"x x x.
The disputed transactions are not trust receipts.
Section 4 of P.D. 115 defines a trust receipt transaction in this manner:
Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this Decree, is any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following:
1. In the case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or process the goods with the purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has complied fully with his obligation under the trust receipt; or (c) to load, unload, ship or tranship or otherwise deal with them in a manner preliminary or necessary to their sale[.]
There are two obligations in a trust receipt transaction. The first is covered by the provision that refers to money under the obligation to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision referring to merchandise received under the obligation to return it (devolvera) to the owner. Thus, under the Trust Receipts Law,[22] intent to defraud is presumed when (1) the entrustee fails to turn over the proceeds of the sale of goods covered by the trust receipt to the entruster; or (2) when the entrustee fails to return the goods under trust, if they are not disposed of in accordance with the terms of the trust receipts.[23]
In all trust receipt transactions, both obligations on the part of the trustee exist in the alternative – the return of the proceeds of the sale or the return or recovery of the goods, whether raw or processed.[24] When both parties enter into an agreement knowing that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt transaction penalized under Section 13 of P.D. 115; the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere loan,[25]where the borrower is obligated to pay the bank the amount spent for the purchase of the goods.
Article 1371 of the Civil Code provides that “[i]n order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered.” Under this provision, we can examine the contemporaneous actions of the parties rather than rely purely on the trust receipts that they signed in order to understand the transaction through their intent.
We note in this regard that at the onset of these transactions, LBP knew that ACDC was in the construction business and that the materials that it sought to buy under the letters of credit were to be used for the following projects: the Metro Rail Transit Project and the Clark Centennial Exposition Project.[26] LBP had in fact authorized the delivery of the materials on the construction sites for these projects, as seen in the letters of credit it attached to its complaint.[27] Clearly, they were aware of the fact that there was no way they could recover the buildings or constructions for which the materials subject of the alleged trust receipts had been used. Notably, despite the allegations in the affidavit-complaint wherein LBP sought the return of the construction materials,[28] its demand letter dated May 4, 1999 sought the payment of the balance but failed to ask, as an alternative, for the return of the construction materials or the buildings where these materials had been used.[29]
The fact that LBP had knowingly authorized the delivery of construction materials to a construction site of two government projects, as well as unspecified construction sites, repudiates the idea that LBP intended to be the owner of those construction materials. As a government financial institution, LBP should have been aware that the materials were to be used for the construction of an immovable property, as well as a property of the public domain. As an immovable property, the ownership of whatever was constructed with those materials would presumably belong to the owner of the land, under Article 445 of the Civil Code which provides:
Article 445. Whatever is built, planted or sown on the land of another and the improvements or repairs made thereon, belong to the owner of the land, subject to the provisions of the following articles.
Even if we consider the vague possibility that the materials, consisting of cement, bolts and reinforcing steel bars, would be used for the construction of a movable property, the ownership of these properties would still pertain to the government and not remain with the bank as they would be classified as property of the public domain, which is defined by the Civil Code as:
Article 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth.
In contrast with the present situation, it is fundamental in a trust receipt transaction that the person who advanced payment for the merchandise becomes the absolute owner of said merchandise and continues as owner until he or she is paid in full, or if the goods had already been sold, the proceeds should be turned over to him or to her.[30]
Thus, in concluding that the transaction was a loan and not a trust receipt, we noted in Colinaresthat the industry or line of work that the borrowers were engaged in was construction. We pointed out that the borrowers were not importers acquiring goods for resale.[31] Indeed, goods sold in retail are often within the custody or control of the trustee until they are purchased. In the case of materials used in the manufacture of finished products, these finished products – if not the raw materials or their components – similarly remain in the possession of the trustee until they are sold. But the goods and the materials that are used for a construction project are often placed under the control and custody of the clients employing the contractor, who can only be compelled to return the materials if they fail to pay the contractor and often only after the requisite legal proceedings. The 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.
