CASE LAW ON TRUST RECEIPTS
absolute owner of the thing pledged or mortgaged.
Case #1
ANTHONY L. NG vs. PEOPLE OF THE PHILIPPINES
G.R. No. 173905, April 23, 2010, VELASCO, JR.
 
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
credit except through utilization, as 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. Regardless of whether the transaction is foreign or
domestic, it is important to note that the transactions discussed in relation to
trust receipts mainly involved sales. 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.
Facts:
Anthony Ng, in behalf of his company “Capitol Blacksmith and Builders”,
applied for a credit line with Asiatrust Development Bank, Inc. (Asiatrust) in
order for him to procure goods consisting of chemicals and metal plates to be
utilized in building communication towers ordered from him by his clients
(e.g.: Islacom, Smart and Infocom). Asiatrust approved Ng’s loan application.
However, he failed to pay his obligation to Asiatrust by reason of his difficulty
in in collecting from his client Islacom. Asiatrust consequently filed with the
RTC a case for Estafa under the RPC in relation to Sec. 3, PD 115 (Trust
Receipts Law) against Ng.
 
Issue:
Whether Anthony Ng is liable for Estafa in relation to PD 115 (Trust Receipts
Law).
 
Ruling:
NO.  The transaction between Ng and Asiatrust is not a trust receipt transaction
but one of simple loan. Ng was transparent to Asiatrust from the very beginning
that the subject goods were not being held for sale but were to be used for the
fabrication of steel communication towers in accordance with his contracts with
his clients. In these contracts, he was commissioned to build, out of the
materials received, steel communication towers, not to sell them. Moreover,
Asiatrust was aware that petitioner was not engaged in selling the subject
goods and that petitioner will use them for the fabrication and installation of
communication towers. In fine, there was no abuse of confidence to speak of
nor was there any intention to convert the subject goods for another purpose,
since Ng did not withhold the fact that they were to be used to fabricate steel
communication towers to Asiatrust.
2. GONZALES VS HSBC
3. Metropolitan Bank and trust company vs Go
CASE #4
DEVELOPMENT BANK OF THE PHILIPPINES v. PRUDENTIAL
BANK
G.R. No. 143772, November 22, 2005, J. Corona
 
The entrustee cannot mortgage the goods under trust receipt.While it was
allowed to sell the items, Litex had no authority to dispose of them or any part
thereof or their proceeds through conditional sale, pledge or any other
means.Article 2085 (2) of the Civil Code requires that, in a contract of pledge
or mortgage, it is essential that the pledgor or mortgagor should be the
Facts:.
 
Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial letter of
credit with Prudential Bank. This was in connection with its importation of
spindles for spinning machinery. These were released to Litex under covering
“trust receipts” it executed in favor of Prudential. 9 years later, DBP granted a
foreign currency loan to Litex. To secure the loan, Litex executed real estate
and chattel mortgages on its plant site in Montalban, Rizal, including the
buildings and other improvements, machineries and equipment there. Among
the machineries and equipment mortgaged in favor of DBP were the articles
covered by the “trust receipts.” Prudential Bank informed DBP that it was the
absolute and juridical owner of the said items and they were thus not part of the
mortgaged assets that could be legally ceded to DBP.  For the failure of Litex to
pay its obligation, DBP extrajudicially foreclosed the real estate and chattel
mortgages, including the articles claimed by Prudential Bank.
 
Issue:
Whether Litex (entrustee) can mortgage the goods under the trust receipt.
Ruling:
 
NO.The articles were owned by Prudential Bank and they were only held by
Litex in trust. While it was allowed to sell the items, Litex had no authority to
dispose of them or any part thereof or their proceeds through conditional sale,
pledge or any other means.Article 2085 (2) of the Civil Code requires that, in a
contract of pledge or mortgage, it is essential that the pledgor or mortgagor
should be the absolute owner of the thing pledged or mortgaged. Article 2085
(3) further mandates that the person constituting the pledge or mortgage must
have the free disposal of his property, and in the absence thereof, that he be
legally authorized for the purpose.
Litex had neither absolute ownership, free disposal nor the authority to freely
dispose of the articles. Litex could not have subjected them to a chattel
mortgage. Their inclusion in the mortgage was voidand had no legal
effect.There being no valid mortgage, there could also be no valid foreclosure
or valid auction sale.Thus, DBP could not be considered either as a mortgagee
or as a purchaser in good faith.No one can transfer a right to another greater
than what he himself has.Nemodat quod non habet.  Hence, Litex could not
transfer a right that it did not have over the disputed items.
Case #5
PILIPINAS BANK vs.  ALFREDO T. ONG and LEONCIA LIM
G.R. No. 133176, August 8, 2002, SANDOVAL-GUTIERREZ, J.
 
There are two ways which could indicate the presence of novation, thereby
producing the effect of extinguishing an obligation by another which substitutes
the same. The first is when novation has been stated and declared in
unequivocal terms. The second is when the old and the new obligations are
incompatible on every point. The test of incompatibility is whether or not the
two obligations can stand together. If they cannot, they are incompatible and
the latter obligation novates the first. The incompatibility must take place in
any of the essential elements of the obligation, such as its object, cause or
principal conditions.
Facts:
Baliwag Mahogany Corporation (BMC), through its president, Alfredo T. Ong,
applied for a domestic commercial letter credit with Pilipinas Bank (the bank)
to finance the purchase of “Air Dried, Dark Lauan” sawn lumber. The bank
approved the application and issued a Letter of Credit. To secure payment of
the amount, BMC, through respondent Ong, executed two (2) trust receipts
providing that it shall turn over the proceeds of the goods to the bank, if sold, or
return the goods, if unsold, upon maturity. On the due dates, BMC failed to
comply with the trust receipt agreement. It thereafter filed with the Securities
and Exchange Commission (SEC) a Petition for Rehabilitation and for a
Declaration in a State of Suspension of Payments. The SEC issued an order
creating a Management Committee wherein the bank is represented. BMC and a
consortium of 14 of its creditor banks entered into a Memorandum of
Agreement (MOA) rescheduling the payment of BMC’s existing debts. The
SEC rendered a Decision approving the Rehabilitation Plan of BMC as
contained in the MOA and declaring it in a state of suspension of payments.
However, BMC and respondent Ong defaulted in the payment of the obligations
under the rescheduled payment scheme provided in the MOA. This compelled
the bank to file a complaint charging respondents Ong and Leoncia Lim (as
president and treasurer of BMC) with violation of the Trust Receipts Law (PD
115). The bank alleged that both respondents failed to pay their obligation
under the trust receipt despite demand. The office of the City Prosecutor
recommended the dismissal of the complaint which was likewise affirmed by
the Justice Secretary. Upon appeal, the CA affirmed the dismissal of the case.
Hence, this petition.
 
