[G.R. No. 173905. April 23, 2010.] ANTHONY L. NG, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent.

DECISION

VELASCO, JR., J p: The Case This is a Petition for Review on Certiorari under Rule 45 seeking to reverse and set aside the August 29, 2003 Decision 1 and July 25, 2006 Resolution of the Court of Appeals (CA) in CA-G.R. CR No. 25525, which affirmed the Decision 2 of the Regional Trial Court (RTC), Branch 95 in Quezon City, in Criminal Case No. Q-99-85133 for Estafa under Article 315, paragraph 1 (b) of the Revised Penal Code (RPC) in relation to Section 3 of Presidential Decree No. (PD) 115 or the Trust Receipts Law. aEcDTC The Facts Sometime in the early part of 1997, petitioner Anthony Ng, then engaged in the business of building and fabricating telecommunication towers under the trade name "Capitol Blacksmith and Builders," applied for a credit line of PhP3,000,000 with Asiatrust Development Bank, Inc. (Asiatrust). In support of Asiatrust's credit investigation, petitioner voluntarily submitted the following documents: (1) the contracts he had with Islacom, Smart, and Infocom; (2) the list of projects wherein he was commissioned by the said telecommunication companies to build several steel towers; and (3) the collectible amounts he has with the said companies. 3 On May 30, 1997, Asiatrust approved petitioner's loan application. Petitioner was then required to sign several documents, among which are the Credit Line Agreement, Application and Agreement for Irrevocable L/C, Trust Receipt Agreements, 4 and Promissory Notes. Though the Promissory Notes matured on September 18, 1997, the two (2) aforementioned Trust Receipt Agreements did not bear any maturity dates as they were left unfilled or in blank by Asiatrust. 5 After petitioner received the goods, consisting of chemicals and metal plates from his suppliers, he utilized them to fabricate the communication towers ordered from him by his clients which were installed in three project sites, namely: Isabel, Leyte; Panabo, Davao; and Tongonan. As petitioner realized difficulty in collecting from his client Islacom, he failed to pay his loan to Asiatrust. Asiatrust then conducted a surprise ocular inspection of petitioner's business through Villarva S. Linga, Asiatrust's representative appraiser. Linga thereafter reported to Asiatrust that he found that approximately 97% of the subject goods of the Trust Receipts were "sold-out and that only 3% of the goods pertaining to PN No. 1963 remained." Asiatrust then endorsed petitioner's account to its Account Management Division for the possible restructuring of his loan. The parties thereafter held a series of conferences to work out the problem and to determine a way for petitioner to pay his debts. However, efforts towards a settlement failed to be reached. On March 16, 1999, Remedial Account Officer Ma. Girlie C. Bernardez filed a Complaint-Affidavit before the Office of the City Prosecutor of Quezon City. Consequently, on September 12, 1999, an Information for Estafa, as defined and penalized under Art. 315, par. 1 (b) of the RPC in relation to Sec. 3, PD 115 or the Trust Receipts Law, was filed with the RTC. The said Information reads: cSATDC That on or about the 30th day of May 1997, in Quezon City, Philippines, the above-named petitioner, did then and there willfully, unlawfully, and feloniously defraud Ma. Girlie C. Bernardez by entering into a Trust Receipt Agreement with said complainant whereby said petitioner as entrustee received in trust from the said complainant various chemicals in the total sum of P4.5 million with the obligation to hold the said chemicals in trust as property of the entruster with the right to sell the same for cash and to remit the proceeds thereof to the entruster, or to return the said chemicals if unsold; but said petitioner once in possession of the same, contrary to his aforesaid obligation under the trust receipt agreement with intent to

defraud did then and there misappropriated, misapplied and converted the said amount to his own personal use and benefit and despite repeated demands made upon him, said petitioner refused and failed and still refuses and fails to make good of his obligation, to the damage and prejudice of the said Ma. Girlie C. Bernardez in the amount of P2,971,650.00, Philippine Currency. CONTRARY TO LAW. Upon arraignment, petitioner pleaded not guilty to the charges. Thereafter, a full-blown trial ensued. During the pendency of the abovementioned case, conferences between petitioner and Asiatrust's Remedial Account Officer, Daniel Yap, were held. Afterward, a Compromise Agreement was drafted by Asiatrust. One of the requirements of the Compromise Agreement was for petitioner to issue six (6) postdated checks. Petitioner, in good faith, tried to comply by issuing two or three checks, which were deposited and made good. The remaining checks, however, were not deposited as the Compromise Agreement did not push through. For his defense, petitioner argued that: (1) the loan was granted as his working capital and that the Trust Receipt Agreements he signed with Asiatrust were merely preconditions for the grant and approval of his loan; (2) the Trust Receipt Agreement corresponding to Letter of Credit No. 1963 and the Trust Receipt Agreement corresponding to Letter of Credit No. 1964 were both contracts of adhesion, since the stipulations found in the documents were prepared by Asiatrust in fine print; (3) unfortunately for petitioner, his contract worth PhP18,000,000 with Islacom was not yet paid since there was a squabble as to the real ownership of the latter's company, but Asiatrust was aware of petitioner's receivables which were more than sufficient to cover the obligation as shown in the various Project Listings with Islacom, Smart Communications, and Infocom; (4) prior to the Islacom problem, he had been faithfully paying his obligation to Asiatrust as shown in Official Receipt Nos. 549001, 549002, 565558, 577198, 577199, and 594986, 6 thus debunking Asiatrust's claim of fraud and bad faith against him; (5) during the pendency of this case, petitioner even attempted to settle his obligations as evidenced by the two United Coconut Planters Bank Checks 7 he issued in favor of Asiatrust; and (6) he had already paid PhP1.8 million out of the PhP2.971 million he owed as per Statement of Account dated January 26, 2000. cAEaSC Ruling of the Trial Court After trial on the merits, the RTC, on May 29, 2001, rendered a Decision, finding petitioner guilty of the crime of Estafa. The fallo of the Decision reads as follows: WHEREFORE, judgment is hereby rendered finding the petitioner, Anthony L. Ng GUILTY beyond reasonable doubt for the crime of Estafa defined in and penalized by Article 315, paragraph 1(b) of the Revised Penal Code in relation to Section 3 of Presidential Decree 115, otherwise known as the Trust Receipts Law, and is hereby sentenced to suffer the indeterminate penalty of from six (6) years, eight (8) months, and twenty one (21) days of prision mayor, minimum, as the minimum penalty, to twenty (20) years of reclusion temporal maximum, as the maximum penalty. The petitioner is further ordered to return to the Asiatrust Development Bank, Inc. the amount of Two Million, Nine Hundred Seventy One and Six Hundred Fifty Pesos * (P2,971,650.00) with legal rate of interest computed from the filing of the information on September 21, 1999 until the amount is fully paid. IT IS SO ORDERED. In rendering its Decision, the trial court held that petitioner could not simply argue that the contracts he had entered into with Asiatrust were void as they were contracts of adhesion. It reasoned that petitioner is presumed to have read and understood and is, therefore, bound by the provisions of the Letters of Credit and Trust Receipts. It said that it was clear that Asiatrust had furnished petitioner with a Statement of Account enumerating therein the precise figures of the outstanding balance, which he failed to pay along with the computation of other fees and charges; thus, Asiatrust did not violate Republic Act No. 3765 (Truth in Lending Act). Finally, the trial court declared that petitioner, being the entrustee stated in the Trust Receipts issued by Asiatrust, is thus obliged to hold the goods in trust for the entruster and shall dispose of them strictly in accordance with the terms and conditions of the trust receipts; otherwise, he is obliged to return the goods in the event of non-sale or upon demand of the entruster, failing thus, he evidently violated the Trust Receipts Law. AacSTE

Ruling of the Appellate Court Petitioner then elevated the case to the CA by filing a Notice of Appeal on August 6, 2001. In his Appellant's Brief dated March 25, 2002, petitioner argued that the court a quo erred: (1) in changing the name of the offended party without the benefit of an amendment of the Information which violates his right to be informed of the nature and cause of accusation against him; (2) in making a finding of facts not in accord with that actually proved in the trial and/or by the evidence provided; (3) in not considering the material facts which if taken into account would have resulted in his acquittal; (4) in being biased, hostile, and prejudiced against him; and (5) in considering the prosecution's evidence which did not prove the guilt of petitioner beyond reasonable doubt. On August 29, 2003, the CA rendered a Decision affirming that of the RTC, the fallo of which reads: WHEREFORE, the foregoing considered, the instant appeal is DENIED. The decision of the Regional Trial Court of Quezon City, Branch 95 dated May 29, 2001 is AFFIRMED. SO ORDERED. The CA held that during the course of the trial, petitioner knew that the complainant Bernardez and the other cowitnesses are all employees of Asiatrust and that she is suing in behalf of the bank. Since petitioner transacted with the same employees for the issuance of the subject Trust Receipts, he cannot feign ignorance that Asiatrust is not the offended party in the instant case. The CA further stated that the change in the name of the complainant will not prejudice and alter the fact that petitioner was being charged with the crime of Estafa in relation to the Trust Receipts Law, since the information clearly set forth the essential elements of the crime charged, and the constitutional right of petitioner to be informed of the nature and cause of his accusations is not violated. 8 As to the alleged error in the appreciation of facts by the trial court, the CA stated that it was undisputed that petitioner entered into a trust receipt agreement with Asiatrust and he failed to pay the bank his obligation when it became due. According to the CA, the fact that petitioner acted without malice or fraud in entering into the transactions has no bearing, since the offense is punished as malum prohibitum regardless of the existence of intent or malice; the mere failure to deliver the proceeds of the sale or the goods if not sold constitutes the criminal offense. HSaCcE With regard to the failure of the RTC to consider the fact that petitioner's outstanding receivables are sufficient to cover his indebtedness and that no written demand was made upon him hence his obligation has not yet become due and demandable, the CA stated that the mere query as to the whereabouts of the goods and/or money is tantamount to a demand. 9 Concerning the alleged bias, hostility, and prejudice of the RTC against petitioner, the CA said that petitioner failed to present any substantial proof to support the aforementioned allegations against the RTC. After the receipt of the CA Decision, petitioner moved for its reconsideration, which was denied by the CA in its Resolution dated July 25, 2006. Thereafter, petitioner filed this Petition for Review on Certiorari. In his Memorandum, he raised the following issues: Issues: 1.The prosecution failed to adduce evidence beyond a reasonable doubt to satisfy the 2nd essential element that there was misappropriation or conversion of subject money or property by petitioner. 2.The state was unable to prove the 3rd essential element of the crime that the alleged misappropriation or conversion is to the prejudice of the real offended property. 3.The absence of a demand (4th essential element) on petitioner necessarily results to the dismissal of the criminal case. The Court's Ruling We find the petition to be meritorious. Essentially, the issues raised by petitioner can be summed up into one whether or not petitioner is liable for Estafa

under Art. 315, par. 1 (b) of the RPC in relation to PD 115. It is a well-recognized principle that factual findings of the trial court are entitled to great weight and respect by this Court, more so when they are affirmed by the appellate court. However, the rule is not without exceptions, such as: (1) when the conclusion is a finding grounded entirely on speculations, surmises, and conjectures; (2) the inferences made are manifestly mistaken; (3) there is grave abuse of discretion; and (4) the judgment is based on misapprehension of facts or premised on the absence of evidence on record. 10 Especially in criminal cases where the accused stands to lose his liberty by virtue of his conviction, the Court must be satisfied that the factual findings and conclusions of the lower courts leading to his conviction must satisfy the standard of proof beyond reasonable doubt. STECAc In the case at bar, petitioner was charged with Estafa under Art. 315, par. 1 (b) of the RPC in relation to PD 115. The RPC defines Estafa as: ART. 315.Swindling (estafa). Any person who shall defraud another by any of the means mentioned hereinbelow . . . 1.With unfaithfulness or abuse of confidence, namely: a.. . . b.By misappropriating or converting, to the prejudice of another, money, goods, or any other personal property received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery of or to return the same, even though such obligation be totally or partially guaranteed by a bond; or by denying having received such money, goods, or other property . . . . 11 Based on the definition above, the essential elements of Estafa are: (1) that money, goods or other personal property is received by the offender in trust or on commission, or for administration, or under any obligation involving the duty to make delivery of or to return it; (2) that there be misappropriation or conversion of such money or property by the offender, or denial on his part of such receipt; (3) that such misappropriation or conversion or denial is to the prejudice of another; and (4) there is demand by the offended party to the offender. 12 Likewise, Estafa can also be committed in what is called a "trust receipt transaction" under PD 115, which is defined as: Section 4.What constitutes a trust receipts transaction. A trust receipt transaction, within the meaning of this Decree, is any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following: HacADE 1.In the case of goods or documents: (a) to sell the goods or procure their sale; or (b) to manufacture or process the goods with the purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has complied full with his obligation under the trust receipt; or (c) to load, unload, ship or transship or otherwise deal with them in a manner preliminary or necessary to their sale; or 2.In the case of instruments: (a) to sell or procure their sale or exchange; or (b) to deliver them to a principal; or (c) to effect the consummation of some transactions involving delivery

to a depository or register; or (d) to effect their presentation, collection or renewal. The sale of good, documents or instruments by a person in the business of selling goods, documents or instruments for profit who, at the outset of transaction, has, as against the buyer, general property rights in such goods, documents or instruments, or who sells the same to the buyer on credit, retaining title or other interest as security for the payment of the purchase price, does not constitute a trust receipt transaction and is outside the purview and coverage of this Decree. In other words, a trust receipt transaction is one where the entrustee has the obligation to deliver to the entruster the price of the sale, or if the merchandise is not sold, to return the merchandise to the entruster. There are, therefore, two obligations in a trust receipt transaction: the first refers to money received under the obligation involving the duty to turn it over (entregarla) to the owner of the merchandise sold, while the second refers to the merchandise received under the obligation to "return" it (devolvera) to the owner. 13 A violation of any of these undertakings constitutes Estafa defined under Art. 315, par. 1 (b) of the RPC, as provided in Sec. 13 of PD 115, viz.: Section 13.Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three hundred fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code. . . . (Emphasis supplied.) SAEHaC A thorough examination of the facts obtaining in the instant case, however, reveals that the transaction between petitioner and Asiatrust is not a trust receipt transaction but one of simple loan. PD 115 Does Not Apply It must be remembered that petitioner was transparent to Asiatrust from the very beginning that the subject goods were not being held for sale but were to be used for the fabrication of steel communication towers in accordance with his contracts with Islacom, Smart, and Infocom. In these contracts, he was commissioned to build, out of the materials received, steel communication towers, not to sell them. The true nature of a trust receipt transaction can be found in the "whereas" clause of PD 115 which states that a trust receipt is to be utilized "as a convenient business device to assist importers and merchants solve their financing problems." Obviously, the State, in enacting the law, sought to find a way to assist importers and merchants in their financing in order to encourage commerce in the Philippines. As stressed in Samo v. People, 14 a trust receipt is considered a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased. Similarly, American Jurisprudence demonstrates that trust receipt transactions always refer to a method of "financing importations or financing sales." 15 The principle is of course not limited in its application to financing importations, since the principle is equally applicable to domestic transactions. 16 Regardless of whether the transaction is foreign or domestic, it is important to note that the transactions discussed in relation to trust receipts mainly involved sales. Following the precept of the law, such transactions affect situations wherein the entruster, who owns or holds absolute title or security interests over specified goods, documents or instruments, releases the subject goods to the possession of the entrustee. The release of such goods to the entrustee is conditioned upon his execution and delivery to the entruster of a trust receipt wherein the former binds himself to hold the specific goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds to the extent of the amount owing to the entruster or the goods, documents or instruments themselves if they are unsold. Similarly, we held in State Investment House v. CA, et al. that the entruster is entitled "only to the proceeds derived from the sale of goods released under a trust receipt to the entrustee." 17 caIETS Considering that the goods in this case were never intended for sale but for use in the fabrication of steel

