CASE 1: TIDCORP vs.
ASPAC Letters of Guarantee and with its previous demands therefor left unheeded,
G.R. No. 187403 February 12, 2014
TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE
PHILIPPINES (Formerly PHILIPPINE EXPORT AND FOREIGN LOAN
GUARANTEE CORPORATION.) vs.
ASIA PACES CORPORATION, PACES INDUSTRIAL CORPORATION,
NICOLAS C. BALDERRAMA, SIDDCOR INSURANCE CORPORATION
(now MEGA PACIFIC INSURANCE CORPORATION), PHILIPPINE
PHOENIX SURETY AND INSURANCE, INC., PARAMOUNT INSURANCE
CORPORATION,* AND FORTUNE LIFE AND GENERAL INSURANCE
COMPANY
FACTS: Asia Paces Corporation (ASPAC) and Paces Industrial Corporation
(PICO) entered into a sub-contracting agreement with the Electrical Projects
Company of Libya (ELPCO for the construction and erection of a double
circuit bundle phase conductor transmission line in the country of Libya. To
finance its working capital requirements, ASPAC obtained loans from foreign
banks Banque Indosuez and PCI Capital (Hong Kong) Limited (PCI Capital)
which were secured by several Letters of Guarantee issued by Trade and
Investment Development Corporation of the Philippines (TIDCORP),
then Philippine Export and Foreign Loan Guarantee Corp. Under the Letters
of Guarantee, TIDCORP irrevocably and unconditionally guaranteed
full payment of ASPAC’s loan obligations to Banque Indosuez and PCI
Capital in the event of default by the latter.
As a condition precedent to the issuance by TIDCORP of the Letters of
Guarantee, ASPAC, PICO, and ASPAC’s President, Nicolas C. Balderrama
(Balderrama) had to execute several Deeds of Undertaking, binding
themselves to jointly and severally pay TIDCORP for whatever damages or
liabilities it may incur under the aforementioned letters. In the same light,
ASPAC, as principal debtor, entered into surety agreements (Surety Bonds)
with Paramount, Phoenix, Mega Pacific and Fortune (bonding companies),
as sureties, also holding themselves solidarily liable to TIDCORP, as creditor,
for whatever damages or liabilities the latter may incur under the Letters of
Guarantee.
ASPAC eventually defaulted on its loan obligations to Banque Indosuez and
PCI Capital. Demand letters to the bonding companies were sent but to no
avail. Taking into account the moratorium request issued by the Minister of
Finance of the Republic of the Philippines, TIDCORP and its various creditor
banks, such as Banque Indosuez and PCI Capital, forged a Restructuring
Agreement extending the maturity dates of the Letters of Guarantee. The
bonding companies were not privy to the Restructuring Agreement and,
hence, did not give their consent to the payment extensions. Nevertheless,
following new payment schedules, TIDCORP fully settled its obligations.
Seeking payment for the damages and liabilities it had incurred under the
TIIDCORP filed a collection case against: (a) ASPAC, PICO, and Balderrama
on account of their obligations under the deeds of undertaking; and (b) the
bonding companies on account of their obligations under the Surety Bonds.
The RTC partially granted TIDCORP’s complaint and thereby found ASPAC,
PICO, and Balderrama jointly and severally liable to TIDCORP but absolved
the bonding companies from liability on the ground that the moratorium
request and the consequent payment extensions granted by Banque
Indosuez and PCI Capital in TIDCORP’s favor without their consent
extinguished their obligations under the Surety Bonds. On appeal, the CA
upheld the ruling of RTC. Hence, this appeal filed by TIDCORP.
ISSUE: Whether or not the bonding companies’ liabilities to TIDCORP
under the Surety Bonds have been extinguished by the payment
extensions granted by Banque Indosuez and PCI Capital to TIDCORP
under the Restructuring Agreement.
