LETTER OF CREDIT

PASTOR
Case No. 2
Prudential Bank and Trust Company vs. IAC
216 SCRA 257 (1992)

FACTS: To effect payment for the importation of textile machineries, the Philippine Rayon Mills, Inc. applied for a commercial letter
of credit with the Prudential Bank and Trust Company in favor of Nissho. By virtue of said application, the Prudential Bank opened
Letter of Credit for $128,548.78. The defendant-appellant ceased business operation. Repeated formal demands for the payment of
the said trust receipt yielded no result. The present action for the collection of the principal amount of P956,384.95 was filed against
the defendant-appellant.

RTC ruled against Philippine Rayon and ordered to pay P153,645.22 to petitioner. On appeal with Intermediate Appellate Court
(IAC), petitioner argued that it was disregarded of its right to reimbursement from the private respondents for the entire unpaid
balance. IAC sustained trial court’s decision on the ground that the last ten (10) drafts which had not been presented to and were
not accepted by Philippine Rayon, petitioner was not justified in unilaterally paying the amounts stated therein. Hence, this petition.

ISSUE: Whether presentment for acceptance of the drafts was indispensable to make Philippine Rayon liable thereon?

RULING: NO. A letter of credit is defined as an engagement by a bank or other person made at the request of a customer that the
issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit.
In the instant case then, the drawee was necessarily the herein petitioner. It was to the latter that the drafts were presented for
payment. In fact, there was no need for acceptance as the issued drafts are sight drafts. Presentment for acceptance is necessary
only in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL).

ARZHY
Case No. 6
Not a Negotiable Instrument
Lee vs. Court of Appeals, 375 SCRA 579 (2002)

FACTS: Two domestic letters of credit (P348,000 and P290,000) were approved and opened by private respondent Philippine Bank of
Communications (PBCom) upon application of Mico Metals Corporation (MICO) on two separate occasions. The beneficiaries of
these letters of credit were paid by PBCom. Goods were delivered to MICO which executed trust receipts in favor of PBCom.
Petitioners (MICO’s authorized representatives), in their personal capacities, executed Surety Agreements in favor of PBCom jointly
and severally guaranteeing the prompt payment of letters of credits and trust receipts. All credit availments matured and MICO
failed to pay them even after a demand was made. PBCom then filed a complaint for a sum of money. Petitioners denied purchasing
and receiving the goods covered by the letters of credit and that the letter of credit transactions were resorted to by PBCom and an
unauthorized person to accommodate the latter’s financial requirements. RTC ruled in favour of MICO. On appeal, CA reversed RTC’s
decision citing Sec. 24 of NIL (Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration…).
Hence, this petition.

ISSUE: W/N a letter of credit is a negotiable instrument thus, it is a proof of the existence of the merchandise purchased

RULING: NO. Negotiable instruments include promissory notes, bills of exchange and checks. Letters of credit and trust receipts are,
however, not negotiable instruments. But drafts issued in connection with letters of credit are negotiable instruments. The drafts
signed by the beneficiary/suppliers in connection with the corresponding letters of credit proved that said suppliers were paid by
PBCom for the account of MICO. Petitioner MICO did not proffer a single piece of evidence, apart from its bare denials, to support its
allegation that the letters of credit and trust receipts were issued allegedly without any consideration.
KARLY CASE NO. 7
DIFFERENT FROM TRUST RECEIPT
BANK OF COMMERCE v. TERESITA S. SERRANO (Representative of Via Moda), G.R. No. 151895, FEBRUARY 16, 2005

FACTS: On March 15, 1994, Bank of Commerce (BOC) issued to Via Moda, Irrevocable Letter of Credit, in the amount of US$56,735,
for the purchase and importation of fabric and textile products from Tiger Ear Fabric Co. Ltd. of Taiwan. To secure the release of the
goods covered, respondent, in representation of Via Moda, executed Trust Receipt for US$55,944.73 (P1,554,424.32). Under the
terms of the trust receipt, Via Moda agreed to hold the goods in trust for petitioner as the latter's property and to sell the same for
the latter's account. On November 16, 1994, petitioner sent a demand letter to Via Moda to pay the P4,783,487.15, or to return the
goods covered by Trust Receipt within 5 days from receipt. The demand was not heeded. On March 8, 1998, respondent was
charged with the crime of estafa under Article 315 (b) of the Revised Penal Code before the RTC, which ruled in favour of BOC. On
appeal, the CA reversed the trial court’s decision. Hence, petitioner filed a petition for review on certiorari of the CA’s decision.
Petitioner BOC alleges that the said Guarantee Clause of the Letter of Credit secured by a Trust Receipt provides that the liability of
respondent is joint and solidary; hence, she should be held liable on the obligation.

ISSUE: WON RESPONDENT IS JOINTLY AND SEVERALLY LIABLE WITH VIA MODA UNDER THE GUARANTEE CLAUSE OF LETTER OF
CREDIT SECURED BY TRUST RECEIPT.

RULING: NO. Petitioner BOC failed to show sufficient reason to justify the piercing of the veil of corporate fiction. It thus ruled that
this was not Serrano's personal obligation but that of Via Moda. A letter of credit is a separate document from a trust receipt.
While the trust receipt may have been executed as a security on the letter of credit, still the two documents involve different
undertakings and obligations. A letter of credit is an engagement by a bank or other person made at the request of a customer
that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit. By
contrast, a trust receipt transaction is one where the entruster, who holds an absolute title or security interests over certain
goods, documents or instruments, released the same to the entrustee, who executes a trust receipt binding himself to hold the
goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents and
instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the
entruster, or as appears in the trust receipt, or return 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.

PASTOR
Case No. 9
Insular Bank of Asia & America vs. Intermediate Appellate Court
167 SCRA 450 (1988)

FACTS: Sometime in 1976 and 1977 respondent spouses Mendoza obtained two (2) loans from respondent Philippine American Life
Insurance Co. (Philam Life) in the total amount of P600,000.00 to finance the construction of their residential house at Mandaue
City. To secure payment, Philam Life required that amortizations be guaranteed by an irrevocable standby letter of credit of a
commercial bank. Thus, the Mendozas contracted with petitioner Insular Bank of Asia and America (IBAA) for the issuance of two (2)
irrevocable standby Letters of Credit in favor of Philam Life. The Mendozas failed to pay Philam Life the June 1978 amortization and
declared the rest of the future amortizations “entirely due and demandable”. The Trial Court ordered Defendants-spouses Ben S.
Mendoza and Juanita M. Mendoza to pay plaintiff Philippine American Life Insurance Company the sum of P322,000.00 since the
Mendoza spouses have already paid partial payments.

ISSUE: Whether or not the partial payments made by the principal obligors (respondent MENDOZAS) would have the corresponding
effect of reducing the liability of the petitioner as guarantor or surety under the terms of the standby LCs in question?

RULING: NO.
But while they are a security arrangement, they are not converted thereby into contracts of guaranty. That would make them ultra
vires rather than a letter of credit, which is within the powers of a bank. The standby L/Cs are, "in effect an absolute undertaking to
pay the money advanced or the amount for which credit is given on the faith of the instrument." Payments made by the
Mendozas directly to Philam Life are in compliance with their own prestation under the loan agreements. And although these
payments could result in the reduction of the actual amount which could ultimately be collected from IBAA, the latter's separate
undertaking under its L/Cs remains.

