COMMERCIAL LAWS.docx

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[2004V859] LANDL & COMPANY (PHIL.) INC., PERCIVAL G. LLABAN and MANUELP. LUCENTE, Petitioners,versus METROPOLITAN BANK & TRUST COMPANY,

Respondent.2004 Jul 301st DivisionG.R. No. 159622DECISION

YNARES-SANTIAGO, J.:

At issue in this petition for review on certiorari is whether or not, in a trust receipt transaction, an

entruster which had taken actual and juridical possession of the goods covered by the trust receipt may

subsequently avail of the right to demand from the entrustee the deficiency of the amount covered by the

trust receipt.

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

Respondent Metropolitan Bank and Trust Company (Metrobank) filed a complaint for sum of money

against Landl and Company (Phil.) Inc. (Landl) and its directors, Percival G. Llaban and Manuel P.

Lucente before the Regional Trial Court of Cebu City, Branch 19, docketed as Civil Case No. CEB-4895.

Respondent alleged that petitioner corporation is engaged in the business of selling imported welding rodsand alloys. On June 17, 1983, it opened Commercial Letter of Credit No. 4998 with respondent bank, in

the amount of US$19,606.77, which was equivalent to P218,733.92 in Philippine currency at the time the

transaction was consummated. The letter of credit was opened to purchase various welding rods and

electrodes from Perma Alloys, Inc., New York, U.S.A., as evidenced by a Pro-Forma Invoice dated

March 10, 1983. Petitioner corporation put up a marginal deposit of P50,414.00 from the proceeds of a

separate clean loan.

As an additional security, and as a condition for the approval of petitioner corporations application

for the opening of the commercial letter of credit, respondent bank required petitioners Percival G. Llaban

and Manuel P. Lucente to execute a Continuing Suretyship Agreement to the extent of P400,000.00,

excluding interest, in favor of respondent bank. Petitioner Lucente also executed a Deed of Assignmentin the amount of P35,000.00 in favor of respondent bank to cover the amount of petitioner corporations

obligation to the bank. Upon compliance with these requisites, respondent bank opened an irrevocable

letter of credit for the petitioner corporation.

To secure the indebtedness of petitioner corporation, respondent bank required the execution of a

Trust Receipt in an amount equivalent to the letter of credit, on the condition that petitioner corporation

would hold the goods in trust for respondent bank, with the right to sell the goods and the obligation to

turn over to respondent bank the proceeds of the sale, if any. If the goods remained unsold, petitioner

corporation had the further obligation to return them to respondent bank on or before November 23, 1983.

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

On November 23, 1983, the maturity date of the trust receipt, petitioner corporation defaulted in the

payment of its obligation to respondent bank and failed to turn over the goods to the latter. On July 24,

1984, respondent bank demanded that petitioners, as entrustees, turn over the goods subject of the trust

receipt. On September 24, 1984, petitioners turned over the subject goods to the respondent bank.


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On July 31, 1985, in the presence of representatives of the petitioners and respondent bank, the

goods were sold at public auction. The goods were sold for P30,000.00 to respondent bank as the highest

bidder.

The proceeds of the auction sale were insufficient to completely satisfy petitioners outstanding

obligation to respondent bank, notwithstanding the application of the time deposit account of petitioner

Lucente. Accordingly, respondent bank demanded that petitioners pay the remaining balance of their

obligation. After petitioners failed to do so, respondent bank instituted the instant case to collect the said

deficiency.

On March 31, 1997, after trial on the merits, the trial court rendered a decision, the dispositive

portion of which reads:

WHEREFORE, foregoing premises considered, Judgment is hereby rendered in favor of the plaintiff and

against the defendant by (1) ordering the defendant to pay jointly and severally to the plaintiff the sum of

P292,172.23 representing the defendants obligation, as of April 17, 1986; (2) to pay the interest at the

rate of 19% per annum to be reckoned from April 18, 1986 until [the] obligation is fully paid; (3) to pay

service charge at the rate of 2% per annum starting April 18, 1986; (4) to pay the sum equivalent to 10%

per annum of the total amount due collectible by way of Attorneys Fees; (5) to pay Litigation Expenses

of P3,000.00 and to pay the cost of the suit; and (6) to pay penalty charge of 12% per annum.

SO ORDERED.[1]

Petitioners appealed to the Court of Appeals, raising the issues of: (1) whether or not respondent

bank has the right to recover any deficiency after it has retained possession of and subsequently effected a

public auction sale of the goods covered by the trust receipt; (2) whether or not respondent bank is

entitled to the amount of P3,000.00 as and for litigation expenses and costs of the suit; and (3) whether or

not respondent bank is entitled to the award of attorneys fees.

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

court.[2]

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

I.

THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN AFFIRMING THE TRIAL

COURTS RULING THAT RESPONDENTHAD THE RIGHT TO CLAIM THE DEFICIENCY FROM

PETITIONERS NOTWITHSTANDING THE FACT THAT THE GOODS COVERED BY THE TRUST

RECEIPT WERE FULLY TURNED OVER TO RESPONDENT.

II.

THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN AFFIRMING THE TRIAL

COURTS PATENTLY ERRONEOUS AWARD OF PRINCIPAL OBLIGATION, INTEREST,

ATTORNEYS FEES, AND PENALTY AGAINST THE PETITIONERS.[3]

The instant petition is partly meritorious.


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The resolution of the first assigned error hinges on the proper interpretation of Section 7 of Presidential

Decree No. 115, or the Trust Receipts Law, which reads:

Sec. 7. Rights of the entruster. - The entruster shall be entitled to the proceeds from the sale of the goods,

documents or instruments released under a trust receipt to the entrustee to the extent of the amount owing

to the entruster or as appears in the trust receipt, or to the return of the goods, documents or instruments in

case of non-sale, and to the enforcement of all other rights conferred on him in the trust receipt provided

such are not contrary to the provisions of this Decree.

The entruster may cancel the trust and take possession of the goods, documents or instruments subject of

the trust or of the proceeds realized therefrom at any time upon default or failure of the entrustee to

comply with any of the terms and conditions of the trust receipt or any other agreement between the

entruster and the entrustee, and the entruster in possession of the goods, documents or instruments may,

on or after default, give notice to the entrustee of the intention to sell, and may, not less than five days

after serving or sending of such notice, sell the goods, documents or instruments at public or private sale,

and the entruster may, at a public sale, become a purchaser. The proceeds of any such sale, whether public

or private, shall be applied (a) to the payment of the expenses thereof; (b) to the payment of the expensesof re-taking, keeping and storing the goods, documents or instruments; (c) to the satisfaction of the

entrustees indebtedness to theentruster. The entrustee shall receive any surplus but shall be liable to the

entruster for any deficiency. Notice of sale shall be deemed sufficiently given if in writing, and either

personally served on the entrustee or sent by post-paid ordinary mail to the entrustee's last known

business address.

There is no question that petitioners failed to pay their outstanding obligation to respondent bank. They

contend, however, that when the entrustee fails to settle his principal loan, the entruster may choose

between two separate and alternative remedies: (1) the return of the goods covered by the trust receipt, in

which case, the entruster now acquires the ownership of the goods which the entrustee failed to sell; or (2)

cancel the trust and take possession of the goods, for the purpose of selling the same at a private sale or atpublic auction. Petitioners assert that, under this second remedy, the entruster does not acquire ownership

of the goods, in which case he is entitled to the deficiency. Petitioners argue that these two remedies are

so distinct that the availment of one necessarily bars the availment of the other. Thus, when respondent

bank availed of the remedy of demanding the return of the goods, the actual return of all the unsold goods

completely extinguished petitioners liability.[4]

Petitioners argument is bereft of merit.

