TRUST RECEIPT Case Digets_final

7/31/2019 TRUST RECEIPT Case Digets_final

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T R U S T R E C E I P T

F E R N A N D O O N G vs. C O U R T O F A P P E A L S

F a c t s :

Fernando Ong obtained and received from Tramat Mercantile Inc., several units ofmachineries, in trust, for the purpose of displaying and selling the machineries for cashunder the express obligation on the part of Ong of turning over to said Tramat MercantileInc. the proceeds from the sale thereof if sold or of returning to the latter the said goodsif not sold. Ong allegedly failed to turn over the proceeds of the sale or to return the goodsunder the terms of their covenant. Thereafter, a case for Estafa was filed against FernandoOng. Also, after a few months, Tramat Mercantile Inc. filed a complaint against Ong forcollection for sum of money. The parties entered into a compromise agreement to settle theclaim in said civil case. The trial court rendered a judgment approving the said compromiseagreement. Then Ong, on the basis of the said agreement, moved for the dismissal of thecriminal complaint charged against him on the ground of novation of the contract betweenhim and Tramat Mercantile Inc.

I s s u e :Whether or not the compromise agreement in the civil case novated the contract embodiedin the trust receipts on which the information in the criminal case was based in as much asthere was a change of object or principal conditions

R u l i n g :

The novation theory may perhaps apply prior to the filling of the criminal information incourt by the state prosecutors because up to that time the original trust relation may beconverted by the parties into an ordinary creditor-debtor situation, thereby placing thecomplainant in estoppel to insist on the original trust. But after the justice authorities havetaken cognizance of the crime and instituted action in court, the offended party may nolonger divest the prosecution of its power to exact the criminal liability, as distinguishedfrom the civil. The crime being against the state, the latter is the only who can renounce it.

S P O U S E S T I R S O I . V I N T O L A a n d L O R E T O D Y

V I N T O L A v s. I N S U L A R B A N K O F A S I A A N D A M E R I C A

F a c t s :

Spouses Vintola applied for and were granted a domestic letter of credit by the Insular Bankof Asia and America (IBAA). The Letter of Credit authorized the bank to negotiate for theiraccount drafts drawn by their supplier, one Stalin Tan, on Dax Kin International for thepurchase of puka and olive seashells. VINTOLAS received from Stalin Tan the puka and oliveshells and executed a Trust Receipt agreement with IBAA. Under that Agreement,the VINTOLAS agreed to hold the goods in trust for IBAA as the "latter's property withliberty to sell the same for its account, " and "in case of sale" to turnover the proceeds.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 returnthe goods. IBAA refused to accept the merchandise, and due to the continued refusal of theVINTOLAS to make good their undertaking, IBAA charged them with Estafa for havingmisappropriated, misapplied and converted for their own personal use and benefit theaforesaid goods. The trial court acquitted the VINTOLAS of the offense charged. IBAAcommenced a civil action to recover the value of the goods. The court dismissed the caseholding that the complaint was barred by the judgment of acquittal in the criminal case.

I s s u e :


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Whether or not acquittal from criminal offenseextinguish civil liability?

R u l i n g :

A letter of credit-trust receipt arrangement is endowed with its own distinctive features and

characteristics. Under that set-up, a bank extends a loan covered by the Letter of Credit,

with the trust receipt as a security for the loan. In other words, the transaction involves aloan feature represented by the letter of credit, and a security feature which is in the

covering trust receipt. A trust receipt, therefore, is a security agreement, pursuant to which

a bank acquires a "security interest" in the goods. "It secures an indebtedness and there

can be no such thing as security interest that secures no obligation."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. The

foregoing premises considered, it follows that the acquittal of the VINTOLAS in the

Estafa case is no bar to the institution of a civil action for collection. It is inaccurate for the

VINTOLAS to claim that the judgment in the estafa case had declared that the facts fromwhich the civil action might arise, did not exist, for, it will be recalled that the decision of

acquittal expressly declared that "the remedy of the Bank is civil and not criminal in

nature." The VINTOLAS are liable ex contractu for breach of the Letter of Credit Trust

Receipt, whether they did or they did not "misappropriate, misapply or convert" the

merchandise as charged in the criminal case. Their civil liability does not arise ex delicto, the

action for the recovery of which would have been deemed instituted with the criminal-action

(unless waived or reserved) and where acquittal based on a judicial declaration that the

criminal acts charged do not exist would have extinguished the civil action. Rather, the civil

suit instituted by IBAA is based ex contractu and as such is distinct and independent from any

criminal proceedings and may proceed regardless of the result of the latter.

T R I N I D A D R A M O S vs. T H E H O N O R A B L E C O U R T O F A P P E A L S a n d P E O P L E O F T H E P H I L I P P I N E S

F a c t s :

The accused filed with Philippine National Cooperative Bank four applications for lettersof credit. Among the papers filed for the issuance of the domestic letters of credit werecommercial 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 ofthe PNCB. The PNCB then drew its own drafts against the accused as the buyer of themerchandise and which drafts were accepted by the accused also on the same dates of the

respective applications. After such acceptance, the corresponding trust receipts were signedby the accused also on the same dates of the respective applications. No payments weremade excepting a partial payment of P3,900.00, inclusive of interests and another partialpayment of P2,000.00 made on the same letter of' credit. Trinidad Ramos pleads foracquittal on the proposition that the factual predicate on which her conviction is laid ischiefly comprised of speculations, conjectures and presumptions without substantialand actual support in the evidence. She asserts that it behooved the prosecution, which hadcharged her with estafa under Article 315 prove the essential elements thereof. Shecontends, in her case that there is no adequate proof of her receipt of the goods subject of


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the trust receipts in question or of her having paid anything on account thereof or inconnection therewith.

I s s u e :

Whether or not commercial invoices are sufficient proof of delivery that is necessary in orderfor conviction for estafa could lie

R u l i n g :

The assailed factual findings as to the receipt of the merchandise and the damage sustainedby the Bank cannot stand. The proofs are indeed inadequate on these propositions of fact. Itis difficult to accept the prosecution's theory that it has furnished sufficient proof of deliveryby the introduction in evidence of the commercial invoices attached to the applications forthe letters of credit and of the trust receipts. The invoices are actually nothing more thanlists of the items sought to be purchased and their prices; and it can scarcely be believedthat goods worth no mean sum actually transferred hands without the unpaid vendorrequiring the vendee to acknowledge this fact in some way, even by a simple signature onthese documents alone if not in fact by the execution of some appropriate document, suchas a delivery receipt. The trust receipts do not fare any better as proofs of the delivery toRamos of the goods. Except for the invoices, an documents relating to each trust receipt

agreement, including the trust receipts themselves, appear to be standard Bank formsaccomplished by the Bank personnel, and were all signed by Ramos in one sitting, no doubtwith a view to facilitating the pending transactions between the parties. If, as she claims,Ramos was made to believe that bank usage or regulations require the signing of the papersin this way, i.e., on a single occasion, there was neither reason nor opportunity for her toquestion the statement therein of receipt of the goods since it was evidently assumed thatdelivery to her of the goods would shortly come to pass.

