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over the proceeds to Prudential Bank, being the party that advanced the payment for them.

On DBPs argument that the disputed articles were not properobjects of a trust receipt agreement, the Court of Appeals ruledthat the items were part of the trust agreement entered into byand between Prudential Bank and Litex. Since the agreement was not contrary to law, morals, public policy, customs andgood order, it was binding on the parties.

Moreover, the appellate court found that DBP was not amortgagee in good faith. It also upheld the finding of the trialcourt that DBP was a trustee ex maleficio of Prudential Bank over the articles covered by the trust receipts.

DBP filed a motion for reconsideration but the appellate court denied it for being pro forma . Hence, this petition.

Trust receipt transactions are governed by the provisions of PD115 which defines such a transaction as follows:

Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this Decree, is anytransaction by and between a person referred to in this Decreeas the entruster, and another person referred to in this Decreeas entrustee, whereby the entruster, who owns or holdsabsolute title or security interests over certain specified goods,documents or instruments, releases the same to the possessionof the entrustee upon the latters execution and delivery to theentruster of a signed document called a trust receipt wherei nthe entrustee binds himself to hold the designated goods,documents or instruments in trust for the entruster and to sellor otherwise dispose of the goods, documents or instrumentswith the obligation to turn over to the entruster the proceedsthereof to the extent of the amount owing to the entruster or asappears in the trust receipt or the goods, documents orinstruments themselves if they are unsold or not otherwisedisposed of, in accordance with the terms and conditionsspecified in the trust receipt, or for other purposes substantiallyequivalent to any of the following:

1. In the case of goods or documents, (a) to sell the goods orprocure their sale; or (b) to manufacture or process the goodswith the purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or processing before its ultimate sale, theentruster shall retain its title over the goods whether in itsoriginal or processed form until the entrustee has complied fullywith his obligation under the trust receipt; or (c) to load, unload,ship or tranship or otherwise deal with them in a mannerpreliminary or necessary to their sale; or

2. In the case of instruments, (a) to sell or procure their sale orexchange; or (b) to deliver them to a principal; or (c) to effect the consummation of some transactions involving delivery to adepository or register; or (d) to effect their presentation,collection or renewal.

x x x x x x x x x

In a trust receipt transaction, the goods are released by theentruster (who owns or holds absolute title or security interestsover the said goods) to the entrustee on the latters executionand delivery to the entruster of a trust receipt. The trust receipt evidences the absolute title or security interest of the entrusterover the goods. As a consequence of the release of the goods andthe execution of the trust receipt, a two-fold obligation isimposed on the entrustee, namely: (1) to hold the designatedgoods, documents or instruments in trust for the purpose of

selling or otherwise disposing of them and (2) to turn over tothe entruster either the proceeds thereof to the extent of theamount owing to the entruster or as appears in the trust receipt,or the goods, documents or instruments themselves if they areunsold or not otherwise disposed of, in accordance with theterms and conditions specified in the trust receipt. In the case of goods, they may also be released for other purposessubstantially equivalent to (a) their sale or the procurement of their sale; or (b) their manufacture or processing with thepurpose of ultimate sale, in which case the entruster retains histitle over the said goods whether in their original or processedform until the entrustee has complied fully with his obligationunder the trust receipt; or (c) the loading, unloading, shipment or transshipment or otherwise dealing with them in a mannerpreliminary or necessary to their sale .[4] Thus, in a trust receipt transaction, the release of the goods to the entrustee, on hisexecution of a trust receipt, is essentially for the purpose of their sale or is necessarily connected with their ultimate orsubsequent sale.

Here, Litex was not engaged in the business of selling spinningmachinery, its accessories and spare parts but in manufacturingand producing textile and various kinds of fabric. The articleswere not released to Litex to be sold. Nor was the transfer of possession intended to be a preliminary step for the said goodsto be ultimately or subsequently sold. Instead, thecontemporaneous and subsequent acts of both Litex andPrudential Bank showed that the imported articles werereleased to Litex to be installed in its textile mill and used in itsbusiness. DBP itself was aware of this. To support its assertionthat the contested articles were excluded from goods that couldbe covered by a trust receipt, it contended:

First . That th e chattels in controversy were procured by DBPsmortgagor Lirag Textile Mills (LITEX) for the exclusive use of its textile mills . They were not procured -

(a) to sell or otherwise procure their sale;

(b) to manufacture or process the goods with the

purpose of ultimate sale .[5] (emphasis supplied)

Hence, the transactions between Litex and Prudential Bank were allegedly not trust receipt transactions within the meaningof PD 115. It follows that, contrary to the decisions of the trialcourt and the appellate court, the transactions were not governed by the Trust Receipts Law.

We disagree.

The various agreements between Prudential Bank and Litexcommonly denominated as trust receipts were valid. As theCourt of Appeals correctly ruled, their provisions did not contravene the law, morals, good customs, public order orpublic policy.

The agreements uniformly provided:

Received, upon the Trust hereinafter mentioned from thePRUDENTIAL BANK (hereinafter referred to as BANK) thefollowing goods and merchandise, the property of saidBANK specified in the bill of lading as follows:

Amount of Bill

Description of Security

Marks &Nos.

Vessel
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and in consideration thereof, I/We hereby agree to hold saidgoods in trust for the BANK and as its property with libertyto sell the same for its account but without authority to makeany other disposition whatsoever of the said goods or any part thereof (or the proceeds thereof) either by way of conditionalsale, pledge, or otherwise.

x x x x x x x xx[6] (Emphasis supplied)

The articles were owned by Prudential Bank and they wereonly held by Litex in trust. While it was allowed to sell the items,Litex had no authority to dispose of them or any part thereof ortheir proceeds through conditional sale, pledge or any othermeans.

Article 2085 (2) of the Civil Code requires that, in a contract of pledge or mortgage, it is essential that the pledgor ormortgagor should be the absolute owner of the thing pledged ormortgaged. Article 2085 (3) further mandates that the personconstituting the pledge or mortgage must have the free disposalof his property, and in the absence thereof, that he be legally

authorized for the purpose.

Litex had neither absolute ownership, free disposal nor theauthority to freely dispose of the articles. Litex could not havesubjected them to a chattel mortgage. Their inclusion in themortgage was voi d [7]and had no legal effect .[8] There being novalid mortgage, there could also be no valid foreclosure or validauction sale .[9] Thus, DBP could not be considered either as amortgagee or as a purchaser in good faith .[10]

No one can transfer a right to another greater than what hehimself has .[11] Nemo dat quod non habet . Hence, Litex could not transfer a right that it did not have over the disputed items.Corollarily, DBP could not acquire a right greater than what itspredecessor-in-interest had. The spring cannot rise higher thanits source .[12] DBP merely stepped into the shoes of Litex astrustee of the imported articles with an obligation to pay theirvalue or to return them on Prudential Banks demand. By itsfailure to pay or return them despite Prudential Banks repeateddeman ds and by selling them to Lyon without Prudential Banksknowledge and conformity, DBP became a trustee ex maleficio .

On the matter of actual damages adjudged by the trial court and affirmed by the Court of Appeals, DBP wants this Court toreview the evidence presented during the trial and to reversethe factual findings of the trial court. This Court is, however, not a trier of facts and it is not its function to analyze or weighevidence anew .[13] The rule is that factual findings of the trialcourt, when adopted and confirmed by the CA, are binding andconclusive on this Court and generally will not be reviewed onappeal .[14] While there are recognized exceptions to this rule,none of the established exceptions finds application here.

