participation certificate or receipt, any credit or investment instrument of a sort
PRESIDENTIAL DECREE No. 115 January 29, 1973
PROVIDING FOR THE REGULATION OF TRUST RECEIPTS TRANSACTIONS
WHEREAS, the utilization of trust receipts, as a convenient business device to assist importers
and merchants solve their financing problems, had gained popular acceptance in international
and domestic business practices, particularly in commercial banking transactions;
WHEREAS, there is no specific law in the Philippines that governs trust receipt transactions,
especially the rights and obligations of the parties involved therein and the enforcement of the
said rights in case of default or violation of the terms of the trust receipt agreement;
WHEREAS, the recommendations contained in the report on the financial system which have
been accepted, with certain modifications by the monetary authorities included, among others,
the enactment of a law regulating the trust receipt transactions;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the
powers vested in me by the Constitution, as Commander-in-Chief of all the Armed Forces of the
Philippines, and pursuant to Proclamation No. 1081, dated September 21, 1972, and General
Order No. 1, dated September 22, 1972, as amended, and in order to effect the desired changes
and reforms in the social, economic, and political structure of our society, do hereby order and
decree and make as part of the law of the land the following:
Section 1. Short Title. This Decree shall be known as the Trust Receipts Law.
Section 2. Declaration of Policy. It is hereby declared to be the policy of the state (a) to
encourage and promote the use of trust receipts as an additional and convenient aid to
commerce and trade; (b) to provide for the regulation of trust receipts transactions in order to
assure the protection of the rights and enforcement of obligations of the parties involved therein;
and (c) to declare the misuse and/or misappropriation of goods or proceeds realized from the
sale of goods, documents or instruments released under trust receipts as a criminal offense
punishable under Article Three hundred and fifteen of the Revised Penal Code.
Section 3. Definition of terms. As used in this Decree, unless the context otherwise requires, the
term
(a) "Document" shall mean written or printed evidence of title to goods.
(b) "Entrustee" shall refer to the person 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 or purposes specified in the trust receipt
agreement.
(c) "Entruster" shall refer to the person holding title over the goods, documents, or
instruments subject of a trust receipt transaction, and any successor in interest of such
person.
(d) "Goods" shall include chattels and personal property other than: money, things in
action, or things so affixed to land as to become a part thereof.
(e) "Instrument" means any negotiable instrument as defined in the Negotiable
Instrument Law; any certificate of stock, or bond or debenture for the payment of
money issued by a public or private corporation, or any certificate of deposit,
marketed in the ordinary course of business or finance, whereby the entrustee, after
the issuance of the trust receipt, appears by virtue of possession and the face of the
instrument to be the owner. "Instrument" shall not include a document as defined in
this Decree.
(f) "Purchase" means taking by sale, conditional sale, lease, mortgage, or pledge,
legal or equitable.
(g) "Purchaser" means any person taking by purchase.
(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.
(i) "Person" means, as the case may be, an individual, trustee, receiver, or other
fiduciary, partnership, corporation, business trust or other association, and two more
persons having a joint or common interest.
(j) "Trust Receipt" shall refer to the written or printed document signed by the
entrustee in favor of the entruster containing terms and conditions substantially
complying with the provisions of this Decree. No further formality of execution or
authentication shall be necessary to the validity of a trust receipt.
(k) "Value" means any consideration sufficient to support a simple contract.
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
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.
Section 5. Form of trust receipts; contents. A trust receipt need not be in any particular form, but
every such receipt must substantially contain (a) a description of the goods, documents or
instruments subject of the trust receipt; (2) the total invoice value of the goods and the amount of
the draft to be paid by the entrustee; (3) an undertaking or a commitment of the entrustee (a) to
hold in trust for the entruster the goods, documents or instruments therein described; (b) to
dispose of them in the manner provided for in the trust receipt; and (c) to turn over the proceeds
of the sale of the goods, documents or instruments to the entruster to the extent of the amount
owing to the entruster or as appears in the trust receipt or to return the goods, documents or
instruments in the event of their non-sale within the period specified therein.
The trust receipt may contain other terms and conditions agreed upon by the parties in addition
to those hereinabove enumerated provided that such terms and conditions shall not be contrary
to the provisions of this Decree, any existing laws, public policy or morals, public order or good
customs.
Section 6. Currency in which a trust receipt may be denominated. A trust receipt may be
denominated in the Philippine currency or any foreign currency acceptable and eligible as part of
international reserves of the Philippines, the provisions of existing law, executive orders, rules
and regulations to the contrary notwithstanding: Provided, however, That in the case of trust
receipts denominated in foreign currency, payment shall be made in its equivalent in Philippine
currency computed at the prevailing exchange rate on the date the proceeds of sale of the
goods, documents or instruments held in trust by the entrustee are turned over to the entruster
or on such other date as may be stipulated in the trust receipt or other agreements executed
between the entruster and the entrustee.
Section 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.
Section 8. Entruster not responsible on sale by entrustee. The entruster holding a security
interest shall not, merely by virtue of such interest or having given the entrustee liberty of sale or
other disposition of the goods, documents or instruments under the terms of the trust receipt
transaction be responsible as principal or as vendor under any sale or contract to sell made by
the entrustee.
Section 9. Obligations of the entrustee. The entrustee shall (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 owing 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 proceeds thereof 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 this
Decree.
Section 10. Liability of entrustee for loss. The risk of loss shall be borne by the entrustee. Loss
of goods, documents or instruments which are the subject of a trust receipt, pending their
disposition, irrespective of whether or not it was due to the fault or negligence of the entrustee,
shall not extinguish his obligation to the entruster for the value thereof.
Section 11. Rights of purchaser for value and in good faith. Any purchaser of goods from an
entrustee with right to sell, or of documents or instruments through their customary form of
transfer, who buys the goods, documents, or instruments for value and in good faith from the
entrustee, acquires said goods, documents or instruments free from the entruster's security
interest.
Section 12. Validity of entruster's security interest as against creditors. The entruster's security
interest in goods, documents, or instruments pursuant to the written terms of a trust receipt shall
be valid as against all creditors of the entrustee for the duration of the trust receipt agreement.
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.
Section 14. Cases not covered by this Decree. Cases not provided for in this Decree shall be
governed by the applicable provisions of existing laws.
Section 15. Separability clause. If any provision or section of this Decree or the application
thereof to any person or circumstance is held invalid, the other provisions or sections hereof and
the application of such provisions or sections to other persons or circumstances shall not be
affected thereby.
Section 16. Repealing clause. All Acts inconsistent with this Decree are hereby repealed.
Section 17. This Decree shall take effect immediately.
G.R. No. 117913 February 1, 2002
CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD VELASCO
and ALFONSO CO, petitioners,
vs.
COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.
x-----------------------x
G.R. NO. 117914
MICO METALS CORPORATION, petitioner,
vs.
COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.
DECISION
DE LEON, JR., J:
Before us is the joint and consolidated petition for review of the Decision1 dated June 15, 1994 of
the Court of Appeals in CA-G.R. CV No. 27480 entitled, "Philippine Bank of Communications vs.
Mico Metals Corporation, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard
Velasco and Alfonso Co," which reversed the decision of the Regional Trial Court (RTC) of
Manila, Branch 55 dismissing the complaint for a sum of money filed by private respondent
Philippine Bank of Communications against herein petitioners, Mico Metals Corporation (MICO,
for brevity), Charles Lee, Chua Siok Suy,2 Mariano Sio, Alfonso Yap, Richard Velasco and
Alfonso Co.3 The dispositive portion of the said Decision of the Court of Appeals, reads:
WHEREFORE, the decision of the Regional Trial Court is hereby reversed and in lieu thereof, a
new one is entered:
a) Ordering the defendants-appellees jointly and severally to pay plaintiff PBCom the
sum of Five million four hundred fifty-one thousand six hundred sixty-three pesos and
ninety centavos (₱5,451,663.90) representing defendants-appellees unpaid
obligations arising from ordinary loans granted by the plaintiff plus legal interest until
fully paid.
b) Ordering defendants-appellees jointly and severally to pay PBCom the sum of Four
hundred sixty-one thousand six hundred pesos and sixty-six centavos (₱46 1,600.66)
representing defendants-appellees unpaid obligations arising from their letters of
credit and trust receipt transactions with plaintiff PBCom plus legal interest until fully
paid.
c) Ordering defendants-appellees jointly and severally to pay PBCom the sum of
₱50,000.00 as attorney’s fees.
No pronouncement as to costs.
The facts of the case are as follows:
On March 2, 1979, Charles Lee, as President of MICO wrote private respondent Philippine Bank
of Communications (PBCom) requesting for a grant of a discounting loan/credit line in the sum of
Three Million Pesos (₱3,000,000.00) for the purpose of carrying out MICO’s line of business as
well as to maintain its volume of business.
On the same day, Charles Lee requested for another discounting loan/credit line of Three Million
Pesos (₱3,000,000.00) from PBCom for the purpose of opening letters of credit and trust
receipts.
In connection with the requests for discounting loan/credit lines, PBCom was furnished by MICO
the following resolution which was adopted unanimously by MICO’s Board of Directors:
RESOLVED, that the President, Mr. Charles Lee, and the Vice-President and General Manager,
Mr. Mariano A. Sio, singly or jointly, be and they are duly authorized and empowered for and in
behalf of this Corporation to apply for, negotiate and secure the approval of commercial loans
and other banking facilities and accommodations, such as, but not limited to discount loans,
letters of credit, trust receipts, lines for marginal deposits on foreign and domestic letters of
credit, negotiate out-of-town checks, etc. from the Philippine Bank of Communications, 216 Juan
Luna, Manila in such sums as they shall deem advantageous, the principal of all of which shall
not exceed the total amount of TEN MILLION PESOS (₱10,000,000.00), Philippine Currency,
plus any interests that may be agreed upon with said Bank in such loans and other credit lines of
the same kind and such further terms and conditions as may, upon granting of said loans and
other banking facilities, be imposed by the Bank; and to make, execute, sign and deliver any
contracts of mortgage, pledge or sale of one, some or all of the properties of the Company, or
any other agreements or documents of whatever nature or kind, including the signing, indorsing,
cashing, negotiation and execution of promissory notes, checks, money orders or other
negotiable instruments, which may be necessary and proper in connection with said loans and
other banking facilities, or with their amendments, renewals and extensions of payment of the
whole or any part thereof.4
On March 26, 1979, MICO availed of the first loan of One Million Pesos (₱1,000,000.00) from
PBCom. Upon maturity of the loan, MICO caused the same to be renewed, the last renewal of
which was made on May 21, 1982 under Promissory Note BNA No. 26218. 5
Another loan of One Million Pesos (₱1,000,000.00) was availed of by MICO from PBCom which
was likewise later on renewed, the last renewal of which was made on May 21, 1982 under
Promissory Note BNA No. 26219.6 To complete MICO’s availment of Three Million Pesos
(₱3,000,000.00) discounting loan/credit line with PBCom, MICO availed of another loan from
PBCom in the sum of One Million Pesos (₱1,000,000.00) on May 24, 1979. As in previous loans,
this was rolled over or renewed, the last renewal of which was made on May 25, 1982 under
Promissory Note BNA No. 26253.7
As security for the loans, MICO through its Vice-President and General Manager, Mariano Sio,
executed on May 16, 1979 a Deed of Real Estate Mortgage over its properties situated in Pasig,
Metro Manila covered by Transfer Certificates of Title (TCT) Nos. 11248 and 11250.
On March 26, 1979 Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and Richard
Velasco, in their personal capacities executed a Surety Agreement8 in favor of PBCom whereby
the petitioners jointly and severally, guaranteed the prompt payment on due dates or at maturity
of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange, trust
receipts, and other obligations of every kind and nature, for which MICO may be held
accountable by PBCom. It was provided, however, that the liability of the sureties shall not at
any one time exceed the principal amount of Three Million Pesos (₱3,000,000.00) plus interest,
costs, losses, charges and expenses including attorney’s fees incurred by PBCom in connection
therewith.
On July 14, 1980, petitioner Charles Lee, in his capacity as president of MICO, wrote PBCom
and applied for an additional loan in the sum of Four Million Pesos (₱4,000,000.00). The loan
was intended for the expansion and modernization of the company’s machineries. Upon
approval of the said application for loan, MICO availed of the additional loan of Four Million
Pesos (₱4,000,000.00) as evidenced by Promissory Note TA No. 094. 9
As per agreement, the proceeds of all the loan availments were credited to MICO’s current
checking account with PBCom. To induce the PBCom to increase the credit line of MICO,
Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co
(hereinafter referred to as petitioners-sureties), executed another surety agreement10 in favor of
PBCom on July 28, 1980, whereby they jointly and severally guaranteed the prompt payment on
due dates or at maturity of overdrafts, promissory notes, discounts, drafts, letters of credit, bills
of exchange, trust receipts and all other obligations of any kind and nature for which MICO may
be held accountable by PBCom. It was provided, however, that their liability shall not at any one
time exceed the sum of Seven Million Five Hundred Thousand Pesos (₱7,500,000.00) including
interest, costs, charges, expenses and attorney’s fees incurred by MICO in connection therewith.
On July 29, 1980, MICO furnished PBCom with a notarized certification issued by its corporate
secretary, Atty. P.B. Barrera, that Chua Siok Suy was duly authorized by the Board of Directors
to negotiate on behalf of MICO for loans and other credit availments from PBCom. Indicated in
the certification was the following resolution unanimously approved by the Board of Directors:
RESOLVED, AS IT IS HEREBY RESOLVED, That Mr. Chua Siok Suy be, as he is hereby
authorized and empowered, on behalf of MICO METALS CORPORATION from time to time, to
borrow money and obtain other credit facilities, with or without security, from the PHILIPPINE
BANK OF COMMUNICATIONS in such amount(s) and under such terms and conditions as he
may determine, with full power and authority to execute, sign and deliver such contracts,
instruments and papers in connection therewith, including real estate and chattel mortgages,
pledges and assignments over the properties of the Corporation; and to renew and/or extend
and/or roll-over and/or reavail of the credit facilities granted thereunder, either for lesser or for
greater amount(s), the intention being that such credit facilities and all securities of whatever
kind given as collaterals therefor shall be a continuing security.
RESOLVED FURTHER, That said bank is hereby authorized, empowered and directed to rely
on the authority given hereunder, the same to continue in full force and effect until written notice
of its revocation shall be received by said Bank.11
On July 2, 1981, MICO filed with PBCom an application for a domestic letter of credit in the sum
of Three Hundred Forty-Eight Thousand Pesos (₱348,000.00).12 The corresponding irrevocable
letter of credit was approved and opened under LC No. L-16060.13 Thereafter, the domestic
letter of credit was negotiated and accepted by MICO as evidenced by the corresponding bank
draft issued for the purpose.14 After the supplier of the merchandise was paid, a trust receipt
upon MICO’s own initiative, was executed in favor of PBCom.15
On September 14, 1981, MICO applied for another domestic letter of credit with PBCom in the
sum of Two Hundred Ninety Thousand Pesos (₱290,000.00). 16 The corresponding irrevocable
letter of credit was issued on September 22, 1981 under LC No. L-16334.17 After the beneficiary
of the said letter of credit was paid by PBCom for the price of the merchandise, the goods were
delivered to MICO which executed a corresponding trust receipt 18 in favor of PBCom.
On November 10, 1981, MICO applied for authority to open a foreign letter of credit in favor of
Ta Jih Enterprises Co., Ltd.,19 and thus, the corresponding letter of credit20 was then issued by
PBCom with a cable sent to the beneficiary, Ta Jih Enterprises Co., Ltd. advising that said
beneficiary may draw funds from the account of PBCom in its correspondent bank’s New York
Office.21 PBCom also informed its corresponding bank in Taiwan, the Irving Trust Company, of
the approved letter of credit. The correspondent bank acknowledged PBCom’s advice through a
confirmation letter22 and by debiting from PBCom’s account with the said correspondent bank the
sum of Eleven Thousand Nine Hundred Sixty US Dollars ($11 ,960.00).23 As in past transactions,
MICO executed in favor of PBCom a corresponding trust receipt. 24
On January 4, 1982, MICO applied, for authority to open a foreign letter of credit in the sum of
One Thousand Nine Hundred US Dollars ($1,900.00), with PBCom. 25 Upon approval, the
corresponding letter of credit denominated as LC No. 6229326 was issued whereupon PBCom
advised its correspondent bank and MICO27 of the same. Negotiation and proper acceptance of
the letter of credit were then made by MICO. Again, a corresponding trust receipt28 was executed
by MICO in favor of PBCom.