Issue:
Whether the MOA was a novation of the trust agreement between the parties.
 
Ruling:
 
YES.  Contrary to petitioner’s contention, the MOA did not only reschedule
BMC’s debts, but more importantly, it provided principal conditions, which are
incompatible with the trust agreement. The execution of the MOA extinguished
respondent’s obligation under the trust receipts. Respondent’s liability, if any,
would only be civil in nature since the trust receipts were transformed into mere
loan documents after the execution of the MOA.
6. NACU vs CA
CASE #7
 
CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP,
RICHARD VELASCO and ALFONSO CO v. CA, PHILIPPINE BANK
OF COMMUNICATIONS
G.R. No. 117914, February 1, 2002, DE LEON, JR, J.
 
A letter of credit is not a negotiable instrument, which does not allow the
pertinent presumptions to apply, but instruments issued in conjunction with a
letter of credit, such as bank drafts, may be negotiable.
Facts:
 
Charles Lee, as President of MICO Metals (MICO) wrote private respondent
Philippine Bank of Communications (PBCom) requesting for a grant of a
discounting loan/credit line in the sum of three million pesos for the purpose of
carrying out MICO’s line of business as well as to maintain its volume of
business. On the same day, Charles Lee requested for another discounting
loan/credit line of three million pesos from PBCom for the purpose of opening
letters of credit and trust receipts. The proceeds of the loans were credited to
their checking account with the Philippine Bank of Communications (PBCom).
Lee and several other officers of the company executed surety agreements as
part of the security for the loans.
 
Sometime after, MICO then filed applications for domestic and foreign letters
of credit. When the applications were approved, trust receipts were executed in
favor of PBCom, and in the case of the foreign letters of credit, bills of lading
and commercial invoices. These facilities were availed of by their beneficiaries,
and drafts were issued and later accepted by MICO.
 
MICO was eventually unable to repay their debts, leading to foreclosure of a
real estate mortgage also used as security, but that was not enough to
completely pay the obligation (there were still remaining trust receipts
liabilities, for example). PBCom then demanded settlement with Lee and the
other sureties, but they refused to acknowledge their obligations.  Aggrieved,
PBCom filed a complaint with prayer for writ of preliminary attachment before
the RTC of Manila. Failure of delivery was one of the defences considered by
the RTC in ruling in favour of MICO. In the CA, the Court relied on two
presumptions to overturn the ruling: (1) that a negotiable instrument is deemed
prima facie issued for valuable consideration and every person whose signature
appears thereon is a party for value, and (2) that an instrument sets out the true
agreement of the parties thereto and that it was executed for valuable
consideration.
 
Issue:
 
Whether the CA erred in treating the letters of credit and trust receipts as
negotiable instruments.
 
Ruling:
 
YES. Two presumptions were established by PBCom when it presented several
documents, including letters of credit, trust receipts, and drafts. First, that a
negotiable instrument is deemed prima facie issued for valuable consideration
and that every person whose signature appears thereon to be a party for value.
While letters of credit and trust receipts are not negotiable instruments, bank
drafts executed in connection with letters of credit, which are distinct
instruments, are negotiable. Second, that sufficient consideration was given in a
contract.
The documents allowed these presumptions to arise (particularly on the drafts,
since they were negotiable instruments), creating not merely a prima facie case
but actual proof of a solidary obligation between MICO and Lee (as well as the
other sureties that signed). They establish that the agreements were availed of,
and the proceeds were delivered to MICO.
8. Mico Metals Corp vsg CA
CASE #9
SPOUSES TIRSO I. VINTOLA AND LORETO DY
VINTOLA v. INSULAR BANK OF ASIA AND AMERICA
G.R. No. 73271, May 29, 1987, J. Melencio-Herrera
 
The trust receipt arrangement did not convert the IBAA into an investor; the
latter remained a lender and creditor.  Since the IBAA is not the factual owner
of the goods, the  Vintolas cannot justifiably claim that because they have
surrendered the goods to IBAA and subsequently deposited them in the custody
of the court, they are absolutely relieved of their obligation to pay their loan
because of their inability to dispose of the goods. The fact that they were unable
to sell the seashells in question does not affect IBAA’s right to recover the
advances it had made under the Letter of Credit.
 
Facts:
Spouses Vintola owns and manages manufacturing of raw seashells into
finished products under their business name “Dax Kin International.” They
were granted a domestic letter of credit by the Insular Bank of Asia and
America (IBAA). They then executed a Trust Receipt Agreement with IBAA
stipulating that they agreed to hold the goods in trust for IBAA as the "latter's
property with liberty to sell the same for its account," and "in case of sale" to
turn over the proceeds as soon as received to IBAA. Having defaulted on their
obligation, IBAA demanded payment from the Vintolas. The Vintolas, who
were unable to dispose of the shells, responded by offering to return the goods.
IBAA refused to accept the merchandise, and due to the continued refusal of the
Vintolas to make good their undertaking, IBAA charged them with Estafa for
having misappropriated, misapplied and converted for their own personal use
and benefit the aforesaid goods. During the trial of the criminal case the
Vintolas turned over the seashells to the custody of the Trial Court.
 
Issue: 
 
Whetherthe surrender of the goods to the court absolved the liability of the
Vintolas.
 
