Republic of the Philippines The trial court, in its decision dated 20 February 1979, convicted petitioner Robles of the
SUPREME COURT crime charged. The dispositive portion of this decision reads:
Manila
THIRD DIVISION
G.R. No. L-59640 July 15, 1991
DAMIAN ROBLES, petitioner,
vs.
THE COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents.
FELICIANO, J.:
In an information dated 2 March 1978, petitioner Damian Robles was charged before the
then Court of First Instance of Manila with the crime of estafa, committed as follows:
That in or about and during the period comprised between November 19, 1976 to
March 9, 1977, inclusive, in the City of Manila, Philippines, the said accused did
then and there wilfully, unlawfully and feloniously defraud the Paramount Business
Machines, a business firm duly organized and doing business in said City,
represented by Roberto Ng y Shiang Shee, in the following manner, to wit: the said
accused received in trust from the said Roberto Ng y Shiang Shee office
equipments consisting of adding machines, typewriters and calculators all
amounting to P14,895.00 for the purpose of selling the same, under the express
obligation of turning over the proceeds of the sale, if sold, or of returning the said
office equipments if not sold, to the said Roberto Ng y Shiang Shee; but the said
accused, once in possession of the said office equipments and far from complying
with his obligation as aforesaid, failed and refused and still fails and refuses to
remit the corresponding amount of the said office equipments or to return the said
office equipments, despite repeated demands made upon him to do so, and
instead, with grave abuse of confidence and with intent to defraud, did then and
there wilfully, unlawfully and feloniously misappropriate, misapply and convert the
same to his own personal use and benefit, to the damage and prejudice of the said
Paramount Business Machines, in the said amount of P14,895.00, Philippine
Currency.
Contrary to law.1
WHEREFORE, the Court finds the accused Damian Robles guilty beyond reasonable
doubt of the crime of estafa defined and penalized under the provisions of Article
315 subdivision No. 1 (b) of the Revised Penal Code and there being no aggravating
or mitigating circumstance present and applying the provisions of the
Indeterminate Sentence Law, hereby sentences the said accused to suffer the
penalty of imprisonment ranging from TWO (2) YEARS, ELEVEN (11) MONTHS and
TEN (10) DAYS of prision correccional in its minimum and medium period as
minimum, to SIX (6) YEARS, EIGHT (8) MONTHS and TWENTY (20) DAYS of prision
mayor medium, as maximum, together with the accessory penalties provided for
by law and to pay the costs. The accused is further ordered to indemnify the
complainant the amount of P14,895.00 without subsidiary imprisonment in case of
insolvency.
SO ORDERED.2
Dissatisfied, petitioner Robles appealed to the Court of Appeals. On 17 September 1981, the
appellate court affirmed petitioner Robles' conviction but modified the penalty imposed by
the trial court as follows:
WHEREFORE, with the modification that accused-appellant DAMIAN ROBLES shall
suffer the penalty of imprisonment from SIX (6) MONTHS of arresto mayor, as
minimum, to TWO (2) YEARS, ELEVEN (11) MONTHS and TEN (10) DAYS of prision
correccional, as maximum, and to indemnify the complainant the amount of
P11,395.00, the appealed decision is hereby affirmed ill all other respects, and with
costs against accused-appellant.
SO ORDERED.3
The facts as found by respondent Court of Appeals are as follows:
Roberto Ng is the owner and the sales manager of the Paramount Business
Machines, a firm dealing in office equipment and has offices located at 1027
Severino Reyes Street, Sta. Cruz, Manila, (pp. 10, 11, July 19, 1978).
On November 19, 1976, Roberto Ng entrusted to Damian Robles the following
items:
one — Casio electronic calculator P800.00
one — Victor adding machine 600.00
which items were covered by a delivery trust receipt (Exhibit "A," Folder of Exhibits:
pp. 14, 15, TSN., July 19, 1978).
On February 8, 1977, Roberto Ng again entrusted to Damian Robles several office
equipment, to wit:
one — Standard Imperial typewriter
16" carriage P3,500.00
one — Standard Imperial typewriter
26" carriage 3,200.00
one — Olympia, standard electric typewriter,
13" carriage 2,800.00
which items were covered by another delivery trust receipt (Exhibit "B", Folder of
Exhibits; pp. 23, 24, 25, 26, TSN, July l9, 1978). For these items, Damian Robles gave
Roberto Ng two postdated checks, PCIB Checks No. 15654 and 15655 dated March
25, 1977 and March 15, 1977, respectively (Exhibits "C" and "C-l," Folder of
Exhibits; pp. 26, 27, TSN, July 19, 1978), for the respective amounts of P3,200.00
and P4,200.00 (id.). On February 10, 1977, Damian Robles was again entrusted by
Roberto Ng with an Olivetti Manual typewriter, 11 carriage worth P1,000.00, which
item was covered by another delivery receipt (Exhibit "D", Folder of Exhibits; p. 33,
TSN, July 19, 1978). On March 7, 1977, Damian Robles received from Roberto Ng
one Olivetti adding machine worth P600.00 which item was covered by another
delivery receipt (Exhibit "E" Folder of Exhibits; pp. 37, 38, TSN, July 19, 1978). And
on March 8, 1977 and March 9, 1977, the same Damian Robles was again entrusted
by Roberto Ng the following:
one — Olivetti standard typewriter
15 carriage P1,400.00
one — Olympia portable typewriter
10 carriage 995.00
which items were covered by delivery trust receipts (Exhibits "F" and "G", Folder of
Exhibits; pp. 39, 40, 41, 42, 45, TSN July 19, 1978). For all these items delivered to
Damian Robles, the latter agreed to sell them and remit the proceeds of the sales
to Roberto Ng, or to return the items if they are unsold (pp. 57, 58, 67, 68, TSN, July
19, 1978).
The postdated check PCIB Check No. 15655 dated March 15, 1977 for the amount
of P4,200.00 issued by Damian Robles was not honored by the drawee bank since
Damian Robles caused the stoppage of its payment (pp. 29, 30, 31, 46, TSN, July 19,
1978).
On the other hand, the accused-appellant admits having received from the
complainant Roberto Ng the business machines enumerated in the delivery
receipts, Exhibits "A", "B", "D", "E", "F", and "G", (pp. 4, 8, TSN, December 5, 1978)
and admits likewise that it was his agreement with Roberto Ng that he (accused)
would sell the office equipment and to turn over the proceeds to Roberto Ng (p. 8,
TSN, December 5, 1978). He however, claims that the Imperial Standard Typewriter
worth P3,500.00 was returned to Paramount as confirmed by the signature of Mr.
Ng in Annex "B" (Original Exhibits, p. 12) after the notation 'return' was placed
there by Fiscal Arranz (C.A. Decision, p. 11; Rollo, p. 38).
The total value of the office equipment received by accused-appellant Damian
Robles from the complainant is P14,895.00.4
In this Petition for Review, petitioner Robles makes the following arguments:
1. the Court of Appeals gravely erred in law in ruling that under the delivery trust
receipts petitioner received the articles covered therein in trust or with the
obligation to account for the proceeds thereof, or to return the same; and
2. the Court of Appeals committed serious error in law in finding petitioner guilty of
estafa under Subdivision No. 1 (B), Article 315 of the Revised Penal Code.
Petitioner, in respect of the first ground, insist that the delivery trust receipts which he had
signed were "merely intended to evidence the fact that the articles therein listed were
delivered to and received by him." The documents do not, petitioner contends, reflect the
true intention of the parties considering that even before he could comply with the
stipulations in those receipts, that is, to return the articles enumerated therein within the
period of two (2) days from the date of the receipt, the complainant delivered to him other
articles without demanding compliance with the condition imposed by the earlier delivery
trust receipts. In short, it is his position that the delivery trust receipts are "mere formalities"
whose printed terms and conditions appearing therein were not intended by the parties to
govern their transactions; that those transactions referred to were in fact sales on trial basis
for a period of two (2) days. Thus, when he failed to return the various pieces of equipment
within the two-day period, he was deemed to have purchased the same and his liability
should therefore be only civil, i.e., to pay the purchase price.
The Court is not persuaded. The delivery trust receipts evidencing the transactions between
Paramount Business Machines ("Paramount") and petitioner state, in relevant part:
In trust for and as the property of said Paramount Business Machines the above
described merchandise having been delivered to me/us for trial and with the
obligation on my/our part to return the same in good order and condition within 2
 days from the date hereof unless before the expiration of said period,
I/wedefinitely purchase the same and pay the price hereof.
In the meantime, pending the sales of the above described merchandise to me/us,
I/we agree and undertake to be absolutely responsible as insurer for the proper
care and conservation of said property and to be liable for any loss or destruction.