communication towers, the trial court erred in ruling that the agreement is a trust receipt transaction. In applying the provisions of PD 115, the trial court relied on the Memorandum of Asiatrust's appraiser, Linga, who stated that the goods have been sold by petitioner and that only 3% of the goods remained in the warehouse where it was previously stored. But for reasons known only to the trial court, the latter did not give weight to the testimony of Linga when he testified that he merely presumed that the goods were sold, viz.: COURT (to the witness) QSo, in other words, when the goods were not there anymore. You presumed that, that is already sold? AYes, your Honor. Undoubtedly, in his testimony, Linga showed that he had no real personal knowledge or proof of the fact that the goods were indeed sold. He did not notify petitioner about the inspection nor did he talk to or inquire with petitioner regarding the whereabouts of the subject goods. Neither did he confirm with petitioner if the subject goods were in fact sold. Therefore, the Memorandum of Linga, which was based only on his presumption and not any actual personal knowledge, should not have been used by the trial court to prove that the goods have in fact been sold. At the very least, it could only show that the goods were not in the warehouse. Having established the inapplicability of PD 115, this Court finds that petitioner's liability is only limited to the satisfaction of his obligation from the loan. The real intent of the parties was simply to enter into a simple loan agreement. To emphasize, the Trust Receipts Law was created to "to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased." Since Asiatrust knew that petitioner was neither an importer nor retail dealer, it should have known that the said agreement could not possibly apply to petitioner. Moreover, this Court finds that petitioner is not liable for Estafa both under the RPC and PD 115. Goods Were Not Received in Trust The first element of Estafa under Art. 315, par. 1 (b) of the RPC requires that the money, goods or other personal property must be received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery of, or to return it. But as we already discussed, the goods received by petitioner were not held in trust. They were also not intended for sale and neither did petitioner have the duty to return them. They were only intended for use in the fabrication of steel communication towers. No Misappropriation of Goods or Proceeds The second element of Estafa requires that there be misappropriation or conversion of such money or property by the offender, or denial on his part of such receipt. This is the very essence of Estafa under Art. 315, par. 1 (b). The words "convert" and "misappropriated" connote an act of using or disposing of another's property as if it were one's own, or of devoting it to a purpose or use different from that agreed upon. To misappropriate for one's own use includes not only conversion to one's personal advantage, but also every attempt to dispose of the property of another without a right. 18 DaTICc Petitioner argues that there was no misappropriation or conversion on his part, because his liability for the amount of the goods subject of the trust receipts arises and becomes due only upon receipt of the proceeds of the sale and not prior to the receipt of the full price of the goods. Petitioner is correct. Thus, assuming arguendo that the provisions of PD 115 apply, petitioner is not liable for Estafa because Sec. 13 of PD 115 provides that an entrustee is only liable for Estafa when he fails "to turn over the proceeds of the sale of the goods . . . covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt . . . in accordance with the terms of the trust receipt." The trust receipt entered into between Asiatrust and petitioner states:

In case of sale I/we agree to hand the proceeds as soon as received to the BANK to apply against the relative acceptance (as described above) and for the payment of any other indebtedness of mine/ours to ASIATRUST DEVELOPMENT BANK. 19 (Emphasis supplied.) Clearly, petitioner was only obligated to turn over the proceeds as soon as he received payment. However, the evidence reveals that petitioner experienced difficulties in collecting payments from his clients for the communication towers. Despite this fact, petitioner endeavored to pay his indebtedness to Asiatrust, which payments during the period from September 1997 to July 1998 total approximately PhP1,500,000. Thus, absent proof that the proceeds have been actually and fully received by petitioner, his obligation to turn over the same to Asiatrust never arose. What is more, under the Trust Receipt Agreement itself, no date of maturity was stipulated. The provision left blank by Asiatrust is as follows: . . . and in consideration thereof, I/we hereby agree to hold said goods in Trust for the said Bank and as its property with liberty to sell the same for its account within _______ days from the date of execution of the Trust Receipt . . . 20 In fact, Asiatrust purposely left the space designated for the date blank, an action which in ordinary banking transactions would be noted as highly irregular. Hence, the only way for the obligation to mature was for Asiatrust to demand from petitioner to pay the obligation, which it never did. DSTCIa Again, it also makes the Court wonder as to why Asiatrust decided to leave the provisions for the maturity dates in the Trust Receipt agreements in blank, since those dates are elemental part of the loan. But then, as can be gleaned from the records of this case, Asiatrust also knew that the capacity of petitioner to pay for his loan also hinges upon the latter's receivables from Islacom, Smart, and Infocom where he had ongoing and future projects for fabrication and installation of steel communication towers and not from the sale of said goods. Being a bank, Asiatrust acted inappropriately when it left such a sensitive bank instrument with a void circumstance on an elementary but vital feature of each and every loan transaction, that is, the maturity dates. Without stating the maturity dates, it was impossible for petitioner to determine when the loan will be due. Moreover, Asiatrust was aware that petitioner was not engaged in selling the subject goods and that petitioner will use them for the fabrication and installation of communication towers. Before granting petitioner the credit line, as aforementioned, Asiatrust conducted an investigation, which showed that petitioner fabricated and installed communication towers for well-known communication companies to be installed at designated project sites. In fine, there was no abuse of confidence to speak of nor was there any intention to convert the subject goods for another purpose, since petitioner did not withhold the fact that they were to be used to fabricate steel communication towers to Asiatrust. Hence, no malice or abuse of confidence and misappropriation occurred in this instance due to Asiatrust's knowledge of the facts. Furthermore, Asiatrust was informed at the time of petitioner's application for the loan that the payment for the loan would be derived from the collectibles of his clients. Petitioner informed Asiatrust that he was having extreme difficulties in collecting from Islacom the full contracted price of the towers. Thus, the duty of petitioner to remit the proceeds of the goods has not yet arisen since he has yet to receive proceeds of the goods. Again, petitioner could not be said to have misappropriated or converted the proceeds of the transaction since he has not yet received the proceeds from his client, Islacom. This Court also takes judicial notice of the fact that petitioner has fully paid his obligation to Asiatrust, making the claim for damage and prejudice of Asiatrust baseless and unfounded. Given that the acceptance of payment by Asiatrust necessarily extinguished petitioner's obligation, then there is no longer any obligation on petitioner's part to speak of, thus precluding Asiatrust from claiming any damage. This is evidenced by Asiatrust's Affidavit of Desistance 21 acknowledging full payment of the loan. DcAaSI Reasonable Doubt Exists In the final analysis, the prosecution failed to prove beyond reasonable doubt that petitioner was guilty of Estafa under Art. 315, par. 1 (b) of the RPC in relation to the pertinent provision of PD 115 or the Trust Receipts Law; thus, his liability should only be civil in nature. While petitioner admits to his civil liability to Asiatrust, he nevertheless does not have criminal liability. It is a wellestablished principle that person is presumed innocent until proved guilty. To overcome the presumption, his guilt

must be shown by proof beyond reasonable doubt. Thus, we held in People v. Mariano 22 that while the principle does not connote absolute certainty, it means the degree of proof which produces moral certainty in an unprejudiced mind of the culpability of the accused. Such proof should convince and satisfy the reason and conscience of those who are to act upon it that the accused is in fact guilty. The prosecution, in this instant case, failed to rebut the constitutional innocence of petitioner and thus the latter should be acquitted. At this point, the ruling of this Court in Colinares v. Court of Appeals is very apt, thus: The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them under the threats of criminal prosecution should they be unable to pay it may be unjust and inequitable, if not reprehensible. Such agreements are contracts of adhesion which borrowers have no option but to sign lest their loan be disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy of banks, and is prone to misinterpretation . . . . 23 Such is the situation in this case. Asiatrust's intention became more evident when, on March 30, 2009, it, along with petitioner, filed their Joint Motion for Leave to File and Admit Attached Affidavit of Desistance to qualify the Affidavit of Desistance executed by Felino H. Esquivas, Jr., attorney-in-fact of the Board of Asiatrust, which acknowledged the full payment of the obligation of the petitioner and the successful mediation between the parties. From the foregoing considerations, we deem it unnecessary to discuss and rule upon the other issues raised in the appeal. HSCATc WHEREFORE, the CA Decision dated August 29, 2003 affirming the RTC Decision dated May 29, 2001 is SET ASIDE. Petitioner ANTHONY L. NG is hereby ACQUITTED of the charge of violation of Art. 315, par. 1 (b) of the RPC in relation to the pertinent provision of PD 115. SO ORDERED.

[G.R. NO. 155647. November 23, 2007.] METROPOLITAN BANK & TRUST COMPANY, petitioner, vs. JIMMY GO and BEMJAMIN GO BAUTISTA alias BENJAMIN GO, respondents.

DECISION

NACHURA, J p: Petitioner Metropolitan Bank & Trust Company (Metrobank) urges this Court to review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure the Decision dated August 15, 2002 and the Resolution dated October 15, 2002, both of the Court of Appeals in CA-G.R. SP No. 61544. 1 The Facts of the Case On September 30, 1988, Metrobank, through its Assistant Vice-President Leonardo B. Lejano, executed a Credit Line Agreement 2 in favor of its client, BGB Industrial Textile Mills, Inc. (BGB) in the total amount of P10,000,000.00. As security for the obligation, private respondent Benjamin Go (now deceased), being an officer of BGB, executed a Continuing Surety Agreement 3 in favor of Metrobank, binding himself solidarily with BGB to pay Metrobank the said amount of P10,000,000.00. cDCEIA In November 1988, private respondent Jimmy Go, as general manager of BGB, applied for eleven (11) commercial letters of credit to cover the shipment of raw materials and spare parts. Accordingly, Metrobank issued the 11

irrevocable letters of credit to BGB. The merchandise/shipments were delivered to and accepted by BGB on different dates. Consequently, 11 trust receipts were executed by BGB thru Jimmy Go and Benjamin Go, as entrustees, in favor of Metrobank as entruster. The letters of credit and their corresponding trust receipts are listed below: Letter of Credit No. Expiry Date of Trust Receipt Amount of Trust Receipt

DIV88-1941NC 4 Feb. 18, 1989 P1,625,395.38 5 DIV88-1940NC 6 March 04, 1989 P3,011,249.71 7 DIV88-1925NC 8 March 07, 1989 P508,252.16 9 DIV88-1926NC 10 March 07, 1989 P626,165.28 11 DIV88-1924NC 12 March 14, 1989 P452,289.55 13 DIV88-1930NC 14 April 04, 1989 P660,348.00 15 DIV88-1931NC 16 April 04, 1989 P594,313.20 17 DIV88-1923NC 18 April 10, 1989 P358,113.33 19 DIV88-1951NC 20 April 12, 1989 P1,720,882.07 21 DIV88-1932NC 22 April 19, 1989 P244,250.26 23 DIV88-1952NC 24 May 25, 1989 P1,413,999.11 25 By the terms of the trust receipts, BGB agreed to hold the goods in trust for Metrobank and, in case of sale of the goods, to hand the proceeds to the bank to be applied against the total obligation object of the trust receipts. On maturity dates of the trust receipts, because the goods remained unsold, BGB and Jimmy and Benjamin Go failed to satisfy their obligation. Metrobank filed three (3) separate complaints against BGB, for collection of sum of money equivalent to the value of the goods subject of the trust receipts. The cases were filed with the Makati Regional Trial Court and docketed as Civil Case Nos. 93-496, 93-509, and 93-910. TSAHIa Later, Metrobank instituted 11 criminal charges against Jimmy and Benjamin Go for violation of Presidential Decree No. 115 (Trust Receipts Law) before the Office of the City Prosecutor of Manila. After preliminary investigation, the Office of the City Prosecutor of Manila issued a Resolution 26 in I.S. Nos. 94D09945-55 dated May 31, 1995 recommending the dismissal of the case, viz.: The liability of respondents is only civil in nature in the absence of commission and misappropriation. Respondents are liable ex-contractu for breach of the Letters of Credit Trust Receipt. In the instant case, the goods subject of the trust receipts have not been sold, so there is (sic) no proceeds to deliver to the bank. Granting for the sake of argument that respondents failed to account for said goods, the failure is only a mere disputable presumption which has been overturned by the submission of an inventory showing that the goods are intact and in the warehouse in Bataan. Considering that the goods are still intact in the [respondents'] warehouse at the Bataan Export Processing Zone, considering further the fact that the goods were never processed, and considering finally that the goods have not been sold, ergo, there is no violation of [the] Presidential Decree. As already stated, respondents' liability is only civil in nature. On June 22, 1995, Metrobank filed a motion for reconsideration, but the same was denied for lack of merit in the Review Resolution 27 dated October 25, 1999. Metrobank appealed to the Department of Justice. On September 5, 2000, then Acting Secretary of Justice, Ramon J. Liwag, rendered a Resolution 28 dismissing the appeal on two grounds: (1) the resolution issued by the City Fiscal is in accord with law and evidence; and (2) Metrobank failed to submit proof of service of a copy of the appeal to the prosecutor either by personal service or registered mail as required by Section 3 of Department Order No. 223. IcEaST Metrobank went to the Court of Appeals via a petition for certiorari under Rule 65 of the 1997 Rules of Civil Procedure. However, the Court of Appeals dismissed the petition for lack of merit. Metrobank moved to reconsider the dismissal, but the motion was denied. Hence, this petition. The Issues

