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SPCL Trust Receipts

TRUST RECEIPT 1. Ong V. Court of Appeals, 124 SCRA 578 (1983)

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2. Vintola v. Insular Bank of Asia and America, 150 SCRA 140 (1987) 3. Ramos v. Court of Appeals, 153 SCRA 276 (1987) 4. Allied Banking Corporation v. Ordoez, 192 SCRA 246 (1990) 5. Philippine National Bank V. Pineda, 197 SCRA 1 (1991) 6. People v. Nitafan, 207 SCRA 706 (1992) 7. Prudential Bank v. National Labor Relations Commission, 251 SCRA 421 (1995) 8. Metropolitan Bank and Trust Company v. Tonda, 338 SCRA 254 (2000) 9. Colinares V. Court of Appeals, 339 SCRA 609; (Consolidated Bank and Trust Company v. Court of Appeals, 356 SCRA 671 (2001)) 10. Philippine Bank of Communications v. CA and Filipinas Textile Mill, 352 SCRA 616 (2001) 11. South City Homes, Inc. v. BA Finance Corporation, 371 SCRA 603 (2001) 12. Lee v. Court of Appeals, 375 SCRA 579 (2002) 13. Pilipinas Bank v. Ong, 387 SCRA 37 (2002) 14. Sarmiento v. Court of Appeals, 394 SCRA 315 (2002) 15. Ong v. Court of Appeals, 401 SCRA 649 (2003) 16. Landl & Company v. Metropolitan Bank, 435 SCRA 639 (2004) 17. Rosario Textile Mills Corp. v. Home Bankers Savings and Trust Company, 462 SCRA 88 (2005) 18. Tupaz IV v. CA, 475 SCRA 398 (2005) 19. DBP v. Prudential Bank, 475 SCRA 623 (2005) 20. Ching V. Secretary of Justice, 481 SCRA 609 (2006)

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1. Ong V. Court of Appeals, 124 SCRA 578 (1983) FACTS:

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-Fernando Ong obtained and received from Tramat Merchantile Inc. several units of machineries for the purpose of displaying and selling the machineries for cash, under the express obligation on the part of Ong to turn over to Tramat the proceeds from the sale of the goods, if sold, or to return the said goods if not sold. -Ong allegedly failed to do as covenanted. -An information of estafa was filed against Ong. -A few months after, Tramat Merchantile filed a complaint against Ong for sum of money. -The parties entered into a compromise agreement to settle the claim, which the court approved. -Ong moved for the dismissal of the of the criminal charge of estafa against him on the ground of NOVATION by virtue of the compromise agreement entered into by him and Tramat.

TC: -Denied the motion to dismiss the charge of estafa.

CA: -Dismissed petition for certiorari on the ground that novation does not extinguish criminal liability if the crime of estafa had been completed.

ISSUE: -Whether or not the compromise agreement constitute as novation, thus, extinguish the criminal liability of Ong.

CONTENTION OF ONG: -There being novation, it is respectfully submitted that even if novation took place after the filing of the information in the criminal case, the transaction had nonetheless been converted from a criminal violation to civil obligation which would therefore necessitate the consequence dismissal of the criminal case.

HELD: -After the filing of information for estafa, liability of accused cannot be novated into a civil one anymore by the parties compromise agreement.The novation theory may perhaps apply prior to the filing of the criminal information in court by the state prosecutors because up to that time the by the trust relation may be converted by the parties into an ordinary creditor-debtor situation, thereby placing the complainant in in estoppels to insist the original trust. But after the justice authorities have taken cognizance of the crime and instituted action in court, the
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offended party may no longer divest rhe prosecution of its power to exact criminal liability, as distinguished from civil. The crime being an offense against the State, only the latter can renounce it.

2. Vintola v. Insular Bank of Asia and America, 150 SCRA 140 (1987) FACTS: -Spouses Vintola, doing business under the name and style Dax Kin International was engaged in the manufacture of raw sea shells into finished products.

-They applied for and were granted a domestic letter of credit by applied for and were granted a domestic letter of credit by the Insular Bank of Asia and America (IBAA), Cebu City. 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. -During the trial of the criminal case the VINTOLAS turned over the seashells to the custody of the Trial Court.

TC: -Acquitted the VINTOLAS of the crime charged, after finding that the element of misappropriation or conversion was inexistent. -IBAA commenced a separate civil action to recover the goods.

CA: -Holding that the complaint was barred by the judgment of acquittal in the criminal case, CA dismissed the complaint, however, upon motion by IBAA, CA granted the reconsideration. -Sps. Vintola appealed alleging that their acquittal in the Estafa case bars IBAA's filing of the civil action because IBAA had not reserved in the criminal case its right to enforce separately their civil liability. They maintain that by intervening actively in the prosecution of the criminal case through a private prosecutor, IBAA had chosen to file the civil action impliedly with the criminal action -The CA certified the case to the Supreme Court, the issue involved being purely legal. ISSUE: -Whether or not the acquittal of the Sps. Vintola in the criminal charge of estafa extinguished their civil liability.
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HELD: -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 for 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, 153 SCRA 276 (1987) FACTS: -Trinidad Ramos filed with the Philippine National Cooperative Bank four applications for letters of credit. - After the applications were processed and approved, domestic letters of credit were opened on the same dates of the applications and in the amounts applied for. -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, also bearing the same dates of the applications for letters of credit with which they were respectively attached. The different suppliers then drew sight drafts against the applicant payable to the order of the PNCB, also bearing the same dates as the respective applications and for the same amounts - The PNCB then drew its own drafts against Ramos as the buyer of the merchadise and which drafts were accepted by the Ramos also on the same dates of the respective applications. After such acceptance, the corresponding trust receipts were signed by the Ramos also on the same dates of the respective applications. - When Ramos failed to pay despite demands, PNCB charged her with estafa. TC and CA:
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-Found Ramos guilty of four counts of Estafa. Ramoss Defense: (1) Elements of Estafa are not present.

