1) [G.R. No.

 135462. December 7, 2001.]

SOUTH CITY HOMES, INC., FORTUNE MOTORS (PHILS.), PALAWAN LUMBER MANUFACTURING
CORPORATION, petitioners, vs. BA FINANCE CORPORATION, respondent.

FACTS:
Joseph L.G. Chua, President of petitioner Fortune Motors Corporation (Fortune), executed in favor of private
respondent BA Finance Corporation (BA) a Continuing Suretyship Agreement, in which he "jointly and
severally unconditionally" guaranteed the "full, faithful and prompt payment and discharge of any and all
indebtedness" of Fortune to BA. Palawan Lumber Manufacturing Corporation and South City Homes, Inc. ,
also executed in favor of BA Finance a Continuing Suretyship Agreement guaranteeing any and all
indebtedness of Fortune Motors Corporation to BA Finance Corporation. At the time of the signing of the surety
agreement, there was no principal obligation.
Six months later, Canlubang Automotive Resources Corporation (CARCO) drew six (6) drafts in its own favor,
payable thirty (30) days after sight, charged to the account of Fortune Motors Corporation. Fortune thereafter
executed trust receipts covering the motor vehicles delivered to it by CARCO under which it agreed to remit to
the Entruster (CARCO) the proceeds of any sale and immediately surrender the remaining unsold vehicles.
CARCO also made an assignment of credit in favor of BA Finance Corporation.
However, Fortune failed to pay the amounts due under the drafts and to remit the proceeds of motor vehicles
sold or to return those remaining unsold in accordance with the terms of the trust receipt agreements. BA filed
a complaint for a sum of money against Fortune, South City Homes, Inc., and Palawan Lumber Manufacturing
Corporation.
Petitioners filed a motion to dismiss the complaint arguing that the subrogation effected a novation without
consent of the debtor which extinguished the latter’s liability; that the suretyship agreements are null and void
for having been entered into without an existing principal obligation; and that being such sureties does not
make them solidary debtors. Petitioners also argued that as an entruster, respondent BA Finance must first
demand the return of the unsold vehicles from Fortune Motors Corporation, pursuant to the terms of the trust
receipts. Since they failed to do so, they had no cause of action whatsoever against Fortune Motors
Corporation and the action for collection of sum of money was, therefore, premature. 
The lower court rendered judgment ordering petitioners jointly and severally to pay BA the amounts due under
the draft. On appeal, the Court of Appeals affirmed the judgment of the trial court. Hence, the present petition.

ISSUES:
(1) Whether the suretyship agreement is valid?
(2) Whether there was a novation of the obligation so as to extinguish the liability of the sureties?
(3) Whether respondent BAFC has a valid cause of action for a sum of money following the drafts and trust
receipts transactions?
RULINGS:

(1) YES. The Supreme Court affirmed the decision of the Court of Appeals. Although there was no principal
obligation at the time of signing of the suretyship agreement as the principal obligation was signed six (6)
months later, the Court upheld the validity of the surety agreement because Article 2053 of the Civil
Code specifically allows a suretyship agreement to secure future loans even if the amount is not yet known. 
(2) NO. The Court also ruled that the assignment of credit of CARCO in favor of BA did not extinguish
petitioners' obligation because in an assignment of credit the debtor's consent is not essential for the validity of
the assignment and the assignee merely steps into the shoes of the original creditor as subrogee of the latter
and acquires the power to enforce the terms to the same extent as the assignor could enforce it against the
debtor. 

(3) YES. In the event of default by the entrustee on his obligations under the trust receipt agreement, it
is not absolutely necessary that the entruster cancel the trust and take possession of the goods to be
able to enforce his rights thereunder.
A trust receipt is a security transaction intended to aid in financing importers and retail dealers who do not have
sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able
to acquire credit except through utilization, as collateral, of the merchandise imported or purchased.
We ruled:
". . . Significantly, the law uses the word "may" in granting to the entruster the right to cancel the trust and take
possession of the goods. Consequently, petitioner has the discretion to avail of such right or seek any
alternative action, such as a third party claim or a separate civil action which it deems best to protect its
right, at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the
trust agreement."

2) [G.R. No. 110844. April 27, 2000.]

ALFREDO CHING, petitioner, vs. HON. COURT OF APPEALS, HON. ZOSIMO Z. ANGELES, RTC - BR. 58,
MAKATI, METRO MANILA, PEOPLE OF THE PHILIPPINES AND ALLIED BANKING
CORPORATION, respondents.

FACTS:

Petitioner Alfredo Ching was charged before the Regional Trial Court of Makati, Branch 58, with four counts of
estafa punishable under Article 315, par. 1 (b) of the Revised Penal Code, in relation to Presidential Decree
115, otherwise known as the "Trust Receipts Law." The informations accused Ching of having executed a trust
receipt agreement in favor of Allied Banking in consideration of receipt by Ching of goods under the terms of
which the accused agreed to sell the same for cash with the express obligation to remit to the complainant
bank the proceeds of the sale and/or to turn over the goods, if not sold, on demand. However, the accused,
once in possession of said goods, allegedly misappropriated and converted to his own personal use and
benefit the said goods and/or the proceeds of the sale thereof, and despite repeated demands, failed and
refused to account for and/or remit the proceeds of sale thereof to the Allied Banking Corporation.
Petitioner Ching then filed an "Omnibus Motion to Strike Out Information, or in the Alternative to Require Public
Prosecutor to Conduct Preliminary Investigation, and to Suspend in the Meantime Further Proceedings in
these Cases." Acting on the omnibus motion, the Regional Trial Court required the prosecutor's office to
conduct a preliminary investigation and suspended further proceedings in the criminal cases.
Petitioner Ching, together with Philippine Blooming Mills Co., Inc., filed a case before the Regional Trial Court
of Manila (RTC-Manila), Branch 53, for declaration of nullity of documents against Allied Banking and for
damages. Ching then filed a petition before the RTC-Makati, Branch 58, for the suspension of the criminal
proceedings on the ground of prejudicial question in a civil action.
The RTC-Makati issued an order which denied the petition for suspension and scheduled the arraignment and
pre-trial of the criminal cases. As a result, petitioner moved to reconsider the order to which the prosecution
filed an opposition which was denied. Petitioner brought before the Court of Appeals a petition for certiorari and
prohibition, which sought to declare the nullity of the aforementioned orders. The Court of Appeals denied the
petition. Reconsideration having been denied, petitioner filed this petition.

ISSUE: Whether the pendency of a civil action for damages and declaration of nullity of documents, specifically
trust receipts, warrants the suspension of criminal proceedings instituted for violation of Article 315 1(b) of the
Revised Penal Code, in relation to P.D. 115, otherwise known as the "Trust Receipts Law"?

RULING:
NO. The Supreme Court held that there existed no prejudicial question in the case. A violation of a trust receipt
arrangement is not the sole basis for incurring liability under Article 315 1(b) of the Code.
Verily, under the prevailing circumstances, the alleged prejudicial question in the civil case for declaration of
nullity of documents and for damages, does not juris et de jure determine the guilt or innocence of the accused
in the criminal action for estafa; to put it differently, even on the assumption that the documents are
declared null, it does not ipso facto follow that such declaration of nullity shall exonerate the accused
from criminal prosecution and liability.
The criminal liability of the accused for violation of Article 315 1(b) of the Revised Penal Code, may still be
shown through the presentation of evidence to the effect that: (a) the accused received the subject goods in
trust or under the obligation to sell the same and to remit the proceeds thereof to Allied Banking Corporation,
or to return the goods, if not sold; (b) that accused Ching misappropriated or converted the goods and/or the
proceeds of the sale; (c) that accused Ching performed such acts with abuse of confidence to the damage and
prejudice of Allied Banking Corporation; and (d) that demand was made by the bank to herein petitioner.
Presidential Decree 115, otherwise known as the "Trust Receipts Law", specifically Section 13 thereof,
provides: "The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or
instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the
trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the
provisions of Article Three hundred fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred
and fifteen, as amended, otherwise known as the Revised Penal Code”
We must stress though, that an act violative of a trust receipt agreement is only one mode of committing estafa
under the abovementioned provision of the Revised Penal Code.
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.
Further, a trust receipt is a document in which is expressed a security transaction whereunder the lender,
having no prior title in the goods on which the lien is to be given and not having possession which remains in
the borrower, lends his money to the borrower on security of the goods which the borrower is privileged to sell
clear of the lien with an agreement to pay all or part of the proceeds of the sale to the lender. It 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.
Clearly, a trust receipt partakes the nature of a security transaction, and could never be a mere additional or
side document as alleged by petitioner because a party to a trust receipt agreement could easily renege on its
obligations thereunder, thus undermining the importance and defeating with impunity the purpose of such an
indispensable tool in commercial transactions
3) G.R. No. 117913               February 1, 2002
CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD VELASCO and ALFONSO
CO, petitioners,
vs.
COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.

FACTS:

 Mico Metals Corporation, through its Vice-President and General Manager, executed a Deed of Real
Estate Mortgage over its properties in Pasig, Metro Manila to secure the loans obtained from PBCom.
Petitioners sureties, in their personal capacities, executed a surety agreement in favor of PBCom
whereby petitioners, jointly and severally, guaranteed the prompt payment on due dates of letters of
credits and other obligations of every kind and nature, for which Mico may be held accountable by
PBCom. Mico also filed with PBCom applications for domestic and foreign letters of credit which were
approved.

 The aforementioned real estate mortgage was foreclosed and the said mortgaged properties were sold
in a public auction for Mico's failure to pay the obligations incurred upon maturity. The proceeds of the
purchase price at public auction were applied to the outstanding obligations of Mico, leaving still an
unpaid balance which Mico refused to acknowledge. Hence, PBCom filed a complaint for a sum of
money with prayer for writ of preliminary attachment before the RTC.

 Petitioners (MICO and herein petitioners-sureties) 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; PBCom acted in bad faith in granting the alleged loans and
in releasing the proceeds thereof; petitioners were never advised of the alleged grant of loans and the
subsequent releases therefor, if any; 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.

 The trial court dismissed the complaint filed by PBCom ang gave credence to the testimonies of the
petitioners. It likewise declared the real estate mortgage and its foreclosure null and void. It held that
PBCom failed to adequately prove that the proceeds of the loans were ever delivered to MICO. The trial
court said that the lack of proof as regards the existence of the merchandise covered by the letters of
credit bolstered the claim of herein petitioners that no purchases of the goods were really made and
 that the letters of credit transactions were simply resorted to by the PBCom and Chua Siok Suy to
accommodate the latter in his financial requirements.

 However, the Court of Appeals reversed the ruling of the trial court. Citing 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 thereto for value". The Court of Appeals said that while the subject promissory
notes and letters of credit issued by the PBCom made no mention of delivery of cash, it is presumed
that said negotiable instruments were issued for valuable consideration.

 Petitioners then filed a motion for reconsideration with the Court of Appeals which was denied. Hence,
the petitioners-sureties then filed a petition for review on certiorari with the Supreme Court, assailing
the decision of the Court of Appeals.