The reasons given by Metrobank for the allowance of its petition are as follows: First Reason BOTH THE RESOLUTION AND THE DECISION OF THE COURT OF APPEALS DELIBERATELY IGNORED THE GLARING VIOLATION COMMITTED BY THE RESPONDENTS OF BOTH THE PROVISIONS OF THE SUBJECT TRUST RECEIPTS AND OF PRESIDENTIAL DECREE NO. 115. Second Reason BOTH THE RESOLUTION AND THE DECISION OF THE COURT OF APPEALS DELIBERATELY IGNORED THE FACT THAT THE OFFER MADE BY THE RESPONDENTS TO ALLEGEDLY RETURN THE SUBJECT MERCHANDISE IS A MERE AFTERTHOUGHT. Third Reason BOTH THE RESOLUTION AND THE DECISION DELIBERATELY IGNORED THE FACT THAT A VIOLATION OF PRESIDENTIAL DECREE NO. 115, AS SETTLED JURISPRUDENCE HOLD, IS AN OFFENSE AGAINST PUBLIC ORDER AND NOT MERELY AGAINST PROPERTY. 29 Petitioner Metrobank ascribed error to the Office of the City Prosecutor of Manila when it found that the liability of respondents Jimmy and Benjamin Go was only civil in nature, i.e., to return the merchandise subject of the 11 trust receipts, considering that they were never sold, and to pay their obligation under the letters of credit. Citing jurisprudence, 30 it contends that Section 13, 31 the penal provision of the Trust Receipts Law, encompasses any act violative of an obligation covered by the trust receipt and is not limited to transactions in goods which are to be sold (retailed), reshipped, stored, and processed as a component of a product ultimately sold. It posits that a violation of the Trust Receipts Law can be committed by mere failure of the entrustee to discharge any of the obligations imposed upon him under Section 9 32 of the said law. According to Metrobank, Jimmy and Benjamin Go's offer to deliver the merchandise subject of the trust receipts cannot exculpate them from criminal liability because they failed to offer to surrender and to actually surrender the goods upon maturity of the trust receipts and even when several demands were made upon them. Stated differently, it was Metrobank's position that there was already a violation of the Trust Receipts Law committed by Jimmy and Benjamin Go even before they made their offer to return the merchandise to Metrobank in their pleadings before the Office of the City Prosecutor of Manila. Metrobank claimed that the belated offer of Jimmy and Benjamin Go to return the goods was a mere afterthought in order to evade indictment and prosecution. HAIaEc Metrobank further argues that the dismissal by the Office of the City Prosecutor of Manila of the 11 criminal charges for violation of the Trust Receipts Law against Jimmy and Benjamin Go for want of probable cause, grounded on the absence of conversion or misappropriation, is tantamount to holding that a violation of the Trust Receipts Law is merely a crime against property and not against public order, contrary to prevailing jurisprudence. The Ruling of the Court After a judicious study of the records of this case, this Court does not find any cogent reason to reverse the assailed Decision and Resolution of the Court of Appeals, and the Resolutions of the Office of the City Prosecutor of Manila and of the Secretary of Justice. First. The issues raised in this petition are substantially factual. Essentially, Metrobank urges this Court to determine whether or not Jimmy and Benjamin Go failed to turn over the proceeds of the sale of the goods or to return them, if unsold, in accordance with the terms of the 11 trust receipts. This failure, Metrobank adds, amounts to a violation of Section 13 of the Trust Receipts Law and warrants the prosecution of respondents for estafa under Article 315, paragraph 1 (b) 33 of the Revised Penal Code. In an appeal via certiorari, only questions of law may be raised because this Court is not a trier of facts. 34 Metrobank wants to make this case an exception to the rule, as it attributes to the Office of the City Prosecutor of Manila, the Secretary of Justice, and the Court of Appeals a misapprehension of the facts. Unfortunately, there is no adequate support for this imputation. HETDAC In order that respondents Jimmy and Benjamin Go may be validly prosecuted for estafa under Article 315, paragraph 1 (b) of the Revised Penal Code, in relation to Section 13 of the Trust Receipts Law, the following elements must be

established: (a) they received the subject goods in trust or under the obligation to sell the same and to remit the proceeds thereof to Metrobank, or to return the goods if not sold; (b) they misappropriated or converted the goods and/or the proceeds of the sale; (c) they performed such acts with abuse of confidence to the damage and prejudice of Metrobank; and (d) demand was made on them by Metrobank for the remittance of the proceeds or the return of the unsold goods. 35

The Office of the City Prosecutor and the Secretary of Justice had identical findings that the element of misappropriation or conversion is absent, and that Jimmy and Benjamin Go could not deliver the proceeds of the sale of the merchandise to Metrobank because the goods remained unsold. Both offices similarly found that the failure of the respondents to account for the proceeds of the sale or of the goods only created a disputable presumption that either the proceeds or the goods themselves were converted or misappropriated, but the presumption was overturned when the goods were offered to be inventoried and returned as they remained intact in the warehouse at the Bataan Export Processing Zone. Accordingly, they both ruled that the liability of Jimmy and Benjamin Go was merely civil in nature, and the criminal complaints were dismissed for lack of probable cause. Declaring that the Office of the City Prosecutor did not commit grave abuse of discretion, the Court of Appeals likewise made a factual finding that Jimmy and Benjamin Go offered to return the goods even prior to the filing of the civil cases against them, although the offer was not accepted because Metrobank appeared more interested in collecting the amount it advanced under the letters of credit. It also found that Metrobank failed to prove its demand for the return of the goods. EcDSHT Thus, even if we accommodate the petitioner's plea to review the case's factual milieu, we still have to agree with the findings of fact of the Office of the City Prosecutor and of the Court of Appeals. These findings appear to be supported by the evidence on record. The prosecution for estafa under Article 315, paragraph 1 (b) of the Revised Penal code, cannot prosper because the second (misappropriation/conversion) and the fourth (demand) elements of the offense are not present. Under the pro-forma trust receipts subject of this case, Jimmy and Benjamin Go, as entrustees, agreed to hold the goods (whether in their original, processed or manufactured state, and irrespective of the fact that a different merchandise is used in completing such manufacture) in trust for Metrobank, as its exclusive property, with liberty to sell them for cash only for the latter's account, but without authority to make any other disposition whatsoever of the said goods or any part (or the proceeds) thereof by way of conditional sale, pledge, or otherwise. They further agreed that in case of sale of the goods, or if the goods are used for the manufacture of finished products and are sold, they will turn over the proceeds to Metrobank to be applied against their total obligation under the trust receipts and for the payment of other debts to Metrobank. It is noteworthy that Jimmy and Benjamin Go processed the goods into textiles, to be sold for cash only, and that not all of the merchandise were sold such that they were able to remit only enough proceeds to fully settle their accounts under Letters of Credit-Trust Receipt Nos. 1922 and 1939, which were not subject of the 11 criminal complaints filed by Metrobank. Metrobank wants us to interpret this as confirmation that Jimmy and Benjamin Go had sold all the other merchandise but deliberately failed to turn over their corresponding proceeds. However, the Court sees this circumstance for what it simply and truly is, i.e., that Jimmy and Benjamin Go exerted efforts to comply with their obligation to sell the merchandise and remit the proceeds thereof. Unfortunately, the rest of the merchandise remained unsold in the warehouse at the Bataan Export Processing Zone, such that no proceeds thereof could be remitted to Metrobank. caADSE This Court also observes that the same trust receipts provide that Metrobank has the option to take possession of the goods upon default of Jimmy and Benjamin Go on any of their obligations and to sell them, with the proceeds thereof to be applied to the principal obligation and also to the expenses to be incurred by Metrobank in selling the same. 36 But Metrobank did not exercise this option. Instead, it filed three (3) complaints to collect the value of the merchandise. Jimmy and Benjamin Go offered to return the merchandise to Metrobank even before these civil cases were filed. Then, Jimmy and Benjamin Go reiterated the offer to return the goods in their answer to the civil complaints. Again, Metrobank did not accept the offer, and instead filed the 11 criminal complaints for alleged violation of the Trust Receipts Law to be prosecuted as estafa under Article 315, paragraph 1 (b) of the Revised Penal Code. This chain of events validates the finding of the Court of Appeals that Metrobank is not interested in the return of the goods but only in collecting the money it extended to the respondents.

Furthermore, the trust receipts uniformly contain the following provision: Failure on the part of the ENTRUSTEE to account to the BANK/ENTRUSTER for the goods/documents/instruments received in trust and/or for the proceeds of the sale thereof within thirty (30) days from demand made by the BANK/ENTRUSTER shall constitute an admission that the ENTRUSTEE has converted or misappropriated said goods/documents/instruments for the personal benefit of the ENTRUSTEE and to the detriment and prejudice of the BANK/ENTRUSTER, and the BANK/ENTRUSTER is forthwith authorized to file and prosecute the corresponding and appropriate action, civil or criminal, against the ENTRUSTEE. 37 Yet, not one of the 11 criminal complaints was accompanied by a demand letter to show that Metrobank demanded the remittance of the proceeds of the sale of the goods or the return of goods, if unsold. We find this deficiency exceptionally revealing, especially considering that the said trust receipts had different maturity dates. AaEcDS Second. The trust receipts subject of this case partake of the nature of contracts of adhesion. A contract of adhesion is defined as one in which one party imposes a ready-made form of contract which the other party may accept or reject, but which the latter cannot modify; one party prepares the stipulations in the contract, while the other party merely affixes his signature or his "adhesion" thereto, giving no room for negotiation, and resulting in deprivation of the latter of the opportunity to bargain on equal footing. 38 In this case, the trust receipts were prepared solely by Metrobank with Jimmy and Benjamin Go having no choice but to adhere entirely to their provisions. In fact, the trust receipts stipulated that the goods subject thereof were the exclusive property of Metrobank, contrary to the essence of a trust receipt. A trust receipt is considered a security transaction designed to provide financial assistance to importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased. It is a document in which is expressed a security transaction where the lender, having no prior title to the goods on which the lien is to be constituted, and not having possession over the same since possession thereof remains in the borrower, lends his money to the borrower on security of the goods which the borrower is privileged to sell, clear of the lien, with an agreement to pay all or part of the proceeds of the sale to the lender. It is a security agreement pursuant to which a bank acquires a "security interest" in the goods. It secures a debt, and there can be no such thing as security interest that secures no obligation. 39 The subject trust receipts, being contracts of adhesion, are not per se invalid and inefficacious. But should there be ambiguities therein, such ambiguities are to be strictly construed against Metrobank, the party that prepared them. 40 There is no doubt as to the obligation of Jimmy and Benjamin Go to turn over the proceeds of the sale of the goods or to return the unsold goods. However, an ambiguity exists as to when this obligation arises, whether upon maturity of the trust receipts or upon demand by Metrobank. A strict construction of the provisions of the contracts of adhesion dictates that the reckoning point should be the demand made by Metrobank. AIcECS As already discussed above, Jimmy and Benjamin Go turned over the proceeds of the goods sold under the two letters of credit/trust receipts which were not subject of the criminal cases. They also made the offer to return the unsold goods covered by the eleven trust receipts even before the three civil cases were filed against them. The offer was reiterated in their answer. More importantly, the unsold goods remained intact, contrary to the claim of Metrobank that they had misappropriated or converted the same. While there was a stipulation of a presumptive admission on the part of Jimmy and Benjamin Go of misappropriation or conversion upon failure to account for the goods or for the proceeds of the sale thereof within 30 days from demand, which will authorize Metrobank to pursue legal remedies in court, the fact of demand made by Metrobank was not established by competent evidence. Except for the bare allegation that it did so in the 11 criminal complaints, no letter of demand accompanied all of the criminal complaints. As to the other obligations under the trust receipts adapted from Section 9 of the Trust Receipts Law, there is no sufficient evidence proffered by Metrobank that Jimmy and Benjamin Go had actually violated them. What the law punishes is the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another, whether the latter is the owner. 41 The malum prohibitum nature of the offense notwithstanding, the intent to misuse or misappropriate the goods or their proceeds on the part of Jimmy and Benjamin Go should have been proved. Unfortunately, no such proof appears on record. 42

In the prosecution of criminal cases, it is the complainant who has the burden to prove the elements of the crime which the respondents are probably guilty of. 43 Obviously, Metrobank failed to discharge this burden. AacCIT Indeed, there is neither error nor grave abuse of discretion which can be attributed to the Office of the City Prosecutor of Manila when it dismissed the criminal complaints for lack of probable cause. In the absence of grave abuse of discretion on the part of the Office of the City Prosecutor of Manila, this Court must not interfere in its findings, considering that full discretionary authority has been delegated to the latter in determining whether or not a criminal charge should be instituted. 44 With greater reason should we respect this finding, as it had been uniformly affirmed not only by the reviewing prosecutor but also by the Secretary of Justice and by the Court of Appeals. WHEREFORE, the petition is DENIED for lack of merit. Accordingly, the assailed Decision dated August 15, 2002 and the Resolution dated October 15, 2002 of the Court of Appeals in CA-G.R. SP No. 61544 are AFFIRMED. SO ORDERED. [G.R. No. 180165. April 7, 2009.] METROPOLITAN BANK & TRUST COMPANY, petitioner, vs. HON. SECRETARY OF JUSTICE RAUL M. GONZALES, OLIVER T. YAO and DIANA T. YAO, respondents.

DECISION

CHICO-NAZARIO, J p: Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court filed by petitioner Metropolitan Bank and Trust Company, seeking to reverse and set aside the Decision 1 dated 30 March 2007 and the Resolution 2 dated 16 October 2007 of the Court of Appeals in CA-G.R. SP No. 91892. In its assailed Decision and Resolution, the appellate court affirmed the Resolution 3 of the Secretary of Justice directing the City Prosecutor of Manila to move for the withdrawal of the Informations for Estafa filed against private respondents Oliver T. Yao and Diana T. Yao. The factual and procedural antecedents of this present petition are as follows: Petitioner is a banking institution duly authorized to engage in the banking business under Philippine laws. Private respondents were the duly authorized representatives of Visaland Inc. (Visaland), likewise a domestic corporation engaged in the real estate development business. CaSAcH In order to finance the importation of materials necessary for the operations of its sister company, Titan Ikeda Construction and Development Corporation (TICDC), private respondents, on behalf of Visaland, applied with petitioner for 24 letters of credit, the aggregate amount of which reached the sum of P68,749,487.96. Simultaneous with the issuance of the letters of credit, private respondents signed trust receipts 4 in favor of petitioner. Private respondents bound themselves to sell the goods covered by the letters of credit and to remit the proceeds to petitioner, if sold, or to return the goods, if not sold, on or before their agreed maturity dates. When the trust receipts matured, private respondents failed to return the goods to petitioner, or to return their value amounting to P68,749,487.96 despite demand. Thus, petitioner filed a criminal complaint 5 for estafa 6 against Visaland and private respondents with the Office of the City Prosecutor of Manila (City Prosecutor). 7 In their Counter-Affidavit, 8 private respondents denied having entered into trust receipt transactions with petitioner. Instead, private respondents claimed that the contract entered into by the parties was a Contract of Loan secured by a Real Estate Mortgage over two parcels of land situated at Tagaytay City and registered under the name of the spouses Wilbert and Isabelita King (the spouses King). 9 According to private respondents, petitioner made them sign documents bearing fine prints without apprising them of the real nature of the transaction involved. Private

