1

TOPIC: LETTER OF CREDIT NO. 1

PRUDENTIAL BANK V INTERMEDIATE APPELLATE COURT AND ANACLETO

CHI
G.R. NO. 74886 DECEMBER 8, 1992

Through a letter of credit, the bank merely substitutes its own promise to pay for one of its
customers who in return promises to pay the bank the amount of funds mentioned in the letter of
credit plus credit or commitment fees mutually agreed upon.

Facts: Philippine Rayon Mills, Inc.(PRMI) entered into a contract with Nissho Co., Ltd.
of Japan for the importation of textile machineries under a 5-year deferred payment
plan. To effect the payment, PRMI applied for a commercial letter of credit with the
Prudential Bank and Trust Company in favor of Nissho. Prudential Bank opened Letter
of Credit No. DPP-63762 for $128,548.78 Against this letter of credit, drafts were drawn
and issued by Nissho, which were all paid by the Prudential Bank through its
correspondent in Japan, the Bank of Tokyo, Ltd. Two of the original drafts were
accepted by PRMI through its president, Anacleto R. Chi, while the others were not.
Upon the arrival of the machineries, the Prudential Bank indorsed the shipping
documents to the PRMI which accepted delivery of the same. To enable PRMI to take
delivery of the machineries, it executed, by prior arrangement with the Prudential Bank,
a trust receipt which was signed by Anacleto R. Chi in his capacity as President of PRMI
company

At the back of the trust receipt was printed a form to be accomplished by 2 sureties
who, by the very terms and conditions thereof, were to be jointly and severally liable to
the Prudential Bank should the PRMI fail to pay the total amount or any portion of the
drafts issued by Nissho and paid for by Prudential Bank. . PRMI was able to take
delivery of the textile machineries and installed the same at its factory site. Chi argued
that presentment for acceptance was necessary to make PRMI liable. The trial court
ruled that that presentment for acceptance was an indispensable requisite for Philippine
Rayon’s liability on the drafts to attach.

Issue : Whether or not presentment for acceptance was needed in order for PRMI to be
liable under the draft.

HELD : Presentment for acceptance is defined as the production of a bill of exchange to

a drawee for acceptance. Acceptance, however, was not even necessary in the first place
because the drafts which were eventually issued were sight drafts. Even if these were
not sight drafts, thereby necessitating acceptance, it would be the Bank (Bank of
America) — and not Philippine Rayon — which had to accept the same for the latter
was not the drawee.
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The trial court and the public respondent, therefore, erred in ruling that presentment for
acceptance was an indispensable requisite for Philippine Rayon’s liability on the drafts
to attach. Contrary to both courts’ pronouncements, Philippine Rayon immediately
became liable upon Bank of America’s payment on the letter of credit. Such is the
essence of the letter of credit issued by the petitioner. A different conclusion would
violate the principle upon which commercial letters of credit are founded because in
such a case, both the beneficiary and the issuer, Nissho Company Ltd. and the
petitioner, respectively, would be placed at the mercy of Philippine Rayon even if the
latter had already received the imported machinery and the petitioner had fully paid
for it.

In fact, there was no need for acceptance as the issued drafts are sight drafts.
Presentment for acceptance is necessary only in the cases expressly provided for in
Section 143 of the Negotiable Instruments Law (NIL).

In the instant case then, the drawee was necessarily the herein the Bank of America. It
was to the latter that the drafts were presented for payment.
 3

TOPIC: LETTER OF CREDIT NO. 2

TRANSFIELD PHILIPPINES VS LUZON HYDRO ELECTRIC CORP.

GR No 146717, Nov 22, 2004

The independent nature of the letter of credit may be: (a) independence in toto where the
credit is independent from the justification aspect and is a separate obligation from the
underlying agreement like for instance a typical standby; or (b) independence may be
only as to the justification aspect like in a commercial letter of credit or repayment
standby, which is identical with the same obligations under the underlying
agreement. In both cases the payment may be enjoined if in the light of the purpose of
the credit the payment of the credit would constitute fraudulent abuse of the credit.

