Colinares v CA G.R. No. 90828.

September
5, 2000
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The ownership of the merchandise continues to be vested in the person who had advanced
payment until he has been paid in full, or if the merchandise has already been sold, the proceeds
of the sale should be turned over to him by the importer or by his representative or successor in
interest.

Facts: Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a
consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the latter’s
convent at Camaman-an, Cagayan de Oro City. Colinares applied for a commercial letter of
credit with the Philippine Banking Corporation, Cagayan de Oro City branch (hereafter PBC) in
favor of CM Builders Centre. PBC approved the letter of credit for P22,389.80 to cover the full
invoice value of the goods. Petitioners signed a pro-forma trust receipt as security.

PBC debited P6,720 from Petitioners’ marginal deposit as partial payment of the loan. After the
initial payment, the spouses defaulted. PBC wrote to Petitioners demanding that the amount be
paid within seven days from notice. Instead of complying with PBC’s demand, Veloso confessed
that they lost P19,195.83 in the Carmelite Monastery Project and requested for a grace period of
until 15 June 1980 to settle the account. Colinares proposed that the terms of payment of the loan
be modified P2,000 on or before 3 December 1980, and P1,000 per month . Pending approval of
the proposal, Petitioners paid P1,000 to PBC on 4 December 1980, and thereafter P500 on 11
February 1981, 16 March 1981, and 20 April 1981. Concurrently with the separate demand for
attorney’s fees by PBC’s legal counsel, PBC continued to demand payment of the balance. On 14
January 1983, Petitioners were charged with the violation of P.D. No. 115 (Trust Receipts Law)
in relation to Article 315 of the Revised Penal Code

During trial, petitioner Veloso insisted that the transaction was a “clean loan” as per verbal
guarantee of Cayo Garcia Tuiza, PBC’s former manager. He and petitioner Colinares signed the
documents without reading the fine print, only learning of the trust receipt implication much later.
When he brought this to the attention of PBC, Mr. Tuiza assured him that the trust receipt was a
mere formality. The Trust Receipts Law does not seek to enforce payment of the loan, rather it
punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice
of another regardless of whether the latter is the owner. Here, it is crystal clear that on the part of
Petitioners there was neither dishonesty nor abuse of confidence in the handling of money to the
prejudice of PBC. Petitioners continually endeavored to meet their obligations, as shown by
several receipts issued by PBC acknowledging payment of the loan.

Issue: Whether or not the transaction of Colinares falls within the ambit of the Law on Trust
Receipt
Held: Colinares received the merchandise from CM Builders Centre on 30 October 1979. On that
day, ownership over the merchandise was already transferred to Petitioners who were to use the
materials for their construction project. It was only a day later, 31 October 1979, that they went to
the bank to apply for a loan to pay for the merchandise. This situation belies what normally obtains
in a pure trust receipt transaction where goods are owned by the bank and only released to the
importer in trust subsequent to the grant of the loan.

The bank acquires a “security interest” in the goods as holder of a security title for the advances it
had made to the entrustee. The ownership of the merchandise continues to be vested in the person
who had advanced payment until he has been paid in full, or if the merchandise has already been
sold, the proceeds of the sale should be turned over to him by the importer or by his representative
or successor in interest. To secure that the bank shall be paid, it takes full title to the goods at the
very beginning and continues to hold that title as his indispensable security until the goods are sold
and the vendee is called upon to pay for them; hence, the importer has never owned the goods and
is not able to deliver possession. In a certain manner, trust receipts partake of the nature of a
conditional sale where the importer becomes absolute owner of the imported merchandise as soon
as he has paid its price. There are two possible situations in a trust receipt transaction. The first is
covered by the provision which refers to money received under the obligation involving the duty
to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the
provision which refers to merchandise received under the obligation to “return” it (devolvera) to
the owner. Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by
the trust receipt to the entruster or to return said goods if they were not disposed of in accordance
with the terms of the trust receipt shall be punishable as estafa under Article 315 (1) of the Revised
Penal Code, without need of proving intent to defraud.

Philippine Nacional Bank v Pineda G.R. No.

L-46658 13 May 1991
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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.