respondents came to know of the trust receipt transaction only after they were served a copy of the AffidavitComplaint of the petitioner. aATESD After the requisite preliminary investigation, the City Prosecutor found that no probable cause existed and dismissed Information Sheet (I.S.) No. 02G-30918 in a Resolution 10 dated 23 January 2003. While the City Prosecutor was not persuaded by the defense proffered by private respondents that no trust receipt transaction existed, it nonetheless, dismissed the case for lack of evidence that prior demand was made by petitioner. The City Prosecutor underscored that for a charge of estafa with grave abuse of confidence to prosper, previous demand is an indispensable requisite. To prove that a demand was made prior to the institution of the criminal complaint, petitioner attached to its Motion for Reconsideration a copy of a letter-demand 11 dated 27 February 2001, addressed to private respondents. After the element of prior demand was satisfied, the City Prosecutor issued a Resolution 12 dated 11 October 2004 finding probable cause for estafa under Article 315, paragraph 1 (b) 13 of the Revised Penal Code, in relation to Presidential Decree No. 115. 14 Accordingly, 23 separate Informations 15 for estafa were filed before the Regional Trial Court (RTC) of Manila against private respondents. The cases were docketed as Criminal Cases No. 04231721-44 and raffled to Branch 17 of the said court. aSTECA In the interim, private respondents appealed the investigating prosecutor's Resolution to the Secretary of Justice. In a Resolution 16 dated 31 March 2005, the Secretary of Justice ruled that there was no probable cause to prosecute private respondents for estafa in relation to Presidential Decree No. 115. The Secretary of Justice declared that the legitimate transactional relationship between the parties being merely a contract of loan, violations of the terms thereunder were not covered by Presidential Decree No. 115. Thus, the Secretary of Justice directed the City Prosecutor of Manila to move for the withdrawal of the Informations. In a subsequent Resolution 17 dated 30 August 2005, the Secretary of Justice denied petitioner's Motion for Reconsideration, for the matters raised therein had already been passed upon in his prior resolution. Acting on the directive of the Secretary of Justice, the City Prosecutor moved for the withdrawal of the Informations which was granted by the RTC in an Order 18 dated 29 July 2005. Consequently, Criminal Cases No. 04-231721 to No. 04231744 were withdrawn. The RTC refused to reconsider its earlier resolution in an Order 19 dated 3 February 2006, thereby denying petitioner's Motion for Reconsideration. From the adverse Resolutions of the Secretary of Justice, petitioner elevated its case before the Court of Appeals by filing a Petition for Certiorari, 20 which was docketed as CA-G.R. SP No. 91892. Petitioner averred in its Petition that the Secretary of Justice abused his discretion in ignoring the established facts and legal principles when he ruled that probable cause for the crime of estafa was absent. TSacID The Court of Appeals, however, in its Decision 21 dated 30 March 2007, dismissed petitioner's Petition for Certiorari after finding that the Secretary of Justice committed no grave abuse of discretion in ruling against the existence of probable cause to prosecute private respondents. In arriving at its assailed decision, the appellate court recognized the authority of the Secretary of Justice to control and supervise the prosecutors, which includes the power to reverse or modify their decisions without committing grave abuse of discretion. Similarly ill-fated was Petitioner's Motion for Reconsideration in a Resolution 22 dated 16 October 2007. Unfazed by the turn of events, petitioner now comes before this Court urging us to reverse the Court of Appeals Decision and Resolution and to direct the filing of Informations against private respondents. For the disposition of this Court is the sole issue of: ESTaHC WHETHER OR NOT PROBABLE CAUSE EXISTS FOR THE PROSECUTION OF PRIVATE RESPONDENTS FOR THE CRIME OF ESTAFA IN RELATION TO P.D. NO. 115. Petitioner impugns the findings of the appellate court sustaining the non-existence of probable cause as found by the Secretary of Justice. Petitioner insists that the allegations in its complaint, together with the pieces of evidence appended thereon, are sufficient to sustain a finding of probable cause in preliminary investigation. Asserting their innocence, private respondents continue to argue that the agreement contracted by parties is one of loan, and not of trust receipt. To buttress their contention, private respondents aver that a contract of mortgage was executed by the spouses King to secure private respondents' loan obligation with petitioner, the proceeds of which were the ones utilized to finance the importation of materials. 23 Private respondents likewise defend the assailed

Court of Appeals Decision and assert that the Secretary of Justice was justified in overruling the investigating prosecutor's findings, as sanctioned by Section 12 of DOJ Department Order No. 70. 24 SIaHTD The present petition bears impressive merits. Probable cause has been defined as the existence of such facts and circumstances as would excite the belief in a reasonable mind, acting on the facts within the knowledge of the prosecutor, that the person charged was guilty of the crime for which he was prosecuted. Probable cause is a reasonable ground of presumption that a matter is, or may be, well founded on such a state of facts in the mind of the prosecutor as would lead a person of ordinary caution and prudence to believe, or entertain an honest or strong suspicion, that a thing is so. 25 The term does not mean "actual or positive cause" nor does it import absolute certainty. It is merely based on opinion and reasonable belief. Thus, a finding of probable cause does not require an inquiry into whether there is sufficient evidence to procure a conviction. It is enough that it is believed that the act or omission complained of constitutes the offense charged. Precisely, there is a trial for the reception of evidence of the prosecution in support of the charge. 26 To determine the existence of probable cause, there is need to conduct preliminary investigation. A preliminary investigation constitutes a realistic judicial appraisal of the merits of a case. 27 Its purpose is to determine whether (a) a crime has been committed; and (b) whether there is a probable cause to believe that the accused is guilty thereof. 28 It is a means of discovering which person or persons may be reasonably charged with a crime. The conduct of preliminary investigation is executive in nature. The Court may not be compelled to pass upon the correctness of the exercise of the public prosecutor's function unless there is a showing of grave abuse of discretion or manifest error in his findings. 29 Grave abuse of discretion implies a capricious and whimsical exercise of judgment tantamount to lack or excess of jurisdiction. 30 The exercise of power must have been done in an arbitrary or a despotic manner by reason of passion or personal hostility. It must have been so patent and gross as to amount to an evasion of positive duty or a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. 31 DaESIC

In the present case, the abuse of discretion is patent in the act of the Secretary of Justice holding that the contractual relationship forged by the parties was a simple loan, for in so doing, the Secretary of Justice assumed the function of the trial judge of calibrating the evidence on record, done only after a full-blown trial on the merits. The fact of existence or non-existence of a trust receipt transaction is evidentiary in nature, the veracity of which can best be passed upon after trial on the merits, for it is virtually impossible to ascertain the real nature of the transaction involved based solely on the self-serving allegations contained in the opposing parties' pleadings. Clearly, the Secretary of Justice is not in a competent position to pass judgment on substantive matters. The bases of a party's accusation and defenses are better ventilated at the trial proper than at the preliminary investigation. We need not overemphasize that in a preliminary investigation, the public prosecutor merely determines whether there is probable cause or sufficient ground to engender a well-founded belief that a crime has been committed, and that the respondent is probably guilty thereof and should be held for trial. It does not call for the application of rules and standards of proof that a judgment of conviction requires after trial on the merits. The complainant need not present at this stage proof beyond reasonable doubt. A preliminary investigation does not require a full and exhaustive presentation of the parties' evidence. 32 Precisely, there is a trial to allow the reception of evidence for both parties to substantiate their respective claims. Having said the foregoing, this Court now proceeds to determine whether probable cause exists for holding private respondents liable for estafa in relation to Presidential Decree No. 115. TEcADS Trust receipt transactions are governed by the provisions of Presidential Decree No. 115 which defines such a transaction as follows: Section 4.What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this Decree, is any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as the entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments

in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any one of the following: 1.In the case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or process the goods with the purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has complied fully with his obligation under the trust receipt; or (c) to load, unload, ship or transship or otherwise deal with them in a manner preliminary or necessary to their sale; or 2.In the case of instruments, a) to sell or procure their sale or exchange; or b) to deliver them to a principal; or c) to effect the consummation of some transactions involving delivery to a depository or register; or d) to effect their presentation, collection or renewal. The sale of goods, documents or instruments by a person in the business of selling goods, documents or instruments for profit who, at the outset of the transaction, has, as against the buyer, general property rights in such goods, documents or instruments, or who sells the same to the buyer on credit, retaining title or other interest as security for the payment of the purchase price, does not constitute a trust receipt transaction and is outside the purview and coverage of this Decree. AEIcSa An entrustee is one having or taking possession of goods, documents or instruments under a trust receipt transaction, and any successor in interest of such person for the purpose of payment specified in the trust receipt agreement. The entrustee is obliged to (1) hold the goods, documents or instruments in trust for the entruster and shall dispose of them strictly in accordance with the terms and conditions of the trust receipt; (2) receive the proceeds in trust for the entruster and turn over the same to the entruster to the extent of the amount owed to the entruster or as appears on the trust receipt; (3) insure the goods for their total value against loss from fire, theft, pilferage or other casualties; (4) keep said goods or the proceeds therefrom whether in money or whatever form, separate and capable of identification as property of the entruster; (5) return the goods, documents or instruments in the event of non-sale or upon demand of the entruster; and (6) observe all other terms and conditions of the trust receipt not contrary to the provisions of the decree. 33 The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released under a trust receipt to the entrustee to the extent of the amount owed to the entruster or as appears in the trust receipt; or to the return of the goods, documents or instruments in case of non-sale; and to the enforcement of all other rights conferred on him in the trust receipt, provided these are not contrary to the provisions of the document. 34 A violation of any of these undertakings constitutes estafa defined under Article 315 (1) (b) of the Revised Penal Code, as provided by Section 13 of Presidential Decree No. 115 viz.: Section 13.Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code. If the violation or offense is committed by a corporation, partnership, association or other juridical entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense. ICDSca Apropos thereto, Article 315 (1) (b) of the Revised Penal Code punishes estafa committed as follows:

ART. 315.Swindling (estafa). Any person who shall defraud another by any of the means mentioned hereinbelow shall be punished by: 1st.The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if the amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos, and if such amount exceeds the latter sum, the penalty provided in this paragraph shall be imposed in its maximum period, adding one year for each additional 10,000 pesos; but the total penalty which may be imposed shall not exceed twenty years. In such case, and in connection with the accessory penalties which may be imposed and for the purpose of the other provisions of this Code, the penalty shall be termed prision mayor to reclusion temporal, as the case may be. 2nd.The penalty of prision correccional in its minimum and medium periods, if the amount of the fraud is over 6,000 pesos but does not exceed 12,000 pesos; 3rd.The penalty of arresto mayor in its maximum period to prision correccional in its minimum period, if such amount is over 200 pesos but does not exceed 6,000 pesos; and 4th.By arresto mayor in its medium and maximum periods, if such amount does not exceed 200 pesos, provided that in the four cases mentioned, the fraud be committed by any of the following means; . . . . As found in the Complaint-Affidavit of petitioner, private respondents were charged with failing to account for or turn over to petitioner the merchandise or goods covered by the trust receipts or the proceeds of the sale thereof in payment of their obligations thereunder. The following pieces of evidence adduced from the affidavits and documents submitted before the City Prosecutor are sufficient to establish the existence of probable cause, to wit: First, the trust receipts 35 bearing the genuine signatures of private respondents; second, the demand letter 36 of petitioner addressed to respondents; and third, the initial admission by private respondents of the receipt of the imported goods from petitioner. 37 cCSEaA Prescinding from the foregoing, we conclude that there is ample evidence on record to warrant a finding that there is a probable cause to warrant the prosecution of private respondents for estafa. It must be once again stressed that probable cause does not require an inquiry into whether there is sufficient evidence to procure a conviction. It is enough that it is believed that the act or omission complained of constitutes the offense charged. That private respondents did not sell the goods under the trust receipt but allowed it to be used by their sister company is of no moment. The offense punished under Presidential Decree No. 115 is in the nature of malum prohibitum. A mere failure to deliver the proceeds of the sale or the goods, if not sold, constitutes a criminal offense that causes prejudice not only to another, but more to the public interest. 38 Even more incredible is the contention of private respondents that they did not give much significance to the documents they signed, considering the enormous value of the transaction involved. Thus, it is highly improbable to mistake trust receipt documents for a contract of loan when the heading thereon printed in bold and legible letters reads: "Trust Receipts". We are not prejudging this case on the merits. However, by merely glancing at the documents submitted by petitioner entitled "Trust Receipts" and the arguments advanced by private respondents, we are convinced that there is probable cause to file the case and to hold them for trial. SEDaAH

All told, the evidentiary measure for the propriety of filing criminal charges has been reduced and liberalized to a mere probable cause. As implied by the words themselves, "probable cause" is concerned with probability, not absolute or moral certainty. 39 WHEREFORE, premises considered, the instant Petition is GRANTED. The Decision dated 30 March 2007 and the Resolution dated 16 October 2007 of the Court of Appeals in CA-G.R. SP No. 91892 are REVERSED and SET ASIDE. The Secretary of Justice is hereby ORDERED to direct the Office of the City Prosecutor of Manila to forthwith FILE Informations for estafa against private respondents Oliver T. Yao and Diana T. Yao before the appropriate court. SO ORDERED.

[G.R. No. 159622. July 30, 2004.] LANDL & COMPANY (PHIL.) INC., PERCIVAL G. LLABAN and MANUEL P. LUCENTE , petitioners, vs. METROPOLITAN BANK & TRUST COMPANY, respondent.

DECISION

YNARES-SANTIAGO, J p: At issue in this petition for review on certiorari is whether or not, in a trust receipt transaction, an entruster which had taken actual and juridical possession of the goods covered by the trust receipt may subsequently avail of the right to demand from the entrustee the deficiency of the amount covered by the trust receipt. As correctly appreciated by the Court of Appeals, the undisputed facts of this case are as follows: Respondent Metropolitan Bank and Trust Company (Metrobank) filed a complaint for sum of money against Landl and Company (Phil.) Inc. (Landl) and its directors, Percival G. Llaban and Manuel P. Lucente before the Regional Trial Court of Cebu City, Branch 19, docketed as Civil Case No. CEB-4895. Respondent alleged that petitioner corporation is engaged in the business of selling imported welding rods and alloys. On June 17, 1983, it opened Commercial Letter of Credit No. 4998 with respondent bank, in the amount of US$19,606.77, which was equivalent to P218,733.92 in Philippine currency at the time the transaction was consummated. The letter of credit was opened to purchase various welding rods and electrodes from Perma Alloys, Inc., New York, U.S.A., as evidenced by a Pro-Forma Invoice dated March 10, 1983. Petitioner corporation put up a marginal deposit of P50,414.00 from the proceeds of a separate clean loan. As an additional security, and as a condition for the approval of petitioner corporations application for the opening of the commercial letter of credit, respondent bank required petitioners Percival G. Llaban and Manuel P. Lucente to execute a Continuing Suretyship Agreement to the extent of P400,000.00, excluding interest, in favor of respondent bank. Petitioner Lucente also executed a Deed of Assignment in the amount of P35,000.00 in favor of respondent bank to cover the amount of petitioner corporations obligation to the bank. Upon compliance with these requisites, respondent bank opened an irrevocable letter of credit for the petitioner corporation. To secure the indebtedness of petitioner corporation, respondent bank required the execution of a Trust Receipt in an amount equivalent to the letter of credit, on the condition that petitioner corporation would hold the goods in trust for respondent bank, with the right to sell the goods and the obligation to turn over to respondent bank the proceeds of the sale, if any. If the goods remained unsold, petitioner corporation had the further obligation to return them to respondent bank on or before November 23, 1983. Upon arrival of the goods in the Philippines, petitioner corporation took possession and custody thereof. On November 23, 1983, the maturity date of the trust receipt, petitioner corporation defaulted in the payment of its obligation to respondent bank and failed to turn over the goods to the latter. On July 24, 1984, respondent bank demanded that petitioners, as entrustees, turn over the goods subject of the trust receipt. On September 24, 1984, petitioners turned over the subject goods to the respondent bank. 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 oblig ation to respondent bank, notwithstanding the application of the time deposit account of petitioner Lucente. Accordingly, respondent bank demanded that petitioners pay the remaining balance of their obligation. After petitioners failed to do so, respondent bank instituted the instant case to collect the said deficiency.

