Colinares vs. Court of Appeals

A transaction is not a trust receipt agreement under P.D. No. 115 where the borrower already owned the goods before obtaining the loan and executing the trust receipt, as the essential element of the bank holding title or security interest over the goods prior to their release to the entrustee is absent. Where the bank merely financed the purchase after ownership had already vested in the borrower, the arrangement is a simple loan, and non-payment thereof cannot be punished as estafa under the Trust Receipts Law.

Melvin Colinares and Lordino Veloso were contractors engaged by the Carmelite Sisters of Cagayan de Oro City in 1979 to renovate the latter's convent at Camaman-an, Cagayan de Oro City, for a consideration of ₱40,000. To finance the purchase of construction materials needed for the project, they transacted with Philippine Banking Corporation (PBC), Cagayan de Oro City branch, which required them to sign a pro-forma trust receipt as security for what PBC treated as a commercial letter of credit arrangement. The Trust Receipts Law (P.D. No. 115) penalizes the failure of an entrustee to turn over proceeds of goods sold or to return unsold goods to the entruster, punishable as estafa under Article 315(1) of the Revised Penal Code without need of proving intent to defraud.

In 1979, Melvin Colinares and Lordino Veloso were contracted for ₱40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the latter's convent at Camaman-an, Cagayan de Oro City. On 30 October 1979, the petitioners obtained 5,376 SF Solatone acoustical board, 300 SF tanguile wood tiles, 260 SF Marcelo economy tiles, and 2 gallons UMYLIN cement adhesive from CM Builders Centre for the construction project. On that same day, ownership over the merchandise was already transferred to the petitioners, who were to use the materials for their construction project.

It was only the following day, 31 October 1979, that the petitioners applied for a commercial letter of credit with Philippine Banking Corporation (PBC), Cagayan de Oro City branch, in favor of CM Builders Centre. PBC approved the letter of credit for ₱22,389.80 to cover the full invoice value of the goods, and the petitioners signed a pro-forma trust receipt as security. The loan was due on 29 January 1980. On the same day, PBC debited ₱6,720 from the petitioners' marginal deposit as partial payment. Petitioner Veloso later insisted during trial that the transaction was a "clean loan" as per verbal guarantee of Cayo Garcia Tuiza, PBC's former manager, and that he and Colinares signed the documents without reading the fine print, only learning of the trust receipt implication much later. When he brought this to PBC's attention, Tuiza assured him that the trust receipt was a mere formality.

On 7 May 1980, PBC wrote to the petitioners demanding payment within seven days. Instead of complying, Veloso confessed that they lost ₱19,195.83 in the Carmelite Monastery Project and requested a grace period until 15 June 1980 to settle the account. PBC sent a new demand letter on 16 October 1980, informing them that their outstanding balance as of 17 November 1979 was ₱20,824.40 exclusive of 25% attorney's fees. On 2 December 1980, the petitioners proposed modified terms of payment: ₱2,000 on or before 3 December 1980, and ₱1,000 per month starting 31 January 1980 until the account was fully paid. Pending approval, they paid ₱1,000 on 4 December 1980, and thereafter ₱500 on 11 February 1981, 16 March 1981, and 20 April 1981. PBC continued to demand payment of the balance concurrently with a separate demand for attorney's fees by its legal counsel.

On 14 January 1983, the petitioners were charged with violation of P.D. No. 115 in relation to Article 315 of the Revised Penal Code before Branch 18, Regional Trial Court of Cagayan de Oro City, docketed as Criminal Case No. 1390. The Information alleged that the petitioners, as entrustees, received goods from PBC with the obligation to hold them in trust or sell them and turn over the proceeds, but instead willfully failed and refused to remit the proceeds, converting and misappropriating them to their own personal use, to the damage and prejudice of PBC in the sum of ₱22,389.80. The trial court convicted them on 7 July 1986, treating the transaction as a trust receipt transaction under Section 4 of P.D. No. 115, considering their use of the goods in the construction project as an act of "disposing" under Section 13, and concluding that their failure to turn over the amount owed constituted estafa. The Court of Appeals modified the judgment on 6 March 1989 by increasing the penalty. After the Court of Appeals denied their motion for new trial, the petitioners elevated the case to the Supreme Court. During the pendency of the petition, on 2 February 1990, the petitioners fully paid PBC ₱70,000 for the balance of the loan, including interest and other charges, and PBC executed an Affidavit of Desistance.

