SPCL Trust Receipts Digests

7/29/2019 SPCL Trust Receipts Digests

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ONG VS CA (1983)124 SCRA 578Facts:Under an agreement between petitioner and Tramat Mercantile,Inc., several units of machineries was obtained and received intrust by petitioner for the purpose of displaying and selling themachineries for cash, under the express obligation on the part ofsaid petitioner of turning over to said Tramat Mercantile, Inc., theproceeds from the sale thereof, if sold, or of returning to the latterthe said goods, if not sold, within ninety (90) days, or immediatelyupon demand.Petitioner was charged with a criminal case of estafa for allegedlyfaing to turn over the proceeds of the sale several units ofmachineries or to return the goods to Tramat Mercantile, Inc.under the aforesaid covenant.Petitioner was later charged with a complaint for collection of sumof money with the then CFI of Manila wherein both parties entereda compromise agreement to settle the claim. Petitionersubsequently filed a motion to dismiss the criminal case againsthim on the ground of novation because of the compromiseagreement entered into between him and the complainant.CFI of Manila denied the motion to dismiss. On petition forcertiorari with the then Court of Appeals the petition wasdismissed on the grounds, among others, that novation does notextinguish the criminal liability if the crime of estafa has been

completed. (2 REYES 670, 1975 ed., citing People vs. Clemente,CA, 65 O.G. 6892). In the instant case, the crime of estafa hadbeen consummated long before the compromise agreement wasagreed upon. In fact, the criminal case had already been filed inthe court. Therefore , the subsequent agreement did not affectthe criminal culpability of the petitioner. (p. 16, Rollo)Hence, the filing of the instant petition for certiorari, mandamus,prohibition and for a writ of preliminary injunction , with prayerthat the Decision of the respondent Court of Appeals be reversedand set aside; and that respondent judge of the First Instance beprohibited permanently from further proceeding in said criminalcase and to command him to dismiss said case after duehearing of this petition x x x. (p. 11, Rollo)It is the position of herein petitioner that the compromiseagreement in the civil case novated the contract embodied in the

trust receipts on which the information in the Criminal CaseNo.43423 was based, inasmuch as there was a change of objector principal conditions, under Article 1291 of the Civil Code.There being a novation, it is respectfully submitted that even if thenovation took place after the filing of the Information in thecriminal case, the transaction had nonetheless been convertedfrom a criminal violation to civil obligation, which would thereforenecessitate the consequent dismissal of the criminal case. (p. 8,Rollo).Issue: Whether or not the compromise agreement made after thefiling of the criminal case novated the trust receipt agreement. Ruling:We are not persuaded. The Court, speaking through Justice

J.B.L. Reyes, in People vs. Nery, 10 SCRA 244, said that: The novation theory may perhaps apply to the filing of thecriminal information in court by the state prosecutors because upto that time the original trust relation may be converted by theparties into an ordinary creditor-debtor situation, thereby placingthe complainant in estoppel to insist on the original trust. But afterthe justice authorities have taken cognizance of the crime andinstituted action in court, the offended party may no longer divestthe prosecution of its power to exact criminal liability, asdistinguished from the civil. The crime being an offense againstthe state, only the latter can renounce it, (People vs. Gervacio, 54Off. Gaz. 2898; People vs. Velasco, 42 Phil. 76; U.S. vs.Montaes, 8 Phil. 620).It may be observed in this regard that novation is not one of themeans recognized by the ,Penal Code whereby criminal liability

can be extinguished; hence the role of novation may be either prevent the rise of criminal liability or to cast doubt on the truenature of the original basic transaction, whether or not it was sthat its breach would not give rise to penal responsibility, as whmoney loaned is made to appear as a deposit, or other similardisguise is resorted to (cf. Abeto vs. People, 90 Phil. 581; U.S.Villareal, 27 Phil. 481).Thus it is clear that the respondent Court of Appeals did notabuse its discretion amounting to lack of jurisdiction in denyingpetitioners motion to dismiss the criminal case of estafa on thebasis of a compromise agreement made after the filing of theinformation.ACCORDINGLY, the petition is DISMISSED for lack of merit.