Guys, the case is not cited in the special commercial law book under the Standby L/C topic. Hence, no highlighted text here.
Eloise
Case No. 12 | Philippine Virginia Tobacco Administration vs. De Los Angeles (1988)
Irrevocable and revocable letters of credit

Facts: Private respondent Timoteo Sevilla, proprietor and General Manager of the Philippine Associated Resources (PAR) together
with two other entities, were awarded in a public bidding the right to import Virginia leaf tobacco. Subsequently, Petitioner
Philippine Virginia Tobacco Administration (PVTA) and Sevilla entered into a contract for the importation of tobacco and a
counterpart exportation of PVTA’s tobacco. Sevilla was requirede to open an irrevocable letter of credit with the Prudential Bank
and Trust Co. in favor of the PVTA to secure the payment of said balance. With the world market price under which respondent will
be exporting at a loss, Sevilla tried to negotiate the reduction of the procurement cost of the 2,101.479 kilos of PVTA tobacco it
already exported— which was denied by PVTA and the Office of the President. PVTA then attempted to collect from the letter of
credit with Prudential. Sevilla, after filing before the respondent Judge, was granted a writ of preliminary injunction enjoining
petitioner from drawing against the letter of credit.

Issue: Whether private respondent judge acted with GAD in ordering the release of funds to the applicant of the letter of credit.

Ruling: YES. Respondent Judge violated the irrevocability of the letter of credit issued by respondent Bank in favor of PVTA. An
irrevocable letter of credit cannot during its lifetime be cancelled or modified without the express permission of the beneficiary.
Consequently, if the finding on the trial on the merits is that respondent Sevilla has alleged unpaid balance due to PVTA, such unpaid
obligation would be unsecured. Further, there was no notice nor hearing prior the issuance, and that while the trial court has the
discretionary power to issue a preliminary mandatory injunction, the same is not absolute as the issuance of the writ is the
exception rather than the rule.

ARZHY note: this case focused on trust receipts

FACTS: Private respondent Philippine Commercial and Industrial Bank (PCIB) granted TOMCO, Inc (now Southeast Timber Co. Phils
Inc) a domestic letter of credit for P80,000 in favor of its supplier (Oregon Industries, Inc.) to pay for one Skagit Yarder with
accessories. PCIB paid P80,000 to the supplier as the cost of the machinery. TOMCO made the required marginal deposit of P28,000
and signed and delivered to PCIB a trust receipt acknowledging receipt of the machinery in trust for the bank. In consideration of the
release of the machinery to TOMCO, petitioner signed a Deed of Continuing Guaranty at the back of the trust receipt whereby he
promised to pay the obligation jointly and severally with TOMCO. No payment has been made by either TOMCO or petitioner on the
letter of credit. Bank sued both for the obligation which already accumulated to P125,766.13, inclusive of interest and other charges,
as of August 26, 1970. TOMCO alleged that its marginal deposit should be deducted from the principal obligation hence,
computation of interest and other charges should be made on the balance of P52,000 only. Trial Court and CA ruled in favor of PCIB.

ISSUE: W/N the debtor (or its surety) is entitled to deduct the debtor's cash marginal deposit from the principal obligation under a
letter of credit and to have the interest charges computed only on the balance of the said obligation

RULING: YES. The marginal deposit is a collateral security given by the debtor and is supposed to be returned to him upon his
compliance with his secured obligation. It is only fair then that the importer's marginal deposit (if one was made, as in this case),
should be set off against his debt. Although Abad is only a surety, he may set up compensation as regards what the creditor owes
the principal debtor, TOMCO (Art. 1280, Civil Code). 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 a loan feature represented by the letter of credit, and a security
feature which is in the covering trust receipt
GARCIA
CASE NO. 18
RIGHTS AND OBLIGATIONS OF PARTIES
Consolidated Bank & Trust Corporation vs. Court of Appeals, 356 SCRA 671 (2001)

FACTS: Continental Cement Corporation and Gregory Lim obtained from Consolidated Bank and Trust Corporation a letter of credit
in the amount of P1,068,150 for the purchase of around 500 liters of bunker fuel oil from Petrophil Corporation (Petrophil). On the
same date, Continental Cement paid a marginal deposit of P320,445 with the petitioner. In relation to this transaction, a trust receipt
was executed by Continental Cement for the amount of P1,001,520 with Respondent Lim, President of the Corporation, as
signatory. Eventually, Consolidated Bank claimed that Continental Cement failed to turn over the goods covered by the trust receipt
or the proceeds thereof prompting them to file a complaint for sum of money with application for preliminary attachment with the
RTC of Manila. Moreover, petitioner's contention that the marginal deposit made by respondent Corporation should not be
deducted outright from the amount of the letter of credit. Petitioner argues that the marginal deposit should be considered only
after computing the principal plus accrued interest and other charges.

ISSUE: Was petitioner’s contention with the marginal deposit correct?

RULING: NO.
To sustain petitioner on this score would be to countenance a clear case of unjust enrichment, for while a marginal deposit earns no
interest in favour of the debtor-depositor, the bank is not only able to use the same for its own purposes, interest-free, but is also
able to earn interest on the money loaned to respondent Corporation. Indeed, it would be onerous to compute interest and other
charges on the face value of the letter of credit which the petitioner issued, without first crediting or setting off the marginal deposit
which the respondent Corporation paid to it.

COELI
CASE NO. 19
LETTERS OF CREDIT: RIGHTS AND OBLIGATIONS OF PARTIES
MARPHIL EXPORT CORP & LIM v. ALLIED BANKING CORP (substituted by PNB)
GR 187922 (2016)

FACTS: PETITIONER MARPHIL is engaged in the exportation of agricultural products. MARPHIL exported cashew nuts to Intan
Trading in Hongkong. Upon application of Intan, Nanyang Commercial Bank in China issued irrevocable letters of credit to Intan, with
Marphil as beneficiary and Allied Bank as correspondent bank. After receiving the export documents, Allied Bank credited Marphil.
However, ALLIED BANK informed Marphil that Nanyang Bank noted some discrepancies in the shipping documents. Consequently,
NANYANG BANK refused to reimburse Allied Bank the amount the latter had credited in Marphil's credit line. Both the RTC and the
CA held Marphil liable for the amount equal to the face value of the Letter of Credit.

ISSUE: W/N Allied Bank is a confirming bank which undertakes Nanyang Bank's obligation as issuing bank.

