Trust Receipts Law Cases

SOUTH CITY HOMES, INC., FORTUNE MOTORS (PHILS.
), PALAWAN LUMBER
MANUFACTURING CORPORATION, Petitioners,
vs.
BA FINANCE CORPORATION, Respondent.
PARDO, J.:
The Case
The case is a petition to set aside the decision1 of the Court of Appeals, the
dispositive portion of which reads:
"WHEREFORE, premises considered, the appealed Decision (as

amended by that 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. is hereby ordered to pay,
jointly and severally, with Fortune Motors Corporation, Palawan
Lumber Manufacturing Corporation and Joseph L. G. Chua, the
outstanding amounts due under the six (6) drafts and trust receipts,
with interest thereon at the legal rate from the date of filing of this case
until said amounts shall have been fully paid, as follows:
Date of Draft Amount Due

Balance
July 26, 1983 P244,269.00 P198,659.52
July 27, 1983 967,765.50 324,767.41
July 28, 1983 1,138,941.00 1,138,941.00
August 2, 244,269.00 244,269.00
1983
August 5, 275,079.00 275,079.60
1983
August 8, 475,046.10 475,046.10
1983
and the attorney's fees and costs of suit.
"SO ORDERED."2
The Facts
The facts, as found by the Court of Appeals, are as follows:
"The present controversy relates to the rights of an assignee

(financing company) of drafts and trust receipts backed up by sureties,
in the event of default by the debtor (car dealer) to whom the assignor
creditor (car manufacturer) sold and delivered motor vehicles for
resale. A consistent ruling on these cases is hereby reiterated: that a
surety may secure obligations incurred subsequent to the execution of
the surety contract.
"Prior to the transactions covered by the subject drafts and trust
receipts, defendant-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. Chua, President of
Fortune Motors Corporation, executed in favor of plaintiff-appellant 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).
"On February 3, 1983, Palawan Lumber Manufacturing Corporation

represented by Joseph L.G. Chua, George D. Tan, Edgar C.
Rodrigueza and Joselito C. Baltazar, executed in favor of plaintiff-
appellant a Continuing Suretyship Agreement in which, said
corporation "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. 19-20). On the same date, South
City Homes, Inc. represented by Edgar C. Rodrigueza and Aurelio F.
Tablante, likewise executed a Continuing Suretyship Agreement in
which said corporation "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. 17-18).
"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 Fortune Motors Corporation, as
follows:
Date of Draft Amount

July 26, 1983 P244,269.00
July 27, 1983 967,765.50
July 28, 1983 1,138,941.00
August 2, 1983 244,269.00
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;
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;

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;

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

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
ALFREDO CHING and ENCARNACION CHING, Petitioners, v. THE HON. COURT

OF APPEALS and ALLIED BANKING CORPORATION, Respondents.
DECISION
CALLEJO, SR., J.:
This Petition for Review , under Rule 45 of the Revised Rules of Court, assails the
Decision1 of the Court of Appeals (CA) dated November 27, 1995 in CA-G.R. SP No.
33585, as well as the Resolution2 on April 2, 1996 denying the petitioners motion for
reconsideration. The impugned decision granted the private respondents Petition
for Certiorari and set aside the Orders of the trial court dated December 15,
19933 and February 17, 19944 nullifying the attachment of 100,000 shares of stocks
of the Citycorp Investment Philippines under the name of petitioner Alfredo Ching.
The following facts are undisputed:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
On September 26, 1978, the Philippine Blooming Mills Company, Inc. (PBMCI)
obtained a loan of P9,000,000.00 from the Allied Banking Corporation (ABC). By
virtue of this loan, the PBMCI, through its Executive Vice-President Alfredo Ching,
executed a promissory note for the said amount promising to pay on December 22,
1978 at an interest rate of 14% per annum.5 As added security for the said loan, on
September 28, 1978, Alfredo Ching, together with Emilio Taedo and Chung Kiat Hua,
executed a continuing guaranty with the ABC binding themselves to jointly and
severally guarantee the payment of all the PBMCI obligations owing the ABC to the
extent of P38,000,000.00.6 The loan was subsequently renewed on various dates,
the last renewal having been made on December 4, 1980.7 ςrνll
Earlier, on December 28, 1979, the ABC extended another loan to the PBMCI in the
amount of P13,000,000.00 payable in eighteen months at 16% interest per annum.
As in the previous loan, the PBMCI, through Alfredo Ching, executed a promissory
note to evidence the loan maturing on June 29, 1981. 8 This was renewed once for a
period of one month.9 ςrνll
The PBMCI defaulted in the payment of all its loans. Hence, on August 21, 1981, the
ABC filed a complaint for sum of money with prayer for a writof preliminary
attachment against the PBMCI to collect the P12,612,972.88 exclusive of interests,
penalties and other bank charges. Impleaded as co-defendants in the complaint were
Alfredo Ching, Emilio Taedo and Chung Kiat Hua in their capacity as sureties of the
PBMCI.
The case was docketed as Civil Case No. 142729 in the Regional Trial Court of
Manila, Branch XVIII.10 In its application for a writ of preliminary attachment, the ABC
averred that the defendants are guilty of fraud in incurring the obligations upon which
the present action is brought11 in that they falsely represented themselves to be in a
financial position to pay their obligation upon maturity thereof.12 Its supporting
affidavit stated, inter alia, that the [d]efendants have removed or disposed of their
properties, or [are] ABOUT to do so, with intent to defraud their creditors.13 ςrνll
On August 26, 1981, after an ex-parte hearing, the trial court issued an Order
denying the ABCs application for a writ of preliminary attachment. The trial court
decreed that the grounds alleged in the application and that of its supporting affidavit
are all conclusions of fact and of law which do not warrant the issuance of the writ
prayed for.14 On motion for reconsideration, however, the trial court, in an Order
dated September 14, 1981, reconsidered its previous order and granted the ABCs
application for a writ of preliminary attachment on a bond of P12,700,000. The order,
in relevant part, stated:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
With respect to the second ground relied upon for the grant of the writ of preliminary
attachment ex-parte, which is the alleged disposal of properties by the defendants
with intent to defraud creditors as provided in Sec. 1(e) of Rule 57 of the Rules of
Court, the affidavits can only barely justify the issuance of said writ as against the
defendant Alfredo Ching who has allegedly bound himself jointly and severally to pay
plaintiff the defendant corporations obligation to the plaintiff as a surety thereof.
WHEREFORE, let a writ of preliminary attachment issue as against the defendant

Alfredo Ching requiring the sheriff of this Court to attach all the properties of said
Alfredo Ching not exceeding P12,612,972.82 in value, which are within the
jurisdiction of this Court and not exempt from execution upon, the filing by plaintiff of
a bond duly approved by this Court in the sum of Twelve Million Seven Hundred
Thousand Pesos (P12,700,000.00) executed in favor of the defendant Alfredo Ching
to secure the payment by plaintiff to him of all the costs which may be adjudged in his
favor and all damages he may sustain by reason of the attachment if the court shall
finally adjudge that the plaintiff was not entitled thereto.
SO ORDERED.15 ςrνll
Upon the ABCs posting of the requisite bond, the trial court issued a writ of
preliminary attachment. Subsequently, summonses were served on the
defendants,16 save Chung Kiat Hua who could not be found.
Meanwhile, on April 1, 1982, the PBMCI and Alfredo Ching jointly filed a petition for
suspension of payments with the Securities and Exchange Commission (SEC),
docketed as SEC Case No. 2250, at the same time seeking the PBMCIs
rehabilitation.17 ςrνll
On July 9, 1982, the SEC issued an Order placing the PBMCIs business, including its
assets and liabilities, under rehabilitation receivership, and ordered that all actions for
claims listed in Schedule A of the petition pending before any court or tribunal are
hereby suspended in whatever stage the same may be until further orders from the
Commission.18 The ABC was among the PBMCIs creditors named in the said
schedule.
Subsequently, on January 31, 1983, the PBMCI and Alfredo Ching jointly filed a
Motion to Dismiss and/or motion to suspend the proceedings in Civil Case No.
142729 invoking the PBMCIs pending application for suspension of payments (which
Ching co-signed) and over which the SEC had already assumed jurisdiction.19 On
February 4, 1983, the ABC filed its Opposition thereto.20 ςrνll
In the meantime, on July 26, 1983, the deputy sheriff of the trial court levied on
attachment the 100,000 common shares of Citycorp stocks in the name of Alfredo
Ching.21 ςrνll
Thereafter, in an Order dated September 16, 1983, the trial court partially granted the
aforementioned motion by suspending the proceedings only with respect to the
PBMCI. It denied Chings motion to dismiss the complaint/or suspend the
proceedings and pointed out that P.D. No. 1758 only concerns the activities of
corporations, partnerships and associations and was never intended to regulate
and/or control activities of individuals.Thus, it directed the individual defendants to file
their answers.22 ςrνll
Instead of filing an answer, Ching filed on January 14, 1984 a Motion to Suspend
Proceedings on the same ground of the pendency of SEC Case No. 2250. This
motion met the opposition from the ABC.23 ςrνll
On January 20, 1984, Taedo filed his Answer with counterclaim and cross-
claim.24 Ching eventually filed his Answer on July 12, 1984.25 ςrνll
On October 25, 1984, long after submitting their answers, Ching filed an Omnibus
Motion,26 again praying for the dismissal of the complaint or suspension of the
proceedings on the ground of the July 9, 1982 Injunctive Order issued in SEC Case
No. 2250. He averred that as a surety of the PBMCI, he must also necessarily benefit
from the defenses of his principal. The ABC opposed Chings omnibus motion.
Emilio Y. Taedo, thereafter, filed his own Omnibus Motion 27 praying for the dismissal
of the complaint, arguing that the ABC had abandoned and waived its right to
proceed against the continuing guaranty by its act of resorting to preliminary
attachment.
On December 17, 1986, the ABC filed a Motion to Reduce the amount of his
preliminary attachment bond from P12,700,000 to P6,350,000.28 Alfredo Ching
opposed the motion,29 but on April 2, 1987, the court issued an Order setting the
incident for further hearing on May 28, 1987 at 8:30 a.m. for the parties to adduce
evidence on the actual value of the properties of Alfredo Ching levied on by the
sheriff.30 ςrνll
On March 2, 1988, the trial court issued an Order granting the motion of the ABC and
rendered the attachment bond of P6,350,000.31 ςrνll
On November 16, 1993, Encarnacion T. Ching, assisted by her husband Alfredo

Ching, filed a Motion to Set Aside the levy on attachment. She alleged inter alia that
the 100,000 shares of stocks levied on by the sheriff were acquired by her and her
husband during their marriage out of conjugal funds after the Citycorp Investment
Philippines was established in 1974. Furthermore, the indebtedness covered by the
continuing guaranty/comprehensive suretyship contract executed by petitioner
Alfredo Ching for the account of PBMCI did not redound to the benefit of the conjugal
partnership. She, likewise, alleged that being the wife of Alfredo Ching, she was a
third-party claimant entitled to file a motion for the release of the properties.32 She
attached therewith a copy of her marriage contract with Alfredo Ching.33 ςrνll
The ABC filed a comment on the motion to quash preliminary attachment and/or
motion to expunge records, contending that:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
2.1The supposed movant, Encarnacion T. Ching, is not a party to this present case;
thus, she has no personality to file any motion before this Honorable
Court;chanroblesvirtuallawlibrary
2.2Said supposed movant did not file any Motion for Intervention pursuant to Section
2, Rule 12 of the Rules of Court;chanroblesvirtuallawlibrary
2.3Said Motion cannot even be construed to be in the nature of a Third-Party Claim
conformably with Sec. 14, Rule 57 of the Rules of Court.
3.Furthermore, assuming in gracia argumenti that the supposed movant has the

required personality, her Motion cannot be acted upon by this Honorable Court as the
above-entitled case is still in the archives and the proceedings thereon still remains
suspended. And there is no previous Motion to revive the same.34 ςrνll
The ABC also alleged that the motion was barred by prescription or by laches
because the shares of stocks were in custodia legis.
During the hearing of the motion, Encarnacion T. Ching adduced in evidence her
marriage contract to Alfredo Ching to prove that they were married on January 8,
1960;35 the articles of incorporation of Citycorp Investment Philippines dated May 14,
1979;36 and, the General Information Sheet of the corporation showing that petitioner
Alfredo Ching was a member of the Board of Directors of the said corporation and
was one of its top twenty stockholders.
On December 10, 1993, the Spouses Ching filed their Reply/Opposition to the motion
to expunge records.
Acting on the aforementioned motion, the trial court issued on December 15, 1993 an
Order37 lifting the writ of preliminary attachment on the shares of stocks and ordering
the sheriff to return the said stocks to the petitioners. The dispositive portion reads:
WHEREFORE, the instant Motion to Quash Preliminary Attachment,

dated November 9, 1993, is hereby granted. Let the writ of preliminary
attachment subject matter of said motion, be quashed and lifted with
respect to the attached 100,000 common shares of stock of Citycorp
Investment Philippines in the name of the defendant Alfredo Ching,
the said shares of stock to be returned to him and his movant-spouse
by Deputy Sheriff Apolonio A. Golfo who effected the levy thereon on
July 26, 1983, or by whoever may be presently in possession thereof.
SO ORDERED.38
The plaintiff Allied Banking Corporation filed a motion for the reconsideration of the
order but denied the same on February 17, 1994. The petitioner bank forthwith filed a
petition for certiorari with the CA, docketed as CA-G.R. SP No. 33585, for the
nullification of the said order of the court, contending that:
1.The respondent Judge exceeded his authority thereby acted without

jurisdiction in taking cognizance of, and granting a Motion filed by a
complete stranger to the case.
2.The respondent Judge committed a grave abuse of discretion in

lifting the writ of preliminary attachment without any basis in fact and
in law, and contrary to established jurisprudence on the matter.39
On November 27, 1995, the CA rendered judgment granting the petition and setting
aside the assailed orders of the trial court, thus:
WHEREFORE, premises considered, the petition is GRANTED,
hereby setting aside the questioned orders (dated December 15, 1993
and February 17, 1994) for being null and void.
SO ORDERED.40
The CA sustained the contention of the private respondent and set aside the assailed
orders. According to the CA, the RTC deprived the private respondent of its right to
file a bond under Section 14, Rule 57 of the Rules of Court.The petitioner
Encarnacion T. Ching was not a party in the trial court; hence, she had no right of
action to have the levy annulled with a motion for that purpose. Her remedy in such
case was to file a separate action against the private respondent to nullify the levy on
the 100,000 Citycorp shares of stocks. The court stated that even assuming that
Encarnacion T. Ching had the right to file the said motion, the same was barred by
laches.
Citing Wong v. Intermediate Appellate Court,41 the CA ruled that the presumption in

Article 160 of the New Civil Code shall not apply where, as in this case, the
petitioner-spouses failed to prove the source of the money used to acquire the
shares of stock. It held that the levied shares of stocks belonged to Alfredo Ching, as
evidenced by the fact that the said shares were registered in the corporate books of
Citycorp solely under his name. Thus, according to the appellate court, the RTC
committed a grave abuse of its discretion amounting to excess or lack of jurisdiction
in issuing the assailed orders. The petitioners motion for reconsideration was denied
by the CA in a Resolution dated April 2, 1996.
The petitioner-spouses filed the instant Petition for Review on Certiorari , asserting
that the RTC did not commit any grave abuse of discretion amounting to excess or
lack of jurisdiction in issuing the assailed orders in their favor; hence, the CA erred in
reversing the same. They aver that the source of funds in the acquisition of the levied
shares of stocks is not the controlling factor when invoking the presumption of the
conjugal nature of stocks under Art. 160,42 and that such presumption subsists even
if the property is registered only in the name of one of the spouses, in this case,
petitioner Alfredo Ching.43 According to the Petitioners, the suretyship obligation was
not contracted in the pursuit of the petitioner-husbands profession or business. 44 And,
contrary to the ruling of the CA, where conjugal assets are attached in a collection
suit on an obligation contracted by the husband, the wife should exhaust her motion
to quash in the main case and not file a separate suit. 45 Furthermore, the petitioners
contend that under Art. 125 of the Family Code, the petitioner-husbands gratuitous
suretyship is null and void ab initio,46 and that the share of one of the spouses in the
conjugal partnership remains inchoate until the dissolution and liquidation of the
partnership.47 ςrνll
In its comment on the petition, the private respondent asserts that the CA correctly
granted its petition for certiorari nullifying the assailed order. It contends that the CA
correctly relied on the ruling of this Court in Wong v. Intermediate Appellate
Court.Citing Cobb-Perez v. Lantin and G-Tractors, Inc. v. Court of Appeals, the
private respondent alleges that the continuing guaranty and suretyship executed by
petitioner Alfredo Ching in pursuit of his profession or business. Furthermore,
according to the private respondent, the right of the petitioner-wife to a share in the
conjugal partnership property is merely inchoate before the dissolution of the
partnership; as such, she had no right to file the said motion to quash the levy on
attachment of the shares of stocks.
The issues for resolution are as follows: (a) whether the petitioner-wife has the right
to file the motion to quash the levy on attachment on the 100,000 shares of stocks in
the Citycorp Investment Philippines; (b) whether or not the RTC committed a grave
abuse of its discretion amounting to excess or lack of jurisdiction in issuing the
assailed orders.
On the first issue, we agree with the petitioners that the petitioner-wife had the right
to file the said motion, although she was not a party in Civil Case No. 142729.48 ςrνll
In Ong v. Tating,49 we held that the sheriff may attach only those properties of the
defendant against whom a writ of attachment has been issued by the court. When
the sheriff erroneously levies on attachment and seizes the property of a third person
in which the said defendant holds no right or interest, the superior authority of the
court which has authorized the execution may be invoked by the aggrieved third
person in the same case. Upon application of the third person, the court shall order a
summary hearing for the purpose of determining whether the sheriff has acted rightly
or wrongly in the performance of his duties in the execution of the writ of attachment,
more specifically if he has indeed levied on attachment and taken hold of property
not belonging to the plaintiff. If so, the court may then order the sheriff to release the
property from the erroneous levy and to return the same to the third person. In
resolving the motion of the third party, the court does not and cannot pass upon the
question of the title to the property with any character of finality. It can treat the
matter only insofar as may be necessary to decide if the sheriff has acted correctly or
not. If the claimants proof does not persuade the court of the validity of the title, or
right of possession thereto, the claim will be denied by the court.The aggrieved third
party may also avail himself of the remedy of terceria by executing an affidavit of his
title or right of possession over the property levied on attachment and serving the
same to the office making the levy and the adverse party. Such party may also file an
action to nullify the levy with damages resulting from the unlawful levy and seizure,
which should be a totally separate and distinct action from the former case. The
above-mentioned remedies are cumulative and any one of them may be resorted to
by one third-party claimant without availing of the other remedies.50 ςrνll
In this case, the petitioner-wife filed her motion to set aside the levy on attachment of
the 100,000 shares of stocks in the name of petitioner-husband claiming that the said
shares of stocks were conjugal in nature; hence, not liable for the account of her
husband under his continuing guaranty and suretyship agreement with the
PBMCI.The petitioner-wife had the right to file the motion for said relief.
On the second issue, we find and so hold that the CA erred in setting aside and
reversing the orders of the RTC.The private respondent, the petitioner in the CA, was
burdened to prove that the RTC committed a grave abuse of its discretion amounting
to excess or lack of jurisdiction. The tribunal acts without jurisdiction if it does not
have the legal purpose to determine the case; there is excess of jurisdiction where
the tribunal, being clothed with the power to determine the case, oversteps its
authority as determined by law. There is grave abuse of discretion where the tribunal
acts in a capricious, whimsical, arbitrary or despotic manner in the exercise of its
judgment and is equivalent to lack of jurisdiction.51 ςrνll
It was incumbent upon the private respondent to adduce a sufficiently strong

demonstration that the RTC acted whimsically in total disregard of evidence material
to, and even decide of, the controversy before certiorari will lie. A special civil action
for certiorari is a remedy designed for the correction of errors of jurisdiction and not
errors of judgment. When a court exercises its jurisdiction, an error committed while
so engaged does not deprive it of its jurisdiction being exercised when the error is
committed.52 ςrνll
After a comprehensive review of the records of the RTC and of the CA, we find and
so hold that the RTC did not commit any grave abuse of its discretion amounting to
excess or lack of jurisdiction in issuing the assailed orders.
Article 160 of the New Civil Code provides that all the properties acquired during the
marriage are presumed to belong to the conjugal partnership, unless it be proved that
it pertains exclusively to the husband, or to the wife. In Tan v. Court of Appeals ,53 we
held that it is not even necessary to prove that the properties were acquired with
funds of the partnership. As long as the properties were acquired by the parties
during the marriage, they are presumed to be conjugal in nature.In fact, even when
the manner in which the properties were acquired does not appear, the presumption
will still apply, and the properties will still be considered conjugal. The presumption of
the conjugal nature of the properties acquired during the marriage subsists in the
absence of clear, satisfactory and convincing evidence to overcome the same.54 ςrνll
In this case, the evidence adduced by the petitioners in the RTC is that the 100,000
shares of stocks in the Citycorp Investment Philippines were issued to and registered
in its corporate books in the name of the petitioner-husband when the said
corporation was incorporated on May 14, 1979. This was done during the
subsistence of the marriage of the petitioner-spouses. The shares of stocks are, thus,
presumed to be the conjugal partnership property of the petitioners. The private
respondent failed to adduce evidence that the petitioner-husband acquired the stocks
with his exclusive money.55 The barefaced fact that the shares of stocks were
registered in the corporate books of Citycorp Investment Philippines solely in the
name of the petitioner-husband does not constitute proof that the petitioner-husband,
not the conjugal partnership, owned the same.56 The private respondents reliance on
the rulings of this Court in Maramba v. Lozano57 and Associated Insurance & Surety
Co., Inc. v. Banzon58 is misplaced. In the Maramba case, we held that where there is
no showing as to when the property was acquired, the fact that the title is in the wifes
name alone is determinative of the ownership of the property. The principle was
reiterated in the Associated Insurance case where the uncontroverted evidence
showed that the shares of stocks were acquired during the marriage of the
petitioners.
Instead of fortifying the contention of the respondents, the ruling of this Court
in Wong v. Intermediate Appellate Court59 buttresses the case for the petitioners. In
that case, we ruled that he who claims that property acquired by the spouses during
their marriage is not conjugal partnership property but belongs to one of them as his
personal property is burdened to prove the source of the money utilized to purchase
the same. In this case, the private respondent claimed that the petitioner-husband
acquired the shares of stocks from the Citycorp Investment Philippines in his own
name as the owner thereof. It was, thus, the burden of the private respondent to
prove that the source of the money utilized in the acquisition of the shares of stocks
was that of the petitioner-husband alone. As held by the trial court, the private
respondent failed to adduce evidence to prove this assertion.
The CA, likewise, erred in holding that by executing a continuing guaranty and
suretyship agreement with the private respondent for the payment of the PBMCI
loans, the petitioner-husband was in the exercise of his profession, pursuing a
legitimate business. The appellate court erred in concluding that the conjugal
partnership is liable for the said account of PBMCI under Article 161(1) of the New
Civil Code.
Article 161(1) of the New Civil Code (now Article 121[2 and 3]60 of the Family Code of
the Philippines) provides:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Art. 161.The conjugal partnership shall be liable for:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
(1) All debts and obligations contracted by the husband for the benefit of the conjugal
partnership, and those contracted by the wife, also for the same purpose, in the
cases where she may legally bind the partnership.
The petitioner-husband signed the continuing guaranty and suretyship agreement as

security for the payment of the loan obtained by the PBMCI from the private
respondent in the amount of P38,000,000. In Ayala Investment and Development
Corp. v. Court of Appeals ,61 this Court ruled that the signing as surety is certainly not
an exercise of an industry or profession. It is not embarking in a business. No matter
how often an executive acted on or was persuaded to act as surety for his own
employer, this should not be taken to mean that he thereby embarked in the business
of suretyship or guaranty.
For the conjugal partnership to be liable for a liability that should appertain to the
husband alone, there must be a showing that some advantages accrued to the
spouses. Certainly, to make a conjugal partnership responsible for a liability that
should appertain alone to one of the spouses is to frustrate the objective of the New
Civil Code to show the utmost concern for the solidarity and well being of the family
as a unit. The husband, therefore, is denied the power to assume unnecessary and
unwarranted risks to the financial stability of the conjugal partnership.62 ςrνll
In this case, the private respondent failed to prove that the conjugal partnership of
the petitioners was benefited by the petitioner-husbands act of executing a continuing
guaranty and suretyship agreement with the private respondent for and in behalf of
PBMCI. The contract of loan was between the private respondent and the PBMCI,
solely for the benefit of the latter. No presumption can be inferred from the fact that
when the petitioner-husband entered into an accommodation agreement or a
contract of surety, the conjugal partnership would thereby be benefited. The private
respondent was burdened to establish that such benefit redounded to the conjugal
partnership.63 ςrνll
It could be argued that the petitioner-husband was a member of the Board of

