MERCANTILE TRUST RECEIPTS

Introductory*Concepts* There"are"two"obligations"in"a"trust"receipt"transaction."
* The"first"is"covered"by"the"provision"that"refers"to"money"
Trust*receipt,*definition* under" the" obligation" to" deliver" it"(entregarla)"to" the"
a" security" transaction" intended" to" aid" in" financing" owner"of"the"merchandise"sold."The"second"is"covered"by"
importers" and" retail" dealers" who" do" not" have" sufficient" the" provision" referring" to" merchandise" received" under"
funds"or"resources"to"finance"the"importation"or"purchase" the"obligation"to"return"it"(devolvera)"to"the"owner.""
of"merchandise,"and"who"may"not"be"able"to"acquire"credit" "
except" through" utilization," as" collateral," of" the" In"all"trust"receipt"transactions,"both"obligations"on"the"
merchandise"imported"or"purchased"(Samo%v.%People)" part"of"the"trustee"exist"in"the"alternative"—"the"return"of"
the"proceeds"of"the"sale"or"the"return"or"recovery"of"the"
"
goods," whether" raw" or" processed." When" both" parties"
Trust*Receipts*Law,*purpose* enter"into"an"agreement"knowing"that"the"return"of"the"
to"aid"in"financing"importers"and"retail"dealers"who"do" goods" subject" of" the" trust" receipt" is" not" possible" even"
not" have" sufficient" funds" or" resources" to" finance" the" without" any" fault" on" the" part" of" the" trustee," it" is" not" a"
importation"or"purchase"of"merchandise,"and"who"may" trust" receipt" transaction" penalized" under" Section" 13"
not"be"able"to"acquire"credit"except"through"utilization," of"P.D."115;"the"only"obligation"actually"agreed"upon"by"
as"collateral,"of"the"merchandise"imported"or"purchased" the" parties" would" be" the" return" of" the" proceeds" of" the"
" sale"transaction."This"transaction"becomes"a"mere"loan,"
" where" the" borrower" is" obligated" to" pay" the" bank" the"
Trust*Receipt*Transaction* amount"spent"for"the"purchase"of"the"goods."(Land%Bank%
of%the%Phils.%v.%Perez,%G.R.%No.%166884,%[June%13,%2012],%687%
Trust*receipt*transaction,*nature*
PHIL%106S125)"
The"true"nature"of"a"trust"receipt"transaction"can"be"found"
in"the""whereas""clause"of"PD"115"which"states"that"a"trust" "
receipt"is"to"be"utilized""as"a"convenient"business"device" Intent*to*defraud,*presumed*
to" assist" importers" and" merchants" solve" their" financing" Thus,"under"the"Trust"Receipts"Law,"intent"to"defraud"is"
problems."" Obviously," the" State," in" enacting" the" law," presumed"when"(1)"the"entrustee"fails"to"turn"over"the"
sought"to"find"a"way"to"assist"importers"and"merchants"in" proceeds"of"the"sale"of"goods"covered"by"the"trust"receipt"
their" financing" in" order" to" encourage" commerce" in" the" to"the"entruster;"or"(2)"when"the"entrustee"fails"to"return"
Philippines."" the" goods" under" trust," if" they" are" not" disposed" of" in"
" accordance" with" the" terms" of" the" trust" receipts." (Land%
A" trust" receipt" is" considered" a" security" transaction" Bank%of%the%Phils.%v.%Perez,%G.R.%No.%166884,%[June%13,%2012],%
intended"to"aid"in"financing"importers"and"retail"dealers" 687%PHIL%106S125)%
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" Loan*and*Security*Features*of*TR*
utilization,"as"collateral,"of"the"merchandise"imported"or" "
purchased." (Hur% Tin% Yang% v.% People,% G.R.% No.% 195117% A"letter"of"creditRtrust"receipt"arrangement"is"endowed"
(Resolution),%[August%14,%2013])% with" its" own" distinctive" features" and" characteristics."
% Under"that"setRup,"a"bank"extends"a"loan"covered"by"the"
Trust*receipt*is*a*security*agreement* Letter"of"Credit,"with"the"trust"receipt"as"a"security"for"the"
A" trust" receipt," therefore," is" a" security" agreement," loan." In" other" words," the" transaction" involves" a" loan"
pursuant"to"which"a"bank"acquires"a""security"interest"" feature"represented"by"the"letter"of"credit,"and"a"security"
in"the"goods.""It"secures"an"indebtedness"and"there"can" feature"which"is"in"the"covering"trust"receipt."
