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G.R. No. 81559-60 April 6, 1992 Revised Penal Code.

The Court relied on the judicial


pronouncements in People v. Cuevo, where, for lack
PEOPLE OF THE PHILIPPINES and ALLIED of the required number of votes, this Court upheld
BANKING CORPORATION vs. HON. JUDGE the dismissal of a charge for estafa for a violation of
DAVID G. NITAFAN and BETTY SIA ANG a trust receipt agreement; and in Sia v. People
where we held that the violation merely gives rise to
FACTS: Petitioner Allied Banking Corporation a civil obligation.
charged Betty Sia Ang with estafa, alleging that the
said accused, being then the proprietress of Eckart PRIVATE RESPONDENT’S CONTENTION
Enterprises feloniously defraud Allied Banking
Corporation, represented by its Account Officer, The private respondent adopted practically the same
Raymund S. Li, in the following manner, to wit: stance of the lower court. She likewise asserts that
P.D. 115 is unconstitutional as it violates the
- the said accused received in trust from the constitutional prohibition against imprisonment for
aforesaid bank Gordon Plastics, plastic non-payment of a debt. She argues that where no
sheeting and Hook Chromed, in the total malice exists in a breach of a purely commercial
amount of P398,000.00, specified in a trust undertaking, P.D. 115 imputes it.
receipt and covered by Domestic Letter of
Credit No. DLC-002-801254, under the ISSUE: whether an entrustee in a trust receipt
express obligation on the part of said agreement who fails to deliver the proceeds of the
accused to sell the same and account for the sale or to return the goods if not sold to the
proceeds of the sale thereof, if sold, or to entruster-bank is liable for the crime of estafa—YES
return said merchandise, if not sold, on or
before October 16, 1980, or upon demand HELD:
- but the said accused, once in possession of
the said articles, far from complying with the The factual circumstances in the present case show
aforesaid obligation, notwithstanding that the alleged violation was committed sometime
repeated demands made upon her to that in 1980 or during the effectivity of P.D. 115. The
effect, paid only the amount of P283,115.78, failure, therefore, to account for the P114,884.22
thereby leaving unaccounted for the amount balance is what makes the accused-respondent
of P114,884.22 which, once in her criminally liable for estafa. The Court reiterates its
possession, with intent to defraud, she definitive ruling that, in the Cuevo and Sia (1983)
misappropriated, misapplied and converted cases relied upon by the accused, P.D. 115 was not
to her own personal use and benefit, to the applied because the questioned acts were
damage and prejudice of said Allied Banking committed before its effectivity. At the time those
Corporation in the aforesaid sum of cases were decided, the failure to comply with the
P114,884.22. obligations under the trust receipt was susceptible
to two interpretations. The Court in Sia adopted the
The accused filed a motion to quash the information view that a violation gives rise only to a civil liability
on the ground that the facts charged do not as the more feasible view "before the promulgation
constitute an offense. of P.D. 115," notwithstanding prior decisions where
we ruled that a breach also gives rise to a liability for
RTC’S RULING estafa.

The respondent judge granted the motion to quash. Contrary to the reasoning of the respondent court
The order was anchored on the premise that a trust and the accused, a trust receipt arrangement does
receipt transaction is an evidence of a loan being not involve a simple loan transaction between a
secured so that there is, as between the parties to creditor and debtor-importer. Apart from a loan
it, a creditor-debtor relationship. The court ruled that feature, the trust receipt arrangement has a security
the penal clause of Presidential Decree No. 15 on the feature that is covered by the trust receipt itself.
Trust Receipts Law is inoperative because it does not That second feature is what provides the much
actually punish an offense mala prohibita. The law needed financial assistance to our traders in the
only refers to the relevant estafa provision in the importation or purchase of goods or merchandise
through the use of those goods or merchandise as and is, thus, constitutional. The arguments of the
collateral for the advancements made by a bank. respondent are appropriate for a repeal or
The title of the bank to the security is the one sought modification of the law and should be directed to
to be protected and not the loan which is a separate Congress. But until the law is repealed, we are
and distinct agreement. constrained to apply it.

The Trust Receipts Law punishes the dishonesty and WHEREFORE, the petition is hereby GRANTED.
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 seek to enforce payment of the loan. Thus, there
can be no violation of a right against imprisonment
for non-payment of a debt.