Ruling: 
 
NO. Section 4 of P.D. No. 115 defines a trust receipt transaction as any
transaction by and between a person referred to as the entruster, and another
person referred to as the entrustee, whereby the entruster, who owns or holds
absolute title or security 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 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.
 
Contrary to the allegation of the Vintolas, IBAA did not become the real owner
of the goods. It was merely the holder of a security title for the advances it had
made to the Vintolas . The goods the Vintolas had purchased through IBAA
financing remain their own property and they hold it at their own risk. The trust
receipt arrangement did not convert the IBAA into an investor; the latter
remained a lender and creditor. Since the IBAA is not the factual owner of the
goods, the Vintolascannot justifiably claim that because they have surrendered
the goods to IBAA and subsequently deposited them in the custody of the court,
they are absolutely relieved of their obligation to pay their loan because of their
inability to dispose of the goods. The fact that they were unable to sell the
seashells in question does not affect IBAA’s right to recover the advances it had
made under the Letter of Credit.
CASE #11 (ito yung number ni maam pero 10 talaga)
ALFREDO CHING vs  THE SECRETARY OF JUSTICE, et al.
G. R. No. 164317, February 6, 2006, CALLEJO, SR. J.
 
Though the entrustee is a corporation, the law specifically makes the officers,
employees or other officers or persons responsible for the offense, without
prejudice to the civil liabilities of such corporation and/or board of directors,
officers, or other officials or employees responsible for the offense.  The
rationale is that such officers or employees are vested with the authority and
responsibility to devise means necessary to ensure compliance with the law
and, if they fail to do so, are held criminally accountable; thus, they have a
responsible share in the violations of the law.
 
Facts:
 
Alfredo Ching, as the Senior Vice-President of Philippine Blooming Mills, Inc.
(PBMI), applied with the Rizal Commercial Banking Corporation for the
issuance of commercial letters of credit to finance its importation of assorted
goods.  The bank approved the application and irrevocable letters of credit were
issued in favor of Ching. The goods were purchased and delivered in trust to
PBMI. Ching signed 13 trust receipts as surety, acknowledging delivery of the
goods as contained in the said trust receipts. When the trust receipts matured,
Ching failed to return the goods to the bank or to return their value despite
demands. Thus, the bank filed a criminal complaint for 13 counts of
estafa against Ching in the Office of the City Prosecutor but the case was
ultimately dismissed on the ground that the material allegations therein did not
amount to estafa. In the meantime, the Court rendered judgment in Allied
Banking Corporation v. Ordoez,  holding that the penal provision of P.D. No.
115 is not limited to transactions in goods which are to be sold (retailed),
reshipped, stored or processed as a component of a product ultimately sold
but covers failure to turn over the proceeds of the sale of entrusted goods,
or to return said goods if unsold or not otherwise disposed of in accordance
with the terms of the trust receipts. In the light of this ruling, the bank was
able to re-file 13 counts of estafa against Ching.
 
Issue:
 
Whether Ching is liable as SVP of PBMI.
 
RULING:
 
YES.  In Allied Banking Corporation v. Ordoez, the Court ruled that PD 115
applies to goods used by the entrustee in the operation of its machineries and
equipment. The non-payment of the amount covered by the trust receipts or the
non-return of the goods covered by the receipts, if not sold or otherwise not
disposed of, violate the entrustees obligation to pay the amount or to return the
goods to the entruster which is a crime under P.D. No. 115, without need of
proving intent to defraud. The crime defined in P.D. No. 115 is malum
prohibitum but is classified as estafa under the Revised Penal Code. Though the
entrustee is a corporation, nevertheless, the law specifically makes the officers,
employees or other officers or persons responsible for the offense, without
prejudice to the civil liabilities of such corporation and/or board of directors,
officers, or other officials or employees responsible for the offense. In this case,
petitioner signed the trust receipts in question. He cannot, thus, hide behind the
cloak of the separate corporate personality of PBMI. A corporate officer cannot
protect himself behind a corporation where he is the actual, present and
efficient actor.
CASE #12
MELVIN COLINARES AND LORDINO VELOSO v.  HONORABLE
COURT OF APPEALS, AND THE PEOPLE OF THE PHILIPPINES
G.R. No. 90828, September 05, 2000, C.J. Davide Jr.
 
Colinares and Veloso (entrustees) already own the goods when the loan under
the trust receipt was granted. If the loan is granted when entrustee already has
ownership of the goods, the transaction is only a simple loan. Also, Colinares
and Velosoare contractors who obtained the fungible goods for their
construction project. At no time did title over the construction materials pass to
the bank, but directly to the Colinares and Veloso from CM Builders Centre.
This impresses upon the trust receipt in question vagueness and ambiguity,
which should not be the basis for criminal prosecution in the event of violation
of its provisions.
Facts:
 
Colinares and Veloso were contracted for by the Carmelite Sisters of Cagayan
de Oro City to renovate the latter’s convent. Colinares applied for a commercial
letter of credit  with the Philippine Banking Corporation (PBC) in favor of CM
Builders Centre. PBC approved the letter of credit  to cover the full invoice
value of the goods. Petitioners signed a pro-forma trust receipt  as security. 
After the initial payment, the spouses defaulted.  PBC wrote to Petitioners
demanding that the amount be paid within seven days from notice.
 
During trial, petitioner Veloso insisted that the transaction was a “clean loan”
per verbal guarantee of PBC’s former manager. He and petitioner Colinares
signed the documents without reading the fine print, only learning of the trust
receipt implication much later. When he brought this to the attention of PBC,
Mr. Tuiza assured him that the trust receipt was a mere formality.
 
Issue:
 
Whether or not Colinares and Veloso (entrustees) have criminal liability
 
Ruling:
 
NO. Colinares and Veloso received the merchandise from CM Builders Centre
on 30 October 1979.  It was only a day later that they went to the bank to apply
for a loan to pay for the merchandise. This situation belies what normally
obtains in a pure trust receipt transaction where goods are owned by the bank
and only released to the importer in trust subsequent to the grant of the loan.
Hence, Colinares and Veloso (entrustees) already own the goods when the loan
under the trust receipt was granted. If the loan is granted when entrustee already
has ownership of the goods, the transaction is only a simple loan.
 