A trust receipt is inextricably linked with the primary agreement between the parties. Time and

again, we have emphasized that a trust receipt agreement is merely a collateral agreement, the purpose of

which is to serve as security for a loan. Thus, in Abad v. Court of Appeals,[5] we ruled:

A letter of credit-trust receipt arrangement is endowed with its own distinctive features and

characteristics. Under that set-up, a bank extends a loan covered by the letter of credit, with the trust

receipt as security for the loan. In other words, the transaction involves a loan feature represented by the

letter of credit, and a security feature which is in the covering trust receipt. x x x.


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A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a "security interest"

in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no

obligation.[6]

The Trust Receipts Law was enacted to safeguard commercial transactions and to offer an

additional layer of security to the lending bank. Trust receipts are indispensable contracts in international

and domestic business transactions. The prevalent use of trust receipts, the danger of their misuse and/or

misappropriation of the goods or proceeds realized from the sale of goods, documents or instruments held

in trust for entruster banks, and the need for regulation of trust receipt transactions to safeguard the rights

and enforce the obligations of the parties involved are the main thrusts of the Trust Receipts Law.[7]

The second paragraph of Section 7 provides a statutory remedy available to an entruster in the event

of default or failure of the entrustee to comply with any of the terms and conditions of the trust receipt or

any other agreement between the entruster and the entrustee. More specifically, the entruster "may cancel

the trust and take possession of the goods, documents or instruments subject of the trust or of the proceeds

realized therefrom at any time". The law further provides that"the entruster in possession of the goods,

documents or instruments may, on or after default, give notice to the entrustee of the intention to sell, andmay, not less than five days after serving or sending of such notice, sell the goods, documents or

instruments at public or private sale, and the entruster may, at a public sale, become a purchaser. The

proceeds of any such sale, whether public or private, shall be applied (a) to the payment of the expenses

thereof; (b) to the payment of the expenses of re-taking, keeping and storing the goods, documents or

instruments; (c) to the satisfaction of the entrustee's indebtedness to the entruster. The entrustee shall

receive any surplus but shall be liable to the entruster for any deficiency."

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

relevant clauses:

The BANK/ENTRUSTER may, at any time, and only at its option, cancel this trust and take possessionof the goods/documents/instruments subject hereof or of the proceeds realized therefrom wherever they

may then be found, upon default or failure of the ENTRUSTEE to comply with any of the terms and

conditions of this Trust Receipt or of any other agreement between the BANK/ENTRUSTER and the

ENTRUSTEE; and the BANK/ENTRUSTER having taken repossession of the

goods/documents/instruments object hereof may, on or after default, give at least five (5) days previous

notice to the ENTRUSTEE of its intention to sell the goods/documents/instruments at public or private

sale, at which public sale, it may become a purchaser; Provided, that the proceeds of any such sale,

whether public or private, shall be applied: (a) to the payment of the expenses thereof; (b) to the payment

of the expenses of retaking, keeping and storing the goods/documents/instruments; (c) to the satisfaction

of all of the ENTRUSTEEs indebtedness to the BANK/ENTRUSTER; and Provided, further, that the

ENTRUSTEE shall receive any surplus thereof but shall, in any case, be liable to theBANK/ENTRUSTER for any deficiency. x x x

No act or omission on the part of the BANK/ENTRUSTER shall be deemed and considered a waiver of

any of its rights hereunder or under any related letters of credit, drafts or other documents unless such

waiver is expressly made in writing over the signature of the BANK/ENTRUSTER.[8]


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The afore-cited stipulations in the trust receipt are a near-exact reproduction of the second paragraph of

Section 7 of the Trust Receipts Law. The right of repossession and subsequent sale at public auction

which were availed of by respondent bank were rights available upon default, and which were conferred

by statute and reinforced by the contract between the parties.

The initial repossession by the bank of the goods subject of the trust receipt did not result in the full

satisfaction of the petitioners loan obligation. Petitioners are apparently laboring under the mistaken

impression that the full turn-over of the goods suffices to divest them of their obligation to repay the

principal amount of their loan obligation. This is definitely not the case. In Philippine National Bank v.

Hon. Gregorio G. Pineda and Tayabas Cement Company, Inc.,[9] we had occasion to rule:

PNBs possession of the subject machinery and equipment be ing precisely as a form of security for the

advances given to TCC under the Letter of Credit, said possession by itself cannot be considered payment

of the loan secured thereby. Payment would legally result only after PNB had foreclosed on said

securities, sold the same and applied the proceeds thereof to TCC's loan obligation. Mere possession does

not amount to foreclosure for foreclosure denotes the procedure adopted by the mortgagee to terminate

the rights of the mortgagor on the property and includes the sale itself.

Neither can said repossession amount to dacion en pago. Dation in payment takes place when property is

alienated to the creditor in satisfaction of a debt in money and the same is governed by sales. Dation in

payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an

accepted equivalent of the performance of the obligation. As aforesaid, the repossession of the

machinery and equipment in question was merely to secure the payment of TCC's loan obligation and not

for the purpose of transferring ownership thereof to PNB in satisfaction of said loan. Thus, no dacion en

pago was ever accomplished. (Citations omitted, underscoring supplied)[10]

Indeed, in the 1987 case of Vintola v. Insular Bank of Asia and America,[11] we struck down the position

of the petitioner-spouses that their obligation to the entruster bank had been extinguished when theyrelinquished possession of the goods in question. Thus:

A trust receipt is a security agreement, pursuant to which a bank acquires a security interest in the

goods. It secures an indebtedness and there can be no such thing as security interest that secures no

obligation. As defined in our laws:

(h) Security Interest means a property interest in goods, documents or instruments to secure

performance of some obligations of the entrustee or of some third persons to the entruster and includes

title, whether or not expressed to be absolute, whenever such title is in substance taken or retained for

security only.

x x x x x x x x x

Contrary to the allegations of the VINTOLAS, IBAA did not become the real owner of the goods.

It was merely the holder of a security title for the advances it had made to the VINTOLAS. The goods

the VINTOLAS had purchased through IBAA financing remain their own property and they hold it at

their own risk. The trust receipt arrangement did not convert the IBAA into an investor; the latter

remained a lender and creditor.


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"x x x for the bank has previously extended a loan which the L/C represents to the importer, and by that

loan, the importer should be the real owner of the goods. If under the trust receipt, the bank is made to

appear as the owner, it was but an artificial expedient, more of a legal fiction than fact, for if it were so, it

could dispose of the goods in any manner it wants, which it cannot do, just to give consistency with the

purpose of the trust receipt of giving a stronger security for the loan obtained by the importer. To

consider the bank as the true owner from the inception of the transaction would be to disregard the loanfeature thereof. x x x"

Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that

because they have surrendered the goods to IBAA and subsequently deposited them in the custody of the

court, they are absolutely relieved of their obligation to pay their loan because of their inability to dispose

of the goods. The fact that they were unable to sell the seashells in question does not affect IBAAs right

to recover the advances it had made under the Letter of Credit. (Citations omitted.)[12]

Respondent banks repossession of the properties and subsequent sale of the goods were completely

in accordance with its statutory and contractual rights upon default of petitioner corporation.

The second paragraph of Section 7 expressly provides that the entrustee shall be liable to the

entruster for any deficiency after the proceeds of the sale have been applied to the payment of the

expenses of the sale, the payment of the expenses of re-taking, keeping and storing the goods, documents

or instruments, and the satisfaction of the entrustees indebtedness to the entruster.

In the case at bar, the proceeds of the auction sale were insufficient to satisfy entirely petitioner

corporations indebtedness to the respondent bank. Respondent bank was thus well within its rights to

institute the instant case to collect the deficiency.

We find, however, that there has been an error in the computation of the total amount of petitioners

indebtedness to respondent bank.