On March 31, 1997, after trial on the merits, the trial court rendered a decision, the dispositive portion of which reads: WHEREFORE, foregoing premises considered, Judgment is hereby rendered in favor of the plaintiff and against the defendant by (1) ordering the defendant to pay jointly and severally to the plaintiff the sum of P292,172.23 representing the defendants obligation, as of April 17, 1986; (2) to pay the interest at the rate of 19% per annum to be reckoned from April 18, 1986 until [the] obligation is fully paid; (3) to pay service charge at the rate of 2% per annum starting April 18, 1986; (4) to pay the sum equivalent to 10% per annum of the total amount due collectible by way of Attorneys Fees; (5) to pay Litigation Expenses of P3,000.00 and to pay the cost of the suit; and (6) to pay penalty charge of 12% per annum. SO ORDERED. 1 Petitioners appealed to the Court of Appeals, raising the issues of: (1) whether or not respondent bank has the right to recover any deficiency after it has retained possession of and subsequently effected a public auction sale of the goods covered by the trust receipt; (2) whether or not respondent bank is entitled to the amount of P3,000.00 as and for litigation expenses and costs of the suit; and (3) whether or not respondent bank is entitled to the award of attorneys fees. On February 13, 2003, the Court of Appeals rendered a decision affirming in toto the decision of the trial court. 2 Hence, this petition for review on the following assignment of errors: I. THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN AFFIRMING THE TRIAL COURTS RULING THAT 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 COURTS PATENTLY ERRONEOUS AWARD OF PRINCIPAL OBLIGATION, INTEREST, ATTORNEYS 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 entrustees indebtedness to the entruster. The entrustee shall receive any surplus but shall be liable to the entruster for any deficiency.

Notice of sale shall be deemed sufficiently given if in writing, and either personally served on the entrustee or sent by post-paid ordinary mail to the entrustee's last known business address. There is no question that petitioners failed to pay their outstanding obligation to respondent bank. They contend, however, that when the entrustee fails to settle his principal loan, the entruster may choose between two separate and alternative remedies: (1) the return of the goods covered by the trust receipt, in which case, the entruster now acquires the ownership of the goods which the entrustee failed to sell; or (2) cancel the trust and take possession of the goods, for the purpose of selling the same at a private sale or at public auction. Petitioners assert that, under this second remedy, the entruster does not acquire ownership of the goods, in which case he is entitled to the deficiency. Petitioners argue that these two remedies are so distinct that the availment of one necessarily bars the availment of the other. Thus, when respondent bank availed of the remedy of demanding the return of the goods, the actual return of all the unsold goods completely extinguished petitioners liability. 4 Petitioners argument is bereft of merit. A trust receipt is inextricably linked with the primary agreement between the parties. Time and again, we have emphasized that a trust receipt agreement is merely a collateral agreement, the purpose of which is to serve as security for a loan. Thus, in Abad v. Court of Appeals, 5 we ruled: A letter of credit-trust receipt arrangement is endowed with its own distinctive features and characteristics. Under that set-up, a bank extends a loan covered by the letter of credit, with the trust receipt as security for the loan. In other words, the transaction involves a loan feature represented by the letter of credit, and a security feature which is in the covering trust receipt. . . A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a security interest in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no obligation. 6 The Trust Receipts Law was enacted to safeguard commercial transactions and to offer an additional layer of security to the lending bank. Trust receipts are indispensable contracts in international and domestic business transactions. The prevalent use of trust receipts, the danger of their misuse and/or misappropriation of the goods or proceeds realized from the sale of goods, documents or instruments held in trust for entruster banks, and the need for regulation of trust receipt transactions to safeguard the rights and enforce the obligations of the parties involved are the main thrusts of the Trust Receipts Law. 7

The second paragraph of Section 7 provides a statutory remedy available to an entruster in the event of default or failure of the entrustee to comply with any of the terms and conditions of the trust receipt or any other agreement between the entruster and the entrustee. More specifically, the entruster may cancel the trust and take possession of the goods, documents or instruments subject of the trust or of the proceeds realized therefrom at any time. The law further provides that the entruster in possession of the goods, documents or instruments may, on or after default, give notice to the entrustee of the intention to sell, and may, not less than five days after serving or sending of such notice, sell the goods, documents or instruments at public or private sale, and the entruster may, at a public sale, become a purchaser. The proceeds of any such sale, whether public or private, shall be applied (a) to the payment of the expenses thereof; (b) to the payment of the expenses of re-taking, keeping and storing the goods, documents or instruments; (c) to the satisfaction of the entrustee's indebtedness to the entruster. The entrustee shall receive any surplus but shall be liable to the entruster for any deficiency. cECTaD The trust receipt between respondent bank and petitioner corporation contains the following relevant clauses: The BANK/ENTRUSTER may, at any time, and only at its option, cancel this trust and take possession of the goods/documents/instruments subject hereof or of the proceeds realized therefrom wherever they may then be found, upon default or failure of the ENTRUSTEE to comply with any of the terms and conditions of this Trust Receipt or of any other agreement between the BANK/ENTRUSTER and the ENTRUSTEE; and the BANK/ENTRUSTER having taken repossession of the goods/documents/instruments object hereof may, on or after default, give at least five (5) days previous notice to the ENTRUSTEE of its intention to sell

the goods/documents/instruments at public or private sale, at which public sale, it may become a purchaser; Provided, that the proceeds of any such sale, whether public or private, shall be applied: (a) to the payment of the expenses thereof; (b) to the payment of the expenses of retaking, keeping and storing the goods/documents/instruments; (c) to the satisfaction of all of the ENTRUSTEEs indebtedness to the BANK/ENTRUSTER; and Provided, further, that the ENTRUSTEE shall receive any surplus thereof but shall, in any case, be liable to the BANK/ENTRUSTER for any deficiency . . . No act or omission on the part of the BANK/ENTRUSTER shall be deemed and considered a waiver of any of its rights hereunder or under any related letters of credit, drafts or other documents unless such waiver is expressly made in writing over the signature of the BANK/ENTRUSTER. 8 The afore-cited stipulations in the trust receipt are a near-exact reproduction of the second paragraph of Section 7 of the Trust Receipts Law. The right of repossession and subsequent sale at public auction which were availed of by respondent bank were rights available upon default, and which were conferred by statute and reinforced by the contract between the parties. The initial repossession by the bank of the goods subject of the trust receipt did not result in the full satisfaction of the petitioners loan obligation. Petitioners are apparently laboring under the mistaken impression that the full turn -over of the goods suffices to divest them of their obligation to repay the principal amount of their loan obligation. This is definitely not the case. In Philippine National Bank v. Hon. Gregorio G. Pineda and Tayabas Cement Company, Inc., 9 we had occasion to rule: PNBs possession of the subject machinery and equipment being precisely as a form of security for the advances given to TCC under the Letter of Credit, said possession by itself cannot be considered payment of the loan secured thereby. Payment would legally result only after PNB had foreclosed on said securities, sold the same and applied the proceeds thereof to TCC's loan obligation. Mere possession does not amount to foreclosure for foreclosure denotes the procedure adopted by the mortgagee to terminate the rights of the mortgagor on the property and includes the sale itself. Neither can said repossession amount to dacion en pago. Dation in payment takes place when property is alienated to the creditor in satisfaction of a debt in money and the same is governed by sales. Dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. As aforesaid, the repossession of the machinery and equipment in question was merely to secure the payment of TCC's loan obligation and not for the purpose of transferring ownership thereof to PNB in satisfaction of said loan. Thus, no dacion en pago was ever accomplished. (Citations omitted, emphasis supplied) 10 Indeed, in the 1987 case of Vintola v. Insular Bank of Asia and America, 11 we struck down the position of the petitioner-spouses that their obligation to the entruster bank had been extinguished when they relinquished possession of the goods in question. Thus: A trust receipt . . . is a security agreement, pursuant to which a bank acquires a security interest in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no obligation. As defined in our laws: (h)Security Interest means a property interest in goods, documents or instruments to secure performance of some obligations of the entrustee or of some third persons to the entruster and includes title, whether or not expressed to be absolute, whenever such title is in substance taken or retained for security only. xxx xxx xxx Contrary to the allegations of the VINTOLAS, IBAA did not become the real owner of the goods. It was merely the holder of a security title for the advances it had made to the VINTOLAS. The goods the VINTOLAS had purchased through IBAA financing remain their own property and they hold it at their own risk. The trust receipt arrangement did not convert the

IBAA into an investor; the latter remained a lender and creditor. . . . for the bank has previously extended a loan which the L/C represents to the importer, and by that loan, the importer should be the real owner of the goods. If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of a legal fiction than fact, for if it were so, it could dispose of the goods in any manner it wants, which it cannot do, just to give consistency with the purpose of the trust receipt of giving a stronger security for the loan obtained by the importer. To consider the bank as the true owner from the inception of the transaction would be to disregard the loan feature thereof . . . Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that because they have surrendered the goods to IBAA and subsequently deposited them in the custody of the court, they are absolutely relieved of their obligation to pay their loan because of their inability to dispose of the goods. The fact that they were unable to sell the seashells in question does not affect IBAAs right to recover the advances it had made under the Letter of Credit. (Citations omitted.) 12 Respondent banks repossession of the properties and subsequent sale of the goods were completely in accordance with its statutory and contractual rights upon default of petitioner corporation. The second paragraph of Section 7 expressly provides that the entrustee shall be liable to the entruster for any deficiency after the proceeds of the sale have been applied to the payment of the expenses of the sale, the payment of the expenses of re-taking, keeping and storing the goods, documents or instruments, and the satisfaction of the entrustees indebtedness to the entruster. In the case at bar, the proceeds of the auction sale were insufficient to satisfy entirely petitioner corporations indebtedness to the respondent bank. Respondent bank was thus well within its rights to institute the instant case to collect the deficiency. We find, however, that there has been an error in the computation of the total amount of petitioners indebtedness to respondent bank. Although respondent bank contends that the error of computation is a question of fact which is beyond the power of this Court to review, 13 the total amount of petitioners indebtedness in this case is not a question of fact. Rather, it is a question of law, i.e., the application of legal principles for the computation of the amount owed to respondent bank, and is thus a matter properly brought for our determination. The first issue involves the amount of indebtedness prior to the imposition of interest and penalty charges. The initial amount of the trust receipt of P218,733.92, was reduced to P192,265.92 as of June 14, 1984, as per respondents Statement of Past Due Trust Receipt dated December 1, 1993. 14 This amount presumably includes the application of P35,000.00, the amount of petitioner Lucentes Deed of Assignme nt, 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 importers marginal deposit (if one was made, as in this case),

should be set off against his debt, for while the importer earns no interest on his marginal deposit, the bank, apart from being able to use said deposit for its own purposes, also earns interest on the money it loaned to the importer. It would be onerous to compute interest and other charges on the face value of the letter of credit which the bank issued, without first crediting or setting off the marginal deposit which the importer paid to the bank. Compensation is proper and should take place by operation of law because the requisites in Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent amount (Art. 1290, Civil Code). Although Abad is only a surety, he may set up compensation as regards what the creditor owes the principal debtor, TOMCO (Art. 1280, Civil Code). 15 The net amount of the obligation, represented by respondent bank to be P292,172.23 as of April 17, 1986, would thus be P211,758.23. To this principal amount must be imposed the following charges: (1) 19% interest per annum, in keeping with the terms of the trust receipt; 16 and (2) 12% penalty per annum, collected based on the outstanding principal obligation plus unpaid interest, again in keeping with the wording of the trust receipt. 17 It appearing that petitioners have paid the interest and penalty charges until April 17, 1986, the reckoning date for the computation of the foregoing charges must be April 18, 1986. A perusal of the records reveals that the trial court and the Court of Appeals erred in imposing service charges upon the petitioners. No such stipulation is found in the trust receipt. Moreover, the trial court and the Court of Appeals erred in computing attorneys fees equivalent to 10% per annum, rather than 10% of the total amount due. There is no basis for compounding the interest annually, as the trial court and Court of Appeals have done. This amount would be unconscionable. Finally, Lucente and Llabans contention that they are not solidarily liable with petitioner corporation is untenable. As co-signatories of the Continuing Suretyship Agreement, they bound themselves, inter alia, to pay the principal sum in the amount of not more than P400,000.00; interest due on the principal obligation; attorneys fees; and expenses that may be incurred in collecting the credit. The amount owed to respondent bank is the amount of the principal, interest, attorneys fees, and expenses in collecting the principal amount. The Continuing Suretyship Agreement expressly states the nature of the liability of Lucente and Llaban: The liability of the SURETY shall be solidary, direct and immediate and not contingent upon the banks pursuit of whatever remedies the BANK have [sic] against the Borrower or the securities or liens the BANK may possess and the SURETY will at any time, whether due or not due, pay to the BANK with or without demand upon the Borrower, any of the instruments of indebtedness or other obligation hereby guaranteed by the SURETY. 18 Solidary liability is one of the primary characteristics of a surety contract, 19 and the Continuing Suretyship Agreement expressly stipulates the solidary nature of Lucente and Llabans liability. All three petitioners t hus share the solidary obligation in favor of respondent bank, which is given the right, under the Civil Code, to proceed against any one of the solidary debtors or some or all of them simultaneously. 20 WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 58193 dated February 13, 2003 is AFFIRMED with MODIFICATIONS. Accordingly, petitioners are ordered to pay respondent bank the following: (1) P211,758.23 representing petitioners net obligation as of April 17, 1986; (2) interest at the rate of 19% per annum and penalty at the rate of 12% per annum reckoned from April 18, 1986; (3) attorneys fees equivalent to 10% of the total amount due and collectible; and (4) litigation expense s 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.

[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.