Trust receipts are indispensable contracts in


international and domestic business transactions.
The prevalent use of trust receipts, the danger of
their misuse and/or misappropriation of the goods or
proceeds realized from the sale of goods, documents
or instruments held in trust for entruster-banks, and
the need for regulation of trust receipt transactions ROSARIO TEXTILE MILLS CORPORATION and
to safeguard the rights and enforce the obligations EDILBERTO YUJUICO vs. HOME BANKERS
of the parties involved are the main thrusts of P.D. SAVINGS AND TRUST COMPANY
115. As correctly observed by the Solicitor General,
P.D. 115, like Batas Pambansa Blg. 22, punishes the FACTS:
act "not as an offense against property, but as an
offense against public order. . . ." The misuse of trust
Rosario Textile Mills Corporation (RTMC) applied
receipts therefore should be deterred to prevent any
from Home Bankers Savings & Trust Co. for an
possible havoc in trade circles and the banking
Omnibus Credit Line for ₱10 million. The bank
community. It is in the context of upholding public
approved RTMC’s credit line but for only ₱8 million.
interest that the law now specifically designates a
The bank notified RTMC of the grant of the said loan
breach of a trust receipt agreement to be an act that
thru a letter which contains terms and conditions
"shall" make one liable for estafa.
conformed by RTMC thru Edilberto V. Yujuico.
Yujuico then signed a Surety Agreement in favor of
The offense is punished as a malum the bank, in which he bound himself jointly and
prohibitum regardless of the existence of intent or severally with RTMC for the payment of all RTMC’s
malice. A mere failure to deliver the proceeds of the indebtedness to the bank from 1989 to 1990. RTMC
sale or the goods if not sold, constitutes a criminal availed of the credit line by making numerous
offense that causes prejudice not only to another, drawdowns, each drawdown being covered by a
but more to the public interest. separate promissory note and trust receipt. RTMC,
represented by Yujuico, executed in favor of the
We are continually re-evaluating the opposite view bank a total of eleven (11) promissory notes.
which insists that the violation of a trust receipt
agreement should result only in a civil action for Despite the lapse of the respective due dates under
collection. The respondent contends that there is no the promissory notes and notwithstanding the
malice involved. bank’s demand letters, RTMC failed to pay its loans.
Hence, the bank filed a complaint for sum of money
As earlier stated, however, the law punishes the against RTMC and Yujuico before the RTC Manila.
dishonesty and abuse of confidence in the handling
of money or goods to the prejudice of the bank. In their answer, RTMC and Yujuico contend that they
should be absolved from liability. They claimed that
The Court reiterates that the enactment of P.D. 115 although the grant of the credit line and the
is a valid exercise of the police power of the State execution of the suretyship agreement are admitted,
the bank gave assurance that the suretyship loan to purchase raw materials from a supplier
agreement was merely a formality under which abroad. In order to secure the payment of the
Yujuico will not be personally liable. They argue that loan, RTMC delivered the raw materials to the
the importation of raw materials under the credit line bank as collateral. Trust receipts were executed
was with a grant of option to them to turn-over to by the parties to evidence this security
the bank the imported raw materials should these arrangement. Simply stated, the trust receipts
fail to meet their manufacturing requirements. RTMC were mere securities.
offered to make such turn-over since the imported
materials did not conform to the required In Sia vs. People, Abad vs. Court of
specifications. However, the bank refused to accept Appeals, and PNB vs. Pineda, it was held that:
the same, until the materials were destroyed by a
fire which gutted down RTMC’s premises. "If under the trust receipt, the bank is made to
appear as the owner, it was but an artificial
RTC: Rendered a judgment in favor of plaintiff and expedient, more of legal fiction than fact, for if it
against defendants who are ordered to pay jointly were really so, it could dispose of the goods in
and severally in favor of plaintiff, inclusive of any manner it wants, which it cannot do, just to
stipulated 30% per annum interest and penalty of give consistency with purpose of the trust receipt
3% per month until fully paid. of giving a stronger security for the loan obtained
by the importer. To consider the bank as the
RTMC and Yujuico: Under the trust receipt true owner from the inception of the
contracts between the parties, they merely held transaction would be to disregard the loan
the goods described therein in trust for feature thereof..."
respondent bank which owns the same. Since
the ownership of the goods remains with the bank, Thus, petitioners cannot be relieved of their
then it should bear the loss. With the destruction of obligation to pay their loan in favor of the bank.
the goods by fire, petitioners should have been
relieved of any obligation to pay. 2. YES. Yujuico’s contentions were rejected for two
reasons:
CA: Affirmed the trial court’s judgment, holding that
the bank is merely the holder of the security for its a. there is no record to support his allegation
advance payments to petitioners; and that the goods that the surety agreement is a "mere
they purchased, through the credit line extended by formality;"
the bank, belong to them and hold said goods at b. As correctly held by the Court of Appeals, the
their own risk. Suretyship Agreement signed by petitioner
Yujuico binds him. The terms clearly show
ISSUES: that he agreed to pay the bank jointly and
severally with RTMC. The parole evidence
1. Whether petitioners are relieved of their rule under Section 9, Rule 130 of the Revised
obligation to pay their loan after they tried to Rules of Court is in point, thus:
tender the goods to the bank which refused
to accept the same, and which goods were "SEC. 9. Evidence of written agreements . – When
subsequently lost in a fire. (NO) the terms of an agreement have been reduced in
2. Whether petitioners are solidarily liable for writing, it is considered as containing all the terms
the payment of their obligations to the bank. agreed upon and there can be, between the parties
(YES) and their successors in interest, no evidence of such
3. Whether the Court of Appeals violated the terms other than the contents of the written
Trust Receipts Law. (NO) agreement.

RULING: However, a party may present evidence to modify,


explain, or add to the terms of the written
1. NO. It is clear that the principal transaction agreement if he puts in issue in his pleading:
between petitioner RTMC and the bank is a
contract of loan. RTMC used the proceeds of this (a) An intrinsic ambiguity, mistake, or
imperfection in the written agreement;
(b) The failure of the written agreement to acquire credit except through utilization, as
express the true intent and agreement of the collateral, of the merchandise imported or
parties thereto; purchased. (Samo vs. People)
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to A security agreement, pursuant to which a bank
by the parties or their successors in interest acquires a ‘security interest’ in the goods. It
after the execution of the written agreement. secures an indebtedness and there can be no
such thing as security interest that secures
x x x." no obligation." (Vintola vs. Insular Bank of
Asia and America)
Under this Rule, the terms of a contract are rendered
conclusive upon the parties and evidence aliunde is ▪ Security Interest: a property interest in goods,
not admissible to vary or contradict a complete and documents, or instruments to secure
enforceable agreement embodied in a document. performance of some obligation of the entrustee
Upon careful examination of the Suretyship or of some third persons to the entruster and
Agreement signed by Yujuico, it was found no includes title, whether or not expressed to be
ambiguity therein. Documents must be taken as absolute, whenever such title is in substance
explaining all the terms of the agreement between taken or retained for security only." (Section 3
the parties when there appears to be no ambiguity (h) of the Trust Receipts Law)
in the language of said documents nor any failure to
express the true intent and agreement of the parties.
Landl & Company (Phil.), Inc., et al. vs.
3. NO. The Court stress that the contract between Metropolitan Bank & Trust Co.
the parties is a loan. What respondent bank G.R. No. 159622, July 30, 2004, First
sought to collect as creditor was the loan it Division, J. Ynares Santiago
granted to petitioners. Petitioners’ recourse is to
sue their supplier, if indeed the materials were The possession by the bank of the goods
defective. under the trust receipts does not bar
collection of the loan. Mere possession does
WHEREFORE, the petition is DENIED. The not amount to foreclosure for foreclosure
assailed Decision and Resolution of the Court of denotes the procedure adopted by the
Appeals are AFFIRMED IN TOTO. mortgagee to terminate the rights of the
mortgagor on the property and includes the
NOTES: sale itself. Neither can said repossession
amount to dacion en pago. Dation in payment
▪ credit line: that amount of money or takes place when property is alienated to the
merchandise which a banker, merchant, or creditor in satisfaction of a debt in money and
supplier agrees to supply to a person on credit the same is governed by sales. Dation in
and generally agreed to in advance." It is the payment is the delivery and transmission of
fixed limit of credit granted by a bank, retailer, ownership of a thing by the debtor to the
or credit card issuer to a customer, to the full creditor as an accepted equivalent of the
extent of which the latter may avail himself of his performance of the obligation.
dealings with the former but which he must not
exceed and is usually intended to cover a series Facts:
of transactions in which case, when the
customer’s line of credit is nearly exhausted, he Respondent Metrobank filed a complaint for sum of
is expected to reduce his indebtedness by money against Landl and its directors, Percival G.
payments before making any further drawings. Llaban and Manuel P. Lucente before the Regional
▪ trust receipt: a security transaction intended to Trial Court of Cebu City.
aid in financing importers and retail dealers who
do not have sufficient funds or resources to Respondent alleged that petitioner corporation is
finance the importation or purchase of engaged in the business of selling imported welding
merchandise, and who may not be able to rods and alloys. On June 17, 1983, it opened
Commercial Letter of Credit with respondent bank,
in the amount of US$19,606.77, which was The proceeds of the auction sale were insufficient to
equivalent to P218,733.92 in Philippine currency at completely satisfy petitioners outstanding obligation
the time the transaction was consummated. The to respondent bank, notwithstanding the application
letter of credit was opened to purchase various of the time deposit account of petitioner Lucente.
welding rods and electrodes from Perma Alloys, Inc., Accordingly, respondent bank demanded that
New York, U.S.A., as evidenced by a Pro-Forma petitioners pay the remaining balance of their
Invoice dated March 10, 1983. Petitioner corporation obligation. After petitioners failed to do so,
put up a marginal deposit of P50,414.00 from the respondent bank instituted the instant case to collect
proceeds of a separate clean loan. the said deficiency.

