CASES ON LETTERS OF CREDIT

CASE NO. 1
G.R. No. 166726 November 25, 2019
Equitable PCI Bank (formerly Insular Bank of Asia and America/Phil. Commercial and Industrial Bank vs.
Manila Adjusters and Surveyors, Inc., et al.
FACTS:
The Ilocos Sur Federation of Farmers Cooperatives, Inc. (Federation) and the Philippine American General
Insurance Co., Inc. (Philam), represented by its adjuster, Manila Adjusters and Surveyor Company (MASCO)
executed a Deed of Sale involving salvaged fertilizers. The agreement provided that the Federation would pay the
fertilizers in installments. The Federation was also required to open an irrevocably confirmed without recourse
Letter of Credit amounting to One million pesos (1,000,000php) which will be forfeited in favor of MASCO in
case Federation’s non-compliance with the terms and conditions of the contract.
Apparently, the Federation availed of Domestic LOC from petitioner Equitable PCI Bank with a face value of
1,000,000php in favor of MASCO. Incidentally, the Federation only managed to pay the first and second
installment out of total amount of 5,159,725php. Thus, MASCO demanded payment from the Federation but it
failed to settle its accountabilities. MASCO likewise signified its resolve to demand for the proceeds of the LOC
from the Bank. However, the Bank refused to pay MASCO the proceeds of the LOC.
In view of these, the Federation filed a Complaint for replevin with damages against MASCO before the CFI of
Manila. The Complaint was subsequently amended to implead the bank as defendant to enjoin it from paying the
LOC it issued in favor of MASCO. In its answer with cross claim, the bank contended that MASCO failed to
present to the Bank under the LOC. MASCO in its answer to the Bank’s cross-claim filed a counterclaim against
the Bank for the payment of the proceeds of the LOC and for damages.
RTC rendered a judgment ordering the Bank to pay MASCO the face amount of LOC. CA affirmed the RTC’s
ruling. Hence, this petition.
ISSUE:
Whether MASCO complied with the terms of the LOC to be allowed to collect the LOC’s proceeds from the Bank.
RULING:
YES. The Petition is denied.
The Supreme Court emphasized that a petition for review under Rule 45 of the Rules of Court is only limited to
questions of law. There is a question of law when the doubt or difference arises as to what the law is on certain set
of facts. A question of fact, on the other hand, exists when the doubt or difference arises as to the truth or falsehood
of the alleged facts.
In this case, the Bank mainly contends that it did not receive the required documents from MASCO in order for the
latter to claim the proceeds of the LOC. Undoubtedly, such contention’s truth or falsity can easily be verified by
assessing the documentary and testimonial evidence submitted by the parties during trial. Cleary, this is a question
of fact which is not within the purview of a petition for review under Rule 45. Both the CA and RTC found that
MASCO properly presented the documentary requirements of the Bank in order to claim from the LOC. The Bank
was not able to overturn such finding as it merely denied receipt of the same without corroborating evidence,
except for the allegation that all documents received by the Bank should go through a metered machine which was
not found on those documents submitted by MASCO.
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Hence, given that MASCO was able to prove with preponderant evidence that it submitted documents which the
Bank required in order to claim from the LOC, there is basis to affirm the findings of RTC and CA that the Bank
should release the proceeds of the LOC amounting to 1,000,000php to MASCO.
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CASE NO. 2
G.R. No. 191939, March 14, 2018
ALLIED BANKING CORPORATION, PETITIONER,
VS.

IN THE MATTER OF THE PETITION TO HAVE STEEL CORPORATION OF THE PHILIPPINES

PLACED UNDER CORPORATE REHABILITATION WITH PRAYER FOR THE APPROVAL OF THE
PROPOSED REHABILITATION PLAN, EQUITABLE PCI BANK, INC., RESPONDENT.

