution of the criminal complaint, petitioner attached to its Motion for
Reconsideration a copy of a letter-demand 11 dated 27 February 2001, addressed to private respondents.

After the element of prior demand was satisfied, the City Prosecutor issued a Resolution 12 dated 11 October 2004
finding probable cause for estafa under Article 315, paragraph 1 (b) 13 of the Revised Penal Code, in relation
to Presidential Decree No. 115. 14 Accordingly, 23 separate Informations 15 for estafa were filed before the Regional Trial
Court (RTC) of Manila against private respondents. The cases were docketed as Criminal Cases No. 04231721-44 and
raffled to Branch 17 of the said court. aSTECA
In the interim, private respondents appealed the investigating prosecutor's Resolution to the Secretary of Justice. In a
Resolution 16 dated 31 March 2005, the Secretary of Justice ruled that there was no probable cause to prosecute private
respondents for estafa in relation to Presidential Decree No. 115. The Secretary of Justice declared that the legitimate
transactional relationship between the parties being merely a contract of loan, violations of the terms thereunder were not
covered by Presidential Decree No. 115. Thus, the Secretary of Justice directed the City Prosecutor of Manila to move for
the withdrawal of the Informations. In a subsequent Resolution 17 dated 30 August 2005, the Secretary of Justice denied
petitioner's Motion for Reconsideration, for the matters raised therein had already been passed upon in his prior
resolution.

Acting on the directive of the Secretary of Justice, the City Prosecutor moved for the withdrawal of the Informations which
was granted by the RTC in an Order 18 dated 29 July 2005. Consequently, Criminal Cases No. 04-231721 to No.
04231744 were withdrawn. The RTC refused to reconsider its earlier resolution in an Order 19 dated 3 February 2006,
thereby denying petitioner's Motion for Reconsideration.

From the adverse Resolutions of the Secretary of Justice, petitioner elevated its case before the Court of Appeals by filing
a Petition for Certiorari, 20 which was docketed as CA-G.R. SP No. 91892. Petitioner averred in its Petition that the
Secretary of Justice abused his discretion in ignoring the established facts and legal principles when he ruled that
probable cause for the crime of estafa was absent. TSacID

The Court of Appeals, however, in its Decision 21 dated 30 March 2007, dismissed petitioner's Petition for Certiorari after
finding that the Secretary of Justice committed no grave abuse of discretion in ruling against the existence of probable
cause to prosecute private respondents. In arriving at its assailed decision, the appellate court recognized the authority of
the Secretary of Justice to control and supervise the prosecutors, which includes the power to reverse or modify their
decisions without committing grave abuse of discretion.

Similarly ill-fated was Petitioner's Motion for Reconsideration in a Resolution 22 dated 16 October 2007.

Unfazed by the turn of events, petitioner now comes before this Court urging us to reverse the Court of Appeals Decision
and Resolution and to direct the filing of Informations against private respondents. For the disposition of this Court is the
sole issue of: ESTaHC

WHETHER OR NOT PROBABLE CAUSE EXISTS FOR THE PROSECUTION OF PRIVATE RESPONDENTS FOR THE
CRIME OF ESTAFA IN RELATION TO P.D. NO. 115.

Petitioner impugns the findings of the appellate court sustaining the non-existence of probable cause as found by the
Secretary of Justice. Petitioner insists that the allegations in its complaint, together with the pieces of evidence appended
thereon, are sufficient to sustain a finding of probable cause in preliminary investigation.

Asserting their innocence, private respondents continue to argue that the agreement contracted by parties is one of loan,
and not of trust receipt. To buttress their contention, private respondents aver that a contract of mortgage was executed
by the spouses King to secure private respondents' loan obligation with petitioner, the proceeds of which were the ones
utilized to finance the importation of materials. 23 Private respondents likewise defend the assailed Court of Appeals
Decision and assert that the Secretary of Justice was justified in overruling the investigating prosecutor's findings, as
sanctioned by Section 12 of DOJ Department Order No. 70. 24 SIaHTD

The present petition bears impressive merits.

Probable cause has been defined as the existence of such facts and circumstances as would excite the belief in a
reasonable mind, acting on the facts within the knowledge of the prosecutor, that the person charged was guilty of the
crime for which he was prosecuted. Probable cause is a reasonable ground of presumption that a matter is, or may be,
well founded on such a state of facts in the mind of the prosecutor as would lead a person of ordinary caution and
prudence to believe, or entertain an honest or strong suspicion, that a thing is so. 25 The term does not mean "actual or
positive cause" nor does it import absolute certainty. It is merely based on opinion and reasonable belief. Thus, a finding
of probable cause does not require an inquiry into whether there is sufficient evidence to procure a conviction. It is enough
that it is believed that the act or omission complained of constitutes the offense charged. Precisely, there is a trial for the
reception of evidence of the prosecution in support of the charge. 26
To determine the existence of probable cause, there is need to conduct preliminary investigation. A preliminary
investigation constitutes a realistic judicial appraisal of the merits of a case. 27 Its purpose is to determine whether (a) a
crime has been committed; and (b) whether there is a probable cause to believe that the accused is guilty thereof. 28 It is
a means of discovering which person or persons may be reasonably charged with a crime.

The conduct of preliminary investigation is executive in nature. The Court may not be compelled to pass upon the
correctness of the exercise of the public prosecutor's function unless there is a showing of grave abuse of discretion
or manifest error in his findings. 29 Grave abuse of discretion implies a capricious and whimsical exercise of judgment
tantamount to lack or excess of jurisdiction. 30 The exercise of power must have been done in an arbitrary or a despotic
manner by reason of passion or personal hostility. It must have been so patent and gross as to amount to an evasion of
positive duty or a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. 31 DaESIC

In the present case, the abuse of discretion is patent in the act of the Secretary of Justice holding that the contractual
relationship forged by the parties was a simple loan, for in so doing, the Secretary of Justice assumed the function of the
trial judge of calibrating the evidence on record, done only after a full-blown trial on the merits. The fact of existence or
non-existence of a trust receipt transaction is evidentiary in nature, the veracity of which can best be passed upon after
trial on the merits, for it is virtually impossible to ascertain the real nature of the transaction involved based solely on the
self-serving allegations contained in the opposing parties' pleadings. Clearly, the Secretary of Justice is not in a
competent position to pass judgment on substantive matters. The bases of a party's accusation and defenses are better
ventilated at the trial proper than at the preliminary investigation.

We need not overemphasize that in a preliminary investigation, the public prosecutor merely determines whether there is
probable cause or sufficient ground to engender a well-founded belief that a crime has been committed, and that the
respondent is probably guilty thereof and should be held for trial. It does not call for the application of rules and standards
of proof that a judgment of conviction requires after trial on the merits. The complainant need not present at this stage
proof beyond reasonable doubt. A preliminary investigation does not require a full and exhaustive presentation of the
parties' evidence. 32 Precisely, there is a trial to allow the reception of evidence for both parties to substantiate their
respective claims.

Having said the foregoing, this Court now proceeds to determine whether probable cause exists for holding private
respondents liable for estafa in relation to Presidential Decree No. 115. TEcADS

Trust receipt transactions are governed by the provisions of Presidential Decree No. 115 which defines such a transaction
as follows:

Section 4. What constitutes a trust receipt transaction. — A trust receipt transaction, within the meaning of this Decree, is
any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this
Decree as the entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain
specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's
execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to
hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the
goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the
amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if
they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or
for other purposes substantially equivalent to any one 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 transship or otherwise deal with them in a manner preliminary or necessary to their sale; or

2. In the case of instruments, a) to sell or procure their sale or exchange; or b) to deliver them to a principal; or c) to effect
the consummation of some transactions involving delivery to a depository or register; or d) to effect their presentation,
collection or renewal.
The sale of goods, documents or instruments by a person in the business of selling goods, documents or instruments for
profit who, at the outset of the transaction, has, as against the buyer, general property rights in such goods, documents or
instruments, or who sells the same to the buyer on credit, retaining title or other interest as security for the payment of the
purchase price, does not constitute a trust receipt transaction and is outside the purview and coverage of this
Decree. AEIcSa

An entrustee is one having or taking possession of goods, documents or instruments under a trust receipt transaction, and
any successor in interest of such person for the purpose of payment specified in the trust receipt agreement. The
entrustee is obliged to (1) hold the goods, documents or instruments in trust for the entruster and shall dispose of them
strictly in accordance with the terms and conditions of the trust receipt; (2) receive the proceeds in trust for the entruster
and turn over the same to the entruster to the extent of the amount owed to the entruster or as appears on the trust
receipt; (3) insure the goods for their total value against loss from fire, theft, pilferage or other casualties; (4) keep said
goods or the proceeds therefrom whether in money or whatever form, separate and capable of identification as property of
the entruster; (5) return the goods, documents or instruments in the event of non-sale or upon demand of the entruster;
and (6) observe all other terms and conditions of the trust receipt not contrary to the provisions of the decree. 33

The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released under a
trust receipt to the entrustee to the extent of the amount owed to the entruster or as appears in the trust receipt; or to the
return of the goods, documents or instruments in case of non-sale; and to the enforcement of all other rights conferred on
him in the trust receipt, provided these are not contrary to the provisions of the document. 34 A violation of any of these
undertakings constitutes estafa defined under Article 315 (1) (b) of the Revised Penal Code, as provided by Section 13
of Presidential Decree No. 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 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. ICDSca

Apropos thereto, Article 315 (1) (b) of the Revised Penal Code punishes estafa committed as follows:

ART. 315. Swindling (estafa). — Any person who shall defraud another by any of the means mentioned hereinbelow shall
be punished by:

1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if the amount of the
fraud is over 12,000 pesos but does not exceed 22,000 pesos, and if such amount exceeds the latter sum, the penalty
provided in this paragraph shall be imposed in its maximum period, adding one year for each additional 10,000 pesos; but
the total penalty which may be imposed shall not exceed twenty years. In such case, and in connection with the accessory
penalties which may be imposed and for the purpose of the other provisions of this Code, the penalty shall be
termed prision mayor to reclusion temporal, as the case may be.