As an additional security, and as a condition for the Ruling of the RTC:


approval of petitioner corporations application for
the opening of the commercial letter of credit, Ruled in favor of respondent Bank.
respondent bank required petitioners Llaban and
Lucente to execute a Continuing Suretyship Ruling of the CA:
Agreement to the extent of P400,000.00, excluding
interest, in favor of respondent bank. Petitioner Affirmed in toto the decision of the RTC.
Lucente also executed a Deed of Assignment in the
amount of P35,000.00 in favor of respondent bank Issue:
to cover the amount of petitioner corporations
obligation to the bank. Upon compliance with these Whether or not possession by the bank of the goods
requisites, respondent bank opened an irrevocable under the trust receipts does not bar collection of
letter of credit for the petitioner corporation. the loan.

To secure the indebtedness of petitioner Ruling:


corporation, respondent bank required the execution
of a Trust Receipt in an amount equivalent to the The initial repossession by the bank of the goods
letter of credit, on the condition that petitioner subject of the trust receipt did not result in the full
corporation would hold the goods in trust for satisfaction of the petitioners’ loan obligation.
respondent bank, with the right to sell the goods and Petitioners are apparently laboring under the
the obligation to turn over to respondent bank the mistaken impression that the full turn-over of the
proceeds of the sale, if any. If the goods remained goods suffices to divest them of their obligation to
unsold, petitioner corporation had the further repay the principal amount of their loan obligation.
obligation to return them to respondent bank on or The entrustee’s possession of the subject machinery
before November 23, 1983. Thereafter, upon arrival and equipment being precisely as a form of security
of the goods in the Philippines, petitioner corporation for the advances given to TCC under the Letter of
took possession and custody thereof. Credit, said possession by itself cannot be
considered payment of the loan secured thereby.
On November 23, 1983, the maturity date of the Payment would legally result only after PNB had
trust receipt, petitioner corporation defaulted in the foreclosed on said securities, sold the same and
payment of its obligation to respondent bank and applied the proceeds thereof to TCC’s loan
failed to turn over the goods to the latter On July 24, obligation. Mere possession does not amount to
1984, respondent bank demanded that Petitioners, foreclosure for foreclosure denotes the procedure
as entrustees, turn over the goods subject of the adopted by the mortgagee to terminate the rights of
trust receipt. On September 24, 1984, petitioners the mortgagor on the property and includes the sale
turned over the subject goods to the respondent itself. Neither can said repossession amount to
bank. dacion en pago. Dation in payment takes place when
property is alienated to the creditor in satisfaction of
On July 31, 1985, in the presence of representatives a debt in money and the same is governed by sales.
of the petitioners and respondent bank, the goods Dation in payment is the delivery and transmission
were sold at public auction. The goods were sold for of ownership of a thing by the debtor to the creditor
P30,000.00 to respondent bank as the highest as an accepted equivalent of the performance of the
bidder. obligation.
A trust receipt is inextricably linked with the primary supplier, one Stalin Tan, on Dax Kin International for
agreement between the parties. Time and again, we the purchase of puka and olive seashells. In
have emphasized that a trust receipt agreement is consideration thereof, the VINTOLAS, jointly and
merely a collateral agreement, the purpose of which severally, agreed to pay the bank "at maturity, in
is to serve as security for a loan. Thus, in Abad v. Philippine currency, the equivalent, of the
Court of Appeals, we ruled: A letter of credit-trust aforementioned amount or such portion thereof as
receipt arrangement is endowed with its own may be drawn or paid, upon the faith of the said
distinctive features and characteristics. Under that credit together with the usual charges."
set-up, a bank extends a loan covered by the letter
of credit, with the trust receipt as security for the On the same day, August 20, 1975, having received
loan. In other words, the transaction involves a loan from Stalin Tan the puka and olive shells worth
feature represented by the letter of credit, and a P40,000.00, the VINTOLAS executed a Trust Receipt
security feature which is in the covering trust receipt. agreement with IBAA, Cebu City. Under that
x x x. A trust receipt, therefore, is a security Agreement, the VINTOLAS agreed to hold the goods
agreement, pursuant to which a bank acquires a in trust for IBAA as the "latter's property with liberty
“security interest” in the goods. It secures an to sell the same for its account, " and "in case of
indebtedness and there can be no such thing as sale" to turn over the proceeds as soon as received
security interest that secures no obligation. The to (IBAA) the due date indicated in the document
Trust Receipts Law was enacted to safeguard was October 19, 1975.
commercial transactions and to offer an additional
layer of security to the lending bank. Trust receipts Having defaulted on their obligation, IBAA
are indispensable contracts in international and demanded payment from the VINTOLAS in a letter
domestic business transactions. The prevalent use of dated January 1, 1976. The VINTOLAS, who were
trust receipts, the danger of their misuse and/or unable to dispose of the shells, responded by
misappropriation of the goods or proceeds realized offering to return the goods. IBAA refused to accept
from the sale of goods, documents or instruments the merchandise, and due to the continued refusal
held in trust for entruster banks, and the need for of the VINTOLAS to make good their undertaking,
regulation of trust receipt transactions to safeguard IBAA charged them with Estafa for having
the rights and enforce the obligations of the parties misappropriated, misapplied and converted for their
involved are the main thrusts of the Trust Receipts own personal use and benefit the aforesaid goods.
Law. Court of First Instance of Cebu, Branch VII,
acquitted the VINTOLAS of the crime charged.
IBAA commenced the present civil action to recover
G.R. No. 73271 May 29, 1987 the value of the goods before the Regional Trial
Court of Cebu
SPOUSES TIRSO I. VINTOLA and LORETO DY VINTOLAS rest their present appeal on the principal
VINTOLA, defendants-appellants, allegation that their acquittal in the Estafa case bars
vs. IBAA's filing of the civil action because IBAA had not
