ALLIED BANKING CORPORATION, PETITIONER, VS. HON. SECRETARY SEDFREY ORDONEZ (PUBLIC RESPONDENT) AND ALFREDO CHING (PRIVATE RESPONDENT), RESPONDENTS.

In this special civil action for certiorari, the
interpretation by the Department of Justice of the penal provision of PD 115,
the Trust Receipts Law, is assailed by petitioner.

The relevant facts are as follows:

On 23 January 1981,
Philippine Blooming Mills (PBM, for short) thru its duly authorized officer,
private respondent Alfredo Ching, applied for the
issuance of commercial letters of credit with petitioner’s Makati
branch to finance the purchase of 500 M/T Magtar
Branch Dolomites and one (1) Lot High Fired Refractory Sliding Nozzle Bricks.

Petitioner issued an irrevocable letter of credit in favor of Nikko Industry Co., Ltd. (Nikko)
by virtue of which the latter drew four (4) drafts which were accepted by PBM
and duly honored and paid by the petitioner bank.

To secure payment of the amount covered by the drafts, and in
consideration of the transfer by petitioner of the possession of the goods to
PBM, the latter as entrustee, thru private
respondent, executed four (4) Trust Receipt Agreements with maturity dates on
19 May, 3 and 24 June 1981 acknowledging petitioner’s ownership of the goods
and its (PBM’S) obligation to turn over the proceeds of the sale of the goods,
if sold, or to return the same, if unsold within the stated period.

Out of the said obligation resulted an overdue amount of
P1,475,274.09.  Despite repeated demands,
PBM failed and refused to either
turn over the proceeds of the sale of the goods or to return the same.

On 7 September 1984,
petitioner filed a criminal complaint against private respondent for violation
of PD 115 before the office of the Provincial Fiscal of Rizal.  After preliminary investigation wherein
private respondent failed to appear or submit a counter-affidavit and even
refused to receive the subpoena, the Fiscal found a prima facie case for
violation of PD 115 on four (4) counts and filed the corresponding information
in court.

Private respondent appealed the Fiscal’s
resolution to the Department of Justice on three (3) grounds:

1.  Lack of proper
preliminary investigation;

2.  The Provincial Fiscal of Rizal did not have jurisdiction over the case, as
respondent’s obligation was purely civil;

3.  There had been a novation of the obligation by the substitution of the
person of the Rehabilitation Receivers in place of both PBM and private
respondent Ching.

Then Secretary of Justice (now Senator) Neptali
A. Gonzales, in a 24 September 1986
letter/resolution,^[1]
held:

“Your contention that respondent’s
obligation was purely a civil one, is without any merit.  The four (4) Trust Receipt Agreements entered
into by respondent and complainant appear regular in form and in
substance.  Their agreement regarding
interest, not being contrary to law, public policy or morals, public order or
good custom, is a valid stipulation which does not change the character of the
said Trust Receipt Agreements.  Further,
as precisely pointed out by complainant, raw materials for manufacture of goods
to be ultimately sold are proper objects of a trust receipt.  Thus, respondent’s failure to remit to the complainant
proceeds of the sale of the finished products if sold or the finished products
themselves if not sold, at the maturity dates of the trust receipts,
constitutes a violation of P.D. 115.”^[2]

A motion for reconsideration alleged that, as PBM was under rehabilitation
receivership, no criminal liability can be imputed to herein respondent Ching.  On 17 March 1987, Undersecretary
Silvestre H. Bello III denied said motion.  The pertinent
portion of the denial resolution states:

“It cannot be denied that the
offense was consummated long before the appointment of rehabilitation
receivers.  The filing of a criminal case
against respondent Ching is not only for the purpose
of effectuating a collection of a debt
but primarily for the purpose of punishing an offender for a crime committed
not only against the complaining witness but also against the state.  The crime of estafa
for violation of the Trust
Receipts Law is a special offense or mala prohi­bita. 
It is a fundamental rule in criminal law that when the crime is punished
by a special law, the act
alone, irrespective of its motives, constitutes the offense.  In the instant case the failure of the entrustee to pay complainant the remaining balance of the
value of the goods covered by the trust receipt when the same became due
constitutes the offense penalized under Section 13 of P.D. No. 115; and on the
basis of this failure alone, the prosecution has sufficient evidence to
establish a prima facie case (Res. No. 671, s. 1981; Allied
Banking Corporation vs. Reinhard Sagemuller,
et al., Provincial Fiscal of Rizal, September 18,
1981).

