Trust Receipts 1-14

DLSU Commercial Law Review Digest G02 (2015-
2016)
[01 and 09 Trust Receipts] LAND BANK OF THE PHILIPPINES, Petitioner, vs. LAMBERTO C. PEREZ, NESTOR C.
KUN, MA. ESTELITA P. ANGELES-PANLILIO, and NAPOLEON O. GARCIA, Respondents.
G.R. No. 166884 June 13, 2012
Topic: Trust Receipt transaction vs Loan; nature of a trust receipt transaction
Ponente: Brion, J.
DOCTRINE: *Please see highlighted part in held.
FACTS: Land Bank (LBP) extended a credit accommodation to Asian Construction Development Corp (ACDC) through
the execution of an Omnibus Credit Line Agreement between LBP and ACDC on October 29, 1996. In various instances,
ACDC used the Letters of Credit/Trust Receipts Facility to buy construction materials. The respondents (Perez et al.), as
officers and representatives of ACDC, executed trust receipts in connection with the construction materials, with a total
principal amount of P52,344,096.32. The trust receipts matured, but ACDC failed to return to LBP the proceeds of the
construction projects or the construction materials subject of the trust receipts. LBP sent ACDC a demand letter,
dated May 4, 1999, for the payment of its debts, including those under the Trust Receipts Facility in the amount of
P66,425,924.39. When ACDC failed to comply with the demand letter, LBP filed a complaint for Estafa in relation with
Section 15 of the Trust Receipts Law.
ACDC Officers countered saying that they signed the trust receipt documents on or about the same time LBP and ACDC
executed the loan documents; their signatures were required by LBP for the release of the loans. The trust receipts
in this case do not contain (1) a description of the goods placed in trust, (2) their invoice values, and (3) their maturity
dates, in violation of Section 5(a) of the Trust Receipts Law.
Prosecutor – dismissed the complaint. Evidence presented by LBP failed to state the date when the goods described in
the letters of credit were actually released to the possession of the respondents. Section 4 of P.D. 115 requires that the
goods covered by trust receipts be released to the possession of the entrustee after the latter’s execution and delivery to
the entruster of a signed trust receipt. He adds that LBP’s evidence also fails to show the date when the trust receipts
were executed since all the trust receipts are undated.
Secretary of Justice (on appeal) – Reversed prosecutor’s decision. Adopted LBP’s argument that while the subjects of the
trust receipts were not mentioned in the trust receipts, they were listed in the letters of credit referred to in the trust
receipts. He also noted that the trust receipts contained maturity dates and clearly set out their stipulations.
CA (petition for review) – reversed Secretary of Justice. Ruled that this case did not involve a trust receipt transaction, but
a mere loan. It emphasized that construction materials, the subject of the trust receipt transaction, were delivered to
ACDC even before the trust receipts were executed. It noted that LBP did not offer proof that the goods were received by
ACDC, and that the trust receipts did not contain a description of the goods, their invoice value, the amount of the draft to
be paid, and their maturity dates. It also adopted ACDC’s argument that since no payment for the construction projects
had been received by ACDC, its officers could not have been guilty of misappropriating any payment.
ISSUE: Whether the disputed transactions are trust receipts or a mere loan? Loan. The disputed transactions are not
trust receipts.
HELD: Section 4 of P.D. 115 defines a trust receipt transaction in this manner:
Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this Decree, is any
transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree
as entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods,
documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and delivery
to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated
goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or
instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to
the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or
not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt , or for other
purposes substantially equivalent to any of the following:
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1. In the case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or process the goods with
the purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or
processing before its ultimate sale, the entruster shall retain its title over the goods whether in its original or processed form until
the entrustee has complied fully with his obligation under the trust receipt; or (c) to load, unload, ship or tranship or otherwise deal
with them in a manner preliminary or necessary to their sale.
There are two obligations in a trust receipt transaction. The first is covered by the provision that refers to money
under the obligation to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision
referring to merchandise received under the obligation to return it (devolvera) to the owner . Thus, under the Trust
Receipts Law, intent to defraud is presumed when (1) the entrustee fails to turn over the proceeds of the sale of
goods covered by the trust receipt to the entruster; or (2) when the entrustee fails to return the goods under
trust, if they are not disposed of in accordance with the terms of the trust receipts.
In all trust receipt transactions, both obligations on the 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 enter
into an agreement knowing that the return of the goods subject of the trust receipt is not possible even without any fault on
the part of the trustee, it is not a trust receipt transaction penalized under Section 13 of P.D. 115; 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.
At the onset of these transactions, LBP knew that ACDC was in the construction business and that the materials that it
sought to buy under the letters of credit were to be used for the following projects: the Metro Rail Transit Project and the
Clark Centennial Exposition Project. LBP had in fact authorized the delivery of the materials on the construction sites for
these projects, as seen in the letters of credit it attached to its complaint. Clearly, they were aware of the fact that there
was no way they could recover the buildings or constructions for which the materials subject of the alleged trust
receipts had been used. Notably, despite the allegations in the affidavit-complaint wherein LBP sought the return of the
construction materials, its demand letter dated May 4, 1999 sought the payment of the balance but failed to ask, as an
alternative, for the return of the construction materials or the buildings where these materials had been used.
It is fundamental in a trust receipt transaction that the person who advanced payment for the merchandise becomes the
absolute owner of said merchandise and continues as owner until he or she is paid in full, or if the goods had already
been sold, the proceeds should be turned over to him or to her.
Thus, in concluding that the transaction was a loan and not a trust receipt, we noted in [the case of] Colinares that the
industry or line of work that the borrowers were engaged in was construction. We pointed out that the borrowers were not
importers acquiring goods for resale. Indeed, goods sold in retail are often within the custody or control of the trustee until
they are purchased. In the case of materials used in the manufacture of finished products, these finished products – if not
the raw materials or their components – similarly remain in the possession of the trustee until they are sold. But the goods
and the materials that are used for a construction project are often placed under the control and custody of the clients
employing the contractor, who can only be compelled to return the materials if they fail to pay the contractor and often
only after the requisite legal proceedings. The contractor’s difficulty and uncertainty in claiming these materials (or the
buildings and structures which they become part of), as soon as the bank demands them, disqualify them from being
covered by trust receipt agreements.
Based on these premises, we cannot consider the agreements between the parties in this case to be trust receipt
transactions because (1) from the start, the parties were aware that ACDC could not possibly be obligated to reconvey to
LBP the materials or the end product for which they were used; and (2) from the moment the materials were used for the
government projects, they became public, not LBP’s, property.
Since these transactions are not trust receipts, an action for estafa should not be brought against the respondents, who
are liable only for a loan.
DISPOSITIVE PORTION: WHEREFORE, we DENY the petition and AFFIRM the January 20, 2005 decision of the Court
of Appeals in CA-G.R. SP No. 76588. No costs.
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[02 Trust Receipts] ANTHONY L. NG, Petitioner, vs. PEOPLE OF THE PHILIPPINES, Respondent.