INSULAR BANK OF ASIA AND reserved in the criminal case its right to enforce
AMERICA, plaintiff-appellee. separately their civil liability. They maintain that by
intervening actively in the prosecution of the criminal
case through a private prosecutor, IBAA had chosen
to file the civil action impliedly with the criminal
MELENCIO-HERRERA, J.: action.
Further, the VINTOLAS take the position that their
On August 20, 1975 the spouses Tirso and Loreta obligation to IBAA has been extinguished inasmuch
Vintola (the VINTOLAS, for short), doing business as, through no fault of their own, they were unable
under the name and style "Dax Kin International," to dispose of the seashells.
engaged in the manufacture of raw sea shells into ISSUE: WON the acquittal from estafa extinguishes
finished products, applied for and were granted a their civil liability?
domestic letter of credit by the Insular Bank of Asia
and America (IBAA), Cebu City. in the amount of HELD: A letter of credit-trust receipt arrangement is
P40,000.00. The Letter of Credit authorized the bank endowed with its own distinctive features and
to negotiate for their account drafts drawn by their characteristics. Under that set-up, a bank extends a
loan covered by the Letter of Credit, with the trust whenever such title is in substance taken or retained
receipt as a security for the loan. In other words, the for security only.
transaction involves a loan feature represented by
the letter of credit, and a security feature which is in As elucidated in Samo vs. People6 "a trust receipt is
the covering trust receipt. considered as a security transaction intended to aid
in financing importers and retail dealers who do not
Thus, Section 4 of P.D. No. 115 defines a trust have sufficient funds or resources to finance the
receipt transaction as: importation or purchase of merchandise, and who
may not be able to acquire credit except through
... any transaction by and between a utilization, as collateral of the merchandise imported
person referred to in this Decree as or purchased."
the entruster, and another person
referred to in this Decree as the Contrary to the allegation of the VINTOLAS, IBAA did
entrustee, whereby the entruster, not become the real owner of the goods. It was
who owns or holds absolute title or merely the holder of a security title for the advances
security interests over certain it had made to the VINTOLAS The goods the
specified goods, documents or VINTOLAS had purchased through IBAA financing
instruments, releases the same to the remain their own property and they hold it at their
possession of the entrustee upon the own risk.
latter's execution and delivery to the Since the IBAA is not the factual owner of the goods,
entruster of a signed document called the VINTOLAS cannot justifiably claim that because
a "trust receipt" wherein the they have surrendered the goods to IBAA and
entrustee binds himself to hold the subsequently deposited them in the custody of the
designated goods, documents or court, they are absolutely relieved of their obligation
instruments in trust for the entruster to pay their loan because of their inability to dispose
and to sell or otherwise dispose of the of the goods. The fact that they were unable to sell
goods, documents or instrument the seashells in question does not affect IBAA's right
thereof to the extent of the amount to recover the advances it had made under the
owing to the entruster or as appears Letter of Credit.
in the trust receipt or the goods, The foregoing premises considered, it follows that
documents or instruments the acquittal of the VINTOLAS in the Estafa case is
themselves if they are unsold or not no bar to the institution of a civil action for collection.
otherwise disposed of, in accordance It is inaccurate for the VINTOLAS to claim that the
with the terms and conditions judgment in the estafa case had declared that the
specified in the trust receipt, or for facts from which the civil action might arise, did not
other purposes substantially exist, for, it will be recalled that the decision of
equivalent to any one of the acquittal expressly declared that "the remedy of the
following: Bank is civil and not criminal in nature." This
amounts to a reservation of the civil action in IBAA's
1. In the case of goods or documents, favor, for the Court would not have dwelt on a civil
(a) to sell the goods or procure their liability that it had intended to extinguish by the
sale, ... same decision. 9 The VINTOLAS are liable ex
contractu for breach of the Letter of Credit — Trust
A trust receipt, therefore, is a security agreement, Receipt, whether they did or they did not
pursuant to which a bank acquires a "security "misappropriate, misapply or convert" the
interest" in the goods. "It secures an indebtedness merchandise as charged in the criminal case.
and there can be no such thing as security interest
that secures no obligation." As defined in our laws: Pilipinas Bank vs. Alfredo T. Ong and Leoncia
Lim
(h) "Security Interest"means a property interest in G.R. No. 133176, August 8, 2002, J. Sandoval-
goods, documents or instruments to secure Gutierrez
performance of some obligations of the entrustee or
of some third persons to the entruster and includes Trust Receipts Law; Obligation and Liability of the
title, whether or not expressed to be absolute, Entrustee
No criminal liability in the following cases – Novation
Thus, the bank filed a complaint charging
Mere failure to deliver the proceeds of the sale or respondents Ong and Leoncia Lim (as president and
the goods, if not sold, constitutes violation of PD No. treasurer of BMC, respectively) with violation of the
115. However, what is being punished by the law is Trust Receipts Law on the ground that they failed to
the dishonesty and abuse of confidence in the pay their obligations under the trust receipts despite
handling of money or goods to the prejudice of demand. The complaint was dismissed.
another regardless of whether the latter is the owner
Upon appeal by the bank, the Department of Justice
In Quinto vs. People, Court held that there are two (DOJ) rendered judgment denying the same for lack
ways which could indicate the presence of novation of merit. Its motion for reconsideration was likewise
producing the effect of extinguishing an obligation denied. The bank filed a petition for certiorari and
by another which substitutes the same: first, when mandamus seeking to annul the resolution of the
novation has been stated and declared in DOJ before the Supreme Court. The Supreme Court
unequivocal terms, and second when the old and the referred the petition to the Court of Appeals for
new obligations are incompatible on every point. proper determination and disposition.

