G.R. No. 195117 August 14, 2013 Supermax Philippines, Inc.
Supermax Philippines, Inc. (Supermax) is a domestic corporation engaged in the construction business. On various
HUR TIN YANG, PETITIONER
vs.
PEOPLE OF THE PHILIPPINES, RESPONDENT.
RESOLUTION
VELASCO JR., J.:
This is a motion for reconsideration of our February 1, 2012 Minute Resolution 1 sustaining the July 28, 2010 Decision2 and
December 20, 2010 Resolution3 of the Court of Appeals (CA) in CA-G.R. CR No. 30426, finding petitioner Hur Tin Yang guilty
beyond reasonable doubt of the crime of Estafa under A11icle 315, paragraph 1 (b) of the Revised Penal Code (RPC) in
relation to Presidential Decree No. 115 (PD 115) or the Trust Receipts Law.
In twenty-four (24) consolidated Informations, all dated March 15, 2002, petitioner Hur Tin Yang was charged at the instance
of the same complainant with the crime of Estafa under Article 315, par. 1(b) of the RPC, 4 in relation to PD 115,5 docketed as
Criminal Case Nos. 04-223911 to 34 and raffled to the Regional Trial Court of Manila, Branch 20. The 24 Informations
differing only as regards the alleged date of commission of the crime, date of the trust receipts, the number of the letter of
credit, the subject goods and the amountuniformly recite:
That on or about May 28, 1998, in the City of Manila, Philippines, the said accused being then the authorized officer of
SUPERMAX PHILIPPINES, INC., with office address at No. 11/F, Global Tower, Gen Mascardo corner M. Reyes St.,
Bangkal, Makati City, did then and there willfully, unlawfully and feloniously defraud the METROPOLITAN BANK AND
TRUST COMPANY (METROBANK), a corporation duly organized and existing under and by virtue of the laws of the
Republic of the Philippines, represented by its Officer in Charge, WINNIE M. VILLANUEVA, in the following manner, to wit:
the said accused received in trust from the said Metropolitan Bank and Trust Company reinforcing bars valued
at P1,062,918.84 specified in the undated Trust Receipt Agreement covered by Letter of Credit No. MG-LOC 216/98 for the
purpose of holding said merchandise/goods in trust, with obligation on the part of the accused to turn over the proceeds of
the sale thereof or if unsold, to return the goods to the said bank within the specified period agreed upon, but herein accused
once in possession of the said merchandise/goods, far from complying with his aforesaid obligation, failed and refused and
still fails and refuses to do so despite repeated demands made upon him to that effect and with intent to defraud and with
grave abuse of confidence and trust, misappropriated, misapplied and converted the said merchandise/goods or the value
thereof to his own personal use and benefit, to the damage and prejudice of said METROPOLITAN BANK AND TRUST
COMPANY in the aforesaid amount of P1,062,918.84, Philippine Currency.
Contrary to law.6
Upon arraignment, petitioner pleaded "not guilty." Thereafter, trial on the merits then ensued.
The facts of these consolidated cases are undisputed:
occasions in the month of April, May, July, August, September, October and November 1998, Metropolitan Bank and Trust
Company (Metrobank), Magdalena Branch, Manila, extended several commercial letters of credit (LCs) to Supermax. These
commercial LCs were used by Supermax to pay for the delivery of several construction materials which will be used in their
construction business. Thereafter, Metrobank required petitioner, as representative and Vice-President for Internal Affairs of
Supermax, to sign twenty-four (24) trust receipts as security for the construction materials and to hold those materials or the
proceeds of the sales in trust for Metrobank to the extent of the amount stated in the trust receipts.
When the 24 trust receipts fell due and despite the receipt of a demand letter dated August 15, 2000, Supermax failed to pay
or deliver the goods or proceeds to Metrobank. Instead, Supermax, through petitioner, requested the restructuring of the
loan. When the intended restructuring of the loan did not materialize, Metrobank sent another demand letter dated October
11, 2001. As the demands fell on deaf ears, Metrobank, through its representative, Winnie M. Villanueva, filed the instant
criminal complaints against petitioner.
For his defense, while admitting signing the trust receipts, petitioner argued that said trust receipts were demanded by
Metrobank as additional security for the loans extended to Supermax for the purchase of construction equipment and
materials. In support of this argument, petitioner presented as witness, Priscila Alfonso, who testified that the construction
materials covered by the trust receipts were delivered way before petitioner signed the corresponding trust receipts. 7 Further,
petitioner argued that Metrobank knew all along that the construction materials subject of the trust receipts were not intended
for resale but for personal use of Supermax relating to its construction business. 8
The trial court a quo, by Judgment dated October 6, 2006, found petitioner guilty as charged and sentenced him as follows:
His guilt having been proven and established beyond reasonable doubt, the Court hereby renders judgment CONVICTING
accused HUR TIN YANG of the crime of estafa under Article 315 paragraph 1 (a) of the Revised Penal Code and hereby
imposes upon him the indeterminate penalty of 4 years, 2 months and 1 day of prision correccional to 20 years of reclusion
temporal and to pay Metropolitan Bank and Trust Company, Inc. the amount of Php13,156,256.51 as civil liability and to pay
cost.
SO ORDERED.9
Petitioner appealed to the CA. On July 28, 2010, the appellate court rendered a Decision, upholding the findings of the RTC
that the prosecution has satisfactorily established the guilt of petitioner beyond reasonable doubt, including the following
critical facts, to wit: (1) petitioner signing the trust receipts agreement; (2) Supermax failing to pay the loan; and (3)
Supermax failing to turn over the proceeds of the sale or the goods to Metrobank upon demand. Curiously, but significantly,
the CA also found that even before the execution of the trust receipts, Metrobank knew or should have known that the
subject construction materials were never intended for resale or for the manufacture of items to be sold. 10
The CA ruled that since the offense punished under PD 115 is in the nature of malum prohibitum, a mere failure to deliver the
proceeds of the sale or goods, if not sold, is sufficient to justify a conviction under PD 115. The fallo of the CA Decision
reads:
WHEREFORE, in view of the foregoing premises, the appeal filed in this case is hereby DENIED and, consequently,
DISMISSED. The assailed Decision dated October 6, 2006 of the Rregional Trial Court, Branch 20, in the City of Manila in
Criminal Cases Nos. 04223911 to 223934 is hereby AFFIRMED.
SO ORDERED.
Petitioner filed a Motion for Reconsideration, but it was denied in a Resolution dated December 20, 2010. Not satisfied,
petitioner filed a petition for review under Rule 45 of the Rules of Court. The Office of the Solicitor General (OSG) filed its
Comment dated November 28, 2011, stressing that the pieces of evidence adduced from the testimony and documents
submitted before the trial court are sufficient to establish the guilt of petitioner.11
On February 1, 2012, this Court dismissed the Petition via a Minute Resolution on the ground that the CA committed no
reversible error in the assailed July 28, 2010 Decision. Hence, petitioner filed the present Motion for Reconsideration
contending that the transactions between the parties do not constitute trust receipt agreements but rather of simple loans.
On October 3, 2012, the OSG filed its Comment on the Motion for Reconsideration, praying for the denial of said motion and
arguing that petitioner merely reiterated his arguments in the petition and his Motion for Reconsideration is nothing more
than a mere rehash of the matters already thoroughly passed upon by the RTC, the CA and this Court. 12
The sole issue for the consideration of the Court is whether or not petitioner is liable for Estafa under Art. 315, par. 1(b) of the
RPC in relation to PD 115, even if it was sufficiently proved that the entruster (Metrobank) knew beforehand that the goods
(construction materials) subject of the trust receipts were never intended to be sold but only for use in the entrustees
construction business.
The motion for reconsideration has merit.
In determining the nature of a contract, courts are not bound by the title or name given by the parties. The decisive factor in
evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used in the contract
but by their conduct, words, actions and deeds prior to, during and immediately after executing the agreement. As such,
therefore, documentary and parol evidence may be submitted and admitted to prove such intention. 13
In the instant case, the factual findings of the trial and appellate courts reveal that the dealing between petitioner and
Metrobank was not a trust receipt transaction but one of simple loan. Petitioners admissionthat he signed the trust
receipts on behalf of Supermax, which failed to pay the loan or turn over the proceeds of the sale or the goods to Metrobank
upon demanddoes not conclusively prove that the transaction was, indeed, a trust receipts transaction. In contrast to the
nomenclature of the transaction, the parties really intended a contract of loan. This Courtin Ng v. People 14 and Land Bank
of the Philippines v. Perez,15 cases which are in all four corners the same as the instant caseruled that the fact that the
entruster bank knew even before the execution of the trust receipt agreements that the construction materials covered were
never intended by the entrustee for resale or for the manufacture of items to be sold is sufficient to prove that the transaction
was a simple loan and not a trust receipts transaction.
The petitioner was charged with Estafa committed in what is called, under PD 115, a "trust receipt transaction," which is
defined as:
Section 4. What constitutes a trust receipts 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 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 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 full with his obligation under the
trust receipt; or (c) to load, unload, ship or transship or otherwise deal with them in a manner preliminary or
necessary to their sale; or
2. In the case of instruments: (a) to sell or procure their sale or exchange; or (b) to deliver them to a principal; or
(c) to effect the consummation of some transactions involving delivery to a depository or register; or (d) to effect
their presentation, collection or renewal.
Simply stated, a trust receipt transaction is one where the entrustee has the obligation to deliver to the entruster the price of
the sale, or if the merchandise is not sold, to return the merchandise to the entruster. There are, therefore, two obligations in
a trust receipt transaction: the first refers to money received under the obligation involving the duty to turn it over (entregarla)
to the owner of the merchandise sold, while the second refers to the merchandise received under the obligation to "return" it
(devolvera) to the owner.16 A violation of any of these undertakings constitutes Estafa defined under Art. 315, par. 1(b) of the
RPC, as provided in Sec. 13 of PD 115, viz:
Section 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 fifteen, paragraph one
(b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code. x
x x (Emphasis supplied.)
Nonetheless, when both parties enter into an agreement knowing fully well 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
Sec. 13 of PD 115 in relation to Art. 315, par. 1(b) of the RPC, as 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, where the borrower is
obligated to pay the bank the amount spent for the purchase of the goods. 17
In Ng v. People, Anthony Ng, then engaged in the business of building and fabricating telecommunication towers, applied for
a credit line of PhP 3,000,000 with Asiatrust Development Bank, Inc. Prior to the approval of the loan, Anthony Ng informed
Asiatrust that the proceeds would be used for purchasing construction materials necessary for the completion of several favor of Land Bank of the Philippines (LBP) trust receipts to secure the purchase of construction materials that they will need
steel towers he was commissioned to build by several telecommunication companies. Asiatrust approved the loan but in their construction projects. When the trust receipts matured, ACDC failed to return to LBP the proceeds of the construction
required Anthony Ng to sign a trust receipt agreement. When Anthony Ng failed to pay the loan, Asiatrust filed a criminal projects or the construction materials subject of the trust receipts. After several demands went unheeded, LBP filed a
case for Estafa in relation to PD 115 or the Trust Receipts Law. This Court acquitted Anthony Ng and ruled that the Trust complaint for Estafa or violation of Art. 315, par. 1(b) of the RPC, in relation to PD 115, against the respondent officers of
Receipts Law was created to "to aid in financing importers and retail dealers who do not have sufficient funds or resources to ACDC. This Court, like in Ng, acquitted all the respondents on the postulate that the parties really intended a simple contract
finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as of loan and not a trust receipts transaction, viz:
collateral, of the merchandise imported or purchased." Since Asiatrust knew that Anthony Ng was neither an importer nor
retail dealer, it should have known that the said agreement could not possibly apply to petitioner, viz:
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 true nature of a trust receipt transaction can be found in the "whereas" clause of PD 115 which states that a trust receipt the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale transaction. This
is to be utilized "as a convenient business device to assist importers and merchants solve their financing problems." transaction becomes a mere loan, where the borrower is obligated to pay the bank the amount spent for the purchase of the
Obviously, the State, in enacting the law, sought to find a way to assist importers and merchants in their financing in order to goods.
encourage commerce in the Philippines.
xxxx
[A] trust receipt is considered a security transaction 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
Thus, in concluding that the transaction was a loan and not a trust receipt, we noted in Colinares that the industry or line of
credit except through utilization, as collateral, of the merchandise imported or purchased. Similarly, American Jurisprudence
work that the borrowers were engaged in was construction. We pointed out that the borrowers were not importers acquiring
demonstrates that trust receipt transactions always refer to a method of "financing importations or financing sales." The
goods for resale. Indeed, goods sold in retail are often within the custody or control of the trustee until they are purchased. In
principle is of course not limited in its application to financing importations, since the principle is equally applicable to
the case of materials used in the manufacture of finished products, these finished products if not the raw materials or their
domestic transactions. Regardless of whether the transaction is foreign or domestic, it is important to note that the
components similarly remain in the possession of the trustee until they are sold. But the goods and the materials that are
transactions discussed in relation to trust receipts mainly involved sales.
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
Following the precept of the law, such transactions affect situations wherein the entruster, who owns or holds absolute title or proceedings. The contractors difficulty and uncertainty in claiming these materials (or the buildings and structures which
security interests over specified goods, documents or instruments, releases the subject goods to the possession of the they become part of), as soon as the bank demands them, disqualify them from being covered by trust receipt agreements. 19
entrustee. The release of such goods to the entrustee is conditioned upon his execution and delivery to the entruster of a
trust receipt wherein the former binds himself to hold the specific goods, documents or instruments in trust for the entruster
Since the factual milieu of Ng and Land Bank of the Philippines are in all four corners similar to the instant case, it behooves
and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the
this Court, following the principle of stare decisis, 20 to rule that the transactions in the instant case are not trust receipts
proceeds to the extent of the amount owing to the entruster or the goods, documents or instruments themselves if they are
transactions but contracts of simple loan. The fact that the entruster bank, Metrobank in this case, knew even before the
unsold. x x x [T]he entruster is entitled "only to the proceeds derived from the sale of goods released under a trust receipt to
execution of the alleged trust receipt agreements that the covered construction materials were never intended by the
the entrustee."
entrustee (petitioner) for resale or for the manufacture of items to be sold would take the transaction between petitioner and
Metrobank outside the ambit of the Trust Receipts Law.
Considering that the goods in this case were never intended for sale but for use in the fabrication of steel communication
towers, the trial court erred in ruling that the agreement is a trust receipt transaction.
For reasons discussed above, the subject transactions in the instant case are not trust receipts transactions.1wphi1Thus,
the consolidated complaints for Estafa in relation to PD 115 have really no leg to stand on.
xxxx
The Courts ruling in Colinares v. Court of Appeals 21 is very apt, thus:
To emphasize, the Trust Receipts Law was created to "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
The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them under the
credit except through utilization, as collateral, of the merchandise imported or purchased." Since Asiatrust knew that
threats of criminal prosecution should they be unable to pay it may be unjust and inequitable. if not reprehensible. Such
petitioner was neither an importer nor retail dealer, it should have known that the said agreement could not possibly apply to
agreements are contracts of adhesion which borrowers have no option but to sign lest their loan be disapproved. The resort
petitioner.18
to this scheme leaves poor and hapless borrowers at the mercy of banks and is prone to misinterpretation x x x.