I/we further agree to keep the said property in my/our residence or place of
business at the address indicated herein above and not to remove the same from
said promise without the previous knowledge and consent of Paramount Business
Machines.5 (Emphases supplied)
The quoted provisions of the trust receipts show clearly (1) that Paramount retained
ownership of the office equipment covered by the receipts; (2) that possession of the goods
was conveyed to petitioner subject to a fiduciary obligation either to return them within a
specified period of time or to pay or account for the price of proceeds thereof. Surrounding
circumstances also showed that the transactions were not ordinary sales on trial basis. There
were six (6) transactions involved, not just one. In each transaction, there were several items
of equipment delivered to petitioner, instead of just one, thereby indicating that petitioner
was not an ordinary buyer who would himself use the articles bought, but rather a
commission merchant. Additional items of equipment were delivered to petitioner even
before compliance with his duty under one trust receipt to return within two (2) days the
office equipment he had received. He admitted in his Affidavit6 dated 21 October 1977 that
he was Paramount's sales agent. Petitioner, however, failed to return the machines upon
demand by Paramount and at the same time, failed to account for the sale proceeds thereof.
We agree with the Court of Appeals and the trial court on this matter. The Court of Appeals
said in part:
We hereby agree in full and quote hereunder the following findings and
conclusions of the court a quo in the appealed decision because the same are in
accordance with the evidence and the law.
A scrutiny of the evidence presented, the Court is more inclined to give more
weight and credibility to the evidence of the prosecution. The printed conditions
are clearly inscribed and forms [sic] part of the agreement between the accused
and the complainant, for on the delivery trust receipts (Exh. A-1) of the Paramount
Business Machines . . .:
xxx xxx xxx
The conditions (Exhibit A-1) stipulated on all the delivery trust receipts signed by
the accused specifically stated that the [items] were received by the accused from
the complainant "in trust for and as property of the said Paramount Business
Machines" and the further stipulation that the same is "with the obligation on
my/our part to return the same in good order and condition within 2 days from the
date hereof." The ordinary and accepted meaning of the phrase "in trust" is an
obligation upon a person arising out of a confidence reposed in him to apply
properly, faithfully and according to such confidence (Bouvier's Law Dictionary,
Baldwins Century Edition, page 1192.) That whatever articles are received in trust
by the accused if sold by him the proceeds thereof are to be turned over to the
owner, the complainant herein, and if not sold the same articles are to be returned
to the complainant within two days front receipt of the same.
The provisions of the conditions embodied in the trust receipts need no further
interpretation or elucidation for the same is clear, specific and explicit. The Court
has observed the accused to be an intelligent man far (sic) from his qualification of
being a college professor and that he must have fully understood the contents of
the stipulations appearing on the face of the delivery trust receipts which he
actually signed upon receipt of the articles described therein. The period for him
(accused) to return the articles is clear which is "2 days from the date hereof,"
meaning from the date he received the articles, the period mentioned being
specifically typed on the blank provided therefore (sic) which the Court believes the
accused could not have missed and is aware he signed these trust
receipts.7 (Emphasis supplied)
We note in this connection that the delivery trust receipts here involved in fact constituted
trust receipts within the meaning of Presidential Decree No. 115, known as the "Trust
Receipts Law," which took effect on 29 January 1973. Section 4 thereof defines a "trust
receipt" and a "trust receipt transaction" for purposes of the decree in the following terms:
Sec. 4. What constitutes a trust receipt transaction. — A trust receipt transaction,
within the meaning of this Decree, is any transaction by and between a person
referred to in this Decree as the entruster, and another person referred to in this
Decree as the entrustee, whereby the entruster, who owns or holds absolute title or
security interests over certain specified goods documents or instruments, releases
the same to the possession of the entrustee upon the latter's execution and
delivery to the entruster of a signed document called a "trust receipt" wherein the
entrustee binds himself to hold the designated goods, documents or instruments
in trust for the entruster and to sell or otherwise dispose of the goods, documents
or instruments with the obligation to turn over to the entruster the proceeds
thereof to the extent of the amount owing to the entruster or as appears in the
trust receipt or the goods, documents or instruments themselves if they are unsold
or not otherwise disposed of, in accordance with the terms and conditions specified
in the trust receipt, . . . . (Emphasis supplied)
We note that under Section 13 of the Trust Receipts Law, the violation by an entrustee of his
obligations under a trust receipt document, more specifically his failure to turnover the
proceeds of the sale of the goods covered by the trust receipt, or to return said goods as they
were not sold or disposed of, would constitute the crime of estafa under Article 315 (1) (b),
Revised Penal Code. Section 13 reads as follows:
Sec. 13. Penalty clause. — The failure of an entrustee to turn over the proceeds of
the sale of the goods, documents or instruments covered by a trust receipt to the
extent of the amount owing to the entruster or as appears in the trust receipt or to
 return said goods, documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the crime of estafa,
punishableunder the provisions of Article Three Hundred and Fifteen, paragraph
one (b) of Act Number Three Thousand Eight Hundred and Fifteen, as amended,
otherwise known as the Revised Penal Code. If the violation or offense is
committed by a corporation, partnership, association or other juridical entities, the
penalty provided for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense, without
prejudice to the civil liabilities arising from the criminal offense. (Emphasis
supplied)
In Lee v. Rodil,8 which involved a criminal prosecution for estafa relating to goods covered by
a trust receipt alleged to have been committed on 26 July 1982, this Court affirmed the
conviction for estafa under paragraph 1 (b), Article 315 of the Revised Penal Code and in the
process, upheld Section 13 of Presidential Decree No. 115 against constitutional challenge.
The Court, speaking through Mr. Justice Gutierrez, Jr., said:
Acts involving the violation of trust receipt agreements occurring after 29 January
1973 would make the accused criminally liable for estafa under paragraph 1 (b),
Article 315 of the Revised Penal Code, pursuant to the explicit provision in Sec. 13
of P.D. 115 (Sia v. Court of Appeals, G.R. No. 40324, October 5, 1988).
The petitioner questions the constitutionality of Sec. 13 of P.D. 115. She contends
that it is violative of the constitutional right that "No person shall be imprisoned for
debt or non-payment of a poll tax".
and to return the said goods, constituted estafa punishable under Article 315 (1) (b) of the
Revised Penal Code.
It is also pertinent to point out that quite apart from and even in the absence of the
provisions of Section 13 of the Trust Receipt Law, the failure of Damian Robles to comply with
his fiduciary obligation under the delivery trust receipts here involved, constituted the
offense of estafa punishable under Article 315 (1) (b) of the Revised Penal Code. In other
words, the elements of the offense of estafa set out in Article 315 (1) (b) are present in the
instant case. Those elements are: (1) "unfaithfulness or abuse of confidence;" (2)
"misappropriating . . . money or goods . . .; (3) received by the offender in trust or on
commission . . . or under any other obligation involving the duty to make delivery of or to
return the same . . .;" and (4) "to the prejudice of another." The delivery trust receipts, in the
case at bar, admittedly signed by petitioner Damian Robles imposed on him the duty to
return the article or the proceeds thereof to Paramount within two (2) days from the
specified dates of the trust receipts. The failure to account, upon demand, for funds or
property held in trust is evidence of misappropriation10 which, not having been explained
away or rebutted by petitioner Damian Robles, warranted his conviction for estafa under the
Revised Penal Code. This was settled doctrine long before the promulgation of the Trust
Receipts Law.11
WHEREFORE, the present Petition for Review is hereby DENIED for lack of merit and the
Decision of the Court of Appeals in C.A.-G.R. No. 23216-CR dated 17 September 1981, is
hereby AFFIRMED. Costs against petitioner.
SO ORDERED.

