TRUST RECEIPTS

1. Ong v Court of Appeals 124 SCRA 578 (1983)

FACTS: Tramat delivered to Ong several machineries for display and sale. Ong issued a
Temporary Receipt with conditions to remit price in case of sale or return after 90 days if
unsold upon demand. Ong defaulted in his obligation and Tramat filed criminal action of
estafa under said temporary receipt. Ong filed a civil action, 3 months after for sum of
money.
Civil action ended with a compromise. Ong moved to dismiss criminal action on account
of novation under Compromise Agreement. The Regional Trial Court denied. Court of
Appeals affirmed as well as Supreme Court.

ISSUE: Whether or not Novation extinguished Criminal liability under Estafa.

HELD: No. Compromise of estafa case arising from trust receipt transaction, after the case
has been filed in court does not amount to novation and does not erase the criminal liability
of the accused.
 2. Vintola v Insular Bank of Asia and America 150 scra 140 (1987)

FACTS : Spouses Vintola (VINTOLAS) applied for and were granted a domestic letter of
credit by the Insular Bank of Asia and America (IBAA). The Letter of Credit authorized the
bank to negotiate for their account drafts drawn by their supplier, one Stalin Tan, on Dax Kin
International for the purchase of puka and olive seashells.
VINTOLAS received from Stalin Tan the puka and olive shells and executed a Trust
Receipt agreement with IBAA. 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.
Having defaulted on their obligation, IBAA demanded payment from the VINTOLAS. The
VINTOLAS, who were unable to dispose of the shells, responded by offering to return the goods.
IBAA refused to accept the merchandise, and due to the continued refusal of the VINTOLAS to
make good their undertaking, IBAA charged them with Estafa for having misappropriated,
misapplied and converted for their own personal use and benefit the aforesaid goods.

The trial court acquitted the VINTOLAS of the offense charged. IBAA commenced a civil
action to recover the value of the goods. The court dismissed the case holding that the
complaint was barred by the judgment of acquittal in the criminal case.

ISSUE : Whether or not acquittal from criminal offense extinguish civil liability?

RULINGS: A letter of credit-trust receipt arrangement is endowed with its own distinctive
features and characteristics. Under that set-up, a bank extends a loan covered by the Letter of
Credit, with the trust receipt as a security for the loan. In other words, the transaction involves a
loan feature represented by the letter of credit, and a security feature which is in the covering
trust receipt.
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."
IBAA did not become the real owner of the goods. It was merely the holder of a security
title fr 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.
The foregoing premises considered, it follows that 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."
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.
 3. Ramos v Court of Appeals

FACTS: The accused filed with Philippine National Cooperative Bank four applications
for letters of credit. Among the papers filed for the issuance of the domestic letters of credit
were commercial invoices of the different suppliers of the merchandise sought to be purchase.
The records of the PNCB which had been presented in evidence show that the drafts drawn by
the bank against the accused and accepted by the latter were supposed to be due in 90 days
from the dates thereof. No payments were made excepting a partial payment of P3,900.00,
Trinidad Ramos pleads for acquittal on the proposition that the factual predicate on which her
conviction is laid is chiefly comprised of speculations, conjectures and presumptions without
substantial and actual support in the evidence. The proofs are indeed inadequate on these
propositions of fact. It is difficult to accept the prosecution's theory that it has furnished
sufficient proof of delivery by the introduction in evidence of the commercial invoices attached
to the applications for the letters of credit and of the trust receipts. The invoices are actually
nothing more than lists of the items sought to be purchased and their prices.

HELD: Where proof of delivery of goods covered by a trust receipt to the accused is
insufficient, conviction of estafa can not lie. Introduction of commercial invoices attached to the
applications for letters of credit and of trust receipts, where such invoices are actually not more
than the list of items sought to be purchased and their prices, does not amount to delivery
receipt.
 4. Allied Banking Corporation v Ordonez 192 scra 246