Based on these premises, we cannot consider the agreements between the parties in this case to be trust receipt transactions because (1) from the start, the parties were aware that ACDC could not possibly be obligated to reconvey to LBP the materials or the end product for which they were used; and (2) from the moment the materials were used for the government projects, they became public, not LBP’s, property.
Since these transactions are not trust receipts, an action for estafa should not be brought against the respondents, who are liable only for a loan. In passing, it is useful to note that this is the threat held against borrowers that Retired Justice Claudio Teehankee emphatically opposed in his dissent in People v. Cuevo,[32] restated in Ong v. CA, et al.:[33]
The very definition of trust receipt x x x sustains the lower court’s rationale in dismissing the information that the contract covered by a trust receipt is merely a secured loan. The goods imported by the small importer and retail dealer through the bank’s financing remain of their own property and risk and the old capitalist orientation of putting them in jail for estafa for non-payment of the secured loan (granted after they had been fully investigated by the bank as good credit risks) through the fiction of the trust receipt device should no longer be permitted in this day and age.
As the law stands today, violations of Trust Receipts Law are criminally punishable, but no criminal complaint for violation of Article 315, paragraph 1(b) of the Revised Penal Code, in relation with P.D. 115, should prosper against a borrower who was not part of a genuine trust receipt transaction.
Misappropriation or abuse of confidence is absent in this case.
Even if we assume that the transactions were trust receipts, the complaint against the respondents still should have been dismissed. The Trust Receipts Law punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another, regardless of whether the latter is the owner or not. The law does not singularly seek to enforce payment of the loan, as “there can be no violation of [the] right against imprisonment for non-payment of a debt.”[34]
In order that the respondents “may be validly prosecuted for estafa under Article 315, paragraph 1(b) of the Revised Penal Code,[35] in relation with Section 13 of the Trust Receipts Law, the following elements must be established: (a) they received the subject goods in trust or under the obligation to sell the same and to remit the proceeds thereof to [the trustor], or to return the goods if not sold; (b) they misappropriated or converted the goods and/or the proceeds of the sale; (c) they performed such acts with abuse of confidence to the damage and prejudice of Metrobank; and (d) demand was made on them by [the trustor] for the remittance of the proceeds or the return of the unsold goods.”[36]
In this case, no dishonesty or abuse of confidence existed in the handling of the construction materials.
In this case, the misappropriation could be committed should the entrustee fail to turn over the proceeds of the sale of the goods covered by the trust receipt transaction or fail to return the goods themselves. The respondents could not have failed to return the proceeds since their allegations that the clients of ACDC had not paid for the projects it had undertaken with them at the time the case was filed had never been questioned or denied by LBP. What can only be attributed to the respondents would be the failure to return the goods subject of the trust receipts.
We do not likewise see any allegation in the complaint that ACDC had used the construction materials in a manner that LBP had not authorized. As earlier pointed out, LBP had authorized the delivery of these materials to these project sites for which they were used. When it had done so, LBP should have been aware that it could not possibly recover the processed materials as they would become part of government projects, two of which (the Metro Rail Transit Project and the Quezon Power Plant Project) had even become part of the operations of public utilities vital to public service. It clearly had no intention of getting these materials back; if it had, as a primary government lending institution, it would be guilty of extreme negligence and incompetence in not foreseeing the legal complications and public inconvenience that would arise should it decide to claim the materials. ACDC’s failure to return these materials or their end product at the time these “trust receipts” expired could not be attributed to its volition. No bad faith, malice, negligence or breach of contract has been attributed to ACDC, its officers or representatives. Therefore, absent any abuse of confidence or misappropriation on the part of the respondents, the criminal proceedings against them for estafa should not prosper.
In Metropolitan Bank,[37] we affirmed the city prosecutor’s dismissal of a complaint for violation of the Trust Receipts Law. In dismissing the complaint, we took note of the Court of Appeals’ finding that the bank was interested only in collecting its money and not in the return of the goods. Apart from the bare allegation that demand was made for the return of the goods (raw materials that were manufactured into textiles), the bank had not accompanied its complaint with a demand letter. In addition, there was no evidence offered that the respondents therein had misappropriated or misused the goods in question.
x x x."
