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PP v.

Nitafan

On January 9, 1992, three criminal informations for violation of Section 4 of Central


Bank Circular No. 960, as amended,i[1] in relation to Section 34 of Republic Act No.
265ii[2] were filed against private respondent Imelda R. Marcos before Branch 158 of the
Regional Trial Court (RTC) of Pasig (herein Branch 158-Pasig). Said Informations
docketed as Criminal Case Nos. 90384-92, 90385-92 and 90386-92 were amended prior
to arraignment.iii[3]

After arraignment, where private respondent pleaded not guilty, the People thru herein
petitioner, Panel of Prosecutors from the Department of Justice (DOJ) and the Solicitor
General filed separate motions for consolidation of the three (3) Informations pending
before Branch 158-Pasig with the 21 other cases pending before RTC Branch 26-Manila
(herein Branch 26-Manila).iv[4] The Solicitor General alleged in its motion that the
indictable acts under the three informations form part of and is related to the transaction
complained of in criminal cases 91-101732, 91-101734 and 91-101735 pending before
Branch 26-Manilav[5] and that these two groups of cases (the Pasig and Manila cases)
relate to a series of transactions devised by then President Ferdinand Marcos and private
respondent to hide their ill-gotten wealth

.vi[6] The RTC of Pasig granted the motion for consolidation provided there is no
objection from the presiding judge of Branch 26-Manila.vii[7] Before the Manila RTC,
the three (3) informations were re-raffled and re-assigned instead to Branch 52-Manila
presided by public respondent Judge Nitafan wherein the three informations (Criminal
Cases Nos. 90384-92, 90385-92 and 90386-92) were re-numbered as Criminal Case Nos.
92-107942; 92-107943 and 92-107944.

Then, without private respondent yet taking any action or filing any motion to quash the
informations, respondent judge issued an order dated July 20, 1992 requiring petitioners
to show cause why criminal case number 92-107942 should not be dismissed on the
ground that it violates private respondents right against ex post facto law.viii[8] In that
order, respondent judge said that a check with official publications reveals that CB
Circular 960 is dated 21 October 1983 (x x x) and that said regulatory issuance was
imperfectly published* in the January 30, 1984 issue of the Official Gazette.ix[9]
Respondent judge concluded that since the date of violation alleged in the information
was prior to the date and complete publication of the Circular charged to have been
violated, the information in this case appears peremptorily dismissible, for to apply the
Circular to acts performed prior to its date and publication would make it an ex post facto
law, which is a violation of the Constitution.x[10]

On the same day, respondent judge issued another order requiring the prosecution to
show cause why the two other criminal informations (92-107943 and 92-107944) should
not be dismissed on the ground that private respondents right to double jeopardy was
violated.xi[11] It is respondent judges posture that based on the Solicitor-Generals
allegations in its Motion for Consolidation filed in Branch 58-Pasig that the three cases
form part of a series of transactions which are subject of the cases pending before Branch
26-Manila, all these cases constitute one continuous crime. Respondent judge further
stated that to separately prosecute private respondent for a series of transaction would
endow it with the functional ability of a worm multiplication or amoeba
reproduction.xii[12] Thus, accused would be unduly vexed with multiple jeopardy. In the
two orders, respondent judge likewise said that the dismissal of the three seemingly
unmeritorious and duplicitous cases would help unclogged his docket in favor of more
serious suits.xiii[13] The prosecution complied with the twin show cause orders
accompanied by a motion to inhibit respondent judge.

On August 6, 1992, respondent judge issued an order denying the motion for
consolidation (embodied in the prosecutions compliance with the show cause orders) of
the three informations with those pending before Branch 26-Manila on the ground that
consolidation of cases under Rule 31 of civil procedure has no counterpart in criminal
procedure, and blamed the panel of prosecutors as apparently not conversant with the
procedure in the assignment of cases. As additional justification, respondent judge stated
that since he is more studious and discreet, if not more systematic and methodical, than
the prosecution in the handling of cases, it would be unfair to just pull out the case when
he had already studied it.xiv[14]

The next day, August 7, 1992, respondent judge issued an 8-page order dismissing
criminal case no. 92-107942 on the ground that the subject CB Circular is an ex post
facto law.xv[15] In a separate 17-page order dated August 10, 1992, respondent judge
also dismissed the two remaining criminal cases (92-107943 & 92-107944) ruling that the
prosecution of private respondent was part of a sustained political vendetta by some
people in the government aside from what he considered as a violation of private
respondents right against double jeopardy.xvi[16] From his disquisition regarding
continuing, continuous and continued offenses and his discussion of mala prohibita,
respondent judge further ratiocinated his dismissal order in that the pendency of the other
cases before Branch 26-Manila had placed private respondent in double jeopardy because
of the three cases before his sala.

The prosecution filed two separate motions for reconsideration which respondent judge
denied in a single order dated September 7, 1992 containing 19 pages wherein he made a
preliminary observation that:

(T)he very civil manner in which the motions were framed, which is consistent with the
high ideals and standards of pleadings envisioned in the rules, and for which the panel
should be commended. This only shows that the Members of the panel had not yielded to
the derisive, panicky and intimidating reaction manifested by their Department Head
when, after learning the promulgation of the orders dismissing some of Imelda
Romualdez-Marcos cases, Secretary Drilon went to the media and repeatedly aired
diatribes and even veiled threats against the trial judges concerned.

By the constitutional mandate that A member of the judiciary must be a person of proven
competence, integrity, probity, and independence (Sec 7[3], Art. VIII, judges are
precluded from being dragged into running debates with parties-litigants or their counsel
and representatives in media, yet by reason of the same provision judges are mandated to
decide cases in accordance with their own independent appreciation of the facts and
interpretation of the law. Any judge who yields to extraneous influences, such as
denigrating criticisms or threats, and allows his independence to be undermined thereby,
leading to violation of his oath of office, has no right to continue in his office any minute
longer.

The published reaction of the Hon. Secretary is to be deplored, but it is hoped that he had
merely lapsed into impudence instead of having intended to set a pattern of mocking and
denigrating the courts. He must have forgotten that as Secretary of Justice, his actuations
reflect the rule of law orientation of the administration of the President whom he
represents as the latters alter ego.xvii[17] (emphasis supplied).

The dispositive portion of the order denying the motions for reconsideration provides:

FOR ALL THE FOREGOING CONSIDERATIONS, the Court finds no valid reason to
reconsider the dismissals heretofore decreed, and the motions for reconsideration are
consequently denied for manifest lack of merit.xviii[18]

Obviously dissatisfied, petitioners elevated the case via petition for certiorari, where the
primary issue raised is whether a judge can motu proprio initiate the dismissal and
subsequently dismissed a criminal information or complaint without any motion to that
effect being filed by the accused based on the alleged violation of the latters right against
ex post facto law and double jeopardy.

Section 1, Rule 117 of the Rules on Criminal Procedure provides:

Time to move to quash. At any time before entering his plea, the accused may move to
quash the complaint or information. (emphasis supplied).

It is clear from the above rule that the accused may file a motion to quash an information
at any time before entering a plea or before arraignment. Thereafter, no motion to quash
can be entertained by the court except under the circumstances mentioned in Section 8 of
Rule 117 which adopts the omnibus motion rule. In the case at at bench, private
respondent pleaded to the charges without filing any motion to quash. As such, she is
deemed to have waived and abandoned her right to avail of any legal ground which she
may have properly and timely invoke to challenge the complaint or information pursuant
to Section 8 of Rule 117 which provides:

Failure to move to quash or to allege any ground therefore. The failure of the accused to
assert any ground of a motion to quash before he pleads to the complaint or information,
either because he did not file a motion to quash or failed to allege the same in his motion,
shall be deemed a waiver of the grounds of a motion to quash, except the grounds of no
offense charged, lack of jurisdiction over the offense charged, extinction of the offense or
penalty and jeopardy, as provided for in paragraphs (a), (b), (f) and (h) of section 3 of this
Rule. (emphasis supplied)

It is also clear from Section 1 that the right to file a motion to quash belongs only to the
accused. There is nothing in the rules which authorizes the court or judge to motu proprio
initiate a motion to quash if no such motion was filed by the accused. A motion
contemplates an initial action originating from the accused. It is the latter who is in the
best position to know on what ground/s he will based his objection to the information.
Otherwise, if the judge initiates the motion to quash, then he is not only pre-judging the
case of the prosecution but also takes side with the accused. This would violate the right
to a hearing before an independent and impartial tribunal. Such independence and
impartiality cannot be expected from a magistrate, such as herein respondent judge, who
in his show cause orders, orders dismissing the charges and order denying the motions for
reconsideration stated and even expounded in a lengthy disquisition with citation of
authorities, the grounds and justifications to support his action. Certainly, in compliance
with the orders, the prosecution has no choice but to present arguments contradicting that
of respondent judge. Obviously, however, it cannot be expected from respondent judge to
overturn the reasons he relied upon in his different orders without contradicting himself.
To allow a judge to initiate such motion even under the guise of a show cause order
would result in a situation where a magistrate who is supposed to be neutral, in effect,
acts as counsel for the accused and judge as well. A combination of these two
personalities in one person is violative of due process which is a fundamental right not
only of the accused but also of the prosecution.

That the initial act to quash an information lodged with the accused is further supported
by Sections 2, 3 and 8 of Rule 117 which states that:

Section 2. The motion to quash shall be in writing signed by the accused or his counsel.
It shall specify distinctly the factual and legal grounds therefor and the Court shall
consider no grounds other than those stated therein, except lack of jurisdiction over the
offense charged.

Section 3. Grounds. The accused may move to quash the complaint or information on
any of the following grounds:

a) That the facts charged do not constitute an offense;

b) That the court trying the case has no jurisdiction over the offense charged or the
person of the accused;

c) That the officer who filed the information had no authority to do so;

d) That it does not conform substantially to the prescribed form;

e) That more than one offense is charged except in those cases in which existing
laws prescribe a single punishment for various offenses;
f) That the criminal action or liability has been extinguished;

g) That it contains averments which, if true, would constitute a legal excuse or


justification; and

h) That the accused has been previously convicted or in jeopardy of being convicted,
or acquitted of the offense charged.

Section 8. The failure of the accused to assert any ground of a motion to quash before he
pleads (Emphasis supplied).

Section 2 requires that the motion must be signed by accused or his counsel; Section 3
states that the accused may file a motion, and; Section 8 refers to the consequence if the
accused do not file such motion. Neither the court nor the judge was mentioned. Section
2 further, ordains that the court is proscribed from considering any ground other than
those stated in the motion which should be specify(ied) distinctly therein. Thus, the filing
of a motion to quash is a right that belongs to the accused who may waived it by inaction
and not an authority for the court to assume.

It is therefore clear that the only grounds which the court may consider in resolving a
motion to quash an information or complaint are (1) those grounds stated in the motion
and (2) the ground of lack of jurisdiction over the offense charged, whether or not
mentioned in the motion. Other than that, grounds which have not been sharply pleaded
in the motion cannot be taken cognizance of by the court, even if at the time of filing
thereof, it may be properly invoked by the defendant. Such proscription on considerations
of other grounds than those specially pleaded in the motion to quash is premised on the
rationale that the right to these defenses are waivable on the part of the accused, and that
by claiming to wave said right, he is deemed to have desired these matters to be litigated
upon in a full-blown trial. Pursuant to the Rules, the sole exception is lack of jurisdiction
over the offense charged which goes into the competence of the court to hear and pass
judgment on the cause.