FACTS:
Equitable PCI Bank, Inc. (EPCIB), as creditor, filed a petition for the corporate rehabilitation of its debtor Steel
Corporation of the Philippines (SCP) with the RTC. EPCIB alleged, among others, that Allied Banking
Corporation (ABC) granted SCP with a revolving credit facility denominated as a letter of credit/trust receipt line in
the amount of P100 million, which SCP availed of to finance the importation of its raw materials. Pursuant to this
arrangement, SCP executed a trust receipt (TR), which authorizes ABC to charge SCP’s account in its possession.
RTC issued an Order granting EPCIB’s petition. Thereafter, the petitioner applied the remaining proceeds of SCP’s
Current Account No. 1801-004-87-6 (subject account) in the amount of P6,750,000.00, maintained with its Aguirre
Branch, to its obligations under the LOC/TR. SCP filed an urgent omnibus motion alleging that petitioner violated
the rehabilitation court’s stay order when it applied the proceeds of its current account to the payment of
obligations covered by the stay order. ABC filed an opposition, mainly contending that SCP’s obligations with it
had become due and demandable, rendering legal compensation valid and proper and that petitioner did not violate
the stay order, as it had no notice of its issuance at the time of the legal compensation.
RTC ruled in favor of SCP which CA affirmed. Hence, this petition.
ISSUE:
Whether petitioner ABC is prohibited from applying the proceeds of the SCP’s deposit account to its outstanding
obligations from the issuance of the Stay Order.
RULING:
YES, the petition is denied.
The inherent purpose of rehabilitation is to find ways and means to minimize the expenses of the distressed
corporation during the rehabilitation period by providing the best possible framework for the corporation to
gradually regain or achieve a sustainable operating form. Certainly, when a petition for rehabilitation is filed and
subsequently granted by the court, its purpose will be defeated if the debtors are still allowed to arbitrarily dispose
of their property and pay their liabilities, outside of the ordinary course of business and what is allowed by the
court, after the filing of the said petition. Such a scenario does not promote an environment where the debtor could
regain its operational footing, contrary to the dictates of rehabilitation.
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CASE NO. 3

G.R. No. 185590               December 3, 2014

METROPOLITAN BANK AND TRUST COMPANY, Petitioner,

vs.
LEY CONSTRUCTION AND DEVELOPMENT CORPORATION and SPOUSES MANUEL LEY and
JANET LEY, Respondents.

FACTS:

Defendant, Ley Construction and Development Corporation (LCDC) a general contracting firm, through the oral
representations of defendant-spouses, applied with plaintiff, a commercial bank, for the opening of a Letter of
Credit. Plaintiff issued, Letter of Credit in favor of the supplier-beneficiary Global Enterprises Limited, in the
amount of Eight Hundred Two Thousand Five Hundred U.S. Dollars (USD802,500.00). The letter of credit
covered the importation by defendant LCDC of Fifteen Thousand (15,000) metric tons of Iraqi cement from Iraq.
Defendant applied for and filed with plaintiff two (2) Applications for Amendment of Letter of Credit. Thereafter,
the supplier-beneficiary Global Enterprises, Inc. negotiated its Letter of Credit with the negotiating bank Credit
Suisse of Zurich, Switzerland. Plaintiff received from Credit Suisse the necessary shipping documents pertaining to
Letter of Credit that were in turn delivered to the defendant. Upon receipt of the aforesaid documents, defendants
executed a trust receipt. However, the cement that was to be imported through the opening of the subject Letter of
Credit never arrived in the Philippines.

The obligation covered by the subject Letter of Credit in the amount of USD802,500.00 has long been overdue and
unpaid, notwithstanding repeated demands for payment thereof. Plaintiff, therefore, instituted the instant complaint
for sum of money.

Defendant filed a motion to dismiss by way of demurrer to evidence on the ground that plaintiff’s witness Mr.
Fenelito Cabrera was incompetent to testify with respect to the transaction between the plaintiff and the defendant
and that the plaintiff’s documentary exhibits were not properly identified and authenticated.

RTC concluded that the Bank failed to establish its cause of action and to make a sufficient or preponderant case
which CA affirmed. Hence, this petition.

ISSUE:

Whether petitioner fail to establish its cause of action based on Letter of Credit against the respondents.

RULING:

Yes, the petition is denied.