G.R. No. 173905 April 23, 2010
Topic: Trust Receipt transaction vs Loan; nature of a trust receipt transaction
Ponente: VELASCO, JR., J
DOCTRINE: 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 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. A violation of any of these undertakings constitutes Estafa
defined under Art. 315, par. 1(b) of the RPC, as provided in Sec. 13 of PD 115.
FACTS:
Petitioner Anthony Ng, then engaged in the business of building and fabricating telecommunication towers under the
trade name "Capitol Blacksmith and Builders," applied for a credit line of PhP 3,000,000 with Asiatrust Development
Bank, Inc. (Asiatrust).
Asiatrust approved petitioner’s loan application. Petitioner Ng was then required to sign several documents, among which
are the Credit Line Agreement, Application and Agreement for Irrevocable L/C, Trust Receipt Agreements, and
Promissory Notes. Though the Promissory Notes matured on September 18, 1997, the 2 said Trust Receipt Agreements
did not bear any maturity dates as they were left unfilled or in blank by Asiatrust.
As petitioner Ng realized difficulty in collecting from his client Islacom, he failed to pay his loan to Asiatrust. Asiatrust then
conducted a surprise ocular inspection of petitioner Ng’s business through Linga, Asiatrust’s representative appraiser.
Linga thereafter reported to Asiatrust that he found that approximately 97% of the subject goods of the Trust Receipts
were "sold-out and that only 3 % of the goods pertaining to PN No. 1963 remained." Asiatrust then endorsed petitioner
Ng’s account to its Account Management Division for the possible restructuring of his loan. The parties thereafter held a
series of conferences to work out the problem and to determine a way for petitioner Ng to pay his debts. However, efforts
towards a settlement failed to be reached.
Remedial Account Officer Bernardez (employee of Asiatrust) filed a Complaint-Affidavit (on behalf of Asiatrust). An
Information for Estafa, as defined and penalized under Art. 315, par. 1(b) of the RPC in relation to Sec. 3, PD 115 or the
Trust Receipts Law, was filed with the RTC. The Information stated that [Ng defrauded Bernardez by entering into a Trust
Receipt Agreement with the latter whereby Ng as entrustee received in trust from the Bernardez (entruster) various
chemicals in the total sum of P4.5 million with the obligation to hold the said chemicals in trust as property of the entruster
with the right to sell the same for cash and to remit the proceeds thereof to the entruster, or to return the said chemicals if
unsold; but Ng once in possession of the same, contrary to his aforesaid obligation under the trust receipt agreement with
intent to defraud did then and there misappropriated, misapplied and converted the said amount to his own personal use
and benefit and despite repeated demands made upon him, Ng refused and failed and still refuses and fails to make good
of his obligation, to the damage and prejudice of Bernardez in the amount of P2,971,650.00.]
For his defense, petitioner Ng argued, among others, that: (1) the loan was granted as his working capital and that the
Trust Receipt Agreements he signed with Asiatrust were merely preconditions for the grant and approval of his loan; (2)
the Trust Receipt Agreements corresponding to the Letter of Credits were both contracts of adhesion, since the
stipulations found in the documents were prepared by Asiatrust in fine print.
The RTC found Ng liable for estafa and held that Ng, being the entrustee stated in the Trust Receipts issued by Asiatrust,
is obliged to hold the goods in trust for the entruster and shall dispose of them strictly in accordance with the terms and
conditions of the trust receipts; otherwise, Ng is obliged to return the goods in the event of non-sale or upon demand of
the entruster, failing thus, he evidently violated the Trust Receipts Law.
ISSUE: Whether or not the transaction between NG and ASIATRUST is a trust receipt transaction? NO. Transaction
between the parties was a simple loan.
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**(Note: main issue in this case was whether Ng is liable for estafa)
RULING: Estafa can also be committed in what is called a "trust receipt transaction" under PD 115, which is
defined as:
Section 4. What constitutes a trust receipts transaction.— A trust receipt transaction, within the meaning of this Decree, is any transaction
by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as entrustee, whereby the
entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to
the possession of the entrustee upon the latter’s execution and delivery to the entruster of a signed document called a "trust receipt" wherein the
entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the
goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the
entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of,
in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following:
1. In the case of goods or documents: (a) to sell the goods or procure their sale; or (b) to manufacture or process the goods with the
purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or processing
before its ultimate sale, the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has complied
full with his obligation under the trust receipt; or (c) to load, unload, ship or transship or otherwise deal with them in a manner preliminary or
necessary to their sale; or
2. In the case of instruments: (a) to sell or procure their sale or exchange; or (b) to deliver them to a principal; or (c) to effect the
consummation of some transactions involving delivery to a depository or register; or (d) to effect their presentation, collection or renewal.
The sale of good, documents or instruments by a person in the business of selling goods, documents or instruments for profit who, at the
outset of transaction, has, as against the buyer, general property rights in such goods, documents or instruments, or who sells the same to the
buyer on credit, retaining title or other interest as security for the payment of the purchase price, does not constitute a trust receipt transaction
and is outside the purview and coverage of this Decree.
In other words, 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 the owner of the merchandise sold, while the second refers to the merchandise received
under the obligation to "return" it (devolvera) to the owner. A violation of any of these undertakings constitutes Estafa
defined under Art. 315, par. 1(b) of the RPC, as provided in Sec. 13 of PD 115, viz:
Section 13. Penalty Clause.—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 said goods,
documents or instruments if they were not 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 fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred
and fifteen, as amended, otherwise known as the Revised Penal Code. x x x (Emphasis supplied.)
A thorough examination of the facts obtaining in the instant case, however, reveals that the transaction between
petitioner and Asiatrust is not a trust receipt transaction but one of simple loan.
It must be remembered that petitioner was transparent to Asiatrust from the very beginning that the subject goods were
not being held for sale but were to be used for the fabrication of steel communication towers in accordance with his
contracts with Islacom, Smart, and Infocom. In these contracts, he was commissioned to build, out of the materials
received, steel communication towers, not to sell them. Considering that the goods in this case were never intended for
sale but for use in the fabrication of steel communication towers, the trial court erred in ruling that the agreement is a trust
receipt transaction.
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 to assist importers and merchants solve their financing
problems." Obviously, the State, in enacting the law, sought to find a way to assist importers and merchants in their
financing in order to encourage commerce in the Philippines.
“A trust receipt is considered a security transaction intended to aid in financing importers and retail dealers who
do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may
not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased.
Trust receipt transactions always refer to a method of "financing importations or financing sales." It is important to note
that the transactions discussed in relation to trust receipts mainly involved sales.”
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In applying the provisions of PD 115, the trial court relied on the Memorandum of Asiatrust’s appraiser, Linga, who stated
that the goods have been sold by petitioner and that only 3% of the goods remained in the warehouse where it was
previously stored. Undoubtedly, in his testimony, Linga showed that he had no real personal knowledge or proof of the
fact that the goods were indeed sold. He did not notify petitioner Ng about the inspection nor did he talk to or inquire with
petitioner regarding the whereabouts of the subject goods. Neither did he confirm with petitioner if the subject goods were
in fact sold. Therefore, the Memorandum of Linga, which was based only on his presumption and not any actual personal
knowledge, should not have been used by the trial court to prove that the goods have in fact been sold. At the very least,
it could only show that the goods were not in the warehouse.
Having established the inapplicability of PD 115, this Court finds that petitioner Ng’s liability is only limited to the
satisfaction of his obligation from the loan. The real intent of the parties was simply to enter into a simple loan
agreement.
To emphasize, the Trust Receipts Law was created to "to aid in financing importers and retail dealers who do not
have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be
able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased." Since
Asiatrust knew that petitioner was neither an importer nor retail dealer, it should have known that the said agreement
could not possibly apply to petitioner.
DISPOSITIVE PORTION: WHEREFORE, the CA Decision dated August 29, 2003 affirming the RTC Decision dated May
29, 2001 is SET ASIDE. Petitioner ANTHONY L. NG is hereby ACQUITTED of the charge of violation of Art. 315, par.
1(b) of the RPC in relation to the pertinent provision of PD 115.
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[03 Trust Receipts] PHILIPPINE NATIONAL BANK, Petitioner, vs.LILIAN S. SORIANO, Respondent
G.R. No. 164051 October 3, 2012
Topic: Restructuring of a loan agreement secured by a trust receipt; liability under a trust receipt
Ponente: PEREZ, J.:
DOCTRINE: The restructuring of a loan agreement secured by a [trust receipt] does not per se novate or extinguish the
criminal liability incurred thereunder.
FACTS: Petitioner PNB extended a credit facility in the form of Floor Stock Line (FSL) in the mount of ₱30 Million to
Lisam Enterprises, Inc. Respondent Soriano is the chairman and president of LISAM; she is also the authorized
signatory in all LISAM’s Transactions with PNB.
On various dates, LISAM made several availments of the loans in the form of “FSL” from PNB in the total amount of P
29,645,944.55, the proceeds of which were credited to its current account with PNB. For each availment, LISAM through
[Soriano], executed 52 Trust Receipts (TRs) in addition to the promissory notes, showing its receipt of the items in trust
with the duty to turn-over the proceeds of the sale thereof to PNB. The TRs stipulated that:
“[LISAM received in trust from PNB the motor vehicles issued by HONDA PHILIPPINES, INC. to Lisam (the “Trustee”) and, the
trustee hereby agrees to hold the motor Vehicles in storage as the property of PNB, with the liberty to sell the same for cash for
the trustee’s account and to deliver the proceeds thereof to PNB to be applied against its acceptance on the trustee’s account.
xxx xxxx The Trustee’s failure to account to PNB for the Motor Vehicles received in Trust and/or for the proceeds of the sale
thereof within thirty (30) days from demand made by PNB shall constitute prima facie evidence that the Trustee has converted
or misappropriated said vehicles and/or proceeds thereof for its benefit to the detriment and prejudice of PNB.”
PNB’s authorized personnel conducted an actual physical inventory of LISAM’s motor vehicles and motorcycles and found
that only 4 units covered by the TRs amounting to ₱158,100.00 remained unsold.
Out of the outstanding principal balance of the total availments on the line covered by TRs, LISAM should have remitted
to PNB 29,487,844.55. However, despite several formal demands, respondent Soriano failed and refused to turn over the
said amount to the prejudice of PNB. Soriano failed to account for the proceeds of the sale of the motor vehicles. PNB
then filed a complaint-affidavit charging Soriano with 52 counts of violation of the Trust Receipts Law, in relation to Article
315, paragraph 1(b) of the RPC.
Soriano claimed that PNB agreed to a restructuring plan of the loan (from FSL to an Omnibus Line) thus changing the
relationship from an entrustor-entrustee to a creditor-debtor status. PNB admits that although it had approved LISAM’s
restructuring proposal, the actual restructuring of LISAM’s account consisting of several credit lines was never reduced
into writing. PNB argues that the stipulations therein such as the provisions on the schedule of payment of the principal
obligation, interests, and penalties, must be in writing to be valid and binding between the parties. PNB further postulates
that assuming the restructuring was reduced into writing, LISAM failed to comply with the conditions precedent for its
effectivity, specifically, the payment of interest and other charges, and the submission of the titles of real properties. On
the whole, PNB is adamant that the events concerning the restructuring of LISAM’s loan did not affect the TR security,
thus, Soriano’s criminal liability thereunder subsists.
The CA, in a petition for review, agreed with the ruling of the DOJ Secretary that the approval of LISAM’s restructuring
proposal, even if not reduced into writing, changed the status of LISAM’s loan from being secured with Trust Receipts
(TR’s) to one of an ordinary loan, non-payment of which does not give rise to criminal liability. The CA declared that there
was no breach of trust constitutive of estafa through misappropriation or conversion where the relationship between the
parties is simply that of creditor and debtor, not as entruster and entrustee.
ISSUE: Whether the restructuring of LISAM’s loan secured by trust receipts extinguished Soriano’s criminal liability
therefor.  No.
RULING: We cannot subscribe to the appellate court’s reasoning. The DOJ Secretary’s and the Court of Appeals holding
that, the supposed restructuring novated the loan agreement between the parties is myopic. To begin with, the purported
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restructuring of the loan agreement did not constitute novation.
The restructuring of a loan agreement secured by a TR does not per se novate or extinguish the criminal liability
incurred thereunder. Neither is there an implied novation since the restructuring agreement is not incompatible with the
trust receipt transactions.
In this case, without a written contract stating in unequivocal terms that the parties were novating the original loan
agreement, thus undoubtedly eliminating an express novation, we look to whether there is an incompatibility between the
Floor Stock Line secured by TR’s and the subsequent restructured Omnibus Line which was supposedly approved by
PNB.
Soriano is confident with her assertion that PNB’s approval of her proposal to restructure LISAM’s loan novated the loan
agreement secured by TR’s. Soriano relies on the following:
1. x x x. All the alleged trust receipt agreements were availments made by [LISAM] on the PNB credit facility known as "Floor
Stock Line," (FSL) which is just one of the several credit facilities granted to [LISAM] by PNB. When my husband Leandro A.
Soriano, Jr. was still alive, [LISAM] submitted proposals to PNB for the restructuring of all of [LISAM’s] credit facilities. After
exchanges of several letters and telephone calls, Mr. Gamboa, Senior VP of PNB on 12 May 1998 wrote [LISAM] informing
PNB’s lack of objection to [LISAM’s] proposal of restructuring all its obligations. x x x.
2. On September 22, 1998, Mr. Avengoza sent a letter to [LISAM], complete with attached copy of PNB’s Board’s minutes of
meeting, with the happy information that the Board of Directors of PNB has approved the conversion of [LISAM’s] existing credit
facilities at PNB, which includes the FSL on which the trust receipts are availments, to [an] Omnibus Line (OL) available by way
of Revolving Credit Line (RCL), Discounting Line Against Post-Dated Checks (DLAPC), and Domestic Bills Purchased Line
(DBPL) and with a "Full waiver of penalty charges on RCL, FSL (which is the Floor Stock Line on which the trust receipts are
availments) and Time Loan. x x x.
Soriano’s reliance thereon is misplaced. The approval of LISAM’s restructuring proposal is not the bone of contention in
this case. The pitch of the issue lies in whether, assuming a restructuring was effected, it extinguished the criminal liability
on the loan obligation secured by trust receipts, by extinguishing the entruster-entrustee relationship and substituting it
with that of an ordinary creditor-debtor relationship. Stated differently, we examine whether the Floor Stock Line is
incompatible with the purported restructured Omnibus Line.
The test of incompatibility is whether the two obligations can stand together, each one having its independent existence. If
they cannot, they are incompatible and the latter obligation novates the first. Corollarily, changes that breed incompatibility
must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential
elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the change would be
merely modificatory in nature and insufficient to extinguish the original obligation.
We have scoured the records and found no incompatibility between the Floor Stock Line and the purported
restructured Omnibus Line. While the restructuring was approved in principle, the effectivity thereof was subject
to conditions precedent such as the payment of interest and other charges, and the submission of the titles to the real
properties in Tandang Sora, Quezon City. These conditions precedent imposed on the restructured Omnibus Line were
never refuted by Soriano who, oddly enough, failed to file a Memorandum. To our mind, Soriano’s bare assertion that
the restructuring was approved by PNB cannot equate to a finding of an implied novation which extinguished
Soriano’s obligation as entrustee under the TR’s.
Moreover, as asserted by Soriano in her counter-affidavit, the waiver pertains to penalty charges on the Floor Stock Line.
There is no showing that the waiver extinguished Soriano’s obligation to "sell the [merchandise] for cash for [LISAM’s]
account and to deliver the proceeds thereof to PNB to be applied against its acceptance on [LISAM’s] account." Soriano
further agreed to hold the "vehicles and proceeds of the sale thereof in Trust for the payment of said acceptance and of
any of its other indebtedness to PNB." Well-settled is the rule that, with respect to obligations to pay a sum of
money, the obligation is not novated by an instrument that expressly recognizes the old, changes only the terms
of payment, adds other obligations not incompatible with the old ones, or the new contract merely supplements
the old one. Besides, novation does not extinguish criminal liability. It stands to reason therefore, that Soriano’s
criminal liability under the TR’s subsists considering that the civil obligations under the Floor Stock Line secured
by TR’s were not extinguished by the purported restructured Omnibus Line
DISPOSITIVE PORTION: WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. SP
No. 76243 finding no grave abuse of discretion on the part of the Secretary of Justice is REVERSED and SET ASIDE
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[04 Trust Receipts] ILDEFONSO S. CRISOLOGO, Petitioner, v. PEOPLE OF THE PHILIPPINES and CHINA