Although respondent bank contends that the error of computation is a question of fact which is beyond the

power of this Court to review,[13] the total amount of petitioners indebtedness in this case is not a

question of fact. Rather, it is a question of law, i.e., the application of legal principles for the computation

of the amount owed to respondent bank, and is thus a matter properly brought for our determination.

The first issue involves the amount of indebtedness prior to the imposition of interest and penalty

charges. The initial amount of the trust receipt of P218,733.92, was reduced to P192,265.92 as of June

14, 1984, as per respondents Statement of Past Due Trust Receipt dated December 1, 1993.[14] This

amount presumably includes the application of P35,000.00, the amount of petitioner Lucentes Deed of

Assignment, which amount was applied by respondent bank to petitioners obligation. No showing was

made, however, that the P30,000.00 proceeds of the auction sale on July 31, 1985 was ever applied to the

loan. Neither was the amount of P50,414.00, representing the marginal deposit made by petitioner

corporation, deducted from the loan. Although respondent bank contends that the marginal deposit

should not be deducted from the principal obligation, this is completely contrary to prevailing

jurisprudence allowing the deduction of the marginal deposit, thus:

The marginal deposit requirement is a Central Bank measure to cut off excess currency liquidity which

would create inflationary pressure. It is a collateral security given by the debtor, and is supposed to be


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returned to him upon his compliance with his secured obligation. Consequently, the bank pays no interest

on the marginal deposit, unlike an ordinary bank deposit which earns interest in the bank. As a matter of

fact, the marginal deposit requirement for letters of credit has been discontinued, except in those cases

where the applicant for a letter of credit is not known to the bank or does not maintain a good credit

standing therein.

It is only fair then that the importers marginal deposit (if one was made, as in this case), should

be set off against his debt, for while the importer earns no interest on his marginal deposit, the bank, apart

from being able to use said deposit for its own purposes, also earns interest on the money it loaned to the

importer. It would be onerous to compute interest and other charges on the face value of the letter of

credit which the bank issued, without first crediting or setting off the marginal deposit which the importer

paid to the bank. Compensation is proper and should take place by operation of law because the

requisites in Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent

amount (Art. 1290, Civil Code). Although Abad is only a surety, he may set up compensation as regards

what the creditor owes the principal debtor, TOMCO (Art. 1280, Civil Code).[15]

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

To this principal amount must be imposed the following charges: (1) 19% interest per annum, in

keeping with the terms of the trust receipt;[16] and (2) 12% penalty per annum, collected based on the

outstanding principal obligation plus unpaid interest, again in keeping with the wording of the trust

receipt.[17] It appearing that petitioners have paid the interest and penalty charges until April 17, 1986,

the reckoning date for the computation of the foregoing charges must be April 18, 1986.

A perusal of the records reveals that the trial court and the Court of Appeals erred in imposing

service charges upon the petitioners. No such stipulation is found in the trust receipt. Moreover, the trial

court and the Court of Appeals erred in computing attorneys fees equivalent to 10% per annum, rather

than 10% of the total amount due. There is no basis for compounding the interest annually, as the trial

court and Court of Appeals have done. This amount would be unconscionable.

Finally, Lucente and Llabans contention that they are not solidarily liable with petitioner

corporation is untenable. As co-signatories of the Continuing Suretyship Agreement, they bound

themselves, inter alia, to pay the principal sum in the amount of not more than P400,000.00; interest due

on the principal obligation; attorneys fees; and expenses that may be incurred in collecting the credit.

The amount owed to respondent bank is the amount of the principal, interest, attorneys fees, and

expenses in collecting the principal amount. The Continuing Suretyship Agreement expressly states the

nature of the liability of Lucente and Llaban:

The liability of the SURETY shall be solidary, direct and immediate and not contingent upon the banks

pursuit of whatever remedies the BANK have [sic] against the Borrower or the securities or liens the

BANK may possess and the SURETY will at any time, whether due or not due, pay to the BANK with or

withour demand upon the Borrower, any of the instruments of indebtedness or other obligation hereby

guaranteed by the SURETY.[18]


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Solidary liability is one of the primary characteristics of a surety contract,[19] and the Continuing

Suretyship Agreement expressly stipulates the solidary nature of Lucente and Llabans liability. Allthree

petitioners thus share the solidary obligation in favor of respondent bank, which is given the right, under

the Civil Code, to proceed against any one of the solidary debtors or some or all of them

simultaneously.[20]

WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. The decision of

the Court of Appeals in CA-G.R. CV No. 58193 dated February 13, 2003 is AFFIRMED with

MODIFICATIONS. Accordingly, petitioners are ordered to pay respondent bank the following: (1)

P211,758.23 representing petitioners net obligation as of April 17, 1986; (2) interest at the rate of 19%

per annum and penalty at the rate of 12% per annum reckoned from April 18, 1986; (3) attorneys fees

equivalent to 10% of the total amount due and collectible; and (4) litigation expenses in the amount of

P3,000.00. The service charge at the rate of 2% per annum beginning April 18, 1986 is deleted. Costs

against petitioners.

SO ORDERED.

2.

[1991V539] DAMIAN ROBLES, petitioner, vs. THE COURT OF APPEALS and THEPEOPLE OF THE PHILIPPINES, respondents.1991 Jul 153rd DivisionG.R. No. 59640

In an information dated 2 March 1978, petitioner Damian Robles was charged before the then Court of

First Instance of Manila with the crime of estafa, committed as follows:

"That in or about and during the penod comprised between November 19, 1976 to March 9, 1977,

inclusive, in the City of Manila, Philippines, the said accused did then and there wilfully, unlawfully and

feloniously defraud the Paramount Business Machines, a business firm duly organized and doing business

in said City, represented by Roberto Ng y Shiang Shee, in the following manner, to wit: the said accused

received in trust from the said Roberto Ng y Shiang Shee office equipments consisting of adding

machines, typewriters and calculators all amounting to P14,895.00 for the purpose of selling the same,

under the express obligation of turning over the proceeds of the sale, if sold, or of returning the said office

equipments if not sold, to the said Roberto Ng y Shiang Shee; but the said accused, once in possession of

the said office equipments and far from complying with his obligation as aforesaid, failed and refused and

still fails and refuses to remit the corresponding amount of the said office equipments or to return the said

office equipments, despite repeated demands made upon him to do so, and instead, with grave abuse of

confidence and with intent to defraud, did then and there wilfully, unlawfully and feloniously

misappropriate, misapply and convert the same to his own personal use and benefit, to the damage and

prejudice of the said Paramount Business Machines, in the said amount of P14,895.00, Philippine

Currency.

Contrary to law." 1

The trial court, in its decision dated 20 February 1979, convicted petitioner Robles of the crime charged.

The dispositive portion of this decision reads:

"WHEREFORE, the Court finds the accused Damian Robles guilty beyond reasonable doubt of the crime

of estafa defined and penalized under the provisions of Article 315 subdivision No. 1 (b) of the Revised

Penal Code and there being no aggravating or mitigating circumstance present and applying the


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provisions of the Indeterminate Sentence Law, hereby sentences the said accused to suffer the penalty of

imprisonment ranging from TWO (2) YEARS, ELEVEN (11) MONTHS and TEN (10) DAYS of prision

correccional in its minimum and medium period as minimum, to SIX (6) YEARS, EIGHT (8) MONTHS

and TWENTY (20) DAYS of prision mayor medium, as maximum, together with the accessory penalties

provided for by law and to pay the costs.

The accused is further ordered to indemnify the complainant the amount of P14,895.00 without subsidiary

imprisonment in case of insolvency.