A L L I E D B A N K I N G C O R P O R A T I O N vs. OR D O E Z

F a c t s :

Philippine Blooming Mills, a manufacturer of steel and steel products, not in the business of

selling mag-ar branch dolomites or high fired refractory sliding nozzle bricks applied for theissuance of commercial letters of credit with Allied Banking Corporation to finance thepurchase of said items. Allied Banking Corporation, in turn, issued an irrevocable letter ofcredit in favor of Nikko Industry Co. Ltd. by virtue of which Nikko Industry Co. Ltd drewfour (4) drafts which were accepted by Philippine Blooming Mills and duly honored and paidby Allied Banking Corporation .To secure the payment and in consideration of the transferby Allied Banking Corporation of the possession of the goods to Philippine Blooming Mills,the latter as entrustee executed four (4) trust receipt agreements acknowledging theformers ownership over the goods and its obligation to turn over the proceeds of the sale ofthe goods if sold, or to return the same if unsold within the period stated. Despite repeateddemands, Philippine Blooming Mills failed and refused to either turn over the proceeds of thegoods or to return the same. When Allied Banking Corporation filed a criminal Complaint for

violation of PD 115, the fiscal found a prima facie case and file the information with thecourt. On appeal, the DOJ Secretary, Neptali Gonzales, held that the raw materials formanufacture of goods to be ultimately sold are the only proper objects of Trust Receipts andthe failure to remit the proceeds of such will constitute a violation of PD 115.In anothermotion for reconsideration filed by Philippine Blooming Mills , the new DOJ SecretarySeafrey Ordoez, rectified the decision of his predecessor because of PhilippineBlooming Mills clarification that the goods subject of the trust receipt agreements wereused for patching purposes over the surface of the furnaces and nozzle bricks which areinsulating materials in the lower portion of the ladle which do not form part of the steel


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product itself and held that since the goods covered by the trust receipt agreements andsubject matter of those proceedings are to be utilized in the operation of the equipment andmachineries of the corporation, they could have not been contemplated as being covered byPD 115. In an attempt to escape criminal liability, private respondent claims P.D. 115covers goods which are ultimately destined for sale and not goods for use in manufactureand that at the time of PBMs application for the issuance of the LCs, it was not represented

to the petitioner that the items were intended for sale, hence, there was no deceit resultingin a violation of the trust receipts which would constitute a criminal liability.

I s s u e :

Whether or not P.D. 115 covers only goods which are ultimately destined for sale and notgoods for use in manufacture

R u l i n g :

The wording of Section 13 covers failure to turnover the proceeds of the sale of the

entrusted goods, or to return said goods if unsold or disposed of in accordance with the

terms of the trust receipts. Private respondent claims that at the time of PBMs application

for the issuance of the LCs, it was not represented to the petitioner that the items were

intended for sale, hence, there was no deceit resulting in a violation of the trust receiptswhich would constitute a criminal liability. Again, this contention cannot be upheld. The non-

payment of the amount covered by a trust receipt is an act violative of the entrustees

obligation to pay. There is no reason why the law should not apply to all transactions

covered by trust receipts, except those expressly excluded. The Court takes judicial notice

of customary banking and business practices where trust receipts are used for importation

of heavy equipment, machineries and supplies used in manufacturing operations. We are

perplexed by the statements in the assailed DOJ resolution that the goods subject of the

instant case are outside the ambit of the provisions of PD 115 albeit covered by trust receipt

agreements ( 17 February 1988 resolution) andthat not all transactions covered by trust

receipts may be considered as trust receipt transactions defined and penalized under P.D.

115 (11 January1988 resolution). A construction should be avoided when it affords anopportunity to defeat compliance with the terms of a statute. The penal provision of P.D.

115 encompasses any act violative of an obligation covered by the trust receipt; it is not

limited to transactions in goods which are to be sold (retailed), reshipped, stored or

processed as a component of a product ultimately sold.

P H I L I P P I N E N A T I O N A L B A N K vs. H O N . G R E G O R I OG . P I N E D A a n d T A Y A B A S C E M E N T C O M P A N Y , I N C

F a c t s :

In 1963, Ignacio Arroyo, married to Lourdes Tuason Arroyo (the Arroyo Spouses), obtaineda loan of P580,000.00 from petitioner bank to purchase 60%of the subscribed capital stock,and thereby acquire the controlling interest of private respondent Tayabas CementCompany, Inc. (TCC). As security for said loan, the spouses Arroyo executed a real estatemortgage over a parcel of land known as theLa Vista property. Thereafter, TCC filed withpetitioner bank an application and agreement for the establishment of an eight (8) yeardeferred letter of credit (L/C) for$7,000,000.00 in favor of Toyo Menka Kaisha, Ltd. ofTokyo, Japan, to cover the importation of a cement plant machinery and equipment. Uponapproval of said application and opening of an L/C by PNB in favor of Toyo Menka Kaisha,Ltd.for the account of TCC, the Arroyo spouses executed a Surety Agreement and Covenant.


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The imported cement plant machinery and equipment arrived from Japan and were releasedtoTCC under a trust receipt agreement. Subsequently, Toyo Menka Kaisha, Ltd. made thecorresponding drawings against the L/C as scheduled. TCC, however, failed to remit and/orpay the corresponding amount covered by the drawings. Thus, pursuant to the trust receiptagreement, PNB notified TCC of its intention to repossess, as it laterdid, the importedmachinery and equipment for failure of TCC to settle its obligations under the L/C. In the

meantime, the personal accounts of the spouses Arroyo, which included another loansecured by a real estate mortgage over parcels of agricultural land had likewise becomedue. The spouses Arroyo having failed to satisfy their obligations with PNB, the latterdecided to foreclose the real estate mortgages executed by the spouses Arroyo in itsfavor. At the auction sale, PNB was the highest bidder however, when said property wasabout to be awarded to PNB, the representative of the mortgagor-spouses objected anddemanded from the PNB the difference between the bid price and the indebtedness ofspouses on their personal account. To remedy the situation, PNB requested to proceed withthe sale of the subject real properties to satisfy not only the amount owed by thespouses Arroyos on their personal account but also the amount owed by said spouses assureties of TCC. Said petition was opposed by the spouses Arroyo and the other bidder, JoseL. Araneta. Which was granted thru respondent Judge Gregorio Pineda, who issued arestraining order and, granted a writof preliminary injunction.

I s s u e :

Whether or not TCCs liability has been extinguished by the repossession of PNB oftheimported cement plant machinery and equipment

R u l i n g :

It must be remembered that PNB took possession of the imported cement plant machineryand equipment pursuant to the trust receipt agreement executed by and between PNB andTCC giving the former the unqualified right to the possession and disposal of all propertyshipped under the Letter of Credit until such time as all the liabilities and obligations undersaid letter had been discharged. PNB's possession of the subject machinery and equipmentbeing precisely as a form of security for the advances given to TCC under the Letterof Credit, said possession by itself cannot be considered payment of the loan securedthereby. Payment would legally result only after PNB had foreclosed on said securities, soldthe same and applied the proceeds thereof to TCC's loan obligation. Mere possession doesnot amount to foreclosure for foreclosure denotes the procedure adopted by the mortgageeto terminate the rights of the mortgagor on the property and includes the sale itself. Neithercan said repossession amount to dacion en pago. Dation in payment takes place whenproperty is alienated to the creditor in satisfaction of a debt in money and the same isgoverned by sales. Dation in payment is the delivery and transmissionof ownership of athing by the debtor to the creditor as an accepted equivalent of the performance of theobligation. As aforesaid, the repossession of the machinery and equipment in question wasmerely to secure the payment of TCC's loan obligation and not for the purposeof transferring ownership thereof to PNB in satisfaction of said loan. Thus, no dacion en

pago was ever accomplished.

P E O P L E O F T H E P H I L I P P I N E S a n d A L L I E D B A N K I N G

C O R P O R A T I O N vs. H O N . J U D G E D A V I D G . N I T A F A N a n dB E T T Y S I A A N G

F a c t s :

Petitioner Allied banking Corporation (ABC) charged private respondent, Betty Sia Ang, for

estafa for willfully, unlawfully and feloniously defraud ABC. Private respondent received a


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trust from ABC amounting to P398,000.00 covered by a domestic letter of credit, under the

express obligation to sell the same and account for the proceeds of the sale, if sold, or to

return the merchandise , if not sold. Upon demand, private respondent paid

onlyP283,115.78. Betty Sia Ang filed a motion to quash the information on the grounds that

the facts charged do not constitute an offense. Respondent judge granted the motion to

quash.

I s s u e :

Whether or not an entrustee in a trust receipt agreement who fails to deliver the proceedsof the sale or to return the goods if not sold to the entruster-bank is liable for the crime ofestafa?