HELD: NO. The Court finds that the payment extensions granted by
Banque Indosuez and PCI Capital to TIDCORP under the Restructuring
Agreement did not have the effect of extinguishing the bonding
companies’ obligations to TIDCORP under the Surety Bonds,
notwithstanding the fact that said extensions were made without their
consent. This is because Article 2079 of the Civil Code refers to a payment
extension granted by the creditor to the principal debtor without the consent
of the guarantor or surety. In this case, the Surety Bonds are suretyship
contracts which secure the debt of ASPAC, the principal debtor, under the
Deeds of Undertaking to pay TIDCORP, the creditor, the damages and
liabilities it may incur under the Letters of Guarantee, within the bounds of the
bonds’ respective coverage periods and amounts. No payment extension
was, however, granted by TIDCORP in favor of ASPAC in this regard; hence,
Article 2079 of the Civil Code should not be applied with respect to the
bonding companies’ liabilities to TIDCORP under the Surety Bonds.
The payment extensions granted by Banque Indosuez and PCI Capital
pertain to TIDCORP’s own debt under the Letters of Guarantee wherein it
(TIDCORP) irrevocably and unconditionally guaranteed full payment of
ASPAC’s loan obligations to the banks in the event of its (ASPAC) default. In
other words, the Letters of Guarantee secured ASPAC’s loan agreements to
the banks. Under this arrangement, TIDCORP therefore
actedhttp://www.lawphil.net/judjuris/juri2014/feb2014/gr_187403_2014.html -
fnt58 as a guarantor, with ASPAC as the principal debtor, and the banks as
creditors.
Proceeding from the foregoing discussion, it is quite clear that there are two
sets of transactions that should be treated separately and distinctly
from one another following the civil law principle of relativity of
contracts "which provides that contracts can only bind the parties who
entered into it, and it cannot favor or prejudice a third person, even if he is
aware of such contract and has acted with knowledge thereof." Verily, as the
Surety Bonds concern ASPAC’s debt to TIDCORP and not TIDCORP’s debt
to the banks, the payments extensions would not deprive the bonding
companies of their right to pay their creditor (TIDCORP) and to be
immediately subrogated to the latter’s remedies against the principal
debtor (ASPAC) upon the maturity date. It must be stressed that these
payment extensions did not modify the terms of the Letters of Guarantee but
only provided for a new payment scheme covering TIDCORP’s liability to the
banks. In fine, considering the inoperability of Article 2079 of the Civil
Code in this case, the bonding companies’ liabilities to TIDCORP under
the Surety Bonds – except those issued by Paramount and covered by
its Compromise Agreement with TIDCORP – have not been
extinguished.
Bank of America v CA
There would at least be three (3) parties: (a) the buyer, who procures
the letter of credit and obliges himself to reimburse the issuing bank
upon receipts of the documents of title; (b) the bank issuing the letter
of credit, which undertakes to pay the seller upon receipt of the draft
and proper document of titles and to surrender the documents to the
buyer upon reimbursement; and, (c) the seller, who in compliance with
the contract of sale ships the goods to the buyer and delivers the
documents of title and draft to the issuing bank to recover payment.
Facts : Bank of America received an Irrevocable Letter of Credit issued by
Bank of Ayudhya for the Account of General Chemicals Ltd., Inc. for the sale
of plastic ropes and agricultural files. Under the letter of credit, Bank of
America acted as an advising bank and Inter-Resin Industrial Corp. (IR)
acted as the beneficiary. Upon receipt of the letter advice, Inter- Resin told
Bank of America to confirm the letter of credit.
Notwithstanding such instruction, Bank of America failed to confirm the letter
of credit. Inter-Resin made a partial availment of the Letter of Credit after
presentment of the required documents to Bank of America. After
confirmation of all the documents Bank of America issued a check in favor of
IR. BA advised Bank of Ayudhya of IR’s availment under the letter of credit
and asked for the corresponding reimbursement. IR presented documents for
the second availment under the same letter of credit. However, BA stopped
the processing of such after they received a telex from Bank of Ayudhya
delaring that the LC fraudulent. BA sued IR for the recovery of the first LC
payment.