With regard to the imposition of exemplary damages, theappellate court agreed with the trial court that the requirementsfor the award thereof had been sufficiently established.Prudential Banks entitlement to compensatory damages was

likewise amply proven. It was also shown that DBP was awareof Prudential Banks claim as early as July, 1982. However, it ignored the latters demand, included the disputed articles inthe mortgage foreclosure and caused their sale in a publicauction held on April 19, 1983 where it was declared as thehighest bidder. Thereafter, in the series of communicationsbetween them, DBP gave Prudential Bank the false impressionthat its claim was still being evaluated. Without acting onPrudential Banks plea, DBP included the contested articlesamong the properties it sold to Lyon in June, 1987. The trialcourt found that this chain of events showed DBPs fraudulent

attempt to prevent Prudential Bank from asserting its rights. It smacked of bad faith, if not deceit. Thus, the award of exemplarydamages was in order. Due to the award of exemplary damages,the grant of attorneys fees was proper .[15]

DBPs assertion that both the trial and appellate courts failed toaddress the issue of prescription is of no moment. Its claim that,under Article 1146 (1) of the Civil Code, Prudential Banks causeof action had prescribed as it should be reckoned from October

10, 1980, the day the mortgage was registered, is not correct.The written extra-judicial demand by the creditor interruptedthe prescription of action .[16] Hence, the four-year prescriptiveperiod which DBP insists should be counted from theregistration of the mortgage was interrupted when PrudentialBank wrote the extra-judicial demands for the turn over of thearticles or their value. In particular, the last demand letter sent by Prudential Bank was dated July 30, 1988 and this wasreceived by DBP the foll owing day. Thus, contrary to DBPsclaim, Prudential Banks right to enforce its action had not yet prescribed when it filed the complaint on May 24, 1988.

WHEREFORE , the petition is hereby DENIED . The December14, 1999 decision and June 8, 2000 resolution of the Court of Appeals in CA-G.R. CV No. 45783 are AFFIRMED .

---

ANTHONY L. NG

Vs PEOPLE OF THE PHILIPPINES,

D E C I S I O N

This is a Petition for Review on Certiorari under Rule 45

seeking to reverse and set aside the August 29, 2003Decisio n [1] and July 25, 2006 Resolution of the Court of Appeals(CA) in CA-G.R. CR No. 25525, which affirmed the Decision [2] of the Regional Trial Court (RTC), Branch 95 in Quezon City, inCriminal Case No. Q-99-85133 for Estafa under Article 315,paragraph 1(b) of the Revised Penal Code (RPC) in relation toSection 3 of Presidential Decree No. (PD) 115 or the Trust Receipts Law.

The Facts

Sometime in the early part of 1997, petitioner Anthony Ng,then engaged in the business of building and fabricatingtelecommunication towers under the trade name CapitolBlack smith and Builders, applied for a credit line of PhP3,000,000 with Asiatrust Development Bank, Inc. (Asiatrust). Insupport of Asiatrusts credit investigation, petitioner voluntarilysubmitted the following documents: (1) the contracts he hadwith Islacom, Smart, and Infocom; (2) the list of projectswherein he was commissioned by the said telecommunicationcompanies to build several steel towers; and (3) the collectibleamounts he has with the said companies .[3]

On May 30, 1997, Asiatrust approved petitioners loanapplication. Petitioner was then required to sign severaldocuments, among which are the Credit Line Agreement,Application and Agreement for Irrevocable L/C, Trust Receipt Agreements ,[4] and Promissory Notes. Though the PromissoryNotes matured on September 18, 1997, the two (2)aforementioned Trust Receipt Agreements did not bear anymaturity dates as they were left unfilled or in blank byAsiatrust .[5]
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After petitioner received the goods, consisting of chemicalsand metal plates from his suppliers, he utilized them to fabricatethe communication towers ordered from him by his clientswhich were installed in three project sites, namely: Isabel,Leyte; Panabo, Davao; and Tongonan.

As petitioner realized difficulty in collecting from his client

Islacom, he failed to pay his loan to Asiatrust. Asiatrust thenconducted a surprise ocular inspection of petitioners businessthrough Villarva S. Linga, Asiatrusts representativeappraiser. Linga thereafter reported to Asiatrust that he foundthat approximately 97% of the subject goods of the Trust Receipts were sold -out and that only 3 % of the goodspertaining to PN No. 1963 remained. Asiatrust then endorsedpetitioners account to its Ac count Management Division for thepossible restructuring of his loan. The parties thereafter held aseries of conferences to work out the problem and to determinea way for petitioner to pay his debts. However, efforts towardsa settlement failed to be reached.

On March 16, 1999, Remedial Account Officer Ma. Girlie C.Bernardez filed a Complaint-Affidavit before the Office of theCity Prosecutor of Quezon City. Consequently, on September 12,1999, an Information for Estafa , as defined and penalized underArt. 315, par. 1(b) of the RPC in relation to Sec. 3, PD 115 or theTrust Receipts Law, was filed with the RTC. The saidInformation reads:

That on or about the 30 th day of May 1997, in Quezon City,Philippines, the above-named petitioner, did then and therewillfully, unlawfully, and feloniously defraud Ma. Girlie C.

Bernardez by entering into a Trust Receipt Agreement with saidcomplainant whereby said petitioner as entrustee received intrust from the said complainant various chemicals in the totalsum of P4.5 million with the obligation to hold the saidchemicals in trust as property of the entruster with the right tosell the same for cash and to remit the proceeds thereof to theentruster, or to return the said chemicals if unsold; but saidpetitioner once in possession of the same, contrary to hisaforesaid obligation under the trust receipt agreement withintent to defraud did then and there misappropriated,misapplied and converted the said amount to his own personaluse and benefit and despite repeated demands made upon him,

said petitioner refused and failed and still refuses and fails tomake good of his obligation, to the damage and prejudice of thesaid Ma. Girlie C. Bernardez in the amount of P2,971,650.00,Philippine Currency.

CONTRARY TO LAW.

Upon arraignment, petitioner pleaded not guilty to thecharges. Thereafter, a full-blown trial ensued.

During the pendency of the abovementioned case,conferences between petitioner and Asiatrusts Remedial Account Officer, Daniel Yap, were held. Afterward, aCompromise Agreement was drafted by Asiatrust. One of therequirements of the Compromise Agreement was for petitioner

to issue six (6) postdated checks. Petitioner, in good faith, triedto comply by issuing two or three checks, which were depositedand made good. The remaining checks, however, were not deposited as the Compromise Agreement did not push through.