Further, in Land Bank of the Philippines v. Perez, the respondents were officers of Asian Construction and Development
Unfortunately, what happened in Colinares is exactly the situation in the instant case. This reprehensible bank practice
Corporation (ACDC), a corporation engaged in the construction business. On several occasions, respondents executed in
described in Colinares should be stopped and discouraged. For this Court to give life to the constitutional provision of non-
imprisonment for nonpayment of debts,22 it is imperative that petitioner be acquitted of the crime of Estafa under Art. 315, matured, but ACDC failed to return to LBP the proceeds of the construction projects or the construction materials subject of
par. 1 (b) ofthe RPC, in relation to PD 115. the trust receipts. LBP sent ACDC a demand letter,[8] dated May 4, 1999, for the payment of its debts, including those under
the Trust Receipts Facility in the amount of P66,425,924.39. When ACDC failed to comply with the demand letter, LBP filed
the affidavit-complaint.
WHEREFORE, the Resolution dated February 1, 2012, upholding theCA's Decision dated July 28, 2010 and Resolution
dated December 20, 2010 in CA-G.R. CR No. 30426, is hereby RECONSIDERED. Petitioner Hur Tin Yang is ACQUITTED of The respondents filed a joint affidavit [9] wherein they stated that they signed the trust receipt documents on or about the
the charge of violating Art. 315, par. 1 (b) of the RPC, in relation to the pertinent provision of PD 115 in Criminal Case Nos. same time LBP and ACDC executed the loan documents; their signatures were required by LBP for the release of the
04-223911 to 34. loans. The trust receipts in this case do not contain (1) a description of the goods placed in trust, (2) their invoice values, and
(3) their maturity dates, in violation of Section 5(a) of P.D. 115. Moreover, they alleged that ACDC acted as a subcontractor
for government projects such as the Metro Rail Transit, the Clark Centennial Exposition and the Quezon Power Plant in
SO ORDERED. Mauban, Quezon. Its clients for the construction projects, which were the general contractors of these projects, have not yet
paid them; thus, ACDC had yet to receive the proceeds of the materials that were the subject of the trust receipts and were
allegedly used for these constructions. As there were no proceeds received from these clients, no misappropriation thereof
LAND BANK OF THE PHILIPPINES, G.R. No. 166884 could have taken place.
Petitioner,
Present: On September 30, 1999, Makati Assistant City Prosecutor Amador Y. Pineda issued a Resolution [10] dismissing the
complaint. He pointed out that the evidence presented by LBP failed to state the date when the goods described in the
- versus - CARPIO, J., Chairperson, letters of credit were actually released to the possession of the respondents. Section 4 of P.D. 115 requires that the goods
BRION, covered by trust receipts be released to the possession of the entrustee after the latters execution and delivery to the
PEREZ, entruster of a signed trust receipt. He adds that LBPs evidence also fails to show the date when the trust receipts were
SERENO, and executed since all the trust receipts are undated. Its dispositive portion reads:
LAMBERTO C. PEREZ, NESTOR C. KUN, MA. ESTELITA P. ANGELES- REYES, JJ.
PANLILIO, and NAPOLEON O. GARCIA, WHEREFORE, premises considered, and for insufficiency of evidence, it is respectfully
Respondents. Promulgated: recommended that the instant complaints be dismissed, as upon approval, the same are hereby
[11]
dismissed.
June 13, 2012

x------------------------------------------------------------------------------------x LBP filed a motion for reconsideration which the Makati Assistant City Prosecutor denied in his order of January 7, 2000. [12]
On appeal, the Secretary of Justice reversed the Resolution of the Assistant City Prosecutor. In his resolution of
August 1, 2002,[13] the Secretary of Justice pointed out that there was no question that the goods covered by the trust
DECISION receipts were received by ACDC. He likewise adopted LBPs argument that while the subjects of the trust receipts were not
mentioned in the trust receipts, they were listed in the letters of credit referred to in the trust receipts. He also noted that the
BRION, J.: trust receipts contained maturity dates and clearly set out their stipulations. He further rejected the respondents defense that
ACDC failed to remit the payments to LBP due to the failure of the clients of ACDC to pay them. The dispositive portion of
the resolution reads:

Before this Court is a petition for review on certiorari,[1] under Rule 45 of the Rules of Court, assailing the decision [2] dated
January 20, 2005 of the Court of Appeals in CA-G.R. SP No. 76588. In the assailed decision, the Court of Appeals dismissed
the criminal complaint for estafa against the respondents, Lamberto C. Perez, Nestor C. Kun, Ma. Estelita P. Angeles-Panlilio
and Napoleon Garcia, who allegedly violated Article 315, paragraph 1(b) of the Revised Penal Code, in relation with Section
13 of Presidential Decree No. (P.D.) 115 the Trust Receipts Law.
WHEREFORE, the assailed resolution is REVERSED and SET ASIDE. The City Prosecutor
of Makati City is hereby directed to file an information for estafa under Art. 315 (1) (b) of the Revised
Penal Code in relation to Section 13, Presidential Decree No. 115 against respondents Lamberto C.
Perez, Nestor C. Kun, [Ma. Estelita P. Angeles-Panlilio] and Napoleon O. Garcia and to report the
action taken within ten (10) days from receipt hereof. [14]

Petitioner Land Bank of the Philippines (LBP) is a government financial institution and the official depository of the
Philippines.[3] Respondents are the officers and representatives of Asian Construction and Development Corporation
(ACDC), a corporation incorporated under Philippine law and engaged in the construction business. [4]
On June 7, 1999, LBP filed a complaint for estafa or violation of Article 315, paragraph 1(b) of the Revised Penal Code, in
relation to P.D. 115, against the respondents before the City Prosecutors Office in Makati City. In the affidavit-complaint[5] of
June 7, 1999, the LBPs Account Officer for the Account Management Development, Edna L. Juan, stated that LBP extended
a credit accommodation to ACDC through the execution of an Omnibus Credit Line Agreement ( Agreement)[6] between LBP
and ACDC on October 29, 1996. In various instances, ACDC used the Letters of Credit/Trust Receipts Facility of the
Agreement to buy construction materials. The respondents, as officers and representatives of ACDC, executed trust
receipts[7] in connection with the construction materials, with a total principal amount of P52,344,096.32. The trust receipts
The respondents filed a motion for reconsideration of the resolution dated August 1, 2002, which the Secretary of Justice
denied.[15] He rejected the respondents submission thatColinares v. Court of Appeals [16] does not apply to the case. He
explained that in Colinares, the building materials were delivered to the accused before they applied to the bank for a loan to
pay for the merchandise; thus, the ownership of the merchandise had already been transferred to the entrustees before the
trust receipts agreements were entered into.In the present case, the parties have already entered into the Agreement before
the construction materials were delivered to ACDC.
Subsequently, the respondents filed a petition for review before the Court of Appeals.
After both parties submitted their respective Memoranda, the Court of Appeals promulgated the assailed decision of January
20, 2005.[17] Applying the doctrine in Colinares, it ruled that this case did not involve a trust receipt transaction, but a mere
loan. It emphasized that construction materials, the subject of the trust receipt transaction, were delivered to ACDC even
before the trust receipts were executed. It noted that LBP did not offer proof that the goods were received by ACDC, and that
the trust receipts did not contain a description of the goods, their invoice value, the amount of the draft to be paid, and their
maturity dates. It also adopted ACDCs argument that since no payment for the construction projects had been received by
ACDC, its officers could not have been guilty of misappropriating any payment. The dispositive portion reads:

WHEREFORE, in view of the foregoing, the Petition is GIVEN DUE COURSE. The assailed
Resolutions of the respondent Secretary of Justice dated August 1, 2002 and February 17, 2003,
respectively in I.S. No. 99-F-9218-28 are hereby REVERSED and SET ASIDE. [18]

LBP now files this petition for review on certiorari, dated March 15, 2005, raising the following error:

THE COURT OF APPEALS GRAVELY ERRED WHEN IT REVERSED AND SET ASIDE THE
RESOLUTIONS OF THE HONORABLE SECRETARY OF JUSTICE BY APPLYING THE RULING IN
THE CASE OF COLINARES V. COURT OF APPEALS, 339 SCRA 609, WHICH IS NOT APPLICABLE
IN THE CASE AT BAR.[19]