With these, the rule clearly implies the requirement of filing a motion by the accused
even if the ground asserted is premised on lack of jurisdiction over the offense charged.
Besides, lack of jurisdiction should be evident from the face of the information or
complaint to warrant a dismissal thereof. Happily, no jurisdictional challenge is involved
in this case.

Assuming arguendo that a judge has the power to motu proprio dismiss a criminal
charge, yet contrary to the findings of respondent judge, the grounds of ex post facto law
and double jeopardy herein invoked by him are not applicable.

On ex post facto law, suffice it to say that every law carries with it the presumption of
constitutionality until otherwise declared by this court.xix[19] To rule that the CB
Circular is an ex post facto law is to say that it is unconstitutional. However, neither
private respondent nor the Solicitor-General challenges it. This Court, much more the
lower courts, will not pass upon the constitutionality of a statute or rule nor declare it
void unless directly assailed in an appropriate action.

With respect to the ground of double jeopardy invoked by respondent judge, the same is
improper and has neither legal nor factual basis in this case. Double jeopardy connotes
the concurrence of three requisites, which are: (a) the first jeopardy must have attached
prior to the second, (b) the first jeopardy must have been validly terminated, and (c) the
second jeopardy must be for the same offense as that in the firstxx[20] or the second
offense includes or is necessarily included in the offense charged in the first information,
or is an attempt to commit the same or is a frustration thereof.xxi[21] In this case, it is
manifestly clear that no first jeopardy has yet attached nor any such jeopardy terminated.
Section 7, Rule 117 provides:

When an accused has been convicted or acquitted, or the case against him dismissed or
otherwise terminated without his express consent by a court of competent jurisdiction,
upon a valid complaint or information or other formal charge sufficient in form and
substance to sustain a conviction and after the accused had pleaded to the charge, the
conviction or acquittal of the accused or the dismissal of the case shall be a bar to another
prosecution for the offense charged, or for any attempt to commit the same or frustration
thereof, or for any offense which necessarily includes or is necessary included in the
offense charged in the former complaint or information.

xxx xxx x x x.xxii[22]

Under said Section, the first jeopardy attaches only (1) upon a valid indictment, (2)
before a competent court, (3) after arraignment, (4) when a valid plea has been entered,
and (5) when the defendant was convicted or acquitted, or the case was dismissed or
otherwise terminated without the express consent of the accused.xxiii[23]

Other than the Solicitor-Generals allegation of pending suits in Branch 26-Manila,


respondent judge has no other basis on whether private respondent had already been
arraigned, much less entered a plea in those cases pending before the said Branch. Even
assuming that there was already arraignment and plea with respect to those cases in
Branch 26-Manila which respondent judge used as basis to quash the three informations
pending in his sala, still the first jeopardy has not yet attached. Precisely, those Branch
26-Manila cases are still pending and there was as yet no judgment on the merits at the
time respondent judge quashed the three informations in his sala. Private respondent was
not convicted, acquitted nor the cases against her in Branch 26-Manila dismissed or
otherwise terminated which definitely shows the absence of the fifth requisite for the first
jeopardy to attached. Accordingly, it was wrong to say that the further prosecution of
private respondent under the three informations pending Branch 56-Manila would violate
the formers right against double jeopardy.

WHEREFORE, Premises considered, the petition is GRANTED and the two orders
dated January 20, 1990, as well as the orders dated August 7, 1992, August 10, 1992 and
September 7, 1992 all issued by respondent judge are hereby REVERSED AND SET
ASIDE. Let this case be REMANDED to the trial court for further proceedings.

SO ORDERED.
RAMON C. LEE and ANTONIO DM. LACDAO, petitioners,
vs.
THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP.,
PABLO GONZALES, JR. and THOMAS GONZALES, respondents.
Cayanga, Zuniga & Angel Law Offices for petitioners.
Timbol & Associates for private respondents.

GUTIERREZ, JR., J.:


What is the nature of the voting trust agreement executed between two parties in this
case? Who owns the stocks of the corporation under the terms of the voting trust
agreement? How long can a voting trust agreement remain valid and effective? Did a
director of the corporation cease to be such upon the creation of the voting trust
agreement?

These are the questions the answers to which are necessary in resolving the principal
issue in this petition for certiorari — whether or not there was proper service of
summons on Alfa Integrated Textile Mills (ALFA, for short) through the petitioners as
president and vice-president, allegedly, of the subject corporation after the execution of a
voting trust agreement between ALFA and the Development Bank of the Philippines
(DBP, for short).