 MICO likewise filed a separate petition for review on certiorari, docketed as G.R. No. 117914, with this
Court assailing the same decision rendered by the Court of Appeals. Upon motion filed by petitioners,
the two (2) petitions were consolidated on January 11, 1995.

ISSUES:
(1) Whether or not the proceeds of the loans and letters of credit transactions were ever delivered to MICO?
(2) Whether or not private respondent PBCom allegedly failed to prove that it actually made payments under
the letters of credit since the bank drafts presented as evidence show that they were made in favor of the Bank
of Taiwan and First Commercial Bank?

RULINGS:
(1) YES. In the case, PBCom presented promissory notes, trust receipts, letter of credit and drafts to prove
petitioners’ credit availments and liabilities. The above-cited documents presented have not merely
created a prima facie case but have actually proved the solidary obligation of MICO and the petitioners,
as sureties of MICO, in favor of respondent PBCom. 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. Hence, petitioners should have presented credible evidence to rebut that presumption as
well as the evidence presented by private respondent PBCom. The letters of credit show that the pertinent
materials/merchandise have been received by MICO. 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. On the other hand, aside from their bare denials, petitioners did not present sufficient and
competent evidence to rebut the evidence of private respondent PBCom. Petitioner MICO did not proffer a
single piece of evidence, apart from its bare denials, to support its allegation that the loan transactions, real
estate mortgage, letters of credit and trust receipts were issued allegedly without any 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. Negotiable instruments which are meant to be substitutes for money, must conform
to the following requisites to be considered as such a) it must be in writing; b) it must be signed by the
maker or drawer; c) it must contain an unconditional promise or order to pay a sum certain in money;
d) it must be payable on demand or at a fixed or determinable future time; e) it must be payable to
order or bearer; and f) where it is a bill of exchange, the drawee must be named or otherwise indicated
with reasonable certainty. 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.

(2) NO. Letters of credit, being usually bank to bank transactions, involve more than just one bank.
Consequently, there is nothing unusual in the fact that the drafts presented in evidence by respondent bank
were not made payable to PBCom. As explained by respondent bank, a draft was drawn on the Bank of
Taiwan by Ta Jih Enterprises Co., Ltd. of Taiwan, supplier of the goods covered by the foreign letter of credit.
Having paid the supplier, the Bank of Taiwan then presented the bank draft for reimbursement by PBCom’s
correspondent bank in Taiwan, the Irving Trust Company — which explains the reason why on its face, the
draft was made payable to the Bank of Taiwan. Irving Trust Company accepted and endorsed the draft to
PBCom. The draft was later transmitted to PBCom to support the latter’s claim for payment from MICO. MICO
accepted the draft upon presentment and negotiated it to PBCom.
Modern letters of credit are usually not made between natural persons. They involve bank to bank
transactions. Historically, the letter of credit was developed to facilitate the sale of goods between, distant and
unfamiliar buyers and sellers. It was an arrangement under which a bank, whose credit was acceptable to the
seller, would at the instance of the buyer agree to pay drafts drawn on it by the seller, provided that certain
documents are presented such as bills of lading accompanied the corresponding drafts. Expansion in the use
of letters of credit was a natural development in commercial banking.38 
A trust receipt is considered as 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. 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.

4) [G.R. No. 73271. May 29, 1987.]

SPOUSES TIRSO I. VINTOLA and LORETO DY VINTOLA, defendants-appellants, vs. INSULAR BANK OF
ASIA AND AMERICA, plaintiff-appellee.

FACTS:
On August 20, 1975, the spouses Tirso and Loreta Vintola, engaged in the manufacture of raw sea shells into
finished products, applied for and were granted a domestic letter of credit by the Insular Bank of Asia and
America (IBAA), Cebu City  in the amount of P40,000.00. The Letter of Credit authorized the bank to negotiate
for their account drafts drawn by their supplier, one Stalin Tan, for the purchase of puka and olive seashells.
In consideration thereof, the VINTOLAS, jointly and severally, agreed to pay the bank "at maturity, in Philippine
currency, the equivalent of the aforementioned amount or such portion thereof as may be drawn or paid, upon
the faith of the said credit together with the usual charges."
On the same day, August 20, 1975, having received from Stalin Tan the puka and olive shells worth
P40,000.00, the VINTOLAS executed a Trust Receipt agreement with IBAA, Cebu City. Under that Agreement,
the VINTOLAS agreed to hold the goods in trust for IBAA as the "latter's property with liberty to sell the same
for its account, " and "in case of sale" to turn over the proceeds as soon as received to (IBAA).
However, the Vintolas defaulted. The IBAA demanded payment which was not made. Hence, IBAA charged
the Vintolas with Estafa for having misappropriated, misapplied and converted for their own personal use and
benefit the aforesaid goods.
During the trial of the criminal case the VINTOLAS turned over the seashells to the custody of the Trial Court.
The CFI Cebu acquitted the Vintolas of the crime charged on the ground that the element of misappropriation
or conversion was nonexistent. IBAA then filed to recover the value of goods before the RTC which ordered
the Vintolas to pay IBAA the sum of P 72,982.00
The VINTOLAS rest their present appeal on the principal allegation that their acquittal in the Estafa case bars
IBAA's filing of the civil action because IBAA had not reserved in the criminal case its right to enforce
separately their civil liability and that since the judgment in the criminal case had made a declaration that the
facts from which the civil action might arise did not exist, the filing of the civil action arising from the offense is
now barred

ISSUE: Whether or not the acquittal of the Vintolas in the Estafa case bars IBAA’s filing of the civil action?

RULING:
NO. 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 from which 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." This amounts to a
reservation of the civil action in IBAA's favor, for the Court would not have dwelt on a civil liability that it had
intended to extinguish by the same decision. 
 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.
Under the situational circumstances of the parties, they are governed by Article 31 of the Civil Code, explicitly
providing:
"Art. 31. When the civil action is based on an obligation not arising from the act or omission
complained of as a felony, such civil action may proceed independently of the criminal
proceedings and regardless of the result of the latter."
Contrary to the allegation of the VINTOLAS, IBAA did not become the real owner of the goods. It was merely
the holder of a security title for the advances it had made to the VINTOLAS. The goods the VINTOLAS had
purchased through IBAA financing remain their own property and they hold it at their own risk. The trust receipt
arrangement did not convert the IBAA into an investor; the latter remained a lender and creditor.
Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that because they
have surrendered the goods to IBAA and subsequently deposited them in the custody of the court, they are
absolutely relieved of their obligation to pay their loan because of their inability to dispose of the goods. The
fact that they were unable to sell the seashells in question does not affect IBAA's right to recover the advances
it had made under the Letter of Credit.

5) [G.R. No. 137232. June 29, 2005.]

ROSARIO TEXTILE MILLS CORPORATION and EDILBERTO YUJUICO, petitioners, vs. HOME BANKERS
SAVINGS AND TRUST COMPANY, respondent.

FACTS:
Rosario Textile Mills Corporation (RTMC) applied from Home Bankers Savings & Trust Co. for an Omnibus
Credit Line for P10 million. However, only P8 million was approved. Thereafter, Yujuico signed a Surety
Agreement in favor of the bank, in which he bound himself jointly and severally with RTMC for the payment of
all RTMC's indebtedness to the bank.
RTMC availed of the credit line by making numerous drawdowns, each drawdown 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) promissory notes.
Despite the lapse of the respective due dates under the promissory notes and notwithstanding the bank's
demand letters, RTMC failed to pay its loans. Hence, the bank filed a complaint for sum of money against
RTMC and Yujuico.
In their answer, RTMC and Yujuico contend that they should be absolved from liability. They claimed that
although the grant of the credit line and the execution of the suretyship agreement are admitted, the bank gave
assurance that the suretyship agreement was merely a formality under which Yujuico will not be personally
liable. They argue that the importation of raw materials under the credit line was with a grant of option to them
to turn-over to the bank the imported raw materials should these fail to meet their manufacturing requirements.
RTMC offered to make such turn-over since the imported materials did not conform to the required
specifications. However, the bank refused to accept the same, until the materials were destroyed by a fire
which gutted down RTMC's premises.
The trial court rendered judgment in favor of Home Bankers Savings. RTMC and Yujuico were ordered to pay
the bank.
Dissatisfied, RTMC and Yujuico appealed to the Court of Appeals, contending that under the trust receipt
contracts between the parties, they merely held the goods described therein in trust for respondent Home
Bankers Savings and Trust Company (the bank) which owns the same. Since the ownership of the goods
remains with the bank, then it should bear the loss. With the destruction of the goods by fire, petitioners should
have been relieved of any obligation to pay.
The Court of Appeals, however, affirmed the trial court's judgment, holding that the bank is merely the holder of
the security for its advance payments to petitioners; and that the goods they purchased, through the credit line
extended by the bank, belong to them and hold said goods at their own risk.
Petitioners then filed a motion for reconsideration but this was denied by the Appellate Court. Hence, this
petition for review on certiorari.
Petitioners theorize that when petitioner RTMC imported the raw materials needed for its manufacture, using
the credit line, it was merely acting on behalf of the bank, the true owner of the goods by virtue of the trust
receipts. Hence, under the doctrine of res perit domino, the bank took the risk of the loss of said raw materials.

ISSUES:
(1) Whether the Court of Appeals erred in holding that petitioners are not 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?
(2) Whether or not the CA violated the purpose of the Trust Receipt Law in holding the petitioners liable to the
respondent?

RULINGS:

(1) The Court held 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.
Petitioners' insistence that the ownership of the raw materials remained with the bank is untenable. In Sia vs.
People, 9 Abad vs. Court of Appeals, 10 and PNB vs. Pineda, 11 we held that:
"If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of
legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it wants, which it
cannot do, just to give consistency with purpose of the trust receipt of giving a stronger security for the loan
obtained by the importer. To consider the bank as the true owner from the inception of the transaction would
be to disregard the loan feature thereof. .
Thus, petitioners cannot be relieved of their obligation to pay their loan in favor of the bank.

(2) NO. The contract between the parties is a loan. What respondent bank sought to collect as creditor was the
loan it granted to petitioners. Petitioners' recourse is to sue their supplier, if indeed the materials were
defective.
6) [G.R. No. 90828. September 5, 2000.]
MELVIN COLINARES and LORDINO VELOSO, petitioners, vs. HONORABLE COURT OF APPEALS, and
THE PEOPLE OF THE PHILIPPINES, respondents.