FACTS: PBM applied for the issuance of a commercial letters of credit in Allied Bank
Corporations in its Makati branch to finance the purchase of 500 m/t Mogtar Branch
Dolomites and 1 lot high fixed refractory sliding nozzle bricks. Nikko industry as the
beneficiary of the irrevocable LC, 4 drafts were drawn which were accepted by PBM which
was duly honored and paid by Allied Bank. As a security for the amount covered by the
drafts 4 Trust receipts were executed acknowledging Allied Bank ownership of the goods
and its obligation to turn over the proceeds of the sale, if sold; or to return it if unsold within
the stated period. PBM defaulted in payment, despite repeated demands PBM failed and
refused to either turn over the proceeds of the sale or to return the same. Allied Bank filed
a complaint against Alfredo China for violation of PD 115. Ordonez alleged that PD 115
covers goods or components of goods which are ultimately destined for sale. That the
goods subject of the case where shown to have been used or consumed in the operation of
the equipment of the corporation and therefore outside the ambit of PD 115.

ISSUE: Does the penal provision of PD 115 apply when the goods covered by 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 of the entrustee-
manufacturer?

HELD: The non-payment of the amount covered by a trust receipt is an act violative of the
entrustee’s obligation to pay. The penal provision of PD 115 encompasses any act violative
of an obligation covered by the trust receipt, it is not limited to the transaction in goods
which are to be sold (retailed), reshipped, stored or processed as a component of a product
ultimately sold. Thus, the entrustee could not escape criminal liability even if the goods
subject of the transaction were used in the operation of the equipment and machineries of
the corporation.
 5. Philippine National Bank v Pineda

FACTS: Arroyo spouse obtained a loan from PNB for the purchase of 60% of the subscribed
capital stock and thereby acquire the controlling interest of TCC secured by a Real Estate
Mortgage over the La Vista Property. TCC applied for 8 year deferred LC to cover the
importation of a cement plant machinery and equipment. Beneficiary is Toyo Menka Kaisha.
The imported cement plant machinery and equipment arrived from Japan and were
released to TCC under a TR agreement. Toyo Menka made the corresponding drawings
against the LC, however TCC failed to remit the corresponding amount covered by the
drawings. Thus, pursuant to the TR agreement, PNB notified TCC of its intention to
repossess the machines for failure of TCC to settle its obligations. PNB filed 2 petitions for
extra judicial foreclosure of the REM over the properties in Negros Occidental and the La
Vista property.

ISSUE: Whether or not TCC’s liability has been extinguished by the repossession of PNB of
the imported cement plant machinery and equipment.

HELD: Possession by itself cannot be considered payment of the loan secured thereby.
Payment would legally result only after PNB had foreclosed on said securities and sold the
same and applied the proceeds thereof to TCC’s loan obligation. Unless the loan is paid, the
entruster is not precluded from foreclosing the real estate mortgage executed by surety to
secure the same loan.
 6. People v Nitafan 207 scra 726

FACTS : Petitioner Allied banking Corporation (ABC) charged private respondent, Betty Sia Ang,
for estafa for willfully, unlawfully and feloniously defraud ABC. Private respondent received a
trust from ABC amounting to P398,000.00 covered by a domestic letter of credit, under the
express obligation to sell the same and account for the proceeds of the sale, if sold, or to return
the merchandise , if not sold. Upon demand, private respondent paid only P283,115.78.

Betty Sia Ang filed a motion to quash the information on the grounds that the facts charged do
not constitute an offense. Respondent judge granted the motion to quash.

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

RULINGS : 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.

A trust receipt arrangement does not involve a simple loan transaction between a creditor and
debtor-importer. Apart from a loan feature, the trust receipt arrangement has a security feature
that is covered by the trust receipt itself. (Vintola v. Insular Bank of Asia and America, 151 SCRA
578 [1987]) 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 by a bank. (Samo v. People, supra).
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 (citing Lozano v. Martinez, 146 SCRA 323 [1986]; Rollo, p. 57) 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.
 7. Prudential Bank v National Labor Commission 251 scra 421

FACTS: 3 labor cases which were resolved eventually against Interasia. Separation pay, wage

differentials and other benefit were awarded to complainant. Writ of execution were issued

were the sheriff levied on execution personal property located in the factory of Interaria.

Petitioner Prudential Bank filed an affidavit of 3 rd party claim asserting ownership over seized

properties on the strength of the TR executed by Interasia in its favor.

ISSUE: Extent of petitioner’s title over the properties subject of the levy on execution.