From the records of the instant case, the following antecedent facts appear:
On November 15, 1985, a complaint for a sum of money was filed by the International
Corporate Bank, Inc. against the private respondents who, in turn, filed a third party
complaint against ALFA and the petitioners on March 17, 1986.
On September 17, 1987, the petitioners filed a motion to dismiss the third party complaint
which the Regional Trial Court of Makati, Branch 58 denied in an Order dated June 27,
1988.
On July 18, 1988, the petitioners filed their answer to the third party complaint.
Meanwhile, on July 12, 1988, the trial court issued an order requiring the issuance of an
alias summons upon ALFA through the DBP as a consequence of the petitioner's letter
informing the court that the summons for ALFA was erroneously served upon them
considering that the management of ALFA had been transferred to the DBP.
In a manifestation dated July 22, 1988, the DBP claimed that it was not authorized to
receive summons on behalf of ALFA since the DBP had not taken over the company
which has a separate and distinct corporate personality and existence.
On August 4, 1988, the trial court issued an order advising the private respondents to take
the appropriate steps to serve the summons to ALFA.
On August 16, 1988, the private respondents filed a Manifestation and Motion for the
Declaration of Proper Service of Summons which the trial court granted on August 17,
1988.
On September 12, 1988, the petitioners filed a motion for reconsideration submitting that
Rule 14, section 13 of the Revised Rules of Court is not applicable since they were no
longer officers of ALFA and that the private respondents should have availed of another
mode of service under Rule 14, Section 16 of the said Rules, i.e., through publication to
effect proper service upon ALFA.
In their Comment to the Motion for Reconsideration dated September 27, 1988, the
private respondents argued that the voting trust agreement dated March 11, 1981 did not
divest the petitioners of their positions as president and executive vice-president of ALFA
so that service of summons upon ALFA through the petitioners as corporate officers was
proper.
On January 2, 1989, the trial court upheld the validity of the service of summons on
ALFA through the petitioners, thus, denying the latter's motion for reconsideration and
requiring ALFA to filed its answer through the petitioners as its corporate officers.
On January 19, 1989, a second motion for reconsideration was filed by the petitioners
reiterating their stand that by virtue of the voting trust agreement they ceased to be
officers and directors of ALFA, hence, they could no longer receive summons or any
court processes for or on behalf of ALFA. In support of their second motion for
reconsideration, the petitioners attached thereto a copy of the voting trust agreement
between all the stockholders of ALFA (the petitioners included), on the one hand, and the
DBP, on the other hand, whereby the management and control of ALFA became vested
upon the DBP.
On April 25, 1989, the trial court reversed itself by setting aside its previous Order dated
January 2, 1989 and declared that service upon the petitioners who were no longer
corporate officers of ALFA cannot be considered as proper service of summons on
ALFA.
On May 15, 1989, the private respondents moved for a reconsideration of the above
Order which was affirmed by the court in its Order dated August 14, 1989 denying the
private respondent's motion for reconsideration.
On September 18, 1989, a petition for certiorari was belatedly submitted by the private
respondent before the public respondent which, nonetheless, resolved to give due course
thereto on September 21, 1989.
On October 17, 1989, the trial court, not having been notified of the pending petition for
certiorari with public respondent issued an Order declaring as final the Order dated April
25, 1989. The private respondents in the said Order were required to take positive steps in
prosecuting the third party complaint in order that the court would not be constrained to
dismiss the same for failure to prosecute. Subsequently, on October 25, 1989 the private
respondents filed a motion for reconsideration on which the trial court took no further
action.
On March 19, 1990, after the petitioners filed their answer to the private respondents'
petition for certiorari, the public respondent rendered its decision, the dispositive portion
of which reads:
WHEREFORE, in view of the foregoing, the orders of respondent judge dated April 25,
1989 and August 14, 1989 are hereby SET ASIDE and respondent corporation is ordered
to file its answer within the reglementary period. (CA Decision, p. 8; Rollo, p. 24)
On April 11, 1990, the petitioners moved for a reconsideration of the decision of the
public respondent which resolved to deny the same on May 10, 1990. Hence, the
petitioners filed this certiorari petition imputing grave abuse of discretion amounting to
lack of jurisdiction on the part of the public respondent in reversing the questioned
Orders dated April 25, 1989 and August 14, 1989 of the court a quo, thus, holding that
there was proper service of summons on ALFA through the petitioners.
In the meantime, the public respondent inadvertently made an entry of judgment on July
16, 1990 erroneously applying the rule that the period during which a motion for
reconsideration has been pending must be deducted from the 15-day period to appeal.
However, in its Resolution dated January 3, 1991, the public respondent set aside the
aforestated entry of judgment after further considering that the rule it relied on applies to
appeals from decisions of the Regional Trial Courts to the Court of Appeals, not to
appeals from its decision to us pursuant to our ruling in the case of Refractories
Corporation of the Philippines v. Intermediate Appellate Court, 176 SCRA 539 [1989].
(CA Rollo, pp. 249-250)
In their memorandum, the petitioners present the following arguments, to wit:
(1) that the execution of the voting trust agreement by a stockholders whereby all his
shares to the corporation have been transferred to the trustee deprives the stockholders of
his position as director of the corporation; to rule otherwise, as the respondent Court of
Appeals did, would be violative of section 23 of the Corporation Code ( Rollo, pp. 270-
3273); and
(2) that the petitioners were no longer acting or holding any of the positions provided
under Rule 14, Section 13 of the Rules of Court authorized to receive service of summons
for and in behalf of the private domestic corporation so that the service of summons on
ALFA effected through the petitioners is not valid and ineffective; to maintain the
respondent Court of Appeals' position that ALFA was properly served its summons
through the petitioners would be contrary to the general principle that a corporation can
only be bound by such acts which are within the scope of its officers' or agents' authority
(Rollo, pp. 273-275)
In resolving the issue of the propriety of the service of summons in the instant case, we
dwell first on the nature of a voting trust agreement and the consequent effects upon its
creation in the light of the provisions of the Corporation Code.
A voting trust is defined in Ballentine's Law Dictionary as follows:
(a) trust created by an agreement between a group of the stockholders of a corporation
and the trustee or by a group of identical agreements between individual stockholders and
a common trustee, whereby it is provided that for a term of years, or for a period
contingent upon a certain event, or until the agreement is terminated, control over the
stock owned by such stockholders, either for certain purposes or for all purposes, is to be
lodged in the trustee, either with or without a reservation to the owners, or persons
designated by them, of the power to direct how such control shall be used. (98 ALR 2d.
379 sec. 1 [d]; 19 Am J 2d Corp. sec. 685).
Under Section 59 of the new Corporation Code which expressly recognizes voting trust
agreements, a more definitive meaning may be gathered. The said provision partly reads:
Sec. 59. Voting Trusts — One or more stockholders of a stock corporation may create a
voting trust for the purpose of conferring upon a trustee or trustees the right to vote and
other rights pertaining to the share for a period rights pertaining to the shares for a period
not exceeding five (5) years at any one time: Provided, that in the case of a voting trust
specifically required as a condition in a loan agreement, said voting trust may be for a
period exceeding (5) years but shall automatically expire upon full payment of the loan.
A voting trust agreement must be in writing and notarized, and shall specify the terms
and conditions thereof. A certified copy of such agreement shall be filed with the
corporation and with the Securities and Exchange Commission; otherwise, said
agreement is ineffective and unenforceable. The certificate or certificates of stock
covered by the voting trust agreement shall be cancelled and new ones shall be issued in
the name of the trustee or trustees stating that they are issued pursuant to said agreement.
In the books of the corporation, it shall be noted that the transfer in the name of the
trustee or trustees is made pursuant to said voting trust agreement.
By its very nature, a voting trust agreement results in the separation of the voting rights
of a stockholder from his other rights such as the right to receive dividends, the right to
inspect the books of the corporation, the right to sell certain interests in the assets of the
corporation and other rights to which a stockholder may be entitled until the liquidation
of the corporation. However, in order to distinguish a voting trust agreement from proxies
and other voting pools and agreements, it must pass three criteria or tests, namely: (1)
that the voting rights of the stock are separated from the other attributes of ownership; (2)
that the voting rights granted are intended to be irrevocable for a definite period of time;
and (3) that the principal purpose of the grant of voting rights is to acquire voting control
of the corporation. (5 Fletcher, Cyclopedia of the Law on Private Corporations, section
2075 [1976] p. 331 citing Tankersly v. Albright, 374 F. Supp. 538)
Under section 59 of the Corporation Code, supra, a voting trust agreement may confer
upon a trustee not only the stockholder's voting rights but also other rights pertaining to
his shares as long as the voting trust agreement is not entered "for the purpose of
circumventing the law against monopolies and illegal combinations in restraint of trade or
used for purposes of fraud." (section 59, 5th paragraph of the Corporation Code) Thus,
the traditional concept of a voting trust agreement primarily intended to single out a
stockholder's right to vote from his other rights as such and made irrevocable for a
limited duration may in practice become a legal device whereby a transfer of the
stockholder's shares is effected subject to the specific provision of the voting trust
agreement.
The execution of a voting trust agreement, therefore, may create a dichotomy between the
equitable or beneficial ownership of the corporate shares of a stockholders, on the one
hand, and the legal title thereto on the other hand.
The law simply provides that a voting trust agreement is an agreement in writing whereby
one or more stockholders of a corporation consent to transfer his or their shares to a
trustee in order to vest in the latter voting or other rights pertaining to said shares for a
period not exceeding five years upon the fulfillment of statutory conditions and such
other terms and conditions specified in the agreement. The five year-period may be
extended in cases where the voting trust is executed pursuant to a loan agreement
whereby the period is made contingent upon full payment of the loan.
In the instant case, the point of controversy arises from the effects of the creation of the
voting trust agreement. The petitioners maintain that with the execution of the voting
trust agreement between them and the other stockholders of ALFA, as one party, and the
DBP, as the other party, the former assigned and transferred all their shares in ALFA to
DBP, as trustee. They argue that by virtue to of the voting trust agreement the petitioners
can no longer be considered directors of ALFA. In support of their contention, the
petitioners invoke section 23 of the Corporation Code which provides, in part, that:
Every director must own at least one (1) share of the capital stock of the corporation of
which he is a director which share shall stand in his name on the books of the
corporation. Any director who ceases to be the owner of at least one (1) share of the
capital stock of the corporation of which he is a director shall thereby cease to be director
. . . (Rollo, p. 270)
The private respondents, on the contrary, insist that the voting trust agreement between
ALFA and the DBP had all the more safeguarded the petitioners' continuance as officers
and directors of ALFA inasmuch as the general object of voting trust is to insure
permanency of the tenure of the directors of a corporation. They cited the commentaries
by Prof. Aguedo Agbayani on the right and status of the transferring stockholders, to wit:
The "transferring stockholder", also called the "depositing stockholder", is equitable
owner for the stocks represented by the voting trust certificates and the stock reversible
on termination of the trust by surrender. It is said that the voting trust agreement does not
destroy the status of the transferring stockholders as such, and thus render them ineligible
as directors. But a more accurate statement seems to be that for some purposes the
depositing stockholder holding voting trust certificates in lieu of his stock and being the
beneficial owner thereof, remains and is treated as a stockholder. It seems to be deducible
from the case that he may sue as a stockholder if the suit is in equity or is of an equitable
nature, such as, a technical stockholders' suit in right of the corporation. [Commercial
Laws of the Philippines by Agbayani, Vol. 3 pp. 492-493, citing 5 Fletcher 326, 327]
(Rollo, p. 291)
We find the petitioners' position meritorious.
Both under the old and the new Corporation Codes there is no dispute as to the most
immediate effect of a voting trust agreement on the status of a stockholder who is a party
to its execution — from legal titleholder or owner of the shares subject of the voting trust
agreement, he becomes the equitable or beneficial owner. (Salonga, Philippine Law on
Private Corporations, 1958 ed., p. 268; Pineda and Carlos, The Law on Private
Corporations and Corporate Practice, 1969 ed., p. 175; Campos and Lopez-Campos, The
Corporation Code; Comments, Notes & Selected Cases, 1981, ed., p. 386; Agbayani,
Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. 3,
1988 ed., p. 536). The penultimate question, therefore, is whether the change in his status
deprives the stockholder of the right to qualify as a director under section 23 of the
present Corporation Code which deletes the phrase "in his own right." Section 30 of the
old Code states that:
Every director must own in his own right at least one share of the capital stock of the
stock corporation of which he is a director, which stock shall stand in his name on the
books of the corporation. A director who ceases to be the owner of at least one share of
the capital stock of a stock corporation of which is a director shall thereby cease to be a
director . . . (Emphasis supplied)
Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be
adversely affected by the simple act of such director being a party to a voting trust
agreement inasmuch as he remains owner (although beneficial or equitable only) of the
shares subject of the voting trust agreement pursuant to which a transfer of the
stockholder's shares in favor of the trustee is required (section 36 of the old Corporation
Code). No disqualification arises by virtue of the phrase "in his own right" provided
under the old Corporation Code.
With the omission of the phrase "in his own right" the election of trustees and other
persons who in fact are not beneficial owners of the shares registered in their names on
the books of the corporation becomes formally legalized (see Campos and Lopez-
Campos, supra, p. 296) Hence, this is a clear indication that in order to be eligible as a
director, what is material is the legal title to, not beneficial ownership of, the stock as
appearing on the books of the corporation (2 Fletcher, Cyclopedia of the Law of Private
Corporations, section 300, p. 92 [1969] citing People v. Lihme, 269 Ill. 351, 109 N.E.
1051).
The facts of this case show that the petitioners, by virtue of the voting trust agreement
executed in 1981 disposed of all their shares through assignment and delivery in favor of
the DBP, as trustee. Consequently, the petitioners ceased to own at least one share
standing in their names on the books of ALFA as required under Section 23 of the new
Corporation Code. They also ceased to have anything to do with the management of the
enterprise. The petitioners ceased to be directors. Hence, the transfer of the petitioners'
shares to the DBP created vacancies in their respective positions as directors of ALFA.
The transfer of shares from the stockholder of ALFA to the DBP is the essence of the
subject voting trust agreement as evident from the following stipulations:
1. The TRUSTORS hereby assign and deliver to the TRUSTEE the certificate of the
shares of the stocks owned by them respectively and shall do all things necessary for the
transfer of their respective shares to the TRUSTEE on the books of ALFA.
2. The TRUSTEE shall issue to each of the TRUSTORS a trust certificate for the number
of shares transferred, which shall be transferrable in the same manner and with the same
effect as certificates of stock subject to the provisions of this agreement;
3. The TRUSTEE shall vote upon the shares of stock at all meetings of ALFA, annual or
special, upon any resolution, matter or business that may be submitted to any such
meeting, and shall possess in that respect the same powers as owners of the equitable as
well as the legal title to the stock;
4. The TRUSTEE may cause to be transferred to any person one share of stock for the
purpose of qualifying such person as director of ALFA, and cause a certificate of stock
evidencing the share so transferred to be issued in the name of such person;