On April 8, 2010, while the case was pending before this Court, the respondents filed a motion to dismiss. [20] They informed
the Court that LBP had already assigned to Philippine Opportunities for Growth and Income, Inc. all of its rights, title and
interests in the loans subject of this case in a Deed of Absolute Sale dated June 23, 2005 (attached as Annex C of the
motion). The respondents also stated that Avent Holdings Corporation, in behalf of ACDC, had already settled ACDCs
obligation to LBP on October 8, 2009.Included as Annex A in this motion was a certification [21] issued by the Philippine
Opportunities for Growth and Income, Inc., stating that it was LBPs successor-in-interest insofar as the trust receipts in this
case are concerned and that Avent Holdings Corporation had already settled the claims of LBP or obligations of ACDC
arising from these trust receipts.
We deny this petition.
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 Colinares that 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 contractors 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 LBPs, 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 courts 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 banks 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. ACDCs 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.
[37]
In Metropolitan Bank, we affirmed the city prosecutors 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.
The petition should be dismissed because the OSG did
not file it and the civil liabilities have already been
settled.
The proceedings before us, regarding the criminal aspect of this case, should be dismissed as it does not appear
from the records that the complaint was filed with the participation or consent of the Office of the Solicitor General
(OSG). Section 35, Chapter 12, Title III, Book IV of the Administrative Code of 1987 provides that:
Section 35. Powers and Functions. The Office of the Solicitor General shall represent the Government
of the Philippines, its agencies and instrumentalities and its officials and agents in any litigation,
proceedings, investigation or matter requiring the services of lawyers. x x x It shall have the following
specific powers and functions:
(1) Represent the Government in the Supreme Court and the Court of Appeals in all criminal
proceedings; represent the Government and its officers in the Supreme Court, the Court of Appeals
and all other courts or tribunals in all civil actions and special proceedings in which the Government or
any officer thereof in his official capacity is a party. (Emphasis provided.)
In Heirs of Federico C. Delgado v. Gonzalez,[38] we ruled that the preliminary investigation is part of a criminal
proceeding. As all criminal proceedings before the Supreme Court and the Court of Appeals may be brought and defended
by only the Solicitor General in behalf of the Republic of the Philippines, a criminal action brought to us by a private party
alone suffers from a fatal defect. The present petition was brought in behalf of LBP by the Government Corporate Counsel to
protect its private interests. Since the representative of the People of the Philippines had not taken any part of the case, it
should be dismissed.
On the other hand, if we look at the mandate given to the Office of the Government Corporate Counsel, we find that it is
limited to the civil liabilities arising from the crime, and is subject to the control and supervision of the public
prosecutor. Section 2, Rule 8 of the Rules Governing the Exercise by the Office of the Government Corporate Counsel of its
Authority, Duties and Powers as Principal Law Office of All Government Owned or Controlled Corporations, filed before the
Office of the National Administration Register on September 5, 2011, reads:
Section 2. Extent of legal assistance The OGCC shall represent the complaining GOCC in all stages
of the criminal proceedings. The legal assistance extended is not limited to the preparation of
appropriate sworn statements but shall include all aspects of an effective private prosecution including
recovery of civil liability arising from the crime, subject to the control and supervision of the public
prosecutor.
Based on jurisprudence, there are two exceptions when a private party complainant or offended party in a criminal
case may file a petition with this Court, without the intervention of the OSG: (1) when there is denial of due process of law to
the prosecution, and the State or its agents refuse to act on the case to the prejudice of the State and the private offended
party;[39] and (2) when the private offended party questions the civil aspect of a decision of the lower court. [40]
In this petition, LBP fails to allege any inaction or refusal to act on the part of the OSG, tantamount to a denial of
due process. No explanation appears as to why the OSG was not a party to the case. Neither can LBP now question the civil
aspect of this decision as it had already assigned ACDCs debts to a third person, Philippine Opportunities for Growth and
Income, Inc., and the civil liabilities appear to have already been settled by Avent Holdings Corporation, in behalf of
ACDC. These facts have not been disputed by LBP. Therefore, we can reasonably conclude that LBP no longer has any
claims against ACDC, as regards the subject matter of this case, that would entitle it to file a civil or criminal action.
WHEREFORE, we DENY the petition and AFFIRM the January 20, 2005 decision of the Court of Appeals in CA-
G.R. SP No. 76588. No costs.
SO ORDERED.
[G.R No. 128054. October 16, 1997]
KILOSBAYAN, INC., FERNANDO A. SANTIAGO, QUINTIN S. DOROMAL, EMILIO C. CAPULONG JR., RAFAEL G.
FERNANDO, petitioners, vs. COMMISSION ON ELECTIONS, SALVADOR ENRIQUEZ, FRANKLIN DRILON,
CESAR SARINO, LEONORA V. DE JESUS, TIBURCIO RELUCIO, ROLANDO V. PUNO, BENITO R.
CATINDIG, MANUEL CALUPITAN III, VICENTE CARLOS, FRANCISCO CANCIO, JIMMY DURANTE, MELVYN
MENDOZA, respondents.
DECISION
HERMOSISIMA, JR., J.:
In order to be eligible for financial assistance, the PYHSDFI, on December 12, 1991, applied with DILG for
accreditation as NGO in Accordance with the guidelines prescribed in Memorandum Circular No. 90-07, dated January 31,
1990.[8]
On March 23, 1992, the PYHSDFI approved Board Resolution No. 7, series of 1992, requesting for allocation from the
governments CDF in order to implement its various sports, health, and cultural activities in specific areas in Metro Manila.
[9]
Hence, the Memorandum of Agreement dated April 24, 1992 was entered into by PYHSDFI President Catindig and DILG-
NCR Regional Director Relucio. In compliance with accreditation requirements of the DILG, the PYHSDFI, on April 27, 1992,
filed with SEC a new set of by-laws.[10]

Under the said Memorandum of Agreement, it was the express responsibility of the DILG to effect the release and
Special Provision No. 1 of the Countrywide Development Fund (CDF) under Republic Act No. 7180, otherwise known
transfer to PYHSDFI of the amount of Seventy Million Pesos (P70,000,000.00)[11] from the aggregate allocation of the CDF
as the General Appropriations Act (GAA) of 1992 allocates a specific amount of government funds for infrastructure and
for complete implementation of the foundations sports, health and cultural work program.
other priority projects and activities. In order to be valid, the use and release of said amount would have to proceed upon
strict compliance with the following mandatory requirements: (1) approval by the President of the Philippines; (2) release of
the amount directly to the appropriate implementing agency; and (3) list of projects and activities. Respondent Salvador Enriquez, as Secretary of the Department of Budget and Management (DBM), signed April 22,
1992 and released on April 30, 1992, Advice of Allotmet (AA) No. BC-8494-92-215 dated April 22, 1992, allocating the
amount of Seventy Million Pesos from the CDF under object 200-10 to cover financial assistance for sports, health and
In a letter, dated March 17, 1992, respondent Cesar Sarino, the then Secretary of Interior and Local Government,
cultural programs and other related activities in various barangays in the National Capital Region. [12]
requested for authority to negotiate, enter into and sign Memoranda of Agreements with accredited Non-Governmental
Organizations (NGOs) in order to utilize them to projects of the CDF provided for under R.A. No. 7180.
The release of Seventy Million Pesos was made in several checks: [13]
[1]
Thereafter, in an undated letter , respondent Franlin Drilon, the then Executive Secretary, granted the above-
mentioned request of Secretary Sarino. Such an authority was extended to all the Regional Directors of the Department of Date PNB Check No. Amount
Interior and Local Government (DILG).
May 5, 1992 138051 P23,000,000.00
Pursuant to the above-described authority granted him as the then Regional Director of the DILG-NCR, respondent
Tiburcio Relucio, on April 24, 1992, entered in the Memorandum of Agreement [2] with an accredited NGO known as
May 5, 1992 138052 P23,000,000.00
Philippine Youth Health and Sports Development Foundation, Inc. (PYHSDFI).

May 6, 1992 138060 P24,000,000.00

The PYHSDFI was registered with the Securities and Exchange Commission (SEC) on October 25, 1985 as a non-
stock, non-profit foundation with principal address at AFMC Building, Amorsolo Street, Makati City. [3] Its incorporators were
private respondents Benito Catindig, President; Manuel Calupitan, Vice-president; Francisco Cancio, Treasurer; Melvin During the hearing of the Senate Committee on Finance on November 22, 1993, DILG Budget Officer Rafael Barata
Mendoza, Secretary; and Ronaldo Puno, Chairman. [4] confirmed the above allotment as part of the amount of Three Hundred Thirty Million Pesos ( P330,000,000.00) that was
released by DBM from the 1992 CDF. The exact amount released to DILG-NCR was P76,099,393.00 while the amounts
released to the other regions are as follows:
The PYHSDFI was organized to promote among the youth, consciousness and greater involvement and participation
in sports and cultural development activities through training camps and demonstration seminars conducted by qualified
experts in the field.[5] Region I - P14,192,834.00

Not long after its incorporation, that is, in 1987, the PYHSDFI suspended its operations because of lack of fund Region II - 108,000.00
donations and the migration to the United States of many of its members. [6] The foundation became active again in October,
1991.[7] Region III - 19,115,000.00

Region IV - 74,131,150.00
Region V - 25,047,991.00
Region VI - 5,545,000.00
Region VII - 20,159,500.00
Region VIII - 23,006,600.00
Region IX - 19,900,900,00
Region X - 25,356,012.00
Region XII - 9,549,000.00
CAR - 10,300,000.00
The total amount disbursed under the CDF was P330,470,688.00.
On December 14, 1993, public respondent Commission on Election (Comelec) received from petitioner Kilosbayan a
letter informing of two x x x serious violations of election laws [14], thus:
1. The documented admission of Secretary of Budget Salvador Enriquez, in the October 5, 1993 hearing of the Commission
on Appointments, that the amount of P70 million was released by his department, shortly before the elections of May 11,
1992, in favor of a private entity, the so-called Philippine Youth, Health and Sports Development Foundation, headed by Mr.
Rolando Puno, who had been repeatedly identified by columnist Teodoro Benigno as a key member of the Sulu Hotel
Operation (SHO), which had reportedly engaged in dirty election tricks and practices in said election. x x x
2. The illegal diversion of P330 million by Malacaang from the Countryside Development Fund to Department of Interior and
Local Government which disbursed this huge amount shortly before the May 11, 1992 election, as revealed by DILG Budget
Officer Barata, in a hearing of Senate Finance Committee, chaired by Sen. Vicente Sotto III, held last November 22, 1993. [15]
and request[ing] that x x x these offenses and malpractices be investigated promptly, thoroughly, impartially, without fear or
favor, so that public confidence in the integrity and purity of the electoral process may be immediately restored for the sake
of our newly-regained democracy[16]
On December 14, 1993, then Comelec Chairman Christian Monsod called a meeting of the Comelec En Banc which
resolved to refer petitioner Kilosbayans letter-complaint to Law Department for comment and/or reccomendation. [17] Said
letter compliant was docketed as E.O. No. 93-193.
The evidence proffered by Kilosbayan in support of its letter-complaint consisted of the published writings of Teodoro
Benigno[18] in his column in the Philippine Star newspaper imputing to the so-called Sulo Hotel Operation (SHO) headed by
PYHSDFIs chairman, Ronaldo Puno, the commission of illegal election activities during the May 11, 1992 elections, including
the obtention of government funds for electioneering purposes; the transcripts of record of the testimony of Secretary
Enriquez before the Commission on Appointments during the hearing on October 5, 1993 and of the testimony of DILG
Budget Officer Rafael Barata before Senate Finance Committee during a hearing on November 22, 1993; and an Affidavit
executed by Norberto Gonzales, a congressional candidate in the May 11, 1992 elections, who alleged therein that at Makati
Headquarters of the Lakas-NUCD, in February, 1992, he overheard respondents Franklin Drilon and Leonora de Jesus
discussing party plans to use the funds of various government offices to finance the partys election campaign and that ten
(10) days or so before May 11, 1992, he obtained his election propaganda materials, following instructions from the partys
National Headquarters, from the Sulo Hotel in Quezon City.
In Memorandum dated March 28, 1994, Comelec Commissioner Regalado Maambong informed Chairman Christian
Monsod that petitioner Kilosbayan [has already] presented their affidavits and supporting documents and [that] it is now time
for the respondents to be subpoenaed and for them to present their counter-affidavits and supporting documents, if any,
relative to the complaint of the Kilosbayan for illegal disbursement of public funds in the May 11, 1992 synchronized
elections[19]
On March 29, 1994, the Comelec En Banc, during its regular meeting, directed Atty Jose P. Balbuena, Director of Law
Department, to issue the proper subpoenas and subpoena duces tecum in connection with the hearing of the Kilosbayan
letter-complaint; to proceed in accordance with the Comelec Rules and Procedure relative to the investigation of cases
involving election offenses; and submit a complete report within ten (10) days from the termination of the investigation. [20]
Director Balbuena issued a subpoena dated April 17, 1994 [21] addressed to respondents Salvador Enriquez, Ronaldo
Puno, Francisco Cancio, Vicente Carlos, Jimmy Durante, Melvin Mendoza and Other John Does requiring them to appear at
the Office of the Director on April 28, 1994 and to submit their respective counter-affidavits and other supporting documents,
if any, in connection with petitioner Kilosbayans letter-complaint against them.
On May 10, 1994, respondents Melvin Mendoza and Salvador Enriquez filed their respective counter-
affidavits[22] specifically denying all the accusatory allegations in petitioner Kilosbayans letter-complaint.
On May 25, 1994, respondent Vicente Carlos submitted his counter-affidavit. [23]
For his part, respondent Francisco Cancio filed a Manifestation [24] dated May 24, 1994 that he cannot submit his
counter-affidavit due to lack of material time.
Thereafter, petitioner Kilosbayan manifested that it will file a consolidated reply to Counter-Affidavits of respondents
Mendoza, Enriquez and Carlos. In order to give petitioner Kilosbayan sufficient time to prepare its consolidated reply, the
hearing was set on June 6, 1994.
When June 6, 1994 came, however, petitioner Kilosbayan filed, not a consolidated reply, but a pleading denominated
as Interrogatives[25] dated May 20, 1994. Said pleading contained a list of questions sought to be propounded to respondents
Enriquez, Carlos and Mendoza in an attempt to elicit from them confirmation regarding the questioned CDF allotment,
specifically the cash allocation received by PYHSDFI, and the consumption thereof by PYHSDFI chairman Ronaldo Punos
SHO for its reported illegal election campaign activities during the May 11, 1992 election.
 Amidst opposition forged by respondents Enriquez and Mendoza, the Comelec Law Department, through Director the COA, considering that nothing on the Special Audit Report on PYHSDFIs CDF allocation imputed the use thereof for
Balbuena, scheduled the clarificatory questioning on July 9, 1994. [26] electioneering activities.