“Likewise untenable is your
contention that ‘rehabilitation proceedings must stay the attempt to enforce a
liability in view of Section 4 of P.D. No. 1758.’ Section 4 of P.D. No. 1758,
provides, among others:  ‘x x x x Provided, further, that upon
appointment of a management committee, rehabilitation receiver, board or body,
pursuant to this Decree, all actions for claims against corporations,
partnerships or associations under management or receivership pending before
any court, tribunal, board or body shall be suspended accordingly.

“You will note that the term ‘all actions for claims’ refer only to
actions for money claims but not to criminal liability of offenders.”^[3]

Another motion for reconsideration was filed by respondent on 9 April 1987 to which an opposition
was filed by the petitioner.  Private
respondent also filed a supplemental request for reconsideration dated 28 December
1987 with two (2) additional grounds, namely:

“x x x 3) there is no evidence on record to show that respondent
was in particeps criminis in
the act complained of; and 4) there could be no violation of the trust receipt
agreements because the articles imported by the corporation and subject of the
trust receipts were fungible or consummable goods and
do not form part of the steel product itself. 
These goods were not procured to be sold in whatever state or condition
they were in or were supposed to be after the manufacturing process.”^[4]

Because of private respondent’s clarification that the goods
subject of the trust receipt agreements were dolomites which were specifically
used for patching purposes over the surface of furnaces and nozzle bricks which
are insulating materials in the lower portion of the ladle which do not form
part of the steel product itself, Justice Secretary Sedfrey
Ordonez, on 11 January 1988, “rectified” his predecessor’s supposed
reversible error, and held:

“x
x x it is clear that what
the law contemplates or covers are goods which have, for their ultimate
destination, the sale thereof or if unsold, their surrender to the entruster, this whether the goods are in their original
form or in their manufactured/processed state.  Since the goods covered by the trust receipts
and subject matter of these proceedings are to be utilized in the operation of
the equipment and machineries of the corporation, they could not have been
contemplated as being covered by PD 115. 
It is axiomatic that penal statutes are strictly construed against the
state and liberally in favor of the accused (People vs. Purisima,
86 SCRA 542, People vs. Terrado, 125 SCRA 648).  This means that penal statutes cannot be
enlarged or extended by intendment, impli­cation, or any equitable
consideration (People vs. Garcia, 85 Phil. 651).  Thus, not all transactions covered by trust
receipts may be considered as trust receipt transactions defined and penalized
under PD 115.

x x x  x x x    x x x

Apparently, the trust
receipt agreements were executed as security for the payment of the
drafts.  As such, the main transaction
was that of a loan.  x x x In essence, therefore, the
relation­ship between the Bank and the corporation, consequently the respondent
herein likewise included, is that of debtor and creditor.

x x
x  x x x    x x x

WHEREFORE, premises considered, our reso­lution
dated September 24, 1986, recorded as Reso­lution No. 456, series of 1986, and
that dated March 17, 1987, the latter being necessarily dependent upon and
incidental to the former, are hereby abrogated and abandoned.  You are hereby directed to move for the
withdrawal of the information
and the dismissal of the criminal cases filed in court.  x x x” ^[5]

This time, petitioner Allied Bank filed a motion for
reconsideration of the Ordonez resolution, which was resolved by the Department
of Justice on 17 February 1988,
enunciating that PD 115 covers
goods or components of goods which are ultimately destined for sale.  It concluded that:

“x x x The goods subject of the instant case were shown to have
been used and/or consumed in the operation of the equipment and machineries of
the corporation, and are therefore outside the ambit of the provisions of PD
115 albeit covered by Trust  Receipt
agreements.  x x
x Finally, it is noted that under the Sia vs. People (121 SCRA 655 (1983), and Vintola vs. Insular Bank Of Asia and America (150 SCRA 578
(1987) rulings, the trend in the Supreme Court appears to be to the effect that
trust receipts under PD 115 are treated as secu­rity documents for basically
loan transactions, so much so that criminal liability is virtually obliterated
and limiting liability of the accused to the civil aspect only.