Facts: In 1963, Ignacio Arroyo, married to Lourdes Tuason Arroyo (the Arroyo Spouses), obtained
a loan of P580,000.00 from petitioner bank to purchase 60% of the subscribed capital stock, and
thereby acquire the controlling interest of private respondent Tayabas Cement Company, Inc.
(TCC). 2 As security for said loan, the spouses Arroyo executed a real estate mortgage over a parcel
of land covered by Transfer Certificate of Title No. 55323 of the Register of Deeds of Quezon City
known as the La Vista property. Thereafter, TCC filed with petitioner bank an application and
agreement for the establishment of an eight (8) year deferred letter of credit (L/C) for
$7,000,000.00 in favor of Toyo Menka Kaisha, Ltd. of Tokyo, Japan, to cover the importation of
a cement plant machinery and equipment.

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 the
corresponding drawings against the L/C as scheduled. TCC, however, failed to remit and/or pay
the corresponding amount covered by the drawings. Thus, on May 19, 1968, pursuant to the trust
receipt agreement, In the meantime, the personal accounts of the spouses Arroyo, which included
another loan of P160,000.00 secured by a real estate mortgage over parcels of agricultural land
known as Hacienda Bacon located in Isabela, Negros Occidental, had likewise 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.

Issue: Whether or not the subsequent agreement extinguished the criminal and civil liability of
Pineda

Held: PNB’s possession of the subject machinery and equipment being precisely as a form of
security for the advances given to private respondent 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 has foreclosed on said securities and sold the same, and applied the proceeds
thereof to private respondents’ loan obligation.—We rule for the petitioner PNB. It must be
remembered that PNB took possession of the imported cement plant machinery and equipment
pursuant to the trust receipt agreement executed by and between PNB and TCC giving the former
the unqualified right to the possession and disposal of all property shipped under the Letter of
Credit until such time as all the liabilities and obligations under said Letter had been discharged.
In the case of Vintola vs. Insular Bank of Asia and America wherein.

The foregoing submission overlooks the nature and mercantile usage of the transaction involved.
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. Where there is no such transfer of ownership in favor of the creditor, there is no dation in
payment.either 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
Spouses Vintola v Insular Bank of America
(IBAA) G.R. No. 73271 May 29, 1987
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The entruster does not become the real owner of the goods but merely the holder of a security
title for the advances made under the Letter of Credit. 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.

Facts: On August 20, 1975 the spouses Tirso and Loreta Vintola (VINTOLAS), doing business
under the name and style “Dax Kin International,” were granted a domestic letter of credit by the
Insular Bank of Asia and America (IBAA), Cebu City. in the amount of P40,000.00. 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. In consideration
thereof, the VINTOLAS, jointly and severally, agreed to pay the bank “at maturity, in Philippine
currency, the equivalent, of the aforementioned amount or such portion thereof as may be drawn
or paid, upon the faith of the said credit together with the usual charges. On the same day, having
received from Stalin Tan the puka and olive shells worth P40,000.00, the VINTOLAS executed a
Trust Receipt agreement with IBAA, Cebu City. 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 as soon as received to (IBAA) the due
date indicated in the document was October 19, 1975. Having defaulted on their obligation, IBAA
demanded payment from the VINTOLAS in a letter dated January 1, 1976. 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. The
VINTOLAS rest their present appeal on the principal allegation 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.

Issue: Whether or not Vintolas in their criminal liability are absolved by settlement of their liability
to IBAA

Held: Entruster does not become the real owner of the goods but merely the holder of a security
title for the advances made under the Letter of Credit—Contrary to the allegation of the
VINTOLAS, 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. Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot
justifiably claim that because they have surrendered the goods to IBAA and subsequently
deposited them in the custody of the court, they are absolutely relieved of their obligation to pay
their loan because of their inability to dispose of the goods. The fact that they were unable to sell
the seashells in question does not affect IBAA’s right to recover the advances it had made under
the Letter of Credit.

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.” This amounts to a reservation of
the civil action in IBAA’s favor, for the Court would not have dwelt on a civil liability that it had
intended to extinguish by the same decision. 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.

Metrobank v Spouses Tonda G.R. No.

134436. August 16, 2000
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Any compromise relating to the civil liability arising from PD 115 does not automatically
terminate the criminal proceeding against or extinguish the criminal liability of the malefactor.