Directors of PBMCI and was one of its top twenty stockholders, and that the shares
of stocks of the petitioner-husband and his family would appreciate if the PBMCI
could be rehabilitated through the loans obtained; that the petitioner-husbands career
would be enhanced should PBMCI survive because of the infusion of fresh capital.
However, these are not the benefits contemplated by Article 161 of the New Civil
Code. The benefits must be those directly resulting from the loan. They cannot
merely be a by-product or a spin-off of the loan itself.64 ςrνll
This is different from the situation where the husband borrows money or receives
services to be used for his own business or profession. In the Ayala case, we ruled
that it is such a contract that is one within the term obligation for the benefit of the
conjugal partnership. Thus:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
(A) If the husband himself is the principal obligor in the contract, i.e., he directly
received the money and services to be used in or for his own business or his own
profession, that contract falls within the term obligations for the benefit of the conjugal
partnership. Here, no actual benefit may be proved. It is enough that the benefit to
the family is apparent at the time of the signing of the contract. From the very nature
of the contract of loan or services, the family stands to benefit from the loan facility or
services to be rendered to the business or profession of the husband. It is immaterial,
if in the end, his business or profession fails or does not succeed.Simply stated,
where the husband contracts obligations on behalf of the family business, the law
presumes, and rightly so, that such obligation will redound to the benefit of the
conjugal partnership.65 ςrνll
The Court held in the same case that the rulings of the Court in Cobb-Perez and G-
Tractors, Inc. are not controlling because the husband, in those cases, contracted the
obligation for his own business. In this case, the petitioner-husband acted merely as
a surety for the loan contracted by the PBMCI from the private respondent.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision and
Resolution of the Court of Appeals are SET ASIDE AND REVERSED. The assailed
orders of the RTC are AFFIRMED.
Spouses RAMON R. NACU and LOURDES I. NACU, petitioners,

vs.
THE COURT OF APPEALS and PILIPINAS BANK, respondents.
Geofredo E. Mabunga and Froilan D. Cabaltera for petitioners.
Gella, Danguilan, Fuentes, Ferrer, Samson & Associates for private respondent.
NOCON, J.:
The pith of the issues in this petition is the question of whether or not the real estate
mortgage undertaken by Spouses Ramon R. Nacu and Lourdes Nacu, in favor of
Home Construction — Joint Venture was extended, amplified or modified to cover the
loan transaction of Ramon R. Nacu, in his capacity as one of the executive officers of
the Joint Venture of JBS Construction, Inc. and P.I. Construction and Services Co.,
Inc., by virtue alone of the comprehensive provision in the mortgage contract that:
. . . it shall also stand as security for the payment of the said promissory note or
notes, and/or accommodations without the necessity of executing a new contract and
this mortgage shall have the same force and effect as if the said promissory note or
notes and/or accommodations were existing as of the date thereof. . . .1
Briefly, the facts established below show that petitionerse spouses are the registered
owners of the subject property covered by Transfer Certificate of Title No. 276891 of
the Registry of Deeds for Quezon City, located at 12 Yakan Street, La Vista
Subdivision, Quezon City.
On July 12, 1982, respondent Pilipinas Bank extended to Home Construction-Joint

venture, represented by Horacio Mendoza, Julio Matias and Ramon Nacu,
Irrevocable Stand-by LC No. 82/408-HO in the amount of P4,400,000.00 to
guarantee the ten per cent (10%) mobilization fund to be released by the Ministry of
Public Works and Highways in connection with a Lucana Fishing Port and
Construction Project.
To secure this Home Construction-Joint Venture credit accommodation, petitioners

spouses, together with Spouses Horacio S. Mendoza and Leonisa D. Mendoza and
Spouses Julio D. Matias and Lydia Sison constituted real estate mortgages on five
(5) distinct properties in favor of respondent Bank.
The subject deed of real estate mortgage dated June 7, 1982 executed by petitioner
spouses, together with the aforementioned co-mortgagors, provides, among other
things, that the mortgage shall secure the payment of the said loan and those others
that the mortgagee may extend to the mortgagor including interest thereon and
expenses incurred incidental thereto and other obligations owing by the mortgagor to
the mortgagee, whether direct or indirect, principal or secondary as appearing in the
accounts, books and records of the mortgagee.
In due time, the principal obligation mentioned in the said real estate mortgage
extended to the Home Construction — Joint Venture was fully paid and extinguished.
Upon request, respondent Bank effected the cancellation/release of the titles subject
of the said real estate mortgage, particularly the properties of the co-mortgagors,
Horacio Mendoza and Julio Matias.
Petitioners spouses did not immediately request for the issuance of the
corresponding certificate of cancellation/release of mortgage of TCT No. 276891
from respondent Bank.
On February 24, 1983, two (2) corporations under the Joint Venture — JBS
Construction, Inc., represented by its president, Jose B. Sahagun and P.I.
Construction and Services Co., Inc., represented by its president, petitioner Nacu
secured from respondent Bank, under letters of credit (L/C) Nos. 83/13786-HO and
83/13801-HO, a loan accommodation for the importation of several pieces of
construction machinery and equipment to be used by said joint venture in a
construction project, located at Mindanao.
In consideration of this JBS and PI Construction Joint Venture credit accommodation,

Jose Sahagun and petitioner Nacu executed in their capacities as executive officers
thereof, a Continuing Security Agreement in favor of respondent Bank. Said debtor
corporations, represented by their respective presidents, were also made to sign trust
receipts in favor of respondent Bank.
Later, petitioner spouses requested from respondent Bank the issuance of the
Certificate of Cancellation/Release of the Real Estate Mortgage on TCT No. 276891.
The respondent Bank refused despite its admission that the Home Construction loan
had been fully paid and despite the release of the properties of the co-mortgagors,
Horacio Mendoza and Julio Matias.
The demands in writing for the release of the questioned encumbrance were not
heeded. Petitioners spouses thereby decided to file an action against respondent
bank before the Regional Trial Court of Quezon City docketed as Civil Case No.
49233 for cancellation of the encumbrance on TCT No. 276891
After trial on the merits, the trial court, through Presiding Judge Ignacio L. Salvador,
rendered its decision in Civil Case No. 49233, the pertinent portions of which, are
quoted herein:
. . . as correctly pointed out by the plaintiffs, this loan accommodation which was
subsequently contracted by J.B.S. Construction Corporation on April 19, 1983 and in
which TCT 272689 is allegedly made to answer is not duly annotated on said title.
And it is fundamental that real property constituted to secure an obligation by way of
mortgage, must be registered and shall take effect upon the title only from the time of
registration. (Sec. 60, Act 496)
Furthermore co-plaintiff, Lourdes Nacu (co-owner of the property covered by TCT

No. 276891) was not privy to the subsequent transactions aforesaid.
Since the principal obligation covered by LC No. 82/408-HO in the amount of

P4,400,000.00 had subsequently been fully paid and the obligation extinguised, as
expressly admitted by defendant bank the real estate mortgage is discharged, (Art.
2135) and consequently the defendant bank may now be compelled to release . . .
plaintiffs Transfer Certificate of Title No. 276891.
PREMISES CONSIDERED", judgment is hereby rendered in favor of the plaintiffs

and against the defendant, ordering said defendant bank to immediately
release/discharge the second encumbrance annotated on TCT No. 276891-Registry
of Deeds of Quezon City and ordering said defendant bank to pay plaintiffs attorney's
fees in the amount of P5,000.00.2
The respondent Bank appealed from the aforesaid decision of the trial court before
respondent Court of Appeals on June 15, 1990.
On October 28, 1992, respondent Court rendered its decision reversing the judgment
of the trial court, the pertinent portions stating, thus:
Everything considered, plaintiffs' property stands as continuing security for the

subject credit accommodations guaranteed by plaintiff Ramon Nacu, and the
mortgage lien thereon cannot be discharged until these obligations are fully settled.
WHEREFORE, judgment is hereby rendered reversing the appealed decision and

dismissing the complaint. Costs against appellees.3
On November 18, 1992, petitioner spouses seasonably filed a motion for

reconsideration of the said assailed decision.
On January 25, 1993, respondent Court promulgated its resolution denying petitioner
spouses' motion for reconsideration. Hence, this instant petition of petitioners
spouses assigning the following as errors:
THE RESPONDENT HONORABLE COURT OF APPEALS ERRED IN FINDING

THAT PETITIONERS SPOUSES' LA VISTA PROPERTY WAS ENCUMBERED AS
SECURITY NOT ONLY FOR THE (1982) HOME CONSTRUCTION LOAN, BUT
ALSO FOR THE (1983) JBS AND PIC JOINT VENTURE LOAN;
B

THAT JBS CONSTRUCTION, INC. IS THE ONLY DEBTOR CORPORATION, AND
AS SUCH, IT COULD NOT HAVE SIMULTANEOUSLY ASSUMED THE ROLE OF A
SURETY/GUARANTOR OF THE LOAN OBLIGATION WHICH ITSELF
CONTRACTED;

THAT EXHIBIT "C"; "5"; "9"; AND, "10" CLEARLY REVEAL THAT PETITIONER
RAMON NACU SIGNED SAID DOCUMENTS IN HIS PERSONAL CAPACITY AND
NOT AS A REPRESENTATIVE OR EXECUTIVE OFFICER OF THE DEBTOR
CORPORATIONS;
THE RESPONDENT HONORABLE COURT OF APPEALS ERRED IN GIVING

WEIGHT AND CREDENCE TO EXHIBIT "4"; MINUTES OF THE MEETING OF
RESPONDENT BANK'S BOARD OF DIRECTORS AND THE REPORT SUBMITTED
BY THE BANK'S PRESIDENT PERTAINING TO THE APPLICATION FOR
LETTERS OF CREDIT BY THE DEBTOR CORPORATIONS SHOWING THAT A
SECOND REAL ESTATE MORTGAGE ON PETITIONERS' LA VISTA PROPERTY
WAS INTENDED TO SECURE SAID (1983) JBS AND PIC JOINT VENTURE
OBLIGATION;
RESPONDENT HONORABLE COURT OF APPEALS ERRED IN NOT SUSTAINING

THE TRIAL COURTS DECISION THAT PETITIONERS SPOUSES ARE NOT PRIVY
TO THE SUBSEQUENT TRANSACTIONS, PARTICULARLY THE CONTRACTS
ENTERED INTO BY (1983) JBS-PIC CONSTRUCTION — JOINT VENTURE, THE
DEBTOR CORPORATIONS (JBS AND PIC) BEING SEPARATE AND DISTINCT
JURIDICAL PERSONALITIES FROM PETITIONERS SPOUSES;
RESPONDENT HONORABLE COURT OF APPEALS ERRED IN FINDING THAT

PETITIONER RAMON NACU SIGNED THE CONTINUING SURETY AGREEMENT
AND TRUST RECEIPTS IN HIS PERSONAL CAPACITY;
RESPONDENT HONORABLE COURT ERRED IN FINDING THAT THE (1983) JBS-

PIC JOINT VENTURE BOUND THE JUNE 7, 1982 REAL ESTATE MORTGAGE
DESPITE THE FACT THAT PETITIONER LOURDES NACU DID NOT GIVE HER
CONSENT THERETO;
RESPONDENT HONORABLE COURT OF APPEALS ERRED IN FINDING THAT

THERE WAS NO NEED TO ANNOTATE THE JULY 1983 LOAN
ACCOMMODATION ALLEGEDLY GUARANTEED BY PETITIONER RAMON NACU
ON TCT NO. 276891 SINCE THE SAME HAVE BEEN EXPRESSLY COVERED BY
THE MORTGAGE CONTRACT; AND,
RESPONDENT HONORABLE COURT OF APPEALS ERRED AND ACTED IN

GRAVE ABUSE OF DISCRETION WHEN IT "CREATED" AN OBLIGATION ON THE
PART OF PETITIONERS WHERE NONE EXISTED. 4
Arising from the foregoing assignments of errors are the following issues:
1) Whether or not the (1983) JBS and PIC JOINT VENTURE loan transaction is
another direct or indirect, principal or secondary obligation owing by the
MORTGAGOR (HOME CONSTRUCTION — JOINT VENTURE to the MORTGAGEE
(RESPONDENT BANK);
2) Whether or not the 1983 LOAN DOCUMENTS, Surety Agreement and Trust
Receipts were executed by Petitioner Ramon Nacu in his personal capacity or in
behalf of a corporate entity;
3) Whether or not the TRUST RECEIPT is an extension of the Real Estate Mortgage
dated June 7, 1982;
4) Whether or not the JBS CONSTRUCTION, INC. is the only DEBTOR

CORPORATION in the 1983 loan transaction, and as such, it could not have
simultaneously assumed the role of a surety/guarantor of the loan obligation which
itself contracted;
5) Whether or not weight and credence to Exhibit "4", the minutes of the meeting of
Respondent Bank's Board of Directors and the Report submitted by the bank's
president pertaining to the application for letters of credit by the debtor corporation,
showing that a second real estate mortgage on Petitioners' La Vista property was
intended to secure said obligation, could be given evidentiary weight and credence;
6) Whether or not the July 1983 loan accommodation allegedly guaranteed by

Petitioner Ramon Nacu should have been annotated on Petitioners' TCT to bind their
subject property;
7) Whether or not the want of Petitioner Lourdes Nacu's consent in the 1983 loan
agreements signed by Petitioner Ramon Nacu renders the same voidable;
8) Whether or not Petitioner Spouses are privy to the 1983 loan transactions entered
into by JBS-PI CONSTRUCTION JOINT VENTURE, the debtor corporations being
separate and distinct juridical personalities from that of Spouses Petitioner; and,
9) Whether or not the ambiguity in the interpretation of the intention of the parties in
the case at bar should be resolved in favor of the Petitioners Spouses.5
The assailed decision of respondent Court held that in view of the provisions of the
real estate mortgage more particularly that which provides that the real estate
mortgage secures ". . . other obligations owing by the Mortgagor to the Mortgagee,
whether direct or indirect, principal or secondary, as appearing in the accounts,
books and records of the Mortgagee," the bank may legally refuse to release the
second mortgage on TCT No. 276891 considering that the same was used as
security for another loan accommodation extended to P.I. Construction and Services
Co., Inc., headed by plaintiff Ramon R. Nacu, and J.B.S. Construction, Inc., headed
by Jose B. Sahagun, a joint venture.
True, the real estate mortgage categorically provides that it shall also stand as
security for the payment of the said promissory note or notes; and/or
accommodations without the necessity of executing a new contract and that the
mortgage shall have the same force and effect as if the said promissory note or notes
and/or accommodations were existing on the date thereof.
However, the July 12, 1982 Home Construction loan transaction and the February
24, 1983 JBS and P.I. Construction — Joint Venture loan transaction are totally alien
to each other. Noteworthy is the fact that the 1982 loan transaction was extended to
Home Construction — Joint Venture, represented by Spouses Horacio S. Mendoza
and Leonisia D. Mendoza; Spouses Julio D. Matias and Lydia Sison and Spouses
Ramon R. Nacu and Lourdes I. Nacu. On the other hand, the 1983 loan transaction
was applied for and extended to the Joint Venture-JBS Construction, Inc.,
represented by its president, Ramon Nacu.
Clearly, the two (2) loan transaction involved different sets of parties. While it is true
that petitioner Nacu is a party in both transactions, he acted in totally different
capacities.
Thus, we find the findings of facts of the trial court accurate as they are positively
supported by documentary evidence, to wit:
. . . A carefully reading of the Continuing Surety Agreement (Exhibit "5") will reveal
the fact that plaintiff Ramon R. Nacu, and Jose B. Sahagun signed said Continuing
Surety Agreement in their capacities as Executive Officer of the J.B.S. Construction
Corporation. It is therefore the J.B.S. Construction Corporation that is the Surety. The
plaintiff Ramon N. Nacu, and/or Jose B. Sahagun cannot be made answerable for
the liability or obligation or the corporation. If at all said Ramon R. Nacu and Jose B.
Sahagun can be liable only to the extent of their stocks in the corporation. In other
words, this contract (Exhibit "5") entered into by J.B.S. Construction Corporation with
defendant bank is a distinct contract and cannot in any way be related to the
provisions of the Real Estate Mortgage (Exhibit "C" and Exhibit "6") because the
parties thereto are different.6
To allow the 1982 mortgage contract to be amplified to include the 1983 Continuing
Surety Agreement would be stretching too far the former contract's extent.
Interpreting the same as respondent Bank would want us to do would make the
provision too comprehensive and all-encompassing as to amount to absurdity.
Besides, there is nothing in the loan accommodation subsequently contracted that

TCT 276891 is mortgaged. Said loan was not even duly annotated on said title.
Under Section 60 of Act No. 496, a mortgage deed and all instruments assigning
discharging and otherwise dealing with the mortgage are required to be registered.
Without registration, they cannot have any effect on the title.
The respondent Court in reversing the decision of the trial court, linked the trust
receipts, signed by petitioner Nacu, together with Jose Sahagun, with the real estate
mortgage dated June 7, 1982 by finding that under the express terms of the trust
receipts in favor of respondent Bank, petitioner Nacu again bound himself "jointly and
severally" with the Trustees (JBS Corporation and PI Construction) for the value of
the goods covered by the instruments.
Rather than support the position of respondent Bank, the trust receipt agreement
shows that the 1982 real estate mortgage is no longer operative because otherwise,
there would have been no need for the execution of said trust agreement to secure
the second loan.
Under pertinent laws, the trust receipt is a separate and independent security
transaction intended to aid in financing importers whereby the imported goods are
held as security by the lending institution for the loan obligation.
In the case and Vintola v. Insular bank of Asia and America 7 this Court explained the
nature and usage of trust receipts as follows:
. . . A letter of credit-trust receipt arrangement is endowed with its own distinctive

features and characteristics. Under that set-up, a bank extends a loan covered by the
letter of credit, with the trust receipt as a security for the loan. In other words, the
transaction involved a loan feature represented by the letter of credit, and security
feature which is in the covering trust receipt. . . .
A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires

a security interest in the goods. It secures an indebtedness and there can be no such
thing as security interest that secures no obligation.
. . . 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 or merchandise, and who may not be able to acquire
credit except through utilization, as collateral, of the merchandise imported or
purchased. . . .
Moreover, by virtue of the trust receipt agreement, respondent Bank should proceed
against the same because the trust receipt theoretically transferred the ownership of
the imported personal property to respondent Bank.
Worth mentioning is also the fact that the trust receipts and the Continuing Surety
Agreement were signed only by petitioner Nacu. Assuming that both documents duly
constituted a real estate mortgage on the property of petitioners spouses, they are
voidable for want of petitioner Lourdes Nacu's acquiescence and/or consent thereto.
Article 166 of the Civil Code, the law then applicable, provides that unless the wife
has been declared a non compos mentis, a spendthrift, is under civil interdiction or is
confined in a leprosarium, the husband cannot alienate or encumber any real
property of the conjugal partnership without the wife's consent.
In resolving in favor of respondent Bank, respondent Court likewise appreciated the

weight of Exhibit "4," the purported minutes of the meeting of respondent Bank's
Board of Directors and Report pertaining to the application for letters of credit by the
JBS and P.I. Construction Joint Venture. In giving evidentiary weight thereto, the
decision of respondent Court said:
Still another important consideration negates the trial court's finding that plaintiffs'
property could not be held as continuing security for the obligations of the debtor
corporation. The minutes of the meeting of defendant bank's Board of Directors
(Exhibit 4) and the report submitted by the bank's president pertaining to the
application for letters of credit by the debtor corporation show that a second real
estate mortgage on plaintiffs' La Vista property was intended to secure such
obligation. From the evidence adduced, there is ample basis to hold plaintiff Ramon
Nacu liable as surety for the accommodation extended to the debtor corporation, and
consequently gives defendant bank reason to hold on to the subject mortgaged
property until the obligations are fully settled.8
However, petitioner spouses were not privy to Exhibit "4" as these documents are
internal to respondent Bank. Whether or not they gave their consent thereto cannot
be ascertained.
Finally, if the parties intended the 1982 real estate mortgage to apply to the 1983
loan transaction, respondent Bank should have required petitioners spouses to
execute the proper loan documents clearly and categorically constituting upon the
same property a real estate mortgage. The respondent Bank failed in this regard and
must therefore suffer the consequences. In Orient Air Services and Hotel
Representatives v. Court of Appeals,9 this Court upheld the doctrine that any
ambiguity in a contract whose terms are susceptible of different interpretation, must
be read against the party who drafted it.
Indisputably, respondent Bank was the party responsible for the preparation of the,
1982 and 1983 loan agreement which are contracts of adhesion. Consequently, any
ambiguity in the loan agreement should be construed against it on the assumption
that it could have avoided it by the exercise of a little more care.
More emphatic and appropriate is our pronouncement in La Insular v. Machuca Go

Tanco, et al. 10 where we held:
It is undoubtedly true that the law looks upon the contract of suretyship with a jealous
eye, and the rule is settled that the obligation of the surety cannot be extended by
implication beyond specified limits.
It is crystal clear from the foregoing that respondent Bank's actuation in refusing to
cancel the encumbrance annotated on petitioners spouses' Transfer Certificate of
Title on the ground that the latter's property is still liable for an unpaid loan obligation
of J.B.S. Construction, Inc. and P.I. Construction and Services Co., Inc. was a clever
attempt to extend by implication, beyond the terms of the real estate mortgage
contract, the latter's force and effect. Respondent Bank should not be allowed to take
this "short-cut" to collect an indebtedness due it. Principles of fair play demand that it
should not resort to the expedience of enforcing a real estate mortgage when there is
none duly constituted.
WHEREFORE, the petition is GRANTED. The assailed decision of the respondent

Court of Appeals in CA-G.R. No. CV 276693 is hereby REVERSED and the decision
of the trial court in Civil Case No. Q-49223 ordering, among other things, respondent
Pilipinas Bank to release and/or discharge the encumbrance on Transfer Certificate
of Title No. 276891 of the Registry of Deeds of Quezon City is hereby
REINSTATED in toto.
[G.R. No. 59640. July 15, 1991.]