RULING: NO. Allied Bank did not act as confirming bank in the said Letter of Credit. From the above-instructions, it is clear that Allied
did not undertake to assume the obligation of Nanyang to Marphil as its own, as if it had itself issued the Letter of Credit. At most, it
can only be a discounting bank which bought the drafts under the Letter of Credit. Following then the rules laid down in the case of
Bank of America, a negotiating bank has a right of recourse against the issuing bank, and until reimbursement is obtained, the
drawer of the draft continues to assume a contingent liability thereon.
CHAM
Case No. 25
BASIC PRINCIPLES OF LETTER OF CREDIT; Doctrine of Independence; In commercial letter credit
Hong Kong and Shanghai Banking Corporation (HSBC) v. Nat’l Steel Corp. (NSC) and Citytrust Banking Corp.(Now, BPI)

FACTS: NSC entered into an Export Sales Contract with Klockner East Asia Limited for prime cold rolled coils. In accordance with the
requirements, Klockner applied for and was granted an irrevocable letter of credit with HSBC in favor of NSC. The LC stated that it is
governed by the ICC Uniform Customs and Practice for Documentary Credits or UCP 400. Under UCP 400, HSBC as the issuing bank,
has the obligation to immediately pay NSC upon presentment of the documents listed in the LC. NSC coursed the collection of its
payment from Klockner through CityTrust which sent a collection order to HSBC.   Upon receipt, HSBC stated that the documents will
be presented to the drawee against payment subject to URC 322. URC 322 prescribes the collection procedures, technology, and
standards for handling collection transactions for banks. Klockner refused to pay. Thus, HSBC returned the documents to CityTrust
and stated that it considered itself discharged of its duty under the transaction. CityTrust insisted that HSBC should pay it in
accordance with the terms of the LC. Under it, HSBC undertook to reimburse the presenting bank under "ICC 400 upon the
presentment of all necessary documents." CityTrust also stated that the reference to URC 322 in its Collection Order was merely in
fine print. The Collection Order itself was only pro-forma.

ISSUE: Whether or not HSBC is liable for the payment of the LC.

RULING: Yes. HSBC is liable under the provisions of the Letter of Credit, in accordance with usage and custom as embodied in UCP
400, and under the provisions of general civil law. In transactions where the letter of credit is payable on sight, as in this case, the
issuer must pay upon due presentment. This obligation is imbued with the character of definiteness in that not even the defect or
breach in the underlying transaction will affect the issuing bank's liability. This is the Independence Principle in the law on letters of
credit. Article 17 of UCP 400 explains that under this principle, an issuing bank assumes no liability or responsibility "for the form,
sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general and/or particular conditions
stipulated in the documents or superimposed thereon ... " Thus, as long as the proper documents are presented, the issuing bank
has an obligation to pay even if the buyer should later on refuse payment. Hence, Klockner's refusal to pay carries no effect
whatsoever on HSBC's obligation to pay under the Letter of Credit. To allow HSBC to refuse to honor the Letter of Credit simply
because it could not collect first from Klockner is to countenance a breach of the Independence Principle.
 TRUST RECEIPTS

CHAM
Case No. 29
TRUST AND RECEIPTS
Lee/MICO Metals Corporation v CA (375 scra 579)

FACTS: Lee, as President of MICO, wrote PBCOM requesting for a grant of a discounting loan/credit line/trust receipts which were all
granted. As security, MICO executed a Deed of Real Estate Mortgage over its properties situated in Pasig.  Upon maturity of all credit
availments, PBCOM made a demand for payment. MICO failed to pay so PBCom extrajudicially foreclosed MICO’s real estate
mortgage and sold them in a public auction. PBCom then demanded the settlement of the aforesaid obligations from herein
petitioners-sureties who, however, refused to acknowledge their obligations under the surety agreements. Petitioners denied all the
allegations of the complaint filed by respondent PBCom, and alleged that MICO was not granted the alleged loans and neither did it
receive the proceeds of the aforesaid loans and since no loan was ever released to or received by MICO, the corresponding real
estate mortgage and the surety agreements signed concededly by the petitioners-sureties are null and void.

ISSUE: Whether or not the agreements entered into did not ripen into valid and binding contracts inasmuch as there is no evidence
of the delivery of money or loan proceeds to MICO.

RULING/MAIN POINT: No, they are valid and binding agreements. Under Section 3, Rule 131 of the Rules of Court the following
presumptions, among others, are satisfactory if uncontradicted: a) That there was a sufficient consideration for a contract and b)
That a negotiable instrument was given or indorsed for sufficient consideration. As observed by the Court of Appeals, a similar
presumption is found in Section 24 of the Negotiable Instruments Law which provides that every negotiable instrument is
deemed prima facie  to have been issued for valuable consideration and every person whose signature appears thereon to have
become a party for value. While the presumption found under the Negotiable Instruments Law may not necessarily be applicable to
trust receipts and letters of credit, the presumption that the drafts drawn in connection with the letters of credit have sufficient
consideration. Under Section 3(r), Rule 131 of the Rules of Court there is also a presumption that sufficient consideration was given
in a contract. A trust receipt, therefor, is a document of security pursuant to which a bank acquires a "security interest" in the goods
under trust receipt. Under a letter of credit-trust receipt arrangement, a bank extends a loan covered by a letter of credit, with the
trust receipt as a security for the loan. The transaction involves a loan feature represented by a letter of credit, and a security
feature which is in the covering trust receipt which secures an indebtedness.

JUSTO

Case no. 30
Trust Receipts (Week 2-3)
VINTOLA vs INSULAR BANK OF ASIA AND AMERICA G.R. No. 73271 May 29, 1987

FACTS: Spouses Vintola, working under the name of “Dax Kin International,” are engaged in the manufacture of raw sea shells into
finished products. The spouses were granted a domestic letter of credit by the Insular Bank of Asia and America (IBAA) amounting to
₱40,000. When Spouses received ₱40,000 worth of puca shells, they executed a Trust Receipt agreement with IBAA. Petitioners held
the goods in trust for IBAA with liberty to sell the same for its account, and "in case of sale" to turn over the proceeds til October 19,
1975. When the Vintolas failed to meet IBAA’s demands for payment, they were charged with estafa but was acquitted. During the
pendency of the case, the Vintolas delivered the shells in custody of the court. IBAA filed a suit for recovery of damages. The Vintolas
now claim that IBAA is barred from suing them due to their acquittal. The spouse contend that they are no longer liable to IBAA
because they have surrendered possession to the court and that by the nature of a trust receipt, IBAA was the original owner of the
goods.

ISSUES:W/N in a contract of trust receipt, the entruster is the original owner of the goods.

RULING: No. 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.
A trust receipt is a security agreement, pursuant to which a bank acquires a "security interest" in the goods.
ADDALINO
CASE NO. 31
ROSARIO TEXTILE MILLS CORP (RTMC) VS HOME BANKERS SAVINGS AND TRUST CO
462 SCRA 88

FACTS: Sometime in 1989, RTMC applied from Home Bankers Savings & Trust Co. for an Omnibus Credit Line for P10M but was only
granted 8M. Yujuico signed a Surety Agreement in favor of the bank, in which he binds himself jointly and severally with RTMC.
RTMC availed of the credit line by making numerous drawdowns, each drawdown being covered by a separate promissory note (PN)
and trust receipt. RTMC, represented by Yujuico, executed in favor of the bank a total of 11 PNs. Despite demands, RTMC failed to
pay its loans. Hence Home Bankers filed a complaint for sum of money against RTMC and Yujuico before the RTC. RTMC offered to
make a turn-over of the imported materials covered by a trust receipt since they 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.

