Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No.

73271 May 29, 1987 SPOUSES TIRSO I. VINTOLA and LORETO DY VINTOLA, defendantsappellants, vs. INSULAR BANK OF ASIA AND AMERICA, plaintiff-appellee. MELENCIO-HERRERA, J.: This case was appealed to the Intermediate Appellate Court which, however, certified the same to this Court, the issue involved being purely legal. The facts are not disputed. On August 20, 1975 the spouses Tirso and Loreta Vintola (the VINTOLAS, for short), doing business under the name and style "Dax Kin International," engaged in the manufacture of raw sea shells into finished products, applied for and were granted a domestic letter of credit by the Insular Bank of Asia and America (IBAA), Cebu City. 1 in the amount of P40,000.00. The Letter of Credit authorized the bank to negotiate for their account drafts drawn by their supplier, one Stalin Tan, on Dax Kin International for the purchase of puka and olive seashells. In consideration thereof, the VINTOLAS, jointly and severally, agreed to pay the bank "at maturity, in Philippine currency, the equivalent, of the aforementioned amount or such portion thereof as may be drawn or paid, upon the faith of the said credit together with the usual charges." On the same day, August 20, 1975, having received from Stalin Tan the puka and olive shells worth P40,000.00, the VINTOLAS executed a Trust Receipt agreement with IBAA, Cebu City. Under that Agreement, the VINTOLAS agreed to hold the goods in trust for IBAA as the "latter's property with liberty to sell the same for its account, " and "in case of sale" to turn over the proceeds as soon as received to (IBAA) the due date indicated in the document was October 19, 1975. Having defaulted on their obligation, IBAA demanded payment from the VINTOLAS in a letter dated January 1, 1976. The VINTOLAS, who were unable to dispose of the shells, responded by offering to return the goods. IBAA refused to accept the merchandise, and due to the continued refusal of the VINTOLAS to make good their undertaking, IBAA charged them with Estafa for having misappropriated, misapplied and converted for their own personal use and benefit the aforesaid goods. During the trial of the criminal case the VINTOLAS turned over the seashells to the custody of the Trial Court. On April 12, 1982, the then Court of First Instance of Cebu, Branch VII, acquitted the VINTOLAS of the crime charged, after finding that the element of misappropriation or conversion was inexistent. Concluded the Court: Finally, it should be mentioned that under the trust receipt, in the event of default and/or non-fulfillment on the part of the accused of their undertaking, the bank is entitled to take possession of the

goods or to recover its equivalent value together with the usual charges. In either case, the remedy of the Bank is civil and not criminal in nature. ... 2 Shortly thereafter, IBAA commenced the present civil action to recover the value of the goods before the Regional Trial Court of Cebu, Branch XVI. Holding that the complaint was barred by the judgment of acquittal in the criminal case, said Court dismissed the complaint. However, on IBAA's motion, the Court granted reconsideration and: 1. Order(ed)defendants jointly and severally to pay the plaintiff the sum of Seventy Two Thousand Nine Hundred Eighty Two and 27/100 (P72,982.27), Philippine Currency, plus interest of 14% per annum and service charge of one (1%) per cent per annum computed from judicial demand and until the obligation is fully paid; 2. Ordered defendants jointly and severally to pay attorney's fees to the plaintiff in the sum of Four Thousand (P4,000.00) pesos, Philippine Currency, plus costs of the suit. 3 The VINTOLAS rest their present appeal on the principal allegation that their acquittal in the Estafa case bars IBAA's filing of the civil action because IBAA had not reserved in the criminal case its right to enforce separately their civil liability. They maintain that by intervening actively 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, reading: Section 1. Institution of criminal and civil action. When a criminal action is instituted, the civil action for the recovery of civil liability arising from the offense charged is impliedly instituted with the criminal action, unless the offended party expressly waives the civil action or reserves his right to institute it separately. ... and that since the judgment in the criminal case had made a declaration that the facts from which the civil action might arise did not exist, the filing of the civil action arising from the offense is now barred, as provided by Section 3-b of Rule 111 of the same Rules providing: (b) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist. In other cases, the person entitled to the civil action may institute it in the jurisdiction in the manner provided by law against the person who may be liable for restitution of the thing and reparation or indemnity for the damage suffered. Further, the VINTOLAS take the position that their obligation to IBAA has been extinguished inasmuch as, through no fault of their own, they were unable to dispose of the seashells, and that they have relinguished possession thereof to the IBAA, as owner of the goods, by depositing them with the Court.

The foregoing submission overlooks the nature and mercantile usage of the transaction involved. 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 involves a loan feature represented by the letter of credit, and a security feature which is in the covering trust receipt. Thus, Section 4 of P.D. No. 115 defines a trust receipt transaction as: ... 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 instrument thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any one of the following: 1. In the case of goods or documents, (a) to sell the goods or procure their sale, ... 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." 4 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. 5 As elucidated in Samo vs. People 6 "a trust receipt is considered as a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral of the merchandise imported or purchased." Contrary to the allegation of the VINTOLAS, IBAA did not become the real owner of the goods. It was merely the holder of a security title for the advances it had made to the VINTOLAS The goods the VINTOLAS had purchased through IBAA financing remain their own property and they hold it at their own risk. The trust receipt arrangement did not convert the IBAA into an investor; the latter remained a lender and creditor.

... for the bank has previously extended a loan which the L/C represents to the importer, and by that loan, the importer should be the real owner of the goods. If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of a legal fiction than fact, for if it were so, it could dispose of the goods in any manner it wants, which it cannot do, just to give consistency with the purpose of the trust receipt of giving a stronger security for the loan obtained by the importer. To consider the bank as the true owner from the inception of the transaction would be to disregard the loan feature thereof. ... 7 Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that because they have surrendered the goods to IBAA and subsequently deposited them in the custody of the court, they are absolutely relieved of their obligation to pay their loan because of their inability to dispose of the goods. The fact that they were unable to sell the seashells in question does not affect IBAA's right to recover the advances it had made under the Letter of Credit. In so arguing, the VINTOLAS conveniently close their eyes to their application for a Letter of Credit wherein they expressly obligated themselves in these terms: IN CONSIDERATION THEREOF, I/we promise and agree to pay you at maturity in Philippine Currency the equivalent of the above amount or such portion thereof as may be drawn or paid upon the faith of said credit together with the usual charges. ... (Exhibit "A") They further agreed that their marginal deposit of P8,000.00, later increased to P11,000.00 be applied, without further proceedings or formalities to pay or reduce our obligation under this letter of credit or its corresponding Trust Receipt. (Emphasis supplied) 8 The foregoing premises considered, it follows that the acquittal of the VINTOLAS in the Estafa case is no bar to the institution of a civil action for collection. It 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 IBAA's favor, for the Court would not have dwelt on a civil liability that it had intended to extinguish by the same decision. 9 The VINTOLAS are liable ex contractu for breach of the Letter of Credit Trust Receipt, whether they did or they did not "misappropriate, misapply or convert" the merchandise as charged in the criminal case. 10 Their civil liability does not arise ex delicto, the action for the recovery of which would have been deemed instituted with the criminal-action (unless waived or reserved) and where acquittal based on a judicial declaration that the criminal acts charged do not exist would have extinguished the civil action. 11 Rather, the civil suit instituted by IBAA is based ex contractu and as such is distinct and independent from any criminal proceedings and may proceed regardless of the result of the latter. Under the situational circumstances of the parties, they are governed by Article 31 of the Civil Code, explicitly providing:

Art. 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. WHEREFORE, finding no reversible error in the judgment appealed from, the same is hereby AFFIRMED. No costs. SO ORDERED.

SECOND DIVISION [G.R. No. 82495 : December 10, 1990.] 192 SCRA 246 ALLIED BANKING CORPORATION, Petitioner, vs. HON. SECRETARY SEDFREY ORDOEZ (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:

"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 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. 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 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 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, 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, . . ." 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 nonsale, 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.: "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.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. L-46658 May 13, 1991 PHILIPPINE NATIONAL BANK, petitioner, vs. HON. GREGORIO G. PINEDA, in his capacity as Presiding Judge of the Court of First Instance of Rizal, Branch XXI and TAYABAS CEMENT COMPANY, INC., respondents. The Chief Legal Counsel for petitioner. Ortille Law Office for private respondent. FERNAN, C.J.:p In this petition for certiorari, petitioner Philippine National Bank (PNB) seeks to annul and set aside the orders dated March 4, 1977 and May 31, 1977 rendered in Civil Case No. 24422 1 of the Court of First Instance of Rizal, Branch XXI, respectively granting private respondent Tayabas Cement Company, Inc.'s application for a writ of preliminary injunction to enjoin the foreclosure sale of certain properties in Quezon City and Negros Occidental and denying petitioner's motion for reconsideration thereof. In 1963, Ignacio Arroyo, married to Lourdes Tuason Arroyo (the Arroyo Spouses), obtained a loan of P580,000.00 from petitioner bank to purchase 60% of the subscribed capital stock, and thereby acquire the controlling interest of private respondent Tayabas Cement Company, Inc. (TCC). 2 As security for said loan, the spouses Arroyo executed a real estate mortgage over a parcel of land covered by Transfer Certificate of Title No. 55323 of the Register of Deeds of Quezon City known as the La Vista property. Thereafter, TCC filed with petitioner bank an application and agreement for the establishment of an eight (8) year deferred letter of credit (L/C) for $7,000,000.00 in favor of Toyo Menka Kaisha, Ltd. of Tokyo, Japan, to cover the importation of a cement plant machinery and equipment. Upon approval of said application and opening of an L/C by PNB in favor of Toyo Menka Kaisha, Ltd. for the account of TCC, the Arroyo spouses executed the following documents to secure this loan accommodation: Surety Agreement dated August 5, 1964 3 and Covenant dated August 6, 1964. 4 The imported cement plant machinery and equipment arrived from Japan and were released to TCC under a trust receipt agreement. Subsequently, Toyo Menka Kaisha, Ltd. made the corresponding drawings against the L/C as scheduled. TCC, however, failed to remit and/or pay the corresponding amount covered by the drawings. Thus, on May 19, 1968, pursuant to the trust receipt

agreement, PNB notified TCC of its intention to repossess, as it later did, the imported machinery and equipment for failure of TCC to settle its obligations under the L/C. 5 In the meantime, the personal accounts of the spouses Arroyo, which included another loan of P160,000.00 secured by a real estate mortgage over parcels of agricultural land known as Hacienda Bacon located in Isabela, Negros Occidental, had likewise become due. The spouses Arroyo having failed to satisfy their obligations with PNB, the latter decided to foreclose the real estate mortgages executed by the spouses Arroyo in its favor. On July 18, 1975, PNB filed with the City Sheriff of Quezon City a petition for extra-judicial foreclosure under Act 3138, as amended by Act 4118 and under Presidential Decree No. 385 of the real estate mortgage over the properties known as the La Vista property covered by TCT No. 55323. 6 PNB likewise filed a similar petition with the City Sheriff of Bacolod, Negros Occidental with respect to the mortgaged properties located at Isabela, Negros Occidental and covered by OCT No. RT 1615. The foreclosure sale of the La Vista property was scheduled on August 11, 1975. At the auction sale, PNB was the highest bidder with a bid price of P1,000,001.00. However, when said property was about to be awarded to PNB, the representative of the mortgagor-spouses objected and demanded from the PNB the difference between the bid price of P1,000,001.00 and the indebtedness of P499,060.25 of the Arroyo spouses on their personal account. It was the contention of the spouses Arroyo's representative that the foreclosure proceedings referred only to the personal account of the mortgagor spouses without reference to the account of TCC. To remedy the situation, PNB filed a supplemental petition on August 13, 1975 requesting the Sheriff's Office to proceed with the sale of the subject real properties to satisfy not only the amount of P499,060.25 owed by the spouses Arroyos on their personal account but also the amount of P35,019,901.49 exclusive of interest, commission charges and other expenses owed by said spouses as sureties of TCC. 7 Said petition was opposed by the spouses Arroyo and the other bidder, Jose L. Araneta. On September 12, 1975, Acting Clerk of Court and Ex-Officio Sheriff Diana L. Dungca issued a resolution finding that the questions raised by the parties required the reception and evaluation of evidence, hence, proper for adjudication by the courts of law. Since said questions were prejudicial to the holding of the foreclosure sale, she ruled that her "Office, therefore, cannot properly proceed with the foreclosure sale unless and until there be a court ruling on the aforementioned issues." 8 Thus, in May, 1976, PNB filed with the Court of First Instance of Quezon City, Branch V a petition for mandamus 9 against said Diana Dungca in her capacity as City Sheriff of Quezon City to compel her to proceed with the foreclosure sale of the mortgaged properties covered by TCT No. 55323 in order to satisfy

both the personal obligation of the spouses Arroyo as well as their liabilities as sureties of TCC. 10 On September 6, 1976, the petition was granted and Dungca was directed to proceed with the foreclosure sale of the mortgaged properties covered by TCT No. 55323 pursuant to Act No. 3135 and to issue the corresponding Sheriff's Certificate of Sale. 11 Before the decision could attain finality, TCC filed on September 14, 1976 before the Court of First Instance of Rizal, Pasig, Branch XXI a complaint 12 against PNB, Dungca, and the Provincial Sheriff of Negros Occidental and Ex-Officio Sheriff of Bacolod City seeking, inter alia, the issuance of a writ of preliminary injunction to restrain the foreclosure of the mortgages over the La Vista property and Hacienda Bacon as well as a declaration that its obligation with PNB had been fully paid by reason of the latter's repossession of the imported machinery and equipment. 13 On October 5, 1976, the CFI, thru respondent Judge Gregorio Pineda, issued a restraining order 14 and on March 4, 1977, granted a writ of preliminary injunction. 15 PNB's motion for reconsideration was denied, hence this petition. Petitioner PNB advances four grounds for the setting aside of the writ of preliminary injunction, namely: a) that it contravenes P.D. No. 385 which prohibits the issuance of a restraining order against a government financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in Section 1 thereof; b) that the writ countermands a final decision of a co-equal and coordinate court; c) that the writ seeks to prohibit the performance of acts beyond the court's territorial jurisdiction; and, d) private respondent TCC has not shown any clear legal right or necessity to the relief of preliminary injunction. Private respondent TCC counters with the argument that P.D. No. 385 does not apply to the case at bar, firstly because no foreclosure proceedings have been instituted against it by PNB and secondly, because its account under the L/C has been fully satisfied with the repossession of the imported machinery and equipment by PNB. The resolution of the instant controversy lies primarily on the question of whether or not TCC's liability has been extinguished by the repossession of PNB of the imported cement plant machinery and equipment. We rule for the petitioner PNB. It must be remembered that PNB took possession of the imported cement plant machinery and equipment pursuant to the trust receipt agreement executed by and between PNB and TCC giving the former the unqualified right to the possession and disposal of all property shipped under the Letter of Credit until such time as all the liabilities and obligations under said letter had been discharged. 16 In the case of Vintola vs. Insular Bank of Asia and America 17 wherein the same argument was advanced

by the Vintolas as entrustees of imported seashells under a trust receipt transaction, we said: Further, the VINTOLAS take the position that their obligation to IBAA has been extinguished inasmuch as, through no fault of their own, they were unable to dispose of the seashells, and that they have relinquished possession thereof to the IBAA, as owner of the goods, by depositing them with the Court. The foregoing submission overlooks the nature and mercantile usage of the transaction involved. 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 involves a loan feature represented by the letter of credit, and a security feature which is in the covering trust receipt. xxx xxx xxx 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. As defined in our laws: (h) "Security interest" means a property interest in goods, documents or instruments to secure performance of some obligations of the entrustee or of some third persons to the entruster and includes title, whether or not expressed to be absolute, whenever such title is in substance taken or retained for security only. xxx xxx xxx Contrary to the allegation 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. xxx xxx xxx Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that because they have surrendered the goods to IBAA and subsequently deposited them in the custody of the court, they are absolutely relieved of their obligation to pay their loan because of their inability to dispose of the goods. The fact that they were unable to sell the seashells in question does not affect IBAA's right to recover the advances it had made under the Letter of Credit. PNB's possession of the subject machinery and equipment being precisely as a form of security for the advances given to TCC under the Letter of Credit, said possession by itself cannot be considered payment of the loan secured thereby. Payment would legally result only after PNB had foreclosed on said securities, sold the same and applied the proceeds thereof to TCC's loan obligation. Mere

possession does not amount to foreclosure for foreclosure denotes the procedure adopted by the mortgagee to terminate the rights of the mortgagor on the property and includes the sale itself. 18 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. 19 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. 20 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. Proceeding from this finding, PNB has the right to foreclose the mortgages executed by the spouses Arroyo as sureties of TCC. A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable. 21 As sureties, the Arroyo spouses are primarily liable as original promissors and are bound immediately to pay the creditor the amount outstanding. 22 Under Presidential Decree No. 385 which took effect on January 31, 1974, government financial institutions like herein petitioner PNB are required to foreclose on the collaterals and/or securities for any loan, credit or accommodation whenever the arrearages on such account amount to at least twenty percent (20%) of the total outstanding obligations, including interests and charges, as appearing in the books of account of the financial institution concerned. 23 It is further provided therein that "no restraining order, temporary or permanent injunction shall be issued by the court against any government financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in Section 1 hereof, whether such restraining order, temporary or permanent injunction is sought by the borrower(s) or any third party or parties . . ." 24 It is not disputed that the foreclosure proceedings instituted by PNB against the Arroyo spouses were in compliance with the mandate of P.D. 385. This being the case, the respondent judge acted in excess of his jurisdiction in issuing the injunction specifically proscribed under said decree. Another reason for striking down the writ of preliminary injunction complained of is that it interfered with the order of a co-equal and coordinate court. Since Branch V of the CFI of Rizal had already acquired jurisdiction over the question of foreclosure of mortgage over the La Vista property and rendered judgment in relation thereto, then it retained jurisdiction to the exclusion of all other coordinate courts over its judgment, including all incidents relative to the control and conduct of its ministerial officers, namely the sheriff thereof. 25 The foreclosure sale having been ordered by Branch V of the CFI of Rizal, TCC should not have filed injunction proceedings with Branch XXI of the same CFI, but instead should have first sought relief by proper motion and application

from the former court which had exclusive jurisdiction over the foreclosure proceeding. 26 This doctrine of non-interference is premised on the principle that a judgment of a court of competent jurisdiction may not be opened, modified or vacated by any court of concurrent jurisdiction. 27 Furthermore, we find the issuance of the preliminary injunction directed against the Provincial Sheriff of Negros Occidental and ex-officio Sheriff of Bacolod City a jurisdictional faux pas as the Courts of First Instance, now Regional Trial Courts, can only enforce their writs of injunction within their respective designated territories. 28 WHEREFORE, the instant petition is hereby granted. The assailed orders are hereby set aside. Costs against private respondent.