2nd. The penalty of prision correccional in its minimum and medium periods, if the amount of the fraud is over 6,000
pesos but does not exceed 12,000 pesos;

3rd. The penalty of arresto mayor in its maximum period to prision correccional in its minimum period, if such amount is
over 200 pesos but does not exceed 6,000 pesos; and

4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed 200 pesos, provided that in
the four cases mentioned, the fraud be committed by any of the following means; . . . .

As found in the Complaint-Affidavit of petitioner, private respondents were charged with failing to account for or turn over
to petitioner the merchandise or goods covered by the trust receipts or the proceeds of the sale thereof in payment of their
obligations thereunder. The following pieces of evidence adduced from the affidavits and documents submitted before the
City Prosecutor are sufficient to establish the existence of probable cause, to wit:

First, the trust receipts 35 bearing the genuine signatures of private respondents; second, the demand letter 36 of
petitioner addressed to respondents; and third, the initial admission by private respondents of the receipt of the imported
goods from petitioner. 37 cCSEaA

Prescinding from the foregoing, we conclude that there is ample evidence on record to warrant a finding that there is a
probable cause to warrant the prosecution of private respondents for estafa. It must be once again stressed that probable
cause does not require an inquiry into whether there is sufficient evidence to procure a conviction. It is enough that it is
believed that the act or omission complained of constitutes the offense charged.

That private respondents did not sell the goods under the trust receipt but allowed it to be used by their sister company 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. 38 Even more incredible is the contention of private respondents that they
did not give much significance to the documents they signed, considering the enormous value of the transaction involved.
Thus, it is highly improbable to mistake trust receipt documents for a contract of loan when the heading thereon printed in
bold and legible letters reads: "Trust Receipts". We are not prejudging this case on the merits. However, by merely
glancing at the documents submitted by petitioner entitled "Trust Receipts" and the arguments advanced by private
respondents, we are convinced that there is probable cause to file the case and to hold them for trial. SEDaAH

All told, the evidentiary measure for the propriety of filing criminal charges has been reduced and liberalized to a mere
probable cause. As implied by the words themselves, "probable cause" is concerned with probability, not absolute or
moral certainty. 39

WHEREFORE, premises considered, the instant Petition is GRANTED. The Decision dated 30 March 2007 and the
Resolution dated 16 October 2007 of the Court of Appeals in CA-G.R. SP No. 91892 are REVERSED and SET ASIDE.
The Secretary of Justice is hereby ORDERED to direct the Office of the City Prosecutor of Manila to forthwith FILE
Informations for estafa against private respondents Oliver T. Yao and Diana T. Yao before the appropriate court.

SO ORDERED.
 FIRST DIVISION

[G.R. No. 159622. July 30, 2004.]

LANDL & COMPANY (PHIL.) INC., PERCIVAL G. LLABAN and MANUEL P. LUCENTE, petitioners, vs.
METROPOLITAN BANK & TRUST COMPANY, respondent.

DECISION

YNARES-SANTIAGO, J p:

At issue in this petition for review on certiorari is whether or not, in a trust receipt transaction, an entruster which had
taken actual and juridical possession of the goods covered by the trust receipt may subsequently avail of the right to
demand from the entrustee the deficiency of the amount covered by the trust receipt.

As correctly appreciated by the Court of Appeals, the undisputed facts of this case are as follows:

Respondent Metropolitan Bank and Trust Company (Metrobank) filed a complaint for sum of money against Landl and
Company (Phil.) Inc. (Landl) and its directors, Percival G. Llaban and Manuel P. Lucente before the Regional Trial Court
of Cebu City, Branch 19, docketed as Civil Case No. CEB-4895.

Respondent alleged that petitioner corporation is engaged in the business of selling imported welding rods and alloys. On
June 17, 1983, it opened Commercial Letter of Credit No. 4998 with respondent bank, in the amount of US$19,606.77,
which was equivalent to P218,733.92 in Philippine currency at the time the transaction was consummated. The letter of
credit was opened to purchase various welding rods and electrodes from Perma Alloys, Inc., New York, U.S.A., as
evidenced by a Pro-Forma Invoice dated March 10, 1983. Petitioner corporation put up a marginal deposit of P50,414.00
from the proceeds of a separate clean loan.

As an additional security, and as a condition for the approval of petitioner corporation’s application for the opening of the
commercial letter of credit, respondent bank required petitioners Percival G. Llaban and Manuel P. Lucente to execute a
Continuing Suretyship Agreement to the extent of P400,000.00, excluding interest, in favor of respondent bank. Petitioner
Lucente also executed a Deed of Assignment in the amount of P35,000.00 in favor of respondent bank to cover the
amount of petitioner corporation’s obligation to the bank. Upon compliance with these requisites, respondent bank opened
an irrevocable letter of credit for the petitioner corporation.

To secure the indebtedness of petitioner corporation, respondent bank required the execution of a Trust Receipt in an
amount equivalent to the letter of credit, on the condition that petitioner corporation would hold the goods in trust for
respondent bank, with the right to sell the goods and the obligation to turn over to respondent bank the proceeds of the
sale, if any. If the goods remained unsold, petitioner corporation had the further obligation to return them to respondent
bank on or before November 23, 1983.

Upon arrival of the goods in the Philippines, petitioner corporation took possession and custody thereof.

On November 23, 1983, the maturity date of the trust receipt, petitioner corporation defaulted in the payment of its
obligation to respondent bank and failed to turn over the goods to the latter. On July 24, 1984, respondent bank
demanded that petitioners, as entrustees, turn over the goods subject of the trust receipt. On September 24, 1984,
petitioners turned over the subject goods to the respondent bank.

On July 31, 1985, in the presence of representatives of the petitioners and respondent bank, the goods were sold at
public auction. The goods were sold for P30,000.00 to respondent bank as the highest bidder.

The proceeds of the auction sale were insufficient to completely satisfy petitioners’ outstanding obligation to respondent
bank, notwithstanding the application of the time deposit account of petitioner Lucente. Accordingly, respondent bank
demanded that petitioners pay the remaining balance of their obligation. After petitioners failed to do so, respondent bank
instituted the instant case to collect the said deficiency.

On March 31, 1997, after trial on the merits, the trial court rendered a decision, the dispositive portion of which reads:
WHEREFORE, foregoing premises considered, Judgment is hereby rendered in favor of the plaintiff and against the
defendant by (1) ordering the defendant to pay jointly and severally to the plaintiff the sum of P292,172.23 representing
the defendant’s obligation, as of April 17, 1986; (2) to pay the interest at the rate of 19% per annum to be reckoned from
April 18, 1986 until [the] obligation is fully paid; (3) to pay service charge at the rate of 2% per annum starting April 18,
1986; (4) to pay the sum equivalent to 10% per annum of the total amount due collectible by way of Attorney’s Fees; (5) to
pay Litigation Expenses of P3,000.00 and to pay the cost of the suit; and (6) to pay penalty charge of 12% per annum.

SO ORDERED. 1

Petitioners appealed to the Court of Appeals, raising the issues of: (1) whether or not respondent bank has the right to
recover any deficiency after it has retained possession of and subsequently effected a public auction sale of the goods
covered by the trust receipt; (2) whether or not respondent bank is entitled to the amount of P3,000.00 as and for litigation
expenses and costs of the suit; and (3) whether or not respondent bank is entitled to the award of attorney’s fees.

On February 13, 2003, the Court of Appeals rendered a decision affirming in toto the decision of the trial court. 2

Hence, this petition for review on the following assignment of errors:

I.

THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN AFFIRMING THE TRIAL COURT’S RULING THAT
RESPONDENT HAD THE RIGHT TO CLAIM THE DEFICIENCY FROM PETITIONERS NOTWITHSTANDING THE
FACT THAT THE GOODS COVERED BY THE TRUST RECEIPT WERE FULLY TURNED OVER TO RESPONDENT.

II.

THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN AFFIRMING THE TRIAL COURT’S PATENTLY
ERRONEOUS AWARD OF PRINCIPAL OBLIGATION, INTEREST, ATTORNEY’S FEES, AND PENALTY AGAINST THE
PETITIONERS. 3

The instant petition is partly meritorious.

The resolution of the first assigned error hinges on the proper interpretation of Section 7 of Presidential Decree No. 115,
or the Trust Receipts Law, which reads:

Sec. 7. Rights of the entruster. — The entruster shall be entitled to the proceeds from the sale of the goods, documents or
instruments released under a trust receipt to the entrustee to the extent of the amount owing to the entruster or as
appears in the trust receipt, or to the return of the goods, documents or instruments in case of non-sale, and to the
enforcement of all other rights conferred on him in the trust receipt provided such are not contrary to the provisions of this
Decree.

The entruster may cancel the trust and take possession of the goods, documents or instruments subject of the trust or of
the proceeds realized therefrom at any time upon default or failure of the entrustee to comply with any of the terms and
conditions of the trust receipt or any other agreement between the entruster and the entrustee, and the entruster in
possession of the goods, documents or instruments may, on or after default, give notice to the entrustee of the intention to
sell, and may, not less than five days after serving or sending of such notice, sell the goods, documents or instruments at
public or private sale, and the entruster may, at a public sale, become a purchaser. The proceeds of any such sale,
whether public or private, shall be applied (a) to the payment of the expenses thereof; (b) to the payment of the expenses
of re-taking, keeping and storing the goods, documents or instruments; (c) to the satisfaction of the entrustee’s
indebtedness to the entruster. The entrustee shall receive any surplus but shall be liable to the entruster for any
deficiency. Notice of sale shall be deemed sufficiently given if in writing, and either personally served on the entrustee or
sent by post-paid ordinary mail to the entrustee's last known business address.

There is no question that petitioners failed to pay their outstanding obligation to respondent bank. They contend, however,
that when the entrustee fails to settle his principal loan, the entruster may choose between two separate and alternative
remedies: (1) the return of the goods covered by the trust receipt, in which case, the entruster now acquires the ownership
of the goods which the entrustee failed to sell; or (2) cancel the trust and take possession of the goods, for the purpose of
selling the same at a private sale or at public auction. Petitioners assert that, under this second remedy, the entruster
does not acquire ownership of the goods, in which case he is entitled to the deficiency. Petitioners argue that these two
remedies are so distinct that the availment of one necessarily bars the availment of the other. Thus, when respondent
bank availed of the remedy of demanding the return of the goods, the actual return of all the unsold goods completely
extinguished petitioners’ liability. 4

Petitioners’ argument is bereft of merit.

A trust receipt is inextricably linked with the primary agreement between the parties. Time and again, we have
emphasized that a trust receipt agreement is merely a collateral agreement, the purpose of which is to serve as security
for a loan. Thus, in Abad v. Court of Appeals, 5 we ruled:

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

A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a “security interest” in the goods. It
secures an indebtedness and there can be no such thing as security interest that secures no obligation. 6

The Trust Receipts Law was enacted to safeguard commercial transactions and to offer an additional layer of security to
the lending bank. Trust receipts are indispensable contracts in international and domestic business transactions. The
prevalent use of trust receipts, the danger of their misuse and/or misappropriation of the goods or proceeds realized from
the sale of goods, documents or instruments held in trust for entruster banks, and the need for regulation of trust receipt
transactions to safeguard the rights and enforce the obligations of the parties involved are the main thrusts of the Trust
Receipts Law. 7

The second paragraph of Section 7 provides a statutory remedy available to an entruster in the event of default or failure
of the entrustee to comply with any of the terms and conditions of the trust receipt or any other agreement between the
entruster and the entrustee. More specifically, the entruster “may cancel the trust and take possession of the goods,
documents or instruments subject of the trust or of the proceeds realized therefrom at any time”. The law further provides
that “the entruster in possession of the goods, documents or instruments may, on or after default, give notice to the
entrustee of the intention to sell, and may, not less than five days after serving or sending of such notice, sell the goods,
documents or instruments at public or private sale, and the entruster may, at a public sale, become a purchaser. The
proceeds of any such sale, whether public or private, shall be applied (a) to the payment of the expenses thereof; (b) to
the payment of the expenses of re-taking, keeping and storing the goods, documents or instruments; (c) to the satisfaction
of the entrustee's indebtedness to the entruster. The entrustee shall receive any surplus but shall be liable to the entruster
for any deficiency.” cECTaD

The trust receipt between respondent bank and petitioner corporation contains the following relevant clauses:

The BANK/ENTRUSTER may, at any time, and only at its option, cancel this trust and take possession of the
goods/documents/instruments subject hereof or of the proceeds realized therefrom wherever they may then be found,
upon default or failure of the ENTRUSTEE to comply with any of the terms and conditions of this Trust Receipt or of any
other agreement between the BANK/ENTRUSTER and the ENTRUSTEE; and the BANK/ENTRUSTER having taken
repossession of the goods/documents/instruments object hereof may, on or after default, give at least five (5) days’
previous notice to the ENTRUSTEE of its intention to sell the goods/documents/instruments at public or private sale, at
which public sale, it may become a purchaser; Provided, that the proceeds of any such sale, whether public or private,
shall be applied: (a) to the payment of the expenses thereof; (b) to the payment of the expenses of retaking, keeping and
storing the goods/documents/instruments; (c) to the satisfaction of all of the ENTRUSTEE’s indebtedness to the
BANK/ENTRUSTER; and Provided, further, that the ENTRUSTEE shall receive any surplus thereof but shall, in any case,
be liable to the BANK/ENTRUSTER for any deficiency . . .

No act or omission on the part of the BANK/ENTRUSTER shall be deemed and considered a waiver of any of its rights
hereunder or under any related letters of credit, drafts or other documents unless such waiver is expressly made in writing
over the signature of the BANK/ENTRUSTER. 8
The afore-cited stipulations in the trust receipt are a near-exact reproduction of the second paragraph of Section 7 of
the Trust Receipts Law. The right of repossession and subsequent sale at public auction which were availed of by
respondent bank were rights available upon default, and which were conferred by statute and reinforced by the contract
between the parties.

The initial repossession by the bank of the goods subject of the trust receipt did not result in the full satisfaction of the
petitioners’ loan obligation. Petitioners are apparently laboring under the mistaken impression that the full turn-over of the
goods suffices to divest them of their obligation to repay the principal amount of their loan obligation. This is definitely not
the case. In Philippine National Bank v. Hon. Gregorio G. Pineda and Tayabas Cement Company, Inc., 9 we had
occasion to rule:

PNB’s possession of the subject machinery and equipment being precisely as a form of security for the advances given to
TCC under the Letter of Credit, said possession by itself cannot be considered payment of the loan secured thereby.
Payment would legally result only after PNB had foreclosed on said securities, sold the same and applied the proceeds
thereof to TCC's loan obligation. Mere possession does not amount to foreclosure for foreclosure denotes the procedure
adopted by the mortgagee to terminate the rights of the mortgagor on the property and includes the sale itself.

Neither can said repossession amount to dacion en pago. Dation in payment takes place when property is alienated to the
creditor in satisfaction of a debt in money and the same is governed by sales. Dation in payment is the delivery and
transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the
obligation. As aforesaid, the repossession of the machinery and equipment in question was merely to secure the payment
of TCC's loan obligation and not for the purpose of transferring ownership thereof to PNB in satisfaction of said loan.
Thus, no dacion en pago was ever accomplished. (Citations omitted, emphasis supplied) 10

Indeed, in the 1987 case of Vintola v. Insular Bank of Asia and America, 11 we struck down the position of the petitioner-
spouses that their obligation to the entruster bank had been extinguished when they relinquished possession of the goods
in question. Thus:

A trust receipt . . . is a security agreement, pursuant to which a bank acquires a “security interest” in the goods. It secures
an indebtedness and there can be no such thing as security interest that secures no obligation. As defined in our laws:

(h) Security Interest means a property interest in goods, documents or instruments to secure performance of some
obligations of the entrustee or of some third persons to the entruster and includes title, whether or not expressed to be
absolute, whenever such title is in substance taken or retained for security only.

xxx xxx xxx

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

“. . . for the bank has previously extended a loan which the L/C represents to the importer, and by that loan, the importer
should be the real owner of the goods. If under the trust receipt, the bank is made to appear as the owner, it was but an
artificial expedient, more of a legal fiction than fact, for if it were so, it could dispose of the goods in any manner it wants,
which it cannot do, just to give consistency with the purpose of the trust receipt of giving a stronger security for the loan
obtained by the importer. To consider the bank as the true owner from the inception of the transaction would be to
disregard the loan feature thereof . . .”

Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that because they have
surrendered the goods to IBAA and subsequently deposited them in the custody of the court, they are absolutely relieved
of their obligation to pay their loan because of their inability to dispose of the goods. The fact that they were unable to sell
the seashells in question does not affect IBAA’s right to recover the advances it had made under the Letter of Credit.
(Citations omitted.) 12

Respondent bank’s repossession of the properties and subsequent sale of the goods were completely in accordance with
its statutory and contractual rights upon default of petitioner corporation.
The second paragraph of Section 7 expressly provides that the entrustee shall be liable to the entruster for any deficiency
after the proceeds of the sale have been applied to the payment of the expenses of the sale, the payment of the expenses
of re-taking, keeping and storing the goods, documents or instruments, and the satisfaction of the entrustee’s
indebtedness to the entruster.

In the case at bar, the proceeds of the auction sale were insufficient to satisfy entirely petitioner corporation’s
indebtedness to the respondent bank. Respondent bank was thus well within its rights to institute the instant case to
collect the deficiency.

We find, however, that there has been an error in the computation of the total amount of petitioners’ indebtedness to
respondent bank.

Although respondent bank contends that the error of computation is a question of fact which is beyond the power of this
Court to review, 13 the total amount of petitioners’ indebtedness in this case is not a question of fact. Rather, it is a
question of law, i.e., the application of legal principles for the computation of the amount owed to respondent bank, and is
thus a matter properly brought for our determination.

The first issue involves the amount of indebtedness prior to the imposition of interest and penalty charges. The initial
amount of the trust receipt of P218,733.92, was reduced to P192,265.92 as of June 14, 1984, as per respondent’s
Statement of Past Due Trust Receipt dated December 1, 1993. 14 This amount presumably includes the application of
P35,000.00, the amount of petitioner Lucente’s Deed of Assignment, which amount was applied by respondent bank to
petitioners’ obligation. No showing was made, however, that the P30,000.00 proceeds of the auction sale on July 31,
1985 was ever applied to the loan. Neither was the amount of P50,414.00, representing the marginal deposit made by
petitioner corporation, deducted from the loan. Although respondent bank contends that the marginal deposit should not
be deducted from the principal obligation, this is completely contrary to prevailing jurisprudence allowing the deduction of
the marginal deposit, thus:

The marginal deposit requirement is a Central Bank measure to cut off excess currency liquidity which would create
inflationary pressure. It is a collateral security given by the debtor, and is supposed to be returned to him upon his
compliance with his secured obligation. Consequently, the bank pays no interest on the marginal deposit, unlike an
ordinary bank deposit which earns interest in the bank. As a matter of fact, the marginal deposit requirement for letters of
credit has been discontinued, except in those cases where the applicant for a letter of credit is not known to the bank or
does not maintain a good credit standing therein.

It is only fair then that the importer’s marginal deposit (if one was made, as in this case), should be set off against his
debt, for while the importer earns no interest on his marginal deposit, the bank, apart from being able to use said deposit
for its own purposes, also earns interest on the money it loaned to the importer. It would be onerous to compute interest
and other charges on the face value of the letter of credit which the bank issued, without first crediting or setting off the
marginal deposit which the importer paid to the bank. Compensation is proper and should take place by operation of law
because the requisites in Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent
amount (Art. 1290, Civil Code). Although Abad is only a surety, he may set up compensation as regards what the creditor
owes the principal debtor, TOMCO (Art. 1280, Civil Code). 15

The net amount of the obligation, represented by respondent bank to be P292,172.23 as of April 17, 1986, would thus be
P211,758.23.

To this principal amount must be imposed the following charges: (1) 19% interest per annum, in keeping with the terms of
the trust receipt; 16 and (2) 12% penalty per annum, collected based on the outstanding principal obligation plus unpaid
interest, again in keeping with the wording of the trust receipt. 17 It appearing that petitioners have paid the interest and
penalty charges until April 17, 1986, the reckoning date for the computation of the foregoing charges must be April 18,
1986.

A perusal of the records reveals that the trial court and the Court of Appeals erred in imposing service charges upon the
petitioners. No such stipulation is found in the trust receipt. Moreover, the trial court and the Court of Appeals erred in
computing attorney’s fees equivalent to 10% per annum, rather than 10% of the total amount due. There is no basis for
compounding the interest annually, as the trial court and Court of Appeals have done. This amount would be
unconscionable.

Finally, Lucente and Llaban’s contention that they are not solidarily liable with petitioner corporation is untenable. As co-
signatories of the Continuing Suretyship Agreement, they bound themselves, inter alia, to pay the principal sum in the
amount of not more than P400,000.00; interest due on the principal obligation; attorney’s fees; and expenses that may be
incurred in collecting the credit. The amount owed to respondent bank is the amount of the principal, interest, attorney’s
fees, and expenses in collecting the principal amount. The Continuing Suretyship Agreement expressly states the nature
of the liability of Lucente and Llaban:

The liability of the SURETY shall be solidary, direct and immediate and not contingent upon the bank’s pursuit of whatever
remedies the BANK have [sic] against the Borrower or the securities or liens the BANK may possess and the SURETY
will at any time, whether due or not due, pay to the BANK with or without demand upon the Borrower, any of the
instruments of indebtedness or other obligation hereby guaranteed by the SURETY. 18

Solidary liability is one of the primary characteristics of a surety contract, 19 and the Continuing Suretyship Agreement
expressly stipulates the solidary nature of Lucente and Llaban’s liability. All three petitioners thus share the solidary
obligation in favor of respondent bank, which is given the right, under the Civil Code, to proceed against any one of the
solidary debtors or some or all of them simultaneously. 20

WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. The decision of the Court of Appeals
in CA-G.R. CV No. 58193 dated February 13, 2003 is AFFIRMED with MODIFICATIONS. Accordingly, petitioners are
ordered to pay respondent bank the following: (1) P211,758.23 representing petitioners’ net obligation as of April 17,
1986; (2) interest at the rate of 19% per annum and penalty at the rate of 12% per annum reckoned from April 18, 1986;
(3) attorney’s fees equivalent to 10% of the total amount due and collectible; and (4) litigation expenses in the amount of
P3,000.00. The service charge at the rate of 2% per annum beginning April 18, 1986 is deleted. Costs against petitioners.

SO ORDERED.
 FIRST DIVISION

[G.R. No. 90828. September 5, 2000.]

MELVIN COLINARES and LORDINO VELOSO, petitioners, vs. HONORABLE COURT OF APPEALS, and THE
PEOPLE OF THE PHILIPPINES, respondents.

DECISION

DAVIDE, JR., C. J. p:

In 1979 Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a consideration of P40,000 by the
Carmelite Sisters of Cagayan de Oro City to renovate the latter's convent at Camaman-an, Cagayan de Oro City.

On 30 October 1979, Petitioners obtained 5,376 SF Solatone acoustical board 2'x4'x1/2", 300 SF tanguile wood tiles
12"x12", 260 SF Marcelo economy tiles and 2 gallons UMYLIN cement adhesive from CM Builders Centre for the
construction project. 1 The following day, 31 October 1979, Petitioners applied for a commercial letter of credit 2 with the
Philippine Banking Corporation, Cagayan de Oro City branch (hereafter PBC) in favor of CM Builders Centre. PBC
approved the letter of credit 3 for P22,389.80 to cover the full invoice value of the goods. Petitioners signed a pro-forma
trust receipt 4 as security. The loan was due on 29 January 1980.