Romualdo Arnado Romualdo and Associates Law Office for petitioners. Solicitor General for respondents. SYNOPSIS In 1979, petitioners Melvin Colinares and Lordino Veloso were contracted by the Carmelite Sisters of Cagayan de Oro City to renovate the latter's convent at Camaman-an, Cagayan de Oro City. On 30 October 1979, petitioners obtained various construction materials from CM Builders Centre for the said project. The following day, petitioners applied for a commercial letter of credit with the Philippine Banking Corporation (PBC), Cagayan de Oro City Branch in favor of CM Builders Centre. PBC approved the letter of credit to cover the full invoice value of the goods. Petitioners signed the pro-forma trust receipt as security. The said loan was due on 29 January 1980. However, petitioners failed to pay the whole amount on its due date. Several demand letters were sent to them. Petitioners proposed that the terms of payment of the loan shall be modified. Pending approval of the said proposal, petitioners paid some amounts. Concurrently with the separate demand for attorney's fees by PBC's legal counsel, PBC continued to demand payment of the balance. On 14 January 1983, petitioners were charged with violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of the Revised Penal Code. During trial, petitioners insisted that the transaction was that of an ordinary loan. Subsequently, the trial court convicted the petitioners for the offense charged. On appeal, the Court of Appeals affirmed the conviction of petitioners and increased the penalty imposed. Thus, petitioners raised the issue to this Court. Pending resolution, petitioners filed a Motion to Dismiss on the ground that they had already fully paid PBC. Attached thereto was the affidavit of desistance executed by PBC. HCSDca This Court ruled that a thorough examination of the facts obtaining in the case at bar revealed that the transaction intended by the parties was a simple loan, not a trust receipt agreement. Petitioners are not importers acquiring the good 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 impressed 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. Petitioners were ACQUITTED. SYLLABUS 1.REMEDIAL LAW; CRIMINAL PROCEDURE; NEW TRIAL; GRANT THEREOF IS DISCRETIONARY UPON THE JUDGE; GROUNDS. 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. 2.ID.; ID.; ID.; NEWLY DISCOVERED EVIDENCE; REQUISITES. 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. HIaSDc 3.ID.; ID.; ID.; A FORGOTTEN EVIDENCE IS NOT A NEWLY DISCOVERED EVIDENCE; CASE AT BAR. 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. 4.MERCANTILE LAW; PRESIDENTIAL DECREE NO. 115 (TRUST RECEIPTS LAW); TRUST RECEIPT TRANSACTION; DEFINED. Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt transaction as any transaction by and between a person referred to as the entruster, and another person referred to as the entrustee, whereby the entruster who owns or holds absolute title or security interest over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt. DTcASE 5.ID.; ID.; ID.; TWO POSSIBLE SITUATIONS. 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. HDaACI 6.ID.; ID.; ID.; FAILURE TO TURN OVER PROCEEDS OF SALE OR RETURN UNDISPOSED GOODS CONSTITUTES ESTAFA. 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. 7.ID.; ID.; ID.; TRANSACTION IN CASE AT BAR, A SIMPLE LOAN NOT A TRUST RECEIPT AGREEMENT. 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 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. cSEAHa 8.ID.; ID.; ID.; TRUST RECEIPTS PARTAKE OF THE NATURE OF A CONDITIONAL SALE. 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. 9.ID.; ID.; ID.; PURPOSE AND NATURE. 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. 10.ID.; ID.; ID.; PETITIONERS NOT BEING IMPORTERS ARE NOT COVERED BY THE LAW. 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. AHDTIE

11.ID.; ID.; ID.; FACT THAT THE GOODS WERE DELIVERED PREVIOUS TO THE EXECUTION OF THE LETTER OF CREDIT AND TRUST RECEIPT SHOWS THAT THE TRANSACTION WAS INDEED A LOAN. 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. 12.ID.; ID.; DISHONESTY AND ABUSE OF CONFIDENCE IN THE HANDLING OF MONEY OR GOODS TO THE PREJUDICE OF ANOTHER, NOT PRESENT IN CASE AT BAR. 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. 13.ID.; ID.; PRACTICE OF BANKS REQUIRING BORROWERS TO SIGN TRUST RECEIPTS UNDER THREAT OF CRIMINAL PROSECUTION SHOULD THEY BE UNABLE TO PAY THEIR LOANS, REPREHENSIBLE AS THEY ARE CONTRACTS OF ADHESION. 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 Resistance. DSETac 14.REMEDIAL LAW; EVIDENCE; TESTIMONY OF WITNESSES; LOAN TRANSACTION ENTERED INTO BY PETITIONERS, NOT REFUTED. Petitioners Veloso's claim that they were made to believe that the transaction was a loan was also not denied by PBC. . . PBC could have presented its former bank manager, Cayo Garcia Tuiza, who contracted with Petitioners, to refute Veloso's testimony, yet it only presented credit investigator Grego Mutia. Nowhere from Mutia's testimony can it be gleaned that PBC represented to Petitioners that the transaction they were entering into was not a pure loan but had trust receipt implications. 15.CRIMINAL LAW; ESTAFA; INTENT TO DEFRAUD AND MISAPPROPRIATE THE MONEY FOR PERSONAL USE, NOT ESTABLISHED IN CASE AT BAR. 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. DECISION

DAVIDE, JR., C. J. p: In 1979 Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the latter's convent at Camaman-an, Cagayan de Oro City. On 30 October 1979, Petitioners obtained 5,376 SF Solatone acoustical board 2'x4'x1/2", 300 SF tanguile wood tiles 12"x12", 260 SF Marcelo economy tiles and 2 gallons UMYLIN cement adhesive from CM Builders Centre for the construction project. 1 The following day, 31 October 1979, Petitioners applied for a commercial letter of credit 2 with the Philippine Banking Corporation, Cagayan de Oro City branch (hereafter PBC) in favor of CM Builders Centre. PBC approved the letter of credit 3 for P22,389.80 to cover the full invoice value of the goods. Petitioners signed a proforma trust receipt 4 as security. The loan was due on 29 January 1980.

On 31 October 1979, PBC debited P6,720 from Petitioners' marginal deposit as partial payment of the loan. 5 On 7 May 1980, PBC wrote 6 to Petitioners demanding that the amount be paid within seven days from notice. Instead of complying with PBC's demand, Veloso confessed that they lost P19,195.83 in the Carmelite Monastery Project and requested for a grace period of until 15 June 1980 to settle the account. 7 PBC sent a new demand letter 8 to Petitioners on 16 October 1980 and informed them that their outstanding balance as of 17 November 1979 was P20,824.40 exclusive of attorney's fees of 25%. 9 ITSCED On 2 December 1980, Petitioners proposed 10 that the terms of payment of the loan be modified as follows: P2,000 on or before 3 December 1980, and P1,000 per month starting 31 January 1980 until the account is fully paid. Pending approval of the proposal, Petitioners paid P1,000 to PBC on 4 December 1980, 11 and thereafter P500 on 11 February 1981, 12 16 March 1981, 13 and 20 April 1981. 14 Concurrently with the separate demand for attorney's fees by PBC's legal counsel, PBC continued to demand payment of the balance. 15 On 14 January 1983, Petitioners were charged with the violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of the Revised Penal Code in an Information which was filed with Branch 18, Regional Trial Court of Cagayan de Oro City. The accusatory portion of the Information reads: That on or about October 31, 1979, in the City of Cagayan de Oro, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused entered into a trust receipt agreement with the Philippine Banking Corporation at Cagayan de Oro City wherein the accused, as entrustee, received from the entruster the following goods to wit: Solatone Acoustical board Tanguile Wood Tiles Marcelo Cement Tiles Umylin Cement Adhesive with a total value of P22,389.80, with the obligation on the part of the accused-entrustee to hold the aforesaid items in trust for the entruster and/or to sell on cash basis or otherwise dispose of the said items and to turn over to the entruster the proceeds of the sale of said goods or if there be no sale to return said items to the entruster on or before January 29, 1980 but that the said accused after receipt of the goods, with intent to defraud and cause damage to the entruster, conspiring, confederating together and mutually helping one another, did then and there wilfully, unlawfully and feloniously fail and refuse to remit the proceeds of the sale of the goods to the entruster despite repeated demands but instead converted, misappropriated and misapplied the proceeds to their own personal use, benefit and gain, to the damage and prejudice of the Philippine Banking Corporation, in the aforesaid sum of P22,389.80, Philippine Currency. Contrary to PD 115 in relation to Article 315 of the Revised Penal Code. 16 The case was docketed as Criminal Case No. 1390. During trial, petitioner Veloso insisted that the transaction was a "clean loan" as per verbal guarantee of Cayo Garcia Tuiza, PBC's former manager. He and petitioner Colinares signed the documents without reading the fine print, only learning of the trust receipt implication much later. When he brought this to the attention of PBC, Mr. Tuiza assured him that the trust receipt was a mere formality. 17 On 7 July 1986, the trial court promulgated its decision 18 convicting Petitioners of estafa for violating P.D. No. 115 in relation to Article 315 of the Revised Penal Code and sentencing each of them to suffer imprisonment of two years and one day of prision correccional as minimum to six years and one day of prision mayor as maximum, and to solidarily indemnify PBC the amount of P20,824.44, with legal interest from 29 January 1980, 12% penalty charge per annum, 25% of the sums due as attorney's fees, and costs. The trial court considered the transaction between PBC and Petitioners as a trust receipt transaction under Section 4, P.D. No. 115. It considered Petitioners' use of the goods in their Carmelite monastery project an act of "disposing" as contemplated under Section 13, P.D. No. 115, and treated the charge invoice 19 for goods issued by CM Builders Centre as a "document" within the meaning of Section 3 thereof. It concluded that the failure of Petitioners to turn

over the amount they owed to PBC constituted estafa. Petitioners appealed from the judgment to the Court of Appeals which was docketed as CA-G.R. CR No. 05408. Petitioners asserted therein that the trial court erred in ruling that they violated the Trust Receipt Law, and in holding them criminally liable therefor. In the alternative, they contend that at most they can only be made civilly liable for payment of the loan. In its decision 20 6 March 1989, the Court of Appeals modified the judgment of the trial court by increasing the penalty to six years and one day of prision mayor as minimum to fourteen years eight months and one day of reclusion temporal as maximum. It held that the documentary evidence of the prosecution prevails over Veloso's testimony, discredited Petitioners' claim that the documents they signed were in blank, and disbelieved that they were coerced into signing them. SIcTAC On 25 March 1989, Petitioners filed a Motion for New Trial/Reconsideration 21 alleging that the "Disclosure Statement on Loan/Credit Transaction" 22 (hereafter Disclosure Statement) signed by them and Tuiza was suppressed by PBC during the trial. That document would have proved that the transaction was indeed a loan as it bears a 14% interest as opposed to the trust receipt which does not at all bear any interest. Petitioners further maintained that when PBC allowed them to pay in installment, the agreement was novated and a creditor-debtor relationship was created.

In its resolution 23 of 16 October 1989 the Court of Appeals denied the Motion for New Trial/Reconsideration because the alleged newly discovered evidence was actually forgotten evidence already in existence during the trial, and would not alter the result of the case. Hence, Petitioners filed with us the petition in this case on 16 November 1989. They raised the following issues: 1.WHETHER OR NOT THE DENIAL OF THE MOTION FOR NEW TRIAL ON THE GROUND OF NEWLY DISCOVERED EVIDENCE, NAMELY, "DISCLOSURE ON LOAN/CREDIT TRANSACTION," WHICH IF INTRODUCED AND ADMITTED, WOULD CHANGE THE JUDGMENT, DOES NOT CONSTITUTE A DENIAL OF DUE PROCESS. 2.ASSUMING THERE WAS A VALID TRUST RECEIPT, WHETHER OR NOT THE ACCUSED WERE PROPERLY CHARGED, TRIED AND CONVICTED FOR VIOLATION OF SEC. 13, PD NO. 115 IN RELATION TO ARTICLE 315 PARAGRAPH (I) (B) NOTWITHSTANDING THE NOVATION OF THE SO-CALLED TRUST RECEIPT CONVERTING THE TRUSTORTRUSTEE RELATIONSHIP TO CREDITOR-DEBTOR SITUATION. In its Comment of 22 January 1990, the Office of the Solicitor General urged us to deny the petition for lack of merit. On 28 February 1990 Petitioners filed a Motion to Dismiss the case on the ground that they had already fully paid PBC on 2 February 1990 the amount of P70,000 for the balance of the loan, including interest and other charges, as evidenced by the different receipts issued by PBC, 24 and that the PBC executed an Affidavit of desistance. 25 We required the Solicitor General to comment on the Motion to Dismiss. In its Comment of 30 July 1990, the Solicitor General opined that payment of the loan was akin to a voluntary surrender or plea of guilty which merely serves to mitigate Petitioners' culpability, but does not in any way extinguish their criminal liability. In the Resolution of 13 August 1990, we gave due course to the Petition and required the parties to file their respective memoranda. The parties subsequently filed their respective memoranda. It was only on 18 May 1999 when this case was assigned to the ponente. Thereafter, we required the parties to move in the premises and for Petitioners to manifest if they are still interested in the further prosecution of this case and inform us of their present whereabouts and whether their bail bonds are still valid. Petitioners submitted their Compliance.

The core issues raised in the petition are the denial by the Court of Appeals of Petitioners' Motion for New Trial and the true nature of the contract between Petitioners and the PBC. As to the latter, Petitioners assert that it was an ordinary loan, not a trust receipt agreement under the Trust Receipts Law. TAEcCS The grant or denial of a motion for new trial rests upon the discretion of the judge. New trial may be granted if: (1) errors of law or irregularities have been committed during the trial prejudicial to the substantial rights of the accused; or (2) new and material evidence has been discovered which the accused could not with reasonable diligence have discovered and produced at the trial, and which, if introduced and admitted, would probably change the judgment. 26 For newly discovered evidence to be a ground for new trial, such evidence must be (1) discovered after trial; (2) could not have been discovered and produced at the trial even with the exercise of reasonable diligence; and (3) material, not merely cumulative, corroborative, or impeaching, and of such weight that, if admitted, would probably change the judgment. 27 It is essential that the offering party exercised reasonable diligence in seeking to locate the evidence before or during trial but nonetheless failed to secure it. 28 We find no indication in the pleadings that the Disclosure Statement is a newly discovered evidence. Petitioners could not have been unaware that the two-page document exists. The Disclosure Statement itself states, "NOTICE TO BORROWER: YOU ARE ENTITLED TO A COPY OF THIS PAPER WHICH YOU SHALL SIGN." 29 Assuming Petitioners' copy was then unavailable, they could have compelled its production in court, 30 which they never did. Petitioners have miserably failed to establish the second requisite of the rule on newly discovered evidence. Petitioners themselves admitted that "they searched again their voluminous records, meticulously and patiently, until they discovered this new and material evidence" only upon learning of the Court of Appeals' decision and after they were "shocked by the penalty imposed." 31 Clearly, the alleged newly discovered evidence is mere forgotten evidence that jurisprudence excludes as a ground for new trial. 32 However, the second issue should be resolved in favor of Petitioners. Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt transaction as any transaction by and between a person referred to as the entruster, and another person referred to as the entrustee, whereby the entruster who owns or holds absolute title or security interest over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt. There are two possible situations in a trust receipt transaction. The first is covered by the provision which refers to money received under the obligation involving the duty to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision which refers to merchandise received under the obligation to "return" it (devolvera) to the owner. 33 Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by the trust receipt to the entruster or to return said goods if they were not disposed of in accordance with the terms of the trust receipt shall be punishable as estafa under Article 315 (1) of the Revised Penal Code, 34 without need of proving intent to defraud. A thorough examination of the facts obtaining in the case at bar reveals that the transaction intended by the parties was a simple loan, not a trust receipt agreement. Petitioners received the merchandise from CM Builders Centre on 30 October 1979. On that day, ownership over the merchandise was already transferred to Petitioners who were to use the materials for their construction project. It was only a day later, 31 October 1979, that they went to the bank to apply for a loan to pay for the merchandise. This situation belies what normally obtains in a pure trust receipt transaction where goods are owned by the bank and only released to the importer in trust subsequent to the grant of the loan. The bank acquires a "security interest" in the goods as holder of a security title for the advances it had made to the entrustee. 35 The ownership of the merchandise continues to be vested in the person who had advanced payment until he has been paid in full, or if the merchandise has already been sold, the proceeds of the sale should be turned over to him by the importer or by his representative or successor-in-interest. 36 To secure that the bank shall be paid, it takes full title to the goods at the

very beginning and continues to hold that title as his indispensable security until the goods are sold and the vendee is called upon to pay for them; hence, the importer has never owned the goods and is not able to deliver possession. 37 In a certain manner, trust receipts partake of the nature of a conditional sale where the importer becomes absolute owner of the imported merchandise as soon as he has paid its price. 38 aSTAHD Trust receipt transactions are intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased. 39 The antecedent acts in a trust receipt transaction consist of the application and approval of the letter of credit, the making of the marginal deposit and the effective importation of goods through the efforts of the importer. 40 PBC attempted to cover up the true delivery date of the merchandise, yet the trial court took notice even though it failed to attach any significance to such fact in the judgment. Despite the Court of Appeals' contrary view that the goods were delivered to Petitioners previous to the execution of the letter of credit and trust receipt, we find that the records of the case speak volubly and this fact remains uncontroverted. It is not uncommon for us to peruse through the transcript of the stenographic notes of the proceedings to be satisfied that the records of the case do support the conclusions of the trial court. 41 After such perusal Grego Mutia, PBC's credit investigator, admitted thus: ATTY. CABANLET: (continuing) QDo you know if the goods subject matter of this letter of credit and trust receipt agreement were received by the accused? AYes, sir. QDo you have evidence to show that these goods subject matter of this letter of credit and trust receipt were delivered to the accused? AYes, sir. QI am showing to you this charge invoice, are you referring to this document? AYes, sir. xxx xxx xxx QWhat is the date of the charge invoice? AOctober 31, 1979. COURT: Make it of record as appearing in Exhibit D, the zero in 30 has been superimposed with numeral 1. 42

During the cross and re-direct examinations he also impliedly admitted that the transaction was indeed a loan. Thus: QIn short the amount stated in your Exhibit C, the trust receipt was a loan to the accused you admit that? ABecause in the bank the loan is considered part of the loan. xxx xxx xxx RE-DIRECT BY ATTY. CABANLET: ATTY. CABANLET (to the witness) QWhat do you understand by loan when you were asked?