Through a Motion for Reconsideration dated July 5, 1994, respondent Enriquez persisted to question the legality of
the scheduled clarificatory questioning on the ground that the same is in violation of his constitutional right against self-
incrimination. Said motion, however, was denied by the Comelec Law Department through Director Balbuena.
Thus, respondents Enriquez and Mendoza filed separate Petition for Certiorari [27] before the Comelec En Banc
assailing the afore-mentioned orders of Director Balbuena.
The Comelec En Banc treated said petitions as motions for reconsideration or petitions for review, of the orders of
Director Balbuena giving due course to petitioner Kilosbayans Interrogatories and scheduling the same for
hearing. Ultimately, it ruled in favor of respondents Enriquez and Mendoza and held that the questions sought by petitioner
Kilosbayan to be propounded by Director Balbuena to said respondents, are being raised in a preliminary investigation
during which any person being accused of an offense, has the right to remain silent, among others. [28]
On February 9, 1995, the Comelec En Banc, during its regular meeting, promulgated Minute Resolution No. 95-0713
approving, with modification, the recommendations of Law Department, as follows:
1. To dismiss the complaint against Secretary Salvador Enriquez, Jr. for insufficiency of evidence to establish a probable
cause;
In response, however, to the letter of the Comelec Law Department dated August 20, 1995 requesting the COA to
conduct a more rigid and extensive investigation, COA Chairman Celso Gangan wrote Director Balbuena on September 12,
1995 that the facts stated in our report dated November 15, 1993 are already complete; that the report does not make
mention of irregularities or anomalies, rather deficiencies like lack of supporting documents to fully substantiate the
disbursement x x x although the distribution of funds by the Foundation is supported by the a list x x x [30]
On the same day, August 20, 1995, a letter was also sent to respondent Cesar Sarino, former DILG Secretary,
requesting him to submit a verified explanation regarding the sub-allotments issued by his office on several dates in
February and March, 1992, as well as some various sub-allotments issued by respondent Leonora de Jesus, then
Undersecretary of the DILG.
In the meantime, in a letter dated August18, 1995, Director Balbuena asked petitioner Kilosbayan to identify, under
oath, the John Does in their complaint Responding through a letter,[31] petitioner Kilosbayan, through its Acting President,
Cirilo A. Rigos, gave the following names:
Cesar Sarino Victor Sululong
Leonora de Jesus Dionisio de la Serna

2. To hold in abeyance the case aginst Ronaldo Puno, Vicente Carlos, Melvin Mendoza, Francisco Cancio and Jimmy Jose Almonte Gabriel Claudio
Durante, and to direct the Commission on Audit (COA) to conduct further rigid and extensive investigation on the alleged
irregularities or anomalies stated in its report dated November 15, 1993 and to submit its report on such investigation
Franklin Drilon
including pertinent papers thereof, which shall be included in the re-evaluation of the existing documents pertaining to the
PYHSDFI before the case of the above respondents be re-submitted to this Commission for resolution;
The above-named respondents were duly subpoenaed. Thereafter, they filed their respective Comments and/or
Answers.
3. To order the Law Department to summon Atty. Tiburcio A. Relucio, former Regional NCR-DILG Director to shed light on
the Kilosbayan complaint or the P70 million which were allotted by his office to the PYHSDFI shortly before the May 11, 1992
synchronized national and local elections: On November 13, 1995, respondent Cesar Sarino Submitted his Sworn Explanation/Comment remonstrating that the
questioned sub-allocations were approved only after a strict compliance with the proscribed time frame under the law which
was March 27, 1992 until May 2, 1992 and prohibition against public work expenditures.
4. To direct the Law Department to send a letter to former DILG Secretary Cesar Sarino to explain allotments and sub-
allotments per evaluation report of the Law Department x x x; [and]
Respondent Gabriel Claudio filed his Comment/Answer on December 12, 1995 contending that he had not yet joined
[29]
government at any time before the May 11, 1992 elections.
5. To direct the Kilosbayan to identify, under oath, the John Does in their complaint.

Dismissing the case against respondent Enriquez, whose evidence of strict compliance with the requirements of R.A.
No. 7180 prior to the release of the Seventy Million Pesos to PYHSDFI, was significantly left unrebutted by petitioner
Kilosbayan, the Comelec En Banc reserved the disposition of the case against Ronaldo Puno and other PYHSDFI officers
until after submission by the COA of a more detailed report of the nature and extent of the anomalous practices of the
PYHSDFI in the utilization of the CDF money allocated thereto. Easily understandable is the need for further investigation by
Respondents Franklin Drilon filed his Comment on January 29, 1996 denouncing as hearsay the sole evidence
against him consisting of Teodoro Benignos newspaper articles implicating him in the SHO.
Dionisio de la Serna, Victor Sumulong and Jose Almonte, who were additionally named as respondents by petitioner
Kilosbayan, denied any knowledge or participation in the election offenses subject of the letter-complaint and objected
thereto for failure to state, with particularity, the acts that they had supposedly committed in the violation of the Omnibus
Election Code.Likewise, they pointed out that Teodoro Benigno newspaper articles constituted hearsay evidence bereft of To dismiss the complaint of Kilosbayan against all the respondents.
any probative value.
x x x[32]
Insofar as respondent, then DILG-NCR Regional Directior, Tiburcio Relucio was concerned, the Law Department was
unable to subpoena him because he was abroad.
The details of the investigation and a complete discussion of the evidence submitted by the contending parties are laid
out in the 16-page Study[33] attached to the aforecited Synopsis of the Case. Essentially, the Law Department evaluated the
No rebuttal evidence was tendered by petitioner Kilosbayan to dispute the counter-allegations of herein evidence in this wise:
respondents. Notably, too, petitioner Kilosbayan did not offer any additional evidence, in the place of Teddy Benignos
published newspaper articles implicating PYHSDFIs Ronaldo Puno and the SHOs electioneering activities during the 1992
The provision of the Omnibus Election Code that may have been possibly violated by the respondents in the KILOSBAYAN
elections, in order to show even some semblance of a connection between the PYHSDFIs CDF allotment and SHOs
complaint, are as follows:
electioneering activities.

SEC. 261. Prohibited Acts following shall be guilty of an election offense:

On April 3, 1996, the Comelec Law Department issued the following finding and recommendations:

xxx xxx xxx

SYNOPSIS OF CASE

(o) Use of public funds, money deposited in trust, equipment, facilities owned or controlled by the government for an election
[1] TITLE:
campaign. Any person who uses under any guise whatsoever, directly or indirectly, (1) public funds or money deposited with,
or held in trust by, public financing institutions or by government offices, banks, or agencies; x x x x for any election
'KILOSBAYAN VS. SECRETARY SALVADOR ENRIQUEZ, JR., ET AL. campaign or for any partisan political activity.

[2] DOCKET NUMBER: (v) Prohibition against release, disbursement or expenditure of public funds Any public official or employee including
barangay officials and those of government-owned or controlled corporations and their subsidiaries, who, during forty-five
days before a regular election and thirty days before special election, releases, disburses or expends any public funds for:
E.O Case No. 93-193

(1) Any and all kinds of public works, except the following:
[3] LAW ALLEGEDLY VIOLATED:

xxx xxx xxx

Section 261 (o), (v) and (w) of the Omnibus Election Code. (Use of public funds, money deposited trust, x x x, for an election
campaign; Prohibition against release, disbursement or expenditure of public funds for any and all kinds of public works; and
Prohibition against construction of public works, delivery of materials for public works and issuance of treasury warrants and
similar devices).
[4] FINDINGS:
(w) Prohibition against construction of public works, delivery of materials for public works and issuance of treasury warrants
and similar devices during the period of forty-five days preceding a regular election and thirty days before a special election,
any person who (a) undertakes the construction of any public works, except for projects or works exempted in the preceding
paragraph; or (b) issues, uses or avails of treasury warrants or any device undertaking future delivery of money, goods or
other things of value chargeable against public funds.

