CASE 1: TIDCORP vs.

ASPAC Letters of Guarantee and with its previous demands therefor left unheeded,
G.R. No. 187403 February 12, 2014 TIIDCORP filed a collection case against: (a) ASPAC, PICO, and Balderrama
TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE on account of their obligations under the deeds of undertaking; and (b) the
PHILIPPINES (Formerly PHILIPPINE EXPORT AND FOREIGN LOAN bonding companies on account of their obligations under the Surety Bonds.
GUARANTEE CORPORATION.) vs.
ASIA PACES CORPORATION, PACES INDUSTRIAL CORPORATION, The RTC partially granted TIDCORP’s complaint and thereby found ASPAC,
NICOLAS C. BALDERRAMA, SIDDCOR INSURANCE CORPORATION PICO, and Balderrama jointly and severally liable to TIDCORP but absolved
(now MEGA PACIFIC INSURANCE CORPORATION), PHILIPPINE the bonding companies from liability on the ground that the moratorium
PHOENIX SURETY AND INSURANCE, INC., PARAMOUNT INSURANCE request and the consequent payment extensions granted by Banque
CORPORATION,* AND FORTUNE LIFE AND GENERAL INSURANCE Indosuez and PCI Capital in TIDCORP’s favor without their consent
COMPANY extinguished their obligations under the Surety Bonds. On appeal, the CA
upheld the ruling of RTC. Hence, this appeal filed by TIDCORP.
FACTS: Asia Paces Corporation (ASPAC) and Paces Industrial Corporation
(PICO) entered into a sub-contracting agreement with the Electrical Projects ISSUE: Whether or not the bonding companies’ liabilities to TIDCORP
Company of Libya (ELPCO for the construction and erection of a double under the Surety Bonds have been extinguished by the payment
circuit bundle phase conductor transmission line in the country of Libya. To extensions granted by Banque Indosuez and PCI Capital to TIDCORP
finance its working capital requirements, ASPAC obtained loans from foreign under the Restructuring Agreement.
banks Banque Indosuez and PCI Capital (Hong Kong) Limited (PCI Capital)
which were secured by several Letters of Guarantee issued by Trade and HELD: NO. The Court finds that the payment extensions granted by
Investment Development Corporation of the Philippines (TIDCORP), Banque Indosuez and PCI Capital to TIDCORP under the Restructuring
then Philippine Export and Foreign Loan Guarantee Corp. Under the Letters Agreement did not have the effect of extinguishing the bonding
of Guarantee, TIDCORP irrevocably and unconditionally guaranteed companies’ obligations to TIDCORP under the Surety Bonds,
full payment of ASPAC’s loan obligations to Banque Indosuez and PCI notwithstanding the fact that said extensions were made without their
Capital in the event of default by the latter. 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
As a condition precedent to the issuance by TIDCORP of the Letters of of the guarantor or surety. In this case, the Surety Bonds are suretyship
Guarantee, ASPAC, PICO, and ASPAC’s President, Nicolas C. Balderrama contracts which secure the debt of ASPAC, the principal debtor, under the
(Balderrama) had to execute several Deeds of Undertaking, binding Deeds of Undertaking to pay TIDCORP, the creditor, the damages and
themselves to jointly and severally pay TIDCORP for whatever damages or liabilities it may incur under the Letters of Guarantee, within the bounds of the
liabilities it may incur under the aforementioned letters. In the same light, bonds’ respective coverage periods and amounts. No payment extension
ASPAC, as principal debtor, entered into surety agreements (Surety Bonds) was, however, granted by TIDCORP in favor of ASPAC in this regard; hence,
with Paramount, Phoenix, Mega Pacific and Fortune (bonding companies), Article 2079 of the Civil Code should not be applied with respect to the
as sureties, also holding themselves solidarily liable to TIDCORP, as creditor, bonding companies’ liabilities to TIDCORP under the Surety Bonds.