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(2) that there is no adequate proof of her receipt of the goods subject of the trust receipts in question or of her having paid anything on account thereof or in connection therewith; (3) that complainant Bank had suffered no damage whatever, since it had made no payment at all on account of the commercial invoices for which the trust receipts were issued; and (4) that under the laws at the time, transactions involving trust receipts could only give rise to purely civil liability. HELD: - The assailed factual findings as to the receipt of the merchandise and the damage sustained by the Bank cannot stand. 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; and it can scarcely be believed that goods worth no mean sum actually transferred hands without the unpaid vendor requiring the vendee to acknowledge this fact in some way, even by a simple signature on these documents alone if not in fact by the execution of some appropriate document, such as a delivery receipt. -The trust receipts do not fare any better as proofs of the delivery to Ramos of the goods. Except for the invoices, an documents relating to each trust receipt agreement, including the trust receipts themselves, appear to be standard Bank forms accomplished by the Bank personnel, and were all signed by Ramos in one sitting, no doubt with a view to facilitating the pending transactions between the parties. If, as she claims, Ramos was made to believe that bank usage or regulations require the signing of the papers in this way, i.e., on a single occasion, there was neither reason nor opportunity for her to question the statement therein of receipt of the goods since it was evidently assumed that delivery to her of the goods would shortly come to pass.

4. Allied Banking Corporation v. Ordoez, 192 SCRA 246 (1990) FACTS: -Philippine Balooming Mills applied for thru its duly authorized officer Alfredo Ching, applied for the issuance of commercial letters of credit with Allied Banking Corporation to fiannce the purchase of 500 M/T Magtar Branch Dolomites and one (1) Lot high Fired Refractory Sliding Nozzle Bricks. -Allied Banking Corporation issued an irrevocable letter of credit in favor of Nikko Industry Co., Ltd by virtue of which the latter drew four (4) drafts which the were accepted by PBM and duly honored and paid by the Allied Banking Corp. -To secure payment of the amount covered by the drafts, and in consideration of the transfer by Allied banking of the possession of the goods to PBM, PBM, thru Ching, executed four (4) Trust receipts agreement acknowledging
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Allied Bankings ownership of the goods and its obligation to turn over the proceeds of the sale of the goods, if sold, or to return the same, if unsold within the stated period. -PBM, despite repeated demands, failed to comply with its obligation; hence Allied Banking filed a criminal complaint against Alfredo Ching for Violation of PD 115. -After preliminary investigation, the Fiscal found a prima facie case for violation of PD 115 on four counts and filed corresponding information in court. -On appeal to the Department of Justice, DOJ Secretary Neptali A. Gonzales held that the raw materials for manufactures of goods to be ultimately sold are proper objects of Trust Receipt and the failure to remit the proceeds constitutes violation of PD 115. -Another Motion of Reconsideration was filed, and DOJ secretary Ordonez rectified former Sec. Gonzales supposed reversible error, and held that PD 115 covers goods which are ultimately destined for goods, and since the goods covered by the TRs in this case, are to be utilized in the operation of the equipment and machineries of the corporation, they could not have been contemplated as being covered by PD 115. ISSUE: Does the penal provision of PD 115 apply when goods covered by a 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 the entrustee- manufacturer? HELD: -The penal provision of PD115 encompasses any act violative of an obligation covered by a trust receipt. The nonpayment of the amount covered by a Trust receipt is an act violative of the entrustees obligation to pay. There is no reason why the law should not apply to all transactions covered by trust receipts, except those expressly excluded. It is not limited to transactions in goods which are to be sold (retailed), reshipped, stored, and processed as a component of a product ultimately sold.

5. Philippine National Bank V. Pineda, 197 SCRA 1 (1991) FACTS: -Spouses Arroyo, obtained a loan Philippine National Bank to purchase 60% of the subscribed capital stock, and thereby acquire the controlling interest of Tayabas Cement Company, Inc. (TCC) -As security for said loan, the spouses Arroyo executed a real estate mortgage over a parcel of land known as the La Vista property. -Thereafter, TCC filed with PNB an application and agreement for the establishment of an eight (8) year deferred letter of in favor of Toyo Menka Kaisha, Ltd. of Tokyo, Japan, to cover the importation of a cement plant machinery and equipment.

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-Upon approval of said application and opening of an L/C by PNB in favor of Toyo Menka Kaisha, Ltd. for the account of TCC, the Arroyo spouses executed a Surety Agreement and a Covenant to secure the loan accommodation. -The imported cement plant machinery and equipment arrived from Japan and were released to TCC under a Trust Receipt Agreement. -Subsequently, Toyo Menka Kaisha Ltd. Made corresponding drawings against the Letters of Credit as scheduled. -TCC, however, failed to remit and/ or pay the corresponding amount covered by the drawings. -Pursuant to the trust receipt agreement, PNB notified TCC of its intention to repossess as it did later, the imported machineries and equipment for failure of TCC to settle obligations under the Letter of Credit. -In the meantime, when the personal accounts of the spouses Arroyo had become due. The spouses Arroyo having failed to satisfy their obligations with PNB, the latter decided to foreclose the real estate mortgages executed by the spouses Arroyo in its favor. -PNB sought to apply the proceeds to satisfy not only the amount owed by the Sps. Arroyo on their personal account, but also the amount owed as sureties of TCC. It was opposed by the Sps. Arroyo. -PNB filed a petition for mandamus to compel the city sheriff to proceed with the foreclosure which was granted. -Before the decision could attain finality, TCC a complaint against PNB, Dungca, and the Provincial Sheriff of Negros Occidental and Ex-Officio Sheriff of Bacolod City seeking, the issuance of a writ of preliminary injunction to restrain the foreclosure of the mortgages over the La Vista property and Hacienda Bacon as well as a declaration that its obligation with PNB had been fully paid by reason of the latter's repossession of the imported machinery and equipment. ISSUE: Whether or not, TCCs liability has been extinguished by the repossession of PNB of the imported cement plant machinery and equipment. HELD: - PNB's possession of the subject machinery and equipment being precisely as a form of security for the advances given to TCC under the Letter of Credit, said possession by itself cannot be considered payment of the loan secured thereby. Payment would legally result only after PNB had foreclosed on said securities, sold the same and applied the proceeds thereof to TCC's loan obligation. Mere possession does not amount to foreclosure for foreclosure denotes the procedure adopted by the mortgagee to terminate the rights of the mortgagor on the property and includes the sale itself. -Neither can said repossession amount to dacion en pago. Dation in payment takes place when property is alienated to the creditor in satisfaction of a debt in money and the same is governed by sales. Dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. As aforesaid, the repossession of the machinery and equipment in question was merely to secure the payment of TCC's loan obligation and not for the purpose of transferring ownership thereof to PNB in satisfaction of said loan. Thus, no dacion en pago was ever accomplished.
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6. People v. Nitafan, 207 SCRA 706 (1992) FACTS: - Allied banking Corporation (ABC) charged Betty Sia Ang, for estafa for willfully, unlawfully and feloniously defrauds ABC. Betty Sia Ang received in trust from ABC Gordon plastics, plastic sheeting and Hook Chromed 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. -ABC charged Betty Sia Ang with esstafa. -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, relying on the judicial pronouncement in People v. Cuevo and Sia V. People. -Hence, this appeal. BETTY SIA ANGS CONTENTIONS: 1. a trust receipt is an evidence of loan being secured, so that there is, between the parties to it, a creditordebtor relationship; 2. the violation merely gives rise to a civil obligation; 3. PD 115 is unconstitutional as it violates constitutional prohibition against imprisonment for non-payment of a debt. ISSUE: a. Whether or not an entrustee in a trust receipt agreement who fails to deliver theproceeds of the sale or to return the goods if not sold to the entruster-bank is liable for the crime of estafa. b. Wether or not PD 115 is unconstitutional.