An “actionable document” is a written instrument or document on which an action or defense is founded. It may be
pleaded in either of two ways: (1) by setting forth the substance of such document in the pleading and attaching the
document thereto as an annex, or (2) by setting forth said document verbatim in the pleading. A look at the
allegations in the Complaint quoted above will show that the Bank did not set forth the contents of the Trust
Receipt verbatim in the pleading. The Bank did not also set forth the substance of the Trust Receipt in the
Complaint but simply attached a copy thereof as an annex.  Rather than setting forth the substance of the Trust
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Receipt, paragraph 2.8 of the Complaint shows that the Bank simply described the Trust Receipt as LCDC’s
manifestation of “its acceptance/conformity that the negotiation of the [Letter of Credit] is in order.”

The legal rights of the Bank and the correlative legal duty of LCDC have not been sufficiently established by the
Bank in view of the failure of the Bank’s evidence to show the provisions and conditions that govern its legal
relationship with LCDC, particularly the absence of the provisions and conditions supposedly printed at the back of
the Application and Agreement for Commercial Letter of Credit. Even assuming arguendo that there was no
impropriety in the negotiation of the Letter of Credit and the Bank’s cause of action was simply for the collection
of what it paid under said Letter of Credit, the Bank did not discharge its burden to prove every element of its
cause of action against LCDC.
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CASES ON TRUST RECEIPT LAW

CASE NO. 4

G.R. No. 225697, September 05, 2018

ROSIEN OSENTAL, Petitioner, 

v. 

PEOPLE OF THE PHILIPPINES, Respondent.

FACTS:

Osental approached Maria Emilyn Te (Te) and convinced her to sell ready-to-wear (RTW) goods in Roxas City.
Osental claimed she had contacts in Manila and Iloilo City from whom she could acquire the RTW goods.
Subsequently, Te agreed and delivered P262,225.00 to Osental for the purchase of the RTW goods. On the same
date, Te entered into a trust receipt agreement with Osental in which the latter agreed to deliver the proceeds of the
sale. On the trust receipt agreement's due date, Osental failed to present the RTW goods, deliver the proceeds of the
sale of the RTW goods sold, or return the money that was given to her by Te. Te alleged that Osental made
promises to return the money but did not do so prompting Te to file a Complaint against Osental. Osental denied
the genuineness and due execution of the trust receipt agreement. Osental denied being involved in the business of
buying RTW goods. She likewise denied receiving P262,225.00 from Te. Osental was later charged with estafa
under Article 315, paragraph 1(b) of the Revised Penal Code.

RTC found Osental guilty of estafa under Article 315, paragraph 1(b) of the Revised Penal Code. The RTC ruled
that the elements of estafa under Article 315, paragraph 1(b) were proven by the prosecution. The RTC ruled that
Osental failed to prove that her signature in the trust receipt agreement was forged. CA affirmed the RTC’s
decision. Hence, this petition.

ISSUE:

Whether petitioner Rosien Osental is guilty of estafa under paragraph 1(b) of Article 315 of the Revised Penal
Code, in relation to PD 115.

RULING:

Yes. In Colinares v. Court of Appeals,16 this Court held that there are two duties in a trust receipt agreement, to
wit:

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
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shall be punishable as estafa under Article 315 (1) of the Revised Penal Code, without need of proving intent
to defraud.17 (Emphasis supplied)

The four elements of estafa under paragraph 1 (b), Article 315 of the Revised Penal Code, in relation to Section 4
of PD 115, were established beyond reasonable doubt in the present case. First, Osental received money in the
amount of P262,225.00 from Te in trust for the purchase of RTW goods. Likewise, Osental promised Te that she
would deliver the proceeds of the sale and/or the unsold goods on 21 October 2008 as evidenced by the trust
receipt agreement duly executed and signed in the presence of Escobar who testified to attest to the validity and
due execution of the trust receipt agreement. Second, there was denial on the part of Osental that she received
P262,225.00 from Te. In her testimony, Osental specifically denied the existence and due execution of the trust
receipt agreement with Te. Osental also denied receiving P262,225.00 from Te for the purchase of the RTW
goods.19Third, Te testified that she suffered actual damages in the amount of P262,225.00, moral damages, and
litigation expenses.20 Moreover, the fact of prejudice was also established by the duly executed compromise
agreement dated 28 August 2014 wherein Osental admitted that she owed Te P345,000.00 representing the
principal amount as well as attorney's fees and litigation expenses. Fourth, as testified, a demand letter dated 23
April 2009 was sent by Te to Osental requiring the latter to return the P262,225.00 within 15 days which the latter
did not comply with.
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CASE NO. 5
G.R. No. 219345 January 30, 2017