In all the transactions involving foreign letters of credit, PBCom turned over to MICO the
necessary documents such as the bills of lading and commercial invoices to enable the latter to
withdraw the goods from the port of Manila.
On May 21, 1982 MICO obtained from PBCom another loan in the sum of Three Hundred
Seventy-Seven Thousand Pesos (₱377,000.00) covered by Promissory Note BA No. 7458. 29
Upon maturity of all credit availments obtained by MICO from PBCom, the latter made a demand
for payment.30 For failure of petitioner MICO to pay the obligations incurred despite repeated
demands, private respondent PBCom extrajudicially foreclosed MICO’s real estate mortgage
and sold the said mortgaged properties in a public auction sale held on November 23, 1982.
Private respondent PBCom which emerged as the highest bidder in the auction sale, applied the
proceeds of the purchase price at public auction of Three Million Pesos (₱3,000,000.00) to the
expenses of the foreclosure, interest and charges and part of the principal of the loans, leaving
an unpaid balance of Five Million Four Hundred Forty-One Thousand Six Hundred Sixty-Three
Pesos and Ninety Centavos (₱5,441,663.90) exclusive of penalty and interest charges. Aside
from the unpaid balance of Five Million Four Hundred Forty-One Thousand Six Hundred Sixty-
Three Pesos and Ninety Centavos (₱5,441,663.90), MICO likewise had another standing
obligation in the sum of Four Hundred Sixty-One Thousand Six Hundred Pesos and Six
Centavos (₱461,600.06) representing its trust receipts liabilities to private respondent. PBCom
then demanded the settlement of the aforesaid obligations from herein petitioners-sureties who,
however, refused to acknowledge their obligations to PBCom under the surety agreements.
Hence, PBCom filed a complaint with prayer for writ of preliminary attachment before the
Regional Trial Court of Manila, which was raffled to Branch 55, alleging that MICO was no longer
in operation and had no properties to answer for its obligations. PBCom further alleged that
petitioner Charles Lee has disposed or concealed his properties with intent to defraud his
creditors. Except for MICO and Charles Lee, the sheriff of the RTC failed to serve the summons
on herein petitioners-sureties since they were all reportedly abroad at the time. An alias
summons was later issued but the sheriff was not able to serve the same to petitioners Alfonso
Co and Chua Siok Suy who was already sickly at the time and reportedly in Taiwan where he
later died.
Petitioners (MICO and herein petitioners-sureties) denied all the allegations of the complaint filed
by respondent PBCom, and alleged that: a) MICO was not granted the alleged loans and neither
did it receive the proceeds of the aforesaid loans; b) Chua Siok Suy was never granted any valid
Board Resolution to sign for and in behalf of MICO; c) PBCom acted in bad faith in granting the
alleged loans and in releasing the proceeds thereof; d) petitioners were never advised of the
alleged grant of loans and the subsequent releases therefor, if any; e) since no loan was ever
released to or received by MICO, the corresponding real estate mortgage and the surety
agreements signed concededly by the petitioners-sureties are null and void.
The trial court gave credence to the testimonies of herein petitioners and dismissed the
complaint filed by PBCom. The trial court likewise declared the real estate mortgage and its
foreclosure null and void. In ruling for herein petitioners, the trial court said that PBCom failed to
adequately prove that the proceeds of the loans were ever delivered to MICO. The trial court
pointed out, among others, that while PBCom claimed that the proceeds of the Four Million
Pesos (₱4,000,000.00) loan covered by promissory note TA 094 were deposited to the current
account of petitioner MICO, PBCom failed to produce the ledger account showing such deposit.
The trial court added that while PBCom may have loaned to MICO the other sums of Three
Hundred Forty-Eight Thousand Pesos (₱348,000.00) and Two Hundred Ninety Thousand Pesos
(₱290,000.00), no proof has been adduced as to the existence of the goods covered and paid
by the said amounts. Hence, inasmuch as no consideration ever passed from PBCom to MICO,
all the documents involved therein, such as the promissory notes, real estate mortgage including
the surety agreements were all void or nonexistent for lack of cause or consideration. The trial
court said that the lack of proof as regards the existence of the merchandise covered by the
letters of credit bolstered the claim of herein petitioners that no purchases of the goods were
really made and that the letters of credit transactions were simply resorted to by the PBCom and
Chua Siok Suy to accommodate the latter in his financial requirements.
The Court of Appeals reversed the ruling of the trial court, saying that the latter committed an
erroneous application and appreciation of the rules governing the burden of proof. Citing Section
24 of the Negotiable Instruments Law which provides that "Every negotiable instrument is
deemed prima facie to have been issued for valuable consideration and every person
whose signature appears thereon to have become a party thereto for value", the Court of
Appeals said that while the subject promissory notes and letters of credit issued by the PBCom
made no mention of delivery of cash, it is presumed that said negotiable instruments were
issued for valuable consideration. The Court of Appeals also cited the case of Gatmaitan vs.
Court of Appeals31 which holds that "there is a presumption that an instrument sets out the
true agreement of the parties thereto and that it was executed for valuable consideration".
The appellate court noted and found that a notarized Certification was issued by MICO’s
corporate secretary, P.B. Barrera, that Chua Siok Suy, was duly authorized by the Board of
Directors of MICO to borrow money and obtain credit facilities from PBCom.
Petitioners filed a motion for reconsideration of the challenged decision of the Court of Appeals
but this was denied in a Resolution dated November 7, 1994 issued by its Former Second
Division. Petitioners-sureties then filed a petition for review on certiorari with this Court, docketed
as G.R. No. 117913, assailing the decision of the Court of Appeals. MICO likewise filed a
separate petition for review on certiorari, docketed as G.R. No. 117914, with this Court assailing
the same decision rendered by the Court of Appeals. Upon motion filed by petitioners, the two
(2) petitions were consolidated on January 11, 1995.32
Petitioners contend that there was no proof that the proceeds of the loans or the goods under
the trust receipts were ever delivered to and received by MICO. But the record shows otherwise.
Petitioners-sureties further contend that assuming that there was delivery by PBCom of the
proceeds of the loans and the goods, the contracts were executed by an unauthorized person,
more specifically Chua Siok Suy who acted fraudulently and in collusion with PBCom to defraud
MICO.
The pertinent issues raised in the consolidated cases at bar are: a) whether or not the proceeds
of the loans and letters of credit transactions were ever delivered to MICO, and b) whether or not
the individual petitioners, as sureties, may be held liable under the two (2) Surety Agreements
executed on March 26, 1979 and July 28, 1980.
In civil cases, the party having the burden of proof must establish his case by preponderance of
evidence.33 Preponderance of evidence means evidence which is more convincing to the court
as worthy of belief than that which is offered in opposition thereto. Petitioners contend that the
alleged promissory notes, trust receipts and surety agreements attached to the complaint filed
by PBCom did not ripen into valid and binding contracts inasmuch as there is no evidence of the
delivery of money or loan proceeds to MICO or to any of the petitioners-sureties. Petitioners
claim that under normal banking practice, borrowers are required to accomplish promissory
notes in blank even before the grant of the loans applied for and such documents become valid
written contracts only when the loans are actually released to the borrower.
We are not convinced.
During the trial of an action, the party who has the burden of proof upon an issue may be aided
in establishing his claim or defense by the operation of a presumption, or, expressed differently,
by the probative value which the law attaches to a specific state of facts. A presumption may
operate against his adversary who has not introduced proof to rebut the presumption. The effect
of a legal presumption upon a burden of proof is to create the necessity of presenting evidence
to meet the legal presumption or the prima facie case created thereby, and which if no proof to
the contrary is presented and offered, will prevail. The burden of proof remains where it is, but by
the presumption the one who has that burden is relieved for the time being from introducing
evidence in support of his averment, because the presumption stands in the place of evidence
unless rebutted.
Under Section 3, Rule 131 of the Rules of Court the following presumptions, among others, are
satisfactory if uncontradicted: a) That there was a sufficient consideration for a contract and b)
That a negotiable instrument was given or indorsed for sufficient consideration. As observed by
the Court of Appeals, a similar presumption is found in Section 24 of the Negotiable Instruments
Law which provides that every negotiable instrument is deemed prima facie to have been issued
for valuable consideration and every person whose signature appears thereon to have become a
party for value. Negotiable instruments which are meant to be substitutes for money, must
conform to the following requisites to be considered as such a) it must be in writing; b) it must be
signed by the maker or drawer; c) it must contain an unconditional promise or order to pay a
sum certain in money; d) it must be payable on demand or at a fixed or determinable future time;
e) it must be payable to order or bearer; and f) where it is a bill of exchange, the drawee must be
named or otherwise indicated with reasonable certainty. Negotiable instruments include
promissory notes, bills of exchange and checks. Letters of credit and trust receipts are, however,
not negotiable instruments. But drafts issued in connection with letters of credit are negotiable
instruments.
Private respondent PBCom presented the following documentary evidence to prove petitioners’
credit availments and liabilities:
1) Promissory Note No. BNA —26218 dated May 21, 1982 in the sum of
₱1,000,000.00 executed by MICO in favor of PBCom.
2) Promissory Note No. BNA —26219 dated May 21, 1982 in the sum of
₱1,000,000.00 executed by MICO in favor of PBCom.
3) Promissory Note No. BNA —26253 dated May 25, 1982 in the sum of
₱1,000,000.00 executed by MICO in favor of PBCom.
4) Promissory Note No. BNA —7458 dated May 21, 1982 in the sum of ₱377,000.00
executed by MICO in favor of PBCom.
5) Promissory Note No. TA — 094 dated July 29, 1980 in the sum of ₱4,000.000.00
executed by MICO in favor of PBCom.
6) Irrevocable letter of credit No. L-16060 dated July 2,1981 issued in favor of Perez
Battery Center for account of Mico Metals Corp.
7) Draft dated July 2, 1981 in the sum of ₱348,000.00 issued by Perez Battery Center,
beneficiary of irrevocable Letter of Credit No. No. L-16060 and accepted by MICO
Metals corporation.
8) Letter dated July 2, 1981 from Perez Battery Center addressed to private
respondent PBCom showing that proceeds of the irrevocable letter of credit No. L-
16060 was received by Mr. Moises Rosete, representative of Perez Battery Center.
9) Trust receipt dated July 2, 1981 executed by MICO in favor of PBCom covering the
merchandise purchased under Letter of Credit No. 16060.
 10) Irrevocable letter of credit No. L-16334 dated September 22, 1981 issued in favor
of Perez Battery Center for account of MICO Metals Corp.
11) Draft dated September 22, 1981 in the sum of ₱290,000.00 issued by Perez
Battery Center and accepted by MICO.
12) Letter dated September 17, 1981 from Perez Battery addressed to PBCom
showing that the proceeds of credit no. L-16344 was received by Mr. Moises Rosete,
a representative of Perez Battery Center.
13) Trust Receipt dated September 22, 1981 executed by MICO in favor of PBCom
covering the merchandise under Letter of Credit No. L-16334.
14) Irrevocable Letter of Credit no. 61873 dated November 10, 1981 for US$11,960.00
issued by PBCom in favor of TA JIH Enterprises Co. Ltd., through its correspondent
bank, Irving Trust Company of Taipei, Taiwan.
15) Trust Receipt dated December 15, 9181 executed by MICO in favor of PBCom
showing that possession of the merchandise covered by Irrevocable Letter of Credit
no. 61873 was released by PBCom to MICO.
16) Letters dated March 2, 1979 from MICO signed by its president, Charles Lee,
showing that MICO sought credit line from PBCom in the form of loans, letters of credit
and trust receipt in the sum of ₱7,500,000.00.
17) Letter dated July 14, 1980 from MICO signed by its president, Charles Lee,
showing that MICO requested for additional financial assistance in the sum of
₱4,000,000.00.
18) Board resolution dated March 6, 1979 of MICO authorizing Charles Lee and
Mariano Sio singly or jointly to act and sign for and in behalf of MICO relative to the
obtention of credit facilities from PBCom.
19) Duly notarized Deed of Mortgage dated May 16, 1979 executed by MICO in favor
of PBCom over MICO ‘s real properties covered by TCT Nos. 11248 and 11250
located in Pasig.
20) Duly notarized Surety Agreement dated March 26, 1979 executed by herein
petitioners Charles Lee, Mariano Sio, Alfonso Yap, Richard Velasco and Chua Siok
Suy in favor of PBCom.
21) Duly notarized Surety Agreement dated July 28, 1980 executed by herein
petitioners Charles Lee, Mariano Sio, Alfonso Yap, Richard Velasco and Chua Siok
Suy in favor of PBCom.
22) Duly notarized certification dated July 28, 1980 issued by MICO ‘s corporate
secretary, Mr. P.B. Barrera, attesting to the adoption of a board resolution authorizing
Chua Siok Suy to sign, for and in behalf of MICO, all the necessary documents
including contracts, loan instruments and mortgages relative to the obtention of
various credit facilities from PBCom.
The above-cited documents presented have not merely created a prima facie case but have
actually proved the solidary obligation of MICO and the petitioners, as sureties of MICO, in favor
of respondent PBCom. While the presumption found under the Negotiable Instruments Law may
not necessarily be applicable to trust receipts and letters of credit, the presumption that the
drafts drawn in connection with the letters of credit have sufficient consideration. Under Section
3(r), Rule 131 of the Rules of Court there is also a presumption that sufficient consideration was
given in a contract. Hence, petitioners should have presented credible evidence to rebut that
presumption as well as the evidence presented by private respondent PBCom. The letters of
credit show that the pertinent materials/merchandise have been received by MICO. The drafts
signed by the beneficiary/suppliers in connection with the corresponding letters of credit proved
that said suppliers were paid by PBCom for the account of MICO. On the other hand, aside from
their bare denials petitioners did not present sufficient and competent evidence to rebut the
evidence of private respondent PBCom. Petitioner MICO did not proffer a single piece of
evidence, apart from its bare denials, to support its allegation that the loan transactions, real
estate mortgage, letters of credit and trust receipts were issued allegedly without any
consideration.
Petitioners-sureties, for their part, presented the By-Laws34 of Mico Metals Corporation (MICO)
to prove that only the president of MICO is authorized to borrow money, arrange letters of credit,
execute trust receipts, and promissory notes and consequently, that the loan transactions, letters
of credit, promissory notes and trust receipts, most of which were executed by Chua Siok Suy in
representation of MICO were not allegedly authorized and hence, are not binding upon MICO. A
perusal of the By-Laws of MICO, however, shows that the power to borrow money for the
company and issue mortgages, bonds, deeds of trust and negotiable instruments or securities,
secured by mortgages or pledges of property belonging to the company is not confined solely to
the president of the corporation. The Board of Directors of MICO can also borrow money,
arrange letters of credit, execute trust receipts and promissory notes on behalf of the
corporation.35 Significantly, this power of the Board of Directors according to the by-laws of
MICO, may be delegated to any of its standing committee, officer or agent.36 Hence, PBCom had
every right to rely on the Certification issued by MICO's corporate secretary, P.B. Barrera, that
Chua Siok Suy was duly authorized by its Board of Directors to borrow money and obtain credit
facilities in behalf of MICO from PBCom.
Petitioners-sureties also presented a letter of their counsel dated October 9, 1982, addressed to
private respondent PBCom purportedly to show that PBCom knew that Chua Siok Suy allegedly
used the credit and good names of the petitioner-sureties for his benefit, and that petitioner-
sureties were made to sign blank documents and were furnished copies of the same. The letter,
however, is in fact merely a reply of petitioners-sureties’ counsel to PBCom’s demand for
payment of MICO’s obligations, and appears to be an inconsequential piece of self-serving
evidence.