EN BANC [G.R. Nos. 107964-66. February 1, 1999] THE PEOPLE of the PHILIPPINES represented by the PANEL OF PROSECUTORS, DEPARTMENT OF JUSTICE, petitioner, vs. HON. DAVID G. NITAFAN, Presiding Judge, Branch 52, Regional Trial Court of Manila, and IMELDA R. MARCOS, respondents. DECISION MARTINEZ, J.: On January 9, 1992, three criminal informations for violation of Section 4 of Central Bank Circular No. 960, as amended, in relation to Section 34 of Republic Act No. 265were filed against private respondent Imelda R. Marcos before Branch 158 of the Regional Trial Court (RTC) of Pasig (herein Branch 158-Pasig). Said Informations docketed as Criminal Case Nos. 90384-92, 90385-92 and 90386-92 were amended prior to arraignment. After arraignment, where private respondent pleaded not guilty, the People thru herein petitioner, Panel of Prosecutors from the Department of Justice (DOJ) and the Solicitor General filed separate motions for consolidation of the three (3) Informations pending before Branch 158-Pasig with the 21 other cases

pending before RTC Branch 26-Manila (herein Branch 26-Manila). The Solicitor General alleged in its motion that the indictable acts under the three informations form part of and is related to the transaction complained of in criminal cases 91-101732, 91-101734 and 91-101735 pending before Branch 26-Manila and that these two groups of cases (the Pasig and Manila cases) relate to a series of transactions devised by then President Ferdinand Marcos and private respondent to hide their ill-gotten wealth. The RTC of Pasig granted the motion for consolidation provided there is no objection from the presiding judge of Branch 26-Manila. Before the Manila RTC, the three (3) informations were re-raffled and re-assigned instead to Branch 52-Manila presided by public respondent Judge Nitafan wherein the three informations (Criminal Cases Nos. 90384-92, 90385-92 and 90386-92) were re-numbered as Criminal Case Nos. 92-107942; 92-107943 and 92-107944. Then, without private respondent yet taking any action or filing any motion to quash the informations, respondent judge issued an order dated July 20, 1992 requiring petitioners to show cause why criminal case number 92-107942 should not be dismissed on the ground that it violates private respondents right against ex post facto law. In that order, respondent judge said that a check with official publications reveals that CB Circular 960 is dated 21 October 1983 (x x x) and that said regulatory issuance was imperfectly published* in the January 30, 1984 issue of the Official Gazette. Respondent judge concluded that since the date of violation alleged in the information was prior to the date and complete publication of the Circular charged to have been violated, the information in this case appears peremptorily dismissible, for to apply the Circular to acts performed prior to its date and publication would make it an ex post facto law, which is a violation of the Constitution. On the same day, respondent judge issued another order requiring the prosecution to show cause why the two other criminal informations (92-107943 and 92-107944) should not be dismissed on the ground that private respondents right to double jeopardy was violated. It is respondent judges posture that based on the Solicitor-Generals allegations in its Motion for Consolidation filed in Branch 58-Pasig that the three cases form part of a series of transactions which are subject of the cases pending before Branch 26Manila, all these cases constitute one continuous crime. Respondent judge further stated that to separately prosecute private respondent for a series of transaction would endow it with the functional ability of a worm multiplication or amoeba reproduction. Thus, accused would be unduly vexed with multiple jeopardy. In the two orders, respondent judge likewise said that the dismissal of the three seemingly unmeritorious and duplicitous cases would help unclogged his docket in favor of more serious suits. The prosecution complied with the twin show cause orders accompanied by a motion to inhibit respondent judge. On August 6, 1992, respondent judge issued an order denying the motion for consolidation (embodied in the prosecutions compliance with the show cause orders) of the three informations with those pending before Branch 26-Manila on the ground that consolidation of cases under Rule 31 of civil procedure has

no counterpart in criminal procedure, and blamed the panel of prosecutors as apparently not conversant with the procedure in the assignment of cases. As additional justification, respondent judge stated that since he is more studious and discreet, if not more systematic and methodical, than the prosecution in the handling of cases, it would be unfair to just pull out the case when he had already studied it. The next day, August 7, 1992, respondent judge issued an 8-page order dismissing criminal case no. 92-107942 on the ground that the subject CB Circular is an ex post facto law. In a separate 17-page order dated August 10, 1992, respondent judge also dismissed the two remaining criminal cases (92107943 & 92-107944) ruling that the prosecution of private respondent was part of a sustained political vendetta by some people in the government aside from what he considered as a violation of private respondents right against double jeopardy. From his disquisition regarding continuing, continuous and continued offenses and his discussion of mala prohibita, respondent judge further ratiocinated his dismissal order in that the pendency of the other cases before Branch 26-Manila had placed private respondent in double jeopardy because of the three cases before his sala. The prosecution filed two separate motions for reconsideration which respondent judge denied in a single order dated September 7, 1992 containing 19 pages wherein he made a preliminary observation that: (T)he very civil manner in which the motions were framed, which is consistent with the high ideals and standards of pleadings envisioned in the rules, and for which the panel should be commended. This only shows that the Members of the panel had not yielded to the derisive, panicky and intimidating reaction manifested by their Department Head when, after learning the promulgation of the orders dismissing some of Imelda Romualdez-Marcos cases, Secretary Drilon went to the media and repeatedly aired diatribes and even veiled threats against the trial judges concerned. By the constitutional mandate that A member of the judiciary must be a person of proven competence, integrity, probity, and independence (Sec 7[3], Art. VIII, judges are precluded from being dragged into running debates with parties-litigants or their counsel and representatives in media, yet by reason of the same provision judges are mandated to decide cases in accordance with their own independent appreciation of the facts and interpretation of the law. Any judge who yields to extraneous influences, such as denigrating criticisms or threats, and allows his independence to be undermined thereby, leading to violation of his oath of office, has no right to continue in his office any minute longer. The published reaction of the Hon. Secretary is to be deplored, but it is hoped that he had merely lapsed into impudence instead of having intended to set a pattern of mocking and denigrating the courts. He must have forgotten that as Secretary of Justice, his actuations reflect the rule of law orientation of the administration of the President whom he represents as the latters alter ego. (emphasis supplied). The dispositive portion of the order denying the motions for reconsideration provides:

FOR ALL THE FOREGOING CONSIDERATIONS, the Court finds no valid reason to reconsider the dismissals heretofore decreed, and the motions for reconsideration are consequently denied for manifest lack of merit. Obviously dissatisfied, petitioners elevated the case via petition for certiorari, where the primary issue raised is whether a judge can motu proprio initiate the dismissal and subsequently dismissed a criminal information or complaint without any motion to that effect being filed by the accused based on the alleged violation of the latters right against ex post facto law and double jeopardy. Section 1, Rule 117 of the Rules on Criminal Procedure provides: Time to move to quash. At any time before entering his plea, the accused may move to quash the complaint or information. (emphasis supplied). It is clear from the above rule that the accused may file a motion to quash an information at any time before entering a plea or before arraignment. Thereafter, no motion to quash can be entertained by the court except under the circumstances mentioned in Section 8 of Rule 117 which adopts the omnibus motion rule. In the case at at bench, private respondent pleaded to the charges without filing any motion to quash. As such, she is deemed to have waived and abandoned her right to avail of any legal ground which she may have properly and timely invoke to challenge the complaint or information pursuant to Section 8 of Rule 117 which provides: Failure to move to quash or to allege any ground therefore. The failure of the accused to assert any ground of a motion to quash before he pleads to the complaint or information, either because he did not file a motion to quash or failed to allege the same in his motion, shall be deemed a waiver of the grounds of a motion to quash, except the grounds of no offense charged, lack of jurisdiction over the offense charged, extinction of the offense or penalty and jeopardy, as provided for in paragraphs (a), (b), (f) and (h) of section 3 of this Rule. (emphasis supplied) It is also clear from Section 1 that the right to file a motion to quash belongs only to the accused. There is nothing in the rules which authorizes the court or judge to motu proprio initiate a motion to quash if no such motion was filed by the accused. A motion contemplates an initial action originating from the accused. It is the latter who is in the best position to know on what ground/s he will based his objection to the information. Otherwise, if the judge initiates the motion to quash, then he is not only pre-judging the case of the prosecution but also takes side with the accused. This would violate the right to a hearing before an independent and impartial tribunal. Such independence and impartiality cannot be expected from a magistrate, such as herein respondent judge, who in his show cause orders, orders dismissing the charges and order denying the motions for reconsideration stated and even expounded in a lengthy disquisition with citation of authorities, the grounds and justifications to support his action. Certainly, in compliance with the orders, the prosecution has no choice but to present arguments contradicting that of respondent judge. Obviously, however, it cannot be expected from respondent judge to overturn the reasons he relied upon in his different orders without contradicting himself. To allow a judge to initiate such motion even under the guise of a show cause order would result in a situation where a magistrate who is supposed to be neutral, in effect, acts as counsel for the accused and judge as well. A

combination of these two personalities in one person is violative of due process which is a fundamental right not only of the accused but also of the prosecution. That the initial act to quash an information lodged with the accused is further supported by Sections 2, 3 and 8 of Rule 117 which states that: Section 2. The motion to quash shall be in writing signed by the accused or his counsel. It shall specify distinctly the factual and legal grounds therefor and the Court shall consider no grounds other than those stated therein, except lack of jurisdiction over the offense charged. Section 3. Grounds. The accused may move to quash the complaint or information on any of the following grounds: a) That the facts charged do not constitute an offense; b) That the court trying the case has no jurisdiction over the offense charged or the person of the accused; c) That the officer who filed the information had no authority to do so; d) That it does not conform substantially to the prescribed form; e) That more than one offense is charged except in those cases in which existing laws prescribe a single punishment for various offenses; f) That the criminal action or liability has been extinguished; g) That it contains averments which, if true, would constitute a legal excuse or justification; and h) That the accused has been previously convicted or in jeopardy of being convicted, or acquitted of the offense charged. Section 8. The failure of the accused to assert any ground of a motion to quash before he pleads (Emphasis supplied). Section 2 requires that the motion must be signed by accused or his counsel; Section 3 states that the accused may file a motion, and; Section 8 refers to the consequence if the accused do not file such motion. Neither the court nor the judge was mentioned. Section 2 further, ordains that the court is proscribed from considering any ground other than those stated in the motion which should be specify(ied) distinctly therein. Thus, the filing of a motion to quash is a right that belongs to the accused who may waived it by inaction and not an authority for the court to assume. It is therefore clear that the only grounds which the court may consider in resolving a motion to quash an information or complaint are (1) those grounds stated in the motion and (2) the ground of lack of jurisdiction over the offense charged, whether or not mentioned in the motion. Other than that, grounds which have not been sharply pleaded in the motion cannot be taken cognizance of by the court, even if at the time of filing thereof, it may be properly invoked by the defendant. Such proscription on considerations of other grounds than those specially pleaded in the motion to quash is premised on the rationale that the right to these defenses are waivable on the part of the accused, and that by claiming to wave said right, he is deemed to have desired these matters to be litigated upon in a full-blown trial. Pursuant to the Rules, the sole exception is lack of jurisdiction over the offense charged which goes into the competence of the court to hear and pass judgment on the cause. With these, the rule clearly implies the requirement of filing a motion by the accused even if the ground asserted is premised on lack of jurisdiction over the

offense charged. Besides, lack of jurisdiction should be evident from the face of the information or complaint to warrant a dismissal thereof. Happily, no jurisdictional challenge is involved in this case. Assuming arguendo that a judge has the power to motu proprio dismiss a criminal charge, yet contrary to the findings of respondent judge, the grounds of ex post facto law and double jeopardy herein invoked by him are not applicable. On ex post facto law, suffice it to say that every law carries with it the presumption of constitutionality until otherwise declared by this court. To rule that the CB Circular is an ex post facto law is to say that it is unconstitutional. However, neither private respondent nor the Solicitor-General challenges it. This Court, much more the lower courts, will not pass upon the constitutionality of a statute or rule nor declare it void unless directly assailed in an appropriate action. With respect to the ground of double jeopardy invoked by respondent judge, the same is improper and has neither legal nor factual basis in this case. Double jeopardy connotes the concurrence of three requisites, which are: (a) the first jeopardy must have attached prior to the second, (b) the first jeopardy must have been validly terminated, and (c) the second jeopardy must be for the same offense as that in the first or the second offense includes or is necessarily included in the offense charged in the first information, or is an attempt to commit the same or is a frustration thereof. In this case, it is manifestly clear that no first jeopardy has yet attached nor any such jeopardy terminated. Section 7, Rule 117 provides: When an accused has been convicted or acquitted, or the case against him dismissed or otherwise terminated without his express consent by a court of competent jurisdiction, upon a valid complaint or information or other formal charge sufficient in form and substance to sustain a conviction and after the accused had pleaded to the charge, the conviction or acquittal of the accused or the dismissal of the case shall be a bar to another prosecution for the offense charged, or for any attempt to commit the same or frustration thereof, or for any offense which necessarily includes or is necessary included in the offense charged in the former complaint or information. x x x x x x x x x. Under said Section, the first jeopardy attaches only (1) upon a valid indictment, (2) before a competent court, (3) after arraignment, (4) when a valid plea has been entered, and (5) when the defendant was convicted or acquitted, or the case was dismissed or otherwise terminated without the express consent of the accused. Other than the Solicitor-Generals allegation of pending suits in Branch 26Manila, respondent judge has no other basis on whether private respondent had already been arraigned, much less entered a plea in those cases pending before the said Branch. Even assuming that there was already arraignment and plea with respect to those cases in Branch 26-Manila which respondent judge used as basis to quash the three informations pending in his sala, still the first jeopardy has not yet attached. Precisely, those Branch 26-Manila cases are still pending and there was as yet no judgment on the merits at the time respondent judge quashed the three informations in his sala. Private respondent was not convicted, acquitted nor the cases against her in Branch

26-Manila dismissed or otherwise terminated which definitely shows the absence of the fifth requisite for the first jeopardy to attached. Accordingly, it was wrong to say that the further prosecution of private respondent under the three informations pending Branch 56-Manila would violate the formers right against double jeopardy. WHEREFORE, Premises considered, the petition is GRANTED and the two orders dated January 20, 1990, as well as the orders dated August 7, 1992, August 10, 1992 and September 7, 1992 all issued by respondent judge are hereby REVERSED AND SET ASIDE. Let this case be REMANDED to the trial court for further proceedings. SO ORDERED.

THIRD DIVISION [G.R. No. 134436. August 16, 2000] METROPOLITAN BANK and TRUST COMPANY, petitioner, vs. JOAQUIN TONDA and MA. CRISTINA TONDA, respondents. DECISION _ GONZAGA REYES, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to set aside the Decision of the Court of Appeals dated June 29, 1998 in CA-G.R. SP No. 38113 which: (1) reversed Resolution No. 417, s. 1994, dated June 1, 1994 of the Department of Justice directing to file the appropriate Information against herein respondents Joaquin P. Tonda and Ma. Cristina V. Tonda for violation of P.D. 115 in relation to Article 315 (1) (b) of the Revised Penal Code; and (2) effectively set aside the Resolutions dated April 7, 1995 and July 12 1995 of the Department of Justice denying the motions for reconsideration. Spouses Joaquin G. Tonda and Ma. Cristina U. Tonda, hereinafter referred to as the TONDAS, applied for and were granted commercial letters of credit by petitioner Metropolitan Bank and Trust Company, hereinafter referred to as METROBANK for a period of eight (8) months beginning June 14, 1990 to February 1, 1991 in connection with the importation of raw textile materials to be used in the manufacturing of garments. The TONDAS acting both in their capacity as officers of Honey Tree Apparel Corporation (HTAC) and in their personal capacities, executed eleven (11) trust receipts to secure the release of the raw materials to HTAC. The imported fabrics with a principal value of P2,803,000.00 were withdrawn by HTAC under the 11 trust receipts executed by the TONDAS. Due to their failure to settle their obligations under the trust receipts upon maturity, METROBANK through counsel, sent a letter dated August 10, 1992, making its final demand upon the TONDAS to settle their past due TR/LC accounts on or before August 15, 1992. They were informed that by said date, the obligations would amount to P4,870,499.13. Despite repeated demands therefor, the TONDAS failed to comply with their obligations stated in the trust receipts agreements, i.e. the TONDAS failed to account to METROBANK the goods and/or proceeds of sale of the merchandise, subject of the trust receipts.