The Law Department finds that there is insufficient ground to engender a well-founded belief that respondents Ronaldo
The Commission on Audit, thru its Chairman, pointed out, in its letter dated September 12, 1995, that the facts stated in their
Puno, Secretary Vicente Carlos, Melvin Mendoza, Francisco Cancio, Jimmy Durante, Hon. Cesar N. Sarino, Leonora V. de
report dated November 15, 1993 are already complete and that the report does not make mention of irregularities or
Jesus, Jose Almonte, Dionisio de la Serna, Victor Sumulong, Franklin Drilon and Gabriel (Gabby) Claudio have committed
anomalies, rather deficiencies like lack of supporting documents to fully substantiate the disbursements, such that although
the acts being complained of and probably guilty thereof and should be held for further proceedings (trial) considering that
the distribution of funds by the Foundation is supported by a list, this does not show the acknowledgment by supposed
the allegations in the complaint are plain conjectures, speculations and based on hearsay evidence. The other set of
recipients.
evidence which was obtained through coercive processes of the Commission did not show that the acts as reflected therein
come within the proscription of Section 261 (o), (v) and (w) of the Omnibus Election Code.
Although the report of the COA dated November 15, 1993 mentioned that upon the start of the audit, it was disclosed that
PYHSDFI did not keep book of accounts, wherein to record its transactions, which constitute(s) a basic requirement in the
[5] RECOMMENDATION:
accounting for funds and all it had to evidence its disbursements are vouchers, many of which are not supported by receipts
or other documents, it does not show that the public funds released to it by the DILG was used for any election campaign or
for any partisan political activity. The report says:
(2) The inadequate financial reports, book of accounts and other supporting documents rendered verification of total
disbursement of P70M difficult,
In the case of Hon. Cesar N. Sarino, he alleged that his approvals of the sub-allocations reflect a strict compliance with the
law and do not violate Section 261 (v) of the Omnibus Election Code as their approval [was] not within the proscribed time
frame as designated by the Commission on Elections, and Advice of Sub-allotment No. DILG-92-2-128 covers a type of
expenditure which is not public works expenditure, hence, not violative of said provision of law.
xxx xxx xxx

This consist of the following: x x x [A]n incisive, careful, meticulous and rigid review and re-evaluation of the above-listed sub-allotments revealed, that the
nine (9) sub-allotments approved by former DILG Secretary Cesar Sarino which appeared to be for construction of public
works are actually nine (9) pages of five (5) sub-allotments x x x and the one (1) sub-allotment issued by Undersecretary
a) Meals./snacks P14,465,000
Leonora V. de Jesus which appeared to be for construction of public works is actually:

b) Prof. fees/allowances
(b) Sub-allotment No. Date of Approval Page No.

travel expenses P17,881,500

1] 92-1-90 March 19, 1992 1

c) Rental site/facilities P 3,441,480

To be liable for violation of Section 261 (v), supra, four (4) essential elements must concur and they are:

d) Purchases of supplies and materials P34,221,020

1) A public official or employee releases, disburses, or expends any public funds;

P70,000,000
2) The release, disbursement or expenditure of such public funds must be within forty-five days before regular election
(March 27, 1992 until May 11, 1992, Section 1, Comelec Resolution No. 2332, Jan. 02, 1992);
This particular part of the report of the COA also clearly showed that the public funds in the hands of the PYHSDFI were not
used for any and all kinds of public works.
3) The release, disbursement or expenditure of said public funds is for any and all kinds of public works; and

Further it says:
4) The release, disbursement or expenditure of the public funds should not cover any exceptions of Section 261 (v).

3.A In most of the transactions undertaken, cash payments [were] used in paying their obligations, since it would have been
significantly expensive it in overhead cost to maintain a pool of administrative staff and besides no allocation of such
expenses [was] programmed. Moreover, most [the] expenses were in the category of payrolls which [had] to be paid in
cash. [L]likewise suppliers asked for cash-ondelivery (COD) basis since the prices given were the lowest obtainable
commercial rates.
This showed that not all obligations of the PYHSDFI were paid in cash, in other words, the other obligations were paid in
forms which may be checks or any other device undertaking future delivery of money. However, no single piece of evidence
was presented by Kilosbayan to prove its complaint to determine whether they (checks) have been issued within the
prohibited period.
Except for Sub-allotment No. 92-1-94 and Sub-allotment No. 92-2-128 approved on March 27, 1992 and April 22, 1992,
respectively, by former DILG Secretary Cesar Sarino, not one of the sub-allotments listed above does fall within the
proscribed period. Sub-allotment No. 92-1-98 was approved to cover the improvement/rehabilitation of Cabucgayan
Waterworks System of Cabucgayan, Leyte. This falls within exception (maintenance of existing and/or completed public
works projects) of the proscription being merely a rehabilitation of an existing public works project. Sub-allotment No. 92-2-
128 was not for any and all kinds of public works. It was approved to cover the purchase of reference and instructional
materials for distribution to all local executives of the 2 nd District of Surigao del Norte in support of the Educational Upliftment
Program of the DILG, hence, it could not also fall within the proscription. The sub-allotment approved by undersecretary
Leonora V. de Jesus, which appreared to be for the construction of public works, having been approved on March 19, 1992
does not fall within the proscriptive period, hence, it could not also fall within the proscription.