DAMIAN ROBLES, Petitioner, v. THE COURT OF APPEALS and THE PEOPLE
OF THE PHILIPPINES, Respondents.
SYLLABUS
1. CRIMINAL LAW; ESTAFA UNDER ARTICLE 315(1)(b) OF REVISED PENAL

CODE; FAILURE TO COMPLY WITH DELIVERY TRUST RECEIPT SHOWING
FIDUCIARY OBLIGATION TO RETURN GOODS OR TO PAY OR ACCOUNT FOR
PRICE THEREOF, IS ESTAFA. — The delivery trust receipts evidencing the
transactions between Paramount Business Machines ("Paramount") and petitioner
state, in relevant part: "In trust for and as the property of said Paramount Business
Machines the above described merchandise having been delivered to me/us for trial
and with the obligation on my/our part to return the same good order and condition
within 2 days from the date hereof unless before the expiration of said period, I/we
definitely purchase the same and pay the price hereof . In the meantime, pending the
sales of the above described merchandise to me/us, I/we agree and undertake to be
absolutely responsible as insurer for the proper care and conservation of said
property and to be liable for any loss or destruction. I/we further agree to keep the
said property in my/our residence or place of business at the address indicated
herein above and not to remove the same from said promise without the previous
knowledge and consent of Paramount Business Machines." The quoted provisions of
the trust receipts show clearly (1) that Paramount retained ownership of the office
equipment covered by the receipts; (2) that possession of the goods was conveyed
to petitioner subject to a fiduciary obligation either to return them within a specified
period of time or to pay or account for the price of proceeds thereof. Surrounding
circumstances also showed that the transactions were not ordinary sales on trial
basis. There were six (6) transactions involved, not just one. In each transaction,
there were several items of equipment delivered to petitioner, instead of just one,
thereby indicating that petitioner was not an ordinary buyer who would himself use
the articles bought, but rather a commission merchant. Additional items of equipment
were delivered to petitioner even before compliance with his duty under one trust
receipt to return within two (2) days the office equipment he had received. He
admitted in his Affidavit dated 21 October 1977 that he was Paramount’s sales agent.
Petitioner, however, failed to return the machines upon demand by Paramount and at
the same time, failed to account for the sale proceeds thereof. The petitioner is guilty
of estafa under Subdivision No. 1 (B), Article 315 of the Revised Penal Code. The
Court is not persuaded by petitioner’s position that the delivery trust receipts are
"mere formalities" whose printed terms and conditions appearing therein were not
intended by the parties to govern their transactions; that those transactions referred
to were in fact sales on trial basis for a period of two (2) days; and that, when he
failed to return the various pieces of equipment within the two-day period, he was
deemed to have purchased the same and his liability should therefore be only civil,
i.e., to pay the purchase price.
2. ID.; ID.; ID.; DELIVERY TRUST RECEIPT IN CASE AT BAR CONSTITUTED

TRUST RECEIPTS UNDER P.D. 115, "TRUST RECEIPTS LAW." — We note in this
connection that the delivery trust receipts here involved in fact constituted trust
receipts within the meaning of Presidential Decree No. 115, known as the "Trust
Receipts Law," which took effect on 29 January 1973. Section 4 thereof defines a
"trust receipt" and a "trust receipt transaction" for purposes of the decree in the
following terms: "Sec. 4. What constitutes a trust receipt transaction. — A trust
receipt transaction, within the meaning of this Decree, is any transaction by and
between a person referred to in this Decree as the entruster, and another person
referred to in this Decree as the entrustee, whereby the 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, . . ." We note that under Section 13 of the Trust
Receipts Law, the violation by an entrustee of his obligations under a trust receipt
document, more specifically his failure to turnover the proceeds of the sale of the
goods covered by the trust receipt, or to return said goods as they were not sold or
disposed of, would constitute the crime of estafa under Article (1)(b), Revised Penal
Code. In the case at bar, the acts of petitioner which were complained of were
committed between 19 November 1976 and 9 March 1977, that is, long after the
beginning date of effectivity of Presidential Decree No. 115. In accordance with the
provisions of Section 13, Presidential Decree No. 115, the failure of petitioner
Damian Robles to turn over to the entruster Paramount the proceeds of the sale of
goods covered by the delivery trust receipts and to return the said goods, constituted
estafa punishable under Article 315 (1)(b) of the Revised Penal Code.
3. ID.; ID.; ID.; ID.; ESTAFA COMMITTED BY PETITIONER IN CASE AT BAR EVEN
WITHOUT PROVISIONS OF TRUST RECEIPTS LAW. — Quite apart from and even
in the absence of the provisions of Section 13 of the Trust Receipt Law, the failure of
Damian Robles to comply with his fiduciary obligation under the delivery trust
receipts here involved, constituted the offense of estafa punishable under Article 315
(1)(b) of the Revised Penal Code. In other words, the elements of the offense of
estafa set out in Article 315 (1)(b) are present in the instant case. Those elements
are: (1) "unfaithfulness or abuse of confidence" ; (2) "misappropriating . . . money or
goods . . .; (3) received by the offender in trust or on commission . . . or under any
other obligation involving the duty to make delivery of or to return the same . . ." ; and
(4) "to the prejudice of another." The delivery trust receipts, in the case at bar,
admittedly signed by petitioner Damian Robles imposed on him the duty to return the
articles or the proceeds thereof to Paramount within (2) days from the specified dates
of the trust receipts. The failure to account, upon demand, for funds or property held
in trust is evidence of misappropriation which, not having been explained away or
rebutted by petitioner Damian Robles, warranted his conviction for estafa under the
Revised Penal Code. This was settled doctrine long before the promulgation of the
Trust Receipts Law.
DECISION
FELICIANO, J.:
In an information dated 2 March 1978, petitioner Damian Robles was charged before
the then Court of First Instance of Manila with the crime of estafa, committed as
follows:jgc:chanrobles.com.ph
"That in or about and during the penod comprised between November 19, 1976 to
March 9, 1977, inclusive, in the City of Manila, Philippines, the said accused did then
and there wilfully, unlawfully and feloniously defraud the Paramount Business
Machines, a business firm duly organized and doing business in said City,
represented by Roberto Ng y Shiang Shee, in the following manner, to wit: the said
accused received in trust from the said Roberto Ng y Shiang Shee office equipments
consisting of adding machines, typewriters and calculators all amounting to
P14,895.00 for the purpose of selling the same, under the express obligation of
turning over the proceeds of the sale, if sold, or of returning the said office
equipments if not sold, to the said Roberto Ng y Shiang Shee; but the said accused,
once in possession of the said office equipments and far from complying with his
obligation as aforesaid, failed and refused and still fails and refuses to remit the
corresponding amount of the said office equipments or to return the said office
equipments, despite repeated demands made upon him to do so, and instead, with
grave abuse of confidence and with intent to defraud, did then and there wilfully,
unlawfully and feloniously misappropriate, misapply and convert the same to his own
personal use and benefit, to the damage and prejudice of the said Paramount
Business Machines, in the said amount of P14,895.00, Philippine Currency.
Contrary to law." 1
The trial court, in its decision dated 20 February 1979, convicted petitioner Robles of
the crime charged. The dispositive portion of this decision
reads:jgc:chanrobles.com.ph
"WHEREFORE, the Court finds the accused Damian Robles guilty beyond
reasonable doubt of the crime of estafa defined and penalized under the provisions
of Article 315 subdivision No. 1 (b) of the Revised Penal Code and there being no
aggravating or mitigating circumstance present and applying the provisions of the
Indeterminate Sentence Law, hereby sentences the said accused to suffer the
penalty of imprisonment ranging from TWO (2) YEARS, ELEVEN (11) MONTHS and
TEN (10) DAYS of prision correccional in its minimum and medium period as
minimum, to SIX (6) YEARS, EIGHT (8) MONTHS and TWENTY (20) DAYS of
prision mayor medium, as maximum, together with the accessory penalties provided
for by law and to pay the costs. The accused is further ordered to indemnify the
complainant the amount of P14,895.00 without subsidiary imprisonment in case of
insolvency.
SO ORDERED." 2
Dissatisfied, petitioner Robles appealed to the Court of Appeals. On 17 September

1981, the appellate court affirmed petitioner Robles’ conviction but modified the
penalty imposed by the trial court as follows:jgc:chanrobles.com.ph
"WHEREFORE, with the modification that accused-appellant DAMIAN ROBLES shall

suffer the penalty of imprisonment from SIX (6) MONTHS of arresto mayor, as
minimum, to TWO (2) YEARS, ELEVEN (11) MONTHS and TEN (10) DAYS of
prision correccional, as maximum, and to indemnify the complainant the amount of
P11,395.00, the appealed decision is hereby affirmed in all other respects, and with
costs against Accused-Appellant.
SO ORDERED." 3
The facts as found by respondent Court of Appeals are as

"Roberto Ng is the owner and the sales manager of the Paramount Business
Machines, a firm dealing in office equipment and has offices located at 1027
Severino Reyes Street, Sta. Cruz, Manila (pp. 10, 11, TSN, July 19, 1978).
On November 19, 1976, Roberto Ng entrusted to Damian Robles the following

items:chanrob1es virtual 1aw library
one — Casio electronic calculator P800.00
one — Victor adding machine 600.00
which items were covered by a delivery trust receipt (Exhibit ‘A,’ Folder of Exhibits:
pp. 14, 15, TSN., July 19, 1978).
On February 8, 1977, Roberto Ng again entrusted to Damian Robles several office

equipment, to wit:chanrob1es virtual 1aw library
one — Standard Imperial typewriter
16" carriage P3,500.00
one — Standard Imperial typewriter
26" carriage 3,200.00
one — Olympia, standard electric typewriter,
13" carriage 2,800.00
which items were covered by another delivery trust receipt (Exhibit ‘B,’ Folder of
Exhibits; pp. 23, 24, 25, 26, TSN, July 19, 1978). For these items, Damian Robles
gave Roberto Ng two postdated checks, PCIB Checks No. 15654 and 15655 dated
March 25, 1977 and March 15, 1977, respectively (Exhibits ‘C’ and ‘C-1,’ Folder of
Exhibits; pp. 226, 27, TSN, July 19, 1978), for the respective amounts of P3,200.00
and P4,200.00 (id.). On February 10, 1977, Damian Robles was again entrusted by
Roberto Ng with an Olivetti Manual typewriter, 11" carriage worth P1,000.00, which
item was covered by another delivery receipt (Exhibit ‘D,’ Folder of Exhibits; p. 33,
TSN, July 19, 1978). On March 7, 1977, Damian Robles received from Roberto Ng
one Olivetti adding machine worth P600.00 which item was covered by another
delivery receipt (Exhibit ‘E,’ Folder of Exhibits; pp. 37, 38, TSN, July 19, 1978). And
on March 8, 1977 and March 9, 1977, the same Damian Robles was again entrusted
by Roberto Ng the following:chanrob1es virtual 1aw library
one — Olivetti standard typewriter
15" carriage P1,400.00
one — Olympia portable typewriter
10" carriage 995.00
which items were covered by delivery trust receipts (Exhibits ‘F’ and ‘G,’ Folder of
Exhibits; pp. 39, 40, 41, 42, 45, TSN, July 19, 1978). For all these items delivered to
Damian Robles, the latter agreed to sell them and remit the proceeds of the sales to
Roberto Ng, or to return the items if they are unsold (pp. 57, 58, 67, 68, TSN, July 19,
1978).
The postdated check PCIB Check No. 15655 dated March 15, 1977 for the amount of
P4,200.00 issued by Damian Robles was not honored by the drawee bank since
Damian Robles caused the stoppage of its payment (pp. 29, 30, 31, 46, TSN, July
19, 1978).
On the other hand, the accused-appellant admits having received from the
complainant Roberto Ng the business machines enumerated in the delivery receipts,
Exhibits ‘A,’ ‘B,’ ‘D,’ ‘E,’ ‘F,’ and ‘G,’ (pp. 4, 8, TSN, December 5, 1978) and admits
likewise that it was his agreement with Roberto Ng that he (accused) would sell the
office equipment and to turn over the proceeds to Roberto Ng (p. 8, TSN, December
5, 1978). He however, claims that the Imperial Standard Typewriter worth P3,500.00
was returned to Paramount as confirmed by the signature of Mr. Ng in Annex ‘B’
(Original Exhibits, p. 12) after the notation ‘return’ was placed there by Fiscal Arranz
(C.A. Decision, p. 11; Rollo, p. 38).
The total value of the office equipment received by accused-appellant Damian

Robles from the complainant is P14,895.00." 4
In this Petition for Review, petitioner Robles makes the following

arguments:chanrob1es virtual 1aw library
1. the Court of Appeals gravely erred in law in ruling that under the delivery trust
receipts petitioner received the articles covered therein in trust or with the obligation
to account for the proceeds thereof, or to return the same; and
2. the Court of Appeals committed serious error in law in finding petitioner guilty of
estafa under Subdivision No. 1 (B), Article 315 of the Revised Penal Code.
Petitioner, in respect of the first ground, insist that the delivery trust receipts which he
had signed were "merely intended to evidence the fact that the articles therein listed
were delivered to and received by him." The documents do not, petitioner contends,
reflect the true intention of the parties considering that even before he could comply
with the stipulations in those receipts, that is, to return the articles enumerated
therein within the period of two (2) days from the date of the receipt, the complainant
delivered to him other articles without demanding compliance with the condition
imposed by the earlier delivery trust receipts. In short, it is his position that the
delivery trust receipts are "mere formalities" whose printed terms and conditions
appearing therein were not intended by the parties to govern their transactions; that
those transactions referred to were in fact sales on trial basis for a period of two (2)
days. Thus, when he failed to return the various pieces of equipment within the two-
day period, he was deemed to have purchased the same and his liability should
therefore be only civil, i.e., to pay the purchase price.
The Court is not persuaded. The delivery trust receipts evidencing the transactions
between Paramount Business Machines ("Paramount") and petitioner state, in
relevant part:jgc:chanrobles.com.ph
"In trust for and as the property of said Paramount Business Machines the above
described merchandise having been delivered to me/us for trial and with the
obligation on my/our part to return the same in good order and condition within 2
days from the date hereof unless before the expiration of said period, I/we definitely
purchase the same and pay the price hereof .
In the meantime, pending the sales of the above described merchandise to me/us,
I/we agree and undertake to be absolutely responsible as insurer for the proper care
and conservation of said property and to be liable for any loss or destruction.
I/we further agree to keep the said property in my/our residence or place of business
at the address indicated herein above and not to remove the same from said promise
without the previous knowledge and consent of Paramount Business Machines." 5
(Emphasis supplied).
The quoted provisions of the trust receipts show clearly (1) that Paramount retained
ownership of the office equipment covered by the receipts; (2) that possession of the
goods was conveyed to petitioner subject to a fiduciary obligation either to return
them within a specified period of time or to pay or account for the price of proceeds
thereof. Surrounding circumstances also showed that the transactions were not
ordinary sales on trial basis. There were six (6) transactions involved, not just one. In
each transaction, there were several items of equipment delivered to petitioner,
instead of just one, thereby indicating that petitioner was not an ordinary buyer who
would himself use the articles bought, but rather a commission merchant. Additional
items of equipment were delivered to petitioner even before compliance with his duty
under one trust receipt to return within two (2) days the office equipment he had
received. He admitted in his Affidavit 6 dated 21 October 1977 that he was
Paramount’s sales agent. Petitioner, however, failed to return the machines upon
demand by Paramount and at the same time, failed to account for the sale proceeds
thereof. We agree with the Court of Appeals and the trial court on this matter. The
Court of Appeals said in part:jgc:chanrobles.com.ph
"We hereby agree in full and quote hereunder the following findings and conclusions
of the court a quo in the appealed decision because the same are in accordance with
the evidence and the law.
A scrutiny of the evidence presented, the Court is more inclined to give more weight
and credibility to the evidence of the prosecution. The printed conditions are clearly
inscribed and forms [sic] part of the agreement between the accused and the
complainant, for on the delivery trust receipts (Exh. A-1) of the Paramount Business
Machines . . .:chanrob1es virtual 1aw library
x x x
The conditions (Exhibit A-1) stipulated on all the delivery trust receipts signed by the
accused specifically stated that the [items] were received by the accused from the
complainant ‘in trust for and as property of the said Paramount Business Machines’
and the further stipulation that the same is ‘with the obligation on my/our part to
return the same in good order and condition within 2 days from the date hereof ‘ The
ordinary and accepted meaning of the phrase ‘in trust’ is an obligation upon a person
arising out of a confidence reposed in him to apply properly, faithfully and according
to such confidence (Bouvier’s Law Dictionary, Baldwins Century Edition, page 1192.)
That whatever articles are received in trust by the accused if sold by him the
proceeds thereof are to be turned over to the owner, the complainant herein, and if
not sold the same articles are to be returned to the complainant within two days from
receipt of the same.
The provisions of the conditions embodied in the trust receipts need no further
interpretation or elucidation for the same is clear, specific and explicit. The Court has
observed the accused to be an intelligent man far (sic) from his qualification of being
a college professor and that he must have fully understood the contents of the
stipulations appearing on the face of the delivery trust receipts which he actually
signed upon receipt of the articles described therein. The period for him (accused) to
return the articles is clear which is ‘2 days from the date hereof,’ meaning from the
date he received the articles, the period mentioned being specifically typed on the
blank provided therefore (sic) which the Court believes the accused could not have
missed and is aware he signed these trust receipts." 7 (Emphasis supplied).
We note in this connection that the delivery trust receipts here involved in fact
constituted trust receipts within the meaning of Presidential Decree No. 115, known
as the "Trust Receipts Law," which took effect on 29 January 1973. Section 4 thereof
defines a "trust receipt" and a "trust receipt transaction" for purposes of the decree in
the following terms:jgc:chanrobles.com.ph
"Sec. 4. What constitutes a trust receipt transaction. — A trust receipt transaction,

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

thereby and failing to deliver the proceeds of such sale has been squarely made to
fall under Art. 315 (1) (b) of the Revised Penal Code, . . ." 9
In the case at bar, the acts of petitioner which were complained of were committed
between 19 November 1976 and 9 March 1977, that is, long after the beginning date
of effectivity of Presidential Decree No. 115. In accordance with the provisions of
Section 13, Presidential Decree No. 115, quoted above, the failure of petitioner
Damian Robles to turnover to the entruster Paramount the proceeds of the sale of
goods covered by the delivery trust receipts and to return the said goods, constituted
estafa punishable under Article 315 (1) (b) of the Revised Penal Code.
It is also pertinent to point out that quite apart from and even in the absence of the
provisions of Section 13 of the Trust Receipt Law, the failure of Damian Robles to
comply with his fiduciary obligation under the delivery trust receipts here involved,
constituted the offense of estafa punishable under Article 315 (1) (b) of the Revised
Penal Code. In other words, the elements of the offense of estafa set out in Article
315 (1) (b) are present in the instant case. Those elements are: (1) "unfaithfulness or
abuse of confidence;" (2) "misappropriating . . . money or goods . . .; (3) received by
the offender in trust or on commission . . . or under any other obligation involving the
duty to make delivery of or to return the same . . .;" and (4) "to the prejudice of
another." The delivery trust receipts, in the case at bar, admittedly signed by
petitioner Damian Robles imposed on him the duty to return the article or the
proceeds thereof to Paramount within two (2) days from the specified dates of the
trust receipts. The failure to account, upon demand, for funds or property held in trust
is evidence of misappropriation 10 which, not having been explained away or
rebutted by petitioner Damian Robles, warranted his conviction for estafa under the
Revised Penal Code. This was settled doctrine long before the promulgation of the
Trust Receipts Law. 11
WHEREFORE, the present Petition for Review is hereby DENIED for lack of merit
and the Decision of the Court of Appeals in C.A.-G.R. No. 23216-CR dated 17
September 1981, is hereby AFFIRMED. Costs against petitioner.
SO ORDERED.
[G.R. No. 82495 : December 10, 1990.]
192 SCRA 246
ALLIED BANKING CORPORATION, Petitioner, vs. HON. SECRETARY
SEDFREY ORDOÑEZ (Public Respondent) and ALFREDO CHING (Private
Respondent), Respondents.

