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Rodil (RTC Manila judge) and reverse the order of the lower court. (SC affirmed the LC
People of the Philippines decision despite the majority view)
G.R. No. 80544; 5 July 1989 o SC Majority view: The conversion by the trustee in a trust
receipt of the proceeds of the sale falls most literally and
FACTS: directly under the provision of estafa thru misappropriation
1. Lee was the representative of CS Lee Enterprises Inc which opened a under Art 315 (1)(b) of the RPC. The enactment of the Trust
letter of credit worth Php 154,711.97 with Philippine Bank of Receipts Law confirmed the said criminal liability.
Communications for the purchase of merchandise. o Dissent of J. Teehankee:
2. 1982: Culture Media received the necessary document and then A contract covered by a trust receipt is a secured loan.
executed a trust receipt for the said merchandise: Lee obligated The goods imported by the dealer, through the banks
herself to hold the merchandise in trust to sell the same in cash financing, remain of their own property and risk.
for the account of the bank; To account for the proceeds if sold; To The view of putting them in jail for estafa for non-
return the merchandise to the bank in case of failure to sell the same; payment of the secured loan through a trust receipt
3. Despite repeated demands, she failed to comply with her should not be permitted in this day and age.
obligation and instead appropriated the merchandise for her own o Dissent of De Castro:
personal use. The bank cannot be considered as the true owner of the
4. 1985: Lee was charged for estafa. She moved to quash the
goods which has full power of disposition over the same.
information on the ff grounds:
Otherwise, it would disregard the loan feature (L/C).
o The violation of a trust agreement does not constitute
The trust receipt is supposed to give a stronger security
estafa despite an express provision in the Trust Receipts
for the loan obtained by the importer.
Law characterizing it as estafa.
There would have been no need for PD 115 had there
o PD 115 is violative of the right that no person shall be
been no such doubt if the violation constitutes estafa.
imprisoned for non-payment of debt.
On the case of Sia v. People (1983):
5. RTC denied the motion to quash and upheld the constitutionality of
the law. o De Castro penned the said case.
6. MR denied. Hence, the present petition. o If the trust receipt transaction is susceptible to two reasonable
interpretations, one giving rise only to civil liability and the other
ISSUE: Does the violation of a trust receipt agreement constitute estafa? also generating criminal liability, the first should be adopted as
YES more favorable to the offender.
Lee used the Cuevo and Sia case to support her stand. However, the
RATIO: violations in both cases occurred in the 1960s. PD115 was not
applied because the questioned acts were committed before its
PD 115, S3 expressly provides: The failure of an entrustee to turn effectivity/promulgation in 1973.
over the proceeds of the sale of the goods, documents or Violations of trust receipt agreements occurring after 29 Jan
instruments covered by a trust receipt to the extent of the amount 1973 would thus make the accused criminally liable for estafa
owing to the entruster or as appears in the trust receipt or to return pursuant to PD115.
said goods, documents or instruments if they were not sold or On the constitutionality of PD115: A convincing showing is needed to
disposed of in accordance with the terms of the trust receipt shall overcome the presumption of the validity of a statute.
constitute the crime of estafa On the nature of a trust receipt agreement:
On the case of People v. Cuevo (1981): o An LC-TR arrangement involves a loan feature represented
o It was the lower court that dismissed the information and ruled by a letter of credit and a security feature which is the trust
that a violation gives rise to a civil action only. receipt. Each feature is separate and distinct.
o Out of the 11 members of the SC, a majority of 6 justices +CJ o The person prejudiced by the misappropriation or
were of the view that the violation constitutes estafa, 2 voted conversion of goods need not be the owner thereof. The
otherwise, another 2 inhibited themselves. The view of the authors simply used the phrase to the prejudice of another
dissenting justices prevailed as a result of the want of 1 vote to
o The failure of a person to turn over the proceeds or goods not nor abuse of confidence in the handling of money to the prejudice of PBC.
sold covered by a trust receipt is a public nuisance. The act Petitioners continually endeavored to meet their obligations, as shown by
is not inherently wrong but because of the harm it inflicts on several receipts issued by PBC acknowledging payment of the loan.
the community, it may be punished as malum prohibitum.