SO ORDERED." 2

Dissatisfied, petitioner Robles appealed to the Court of Appeals. On 17 September 1981, the appellate

court affirmed petitioner Robles' conviction but modified the penalty imposed by the trial court as

follows:

"WHEREFORE, with the modification that accused-appellant DAMIAN ROBLES shall suffer the

penalty of imprisonment from SIX (6) MONTHS of arresto mayor, as minimum, to TWO (2) YEARS,

ELEVEN (11) MONTHS and TEN (10) DAYS of prision correccional, as maximum, and to indemnifythe complainant the amount of P11,395.00, the appealed decision is hereby affirmed in all other respects,

and with costs against accused-appellant.

SO ORDERED." 3

The facts as found by respondent Court of Appeals are as follows:

"Roberto Ng is the owner and the sales manager of the Paramount Business Machines, a firm dealing in

office equipment and has offices located at 1027 Severino Reyes Street, Sta. Cruz, Manila (pp. 10, 11,

TSN, July 19, 1978).

On November 19, 1976, Roberto Ng entrusted to Damian Robles the following items:

one Casio electronic calculator 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:

one Standard Imperial typewriter

16" carriage P3,500.00

one Standard Imperial typewriter

26" carriage 3,200.00

one Olympia, standard electric typewriter,


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13" carriage 2,800.00

which items were covered by another delivery trust receipt (Exhibit 'B,' Folder of Exhibits; pp. 23, 24, 25,

26, TSN, July 19, 1978). For these items, Damian Robles gave Roberto Ng two postdated checks, PCIB

Checks No. 15654 and 15655 dated March 25, 1977 and March 15, 1977, respectively (Exhibits 'C' and

'C-1,' Folder of Exhibits; pp. 226, 27, TSN, July 19, 1978), for the respective amounts of P3,200.00 and

P4,200.00 (id.). On February 10, 1977, Damian Robles was again entrusted by Roberto Ng with an

Olivetti Manual typewriter, 11" carriage worth P1,000.00, which item was covered by another delivery

receipt (Exhibit 'D,' Folder of Exhibits; p. 33, TSN, July 19, 1978). On March 7, 1977, Damian Robles

received from Roberto Ng one Olivetti adding machine worth P600.00 which item was covered by

another delivery receipt (Exhibit 'E,' Folder of Exhibits; pp. 37, 38, TSN, July 19, 1978). And on March 8,

1977 and March 9, 1977, the same Damian Robles was again entrusted by Roberto Ng the following:

one Olivetti standard typewriter

15" carriage 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:

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


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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 ParamountBusiness Machines ("Paramount") and petitioner state, in relevant part:

"In trust for and as the property of said Paramount Business Machines the above described merchandise

having been delivered to me/us for trial and with the obligation on my/our part to return the same in good

order and condition within 2 days from the date hereof unless before the expiration of said period, I/we

definitely purchase the same and pay the price hereof .

In the meantime, pending the sales of the above described merchandise to me/us, I/we agree and

undertake to be absolutely responsible as insurer for the proper care and conservation of said property and

to be liable for any loss or destruction.

I/we further agree to keep the said property in my/our residence or place of business at the address

indicated herein above and not to remove the same from said promise without the previous knowledge

and consent of Paramount Business Machines." 5

The quoted provisions of the trust receipts show clearly (1) that Paramount retained ownership of the

office equipment covered by the receipts; (2) that possession of the goods was conveyed to petitioner

subject to a fiduciary obligation either to return them within a specified period of time or to pay or

account for the price of proceeds thereof. Surrounding circumstances also showed that the transactions

were not ordinary sales on trial basis. There were six (6) transactions involved, not just one. In each

transaction, there were several items of equipment delivered to petitioner, instead of just one, thereby

indicating that petitioner was not an ordinary buyer who would himself use the articles bought, but rather

a commission merchant. Additional items of equipment were delivered to petitioner even before

compliance with his duty under one trust receipt to return within two (2) days the office equipment he had

received. He admitted in his Affidavit 6 dated 21 October 1977 that he was Paramount's sales agent.

Petitioner, however, failed to return the machines upon demand by Paramount and at the same time, failed

to account for the sale proceeds thereof. We agree with the Court of Appeals and the trial court on this

matter. The Court of Appeals said in part:


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"We hereby agree in full and quote hereunder the following findings and conclusions of the court a quo in

the appealed decision because the same are in accordance with the evidence and the law.

A scrutiny of the evidence presented, the Court is more inclined to give more weight and credibility to the

evidence of the prosecution. The printed conditions are clearly inscribed and forms [sic] part of the

agreement between the accused and the complainant, for on the delivery trust receipts (Exh. A-1) of the

Paramount Business Machines . . .:

xxx xxx xxx

The conditions (Exhibit A-1) stipulated on all the delivery trust receipts signed by the accused specifically

stated that the [items] were received by the accused from the complainant 'in trust for and as property of

the said Paramount Business Machines' and the further stipulation that the same is 'with the obligation on

my/our part to return the same in good order and condition within 2 days from the date hereof ' The

ordinary and accepted meaning of the phrase 'in trust' is an obligation upon a person arising out of a

confidence reposed in him to apply properly, faithfully and according to such confidence (Bouvier's Law

Dictionary, Baldwins Century Edition, page 1192.)

That whatever articles are received in trust by the accused if sold by him the proceeds thereof are to be

turned over to the owner, the complainant herein, and if not sold the same articles are to be returned to the

complainant within two days from receipt of the same.

The provisions of the conditions embodied in the trust receipts need no further interpretation or

elucidation for the same is clear, specific and explicit. The Court has observed the accused to be an

intelligent man far (sic) from his qualification of being a college professor and that he must have fully

understood the contents of the stipulations appearing on the face of the delivery trust receipts which he

actually signed upon receipt of the articles described therein. The period for him (accused) to return the

articles is clear which is '2 days from the date hereof,' meaning from the date he received the articles, the

period mentioned being specifically typed on the blank provided therefore (sic) which the Court believes

the accused could not have missed and is aware he signed these trust receipts." 7

We note in this connection that the delivery trust receipts here involved in fact constituted trust receipts

within the meaning of Presidential Decree No. 115, known as the "Trust Receipts Law," which took effect

on 29 January 1973.

Section 4 thereof defines a "trust receipt" and a "trust receipt transaction" for purposes of the decree in the

following terms:

"Sec. 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of

this Decree, is any transaction by and between a person referred to in this Decree as the entruster, andanother 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


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instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and

conditions specified in the trust receipt, . . ."

We note that under Section 13 of the Trust Receipts Law, the violation by an entrustee of his obligations

under a trust receipt document, more specifically his failure to turnover the proceeds of the sale of the

goods covered by the trust receipt, or to return said goods as they were not sold or disposed of, would

constitute the crime of estafa under Article 315 (1) (b), Revised Penal Code. Section 13 reads as follows:

"SEC. 13. Penalty clause. The failure of an entrustee to turn over the proceeds of the sale of the goods,

documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or

as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or

disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa,

punishable under the provisions of Article Three Hundred and Fifteen, paragraph one (b) of Act Number

Three Thousand Eight Hundred and Fifteen, as amended, otherwise known as the Revised Penal Code. If

the violation or offense is committed by a corporation, partnership, association or other juridical entities,

the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other

officials or persons therein responsible for the offense, without prejudice to the civil liabilities arisingfrom the criminal offense."

In Lee v. Rodil, 8 which involved a criminal prosecution for estafa relating to goods covered by a trust

receipt alleged to have been committed on 26 July 1982, this Court affirmed the conviction for estafa

under paragraph 1 (b), Article 315 of the Revised Penal Code and in the process, upheld Section 13 of

Presidential Decree No. 115 against constitutional challenge. The Court, speaking through Mr. Justice

Gutierrez, Jr., said:

"Acts involving the violation of trust receipt agreements occurring after 29 January 1973 would make the

accused criminally liable for estafa under paragraph 1 (b), Article 315 of the Revised Penal Code,

pursuant to the explicit provision in Sec. 13 of P.D. 115 (Sia v. Court of Appeals, G.R. No. 40324,October 5, 1988).