Consequently, on November 9, 1992, Metrobank, through its account officer Eligio Labog, Jr., filed with the Provincial Prosecutor of Rizal a complaint/affidavit against the TONDAS for violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 (1) (b) of the Revised Penal Code. On February 12, 1993, the assigned Assistant Prosecutor of Rizal submitted a Memorandum to the Provincial Prosecutor recommending that the complaint in I.S. No. 92-8703 be dismissed on the ground that the complainants had failed to establish the existence of the essential elements of Estafa as charged. The recommendation was approved by Rizal Provincial Prosecutor Mauro Castro on May 18, 1993. METROBANK then appealed to the Department of Justice (DOJ). On June 1, 1994, Undersecretary Ramon. S. Esguerra reversed the findings of the Provincial Prosecutor of Rizal and ordered the latter to file the appropriate information against the TONDAS as charged in the complaint. The TONDAS immediately sought a reconsideration of the DOJ Resolution but their motion was denied by the then acting Justice Secretary Demetrio G. Demetria in a Letter-Resolution dated April 7, 1995. A second motion for reconsideration by the TONDAS was likewise denied by then Justice Secretary Teofisto Guingona on July 12, 1995. Subsequently, the TONDAS filed with the Court of Appeals a special civil action for certiorari and prohibition with application for a temporary restraining order or a writ of preliminary injunction, which was docketed as CA-G.R. SP No. 38113. They contended therein that the Secretary of Justice acted without or in excess of jurisdiction in issuing the aforementioned Resolution dated July 12, 1995 denying with finality their motion for the reconsideration of the Resolution dated April 7, 1995 of the Acting Secretary of Justice, which in turn denied their motion for the reconsideration of Resolution No. 417, s. 94, dated June 1, 1994, directing to file the appropriate Information against the TONDAS. The Court of Appeals granted the TONDAS' petition and ordered the criminal complaint against them dismissed. The Court of Appeals held that METROBANK had failed to show a prima facie case that the TONDAS violated the Trust Receipts Law in relation to Art. 315 (1) (b) of the Revised Penal Code in the face of convincing proof that "that the amount of P2.8 Million representing the outstanding obligation of the TONDAS under the trust receipts account had already been settled by them in compliance with the loan restructuring proposal; and that in the absence of a loan restructuring agreement, METROBANK could still validly apply the amount as payment thereof." The relevant portions of the Court of Appeals decision are quoted as follows: "Petitioners admitted that in 1991 their company, the Honey Tree Apparel Corporation (HTAC), had some financial reversals making it difficult for them to comply with their loan obligations with Metrobank. They were then constrained to propose a loan restructuring agreement with the private respondent to enable them to finally settle all outstanding obligations with the latter. In a letter dated 23 September 1991, petitioner Joaquin Tonda submitted a proposed Loan Restructuring Scheme to Metrobank. In said letter, petitioner Tonda proposed to immediately pay in full the outstanding principal charges under the trust receipts account and the remaining obligations under a separate schedule of payment. Petitioners attached with said letter an itemized proposal (Attachment "A"), part of which reads:

1. Trust Receipts - The new management and. Mr. Joaquin G. Tonda will pay immediately the entire principal of the outstanding Trust Receipts amounting to P2,803,097.14. While the interest accrued up to September 13, 1991 amounting to P409,601.57 plus the additional interest shall be re-structured together with item no. 2 below. A joint sharing account in the name of Joaquin G. Tonda and Wang Tien En equal to Trust Receipt amount of 1.8 Million will be opened at Metrobank Makati. (emphasis supplied) It would appear that the aforestated amount of 1.8 Million was erroneously written since the intention of the petitioners was to open an account of P2.8 Million to pay the entire principal of the outstanding trust receipts account. In fact, also on 23 September 1991, petitioner Joaquin Tonda and Wang Tien En deposited four different checks with a total amount of P2,800,000.00 with Metrobank. The checks were received by a certain Flor C. Naanep. Notably, the petitioners had obtained a written acknowledgement of receipt of the checks totaling P2.8 Million from the Metrobank officer in order to show proof of compliance with the loan restructuring proposal. If the petitioners had intended it to be a simple deposit, then a deposit slip with a machine validation by the private respondent bank would have otherwise been sufficient. In a letter dated 22 October 1991, Metrobank wrote to the petitioners informing them that the bank had accepted their proposal subject to certain conditions, the first of which referred to the immediate payment of the amount of P2.8 Million, representing the outstanding trust receipts account. The petitioners appeared to have offered a counter proposal such that no final agreement had yet been reached. However, the succeeding negotiations between petitioners and Metrobank, after the initial offer of 23 September 1991 was made, dealt with the other outstanding obligations while the matter regarding the trust receipts account remained unchanged; therefore, it was settled between the parties that the amount of P2.8 Million should be paid to cover all outstanding obligations under the trust receipts account. Despite the inability of both parties to reach a mutually agreeable loan restructured agreement, the amount of P2.8 Million which was deposited on 23 September 1991 by the petitioners appears to remain intact and untouched as Metrobank had failed to show evidence that the money has been withdrawn from the savings account of the petitioners. Moreover, the deposit made by the petitioners was made known to Metrobank clearly as a compliance with the proposed loan restructuring agreement. As shown in the correspondence made by the petitioners on 28 February 1992 to Metrobank, after the latter had made a formal demand for payment of all outstanding obligations, the deposit was mentioned, to wit: "May we emphasize that to show sincerity and financial capability, soon after we received your letter dated October 22, 1991 informing us of your approval of the restructuring and consolidation of our firm's obligations, a personal account was opened by two (2) of our stockholders in the amount equivalent to the TR/LC, Account of about P2.8 Million which deposit is still maintained with your bank, free from any lien or encumbrance, and may be applied anytime to the payment of the TR/LC Account upon the implementation by the parties of the terms of restructuring.""(emphasis supplied) The contention of Metrobank that the money had not been actually applied as payment for petitioners' outstanding obligation under the trust receipts account

is absolutely devoid of merit, considering that the petitioners were still in the process of negotiating for a reasonable loan restructuring arrangement with Metrobank when the latter abruptly abandoned all efforts to negotiate and instantly demanded from the petitioners the fulfillment of all their outstanding obligations. In the case of Tan Tiong Tick vs. American Apothecaries, 65 Phil. 414, the Supreme Court had held that: When a depositor is indebted to a bank, and the debts are mutual - that is, between the same parties and in the, same right - the bank may apply the deposit, or such portion thereof as may be necessary, to the payment of the debt due it by the depositor, provided there is no express agreement to the contrary and the deposit is not specifically applicable to some other particular purpose. Applying the above-mentioned ruling in this case, if the parties therefore fail to reach an agreement regarding the restructuring of HTAC's loan, Metrobank can validly apply the amount deposited by the petitioners as payment of the principal obligation under the trust receipts account. On the basis of all the evidence before Us, this Court is convinced that the amount of P2.8 Million representing the outstanding obligation of the petitioners under the trust receipts account had already been settled by the petitioners. The money remains deposited under the savings account of the petitioners awaiting a final agreement with Metrobank regarding the loan restructuring arrangement. Meanwhile, Metrobank has the right to use the deposited amount in connection with any of its banking business. With convincing proof that the amount of P2.8 Million deposited under petitioners' savings account with Metrobank was indeed intended to be applied as payment for the outstanding obligations of HTAC under the trust receipts, Metrobank, therefore, had failed to show a prima facie case that the petitioners had violated the Trust Receipts Law (P.D. No. 115) in relation to Art. 315 of the Revised Penal Code. Besides, there is absolutely no evidence suggesting that Metrobank has been damaged by the proposal and the deposit made by the petitioners. As noted by the prosecutor: It is clear from the evidence that complainant bank had, all the while, been informed of the steps undertaken by the respondents relative to the trust receipts and other financial obligations vis-a-vis HTAC's financial difficulties. Hardly therefore, could it be said that respondents were unfaithfully, deceptively, deceitfully and fraudulently dealing with complainant bank to warrant an indictment for Estafa. Hence, this recourse to this Court where petitioner submits for the consideration of this Court the following issues: I. WHETHER METROBANK HAS SHOWN A PRIMA FACIE VIOLATION OF THE TRUST RECEIPTS LAW IN RELATION TO ART. 315 OF THE REVISED PENAL CODE II. WHETHER AN AGREEMENT WAS FORGED BETWEEN THE PARTIES THAT THE 2.8 MILLION DEPOSITED IN THE JOINT ACCOUNT OF JOAGUIN G. TONDA AND WANG TIEN EN WOULD BE CONSIDERED AS PAYMENT FOR THE

OUTSTANDING OBLIGATIONS OF THE SPOUSES TONDA UNDER THE TRUST RECEIPTS III. WHETHER INSPITE OF THE FAILURE OF THE PARTIES TO AGREE UPON A RESTRUCTURING AGREEMENT, METROBANK CAN STILL APPLY THE P2.8 MILLION DEPOSIT AS PAYMENT TO THE PRINCIPAL AMOUNT COVERED BY THE TRUST RECEIPTS IV. WHETHER DAMAGE HAS BEEN CAUSED TO METROBANK BECAUSE OF THE PROPOSAL AND OF THE DEPOSIT V. WHETHER METROBANK HAS THE STANDING TO PROSECUTE THE CASE A QUO VI. WHETHER THE ASSIGNED ERRORS IN THE PETITION FOR CERTIORARI FILED WITH THIS HONORABLE COURT RAISES PURELY QUESTIONS OF FACTS In response to the foregoing, the TONDAS maintain that METROBANK has no legal standing to file the present petition without the conformity or authority of the prosecutor as it deals solely with the criminal aspect of the case, a separate action to recover civil liability having already been instituted; that the issues raised in the present petition are purely factual; and that the subject trust receipts obligations have been extinguished by payment or legal compensation. We find for petitioner bank. Preliminarily, we shall resolve the issues raised by the TONDAS regarding the standing of METROBANK to file the instant petition and whether the same raises questions of law. The general rule is that it is only the Solicitor General who is authorized to bring or defend actions on behalf of the People or the Republic of the Philippines once the case is brought before this Court or the Court of Appeals. However, an exception has been made that "if there appears to be grave error committed by the judge or lack of due process, the petition will be deemed filed by the private complainants therein as if it were filed by the Solicitor General." In that case, the Court gave due course to the petition and allowed the petitioners to argue their case in lieu of the Solicitor General. We accord the same treatment to the instant petition on account of the grave errors committed by the Court of Appeals. We add that no information having been filed yet in court, there is, strictly speaking, no case yet for the People or the Republic of the Philippines. In answer to the second issue raised by the TONDAS, while the jurisdiction of the Supreme Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, one exception to the rule is when the factual findings complained of are devoid of support by the evidence on record or the assailed judgment is based on misappreciation of facts, as will be shown to have happened in the instant case. In the main, the issue is whether or not the dismissal by the Court of Appeals of the charge for violation of the Trust Receipts Law in relation to Art. 315(1) (b) of the Revised Penal Code against the TONDAS is warranted by the evidence at hand and by law.

The Court of Appeals gravely erred in reversing the Department of Justice on the finding of probable cause to hold the TONDAS for trial. The documentary evidence presented during the preliminary investigation clearly show that there was probable cause to warrant a criminal prosecution for violation of the Trust Receipts Law. The relevant penal provision of P.D. 115 provides: 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 Numbered Three Thousand Eight Hundred and Fifteen, as amended, otherwise known as the Revised Penal Code. If the violation or offense is committed by a corporation, partnership, association or other judicial entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense. Section 1 (b), Article 315 of the Revised Penal Code under which the violation is made to fall, states: "x x x Swindling (estafa). - Any person who shall defraud another by any of the mans mentioned herein below x x x: xxxxxxxxx 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. Based on the foregoing, it is plain to see that the Trust Receipts Law declares the failure to turn over the goods or the proceeds realized from the sale thereof, as a criminal offense punishable under Article 315 (1) (b) of the Revised Penal Code. The law is violated whenever the entrustee or the person to whom the trust receipts were issued in favor of fails to: (1) return the goods covered by the trust receipts; or (2) return the proceeds of the sale of the said goods. The foregoing acts constitute estafa punishable under Article 315 (1) (b) of the Revised Penal Code. Given that various trust receipts were executed by the TONDAS and that as entrustees, they did not return the proceeds from the goods sold nor the goods themselves to METROBANK, there is no dispute that that the TONDAS failed to comply with the obligations under the trust receipts despite several demands from METROBANK. Finding favorably for the TONDAS, however, and ordering the dismissal of the complaint against them, the Court of Appeals held that: (1) the TONDAS opened a savings account of P2.8 Million to pay the entire principal of the outstanding trust receipts account; (2) the TONDAS obtained from a METROBANK officer a written acknowledgement of receipt of checks totaling P2.8 Million in order to show proof of compliance with the loan restructuring proposal; (3) it was settled between the parties that the amount of 2.8 Million

should be paid to cover all outstanding obligations under the trust receipts account; (4) the money remains deposited under the savings account of petitioners awaiting a final agreement with METROBANK regarding the loan restructuring arrangement; and that (5) there is no evidence suggesting that METROBANK has been damaged by the proposal and the deposit or that the TONDAS employed fraud and deceit in their dealings with the bank. The foregoing findings and conclusions are palpably erroneous. First, the amount of P2.8 million was not directly paid to METROBANK to settle the trust receipt accounts, but deposited in a joint account of Joaquin G. Tonda and a certain Wang Tien En. In a letter dated February 28, 1992, signed by HTAC's Vice President for Finance, METROBANK was informed that the amount "may be applied anytime to the payment of the trust receipts account upon implementation of the parties of the terms of the restructuring." The parties failed to agree on the terms of the loan restructuring agreement as the offer by the TONDAS to restructure the loan was followed by a series of counter-offers which yielded nothing. It is axiomatic that acceptance of an offer must be unqualified and absolute to perfect a contract. The alleged payment of the trust receipts accounts never became effectual on account of the failure of the parties to finalize a loan restructuring arrangement. Second, the handwritten note by the METROBANK officer acknowledging receipt of the checks amounting to P2.8 Million made no reference to the TONDAS' trust receipt obligations, and we cannot presume that it was anything more than an ordinary bank deposit. The Court of Appeals citing the case of Tan Tiong Tick vs. American Apothecories implied that in making the deposit, the TONDAS are entitled to set off, by way of compensation, their obligations to METROBANK. However, Article 1288 of the Civil Code provides that "compensation shall not be proper when one of the debts consists in civil liability arising from a penal offense" as in the case at bar. The raison d'etre for this is that, "if one of the debts consists in civil liability arising from a penal offense, compensation would be improper and inadvisable because the satisfaction of such obligation is imperative." Third, reliance on the negotiations for the settlement of the trust receipts obligations between the TONDAS and METROBANK is simply misplaced. The negotiations pertain and affect only the civil aspect of the case but does not preclude prosecution for the offense already committed. It has been held that "[a]ny compromise relating to the civil liability arising from an offense does not automatically terminate the criminal proceeding against or extinguish the criminal liability of the malefactor." All told, the P2.8 Million deposit could not be considered as having settled the trust receipts obligations of the TONDAS to the end of extinguishing any incipient criminal culpability arising therefrom. Hence, it has been held in Office of the Court Administrator vs. Soriano that: xxx it is too well-settled for any serious argument that whether in malversation of public funds or estafa, payment, indemnification, or reimbursement of, or compromise as to, the amounts or funds malversed or misappropriated, after the commission of the crime, affects only the civil liability of the offender but does not extinguish his criminal liability or relieve him from the penalty prescribed by law for the offense committed, because both crimes are public offenses against the people that must be prosecuted and penalized by the Government on its own motion, though complete

reparation should have been made of the damage suffered by the offended parties. xxx." As to the statement of the Court of Appeals that there is no evidence that METROBANK has been damaged by the proposal and the deposit, it must be clarified that the damage can be traced from the non-fulfillment of an entrustee's obligation under the trust receipts. The nature of trust receipt agreements and the damage caused to trade circles and the banking community in case of violation thereof was explained in Vintola vs. IBAA and echoed in People vs. Nitafan , as follows: "[t]rust receipt arrangements do not involve a simple loan transaction between a creditor and a debtor-importer. Apart from a loan feature, the trust receipt arrangement has a security feature that is covered by the trust receipt itself. The second feature is what provides the much needed financial assistance to traders in the importation or purchase of goods or merchandise through the use of those goods or merchandise as collateral for the advancements made by the bank. The title of the bank to the security is the one sought to be protected and not the loan which is a separate and distinct agreement." xxx xxx xxx. "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 P.D. 115. As correctly observed by the Solicitor General, P.D. 115, like Bata Pambansa Blg. 22, punishes the act "not as an offense against property, but as an offense against public order. x x x The misuse of trust receipts therefore should be deterred to prevent any possible havoc in trade circles and the banking community. (citing Lozano vs. Martinez, 146 SCRA 323 [1986]; Rollo, p. 57) It is in the context of upholding public interest that the law now specifically designates a breach of a trust receipt agreement to be an act that "shall" make one liable foe estafa." The finding that there was no fraud and deceit is likewise misplaced Considering that the offense is punished as a malum prohibitum regardless of the existence of intent or malice. A mere failure to deliver the proceeds of the sale or the goods if not sold, constitutes a criminal offense that causes prejudice not only to another, but more to the public interest. Finally, it is worthy of mention that a preliminary investigation proper - whether or not there is reasonable ground to believe that the accused is guilty of the offense and therefore, whether or not he should be subjected to the expense, rigors and embarrassment of trial - is the function of the prosecutor. Preliminary investigation is an executive, not a judicial function. Such investigation is not part of the trial, hence, a full and exhaustive presentation of the parties' evidence is not required, but only such as may engender a wellgrounded belief that an offense has been committed and that the accused is probably guilty thereof. Section 4, Rule 112 of the Rules of Court recognizes the authority of the Secretary of Justice to reverse the resolution of the provincial or city prosecutor or chief state prosecutor upon petition by a proper party. Judicial review of the

resolution of the Secretary of Justice is limited to a determination of whether there has been a grave abuse of discretion amounting to lack or excess of jurisdiction considering that the full discretionary authority has been delegated to the executive branch in the determination of probable cause during a preliminary investigation. Courts are not empowered to substitute their judgment for that of the executive branch; it may, however, look into the question of whether such exercise has been made in grave abuse of discretion. Verily, there was no grave abuse of discretion on the part of the Secretary of Justice in directing the filing of the Information against the TONDAS, end the Court of Appeals overstepped its boundaries in reversing the same without basis in law and in evidence. We emphasize that for purposes of preliminary investigation, it is enough that there is evidence showing that a crime has been committed and that the accused is probably guilty thereof. By reason of the abbreviated nature of preliminary investigations, a dismissal of the charges as a result thereof is not equivalent to a judicial pronouncement of acquittal, a converso, the finding of a prima facie case to hold the accused for trial is not equivalent to a finding of guilt. WHEREFORE, the petition is hereby GRANTED. The assailed Decision is REVERSED and SET ASIDE.