CASE 2: Colinares vs. Veloso Issue: Whether or not the transaction of Colinares falls within the ambit of
the Law on Trust Receipt
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 Held: Colinares received the merchandise from CM Builders Centre on 30
should be turned over to him by the importer or by his representative October 1979. On that day, ownership over the merchandise was already
or successor in interest. transferred to Petitioners who were to use the materials for their
construction project. It was only a day later, 31 October 1979, that they
Facts: Melvin Colinares and Lordino Veloso (hereafter Petitioners) were went to the bank to apply for a loan to pay for the merchandise. This
contracted for a consideration of P40,000 by the Carmelite Sisters of situation belies what normally obtains in a pure trust receipt transaction
Cagayan de Oro City to renovate the latters convent at Camaman-an, where goods are owned by the bank and only released to the importer in
Cagayan de Oro City. Colinares applied for a commercial letter of credit trust subsequent to the grant of the loan.
with the Philippine Banking Corporation, Cagayan de Oro City branch
(hereafter PBC) in favor of CM Builders Centre. PBC approved the letter of The bank acquires a security interest in the goods as holder of a security
credit for P22,389.80 to cover the full invoice value of the goods. title for the advances it had made to the entrustee. The ownership of the
Petitioners signed a pro-forma trust receipt as security. 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
PBC debited P6,720 from Petitioners marginal deposit as partial payment been sold, the proceeds of the sale should be turned over to him by the
of the loan. After the initial payment, the spouses defaulted. PBC wrote importer or by his representative or successor in interest. To secure that
to Petitioners demanding that the amount be paid within seven days from the bank shall be paid, it takes full title to the goods at the very beginning
notice. Instead of complying with PBCs demand, Veloso confessed that and continues to hold that title as his indispensable security until the goods
they lost P19,195.83 in the Carmelite Monastery Project and requested for are sold and the vendee is called upon to pay for them; hence, the
a grace period of until 15 June 1980 to settle the account. Colinares importer has never owned the goods and is not able to deliver possession.
proposed that the terms of payment of the loan be modified P2,000 on or In a certain manner, trust receipts partake of the nature of a conditional
before 3 December 1980, and P1,000 per month . Pending approval of the sale where the importer becomes absolute owner of the imported
proposal, Petitioners paid P1,000 to PBC on 4 December 1980, and merchandise as soon as he has paid its price. There are two possible
thereafter P500 on 11 February 1981, 16 March 1981, and 20 April 1981. situations in a trust receipt transaction. The first is covered by the provision
Concurrently with the separate demand for attorneys fees by PBCs legal which refers to money received under the obligation involving the duty to
counsel, PBC continued to demand payment of the balance. On 14 deliver it (entregarla) to the owner of the merchandise sold. The second is
January 1983, Petitioners were charged with the violation of P.D. No. 115 covered by the provision which refers to merchandise received under the
(Trust Receipts Law) in relation to Article 315 of the Revised Penal Code 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
During trial, petitioner Veloso insisted that the transaction was a clean receipt to the entruster or to return said goods if they were not disposed of
loan as per verbal guarantee of Cayo Garcia Tuiza, PBCs former in accordance with the terms of the trust receipt shall be punishable as
manager. He and petitioner Colinares signed the documents without estafa under Article 315 (1) of the Revised Penal Code, without need of
reading the fine print, only learning of the trust receipt implication much proving intent to defraud.
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 CASE 3: Hur Tin Yang v. People (2013)
and abuse of confidence in the handling of money or goods to the
FACTS:
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
1) Supermax Philippines, Inc. (Supermax) is a domestic corporation ISSUE:
engaged in the construction business
2) On various occasions in the month of April, May, July, August, Whether Hur Tin Yang is liable for Estafa under Art 315 in relation to PD
115 (Trust Receipts Law), even if it was sufficietnly proved that the
September, October and November 1998, Metropolitan Bank and
entrsuter (Metrobank) knew beforehand that the goods (construction
Trust Company (Metrobank), Magdalena Branch, Manila,
materials) suubject of the trust receipts were never intended to be sold but
extended several commercial letters of credit (LCs) to Supermax.