FACTS:
In 1979, petitioners Melvin Colinares and Lordino Veloso were contracted by the Carmelite Sisters of Cagayan
de Oro City to renovate the latter's convent at Camaman-an, Cagayan de Oro City. On 30 October 1979,
petitioners obtained various construction materials from CM Builders Centre for the said project. The following
day, petitioners applied for a commercial letter of credit with the Philippine Banking Corporation (PBC),
Cagayan de Oro City Branch in favor of CM Builders Centre.
PBC approved the letter of credit to cover the full invoice value of the goods. Petitioners signed the pro-forma
trust receipt as security. The said loan was due on 29 January 1980. However, petitioners failed to pay the
whole amount on its due date. Several demand letters were sent to them. Petitioners proposed that the terms
of payment of the loan shall be modified. Pending approval of the said proposal, petitioners paid some
amounts.
However, PBC continued to demand payment of the balance. On 14 January 1983, petitioners were charged
with violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of the Revised Penal Code.
During trial, petitioners insisted that the transaction was that of an ordinary loan. Subsequently, the trial court
convicted the petitioners for the offense charged. On appeal, the Court of Appeals affirmed the conviction of
petitioners and increased the penalty imposed. Thus, petitioners raised the issue to this Court. Pending
resolution, petitioners filed a Motion to Dismiss on the ground that they had already fully paid PBC. Attached
thereto was the affidavit of desistance executed by PBC. 

ISSUES:
(1) Whether or not the subject transaction was a trust receipt?
(2) Whether or not the accused was in violation of the trust receipts law in relation to estafa?

RULING:

(1) NO. The Supreme Court held that the transaction intended by the parties was a simple loan, not a trust
receipt agreement.
Petitioners Colinares and Veloso received the merchandise from CM Builders Centre on 30 October 1979. On
that day, ownership over the merchandise was already transferred to them who were to use the materials for
their construction project. 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 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. In a certain manner, trust receipts partake of the nature of a
conditional sale where the importer becomes absolute owner of the imported merchandise as soon as he has
paid its price. 
Trust receipt transactions are 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. 
The antecedent acts in a trust receipt transaction consist of the application and approval of the letter of credit,
the making of the marginal deposit and the effective importation of goods through the efforts of the importer. 

(2) NO. The Trust Receipts Law does not seek to enforce payment of the loan, rather it 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.  Here, it is crystal clear that on the part of Petitioners there was neither
dishonesty nor abuse of confidence in the handling of money 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.
The Information charges Petitioners with intent to defraud and misappropriating the money for their personal
use. The mala prohibita nature of the alleged offense notwithstanding, intent as a state of mind was not proved
to be present in Petitioners' situation. Petitioners employed no artifice in dealing with PBC and never did they
evade payment of their obligation nor attempt to abscond. Instead, Petitioners sought favorable terms precisely
to meet their obligation.
Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale, contrary to the
express provision embodied in the trust receipt. They are contractors who obtained the fungible goods for their
construction project. At no time did title over the construction materials pass to the bank, but directly to the
Petitioners from CM Builders Centre. This impresses upon the trust receipt in question vagueness and
ambiguity, which should not be the basis for criminal prosecution in the event of violation of its provisions. 
The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them
under the threats of criminal prosecution should they be unable to pay it may be unjust and inequitable, if not
reprehensible. Such agreements are contracts of adhesion which borrowers have no option but to sign lest
their loan be disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy of banks,
and is prone to misinterpretation, as had happened in this case. Eventually, PBC showed its true colors and
admitted that it was only after collection of the money, as manifested by its Affidavit of Desistance.

7) [G.R. No. 114286. April 19, 2001.]

THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), petitioner,vs. THE COURT OF
APPEALS, CONTINENTAL CEMENT CORPORATION, GREGORY T..LIM and SPOUSE, respondents.
FACTS:
On July 13, 1982, Continental Cement Corporation and Gregory T. Lim obtained from petitioner Consolidated
Bank and Trust Corporation a Letter of Credit which was used to purchase around five hundred thousand liters
of bunker fuel oil from Petrophil Corporation. The fuel oil was delivered directly to Continental Cement
Corporation in its Bulacan plant. In relation to the same transaction, a trust receipt for the amount of
P1,001,520.93 was executed by Continental Cement Corporation, with respondent Lim as signatory.
The Consolidated Bank and Trust Corporation then filed a complaint for sum of money with application for
preliminary attachment. It claimed that respondents failed to turn over the goods covered by the trust receipt or
the proceeds thereof.
In their answer, the respondents averred that the transaction between them was a simple loan and not a trust
receipt transaction, and that the amount claimed by Consolidated Bank did not take into account payments
already made by them. Respondent Lim also denied any personal liability in the subject transactions. In its
Supplemental Answer, respondents prayed for reimbursement of alleged overpayment to petitioner of the
amount of P490,228.90.
The trial court rendered its decision dismissing the Complaint and ordering petitioner Consolidated to pay
respondents P490,228.90 representing overpayment
Both parties appealed to the Court of Appeals, which partially modified the Decision by deleting the award of
attorney's fees in favor of respondents and, instead, ordering respondent Corporation to pay petitioner for
attorney's fees and litigation expenses.
Hence, the instant petition.

ISSUES:
(1) Whether or not the transaction at bar was a trust receipt transaction?
(2) Whether or not the private respondents are liable under the trust receipt transaction?

RULINGS:
(1) NO. The Supreme Court held that the transaction was a simple loan. In the case at bar, as in Colinares, the
delivery to respondent Corporation of the goods subject of the trust receipt occurred long before the trust
receipt itself was executed. The delivery of the bunker fuel oil to respondent Corporation's Bulacan plant
commenced on July 7, 1982 and by August 1982, the oil was already used up by respondent Corporation in its
normal operations. Meanwhile, the subject trust receipt was only executed nearly two months after full delivery
of the oil was made to respondent Corporation, or on September 2, 1982.
Similarly, respondent Corporation cannot be said to have been dishonest in its dealings with petitioner. Neither
has it been shown that it has evaded payment of its obligations. Indeed, it continually endeavored to meet the
same, as shown by the various receipts issued by petitioner acknowledging payment on the loan. Certainly, the
payment of the sum of P1,832,158.38 on a loan with a principal amount of only P681,075.93 negates any
badge of dishonesty, abuse of confidence or mishandling of funds on the part of respondent Corporation,
which are the gravamen of a trust receipt violation.
Furthermore, respondent Corporation is not an importer which acquired the bunker fuel oil for re-sale; it
needed the oil for its own operations. More importantly, at no time did title over the oil pass to petitioner, but
directly to respondent Corporation to which the oil was directly delivered long before the trust receipt was
executed. The fact that ownership of the oil belonged to respondent Corporation, through its President,
Gregory Lim, was acknowledged by petitioner's own account officer on the witness stand.
By all indications, then, 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.
(2) NO. The Court was not convinced that respondent Gregory T. Lim and his spouse should be personally
liable under the subject trust receipt. The transactions sued upon were clearly entered into by respondent Lim
in his capacity as Executive Vice President of respondent Corporation. We stress the hornbook law that
corporate personality is a shield against personal liability of its officers. Thus, we agree that respondents
Gregory T. Lim and his spouse cannot be made personally liable since respondent Lim entered into and signed
the contract clearly in his official capacity as Executive Vice-President. The personality of the corporation is
separate and distinct from the persons composing it.

8) [G.R. No. 173905. April 23, 2010.]

ANTHONY L. NG, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent.

FACTS:
Anthony Ng was then engaged in the business of building and fabricating telecommunication towers under the
trade name "Capitol Blacksmith and Builders". He applied for a credit line of PhP3,000,000 with Asiatrust
Development Bank, Inc.
Asiatrust approved petitioner's loan application whereby Ng was then required to sign several documents,
among which are the Credit Line Agreement, Application and Agreement for Irrevocable L/C, Trust Receipt
Agreements, and Promissory Notes. Though the Promissory Notes had already matured, the two (2)
aforementioned Trust Receipt Agreements did not bear any maturity dates as they were left unfilled or in blank
by Asiatrust. 
After petitioner received the goods, consisting of chemicals and metal plates, he utilized them to fabricate the
communication towers ordered from him by his clients. Since petitioner Ng experienced difficulty in collecting
from his client Islacom, he failed to pay his loan to Asiatrust. Hence, Asiatrust filed a complaint-affidavit before
the Office of the City Prosecutor and an Information for Estafa in relation to Sec. 3, PD 115 or the Trust
Receipts Law before the RTC.
During the pendency of the abovementioned case, conferences between petitioner and Asiatrust's Remedial
Account Officer, Daniel Yap, were held. Afterward, a Compromise Agreement was drafted by Asiatrust which
required petitioner to issue six (6) postdated checks. Petitioner, in good faith, tried to comply by issuing two or
three checks, which were deposited and made good. The remaining checks, however, were not deposited as
the Compromise Agreement did not push through.
For his defense, petitioner Ng argued that: (1) the loan was granted as his working capital and that the Trust
Receipt Agreements he signed with Asiatrust were merely preconditions for the grant and approval of his loan;
(2) the Trust Receipt Agreements were both contracts of adhesion, since the stipulations found in the
documents were prepared by Asiatrust in fine print; (3) his contract worth PhP18,000,000 with Islacom was not
yet paid since there was a squabble as to the real ownership of the latter's company, but Asiatrust was aware
of petitioner's receivables which were more than sufficient to cover the obligation as shown in the various
Project Listings with Islacom, Smart Communications, and Infocom; (4) prior to the Islacom problem, he had
been faithfully paying his obligation to Asiatrust as shown in Official Receipts thus debunking Asiatrust's claim
of fraud and bad faith against him; (5) during the pendency of this case, petitioner even attempted to settle his
obligations as evidenced by the two United Coconut Planters Bank Checks  he issued in favor of Asiatrust; and
(6) he had already paid PhP1.8 million out of the PhP2.971 million he owed as per Statement of Account.
The trial court found petitioner guilty of the crime of Estafa. The CA then affirmed the decision of the RTC.
Petitioner then moved for reconsideration which was denied by the CA. Hence, he filed the present petition for
review on certiorari.

ISSUES:
(1) Whether or not the engagement entered into by the parties is a trust receipt transaction?
(2) Whether or not petitioner is liable for Estafa under Art. 315, par. 1 (b) of the RPC in relation to PD 115?

RULING:
(1) NO. The Supreme Court held that the transaction between petitioner Ng and Asiatrust is not a trust receipt
transaction but one of a simple loan.
It must be remembered that petitioner was transparent to Asiatrust from the very beginning that the subject
goods were not being held for sale but were to be used for the fabrication of steel communication towers in
accordance with his contracts with Islacom, Smart, and Infocom. In these contracts, he was commissioned
to build, out of the materials received, steel communication towers, not to sell them.
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.
Having established the inapplicability of PD 115, this Court finds that petitioner's liability is only limited to the
satisfaction of his obligation from the loan. The real intent of the parties was simply to enter into a simple loan
agreement.
To emphasize, the Trust Receipts Law was created to "to aid in financing importers and retail dealers who
do not have sufficient funds or resources to finance the importation or purchase of merchandise, and
who may not be able to acquire credit except through utilization, as collateral, of the merchandise
imported or purchased." Since Asiatrust knew that petitioner was neither an importer nor retail dealer, it
should have known that the said agreement could not possibly apply to petitioner.