Also, it is crystal clear that on the part of Colinares and Veloso there was
neither dishonesty nor abuse of confidence in the handling of money to the
prejudice of PBC. Colinares and Veloso continually endeavored to meet their
obligations, as shown by several receipts issued by PBC acknowledging
payment of the loan.The Information charges Colinares and Velosowith intent
to defraud and misappropriating the money for their personal use. The mala
prohibita nature of the alleged offense notwithstanding, intent as a state of mind
was not proved to be present in Colinares and Veloso’ssituation. Colinares and
Velosoemployed no artifice in dealing with PBC and never did they evade
payment of their obligation nor attempt to abscond. Also, Colinares and
Velosoare not importers acquiring the goods for re-sale, contrary to the express
provision embodied in the trust receipt. They are contractors who obtained the
fungible goods for their construction project. At no time did title over the
construction materials pass to the bank, but directly to the Colinares and
Velosofrom CM Builders Centre. This impresses upon the trust receipt in
question vagueness and ambiguity, which should not be the basis for criminal
prosecution in the event of violation of its provisions.The practice of banks of
making borrowers sign trust receipts to facilitate collection of loans and place
them under the threats of criminal prosecution should they be unable to pay it
may be unjust and inequitable, if not reprehensible. Such agreements are
contracts of adhesion which borrowers have no option but to sign lest their loan
be disapproved. The resort to this scheme leaves poor and hapless borrowers at
the mercy of banks, and is prone to misinterpretation, as had happened in this
case.
CASE #13

ROSARIO TEXTILE MILLS CORPORATION AND EDILBERTO
YUJUICO v. HOME BANKERS SAVINGS AND TRUST COMPANY
G.R. NO. 137232, June 29, 2005, J. Sandoval-Guttierez.
 
If under the trust receipt, the bank is made to appear as the owner, it was but
an artificial expedient, more of legal fiction than fact, for if it were really so, it
could dispose of the goods in any manner it wants, which it cannot do, just to
give consistency with purpose of the trust receipt of giving a stronger security
for the loan obtained by the importer. To consider the bank as the true owner
from the inception of the transaction would be to disregard the loan feature
thereof. RTMC, as the entrustee, is deemed the owner of the goods.
 
Facts:
Rosario Textile Mills Corporation (RTMC) applied from Home Bankers
Savings & Trust Co. for an Omnibus Credit Line. Yujuico signed a Surety
Agreement in favor of the bank, where he bound himself jointly and severally
with RTMC for the payment of all RTMC’s indebtedness to the bank from
1989 to 1990. RTMC availed of the credit line by making numerous
drawdowns, each drawdown being covered by a separate promissory note and
trust receipt. RTMC failed to pay its loans. RTMC and Yujuico contend that
they should be absolved from liability.  They argue that the importation of raw
materials under the credit line was with a grant of option to them to turn-over to
the bank the imported raw materials should these fail to meet their
manufacturing requirements.  RTMC offered to make such turn-over since the
imported materials did not conform to the required specifications.  However,
the bank refused to accept the same, until the materials were destroyed by a fire
which gutted down RTMC’s premises. RTMC contends that since the
ownership of the goods remains with the bank, then it should bear the loss.  The initial repossession by the bank of the goods subject of the trust receipt did
With the destruction of the goods by fire, RTMC should have been relieved of
any obligation to pay.
 
Issue:
 
Whether the ownership of the raw materials remained with the bank
 
Ruling:
 
NO. If under the trust receipt, the bank is made to appear as the owner, it was
but an artificial expedient, more of legal fiction than fact, for if it were really so,
it could dispose of the goods in any manner it wants, which it cannot do, just to
give consistency with purpose of the trust receipt of giving a stronger security
for the loan obtained by the importer. To consider the bank as the true owner
from the inception of the transaction would be to disregard the loan feature
thereof. RTMC, as the entrustee, is deemed the owner of the goods. Thus,
RTMC cannot be relieved of their obligation to pay their loan in favor of the
bank.
CASE #14
METROPOLITAN BANK AND TRUST COMPANY v. JOAQUIN
TONDA AND MA. CRISTINA TONDA
G.R. No. 134436, August 16, 2000, J. Gonzaga-Reyes
 
Trust Receipts Law declares the failure to turn over the goods or the proceeds
realized from the sale thereof, as a criminal offense punishable under Article
315 (1) (b) of the Revised Penal Code. The law is violated whenever the
entrustee or the person to whom the trust receipts were issued in favor of fails
to: (1) return the goods covered by the trust receipts; or (2) return the proceeds
of the sale of the said goods. The foregoing acts constitute estafa punishable
under Article 315 (1) (b) of the Revised Penal Code.
 
Facts:
 
Spouses Joaquin and Ma. Cristina Tondaapplied for and were granted
commercial letters of credit by Metropolitan Bank and Trust Company
(Metrobank) in connection with the importation of raw textile materials to be
used in the manufacturing of garments.  Spouses Tonda acting both in their
capacity as officers of Honey Tree Apparel Corporation (HTAC) and in their
personal capacities, executed 11 trust receipts to secure the release of the raw
materials to HTAC.  Due to their failure to settle their obligations under the
trust receipts upon maturity. Despite repeated demands, Spouses Tondafailed to
account to Metrobankthe goods and/or proceeds of sale of the merchandise,
subject of the trust receipts. Spouses Tondamaintain that Metrobankhas no legal
standing to file the present petition without the conformity or authority of the
prosecutor as it deals solely with the criminal aspect of the case, a separate
action to recover civil liability having already been instituted; that the issues
raised in the present petition are purely factual; and that the subject trust
receipts obligations have been extinguished by payment or legal compensation.
 