SECURITY BANK CORPORATION, Petitioner

vs.
GREAT WALL COMMERCIAL PRESS COMPANY, INC., ALFREDO BURIEL ATIENZA, FREDINO
CHENG ATIENZA and SPS. FREDERICK CHENG ATIENZA and MONICA CU ATIENZA, Respondents

FACTS:

Security Bank filed a Complaint for Sum of Money (with Application for Issuance of a Writ of Preliminary
Attachment)3 against respondents Great Wall Commercial Press Company, Inc. (Great Wall) and its sureties,
before the RTC. The complaint sought to recover from respondents their unpaid obligations under a credit facility
covered by several trust receipts and surety agreements. The total principal amount sought was P10,000,000.00.

After due hearing, the RTC granted the application for a writ of preliminary attachment of Security Bank, which
then posted a bond in the amount of P10,000,000.00. respondents filed their Motion to Lift Writ of Preliminary
Attachment Ad Cautelam, claiming that the writ was issued with grave abuse of discretion based on the ground that
the application and the accompanying affidavits failed to allege at least one circumstance which would show
fraudulent intent on their part. RTC denied the respondent’s motion to lift while CA decided to lift the writ. Hence,
this petition.

ISSUE:

Whether the subject writ of preliminary attachment be lifted in favor of respondents.

RULING:

No. 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. The obligations under the trust receipts are
governed by a special law, Presidential Decree (P.D.) No. 115, and noncompliance have particular legal
consequences. Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by the trust
receipt to the entruster or to return said goods if they were not disposed of in accordance with the terms of the trust
receipt shall be punishable as estafa under Article 315 (1) of the Revised Penal Code, without need of proving
intent to defraud. The offense punished under P.D. No. 115 is in the nature of malum prohibitum. Mere failure to
deliver the proceeds of the sale or the goods, if not sold, constitutes a criminal offense that causes prejudice not
only to another, but more to the public interest.
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CASE NO. 6

G.R. No. 195117               August 14, 2013

HUR TIN YANG, PETITIONER

vs.
PEOPLE OF THE PHILIPPINES, RESPONDENT.

FACTS:
Metropolitan Bank and Trust Company (Metrobank) extended several commercial letters of credit (LCs) to
Supermax. These commercial LCs were used by Supermax to pay for the delivery of several construction materials
which will be used in their construction business. Thereafter, Metrobank required petitioner, as representative and
Vice-President for Internal Affairs of Supermax, to sign twenty-four (24) trust receipts as security for the
construction materials and to hold those materials or the proceeds of the sales in trust for Metrobank to the extent
of the amount stated in the trust receipts. When the 24 trust receipts fell due and despite the receipt of a demand
letter dated August 15, 2000, Supermax failed to pay or deliver the goods or proceeds to Metrobank. As the
demands fell on deaf ears, Metrobank, through its representative, filed the instant criminal complaints against
petitioner.
For his defense, while admitting signing the trust receipts, petitioner argued that said trust receipts were demanded
by Metrobank as additional security for the loans extended to Supermax for the purchase of construction equipment
and materials.
RTC found petitioner guilty as charged which was affirmed by the CA. Hence, this motion for reconsideration
contending that the transactions between the parties do not constitute trust receipt agreements but rather of simple
loans.
ISSUE:
Whether petitioner is liable for Estafa under Art. 315, par. 1(b) of the RPC in relation to PD 115, even if it was
sufficiently proved that the entruster (Metrobank) knew beforehand that the goods (construction materials) subject
of the trust receipts were never intended to be sold but only for use in the entrustee’s construction business.
RULING:
No. Petitioner Hur Tin Yang is acquitted of the crime charged.
When both parties enter into an agreement knowing fully well that the return of the goods subject of the trust
receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt transaction penalized
under Sec. 13 of PD 115 in relation to Art. 315, par. 1(b) of the RPC, as the only obligation actually agreed upon
by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere loan,
where the borrower is obligated to pay the bank the amount spent for the purchase of the goods. The fact
that the entruster bank, Metrobank in this case, knew even before the execution of the alleged trust receipt
agreements that the covered construction materials were never intended by the entrustee (petitioner) for resale or
for the manufacture of items to be sold would take the transaction between petitioner and Metrobank outside the
ambit of the Trust Receipts Law.
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CASE NO. 7

G.R. No. 166884               June 13, 2012

LAND BANK OF THE PHILIPPINES, Petitioner,

vs.
LAMBERTO C. PEREZ, NESTOR C. KUN, MA. ESTELITA P. ANGELES-PANLILIO, and NAPOLEON
O. GARCIA, Respondents.