xxx xxx xxx
9. Any stockholder not entering into this agreement may transfer his shares to the same
trustees without the need of revising this agreement, and this agreement shall have the
same force and effect upon that said stockholder. (CA Rollo, pp. 137-138; Emphasis
supplied)
Considering that the voting trust agreement between ALFA and the DBP transferred legal
ownership of the stock covered by the agreement to the DBP as trustee, the latter became
the stockholder of record with respect to the said shares of stocks. In the absence of a
showing that the DBP had caused to be transferred in their names one share of stock for
the purpose of qualifying as directors of ALFA, the petitioners can no longer be deemed
to have retained their status as officers of ALFA which was the case before the execution
of the subject voting trust agreement. There appears to be no dispute from the records that
DBP has taken over full control and management of the firm.
Moreover, in the Certification dated January 24, 1989 issued by the DBP through one
Elsa A. Guevarra, Vice-President of its Special Accounts Department II, Remedial
Management Group, the petitioners were no longer included in the list of officers of
ALFA "as of April 1982." (CA Rollo, pp. 140-142)
Inasmuch as the private respondents in this case failed to substantiate their claim that the
subject voting trust agreement did not deprive the petitioners of their position as directors
of ALFA, the public respondent committed a reversible error when it ruled that:
. . . while the individual respondents (petitioners Lee and Lacdao) may have ceased to be
president and vice-president, respectively, of the corporation at the time of service of
summons on them on August 21, 1987, they were at least up to that time, still directors . .
.
The aforequoted statement is quite inaccurate in the light of the express terms of
Stipulation No. 4 of the subject voting trust agreement. Both parties, ALFA and the DBP,
were aware at the time of the execution of the agreement that by virtue of the transfer of
shares of ALFA to the DBP, all the directors of ALFA were stripped of their positions as
such.
There can be no reliance on the inference that the five-year period of the voting trust
agreement in question had lapsed in 1986 so that the legal title to the stocks covered by
the said voting trust agreement ipso facto reverted to the petitioners as beneficial owners
pursuant to the 6th paragraph of section 59 of the new Corporation Code which reads:
Unless expressly renewed, all rights granted in a voting trust agreement shall
automatically expire at the end of the agreed period, and the voting trust certificate as
well as the certificates of stock in the name of the trustee or trustees shall thereby be
deemed cancelled and new certificates of stock shall be reissued in the name of the
transferors.
On the contrary, it is manifestly clear from the terms of the voting trust agreement
between ALFA and the DBP that the duration of the agreement is contingent upon the
fulfillment of certain obligations of ALFA with the DBP. This is shown by the following
portions of the agreement.
WHEREAS, the TRUSTEE is one of the creditors of ALFA, and its credit is secured by a
first mortgage on the manufacturing plant of said company;
WHEREAS, ALFA is also indebted to other creditors for various financial
accomodations and because of the burden of these obligations is encountering very
serious difficulties in continuing with its operations.
WHEREAS, in consideration of additional accommodations from the TRUSTEE, ALFA
had offered and the TRUSTEE has accepted participation in the management and control
of the company and to assure the aforesaid participation by the TRUSTEE, the
TRUSTORS have agreed to execute a voting trust covering their shareholding in ALFA
in favor of the TRUSTEE;
AND WHEREAS, DBP is willing to accept the trust for the purpose aforementioned.
NOW, THEREFORE, it is hereby agreed as follows:
xxx xxx xxx
6. This Agreement shall last for a period of Five (5) years, and is renewable for as long as
the obligations of ALFA with DBP, or any portion thereof, remains outstanding; (CA
Rollo, pp. 137-138)
Had the five-year period of the voting trust agreement expired in 1986, the DBP would
not have transferred all its rights, titles and interests in ALFA "effective June 30, 1986"
to the national government through the Asset Privatization Trust (APT) as attested to in a
Certification dated January 24, 1989 of the Vice President of the DBP's Special Accounts
Department II. In the same certification, it is stated that the DBP, from 1987 until 1989,
had handled APT's account which included ALFA's assets pursuant to a management
agreement by and between the DBP and APT (CA Rollo, p. 142) Hence, there is evidence
on record that at the time of the service of summons on ALFA through the petitioners on
August 21, 1987, the voting trust agreement in question was not yet terminated so that the
legal title to the stocks of ALFA, then, still belonged to the DBP.
In view of the foregoing, the ultimate issue of whether or not there was proper service of
summons on ALFA through the petitioners is readily answered in the negative.
Under section 13, Rule 14 of the Revised Rules of Court, it is provided that:
Sec. 13. Service upon private domestic corporation or partnership. — If the defendant is
a corporation organized under the laws of the Philippines or a partnership duly registered,
service may be made on the president, manager, secretary, cashier, agent or any of its
directors.
It is a basic principle in Corporation Law that a corporation has a personality separate and
distinct from the officers or members who compose it. (See Sulo ng Bayan Inc. v.
Araneta, Inc., 72 SCRA 347 [1976]; Osias Academy v. Department of Labor and
Employment, et al., G.R. Nos. 83257-58, December 21, 1990). Thus, the above rule on
service of processes of a corporation enumerates the representatives of a corporation who
can validly receive court processes on its behalf. Not every stockholder or officer can
bind the corporation considering the existence of a corporate entity separate from those
who compose it.
The rationale of the aforecited rule is that service must be made on a representative so
integrated with the corporation sued as to make it a priori supposable that he will realize
his responsibilities and know what he should do with any legal papers served on him.
(Far Corporation v. Francisco, 146 SCRA 197 [1986] citing Villa Rey Transit, Inc. v. Far
East Motor Corp. 81 SCRA 303 [1978]).
The petitioners in this case do not fall under any of the enumerated officers. The service
of summons upon ALFA, through the petitioners, therefore, is not valid. To rule
otherwise, as correctly argued by the petitioners, will contravene the general principle
that a corporation can only be bound by such acts which are within the scope of the
officer's or agent's authority. (see Vicente v. Geraldez, 52 SCRA 210 [1973]).
WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed
decision dated March 19, 1990 and the Court of Appeals' resolution of May 10, 1990 are
SET ASIDE and the Orders dated April 25, 1989 and October 17, 1989 issued by the
Regional Trial Court of Makati, Branch 58 are REINSTATED.
SO ORDERED.
MELVIN COLINARES and LORDINO VELOSO, petitioners, vs. HONORABLE
COURT OF APPEALS, and THE PEOPLE OF THE PHILIPPINES, respondents.
DECISION
DAVIDE, JR., C.J.:
In 1979 Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for
a consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate
the latters convent at Camaman-an, Cagayan de Oro City.
On 30 October 1979, Petitioners obtained 5,376 SF Solatone acoustical board 2x4x, 300
SF tanguile wood tiles 12x12, 260 SF Marcelo economy tiles and 2 gallons UMYLIN
cement adhesive from CM Builders Centre for the construction project.xxiv[1] The
following day, 31 October 1979, Petitioners applied for a commercial letter of
creditxxv[2] with the Philippine Banking Corporation, Cagayan de Oro City branch
(hereafter PBC) in favor of CM Builders Centre. PBC approved the letter of creditxxvi[3]
for P22,389.80 to cover the full invoice value of the goods. Petitioners signed a pro-
forma trust receiptxxvii[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.xxviii[5]
On 7 May 1980, PBC wrotexxix[6] to Petitioners demanding that the amount be paid
within seven days from notice. Instead of complying with PBCs demand, Veloso
confessed that they lost P19,195.83 in the Carmelite Monastery Project and requested for
a grace period of until 15 June 1980 to settle the account.xxx[7]
PBC sent a new demand letterxxxi[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
attorneys fees of 25%.xxxii[9]
On 2 December 1980, Petitioners proposedxxxiii[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,xxxiv[11] and thereafter
P500 on 11 February 1981,xxxv[12] 16 March 1981,xxxvi[13] and 20 April
1981.xxxvii[14] Concurrently with the separate demand for attorneys fees by PBCs legal
counsel, PBC continued to demand payment of the balance.xxxviii[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.xxxix[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, PBCs former manager. He and petitioner Colinares
signed the documents without reading the fine print, only learning of the trust receipt
implication much later. When he brought this to the attention of PBC, Mr. Tuiza assured
him that the trust receipt was a mere formality.xl[17]
On 7 July 1986, the trial court promulgated its decisionxli[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 attorneys fees, and costs.
The trial court considered the transaction between PBC and Petitioners as a trust receipt
transaction under Section 4, P.D. No. 115. It considered Petitioners use of the goods in
their Carmelite monastery project an act of disposing as contemplated under Section 13,
P.D. No. 115, and treated the charge invoicexlii[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 decisionxliii[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 Velosos testimony,
discredited Petitioners claim that the documents they signed were in blank, and
disbelieved that they were coerced into signing them.
On 25 March 1989, Petitioners filed a Motion for New Trial/Reconsiderationxliv[21]
alleging that the Disclosure Statement on Loan/Credit Transactionxlv[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 resolutionxlvi[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:
I. WHETHER OR NOT THE DENIAL OF THE MOTION FOR NEW TRIAL ON THE
GROUND OF NEWLY DISCOVERED EVIDENCE, NAMELY, DISCLOSURE ON
LOAN/CREDIT TRANSACTION, WHICH IF INTRODUCED AND ADMITTED,
WOULD CHANGE THE JUDGMENT, DOES NOT CONSTITUTE A DENIAL OF
DUE PROCESS.
2. ASSUMING THERE WAS A VALID TRUST RECEIPT, WHETHER OR NOT THE
ACCUSED WERE PROPERLY CHARGED, TRIED AND CONVICTED FOR
VIOLATION OF SEC. 13, PD NO. 115 IN RELATION TO ARTICLE 315
PARAGRAPH (I) (B) NOTWITHSTANDING THE NOVATION OF THE SO-
CALLED TRUST RECEIPT CONVERTING THE TRUSTOR-TRUSTEE
RELATIONSHIP TO CREDITOR-DEBTOR SITUATION.
In its Comment of 22 January 1990, the Office of the Solicitor General urged us to deny
the petition for lack of merit.
On 28 February 1990 Petitioners filed a Motion to Dismiss the case on the ground that
they had already fully paid PBC on 2 February 1990 the amount of P70,000 for the
balance of the loan, including interest and other charges, as evidenced by the different
receipts issued by PBC,xlvii[24] and that the PBC executed an Affidavit of
desistance.xlviii[25]
We required the Solicitor General to comment on the Motion to Dismiss.
In its Comment of 30 July 1990, the Solicitor General opined that payment of the loan
was akin to a voluntary surrender or plea of guilty which merely serves to mitigate
Petitioners culpability, but does not in any way extinguish their criminal liability.
In the Resolution of 13 August 1990, we gave due course to the Petition and required the
parties to file their respective memoranda.
The parties subsequently filed their respective memoranda.
It was only on 18 May 1999 when this case was assigned to the ponente. Thereafter, we
required the parties to move in the premises and for Petitioners to manifest if they are still
interested in the further prosecution of this case and inform us of their present
whereabouts and whether their bail bonds are still valid.
Petitioners submitted their Compliance.
The core issues raised in the petition are the denial by the Court of Appeals of Petitioners
Motion for New Trial and the true nature of the contract between Petitioners and the
PBC. As to the latter, Petitioners assert that it was an ordinary loan, not a trust receipt
agreement under the Trust Receipts Law.
The grant or denial of a motion for new trial rests upon the discretion of the judge. New
trial may be granted if: (1) errors of law or irregularities have been committed during the
trial prejudicial to the substantial rights of the accused; or (2) new and material evidence
has been discovered which the accused could not with reasonable diligence have
discovered and produced at the trial, and which, if introduced and admitted, would
probably change the judgment.xlix[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.l[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.li[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.lii[29] Assuming
Petitioners copy was then unavailable, they could have compelled its production in
court,liii[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.liv[31] Clearly, the alleged newly discovered evidence is mere forgotten
evidence that jurisprudence excludes as a ground for new trial.lv[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 latters execution and delivery to the
entruster of a signed document called a trust receipt wherein the entrustee binds himself
to hold the designated goods, documents or instruments with the obligation to turn over
to the entruster the proceeds thereof to the extent of the amount owing to the entruster or
as appears in the trust receipt or the goods, documents or instruments themselves if they
are unsold or not otherwise disposed of, in accordance with the terms and conditions
specified in the trust receipt.
There are two possible situations in a trust receipt transaction. The first is covered by the
provision which refers to money received under the obligation involving the duty to
deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the
provision which refers to merchandise received under the obligation to return it
(devolvera) to the owner.lvi[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,lvii[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.lviii[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.lix[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.lx[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.lxi[38]
Trust receipt transactions are intended to aid in financing importers and retail dealers who
do not have sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through utilization, as
collateral, of the merchandise imported or purchased.lxii[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.lxiii[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.lxiv[41]
After such perusal Grego Mutia, PBCs credit investigator, admitted thus:
ATTY. CABANLET: (continuing)
Q Do you know if the goods subject matter of this letter of credit and trust receipt
agreement were received by the accused?
A Yes, sir
Q Do you have evidence to show that these goods subject matter of this letter of
credit and trust receipt were delivered to the accused?
A Yes, sir.
Q I am showing to you this charge invoice, are you referring to this document?
A Yes, sir.
xxx
Q What is the date of the charge invoice?
A October 31, 1979.
COURT:
Make it of record as appearing in Exhibit D, the zero in 30 has been superimposed
with numeral 1.lxv[42]
During the cross and re-direct examinations he also impliedly admitted that the
transaction was indeed a loan. Thus:
Q In short the amount stated in your Exhibit C, the trust receipt was a loan to the
accused you admit that?
A Because in the bank the loan is considered part of the loan.
xxx
RE-DIRECT BY ATTY. CABANLET:
ATTY. CABANLET (to the witness)
Q What do you understand by loan when you were asked?
A Loan is a promise of a borrower from the value received. The borrower will pay
the bank on a certain specified date with interestlxvi[43]
Such statement is akin to an admission against interest binding upon PBC.
Petitioner Velosos claim that they were made to believe that the transaction was a loan
was also not denied by PBC. He declared:
Q Testimony was given here that that was covered by trust receipt. In short it was a
special kind of loan. What can you say as to that?
A I dont think that would be a trust receipt because we were made to understand by
the manager who encouraged us to avail of their facilities that they will be granting us a
loanlxvii[44]
PBC could have presented its former bank manager, Cayo Garcia Tuiza, who contracted
with Petitioners, to refute Velosos testimony, yet it only presented credit investigator
Grego Mutia. Nowhere from Mutias testimony can it be gleaned that PBC represented to
Petitioners that the transaction they were entering into was not a pure loan but had trust
receipt implications.
The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes
the dishonesty and abuse of confidence in the handling of money or goods to the
prejudice of another regardless of whether the latter is the owner.lxviii[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.lxix[46]
The practice of banks of making borrowers sign trust receipts to facilitate collection of
loans and place them under the threats of criminal prosecution should they be unable to
pay it may be unjust and inequitable, if not reprehensible. Such agreements are contracts
of adhesion which borrowers have no option but to sign lest their loan be disapproved.
The resort to this scheme leaves poor and hapless borrowers at the mercy of banks, and is
prone to misinterpretation, as had happened in this case. Eventually, PBC showed its true
colors and admitted that it was only after collection of the money, as manifested by its
Affidavit of Desistance.
WHEREFORE, the challenged Decision of 6 March 1989 and the Resolution of 16
October 1989 of the Court of Appeals in CA-GR. No. 05408 are REVERSED and SET
ASIDE. Petitioners are hereby ACQUITTED of the crime charged, i.e., for violation of
P.D. No. 115 in relation to Article 315 of the Revised Penal Code.
No costs.
SO ORDERED.
Ng v. PP