for whatever damages or liabilities the latter may incur under the Letters of
Guarantee. The payment extensions granted by Banque Indosuez and PCI Capital
pertain to TIDCORP’s own debt under the Letters of Guarantee wherein it
ASPAC eventually defaulted on its loan obligations to Banque Indosuez and (TIDCORP) irrevocably and unconditionally guaranteed full payment of
PCI Capital. Demand letters to the bonding companies were sent but to no ASPAC’s loan obligations to the banks in the event of its (ASPAC) default. In
avail. Taking into account the moratorium request issued by the Minister of other words, the Letters of Guarantee secured ASPAC’s loan agreements to
Finance of the Republic of the Philippines, TIDCORP and its various creditor the banks. Under this arrangement, TIDCORP therefore
banks, such as Banque Indosuez and PCI Capital, forged a Restructuring actedhttp://www.lawphil.net/judjuris/juri2014/feb2014/gr_187403_2014.html -
Agreement extending the maturity dates of the Letters of Guarantee. The fnt58 as a guarantor, with ASPAC as the principal debtor, and the banks as
bonding companies were not privy to the Restructuring Agreement and, creditors.
hence, did not give their consent to the payment extensions. Nevertheless,
following new payment schedules, TIDCORP fully settled its obligations. Proceeding from the foregoing discussion, it is quite clear that there are two
Seeking payment for the damages and liabilities it had incurred under the sets of transactions that should be treated separately and distinctly
from one another following the civil law principle of relativity of The IR contended that Bank of America should have first checked the
contracts "which provides that contracts can only bind the parties who authenticity of the letter of credit with bank of Ayudhya
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
Issue: Whether or not Bank of America may recover what it has paid under
Surety Bonds concern ASPAC’s debt to TIDCORP and not TIDCORP’s debt
the letter of credit to Inter-Resin
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 Held : May Bank of America then recover what it has paid under the letter of
debtor (ASPAC) upon the maturity date. It must be stressed that these credit when the corresponding draft
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 There would at least be three (3) parties: (a) the buyer, who procures the
Code in this case, the bonding companies’ liabilities to TIDCORP under letter of credit and obliges himself to reimburse the issuing bank upon
the Surety Bonds – except those issued by Paramount and covered by receipts of the documents of title; (b) the bank issuing the letter of credit,
its Compromise Agreement with TIDCORP – have not been which undertakes to pay the seller upon receipt of the draft and proper
extinguished. 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
Bank of America v CA draft to the issuing bank to recover payment.

There would at least be three (3) parties: (a) the buyer, who procures The services of an advising (notifying) bank may be utilized to convey to the
the letter of credit and obliges himself to reimburse the issuing bank seller the existence of the credit; or, of a confirming bank 16 which will lend
upon receipts of the documents of title; (b) the bank issuing the letter credence to the letter of credit issued by a lesser known issuing bank; or, of a
of credit, which undertakes to pay the seller upon receipt of the draft paying bank, which undertakes to encash the drafts drawn by the exporter.
and proper document of titles and to surrender the documents to the Further, instead of going to the place of the issuing bank to claim payment,
buyer upon reimbursement; and, (c) the seller, who in compliance with the buyer may approach another bank, termed the negotiating bank, 18 to
the contract of sale ships the goods to the buyer and delivers the have the draft discounted.
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 Bank of America has acted independently as a negotiating bank, thus saving
of plastic ropes and agricultural files. Under the letter of credit, Bank of Inter-Resin from the hardship of presenting the documents directly to Bank of
America acted as an advising bank and Inter-Resin Industrial Corp. (IR) Ayudhya to recover payment. As a negotiating bank, Bank of America has a
acted as the beneficiary. Upon receipt of the letter advice, Inter- Resin told right to recourse against the issuer bank and until reimbursement is obtained,
Bank of America to confirm the letter of credit. Inter-Resin, as the drawer of the draft, continues to assume a contingent
liability thereon.