HELD: -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.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. 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
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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. 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 Relations Commission, 251 SCRA 421 (1995) FACTS: - Interasia Container Industries, Inc. (INTERASIA), was embroiled in three (3) labor cases which were eventually resolved against it. Monetary awards consisting of 13th-month pay differentials and other benefits were granted to complainants. Subsequently the monetary award was recomputed to include separation pay, occasioned by the closure of operations of INTERASIA. In another case, the Labor Arbiter declared the closure or shutdown of operations effected by INTERASIA as illegal and awarded to complainants the wage differentials, separation pay and other benefits. -The sheriff levied on execution personal properties located in the factory of InterAsia. -Prudential Bank filed an affidavit of Third Party claim asserting ownership over the sized properties. As a result, the sheriff suspended the Public auction Sale. -However, the Labor Arbiter denied the claim of Prudential and directed the sheriff to proceed with the levy of the properties. -On appeal, NLRC also disregarded the third party claim of Prudential Bank.

CONTENTION OF PRUDENTIAL BANK: -While it may not have absolute ownership over the properties, still it has right, interest and ownership consisting of a security title which attaches to the properties. -That the security title of the bank in a Trust receipt must necessarily of the same or greater extent than the nature of security arising from a real mortgage. -It is a preferred claimant to the proceeds from the foreclosure to the extent of its security title in the goods.

NLRC: -Trust Receipt Agreement are mere security transaction which do not vest upon Prudential Bank any title of ownership, and that although the Trust receipt Agreements described Prudential Bank as owner of the goods, there was no showing that it cancelled the trust receipt and took possession of the goods.

HELD:
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- The security interest of the entruster is not merely an empty or idle title. To a certain extent, such interest becomes a "lien" on the goods because the entruster's advances will have to be settled first before the entrustee can consolidate his ownership over the goods. A contrary view would be disastrous. For to refuse to recognize the title of the banker under the trust receipt as security for the advance of the purchase price would be to strike down a bona fide and honest transaction of great commercial benefit and advantage founded upon a well-recognized custom by which banking credit is officially mobilized for manufacturers and importers of small means. -The law warrants the validity of petitioner's security interest in the goods pursuant to the written terms of the trust receipt as against all creditors of the trust receipt agreement. The only exception to the rule is when the properties are in the hands of an innocent purchaser for value and in good faith. The records however do not show that the winning bidder is such purchaser. Neither can private respondents plead preferential claims to the properties as Prudential Bank has the primary right to them until its advances are fully paid.

8. Metropolitan Bank and Trust Company v. Tonda, 338 SCRA 254 (200) FACTS: -Spouses Joaquin G. Tonda and Ma. Cristina U. Tonda, applied for and was granted commercial letters of credit by Metropolitan Bank and Trust Company, for a period of eight (8) months, in connection with the importation of raw textile materials to be used in the manufacturing of garments. -The TONDAS acting both in their capacity as officers of Honey Tree Apparel Corporation (HTAC) and in their personal capacities, executed eleven (11) trust receipts to secure the release of the raw materials to HTAC. The imported fabrics were withdrawn by HTAC under the 11 trust receipts executed by the TONDAS. -When HTAC had some financial reversals making it difficult for them to comply with their loan obligations with Metrobank, they were then constrained to propose a loan restructuring agreement with the Metrobank to enable them to finally settle all outstanding obligations with the latter, wherein they proposed to immediately pay in full their outstanding principal charges under the trust receipt and the remaining obligations under a separate schedule of payment. -A sum of money was deposited in a joint account of Joaquin Tonda and Wang Tien. However, the parties failed to finalize the restructuring agreement. -METROBANK through counsel, sent a letter making its final demand upon the TONDAS to settle their past due TR/LC accounts. Despite repeated demands however, the TONDAS failed to comply with their obligations. -Consequently, Metrobank, through its account officer Eligio Labog, Jr. a complaint/affidavit against the TONDAS for violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 (1) (b) of the Revised Penal Code, which was dismissed on the ground that the complainants had failed to establish the existence of the essential elements of Estafa as charged. -METROBANK then appealed to the Department of Justice (DOJ), which reversed the findings of the Provincial Prosecutor of Rizal and ordered the latter to file the appropriate information against the TONDAS as charged in the complaint. -The TONDAS immediately sought a reconsideration of the DOJ Resolution but their motion was denied by the then acting Justice Secretary Demetrio G. Demetria . A second motion for reconsideration by the TONDAS was likewise denied by then Justice Secretary Teofisto Guingona. -Subsequently, the TONDAS filed with the Court of Appeals a special civil action for certiorari and prohibition with application for a temporary restraining order or a writ of preliminary injunction. They contended therein that the Secretary of Justice acted without or in excess of jurisdiction in denying with finality their motion for reconsideration and, directing to file the appropriate Information against the TONDAS.
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CA: The Court of Appeals granted the TONDAS' petition and ordered the criminal complaint against them dismissed. The Court of Appeals held that METROBANK had failed to show a prima facie case that the TONDAS violated the Trust Receipts Law in relation to Art. 315 (1) (b) of the Revised Penal Code in the face of convincing proof that "that the amount of P2.8 Million representing the outstanding obligation of the TONDAS under the trust receipts account had already been settled by them in compliance with the loan restructuring proposal; and that in the absence of a loan restructuring agreement, METROBANK could still validly apply the amount as payment thereof."

