Case Digest: Colinares v. Court of Appeals, G.R. No. 90828, September 5, 2000

Commercial Law | Trust Receipts Law

• In 1979, Melvin Colinares and Lordino Veloso (Petitioners) were hired by the Carmelite Sisters of Cagayan de Oro City to renovate their convent for ₱40,000.

• On 30 October 1979, Petitioners purchased materials from CM Builders Centre for the construction project, costing ₱22,389.80.

• On 31 October 1979, Petitioners applied for a commercial letter of credit with the Philippine Banking Corporation-CDO in favor of CM Builders Centre.

• PBC approved the letter of credit for ₱22,389.80.

• Petitioners signed a pro-forma trust receipt as security,  obligating them to repay the loan by 29 January 1980.

• PBC debited ₱6,720 from Petitioners' marginal deposit as a partial loan payment.

• On 7 May 1980, PBC demanded payment within seven days from notice.

• Instead of complying, Veloso requested an extension due to project losses.

• They requested for a grace period of until 15 June 1980.

• On 16 October 1980, PBC sent another demand letter indicating an outstanding balance of ₱20,824.40 plus attorney's fees of 25%.

• On 2 December 1980, Petitioners proposed a modified payment plan:

• Pay ₱2,000 by 3 December 1980

• Pay ₱1,000 per month starting 31 January 1981 until the account is fully paid.

• Pending approval of the proposal, Petitioners made the following payments to PBC:

• ₱1,000 on 4 December 1980

• ₱500 on 11 February 1981

• ₱500 on 16 March 1981

• ₱500 on 20 April 1981

• On 14 January 1983, Petitioners were charged with violating P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of the Revised Penal Code.

• Defense: Veloso claimed the transaction was a "clean loan" and that they signed the documents without reading the fine print, only learning of the trust receipt implication much later. 

• RTC-Cagayan De Oro: Convicted Petitioners of estafa, sentencing them to imprisonment (2Y1D-6Y1D) and ordering them to solidarily indemnify PBC.

• CA: Increased the penalty of imprisonment (6Y1D-14Y8M1D).

Issue: Whether the true nature of the contract between Petitioners and the PBC was a trust receipt agreement. NO

Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt transaction as any transaction by and between a person referred to as the entruster, and another person referred to as the entrustee, whereby the entruster,  who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee  upon the latter's execution and delivery to the entruster  of a signed document called a "trust receipt"  wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt.

There are two possible situations in a trust receipt transaction. The first is covered by the provision that refers to money under the obligation to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision referring to merchandise received under the obligation to return it (devolvera) to the owner. 

Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by the trust receipt to the entruster or to return said goods if they were not disposed of in accordance with the terms of the trust receipt shall be punishable as estafa under Article 315 (1) of the Revised Penal Code, without need of proving intent to defraud.

A thorough examination of the facts obtaining in the case at bar reveals that the transaction intended by the parties was a simple loan, not a trust receipt agreement.

Petitioners received the merchandise from CM Builders Centre on 30 October 1979. On that day, ownership over the merchandise was already transferred to Petitioners who were to use the materials for their construction project. It was only a day later, 31 October 1979, that they went to the bank to apply for a loan to pay for the merchandise.

• This situation belies what normally obtains in a pure trust receipt transaction where goods are owned by the bank and only released to the importer in trust subsequent to the grant of the loan. 

• The bank acquires a "security interest" in the goods as holder of a security title for the advances it had made to the entrustee.

• The ownership of the merchandise continues to be vested in the person who had advanced payment until he has been paid in full, or if the merchandise has already been sold, the proceeds of the sale should be turned over to him by the importer or by his representative or successor in interest.

• To secure that the bank shall be paid, it takes full title to the goods at the very beginning and continues to hold that title as his indispensable security until the goods are sold and the vendee is called upon to pay for them; hence, the importer has never owned the goods and is not able to deliver possession.

• In a certain manner, trust receipts partake of the nature of a conditional sale where the importer becomes absolute owner of the imported merchandise as soon as he has paid its price.

• Trust receipt transactions are intended to aid in financing importers and retail dealers who:

• ❌ do not have sufficient funds or resources to finance the importation or purchase of merchandise, and 

• ❌ who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased.

• The antecedent acts in a trust receipt transaction consist of the:

1. application and approval of the letter of credit, 

2. the making of the marginal deposit and

3. the effective importation of goods through the efforts of the importer.

PBC attempted to cover up the true delivery date of the merchandise, yet the trial court took notice even though it failed to attach any significance to such fact in the judgment. Despite the Court of Appeals’ contrary view that the goods were delivered to Petitioners previous to the execution of the letter of credit and trust receipt, we find that the records of the case speak volubly and this fact remains uncontroverted. It is not uncommon for us to peruse through the transcript of the stenographic notes of the proceedings to be satisfied that the records of the case do support the conclusions of the trial court. After such perusal Grego Mutia, PBC’s credit investigator, admitted thus:

ATTY. CABANLET: (continuing)

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

A Yes, sir.

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

A Yes, sir.

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

A Yes, sir.

xxx

Q What is the date of the charge invoice?

A October 31, 1979.

COURT:

Make it of record as appearing in Exhibit D, the zero in 30 has been superimposed with numeral 1.42

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

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

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

xxx

RE-DIRECT BY ATTY. CABANLET:

ATTY. CABANLET (to the witness)

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

A Loan is a promise of a borrower from the value received. The borrower will pay the bank on a certain specified date with interest.

Such statement is akin to an admission against interest binding upon PBC.

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

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

A I don’t think that would be a trust receipt because we were made to understand by the manager who encouraged us to avail of their facilities that they will be granting us a loan

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

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

Here, it is crystal clear that on the part of Petitioners there was neither dishonesty nor abuse of confidence in the handling of money to the prejudice of PBC. Petitioners continually endeavored to meet their obligations, as shown by several receipts issued by PBC acknowledging payment of the loan.

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

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

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

WHEREFORE, the challenged Decision of 6 March 1989 and the Resolution of 16 October 1989 of the Court of Appeals in CA-GR. No. 05408 are REVERSED and SET ASIDE. Petitioners are hereby ACQUITTED of the crime charged, i.e., for violation of P.D. No. 115 in relation to Article 315 of the Revised Penal Code.