Melvin Colinares & Lordino Veloso v.

CA

In 1979 Melvin Colinares and Lordino Veloso were contracted for P40,000 by the Carmelite Sisters of Cagayan deOro
City to renovate the latters convent.

Petitioners obtained 5,376 SF Solatone acoustical board 2x4x, 300 SF tanguile wood tiles 12x12, 260 SF Marcelo
economy tiles and 2 gallons UMYLIN cement adhesive from CM Builders Centre for the construction project.

Petitioners applied for a commercial letter of credit with the (PBC) Philippine Banking Corporation, in favor of CM
Builders Centre. PBC approved the letter of credit for P22,389.80 to cover the full invoice value of the goods.
Petitioners signed a pro-forma trust receipt as security. The loan was due on 29 January 1980.

PBC demanded payment from pet. Instead of complying , Veloso confessed that they lost P19,195.83 in the Carmelite
Monastery Project.

PBC sent a new demand letter to Petitioners and informed them that their outstanding balance.

Petitioners were charged with the violation of P.D 115 (Trust Receipts Law) in relation to Article 315 of the Revised
Penal Code.

PBC alleged entered into a trust receipt agreement with petitioner with a total value of P22,389.80, with the
obligation on the part of the accused-entrustee to hold the aforesaid items in trust for the entruster and/or to sell
on cash basis or otherwise dispose of the said items and to turn over to the entruster the proceeds of the sale of
said goods or if there be no sale to return said items to the entruster on or before January 29, 1980 but that the said
accused after receipt of the goods, with intent to defraud and cause damage to the entruster; fail and refuse to
remit the proceeds of the sale of the goods to the entruster despite repeated demands but instead converted,
misappropriated and misapplied the proceeds to their own personal use.

Petitioner contention: petitioner Veloso insisted that the transaction was a clean loan as per verbal guarantee of
Tuiza, PBCs former manager. He and petitioner Colinares signed the documents without reading the fine print, only
learning of the trust receipt implication much later. When he brought this to the attention of PBC, Mr. Tuiza assured
him that the trust receipt was a mere formality.

RTC: Convicted; CA: modified by increasing the penalty

trial court considered the transaction between PBC and Petitioners as a trust receipt transaction under Section 4,
P.D. No. 115. It considered Petitioners use of the goods in their Carmelite monastery project an act of disposing as
contemplated under Section 13, P.D. No. 115, and treated the charge invoice19 for goods issued by CM Builders
Centre as a document within the meaning of Section 3 thereof. It concluded that the failure of Petitioners to turn
over the amount they owed to PBC constituted estafa.

ISSUE: w/n the transaction is trust receipt agreement; w/n liable for estafa under pd 115

HELD:

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 interest over certain specified goods, documents or instruments, releases
the same to the possession of the entrustee upon the latters 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 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 which refers to
money received under the obligation involving the duty to deliver it (entregarla) to the owner of the merchandise
sold. The second is covered by the provision which refers 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 without need of proving intent to defraud.

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. 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, 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.36 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.37 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.

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