R u l i n g :

The factual circumstances in the present case show that the alleged violation

was committed sometime in 1980 or during the effectivity of P.D. 115. The failure,

therefore, to account for the P114,884.22balance is what makes the accused-respondent

criminally liable for estafa. A trust receipt arrangement does not involve simple loan

transaction between a creditor and debtor-importer. Apart from a loan feature, the trust

receipt arrangement has a security feature that is covered by the trust receipt itself.

(Vintola v.Insular Bank of Asia and America, 151 SCRA 578[1987]) That second feature is

what provides the much needed financial assistance to our traders inthe importation or

purchase of goods or merchandise through the use of those goods or merchandise as

collateral for the advancements made by a bank. (Samo v. People). 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. Trust receipts are indispensable contracts in international and domestic business

transactions. The prevalent use of trust receipts, the danger of their misuse and/or

misappropriation of the goods or proceeds realized from the sale of goods, documents or

instruments held in trust for entruster-banks, and the need for regulation of trust receipt

transactions to safeguard the right sand enforce the obligations of the parties involved are

the main thrusts of P.D. 115. As correctly observed by the Solicitor General, P.D. 115, like

Batas Pambansa Blg. 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 (citing Lozano v.

Martinez, 146 SCRA323 [1986];Rollo, p. 57) It is in the context of upholding public interest

that the law nowspecifically designates a breach of a trust receipt agreement to be an act

that "shall" make one liable for estafa.

P R U D E N T I A L B A N K vs.N A T I O N A L L A B O R R E L A T I O N S C O M M I S S I O N ,C E C I L I A O R Q U E L L O , e t a l . , Z E N A I D A U C H I , e t a l . , A L U - I N T E R A S I A C O N T A I N E R I N D U S T R I E S ,

I N C . , a n d R A U L R E M O D O


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F a c t s :

Interasia Container Industries, Inc. (INTERASIA),was embroiled in three (3) labor cases

which were eventually resolved against it. Thus in NLRC Cases monetary awards consisting

of 13th-month pay differentials and other benefits were granted to complainants.

Subsequently the monetary award was recomputed to include separation pay occasioned by

the closure of operations of INTERASIA. With the finality of the three (3)decisions, writs of

execution were issued. The Sheriff levied on execution personal properties located in the

factory of INTERASIA Petitioner filed an Affidavit of Third-Party Claim asserting ownership

over the seized properties on the strength of trust receipts executed by INTERASIA in its

favor. As a result, the Sheriff suspended the public auction sale. But the Labor Arbiter

denied the claim of petitioner and directed the Sheriff to proceed with the levy of the

properties. Petitioner then filed separate appeals to the NLRC. Petitioner raises issue on the

extent of its security title over the properties subject of the levy on execution, submitting

that while it may not have absolute ownership over the properties, still it has right, interest

and ownership consisting of a security title which attaches to the properties. Petitioner

differentiates a trust receipt, which is a security for the payment of the obligations of the

importer, from a real estate mortgage executed as security for the payment of an obligation

of a borrower. Petitioner argues that in the latter the ownership of the mortgagor may not

necessarily have any bearing on its acquisition, whereas in the case of a trust receipt the

acquisition of the goods by the borrower results from the advances made by the bank. It

concludes that the security title of the bank in a trust receipt must necessarily be of

thesame or greater extent than the nature of the security arising from a real estate

mortgage. Petitioner maintains that it is a preferred claimant to the proceeds from the

foreclosure to the extentof its security title in the goods otherwise its security title will

become useless.

I s s u e :

Whether or not the entruster has a better right as against creditors over the proceeds of the

foreclosure

R u l i n g :

We cannot subscribe to NLRC's simplistic interpretation of trust receipt arrangements. In

effect, it has reduced the Trust Receipt Agreements to a pure and simple loan transaction

.Sec. 12 of P.D. No. 115 assures the entruster of the validity of his claim against all

creditors -Sec. 12. Validity of entruster's security interest as against creditors. - The

entruster's security interest in goods, documents, or instruments pursuant to the written

terms of a trust receipt shall be valid as against all creditors of the entrustee for the duration of

the trust receipt agreement. From the legal and jurisprudential standpoint it is clear that the

security interest of the entruster is not merely an empty or idle title. To a certain extent,

such interest, such interest becomes a "lien" on the goods because the entruster's advances

will have to be settled first before the entrustee can consolidate his ownership over the

goods. A contrary view would be disastrous. For to refuse to recognize the title of the

banker under the trust receipt as security for the advance of the purchase price would be to

strike down a bona fide and honest transaction of great commercial benefit and advantage

founded upon a well-recognized custom by which banking credit is officially mobilized for

manufacturers and importers of small means. The NLRC argues that inasmuch as petitioner

didnot cancel the Trust Receipt Agreements and took possession of the properties it could


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not claim ownership of the properties. We do not agree. 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 asa third-party claim or a separate civil action which it seems best

to protect its right, at anytime upon default or failure of the entrustee to comply with any of

the terms and conditions of the trust agreement.

M E T R O P O L I T A N B A N K A N D T R U S T C O M P A N Y

vs. T O N D A

F a c t s :

S p o u s e s J o a q u i n G . T o n d a a n d M a . C r i s t i n a T o n d a a p p l i e d f o r

a n d w e r e g r a n t e d c o m m e r c i a l l e t t e r s o f c r e d i t b y M e t r o b a n k f o r a

p e r i o d o f 8 m o n t h s i n c o n n e c t i o n w i t h t h e i m p o r t a t i o n o f r a w

t e x t i l e m a t e r i a l s t o b e u s e d i n t h e m a n u f a c t u r i n g o f g a r m e n t s . T h e

T o n d a s a c t i n g b o t h i n t h e i r c a p a c i t y a s o f f i c e r s o f H o n e y T r e e

A p p a r e l C o r p o r a t i o n a n d i n t h e i r p e r s o n a l c a p a c i t i e s , e x e c u t e d

e l e v e n t r u s t r e c e i p t s t o s e c u r e t h e r e l e a s e o f t h e r a w m a t e r i a l s t o

H T A C . T h e T o n d a s f a i l e d t o c o m p l y w i t h t h e i r o b l i g a t i o n s s t a t e d i n

t h e t r u s t r e c e i p t s a g r e e m e n t s d e s p i t e r e p e a t e d d e m a n d s

t h e r e o f ( t o a c c o u n t t o M e t r o b a n k t h e g o o d s a n d / o r p r o c e e d s o f

s a l e o f t h e m e r c h a n d i s e , s u b j e c t o f t h e t r u s t r e c e i p t s .

C o n s e q u e n t l y , p r i v a t e r e s p o n d e n t s w e r e c h a r g e d w i t h v i o l a t i o n o f

P D 1 1 5 ( T r u s t R e c e i p t s L a w ) a n d e s t a f a . R e s p o n d e n t J o a q u i n

t o g e t h e r w i t h a c e r t a i n W a n g T i e n E n s u b s e q u e n t l y e n t e r e d i n t o a

l o a n r e s t r u c t u r i n g a g r e e m e n t w i t h M e t r o b a n k , h o w e v e r t h e p a r t i e s

w e r e u n a b l e t o a r r i v e a t a m u t u a l l y a g r e e a b l e l o a n

r e s t r u c t u r e d a g r e e m e n t . S u b s e q u e n t l y , r e s p o n d e n t J o a q u i n a n d

w a n g d e p o s i t e d 2 . 8 M t o a n a c c o u n t t o p a y t h e e n t i r e p r i n c i p a l o f

t h e o u t s t a n d i n g t r u s t r e c e i p t s a c c o u n t t o b e a p p l i e d a n y t i m e t o

t h e p a y m e n t o f t h e T R / L C A c c o u n t u p o n t h e i m p l e m e n t a t i o n b y t h e

p a r t i e s o f t h e t e r m s o f t h e r e s t r u c t u r i n g .