ISSUE: Whether or not the sum of money deposited without reference to the trust receipts obligation of the Tondas extinguishes the criminal liability of the spouses arising therefrom.

HELD: -First, the amount of P2.8 million was not directly paid to METROBANK to settle the trust receipt accounts, but deposited in a joint account of Joaquin G. Tonda and a certain Wang Tien En. In a letter, signed by HTAC's Vice President for Finance, METROBANK was informed that the amount "may be applied anytime to the payment of the trust receipts account upon implementation of the parties of the terms of the restructuring." The parties failed to agree on the terms of the loan restructuring agreement as the offer by the TONDAS to restructure the loan was followed by a series of counter-offers which yielded nothing. It is axiomatic that acceptance of an offer must be unqualified and absolute to perfect a contract. The alleged payment of the trust receipts accounts never became effectual on account of the failure of the parties to finalize a loan restructuring arrangement. -Second, the handwritten note by the METROBANK officer acknowledging receipt of the checks amounting to P2.8 Million made no reference to the TONDAS' trust receipt obligations, and we cannot presume that it was anything more than an ordinary bank deposit. Article 1288 of the Civil Code provides that "compensation shall not be proper when one of the debts consists in civil liability arising from a penal offense" as in the case at bar. The raison d'etre for this is that, "if one of the debts consists in civil liability arising from a penal offense, compensation would be improper and inadvisable because the satisfaction of such obligation is imperative." -Third, reliance on the negotiations for the settlement of the trust receipts obligations between the TONDAS and METROBANK is simply misplaced. The negotiations pertain and affect only the civil aspect of the case but do not preclude prosecution for the offense already committed. It has been held that "[a]ny compromise relating to the civil liability arising from an offense does not automatically terminate the criminal proceeding against or extinguish the criminal liability of the malefactor." All told, the P2.8 Million deposit could not be considered as having settled the trust receipts obligations of the TONDAS to the end of extinguishing any incipient criminal culpability arising therefrom.

9. Colinares V. Court of Appeals, 339 SCRA 609; (Consolidated Bank and Trust Company v. Court of Appeals, 356 SCRA 671 (2001))

FACTS:

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- Colinares et al., 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 receipt 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 cant pay and requested a grace period to settle the account. -Colinares et al., proposed to modify the payment of the loan. -Colinares et al., 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. TC: Rendered a decision convicting the Colinares et al with estafa. The trial court considered the transaction between PBC and Petitioners as a trust receipt transaction under Section 4, P.D. No. 115. CA: Modified the judgment of the trial court by increasing the penalty. ISSUE: Whether the transaction is a simple loan or a trust receipt agreement. HELD: -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 Colinares et al there was neither dishonesty nor abuse of confidence in the handling of money to the prejudice of PBC. Colinares et al 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. Colinares et al received the merchandise from CM Builders Centre on 30 October 1979. On that day, ownership over the merchandise was already transferred to Colinares et al 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
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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 Communications v. CA and Filipinas Textile Mill, 352 SCRA 616 (2001) FACTS: -Filipinas Textiile Mill purchased various textile goods covered by irrevocable Letters of Credit and Trust Receipts obtained from Philippine Bank of Communications, which, in turn, were covered by surety agreements executed Bernardino Villanueva and Sochi Villanueva. -Filipinas Textile Mill made several partial payments. When Filipinas Textile Mill defaulted on the balance, PBC filed a complaint for sum of money. -Thereafter, PBC filed a motion for attachment contending that violation of the trust receipt law constitutes estafa, a ground for the issuance of writ of preliminary attachment. TC: -Issued the order of the issuance of a writ of preliminary attachment.

CA: -Ruled that the lower court was guilty of grave abuse of discretion in not conducting a hearing on the application for writ of preliminary attachment and not requiring PBC to substantiate its allegation of Fraud, embezzlement at misappropriation.

ISSUE: -Whether or not the allegations of fraud, embezzlement and misappropriation sufficient basis for the issuance of writ of preliminary attachment. HELD: -The allegation that the entrustee failed to remit the proceeds of the sale of the entrusted goods or to return the same is not sufficient for attachment to issue. 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
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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. - Fraudulent intent not to honor the admitted obligation cannot be inferred from the debtors inability to pay or to comply with the obligations.

