Rosario Textile Mills v Home Bankers Savings and Trust Company G.R. No.

137232 June
29, 2005
A trust receipt is a security agreement pursuant to which a bank acquires a
�security interest� in the goods. In Vintola vs. Insular Bank of Asia and America,
we elucidated further that �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.�

Facts: Sometime in 1989, Rosario Textile Mills Corporation (RTMC) applied from Home
Bankers Savings & Trust Co. for an Omnibus Credit Line for P10 million. The bank
approved RTMC�s credit line but for only P8 million. The bank notified RTMC of the
grant of the said loan thru a letter dated March 2, 1989 which contains terms and
conditions conformed by RTMC thru Edilberto V. Yujuico. On March 3, 1989, 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 from
1989 to 1990. 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.

Yujuico contend that he should be absolved from liability. They claimed that
although the grant of the credit line and the execution of the suretyship
agreement. They alleged that the bank gave assurance that the suretyship agreement
was merely a formality under which Yujuico will not be personally liable. He
theorized that when 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.

Issue: Whether or not Yujuico is absolved from liability by the grant of the credit
line and the execution of the suretyship agreement

Held: No. Yujuico�s argument conveniently ignores the true nature of its
transaction with the bank. A trust receipt is a security agreement pursuant to
which a bank acquires a �security interest� in the goods. In Vintola vs. Insular
Bank of Asia and America, we elucidated further that �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.� In Samo vs. People, we described a trust
receipt 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.�

�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.

RTMC filed with the bank an application for a credit line in the amount of P10
million, but only P8 million was approved. RTMC then made withdrawals from this
credit line and issued several promissory notes in favor of the bank. In banking
and commerce, a credit line is �that amount of money or merchandise which a banker,
merchant, or supplier agrees to supply to a person on credit and generally agreed
to in advance.�[3]It is the fixed limit of credit granted by a bank, retailer, or
credit card issuer to a customer, to the full extent of which the latter may avail
himself of his dealings with the former but which he must not exceed and is usually
intended to cover a series of transactions in which case, when the customer�s line
of credit is nearly exhausted, he is expected to reduce his indebtedness by
payments before making any further drawings.

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1. Ng vs People
Anthony Ng was engaged in the business of building and fabricatingtelecommunication
towers under thetrade name Capitol Blacksmith andBuilders. Petitioner applied for a
creditline of Php 3,000,000 with Asia trust.In support of Asia trusts
creditinvestigation, petitioner voluntarilysubmitted the following documents:
(1)the contracts he had with Islacom,Smart, and Infocom; (2) the list ofprojects
wherein he was commissioned by the said telecommunicationcompanies to build several
steel towers;and (3) the collectible amounts he has with the said companies.
Asiatrust approved petitioner�s loanapplication. Petitioner was thenrequired to
sign several documents,among which are the Credit Line Agreement, Application and
Agreementfor Irrevocable L/C, Trust Receipt Agreements,[4] and Promissory Notes.
Though the Promissory Notes hadmaturity dates, the two Trust Receipt Agreements did
not bear any maturitydates. After petitioner received the goods,consisting of
chemicals and metalplates from his suppliers, he utilizedthem to fabricate the
communicationtowers ordered from him by his clients. As petitioner realized di?
culty incollecting from his client Islacom, hefailed to pay his loan to Asiatrust.
Asiatrusts representative appraiser,reported that approximately 97% of thesubject
goods of the Trust Receipts weresold-out and that only 3 % of the goodsremained. E?
orts towards a settlementfailed to be reached. Asiatrust Account O?cer ?led
aComplaint-A?davit for Estafa, asde?ned and penalized under Art. 315,par. 1(b) of
the RPC in relation to Sec.3, PD 115 or the Trust Receipts Law.
Issue:
Whether the petitioner is liable forEstafa under Art. 315, par. 1(b) of theRPC in
relation to PD 115.
Ruling:
A trust receipt transaction is one wherethe entrustee has the obligation todeliver
to the entruster the price of thesale, or if the merchandise is not sold,to return
the merchandise to theentruster. There are, therefore, twoobligations in a trust
receipttransaction: the ?rst refers to moneyreceived under the obligation
involvingthe duty to turn it over
(entregarla) to the owner of the merchandise sold, while the second refers to
themerchandise received under theobligation to return it
(devolvera)
to theowner. A violation of any of theseundertakings constitutes
Estafa
de?nedunder Art. 315, par. 1(b) of the RPC, asprovided in Sec. 13 of PD 115.

A trust receipt is considered a securitytransaction intended to aid in ?

nancingimporters and retail dealers who do nothave su?cient funds or resources to?
nance the importation or purchase ofmerchandise, and who may not be ableto acquire
credit except throughutilization, as collateral, of themerchandise imported or
purchased. The principle is of course not limited inits application to ?
nancingimportations, since the principle isequally applicable to
domestictransactions. Regardless of whether thetransaction is foreign or domestic,
it is important to note that the transactionsdiscussed in relation to trust
receiptsmainly involved sales. The release of such goods to theentrustee is
conditioned upon hisexecution and delivery to the entrusterof a trust receipt
wherein the former binds himself to hold the speci?c goodsin trust for the
entruster and to sell orotherwise dispose of the goods with theobligation to turn
over to the entrusterthe proceeds to the extent of theamount owing to the entruster
or thegoods themselves if they are unsold. Considering that the goods in this case
were never intended for sale but for usein the fabrication of steelcommunication
towers, the trial courterred in ruling that the agreement is atrust receipt
transaction. Petitioner is correct that there was nomisappropriation or conversion
on hispart, because his liability for theamount of the goods subject of thetrust
receipts arises and becomes dueonly upon receipt of the proceeds of thesale and not
prior to the receipt of thefull price of the goods. PD 115 providesthat an
entrustee is only liable forEstafa when he fails to turn over theproceeds of the
sale of the goodscovered by a trust receipt to the extentof the amount owing to the
entruster oras appears in the trust receipt inaccordance with the terms of the
trustreceipt.
----

2. Hur Tin Yang vs People

(Note: Similar fact with same ruling as above NG vs PEOPLE0
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Colinares v CA G.R. No. 90828. September 5, 2000
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.
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PRUDENTIAL BANK vs. NLRC

FACTS:
Interasia Container Industries, Inc. (INTERASIA) was embroiled in three labor cases
which were all resolved against it. it. Monetary awards consistng of 13th month pay
di'eren"als and other bene?ts were granted to com&lainants.