WHEREFORE, your motion for
reconsideration is hereby DENIED.”^[6]

From the Department of Justice, petitioner is now before this
Court praying for writs of certiorari and prohibition to annul the 11
January and 17 February 1988
DOJ rulings, mainly on two (2) grounds:

1.  public respondent is
without power or authority to declare that a violation of PD 115 is not
criminally punish­able, thereby rendering a portion of said law inoperative or
ineffectual.

2.  public respondent acted
with grave abuse of discretion in holding that the goods covered by the trust
receipts are outside the contemplation of PD 115.

Private and public respondents both filed their comments on the
petition to which a consolidated reply was filed.  After the submission of the parties’
respective memoranda, the case was calendared for deliberation.

Does the penal provision of PD 115 (Trust Receipts Law) apply
when the goods covered by a Trust Receipt do not form part of the finished
products which are ultimately sold but are instead, utilized/used up in
the operation of the equipment and machineries of the entrustee-manufacturer?

The answer must be in the affirmative.  Section 4 of said PD 115 says in part:

“Sec. 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
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, x x x.”

Respondent Ching contends that PBM is
not in the business of selling Magtar Branch
Dolomites or High Fired Refractory Sliding Nozzle Bricks, it is a manufacturer
of steel and steel products.  But PBM, as
entrustee under the trust receipts has, under Sec. 9
of PD 115, the following obligations, inter alia:  (a) receive the proceeds of sale, in trust
for the entruster and turn over the same to the entruster to the extent of the amount owing to him or as
appears on the trust receipt;
(b) keep said goods or proceeds thereof whether in money or whatever form,
separate and capable of identification as property of the entruster;
(c) return the goods, documents or instruments in the event of non-sale, or
upon demand of the entruster; and (d) observe all
other terms and conditions of the trust receipt not contrary to the provisions of said Decree.^[7]

In trust receipts, there is an obligation to repay the entruster.^[8]
Their terms are to be interpreted in accordance with the general rules on
contracts, the law being alert in all cases to prevent fraud on the part of
either party to the transaction.^[9]
The entrustee binds himself to sell or otherwise
dispose of the entrusted goods with the obligation to turn over to the entruster the proceeds if sold, or return the goods if
unsold or not otherwise disposed of, in accordance with the terms and conditions
specified in the trust receipt.  A
violation of this undertaking constitutes estafa
under Sec. 13, PD 115.

And even assuming the absence of a clear provision in the trust
receipt agreement, Lee v. Rodil^[10] and Sia v.  CA^[11]
have held:  Acts involving the
violation of trust receipt agreements occurring after 29 January 1973 (when PD 115 was issued) would
render the accused criminally liable for estafa under
par. 1(b), Art. 315 of the Revised Penal Code, pursuant to the explicit
provision in Sec. 13 of PD 115.^[12]
The act punishable is malum prohibitum. 
Respondent Secretary’s prognostication of the Supreme Court’s supposed
inclination to treat trust receipts as mere security documents for loan
transactions, thereby obliterating criminal liability, appears to be a
misjudgment.^[13]

In an attempt to escape criminal liability, private respondent
claims PD 115 covers goods which are ultimately destined for sale and not goods
for use in manufacture.  But the wording
of Sec. 13 covers failure to turn over the proceeds of the sale of entrusted
goods, or to return said goods if unsold or disposed of in accordance with the
terms of the trust receipts.  Private
respondent claims that at the time of PBM’s application
for the issuance of the LC’s, it was not represented
to the petitioner that the items were intended for sale,^[14]
hence, there was no deceit resulting in a violation of the trust receipts which
would constitute a criminal liability. 
Again, we cannot uphold this contention. 
The non-payment of the amount covered by a trust receipt is an act violative of the entrustee’s
obligation to pay.  There is no reason
why the law should not apply to all transactions covered by trust receipts,
except those expressly excluded.^[15]

The Court takes judicial notice of customary banking and business
practices where trust receipts are used for importation of heavy equipment,
machineries and supplies used in manufacturing operations.  We are perplexed by the statements in the
assailed DOJ resolution that the goods subject of the instant case are outside
the ambit of the provisions of PD 115 albeit covered by Trust Receipt
Agreements (17 February 1988 resolution) and that not all transactions covered by trust receipts
may be considered as trust receipt transactions defined and penalized under PD
115 (11 January 1988 resolution).  A
construction should be avoided when it affords an opportunity to defeat compliance with the terms of a statute.