Facts: Transfield Philippines (Transfield) entered into a turn-key contract with Luzon
Hydro Corp. (LHC).Under the contract, Transfield were to construct a hydro-electric
plants in Benguet and Ilocos. Transfield was given the sole responsibility for the design,
construction, commissioning, testing and completion of the Project. The contract
provides for a period for which the project is to be completed and also allows for the
extension of the period provided that the extension is based on justifiable grounds such
as fortuitous event. In order to guarantee performance by Transfield, two stand-by
letters of credit were required to be opened. During the construction of the plant,
Transfield requested for extension of time citing typhoon and various disputes delaying
the construction. LHC did not give due course to the extension of the period prayed for
but referred the matter to arbitration committee. Because of the delay in the
construction of the plant, LHC called on the stand-by letters of credit because of default.
However, the demand was objected by Transfield on the ground that there is still
pending arbitration on their request for extension of time.

Issue: Whether or not LHC can collect from the letters of credit despite the pending
arbitration case

Held: Transfield’s argument that any dispute must first be resolved by the parties,
whether through negotiations or arbitration, before the beneficiary is entitled to call on
the letter of credit in essence would convert the letter of credit into a mere guarantee.

The independent nature of the letter of credit may be: (a) independence in toto where
the credit is independent from the justification aspect and is a separate obligation from
the underlying agreement like for instance a typical standby; or (b) independence may
be only as to the justification aspect like in a commercial letter of credit or repayment
standby, which is identical with the same obligations under the underlying agreement.
In both cases the payment may be enjoined if in the light of the purpose of the credit the
payment of the credit would constitute fraudulent abuse of the credit.
 4

Jurisprudence has laid down a clear distinction between a letter of credit and a
guarantee in that the settlement of a dispute between the parties is not a pre-requisite
for the release of funds under a letter of credit. In other words, the argument is
incompatible with the very nature of the letter of credit. If a letter of credit is drawable
only after settlement of the dispute on the contract entered into by the applicant and the
beneficiary, there would be no practical and beneficial use for letters of credit in
commercial transactions.

The engagement of the issuing bank is to pay the seller or beneficiary of the credit once
the draft and the required documents are presented to it. The so-called ―independence
principle‖ assures the seller or the beneficiary of prompt payment independent of any
breach of the main contract and precludes the issuing bank from determining whether
the main contract is actually accomplished or not. Under this principle, banks assume
no liability or responsibility for the form, sufficiency, accuracy, genuineness,
falsification or legal effect of any documents, or for the general and/or particular
conditions stipulated in the documents or superimposed thereon, nor do they assume
any liability or responsibility for the description, quantity, weight, quality, condition,
packing, delivery, value or existence of the goods represented by any documents, or for
the good faith or acts and/or omissions, solvency, performance or standing of the
consignor, the carriers, or the insurers of the goods, or any other person whomsoever.
 5