Issue:
 
Whether Spouses Tonda are criminally liable for violation of the Trust Receipts
Law in relation to Art. 315(1) (b) of the Revised Penal Code 
 
Ruling:
 
YES. Given that various trust receipts were executed by Spouses Tondaand that
as entrustees, they did not return the proceeds from the goods sold nor the
goods themselves to Metrobank, there is no dispute that Spouses Tondafailed to
comply with the obligations under the trust receipts despite several demands
from Metrobank.
CASE #15
LANDL & COMPANY (PHIL.) INC., PERCIVAL G. LLABAN and
MANUEL P. LUCENTE v. METROPOLITAN BANK & TRUST
COMPANY
G.R. No. 159622 July 30, 2004 YNARES-SANTIAGO, J.
 
not result in the full satisfaction of the petitioners’ loan obligation.
 
Facts:
 
Upon compliance with the requirements, Metrobankopened an irrevocable letter
of credit for Landl& Company Inc. On the maturity date of the trust receipt,
Landl defaulted in the payment of its obligation to the bank and failed to turn
over the goods to the latter. Metrobank demanded the turn over the goods
subject of the trust receipt to which the company obliged. The goods were sold
to Metrobank as the highest bidder at a public auction.The proceeds of the
auction sale, however, were insufficient to completely satisfy Landl’s
outstanding obligation to the Bank. Accordingly, Metrobankdemanded the
payment of the remaining balance but to no avail. Hence, it filed a complaint
for sum of money against Landland its directors.
 
Issue:
 
Whether Metrobank had the right to claim the deficiency from Landl et al.
notwithstanding the fact that the goods covered by the trust receipt were fully
turned over to it.
Ruling:
 
YES. The initial repossession by the bank of the goods subject of the trust
receipt did not result in the full satisfaction of the petitioners’ loan obligation.
Petitioners are apparently laboring under the mistaken impression that the full
turn-over of the goods suffices to divest them of their obligation to repay the
principal amount of their loan obligation. This is definitely not the case. In
Philippine National Bank v. Hon. Gregorio G. Pineda and Tayabas Cement
Company, Inc., we had occasion to rule:
 
PNBs possession of the subject machinery and equipment being precisely as a
form of security for the advances given to TCC under the Letter of Credit, said
possession by itself cannot be considered payment of the loan secured thereby.
Payment would legally result only after PNB had foreclosed on said securities,
sold the same and applied the proceeds thereof to TCC's loan obligation. Mere
possession does not amount to foreclosure for foreclosure denotes the procedure
adopted by the mortgagee to terminate the rights of the mortgagor on the
property and includes the sale itself.
 
Neither can said repossession amount to dacion en pago. Dation in payment
takes place when property is alienated to the creditor in satisfaction of a debt in
money and the same is governed by sales. Dation in payment is the delivery and
transmission of ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of the obligation. As aforesaid, the repossession
of the machinery and equipment in question was merely to secure the payment
of TCC's loan obligation and not for the purpose of transferring ownership
thereof to PNB in satisfaction of said loan. Thus, no dacion en pago was ever
accomplished.
CASE #16
PEOPLE OF THE PHILIPPINES AND ALLIED BANKING
CORPORATION v. HON. JUDGE DAVID G. NITAFAN AND BETTY
SIA ANG
G.R. Nos. 81559-60, April 06, 1992, J. Gutierrez, Jr.
P.D. 115, like Batas PambansaBlg. 22, punishes the act “not as an offense
against property, but as an offense against  public order. The misuse of trust
receipts  therefore should be deterred to prevent any possible havoc in trade
circles and the banking community. It is in the context of upholding public
interest that the law now specifically designates a breach of a trust receipt
agreement to be an act that “shall” make one liable for estafa. 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.
 
Facts:
 
Allied Banking Corporation charged Betty SiaAng with estafa, alleging that
Ang received in trust from the aforesaid bank Gordon Plastics, plastic sheeting
and Hook Chromed, in the total amount of  P398,000.00, specified in a trust
receipt and covered by Domestic Letter of Credit under the express obligation
on the part of said accused to sell the same and account for the proceeds of the
sale thereof, if sold, or to return said merchandise, if not sold, on or before
October 16, 1980, or upon demand, but the said accused, once in possession of
the said articles, far from complying with the aforesaid obligation, paid only the
amount of P283,115.78, thereby leaving unaccounted for the amount of
P114,884.22 which, once in her possession, with intent to defraud, she
misappropriated, misapplied and converted to her own personal use and benefit,
to the damage and prejudice of said Allied Banking Corporation.
 
Issue:
 
Whether or not the failure of the entrustee to remit sale proceeds or return the
goods in case of non-sale constitutes criminal liability
 
Ruling:
 
YES.  A trust receipt arrangement does not involve a simple loan transaction
between a creditor and a debtor-importer.  Apart from a loan feature, the trust
receipt arrangement has a security feature that is covered by the trust receipt
itself. That second feature is what provides the much needed financial
assistance to our traders in the importation or purchase of goods or merchandise
through the use of those goods or merchandise as collateral for the
advancements made by a bank.  The title of the bank to the security is the one
sought to be protected and not the loan which is a separate and distinct
agreement.
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 seek to enforce payment of the
loan.  Thus, there can be no violation of a right against imprisonment for non-
payment of a debt.
CASE #17
EDWARD C. ONG vs. THE COURT OF APPEALS AND THE PEOPLE
OF THE PHILIPPINES
G.R. No. 119858, April 29, 2003, CARPIO, J.
 
The Trust Receipts Law recognizes the impossibility of imposing the penalty of
imprisonment on a corporation. Hence, if the entrustee is a corporation, the
law makes the officers or employees or other persons responsible for the
offense liable to suffer the penalty of imprisonment. The reason is obvious:
corporations, partnerships, associations and other juridical entities cannot be
put to jail. Hence, the criminal liability falls on the human agent responsible
for the violation of the Trust Receipts Law.
 