be" no" such" thing" as" security" interest" that" secures" no" "
obligation."""As"defined"in"our"laws:" A" trust" receipt," therefore," is" a" security" agreement,"
(h)""Security" Interest" means" a" property" pursuant"to"which"a"bank"acquires"a""security"interest""
interest"in"goods,"documents"or"instruments"to" in"the"goods.""It"secures"an"indebtedness"and"there"can"
secure"performance"of"some"obligations"of"the" be" no" such" thing" as" security" interest" that" secures" no"
entrustee" or" of" some" third" persons" to" the" obligation."|||"(Spouses" Vintola" v." Insular" Bank" of" Asia"
entruster" and" includes" title," whether" or" not" and" America," G.R." No." 73271," [May% 29,% 1987],% 234% PHIL%
expressed"to"be"absolute,"whenever"such"title"is" 562S570)%
in" substance" taken" or" retained" for" security" %
only."%%
Ownership*of*the*Goods,*Documents,*and*
%
Instruments*under*a*Trust*Receipt*
(Spouses%Vintola%v.%Insular%Bank%of%Asia%and%America,%G.R.%
*
No.%73271,%[May%29,%1987],%234%PHIL%562S570)"
" Development* Bank* of* the* Phils.* v.* Prudential* Bank,*
% G.R.*No.*143772,*[November*22,*2005],*512*PHIL*267S
Two* obligations* in* a* TR* transaction:* Obligation* 280*
entregarla*and*obligation*devolvera* "

ToTheBarAndBeyond2018 dennisaranabril !
 MERCANTILE TRUST RECEIPTS
Litex"was"not"engaged"in"the"business"of"selling"spinning"
machinery," its" accessories" and" spare" parts" but" in"
manufacturing" and" producing" textile" and" various" kinds"
of" fabric." The" articles" were" not" released" to" Litex" to" be"
sold."Nor"was"the"transfer"of"possession"intended"to"be"a"
preliminary" step" for" the" said" goods" to" be" ultimately" or"
subsequently" sold." Instead," the" contemporaneous" and"
subsequent" acts" of" both" Litex" and" Prudential" Bank"
showed"that"the"imported"articles"were"released"to"Litex"
to"be"installed"in"its"textile"mill"and"used"in"its"business."
DBP"itself"was"aware"of"this."
"
In"a"trust"receipt"transaction,"the"goods"are"released"by"
the" entruster" (who" owns" or" holds" absolute" title" or"
security"interests"over"the"said"goods)"to"the"entrustee"
on"the"latter's"execution"and"delivery"to"the"entruster"of"
a"trust"receipt."The"trust"receipt"evidences"the"absolute"
title"or"security"interest"of"the"entruster"over"the"goods."
As" a" consequence" of" the" release" of" the" goods" and" the"
execution" of" the" trust" receipt," a" twoRfold" obligation" is"
imposed" on" the" entrustee," namely:" (1)" to" hold" the"
designated"goods,"documents"or"instruments"in"trust"for"
the"purpose"of"selling"or"otherwise"disposing"of"them"and"
(2)" to" turn" over" to" the" entruster" either" 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."In"the"
case" of" goods," they" may" also" be" released" for" other"
purposes"substantially"equivalent"to"(a)"their"sale"or"the"
procurement" of" their" sale;" or" (b)" their" manufacture" or"
processing" with" the" purpose" of" ultimate" sale," in" which"
case" the" entruster" retains" his" title" over" the" said" goods"
whether" in" their" original" or" processed" form" until" the"
entrustee" has" complied" fully" with" his" obligation" under"
the"trust"receipt;"or"(c)"the"loading,"unloading,"shipment"
or" transshipment" or" otherwise" dealing" with" them" in" a"
manner"preliminary"or"necessary"to"their"sale."Thus,"in"a"
trust"receipt"transaction,"the"release"of"the"goods"to"the"
entrustee," on" his" execution" of" a" trust" receipt," is"
essentially"for"the"purpose"of"their"sale"or"is"necessarily"
connected"with"their"ultimate"or"subsequent"sale.|||""
" said" goods," documents" or" instruments" if" they" were" not"
Trustee*ex*maleficio*
No"one"can"transfer"a"right"to"another"greater"than"what"
he"himself"has."Nemo"dat"quod"non"habet."Hence,"Litex"
could" not" transfer" a" right" that" it" did" not" have" over" the"
disputed"items."Corollarily,"DBP"could"not"acquire"a"right"
greater" than" what" its" predecessorRinRinterest" had." The"
spring" cannot" rise" higher" than" its" source." DBP" merely"
stepped"into"the"shoes"of"Litex"as"trusteeof"the"imported"
articles"with"an"obligation"to"pay"their"value"or"to"return"
them"on"Prudential"Bank's"demand."By"its"failure"to"pay"
or" return" them" despite" Prudential" Bank's" repeated"
demands"and"by"selling"them"to"Lyon"without"Prudential"
Bank's" knowledge" and" conformity," DBP" became"
a"trustee"ex"maleficio.|||%(Development%Bank%of%the%Phils.%
v.%Prudential%Bank,%G.R.%No.%143772,%[November%22,%2005],%
512%PHIL%267S280)"
"
ToTheBarAndBeyond2018 dennisaranabril !