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S P O U S E S T I R S O V I N T O L A A N D L O R E T A D YVS IN SU LA R BA NK OF AS IA AN D AMERICA, (1987)150 SCRA 578

F A C T S :P e t i t i o n e r s p o u s e s V i n t o l a o w n s a n d m a n a g e s ma n uf ac t u r i n g o f ra w s ea shells into finished products,under their business name, Dax kin International. They applied fordomestic letter of credit by respondent Insular Bank of Asia andAmerica which was granted. Then, executed a Trust ReceiptAgreement with Insular bank stipulating that the Vintolas shallhold the goods in trust for IBAA. Having defaulted in its payment,the Vintolas offered to return the goods to IBAA, but the latterrefused. Due to their continued refusal, IBAA charged them withestafa. The Court acquitted the Vintolas.

I S S U E : W h e t h e r o r n o t I B A A b e c a m e t h e r e a lowners of the goods held in trust by the Vintolas.

RULING: No. Insular bank of Asia and America did notbecome the holder or real owner of the goods. The Vintolasretained ownership of the goods. TheCourt held that the trustreceipt arrangement did not convert the IBAA intoan investor, it

remained a lendor and creditor. Under the law, a trust receipt is adocument wherein the entrustee binds himself to holdthedesignated goods, documents or instruments in trust for theentruster to sell or otherwise dispose of the goods, to the amountowing to the entruster.


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TRINIDAD RAMOS, petitioner,vs.THE HONORABLE COURT OF APPEALS and PEOPLE OFTHE PHILIPPINES, respondents.NARVASA, J .:Facts:This is an appeal of Trinidad Ramos seeking reversal of thejudgment of the Court of Appeals which affirmed her conviction offour felonies ofestafa handed down by the Court of First Instanceof Manila.Petitioner applied for four letters of credit with Philippine NationalCooperative Bank (PNCB) supported by commercial invoices.After the applications were processed and approved, domesticletters of credit were opened on the same dates of theapplications and in the amounts applied for . The differentsuppliers then drew sight drafts against the petitioner payable tothe order of the PNCB, also bearing the same dates as therespective applications and for the same amounts. The PNCBthen drew its own drafts against the petitioner as the buyer of themerchadise and which drafts were accepted by the accused alsoon the same dates of the respective applications. After suchacceptance, the corresponding trust receipts were signed by thepetitioner also on the same dates of the respective applications.The four trust receipts signed by the accused uniformly containthe following stipulation:The undersigned hereby acknowledges to have received in trust

from the ... (PNCB) the merchandise covered by the above-mentioned documents and agrees to hold said merchandise instorage as the property of said bank, with the liberty to sell thesame for cash and for its account provided the proceeds thereofare turned over in their entirety to the said bank to be appliedagainst any acceptance(s) and any other indebtedness of theundersigned to the said bank.PNCB claimed that no payments were made excepting partialpayments of P3,900.00 and P2,000, inclusive of interests on oneof the letters of credit. These partial payments were evidently inpursuance of written demands for payment addressed by thePNCB to the petitioner October 5, 1965. A last formal demandwas addressed to the petitioner in a letter of counsel for thePNCB dated January 26,1967.Trinidad Ramos contends, in her case (1) that there is no

adequate proof of her receipt of the goods subject of the trustreceipts in question or of her having paid anything on accountthereof or in connection therewith; (2) that complainant Bank hadsuffered no damage whatever, since it had made no payment atall on account of the commercial invoices for which the trustreceipts were issued; and (3) that under the laws at the time,transactions involving trust receipts could only give rise to purelycivil liability.

Issue: Whether or not the trust receipts signed by petitioner issufficient to convict her of the crime of estafa. Ruling:Petitioner is not guilty of estafa. Conviction was reversed. Examined against the evidence of record, the assailed factual

findings as to the receipt of the merchandise and the damagesustained by the Bank cannot stand. The proofs are indeedinadequate on these propositions of fact. It is difficult to accept theprosecution's theory that it has furnished sufficient proof ofdelivery by the introduction in evidence of the commercialinvoices attached to the applications for the letters of credit and ofthe trust receipts. The invoices are actually nothing more thanlists of the items sought to be purchased and their prices; and itcan scarcely be believed that goods worth no mean sum actuallytransferred hands without the unpaid vendor requiring the vendeeto acknowledge this fact in some way, even by a simple signatureon these documents alone if not in fact by the execution of someappropriate document, such as a delivery receipt.The trust receipts do not fare any better as proofs of the deliveryto Ramos of the goods. Except for the invoices, an documents