BANKING CORPORATION, Respondents. G.R. No. 199481, Dec. 3, 2012
TOPIC: Guarantee Clause; liability for trust receipts and L/C transactions; Section 13 of the Trust Receipts Law
Ponente: PERLAS-BERNABE, J.:
DOCTRINE: Section 13 of the Trust Receipts Law explicitly provides that if the violation or offense is committed by a
corporation, the penalty provided for under the law shall be imposed upon the directors, officers, employees or other
officials or person responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense.
FACTS: Petitioner Crisologo, as President of Novachemical Industries, Inc. (Novachem), applied for commercial letters
of credit from private respondent Chinabank to finance the purchase of 1,600 kgs. of amoxicillin trihydrate micronized
from Hyundai Chemical Company based in Seoul and glass containers from San Miguel Corporation. Subsequently,
Chinabank issued Letters of Credit Nos. 89/0301 and DOM-33041 in the respective amounts of US$114,400.007 with a
peso equivalent of P2,139,119.80 and P1,712,289.90. After petitioner Crisologo received the goods, he executed for and
in behalf of Novachem the corresponding trust receipt agreements dated May 1989 and August 1989 in favor of
Chinabank.
Chinabank filed a Complaint-Affidavit charging Crisologo for violation of P.D. No. 115 in relation to Article 315 1(b) of the
RPC for his purported failure to turn-over the goods or the proceeds from the sale thereof, despite repeated demands. It
averred that Novachem, with intent to defraud, and with unfaithfulness and abuse of confidence, misapplied,
misappropriated and converted the goods subject of the trust agreements, to its damage and prejudice.
Crisologo claimed that as a regular client of Chinabank, Novachem was granted a credit line and letters of credit (L/Cs)
secured by trust receipt agreements. The subject L/Cs were included in the special term-payment arrangement mutually
agreed upon by the parties, and payable in installments. In the payment of its obligations, Novachem would normally give
instructions to Chinabank as to what particular L/C or trust receipt obligation its payments would be applied. However, the
latter deviated from the special arrangement and misapplied payments intended for the subject L/Cs and exacted
unconscionably high interests and penalty charges.
RTC: acquitted Crisologo for criminal charges but adjudged him civilly liable to Chinabank under under L/C Nos.
89/0301 and DOM-33041(the subject L/Cs)
CA: affirmed; since Crisologo signed the "Guarantee Clause" of the trust receipt agreements in his personal capacity and
even waived the benefit of excussion against Novachem. As such, he is personally and solidarily liable with Novachem.
Crisologo contends that the CA erred in declaring him civilly liable under the subject L/Cs which are corporate obligations
of Novachem, and that the adjudged amounts were without factual basis because the obligations had already been
settled.
ISSUE: WON Crisologo should be civilly liable under the subject L/Cs. YES, but only with respect to L/C Nos.
89/0301. As to DOM-33041, he is absolved from civil liability because it does not bear the signature of petitioner
Crisologo in the guarantee clause.
RULING: Section 13 of the Trust Receipts Law explicitly provides that if the violation or offense is committed by a
corporation, as in this case, the penalty provided for under the law shall be imposed upon the directors, officers,
employees or other officials or person responsible for the offense, without prejudice to the civil liabilities arising from the
criminal offense.
In this case, petitioner was acquitted of the charge for violation of the Trust Receipts Law in relation to Article 315 1(b)13
of the RPC. As such, he is relieved of the corporate criminal liability as well as the corresponding civil liability
arising therefrom. However, as correctly found by the RTC and the CA, he may still be held liable for the trust
receipts and L/C transactions he had entered into in behalf of Novachem.
Settled is the rule that debts incurred by directors, officers, and employees acting as corporate agents are not their direct
liability but of the corporation they represent, except if they contractually agree/stipulate or assume to be personally
liable for the corporation’s debts, as in this case.
The RTC and the CA adjudged petitioner personally and solidarily liable with Novachem for the obligations secured by the
subject trust receipts based on the finding that he signed the guarantee clauses therein in his personal capacity and
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even waived the benefit of excussion.
However, a review of the records shows that petitioner signed only the guarantee clauses of the Trust Receipt
dated May 24, 1989 and the corresponding Application and Agreement for Commercial Letter of 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. DOM-33041
issued to SMC for the 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, reveals that the same d oes
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.
DOM-33041). 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.
DISPOSITIVE PORTION: WHEREFORE, the assailed November 23, 2011 Decision of the Court of Appeals in CA-G.R.
CV No. 80350 is AFFIRMED with the modification absolving petitioner lldefonso S. Crisologo from any civil liability to
private respondent China Banking Corporation with respect to the Trust Receipt dated August 31, 1989 and L/C No.
DOM-33041. The rest of the Decision stands
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2016)
[05 Trust Receipts] METROPOLITAN BANK & TRUST COMPANY, Petitioner, v. HON. SECRETARY OF JUSTICE
RAUL M. GONZALES, OLIVER T. YAO and DIANA T. YAO, Respondents. G.R. No. 180165, April 7, 2009
Topic: Section 13 of Presidential Decree No. 115
Ponente: CHICO-NAZARIO, J.
DOCTRINE: 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
said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt
shall constitute the crime of estafa.
FACTS:
In order to finance the importation of materials necessary for the operations of Visaland Inc.’s sister company, Titan Ikeda
Construction and Development Corporation (TICDC), private respondents (Gonzales et al. as representatives of
Visaland), applied with petitioner Metropolitan bank for 24 letters of credit, the aggregate amount of which reached the
sum of P68,749,487.96. Simultaneous with the issuance of the letters of credit, private respondents signed trust receipts
in favor of petitioner bank. Private respondents bound themselves to sell the goods covered by the letters of credit and to
remit the proceeds to petitioner bank, if sold, or to return the goods, if not sold, on or before their agreed maturity dates.

However, respondents failed to return the goods to petitioner despite demand. Thus, petitioner bank filed a criminal
complaint for estafa against Visaland and private respondents with the Office of the City Prosecutor of Manila.
Private respondents denied having entered into trust receipt transactions. They claimed that the contract entered into by
the parties was a Contract of Loan secured by a Real Estate Mortgage over two parcels of land situated
at Tagaytay City and registered under the name of the spouses Wilbert and Isabelita King (the spouses King). According
to respondents, petitioner bank made them sign documents bearing fine prints without apprising them of the real nature of
the transaction involved. Respondents came to know of the trust receipt transaction only after they were served a copy of
the Affidavit-Complaint of the petitioner bank.

Acting on the directive of the Secretary of Justice, the City Prosecutor moved for the withdrawal of the Information’s which
was granted by the RTC. On a petition for Certiorari, the CA held that the Secretary of Justice committed no grave abuse
of discretion in ruling against the existence of probable cause to prosecute private respondents.
Asserting their innocence, private respondents continue to argue that the agreement contracted by parties is one of loan,
and not of trust receipt. Private respondents aver that a contract of mortgage was executed by the spouses King to secure
private respondents loan obligation with petitioner, the proceeds of which were the ones utilized to finance the importation
of materials.
Petitioner bank impugns the findings of the appellate court sustaining the non-existence of probable cause as found by
the Secretary of Justice.
ISSUE: WON probable cause exists for holding private respondents liable for estafa in relation to Presidential Decree No.
115.  Yes.
RULING: In the present case, the abuse of discretion is patent in the act of the Secretary of Justice holding that the
contractual relationship forged by the parties was a simple loan, for in so doing, the Secretary of Justice assumed the
function of the trial judge of calibrating the evidence on record, done only after a full-blown trial on the merits. The fact of
existence or non-existence of a trust receipt transaction is evidentiary in nature, the veracity of which can best be
passed upon after trial on the merits, for it is virtually impossible to ascertain the real nature of the transaction involved
based solely on the self-serving allegations contained in the opposing parties' pleadings. Clearly, the Secretary of Justice
is not in a competent position to pass judgment on substantive matters. The bases of a party's accusation and defenses
are better ventilated at the trial proper than at the preliminary investigation.
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. 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;
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(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 non-sale 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.