HELD: The security interest of the entruster is not merely an empty or idle title. Entruster’s

advances will have to be settled first before the entrustee can consolidate his ownership over

the goods. Exception is when Properties are in the hands of an innocent purchaser for value. In

this case, it was not shown that the winning bidder is an innocent purchaser for value.

Petitioner has primary rights over the properties until its advances are fully paid.
 8. Metropolitan Bank and Trust Company v Tonda

FACTS: Sps Tonda applied for and was granted a commercial LC between Metrobank in
connection with the importation of raw textile material to be used in the manufacturing of
garments. The Tondas acted in their capacity as officers of HTAC (Honey Tree Apparel Corp)
and in their personal capacity, executed 2 Trust receipt to secure the release of raw
materials. They failed to settle obligation and Metrobank filed a complaint against them for
violation of PD 115 with the provincial prosecutor of Rizal. Provincial Prosecutor
recommended the dismissal of the complaint. Metrobank appealed to Department of
Justice and reversed the findings ordered for the filing of appropriate information against
Tondas. The Court of appeals filed special civil action for certiorari and prohibition and
granted TONDAS application and dismissed. They failed to show a prima facie case.

ISSUE: Whether or not the dismissal by CA of the charge for violation of PD 115 in relatioin
to article 315 of the Revised Penal Code against the TONDAS is warranted by the evidence at
hand and by law.

HELD: The receipt of the bank of a sum of money without reference to the trust receipt
obligation does not obligate the bank to apply the money received against the trust receipt
obligation. Neither does compensation arise because compensation is not proper when one
of the debts consists in civil liability arising from a criminal offense. The mere failure to
deliver the proceeds of the sale or the goods. If not sold, constitute the criminal offense
that cause prejudice not only to another but more to the public interest.
 9. Colinares v Court of Appeals 339 SCRA 609

FACTS : Petitioners applied for a commercial letter of credit with the Philippine
Banking Corporation (PBC) in favor of CM builders for the purchased of various construction
supplies. PBC approved the letter of credit to cover the full invoice value of the goods and
subsequently signed a prom-forma trust receip0t as security.
PBC wrote a demand letter to petitioner demanding the amount be paid within seven days but
instance of complying they confessed that they can’t pay and requested a grace period to settle
the account. Petitioners proposed to modify the payment of the loan.
Petitioners were charged with estafa. During trial, petitioner Veloso insisted that the transaction
was a “clean loan”. He and petitioner Colinares signed the documents without reading the fine
print, and learning that the trust receipt was merely a formality.
The trial court render a decision convicting the petitioner estafa. The trial court considered
the transaction between PBC and Petitioners as a trust receipt transaction under Section 4, P.D.
No. 115. Petitioners appealed from the judgment to the Court of Appeals and the CA modified
the judgment of the trial court by increasing the penalty.
ISSUE : Whether of not the petitioner were properly charged, tried and convicted for
violation of PD 115 in relation to article 315 of the RPC?
RULINGS : A thorough examination of the facts obtaining in the case at bar reveals that the
transaction intended by the parties was a simple loan, not a trust receipt agreement.
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.
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.
Petitioners 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.
 10. Philippine Bank of Communication v CA 352 SCRA

FACTS: Petitioner issued Letters of Credit to Respondent to cover payment for various textile
goods. Filipinas Textile Mills issued a Trust Receipt over the goods as security for payment of
Letters of Credit. Because of alleged default of Respondents, Petitioner sued them. Thereafter,
Motion for Attachment was filed by Petitioner on grounds that respondent was disposing its
properties to the detriment of its creditors. Regional Trial Court issued preliminary
attachment . The Respondent appealed to CA but set aside the writ hence this appeal.

ISSUE: Whether or not there was sufficient basis for issuing WPA.
HELD: No. To sustain an attachment on this ground, it must be shown that the debtor in
contracting the debt or incurring the obligation intended to defraud the creditor. The fraud must
relate to the execution of the agreement and must have been the reason which induced the
other party into giving consent which he would not have otherwise given. To constitute a
ground for attachment in Section 1 (d), Rule 57 of the Rules of Court, fraud should be committed
upon contracting the obligation sued upon. A debt is fraudulently contracted if at the time of
contracting it the debtor has a preconceived plan or intention not to pay, as it is in this case.
Fraud is a state of mind and need not be proved by direct evidence but may be inferred from
the circumstances attendant in each case
 11. South City Homes v BA Finance Corporation 371 scra 603