FIRST DIVISION [G.R. No. 90828. September 5, 2000] MELVIN COLINARES and LORDINO VELOSO, petitioners, vs. HONORABLE COURT OF APPEALS, and THE PEOPLE OF THE PHILIPPINES, respondents. DECISION DAVIDE, JR., C.J.: In 1979 Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the latters convent at Camaman-an, Cagayan de Oro City. On 30 October 1979, Petitioners obtained 5,376 SF Solatone acoustical board 2x4x, 300 SF tanguile wood tiles 12x12, 260 SF Marcelo economy tiles and 2 gallons UMYLIN cement adhesive from CM Builders Centre for the construction project. The following day, 31 October 1979, Petitioners applied for a commercial letter of credit with the Philippine Banking Corporation, Cagayan de Oro City branch (hereafter PBC) in favor of CM Builders Centre. PBC approved the letter of credit for P22,389.80 to cover the full invoice value of the goods. Petitioners signed a pro-forma trust receipt as security. The loan was due on 29 January 1980. On 31 October 1979, PBC debited P6,720 from Petitioners marginal deposit as partial payment of the loan. On 7 May 1980, PBC wrote to Petitioners demanding that the amount be paid within seven days from notice. Instead of complying with PBCs demand, Veloso confessed that they lost P19,195.83 in the Carmelite Monastery Project and requested for a grace period of until 15 June 1980 to settle the account. PBC sent a new demand letter to Petitioners on 16 October 1980 and informed them that their outstanding balance as of 17 November 1979 was P20,824.40 exclusive of attorneys fees of 25%. On 2 December 1980, Petitioners proposed that the terms of payment of the loan be modified as follows: P2,000 on or before 3 December 1980, and P1,000

per month starting 31 January 1980 until the account is fully paid. Pending approval of the proposal, Petitioners paid P1,000 to PBC on 4 December 1980, and thereafter P500 on 11 February 1981, 16 March 1981, and 20 April 1981. Concurrently with the separate demand for attorneys fees by PBCs legal counsel, PBC continued to demand payment of the balance. 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 accusedentrustee 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. 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, PBCs 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. On 7 July 1986, the trial court promulgated its decision convicting Petitioners of estafa for violating P.D. No. 115 in relation to Article 315 of the Revised Penal Code and sentencing each of them to suffer imprisonment of two years and one day of prision correccional as minimum to six years and one day of prision mayor as maximum, and to solidarily indemnify PBC the amount of P20,824.44, with legal interest from 29 January 1980, 12 % penalty charge per annum, 25% of the sums due as attorneys fees, and costs. The trial court considered the transaction between PBC and Petitioners as a trust receipt transaction under Section 4, P.D. No. 115. It considered

Petitioners use of the goods in their Carmelite monastery project an act of disposing as contemplated under Section 13, P.D. No. 115, and treated the charge invoice for goods issued by CM Builders Centre as a document within the meaning of Section 3 thereof. It concluded that the failure of Petitioners to turn over the amount they owed to PBC constituted estafa. Petitioners appealed from the judgment to the Court of Appeals which was docketed as CA-G.R. CR No. 05408. Petitioners asserted therein that the trial court erred in ruling that they violated the Trust Receipt Law, and in holding them criminally liable therefor. In the alternative, they contend that at most they can only be made civilly liable for payment of the loan. In its decision 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 Velosos 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/Reconsideration alleging that the Disclosure Statement on Loan/Credit Transaction (hereafter Disclosure Statement) signed by them and Tuiza was suppressed by PBC during the trial. That document would have proved that the transaction was indeed a loan as it bears a 14% interest as opposed to the trust receipt which does not at all bear any interest. Petitioners further maintained that when PBC allowed them to pay in installment, the agreement was novated and a creditor-debtor relationship was created. In its resolution 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: I. WHETHER OR NOT THE DENIAL OF THE MOTION FOR NEW TRIAL ON THE GROUND OF NEWLY DISCOVERED EVIDENCE, NAMELY, DISCLOSURE ON LOAN/CREDIT TRANSACTION, WHICH IF INTRODUCED AND ADMITTED, WOULD CHANGE THE JUDGMENT, DOES NOT CONSTITUTE A DENIAL OF DUE PROCESS. 2. ASSUMING THERE WAS A VALID TRUST RECEIPT, WHETHER OR NOT THE ACCUSED WERE PROPERLY CHARGED, TRIED AND CONVICTED FOR VIOLATION OF SEC. 13, PD NO. 115 IN RELATION TO ARTICLE 315 PARAGRAPH (I) (B) NOTWITHSTANDING THE NOVATION OF THE SO-CALLED TRUST RECEIPT CONVERTING THE TRUSTOR-TRUSTEE RELATIONSHIP TO CREDITOR-DEBTOR SITUATION. In its Comment of 22 January 1990, the Office of the Solicitor General urged us to deny the petition for lack of merit. On 28 February 1990 Petitioners filed a Motion to Dismiss the case on the ground that they had already fully paid PBC on 2 February 1990 the amount of P70,000 for the balance of the loan, including interest and other charges, as evidenced by the different receipts issued by PBC, and that the PBC executed an Affidavit of desistance 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. 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. 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. 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. Assuming Petitioners copy was then unavailable, they could have compelled its production in court, 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. Clearly, the alleged newly discovered evidence is mere forgotten evidence that jurisprudence excludes as a ground for new trial. 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 latters 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. 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, 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. 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. 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. 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. 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.

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. 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. After such perusal Grego Mutia, PBCs 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. 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 interest Such statement is akin to an admission against interest binding upon PBC. Petitioner Velosos 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. What can you say as to that?

A I dont think that would be a trust receipt because we were made to understand by the manager who encouraged us to avail of their facilities that they will be granting us a loan PBC could have presented its former bank manager, Cayo Garcia Tuiza, who contracted with Petitioners, to refute Velosos testimony, yet it only presented credit investigator Grego Mutia. Nowhere from Mutias 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. 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. 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. No costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 159622 July 30, 2004 LANDL & COMPANY (PHIL.) INC., PERCIVAL G. LLABAN and MANUEL P. LUCENTE, petitioners, vs. METROPOLITAN BANK & TRUST COMPANY, respondent. DECISION YNARES-SANTIAGO, J.: At issue in this petition for review on certiorari is whether or not, in a trust receipt transaction, an entruster which had taken actual and juridical possession of the goods covered by the trust receipt may subsequently avail of the right to demand from the entrustee the deficiency of the amount covered by the trust receipt. As correctly appreciated by the Court of Appeals, the undisputed facts of this case are as follows: Respondent Metropolitan Bank and Trust Company (Metrobank) filed a complaint for sum of money against Landl and Company (Phil.) Inc. (Landl) and its directors, Percival G. Llaban and Manuel P. Lucente before the Regional Trial Court of Cebu City, Branch 19, docketed as Civil Case No. CEB-4895. Respondent alleged that petitioner corporation is engaged in the business of selling imported welding rods and alloys. On June 17, 1983, it opened Commercial Letter of Credit No. 4998 with respondent bank, in the amount of US$19,606.77, which was equivalent to P218,733.92 in Philippine currency at the time the transaction was consummated. The letter of credit was opened to purchase various welding rods and electrodes from Perma Alloys, Inc., New York, U.S.A., as evidenced by a Pro-Forma Invoice dated March 10, 1983. Petitioner corporation put up a marginal deposit of P50,414.00 from the proceeds of a separate clean loan. As an additional security, and as a condition for the approval of petitioner corporation's application for the opening of the commercial letter of credit, respondent bank required petitioners Percival G. Llaban and Manuel P. Lucente to execute a Continuing Suretyship Agreement to the extent of P400,000.00, excluding interest, in favor of respondent bank. Petitioner Lucente also executed a Deed of Assignment in the amount of P35,000.00 in favor of respondent bank to cover the amount of petitioner corporation's obligation to the bank. Upon compliance with these requisites, respondent bank opened an irrevocable letter of credit for the petitioner corporation. To secure the indebtedness of petitioner corporation, respondent bank required the execution of a Trust Receipt in an amount equivalent to the letter of credit,

on the condition that petitioner corporation would hold the goods in trust for respondent bank, with the right to sell the goods and the obligation to turn over to respondent bank the proceeds of the sale, if any. If the goods remained unsold, petitioner corporation had the further obligation to return them to respondent bank on or before November 23, 1983. Upon arrival of the goods in the Philippines, petitioner corporation took possession and custody thereof. On November 23, 1983, the maturity date of the trust receipt, petitioner corporation defaulted in the payment of its obligation to respondent bank and failed to turn over the goods to the latter. On July 24, 1984, respondent bank demanded that petitioners, as entrustees, turn over the goods subject of the trust receipt. On September 24, 1984, petitioners turned over the subject goods to the respondent bank. On July 31, 1985, in the presence of representatives of the petitioners and respondent bank, the goods were sold at public auction. The goods were sold for P30,000.00 to respondent bank as the highest bidder. The proceeds of the auction sale were insufficient to completely satisfy petitioners' outstanding obligation to respondent bank, notwithstanding the application of the time deposit account of petitioner Lucente. Accordingly, respondent bank demanded that petitioners pay the remaining balance of their obligation. After petitioners failed to do so, respondent bank instituted the instant case to collect the said deficiency. On March 31, 1997, after trial on the merits, the trial court rendered a decision, the dispositive portion of which reads: WHEREFORE, foregoing premises considered, Judgment is hereby rendered in favor of the plaintiff and against the defendant by (1) ordering the defendant to pay jointly and severally to the plaintiff the sum of P292,172.23 representing the defendant's obligation, as of April 17, 1986; (2) to pay the interest at the rate of 19% per annum to be reckoned from April 18, 1986 until [the] obligation is fully paid; (3) to pay service charge at the rate of 2% per annum starting April 18, 1986; (4) to pay the sum equivalent to 10% per annum of the total amount due collectible by way of Attorney's Fees; (5) to pay Litigation Expenses of P3,000.00 and to pay the cost of the suit; and (6) to pay penalty charge of 12% per annum. SO ORDERED.1 Petitioners appealed to the Court of Appeals, raising the issues of: (1) whether or not respondent bank has the right to recover any deficiency after it has retained possession of and subsequently effected a public auction sale of the goods covered by the trust receipt; (2) whether or not respondent bank is entitled to the amount of P3,000.00 as and for litigation expenses and costs of the suit; and (3) whether or not respondent bank is entitled to the award of attorney's fees. On February 13, 2003, the Court of Appeals rendered a decision affirming in toto the decision of the trial court.2 Hence, this petition for review on the following assignment of errors: I. THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN AFFIRMING THE TRIAL COURT'S RULING THAT RESPONDENT HAD THE RIGHT TO CLAIM

THE DEFICIENCY FROM PETITIONERS NOTWITHSTANDING THE FACT THAT THE GOODS COVERED BY THE TRUST RECEIPT WERE FULLY TURNED OVER TO RESPONDENT. II. THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN AFFIRMING THE TRIAL COURT'S PATENTLY ERRONEOUS AWARD OF PRINCIPAL OBLIGATION, INTEREST, ATTORNEY'S FEES, AND PENALTY AGAINST THE PETITIONERS.3 The instant petition is partly meritorious. The resolution of the first assigned error hinges on the proper interpretation of Section 7 of Presidential Decree No. 115, or the Trust Receipts Law, which reads: Sec. 7. Rights of the entruster. - The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released under a trust receipt to the entrustee to the extent of the amount owing to the entruster or as appears in the trust receipt, or to the return of the goods, documents or instruments in case of non-sale, and to the enforcement of all other rights conferred on him in the trust receipt provided such are not contrary to the provisions of this Decree. The entruster may cancel the trust and take possession of the goods, documents or instruments subject of the trust or of the proceeds realized therefrom at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the trust receipt or any other agreement between the entruster and the entrustee, and the entruster in possession of the goods, documents or instruments may, on or after default, give notice to the entrustee of the intention to sell, and may, not less than five days after serving or sending of such notice, sell the goods, documents or instruments at public or private sale, and the entruster may, at a public sale, become a purchaser. The proceeds of any such sale, whether public or private, shall be applied (a) to the payment of the expenses thereof; (b) to the payment of the expenses of re-taking, keeping and storing the goods, documents or instruments; (c) to the satisfaction of the entrustee's indebtedness to the entruster. The entrustee shall receive any surplus but shall be liable to the entruster for any deficiency. Notice of sale shall be deemed sufficiently given if in writing, and either personally served on the entrustee or sent by post-paid ordinary mail to the entrustee's last known business address. There is no question that petitioners failed to pay their outstanding obligation to respondent bank. They contend, however, that when the entrustee fails to settle his principal loan, the entruster may choose between two separate and alternative remedies: (1) the return of the goods covered by the trust receipt, in which case, the entruster now acquires the ownership of the goods which the entrustee failed to sell; or (2) cancel the trust and take possession of the goods, for the purpose of selling the same at a private sale or at public auction. Petitioners assert that, under this second remedy, the entruster does not acquire ownership of the goods, in which case he is entitled to the deficiency. Petitioners argue that these two remedies are so distinct that the availment of one necessarily bars the availment of the other. Thus, when respondent bank

availed of the remedy of demanding the return of the goods, the actual return of all the unsold goods completely extinguished petitioners' liability.4 Petitioners' argument is bereft of merit. A trust receipt is inextricably linked with the primary agreement between the parties. Time and again, we have emphasized that a trust receipt agreement is merely a collateral agreement, the purpose of which is to serve as security for a loan. Thus, in Abad v. Court of Appeals,5 we ruled: A letter of credit-trust receipt arrangement is endowed with its own distinctive features and characteristics. Under that set-up, a bank extends a loan covered by the letter of credit, with the trust receipt as security for the loan. In other words, the transaction involves a loan feature represented by the letter of credit, and a security feature which is in the covering trust receipt. x x x. A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a "security interest" in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no obligation.6 The Trust Receipts Law was enacted to safeguard commercial transactions and to offer an additional layer of security to the lending bank. Trust receipts are indispensable contracts in international and domestic business transactions. The prevalent use of trust receipts, the danger of their misuse and/or misappropriation of the goods or proceeds realized from the sale of goods, documents or instruments held in trust for entruster banks, and the need for regulation of trust receipt transactions to safeguard the rights and enforce the obligations of the parties involved are the main thrusts of the Trust Receipts Law.7 The second paragraph of Section 7 provides a statutory remedy available to an entruster in the event of default or failure of the entrustee to comply with any of the terms and conditions of the trust receipt or any other agreement between the entruster and the entrustee. More specifically, the entruster "may cancel the trust and take possession of the goods, documents or instruments subject of the trust or of the proceeds realized therefrom at any time". The law further provides that "the entruster in possession of the goods, documents or instruments may, on or after default, give notice to the entrustee of the intention to sell, and may, not less than five days after serving or sending of such notice, sell the goods, documents or instruments at public or private sale, and the entruster may, at a public sale, become a purchaser. The proceeds of any such sale, whether public or private, shall be applied (a) to the payment of the expenses thereof; (b) to the payment of the expenses of re-taking, keeping and storing the goods, documents or instruments; (c) to the satisfaction of the entrustee's indebtedness to the entruster. The entrustee shall receive any surplus but shall be liable to the entruster for any deficiency." The trust receipt between respondent bank and petitioner corporation contains the following relevant clauses: The BANK/ENTRUSTER may, at any time, and only at its option, cancel this trust and take possession of the goods/documents/instruments subject hereof or of the proceeds realized therefrom wherever they may then be found, upon default or failure of the ENTRUSTEE to comply with any of the terms and conditions of this Trust Receipt or of any other agreement

between the BANK/ENTRUSTER and the ENTRUSTEE; and the BANK/ENTRUSTER having taken repossession of the goods/documents/instruments object hereof may, on or after default, give at least five (5) days' previous notice to the ENTRUSTEE of its intention to sell the goods/documents/instruments at public or private sale, at which public sale, it may become a purchaser; Provided, that the proceeds of any such sale, whether public or private, shall be applied: (a) to the payment of the expenses thereof; (b) to the payment of the expenses of retaking, keeping and storing the goods/documents/instruments; (c) to the satisfaction of all of the ENTRUSTEE's indebtedness to the BANK/ENTRUSTER; and Provided, further, that the ENTRUSTEE shall receive any surplus thereof but shall, in any case, be liable to the BANK/ENTRUSTER for any deficiency. 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 The afore-cited stipulations in the trust receipt are a near-exact reproduction of the second paragraph of Section 7 of the Trust Receipts Law. The right of repossession and subsequent sale at public auction which were availed of by respondent bank were rights available upon default, and which were conferred by statute and reinforced by the contract between the parties. The initial repossession by the bank of the goods subject of the trust receipt did not result in the full satisfaction of the petitioners' loan obligation. Petitioners are apparently laboring under the mistaken impression that the full turn-over of the goods suffices to divest them of their obligation to repay the principal amount of their loan obligation. This is definitely not the case. In Philippine National Bank v. Hon. Gregorio G. Pineda and Tayabas Cement Company, Inc.,9 we had occasion to rule: PNB's possession of the subject machinery and equipment being precisely as a form of security for the advances given to TCC under the Letter of Credit, said possession by itself cannot be considered payment of the loan secured thereby. Payment would legally result only after PNB had foreclosed on said securities, sold the same and applied the proceeds thereof to TCC's loan obligation. Mere possession does not amount to foreclosure for foreclosure denotes the procedure adopted by the mortgagee to terminate the rights of the mortgagor on the property and includes the sale itself. Neither can said repossession amount to dacion en pago. Dation in payment takes place when property is alienated to the creditor in satisfaction of a debt in money and the same is governed by sales. Dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. As aforesaid, the repossession of the machinery and equipment in question was merely to secure the payment of TCC's loan obligation and not for the purpose of transferring ownership thereof to PNB in satisfaction of said loan. Thus, no dacion en pago was ever accomplished. (Citations omitted, 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 they relinquished possession of the goods in question. Thus: A trust receipt is a security agreement, pursuant to which a bank acquires a "security interest" in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no obligation. As defined in our laws: (h) Security Interest means a property interest in goods, documents or instruments to secure performance of some obligations of the entrustee or of some third persons to the entruster and includes title, whether or not expressed to be absolute, whenever such title is in substance taken or retained for security only. xxx xxx xxx Contrary to the allegations of the VINTOLAS, IBAA did not become the real owner of the goods. It was merely the holder of a security title for the advances it had made to the VINTOLAS. The goods the VINTOLAS had purchased through IBAA financing remain their own property and they hold it at their own risk. The trust receipt arrangement did not convert the IBAA into an investor; the latter remained a lender and creditor. "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 loan feature 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 IBAA's right to recover the advances it had made under the Letter of Credit. (Citations omitted.)12 Respondent bank's repossession of the properties and subsequent sale of the goods were completely in accordance with its statutory and contractual rights upon default of petitioner corporation. The second paragraph of Section 7 expressly provides that the entrustee shall be liable to the entruster for any deficiency after the proceeds of the sale have been applied to the payment of the expenses of the sale, the payment of the expenses of re-taking, keeping and storing the goods, documents or instruments, and the satisfaction of the entrustee's indebtedness to the entruster. In the case at bar, the proceeds of the auction sale were insufficient to satisfy entirely petitioner corporation's indebtedness to the respondent bank.