ISSUE: WON petitioners are now relieved of their obligation to pay their loan after they tried to tender the goods to the bank which
refused to accept the same, and which goods were subsequently lost in a fire.
RULING: NO. It must be noted that RTMC filed with the bank an application for a credit line in the amount of ₱10 million, but only ₱8
million was approved. RTMC then made withdrawals from this credit line and issued several PNs in favor of the bank. In banking and
commerce, a credit line is "that amount of money or merchandise which a banker, merchant, or supplier agrees to supply to a
person on credit and generally agreed to in advance." It is thus clear that the principal transaction between petitioner RTMC and the
bank is a contract of loan. RTMC used the proceeds of this loan to purchase raw materials from a supplier abroad. In order to secure
the payment of the loan, RTMC delivered the raw materials to the bank as collateral. Trust receipts were executed by the parties
to evidence this security arrangement. Simply stated, the trust receipts were mere securities.

SHEENA
Case No. 32
Trust Receipts Law – Nature of Entruster’s Title
Colinares (& Veloso) v. CA, 339 SCRA 609 (2000)

Facts: Petitioners Colinares & Veloso (entrustee) were contracted for a consideration of P40,000 by the Carmelite Sisters to
renovate their convent. A day after obtaining the construction goods from CM Builders Center, Colinares applied for a commercial
letter of credit with the Philippine Banking Corporation PBC (entruster-bank) in favor of CM Builders. PBC approved the letter of
credit to cover the full invoice value of the goods. Petitioners signed a pro-forma trust receipt as security. Petitioners partially paid
the loan. PBC wrote to Petitioners demanding that the amount be paid within 7 days from notice. Instead of complying, Veloso
confessed that they lost P19k in the Carmelite Monastery Project and requested for a grace period. PBC continued to demand
payment of the balance. Petitioners were charged with the violation of PD 115 (Trust Receipts Law) in relation to Art. 315 of the
RPC. During trial, Veloso insisted that the transaction was a “clean loan”; that they signed the documents without reading the fine
print, only learning of the trust receipt implication much later. But PBC assured petitioners that the trust receipt was a mere
formality.

Issue: W/N petitioners’ transaction is covered by the Trust Receipt Law.

Ruling: NO. When Colinares received the merchandise from CM Builders Centre, ownership over the merchandise was already
transferred to petitioners. 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. The entruster-bank acquires a “security interest” in the goods as holder
of a security title for the advances it had made to the entrustee. The ownership of the merchandise continues to be vested in the
person who had advanced payment until he has been paid in full, or if the merchandise has already been sold, the proceeds of the
sale should be turned over to him by the importer or by his representative or successor in interest. To secure that the bank shall
be paid, it takes full title to the goods at the very beginning and continues to hold that title as his indispensable security until the
goods are sold and the vendee is called upon to pay for them; hence, the importer has never owned the goods and is not able to
deliver possession.

RYLE
Case 33
Trust Receipts Law
Consolidated Bank v. CA
356 SCRA 671

FACTS: Continental Cement Corporation and Lim (respondents) obtained from petitioner a Letter of Credit. Respondent
Corporation paid a marginal deposit to petitioner. The letter of credit was used to purchase around 500,000 liters of bunker fuel oil
from Petrophil Corporation, which the latter delivered directly to respondent Corporation in its Bulacan plant. Subsequently,
Respondent Corporation executed a trust receipt, with respondent Lim as signatory. Petitioner later filed a complaint for sum of
money with application for preliminary attachment before the RTC, claiming that respondents failed to turn over the goods covered
by the trust receipt or the proceeds thereof. Respondents averred that the transaction between them was a simple loan and not a
trust receipt transaction, and that the amount claimed by petitioner did not take into account payments already made by them.
Respondent Lim also denied any personal liability in the subject transactions.

ISSUE: Whether or not the transaction involved is a loan transaction or a trust receipt transaction

RULING: Loan transaction. 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. It is apparent that there was really no
trust receipt transaction that took place. Evidently, respondent Corporation was required to sign the trust receipt simply to facilitate
collection by petitioner of the loan it had extended to the former.

FRED
CASE 34
TRUST RECEIPTS LAW
NG v. PP, G.R. No. 173905

FACTS: Ng, engaged in business of building and fabricating telecommunication towers, had a contract with Smart, Islacom, and
Infocom for the fabrication of steel towers. Ng applied a loan from Asiatrust thru a credit line which the latter approved and required
Ng to sign several documents such as: credit line agreement, Application for irrevocable L/C, Trust Receipt Agreements, and
Promissory Notes. Later, Ng realized difficulties in collecting from his clients which resulted from him defaulting in paying his Loan.
Thus, Asiatrust sued Ng for the crime of Estafa in relation to violation of trust receipts law thru the City Prosecutor.

ISSUE: w/n Trust Receipts Law takes application in this case, such that petitioner’s failure of payment of proceeds of the goods to
Asiatrust, amounted to Estafa pursuant to Section 13 of the Trust Receipts Law.

RULING: No. Trust receipt transactions affect situations wherein the entruster, who owns or holds absolute title or security interests
over specified goods, documents or instruments, releases the subject goods to the possession of the entrustee. The release of such
goods to the entrustee is conditioned upon his execution and delivery to the entruster of a trust receipt wherein the former binds
himself to hold the specific goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods,
documents or instruments with the obligation to turn over to the entruster the  proceeds to the extent of the amount owing to the
entruster or the goods, documents or instruments themselves if they are unsold. Similarly, the entruster is entitled "only to the
proceeds derived from the sale of goods released under a trust receipt to the entrustee.". 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,
thus, it is not a trust receipt transaction.

35-39, 42-43, 49
 Case No. 35
Trust Receipts Law
Land Bank of the Philippines (LBP) v. Perez | GR No. 166884

Facts: LBP filed a complaint for Estafa against private respondents who were officers of Asian Construction and Development
Corporation (ACDC). Respondents allegedly executed trust receipts amounting to P52M to buy construction materials for two
government projects but failed to return the proceeds of the construction projects upon maturity of the trust receipts. From the
start, the parties were aware that ACDC could not possibly be obligated to reconvey to LBP the materials or the end product for
which they were used since the subject matter was the construction of the buildings, which are immovable properties. On appeal,
CA ruled that the case involved a mere loan. It emphasized that construction materials, the subject of the trust receipt transaction,
were delivered to ACDC even before the trust receipts were executed.

Issue: W/N the transaction was a trust receipt.

Ruling: No. Loan . In all trust receipt transactions, both obligations on the part of the trustee exist in the alternative – the return of
the proceeds of the sale or the return or recovery of the goods, whether raw or processed. When both parties enter into an
agreement knowing that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the
trustee, it is not a trust receipt transaction penalized under Section 13 of P.D. 115; the only obligation actually agreed upon by the
parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere loan, where the borrower is
obligated to pay the bank the amount spent for the purchase of the goods. Furthermore, it is fundamental in a trust receipt
transaction that the person who advanced payment for the merchandise becomes the absolute owner of said merchandise and
continues as owner until he or she is paid in full, or if the goods had already been sold, the proceeds should be turned over to him or
to her.