FACTS: The CA set aside the resolutions and directs the


public respondents to file the appropriate criminal
Baliwag Mahogany Corporation (BMC), through its charges for violation of P.D. No. 115, otherwise
president, respondent Alfredo T. Ong, applied for a known as The Trust Receipts Law, against private
domestic commercial letter of credit with petitioner respondents. However, upon respondent’s motion
Pilipinas Bank to finance the purchase of about for reconsideration, the CA reversed itself, holding
100,000 board feet of "Air Dried, Dark Red Lauan" that the execution of the MOA constitutes novation
sawn lumber. The bank approved the application which "places petitioner Bank in estoppel to insist on
and issued Letter of Credit in the amount of the original trust relation and constitutes a bar to the
P3,500,000.00. To secure payment of the amount, filing of any criminal information for violation of the
BMC, through respondent Ong, executed two (2) trust receipts law."
trust receipts providing inter alia that it shall turn
over the proceeds of the goods to the bank, if sold, Petitioner bank contends that the MOA did not
or return the goods, if unsold, upon maturity. On due novate, much less extinguish, the existing
dates, BMC failed to comply with the trust receipt obligations of BMC under the trust receipt
agreement. agreement. Respondents Ong and Lim maintain that
the MOA, which has the effect of a compromise
BMC filed with the Securities and Exchange agreement, novated BMC’s existing obligations
Commission (SEC) a Petition for Rehabilitation and under the trust receipt agreement. The novation
for a Declaration in a State of Suspension of converted the parties’ relationship into one of an
Payments. ordinary creditor and debtor. Moreover, the
execution of the MOA precludes any criminal liability
The SEC issued an order creating a Management on their part which may arise in case they violate
Committee which shall, among others, undertake any provision thereof.
the management of BMC, take custody and control
of all its existing assets and liabilities, study, review
and evaluate its operation and/or the feasibility of its ISSUES:
being restructured. Whether or not the MOA executed by the parties had
the effect of novating BMC’s obligations under the
BMC and a consortium of 14 of its creditor banks trust receipt agreement? (YES)
entered into a MOA rescheduling the payment of
BMCs existing debts. The SEC approved the RULING:
Rehabilitation Plan of BMC as contained in the MOA
and declaring it in a state of suspension of Failure of the entrustee to turn over the proceeds of
payments. However, BMC and Ong defaulted in the the sale of the goods covered by a trust receipt to
payment of their obligations under the rescheduled the entruster or to return the goods, if they were not
payment scheme provided in the MOA. disposed of, shall constitute the crime of estafa
under Article 315, par. 1(b) of the Revised Penal Petitioner bank's argument that BMC's non-
Code. Mere failure to deliver the proceeds of the sale compliance with the MOA revived respondents’
or the goods, if not sold, constitutes violation of PD original liabilities under the trust receipt agreement
No. 115. However, what is being punished by the is completely misplaced. Section 8.4 of the MOA on
law is the dishonesty and abuse of confidence in the termination reads:
handling of money or goods to the prejudice of "8.4 Termination. Any provision of this
another regardless of whether the latter is the Agreement to the contrary notwithstanding, if
owner. the conditions for rescheduling specified in
Section 7 shall not be complied with on such
In this case, no dishonesty nor abuse of confidence later date as the Qualified Majority Lenders in
can be attributed to respondents. Record shows that their sole and absolute discretion may agree in
BMC failed to comply with its obligations upon writing, then
maturity of the trust receipts due to serious liquidity (i) the obligation of the Lenders to reschedule
problems, prompting it to file a Petition for the Existing Credits as contemplated hereby
Rehabilitation and Declaration in a State of shall automatically terminate on such date:
Suspension of Payments. It bears emphasis that (ii) the Existing Agreements shall continue in
when petitioner bank made a demand upon BMC to full force and effect on the remaining loan
comply with its obligations under the trust receipts, balances as if this Agreement had not been
the latter was already under the control of the entered into;
Management Committee created by the SEC, which (iii) all the rights of the lenders against the
took custody of all BMCs assets and liabilities, borrower and Spouses Ong prior to the
including the red lauan lumber subject of the trust agreement shall revest to the lenders."
receipts, and authorized their use in the ordinary
course of business operations. Moreover, Ong paid Indeed, what is automatically terminated in case
P21,000,000.00 in compliance with the equity BMC failed to comply with the conditions under the
infusion required by the MOA. The mala prohibita MOA is not the MOA itself but merely the obligation
nature of the offense notwithstanding, respondents’ of the lender (the bank) to reschedule the existing
intent to misuse or misappropriate the goods or their credits. Moreover, it is erroneous to assume that the
proceeds has not been established by the records. revesting of "all the rights of lenders against the
Clearly, it was the Management Committee which borrower" means that petitioner can charge
could settle BMC’s obligations. respondents for violation of the Trust Receipts Law
under the original trust receipt agreement. As
Supreme Court held that the MOA novated and explained earlier, the execution of the MOA
effectively extinguished BMC's obligations under the extinguished respondents’ obligation under the trust
trust receipt agreement. Contrary to petitioner's receipts. Respondents’ liability, if any, would only be
contention, the MOA did not only reschedule BMC’s civil in nature since the trust receipts were
debts, but more importantly, it provided principal transformed into mere loan documents after the
conditions which are incompatible with the trust execution of the MOA. This is reinforced by the fact
agreement. In Quinto vs. People, the Supreme Court that the mortgage contracts executed by the BMC
held that one way to indicate the presence of survive despite its non-compliance with the
novation is when the old and the new obligations are conditions set forth in the MOA.
incompatible on every point. The test of
incompatibility is whether or not the two obligations
can stand together. If they cannot, they are In Quinto vs. People, this Court held that there are
incompatible and the latter obligation novates the two ways which could indicate the presence of
first. Corollarily, changes that breed incompatibility novation, thereby producing the effect of
must be essential in nature and not merely extinguishing an obligation by another which
accidental. The incompatibility must take place in substitutes the same.
any of the essential elements of the obligation, such 1. when novation has been stated and
as its object, cause or principal conditions, declared in unequivocal terms;
otherwise, the change is merely modificatory in 2. when the old and the new obligations are
nature and insufficient to extinguish the original incompatible on every point.
obligation.
The test of incompatibility is whether or not the two which the materials subject of the alleged trust
obligations can stand together. If they cannot, they receipts had been used.
are incompatible and the latter obligation novates
the first. Corollarily, changes that breed The fact that LBP had knowingly authorized the
incompatibility must be essential in nature and not delivery of construction materials to a construction
merely accidental. The incompatibility must take site of two government projects, as well as
place in any of the essential elements of the unspecified construction sites, repudiates the idea
obligation, such as its object, cause or principal that LBP intended to be the owner of those
conditions, otherwise, the change is merely construction materials.
modificatory in nature and insufficient to extinguish Thus, in concluding that the transaction was a loan
the original obligation. and not a trust receipt, we noted in Colinares that
the industry or line of work that the borrowers were
Contrary to petitioner's contention, the MOA did not engaged in was construction.
only reschedule BMCs debts, but more importantly, Based on these premises, we cannot consider the
it provided principal conditions which agreements between the parties in this case to be
are incompatible with the trust agreement. trust receipt transactions because (1) from the start,
the parties were aware that ACDC could not possibly
Hence, applying the pronouncement in Quinto, we be obligated to reconvey to LBP the materials or the
can safely conclude that the MOA novated and end product for which they were used; and (2) from
effectively extinguished BMC's obligations under the the moment the materials were used for the
trust receipt agreement. government projects, they became public, not LBPs,
property.