For his defense, petitioner argued that: (1) the loan was grantedas his working capital and that the Trust Receipt Agreements he

signed with Asiatrust were merely preconditions for the grant and approval of his loan; (2) the Trust Receipt Agreement corresponding to Letter of Credit No. 1963 and the Trust Receipt Agreement corresponding to Letter of Credit No. 1964were both contracts of adhesion, since the stipulations found inthe documents were prepared by Asiatrust in fine print; (3)unfortunately for petitioner, his contract worth PhP 18,000,000with Islacom was not yet paid since there was a squabble as tothe real ownership of the latters company, but Asiatrust wasaware of petitioners receivables which were more thansufficient to cover the obligation as shown in the various Project Listings with Islacom, Smart Communications, and Infocom; (4)

prior to the Islacom problem, he had been faithfully paying hisobligation to Asiatrust as shown in Official Receipt Nos. 549001,549002, 565558, 577198, 577199, and 594986 ,[6] thusdebunking Asiatrusts claim of fraud and bad faith against him;(5) during the pendency of this case, petitioner even attemptedto settle his obligations as evidenced by the two United Coconut Planters Bank Check s [7] he issued in favor of Asiatrust; and (6)he had already paid PhP 1.8 million out of the PhP 2.971 millionhe owed as per Statement of Account dated January 26, 2000

Ruling of the Trial Court

After trial on the merits, the RTC, on May 29, 2001,rendered a Decision, finding petitioner guilty of the crimeof Estafa . The fallo of the Decision reads as follows:

WHEREFORE, judgment is hereby rendered finding thepetitioner, Anthony L. Ng GUILTY beyond reasonable doubt forthe crime of Estafa defined in and penalized by Article 315,paragraph 1(b) of the Revised Penal Code in relation to Section3 of Presidential Decree 115, otherwise known as the Trust Receipts Law, and is hereby sentenced to suffer theindeterminate penalty of from six (6) years, eight (8) months,and twenty one (21) days of prision mayor , minimum, as theminimum penalty, to twenty (20) years of reclusion temporalmaximum, as the maximum penalty.

The petitioner is further ordered to return to the Asiatrust Development Bank Inc. the amount of Two Million, NineHundred Seventy One and Six Hundred Fifty Pesos(P2,971,650.00) with legal rate of interest computed from thefiling of the information on September 21,1999 until the amount is fully paid.

IT IS SO ORDERED.

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

Ruling of the Appellate Court

Petitioner then elevated the case to the CA by filing aNotice of Appeal on August 6, 2001. In his Appellants Brief dated March 25, 2002, petitioner argued that the court aquo erred: (1) in changing the name of the offended partywithout the benefit of an amendment of the Information whichviolates his right to be informed of the nature and cause of accusation against him; (2) in making a finding of facts not inaccord with that actually proved in the trial and/or by theevidence provided; (3) in not considering the material factswhich if taken into account would have resulted in his acquittal;

(4) in being biased, hostile, and prejudiced against him; and (5)in considering the prosecutions evidence which did not provethe guilt of petitioner beyond reasonable doubt.

On August 29, 2003, the CA rendered a Decision affirmingthat of the RTC, the fallo of which reads:

WHEREFORE, the foregoing considered, the instant appeal isDENIED. The decision of the Regional Trial Court of QuezonCity, Branch 95 dated May 29, 2001 is AFFIRMED.

SO ORDERED.

The CA held that during the course of the trial, petitioner knewthat the complainant Bernardez and the other co-witnesses areall employees of Asiatrust and that she is suing in behalf of thebank. Since petitioner transacted with the same employees forthe issuance of the subject Trust Receipts, he cannot feignignorance that Asiatrust is not the offended party in the instant case. The CA further stated that the change in the name of thecomplainant will not prejudice and alter the fact that petitionerwas being charged with the crime of Estafa in relation to theTrust Receipts Law, since the information clearly set forth the

essential elements of the crime charged, and the constitutionalright of petitioner to be informed of the nature and cause of hisaccusations is not violated .[8]

As to the alleged error in the appreciation of facts by thetrial court, the CA stated that it was undisputed that petitionerentered into a trust receipt agreement with Asiatrust and hefailed to pay the bank his obligation when it becamedue. According to the CA, the fact that petitioner acted without malice or fraud in entering into the transactions has no bearing,since the offense is punished as malum prohibitum regardless of the existence of intent or malice; the mere failure to deliver the

proceeds of the sale or the goods if not sold constitutes thecriminal offense.

With regard to the failure of the RTC to consider the fact that petitioners outstanding receivables are sufficient to coverhis indebtedness and that no written demand was made uponhim hence his obligation has not yet become due anddemandable, the CA stated that the mere query as to thewhereabouts of the goods and/or money is tantamount to ademand .[9]

Concerning the alleged bias, hostility, and prejudice of theRTC against petitioner, the CA said that petitioner failed topresent any substantial proof to support the aforementionedallegations against the RTC.

After the receipt of the CA Decision, petitioner moved forits reconsideration, which was denied by the CA in itsResolution dated July 25, 2006. Thereafter, petitioner filed thisPetition for Review on Certiorari. In his Memorandum, he

raised the following issues:

Issues:

1. The prosecution failed to adduce evidence beyond areasonable doubt to satisfy the 2 nd essential element that therewas misappropriation or conversion of subject money orproperty by petitioner.

2. The state was unable to prove the 3 rd essentialelement of the crime that the alleged misappropriation orconversion is to the prejudice of the real offended property.

3. The absence of a demand (4 th essential element) onpetitioner necessarily results to the dismissal of the criminalcase.

The Courts Ruling

We find the petition to be meritorious.

Essentially, the issues raised by petitioner can be summedup into one whether or not petitioner is liable for Estafa underArt. 315, par. 1(b) of the RPC in relation to PD 115.

It is a well-recognized principle that factual findings of thetrial court are entitled to great weight and respect by this Court,more so when they are affirmed by the appellate court.However, the rule is not without exceptions, such as: (1) whenthe conclusion is a finding grounded entirely on speculations,surmises, and conjectures; (2) the inferences made aremanifestly mistaken; (3) there is grave abuse of discretion; and(4) the judgment is based on misapprehension of facts orpremised on the absence of evidence on record .[10] Especially incriminal cases where the accused stands to lose his liberty byvirtue of his conviction, the Court must be satisfied that thefactual findings and conclusions of the lower courts leading tohis conviction must satisfy the standard of proof beyondreasonable doubt.

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

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

1. With unfaithfulness or abuse of confidence, namely:

a. x x x

b. By misappropriating or converting, to the prejudiceof another, money, goods, or any other personal propertyreceived by the offender in trust or on commission, or foradministration, or under any other obligation involving the dutyto make delivery of or to return the same, even though suchobligation be totally or partially guaranteed by a bond; or bydenying having received such money, goods, or other property xx x.[11]
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Based on the definition above, the essential elementsof Estafa are: (1) that money, goods or other personal propertyis received by the offender in trust or on commission, or foradministration, or under any obligation involving the duty tomake delivery of or to return it; (2) that there bemisappropriation or conversion of such money or property bythe offender, or denial on his part of such receipt; (3) that suchmisappropriation or conversion or denial is to the prejudice of another; and (4) there is demand by the offended party to theoffender .[12]

Likewise, Estafa can also be committed in what is called a trust receipt transaction und er PD 115, which is defined as

Section 4. What constitutes a trust receipts transaction .Atrust receipt transaction, within the meaning of this Decree, isany transaction by and between a person referred to in thisDecree as the entruster, and another person referred to in thisDecree as entrustee, whereby the entruster, who owns or holdsabsolute title or security interests over certain specified goods,documents or instruments, releases the same to the possession

of the entrustee upon the latters execution and delivery to theentruster of a signed document called a trust receipt whereinthe entrustee binds himself to hold the designated goods,documents or instruments in trust for the entruster and to sellor otherwise dispose of the goods, documents or instrumentswith the obligation to turn over to the entruster the proceedsthereof to the extent of the amount owing to the entruster or asappears in the trust receipt or the goods, documents orinstruments themselves if they are unsold or not otherwisedisposed of, in accordance with the terms and conditionsspecified in the trust receipt, or for other purposes substantiallyequivalent to any of the following:

1. In the case of goods or documents: (a) to sell thegoods or procure their sale; or (b) to manufacture or processthe goods with the purpose of ultimate sale: Provided , That, inthe case of goods delivered under trust receipt for the purposeof manufacturing or processing before its ultimate sale, theentruster shall retain its title over the goods whether in itsoriginal or processed form until the entrustee has complied fullwith his obligation under the trust receipt; or (c) to load, unload,ship or transship or otherwise deal with them in a mannerpreliminary or necessary to their sale; or

2. In the case of instruments: (a) to sell or procure theirsale or exchange; or (b) to deliver them to a principal; or (c) toeffect the consummation of some transactions involvingdelivery to a depository or register; or (d) to effect theirpresentation, collection or renewal.