ALoan is a promise of a borrower from the value received. The borrower will pay the bank on a certain specified date with interest. 43 Such statement is akin to an admission against interest binding upon PBC. Petitioner Veloso's claim that they were made to believe that the transaction was a loan was also not denied by PBC. He declared: QTestimony was given here that was covered by trust receipt. In short it was a special kind of loan. What can you say as to that? AI don't think that would be a trust receipt because we were made to understand by the manager who encouraged us to avail of their facilities that they will be granting us a loan. 44 aETAHD PBC could have presented its former bank manager, Cayo Garcia Tuiza, who contracted with Petitioners, to refute Veloso's testimony, yet it only presented credit investigator Grego Mutia. Nowhere from Mutia's testimony can it be gleaned that PBC represented to Petitioners that the transaction they were entering into was not a pure loan but had trust receipt implications. The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner. 45 Here, it is crystal clear that on the part of Petitioners there was neither dishonesty nor abuse of confidence in the handling of money to the prejudice of PBC. Petitioners continually endeavored to meet their obligations, as shown by several receipts issued by PBC acknowledging payment of the loan. The Information charges Petitioners with intent to defraud and misappropriating the money for their personal use. The mala prohibita nature of the alleged offense notwithstanding, intent as a state of mind was not proved to be present in Petitioners' situation. Petitioners employed no artifice in dealing with PBC and never did they evade payment of their obligation nor attempt to abscond. Instead, Petitioners sought favorable terms precisely to meet their obligation. Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale, contrary to the express provision embodied in the trust receipt. They are contractors who obtained the fungible goods for their construction project. At no time did title over the construction materials pass to the bank, but directly to the Petitioners from CM Builders Centre. This impresses upon the trust receipt in question vagueness and ambiguity, which should not be the basis for criminal prosecution in the event of violation of its provisions. 46 The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them under the threats of criminal prosecution should they be unable to pay it may be unjust and inequitable, if not reprehensible. Such agreements are contracts of adhesion which borrowers have no option but to sign lest their loan be disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy of banks, and is prone to misinterpretation, as had happened in this case. Eventually, PBC showed its true colors and admitted that it was only after collection of the money, as manifested by its Affidavit of Desistance. WHEREFORE, the challenged Decision of 6 March 1989 and the Resolution of 16 October 1989 of the Court of Appeals in CA-G.R. No. 05408 are REVERSED and SET ASIDE. Petitioners are hereby ACQUITTED of the crime charged, i.e., for violation of P.D. No. 115 in relation to Article 315 of the Revised Penal Code. No costs. SO ORDERED.

[G.R. No. 143772. November 22, 2005.] DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. PRUDENTIAL BANK, respondent.

Office of the Legal Counsel (DBP) for petitioner.

Gella Danguilan Nabaza & Associates for respondent. SYLLABUS

1.MERCANTILE LAW; TRUST RECEIPTS LAW; TRUST RECEIPT TRANSACTION; EXPOUNDED. In a trust receipt transaction, the goods are released by the entruster (who owns or holds absolute title or security interests over the said goods) to the entrustee on the latter's execution and delivery to the entruster of a trust receipt. The trust receipt evidences the absolute title or security interest of the entruster over the goods. As a consequence of the release of the goods and the execution of the trust receipt, a two-fold obligation is imposed on the entrustee, namely: (1) to hold the designated goods, documents or instruments in trust for the purpose of selling or otherwise disposing of them and (2) to turn over to the entruster either the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt, or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt. In the case of goods, they may also be released for other purposes substantially equivalent to (a) their sale or the procurement of their sale; or (b) their manufacture or processing with the purpose of ultimate sale, in which case the entruster retains his title over the said goods whether in their original or processed form until the entrustee has complied fully with his obligation under the trust receipt; or (c) the loading, unloading, shipment or transshipment or otherwise dealing with them in a manner preliminary or necessary to their sale. 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. 2.ID.; ID.; TRANSACTIONS IN THE CASE AT BAR ARE GOVERNED BY THE TRUST RECEIPTS LAW. Litex was not engaged in the business of selling spinning machinery, its accessories and spare parts but in manufacturing and producing textile and various kinds of fabric. The articles were not released to Litex to be sold. Nor was the transfer of possession intended to be a preliminary step for the said goods to be ultimately or subsequently sold. Instead, the contemporaneous and subsequent acts of both Litex and Prudential Bank showed that the imported articles were released to Litex to be installed in its textile mill and used in its business. DBP itself was aware of this. To support its assertion that the contested articles were excluded from goods that could be covered by a trust receipt, it contended: First. That the chattels in controversy were procured by DBP's mortgagor Lirag Textile Mills ("LITEX") for the exclusive use of its textile mills. They were not procured (a) to sell or otherwise procure their sale; (b) to manufacture or process the goods with the purpose of ultimate sale. 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. 3.ID.; ID.; WHILE THE ENTRUSTEE WAS ALLOWED TO SELL THE ITEMS HELD IN TRUST, IT HOWEVER HAD NO AUTHORITY TO DISPOSE OF THEM OR ANY PART THEREOF OR THEIR PROCEEDS THROUGH CONDITIONAL SALE, PLEDGE, OR ANY OTHER MEANS. 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 and had no legal effect. There being no valid mortgage, there could also be no valid foreclosure or valid auction sale. Thus, DBP could not be considered either as a mortgagee or as a purchaser in good faith. 4.ID.; ID.; PETITIONER BANK BECAME A TRUSTEE EX MALIFICIO BY ITS FAILURE TO PAY OR RETURN THE ITEMS DESPITE RESPONDENT'S REPEATED DEMANDS AND BY SELLING THEM WITHOUT THE LATTER'S KNOWLEDGE AND CONFORMITY. No one can transfer a right to another greater than what he himself has. 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. DBP merely stepped into the shoes of Litex as trustee of the imported articles with an obligation to pay their value or to return

them on Prudential Bank's demand. By its failure to pay or return them despite Prudential Bank's repeated demands and by selling them to Lyon without Prudential Bank's knowledge and conformity, DBP became a trustee ex maleficio. 5.REMEDIAL LAW; EVIDENCE; FACTUAL FINDINGS OF THE TRIAL COURT ON THE MATTER OF DAMAGES IS BINDING AND CONCLUSIVE ON THE COURT. 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. 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. While there are recognized exceptions to this rule, none of the established exceptions finds application here. 6.CIVIL LAW; DAMAGES; EXEMPLARY DAMAGES AND ATTORNEY'S FEES; PROPERLY AWARDED IN CASE AT BAR. With regard to the imposition of exemplary damages, the appellate court agreed with the trial court that the requirements for the award thereof had been sufficiently established. Prudential Bank's entitlement to compensatory damages was likewise amply proven. It was also shown that DBP was aware of Prudential Bank's claim as early as July, 1982. However, it ignored the latter's demand, included the disputed articles in the mortgage foreclosure and caused their sale in a public auction held on April 19, 1983 where it was declared as the highest bidder. Thereafter, in the series of communications between them, DBP gave Prudential Bank the false impression that its claim was still being evaluated. Without acting on Prudential Bank's plea, DBP included the contested articles among the properties it sold to Lyon in June, 1987. The trial court found that this chain of events showed DBP's fraudulent attempt to prevent Prudential Bank from asserting its rights. It smacked of bad faith, if not deceit. Thus, the award of exemplary damages was in order. Due to the award of exemplary damages, the grant of attorney's fees was proper. 7.ID.; PRESCRIPTION OF ACTIONS; FOUR-YEAR PRESCRIPTIVE PERIOD WAS INTERRUPTED BY RESPONDENT'S EXTRA-JUDICIAL DEMANDS FOR THE TURN OVER OF THE ARTICLES OR THEIR VALUE. DBP's assertion that both the trial and appellate courts failed to address the issue of prescription is of no moment. Its claim that, under Article 1146 (1) of the Civil Code, Prudential Bank's cause of action had prescribed as it should be reckoned from October 10, 1980, the day the mortgage was registered, is not correct. The written extra-judicial demand by the creditor interrupted the prescription of action. Hence, the four-year prescriptive period which DBP insists should be counted from the registration of the mortgage was interrupted when Prudential Bank wrote the extra-judicial demands for the turn over of the articles or their value. In particular, the last demand letter sent by Prudential Bank was dated July 30, 1988 and this was received by DBP the following day. Thus, contrary to DBP's claim, Prudential Bank's right to enforce its action had not yet prescribed when it filed the complaint on May 24, 1988.

DECISION

CORONA, J p: Development Bank of the Philippines (DBP) assails in this petition for review on certiorari under Rule 45 of the Rules of Court the December 14, 1999 decision 1 and the June 8, 2000 resolution of the Court of Appeals in CA-G.R. CV No. 45783. The challenged decision dismissed DBP's appeal and affirmed the February 12, 1991 decision of the Regional Trial Court of Makati, Branch 137 in Civil Case No. 88-931 in toto, while the impugned resolution denied DBP's motion for reconsideration for being pro forma. In 1973, Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial letter of credit with respondent Prudential Bank for US$498,000. This was in connection with its importation of 5,000 spindles for spinning machinery with drawing frame, simplex fly frame, ring spinning frame and various accessories, spare parts and tool gauge. These were released to Litex under covering "trust receipts" it executed in favor of Prudential Bank. Litex installed and used the items in its textile mill located in Montalban, Rizal. On October 10, 1980, DBP granted a foreign currency loan in the amount of US$4,807,551 to Litex. To secure the loan, Litex executed real estate and chattel mortgages on its plant site in Montalban, Rizal, including the buildings and other improvements, machineries and equipments there. Among the machineries and equipments mortgaged in favor of DBP were the articles covered by the "trust receipts."

Sometime in June 1982, Prudential Bank learned about DBP's plan for the overall rehabilitation of Litex. In a July 14, 1982 letter, Prudential Bank notified DBP of its claim over the various items covered by the "trust receipts" which had been installed and used by Litex in the textile mill. Prudential Bank informed DBP that it was the absolute and juridical owner of the said items and they were thus not part of the mortgaged assets that could be legally ceded to DBP. For the failure of Litex to pay its obligation, DBP extra-judicially foreclosed on the real estate and chattel mortgages, including the articles claimed by Prudential Bank. During the foreclosure sale held on April 19, 1983, DBP acquired the foreclosed properties as the highest bidder. Subsequently, DBP caused to be published in the September 2, 1984 issue of the Times Journal an invitation to bid in the public sale to be held on September 10, 1984. It called on interested parties to submit bids for the sale of the textile mill formerly owned by Litex, the land on which it was built, as well as the machineries and equipments therein. Learning of the intended public auction, Prudential Bank wrote a letter dated September 6, 1984 to DBP reasserting its claim over the items covered by "trust receipts" in its name and advising DBP not to include them in the auction. It also demanded the turn-over of the articles or alternatively, the payment of their value. An exchange of correspondences ensued between Prudential Bank and DBP. In reply to Prudential Bank's September 6, 1984 letter, DBP requested documents to enable it to evaluate Prudential Bank's claim. On September 28, 1994, Prudential Bank provided DBP the requested documents. Two months later, Prudential Bank followed up the status of its claim. In a letter dated December 3, 1984, DBP informed Prudential Bank that its claim had been referred to DBP's legal department and instructed Prudential Bank to get in touch with its chief legal counsel. There being no concrete action on DBP's part, Prudential Bank, in a letter dated July 30, 1985, made a final demand on DBP for the turn-over of the contested articles or the payment of their value. Without the knowledge of Prudential Bank, however, DBP sold the Litex textile mill, as well as the machineries and equipments therein, to Lyon Textile Mills, Inc. (Lyon) on June 8, 1987. aEIcHA Since its demands remained unheeded, Prudential Bank filed a complaint for a sum of money with damages against DBP with the Regional Trial Court of Makati, Branch 137, on May 24, 1988. The complaint was docketed as Civil Case No. 88-931. On February 12, 1991, the trial court decided 2 in favor of Prudential Bank. Applying the provisions of PD 115, otherwise known as the "Trust Receipts Law," it ruled: When PRUDENTIAL BANK released possession of the subject properties, over which it holds absolute title to LITEX upon the latter's execution of the trust receipts, the latter was bound to hold said properties in trust for the former, and (a) to sell or otherwise dispose of the same and to turn over to PRUDENTIAL BANK the amount still owing; or (b) to return the goods if unsold. Since LITEX was allowed to sell the properties being claimed by PRUDENTIAL BANK, all the more was it authorized to mortgage the same, provided of course LITEX turns over to PRUDENTIAL BANK all amounts owing. When DBP, well aware of the status of the properties, acquired the same in the public auction, it was bound by the terms of the trust receipts of which LITEX was the entrustee. Simply stated, DBP held no better right than LITEX, and is thus bound to turn over whatever amount was due PRUDENTIAL BANK. Being a trustee ex maleficio of PRUDENTIAL BANK, DBP is necessarily liable therefor. In fact, DBP may well be considered as an agent of LITEX when the former sold the properties being claimed by PRUDENTIAL BANK, with the corresponding responsibility to turn over the proceeds of the same to PRUDENTIAL BANK. 3 (Citations omitted) The dispositive portion of the decision read: WHEREFORE, judgment is hereby rendered ordering defendant DEVELOPMENT BANK OF THE PHILIPPINES to pay plaintiff PRUDENTIAL BANK: a)P3,261,834.00, as actual damages, with interest thereon computed from 10 August 1985 until the entire amount shall have been fully paid; b)P50,000.00 as exemplary damages; and c)10% of the total amount due as and for attorney's fees.