only for use in the entrustees construction business? NO!! He is not
These commercial LCs were used by Supermax to pay for the liable. When both parties enter into an agreement knowing fully well
delivery of several construction materials which will be used in that the return of the goods subject of the trust receipt is not
their construction business. possible even without any fault on the part of the trustee, it is not a
3) Thereafter, Metrobank required Hur Tin Yang, as representative trust receipt transaction penalized under Sec. 13 of PD 115 in relation
and Vice-President for Internal Affairs of Supermax, to sign twenty- to Art. 315, par. 1(b) of the RPC, as the only obligation actually agreed
four (24) trust receipts as security for the construction materials upon by the parties would be the return of the proceeds of the sale
and to hold those materials or the proceeds of the sales in trust for transaction. This transaction becomes a mere loan, where the
Metrobank to the extent of the amount stated in the trust receipts. borrower is obligated to pay the bank the amount spent for the
4) When the 24 trust receipts fell due and despite the receipt of a purchase of the goods
demand letter. Supermax failed to pay or deliver the goods or
RULING:
proceeds to Metrobank.
5) Instead, Supermax, through petitioner, requested the restructuring In determining the nature of a contract, courts are not bound by the title or
of the loan. When the intended restructuring of the loan did not name given by the parties. The decisive factor in evaluating such
materialize, Metrobank sent another demand letter. agreement is the intention of the parties, as shown not necessarily by the
6) As the demands fell on deaf ears, Metrobank, through its terminology used in the contract but by their conduct, words, actions and
representative, Winnie M. Villanueva, filed the instant criminal deeds prior to, during and immediately after executing the agreement. As
complaints (Estafa) against Hur Tin Yang. such, therefore, documentary and parol evidence may be submitted and
7) PETITIONER admitted to prove such intention
a. while admitting signing the trust receipts, he argued that
said trust receipts were demanded by Metrobank as In the instant case, the factual findings of the trial and appellate courts
additional security for the loans extended to Supermax for reveal that the dealing between petitioner and Metrobank was not a trust
receipt transaction but one of simple loan
the purchase of construction equipment and materials.
b. petitioner presented as witness, Priscila Alfonso, who Petitioners admissionthat he signed the trust receipts on behalf of
testified that the construction materials covered by the Supermax, which failed to pay the loan or turn over the proceeds of the
trust receipts were delivered way before petitioner signed sale or the goods to Metrobank upon demanddoes not conclusively
the corresponding trust receipts prove that the transaction was, indeed, a trust receipts transaction.
c. further, he argued that Metrobank knew all along that
the construction materials subject of the trust receipts In contrast to the nomenclature of the transaction, the parties really
were not intended for resale but for personal use of intended a contract of loan. This Courtin Ng v. People14 and Land Bank
of the Philippines v. Perez, cases which are in all four corners the same as
Supermax relating to its construction business (take
the instant caseruled that the fact that the entruster bank knew even
note).
before the execution of the trust receipt agreements that the
8) TC found Hur Tin Yang guilty of Estafa. CA affirmed.
9) Petitioner on MR aruged that the transactions between the parties construction materials covered were never intended by the entrustee
for resale or for the manufacture of items to be sold is sufficient to
do not constitute trust receipts agreements but rather of simple
prove that the transaction was a simple loan and not a trust receipts
loans (petitioner is correct).
transaction.
What is Trust Recept Transactions? A trust receipt transaction is one The 60-day credit term lapsed without Gloria paying her obligation under
where the entrustee has the obligation to deliver to the entruster the price the Trust Receipt/SCS. Hence, PPI wrote collection letters to her.
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 PPI alleged that Gloria had violated the fiduciary undertaking in the Trust
transaction: the first refers to money received under the obligation Receipt agreement covering product withdrawals under the Special Credit
involving the duty to turn it over (entregarla) to the owner of the Scheme which were subsequently charged to defendant dealers regular
merchandise sold, while the second refers to the merchandise received credit line; therefore, she is guilty of fraudulently misapplying or converting
under the obligation to return it (devolvera) to the owner.16 A violation of to her own use the items delivered to her as contained in the invoices. It
any of these undertakings constitutes Estafa defined under Art. 315, par. charged that Gloria did not return the goods indicated in the invoices and
1(b) of the RPC, as provided in Sec. 13 of PD 115. did not remit the proceeds of sales.
failure of an entrustee to turn over the proceeds of the sale of the The CA held the petitioners liable to PPI for the value of the fertilizers and
goods, documents or instruments covered by a trust receipt to the extent agricultural chemical products covered by the trust receipts because a
of the amount owing to the entruster or as appears in the trust receipt or to creditor-debtor relationship existed between the parties when, the
return said goods, documents or instruments if they were not sold or petitioners withdrew several fertilizers and agricultural chemical products
disposed of in accordance with the terms of the trust receipt shall on credit; that the petitioners then came under obligation to pay the
constitute the crime of estafa, equivalent value of the withdrawn goods, or to return the undelivered
and/or unused products within the specified period.