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 Furthermore, bringing the letter of credit to the attention of the seller is the
presentment of the required documents to Bank of America. After primordial obligation of an advising bank. The view that Bank of America
confirmation of all the documents Bank of America issued a check in favor of should have first checked the authenticity of the letter of credit with bank of
IR. BA advised Bank of Ayudhya of IR’s availment under the letter of credit Ayudhya, by using advanced mode of business communications, before
and asked for the corresponding reimbursement. IR presented documents for dispatching the same to Inter-Resin finds no real support.
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.
Transfield Philippines v Luzon Hydro, ANZ and Security Bank
The independent nature of the letter of credit may be: (a) independence Jurisprudence has laid down a clear distinction between a letter of credit and
in toto where the credit is independent from the justification aspect and a guarantee in that the settlement of a dispute between the parties is not a
is a separate obligation from the underlying agreement like for instance pre-requisite for the release of funds under a letter of credit. In other words,
a typical standby; or (b) independence may be only as to the the argument is incompatible with the very nature of the letter of credit. If a
justification aspect like in a commercial letter of credit or repayment letter of credit is drawable only after settlement of the dispute on the contract
standby, which is identical with the same obligations under the entered into by the applicant and the beneficiary, there would be no practical
underlying agreement. In both cases the payment may be enjoined if in and beneficial use for letters of credit in commercial transactions.
the light of the purpose of the credit the payment of the credit would
constitute fraudulent abuse of the credit.
The engagement of the issuing bank is to pay the seller or beneficiary of the
Facts: Transfield Philippines (Transfield) entered into a turn-key contract with
credit once the draft and the required documents are presented to it. The so-
Luzon Hydro Corp. (LHC).Under the contract, Transfield were to construct a
called “independence principle” assures the seller or the beneficiary of
hydro-electric plants in Benguet and Ilocos. Transfield was given the sole
prompt payment independent of any breach of the main contract and
responsibility for the design, construction, commissioning, testing and
precludes the issuing bank from determining whether the main contract is
completion of the Project. The contract provides for a period for which the
actually accomplished or not. Under this principle, banks assume no liability
project is to be completed and also allows for the extension of the period
or responsibility for the form, sufficiency, accuracy, genuineness, falsification
provided that the extension is based on justifiable grounds such as fortuitous
or legal effect of any documents, or for the general and/or particular
event. In order to guarantee performance by Transfield, two stand-by letters
conditions stipulated in the documents or superimposed thereon, nor do they
of credit were required to be opened. During the construction of the plant,
assume any liability or responsibility for the description, quantity, weight,
Transfield requested for extension of time citing typhoon and various
quality, condition, packing, delivery, value or existence of the goods
disputes delaying the construction. LHC did not give due course to the
represented by any documents, or for the good faith or acts and/or
extension of the period prayed for but referred the matter to arbitration
omissions, solvency, performance or standing of the consignor, the
committee. Because of the delay in the construction of the plant, LHC called
carriers, or the insurers of the goods, or any other person whomsoever.
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. Colinares and Veloso v CA

Issue: Whether or not LHC can collect from the letters of credit despite the The ownership of the merchandise continues to be vested in the
pending arbitration case 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
Held: Transfield’s argument that any dispute must first be resolved by the
or successor in interest.
parties, whether through negotiations or arbitration, before the beneficiary is
Facts: Melvin Colinares and Lordino Veloso (hereafter Petitioners) were
entitled to call on the letter of credit in essence would convert the letter of
contracted for a consideration of P40,000 by the Carmelite Sisters of
credit into a mere guarantee.