The IR contended that Bank of America should have first checked the
authenticity of the letter of credit with bank of Ayudhya
Issue: Whether or not Bank of America may recover what it has paid under
the letter of credit to Inter-Resin
Held : May Bank of America then recover what it has paid under the letter of
credit when the corresponding draft
There would at least be three (3) parties: (a) the buyer, who procures the
letter of credit and obliges himself to reimburse the issuing bank upon
receipts of the documents of title; (b) the bank issuing the letter of credit,
which undertakes to pay the seller upon receipt of the draft and proper
document of titles and to surrender the documents to the buyer upon
reimbursement; and, (c) the seller, who in compliance with the contract of
sale ships the goods to the buyer and delivers the documents of title and
draft to the issuing bank to recover payment.
The services of an advising (notifying) bank may be utilized to convey to the
seller the existence of the credit; or, of a confirming bank 16 which will lend
credence to the letter of credit issued by a lesser known issuing bank; or, of a
paying bank, which undertakes to encash the drafts drawn by the exporter.
Further, instead of going to the place of the issuing bank to claim payment,
the buyer may approach another bank, termed the negotiating bank, 18 to
have the draft discounted.
Bank of America has acted independently as a negotiating bank, thus saving
Inter-Resin from the hardship of presenting the documents directly to Bank of
Ayudhya to recover payment. As a negotiating bank, Bank of America has a
right to recourse against the issuer bank and until reimbursement is obtained,
Inter-Resin, as the drawer of the draft, continues to assume a contingent
liability thereon.
Furthermore, bringing the letter of credit to the attention of the seller is the
primordial obligation of an advising bank. The view that Bank of America
should have first checked the authenticity of the letter of credit with bank of
Ayudhya, by using advanced mode of business communications, before
dispatching the same to Inter-Resin finds no real support.
Transfield Philippines v Luzon Hydro, ANZ and Security Bank
The independent nature of the letter of credit may be: (a) independence
in toto where the credit is independent from the justification aspect and
is a separate obligation from the underlying agreement like for instance
a typical standby; or (b) independence may be only as to the
justification aspect like in a commercial letter of credit or repayment
standby, which is identical with the same obligations under the
underlying agreement. In both cases the payment may be enjoined if in
the light of the purpose of the credit the payment of the credit would
constitute fraudulent abuse of the credit.
Facts: Transfield Philippines (Transfield) entered into a turn-key contract with
Luzon Hydro Corp. (LHC).Under the contract, Transfield were to construct a
hydro-electric plants in Benguet and Ilocos. Transfield was given the sole
responsibility for the design, construction, commissioning, testing and
completion of the Project. The contract provides for a period for which the
project is to be completed and also allows for the extension of the period
provided that the extension is based on justifiable grounds such as fortuitous
event. In order to guarantee performance by Transfield, two stand-by letters
of credit were required to be opened. During the construction of the plant,
Transfield requested for extension of time citing typhoon and various
disputes delaying the construction. LHC did not give due course to the
extension of the period prayed for but referred the matter to arbitration
committee. Because of the delay in the construction of the plant, LHC called
on the stand-by letters of credit because of default. However, the demand
was objected by Transfield on the ground that there is still pending arbitration
on their request for extension of time.
Issue: Whether or not LHC can collect from the letters of credit despite the
pending arbitration case
Held: Transfield’s argument that any dispute must first be resolved by the
parties, whether through negotiations or arbitration, before the beneficiary is
entitled to call on the letter of credit in essence would convert the letter of
credit into a mere guarantee.
The independent nature of the letter of credit may be: (a) independence in
toto where the credit is independent from the justification aspect and is a
separate obligation from the underlying agreement like for instance a typical
standby; or (b) independence may be only as to the justification aspect like in
a commercial letter of credit or repayment standby, which is identical with the
same obligations under the underlying agreement. In both cases the payment
may be enjoined if in the light of the purpose of the credit the payment of the
credit would constitute fraudulent abuse of the credit.