In addition to the foregoing, MICO and petitioners-sureties cited the decision of the trial court
which stated that there was no proof that the proceeds of the loans were ever delivered to
MICO. Although the private respondent’s witness, Mr. Gardiola, testified that the proceeds of the
loans were deposited in MICO’s current account with PBCom, his testimony was allegedly not
supported by any bank record, note or memorandum. A careful scrutiny of the record including
the transcript of stenographic notes reveals, however, that although private respondent PBCom
was willing to produce the corresponding account ledger showing that the proceeds of the loans
were credited to MICO’s current account with PBCom, MICO in fact vigorously objected to the
presentation of said document. That point is shown in the testimony of PBCom’s witness,
Gardiola, thus:
Q: Now, all of these promissory note Exhibits "I" and "J" which as you have said previously (sic)
availed originally by defendant Mico Metals Corp. sometime in 1979, my question now is, do you
know what happened to the proceeds of the original availment?
A: Well, it was credited to the current account of Mico Metals Corp.
Q: Why did it was credited to the proceeds to the account of Mico Metals Corp? (sic)
A: Well, that is our understanding. xxx xxx xxx

ATTY. DURAN: Q: Before the recess Mr. Gardiola, you stated that the proceeds of the three (3) promissory
notes were credited to the accounts of Mico Metals Corporation, now do you know what kind of
Your honor, may we be given a chance to object, the best evidence is the so-called current current account was that which you are referring to?
account...
ATTY. ACEJAS:
COURT:
Objection your Honor, that is the disclose of the deposit of defendant Mico Metals Corporation
Can you produce the ledger account? and it cannot disclosed without the authority of the depositor. (sic)37

A: Yes, Your Honor, I will bring. That proceeds of the loans which were originally availed of in 1979 were delivered to MICO is
bolstered by the fact that more than a year later, specifically on July 14, 1980, MICO through its
president, petitioner-surety Charles Lee, requested for an additional loan of Four Million Pesos
COURT: (₱4,000,000.00) from PBCom. The fact that MICO was requesting for an additional loan implied
that it has already availed of earlier loans from PBCom.
The ledger or record of the current account of Mico Metals Corp.
Petitioners allege that PBCom presented no evidence that it remitted payments to cover the
A: Yes, Your Honor. domestic and foreign letters of credit. Petitioners placed much reliance on the erroneous
decision of the trial court which stated that private respondent PBCom allegedly failed to prove
ATTY. ACEJAS: that it actually made payments under the letters of credit since the bank drafts presented as
evidence show that they were made in favor of the Bank of Taiwan and First Commercial Bank.
Your Honor, these are a confidential record, and they might not be disclosed without the consent
of the person concerned. (sic) Petitioners’ allegations are untenable.

ATTY. SANTOS: Modern letters of credit are usually not made between natural persons. They involve bank to
bank transactions. Historically, the letter of credit was developed to facilitate the sale of goods
between, distant and unfamiliar buyers and sellers. It was an arrangement under which a bank,
Well, you are the one who is asking that.
whose credit was acceptable to the seller, would at the instance of the buyer agree to pay drafts
drawn on it by the seller, provided that certain documents are presented such as bills of lading
ATTY. DURAN: accompanied the corresponding drafts. Expansion in the use of letters of credit was a natural
development in commercial banking.38 Parties to a commercial letter of credit include (a) the
Your Honor, I’m precisely want to show for the ... (sic) buyer or the importer, (b) the seller, also referred to as beneficiary, (c) the opening bank which is
usually the buyer’s bank which actually issues the letter of credit, (d) the notifying bank which is
COURT: the correspondent bank of the opening bank through which it advises the beneficiary of the letter
of credit, (e) negotiating bank which is usually any bank in the city of the beneficiary. The
services of the notifying bank must always be utilized if the letter of credit is to be advised to the
But the amount covered by the current account of defendant Mico Metals Corp. is the subject beneficiary through cable, (f) the paying bank which buys or discounts the drafts contemplated
matter of this case. by the letter of credit, if such draft is to be drawn on the opening bank or on another designated
bank not in the city of the beneficiary. As a rule, whenever the facilities of the opening bank are
xxx xxx xxx used, the beneficiary is supposed to present his drafts to the notifying bank for negotiation and
(g) the confirming bank which, upon the request of the beneficiary, confirms the letter of credit
Q: Are those availments were release? (sic) issued by the opening bank.

A: Yes, Your Honor, to the defendant corporation. From the foregoing, it is clear that letters of credit, being usually bank to bank transactions,
involve more than just one bank. Consequently, there is nothing unusual in the fact that the
drafts presented in evidence by respondent bank were not made payable to PBCom. As
Q: By what means? explained by respondent bank, a draft was drawn on the Bank of Taiwan by Ta Jih Enterprises
Co., Ltd. of Taiwan, supplier of the goods covered by the foreign letter of credit. Having paid the
A: By the credit to their current account. supplier, the Bank of Taiwan then presented the bank draft for reimbursement by PBCom’s
correspondent bank in Taiwan, the Irving Trust Company — which explains the reason why on
ATTY. ACEJAS: its face, the draft was made payable to the Bank of Taiwan. Irving Trust Company accepted and
endorsed the draft to PBCom. The draft was later transmitted to PBCom to support the latter’s
claim for payment from MICO. MICO accepted the draft upon presentment and negotiated it to
We object to that, your Honor, because the disclose is the secrecy of the bank deposit. (sic) PBCom.
Petitioners further aver that MICO never requested that legal possession of the merchandise be
transferred to PBCom by way of trust receipts. Petitioners insist that assuming that MICO
transferred possession of the merchandise to PBCom by way of trust receipts, the same would
be illegal since PBCom, being a banking institution, is not authorized by law to engage in the
business of importing and selling goods.
A trust receipt is considered as a security transaction intended to aid in financing importers and
retail dealers who do not have sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire credit except through utilization,
as collateral of the merchandise imported or purchased.39 A trust receipt, therefor, is a document
of security pursuant to which a bank acquires a "security interest" in the goods under trust
receipt. Under a letter of credit-trust receipt arrangement, a bank extends a loan covered by a
letter of credit, with the trust receipt as a security for the loan. The transaction involves a loan
feature represented by a letter of credit, and a security feature which is in the covering trust
receipt which secures an indebtedness.
Petitioners’ averments with regard to the second issue are no less
incredulous.1âwphi1 Petitioners’ contend that the letters of credit, surety agreements and loan
transactions did not ripen into valid and binding contracts since no part of the proceeds of the
loan transactions were delivered to MICO or to any of the petitioners-sureties. Petitioners-
sureties allege that Chua Siok Suy was the beneficiary of the proceeds of the loans and that the
latter made them sign the surety agreements in blank. Thus, they maintain that they should not
be held accountable for any liability that might arise therefrom.
It has not escaped our notice that it was petitioner-surety Charles Lee, as president of MICO
Metals Corporation, who first requested for a discounting loan of Three Million Pesos
(₱3,000,000.00) from PBCom as evidenced by his letter dated March 2, 1979.40 On the same
day, Charles Lee, as President of MICO, requested for a Letter of Credit and Trust Receipt line
in the sum of Three Million Pesos (₱3,000,000.00).41 Still, on the same day, Charles Lee again
as President of MICO, wrote another letter to PBCOM requesting for a financing line in the sum
of One Million Five Hundred Thousand Pesos (₱1,500,000.00) to be used exclusively as
marginal deposit for the opening of MICO’s foreign and local letters of credit with PBCom. 42 More
than a year later, it was also Charles Lee, again in his capacity as president of MICO, who asked
for an additional loan in the sum of Four Million Pesos (₱4,000,000.00). The claim therefore of
petitioners that it was Chua Siok Suy, in connivance with the respondent PBCom, who applied
for and obtained the loan transactions and letters of credit strains credulity considering that even
the Deed of the Real Estate Mortgage in favor of PBCom was executed by petitioner-surety
Mariano Sio in his capacity as general manager of MICO43 to secure the loan accommodations
obtained by MICO from PBCom.
Petitioners-sureties allege that they were made to sign the surety agreements in blank by Chua
Siok Suy. Petitioner Alfonso Yap, the corporate treasurer, for his part testified that he signed
booklets of checks, surety agreements and promissory notes in blank; that he signed the
documents in blank despite his misgivings since Chua Siok Suy assured him that the transaction
can easily be taken cared of since Chua Siok Suy personally knew the Chairman of the Board of
PBCom; that he was not receiving salary as treasurer of Mico Metals and since Chua Siok Suy
had a direct hand in the management of Malayan Sales Corporation, of which Yap is an
employee, he (Yap) signed the documents in blank as consideration for his continued
employment in Malayan Sales Corporation. Petitioner Antonio Co testified that he worked as
office manager for MICO from 1978-1982. As office manager, he was the one in charge of
transacting business like purchasing, selling and paying the salary of the employees. He was
also in charge of the handling of documents pertaining to surety agreements, trust receipts and
promissory notes;44 that when he first joined MICO Metals Corporation, he was able to read the
by-laws of the corporation and he came to know that only the chairman and the president can
borrow money in behalf of the corporation; that Chua Siok Suy once called him up and told him
to secure an invoice so that a credit line can be opened in the bank with a local letter of credit;
that when the invoice was secured, he (Co) brought it together with the application for a credit
line to Chua Siok Suy, and that he questioned the authority of Chua Siok Suy pointing out that
he (Co) is not empowered to sign the document inasmuch as only the latter, as president, was
authorized to do so. However, Chua Siok Suy allegedly just said that he had already talked with
the Chairman of the Board of PBCom; and that Chua Siok Suy reportedly said that he needed
the money to finance a project that he had with the Taipei government. Co also testified that he
knew of the application for domestic letter of credit in the sum of Three Hundred Forty-Eight
Thousand Pesos (₱348,000.00); and that a certain Moises Rosete was authorized to claim the
check covering the Three Hundred Forty-Eight Thousand Pesos (₱348,000.00) from PBCom;
and that after claiming the check Rosete brought it to Perez Battery Center for indorsement after
which the same was deposited to the personal account of Chua Siok Suy. 45
We consider as incredible and unacceptable the claim of petitioners-sureties that the Board of
Directors of MICO was so careless about the business affairs of MICO as well as about their
own personal reputation and money that they simply relied on the say so of Chua Siok Suy on
matters involving millions of pesos. Under Section 3 (d), Rule 131 of the Rules of Court, it is
presumed that a person takes ordinary care of his concerns. Hence, the natural presumption is
that one does not sign a document without first informing himself of its contents and
consequences. Said presumption acquires greater force in the case at bar where not only one
but several documents were executed at different times and at different places by the petitioner
sureties and Chua Siok Suy as president of MICO.
MICO and herein petitioners-sureties insist that Chua Siok Suy was not duly authorized to
negotiate for loans in behalf of MICO from PBCom. Petitioners’ allegation, however, is belied by
the July 28, 1980 Certification issued by the corporate secretary of PBCom, Atty. P.B. Barrera,
that MICO's Board of Directors gave Chua Siok Suy full authority to negotiate for loans in behalf
of MICO with PBCom. In fact, the Certification even provided that Chua Siok Suy’s authority
continues until and unless PBCom is notified in writing of the withdrawal thereof by the said
Board. Notably, petitioners failed to contest the genuineness of the said Certification which is
notarized and to show any written proof of any alleged withdrawal of the said authority given by
the Board of Directors to Chua Siok Suy to negotiate for loans in behalf of MICO.
There was no need for PBCom to personally inform the petitioners-sureties individually about the
terms of the loans, letters of credit and other loan documents. The petitioners-sureties
themselves happen to comprise the Board of Directors of MICO, which gave full authority to
Chua Siok Suy to negotiate for loans in behalf of MICO. Notice to MICO’s authorized
representative, Chua Siok Suy, was notice to MICO. The Certification issued by PBCom’s
corporate secretary, Atty. P.B. Barrera, indicated that Chua Siok Suy had full authority to
negotiate and sign the necessary documents, in behalf of MICO for loans from PBCom.
Respondent PBCom therefore had the right to rely on the said notarized Certification of MICO’s
Corporate Secretary.
Anent petitioners-sureties contention that they obtained no consideration whatsoever on the
surety agreements, we need only point out that the consideration for the sureties is the very
consideration for the principal obligor, MICO, in the contracts of loan. In the case of Willex
Plastic Industries Corporation vs. Court of Appeals,46 we ruled that the consideration necessary
to support a surety obligation need not pass directly to the surety, a consideration moving to the
principal alone being sufficient. For a guarantor or surety is bound by the same consideration
that makes the contract effective between the parties thereto. It is not necessary that a guarantor
or surety should receive any part or benefit, if such there be, accruing to his principal.
Petitioners placed too much reliance on the rule in evidence that the burden of proof does not
shift whereas the burden of going forward with the evidence does pass from party to party. It is
true that said rule is not changed by the fact that the party having the burden of proof has
introduced evidence which established prima facie his assertion because such evidence does
not shift the burden of proof; it merely puts the adversary to the necessity of producing evidence
to meet the prima facie case. Where the defendant merely denies, either generally or otherwise,
the allegations of the plaintiff’s pleadings, the burden of proof continues to rest on the plaintiff
throughout the trial and does not shift to the defendant until the plaintiff’s evidence has been
presented and duly offered. The defendant has then no burden except to produce evidence
sufficient to create a state of equipoise between his proof and that of the plaintiff to defeat the
latter, whereas the plaintiff has the burden, as in the beginning, of establishing his case by a
preponderance of evidence.47 But where the defendant has failed to present and marshall
evidence sufficient to create a state of equipoise between his proof and that of plaintiff, the prima
facie case presented by the plaintiff will prevail.
In the case at bar, respondent PBCom, as plaintiff in the trial court, has in fact presented
sufficient documentary and testimonial evidence that proved by preponderance of evidence its
subject collection case against the defendants who are the petitioners herein. In view of all the
foregoing, the Court of Appeals committed no reversible error in its appealed Decision.
WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 27480 entitled,
"Philippine Bank of Communications vs. Mico Metals Corporation, Charles Lee, Chua Siok Suy,
Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co," is AFFIRMED in toto.
G.R. No. 195117 August 14, 2013
HUR TIN YANG, PETITIONER
vs.
PEOPLE OF THE PHILIPPINES, RESPONDENT.
RESOLUTION
VELASCO JR., J.:
This is a motion for reconsideration of our February 1, 2012 Minute Resolution1 sustaining the
July 28, 2010 Decision2 and December 20, 2010 Resolution3 of the Court of Appeals (CA) in CA-
G.R. CR No. 30426, finding petitioner Hur Tin Yang guilty beyond reasonable doubt of the crime
of Estafa under A11icle 315, paragraph 1 (b) of the Revised Penal Code (RPC) in relation to
Presidential Decree No. 115 (PD 115) or the Trust Receipts Law.
In twenty-four (24) consolidated Informations, all dated March 15, 2002, petitioner Hur Tin Yang
was charged at the instance of the same complainant with the crime of Estafa under Article 315,
par. 1(b) of the RPC,4 in relation to PD 115,5 docketed as Criminal Case Nos. 04-223911 to 34
and raffled to the Regional Trial Court of Manila, Branch 20. The 24 Informations––differing only
as regards the alleged date of commission of the crime, date of the trust receipts, the number of
the letter of credit, the subject goods and the amount––uniformly recite:
That on or about May 28, 1998, in the City of Manila, Philippines, the said accused being then
the authorized officer of SUPERMAX PHILIPPINES, INC., with office address at No. 11/F,
Global Tower, Gen Mascardo corner M. Reyes St., Bangkal, Makati City, did then and there
willfully, unlawfully and feloniously defraud the METROPOLITAN BANK AND TRUST
COMPANY (METROBANK), a corporation duly organized and existing under and by virtue of the
laws of the Republic of the Philippines, represented by its Officer in Charge, WINNIE M.