FACTS:

Petitioner Land Bank of the Philippines (LBP) is a government financial institution and the official depository of
the Philippines. Respondents are the officers and representatives of Asian Construction and Development
Corporation (ACDC), a corporation incorporated under Philippine law and engaged in the construction business.
LBP filed a complaint for estafa or violation of Article 315, paragraph 1(b) of the Revised Penal Code, in relation
to P.D. 115, against the respondents before the City Prosecutor’s Office in Makati City.

In its Complaint-Affidavit, LBP stated that it extended a credit accommodation to ACDC through the execution of
an Omnibus Credit Line Agreement (Agreement)6 between LBP and ACDC. In various instances, ACDC used the
Letters of Credit/Trust Receipts Facility of the Agreement to buy construction materials. 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. Respondents, in their defense, state that its clients for the construction projects, which
were the general contractors of these projects, have not yet paid them. Thus, ACDC had yet to receive the proceeds
of the materials that were the subject of the trust receipts and were allegedly used for these constructions. As there
were no proceeds received from these clients, no misappropriation thereof could have taken place.
The Assistant Prosecutor issued a Resolution dismissing the complaint. On appeal, the Secretary of Justice
reversed the Resolution of the Assistant City Prosecutor. But CA, on petition for review filed, reversed the decision
of the Secretary of Justice. Hence, this petition.
ISSUE:
Whether the disputed transactions are trust receipts.
RULING:
No, the petition is denied.
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.
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In order that the respondents “may be validly prosecuted for estafa under Article 315, paragraph 1(b) of the
Revised Penal Code, in relation with Section 13 of the Trust Receipts Law, the following elements must be
established: (a) they received the subject goods in trust or under the obligation to sell the same and to remit the
proceeds thereof to [the trustor], or to return the goods if not sold; (b) they misappropriated or converted the goods
and/or the proceeds of the sale; (c) they performed such acts with abuse of confidence to the damage and prejudice
of Metrobank; and (d) demand was made on them by [the trustor] for the remittance of the proceeds or the return of
the unsold goods.”
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CASE NO. 8

G.R. No. 199481               December 3, 2012

ILDEFONSO S. CRISOLOGO, Petitioner,
vs.
PEOPLE OF THE PHILIPPINES and CHINA BANKING CORPORATION, Respondents.

FACTS:

Petitioner, as President of Novachemical Industries, Inc. (Novachem), applied for commercial letters of credit from
private respondent China Banking Corporation (Chinabank) to finance the purchase of 1,600 kgs. of amoxicillin
trihydrate micronized from Hyundai Chemical Company based in Seoul, South Korea and glass containers from
San Miguel Corporation (SMC). Subsequently, Chinabank issued Letters of Credit. After petitioner received the
goods, he executed for and in behalf of Novachem the corresponding trust receipt agreements in favor of
Chinabank.

Chinabank, through its representatives, filed a Complaint-Affidavit charging petitioner 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 the latter, 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.

In his defense, petitioner 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. 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 rendered a decision acquitting petitioner of the crime charged. It, however, adjudged him civilly liable to
Chinabank, without need for a separate civil action, for the amounts of P1,843,567.90 and P879,166.81 under L/C
Nos. 89/0301 and DOM-33041, respectively. CA affirmed the RTC’s decision. Hence, this petition.

ISSUE:

Whether petitioner is civilly liable under the subject L/Cs which are corporate obligations of Novachem.

RULING:

Yes. 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
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Law in relation to Article 315 1(b) 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.

CASE NO. 9

G.R. No. 173905 : April 23, 2010

ANTHONY L. NG, Petitioner, v. PEOPLE OF THE PHILIPPINES, Respondent.