FACTS: Fortune availed of a credit facilities with BA Finance to fund purchase of cars in relation
to its car retail business. Said credit facilities were secured by continuing surety agreement.
Cargo upon delivery of the goods issued 6 drafts to its favor from BA Finance. Fortune issued a
Trust receipt over the cars. Due to the default of Fortune, BAFC informed sureties of said
default. Because sureties did not pay their obligations, BAFC sued for collection of sum of
money under loan, Surety, Trust receipt with Writ of preliminary Attachment. RTC granted the
WPA while the Court of Appeals granted the pay.

ISSUE: 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

HELD:

On the first issue. The Civil Code allows a suretyship agreement to secure future loans even if
the amount is not yet known. Article 2053 of the Civil Code provides that:

"Art. 2053. A guaranty may also be given as security for future debts, the amount of
which is not yet known. x x x"

On the second issue, An assignment of credit is an agreement by virtue of which the owner of a
credit, known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or
donation, and without the consent of the debtor, transfers his credit and accessory rights to
another, known as the assignee, who acquires the power to enforce it to the same extent as the
assignor could enforce it against the debtor. 7 As a consequence, the third party steps into the
shoes of the original creditor as subrogee of the latter. Petitioners' obligations were not
extinguished.  "Article 1626 also shows that payment of an obligation which is already existing
does not depend on the consent of the debtor. It, in effect, mandates that such payment of the
existing obligation shall already be made to the new creditor from the time the debtor acquires
knowledge of the assignment of the obligation.

"The law is clear that the debtor had the obligation to pay and should have paid from the date of
notice whether or not he consented.
On the 3rd issue, 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. We ruled:

"x x x 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."
12. Lee v Court of Appeals 375 scra 579

FACTS: MICO obtained several loans from PBCOM in the form of discount loans, Letters of
Credit and Foreign LC secured by TR, REM and surety agreement. Because of default of MICO to
pay, Real Estate Mortgage was foreclosed. Surety were notified but did not pay. PBCOM sued
MICO for collection of sum of money and Writ of preliminary attachment. RTC dismissed but CA
reversed.

ISSUE: Whether loans and LC proceeds were delivered to MICO?

HELD: Letters of credit and trust receipts are not negotiable instruments. But drafts issued in
connection with letters of credit are negotiable instruments. Hence, while the presumption of
consideration 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 applies.
 13. Pilipinas Bank v Ong 387 SCRA 27

FACTS: Baliwag Mahogany Corporation (BMC), through its president, respondent Alfredo T.
Ong, applied for a domestic commercial letter credit with petitioner Pilipinas Bank (the bank) to
finance the purchase of “Air Dried, Dark Lauan”sawn lumber. The bank approved the
application and issued a Letter of Credit. To secure payment of the amount, BMC, through
respondent Ong, executed two (2) trust receipts providing that it shall turn over the proceeds of
the goods to the bank, if sold, or return the goods, if unsold, upon maturity on July 28, 1991 and
August 4, 1981. On due dates, BMC failed to comply with the trust receipt agreement. On
November 22, 1991, it filed with the Securities and Exchange Commission (SEC) a Petition for
Rehabilitation and for a Declaration in a State of Suspension of Payments. On January 8, 1992,
the SEC issued an order creating a Management Committee wherein the bank is represented.
On October 13, 1992, BMC and a consortium of 14 of its creditor banks entered into a
Memorandum of Agreement (MOA) rescheduling the payment of BMC’s existing debts. On
November 27, 1992, the SEC rendered a Decision approving the Rehabilitation Plan of BMC as
contained in the MOA and declaring it in a state of suspension of payments. However, BMC and
respondent Ong defaulted in the payment of the obligations under the rescheduled payment
scheme provided in the MOA. On April 1994, the bank filed a complaint charging respondents
Ong and Leoncia Lim (as president and treasurer of BMC) with violation of the Trust Receipts
Law (PD 115). The bank alleged that both respondents failed to pay their obligation under the
trust receipt despite demand.

The Court of Appeals renders its decision holding that the execution of the MOA constitutes
novation which places petitioner bank in estoppel to insist on the original trust relation and
constitutes a bar to the filing of any criminal information for violation of the trust receipts law.
The Motion for Reconsideration was denied. Hence this Petition.

