CASE 1: TIDCORP vs.
ASPAC Guarantee and with its previous demands therefor left unheeded, TIIDCORP
G.R. No. 187403 February 12, 2014
TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE
PHILIPPINES (Formerly PHILIPPINE EXPORT AND FOREIGN LOAN
GUARANTEE CORPORATION.) vs.
ASIA PACES CORPORATION, PACES INDUSTRIAL CORPORATION,
NICOLAS C. BALDERRAMA, SIDDCOR INSURANCE CORPORATION
(now MEGA PACIFIC INSURANCE CORPORATION), PHILIPPINE
PHOENIX SURETY AND INSURANCE, INC., PARAMOUNT INSURANCE
CORPORATION,* AND FORTUNE LIFE AND GENERAL INSURANCE
COMPANY
FACTS: Asia Paces Corporation (ASPAC) and Paces Industrial Corporation
(PICO) entered into a sub-contracting agreement with the Electrical Projects
Company of Libya (ELPCO for the construction and erection of a double
circuit bundle phase conductor transmission line in the country of Libya. To
finance its working capital requirements, ASPAC obtained loans from foreign
banks Banque Indosuez and PCI Capital (Hong Kong) Limited (PCI Capital)
which were secured by several Letters of Guarantee issued by Trade and
Investment Development Corporation of the Philippines (TIDCORP),
then Philippine Export and Foreign Loan Guarantee Corp. Under the Letters
of Guarantee, TIDCORP irrevocably and unconditionally guaranteed
full payment of ASPAC’s loan obligations to Banque Indosuez and PCI Capital
in the event of default by the latter.
As a condition precedent to the issuance by TIDCORP of the Letters of
Guarantee, ASPAC, PICO, and ASPAC’s President, Nicolas C. Balderrama
(Balderrama) had to execute several Deeds of Undertaking, binding
themselves to jointly and severally pay TIDCORP for whatever damages or
liabilities it may incur under the aforementioned letters. In the same light,
ASPAC, as principal debtor, entered into surety agreements (Surety Bonds)
with Paramount, Phoenix, Mega Pacific and Fortune (bonding companies), as
sureties, also holding themselves solidarily liable to TIDCORP, as creditor, for
whatever damages or liabilities the latter may incur under the Letters of
Guarantee.
ASPAC eventually defaulted on its loan obligations to Banque Indosuez and
PCI Capital. Demand letters to the bonding companies were sent but to no
avail. Taking into account the moratorium request issued by the Minister of
Finance of the Republic of the Philippines, TIDCORP and its various creditor
banks, such as Banque Indosuez and PCI Capital, forged a Restructuring
Agreement extending the maturity dates of the Letters of Guarantee. The
bonding companies were not privy to the Restructuring Agreement and, hence,
did not give their consent to the payment extensions. Nevertheless, following
new payment schedules, TIDCORP fully settled its obligations. Seeking
payment for the damages and liabilities it had incurred under the Letters of
filed a collection case against: (a) ASPAC, PICO, and Balderrama on account
of their obligations under the deeds of undertaking; and (b) the bonding
companies on account of their obligations under the Surety Bonds.
The RTC partially granted TIDCORP’s complaint and thereby found ASPAC,
PICO, and Balderrama jointly and severally liable to TIDCORP but absolved
the bonding companies from liability on the ground that the moratorium
request and the consequent payment extensions granted by Banque Indosuez
and PCI Capital in TIDCORP’s favor without their consent extinguished their
obligations under the Surety Bonds. On appeal, the CA upheld the ruling of
RTC. Hence, this appeal filed by TIDCORP.
ISSUE: Whether or not the bonding companies’ liabilities to TIDCORP
under the Surety Bonds have been extinguished by the payment
extensions granted by Banque Indosuez and PCI Capital to TIDCORP
under the Restructuring Agreement.