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

entruster retains his title over the said goods whether in their original or processed form until the entrustee has complied fully with his obligation under the trust receipt; or (c) the loading, unloading, shipment or transshipment or otherwise dealing with them in a manner preliminary or necessary to their sale. 4 Thus, in a trust receipt transaction, the release of the goods to the entrustee, on his execution of a trust receipt, is essentially for the purpose of their sale or is necessarily connected with their ultimate or subsequent sale.

Here, Litex was not engaged in the business of selling spinning machinery, its accessories and spare parts but in manufacturing and producing textile and various kinds of fabric. The articles were not released to Litex to be sold. Nor was the transfer of possession intended to be a preliminary step for the said goods to be ultimately or subsequently sold. Instead, the contemporaneous and subsequent acts of both Litex and Prudential Bank showed that the imported articles were released to Litex to be installed in its textile mill and used in its business. DBP itself was aware of this. To support its assertion that the contested articles were excluded from goods that could be covered by a trust receipt, it contended: First. That the chattels in controversy were procured by DBP's mortgagor Lirag Textile Mills ("LITEX") for the exclusive use of its textile mills. They were not procured (a)to sell or otherwise procure their sale; (b)to manufacture or process the goods with the purpose of ultimate sale. 5 (emphasis supplied) Hence, the transactions between Litex and Prudential Bank were allegedly not trust receipt transactions within the meaning of PD 115. It follows that, contrary to the decisions of the trial court and the appellate court, the transactions were not governed by the Trust Receipts Law. We disagree. The various agreements between Prudential Bank and Litex commonly denominated as "trust receipts" were valid. As the Court of Appeals correctly ruled, their provisions did not contravene the law, morals, good customs, public order or public policy. EaCDAT The agreements uniformly provided: Received, upon the Trust hereinafter mentioned from the PRUDENTIAL BANK (hereinafter referred to as BANK) the following goods and merchandise, the property of said BANK specified in the bill of lading as follows: Amount of BillDescription of SecurityMarks & Nos.Vessel and in consideration thereof, I/We hereby agree to hold said goods in trust for the BANK and as its property with liberty to sell the same for its account but without authority to make any other disposition whatsoever of the said goods or any part thereof (or the proceeds thereof) either by way of conditional sale, pledge, or otherwise. xxx xxx xxx 6 (Emphasis supplied) The articles were owned by Prudential Bank and they were only held by Litex in trust. While it was allowed to sell the items, Litex had no authority to dispose of them or any part thereof or their proceeds through conditional sale, pledge or any other means. Article 2085 (2) of the Civil Code requires that, in a contract of pledge or mortgage, it is essential that the pledgor or mortgagor should be the absolute owner of the thing pledged or mortgaged. Article 2085 (3) further mandates that the person constituting the pledge or mortgage must have the free disposal of his property, and in the absence thereof, that he be legally authorized for the purpose. Litex had neither absolute ownership, free disposal nor the authority to freely dispose of the articles. Litex could not have subjected them to a chattel mortgage. Their inclusion in the mortgage was void 7 and had no legal effect. 8 There being no valid mortgage, there could also be no valid foreclosure or valid auction sale. 9 Thus, DBP could not be

considered either as a mortgagee or as a purchaser in good faith. 10 No one can transfer a right to another greater than what he himself has. 11 Nemo dat quod non habet. Hence, Litex could not transfer a right that it did not have over the disputed items. Corollarily, DBP could not acquire a right greater than what its predecessor-in-interest had. The spring cannot rise higher than its source. 12 DBP merely stepped into the shoes of Litex as trustee of the imported articles with an obligation to pay their value or to return them on Prudential Bank's demand. By its failure to pay or return them despite Prudential Bank's repeated demands and by selling them to Lyon without Prudential Bank's knowledge and conformity, DBP became a trustee ex maleficio. On the matter of actual damages adjudged by the trial court and affirmed by the Court of Appeals, DBP wants this Court to review the evidence presented during the trial and to reverse the factual findings of the trial court. This Court is, however, not a trier of facts and it is not its function to analyze or weigh evidence anew. 13 The rule is that factual findings of the trial court, when adopted and confirmed by the CA, are binding and conclusive on this Court and generally will not be reviewed on appeal. 14 While there are recognized exceptions to this rule, none of the established exceptions finds application here. With regard to the imposition of exemplary damages, the appellate court agreed with the trial court that the requirements for the award thereof had been sufficiently established. Prudential Bank's entitlement to compensatory damages was likewise amply proven. It was also shown that DBP was aware of Prudential Bank's claim as early as July, 1982. However, it ignored the latter's demand, included the disputed articles in the mortgage foreclosure and caused their sale in a public auction held on April 19, 1983 where it was declared as the highest bidder. Thereafter, in the series of communications between them, DBP gave Prudential Bank the false impression that its claim was still being evaluated. Without acting on Prudential Bank's plea, DBP included the contested articles among the properties it sold to Lyon in June, 1987. The trial court found that this chain of events showed DBP's fraudulent attempt to prevent Prudential Bank from asserting its rights. It smacked of bad faith, if not deceit. Thus, the award of exemplary damages was in order. Due to the award of exemplary damages, the grant of attorney's fees was proper. 15 DBP's assertion that both the trial and appellate courts failed to address the issue of prescription is of no moment. Its claim that, under Article 1146 (1) of the Civil Code, Prudential Bank's cause of action had prescribed as it should be reckoned from October 10, 1980, the day the mortgage was registered, is not correct. The written extra-judicial demand by the creditor interrupted the prescription of action. 16 Hence, the four-year prescriptive period which DBP insists should be counted from the registration of the mortgage was interrupted when Prudential Bank wrote the extrajudicial demands for the turn over of the articles or their value. In particular, the last demand letter sent by Prudential Bank was dated July 30, 1988 and this was received by DBP the following day. Thus, contrary to DBP's claim, Prudential Bank's right to enforce its action had not yet prescribed when it filed the complaint on May 24, 1988. EcDSTI WHEREFORE, the petition is hereby DENIED. The December 14, 1999 decision and June 8, 2000 resolution of the Court of Appeals in CA-G.R. CV No. 45783 are AFFIRMED. Costs against the petitioner. SO ORDERED.

[G.R. No. 137232. June 29, 2005.] ROSARIO TEXTILE MILLS CORPORATION and EDILBERTO YUJUICO, petitioners, vs. HOME BANKERS SAVINGS AND TRUST COMPANY, respondent.

DECISION

SANDOVAL-GUTIERREZ, J p:

For our resolution is the petition for review on certiorari assailing the Decision 1 of the Court of Appeals dated March 31, 1998 in CA-G.R. CV No. 48708 and its Resolution dated January 12, 1999. The facts of the case as found by the Court of Appeals are: "Sometime in 1989, Rosario Textile Mills Corporation (RTMC) applied from Home Bankers Savings & Trust Co. for an Omnibus Credit Line for P10 million. The bank approved RTMC's credit line but for only P8 million. The bank notified RTMC of the grant of the said loan thru a letter dated March 2, 1989 which contains terms and conditions conformed by RTMC thru Edilberto V. Yujuico. On March 3, 1989, Yujuico signed a Surety Agreement in favor of the bank, in which he bound himself jointly and severally with RTMC for the payment of all RTMC's indebtedness to the bank from 1989 to 1990. RTMC availed of the credit line by making numerous drawdowns, each drawdown being covered by a separate promissory note and trust receipt. RTMC, represented by Yujuico, executed in favor of the bank a total of eleven (11) promissory notes. Despite the lapse of the respective due dates under the promissory notes and notwithstanding the bank's demand letters, RTMC failed to pay its loans. Hence, on January 22, 1993, the bank filed a complaint for sum of money against RTMC and Yujuico before the Regional Trial Court, Br. 16, Manila. In their answer (OR, pp. 44-47), RTMC and Yujuico contend that they should be absolved from liability. They claimed that although the grant of the credit line and the execution of the suretyship agreement are admitted, the bank gave assurance that the suretyship agreement was merely a formality under which Yujuico will not be personally liable. They argue that the importation of raw materials under the credit line was with a grant of option to them to turnover to the bank the imported raw materials should these fail to meet their manufacturing requirements. RTMC offered to make such turn-over since the imported materials did not conform to the required specifications. However, the bank refused to accept the same, until the materials were destroyed by a fire which gutted down RTMC's premises. ASHICc For failure of the parties to amicably settle the case, trial on the merits proceeded. After the trial, the Court a quo rendered a decision in favor of the bank, the decretal part of which reads: 'WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff and against defendants who are ordered to pay jointly and severally in favor of plaintiff, inclusive of stipulated 30% per annum interest and penalty of 3% per month until fully paid, under the following promissory notes: 90-11166-20-90P737,088.259-18-90 (maturity) 90-13207-13-90P650,000.0010-11-90 90-13347-17-90P422,500.0010-15-90 90-13357-17-90P422,500.0010-15-90 90-13477-18-90P795,000.0010-16-90 90-13737-20-90P715,900.0010-18-90 90-13977-27-90P773,500.0010-20-90 90-14297-26-90P425,750.0010-24-90 90-15408-7-90P720,984.0011-5-90 90-15698-9-90P209,433.7511-8-90 90-09225-28-90P747,780.008-26-90

The counterclaims of defendants are hereby DISMISSED. SO ORDERED." (OR, p. 323; Rollo, p. 73)." 2 Dissatisfied, RTMC and Yujuico, herein petitioners, appealed to the Court of Appeals, contending that under the trust receipt contracts between the parties, they merely held the goods described therein in trust for respondent Home Bankers Savings and Trust Company (the bank) which owns the same. Since the ownership of the goods remains with the bank, then it should bear the loss. With the destruction of the goods by fire, petitioners should have been relieved of any obligation to pay. The Court of Appeals, however, affirmed the trial court's judgment, holding that the bank is merely the holder of the security for its advance payments to petitioners; and that the goods they purchased, through the credit line extended by the bank, belong to them and hold said goods at their own risk. Petitioners then filed a motion for reconsideration but this was denied by the Appellate Court in its Resolution dated January 12, 1999. Hence, this petition for review on certiorari ascribing to the Court of Appeals the following errors: "I THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ACTS OF THE PETITIONERS-DEFENDANTS WERE TANTAMOUNT TO A VALID AND EFFECTIVE TENDER OF THE GOODS TO THE RESPONDENT-PLAINTIFF. II THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF 'RES PERIT DOMINO' IN THE CASE AT BAR CONSIDERING THE VALID AND EFFECTIVE TENDER OF THE DEFECTIVE RAW MATERIALS BY THE PETITIONERS-DEFENDANTS TO THE RESPONDENT-PLAINTIFF AND THE EXPRESS STIPULATION IN THEIR CONTRACT THAT OWNERSHIP OF THE GOODS REMAINS WITH THE RESPONDENT-PLAINTIFF. III THE HONORABLE COURT OF APPEALS VIOLATED ARTICLE 1370 OF THE CIVIL CODE AND THE LONG-STANDING JURISPRUDENCE THAT 'INTENTION OF THE PARTIES IS PRIMORDIAL' IN ITS FAILURE TO UPHOLD THE INTENTION OF THE PARTIES THAT THE SURETY AGREEMENT WAS A MERE FORMALITY AND DID NOT INTEND TO HOLD PETITIONER YUJUICO LIABLE UNDER THE SAME SURETY AGREEMENT. DICSaH IV ASSUMING ARGUENDO THAT THE SURETYSHIP AGREEMENT WAS VALID AND EFFECTIVE, THE HONORABLE COURT OF APPEALS VIOLATED THE BASIC LEGAL PRECEPT THAT A SURETY IS NOT LIABLE UNLESS THE DEBTOR IS HIMSELF LIABLE. 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. RTMC's role in the transaction was that of end user of the raw materials and when it did not accept those materials as they did not meet the manufacturing requirements, RTMC made a valid and effective tender of the goods to the bank. Since the bank refused to accept the raw materials, RTMC stored them in its warehouse. When the warehouse and its contents were gutted by fire, petitioners' obligation to the bank was accordingly extinguished. Petitioners' stance, however, conveniently ignores the true nature of its transaction with the bank. We recall that RTMC filed with the bank an application for a credit line in the amount of P10 million, but only P8 million was approved. RTMC then made withdrawals from this credit line and issued several promissory notes in favor of the bank. In banking and commerce, a credit line is "that amount of money or merchandise which a banker, merchant, or supplier agrees to supply to a person on credit and generally agreed to in advance." 3 It is the fixed limit of credit granted by a bank, retailer, or credit card issuer to a customer, to the full extent of which the latter may avail himself of his dealings with the former but which he must not exceed and is usually intended to cover a series of transactions in which case, when the customer's line of credit is nearly exhausted, he is expected to reduce his indebtedness by payments before making any further drawings. 4 It is thus clear that the principal transaction between petitioner RTMC and the bank is a contract of loan. RTMC used the proceeds of this loan to purchase raw materials from a supplier abroad. In order to secure the payment of the loan, RTMC delivered the raw materials to the bank as collateral. Trust receipts were executed by the parties to evidence this security arrangement. Simply stated, the trust receipts were mere securities. In Samo vs. People, 5 we described a trust receipt as "a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased." 6 In Vintola vs. Insular Bank of Asia and America, 7 we elucidated further that "a trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a 'security interest' in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no obligation." 8 Section 3 (h) of the Trust Receipts Law (P.D. No. 115) defines a "security interest" as follows: "(h)Security Interest means a property interest in goods, documents, or instruments to secure performance of some obligation of the entrustee or of some third persons to the entruster and includes title, whether or not expressed to be absolute, whenever such title is in substance taken or retained for security only." EITcaD Petitioners' insistence that the ownership of the raw materials remained with the bank is untenable. In Sia vs. People, 9 Abad vs. Court of Appeals, 10 and PNB vs. Pineda, 11 we held that: "If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it wants, which it cannot do, just to give consistency with purpose of the trust receipt of giving a stronger security for the loan obtained by the importer. To consider the bank as the true owner from the inception of the transaction would be to disregard the loan feature thereof. . . ." 12

Thus, petitioners cannot be relieved of their obligation to pay their loan in favor of the bank. Anent the second issue, petitioner Yujuico contends that the suretyship agreement he signed does not bind him, the same being a mere formality. We reject petitioner Yujuico's contentions for two reasons. First, there is no record to support his allegation that the surety agreement is a "mere formality;" and Second, as correctly held by the Court of Appeals, the Suretyship Agreement signed by petitioner Yujuico binds him. The terms clearly show that he agreed to pay the bank jointly and severally with RTMC. The parol evidence rule under Section 9, Rule 130 of the Revised Rules of Court is in point, thus:

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