The petitioner questions the constitutionality of Sec. 13 of P.D. 115. She contends that it is violative of

the constitutional right that 'No person shall be imprisoned for debt or non-payment of a poll tax'.

The petitioner has failed to make out a strong case that P.D. 115 conflicts with the constitutional

prohibition against imprisonment for non-payment of debt. A convincing showing is needed to overcome

the presumption of the validity of an existing statute.

The criminal liability springs from the violation of the trust receipt.

We bear in mind the nature of a trust receipt agreement . . .

xxx xxx xxx

. . . The violation of a trust receipt committed by disposing of the goods covered thereby and failing to

deliver the proceeds of such sale has been squarely made to fall under Art. 315 (1) (b) of the Revised

Penal Code, . . ." 9


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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 fundsor property held in trust is evidence of misappropriation 10 which, not having been explained away or

rebutted by petitioner Damian Robles, warranted his conviction for estafa under the Revised Penal Code.

This was settled doctrine long before the promulgation of the Trust Receipts Law. 11

WHEREFORE, the present Petition for Review is hereby DENIED for lack of merit and the Decision of

the Court of Appeals in C.A.-G.R. No. 23216-CR dated 17 September 1981, is hereby AFFIRMED. Costs

against petitioner.

SO ORDERED.

3.

[2000V827] STATE INVESTMENT HOUSE, INCORPORATED, petitioner, vs. COURTOF APPEALS, PHILIPPINE NATIONAL BANK and SPOUSES FEDERICO L. FRANCOand FELICISIMA R. FRANCO, respondents.2000 Jul 141st DivisionG.R. No. 130365D E C

I S I O N

Private respondent spouses Federico and Felisisima Franco bought four (4) units of M.A.N. Diesel Long

Distance Touring Coaches from Delta Motor Corporation-M.A.N. Division (DMC). To secure payment

therefor, the spouses executed in favor of DMC four (4) promissory notes,1 [Exhibits "7" to "10" (SIHI)]

each with a face value of P800,000.00, as well as four (4) chattel mortgages over said vehicles.

The promissory notes executed by the Franco spouses subsequently became the subject of conflicting

claims by DMCs creditors, namely, the State Investment House, Inc. (SIHI), the Philippine National

Bank (PNB), and the Union Bank of the Philippines (UBP). To determine to whom they should continue

paying the amounts stated in the promissory notes, the spouses filed an action for interpleader in the

Regional Trial Court of Manila.

SIHIs claim

SIHI alleged that in 1979 it granted a twenty-five million peso (P25,000,000) credit line to DMC. In

consideration therefor, DMC bound itself to deliver and assign to SIHI all its contracts to sell, notes,


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accounts, checks, bills of exchange, and choses of actions evidencing actual sales of its merchandise to

DMCs clients. The agreement between SIHI and DMC is embodied in a Continuing Deed of Assignment

of Receivables2 [Exhibit "4" (SIHI)] executed on December 23, 1981.

By March 24, 1992, DMCs availment of the credit line had amounted to P24,010,269.32. Of this sum,

P12,846,939.36 was due and payable. The loan to DMC was subsequently restructured, resulting in a

Memorandum of Agreement3 [Exhibit "5" (SIHI)] whereby DMC agreed to sell P8,000,000 worth of its

receivables to SIHI, the proceeds of which shall be used to pay the loans past due.

On September 13, 1983, DMC executed in favor of SIHI a Deed of Sale4 [Exhibit "6" (SIHI)] of various

accounts receivables amounting to P18,909,100, including the subject promissory notes.

SIHI later sent demand letters dated March 29, 19845 [Exhibit "11" (SIHI)] and June 27, 19846 [Exhibit

"12" (SIHI)] informing the Franco spouses of the assignment and directing that they make payments to

SIHIs office.

PNB's claim

PNBs claim over the promissory notes, on the other hand, is based on a letter of credit7 [Exhibit "1"

(PNB)] granted by PNB to DMC to finance the importation of 325 units of M.A.N. CKD Diesel Bus

Chassis. The imported units supposedly include the four (4) units sold by DMC to the Francos. After

DMC took possession of the units, DMC and PNB entered into a Trust Receipt Agreement8 [Exhibits "4

to 11-D" (PNB)] whereby DMC agreed to hold said merchandise in storage as property of said Bank, with

the liability to sell the same for cash, for its account and to hand the proceeds thereof to the said Bank to

be applied against its acceptance on account of the undersigned, and/or under the terms of the Letter of

Credit noted below; and further agrees to hold said merchandise and the proceeds thereof in trust for the

payment of said acceptance and of any other indebtedness of the undersigned to the said Bank.

A Credit Agreement9 [Exhibit "6" (SIHI)] dated February 17, 1981 was also executed providing that:

(a) The CLIENT shall open and maintain a Special Deposit Account (SDA) with the Bank; (b) All

collections of the CLIENT on the sales of the units and other goods imported under the Letter of Credit as

well as sales of the units subsequently imported out of the aforesaid collections shall be deposited to the

SDA.

In a Deed of Assignment10 [Exhibit "13" (PNB)] dated February 27, 1981, PNB and DMC stipulated

that:

Should the sums of money, credits, receivables or other properties assigned, be in the possession of, or

due or to be due from a third party, then it is hereby agreed that the same shall be remitted by such third

party direct to the ASSIGNEE to be disposed of in accordance with the terms and conditions thereof. The

ASSIGNOR shall obtain the conformity of such third party to this condition.

PNB claimed that the subject promissory notes were covered by this Deed of Assignment, the notes

representing the consideration for the sale of the units imported from the proceeds of the Letter of Credit.

In a Demand Letter11 [Exhibit "E."] dated May 20, 1984, PNB informed the Francos of the assignment

and enjoined payment to PNB.


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UBPs claim

UBP, in turn, obtained a Writ of Garnishment as a result of a judgment against DMC. UBP asserted rights

over the promissory notes by virtue of said writ.

Ruling on these conflicting claims, the RTC held that SIHIs claims over the promissory notes were

superior to those of PNB and UBP. The dispositive portion of the RTCs decision states:

WHEREFORE, judgment is hereby rendered as follows:

(1) Granting this action for interpleader;

(2) Declaring defendant-claimant State Investment House Inc. as the one with superior right over the

obligation (unpaid as of March 29, 1984) of plaintiffs as covered by their promissory notes and chattel

mortgages executed in favor of Delta Motors Corporation, M-A-N Division (Exhs. 7, 8, 9 and 10-SIHI);

(3) Lifting and setting aside the Writ of Preliminary Injunction previously issued;

(4) Dismissing and denying defendants Philippine National Banks and Union Bank of the Philippines

claims;

(5) After the finality of this Decision, defendant SIHI shall be allowed to cause the withdrawal of the

deposit now totaling P634,090.24 to be applied to plaintiffs said allegation;

(6) Plaintiffs and SIHI shall resolve as early as possible the matter concerning the balance of the oft-stated

accounts, and henceforth, plaintiffs shall discharge their remaining obligations (Exhs. 7, 8, 9 and 10-SIHI)

by paying to SIHI.

There shall be pronouncement as to costs.

SO ORDERED.12 [Rollo, p. 82.]

It does not appear that UBP questioned the decision of the RTC. PNB, for its part, appealed to the Court

of Appeals.

In a Decision dated September 10, 1996, the Court of Appeals reversed the decision of the RTC and

declared PNBs claims superior to those of SIHI. It held that under Section 9 of the Trust Receipts

Law,13 [Presidential Decree No. 115.] DMC was merely an entrustee of the products imported and, thus,

obliged to turn over to its entruster, PNB, the proceeds of the sale of said products. The dispositive

portion of said decision is reproduced hereunder:

WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and SET ASIDE. Anew one is hereby rendered.