DECISION

PADILLA, J.:

In this special civil action for Certiorari, the interpretation by the Department of
Justice of the penal provision of PD 115, the Trust Receipts Law, is assailed by
petitioner.
The relevant facts are as follows:
On 23 January 1981, Philippine Blooming Mills (PBM, for short) thru its duly
authorized officer, private respondent Alfredo Ching, applied for the issuance of
commercial letters of credit with petitioner's Makati branch to finance the purchase of
500 M/T Magtar Branch Dolomites and one (1) Lot High Fired Refractory Sliding
Nozzle Bricks.
Petitioner issued an irrevocable letter of credit in favor of Nikko Industry Co., Ltd.
(Nikko) by virtue of which the latter drew four (4) drafts which were accepted by PBM
and duly honored and paid by the petitioner bank.:- nad
To secure payment of the amount covered by the drafts, and in consideration of the
transfer by petitioner of the possession of the goods to PBM, the latter as entrustee,
thru private respondent, executed four (4) Trust Receipt Agreements with maturity
dates on 19 May, 3 and 24 June 1981 acknowledging petitioner's ownership of the
goods and its (PBM'S) obligation to turn over the proceeds of the sale of the goods, if
sold, or to return the same, if unsold within the stated period.
Out of the said obligation resulted an overdue amount of P1,475,274.09. Despite
repeated demands, PBM failed and refused to either turn over the proceeds of the
sale of the goods or to return the same.
On 7 September 1984, petitioner filed a criminal complaint against private
respondent for violation of PD 115 before the office of the Provincial Fiscal of Rizal.
After preliminary investigation wherein private respondent failed to appear or submit
a counter-affidavit and even refused to receive the subpoena, the Fiscal found a
prima facie case for violation of PD 115 on four (4) counts and filed the
corresponding information in court.
Private respondent appealed the Fiscal's resolution to the Department of Justice on
three (3) grounds:
1. Lack of proper preliminary investigation;
2. The Provincial Fiscal of Rizal did not have jurisdiction over the case, as
respondent's obligation was purely civil;
3. There had been a novation of the obligation by the substitution of the person of the
Rehabilitation Receivers in place of both PBM and private respondent Ching.
Then Secretary of Justice (now Senator) Neptali A. Gonzales, in a 24 September
1986 letter/resolution, 1 held:
"Your contention that respondent's obligation was purely a civil one, is without any
merit. The four (4) Trust Receipt Agreements entered into by respondent and
complainant appear regular in form and in substance. Their agreement regarding
interest, not being contrary to law, public policy or morals, public order or good
custom, is a valid stipulation which does not change the character of the said Trust
Receipt Agreements. Further, as precisely pointed out by complainant, raw materials
for manufacture of goods to be ultimately sold are proper objects of a trust receipt.
Thus, respondent's failure to remit to the complainant proceeds of the sale of the
finished products if sold or the finished products themselves if not sold, at the
maturity dates of the trust receipts, constitutes a violation of P.D. 115." 2
A motion for reconsideration alleged that, as PBM was under rehabilitation
receivership, no criminal liability can be imputed to herein respondent Ching. On 17
March 1987, Undersecretary Silvestre H. Bello III denied said motion. The pertinent
portion of the denial resolution states::-cralaw
"It cannot be denied that the offense was consummated long before the appointment
of rehabilitation receivers. The filing of a criminal case against respondent Ching is
not only for the purpose of effectuating a collection of a debt but primarily for the
purpose of punishing an offender for a crime committed not only against the
complaining witness but also against the state. The crime of estafa for violation of the
Trust Receipts Law is a special offense or mala prohibita. It is a fundamental rule in
criminal law that when the crime is punished by a special law, the act alone,
irrespective of its motives, constitutes the offense. In the instant case the failure of
the entrustee to pay complainant the remaining balance of the value of the goods
covered by the trust receipt when the same became due constitutes the offense
penalized under Section 13 of P.D. No. 115; and on the basis of this failure alone, the
prosecution has sufficient evidence to establish a prima facie case (Res. No. 671, s.
1981; Allied Banking Corporation vs. Reinhard Sagemuller, et al., Provincial Fiscal of
Rizal, September 18, 1981).
"Likewise untenable is your contention that 'rehabilitation proceedings must stay the
attempt to enforce a liability in view of Section 4 of P.D. No. 1758.' Section 4 of P.D.
No. 1758, provides, among others: '. . . Provided, further, that upon appointment of a
management committee, rehabilitation receiver, board or body, pursuant to this
Decree, all actions for claims against corporations, partnerships or associations
under management or receivership pending before any court, tribunal, board or body
shall be suspended accordingly.
"You will note that the term 'all actions for claims' refer only to actions for money
claims but not to criminal liability of offenders." 3
Another motion for reconsideration was filed by respondent on 9 April 1987 to which
an opposition was filed by the petitioner. Private respondent also filed a supplemental
request for reconsideration dated 28 December 1987 with two (2) additional grounds,
namely:
". . . 3) there is no evidence on record to show that respondent was in particeps
criminis in the act complained of; and 4) there could be no violation of the trust
receipt agreements because the articles imported by the corporation and subject of
the trust receipts were fungible or consummable goods and do not form part of the
steel product itself. These goods were not procured to be sold in whatever state or
condition they were in or were supposed to be after the manufacturing process." 4
Because of private respondent's clarification that the goods subject of the trust
receipt agreements were dolomites which were specifically used for patching
purposes over the surface of furnaces and nozzle bricks which are insulating
materials in the lower portion of the ladle which do not form part of the steel product
itself, Justice Secretary Sedfrey Ordoñez, on 11 January 1988, "rectified" his
predecessor's supposed reversible error, and held::-cralaw
". . . it is clear that what the law contemplates or covers are goods which have, for
their ultimate destination, the sale thereof or if unsold, their surrender to the
entruster, this whether the goods are in their original form or in their
manufactured/processed state. Since the goods covered by the trust receipts and
subject matter of these proceedings are to be utilized in the operation of the
equipment and machineries of the corporation, they could not have been
contemplated as being covered by PD 115. It is axiomatic that penal statutes are
strictly construed against the state and liberally in favor of the accused (People
vs. Purisima, 86 SCRA 542, People vs. Terrado, 125 SCRA 648). This means that
penal statutes cannot be enlarged or extended by intendment, implication, or any
equitable consideration (People vs. Garcia, 85 Phil. 651). Thus, not all transactions
covered by trust receipts may be considered as trust receipt transactions defined and
penalized under PD 115.
x x x
Apparently, the trust receipt agreements were executed as security for the payment
of the drafts. As such, the main transaction was that of a loan. . . . In essence,
therefore, the relationship between the Bank and the corporation, consequently, the
respondent herein likewise included, is that of debtor and creditor.
x x x
WHEREFORE, premises considered, our resolution dated September 24, 1986,
recorded 119 Resolution No. 456, series of 1986, and that dated March 17, 1987, the
latter being necessarily dependent upon and incidental to the former, are hereby
abrogated and abandoned. You are hereby directed to move for the withdrawal of the
informations and the dismissal of the criminal cases filed in court . . ." 5
This time, petitioner Allied Bank filed a motion for reconsideration of the Ordoñez
resolution, which was resolved by the Department of Justice on 17 February 1988,
enunciating that PD 115 covers goods or components of goods which are ultimately
destined for sale. It concluded that:
". . . The goods subject of the instant case were shown to have been used and/or
consumed in the operation of the equipment and machineries of the corporation, and
are therefore outside the ambit of the provisions of PD 115 albeit covered by Trust
Receipt agreements . . . Finally, it is noted that under the Sia vs. People (121 SCRA
655 (1983), and Vintola vs. Insular Bank of Asia and America (150 SCRA 578 (1987)
rulings, the trend in the Supreme Court appears to be to the effect that trust receipts
under PD 115 are treated as security documents for basically loan transactions, so
much so that criminal liability is virtually obliterated and limiting liability of the accused
to the civil aspect only.
WHEREFORE, your motion for reconsideration is hereby DENIED." 6
From the Department of Justice, petitioner is now before this Court praying for writs
of Certiorari and prohibition to annul the 11 January and 17 February 1988 DOJ
rulings, mainly on two (2) grounds:
1. public respondent is without power or authority to declare that a violation of PD
115 is not criminally punishable, thereby rendering a portion of said law inoperative
or ineffectual.: nad
2. public respondent acted with grave abuse of discretion in holding that the goods
covered by the trust receipts are outside the contemplation of PD 115.
Private and public respondents both filed their comments on the petition to which a
consolidated reply was filed. After the submission of the parties' respective
memoranda, the case was calendared for deliberation.
Does the penal provision of PD 115 (Trust Receipts Law) apply when the goods
covered by a Trust Receipt do not form part of the finished products which are
ultimately sold but are instead, utilized/used up in the operation of the equipment and
machineries of the entrustee-manufacturer?
The answer must be in the affirmative, Section 4 of said PD 115 says in part:
"Sec. 4. What constitutes a trust receipt transaction. — A trust receipt transaction,
referred to in this Decree as the entrustee, and another person referred to in this
Decree as the entrustee, whereby the entruster, who owns or holds absolute title or
security interests over certain specified goods, documents or instruments, releases
the same to the possession of the entrustee upon the latter's execution and delivery
to the entruster of a signed document called a 'trust receipt' wherein the entrustee
documents or instruments themselves, if they are unsold or not otherwise disposed
of, in accordance with the terms and conditions specified in the trust receipt, . . ."
Respondent Ching contends that PBM is not in the business of selling Magtar Branch
Dolomites or High Fired Refractory Sliding Nozzle Bricks, it is a manufacturer of steel
and steel products. But PBM, as entrustee under the trust receipts has, under Sec. 9
of PD 115, the following obligations, inter alia: (a) receive the proceeds of sale, in
trust for the entruster and turn over the same to the entruster to the extent of the
amount owing to him or as appears on the trust receipt; (b) keep said goods or
proceeds thereof whether in money or whatever form, separate and capable of
identification as property of the entruster; (c) return the goods, documents or
instruments in the event of non-sale, or upon demand of the entruster; and (d)
observe all other terms and conditions of the trust receipt not contrary to the
provisions of said Decree. 7
The trust receipts, there is an obligation to repay the entruster. 8 Their terms are to
be interpreted in accordance with the general rules on contracts, the law being alert
in all cases to prevent fraud on the part of either party to the transaction. 9 The
entrustee binds himself to sell or otherwise dispose of the entrusted goods with the
obligation to turn over to the entruster the proceeds if sold, or return the goods if
unsold or not otherwise disposed of, in accordance with the terms and conditions
specified in the trust receipt. A violation of this undertaking constitutes estafa under
Sec. 13, PD 115.
And even assuming the absence of a clear provision in the trust receipt agreement,
Lee v. Rodil 10 and Sia v. CA 11 have held: Acts involving the violation of trust
receipt agreements occurring after 29 January 1973 (when PD 115 was issued)
would render the accused criminally liable for estafa under par. 1(b), Art. 315 of the
Revised Penal Code, pursuant to the explicit provision in Sec. 13 of PD 115. 12 The
act punishable is malum prohibitum. Respondent Secretary's prognostication of the
Supreme Court's supposed inclination to treat trust receipts as mere security
documents for loan transactions, thereby obliterating criminal liability, appears to be a
misjudgment. 13
In an attempt to escape criminal liability, private respondent claims PD 115 covers
goods which are ultimately destined for sale and not goods for use in manufacture.
But the wording of Sec. 13 covers failure to turn over the proceeds of the sale of
entrusted goods, or to return said goods if unsold or disposed of in accordance with
the terms of the trust receipts. Private respondent claims that at the time of PBM's
application for the issuance of the LC's, it was not represented to the petitioner that
the items were intended for sale, 14 hence, there was no deceit resulting in a
violation of the trust receipts which would constitute a criminal liability. Again, we
cannot uphold this contention. The non-payment of the amount covered by a trust
receipt is an act violative of the entrustee's obligation to pay. There is no reason why
the law should not apply to all transactions covered by trust receipts, except those
expressly excluded. 15
The Court takes judicial notice of customary banking and business practices where
trust receipts are used for importation of heavy equipment, machineries and supplies
used in manufacturing operations. We are perplexed by the statements in the
assailed DOJ resolution that the goods subject of the instant case are outside the
ambit of the provisions of PD 115 albeit covered by Trust Receipt Agreements (17
February 1988 resolution) and that not all transactions covered by trust receipts may
be considered as trust receipt transactions defined and penalized under PD 115 (11
January 1988 resolution). A construction should be avoided when it affords an
opportunity to defeat compliance with the terms of a statute.: nad
"A construction of a statute which creates an inconsistency should be avoided when
a reasonable interpretation can be adopted which will not do violence to the plain
words of the act and will carry out the intention of Congress.
In the construction of statutes, the courts start with the assumption that the
legislature intended to enact an effective law, and the legislature is not to be
presumed to have done a vain thing in the enactment of a statute. Hence, it is a
general principle, embodied in the maxim, 'ut res magis valeat quam pereat,' that the
courts should, if reasonably possible to do so without violence to the spirit and
language of an act, so interpret the statute to give it efficient operation and effect as a
whole. An interpretation should, if possible, be avoided, under which a statute or
provision being construed is defeated, or as otherwise expressed, nullified,
destroyed, emasculated, repealed, explained away, or rendered insignificant,
meaningless, inoperative, or nugatory." 16
The penal provision of PD 115 encompasses any act violative of an obligation
covered by the trust receipt; it is not limited to transactions in goods which are to be
sold (retailed), reshipped, stored or processed as a component of a product
ultimately sold.
To uphold the Justice Department's ruling would contravene not only the letter but
the spirit of PD 115.
"An examination of P.D. 115 shows the growing importance of trust receipts in
Philippine business, the need to provide for the rights and obligations of parties to a
trust receipt transaction, the study of the problems involved and the action by
monetary authorities, and the necessity of regulating the enforcement of rights arising
from default or violations of trust receipt agreements. The legislative intent to meet a
pressing need is clearly expressed . . ." 17
WHEREFORE, the petition is granted. The temporary restraining order issued on 13
April 1988 restraining the enforcement of the questioned DOJ resolutions dated 11
January 1988 and 17 February 1988 directing the provincial fiscal to move for the
dismissal of the criminal case filed before the RTC of Makati, Branch 143 and the
withdrawal of IS-No. 84-3140, is made permanent. Let this case be remanded to said
RTC for disposition in accordance with this decision.
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,

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
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.
<p" style="color: rgb(0, 0, 128); font-family: arial, verdana; font-size: 14px; font-style:
normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400;
letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform:
none; white-space: normal; widows: 2; word-spacing: 0px; -webkit-text-stroke-width:
0px; background-color: rgb(255, 255, 255); text-decoration-style: initial; text-
decoration-color: initial;">Goods Were Not Received in Trust
The first element of Estafa under Art. 315, par. 1(b) of the RPC requires that the
money, goods or other personal property must be received by the offender in trust or
on commission, or for administration, or under any other obligation involving the duty
to make delivery of, or to return it. But as we already discussed, the goods received
by petitioner were not held in trust. They were also not intended for sale and neither
did petitioner have the duty to return them. They were only intended for use in the
fabrication of steel communication towers.
No Misappropriation of Goods or Proceeds
The second element of Estafa requires that there be misappropriation or conversion

of such money or property by the offender, or denial on his part of such receipt.
This is the very essence of Estafa under Art. 315, par. 1(b). The words "convert" and
"misappropriated" connote an act of using or disposing of another’s property as if it
were one’s own, or of devoting it to a purpose or use different from that agreed upon.
To misappropriate for one’s own use includes not only conversion to one’s personal
advantage, but also every attempt to dispose of the property of another without a
right.18
Petitioner argues that there was no misappropriation or conversion on his part,

because his liability for the amount of the goods subject of the trust receipts arises
and becomes due only upon receipt of the proceeds of the sale and not prior to the
receipt of the full price of the goods.
Petitioner is correct. Thus, assuming arguendo that the provisions of PD 115 apply,
petitioner is not liable for Estafa because Sec. 13 of PD 115 provides that an
entrustee is only liable for Estafa when he fails "to turn over the proceeds of the sale
of the goods x x x covered by a trust receipt to the extent of the amount owing to the
entruster or as appears in the trust receipt x x x in accordance with the terms of the
trust receipt."
The trust receipt entered into between Asiatrust and petitioner states:
In case of sale I/we agree to hand the proceeds as soon as received to the BANK to
apply against the relative acceptance (as described above) and for the payment of
any other indebtedness of mine/ours to ASIATRUST DEVELOPMENT
BANK.19 (Emphasis supplied.)
Clearly, petitioner was only obligated to turn over the proceeds as soon as he
received payment. However, the evidence reveals that petitioner experienced
difficulties in collecting payments from his clients for the communication towers.
Despite this fact, petitioner endeavored to pay his indebtedness to Asiatrust, which
payments during the period from September 1997 to July 1998 total approximately
PhP 1,500,000. Thus, absent proof that the proceeds have been actually and fully
received by petitioner, his obligation to turn over the same to Asiatrust never arose.
What is more, under the Trust Receipt Agreement itself, no date of maturity was
stipulated. The provision left blank by Asiatrust is as follows:
x x x and in consideration thereof, I/we hereby agree to hold said goods in Trust for
the said Bank and as its property with liberty to sell the same for its account within
________ days from the date of execution of the Trust Receipt x x x20
In fact, Asiatrust purposely left the space designated for the date blank, an action
which in ordinary banking transactions would be noted as highly irregular. Hence, the
only way for the obligation to mature was for Asiatrust to demand from petitioner to
pay the obligation, which it never did.
Again, it also makes the Court wonder as to why Asiatrust decided to leave the
provisions for the maturity dates in the Trust Receipt agreements in blank, since
those dates are elemental part of the loan. But then, as can be gleaned from the
records of this case, Asiatrust also knew that the capacity of petitioner to pay for his
loan also hinges upon the latter’s receivables from Islacom, Smart, and Infocom
where he had ongoing and future projects for fabrication and installation of steel
communication towers and not from the sale of said goods. Being a bank, Asiatrust
acted inappropriately when it left such a sensitive bank instrument with a void
circumstance on an elementary but vital feature of each and every loan transaction,
that is, the maturity dates. Without stating the maturity dates, it was impossible for
petitioner to determine when the loan will be due.
Moreover, Asiatrust was aware that petitioner was not engaged in selling the subject
goods and that petitioner will use them for the fabrication and installation of
communication towers. Before granting petitioner the credit line, as aforementioned,
Asiatrust conducted an investigation, which showed that petitioner fabricated and
installed communication towers for well-known communication companies to be
installed at designated project sites. In fine, there was no abuse of confidence to
speak of nor was there any intention to convert the subject goods for another
purpose, since petitioner did not withhold the fact that they were to be used to
fabricate steel communication towers to Asiatrust. Hence, no malice or abuse of
confidence and misappropriation occurred in this instance due to Asiatrust’s
knowledge of the facts.
Furthermore, Asiatrust was informed at the time of petitioner’s application for the loan
that the payment for the loan would be derived from the collectibles of his clients.
Petitioner informed Asiatrust that he was having extreme difficulties in collecting from
Islacom the full contracted price of the towers. Thus, the duty of petitioner to remit the
proceeds of the goods has not yet arisen since he has yet to receive proceeds of the
goods. Again, petitioner could not be said to have misappropriated or converted the
proceeds of the transaction since he has not yet received the proceeds from his
client, Islacom.
This Court also takes judicial notice of the fact that petitioner has fully paid his
obligation to Asiatrust, making the claim for damage and prejudice of Asiatrust
baseless and unfounded. Given that the acceptance of payment by Asiatrust
necessarily extinguished petitioner’s obligation, then there is no longer any obligation
on petitioner’s part to speak of, thus precluding Asiatrust from claiming any damage.
This is evidenced by Asiatrust’s Affidavit of Desistance21 acknowledging full payment
of the loan.
Reasonable Doubt Exists
In the final analysis, the prosecution failed to prove beyond reasonable doubt that
petitioner was guilty of Estafa under Art. 315, par. 1(b) of the RPC in relation to the
pertinent provision of PD 115 or the Trust Receipts Law; thus, his liability should only
be civil in nature.
While petitioner admits to his civil liability to Asiatrust, he nevertheless does not have
criminal liability. It is a well-established principle that person is presumed innocent
until proved guilty. To overcome the presumption, his guilt must be shown by proof
beyond reasonable doubt. Thus, we held in People v. Mariano 22 that while the
principle does not connote absolute certainty, it means the degree of proof which
produces moral certainty in an unprejudiced mind of the culpability of the accused.
Such proof should convince and satisfy the reason and conscience of those who are
to act upon it that the accused is in fact guilty. The prosecution, in this instant case,
failed to rebut the constitutional innocence of petitioner and thus the latter should be
acquitted.
At this point, the ruling of this Court in Colinares v. Court of Appeals is very apt, thus:
The practice of banks of making borrowers sign trust receipts to facilitate collection of
loans and place them under the threats of criminal prosecution should they be unable
to pay it may be unjust and inequitable, if not reprehensible. Such agreements are
contracts of adhesion which borrowers have no option but to sign lest their loan be
disapproved. The resort to this scheme leaves poor and hapless borrowers at the
mercy of banks, and is prone to misinterpretation x x x.23
Such is the situation in this case.
Asiatrust’s intention became more evident when, on March 30, 2009, it, along with
petitioner, filed their Joint Motion for Leave to File and Admit Attached Affidavit of
Desistance to qualify the Affidavit of Desistance executed by Felino H. Esquivas, Jr.,
attorney-in-fact of the Board of Asiatrust, which acknowledged the full payment of the
obligation of the petitioner and the successful mediation between the parties.
From the foregoing considerations, we deem it unnecessary to discuss and rule upon
the other issues raised in the appeal.
WHEREFORE, the CA Decision dated August 29, 2003 affirming the RTC Decision
dated May 29, 2001 is SET ASIDE. Petitioner ANTHONY L. NG is hereby
ACQUITTED of the charge of violation of Art. 315, par. 1(b) of the RPC in relation to
the pertinent provision of PD 115.
G.R. No. 90828 September 5, 2000
MELVIN COLINARES and LORDINO VELOSO, petitioners,

vs.
HONORABLE COURT OF APPEALS, and THE PEOPLE OF THE
PHILIPPINES, respondents.
DECISION
DAVIDE, JR., C.J.:
In 1979 Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted
for a consideration of ₱40,000 by the Carmelite Sisters of Cagayan de Oro City to
renovate the latter’s convent at Camaman-an, Cagayan de Oro City.
On 30 October 1979, Petitioners obtained 5,376 SF Solatone acoustical board