relating to each trust receipt agreement, including the trustreceipts themselves, appear to be standard Bank formsaccomplished by the Bank personnel, and were all signed byRamos in one sitting, no doubt with a view to facilitating thepending transactions between the parties. If, as she claims,Ramos was made to believe that bank usage or regulationsrequire the signing of the papers in this way, i.e., on a singleoccasion, there was neither reason nor opportunity for her toquestion the statement therein of receipt of the goods since it wevidently assumed that delivery to her of the goods would shorcome to pass.At any rate, Ramos has categorically and consistently denied ehaving received the goods either from the Bank or the supplierAnd this was because, according to her, the suppliers simplyrefused to part with the goods as no payment had been madetherefore by the Bank.


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ALLIED BANKING CORPORATION VS SECRETARYSEDFREY ORDOEZ AND ALFREDOCHING192 SCRA 246 (1990)FACTS: Respondent Alfredo Ching duly authorizedoffi cer of Phili ppin e B loom ing Mills (PBM) applied forthe issuance of commercial letters of credit with petitioner Alliedbanking Corporation. The latter issued an irrevocable letter ofcredit infavor of Nikko Industry wherein it drew four (4) draftswhich were accepted by Blooming Mills and duly honored andpaid by Allied Bank. In order to secure the payment of the loan,Blooming Mills as entrustee, executed four (4) Trust Receipt

Agreements acknowledging Allied banks ownership of the goodsand Blooming Mills obligation to turn over the proceeds of the saleof the goods if sold or to return the same within the stated period.Blooming Mills failed to pay itsobligation, thereby promptingpetitioner bank to file a criminal complaint for violation ofPresidential Decree 115.

ISSUE: Whether or not the penal provision ofPres ident ial decr ee 1 15 a pply when the goods covered bya Trust Receipt do not form part of the finished products whichare ultimately sold but are instead, utilized in the operation of theequipment of entrustee-manufacturer?

RULING: Yes. In trust receipts, there is an obligation to repay theentruster. The entrustee binds himself to sell or otherwise disposeof the entrusted goods with the obligation to turn over to theentruster the proceeds if sold, or return the goods if unsold or nototherwise disposed of according to the terms and conditions ofthe trust receipt. Petition granted.


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PHILIPPINE NATIONAL BANK, petitioner,vs.HON. GREGORIO G. PINEDA, in his capacity as PresidingJudge of the Court of First Instance of Rizal, Branch XXI andTAYABAS CEMENT COMPANY, INC., respondents.Facts:In this petition forcertiorari, petitioner Philippine National Bank(PNB) seeks to annul and set aside the orders dated March 4,1977 and May 31, 1977 rendered in Civil Case No. 24422

1of the

Court of First Instance of Rizal, Branch XXI, respectively grantingprivate respondent Tayabas Cement Company, Inc.'s applicationfor a writ of preliminary injunction to enjoin the foreclosure sale ofcertain properties in Quezon City and Negros Occidental anddenying petitioner's motion for reconsideration thereof.In 1963, Ignacio Arroyo and Tuason Arroyo (the Arroyo Spouses),obtained a loan of P580,000.00 from PNB secured by La Vista, aparcel of land in order too purchase 60% of the subscribed capitalstock, and thereby acquire the controlling interest of privaterespondent Tayabas Cement Company, Inc. (TCC).Thereafter, TCC filed with petitioner bank an application andagreement for the establishment of an eight (8) year deferredletter of credit (L/C) for $7,000,000.00 in favor of Toyo MenkaKaisha, Ltd. of Tokyo, Japan, to cover the importation of a cementplant machinery and equipment.Upon approval of said application and opening of an L/C by PNBin favor of Toyo Menka Kaisha, Ltd. for the account of TCC, the