Entruster*and*Entrustee*
*
Entrustee*
*
Entrustee,*definition*
An"entrustee"is"one"having"or"taking"possession"of"
goods,"documents"or"instruments"under"a"trust"receipt"
transaction,"and"any"successor"in"interest"of"such"
person"for"the"purpose"of"payment"specified"in"the"trust"
receipt"agreement."
"
Obligations*of*an*entrustee*
The"entrustee"is"obliged"to""
1.! hold"the"goods,"documents"or"instruments"in"
trust"for"the"entruster"and"shall"dispose"of"
them"strictly"in"accordance"with"the"terms"and"
conditions"of"the"trust"receipt;""
2.! receive"the"proceeds"in"trust"for"the"entruster"
and"turn"over"the"same"to"the"entruster"to"the"
extent"of"the"amount"owed"to"the"entruster"or"
as"appears"on"the"trust"receipt;"
3.! insure"the"goods"for"their"total"value"against"
loss"from"fire,"theft,"pilferage"or"other"
casualties;""
4.! keep"said"goods"or"the"proceeds"therefrom"
whether"in"money"or"whatever"form,"separate"
and"capable"of"identification"as"property"of"the"
entruster;""
5.! return"the"goods,"documents"or"instruments"in"
the"event"of"nonRsale"or"upon"demand"of"the"
entruster;"and""
6.! observe"all"other"terms"and"conditions"of"the"
trust"receipt"not"contrary"to"the"provisions"of"
the"decree.""
(Metropolitan%Bank%&%Trust%Co.%v.%Gonzales,%G.R.%
No.% 180165,% [April% 7,% 2009],% 602% PHIL% 1000S
1015)%
%
PD*115*and*Art.*315,*par.*1(b)*of*RPC*(Estafa)*
The"failure"of"an"entrustee"to"turn"over"the"proceeds"of"
the"sale"of"the"goods,"documents"or"instruments"covered"
by"a"trust"receipt"to"the"extent"of"the"amount"owing"to"the"
entruster"or"as"appears"in"the"trust"receipt"or"to"return"
sold"or"disposed"of"in"accordance"with"the"terms"of"the"
trust" receipt" shall" constitute" the" crime" of" estafa,"
punishable" under" the" provisions" of" Article" Three"
hundred"and"fifteen,"paragraph"one"(b)"of"Act"Numbered"
Three"thousand"eight"hundred"and"fifteen,"as"amended,"
otherwise" known" as" the" Revised" Penal" Code." If" the"
violation" or" offense" is" committed" by" a" corporation,"
partnership," association" or" other" juridical" entities," the"
penalty" provided" for" in" this" Decree" 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."(sec.%13,%PD%115)"
"
When*entrustee*is*liable*for*Estafa*
 MERCANTILE TRUST RECEIPTS

Jurisprudence" provides" that" the"Trust" Receipts" Law"is" In"case"of"sale"I/we"agree"to"hand"the"proceeds"as"soon"

violated" whenever" the" entrustee" fails" to:" (1)" turn" over" as" received"to" the" BANK" to" apply" against" the" relative"
the"proceeds"of"the"sale"of"the"goods"(failure*to*remit)," acceptance"(as"described"above)"and"for"the"payment"of"
or"(2)"return"the"goods" covered"by"the"trust"receipts"if" any" other" indebtedness" of" mine/ours" to" ASIATRUST"
the" goods" are" not" sold" (failure* to* return)."" The" mere" DEVELOPMENT"BANK.""(Emphasis"supplied.)"
failure"to"account"or"return"gives"rise"to"the"crime"which" "
is"malum"prohibitum."There"is"no"requirement"to"prove" Clearly," petitioner" was" only" obligated" to" turn" over" the"
intent" to" defraud."(United% Coconut% Planters% Bank% v.% proceeds"as"soon"as"he"received"payment."However,"the"
Looyuko,%G.R.%No.%156337,%[September%28,%2007],%560%PHIL% evidence"reveals"that"petitioner"experienced"difficulties"
581S598)% in" collecting" payments" from" his" clients" for" the"
% communication" towers." Despite" this" fact," petitioner"
Goods"Were"Not"Received"in"Trust" endeavored"to"pay"his"indebtedness"to"Asiatrust,"which"
The" first" element" of"Estafa"under" Art." 315," par." 1" (b)" of" payments"during"the"period"from"September"1997"to"July"
the"RPC"requires"that"the"money,"goods"or"other"personal" 1998" total" approximately" PhP1,500,000." Thus," absent"
property"must"be"received"by"the"offender"in"trust"or"on" proof" that" the" proceeds" have" been" actually" and" fully"
commission," or" for" administration," or" under" any" other" received" by" petitioner," his" obligation" to" turn" over" the"
obligation" involving" the" duty" to" make" delivery" of," or" to" same"to"Asiatrust"never"arose."