Case No. 36
Trust Receipts Law
Hur Tin Yang vs. People

Facts: Petitioner, authorized officer of Supermax Philippines, Inc, was found guilty of the crime of Estafa (Art. 315 par 1b of RPC ) in
relation to Trust Receipts Law (PD 115). Petitioner allegedly defrauded Metrobank when it refused to turn over the reinforcing bars
with estimated value of P1M covered by a Trust Receipt Agreement under a letter of credit even after repeated demands thus,
misappropriating the merchandise for his own personal benefit. Petitioner argued that Metrobank knew all along that the
construction materials were not intended for resale but for personal use of Supermax for its construction business. That the trust
receipts were demanded by Metrobank as additional security for Supermax’ loans through letter of credit for the purchase of
construction equipment and materials.

Issue: Whether or not the contract entered was a trust receipt.

Ruling/Main Point: No. Loan. The true nature of a trust receipt transaction can be found in the "whereas" clause of PD 115 which
states that a trust receipt is to be utilized "as a convenient business device to assist importers and merchants solve their financing
problems." [A] trust receipt is considered a security transaction intended to aid in financing importers and retail dealers who do not
have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit
except through utilization, as collateral, of the merchandise imported or purchased.. x x x [T]he entruster is entitled "only to the
proceeds derived from the sale of goods released under a trust receipt to the entrustee." 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. When both parties enter into an agreement knowing that the return of the goods subject of
the trust receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt transaction penalized under
Section 13 of P.D. 115; the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale
transaction. This transaction becomes a mere loan, where the borrower is obligated to pay the bank the amount spent for the
purchase of the goods.

Case 37
No trust receipt, notwithstanding the label, if goods offered as security for a loan accommodation are goods sold to the debtor
 Sps. Dela Cruz v. PPI
GR No. 158649

FACTS: Planters Products, Inc. (PPI) granted a regular credit line of P200,000 to petitioner Gloria Dela Cruz with trust receipts as
collaterals. Gloria signed two documents labelled “Trust Receipt/Special Credit Scheme (SCS)” indicating, among others, the fertilizer
or agricultural chemicals she received “upon the trust” of PPI. PPI filed a complaint for recovery of sum of money against petitioners
due to their failure to return the goods and to remit the proceeds of the sales. Petitioners alleged that Gloria was only a marketing
outlet of PPI under its SCS and not a dealer primarily obligated to PPI for the products delivered to her. That she was not able to
collect from the farmers participating in the SCS program due to typhoon Kading destroying their crops. And that she had paid
P50,000 to PPI despite the farmers’ failure to pay.

ISSUE: W/N the contract obligating Gloria is a Trust Receipt.

RULING: No. The Court clarifies that the contract, its label notwithstanding, was not a trust receipt transaction in legal
contemplation or within the purview of the Trust Receipts Law (Presidential Decree No. 115) such that its breach would render
Gloria criminally liable for estafa. Under Section 4 of the Trust Receipts Law, the sale of goods by a person in the business of selling
goods for profit who, at the outset of the transaction, has, as against the buyer, general property rights in such goods, or who sells
the goods to the buyer on credit, retaining title or other interest as security for the payment of the purchase price, does not
constitute a trust receipt transaction and is outside the purview and coverage of the law.

CASE NO. 38
CRIME AGAINST PUBLIC ORDER
PEOPLE OF THE PHILIPPINES vs. HON. JUDGE DAVID G. NITAFAN, G.R. No. 81559-60 April 6, 1992

FACTS: Allied Banking Corporation (ABC) charged private respondent Betty Sia Ang with estafa after the latter failed, upon demand,
to remit the balance of P114,884.22 she received in trust from ABC. Private respondent received a trust from ABC amounting to
P398,000 covered by a domestic letter of credit, under the express obligation to sell the same and account for the proceed of the
sale, if sold, or to return the merchandise, if not sold. On motion of the accused, respondent judge quashed the information on the
ground that a trust receipt transaction is an evidence of a loan secured so that there is a creditor-debtor relationship between the
parties. The court ruled that the penal clause of PD 115 on the Trust Receipts Law is inoperative because it does not actually punish
an offense mala prohibita.  The law only refers to the relevant estafa provision in the Revised Penal Code. On certiorari, the accused
asserted that P.D. 115 is unconstitutional as it violates the constitutional prohibition against imprisonment for non-payment of a
debt. She argued that where no malice exists in a breach of a purely commercial undertaking, P.D. 115 imputes it.

ISSUE: WON an entrustee in a trust receipt agreement who fails to deliver the proceeds of the sale or to return the goods if not sold
to the entruster-bank is liable for the crime of estafa.

RULING: YES. The alleged violation was committed sometime in 1980 or during the effectivity of P.D. 115. The failure, therefore, to
account for the P114,884.22 balance is what makes the accused-respondent criminally liable for estafa. 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. The offense is punished as a malum prohibitum regardless of the existence
of intent or malice. 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.

CASE NO. 39
TRUST RECEIPTS LAW:
 METROPOLITAN BANK & TRUST COMPANY v. SPS. TONDA, 338 SCRA 254 (2000)

FACTS: Sps. Tonda, in their capacity as officers of Honey Tree Apparel Corporation (HTAC), were granted commercial letters of credit
by Metrobank in connection with importation of raw textile materials for manufacturing of garments. Sps. Tonda executed 11 trust
receipts to secure the release of the raw materials amounting to P2.8M to HTAC. Metrobank filed a complaint against Sps. Tonda for
violation of Trust Receipts Law in relation to Estafa (Art. 315 (1) (b) of RPC) for their failure to settle their obligation despite repeated
demands and after the loan restructuring agreement failed.

ISSUE: W/N Metrobank has shown prima facie violation of the Trust Receipts Law in relation to Article 315

RULING:  YES. Trust Receipts Law declares the failure to turn over the goods or the proceeds realized from the sale thereof, is a
criminal offense punishable under Article 315 (1) (b) of the RPC. 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 RPC. Given that various trust
receipts were executed by the Sps. Tonda and that as entrustees, they did not return the proceeds  from the goods sold nor the
goods themselves to METROBANK, there is no dispute that that the Sps. Tonda failed to comply with the obligations under the trust
receipts despite several demands from METROBANK.

Case No.42
Nature of Entrustee’s title
Development Bank of the Philippines v Prudential Bank G.R No. 143772 Nov 2005

FACTS: Lirag Textile Mills, Inc (Litex) opened an irrevocable commercial letter of credit with Prudential Bank in connection with its
importation of spindles for spinning machinery. The machineries were released to Litex after executing a trust receipts in favor of
Prudential Bank. On the other hand, Litex also had a foreign currency loan with DBP where it included the machineries and
equipment covered in the trust receipts as security (chattel mortgage). DBP extra-judicially foreclosed the chattel mortgage upon
failure of Litex to pay its obligation. Prudential Bank demanded for the turn-over of the machineries or the payment of their value
since it is the absolute and juridical owner of the said articles. But DBP sold Litex textile mill (also used to secure the foreign currency
loan) including the contested articles to Lyon Textile Mills, Inc. Prudential Bank filed a complaint for sum of money and damages
against DBP.

ISSUES: WON an entrustee (Litex) can sell or mortgage the property of the entruster?