Jurisprudence has laid down a clear distinction between a letter of credit and
a guarantee in that the settlement of a dispute between the parties is not a
pre-requisite for the release of funds under a letter of credit. In other words,
the argument is incompatible with the very nature of the letter of credit. If a
letter of credit is drawable only after settlement of the dispute on the contract
entered into by the applicant and the beneficiary, there would be no practical
and beneficial use for letters of credit in commercial transactions.
The engagement of the issuing bank is to pay the seller or beneficiary of the
credit once the draft and the required documents are presented to it. The so-
called “independence principle” assures the seller or the beneficiary of
prompt payment independent of any breach of the main contract and
precludes the issuing bank from determining whether the main contract is
actually accomplished or not. Under this principle, banks assume no liability
or responsibility for the form, sufficiency, accuracy, genuineness, falsification
or legal effect of any documents, or for the general and/or particular
conditions stipulated in the documents or superimposed thereon, nor do they
assume any liability or responsibility for the description, quantity, weight,
quality, condition, packing, delivery, value or existence of the goods
represented by any documents, or for the good faith or acts and/or
omissions, solvency, performance or standing of the consignor, the
carriers, or the insurers of the goods, or any other person whomsoever.
Colinares and Veloso v CA
The ownership of the merchandise continues to be vested in the
person who had advanced payment until he has been paid in full, or if
the merchandise has already been sold, the proceeds of the sale
should be turned over to him by the importer or by his representative
or successor in interest.
Facts: Melvin Colinares and Lordino Veloso (hereafter Petitioners) were
contracted for a consideration of P40,000 by the Carmelite Sisters of
Cagayan de Oro City to renovate the latter’s convent at Camaman-an,
Cagayan de Oro City. Colinares applied for a commercial letter of credit with
the Philippine Banking Corporation, Cagayan de Oro City branch (hereafter
PBC) in favor of CM Builders Centre. PBC approved the letter of credit
for P22,389.80 to cover the full invoice value of the goods. Petitioners signed
a pro-forma trust receipt as security.
PBC debited P6,720 from Petitioners’ marginal deposit as partial payment of
the loan. After the initial payment, the spouses defaulted. PBC wrote to
Petitioners demanding that the amount be paid within seven days from
notice. Instead of complying with PBC’s demand, Veloso confessed that they
lost P19,195.83 in the Carmelite Monastery Project and requested for a
grace period of until 15 June 1980 to settle the account. Colinares proposed
that the terms of payment of the loan be modified P2,000 on or before 3
December 1980, and P1,000 per month . Pending approval of the proposal,
Petitioners paid P1,000 to PBC on 4 December 1980, and thereafter P500 on
11 February 1981, 16 March 1981, and 20 April 1981. Concurrently with the
separate demand for attorney’s fees by PBC’s legal counsel, PBC continued
to demand payment of the balance. On 14 January 1983, Petitioners were
charged with the violation of P.D. No. 115 (Trust Receipts Law) in relation to
Article 315 of the Revised Penal Code
During trial, petitioner Veloso insisted that the transaction was a “clean loan”
as per verbal guarantee of Cayo Garcia Tuiza, PBC’s former manager. He
and petitioner Colinares signed the documents without reading the fine print,
only learning of the trust receipt implication much later. When he brought this
to the attention of PBC, Mr. Tuiza assured him that the trust receipt was a
mere formality. The Trust Receipts Law does not seek to enforce payment of
the loan, rather it punishes the dishonesty and abuse of confidence in the
handling of money or goods to the prejudice of another regardless of whether
the latter is the owner. Here, it is crystal clear that on the part of Petitioners
there was neither dishonesty nor abuse of confidence in the handling of
money to the prejudice of PBC. Petitioners continually endeavored to meet
their obligations, as shown by several receipts issued by PBC acknowledging
payment of the loan.
Issue: Whether or not the transaction of Colinares falls within the ambit of the
Law on Trust Receipt
Held: Colinares received the merchandise from CM Builders Centre on 30
October 1979. On that day, ownership over the merchandise was already
transferred to Petitioners who were to use the materials for their construction
project. It was only a day later, 31 October 1979, that they went to the bank
to apply for a loan to pay for the merchandise. This situation belies what
normally obtains in a pure trust receipt transaction where goods are owned
by the bank and only released to the importer in trust subsequent to the grant
of the loan.