The sale of good, documents or instruments by a person in thebusiness of selling goods, documents or instruments for profit who, at the outset of transaction, has, as against the buyer,general property rights in such goods, documents orinstruments, or who sells the same to the buyer on credit,retaining title or other interest as security for the payment of the purchase price, does not constitute a trust receipt transaction and is outside the purview and coverage of thisDecree.

In other words, a trust receipt transaction is one where theentrustee has the obligation to deliver to the entruster the priceof the sale, or if the merchandise is not sold, to return themerchandise to the entruster. There are, therefore, twoobligations in a trust receipt transaction: the first refers tomoney received under the obligation involving the duty to turnit over ( entregarla ) to the owner of the merchandise sold, while

the second refers to the merchandise received under theobligation to return it ( devolvera ) to the owner .[13] A violationof any of these undertakings constitutes Estafa defined underArt. 315, par. 1(b) of the RPC, as provided in Sec. 13 of PD 115,viz:

Section 13. Penalty Clause. The failure of an entrusteeto turn over the proceeds of the sale of the goods , documentsor 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 werenot sold or disposed of in accordance with the terms of thetrust receipt shall constitute the crime of estafa, punishableunder the provisions of Article Three hundred fifteen,paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as theRevised Penal Code. x x x (Emphasis supplied.)

A thorough examination of the facts obtaining in the instant case, however, reveals that the transaction between petitionerand Asiatrust is not a trust receipt transaction but one of simpleloan.

PD 115 Does Not Apply

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

The true nature of a trust receipt transaction can be foundin the whereas clause of PD 115 which states that a trust receipt is to be utilized as a convenient business device toassist importers and merchants solve their financingproblems. Obviously, the State, in enacting the law, sought tofind a way to assist importers and merchants in their financingin order to encourage commerce in the Philippines.

As stressed in Samo v. People ,[14] a trust receipt is considered a

security transaction intended to aid in financing importers andretail dealers who do not have sufficient funds or resources tofinance the importation or purchase of merchandise, and whomay not be able to acquire credit except through utilization, ascollateral, of the merchandise imported or purchased. Similarly,American Jurisprudence demonstrates that trust receipt transactions always refer to a method of fina ncingimportations or financing sales. [15] The principle is of coursenot limited in its application to financing importations, since theprinciple is equally applicable to domestictransactions .[16] Regardless of whether the transaction isforeign or domestic, it is important to note that the transactions

discussed in relation to trust receipts mainly involved sales.

Following the precept of the law, such transactions affect situations wherein the entruster, who owns or holds absolutetitle or security interests over specified goods, documents orinstruments, releases the subject goods to the possession of theentrustee. The release of such goods to the entrustee isconditioned upon his execution and delivery to the entruster of a trust receipt wherein the former binds himself to hold thespecific goods, documents or instruments in trust for theentruster and to sell or otherwise dispose of the goods,
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documents or instruments with the obligation to turn over tothe entruster the proceeds to the extent of the amount owing tothe entruster or the goods, documents or instrumentsthemselves if they are unsold . Similarly, we held in StateInvestment House v. CA , et al . that the entruster is entitled onlyto the proceeds derived from the sale of goods released under atrust receipt to the ent rustee. [17]

Considering that the goods in this case were never intended forsale but for use in the fabrication of steel communicationtowers, the trial court erred in ruling that the agreement is atrust receipt transaction.

In applying the provisions of PD 115, the trial court relied on theMemorandum of Asiatrusts appraiser, Linga, who stated that the goods have been sold by petitioner and that only 3% of thegoods remained in the warehouse where it was previouslystored. But for reasons known only to the trial court, the latterdid not give weight to the testimony of Linga when he testifiedthat he merely presumed that the goods were sold, viz:

COURT (to the witness)

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

A Yes, your Honor

Undoubtedly, in his testimony, Linga showed that he hadno real personal knowledge or proof of the fact that the goods

were indeed sold. He did not notify petitioner about theinspection nor did he talk to or inquire with petitionerregarding the whereabouts of the subject goods. Neither did heconfirm with petitioner if the subject goods were in fact sold. Therefore, the Memorandum of Linga, which was basedonly on his presumption and not any actual personalknowledge, should not have been used by the trial court toprove that the goods have in fact been sold. At the very least, it could only show that the goods were not in the warehouse.

Having established the inapplicability of PD 115, this Court findsthat petitioners liability is only limited to the satisfaction of hisobligation from the loan. The real intent of the parties wassimply to enter into a simple loan agreement.

To emphasize, the Trust Receipts Law was created to to aid infinancing importers and retail dealers who do not havesufficient funds or resources to finance the importation orpurchase of merchandise, and who may not be able toacquire credit except through utilization, as collateral, of the merchandise imported or purchased . Since Asiatrust knew that petitioner was neither an importer nor retail dealer,it should have known that the said agreement could not possiblyapply to petitioner.

Moreover, this Court finds that petitioner is not liablefor Estafa both under the RPC and PD 115.

Goods Were Not Received in Trust

The first element of Estafa under Art. 315, par. 1(b) of theRPC requires that the money, goods or other personal propertymust be received by the offender in trust or on commission, orfor administration, or under any other obligation involving theduty to make delivery of, or to return it. But as we alreadydiscussed, the goods received by petitioner were not held in

trust. They were also not intended for sale and neither didpetitioner have the duty to return them. They were onlyintended for use in the fabrication of steel communicationtowers.

No Misappropriation of Goods or Proceeds

The second element of Estafa requires that there bemisappropriation or conversion of such money or property by

the offender, or denial on his part of such receipt.

This is the very essence of Estafa under Art. 315, par. 1(b). Thewords convert and misappropriated connote an act of usingor disposing of anothers property as if it were ones own, or of devoting it to a purpose or use different from that agreed upon.To misappropriate for ones own use includes not onlyconversion to one s personal advantage, but also every attempt to dispose of the property of another without a right .[18]

Petitioner argues that there was no misappropriation orconversion on his part, because his liability for the amount of the goods subject of the trust receipts arises and becomesdue only upon receipt of the proceeds of the sale and not priorto the receipt of the full price of the goods.

Petitioner is correct. Thus, assuming arguendo that theprovisions of PD 115 apply, petitioner is not liablefor Estafa because Sec. 13 of PD 115 provides that an entrusteeis only liable for Estafa when he fails to turn over the proceedsof the sale of the goods x x x covered by a trust receipt to theextent of the amount owing to the entruster or as appears in thetrust receipt x x x in accordance with the terms of the trust receipt .