In the light of the foregoing, the Law Department reiterates its former findings in its Study for Agenda dated February 8, 1995 xxx xxx xxx
that in the case of respondents Ronald Puno, Secretary Vicente Carlos, Melvin Mendoza, Francisco Cancio and Jimmy
Durante, based on the existing documents appearing on the records, no probable cause exists against them for violation of
the election law. It is well-settled that the complainant must rely on the strength of his evidence and not on the weakness of
the evidence of the respondent[s].
Prescinding from the foregoing documents appearing on [the] records, there exist no sufficient ground to engender a well-
founded belief that former DILG Secretary Cesar Sarino and Undersecretary Leonora V. de Jesus have violated Section 261
(v) of the Omnibus Election Code.
The Law Department must stress here that the allegations appearing in the columns of Teodoro Benigno in the Philippine
Star on several dates imputing dirty election tricks and practices (as worded by Kilosbayan) against respondent Jose
Almonte, Dionisio de la Serna, Victor Sumulong, Franklin Drilon and Gabriel (Gabby) Claudio cannot be admitted as gospel
truth because they are purely speculative and conjectural. Suffice it to say, that, they are mear hearsayevidence. Well-settled
is the rule that Newspaper clippings are hearsay and of no evidentiary value. (People vs. Jovito Aguel, et al., 97 SCRA 795].
Moreover, former Executive Secretary, now Senator, Franklin Drilons undated letter, where he approved the request for
authority dated March 17, 1992 of then former DILG Secretary Cesar N. Sarino to negotiate, enter into and sign Memoranda
of Agreements with and to utilize the accredited Non-Governmental Organizations (NGOs), in accordance with the directive
of then former President Corazon Aquino dated March 13, 1992, regarding the implementation of projects under the
Countrywide Development Fund (CDF) provided under R.A. 7180, does not refer to any release, disbursement, or
expenditure of public funds for construction of public works.
Consequently, there also exist no sufficient evidence to engender a well-grounded belief that respondents Jose Almonte,
Dionisio de la Serna, Victor Sumulong, franklin Drilon and Gabriel (Gabby) Claudio have violated Section 261 (o) and (v) of
the Omnibus Election code.
It would not be amissed to state here in passing that well-enshrined is the rule that the complainant must submit evidence to
prove his case. IN THE INSTANT CASE, COMPLAINANT KILOSBAYAN DID NOT SUBMIT EVIDENCE TO PROVE ITS
CASE. IT POSTULATES THE THEORY THAT SINCE IT IS THE CONSTITUTIONAL POWER OF THE COMMISSION TO
ENFORCE AND ADMINISTER ALL LAWS AND REGULATIONS RELATIVE TO THE CONDUCT OF ELECTION, IT IS
INCUMBENT TO USE ITS CONSTITUTIONAL POWER TO SECURE THE NEEDED EVIDENCE. THIS POSITION OF THE
KILOSBAYAN IS PATENTLY ERRONEOUS AS IT IS NOT ONLY ITS LEGAL OBLIGATION BUT ALSO ITS MORAL DUTY
TO SUBMIT ITS EVIDENCE TO PROVE ITS COMPLAINT. x x x[34]
Adopting the foregoing findings and conclusions of the Law Department, the Comelec En Banc promulgated Minute
Resolution No. 96-1037 dismissing the charges against the following: respondents Ronaldo Puno, Vicente Carlos, Melvin
Mendoza, Francisco Cancio and Jimmy Durante for violation of Section 261 (o), (v) and (w) of the Omnibus Election Code;
respondents Cesar Sarino and Leonora de Jesus for violation of Section 261 (v) of the Omnibus Election Code; and
respondent Franklin Drilon and others also charged in petitioners complaint, namely, Jose Almonte, Dionisio de la Serna,
Victor Sumulong and Gabriel Claudio, for violation of Section 261 (o) and (v) of the Omnibus Election Code, all on ground of
insufficiency of evidence to establish probable cause.
Petitioner Kilosbayan, however brushed off responsibility for adducing evidence of herein respondents culpability, and
adamantly demanded that the Comelec perform its constitutional duty of prosecuting election offenses upon any, even
meager, information of alleged commission of election offenses.
Its complaint having been dismissed in the aforementioned Resolutions dated February 9, 1995 and April 11, 1996,
respectively, petitioner filed a Motion for Reconsideration dated May 16, 1997 and a Supplemental Motion for
Reconsideration dated June 7, 1996 seeking the nullification of the said Resolutions and praying for the filing of
corresponding criminal complaints and/or informations against herein respondents.
Reiterating the dismissal of E.O. Case No. 93-193, however, the Comelec denied the motions in the Resolution dated
October 30, 1996.[35]
The Comelec Resolution dated January 20, 1997 contained the detailed basis for the final dismissal of E.O. Case No.
93-193. Discussing point by point the arguments raised by petitioner in its Motion for Reconsidiration and Supplemental
Motion for Reconsideration, the Comelec En Banc unanimously held, thus:
Movant complains:
The Law Department makes it appear that the KILOSBAYAN has greater responsibility in the enforcement of election laws
than the COMELEC to make it its moral and legal duty to spend its time and private funds to gather evidence from public
offices to convince the COMELEC that there is sufficient evidence to establish the guilt of the respondents.
xxx
It may do well to remember that the Constitution charged the COMELEC with the responsibility to x x x
xxx
(6) x x x where appropriate, prosecute cases of violations of election laws, including acts or omissions constituting election
frauds, offenses, and malpractices. (emphasis theirs)
The Commission has no quarrel with Complainant that indeed the Constitution tasked this Body with the prosecution of
election offenses. But the constitutional provision made it clear that prosecution should be made only where it is
appropriate. It is appropriate when it is established in the preliminary investigation that probable cause exist to justify the
filing of the necessary information against the accused.
Lest the Complainant forgets, it initiated the complaint. Thus, on it rests the burden of supporting its charges with affidavits
and/any evidence, for it is upon the evidence thus adduced, that the investigating officer shall determine whether or not there
is sufficient ground to hold the respondent for trial. This is so provided under the COMELEC Rules of Procedure x x x.
Nonetheless, even with Complainants failure to submit substantial enough to justify findings of probable cause, the
Commission, through its Law Department undertook an investigation of the case. The Law Department summoned the
parties, took testimonies of witnesses, secured documents, and conducted hearings. The result of the preliminary
investigation was certainly on the basis of the evidences adduced by complainant and the facts gathered by the Department
on its own initiative.
xxx
No other evidence except Mr. Benignos articles were submitted [by petitioner] to prove the existence of the so called Sulo-
Hotel Operations. Newspaper clippings are hearsay and of no evidentiary value.(People v. Aquel, et al., 97 SCRA 795). x x x
[Further] x x x [petitioner] wants the Commission to derive from [the Commission on Audit] report the conclusion that
because there were discrepancies, to wit: 1. No books of account [were] maintained by the NGO [i.e., PHYSDFI]; and 2.
Cash payments were made regardless of amount, then the allocation to PHYSDFI were made for electioneering
purposes. Indeed, there could have been, as alleged by Complainant, irregularities in the allocation, but it must be shown by
the quantum of evidence required to establish probable cause that such irregularities constituted election offense. This,
Compalinants evidences failed to show.
xxx
It was established that the PHYSDFI received from DILG-NCR an allocation of P70 million. To Complainant the nature of the
allocation and the amount of the expenditures made by PHYSDFI within a short period of time, i.e., immediately before the
elections and in the light of the fact that it stopped all its operations shortly after the elections established beyond reasonable
doubt that the foundation was engaged in partisan political activity. Complainant further averred that the flight of the heads of
the foundation (Puno and Catindig) and Regional Director Tiburcio A. Relucio who went into hiding after the series of
exposes by columnist Teodoro Benigno constitutes an implied admission of guilt. x x x
It is the Law Departments findings and so is Ours, that the nature and amount of expenditure within a short period of time
are not sufficient to meet the quantum proof required to establish that said contributions were made for partisan political
activity. It must be emphasized that the burden is on Kilosbayan to prove its allegations. He who alleges must prove his
allegation. Unfortunately for Complainant, it was not able to produce evidence showing that the contribution was used for
partisan political activity.
xxx
Complainant posits the view that respondents are liable x x x because the sports and medical kits were unlawful election
propaganda, having been purchased and distributed a few days before election and the stopped after the election. At most,
this is speculative and presumptive. In the absence of proof amply showing that the purchase and distribution of gadgets and
kits were made to advertise or to further the chances of victory of candidate or candidates, the Commission cannot justify the
conclusion that probable cause exist to charge respondents x x x.
xxx
While it was established by documents thus presented x x x that there was a release of public funds by DILG/DILG-NCR,
within the prohibited period, the same could not be considered as a violation x x x because one, the expenditure was not for
public works; and two, the Department of Interior and Local Government can not be considered as an office of other
ministries (departments) performing functions similar to the Ministry of Social Services and Development or Ministry of
Human Settlements.
Kilosbayans complaints were heard. They were investigated. Complainant was given full opportunity to argue its case and
prove its charges. It presented arguments but not evidences. It thesis is more on speculations, conjectures and suspicious. It
expects the Commission to find as circumstantial evidence the chain of circumstances which [it] presented, forgetting that:
The rule on circumstantial evidence necessarily requires that each circumstance must be positively established with the
requisite quantum of evidence, in the same manner that the catena that binds the together and conduces to a conclusion of
guilt must survive the test of reason and satisfy the required evidentiary weight.' (People vs. Adofina, 239 SCRA 67)
Unfortunately, Complainant failed to sustantiate with sufficient evidence the circumstances on which it based the liability of
respodents for offenses charged by way of its Supplemental Motion for Reconsideration. x x x [36]
Its Motion for Reconsideration and Supplemental Motion for Reconsideration having been finally denied by the
Comelec En Banc, petitioner Kilosbayan has come before us ascribing grave abuse of discretion to public respondent
Comelec for: (1) refusing and/or neglecting to gather more evidence of respondents culpability, pursuant to its constitutional
duty to prosecute election offenses, through oral arguments upon petitioners Motion for Reconsideration and Supplemental
Motion for Reconsideration as well as from respondents Rolando Puno and Tiburcio Relucio who, petitioner claims, have not
gone abroad but are actually in the country; and (2) for issuing a blanket exoneration of all respondents despite the prima
facie evidence already in the hands of Comelec.
The Comelec did not commit any act constituting grave abuse of discretion in dismissing petitioner Kilosbayans letter-
complaint against herein respondents, the former having failed to prove its case against the latter. As such, this petition must
be dismissed.
Section 2 (7) of Article IX-C of the 1987 Constitution provides that the Comelec shall exercise the power to investigate
and, where appropriate, prosecute cases of violations of election laws, including acts or omissions constituting election
frauds, offenses, and malpractices. Discerning the rationale for this grant of prosecutorial powers to the Comelec, we already
had occasion to rule, thus:
The grant to the COMELEC of the power, among others, to enforce and administer all laws relative to conduct of election
and the concomitant authority to investigate and prosecute election offenses is not without compelling reason. The evident
constitutional intendment in bestowing this power to the COMELEC is to insure the free, orderly and honest conduct of
elections, failure of which would result in the frustration of the true will of the people and make a mere idle ceremony of the
sacred right and duty of every qualified citizen to vote. [37]
This constitutional grant of prosecutorial power in the Comelec finds statutory expression under Section 265 of Batas
Pambansa Blg. 881, otherwise known as the Omnibus Election Code, to wit:
SEC. 265. Prosecution. The Commission shall, through its duly authorized legal officers, have the exclusive power to
conduct preliminary investigation of all election offenses punishable under this Code, and to prosecute the same. The
Commission may avail of the assistance of other prosecuting arms of the government: Provided, however, That in the event
that the Commission fails to act on any complaint within four months from his filing, the complainant may file the complaint
with the office of the fiscal or with the Ministry of Justice for proper investigation and prosecution, if warranted.
 Insofar as the prosecution of election offenses is concerned, therefore, the Comelec is the public prosecutor with the
exclusive authority to conduct the preliminary investigation and the prosecution of election offenses punishable under the
[Omnibus Election] Code before the competent court. [38] This constitutional and statutory mandate for Comelec to investigate
and prosecute cases of violation of election law translates, in effect, to the exclusive power to conduct preliminary
investigations in cases involving election offenses for the twin purpose of filing an information in court and helping the Judge
determine, in the course of preliminary inquiry, whether or not a warrant of arrest should be issued. [39]
For the effective investigation and prosecution of cases of election offenses and in the exercise by the Comelec of its
quasi-legislative power under Section 6, Article IX of the 1987 Constitution, the Comelec Rules of Procedure were
promulgated, providing, among others, the guidelines pertinent to election offenses. They are as follows:
Rule 34 Prosecution of Election Offenses
SECTION 1. Authority of the Commission to Prosecute Election Offenses. The Commission shall have exclusive power to
conduct preliminary investigation of all election offenses punishable under the election laws and to prosecute the same,
except as may otherwise be provided by law.
SEC. 2. Continuing Delegation of Authority to Other Prosecution Arms of the Government. - The Chief State Prosecutor, all
Provincial and City Fiscals, and/or their respective assistants are hereby given continuing authority, as deputies of the
Commission, to conduct preliminary investigation of complaints involving election offenses under the election laws which
may be filed directly with them, or which may be indorsed to them by the commission or its duly authorized representatives
and to prosecute the same. Such authority may be revoked or withdrawn any time by the Commission whenever in its
judgment such revocation or withdrawal is necessary to protect the integrity of the Commission, promote the common good,
or when it believes the successful prosecution of the case can be done by the Commission.
SEC. 3. Initiation of Complaint. Initiation of complaint for election offenses may be done motu proprio by the Commission, or
upon written complaint by any citizen of the Philippines, candidate, registered political party, coalition of political parties
or organizations under the party-list system or any accredited citizen arms of the Commission.
SEC. 4. Form of Complaint and Where to File.- (a) When not initiated motu proprio by the Commission, the complaint must
be verified and supported by affidavits and/or any other evidence. Motu propriocomplaints may be signed by the Chairman of
the Commission, or the Director of the Law Department upon direction of the chairman, and need not be verified.
(b) The complaint shall be filed with the Law Department of the Commission; or with the offices of the Election Registrars x x
x
xxxxxxxxx
SEC. 5. Referral for Preliminary Investigation. If the complaint is initiated motu proprio by the Commission, or is filed with the
Commission by any aggrieved party, it shall be referred to the Law Department for investigation. Upon direction of the
Chairman of the Commission, the preliminary investigation may be delegated to any lawyer of said Department, or any of the
Regional Election Directors or Provincial Election Supervisors, or any lawyer of the Commission.
SEC. 6. Conduct of Preliminary Investigation. (a)If on the basis of the complaint, affidavits and the supporting evidence, the
investigating officer finds no ground to continue with the inquiry, he shall recommend the dismissal of the complaint and shall
follow the procedure prescribed in Section 8 (c) of this Rule. Otherwise, he shall issue a subpoena to the respondent,
attaching thereto a copy of the complaint, affidavits and other supporting documents giving said respondent ten (10) days
from receipt within which to submit counter-affidavits and other supporting documents. The respondent shall have the right to
examine all other evidence submitted by the complainant.
(b) Such counter-affidavits and other supporting evidence submitted by the respondent shall be furnished by him to the
complainant.
(c) If the respondent cannot be subpoenaed, or if subpoenaed, does not submit counter-affidavits within the ten-day
period, the investigating officer shall base his resolution on the evidence presented by the complainant.
(d) If the investigating officer believes that there are matters to be clarified, he may set a hearing to propound clarificatory
questions to the parties or their witnesses, during which the parties shall be afforded an opportunity to be present but without
the right to examine or cross-examine. If the parties so desire, they may submit questions to the investigating officer which
the latter may propound to the parties or witnesses concerned.
(e) Thereafter, the investigation shall be deemed concluded, and the investigating officer shall resolve the case within ten
(10) days therefrom. Upon the evidence thus adduced, the investigating officer shall determine whether or not there is
sufficient ground to hold the respondent for trial.
SEC. 7 Presumption of Existence of Probable Cause. A complaint initiated motu proprio by the Commission is presumed to
be based on sufficient probable cause and the investigating officer must forthwith issue the subpoena mentioned in the
immediately preceding section.
SEC. 8. Duty of Investigating Officer. - The preliminary investigation must be terminated within twenty (20) days after receipt
of the counter-affidavits and other evidence of the respondents, and resolution thereof shall be made within five (5) days
thereafter.
(a) If the investigating officer finds no cause to hold the respondent for trial, he shall recommend dismissal of the
complaint.
(b) If the investigating officer finds cause to hold the respondent for trial, he shall prepare the resolution, and the
corresponding information wherein he shall certify under oath that he has examined the complainant and his witnesses, that
there is reasonable ground to believe that a crime has been committed and that accused was informed of the complaint and
of the evidence submitted against him and that he was given an opportunity to submit controverting evidence.
(c) In either case, the investigating officer shall, within five(5) days from the rendition of his recommendation, forward the
records of the case to
1) The director of the Law Department of the Commission in cases investigated by any of the Commission lawyers or field
personnel and
2) The State Prosecutor, Provincial Fiscal or City Fiscal, as the case may be, pursuant to the continuing authority provided
for in Section 2 of this Rule.
SEC. 9. Duty of the Law Department, State Prosecutor, Provincial or City Fiscal Upon Receipt of Records. - (a) Within ten
(10) days from receipt of the records stated in paragraph (c) of the immediately preceding section, the State Prosecutor,
Provincial or City Fiscal shall take appropriate action thereon, immediately informing the parties of said action.
(b) In case investigated by the lawyers or the field personnel of the Commission, the director of the Law Department shall
review and evaluate the recommendation of the said legal officer, prepare a report and make a recommendation to the
Commission affirming, modifying or reversing the same which shall be included in the agenda of the succeeding meeting en
banc of the Commission. If the Commission approves the filing of an information in court against the respondent/s, the
Director of the Law Department shall prepare and sign the information for immediate filing with appropriate court.
(c) In all other cases, if the recommendation to dismiss or the resolution to file the case in court is approved by State
Prosecutor, Provincial or City Fiscal, they shall likewise approve the Information prepared and immediately cause its filing
with the proper court.
(d) If the recommendation to dismiss is reversed on the ground that a probable cause exists, the State Prosecutor, or the
Provincial or City Fiscal, may, by himself prepare and file the corresponding information against the respondent or direct any
of his assistants to do so without conducting another preliminary investigation.
x x x x x x x x x [Emphasis ours].
The Comelec, whenever any election offense charge is filed before it, must have first, before dismissing the same or
filing the corresponding information, conducted the preliminary investigation proper of the case. At this initial stage of
criminal prosecution, the primordial task of the Comelec is the determination of probable cause, i.e., whether or not there is
reason to believe that the accused is guilty of the offense charged and, therefore, whether or not he should be subjected to
the expense, rigors and embarrassment of trial [40] or as the Comelec Rules of the Procedure phrase it, whether or not there is
reasonable ground to believe that a crime has been committed" [41]
The determination of probable cause in any criminal prosecution, is made indispensable by the Bill of Rights which
enshrines every citizens right to due process, the presumption that he is presumed innocent, and the inadmissibility against
him of any damaging evidence obtained in violation of his right against self-incrimination. As Justice Reynanto S. Puno has
pointed out, probable cause is neither an opaque concept in our jurisdiction [42] or a high level legal abstraction to be the
subject of warring thoughts[43] It constitutes those facts and circumstances which would lead a reasonably discreet and
prudent man to believe that an offense has been committed [44] by the person sought to be judicially indicted. In determining
probable cause, however, the public prosecutor must have been apprised by the complainant of his evidence in support of
his accusatory allegations. In other words, determining probable cause is an intellectual activity premised on the prior
physical presentation or submission of documentary or testimonial proofs either confirming, negating or qualifying the
allegations in the complaint.
It follows, therefore, that in the instant case, petitioner Kilosbayan must have necessarily tendered evidence,
independent of and in support of the allegations in its letter-complaint, of such quality as to engender belief in an ordinarily
prudent and cautious man that the offense charged therein has been committed by herein respondents. Indeed probable
cause need not be based on clear and convincing evidence of guilt, neither on evidence establishing guilt beyond
reasonable doubt and definitely, not on evidence establishing absolute certainty of guilt [45], but it certainly demands more
than bare suspicion[46] and can never be left to presupposition, conjuncture, or even convincing logic. [47] The effort of
petitioner Kilosbayan, thus, in order to successfully lead to the judicial indictment of respondents, should have gone beyond
a largely declamatory condemnation of respondents and diligently focused on its two-fold obligation of not only
substantiating its charges against respondents but also proffering before the Comelec substantial evidence of respondents
utilization, through conspiratorial, cooperative and/or interrelated acts, of Seventy Million Pesos from CDF for electioneering
activities in violation of its pertinent provision on election offenses as enumerated in the Omnibus Election Code.
In the dispensation of this obligation, however Kilosbayan utterly failed. The encompassing narration of the pertinent
facts and circumstances of this case in the early part of thisponencia indubitably shows the complacency, at the least, and
the gross and deliberate negligence, at most, of petitioner Kilosbayan in presenting sufficient evidence in support of its letter-
complaint.
To salvage its position, however, petitioner Kilosbayan denies the existence, under the 1987 Constitution, of any
obligation on its part to present any evidence of its accusations against respondents in its letter-complaint. Petitioner
Kilosbayan asserts that it is the obligation of the Comelec to search for the evidence needed to judicially indict respondents
because it is the agency empowered to investigate and prosecute cases involving election offenses; that E.O. Case No. 93-
193 should, at any rate, be deemed one filed by the Comelec motu proprio, thus needing no evidence since probable cause
is such a case is presumed, petitioner Kilosbayan having only requested for an investigation and the Comelec having
proceeded to in fact hold the investigation, as requested by petitioner Kilosbayan; and that the Comelec should already be
grateful to petitioner Kilosbayan for the latters private efforts at exposing respondents illegal election activities.
Kilosbayans position is not tenable.
Indeed, Kilosbayan truly deserves commendation for its continued vigilance against any and all forms of government
corruption that cost this country not only the funds gravely needed to afford each Filipino a decent and honorable life, but
also the moral resolve to unite with each other and resist and eradicate the growing culture of greed, abuse of power and
blatant disregard for basic human dignity and social responsibility. But it must guard against arrogance in trumpeting its
causes, if not recklessness in its advocacy.
The claim of petitioner Kilosbayan that it is merely the informant and not the private complainant with the burden to
prove probable cause, borders on the ridiculous. Kilosbayan filed before the Comelec a letter-complaint dated December 14,
1993 in support of which documentary evidences like copies of Teodoro Benignos newspaper articles on the SHOs use of
PYHSDFI-obtained CDF, of respondent Enriquezs testimony before the Commission on Appointments, of DILG Budget
Officer Baratas testimony before the Senate Finance Committee, and of Norberto Gonzales affidavit, were likewise
submitted by petitioner. The letter-complaint not being verified, it is not disputed that petitioner Kilosbayan subsequently
caused its verification; when later asked to give the names of the other John Does in its letter-complaint, petitioner
Kilosbayan obliged with a list, under oath, of additional respondents. Petitioner Kilosbayan initiated the complaint against
herein respondents, hence the docketing thereof as E.O. Case No. 93193; it filed numerous pleadings before the Comelec
as a private complainant in E.O. Case No. 93-193; its proceeded in the case in accordance with the Comelec Rules of
Procedure pertinent to the prosecution of cases of election offenses. After all, the Kilosbayan should have presented
evidence and not proceeded and relied on mere conjecture and hearsay evidence.
 The contention of petitioner Kilosbayan that it is the Comelec that is duty-bound to search for evidence to prove its
letter-complaint is downright erroneous. The task of the Comelec as investigator and prosecutor, acting upon any election
offenses complaint, is not the physical searching and gathering of proof in support of a complaint for an alleged commission
of an election offense. A complainant, who in effect accuses another person of having committed an act constituting an
election offense, has the burden, as it is his responsibility, to follow through his accusation and prove his complaint. If the
complainant fails to proffer the necessary evidence to show probable cause, notwithstanding the lack of denial or any
evidence in controversion, of the accusation, the complaint must be dismissed, since any person accused of a crime is
presumed innocent and does not at all have to make a response or reaction to charges against him.
The Comelec, is acting upon an election offense complaint in the course of preliminary investigation, initially facilitates
the confrontation process between the complainant and the respondents by requiring the submission of and interfacing, their
respective evidences. Ultimately, the Comelec passes upon the contending parties' respective submissions and proof and
weighs the fact and circumstances established therefrom. Contrary to the asseveration of petitioner Kilosbayan, the
preliminary investigation is not an occasion for Comelec to, as a duty, spoonfeed the complainant with evidence needed to
prove its case.
In other words, said cash allocations appear to be evidence of perhaps, a thousand hypothetical, though, possible
scenarios. But, they are evidence of only one fact: that a certain amount of public money was made available to PYHSDFI
as it is rightfully entitled thereto as an accredited non-governmental organization at around the same time that the
synchronized elections of 1992 were to be held. But this one fact is certainly no justification to indict herein respondents for
election offenses imputed to them.
Lastly, there is no proof that respondents conspired to have PYHSDFI accredited as non-government organization in
order to avail itself of public funds to spend for electioneering purposes. In order for there to be reasonable ground to believe
that a conspiracy exists among (1) the government officials who set up the mechanism for the accrediting NGOs to
implement the project under the CDF and to qualify the latter to receive CDF allocations; (2) the incorporators and officers of
the PYHSDFI; and (3) the SHO implicated by Teodoro Benigno in his newspaper articles in alleged electioneering activities
during the May 11, 1992 elections, there must be a semblance of evidence linking them to each other. There is none,
however, except for hearsay evidence consisting of the aforementioned newspaper articles. Suffice it is say that although
only a low quantum and quanlity of evidence is needed to support a finding of probable cause [48], the same cannot be
justified upon hearsay evidence that is never given any evidentiary or probative value in this jurisdiction.