Moreover, a trust receipt is considered a security transaction intended to
aid in financing importers and retail dealers who do not have sufficient Issue: Is Gloria liable under Trust Receipt law?
funds or resources to finance the importation or purchase of merchandise, Ruling: These established circumstances comprised by the
and who may not be able to acquire credit except through utilization, as contemporaneous and subsequent acts of Gloria and Quirino that
collateral, of the merchandise imported or purchased. manifested their intention to enter into the creditor-debtor relationship with
In Ng v. People, this Court acquitted Anthony Ng and ruled that the Trust PPI show that the CA properly held the petitioners fully liable to PPI. The
Receipts Law was created to to aid in financing importers and retail law of contracts provides that in determining the intention of the parties,
dealers who do not have sufficient funds or resources to finance the their contemporaneous and subsequent acts shall be principally
importation or purchase of merchandise, and who may not be able to considered. Consequently, the written terms of their contract with PPI,
acquire credit except through utilization, as collateral, of the being clear upon the intention of the contracting parties, should be literally
merchandise imported or purchased. applied.
CASE 4: Sps. Dela Cruz vs PPI 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
Facts: Spouses Dela Cruz, petitioners herein, operated the Barangay agreement between the parties.
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 The second circumstance was the offer by Gloria of trust receipts as her
granted by respondent Planters Products, Inc. (PPI) a regular credit line of collateral for securing the loans that PPI extended to her. A trust receipt is
P200,000.00 for a 60- day term, with trust receipts as collaterals. a security transaction intended to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the
Spouses submitted a list of their assets in support of her credit application importation or purchase of merchandise, and who may not be able to
for participation in the Special Credit Scheme (SCS) of PPI. Gloria signed acquire credit except through utilization, as collateral, of the merchandise
in the presence of the PPI distribution representative "Trust imported or purchased.
Receipt/Special Credit Scheme," indicating the invoice number, quantity,
value, and names of the agricultural inputs she received "upon the trust" of The third circumstance was the offer of Gloria and Quirino to have their
PPI. conjugal real properties beef up the collaterals for the credit line.
The fourth circumstance had to do with the undertakings under the trust A trust receipt is considered as a security transaction intended to
receipts. The position of the petitioners was that the farmers participants aid in financing importers and retail dealers who do not have
alone were obligated to pay for the goods delivered to them by Gloria. sufficient funds or resources to finance the importation or
However, such position had no factual and legal legs to prop it up. A close purchase of merchandise, and who may not be able to acquire
look at the Trust Receipt/SCS indicates that the farmer-participants were credit except through utilization, as collateral, of the merchandise
mentioned therein only with respect to the duties and responsibilities that imported or purchased.
Gloria personally assumed to undertake in holding goods in trust for PPI. Philippine National Bank vs. Vda. e Hijos de Angel Jose: Trust
Under the notion of relativity of contracts embodied in Article 1311 of the receipts, as contracts, in a certain manner partake of the nature of
Civil Code, contracts take effect only between the parties, their assigns a conditional sale, xxx that is, the importer becomes absolute
and heirs. Hence, the farmer-participants, not being themselves parties to owner of the imported merchandise as soon as he has paid its
the contractual documents signed by Gloria, were not to be thereby liable. price. The ownership of the merchandise continues to be vested in
the owner thereof or in the person who has advanced payment,
CASE 05 Samo vs. People Nos. L-17603-04. May 31, 1962 until he has been paid in full, or if the merchandise has already
been sold, the proceeds of the sale be turned over to him by the
Topic: trust receipts (Parian) importer or by his representative or successor in interest."