I s s u e :

W h e t h e r o r n o t M e t r o b a n k c a n v a l i d l y a p p l y t h e a m o u n t d e p o s i t e db y t h e p e t i t i o n e r s a s p a y m e n t o f t h e p r i n c i p a l o b l i g a t i o n u n d e r t h et r u s t r e c e i p t s a g r e e me n t i n s p i t e o f t h e f a i l u r e o f t h e p a r t i e s t oa g r e e u p o n a r e s t r u c t u r i n a g r e e m e n t .

R u l i n g :T h e a c t s o f t h e r e s p o n d e n t s c o n s t i t u t e t h e c r i m e o f e s t a f a a sc o n t e m p l a t e d i n P D 1 1 5 a n d t h e R P C b e c a u s e t h e y f a i l e d t o r e t u r nt h e g o o d s c o v e r e d b y t h e t r u s t r e c e i p t s o r r e t u r n t h e p r o c e e d sof th e sa le o f th e sa id go od s . The handwri t ten note by the Metrobankofficer acknowledging receipt of the checks made no reference to the Tondastrus t rece ip t ob li gati ons, and it cannot be presumed that it was anything more thanan ordinary bank deposit. The CA ruled that in making the deposit,the Tondas are entitled to set off by way of compensation their obligations to


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MetroBank. However, Art 1288 of the Civil Code provides that compensationshall not be proper when one of the debts consists in civil l iability arisingfrom a penal offense as in the case at bar. If one of the debts consists incivil l iability arising from a penal offense, compensation would beimproperand inadvisable because the satisfaction of such obligation is imperative.

M E L V I N C O L I N A R E S a n d L O R D I N O V E L O S O vs.H O N O R A B L E C O U R T O F A P P E A L S , a n dT H E P E O P L E O F T H E P H I L I P P I N E S

F a c t s :

21

Petitioners applied for a commercial letter of credit with the Philippine Banking Corporation(PBC) in favor of CM builders for the purchased of various construction supplies. PBCapproved the letter of credit to cover the full invoice value of the goods and subsequentlysigned a prom-forma trustreceip0t as security.PBC wrote a demand letter to petitioner

demandingthe amount be paid within seven days but instance of complying they confessedthat they cant pay and requested a grace period to settle the account. Petitioners proposedto modify the payment of theloan. Petitioners were charged with estafa.During trial,petitioner Veloso insisted that the transaction was a clean loan. He andpetitioner Colinares signed the documents without reading the fine print, and learning thatthe trust receipt was merely aformality.The trial court render a decision convicting thepetitioner estafa. The trial court considered the transaction between PBC and Petitionersas a trust receipt transaction under Section 4, P.D. No. 115.Petitioners appealed from thejudgment to theCourt of Appeals and the CA modified the judgment of the trial court byincreasing the penalty.

I s s u e :

Whether of not the petitioner were properly charged, tried and convicted for violation of PD

115in relation to article 315 of the RPC?

R u l i n g :

A thorough examination of the facts obtaining in the case at bar reveals that thetransactionintended by the parties was a simple loan, not a trust receipt agreement. TheTrust Receipts Law does not seek to enforce payment of the loan, rather it punishes thedishonesty and abuse of confidence in the handling of money or goods to the prejudice ofanother regardless of whether the latter is the owner. Here, it is crystal clear that on thepart of Petitioners there was neither dishonesty nor abuse of confidence in the handling ofmoney to the prejudice of PBC. Petitioners continually endeavored to meet their obligations,as shown by several receipts issued by PBC acknowledging payment of the loan.

There are two possible situations in a trustreceipt transaction. The first is covered bytheprovision which refers to money received under the obligation involving the dutyto deliver it(entregarla) to the owner of the merchandise sold. The second is covered by theprovision which refersto merchandise received under the obligation to return it (devolvera)to the owner. Failure of the entrustee to turn over the proceeds of the sale of the goods,covered by the trust receipt to the entruster or to return said goods if they were notdisposed of in accordance with the terms of the trust receipt shall be punishable as estafaunder Article 315 (1) of the Revised PenalCode, without need of proving intent to defraud.Petitioners received the merchandise from CMBuilders Centre on 30 October 1979. On thatday ,ownership over the merchandise was already transferred to Petitioners who were to


10/22

use thematerials for their construction project. It was only a day later, 31 October 1979,that they went to thebank to apply for a loan to pay for the merchandise. This situationbelies what normally obtains in a pure trust receipt transaction where goods are owned bythe bank and only released to the importer in trust subsequent to the grant of the loan. Thebank acquires a security interest in the goods as holder of a security title for theadvancesit had made to the entrustee. The ownership of the merchandise continues to be

vested in the personwho had advanced payment until he has been paid in full, or if themerchandise has already been sold, the proceeds of the sale should be turned over to himby the importer or by his representative or successor in interest. To secure that the bankshallbe paid, it takes full title to the goods at the very beginning and continues to hold thattitle as his indispensable security until the goods are sold and the vendee is called upon topay for them; hence,the importer has never owned the goods and is notable to deliverpossession. In a certain manner, trust receipts partake of the nature of a conditional salewhere the importer becomes absolute owner of the imported merchandise as soon as he haspaid its price.

P H I L I P P I N E S B A N K O F C O M M U N I C A T I O N S vs.H O N . C O U R T O F A P P E A L Sa n d F I L I P I N A S T E X T I L E M I L L S , I N C .

F a c t s :

Petitioner sought the payment representing the proceeds or value of various textile goods,the purchase of which was covered by irrevocable letters of credit and trust receiptsexecuted by petitioner with private respondent Filipinas Textile Mills as obligor; which, inturn, were covered by surety agreements executed by private respondent BernardinoVillanueva and Sochi Villanueva. In their Answer, private respondents admitted theexistence of the surety agreements and trust receipts butcountered that they had alreadymade payments onthe amount demanded and that the interest andother charges imposedby petitioner were onerous.Petitioner filed a Motion for Attachment contendingthat violationof the trust receipts law constitutesestafa, thus providing ground for the issuance of awrit ofpreliminary attachment and further claimedthat attachment was necessary sinceprivaterespondents were disposing of their properties toi ts detriment as a creditor.

I s s u e :

Whether or not the allegations for must be embezzlement, misappropriation nor incipientfraud may be presumed to establish an order for a writ of preliminary attachment to beissued.

R u l i n g :

The Motion for Attachment filed by petitioner andits supporting affidavit did not sufficientlyestablish the grounds relied upon in applying for the writ of preliminaryattachment.Petitioner cannot insist that its allegation that private respondents failed toremit the proceeds of the sale of the entrusted goods nor to return thesame is sufficient forattachment to issue. There is absence of factual allegations as to how the fraud alleged bypetitioner was committed. Such fraudulent intent not to honor the admitted obligationcannot be inferred from the debtor's inability to pay or to comply with the obligations. Onthe other hand, as stressed, above, fraud maybe gleaned from a preconceived plan orintentionnot to pay. This does not appear to be so in thecase at bar. In fact, it is alleged byprivaterespondents that out of the total P419,613.96 covered by the subject trust receipts,the amount of P400,000.00 had already been paid, leaving only P19,613.96 as balance.


11/22

Hence, regardless of the arguments regarding penalty and interest, it can hardly be saidthat private respondents harbored a preconceived plan or intention not to pay petitioner.