Facts: Spouses Joaquin G. Tonda and Ma. Cristina U. Tonda, hereinafter referred to as the
TONDA, applied for and were granted commercial letters of credit by petitioner Metropolitan
Bank and Trust Company, hereinafter referred to as METROBANK for a period of eight (8)
months beginning June 14, 1990 to February 1, 1991 in connection with the importation of raw
textile materials to be used in the manufacturing of garments. The TONDA 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 with a principal value of P2,803,000.00 were withdrawn by HTAC under the 11
trust receipts executed by the TONDA. Due to their failure to settle their obligations under the
trust receipts upon maturity, METROBANK through counsel, sent a letter dated August 10, 1992,
making its final demand upon the TONDA to settle their past due TR/LC accounts on or before
August 15, 1992. They were informed that by said date, the obligations would amount to
P4,870,499.13. Despite repeated demands therefor, the TONDA failed to comply with their
obligations stated in the trust receipts agreements, i.e. the TONDA failed to account to
METROBANK the goods and/or proceeds of sale of the merchandise, subject of the trust receipts.
The RTC convicted the spouses. However, the Court of Appeals citing the case of Tan Tiong Tick
vs. American Apothecaries implied that in making the deposit, the TONDA are entitled to set off,
by way of compensation, their obligations to METROBANK on their trust receipt liability.

Issue: Whether or not the Spouses Tonda are liable for Estafa notwithstanding that the

Held: Compensation is not proper when one of the debts consists in civil liability arising from a
penal offense, the raison d’etre for this being 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.—The handwritten note by the METROBANK officer
acknowledging receipt of the checks amounting to P2.8 Million made no reference to the TONDA’
trust receipt obligations, and we cannot presume that it was anything more than an ordinary bank
deposit. The Court of Appeals citing the case of Tan Tiong Tick vs. American Apothecaries
implied that in making the deposit, the TONDA are entitled to set off, by way of compensation,
their obligations to METROBANK. However, 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.”

Any 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.
Reliance on the negotiations for the settlement of the trust receipts obligations between the
TONDA and METROBANK is simply misplaced. The negotiations pertain and affect only the
civil aspect of the case but does 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 TONDA to the end of extinguishing any incipient criminal culpability
arising therefrom.

The mere failure to deliver the proceeds of the sale or the goods if not sold, constitutes a criminal
offense that causes prejudice not only to another, but more to the public interest.—The finding that
there was no fraud and deceit is likewise misplaced considering that the offense is punished as a
malum prohibitum regardless of the existence of intent or malice. A mere failure to deliver the
proceeds of the sale or the goods if not sold, constitutes a criminal offense that causes prejudice
not only to another, but more to the public interest.
 DIVISION
[ GR No. 112592, Dec 19, 1995 ]
PRUDENTIAL BANK v. NLRC +
DECISION

BELLOSILLO, J.:

This petition for certiorari impugns the Resolutions of the National Labor Relations Commission
(NLRC) dated 18 August and 12 November 1993 in NLRC Cases Nos. RAB-III-580-82
(Orquillo v. Interasia Container Industries, Inc.), RAB-III-3-585-82, (Uchi v. Interasia
Container Industries, Inc.) and RAB-III-08-0049-87, (ALU-Interasia Container Industries, Inc.
v. Interasia Container Industries, Inc.) dismissing the appeal of petitioner from the order of the
Labor Arbiter denying its third-party claim to the personal properties subject of levy on
execution based on its trust receipts.

The records show that Interasia Container Industries, Inc. (INTERASIA), was embroiled in three
(3) labor cases which were eventually resolved against it. Thus in NLRC Cases Nos. RAB-III-
03-580-82 and RAB-III-03-585-82 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 in the total sum of P126,788.30 occasioned by the closure
of operations of INTERASIA. In RAB-03-08-0049-87 the Labor Arbiter declared the closure or
shutdown of operations effected by INTERASIA as illegal and awarded to complainants the sum
of P1,188,466.32 as wage differentials, separation pay and other benefits.

With the finality of the three (3) decisions, writs of execution were issued. The Sheriff levied on
execution personal properties located in the factory of INTERASIA thus - "For Case 580 and
585: One (1) lot - plastic sacks (scrap, one (1) lot - sling sacks, one (1) lot - plastic in spools;
and, For Case 0049: Five hundred (500) bags - plastic resins, one (1) lot - plastic resins
sweaping (scrap) and one (1) lot - all plastic linings."

Petitioner filed an Affidavit of Third-Party Claim asserting ownership over the seized properties
on the strength of trust receipts executed by INTERASIA in its favor. As a result, the Sheriff
suspended the public auction sale. But on 18 September 1992 the Labor Arbiter denied the claim
of petitioner and directed the Sheriff to proceed with the levy of the properties. Petitioner then
filed separate appeals to the NLRC.