FACTS:
Land Bank of the Philippines v. Lamberto C. Petitioner Land Bank of the Philippines (LBP) is a
Perez, Nestor C. Kun, Ma. Estrelita Angeles- government financial institution and the official
Panlilio, and Napoleon O. Garcia (GR No. depository of the Philippines. Respondents are the
166884, June 13, 2012) officers and representatives of Asian Construction
and Development Corporation (ACDC), a corporation
In all trust receipt transactions, both obligations on incorporated under Philippine law and engaged in
the part of the trustee exist in the alternative the the construction business.
return of the proceeds of the sale or the return or On June 7, 1999, LBP filed a complaint for estafa or
recovery of the goods, whether raw or processed. violation of Article 315, paragraph 1(b) of the
When both parties enter into an agreement knowing Revised Penal Code, in relation to P.D. 115, against
that the return of the goods subject of the trust the respondents before the City Prosecutor’s Office
receipt is not possible even without any fault on the in Makati City. In the affidavit-complaint of June 7,
part of the trustee, it is not a trust receipt transaction 1999, the LBP’s Account Officer for the Account
penalized under Section 13 of P.D. 115; the only Management Development, Edna L. Juan, stated
obligation actually agreed upon by the parties would that LBP extended a credit accommodation to ACDC
be the return of the proceeds of the sale transaction. through the execution of an Omnibus Credit Line
This transaction becomes a mere loan, where the Agreement (Agreement) between LBP and ACDC on
borrower is obligated to pay the bank the amount October 29, 1996.
spent for the purchase of the goods. We note in this
regard that at the onset of these transactions, LBP Petitioner’s contention:
knew that ACDC was in the construction business In various instances, ACDC used the Letters of
and that the materials that it sought to buy under Credit/Trust Receipts Facility of the Agreement to
the letters of credit were to be used for the following buy construction materials. The respondents, as
projects: the Metro Rail Transit Project and the Clark officers and representatives of ACDC, executed trust
Centennial Exposition Project. LBP had in fact receipts in connection with the construction
authorized the delivery of the materials on the materials, with a total principal amount of
construction sites for these projects, as seen in the ₱52,344,096.32. The trust receipts matured, but
letters of credit it attached to its complaint. Clearly, ACDC failed to return to LBP the proceeds of the
they were aware of the fact that there was no way construction projects or the construction materials
they could recover the buildings or constructions for subject of the trust receipts. LBP sent ACDC a
demand letter, dated May 4, 1999, for the payment
of its debts, including those under the Trust Receipts ISSUE: Whether or not the disputed transactions
Facility in the amount of ₱66,425,924.39. When are covered by trust receipts?
ACDC failed to comply with the demand letter, LBP
filed the affidavit-complaint. RULING: No, the dispusted transactions are not
covered by trust receipts.
Respondent’s contention: There are two obligations in a trust receipt
The respondents filed a joint affidavit wherein they transaction. The first is covered by the provision that
stated that they signed the trust receipt documents refers to money under the obligation to deliver it to
on or about the same time LBP and ACDC executed the owner of the merchandise sold. The second is
the loan documents; their signatures were required covered by the provision referring to merchandise
by LBP for the release of the loans. The trust receipts received under the obligation to return it to the
in this case do not contain (1) a description of the owner.
goods placed in trust, (2) their invoice values, and Thus, under the Trust Receipts Law, intent to
(3) their maturity dates, in violation of Section 5(a) defraud is presumed when (1) the entrustee fails to
of P.D. 115. Moreover, they alleged that ACDC acted turn over the proceeds of the sale of goods covered
as a subcontractor for government projects such as by the trust receipt to the entruster; or (2) when the
the Metro Rail Transit, the Clark Centennial entrustee fails to return the goods under trust, if
Exposition and the Quezon Power Plant in Mauban, they are not disposed of in accordance with the
Quezon. Its clients for the construction projects, terms of the trust receipts.
which were the general contractors of these In all trust receipt transactions, both obligations on
projects, have not yet paid them; thus, ACDC had the part of the trustee exist in the alternative the
yet to receive the proceeds of the materials that return of the proceeds of the sale or the return or
were the subject of the trust receipts and were recovery of the goods, whether raw or processed.
allegedly used for these constructions. As there were When both parties enter into an agreement knowing
no proceeds received from these clients, no that the return of the goods subject of the trust
misappropriation thereof could have taken place receipt is not possible even without any fault on the
On September 30, 1999, Makati Assistant City part of the trustee, it is not a trust receipt transaction
Prosecutor Amador Y. Pineda issued a penalized under Section 13 of P.D. 115; the only
Resolution dismissing the complaint. He pointed out obligation actually agreed upon by the parties would
that the evidence presented by LBP failed to state be the return of the proceeds of the sale transaction.
the date when the goods described in the letters of This transaction becomes a mere loan, where the
credit were actually released to the possession of the borrower is obligated to pay the bank the amount
respondents. Section 4 of P.D. 115 requires that the spent for the purchase of the goods.
goods covered by trust receipts be released to the Article 1371 of the Civil Code provides that on order
possession of the entrustee after the latter’s to judge the intention of the contracting parties,
execution and delivery to the entruster of a signed their contemporaneous and subsequent acts shall be
trust receipt. He adds that LBP’s evidence also fails principally considered. Under this provision, we can
to show the date when the trust receipts were examine the contemporaneous actions of the parties
executed since all the trust receipts are undated. rather than rely purely on the trust receipts that they
On appeal, the Secretary of Justice reversed the signed in order to understand the transaction
Resolution of the Assistant City Prosecutor. The through their intent.
Secretary of Justice pointed out that there was no
question that the goods covered by the trust receipts We note in this regard that at the onset of these
were received by ACDC. He likewise adopted LBPs transactions, LBP knew that ACDC was in the
argument that while the subjects of the trust construction business and that the materials that it
receipts were not mentioned in the trust receipts, sought to buy under the letters of credit were to be
they were listed in the letters of credit referred to in used for the following projects: the Metro Rail
the trust receipts. Subsequently, the respondents Transit Project and the Clark Centennial Exposition
filed a petition for review before the Court of Project. LBP had in fact authorized the delivery of
Appeals. The Court of Appeals applying the Colinares the materials on the construction sites for these
doctrine ruled that this case did not involve a trust projects, as seen in the letters of credit it attached
receipt transaction, but a mere loan. LBP then filed to its complaint. Clearly, they were aware of the fact
a petition for certiorari. that there was no way they could recover the
buildings or constructions for which the materials FACTS:
subject of the alleged trust receipts had been used.
Notably, despite the allegations in the affidavit- In twenty-four 24 consolidated Informations,
complaint wherein LBP sought the return of the petitioner Hur Tin Yang was charged at the instance
construction materials, its demand letter dated May of the same complainant with the crime of Estafa
4, 1999 sought the payment of the balance but failed under Article 315, par. 1 (b) of the RPC, 4 in relation
to ask, as an alternative, for the return of the to PD 115.
construction materials or the buildings where these
Metropolitan Bank and Trust Company (Metrobank)
materials had been used.
extended several commercial letters of credit (LCs)
The fact that LBP had knowingly authorized the
to Supermax. These commercial LCs were used by
delivery of construction materials to a construction
Supermax to pay for the delivery of several