 Facts:
Edward Ong (Ong), in his capacity as an officer of ARMAGRI International
Corporation (ARMAGRI), executed two (2) trust receipts acknowledging
receipt from the Solid Bank Corp. of goods.  When the trust receipts became
due and demandable, ARMAGRI failed to pay or deliver the goods to the Bank
despite several demand letters. The trial court convicted Ong of two (2) counts
of estafa for violation of the Trust Receipts Law. On appeal, Ong posited that
he is no longer liable for Estafa since a compromise agreement was entered into
by him and ARMGARI.
Issue:
 
Whether Ong may be held liable for violation of the Trust Receipts Law(PD
115).
 
Ruling:  
 
YES.  In the instant case, the Bank was the entruster while ARMAGRI was the
entrustee. Being the entrustee, ARMAGRI was the one responsible to account
for the goods or its proceeds in case of sale. However, the criminal liability for
violation of the Trust Receipts Law falls on the human agent responsible for the
violation. Petitioner Ong, who admits being the agent of ARMAGRI, is the
person responsible for the offense for two reasons. First, petitioner is the
signatory to the trust receipts, the loan applications and the letters of credit.
Second, despite being the signatory to the trust receipts and the other
documents, petitioner did not explain or show why he is not responsible for the
failure to turn over the proceeds of the sale or account for the goods covered by
the trust receipts.
 
The Trust Receipts Law expressly makes the corporations officers or employees
or other persons therein responsible for the offense liable to suffer the penalty
of imprisonment. In the instant case, petitioner signed the two trust receipts on
behalf of ARMAGRI as the latter could only act through its agents. When
petitioner signed the trust receipts, he acknowledged receipt of the goods
covered by the trust receipts. In addition, petitioner was fully aware of the terms
and conditions stated in the trust receipts, including the obligation to turn over
the proceeds of the sale or return the goods to the Bank.
Case #18
TRINIDAD RAMOS vs. COURT OF APPEALS and PEOPLE OF THE
PHILIPPINES
G.R. No. L-39922-25 August 21, 1987, NARVASA, J.
 
The trust receipts do not fare any better as proofs of the delivery to Ramos of
the goods. Except for the invoices, documents relating to each trust receipt
agreement, including the trust receipts themselves, appear to be standard Bank
forms accomplished by the Bank personnel, and were all signed by Ramos in
one sitting, with a view to facilitating the pending transactions between the
parties.
 
Facts:
Trinidad Ramos filed with the Philippine National Cooperative Bank (PNCB)
four (4) applications for letters of credit which were approved. Consequently,
domestic letters of credit were opened. Among the papers filed for the issuance
of the domestic letters of credit were commercial invoices of the different
suppliers of the merchandise sought to be purchased. The different suppliers
then drew sight drafts against the applicant payable to the order of the PNCB.
The PNCB then drew its own drafts against the accused as the buyer of the
merchandise and which drafts were accepted by the accused. After such
acceptance, the corresponding trust receipts were signed by Ramos which
provide that she acknowledges to have received in trust from the PNCB the
merchandise covered by the above-mentioned documents which are the
property of said bank, with the liberty to sell the same provided that the
proceeds thereof are turned over to the said bank to be applied against any
acceptance(s) and any other indebtedness by her to the said bank. The drafts
drawn by the bank against Ramos were payable within 90 days from the dates
thereof. However, no payments were made except partial payments made
pursuant to the written demands for payment addressed by the PNCB to Ramos.
Hence, the PNCB filed a case for four (4) counts of Estafa before the RTC
against Ramos.
 
Issue:
 
Whether Ramos is guilty of four (4) counts of Estafa.
 
Ruling:
NO. The proofs are inadequate as to the propositions of receipt of the
merchandise and the damage sustained by the Bank . It could not be said that
the commercial invoices attached to the applications for the letter of credit and
of the trust receipts was sufficient proof of delivery. The invoices are actually
nothing more than lists of the items sought to be purchased and their prices; and
it can scarcely be believed that goods worth no mean sum actually transferred
hands without the unpaid vendor requiring the vendee to acknowledge this fact
in some way, even by a simple signature on these documents alone if not in fact
by the execution of some appropriate document, such as a delivery receipt.
At any rate, Ramos has categorically and consistently denied ever having
received the goods either from the Bank or the suppliers. And this was because,
according to her, the suppliers simply refused to part with the goods as no
payment had been made therefor by the Bank.  The issue could quite easily
have been resolved by the production of the delivery receipts or the testimony
of the employees who made the supposed deliveries which the prosecution did
not do. Having found the record to contain insufficient evidence of the essential
elements of the crime charged, this Court finds it unnecessary to resolve the
other issue raised by the accused.
CASE #19
SOUTH CITY HOMES, INC., FORTUNE MOTORS (PHILS.),
PALAWAN LUMBER MANUFACTURING CORPORATION v. BA
FINANCE CORPORATION
G. R. No. 135462 December 7, 2001 PARDO, J.
 
In the event of default by the entrustee on his obligations under the trust receipt
agreement, it is not absolutely necessary that the entruster cancel the trust and
take possession of the goods to be able to enforce his rights thereunder.
 
Facts:
 
Joseph L. G. Chua, the President of Fortune Motors Corp.(FMC), Palawan
Lumber Manufacturing Corp. and South City Homes, Inc. executed in favor of
BA Finance Corp.(BAFC) a Continuing Suretyship Agreementin which, they
jointly and severally unconditionally guaranteed the payment and discharge of
any and all indebtedness of FMC to BAFC. Subsequently, Canlubang
Automotive Resources Corporation (CARCO) drew six Drafts in its own favor,
payable thirty (30) days after sight, charged to the account of FMC. FMC
thereafter executed trust receipts covering the motor vehicles delivered to it by
CARCO. CARCO assigned the drafts and trust receipts to BAFC. Upon default
of FMC, BAFC sent demand letter to the aforementioned sureties. They,
however, failed to settle their outstanding account so BAFC fileda complaint
for a sum of money with prayer for preliminary attachment.  RTC ordered
FMC, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly
and severally to pay BAFC.
 
Issue:
 
Whether BAFC has a valid cause of action for a sum of money following the
drafts and trust receipts transactions.
 
