ADVENT CAPITAL AND FINANCE CORPORATION vs ALCANTARA G.R. No.

183050/ January 25, 2012

ABAD, J.:

FACTS:

On July 16, 2001 petitioner Advent Capital and Finance Corporation (Advent Capital) filed a petition for
rehabilitation with the Regional Trial Court (RTC) of Makati City. The RTC named Atty. Danilo L.
Concepcion as rehabilitation receiver. Upon audit of Advent Capital’s books, Atty. Concepcion found that
respondents Nicasio and Editha Alcantara (collectively, the Alcantaras) owed Advent Capital
P27,398,026.59, representing trust fees that it supposedly earned for managing their several trust
accounts . Prompted by this finding, Atty. Concepcion requested Belson Securities, Inc. (Belson) to
deliver to him, as Advent Capital’s rehabilitation receiver, the P7,635,597.50 in cash dividends that
Belson held under the Alcantaras’ Trust Account 95-013. Atty. Concepcion claimed that the dividends, as
trust fees, formed part of Advent Capital’s assets. Belson refused, however, citing the absence of an
appropriate order from the rehabilitation court.

Thus, Atty. Concepcion filed a motion before the rehabilitation court to direct Belson to release the
money to him. He said that, as rehabilitation receiver, he had the duty to take custody and control of
Advent Capital’s assets, such as the sum of money that Belson held on behalf of Advent Capital’s Trust
Department. The Alcantaras opposed and claimed that the money in the trust account belonged to them
under their Trust Agreement with Advent Capital. The latter, they said, could not claim any right or
interest in the dividends generated by their investments since Advent Capital merely held these in trust
for the Alcantaras, the trustors-beneficiaries. For this reason, Atty. Concepcion had no right to compel
the delivery of the dividends to him as receiver. The Alcantaras concluded that, under the circumstances,
the rehabilitation court had no jurisdiction over the subject dividends.

ISSUE:

Are the cash dividends held by Belson and claimed by both the Alcantaras and Advent Capital part of
corporate assets of the latter that the rehabilitation court may, upon motion, require to be conveyed to
the rehabilitation receiver for his disposition?

RULING:

No. Advent Capital asserts that the cash dividends in Belson’s possession formed part of its assets based
on paragraph 9 of its Trust Agreement. That it could automatically deduct its management fees from the
Alcantaras’ portfolio that they entrusted to it. Paragraph 9 of the Trust Agreement provides that Advent
Capital could automatically deduct its trust fees from the Alcantaras’ portfolio, “at the end of each
calendar quarter,” with the corresponding duty to submit to the Alcantaras a quarterly accounting report
within 20 days after. But the problem is that the trust fees that Advent Capital’s receiver was claiming
were for past quarters. Based on the stipulation, these should have been deducted as they became due.
As it happened, at the time Advent Capital made its move to collect its supposed management fees, it
neither had possession nor control of the money it wanted to apply to its claim. Belson, a third party,
held the money in the Alcantaras’ names. Whether it should deliver the same to Advent Capital or to the
Alcantaras is not clear. What is clear is that the issue as to who should get the same has been seriously
contested. The practice in the case of banks is that they automatically collect their management fees
from the funds that their clients entrust to them for investment or lending to others. But the banks can
freely do this since it holds or has control of their clients’ money and since their trust
agreement authorized the automatic collection. If the depositor contests the deduction, his remedy is to
bring an action to recover the amount he claims to have been illegally deducted from his account. Here,
Advent Capital does not allege that Belson had already deducted the management fees owing to it from
the Alcantaras’ portfolio at the end of each calendar quarter. Had this been done, it may be said that the
money in Belson’s possession would technically be that of Advent Capital. Belson would be holding such
amount in trust for the latter.

And it would be for the Alcantaras to institute an action in the proper court against Advent Capital and
Belson for misuse of its funds. But the above did not happen. Advent Capital did not exercise its right to
cause the automatic deduction at the end of every quarter of its supposed management fee when it had
full control of the dividends. That was its fault. For their part, the Alcantaras had the right to presume
that Advent Capital had deducted its fees in the manner stated in the contract. The burden of proving
that the fees were not in fact collected lies with Advent Capital. Further, Advent Capital or its
rehabilitation receiver cannot unilaterally decide to apply the entire amount of cash dividends
retroactively to cover the accumulated trust fees.