• Newly Discovered Evidence: Petitioners maintained that the denial of their Motion for New Trial on the ground of newly discovered evidence—specifically the "Disclosure Statement on Loan/Credit Transaction" signed by them and PBC's former manager Tuiza—constituted a denial of due process, as that document would have proved the transaction was a loan bearing 14% interest, as opposed to a trust receipt which does not bear interest.
• True Nature of the Transaction: Petitioners asserted that the transaction was an ordinary loan, not a trust receipt agreement under the Trust Receipts Law, because they had already received and acquired ownership of the goods from CM Builders Centre before applying for the loan and signing the trust receipt.
• Novation: Petitioners argued that when PBC allowed them to pay in installments, the agreement was novated and the trustor-trustee relationship was converted into a creditor-debtor situation.
• Payment and Desistance: Petitioners moved to dismiss the case on the ground that they had fully paid PBC ₱70,000 for the balance of the loan and that PBC executed an Affidavit of Desistance.

• Newly Discovered Evidence: The Court of Appeals held that the alleged newly discovered evidence was actually forgotten evidence already in existence during the trial, and would not alter the result of the case.
• Criminal Liability Not Extinguished by Payment: The Office of the Solicitor General opined that payment of the loan was akin to a voluntary surrender or plea of guilty which merely serves to mitigate petitioners' culpability, but does not extinguish their criminal liability.
• Documentary Evidence Prevails: The Court of Appeals held that the documentary evidence of the prosecution prevails over Veloso's testimony, discredited petitioners' claim that the documents they signed were in blank, and disbelieved that they were coerced into signing them.

• Motion for New Trial: Whether the denial of the Motion for New Trial on the ground of newly discovered evidence, namely the "Disclosure Statement on Loan/Credit Transaction," constitutes a denial of due process.
• Nature of the Transaction: Whether the transaction between the petitioners and PBC was a trust receipt agreement under P.D. No. 115 or a simple loan, and whether the petitioners were properly charged, tried, and convicted for violation of Section 13, P.D. No. 115 in relation to Article 315, paragraph 1(b) of the Revised Penal Code.

• Motion for New Trial: No. The Disclosure Statement was merely forgotten evidence, not newly discovered evidence, as the petitioners could not have been unaware of its existence and could have compelled its production during trial but failed to do so.
• Nature of the Transaction: No. The transaction was a simple loan, not a trust receipt agreement, because the petitioners had already acquired ownership of the goods from CM Builders Centre a day before they applied for the loan and signed the trust receipt. The essential element of the bank holding title or security interest over the goods prior to their release to the entrustee was absent.

• Motion for New Trial: For newly discovered evidence to warrant a new trial, it must satisfy three requisites: (1) discovered after trial; (2) could not have been discovered and produced at trial even with the exercise of reasonable diligence; and (3) material, not merely cumulative, corroborative, or impeaching, and of such weight that, if admitted, would probably change the judgment. The petitioners failed to establish the second requisite. The Disclosure Statement itself bears the notice: "NOTICE TO BORROWER: YOU ARE ENTITLED TO A COPY OF THIS PAPER WHICH YOU SHALL SIGN," which means they could not have been unaware of its existence. Even if their copy was unavailable, they could have compelled its production in court, which they never did. The petitioners themselves admitted that they searched their voluminous records and discovered the document only upon learning of the Court of Appeals' decision and after being "shocked by the penalty imposed." This establishes that the evidence was merely forgotten, which jurisprudence excludes as a ground for new trial.

• Nature of the Transaction: Section 4 of P.D. No. 115 defines a trust receipt transaction as one where the entruster, who owns or holds absolute title or security interest over specified goods, releases them to the entrustee upon execution of a trust receipt, with the entrustee bound to turn over the proceeds of sale or return the goods if unsold. In a genuine trust receipt transaction, the bank acquires a security interest in the goods as holder of security title for the advances made, and ownership continues to be vested in the bank until full payment. Here, the petitioners received the merchandise from CM Builders Centre on 30 October 1979, and ownership was already transferred to them on that day. It was only a day later, 31 October 1979, that they went to the bank to apply for a loan. This sequence belies the nature of a trust receipt transaction, where goods are owned by the bank and released to the importer in trust subsequent to the grant of the loan. PBC's own credit investigator, Grego Mutia, admitted that the goods were delivered to the petitioners before the execution of the letter of credit and trust receipt, and impliedly admitted that the transaction was a loan. PBC could have presented its former bank manager, Tuiza, to refute Veloso's testimony that they were made to understand the transaction was a loan, but it did not. Furthermore, the petitioners were not importers acquiring goods for re-sale, as contemplated by the trust receipt, but contractors who obtained fungible goods for their construction project. At no time did title over the construction materials pass to the bank. The Trust Receipts Law does not seek to enforce payment of a loan but punishes dishonesty and abuse of confidence in the handling of money or goods. The petitioners exhibited neither dishonesty nor abuse of confidence, as they continually endeavored to meet their obligations through installment payments. The practice of banks making borrowers sign trust receipts to facilitate collection of loans and subject them to threats of criminal prosecution is unjust and inequitable, as such agreements are contracts of adhesion which borrowers have no option but to sign.