(2) NO. The Court found that petitioner is not liable for Estafa both under the RPC and PD 115.
The first element of Estafa under Art. 315, par. 1 (b) of the RPC requires that the money, goods or other
personal property must be received by the offender in trust or on commission, or for administration, or under
any other obligation involving the duty to make delivery of, or to return it. But as we already discussed, the
goods received by petitioner were not held in trust. They were also not intended for sale and neither did
petitioner have the duty to return them. They were only intended for use in the fabrication of steel
communication towers.
The second element of Estafa requires that there be misappropriation or conversion of such money or property
by the offender, or denial on his part of such receipt.
Petitioner argues that there was no misappropriation or conversion on his part, because his liability for the
amount of the goods subject of the trust receipts arises and becomes due only upon receipt of the proceeds of
the sale and not prior to the receipt of the full price of the goods.
Petitioner is correct. Thus, assuming arguendo that the provisions of PD 115 apply, petitioner is not liable
for Estafa because Sec. 13 of PD 115 provides that an entrustee is only liable for Estafa when he fails "to turn
over the proceeds of the sale of the goods . . . covered by a trust receipt to the extent of the amount owing to
the entruster or as appears in the trust receipt . . . in accordance with the terms of the trust receipt."
The trust receipt entered into between Asiatrust and petitioner states:
In case of sale I/we agree to hand the proceeds as soon as received to the BANK to apply against the relative
acceptance (as described above) and for the payment of any other indebtedness of mine/ours to ASIATRUST
DEVELOPMENT BANK. 
Clearly, petitioner was only obligated to turn over the proceeds as soon as he received payment. However, the
evidence reveals that petitioner experienced difficulties in collecting payments from his clients for the
communication towers. Despite this fact, petitioner endeavored to pay his indebtedness to Asiatrust, which
payments during the period from September 1997 to July 1998 total approximately PhP1,500,000. Thus,
absent proof that the proceeds have been actually and fully received by petitioner, his obligation to turn over
the same to Asiatrust never arose.
What is more, under the Trust Receipt Agreement itself, no date of maturity was stipulated. In fact, Asiatrust
purposely left the space designated for the date blank, an action which in ordinary banking transactions would
be noted as highly irregular. Hence, the only way for the obligation to mature was for Asiatrust to demand from
petitioner to pay the obligation, which it never did. 
Moreover, Asiatrust was aware that petitioner was not engaged in selling the subject goods and that petitioner
will use them for the fabrication and installation of communication towers. Furthermore, Asiatrust was informed
at the time of petitioner's application for the loan that the payment for the loan would be derived from the
collectibles of his clients. Petitioner informed Asiatrust that he was having extreme difficulties in collecting from
Islacom the full contracted price of the towers. Thus, the duty of petitioner to remit the proceeds of the goods
has not yet arisen since he has yet to receive proceeds of the goods. Again, petitioner could not be said to
have misappropriated or converted the proceeds of the transaction since he has not yet received the proceeds
from his client, Islacom.
This Court also takes judicial notice of the fact that petitioner has fully paid his obligation to Asiatrust, making
the claim for damage and prejudice of Asiatrust baseless and unfounded. Given that the acceptance of
payment by Asiatrust necessarily extinguished petitioner's obligation, then there is no longer any obligation on
petitioner's part to speak of, thus precluding Asiatrust from claiming any damage. This is evidenced by
Asiatrust's Affidavit of Desistance acknowledging full payment of the loan.

9) [G.R. No. 166884. June 13, 2012.]

LAND BANK OF THE PHILIPPINES, petitioner, vs. LAMBERTO C. PEREZ, NESTOR C. KUN, MA.
ESTELITA P. ANGELES-PANLILIO, and NAPOLEON O. GARCIA, respondents.

FACTS:
Petitioner Land Bank of the Philippines filed a complaint for estafa in relation to PD 115 against respondents
who are officers and representatives of Asian Construction and Development Corporation which is engaged in
the construction business.  It alleged that LBP extended a credit accommodation to ACDC through the
execution of an Omnibus Credit Line Agreement. In various instances, ACDC used the Letters of Credit/Trust
Receipts Facility of the Agreement to buy construction materials.
The respondents, as officers and representatives of ACDC, executed trust receipts  in connection with the
construction materials, with a total principal amount of P52,344,096.32. The trust receipts matured, but ACDC
failed to return to LBP the proceeds of the construction projects or the construction materials subject of the
trust receipts.
LBP sent ACDC a demand letter which was not complied with. Hence, LBP filed the affidavit-complaint.
The respondents filed a joint affidavit wherein they stated that they signed the trust receipt documents on or
about the same time LBP and ACDC executed the loan documents; their signatures were required by LBP for
the release of the loans. The trust receipts in this case do not contain (1) a description of the goods placed in
trust, (2) their invoice values, and (3) their maturity dates, in violation of Section 5 (a) of P.D. 115. Moreover,
they alleged that ACDC acted as a subcontractor for government projects. Its clients for the construction
projects, which were the general contractors of these projects, have not yet paid them; thus, ACDC had yet to
receive the proceeds of the materials that were the subject of the trust receipts and were allegedly used for
these constructions. As there were no proceeds received from these clients, no misappropriation thereof could
have taken place.
The prosecutor dismissed the complaint on the ground of insufficiency of evidence. LBP filed a motion for
reconsideration which was likewise denied. However, on appeal, the Secretary of Justice reversed the
resolution. It directed the City Prosecutor to file an information for estafa against respondents. Respondents
filed a motion for reconsideration which was denied. Hence, the present petition for review was filed before the
Court of Appeals.
The CA ruled that the case did not involve a trust receipt transaction, but a mere loan. This prompted the LBP
to file the present petition for review on certiorari.

ISSUE: Whether or not the disputed transactions are trust receipts?

RULING:
NO. The Supreme Court ruled that the disputed transactions are not trust receipts.
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.
We note in this regard that at the onset of these transactions, LBP knew that ACDC was in the construction
business and that the materials that it sought to buy under the letters of credit were to be used for the following
projects: the Metro Rail Transit Project and the Clark Centennial Exposition Project. LBP had in fact authorized
the delivery of the materials on the construction sites for these projects, as seen in the letters of credit it
attached to its complaint. 
Clearly, they were aware of the fact that there was no way they could recover the buildings or constructions for
which the materials subject of the alleged trust receipts had been used. Notably, despite the allegations in the
affidavit-complaint wherein LBP sought the return of the construction materials,  its demand letter sought the
payment of the balance but failed to ask, as an alternative, for the return of the construction materials or the
buildings where these materials had been used. 
The fact that LBP had knowingly authorized the delivery of construction materials to a construction site of two
government projects, as well as unspecified construction sites, repudiates the idea that LBP intended to be the
owner of those construction materials. As a government financial institution, LBP should have been aware that
the materials were to be used for the construction of an immovable property, as well as a property of the public
domain. As an immovable property, the ownership of whatever was constructed with those materials would
presumably belong to the owner of the land.
Even if we consider the vague possibility that the materials, consisting of cement, bolts and reinforcing steel
bars, would be used for the construction of a movable property, the ownership of these properties would still
pertain to the government and not remain with the bank as they would be classified as property of the public
domain.
In contrast with the present situation, 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. 
Thus, in concluding that the transaction was a loan and not a trust receipt, we noted in Colinares that the
industry or line of work that the borrowers were engaged in was construction. The goods and the materials that
are used for a construction project are often placed under the control and custody of the clients employing the
contractor, who can only be compelled to return the materials if they fail to pay the contractor and often only
after the requisite legal proceedings. The contractor's difficulty and uncertainty in claiming these materials (or
the buildings and structures which they become part of), as soon as the bank demands them, disqualify them
from being covered by trust receipt agreements. 
Based on these premises, we cannot consider the agreements between the parties in this case to be trust
receipt transactions because (1) 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; and (2) from the
moment the materials were used for the government projects, they became public, not LBP's, property.
Since these transactions are not trust receipts, an action for estafa should not be brought against the
respondents, who are liable only for a loan.
As the law stands today, violations of Trust Receipts Law are criminally punishable, but no criminal complaint
for violation of Article 315, paragraph 1 (b) of the Revised Penal Code, in relation with P.D. 115, should
prosper against a borrower who was not part of a genuine trust receipt transaction.
Even if we assume that the transactions were trust receipts, the complaint against the respondents still should
have been dismissed. 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 singularly seek to enforce payment of the loan, as "there can be no violation of [the] right
against imprisonment for non-payment of a debt." 
In order that the respondents "may be validly prosecuted for estafa under Article 315, paragraph 1 (b) of the
Revised Penal Code, in relation with Section 13 of the Trust Receipts Law, the following elements must be
established: (a) they received the subject goods in trust or under the obligation to sell the same and to remit
the proceeds thereof to [the trustor], or to return the goods if not sold; (b) they misappropriated or converted
the goods and/or the proceeds of the sale; (c) they performed such acts with abuse of confidence to the
damage and prejudice of Metrobank; and (d) demand was made on them by [the trustor] for the remittance of
the proceeds or the return of the unsold goods." 
In this case, no dishonesty or abuse of confidence existed in the handling of the construction materials.
In this case, the misappropriation could be committed should the entrustee fail to turn over the proceeds of the
sale of the goods covered by the trust receipt transaction or fail to return the goods themselves. The
respondents could not have failed to return the proceeds since their allegations that the clients of ACDC had
not paid for the projects it had undertaken with them at the time the case was filed had never been questioned
or denied by LBP. What can only be attributed to the respondents would be the failure to return the goods
subject of the trust receipts.
We do not likewise see any allegation in the complaint that ACDC had used the construction materials in a
manner that LBP had not authorized. As earlier pointed out, LBP had authorized the delivery of these materials
to these project sites for which they were used. When it had done so, LBP should have been aware that it
could not possibly recover the processed materials as they would become part of government projects, two of
which (the Metro Rail Transit Project and the Quezon Power Plant Project) had even become part of the
operations of public utilities vital to public service.

10) [G.R. No. 195117. August 14, 2013.]

HUR TIN YANG, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent.

Principle: When both parties enter into an agreement knowing fully well 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 Sec. 13 of PD 115 in relation to Art. 315, par. 1 (b) of the RPC, as 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. 

Facts:
Supermax Philippines, Inc. is a domestic corporation engaged in the construction business. On various
occasions, the Metropolitan Bank and Trust Company (Metrobank) extended several commercial letters of
credit (LCs) to Supermax which were used to pay for the delivery of several construction materials which will
be used in their construction business. Thereafter, Metrobank required Hur Tin Yang, as representative and
Vice-President for Internal Affairs of Supermax, to sign twenty-four (24) trust receipts as security for the
construction materials and to hold those materials or the proceeds of the sales in trust for Metrobank to the
extent of the amount stated in the trust receipts. 
When the 24 trust receipts fell due and despite demand, Supermax failed to pay or deliver the goods or
proceeds to Metrobank. Instead, Supermax, through petitioner Hur Tin Yang, requested the restructuring of the
loan. When the intended restructuring of the loan did not materialize, Metrobank sent another demand letter
which only fell on deaf ears. Thus, Metrobank filed the instant criminal complaints against petitioner Hur Tin
Yang
For his defense, while admitting signing the trust receipts, petitioner argued that said trust receipts were
demanded by Metrobank as additional security for the loans extended to Supermax for the purchase of
construction equipment and materials. The petitioner’s witness testified that the construction materials covered
by the trust receipts were delivered way before petitioner signed the corresponding trust receipts. Further,
petitioner argued that Metrobank knew all along that the construction materials subject of the trust receipts
were not intended for resale but for personal use of Supermax relating to its construction business. 
The trial court a quo found petitioner guilty for the crime of estafa. Hence, petitioner appealed to the CA which
only upheld the findings of the RTC. It ruled that since the offense punished under PD 115 is in the nature
of malum prohibitum, a mere failure to deliver the proceeds of the sale or goods, if not sold, is sufficient to
justify a conviction under PD 115.
Petitioner then filed a Motion for Reconsideration which was however denied. This prompted him to file a
petition for review under Rule 45 which was dismissed by the Supreme Court. Hence, petitioner filed the
present Motion for Reconsideration contending that the transactions between the parties do not constitute trust
receipt agreements but rather of simple loans.