The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released under a
trust receipt to the entrustee to the extent of the amount owed to the entruster or as appears in the trust receipt; or to the
return of the goods, documents or instruments in case of non-sale; and to the enforcement of all other rights conferred on
him in the trust receipt, provided these are not contrary to the provisions of the document. A violation of any of these
undertakings constitutes estafa defined under Article 315(1)(b) of the Revised Renal Code, as provided by Section 13 of
Presidential Decree No. 115.
Section 13. Penalty Clause. 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
said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall
constitute the crime of estafa, xxx xx
In the Complaint-Affidavit of petitioner bank, private respondents were charged with failing to account for or turn over to
petitioner the merchandise or goods covered by the trust receipts or the proceeds of the sale thereof in payment of their
obligations thereunder. The following pieces of evidence adduced from the affidavits and documents submitted before the
City Prosecutor are sufficient to establish the existence of probable cause, to wit: the trust receipts bearing the genuine
signatures of private respondents; the demand letter of petitioner addressed to respondents; and the initial admission by
private respondents of the receipt of the imported goods from petitioner.
Prescinding from the foregoing, we conclude that there is ample evidence on record to warrant a finding that there
is a probable cause to warrant the prosecution of private respondents for estafa.
That private respondents did not sell the goods under the trust receipt but allowed it to be used by their sister company is
of no moment. The offense punished under Presidential Decree No. 115 is in the nature of malum prohibitum. 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. Even more incredible is the contention of
private respondents that they did not give much significance to the documents they signed, considering the enormous
value of the transaction involved. Thus, it is highly improbable to mistake trust receipt documents for a contract of
loan when the heading thereon printed in bold and legible letters reads: Trust Receipts. We are not prejudging
this case on the merits. However, by merely glancing at the documents submitted by petitioner entitled Trust
Receipts and the arguments advanced by private respondents, we are convinced that there is probable cause to
file the case and to hold them for trial.
DISPOSITIVE PORTION: WHEREFORE, premises considered, the instant Petition is GRANTED. The Decision dated 30
March 2007 and the Resolution dated 16 October 2007 of the Court of Appeals in CA-G.R. SP No.
91892 are REVERSED and SET ASIDE.
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2016)
[06 Trust Receipts] ALFREDO CHING, petitioner, vs. HON. COURT OF APPEALS, HON. ZOSIMO Z. ANGELES,
RTC - BR. 58, MAKATI, METRO MANILA, PEOPLE OF THE PHILIPPINES AND ALLIED BANKING
CORPORATION, respondents. G.R. No. 110844. April 27, 2000
Topic: estafa vis a vis trust receipts
Ponente: Buena, J.
Doctrine: An act violative of a trust receipt agreement is only one mode of committing estafa under the abovementioned
provision of the Revised Penal Code. Stated differently, a violation of a trust receipt arrangement is not the sole basis for
incurring liability under Article 315 1(b) of the Code.
A civil case contesting the validity of a certain trust receipt is not a prejudicial question that would warrant the suspension
of criminal proceedings for estafa.
_________________________________________________________________________________________________
Facts: Petitioner Alfredo Ching was charged with 4 counts of estafa punishable under Article 315 (1)(b) of the RPC, in
relation to PD No. 115 or the Trust Receipts Law. The information stated that Ching executed a trust receipt agreement in
favor of Allied Banking Corporation (ABC) in Makati City. This is in consideration of the receipt by the Ching of the goods.
Ching agreed to sell for cash with express obligation to remit to ABC proceeds of the sale and/or turn over goods if not
sold on demand. However after having possession, Ching misapplied and convert for his personal use and benefit said
goods and/or proceeds.
Alfredo Ching and Philippine Blooming Mills Inc. filed a case before RTC (civil action) for declaration of nullity of
documents and damages against Allied Banking Corporation. Later on, Ching filed petition before RTC for suspension of
criminal proceedings on ground of prejudicial question in civil action. The prosecution opposed. The RTC denied petition
for suspension.
Petitioner Ching in its amended complaint (civil case) stated that the Trust Receipts are null and void for failure to express
the true intent and agreement of the parties; and that the transaction is one of pure and simple loan without any trust
receipt agreement and/or not one involving a trust receipt. On the other hand, respondent Allied Banking Corporation
contends the transaction applied for was a "letter of credit/trust receipt accommodation" and not a "pure and simple loan
with the trust receipts as mere additional or side documents", as asserted by herein petitioner in its amended complaint.
Issue: Whether Ching can be held liable for estafa despite pendency of declaration of nullity of trust receipt documents?
 Yes, the civil action for declaration of nullity of documents and for damages does not constitute a prejudicial
question to the criminal cases for estafa filed against petitioner Ching.
_________________________________________________________________________________________________
Held: We agree with the findings of the trial court, as affirmed by the Court of Appeals, that no prejudicial question exists
in the present case. the alleged prejudicial question in the civil case for declaration of nullity of documents and for
damages, does not juris et de jure determine the guilt or innocence of the accused in the criminal action for estafa.
Assuming arguendo that the court hearing the civil aspect of the case adjudicates that the transaction entered into
between the parties was not a trust receipt agreement, nonetheless the guilt of the accused could still be established and
his culpability under penal laws determined by other evidence. To put it differently, even on the assumption that the
documents are declared null, it does not ipso factofollow that such declaration of nullity shall exonerate the accused from
criminal prosecution and liability. Accordingly, the prosecution may adduce evidence to prove the criminal liability of the
accused for estafa.
The criminal liability of the accused for violation of Article 315 1(b) of the Revised Penal Code, may still be shown through
the presentation of evidence to the effect that: (a) the accused received the subject goods in trust or under the obligation
to sell the same and to remit the proceeds thereof to Allied Banking Corporation, or to return the goods, if not sold; (b) that
accused Ching misappropriated or converted the goods and/or the proceeds of the sale; (c) that accused Ching
performed such acts with abuse of confidence to the damage and prejudice of Allied Banking Corporation; and (d) that
demand was made by the bank to herein petitioner.
On the other hand, Section 13 of Trust Receipt Law provides that the “failure of an entrustee to turn over proceeds of
sales of goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the entrustee or
as it appears in the trust receipt or to return said goods. Documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under RPC 315 (1)(b).”
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2016)
We must stress though, that an act violative of a trust receipt agreement is only one mode of committing estafa
under the abovementioned provision of the Revised Penal Code. Stated differently, a violation of a trust receipt
arrangement is not the sole basis for incurring liability under Article 315 1(b) of the Code.
The Court also emphasized that “the concept in which petitioner [Ching] signed the trust receipts, that is whether he
signed the trust receipts as such trust receipts or as a mere evidence of a pure and simple loan transaction is not decisive
because precisely, a trust receipt is a security agreement of an indebtedness." Hence, contrary to petitioner Ching’s
assertions, a trust receipt is not merely an additional or side document to a principal contract.
As elucidated in Samo vs. People, a trust receipt is considered a security transaction intended to aid in financing
importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise
imported or purchased. Further, a trust receipt is a document in which is expressed a security transaction whereunder the
lender, having no prior title in the goods on which the lien is to be given and not having possession which remains in the
borrower, lends his money to the borrower on security of the goods which the borrower is privileged to sell clear of the lien
with an agreement to pay all or part of the proceeds of the sale to the lender. It is a security agreement pursuant to which
a bank acquires a "security interest" in the goods. It secures an indebtedness and there can be no such thing as security
interest that secures no obligation.
Clearly, a trust receipt partakes the nature of a security transaction. It could never be a mere additional or side
document as alleged by petitioner. Otherwise, a party to a trust receipt agreement could easily renege on its obligations
thereunder, thus undermining the importance and defeating with impunity the purpose of such an indispensable tool in
commercial transactions. Of equal importance is the fact that in his complaint in [the said civil case], petitioner [Ching]
alleged that the trust receipts were executed and intended as collateral or security. Pursuant to the rules, such particular
allegation in the complaint is tantamount to a judicial admission on the part of petitioner Ching to which he must be bound.
_________________________________________________________________________________________________
Dispositive: WHEREFORE, premises considered, the assailed decision and resolution of CA is hereby affirmed, and
instant petition is dismissed for lack of merit. Accordingly the RTC of Makati Branch 58, is hereby directed to proceed with
the hearing and trial on the merits of Criminal Case Nos. 92-0934 to 9200937, inclusive and to expedite proceedings
therein, without prejudice to the right of the accused to due process.
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2016)
[07 Trust Receipts] MELVIN COLINARES and LORDINO VELOSO, petitioners, vs. HONORABLE COURT OF
APPEALS, and THE PEOPLE OF THE PHILIPPINES, respondents. G.R. No. 90828. September 5, 2000
Topic: Difference between Trust Receipts and a simple loan transaction
Ponente: Davide, J.
DOCTRINE: Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt transaction as any transaction by
and between a person referred to as the entruster, and another person referred to as the entrustee, whereby the entruster
who owns or holds absolute title or security interest over certain specified goods, documents or instruments, releases the
same to the possession of the entrustee upon the latters execution and delivery to the entruster of a signed document
called a trust receipt wherein the entrustee binds himself to hold the designated goods, documents or instruments with the
obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as
appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise
disposed of, in accordance with the terms and conditions specified in the trust receipt.
FACTS: Petitioners Melvin Colinares and Lordino Veloso were contracted for a consideration of P40,000 by the
Carmelite Sisters of Cagayan de Oro City to renovate the convent at Camaman-an, Cagayan de Oro City.
Petitioners obtained 5,376 SF Solatone acoustical board 2x4x, 300 SF tanguile wood tiles 12x12, 260 SF Marcelo
economy tiles and 2 gallons UMYLIN cement adhesive from CM Builders Centre for the construction project. The
following day, petitioners applied for a commercial letter of credit with the Philippine Banking Corporation (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. The loan was due on 29 January 1980.
PBC debited P6,720 from Petitioners marginal deposit as partial payment of the loan. Eventually, PBC wrote to petitioners
demanding that the amount be paid within seven days from notice. Instead of complying with PBCs 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.
However, PBC sent a new demand letter to petitioners and informed them of their outstanding balance. Petitioners then
proposed that the terms of payment of the loan be modified as follows: P2,000 on or before 3 December 1980, and
P1,000 per month starting 31 January 1980 until the account is fully paid. Pending approval of the proposal, Petitioners
made some payments. Despite this, PBC continued to demand payment of the balance.
Petitioners were then charged with the violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of the RPC.
Petitioner Veloso insisted that the transaction was a clean loan as per verbal guarantee of Cayo Garcia Tuiza, PBCs
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 RTC convicted petitioners of estafa for violating P.D. No. 115 in relation to Article 315 of the RPC. It concluded that
the failure of petitioners to turn over the amount they owed to PBC constituted estafa.
ISSUE: (What is the true nature of the contract between Petitioners and the PBC)
Whether or not the nature of the transaction is an ordinary loan and not a trust receipt agreement under the Trust
Receipts Law.  It is only a loan agreement.
RULING: 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.
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2016)
A thorough examination of the facts obtaining in the case at bar reveals that the transaction intended by the
parties was a simple loan, not a trust receipt agreement.
Petitioners 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.
Trust receipt transactions are intended to aid in financing importers and retail dealers who do not have sufficient funds or
resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except
through utilization, as collateral, of the merchandise imported or purchased.
The antecedent acts in a trust receipt transaction consist of the application and approval of the letter of credit, the making
of the marginal deposit and the effective importation of goods through the efforts of the importer.
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.
Also, it is important to know that the petitioners are not importers acquiring the goods for re-sale, contrary to the express
provision embodied in the trust receipt. They are contractors who obtained the fungible goods for their construction
project. At no time did title over the construction materials pass to the bank, but directly to the Petitioners from CM
Builders Centre. This impresses upon the trust receipt in question vagueness and ambiguity, which should not be the
basis for criminal prosecution in the event of violation of its provisions.
DISPOSITIVE PORTION: WHEREFORE, the challenged Decision of 6 March 1989 and the Resolution of 16 October
1989 of the Court of Appeals in CA-GR. No. 05408 are REVERSED and SET ASIDE. Petitioners are hereby ACQUITTED
of the crime charged, i.e., for violation of P.D. No. 115 in relation to Article 315 of the Revised Penal Code.
[08 Trust Receipts] Anthony L. Ng v. People of the Philippines G.R. No. 173905 April 23, 2010
Topic: RPC vis-à-vis Trust Receipts Law
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Ponente: Velasco, J.
_________________________________________________________________________________________________
Doctrine: ** Note: THIS IS A SUPR CASE see #2 case
_________________________________________________________________________________________________
FACTS: Petitioner Anthony Ng, then engaged in the business of building and fabricating telecommunication towers
under the trade name Capitol Blacksmith and Builders, applied for a credit line of PhP 3,000,000 with Asiatrust
Development Bank, Inc. (Asiatrust).
Asiatrust approved petitioners loan application. Petitioner Ng was then required to sign several documents, among which
are the Credit Line Agreement, Application and Agreement for Irrevocable L/C, Trust Receipt Agreements, and
Promissory Notes. Though the Promissory Notes matured on September 18, 1997, the two (2) aforementioned Trust
Receipt Agreements did not bear any maturity dates as they were left unfilled or in blank by Asiatrust.
After petitioner received the goods, consisting of chemicals and metal plates from his suppliers, he utilized them to
fabricate the communication towers ordered from him by his clients, which were installed. As petitioner realized difficulty in
collecting from his client Islacom, he failed to pay his loan to Asiatrust. Asiatrust then conducted a surprise ocular
inspection of petitioners business. Linga (AsiaTrust Representative) thereafter reported to Asiatrust that he found that
approximately 97% of the subject goods of the Trust Receipts were sold-out and that only 3 % of the goods remained.
A complaint-affidavit was filed before the Office of the City Prosecutor City. Consequently, an Information for Estafa, as
defined and penalized under Art. 315, par. 1(b) of the RPC in relation to Sec. 3, PD 115 or the Trust Receipts Law, was
filed with the RTC.
The RTC found petitioner Ng guilty of the crime of Estafa. The trial court declared that petitioner, being the entrustee
stated in the Trust Receipts issued by Asiatrust, is thus obliged to hold the goods in trust for the entruster and shall
dispose of them strictly in accordance with the terms and conditions of the trust receipts; otherwise, he is obliged to return
the goods in the event of non-sale or upon demand of the entruster, failing thus, he evidently violated the Trust Receipts
Law.
On appeal, he affirmed the RTC. Thereafter, petitioner filed this Petition for Review on Certiorari.
Issue: Whether or not petitioner is liable for Estafa under Art. 315, par. 1(b) of the RPC in relation to PD 115.  No.
RULING: The essential elements of Estafa are: (1) that money, goods or other personal property is received by the
offender in trust or on commission, or for administration, or under any obligation involving the duty to make delivery of or
to return it; (2) that there be misappropriation or conversion of such money or property by the offender, or denial on his
part of such receipt; (3) that such misappropriation or conversion or denial is to the prejudice of another; and (4) there is
demand by the offended party to the offender.
Likewise, Estafa can also be committed in what is called a trust receipt transaction under PD 115. In other words,
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 the owner of the merchandise sold, while the second refers to the merchandise received under the
obligation to return it (devolvera) to the owner. A violation of any of these undertakings constitutes Estafa defined under
Art. 315, par. 1(b) of the RPC, as provided in Sec. 13 of PD 115, viz:
Section 13. Penalty Clause.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 said goods, documents or instruments if they were
not 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 fifteen, paragraph one (b) of Act
Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the Revised
Penal Code. x x x (Emphasis supplied.)