The Case

This is a Petition for Review on Certiorari under Rule 45 seeking to


reverse and set aside the August 29, 2003 Decisionlxix[1] and July 25, 2006
Resolution of the Court of Appeals (CA) in CA-G.R. CR No. 25525, which
affirmed the Decisionlxix[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.

The Facts

Sometime in the early part of 1997, petitioner Anthony Ng, then


engaged in the business of building and fabricating telecommunication
towers under the trade name Capitol Blacksmith and Builders, applied for a
credit line of PhP 3,000,000 with Asiatrust Development Bank, Inc.
(Asiatrust). In support of Asiatrusts 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.lxix[3]

On May 30, 1997, Asiatrust approved petitioners 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, lxix [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.lxix[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 petitioners business through Villarva S. Linga,
Asiatrusts 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 petitioners account to its Account
Management Division for the possible restructuring of his loan. The parties
thereafter held a series of conferences to work out the problem and to
determine a way for petitioner to pay his debts. However, efforts towards a
settlement failed to be reached.

On March 16, 1999, Remedial Account Officer Ma. Girlie C.


Bernardez filed a Complaint-Affidavit before the Office of the City
Prosecutor of Quezon City. Consequently, on September 12, 1999, an
Information for Estafa, as defined and penalized under Art. 315, par. 1(b) of
the RPC in relation to Sec. 3, PD 115 or the Trust Receipts Law, was filed
with the RTC. The said Information reads:

That on or about the 30th day of May 1997, in Quezon City, Philippines, the
above-named petitioner, did then and there willfully, unlawfully, and feloniously defraud
Ma. Girlie C. Bernardez by entering into a Trust Receipt Agreement with said
complainant whereby said petitioner as entrustee received in trust from the said
complainant various chemicals in the total sum of P4.5 million with the obligation to hold
the said chemicals in trust as property of the entruster with the right to sell the same for
cash and to remit the proceeds thereof to the entruster, or to return the said chemicals if
unsold; but said petitioner once in possession of the same, contrary to his aforesaid
obligation under the trust receipt agreement with intent to defraud did then and there
misappropriated, misapplied and converted the said amount to his own personal use and
benefit and despite repeated demands made upon him, said petitioner refused and failed
and still refuses and fails to make good of his obligation, to the damage and prejudice of
the said Ma. Girlie C. Bernardez in the amount of P2,971,650.00, Philippine Currency.

CONTRARY TO LAW.

Upon arraignment, petitioner pleaded not guilty to the charges.


Thereafter, a full-blown trial ensued.

During the pendency of the abovementioned case, conferences


between petitioner and Asiatrusts Remedial Account Officer, Daniel Yap,
were held. Afterward, a Compromise Agreement was drafted by Asiatrust.
One of the requirements of the Compromise Agreement was for petitioner to
issue six (6) postdated checks. Petitioner, in good faith, tried to comply by
issuing two or three checks, which were deposited and made good. The
remaining checks, however, were not deposited as the Compromise
Agreement did not push through.

For his defense, petitioner argued that: (1) the loan was granted as his
working capital and that the Trust Receipt Agreements he signed with
Asiatrust were merely preconditions for the grant and approval of his loan;
(2) the Trust Receipt Agreement corresponding to Letter of Credit No. 1963
and the Trust Receipt Agreement corresponding to Letter of Credit No. 1964
were both contracts of adhesion, since the stipulations found in the
documents were prepared by Asiatrust in fine print; (3) unfortunately for
petitioner, his contract worth PhP 18,000,000 with Islacom was not yet paid
since there was a squabble as to the real ownership of the latters company,
but Asiatrust was aware of petitioners 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, lxix [6] thus debunking Asiatrusts 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 Checkslxix[7] he issued in favor of Asiatrust; and (6) he had already
paid PhP 1.8 million out of the PhP 2.971 million he owed as per Statement
of Account dated January 26, 2000.

Ruling of the Trial Court

After trial on the merits, the RTC, on May 29, 2001, rendered a
Decision, finding petitioner guilty of the crime of Estafa. The fallo of the
Decision reads as follows:
WHEREFORE, judgment is hereby rendered finding the petitioner, Anthony L.
Ng GUILTY beyond reasonable doubt for the crime of Estafa defined in and penalized by
Article 315, paragraph 1(b) of the Revised Penal Code in relation to Section 3 of
Presidential Decree 115, otherwise known as the Trust Receipts Law, and is hereby
sentenced to suffer the indeterminate penalty of from six (6) years, eight (8) months, and
twenty one (21) days of prision mayor, minimum, as the minimum penalty, to twenty
(20) years of reclusion temporal maximum, as the maximum penalty.

The petitioner is further ordered to return to the Asiatrust Development Bank


Inc. the amount of Two Million, Nine Hundred Seventy One and Six Hundred Fifty Pesos
(P2,971,650.00) with legal rate of interest computed from the filing of the information on
September 21,1999 until the amount is fully paid.

IT IS SO ORDERED.

In rendering its Decision, the trial court held that petitioner could not
simply argue that the contracts he had entered into with Asiatrust were void
as they were contracts of adhesion. It reasoned that petitioner is presumed to
have read and understood and is, therefore, bound by the provisions of the
Letters of Credit and Trust Receipts. It said that it was clear that Asiatrust
had furnished petitioner with a Statement of Account enumerating therein
the precise figures of the outstanding balance, which he failed to pay along
with the computation of other fees and charges; thus, Asiatrust did not
violate Republic Act No. 3765 (Truth in Lending Act). Finally, the trial
court declared that petitioner, being the entrustee stated in the Trust Receipts
issued by Asiatrust, is thus obliged to hold the goods in trust for the entruster
and shall dispose of them strictly in accordance with the terms and
conditions of the trust receipts; otherwise, he is obliged to return the goods
in the event of non-sale or upon demand of the entruster, failing thus, he
evidently violated the Trust Receipts Law.

Ruling of the Appellate Court

Petitioner then elevated the case to the CA by filing a Notice of


Appeal on August 6, 2001. In his Appellants 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 prosecutions 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 co-witnesses are all employees of
Asiatrust and that she is suing in behalf of the bank. Since petitioner
transacted with the same employees for the issuance of the subject Trust
Receipts, he cannot feign ignorance that Asiatrust is not the offended party
in the instant case. The CA further stated that the change in the name of the
complainant will not prejudice and alter the fact that petitioner was being
charged with the crime of Estafa in relation to the Trust Receipts Law, since
the information clearly set forth the essential elements of the crime charged,
and the constitutional right of petitioner to be informed of the nature and
cause of his accusations is not violated.lxix[8]

As to the alleged error in the appreciation of facts by the trial court,


the CA stated that it was undisputed that petitioner entered into a trust
receipt agreement with Asiatrust and he failed to pay the bank his obligation
when it became due. According to the CA, the fact that petitioner acted
without malice or fraud in entering into the transactions has no bearing,
since the offense is punished as malum prohibitum regardless of the
existence of intent or malice; the mere failure to deliver the proceeds of the
sale or the goods if not sold constitutes the criminal offense.

With regard to the failure of the RTC to consider the fact that
petitioners 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.lxix[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 2 nd 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 Courts Ruling

We find the petition to be meritorious.


Essentially, the issues raised by petitioner can be summed up into
onewhether 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.lxix[10] Especially in criminal cases where the
accused stands to lose his liberty by virtue of his conviction, the Court must
be satisfied that the factual findings and conclusions of the lower courts
leading to his conviction must satisfy the standard of proof beyond
reasonable doubt.

In the case at bar, petitioner was charged with Estafa under Art. 315,
par. 1(b) of the RPC in relation to PD 115. The RPC defines Estafa as:

ART. 315. Swindling (estafa).Any person who shall defraud another by any of
the means mentioned hereinbelow x x x

1. With unfaithfulness or abuse of confidence, namely:

a. xxx
b. By misappropriating or converting, to the prejudice of another, money,
goods, or any other personal property received by the offender in trust or on commission,
or for administration, or under any other obligation involving the duty to make delivery
of or to return the same, even though such obligation be totally or partially guaranteed by
a bond; or by denying having received such money, goods, or other property x x
x.lxix[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.lxix[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 latters execution and delivery to the entruster of a
signed document called a trust receipt wherein the entrustee binds himself to hold the
designated goods, documents or instruments in trust for the entruster and to sell or
otherwise dispose of the goods, documents or instruments with the obligation to turn over
to the entruster the proceeds thereof to the extent of the amount owing to the entruster or
as appears in the trust receipt or the goods, documents or instruments themselves if they
are unsold or not otherwise disposed of, in accordance with the terms and conditions
specified in the trust receipt, or for other purposes substantially equivalent to any of the
following:

1. In the case of goods or documents: (a) to sell the goods or procure


their sale; or (b) to manufacture or process the goods with the purpose of ultimate sale:
Provided, That, in the case of goods delivered under trust receipt for the purpose of
manufacturing or processing before its ultimate sale, the entruster shall retain its title over
the goods whether in its original or processed form until the entrustee has complied 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.lxix[13] A violation of any of these undertakings constitutes Estafa
defined under Art. 315, par. 1(b) of the RPC, as provided in Sec. 13 of PD
115, viz:

Section 13. Penalty Clause.The failure of an entrustee to turn over the


proceeds of the sale of the goods, documents or instruments covered by a trust receipt to
the extent of the amount owing to the entruster or as appears in the trust receipt or to
return said goods, documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the crime of estafa,
punishable under the provisions of Article Three hundred fifteen, paragraph one (b) of
Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known
as the Revised Penal Code. x x x (Emphasis supplied.)

A thorough examination of the facts obtaining in the instant case,


however, reveals that the transaction between petitioner and Asiatrust is not
a trust receipt transaction but one of simple loan.

PD 115 Does Not Apply


It must be remembered that petitioner was transparent to Asiatrust
from the very beginning that the subject goods were not being held for sale
but were to be used for the fabrication of steel communication towers in
accordance with his contracts with Islacom, Smart, and Infocom. In these
contracts, he was commissioned to build, out of the materials received,
steel communication towers, not to sell them.

The true nature of a trust receipt transaction can be found in the


whereas clause of PD 115 which states that a trust receipt is to be utilized as
a convenient business device to assist importers and merchants solve their
financing problems. Obviously, the State, in enacting the law, sought to find
a way to assist importers and merchants in their financing in order to
encourage commerce in the Philippines.

As stressed in Samo v. People,lxix[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.lxix[15] The principle is of course not limited in its application to
financing importations, since the principle is equally applicable to domestic
transactions.lxix[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.lxix[17]

Considering that the goods in this case were never intended for sale
but for use in the fabrication of steel communication towers, the trial court
erred in ruling that the agreement is a trust receipt transaction.