Respondent bank was thus well within its rights to institute the instant case to collect the deficiency. We find, however, that there has been an error in the computation of the total amount of petitioners' indebtedness to respondent bank. Although respondent bank contends that the error of computation is a question of fact which is beyond the power of this Court to review, 13 the total amount of petitioners' indebtedness in this case is not a question of fact. Rather, it is a question of law, i.e., the application of legal principles for the computation of the amount owed to respondent bank, and is thus a matter properly brought for our determination. The first issue involves the amount of indebtedness prior to the imposition of interest and penalty charges. The initial amount of the trust receipt of P218,733.92, was reduced to P192,265.92 as of June 14, 1984, as per respondent's Statement of Past Due Trust Receipt dated December 1, 1993. 14 This amount presumably includes the application of P35,000.00, the amount of petitioner Lucente's Deed of Assignment, which amount was applied by respondent bank to petitioners' obligation. No showing was made, however, that the P30,000.00 proceeds of the auction sale on July 31, 1985 was ever applied to the loan. Neither was the amount of P50,414.00, representing the marginal deposit made by petitioner corporation, deducted from the loan. Although respondent bank contends that the marginal deposit should not be deducted from the principal obligation, this is completely contrary to prevailing jurisprudence allowing the deduction of the marginal deposit, thus: The marginal deposit requirement is a Central Bank measure to cut off excess currency liquidity which would create inflationary pressure. It is a collateral security given by the debtor, and is supposed to be returned to him upon his compliance with his secured obligation. Consequently, the bank pays no interest on the marginal deposit, unlike an ordinary bank deposit which earns interest in the bank. As a matter of fact, the marginal deposit requirement for letters of credit has been discontinued, except in those cases where the applicant for a letter of credit is not known to the bank or does not maintain a good credit standing therein. It is only fair then that the importer's marginal deposit (if one was made, as in this case), should be set off against his debt, for while the importer earns no interest on his marginal deposit, the bank, apart from being able to use said deposit for its own purposes, also earns interest on the money it loaned to the importer. It would be onerous to compute interest and other charges on the face value of the letter of credit which the bank issued, without first crediting or setting off the marginal deposit which the importer paid to the bank. Compensation is proper and should take place by operation of law because the requisites in Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent amount (Art. 1290, Civil Code). Although Abad is only a surety, he may set up compensation as regards what the creditor owes the principal debtor, TOMCO (Art. 1280, Civil Code).15 The net amount of the obligation, represented by respondent bank to be P292,172.23 as of April 17, 1986, would thus be P211,758.23. To this principal amount must be imposed the following charges: (1) 19% interest per annum, in keeping with the terms of the trust receipt; 16 and (2)

12% penalty per annum, collected based on the outstanding principal obligation plus unpaid interest, again in keeping with the wording of the trust receipt.17 It appearing that petitioners have paid the interest and penalty charges until April 17, 1986, the reckoning date for the computation of the foregoing charges must be April 18, 1986. A perusal of the records reveals that the trial court and the Court of Appeals erred in imposing service charges upon the petitioners. No such stipulation is found in the trust receipt. Moreover, the trial court and the Court of Appeals erred in computing attorney's fees equivalent to 10% per annum, rather than 10% of the total amount due. There is no basis for compounding the interest annually, as the trial court and Court of Appeals have done. This amount would be unconscionable. Finally, Lucente and Llaban's contention that they are not solidarily liable with petitioner corporation is untenable. As co-signatories of the Continuing Suretyship Agreement, they bound themselves, inter alia, to pay the principal sum in the amount of not more than P400,000.00; interest due on the principal obligation; attorney's fees; and expenses that may be incurred in collecting the credit. The amount owed to respondent bank is the amount of the principal, interest, attorney's fees, and expenses in collecting the principal amount. The Continuing Suretyship Agreement expressly states the nature of the liability of Lucente and Llaban: The liability of the SURETY shall be solidary, direct and immediate and not contingent upon the bank's pursuit of whatever remedies the BANK have [sic] against the Borrower or the securities or liens the BANK may possess and the SURETY will at any time, whether due or not due, pay to the BANK with or withour demand upon the Borrower, any of the instruments of indebtedness or other obligation hereby guaranteed by the SURETY.18 Solidary liability is one of the primary characteristics of a surety contract,19 and the Continuing Suretyship Agreement expressly stipulates the solidary nature of Lucente and Llaban's liability. All three petitioners thus share the solidary obligation in favor of respondent bank, which is given the right, under the Civil Code, to proceed against any one of the solidary debtors or some or all of them simultaneously.20 WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 58193 dated February 13, 2003 is AFFIRMED with MODIFICATIONS. Accordingly, petitioners are ordered to pay respondent bank the following: (1) P211,758.23 representing petitioners' net obligation as of April 17, 1986; (2) interest at the rate of 19% per annum and penalty at the rate of 12% per annum reckoned from April 18, 1986; (3) attorney's fees equivalent to 10% of the total amount due and collectible; and (4) litigation expenses in the amount of P3,000.00. The service charge at the rate of 2% per annum beginning April 18, 1986 is deleted. Costs against petitioners. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 137232 June 29, 2005 ROSARIO TEXTILE MILLS CORPORATION and EDILBERTO YUJUICO, petitioners, vs. HOME BANKERS SAVINGS AND TRUST COMPANY, respondent. DECISION SANDOVAL-GUTIERREZ, J.: For our resolution is the petition for review on certiorari assailing the Decision1 of the Court of Appeals dated March 31, 1998 in CA-G.R. CV No. 48708 and its Resolution dated January 12, 1999. The facts of the case as found by the Court of Appeals are: "Sometime in 1989, Rosario Textile Mills Corporation (RTMC) applied from Home Bankers Savings & Trust Co. for an Omnibus Credit Line for P10 million. The bank approved RTMCs credit line but for only P8 million. The bank notified RTMC of the grant of the said loan thru a letter dated March 2, 1989 which contains terms and conditions conformed by RTMC thru Edilberto V. Yujuico. On March 3, 1989, Yujuico signed a Surety Agreement in favor of the bank, in which he bound himself jointly and severally with RTMC for the payment of all RTMCs indebtedness to the bank from 1989 to 1990. RTMC availed of the credit line by making numerous drawdowns, each drawdown being covered by a separate promissory note and trust receipt. RTMC, represented by Yujuico, executed in favor of the bank a total of eleven (11) promissory notes. Despite the lapse of the respective due dates under the promissory notes and notwithstanding the banks demand letters, RTMC failed to pay its loans. Hence, on January 22, 1993, the bank filed a complaint for sum of money against RTMC and Yujuico before the Regional Trial Court, Br. 16, Manila. In their answer (OR, pp. 44-47), RTMC and Yujuico contend that they should be absolved from liability. They claimed that although the grant of the credit line and the execution of the suretyship agreement are admitted, the bank gave assurance that the suretyship agreement was merely a formality under which Yujuico will not be personally liable. They argue that the importation of raw materials under the credit line was with a grant of option to them to turn-over to the bank the imported raw materials should these fail to meet their manufacturing requirements. RTMC offered to make such turn-over since the imported materials did not conform to the required specifications. However, the bank refused to accept the same, until the materials were destroyed by a fire which gutted down RTMCs premises.

For failure of the parties to amicably settle the case, trial on the merits proceeded. After the trial, the Court a quo rendered a decision in favor of the bank, the decretal part of which reads: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff and against defendants who are ordered to pay jointly and severally in favor of plaintiff, inclusive of stipulated 30% per annum interest and penalty of 3% per month until fully paid, under the following promissory notes: 90-1116 6-20-90 P737,088. 9-18-90 25 (maturity) 90-1320 90-1334 90-1335 90-1347 90-1373 90-1397 90-1429 90-1540 90-1569 90-0922 7-13-90 7-17-90 7-17-90 7-18-90 7-20-90 7-27-90 7-26-90 8-7-90 8-9-90 5-28-90 P650,000. 10-11-90 00 P422,500. 10-15-90 00 P422,500. 10-15-90 00 P795,000. 10-16-90 00 P715,900. 10-18-90 00 P773,500. 10-20-90 00 P425,750. 10-24-90 00 P720,984. 11-5-90 00 P209,433. 11-8-90 75 P747,780. 8-26-90 00

The counterclaims of defendants are hereby DISMISSED. SO ORDERED." (OR, p. 323; Rollo, p. 73)."2 Dissatisfied, RTMC and Yujuico, herein petitioners, appealed to the Court of Appeals, contending that under the trust receipt contracts between the parties, they merely held the goods described therein in trust for respondent Home Bankers Savings and Trust Company (the bank) which owns the same. Since the ownership of the goods remains with the bank, then it should bear the loss. With the destruction of the goods by fire, petitioners should have been relieved of any obligation to pay. The Court of Appeals, however, affirmed the trial courts judgment, holding that the bank is merely the holder of the security for its advance payments to

petitioners; and that the goods they purchased, through the credit line extended by the bank, belong to them and hold said goods at their own risk. Petitioners then filed a motion for reconsideration but this was denied by the Appellate Court in its Resolution dated January 12, 1999. Hence, this petition for review on certiorari ascribing to the Court of Appeals the following errors: "I
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ACTS OF THE PETITIONERSDEFENDANTS WERE TANTAMOUNT TO A VALID AND EFFECTIVE TENDER OF THE GOODS TO THE RESPONDENT-PLAINTIFF. II THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF RES PERIT DOMINO IN THE CASE AT BAR CONSIDERING THE VALID AND EFFECTIVE TENDER OF THE DEFECTIVE RAW MATERIALS BY THE PETITIONERS-DEFENDANTS TO THE RESPONDENT-PLAINTIFF AND THE EXPRESS STIPULATION IN THEIR CONTRACT THAT OWNERSHIP OF THE GOODS REMAINS WITH THE RESPONDENTPLAINTIFF. III THE HONORABLE COURT OF APPEALS VIOLATED ARTICLE 1370 OF THE CIVIL CODE AND THE LONGSTANDING JURISPRUDENCE THAT INTENTION OF THE PARTIES IS PRIMORDIAL IN ITS FAILURE TO UPHOLD THE INTENTION OF THE PARTIES THAT THE SURETY AGREEMENT WAS A MERE FORMALITY AND DID NOT INTEND TO HOLD PETITIONER YUJUICO LIABLE UNDER THE SAME SURETY AGREEMENT. IV ASSUMING ARGUENDO THAT THE SURETYSHIP AGREEMENT WAS VALID AND EFFECTIVE, THE HONORABLE COURT OF APPEALS VIOLATED THE BASIC LEGAL PRECEPT THAT A SURETY IS NOT LIABLE UNLESS THE DEBTOR IS HIMSELF LIABLE. V THE HONORABLE COURT OF APPEALS VIOLATED THE PURPOSE OF TRUST RECEIPT LAW IN HOLDING THE PETITIONERS LIABLE TO THE RESPONDENT."

The above assigned errors boil down to the following issues: (1) whether the Court of Appeals erred in holding that petitioners are not relieved of their obligation to pay their loan after they tried to tender the goods to the bank which refused to accept the same, and which goods were subsequently lost in a fire; (2) whether the Court of Appeals erred when it ruled that petitioners are solidarily liable for the payment of their obligations to the bank; and (3) whether the Court of Appeals violated the Trust Receipts Law. On the first issue, petitioners theorize that when petitioner RTMC imported the raw materials needed for its manufacture, using the credit line, it was merely acting on behalf of the bank, the true owner of the goods by virtue of the trust receipts. Hence, under the doctrine of res perit domino, the bank took the risk of the loss of said raw materials. RTMCs role in the transaction was that of end user of the raw materials and when it did not accept those materials as they did not meet the manufacturing requirements, RTMC made a valid and effective tender of the goods to the bank. Since the bank refused to accept the raw materials, RTMC stored them in its warehouse. When the warehouse and its contents were gutted by fire, petitioners obligation to the bank was accordingly extinguished. Petitioners stance, however, conveniently ignores the true nature of its transaction with the bank. We recall that RTMC filed with the bank an application for a credit line in the amount of P10 million, but only P8 million was approved. RTMC then made withdrawals from this credit line and issued several promissory notes in favor of the bank. In banking and commerce, a credit line is "that amount of money or merchandise which a banker, merchant, or supplier agrees to supply to a person on credit and generally agreed to in advance." 3 It

is the fixed limit of credit granted by a bank, retailer, or credit card issuer to a customer, to the full extent of which the latter may avail himself of his dealings with the former but which he must not exceed and is usually intended to cover a series of transactions in which case, when the customers line of credit is nearly exhausted, he is expected to reduce his indebtedness by payments before making any further drawings.4 It is thus clear that the principal transaction between petitioner RTMC and the bank is a contract of loan. RTMC used the proceeds of this loan to purchase raw materials from a supplier abroad. In order to secure the payment of the loan, RTMC delivered the raw materials to the bank as collateral. Trust receipts were executed by the parties to evidence this security arrangement. Simply stated, the trust receipts were mere securities. In Samo vs. People,5 we described a trust receipt as "a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased."6 In Vintola vs. Insular Bank of Asia and America,7 we elucidated further that "a trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a security interest in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no obligation."8 Section 3 (h) of the Trust Receipts Law (P.D. No. 115) defines a "security interest" as follows: "(h) Security Interest means a property interest in goods, documents, or instruments to secure performance of some obligation of the entrustee or of some third persons to the entruster and includes title, whether or not expressed to be absolute, whenever such title is in substance taken or retained for security only." Petitioners insistence that the ownership of the raw materials remained with the bank is untenable. In Sia vs. People,9 Abad vs. Court of Appeals,10 and PNB vs. Pineda,11 we held that: "If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it wants, which it cannot do, just to give consistency with purpose of the trust receipt of giving a stronger security for the loan obtained by the importer. To consider the bank as the true owner from the inception of the transaction would be to disregard the loan feature thereof..."12 Thus, petitioners cannot be relieved of their obligation to pay their loan in favor of the bank. Anent the second issue, petitioner Yujuico contends that the suretyship agreement he signed does not bind him, the same being a mere formality. We reject petitioner Yujuicos contentions for two reasons. First, there is no record to support his allegation that the surety agreement is a "mere formality;" and Second, as correctly held by the Court of Appeals, the Suretyship Agreement signed by petitioner Yujuico binds him. The terms clearly show that he agreed to pay the bank jointly and severally with RTMC. The parole evidence rule under Section 9, Rule 130 of the Revised Rules of Court is in point, thus:

"SEC. 9. Evidence of written agreements. When the terms of an agreement have been reduced in writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement. However, a party may present evidence to modify, explain, or add to the terms of the written agreement if he puts in issue in his pleading: (a) An intrinsic ambiguity, mistake, or imperfection in the written agreement; (b) The failure of the written agreement to express the true intent and agreement of the parties thereto; (c) The validity of the written agreement; or (d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the written agreement. x x x." Under this Rule, the terms of a contract are rendered conclusive upon the parties and evidence aliunde is not admissible to vary or contradict a complete and enforceable agreement embodied in a document.13 We have carefully examined the Suretyship Agreement signed by Yujuico and found no ambiguity therein. Documents must be taken as explaining all the terms of the agreement between the parties when there appears to be no ambiguity in the language of said documents nor any failure to express the true intent and agreement of the parties.14 As to the third and final issue At the risk of being repetitious, we stress that the contract between the parties is a loan. What respondent bank sought to collect as creditor was the loan it granted to petitioners. Petitioners recourse is to sue their supplier, if indeed the materials were defective. WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 48708 are AFFIRMED IN TOTO. Costs against petitioners. SO ORDERED.

FIRST DIVISION G.R. No. 145578 JOSE C. TUPAZ IV and PETRONILA C. TUPAZ, Petitioners, versus THE COURT OF APPEALS and BANK OF THE PHILIPPINE ISLANDS, Respondents. November 18, 2005 DECISION CARPIO, J.: The Case

This is a petition for review[1] of the Decision[2] of the Court of Appeals dated 7 September 2000 and its Resolution dated 18 October 2000. The 7 September 2000 Decision affirmed the ruling of the Regional Trial Court, Makati, Branch 144 in a case for estafa under Section 13, Presidential Decree No. 115. The Court of Appeals Resolution of 18 October 2000 denied petitioners motion for reconsideration. The Facts Petitioners Jose C. Tupaz IV and Petronila C. Tupaz (petitioners) were Vice-President for Operations and Vice-President/Treasurer, respectively, of El Oro Engraver Corporation (El Oro Corporation). El Oro Corporation had a contract with the Philippine Army to supply the latter with survival bolos. To finance the purchase of the raw materials for the survival bolos, petitioners, on behalf of El Oro Corporation, applied with respondent Bank of the Philippine Islands (respondent bank) for two commercial letters of credit. The letters of credit were in favor of El Oro Corporations suppliers, Tanchaoco Manufacturing Incorporated[3] (Tanchaoco Incorporated) and Maresco Rubber and Retreading Corporation[4] (Maresco Corporation). Respondent bank granted petitioners application and issued Letter of Credit No. 2-00896-3 for P564,871.05 to Tanchaoco Incorporated and Letter of Credit No. 2-00914-5 for P294,000 to Maresco Corporation. Simultaneous with the issuance of the letters of credit, petitioners signed trust receipts in favor of respondent bank. On 30 September 1981, petitioner Jose C. Tupaz IV (petitioner Jose Tupaz) signed, in his personal capacity, a trust receipt corresponding to Letter of Credit No. 2-00896-3 (for P564,871.05). Petitioner Jose Tupaz bound himself to sell the goods covered by the letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before 29 December 1981. On 9 October 1981, petitioners signed, in their capacities as officers of El Oro Corporation, a trust receipt corresponding to Letter of Credit No. 2-00914-5 (for P294,000). Petitioners bound themselves to sell the goods covered by that letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before 8 December 1981. After Tanchaoco Incorporated and Maresco Corporation delivered the raw materials to El Oro Corporation, respondent bank paid the former P564,871.05 and P294,000, respectively. Petitioners did not comply with their undertaking under the trust receipts. Respondent bank made several demands for payments but El Oro Corporation made partial payments only. On 27 June 1983 and 28 June 1983, respondent banks counsel[5] and its representative[6] respectively sent final demand letters to El Oro Corporation. El Oro Corporation replied that it could not fully pay its debt because the Armed Forces of the Philippines had delayed paying for the survival bolos. Respondent bank charged petitioners with estafa under Section 13, Presidential Decree No. 115 (Section 13)[7] or Trust Receipts Law (PD 115). After preliminary investigation, the then Makati Fiscals Office found probable cause to indict petitioners. The Makati Fiscals Office filed the corresponding Informations (docketed as Criminal Case Nos. 8848 and 8849) with the Regional Trial Court, Makati, on 17 January 1984 and the cases were raffled to Branch 144 (trial court) on 20 January 1984. Petitioners pleaded not

guilty to the charges and trial ensued. During the trial, respondent bank presented evidence on the civil aspect of the cases.