HELD: NO. The Court finds that the payment extensions granted by
Banque Indosuez and PCI Capital to TIDCORP under the Restructuring
Agreement did not have the effect of extinguishing the bonding
companies’ obligations to TIDCORP under the Surety Bonds,
notwithstanding the fact that said extensions were made without their
consent. This is because Article 2079 of the Civil Code refers to a payment
extension granted by the creditor to the principal debtor without the consent of
the guarantor or surety. In this case, the Surety Bonds are suretyship contracts
which secure the debt of ASPAC, the principal debtor, under the Deeds of
Undertaking to pay TIDCORP, the creditor, the damages and liabilities it may
incur under the Letters of Guarantee, within the bounds of the bonds’
respective coverage periods and amounts. No payment extension was,
however, granted by TIDCORP in favor of ASPAC in this regard; hence,
Article 2079 of the Civil Code should not be applied with respect to the
bonding companies’ liabilities to TIDCORP under the Surety Bonds.
The payment extensions granted by Banque Indosuez and PCI Capital pertain
to TIDCORP’s own debt under the Letters of Guarantee wherein it (TIDCORP)
irrevocably and unconditionally guaranteed full payment of ASPAC’s loan
obligations to the banks in the event of its (ASPAC) default. In other words, the
Letters of Guarantee secured ASPAC’s loan agreements to the banks. Under
this arrangement, TIDCORP therefore
actedhttp://www.lawphil.net/judjuris/juri2014/feb2014/gr_187403_2014.html -
fnt58 as a guarantor, with ASPAC as the principal debtor, and the banks as
creditors.
Proceeding from the foregoing discussion, it is quite clear that there are two
sets of transactions that should be treated separately and distinctly from
one another following the civil law principle of relativity of contracts
"which provides that contracts can only bind the parties who entered into it,
and it cannot favor or prejudice a third person, even if he is aware of such
contract and has acted with knowledge thereof." Verily, as the Surety Bonds
concern ASPAC’s debt to TIDCORP and not TIDCORP’s debt to the banks,
the payments extensions would not deprive the bonding companies of
their right to pay their creditor (TIDCORP) and to be immediately
subrogated to the latter’s remedies against the principal debtor (ASPAC)
upon the maturity date. It must be stressed that these payment extensions
did not modify the terms of the Letters of Guarantee but only provided for a
new payment scheme covering TIDCORP’s liability to the banks. In fine,
considering the inoperability of Article 2079 of the Civil Code in this case,
the bonding companies’ liabilities to TIDCORP under the Surety Bonds –
except those issued by Paramount and covered by its Compromise
Agreement with TIDCORP – have not been extinguished.
Bank of America v CA
There would at least be three (3) parties: (a) the buyer, who procures the
letter of credit and obliges himself to reimburse the issuing bank upon
receipts of the documents of title; (b) the bank issuing the letter of credit,
which undertakes to pay the seller upon receipt of the draft and proper
document of titles and to surrender the documents to the buyer upon
reimbursement; and, (c) the seller, who in compliance with the contract
of sale ships the goods to the buyer and delivers the documents of title
and draft to the issuing bank to recover payment.
Facts : Bank of America received an Irrevocable Letter of Credit issued by
Bank of Ayudhya for the Account of General Chemicals Ltd., Inc. for the sale
of plastic ropes and agricultural files. Under the letter of credit, Bank of America
acted as an advising bank and Inter-Resin Industrial Corp. (IR) acted as the
beneficiary. Upon receipt of the letter advice, Inter- Resin told Bank of America
to confirm the letter of credit.
Notwithstanding such instruction, Bank of America failed to confirm the letter
of credit. Inter-Resin made a partial availment of the Letter of Credit after
presentment of the required documents to Bank of America. After confirmation
of all the documents Bank of America issued a check in favor of IR. BA advised
Bank of Ayudhya of IR’s availment under the letter of credit and asked for the
corresponding reimbursement. IR presented documents for the second
availment under the same letter of credit. However, BA stopped the processing
of such after they received a telex from Bank of Ayudhya delaring that the LC
fraudulent. BA sued IR for the recovery of the first LC payment.
The IR contended that Bank of America should have first checked the
authenticity of the letter of credit with bank of Ayudhya
Issue: Whether or not Bank of America may recover what it has paid under the
letter of credit to Inter-Resin
Held : May Bank of America then recover what it has paid under the letter of
credit when the corresponding draft
There would at least be three (3) parties: (a) the buyer, who procures the letter
of credit and obliges himself to reimburse the issuing bank upon receipts of the
documents of title; (b) the bank issuing the letter of credit, which undertakes to
pay the seller upon receipt of the draft and proper document of titles and to
surrender the documents to the buyer upon reimbursement; and, (c) the seller,
who in compliance with the contract of sale ships the goods to the buyer and
delivers the documents of title and draft to the issuing bank to recover
payment.