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 independent nature of the letter of credit may be: (a) independence in the Philippine Banking Corporation, Cagayan de Oro City branch (hereafter
toto where the credit is independent from the justification aspect and is a PBC) in favor of CM Builders Centre. PBC approved the letter of credit
separate obligation from the underlying agreement like for instance a typical for P22,389.80 to cover the full invoice value of the goods. Petitioners signed
standby; or (b) independence may be only as to the justification aspect like in a pro-forma trust receipt as security.
a commercial letter of credit or repayment standby, which is identical with the PBC debited P6,720 from Petitioners’ marginal deposit as partial payment of
same obligations under the underlying agreement. In both cases the payment the loan. After the initial payment, the spouses defaulted. PBC wrote to
may be enjoined if in the light of the purpose of the credit the payment of the Petitioners demanding that the amount be paid within seven days from
credit would constitute fraudulent abuse of the credit. 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, he has paid its price. There are two possible situations in a trust receipt
Petitioners paid P1,000 to PBC on 4 December 1980, and thereafter P500 on transaction. The first is covered by the provision which refers to money
11 February 1981, 16 March 1981, and 20 April 1981. Concurrently with the received under the obligation involving the duty to deliver it (entregarla) to the
separate demand for attorney’s fees by PBC’s legal counsel, PBC continued owner of the merchandise sold. The second is covered by the provision
to demand payment of the balance. On 14 January 1983, Petitioners were which refers to merchandise received under the obligation to “return” it
charged with the violation of P.D. No. 115 (Trust Receipts Law) in relation to (devolvera) to the owner. Failure of the entrustee to turn over the proceeds of
Article 315 of the Revised Penal Code the sale of the goods, covered by the trust receipt to the entruster or to return
During trial, petitioner Veloso insisted that the transaction was a “clean loan” said goods if they were not disposed of in accordance with the terms of the
as per verbal guarantee of Cayo Garcia Tuiza, PBC’s former manager. He trust receipt shall be punishable as estafa under Article 315 (1) of the
and petitioner Colinares signed the documents without reading the fine print, Revised Penal Code, without need of proving intent to defraud.
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 HUR TIN YANG vs. PEOPLE OF THE PHILIPPINES
Law on Trust Receipt G.R. No. 195117; August 14, 2013; Velasco Jr., J.

A trust receipt transaction is one where the entrustee has the

Held: Colinares received the merchandise from CM Builders Centre on 30 obligation to deliver to the entruster the price of the sale, or if the
October 1979. On that day, ownership over the merchandise was already merchandise is not sold, to return the merchandise to the entruster. There
transferred to Petitioners who were to use the materials for their construction are, therefore, two obligations in a trust receipt transaction: the first refers to
project. It was only a day later, 31 October 1979, that they went to the bank money received under the obligation involving the duty to turn it over
to apply for a loan to pay for the merchandise. This situation belies what (entregarla) to the owner of the merchandise sold, while the second refers to
normally obtains in a pure trust receipt transaction where goods are owned the merchandise received under the obligation to "return" it (devolvera) to the
by the bank and only released to the importer in trust subsequent to the grant owner.http://www.lawphil.net/judjuris/juri2013/aug2013/gr_195117_2013.html
of the loan. - fnt16

The bank acquires a “security interest” in the goods as holder of a security When both parties enter into an agreement knowing fully well that the
title for the advances it had made to the entrustee. The ownership of the return of the goods subject of the trust receipt is not possible even without
merchandise continues to be vested in the person who had advanced any fault on the part of the trustee, it is not a trust receipt transaction
payment until he has been paid in full, or if the merchandise has already penalized under Sec. 13 of PD 115 in relation to Art. 315, par. 1(b) of the
been sold, the proceeds of the sale should be turned over to him by the RPC, as the only obligation actually agreed upon by the parties would be the
importer or by his representative or successor in interest. To secure that the return of the proceeds of the sale transaction. This transaction becomes a
bank shall be paid, it takes full title to the goods at the very beginning and mere loan, where the borrower is obligated to pay the bank the amount spent
continues to hold that title as his indispensable security until the goods are for the purchase of the goods.
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 FACTS:
importer becomes absolute owner of the imported merchandise as soon as
Supermax Philippines, Inc. (Supermax) is a domestic corporation present MR contending that the transactions between the parties do not
engaged in the construction business. On various occasions, constitute trust receipt agreements but rather of simple loans.