S O U T H C I T Y H O M E S , I N C . , F O R T U N E M O T O R S( P H I L S . ) , P A L A W A N L U M B E R M A N U F A C T U R I N G

C O R P O R A T I O N vs. B A F I N A N C E C O R P O R A T I O N

F a c t s :

Prior to the transactions covered by the subject drafts and trust receipts, defendant-appellantFortune Motors Corporation (Phils.) has been availing of the credit facilities ofplaintiff-appellant BA Finance Corporation. Fortune Motors Corporation executed in favor ofplaintiff-appellant a Continuing Suretyship Agreement, in which he jointly and severallyunconditionally guaranteed the full, faithful and prompt payment and discharge of any andall indebtedness of Fortune Motors Corporation to BA Finance Corporation. Palawan LumberManufacturing Corporation, executed in favor of plaintiff-appellant a Continuing SuretyshipAgreement in which, said corporation jointly and severally unconditionally guaranteed the

full, faithful and prompt payment and discharge of any and all indebtedness of FortuneMotors Corporation to BA Finance Corporation. On the same date, South City Homes, Inc.likewise executed a Continuing Suretyship Agreement inwhich said corporation jointlyand severally unconditionally guaranteed the full, faithful andprompt payment and dischargeof any and all indebtedness of Fortune Motors Corporation to BAFinance Corporation.Subsequently, Canlubang Automotive Resources Corporation (CARCO) drew six (6) Draftsin its ownfavor, payable thirty (30) days after sight, charged to the account of FortuneMotors Corporation.Fortune Motors Corporation thereafter executed trust receipts coveringthe motor vehicles deliveredto it by CARCO under which it agreed to remit to the Entruster(CARCO) the proceeds of any sale and immediately surrender the remaining unsoldvehicles. The drafts and trust receipts were assigned to plaintiff-appellant, under Deedsof Assignment executed by CARCO.

Upon failure of the defendant-appellant Fortune Motors Corporation to pay the amounts dueunderthe drafts and to remit the proceeds of motor vehicles sold or to return thoseremaining unsold inaccordance with the terms of the trust receipt agreements, BA FinanceCorporation sent demandletter to Edgar C. Rodrigueza, South City Homes, Inc., AurelioTablante, Palawan Lumber Manufacturing Corporation, Joseph L. G. Chua, George D. Tanand Joselito C. Baltazar. Since the defendants-appellants failed to settle theiroutstandingaccount with plaintiff-appellant, thelatter filed a complaint for a sum of money withprayerfor preliminary attachment. Defendants filed a Motion to Dismiss. Therein, they allegedthatconventional subrogation effected a novation without the consent of the debtor (FortuneMotorsCorporation) and thereby extinguished the latters liability; that pursuant to thetrust receipt ttransaction, it was premature under P. D. No. 115to immediately file a

complaint for a sum of moneyas the remedy of the entruster is an action for specificperformance; that the suretyship agreements are null and void for having beenentered intowithout an existing principal obligation;and that being such sureties does not makethemsolidary debtors.

I s s u e :

Whether or not there was a novation of the obligation so as to extinguish the liability ofthesureties


12/22

R u l i n g :

Petitioners next posit that a novation, as a result of the assignment of the drafts and trustreceipts by the creditor (CARCO) in favor of respondent BAFC without the consent of theprincipal debtor (FortuneMotors), extinguished their liabilities. An assignment of credit is anagreement by virtueof which the owner of a credit, known as the assignor, by a legal cause,

such as sale, dacion en pago , exchange or donation, and without the consent of the debtor,transfers his credit and accessory rights to another, known as the assignee,who acquiresthe power to enforce it to the same extent as the assignor could enforce it against thedebtor. As a consequence, the third party steps into the shoes of the original creditor assubrogee of the latter. Petitioners obligations were not extinguished. In assignment, thedebtors consent is not essentialfor the validity of the assignment (Art. 1624 inrelation toArt. 1475, Civil Code), his knowledge thereof affecting only the validity of the paymenthemight make (Article 1626, Civil Code). Article 1626also shows that payment of anobligation which is already existing does not depend on the consent of the debtor. It, ineffect, mandates that such payment of the existing obligation shall already bemade to thenew creditor from the time the debtor acquires knowledge of the assignment of theobligation.

LEE vs. C O U R T O F A P P E A L S

F a c t s :

On 15 November 1985, a complainant for sum of money was filed by the International

CorporateBank, Inc. against Sacoba Manufacturing Corp.,Pablo Gonzales Jr., and Tomas

Gonzales who, inturn, filed a third party complaint against Alfa Integrated Textile Mills

(ALFA), Ramon C. Lee(ALFA's president) and Antonio DM. Lacdao (ALFA'svice president) on

17 March 1986. On 17September 1987, Lee and Lacdao filed a motion to dismiss the third

party complaint which the Regional Trial Court of Makati, Branch 58 denied inan Order dated

27 June 1988. On 18 July 1988, Leea nd Lacdao filed their answer to the third party

complaint. Meanwhile, on 12 July 1988, the trial issued an order requiring the issuance of

an alias summons upon ALFA through the DBP as a consequence of Lee and Lacdao's letter

informing the court that the summons for ALFA was erroneously served upon them

considering that themanagement of ALFA had been transferred to theDBP. In a

manifestation dated 22 July 1988, theDBP claimed that it was not authorized to

receivesummons on behalf of ALFA since the DBP had nottaken over the company which has

a separate anddistinct corporate personality and existence. On 4 August 1988, the trial

court issued an order advising Sacoba Manufacturing, et. al. to take theappropriate steps to

serve the summons to ALFA. On 16 August 1988, Sacoba Manufacturing, et. al.filed a

Manifestation and Motion for the Declaration of Proper Service of Summons which the trial

courtgranted on 17 August 1988. On 12 September1988, Lee and Lacdao filed a motion

forreconsideration submitting that the Rule 14, section13 of the Revised Rules of Court is

not applicable since they were no longer officers of ALFA andSacoba Manufacturing, et. al.

should have availedof another mode of service under Rule 14, Section16 of the said Rules,

i.e., through publication toeffect proper service upon ALFA. On 2 January1989, the trial

court upheld the validity of theservice of summons on ALFA through Lee andLacdao, thus,

denying the latter's motion forreconsideration and requiring ALFA to file itsanswer through

Lee and Lacdao as its corporateofficers. On 19 January 1989, a second motion

forreconsideration was filed by Lee and Lacdaoreiterating their stand that by virtue of the


13/22

votingtrust agreement they ceased to be officers anddirectors of ALFA, hence, they could

no longerreceive summons or any court processes for or onbehalf of ALFA. In support of

their second motionfor reconsideration, Lee and Lacdao attachedthereto a copy of the voting

trust agreementbetween all the stockholders of ALFA (Lee andLacdao included), on the one

hand, and the DBP,on the other hand, whereby the management andcontrol of ALFA

became vested upon the DBP. On25 April 1989, the trial court reversed itself bysetting asideits previous Order dated 2 January1989 and declared that service upon Lee andLacdao who

were no longer corporate officers of ALFA cannot be considered as proper service

of summons on ALFA. On 15 May 1989, SacobaManufacturing, et. al. moved for a

reconsiderationof the Order which was affirmed by the court in isOrder dated 14 August

1989 denying SacobaManufacturing, et. al.'s motion for reconsideration.On 18 September

1989, a petition for certiorari wasbelatedly submitted by Sacoba Manufacturing, et.al.

before the Court of Appeals which, nonetheless,resolved to give due course thereto on

21September 1989. On 17 October 1989, the trialcourt, not having been notified of the

pendingpetition for certiorari with the appellate court issuedan Order declaring as final the

Order dated 25 April1989. Sacoba Manufacturing, et. al. in the saidOrder were required to

take positive steps inprosecuting the third party complaint in order thatthe court would notbe constrained to dismiss thesame for failure to prosecute. Subsequently, on 25October

1989 Sacoba Manufacturing, et. al. filed amotion for reconsideration on which the trial

courttook no further action. On 19 March 1990, after Leeand Lacdao filed their answer to

SacobaManufacturing, et. al.'s petition for certiorari, theappellate court rendered its

decision, setting asidethe orders of trial court judge dated 25 April 1989and 14 August

1989. On 11 April 1990, Lee andLacdao moved for a reconsideration of the decision of the

appellate court which resolved to deny thesame on 10 May 1990. Lee and Lacdao filed

thepetition for certiorari. In the meantime, theappellate court inadvertently made an entry

of judgment on 16 July 1990 erroneously applying therule that the period during which a

motion forreconsideration has been pending must bededucted from the 15-day period to

appeal.However, in its Resolution dated 3 January 1991,the appellate court set asidethe aforestated entryof judgment after further considering that the ruleit relied on applies to

appeals from decisions of theRegional Trial Courts to the Court of Appeals, not toappeals

from its decision to the Supreme Courtpursuant to the Supreme Court's ruling in the caseof

Refractories Corporation of the Philippines v.Intermediate Appellate Court, 176 SCRA

539[1989].