On 31 October 1979, PBC debited P6,720 from Petitioners' marginal deposit as partial payment of the loan. 5

On 7 May 1980, PBC wrote 6 to Petitioners demanding that the amount be paid within seven days from notice. Instead of
complying with PBC's demand, Veloso confessed that they lost P19,195.83 in the Carmelite Monastery Project and
requested for a grace period of until 15 June 1980 to settle the account. 7

PBC sent a new demand letter 8 to Petitioners on 16 October 1980 and informed them that their outstanding balance as
of 17 November 1979 was P20,824.40 exclusive of attorney's fees of 25%. 9 ITSCED

On 2 December 1980, Petitioners proposed 10 that the terms of payment of the loan be modified as follows: P2,000 on or
before 3 December 1980, and P1,000 per month starting 31 January 1980 until the account is fully paid. Pending approval
of the proposal, Petitioners paid P1,000 to PBC on 4 December 1980, 11 and thereafter P500 on 11 February 1981, 12 16
March 1981, 13 and 20 April 1981. 14 Concurrently with the separate demand for attorney's fees by PBC's legal counsel,
PBC continued to demand payment of the balance. 15

On 14 January 1983, Petitioners were charged with the violation of P.D. No. 115 (Trust Receipts Law) in relation to Article
315 of the Revised Penal Code in an Information which was filed with Branch 18, Regional Trial Court of Cagayan de Oro
City. The accusatory portion of the Information reads:

That on or about October 31, 1979, in the City of Cagayan de Oro, Philippines, and within the jurisdiction of this
Honorable Court, the above-named accused entered into a trust receipt agreement with the Philippine Banking
Corporation at Cagayan de Oro City wherein the accused, as entrustee, received from the entruster the following goods to
wit:

Solatone Acoustical board

Tanguile Wood Tiles

Marcelo Cement Tiles

Umylin Cement Adhesive

with a total value of P22,389.80, with the obligation on the part of the accused-entrustee to hold the aforesaid items in
trust for the entruster and/or to sell on cash basis or otherwise dispose of the said items and to turn over to the entruster
the proceeds of the sale of said goods or if there be no sale to return said items to the entruster on or before January 29,
1980 but that the said accused after receipt of the goods, with intent to defraud and cause damage to the entruster,
conspiring, confederating together and mutually helping one another, did then and there wilfully, unlawfully and feloniously
fail and refuse to remit the proceeds of the sale of the goods to the entruster despite repeated demands but instead
converted, misappropriated and misapplied the proceeds to their own personal use, benefit and gain, to the damage and
prejudice of the Philippine Banking Corporation, in the aforesaid sum of P22,389.80, Philippine Currency.

Contrary to PD 115 in relation to Article 315 of the Revised Penal Code. 16

The case was docketed as Criminal Case No. 1390.

During trial, petitioner Veloso insisted that the transaction was a "clean loan" as per verbal guarantee of Cayo Garcia
Tuiza, PBC's former manager. He and petitioner Colinares signed the documents without reading the fine print, only
learning of the trust receipt implication much later. When he brought this to the attention of PBC, Mr. Tuiza assured him
that the trust receipt was a mere formality. 17

On 7 July 1986, the trial court promulgated its decision 18 convicting Petitioners of estafa for violating P.D. No. 115 in
relation to Article 315 of the Revised Penal Code and sentencing each of them to suffer imprisonment of two years and
one day of prision correccional as minimum to six years and one day of prision mayor as maximum, and to solidarily
indemnify PBC the amount of P20,824.44, with legal interest from 29 January 1980, 12% penalty charge per annum, 25%
of the sums due as attorney's fees, and costs.

The trial court considered the transaction between PBC and Petitioners as a trust receipt transaction under Section
4, P.D. No. 115. It considered Petitioners' use of the goods in their Carmelite monastery project an act of "disposing" as
contemplated under Section 13, P.D. No. 115, and treated the charge invoice 19 for goods issued by CM Builders Centre
as a "document" within the meaning of Section 3 thereof. It concluded that the failure of Petitioners to turn over the
amount they owed to PBC constituted estafa.

Petitioners appealed from the judgment to the Court of Appeals which was docketed as CA-G.R. CR No. 05408.
Petitioners asserted therein that the trial court erred in ruling that they violated the Trust Receipt Law, and in holding them
criminally liable therefor. In the alternative, they contend that at most they can only be made civilly liable for payment of
the loan.

In its decision 20 6 March 1989, the Court of Appeals modified the judgment of the trial court by increasing the penalty to
six years and one day of prision mayor as minimum to fourteen years eight months and one day of reclusion temporal as
maximum. It held that the documentary evidence of the prosecution prevails over Veloso's testimony, discredited
Petitioners' claim that the documents they signed were in blank, and disbelieved that they were coerced into signing
them. SIcTAC

On 25 March 1989, Petitioners filed a Motion for New Trial/Reconsideration 21 alleging that the "Disclosure Statement on
Loan/Credit Transaction" 22 (hereafter Disclosure Statement) signed by them and Tuiza was suppressed by PBC during
the trial. That document would have proved that the transaction was indeed a loan as it bears a 14% interest as opposed
to the trust receipt which does not at all bear any interest. Petitioners further maintained that when PBC allowed them to
pay in installment, the agreement was novated and a creditor-debtor relationship was created.

In its resolution 23 of 16 October 1989 the Court of Appeals denied the Motion for New Trial/Reconsideration because the
alleged newly discovered evidence was actually forgotten evidence already in existence during the trial, and would not
alter the result of the case.

Hence, Petitioners filed with us the petition in this case on 16 November 1989. They raised the following issues:

1. WHETHER OR NOT THE DENIAL OF THE MOTION FOR NEW TRIAL ON THE GROUND OF NEWLY
DISCOVERED EVIDENCE, NAMELY, "DISCLOSURE ON LOAN/CREDIT TRANSACTION," WHICH IF INTRODUCED
AND ADMITTED, WOULD CHANGE THE JUDGMENT, DOES NOT CONSTITUTE A DENIAL OF DUE PROCESS.

2. ASSUMING THERE WAS A VALID TRUST RECEIPT, WHETHER OR NOT THE ACCUSED WERE PROPERLY
CHARGED, TRIED AND CONVICTED FOR VIOLATION OF SEC. 13, PD NO. 115 IN RELATION TO ARTICLE 315
PARAGRAPH (I) (B) NOTWITHSTANDING THE NOVATION OF THE SO-CALLED TRUST RECEIPT CONVERTING
THE TRUSTOR-TRUSTEE RELATIONSHIP TO CREDITOR-DEBTOR SITUATION.
In its Comment of 22 January 1990, the Office of the Solicitor General urged us to deny the petition for lack of merit.

On 28 February 1990 Petitioners filed a Motion to Dismiss the case on the ground that they had already fully paid PBC on
2 February 1990 the amount of P70,000 for the balance of the loan, including interest and other charges, as evidenced by
the different receipts issued by PBC, 24 and that the PBC executed an Affidavit of desistance. 25

We required the Solicitor General to comment on the Motion to Dismiss.

In its Comment of 30 July 1990, the Solicitor General opined that payment of the loan was akin to a voluntary surrender or
plea of guilty which merely serves to mitigate Petitioners' culpability, but does not in any way extinguish their criminal
liability.

In the Resolution of 13 August 1990, we gave due course to the Petition and required the parties to file their respective
memoranda.

The parties subsequently filed their respective memoranda.

It was only on 18 May 1999 when this case was assigned to the ponente. Thereafter, we required the parties to move in
the premises and for Petitioners to manifest if they are still interested in the further prosecution of this case and inform us
of their present whereabouts and whether their bail bonds are still valid.

Petitioners submitted their Compliance.

The core issues raised in the petition are the denial by the Court of Appeals of Petitioners' Motion for New Trial and the
true nature of the contract between Petitioners and the PBC. As to the latter, Petitioners assert that it was an ordinary
loan, not a trust receipt agreement under the Trust Receipts Law. TAEcCS

The grant or denial of a motion for new trial rests upon the discretion of the judge. New trial may be granted if: (1) errors of
law or irregularities have been committed during the trial prejudicial to the substantial rights of the accused; or (2) new and
material evidence has been discovered which the accused could not with reasonable diligence have discovered and
produced at the trial, and which, if introduced and admitted, would probably change the judgment. 26

For newly discovered evidence to be a ground for new trial, such evidence must be (1) discovered after trial; (2) could not
have been discovered and produced at the trial even with the exercise of reasonable diligence; and (3) material, not
merely cumulative, corroborative, or impeaching, and of such weight that, if admitted, would probably change the
judgment. 27 It is essential that the offering party exercised reasonable diligence in seeking to locate the evidence before
or during trial but nonetheless failed to secure it. 28

We find no indication in the pleadings that the Disclosure Statement is a newly discovered evidence.

Petitioners could not have been unaware that the two-page document exists. The Disclosure Statement itself states,
"NOTICE TO BORROWER: YOU ARE ENTITLED TO A COPY OF THIS PAPER WHICH YOU SHALL
SIGN." 29 Assuming Petitioners' copy was then unavailable, they could have compelled its production in court, 30 which
they never did. Petitioners have miserably failed to establish the second requisite of the rule on newly discovered
evidence.

Petitioners themselves admitted that "they searched again their voluminous records, meticulously and patiently, until they
discovered this new and material evidence" only upon learning of the Court of Appeals' decision and after they were
"shocked by the penalty imposed." 31 Clearly, the alleged newly discovered evidence is mere forgotten evidence that
jurisprudence excludes as a ground for new trial. 32

However, the second issue should be resolved in favor of Petitioners.

Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt transaction as any transaction by and between a
person referred to as the entruster, and another person referred to as the entrustee, whereby the entruster who owns or
holds absolute title or security interest over certain specified goods, documents or instruments, releases the same to the
possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a "trust
receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments with the obligation to
turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust
receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance
with the terms and conditions specified in the trust receipt.