RULING: No. In a trust receipt transaction, the release of the goods to the entrustee, on his execution of a trust receipt, is
essentially for the purpose of their sale or is necessarily connected with their ultimate or subsequent sale. The entrustee is not
the owner of the property in question. Hence, the entrustee cannot mortgage the property. However, it is believed that the
entrustee is still the owner and the entrustee acquires only security interest. The entrustee cannot mortgage the property not
because he is not the owner but because he does not have the free disposal of the property to be mortgage. Litex was not
engaged in the business of selling spinning machinery, its accessories and spare parts but in manufacturing and producing textile and
various kinds of fabric. The articles were not released to Litex to be sold.

Case No. 43
Trust Receipts Law
 Prudential Bank v. NLRC | G.R. No. 112592 December 19, 1995

FACTS: Interasia Container Industries, Inc. was embroiled in 3 labor cases which were resolved against it. The Sheriff levied the writs
of execution on the personal properties of Interasia located in its factory. Prudential Bank filed an Affidavit of Third-Party Claim
asserting ownership over the seized property on the strength of trust receipts executed by Interasia in its favor. Labor Arbiter denied
and the properties were sold on public auction. Prudential Bank 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.

ISSUE: Whether or not trust receipts are mere security transactions which do not vest upon petitioner Prudential Bank any title of
ownership.

RULING: NO. A trust receipt arrangement does not involve a 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 which provides the
much needed financial assistance to 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. Further, Section 12 of P.D. No. 115 (Trust Receipts Law) assures
the entruster of the validity of his claim against all creditors. Thus, it is clear that the security interest of the entruster is not merely
an empty or idle title. To a certain extent, 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.

CASE NO. 49
NON-DELIVERY OF THE GOODS
Trinidad Ramos v. CA and People | G.R. No. L-39922-25 August 21, 1987

FACTS: Ramos was convicted of four counts of estafa. Ramos filed with the Philippine National Cooperative Bank (PNCB) four letters
of credit. Commercial invoices from different suppliers of merchandise sought to be purchased were filed for the issuance of the LCs.
The accused signed four trust receipts which uniformly contained a stipulation that he acknowledges to have received in trust from
the PNCB the merchandise covered by the documents and agrees to hold the merchandise in storage as the property of the bank.
PNCB drew its own drafts against the accused as the buyer of the merchandise. No payments were made by the bank on these
drafts. The accused pleaded for acquittal contending that there is no adequate proof of her receipt of the goods subject of the trust
receipts in question or of her having paid anything on account thereof or in connection therewith.

ISSUE: Whether or not Ramos can be convicted for Estafa despite the failure of the prosecution to prove that she received the goods
subject of the trust receipt?

RULING: NO. It is difficult to accept the prosecution's theory that it has furnished sufficient proof of delivery by the introduction in
evidence of the commercial invoices attached to the applications for the letters of credit and of the trust receipts. The invoices are
actually nothing more than lists of the items sought to be purchased and their prices. 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, no doubt with 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 papers in this way, i.e., on a single occasion, there was neither
reason nor opportunity for her to question the statement therein of receipt of the goods since it was evidently assumed that
delivery to her of the goods would shortly come to pass., According to her, the suppliers simply refused to part with the goods as no
payment had been made therefor by the Bank. 

CASE NO. 50
Novation
Ong vs. Court of Appeals, 124 SCRA 578 (1983)

FACTS: A CRIMINAL information for estafa was filed by a Fiscal against Ong who allegedly failed to turn over the proceeds of the sale
or to return the goods received from Tramat Mercantile, Inc. After the case of estafa was filed against Ong, Tramat Mercantile, Inc.,
filed a complaint against him in CIVIL Case for sum of money. Later, the parties entered into a compromise agreement to settle the
claim in said civil case. Petitioner moved for the dismissal of the criminal charge on the ground of novation because of the
compromise agreement entered into between him and the complainant —RTC denied. Petitioner filed a petition for certiorari with
CA—DISMISSED.

ISSUE: Whether, due to the compromise agreement by the parties in the civil case, the criminal charge should be dismissed
RULING: NO. The novation theory cannot stand. The crime being an offense against the state, only the latter can renounce it.
Novation is not one of the means recognized by the Penal Code whereby criminal liability can be extinguished.

CASE NO. 51
Pilipinas Bank v. Ong. 387 SCRA 37 (2002)

FACTS: BMC, through its president, Ong, applied for a domestic commercial letter of credit with Pilipinas Bank to finance the
purchase of sawn lumber—approved. As security, Ong, executed 2 trust receipts providing inter alia  that it shall turn over the
proceeds of the goods to the bank if sold, or return the goods if unsold, upon maturity on due dates agreed upon, but BMC failed to
comply with the trust receipt agreement. It then filed with the SEC a Petition for Rehabilitation and for a Declaration in a State of
Suspension of Payments. SEC issued an order creating a Management Committee wherein the bank is represented. BMC and
Pilipinas Bank entered into a MOA rescheduling the payment of BMC’s existing debts. SEC approved the Rehabilitation Plan of BMC.
However, BMC and respondent Ong still defaulted in the payment of their obligations.

ISSUE: W/N respondents can be held liable for violation of the Trust Receipts Law.

RULING: NO. Mere failure to deliver the proceeds of the sale or the goods, if not sold, constitutes violation of PD No. 115. However,
what is being punished by the law is 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. In this case, no dishonesty nor abuse of confidence can be attributed to BMC
because record shows that BMC were experiencing serious liquidity problems prompting it to seek SEC. Further, The execution of
the MOA extinguished respondents’ obligation under the trust receipts. Respondents’ 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.

CASE NO. 54
Trust Receipts Law
Ong v. CA ǀ G.R. No. 119858, 29 April 2003

FACTS: Petitioner Ong was charged with two counts of estafa under separate Informations. Ong, representing ARMAGRI
International Corporation (ARMAGRI applied for LOCs with SOLIDBANK (Bank)—approved. The Bank opened letters of credit and
executed two trust receipts. Both contained the same stipulations under which ARMAGRI undertook to account for the goods held in
trust for the Bank, or if the goods are sold, to turn over the proceeds to the Bank. ARMAGRI also undertook the obligation to return
the goods upon demand by the Bank, if not sold. When the trust receipts became due and demandable, ARMAGRI failed to pay or
deliver the goods to the Bank despite several demand letters. RTC found petitioner guilty. CA affirmed the RTC in toto.

ISSUE: Whether or not the CA erred in finding him liable for the default of ARMAGRI, arguing that in signing the trust receipts, he
merely acted as an agent of ARMAGRI.

RULING: NO.

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.

--lahat sila Ong, hehehe what are the odds

FACTS: Philippine Blooming Mills, Inc. (PBMI), through petitioner, applied with the Rizal Commercial Banking Corporation (RCBC)
(respondent bank) for the issuance of commercial LOC to finance its importation of assorted goods—approved. Petitioner signed 13
trust receipts under which petitioner agreed to hold the goods in trust for the said bank, with authority to sell but not by way of
conditional sale, pledge or otherwise; and in case such goods were sold, to turn over the proceeds thereof as soon as received. In
case the goods remained unsold within the specified period, the goods were to be returned to respondent bank without need of
demand. When the trust receipts matured, petitioner failed to pay his obligation.

ISSUE: Whether or not Petitioner can be indicted for violation of the Trust Receipts Law.