In People vs. Yu Chai Ho, the defendant failed to make payments
Petition for certiorari. under the the conditions of the trust receipts he issued in favor of
1. To facilitate the importation of tins of squid and sardines, Samo International Banking Corporation after possession of the imported
opened two letters of credit with BPI. goods were transferred to him. The nonpayment of Yu Chai Ho
2. Upon the arrival of goods, BPI advanced or paid the balances due compelled a 3rd party guarantor to pay the amount of the imported
in order that the goods could be released, and required Samo to goods to said bank. It was there held that this constituted estafa, in
execute two trust receipts in its favor as a condition for turning spite of the fact that the defendant had given surety for the
over the possession of goods to her. fulfillment of his obligation under the trust receipt.
3. She did and acknowledged having received in trust from BPI the
In Philippine National Bank vs. Arrozal, where a party who fails to
goods and obligated herself to hold them in trust for the latter.
comply with the terms of a trust receipt executed by him,
4. The document authorized her to sell the goods for the account of
particularly to make payment of his obligation thereunder, such
the bank, under the obligation to remit to the latter the proceeds of
failure would be a good ground for prosecution of estafa.
the saleif soldor to return them, if not sold on or before July
31, 1954. In this case, notwithstanding repeated oral and written demands
5. Samo having failed to account for the goods and/or the proceeds by BPI, Samo had failed either to turn over to the latter the
thereof despite repeated oral and written demands by BPI, a case proceeds of the sale of the goods covered by the trust receipts, or
for estafa was instituted against her in CFI Manila. to return said goods, if they were not sold.
6. CFI convicted Samo. CA affirmed. CA correctly found her to be guilty of having violated the provisions
7. Now this petition. She argues that part of the money paid for the of Art. 315, 1-(b) of the Revised Penal Code.
goods covered by said trust receipts belonged to her, BPI having The fact that, subsequent to the filing of the cases in the Court of
only advanced the balance due on the purchase; First Instance, Samo made partial payments on account does not
8. that the money advanced constituted a loan; alter the situation.
9. that the requirement and execution of the trust receipts was a Payment does not extinguish criminal liability for estafa.
mere formality "in order to comply with the standard banking
procedure, the true relation being that of creditor and debtor. CASE 6: ALLIED BANK VS ORDOEZ
Trial Courts ratio in case professor asks: CASE 10: Vintola vs Vintola
F AC T S :
Judge Kapunan, Jr., in sustaining the motion to dismiss, relied on the Petitioner spouses Vintola owns and manages manufact
Spanish version of paragraph (b) of article 315 wherein the expression u r i n g o f r a w s e a shells into finished products, under their business
used is "recibido en deposito". In his opinion, that phrase is not accurately name, Dax kin International. They applied for domestic letter of credit by
respondent Insular Bank of Asia and America which was granted. Then,
translated as "in trust" and, as he explained, it does not allegedly cover the
executed a Trust Receipt Agreement with Insular bank stipulating that the
conversion or misappropriation of the goods covered by a trust receipt. Vintolas shall hold the goods in trust for IBAA. Having defaulted in its
payment, the Vintolas offered to return the goods to IBAA, but the latter
The lower court ratiocinated that the contract covered by a trust receipt is refused. Due to their continued refusal, IBAA charged them with estafa.
merely a secured loan (U.S. vs. Tan Tok, 15 Phil. 538) where the borrower The Court acquitted the Vintolas.
is allowed to dispose of the collateral, whereas, in a deposit the depositary
is not empowered to dispose of the property deposited. Hence, the lower ISSUE: W hether or not IBAA b e c a m e t h e r e a l owners of
court concluded that the violation of the provisions of the trust receipt gives the goods held in trust by the Vintolas.
rise to a civil action and not to a criminal prosecution for estafa.
RULING: No. Insular bank of Asia and America did not become
the holder or realowner of the goods. The Vintolas retained ownership
The lower court also ventured the opinion that the other phrase in
of the goods. TheCourt held that the trust receipt arrangement did not
paragraph (b), por otro titulo que produzca obligacion de entregarla o
convert the IBAA intoan investor, it remained a lendor and creditor. Under
devolverla" ("under any other obligation involving the duty to make delivery the law, a trust receipt is a document wherein the entrustee binds himself
of or to return the same") is not applicable because that phrase allegedly to hold thedesignated goods, documents or instruments in trust for the
refers to the very "money, goods, or any other personal property received entruster to sell or otherwise dispose of the goods, to the amount owing to
by the offender" as a deposit, and not to the proceeds of the sale of the the entruster.
goods covered by the trust receipt.