The petitioner has failed to make out a strong case that P.D. 115 conflicts with the Fernan, C.J. Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.
constitutional prohibition against imprisonment for non-payment of debt. A
convincing showing is needed to overcome the presumption of the validity of an
existing statute.

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

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

xxx xxx xxx

. . . The violation of a trust receipt committed by disposing of the goods covered

thereby and failing to deliver the proceeds of such sale has been squarely made to
fall under Art. 315 (1) (b) of the Revised Penal Code, . . .9

In the case at bar, the acts of petitioner which were complained of were committed between
19 November 1976 and 9 March 1977, that is, long after the beginning date of effectivity of
Presidential Decree No. 115. In accordance with the provisions of Section 13, Presidential
Decree No. 115, quoted above, the failure of petitioner Damian Robles to turnover to the
entruster Paramount the proceeds of the sale of goods covered by the delivery trust receipts

FIRST DIVISION
G.R. No. 130365 July 14, 2000
STATE INVESTMENT HOUSE, INCORPORATED, petitioner,
vs.
COURT OF APPEALS, PHILIPPINE NATIONAL BANK and SPOUSES FEDERICO L. FRANCO and
FELICISIMA R. FRANCO, respondents.
DECISION
KAPUNAN, J.:
Private respondent spouses Federico and Felisisima Franco bought four (4) units of M.A.N.
Diesel Long Distance Touring Coaches from Delta Motor Corporation-M.A.N. Division (DMC).
To secure payment therefor, the spouses executed in favor of DMC four (4) promissory
notes,1 each with a face value of ₱800,000.00, as well as four (4) chattel mortgages over said
vehicles.
The promissory notes executed by the Franco spouses subsequently became the subject of
conflicting claims by DMC’s creditors, namely, the State Investment House, Inc. (SIHI), the
Philippine National Bank (PNB), and the Union Bank of the Philippines (UBP). To determine to
whom they should continue paying the amounts stated in the promissory notes, the spouses
filed an action for interpleader in the Regional Trial Court of Manila.
SIHI’s claim
SIHI alleged that in 1979 it granted a twenty-five million peso (₱25,000,000) credit line to
DMC. In consideration therefor, DMC bound itself to deliver and assign to SIHI all its
contracts to sell, notes, accounts, checks, bills of exchange, and choses of actions evidencing
actual sales of its merchandise to DMC’s clients. The agreement between SIHI and DMC is
embodied in a Continuing Deed of Assignment of Receivables2 executed on December 23,
1981.
By March 24, 1992, DMC’s availment of the credit line had amounted to ₱24,010,269.32. Of
this sum, ₱12,846,939.36 was due and payable. The loan to DMC was subsequently
restructured, resulting in a Memorandum of Agreement3 whereby DMC agreed to sell
₱8,000,000 worth of its receivables to SIHI, the proceeds of which shall be used to pay the
loans past due.
On September 13, 1983, DMC executed in favor of SIHI a Deed of Sale4 of various accounts
receivables amounting to ₱18,909,100, including the subject promissory notes.
SIHI later sent demand letters dated March 29, 19845 and June 27, 19846 informing the
Franco spouses of the assignment and directing that they make payments to SIHI’s office.
PNB's claim
PNB’s claim over the promissory notes, on the other hand, is based on a letter of
credit7 granted by PNB to DMC to finance the importation of 325 units of M.A.N. CKD Diesel
Bus Chassis. The imported units supposedly include the four (4) units sold by DMC to the
Francos. After DMC took possession of the units, DMC and PNB entered into a Trust Receipt
Agreement8 whereby DMC agreed:
x x x to hold said merchandise in storage as property of said Bank, with the liability to sell the
same for cash, for its account and to hand the proceeds thereof to the said Bank to be
applied against its acceptance on account of the undersigned, and/or under the terms of the
Letter of Credit noted below; and further agrees to hold said merchandise and the proceeds
thereof in trust for the payment of said acceptance and of any other indebtedness of the
undersigned to the said Bank.
A Credit Agreement9 dated February 17, 1981 was also executed providing that:
xxx (a) The CLIENT shall open and maintain a Special Deposit Account (SDA) with the Bank;
(b) All collections of the CLIENT on the sales of the units and other goods imported under the
Letter of Credit as well as sales of the units subsequently imported out of the aforesaid
collections shall be deposited to the SDA.
In a Deed of Assignment10 dated February 27, 1981, PNB and DMC stipulated that:
Should the sums of money, credits, receivables or other properties assigned, be in the
possession of, or due or to be due from a third party, then it is hereby agreed that the same
shall be remitted by such third party direct to the ASSIGNEE to be disposed of in accordance
with the terms and conditions thereof. The ASSIGNOR shall obtain the conformity of such
third party to this condition.
PNB claimed that the subject promissory notes were covered by this Deed of Assignment, the
notes representing the consideration for the sale of the units imported from the proceeds of
the Letter of Credit.
In a Demand Letter11 dated May 20, 1984, PNB informed the Francos of the assignment and
enjoined payment to PNB.
UBP’s claim
UBP, in turn, obtained a Writ of Garnishment as a result of a judgment against DMC. UBP
asserted rights over the promissory notes by virtue of said writ.
Ruling on these conflicting claims, the RTC held that SIHI’s claims over the promissory notes
were superior to those of PNB and UBP. The dispositive portion of the RTC’s decision states:
WHEREFORE, judgment is hereby rendered as follows:
(1) Granting this action for interpleader;
(2) Declaring defendant-claimant State Investment House Inc. as the one with
superior right over the obligation (unpaid as of March 29, 1984) of plaintiffs as
covered by their promissory notes and chattel mortgages executed in favor of Delta
Motors Corporation, M-A-N Division (Exhs. 7, 8, 9 and 10-SIHI);
(3) Lifting and setting aside the Writ of Preliminary Injunction previously issued;
(4) Dismissing and denying defendants Philippine National Bank’s and Union Bank
of the Philippines’ claims;
(5) After the finality of this Decision, defendant SIHI shall be allowed to cause the
withdrawal of the deposit now totaling P634,090.24 to be applied to plaintiffs’ said
allegation;
(6) Plaintiffs and SIHI shall resolve as early as possible the matter concerning the
balance of the oft-stated accounts, and henceforth, plaintiffs shall discharge their
remaining obligations (Exhs. 7, 8, 9 and 10-SIHI) by paying to SIHI.
There shall be pronouncement as to costs.
SO ORDERED.12
It does not appear that UBP questioned the decision of the RTC. PNB, for its part, appealed to
the Court of Appeals.
In a Decision dated September 10, 1996, the Court of Appeals reversed the decision of the
RTC and declared PNB’s claims superior to those of SIHI. It held that under Section 9 of the
Trust Receipts Law,13 DMC was merely an entrustee of the products imported and, thus,
obliged to turn over to its entruster, PNB, the proceeds of the sale of said products. The
dispositive portion of said decision is reproduced hereunder:
WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and SET
ASIDE. A new one is hereby rendered.
1. Declaring defendant-appellant PNB as the one having superior rights over the
obligation of plaintiffs-appellees as covered by their promissory notes and chattel
mortgages.
2. After finality of decision, defendant-claimant-appellant PNB shall be allowed to
withdraw the proceeds of the sale deposited by the plaintiffs-spouses Federico L.
Franco and Felicisima Franco with the trial court, to be applied to their and DMC-
MAN’s obligations.
3. Plaintiff-appellee shall discharge their remaining obligation by paying defendant-
claimant-appellant PNB.
4. Dismissing and denying defendant-appellee SIHI’s and defendant-appellant
UBP’s claims.
5. Lifting and setting aside the Writ of Preliminary injunction previously issued by
the trial court.
No pronouncement as to cost.14
The Court of Appeals denied SIHI’s motion for reconsideration.
Seeking a review of the adverse decision of the Court of Appeals, SIHI filed in this Court the
present petition for certiorari under Rule 45 of the Rules of Court.
Petitioner SIHI alleges that the vehicles sold by DMC to the Francos were not covered by the
trust receipts agreement between PNB and DMC. Assuming that said vehicles were the
subject of said receipts, SIHI contends that its rights are superior to those of PNB since the
former is a purchaser in good faith, having no notice or knowledge of PNB’s interest over the
notes. SIHI likewise imputes gross negligence in PNB’s handling of DMC’s accounts. The
subject vehicles were supposedly released to DMC as early as 1980 and were sold to the
Francos in 1981-1982. It was only in May 1984, however, when PNB asserted its claim over
the promissory notes, long after DMC had assigned the notes to SIHI.
The petition is meritorious.
Section 7 of the Trust Receipts Law provides that the entruster shall be entitled to the
proceeds from the sale of the goods released under a trust receipt to the entrustee to the
extent of the amount owing to the entruster or as appears in the trust receipt.15 The pivotal
issue, therefore, is whether the goods released under the trust receipt include the vehicles
purchased by the Franco spouses from DMC and for which the promissory notes were issued.
PNB contends that this issue is a question of fact. It submits that both the RTC and the Court
of Appeals found that the vehicles are covered by the trust receipts agreement and such
findings are conclusive upon this Court.16
We are not impressed.
It is true that the decision of the RTC states that PNB "financed Delta’s importation of 325
units of M.A.N. CKD Diesel Bus Chassis… which includes the four (4) units which were sold to
plaintiffs."17 This statement, however, appears in the recital of the allegations of the parties,
and not in the rationale of its decision.
The Court of Appeals, for its part, held that the "[e]vidence clearly showed that the vehicles
sold to plaintiffs were covered by a Trust Receipt Agreement executed between DMC-MAN
and defendant appellant-PNB."18 The appellate court, however, did not refer to any evidence
that would justify its findings. As such, the present case constitutes an exception to the rule
on the conclusiveness of findings of facts.19
In any case, this Court has the authority to review and reverse the factual findings of the
lower courts if, as in this case, it finds that such findings do not conform to the evidence on
record.20
1982, respectively.25 This is beside the point, however, for it is not the identity of the
promissory that is at issue but that of the units so imported.1âwphi1
Verily, PNB has failed to prove its claim by a preponderance of evidence, the weakness of its
evidence betrayed by the weakness of its arguments. SIHI, for its part, has successfully
discharged its burden. It is undisputed that the subject notes were covered by the Deed of
Sale of receivables executed by DMC in petitioner’s favor. Accordingly, SIHI is entitled to the
promissory notes in question.
WHEREFORE, the petition is hereby given DUE COURSE and the Decision of the Court of
Appeals is REVERSED. The Decision of the Regional Trial Court is REINSTATED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Pardo, and Ynares-Santiago, JJ., concur.