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 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. 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 in three project sites. As petitioner realized difficulty in collecting
from his client Islacom, he failed to pay his loan to Asiatrust. The parties thereafter held a series of conferences to
work out the problem and to determine a way for petitioner to pay his debts. However, efforts towards a settlement
failed to be reached.

Remedial Account Officer Ma. Girlie C. Bernardez filed a Complaint-Affidavit before the Office of the City
Prosecutor of Quezon City. Consequently, on September 12, 1999, an Information for Estafa. For his defense,
petitioner argued 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. RTC found petitioner guilty
of the crime of Estafa which was affirmed by CA. Hence, this petition.

ISSUE:

Whether the petitioner is guilty of the crime charged.

RULING:

No, the petitioner is acquitted of the violation of Art. 315, par. 1(b) of the RPC in relation to the pertinent provision
of PD 115.

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. 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.
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CASE NO. 10

G.R. No. 122502. December 27, 2002

LORENZO M. SARMIENTO, JR. and GREGORIO LIMPIN, JR., Petitioners, v. COURT OF APPEALS
and ASSOCIATED BANKING CORP., respondents.

FACTS:

Gregorio Limpin, Jr. and Antonio Apostol, doing business under the name and style of ‘Davao Libra Industrial
Sales,’ filed an application for an Irrevocable Domestic Letter of Credit with the Associated Banking Corporation
(Bank) for the amount of P495,000.00 in favor of LS Parts Hardware and Machine Shop for the purchase of
assorted scrap irons. Said application was signed by Limpin and Apostol. The aforesaid application was approved,
and the Bank issued Domestic Letter of Credit No. DLC No. DVO-78-006 in favor of LS Parts for P495,000.00.
Thereafter, a Trust Receipt was executed by Limpin and Antonio Apostol. Limpin and Apostol failed to comply
with their undertaking under the Trust Receipt. Hence demands were made for them to comply with their
undertaking. However, they failed to pay their account. Legal action against the defendants was deferred due to the
proposed settlement of the account. However, no settlement was reached. Hence, a complaint for Violation of the
Trust Receipt Law was filed against the Limpin and Apostol before the City Fiscal’s Office. Thereafter, the
corresponding Information was filed against the defendants. Defendant Lorenzo Sarmiento, Jr. was, however,
dropped from the Information while defendant Gregorio Limpin, Jr. was convicted. Despite Sarmiento’s dropping
from the Information for the crime charged. CA adjudged him and Limpin civilly liable to the Bank.

The Limpin claimed that he cannot be held liable as the 825 tons of assorted scrap iron, subject of the trust receipt
agreement, were lost when the vessel transporting them sunk, and that said scrap iron were delivered to ‘Davao
Libra Industrial Sales’, a business concern over which they had no interest whatsoever.

Hence, this petition.

ISSUE:

Whether Limpin and Sarmiento are civilly liable to the Bank.

RULING:

YES. Bank’s right to file a separate complaint for a sum of money is governed by the provisions of Article 31 of
the Civil Code, to wit:

“Article 31. When the civil action is based on an obligation not arising from the act or omission complained
of as a felony, such civil action may proceed independently of the criminal proceedings and regardless of the
result of the latter.”
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In the present case, private respondent’s complaint against petitioners was based on the failure of the latter to
comply with their obligation as spelled out in the Trust Receipt executed by them . This breach of obligation is
separate and distinct from any criminal liability for “misuse and/or misappropriation of goods or proceeds realized
from the sale of goods, documents or instruments released under trust receipts”, punishable under Section 13 of the
Trust Receipts Law (P.D. 115) in relation to Article 315(1), (b) of the Revised Penal Code. Being based on an
obligation ex contractu and not ex delicto, the civil action may proceed independently of the criminal proceedings
instituted against petitioners regardless of the result of the latter.
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CASE NO. 11

G.R. No. 133176               August 8, 2002

PILIPINAS BANK, petitioner,
vs.
ALFREDO T. ONG and LEONCIA LIM, respondents.