The services of an advising (notifying) bank may be utilized to convey to the
seller the existence of the credit; or, of a confirming bank 16 which will lend
credence to the letter of credit issued by a lesser known issuing bank; or, of a
paying bank, which undertakes to encash the drafts drawn by the exporter.
Further, instead of going to the place of the issuing bank to claim payment, the
buyer may approach another bank, termed the negotiating bank, 18 to have
the draft discounted.
Bank of America has acted independently as a negotiating bank, thus saving
Inter-Resin from the hardship of presenting the documents directly to Bank of
Ayudhya to recover payment. As a negotiating bank, Bank of America has a
right to recourse against the issuer bank and until reimbursement is obtained,
Inter-Resin, as the drawer of the draft, continues to assume a contingent
liability thereon.
Furthermore, bringing the letter of credit to the attention of the seller is the
primordial obligation of an advising bank. The view that Bank of America
should have first checked the authenticity of the letter of credit with bank of
Ayudhya, by using advanced mode of business communications, before
dispatching the same to Inter-Resin finds no real support.
Transfield Philippines v Luzon Hydro, ANZ and Security Bank
The independent nature of the letter of credit may be: (a) independence
in toto where the credit is independent from the justification aspect and
is a separate obligation from the underlying agreement like for instance
a typical standby; or (b) independence may be only as to the justification
aspect like in a commercial letter of credit or repayment standby, which
is identical with the same obligations under the underlying
agreement. In both cases the payment may be enjoined if in the light of
the purpose of the credit the payment of the credit would constitute
fraudulent abuse of the credit.
Facts: Transfield Philippines (Transfield) entered into a turn-key contract with
Luzon Hydro Corp. (LHC).Under the contract, Transfield were to construct a
hydro-electric plants in Benguet and Ilocos. Transfield was given the sole
responsibility for the design, construction, commissioning, testing and
completion of the Project. The contract provides for a period for which the
project is to be completed and also allows for the extension of the period
provided that the extension is based on justifiable grounds such as fortuitous
event. In order to guarantee performance by Transfield, two stand-by letters of
credit were required to be opened. During the construction of the plant,
Transfield requested for extension of time citing typhoon and various disputes
delaying the construction. LHC did not give due course to the extension of the
period prayed for but referred the matter to arbitration committee. Because of
the delay in the construction of the plant, LHC called on the stand-by letters of
credit because of default. However, the demand was objected by Transfield
on the ground that there is still pending arbitration on their request for
extension of time.
Issue: Whether or not LHC can collect from the letters of credit despite the
pending arbitration case
Held: Transfield’s argument that any dispute must first be resolved by the
parties, whether through negotiations or arbitration, before the beneficiary is
entitled to call on the letter of credit in essence would convert the letter of credit
into a mere guarantee.
The independent nature of the letter of credit may be: (a) independence in toto
where the credit is independent from the justification aspect and is a separate
obligation from the underlying agreement like for instance a typical standby; or
(b) independence may be only as to the justification aspect like in a commercial
letter of credit or repayment standby, which is identical with the same
obligations under the underlying agreement. In both cases the payment may
be enjoined if in the light of the purpose of the credit the payment of the credit
would constitute fraudulent abuse of the credit.
Jurisprudence has laid down a clear distinction between a letter of credit and
a guarantee in that the settlement of a dispute between the parties is not a pre-
requisite for the release of funds under a letter of credit. In other words, the
argument is incompatible with the very nature of the letter of credit. If a letter
of credit is drawable only after settlement of the dispute on the contract entered
into by the applicant and the beneficiary, there would be no practical and
beneficial use for letters of credit in commercial transactions.