On 14 October 1992 the Sheriff posted Notices of Levy and Sale of the seized properties on 21
October 1992. However, no bidder appeared on the scheduled date hence the public auction sale
was postponed to 5 November 1992. At the rescheduled date the Sheriff declared Angel
Peliglorio the highest bidder with an offer of P128,000.00 on the properties levied in Cases Nos.
580 (RAB-III-580-82) and 585 (RAB-III-3-585-82), and P1,191,110.00 in Case No. 0049 (RAB-
111-08-0049-87).

On 12 December 1992 the Labor Arbiter ordered the release of the properties to Peliglorio
prompting INTERASIA to file a Motion to Set Aside and/or Declare Public Auction Sale Null
and Void Ab Initio for non-compliance with legal requisites. On 23 December 1992 the Labor
Arbiter denied the motion and directed the Sheriff to break open the plant of INTERASIA in
order that Peliglorio could enter and take possession of the auctioned properties. INTERASIA
moved to reconsider the order.

On 12 January 1993 the Labor Arbiter inhibited himself from the case because of
INTERASIAS's accusation of partiality. The records were then forwarded to the NLRC. On the
other hand, petitioner filed a Third-Party Claimant's Appeal/Memorandum. On 18 August 1993
the NLRC dismissed petitioner's appeal as well as INTERASIA's Motion for Reconsideration of
the resolution dated 23 December 1992. INTERASIA and petitioner separately moved to
reconsider the ruling but on 12 November 1993 their motions were denied.[1] Hence petitioner
brought this present recourse raising questions on the validity not only of the NLRC resolutions
of 18 August and 12 November 1993 but also of the public auction sale.[2]

Petitioner rails against the public auction of 5 November 1992 which was allegedly conducted
without notice and in a place other than the premises of INTERASIA as required by the Manual
of Instructions for Sheriffs. It also raises issue on the extent of its security title over the
properties subject of the levy on execution, submitting that 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. Petitioner differentiates a trust receipt, which is a security
for the payment of the obligations of the importer, from a real estate mortgage executed as
security for the payment of an obligation of a borrower. Petitioner argues that in the latter the
ownership of the mortgagor may not necessarily have any bearing on its acquisition, whereas in
the case of a trust receipt the acquisition of the goods by the borrower results from the advances
made by the bank. It concludes that the security title of the bank in a trust receipt must
necessarily be of the same or greater extent than the nature of the security arising from a real
estate mortgage. Petitioner maintains that it is a preferred claimant to the proceeds from the
foreclosure to the extent of its security title in the goods which are valued at P46,100,253.92
otherwise its security title will become useless.[3]

In their comment, private respondents support the findings of the NLRC. They submit that
petitioner's negligence to immediately assert its right to cancel the Trust Receipt Agreements,
upon INTERASIA's failure to comply with its obligation, is fatal to its claim.

For its part, the NLRC claims to rely on our pronouncement on trust receipts in Vintola v. Insular
Bank of Asia and America.[4] It justifies the dismissal of petitioner's third-party claim on the
ground that trust receipts are mere security transactions which do not vest upon petitioner any
title of ownership, and that although the Trust Receipt Agreements described petitioner as owner
of the goods, there was no showing that it canceled the trust receipts and took possession of the
goods.[5]

The petition is impressed with merit. We cannot subscribe to NLRC's simplistic interpretation of
trust receipt arrangements. In effect, it has reduced the Trust Receipt Agreements to a pure and
simple loan transaction. This perception was clearly dispelled in People v. Nitafan,[6] citing the
Vintola and Samo cases, where we explained the nature of a trust receipt thus
(A) trust receipt arrangement does not involve a simple loan transaction between a creditor and
debtor-importer. Apart from a loan feature, the trust receipt arrangement has a security feature
that is covered by the trust receipt itself. (Vintola v. Insular Bank of Asia and America, 150
SCRA 578 [1987]) That second feature is what provides the much needed financial assistance to
our traders in the importation or purchase of goods or merchandise through the use of those
goods or merchandise as collateral for the advancements made by a bank (Samo v. People, 115
Phil 346 [1962]). 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.