In applying the provisions of PD 115, the trial court relied on the


Memorandum of Asiatrusts appraiser, Linga, who stated that the goods have
been sold by petitioner and that only 3% of the goods remained in the
warehouse where it was previously stored. But for reasons known only to the
trial court, the latter did not give weight to the testimony of Linga when he
testified that he merely presumed that the goods were sold, viz:
COURT (to the witness)

Q So, in other words, when the goods were not there anymore. You
presumed that, that is already sold?

A Yes, your Honor.

Undoubtedly, in his testimony, Linga showed that he had no real


personal knowledge or proof of the fact that the goods were indeed sold. He
did not notify petitioner about the inspection nor did he talk to or inquire
with petitioner regarding the whereabouts of the subject goods. Neither did
he confirm with petitioner if the subject goods were in fact sold. Therefore,
the Memorandum of Linga, which was based only on his presumption and
not any actual personal knowledge, should not have been used by the trial
court to prove that the goods have in fact been sold. At the very least, it
could only show that the goods were not in the warehouse.

Having established the inapplicability of PD 115, this Court finds that


petitioners 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 anothers
property as if it were ones own, or of devoting it to a purpose or use different
from that agreed upon. To misappropriate for ones own use includes not
only conversion to ones personal advantage, but also every attempt to
dispose of the property of another without a right.lxix[18]

Petitioner argues that there was no misappropriation or conversion on


his part, because his liability for the amount of the goods subject of the trust
receipts arises and becomes due only upon receipt of the proceeds of the sale
and not prior to the receipt of the full price of the goods.

Petitioner is correct. Thus, assuming arguendo that the provisions of


PD 115 apply, petitioner is not liable for Estafa because Sec. 13 of PD 115
provides that an entrustee is only liable for Estafa when he fails to turn over
the proceeds of the sale of the goods x x x covered by a trust receipt to the
extent of the amount owing to the entruster or as appears in the trust receipt
x x x in accordance with the terms of the trust receipt.

The trust receipt entered into between Asiatrust and petitioner states:

In case of sale I/we agree to hand the proceeds as soon as received to the
BANK to apply against the relative acceptance (as described above) and for the payment
of any other indebtedness of mine/ours to ASIATRUST DEVELOPMENT
BANK.lxix[19] (Emphasis supplied.)

Clearly, petitioner was only obligated to turn over the proceeds as


soon as he received payment. However, the evidence reveals that petitioner
experienced difficulties in collecting payments from his clients for the
communication towers. Despite this fact, petitioner endeavored to pay his
indebtedness to Asiatrust, which payments during the period from
September 1997 to July 1998 total approximately PhP 1,500,000. Thus,
absent proof that the proceeds have been actually and fully received by
petitioner, his obligation to turn over the same to Asiatrust never arose.

What is more, under the Trust Receipt Agreement itself, no date of


maturity was stipulated. The provision left blank by Asiatrust is as follows:

x x x and in consideration thereof, I/we hereby agree to hold said goods in Trust
for the said Bank and as its property with liberty to sell the same for its account within
________ days from the date of execution of the Trust Receipt x x xlxix[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.

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 latters 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 Asiatrusts knowledge
of the facts.

Furthermore, Asiatrust was informed at the time of petitioners


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 petitioners obligation, then there is no
longer any obligation on petitioners part to speak of, thus precluding
Asiatrust from claiming any damage. This is evidenced by Asiatrusts
Affidavit of Desistancelxix[21] acknowledging full payment of the loan.

Reasonable Doubt Exists

In the final analysis, the prosecution failed to prove beyond


reasonable doubt that petitioner was guilty of Estafa under Art. 315, par.
1(b) of the RPC in relation to the pertinent provision of PD 115 or the Trust
Receipts Law; thus, his liability should only be civil in nature.

While petitioner admits to his civil liability to Asiatrust, he


nevertheless does not have criminal liability. It is a well-established
principle that person is presumed innocent until proved guilty. To overcome
the presumption, his guilt must be shown by proof beyond reasonable doubt.
Thus, we held in People v. Marianolxix[22] that while the principle does not
connote absolute certainty, it means the degree of proof which produces
moral certainty in an unprejudiced mind of the culpability of the accused.
Such proof should convince and satisfy the reason and conscience of those
who are to act upon it that the accused is in fact guilty. The prosecution, in
this instant case, failed to rebut the constitutional innocence of petitioner and
thus the latter should be acquitted.
At this point, the ruling of this Court in Colinares v. Court of Appeals
is very apt, thus:

The practice of banks of making borrowers sign trust receipts to facilitate


collection of loans and place them under the threats of criminal prosecution should they
be unable to pay it may be unjust and inequitable, if not reprehensible. Such agreements
are contracts of adhesion which borrowers have no option but to sign lest their loan be
disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy of
banks, and is prone to misinterpretation x x x.lxix[23]

Such is the situation in this case.

Asiatrusts intention became more evident when, on March 30, 2009,


it, along with petitioner, filed their Joint Motion for Leave to File and Admit
Attached Affidavit of Desistance to qualify the Affidavit of Desistance
executed by Felino H. Esquivas, Jr., attorney-in-fact of the Board of
Asiatrust, which acknowledged the full payment of the obligation of the
petitioner and the successful mediation between the parties.

From the foregoing considerations, we deem it unnecessary to discuss


and rule upon the other issues raised in the appeal.

WHEREFORE, the CA Decision dated August 29, 2003 affirming


the RTC Decision dated May 29, 2001 is SET ASIDE. Petitioner
ANTHONY L. NG is hereby ACQUITTED of the charge of violation of
Art. 315, par. 1(b) of the RPC in relation to the pertinent provision of PD
115.
SO ORDERED.

Landbank v Perez

DECISION

BRION, J.:

Before this Court is a petition for review on certiorari,lxix[1] under


Rule 45 of the Rules of Court, assailing the decisionlxix[2] dated January
20, 2005 of the Court of Appeals in CA-G.R. SP No. 76588. In the assailed
decision, the Court of Appeals dismissed the criminal complaint for estafa
against the respondents, Lamberto C. Perez, Nestor C. Kun, Ma. Estelita P.
Angeles-Panlilio and Napoleon Garcia, who allegedly violated Article 315,
paragraph 1(b) of the Revised Penal Code, in relation with Section 13 of
Presidential Decree No. (P.D.) 115 the Trust Receipts Law.
Petitioner Land Bank of the Philippines (LBP) is a government
financial institution and the official depository of the Philippines. lxix[3]
Respondents are the officers and representatives of Asian Construction and
Development Corporation (ACDC), a corporation incorporated under
Philippine law and engaged in the construction business.lxix[4]

On June 7, 1999, LBP filed a complaint for estafa or violation of


Article 315, paragraph 1(b) of the Revised Penal Code, in relation to P.D.
115, against the respondents before the City Prosecutors Office in Makati
City. In the affidavit-complaintlxix[5] of June 7, 1999, the LBPs Account
Officer for the Account Management Development, Edna L. Juan, stated that
LBP extended a credit accommodation to ACDC through the execution of an
Omnibus Credit Line Agreement (Agreement) lxix [6] between LBP and
ACDC on October 29, 1996. In various instances, ACDC used the Letters of
Credit/Trust Receipts Facility of the Agreement to buy construction
materials. The respondents, as officers and representatives of ACDC,
executed trust receiptslxix[7] in connection with the construction materials,
with a total principal amount of P52,344,096.32. The trust receipts matured,
but ACDC failed to return to LBP the proceeds of the construction projects
or the construction materials subject of the trust receipts. LBP sent ACDC a
demand letter,lxix [8] dated May 4, 1999, for the payment of its debts,
including those under the Trust Receipts Facility in the amount of
P66,425,924.39. When ACDC failed to comply with the demand letter, LBP
filed the affidavit-complaint.
The respondents filed a joint affidavitlxix[9] wherein they stated that
they signed the trust receipt documents on or about the same time LBP and
ACDC executed the loan documents; their signatures were required by LBP
for the release of the loans. The trust receipts in this case do not contain (1) a
description of the goods placed in trust, (2) their invoice values, and (3) their
maturity dates, in violation of Section 5(a) of P.D. 115. Moreover, they
alleged that ACDC acted as a subcontractor for government projects such as
the Metro Rail Transit, the Clark Centennial Exposition and the Quezon
Power Plant in Mauban, Quezon. Its clients for the construction projects,
which were the general contractors of these projects, have not yet paid them;
thus, ACDC had yet to receive the proceeds of the materials that were the
subject of the trust receipts and were allegedly used for these constructions.
As there were no proceeds received from these clients, no misappropriation
thereof could have taken place.

On September 30, 1999, Makati Assistant City Prosecutor Amador Y.


Pineda issued a Resolutionlxix[10] dismissing the complaint. He pointed out
that the evidence presented by LBP failed to state the date when the goods
described in the letters of credit were actually released to the possession of
the respondents. Section 4 of P.D. 115 requires that the goods covered by
trust receipts be released to the possession of the entrustee after the latters
execution and delivery to the entruster of a signed trust receipt. He adds that
LBPs evidence also fails to show the date when the trust receipts were
executed since all the trust receipts are undated. Its dispositive portion reads:

WHEREFORE, premises considered, and for insufficiency of


evidence, it is respectfully recommended that the instant complaints be
dismissed, as upon approval, the same are hereby dismissed.lxix[11]

LBP filed a motion for reconsideration which the Makati Assistant


City Prosecutor denied in his order of January 7, 2000.lxix[12]

On appeal, the Secretary of Justice reversed the Resolution of the


Assistant City Prosecutor. In his resolution of August 1, 2002,lxix[13] the
Secretary of Justice pointed out that there was no question that the goods
covered by the trust receipts were received by ACDC. He likewise adopted
LBPs argument that while the subjects of the trust receipts were not
mentioned in the trust receipts, they were listed in the letters of credit
referred to in the trust receipts. He also noted that the trust receipts contained
maturity dates and clearly set out their stipulations. He further rejected the
respondents defense that ACDC failed to remit the payments to LBP due to
the failure of the clients of ACDC to pay them. The dispositive portion of
the resolution reads:

WHEREFORE, the assailed resolution is REVERSED and SET


ASIDE. The City Prosecutor of Makati City is hereby directed to file an
information for estafa under Art. 315 (1) (b) of the Revised Penal Code in
relation to Section 13, Presidential Decree No. 115 against respondents
Lamberto C. Perez, Nestor C. Kun, [Ma. Estelita P. Angeles-Panlilio] and
Napoleon O. Garcia and to report the action taken within ten (10) days
from receipt hereof.lxix[14]

The respondents filed a motion for reconsideration of the resolution


dated August 1, 2002, which the Secretary of Justice denied.lxix[15] He
rejected the respondents submission that Colinares v. Court of
Appealslxix[16] does not apply to the case. He explained that in Colinares,
the building materials were delivered to the accused before they applied to
the bank for a loan to pay for the merchandise; thus, the ownership of the
merchandise had already been transferred to the entrustees before the trust
receipts agreements were entered into. In the present case, the parties have
already entered into the Agreement before the construction materials were
delivered to ACDC.

Subsequently, the respondents filed a petition for review before the


Court of Appeals.