A thorough examination of the facts obtaining in the instant case, however, reveals that the transaction between petitioner
and Asiatrust is not a trust receipt transaction but one of simple loan.
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PD 115 Does Not Apply

It must be remembered that petitioner was transparent to Asiatrust from the very beginning that the subject goods were
not being held for sale but were to be used for the fabrication of steel communication towers in accordance with his
contracts with Islacom, Smart, and Infocom. In these contracts, he was commissioned to build, out of the materials
received, steel communication towers, not to sell them.
As stressed in Samo v. People, a trust receipt is considered a security transaction intended to aid in financing importers
and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise,
and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or
purchased. Similarly, American Jurisprudence demonstrates that trust receipt transactions always refer to a method of
financing importations or financing sales. The principle is of course not limited in its application to financing importations,
since the principle is equally applicable to domestic transactions. Regardless of whether the transaction is foreign or
domestic, it is important to note that the transactions discussed in relation to trust receipts mainly involved sales.
Following the precept of the law, such transactions affect situations wherein the entruster, who owns or holds absolute
title or security interests over specified goods, documents or instruments, releases the subject goods to the possession of
the entrustee. The release of such goods to the entrustee is conditioned upon his execution and delivery to the entruster
of a trust receipt wherein the former binds himself to hold the specific goods, documents or instruments in trust for the
entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the
entruster the proceeds to the extent of the amount owing to the entruster or the goods, documents or instruments
themselves if they are unsold. Similarly, we held in State Investment House v. CA, et al. that the entruster is entitled only
to the proceeds derived from the sale of goods released under a trust receipt to the entrustee.
Considering that the goods in this case were never intended for sale but for use in the fabrication of steel communication
towers, the trial court erred in ruling that the agreement is a trust receipt transaction.
Having established the inapplicability of PD 115, this Court finds that petitioners liability is only limited to the satisfaction of
his obligation from the loan. The real intent of the parties was simply to enter into a simple loan agreement.
To emphasize, the Trust Receipts Law was created to to aid in financing importers and retail dealers who do not
have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be
able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased . Since
Asiatrust knew that petitioner was neither an importer nor retail dealer, it should have known that the said agreement
could not possibly apply to petitioner.
Moreover, this Court finds that petitioner is not liable for Estafa both under the RPC and PD 115.
_________________________________________________________________________________________________
DISPOSITIVE: WHEREFORE, the CA Decision dated August 29, 2003 affirming the RTC Decision dated May 29, 2001
is SET ASIDE. Petitioner ANTHONY L. NG is hereby ACQUITTED of the charge of violation of Art. 315, par. 1(b) of the
RPC in relation to the pertinent provision of PD 115. SO ORDERED.
**** Note case #9 is supra of case #1
18
2016)
[10 Trust Receipts] ALLIED BANKING CORPORATION, Petitioner, vs. HON. SECRETARY SEDFREY ORDOÑEZ
(Public Respondent) and ALFREDO CHING (Private Respondent), Respondents.
G.R. 82495, December 10, 1990
Topic: Penal provision of PD 115
Ponente: PADILLA, J.
_________________________________________________________________________________________________
DOCTRINES: [In] trust receipts, there is an obligation to repay the entruster. Their terms are to be interpreted in
accordance with the general rules on contracts, the law being alert in all cases to prevent fraud on the part of either party
to the transaction. The entrustee binds himself to sell or otherwise dispose of the entrusted goods with the obligation to
turn over to the entruster the proceeds if sold, or return the goods if unsold or not otherwise disposed of, in accordance
with the terms and conditions specified in the trust receipt. A violation of this undertaking constitutes estafa under Sec. 13,
PD 115.
The non-payment of the amount covered by a trust receipt is an act violative of the entrustee's obligation to pay. There is
no reason why the law should not apply to all transactions covered by trust receipts, except those expressly excluded.
The penal provision of PD 115 encompasses any act violative of an obligation covered by the trust receipt; it is not limited
to transactions in goods which are to be sold (retailed), reshipped, stored or processed as a component of a product
ultimately sold.
_________________________________________________________________________________________________
FACTS:Philippine Blooming Mills (PBM) thru its duly authorized officer, private respondent Alfredo Ching, applied for the
issuance of commercial letters of credit with Allied Banking Corp (Allied Bank) Makati branch to finance the purchase of
500 M/T Magtar Branch Dolomites and one (1) Lot High Fired Refractory Sliding Nozzle Bricks.
Allied Bank issued an irrevocable letter of credit in favor of Nikko Industry Co., Ltd. (Nikko)(seller of the goods) by virtue of
which the latter drew four (4) drafts which were accepted by PBM and duly honored and paid by Allied Bank.
To secure payment of the amount covered by the drafts, and in consideration of the transfer by Allied Bank of the
possession of the goods to PBM; PBM as entrustee, thru Ching, executed four (4) Trust Receipt Agreements with maturity
dates on 19 May, 3 and 24 June 1981 acknowledging Allied Bank’s ownership of the goods and its ( PBM'S) obligation to
turn over the proceeds of the sale of the goods, if sold, or to return the same, if unsold within the stated period.
Out of the said obligation resulted an overdue amount of P1,475,274.09. Despite repeated demands, PBM failed and
refused to either turn over the proceeds of the sale of the goods or to return the same.
Allied Bank filed a criminal complaint against Ching for violation of PD 115 before the office of the Provincial Fiscal of
Rizal. The Fiscal found a prima facie case for violation of PD 115 on four (4) counts and filed the information in court.
Ching appealed the Fiscal's resolution to the Department of Justice which Secretary Neptali A. Gonzales held that Ching’s
failure to remit to the complainant proceeds of the sale of the finished products if sold or the finished products themselves
if not sold, at the maturity dates of the trust receipts, constitutes a violation of P.D. 115.
Ching filed a supplemental request for reconsideration dated 28 December 1987 stating that: “…there could be no
violation of the trust receipt agreements because the articles imported by the corporation and subject of the trust
receipts were fungible or consummable goods and do not form part of the steel product itself. These goods were
not procured to be sold in whatever state or condition they were in or were supposed to be after the
manufacturing process."
The New Justice Secretary Sedfrey Ordoñez, on 11 January 1988, rectified previous ruling, stating that said transactions
are not covered by PD115. Allied Bank filed a motion for reconsideration of the Ordoñez resolution, which was denied,
stating:
". . . The goods subject of the instant case were shown to have been used and/or consumed in the operation of
the equipment and machineries of the corporation, and are therefore outside the ambit of the provisions of PD 115
albeit covered by Trust Receipt agreements . . . trust receipts under PD 115 are treated as security documents for
basically loan transactions, so much so that criminal liability is virtually obliterated and limiting liability of the
accused to the civil aspect only.
Hence, this petition.
19
2016)
ISSUE: Does the penal provision of PD 115 (Trust Receipts Law) apply when the goods covered by a Trust
Receipt do not form part of the finished products which are ultimately sold but are instead, utilized/used up in
the operation of the equipment and machineries of the entrustee-manufacturer?  Yes.
RULING: Section 4 of said PD 115 says in part:

"Sec. 4. What constitutes a trust receipt transaction. — A trust receipt transaction, within the meaning of this
Decree, is any transaction by and between a person referred to in this Decree as the entrustee, and another
person referred to in this Decree as the entrustee, whereby the entruster, who owns or holds absolute title or
security interests over certain specified goods, documents or instruments, releases the same to the possession of
the entrustee upon the latter's execution and delivery to the entruster of a signed document called a 'trust receipt'
wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the
entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over
to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust
receipt or the goods, documents or instruments themselves, if they are unsold or not otherwise disposed of, in
accordance with the terms and conditions specified in the trust receipt, . . ."
Ching contends that PBM is not in the business of selling Magtar Branch Dolomites or High Fired Refractory Sliding
Nozzle Bricks, it is a manufacturer of steel and steel products. But PBM, as entrustee under the trust receipts has, under
Sec. 9 of PD 115, the following obligations, inter alia: (a) receive the proceeds of sale, in trust for the entruster and turn
over the same to the entruster to the extent of the amount owing to him or as appears on the trust receipt; (b) keep said
goods or proceeds thereof whether in money or whatever form, separate and capable of identification as property of the
entruster; (c) return the goods, documents or instruments in the event of non-sale, or upon demand of the entruster; and
(d) observe all other terms and conditions of the trust receipt not contrary to the provisions of said Decree.
[In] trust receipts, there is an obligation to repay the entruster. Their terms are to be interpreted in accordance
with the general rules on contracts, the law being alert in all cases to prevent fraud on the part of either party to
the transaction. The entrustee binds himself to sell or otherwise dispose of the entrusted goods with the
obligation to turn over to the entruster the proceeds if sold, or return the goods if unsold or not otherwise
disposed of, in accordance with the terms and conditions specified in the trust receipt. A violation of this
undertaking constitutes estafa under Sec. 13, PD 115.
Even assuming the absence of a clear provision in the trust receipt agreement: Acts involving the violation of trust receipt
agreements occurring after 29 January 1973 (when PD 115 was issued) would render the accused criminally liable for
estafa under par. 1(b), Art. 315 of the Revised Penal Code, pursuant to the explicit provision in Sec. 13 of PD 115. 12
The act punishable is malum prohibitum. Respondent Secretary's prognostication of the Supreme Court's supposed
inclination to treat trust receipts as mere security documents for loan transactions, thereby obliterating criminal
liability, appears to be a misjudgment.
In an attempt to escape criminal liability, Ching claims PD 115 covers goods which are ultimately destined for sale and not
goods for use in manufacture. But the wording of Sec. 13 covers failure to turn over the proceeds of the sale of entrusted
goods, or to return said goods if unsold or disposed of in accordance with the terms of the trust receipts. Private
respondent claims that at the time of PBM's application for the issuance of the LC's, it was not represented to the
petitioner that the items were intended for sale, hence, there was no deceit resulting in a violation of the trust receipts,
which would constitute a criminal liability. Again, we cannot uphold this contention. The non-payment of the amount
covered by a trust receipt is an act violative of the entrustee's obligation to pay. There is no reason why the law
should not apply to all transactions covered by trust receipts, except those expressly excluded.
The Court takes judicial notice of customary banking and business practices where trust receipts are used for importation
of heavy equipment, machineries and supplies used in manufacturing operations. We are perplexed by the statements in
the assailed DOJ resolution that the goods subject of the instant case are outside the ambit of the provisions of PD 115
albeit covered by Trust Receipt Agreements (17 February 1988 resolution) and that not all transactions covered by trust
receipts may be considered as trust receipt transactions defined and penalized under PD 115 (11 January 1988
resolution). A construction should be avoided when it affords an opportunity to defeat compliance with the terms of a
statute.:
"A construction of a statute which creates an inconsistency should be avoided when a reasonable interpretation can be
adopted which will not do violence to the plain words of the act and will carry out the intention of Congress.
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2016)
In the construction of statutes, the courts start with the assumption that the legislature intended to enact an effective law,
and the legislature is not to be presumed to have done a vain thing in the enactment of a statute. Hence, it is a general
principle, embodied in the maxim, 'ut res magis valeat quam pereat,' that the courts should, if reasonably possible to do
so without violence to the spirit and language of an act, so interpret the statute to give it efficient operation and effect as a
whole. An interpretation should, if possible, be avoided, under which a statute or provision being construed is defeated, or
as otherwise expressed, nullified, destroyed, emasculated, repealed, explained away, or rendered insignificant,
meaningless, inoperative, or nugatory."
The penal provision of PD 115 encompasses any act violative of an obligation covered by the trust receipt; it is
not limited to transactions in goods which are to be sold (retailed), reshipped, stored or processed as a
component of a product ultimately sold.
To uphold the Justice Department's ruling would contravene not only the letter but the spirit of PD 115.
"An examination of P.D. 115 shows the growing importance of trust receipts in Philippine business, the need to provide for
the rights and obligations of parties to a trust receipt transaction, the study of the problems involved and the action by
monetary authorities, and the necessity of regulating the enforcement of rights arising from default or violations of trust
receipt agreements. The legislative intent to meet a pressing need is clearly expressed . . ."
PD 115; Section 13. Penalty clause. 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 said goods, documents or instruments if they were not 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.
DISPOSITIVE PORTION: WHEREFORE, the petition is granted.
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2016)
[11 Trust Receipts] ROSARIO TEXTILE MILLS CORPORATION and EDILBERTO YUJUICO, petitioners, vs. HOME
BANKERS SAVINGS AND TRUST COMPANY, respondent G.R. No. 137232. June 29, 2005
Topic: Loan transaction vis a vis trust receipt
Ponente: SANDOVAL-GUTIERREZ, J.
_________________________________________________________________________________________________
DOCTRINE: A trust receipt as a security transaction intended to aid in financing importers and retail dealers who do not
have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to
acquire credit except through utilization, as collateral, of the merchandise imported or purchased. It is a security
agreement, pursuant to which a bank acquires a security interest in the goods. It secures an indebtedness and there can
be no such thing as security interest that secures no obligation.
_________________________________________________________________________________________________
FACTS: Sometime in 1989, Petitioner Rosario Textile Mills Corporation (RTMC) applied from Home Bankers Savings &
Trust Co. for an Omnibus Credit Line for P10 million. The bank approved RTMC’s credit line but for only P8 million. The
bank notified RTMC of the grant of the said loan thru a letter dated March 2, 1989, which contains terms, and conditions
conformed by RTMC thru petitioner Edilberto V. Yujuico. On March 3, 1989, Yujuico signed a Surety Agreement in
favor of the bank, in which he bound himself jointly and severally with RTMC for the payment of all RTMCs
indebtedness to the bank from 1989 to 1990. RTMC availed of the credit line by making numerous drawdowns, each
drawdown being covered by a separate promissory note and trust receipt. RTMC, represented by Yujuico, executed
in favor of the bank a total of 11 promissory notes.
Despite the lapse of the respective due dates under the promissory notes and notwithstanding the banks demand letters,
RTMC failed to pay its loans. Hence, the bank filed a complaint for sum of money against RTMC and Yujuico before the
RTC.
RTMC and Yujuico contend that they should be absolved from liability. They claimed that although the grant of the credit
line and the execution of the suretyship agreement are admitted, the bank gave assurance that the suretyship
agreement was merely a formality under which Yujuico will not be personally liable. They argue that the importation
of raw materials under the credit line was with a grant of option to them to turn-over to the bank the imported raw
materials should these fail to meet their manufacturing requirements. RTMC offered to make such turn-over since the
imported materials did not conform to the required specifications. However, the bank refused to accept the same, until
the materials were destroyed by a fire which gutted down RTMCs premises.
For failure of the parties to amicably settle the case, trial on the merits proceeded. After the trial, the Court a quo rendered
a decision in favor of the bank.
_________________________________________________________________________________________________
ISSUES:
1. Whether petitioners are relieved of their obligation to pay their loan after they tried to tender the goods to the bank
which refused to accept the same, and which goods were subsequently lost in a fire  No, they are not relieved of their
obligation to pay their loan.
2. Whether petitioners are solidarily liable for the payment of their obligations to the bank  Yes.
3. [Whether the principal transaction between the parties was a loan]  Yes.
________________________________________________________________________________________________
Ruling:
1. On the first issue, petitioners theorize that when petitioner RTMC imported the raw materials needed for its
manufacture, using the credit line, it was merely acting on behalf of the bank, the true owner of the goods by virtue of the
trust receipts. Hence, under the doctrine of res perit domino, the bank took the risk of the loss of said raw materials.
RTMCs role in the transaction was that of end user of the raw materials and when it did not accept those materials as they
did not meet the manufacturing requirements, RTMC made a valid and effective tender of the goods to the bank. Since
the bank refused to accept the raw materials, RTMC stored them in its warehouse. When the warehouse and its contents
were gutted by fire, petitioners obligation to the bank was accordingly extinguished.
Petitioners stance, however, conveniently ignores the true nature of its transaction with the bank. We recall that RTMC
filed with the bank an application for a credit line in the amount of P10 million, but only P8 million was approved. RTMC
then made withdrawals from this credit line and issued several promissory notes in favor of the bank. In banking and
commerce, a credit line is that amount of money or merchandise which a banker, merchant, or supplier agrees to supply
to a person on credit and generally agreed to in advance. It is the fixed limit of credit granted by a bank, retailer, or credit
card issuer to a customer, to the full extent of which the latter may avail himself of his dealings with the former but which
he must not exceed and is usually intended to cover a series of transactions in which case, when the customers line of
22
2016)
credit is nearly exhausted, he is expected to reduce his indebtedness by payments before making any further drawings.
It is thus clear that the principal transaction between petitioner RTMC and the bank is a contract of loan. RTMC
used the proceeds of this loan to purchase raw materials from a supplier abroad. In order to secure the payment of the
loan, RTMC delivered the raw materials to the bank as collateral. Trust receipts were executed by the parties to evidence
this security arrangement. Simply stated, the trust receipts were mere securities.