VILLANUEVA, in the following manner, to wit: the said accused received in trust from the said
Metropolitan Bank and Trust Company reinforcing bars valued at ₱1,062,918.84 specified in the
undated Trust Receipt Agreement covered by Letter of Credit No. MG-LOC 216/98 for the
purpose of holding said merchandise/goods in trust, with obligation on the part of the accused to
turn over the proceeds of the sale thereof or if unsold, to return the goods to the said bank within
the specified period agreed upon, but herein accused once in possession of the said
merchandise/goods, far from complying with his aforesaid obligation, failed and refused and still
fails and refuses to do so despite repeated demands made upon him to that effect and with
intent to defraud and with grave abuse of confidence and trust, misappropriated, misapplied and
converted the said merchandise/goods or the value thereof to his own personal use and benefit,
to the damage and prejudice of said METROPOLITAN BANK AND TRUST COMPANY in the
aforesaid amount of ₱1,062,918.84, Philippine Currency.
Contrary to law.6
Upon arraignment, petitioner pleaded "not guilty." Thereafter, trial on the merits then ensued.
The facts of these consolidated cases are undisputed:
Supermax Philippines, Inc. (Supermax) is a domestic corporation engaged in the construction
business. On various occasions in the month of April, May, July, August, September, October
and November 1998, Metropolitan Bank and Trust Company (Metrobank), Magdalena Branch,
Manila, extended several commercial letters of credit (LCs) to Supermax. These commercial
LCs were used by Supermax to pay for the delivery of several construction materials which will
be used in their construction business. Thereafter, Metrobank required petitioner, as
representative and Vice-President for Internal Affairs of Supermax, to sign twenty-four (24) trust
receipts as security for the construction materials and to hold those materials or the proceeds of
the sales in trust for Metrobank to the extent of the amount stated in the trust receipts.
When the 24 trust receipts fell due and despite the receipt of a demand letter dated August 15,
2000, Supermax failed to pay or deliver the goods or proceeds to Metrobank. Instead,
Supermax, through petitioner, requested the restructuring of the loan. When the intended
restructuring of the loan did not materialize, Metrobank sent another demand letter dated
October 11, 2001. As the demands fell on deaf ears, Metrobank, through its representative,
Winnie M. Villanueva, filed the instant criminal complaints against petitioner.
For his defense, while admitting signing the trust receipts, petitioner argued that said trust
receipts were demanded by Metrobank as additional security for the loans extended to
Supermax for the purchase of construction equipment and materials. In support of this
argument, petitioner presented as witness, Priscila Alfonso, who testified that the construction
materials covered by the trust receipts were delivered way before petitioner signed the
corresponding trust receipts.7 Further, petitioner argued that Metrobank knew all along that the
construction materials subject of the trust receipts were not intended for resale but for personal
use of Supermax relating to its construction business.8
The trial court a quo, by Judgment dated October 6, 2006, found petitioner guilty as charged and
sentenced him as follows:
His guilt having been proven and established beyond reasonable doubt, the Court hereby
renders judgment CONVICTING accused HUR TIN YANG of the crime of estafa under Article
315 paragraph 1 (a) of the Revised Penal Code and hereby imposes upon him the indeterminate
penalty of 4 years, 2 months and 1 day of prision correccional to 20 years of reclusion temporal
and to pay Metropolitan Bank and Trust Company, Inc. the amount of Php13,156,256.51 as civil
liability and to pay cost.
SO ORDERED.9
Petitioner appealed to the CA. On July 28, 2010, the appellate court rendered a Decision,
upholding the findings of the RTC that the prosecution has satisfactorily established the guilt of
petitioner beyond reasonable doubt, including the following critical facts, to wit: (1) petitioner
signing the trust receipts agreement; (2) Supermax failing to pay the loan; and (3) Supermax
failing to turn over the proceeds of the sale or the goods to Metrobank upon demand. Curiously,
but significantly, the CA also found that even before the execution of the trust receipts,
Metrobank knew or should have known that the subject construction materials were never
intended for resale or for the manufacture of items to be sold.10
The CA ruled that since the offense punished under PD 115 is in the nature of malum
prohibitum, a mere failure to deliver the proceeds of the sale or goods, if not sold, is sufficient to
justify a conviction under PD 115. The fallo of the CA Decision reads:
WHEREFORE, in view of the foregoing premises, the appeal filed in this case is hereby DENIED
and, consequently, DISMISSED. The assailed Decision dated October 6, 2006 of the Rregional
Trial Court, Branch 20, in the City of Manila in Criminal Cases Nos. 04223911 to 223934 is
hereby AFFIRMED.
SO ORDERED.
Petitioner filed a Motion for Reconsideration, but it was denied in a Resolution dated December
20, 2010. Not satisfied, petitioner filed a petition for review under Rule 45 of the Rules of Court.
The Office of the Solicitor General (OSG) filed its Comment dated November 28, 2011, stressing
that the pieces of evidence adduced from the testimony and documents submitted before the
trial court are sufficient to establish the guilt of petitioner.11
On February 1, 2012, this Court dismissed the Petition via a Minute Resolution on the ground
that the CA committed no reversible error in the assailed July 28, 2010 Decision. Hence,
petitioner filed the present Motion for Reconsideration contending that the transactions between
the parties do not constitute trust receipt agreements but rather of simple loans.
On October 3, 2012, the OSG filed its Comment on the Motion for Reconsideration, praying for
the denial of said motion and arguing that petitioner merely reiterated his arguments in the
petition and his Motion for Reconsideration is nothing more than a mere rehash of the matters
already thoroughly passed upon by the RTC, the CA and this Court. 12
The sole issue for the consideration of the Court is whether or not petitioner is liable for Estafa
under Art. 315, par. 1(b) of the RPC in relation to PD 115, even if it was sufficiently proved that
the entruster (Metrobank) knew beforehand that the goods (construction materials) subject of the
trust receipts were never intended to be sold but only for use in the entrustee’s construction
business.
The motion for reconsideration has merit.
In determining the nature of a contract, courts are not bound by the title or name given by the
parties. The decisive factor in evaluating such agreement is the intention of the parties, as
shown not necessarily by the terminology used in the contract but by their conduct, words,
actions and deeds prior to, during and immediately after executing the agreement. As such,
therefore, documentary and parol evidence may be submitted and admitted to prove such
intention.13
In the instant case, the factual findings of the trial and appellate courts reveal that the dealing
between petitioner and Metrobank was not a trust receipt transaction but one of simple loan.
Petitioner’s admission––that he signed the trust receipts on behalf of Supermax, which failed to
pay the loan or turn over the proceeds of the sale or the goods to Metrobank upon demand––
does not conclusively prove that the transaction was, indeed, a trust receipts transaction. In
contrast to the nomenclature of the transaction, the parties really intended a contract of loan.
This Court––in Ng v. People14 and Land Bank of the Philippines v. Perez,15 cases which are in
all four corners the same as the instant case––ruled that the fact that the entruster bank knew
even before the execution of the trust receipt agreements that the construction materials
covered were never intended by the entrustee for resale or for the manufacture of items to be
sold is sufficient to prove that the transaction was a simple loan and not a trust receipts
transaction.
The petitioner was charged with Estafa committed in what is called, under PD 115, a "trust
receipt transaction," which is defined as:
Section 4. What constitutes a trust receipts transaction.—A trust receipt transaction, within the
meaning of this Decree, is any transaction by and between a person referred to in this Decree as
the entruster, and another person referred to in this Decree as entrustee, whereby the entruster,
who owns or holds absolute title or security interests over certain specified goods, documents or
instruments, releases the same to the possession of the entrustee upon the latter’s execution
and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee
binds himself to hold the designated goods, documents or instruments in trust for the entruster
and to sell or otherwise dispose of the goods, documents or instruments with the obligation to
turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster
or as appears in the trust receipt or the goods, documents or instruments themselves if they are
unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the
trust receipt, or for other purposes substantially equivalent to any of the following:
1. In the case of goods or documents: (a) to sell the goods or procure their sale; or (b)
to manufacture or process the goods with the purpose of ultimate sale: Provided, That,
in the case of goods delivered under trust receipt for the purpose of manufacturing or
processing before its ultimate sale, the entruster shall retain its title over the goods
whether in its original or processed form until the entrustee has complied full with his
obligation under the trust receipt; or (c) to load, unload, ship or transship or otherwise
deal with them in a manner preliminary or necessary to their sale; or
2. In the case of instruments: (a) to sell or procure their sale or exchange; or (b) to
deliver them to a principal; or (c) to effect the consummation of some transactions
involving delivery to a depository or register; or (d) to effect their presentation,
collection or renewal.
Simply stated, a trust receipt transaction is one where the entrustee has the obligation to deliver
to the entruster the price of the sale, or if the merchandise is not sold, to return the merchandise
to the entruster. There are, therefore, two obligations in a trust receipt transaction: the first refers
to money received under the obligation involving the duty to turn it over (entregarla) to the owner
of the merchandise sold, while the second refers to the merchandise received under the
obligation to "return" it (devolvera) to the owner.16 A violation of any of these undertakings
constitutes Estafa defined under Art. 315, par. 1(b) of the RPC, as provided in Sec. 13 of PD
115, viz:
Section 13. Penalty Clause.—The failure of an entrustee to turn over the proceeds of the sale of
the goods, documents or instruments covered by a trust receipt to the extent of the amount
owing to the entruster or as appears in the trust receipt or to return said goods, documents or
instruments if they were not sold or disposed of in accordance with the terms of the trust receipt
shall constitute the crime of estafa, punishable under the provisions of Article Three hundred
fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as
amended, otherwise known as the Revised Penal Code. x x x (Emphasis supplied.)
Nonetheless, when both parties enter into an agreement knowing fully well that the return of the
goods subject of the trust receipt is not possible even without any fault on the part of the trustee,
it is not a trust receipt transaction penalized under Sec. 13 of PD 115 in relation to Art. 315, par.
1(b) of the RPC, as the only obligation actually agreed upon by the parties would be the return of
the proceeds of the sale transaction. This transaction becomes a mere loan, where the borrower
is obligated to pay the bank the amount spent for the purchase of the goods. 17
In Ng v. People, Anthony Ng, then engaged in the business of building and fabricating
telecommunication towers, applied for a credit line of PhP 3,000,000 with Asiatrust Development
Bank, Inc. Prior to the approval of the loan, Anthony Ng informed Asiatrust that the proceeds
would be used for purchasing construction materials necessary for the completion of several
steel towers he was commissioned to build by several telecommunication companies. Asiatrust
approved the loan but required Anthony Ng to sign a trust receipt agreement. When Anthony Ng
failed to pay the loan, Asiatrust filed a criminal case for Estafa in relation to PD 115 or the Trust
Receipts Law. This Court acquitted Anthony Ng and ruled that the Trust Receipts Law was
created to "to aid in financing importers and retail dealers who do not have sufficient funds or
resources to finance the importation or purchase of merchandise, and who may not be able to
acquire credit except through utilization, as collateral, of the merchandise imported or
purchased." Since Asiatrust knew that Anthony Ng was neither an importer nor retail dealer, it
should have known that the said agreement could not possibly apply to petitioner, viz:
The true nature of a trust receipt transaction can be found in the "whereas" clause of PD 115
which states that a trust receipt is to be utilized "as a convenient business device to assist
importers and merchants solve their financing problems." Obviously, the State, in enacting the
law, sought to find a way to assist importers and merchants in their financing in order to
encourage commerce in the Philippines.
[A] trust receipt is considered a security transaction intended to aid in financing importers and
retail dealers who do not have sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire credit except through utilization,
as collateral, of the merchandise imported or purchased. Similarly, American Jurisprudence
demonstrates that trust receipt transactions always refer to a method of "financing importations
or financing sales." The principle is of course not limited in its application to financing
importations, since the principle is equally applicable to domestic transactions. Regardless of
whether the transaction is foreign or domestic, it is important to note that the transactions
discussed in relation to trust receipts mainly involved sales.
Following the precept of the law, such transactions affect situations wherein the entruster, who
owns or holds absolute title or security interests over specified goods, documents or
instruments, releases the subject goods to the possession of the entrustee. The release of such
goods to the entrustee is conditioned upon his execution and delivery to the entruster of a trust
receipt wherein the former binds himself to hold the specific goods, documents or instruments in
trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments
with the obligation to turn over to the entruster the proceeds to the extent of the amount owing to
the entruster or the goods, documents or instruments themselves if they are unsold. x x x [T]he
entruster is entitled "only to the proceeds derived from the sale of goods released under a trust
receipt to the entrustee."
Considering that the goods in this case were never intended for sale but for use in the fabrication
of steel communication towers, the trial court erred in ruling that the agreement is a trust receipt
transaction.
xxxx
To emphasize, the Trust Receipts Law was created to "to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through utilization, as collateral,
of the merchandise imported or purchased." Since Asiatrust knew that petitioner was neither an
importer nor retail dealer, it should have known that the said agreement could not possibly apply
to petitioner.18
Further, in Land Bank of the Philippines v. Perez, the respondents were officers of Asian
Construction and Development Corporation (ACDC), a corporation engaged in the construction
business. On several occasions, respondents executed in favor of Land Bank of the Philippines
(LBP) trust receipts to secure the purchase of construction materials that they will need in their
construction projects. When the trust receipts matured, ACDC failed to return to LBP the
proceeds of the construction projects or the construction materials subject of the trust receipts.
After several demands went unheeded, LBP filed a complaint for Estafa or violation of Art. 315,
par. 1(b) of the RPC, in relation to PD 115, against the respondent officers of ACDC. This Court,
like in Ng, acquitted all the respondents on the postulate that the parties really intended a simple
contract of loan and not a trust receipts transaction, viz:
When both parties enter into an agreement knowing that the return of the goods subject of the
trust receipt is not possible even without any fault on the part of the trustee, it is not a trust
receipt transaction penalized under Section 13 of P.D. 115; the only obligation actually agreed
upon by the parties would be the return of the proceeds of the sale transaction. This transaction
becomes a mere loan, where the borrower is obligated to pay the bank the amount spent for the
purchase of the goods.
xxxx
Thus, in concluding that the transaction was a loan and not a trust receipt, we noted in Colinares
that the industry or line of work that the borrowers were engaged in was construction. We
pointed out that the borrowers were not importers acquiring goods for resale. Indeed, goods sold
in retail are often within the custody or control of the trustee until they are purchased. In the case
of materials used in the manufacture of finished products, these finished products – if not the
raw materials or their components – similarly remain in the possession of the trustee until they
are sold. But the goods and the materials that are used for a construction project are often
placed under the control and custody of the clients employing the contractor, who can only be
compelled to return the materials if they fail to pay the contractor and often only after the
requisite legal proceedings. The contractor’s difficulty and uncertainty in claiming these materials
(or the buildings and structures which they become part of), as soon as the bank demands them,
disqualify them from being covered by trust receipt agreements. 19
Since the factual milieu of Ng and Land Bank of the Philippines are in all four corners similar to
the instant case, it behooves this Court, following the principle of stare decisis, 20 to rule that the
transactions in the instant case are not trust receipts transactions but contracts of simple loan.
The fact that the entruster bank, Metrobank in this case, knew even before the execution of the
alleged trust receipt agreements that the covered construction materials were never intended by
the entrustee (petitioner) for resale or for the manufacture of items to be sold would take the
transaction between petitioner and Metrobank outside the ambit of the Trust Receipts Law.
For reasons discussed above, the subject transactions in the instant case are not trust receipts
transactions.1âwphi1 Thus, the consolidated complaints for Estafa in relation to PD 115 have
really no leg to stand on.
The Court’s ruling in Colinares v. Court of Appeals21 is very apt, thus:
The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and
place them under the threats of criminal prosecution should they be unable to pay it may be
unjust and inequitable. if not reprehensible. Such agreements are contracts of adhesion which
borrowers have no option but to sign lest their loan be disapproved. The resort to this scheme
leaves poor and hapless borrowers at the mercy of banks and is prone to misinterpretation x x x.