After both parties submitted their respective Memoranda, the Court of


Appeals promulgated the assailed decision of January 20, 2005. lxix[17]
Applying the doctrine in Colinares, it ruled that this case did not involve a
trust receipt transaction, but a mere loan. It emphasized that construction
materials, the subject of the trust receipt transaction, were delivered to
ACDC even before the trust receipts were executed. It noted that LBP did
not offer proof that the goods were received by ACDC, and that the trust
receipts did not contain a description of the goods, their invoice value, the
amount of the draft to be paid, and their maturity dates. It also adopted
ACDCs argument that since no payment for the construction projects had
been received by ACDC, its officers could not have been guilty of
misappropriating any payment. The dispositive portion reads:

WHEREFORE, in view of the foregoing, the Petition is GIVEN


DUE COURSE. The assailed Resolutions of the respondent Secretary of
Justice dated August 1, 2002 and February 17, 2003, respectively in I.S.
No. 99-F-9218-28 are hereby REVERSED and SET ASIDE.lxix[18]

LBP now files this petition for review on certiorari, dated March 15,
2005, raising the following error:

THE COURT OF APPEALS GRAVELY ERRED WHEN IT


REVERSED AND SET ASIDE THE RESOLUTIONS OF THE
HONORABLE SECRETARY OF JUSTICE BY APPLYING THE
RULING IN THE CASE OF COLINARES V. COURT OF APPEALS,
339 SCRA 609, WHICH IS NOT APPLICABLE IN THE CASE AT
BAR.lxix[19]

On April 8, 2010, while the case was pending before this Court, the
respondents filed a motion to dismiss.lxix[20] They informed the Court that
LBP had already assigned to Philippine Opportunities for Growth and
Income, Inc. all of its rights, title and interests in the loans subject of this
case in a Deed of Absolute Sale dated June 23, 2005 (attached as Annex C
of the motion). The respondents also stated that Avent Holdings
Corporation, in behalf of ACDC, had already settled ACDCs obligation to
LBP on October 8, 2009. Included as Annex A in this motion was a
certificationlxix[21] issued by the Philippine Opportunities for Growth and
Income, Inc., stating that it was LBPs successor-in-interest insofar as the
trust receipts in this case are concerned and that Avent Holdings Corporation
had already settled the claims of LBP or obligations of ACDC arising from
these trust receipts.

We deny this petition.

The disputed transactions are not


trust receipts.

Section 4 of P.D. 115 defines a trust receipt transaction in this


manner:

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[.]

There are two obligations in a trust receipt transaction. The first is


covered by the provision that refers to money under the obligation to deliver
it (entregarla) to the owner of the merchandise sold. The second is covered
by the provision referring to merchandise received under the obligation to
return it (devolvera) to the owner. Thus, under the Trust Receipts
Law,lxix[22] intent to defraud is presumed when (1) the entrustee fails to
turn over the proceeds of the sale of goods covered by the trust receipt to the
entruster; or (2) when the entrustee fails to return the goods under trust, if
they are not disposed of in accordance with the terms of the trust
receipts.lxix[23]

In all trust receipt transactions, both obligations on the part of the


trustee exist in the alternative the return of the proceeds of the sale or the
return or recovery of the goods, whether raw or processed.lxix[24] When
both parties enter into an agreement knowing that the return of the goods
subject of the trust receipt is not possible even without any fault on the part
of the trustee, it is not a trust receipt transaction penalized under Section 13
of P.D. 115; the only obligation actually agreed upon by the parties would be
the return of the proceeds of the sale transaction. This transaction becomes a
mere loan,lxix[25] where the borrower is obligated to pay the bank the
amount spent for the purchase of the goods.

Article 1371 of the Civil Code provides that [i]n order to judge the
intention of the contracting parties, their contemporaneous and subsequent
acts shall be principally considered. Under this provision, we can examine
the contemporaneous actions of the parties rather than rely purely on the
trust receipts that they signed in order to understand the transaction through
their intent.

We note in this regard that at the onset of these transactions, LBP


knew that ACDC was in the construction business and that the materials that
it sought to buy under the letters of credit were to be used for the following
projects: the Metro Rail Transit Project and the Clark Centennial Exposition
Project.lxix[26] LBP had in fact authorized the delivery of the materials on
the construction sites for these projects, as seen in the letters of credit it
attached to its complaint.lxix[27] Clearly, they were aware of the fact that
there was no way they could recover the buildings or constructions for
which the materials subject of the alleged trust receipts had been used.
Notably, despite the allegations in the affidavit-complaint wherein LBP
sought the return of the construction materials,lxix[28] its demand letter
dated May 4, 1999 sought the payment of the balance but failed to ask, as an
alternative, for the return of the construction materials or the buildings
where these materials had been used.lxix[29]

The fact that LBP had knowingly authorized the delivery of


construction materials to a construction site of two government projects, as
well as unspecified construction sites, repudiates the idea that LBP intended
to be the owner of those construction materials. As a government financial
institution, LBP should have been aware that the materials were to be used
for the construction of an immovable property, as well as a property of the
public domain. As an immovable property, the ownership of whatever was
constructed with those materials would presumably belong to the owner of
the land, under Article 445 of the Civil Code which provides:

Article 445. Whatever is built, planted or sown on the land of


another and the improvements or repairs made thereon, belong to the
owner of the land, subject to the provisions of the following articles.

Even if we consider the vague possibility that the materials, consisting of


cement, bolts and reinforcing steel bars, would be used for the construction
of a movable property, the ownership of these properties would still pertain
to the government and not remain with the bank as they would be classified
as property of the public domain, which is defined by the Civil Code as:
Article 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use,
and are intended for some public service or for the development of the
national wealth.

In contrast with the present situation, it is fundamental in a trust receipt


transaction that the person who advanced payment for the merchandise
becomes the absolute owner of said merchandise and continues as owner
until he or she is paid in full, or if the goods had already been sold, the
proceeds should be turned over to him or to her.lxix[30]

Thus, in concluding that the transaction was a loan and not a trust
receipt, we noted in Colinares that the industry or line of work that the
borrowers were engaged in was construction. We pointed out that the
borrowers were not importers acquiring goods for resale.lxix[31] Indeed,
goods sold in retail are often within the custody or control of the trustee until
they are purchased. In the case of materials used in the manufacture of
finished products, these finished products if not the raw materials or their
components similarly remain in the possession of the trustee until they are
sold. But the goods and the materials that are used for a construction project
are often placed under the control and custody of the clients employing the
contractor, who can only be compelled to return the materials if they fail to
pay the contractor and often only after the requisite legal proceedings. The
contractors difficulty and uncertainty in claiming these materials (or the
buildings and structures which they become part of), as soon as the bank
demands them, disqualify them from being covered by trust receipt
agreements.

Based on these premises, we cannot consider the agreements between


the parties in this case to be trust receipt transactions because (1) from the
start, the parties were aware that ACDC could not possibly be obligated to
reconvey to LBP the materials or the end product for which they were used;
and (2) from the moment the materials were used for the government
projects, they became public, not LBPs, property.

Since these transactions are not trust receipts, an action for estafa
should not be brought against the respondents, who are liable only for a loan.
In passing, it is useful to note that this is the threat held against borrowers
that Retired Justice Claudio Teehankee emphatically opposed in his dissent
in People v. Cuevo,lxix[32] restated in Ong v. CA, et al.:lxix[33]

The very definition of trust receipt x x x sustains the lower courts rationale
in dismissing the information that the contract covered by a trust receipt is
merely a secured loan. The goods imported by the small importer and
retail dealer through the banks financing remain of their own property and
risk and the old capitalist orientation of putting them in jail for estafa for
non-payment of the secured loan (granted after they had been fully
investigated by the bank as good credit risks) through the fiction of the
trust receipt device should no longer be permitted in this day and age.
As the law stands today, violations of Trust Receipts Law are
criminally punishable, but no criminal complaint for violation of Article
315, paragraph 1(b) of the Revised Penal Code, in relation with P.D. 115,
should prosper against a borrower who was not part of a genuine trust
receipt transaction.

Misappropriation or abuse of
confidence is absent in this case.

Even if we assume that the transactions were trust receipts, the


complaint against the respondents still should have been dismissed. The
Trust Receipts Law punishes the dishonesty and abuse of confidence in the
handling of money or goods to the prejudice of another, regardless of
whether the latter is the owner or not. The law does not singularly seek to
enforce payment of the loan, as there can be no violation of [the] right
against imprisonment for non-payment of a debt.lxix[34]

In order that the respondents may be validly prosecuted for estafa


under Article 315, paragraph 1(b) of the Revised Penal Code,lxix[35] in
relation with 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 [the trustor],
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 [the trustor] for the remittance of the proceeds
or the return of the unsold goods.lxix[36]

In this case, no dishonesty or abuse of confidence existed in the


handling of the construction materials.

In this case, the misappropriation could be committed should the


entrustee fail to turn over the proceeds of the sale of the goods covered by
the trust receipt transaction or fail to return the goods themselves. The
respondents could not have failed to return the proceeds since their
allegations that the clients of ACDC had not paid for the projects it had
undertaken with them at the time the case was filed had never been
questioned or denied by LBP. What can only be attributed to the respondents
would be the failure to return the goods subject of the trust receipts.

We do not likewise see any allegation in the complaint that ACDC


had used the construction materials in a manner that LBP had not authorized.
As earlier pointed out, LBP had authorized the delivery of these materials to
these project sites for which they were used. When it had done so, LBP
should have been aware that it could not possibly recover the processed
materials as they would become part of government projects, two of which
(the Metro Rail Transit Project and the Quezon Power Plant Project) had
even become part of the operations of public utilities vital to public service.
It clearly had no intention of getting these materials back; if it had, as a
primary government lending institution, it would be guilty of extreme
negligence and incompetence in not foreseeing the legal complications and
public inconvenience that would arise should it decide to claim the
materials. ACDCs failure to return these materials or their end product at the
time these trust receipts expired could not be attributed to its volition. No
bad faith, malice, negligence or breach of contract has been attributed to
ACDC, its officers or representatives. Therefore, absent any abuse of
confidence or misappropriation on the part of the respondents, the criminal
proceedings against them for estafa should not prosper.

In Metropolitan Bank, lxix [37] we affirmed the city prosecutors


dismissal of a complaint for violation of the Trust Receipts Law. In
dismissing the complaint, we took note of the Court of Appeals finding that
the bank was interested only in collecting its money and not in the return of
the goods. Apart from the bare allegation that demand was made for the
return of the goods (raw materials that were manufactured into textiles), the
bank had not accompanied its complaint with a demand letter. In addition,
there was no evidence offered that the respondents therein had
misappropriated or misused the goods in question.
The petition should be dismissed
because the OSG did not file it and
the civil liabilities have already been
settled.

The proceedings before us, regarding the criminal aspect of this case,
should be dismissed as it does not appear from the records that the complaint
was filed with the participation or consent of the Office of the Solicitor
General (OSG). Section 35, Chapter 12, Title III, Book IV of the
Administrative Code of 1987 provides that:

Section 35. Powers and Functions. The Office of the Solicitor


General shall represent the Government of the Philippines, its agencies
and instrumentalities and its officials and agents in any litigation,
proceedings, investigation or matter requiring the services of lawyers. x x
x It shall have the following specific powers and functions:

(1) Represent the Government in the Supreme Court and the


Court of Appeals in all criminal proceedings; represent the Government
and its officers in the Supreme Court, the Court of Appeals and all other
courts or tribunals in all civil actions and special proceedings in which the
Government or any officer thereof in his official capacity is a party.
(Emphasis provided.)

In Heirs of Federico C. Delgado v. Gonzalez,lxix[38] we ruled that


the preliminary investigation is part of a criminal proceeding. As all criminal
proceedings before the Supreme Court and the Court of Appeals may be
brought and defended by only the Solicitor General in behalf of the Republic
of the Philippines, a criminal action brought to us by a private party alone
suffers from a fatal defect. The present petition was brought in behalf of
LBP by the Government Corporate Counsel to protect its private interests.
Since the representative of the People of the Philippines had not taken any
part of the case, it should be dismissed.