TOPIC: LETTER OF CREDIT NO. 3

FEATI BANK & TRUST COMPANY V. COURT OF APPEALS

G.R. No. 94209. 30 April 1991

FACTS: Bernardo Villaluz (BV) agreed to sell to Axel Christiansen (AC), a ship and
merchandise broker, 2,000 cubic meters of lauan logs. After inspecting the logs, AC
issued a purchase order for the said logs.
On the arrangements made and upon the instructions of the consignee, Hanmi
Trade Development, Ltd. (HTDL), Santa Ana, California, the Security Pacific National
Bank (SPNB), California issued an Irrevocable Letter of Credit (L/C) available at sight
in favor of BV for the total purchase price of the logs. The L/C was mailed to FEATI
Bank and Trust Company (FBTC) with instruction that the draft to be drawn is on SPNB
and that it be accompanied by the following documents, among others: a Certification
from AC stating that the logs have been approved prior to shipment in accordance with
terms and conditions of corresponding purchase order.
Consequently, the logs were thereafter loaded to the vessel chartered by AC.
After the loading of the logs was completed, the Chief Mate of the vessel issued a mate
receipt of the cargo which stated the same are in good condition. However, AC refused
to issue the certification as required in the L/C – despite several requests made by BV.
Because of the absence of the certification by AC, FBTC refused to advance the payment
on the L/C. It eventually lapsed without BV receiving any certification from AC.
Since BV’s demands for AC to execute the certification proved futile, he (BV)
instituted an action for mandamus and specific performance against AC and FBTC
before the then Court of First Instance (CFI) of Rizal. Unfortunately, while the case was
pending, AC left the Philippines without informing the CFI and his counsel; hence, BV
filed an amended complaint to make FBTC solidarily liable with AC.

ISSUE: Whether or not FBTC, as correspondent bank, is to be held liable under the L/C
despite non-compliance by the beneficiary, BV, with the terms thereof?

HELD: No. It is a settled rule in commercial transactions involving L/Cs that the
documents tendered must strictly conform to its terms. The tender of documents by the
beneficiary (seller) must include all documents required by the L/C. A correspondent
bank which departs from what has been stipulated under the L/C, as when it accepts a
faulty tender, acts on its own risks and it may not thereafter be able to recover from the
buyer or the issuing bank, as the case may be, the money thus paid to the beneficiary.
 6

Moreover, under the Uniform Customs and Practices for Documentary Credit,
the bank may only negotiate, accept or pay, if the documents tendered to it are on their
face in accordance with the terms and conditions of the documentary credit. And since
a correspondent bank principally deals only with documents, the absence of any
document required in the documentary credit justifies the refusal by the correspondent
bank to negotiate, accept or pay the beneficiary, as it is not its obligation to look beyond
the documents. It merely has to rely on the completeness of the documents tendered by
the beneficiary.
An irrevocable credit refers to the duration of the L/C. What it simply means is
that the issuing bank may not without the consent of the beneficiary (seller) and the
applicant (buyer) revoke his undertaking under the letter. The issuing bank does not
reserve the right to revoke the credit. On the other hand, a confirmed L/C pertains to
the kind of obligation assumed by the correspondent bank. In this case, the
correspondent bank gives an absolute assurance to the beneficiary that it will undertake
the issuing bank's obligation as its own according to the terms and conditions of the
credit. Hence, the mere fact that a L/C is irrevocable does not necessarily imply that the
correspondent bank in accepting the instructions of the issuing bank has also confirmed
the L/C.
 7

TOPIC: LETTER OF CREDIT NO. 4

KENG HUA PAPER PRODUCTS CO. INC., Petitioner, v. COURT OF APPEALS

G.R. No. 116863. February 12, 1998

Facts: Sea-Land Service, a shipping company, is a foreign corporation licensed to do

business in the Philippines. Shipping Company received at its Hong Kong terminal a
sealed container of ―unsorted waste paper‖ for shipment to Keng Hua Paper Products,
Co. in Manila. A bill of lading to cover the shipment was issued by Shipping Company.
Notices of arrival were transmitted to Keng Hua but the latter failed to discharge the
shipment from the container during the ―free time‖ period or grace period. The said
shipment remained inside the Shipping Company’s container from the moment the free
time period expired until the time when the shipment was unloaded from the container.
During the said period, demurrage charges accrued.

Keng Hua alleged that it purchased waste paper from the shipper in Hong Kong, Ho
Kee Waste Paper, as manifested in a Letter of Credit issued by Equitable Banking
Corporation. His contentions were:
1) Under the letter of credit, the remaining balance of the shipment was only ten (10)
metric tons but the shipment Shipping Company was asking defendant to accept was
twenty (20) metric tons.
2) That Shipping company had no cause of action against Keng Hua because the latter
did not hire the former to carry the merchandise; That the cause of action should be
against the shipper which contracted the Shipping Company’s services and not against
defendant.