Issue: Whether or not petitioner is liable for Estafa under Art. 315, par. 1 (b) of the RPC in relation to PD 115,
even if it was sufficiently proved that the entruster (Metrobank) knew beforehand that the goods (construction
materials) subject of the trust receipts were never intended to be sold but only for use in the entrustee's
construction business?

Ruling:
No. In the instant case, the factual findings of the trial and appellate courts reveal that the dealing between
petitioner and Metrobank was not a trust receipt transaction but one of simple loan. Petitioner's admission —
that he signed the trust receipts on behalf of Supermax, which failed to pay the loan or turn over the proceeds
of the sale or the goods to Metrobank upon demand — does not conclusively prove that the transaction was,
indeed, a trust receipts transaction. In contrast to the nomenclature of the transaction, the parties really
intended a contract of loan.
This Court — in Ng v. People 14 and Land Bank of the Philippines v. Perez,  ruled that the fact that the
entruster bank knew even before the execution of the trust receipt agreements that the construction materials
covered were never intended by the entrustee for resale or for the manufacture of items to be sold is sufficient
to prove that the transaction was a simple loan and not a trust receipts transaction.
Simply stated, a trust receipt transaction is one where the entrustee has the obligation to deliver to the
entruster the price of the sale, or if the merchandise is not sold, to return the merchandise to the entruster.
There are, therefore, two obligations in a trust receipt transaction: the first refers to money received under the
obligation involving the duty to turn it over (entregarla) to the owner of the merchandise sold, while the second
refers to the merchandise received under the obligation to "return" it (devolvera) to the owner. A violation of
any of these undertakings constitutes Estafa defined under Art. 315, par. 1 (b) of the RPC, as provided in Sec.
13 of PD 115.
Section 13. Penalty Clause. — The failure of an entrustee to turn over the proceeds of the sale of the
goods,documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster
or as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or
disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable
under the provisions of Article Three hundred fifteen, paragraph one (b) of Act Numbered Three thousand eight
hundred and fifteen, as amended, otherwise known as the Revised Penal Code. . . .
Nonetheless, when both parties enter into an agreement knowing fully well 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 Sec. 13 of PD 115 in relation to Art. 315, par. 1 (b) of the RPC, as 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. 
Thus, in concluding that the transaction was a loan and not a trust receipt, we noted in Colinares that the
industry or line of work that the borrowers were engaged in was construction. We pointed out that the
borrowers were not importers acquiring goods for resale. Indeed, goods sold in retail are often within the
custody or control of the trustee until they are purchased. In the case of materials used in the manufacture of
finished products, these finished products — if not the raw materials or their components — similarly remain in
the possession of the trustee until they are sold. But the goods and the materials that are used for a
construction project are often placed under the control and custody of the clients employing the contractor, who
can only be compelled to return the materials if they fail to pay the contractor and often only after the requisite
legal proceedings. The contractor's difficulty and uncertainty in claiming these materials (or the buildings and
structures which they become part of),as soon as the bank demands them, disqualify them from being covered
by trust receipt agreements.19 DcTaEH
Since the factual milieu of Ng and Land Bank of the Philippines are in all four corners similar to the instant
case, it behooves this Court, following the principle of stare decisis,  to rule that the transactions in the instant
case are not trust receipts transactions but contracts of simple loan. The fact that the entruster bank,
Metrobank in this case, knew even before the execution of the alleged trust receipt agreements that the
covered construction materials were never intended by the entrustee (petitioner) for resale or for the
manufacture of items to be sold would take the transaction between petitioner and Metrobank outside the
ambit of the Trust Receipts Law.
For reasons discussed above, the subject transactions in the instant case are not trust receipts transactions.
Thus, the consolidated complaints for Estafa in relation to PD 115 have really no leg to stand on. In view
thereof, the Supreme Court acquitted Hur Tin Yang of the charge of Estafa.

11) [G.R. No. 158649. February 18, 2013.]

SPOUSES QUIRINO V. DELA CRUZ and GLORIA DELA CRUZ, petitioners, vs. PLANTERS PRODUCTS,
INC., respondent.

Facts:
Petitioner Spouses Quirino V. Dela Cruz and Gloria Dela Cruz operated the Barangay Agricultural Supply
which is engaged in the distribution and sale of fertilizers and agricultural chemical products, among others. At
the time material to the case, Quirino, a lawyer, was the Municipal Mayor of Aliaga, Nueva Ecija.
On March 23, 1978, Gloria applied for and was granted by respondent Planters Products, Inc. (PPI) a regular
credit line of P200,000.00 for a 60-day term, with trust receipts as collaterals. Theerafter, Gloria signed two
documents labelled "Trust Receipt/Special Credit Scheme," indicating the invoice number, quantity, value, and
names of the agricultural inputs (i.e., fertilizer or agricultural chemicals) she received "upon the trust" of PPI.
The products were then released to Gloria under the supervision of Cristina G. Llanera of PPI. However, the
60-day credit term lapsed without Gloria paying her obligation under the Trust Receipt/SCS. Hence, PPI wrote
collection letters to her. Since they received no response from her, the manager of PPI sent her a demand
letter on her "long overdue account" of P191,205,25. 
Eventually, a final demand letter was sent to Gloria stating that her total accountability was P156,755.00 "plus
interest, service charges, and penalty charges,". PPI warned that should she fail to do so, PPI would file the
"necessary civil and criminal cases" against her "based on the Trust Receipts."
On November 17, 1981, PPI brought against Quirino and Gloria in the Court of First Instance in Pasig, Metro
Manila a complaint for the recovery of a sum of money with prayer for a writ of preliminary attachment. It
alleged that Gloria had violated the "fiduciary undertaking in the Trust Receipt agreement covering product
withdrawals under the Special Credit Scheme which were subsequently charged to defendant dealer's regular
credit line; therefore, she is guilty of fraudulently misapplying or converting to her own use the items delivered
to her as contained in the invoices." It charged that Gloria did not return the goods indicated in the invoices and
did not remit the proceeds of sales.
In her answer, the petitioners alleged that Gloria was only a marketing outlet of PPI under its SCS Program,
not a dealer primarily obligated to PPI for the products delivered to her; that she had not collected from the
farmers participating in the SCS Program because of the October 27-28, 1979 typhoon Kading that had
destroyed the participating farmers' crops; and that she had paid P50,000.00 to PPI despite the failure of the
farmers to pay.
On October 29, 1997, the trial court, then already the RTC, rendered its judgment ordering the petitioners "to
pay the plaintiff the amount of P240,335.10 plus 16% interest per annum commencing from July 9, 1985 until
fully paid and the sum of P20,000.00 as attorney's fees and cost of litigation." It found that based on the terms
and conditions of the SCS Program, a creditor-debtor relationship was created between Gloria and PPI; that
her liability was predicated on Section 4 of the Trust Receipts Law (Presidential Decree No. 115).
Thus, the petitioners appealed to the Court of Appeals. However, the CA found petitioners liable to PPI. Since
their motion for reconsideration was likewise denied by the CA, the petitioners filed the present petition for
review on certiorari.

Issue: Whether or not the petitioners and PPI entered into a trust receipt transaction?

Ruling:
No. The parties entered into a creditor-debtor relationship. The Supreme Court clarified 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, to wit:
Section 4. What constitutes a trust receipt transaction. — A trust receipt transaction, within the meaning of this
Decree, 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 the entrustee, whereby the entruster, who owns or holds absolute title or
security interests over certain specified goods, documents or instruments, releases the same to the possession
of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a "trust
receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust
for the entruster and to sell or otherwise dispose of the goods, documents or instruments 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 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.
The sale of goods, documents or instruments by a person in the business of selling goods, documents
or instruments for profit who, at the outset of the transaction, has, as against the buyer, general
property rights in such goods, documents or instruments, or who sells the same 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 this Decree. 
In Land Bank v. Perez, 43 the Court has elucidated on the coverage of Section 4, supra, to wit: 
There are two obligations in a trust receipt transaction. The first is covered by the provision that refers to
money under the obligation to deliver it (entregarla) to the owner of the merchandise sold. The second is
covered by the provision referring to merchandise received under the obligation to return it (devolverla) to the
owner. Thus, under the Trust Receipts Law, intent to defraud is presumed when (1) the entrustee fails to turn
over the proceeds of the sale of goods covered by the trust receipt to the entruster; or (2) when the entrustee
fails to return the goods under trust, if they are not disposed of in accordance with the terms of the trust
receipts.
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.
12) [G.R. Nos. 81559-60. April 6, 1992.]
PEOPLE OF THE PHILIPPINES, ( public petitioner) and ALLIED BANKING CORPORATION ( private
petitioner), vs. HON. JUDGE DAVID G. NITAFAN (public respondent) and BETTY SIA ANG (private
respondent).

FACTS:
Petitioner Allied Banking Corporation charged Betty Sia Ang with estafa. It alleged that accused Ang, being
then the proprietress of Eckart Enterprises, received in trust plastic sheeting and Hook Chromed, specified in a
trust receipt and covered by Domestic Letter of Credit. She was under the express obligation to sell the same
and account for the proceeds of the sale thereof, if sold, or to return said merchandise, if not sold, on or before
October 16, 1980, or upon demand. However, despite demands, Ang allegedly failed to do so.
Meanwhile, the accused filed a motion to quash the information on the ground that the facts charged do not
constitute an offense. This was granted by the respondent judge. Hence, this petition.
The private respondent Ang asserted that P.D. 115 is unconstitutional as it violates the constitutional
prohibition against imprisonment for non-payment of a debt. She argues that where no malice exists in a
breach of a purely commercial undertaking, P.D. 115 imputes it. She also cited the case of Sia vs Court of
Appeals wherein the court held that a violation of the trust receipt agreement gives rise only to a civil liability.

ISSUE: Whether or not the violation of the trust receipt agreement committed by Ang only gives rise to civil
liability?