Ruling:
 
YES.Petitioners finally posit that as an entruster, respondent BAFC must first
demand the return of the unsold vehicles from Fortune Motors Corporation,
pursuant to the terms of the trust receipts. Having failed to do so, petitioners
had no cause of action whatsoever against Fortune Motors Corporation and the
action for collection of sum of money was, therefore, premature. A trust receipt
is 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 credit except
through utilization, as collateral, of the merchandise imported or purchased. In
the event of default by the entrustee on his obligations under the trust receipt
agreement, it is not absolutely necessary that the entruster cancel the trust and
take possession of the goods to be able to enforce his rights thereunder. We
ruled:
Significantly, the law uses the word may in granting to the entruster the right to
cancel the trust and take possession of the goods. Consequently, petitioner has
the discretion to avail of such right or seek any alternative action, such as a
third party claim or a separate civil action which it deems best to protect its
right, at any time upon default or failure of the entrustee to comply with any of
the terms and conditions of the trust agreement.
Case #20
PHILIPPINE NATIONAL BANK v. HON. GREGORIO G. PINEDA
G.R. No. L-46658, May 13, 1991, FERNAN, C.J.
 
PNB's possession of the subject machinery and equipment being precisely as a
form of security for the advances given to TCC under the Letter of Credit, said
possession by itself cannot be considered payment of the loan secured thereby.
Payment would legally result only after PNB had foreclosed on said securities,
sold the same and applied the proceeds thereof to TCC's loan obligation. Mere
possession does not amount to foreclosure for foreclosure denotes the
procedure adopted by the mortgagee to terminate the rights of the mortgagor
on the property and includes the sale itself.   
 
Facts:
The Arroyo Spouses obtained a loan from the Philippine National Bank (PNB)
to purchase 60% of the subscribed capital stock of Tayabas Cement Company,
Inc. (TCC).  To secure the loan, the spouses Arroyo mortgaged the La Vista
property to PNB. A surety agreement was likewise executed by the said
Spouses. Thereafter, TCC applied with the PNB for the establishment of an
eight (8) year deferred letter of credit (L/Cs) in favor of Toyo Menka Kaisha,
Ltd. to cover the importation of a cement plant machinery and equipment. The
imported materials were released to TCC under a trust receipt agreement.
Subsequently, Toyo Menka Kaisha, Ltd. made the corresponding drawings
against the L/C as scheduled. TCC, however, failed to remit the corresponding
amount covered by the drawings. PNB consequently notified TCC of its
intention to repossess, as it later did, the imported machinery and equipment for
failure of TCC to settle its obligations under the L/C.  In the meantime, the
other loan obligations of the spouses Arroyo secured by a real estate mortgage
over Hacienda Bacon had likewise become due. For failure to satisfy their
obligations with PNB, the latter decided to foreclose the real estate mortgages
executed by the spouses Arroyo in its favor. The CFI of Quezon City directed
the City Sheriff to proceed with the foreclosure sale pursuant to a petition for
mandamus filed by the PNB. However, the CFI of Rizal, Pasig through Judge
Gregorio Pineda, issued a restraining order and granted a writ of preliminary
injunction restraining the foreclosure of the mortgages.
 
Issue:
 
Whether or not TCC's liability has been extinguished by the repossession of
PNB of the imported cement plant machinery and equipment.
 
Ruling:
 
NO. PNB's possession of the subject machinery and equipment being precisely
as a form of security for the advances given to TCC under the Letter of Credit,
said possession by itself cannot be considered payment of the loan secured
thereby. Payment would legally result only after PNB had foreclosed on said
securities, sold the same and applied the proceeds thereof to TCC's loan
obligation. Mere possession does not amount to foreclosure for foreclosure
denotes the procedure adopted by the mortgagee to terminate the rights of the
mortgagor on the property and includes the sale itself.   Neither can said
repossession amount to dacion en pago. Dation in payment is the delivery and
transmission of ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of the obligation.  As aforesaid, the repossession
of the machinery and equipment in question was merely to secure the payment
of TCC's loan obligation and not for the purpose of transferring ownership
thereof to PNB in satisfaction of said loan. Thus, no dacion en pago was ever
accomplished. Thus, PNB has the right to foreclose the mortgages executed by
theSpouses Arroyo as sureties of TCC.
CASE #21
SARMIENTO vs. COURT OF APPEALS and ASSOCIATED BANKING
CORP.
G.R. No. 122502. December 27, 2002, AUSTRIA-MARTINEZ, J.
 
Breach of obligation is separate and distinct from any criminal liability for
misuse and/or misappropriation of goods or proceeds realized from the sale of
goods, documents or instruments released under trust receipts, punishable
under Section 13 of the Trust Receipts Law (P.D. 115) in relation to Article
315(1), (b) of the Revised Penal Code. Being based on an obligation  ex
contractu and not ex delicto, the civil action may proceed independently of the
criminal proceedings instituted against petitioners regardless of the result of
the latter.
 
Facts:
Gregorio Limpin, Jr. and Antonio Apostol, doing business under the name and
style of Davao Libra Industrial Sales, filed an application for an Irrevocable
Domestic Letter of Credit with Associated Banking Corporation in favor of LS
Parts Hardware and Machine Shop (LS Parts) for the purchase of assorted scrap
iron.  After the same was approved, a Trust Receipt was executed by Limpin
and Antonio Apostol  but it was signed by Lorenzo Sarmiento, Jr. as surety/
guarantor. The defendants failed to comply with their undertaking under the
Trust Receipt after repeated demands were made by the bank.  Hence, a
complaint for Violation of the Trust Receipt Law was filed against them before
the City Fiscals Office. The corresponding Information was filed but Lorenzo
Sarmiento, Jr. was, however, dropped from the Information while defendant
Gregorio Limpin, Jr. was convicted. In their defense, defendants claim that they
cannot be held liable as the 825 tons of assorted scrap iron, subject of the trust
receipt agreement, were lost when the vessel transporting them sunk, and that
said scrap iron were delivered to Davao Libra Industrial Sales, a business
concern over which they had no interest whatsoever.
 
Issue:
 
Whether or not defendants are liable to Associated Banking Corporation
notwithstanding the loss of the scrap irons.
 