CASE 11: 11 Prudential Bank vs. National Labor Relations
The lower court observed further that the framers of the Spanish Penal Commission G.R. No. 112592. December 19, 1995
Code could not have contemplated the inclusion of the trust receipt in
Topic: trust receipts (Parian)
article 315(l) (b) because that transaction did not exist in the nineteenth
century. 10. In 3 labor cases, NLRC ordered INTERASIA to pay its employees
wage differentials, separation pay, and other benefits.
11. Writs of execution were issued and the Sheriff levied on execution his indispensable security until the goods are sold and the vendee
plastic merchandise of INTERASIA. is called upon to pay for them.
12. Prudential Bank filed an Affidavit of Third Party Claim asserting This security is not an ordinary pledge by the importer to the
ownership over the seized properties on the strength of trust banker, for the importer has never owned the goods, and
receipts executed by INTERASIA in its favor. moreover, he is not able to deliver the possession, but the security
13. The Sheriff suspended the public auction sale. But the Labor is the complete title vested originally in the bankers.
Arbiter denied the claim of Prudential Bank and directed the In a certain manner, trust receipt contracts partake of the nature of
Sheriff to proceed with the levy of the properties. The merchandise a conditional sale as provided by the Chattel Mortgage Law; the
was sold during the public auction. importer becomes absolute owner of the imported merchandise as
14. NLRC dismissed the Third Party Claimants Appeal by the bank. soon as he has paid its price. The ownership of the merchandise
15. Prudential Bank now questions NLRCs resolution and the validity continues to be vested in the person who has advanced payment,
of the auction sale in this certiorari---that while it may not have until he has been paid in full, or if the merchandise has already
absolute ownership over the properties, still it has right, interest been sold, the proceeds of the sale should be turned over to him
and ownership consisting of a security title which attaches to the by the importer.
properties. Sec. 12 of P.D. No. 115 assures the entruster of the validity of his
16. That it is a preferred claimant to the proceeds from the foreclosure claim against all creditors
to the extent of its security title in the goods otherwise its security Sec. 12. Validity of entrusters security interest as
title will become useless.
against creditors.The entrusters security interest in
17. NLRC justifies the dismissal of the third-party claim; that trust
goods, documents, or instruments pursuant to the
receipts are mere security transactions which do not vest upon
petitioner any title of ownership --- reducing trust receipts to a pure written terms of a trust receipt shall be valid as against
and simple loan transaction. all creditors of the entrustee for the duration of the trust
receipt agreement.
The security interest of the entruster is not merely an empty
ISSUE: WON Prudential Bank is a preferred claimant by virtue of the trust or idle title. To a certain extent, such interest becomes a lien
receipts on the goods because the entrusters advances will have to
be settled first before the entrustee can consolidate his
HELD: YES. Auction sale void. NLRC decision set aside. ownership over the goods.
NLRCs argument that Prudential Bank could not claim
People v. Nitafan: A trust receipt arrangement does not involve a
ownership of the properties inasmuch as it did not cancel the
simple loan transaction between a creditor and debtor-importer.
Trust Receipt Agreements and took possession of the
Apart from a loan feature, the trust receipt arrangement has a
properties is without merit.
security feature that is covered by the trust receipt itself. The title
of the bank to the security is the one sought to be protected and The law uses the word may in granting to the entruster the
not the loan which is a separate and distinct agreement. right to cancel the trust and take possession of the goods.
By this arrangement a banker advances money to an intending The bank has the discretion to avail of such right or seek any
alternative action, such as a third-party claim which it deems
importer, and thereby lends the aid of credit to the enterprise of
best to protect its right, at any time upon default of the
foreign commerce. Much of this trade could hardly be carried on
entrustee.
by any other means, and therefore it is of the first importance that
Sec. 7. Rights of the entruster.x x x The entruster
the fundamental factor in the transaction, the bankers advance of
credit, should receive the amplest protection. may cancel the trust and take possession of the
In order to secure that the banker shall be repaid at the critical goods, documents or instruments subject of the trust
pointwhen the imported goods finally reach the hands of the or of the proceeds realized therefrom at any time
intended vendeethe banker takes the full title to the goods at the upon default or failure of the entrustee to comply with
very beginning, he takes it as soon as the goods are bought and any of the terms and conditions of the trust receipt or
settled for by his payments, and he continues to hold that title as any other agreement between the entruster and the
entrustee x x x
The law warrants the validity of Prudential Banks security understanding it had with Coleman Petroleum Products Co., Inc., and
interest in the goods pursuant to the written terms of the trust which culminated in the execution of the aforesaid trust receipt.
receipt as against all creditors of the trust receipt agreement.