RULING: YES. A trust receipt transaction, within the meaning of PD115, is any transaction by and between a person referred to in
this Decree as the entruster, and another person referred to in this Decree as entrustee. T he 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".

CASE 56
II Trust Receipts Law: (8) Penal Sanctions if offender is a Corporation
Tupaz v. CA, G.R. No. 145578
CASE NATURE: Petition For Review: Partially Granted

FACTS: Philippine Army contracted with El Oro Corp. for the supply of survival Bolos. El Oro, thru Jose and Petronila (both surnamed
Tupaz)applied with BPI for 2 commercial L/C--granted. After the delivery of raw materials to El Oro, BPI paid said 2 corporations. El
Oro defaulted in payment due to delayed payments of AFP. Thus, BPI, thru the fiscal, sued petitioners with estafa under Sec 13 of
PD 115 (Trust Receipts Law) where the RTC Makati acquitted petitioners but held them jointly and severally liable (civil liability) . CA
affirmed. Hence this petition.

ISSUE: w/n petitioners, as corporate officers of El Oro Corp, is jointly and severally liable to BPI for the payment of the amount of
L/C?

RULING: Only Jose relative to the first L/C issued by BPI. As guarantor, petitioner Jose Tupaz is liable for El Oro Corporation's
principal debt and other accessory liabilities (as stipulated in the trust receipt and as provided by law. Further, Jose waived the
benefit of excussion under his guarantee.A corporation, being a juridical entity, may act only through its directors, officers, and
employees. Debts incurred by these individuals, acting as such corporate agents, are not theirs but the direct liability of the
corporation they represent. As an exception, directors or officers are personally liable for the corporation's debts only if they so
contractually agree or stipulate

Case No. 58
Trust Receipts Law
Sarmiento vs. Court of Appeals GR. 122502 (2002)

FACTS: Limpin, Jr. and Apostol of ‘Davao Libra Industrial Sales,’ filed an application for an Irrevocable Domestic Letter of Credit with
Associated Banking Corpo.—approved. Thereafter, a Trust Receipt was executed to which Sarmiento signed as surety/guarantor.
They failed to comply with their undertaking under the Trust Receipt and failed to pay their account despite demands. A complaint
for Violation of the Trust Receipt Law was filed against them. Sarmiento, Jr. was, however, dropped from the Information, while
Limpin was convicted. RTC rendered judgment in favor of Associated Banking Corporation and ordered petitioners to pay. CA
affirmed.

ISSUE: Whether the institution of the criminal case bars the filing of the present civil action against petitioners.

RULING: NO. private respondent’s 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 violation of the Trust Receipts Law (P.D. 115) in relation to Article 315(1), (b) RPC. 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 No. 59

Trust Receipts Law | 9.b Remedies Available

Philippine National Bank vs. Pineda | GR No. L-46658

Facts: PNB approved the application and opening by TCC Tayabas Cement Company, Inc of a L/C to cover the importation of a
cement plant machinery and equipment. Such machinery were released to TCC under a trust receipt agreement.The seller of the
equipment was able to draw against the L/C as scheduled but TCC was unable to pay the corresponding amount covered by the
drawings Thus, pursuant to the trust receipt agreement, PNB notified TCC of its intention to repossess, as it later did, the imported
machinery and equipment..

Issue: W/N TCC's liability has been extinguished by the repossession of PNB of the imported cement plant machinery and
equipment.

Ruling: No. A trust receipt, is a security agreement, pursuant to which a bank acquires a "security interest" in the goods. . It must be
remembered that PNB took possession of the imported cement plant machinery and equipment pursuant to the trust receipt
agreement. 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.

AIRA
CASE NO. 60
South City Homes, Inc., Fortune Motors, and Palawan Lumber Manufacturing Corp. vs. BA Finance Corporation (BAFC), 371 SCRA
603, December 07, 2001

FACTS: Petitioners executed a Continuing Suretyship Agreement in which said corporations guaranteed the prompt payment of the
indebtedness of Fortune Motors to BA Finance Corporation (BAFC). Canlubang Automotive Resources Corporation (CARCO) drew 6
drafts in its own favor charged to the account of Fortune Motors. Fortune Motors executed trust receipts covering the motor
vehicles under which it agreed to remit to the entruster (CARCO) the proceeds of any sale and  surrender the unsold vehicles. The
drafts and trust receipts were assigned to BAFC. Upon failure of Fortune Motors to pay, remit the proceeds or to return the unsold,
BAFC sent demand letters to petitioners. BAFC then filed a complaint for a sum of money. Petitioners: Posit that as an entruster,
BAFC must first demand the return of the unsold vehicles from Fortune Motors. Having failed to do so, petitioners had no cause of
action.

ISSUE: Whether BAFC has a valid cause of action for a sum of money.

RULING: YES. 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, the entruster 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.

AYEH
CASE NO. 61
REMEDY OF ENTRUSTER
Landl & Company Inc v Metropolitan Bank & Trust Company (G.R. No. 159622 July 30, 2004)

FACTS: Petitioner Corporation opened Commercial Letter of Credit with respondent bank to purchase various welding rods and
electrodes from Perma Alloys, Inc. To secure the indebtedness, respondent bank required the execution of a Trust Receipt on the
condition that petitioner would hold the goods in trust for respondent bank, with the right to sell the goods and the obligation to
turn over to respondent bank the proceeds of the sale, if any. If the goods remained unsold, petitioner had the further obligation to
return them to respondent bank. Upon arrival of the goods, petitioner took possession and custody thereof. On the maturity date of
the trust receipt, petitioner defaulted in the payment of its obligation and failed to turn over the goods. Later, petitioners turned
over the subject goods. It was sold in a public auction BUT proceeds of the auction sale were insufficient. Accordingly, respondent
bank demanded that petitioners pay the remaining balance of their obligation.

ISSUE: WON in a trust receipt transaction, an entruster which had taken actual and juridical possession of the goods covered by the
trust receipt may subsequently avail of the right to demand from the entrustee the deficiency of the amount covered by the trust
receipt.

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. Respondent bank's repossession of the properties and subsequent sale of the goods were completely in
accordance with its statutory and contractual rights upon default of petitioner corporation. Trust Receipts Law expressly provides
that the entrustee shall be liable to the entruster for any deficiency after the proceeds of the sale have been applied to the payment
of the expenses of the sale, the payment of the expenses of re-taking, keeping and storing the goods, documents or instruments,
and the satisfaction of the entrustee's indebtedness to the entruster. Here, the proceeds of the auction sale were insufficient to
satisfy entirely petitioner's indebtedness.

WAREHOUSE RECEIPTS

Martin
Case No. 62
WAREHOUSE RECEIPT’S LAW
Estrada, et al. vs. Court of Agrarian Relations and Galvan, 2 SCRA 986 (1961)

Facts: This is a case for contempt wherein the Supreme Court previously ordered the manager of the Moncada Bonded Warehouse
to release and give to petitioners (tenants) the remaining deposits of their palay. However, owner/manager refused to comply
unless "the original of the receipts of palay deposits be presented and surrendered to him." Thus, the SC, in another Resolution
ordered Galvan (landlord) to surrender the original of the receipts to the owner/manager of the said warehouse. Nonetheless, both
Galvan (could no longer locate the receipts after a fire happened in his office building) and owner/manager of the warehouse (no
receipts received) did not comply hence this petition.