RULING:
NO. 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 P114,884.22 balance is what
makes the accused-respondent criminally liable for estafa.
Acts involving the violation of trust receipt agreements occurring after 29 January 1973 (date of enactment
of P.D. 115) would make the accused criminally liable for estafa under paragraph 1 (b), Article 315 of the
Revised Penal Code (RPC) pursuant to the explicit provision in Section 13 of P.D. 115.
In Sia vs Court of Appeals, P.D. 115 was not applied because the questioned acts were committed before its
effectivity. (Lee v. Rodil, supra, p. 108) At the time those cases were decided, the failure to comply with the
obligations under the trust receipt was susceptible to two interpretations. The Court in Sia adopted the view
that a violation gives rise only to a civil liability as the more feasible view "before the promulgation of P.D. 115,"
notwithstanding prior decision where we ruled that a breach also gives rise to a liability for estafa. (People v.
Yu Chai Ho, 53 Phil. 874 [1929]; Samo v. People, 115 Phil. 346 [1962]; Philippine National Bank v. Arrozal,
103 Phil. 213 [1958]; Philippine National Bank v. Viuda e Hijos de Angel Jose, 63 Phil. 814 [1936]).
Contrary to the reasoning of the respondent court and the accused, a trust receipt arrangement does not
involve a simple loan transaction between a creditor and a debtor-importer. Apart from a loan feature, the trust
receipt arrangement has a security feature that is covered by the trust receipt itself. That second feature is
what provides the much needed financial assistance to our traders in the importation or purchase of goods or
merchandise through the use of those goods or merchandise as collateral for the advancements made a bank.
The title of the bank to the security is the one sought to be protected and not the loan which is a separate and
distinct agreement.
The Trust Receipts Law punishes the dishonesty and abuse of confidence in the handling of money or goods
to the prejudice of another regardless of whether the latter is the owner or not. The law does not seek to
enforce payment of the loan. Thus, there can be no violation of a right against imprisonment for non-payment
of a debt.
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 rights and 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. It is in
the context of upholding public interest that the law now specifically designates a breach of a trust receipt
agreement to be an act that "shall" make one liable for estafa. 
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. It punishes the dishonesty and abuse of confidence in the
handling of money or goods to the prejudice of the bank.
The Court reiterates that the enactment of P.D. 115 is a valid exercise of the police power of the State and is,
thus, constitutional. (Lee v. Rodil, supra; Lozano v. Martinez, supra)

13) [G.R. No. 134436. August 16, 2000.]

METROPOLITAN BANK and TRUST COMPANY, petitioner, vs. JOAQUIN TONDA and MA. CRISTINA
TONDA

FACTS:
Spouses Joaquin G. Tonda and Ma. Cristina U. Tonda applied for and were granted commercial letters of
credit by petitioner Metropolitan Bank and Trust Company in connection with the importation of raw textile
materials to be used in the manufacturing of garments. The TONDAS acting both in their capacity as officers of
Honey Tree Apparel Corporation and in their personal capacities, executed eleven (11) trust receipts to secure
the release of the raw materials to HTAC. The imported fabrics with a principal value of P2,803,000.00 were
withdrawn by HTAC under the 11 trust receipts executed by the TONDAS.
Due to their failure to settle their obligations under the trust receipts upon maturity and despite repeated
demands, the TONDAS failed to account to METROBANK the goods and/or proceeds of sale of the
merchandise, subject of the trust receipts.
Consequently, Metrobank filed a complaint/affidavit against the TONDAS for violation of P.D. No. 115 (Trust
Receipts Law) in relation to Article 315 (1) (b) of the Revised Penal Code. The assigned Assistant Prosecutor
of Rizal recommended that the complaint be dismissed on the ground that the complainants had failed to
establish "the existence of the essential elements of Estafa as charged which was approved by the Rizal
Provincial Prosecutor. METROBANK then appealed to the Department of Justice (DOJ) which ordered for the
fling of the appropriate information against the Tondas.
The TONDAS immediately sought a reconsideration of the DOJ Resolution but their motion was denied by the
then acting Justice Secretary Demetrio G. Demetria. A second motion for reconsideration by the TONDAS was
likewise denied. This prompted them to file with the Court of Appeals a special civil action for certiorari and
prohibition with application for a temporary restraining order or a writ of preliminary injunction. This was
granted by the CA which ordered the criminal complaint to be dismissed. The Court of Appeals held that
METROBANK had failed to show a prima facie case that the TONDAS violated the Trust Receipts Law in
relation to Art. 315 (1) (b) of the Revised Penal Code. Hence, the present petition.
Finding favorably for the TONDAS, however, and ordering the dismissal of the complaint against them, the
Court of Appeals held that: (1) the TONDAS opened a savings account of P2.8 Million to pay the entire
principal of the outstanding trust receipts account; (2) the TONDAS obtained from a METROBANK officer a
written acknowledgment of receipt of checks totaling P2.8 Million in order to show proof of compliance with the
loan restructuring proposal; (3) it was settled between the parties that the amount of 2.8 Million should be paid
to cover all outstanding obligations under the trust receipts account; (4) the money remains deposited under
the savings account of petitioners awaiting a final agreement with METROBANK regarding the loan
restructuring arrangement; and that (5) there is no evidence suggesting that METROBANK has been damaged
by the proposal and the deposit or that the TONDAS employed fraud and deceit in their dealings with the bank.

ISSUE: Whether or not the dismissal by the Court of Appeals of the charge for violation of the Trust Receipts
Law in relation to Art. 315 (1) (b) of the Revised Penal Code against the TONDAS is warranted by the
evidence at hand and by law?

RULING:
NO. The Court of Appeals gravely erred in reversing the Department of Justice on the finding of probable
cause to hold the TONDAS for trial. The documentary evidence presented during the preliminary investigation
clearly show that there was probable cause to warrant a criminal prosecution for violation of the Trust Receipts
Law.
The Trust Receipts Law declares the failure to turn over the goods or the proceeds realized from the sale
thereof, as a criminal offense punishable under Article 315 (1) (b) of the Revised Penal Code. The law is
violated whenever the entrustee or the person to whom the trust receipts were issued in favor of fails to: (1)
return the good covered by the trust receipts; or (2) return the proceeds of the sale of the said goods. The
foregoing acts constitute estafa punishable under Article 315 (1) (b) of the Revised Penal Code. Given that
various trust receipts were executed by the TONDAS 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 TONDAS
failed to comply with the obligations under the trust receipts despite several demands from METROBANK.
From the facts, the amount of P2.8 million was not directly paid to METROBANK to settle the trust receipt
accounts, but deposited in a joint account of Joaquin G. Tonda and a certain Wang Tien En. In a letter signed
by HTAC's Vice President for Finance, METROBANK was informed that the amount may be applied anytime to
the payment of the trust receipts account upon implementation of the parties of the terms of the restructuring."
The parties failed to agree on the terms of the loan restructuring agreement as the offer by the TONDAS to
restructure the loan was followed by a series of counter-offers which yielded nothing. It is axiomatic that
acceptance of an offer must be unqualified and absolute to perfect a contract. The alleged payment of the trust
receipts accounts never became effectual on account of the failure of the parties to finalize a loan restructuring
arrangement. 
Second, the handwritten note by the METROBANK officer acknowledging receipt of the checks amounting to
P2.8 Million made no reference to the TONDAS' trust receipt obligations, and we cannot presume that it was
anything more than an ordinary bank deposit. The Court of Appeals citing the case of Tan Tiong Tick vs.
American Apothecaries  implied that in making the deposit, the TONDAS are entitled to set off, by way of
compensation, their obligations to METROBANK. However, Article 1288 of the Civil Code provides that
"compensation shall not be proper when one of the debts consists in civil liability arising from a penal offense"
as in the case at bar. The raison d'etre for this is that, "if one of the debts consists in civil liability arising from a
penal offense, compensation would be improper and inadvisable because the satisfaction of such obligation is
imperative." 
Third, reliance on the negotiations for the settlement of the trust receipts obligations between the TONDAS and
METROBANK is simply misplaced. The negotiations pertain and affect only the civil aspect of the case but
does not preclude prosecution for the offense already committed. It has been held that "[any] compromise
relating to the civil liability arising from an offense does not automatically terminate the criminal proceeding
against or extinguish the criminal liability of the malefactor."  All told, the P2.8 Million deposit could not be
considered as having settled the trust receipts obligations of the TONDAS to the end of extinguishing any
incipient criminal culpability arising therefrom.
Hence, it has been held in Office of the Court Administrator vs. Soriano 18 that:
". . . it is too well-settled for any serious argument that whether in malversation of public funds or estafa,
payment, indemnification, or reimbursement of, or compromise as to, the amounts or funds malversed or
misappropriated, after the commission of the crime, affects only the civil liability of the offender but does not
extinguish his criminal liability or relieve him from the penalty prescribed by law for the offense committed,
because both crimes are public offenses against the people that must be prosecuted and penalized by the
Government on its own motion, though complete reparation should have been made of the damage suffered
by the offended parties. . . . . "
As to the statement of the Court of Appeals that there is no evidence that METROBANK has been damaged by
the proposal and the deposit, it must be clarified that the damage can be traced from the non-fulfillment of an
entrustee's obligation under the trust receipts.
The finding that there was no fraud and deceit is likewise misplaced considering that 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.

14)  [G.R. No. 143772. November 22, 2005.]

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. PRUDENTIAL BANK, respondent.

FACTS:
In 1973, Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial letter of credit with respondent
Prudential Bank for US$498,000 in connection with its importation of 5,000 spindles for spinning machinery
with drawing frame, simplex fly frame, ring spinning frame and various accessories, spare parts and tool
gauge. These were released to Litex under covering "trust receipts" it executed in favor of Prudential Bank.
Litex installed and used the items in its textile mill located in Montalban, Rizal.
On October 10, 1980, DBP granted a foreign currency loan in the amount of US$4,807,551 to Litex. To secure
the loan, Litex executed real estate and chattel mortgages on its plant site in Montalban, Rizal, including the
buildings and other improvements, machineries and equipments there. Among the machineries and
equipments mortgaged in favor of DBP were the articles covered by the "trust receipts."
For the failure of Litex to pay its obligation, DBP extra-judicially foreclosed on the real estate and chattel
mortgages, including the articles claimed by Prudential Bank. During the foreclosure sale, DBP acquired the
foreclosed properties as the highest bidder. Subsequently, DBP caused to be published an invitation to bid in
the public sale for the sale of the textile mill formerly owned by Litex, the land on which it was built, as well as
the machineries and equipments therein. Learning of the intended public auction, Prudential Bank wrote a
letter to DBP reasserting its claim over the items covered by "trust receipts" in its name and advising DBP not
to include them in the auction. It also demanded the turn-over of the articles or alternatively, the payment of
their value.
Since there was no concrete action on the part of DBP towards the claim, Prudential Bank made a final
demand on DBP for the turn-over of the contested articles or the payment of their value. Without the
knowledge of Prudential Bank, however, DBP sold the Litex textile mill, as well as the machineries and
equipments therein, to Lyon Textile Mills, Inc. (Lyon).
Since its demands remained unheeded, Prudential Bank filed a complaint for a sum of money with damages
against DBP which was decided in its favor.
Aggrieved, DBP filed an appeal with the Court of Appeals. However, the appellate court dismissed the appeal
and affirmed the decision of the trial court in toto. It applied the provisions of PD 115 and held that ownership
over the contested articles belonged to Prudential Bank as entrustor, not to Litex. Consequently, even if Litex
mortgaged the items to DBP and the latter foreclosed on such mortgage, DBP was duty-bound to turn over the
proceeds to Prudential Bank, being the party that advanced the payment for them.
On DBP's argument that the disputed articles were not proper objects of a trust receipt agreement, the Court of
Appeals ruled that the items were part of the trust agreement entered into by and between Prudential Bank and
Litex. Since the agreement was not contrary to law, morals, public policy, customs and good order, it was
binding on the parties.
DBP filed a motion for reconsideration but the appellate court denied it for being pro forma. Hence, this
petition.