The engagement of the issuing bank is to pay the seller or beneficiary of the
credit once the draft and the required documents are presented to it. The so-
called “independence principle” assures the seller or the beneficiary of prompt
payment independent of any breach of the main contract and precludes the
issuing bank from determining whether the main contract is actually
accomplished or not. Under this principle, banks assume no liability or
responsibility for the form, sufficiency, accuracy, genuineness, falsification or
legal effect of any documents, or for the general and/or particular conditions
stipulated in the documents or superimposed thereon, nor do they assume any
liability or responsibility for the description, quantity, weight, quality, condition,
packing, delivery, value or existence of the goods represented by any
documents, or for the good faith or acts and/or omissions, solvency,
performance or standing of the consignor, the carriers, or the insurers of
the goods, or any other person whomsoever.
Colinares and Veloso v CA
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.
Facts: Melvin Colinares and Lordino Veloso (hereafter Petitioners) were
contracted for a consideration of P40,000 by the Carmelite Sisters of Cagayan
de Oro City to renovate the latter’s convent at Camaman-an, Cagayan de Oro
City. Colinares applied for a commercial letter of credit with the Philippine
Banking Corporation, Cagayan de Oro City branch (hereafter PBC) in favor of
CM Builders Centre. PBC approved the letter of credit for P22,389.80 to cover
the full invoice value of the goods. Petitioners signed a pro-forma trust
receipt as security.
PBC debited P6,720 from Petitioners’ marginal deposit as partial payment of
the loan. After the initial payment, the spouses defaulted. PBC wrote to
Petitioners demanding that the amount be paid within seven days from notice.
Instead of complying with PBC’s demand, Veloso confessed that they
lost P19,195.83 in the Carmelite Monastery Project and requested for a grace
period of until 15 June 1980 to settle the account. Colinares proposed that
the terms of payment of the loan be modified P2,000 on or before 3 December
1980, and P1,000 per month . Pending approval of the proposal, Petitioners
paid P1,000 to PBC on 4 December 1980, and thereafter P500 on 11 February
1981, 16 March 1981, and 20 April 1981. Concurrently with the separate
demand for attorney’s fees by PBC’s legal counsel, PBC continued to demand
payment of the balance. On 14 January 1983, Petitioners were charged with
the violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of
the Revised Penal Code
During trial, petitioner Veloso insisted that the transaction was a “clean loan”
as per verbal guarantee of Cayo Garcia Tuiza, PBC’s former manager. He and
petitioner Colinares signed the documents without reading the fine print, only
learning of the trust receipt implication much later. When he brought this to the
attention of PBC, Mr. Tuiza assured him that the trust receipt was a mere
formality. 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.
Issue: Whether or not the transaction of Colinares falls within the ambit of the
Law on Trust Receipt
Held: Colinares received the merchandise from CM Builders Centre on 30
October 1979. On that day, ownership over the merchandise was already
transferred to Petitioners who were to use the materials for their construction
project. It was only a day later, 31 October 1979, 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.
There are two possible situations in a trust receipt transaction. The first is
covered by the provision which refers to money received under the obligation
involving the duty to deliver it (entregarla) to the owner of the merchandise
sold. The second is covered by the provision which refers to merchandise
received under the obligation to “return” it (devolvera) to the owner. Failure of
the entrustee to turn over the proceeds of the sale of the goods, covered by
the trust receipt to the entruster or to return said goods if they were not
disposed of in accordance with the terms of the trust receipt shall be
punishable as estafa under Article 315 (1) of the Revised Penal Code, without
need of proving intent to defraud.
HUR TIN YANG vs. PEOPLE OF THE PHILIPPINES
G.R. No. 195117; August 14, 2013; Velasco Jr., J.
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.http://www.lawphil.net/judjuris/juri2013/aug2013/gr_195117_2013.html
- fnt16
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. (Supermax) is a domestic corporation
engaged in the construction business. On various occasions, Metropolitan
Bank and Trust Company (Metrobank), extended several commercial
letters of credit (LCs) to Supermax. These commercial LCs were used by
Supermax to pay for the delivery of several construction materials which
will be used in their construction business. Thereafter, Metrobank required
petitioner, as representative of Supermax, to sign 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 trust receipts fell due and despite the receipt of a demand letter,
Supermax failed to pay or deliver the goods or proceeds to Metrobank.
Instead, Supermax requested the restructuring of the loan. When the
intended restructuring of the loan did not materialize, Metrobank sent
another demand letter. As the demands fell on deaf ears, Metrobank, filed
the instant criminal complaints against petitioner.