return"it."But"as"we"already"discussed,"the"goods"received" %
by"petitioner"were"not"held"in"trust."They"were"also"not" %
intended"for"sale"and"neither"did"petitioner"have"the"duty" Penal* sanction* if* violation* is* committed* by* a*
to"return"them."They"were"only"intended"for"use"in"the" corporation,* partnership,* association* or* other*
fabrication"of"steel"communication"towers." juridical*entities*
" "
No"Misappropriation"of"Goods"or"Proceeds" Crisologo* v.* People,* G.R.* No.* 199481,* [December* 3,*
The" second" element" of"Estafa"requires" that" there" be" 2012]*
misappropriation" or" conversion" of" such" money" or" Section"13"of"the"Trust"Receipts"Law"explicitly"provides"
property" by" the" offender," or" denial" on" his" part" of" such" that" if" the" violation" or" offense" is" committed" by" a"
receipt." corporation," as" in" this" case," the" penalty" provided" for"
" under" the" law" shall" be" imposed" upon" the" directors,"
This"is"the"very"essence"of"Estafa"under"Art."315,"par."1" officers," employees" or" other" officials" or" person"
(b)."The"words""convert""and""misappropriated""connote" responsible"for"the"offense,"without"prejudice"to"the"civil"
an"act"of"using"or"disposing"of"another's"property"as"if"it" liabilities"arising"from"the"criminal"offense."
were" one's" own," or" of" devoting" it" to" a" purpose" or" use" "
different"from"that"agreed"upon."" In" this" case," petitioner" was" acquitted" of" the" charge" for"
" violation"of"the"Trust"Receipts"Law"in"relation"to"Article"
To" misappropriate" for" one's" own" use" includes" not" only" 315" 1" (b)" of" the" RPC." As" such," he" is" relieved" of" the"
conversion" to" one's" personal" advantage," but" also" every" corporate"criminal"liability"as"well"as"the"corresponding"
attempt"to"dispose"of"the"property"of"another"without"a" civil" liability" arising" therefrom." However," as" correctly"
right." found"by"the"RTC"and"the"CA,"he"may"still"be"held"liable"
" for" the" trust" receipts" and" L/C" transactions" he" had"
Ng*v.*People,*G.R.*No.*173905,*[April*23,*2010]* entered"into"in"behalf"of"Novachem."
Petitioner"argues"that"there"was"no"misappropriation"or" "
conversion" on" his" part," because" his" liability" for" the" Settled" is" the" rule" that" debts" incurred" by" directors,"
amount"of"the"goods"subject"of"the"trust"receipts"arises" officers," and" employees" acting" as" corporate" agents" are"
and" becomes" due"only"upon" receipt" of" the" proceeds" of" not" their" direct" liability" but" of" the" corporation" they"
the"sale"and"not"prior"to"the"receipt"of"the"full"price"of"the" represent,"except"if"they"contractually"agree/stipulate"or"
goods." assume" to" be" personally" liable" for" the" corporation's"
" debts,"as"in"this"case."
Petitioner" is" correct." Thus," assuming"arguendo"that" the" "
provisions" of"PD" 115"apply," petitioner" is" not" liable" The"RTC"and"the"CA"adjudged"petitioner"personally"and"
for"Estafa" because" Sec." 13" of"PD" 115"provides" that" an" solidarily" liable" with" Novachem" for" the" obligations"
entrustee"is"only"liable"for"Estafa"when"he"fails""to"turn" secured"by"the"subject"trust"receipts"based"on"the"finding"
over"the"proceeds"of"the"sale"of"the"goods"."."."covered"by" that" he" signed" the" guarantee" clauses" therein" in" his"
a"trust"receipt"to"the"extent"of"the"amount"owing"to"the" personal" capacity" and" even" waived" the" benefit" of"
entruster" or" as" appears" in" the" trust" receipt" ." ." ."in" excussion."However,"a"review"of"the"records"shows"that"
accordance"with"the"terms"of"the"trust"receipt."" petitioner"signed"only"the"guarantee"clauses"of"the"Trust"
" Receipt" dated" May" 24," 1989"and" the" corresponding"
The" trust" receipt" entered" into" between" Asiatrust" and" Application" and" Agreement" for" Commercial" Letter" of"
petitioner"states:" Credit" No." L/C" No." 89/0301."" With" respect" to" the" Trust"
" Receipt"dated"August"31,"1989"and"Irrevocable"Letter"of"
Credit"No." L/C" No." DOMR33041" issued" to" SMC" for" the"

ToTheBarAndBeyond2018 dennisaranabril !