• Nature of Trust Receipt Transactions — A trust receipt transaction under P.D. No. 115 requires that the entruster owns or holds absolute title or security interest over the specified goods before releasing them to the entrustee. The bank acquires a security interest in the goods as holder of security title for the advances it made, and ownership continues to vest in the bank until full payment. Where the borrower already owned the goods before obtaining the loan and executing the trust receipt, the essential element of the bank's title or security interest is absent, and the transaction is a simple loan, not a trust receipt agreement.

• Newly Discovered Evidence vs. Forgotten Evidence — For newly discovered evidence to ground a motion for new trial, it must satisfy three requisites: (1) discovered after trial; (2) could not have been discovered and produced at trial even with reasonable diligence; and (3) material and of such weight that, if admitted, would probably change the judgment. Evidence that was in existence during trial but was merely forgotten or overlooked by the party does not qualify as newly discovered evidence and cannot serve as a basis for new trial.

• Contracts of Adhesion in Trust Receipts — Trust receipts signed by borrowers to facilitate collection of loans are contracts of adhesion which borrowers have no option but to sign lest their loan be disapproved. Resorting to such a scheme to place borrowers under threats of criminal prosecution for non-payment of a loan is unjust and inequitable, if not reprehensible.

• "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." — This is the ratio decidendi of the case, establishing that the sequence of events—goods received and owned by the borrower before the loan and trust receipt were executed—negates the existence of a trust receipt transaction.

• "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." — This passage distinguishes the purpose of the Trust Receipts Law from ordinary debt collection, emphasizing that criminal liability under P.D. No. 115 requires dishonesty or abuse of confidence, not mere non-payment.

• "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." — This statement addresses the Court's concern over banks using trust receipts as a collection device for ordinary loans, characterizing such practice as a form of contract of adhesion that is prone to misinterpretation and prejudicial to borrowers.

• Vintola vs. IBAA, 150 SCRA 578 (1987) — Cited for the principle that in a trust receipt transaction, the bank acquires a security interest in the goods as holder of security title for the advances it made to the entrustee, and ownership continues to vest in the bank until full payment.
• Prudential Bank vs. NLRC, 251 SCRA 421 (1995) — Followed for the doctrine that trust receipt transactions partake of the nature of a conditional sale where the importer becomes absolute owner of the merchandise upon payment, and that the bank takes full title to the goods at the very beginning as indispensable security.
• People vs. Nitafan, 207 SCRA 726 (1992) — Cited for the principle that the Trust Receipts Law punishes dishonesty and abuse of confidence in the handling of money or goods, rather than enforcing payment of a loan.
• Sia vs. People, 121 SCRA 655 (1983) — Cited for the proposition that the antecedent acts in a trust receipt transaction consist of the application and approval of the letter of credit, the making of the marginal deposit, and the effective importation of goods through the efforts of the importer; also cited for the principle that ambiguity in a trust receipt should not be the basis for criminal prosecution.
• People vs. Excija, 258 SCRA 424 (1996) — Cited for the three requisites of newly discovered evidence as a ground for new trial.

• Section 4, P.D. No. 115 (Trust Receipts Law) — Defines a trust receipt transaction as one where the entruster, who owns or holds absolute title or security interest over specified goods, documents, or instruments, releases them to the entrustee upon execution of a trust receipt, with the entrustee bound to turn over the proceeds of sale or return the goods if unsold. The Court found this provision inapplicable because PBC never held title or security interest over the goods, as ownership had already vested in the petitioners before the loan was granted.
• Section 13, P.D. No. 115 — Provides that failure of the entrustee to turn over the proceeds of the sale of goods or to return unsold goods to the entruster shall be punishable as estafa under Article 315(1) of the Revised Penal Code, without need of proving intent to defraud. The Court held this provision inapplicable because no trust receipt transaction existed.
• Article 315(1)(b), Revised Penal Code — Defines estafa committed by converting or misappropriating money or goods received in trust or on commission. The Court acquitted the petitioners because the transaction was a simple loan, not a trust receipt, and there was no dishonesty or abuse of confidence.
• Section 2, Rule 121, Revised Rules of Criminal Procedure — Governs the grounds for new trial, including newly discovered evidence. The Court applied this provision to hold that the Disclosure Statement was merely forgotten evidence and did not satisfy the requisites for newly discovered evidence.

Kapunan, J., and Pardo, J., concurred.