The bank acquires a “security interest” in the goods as holder of a security
title for the advances it had made to the entrustee. The ownership of the
merchandise continues to be vested in the person who had advanced
payment until he has been paid in full, or if the merchandise has already
been sold, the proceeds of the sale should be turned over to him by the
importer or by his representative or successor in interest. To secure that the
bank shall be paid, it takes full title to the goods at the very beginning and
continues to hold that title as his indispensable security until the goods are
sold and the vendee is called upon to pay for them; hence, the importer has
never owned the goods and is not able to deliver possession. In a certain
manner, trust receipts partake of the nature of a conditional sale where the
importer becomes absolute owner of the imported merchandise as soon as
he has paid its price. There are two possible situations in a trust receipt
transaction. The first is covered by the provision which refers to money
received under the obligation involving the duty to deliver it (entregarla) to the
owner of the merchandise sold. The second is covered by the provision
which refers to merchandise received under the obligation to “return” it
(devolvera) to the owner. Failure of the entrustee to turn over the proceeds of
the sale of the goods, covered by the trust receipt to the entruster or to return
said goods if they were not disposed of in accordance with the terms of the
trust receipt shall be punishable as estafa under Article 315 (1) of the
Revised Penal Code, without need of proving intent to defraud.
HUR TIN YANG vs. PEOPLE OF THE PHILIPPINES
G.R. No. 195117; August 14, 2013; Velasco Jr., J.
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.http://www.lawphil.net/judjuris/juri2013/aug2013/gr_195117_2013.html
- fnt16
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.
FACTS:
Supermax Philippines, Inc. (Supermax) is a domestic corporation
engaged in the construction business. On various occasions,
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 of Supermax, to sign
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 trust receipts fell due and despite the receipt of a demand
letter, Supermax failed to pay or deliver the goods or proceeds to
Metrobank. Instead, Supermax requested the restructuring of the loan.
When the intended restructuring of the loan did not materialize,
Metrobank sent another demand letter. As the demands fell on deaf ears,
Metrobank, 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.
In support of this argument, petitioner presented a witness who testified
that the construction materials covered by the trust receipts were
delivered way before petitioner signed the corresponding trust
receipts. Further, petitioner argued that Metrobank knew all along that
the construction materials subject of the trust receipts were not intended
for resale but for personal use of Supermax relating to its construction
business.
The trial court rendered judgment convicting accused Hur Tin Yang of the
crime of estafa under Article 315 paragraph 1 (a) of the Revised Penal
Code.
Petitioner appealed to the CA. CA rendered a Decision, upholding the
findings of the RTC. The CA ruled that since the offense punished under
PD 115 is in the nature of malum prohibitum, a mere failure to deliver the
proceeds of the sale or goods, if not sold, is sufficient to justify a
conviction under PD 115.
Petitioner filed a MR, but it was denied. Not satisfied, petitioner filed a
petition for review under Rule 45 of the Rules of Court.
SC dismissed the Petition on the ground that the CA committed no
reversible error in the assailed decision. Hence, petitioner filed the
present MR contending that the transactions between the parties do not
constitute trust receipt agreements but rather of simple loans.
ISSUE:
Whether or not 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.
HELD:
In determining the nature of a contract, courts are not bound by the
title or name given by the parties. The decisive factor in evaluating such
agreement is the intention of the parties, as shown not necessarily by the
terminology used in the contract but by their conduct, words, actions and
deeds prior to, during and immediately after executing the agreement. As
such, therefore, documentary and parol evidence may be submitted and
admitted to prove such intention.
In the instant case, the factual findings of the trial and appellate
courts reveal that the dealing between petitioner and Metrobank was not a
trust receipt transaction but one of simple loan. Petitioner’s admission––that
he signed the trust receipts on behalf of Supermax, which failed to pay the
loan or turn over the proceeds of the sale or the goods to Metrobank upon
demand––does not conclusively prove that the transaction was, indeed, a
trust receipts transaction. In contrast to the nomenclature of the transaction,
the parties really intended a contract of loan.
