Title
Allied Banking Corp. vs. Ordonez
Case
G.R. No. 82495
Decision Date
Dec 10, 1990
Allied Bank sued Alfredo Ching under PD 115 for unpaid trust receipts; DOJ ruled goods used in manufacturing weren't covered. SC reversed, applying PD 115 broadly, remanding case.
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Case Digest (G.R. No. 82495)

Facts:

Background of the Case:
The case revolves around the interpretation of PD 115, the Trust Receipts Law. Petitioner Allied Banking Corporation filed a criminal complaint against private respondent Alfredo Ching for violation of PD 115.

Transaction Details:
On January 23, 1981, Philippine Blooming Mills (PBM), represented by Alfredo Ching, applied for commercial letters of credit with Allied Banking Corporation to finance the purchase of 500 M/T Magtar Branch Dolomites and one Lot High Fired Refractory Sliding Nozzle Bricks. Allied Bank issued an irrevocable letter of credit in favor of Nikko Industry Co., Ltd., which drew four drafts accepted by PBM and honored by the bank.

Execution of Trust Receipts:
To secure payment, PBM, through Alfredo Ching, executed four Trust Receipt Agreements with maturity dates on May 19, June 3, and June 24, 1981. The agreements acknowledged petitioner’s ownership of the goods and obligated PBM to either turn over the proceeds of the sale or return the goods if unsold.

Failure to Comply:
PBM failed to comply with its obligations, resulting in an overdue amount of P1,475,274.09. Despite repeated demands, PBM neither remitted the proceeds nor returned the goods.

Criminal Complaint:
On September 7, 1984, petitioner filed a criminal complaint against Ching for violation of PD 115. After a preliminary investigation, the Provincial Fiscal of Rizal found a prima facie case and filed the corresponding information in court.

Department of Justice (DOJ) Involvement:
Ching appealed to the DOJ, arguing lack of proper preliminary investigation, lack of jurisdiction, and novation of the obligation due to PBM’s rehabilitation receivership. Initially, the DOJ upheld the criminal liability under PD 115. However, upon reconsideration, Secretary Sedfrey Ordonez ruled that the goods, being used in manufacturing operations, were outside the scope of PD 115, and the transaction was essentially a loan.

Petition to the Supreme Court:
Allied Bank filed a petition for certiorari and prohibition, challenging the DOJ’s rulings.

Issue:

  1. Whether the penal provision of PD 115 applies to goods covered by a Trust Receipt that are used in the operation of equipment and machineries rather than forming part of finished products for sale.
  2. Whether the DOJ acted with grave abuse of discretion in ruling that the goods were outside the ambit of PD 115.

Ruling:

  • (Subscriber-Only)

Ratio:

  • (Subscriber-Only)

The Supreme Court reaffirmed the broad application of PD 115, ensuring that criminal liability attaches to violations of Trust Receipt agreements, regardless of the goods’ ultimate use. The Court’s decision underscores the importance of adhering to the terms of trust receipts and the legislative intent behind the Trust Receipts Law.
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