Reliance cannot be placed upon the Vintola case as an excuse for the dismissal of petitioner's
claim. For in that case we sustained, rather than frustrated, the claim of the bank for payment of
the advances it had made to the purchaser of the goods, notwithstanding that it was not the
factual owner thereof and that petitioners had already surrendered the goods to it due to their
inability to sell them. We stated that the fact that the Vintolas were unable to sell the seashells in
question did not affect IBAA's right to recover the advances it had made under the loan covered
by the Letter of Credit, with the trust receipt as a security for the loan. Thus, except for our
disquisition on the nature of a trust receipt as restated in Nitafan, Vintola hardly has any bearing
on the case at bench since the issue here involves the effect and enforcement of the security
aspect whereas the former case deals with the loan aspect of a trust receipt transaction.
Apparently, the NLRC was confused about the nature of a trust receipt, specifically the security
aspect thereof.

The mechanics and effects flowing from a trust receipt transaction, particularly the importance
given to the security held by the entruster, i.e., the person holding title over the goods, were fully
discussed in earlier decisions, as follows

By this arrangement a banker advances money to an intending importer, and thereby lends the
aid of capital, of credit, or of business facilities and agencies abroad, to the enterprise of foreign
commerce. Much of this trade could hardly be carried on by any other means, and therefore it is
of the first importance that the fundamental factor in the transaction, the banker's advance of
money and credit, should receive the amplest protection. Accordingly, in order to secure that the
banker shall be repaid at the critical point - that is, when the imported goods finally reach the
hands of the intended vendee - the banker takes the full title to the goods at the very beginning;
he takes it as soon as the goods are bought and settled for by his payments or acceptances in the
foreign country, and he continues to hold that title as his indispensable security until the goods
are sold in the United States and the vendee is called upon to pay for them. This security is not
an ordinary pledge by the importer to the banker, for the importer has never owned the goods,
and moreover, he is not able to deliver the possession; but the security is the complete title vested
originally in the bankers, and this characteristic of the transaction has again and again been
recognized and protected by the courts. Of course, the title is at bottom a security title, as it has
sometimes been called, and the banker is always under the obligation to reconvey; but only after
his advances have been fully repaid and after the importer has fulfilled the other terms of the
contract (underscoring supplied).[7]

x x x x [I]n a certain manner, (trust receipt contracts) partake of the nature of a conditional sale
as provided by the Chattel Mortgage Law, that is, the importer becomes absolute owner of the
imported merchandise as soon as he has paid its price. The ownership of the merchandise
continues to be vested in the owner thereof or in the person who has 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
(underscoring supplied).[8]

More importantly, owing to the vital role trust receipts play in international and domestic
commerce, Sec. 12 of P.D. No. 115[9] assures the entruster of the validity of his claim against all
creditors -

Sec. 12. Validity of entruster's security interest as against creditors. The entruster's security
interest in goods, documents, or instruments pursuant to the written terms of a trust receipt shall
be valid as against all creditors of the entrustee for the duration of the trust receipt agreement.

From the legal and jurisprudential standpoint it is clear that 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.[10]

The NLRC argues that inasmuch as petitioner did not cancel the Trust Receipt Agreements and
took possession of the properties it could not claim ownership of the properties.

We do not agree. Significantly, the law uses the word "may" in granting to the entruster the right
to cancel the trust and take possession of the goods.[11] Consequently, petitioner has the
discretion to avail of such right or seek any alternative action, such as a third-party claim or a
separate civil action which it deems best to protect its right, at any time upon default or failure of
the entrustee to comply with any of the terms and conditions of the trust agreement.

Besides, as earlier stated, 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.[12] 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 petitioner has the primary right to them until its advances are fully paid.

In fine, we hold that under the law and jurisprudence the NLRC committed grave abuse of
discretion in disregarding the third-party claim of petitioner. Necessarily the auction sale held on
5 November 1992 should be set aside. For there would be neither justice nor equity in taking the
funds from the party whose means had purchased the property under the contract.[13]

WHEREFORE, the petition for certiorari is GRANTED. The Resolutions of the National
Labor Relations Commission dated 18 August and 12 November 1993 are SET ASIDE and a
new judgment is entered GRANTING the Third-Party Claim and ORDERING the Sheriff or his
representative to immediately deliver to petitioner PRUDENTIAL BANK the properties subject
of the Trust Receipt Agreements.

SO ORDERED.

Padilla, (Chairman), Davide, Jr., Kapunan, and Hermosisima, Jr., JJ., concur.