Unfortunately, what happened in Colinares is exactly the situation in the instant case. This
reprehensible bank practice described in Colinares should be stopped and discouraged. For this
Court to give life to the constitutional provision of non-imprisonment for nonpayment of debts,22 it
is imperative that petitioner be acquitted of the crime of Estafa under Art. 315, par. 1 (b) ofthe
RPC, in relation to PD 115.
WHEREFORE, the Resolution dated February 1, 2012, upholding theCA's Decision dated July
28, 2010 and Resolution dated December 20, 2010 in CA-G.R. CR No. 30426, is hereby
RECONSIDERED. Petitioner Hur Tin Yang is ACQUITTED of the charge of violating Art. 315,
par. 1 (b) of the RPC, in relation to the pertinent provision of PD 115 in Criminal Case Nos. 04-
223911 to 34.
G.R. No. 173905 April 23, 2010
ANTHONY L. NG, Petitioner,
vs.
PEOPLE OF THE PHILIPPINES, Respondent.
DECISION
VELASCO, JR.
The Case
This is a Petition for Review on Certiorari under Rule 45 seeking to reverse and set aside the
August 29, 2003 Decision1 and July 25, 2006 Resolution of the Court of Appeals (CA) in CA-
G.R. CR No. 25525, which affirmed the Decision2 of the Regional Trial Court (RTC), Branch 95
in Quezon City, in Criminal Case No. Q-99-85133 for Estafa under Article 315, paragraph 1(b) of
the Revised Penal Code (RPC) in relation to Section 3 of Presidential Decree No. (PD) 115 or
the Trust Receipts Law.
The Facts
Sometime in the early part of 1997, petitioner Anthony Ng, then engaged in the business of
building and fabricating telecommunication towers under the trade name "Capitol Blacksmith
and Builders," applied for a credit line of PhP 3,000,000 with Asiatrust Development Bank, Inc.
(Asiatrust). In support of Asiatrust’s credit investigation, petitioner voluntarily submitted the
following documents: (1) the contracts he had with Islacom, Smart, and Infocom; (2) the list of
projects wherein he was commissioned by the said telecommunication companies to build
several steel towers; and (3) the collectible amounts he has with the said companies. 3
On May 30, 1997, Asiatrust approved petitioner’s loan application. Petitioner was then required
to sign several documents, among which are the Credit Line Agreement, Application and
Agreement for Irrevocable L/C, Trust Receipt Agreements,4 and Promissory Notes. Though the
Promissory Notes matured on September 18, 1997, the two (2) aforementioned Trust Receipt
Agreements did not bear any maturity dates as they were left unfilled or in blank by Asiatrust. 5
After petitioner received the goods, consisting of chemicals and metal plates from his suppliers,
he utilized them to fabricate the communication towers ordered from him by his clients which
were installed in three project sites, namely: Isabel, Leyte; Panabo, Davao; and Tongonan.
As petitioner realized difficulty in collecting from his client Islacom, he failed to pay his loan to
Asiatrust. Asiatrust then conducted a surprise ocular inspection of petitioner’s business through
Villarva S. Linga, Asiatrust’s representative appraiser. Linga thereafter reported to Asiatrust that
he found that approximately 97% of the subject goods of the Trust Receipts were "sold-out and
that only 3 % of the goods pertaining to PN No. 1963 remained." Asiatrust then endorsed
petitioner’s account to its Account Management Division for the possible restructuring of his
loan. The parties thereafter held a series of conferences to work out the problem and to
determine a way for petitioner to pay his debts. However, efforts towards a settlement failed to
be reached.
On March 16, 1999, Remedial Account Officer Ma. Girlie C. Bernardez filed a Complaint-
Affidavit before the Office of the City Prosecutor of Quezon City. Consequently, on September
12, 1999, an Information for Estafa, as defined and penalized under Art. 315, par. 1(b) of the
RPC in relation to Sec. 3, PD 115 or the Trust Receipts Law, was filed with the RTC. The said
Information reads:
That on or about the 30th day of May 1997, in Quezon City, Philippines, the above-named
petitioner, did then and there willfully, unlawfully, and feloniously defraud Ma. Girlie C. Bernardez
by entering into a Trust Receipt Agreement with said complainant whereby said petitioner as
entrustee received in trust from the said complainant various chemicals in the total sum of P4.5
million with the obligation to hold the said chemicals in trust as property of the entruster with the
right to sell the same for cash and to remit the proceeds thereof to the entruster, or to return the
said chemicals if unsold; but said petitioner once in possession of the same, contrary to his
aforesaid obligation under the trust receipt agreement with intent to defraud did then and there
misappropriated, misapplied and converted the said amount to his own personal use and benefit
and despite repeated demands made upon him, said petitioner refused and failed and still
refuses and fails to make good of his obligation, to the damage and prejudice of the said Ma.
Girlie C. Bernardez in the amount of P2,971,650.00, Philippine Currency.
CONTRARY TO LAW.
Upon arraignment, petitioner pleaded not guilty to the charges. Thereafter, a full-blown trial
ensued.
During the pendency of the abovementioned case, conferences between petitioner and
Asiatrust’s Remedial Account Officer, Daniel Yap, were held. Afterward, a Compromise
Agreement was drafted by Asiatrust. One of the requirements of the Compromise Agreement
was for petitioner to issue six (6) postdated checks. Petitioner, in good faith, tried to comply by
issuing two or three checks, which were deposited and made good. The remaining checks,
however, were not deposited as the Compromise Agreement did not push through.
For his defense, petitioner argued that: (1) the loan was granted as his working capital and that
the Trust Receipt Agreements he signed with Asiatrust were merely preconditions for the grant
and approval of his loan; (2) the Trust Receipt Agreement corresponding to Letter of Credit No.
1963 and the Trust Receipt Agreement corresponding to Letter of Credit No. 1964 were both
contracts of adhesion, since the stipulations found in the documents were prepared by Asiatrust
in fine print; (3) unfortunately for petitioner, his contract worth PhP 18,000,000 with Islacom was
not yet paid since there was a squabble as to the real ownership of the latter’s company, but
Asiatrust was aware of petitioner’s receivables which were more than sufficient to cover the
obligation as shown in the various Project Listings with Islacom, Smart Communications, and
Infocom; (4) prior to the Islacom problem, he had been faithfully paying his obligation to Asiatrust
as shown in Official Receipt Nos. 549001, 549002, 565558, 577198, 577199, and 594986, 6 thus
debunking Asiatrust’s claim of fraud and bad faith against him; (5) during the pendency of this
case, petitioner even attempted to settle his obligations as evidenced by the two United Coconut
Planters Bank Checks7 he issued in favor of Asiatrust; and (6) he had already paid PhP 1.8
million out of the PhP 2.971 million he owed as per Statement of Account dated January 26,
2000.
Ruling of the Trial Court
After trial on the merits, the RTC, on May 29, 2001, rendered a Decision, finding petitioner guilty
of the 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 (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.
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.1avvphi1
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.
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.
In the case at bar, petitioner was charged with Estafa under Art. 315, par. 1(b) of the RPC in
relation to PD 115. The RPC defines Estafa as:
ART. 315. Swindling (estafa).—Any person who shall defraud another by any of the means
mentioned hereinbelow x x x
1. With unfaithfulness or abuse of confidence, namely:
a. x x x
b. By misappropriating or converting, to the prejudice of another, money, goods, or
any other personal property received by the offender in trust or on commission, or for
administration, or under any other obligation involving the duty to make delivery of or
to return the same, even though such obligation be totally or partially guaranteed by a
bond; or by denying having received such money, goods, or other property x x x. 11
Based on the definition above, the essential elements of Estafa are: (1) that money, goods or
other personal property is received by the offender in trust or on commission, or for
administration, or under any obligation involving the duty to make delivery of or to return it; (2)
that there be misappropriation or conversion of such money or property by the offender, or
denial on his part of such receipt; (3) that such misappropriation or conversion or denial is to the
prejudice of another; and (4) there is demand by the offended party to the offender.12
Likewise, Estafa can also be committed in what is called a "trust receipt transaction" under PD
115, which is defined as:
Section 4. What constitutes a trust receipts transaction.—A trust receipt transaction, within the
meaning of this Decree, is any transaction by and between a person referred to in this Decree as
the entruster, and another person referred to in this Decree as entrustee, whereby the entruster,
who owns or holds absolute title or security interests over certain specified goods, documents or
instruments, releases the same to the possession of the entrustee upon the latter’s execution
and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee
binds himself to hold the designated goods, documents or instruments in trust for the entruster
and to sell or otherwise dispose of the goods, documents or instruments with the obligation to
turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster
or as appears in the trust receipt or the goods, documents or instruments themselves if they are
unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the
trust receipt, or for other purposes substantially equivalent to any of the following:
1. In the case of goods or documents: (a) to sell the goods or procure their sale; or (b)
to manufacture or process the goods with the purpose of ultimate sale: Provided, That,
in the case of goods delivered under trust receipt for the purpose of manufacturing or
processing before its ultimate sale, the entruster shall retain its title over the goods
whether in its original or processed form until the entrustee has complied full with his
obligation under the trust receipt; or (c) to load, unload, ship or transship or otherwise
deal with them in a manner preliminary or necessary to their sale; or
2. In the case of instruments: (a) to sell or procure their sale or exchange; or (b) to
deliver them to a principal; or (c) to effect the consummation of some transactions
involving delivery to a depository or register; or (d) to effect their presentation,
collection or renewal.
The sale of good, documents or instruments by a person in the business of selling goods,
documents or instruments for profit who, at the outset of transaction, has, as against the buyer,
general property rights in such goods, documents or instruments, or who sells the same to the
buyer on credit, retaining title or other interest as security for the payment of the purchase price,
does not constitute a trust receipt transaction and is outside the purview and coverage of this
Decree.
In other words, a trust receipt transaction is one where the entrustee has the obligation to deliver
to the entruster the price of the sale, or if the merchandise is not sold, to return the merchandise
to the entruster. There are, therefore, two obligations in a trust receipt transaction: the first refers
to money received under the obligation involving the duty to turn it over (entregarla) to the owner
of the merchandise sold, while the second refers to the merchandise received under the
obligation to "return" it (devolvera) to the owner.13 A violation of any of these undertakings
constitutes Estafa defined under Art. 315, par. 1(b) of the RPC, as provided in Sec. 13 of PD
115, viz:
Section 13. Penalty Clause.—The failure of an entrustee to turn over the proceeds of the sale of
the goods, documents or instruments covered by a trust receipt to the extent of the amount
owing to the entruster or as appears in the trust receipt or to return said goods, documents or
instruments if they were not sold or disposed of in accordance with the terms of the trust receipt
shall constitute the crime of estafa, punishable under the provisions of Article Three hundred
fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as
amended, otherwise known as the Revised Penal Code. x x x (Emphasis supplied.)
A thorough examination of the facts obtaining in the instant case, however, reveals that the
transaction between petitioner and Asiatrust is not a trust receipt transaction but one of simple
loan.
PD 115 Does Not Apply
It must be remembered that petitioner was transparent to Asiatrust from the very beginning that
the subject goods were not being held for sale but were to be used for the fabrication of steel
communication towers in accordance with his contracts with Islacom, Smart, and Infocom. In
these contracts, he was commissioned to build, out of the materials received, steel
communication towers, not to sell them.
The true nature of a trust receipt transaction can be found in the "whereas" clause of PD 115
which states that a trust receipt is to be utilized "as a convenient business device to assist
importers and merchants solve their financing problems." Obviously, the State, in enacting the
law, sought to find a way to assist importers and merchants in their financing in order to
encourage commerce in the Philippines.
As stressed in Samo v. People,14 a trust receipt is considered a security transaction intended to
aid in financing importers and retail dealers who do not have sufficient funds or resources to
finance the importation or purchase of merchandise, and who may not be able to acquire credit
except through utilization, as collateral, of the merchandise imported or purchased. Similarly,
American Jurisprudence demonstrates that trust receipt transactions always refer to a method of
"financing importations or financing sales."15 The principle is of course not limited in its
application to financing importations, since the principle is equally applicable to domestic
transactions.16 Regardless of whether the transaction is foreign or domestic, it is important to
note that the transactions discussed in relation to trust receipts mainly involved sales.
Following the precept of the law, such transactions affect situations wherein the entruster, who
owns or holds absolute title or security interests over specified goods, documents or
instruments, releases the subject goods to the possession of the entrustee. The release of such
goods to the entrustee is conditioned upon his execution and delivery to the entruster of a trust
receipt wherein the former binds himself to hold the specific goods, documents or instruments in
trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments
with the obligation to turn over to the entruster the proceeds to the extent of the amount owing
to the entruster or the goods, documents or instruments themselves if they are unsold.
Similarly, we held in State Investment House v. CA, et al. that the entruster is entitled "only to
the proceeds derived from the sale of goods released under a trust receipt to the entrustee." 17
Considering that the goods in this case were never intended for sale but for use in the fabrication
of steel communication towers, the trial court erred in ruling that the agreement is a trust receipt
transaction.
In applying the provisions of PD 115, the trial court relied on the Memorandum of Asiatrust’s
appraiser, Linga, who stated that the goods have been sold by petitioner and that only 3% of the
goods remained in the warehouse where it was previously stored. But for reasons known only to
the trial court, the latter did not give weight to the testimony of Linga when he testified that he
merely presumed that the goods were sold, viz:
COURT (to the witness)
Q So, in other words, when the goods were not there anymore. You presumed that,
that is already sold?
A Yes, your Honor.
Undoubtedly, in his testimony, Linga showed that he had no real personal knowledge or proof of
the fact that the goods were indeed sold. He did not notify petitioner about the inspection nor did
he talk to or inquire with petitioner regarding the whereabouts of the subject goods. Neither did
he confirm with petitioner if the subject goods were in fact sold. Therefore, the Memorandum of
Linga, which was based only on his presumption and not any actual personal knowledge, should
not have been used by the trial court to prove that the goods have in fact been sold. At the very
least, it could only show that the goods were not in the warehouse.
Having established the inapplicability of PD 115, this Court finds that petitioner’s liability is only
limited to the satisfaction of his obligation from the loan. The real intent of the parties was simply
to enter into a simple loan agreement.
To emphasize, the Trust Receipts Law was created to "to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through utilization, as collateral,
of the merchandise imported or purchased." Since Asiatrust knew that petitioner was neither an
importer nor retail dealer, it should have known that the said agreement could not possibly apply
to petitioner.
Moreover, this Court finds that petitioner is not liable for Estafa both under the RPC and PD 115.
Goods Were Not Received in Trust
The first element of Estafa under Art. 315, par. 1(b) of the RPC requires that the money, goods
or other personal property must be received by the offender in trust or on commission, or for
administration, or under any other obligation involving the duty to make delivery of, or to return it.
But as we already discussed, the goods received by petitioner were not held in trust. They were
also not intended for sale and neither did petitioner have the duty to return them. They were only
intended for use in the fabrication of steel communication towers.
No Misappropriation of Goods or Proceeds
The second element of Estafa requires that there be misappropriation or conversion of such
money or property by the offender, or denial on his part of such receipt.
This is the very essence of Estafa under Art. 315, par. 1(b). The words "convert" and
"misappropriated" connote an act of using or disposing of another’s property as if it were one’s
own, or of devoting it to a purpose or use different from that agreed upon. To misappropriate for
one’s own use includes not only conversion to one’s personal advantage, but also every attempt
to dispose of the property of another without a right.18
Petitioner argues that there was no misappropriation or conversion on his part, because his
liability for the amount of the goods subject of the trust receipts arises and becomes due only
upon receipt of the proceeds of the sale and not prior to the receipt of the full price of the goods.
Petitioner is correct. Thus, assuming arguendo that the provisions of PD 115 apply, petitioner is
not liable for Estafa because Sec. 13 of PD 115 provides that an entrustee is only liable for
Estafa when he fails "to turn over the proceeds of the sale of the goods x x x covered by a trust
receipt to the extent of the amount owing to the entruster or as appears in the trust receipt x x x
in accordance with the terms of the trust receipt."