In Ng v. People and Land Bank of the Philippines v. Perez, cases
which are in all four corners the same as the instant case––ruled that the fact
that the entruster bank knew even before the execution of the trust receipt
agreements that the construction materials covered were never intended by
the entrustee for resale or for the manufacture of items to be sold is sufficient
to prove that the transaction was a simple loan and not a trust receipts
transaction.
The petitioner was charged with Estafa committed in what is called,
under PD 115, a "trust receipt transaction.
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.http://www.lawphil.net/judjuris/juri2013/aug2013/gr_195117_2013.html
- fnt16 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.
Nonetheless, when both parties enter into an agreement knowing
fully well that the return of the goods subject of the trust receipt is not
possible even without any fault on the part of the trustee, it is not a trust
receipt transaction penalized under Sec. 13 of PD 115 in relation to Art. 315,
par. 1(b) of the RPC, as the only obligation actually agreed upon by the
parties would be the return of the proceeds of the sale transaction. This
transaction becomes a mere loan, where the borrower is obligated to pay the
bank the amount spent for the purchase of the goods.
In Ng v. People, Anthony Ng, then engaged in the business of
building and fabricating telecommunication towers, applied for a credit line of
PhP 3,000,000 with Asiatrust Development Bank, Inc. Prior to the approval of
the loan, Anthony Ng informed Asiatrust that the proceeds would be used for
purchasing construction materials necessary for the completion of several
steel towers he was commissioned to build by several telecommunication
companies. Asiatrust approved the loan but required Anthony Ng to sign a
trust receipt agreement. When Anthony Ng failed to pay the loan, Asiatrust
filed a criminal case for Estafa in relation to PD 115 or the Trust Receipts
Law. This Court acquitted Anthony Ng and ruled that 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 Anthony Ng was neither an importer nor retail dealer, it
should have known that the said agreement could not possibly apply to
petitioner, viz:
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. 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. x x x [T]he 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.
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.
Further, in Land Bank of the Philippines v. Perez, the respondents
were officers of Asian Construction and Development Corporation (ACDC), a
corporation engaged in the construction business. On several occasions,
respondents executed in favor of Land Bank of the Philippines (LBP) trust
receipts to secure the purchase of construction materials that they will need
in their construction projects. When the trust receipts matured, ACDC failed
to return to LBP the proceeds of the construction projects or the construction
materials subject of the trust receipts. After several demands went unheeded,
LBP filed a complaint for Estafa or violation of Art. 315, par. 1(b) of the RPC,
in relation to PD 115, against the respondent officers of ACDC. This Court,
like in Ng, acquitted all the respondents on the postulate that the parties
really intended a simple contract of loan and not a trust receipts transaction,
viz:
 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.
xxxx
Thus, in concluding that the transaction was a loan and not a trust
receipt, we noted in 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.
Since the factual milieu of Ng and Land Bank of the Philippines are in
all four corners similar to the instant case, it behooves this Court, following
the principle of stare
decisis,http://www.lawphil.net/judjuris/juri2013/aug2013/gr_195117_2013.htm
l - fnt20 to rule that the transactions in the instant case are not trust receipts
transactions but contracts of simple loan. 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.
For reasons discussed above, the subject transactions in the instant
case are not trust receipts transactions. Thus, the consolidated complaints
for Estafa in relation to PD 115 have really no leg to stand on.
The Court’s ruling in Colinares v. Court of
Appealshttp://www.lawphil.net/judjuris/juri2013/aug2013/gr_195117_2013.ht
ml - fnt21 is very apt, thus:
The practice of banks of making borrowers sign trust receipts to
facilitate collection of loans and place them under the threats of criminal
prosecution should they be unable to pay it may be unjust and inequitable. if
not reprehensible. Such agreements are contracts of adhesion which
borrowers have no option but to sign lest their loan be disapproved. The
resort to this scheme leaves poor and hapless borrowers at the mercy of
banks and is prone to misinterpretation x x x.