site of two government projects, as well as
construction materials which will be used in their
unspecified construction sites, repudiates the idea
construction business. Thereafter, Metrobank
that LBP intended to be the owner of those
required Hur Tin Yang (petitioner), as representative
construction materials. As a government financial
and Vice-President for Internal Affairs of Supermax,
institution, LBP should have been aware that the
to sign 24 trust receipts as security for the
materials were to be used for the construction of an
construction materials and to hold those materials or
immovable property, as well as a property of the
the proceeds of the sales in trust for Metrobank to
public domain. As an immovable property, the
the extent of the amount stated in the trust receipts.
ownership of whatever was constructed with those
materials would presumably belong to the owner of When the 24 trust receipts fell due and despite,
the land, under Article 445 of the Civil Code Supermax failed to pay or deliver the goods or
Even if we consider the vague possibility that the proceeds to Metrobank. Instead, Supermax, through
materials, consisting of cement, bolts and reinforcing petitioner, requested the restructuring of the loan.
steel bars, would be used for the construction of a When the intended restructuring of the loan did not
movable property, the ownership of these properties materialize, Metrobank sent another demand letter
would still pertain to the government and not remain dated October 11, 2001. As the demands fell on deaf
with the bank as they would be classified as property ears, Metrobank, through its representative, Winnie
of the public domain, which is defined by the Civil M. Villanueva, filed the instant criminal complaints
Code as: against petitioner.
In contrast with the present situation, it is
fundamental in a trust receipt transaction that the Petitioner’s contentions:
person who advanced payment for the merchandise
becomes the absolute owner of said merchandise - While admitting signing the trust receipts,
and continues as owner until he or she is paid in full, petitioner argued that said trust receipts
or if the goods had already been sold, the proceeds were demanded by Metrobank as additional
should be turned over to him or to her. security for the loans extended to Supermax
for the purchase of construction equipment
HUR TIN YANG , petitioner, vs. PEOPLE OF
and materials. In support of this argument,
THE PHILIPPINES, respondent
[G.R. No. 195117. August 14, 2013.] petitioner presented as witness, Priscila
Alfonso, who testified that the construction
When both parties enter into an agreement knowing materials covered by the trust receipts were
fully well that the return of the goods subject of the delivered way before petitioner signed the
trust receipt is not possible even without any fault
corresponding trust receipts.
on the part of the trustee, it is not a trust receipt
transaction penalized under Sec. 13 of PD 115 in - Petitioner argued that Metrobank knew all
relation to Art. 315, par. 1 (b) of the RPC, as the only
along that the construction materials subject
obligation actually agreed upon by the parties would
be the return of the proceeds of the sale transaction. of the trust receipts were not intended for
This transaction becomes a mere loan, where the resale but for personal use of Supermax
borrower is obligated to pay the bank the amount relating to its construction business.
spent for the purchase of the goods.
RTC found petitioner guilty as charged
CA upheld RTC’s findings that the prosecution has documents or instruments in trust for the
satisfactorily established the guilt of petitioner entruster and to sell or otherwise dispose of
beyond reasonable doubt, including the following the goods, documents or instruments with
critical facts: the obligation to turn over to the entruster
the proceeds thereof to the extent of the
- Petitioner signing the trust receipts amount owing to the entruster or as appears
agreement; Supermax failing to pay the loan; in the trust receipt or the goods, documents
and Supermax failing to turn over the or instruments themselves if they are unsold
proceeds of the sale or the goods to or not otherwise disposed of, in accordance
Metrobank upon demand with the terms and conditions specified in the
trust receipt, or for other purposes
- CA also found that even before the execution
substantially equivalent to any of the
of the trust receipts, Metrobank knew or following:
should have known that the subject
construction materials were never intended 1. In the case of goods or documents:
for resale or for the manufacture of items to (a) to sell the goods or procure their sale; or
(b) to manufacture or process the goods with
be sold.
the purpose of ultimate sale: Provided, That,
- The CA ruled that since the offense punished in the case of goods delivered under trust
under PD 115 is in the nature of malum receipt for the purpose of manufacturing or
prohibitum, a mere failure to deliver the processing before its ultimate sale, the
proceeds of the sale or goods, if not sold, is entruster shall retain its title over the goods
sufficient to justify a conviction under PD whether in its original or processed form until
115. the entrustee has complied full with his
obligation under the trust receipt; or (c) to
ISSUE: Whether petitioner is liable for Estafa under load, unload, ship or transship or otherwise
Art. 315, par. 1 (b) of the RPC in relation to PD 115, deal with them in a manner preliminary or
even if it was sufficiently proved that the entruster necessary to their sale; or
(Metrobank) knew beforehand that the goods
2. In the case of instruments: (a) to
(construction materials) subject of the trust receipts
sell or procure their sale or exchange; or (b)
were never intended to be sold but only for use in
to deliver them to a principal; or (c) to effect
the entrustee's construction business (NO)
the consummation of some transactions
RULING: involving delivery to a depository or register;
or (d) to effect their presentation, collection
The petitioner was charged with Estafa committed in or renewal.
what is called, under PD 115, a "trust receipt
transaction," which is defined as: Simply stated, a trust receipt transaction is one
where the entrustee has the obligation to deliver to
Section 4. What constitutes a the entruster the price of the sale, or if the
trust receipts transaction. — A trust merchandise is not sold, to return the merchandise
receipt transaction, within the meaning of to the entruster. There are, therefore, two
this Decree, is any transaction by and obligations in a trust receipt transaction:
between a person referred to in this Decree
as the entruster, and another person referred 1. The first refers to money received under the
to in this Decree as entrustee, whereby the obligation involving the duty to turn it over
entruster, who owns or holds absolute title (entregarla) to the owner of the merchandise
or security interests over certain specified sold
goods, documents or instruments, releases
the same to the possession of the entrustee 2. The second refers to the merchandise
upon the latter's execution and delivery to received under the obligation to "return" it
the entruster of a signed document called a (devolvera) to the owner
"trust receipt" wherein the entrustee binds
himself to hold the designated goods,
A violation of any of these undertakings constitutes the trial court erred in ruling that the
Estafa defined under Art. 315, par. 1 (b) of the RPC, agreement is a trust receipt transaction.
as provided in Sec. 13 of PD 115, viz.:
To emphasize, the Trust Receipts Law
Section 13. Penalty Clause. — The failure of was created to "to aid in financing
an entrustee to turn over the proceeds of importers and retail dealers who do not
the sale of the goods, documents or have sufficient funds or resources to
instruments covered by a trust receipt to the finance the importation or purchase of
extent of the amount owing to the entruster merchandise, and who may not be able
or as appears in the trust receipt or to return to acquire credit except through
said goods, documents or instruments if they utilization, as collateral, of the
were not sold or disposed of in accordance merchandise imported or purchased."
with the terms of the trust receipt shall Since Asiatrust knew that petitioner
constitute the crime of estafa, punishable was neither an importer nor retail
under the provisions of Article Three hundred dealer, it should have known that the
fifteen, paragraph one (b) of Act Numbered said agreement could not possibly
Three thousand eight hundred and fifteen, as apply to petitioner.
amended, otherwise known as the Revised
Penal Code 2. Land Bank of the Philippines v. Perez