The trust receipt entered into between Asiatrust and petitionerstates:

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

Clearly, petitioner was only obligated to turn over theproceeds as soon as he received payment. However, theevidence reveals that petitioner experienced diff iculties in

collecting payments from his clients for the communicationtowers. Despite this fact, petitioner endeavored to pay hisindebtedness to Asiatrust, which payments during the periodfrom September 1997 to July 1998 total approximately PhP1,500,000. Thus, absent proof that the proceeds have beenactually and fully received by petitioner, his obligation to turnover the same to Asiatrust never arose.

What is more, under the Trust Receipt Agreement itself, no dateof maturity was stipulated. The provision left blank by Asiatrust is as follows:

x x x and in consideration thereof, I/we hereby agree to holdsaid goods in Trust for the said Bank and as its property withliberty to sell the same for its account within ________ days fromthe date of execution of the Trust Receipt x x x[20]

In fact, Asiatrust purposely left the space designated forthe date blank, an action which in ordinary banking transactionswould be noted as highly irregular. Hence, the only way for theobligation to mature was for Asiatrust to demand frompetitioner to pay the obligation, which it never did.
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Again, it also makes the Court wonder as to why Asiatrust decided to leave the provisions for the maturity dates in theTrust Receipt agreements in blank, since those dates areelemental part of the loan. But then, as can be gleaned from therecords of this case, Asiatrust also knew that the capacity of petitioner to pa y for his loan also hinges upon the lattersreceivables from Islacom, Smart, and Infocom where he hadongoing and future projects for fabrication and installation of steel communication towers and not from the sale of saidgoods. Being a bank, Asiatrust acted inappropriately when it left such a sensitive bank instrument with a void circumstanceon an elementary but vital feature of each and every loantransaction, that is, the maturity dates. Without stating thematurity dates, it was impossible for petitioner to determinewhen the loan will be due.

Moreover, Asiatrust was aware that petitioner was not engaged in selling the subject goods and that petitioner will usethem for the fabrication and installation of communicationtowers. Before granting petitioner the credit line, asaforementioned, Asiatrust conducted an investigation, whichshowed that petitioner fabricated and installed communicationtowers for well-known communication companies to beinstalled at designated project sites. In fine, there was no abuseof confidence to speak of nor was there any intention to convert the subject goods for another purpose, since petitioner did not withhold the fact that they were to be used to fabricate steelcommunication towers to Asiatrust. Hence, no malice or abuseof confidence and misappropriation occurred in this instancedue to Asiatrusts knowledge of the facts.

Furthermore, Asiatrust was informed at the time of petitionersapplication for the loan that the payment for the loan would be

derived from the collectibles of his clients. Petitioner informedAsiatrust that he was having extreme difficulties in collectingfrom Islacom the full contracted price of the towers. Thus, theduty of petitioner to remit the proceeds of the goods has not yet arisen since he has yet to receive proceeds of the goods. Again,petitioner could not be said to have misappropriated orconverted the proceeds of the transaction since he has not yet received the proceeds from his client, Islacom.

This Court also takes judicial notice of the fact that petitionerhas fully paid his obligation to Asiatrust, making the claim fordamage and prejudice of Asiatrust baseless and unfounded.

Given that the acceptance of payment by Asiatrust necessarilyextinguished petitioners obligation, then there is no longer anyobligation on petitioners part to spe ak of, thus precludingAsiatrust from claiming any damage. This is evidenced byAsiatrusts Affidavit of Desistanc e[21] acknowledging full payment of the loan.

Reasonable Doubt Exists

In the final analysis, the prosecution failed to prove beyondreasonable doubt that petitioner was guilty of Estafa under Art.315, par. 1(b) of the RPC in relation to the pertinent provision of PD 115 or the Trust Receipts Law; thus, his liability should onlybe civil in nature.

While petitioner admits to his civil liability to Asiatrust, henevertheless does not have criminal liability. It is a well-established principle that person is presumed innocent untilproved guilty. To overcome the presumption, his guilt must beshown by proof beyond reasonable doubt. Thus, we heldin People v. Marian o[22] that while the principle does not connoteabsolute certainty, it means the degree of proof which producesmoral certainty in an unprejudiced mind of the culpability of the

accused. Such proof should convince and satisfy the reason andconscience of those who are to act upon it that the accused is infact guilty. The prosecution, in this instant case, failed to rebut the constitutional innocence of petitioner and thus the lattershould be acquitted.

At this point, the ruling of this Court in Colinares v. Court of Appeals is very apt, thus:

The practice of banks of making borrowers sign trust receipts tofacilitate collection of loans and place them under the threats of criminal prosecution should they be unable to pay it may beunjust and inequitable, if not reprehensible. Such agreementsare contracts of adhesion which borrowers have no option but to sign lest their loan be disapproved. The resort to this schemeleaves poor and hapless borrowers at the mercy of banks, and isprone to misinterpretation x x x .[23]

Such is the situation in this case.

Asiatrusts intention became more evident when, on March30, 2009, it, along with petitioner, filed their Joint Motion forLeave to File and Admit Attached Affidavit of Desistance toqualify the Affidavit of Desistance executed by Felino H.Esquivas, Jr., attorney-in-fact of the Board of Asiatrust, whichacknowledged the full payment of the obligation of thepetitioner and the successful mediation between the parties.

From the foregoing considerations, we deem it unnecessary todiscuss and rule upon the other issues raised in the appeal.

WHEREFORE , the CA Decision dated August 29, 2003affirming the RTC Decision dated May 29, 2001 is SET ASIDE .Petitioner ANTHONY L. NG is hereby ACQUITTED of the chargeof violation of Art. 315, par. 1(b) of the RPC in relation to thepertinent provision of PD 115.

-----

G.R. No. 159622 July 30, 2004

LANDL & COMPANY (PHIL.) INC., PERCIVAL G. LLABAN andMANUEL P. LUCENTE, petitioners,vs.METROPOLITAN BANK & TRUST COMPANY, respondent.At issue in this petition for review on certiorari is whether ornot, in a trust receipt transaction, an entruster which had takenactual and juridical possession of the goods covered by the trust receipt may subsequently avail of the right to demand from theentrustee the deficiency of the amount covered by the trust receipt.

As correctly appreciated by the Court of Appeals, theundisputed facts of this case are as follows:

Respondent Metropolitan Bank and Trust Company(Metrobank) filed a complaint for sum of money against Landland Company (Phil.) Inc. (Landl) and its directors, Percival G.Llaban and Manuel P. Lucente before the Regional Trial Court of Cebu City, Branch 19, docketed as Civil Case No. CEB-4895.

Respondent alleged that petitioner corporation is engaged inthe business of selling imported welding rods and alloys. OnJune 17, 1983, it opened Commercial Letter of Credit No. 4998with respondent bank, in the amount of US$19,606.77, whichwas equivalent to P218,733.92 in Philippine currency at thetime the transaction was consummated. The letter of credit wasopened to purchase various welding rods and electrodes fromPerma Alloys, Inc., New York, U.S.A., as evidenced by a Pro-Forma Invoice dated March 10, 1983. Petitioner corporation put
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loan, the entruster may choose between two separate andalternative remedies: (1) the return of the goods covered by thetrust receipt, in which case, the entruster now acquires theownership of the goods which the entrustee failed to sell; or (2)cancel the trust and take possession of the goods, for thepurpose of selling the same at a private sale or at public auction.Petitioners assert that, under this second remedy, the entrusterdoes not acquire ownership of the goods, in which case he isentitled to the deficiency. Petitioners argue that these tworemedies are so distinct that the availment of one necessarilybars the availment of the other. Thus, when respondent bank availed of the remedy of demanding the return of the goods, theactual return of all the unsold goods completely extinguishedpetitioners' liability .4

Petitioners' argument is bereft of merit.