Arroyo spouses executed the following documents to secure thisloan accommodation: Surety Agreement dated August 5, 1964and Covenant dated August 6, 1964.The imported cement plant machinery and equipment arrivedfrom Japan and were released to TCC under a trust receiptagreement. Subsequently, Toyo Menka Kaisha, Ltd. made thecorresponding drawings against the L/C as scheduled. TCC,however, failed to remit and/or pay the corresponding amountcovered by the drawings. Thus, on May 19, 1968, pursuant to thetrust receipt agreement, PNB notified TCC of its intention torepossess, as it later did, the imported machinery and equipmentfor failure of TCC to settle its obligations under the L/C.The Arroyos failed to settle their obligations the La Vista propertywas foreclosed with PNB winning the bid.However, when said property was about to be awarded to PNB,

the representative of the mortgagor-spouses objected anddemanded from the PNB the difference between the bid price ofP1,000,001.00 and the indebtedness of P499,060.25 of theArroyo spouses on their personal account. It was the contentionof the spouses Arroyo's representative that the foreclosureproceedings referred only to the personal account of themortgagor spouses without reference to the account of TCC. To remedy the situation, PNB filed a supplemental petition onAugust 13, 1975 requesting the Sheriff's Office to proceed withthe sale of the subject real properties to satisfy not only theamount of P499,060.25 owed by the spouses Arroyos on theirpersonal account but also the amount of P35,019,901.49exclusive of interest, commission charges and other expensesowed by said spouses as sureties of TCC. Said petition wasopposed by the spouses Arroyo and the other bidder, Jose L.

Araneta.On October 5, 1976, the CFI, thru respondent Judge GregorioPineda, issued a restraining order and on March 4, 1977, granteda writ of preliminary injunction. PNB's motion for reconsiderationwas denied, hence this petition.Issue: Whether or not TCC's liability has been extinguished bythe repossession of PNB of the imported cement plant machineryand equipment.Ruling:We rule for the petitioner PNB. It must be remembered that PNBtook possession of the imported cement plant machinery andequipment pursuant to the trust receipt agreement executed byand between PNB and TCC giving the former the unqualified right

to the possession and disposal of all property shipped under thLetter of Credit until such time as all the liabilities and obligatiounder said letter had been discharged.PNB's possession of the subject machinery and equipment beprecisely as a form of security for the advances given to TCCunder the Letter of Credit, said possession by itself cannot beconsidered payment of the loan secured thereby. Payment wolegally result only after PNB had foreclosed on said securities,sold the same and applied the proceeds thereof to TCC's loanobligation. Mere possession does not amount to foreclosure foforeclosure denotes the procedure adopted by the mortgagee terminate the rights of the mortgagor on the property and incluthe sale itself.

Neither can said repossession amount to dacion en pago. Datin payment takes place when property is alienated to the creditin satisfaction of a debt in money and the same is governed bysales. Dation in payment is the delivery and transmission ofownership of a thing by the debtor to the creditor as an accepteequivalent of the performance of the obligation. As aforesaid, trepossession of the machinery and equipment in question wasmerely to secure the payment of TCC's loan obligation and notthe purpose of transferring ownership thereof to PNB insatisfaction of said loan. Thus, no dacion en pago was everaccomplished.Proceeding from this finding, PNB has the right to foreclose themortgages executed by the spouses Arroyo as sureties of TCCsurety is considered in law as being the same party as the debin relation to whatever is adjudged touching the obligation of thlatter, and their liabilities are interwoven as to be inseparable.As sureties, the Arroyo spouses are primarily liable as originalpromissors and are bound immediately to pay the creditor theamount outstanding.Under Presidential Decree No. 385 which took effect on Janua31, 1974, government financial institutions like herein petitionePNB are required to foreclose on the collaterals and/or securitifor any loan, credit or accommodation whenever the arrearageon such account amount to at least twenty percent (20%) of thetotal outstanding obligations, including interests and charges, aappearing in the books of account of the financial institution

concerned.23

It is further provided therein that "no restrainingorder, temporary or permanent injunction shall be issued by thcourt against any government financial institution in any actiontaken by such institution in compliance with the mandatoryforeclosure provided in Section 1 hereof, whether such restrainorder, temporary or permanent injunction is sought by theborrower(s) or any third party or parties . . ."WHEREFORE, the instant petition is hereby granted.