 MERCANTILE TRUST RECEIPTS
glass" containers," the" second" pages" of" these" documents"
that" would" have" reflected" the" guarantee" clauses" were"
missing"and"did"not"form"part"of"the"prosecution's"formal"
offer" of" evidence." In" relation" thereto," Chinabank"
stipulated"before" the" CA" that" the" second" page" of" the"
August"31,"1989"Trust"Receipt"attached"to"the"complaint"
before"the"court"a"quo"would"serve"as"the"missing"page."
A" perusal" of" the" said" page," however," reveals" that" the"
same"does"not"bear"the"signature"of"the"petitioner"in"the"
guarantee"clause."Hence,"it"was"error"for"the"CA"to"hold"
petitioner" likewise" liable" for" the" obligation" secured" by"
the"said"trust"receipt"(L/C"No."DOMR33041)."Neither"was"
sufficient" evidence" presented" to" prove" that" petitioner"
acted"in"bad"faith"or"with"gross"negligence"as"regards"the"
transaction"that"would"have"held"him"civilly"liable"for"his"
actions"in"his"capacity"as"President"of"Novachem."
" receipt."."."."Furthermore,"any"doubt"as"to"the"import"or"
When*return*of*the*goods*is*not*possible*thus*not*a*
trust*receipt,*not*liable*for*estafa**
Nonetheless,"when"both"parties"enter"into"an"agreement"
knowing"fully"well"that"the"return"of"the"goods"subject"of"
the"trust"receipt"is"not"possible"even"without"any"fault"on"
the"part"of"the"trustee,"it"is"not"a"trust"receipt"transaction"
penalized"under"Sec."13"of"PD"115"in"relation"to"Art."315,"
par." 1" (b)" of" the"RPC," as" the" only" obligation" actually"
agreed" upon" by" the" parties" would" be" the" return" of" the"
proceeds" of" the" sale" transaction."This" transaction"
becomes"a"mere"loan,"where"the"borrower"is"obligated"to"
pay" the" bank" the" amount" spent" for" the" purchase" of" the"
goods." (Hur% Tin% Yang% v.% People,% G.R.% No.% 195117%
(Resolution),%[August%14,%2013])"
" While" the" Court" agrees" that" mere" violations" of" the"
" warranties" and" representations" contained" in" the" credit"
Corporate* offices* signing* jointly* and* severally* with*
the* corporation* in* a* trust* receipt* contract* is* liable*
only*as*guarantor*
" to"the"violation"of"the"trust"receipts"agreements."
Tupaz* IV* v.* Court* of* Appeals,* G.R.* No.* 145578,*
[November*18,*2005]*
" the"obligation"to"deliver"to"the"entruster"the"price"of"the"
In"Prudential"Bank"v."Intermediate"Appellate"Court,"the"
Court" interpreted" a" substantially" identical" clause" in" a"
trust" receipt" signed" by" a" corporate" officer" who" bound"
himself"personally"liable"for"the"corporation's"obligation."
The"petitioner"in"that"case"contended"that"the"stipulation"
"we"jointly"and"severally"agree"and"undertake""rendered"
the" corporate" officer" solidarily" liable" with" the"
corporation." We" dismissed" this" claim" and" held" the"
corporate" officer" liable" as" guarantor" only." The" Court"
further" ruled" that" had" there" been" more" than" one"
signatories" to" the" trust" receipt," the" solidary" liability"
would"exist"between"the"guarantors."We"held:"Petitioner"
[Prudential" Bank]" insists" that" by" virtue" of" the" clear"
wording" of" the" ." ." ." clause" "." ." ." we" jointly" and" severally"
agree"and"undertake".".".,""and"the"concluding"sentence"on"
exhaustion," [respondent]" Chi's" liability" therein" is"
solidary."."." ."Our" ."."." reading"of" the"questioned" solidary"
guaranty"clause"yields"no"other"conclusion"than"that"the"
obligation" of" Chi" is" only" that" of" a" guarantor." This" is"
further" bolstered" by" the" last" sentence" which" speaks" of"
waiver"of"exhaustion,"which,"nevertheless,"is"ineffective"
ToTheBarAndBeyond2018 dennisaranabril !