Unfortunately, what happened in Colinares is exactly the situation in
the instant case. This reprehensible bank practice described in Colinares
should be stopped and discouraged. For this Court to give life to the
constitutional provision of non-imprisonment for nonpayment of debts, it is
imperative that petitioner be acquitted of the crime of Estafa under Art. 315,
par. 1 (b) ofthe RPC, in relation to PD 115.
WHEREFORE, the Resolution upholding the CA's is hereby
RECONSIDERED. Petitioner Hur Tin Yang is ACQUITTED of the charge of
violating Art. 315, par. 1 (b) of the RPC, in relation to the pertinent provision
of PD 115 in Criminal Case Nos. 04-223911 to 34.
SO ORDERED.
5. Sps. Dela Cruz vs PPI
Facts:
Spouses Dela Cruz, petitioners herein, operated the Barangay Agricultural
Supply. At the time material to the case, Quirino, a lawyer, was the Municipal
Mayor of Aliaga, Nueva Ecija. Gloria applied for and was granted by
respondent Planters Products, Inc. (PPI) a regular credit line of P200,000.00
for a 60- day term, with trust receipts as collaterals.
Spouses submitted a list of their assets in support of her credit application for
participation in the Special Credit Scheme (SCS) of PPI. Gloria signed in the
presence of the PPI distribution representative "Trust Receipt/Special Credit
Scheme," indicating the invoice number, quantity, value, and names of the
agricultural inputs she received "upon the trust" of PPI.
The 60-day credit term lapsed without Gloria paying her obligation under the
Trust Receipt/SCS. Hence, PPI wrote collection letters to her.
PPI alleged that Gloria had violated the “fiduciary undertaking in the Trust
Receipt agreement covering product withdrawals under the Special Credit
Scheme which were subsequently charged to defendant dealer’s regular
credit line; therefore, she is guilty of fraudulently misapplying or converting to
her own use the items delivered to her as contained in the invoices.” It
charged that Gloria did not return the goods indicated in the invoices and did
not remit the proceeds of sales.
The CA held the petitioners liable to PPI “for the value of the fertilizers and
agricultural chemical products covered by the trust receipts” because a
creditor-debtor relationship existed between the parties when, the petitioners
“withdrew several fertilizers and agricultural chemical products on credit;” that
the petitioners then came under obligation to pay the equivalent value of the
withdrawn goods, “or to return the undelivered and/or unused products within
the specified period.”

Issue:
Is Gloria liable under Trust Receipt law?
Ruling:
These established circumstances comprised by the contemporaneous and
subsequent acts of Gloria and Quirino that manifested their intention to enter
into the creditor-debtor relationship with PPI show that the CA properly held
the petitioners fully liable to PPI. The law of contracts provides that in
determining the intention of the parties, their contemporaneous and
subsequent acts shall be principally considered. Consequently, the written
terms of their contract with PPI, being clear upon the intention of the
contracting parties, should be literally applied.
The first circumstance was the credit line of P200,000.00 that commenced
the business relationship between the parties. A credit line is really a loan
agreement between the parties.
The second circumstance was the offer by Gloria of trust receipts as her
collateral for securing the loans that PPI extended to her. 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.”
The third circumstance was the offer of Gloria and Quirino to have their
conjugal real properties beef up the collaterals for the credit line.
The fourth circumstance had to do with the undertakings under the trust
receipts. The position of the petitioners was that the farmers participants
alone were obligated to pay for the goods delivered to them by Gloria.
However, such position had no factual and legal legs to prop it up. A close
look at the Trust Receipt/SCS indicates that the farmer-participants were
mentioned therein only with respect to the duties and responsibilities that
Gloria personally assumed to undertake in holding goods “in trust for PPI.”
Under the notion of relativity of contracts embodied in Article 1311 of the Civil
Code, contracts take effect only between the parties, their assigns and heirs.
Hence, the farmer-participants, not being themselves parties to the
contractual documents signed by Gloria, were not to be thereby liable.