The trust receipt entered into between Asiatrust and petitioner states:
In case of sale I/we agree to hand the proceeds as soon as received to the BANK to apply
against the relative acceptance (as described above) and for the payment of any other
indebtedness of mine/ours to ASIATRUST DEVELOPMENT BANK.19 (Emphasis supplied.)
Clearly, petitioner was only obligated to turn over the proceeds as soon as he received payment.
However, the evidence reveals that petitioner experienced difficulties in collecting payments
from his clients for the communication towers. Despite this fact, petitioner endeavored to pay his
indebtedness to Asiatrust, which payments during the period from September 1997 to July 1998
total approximately PhP 1,500,000. Thus, absent proof that the proceeds have been actually
and fully received by petitioner, his obligation to turn over the same to Asiatrust never arose.
What is more, under the Trust Receipt Agreement itself, no date of maturity was stipulated. The
provision left blank by Asiatrust is as follows:
x x x and in consideration thereof, I/we hereby agree to hold said goods in Trust for the said
Bank and as its property with liberty to sell the same for its account within ________ days from
the date of execution of the Trust Receipt x x x20
In fact, Asiatrust purposely left the space designated for the date blank, an action which in
ordinary banking transactions would be noted as highly irregular. Hence, the only way for the
obligation to mature was for Asiatrust to demand from petitioner to pay the obligation, which it
never did.
Again, it also makes the Court wonder as to why Asiatrust decided to leave the provisions for the
maturity dates in the Trust Receipt agreements in blank, since those dates are elemental part of
the loan. But then, as can be gleaned from the records of this case, Asiatrust also knew that the
capacity of petitioner to pay for his loan also hinges upon the latter’s receivables from Islacom,
Smart, and Infocom where he had ongoing and future projects for fabrication and installation of
steel communication towers and not from the sale of said goods. Being a bank, Asiatrust acted
inappropriately when it left such a sensitive bank instrument with a void circumstance on an
elementary but vital feature of each and every loan transaction, that is, the maturity dates.
Without stating the maturity dates, it was impossible for petitioner to determine when the loan
will be due.
Moreover, Asiatrust was aware that petitioner was not engaged in selling the subject goods and Asiatrust, which acknowledged the full payment of the obligation of the petitioner and the
that petitioner will use them for the fabrication and installation of communication towers. Before successful mediation between the parties.
granting petitioner the credit line, as aforementioned, Asiatrust conducted an investigation, which
showed that petitioner fabricated and installed communication towers for well-known From the foregoing considerations, we deem it unnecessary to discuss and rule upon the other
communication companies to be installed at designated project sites. In fine, there was no abuse issues raised in the appeal.
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 WHEREFORE, the CA Decision dated August 29, 2003 affirming the RTC Decision dated May
misappropriation occurred in this instance due to Asiatrust’s knowledge of the facts. 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.
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 G.R. No. 137232 June 29, 2005
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 ROSARIO TEXTILE MILLS CORPORATION and EDILBERTO YUJUICO, petitioners,
the proceeds from his client, Islacom. vs.
HOME BANKERS SAVINGS AND TRUST COMPANY, respondent.
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. DECISION
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
SANDOVAL-GUTIERREZ, J.:
Asiatrust from claiming any damage. This is evidenced by Asiatrust’s Affidavit of
Desistance21 acknowledging full payment of the loan.
For our resolution is the petition for review on certiorari assailing the Decision1 of the Court of
Appeals dated March 31, 1998 in CA-G.R. CV No. 48708 and its Resolution dated January 12,
Reasonable Doubt Exists
1999.

In the final analysis, the prosecution failed to prove beyond reasonable doubt that petitioner was
The facts of the case as found by the Court of Appeals are:
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.
"Sometime in 1989, Rosario Textile Mills Corporation (RTMC) applied from Home Bankers
Savings & Trust Co. for an Omnibus Credit Line for ₱10 million. The bank approved RTMC’s
While petitioner admits to his civil liability to Asiatrust, he nevertheless does not have criminal
credit line but for only ₱8 million. The bank notified RTMC of the grant of the said loan thru a
liability. It is a well-established principle that person is presumed innocent until proved guilty. To
letter dated March 2, 1989 which contains terms and conditions conformed by RTMC thru
overcome the presumption, his guilt must be shown by proof beyond reasonable doubt. Thus,
Edilberto V. Yujuico. On March 3, 1989, Yujuico signed a Surety Agreement in favor of the bank,
we held in People v. Mariano22 that while the principle does not connote absolute certainty, it
in which he bound himself jointly and severally with RTMC for the payment of all RTMC’s
means the degree of proof which produces moral certainty in an unprejudiced mind of the
indebtedness to the bank from 1989 to 1990. RTMC availed of the credit line by making
culpability of the accused. Such proof should convince and satisfy the reason and conscience of
numerous drawdowns, each drawdown being covered by a separate promissory note and trust
those who are to act upon it that the accused is in fact guilty. The prosecution, in this instant
receipt. RTMC, represented by Yujuico, executed in favor of the bank a total of eleven (11)
case, failed to rebut the constitutional innocence of petitioner and thus the latter should be
promissory notes.
acquitted.

At this point, the ruling of this Court in Colinares v. Court of Appeals is very apt, thus:
The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and
place them under the threats of criminal prosecution should they be unable to pay it may be
unjust and inequitable, if not reprehensible. Such agreements are contracts of adhesion which
borrowers have no option but to sign lest their loan be disapproved. The resort to this scheme
leaves poor and hapless borrowers at the mercy of banks, and is prone to misinterpretation x x
x.23
Such is the situation in this case.
Asiatrust’s intention became more evident when, on March 30, 2009, it, along with petitioner,
filed their Joint Motion for Leave to File and Admit Attached Affidavit of Desistance to qualify the
Affidavit of Desistance executed by Felino H. Esquivas, Jr., attorney-in-fact of the Board of
Despite the lapse of the respective due dates under the promissory notes and notwithstanding
the bank’s demand letters, RTMC failed to pay its loans. Hence, on January 22, 1993, the bank
filed a complaint for sum of money against RTMC and Yujuico before the Regional Trial Court,
Br. 16, Manila.
In their answer (OR, pp. 44-47), RTMC and Yujuico contend that they should be absolved from
liability. They claimed that although the grant of the credit line and the execution of the
suretyship agreement are admitted, the bank gave assurance that the suretyship agreement was
merely a formality under which Yujuico will not be personally liable. They argue that the
importation of raw materials under the credit line was with a grant of option to them to turn-over
to the bank the imported raw materials should these fail to meet their manufacturing
requirements. RTMC offered to make such turn-over since the imported materials did not
conform to the required specifications. However, the bank refused to accept the same, until the
materials were destroyed by a fire which gutted down RTMC’s premises.
For failure of the parties to amicably settle the case, trial on the merits proceeded. After the trial, THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ACTS OF
the Court a quo rendered a decision in favor of the bank, the decretal part of which reads: THE PETITIONERS-DEFENDANTS WERE TANTAMOUNT TO A VALID AND EFFECTIVE
TENDER OF THE GOODS TO THE RESPONDENT-PLAINTIFF.
‘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 II
stipulated 30% per annum interest and penalty of 3% per month until fully paid, under the
following promissory notes: 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
90-1116 6-20-90 ₱737,088.25 9-18-90 THE RESPONDENT-PLAINTIFF AND THE EXPRESS STIPULATION IN THEIR CONTRACT
THAT OWNERSHIP OF THE GOODS REMAINS WITH THE RESPONDENT-PLAINTIFF.
(maturity)

90-1320 7-13-90 ₱650,000.00 10-11-90 III

90-1334 7-17-90 ₱422,500.00 10-15-90 THE HONORABLE COURT OF APPEALS VIOLATED ARTICLE 1370 OF THE CIVIL CODE
AND THE LONG-STANDING JURISPRUDENCE THAT ‘INTENTION OF THE PARTIES IS
90-1335 7-17-90 ₱422,500.00 10-15-90 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
90-1347 7-18-90 ₱795,000.00 10-16-90 PETITIONER YUJUICO LIABLE UNDER THE SAME SURETY AGREEMENT.

90-1373 7-20-90 ₱715,900.00 10-18-90

IV
90-1397 7-27-90 ₱773,500.00 10-20-90
ASSUMING ARGUENDO THAT THE SURETYSHIP AGREEMENT WAS VALID AND
90-1429 7-26-90 ₱425,750.00 10-24-90 EFFECTIVE, THE HONORABLE COURT OF APPEALS VIOLATED THE BASIC LEGAL
PRECEPT THAT A SURETY IS NOT LIABLE UNLESS THE DEBTOR IS HIMSELF LIABLE.
90-1540 8-7-90 ₱720,984.00 11-5-90
V
90-1569 8-9-90 ₱209,433.75 11-8-90
THE HONORABLE COURT OF APPEALS VIOLATED THE PURPOSE OF TRUST RECEIPT
90-0922 5-28-90 ₱747,780.00 8-26-90
LAW IN HOLDING THE PETITIONERS LIABLE TO THE RESPONDENT."
The counterclaims of defendants are hereby DISMISSED.
The above assigned errors boil down to the following issues: (1) whether the Court of Appeals
SO ORDERED." (OR, p. 323; Rollo, p. 73)."2 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
Dissatisfied, RTMC and Yujuico, herein petitioners, appealed to the Court of Appeals, subsequently lost in a fire; (2) whether the Court of Appeals erred when it ruled that petitioners
contending that under the trust receipt contracts between the parties, they merely held the are solidarily liable for the payment of their obligations to the bank; and (3) whether the Court of
goods described therein in trust for respondent Home Bankers Savings and Trust Appeals violated the Trust Receipts Law.
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 On the first issue, petitioners theorize that when petitioner RTMC imported the raw materials
should have been relieved of any obligation to pay. 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
The Court of Appeals, however, affirmed the trial court’s judgment, holding that the bank is domino, the bank took the risk of the loss of said raw materials. RTMC’s role in the transaction
merely the holder of the security for its advance payments to petitioners; and that the goods they was that of end user of the raw materials and when it did not accept those materials as they did
purchased, through the credit line extended by the bank, belong to them and hold said goods at not meet the manufacturing requirements, RTMC made a valid and effective tender of the goods
their own risk. 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 then filed a motion for reconsideration but this was denied by the Appellate Court in
its Resolution dated January 12, 1999.
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
Hence, this petition for review on certiorari ascribing to the Court of Appeals the following errors: ₱10 million, but only ₱8 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
"I 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."
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 parole evidence rule under Section 9, Rule 130 of the Revised Rules
of Court is in point, thus:
"SEC. 9. Evidence of written agreements. – When the terms of an agreement have been
reduced in writing, it is considered as containing all the terms agreed upon and there can be,
between the parties and their successors in interest, no evidence of such terms other than the
contents of the written agreement.
However, a party may present evidence to modify, explain, or add to the terms of the written
agreement if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake, or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement of
the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors in interest
after the execution of the written agreement.
x x x."
Under this Rule, the terms of a contract are rendered conclusive upon the parties and
evidence aliunde is not admissible to vary or contradict 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.
G.R. No. 143772 November 22, 2005
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, vs. PRUDENTIAL
BANK, Respondent.
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 decision1 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.
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 decided2 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) ₱3,261,834.00, as actual damages, with interest thereon computed from 10 August 1985 until
the entire amount shall have been fully paid;
b) ₱50,000.00 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
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.
xxxxxxxxx
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.
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 Bill Description of Security Marks & 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.
x x x x x x x x x6 (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 void7 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 July 26, 1983 P244,269.00 P198,659.52
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 July 27, 1983 967,765.50 324,767.41
DBP was aware of Prudential Bank’s claim as early as July, 1982. However, it ignored the July 28, 1983 1,138,941.00 1,138,941.00
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. August 2, 1983 244,269.00 244,269.00
Thereafter, in the series of communications between them, DBP gave Prudential Bank the false August 5, 1983 275,079.00 275,079.60
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 August 8, 1983 475,046.10 475,046.10
court found that this chain of events showed DBP’s fraudulent attempt to prevent Prudential and the attorney's fees and costs of suit.
Bank from asserting its rights. It smacked of bad faith, if not deceit. Thus, the award of "SO ORDERED."
exemplary damages was in order. Due to the award of exemplary damages, the grant of The Facts
attorney’s fees was proper.15
The facts, as found by the Court of Appeals, are as follows:
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 "The present controversy relates to the rights of an assignee (financing company) of
of action had prescribed as it should be reckoned from October 10, 1980, the day the mortgage drafts and trust receipts backed up by sureties, in the event of default by the debtor
was registered, is not correct. The written extra-judicial demand by the creditor interrupted the (car dealer) to whom the assignor creditor (car manufacturer) sold and delivered motor
prescription of action.16 Hence, the four-year prescriptive period which DBP insists should be vehicles for resale. A consistent ruling on these cases is hereby reiterated: that a
counted from the registration of the mortgage was interrupted when Prudential Bank wrote the surety may secure obligations incurred subsequent to the execution of the surety
extra-judicial demands for the turn over of the articles or their value. In particular, the last contract.
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
"Prior to the transactions covered by the subject drafts and trust receipts, defendant-
not yet prescribed when it filed the complaint on May 24, 1988.
appellant Fortune Motors Corporation (Phils.) has been availing of the credit facilities
of plaintiff-appellant BA Finance Corporation. On January 17, 1983, Joseph L. G.
WHEREFORE, the petition is hereby DENIED. The December 14, 1999 decision and June 8, Chua, President of Fortune Motors Corporation, executed in favor of plaintiff-appellant
2000 resolution of the Court of Appeals in CA-G.R. CV No. 45783 are AFFIRMED. a Continuing Suretyship Agreement, in which he "jointly and severally unconditionally"
guaranteed the "full, faithful and prompt payment and discharge of any and all
indebtedness" of Fortune Motors Corporation to BA Finance Corporation (Folder of
Exhibits, pp. 21-22).
G.R. No. 135462 December 7, 2001
"On February 3, 1983, Palawan Lumber Manufacturing Corporation represented by
SOUTH CITY HOMES, INC., FORTUNE MOTORS (PHILS.), PALAWAN LUMBER Joseph L.G. Chua, George D. Tan, Edgar C. Rodrigueza and Joselito C. Baltazar,
MANUFACTURING CORPORATION, petitioners, executed in favor of plaintiff-appellant a Continuing Suretyship Agreement in which,
vs. said corporation "jointly and severally unconditionally" guaranteed the "full, faithful and
BA FINANCE CORPORATION, respondent. prompt payment and discharge of any and all indebtedness of Fortune Motors
Corporation to BA Finance Corporation (Folder of Exhibits, pp. 19-20). On the same
date, South City Homes, Inc. represented by Edgar C. Rodrigueza and Aurelio F.
PARDO, J.: Tablante, likewise executed a Continuing Suretyship Agreement in which said
corporation "jointly and severally unconditionally" guaranteed the "full, faithful and
The Case prompt payment and discharge of any and all indebtedness" of Fortune Motors
Corporation to BA Finance Corporation (Folder of Exhibits, pp. 17-18).
The case is a petition to set aside the decision1 of the Court of Appeals, the dispositive portion of
which reads: "Subsequently, Canlubang Automotive Resources Corporation (CARCO) drew six (6)
Drafts in its own favor, payable thirty (30) days after sight, charged to the account of
"WHEREFORE, premises considered, the appealed Decision (as amended by that Fortune Motors Corporation, as follows:
Order of July 22, 1992) of the lower court in Civil Case No. 21944 is hereby
AFFIRMED with the MODIFICATION that defendant-appellee South City Homes, Inc. Date of Draft Amount
is hereby ordered to pay, jointly and severally, with Fortune Motors Corporation,
Palawan Lumber Manufacturing Corporation and Joseph L. G. Chua, the outstanding July 26, 1983 P244,269.00
amounts due under the six (6) drafts and trust receipts, with interest thereon at the July 27, 1983 967,765.50
legal rate from the date of filing of this case until said amounts shall have been fully
paid, as follows: July 28, 1983 1,138,941.00
August 2, 1983 244,269.00
Date of Draft Amount Balance Due August 5, 1983 275,079.00
 August 8, 1983 475,046.10
"(Folder of Exhibits, pp. 1, 4, 7, 8, 11 and 14).