Issues: Whether Keng Hua was correct in not accepting the over shipment.

Held:
No Keng Hua’s prolonged failure to receive and discharge the cargo from the
Shipping Company’s vessel constitutes a violation of the terms of the bill of
lading. It should thus be liable for demurrage to the former.

Keng Hua’s letter proved refusal to pick up cargo and not rejection of bill of lading;
Implied acceptance Keng Hua ―received the bill of lading immediately after the arrival
of the shipment‖. Having been afforded an opportunity to examine the said document,
it did not immediately object to or dissent from any term or stipulation therein. It was
only six months later that it sent a letter to private respondent saying that it could not
accept the shipment. Its inaction for such a long period conveys the clear inference that
it accepted the terms and conditions of the bill of lading. Moreover, said letter spoke
only of petitioner’s inability to use the delivery permit, i.e. to pick up the cargo, due to
the shipper’s failure to comply with the terms and conditions of the letter of credit, for
which reason the bill of lading and other shipping documents were returned by the
 8

―banks‖ to the shipper. The letter merely proved its refusal to pick up the cargo, not its
rejection of the bill of lading.

Contract of carriage in bill of lading to be treated independently of contract of sale

and the contract for the issuance of credit
The contract of carriage, as stipulated in the bill of lading in the present case, must be
treated independently of the contract of sale between the seller and the buyer, and the
contract for the issuance of a letter of credit between the buyer and the issuing bank.
Any discrepancy between the amount of the goods described in the commercial invoice
in the contract of sale and the amount allowed in the letter of credit will not affect the
validity and enforceability of the contract of carriage as embodied in the bill of lading.
As the bank cannot be expected to look beyond the documents presented to it by the
seller pursuant to the letter of credit, neither can the carrier be expected to go beyond
the representations of the shipper in the bill of lading and to verify their accuracy vis-a-
vis the commercial invoice and the letter of credit. Thus, the discrepancy between the
amount of goods indicated in the invoice and the amount in the bill of lading cannot
negate Keng Hua’s obligation to private respondent arising from the contract of
transportation.

Three contracts in a letter of credit

In a letter of credit, there are three distinct and independent contracts:
(1) the contract of sale between the buyer and the seller,
(2) the contract of the buyer with the issuing bank, and
(3) the letter of credit proper in which the bank promises to pay the seller pursuant to
the terms and conditions stated therein. ―Few things are more clearly settled in law than
that the three contracts which make up the letter of credit arrangement are to be
maintained in a state of perpetual separation.‖ A transaction involving the purchase of
goods may also require, apart from a letter of credit, a contract of transportation
specially when the seller and the buyer are not in the same locale or country, and the
goods purchased have to be transported to the latter.
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TOPIC: LETTER OF CREDIT NO. 5

PNB V. SAN MIGUEL CORPORATION

G.R. No. 186063, January 15, 2014

Facts: SMC entered into an Exclusive Dealership Agreement with a certain Rodolfo R.
Goroza, wherein the latter was given by SMC the right to trade, deal, market or
otherwise sell its various beer products.

Goroza applied for a credit line with SMC, but one of the requirements for the credit
line was a letter of credit. Thus, Goroza applied for and was granted a letter of credit by
the PNB in the amount of two million pesos (₱2,000,000.00). Under the credit
agreement, the PNB has the obligation to release the proceeds of Goroza's credit line to
SMC upon presentation of the invoices and official receipts of Goroza's purchases of
SMC beer products to the PNB, Butuan Branch.

On February 11, 1997, Goroza applied for an additional credit line with the PNB. The
latter granted Goroza a one (1) year revolving credit line in the amount not exceeding
two million four hundred thousand pesos (₱2,400,000.00).

Demands to pay the amount of three million seven hundred twenty-two thousand four
hundred forty pesos and 88/100 (₱3,722,440.88) were made by SMC against Goroza and
PNB, but neither of them paid.