2’x4’x½", 300 SF tanguile wood tiles 12"x12", 260 SF Marcelo economy tiles and 2
gallons UMYLIN cement adhesive from CM Builders Centre for the construction
project.1 The following day, 31 October 1979, Petitioners applied for a commercial
letter of credit2 with the Philippine Banking Corporation, Cagayan de Oro City branch
(hereafter PBC) in favor of CM Builders Centre. PBC approved the letter of 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 decision 18 convicting Petitioners of
estafa for violating P.D. No. 115 in relation to Article 315 of the Revised Penal Code
and sentencing each of them to suffer imprisonment of two years and one day
of prision correccional as minimum to six years and one day of prision mayor as
maximum, and to solidarily indemnify PBC the amount of ₱20,824.44, with legal
interest from 29 January 1980, 12 % penalty charge per annum, 25% of the sums
due as attorney’s fees, and costs.
The trial court considered the transaction between PBC and Petitioners as a trust
receipt transaction under Section 4, P.D. No. 115. It considered Petitioners’ use of
the goods in their Carmelite monastery project an act of "disposing" as contemplated
under Section 13, P.D. No. 115, and treated the charge invoice19 for goods issued by
CM Builders Centre as a "document" within the meaning of Section 3 thereof. It
concluded that the failure of Petitioners to turn over the amount they owed to PBC
constituted estafa.
Petitioners appealed from the judgment to the Court of Appeals which was docketed
as CA-G.R. CR No. 05408. Petitioners asserted therein that the trial court erred in
ruling that they violated the Trust Receipt Law, and in holding them criminally liable
therefor. In the alternative, they contend that at most they can only be made civilly
liable for payment of the loan.
In its decision20 6 March 1989, the Court of Appeals modified the judgment of the trial
court by increasing the penalty to six years and one day of prision mayor as minimum
to fourteen years eight months and one day of reclusion temporal as maximum. It
held that the documentary evidence of the prosecution prevails over Veloso’s
testimony, discredited Petitioners’ claim that the documents they signed were in
blank, and disbelieved that they were coerced into signing them.
On 25 March 1989, Petitioners filed a Motion for New Trial/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)
Q Do you know if the goods subject matter of this letter of credit and trust receipt
agreement were received by the accused?
A Yes, sir
Q Do you have evidence to show that these goods subject matter of this letter of
credit and trust receipt were delivered to the accused?
A Yes, sir.
Q I am showing to you this charge invoice, are you referring to this document?
A Yes, sir.
xxx
Q What is the date of the charge invoice?
A October 31, 1979.
COURT:
Make it of record as appearing in Exhibit D, the zero in 30 has been superimposed

with numeral 1.42
During the cross and re-direct examinations he also impliedly admitted that the
transaction was indeed a loan. Thus:
Q In short the amount stated in your Exhibit C, the trust receipt was a loan to the
accused you admit that?
A Because in the bank the loan is considered part of the loan.
xxx
RE-DIRECT BY ATTY. CABANLET:
ATTY. CABANLET (to the witness)
Q What do you understand by loan when you were asked?
A Loan is a promise of a borrower from the value received. The borrower will pay the
bank on a certain specified date with 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 loan44
PBC could have presented its former bank manager, Cayo Garcia Tuiza, who
contracted with Petitioners, to refute Veloso’s testimony, yet it only presented credit
investigator Grego Mutia. Nowhere from Mutia’s testimony can it be gleaned that
PBC represented to Petitioners that the transaction they were entering into was not a
pure loan but had trust receipt implications.
The Trust Receipts Law does not seek to enforce payment of the loan, rather it
punishes the dishonesty and abuse of confidence in the handling of money or goods
to the prejudice of another regardless of whether the latter is the owner.45 Here, it is
crystal clear that on the part of Petitioners there was neither dishonesty nor abuse of
confidence in the handling of money to the prejudice of PBC. Petitioners continually
endeavored to meet their obligations, as shown by several receipts issued by PBC
acknowledging payment of the loan.
The Information charges Petitioners with intent to defraud and misappropriating the
money for their personal use. The mala prohibita nature of the alleged offense
notwithstanding, intent as a state of mind was not proved to be present in Petitioners’
situation. Petitioners employed no artifice in dealing with PBC and never did they
evade payment of their obligation nor attempt to abscond. Instead, Petitioners sought
favorable terms precisely to meet their obligation.
Also noteworthy is the fact that Petitioners are not importers acquiring the goods for
re-sale, contrary to the express provision embodied in the trust receipt. They are
contractors who obtained the fungible goods for their construction project. At no time
did title over the construction materials pass to the bank, but directly to the
Petitioners from CM Builders Centre. This impresses upon the trust receipt in
question vagueness and ambiguity, which should not be the basis for criminal
prosecution in the event of violation of its provisions.46
The practice of banks of making borrowers sign trust receipts to facilitate collection of
loans and place them under the threats of criminal prosecution should they be unable
to pay it may be unjust and inequitable, if not reprehensible. Such agreements are
contracts of adhesion which borrowers have no option but to sign lest their loan be
disapproved. The resort to this scheme leaves poor and hapless borrowers at the
mercy of banks, and is prone to misinterpretation, as had happened in this case.
Eventually, PBC showed its true colors and admitted that it was only after collection
of the money, as manifested by its Affidavit of Desistance.
WHEREFORE, the challenged Decision of 6 March 1989 and the Resolution of 16

October 1989 of the Court of Appeals in CA-GR. No. 05408 are REVERSED and
SET ASIDE. Petitioners are hereby ACQUITTED of the crime charged, i.e., for
violation of P.D. No. 115 in relation to Article 315 of the Revised Penal Code.
G.R. No. 122539 March 4, 1999
JESUS V. TIOMICO, petitioner,
vs.
THE HON. COURT OF APPEALS (FORMER FIFTH DIVISION) and PEOPLE OF
THE PHILIPPINES, respondent.
PURISIMA, J.:
This is a petition for review by certiorari under Section 2, Rule 125, in relation to

Section 1, Rule 45 of the Rules of Court to correct, reverse and annul the
decision 1 of the Court of Appeals which affirmed the judgment 2 of the trial court
convicting the petitioner herein for a violation of the Trust Receipts Law.
Petitioner Jesus V. Tiomico, (Tiomico) opened a Letter of Credit with the Bank of the
Philippine Islands (BPI) for $5,600 to be used for the importation of two (2) units of
Forklifts, Shovel loader and a truck mounted with crane. On October 29, 1982, the
said machineries were received by the accused, as evidenced by the covering trust
receipt. Upon maturity of the trust receipt, on December 28, 1982, he made a partial
payment of US$855.94, thereby leaving an unpaid obligation of US$4,770.46. As of
December 21, 1989, Tiomico owed BPI US$4,770.46, or P109,386.65, computed at
P22.93 per US dollar, the rate of exchange at the time. Failing to pay the said
amount or to deliver subject machineries and equipments, despite several demands,
the International Operations Department of BPI referred the matter to the Legal
Department of the bank. But the letter of demand sent to him notwithstanding,
Tiomico failed to satisfy his monetary obligation sued upon.
Consequently, he was accused of a violation of PD 115, otherwise known as the

Trust Receipts Law, under an Information 3 alleging:
That on or about the 29th day of October, 1982, in the Municipality of Makati, Metro,
Manila, Philippines, and within the jurisdiction of this Honorable Court, the above-
named accused, executed a Trust Receipt Agreement for and in behalf of Paramount
Calibrators Merchandising of which he is the sole proprietor in favor of the Bank of
the Philippine Islands. In consideration of the receipt by the said accused of three (3)
bares one unit Forklift Model FD-30 Toyota Branch 2-J70 Hp and one unit Forklift
Model LM-301 Toyota Branch 2-J 70 Hp and one unit shovel loader Model SOT 130
HP, 6 Cyl-LC #2-16860, for which there is now due the sum of US$5600.00, wherein
the accused agreed to sell the same and with the express obligation to remit to the
complainant-bank the proceeds of the sale, and/or to turn over the same if not sold,
on demand, but the accused once in possession of the said items, far from complying
with his obligation, with unfaithfulness and abuse of confidence, did then and there
wilfully, unlawfully and feloniously misappropriate, misapply and convert the same to
his own personal use and benefit despite repeated demands, failed and refused and
still fails and refuses account for and/or remit the proceeds of the sale thereof, to the
damage and prejudice of the said complainant-bank as represented by Lourdes V.
Palomo in the aforementioned amount of US $5600 or its equivalent in Philippine
currency.
Contrary to law.
Arraigned thereunder, Tiomico entered a plea of Not Guilty, at which juncture,

Assistant Provincial Prosecutor John B. Egana manisfested that he was authorizing
the private prosecutor, Atty. Jose B. Soncuya, to prosecute the case subject to his
direction, supervision and control.
On October 16, 1989, Gretel S. Donato was presented to testify for the prosecution.
According to her, she worked for the Bank of the Philippine Islands (BPI) in 1981 and
in 1982, she was assigned as one of the Letter of Credit processors in the
International Operations Department of BPI. Her duty, among others, was to process
letter of credit applications which included that of Tiomico. The trust receipt executed
by the latter was given to her as part of the documents supporting his Letter of Credit.
The following documents presented in the course of the testimony of Donato were
identified by her as follows:
(1) Exhibit "A" — Letter of Credit;
(2) Exhibit "B" — Pro Forma Invoice;
(3) Exhibit "C" — Letter of Credit Confirmation;
(4) Exhibit "D" — Trust Receipt; Exhibit D1-D4 — signatures thereon;
(5) Exhibit "E" — Statement of Account, the amount of P306,708.17 appearing

therein, as Exhibit E-1, and the signature thereto of an unidentified bank officer, as
Exhibit E-2;
(6) Exhibit "F" — Letter of Demand of the bank's legal department; a return card, as
Exhibit F-1, and the signature of the addressee's agent, as Exhibit F-1 A.
Counsel for petitioner objected to the admission of Exhibits "A", "B", "C" and "D" on
the ground that witness failed to identify the said documents inasmuch as her
testimony regarding the signatures appearing therein were evidently hearsay. But the
trial court admitted the said documentary evidence, despite the objections raised
thereto by the defense. Thereafter, the prosecution rested.
After the People rested its case, petitioner begged leave to file a demurrer to the
evidence, theorizing that the evidence on record does not suffice to prove beyond
reasonable doubt the accusation against him. But instead of granting the said motion
of the defense, the trial court ordered a re-opening of the case, so as to enable the
prosecution to adduce more evidence. The defense objected but to no avail. The trial
court proceeded with the continuation of trial "in the interest of justice".
On September 5, 1990, the-lower court denied the demurrer to evidence. The Motion
for Reconsideration of the defense met the same fate. It was denied. The case was
then set for continuation of trial on December 12, 1990. Reception of evidence for the
defense was set on January 7, 1991. But on January 4, 1991, three days before the
scheduled continuation of trial, the defense counsel filed an Urgent Motion for
Postponement for the given reason that he had to appear before Branch 12 of the
Metropolitan Trial Court of Manila on January 7, 1991.
On January 7, 1991, the lower court denied the Urgent Motion for Postponement and
adjudged petitioner to have waived the right to introduce evidence on his behalf.
On January 30, 1991, the trial court promulgated its decision finding petitioner guilty
of a violation of PD 115, and sentencing him accordingly.
On appeal, the Court of Appeals came out with a judgment of affirmance, the
dispositive portion which, is to the following effect:
WHEREFORE, the Court finds JESUS V. TIOMICO guilty beyond reasonable doubt
of violation of PD 115 and is hereby sentenced to suffer an indeterminate penalty of
ten (10) years of prision mayor as minimum, to fifteen (15) years of reclusion
temporal as maximum; to indemnify Bank of the Philippine Islands the sum of
P109,386.65 and to pay the costs.
SO ORDERED. 4
Undaunted, petitioner found his way to this Court via the Petition for Review
by Certiorari at bar, seeking to annul the decision 5 of the Court of Appeals; raising as
issues:
(1) WHETHER OR NOT PD 115 OR TRUST RECEIPTS LAW IS

UNCONSTITUTIONAL;
(2) WHETHER OR NOT A TESTIMONY CAN BE ADMITTED DESPITE THE

ABSENCE OF FORMAL OFFER AS REQUIRED BY SECTIONS 34 AND 35, RULE
132, OF THE REVISED RULES OF COURT;
(3) WHETHER OR NOT THE TESTIMONY OF WITNESS WITH REGARD TO THE

LETTER OF CREDIT AND OTHER DOCUMENT IS HEARSAY AND;
(4) WHETHER OR NOT THERE WAS DEPRIVATION OF DUE PROCESS ON THE

RIGHTS OF THE ACCUSED WHEN THE TRIAL COURT DENIED THE MOTION
FOR POSTPONEMENT BY THE DEFENSE COUNSEL.
As regards the first issue, the Court has repeatedly upheld the validity of the Trust
Receipts Law and consistently declared that the said law does not violate the
constitutional proscription againts imprisonment for non-payment of debts. (People
vs. Cuevo, 104 SCRA 312; People vs. Nitafan, 207 SCRA 726; Lee vs. Rodil, 175
SCRA 100). Such pronouncement was thoroughly explained in Lee vs. Rodil (supra)
thus:
Verily, PD 115 is a declaration by the legislative authority that, as a matter of public

policy, the failure of a person to turn over the proceeds of the sale of goods covered
by a trust receipt or to return said goods if not sold is a public nuisance to be abated
by the imposition of penal sanctions. As held in Lozano vs. Martinez (146 SCRA 323,
338):
. . . certainly, it is within the authority of the lawmaking body to prescribe certain act
deemed pernicious and inimical to public welfare. Acts mala in se are not the only
acts that the law can punish. An act may not be considered by society as inherently
wrong, hence, not malum in se, but because of the harm that it inflicts on the
community, it can be outlawed and criminally punished as malum prohibitum. The
State can do this in the exercise of its police power.
In fine, PD 115 is a valid exercise of police power and is not repugnant to the
constitutional provision of non-imprisonment for non-payment of debt.
In a similar vein, the case of People vs. Nitafan (supra) held:
The Trust Receipts Law punishes the dishonesty and abuse of confidence in the
handling of money or goods to the prejudice of another regardless of whether the
latter is the owner or not. The law does not seek to enforce payment of a loan. Thus,
there can be no violation of the right against imprisonment for non-payment of a debt.
Anent the second issue, the pivotal question is: Should the testimony of a witness be
admitted despite the failure of the proponent to offer it formally in evidence, as
required by Section 34 of Rule 132 6? We rule on this issue in the affirmative.
Records disclose that the private prosecutor stated the purpose of the testimony in
question although he did not formally offer the same. The proceedings 7 went on as
follows:
ATTY. SONCUYA:
The purpose of the testimony of the witness is to prove that the accused applied for a
letter of credit, for the opening of a letter of credit and for the importation of
machinery from Japan and that those machinery were delivered and received by the
accused as evidenced by the trust receipt and that the accused failed to comply with
the terms and conditions of the said trust receipt, your Honor.
COURT:
All right, proceed.
As aptly stressed by the Solicitor General in his Comment, 8 "the absence of the

words, 'we are formally offering the testimony for the purpose of . . .'" should be
considered merely as an excusable oversight on the part of the private prosecutor.
It should be borne in mind that the rationale behind Section 34 of Rule 132 9 is to
inform the Court of the purpose of the testimony, to enable the judge to rule whether
the said testimony is necessary or is irrelevant or immaterial.
In the case under scrutiny, since the purpose of subject testimony was succinctly
stated, the reason behind the requirement for its formal offer has been substantially
complied with. What the defense counsel should have done should have been to
interpose his objection the moment the private respondent was called to testify, on
the ground that there was no prior offer made by the proponent. 10
The tendency of the rules on evidence, is towards substantial justice rather than strict
adherence to technicalities. To condemn the disputed testimony as inadmissible due
to the failure of the private prosecutor to properly observe the rules on presentation
of evidence, would render nugatory, and defeat the proceedings before the lower
court.
On the third issue — whether or not the witness can testify on subject documents
introduced as evidence despite her admission that she did not see the accused sign
the said exhibits, we likewise rule in the affirmative.
As aptly held by the appellate court: 11
Gretel Donato testified that she was not present when appellant affixed his signature
on the documents in question (p. 22 ibid). She, however, identified the signatures
thereon (Exhs. "A-1", "A-2", "D-1", "D-2" and "D-3", Letter of Credit; Exhibit B — Pro
Forma Invoice; Exhibit C — Letter of Credit Confirmation; Exhibit D-Trust Receipt;
Exhibit D1-D4 — signatures thereon; pp. 129 and 132 of Orig. Rec.) as those of the
appellant Jesus V. Tiomico arising from her familiarity therewith inasmuch as she
was the one who processed the papers pertinent to the transactions between the
appellant and the complainant bank (TSN, Feb. 5, 1990, pp 4-6). Her testimony,
therefore, cannot be considered hearsay because it is principally based on her
personal knowledge of bank transactions and the documents and records which she
processes in the regular course of the bank's business operations.
It is not essential to the competence of a lay witness to express opinions on the

genuineness of handwritings that he did see the person in question
write.12 It is enough that the witness has so adopted the same into business
transactions as to induce a reasonable presumption and belief of genuineness of the
document. This is due to the fact that in the ordinary course of business, documents
purporting to be written or signed by that person have been habitually submitted to
the witness, or where knowledge of handwriting is acquired by him in an official
capacity. 13
Did the witness gain familiarity with the signature of the accused? The answer is yes.
Exhibits "A" to "D": Letter of Credit, Pro-Forma Invoice, Letter of Credit Confirmation
and Trust Receipt, respectively, were all familiar to the witness since the said
documents bearing the signature of the accused were all submitted to her for
processing. It is therefore beyond cavil that she acquired sufficient familiarity to make
witness competent to testify on the signatures appearing in subject documents. From
the time of the application to its approval and when Tiomico defaulted, she (witness)
was the one who had overseen the transactions and recommended the actions to be
taken thereon. As a matter of fact, she was the one who referred the failure of
Tiomico to pay his balance to Tiomico to pay his balance to the Legal Department of
BPI, prompting the said legal department to send him (Tiomico) a demand letter.
Furthermore, whether there was due execution or authencity of such documents was
impliedly admitted by the accused. On this point, we quote with approval the
conclusion reached by the Court of Appeals, to wit: 14
On the other hand, appellant impliedly admitted the due execution of the assailed
documents considering that he did not deny the fact that he opened a letter of credit.
Neither did he deny that the signature appearing thereon is his. What appellant
intended to dispute was merely the balance of his past due account with the
complainant bank, thus:
COURT
Denied.
What is the defense of the accused?
Denial that he opened the letter of credit.
ATTY. EBRO
No, you honor.
COURT: What is the defense?
x x x x x x x x x
ATTY. EBRO.
Q: — Now you identified signatures allegedly of the accused on Exhibit A, which is

the application for the letter of credit, I ask you Miss Donato, were you personally
present when this signature was affixed to the document?
A: — (witness going over Exhibit A) I was the one of the ones who processed the
letter of credit.
ATTY. EBRO
May we ask for an order directing that the witness respond to my question.
COURT
Just answer the question.
WITNESS
A: — No, sir.
COURT
Does the accused deny the signature?
ATTY. EBRO
No, your Honor. I am just showing also that she has been exaggerating.
(TSN, Feb. 5, 1990, pp. 12-13, p. 22)
In light of the foregoing, it stands to reason and conclude that the documents under
scrutiny are admissible in evidence, as held by the trial court.
Anent the fourth issue, petitioner theorizes that the denial of the motion for
postponement sent in by his lawyer violated his constitutional right to due process.
It should be stressed that subject Urgent Motion for Postponement was not the first
motion for resetting ever presented by the counsel for petitioner. On December 12,
1990, upon motion of the latter, and without objection on the part of the prosecution,
the reception of evidence for the defense was reset once more to January 7, 1991, at
8:30 in the morning.
The most basic tenet of due process is the right to be heard. Where a party had been
afforded an opportunity to participate in the proceedings but failed to do so, he
cannot complain of deprivation of due process. 15 Due process is satisfied as long as
the party is accorded an opportunity to be heard. If it is not availed of, it is deemed
waived or forfeited without violating the Bill of Rights. 16
It is further theorized by petitioner that the lower court should have at least granted
him another trial date so as to enable him to present his evidence, so that the denial
of his Urgent Motion for Postponement infringed his constitutional right to be heard
by himself and by counsel. 17 This submission is unsustainable.
When an accused is accorded a chance to present evidence on his behalf but due to
his repeated unjustifiable failure to appear at the trial without any justification, the
lower court order's the case submitted for decision on the basis of the evidence on
record, said judicial action is not tainted with grave abuse of discretion because in
such a case, the accused is deemed to have waived the right to adduce evidence on
his behalf. 18
Furthermore, records show that in this case the defense counsel did not even bother
to appear for the scheduled reception of evidence for his client on January 7, 1991,
notwithstanding the fact that the trial court did not act upon, much less grant, the
Urgent Motion for Postponement which he filed on January 4, 1991. Lawyers should
never presume that their motions for postponement would be granted. 19
A motion for continue or postponement is not a matter of right. It is addressed to the

sound discretion of the Court. Action thereon will not be disturbed by appellate
courts, in the absence of clear and manifest abuse of discretion resulting in a denial
of substantial justice. 20
Motions for postponement are generally frowned upon by Courts if there is evidence
of bad faith, malice or inexcusable negligence on the part of the movant. 21 The
inadvertence of the defense of the defense counsel in failing to take note of the trial
dates and in belatedly informing the trial court of any conflict in his schedules of trial
or court appearances, constitutes inexcusable negligence. It should be borne in mind
that a client is bound by his counsel's conduct, negligence and mistakes in handling
the case. 22
As gleanable from the records:
. . . Attached to the motion is the Order of said court dated November 19, 1990.
Obviously, when the case was called on December 12, 1990, the counsel for the
accused had already known of the scheduled hearing before the Metropolitan Trial
Court, yet he agreed to the hearing on January 7, 1991. Counsel's conduct is not
consistent with the thrust of the Judiciary to expedite the termination of cases under
the Mandatory Continuous Trial . . . 23
A lawyer as an officer of the court is part of the judicial machinery in the

administration of justice. As such, he has a responsibility to assist in the proper and
sound administration of justice. Like the court itself, he is an instrument to advance
its ends and the speedy, efficient, impartial, correct and inexpensive adjudication of
cases. A lawyer should not only help to attain these objectives. He should also avoid
improper practices that impede, obstruct or prevent their realization, charged as he is
with the primary task of assisting the court in the speedy and efficient administration
of justice. 24
Petitioner invites attention to the Affidavit of Desistance by the Bank of the Philippine
Islands (BPI). This issue raised by the petitioner cannot be entertained as it was only
raised for the first time on appeal. 25
Considering that the assailed decision is firmly anchored on prevailing law and
established jurisprudence, the Court cannot help but deny the petition.
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals,
dated May 31, 1995, affirming the judgment of conviction rendered on January 28,
1991 by the court of origin AFFIRMED. No pronouncement as to costs.
G. R. No. 142381 - October 15, 2003
PHILIPPINE BLOOMING MILLS, INC., and ALFREDO CHING, Petitioners,

vs. COURT OF APPEALS and TRADERS ROYAL BANK, Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari1 to annul the Decision2 dated 16 July 1999 of
the Court of Appeals in CA-G.R. CV No. 39690, as well as its Resolution dated 17
February 2000 denying the motion for reconsideration. The Court of Appeals affirmed
with modification the Decision3 dated 31 August 1992 rendered by Branch 113 of the
Regional Trial Court of Pasay City ("trial court"). The trial courts Decision declared
petitioner Alfredo Ching ("Ching") liable to respondent Traders Royal Bank ("TRB")
for the payment of the credit accommodations extended to Philippine Blooming Mills,
Inc. ("PBM").
Antecedent Facts
This case stems from an action to compel Ching to pay TRB the following amounts:
1. P959,611.96 under Letter of Credit No. 479 AD covered by Trust