On the other hand, if we look at the mandate given to the Office of the
Government Corporate Counsel, we find that it is limited to the civil
liabilities arising from the crime, and is subject to the control and
supervision of the public prosecutor. Section 2, Rule 8 of the Rules
Governing the Exercise by the Office of the Government Corporate Counsel
of its Authority, Duties and Powers as Principal Law Office of All
Government Owned or Controlled Corporations, filed before the Office of
the National Administration Register on September 5, 2011, reads:

Section 2. Extent of legal assistance The OGCC shall represent


the complaining GOCC in all stages of the criminal proceedings. The
legal assistance extended is not limited to the preparation of appropriate
sworn statements but shall include all aspects of an effective private
prosecution including recovery of civil liability arising from the crime,
subject to the control and supervision of the public prosecutor.

Based on jurisprudence, there are two exceptions when a private party


complainant or offended party in a criminal case may file a petition with this
Court, without the intervention of the OSG: (1) when there is denial of due
process of law to the prosecution, and the State or its agents refuse to act on
the case to the prejudice of the State and the private offended party;lxix[39]
and (2) when the private offended party questions the civil aspect of a
decision of the lower court.lxix[40]

In this petition, LBP fails to allege any inaction or refusal to act on the
part of the OSG, tantamount to a denial of due process. No explanation
appears as to why the OSG was not a party to the case. Neither can LBP now
question the civil aspect of this decision as it had already assigned ACDCs
debts to a third person, Philippine Opportunities for Growth and Income,
Inc., and the civil liabilities appear to have already been settled by Avent
Holdings Corporation, in behalf of ACDC. These facts have not been
disputed by LBP. Therefore, we can reasonably conclude that LBP no longer
has any claims against ACDC, as regards the subject matter of this case, that
would entitle it to file a civil or criminal action.

WHEREFORE, we DENY the petition and AFFIRM the January


20, 2005 decision of the Court of Appeals in CA-G.R. SP No. 76588. No
costs.

SO ORDERED.
MELVIN COLINARES and LORDINO VELOSO, petitioners, vs. HONORABLE COURT OF APPEALS,
and THE PEOPLE OF THE PHILIPPINES, respondents.

DECISION

DAVIDE, JR., C.J.:

In 1979 Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for
a consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate
the latters convent at Camaman-an, Cagayan de Oro City.

On 30 October 1979, Petitioners obtained 5,376 SF Solatone acoustical board 2x4x, 300
SF tanguile wood tiles 12x12, 260 SF Marcelo economy tiles and 2 gallons UMYLIN
cement adhesive from CM Builders Centre for the construction project.lxix[1] The
following day, 31 October 1979, Petitioners applied for a commercial letter of
creditlxix[2] with the Philippine Banking Corporation, Cagayan de Oro City branch
(hereafter PBC) in favor of CM Builders Centre. PBC approved the letter of creditlxix[3]
for P22,389.80 to cover the full invoice value of the goods. Petitioners signed a pro-
forma trust receiptlxix[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.lxix[5]

On 7 May 1980, PBC wrotelxix[6] to Petitioners demanding that the amount be paid
within seven days from notice. Instead of complying with PBCs demand, Veloso
confessed that they lost P19,195.83 in the Carmelite Monastery Project and requested for
a grace period of until 15 June 1980 to settle the account.lxix[7]
PBC sent a new demand letterlxix[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
attorneys fees of 25%.lxix[9]

On 2 December 1980, Petitioners proposedlxix[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,lxix[11] and thereafter P500 on 11
February 1981,lxix[12] 16 March 1981,lxix[13] and 20 April 1981.lxix[14] Concurrently
with the separate demand for attorneys fees by PBCs legal counsel, PBC continued to
demand payment of the balance.lxix[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.lxix[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, PBCs former manager. He and petitioner Colinares
signed the documents without reading the fine print, only learning of the trust receipt
implication much later. When he brought this to the attention of PBC, Mr. Tuiza assured
him that the trust receipt was a mere formality.lxix[17]

On 7 July 1986, the trial court promulgated its decisionlxix[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 attorneys fees, and costs.

The trial court considered the transaction between PBC and Petitioners as a trust receipt
transaction under Section 4, P.D. No. 115. It considered Petitioners use of the goods in
their Carmelite monastery project an act of disposing as contemplated under Section 13,
P.D. No. 115, and treated the charge invoicelxix[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 decisionlxix[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 Velosos testimony,
discredited Petitioners claim that the documents they signed were in blank, and
disbelieved that they were coerced into signing them.

On 25 March 1989, Petitioners filed a Motion for New Trial/Reconsiderationlxix[21]


alleging that the Disclosure Statement on Loan/Credit Transactionlxix[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 resolutionlxix[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:
I. WHETHER OR NOT THE DENIAL OF THE MOTION FOR NEW TRIAL ON THE GROUND OF
NEWLY DISCOVERED EVIDENCE, NAMELY, DISCLOSURE ON LOAN/CREDIT TRANSACTION,
WHICH IF INTRODUCED AND ADMITTED, WOULD CHANGE THE JUDGMENT, DOES NOT
CONSTITUTE A DENIAL OF DUE PROCESS.

2. ASSUMING THERE WAS A VALID TRUST RECEIPT, WHETHER OR NOT THE ACCUSED
WERE PROPERLY CHARGED, TRIED AND CONVICTED FOR VIOLATION OF SEC. 13, PD NO.
115 IN RELATION TO ARTICLE 315 PARAGRAPH (I) (B) NOTWITHSTANDING THE NOVATION
OF THE SO-CALLED TRUST RECEIPT CONVERTING THE TRUSTOR-TRUSTEE RELATIONSHIP
TO CREDITOR-DEBTOR SITUATION.

In its Comment of 22 January 1990, the Office of the Solicitor General urged us to deny
the petition for lack of merit.

On 28 February 1990 Petitioners filed a Motion to Dismiss the case on the ground that
they had already fully paid PBC on 2 February 1990 the amount of P70,000 for the
balance of the loan, including interest and other charges, as evidenced by the different
receipts issued by PBC,lxix[24] and that the PBC executed an Affidavit of
desistance.lxix[25]

We required the Solicitor General to comment on the Motion to Dismiss.

In its Comment of 30 July 1990, the Solicitor General opined that payment of the loan
was akin to a voluntary surrender or plea of guilty which merely serves to mitigate
Petitioners culpability, but does not in any way extinguish their criminal liability.

In the Resolution of 13 August 1990, we gave due course to the Petition and required the
parties to file their respective memoranda.

The parties subsequently filed their respective memoranda.

It was only on 18 May 1999 when this case was assigned to the ponente. Thereafter, we
required the parties to move in the premises and for Petitioners to manifest if they are still
interested in the further prosecution of this case and inform us of their present
whereabouts and whether their bail bonds are still valid.

Petitioners submitted their Compliance.

The core issues raised in the petition are the denial by the Court of Appeals of Petitioners
Motion for New Trial and the true nature of the contract between Petitioners and the
PBC. As to the latter, Petitioners assert that it was an ordinary loan, not a trust receipt
agreement under the Trust Receipts Law.

The grant or denial of a motion for new trial rests upon the discretion of the judge. New
trial may be granted if: (1) errors of law or irregularities have been committed during the
trial prejudicial to the substantial rights of the accused; or (2) new and material evidence
has been discovered which the accused could not with reasonable diligence have
discovered and produced at the trial, and which, if introduced and admitted, would
probably change the judgment.lxix[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.lxix[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.lxix[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.lxix[29] Assuming
Petitioners copy was then unavailable, they could have compelled its production in
court,lxix[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.lxix[31] Clearly, the alleged newly discovered evidence is mere forgotten
evidence that jurisprudence excludes as a ground for new trial.lxix[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 latters execution and delivery to the
entruster of a signed document called a trust receipt wherein the entrustee binds himself
to hold the designated goods, documents or instruments with the obligation to turn over
to the entruster the proceeds thereof to the extent of the amount owing to the entruster or
as appears in the trust receipt or the goods, documents or instruments themselves if they
are unsold or not otherwise disposed of, in accordance with the terms and conditions
specified in the trust receipt.

There are two possible situations in a trust receipt transaction. The first is covered by the
provision which refers to money received under the obligation involving the duty to
deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the
provision which refers to merchandise received under the obligation to return it
(devolvera) to the owner.lxix[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,lxix[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.lxix[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.lxix[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.lxix[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.lxix[38]

Trust receipt transactions are intended to aid in financing importers and retail dealers who
do not have sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through utilization, as
collateral, of the merchandise imported or purchased.lxix[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.lxix[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.lxix[41]
After such perusal Grego Mutia, PBCs credit investigator, admitted thus:

ATTY. CABANLET: (continuing)

Q Do you know if the goods subject matter of this letter of credit and trust receipt agreement were
received by the accused?

A Yes, sir

Q Do you have evidence to show that these goods subject matter of this letter of credit and trust
receipt were delivered to the accused?

A Yes, sir.

Q I am showing to you this charge invoice, are you referring to this document?

A Yes, sir.

xxx

Q What is the date of the charge invoice?

A October 31, 1979.

COURT:

Make it of record as appearing in Exhibit D, the zero in 30 has been superimposed with numeral
1.lxix[42]

During the cross and re-direct examinations he also impliedly admitted that the
transaction was indeed a loan. Thus:

Q In short the amount stated in your Exhibit C, the trust receipt was a loan to the accused you admit
that?

A Because in the bank the loan is considered part of the loan.

xxx

RE-DIRECT BY ATTY. CABANLET:

ATTY. CABANLET (to the witness)

Q What do you understand by loan when you were asked?

A Loan is a promise of a borrower from the value received. The borrower will pay the bank on a
certain specified date with interestlxix[43]
Such statement is akin to an admission against interest binding upon PBC.

Petitioner Velosos claim that they were made to believe that the transaction was a loan
was also not denied by PBC. He declared:

Q Testimony was given here that that was covered by trust receipt. In short it was a special kind of
loan. What can you say as to that?

A I dont think that would be a trust receipt because we were made to understand by the manager who
encouraged us to avail of their facilities that they will be granting us a loanlxix[44]

PBC could have presented its former bank manager, Cayo Garcia Tuiza, who contracted
with Petitioners, to refute Velosos testimony, yet it only presented credit investigator
Grego Mutia. Nowhere from Mutias testimony can it be gleaned that PBC represented to
Petitioners that the transaction they were entering into was not a pure loan but had trust
receipt implications.

The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes
the dishonesty and abuse of confidence in the handling of money or goods to the
prejudice of another regardless of whether the latter is the owner.lxix[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.lxix[46]

The practice of banks of making borrowers sign trust receipts to facilitate collection of
loans and place them under the threats of criminal prosecution should they be unable to
pay it may be unjust and inequitable, if not reprehensible. Such agreements are contracts
of adhesion which borrowers have no option but to sign lest their loan be disapproved.
The resort to this scheme leaves poor and hapless borrowers at the mercy of banks, and is
prone to misinterpretation, as had happened in this case. Eventually, PBC showed its true
colors and admitted that it was only after collection of the money, as manifested by its
Affidavit of Desistance.

WHEREFORE, the challenged Decision of 6 March 1989 and the Resolution of 16


October 1989 of the Court of Appeals in CA-GR. No. 05408 are REVERSED and SET
ASIDE. Petitioners are hereby ACQUITTED of the crime charged, i.e., for violation of
P.D. No. 115 in relation to Article 315 of the Revised Penal Code.

No costs.

SO ORDERED.

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