"Fortune Motors Corporation thereafter executed trust receipts covering the motor
vehicles delivered to it by CARCO under which it agreed to remit to the Entruster
(CARCO) the proceeds of any sale and immediately surrender the remaining unsold
vehicles (Folder of Exhibits, pp. 2, 5, 7-A, 9, 12 and 15). The drafts and trust receipts
were assigned to plaintiff-appellant, under Deeds of Assignment executed by CARCO
(Folder of Exhibits, pp. 3, 6, 7-B, 10, 13 and 16).
"Upon failure of the defendant-appellant Fortune Motors Corporation to pay the
amounts due under the drafts and to remit the proceeds of motor vehicles sold or to
return those remaining unsold in accordance with the terms of the trust receipt
agreements, BA Finance Corporation sent demand letter to Edgar C. Rodrigueza,
South City Homes, Inc., Aurelio Tablante, Palawan Lumber Manufacturing
Corporation, Joseph L. G. Chua, George D. Tan and Joselito C. Baltazar (Folder of
Exhibits, pp. 29-37). Since the defendants-appellants failed to settle their outstanding
account with plaintiff-appellant, the latter filed on December 22, 1983 a complaint for a
sum of money with prayer for preliminary attachment, with the Regional Trial Court of
Manila, Branch 1, which was docketed as Civil Case No. 83-21944 (Record, pp. 1-12).
Plaintiff-appellant filed a surety bond in the amount of P3,391,546.56 and accordingly,
Judge Rosalio C. Segundo ordered the issuance of a writ of preliminary attachment on
January 3, 1984 (Record, pp. 37-47). Defendants Fortune Motors Corporation, South
City Homes, Inc., Edgar C. Rodrigueza, Aurelio F. Tablante, Palawan Lumber
Manufacturing Corporation, Joseph L. G. Chua, George D. Tan and Joselito C.
Baltazar filed a Motion to Discharge Attachment, which was opposed by plaintiff-
appellant (Record, pp. 49-56). In an Order dated January 11, 1984, Judge Segundo
dissolved the writ of attachment except as against defendant Fortune Motors
Corporation and set the said incident for hearing (Record, p. 57). On January 19,
1984, the defendants filed a Motion to Dismiss. Therein, they alleged that conventional
subrogation effected a novation without the consent of the debtor (Fortune Motors
Corporation) and thereby extinguished the latter's liability; that pursuant to the trust
receipt transaction, it was premature under P. D. No. 115 to immediately file a
complaint for a sum of money as the remedy of the entruster is an action for specific
performance; that the suretyship agreements are null and void for having been
entered into without an existing principal obligation; and that being such sureties does
not make them solidary debtors (Record, pp. 58-64).
"After due hearing, the court denied the motion to discharge attachment with respect
to defendant Fortune Motors Corporation as well as the motion to dismiss by the
defendants (Record, pp. 68 and 87). In their Answer, defendants stressed that their
obligations to the creditor (CARCO) was extinguished by the assignment of the drafts
and trust receipts to plaintiff-appellant without their knowledge and consent, and
pursuant to legal provision on conventional subrogation a novation was effected,
thereby extinguishing the liability of the sureties; that plaintiff-appellant failed to
immediately demand the return of the goods under the trust receipt agreements or
exercise the courses of action by the entruster as provided for under P. D. No. 115;
and that at the time the suretyship agreements were entered into, there were no
principal obligations, thus rendering them null and void. A counterclaim for the award
of actual, moral and exemplary damages was prayed for by defendants (Record, pp.
91-110).
"During the pre-trial, efforts to reach a compromise was not successful, and in view of
the retirement of Judge Rosalio C. Segundo of RTC Manila, Branch 1, the case was-
re-raffled off to Branch XXXIII, presided over by Judge Felix V. Barbers (Record, pp.
155-160).
"Fortune Motors Corporation filed a motion to lift the writ of attachment covering three
(3) vehicles described in the Third-Party Claim filed with the Office of Deputy Sheriff
Jorge C. Victorino (RTC, Branch 1) by Fortune Equipment, Inc. which was opposed by
plaintiff-appellant (Record, pp. 173-181). On June 15, 1984, Deputy Sheriff Jorge C.
Victorino issued a "Notice of Levy Upon Personal Properties Pursuant to Order of
Attachment" which was duly served on defendant Fortune Motors Corporation
(Record, pp. 191-199). In an Order dated April 28, 1986, the court a quo denied the
motion to lift the writ of attachment on three (3) vehicles described in the Third-Party
Claim filed by Fortune Equipment Inc. (Record, p. 207). On motion of their respective
counsel, the trial court granted the parties time to sit down and appraise the
machineries and spare parts owned by defendant Fortune Motors Corporation which
are now in the possession of plaintiff corporation by virtue of the attachment. A series
of conferences was allowed by the court, as means toward possible compromise
agreement. In an Order dated June 2, 1987, the case was returned to Branch I, now
presided over by Judge Rebecca G. Salvador (Record, p. 237). The pre-trial period
was terminated and the case was set for trial on the merits (Record, p. 259).
"Acting on the motion to sell levied properties filed by defendant George D. Tan, the
trial court ordered the public sale of the attached properties (Record, p. 406). The
court likewise allowed the complaint-in-intervention filed by Fortune Equipment Inc.
and South Fortune Motors Corporation who claimed ownership of four (4) vehicles
earlier seized and attached (Record, p. 471-475). Plaintiff corporation admitted the
allegations contained in the complaint-in-intervention only with respect to one truck so
attached but denied the rest of intervenors' allegations (Record, pp. 479-482).
Thereafter, the parties submitted their respective pre-trial briefs on the complaint-in-
intervention, and after the submission of evidence thereon, the case was submitted for
decision (Record, pp. 573-577).
"On November 25, 1991, the lower court rendered its judgment, the dispositive portion
of which reads as follows:
"WHEREFORE, judgment is hereby rendered:
"1. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation
and Joseph Chua, jointly and severally to pay the plaintiff on the July 27, 1983 Draft,
the sum of P324,767.41 with the interest thereon at the legal rate from the date of
filing of this case, December 21, 1983 until the amount shall have been fully paid;
"2. Ordering defendants Fortune Motors, Palawan Manufacturing Corporation and
Joseph Chua jointly and severally to pay to the plaintiff on the July 26, 1983 Draft, the
sum of P198,659.52 with interest thereon at the legal rate from the date of filing of this
case, until the amount shall have been fully paid;
"3. Ordering defendant Fortune Motors, Palawan Manufacturing Corporation and
Joseph Chua jointly and severally to pay to the plaintiff on the July 28, 1983 Draft the
sum of P1,138,941.00 with interest thereon at the legal rate from the date of filing of
this case, until the amount shall have been fully paid;
"4. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation
and Joseph Chua jointly and severally to pay to the plaintiff on the August 2, 1983
Draft, the sum of P244,269.00 with interest thereon at the legal rate from the date of
filing of this case, until the amount shall have been fully paid;
"5. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation
and Joseph Chua jointly and severally to pay to the plaintiff on the August 5, 1983
Draft the sum of P275,079.60 with interest thereon at the legal rate from the date of
the filing of this case, until the amount shall have been fully paid;
"6. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation
and Joseph Chua jointly and severally to pay to the plaintiff on the August 8, 1983
Draft the sum of P475,046.10 with interest thereon at legal rate from the date of the
filing of this case, until the amount shall been fully paid;
"7. Ordering defendant Fortune Motors, Palawan Lumber Manufacturing Corporation
and Joseph Chua jointly and severally to pay the sum of P300,000.00 as attorney's
fees and the costs of this suit;
"8. Dismissing plaintiff's complaint against South City Homes, Aurelio Tablante,
Joselito Baltazar, George Tan and Edgar Rodrigueza and the latter's counterclaim for
lack of basis;
"9. Ordering Deputy Sheriff Jorge Victorino to return to Intervenor Fortune Equipment
the Mitsubishi Truck Canter with Motor No. 310913 and Chassis No. 513234;
"10. Dismissing the complaint-in-intervention in so far as the three other vehicles
mentioned in the complaint-in-intervention are concerned for lack of cause of action;
"11. Dismissing the complaint-in-intervention against Fortune Motor for lack of basis;
and
"12. Ordering the parties-in-intervention to bear their respective damages, attorneys
fees and the costs of the suit.
"Upon execution, the sheriff may cause the judgment to be satisfied out of the
properties attached with the exception of one (1) unit Mitsubishi Truck Canter with
Motor No. 310913 and Chassis No. 513234, if they be sufficient for that purpose. The
officer shall make a return in writing to the court of his proceedings. Whenever the
judgment shall have been paid, the officer, upon reasonable demand must return to
the judgment debtor the attached properties remaining in his hand, and any of the
proceeds of the properties not applied to the judgment.
"SO ORDERED.
"On two (2) separate motions for reconsideration, one filed by plaintiffs-intervenors
dated December 18, 1991 and the other by plaintiff dated December 26, 1991, the trial
court issued an Order dated July 22, 1992 amending its Decision dated November 25,
1991. Specifically, said Order amended paragraphs 9 and 10 thereof and deleted the
last paragraph of the said Decision.
"Paragraphs 9 and 10 now read:
"9. Ordering Deputy Sheriff Jorge C. Victorino to return to Intervenor
Fortune Equipment, Inc. the Mitsubishi Truck Canter with Motor No. 310913
and Chassis No. 513234; Mitsubishi Truck Canter with Motor No. 4D30-
313012 and Chassis No. 513696, and Fuso Truck with Motor No. 006769
and Chassis No. 20756, and to Intervenor South Fortune Motors
Corporation the Cimaron Jeepney with Plate No. NET-849;
"10. Ordering the plaintiff, in the event the motor vehicles could no longer be
returned to pay the estimated value thereof i.e., P750,000.00 for the three
trucks, and P5,000.00 for the Cimaron Jeepney, to the plaintiffs-intervenors.
"x x x" (Records, pp. 664-665)
"Plaintiffs BA Finance Corporation, defendants Fortune Motors Corp. (Phils.) and
Palawan Lumber Manufacturing Corporation, and intervenors Fortune Equipment and
South Fortune Motors, interposed the present appeal and filed their respective
Briefs."3
On September 8, 1998, the Court of Appeals promulgated a decision, the dispositive portion of
which is quoted in the opening paragraph of this decision.
Hence, this appeal.4
The Issues
The issues presented are: (1) whether the suretyship agreement is valid; (2) whether there was
a novation of the obligation so as to extinguish the liability of the sureties; and (3) whether
respondent BAFC has a valid cause of action for a sum of money following the drafts and trust
receipts transactions.5
The Court's Ruling
On the first issue, petitioners assert that the suretyship agreement they signed is void because
there was no principal obligation at the time of signing as the principal obligation was signed six
(6) months later. The Civil Code, however, allows a suretyship agreement to secure future loans
even if the amount is not yet known.
Article 2053 of the Civil Code provides that:
"Art. 2053. A guaranty may also be given as security for future debts, the amount of
which is not yet known. x x x"
In Fortune Motors (Phils.) Corporation v. Court of Appeals,6 we held:
"To fund their acquisition of new vehicles (which are later retailed or resold to the
general public), car dealers normally enter into wholesale automotive financing
schemes whereby vehicles are delivered by the manufacturer or assembler on the
strength of trust receipts or drafts executed by the car dealers, which are backed up
by sureties. These trust receipts or drafts are then assigned and/or discounted by the
manufacturer to/with financing companies, which assume payment of the vehicles but
with the corresponding right to collect such payment from the car dealers and/or the
sureties. In this manner, car dealers are able to secure delivery of their stock-in-trade
without having to pay cash therefor; manufacturers get paid without any
receivables/collection problems; and financing companies earn their margins with the
assurance of payment not only from the dealers but also from the sureties. When the
vehicles are eventually resold, the car dealers are supposed to pay the financing
companies — and the business goes merrily on. However, in the event the car dealer
defaults in paying the financing company, may the surety escape liability on the legal
ground that the obligations were incurred subsequent to the execution of the surety
contract?
 "x x x Of course, a surety is not bound under any particular principal obligation until
that principal obligation is born. But there is no theoretical or doctrinal difficulty
inherent in saying that the suretyship agreement itself is valid and binding even before
the principal obligation intended to be secured thereby is born, any more than there
would be in saying that obligations which are subject to a condition precedent are valid
and binding before the occurrence of the condition precedent.
"Comprehensive or continuing surety agreements are in fact quite commonplace in
present day financial and commercial practice. A bank or financing company which
anticipates entering into a series of credit transactions with a particular company,
commonly requires the projected principal debtor to execute a continuing surety
agreement along with its sureties. By executing such an agreement, the principal
places itself in a position to enter into the projected series of transactions with its
creditor; with such suretyship agreement, there would be no need to execute a
separate surety contract or bond for each financing or credit accommodation extended
to the principal debtor."
Petitioners next posit (second issue) that a novation, as a result of the assignment of the drafts
and trust receipts by the creditor (CARCO) in favor of respondent BAFC without the consent of
the principal debtor (Fortune Motors), extinguished their liabilities.
An assignment of credit is an agreement by virtue of which the owner of a credit,
known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or
donation, and without the consent of the debtor, transfers his credit and accessory
rights to another, known as the assignee, who acquires the power to enforce it to the
same extent as the assignor could enforce it against the debtor.7 As a consequence,
the third party steps into the shoes of the original creditor as subrogee of the latter.
Petitioners' obligations were not extinguished. Thus:
"x x x Moreover, in assignment, the debtor's consent is not essential for the validity of
the assignment (Art. 1624 in relation to Art. 1475, Civil Code), his knowledge thereof
affecting only the validity of the payment he might make (Article 1626, Civil Code).
"Article 1626 also shows that payment of an obligation which is already existing does
not depend on the consent of the debtor. It, in effect, mandates that such payment of
the existing obligation shall already be made to the new creditor from the time the
debtor acquires knowledge of the assignment of the obligation.
"The law is clear that the debtor had the obligation to pay and should have paid from
the date of notice whether or not he consented.
"We have ruled in Sison & Sison vs. Yap Tico and Avanceña, 37 Phil. 587 [1918] that
definitely, consent is not necessary in order that assignment may fully produce legal
effects. Hence, the duty to pay does not depend on the consent of the debtor.
Otherwise, all creditors would be prevented from assigning their credits because of the
possibility of the debtor's refusal to give consent.
"What the law requires in an assignment of credit is not the consent of the debtor but
merely notice to him. A creditor may, therefore, validly assign his credit and its
accessories without the debtor's consent (National Investment and Development Co.
v. De Los Angeles, 40 SCRA 489 [1971]. The purpose of the notice is only to inform
that debtor from the date of the assignment, payment should be made to the assignee
and not to the original creditor."8
Petitioners finally posit (third issue) that as an entruster, respondent BAFC must first demand the
return of the unsold vehicles from Fortune Motors Corporation, pursuant to the terms of the trust
receipts. Having failed to do so, petitioners had no cause of action whatsoever against Fortune
Motors Corporation and the action for collection of sum of money was, therefore, premature. A
trust receipt is a security transaction intended to aid in financing importers and retail dealers who
do not have sufficient funds or resources to finance the importation or purchase of merchandise,
and who may not be able to acquire credit except through utilization, as collateral, of the
merchandise imported or purchased.9 In the event of default by the entrustee on his obligations
under the trust receipt agreement, it is not absolutely necessary that the entruster cancel the
trust and take possession of the goods to be able to enforce his rights thereunder. We ruled:
"x x x Significantly, the law uses the word "may" in granting to the entruster the right to
cancel the trust and take possession of the goods. Consequently, petitioner has the
discretion to avail of such right or seek any alternative action, such as a third party
claim or a separate civil action which it deems best to protect its right, at any time
upon default or failure of the entrustee to comply with any of the terms and conditions
of the trust agreement."10
G.R. No. 90828 September 5, 2000
MELVIN COLINARES and LORDINO VELOSO, petitioners,
vs.