Finally, we cannot avoid the point out that no novel legal theory can distract even an ordinary layman from the plain Incidentally, we note that although made party respondents in this case, Benito Catindig and Manuel Calupitan III
dearth of evidence of respondents culpability on the record. were not officially made respondents in E.O. Case No. 93-193 and accordingly not served with subpoena at any time during
the pendency of said case before the Comelec. There is no ground, therefore, to implead Benito Catindig and Manuel
Calupitan III in the instant case.
There is no proof of the electioneering activities alleged by petitioner Kilosbayan to have been perpetrated by
PYHSDFI during the May 11,1992 elections. Petitioner claims the PYHSDFI distributed medical kits and sports equipment to
several youth groups in certain Metro Manila barangays for purposes of influencing their vote during the May 11, 1992 WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is hereby DISMISSED, without any
elections.Petitioner, however, vaguely states the places where, the dates when, the particular candidate for whose cause, pronouncement as to costs.
and the general description of the people for whose consumption, the distribution of election propaganda materials was
undertaken. In fact, there is no proof that the medical kits and sports equipment were election propaganda materials. This is
SO ORDERED.
not surprising for there is the barest evidence that this distribution had taken place at all.

There is no proof that PYHSDFI used its cash allocations as an accredited non-governmental organization in order to
undertake electioneering activities. Petitioner likewise did not present proof that said distribution of medical kits and sports
equipment was for purposes of influencing the votes of certain groups of people during the May 11, 1992 elections. Brushing THIRD DIVISION
aside these fatal evidentiary lapses, petitioner insists that PYHSDFI is guilty of using public funds for electioneering
purposes simply because it received its CDF allocation within a time frame suspiciously so near the May 11, 1992
elections. This CDF allocation, however, has been convincingly shown to be a legal disbursement of public
funds. Significantly, PYHSDFI neither presented rebuttal evidence nor even attempted to argue against the presumption of
regular performance of official duty on the part of respondents like Franklin Drilon, Cesar Sarino, and Salvador Enriquez who
were then acting in their official capacity as heads of their respective departments.
METROPOLITAN BANK & TRUST COMPANY, G.R. No. 180165
It may even be conceded that petitioner tells a credible story, it being too much of coincidence for there to be, on the
Petitioner,
one hand, rumors of electioneering activities on the part of PYHSDFI and on the other, genuine cash allotments showing
disbursement of public funds to the latter so coincidentally close to the May, 1992 elections. However, no matter how
Present:
believable a story may be, no matter how possible it could really have been that PYHSDFI was financial conduit for criminal
elements working for the interest of a particular candidate in the 1992 elections, criminal charges cannot ever be sanctioned
by mere possibilities or coffee shop rumors.
 - versus -
YNARES-SANTIAGO, J.,
Petitioner is a banking institution duly authorized to engage in the banking business under Philippine laws.

Chairperson,

Private respondents were the duly authorized representatives of Visaland Inc. (Visaland), likewise a domestic
CORONA,* corporation engaged in the real estate development business.

HON. SECRETARY OF JUSTICE RAUL M. GONZALES, CARPIO MORALES,**

OLIVER T. YAO and DIANA T. YAO,
CHICO-NAZARIO, and In order to finance the importation of materials necessary for the operations of its sister company, Titan Ikeda
Construction and Development Corporation (TICDC),private respondents, on behalf of Visaland, applied with petitioner for
Respondents. NACHURA, JJ. 24 letters of credit, the aggregate amount of which reached the sum of P68,749,487.96. Simultaneous with the issuance of
the letters of credit, private respondents signed trust receipts [4] in favor of petitioner. Private respondents bound themselves
to sell the goods covered by the letters of credit and to remit the proceeds to petitioner, if sold, or to return the goods, if not
sold, on or before their agreed maturity dates.

Promulgated:
When the trust receipts matured, private respondents failed to return the goods to petitioner, or to return their
value amounting to P68,749,487.96 despite demand. Thus, petitioner filed a criminal complaint [5] for estafa[6] against
Visaland and private respondents with the Office of the City Prosecutor of Manila (City Prosecutor). [7]
April 7, 2009

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
In their Counter-Affidavit,[8] private respondents denied having entered into trust receipt transactions with
petitioner. Instead, private respondents claimed that the contract entered into by the parties was a Contract of Loan secured
by a Real Estate Mortgage over two parcels of land situated at Tagaytay City and registered under the name of the spouses
Wilbert and Isabelita King (the spouses King). [9] According to private respondents, petitioner made them sign documents
bearing fine prints without apprising them of the real nature of the transaction involved. Private respondents came to know of
the trust receipt transaction only after they were served a copy of the Affidavit-Complaint of the petitioner.
DECISION

After the requisite preliminary investigation, the City Prosecutor found that no probable cause existed and
dismissed Information Sheet (I.S.) No. 02G-30918 in a Resolution [10] dated 23 January 2003. While the City Prosecutor was
CHICO-NAZARIO, J.: not persuaded by the defense proffered by private respondents that no trust receipt transaction existed, it nonetheless,
dismissed the case for lack of evidence that prior demand was made by petitioner. The City Prosecutor underscored that for
a charge of estafa with grave abuse of confidence to prosper, previous demand is an indispensable requisite.