After summons, herein petitioner filed its Answer,while Goroza did not. Upon
respondent's Motion to Declare Defendant in Default,5 Goroza was declared in default.

Issue: WON PNB is liable to SMB under the Letter of Credit.

Held: The engagement of the issuing bank is to pay the seller or beneficiary of the credit
once the draft and the required documents are presented to it. The so-called
"independence principle" assures the seller or the beneficiary of prompt payment
independent of any breach of the main contract and precludes the issuing bank from
determining whether the main contract is actually accomplished or not. Under this
principle, banks assume no liability or responsibility x x x ―

In a letter of credit transaction, such as in this case, where the credit is stipulated as
irrevocable, there is a definite undertaking by the issuing bank to pay the beneficiary
provided that the stipulated documents are presented and the conditions of the credit
are complied with. The obligation under the letter of credit is independent of the related
and originating contract. In brief, the letter of credit is separate and distinct from the
underlying transaction.
 10

PNB cannot evade responsibility on the sole ground that the RTC judgment found
Goroza liable and ordered him to pay the amount sought to be recovered by SMC.
PNB's liability, if any, under the letter of credit is yet to be determined.
 11

TOPIC: LETTER OF CREDIT NO. 6

THE HONGKONG & SHANGHAI BANKING CORPORATION, LIMITED VS.

NATIONAL STEEL CORPORATION AND CITY TRUST BANKING
CORPORATION
G.R. No. 183486, February 24, 2016

Facts: The NSC and Klockner East Asia Limited entered into an Export Sales Contract to
which NSC sold 1,200 metric tons of prime cold rolled into coilsto Klockner. In securing
its payment to NSC, Klockner applied with HSBC an Irrevocable Letter of Credit
amounting to 468,000 US dollars naming NSC as the beneficiary to the Letter of Credit.
HSBC then issued an irrevocable Letter of Credit in favor of NSC governed by UCP 400
and further stipulated that HSBC has the obligation to NSC upon the presentment of
the documents listed in the Letter of Credit.

There was an amendment on the Letter of Credit and it was done twice. The first
amendment was for the transferring of the terms of the contract from FOB ST Iligan to
FOB ST Manila and further increased the amount to 488,000 US dollars while the second
amendment was for the delivery date of the prime rolled coils. The prime rolled coils
were loaded to MV Sea Dragon under China Ocean Shipping Company with Bill of
Lading No. HKG 26601 and the same arrived in HK. Thereafter, NSC through City
Trust facilitated the collection of its payment from Klockner by the Letter of Credit
issued by HSBC. Thereafter, City Trust sent HSBC a collection Order as HSBC
acknowledged the receipt.

Klockner refused payment neither to give any reason of such refusal. NSC sent HSBC a
demand letter.

Issue: Who among the parties bear the liability to pay the amount stated in the Letter of
Credit?

Held: The Court ruled based on the principle of Independence on the law on the Letters
of Credit. In this case, HSBC has the obligation as it binds itself both to Klockner and
NSC as it freely and knowingly must perform an act, where its obligation arises from
two sources:1) it has a contractual obligation to Klockner when it agreed to pay NSC
upon due presentment to it of the LC by City Trust; 2) HSBC has the obligation to NSC
to honor the LC. The obligation of HSBC to pay NSC under the LC will stand
independent even if Klockner refuses to pay.
 12

TOPIC: TRUST RECEIPTS NO. 1

BANK OF COMMERCE VS TERESITA SERRANO

G.R. No. 151895. February 16, 2005

FACTS: Via Moda International, through Serrano, obtained an export packing loan
from, Bank of Commerce (BOC) secured by a Deed of Assignment over Irrevocable
Transferable Letter of Credit. Serrano executed in favor of BOC Promissory Note. Via
Moda then opened a deposit account for the proceeds of the said loan.