Metropolitan Bank and Trust Company (Metrobank), extended several
commercial letters of credit (LCs) to Supermax. These commercial LCs ISSUE:
were used by Supermax to pay for the delivery of several construction
materials which will be used in their construction business. Thereafter, Whether or not petitioner is liable for Estafa under Art. 315, par. 1(b)
Metrobank required petitioner, as representative of Supermax, to sign of the RPC in relation to PD 115, even if it was sufficiently proved that the
trust receipts as security for the construction materials and to hold those entruster (Metrobank) knew beforehand that the goods (construction
materials or the proceeds of the sales in trust for Metrobank to the extent materials) subject of the trust receipts were never intended to be sold but
of the amount stated in the trust receipts. only for use in the entrustee’s construction business.

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 HELD:
Metrobank. Instead, Supermax requested the restructuring of the loan.
When the intended restructuring of the loan did not materialize, In determining the nature of a contract, courts are not bound by the
Metrobank sent another demand letter. As the demands fell on deaf ears, title or name given by the parties. The decisive factor in evaluating such
Metrobank, filed the instant criminal complaints against petitioner. 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
For his defense, while admitting signing the trust receipts, petitioner deeds prior to, during and immediately after executing the agreement. As
argued that said trust receipts were demanded by Metrobank as such, therefore, documentary and parol evidence may be submitted and
additional security for the loans extended to Supermax for the purchase admitted to prove such intention.
of construction equipment and materials.
In the instant case, the factual findings of the trial and appellate
In support of this argument, petitioner presented a witness who testified courts reveal that the dealing between petitioner and Metrobank was not a
that the construction materials covered by the trust receipts were trust receipt transaction but one of simple loan. Petitioner’s admission––that
delivered way before petitioner signed the corresponding trust he signed the trust receipts on behalf of Supermax, which failed to pay the
receipts. Further, petitioner argued that Metrobank knew all along that loan or turn over the proceeds of the sale or the goods to Metrobank upon
the construction materials subject of the trust receipts were not intended demand––does not conclusively prove that the transaction was, indeed, a
for resale but for personal use of Supermax relating to its construction trust receipts transaction. In contrast to the nomenclature of the transaction,
business. the parties really intended a contract of loan.

The trial court rendered judgment convicting accused Hur Tin Yang of the In Ng v. People and Land Bank of the Philippines v. Perez, cases
crime of estafa under Article 315 paragraph 1 (a) of the Revised Penal which are in all four corners the same as the instant case––ruled that the fact
Code. that the entruster bank knew even before the execution of the trust receipt
agreements that the construction materials covered were never intended by
Petitioner appealed to the CA. CA rendered a Decision, upholding the the entrustee for resale or for the manufacture of items to be sold is sufficient
findings of the RTC. The CA ruled that since the offense punished under to prove that the transaction was a simple loan and not a trust receipts
PD 115 is in the nature of malum prohibitum, a mere failure to deliver the transaction.
proceeds of the sale or goods, if not sold, is sufficient to justify a
conviction under PD 115. The petitioner was charged with Estafa committed in what is called,
under PD 115, a "trust receipt transaction.
Petitioner filed a MR, but it was denied. Not satisfied, petitioner filed a
petition for review under Rule 45 of the Rules of Court. 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
SC dismissed the Petition on the ground that the CA committed no merchandise is not sold, to return the merchandise to the entruster. There
reversible error in the assailed decision. Hence, petitioner filed the 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 demonstrates that trust receipt transactions always refer to a method of
(entregarla) to the owner of the merchandise sold, while the second refers to "financing importations or financing sales." The principle is of course not
the merchandise received under the obligation to "return" it (devolvera) to the limited in its application to financing importations, since the principle is
owner.http://www.lawphil.net/judjuris/juri2013/aug2013/gr_195117_2013.html equally applicable to domestic transactions. Regardless of whether the
- fnt16 A violation of any of these undertakings constitutes Estafa defined transaction is foreign or domestic, it is important to note that the transactions
under Art. 315, par. 1(b) of the RPC, as provided in Sec. 13 of PD 115. discussed in relation to trust receipts mainly involved sales.