Issue: Whether or not the MOA was a novation of the trust agreement between the parties.

Held: Petition is DENIED, MOA novates the trust agreement.

Mere failure to deliver the proceeds of the sale of the goods, if not sold, constitutes violation of
PD 115. However, what is being punished by the law is the dishonesty and abuse of confidence
in the handling of money or goods to the prejudice of another regardless of whether the latter is
the owner. It bears emphasis that when the petitioner bank made a demand upon a BMC on
February 11, 1994 to comply with its obligations under the trust receipts, the latter was already
under the control of the Management Committee created by SEC. The Management Committee
took custody of all BMC’s assets and liabilities, including the red lauan lumber subject of trust
receipts, and authorized their use in the ordinary course of business operations. Clearly, it was
the Management Committee which could settle BMC’s obligations.
In Quinto vs. People, this Court held that there are two ways which could indicate the presence
of novation, thereby producing the effect of extinguishing an obligation by another which
substitutes the same. The first is when novation has been stated and declared in unequivocal
terms. The second is when the old and the new obligations are incompatible on every point. The
test of incompatibility is whether or not the two obligations can stand together. If they cannot,
they are incompatible and the latter obligation novates the first. The incompatibility must take
place in any of the essential elements of the obligation, such as its object, cause or principal
conditions.
Contrary to petitioner’s contention, the MOA did not only reschedule BMC’s debts, but more
importantly, it provided principal conditions, which are incompatible with the trust agreement.
The execution of the MOA extinguished respondent’s obligation under the trust receipts.
Respondent’s liability, if any, would only be civil in nature since the trust receipts were
transformed into mere loan documents after the execution of the MOA.
 14. Sarmiento v Court of Appeals

FACTS: Davao Libra opened Letter of Credit with plaintiff bank in favor of LS Parts for purchase
of assorted scrap irms for 495,000 thousand. Davao Libra then executed Trust receipt. Davao
Libra defaulted in their payment so ABC sued them for violation of Trust Receipts law. Davao
Libra argued that it was not liable under TR because scrap metal sunk with its carrier while in
transship. RTC rendered judgement in favor of Associated Banking Corporation.

ISSUE: Whether or not accused can be held civilly liable on a separate action than criminal.

HELD: The entruster’s complaint in the civil case against the entrustee was based on the failure
of the latter to comply with his obligation as spelled out in the TR agreement. This breach of
obligation is separate and distinct from any criminal liability for misuse and misappropriation of
good or proceeds realized from the sale of goods, documents or instruments released under
trust receipts under PD 115. Being based on obligation ex contractu and not ex delicto, the civil
action may proceed independently of the criminal proceedings instituted against petitioners
regardless of the result of the later.
 15. Ong v Court of appeals (2003) 401 scra 649

FACTS: Armagri (entrustee) opened with Solid Bank Letters of cRedit for purchase of 10,000
bags of urea and certain goods on 2 occasions. Armagri executed two Trust receipts on 2 goods
but defaulted in payment. Solidbank sued Ong for violation of Trust receipts law. RTC convicted
Ong with penalty of imprisonment and to pay civil liability.

ISSUE: Whether or not agents can be held liable for violation the Corporation.

HELD: The Trust Receipts Law recognizes the impossibility of imposing the penalty of
imprisonment on a corporation. Hence, if the entrustee is a corporation, the law makes the
officers or employees or other persons responsible for the offense liable to suffer the penalty of
imprisonment. The reason is obvious: corporations, partnerships, associations and other
juridical entities cannot be put to jail. Hence, the criminal liability falls on the human agent
responsible for the violation of the Trust Receipts Law.