I s s u e :

Whether the execution of the voting trustagreement by Lee and Lacdao whereby alltheirshares to the corporation have been transferred tothe trustee deprives the stockholderof theirpositions as directors of the corporation.

R u l i n g :

Lee and Lacdao, by virtue of the voting trustagreement executed in 1981 disposed of alltheirshares through assignment and delivery in favor of the DBP, as trustee. Consequently,

Lee and Lacdaoceased to own at least one share standing in theirnames on the books of

ALFA as required underSection 23 of the new Corporation Code. They alsoceased to have

anything to do with themanagement of the enterprise. Lee and Lacdaoceased to be

directors. Hence, the transfer of theirshares to the DBP created vacancies in theirrespective

positions as directors of ALFA. Thetransfer of shares from the stockholders of ALFA tothe

DBP is the essence of the subject voting trustagreement. Considering that the voting


14/22

trustagreement between ALFA and the DBP transferredlegal ownership of the stocks covered

by theagreement to the DBP as trustee, the latterbecause the stockholder of record with

respect tothe said shares of stocks. In the absence of ashowing that the DBP had caused to

be transferredin their names one share of stock for the purposeof qualifying as directors of

ALFA, Lee and Lacdaocan no longer be deemed to have retained theirstatus as officers of

ALFA which was the case before the execution of the subject voting trustagreement. Thereis no dispute from the recordsthat DBP has taken over full control and management of the

firm.

P I L I P I N A S B A N K vs. ONG

F a c t s :

On April 1991, Baliwag Mahogany Corporation(BMC), through its president, respondent

Alfredo T.Ong, applied for a domestic commercial letter creditwith petitioner Pilipinas Bank

(the bank) to financethe purchase of Air Dried, Dark Lauan sawn lumber.The bank

approved the application and issued aLetter of Credit. To secure payment of the

amount,BMC, through respondent Ong, executed two (2)trust receipts providing that it shall

turn over theproceeds of the goods to the bank, if sold, or returnthe goods, if unsold, upon

maturity on July 28,1991 and August 4, 1981.On due dates, BMC failed to comply with

the trustreceipt agreement. On November 22, 1991, it filedwith the Securities and Exchange

Commission (SEC)a Petition for Rehabilitation and for a Declaration ina State of Suspension

of Payments. On January 8,1992, the SEC issued an order creating aManagement

Committee wherein the bank is represented.On October 13, 1992, BMC and a consortium of

14of its creditor banks entered into a Memorandum of Agreement (MOA) rescheduling the

payment of BMCs existing debts.On November 27, 1992, the SEC rendered aDecision

approving the Rehabilitation Plan of BMCas contained in the MOA and declaring it in a

stateof suspension of payments. However, BMC and respondent Ong defaulted inthepayment of the obligations under the rescheduled payment scheme provided in the MOA

.On April 1994, the bank filed 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 thetrust receipt despite

demand.The Court of Appeals renders its decision holdingthat the execution of the MOA

constitutes novationwhich places petitioner bank in estoppel to insist onthe original trust

relation and constitutes a bar to the filing of any criminal information for violation of the

trust receipts law. The Motion forReconsideration was denied.Hence this Petition.

I s s u e :

Whether or not the MOA was a novation of thetrust agreement between the parties.

R u l i n g :

Petition is DENIED, MOA novates the trustagreement.Mere failure to deliver the proceeds ofthe sale of the goods, if not sold, constitutes violation of PD115. However, what is beingpunished by the law isthe dishonesty and abuse of confidence in thehandling of money orgoods to the prejudice of another regardless of whether the latter is theowner. It bearsemphasis that when the petitionerbank made a demand upon a BMC on February 11,1994to comply with its obligations under the trustreceipts, the latter was already under thecontrol of the Management Committee created by SEC. TheManagement Committee took


15/22

custody of all BMCsassets and liabilities, including the red lauan lumbersubject of trustreceipts, and authorized their use inthe ordinary course of business operations. Clearly,itwas the Management Committee which couldsettle BMCs obligations.In Quinto vs. People,this Court held that there aretwo ways which could indicate the presence of novation,thereby producing the effect of extinguishing an obligation by another whichsubstitutes thesame. The first is when novationhas been stated and declared in unequivocal terms.The

second is when the old and the new obligationsare incompatible on every point. The testof incompatibility is whether or not the two obligationscan stand together. If they cannot,they areincompatible and the latter obligation novates thefirst. The incompatibility musttake place in any of the essential elements of the obligation, such as itsobject, cause orprincipal conditions.Contrary to petitioners contention, the MOA did notonly rescheduleBMCs debts, but more importantly,it provided principal conditions, which areincompatiblewith the trust agreement. Theexecution of the MOA extinguished respondentsobligationunder the trust receipts. Respondentsliability, if any, would only be civil in nature sincethetrust receipts were transformed into mere loandocuments after the execution of the MOA.

L O R E N Z O M . S A R M I E N T O , J R . a n d G R E G O R I O

L I M P I N , J R Vs. C O U R T O F A P P E A L S a n d A S S O C I A T E D B A N K I N G C O R P .

F a c t s :

On September 6, 1978, defendant Gregorio Limpin, Jr. and Antonio Apostol, doingbusinessunder the name and style of Davao Libra Industrial Sales, filed an application foran Irrevocable Domestic Letter of Credit with the plaintiff Bank infavor of LS Parts Hardwareand Machine Shop forthe purchase of assorted scrap irons. The aforesaid application wasapproved, and plaintiff Bank issued Domestic Letter of Credit. Thereafter, a Trust Receiptwas executed by defendant Limpin and Antonio Apostol. The defendants failed to complywith their undertaking under the Trust Receipt. Hence demands were made for them tocomply with their undertaking. However, defendants failed to paytheir account. A complaintfor Violation of the TrustReceipt Law was filed against the defendants. Defendant LorenzoSarmiento, Jr. was, however, dropped from the Information while defendant GregorioLimpin, Jr. was convicted.The defendants claim that they cannot be heldliable as the 825tons of assorted scrap iron,subject of the trust receipt agreement, were lostwhen the vesseltransporting them sunk, and thatsaid scrap iron were delivered to Davao LibraIndustrialSales, a business concern over whichthey had no interest whatsoever.

I s s u e :

Whether or not the offended partys (associatedbank) claim for the civil liability, not havingbeenexpressly reserved by it, has been not only impliedly, but in fact expressly institutedalready incriminal case, the information for which had been filed ahead and the proceedingsconducted prior tothe present civil case is procedurally barred.

R u l i n g :

Jurisprudence instructs that such reservation may not necessarily be express but may be

implied which may be inferred not only from the acts of the offended party but also from

acts other than thoseof 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 outin 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 undertrust receipts",


16/22

punishable under Section 13 of theTrust Receipts Law (P.D. 115) in relation to

Article315(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 petitionersregardless of the result of the latter.

E D W A R D O N G vs. C O U R T O F A P P E A L S

F a c t s :

Petitioner Edward Ong, representing ARMAGRI International Corporation (ARMAGRI),executed two trust receipts acknowledging receipt from the SolidBank Corp. of goods valuedat P 2,532,500 and P 2,050,000. In addition, he bounded himself to any increase ordecrease of interest rate in case CentralBank floated rates and to pay any additional penaltyuntil the trust receipts are fully paid.When the trust receipts became due and demandable,ARMAGRI failed to pay or deliver the goods to the Bank despite several demand letters. Thetrial court convicted Ong of two counts of estafa for violation of the Trust Receipts Law.

I s s u e :

Whether the appellant is guilty of two counts estafafor violation of the Trust Receipts Law.