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LORENZO M. SARMIENTO, JR. and GREGORIO LIMPIN, JR.,petitioners, vs. COURT OF APPEALS and ASSOCIATED BANKINGCORP., respondents.Facts:On September 6, 1978, defendant Gregorio Limpin, Jr. andAntonio Apostol, doing business under the name and style ofDavao Libra Industrial Sales, filed an application for anIrrevocable Domestic Letter of Credit with the plaintiff Bank forthe amount of P495,000.00 in favor of LS Parts Hardware andMachine Shop (herein after referred to as LS Parts) for thepurchase of assorted scrap irons. Said application was signed bydefendant Limpin and Apostol (Exh. A). The aforesaidapplication was approved, and plaintiff Bank issued DomesticLetter of Credit No. DLC No. DVO-78-006 in favor of LS Parts forP495,000.00 (Exh. B). Thereafter, a Trust Receipt datedSeptember 6, 1978, was executed by defendant Limpin andAntonio Apostol (Exh. C). The defendants acknowledged tohave received in trust from the plaintiff Bank the merchandisecovered by the documents and agreed to hold said merchandisein storage as the property of the Bank.The defendants failed to comply with their undertaking underthe Trust Receipt. Hence as early as March, 1980, demands weremade for them to comply with their undertaking. The

defendants claim that they cannot be held liable as the 825 tonsof assorted scrap iron, subject of the trust receipt agreement,were lost when the vessel transporting them sunk, and that saidscrap iron were delivered to Davao Libra Industrial Sales, abusiness concern over which they had no interest whatsoever.Thereafter, the corresponding Information was filed against thedefendants. Defendant Lorenzo Sarmiento, Jr. was, however,dropped from the Information while defendant Gregorio Limpin,Jr. was convicted.Issue: WON private respondents have the right to institute aseparate civil action against Sarmiento for civil liability?Held: Article 31 of the Civil Code provides that When the civil

action is based on an obligation not arising from the act oromission complained of as a felony, such civil action mayproceed independently of the criminal proceedings andregardless of the result ofthe latter.In the present case, private respondents complaint againstpetitioners was based on the failure of the latter to comply withtheir obligation as spelled out in the Trust Receipt executed bythem.[20] This breach of obligation is separate and distinct fromany criminal liability for misuse and/or misappropriation ofgoods or proceeds realized from the sale of goods, documents orinstruments released under trust receipts, punishable underSection 13 of the Trust Receipts Law (P.D. 115) in relation toArticle 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 criminalproceedings instituted against petitioners regardless of theresult of the latter.


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PILIPINAS BANK, petitioner, vs. ALFREDO T. ONG andLEONCIA LIM, respondents.Facts:On April 1991, Baliwag Mahogany Corporation (BMC), through itspresident, respondent Alfredo T. Ong, applied for a domesticcommercial letter of credit with petitioner Pilipinas Bank(hereinafter referred to as the bank) to finance the purchase ofabout 100,000 board feet of "Air Dried, Dark Red Lauan" sawnlumber.The bank approved the application and issued Letter of Credit No.91/725-HO in the amount of P3,500,000.00. To secure paymentof the amount, BMC, through respondent Ong, executed two (2)trust receipts[3] providing inter alia that it shall turn over theproceeds of the goods to the bank, if sold, or return the goods, ifunsold, upon maturity on July 28, 1991 and August 4, 1991.On due dates, BMC failed to comply with the trust receiptagreement. On November 22, 1991, it filed with the Securitiesand Exchange Commission (SEC) a Petition for Rehabilitationand for a Declaration in a State of Suspension of Payments underSection 6 (c) of P.D. No. 902-A,[4] as amended, docketed as SECCase No. 4109. On November 27, 1992, the SEC rendered aDecision[7] approving the Rehabilitation Plan of BMC ascontained in the MOA and declaring it in a state of suspension of

payments.

However, BMC and respondent Ong defaulted in the payment oftheir obligations under the rescheduled payment scheme providedin the MOA.Issue: WON respondents Ong and Leoncia Lim (as presidentand treasurer of BMC, respectively) violated the Trust ReceiptsLaw (PD No. 115).Held: NO. The execution of the MOA constitutes a novation which"places petitioner Bank in estoppel to insist on the original trustrelation and constitutes a bar to the filing of any criminalinformation for violation of the trust receipts law." It has the effect of a compromise agreement, novated BMCsexisting obligations under the trust receipt agreement. Thenovation converted the parties relationship into one of an ordinarycreditor and debtor. Moreover, the execution of the MOAprecludes any criminal liability on their part which may arise incase they violate any provision thereof.The execution of the MOA extinguished respondents obligationunder the trust receipts. Respondents liability, if any, would onlybe civil in nature since the trust receipts were transformed intomere loan documents after the execution of the MOA. This isreinforced by the fact that the mortgage contracts executed by theBMC survive despite its non-compliance with the conditions setforth in the MOA.