“A construction of a statute which
creates an inconsistency should be avoided when a reasonable interpretation can
be adopted which will not do violence to the plain words of the act and will
carry out the intention of Congress.

In the construction of statutes, the
courts star with the assumption that the legislature intended to enact an
effective law, and the legis­lature is not to be presumed to have done a vain
thing in the enactment of a statute.  Hence, it is a general principle, embodied in
the maxim, ‘ut res magis valeat quam
pereat,’ that the courts should, if reasonably
possible to do so without violence to the spirit and language of an act, so interpret the statute to give it
efficient opera­tion and effect as a whole. 
An interpretation should, if possible, be avoided, under which a statute
or provision being construed is defeated, or as otherwise expressed, nullified,
destroyed, emasculated, repealed, explained away, or rendered insignificant,
meaningless, inoperative, or nugatory.”^[16]

The
penal provision of PD 115 encompasses any act violative
of an obligation covered by the trust receipt; it is not limited to transactions in goods which are to
be sold (retailed), reshipped, stored or processed as a component of a product ultimately sold.

To uphold the Justice Department’s ruling would contravene not
only the letter but the spirit of PD
115.

“An examination of P.D. 115 shows
the growing importance of trust receipts in Philippine busi­ness, the need to provide for the
rights and obli­gations of parties to a trust receipt transaction, the study of
the problems involved and the action by monetary authorities, and the necessity
of regulating the enforcement of rights arising from default or violations of
trust receipt agreements.  The
legislative intent to meet a pressing need is clearly expressed.  x x x” ^[17]

WHEREFORE, the petition is granted. 
The temporary restraining order issued on 13 April 1988 restraining the
enforcement of the questioned DOJ resolutions dated 11 January 1988 and 17
February 1988 directing the provincial fiscal to move for the dismissal of the
criminal case filed before the RTC of Makati, Branch
143 and the withdrawal of IS No.  84-3140, is made permanent.  Let
this case be remanded to said RTC for disposition in accordance with this
decision.

SO ORDERED.

Melencio-Herrera, (Chairman), Paras, Sarmiento, and Regalado, JJ., concur.

^[1]
No. 456, Series of 1986

^[2]
Rollo at 18

^[3]
Rollo at 20

^[4]
Rollo at 22

^[5]
Rollo at 25 and 26

^[6]
Ibid. at 27 and 28

^[7]
Sec. 9.  Obligations of the entrustee.  – The entrustee shall (1) hold the goods, documents or
instruments in trust for the entruster and shall
dispose of them strictly in accordance with the terms and conditions of the
trust receipt; (2) receive the proceeds in trust for the entruster
and turn over the same to the entruster to the extent
of the amount owing to the entruster or as appears on
the trust receipt; (3) insure the goods for their total value against loss from
fire, theft, pilferage or other casualties; (4) keep said goods or proceeds
thereof whether in money or whatever form, separate and capable of
identification as property of the entruster; (5)
return the goods, documents or instruments in the event of non-sale or upon
demand of the entruster; and (6) observe all other
terms and conditions of the trust receipt not contrary to the provisions of
this Decree.

^[8]
53 Am Jur § 2

^[9]
Ibid. § 3

^[10]
G.R. No. 80544, 5 July 1989,
175 SCRA 100

^[11]
G.R. No. L-40324, 5 October 1988,
166 SCRA 263

^[12]
Sec. 13.  Penalty clause.  – The failure of an entrustee
to turn over the proceeds of the sale of the goods, documents or 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 were not sold or disposed of in accordance with the terms of the trust
receipt shall constitute the crime of estafa,
punishable under the provisions of Article Three hundred and fifteen, paragraph
one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended,
otherwise known as the Revised Penal Code.  If the violation or offense is
committed by a corporation, partnership, association or other juridical
entities, the penalty provided for in this Decree shall be imposed upon the
directors, officers, employees or other officials or persons therein
responsible for the offense, without prejudice to the civil liabilities arising
from the criminal offense.

^[13]
Separate Opinions expressed by Justices, no matter how erudite or persuasive
cannot override the majority’s decision.

^[14]
Rollo at 39-41

^[15]
68 Am Jur § 125

^[16]
50 Am Jur § 366,
359, 358 cited in 29 SCRA 627,
628

^[17]
Lee v. Rodil, supra.