In the instant case, the Bank was the entruster while ARMAGRI was the entrustee. Being the
entrustee, ARMAGRI was the one responsible to account for the goods or its proceeds in case of
sale. However, the criminal liability for violation of the Trust Receipts Law falls on the human
agent responsible for the violation. Petitioner, who admits being the agent of ARMAGRI, is the
person responsible for the offense for two reasons. First, petitioner is the signatory to the trust
receipts, the loan applications and the letters of credit. Second, despite being the signatory to
the trust receipts and the other documents, petitioner did not explain or show why he is not
responsible for the failure to turn over the proceeds of the sale or account for the goods
covered by the trust receipts.
In Prudential Bank, the Court ruled that the person signing the trust receipt for the corporation
is not solidarily liable with the entrustee-corporation for the civil liability arising from the
criminal offense. He may, however, be personally liable if he bound himself to pay the debt of
the corporation under a separate contract of surety or guaranty.
 16. Landl & Company v Metropolitan Bank 435 SCRA 639

FACTS: Landl opened with Metrobank Letter of Credit for purchase of welding rods and alloy
from New York. A marginal deposit of P50,000 was put up. Private petitioners also executed a
Continuing Surety agreement. Landl executed a Trust receipt over the goods. Terms and
conditions were fixed. Landl defaulted. Metrobank returned possession of the goods after the
notice. The same were sold at public auction fro 30,000 pesos. The proceeds were not enough
to cover the indebtedness and sued Landl for collection. Landl contended that they are liable
for deficiency as owners of the goods vest with Metrobank upon return.

ISSUE: Whether or not Metrobank is entitled to deficiency?

HELD: Yes. Respondent bank's repossession of the properties and subsequent sale of the goods
were completely in accordance with its statutory and contractual rights upon default of
petitioner corporation.

The second paragraph of Section 7 expressly provides that the entrustee shall be liable to the
entruster for any deficiency after the proceeds of the sale have been applied to the payment of
the expenses of the sale, the payment of the expenses of re-taking, keeping and storing the
goods, documents or instruments, and the satisfaction of the entrustee's indebtedness to the
entruster.

In the case at bar, the proceeds of the auction sale were insufficient to satisfy entirely petitioner
corporation's indebtedness to the respondent bank. Respondent bank was thus well within its
rights to institute the instant case to collect the deficiency.
 17. Rosario Textile Mills Corp v Home Bankers Savings and Trust Company

FACTS: 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. 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.

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.

ISSUE: Whether or not RTMC’s obligation to pay was extinguished by the reason that goods
under TR were gutted by fire.

HELD: It is clear that the principal transaction between petitioner RTMC and the bank is a
contract of loan. RTMC used the proceeds of this loan to purchase raw materials from a supplier
abroad. In order to secure the payment of the loan, RTMC delivered the raw materials to the
bank as collateral. Trust receipts were executed by the parties to evidence this security
arrangement. Simply stated, the trust receipts were mere securities.

"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.
 18. Tupaz IV v Court of Appeals 475 SCRA 398

FACTS: Petitioners Jose C. Tupaz IV and Petronila C. Tupaz (petitioners') were Vice-President
for Operations and Vice-President/Treasurer, respectively, of El Oro Engraver Corporation . El
Oro Corporation had a contract with the Philippine Army to supply the latter with 'survival
bolos. To finance the purchase of the raw materials for the survival bolos, petitioners, on
behalf of El Oro Corporation, applied with respondent Bank of the Philippine Islands for two
commercial letters of credit.  Simultaneous with the issuance of the letters of credit,
petitioners signed trust receipts in favor of respondent bank.
Petitioner Jose Tupaz signed, in his personal capacity, a 1 ST trust receipt and bound himself to
sell the goods covered by the letter of credit and to remit the proceeds to respondent bank, if
sold, or to return the goods, if not sold, on or before 29 December 1981. Petitioners signed,
in their capacities as officers of El Oro Corporation, a 2 ND trust receipt corresponding to Letter
of Credit No. 2-00914-5. Petitioners did not comply with their undertaking under the trust
receipts.

ISSUE: Whether or not they are solidary liable?

Whether or not acquittal extinguishes civil liability

HELD: A corporation, being a juridical entity, may act only through its directors, officers, and
employees. Debts incurred by these individuals, acting as such corporate agents, are not
theirs but the direct liability of the corporation they represent. [12] As an exception, directors
or officers are personally liable for the corporation's debts only if they so contractually agree
or stipulate.
In Prudential Bank v. Intermediate Appellate Court , [16] the Court interpreted a
substantially identical clause [17] in a trust receipt signed by a corporate officer who bound
himself personally liable for the corporation's obligation. The petitioner in that case contended
that the stipulation 'we jointly and severally agree and undertake rendered the corporate
officer solidarily liable with the corporation. We dismissed this claim and held the corporate
officer liable as guarantor only. The Court further ruled that had there been more than one
signatories to the trust receipt, the solidary liability would exist between the guarantors.
 18. DBP V Prudential Bank 475 SCRA 623