in"this"case"because"the"space"therein"for"the"party"whose"
property"may"not"be"exhausted"was"not"filled"up."Under"
Article"2058"of"the"Civil"Code,"the"defense"of"exhaustion"
(excussion)"may"be"raised"by"a"guarantor"before"he"may"
be" held" liable" for" the" obligation." Petitioner" likewise"
admits" that" the" questioned" provision" is" a" solidary"
guaranty"clause,"thereby"clearly"distinguishing"it"from"a"
contract"of"surety."It,"however,"described"the"guaranty"as"
solidary"between"the"guarantors;"this"would"have"been"
correct" if" two" (2)" guarantors" had" signed" it." The" clause"
"we"jointly"and"severally"agree"and"undertake""refers"to"
the"undertaking"of"the"two"(2)"parties"who"are"to"sign"it"
or" to" the" liability" existing" between" themselves." It" does"
not"refer"to"the"undertaking"between"either"one"or"both"
of"them"on"the"one"hand"and"the"petitioner"on"the"other"
with" respect" to" the" liability" described" under" the" trust"
true" intent" of" the" solidary" guaranty" clause" should" be"
resolved" against" the" petitioner." The" trust" receipt,"
together"with"the"questioned"solidary"guaranty"clause,"is"
on"a"form"drafted"and"prepared"solely"by"the"petitioner;"
Chi's"participation"therein"is"limited"to"the"affixing"of"his"
signature"thereon."It"is,"therefore,"a"contract"of"adhesion;"
as" such," it" must" be" strictly" construed" against" the" party"
responsible"for"its"preparation."
*
Civil*fraud*
*
Security*Bank*Corp.*v.*Great*Wall*Commercial*Press*
Co.,*Inc.,*G.R.*No.*219345,*[January*30,*2017]*
*
agreement"and"the"continuing"suretyship"agreement"do"
not" constitute" fraud" under" Section" 1" (d)" of" Rule" 57" of"
the"Rules"of"Court,"the"same"cannot"be"said"with"respect"
"
A"trust"receipt"transaction"is"one"where"the"entrustee"has"
sale," or" if" the" merchandise" is" not" sold," to" return" the"
merchandise"to"the"entruster."There"are,"therefore,"two"
obligations"in"a"trust"receipt"transaction:"the"first"refers"
to" money" received" under" the" obligation" involving" the"
duty" to" turn" it" over"(entregarla)"to" the" owner" of" the"
merchandise" sold," while" the" second" refers" to" the"
merchandise" received" under" the" obligation" to" "return""
it(devolvera)"to" the" owner." The" obligations" under" the"
trust"receipts"are"governed"by"a"special"law,"Presidential"
Decree" (P.D.)" No." 115," and" nonRcompliance" have"
particular"legal"consequences.*
*
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"asestafa"under"Article"315"(1)"
of"the"Revised"Penal"Code,"without"need"of"proving"intent"
to"defraud.""The"offense"punished"under"P.D."No."115"is"in"
the"nature"of"malum"prohibitum."Mere"failure"to"deliver"
the" proceeds" of" the" sale" or" the" goods," if" not" sold,"
 MERCANTILE TRUST RECEIPTS

constitutes"a"criminal"offense"that"causes"prejudice"not" goods"were"not"being"held"for"sale"but"were"to"be"used"
only"to"another,"but"more"to"the"public"interest."* for" the" fabrication" of" steel" communication" towers" in"
* accordance"with"his"contracts"with"Islacom,"Smart,"and"
The"present"case,"however,"only"deals"with"the"civil"fraud" Infocom."In" these" contracts," he" was" commissioned" to"
in"the"nonRcompliance"with"the"trust"receipts"to"warrant" build,"out"of"the"materials"received,"steel"communication"
the"issuance"of"a"writ"of"preliminary"attached."A"fortiori," towers,"not"to"sell"them."
in" a" civil" case" involving" a" trust" receipt," the" entrustee's" "
failure" to" comply" with" its" obligations" under" the" trust" The" true" nature" of" a" trust" receipt" transaction" can" be"
receipt"constitute"as"civil"fraud"provided"that"it"is"alleged," found" in" the" "whereas"" clause" of"PD" 115"which" states"
and" substantiated" with" specificity," in" the" complaint," its" that" a" trust" receipt" is" to" be" utilized" "as" a" convenient"
attachments"and"supporting"evidence.* business"device"to"assist"importers"and"merchants"solve"
* their" financing" problems."" Obviously," the" State," in"
Security" Bank's" complaint" stated" that" Great" Wall," enacting"the"law,"sought"to"find"a"way"to"assist"importers"
through" its" Vice" President" Fredino" Cheng" Atienza," and"merchants"in"their"financing"in"order"to"encourage"
executed"various"trust"receipt"agreements"in"relation"to" commerce"in"the"Philippines."