Advent Capital merely managed in trust for the benefit of the Alcantaras the latter’s portfolio, which
under Paragraph 2 of the Trust Agreement, includes not only the principal but also its income or
proceeds. The trust property is only fictitiously attributed by law to the trustee “to the extent that the
rights and powers vested in a nominal owner shall be used by him on behalf of the real owner.” The real
owner of the trust property is the trustor-beneficiary. In this case, the trustorsbeneficiaries are the
Alcantaras. Thus, Advent Capital could not dispose of the Alcantaras’ portfolio on its own. The income
and principal of the portfolio could only be withdrawn upon the Alcantaras’ written instruction or order
to Advent Capital. The latter could not also assign or encumber the portfolio or its income without the
written consent of the Alcantaras. All these are stipulated in the Trust Agreement. Rehabilitation
proceedings are summary and non-adversarial in nature, and do not contemplate adjudication of claims
that must be threshed out in ordinary court proceedings. Adversarial proceedings similar to that in
ordinary courts are inconsistent with the commercial nature of a rehabilitation case. The latter must be
resolved quickly and expeditiously for the sake of the corporate debtor, its creditors and other interested
parties. Thus, the Interim Rules “incorporate the concept of prohibited pleadings, affidavit evidence in
lieu of oral testimony, clarificatory hearings instead of the traditional approach of receiving evidence,
and the grant of authority to the court to decide the case, or any incident, on the basis of affidavits and
documentary evidence.

Case No. 19 LAND BANK OF THE PHILIPPINES vs. PEREZ

Doctrines of the case

1. Under the Trust Receipts Law, intent todefraud 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.

2. 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.

3. 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.”

FACTS:

1. Petitioner Land Bank of the Philippines (LBP) is a government financial institution and the official
depository of the Philippines. Respondents are the officers and representatives of Asian Construction and
Development Corporation (ACDC), a corporation incorporated under Philippine law and engaged in the
construction business.
2. LBP extended a credit accommodation to ACDC through the execution of an Omnibus Credit Line
Agreement (Agreement) between LBP and ACDC on October 29, 1996.
3. 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, dated May 4, 1999,
for the payment of its debts, including those under the Trust Receipts Facility in the amount of
P66,425,924.39. When ACDC failed to comply with the demand letter, LBP filed the affidavit-complaint for
estafa or violation of Article 315, paragraph 1(b) of the Revised Penal Code, in relation to P.D. 115

4. Perez alleged 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.

5. They alleged that ACDC acted as a subcontractor for government projects such as the Metro Rail
Transit, the Clark Centennial Exposition and the Quezon Power Plant in Mauban, Quezon. 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 CA ruled in favor of Perez ratiocinating in this wise

1.The case did not involve a trust receipt transaction, but a mere loan. It emphasized that construction
materials, the subject of the trust receipt transaction, were delivered to ACDC even before the trust
receipts were executed.
2. LBP did not offer proof that the goods were received by ACDC, and that the trust receipts did not
contain a description of the goods, their invoice value, the amount of the draft to be paid, and their
maturity dates. It also adopted ACDC’s argument
that since no payment for the construction projects had been received by ACDC, its officers could not
have been guilty of misappropriating any payment.

Issue: Whether or not CA erred in ruling that the case is merely a loan agreement and not a trust receipt
transaction?
Supreme court Decision

Yes. The transaction is a mere loan agreement and not a trust receipt transaction.

1. The disputed transactions are not trust receipts.

Section 4 of P.D. 115 defines a trust receipt transaction in this manner:

“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 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, or for other purposes substantially equivalent to any of the following: In the case of goods or
documents,
(a) to sell the goods or procure their sale; or
(b) to manufacture or process the goods with the purpose of ultimate sale:

Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or
processing before its ultimate sale, the entruster shall retain its title over the goods whether in its original
or processed form until the entrustee has complied fully with his obligation under the trust receipt; or (c) to
load, unload, ship or tranship or otherwise deal with them in a manner preliminary or necessary to their
sale[.]”

2. Two obligations in a trust receipt transaction.

a. By the provision that refers to money under the obligation to deliver it (entregarla) to the owner of the
merchandise sold.

b. By the provision referring to merchandise received under the obligation to return it (devolvera) 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 vcovered 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.
3. In the case at bar,

a. 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 construction projects. 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 dated May 4, 1999 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. 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.

b. Based on these premises, the agreements between the parties in this case are not 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.