The Ruling of the Trial Court On 16 July 1992, the trial court rendered judgment acquitting petitioners of estafa on reasonable doubt. However, the trial court found petitioners solidarily liable with El Oro Corporation for the balance of El Oro Corporations principal debt under the trust receipts. The dispositive portion of the trial courts Decision provides: WHEREFORE, judgment is hereby rendered ACQUITTING both accused Jose C. Tupaz, IV and Petronila Tupaz based upon reasonable doubt. However, El Oro Engraver Corporation, Jose C. Tupaz, IV and Petronila Tupaz, are hereby ordered, jointly and solidarily, to pay the Bank of the Philippine Islands the outstanding principal obligation of P624,129.19 (as of January 23, 1992) with the stipulated interest at the rate of 18% per annum; plus 10% of the total amount due as attorneys fees; P5,000.00 as expenses of litigation; and costs of the suit.[8] In holding petitioners civilly liable with El Oro Corporation, the trial court held: [S]ince the civil action for the recovery of the civil liability is deemed impliedly instituted with the criminal action, as in fact the prosecution thereof was actively handled by the private prosecutor, the Court believes that the El Oro Engraver Corporation and both accused Jose C. Tupaz and Petronila Tupaz, jointly and solidarily should be held civilly liable to the Bank of the Philippine Islands. The mere fact that they were unable to collect in full from the AFP and/or the Department of National Defense the proceeds of the sale of the delivered survival bolos manufactured from the raw materials covered by the trust receipt agreements is no valid defense to the civil claim of the said complainant and surely could not wipe out their civil obligation. After all, they are free to institute an action to collect the same.[9] Petitioners appealed to the Court of Appeals. Petitioners contended that: (1) their acquittal operates to extinguish [their] civil liability and (2) at any rate, they are not personally liable for El Oro Corporations debts. The Ruling of the Court of Appeals In its Decision of 7 September 2000, the Court of Appeals affirmed the trial courts ruling. The appellate court held: It is clear from [Section 13, PD 115] that civil liability arising from the violation of the trust receipt agreement is distinct from the criminal liability imposed therein. In the case of Vintola vs. Insular Bank of Asia and America, our Supreme Court held that acquittal in

the estafa case (P.D. 115) is no bar to the institution of a civil action for collection. This is because in such cases, the civil liability of the accused does not arise ex delicto but rather based ex contractu and as such is distinct and independent from any criminal proceedings and may proceed regardless of the result of the latter. Thus, an independent civil action to enforce the civil liability may be filed against the corporation aside from the criminal action against the responsible officers or employees. xxx [W]e hereby hold that the acquittal of the accused-appellants from the criminal charge of estafa did not operate to extinguish their civil liability under the letter of credit-trust receipt arrangement with plaintiff-appellee, with which they dealt both in their personal capacity and as officers of El Oro Engraver Corporation, the letter of credit applicant and principal debtor. Appellants argued that they cannot be held solidarily liable with their corporation, El Oro Engraver Corporation, alleging that they executed the subject documents including the trust receipt agreements only in their capacity as such corporate officers. They said that these instruments are mere pro-forma and that they executed these instruments on the strength of a board resolution of said corporation authorizing them to apply for the opening of a letter of credit in favor of their suppliers as well as to execute the other documents necessary to accomplish the same. Such contention, however, is contradicted by the evidence on record. The trust receipt agreement indicated in clear and unmistakable terms that the accused signed the same as surety for the corporation and that they bound themselves directly and immediately liable in the event of default with respect to the obligation under the letters of credit which were made part of the said agreement, without need of demand. Even in the application for the letter of credit, it is likewise clear that the undertaking of the accused is that of a surety as indicated [in] the following words: In consideration of your establishing the commercial letter of credit herein applied for substantially in accordance with the foregoing, the undersigned Applicant and Surety hereby agree, jointly and severally, to each and all stipulations, provisions and conditions on the reverse side hereof. xxx Having contractually agreed to hold themselves solidarily liable with El Oro Engraver Corporation under the subject trust receipt agreements with appellee Bank of the Philippine Islands, herein accused-appellants may not, therefore, invoke the separate legal personality of the said corporation to evade their civil liability under the letter of credit-trust receipt arrangement with said appellee, notwithstanding their acquittal in the criminal cases filed against them. The trial court thus did not err in holding the appellants solidarily liable with El Oro Engraver Corporation for the outstanding principal obligation of P624,129.19 (as of January 23,

1992) with the stipulated interest at the rate of 18% per annum, plus 10% of the total amount due as attorneys fees, P5,000.00 as expenses of litigation and costs of suit.[10] Hence, this petition. Petitioners contend that: 1. A JUDGMENT OF ACQUITTAL OPERATE[S] TO EXTINGUISH THE CIVIL LIABILITY OF PETITIONERS[;] 2. GRANTING WITHOUT ADMITTING THAT THE QUESTIONED OBLIGATION WAS INCURRED BY THE CORPORATION, THE SAME IS NOT YET DUE AND PAYABLE; 3. GRANTING THAT THE QUESTIONED OBLIGATION WAS ALREADY DUE AND PAYABLE, xxx PETITIONERS ARE NOT PERSONALLY LIABLE TO xxx RESPONDENT BANK, SINCE THEY SIGNED THE LETTER[S] OF CREDIT AS SURETY AS OFFICERS OF EL ORO, AND THEREFORE, AN EXCLUSIVE LIABILITY OF EL ORO; [AND] 4. IN THE ALTERNATIVE, THE QUESTIONED TRANSACTIONS ARE SIMULATED AND VOID.[11] The Issues The petition raises these issues: (1) Whether petitioners bound themselves personally liable for El Oro Corporations debts under the trust receipts; (2) If so (a) whether petitioners liability is solidary with El Oro Corporation; and (b) whether petitioners acquittal of estafa under Section 13, PD 115 extinguished their civil liability. The Ruling of the Court The petition is partly meritorious. We affirm the Court of Appeals ruling with the modification that petitioner Jose Tupaz is liable as guarantor of El Oro Corporations debt under the trust receipt dated 30 September 1981. On Petitioners Undertaking Under the Trust Receipts A corporation, being a juridical entity, may act only through its directors, officers, and employees. Debts incurred by these individuals, acting as such corporate agents, are not theirs but the direct liability of the corporation they represent.[12] As an exception, directors or officers are personally liable for the corporations debts only if they so contractually agree or stipulate.[13] Here, the dorsal side of the trust receipts contains the following stipulation: To the Bank of the Philippine Islands In consideration of your releasing to under the terms of this Trust Receipt the goods described herein, I/We, jointly and severally, agree and promise to pay to you, on demand, whatever sum or sums of money which you may call upon me/us to pay to you, arising out of,

pertaining to, and/or in any way connected with, this Trust Receipt, in the event of default and/or non-fulfillment in any respect of this undertaking on the part of the said . I/we further agree that my/our liability in this guarantee shall be DIRECT AND IMMEDIATE, without any need whatsoever on your part to take any steps or exhaust any legal remedies that you may have against the said . before making demand upon me/us.[14] (Capitalization in the original) In the trust receipt dated 9 October 1981, petitioners signed below this clause as officers of El Oro Corporation. Thus, under petitioner Petronila Tupazs signature are the words Vice-PresTreasurer and under petitioner Jose Tupazs signature are the words Vice-PresOperations. By so signing that trust receipt, petitioners did not bind themselves personally liable for El Oro Corporations obligation. In Ong v. Court of Appeals,[15] a corporate representative signed a solidary guarantee clause in two trust receipts in his capacity as corporate representative. There, the Court held that the corporate representative did not undertake to guarantee personally the payment of the corporations debts, thus: [P]etitioner did not sign in his personal capacity the solidary guarantee clause found on the dorsal portion of the trust receipts. Petitioner placed his signature after the typewritten words ARMCO INDUSTRIAL CORPORATION found at the end of the solidary guarantee clause. Evidently, petitioner did not undertake to guaranty personally the payment of the principal and interest of ARMAGRIs debt under the two trust receipts. Hence, for the trust receipt dated 9 October 1981, we sustain petitioners claim that they are not personally liable for El Oro Corporations obligation. For the trust receipt dated 30 September 1981, the dorsal portion of which petitioner Jose Tupaz signed alone, we find that he did so in his personal capacity. Petitioner Jose Tupaz did not indicate that he was signing as El Oro Corporations Vice-President for Operations. Hence, petitioner Jose Tupaz bound himself personally liable for El Oro Corporations debts. Not being a party to the trust receipt dated 30 September 1981, petitioner Petronila Tupaz is not liable under such trust receipt. The Nature of Petitioner Jose Tupazs Liability Under the Trust Receipt Dated 30 September 1981 As stated, the dorsal side of the trust receipt dated 30 September 1981 provides: To the Bank of the Philippine Islands In consideration of your releasing to under the terms of this Trust Receipt the goods described herein, I/We, jointly and severally, agree and promise to pay to you, on demand, whatever sum or sums of money which you may call upon me/us to pay to you, arising out of, pertaining to, and/or in any way connected with, this Trust Receipt, in the event of default and/or non-fulfillment in any respect of this undertaking on the part of the said . I/we further agree that my/our liability in this guarantee shall be DIRECT AND IMMEDIATE, without any need whatsoever on your part to take any steps or exhaust any legal remedies that you may have against the said . Before

making demand upon me/us. (Underlining supplied; capitalization in the original) The lower courts interpreted this to mean that petitioner Jose Tupaz bound himself solidarily liable with El Oro Corporation for the latters debt under that trust receipt. This is error. In Prudential Bank v. Intermediate Appellate Court,[16] the Court interpreted a substantially identical clause[17] in a trust receipt signed by a corporate officer who bound himself personally liable for the corporations obligation. The petitioner in that case contended that the stipulation we jointly and severally agree and undertake rendered the corporate officer solidarily liable with the corporation. We dismissed this claim and held the corporate officer liable as guarantor only. The Court further ruled that had there been more than one signatories to the trust receipt, the solidary liability would exist between the guarantors. We held: Petitioner [Prudential Bank] insists that by virtue of the clear wording of the xxx clause x x x we jointly and severally agree and undertake x x x, and the concluding sentence on exhaustion, [respondent] Chis liability therein is solidary. xxx Our xxx reading of the questioned solidary guaranty clause yields no other conclusion than that the obligation of Chi is only that of a guarantor. This is further bolstered by the last sentence which speaks of waiver of exhaustion, which, nevertheless, is ineffective in this case because the space therein for the party whose property may not be exhausted was not filled up. Under Article 2058 of the Civil Code, the defense of exhaustion (excussion) may be raised by a guarantor before he may be held liable for the obligation. Petitioner likewise admits that the questioned provision is a solidary guaranty clause, thereby clearly distinguishing it from a contract of surety. It, however, described the guaranty as solidary between the guarantors; this would have been correct if two (2) guarantors had signed it. The clause we jointly and severally agree and undertake refers to the undertaking of the two (2) parties who are to sign it or to the liability existing between themselves. It does not refer to the undertaking between either one or both of them on the one hand and the petitioner on the other with respect to the liability described under the trust receipt. xxx Furthermore, any doubt as to the import or true intent of the solidary guaranty clause should be resolved against the petitioner. The trust receipt, together with the questioned solidary guaranty clause, is on a form drafted and prepared solely by the petitioner; Chis participation therein is limited to the affixing of his signature thereon. It is, therefore, a contract of adhesion; as such, it must be strictly construed against the party responsible for its preparation. [18] (Underlining supplied; italicization in the original)

However, respondent banks suit against petitioner Jose Tupaz stands despite the Courts finding that he is liable as guarantor only. First, excussion is not a pre-requisite to secure judgment against a guarantor. The guarantor can still demand deferment of the execution of the judgment against him until after the assets of the principal debtor shall have been exhausted.[19] Second, the benefit of excussion may be waived.[20] Under the trust receipt dated 30 September 1981, petitioner Jose Tupaz waived excussion when he agreed that his liability in [the] guaranty shall be DIRECT AND IMMEDIATE, without any need whatsoever on xxx [the] part [of respondent bank] to take any steps or exhaust any legal remedies xxx. The clear import of this stipulation is that petitioner Jose Tupaz waived the benefit of excussion under his guarantee. As guarantor, petitioner Jose Tupaz is liable for El Oro Corporations principal debt and other accessory liabilities (as stipulated in the trust receipt and as provided by law) under the trust receipt dated 30 September 1981. That trust receipt (and the trust receipt dated 9 October 1981) provided for payment of attorneys fees equivalent to 10% of the total amount due and an interest at the rate of 7% per annum, or at such other rate as the bank may fix, from the date due until paid xxx.[21] In the applications for the letters of credit, the parties stipulated that drafts drawn under the letters of credit are subject to interest at the rate of 18% per annum.[22] The lower courts correctly applied the 18% interest rate per annum considering that the face value of each of the trust receipts is based on the drafts drawn under the letters of credit. Based on the guidelines laid down in Eastern Shipping Lines, Inc. v. Court of Appeals,[23] the accrued stipulated interest earns 12% interest per annum from the time of the filing of the Informations in the Makati Regional Trial Court on 17 January 1984. Further, the total amount due as of the date of the finality of this Decision will earn interest at 18% per annum until fully paid since this was the stipulated rate in the applications for the letters of credit.[24] The accounting of El Oro Corporations debts as of 23 January 1992, which the trial court used, is no longer useful as it does not specify the amounts owing under each of the trust receipts. Hence, in the execution of this Decision, the trial court shall compute El Oro Corporations total liability under each of the trust receipts dated 30 September 1981 and 9 October 1981 based on the following formula:[25] TOTAL AMOUNT DUE = [principal + interest + interest on interest] partial payments made[26] Interest = principal x 18 % per annum x no. of years from due date[27] until finality of judgment Interest on interest = interest computed as of the filing of the complaint (17 January 1984) 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 18% per annum until fully paid. In so delegating this task, we reiterate what we said in Rizal Commercial Banking Corporation v. Alfa RTW Manufacturing Corporation[28] where

we also ordered the trial court to compute the amount of obligation due based on a formula substantially similar to that indicated above: The total amount due xxx [under] the xxx contract[] xxx 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. Petitioner Jose Tupazs Acquittal did not Extinguish his Civil Liability The rule is that where the civil action is impliedly instituted with the criminal action, the civil liability is not extinguished by acquittal [w]here the acquittal is based on reasonable doubt xxx as only preponderance of evidence is required in civil cases; where the court expressly declares that the liability of the accused is not criminal but only civil in nature xxx as, for instance, in the felonies of estafa, theft, and malicious mischief committed by certain relatives who thereby incur only civil liability (See Art. 332, Revised Penal Code); and, where the civil liability does not arise from or is not based upon the criminal act of which the accused was acquitted xxx.[29] (Emphasis supplied) Here, respondent bank chose not to file a separate civil action[30] to recover payment under the trust receipts. Instead, respondent bank sought to recover payment in Criminal Case Nos. 8848 and 8849. Although the trial court acquitted petitioner Jose Tupaz, his acquittal did not extinguish his civil liability. As the Court of Appeals correctly held, his liability arose not from the criminal act of which he was acquitted (ex delito) but from the trust receipt contract (ex contractu) of 30 September 1981. Petitioner Jose Tupaz signed the trust receipt of 30 September 1981 in his personal capacity. On the other Matters Petitioners Raise Petitioners raise for the first time in this appeal the contention that El Oro Corporations debts under the trust receipts are not yet due and demandable. Alternatively, petitioners assail the trust receipts as simulated. These assertions have no merit. Under the terms of the trust receipts dated 30 September 1981 and 9 October 1981, El Oro Corporations debts fell due on 29 December 1981 and 8 December 1981, respectively. Neither is there merit to petitioners claim that the trust receipts were simulated. During the trial, petitioners did not deny applying for the letters of credit and subsequently executing the trust receipts to secure payment of the drafts drawn under the letters of credit. WHEREFORE, we GRANT the petition in part. We AFFIRM the Decision of the Court of Appeals dated 7 September 2000 and its Resolution dated 18 October 2000 with the following MODIFICATIONS: 1) El Oro Engraver Corporation is principally liable for the total amount due under the trust receipts dated 30 September 1981 and 9 October 1981, as computed by the Regional Trial Court, Makati, Branch 144, upon finality of this Decision, based on the formula provided above;

2)

Petitioner Jose C. Tupaz IV is liable for El Oro Engraver Corporations total debt under the trust receipt dated 30 September 1981 as thus computed by the Regional Trial Court, Makati, Branch 144; and 3) Petitioners Jose C. Tupaz IV and Petronila C. Tupaz are not liable under the trust receipt dated 9 October 1981. SO ORDERED.

THIRD DIVISION DEVELOPMENT BANK OF G.R. No. 143772 THE PHILIPPINES, Petitioner, -versusPRUDENTIAL BANK, Respondent. Promulgated November 22, 2005 DECISION

CORONA, J.: Development Bank of the Philippines (DBP) assails in this petition for review on certiorari under Rule 45 of the Rules of Court the December 14, 1999 decision[1] and the June 8, 2000 resolution of the Court of Appeals in CA-G.R. CV No. 45783. The challenged decision dismissed DBPs appeal and affirmed the February 12, 1991 decision of the Regional Trial Court of Makati, Branch 137 in Civil Case No. 88-931 in toto, while the impugned resolution denied DBPs motion for reconsideration for being pro forma. In 1973, Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial letter of credit with respondent Prudential Bank for US$498,000. This was in connection with its importation of 5,000 spindles for spinning machinery with drawing frame, simplex fly frame, ring spinning frame and various accessories, spare parts and tool gauge. These were released to Litex under covering trust receipts it executed in favor of Prudential Bank. Litex installed and used the items in its textile mill located in Montalban, Rizal. On October 10, 1980, DBP granted a foreign currency loan in the amount of US$4,807,551 to Litex. To secure the loan, Litex executed real estate and chattel mortgages on its plant site in Montalban, Rizal, including the buildings and other improvements, machineries and equipments there. Among the machineries and equipments mortgaged in favor of DBP were the articles covered by the trust receipts. Sometime in June 1982, Prudential Bank learned about DBPs plan for the overall rehabilitation of Litex. In a July 14, 1982 letter, Prudential Bank notified DBP of its claim over the various items covered by the trust receipts which had been installed and used by Litex in the textile mill. Prudential Bank informed DBP that it was the absolute and juridical owner of the said items and they were thus not part of the mortgaged assets that could be legally ceded to DBP. For the failure of Litex to pay its obligation, DBP extra-judicially foreclosed on the real estate and chattel mortgages, including the articles claimed by Prudential Bank. During the foreclosure sale held on April 19, 1983, DBP acquired the foreclosed properties as the highest bidder. Subsequently, DBP caused to be published in the September 2, 1984 issue of the Times Journal an invitation to bid in the public sale to be held on September 10, 1984. It called on interested parties to submit bids for the sale of the textile mill formerly owned by Litex, the land on which it was built, as well as the machineries and equipments therein. Learning of the intended public auction, Prudential Bank wrote a letter dated September 6, 1984 to DBP reasserting its claim over the items covered by trust receipts in its name and advising DBP not to include them in the auction. It also demanded the turn-over of the articles or alternatively, the payment of their value. An exchange of correspondences ensued between Prudential Bank and DBP. In reply to Prudential Banks September 6, 1984 letter, DBP requested documents to enable it to evaluate Prudential Banks claim. On September 28, 1994, Prudential Bank provided DBP the requested documents. Two months later, Prudential Bank followed up the status of its claim. In a letter dated December 3, 1984, DBP informed Prudential Bank that its claim had been referred to DBPs legal department and instructed Prudential Bank to get in touch with its chief legal counsel. There being no concrete action on DBPs part,