its" loan" transactions." The" trust" receipts" stated" that" in" "
consideration" of" the" delivery" to" the" entrustee" (Great" As" stressed" in"Samo" v." People,"14"a" trust" receipt" is"
Wall)"of"the"possession"of"the"goods,"it"obligates"itself"to" considered" a" security" transaction" intended" to" aid" in"
hold"in"trust"for"the"bank"the"goods,"to"sell"the"goods"for" financing"importers"and"retail"dealers"who"do"not"have"
the"benefit"of"the"bank,"to"turn"over"the"proceeds"of"the" sufficient"funds"or"resources"to"finance"the"importation"
sale"to"the"bank,"and"to"return"the"goods"to"the"bank"in" or"purchase"of"merchandise,"and"who"may"not"be"able"to"
the" event" of" nonRsale." By" signing" the" trust" receipt" acquire"credit"except"through"utilization,"as"collateral,"of"
agreements," respondents" fully" acknowledged" the" the" merchandise" imported" or" purchased." Similarly,"
consequences"under"the"law"once"they"failed"to"abide"by" American"Jurisprudence"demonstrates"that"trust"receipt"
their" obligations" therein." The" said" trust" receipt" transactions" always" refer" to" a" method" of" "financing"
agreements"were"attached"to"the"complaint.* importations" or" financing" sales.""15"The" principle" is" of"
* course" not" limited" in" its" application" to" financing"
Upon"the"maturity"date,"however,"respondents"failed"to" importations,"since"the"principle"is"equally"applicable"to"
deliver" the" proceeds" of" the" sale" to" Security" Bank" or" to" domestic" transactions."16"Regardless" of" whether" the"
return"the"goods"in"case"of"nonRsale."Security"Bank"sent"a" transaction"is"foreign"or"domestic,"it"is"important"to"note"
final" demand" letter" to" respondents," which" was" also" that" the" transactions" discussed" in" relation" to" trust"
attached" to" the" complaint," but" it" was" unheeded." receipts"mainly"involved"sales.""
Curiously," in" their" letter," dated" January" 23," 2013," Following"the"precept"of"the"law,"such"transactions"affect"
respondents" did" not" explain" their" reason" for" nonR situations" wherein" the" entruster," who" owns" or" holds"
compliance" with" their" obligations" under" the" trust" absolute"title"or"security"interests"over"specified"goods,"
receipts;"rather,"they"simply"stated"that"Great"Wall"was" documents"or"instruments,"releases"the"subject"goods"to"
having" a" sudden" drop" of" its" income." Such" the" possession" of" the" entrustee." The" release" of" such"
unsubstantiated" excuse" cannot" vindicate" respondents" goods"to"the"entrustee"is"conditioned"upon"his"execution"
from" their" failure" to" fulfill" their" duties" under" the" trust" and"delivery"to"the"entruster"of"a"trust"receipt"wherein"
receipts.* the" former" binds" himself" to" hold" the" specific" goods,"
* documents" or" instruments" in" trust" for" the" entruster"
The"Court"is"of"the"view"that"Security"Bank's"allegations" and"to"sell"or"otherwise"dispose"of"the"goods,"documents"
of" violation" of" the" trust" receipts" in" its" complaint" was" or" instruments" with" the" obligation" to" turn" over" to" the"
specific" and" sufficient" to" assert" fraud" on" the" part" of" entruster"the"proceeds"to"the"extent"of"the"amount"owing"
respondents."These"allegations"were"duly"substantiated" to"the"entruster"or"the"goods,"documents"or"instruments"
by"the"attachments"thereto"and"the"testimony"of"Security" themselves"if"they"are"unsold."Similarly,"we"held"in"State"
Bank's"witness.* Investment" House" v." CA," et" al." that" the" entruster" is"
" entitled" "only" to" the" proceeds" derived" from" the" sale" of"
Entrustee*bears*the*Risk*of*Loss* goods"released"under"a"trust"receipt"to"the"entrustee.""
The"risk"of"loss"shall"be"borne"by"the"entrustee."Loss"of" "
goods,"documents"or"instruments"which"are"the"subject" "
of"a"trust"receipt,"pending"their"disposition,"irrespective" Entruster*
of"whether"or"not"it"was"due"to"the"fault"or"negligence"of" "
the" entrustee," shall" not" extinguish" his" obligation" to" the" Entruster,*definition*
entruster"for"the"value"thereof."(sec.%10,%PD%115)" the" person" holding" title" over" the" goods," documents," or"
" instruments" subject" of" a" trust" receipt" transaction," and"
When*goods*are*not*held*for*sale* any"successor"in"interest"of"such"person"
" "
Ng*v.*People,*G.R.*No.*173905,*[April*23,*2010]* Rights*of*an*entruster*(sec.*7,*PD*115)*
It"must"be"remembered"that"petitioner"was"transparent"
to" Asiatrust" from" the" very" beginning" that" the" subject"

ToTheBarAndBeyond2018 dennisaranabril !