The only exception to the rule is when the properties are in In consonance with the stipulations and contract entered into between
the hands of an innocent purchaser for value and in good Coleman Petroleum Products Co., Inc., and the plaintiff regarding the
faith. payment of the sum of $6,227.50 advanced by the latter for the one
The records however do not show that the winning bidder is thousand drums of gasoline in question, it was agreed between both and
such purchaser. Neither can private respondents plead the Manila Railroad Company that the payments to be made by the latter
preferential claims to the properties as Prudential Bank has to Coleman Petroleum Products Co., Inc., would be made directly to the
the primary right to them until its advances are fully paid. plaintiff ; and so had it been done thereafter until October 16, 1933.
CASE 12: PNB vs. Viuda Jose Such was the state of things when the defendant Viuda e Hijos de Angel
FACTS: Upon petition of Coleman Petroleum Products Co., Inc., Jose, which had filed an action against Coleman Petroleum Products Co.,
which is a mercantile company established in the City of Manila, Inc., for the recovery of a certain credit, obtained a judgment against said
Export Petroleum Company of California, Ltd. sent from California to company on August 23, 1933. By virtue of a writ of attachment and of
Manila 1000 drums of gasoline valued at $6,227.50, addressed to execution issued in said civil case on October 13 and 26, 1933,
said Coleman Petroleum Products Co., Inc., consigning them to the respectively, the sheriff garnished the sum of P1,948.03 in the
plaintiff-appellant Philippine National Bank. possession of the Manila Railroad Company as proceeds of the
gasoline supplied to it by Coleman Petroleum Products Co., Inc.,
This bank received the merchandise about the middle of July 1933, which sum should have been paid to the plaintiff by virtue of the
together with the bill of lading covering it and the draft for $6,227.50 arrangements or understanding had between the latter and the said
representing the price thereof. Export Petroleum Company of two companies. Notwithstanding the opposition of the herein plaintiff
California, Ltd. requested the appellant to collect the amount of the which had filed a third party claim therein the in question was applied to
draft from Coleman Petroleum Products Co., Inc. and deliver the the payment of the judgment rendered in favor of Viuda e Hijos de Angel
merchandise in question thereto only after it has been paid the price Jose, the latter having filed the above-stated bond of P2,200 through the
thereof. Inasmuch as Coleman Petroleum Products Co., Inc., then Fidelity & Surety Co. The plaintiff brought the action dismissed by virtue of
had no money to pay the draft, it asked the plaintiff to pay in its stead the judgment from which it has appealed, for the purpose of recovering the
in order to enable it to take delivery and dispose of the merchandise. sum in question.
The plaintiff acceded to the petition on condition that Coleman It is reasonable that contracts contained in trust receipts, as the one
Petroleum Products Co., Inc., executed, as it in fact executed, the entered into between the plaintiff-appellant and Coleman Petroleum
"Trust Receipt" in favor of the former. Products Co., Inc., should be recognized and protected by the courts
because they are permitted by law, all the more so because there is a
To better secure the payment of the plaintiff's credit stated in the said trust cardinal principle that the contracting parties may establish any
receipt, Coleman Petroleum Products Co., Inc., bound itself to have all the agreements, terms and conditions they may deem advisable, provided
merchandise or the 1,000 drums of gasoline deposited in said plaintiff's they are not contrary to law, morals, or public order (article 1255, Civil
warehouses so that not a single drum could be withdrawn therefrom Code); and certainly the agreements, terms and conditions of the trust
without its knowledge. After these arrangements had been made and also receipt agreement, under consideration are not contrary to law, morals, or
after Coleman Petroleum Products Co., Inc., had executed the trust receipt public order. In a certain manner, they partake of the nature of a
above-stated in favor of the plaintiff, the former entered into a contract with conditional sale as provided by the Chattel Mortgage Law, that is, the
the Manila Railroad Company to supply it with gasoline at P0.42 a gallon importer becomes absolute owner of the imported merchandise as soon
f.o.b. This latter contract of Coleman Petroleum Products Co., Inc., as he has paid its price. The ownership of the merchandise continues to
became effective about the end of July 1933. The gasoline with which said be vested in the owner thereof or in the person who has advanced
company expected to supply the Manila Railroad Company was no other payment, until he has been paid in full, or if the merchandise has already
than that sent to it by Export Petroleum Company of California, Ltd., the been sold, the proceeds of the sale should be turned over to him by the
same gasoline proceeds of which was paid by the plaintiff by virtue of the importer or by his representative or successor in interest.