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.
In support of this argument, petitioner presented a witness who 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 rendered judgment convicting accused Hur Tin Yang of the
crime of estafa under Article 315 paragraph 1 (a) of the Revised Penal
Code.
Petitioner appealed to the CA. CA rendered a Decision, upholding the
findings of the RTC. The CA 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 filed a MR, but it was denied. Not satisfied, petitioner filed a
petition for review under Rule 45 of the Rules of Court.
SC dismissed the Petition on the ground that the CA committed no
reversible error in the assailed decision. Hence, petitioner filed the present
MR 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.
HELD:
In determining the nature of a contract, courts are not bound by the
title or name given by the parties. The decisive factor in evaluating such
agreement is the intention of the parties, as shown not necessarily by the
terminology used in the contract but by their conduct, words, actions and
deeds prior to, during and immediately after executing the agreement. As such,
therefore, documentary and parol evidence may be submitted and admitted to
prove such intention.
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.
In Ng v. People and Land Bank of the Philippines v. Perez, cases
which are in all four corners the same as the instant case––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.
The petitioner was charged with Estafa committed in what is called,
under PD 115, a "trust receipt transaction.
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.http://www.lawphil.net/judjuris/juri2013/aug2013/gr_195117_2013.html
- fnt16 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.
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.
In Ng v. People, Anthony Ng, then engaged in the business of building
and fabricating telecommunication towers, applied for a credit line of PhP
3,000,000 with Asiatrust Development Bank, Inc. Prior to the approval of the
loan, Anthony Ng informed Asiatrust that the proceeds would be used for
purchasing construction materials necessary for the completion of several
steel towers he was commissioned to build by several telecommunication
companies. Asiatrust approved the loan but required Anthony Ng to sign a trust
receipt agreement. When Anthony Ng failed to pay the loan, Asiatrust filed a
criminal case for Estafa in relation to PD 115 or the Trust Receipts Law. This
Court acquitted Anthony Ng and ruled that the Trust Receipts Law was created
to "to aid in financing importers and retail dealers who do not have sufficient
funds or resources to finance the importation or purchase of merchandise, and
who may not be able to acquire credit except through utilization, as collateral,
of the merchandise imported or purchased." Since Asiatrust knew that Anthony
Ng was neither an importer nor retail dealer, it should have known that the said
agreement could not possibly apply to petitioner, viz:
The true nature of a trust receipt transaction can be found in the
"whereas" clause of PD 115 which states that a trust receipt is to be utilized
"as a convenient business device to assist importers and merchants solve their
financing problems." Obviously, the State, in enacting the law, sought to find a
way to assist importers and merchants in their financing in order to encourage
commerce in the Philippines.
[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. Similarly, American Jurisprudence
demonstrates that trust receipt transactions always refer to a method of
"financing importations or financing sales." The principle is of course not
limited in its application to financing importations, since the principle is equally
applicable to domestic transactions. Regardless of whether the transaction is
foreign or domestic, it is important to note that the transactions discussed in
relation to trust receipts mainly involved sales.
Following the precept of the law, such transactions affect situations
wherein the entruster, who owns or holds absolute title or security interests
over specified goods, documents or instruments, releases the subject goods
to the possession of the entrustee. The release of such goods to the entrustee
is conditioned upon his execution and delivery to the entruster of a trust receipt
wherein the former binds himself to hold the specific goods, documents or
instruments in trust for the entruster and to sell or otherwise dispose of the
goods, documents or instruments with the obligation to turn over to the
entruster the proceeds to the extent of the amount owing to the entruster or
the goods, documents or instruments themselves if they are unsold. x x x [T]he
entruster is entitled "only to the proceeds derived from the sale of goods
released under a trust receipt to the entrustee."
Considering that the goods in this case were never intended for sale
but for use in the fabrication of steel communication towers, the trial court erred
in ruling that the agreement is a trust receipt transaction.
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.