Nonetheless, when both parties enter into an agreement knowing Following the precept of the law, such transactions affect situations
fully well that the return of the goods subject of the trust receipt is not wherein the entruster, who owns or holds absolute title or security interests
possible even without any fault on the part of the trustee, it is not a trust over specified goods, documents or instruments, releases the subject goods
receipt transaction penalized under Sec. 13 of PD 115 in relation to Art. 315, to the possession of the entrustee. The release of such goods to the
par. 1(b) of the RPC, as the only obligation actually agreed upon by the entrustee is conditioned upon his execution and delivery to the entruster of a
parties would be the return of the proceeds of the sale transaction. This trust receipt wherein the former binds himself to hold the specific goods,
transaction becomes a mere loan, where the borrower is obligated to pay the documents or instruments in trust for the entruster and to sell or otherwise
bank the amount spent for the purchase of the goods. 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
In Ng v. People, Anthony Ng, then engaged in the business of entruster or the goods, documents or instruments themselves if they are
building and fabricating telecommunication towers, applied for a credit line of unsold. x x x [T]he entruster is entitled "only to the proceeds derived from the
PhP 3,000,000 with Asiatrust Development Bank, Inc. Prior to the approval of sale of goods released under a trust receipt to the entrustee."
the loan, Anthony Ng informed Asiatrust that the proceeds would be used for
purchasing construction materials necessary for the completion of several Considering that the goods in this case were never intended for sale
steel towers he was commissioned to build by several telecommunication but for use in the fabrication of steel communication towers, the trial court
companies. Asiatrust approved the loan but required Anthony Ng to sign a erred in ruling that the agreement is a trust receipt transaction.
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 To emphasize, the Trust Receipts Law was created to "to aid in
Law. This Court acquitted Anthony Ng and ruled that the Trust Receipts Law financing importers and retail dealers who do not have sufficient funds or
was created to "to aid in financing importers and retail dealers who do not resources to finance the importation or purchase of merchandise, and who
have sufficient funds or resources to finance the importation or purchase of may not be able to acquire credit except through utilization, as collateral, of
merchandise, and who may not be able to acquire credit except through the merchandise imported or purchased." Since Asiatrust knew that petitioner
utilization, as collateral, of the merchandise imported or purchased." Since was neither an importer nor retail dealer, it should have known that the said
Asiatrust knew that Anthony Ng was neither an importer nor retail dealer, it agreement could not possibly apply to petitioner.
should have known that the said agreement could not possibly apply to
petitioner, viz: Further, in Land Bank of the Philippines v. Perez, the respondents
were officers of Asian Construction and Development Corporation (ACDC), a
The true nature of a trust receipt transaction can be found in the corporation engaged in the construction business. On several occasions,
"whereas" clause of PD 115 which states that a trust receipt is to be utilized respondents executed in favor of Land Bank of the Philippines (LBP) trust
"as a convenient business device to assist importers and merchants solve receipts to secure the purchase of construction materials that they will need
their financing problems." Obviously, the State, in enacting the law, sought to in their construction projects. When the trust receipts matured, ACDC failed
find a way to assist importers and merchants in their financing in order to to return to LBP the proceeds of the construction projects or the construction
encourage commerce in the Philippines. 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,
[A] trust receipt is considered a security transaction intended to aid in in relation to PD 115, against the respondent officers of ACDC. This Court,
financing importers and retail dealers who do not have sufficient funds or like in Ng, acquitted all the respondents on the postulate that the parties
resources to finance the importation or purchase of merchandise, and who really intended a simple contract of loan and not a trust receipts transaction,
may not be able to acquire credit except through utilization, as collateral, of viz:
the merchandise imported or purchased. Similarly, American Jurisprudence
 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 practice of banks of making borrowers sign trust receipts to
the part of the trustee, it is not a trust receipt transaction penalized under facilitate collection of loans and place them under the threats of criminal
Section 13 of P.D. 115; the only obligation actually agreed upon by the prosecution should they be unable to pay it may be unjust and inequitable. if
parties would be the return of the proceeds of the sale transaction. This not reprehensible. Such agreements are contracts of adhesion which
transaction becomes a mere loan, where the borrower is obligated to pay the borrowers have no option but to sign lest their loan be disapproved. The
bank the amount spent for the purchase of the goods. resort to this scheme leaves poor and hapless borrowers at the mercy of
banks and is prone to misinterpretation x x x.