Ruling:
 
YES. Associated Banking Corporation’s right to file a separate complaint for a
sum of money is governed by the provisions of Article 31 of the Civil Code, to
wit: Article 31. When the civil action is based on an obligation not arising from
the act or omission complained of as a felony, such civil action may proceed
independently of the criminal proceedings and regardless of the result of the
latter.
 
In the present case, private respondents complaint against petitioners was based
on the failure of the latter to comply with their obligation as spelled out in the
Trust Receipt executed by them. This breach of obligation is separate and
distinct from any criminal liability for misuse and/or misappropriation of goods
or proceeds realized from the sale of goods, documents or instruments released
under trust receipts, punishable under Section 13 of the Trust Receipts Law
(P.D. 115) in relation to Article 315(1), (b) of the Revised Penal Code. Being
based on an obligation ex contractu and not ex delicto, the civil action may
proceed independently of the criminal proceedings instituted against petitioners
regardless of the result of the latter.
Case #22
THE CONSOLIDATED BANK AND TRUST CORPORATION
(SOLIDBANK) v.  THE COURT OF APPEALS, CONTINENTAL
CEMENT CORPORATION, GREGORY T. LIM AND SPOUSE
G.R. No. 114286, April 19, 2001, J. Ynares-Santiago
The delivery to CCC of the goods subject of the trust receipt occurred long
before the trust receipt itself was executed. On the other hand, the subject trust
receipt was only executed nearly two months after full delivery of the oil was
made to CCC.  The loan should be granted to finance acquisition of the goods
under trust receipt. If the loan is granted when entrustee already has ownership
of the goods, the transaction is only a simple loan.
 
Facts:
 
Continental Cement Corporation (CCC) obtained from Consolidated Bank letter
of credit used to purchase of bunker fuel oil. CCC made a marginal deposit to
Consolidated Bank. A trust receipt was executed by CCC, with Gregory Lim as
signatory. Claiming that respondents failed to turn over the goods or proceeds,
Consolidated Bank filed a complaint for sum of money before the RTC Manila.
In their answer, respondents aver that the transaction was a simple loan and not
a trust receipt one.
Issue:
 
Whether or not the transaction between the bank and the corporation was a
simple loan and not a trust receipt
 
Ruling:
 
YES. Inasmuch as the debtor received the goods subject of the trust receipt
before the trust receipt itself was entered into, the transaction in question was a
simple loan and not a trust receipt agreement. Prior to the date of execution of
the trust receipt, ownership over the goods was already transferred to the
debtor. This situation is inconsistent with what normally obtains in a pure trust
receipt transaction, wherein the goods belong in ownership to the bank and are
only released to the importer in trust after the loan is granted.
In the case at bar, the delivery to CCC of the goods subject of the trust receipt
occurred long before the trust receipt itself was executed.  More specifically,
delivery of the bunker fuel oil to CCC's Bulacan plant commenced on July 7,
1982 and was completed by July 19, 1982. Further, the oil was used up by CCC
in its normal operations by August, 1982. On the other hand, the subject trust
receipt was only executed nearly two months after full delivery of the oil was
made to CCC , or on September 2, 1982. The loan should be granted to finance
acquisition of the goods under trust receipt. If the loan is granted when
entrustee already has ownership of the goods, the transaction is only a simple
loan.
CASE #23
SPOUSES TIRSO I. VINTOLA AND LORETO DY
VINTOLA v. INSULAR BANK OF ASIA AND AMERICA
G.R. No. 73271, May 29, 1987, J. Melencio-Herrera
 
The trust receipt arrangement did not convert the IBAA into an investor; the
latter remained a lender and creditor.  Since the IBAA is not the factual owner
of the goods, the Vintolas cannot justifiably claim that because they have
surrendered the goods to IBAA and subsequently deposited them in the custody
of the court, they are absolutely relieved of their obligation to pay their loan
because of their inability to dispose of the goods. The fact that they were unable
to sell the seashells in question does not affect IBAA’s right to recover the
advances it had made under the Letter of Credit.
Facts:
 
Spouses Vintola owns and manages manufacturing of raw seashells into
finished products under their business name “Dax Kin International.” They
were granted a domestic letter of credit by the Insular Bank of Asia and
America (IBAA). They then executed a Trust Receipt Agreement with IBAA
stipulating that they agreed to hold the goods in trust for IBAA as the "latter's
property with liberty to sell the same for its account," and "in case of sale" to
turn over the proceeds as soon as received to IBAA. Having defaulted on their
obligation, IBAA demanded payment from the Vintolas. The Vintolas, who
were unable to dispose of the shells, responded by offering to return the goods.
IBAA refused to accept the merchandise, and due to the continued refusal of the
Vintolas to make good their undertaking, IBAA charged them with Estafa for
having misappropriated, misapplied and converted for their own personal use
and benefit the aforesaid goods. During the trial of the criminal case the
Vintolas turned over the seashells to the custody of the Trial Court.
 
Issue: 
 
Whetherthe surrender of the goods to the court absolved the liability of the
Vintolas.
 
Ruling: 
 
NO. Section 4 of P.D. No. 115 defines a trust receipt transaction as any
transaction by and between a person referred to as the entruster, and another
person referred to as the entrustee, whereby the entruster, who owns or holds
absolute title or security 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 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.
 
Contrary to the allegation of the Vintolas, IBAA did not become the real owner
of the goods. It was merely the holder of a security title for the advances it had
made to the Vintolas . The goods the Vintolas had purchased through IBAA
financing remain their own property and they hold it at their own risk. The trust
receipt arrangement did not convert the IBAA into an investor; the latter
remained a lender and creditor. Since the IBAA is not the factual owner of the
goods, the Vintolascannot justifiably claim that because they have surrendered
the goods to IBAA and subsequently deposited them in the custody of the court,
they are absolutely relieved of their obligation to pay their loan because of their
inability to dispose of the goods. The fact that they were unable to sell the
seashells in question does not affect IBAA’s right to recover the advances it had
made under the Letter of Credit.