Further, in Land Bank of the Philippines v. Perez, the respondents
were officers of Asian Construction and Development Corporation (ACDC), a
corporation engaged in the construction business. On several occasions,
respondents executed in favor of Land Bank of the Philippines (LBP) trust
receipts to secure the purchase of construction materials that they will need in
their construction projects. When the trust receipts matured, ACDC failed to
return to LBP the proceeds of the construction projects or the construction
materials subject of the trust receipts. After several demands went unheeded,
LBP filed a complaint for Estafa or violation of Art. 315, par. 1(b) of the RPC,
in relation to PD 115, against the respondent officers of ACDC. This Court, like
in Ng, acquitted all the respondents on the postulate that the parties really
intended a simple contract of loan and not a trust receipts transaction, viz:
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.
xxxx
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.
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,http://www.lawphil.net/judjuris/juri2013/aug2013/gr_195117_2013.ht
ml - fnt20 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.
The Court’s ruling in Colinares v. Court of
Appealshttp://www.lawphil.net/judjuris/juri2013/aug2013/gr_195117_2013.ht
ml - fnt21 is very apt, thus:
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 x x x.
Unfortunately, what happened in Colinares is exactly the situation in
the instant case. This reprehensible bank practice described in Colinares
should be stopped and discouraged. For this Court to give life to the
constitutional provision of non-imprisonment for nonpayment of debts, it is
imperative that petitioner be acquitted of the crime of Estafa under Art. 315,
par. 1 (b) ofthe RPC, in relation to PD 115.
WHEREFORE, the Resolution upholding the CA's is hereby
RECONSIDERED. Petitioner Hur Tin Yang is ACQUITTED of the charge of
violating Art. 315, par. 1 (b) of the RPC, in relation to the pertinent provision of
PD 115 in Criminal Case Nos. 04-223911 to 34.
SO ORDERED.
5. Sps. Dela Cruz vs PPI
Facts:
Spouses Dela Cruz, petitioners herein, operated the Barangay Agricultural
Supply. At the time material to the case, Quirino, a lawyer, was the Municipal
Mayor of Aliaga, Nueva Ecija. 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.
Spouses submitted a list of their assets in support of her credit application for
participation in the Special Credit Scheme (SCS) of PPI. Gloria signed in the
presence of the PPI distribution representative "Trust Receipt/Special Credit
Scheme," indicating the invoice number, quantity, value, and names of the
agricultural inputs she received "upon the trust" of PPI.
The 60-day credit term lapsed without Gloria paying her obligation under the
Trust Receipt/SCS. Hence, PPI wrote collection letters to her.
PPI 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.
The CA held the petitioners liable to PPI “for the value of the fertilizers and
agricultural chemical products covered by the trust receipts” because a
creditor-debtor relationship existed between the parties when, the petitioners
“withdrew several fertilizers and agricultural chemical products on credit;” that
the petitioners then came under obligation to pay the equivalent value of the
withdrawn goods, “or to return the undelivered and/or unused products within
the specified period.”

Issue:
Is Gloria liable under Trust Receipt law?
Ruling:
These established circumstances comprised by the contemporaneous and
subsequent acts of Gloria and Quirino that manifested their intention to enter
into the creditor-debtor relationship with PPI show that the CA properly held
the petitioners fully liable to PPI. The law of contracts provides that in
determining the intention of the parties, their contemporaneous and
subsequent acts shall be principally considered. Consequently, the written
terms of their contract with PPI, being clear upon the intention of the
contracting parties, should be literally applied.
The first circumstance was the credit line of P200,000.00 that commenced the
business relationship between the parties. A credit line is really a loan
agreement between the parties.
The second circumstance was the offer by Gloria of trust receipts as her
collateral for securing the loans that PPI extended to her. 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.”
The third circumstance was the offer of Gloria and Quirino to have their
conjugal real properties beef up the collaterals for the credit line.
The fourth circumstance had to do with the undertakings under the trust
receipts. The position of the petitioners was that the farmers participants alone
were obligated to pay for the goods delivered to them by Gloria. However, such
position had no factual and legal legs to prop it up. A close look at the Trust
Receipt/SCS indicates that the farmer-participants were mentioned therein
only with respect to the duties and responsibilities that Gloria personally
assumed to undertake in holding goods “in trust for PPI.” Under the notion of
relativity of contracts embodied in Article 1311 of the Civil Code, contracts take
effect only between the parties, their assigns and heirs. Hence, the farmer-
participants, not being themselves parties to the contractual documents signed
by Gloria, were not to be thereby liable.