Prudential Bank, in a letter dated July 30, 1985, made a final demand on DBP for the turn-over of the contested articles or the payment of their value. Without the knowledge of Prudential Bank, however, DBP sold the Litex textile mill, as well as the machineries and equipments therein, to Lyon Textile Mills, Inc. (Lyon) on June 8, 1987. Since its demands remained unheeded, Prudential Bank filed a complaint for a sum of money with damages against DBP with the Regional Trial Court of Makati, Branch 137, on May 24, 1988. The complaint was docketed as Civil Case No. 88-931. On February 12, 1991, the trial court decided[2] in favor of Prudential Bank. Applying the provisions of PD 115, otherwise known as the Trust Receipts Law, it ruled: When PRUDENTIAL BANK released possession of the subject properties, over which it holds absolute title to LITEX upon the latters execution of the trust receipts, the latter was bound to hold said properties in trust for the former, and (a) to sell or otherwise dispose of the same and to turn over to PRUDENTIAL BANK the amount still owing; or (b) to return the goods if unsold. Since LITEX was allowed to sell the properties being claimed by PRUDENTIAL BANK, all the more was it authorized to mortgage the same, provided of course LITEX turns over to PRUDENTIAL BANK all amounts owing. When DBP, well aware of the status of the properties, acquired the same in the public auction, it was bound by the terms of the trust receipts of which LITEX was the entrustee. Simply stated, DBP held no better right than LITEX, and is thus bound to turn over whatever amount was due PRUDENTIAL BANK. Being a trustee ex maleficio of PRUDENTIAL BANK, DBP is necessarily liable therefor. In fact, DBP may well be considered as an agent of LITEX when the former sold the properties being claimed by PRUDENTIAL BANK, with the corresponding responsibility to turn over the proceeds of the same to PRUDENTIAL BANK.[3] (Citations omitted) The dispositive portion of the decision read: WHEREFORE, judgment is hereby rendered ordering defendant DEVELOPMENT BANK OF THE PHILIPPINES to pay plaintiff PRUDENTIAL BANK: a) P3,261,834.00, as actual damages, with interest thereon computed from 10 August 1985 until the entire amount shall have been fully paid; b) P50,000.00 as exemplary damages; and c) 10% of the total amount due as and for attorneys fees.SO ORDERED. Aggrieved, DBP filed an appeal with the Court of Appeals. However, the appellate court dismissed the appeal and affirmed the decision of the trial court in toto. It applied the provisions of PD 115 and held that ownership over the contested articles belonged to Prudential Bank as entrustor, not to Litex. Consequently, even if Litex mortgaged the items to DBP and the latter

foreclosed on such mortgage, DBP was duty-bound to turn over the proceeds to Prudential Bank, being the party that advanced the payment for them. On DBPs argument that the disputed articles were not proper objects of a trust receipt agreement, the Court of Appeals ruled that the items were part of the trust agreement entered into by and between Prudential Bank and Litex. Since the agreement was not contrary to law, morals, public policy, customs and good order, it was binding on the parties. Moreover, the appellate court found that DBP was not a mortgagee in good faith. It also upheld the finding of the trial court that DBP was a trustee ex maleficio of Prudential Bank over the articles covered by the trust receipts. DBP filed a motion for reconsideration but the appellate court denied it for being pro forma. Hence, this petition. Trust receipt transactions are governed by the provisions of PD 115 which defines such a transaction as follows: Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this Decree, is any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latters execution and delivery to the entruster of a signed document called a trust receipt wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following: 1. In the case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or process the goods with the purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has complied fully with his obligation under the trust receipt; or (c) to load, unload, ship or tranship or otherwise deal with them in a manner preliminary or necessary to their sale; or 2. In the case of instruments, (a) to sell or procure their sale or exchange; or (b) to deliver them to a principal; or (c) to effect the consummation of some transactions involving delivery to a depository or register; or (d) to effect their presentation, collection or renewal. xxx xxx xxx

In a trust receipt transaction, the goods are released by the entruster (who owns or holds absolute title or security interests over the said goods) to the entrustee on the latters execution and delivery to the entruster of a trust receipt. The trust receipt evidences the absolute title or security interest of the entruster over the goods. As a consequence of the release of the goods and the execution of the trust receipt, a two-fold obligation is imposed on the entrustee, namely: (1) to hold the designated goods, documents or instruments in trust for the purpose of selling or otherwise disposing of them and (2) to turn over to the entruster either the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt, or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt. In the case of goods, they may also be released for other purposes substantially equivalent to (a) their sale or the procurement of their sale; or (b) their manufacture or processing with the purpose of ultimate sale, in which case the entruster retains his title over the said goods whether in their original or processed form until the entrustee has complied fully with his obligation under the trust receipt; or (c) the loading, unloading, shipment or transshipment or otherwise dealing with them in a manner preliminary or necessary to their sale. [4] Thus, in a trust receipt transaction, the release of the goods to the entrustee, on his execution of a trust receipt, is essentially for the purpose of their sale or is necessarily connected with their ultimate or subsequent sale. Here, Litex was not engaged in the business of selling spinning machinery, its accessories and spare parts but in manufacturing and producing textile and various kinds of fabric. The articles were not released to Litex to be sold. Nor was the transfer of possession intended to be a preliminary step for the said goods to be ultimately or subsequently sold. Instead, the contemporaneous and subsequent acts of both Litex and Prudential Bank showed that the imported articles were released to Litex to be installed in its textile mill and used in its business. DBP itself was aware of this. To support its assertion that the contested articles were excluded from goods that could be covered by a trust receipt, it contended: First. That the chattels in controversy were procured by DBPs mortgagor Lirag Textile Mills (LITEX) for the exclusive use of its textile mills. They were not procured (a) to sell or otherwise procure their sale; (b) to manufacture or process the goods with the purpose of ultimate sale.[5] (emphasis supplied)

Hence, the transactions between Litex and Prudential Bank were allegedly not trust receipt transactions within the meaning of PD 115. It follows that, contrary to the decisions of the trial court and the appellate court, the transactions were not governed by the Trust Receipts Law. We disagree. The various agreements between Prudential Bank and Litex commonly denominated as trust receipts were valid. As the Court of Appeals correctly ruled, their provisions did not contravene the law, morals, good customs, public order or public policy.

The agreements uniformly provided: Received, upon the Trust hereinafter mentioned from the PRUDENTIAL BANK (hereinafter referred to as BANK) the following goods and merchandise, the property of said BANK specified in the bill of lading as follows: Amount Description of Marks & Nos. Vessel of Bill Security and in consideration thereof, I/We hereby agree to hold said goods in trust for the BANK and as its property with liberty to sell the same for its account but without authority to make any other disposition whatsoever of the said goods or any part thereof (or the proceeds thereof) either by way of conditional sale, pledge, or otherwise. xxx xxx x x x[6] (Emphasis supplied) The articles were owned by Prudential Bank and they were only held by Litex in trust. While it was allowed to sell the items, Litex had no authority to dispose of them or any part thereof or their proceeds through conditional sale, pledge or any other means. Article 2085 (2) of the Civil Code requires that, in a contract of pledge or mortgage, it is essential that the pledgor or mortgagor should be the absolute owner of the thing pledged or mortgaged. Article 2085 (3) further mandates that the person constituting the pledge or mortgage must have the free disposal of his property, and in the absence thereof, that he be legally authorized for the purpose. Litex had neither absolute ownership, free disposal nor the authority to freely dispose of the articles. Litex could not have subjected them to a chattel mortgage. Their inclusion in the mortgage was void[7] and had no legal effect. [8] There being no valid mortgage, there could also be no valid foreclosure or valid auction sale.[9] Thus, DBP could not be considered either as a mortgagee or as a purchaser in good faith.[10] No one can transfer a right to another greater than what he himself has. [11] Nemo dat quod non habet. Hence, Litex could not transfer a right that it did not have over the disputed items. Corollarily, DBP could not acquire a right greater than what its predecessor-in-interest had. The spring cannot rise higher than its source.[12] DBP merely stepped into the shoes of Litex as trustee of the imported articles with an obligation to pay their value or to return them on Prudential Banks demand. By its failure to pay or return them despite Prudential Banks repeated demands and by selling them to Lyon without Prudential Banks knowledge and conformity, DBP became a trustee ex maleficio. On the matter of actual damages adjudged by the trial court and affirmed by the Court of Appeals, DBP wants this Court to review the evidence presented during the trial and to reverse the factual findings of the trial court. This Court is, however, not a trier of facts and it is not its function to analyze or weigh evidence anew.[13] The rule is that factual findings of the trial court, when adopted and confirmed by the CA, are binding and conclusive on this Court and generally will not be reviewed on appeal.[14] While there are recognized

exceptions to this rule, none of the established exceptions finds application here. With regard to the imposition of exemplary damages, the appellate court agreed with the trial court that the requirements for the award thereof had been sufficiently established. Prudential Banks entitlement to compensatory damages was likewise amply proven. It was also shown that DBP was aware of Prudential Banks claim as early as July, 1982. However, it ignored the latters demand, included the disputed articles in the mortgage foreclosure and caused their sale in a public auction held on April 19, 1983 where it was declared as the highest bidder. Thereafter, in the series of communications between them, DBP gave Prudential Bank the false impression that its claim was still being evaluated. Without acting on Prudential Banks plea, DBP included the contested articles among the properties it sold to Lyon in June, 1987. The trial court found that this chain of events showed DBPs fraudulent attempt to prevent Prudential Bank from asserting its rights. It smacked of bad faith, if not deceit. Thus, the award of exemplary damages was in order. Due to the award of exemplary damages, the grant of attorneys fees was proper.[15] DBPs assertion that both the trial and appellate courts failed to address the issue of prescription is of no moment. Its claim that, under Article 1146 (1) of the Civil Code, Prudential Banks cause of action had prescribed as it should be reckoned from October 10, 1980, the day the mortgage was registered, is not correct. The written extra-judicial demand by the creditor interrupted the prescription of action.[16] Hence, the four-year prescriptive period which DBP insists should be counted from the registration of the mortgage was interrupted when Prudential Bank wrote the extra-judicial demands for the turn over of the articles or their value. In particular, the last demand letter sent by Prudential Bank was dated July 30, 1988 and this was received by DBP the following day. Thus, contrary to DBPs claim, Prudential Banks right to enforce its action had not yet prescribed when it filed the complaint on May 24, 1988. WHEREFORE, the petition is hereby DENIED. The December 14, 1999 decision and June 8, 2000 resolution of the Court of Appeals in CA-G.R. CV No. 45783 are AFFIRMED. Costs against the petitioner. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G. R. No. 164317 February 6, 2006 ALFREDO CHING, Petitioner, vs.THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN BURGOS-VILLAVERT, JUDGE EDGARDO SUDIAM of the Regional Trial Court, Manila, Branch 52; RIZAL COMMERCIAL BANKING CORP. and THE PEOPLE OF THE PHILIPPINES, Respondents. DECISION CALLEJO, SR., J.: Before the Court is a petition for review on certiorari of the Decision 1 of the Court of Appeals (CA) in CA-G.R. SP No. 57169 dismissing the petition for certiorari, prohibition and mandamus filed by petitioner Alfredo Ching, and its Resolution2 dated June 28, 2004 denying the motion for reconsideration thereof. Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime in September to October 1980, PBMI, through petitioner, applied with the Rizal Commercial Banking Corporation (respondent bank) for the issuance of commercial letters of credit to finance its importation of assorted goods.3 Respondent bank approved the application, and irrevocable letters of credit were issued in favor of petitioner. The goods were purchased and delivered in trust to PBMI. Petitioner signed 13 trust receipts4 as surety, acknowledging delivery of the following goods:

T/R Nos. 1845

Date Granted 12-05-80

Maturity Date 03-05-81

Principal P1,596,470.05

Description of Goods 79.9425 M/T "SDK" Brand Synthetic Graphite Electrode 3,000 pcs. (15 bundles) Calorized Lance Pipes One Lot High Fired Refractory Tundish Bricks 5 cases spare parts for CCM 200 pcs. ingot moulds High Fired Refractory Nozzle Bricks Synthetic Graphite Electrode [with] tapered pitch filed nipples 3,000 pcs. (15 bundles calorized lance pipes [)] Spare parts for Spectrophotometer 50 pcs. Ingot moulds 50 pcs. Ingot moulds 8 pcs. Kubota Rolls for rolling mills Spare parts Lacolaboratory Equipment5 for

1853

12-08-80

03-06-81

P198,150.67

1824

11-28-80

02-26-81

P707,879.71

1798 1808 2042 1801

11-21-80 11-21-80 01-30-81 11-21-80

02-19-81 02-19-81 04-30-81 02-19-81

P835,526.25 P370,332.52 P469,669.29 P2,001,715.17

1857

12-09-80

03-09-81

P197,843.61

1895 1911 2041 2099 2100

12-17-80 12-22-80 01-30-81 02-10-81 02-10-81

03-17-81 03-20-81 04-30-81 05-11-81 05-12-81

P67,652.04 P91,497.85 P91,456.97 P66,162.26 P210,748.00

Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority to sell but not by way of conditional sale, pledge or otherwise; and in case such goods were sold, to turn over the proceeds thereof as soon as received, to apply against the relative acceptances and payment of other indebtedness to respondent bank. In case the goods remained unsold within the specified period, the goods were to be returned to respondent bank

without any need of demand. Thus, said "goods, manufactured products or proceeds thereof, whether in the form of money or bills, receivables, or accounts separate and capable of identification" were respondent banks property. When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to return their value amounting to P6,940,280.66 despite demands. Thus, the bank filed a criminal complaint for estafa6 against petitioner in the Office of the City Prosecutor of Manila. After the requisite preliminary investigation, the City Prosecutor found probable cause estafa under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to Presidential Decree (P.D.) No. 115, otherwise known as the Trust Receipts Law. Thirteen (13) Informations were filed against the petitioner before the Regional Trial Court (RTC) of Manila. The cases were docketed as Criminal Cases No. 86-42169 to 86-42181, raffled to Branch 31 of said court. Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The appeal was dismissed in a Resolution 7 dated March 17, 1987, and petitioner moved for its reconsideration. On December 23, 1987, the Minister of Justice granted the motion, thus reversing the previous resolution finding probable cause against petitioner.8 The City Prosecutor was ordered to move for the withdrawal of the Informations. This time, respondent bank filed a motion for reconsideration, which, however, was denied on February 24, 1988.9 The RTC, for its part, granted the Motion to Quash the Informations filed by petitioner on the ground that the material allegations therein did not amount to estafa.10 In the meantime, the Court rendered judgment in Allied Banking Corporation v. Ordoez,11 holding that the penal provision of P.D. No. 115 encompasses any act violative of an obligation covered by the trust receipt; it is not limited to transactions involving goods which are to be sold (retailed), reshipped, stored or processed as a component of a product ultimately sold. The Court also ruled that "the non-payment of the amount covered by a trust receipt is an act violative of the obligation of the entrustee to pay."12 On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against petitioner before the Office of the City Prosecutor of Manila. The case was docketed as I.S. No. 95B-07614. Preliminary investigation ensued. On December 8, 1995, the City Prosecutor ruled that there was no probable cause to charge petitioner with violating P.D. No. 115, as petitioners liability was only civil, not criminal, having signed the trust receipts as surety.13 Respondent bank appealed the resolution to the Department of Justice (DOJ) via petition for review, alleging that the City Prosecutor erred in ruling: 1. That there is no evidence to show that respondent participated in the misappropriation of the goods subject of the trust receipts; 2. That the respondent is a mere surety of the trust receipts; and 3. That the liability of the respondent is only civil in nature.14 On July 13, 1999, the Secretary of Justice issued Resolution No. 250 15 granting the petition and reversing the assailed resolution of the City Prosecutor. According to the Justice Secretary, the petitioner, as Senior Vice-President of PBMI, executed the 13 trust receipts and as such, was the one responsible for the offense. Thus, the execution of said receipts is enough to indict the

petitioner as the official responsible for violation of P.D. No. 115. The Justice Secretary also declared that petitioner could not contend that P.D. No. 115 covers only goods ultimately destined for sale, as this issue had already been settled in Allied Banking Corporation v. Ordoez,16 where the Court ruled that P.D. No. 115 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 but covers failure to turn over the proceeds of the sale of entrusted goods, or to return said goods if unsold or not otherwise disposed of in accordance with the terms of the trust receipts." The Justice Secretary further stated that the respondent bound himself under the terms of the trust receipts not only as a corporate official of PBMI but also as its surety; hence, he could be proceeded against in two (2) ways: first, as surety as determined by the Supreme Court in its decision in Rizal Commercial Banking Corporation v. Court of Appeals;17 and second, as the corporate official responsible for the offense under P.D. No. 115, via criminal prosecution. Moreover, P.D. No. 115 explicitly allows the prosecution of corporate officers "without prejudice to the civil liabilities arising from the criminal offense." Thus, according to the Justice Secretary, following Rizal Commercial Banking Corporation, the civil liability imposed is clearly separate and distinct from the criminal liability of the accused under P.D. No. 115. Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13 Informations against petitioner for violation of P.D. No. 115 before the RTC of Manila. The cases were docketed as Criminal Cases No. 99-178596 to 99-178608 and consolidated for trial before Branch 52 of said court. Petitioner filed a motion for reconsideration, which the Secretary of Justice denied in a Resolution18 dated January 17, 2000. Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing the resolutions of the Secretary of Justice on the following grounds: 1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN FACT, ARE ACTING OPPRESSIVELY AGAINST ALFREDO CHING WHEN THEY ALLOWED HIS PROSECUTION DESPITE THE FACT THAT NO EVIDENCE HAD BEEN PRESENTED TO PROVE HIS PARTICIPATION IN THE ALLEGED TRANSACTIONS. 2. THE RESPONDENT SECRETARY OF JUSTICE COMMITTED AN ACT IN GRAVE ABUSE OF DISCRETION AND IN EXCESS OF HIS JURISDICTION WHEN THEY CONTINUED PROSECUTION OF THE PETITIONER DESPITE THE LENGTH OF TIME INCURRED IN THE TERMINATION OF THE PRELIMINARY INVESTIGATION THAT SHOULD JUSTIFY THE DISMISSAL OF THE INSTANT CASE. 3. THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY PROSECUTOR ACTED IN GRAVE ABUSE OF DISCRETION AMOUNTING TO AN EXCESS OF JURISDICTION WHEN THEY CONTINUED THE PROSECUTION OF THE PETITIONER DESPITE LACK OF SUFFICIENT BASIS.19 In his petition, petitioner incorporated a certification stating that "as far as this Petition is concerned, no action or proceeding in the Supreme Court, the Court of Appeals or different divisions thereof, or any tribunal or agency. It is finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or