A trust receipt is inextricably linked with the primaryagreement between the parties. Time and again, we haveemphasized that a trust receipt agreement is merely a collateralagreement, the purpose of which is to serve as security for a

loan. Thus, in Abad v. Court of Appeals ,5 we ruled:

A letter of credit-trust receipt arrangement is endowed with itsown distinctive features and characteristics. Under that set-up, abank extends a loan covered by the letter of credit, with thetrust receipt as security for the loan. In other words, thetransaction involves a loan feature represented by the letter of credit, and a security feature which is in the covering trust receipt. x x x.

A trust receipt, therefore, is a security agreement, pursuant towhich a bank acquires a "security interest" in the goods. It

secures an indebtedness and there can be no such thing assecurity interest that secures no obligation .6

The Trust Receipts Law was enacted to safeguard commercialtransactions and to offer an additional layer of security to thelending bank. Trust receipts are indispensable contracts ininternational and domestic business transactions. The prevalent use of trust receipts, the danger of their misuse and/ormisappropriation of the goods or proceeds realized from thesale of goods, documents or instruments held in trust forentruster banks, and the need for regulation of trust receipt transactions to safeguard the rights and enforce the obligationsof the parties involved are the main thrusts of the Trust ReceiptsLaw.7

The second paragraph of Section 7 provides a statutory remedyavailable to an entruster in the event of default or failure of theentrustee to comply with any of the terms and conditions of thetrust receipt or any other agreement between the entruster andthe entrustee. More specifically, the entruster "may cancel thetrust and take possession of the goods, documents orinstruments subject of the trust or of the proceeds realizedtherefrom at any time". The law further provides that "theentruster in possession of the goods, documents or instrumentsmay, on or after default, give notice to the entrustee of theintention to sell, and may, not less than five days after serving orsending of such notice, sell the goods, documents or instrumentsat public or private sale, and the entruster may, at a public sale,become a purchaser. The proceeds of any such sale, whetherpublic or private, shall be applied (a) to the payment of theexpenses thereof; (b) to the payment of the expenses of re-taking, keeping and storing the goods, documents orinstruments; (c) to the satisfaction of the entrustee'sindebtedness to the entruster. The entrustee shall receive anysurplus but shall be liable to the entruster for any deficiency."

The trust receipt between respondent bank and petitionercorporation contains the following relevant clauses:

The BANK/ENTRUSTER may, at any time, and only at its option,cancel this trust and take possession of thegoods/documents/instruments subject hereof or of theproceeds realized therefrom wherever they may then be found,upon default or failure of the ENTRUSTEE to comply with any of the terms and conditions of this Trust Receipt or of any other

agreement between the BANK/ENTRUSTER and theENTRUSTEE; and the BANK/ENTRUSTER having takenrepossession of the goods/documents/instruments object hereof may, on or after default, give at least five (5) days'previous notice to the ENTRUSTEE of its intention to sell thegoods/documents/instruments at public or private sale, at which public sale, it may become a purchaser; Provided, that theproceeds of any such sale, whether public or private, shall beapplied: (a) to the payment of the expenses thereof; (b) to thepayment of the expenses of retaking, keeping and storing thegoods/documents/instruments; (c) to the satisfaction of all of the ENTRUSTEE's indebtedness to the BANK/ENTRUSTER; andProvided, further, that the ENTRUSTEE shall receive any surplusthereof but shall, in any case, be liable to the BANK/ENTRUSTERfor any deficiency. x x x

No act or omission on the part of the BANK/ENTRUSTER shallbe deemed and considered a waiver of any of its rightshereunder or under any related letters of credit, drafts or otherdocuments unless such waiver is expressly made in writing overthe signature of the BANK/ENTRUSTER .8

The afore-cited stipulations in the trust receipt are a near-exact reproduction of the second paragraph of Section 7 of the Trust

Receipts Law. The right of repossession and subsequent sale at public auction which were availed of by respondent bank wererights available upon default, and which were conferred bystatute and reinforced by the contract between the parties.

The initial repossession by the bank of the goods subject of thetrust receipt did not result in the full satisfaction of thepetitioners' loan obligation. Petitioners are apparently laboringunder the mistaken impression that the full turn-over of thegoods suffices to divest them of their obligation to repay theprincipal amount of their loan obligation. This is definitely not the case. In Philippine National Bank v. Hon. Gregorio G. Pineda

and Tayabas Cement Company, Inc .,9

we had occasion to rule:PNB's possession of the subject machinery and equipment beingprecisely as a form of security for the advances given to TCCunder the Letter of Credit, said possession by itself cannot beconsidered payment of the loan secured thereby. Payment would legally result only after PNB had foreclosed on saidsecurities, sold the same and applied the proceeds thereof toTCC's loan obligation. Mere possession does not amount toforeclosure for foreclosure denotes the procedure adopted bythe mortgagee to terminate the rights of the mortgagor on theproperty and includes the sale itself.

Neither can said repossession amount to dacion en pago. Dationin payment takes place when property is alienated to thecreditor in satisfaction of a debt in money and the same isgoverned by sales. Dation in payment is the delivery andtransmission of ownership of a thing by the debtor to thecreditor as an accepted equivalent of the performance of theobligation. As aforesaid, the repossession of the machinery andequipment in question was merely to secure the payment of TCC's loan obligation and not for the purpose of transferringownership thereof to PNB in satisfaction of said loan. Thus,
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no dacion en pago was ever accomplished. (Citations omitted,underscoring supplied )10

Indeed, in the 1987 case of Vintola v. Insular Bank of Asia and America ,11 we struck down the position of the petitioner-spouses that their obligation to the entruster bank had beenextinguished when they relinquished possession of the goods inquestion. Thus:

A trust receipt is a security agreement, pursuant to whi ch abank acquires a "security interest" in the goods. It secures anindebtedness and there can be no such thing as security interest that secures no obligation. As defined in our laws:

(h) Security Interest means a property interest in goods,documents or instruments to secure performance of someobligations of the entrustee or of some third persons to theentruster and includes title, whether or not expressed to beabsolute, whenever such title is in substance taken or retainedfor security only.

x x x x x x x x x

Contrary to the allegations of the VINTOLAS, IBAA did not become the real owner of the goods. It was merely the holder of a security title for the advances it had made to the VINTOLAS.The goods the VINTOLAS had purchased through IBAA financingremain their own property and they hold it at their own risk.The trust receipt arrangement did not convert the IBAA into aninvestor; the latter remained a lender and creditor.

"x x x for the bank has previously extended a loan which the L/Crepresents to the importer, and by that loan, the importershould 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 artificialexpedient, 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 theimporter. To consider the bank as the true owner from theinception of the transaction would be to disregard the loanfeature thereof. x x x"

Since the IBAA is not the factual owner of the goods, theVINTOLAS cannot justifiably claim that because they havesurrendered 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 todispose of the goods. The fact that they were unable to sell theseashells in question does not affect IBAA's right to recover theadvances it had made under the Letter of Credit. (Citationsomitted. )12

Respondent bank's repossession of the properties andsubsequent sale of the goods were completely in accordancewith its statutory and contractual rights upon default of petitioner corporation.