1. Declaring defendant-appellant PNB as the one having superior rights over the obligation of plaintiffs-

appellees as covered by their promissory notes and chattel mortgages.


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2. After finality of decision, defendant-claimant-appellant PNB shall be allowed to withdraw the proceeds

of the sale deposited by the plaintiffs-spouses Federico L. Franco and Felicisima Franco with the trial

court, to be applied to their and DMC-MANs obligations.

3. Plaintiff-appellee shall discharge their remaining obligation by paying defendant-claimant-appellant

PNB.

4. Dismissing and denying defendant-appellee SIHIs and defendant-appellant UBPs claims.

5. Lifting and setting aside the Writ of Preliminary injunction previously issued by the trial court.

No pronouncement as to cost.14 [Rollo, p. 42.]

The Court of Appeals denied SIHIs motion for reconsideration.

Seeking a review of the adverse decision of the Court of Appeals, SIHI filed in this Court the present

petition for certiorari under Rule 45 of the Rules of Court.

Petitioner SIHI alleges that the vehicles sold by DMC to the Francos were not covered by the trust

receipts agreement between PNB and DMC. Assuming that said vehicles were the subject of said receipts,

SIHI contends that its rights are superior to those of PNB since the former is a purchaser in good faith,

having no notice or knowledge of PNBs interest over the notes. SIHI likewise imputes gross negligence

in PNBs handling of DMCs accounts. Thesubject vehicles were supposedly released to DMC as early

as 1980 and were sold to the Francos in 1981-1982. It was only in May 1984, however, when PNB

asserted its claim over the promissory notes, long after DMC had assigned the notes to SIHI.

The petition is meritorious.

Section 7 of the Trust Receipts Law provides that the entruster shall be entitled to the proceeds from the

sale of the goods released under a trust receipt to the entrustee to the extent of the amount owing to theentruster or as appears in the trust receipt.15 [Section 7 states in full:

SEC. 7. Rights of the entruster. - The entruster shall be entitled to the proceeds from the sale of the goods,

documents or instruments released under a trust receipt to the entrustee to the extent of the amount owing

to the entruster or as appears in the trust receipt, or to the return of the goods, documents or instruments in

case of non-sale, and to the enforcement of all other rights conferred on him in the trust receipt provided

such are not contrary to the provisions of this Decree.

The entruster may cancel the trust and take possession of the goods, documents or instruments subject of

the trust or of the proceeds realized therefrom at any time upon default or failure of the entrustee to

comply with any of the terms and conditions of the trust receipt or any other agreement between theentruster 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


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entruster for any deficiency. Notice of sale shall be deemed sufficiently given if in writing, and either

personally served on the entrustee or sent by post-paid ordinary mail to the entrustee's last known

business address.] The pivotal issue, therefore, is whether the goods released under the trust receipt

include the vehicles purchased by the Franco spouses from DMC and for which the promissory notes

were issued.

PNB contends that this issue is a question of fact. It submits that both the RTC and the Court of Appeals

found that the vehicles are covered by the trust receipts agreement and such findings are conclusive upon

this Court.16 [Rollo, pp. 136-137.]

We are not impressed.

It is true that the decision of the RTC states that PNB "financed Deltas importation of 325 units of

M.A.N. CKD Diesel Bus Chassis - which includes the four (4) units which were sold to plaintiffs."17 [Id.,

at 78. Italics ours.] This statement, however, appears in the recital of the allegations of the parties, and not

in the rationale of its decision.

The Court of Appeals, for its part, held that the "[e]vidence clearly showed that the vehicles sold toplaintiffs were covered by a Trust Receipt Agreement executed between DMC-MAN and defendant

appellant-PNB."18 [Id., at 38.] The appellate court, however, did not refer to any evidence that would

justify its findings. As such, the present case constitutes an exception to the rule on the conclusiveness of

findings of facts.19 [See Cang vs. Court of Appeals, 296 SCRA 128 (1998)]

In any case, this Court has the authority to review and reverse the factual findings of the lower courts if,

as in this case, it finds that such findings do not conform to the evidence on record.20 [Ibid.]

The evidence for PNB fails to establish that the vehicles sold to the Francos were among those covered by

the trust receipts. As petitioner points out, neither the trust receipts covering the units imported nor the

corresponding bills of lading contain the chassis and engine numbers of the vehicles in question.21[Rollo, pp. 12, 146-154.]

PNB asseverates that "the records of the case - is replete with evidence to show that the subject vehicles

are indeed covered by the trust receipts issued by DMC to PNB."22 [Id., at 137.] However, it has not

pointed out which evidence specifically supports its claim. It does not even explain why the bills of lading

for the imported units do not contain the chassis numbers and serial numbers of the subject vehicles.

PNB further asserts that assuming its evidence does not expressly and definitely identify the subject

properties the properties were nevertheless substantially described in PNBs documents, particularly the

Deed of Assignment dated February 27, 1981.23 [Rollo, pp. 138-139.]

We find no such substantial description in said Deed of Assignment. On the contrary, the Deed of

Assignment begs the question. The Deed states that a lien was thereby constituted

from the sale on installments of units assembled from CKD s to be imported from the proceeds of the

letter of credit accommodation granted by the ASSIGNEE to the ASSIGNOR as well as those imported

from subsequent collection from the proceeds of the sale thereof.24 [See Note 10.]


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But just what is the specific description of the units imported by the assignor DMC? Does the Deed of

Assignment include the subject vehicles? The Deed of Assignment does not say.

PNB adds that the Deed of Assignment could not have expressly and definitely mentioned the promissory

notes since said deed, executed on February 27, 1981, predates the notes, which were dated July 18, 1981,

September 23, 1981, February 12, 1982, and March 23, 1982, respectively.25 [Rollo, pp. 138-139.] This

is beside the point, however, for it is not the identity of the promissory that is at issue but that of the units

so imported.

Verily, PNB has failed to prove its claim by a preponderance of evidence, the weakness of its evidence

betrayed by the weakness of its arguments. SIHI, for its part, has successfully discharged its burden. It is

undisputed that the subject notes were covered by the Deed of Sale of receivables executed by DMC in

petitioners favor. Accordingly, SIHI is entitled to the promissory notes in question.

WHEREFORE, the petition is hereby given DUE COURSE and the Decision of the Court of Appeals is

REVERSED. The Decision of the Regional Trial Court is REINSTATED.

SO ORDERED.

4.

[1990V1057] ALLIED BANKING CORPORATION, petitioner, vs. HON. SECRETARYSEDFREY ORDOEZ (Public Respondent) and ALFREDO CHING (Private Respondent),

respondents.1990 Dec 102nd DivisionG.R. No. 82495D E C I S I O N

In this special civil action for certiorari, the interpretation by the Department of Justice of the penal

provision of PD 115, the Trust Receipts Law, is assailed by petitioner.

The relevant facts are as follows:

On 23 January 1981, Philippine Blooming Mills (PBM, for short) thru its duly authorized officer, private

respondent Alfredo Ching, applied for the issuance of commercial letters of credit with petitioner's Makati

branch to finance the purchase of 500 M/T Magtar Branch Dolomites and one (1) Lot High Fired

Refractory Sliding Nozzle Bricks.

Petitioner issued an irrevocable letter of credit in favor of Nikko Industry Co., Ltd. (Nikko) by virtue of

which the latter drew four (4) drafts which were accepted by PBM and duly honored and paid by the

petitioner bank.

To secure payment of the amount covered by the drafts, and in consideration of the transfer by petitioner

of the possession of the goods to PBM, the latter as entrustee, thru private respondent, executed four (4)

Trust Receipt Agreements with maturity dates on 19 May, 3 and 24 June 1981 acknowledging petitioner's

ownership of the goods and its (PBM'S) obligation to turn over the proceeds of the sale of the goods, if

sold, or to return the same, if unsold within the stated period.