different divisions thereof, of any other tribunal or agency, it hereby undertakes to notify this Honorable Court within five (5) days from such notice."20 In its Comment on the petition, the Office of the Solicitor General alleged that A. THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT PETITIONER ALFREDO CHING IS THE OFFICER RESPONSIBLE FOR THE OFFENSE CHARGED AND THAT THE ACTS OF PETITIONER FALL WITHIN THE AMBIT OF VIOLATION OF P.D. [No.] 115 IN RELATION TO ARTICLE 315, PAR. 1(B) OF THE REVISED PENAL CODE. B. THERE IS NO MERIT IN PETITIONERS CONTENTION THAT EXCESSIVE DELAY HAS MARRED THE CONDUCT OF THE PRELIMINARY INVESTIGATION OF THE CASE, JUSTIFYING ITS DISMISSAL. C. THE PRESENT SPECIAL CIVIL ACTION FOR CERTIORARI, PROHIBITION AND MANDAMUS IS NOT THE PROPER MODE OF REVIEW FROM THE RESOLUTION OF THE DEPARTMENT OF JUSTICE. THE PRESENT PETITION MUST THEREFORE BE DISMISSED.21 On April 22, 2004, the CA rendered judgment dismissing the petition for lack of merit, and on procedural grounds. On the procedural issue, it ruled that (a) the certification of non-forum shopping executed by petitioner and incorporated in the petition was defective for failure to comply with the first two of the threefold undertakings prescribed in Rule 7, Section 5 of the Revised Rules of Civil Procedure; and (b) the petition for certiorari, prohibition and mandamus was not the proper remedy of the petitioner. On the merits of the petition, the CA ruled that the assailed resolutions of the Secretary of Justice were correctly issued for the following reasons: (a) petitioner, being the Senior Vice-President of PBMI and the signatory to the trust receipts, is criminally liable for violation of P.D. No. 115; (b) the issue raised by the petitioner, on whether he violated P.D. No. 115 by his actuations, had already been resolved and laid to rest in Allied Bank Corporation v. Ordoez;22 and (c) petitioner was estopped from raising the City Prosecutors delay in the final disposition of the preliminary investigation because he failed to do so in the DOJ. Thus, petitioner filed the instant petition, alleging that: I THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON THE GROUND THAT THE CERTIFICATION OF NON-FORUM SHOPPING INCORPORATED THEREIN WAS DEFECTIVE. II THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WAS COMMITTED BY THE SECRETARY OF JUSTICE IN COMING OUT WITH THE ASSAILED RESOLUTIONS.23 The Court will delve into and resolve the issues seriatim. The petitioner avers that the CA erred in dismissing his petition on a mere technicality. He claims that the rules of procedure should be used to promote, not frustrate, substantial justice. He insists that the Rules of Court should be

construed liberally especially when, as in this case, his substantial rights are adversely affected; hence, the deficiency in his certification of non-forum shopping should not result in the dismissal of his petition. The Office of the Solicitor General (OSG) takes the opposite view, and asserts that indubitably, the certificate of non-forum shopping incorporated in the petition before the CA is defective because it failed to disclose essential facts about pending actions concerning similar issues and parties. It asserts that petitioners failure to comply with the Rules of Court is fatal to his petition. The OSG cited Section 2, Rule 42, as well as the ruling of this Court in Melo v. Court of Appeals.24 We agree with the ruling of the CA that the certification of non-forum shopping petitioner incorporated in his petition before the appellate court is defective. The certification reads: It is further certified that as far as this Petition is concerned, no action or proceeding in the Supreme Court, the Court of Appeals or different divisions thereof, or any tribunal or agency. It is finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it hereby undertakes to notify this Honorable Court within five (5) days from such notice.25 Under Section 1, second paragraph of Rule 65 of the Revised Rules of Court, the petition should be accompanied by a sworn certification of non-forum shopping, as provided in the third paragraph of Section 3, Rule 46 of said Rules. The latter provision reads in part: SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. The petition shall contain the full names and actual addresses of all the petitioners and respondents, a concise statement of the matters involved, the factual background of the case and the grounds relied upon for the relief prayed for. xxx The petitioner shall also submit together with the petition a sworn certification that he has not theretofore commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or different divisions thereof, or any other tribunal or agency; if there is such other action or proceeding, he must state the status of the same; and if he should thereafter learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, or any other tribunal or agency, he undertakes to promptly inform the aforesaid courts and other tribunal or agency thereof within five (5) days therefrom. xxx Compliance with the certification against forum shopping is separate from and independent of the avoidance of forum shopping itself. The requirement is mandatory. The failure of the petitioner to comply with the foregoing requirement shall be sufficient ground for the dismissal of the petition without prejudice, unless otherwise provided.26 Indubitably, the first paragraph of petitioners certification is incomplete and unintelligible. Petitioner failed to certify that he "had not heretofore commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or the different divisions thereof or any other tribunal or

agency" as required by paragraph 4, Section 3, Rule 46 of the Revised Rules of Court. We agree with petitioners contention that the certification is designed to promote and facilitate the orderly administration of justice, and therefore, should not be interpreted with absolute literalness. In his works on the Revised Rules of Civil Procedure, former Supreme Court Justice Florenz Regalado states that, with respect to the contents of the certification which the pleader may prepare, the rule of substantial compliance may be availed of.27 However, there must be a special circumstance or compelling reason which makes the strict application of the requirement clearly unjustified. The instant petition has not alleged any such extraneous circumstance. Moreover, as worded, the certification cannot even be regarded as substantial compliance with the procedural requirement. Thus, the CA was not informed whether, aside from the petition before it, petitioner had commenced any other action involving the same issues in other tribunals. On the merits of the petition, the CA ruled that the petitioner failed to establish that the Secretary of Justice committed grave abuse of discretion in finding probable cause against the petitioner for violation of estafa under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to P.D. No. 115. Thus, the appellate court ratiocinated: Be that as it may, even on the merits, the arguments advanced in support of the petition are not persuasive enough to justify the desired conclusion that respondent Secretary of Justice gravely abused its discretion in coming out with his assailed Resolutions. Petitioner posits that, except for his being the Senior Vice-President of the PBMI, there is no iota of evidence that he was a participes crimines in violating the trust receipts sued upon; and that his liability, if at all, is purely civil because he signed the said trust receipts merely as a xxx surety and not as the entrustee. These assertions are, however, too dull that they cannot even just dent the findings of the respondent Secretary, viz: "x x x it is apropos to quote section 13 of PD 115 which states in part, viz: xxx If the violation or offense is committed by a corporation, partnership, association or other judicial 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. "There is no dispute that it was the respondent, who as senior vice-president of PBM, executed the thirteen (13) trust receipts. As such, the law points to him as the official responsible for the offense. Since a corporation cannot be proceeded against criminally because it cannot commit crime in which personal violence or malicious intent is required, criminal action is limited to the corporate agents guilty of an act amounting to a crime and never against the corporation itself (West Coast Life Ins. Co. vs. Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus, the execution by respondent of said receipts is enough to indict him as the official responsible for violation of PD 115. "Parenthetically, respondent is estopped to still contend that PD 115 covers only goods which are ultimately destined for sale and not goods, like those imported by PBM, for use in manufacture. This issue has already been settled in the Allied Banking Corporation case, supra, where he was also a party, when the Supreme Court ruled that PD 115 is not limited to transactions in goods

which are to be sold (retailed), reshipped, stored or processed as a component or a product ultimately sold but 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. "In regard to the other assigned errors, we note that the respondent bound himself under the terms of the trust receipts not only as a corporate official of PBM but also as its surety. It is evident that these are two (2) capacities which do not exclude the other. Logically, he can be proceeded against in two (2) ways: first, as surety as determined by the Supreme Court in its decision in RCBC vs. Court of Appeals, 178 SCRA 739; and, secondly, as the corporate official responsible for the offense under PD 115, the present case is an appropriate remedy under our penal law. "Moreover, PD 115 explicitly allows the prosecution of corporate officers without prejudice to the civil liabilities arising from the criminal offense thus, the civil liability imposed on respondent in RCBC vs. Court of Appeals case is clearly separate and distinct from his criminal liability under PD 115."28 Petitioner asserts that the appellate courts ruling is erroneous because (a) the transaction between PBMI and respondent bank is not a trust receipt transaction; (b) he entered into the transaction and was sued in his capacity as PBMI Senior Vice-President; (c) he never received the goods as an entrustee for PBMI, hence, could not have committed any dishonesty or abused the confidence of respondent bank; and (d) PBMI acquired the goods and used the same in operating its machineries and equipment and not for resale. The OSG, for its part, submits a contrary view, to wit: 34. Petitioner further claims that he is not a person responsible for the offense allegedly because "[b]eing charged as the Senior Vice-President of Philippine Blooming Mills (PBM), petitioner cannot be held criminally liable as the transactions sued upon were clearly entered into in his capacity as an officer of the corporation" and that [h]e never received the goods as an entrustee for PBM as he never had or took possession of the goods nor did he commit dishonesty nor "abuse of confidence in transacting with RCBC." Such argument is bereft of merit. 35. Petitioners being a Senior Vice-President of the Philippine Blooming Mills does not exculpate him from any liability. Petitioners responsibility as the corporate official of PBM who received the goods in trust is premised on Section 13 of P.D. No. 115, which provides: Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code. If the violation or offense is committed by a corporation, partnership, association or other juridical entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense. (Emphasis supplied)

36. Petitioner having participated in the negotiations for the trust receipts and having received the goods for PBM, it was inevitable that the petitioner is the proper corporate officer to be proceeded against by virtue of the PBMs violation of P.D. No. 115.29 The ruling of the CA is correct. In Mendoza-Arce v. Office of the Ombudsman (Visayas),30 this Court held that the acts of a quasi-judicial officer may be assailed by the aggrieved party via a petition for certiorari and enjoined (a) when necessary to afford adequate protection to the constitutional rights of the accused; (b) when necessary for the orderly administration of justice; (c) when the acts of the officer are without or in excess of authority; (d) where the charges are manifestly false and motivated by the lust for vengeance; and (e) when there is clearly no prima facie case against the accused.31 The Court also declared that, if the officer conducting a preliminary investigation (in that case, the Office of the Ombudsman) acts without or in excess of his authority and resolves to file an Information despite the absence of probable cause, such act may be nullified by a writ of certiorari.32 Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure,33 the Information shall be prepared by the Investigating Prosecutor against the respondent only if he or she finds probable cause to hold such respondent for trial. The Investigating Prosecutor acts without or in excess of his authority under the Rule if the Information is filed against the respondent despite absence of evidence showing probable cause therefor.34 If the Secretary of Justice reverses the Resolution of the Investigating Prosecutor who found no probable cause to hold the respondent for trial, and orders such prosecutor to file the Information despite the absence of probable cause, the Secretary of Justice acts contrary to law, without authority and/or in excess of authority. Such resolution may likewise be nullified in a petition for certiorari under Rule 65 of the Revised Rules of Civil Procedure.35 A preliminary investigation, designed to secure the respondent against hasty, malicious and oppressive prosecution, is an inquiry to determine whether (a) a crime has been committed; and (b) whether there is probable cause to believe that the accused is guilty thereof. It is a means of discovering the person or persons who may be reasonably charged with a crime. Probable cause need not be based on clear and convincing evidence of guilt, as the investigating officer acts upon probable cause of reasonable belief. Probable cause implies probability of guilt and requires more than bare suspicion but less than evidence which would justify a conviction. A finding of probable cause needs only to rest on evidence showing that more likely than not, a crime has been committed by the suspect.36 However, while probable cause should be determined in a summary manner, there is a need to examine the evidence with care to prevent material damage to a potential accuseds constitutional right to liberty and the guarantees of freedom and fair play37 and to protect the State from the burden of unnecessary expenses in prosecuting alleged offenses and holding trials arising from false, fraudulent or groundless charges.38 In this case, petitioner failed to establish that the Secretary of Justice committed grave abuse of discretion in issuing the assailed resolutions. Indeed, he acted in accord with law and the evidence.

Section 4 of P.D. No. 115 defines a trust receipt transaction, thus: Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this Decree, is any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latters execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following: 1. In case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or process the goods with the purpose of ultimate sale; Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has complied fully with his obligation under the trust receipt; or (c) to load, unload, ship or otherwise deal with them in a manner preliminary or necessary to their sale; or 2. In the case of instruments a) to sell or procure their sale or exchange; or b) to deliver them to a principal; or c) to effect the consummation of some transactions involving delivery to a depository or register; or d) to effect their presentation, collection or renewal. The sale of goods, documents or instruments by a person in the business of selling goods, documents or instruments for profit who, at the outset of the transaction, has, as against the buyer, general property rights in such goods, documents or instruments, or who sells the same to the buyer on credit, retaining title or other interest as security for the payment of the purchase price, does not constitute a trust receipt transaction and is outside the purview and coverage of this Decree. An entrustee is one having or taking possession of goods, documents or instruments under a trust receipt transaction, and any successor in interest of such person for the purpose of payment specified in the trust receipt agreement.39 The entrustee is obliged to: (1) hold the goods, documents or instruments in trust for the entruster and shall dispose of them strictly in accordance with the terms and conditions of the trust receipt; (2) receive the proceeds in trust for the entruster and turn over the same to the entruster to the extent of the amount owing to the entruster or as appears on the trust receipt; (3) insure the goods for their total value against loss from fire, theft, pilferage or other casualties; (4) keep said goods or proceeds thereof whether in money or whatever form, separate and capable of identification as property of the entruster; (5) return the goods, documents or instruments in the event of non-sale or upon demand of the entruster; and (6) observe all other terms and conditions of the trust receipt not contrary to the provisions of the decree.40

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 the document.41 In the case at bar, the transaction between petitioner and respondent bank falls under the trust receipt transactions envisaged in P.D. No. 115. Respondent bank imported the goods and entrusted the same to PBMI under the trust receipts signed by petitioner, as entrustee, with the bank as entruster. The agreement was as follows: And in consideration thereof, I/we hereby agree to hold said goods in trust for the said BANK as its property with liberty to sell the same within ____days from the date of the execution of this Trust Receipt and for the Banks account, but without authority to make any other disposition whatsoever of the said goods or any part thereof (or the proceeds) either by way of conditional sale, pledge or otherwise. I/we agree to keep the said goods insured to their full value against loss from fire, theft, pilferage or other casualties as directed by the BANK, the sum insured to be payable in case of loss to the BANK, with the understanding that the BANK is, not to be chargeable with the storage premium or insurance or any other expenses incurred on said goods. In case of sale, I/we further agree to turn over the proceeds thereof as soon as received to the BANK, to apply against the relative acceptances (as described above) and for the payment of any other indebtedness of mine/ours to the BANK. In case of non-sale within the period specified herein, I/we agree to return the goods under this Trust Receipt to the BANK without any need of demand. I/we agree to keep the said goods, manufactured products or proceeds thereof, whether in the form of money or bills, receivables, or accounts separate and capable of identification as property of the BANK.42 It must be stressed that P.D. No. 115 is a declaration by legislative authority that, as a matter of public policy, the failure of person to turn over the proceeds of the sale of the 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.43 The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions involving goods procured as a component of a product ultimately sold has been resolved in the affirmative in Allied Banking Corporation v. Ordoez.44 The law applies to goods used by the entrustee in the operation of its machineries and equipment. The non-payment of the amount covered by the trust receipts or the non-return of the goods covered by the receipts, if not sold or otherwise not disposed of, violate the entrustees obligation to pay the amount or to return the goods to the entruster. In Colinares v. Court of Appeals,45 the Court declared that 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.46 Thus, failure of the entrustee

to turn over the proceeds of the sale of the goods covered by the trust receipts to the entruster or to return said goods if they were not disposed of in accordance with the terms of the trust receipt is a crime under P.D. No. 115, without need of proving intent to defraud. The law punishes dishonesty and abuse of confidence in the handling of money or goods to the prejudice of the entruster, regardless of whether the latter is the owner or not. A mere failure to deliver the proceeds of the sale of the goods, if not sold, constitutes a criminal offense that causes prejudice, not only to another, but more to the public interest.47 The Court rules that although petitioner signed the trust receipts merely as Senior Vice-President of PBMI and had no physical possession of the goods, he cannot avoid prosecution for violation of P.D. No. 115. The penalty clause of the law, Section 13 of P.D. No. 115 reads: Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code. If the violation or offense is committed by a corporation, partnership, association or other juridical entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense. The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph 1(b), Article 315 of the Revised Penal Code, or estafa with abuse of confidence. It may be committed by a corporation or other juridical entity or by natural persons. However, the penalty for the crime is imprisonment for the periods provided in said Article 315, which reads: ARTICLE 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned hereinbelow shall be punished by: 1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if the amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if such amount exceeds the latter sum, the penalty provided in this paragraph shall be imposed in its maximum period, adding one year for each additional 10,000 pesos; but the total penalty which may be imposed shall not exceed twenty years. In such cases, and in connection with the accessory penalties which may be imposed and for the purpose of the other provisions of this Code, the penalty shall be termed prision mayor or reclusion temporal, as the case may be; 2nd. The penalty of prision correccional in its minimum and medium periods, if the amount of the fraud is over 6,000 pesos but does not exceed 12,000 pesos; 3rd. The penalty of arresto mayor in its maximum period to prision correccional in its minimum period, if such amount is over 200 pesos but does not exceed 6,000 pesos; and

4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed 200 pesos, provided that in the four cases mentioned, the fraud be committed by any of the following means; xxx Though the entrustee is a corporation, nevertheless, the law specifically makes the officers, employees or other officers or persons responsible for the offense, without prejudice to the civil liabilities of such corporation and/or board of directors, officers, or other officials or employees responsible for the offense. The rationale is that such officers or employees are vested with the authority and responsibility to devise means necessary to ensure compliance with the law and, if they fail to do so, are held criminally accountable; thus, they have a responsible share in the violations of the law.48 If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or other officers thereof responsible for the offense shall be charged and penalized for the crime, precisely because of the nature of the crime and the penalty therefor. A corporation cannot be arrested and imprisoned; hence, cannot be penalized for a crime punishable by imprisonment.49 However, a corporation may be charged and prosecuted for a crime if the imposable penalty is fine. Even if the statute prescribes both fine and imprisonment as penalty, a corporation may be prosecuted and, if found guilty, may be fined.50 A crime is the doing of that which the penal code forbids to be done, or omitting to do what it commands. A necessary part of the definition of every crime is the designation of the author of the crime upon whom the penalty is to be inflicted. When a criminal statute designates an act of a corporation or a crime and prescribes punishment therefor, it creates a criminal offense which, otherwise, would not exist and such can be committed only by the corporation. But when a penal statute does not expressly apply to corporations, it does not create an offense for which a corporation may be punished. On the other hand, if the State, by statute, defines a crime that may be committed by a corporation but prescribes the penalty therefor to be suffered by the officers, directors, or employees of such corporation or other persons responsible for the offense, only such individuals will suffer such penalty.51 Corporate officers or employees, through whose act, default or omission the corporation commits a crime, are themselves individually guilty of the crime.52 The principle applies whether or not the crime requires the consciousness of wrongdoing. It applies to those corporate agents who themselves commit the crime and to those, who, by virtue of their managerial positions or other similar relation to the corporation, could be deemed responsible for its commission, if by virtue of their relationship to the corporation, they had the power to prevent the act.53 Moreover, all parties active in promoting a crime, whether agents or not, are principals.54 Whether such officers or employees are benefited by their delictual acts is not a touchstone of their criminal liability. Benefit is not an operative fact. In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the cloak of the separate corporate personality of PBMI. In the words of Chief Justice Earl Warren, a corporate officer cannot protect himself behind a corporation where he is the actual, present and efficient actor.55 IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioner. SO ORDERED.