The second paragraph of Section 7 expressly provides that theentrustee shall be liable to the entruster for any deficiency afterthe proceeds of the sale have been applied to the payment of theexpenses of the sale, the payment of the expenses of re-taking,keeping and storing the goods, documents or instruments, andthe satisfaction of the entrustee's indebtedness to the entruster.

In the case at bar, the proceeds of the auction sale wereinsufficient to satisfy entirely petitioner corporation'sindebtedness to the respondent bank. Respondent bank was

thus well within its rights to institute the instant case to collect the deficiency.

We find, however, that there has been an error in thecomputation of the total amount of petitioners' indebtedness torespondent bank.

Although respondent bank contends that the error of computation is a question of fact which is beyond the power of

this Court to review ,13 the total amount of petitioners'indebtedness in this case is not a question of fact. Rather, it is aquestion of law, i.e., the application of legal principles for thecomputation of the amount owed to respondent bank, and isthus a matter properly brought for our determination.

The first issue involves the amount of indebtedness prior to theimposition of interest and penalty charges. The initial amount of the trust receipt of P218,733.92, was reduced to P192,265.92 asof June 14, 1984, as per respondent's Statement of Past DueTrust Receipt dated December 1, 1993 .14 This amount presumably includes the application of P35,000.00, the amount

of petitioner Lucente's Deed of Assignment, which amount wasapplied by respondent bank to petitioners' obligation. Noshowing was made, however, that the P30,000.00 proceeds of the auction sale on July 31, 1985 was ever applied to the loan.Neither was the amount of P50,414.00, representing themarginal deposit made by petitioner corporation, deductedfrom the loan. Although respondent bank contends that themarginal deposit should not be deducted from the principalobligation, this is completely contrary to prevailingjurisprudence allowing the deduction of the marginal deposit,thus:

The marginal deposit requirement is a Central Bank measure tocut off excess currency liquidity which would create inflationarypressure. It is a collateral security given by the debtor, and issupposed to be returned to him upon his compliance with hissecured obligation. Consequently, the bank pays no interest onthe marginal deposit, unlike an ordinary bank deposit whichearns interest in the bank. As a matter of fact, the marginaldeposit requirement for letters of credit has been discontinued,except in those cases where the applicant for a letter of credit isnot known to the bank or does not maintain a good credit standing therein.

It is only fair then that the importer's marginal deposit (if onewas made, as in this case), should be set off against his debt, forwhile the importer earns no interest on his marginal deposit,the bank, apart from being able to use said deposit for its ownpurposes, also earns interest on the money it loaned to theimporter. It would be onerous to compute interest and othercharges on the face value of the letter of credit which the bank issued, without first crediting or setting off the marginal deposit which the importer paid to the bank. Compensation is properand should take place by operation of law because the requisitesin Article 1279 of the Civil Code are present and shouldextinguish both debts to the concurrent amount (Art. 1290, CivilCode). Although Abad is only a surety, he may set upcompensation as regards what the creditor owes the principaldebtor, TOMCO (Art. 1280, Civil Code) .15

The net amount of the obligation, represented by respondent bank to be P292,172.23 as of April 17, 1986, would thus beP211,758.23.

To this principal amount must be imposed the followingcharges: (1) 19% interest per annum, in keeping with the termsof the trust receipt ;16 and (2) 12% penalty per annum, collectedbased on the outstanding principal obligation plus unpaid
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interest, again in keeping with the wording of the trust receipt .17 It appearing that petitioners have paid the interest and penalty charges until April 17, 1986, the reckoning date forthe computation of the foregoing charges must be April 18,1986.

A perusal of the records reveals that the trial court and theCourt of Appeals erred in imposing service charges upon thepetitioners. No such stipulation is found in the trust receipt.

Moreover, the trial court and the Court of Appeals erred incomputing attorney's fees equivalent to 10% per annum, ratherthan 10% of the total amount due. There is no basis forcompounding the interest annually, as the trial court and Court of Appeals have done. This amount would be unconscionable.

Finally, Lucente and Llaban's contention that they are not solidarily liable with petitioner corporation is untenable. As co-signatories of the Continuing Suretyship Agreement, they boundthemselves, inter alia , to pay the principal sum in the amount of not more than P400,000.00; interest due on the principalobligation; attorney's fees; and expenses that may be incurred

in collecting the credit. The amount owed to respondent bank isthe amount of the principal, interest, attorney's fees, andexpenses in collecting the principal amount. The ContinuingSuretyship Agreement expressly states the nature of the liabilityof Lucente and Llaban:

The liability of the SURETY shall be solidary, direct andimmediate and not contingent upon the bank's pursuit of whatever remedies the BANK have [sic] against the Borrower orthe securities or liens the BANK may possess and the SURETYwill at any time, whether due or not due, pay to the BANK withor withour demand upon the Borrower, any of the instruments

of indebtedness or other obligation hereby guaranteed by theSURETY.18

Solidary liability is one of the primary characteristics of a suretycontract ,19 and the Continuing Suretyship Agreement expresslystipulates the solidary nature of Lucente and Llaban's liability.All three petitioners thus share the solidary obligation in favorof respondent bank, which is given the right, under the CivilCode, to proceed against any one of the solidary debtors orsome or all of them simultaneously .20

WHEREFORE , premises considered, the instant petition isPARTIALLY GRANTED. The decision of the Court of Appeals inCA-G.R. CV No. 58193 dated February 13, 2003 is AFFIRMEDwith MODIFICATIONS. Accordingly, petitioners are ordered topay respondent bank the following: (1) P211,758.23representing petitioners' net obligation as of April 17, 1986; (2)interest at the rate of 19% per annum and penalty at the rate of 12% per annum reckoned from April 18, 1986; (3) attorney'sfees equivalent to 10% of the total amount due and collectible;and (4) litigation expenses in the amount of P3,000.00. Theservice charge at the rate of 2% per annum beginning April 18,1986 is deleted. Costs against petitioners.

SO ORDERED.

G.R. No. L-4080. September 21, 1953.]

JOSE R. MARTINEZ, as administrator of the Instate Estate of Pedro Rodriguez, deceased, Plaintiff-Appellant, vs.PHILIPPINE NATIONAL BANK, Defendant-Appellee.

D E C I S I O N

MONTEMAYOR, J.:

As of February 1942, the estate of Pedro Rodriguez wasindebted to the defendant Philippine National Bank in theamount of P22,128.44 which represented the balance of thecrop loan obtained by the estate upon its 1941-1942 sugar canecrop. Sometime in February 1942, Mrs. Amparo R. Martinez, lateadministratrix of the estate upon request of the defendant bank through its Cebu branch, endorsed and delivered to the said

bank two (2) quedans according to plaintiff-appellant issued bythe Bogo-Medellin Milling Co. where the sugar was storedcovering 2,198.11 piculs of sugar belonging to the estate,although according to the defendant-appellee, only one quedancovering 1,071.04 piculs of sugar was endorsed and delivered.During the last Pacific war, sometime in 1943, the sugar coveredby the quedan or quedans was lost while in the warehouse of the Bogo-Medellin Milling Co. In the year 1948, theindebtedness of the estate including interest was paid to thebank, according to the appellant, upon the insistence of andpressure brought to bear by the bank.