11. South City Homes, Inc. v. BA Finance Corporation, 371 SCRA 603 (2001) FACTS: -Motor vehicles were delivered by Canlubang Automotive Resources Corporation (CARCO) to Fortune Motors Corporation on the strength of trust receipts or drafts executed by Fortune, with South City Homes, Palawan Lumber Manufacturing Corporation and Fortunes President Joseph Chua as sureties. -The Trust Receipts or draft were assigned/ discounted by CARCO to BA Finance Corporation, which assumed payment of the vehicles but with the corresponding right to collect such payment from Fortune and the Sureties. -When Fortune failed to pay the amounts due under the drafts and remit the proceeds of motor vehicles sold or return those remaining unsold in accordance with the terms of the trust receipts agreements, BA Finance demanded from the sureties. -When the account remained unsettled, BA Finance filed a complaint for sum of money with preliminary attachment. -A motion to dismiss was filed, a defendant contending that their obligations to the creditor (CARCO) were extinguished by the assignment of the drafts and trust receipts to BA Finance without their knowledge and consent and pursuant to the legal provision on conventional subrogation a novation was effected, thereby extinguishing the liability of the sureties; that BA Finance failed to immediately demand the return of the goods under the trust receipt agreements or exercise the courses of action by entruster as provided for under PD 115; and that at the time the suretyship agreement agreements were entered into, there were no principal obligations, thus rendering them null and void. The motion to dismiss was denied.

TC and CA: -South City Homes is ordered to pay, jointly and severally, with Fortune Motors, Palawan Lumber and Joseph Chua amounts due under the 6 drafts and Trust receipts. ISSUE: - Whether or not in the event of default by the entrustee on his obligation under the trust receipt agreement, it is necessary that the entruster cancel the trust and take possession of the goods to be able to enforce his rights thereunder. HELD: -In the event of default by the entrustee on his obligation 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. Significantly, the law uses the word may in granting the entruster the right to cancel the trust and take
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possession of the goods. Consequently, the entruster has the discretion to avail of such right or seek any alternative action, such as 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 (2002) FACTS: -Charles Lee, as President of MICO, requested for grant of several discounting loan/ credit line with PBCom secured by REM which were all granted and availed of and renewed under promissory notes. -Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and Richard Velasco, in their personal capacities executed a two Surety Agreements in favor of PBCom whereby the petitioners jointly and severally, guaranteed the prompt payment on due dates or at maturity of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange, trust receipts, and other obligations of every kind and nature, for which MICO may be held accountable by PBCom. MICO furnished PBCom with a notarized certification issued by its corporate secretary, Atty. P.B. Barrera, that Chua Siok Suy was duly authorized by the Board of Directors to negotiate on behalf of MICO for loans and other credit availments from PBCom. -Several applications for domestic as well as foreign letters of credit and availments of the credit line were made by MICO. -Upon maturity of all credit availments obtained by MICO from PBCom, the latter made a demand for payment. For failure of petitioner MICO to pay the obligations incurred despite repeated demands, private PBCom extrajudicially foreclosed MICOs REM and sold the said mortgaged properties in a public auction sale. PBCom then demanded the settlement of the aforesaid obligations from sureties who, however, refused to acknowledge their obligations to PBCom under the surety agreements. -Hence, PBCom filed a complaint with prayer for writ of preliminary attachment before the RTC of Manila alleging that MICO was no longer in operation and had no properties to answer for its obligations. Petitioners denied having received the loans, and that, since no loan was ever released or received by MICO, the corresponding real estate mortgage and surety agreements signed concededly by MICO are null and void.

TC: -Dismissed the case in favor of MICO, ruling that PBcom failed to adequately prove that the proceeds of the loan were ever delivered to MICO, no proof has been adduced as to the existence of the goods covered and paid by the said amounts. Hence, inasmuch as no consideration ever passed from PBcom to MICO, all the documents involved therein, such as the promissory notes, real estate mortgage, including the suretyship agreements were all void for lack of cause or consideration

CA: -The Court of Appeals reversed the ruling of the trial court, saying that the latter committed an erroneous application and appreciation of the rules governing the burden of proof. Citing Section 24 of the Negotiable Instruments Law which provides that Every negotiable instrument is deemed prima facie to have been issued for valuable consideration and every person whose signature appears thereon to have become a party thereto for value, the Court of Appeals said that while the subject promissory notes and letters of credit issued by the PBCom made no mention of delivery of cash, it is presumed that said negotiable instruments were issued for valuable consideration.
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ISSUE: -Whether or not there is sufficient consideration with respect to the drafts issued in connection with the Letters of Credit.

HELD: -Letters of Credit and trust receipts are not negotiable instruments. But drafts issued in connection with the 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 letter of credit have sufficient consideration apply.

13. Pilipinas Bank v. Ong, 387 SCRA 37 (2002) FACTS: -Baliwag Mahogany Corporation (BMC), through its president, Alfredo T. Ong, applied for a domestic commercial letter of credit with Pilipinas Bank to finance the purchase of about 100,000 board feet of "Air Dried, Dark Red Lauan" sawn lumber. -Pilipinas Bank approved the application. To secure payment of the amount, BMC, through 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 due dates, BMC failed to comply with the trust receipt agreement. It filed with the Securities and Exchange Commission (SEC) a Petition for Rehabilitation and for a Declaration in a State of Suspension of Payments under Section 6 (c) of P.D. No. 902-A as amended. After BMC informed its creditors (including the bank) of the filing of the petition, a Creditors' Meeting was held. -SEC issued an order creating a Management Committee wherein the bank is represented. The Committee shall, among others, undertake the management of BMC, take custody and control of all its existing assets and liabilities, study, review and evaluate its operation and/or the feasibility of its being restructured. -BMC and a consortium of 14 of its creditor banks entered into a Memorandum of Agreement (MOA) rescheduling the payment of BMCs existing debts. -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 Ong defaulted in the payment of their obligations under the rescheduled payment scheme provided in the MOA. Thus, the bank filed a complaint charging Ong and Leoncia Lim (as president and treasurer of BMC, respectively) with violation of the Trust Receipts Law (PD No. 115), docketed. The bank alleged that both failed to pay their obligations under the trust receipts despite demand. -DOJ dismissed the charge. -The bank filed with this Court a petition for certiorari and mandamus seeking to annul the resolution of the DOJ, in which this Court referred the petition to the Court of Appeals for proper determination and disposition.

CA:
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-Directed the prosecutors to file the appropriate criminal charges for violation of P.D. No. 115, otherwise known as The Trust Receipts Law, against Ong et al.