The evidence for PNB fails to establish that the vehicles sold to the Francos were among
those covered by the trust receipts. As petitioner points out, neither the trust receipts
covering the units imported nor the corresponding bills of lading contain the chassis and
engine numbers of the vehicles in question.21

PNB asseverates that "the records of the case… is replete with evidence to show that the
subject vehicles are indeed covered by the trust receipts issued by DMC to PNB."22 However,
it has not pointed out which evidence specifically supports its claim. It does not even explain
why the bills of lading for the imported units do not contain the chassis numbers and serial
numbers of the subject vehicles.

PNB further asserts that assuming its evidence does not expressly and definitely identify the
subject properties the properties were nevertheless substantially described in PNB’s
documents, particularly the Deed of Assignment dated February 27, 1981.23

We find no such substantial description in said Deed of Assignment. On the contrary, the
Deed of Assignment begs the question.1âwphi1 The Deed states that a lien was thereby
constituted

from the sale on installments of units assembled from CKD’s to be imported from the
proceeds of the letter of creditaccommodation granted by the ASSIGNEE to the ASSIGNOR as
well as those imported from subsequent collectionfrom the proceeds of the sale thereof.24

But just what is the specific description of the units imported by the assignor DMC? Does the
Deed of Assignment include the subject vehicles? The Deed of Assignment does not say.

PNB adds that the Deed of Assignment could not have expressly and definitely mentioned
the promissory notes since said deed, executed on February 27, 1981, predates the notes,
which were dated July 18, 1981, September 23, 1981, February 12, 1982, and March 23,
 Republic of the Philippines On April 12, 1982, the then Court of First Instance of Cebu, Branch VII, acquitted the
SUPREME COURT VINTOLAS of the crime charged, after finding that the element of misappropriation or
Manila conversion was inexistent. Concluded the Court:

FIRST DIVISION Finally, it should be mentioned that under the trust receipt, in the event
of default and/or non-fulfillment on the part of the accused of their
G.R. No. 73271 May 29, 1987 undertaking, the bank is entitled to take possession of the goods or to
recover its equivalent value together with the usual charges. In either
case, the remedy of the Bank is civil and not criminal in nature. ... 2
SPOUSES TIRSO I. VINTOLA and LORETO DY VINTOLA, defendants-appellants,
vs.
INSULAR BANK OF ASIA AND AMERICA, plaintiff-appellee. Shortly thereafter, IBAA commenced the present civil action to recover the value of the
goods before the Regional Trial Court of Cebu, Branch XVI.

Holding that the complaint was barred by the judgment of acquittal in the criminal case, said
Court dismissed the complaint. However, on IBAA's motion, the Court granted
MELENCIO-HERRERA, J.:
reconsideration and:

This case was appealed to the Intermediate Appellate Court which, however, certified the
1. Order(ed)defendants jointly and severally to pay the plaintiff the sum
same to this Court, the issue involved being purely legal.
of Seventy Two Thousand Nine Hundred Eighty Two and 27/100
(P72,982.27), Philippine Currency, plus interest of 14% per annum and
The facts are not disputed. service charge of one (1%) per cent per annum computed from judicial
demand and until the obligation is fully paid;
On August 20, 1975 the spouses Tirso and Loreta Vintola (the VINTOLAS, for short), doing
business under the name and style "Dax Kin International," engaged in the manufacture of 2. Ordered defendants jointly and severally to pay attorney's fees to the
raw sea shells into finished products, applied for and were granted a domestic letter of credit plaintiff in the sum of Four Thousand (P4,000.00) pesos, Philippine
by the Insular Bank of Asia and America (IBAA), Cebu City. 1 in the amount of P40,000.00. The Currency, plus costs of the suit. 3
Letter of Credit authorized the bank to negotiate for their account drafts drawn by their
supplier, one Stalin Tan, on Dax Kin International for the purchase of puka and olive
The VINTOLAS rest their present appeal on the principal allegation that their acquittal in the
seashells. In consideration thereof, the VINTOLAS, jointly and severally, agreed to pay the
Estafa case bars IBAA's filing of the civil action because IBAA had not reserved in the criminal
bank "at maturity, in Philippine currency, the equivalent, of the aforementioned amount or
case its right to enforce separately their civil liability. They maintain that by intervening
such portion thereof as may be drawn or paid, upon the faith of the said credit together with
actively in the prosecution of the criminal case through a private prosecutor, IBAA had
the usual charges."
chosen to file the civil action impliedly with the criminal action, pursuant to Section 1, Rule
111 of the 1985 Rules on Criminal Procedure, reading:
On the same day, August 20, 1975, having received from Stalin Tan the puka and olive shells
worth P40,000.00, the VINTOLAS executed a Trust Receipt agreement with IBAA, Cebu City.
Section 1. Institution of criminal and civil action. — When a criminal
Under that Agreement, the VINTOLAS agreed to hold the goods in trust for IBAA as the
action is instituted, the civil action for the recovery of civil liability arising
"latter's property with liberty to sell the same for its account, " and "in case of sale" to turn
from the offense charged is impliedly instituted with the criminal action,
over the proceeds as soon as received to (IBAA) the due date indicated in the document was
unless the offended party expressly waives the civil action or reserves his
October 19, 1975.
right to institute it separately. ...