FACTS:

Baliwag Mahogany Corporation (BMC), through its president, respondent Alfredo T. Ong, applied for a domestic
commercial letter of credit with petitioner Pilipinas Bank to finance the purchase of about 100,000 board feet of
“Air Dried, Dark Red Lauan” sawn lumber. The bank approved the application and issued Letter of Credit in the
amount of P3,500,000.00. To secure payment of the amount, BMC, through respondent Ong, executed two (2) trust
receipts providing inter alia that it shall turn over the proceeds of the goods to the bank, if sold, or return the goods,
if unsold, upon maturity. On due dates, BMC failed to comply with the trust receipt agreement. Ifiled with the
Securities and Exchange Commission (SEC) a Petition for Rehabilitation and for a Declaration in a State of
Suspension of Payments under Section 6 (c) of P.D. No. 902-A. The SEC issued an order creating a Management
Committee wherein the bank is represented. The Committee shall, among others, undertake the management of
BMC, take custody and control of all its existing assets and liabilities, study, review and evaluate its operation
and/or the feasibility of its being restructured. However, BMC and respondent Ong defaulted in the payment of
their obligations under the rescheduled payment scheme provided in the MOA. Thus, the bank filed with the
Makati City Prosecutor’s Office a complaint charging respondents Ong and Leoncia Lim (as president and
treasurer of BMC, respectively) with violation of the Trust Receipts Law (PD No. 115). The bank alleged that both
respondents failed to pay their obligations under the trust receipts despite demand. However, the Complaint was
dismissed. Upon appeal by the bank, the Department of Justice (DOJ) rendered judgment denying the same for
lack of merit which was affirmed by the CA upon motion for reconsideration filed by the respondents before it.
Hence, this petition.

ISSUE:

Whether respondents can be held liable for violation of the Trust Receipts Law.

RULING:

No, the petition is denied.

Mere failure to deliver the proceeds of the sale or the goods, if not sold, constitutes violation of PD No. 115.
However, what is being punished by the law is the dishonesty and abuse of confidence in the handling of money or
goods to the prejudice of another regardless of whether the latter is the owner.

In this case, no dishonesty nor abuse of confidence can be attributed to respondents. Record shows that BMC failed
to comply with its obligations upon maturity of the trust receipts due to serious liquidity problems, prompting it to
file a Petition for Rehabilitation and Declaration in a State of Suspension of Payments. The mala prohibita nature
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of the offense notwithstanding, respondents’ intent to misuse or misappropriate the goods or their proceeds has not
been established by the records.

CASE NO. 12

G.R. No. 135462            December 7, 2001

SOUTH CITY HOMES, INC., FORTUNE MOTORS (PHILS.), PALAWAN LUMBER

MANUFACTURING CORPORATION, petitioners,
vs.
BA FINANCE CORPORATION, respondent.

FACTS:

Fortune Motors Corporation (Phils.) has been availing of the credit facilities of BA Finance Corporation. Joseph L.
G. Chua, President of Fortune Motors Corporation, Palawan Lumber Manufacturing Corporation, and South City
Homes, executed in favor of BA Finance Corporation 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.

Subsequently, Canlubang Automotive Resources Corporation (CARGO) drew six (6) Drafts in its own favor,
payable thirty (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 CARGO under which
it agreed to remit to the Entruster (CARGO) the proceeds of any sale and immediately surrender the remaining
unsold vehicles. The drafts and trust receipts were assigned to BA Finance Corporation, under Deeds of
Assignment executed by CARGO. Upon failure of the defendant-appellant 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 Edgar
C. Rodrigueza, South City Homes, Inc., Aurelio Tablante, Palawan Lumber Manufacturing Corporation.

Since the petitioner failed to settle their outstanding account with respondent, the latter filed a complaint for a sum
of money with prayer for preliminary attachment. RTC rendered a judgment in favor of BA Finance Corporation.
CA affirmed the RTC’s decision. Hence, this petition.

ISSUE:

Whether BAFC has a valid cause of action for a sum of money following the drafts and trust receipts transactions.

RULING:

Yes, the appealed decision is affirmed.

Petitioners finally posit (third issue) that as an entruster, respondent BAFC must first demand the return of the
unsold vehicles from Fortune Motors Corporation, pursuant to the terms of the trust receipts. Having failed to do
so, petitioners had no cause of action whatsoever against Fortune Motors Corporation and the action for collection
of sum of money was, therefore, premature. A trust receipt is a security transaction intended to aid in financing
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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.”
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