In Samo vs. People, we described a trust receipt as a security transaction intended to aid in financing importers
and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the
merchandise imported or purchased.
In Vintola vs. Insular Bank of Asia and America, we elucidated further that a trust receipt, therefore, is a security
agreement, pursuant to which a bank acquires a security interest in the goods. It secures an indebtedness
and there can be no such thing as security interest that secures no obligation. Section 3 (h) of the Trust Receipts
Law (P.D. No. 115) defines a security interest as follows:
(h) Security Interest means a property interest in goods, documents, or instruments to secure performance of some
obligation of the entrustee or of some third persons to the entruster and includes title, whether or not expressed to be
absolute, whenever such title is in substance taken or retained for security only.
Petitioners insistence that the ownership of the raw materials remained with the bank is untenable. If under the
trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of legal fiction than
fact, for if it were really so, it could dispose of the goods in any manner it wants, which it cannot do, just to give
consistency with purpose of the trust receipt of giving a stronger security for the loan obtained by the
importer. To consider the bank as the true owner from the inception of the transaction would be to disregard the
loan feature thereof. Thus, petitioners cannot be relieved of their obligation to pay their loan in favor of the bank.
2. Anent the second issue, petitioner Yujuico contends that the suretyship agreement he signed does not bind him, the
same being a mere formality. We reject petitioner Yujuicos contentions for two reasons. First, there is no record to support
his allegation that the surety agreement is a mere formality; and second, as correctly held by the Court of Appeals, the
Suretyship Agreement signed by petitioner Yujuico binds him. The terms clearly show that he agreed to pay the bank
jointly and severally with RTMC. The parole evidence rule under Section 9, Rule 130 of the Revised Rules of Court is in
point. Under this [provision], the terms of a contract are rendered conclusive upon the parties and evidence aliunde is not
admissible to vary or contradict a complete and enforceable agreement embodied in a document.
We have carefully examined the Suretyship Agreement signed by Yujuico and found no ambiguity therein. Documents
must be taken as explaining all the terms of the agreement between the parties when there appears to be no ambiguity in
the language of said documents nor any failure to express the true intent and agreement of the parties.
3. As to the third and final issue [a]t the risk of being repetitious, we stress that the contract between the parties is a
loan. What respondent bank sought to collect as creditor was the loan it granted to petitioners. Petitioners recourse is to
sue their supplier, if indeed the materials were defective.
_________________________________________________________________________________________________
Dispositive: WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals in CA-
G.R. CV No. 48708 are AFFIRMED IN TOTO. Costs against petitioners.
SO ORDERED.
[12 Trust Receipts] SPOUSES TIRSO I. VINTOLA AND LORETO DY VINTOLA vs. INSULAR BANK OF ASIA AND
AMERICA G.R. No. 73271 May 29, 1987
23
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Topic: Liability in case of violation of Trust Receipts Law
Ponente: MELENCIO-HERRERA J.:
_______________________________________________________________________________________________
DOCTRINE: A trust receipt is a security agreement, pursuant to which a bank acquires a security interest in the goods. It
secures an indebtedness and there can be no such thing as security interest that secures no obligation. As defined in our
laws:
(h) Security Interest means a property interest in goods, documents or instruments to secure performance of
some obligations of the entrustee or of some third persons to the entruster and includes title, whether or not expressed to
be absolute, whenever such title is in substance taken or retained for security only. [Section 3 PD 115]
Violation of Trust Receipts Law is criminal in character. Return of the goods if unsold merely extinguishes the
entrustee’s criminal liability. He is still civilly liable for the unpaid loan.
_________________________________________________________________________________________________
FACTS: Petitioner spouses Tirso and Loreta Vintola doing business under the name and style "Dax Kin International,"
engaged in the manufacture of raw sea shells into finished products, applied for and were granted a domestic letter of
credit by respondent Insular Bank of Asia and America (IBAA) in the amount of P40,000.00. The Letter of Credit
authorized the bank to negotiate for their account drafts drawn by their supplier, Stalin Tan, on Dax Kin International for
the purchase of puka and olive seashells. In consideration thereof, the spouses 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.”
Having received from Stalin Tan the puka and olive shells worth P40,000.00, the VINTOLAS executed a Trust Receipt
agreement with IBAA. Under that Agreement, the VINTOLAS agreed to hold the goods in trust for IBAA as the "latter's
property with liberty to sell the same for its account, " and "in case of sale" to turn over the proceeds 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.
CFI: ACQUITTED the VINTOLAS of the crime charged, after finding that the element of misappropriation or conversion
was inexistent.
IBAA then commenced the present civil action to recover the value of the goods.
CA: Holding that the complaint was barred by the judgment of acquittal in the criminal case, CA dismissed the complaint,
however, upon motion by IBAA, CA granted the reconsideration.
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. They
maintain that by intervening actively in the prosecution of the criminal case through a private prosecutor, IBAA had chosen
to file the civil action impliedly with the criminal action. Further, the VINTOLAS take the position that their obligation to
IBAA has been extinguished inasmuch as, through no fault of their own, they were unable to dispose of the seashells, and
that they have relinguished possession thereof to the IBAA, as owner of the goods, by depositing them with the Court.
_________________________________________________________________________________________________
ISSUE: Whether or not the acquittal of the Sps. Vintola in the criminal charge of estafa extinguished their civil liability
_________________________________________________________________________________________________
RULING: NO. The SC struck down the position of the petitioner-spouses that their obligation to the entruster bank had
been extinguished when they relinquished possession of the goods in question.
Contrary to the allegations 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.
x x x for the bank has previously extended a loan which the L/C represents to the importer, and by that loan,
24
2016)
the importer should be the real owner of the goods. If under the trust receipt, the bank is made to appear as
the owner, it was but an artificial expedient, more of a legal fiction than fact, for if it were so, it could dispose
of the goods in any manner it wants, which it cannot do, just to give consistency with the purpose of the trust
receipt of giving a stronger security for the loan obtained by the importer. To consider the bank as the true
owner from the inception of the transaction would be to disregard the loan feature thereof. x x x
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 IBAAs right to recover the advances it had made under the Letter of Credit.
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.
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. Under the situational
circumstances of the parties, they are governed by Article 31 of the Civil Code.
DISPOSITIVE PORTION: WHEREFORE, finding no reversible error in the judgment appealed from, the same is hereby
AFFIRMED.
[13 Trust Receipts] SOUTH CITY HOMES, INC., FORTUNE MOTORS (PHILS.), PALAWAN LUMBER
MANUFACTURING CORPORATION, petitioners, vs.BA FINANCE CORPORATION, respondent. G.R. No. 135462
December 7, 2001
25
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Topic: Trust receipts; novation; specific performance
QUISUMBING, J.:
_______________________________________________________________________________________________
DOCTRINE: A trust receipt is a security transaction intended to aid in financing importers and retail dealers who do not
have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to
acquire credit except through utilization, as collateral, of the merchandise imported or purchased. In the event of default
by the entrustee on his obligations under the trust receipt agreement, it is not absolutely necessary that the
entruster cancel the trust and take possession of the goods to be able to enforce his rights thereunder.
_________________________________________________________________________________________________
FACTS: The present controversy relates to the rights of an assignee (financing company) of drafts and trust receipts
backed up by sureties, in the event of default by the debtor (car dealer) to whom the assignor creditor (car manufacturer)
sold and delivered motor vehicles for resale.
Petitioner Fortune Motors Corporation (Phils.) has been availing of the credit facilities of respondent BA Finance
Corporation. On January 17, 1983, Joseph L. G. Chua, President of Fortune Motors Corporation, executed in favor of BA
FInance a Continuing Suretyship Agreement, in which he "jointly and severally unconditionally" guaranteed the "full,
faithful and prompt payment and discharge of any and all indebtedness" of Fortune Motors Corporation to BA Finance
Corporation.
Palawan Lumber Manufacturing Corporation also executed in favor of BA Finance a Continuing Suretyship Agreement of
any and all indebtedness of Fortune Motors Corporation to BA Finance Corporation.
South City Homes, Inc. likewise executed a Continuing Suretyship Agreement of Fortune Motors Corporation to BA
Finance Corporation. Subsequently, Canlubang Automotive Resources Corporation (CARCO) drew six (6) Drafts in its
own favor, payable 30 days after sight, charged to the account of Fortune Motors Corporation.
Fortune Motors Corporation thereafter executed trust receipts covering the motor vehicles delivered to it by CARCO under
which it agreed to remit to the Entruster (CARCO) the proceeds of any sale and immediately surrender the remaining
unsold vehicles. The drafts and trust receipts were assigned to BA finance Corp, under Deeds of Assignment
executed by CARCO
Upon failure of Fortune Motors Corporation to pay the amounts due under the drafts and to remit the proceeds of motor
vehicles sold or to return those remaining unsold in accordance with the terms of the trust receipt agreements, BA
Finance Corporation sent demand letter to petitioners South City Homes, Inc., Palawan Lumber Manufacturing
Corporation, et al.
A complaint for a sum of money was then instituted with prayer for preliminary attachment by BA FINANCE CORP.
Petitioners filed a motion to dismiss and alleged that conventional subrogation effected a novation without the consent of
the debtor (Fortune Motors Corporation) and thereby extinguished the latters liability; that pursuant to the trust receipt
transaction, it was premature under P. D. No. 115 to immediately file a complaint for a sum of money as the remedy of the
entruster is an action for specific performance; that the suretyship agreements are null and void for having been entered
into without an existing principal obligation; and that being such sureties does not make them solidary debtors.
Petitioners also stressed that their obligations to the creditor (CARCO) was extinguished by the assignment of the drafts
and trust receipts to BA Finance without their knowledge and consent, and pursuant to legal provision on conventional
subrogation a novation was effected, thereby extinguishing the liability of the sureties; that BA finance failed to
immediately demand the return of the goods under the trust receipt agreements or exercise the courses of action by the
entruster as provided for under P. D. No. 115; and that at the time the suretyship agreements were entered into, there
were no principal obligations, thus rendering them null and void.
RTC and CA ordered petitioners and surety to pay BA finance.