ISSUE: Whether or not the items covered by the trust receipts were owned by Prudential Bank?

RULING:
YES. The articles were owned by Prudential Bank and they were only held by Litex in trust. While it was
allowed to sell the items, Litex had no authority to dispose of them or any part thereof or their proceeds through
conditional sale, pledge or any other means.
Article 2085 (2) of the Civil Code requires that, in a contract of pledge or mortgage, it is essential that the
pledgor or mortgagor should be the absolute owner of the thing pledged or mortgaged. Article 2085 (3) further
mandates that the person constituting the pledge or mortgage must have the free disposal of his property, and
in the absence thereof, that he be legally authorized for the purpose.
Litex had neither absolute ownership, free disposal nor the authority to freely dispose of the articles. Litex
could not have subjected them to a chattel mortgage. Their inclusion in the mortgage was void and had no
legal effect.  There being no valid mortgage, there could also be no valid foreclosure or valid auction sale.  
Thus, DBP could not be considered either as a mortgagee or as a purchaser in good faith. 
No one can transfer a right to another greater than what he himself has.  Nemo dat quod non habet. Hence,
Litex could not transfer a right that it did not have over the disputed items. Corollarily, DBP could not acquire a
right greater than what its predecessor-in-interest had. The spring cannot rise higher than its source.
DBP merely stepped into the shoes of Litex as trustee of the imported articles with an obligation to pay their
value or to return them on Prudential Bank's demand. By its failure to pay or return them despite Prudential
Bank's repeated demands and by selling them to Lyon without Prudential Bank's knowledge and conformity,
DBP became a trustee ex maleficio.
15) [G.R. No. 108638. March 11, 1994.]
Spouses RAMON R. NACU and LOURDES I. NACU, petitioners, vs. THE COURT OF APPEALS and
PILIPINAS BANK, respondents.

FACTS:
Petitioners spouses Ramon and Lourdes Nacu are the registered owners of the subject property covered by
TCT No. 276891.
Respondent Pilipinas Bank then extended to Home Construction-Joint Venture, represented by Horacio
Mendoza, Julio Matias and Ramon Nacu, an Irrevocable Stand-by Letter of Credit in the amount of
P4,400,000.00 to guarantee the ten per cent (10%) mobilization fund to be released by the Ministry of Public
Works and Highways in connection with a Lucena Fishing Port and Construction Project. 
To secure this Home Construction-Joint Venture credit accommodation, petitioners spouses, constituted real
estate mortgages on five (5) distinct properties in favor of respondent Pilipinas Bank. In due time, the principal
obligation mentioned in the said real estate mortgage extended to the Home Construction — Joint Venture was
fully paid and extinguished.
Upon request, respondent Bank effected the cancellation/release of the titles subject of the said real estate
mortgage, particularly the properties of the co-mortgagors, Horacio Mendoza and Julio Matias. However,
petitioners spouses did not immediately request for the issuance of the corresponding certificate of
cancellation/release of mortgage of TCT No. 276891 from respondent Bank. 
Thereafter, two (2) corporations under the Joint Venture — JBS Construction, Inc., represented by its president
and P.I. Construction and Services Co., Inc., represented by its president, petitioner Nacu, secured from
respondent Bank, under letters of credits, a loan accommodation for the importation of several pieces of
construction machinery and equipment to be used by said joint venture in a construction project, located at
Mindanao.
In consideration of this JBS and PI Construction Joint Venture credit accommodation, Jose Sahagun and
petitioner Nacu executed in their capacities as executive officers thereof, a Continuing Security Agreement in
favor of respondent Bank. They were also made to sign trust receipts in favor of respondent Bank.
Later, petitioner spouses requested from respondent Bank the issuance of the Certificate of
Cancellation/Release of the Real Estate Mortgage on TCT No. 276891. However, the respondent Bank
refused despite its admission that the Home Construction loan had been fully paid and despite the release of
the properties of the co-mortgagors, Horacio Mendoza and Julio Matias. 
This prompted the petitioner spouses to file an action against respondent Bank for cancellation of the
encumbrance on TCT No. 276891.
The trial court ordered the defendant bank to immediately release/discharge the encumbrance annotated on
TCT No. 276891. The respondent Bank then appealed from the aforesaid decision of the trial court before
respondent Court of Appeals which reversed the decision of the trial court. Subsequently, petitioner spouses
seasonably filed a motion for reconsideration of the said assailed decision which was however denied. Hence,
this instant petition.

ISSUE: Whether or not the real estate mortgage undertaken by Spouses Nacu in favor of Home Construction -
Joint Venture also covers the loan transaction of Ramon R. Nacu entered in his capacity as one of the
executive officers of the Joint Venture of JBS Construction, Inc. and P.I. Construction and Services Co., Inc.?
RULING:
NO. The July 12, 1982 Home Construction loan transaction and the February 24, 1983 JBS and P.I.
Construction — Joint Venture loan transaction are totally alien to each other. Noteworthy is the fact that the
1982 loan transaction was extended to Home Construction — Joint Venture, represented by Spouses Horacio
S. Mendoza and Leonisia D. Mendoza; Spouses Julio D. Matias and Lydia Sison and Spouses Ramon R.
Nacu and Lourdes I. Nacu. On the other hand, the 1983 loan transaction was applied for and extended to the
Joint Venture-JBS Construction, Inc., represented by its president, Ramon Nacu.
Clearly, the two (2) loan transaction involved different sets of parties. While it is true that petitioner Nacu is a
party in both transactions, he acted in totally different capacities.
To allow the 1982 mortgage contract to be amplified to include the 1983 Continuing Surety Agreement would
be stretching too far the former contract's extent. Interpreting the same as respondent Bank would want us to
do would make the provision too comprehensive and all-encompassing as to amount to absurdity.
Besides, there is nothing in the loan accommodation subsequently contracted that TCT 276891 is mortgaged.
Said loan was not even duly annotated on said title. Under Section 60 of Act No. 496, a mortgage deed and all
instruments assigning, discharging and otherwise dealing with the mortgage are required to be registered.
Without registration, they cannot have any effect on the title.
Rather than support the position of respondent Bank, the trust receipt agreement shows that the 1982 real
estate mortgage is no longer operative because otherwise, there would have been no need for the execution of
said trust agreement to secure the second loan.
Under pertinent laws, the trust receipt is a separate and independent security transaction intended to
aid in financing importers whereby the imported goods are held as security by the lending institution
for the loan obligation.
In the case and Vintola v. Insular bank of Asia and America 7 this Court explained the nature and usage of
trust receipts as follows:
"'. . . 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 involved a loan feature represented by the letter of credit, and 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. LLphil
". . . A trust receipt is considered as 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. . . .
Moreover, by virtue of the trust receipt agreement, respondent Bank should proceed against the same because
the trust receipt theoretically transferred the ownership of the imported personal property to respondent Bank.
Worth mentioning is also the fact that the trust receipts and the Continuing Surety Agreement were signed only
by petitioner Nacu. Assuming that both documents duly constituted a real estate mortgage on the property of
petitioners spouses, they are voidable for want of petitioner Lourdes Nacu's acquiescence and/or consent
thereto. Article 166 of the Civil Code provides that the husband cannot alienate or encumber any real property
of the conjugal partnership without the wife's consent.
16) [G.R. No. 59640. July 15, 1991.]
DAMIAN ROBLES, petitioner, vs. THE COURT OF APPEALS and THE PEOPLE OF THE
PHILIPPINES, respondents.

FACTS:
In an information dated 2 March 1978, petitioner Damian Robles was charged before the then Court of First
Instance of Manila with the crime of estafa. It alleged that during the period between November 19, 1976 to
March 9, 1977, the said accused received in trust from the said Roberto Ng y Shiang Shee office equipments
consisting of adding machines, typewriters and calculators all amounting to P14,895.00 for the purpose of
selling the same, under the express obligation of turning over the proceeds of the sale, if sold, or of returning
the said office equipments if not sold, to the said Roberto Ng y Shiang Shee. However, said accused failed and
refused to remit the corresponding amount of the said office equipments or to return the said office
equipments, despite repeated demands.
The trial court convicted petitioner Robles of the crime charged. Dissatisfied, petitioner Robles appealed to the
Court of Appeals which affirmed Robles’ conviction. Hence, the present Petition for Review.
Petitioner insists that the delivery trust receipts which he had signed were "merely intended to evidence the
fact that the articles therein listed were delivered to and received by him." It is his position that the delivery trust
receipts are "mere formalities" whose printed terms and conditions appearing therein were not intended by the
parties to govern their transactions; that those transactions referred to were in fact sales on trial basis for a
period of two (2) days. Thus, when he failed to return the various pieces of equipment within the two-day
period, he was deemed to have purchased the same and his liability should therefore be only civil, i.e., to pay
the purchase price.

ISSUES:
(1) Whether or not the Court of Appeals gravely erred in law in ruling that under the delivery trust receipts
petitioner received the articles covered therein in trust or with the obligation to account for the proceeds
thereof, or to return the same?
(2) Whether or not the Court of Appeals committed serious error in law in finding petitioner guilty of estafa
under Subdivision No. 1 (B), Article 315 of the Revised Penal Code?