HONORABLE COURT OF APPEALS, and THE PEOPLE OF THE PHILIPPINES, respondents.
DECISION
DAVIDE, JR., C.J.:
In 1979 Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a
consideration of ₱40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the
latter’s convent at Camaman-an, Cagayan de Oro City.
On 30 October 1979, Petitioners obtained 5,376 SF Solatone acoustical board 2’x4’x½", 300 SF
tanguile wood tiles 12"x12", 260 SF Marcelo economy tiles and 2 gallons UMYLIN cement
adhesive from CM Builders Centre for the construction project.1 The following day, 31 October
1979, Petitioners applied for a commercial letter of 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 credit3 for ₱22,389.80 to cover the full invoice value of the goods.
Petitioners signed a pro-forma trust receipt4 as security. The loan was due on 29 January 1980.
On 31 October 1979, PBC debited ₱6,720 from Petitioners’ marginal deposit as partial payment
of the loan.5
On 7 May 1980, PBC wrote6 to Petitioners demanding that the amount be paid within seven days
from notice. Instead of complying with PBC’s demand, Veloso confessed that they lost
₱19,195.83 in the Carmelite Monastery Project and requested for a grace period of until 15 June
1980 to settle the account.7
PBC sent a new demand letter8 to Petitioners on 16 October 1980 and informed them that their
outstanding balance as of 17 November 1979 was ₱20,824.40 exclusive of attorney’s fees of
25%.9
On 2 December 1980, Petitioners proposed10 that the terms of payment of the loan be modified
as follows: ₱2,000 on or before 3 December 1980, and ₱1,000 per month starting 31 January
1980 until the account is fully paid. Pending approval of the proposal, Petitioners paid ₱1,000 to
PBC on 4 December 1980,11 and thereafter ₱500 on 11 February 1981,12 16 March 1981,13 and
20 April 1981.14 Concurrently with the separate demand for attorney’s fees by PBC’s legal
counsel, PBC continued to demand payment of the balance. 15
On 14 January 1983, Petitioners were charged with the violation of P.D. No. 115 (Trust Receipts
Law) in relation to Article 315 of the Revised Penal Code in an Information which was filed with
Branch 18, Regional Trial Court of Cagayan de Oro City. The accusatory portion of the
Information reads:
That on or about October 31, 1979, in the City of Cagayan de Oro, Philippines, and within the
jurisdiction of this Honorable Court, the above-named accused entered into a trust receipt
agreement with the Philippine Banking Corporation at Cagayan de Oro City wherein the
accused, as entrustee, received from the entruster the following goods to wit:
Solatone Acoustical board
Tanguile Wood Tiles
Marcelo Cement Tiles
Umylin Cement Adhesive
with a total value of P22,389.80, with the obligation on the part of the accused-entrustee to hold
the aforesaid items in trust for the entruster and/or to sell on cash basis or otherwise dispose of
the said items and to turn over to the entruster the proceeds of the sale of said goods or if there
be no sale to return said items to the entruster on or before January 29, 1980 but that the said
accused after receipt of the goods, with intent to defraud and cause damage to the entruster,
conspiring, confederating together and mutually helping one another, did then and there wilfully,
unlawfully and feloniously fail and refuse to remit the proceeds of the sale of the goods to the
entruster despite repeated demands but instead converted, misappropriated and misapplied the
proceeds to their own personal use, benefit and gain, to the damage and prejudice of the
Philippine Banking Corporation, in the aforesaid sum of P22,389.80, Philippine Currency.
Contrary to PD 115 in relation to Article 315 of the Revised Penal Code. 16
The case was docketed as Criminal Case No. 1390.
During trial, petitioner Veloso insisted that the transaction was a "clean loan" as per verbal
guarantee of Cayo Garcia Tuiza, PBC’s former manager. He and petitioner Colinares signed the
documents without reading the fine print, only learning of the trust receipt implication much later.
When he brought this to the attention of PBC, Mr. Tuiza assured him that the trust receipt was a
mere formality.17
On 7 July 1986, the trial court promulgated its decision18 convicting Petitioners of estafa for
violating P.D. No. 115 in relation to Article 315 of the Revised Penal Code and sentencing each
of them to suffer imprisonment of two years and one day of prision correccional as minimum to
six years and one day of prision mayor as maximum, and to solidarily indemnify PBC the amount
of ₱20,824.44, with legal interest from 29 January 1980, 12 % penalty charge per annum, 25%
of the sums due as attorney’s fees, and costs.
The trial court considered the transaction between PBC and Petitioners as a trust receipt
transaction under Section 4, P.D. No. 115. It considered Petitioners’ use of the goods in their
Carmelite monastery project an act of "disposing" as contemplated under Section 13, P.D. No.
115, and treated the charge invoice19 for goods issued by CM Builders Centre as a "document"
within the meaning of Section 3 thereof. It concluded that the failure of Petitioners to turn over
the amount they owed to PBC constituted estafa.
Petitioners appealed from the judgment to the Court of Appeals which was docketed as CA-G.R.
CR No. 05408. Petitioners asserted therein that the trial court erred in ruling that they violated
the Trust Receipt Law, and in holding them criminally liable therefor. In the alternative, they
contend that at most they can only be made civilly liable for payment of the loan.
In its decision20 6 March 1989, the Court of Appeals modified the judgment of the trial court by
increasing the penalty to six years and one day of prision mayor as minimum to fourteen years
eight months and one day of reclusion temporal as maximum. It held that the documentary
evidence of the prosecution prevails over Veloso’s testimony, discredited Petitioners’ claim that
the documents they signed were in blank, and disbelieved that they were coerced into signing
them.
On 25 March 1989, Petitioners filed a Motion for New Trial/Reconsideration21 alleging that the
"Disclosure Statement on Loan/Credit Transaction"22 (hereafter Disclosure Statement) signed by
them and Tuiza was suppressed by PBC during the trial. That document would have proved that
the transaction was indeed a loan as it bears a 14% interest as opposed to the trust receipt
which does not at all bear any interest. Petitioners further maintained that when PBC allowed
them to pay in installment, the agreement was novated and a creditor-debtor relationship was
created.
In its resolution23 of 16 October 1989 the Court of Appeals denied the Motion for New
Trial/Reconsideration because the alleged newly discovered evidence was actually forgotten
evidence already in existence during the trial, and would not alter the result of the case.
Hence, Petitioners filed with us the petition in this case on 16 November 1989. They raised the
following issues:
1. WHETHER OR NOT THE DENIAL OF THE MOTION FOR NEW TRIAL ON THE
GROUND OF NEWLY DISCOVERED EVIDENCE, NAMELY, "DISCLOSURE ON
LOAN/CREDIT TRANSACTION," WHICH IF INTRODUCED AND ADMITTED,
WOULD CHANGE THE JUDGMENT, DOES NOT CONSTITUTE A DENIAL OF DUE
PROCESS.
2. ASSUMING THERE WAS A VALID TRUST RECEIPT, WHETHER OR NOT THE
ACCUSED WERE PROPERLY CHARGED, TRIED AND CONVICTED FOR
VIOLATION OF SEC. 13, PD NO. 115 IN RELATION TO ARTICLE 315 PARAGRAPH
(I) (B) NOTWITHSTANDING THE NOVATION OF THE SO-CALLED TRUST
RECEIPT CONVERTING THE TRUSTOR-TRUSTEE RELATIONSHIP TO
CREDITOR-DEBTOR SITUATION.
In its Comment of 22 January 1990, the Office of the Solicitor General urged us to deny the
petition for lack of merit.
On 28 February 1990 Petitioners filed a Motion to Dismiss the case on the ground that they had
already fully paid PBC on 2 February 1990 the amount of ₱70,000 for the balance of the loan,
including interest and other charges, as evidenced by the different receipts issued by PBC,24 and
that the PBC executed an Affidavit of desistance.25
We required the Solicitor General to comment on the Motion to Dismiss.
In its Comment of 30 July 1990, the Solicitor General opined that payment of the loan was akin
to a voluntary surrender or plea of guilty which merely serves to mitigate Petitioners’ culpability,
but does not in any way extinguish their criminal liability.
In the Resolution of 13 August 1990, we gave due course to the Petition and required the parties
to file their respective memoranda.
The parties subsequently filed their respective memoranda.
It was only on 18 May 1999 when this case was assigned to the ponente. Thereafter, we
required the parties to move in the premises and for Petitioners to manifest if they are still
interested in the further prosecution of this case and inform us of their present whereabouts and
whether their bail bonds are still valid.
Petitioners submitted their Compliance.
The core issues raised in the petition are the denial by the Court of Appeals of Petitioners’
Motion for New Trial and the true nature of the contract between Petitioners and the PBC. As to
the latter, Petitioners assert that it was an ordinary loan, not a trust receipt agreement under the
Trust Receipts Law.
The grant or denial of a motion for new trial rests upon the discretion of the judge. New trial may
be granted if: (1) errors of law or irregularities have been committed during the trial prejudicial to
the substantial rights of the accused; or (2) new and material evidence has been discovered
which the accused could not with reasonable diligence have discovered and produced at the
trial, and which, if introduced and admitted, would probably change the judgment. 26
For newly discovered evidence to be a ground for new trial, such evidence must be (1)
discovered after trial; (2) could not have been discovered and produced at the trial even with the
exercise of reasonable diligence; and (3) material, not merely cumulative, corroborative, or
impeaching, and of such weight that, if admitted, would probably change the judgment. 27 It is
essential that the offering party exercised reasonable diligence in seeking to locate the evidence
before or during trial but nonetheless failed to secure it.28
We find no indication in the pleadings that the Disclosure Statement is a newly discovered
evidence.
Petitioners could not have been unaware that the two-page document exists. The Disclosure
Statement itself states, "NOTICE TO BORROWER: YOU ARE ENTITLED TO A COPY OF THIS
PAPER WHICH YOU SHALL SIGN."29 Assuming Petitioners’ copy was then unavailable, they
could have compelled its production in court,30 which they never did. Petitioners have miserably
failed to establish the second requisite of the rule on newly discovered evidence.
Petitioners themselves admitted that "they searched again their voluminous records,
meticulously and patiently, until they discovered this new and material evidence" only upon
learning of the Court of Appeals’ decision and after they were "shocked by the penalty
imposed."31 Clearly, the alleged newly discovered evidence is mere forgotten evidence that
jurisprudence excludes as a ground for new trial.32
However, the second issue should be resolved in favor of Petitioners.
Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt transaction as any
transaction by and between a person referred to as the entruster, and another person referred to
as the entrustee, whereby the entruster who owns or holds absolute title or security interest over
certain specified goods, documents or instruments, releases the same to the possession of the
entrustee upon the latter’s execution and delivery to the entruster of a signed document called a
"trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or
instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of
the amount owing to the entruster or as appears in the trust receipt or the goods, documents or
instruments themselves if they are unsold or not otherwise disposed of, in accordance with the
terms and conditions specified in the trust receipt.
There are two possible situations in a trust receipt transaction. The first is covered by the
provision which refers to money received under the obligation involving the duty to deliver it
(entregarla) to the owner of the merchandise sold. The second is covered by the provision which
refers to merchandise received under the obligation to "return" it (devolvera) to the owner.33
Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by the trust
receipt to the entruster or to return said goods if they were not disposed of in accordance with
the terms of the trust receipt shall be punishable as estafa under Article 315 (1) of the Revised
Penal Code,34 without need of proving intent to defraud.
A thorough examination of the facts obtaining in the case at bar reveals that the transaction
intended by the parties was a simple loan, not a trust receipt agreement.
Petitioners received the merchandise from CM Builders Centre on 30 October 1979. On that
day, ownership over the merchandise was already transferred to Petitioners who were to use the
materials for their construction project. It was only a day later, 31 October 1979, that they went
to the bank to apply for a loan to pay for the merchandise.
This situation belies what normally obtains in a pure trust receipt transaction where goods are
owned by the bank and only released to the importer in trust subsequent to the grant of the loan.
The bank acquires a "security interest" in the goods as holder of a security title for the advances
it had made to the entrustee.35 The ownership of the merchandise continues to be vested in the
person who had advanced payment until he has been paid in full, or if the merchandise has
already been sold, the proceeds of the sale should be turned over to him by the importer or by
his representative or successor in interest.36 To secure that the bank shall be paid, it takes full
title to the goods at the very beginning and continues to hold that title as his indispensable
security until the goods are sold and the vendee is called upon to pay for them; hence, the
importer has never owned the goods and is not able to deliver possession. 37 In a certain manner,
trust receipts partake of the nature of a conditional sale where the importer becomes absolute
owner of the imported merchandise as soon as he has paid its price.38
Trust receipt transactions are intended to aid in financing importers and retail dealers who do not
have sufficient funds or resources to finance the importation or purchase of merchandise, and
who may not be able to acquire credit except through utilization, as collateral, of the
merchandise imported or purchased.39
The antecedent acts in a trust receipt transaction consist of the application and approval of the
letter of credit, the making of the marginal deposit and the effective importation of goods through
the efforts of the importer.40
PBC attempted to cover up the true delivery date of the merchandise, yet the trial court took
notice even though it failed to attach any significance to such fact in the judgment. Despite the
Court of Appeals’ contrary view that the goods were delivered to Petitioners previous to the
execution of the letter of credit and trust receipt, we find that the records of the case speak
volubly and this fact remains uncontroverted. It is not uncommon for us to peruse through the
transcript of the stenographic notes of the proceedings to be satisfied that the records of the
case do support the conclusions of the trial court. 41 After such perusal Grego Mutia, PBC’s credit
investigator, admitted thus:
ATTY. CABANLET: (continuing) Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale,
Q Do you know if the goods subject matter of this letter of credit and trust receipt agreement contrary to the express provision embodied in the trust receipt. They are contractors who
were received by the accused? obtained the fungible goods for their construction project. At no time did title over the
A Yes, sir construction materials pass to the bank, but directly to the Petitioners from CM Builders Centre.
Q Do you have evidence to show that these goods subject matter of this letter of credit and trust This impresses upon the trust receipt in question vagueness and ambiguity, which should not be
receipt were delivered to the accused? the basis for criminal prosecution in the event of violation of its provisions. 46
A Yes, sir.
Q I am showing to you this charge invoice, are you referring to this document? The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and
A Yes, sir. place them under the threats of criminal prosecution should they be unable to pay it may be
xxx unjust and inequitable, if not reprehensible. Such agreements are contracts of adhesion which
Q What is the date of the charge invoice? borrowers have no option but to sign lest their loan be disapproved. The resort to this scheme
A October 31, 1979. leaves poor and hapless borrowers at the mercy of banks, and is prone to misinterpretation, as
COURT: had happened in this case. Eventually, PBC showed its true colors and admitted that it was only
Make it of record as appearing in Exhibit D, the zero in 30 has been superimposed with numeral after collection of the money, as manifested by its Affidavit of Desistance.
1.42
During the cross and re-direct examinations he also impliedly admitted that the transaction was
indeed a loan. Thus: WHEREFORE, the challenged Decision of 6 March 1989 and the Resolution of 16 October 1989
Q In short the amount stated in your Exhibit C, the trust receipt was a loan to the accused you of the Court of Appeals in CA-GR. No. 05408 are REVERSED and SET ASIDE. Petitioners are
admit that? hereby ACQUITTED of the crime charged, i.e., for violation of P.D. No. 115 in relation to Article
A Because in the bank the loan is considered part of the loan. 315 of the Revised Penal Code.
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 interest43

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 that was covered by trust receipt. In short it was a special kind
of loan.1âwphi1 What can you say as to that?

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

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.