Furthermore, under the very provisions of the Civil Code, the appellant's and special. It is mentioned third only in article 1924 of the Civil Code
credit enjoys preference over any other credit of any other creditor of referring to credits which, while having preference among themselves,
Coleman Petroleum Products Co., Inc., and its right to the sum of have none over the specially privileged ones enumerated in articles 1922
P1,948.03 garnished by the defendant sheriff from the Manila Railroad and 1923.
Co., is superior to that of the defendant Viuda e Hijos de Angel Jose, which
was a mere judgment creditor, on the ground that said sum was the For the foregoing reasons, it is declared that the first error assigned by the
proceeds of the sale of a part of the one thousand drums of gasoline which appellant is well taken.
gave rise to the aforesaid trust receipt agreemenT. This is so by virtue of
the provisions contained in articles 1921, 1922 and 1926 of the Civil Code, As to the second error, the Philippine National Bank contends that the
the pertinent parts of which read as follows: lower court's conclusion that said appellant lost every preference it had to
the gasoline in question from the time it permitted the sale and delivery
ART. 1921. Credits shall be classified for their graduation and thereof to the Manila Railroad Company, is unfounded, because article
payment in the order and manner specified in this chapter. 340 of the Code of Commerce upon which it is based is not applicable to
the case in question. In fact the abovecited article recognizes the vendor's
ART. 1922. With respect to determinate personal property of the right of preference to the articles sold to obtain payment of the price
debtor, the following are preferred: thereof, during the time they are in his possession even though they be in
the nature of deposit.
xxx xxx xxx
The lower court, however, has lost sight of the fact that the appellant's
2. Credits secured by a pledge in the possession of the creditor, purpose in authorizing the delivery to the Manila Railroad Company of said
with respect to the thing pledged and to the extent of its value. merchandise, of the price of which the sum of P1,948.03 in question
formed part, was precisely to enable Coleman Petroleum Products Co.,
Inc., to comply not only with the terms of its contract with the Manila
xxx xxx xxx
Railroad Company, but also and more principally, with those of the trust
receipt entered into between it and the appellant.
ART. 1926. Credits which enjoy preference with respect to certain
personal property shall exclude all others to the extent of the value
Even granting that Coleman Petroleum Products Co., Inc., may be
of the property to which such preference relates.
considered the vendor of the gasoline, its preferential right to claim the
price of said merchandise from the Manila Railroad Company, which is the
When two or more creditors claim preference with respect to the thing attached by the appellee Viuda e Hijos de Angel Jose to be applied
same specific personal property, the following rules shall be later to satisfy or pay its judgment credit, was, however, expressly and
observed as to the priority of payment: specially subject to the appellant's right to claim said price for the purpose
of applying it to the amount it had advanced in payment of the draft, , of
1. Credits secured by a pledge shall exclude all others to the Export Petroleum Company of California, Ltd., which was the determining
extent of the value of the thing pledged. cause of the execution of the trust receipt Exhibit A-1 by said Coleman
Petroleum Products Co., Inc. For all purposes, the appellee Viuda e Hijos
xxx xxx xxx de Angel Jose was not a third person in connection with the contract
entered into between Coleman Petroleum Products Co., Inc. and the
The credits referred to in the above-cited articles are the so-called appellant. Its right was merely that of said Coleman Petroleum Products
specially privileged credits, or those which, according to Manresa (12 Civil Co., Inc. singularly and specially subject, as already stated to the
Code, 4th ed., page 639), enjoy preference with respect to determinate appellant's credit, admitting now that the appellant was the vendor of the
property of the debtor. gasoline in the sense of said article 340 of the Code of Commerce. This
court is of the opinion that the second error is likewise well founded.
The credit of Viuda e Hijos de Angel Jose as judgment creditor, does not
enjoy the same privilege enjoyed by that of the appellant, which is singular