Receipt No. 106;4cräläwvirtualibräry
2. P1,191,137.13 under Letter of Credit No. 563 AD covered by Trust

Receipt No. 113;5 and
3. P3,500,000 under the trust loan covered by a notarized Promissory

Note.6cräläwvirtualibräry
Ching was the Senior Vice President of PBM. In his personal capacity
and not as a corporate officer, Ching signed a Deed of Suretyship
dated 21 July 1977 binding himself as follows:
xxx as primary obligor(s) and not as mere guarantor(s), hereby

warrant to the TRADERS ROYAL BANK, its successors and assigns,
the due and punctual payment by the following individuals and/or
companies/firms, hereinafter called the DEBTOR(S), of such amounts
whether due or not, as indicated opposite their respective names, to
wit:
NAME OF DEBTOR(S) AMOUNT OF OBLIGATION

PHIL. BLOOMING MILLS
TEN MILLION PESOS
CORP.
(P 10,000,000.00)
owing to said TRADERS ROYAL BANK, hereafter called the

CREDITOR, as evidenced by all notes, drafts, overdrafts and other
credit obligations of every kind and nature contracted/incurred by said
DEBTOR(S) in favor of said CREDITOR.
In case of default by any and/or all of the DEBTOR(S) to pay the

whole or part of said indebtedness herein secured at maturity, I/We,
jointly and severally, agree and engage to the CREDITOR, its
successors and assigns, the prompt payment, without demand or
notice from said CREDITOR, of such notes, drafts, overdrafts and
other credit obligations on which the DEBTOR(S) may now be
indebted or may hereafter become indebted to the CREDITOR,
together with all interests, penalty and other bank charges as may
accrue thereon and all expenses which may be incurred by the latter
in collecting any or all such instruments.
I/WE further warrant the due and faithful performance by the

DEBTOR(S) of all the obligations to be performed under any
contracts, evidencing indebtedness/obligations and any supplements,
amendments, charges or modifications made thereto, including but not
limited to, the due and punctual payment by the said DEBTOR(S).
I/WE hereby expressly waive notice of acceptance of this suretyship,

and also presentment, demand, protest and notice of dishonor of any
and all such instruments, loans, advances, credits, or other
indebtedness or obligations hereinbefore referred to.
MY/OUR liability on this Deed of Suretyship shall be solidary, direct

and immediate and not contingent upon the pursuit by the
CREDITOR, its successors or assigns, of whatever remedies it or they
may have against the DEBTOR(S) or the securities or liens it or they
may possess; and I/WE hereby agree to be and remain bound upon
this suretyship, irrespective of the existence, value or condition of any
collateral, and notwithstanding also that all obligations of the
DEBTOR(S) to you outstanding and unpaid at any time may exceed
the aggregate principal sum herein above stated.
In the event of judicial proceedings, I/WE hereby expressly agree to
pay the creditor for and as attorneys fees a sum equivalent to TEN
PER CENTUM (10%) of the total indebtedness (principal and interest)
then unpaid, exclusive of all costs or expenses for collection allowed
by law.7 (Emphasis supplied)
On 24 March and 6 August 1980, TRB granted PBM letters of credit

on application of Ching in his capacity as Senior Vice President of
PBM. Ching later accomplished and delivered to TRB trust receipts,
which acknowledged receipt in trust for TRB of the merchandise
subject of the letters of credit. Under the trust receipts, PBM had the
right to sell the merchandise for cash with the obligation to turn over
the entire proceeds of the sale to TRB as payment of PBMs
indebtedness. Letter of Credit No. 479 AD, covered by Trust Receipt
No. 106, has a face value of US$591,043, while Letter of Credit No.
563 AD, covered by Trust Receipt No. 113, has a face value of
US$155,460.34.
Ching further executed an Undertaking for each trust receipt, which

uniformly provided that:
xxx
6. All obligations of the undersigned under the agreement of trusts

shall bear interest at the rate of __ per centum ( __%) per annum from
the date due until paid.
7. [I]n consideration of the Trust Receipt, the undersigned hereby

jointly and severally undertake and agree to pay on demand on the
said BANK, all sums and amounts of money which said BANK may
call upon them to pay arising out of, pertaining to, and/or in any
manner connected with this receipt. In case it is necessary to collect
the draft covered by the Trust Receipt by or through an attorney-at-
law, the undersigned hereby further agree(s) to pay an additional of
10% of the total amount due on the draft as attorneys fees, exclusive
of all costs, fees and other expenses of collection but shall in no case
be less than P200.00"8 (Emphasis supplied)
On 27 April 1981, PBM obtained a P3,500,000 trust loan from TRB. Ching signed as
co-maker in the notarized Promissory Note evidencing this trust loan. The
Promissory Note reads:
FOR VALUE RECEIVED THIRTY (30) DAYS after date, I/We, jointly and severally,
promise to pay the TRADERS ROYAL BANK or order, at its Office in 4th Floor,
Kanlaon Towers Bldg., Roxas Blvd., Pasay City, the sum of Pesos: THREE MILLION
FIVE HUNDRED THOUSAND ONLY (P3,500,000.00), Philippine Currency, with the
interest rate of Eighteen Percent (18%) per annum until fully paid.
In case of non-payment of this note at maturity, I/We, jointly and severally, agree to
pay an additional amount equivalent to two per cent (2%) of the principal sum per
annum, as penalty and collection charges in the form of liquidated damages until fully
paid, and the further sum of ten percent (10%) thereof in full, without any deduction,
as and for attorneys fees whether actually incurred or not, exclusive of costs and
other judicial/extrajudicial expenses; moreover, I/We jointly and severally, further
empower and authorize the TRADERS ROYAL BANK at its option, and without
notice to set off or to apply to the payment of this note any and all funds, which may
be in its hands on deposit or otherwise belonging to anyone or all of us, and to hold
as security therefor any real or personal property which may be in its possession or
control by virtue of any other contract.9 (Emphasis supplied)
PBM defaulted in its payment of Trust Receipt No. 106 (Letter of Credit No. 479 AD)
for P959,611.96, and of Trust Receipt No. 113 (Letter of Credit No. 563 AD)
for P1,191,137.13. PBM also defaulted on its P3,500,000 trust loan.
On 1 April 1982, PBM and Ching filed a petition for suspension of payments with the
Securities and Exchange Commission ("SEC"), docketed as SEC Case No.
2250.10 The petition sought to suspend payment of PBMs obligations and prayed that
the SEC allow PBM to continue its normal business operations free from the
interference of its creditors. One of the listed creditors of PBM was
TRB.11cräläwvirtualibräry
On 9 July 1982, the SEC placed all of PBMs assets, liabilities, and obligations under
the rehabilitation receivership of Kalaw, Escaler and Associates.12cräläwvirtualibräry
On 13 May 1983, ten months after the SEC placed PBM under rehabilitation
receivership, TRB filed with the trial court a complaint for collection against PBM and
Ching. TRB asked the trial court to order defendants to pay solidarily the following
amounts:
(1) P6,612,132.74 exclusive of interests, penalties, and bank charges

[representing its indebtedness arising from the letters of credit issued
to its various suppliers];
(2) P4,831,361.11, exclusive of interests, penalties, and other bank

charges [due and owing from the trust loan of 27 April 1981 evidenced
by a promissory note];
(3) P783,300.00 exclusive of interests, penalties, and other bank

charges [due and owing from the money market loan of 1 April 1981
evidenced by a promissory note];
(4) To order defendant Ching to pay P10,000,000.00 under the Deed

of Suretyship in the event plaintiff can not recover the full amount of
PBMs indebtedness from the latter;
(5) The sum equivalent to 10% of the total sum due as and for
attorneys fees;
(6) Such other amounts that may be proven by the plaintiff during the
trial, by way of damages and expenses for litigation.13
On 25 May 1983, TRB moved to withdraw the complaint against PBM on the ground
that the SEC had already placed PBM under receivership. 14 The trial court thus
dismissed the complaint against PBM.15cräläwvirtualibräry
On 23 June 1983, PBM and Ching also moved to dismiss the complaint on the
ground that the trial court had no jurisdiction over the subject matter of the case.
PBM and Ching invoked the assumption of jurisdiction by the SEC over all of PBMs
assets and liabilities.16cräläwvirtualibräry
TRB filed an opposition to the Motion to Dismiss. TRB argued that (1) Ching is being
sued in his personal capacity as a surety for PBM; (2) the SEC decision declaring
PBM in suspension of payments is not binding on TRB; and (3) Presidential Decree
No. 1758 ("PD No. 1758"),17 which Ching relied on to support his assertion that all
claims against PBM are suspended, does not apply to Ching as the decree regulates
corporate activities only.18cräläwvirtualibräry
In its order dated 15 August 1983,19 the trial court denied the motion to dismiss with
respect to Ching and affirmed its dismissal of the case with respect to PBM. The trial
court stressed that TRB was holding Ching liable under the Deed of Suretyship. As
Chings obligation was solidary, the trial court ruled that TRB could proceed against
Ching as surety upon default of the principal debtor PBM. The trial court also held
that PD No. 1758 applied only to corporations, partnerships and associations and not
to individuals.
Upon the trial courts denial of his Motion for Reconsideration, Ching filed a Petition
for Certiorari and Prohibition20 before the Court of Appeals. The appellate court
granted Chings petition and ordered the dismissal of the case. The appellate court
ruled that the SEC assumed jurisdiction over Ching and PBM to the exclusion of
courts or tribunals of coordinate rank.
TRB assailed the Court of Appeals Decision21 before this Court. In Traders Royal
Bank v. Court of Appeals,22 this Court upheld TRB and ruled that Ching was merely
a nominal party in SEC Case No. 2250. Creditors may sue individual sureties of
debtor corporations, like Ching, in a separate proceeding before regular courts
despite the pendency of a case before the SEC involving the debtor corporation.
In his Answer dated 6 November 1989, Ching denied liability as surety and
accommodation co-maker of PBM. He claimed that the SEC had already issued a
decision23 approving a revised rehabilitation plan for PBMs creditors, and that PBM
obtained the credit accommodations for corporate purposes that did not redound to
his personal benefit. He further claimed that even as a surety, he has the right to the
defenses personal to PBM. Thus, his liability as surety would attach only if, after the
implementation of payments scheduled under the rehabilitation plan, there would
remain a balance of PBMs debt to TRB.24 Although Ching admitted PBMs availment
of the credit accommodations, he did not show any proof of payment by PBM or by
him.
TRB admitted certain partial payments on the PBM account made by PBM itself and
by the SEC-appointed receiver.25 Thus, the trial court had to resolve the following
remaining issues:
1. How much exactly is the corporate defendants outstanding

obligation to the plaintiff?
2. Is defendant Alfredo Ching personally answerable, and for exactly

how much?26
TRB presented Mr. Lauro Francisco, loan officer of the Remedial Management
Department of TRB, and Ms. Carla Pecson, manager of the International Department
of TRB, as witnesses. Both witnesses testified to the following:
1. The existence of a Deed of Suretyship dated 21 July 1977 executed
by Ching for PBMs liabilities to TRB up
to P10,000,000;27cräläwvirtualibräry
2. The application of PBM and grant by TRB on 13 March 1980 of

Letter of Credit No. 479 AD for US$591,043, and the actual availment
by PBM of the full proceeds of the credit
28
accommodation; cräläwvirtualibräry
3. The application of PBM and grant by TRB on 6 August 1980 of

Letter of Credit No. 563 AD for US$156,000, and the actual availment
by PBM of the full proceeds of the credit accommodation;29 and
4. The existence of a trust loan of P3,500,000 evidenced by a

notarized Promissory Note dated 27 April 1981 wherein Ching bound
himself solidarily with PBM;30 and
5. Per TRBs computation, Ching is liable for P19,333,558.16 as of 31

October 1991.31
Ching presented Atty. Vicente Aranda, corporate secretary and First Vice President
of the Human Resources Department of TRB, as witness. Ching sought to establish
that TRBs Board of Directors adopted a resolution fixing the PBM account at an
amount lower than what TRB wanted to collect from Ching. The trial court allowed
Atty. Aranda to testify over TRBs manifestation that the Answer failed to plead the
subject matter of his testimony. Atty. Aranda produced TRB Board Resolution No.
5935, series of 1990, which contained the minutes of the special meeting of TRBs
Board of Directors held on 8 June 1990. 32 In the resolution, the Board of Directors
advised TRBs Management "not to release Alfredo Ching from his JSS liability to the
bank."33 The resolution also stated the following:
a) Accept the P1.373 million deposits remitted over a period of 17 years or until 2006
which shall be applied directly to the account (as remitted per hereto attached
schedule). The amount of P1.373 million shall be considered as full payment of
PBMs account. (The receiver is amenable to this alternative)
The initial deposit/remittance which amounts to P150,000.00 shall be remitted upon

approval of the above and conforme to PISCOR and PBM. Subsequent deposits
shall start on the 3rd year and annually thereafter (every June 30th of the year) until
June 30, 2006.
Failure to pay one annual installment shall make the whole obligation due and
demandable.
b) Write-off immediately P4.278 million. The balance [of] P1.373 million to remain

outstanding in the books of the Bank. Said balance will equal the deposits to be
remitted to the Bank for a period of 17 years.34cräläwvirtualibräry
However, Atty. Aranda himself testified that both items (a) and (b) quoted above were
never complied with or implemented. Not only was there no initial deposit
of P150,000 as required in the resolution, TRB also disapproved the document
prepared by the receiver, which would have released Ching from his
suretyship.35cräläwvirtualibräry
The Ruling of the Trial Court
The trial court found Ching liable to TRB for P19,333,558.16 under the Deed of
Suretyship. The trial court explained:
[T]he liability of Ching as a surety attaches independently from his capacity as a

stockholder of the Philippine Blooming Mills. Indisputably, under the Deed of
Suretyship defendant Ching unconditionally agreed to assume PBMs liability to the
plaintiff in the event PBM defaulted in the payment of the said obligation in addition to
whatever penalties, expenses and bank charges that may occur by reason of default.
Clear enough, under the Deed of Suretyship (Exh. J), defendant Ching bound himself
jointly and severally with PBM in the payment of the latters obligation to the plaintiff.
The obligation being solidary, the plaintiff Bank can hold Ching liable upon default of
the principal debtor. This is explicitly provided in Article 1216 of the New Civil Code
already quoted above.36cräläwvirtualibräry
The dispositive portion of the trial courts Decision reads:
WHEREFORE, judgment is hereby rendered declaring defendant Alfredo Ching

liable to plaintiff bank in the amount of P19,333,558.16 (NINETEEN MILLION THREE
HUNDRED THIRTY THREE THOUSAND FIVE HUNDRED FIFTY EIGHT & 16/100)
as of October 31, 1991, and to pay the legal interest thereon from such date until it is
fully paid. To pay plaintiff 5% of the entire amount by way of attorneys fees.
SO ORDERED.37chanroblesvirtuallawlibrary
The Ruling of the Court of Appeals
On appeal, Ching stated that as surety and solidary debtor, he should benefit from
the changed nature of the obligation as provided in Article 1222 of the Civil Code,
which reads:
Article 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all
defenses which are derived from the nature of the obligation and of those which are
personal to him, or pertain to his own share. With respect to those which personally
belong to the others, he may avail himself thereof only as regards that part of the
debt for which the latter are responsible.
Ching claimed that his liability should likewise be reduced since the equitable
apportionment of PBMs remaining assets among its creditors under the rehabilitation
proceedings would have the effect of reducing PBMs liability. He also claimed that
the amount for which he was being held liable was excessive. He contended that the
outstanding principal balance, as stated in TRB Board Resolution No. 5893-1990,
was only P5,650,749.09.38 Ching also contended that he was not liable for interest,
as the loan documents did not stipulate the interest rate, pursuant to Article 1956 of
the Civil Code.39 Finally, Ching asserted that the Deed of Suretyship executed on 21
July 1977 could not guarantee obligations incurred after its
execution.40cräläwvirtualibräry
TRB did not file its appellees brief. Thus, the Court of Appeals resolved to submit the
case for decision.41cräläwvirtualibräry
The Court of Appeals considered the following issues for its determination:
1. Whether the Answer of Ching amounted to an admission of liability.
2. Whether Ching can still be sued as a surety after the SEC placed
PBM under rehabilitation receivership, and if in the affirmative, for how
much.42
The Court of Appeals resolved the first two questions in favor of TRB. The appellate
court stated:
Ching did not deny under oath the genuineness and due execution of the L/Cs, Trust
Receipts, Undertaking, Deed of Surety, and the 3.5 Million Peso Promissory Note
upon which TRBs action rested. He is, therefore, presumed to be liable unless he
presents evidence showing payment, partially or in full, of these obligations
(Investment and Underwriting Corporation of the Philippines v. Comptronics
Philippines, Inc. and Gene v. Tamesis, 192 SCRA 725 [1990]).
As surety of a corporation placed under rehabilitation receivership, Ching can answer

separately for the obligations of debtor PBM (Rizal Banking Corporation v. Court of
Appeals, Philippine Blooming Mills, Inc., and Alfredo Ching, 178 SCRA 738 [1990],
and Traders Royal Bank v. Philippine Blooming Mills and Alfredo Ching, 177 SCRA
788 [1989]).
Even a[n] SEC injunctive order cannot suspend payment of the suretys obligation
since the rehabilitation receivers are limited to the existing assets of the
corporation.43cräläwvirtualibräry
The dispositive portion of the Decision of the Court of Appeals reads:
WHEREFORE, the judgment of the lower court is hereby AFFIRMED but modified
with respect to the amount of liability of defendant Alfredo Ching which is lowered
from P19,333,558.16 to P15,773,708.78 with legal interest of 12% per annum until it
is fully paid.
SO ORDERED.44cräläwvirtualibräry
The Court of Appeals denied Chings Motion for Reconsideration for lack of merit.
Hence, this petition.
Issues
Ching assigns the following as errors of the Court of Appeals:
1. THE COURT OF APPEALS COMMITTED AN ERROR WHEN IT

RULED THAT PETITIONER ALFREDO CHING WAS LIABLE FOR
OBLIGATIONS CONTRACTED BY PBM LONG AFTER THE
EXECUTION OF THE DEED OF SURETYSHIP.