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court filed by
petitioner Metropolitan Bank and Trust Company, seeking to reverse and set aside the Decision [1] dated 30 March 2007and
the Resolution[2] dated 16 October 2007 of the Court of Appeals in CA-G.R. SP No. 91892. In its assailed Decision and
Resolution, the appellate court affirmed the Resolution [3] of the Secretary of Justice directing the City Prosecutor of Manila to
move for the withdrawal of the Informations for Estafa filed against private respondents Oliver T. Yao and Diana T. Yao.
The factual and procedural antecedents of this present petition are as follows:
To prove that a demand was made prior to the institution of the criminal complaint, petitioner attached to its
Motion for Reconsideration a copy of a letter-demand [11]dated 27 February 2001, addressed to private respondents.
After the element of prior demand was satisfied, the City Prosecutor issued a Resolution [12] dated 11 October
2004 finding probable cause for estafa under Article 315, paragraph 1(b) [13] of the Revised Penal Code, in relation to
Presidential Decree No. 115. [14] Accordingly, 23 separate Informations [15] for estafa were filed before the Regional Trial Court
(RTC) of Manila against private respondents. The cases were docketed as Criminal Cases No. 04231721-44 and raffled to
Branch 17 of the said court.
 In the interim, private respondents appealed the investigating prosecutors Resolution to the Secretary of
Justice. In a Resolution[16] dated 31 March 2005, the Secretary of Justice ruled that there was no probable cause to
prosecute private respondents for estafa in relation to Presidential Decree No. 115. The Secretary of Justice declared that
the legitimate transactional relationship between the parties being merely a contract of loan, violations of the terms
thereunder were not covered by Presidential Decree No. 115.Thus, the Secretary of Justice directed the City Prosecutor of
Manila to move for the withdrawal of the Informations. In a subsequent Resolution[17] dated 30 August 2005, the Secretary of
Justice denied petitioners Motion for Reconsideration, for the matters raised therein had already been passed upon in his
prior resolution.
Acting on the directive of the Secretary of Justice, the City Prosecutor moved for the withdrawal of the
Informations which was granted by the RTC in an Order [18] dated29 July 2005. Consequently, Criminal Cases No. 04-231721
to No. 04231744 were withdrawn. The RTC refused to reconsider its earlier resolution in an Order [19] dated 3 February 2006,
thereby denying petitioners Motion for Reconsideration.
From the adverse Resolutions of the Secretary of Justice, petitioner elevated its case before the Court of Appeals
by filing a Petition for Certiorari,[20] which was docketed as CA-G.R. SP No. 91892. Petitioner averred in its Petition that the
Secretary of Justice abused his discretion in ignoring the established facts and legal principles when he ruled that probable
cause for the crime of estafa was absent.
The Court of Appeals, however, in its Decision [21] dated 30 March 2007, dismissed petitioners Petition
for Certiorari after finding that the Secretary of Justice committed no grave abuse of discretion in ruling against the existence
of probable cause to prosecute private respondents. In arriving at its assailed decision, the appellate court recognized the
authority of the Secretary of Justice to control and supervise the prosecutors, which includes the power to reverse or modify
their decisions without committing grave abuse of discretion.
Similarly ill-fated was Petitioners Motion for Reconsideration in a Resolution [22] dated 16 October 2007.
Unfazed by the turn of events, petitioner now comes before this Court urging us to reverse the Court of Appeals
Decision and Resolution and to direct the filing of Informations against private respondents. For the disposition of this Court
is the sole issue of:
WHETHER OR NOT PROBABLE CAUSE EXISTS FOR THE PROSECUTION OF PRIVATE
RESPONDENTS FOR THE CRIME OF ESTAFA IN RELATION TO P.D. NO. 115.
Petitioner impugns the findings of the appellate court sustaining the non-existence of probable cause as found by
the Secretary of Justice. Petitioner insists that the allegations in its complaint, together with the pieces of evidence appended
thereon, are sufficient to sustain a finding of probable cause in preliminary investigation.
Asserting their innocence, private respondents continue to argue that the agreement contracted by parties is one
of loan, and not of trust receipt. To buttress their contention, private respondents aver that a contract of mortgage was
executed by the spouses King to secure private respondents loan obligation with petitioner, the proceeds of which were the
ones utilized to finance the importation of materials. [23] Private respondents likewise defend the assailed Court of Appeals
Decision and assert that the Secretary of Justice was justified in overruling the investigating prosecutors findings, as
sanctioned by Section 12 of DOJ Department Order No. 70. [24]
The present petition bears impressive merits.
Probable cause has been defined as the existence of such facts and circumstances as would excite the belief in a
reasonable mind, acting on the facts within the knowledge of the prosecutor, that the person charged was guilty of the crime
for which he was prosecuted. Probable cause is a reasonable ground of presumption that a matter is, or may be, well
founded on such a state of facts in the mind of the prosecutor as would lead a person of ordinary caution and prudence to
believe, or entertain an honest or strong suspicion, that a thing is so. [25] The term does not mean actual or positive cause nor
does it import absolute certainty. It is merely based on opinion and reasonable belief. Thus, a finding of probable cause does
not require an inquiry into whether there is sufficient evidence to procure a conviction. It is enough that it is believed that the
act or omission complained of constitutes the offense charged. Precisely, there is a trial for the reception of evidence of the
prosecution in support of the charge.[26]
To determine the existence of probable cause, there is need to conduct preliminary investigation. A preliminary
investigation constitutes a realistic judicial appraisal of the merits of a case. [27] Its purpose is to determine whether (a) a
crime has been committed; and (b) whether there is a probable cause to believe that the accused is guilty thereof. [28] It is a
means of discovering which person or persons may be reasonably charged with a crime.
The conduct of preliminary investigation is executive in nature. The Court may not be compelled to pass upon the
correctness of the exercise of the public prosecutors function unless there is a showing of grave abuse of discretion or
manifest error in his findings.[29] Grave abuse of discretion implies a capricious and whimsical exercise of judgment
tantamount to lack or excess of jurisdiction. [30] The exercise of power must have been done in an arbitrary or a despotic
manner by reason of passion or personal hostility. It must have been so patent and gross as to amount to an evasion of
positive duty or a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. [31]
In the present case, the abuse of discretion is patent in the act of the Secretary of Justice holding that the
contractual relationship forged by the parties was a simple loan, for in so doing, the Secretary of Justice assumed the
function of the trial judge of calibrating the evidence on record, done only after a full-blown trial on the merits. The fact of
existence or non-existence of a trust receipt transaction is evidentiary in nature, the veracity of which can best be passed
upon after trial on the merits, for it is virtually impossible to ascertain the real nature of the transaction involved based solely
on the self-serving allegations contained in the opposing parties pleadings. Clearly, the Secretary of Justice is not in a
competent position to pass judgment on substantive matters. The bases of a partys accusation and defenses are better
ventilated at the trial proper than at the preliminary investigation.

We need not overemphasize that in a preliminary investigation, the public prosecutor merely determines whether
there is probable cause or sufficient ground to engender a well-founded belief that a crime has been committed, and that the
respondent is probably guilty thereof and should be held for trial. It does not call for the application of rules and standards of
proof that a judgment of conviction requires after trial on the merits. The complainant need not present at this stage proof
beyond reasonable doubt. A preliminary investigation does not require a full and exhaustive presentation of the parties
evidence.[32] Precisely, there is a trial to allow the reception of evidence for both parties to substantiate their respective
claims.
Having said the foregoing, this Court now proceeds to determine whether probable cause exists for holding
private respondents liable for estafa in relation to Presidential Decree No. 115.
Trust receipt transactions are governed by the provisions of Presidential Decree No. 115 which defines such a
transaction as follows:
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 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 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 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 one 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
transship or otherwise deal with them in a manner preliminary or necessary to their sale; or
2. In the case of instruments, a) to sell or procure their sale or exchange; or b) to deliver
them to a principal; or c) to effect the consummation of some transactions involving delivery to a
depository or register; or d) to effect their presentation, collection or renewal.
The sale of goods, documents or instruments by a person in the business of selling goods,
documents or instruments for profit who, at the outset of the transaction, has, as against the buyer,
general property rights in such goods, documents or instruments, or who sells the same to the buyer
on credit, retaining title or other interest as security for the payment of the purchase price, does not
constitute a trust receipt transaction and is outside the purview and coverage of this Decree.
An entrustee is one having or taking possession of goods, documents or instruments under a trust receipt
transaction, and any successor in interest of such person for the purpose of payment specified in the trust receipt
agreement. The entrustee is obliged to (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 owed 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 the proceeds therefrom 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 the decree. [33]
The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released
under a trust receipt to the entrustee to the extent of the amount owed to the entruster or as appears in the trust receipt; or to
the return of the goods, documents or instruments in case of non-sale; and to the enforcement of all other rights conferred
on him in the trust receipt, provided these are not contrary to the provisions of the document. [34] A violation of any of these
undertakings constitutes estafa defined under Article 315(1)(b) of the Revised Renal Code, as provided by Section 13 of
Presidential Decree No. 115 viz:
Section 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.
Apropos thereto, Article 315(1)(b) of the Revised Renal Code punishes estafa committed as follows:
ARTICLE 315. Swindling (estafa). Any person who shall defraud another by any of the
means mentioned hereinbelow shall be punished by:

1st. The penalty of prision correccional in its maximum period to prision mayor in its
minimum period, if the amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos,
and if such amount exceeds the latter sum, the penalty provided in this paragraph shall be imposed in
its maximum period, adding one year for each additional 10,000 pesos; but the total penalty which may
be imposed shall not exceed twenty years. In such case, and in connection with the accessory
penalties which may be imposed and for the purpose of the other provisions of this Code, the penalty
shall be termed prision mayor to reclusion temporal, as the case may be.
2nd. The penalty of prision correccional in its minimum and medium periods, if the amount
of the fraud is over 6,000 pesos but does not exceed 12,000 pesos;
3rd. The penalty of arresto mayor in its maximum period to prision correccional in its
minimum period, if such amount is over 200 pesos but does not exceed 6,000 pesos; and
4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed
200 pesos, provided that in the four cases mentioned, the fraud be committed by any of the following
means; x x x.
As found in the Complaint-Affidavit of petitioner, private respondents were charged with failing to account for or
turn over to petitioner the merchandise or goods covered by the trust receipts or the proceeds of the sale thereof in payment
of their obligations thereunder. The following pieces of evidence adduced from the affidavits and documents submitted
before the City Prosecutor are sufficient to establish the existence of probable cause, to wit:
First, the trust receipts[35] bearing the genuine signatures of private respondents; second, the demand letter [36] of
petitioner addressed to respondents; and third, the initial admission by private respondents of the receipt of the imported
goods from petitioner.[37]
Prescinding from the foregoing, we conclude that there is ample evidence on record to warrant a finding that there
is a probable cause to warrant the prosecution of private respondents for estafa. It must be once again stressed
that probable cause does not require an inquiry into whether there is sufficient evidence to procure a conviction. It is enough
that it is believed that the act or omission complained of constitutes the offense charged.
That private respondents did not sell the goods under the trust receipt but allowed it to be used by their sister
company is of no moment. The offense punished under Presidential Decree No. 115 is in the nature of malum prohibitum. A
mere failure to deliver the proceeds of the sale or the goods, if not sold, constitutes a criminal offense that causes prejudice
not only to another, but more to the public interest. [38] Even more incredible is the contention of private respondents that they
did not give much significance to the documents they signed, considering the enormous value of the transaction
involved. Thus, it is highly improbable to mistake trust receipt documents for a contract of loan when the heading thereon
printed in bold and legible letters reads: Trust Receipts. We are not prejudging this case on the merits. However, by merely
glancing at the documents submitted by petitioner entitled Trust Receipts and the arguments advanced by private
respondents, we are convinced that there is probable cause to file the case and to hold them for trial.
All told, the evidentiary measure for the propriety of filing criminal charges has been reduced and liberalized to a
mere probable cause. As implied by the words themselves, probable cause is concerned with probability, not absolute or
moral certainty.[39]
WHEREFORE, premises considered, the instant Petition is GRANTED. The Decision dated 30 March 2007 and
the Resolution dated 16 October 2007 of the Court of Appeals in CA-G.R. SP No. 91892 are REVERSED and SET
ASIDE. The Secretary of Justice is hereby ORDERED to direct the Office of the City Prosecutor of Manila to
forthwith FILE Informations for estafa against private respondents Oliver T. Yao and Diana T. Yao before the appropriate
court.
SO ORDERED.