FACTS: Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial letter of credit with
respondent Prudential Bank for US$498,000. This was in connection with its importation of
5,000 spindles for spinning machinery. These were released to Litex under covering “trust
receipts” it executed in favor of Prudential Bank. 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.
Among the machineries and equipments mortgaged in favor of DBP were the articles covered
by the “trust receipts.”  Prudential Bank notified DBP of its claim over the various items
covered by the “trust receipts” which had been installed and used by Litex in the textile mill.
Prudential Bank informed DBP that it was the absolute and juridical owner of the said items
and they were thus not part of the mortgaged assets that could be legally ceded to DBP.
Unable to comply with its obligation DBP foreclosed the mortgages and became lone highest
bidder. DMP opened the mill with its machineries for auction. Without knowledge of
Prudential, DBP sold to Lyon the mill including goods under Trust Receipts.

ISSUE: Whether or not DBP can sold to Lyon the good under Trust receipts.

HELD: No. In a trust receipt transaction, the goods are released by the
entruster (who owns or holds absolute title or security interests over the
said goods) to the entrustee on the latter’s execution and delivery to the
entruster of a trust receipt. The trust receipt evidences the absolute title
or security interest of the entruster over the goods. As a consequence of
the release of the goods and the execution of the trust receipt.
    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.
 19. Ching v Secretary of justice 481 SCRA 609 (2006)

FACTS: PBMI, through Ching, Senior VP of Philippine Blooming Mills, Inc. (PBMI), applied with

the Rizal Commercial Banking Corporation (RCBC) for the issuance of commercial letters
of credit to finance its importation of assorted goods. RCBC approved the application, and
irrevocable letters of credit were issued in favor of Ching.  The goods were purchased and
delivered in trust to PBMI.  Ching signed 13 trust receipts as surety, acknowledging delivery of
the goods. Under the receipts, Ching agreed to hold the goods in trust for RCBC, with
authority to sell but not by way of conditional sale, pledge or otherwise. In case such goods
were sold, to turn over the proceeds thereof as soon as received, to apply against the relative
acceptances and payment of other indebtedness to respondent bank. In case the goods
remained unsold within the specified period, the goods were to be returned to RCBC without
any need of demand. Goods, manufactured products or proceeds thereof, whether in the form
of money or bills, receivables, or accounts separate and capable of identification - RCBC’s
property.

When the trust receipts matured, Ching failed to return the goods to RCBC, or to

return their value amounting toP6,940,280.66 despite demands. RCBC filed a criminal
complaint for estafa against petitioner in the Office of the City Prosecutor of Manila.

ISSUE: W/N Ching should be held criminally liable.

HELD: YES.   There is no dispute that it was the Ching executed the 13 trust receipts.  Law
points to him as the official responsible for the offense. Since a corporation CANNOT be
proceeded against criminally because it CANNOT commit crime in which personal violence or
malicious intent is required, criminal action is limited to the corporate agents guilty of an act
amounting to a crime and never against the corporation itself. Eexecution by Ching of receipts
is enough to indict him as the official responsible for violation of PD 115. RCBC is estopped to
still contend that PD 115 covers only goods which are ultimately destined for sale and not
goods, like those imported by PBM, for use in manufacture. Moreover, PD 115 explicitly allows
the prosecution of corporate officers ‘without prejudice to the civil liabilities arising from the
criminal offense’ thus, the civil liability imposed on respondent in RCBC vs. Court of Appeals
case is clearly separate and distinct from his criminal liability under PD 115. If the crime is
committed by a corporation or other juridical entity, the directors, officers, employees or other
officers thereof responsible for the offense shall be charged and penalized for the crime,
precisely because of the nature of the crime and the penalty therefor.  A corporation cannot be
arrested and imprisoned; hence, cannot be penalized for a crime punishable by imprisonment.
However, a corporation may be charged and prosecuted for a crime if the imposable penalty is
fine. Even if the statute prescribes both fine and imprisonment as penalty, a corporation may
be prosecuted and, if found guilty, may be fined.