ISSUE: -Whether or not the Memorandum of Agreement entered into extinguished the obligation s of BMC under the Trust receipt Agreement. -Whether or not the officers of BMC can be held liable for the violation of the Trust receipts Law.

HELD: -Section 4 of PD No. 115 (The Trust Receipts Law) defines a trust receipt as any transaction by and between a person referred to as the entruster, and another person referred to as the entrustee, whereby the entruster who owns or holds absolute title or security interest over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt, or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt. -Failure of the entrustee to turn over the proceeds of the sale of the goods covered by a trust receipt to the entruster or to return the goods, if they were not disposed of, shall constitute the crime of estafa under Article 315, par. 1(b) of the Revised Penal Code. If the violation or offense is committed by a corporation, the penalty shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense. It is on this premise that petitioner bank charged respondents with violation of the Trust Receipts Law. -Mere failure to deliver the proceeds of the sale or the goods, if not sold, constitutes violation of PD No. 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. -In this case, no dishonesty nor abuse of confidence can be attributed to respondents. Record shows that BMC failed to comply with its obligations upon maturity of the trust receipts due to serious liquidity problems, prompting it to file a Petition for Rehabilitation and Declaration in a State of Suspension of Payments. It bears emphasis that when petitioner bank made a demand upon 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 the SEC in its Order dated January 8, 1992. The Management Committee took custody of all BMCs assets and liabilities, including the red lauan lumber subject of the trust receipts, and authorized their use in the ordinary course of business operations. Clearly, it was the Management Committee which could settle BMCs obligations. Moreover, it has not escaped this Courts observation that respondent Ong paid P21, 000,000.00 in compliance with the equity infusion required by the MOA. The mala prohibita nature of the offense notwithstanding, respondents intent to misuse or misappropriate the goods or their proceeds has not been established by the records. - The MOA did not only reschedule BMCs debts, but more importantly, it provided principal conditions which are incompatible with the trust agreement. Hence, the MOA novated and effectively extinguished BMC's obligations under the trust receipt agreement. 14. Sarmiento v. Court of Appeals, 394 SCRA 315 (2002) FACTS:
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-Limpin and Apostol, doing business under the name and style of Davao Libra Industrial Sales, filed an application for an Irrevocable Domestic Letter of Credit with the Associated Banking Corporation in favor of LS Parts Hardware and machine shop for the purchase of assorted scrap irons. -The application was approved. -There after, a trust receipt was executed by Limpin and Apostol, which was also signed by Lorenzo Sarmiento Jr. as surety. - The scrap irons were loaded on board a barge owned and operated by Luzon Stevedoring for shipment to Toledo Atlas Pier in Cebu, but the barge capsized while on its way. -On due dates, demands were made for them to comply but Limpin and Apostol failed to comply with their undertaking under the Trust Receipt. -A complaint for violation of Trust receipt was filed. -Sarmiento was dropped from the information and Limpin was convicted. The judgment did not contain an award of civil liability. -Later a separate complaint for sum of money was file against Sarmiento and Limpin. TC and CA: -Rendered judgment in favour of associated Banking with respect to Sarmiento, who was dropped as an accused in the criminal action, it cannot in anyway, bar the filing by Associated Banking Corporation of the present civil action against him. ISSUE: Whether or not the right to claim for civil liability is already barred on the ground that the same was not reserved but in fact instituted already in the criminal action earlier filed. HELD: -The entrusters complaint against entrustee was based on the failure of the latter to comply with their obligation as spelled out in the Trust Receipt executed by them. This breach of obligation is separate and distinct from any criminal liability for misuse and/or misappropriation of goods or proceeds realized from the sale of goods, documents or instruments released under trust receipts, punishable under Section 13 of the Trust Receipts Law (P.D. 115) in relation to Article 315(1), (b) of the Revised Penal Code. Being based on an 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 latter.

15. Ong v. Court of Appeals, 401 SCRA 649 (2003) FACTS: -Edward Ong representing Armagri applied for a Letter of Credit with Solid bank Corporation to finance the purchase of differential assembles from Metropole Industrial Sale and from Fertiphil Corporation.
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-The Bank approved the application and opened the Letters of Credit applied for, Edward ong, signing for armagri executed trust receipts in favor of the bank acknowledging receipt of the merchandise. -Ong signed the additional undertaking on both the trust receipt binding him to pay jointly and severally for the monthly penalty of 1%. -When the trust receipt became due and demandable, Armagri failed to pay or deliver the goods to SolidBank despite several demands. TC: Guilty of two counts of estafa. CA: Affirmed the Trial Court, stating Edward Ong, although neither a director nor an officer of ARMAGRI, he certainly comes within the term employees or other xxx persons therein responsible for the offense in Section 13 of the Trust Receipts Law. ISSUE: -Whether or not Ong can be held as criminally liable for violation of the Trust Receipt Law although he signed as a mere agent of ARMAGRI. (Whether Edward Ong comes within the purview of Sec. 13 of Trust Receipt Law.)

EDWARD ONGS CONTENTION: -In signing the trust receipts, he merely acted as an agent of ARMAGRI, and that nowhere in the trust receipts did he assume personal responsibility for the undertakings of ARMAGRI. HELD: -Trust Receipt Law recognizes the impossibility of imposing the penalty of imprisonment on a corporation. Hence, if the entrustee is a corporation, the law makes the officer 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 entity cannot be put to jail. Hence, the criminal liability falls on the human agent responsible for the violation of the Trust Receipt Law. -A person who admits being the agent of the entrustee corporation is a person responsible for the offense if he is the signatory of the Trust Receipts and if he cannot explain 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 Receipt. -As for the civil liability arising from the criminal offense, 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. -Ong is not liable for the principal and interest but is liable for the additional undertaking of paying monthly penalty of 1% of the total obligation.
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16. Landl & Company v. Metropolitan Bank, 435 SCRA 639 (2004) FACTS: -Landl and Company is engaged in the business of selling imported welding rods and alloys. -It opened a commercial letter of credit with MBTC for the purchase of various welding rods and electrons from PERMA ALLOYS Inc., New York, USA. Landl put up a marginal deposit of P50, 000.00 from the proceeds of a separate clean loan. -As an additional security, and as a condition for the approval of the application, MBTC required Percival Llaban and Manuel Lucente to execute a continuing surety agreement. Lucente also executed a Deed of assignment in favor of MBTC to cover the amount of the corporations obligation to the bank. Upon compliance with these requisites, MBTC opened an irrevocable Letter of Credit for Landl. -Trust Receipt was executed to secure indebtedness of Landl. -Upon Maturity, Landl defaulted payment of its obligation or to return the goods to MBTC. -The goods were sold at public auction to MBTC as the highest bidder. -However, the proceeds of the auction sale were insufficient to completely satisfy the outstanding obligation of Landl notwithstanding the application of the time deposit account of its director Lucente. -Accordingly, MBTC demanded that Landl pay the remaining balance of their obligation. -Landl failed to do so. -MBTC filed a complaint for sum of money against Landl and its directors for the amount of the deficiency.