RULED THAT THE PETITIONERS WERE LIABLE FOR THE TRUST
RECEIPTS DESPITE THE FACT THAT PRIVATE RESPONDENT
HAD PREVENTED THEIR FULFILLMENT.
FOUND PETITIONER ALFREDO CHING LIABLE
FOR P15,773,708.78 WITH LEGAL INTEREST AT 12% PER ANNUM
UNTIL FULLY PAID DESPITE THE FACT THAT UNDER THE
REHABILITATION PLAN OF PETITIONER PBM, WHICH WAS
APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION,
PRIVATE RESPONDENT IS ONLY ENTITLED TO P1,373,415.00.45
Ching asserted that the Deed of Suretyship dated 21 July 1977 could not answer for
obligations not yet in existence at the time of its execution. Specifically, Ching
maintained that the Deed of Suretyship could not answer for debts contracted by
PBM in 1980 and 1981. Ching contended that no accessory contract of suretyship
could arise without an existing principal contract of loan. Ching likewise argued that
TRB could no longer claim on the trust receipts because TRB had already taken the
properties subject of the trust receipts. Ching likewise maintained that his obligation
as surety could not exceed the P1,373,415 apportioned to PBM under the SEC-
approved rehabilitation plan.
In its Comment, TRB asserted that the first two assigned errors raised factual issues
not brought before the trial court. Furthermore, TRB pointed out that Ching never
presented PBMs rehabilitation plan before the trial court. TRB also stated that the
Supreme Court ruling in Traders Royal Bank v. Court of Appeals 46 constitutes res
judicata between the parties. Therefore, TRB could proceed against Ching separately
from PBM to enforce in full Chings liability as surety.47cräläwvirtualibräry
The Ruling of the Court
The petition has no merit.
The case before us is an offshoot of the trial courts denial of Chings motion to have
the case dismissed against him. The petition is a thinly veiled attempt to make this
Court reconsider its decision in the prior case of Traders Royal Bank v. Court of
Appeals.48 This Court has already resolved the issue of Chings separate liability as a
surety despite the rehabilitation proceedings before the SEC. We held in Traders
Royal Bank that:
Although Ching was impleaded in SEC Case No. 2250, as a co-petitioner of PBM,
the SEC could not assume jurisdiction over his person and properties. The Securities
and Exchange Commission was empowered, as rehabilitation receiver, to take
custody and control of the assets and properties of PBM only, for the SEC has
jurisdiction over corporations only [and] not over private individuals, except
stockholders in an intra-corporate dispute (Sec. 5, P.D. 902-A and Sec. 2 of P.D.
1758). Being a nominal party in SEC Case No. 2250, Chings properties were not
included in the rehabilitation receivership that the SEC constituted to take custody of
PBMs assets. Therefore, the petitioner bank was not barred from filing a suit against
Ching, as a surety for PBM. An anomalous situation would arise if individual sureties
for debtor corporations may escape liability by simply co-filing with the corporation a
petition for suspension of payments in the SEC whose jurisdiction is limited only to
corporations and their corporate assets.
xxx
Ching can be sued separately to enforce his liability as surety for PBM, as expressly
provided by Article 1216 of the New Civil Code.
xxx
It is elementary that a corporation has a personality distinct and separate from its
individual stockholders and members. Being an officer or stockholder of a corporation
does not make ones property the property also of the corporation, for they are
separate entities (Adelio Cruz vs. Quiterio Dalisay, 152 SCRA 482).
Chings act of joining as a co-petitioner with PBM in SEC Case No. 2250 did not vest
in the SEC jurisdiction over his person or property, for jurisdiction does not depend
on the consent or acts of the parties but upon express provision of law (Tolentino vs.
Social Security System, 138 SCRA 428; Lee vs. Municipal Trial Court of Legaspi
City, Br. I, 145 SCRA 408). (Emphasis supplied)
Traders Royal Bank has fully resolved the issue regarding Chings liability as a surety
of the credit accommodations TRB extended to PBM. The decision amounts to res
judicata49 which bars Ching from raising the same issue again. Hence, the only
question that remains is the amount of Chings liability. Nevertheless, we shall resolve
the issues Ching has raised in his attempt to escape liability under his surety.
Whether Ching is liable for obligations PBM contracted after execution of the Deed of
Suretyship
Ching is liable for credit obligations contracted by PBM against TRB before and after
the execution of the 21 July 1977 Deed of Suretyship. This is evident from the tenor
of the deed itself, referring to amounts PBM "may now be indebted or may hereafter
become indebted" to TRB.
The law expressly allows a suretyship for "future debts". Article 2053 of the Civil
Code provides:
A guaranty may also be given as security for future debts, the amount of which is not
yet known; there can be no claim against the guarantor until the debt is liquidated. A
conditional obligation may also be secured. (Emphasis supplied)
Furthermore, this Court has ruled in Diño v. Court of Appeals50 that:
Under the Civil Code, a guaranty may be given to secure even future debts, the
amount of which may not be known at the time the guaranty is executed. This is the
basis for contracts denominated as continuing guaranty or suretyship. A continuing
guaranty is one which is not limited to a single transaction, but which contemplates a
future course of dealing, covering a series of transactions, generally for an indefinite
time or until revoked. It is prospective in its operation and is generally intended to
provide security with respect to future transactions within certain limits, and
contemplates a succession of liabilities, for which, as they accrue, the guarantor
becomes liable. Otherwise stated, a continuing guaranty is one which covers all
transactions, including those arising in the future, which are within the description or
contemplation of the contract of guaranty, until the expiration or termination thereof.
A guaranty shall be construed as continuing when by the terms thereof it is evident
that the object is to give a standing credit to the principal debtor to be used from time
to time either indefinitely or until a certain period; especially if the right to recall the
guaranty is expressly reserved. Hence, where the contract states that the guaranty is
to secure advances to be made "from time to time," it will be construed to be a
continuing one.
In other jurisdictions, it has been held that the use of particular words and
expressions such as payment of "any debt," "any indebtedness," or "any sum," or the
guaranty of "any transaction," or money to be furnished the principal debtor "at any
time," or "on such time" that the principal debtor may require, have been construed to
indicate a continuing guaranty.
Whether Chings liability is limited to the amount stated in PBMs rehabilitation plan
Ching would like this Court to rule that his liability is limited, at most, to the amount
stated in PBMs rehabilitation plan. In claiming this reduced liability, Ching invokes
Article 1222 of the Civil Code which reads:
Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all
defenses which are derived from the nature of the obligation and of those which are
personal to him, or pertain to his own share. With respect to those which personally
belong to the others, he may avail himself thereof only as regards that part of the
debt for which the latter are responsible.
In granting the loan to PBM, TRB required Chings surety precisely to insure full
recovery of the loan in case PBM becomes insolvent or fails to pay in full. This was
the very purpose of the surety. Thus, Ching cannot use PBMs failure to pay in full as
justification for his own reduced liability to TRB. As surety, Ching agreed to pay in full
PBMs loan in case PBM fails to pay in full for any reason, including its insolvency.
TRB, as creditor, has the right under the surety to proceed against Ching for the
entire amount of PBMs loan. This is clear from Article 1216 of the Civil Code:
ART. 1216. The creditor may proceed against any one of the solidary debtors or
some or all of them simultaneously. The demand made against one of them shall not
be an obstacle to those which may subsequently be directed against the others, so
long as the debt has not been fully collected. (Emphasis supplied)
Ching further claims a reduced liability under TRB Board Resolution No. 5935. This
resolution states that PBMs outstanding loans may be reduced to P1.373 million
subject to certain conditions like the payment of P150,000 initial payment.51 The
resolution also states that TRB should not release Chings solidary liability under his
surety. The resolution even directs TRBs management to study Chings criminal
liability under the trust documents.52cräläwvirtualibräry
Chings own witness testified that Resolution No. 5935 was never implemented. For
one, PBM or its receiver never paid the P150,000 initial payment to TRB. TRB also
rejected the document that PBMs receiver presented which would have released
Ching from his suretyship. Clearly, Ching cannot rely on Resolution No. 5935 to
escape liability under his suretyship.
Chings attempts to have this Court review the factual issues of the case are
improper. It is not a function of the Supreme Court to assess and evaluate again the
evidence, testimonial and evidentiary, adduced by the parties particularly where the
findings of both the trial court and the appellate court coincide on the
matter.53cräläwvirtualibräry
Whether Ching is liable for the trust receipts

Ching is still liable for the amounts stated in the letters of credit covered by the trust
receipts. Other than his bare allegations, Ching has not shown proof of payment or
settlement with TRB. Atty. Vicente Aranda, TRBs corporate secretary and First Vice
President of its Human Resource Management Department, testified that the
conditions in the TRB board resolution presented by Ching were not met or
implemented, thus:
ATTY. AZURA
Q Going into the resolution itself. A certain stipulation ha[s] been

outlined, and may I refer you to condition or step No. 1, which reads:
"a) Accept the P1.373 million deposits remitted over a period of 17
years or until 2006 which shall be applied directly to the account (as
remitted per hereto attached schedule). The amount of P1.373 million
shall be considered as full payment of PBMs account. (The receiver is
amenable to this alternative.) The initial deposit/remittance which
amounts to P150,000.00 shall be remitted upon approval of the above
and conforme of PISCOR [xxx] and PBM. Subsequent deposits shall
start on the 3rd year and annually thereafter (every June 30th of the
year) until June 30, 2006.
Failure to pay one annual installment shall make the whole obligation
due and demandable. Now Mr. Witness, would you be in a position to
inform [the court] if these conditions listed in item (a) in Resolution No.
5935, series of 1990, were implemented or met?
A Yes. I know for a fact that the conditions, more particularly the initial
deposit/remittance in the amount of P150,000.00 which have to be
done with approval was not remitted or met.
Q Will you clarify your answer. Would you be in a position to inform

the court if those conditions were met? Because your initial answer
was yes.
A Yes sir, I am in a position to state that these conditions were not

met.
Q Let me refer you to the condition listed as item (b) of the same
resolution which I read and quote: "Write off immediately P4.278
million. The balance of P1.373 million to remain outstanding in the
books of the bank. Said balance will be remitted to the Bank for a
period of 17 years." Mr. Witness, would you be in a position to inform
the court if the bank implemented that particular condition?
A In the implementation of this settlement the receiver prepared a

document for approval and conformity of the bank. The said document
would in effect release the suretyship of Alfredo Ching and for that
reason the bank refused or denied fixing its conformity and approval
with the court.
xxx
ATTY. ATIENZA ON REDIRECT EXAMINATION

Q Mr. Witness you stated that the reason why the plaintiff bank did not
implement these conditionalities [sic] was because the former
defendant corporation requested that the suretyship of Alfredo Ching
be released, is that correct?
A I did not say that. I said that in effect the document prepared by the
lawyer of the receiver xxx the bank would release the suretyship of
Alfredo Ching, that is why the bank is not amenable to such a
document.
Q Despite this approved resolution the bank, because of said

requirement or conformity did not seek to implement these
conditionalities [sic]?
A Yes sir because the conditions imposed by the board is not being
followed in that document because it was the condition of the board
that the suretyship should not be released but the document being
presented to the bank for signature and conformity in effect if signed
would release the suretyship. So it would be a violation with the
approval of the board so the bank did not sign the conformity.54
Ching also claims that TRB prevented PBM from fulfilling its obligations under the
trust receipts when TRB, together with other creditor banks, took hold of PBMs
inventories, including the goods covered by the trust receipts. Ching asserts that this
act of TRB released him from liability under the suretyship. Ching forgets that he
executed, on behalf of PBM, separate Undertakings for each trust receipt expressly
granting to TRB the right to take possession of the goods at any time to protect TRBs
interests. TRB may exercise such right without waiving its right to collect the full
amount of the loan to PBM. The Undertakings also provide that any suspension of
payment or any assignment by PBM for the benefit of creditors renders the loan due
and demandable. Thus, the separate Undertakings uniformly provide:
2. That the said BANK may at any time cancel the foregoing trust and take
possession of said merchandise with the right to sell and dispose of the same under
such terms and conditions it may deem best, or of the proceeds of such of the same
as may then have been sold, wherever the said merchandise or proceeds may then
be found and all the provisions of the Trust Receipt shall apply to and be deemed to
include said above-mentioned merchandise if the same shall have been made up or
used in the manufacture of any other goods, or merchandise, and the said BANK
shall have the same rights and remedies against the said merchandise in its
manufactured state, or the product of said manufacture as it would have had in the
event that such merchandise had remained [in] its original state and irrespective of
the fact that other and different merchandise is used in completing such manufacture.
In the event of any suspension, or failure or assignment for the benefit of creditors on
the part of the undersigned or of the non-fulfillment of any obligation, or of the non-
payment at maturity of any acceptance made under said credit, or any other credit
issued by the said BANK on account of the undersigned or of the non-payment of
any indebtedness on the part of the undersigned to the said BANK, all obligations,
acceptances, indebtedness and liabilities whatsoever shall thereupon without notice
mature and become due and payable and the BANK may avail of the remedies
provided herein.55 (Emphasis supplied)
Presidential Decree No. 115 ("PD No. 115"), otherwise known as the Trust Receipts
Law, expressly allows TRB to take possession of the goods covered by the trust
receipts. Thus, Section of 7 of PD No. 115 states:
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 entrustees indebtedness to the entruster. The entrustee
shall receive any surplus but shall be liable to the entruster for any deficiency. Notice
of sale shall be deemed sufficiently given if in writing, and either personally served on
the entrustee or sent by post-paid ordinary mail to the entrustees last known
business address. (Emphasis supplied)
Thus, even though TRB took possession of the goods covered by the trust receipts,
PBM and Ching remained liable for the entire amount of the loans covered by the
trust receipts.
Absent proof of payment or settlement of PBM and Chings credit obligations with
TRB, Chings liability is what the Deed of Suretyship stipulates, plus the applicable
interest and penalties. The trust receipts, as well as the Letter of Undertaking dated
16 April 198056 executed by PBM, stipulate in writing the payment of interest without
specifying the rate. In such a case, the applicable interest rate shall be the legal rate,
which is now 12% per annum.57 This is in accordance with Central Bank Circular No.
416, which states:
By virtue of the authority granted to it under Section 1 of Act No. 2655, as amended,
otherwise known as the "Usury Law," the Monetary Board, in its Resolution No. 1622
dated July 29, 1974, has prescribed that the rate of interest for the loan or
forbearance of any money, goods or credits and the rate allowed in judgments, in the
absence of express contract as to such rate of interest, shall be twelve per cent
(12%) per annum. (Emphasis supplied)
On the other hand, the Promissory Note evidencing the P3,500,000 trust loan
provides for 18% interest per annum plus 2% penalty interest per annum in case of
default. This stipulated interest should continue to run until full payment of
the P3,500,000 trust loan. In addition, the accrued interest on all the credit
accommodations should earn legal interest from the date of filing of the complaint
pursuant to Article 2212 of the Civil Code.
Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded,
although the obligation may be silent upon this point.
The trial court found and the appellate court affirmed that the outstanding principal
amounts as of the filing of the complaint with the trial court on 13 May 1983
were P959,611.96 under Trust Receipt No. 106, P1,191,137.13 under Trust Receipt
No. 113, and P3,500,000 for the trust loan. As extracted from TRBs Statement of
Account as of 31 October 1991,58 the accrued interest on the trust receipts and the
trust loan as of the filing of the complaint on 13 May 1983 were P311,387.5159 under
Trust Receipt No. 106, P338,739.8160 under Trust Receipt No. 113,
and P1,287,616.4461 under the trust loan. The penalty interest on the trust loan
amounted to P137,315.07.62 Ching did not rebut this Statement of Account which
TRB presented during trial.
Thus, the following is the summary of Chings liability under the suretyship as of 13
May 1983, the date of filing of TRBs complaint with the trial court:
1. On Trust Receipt No. 106 (Letter of Credit No. 479 AD)
Outstanding Principal P 959,611.96
Accrued Interest (12% per annum) 311,387.51
2. On Trust Receipt No. 113 (Letter of Credit No. 563 AD)
Outstanding Principal P 1,191,137.13
Accrued Interest (12% per annum) 338,739.82
3. On the Trust Loan (Promissory Note)
Outstanding Principal P 3,500,000.00
Accrued Interest (18% per annum) 1,287,616.44
Accrued Penalty Interest (2% per annum) 137,315.07
WHEREFORE, we AFFIRM the decision of the Court of Appeals with

MODIFICATION. Petitioner Alfredo Ching shall pay respondent
Traders Royal Bank the following (1) on the credit accommodations
under the trust receipts, the total principal amount of P2,150,749.09
with legal interest at 12% per annum from 14 May 1983 until full
payment; (2) on the trust loan evidenced by the Promissory Note, the
principal sum of P3,500,000 with 20% interest per annum from 14 May
1983 until full payment; (3) on the total accrued interest as of 13 May
1983, P2,075,058.84 with 12% interest per annum from 14 May 1983
until full payment. Petitioner Alfredo Ching shall also pay attorneys
fees to respondent Traders Royal Bank equivalent to 5% of the total
principal and interest.
G.R. No. 122502. December 27, 2002

LORENZO M. SARMIENTO, JR. and GREGORIO LIMPIN,
JR., Petitioners, v. COURT OF APPEALS and ASSOCIATED BANKING
CORP., respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Filed with this court is the petition for review under Rule 45 of the Rules of Court
assailing the July 31, 1995 Decision1 of the Court of Appeals in CA-G.R. CV No.
31568 which affirmed the Decision of the Regional Trial Court of Davao City dated
August 1, 1990 in Civil Case No. 19,272-88; and the October 25, 1995
Resolution2 denying petitioners Motion for Reconsideration.
The dispositive portion of the trial courts decision reads as follows:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered ordering

defendants Lorenzo Sarmiento, Jr. and Gregorio Limpin, Jr. to pay jointly and
severally, the plaintiff bank the principal sum of P495,000.00 plus interest thereon at
the legal rate from December 6, 1978 until the full amount is paid; the sum of
P49,500.00 as the agreed attorneys fees and the costs of suit.
Defendant Sarmientos counterclaim is DISMISSED.
SO ORDERED.3cräläwvirtualibräry
The facts of the case as found by the trial court and affirmed by the Court of Appeals
are as follows:
On September 6, 1978, defendant Gregorio Limpin, Jr. and Antonio Apostol, doing
business under the name and style of Davao Libra Industrial Sales, filed an
application for an Irrevocable Domestic Letter of Credit with the plaintiff Bank for the
amount of P495,000.00 in favor of LS Parts Hardware and Machine Shop (herein
after referred to as LS Parts) for the purchase of assorted scrap irons. Said
application was signed by defendant Limpin and Apostol (Exh. A). The aforesaid
application was approved, and plaintiff Bank issued Domestic Letter of Credit No.
DLC No. DVO-78-006 in favor of LS Parts for P495,000.00 (Exh. B). Thereafter, a
Trust Receipt dated September 6, 1978, was executed by defendant Limpin and
Antonio Apostol (Exh. C). In said Trust Receipt, the following stipulation, signed by
defendant Lorenzo Sarmiento, Jr. appears: -
In consideration of the Associated Banking Corporation releasing to Gregorio Limpin

and Antonio Apostol goods mentioned in the trust receipt, we hereby jointly and
severally undertake and agree to pay, on demand, to the Associated Bank
Corporation all sums and amount of money which said Associated Banking
Corporation may call upon us to pay arising out of, pertaining to, and/or any manner
connected with the trust receipt, WE FURTHER AGREE that our liability in this
undertaking shall be direct and immediate and not contingent upon the pursuit by the
Associated Banking Corporation of whatever remedies it may have against the
aforesaid Gregorio Limpin and Antonio Apostol.
SGD. T/LORENZO SARMIENTO, JR.

Surety/Guarantor (Exh. C-1)
Among others, the Trust Receipt (Exh. C) provided that:
The defendants acknowledged to have received in trust from the plaintiff Bank the
merchandise covered by the documents and agreed to hold said merchandise in
storage as the property of the Bank, with liberty to sell the same for cash for its
accounts provided the proceeds thereof are turned over in their entirety to the bank
to be applied against acceptance and any other indebtedness of the defendants to
the bank. (Exh. C-2)
That the defendants shall immediately give notice to said Bank of any average
damage, non-shipment, shortage, non-delivery or other happening not in the usual
and ordinary course of business (Exh. C-3).
That the due date of the Trust Receipt is December 5, 1978, (Exh. C-4).
The defendants failed to comply with their undertaking under the Trust Receipt.
Hence as early as March, 1980, demands were made for them to comply with their
undertaking (Exhs. Q, R to R-2, S, T, D to D-1; F to F-2). However, defendants failed
to pay their account. Legal action against the defendants was deferred due to the
proposed settlement of the account (Exh U). However, no settlement was reached.
Hence the bank, thru counsel, sent a final letter of demand on May 26, 1986 (Exh.
E). On June 11, 1986, a complaint for Violation of the Trust Receipt Law was filed
against the defendants before the City Fiscals Office (Exh. L-3). Thereafter, the
corresponding Information was filed against the defendants. Defendant Lorenzo
Sarmiento, Jr. was, however, dropped from the Information while defendant Gregorio
Limpin, Jr. was convicted (Exh. P to P-9).
The defendants claim that they cannot be held liable as the 825 tons of assorted
scrap iron, subject of the trust receipt agreement, were lost when the vessel
transporting them sunk, and that said scrap iron were delivered to Davao Libra
Industrial Sales, a business concern over which they had no interest whatsoever.
They tried to show that the scrap irons were loaded on board Barge L-1853, owned
and operated by Luzon Stevedoring, for shipment to Toledo Atlas Pier in Cebu (Exh.
1; that the said Barge capsized on October 4, 1978 while on its way to Toledo City,
and a notice of Marine Protest was made by Capt. Jose C. Barrientos (Exh. 2); that
Benigno Azarcon executed an affidavit attesting to the fact that Barge L-1853,
capsized on October 4, 1978 and all its cargoes were washed away (Exh. 3); that
Charlie Torregoza, a security guard of L.S. Sarmiento and Company, Inc., who was
one of those assigned to escort Barge L-1853, prepared an Incident Report, showing
that said Barge capsized on October 4, 1978 and that cargoes were washed away
(Exhs. 4 and 4-A).4cräläwvirtualibräry
After trial, the lower court rendered judgment in favor of herein private respondent
Associated Banking Corporation.
On appeal by herein petitioners Sarmiento, Jr. and Limpin, Jr., the Court of Appeals
affirmed the judgment of the trial court, and, denied the Motion for Reconsideration of
herein petitioner.
Hence, herein petition assigning the following errors:

1. THE RESPONDENT COURT OF APPEALS IN ITS AFOREQUOTED RULING
HAD DEPARTED FROM THE APPLICABLE BASIC PRINCIPLE AND PROCEDURE
TO THE INSTANT CIVIL CASE EMBODYING THE OFFENDED PARTYS
(ASSOCIATED BANK) CLAIM FOR THE CIVIL LIABILITY OF P495,000.00, NOT
HAVING BEEN EXPRESSLY RESERVED BY IT, HAS BEEN NOT ONLY
IMPLIEDLY, BUT IN FACT EXPRESSLY INSTITUTED ALREADY IN CRIMINAL
CASE NO. 14,126, THE INFORMATION FOR WHICH HAD BEEN FILED AHEAD
AND THE PROCEEDINGS CONDUCTED PRIOR TO THE PRESENT CIVIL CASE
BEFORE THE SAME REGIONAL TRIAL COURT OF DAVAO CITY IS
PROCEDURALLY BARRED.
2. THE RESPONDENT COURT OF APPEALS HAD DISREGARDED BY JUDICIAL

FIAT THAT THE RTC OF DAVAO CITY IN CRIMINAL CASE No. 14,126 HAD IN
FACT ALREADY ADJUDGED CIVIL LIABILITY OF THE SAME CLAIM AS HEREIN
IN FAVOR OF COMPLAINANT ASSOCIATED BANK AS AGAINST PETITIONER
GREGORIO LIMPIN, JR.
3. THE RESPONDENT COURT OF APPEALS HAD IGNORED THE CLEAR