Out of the said obligation resulted an overdue amount of P1,475,274.09. Despite repeated demands, PBM

failed and refused to either turn over the proceeds of the sale of the goods or to return the same.

On 7 September 1984, petitioner filed a criminal complaint against private respondent for violation of PD

115 before the office of the Provincial Fiscal of Rizal. After preliminary investigation wherein private


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respondent failed to appear or submit a counter-affidavit and even refused to receive the subpoena, the

Fiscal found a prima facie case for violation of PD 115 on four (4) counts and filed the corresponding

information in court.

Private respondent appealed the Fiscal's resolution to the Department of Justice on three (3) grounds:

1. Lack of proper preliminary investigation;

2. The Provincial Fiscal of Rizal did not have jurisdiction over the case, as respondent's obligation was

purely civil;

3. There had been a novation of the obligation by the substitution of the person of the Rehabilitation

Receivers in place of both PBM and private respondent Ching.

Then Secretary of Justice (now Senator) Neptali A. Gonzales, in a 24 September 1986 letter/resolution, 1

held:

"Your contention that respondent's obligation was purely a civil one, is without any merit. The four (4)

Trust Receipt Agreements entered into by respondent and complainant appear regular in form and in

substance. Their agreement regarding interest, not being contrary to law, public policy or morals, public

order or good custom, is a valid stipulation which does not change the character of the said Trust Receipt

Agreements. Further, as precisely pointed out by complainant, raw materials for manufacture of goods to

be ultimately sold are proper objects of a trust receipt. Thus, respondent's failure to remit to the

complainant proceeds of the sale of the finished products if sold or the finished products themselves if not

sold, at the maturity dates of the trust receipts, constitutes a violation of P.D. 115." 2

A motion for reconsideration alleged that, as PBM was under rehabilitation receivership, no criminal

liability can be imputed to herein respondent Ching. On 17 March 1987, Undersecretary Silvestre H.

Bello III denied said motion.

The pertinent portion of the denial resolution states:

"It cannot be denied that the offense was consummated long before the appointment of rehabilitation

receivers. The filing of a criminal case against respondent Ching is not only for the purpose of

effectuating a collection of a debt but primarily for the purpose of punishing an offender for a crime

committed not only against the complaining witness but also against the state.

The crime of estafa for violation of the Trust Receipts Law is a special offense or mala prohibita. It is a

fundamental rule in criminal law that when the crime is punished by a special law, the act alone,

irrespective of its motives, constitutes the offense. In the instant case the failure of the entrustee to pay

complainant the remaining balance of the value of the goods covered by the trust receipt when the same

became due constitutes the offense penalized under Section 13 of P.D. No. 115; and on the basis of this

failure alone, the prosecution has sufficient evidence to establish a prima facie case (Res. No. 671, s.

1981; Allied Banking Corporation vs. Reinhard Sagemuller, et al., Provincial Fiscal of Rizal, September

18, 1981).

"Likewise untenable is your contention that 'rehabilitation proceedings must stay the attempt to enforce a

liability in view of Section 4 of P.D. No. 1758.' Section 4 of P.D. No. 1758, provides, among others: '. . .


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Provided, further, that upon appointment of a management committee, rehabilitation receiver, board or

body, pursuant to this Decree, all actions for claims against corporations, partnerships or associations

under management or receivership pending before any court, tribunal, board or body shall be suspended

accordingly.

"You will note that the term 'all actions for claims' refer only to actions for money claims but not to

criminal liability of offenders." 3

Another motion for reconsideration was filed by respondent on 9 April 1987 to which an opposition was

filed by the petitioner. Private respondent also filed a supplemental request for reconsideration dated 28

December 1987 with two (2) additional grounds, namely:

". . . 3) there is no evidence on record to show that respondent was in particeps criminis in the act

complained of; and 4) there could be no violation of the trust receipt agreements because the articles

imported by the corporation and subject of the trust receipts were fungible or consummable goods and do

not form part of the steel product itself. These goods were not procured to be sold in whatever state or

condition they were in or were supposed to be after the manufacturing process." 4

Because of private respondent's clarification that the goods subject of the trust receipt agreements were

dolomites which were specifically used for patching purposes over the surface of furnaces and nozzle

bricks which are insulating materials in the lower portion of the ladle which do not form part of the steel

product itself, Justice Secretary Sedfrey Ordoez, on 11 January 1988, "rectified" his predecessor's

supposed reversible error, and held:

". . . it is clear that what the law contemplates or covers are goods which have, for their ultimate

destination, the sale thereof or if unsold, their surrender to the entruster, this whether the goods are in

their original form or in their manufactured/processed state. Since the goods covered by the trust receipts

and subject matter of these proceedings are to be utilized in the operation of the equipment and

machineries of the corporation, they could not have been contemplated as being covered by PD 115. It is

axiomatic that penal statutes are strictly construed against the state and liberally in favor of the accused

(People vs. Purisima, 86 SCRA 542, People vs. Terrado, 125 SCRA 648). This means that penal statutes

cannot be enlarged or extended by intendment, implication, or any equitable consideration (People vs.

Garcia, 85 Phil. 651).

Thus, not all transactions covered by trust receipts may be considered as trust receipt transactions defined

and penalized under PD 115.

xxx xxx xxx

Apparently, the trust receipt agreements were executed as security for the payment of the drafts. As such,the main transaction was that of a loan. . . . In essence, therefore, the relationship between the Bank and

the corporation, consequently, the respondent herein likewise included, is that of debtor and creditor.

xxx xxx xxx

WHEREFORE, premises considered, our resolution dated September 24, 1986, recorded 119 Resolution

No. 456, series of 1986, and that dated March 17, 1987, the latter being necessarily dependent upon and


22/52

incidental to the former, are hereby abrogated and abandoned. You are hereby directed to move for the

withdrawal of the informations and the dismissal of the criminal cases filed in court . . ." 5

This time, petitioner Allied Bank filed a motion for reconsideration of the Ordoez resolution, which was

resolved by the Department of Justice on 17 February 1988, enunciating that PD 115 covers goods or

components of goods which are ultimately destined for sale. It concluded that:

". . . The goods subject of the instant case were shown to have been used and/or consumed in the

operation of the equipment and machineries of the corporation, and are therefore outside the ambit of the

provisions of PD 115 albeit covered by Trust Receipt agreements . . . Finally, it is noted that under the Sia

vs. People (121 SCRA 655 (1983), and Vintola vs. Insular Bank of Asia and America (150 SCRA 578

(1987) rulings, the trend in the Supreme Court appears to be to the effect that trust receipts under PD 115

are treated as security documents for basically loan transactions, so much so that criminal liability is

virtually obliterated and limiting liability of the accused to the civil aspect only.

WHEREFORE, your motion for reconsideration is hereby DENIED." 6

From the Department of Justice, petitioner is now before this Court praying for writs of certiorari andprohibition to annul the 11 January and 17 February 1988 DOJ rulings, mainly on two (2) grounds:

1. public respondent is without power or authority to declare that a violation of PD 115 is not

criminally punishable, thereby rendering a portion of said law inoperative or ineffectual.

2. public respondent acted with grave abuse of discretion in holding that the goods covered by the trust

receipts are outside the contemplation of PD 115.

Private and public respondents both filed their comments on the petition to which a consolidated reply

was filed. After the submission of the parties' respective memoranda, the case was calendared for

deliberation.

Does the penal provision of PD 115 (Trust Receipts Law) apply when the goods covered by a Trust

Receipt do not form part of the finished products which are ultimately sold but are instead, utilized/used

up in the operation of the equipment and machineries of the entrustee-manufacturer?