 MERCANTILE TRUST RECEIPTS

The"entruster"shall"be"entitled"to"the"proceeds"from"the" The"proceeds"of"any"such"sale,"whether"public"or"private,"
sale" of" the" goods," documents" or" instruments" released" shall"be"applied:*
under"a"trust"receipt"to"the"entrustee"to"the"extent"of"the" a.! to"the"payment"of"the"expenses"thereof;""
amount"owed"to"the"entruster"or"as"appears"in"the"trust" b.! to" the" payment" of" the" expenses" of" reRtaking,"
receipt;" or" to" the" return" of" the" goods," documents" or" keeping" and" storing" the" goods," documents" or"
instruments"in"case"of"nonRsale;"and"to"the"enforcement" instruments;""
of"all"other"rights"conferred"on"him"in"the"trust"receipt," c.! to" the" satisfaction" of" the" entrustee’s"
provided"these"are"not"contrary"to"the"provisions"of"the" indebtedness" to" the" entruster." The" entrustee"
document."A" violation" of" any" of" these" undertakings" shall"receive"any"surplus"but"shall"be"liable"to"
constitutes"estafa"defined"under"Article"315"(1)"(b)"of"the" the"entruster"for"any"deficiency.*
Revised" Penal" Code," as" provided" by" Section" 13" of" If"there"is"an"excess"from"the"sale,"the"entrustee"shall"be"
Presidential"Decree"No."115" entitled"to"the"surplus"of"the"sale."*
|||"(Metropolitan% Bank% &% Trust% Co.% v.% Gonzales,% G.R.% No.% "
180165,%[April%7,%2009],%602%PHIL%1000S1015)% Entruster*not*responsible*on*sale*by*entrustee*
" The" entruster" holding" a" security" interest" shall" not,"
Validity* of* Entruster’s* security* interest* as* against* merely" by" virtue" of" such" interest" or" having" given" the"
creditors* entrustee"liberty"of"sale"or"other"disposition"of"the"goods,"
The"entruster's"security"interest"in"goods,"documents,"or" documents"or"instruments"under"the"terms"of"the"trust"
instruments" pursuant" to" the" written" terms" of" a" trust" receipt" transaction" be" responsible" as" principal" or" as"
receipt" shall" be" valid" as" against" all" creditors" of" the" vendor" under" any" sale" or" contract" to" sell" made" by" the"
entrustee"for"the"duration"of"the"trust"receipt"agreement." entrustee."(sec.%8,%PD%115)"
(sec.%12,%PD%115)* "
* Rights*of*purchaser*for*value*and*in*good*faith*
Remedies*of*an*Entruster* Any"purchaser"of"goods"from"an"entrustee"with"right"to"
The"entruster"may"cancel"the"trust"and"take"possession" sell," or" of" documents" or" instruments" through" their"
of" the" goods," documents" or" instruments" subject" of" the" customary" form" of" transfer," who" buys" the" goods,"
trust"or"of"the"proceeds"realized"therefrom"at"any"time" documents," or" instruments" for" value" and" in" good" faith"
upon" default" or" failure" of" the" entrustee" to" comply" with" from" the" entrustee," acquires" said" goods," documents" or"
any"of"the"terms"and"conditions"of"the"trust"receipt"or"any" instruments" free" from" the" entruster's" security" interest."
other" agreement" between" the" entruster" and" the" (sec.%11,%PD%115)*
entrustee,"and"the"entruster"in"possession"of"the"goods,"
documents"or"instruments"may,"on"or"after"default,"give"
notice"to"the"entrustee"of"the"intention"to"sell,"and"may,"
not" less" than" five" days" after" serving" or" sending" of" such"
notice," sell" the" goods," documents" or" instruments" at"
public"or"private"sale,"and"the"entruster"may,"at"a"public"
sale,"become"a"purchaser."The"proceeds"of"any"such"sale,"
whether" public" or" private," shall" be" applied" (a)" to" the"
payment"of"the"expenses"thereof;"(b)"to"the"payment"of"
the"expenses"of"reRtaking,"keeping"and"storing"the"goods,"
documents"or"instruments;"(c)"to"the"satisfaction"of"the"
entrustee's"indebtedness"to"the"entruster."The"entrustee"
shall" receive" any" surplus" but" shall" be" liable" to" the"
entruster" for" any" deficiency." Notice" of" sale" shall" be"
deemed" sufficiently" given" if" in" writing," and" either"
personally"served"on"the"entrustee"or"sent"by"postRpaid"
ordinary" mail" to" the" entrustee's" last" known" business"
address."(sec.%7,%PD%115)"
"
Remedies*of*entruster*when*there*is*a*breach*of*the*
trust*receipt*contract*
•! He"may"demand"for"a"return"of"the"goods;"
•! He"may"sell"the"goods"in"a"public"or"private"sale"
and"apply"the"proceeds"to"the"amount"covered"
by"the"trust"receipt;"or"
•! If"the"proceeds"are"still"insufficient,"he"may"still"
demand"for"the"deficiency"from"the"entrustee."
"
Proceeds*of*the*sale,*where*applied*

ToTheBarAndBeyond2018 dennisaranabril !