G.R. No. 199310 - Republic vs. Remman Enterprises, Inc.

In April 1991, Baliwag Mahogany Corporation (BMC), represented by its president, respondent Alfredo T. Ong, applied for a domestic commercial letter of credit with Pilipinas Bank to finance the purchase of about 100,000 board feet of “Air Dried, Dark Red Lauan” sawn lumber.
Pilipinas Bank approved the application and issued Letter of Credit No. 91/725-HO amounting to P3,500,000.00.
To secure the payment, BMC, via respondent Ong, executed two trust receipts which included the obligation to turn over the proceeds from the sale of the lumber to the bank upon maturity (set for July 28, 1991 and August 4, 1991) or return the goods if unsold.

Upon maturity, BMC failed to comply with the trust receipt agreement, prompting further legal and administrative measures.
On November 22, 1991, BMC filed a Petition for Rehabilitation and for a Declaration in a State of Suspension of Payments with the Securities and Exchange Commission (SEC) under Section 6(c) of P.D. No. 902-A.
Following the petition, a creditors’ meeting was held to inform creditor banks, including Pilipinas Bank, and to agree on a common course of action to restore BMC’s financial health.
On January 8, 1992, the SEC issued an order creating a Management Committee to manage BMC’s operations, which included taking custody and control of the company’s assets and liabilities.

On October 13, 1992, BMC and a consortium of 14 creditor banks, including the bank, entered into a Memorandum of Agreement (MOA) that rescheduled BMC’s debts.
The SEC approved the Rehabilitation Plan contained in the MOA on November 27, 1992 and declared BMC in a state of suspension of payments.
Despite the MOA, BMC and respondent Ong defaulted in their payment obligations under the rescheduled scheme.

In April 1994, Pilipinas Bank filed a criminal complaint with the Makati City Prosecutor’s Office charging respondents Ong and Leoncia Lim with violation of the Trust Receipts Law (P.D. No. 115) for failing to pay the obligations under the trust receipts even after demand.
A Resolution was issued by 3rd Assistant Prosecutor Edgardo E. Bautista on July 7, 1994, recommending dismissal of the complaint, which was approved shortly thereafter by the Provincial Prosecutor of Rizal.
Pilipinas Bank’s subsequent motion for reconsideration was denied, and the Department of Justice (DOJ) affirmed the dismissal on appeal.
On July 5, 1996, the bank elevated the issue by filing a petition for certiorari and mandamus challenging the DOJ’s resolution with this Court.
The petition was referred to the Court of Appeals on August 21, 1996. Initially, on August 29, 1997, the CA rendered a judgment directing the filing of criminal charges for violation of the Trust Receipts Law.
However, upon the respondents’ motion for reconsideration, the CA reversed its earlier decision, holding that the execution of the MOA amounted to a novation that rendered the original trust receipt relationship inoperative and barred any criminal charges based on it.
Pilipinas Bank’s subsequent motions for reconsideration were denied, leading to the present petition for review.

Whether the Memorandum of Agreement (MOA) between BMC and its creditor banks, including Pilipinas Bank, amounted to a novation that extinguished the original obligations under the trust receipt agreement.

The bank contends that the MOA merely rescheduled BMC’s obligations without novating or extinguishing the existing rights under the trust receipts.
Respondents maintain that the MOA, serving as a compromise agreement, novated BMC’s obligations and converted the trust receipts into an ordinary creditor-debtor relationship, thereby precluding any criminal liability under the Trust Receipts Law.

Whether respondents can be held liable for violation of the Trust Receipts Law despite the rescheduling of debts through the MOA.

The central question is if the failure to comply under the trust receipt agreement constitutes a criminal offense when the original obligation was allegedly novated by the MOA.
It is also at issue whether the elements of dishonesty or abuse of confidence, requisite for criminal liability under the Trust Receipts Law, are present in the conduct of respondents.