There are two possible situations in a trust receipt transaction. The first is covered by the provision which refers
to money received under the obligation involving the duty to deliver it (entregarla) to the owner of the merchandise sold.
The second is covered by the provision which refers to merchandise received under the obligation to "return" it
(devolvera) to the owner. 33

Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by the trust receipt to the entruster or
to return said goods if they were not disposed of in accordance with the terms of the trust receipt shall be punishable as
estafa under Article 315 (1) of the Revised Penal Code, 34 without need of proving intent to defraud.

A thorough examination of the facts obtaining in the case at bar reveals that the transaction intended by the parties was a
simple loan, not a trust receipt agreement.

Petitioners received the merchandise from CM Builders Centre on 30 October 1979. On that day, ownership over the
merchandise was already transferred to Petitioners who were to use the materials for their construction project. It was
only a day later, 31 October 1979, that they went to the bank to apply for a loan to pay for the merchandise.

This situation belies what normally obtains in a pure trust receipt transaction where goods are owned by the bank and
only released to the importer in trust subsequent to the grant of the loan. The bank acquires a "security interest" in the
goods as holder of a security title for the advances it had made to the entrustee. 35 The ownership of the merchandise
continues to be vested in the person who had advanced payment until he has been paid in full, or if the merchandise has
already been sold, the proceeds of the sale should be turned over to him by the importer or by his representative or
successor-in-interest. 36 To secure that the bank shall be paid, it takes full title to the goods at the very beginning and
continues to hold that title as his indispensable security until the goods are sold and the vendee is called upon to pay for
them; hence, the importer has never owned the goods and is not able to deliver possession. 37 In a certain manner, trust
receipts partake of the nature of a conditional sale where the importer becomes absolute owner of the imported
merchandise as soon as he has paid its price. 38 aSTAHD

Trust receipt transactions are intended to aid in financing importers and retail dealers who do not have sufficient funds or
resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except
through utilization, as collateral, of the merchandise imported or purchased. 39

The antecedent acts in a trust receipt transaction consist of the application and approval of the letter of credit, the making
of the marginal deposit and the effective importation of goods through the efforts of the importer. 40

PBC attempted to cover up the true delivery date of the merchandise, yet the trial court took notice even though it failed to
attach any significance to such fact in the judgment. Despite the Court of Appeals' contrary view that the goods were
delivered to Petitioners previous to the execution of the letter of credit and trust receipt, we find that the records of the
case speak volubly and this fact remains uncontroverted. It is not uncommon for us to peruse through the transcript of the
stenographic notes of the proceedings to be satisfied that the records of the case do support the conclusions of the trial
court. 41 After such perusal Grego Mutia, PBC's credit investigator, admitted thus:

ATTY. CABANLET: (continuing)

Q Do you know if the goods subject matter of this letter of credit and trust receipt agreement were received by the
accused?

A Yes, sir.

Q Do you have evidence to show that these goods subject matter of this letter of credit and trust receipt were delivered to
the accused?

A Yes, sir.
Q I am showing to you this charge invoice, are you referring to this document?

A Yes, sir.

xxx xxx xxx

Q What is the date of the charge invoice?

A October 31, 1979.

COURT:

Make it of record as appearing in Exhibit D, the zero in 30 has been superimposed with numeral 1. 42

During the cross and re-direct examinations he also impliedly admitted that the transaction was indeed a loan. Thus:

Q In short the amount stated in your Exhibit C, the trust receipt was a loan to the accused you admit that?

A Because in the bank the loan is considered part of the loan.

xxx xxx xxx

RE-DIRECT BY ATTY. CABANLET:

ATTY. CABANLET (to the witness)

Q What do you understand by loan when you were asked?

A Loan is a promise of a borrower from the value received. The borrower will pay the bank on a certain specified date with
interest. 43

Such statement is akin to an admission against interest binding upon PBC.

Petitioner Veloso's claim that they were made to believe that the transaction was a loan was also not denied by PBC. He
declared:

Q Testimony was given here that was covered by trust receipt. In short it was a special kind of loan. What can you say as
to that?

A I don't think that would be a trust receipt because we were made to understand by the manager who encouraged us to
avail of their facilities that they will be granting us a loan. 44 aETAHD

PBC could have presented its former bank manager, Cayo Garcia Tuiza, who contracted with Petitioners, to refute
Veloso's testimony, yet it only presented credit investigator Grego Mutia. Nowhere from Mutia's testimony can it be
gleaned that PBC represented to Petitioners that the transaction they were entering into was not a pure loan but had trust
receipt implications.

The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the dishonesty and abuse of
confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the
owner. 45 Here, it is crystal clear that on the part of Petitioners there was neither dishonesty nor abuse of confidence in
the handling of money to the prejudice of PBC. Petitioners continually endeavored to meet their obligations, as shown by
several receipts issued by PBC acknowledging payment of the loan.

The Information charges Petitioners with intent to defraud and misappropriating the money for their personal use.
The mala prohibita nature of the alleged offense notwithstanding, intent as a state of mind was not proved to be present in
Petitioners' situation. Petitioners employed no artifice in dealing with PBC and never did they evade payment of their
obligation nor attempt to abscond. Instead, Petitioners sought favorable terms precisely to meet their obligation.
Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale, contrary to the express
provision embodied in the trust receipt. They are contractors who obtained the fungible goods for their construction
project. At no time did title over the construction materials pass to the bank, but directly to the Petitioners from CM
Builders Centre. This impresses upon the trust receipt in question vagueness and ambiguity, which should not be the
basis for criminal prosecution in the event of violation of its provisions. 46

The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them under the
threats of criminal prosecution should they be unable to pay it may be unjust and inequitable, if not reprehensible. Such
agreements are contracts of adhesion which borrowers have no option but to sign lest their loan be disapproved. The
resort to this scheme leaves poor and hapless borrowers at the mercy of banks, and is prone to misinterpretation, as had
happened in this case. Eventually, PBC showed its true colors and admitted that it was only after collection of the money,
as manifested by its Affidavit of Desistance.

WHEREFORE, the challenged Decision of 6 March 1989 and the Resolution of 16 October 1989 of the Court of Appeals
in CA-G.R. No. 05408 are REVERSED and SET ASIDE. Petitioners are hereby ACQUITTED of the crime charged, i.e.,
for violation of P.D. No. 115 in relation to Article 315 of the Revised Penal Code.

No costs.

SO ORDERED.
 THIRD DIVISION

[G.R. No. 143772. November 22, 2005.]

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. PRUDENTIAL BANK, respondent.

DECISION

CORONA, J p:

Development Bank of the Philippines (DBP) assails in this petition for review on certiorari under Rule 45 of the Rules of
Court the December 14, 1999 decision 1 and the June 8, 2000 resolution of the Court of Appeals in CA-G.R. CV No.
45783. The challenged decision dismissed DBP's appeal and affirmed the February 12, 1991 decision of the Regional
Trial Court of Makati, Branch 137 in Civil Case No. 88-931 in toto, while the impugned resolution denied DBP's motion for
reconsideration for being pro forma.

In 1973, Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial letter of credit with respondent Prudential Bank
for US$498,000. This was in connection with its importation of 5,000 spindles for spinning machinery with drawing frame,
simplex fly frame, ring spinning frame and various accessories, spare parts and tool gauge. These were released to Litex
under covering "trust receipts" it executed in favor of Prudential Bank. Litex installed and used the items in its textile mill
located in Montalban, Rizal.

On October 10, 1980, DBP granted a foreign currency loan in the amount of US$4,807,551 to Litex. To secure the loan,
Litex executed real estate and chattel mortgages on its plant site in Montalban, Rizal, including the buildings and other
improvements, machineries and equipments there. Among the machineries and equipments mortgaged in favor of DBP
were the articles covered by the "trust receipts."

Sometime in June 1982, Prudential Bank learned about DBP's plan for the overall rehabilitation of Litex. In a July 14, 1982
letter, Prudential Bank notified DBP of its claim over the various items covered by the "trust receipts" which had been
installed and used by Litex in the textile mill. Prudential Bank informed DBP that it was the absolute and juridical owner of
the said items and they were thus not part of the mortgaged assets that could be legally ceded to DBP.

For the failure of Litex to pay its obligation, DBP extra-judicially foreclosed on the real estate and chattel mortgages,
including the articles claimed by Prudential Bank. During the foreclosure sale held on April 19, 1983, DBP acquired the
foreclosed properties as the highest bidder.

Subsequently, DBP caused to be published in the September 2, 1984 issue of the Times Journal an invitation to bid in the
public sale to be held on September 10, 1984. It called on interested parties to submit bids for the sale of the textile mill
formerly owned by Litex, the land on which it was built, as well as the machineries and equipments therein. Learning of
the intended public auction, Prudential Bank wrote a letter dated September 6, 1984 to DBP reasserting its claim over the
items covered by "trust receipts" in its name and advising DBP not to include them in the auction. It also demanded the
turn-over of the articles or alternatively, the payment of their value.