BOC issued to Via Moda, Irrevocable Letter of Credit for the purchase and importation
of fabric and textile products from Tiger Ear Fabric Co. Ltd.of Taiwan. To secure the
release of the goods covered, Serrano, in representation of Via Moda, executed Trust
Receipt .

Under the terms of the trust receipt, Via Moda agreed to hold the goods in trust for
BOC as the latter’s property and to sell the same for thelatter’s account. In case of sale,
the proceeds are to be remitted to the bank as soon as it is received, but not later than
the maturity date. Saidproceeds are to be applied to the relative acceptances, with
interest and penalty or in the alternative, to return the goods in case of non-sale.

The goods covered by the trust receipt were shipped by Via Moda to its consignee in
New Jersey, USA, who sent an Export Letter of Credit issued by the Bank of New York,
in favor of BOC. The Regional Operations Officer of BOC signed the export declarations
to show consent to the shipment. The proceeds of the entrusted goods sold were not
credited to the trust receipt but, were applied by the bank to the principal, penalties and
interest of the export packing loan. The excess was applied to the trust receipt, leaving a
balance.

BOC sent a demand letter to Via Moda to pay the said amount plus interest and penalty
charges, or to return the goods covered by Trust Receipt within 5 days from receipt. The
demand was not heeded. Serrano was charged with the crime of estafa under Article
315 (b) of the Revised Penal Code in relation to Presidential Decree No. 115.

ISSUE: Whether or not Serrano is jointly and severally liable with Via Moda under the
guarantee of the Letter of Credit secured by the Trust Receipt

HELD: A letter of credit is a separate document from a trust receipt. While the trust
receipt may have been executed as a security on the letter of credit, still the two
documents involve different undertakings and obligations. A letter of credit is an
engagement by a bank or other person made at the request of a customer that the issuer
will honor drafts or other demands for payment upon compliance with the conditions
 13

specified in the credit. Through a letter of credit, the bank merely substitutes its own
promise to pay for the promise to pay of one of its customers who in return promises to
pay the bank the amount of funds mentioned in the letter of credit plus credit or
commitment fees mutually agreed upon. By contrast, a trust receipt transaction is one
where the entruster, who holds an absolute title or security interests over certain goods,
documents or instruments, released the same to the entrustee, who executes a trust
receipt binding himself to hold the goods, documents or instruments in trust for the
entruster and to sell or otherwise dispose of the goods, documents and 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 return 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.
 14

TOPIC: TRUST RECEIPTS NO. 2

BANKO SENTRAL NG PILIPINAS Vs. AGUSTIN LIBO-ON

GR. No. 173864 November 23, 2015

FACTS: On August 29, 1997 and September 17,1997 respondent Spouses Libo-on
secured loans from the Rural Bank of Hinirigan, Inc. In the amount of P100,000 and
P300,000, respectively. They executed PN payable to the order of Rural Bank for a
period of 360 days and executed a deed of Real estate Mortgage.

On September 19, 1997 and October 17, 1997, Rural bank in turn secured a loan from
petitioner BSP in the amount of P800,000 and 640,000, respectively. As security for the
loan the bank pledged and deposited to BSP PN's with supporting TCT's including the
PN and TCT of spouses Libo-on mortgage to the former.

On May 3, 2000 BSP demanded from the Spouses Libo-on the payment of their
outstanding loan with Rural Bank of Hinirigan but they failed to settle their obligation.
BSP filed an application for extrajudicial foreclosure of the property. Spouses Libo-on
contested extrajudicial foreclosure and filed application for preliminary injunction
which was granted by the trial court. BSP Appealed with CA but it was denied.

ISSUES: Whether or not BSP has the authority to foreclosed the subject mortgage

RULING:

No, BSP has no authority to foreclosed the subject mortgage. The mere pledge and
deposit of the mortgage contract, transfer certificate of title and PN executed by the
Rural Bank of Hinirigan in favor of BSP does not produce the effect of giving BSP the
authority to intervene with the transaction between the spouses Libo-on and the Rural
Bank much more to foreclosed the mortgage property.