R u l i n g :

Yes, he is guilty for failure by the entrustee to account for the goods received in trust

constitutes estafa. The Trust Receipts Law is violated whenever the entrustee fails to: (1)

turn over the proceeds of the sale of goods, or (2) return the goods covered by the trust

receipts if the good are not sold. Themere failure to account or return gives rise to the crime

which is malum prohibitum. There is no requirement to prove intent to defraud. The Bank

released the goods to ARMAGRI upon execution of the trust receipts and as part of the loan

transactions of ARMAGRI. The Bank had aright to demand from ARMAGRI payment or at

least a return of the goods. ARMAGRI failed tom pay or return the goods despite repeated

demands by theBank. It is well-settled doctrine long before the enactment of the Trust

Receipts Law, that the failure to account, upon demand, for funds or property held in trust

is evidence of conversion or misappropriation. Under the law, mere failure by the entrustee

to account for the goods received intrust constitutes estafa. The Trust Receipts Law

punishes dishonesty and abuse of confidence in the handling of money or goods to prejudice

the publicorder. The mere failure to deliver proceeds of thesale or the goods if not sold

constitutes a criminaloffense that causes prejudice not only to the creditor, but also to the

public interest. Evidently, the Bank suffered prejudice for neither money northe goods were

turned over the Bank.

L A N D L & C O M P A N Y ( P H I L . ) I N C . , P E R C I V A L G .

L L A B A N a n d M A N U E L P . L U C E N T E vs.M E T R O P O L I T A N B A N K & T R U S T C O M P A N Y

F a c t s :

Respondent Metropolitan Bank and Trust Company(Metrobank) filed a complaint for sum of

moneyagainst Landl and Company (Phil.) Inc. (Landl) andits directors, Percival G. Llaban

and Manuel P.Lucente. Respondent alleged that petitionercorporation is engaged in the

business of sellingimported welding rods and alloys. It opened Commercial Letter of

Credit with respondent bank to purchase various welding rods and electrodes from Perma


17/22

Alloys, Inc., New York, U.S.A. Petitioner corporation put up a marginal deposit

of P50,414.00 from the proceeds of a separate clean loan. As an additional security, and as

a condition for theapproval of petitioner corporation's application forthe opening of the

commercial letter of credit,respondent bank required petitioners Percival G.Llaban and

Manuel P. Lucente to execute a Continuing Suretyship Agreement in favor of respondent

bank. Petitioner Lucente also executeda Deed of Assignment in favor of respondent bank tocover the amount of petitioner corporation's obligation to the bank. Upon compliance with

theserequisites, respondent bank opened an irrevocableletter of credit for the petitioner

corporation.To secure the indebtedness of petitionercorporation, respondent bank required

theexecution of a Trust Receipt in an amountequivalent to the letter of credit, on the

conditionthat petitioner corporation would hold the goods intrust for respondent bank, with

the right to sell thegoods and the obligation to turn over to respondentbank the proceeds of

the sale, if any. If the goodsremained unsold petitioner corporation had thefurther obligation

to return them to respondentbank. Upon arrival of the goods in the Philippines,petitioner

corporation took possession and custodythereof.Petitioner corporation defaulted in the

payment of its obligation to respondent bank and failed to turnover the goods to the latter.

Respondent bank demanded that petitioners, as entrustees, turn overthe goods subject ofthe trust receipt which wasturned over by the petitioners.The goods were sold at a public

auction withrespondent bank as the highest biddee but the proceeds of the auction sale

were insufficient to completely satisfy petitioners' outstanding obligation to respondent

bank, notwithstanding the application of the time deposit account of petitioner Lucente.

Accordingly, respondent bank demanded that petitioners pay the remaining balance of

theirobligation. After petitioners failed to do so,respondent bank instituted the case to

collect thesaid deficiency.Petitioners appealed to the Court of Appeals, raisingthe issues of:

(1) whether or not respondent bank has the right to recover any deficiency after it

hasretained possession of and subsequently effected apublic auction sale of the goods

covered by thetrust receipt; (2) whether or not respondent bank isentitled to the amount of

P3,000.00 as and forlitigation expenses and costs of the suit; and (3)whether or notrespondent bank is entitled to theaward of attorney's fees.

I s s u e :

Whether or not the respondent had the right toclaim the deficiency from petitioners

notwithstanding the fact that the goods covered by te trust receipt were fully turned over to

respondent.

R u l i n g :

A trust receipt is inextricably linked with the primaryagreement between the parties. Timeand again,we have emphasized that a trust receipt agreementis merely a collateralagreement, the purpose of which is to serve as security for a loan. Respondent bank'srepossession of the propertiesand subsequent sale of the goods were completely inaccordance with its statutory and contractualrights upon default of petitionercorporation.The second paragraph of Section 7 expressly provides that the entrustee shallbe liable to theentruster for any deficiency after the proceeds of the sale have been appliedto the payment of theexpenses of the sale, the payment of the expensesof re-taking,keeping and storing the goods,documents or instruments, and the satisfaction of theentrustee's indebtedness to the entruster.In the case at bar, the proceeds of the auctionsalewere insufficient to satisfy entirely petitioner corporation's indebtedness to therespondent bank.Respondent bank was thus well within its rights toinstitute the instant caseto collect the deficiency.


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R O S A R I O T E X T I L E M I L L S C O R P O R A T I O N a n d

E D I L B E R T O Y U J U I C O vs. H O M E B A N K E R SS A V I N G S A N D T R U S T C O M P A N Y

F a c t s :

Sometime in 1989, Rosario Textile Mills Corporation(RTMC) applied from Home BankersSavings & Trust Co. for an Omnibus Credit Line. The bank notified RTMC of the grant of thesaid. On March 3,1989, Yujuico signed a Surety Agreement in favor of the bank, in which hebound himself jointly and severally with RTMC for the payment of all RTMCs indebtednessto the bank. RTMC availed of the credit line by making numerous drawdowns,eachdrawdown being covered by a separate promissory note and trust receipt. RTMC,represented by Yujuico, executed in favor of the bank a total of eleven (11) promissorynotes.Despite the lapse of the respective due dates underthe promissory notes andnotwithstanding thebanks demand letters, RTMC failed to pay its loans.Hence, the bankfiled a complaint for sum of moneyagainst RTMC and Yujuico.RTMC and Yujuico contend that

they should beabsolved from liability. They claimed that althoughthe grant of the credit lineand the execution of thesuretyship agreement are admitted, the bank gaveassurance thatthe suretyship agreement wasmerely a formality under which Yujuico will not bepersonallyliable. They argue that the importation of raw materials under the credit line was with agrantof option to them to turn-over to the bank theimported raw materials should thesefail to meettheir manufacturing requirements. RTMC offered tomake such turn-over sincethe imported materialsdid not conform to the required specifications.However, the bankrefused to accept the same,until the materials were destroyed by a fire whichgutted downRTMCs premises.

I s s u e :

Whether or not the petitioners are not relieved of their obligation to pay their loan after theytried to tender the goods to the bank which refused to accept the same, and which goods

were subsequently lost in a fire

R u l i n g :

It is clear that the principal transaction between petitioner RTMC and the bank is a contract

of loan.RTMC used the proceeds of this loan to purchaseraw materials from a supplier

abroad. In order to secure the payment of the loan, RTMC delivered the raw materials to the

bank as collateral. Trustreceipts were executed by the parties to evidence this security

arrangement. Simply stated, the trustreceipts were mere securities.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 givinga stronger security for the loan obtained bythe importer. To consider the bank as the

trueowner from the inception of the transaction wouldbe to disregard the loan feature

thereof. Thus, petitioners cannot be relieved of their obligation topay their loan in favor of

the bank.