When both parties enter into an agreement knowing This Court, like in Ng, acquitted all the
fully well that the return of the goods subject of the respondents on the postulate that the parties
trust receipt is not possible even without any fault really intended a simple contract of loan and not
on the part of the trustee, it is not a trust receipt a trust receipts transaction, viz.:
transaction penalized under Sec. 13 of PD 115 in
relation to Art. 315, par. 1 (b) of the RPC, as the only When both parties enter into an
obligation actually agreed upon by the parties would agreement knowing that the return
be the return of the proceeds of the sale transaction. of the goods subject of the trust
This transaction becomes a mere loan, where receipt is not possible even without
the borrower is obligated to pay the bank the any fault on the part of the trustee,
amount spent for the purchase of the goods. it is not a trust receipt transaction
penalized under Section 13 of P.D.
The Court cited 2 cases the facts of which fall 115; the only obligation actually agreed
squarely to this case: upon by the parties would be the return
of the proceeds of the sale transaction.
1. Ng v. People This transaction becomes a mere loan,
where the borrower is obligated to pay
This Court acquitted Anthony Ng and ruled the bank the amount spent for the
that the Trust Receipts Law was created to purchase of the goods.
"to aid in financing importers and retail
dealers who do not have sufficient funds or Thus, in concluding that the
resources to finance the importation or transaction was a loan and not a
purchase of merchandise, and who may not trust receipt, we noted in Colinares
be able to acquire credit except through that the industry or line of work that
utilization, as collateral, of the merchandise the borrowers were engaged in was
imported or purchased." construction. We pointed out that
the borrowers were not importers
Since Asiatrust knew that Anthony Ng was acquiring goods for resale. Indeed,
neither an importer nor retail dealer, it goods sold in retail are often within the
should have known that the said agreement custody or control of the trustee until
could not possibly apply to petitioner, viz.: they are purchased. In the case of
materials used in the manufacture of
Considering that the goods in this case were
finished products, these finished
never intended for sale but for use in the
products — if not the raw materials or
fabrication of steel communication towers,
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
contractor's 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.

The fact that the entruster bank, Metrobank in this


case, knew even before the execution of the alleged
trust receipt agreements that the covered
construction materials were never intended by the
entrustee (petitioner) for resale or for the
manufacture of items to be sold would take the
transaction between petitioner and Metrobank
outside the ambit of the Trust Receipts Law.

For reasons discussed above, the subject


transactions in the instant case are not trust
receipts transactions. Thus, the consolidated
complaints for Estafa in relation to PD 115
have really no leg to stand on.

Additional notes:

The Court's ruling in Colinares v. Court of Appeals 21


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

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