An exchange of correspondences ensued between Prudential Bank and DBP. In reply to Prudential Bank's September 6,
1984 letter, DBP requested documents to enable it to evaluate Prudential Bank's claim. On September 28, 1994,
Prudential Bank provided DBP the requested documents. Two months later, Prudential Bank followed up the status of its
claim. In a letter dated December 3, 1984, DBP informed Prudential Bank that its claim had been referred to DBP's legal
department and instructed Prudential Bank to get in touch with its chief legal counsel. There being no concrete action on
DBP's part, Prudential Bank, in a letter dated July 30, 1985, made a final demand on DBP for the turn-over of the
contested articles or the payment of their value. Without the knowledge of Prudential Bank, however, DBP sold the Litex
textile mill, as well as the machineries and equipments therein, to Lyon Textile Mills, Inc. (Lyon) on June 8, 1987. aEIcHA

Since its demands remained unheeded, Prudential Bank filed a complaint for a sum of money with damages against DBP
with the Regional Trial Court of Makati, Branch 137, on May 24, 1988. The complaint was docketed as Civil Case No. 88-
931.
On February 12, 1991, the trial court decided 2 in favor of Prudential Bank. Applying the provisions of PD 115, otherwise
known as the "Trust Receipts Law," it ruled:

When PRUDENTIAL BANK released possession of the subject properties, over which it holds absolute title to LITEX upon
the latter's execution of the trust receipts, the latter was bound to hold said properties in trust for the former, and (a) to sell
or otherwise dispose of the same and to turn over to PRUDENTIAL BANK the amount still owing; or (b) to return the
goods if unsold. Since LITEX was allowed to sell the properties being claimed by PRUDENTIAL BANK, all the more was it
authorized to mortgage the same, provided of course LITEX turns over to PRUDENTIAL BANK all amounts owing. When
DBP, well aware of the status of the properties, acquired the same in the public auction, it was bound by the terms of the
trust receipts of which LITEX was the entrustee. Simply stated, DBP held no better right than LITEX, and is thus bound to
turn over whatever amount was due PRUDENTIAL BANK. Being a trustee ex maleficio of PRUDENTIAL BANK, DBP is
necessarily liable therefor. In fact, DBP may well be considered as an agent of LITEX when the former sold the properties
being claimed by PRUDENTIAL BANK, with the corresponding responsibility to turn over the proceeds of the same to
PRUDENTIAL BANK. 3 (Citations omitted)

The dispositive portion of the decision read:

WHEREFORE, judgment is hereby rendered ordering defendant DEVELOPMENT BANK OF THE PHILIPPINES to pay
plaintiff PRUDENTIAL BANK:

a)P3,261,834.00, as actual damages, with interest thereon computed from 10 August 1985 until the entire amount shall
have been fully paid;

b)P50,000.00 as exemplary damages; and

c)10% of the total amount due as and for attorney's fees.

SO ORDERED.

Aggrieved, DBP filed an appeal with the Court of Appeals. However, the appellate court dismissed the appeal and
affirmed the decision of the trial court in toto. It applied the provisions of PD 115 and held that ownership over the
contested articles belonged to Prudential Bank as entrustor, not to Litex. Consequently, even if Litex mortgaged the items
to DBP and the latter foreclosed on such mortgage, DBP was duty-bound to turn over the proceeds to Prudential Bank,
being the party that advanced the payment for them.

On DBP's argument that the disputed articles were not proper objects of a trust receipt agreement, the Court of Appeals
ruled that the items were part of the trust agreement entered into by and between Prudential Bank and Litex. Since the
agreement was not contrary to law, morals, public policy, customs and good order, it was binding on the parties.

Moreover, the appellate court found that DBP was not a mortgagee in good faith. It also upheld the finding of the trial court
that DBP was a trustee ex maleficio of Prudential Bank over the articles covered by the "trust receipts."

DBP filed a motion for reconsideration but the appellate court denied it for being pro forma. Hence, this petition.

Trust receipt transactions are governed by the provisions of PD 115 which defines such a transaction as follows:

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; or cSDHEC

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.

xxx xxx xxx

In a trust receipt transaction, the goods are released by the entruster (who owns or holds absolute title or security
interests over the said goods) to the entrustee on the latter's execution and delivery to the entruster of a trust receipt. The
trust receipt evidences the absolute title or security interest of the entruster over the goods. As a consequence of the
release of the goods and the execution of the trust receipt, a two-fold obligation is imposed on the entrustee, namely: (1)
to hold the designated goods, documents or instruments in trust for the purpose of selling or otherwise disposing of them
and (2) to turn over to the entruster either 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. In the case of goods, they may also
be released for other purposes substantially equivalent to (a) their sale or the procurement of their sale; or (b) their
manufacture or processing with the purpose of ultimate sale, in which case the entruster retains his title over the said
goods whether in their original or processed form until the entrustee has complied fully with his obligation under the trust
receipt; or (c) the loading, unloading, shipment or transshipment or otherwise dealing with them in a manner preliminary or
necessary to their sale. 4 Thus, in a trust receipt transaction, the release of the goods to the entrustee, on his execution of
a trust receipt, is essentially for the purpose of their sale or is necessarily connected with their ultimate or subsequent
sale.

Here, Litex was not engaged in the business of selling spinning machinery, its accessories and spare parts but in
manufacturing and producing textile and various kinds of fabric. The articles were not released to Litex to be sold. Nor
was the transfer of possession intended to be a preliminary step for the said goods to be ultimately or subsequently sold.
Instead, the contemporaneous and subsequent acts of both Litex and Prudential Bank showed that the imported articles
were released to Litex to be installed in its textile mill and used in its business. DBP itself was aware of this. To support its
assertion that the contested articles were excluded from goods that could be covered by a trust receipt, it contended:

First. That the chattels in controversy were procured by DBP's mortgagor Lirag Textile Mills ("LITEX") for the exclusive
use of its textile mills. They were not procured —

(a)to sell or otherwise procure their sale;

(b)to manufacture or process the goods with the purpose of ultimate sale. 5 (emphasis supplied)

Hence, the transactions between Litex and Prudential Bank were allegedly not trust receipt transactions within the
meaning of PD 115. It follows that, contrary to the decisions of the trial court and the appellate court, the transactions
were not governed by the Trust Receipts Law.

We disagree.

The various agreements between Prudential Bank and Litex commonly denominated as "trust receipts" were valid. As the Court
of Appeals correctly ruled, their provisions did not contravene the law, morals, good customs, public order or public
policy. EaCDAT

The agreements uniformly provided:

Received, upon the Trust hereinafter mentioned from the PRUDENTIAL BANK (hereinafter referred to as BANK) the following
goods and merchandise, the property of said BANK specified in the bill of lading as follows:

Amount of BillDescription of SecurityMarks & Nos.Vessel

and in consideration thereof, I/We hereby agree to hold said goods in trust for the BANK and as its property with liberty to
sell the same for its account but without authority to make any other disposition whatsoever of the said goods or any part thereof
(or the proceeds thereof) either by way of conditional sale, pledge, or otherwise.

xxx xxx xxx 6 (Emphasis supplied)

The articles were owned by Prudential Bank and they were only held by Litex in trust. While it was allowed to sell the items, Litex
had no authority to dispose of them or any part thereof or their proceeds through conditional sale, pledge or any other means.

Article 2085 (2) of the Civil Code requires that, in a contract of pledge or mortgage, it is essential that the pledgor or mortgagor
should be the absolute owner of the thing pledged or mortgaged. Article 2085 (3) further mandates that the person constituting
the pledge or mortgage must have the free disposal of his property, and in the absence thereof, that he be legally authorized for
the purpose.

Litex had neither absolute ownership, free disposal nor the authority to freely dispose of the articles. Litex could not have
subjected them to a chattel mortgage. Their inclusion in the mortgage was void 7 and had no legal effect. 8 There being no valid
mortgage, there could also be no valid foreclosure or valid auction sale. 9 Thus, DBP could not be considered either as a
mortgagee or as a purchaser in good faith. 10

No one can transfer a right to another greater than what he himself has. 11 Nemo dat quod non habet. Hence, Litex could not
transfer a right that it did not have over the disputed items. Corollarily, DBP could not acquire a right greater than what its
predecessor-in-interest had. The spring cannot rise higher than its source. 12 DBP merely stepped into the shoes of Litex as
trustee of the imported articles with an obligation to pay their value or to return them on Prudential Bank's demand. By its failure
to pay or return them despite Prudential Bank's repeated demands and by selling them to Lyon without Prudential Bank's
knowledge and conformity, DBP became a trustee ex maleficio.