RULINGS:
(1) NO. The provisions of the trust receipts show clearly (1) that Paramount retained ownership of the office
equipment covered by the receipts; (2) that possession of the goods was conveyed to petitioner subject to a
fiduciary obligation either to return them within a specified period of time or to pay or account for the price of
proceeds thereof. Surrounding circumstances also showed that the transactions were not ordinary sales on
trial basis. There were six (6) transactions involved, not just one. In each transaction, there were several items
of equipment delivered to petitioner, instead of just one, thereby indicating that petitioner was not an ordinary
buyer who would himself use the articles bought, but rather a commission merchant.
Additional items of equipment were delivered to petitioner even before compliance with his duty under one trust
receipt to return within two (2) days the office equipment he had received. He admitted in his Affidavit  that he
was Paramount's sales agent. Petitioner, however, failed to return the machines upon demand by Paramount
and at the same time, failed to account for the sale proceeds thereof.
The provisions of the conditions embodied in the trust receipts need no further interpretation or elucidation for
the same is clear, specific and explicit. The Court has observed the accused to be an intelligent man far (sic)
from his qualification of being a college professor and that he must have fully understood the contents of the
stipulations appearing on the face of the delivery trust receipts which he actually signed upon receipt of the
articles described therein. The period for him (accused) to return the articles is clear which is '2 days from the
date hereof,' meaning from the date he received the articles, the period mentioned being specifically typed on
the blank provided therefore (sic) which the Court believes the accused could not have missed and is aware he
signed these trust receipts." 
We note in this connection that the delivery trust receipts here involved in fact constituted trust receipts within
the meaning of Presidential Decree No. 115, known as the "Trust Receipts Law," which took effect on 29
January 1973.
We note that under Section 13 of the Trust Receipts Law, the violation by an entrustee of his obligations under
a trust receipt document, more specifically his failure to turnover the proceeds of the sale of the goods covered
by the trust receipt, or to return said goods as they were not sold or disposed of, would constitute the crime of
estafa under Article 315 (1) (b), Revised Penal Code.
In Lee v. Rodil, the Court held that "Acts involving the violation of trust receipt agreements occurring after 29
January 1973 would make the accused criminally liable for estafa under paragraph 1 (b), Article 315 of the
Revised Penal Code, pursuant to the explicit provision in Sec. 13 of PD 115.
In the case at bar, the acts of petitioner which were complained of were committed between 19 November
1976 and 9 March 1977, that is, long after the beginning date of effectivity of Presidential Decree No. 115. In
accordance with the provisions of Section 13, Presidential Decree No. 115, the failure of petitioner Damian
Robles to turnover to the entruster Paramount the proceeds of the sale of goods covered by the delivery trust
receipts and to return the said goods, constituted estafa punishable under Article 315 (1) (b) of the Revised
Penal Code.
It is also pertinent to point out that quite apart from and even in the absence of the provisions of Section 13 of
the Trust Receipt Law, the failure of Damian Robles to comply with his fiduciary obligation under the delivery
trust receipts constituted the offense of estafa punishable under Article 315 (1) (b) of the Revised Penal Code.
In other words, the elements of the offense of estafa set out in Article 315 (1) (b) are present in the instant
case. Those elements are: (1) "unfaithfulness or abuse of confidence;" (2) "misappropriating . . . money or
goods . . . ; (3) received by the offender in trust or on commission . . . or under any other obligation involving
the duty to make delivery of or to return the same . . .;" and (4) "to the prejudice of another."
The delivery trust receipts, in the case at bar, admittedly signed by petitioner Damian Robles imposed on him
the duty to return the article or the proceeds thereof to Paramount within two (2) days from the specified dates
of the trust receipts. The failure to account, upon demand, for funds or property held in trust is evidence of
misappropriation which, not having been explained away or rebutted by petitioner Damian Robles, warranted
his conviction for estafa under the Revised Penal Code.
16) [G.R. No. 82495. December 10, 1990.]
ALLIED BANKING CORPORATION, petitioner, vs. HON. SECRETARY SEDFREY ORDOÑEZ (Public
Respondent) and ALFREDO CHING (Private Respondent), respondents.

FACTS:
On 23 January 1981, Philippine Blooming Mills thru its duly authorized officer, private respondent Alfredo
Ching, applied for the issuance of commercial letters of credit with Allied Banking Corporation to finance the
purchase of 500 M/T Magtar Branch Dolomites and one (1) Lot High Fired Refractory Sliding Nozzle Bricks.
Petitioner Allied Banking issued an irrevocable letter of credit in favor of Nikko Industry Co., Ltd. (Nikko) by
virtue of which the latter drew four (4) drafts which were accepted by PBM and duly honored and paid by the
petitioner bank. 
To secure payment of the amount covered by the drafts, and in consideration of the transfer by petitioner of the
possession of the goods to PBM, the latter as entrustee, thru private respondent Ching, executed four (4) Trust
Receipt Agreements acknowledging petitioner's ownership of the goods and its obligation to turn over the
proceeds of the sale of the goods, if sold, or to return the same, if unsold within the stated period.
Out of the said obligation resulted an overdue amount of P1,475,274.09. Despite repeated demands, PBM
failed and refused to either turn over the proceeds of the sale of the goods or to return the same.
Thereafter, petitioner filed a criminal complaint against private respondent Ching for violation of PD 115. The
Fiscal found a prima facie case for violation of PD 115 on four (4) counts and filed the corresponding
information in court. Private respondent Ching appealed the Fiscal's resolution to the Department of Justice
which only affirmed the findings of the fiscal.
A motion for reconsideration was filed by Ching which was however denied. Another motion for reconsideration
was filed by respondent Ching wherein he clarified that the goods subject of the trust receipt agreements were
dolomites which were specifically used for patching purposes over the surface of furnaces and nozzle bricks
which are insulating materials in the lower portion of the ladle which do not form part of the steel product itself.
This prompted Justice Secretary Ordoñez to reverse the decision of his predecessor. He held that the law
contemplates or covers goods which have, for their ultimate destination, the sale thereof or if unsold, their
surrender to the entruster, this whether the goods are in their original form or in their manufactured/processed
state. Since the goods covered by the trust receipts and subject matter of these proceedings are to be utilized
in the operation of the equipment and machineries of the corporation, they could not have been contemplated
as being covered by PD 115. Thus, not all transactions covered by trust receipts may be considered as trust
receipt transactions defined and penalized under PD 115.
This time, petitioner Allied Bank filed a motion for reconsideration of the Ordoñez resolution which was
however denied. Hence, petitioner filed the present petition for certiorari and prohibition. In an attempt to
escape criminal liability, private respondent claims PD 115 covers goods which are ultimately destined for sale
and not goods for use in manufacture.

ISSUE: Whether or not  the penal provision of PD 115 (Trust Receipts Law) apply when the goods covered by
a Trust Receipt do not form part of the finished products which are ultimately sold but are instead, utilized/used
up in the operation of the equipment and machineries of the entrustee-manufacturer?

RULING:
YES. The wording of Sec. 13 covers failure to turn over the proceeds of the sale of entrusted goods, or to
return said goods if unsold or disposed of in accordance with the terms of the trust receipts. The non-payment
of the amount covered by a trust receipt is an act violative of the entrustee's 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 and that not all
transactions covered by trust receipts may be considered as trust receipt transactions defined and penalized
under PD 115 (11 January 1988 resolution). A construction should be avoided when it affords an opportunity to
defeat compliance with the terms of a statute. 
The penal provision of PD 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.
"An examination of P.D. 115 shows the growing importance of trust receipts in Philippine business, the need to
provide for the rights and obligations of parties to a trust receipt transaction, the study of the problems involved
and the action by monetary authorities, and the necessity of regulating the enforcement of rights arising from
default or violations of trust receipt agreements. The legislative intent to meet a pressing need is clearly
expressed . . ." 
WHEREFORE, the petition is granted.

18) [G.R. No. 112592. December 19, 1995.]

PRUDENTIAL BANK, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, CECILIA
ORQUELLO, et al., ZENAIDA UCHI, et al., ALU-INTERASIA CONTAINER INDUSTRIES INC., and RAUL
REMODO, respondents.

FACTS:
Interasia Container Industries, Inc. (INTERASIA), was embroiled in three (3) labor cases which were eventually
resolved against it. Thus, monetary awards consisting of 13th-month pay differentials and other benefits were
granted to complainants. 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 Prudential Bank 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.
The Sheriff posted Notice of Levy and Sale of the seized properties. However, no bidder appeared on the
scheduled date hence the public auction sale was postponed. At the rescheduled date the Sheriff declared
Angel Peliglorio the highest bidder. The Labor Arbiter then ordered the release of the properties to Peliglorio
prompting INTERASIA to file a Motion to Set Aside and/or Declare Public Auction Sale Null and Void Ab
Initio for non-compliance with legal requisites.
However, the Labor Arbiter denied the motion and directed the Sheriff to break open the plant of INTERASIA in
order that Peliglorio could enter and take possession of the auctioned properties. INTERASIA moved to
reconsider the order.
Thereafter, the Labor Arbiter inhibited himself from the case because of INTERASIAS's accusation of partiality.
The records were then forwarded to the NLRC. On the other hand, petitioner filed a Third-Party Claimant's
Appeal/Memorandum. The NLRC then dismissed petitioner's appeal as well as INTERASIA's Motion for
Reconsideration. INTERASIA and petitioner separately moved to reconsider but were denied.  Hence
petitioner brought this present recourse.
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 the same 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 extent of its security title in the goods which are valued at P46,100,253.92
otherwise its security title will become useless. 
In their comment, private respondents submit that petitioner's negligence to immediately assert its right to
cancel the Trust Receipt Agreements, upon INTERASIA's failure to comply with its obligation, is fatal to its
claim.

ISSUE: Whether or not INTERASIA could not claim ownership over the properties due to its failure to cancel
the trust receipt and take possession of the properties?

RULING:
NO. Significantly, the law uses the word "may" in granting to the entruster the right to cancel the trust and take
possession of the goods. Consequently, petitioner has the discretion to avail of such right or seek any
alternative action, such as a third-party claim or a separate civil action which it deems best to protect its
right, at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the
trust agreement.
Besides, as earlier stated, the law warrants the validity of petitioner's security interest in the goods pursuant to
the written terms of the trust receipt as against all creditors of the trust receipt agreement. 12 The only
exception to the rule is when the properties are in the hands of an innocent purchaser for value and in good
faith. The records however do not show that the winning bidder is such purchaser. Neither can private
respondents plead preferential claims to the properties as petitioner has the primary right to them until its
advances are fully paid.
In fine, we hold that under the law and jurisprudence the NLRC committed grave abuse of discretion in
disregarding the third-party claim of petitioner. Necessarily the auction sale held on 5 November 1992 should
be set aside. For there would be neither justice nor equity in taking the funds from the party whose means had
purchased the property under the contract
In a trust receipt arrangement, the banker advances money to an intending importer, and thereby lends the aid
of capital, of credit, or of business facilities and agencies abroad, to the enterprise of foreign commerce.
Accordingly, in order to secure that the banker shall be repaid at the critical point — that is, when the imported
goods finally reach the hands of the intended vendee — the banker takes the full title to the goods at the very
beginning; he takes it as soon as the goods are bought and settled for by his payments or acceptances in the
foreign country, and he continues to hold that title as his indispensable security until the goods are sold in the
United States and the vendee is called upon to pay for them. This security is not an ordinary pledge by the
importer to the banker, for the importer has never owned the goods, and moreover, he is not able to deliver the
possession; but the security is the complete title vested originally in the bankers, and this characteristic of the
transaction has again and again been recognized and protected by the courts. Of course, the title is at bottom
a security title, as it has sometimes been called, and the banker is always under the obligation to reconvey; but
only after his advances have been fully repaid and after the importer has fulfilled the other terms of the
contract (italics supplied). 
. . . [I]n a certain manner, (trust receipt contracts) partake of the nature of a conditional sale as provided by the
Chattel Mortgage Law, that is, the importer becomes absolute owner of the imported merchandise as soon as
he has paid its price. The ownership of the merchandise continues to be vested in the owner thereof or in the
person who has 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 (italics supplied). 
More importantly, owing to the vital role trust receipts play in international and domestic commerce, Sec. 12
of P.D. No. 115 9 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 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. 10