Under the theory and claim that sometime in February 1942,when the invasion of the Province of Cebu by the JapaneseArmed Forces was imminent, the administratrix of the estateasked the bank to release the sugar so that it could be sold at agood price which was about P25 per picul in order to avoid itspossible loss due to the invasion, but that the bank refused therequest and as a result the amount of P54,952.75 representingthe value of said sugar was lost, the present action was brought against the defendant bank to recover said amount. After trial,the Court of First Instance of Manila dismissed the complaint onthe ground that the transfer of the quedan or quedansrepresenting the sugar in the warehouse of the Bogo-Medellin

Milling Co. to the bank did not transfer ownership of the Sugar,and consequently, the loss of said sugar should be borne by theplaintiff-appellant. Administrator Jose R. Martinez is nowappealing from that decision.

We agree with the trial court that at the time of the loss of thesugar during the war, sometime in 1943, said sugar stillbelonged to the estate of Pedro Rodriguez. It had never beensold to the bank so as to make the latter owner thereof. Thetransaction could not have been a sale, first, because one of theessential elements of the contract of sale, namely, considerationwas not present. If the sugar was sold, what was the price? We

do not know, for nothing was said about it. Second, the bank byits charter is not authorized to engage in the business of buyingand selling sugar. It only accepts sugar as security for payment of its crop loans and later on pursuant to an understanding withthe sugar planters, it sells said sugar for them, or the plantersfind buyers and direct them to the bank. The sugar was givenonly as a security for the payment of the crop loan. This isadmitted by the appellant as shown by the allegations in itscomplaint filed before the trial court and also in the brief forappellant filed before us. According to law, the mortgagee orpledgee cannot become the owner of or convert and appropriateto himself the property mortgaged or pledged (Article 1859, old

Civil Code; Article 2088, new Civil Code). Said propertycontinues to belong to the mortgagor or pledgor. The onlyremedy given to the mortgagee or pledgee is to have saidproperty sold at public auction and the proceeds of the saleapplied to the payment of the obligation secured by themortgage or pledge.

The position and claim of plaintiff-appellant is ratherinconsistent and confusing. First, he contends that theendorsement and delivery of the quedan or quedans to the bank transferred the ownership of the sugar to said bank so that as
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owner, the bank should suffer the loss of the sugar on theprinciple that "a thing perishes for its owner". We take it that byendorsing the quedan, defendant was supposed to have sold thesugar to the bank for the amount of the outstanding loan of P22,128.44 and the interest then accrued. That would mean that plaintiff's account with the bank has been entirely liquidatedand their contractual relations ended, the bank, suffering theloss of the amount of the loan and interest. But plaintiff-appellant in the next breath contends that had the bank releasedthe sugar in February 1942, plaintiff could have sold it forP54,952.75, from which the amount of the loan and interest could have been deducted, the balance to have been retained byplaintiff, and that since the loan has been entirely liquidated in1948, then the whole expected sales price of P54,952.75 shouldnow be paid by the bank to appellant. This second theorypresupposes that despite the endorsement of the quedan,plaintiff still retained ownership of the sugar, a position that runs counter to the first theory of transfer of ownership to thebank.

In the course of the discussion of this case among the membersof the Tribunal, one or two of them who will dissent from themajority view sought to cure and remedy this apparent inconsistency in the claim of appellant and sustain the theorythat the endorsement of the quedan made the bank the owner of the sugar resulting in the payment of the loan, so that now, thebank should return to appellant the amount of the loan it improperly collected in 1948.

In support of the theory of transfer of ownership of the sugar tothe bank by virtue of the endorsement of the quedan, referencewas made to the Warehouse Receipts Law, particularly section41 thereof, and several cases decided by this court are cited. In

the first place, this claim is inconsistent with the very theory of plaintiff-appellant that the sugar far from being sold to the bank was merely given as security for the payment of the crop loan.In the second place, the authorities cited are not directlyapplicable. In those cases this court held that for purposes of facilitating commercial transaction, the endorsee or transfereeof a warehouse receipt or quedan should be regarded as theowner of the goods covered by it. In other words, as regards theendorser or transferor, even if he were the owner of the goods,he may not take possession and dispose of the goods without the consent of the endorsee or transferee of the quedan orwarehouse receipt; that in some cases the endorsee of a quedan

may sell the goods and apply the proceeds of the sale to thepayment of the debt; and as regards third persons, the holder of a warehouse receipt or quedan is considered the owner of thegoods covered by it. To make clear the view of this court in saidcases, we are quoting a portion of the decisions of this court intwo of these cases cited which are typical.

"As to the first cause of action, we hold that in January, 1919, thebank became and remained the owner of the five quedans Nos.30, 35, 38, 41, and 42; that they were in form negotiable, andthat, as such owner, it was legally entitled to the possession andcontrol of the property therein described at the time the

insolvency petition was filed and had a right to sell it and applythe proceeds of the sale to its promissory notes, including thethree notes of P18,000 each, which were formerly secured bythe three quedans Nos. 33, 36, and 39, which the bank surrendered to the firm." (Philippine Trust Co. vs. NationalBank, 42 Phil., 413, 427).

". . . Section 53 provides that within the meaning of the Act 'to"purchase" includes to take as mortgagee or pledgee' and"purchaser" includes mortgagee and pledgee.' It thereforeseems clear that, as to the legal title to the property covered by a

warehouse receipt, a pledgee is on the same footing as a vendeeexcept that the former is under the obligation of surrenderinghis title upon the payment of the debt secured. To holdotherwise would defeat one of the principal purposes of the Act,i.e., to furnish a basis for commercial credit." (Bank of thePhilippine Islands vs. Herridge, 47 Phil. 57, 70).

It is obvious that where the transaction involved in the transferof a warehouse receipt or quedan is not a sale but pledge or

security, the transferee or endorsee does not become the ownerof the goods but that he may only have the property sold andthen satisfy the obligation from the proceeds of the sale. Fromall this, it is clear that at the time the sugar in question was lost sometime during the war, estate of Pedro Rodriguez was stillthe owner thereof.

It is further contended in this appeal that the defendant-appellee failed to exercise due care for the preservation of thesugar, and that the loss was due to its negligence as a result of which the appellee incurred the loss. In the first place, thisquestion was not raised in the court below. Plaintiff's complaint

failed to make any allegation regarding negligence in thepreservation of this sugar. In the second place, it is a fact that the sugar was lost in the possession of the warehouse selectedby the appellant to which it had originally delivered and storedit, and for causes beyond the bank's control, namely, the war.

In connection with the claim that had the bank released thesugar sometime in February, 1942, when requested by theplaintiff, said sugar could have been sold at the rate of P25 apicul or a total of P54,952.75, the amount of the present claim,there is evidence to show that the request for release was not made to the bank itself but directly to the official of the

warehouse, the Bogo-Medellin Milling Co. and that the bank wasnot aware of any such request, but that before April 9, 1942,when the Cebu branch of the defendant was closed, the bank through its officials offered the sugar for sale but that therewere no buyers, perhaps due to the unsettled and chaoticconditions then obtaining by reason of the enemy occupation.

In conclusion, we hold that where a warehouse receipt orquedan is transferred or endorsed to a creditor only to securethe payment of a loan or debt, the transferee or endorsee doesnot automatically become the owner of the goods covered bythe warehouse receipt or quedan but he merely retains the right

to keep and with the consent of the owner to sell them so as tosatisfy the obligation from

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