_________________________________________________________________________________________________
ISSUES:
1. Whether there was a novation of the drafts and trust receipt so as to extinguish the liability of the sureties?  No.
26
2016)
2. [Whether respondent BAFC has a valid cause of action for a sum of money following the drafts and trust receipts
transactions] (issue as stated in the case); but stated otherwise:
Whether respondent BA Finance, as an entruster, must first demand the return of the unsold vehicles from
Fortune Motors Corporation, pursuant to the terms of the trust receipts, so that there can be a cause of action for
collection of sum of money.  No.
_________________________________________________________________________________________________
RULING:
1. Petitioners contend that a novation, as a result of the assignment of the drafts and trust receipts by the creditor
(CARCO) in favor of respondent BAFC without the consent of the principal debtor (Fortune Motors), extinguished their
liabilities.
An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause,
such as sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers his credit and
accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the
assignor could enforce it against the debtor. As a consequence, the third party steps into the shoes of the original creditor
as subrogee of the latter. Petitioners obligations were not extinguished.
Article 1626 of the Civil Code shows that payment of an obligation which is already existing does not
depend on the consent of the debtor. It, in effect, mandates that such payment of the existing obligation shall already be
made to the new creditor from the time the debtor acquires knowledge of the assignment of the obligation. The law is
clear that the debtor had the obligation to pay and should have paid from the date of notice whether or not he consented.
We have ruled in Sison & Sison vs. Yap Tico and Avancea, that definitely, consent is not necessary in order that
assignment may fully produce legal effects. Hence, the duty to pay does not depend on the consent of the
debtor. Otherwise, all creditors would be prevented from assigning their credits because of the possibility of the debtors
refusal to give consent. What the law requires in an assignment of credit is not the consent of the debtor but merely notice
to him. A creditor may, therefore, validly assign his credit and its accessories without the debtors consent . The purpose of
the notice is only to inform that debtor from the date of the assignment, payment should be made to the assignee and not
to the original creditor.
2. A trust receipt is a security transaction intended to aid in financing importers and retail dealers who do not have
sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire
credit except through utilization, as collateral, of the merchandise imported or purchased. In the event of default by the
entrustee on his obligations under the trust receipt agreement, it is not absolutely necessary that the entruster
cancel the trust and take possession of the goods to be able to enforce his rights thereunder. We ruled:
x x x Significantly, the law uses the word may in granting to the entruster the right to cancel the trust and take
possession of the goods. 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.
_________________________________________________________________________________________________
Dispositive: WHEREFORE, the appealed decision is hereby AFFIRMED. However, the award of attorneys fees is
deleted. No costs. SO ORDERED.
[14 Trust Receipts] PILIPINAS BANK vs. ALFREDO T. ONG and LEONCIA LIM G.R. No. 133176. August 8, 2002
Topics: Obligation and Liability of the Entrustee – Payment/Delivery of proceeds of goods and Return of goods;
Novation
Ponente: Sandoval-Gutierrez, J.
27
2016)
_________________________________________________________________________________________________
DOCTRINE: Mere failure to deliver the proceeds of the sale or the goods, if not sold, constitutes violation of PD No. 115.
However, what is being punished by the law is the dishonesty and abuse of confidence in the handling of money or goods
to the prejudice of another regardless of whether the latter is the owner.
_________________________________________________________________________________________________
FACTS:
On April 1991, Baliwag Mahogany Corporation (BMC), through Alfredo T. Ong (BMC’s president), applied for a domestic
commercial letter of credit with Pilipinas Bank to finance the purchase of about 100,000 board feet of "Air Dried, Dark Red
Lauan" sawn lumber.
Pilipinas Bank approved the application and issued Letter of Credit No. 91/725-HO in the amount of P3,500,000.00. To
secure payment of the amount, BMC (through Ong), executed 2 trust receipts. It provided that BMC shall turn over the
proceeds of the goods to the bank, if sold, or return the goods, if unsold, upon maturity on 28 July 1991 and 4 August
1991.
On the said due dates, BMC failed to comply with the trust receipt agreement.
On 22 November 1991, BMC filed with SEC a Petition for Rehabilitation and for a Declaration in a State of Suspension of
Payments. Pursuant to this, the SEC issued an order on 8 January 1992, creating a Management Committee which was
tasked to undertake the management of BMC.
On 13 October 1992, BMC and a consortium of 14 of its creditor banks entered into a Memorandum of Agreement (MOA)
rescheduling the payment of BMC’s existing debts.
On 27 November 1992, SEC rendered a Decision approving the Rehabilitation Plan of BMC as contained in the MOA and
declaring it in a state of suspension of payments.
However, BMC and respondent Ong defaulted in the payment of their obligations under the rescheduled payment scheme
provided in the MOA. Thus, on April 1994, Piliinas Bank filed with the Makati City Prosecutors Office a complaint charging
respondents Ong (as BMC’s president) and Leoncia Lim (as BMC’s treasurer) with violation of the Trust Receipts Law
(PD No. 115). Pilipinas Bank alleged that both respondents failed to pay their obligations under the trust receipts despite
demand.
_________________________________________________________________________________________________
ISSUE #1: Whether or not a corporation’s president and treasurer may be held liable under the Trust Receipts Law, in the
absence of any showing that there was dishonesty and abuse of confidence in the handling of the goods on their part
RULING: No, they may not
Section 4 of PD No. 115 (The Trust Receipts Law) defines a trust receipt as any transaction by and between a person
referred to as the entruster, and another person referred to as the entrustee, whereby the entruster who owns or holds
absolute title or security interest over certain specified goods, documents or instruments, releases the same to the
possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a "trust
receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments with the obligation to
turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust
receipt, or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance
with the terms and conditions specified in the trust receipt.
Failure of the entrustee to turn over the proceeds of the sale of the goods covered by a trust receipt to the entruster or to
return the goods, if they were not disposed of, shall constitute the crime of estafa under Article 315, par. 1(b) of the
Revised Penal Code. If the violation or offense is committed by a corporation, the penalty shall be imposed upon the
directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to the civil
liabilities arising from the criminal offense. It is on this premise that petitioner bank charged respondents with violation of
the Trust Receipts Law.
Mere failure to deliver the proceeds of the sale or the goods, if not sold, constitutes violation of PD No. 115. However,
what is being punished by the law is the dishonesty and abuse of confidence in the handling of money or goods to the
prejudice of another regardless of whether the latter is the owner.
In this case, no dishonesty nor abuse of confidence can be attributed to Ong and Lim. BMC failed to comply with its
28
2016)
obligations upon maturity of the trust receipts due to serious liquidity problems, prompting it to file a Petition for
Rehabilitation and Declaration in a State of Suspension of Payments. It bears emphasis that when Pilipinas Bank made a
demand upon BMC on 11 February 1994 to comply with its obligations under the trust receipts, the latter was already
under the control of the Management Committee. The Management Committee took custody of all BMCs assets and
liabilities, including the red lauan lumber subject of the trust receipts, and authorized their use in the ordinary course of
business operations. Clearly, it was the Management Committee which could settle BMCs obligations. Moreover,
respondent Ong paid P21,000,000.00 in compliance with the equity infusion required by the MOA. The mala prohibita
nature of the offense notwithstanding, Ong and Lim’s intent to misuse or misappropriate the goods or their proceeds has
not been established by the records.
ISSUE #2: Whether or not there is a novation when the MOA provides principal conditions incompatible with the trust
agreement
RULING: Yes, there is.
[T]here are two ways which could indicate the presence of novation, thereby producing the effect of extinguishing
an obligation by another which substitutes the same. The first is when novation has been stated and declared in
unequivocal terms. The second is when the old and the new obligations are incompatible on every point. Contrary to
Pilipinas Bank’s contention, the MOA did not only reschedule BMC’s debts, but more importantly, it provided principal
conditions which are incompatible with the trust agreement. [Among the matters which were incompatible are: the nature
of the contracts (one is a trust receipt, while the MOA is a loan); the judicial relationship (trustor-trustee for the trust
receipt, and lender-borrower for the loan); and the number of parties involved (3 under the trust receipt, and 16 under the
loan).]
Indeed, what is automatically terminated in case BMC failed to comply with the conditions under the MOA is not the MOA
itself but merely the obligation of the lender (the bank) to reschedule the existing credits. Moreover, it is erroneous to
assume that the revesting of "all the rights of lenders against the borrower" means that Pilipinas Bank can charge Ong
and Lim for violation of the Trust Receipts Law under the original trust receipt agreement. As explained earlier, the
execution of the MOA extinguished Ong and Lim’s obligation under the trust receipts. Their liability, if any, would only be
civil in nature since the trust receipts were transformed into mere loan documents after the execution of the MOA. This is
reinforced by the fact that the mortgage contracts executed by the BMC survive despite its non-compliance with the
conditions set forth in the MOA.
_________________________________________________________________________________________________
DISPOSITIVE PORTION: WHEREFORE, the petition is DENIED. The assailed Resolutions of the Court of Appeals dated
January 9, 1998 and March 25, 1998 in CA-G.R. SP No. 42005 are hereby AFFIRMED.
29

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DLSU Commercial Law Review Digest G02 (2015-

[02 Trust Receipts] ANTHONY L. NG, Petitioner, vs. PEOPLE OF THE PHILIPPINES, Respondent.

restructuring of the loan agreement did not constitute novation.

[04 Trust Receipts] ILDEFONSO S. CRISOLOGO, Petitioner, v. PEOPLE OF THE PHILIPPINES and CHINA

PD 115 Does Not Apply

**** Note case #9 is supra of case #1

RULING: Section 4 of said PD 115 says in part:

DISPOSITIVE PORTION: WHEREFORE, the petition is granted.

RTC and CA ordered petitioners and surety to pay BA finance.

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