ADMITTED FACT OF RECORD THAT FORMAL APPEARANCE OF
COMPLAINANT BANKS COUNSEL HAD BEEN ENTERED IN CRIMINAL CASE
NO. 14,126.5cräläwvirtualibräry
With respect to the second assigned error, we find no cogent reason to disturb the
finding of the RTC of Davao City (Branch 12) in its Order dated December 16,
19886 that the decision promulgated by the RTC of Davao City (Branch 15) in
Criminal Case No. 14,126 did not contain an award of civil liability as it appears in the
dispositive portion of the latter courts Decision dated July 14,
1988.7cräläwvirtualibräry
Being interrelated, we shall discuss jointly the first and third assigned errors.
At the outset, it should be stated that in the Amended Information, dated April 1,
1987, filed in Criminal Case No. 14,126, Lorenzo Sarmiento, Jr. was dropped as an
accused.8 Hence, with respect to Sarmiento Jr., Criminal Case No. 14,126 cannot, in
any way, bar the filing by private respondent of the present civil action against him.
With respect to Limpin, Jr., petitioners claim that private respondents right to institute
separately the civil action for the recovery of civil liability is already barred on the
ground that the same was not expressly reserved in the criminal action earlier filed
against said respondent.
Pertinent to this issue is the then prevailing Rule 111 of the 1985 Rules on Criminal
Procedure. Section 1 thereof provides:
Section 1. Institution of criminal and civil actions. When a criminal action is instituted,
the civil action for the recovery of civil liability is impliedly instituted with the criminal
action, unless the offended party waives the civil action, reserves his right to institute
it separately, or institutes the civil action prior to the criminal action.
Such civil action includes recovery of indemnity under the Revised Penal Code, and
damages under Articles 32, 33, 34 and 2176 of the Civil Code of the Philippines
arising from the same act or omission of the accused.
A waiver of any of the civil actions extinguishes the others. The institution of, or the
reservation of the right to file, any of said civil actions separately waives the others.
The reservation of the right to institute the separate civil actions shall be made before
the prosecution starts to present its evidence and under circumstances affording the
offended party a reasonable opportunity to make such reservation.
x x x.
Under the Revised Rules of Criminal Procedure, effective December 1, 2000,9 the

same Section of the same Rule provides:
Section 1. Institution of criminal and civil actions. -- (a) When a criminal action is
instituted, the civil action for the recovery of civil liability arising from the offense
charged shall be deemed instituted with the criminal action unless the offended party
waives the civil action, reserves the right to institute it separately or institutes the civil
action prior to the criminal action.
The reservation of the right to institute separately the civil action shall be made
before the prosecution starts presenting its evidence and under circumstances
affording the offended party a reasonable opportunity to make such reservation.
x x x.
While a reading of the aforequoted provisions shows that the offended party is
required to make a reservation of his right to institute a separate civil action,
jurisprudence instructs that such reservation may not necessarily be express but may
be implied10 which may be inferred not only from the acts of the offended party but
also from acts other than those of the latter.
Demonstrative of the principle of implied reservation of a separate civil action are the
cases of Vintola vs. Insular Bank of Asia and America,[11] Bernaldes, Sr. vs. Bohol
Land Transp., Inc.12 and Jarantilla vs. Court of Appeals.[13]
In the Vintola case, Insular Bank of Asia and America (IBAA, for brevity) charged
spouses Tirso and Loreta Vintola with Estafa. The spouses were acquitted on the
ground that the element of misappropriation or conversion was inexistent.
Subsequently, IBAA filed a civil case to recover the value of the goods allegedly
misappropriated or converted. The lower court initially dismissed the complaint
holding that Vintolas acquittal in the criminal case barred the complaint, but on
motion for reconsideration filed by IBAA the lower court ruled in favor of the latter. On
appeal, the Vintolas contended that the civil action is already barred by the judgment
in the criminal case because IBAA did not reserve in the criminal case its right to
enforce separately the Vintolas civil liability. They claim that by actively intervening in
the prosecution of the criminal case through a private prosecutor, IBAA had chosen
to file the civil action impliedly with the criminal action, pursuant to Section 1, Rule
111 of the 1985 Rules on Criminal Procedure. In ruling that the Estafa case is not a
bar to the institution of a civil action for collection, this Court held that:
[i]t is inaccurate for the VINTOLAS to claim that the judgment in the estafa case had
declared that the facts from which the civil action might arise, did not exist, for it will
be recalled that the decision of acquittal expressly declared that the remedy of the
Bank is civil and not criminal in nature. This amounts to a reservation of the civil
action in IBAAs favor for the Court would not have dwelt on a civil liability that it had
intended to extinguish by the same decision.
In the Bernaldes case, plaintiffs spouses Nicasio Bernaldes, Sr. and Perpetua Besas

together with their minor son, Jovito, filed a complaint for damages against defendant
Bohol Land Transportation Co. for the death of Jovitos brother Nicasio, Jr. and for
serious physical injuries obtained by Jovito when the bus in which they were riding,
fell off a deep precipice. Defendant bus company moved to dismiss the complaint on
the ground that in the criminal case earlier filed against its bus driver, plaintiffs
intervened through their counsel but did not reserve therein their right to file a
separate action for damages. The lower court sustained defendants motion to
dismiss. On appeal, this Court held that the dismissal was improper and ruled thus:
True, appellants, through private prosecutors, were allowed to intervene whether

properly or improperly we do not decide here in the criminal action against appellees
driver, but if that amounted inferentially to submitting in said case their claim for civil
indemnity, the claim could have been only against the driver but not against appellee
who was not a party therein. As a matter of fact, however, inspite of appellees
statements to the contrary in its brief, there is no showing in the record before Us that
appellants made of record their claim for damages against the driver or his employer;
much less does it appear that they had attempted to prove such damages. The
failure of the court to make any pronouncement in its decision concerning the
civil liability of the driver and/or of his employer must therefore be due to the
fact that the criminal action did not involve at all any claim for civil indemnity.
[14] (Emphasis supplied)
Later, in Jarantilla, this Court ruled that the failure of the trial court to make any
pronouncement, favorable or unfavorable, as to the civil liability of the accused
amounts to a reservation of the right to have the civil liability litigated and determined
in a separate action, for nowhere in the Rules of Court is it provided that if the court
fails to determine the civil liability, it becomes no longer
enforceable.15cräläwvirtualibräry
Nothing in the records at hand shows that private respondent ever attempted to
enforce its right to recover civil liability during the prosecution of the criminal action
against petitioners.
Petitioners correctly raised in their third assigned error that private respondents
counsel made a formal entry of appearance in Criminal Case No. 14,126.16 However,
it is undisputed that in the early proceedings of the criminal action, private
respondents counsel moved to withdraw his appearance. The trial court, in its Order
dated September 4, 1987, granted such motion. 17 This Court has previously held
that the appearance of the offended party in the criminal case through a private
prosecutor may not per se be considered either as an implied election to have his
claim for damages determined in said proceedings or a waiver of his right to have it
determined separately.18 He must actually or actively intervene in the criminal
proceedings as to leave no doubt with respect to his intention to press a claim for
damages in the same action.19 In the present case, it can be said with reasonable
certainty that by withdrawal of appearance of its counsel in the early stage of the
criminal proceedings, the private respondent, indeed, had no intention of submitting
its claim for civil liability against petitioners in the criminal action filed against the
latter.
Furthermore, private respondents right to file a separate complaint for a sum of
money is governed by the provisions of Article 31 of the Civil Code, to wit:
Article 31. When the civil action is based on an obligation not arising from the act or
omission complained of as a felony, such civil action may proceed independently of
the criminal proceedings and regardless of the result of the latter.
In the present case, private respondents complaint against petitioners was based on
the failure of the latter to comply with their obligation as spelled out in the Trust
Receipt executed by them.20 This breach of obligation is separate and distinct from
any criminal liability for misuse and/or misappropriation of goods or proceeds realized
from the sale of goods, documents or instruments released under trust receipts,
punishable under Section 13 of the Trust Receipts Law (P.D. 115) in relation to
Article 315(1), (b) of the Revised Penal Code. Being based on an obligation ex
contractu and not ex delicto, the civil action may proceed independently of the
criminal proceedings instituted against petitioners regardless of the result of the
latter.21cräläwvirtualibräry
WHEREFORE, the petition is denied and the assailed Decision and Resolution of the
Court of Appeals are hereby AFFIRMED.
No pronouncement as to costs.
G.R. 133877. November 14, 2001
RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, vs. ALFA RTW

MANUFACTURING CORPORATION, BA FINANCE CORPORATION, NORTH
AMERICAN GARMENTS CORPORATION, JOHNNY TENG, RAMON LEE,
ANTONIO LACDAO, RAMON LUY and ALFA INTEGRATED TEXTILE
MILLS, Respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Petition for review on certiorari assailing the decision of the Court of Appeals in CA-
G.R. C.V. No. 42293.
On March 12, 1982, Rizal Banking Corporation (RCBC) filed with the Regional Trial
Court of Makati, Branch 145, Civil Case No. 2624 for a sum of money against Alfa
RTW Manufacturing Corporation, Johnny Teng, Ramon Lee, Antonio Lacdao, Ramon
Luy and Alfa Integrated Textile Mills. Asserting a superior right over the property
involved in the suit, North Atlantic Garments Corporation filed a complaint in
intervention. BA Finance Corporation, claiming as mortgagee of the same property,
filed an answer in intervention. After hearing, the trial court rendered judgment on
August 19, 1991, the dispositive portion 1 of which reads:
WHEREFORE, judgment is rendered in favor of plaintiff as follows:
1. Ordering all defendants to pay, jointly and severally, to plaintiff the amount of
Eighteen Million Nine Hundred Sixty-one Thousand Three Hundred Seventy-two
Pesos and Forty-three Centavos (P18,961,372.43), Philippine Currency, (inclusive of
interest, service charges, litigation expenses and attorneys fees), with interest
thereon at the legal rate from February 15, 1988 until fully paid. The proceeds from
the sale of defendant Alfas ready to wear apparel, in the sum of P73,133.70, should
be deducted from the principal obligation of P18,961,372.43;
2. Declaring that the respective liens of intervenors BA Finance Corporation and

North American Garments Corporation over the properties attached by the sheriff are
inferior to that of plaintiff.
3. Ordering defendants and intervenors to pay the proportionate costs.
"SO ORDERED.
On appeal, the Court of Appeals affirmed with modification 2 the RTC decision, thus:
WHEREFORE, premises considered, the decision appealed from is hereby

AFFIRMED, with the modification that instead of P18,961,372.43, all the defendants
are hereby ordered to pay, jointly and severally to plaintiff the amount of
P3,060,406.25, Philippine Currency, inclusive of stipulated interest, service charges,
litigation expenses and attorneys fees, with interest thereon at the legal rate from
February 15, 1988, until fully paid.
"All other disquisitions of the trial court are hereby AFFIRMED.
"SO ORDERED.
In this petition, RCBC questions the Court of Appeals decision insofar as it modified
the RTC decision by decreasing the award in its favor from P18,961.372.43 to
P3,060,406.25. In assailing the Court of Appeals decision, petitioner RCBC raises a
question of law, that is, whether or not the Court of Appeals can deviate from the
provisions of the contract between the parties, which contract is the law between
them.
The facts as summarized by the Court of Appeals are:
From the records of the case, it appears that defendant Alfa RTW Manufacturing
Corporation (Alfa RTW), on separate instances, had applied for and was granted by
the plaintiff Rizal Commercial Banking Corporation (RCBC) four Letters of Credit
(RO-80/2487, RO-80/2789, RO-80/D-1795 and RO-81/D-1800 marked as Exhibits A,
D, G, and J, respectively) to facilitate its purchase of raw materials for its garments
business. Upon such letters of credit, corresponding bills of exchange (Exhibits B, E,
H, and K) of various amounts were drawn, and charged to the account of said
defendants.
The defendant Alfa RTW, in turn, had executed four Trust Receipts (Exhibits C, F, I
and L), stipulating that it had received in trust for the plaintiff bank the goods and
merchandise described therein, and which were purchased with the drawings upon
the letters of credit.
When the obligations upon the said commercial documents became due, the plaintiff
demanded payment of the defendants undertakings, citing two documents allegedly
executed by the individual defendants Johnny Teng, Ramon Lee, Antonio D. Lacdao
and Ramon Uy and Alfa Integrated Textile Mills Inc. (Alfa ITM), labeled
Comprehensive Surety Agreements (Exhibits N and M) dated September 8, 1978
and October 10, 1979.
Under such Comprehensive Surety Agreements, it was essentially agreed that for
and in consideration of any existing indebtedness to plaintiff bank of defendant Alfa
RTW and/or in order to induce the plaintiff bank at any time thereafter to make loans
or advances or increases thereof or to extend credit in any other manner to or for the
account of defendant, Alfa ITM and the signatory officers agreed to guarantee in joint
and several capacity the punctual payment at maturity to plaintiff bank of any and all
such indebtedness and/or other obligations and also any and all indebtedness of
every kind which was then or may thereafter become due or owing to plaintiff bank by
the defendant Alfa RTW, together with any and all expenses of collection, etc.,
provided, however, that the liability of individual defendants and defendant Alfa
Integrated Textile Mills, Inc. thereunder shall not exceed the sum of P4,000,000.00
and P7,500,000.00 and such interest as may accrue thereon and expenses as may
be incurred by plaintiff bank. (p. 4, Complaint)
Petitioner RCBC contends that the Court of Appeals erred in awarding to it the
minimal sum of P3,060,406.25 instead of P18,961,372.43 granted by the trial court.
The rule is well settled that the jurisdiction of this Court in cases brought before it
from the Court of Appeals via Rule 45 of the 1997 Rules of Civil Procedure, as
amended, is limited to reviewing errors of law. Findings of fact of the latter court are
conclusive, except in a number of instances. In Siguan vs. Lim 3 this Court
enumerated those instances when the factual findings of the Court of Appeals are not
deemed conclusive, to wit: (1) when the conclusion is a finding grounded entirely on
speculations, surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when
the judgment is based on a misapprehension of facts; (5) when the findings of facts
are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the
issues of the case and the same is contrary to the admissions of both the appellant
and appellee; (7) when the findings are contrary to those of the trial court; (8) when
the findings are conclusions without citation of specific evidence on which they are
based; (9) when the facts set forth in the petition as well as in the petitioners main
and reply briefs are not disputed by the respondent; and (10) when the findings of
fact are premised on the supposed absence of evidence and contradicted by the
evidence on record.
In the case at bar, exception No. 6 is present. Here, the Court of Appeals made
findings contrary to the admissions of the parties. We refer to the terms and
conditions agreed upon by petitioner RCBC and respondent borrowers in the Trust
Receipts 4 and the Comprehensive Surety Agreements. 5cräläwvirtualibräry
Significantly, the validity of those contracts is not being questioned. It follows that the
very terms and conditions of the same contracts become the law between the
parties.
Herein lies the reversible error on the part of the Court of Appeals. When it ruled that
only P3,060,406.25 should be awarded to petitioner RCBC, the Appellate Court
disregarded the parties stipulations in their contracts of loan, more specifically, those
pertaining to the agreed (1) interest rates, (2) service charges and (3) penalties in
case of any breach thereof. 6 Indeed, the Court of Appeals failed to apply this time-
honored doctrine:
That which is agreed to in a contract is the law between the parties. Thus, obligations
arising from contracts have the force of law between the contracting parties and
should be complied with in good faith.7cräläwvirtualibräry
The Court cannot vary the terms and conditions therein stipulated unless such
stipulation is contrary to law, morals, good customs, public order or public
policy.8cräläwvirtualibräry
In relation to the determination and computation of interest payments, this Court,

in Eastern Shipping Lines, Inc. vs. Court of Appeals, 9 through Mr. Justice Jose C.
Vitug, held:
The ostensible discord is not difficult to explain. The factual circumstances may have
called for different applications, guided by the rule that the courts are vested with
discretion, depending on the equities of each case, on the award of interest.
Nonetheless, it may not be unwise, by way of clarification and reconciliation, to
suggest the following rules of thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,

delicts or quasi-delicts is breached, the contravenor can be held liable for damages.
The provisions under Title XVIII on Damages of the Civil Code govern in determining
the measure of recoverable damages.
II. With regard particularly to an award of interest, in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of

a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from
the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of

money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand
can be established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money

becomes final and executory, the rate of legal interest whether
the case falls under paragraph 1 or paragraph 2, above, shall
be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a
forbearance of credit.. (Emphasis supplied).
The case now before us involves an obligation arising from a letter of credit-trust
receipt transaction. Under this arrangement, a bank extends to a borrower a loan
covered by the letter of credit, with the trust receipt as security of the loan. 10 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 thru
utilization, as collateral, of the merchandise imported or
purchased. 11cräläwvirtualibräry
In contracts contained in trust receipts, the contracting parties may establish

agreements, terms and conditions they may deem advisable, provided they are not
contrary to law, morals or public order. 12 In the case at bar, there are specific
amounts of interest, service charges and penalties agreed upon by the parties.
Pertinent provisions in the four (4) trust receipts (TR. No. 1909, TR. No. 1932, TR.
No. 1732, and TR No. 2065) 13 read:
All obligations of the undersigned under this Trust Receipt shall bear interest at the
rate of sixteen per centum (16%) per annum plus service charge of two per
centum (2%) per annum from the date of the execution of this Trust Receipt until
paid. It is expressly agreed and understood that regardless of the maturity date
hereof, I/we hereby authorize the said Bank to correspondingly increase the interest
of this Trust Receipt to the extent allowed by law without notice to me/us whenever
the Central Bank of the Philippines raises the interest on borrowings of Banks or the
interest provided for in the Usury Law, or whenever , in the sole judgment of the
holder of this Trust Receipt is warranted by the increase in money market rates or by
similar events.
Without prejudice to the criminal action that may be brought by the Bank against the
entrustee by reason of default or breach of this Trust Receipt, I/we agree to pay a
penalty and/or liquidated damages equivalent to six per centum (6%) per annum of
the amount due and unpaid.
In the event of the bringing of any action or suit by you or any default of the
undersigned hereunder: I/we shall on demand pay you reasonable attorneys and
other fees and cost of collection, which shall in no case be less than ten per
centum (10%) of the value of the property and the amount involved by the action or
suit.
If there are two or more signatories on this Trust Receipt, our obligations hereunder
shall in all cases be joint and several.
Applying the above-quoted rules of thumb in the computation of interest, as

enunciated by this Court in Eastern Shipping Lines, Inc., 14 the principal amount of
loans corresponding to each trust receipt must earn an interest at the rate of sixteen
percent (16%) per annum 15 with the stipulated service charge of two percent (2%)
per annum on the loan principal or the outstanding balance thereof, 16 from the date
of execution until finality of this Decision. 17 A penalty of six percent (6%) per annum
of the amount due and unpaid must also be imposed computed from the date of
demand (in this case on March 9, 1982), 18 until finality of Judgment. 19 The interest of
16% percent per annum, as long as unpaid, also earns interest, computed from the
date of the filing of the complaint (March 12, 1982) until finality of this Courts
Decision. 20 From such date of finality, the total unpaid amount (principal + interest +
service charge + penalty + interest on the interest) computed shall earn interest of
12% per annum until satisfied.
The Court of Appeals awarded only the sum of P3,060,406.25 as it was the amount
prayed for in the complaint. The Appellate Court, however, failed to consider that the
complaint was filed on March 12, 1982, or just a year after the execution of the trust
receipts. The computed interests then, the service charge, the penalty and the
attorneys fees corresponded only to one year. The interest on the interest could not
have been computed then since the finality of judgment could not yet be ascertained.
Significantly, from the filing of the complaint on March 12, 1982 up to the time the
Appellate Courts decision was promulgated, on May 14, 1998, there had been a
lapse of sixteen years. The computed interest in 1982 would no longer be true in
1998. What the Appellate Court should have done then was to compute the total
amount due in accordance with the rules of thumb laid down by this Court in Eastern
Shipping Lines, Inc., 21 the resulting formula of which is as follows:
TOTAL AMOUNT DUE = principal + interest + service charge + penalty + interest on

interest
Interest = principal x 16 % per annum x no. of years from date of execution until
finality of judgment
Service charge = principal x 2% per annum x no. of years from date of execution until
Penalty = principal x 6% per annum x no. of years from demand (March 9, 1982) until
Interest on interest = Interest computed as of the filing of the complaint (March 12,
1982) x 12% x no. of years until finality of judgment
Attorneys fees is 10% of the total amount computed as of finality of judgment
Total amount due as of the date of finality of judgment will earn an interest of 12%
per annum until fully paid.
The total amount due corresponding to each of the four (4) contracts of loan may be
easily determined by the trial court through a simple mathematical computation
based on the formula specified above. Mathematics is an exact science, the
application of which needs no further proof from the parties.
WHEREFORE , the petition is hereby GRANTED. The assailed decision of the Court
of Appeals is MODIFIED in the sense that the award to petitioner RCBC of
P3,060,406.25 is SET ASIDE and substituted with an amount to be computed by the
trial court, upon finality of this Decision, in accordance with the formula indicated
above.

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SOUTH CITY HOMES, INC., FORTUNE MOTORS (PHILS.

"WHEREFORE, premises considered, the appealed Decision (as

Date of Draft Amount Due

and the attorney's fees and costs of suit.

The facts, as found by the Court of Appeals, are as follows:

"The present controversy relates to the rights of an assignee

"On February 3, 1983, Palawan Lumber Manufacturing Corporation

"Subsequently, Canlubang Automotive Resources Corporation

Date of Draft Amount

"(Folder of Exhibits, pp. 1, 4, 7, 8, 11 and 14).

"Fortune Motors Corporation thereafter executed trust receipts

"Upon failure of the defendant-appellant Fortune Motors Corporation

"After due hearing, the court denied the motion to discharge

"During the pre-trial, efforts to reach a compromise was not

"Fortune Motors Corporation filed a motion to lift the writ of attachment

"Acting on the motion to sell levied properties filed by defendant

"WHEREFORE, judgment is hereby rendered:

"1. Ordering defendants Fortune Motors, Palawan Lumber

"2. Ordering defendants Fortune Motors, Palawan Manufacturing

"3. Ordering defendant Fortune Motors, Palawan Manufacturing

"5. Ordering defendants Fortune Motors, Palawan Lumber

"6. Ordering defendants Fortune Motors, Palawan Lumber

"7. Ordering defendant Fortune Motors, Palawan Lumber

"8. Dismissing plaintiff's complaint against South City Homes, Aurelio

"9. Ordering Deputy Sheriff Jorge Victorino to return to Intervenor

"10. Dismissing the complaint-in-intervention in so far as the three

"11. Dismissing the complaint-in-intervention against Fortune Motor for

"12. Ordering the parties-in-intervention to bear their respective

"Upon execution, the sheriff may cause the judgment to be satisfied

"Paragraphs 9 and 10 now read:

"9. Ordering Deputy Sheriff Jorge C. Victorino to return

"10. Ordering the plaintiff, in the event the motor

"x x x" (Records, pp. 664-665)

"Plaintiffs BA Finance Corporation, defendants Fortune Motors Corp.

On September 8, 1998, the Court of Appeals promulgated a decision, the dispositive

Hence, this appeal.4

The Court's Ruling

Article 2053 of the Civil Code provides that:

In Fortune Motors (Phils.) Corporation v. Court of Appeals,6 we held:

"x x x Of course, a surety is not bound under any particular principal

"Comprehensive or continuing surety agreements are in fact quite

An assignment of credit is an agreement by virtue of which the owner

"x x x Moreover, in assignment, the debtor's consent is not essential

"Article 1626 also shows that payment of an obligation which is

"What the law requires in an assignment of credit is not the consent of

ALFREDO CHING and ENCARNACION CHING, Petitioners, v. THE HON. COURT

The following facts are undisputed:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

WHEREFORE, let a writ of preliminary attachment issue as against the defendant

On November 16, 1993, Encarnacion T. Ching, assisted by her husband Alfredo

3.Furthermore, assuming in gracia argumenti that the supposed movant has the

WHEREFORE, the instant Motion to Quash Preliminary Attachment,

1.The respondent Judge exceeded his authority thereby acted without

2.The respondent Judge committed a grave abuse of discretion in

Citing Wong v. Intermediate Appellate Court,41 the CA ruled that the presumption in

It was incumbent upon the private respondent to adduce a sufficiently strong

Art. 161.The conjugal partnership shall be liable for:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

The petitioner-husband signed the continuing guaranty and suretyship agreement as

It could be argued that the petitioner-husband was a member of the Board of

Spouses RAMON R. NACU and LOURDES I. NACU, petitioners,

Geofredo E. Mabunga and Froilan D. Cabaltera for petitioners.

On July 12, 1982, respondent Pilipinas Bank extended to Home Construction-Joint

To secure this Home Construction-Joint Venture credit accommodation, petitioners

In consideration of this JBS and PI Construction Joint Venture credit accommodation,