The answer must be in the affirmative, Section 4 of said PD 115 says in part:

"Sec. 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of

this Decree, is any transaction by and between a person referred to in this Decree as the entrustee, and

another person referred to in this Decree as the entrustee, whereby the entruster, who owns or holds

absolute title or security interests over certain specified goods, documents or instruments, releases the

same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed

document called a 'trust receipt' wherein the entrustee binds himself to hold the designated goods,

documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods,

documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the

extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or

instruments themselves, if they are unsold or not otherwise disposed of, in accordance with the terms and

conditions specified in the trust receipt, . . ."


23/52

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 undertakingconstitutes 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 areultimately 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 areperplexed 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.


24/52

"A construction of a statute which creates an inconsistency should be avoided when a reasonable

interpretation can be adopted which will not do violence to the plain words of the act and will carry out

the intention of Congress.

In the construction of statutes, the courts start with the assumption that the legislature intended to enact an

effective law, and the legislature is not to be presumed to have done a vain thing in the enactment of a

statute. Hence, it is a general principle, embodied in the maxim, 'ut res magis valeat quam pereat,' that the

courts should, if reasonably possible to do so without violence to the spirit and language of an act, so

interpret the statute to give it efficient operation and effect as a whole. An interpretation should, if

possible, be avoided, under which a statute or provision being construed is defeated, or as otherwise

expressed, nullified, destroyed, emasculated, repealed, explained away, or rendered insignificant,

meaningless, inoperative, or nugatory." 16

The penal provision of PD 115 encompasses any act violative of an obligation covered by the trust

receipt; it is not limited to transactions in goods which are to be sold (retailed), reshipped, stored or

processed as a component of a product ultimately sold.

To uphold the Justice Department's ruling would contravene not only the letter but the spirit of PD 115.

"An examination of P.D. 115 shows the growing importance of trust receipts in Philippine business, the

need to provide for the rights and obligations of parties to a trust receipt transaction, the study of the

problems involved and the action by monetary authorities, and the necessity of regulating the enforcement

of rights arising from default or violations of trust receipt agreements. The legislative intent to meet a

pressing need is clearly expressed . . ." 17

WHEREFORE, the petition is granted. The temporary restraining order issued on 13 April 1988

restraining the enforcement of the questioned DOJ resolutions dated 11 January 1988 and 17 February

1988 directing the provincial fiscal to move for the dismissal of the criminal case filed before the RTC of

Makati, Branch 143 and the withdrawal of IS-No. 84-3140, is made permanent. Let this case be remanded

to said RTC for disposition in accordance with this decision.

SO ORDERED.

5. [1958V283E] RAMON GONZALES, plaintiff-appellee, vs. GO TIONG and LUZONSURETY CO., INC., defendants-appellants.1958 Aug 30En BancG.R. No. L-11776D E C I S

I O N

MONTEMAYOR, J.:

Defendants Go Tiong and Luzon Surety Co. are appealing from the decision of the Court of First Instance

of Manila, Judge Magno S. Gatmaitan presiding, the dispositive part of which reads as follows:

"In view whereof, judgment is rendered condemning defendant Go Tiong and Luzon Surety Co., jointly

and severally, to pay plaintiff the sum of P4,920 with legal interest from the date of the filing of the

complaint until fully paid; judgment is also rendered against Go Tiong to pay the sum of P3,680 unto

plaintiff, also with legal interest from the date of the filing of the complaint until fully paid. Go Tiong is

also condemned to pay the sum of P1,000 as attorney's fees, plus costs."


25/52

The appeal was first taken to the Court of Appeals, the latter indorsing the case to us later under the

provisions of Section 17 (6) of Republic Act No. 296, on the ground that the issues raised were purely

questions of law.

Go Tiong owned a rice mill and warehouse, located at Mabini, Urdaneta, Pangasinan. On February 4,

1953, he obtained a license to engage in the business of a bonded warehouseman (Exhibit N). To secure

the performance of his obligations as such bonded warehouseman, the Luzon Surety Co. executed

Guaranty Bond No. 294 in the sum of P18,334 (Exhibit O), conditioned particularly on the fulfillment by

Go Tiong of his duty or obligation to deliver to the depositors in his storage warehouse, the palay

received by him for storage, at any time demand is made, or to pay the market value thereof, in case he

was unable to return the same. The bond was executed on January 26, 1953. Go Tiong insured the

warehouse and the palay deposited therein with the Alliance Surety and Insurance Company.

But prior to the issuance of the license to Go Tiong to operate as bonded warehouseman, he had on

several occasions received palay for deposit from plaintiff Ramon Gonzales, totalling 368 sacks, for

which he issued receipts, Exhibits A, B, C, and D. After he was licensed as bonded warehouseman, Go

Tiong again received various deliveries of palay from plaintiff, totalling 492 sacks, for which he issuedthe corresponding receipts, all the deliveries having a grand total of 860 sacks, valued at P8,600 at the rate

of P10 per sack.

On or about March 15, 1953, plaintiff demanded from Go Tiong the value of his deposits in the amount of

P8,600, but he was told to return after two days, which he did, but Go Tiong again told him to come back.

A few days later, the warehouse burned to the ground. Before the fire, Go Tiong had been accepting

deliveries of palay from other depositors and at the time of the fire, there were 5,847 sacks of palay in the

warehouse, in excess of the 5,000 sacks authorized under his license. The receipts issued by Go Tiong to

the plaintiff were ordinary receipts, not the "warehouse receipts" defined by the Warehouse Receipts Act

(Act No. 2137).

After the burning of the warehouse, the depositors of palay, including plaintiff, filed their claims with the

Bureau of Commerce, and it would appear that with the proceeds of the insurance policy, the Bureau of

Commerce paid off some of the claims. Plaintiff's counsel later withdrew his claim with the Bureau of

Commerce, according to Go Tiong, because his claim was denied by the Bureau, but according to the

decision of the trial court, because nothing came from plaintiff's efforts to have his claim paid. Thereafter,

Gonzales filed the present action against Go Tiong and the Luzon Surety for the sum of P8,600, the value

of his palay, with legal interest, damages in the sum of P5,000 and P1,500 as attorney's fees. Gonzales

later renewed his claim with the Bureau of Commerce (Exhibit S).

While the case was pending in court, Gonzales and Go Tiong entered into a contract of amicable

settlement to the effect that upon the settlement of all accounts due to him by Go Tiong, he, Gonzales,would have all actions pending against Go Tiong dismissed. Inasmuch as Go Tiong failed to settle the

accounts, Gonzales prosecuted his court action.

For purposes of reference, we reproduce the assignment of errors of Go Tiong, as well as the assignment

of errors of the Luzon Surety, all reading thus:


26/52

"I. The trial court erred in finding that plaintiff-appellee's claim is covered by the Bonded Warehouse

Law, Act 3893, as amended, and not by the Civil Code.

"II. The trial court erred in not exempting defendant-appellant Go Tiong for the loss of the palay

deposited, pursuant to the provisions of the New Civil Code."

xxx xxx xxx

"I. The trial court erred in not declaring that the amicable settlement by and between plaintiff-appellee

and defendant Go Tiong constituted a material alteration of the surety bond of appellant Luzon Surety

which extinguished and discharged its liability.

"II. The trial court erred in holding that the receipts for the palay received by Go Tiong, though not in

the form of "quedans" or warehouse receipts are chargeable against the surety bond filed under the

provisions of the General Bonded Warehouse Act (Act No. 3893 as amended by Republic Act No. 247)

as a result of a loss.

"III. The trial court erred in not holding that the plaintiff had renounced and abandoned his rights underthe Bonded Warehouse Act by the withdrawal of his claim from the Bureau of Commerce and the

execution of the 'amicable settlement'.

"IV. The trial court erred in not holding that the palay delivered to Go Tiong constitutes gratuitous

deposit which was extinguished upon

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