xxxx
Unfortunately, what happened in Colinares is exactly the situation in
Thus, in concluding that the transaction was a loan and not a trust the instant case. This reprehensible bank practice described in Colinares
receipt, we noted in Colinares that the industry or line of work that the should be stopped and discouraged. For this Court to give life to the
borrowers were engaged in was construction. We pointed out that the constitutional provision of non-imprisonment for nonpayment of debts, it is
borrowers were not importers acquiring goods for resale. Indeed, goods sold imperative that petitioner be acquitted of the crime of Estafa under Art. 315,
in retail are often within the custody or control of the trustee until they are par. 1 (b) ofthe RPC, in relation to PD 115.
purchased. In the case of materials used in the manufacture of finished
products, these finished products – if not the raw materials or their WHEREFORE, the Resolution upholding the CA's is hereby
components – similarly remain in the possession of the trustee until they are RECONSIDERED. Petitioner Hur Tin Yang is ACQUITTED of the charge of
sold. But the goods and the materials that are used for a construction project violating Art. 315, par. 1 (b) of the RPC, in relation to the pertinent provision
are often placed under the control and custody of the clients employing the of PD 115 in Criminal Case Nos. 04-223911 to 34.
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 SO ORDERED.
contractor’s difficulty and uncertainty in claiming these materials (or the
buildings and structures which they become part of), as soon as the bank 5. Sps. Dela Cruz vs PPI
demands them, disqualify them from being covered by trust receipt
agreements. Facts:
Spouses Dela Cruz, petitioners herein, operated the Barangay Agricultural
Since the factual milieu of Ng and Land Bank of the Philippines are in Supply. At the time material to the case, Quirino, a lawyer, was the Municipal
all four corners similar to the instant case, it behooves this Court, following Mayor of Aliaga, Nueva Ecija. Gloria applied for and was granted by
the principle of stare respondent Planters Products, Inc. (PPI) a regular credit line of P200,000.00
decisis,http://www.lawphil.net/judjuris/juri2013/aug2013/gr_195117_2013.htm for a 60- day term, with trust receipts as collaterals.
l - fnt20 to rule that the transactions in the instant case are not trust receipts Spouses submitted a list of their assets in support of her credit application for
transactions but contracts of simple loan. The fact that the entruster bank, participation in the Special Credit Scheme (SCS) of PPI. Gloria signed in the
Metrobank in this case, knew even before the execution of the alleged trust presence of the PPI distribution representative "Trust Receipt/Special Credit
receipt agreements that the covered construction materials were never Scheme," indicating the invoice number, quantity, value, and names of the
intended by the entrustee (petitioner) for resale or for the manufacture of agricultural inputs she received "upon the trust" of PPI.
items to be sold would take the transaction between petitioner and The 60-day credit term lapsed without Gloria paying her obligation under the
Metrobank outside the ambit of the Trust Receipts Law. Trust Receipt/SCS. Hence, PPI wrote collection letters to her.
PPI alleged that Gloria had violated the “fiduciary undertaking in the Trust
For reasons discussed above, the subject transactions in the instant Receipt agreement covering product withdrawals under the Special Credit
case are not trust receipts transactions. Thus, the consolidated complaints Scheme which were subsequently charged to defendant dealer’s regular
for Estafa in relation to PD 115 have really no leg to stand on. 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
The Court’s ruling in Colinares v. Court of charged that Gloria did not return the goods indicated in the invoices and did
Appealshttp://www.lawphil.net/judjuris/juri2013/aug2013/gr_195117_2013.ht not remit the proceeds of sales.
ml - fnt21 is very apt, thus:
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.