Having defaulted on their obligation, IBAA demanded payment from the VINTOLAS in a letter
and that since the judgment in the criminal case had made a declaration that the facts from
dated January 1, 1976. The VINTOLAS, who were unable to dispose of the shells, responded
which the civil action might arise did not exist, the filing of the civil action arising from the
by offering to return the goods. IBAA refused to accept the merchandise, and due to the
offense is now barred, as provided by Section 3-b of Rule 111 of the same Rules providing:
continued refusal of the VINTOLAS to make good their undertaking, IBAA charged them with
Estafa for having misappropriated, misapplied and converted for their own personal use and
benefit the aforesaid goods. During the trial of the criminal case the VINTOLAS turned over (b) Extinction of the penal action does not carry with it extinction of the
the seashells to the custody of the Trial Court. civil, unless the extinction proceeds from a declaration in a final judgment
 that the fact from which the civil might arise did not exist. In other cases,
the person entitled to the civil action may institute it in the jurisdiction in
the manner provided by law against the person who may be liable for
restitution of the thing and reparation or indemnity for the damage
suffered.
Further, the VINTOLAS take the position that their obligation to IBAA has been extinguished
inasmuch as, through no fault of their own, they were unable to dispose of the seashells, and
that they have relinguished possession thereof to the IBAA, as owner of the goods, by
depositing them with the Court.
The foregoing submission overlooks the nature and mercantile usage of the transaction
involved. A letter of credit-trust receipt arrangement is endowed with its own distinctive
features and characteristics. Under that set-up, a bank extends a loan covered by the Letter
of Credit, with the trust receipt as a security for the loan. In other words, the transaction
involves a loan feature represented by the letter of credit, and a security feature which is in
the covering trust receipt.
Thus, Section 4 of P.D. No. 115 defines a trust receipt transaction as:
... any transaction by and between a person referred to in this Decree as
the entruster, and another person referred to in this Decree as the
entrustee, whereby the entruster, who owns or holds absolute title or
security interests over certain specified goods, documents or
instruments, releases the same to the possession of the entrustee upon
the latter's execution and delivery to the entruster of a signed document
called a "trust receipt" wherein the entrustee binds himself to hold the
designated goods, documents or instruments in trust for the entruster
and to sell or otherwise dispose of the goods, documents or instrument
thereof to the extent of the amount owing to the entruster or as appears
in the trust receipt or the goods, documents or instruments themselves if
they are unsold or not otherwise disposed of, in accordance with the
terms and conditions specified in the trust receipt, or for other purposes
substantially equivalent to any one of the following:
1. In the case of goods or documents, (a) to sell the goods or procure
their sale, ...
A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a
"security interest" in the goods. "It secures an indebtedness and there can be no such thing
as security interest that secures no obligation." 4As defined in our laws:
(h) "Security Interest"means a property interest in goods, documents or
instruments to secure performance of some obligations of the entrustee
or of some third persons to the entruster and includes title, whether or
not expressed to be absolute, whenever such title is in substance taken
or retained for security only. 5
As elucidated in Samo vs. People6 "a trust receipt is considered as a security transaction
intended to aid in financing importers and retail dealers who do not have sufficient funds or
resources to finance the importation or purchase of merchandise, and who may not be able
to acquire credit except through utilization, as collateral of the merchandise imported or
purchased."
Contrary to the allegation of the VINTOLAS, IBAA did not become the real owner of the
goods. It was merely the holder of a security title for the advances it had made to the
VINTOLAS The goods the VINTOLAS had purchased through IBAA financing remain their own
property and they hold it at their own risk. The trust receipt arrangement did not convert the
IBAA into an investor; the latter remained a lender and creditor.
... for the bank has previously extended a loan which the L/C represents
to the importer, and by that loan, the importer should be the real owner
of the goods. If under the trust receipt, the bank is made to appear as the
owner, it was but an artificial expedient, more of a legal fiction than fact,
for if it were so, it could dispose of the goods in any manner it wants,
which it cannot do, just to give consistency with the purpose of the trust
receipt of giving a stronger security for the loan obtained by the
importer. To consider the bank as the true owner from the inception of
the transaction would be to disregard the loan feature thereof. ... 7
Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim
that because they have surrendered the goods to IBAA and subsequently deposited them in
the custody of the court, they are absolutely relieved of their obligation to pay their loan
because of their inability to dispose of the goods. The fact that they were unable to sell the
seashells in question does not affect IBAA's right to recover the advances it had made under
the Letter of Credit. In so arguing, the VINTOLAS conveniently close their eyes to their
application for a Letter of Credit wherein they expressly obligated themselves in these terms:
IN CONSIDERATION THEREOF, I/we promise and agree to pay you at
maturity in Philippine Currency the equivalent of the above amount or
such portion thereof as may be drawn or paid upon the faith of said
credit together with the usual charges. ... (Exhibit "A")
They further agreed that their marginal deposit of P8,000.00, later increased to P11,000.00
be applied, without further proceedings or formalities to pay or reduce
our obligation under this letter of credit or its corresponding Trust
Receipt. (Emphasis supplied) 8
The foregoing premises considered, it follows that the acquittal of the VINTOLAS in the Estafa
case is no bar to the institution of a civil action for collection. It is inaccurate for the
VINTOLAS to claim that the judgment in the estafa case had declared that the facts from
which the civil action might arise, did not exist, for, it will be recalled that the decision of
acquittal expressly declared that "the remedy of the Bank is civil and not criminal in nature."
This amounts to a reservation of the civil action in IBAA's favor, for the Court would not have
dwelt on a civil liability that it had intended to extinguish by the same decision. 9 The
VINTOLAS are liable ex contractu for breach of the Letter of Credit — Trust Receipt, whether
they did or they did not "misappropriate, misapply or convert" the merchandise as charged
in the criminal case. 10 Their civil liability does not arise ex delicto, the action for the recovery
of which would have been deemed instituted with the criminal-action (unless waived or
reserved) and where acquittal based on a judicial declaration that the criminal acts charged
do not exist would have extinguished the civil action. 11 Rather, the civil suit instituted by
IBAA is based ex contractu and as such is distinct and independent from any criminal
proceedings and may proceed regardless of the result of the latter. Under the situational
circumstances of the parties, they are governed by Article 31 of the Civil Code, explicitly
providing:

Art. 31. When the civil action is based on an obligation not arising from
the act or omission complained of as a felony, such civil action may
proceed independently of the criminal proceedings and regardless of the
result of the latter.

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

SO ORDERED.

Yap (Chairman), Narvasa, Cruz, Gancayco, and Sarmiento, JJ., concur.

Feliciano, J., is on leave.