Issue: Whether the incidents can serve as a valid excuse to evade compliance with the Court’s orders.

Ruling: NO. The excuses respectively offered by the manager of the Warehouse and Galvan are not without some merits. The
former unquestionably had the right to protect the interest of the bonded warehouse, as the warehouse receipts might have
been for the value in favor of innocent third parties; and Galvan, might have in fact lost said warehouse receipts. Such incidents,
however, do not constitute a valid excuse to evade compliance with the order of this Court, and, considering that the petitioners are
in dire need of said palay for their subsistence, our order must be carried out in the meantime that this cases have not been finally
decided in order to ameliorate the precarious situation in which said petitioners find themselves.

Justo
Case No. 63
Warehouse Receipt Law
Consolidated Terminals (CTI) vs. Artex Development Co., 63 SCRA 46

Facts: CTI received 193 bales of raw cotton. CTI would keep the cotton in behalf of Luzon Brokerage Corporation until consignee
Paramount Textile Mills, Inc. (Paramount), opens the corresponding letter of credit in favor of shipper, Adolph Hanslik Cotton of
Corpus Christi, Texas. The cotton bales were however released to Artex through a forged permit. CTI filed an action for replevin but
transformed its complaint to a complaint for damages against Artex. CTI asserts that, as warehouseman, it was entitled to the
possession of the bales of cotton claiming that Artex acted wrongfully in depriving CTI of the possession of the merchandise due to
the forged permit.

Issue: W/N CTI had a cause of action?

Ruling: NO. It was not the owner of the cotton. The real parties interested in the bales of cotton were Luzon Brokerage Corporation
as depositor, Paramount Textile Mills, Inc. as consignee, Adolph Hanslik Cotton as shipper and the Commissioners of Customs and
Internal Revenue with respect to the duties and taxes. Warehouseman has no cause of action for repossession and damages on the
basis of a falsified delivery permit. Warehouseman has no cause of action against the person to whom it delivered deposited
articles where the real parties interested in the questioned articles have not yet sued the warehouseman for damages on account
of wrongful delivery.

ADDALINO
CASE NO. 64
WAREHOUSE RECEIPTS LAW
Philippine National Bank vs. Noah’s Ark Sugar Refinery, 226 SCRA 36 (1993)

FACTS: Noah's Ark Sugar Refinery (Noah) issued warehouse receipts (quedans) covering sugars, to Rosa Sy, RNS Merchandising and
St. Therese Merchandising. RNS and St Therese Merchandising negotiated and indorsed the quedans to Ramos and Zoleta, who then
indorsed the quedans as security for loans obtained by them from PNB. The quedans were unpaid upon maturity. Thus, PNB wrote
to Noah demanding delivery of the sugar covered by the quedans. Noah's Ark refused to comply claiming that the quedans are not
negotiable instruments within the purview of the Warehouse Receipts Law. PNB filed a complaint against Noah’s Ark. RTC dismissed
PNB’s complaint for lack of cause of action.

ISSUES: Whether PNB as indorsee/pledgee of quedans was entitled to delivery of sugar stocks from the warehouseman, Noah's Ark.

RULING: YES. If the quedans were negotiable in form and duly indorsed to PNB (the creditor), the delivery of the quedans to PNB
makes the PNB the owner of the property covered by said quedans. PNB's right to enforce the obligation of Noah as a
warehouseman, to deliver the sugar stock to PNB as holder of the quedans, does not depend on the outcome of the third-party
complaint because the validity of the negotiation transferring title to the goods to PNB as holder of the quedans is not affected by an
act of RNS Merchandising and St. Therese Merchandising, in breach of trust, fraud or conversion against Noah's Ark.

WEE
CASE NO. 65
Warehouse Receipts Law
PNB v. Se ∣ G.R. No. 119231, 18 April 1996

FACTS: Noah’s Ark Sugar Refinery issued warehouse receipts covering sugar stocks deposited by Rosa Sy of RNS Merchandising and
those deposited by Teresita of St. Therese. The warehouse receipts (quedans) were negotiated and endorsed to Ramos and Zoleta
who used the quedans as security for two loan agreements with PNB. Ramos and Zoleta failed to pay their loan hence PNB
demanded from Noah’s Ark the delivery of the sugar stocks covered by the warehouse receipts but Noah’s Ark refused. PNB filed
before the RTC a Complaint for Specific Performance. RTC denied. Upon appeal, CA nullified RTC order. Upon private respondent’s
motion to be heard on their claim for warehouseman’s lien, the Court ruled that there exists in favor of the defendants a valid
warehouseman’s lien.

ISSUE: Whether PNB should pay storage fees for sugar stocks covered by warehouse receipts stored in the warehouse of private
respondents.

RULING: YES. Petitioner PNB is legally bound to stand by the express terms and conditions on the face of the Warehouse Receipts as
to the payment of storage fees. Petitioner is estoppel in disclaiming liability for the payment of storage fees while claiming to be
entitled to the sugar stocks covered by the subject Warehouse Receipts. The unconditional presentment of the receipts by the
petitioner for payment against private respondents carried with it the admission of the existence and validity of the terms,
conditions and stipulations written on the face of the Warehouse Receipts. Petitioner may not now retrieve the sugar stocks
without paying the lien due private respondents as warehouseman. 
SHEENA
Case No. 66
III. WAREHOUSE RECEIPT’S LAW
PHILIPPINE NATIONAL BANK, VS. HON. MARCELINO L. SAYO, JR. G.R. No. 129918, 1998

FACTS: Noah's Ark Sugar Refinery issued on several dates Warehouse Receipts (quedans) covering sugar deposited by Rosa Sy, RNS
Merchandising, and St. Therese Merchandising. Warehouse Receipts were negotiated to Ramos and Zoleta who used the quedans as
security for two loan agreements from the PNB. After the decision in PNB v. Se became final and executory, Noah’s Ark and its
officers filed a Motion for Execution of Defendants’ Lien as Warehouseman pursuant to SC’s decision which was opposed by PNB.
RTC, presided Hon. Sayo Jr., granted the Motion for Execution. PNB filed an Urgent Motion seeking the deferment of the
enforcement of the Writ. Nevertheless, the Sheriff levied on execution several properties of PNB.

ISSUE: W/N the loss of warehouseman’s lien extinguishes the obligation of PNB to pay storage fees and charges.

RULING: NO. The warehouseman is entitled to the warehouseman’s lien that attaches to the goods that may be invoked against
anyone who claims a right of possession thereon. In this case, the lien was lost when the respondents refused to deliver the
goods, which were not anchored to a valid excuse (i.e. non satisfaction of warehousemean’s lien) but on an adverse claim of
ownership.
HOWEVER, the loss of Warehouseman’s lien does not necessarily mean the extinguishment of the obligation to pay the
Warehouseman’s fees and charges, which continues to be a personal liability of the owners, PNB in this case. While PNB is entitled
to the stocks of sugar as the endorsee of the quedans, delivery to it shall be effected only upon payment of the storage fee.