On the matter of actual damages adjudged by the trial court and affirmed by the Court of Appeals, DBP wants this Court to
review the evidence presented during the trial and to reverse the factual findings of the trial court. This Court is, however, not a
trier of facts and it is not its function to analyze or weigh evidence anew. 13 The rule is that factual findings of the trial court,
when adopted and confirmed by the CA, are binding and conclusive on this Court and generally will not be reviewed on
appeal. 14 While there are recognized exceptions to this rule, none of the established exceptions finds application here.

With regard to the imposition of exemplary damages, the appellate court agreed with the trial court that the requirements for the
award thereof had been sufficiently established. Prudential Bank's entitlement to compensatory damages was likewise amply
proven. It was also shown that DBP was aware of Prudential Bank's claim as early as July, 1982. However, it ignored the latter's
demand, included the disputed articles in the mortgage foreclosure and caused their sale in a public auction held on April 19,
1983 where it was declared as the highest bidder. Thereafter, in the series of communications between them, DBP gave
Prudential Bank the false impression that its claim was still being evaluated. Without acting on Prudential Bank's plea, DBP
included the contested articles among the properties it sold to Lyon in June, 1987. The trial court found that this chain of events
showed DBP's fraudulent attempt to prevent Prudential Bank from asserting its rights. It smacked of bad faith, if not deceit. Thus,
the award of exemplary damages was in order. Due to the award of exemplary damages, the grant of attorney's fees was
proper. 15

DBP's assertion that both the trial and appellate courts failed to address the issue of prescription is of no moment. Its claim that,
under Article 1146 (1) of the Civil Code, Prudential Bank's cause of action had prescribed as it should be reckoned from October
10, 1980, the day the mortgage was registered, is not correct. The written extra-judicial demand by the creditor interrupted the
prescription of action. 16 Hence, the four-year prescriptive period which DBP insists should be counted from the registration of
the mortgage was interrupted when Prudential Bank wrote the extra-judicial demands for the turn over of the articles or their
value. In particular, the last demand letter sent by Prudential Bank was dated July 30, 1988 and this was received by DBP the
following day. Thus, contrary to DBP's claim, Prudential Bank's right to enforce its action had not yet prescribed when it filed the
complaint on May 24, 1988. EcDSTI

WHEREFORE, the petition is hereby DENIED. The December 14, 1999 decision and June 8, 2000 resolution of the Court of
Appeals in CA-G.R. CV No. 45783 are AFFIRMED.

Costs against the petitioner.

SO ORDERED.
 THIRD DIVISION

[G.R. No. 137232. June 29, 2005.]

ROSARIO TEXTILE MILLS CORPORATION and EDILBERTO YUJUICO, petitioners, vs. HOME BANKERS SAVINGS
AND TRUST COMPANY, respondent.

DECISION

SANDOVAL-GUTIERREZ, J p:

For our resolution is the petition for review on certiorari assailing the Decision 1 of the Court of Appeals dated March 31,
1998 in CA-G.R. CV No. 48708 and its Resolution dated January 12, 1999.

The facts of the case as found by the Court of Appeals are:

"Sometime in 1989, Rosario Textile Mills Corporation (RTMC) applied from Home Bankers Savings & Trust Co. for an
Omnibus Credit Line for 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. ASHICc

For failure of the parties to amicably settle the case, trial on the merits proceeded. After the trial, the Court a quo rendered
a decision in favor of the bank, the decretal part of which reads:

'WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff and against defendants who
are ordered to pay jointly and severally in favor of plaintiff, inclusive of stipulated 30% per annum interest and penalty of
3% per month until fully paid, under the following promissory notes:

90-1116 6-20-90 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.

SO ORDERED." (OR, p. 323; Rollo, p. 73)." 2

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

The Court of Appeals, however, affirmed the trial court's judgment, holding that the bank is merely the holder of the
security for its advance payments to petitioners; and that the goods they purchased, through the credit line extended by
the bank, belong to them and hold said goods at their own risk.

Petitioners then filed a motion for reconsideration but this was denied by the Appellate Court in its Resolution dated
January 12, 1999.

Hence, this petition for review on certiorari ascribing to the Court of Appeals the following errors:

"I

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

II

THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF 'RES PERIT DOMINO' IN
THE CASE AT BAR CONSIDERING THE VALID AND EFFECTIVE TENDER OF THE DEFECTIVE RAW MATERIALS
BY THE PETITIONERS-DEFENDANTS TO THE RESPONDENT-PLAINTIFF AND THE EXPRESS STIPULATION IN
THEIR CONTRACT THAT OWNERSHIP OF THE GOODS REMAINS WITH THE RESPONDENT-PLAINTIFF.

III

THE HONORABLE COURT OF APPEALS VIOLATED ARTICLE 1370 OF THE CIVIL CODE AND THE LONG-
STANDING JURISPRUDENCE THAT 'INTENTION OF THE PARTIES IS PRIMORDIAL' IN ITS FAILURE TO UPHOLD
THE INTENTION OF THE PARTIES THAT THE SURETY AGREEMENT WAS A MERE FORMALITY AND DID NOT
INTEND TO HOLD PETITIONER YUJUICO LIABLE UNDER THE SAME SURETY AGREEMENT. DICSaH

IV

ASSUMING ARGUENDO THAT THE SURETYSHIP AGREEMENT WAS VALID AND EFFECTIVE, THE HONORABLE
COURT OF APPEALS VIOLATED THE BASIC LEGAL PRECEPT THAT A SURETY IS NOT LIABLE UNLESS THE
DEBTOR IS HIMSELF LIABLE.

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 issued several promissory notes in favor of the bank. In banking and
commerce, a credit line is "that amount of money or merchandise which a banker, merchant, or supplier agrees to supply
to a person on credit and generally agreed to in advance." 3 It is the fixed limit of credit granted by a bank, retailer, or
credit card issuer to a customer, to the full extent of which the latter may avail himself of his dealings with the former but
which he must not exceed and is usually intended to cover a series of transactions in which case, when the customer's
line of credit is nearly exhausted, he is expected to reduce his indebtedness by payments before making any further
drawings. 4

It is thus clear that the principal transaction between petitioner RTMC and the bank is a contract of loan. RTMC used the
proceeds of this loan to purchase raw materials from a supplier abroad. In order to secure the payment of the loan, RTMC
delivered the raw materials to the bank as collateral. Trust receipts were executed by the parties to evidence this security
arrangement. Simply stated, the trust receipts were mere securities.

In Samo vs. People, 5 we described a trust receipt as "a security transaction intended to aid in financing importers and
retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and
who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or
purchased." 6

In Vintola vs. Insular Bank of Asia and America, 7 we elucidated further that "a trust receipt, therefore, is a security
agreement, pursuant to which a bank acquires a 'security interest' in the goods. It secures an indebtedness and there can
be no such thing as security interest that secures no obligation." 8 Section 3 (h) of the Trust Receipts Law (P.D. No. 115)
defines a "security interest" as follows:

"(h) Security Interest means a property interest in goods, documents, or instruments to secure performance of some
obligation of the entrustee or of some third persons to the entruster and includes title, whether or not expressed to be
absolute, whenever such title is in substance taken or retained for security only." EITcaD

Petitioners' insistence that the ownership of the raw materials remained with the bank is untenable. In Sia vs.
People, 9 Abad vs. Court of Appeals, 10 and PNB vs. Pineda, 11 we held that:

"If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of legal fiction
than fact, for if it were really so, it could dispose of the goods in any manner it wants, which it cannot do, just to give
consistency with purpose of the trust receipt of giving a stronger security for the loan obtained by the importer. To
consider the bank as the true owner from the inception of the transaction would be to disregard the loan feature thereof. . .
." 12

Thus, petitioners cannot be relieved of their obligation to pay their loan in favor of the bank.

Anent the second issue, petitioner Yujuico contends that the suretyship agreement he signed does not bind him, the same
being a mere formality.

We reject petitioner Yujuico's contentions for two reasons.

First, there is no record to support his allegation that the surety agreement is a "mere formality;" and
Second, as correctly held by the Court of Appeals, the Suretyship Agreement signed by petitioner Yujuico binds him. The
terms clearly show that he agreed to pay the bank jointly and severally with RTMC. The 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.

xxx xxx xxx."

Under this Rule, the terms of a contract are rendered conclusive upon the parties and evidence aliunde is not admissible
to vary or contradict a complete and enforceable agreement embodied in a document. 13 We have carefully examined the
Suretyship Agreement signed by Yujuico and found no ambiguity therein. Documents must be taken as explaining all the
terms of the agreement between the parties when there appears to be no ambiguity in the language of said documents
nor any failure to express the true intent and agreement of the parties. 14

As to the third and final issue — At the risk of being repetitious, we stress that the contract between the parties is a loan.
What respondent bank sought to collect as creditor was the loan it granted to petitioners. Petitioners' recourse is to sue
their supplier, if indeed the materials were defective.

WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No.
48708 are AFFIRMED IN TOTO. Costs against petitioners. TIaEDC

SO ORDERED.