 FIRST DIVISION
[G.R. No. 90828. September 5, 2000]
MELVIN COLINARES and LORDINO VELOSO, petitioners, vs. HONORABLE COURT OF
APPEALS, and THE PEOPLE OF THE PHILIPPINES, respondents.
DECISION
DAVIDE, JR., C.J.:
In 1979 Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted
for a consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate
the latters convent at Camaman-an, Cagayan de Oro City.
On 30 October 1979, Petitioners obtained 5,376 SF Solatone acoustical board 2x4x, 300
SF tanguile wood tiles 12x12, 260 SF Marcelo economy tiles and 2 gallons UMYLIN cement
adhesive from CM Builders Centre for the construction project.[1] The following day, 31
October 1979, Petitioners applied for a commercial letter of credit [2] with the Philippine
Banking Corporation, Cagayan de Oro City branch (hereafter PBC) in favor of CM Builders
Centre. PBC approved the letter of credit[3] for P22,389.80 to cover the full invoice value of
the goods.Petitioners signed a pro-forma trust receipt[4] as security. The loan was due on 29
January 1980.
On 31 October 1979, PBC debited P6,720 from Petitioners marginal deposit as partial
payment of the loan.[5]
On 7 May 1980, PBC wrote[6] to Petitioners demanding that the amount be paid within
seven days from notice. Instead of complying with PBCs demand, Veloso confessed that they
lostP19,195.83 in the Carmelite Monastery Project and requested for a grace period of until
15 June 1980 to settle the account.[7]
PBC sent a new demand letter[8]to
Petitioners on 16 October 1980 and informed them
that their outstanding balance as of 17 November 1979 was P20,824.40 exclusive of
attorneys fees of 25%.[9]
On 2 December 1980, Petitioners proposed[10] that the terms of payment of the loan be
modified as follows: P2,000 on or before 3 December 1980, and P1,000 per month starting
31 January 1980 until the account is fully paid. Pending approval of the proposal, Petitioners
paid P1,000 to PBC on 4 December 1980,[11] and thereafter P500 on 11 February 1981,[12] 16
March 1981,[13] and 20 April 1981.[14] Concurrently with the separate demand for attorneys
fees by PBCs legal counsel, PBC continued to demand payment of the balance.[15]
On 14 January 1983, Petitioners were charged with the violation of P.D. No. 115 (Trust
Receipts Law) in relation to Article 315 of the Revised Penal Code in an Information which
was filed with Branch 18, Regional Trial Court of Cagayan de Oro City. The accusatory portion
of the Information reads:
That on or about October 31, 1979, in the City of Cagayan de Oro, Philippines, and within the
jurisdiction of this Honorable Court, the above-named accused entered into a trust receipt
agreement with the Philippine Banking Corporation at Cagayan de Oro City wherein the
accused, as entrustee, received from the entruster the following goods to wit:
Solatone Acoustical board
Tanguile Wood Tiles
Marcelo Cement Tiles
Umylin Cement Adhesive
with a total value of P22,389.80, with the obligation on the part of the accused-entrustee to
hold the aforesaid items in trust for the entruster and/or to sell on cash basis or otherwise
dispose of the said items and to turn over to the entruster the proceeds of the sale of said
goods or if there be no sale to return said items to the entruster on or before January 29,
1980 but that the said accused after receipt of the goods, with intent to defraud and cause
damage to the entruster, conspiring, confederating together and mutually helping one
another, did then and there wilfully, unlawfully and feloniously fail and refuse to remit the
proceeds of the sale of the goods to the entruster despite repeated demands but instead
converted, misappropriated and misapplied the proceeds to their own personal use, benefit
and gain, to the damage and prejudice of the Philippine Banking Corporation, in the aforesaid
sum of P22,389.80, Philippine Currency.
Contrary to PD 115 in relation to Article 315 of the Revised Penal Code.[16]
The case was docketed as Criminal Case No. 1390.
During trial, petitioner Veloso insisted that the transaction was a clean loan as per
verbal guarantee of Cayo Garcia Tuiza, 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.[17]
On 7 July 1986, the trial court promulgated its decision[18] convicting Petitioners of
estafa for violating P.D. No. 115 in relation to Article 315 of the Revised Penal Code and
sentencing each of them to suffer imprisonment of two years and one day of prision
correccional as minimum to six years and one day of prision mayor as maximum, and to
solidarily indemnify PBC the amount of P20,824.44, with legal interest from 29 January 1980,
12 % penalty charge per annum, 25% of the sums due as attorneys fees, and costs.
The trial court considered the transaction between PBC and Petitioners as a trust
receipt transaction under Section 4, P.D. No. 115. It considered Petitioners use of the goods
in their Carmelite monastery project an act of disposing as contemplated under Section 13,
P.D. No. 115, and treated the charge invoice[19] for goods issued by CM Builders Centre as a
document within the meaning of Section 3 thereof. It concluded that the failure of
Petitioners to turn over the amount they owed to PBC constituted estafa.
Petitioners appealed from the judgment to the Court of Appeals which was docketed as
CA-G.R. CR No. 05408. Petitioners asserted therein that the trial court erred in ruling that
they violated the Trust Receipt Law, and in holding them criminally liable therefor. In the
alternative, they contend that at most they can only be made civilly liable for payment of the
loan.
In its decision[20] 6 March 1989, the Court of Appeals modified the judgment of the trial
court by increasing the penalty to six years and one day of prision mayor as minimum to
fourteen years eight months and one day of reclusion temporal as maximum. It held that the
documentary evidence of the prosecution prevails over Velosos testimony, discredited
Petitioners claim that the documents they signed were in blank, and disbelieved that they
were coerced into signing them.
On 25 March 1989, Petitioners filed a Motion for New Trial/Reconsideration[21] alleging
that the Disclosure Statement on Loan/Credit Transaction[22] (hereafter Disclosure
Statement) signed by them and Tuiza was suppressed by PBC during the trial. That document
would have proved that the transaction was indeed a loan as it bears a 14% interest as
opposed to the trust receipt which does not at all bear any interest. Petitioners further
maintained that when PBC allowed them to pay in installment, the agreement was novated
and a creditor-debtor relationship was created.
In its resolution[23]of 16 October 1989 the Court of Appeals denied the Motion for New
Trial/Reconsideration because the alleged newly discovered evidence was actually forgotten
evidence already in existence during the trial, and would not alter the result of the case.
Hence, Petitioners filed with us the petition in this case on 16 November 1989. They
raised the following issues:
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,[24] and that the PBC executed an Affidavit of desistance.[25]
We required the Solicitor General to comment on the Motion to Dismiss.
In its Comment of 30 July 1990, the Solicitor General opined that payment of the loan
was akin to a voluntary surrender or plea of guilty which merely serves to mitigate
Petitioners culpability, but does not in any way extinguish their criminal liability.
In the Resolution of 13 August 1990, we gave due course to the Petition and required
the parties to file their respective memoranda.
The parties subsequently filed their respective memoranda.
It was only on 18 May 1999 when this case was assigned to the ponente. Thereafter,
we required the parties to move in the premises and for Petitioners to manifest if they are
still interested in the further prosecution of this case and inform us of their present
whereabouts and whether their bail bonds are still valid.
Petitioners submitted their Compliance.
The core issues raised in the petition are the denial by the Court of Appeals of
Petitioners Motion for New Trial and the true nature of the contract between Petitioners and
the PBC. As to the latter, Petitioners assert that it was an ordinary loan, not a trust receipt
agreement under the Trust Receipts Law.
The grant or denial of a motion for new trial rests upon the discretion of the
judge. New trial may be granted if: (1) errors of law or irregularities have been committed
during the trial prejudicial to the substantial rights of the accused; or (2) new and material
evidence has been discovered which the accused could not with reasonable diligence have
discovered and produced at the trial, and which, if introduced and admitted, would probably
change the judgment.[26]
For newly discovered evidence to be a ground for new trial, such evidence must be (1)
discovered after trial; (2) could not have been discovered and produced at the trial even with
the exercise of reasonable diligence; and (3) material, not merely cumulative, corroborative,
or impeaching, and of such weight that, if admitted, would probably change the
judgment.[27] It is essential that the offering party exercised reasonable diligence in seeking
to locate the evidence before or during trial but nonetheless failed to secure it.[28]
We find no indication in the pleadings that the Disclosure Statement is a newly
discovered evidence.
Petitioners could not have been unaware that the two-page document exists. The
Disclosure Statement itself states, NOTICE TO BORROWER: YOU ARE ENTITLED TO A COPY OF
THIS PAPER WHICH YOU SHALL SIGN.[29] Assuming Petitioners copy was then unavailable,
they could have compelled its production in court,[30] which they never did. Petitioners have
miserably failed to establish the second requisite of the rule on newly discovered evidence.
Petitioners themselves admitted that they searched again their voluminous records,
meticulously and patiently, until they discovered this new and material evidence only upon
learning of the Court of Appeals decision and after they were shocked by the penalty
imposed.[31] Clearly, the alleged newly discovered evidence is mere forgotten evidence that
jurisprudence excludes as a ground for new trial.[32]
However, the second issue should be resolved in favor of Petitioners.
Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt transaction as
any transaction by and between a person referred to as the entruster, and another person
referred to as the entrustee, whereby the entruster who owns or holds absolute title or
security interest over certain specified goods, documents or instruments, releases the same
to the possession of the entrustee upon the 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.[33]
Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by
the trust receipt to the entruster or to return said goods if they were not disposed of in
accordance with the terms of the trust receipt shall be punishable as estafa under Article 315
(1) of the Revised Penal Code,[34] without need of proving intent to defraud.
A thorough examination of the facts obtaining in the case at bar reveals that the
transaction intended by the parties was a simple loan, not a trust receipt agreement.
Petitioners received the merchandise from CM Builders Centre on 30 October 1979. On
that day, ownership over the merchandise was already transferred to Petitioners who were
to use the materials for their construction project. It was only a day later, 31 October 1979,
that they went to the bank to apply for a loan to pay for the merchandise.
This situation belies what normally obtains in a pure trust receipt transaction where
goods are owned by the bank and only released to the importer in trust subsequent to the
grant of the loan. The bank acquires a security interest in the goods as holder of a security
title for the advances it had made to the entrustee.[35] The ownership of the merchandise
continues to be vested in the person who had advanced payment until he has been paid in
full, or if the merchandise has already been sold, the proceeds of the sale should be turned
over to him by the importer or by his representative or successor in interest.[36] To secure
that the bank shall be paid, it takes full title to the goods at the very beginning and continues
to hold that title as his indispensable security until the goods are sold and the vendee is
called upon to pay for them; hence, the importer has never owned the goods and is not able
to deliver possession.[37] In a certain manner, trust receipts partake of the nature of a
conditional sale where the importer becomes absolute owner of the imported merchandise
as soon as he has paid its price.[38]
Trust receipt transactions are intended to aid in financing importers and retail dealers
who do not have sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through utilization, as
collateral, of the merchandise imported or purchased.[39]
The antecedent acts in a trust receipt transaction consist of the application and
approval of the letter of credit, the making of the marginal deposit and the effective
importation of goods through the efforts of the importer.[40]
PBC attempted to cover up the true delivery date of the merchandise, yet the trial
court took notice even though it failed to attach any significance to such fact in the
judgment. Despite the Court of Appeals contrary view that the goods were delivered to
Petitioners previous to the execution of the letter of credit and trust receipt, we find that the
records of the case speak volubly and this fact remains uncontroverted. It is not uncommon
for us to peruse through the transcript of the stenographic notes of the proceedings to be
satisfied that the records of the case do support the conclusions of the trial court. [41] After
such perusal Grego Mutia, 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.[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 interest[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:
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.