TC and CA: -Ordered Landl to pay the bank.

ISSUE: -Whether or not in a trust receipt transaction, an entruster which had taken actual and juridical possession of the goods covered by trust receipt may subsequently avail of the right to demand from the entrustee the deficiency of the amount covered by the trust receipt.

HELD - A trust receipt agreement is merely a collateral agreement, the purpose of which is to serve as security for a loan. -In the event of default or failure of the entrustee to comply with the terms of the trust receipt agreement, the entruster may cancel the trust and take possession of the goods subject of the trust receipt and while in possession
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cause the sale of the goods after at least five (5) day notice to the entrustee, in a private or public sale. The entruster may at public sale become a purchaser. If the proceeds of the sale were insufficient to satisfy entirely entrustees indebtedness, the entruster is well within its rights to file an action to collect the deficiency.

17. Rosario Textile Mills Corp. v. Home Bankers Savings and Trust Company, 462 SCRA 88 (2005) FACTS: - Rosario Textile Mills Corporation (RTMC) applied from Home Bankers Savings & Trust Co. for an Omnibus Credit Line for P10 million. -The bank approved RTMCs credit line but for only P8 million. The bank notified RTMC of the grant of the said loan thru a letter which contains terms and conditions conformed by RTMC thru Edilberto V. Yujuico. 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 RTMCs 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 banks demand letters, RTMC failed to pay its loans. Hence, the bank filed a complaint for sum of money against RTMC and Yujuico.

CONTENTION OF RTMC AND YUJUICO: 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; 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 RTMCs premises. For failure of the parties to amicably settle the case, trial on the merits proceeded.

TC: -In favor of the bank and orderd RTMC and Yujuico to pay. -RMTC appealed contending that under the trust receipt contracts between the parties, they merely held the goods described therein in trust for Home Bankers Savings and Trust Company (the bank) which owns the same. Since the ownership of the goods remains with the bank, then it should bear the loss. With the destruction of the goods by fire, petitioners should have been relieved of any obligation to pay.

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CA:

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-Affirmed the trial courts judgment, holding that the bank is merely the holder of the security for its advance payments to petitioners; and that the goods they purchased, through the credit line extended by the bank, belong to them and hold said goods at their own risk.

ISSUE: -Whether or not RMTC and Yujuico are not relieved of their obligation to pay their loan after they rtried to tender te goods to the bank which the bank refused to accept the same, and which goods weresubsequently lost in fire.

HELD: -Petitioners theorize that when petitioner 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. Hence, under the doctrine of res perit domino, the bank took the risk of the loss of said raw materials. RTMCs role in the transaction was that of end user of the raw materials and when it did not accept those materials as they did not meet the manufacturing requirements, RTMC made a valid and effective tender of the goods to the bank. Since the bank refused to accept the raw materials, RTMC stored them in its warehouse. When the warehouse and its contents were gutted by fire, petitioners obligation to the bank was accordingly extinguished. -Petitioners stance, however, conveniently ignores the true nature of its transaction with the bank. We recall that 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. 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 customers line of credit is nearly exhausted, he is expected to reduce his indebtedness by payments before making any further drawings. -It is thus 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. 18. Tupaz IV v. CA, 475 SCRA 398 (2005) FACTS: - Jose C. Tupaz IV and Petronila C. Tupaz were Vice-President for Operations and Vice-President/Treasurer, respectively, of El Oro Engraver Corporation (El Oro 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, the Tupazs, on behalf of El Oro Corporation, applied with Bank of the Philippine Islands (BPI) for two commercial letters of credit. The letters of credit were in favor of El Oro Corporations suppliers, Tanchaoco Manufacturing Incorporated (Tanchaoco Incorporated) and Maresco Rubber and Retreading Corporation (Maresco Corporation). BPI granted Tupazs application and issued Letters of Credit to Tanchaoco Incorporated to Maresco Corporation.
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-Simultaneous with the issuance of the letters of credit, the Tupazs signed trust receipts in favor of BPI. Jose C. Tupaz IV (petitioner Jose Tupaz) signed, in his personal capacity, a trust receipt corresponding to the letter of credit given to Tanchaoco Incorporated. Jose Tupaz 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. -The Tupazs signed, in their capacities as officers of El Oro Corporation, a trust receipt corresponding to Letter of Credit in favor of Manresco Corporation. The Tupazs bound themselves to sell the goods covered by that letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not sold. -After Tanchaoco Incorporated and Maresco Corporation delivered the raw materials to El Oro Corporation, respondent bank paid the former. -The Tupazs did not comply with their undertaking under the trust receipts. BPI made several demands for payments but El Oro Corporation made partial payments only. On BPIs counsel and its representative respectively sent final demand letters to El Oro Corporation. El Oro Corporation replied that it could not fully pay its debt because the Armed Forces of the Philippines had delayed paying for the survival bolos. -BPI charged the Tupazs with estafa.