J O S E C . T U P A Z I V a n d P E T R O N I L A C . T U P A Z


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vs. T H E C O U R T O F A P P E A L S a n d B A N K O F T H E P H I L I P P I N E I S L A N D S

F a c t s :

Petitioners Jose C. Tupaz IV and Petronila C. Tupaz(petitioners') were Vice-President forOperationsand Vice-President/Treasurer, respectively, of ElOro Engraver Corporation (El Oro

Corporation'). ElOro Corporation had a contract with the Philippine Army to supply the latterwith 'survival bolos. To finance the purchase of the raw materials forthe survival bolos,petitioners, on behalf of El Oro Corporation, applied with respondent Bank of the PhilippineIslands (respondent bank') for two commercial letters of credit. Respondent bank grantedpetitioners' application and issued Letters of Credit. Simultaneous with the issuance oftheletters of credit, petitioners signed trust receipts infavor of respondent bank. PetitionerJose C. TupazIV signed, in his personal capacity, a trust receipt corresponding to Letter ofCredit and bound himself to sell the goods covered by the letter of credit andto remit theproceeds to respondent bank, if sold,or to return the goods, if not sold.In another letter ofcredit, petitioners signed intheir capacities as officers of El Oro Corporation, atrust receiptcorresponding to such Letter of Credit. Petitioners bound themselves to sell the goodscovered by that letter of credit and to remit theproceeds to respondent bank, if sold, or toreturnthe goods, if not sold. After Tanchaoco Incorporated and Maresco Corporation

delivered the raw materials to El OroCorporation, respondent bank paid theformer.Petitioners did not comply with their undertakingunder the trust receipts.Respondent bank made several demands for payments but El OroCorporation made partialpayments only. El Oro Corporation replied to the demand for payment thatit could not fullypay its debt because the Armed Forces of the Philippines had delayed paying for thesurvivalbolos. Respondent bank charged petitioners with estafa under Section 13,PresidentialDecree No. 115 or Trust Receipts Law(PD 115).

I s s u e :

Whether or not petitioners bound themselves personally liable for El Oro Corporation's debtsunder the trust receiptsWhether or not petitioners' acquittal of estafa under Section 13, PD 115 extinguished theircivil liability.

R u l i n g :

A corporation, being a juridical entity, may act only through its directors, officers, andemployees.Debts incurred by these individuals, acting as suchcorporate agents, are nottheirs but the directliability of the corporation they represent. As an exception, directors orofficers are personally liablefor the corporation's debts only if they so contractually agree orstipulate.Petitioners signed below this clause as officers of ElOro Corporation. Thus,under petitioner Petronila Tupaz's signature are the words Vice-Pres Treasurer and underpetitioner Jose Tupaz's signature are the words Vice-Pres Operations. By so signing thattrustreceipt, petitioners did not bind themselves personally liable for El Oro Corporation'sobligation. As to the second issue, the rule is that where the civil action is impliedlyinstituted with the criminalaction, the civil liability is not extinguished by

acquittal. Respondent bank chose not to file a separate civil action to recover paymentunder the trust receipts.Instead, respondent bank sought to recove rpayment in CriminalCase. Although the trial courtacquitted petitioner Jose Tupaz, his acquittal didnot extinguishhis civil liability. His liability arose notfrom the criminal act of which he was acquitted (ex delito) but from the trust receipt contract ( ex contractu ).

D E V E L O P M E N T B A N K O F T H E P H I L I P P I N E S vs.P R U D E N T I A L B A N K


20/22

F a c t s :

In 1973, Lirag Textile Mills, Inc. (Litex) opened anirrevocable commercial letter of credit

withrespondent Prudential Bank in connection with itsimportation of 5,000 spindles for

spinning machinery with drawing frame, simplex fly frame,ring spinning frame and various

accessories, spareparts and tool gauge. These were released to Litexunder covering 'trust

receipts' it executed in favorof Prudential Bank. Litex installed and used theitems in its

textile mill located in Montalban, Rizal.DBP granted a foreign currency loan to Litex.

Tosecure the loan, Litex executed real estate andchattel mortgages on its plant site in

Montalban,Rizal, including the buildings and otherimprovements, machineries and

equipments there. Among the machineries and equipments mortgagedin favor of DBP were

the articles covered by the'trust receipts.Prudential Bank learned about DBP's plan for

theoverall rehabilitation of Litex. Prudential Bank notified DBP of its claim over the various

itemscovered by the 'trust receipts' which had beeninstalled and used by Litex in the textile

mill.Prudential Bank informed DBP that it was theabsolute and juridical owner of the said

items andthey were thus not part of the mortgaged assetsthat could be legally ceded to

DBP.For the failure of Litex to pay its obligation, DBPextra-judicially foreclosed on the real

estate andchattel mortgages, including the articles claimed byPrudential Bank and DBP

acquired the foreclosedproperties as the highest bidder.Prudential Bank wrote a letter

to DBP reasserting itsclaim over the items covered by 'trust receipts' in itsname and

advising DBP not to include them in theauction. It also demanded the turn-over of

thearticles or alternatively, the payment of their value.DBP requested documents to enable

it to evaluatePrudential Bank's claim which was provided by thelatter. DBP informed

Prudential Bank that its claimhad been referred to DBP's legal department andinstructed

Prudential Bank to get in touch with itschief legal counsel. There being no concrete actionon

DBP's part, Prudential Bank, in a letter made afinal demand on DBP for the turn-over of

thecontested articles or the payment of their value.Without the knowledge of Prudential

Bank,however, DBP sold the Litex textile mill, as well asthe machineries and equipments

therein, to LyonTextile Mills, Inc. (Lyon). Since its demandsremained unheeded, Prudential

Bank filed acomplaint for a sum of money with damages against DBP.

I s s u e :

Whether or not the mortgagee has a right over thegoods subject of the trust receiptagreement whichwas mortgaged by the entrustee

R u l i n g :

The articles were owned by Prudential Bank were only held by Litex in trust. While it wasallowed to sell the items, Litex had no authority todispose of them or any part thereof ortheirproceeds through conditional sale, pledge or any other means. Article 2085 of the CivilCode 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. Article2085further mandates that the person constituting the pledge or mortgage must have the freedisposalof his property, and in the absence thereof, that hebe legally authorized forthe purpose. Litex had neither absolute ownership, free disposalnor the authority to freelydispose of the articles.Litex could not have subjected them to a chattelmortgage. Theirinclusion in the mortgage was voidand had no legal effect. There being no validmortgage,there could also be no valid foreclosureor valid auction sale. Thus, DBP could not beconsidered either as a mortgagee or as a purchaserin good faith. No one can transfer a rightto another greater than what he himself has. Nemo dat quod non habet.Hence, Litex could not


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22/22

statute prescribes both fine andimprisonment as penalty, a corporation may beprosecuted

and, if found guilty, may be fined. A crime is the doing of that which the penal codeforbids

to be done, or omitting to do what itcommands. A necessary part of the definition of every

crime is the designation of the author of thecrime upon whom the penalty is to be

inflicted.When a criminal statute designates an act of acorporation or a crime and prescribes

punishmenttherefor, it creates a criminal offense which,otherwise, would not exist and suchcan becommitted only by the corporation. But when apenal statute does not expressly apply

tocorporations, it does not create an offense forwhich a corporation may be punished. On

the otherhand, if the State, by statute, defines a crime thatmay be committed by

a corporation but prescribesthe penalty therefor to be suffered by the officers,directors, or

employees of such corporation or otherpersons responsible for the offense, only

suchindividuals will suffer such penalty.

Corporateofficers or employees, through whose act, defaultor omission the corporationcommits a crime, arethemselves individually guilty of the crime.The principle applieswhether or not the crimerequires the consciousness of wrongdoing. Itapplies to those

corporate agents who themselvescommit the crime and to those, who, by virtue of theirmanagerial positions or other similar relationto the corporation, could be deemedresponsible forits commission, if by virtue of their relationship tothe corporation, they hadthe power to prevent theact.

Moreover, all parties active in promoting acrime, whether agents or not, are principals.Whether such officers or employees are benefitedby their delictual acts is not a touchstoneof theircriminal liability. Benefit is not an operative fact.In this case, petitioner signed thetrust receipts inquestion. He cannot, thus, hide behind the cloak of the separate corporatepersonality of PBMI. In thewords of Chief Justice Earl Warren, a corporateofficer cannotprotect himself behind a corporationwhere he is the actual, present and efficient actor.

TRUST RECEIPT Case Digets_final

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