In a trust receipt transaction, the entrustee has the obligation to deliver to the entruster
the price of the 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 to the
owner of the merchandise sold, while the second refers to the merchandise received
under the obligation to ―return‖ it to the owner. Clearly, this concept of trust receipt is
inconsistent with that of an assignment of credit where there is an absolute conveyance
of title that would have in effect given authority to BSP to foreclose the subject
 15

mortgage. Without a valid assignment of credit, as in this case, BSP has no authority to
foreclose the mortgaged property of the Spouses Libo-on to the Rural Bank of
Hinigaran. More so, BSP could not possibly sell the subject property without violating
the prohibition against pactum commissorium since without a valid assignment of
credit, BSP cannot ipso facto appropriate to itself the Spouses Libo-on’s mortgaged
property to the Rural Bank of Hinigaran.
 16

TOPIC: TRUST RECEIPTS NO. 3

SECURITY BANK CORPORATION, v. GREAT WALL COMMERCIAL PRESS

COMPANY, INC., G.R. No. 219345, January 30, 2017
MENDOZA, J.

FACTS:
On May 12, 2013, Security Bank Corporation, the petitioner, filed a complaint (with
application for Issuance of a Writ of Preliminary Attachment) against the respondents,
before the Regional Trial Court, Branch 59 of Makati City. The complaint sought to
recover from respondents their unpaid obligations under a credit facility covered by
several trust receipts and surety agreements, as well as interests, attorney’s fee and cost.
The petitioner argued that in spite of the lapse of the maturity date of the obligation
from December 11, 2012 to May 7, 2013, respondents failed to pay their obligations. The
total principal amount sought was P10,000,000.00.

After due hearing, the RTC granted the application for a Writ of Preliminary
Attachment of Security Bank, which then posted a bond in the amount of
P10,000,000.00. Then respondent filed to lift Writ of Preliminary Attachment but denied
by RTC. The respondent filed a motion for reconsideration but denied by RTC.

Dissatisfied respondents filed a petition for certiorari before CA, December 12, 2014, the
CA lifted the Writ of Preliminary Attachment. The petitioner moved for reconsideration
but its motion was denied by the CA in its assailed resolution, dated June 26, 2015.

ISSUE:
Whether or not Great Wall committed fraud in the performance of their
obligation when they failed to turn over the goods subject of the trust receipt
agreements.

RULING:

YES. The Supreme Court held that despite the above covenants between the
petitioner and the defendants, the latter failed to pay nor return the goods subject of the
Trust Receipt Agreements.

A trust receipt transaction is one where the entrustee has the obligation to deliver
to the entruster the price of the sale, or if the 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
 17

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
non-compliance 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 as
estafa 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, constitutes a
criminal offense that causes prejudice not only to another, but more to the public
interest.

In this case, Security Bank's complaint stated that Great Wall, through its Vice
President Fredino Cheng Atienza, executed various trust receipt agreements, it
obligates itself to hold in trust for the bank the goods, to sell the goods for the benefit of
the bank, to tum over the proceeds of the sale to the bank, and to return the goods to the
bank in the event of non-sale. By signing the trust receipt agreements, respondents fully
acknowledged the consequences under the law once they failed to abide by their
obligations therein. The said trust receipt agreements were attached to the complaint.

Upon the maturity date, however, respondents failed to deliver the proceeds of
the sale to Security Bank or to return the goods in case of non-sale. Security Bank sent a
final demand letter to respondents, which was also attached to the complaint, but it was
unheeded. Curiously, in their letter, dated January 23, 2013, respondents did not
explain their reason for noncompliance with their obligations under the trust receipts;
rather, they simply stated that Great Wall was having a sudden drop of its income. Such
unsubstantiated excuse cannot vindicate respondents from their failure to fulfill their
duties under the trust receipts.