Q Testimony was given here that that was covered by trust receipt. In short it was a Kapunan, and Pardo, JJ., concur.
special kind of loan. What can you say as to that? Puno, J., no part.
Ynares-Santiago, J., on leave.
A I dont think that would be a trust receipt because we were made to understand by the
manager who encouraged us to avail of their facilities that they will be granting us
a loan[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.[45] Here, it is crystal clear
that on the part of Petitioners there was neither dishonesty nor abuse of confidence in the
handling of money to the prejudice of PBC. Petitioners continually endeavored to meet their
obligations, as shown by several receipts issued by PBC acknowledging payment of the loan.

The Information charges Petitioners with intent to defraud and misappropriating the
money for their personal use. The mala prohibita nature of the alleged offense
notwithstanding, intent as a state of mind was not proved to be present in Petitioners
situation. Petitioners employed no artifice in dealing with PBC and never did they evade
payment of their obligation nor attempt to abscond. Instead, Petitioners sought favorable
terms precisely to meet their obligation.

Also noteworthy is the fact that Petitioners are not importers acquiring the goods for
re-sale, contrary to the express provision embodied in the trust receipt. They are contractors
who obtained the fungible goods for their construction project. At no time did title over the
construction materials pass to the bank, but directly to the Petitioners from CM Builders
Centre. This impresses upon the trust receipt in question vagueness and ambiguity, which
should not be the basis for criminal prosecution in the event of violation of its provisions. [46]

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