TC, affirmed by CA: -The Tupazs are acquitted but found solidarily liable with El Oro for the balance of El Oro Corporations principal debt under the Trust Receipt. Inability to collect with AFP not a valid defense to wipe out their civil liability. ISSUES:

(1) Whether petitioners bound themselves personally liable for El Oro Corporations debts under the trust receipts; (2) If so (a) whether petitioners liability is solidary with El Oro Corporation; and (b) whether petitioners acquittal of estafa under Section 13, PD 115 extinguished their 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. As an exception, directors or officers are personally liable for the corporations debts only if they so contractually agree or stipulate. Jose Tupaz is liable is Guarantor. - Jose Tupazs Acquittal did not Extinguish his Civil Liability. The rule is that where the civil action is impliedly instituted with the criminal action, the civil liability is not extinguished by acquittal [w]here the acquittal is based on reasonable doubt xxx as only preponderance of evidence is required in civil cases; where the court expressly declares that the liability of the accused is not criminal but only civil in nature xxx as, for instance, in the felonies of estafa, theft, and malicious mischief committed by certain relatives who thereby incur only civil liability (See Art. 332, Revised Penal Code); and, where the civil liability does not arise from or is not based upon the criminal act of which the accused was acquitted xxx.
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-Here, BPI chose not to file a separate civil action] to recover payment under the trust receipts. Instead, BPI sought to recover payment in the Criminal cases. Although the trial court acquitted Jose Tupaz, his acquittal did not extinguish his civil liability. As the Court of Appeals correctly held, his liability arose not from the criminal act of which he was acquitted (ex delito) but from the trust receipt contract (ex contractu).Jose Tupaz signed the trust receipt of in his personal capacity.

19. DBP v. Prudential Bank, 475 SCRA 623 (2005) FACTS: -Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial letter of credit with Prudential Bank. This was in connection with its importation of 5,000 spindles for spinning machinery with drawing frame, simplex fly frame, ring spinning frame and various accessories, spare parts and tool gauge. These were released to Litex under covering trust receipts it executed in favor of Prudential Bank. Litex installed and used the items in its textile mill located in Montalban, Rizal. -On 1980, 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 in Montalban, Rizal, including the buildings and other improvements, machineries and equipments there. Among the machineries and equipments mortgaged in favor of DBP were the articles covered by the trust receipts. -When Prudential Bank learned about DBPs plan for the overall rehabilitation of Litex, 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. -For the failure of Litex to pay its obligation, DBP extra-judicially foreclosed on the real estate and chattel mortgages, including the articles claimed by Prudential Bank. -Prudential Bank sent again a letter to DBP reasserting its claim over the items covered by trust receipts in its name and advising DBP not to include them in the auction. It also demanded the turn-over of the articles or alternatively, the payment of their value. -There being no concrete action on DBPs part, Prudential Bank, in a letter dated, made a final demand on DBP for the turn-over of the contested articles or the payment of their value. Without the knowledge of Prudential Bank, however, DBP sold the Litex textile mill, as well as the machineries and equipments therein, to Lyon Textile Mills, Inc. (Lyon) -Since its demands remained unheeded, Prudential Bank filed a complaint for a sum of money with damages against DBP.

TC and CA: -In favor of Prudential Bank. Applying the provisions of PD 115 and held that the ownership over the contested articles belonged to Prudential Bank as entrustor, not to Litex. Consequently, even if Litex mortgaged the items to DBP and the latter foreclosed on such mortgage, DBP was duty bound to turn-over the proceeds to Prudential Bank being the party that advanced the payment for them.

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HELD:

Comia, A.T

-The articles were owned by Prudential Bank and they were only held by Litex in trust. While it was allowed to sell the items, Litex had no authority to dispose of them or any part thereof or their proceeds through conditional sale, pledge or any other means. -Article 2085 (2) of the Civil Code requires that, in a contract of pledge or mortgage, it is essential that the pledgor or mortgagor should be the absolute owner of the thing pledged or mortgaged. Article 2085 (3) further mandates that the person constituting the pledge or mortgage must have the free disposal of his property, and in the absence thereof, that he be legally authorized for the purpose. -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.

20. Ching V. Secretary of Justice, 481 SCRA 609 (2006) FACTS: -Ching was the Senior Vice President of Philippine Blooming Mills, Inc (PBMI). -PBMI, through Ching 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 (PBMI). -The goods were purchased and delivered in trust to PBMI. -Ching signed 13 trust receipt as SURETY, acknowledging delivery of the goods. -When the trust receipt matured, Ching failed to return the goods to RCBC or to return their value despite repeated demands. -Thus, RCBC filed a criminal complaint for estafa against Ching. -City Prosecutor found probable cause for estafa, thus 13 information were filed. Ching appealed to the Minister of Justice which ordered the withdrawal of the information. -RCBC refilled the criminal complaint for estafa before the office of the City Prosecutor. City Prosecutor ruled that there was no probable cause to charge Ching as his liability was only civil and not criminal having signed the trust receipts as surety. -RCBC appealed to the Secretary of Justice which reversed the resolution of the City prosecutor, holding that Ching as senior Vice-President of PBMI, executed the 13 trust receipts and as such, was one responsible for the offense. The execution of said receipts is enough to indict Ching as the official responsible for the violation of PD 115. CA: -Affirmed the Decision of Secretary of Justice.
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SPCL Trust Receipts


ISSUE:

Comia, A.T

-Whether Ching can be held criminally liable for violation of the Trust Receipts Law when he signed the trust receipts merely as a surety and not as the entrustee. HELD: -An officer of a corporation who signed a trust receipt cannot hide behind the cloak of the separate corporate personality of the corporation and cannot avoid criminal prosecution even though he had no physical possession of the goods nor are benefitted by the delictual acts. -Though the entrustee is a corporation, nevertheless, the law specifically makes the officers, employees and other officers or persons responsible for the offense, without prejudice to the civil liabilities of such corporation and/or board of directors, officers, or other officials or employees responsible for the offense. -The rationale is that such officers or employees are vested with authority and responsibility to devise means necessary to ensure compliance with the law and, if they fail to do so, are held criminally accountable. -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.

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