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CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSOYAP, RICHARD VELASCO and ALFONSO CO, petitioners, vs.COURT OF APPEALS and PHILIPPINE BANK OFCOMMUNICATIONS, respondents.Facts:On March 2, 1979, Charles Lee, as President of MICO wroteprivate respondent Philippine Bank of Communications (PBCom)requesting for a grant of a discounting loan/credit line in the sumof Three Million Pesos (P3,000,000.00) for the purpose ofcarrying out MICOs line of business as well as to maintain itsvolume of business.On the same day, Charles Lee requested for another discountingloan/credit line of Three Million Pesos (P3,000,000.00) fromPBCom for the purpose of opening letters of credit and trustreceipts.As per agreement, the proceeds of all the loan availments werecredited to MICOs current checking account with PBCom. Toinduce the PBCom to increase the credit line of MICO, petitionersexecuted another surety agreement in favor of PBCom on July28, 1980, whereby they jointly and severally guaranteed theprompt payment on due dates or at maturity of overdrafts,promissory notes, discounts, drafts, letters of credit, bills ofexchange, trust receipts and all other obligations of any kind andnature for which MICO may be held accountable by PBComUpon maturity of all credit availments obtained by MICO from

PBCom, the latter made a demand for payment. Privaterespondent PBCom extrajudicially foreclosed MICOs real estatemortgage upon repeated demands & emerged as the highestbidder. For the unpaid balance, PBCom then demanded thesettlement of the aforesaid obligations from herein petitioners-sureties who, however, refused to acknowledge their obligationsto PBCom under the surety agreements. Hence, PBCom filed acomplaint with prayer for writ of preliminary attachment before theRegional Trial Court of Manila.Petitioners (MICO and herein petitioners-sureties) denied all theallegations of the complaint filed by respondent PBCom, andalleged that: a) MICO was not granted the alleged loans andneither did it receive the proceeds of the aforesaid loans; b) ChuaSiok Suy was never granted any valid Board Resolution to signfor and in behalf of MICO; c) PBCom acted in bad faith in granting

the alleged loans and in releasing the proceeds thereof; d)petitioners were never advised of the alleged grant of loans andthe subsequent releases therefor, if any; e) since no loan wasever released to or received by MICO, the corresponding realestate mortgage and the surety agreements signed concededlyby the petitioners-sureties are null and void.Issue: WON the proceeds of the loans or the goods under thetrust receipts were ever delivered to and received by MICO.Held: It is clear that letters of credit, being usually bank to banktransactions, involve more than just one bank. Consequently,there is nothing unusual in the fact that the drafts presented inevidence by respondent bank were not made payable to PBCom.

A trust receipt is considered as a security transaction intended toaid in financing importers and retail dealers who do not havesufficient funds or resources to finance the importation orpurchase of merchandise, and who may not be able to acquirecredit except through utilization, as collateral of the merchandiseimported or purchased.

A trust receipt, therefor, is a document of security pursuant towhich a bank acquires a security interest in the goods undertrust receipt. Under a letter of credit-trust receipt arrangement, abank extends a loan covered by a letter of credit, with the trustreceipt as a security for the loan. The transaction involves a loanfeature represented by a letter of credit, and a security featurewhich is in the covering trust receipt which secures anindebtedness.


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SOUTH CITY HOMES, INC., FORTUNE MOTORS (PHILS.),PALAWAN LUMBER MANUFACTURING CORPORATION,petitioners,vs.BA FINANCE CORPORATION, respondent.Facts:On January 17, 1983, Joseph L. G. Chua, President of FortuneMotors Corporation, executed in favor of plaintiff-appellant aContinuing Suretyship Agreement, in which he "jointly andseverally unconditionally" guaranteed the "full, faithful and promptpayment and discharge of any and all indebtedness" of FortuneMotors Corporation to BA Finance Corporation. On February 3,1983, Palawan Lumber Manufacturing Corporation representedby Joseph L.G. Chua, George D. Tan, Edgar C. Rodrigueza andJoselito C. Baltazar, executed in favor of plaintiff-appellant aContinuing Suretyship Agreement in which, said corporation"jointly and severally unconditionally" guaranteed the "full, faithfuland prompt payment and discharge of any and all indebtednessof Fortune Motors Corporation to BA Finance Corporation (Folderof Exhibits, pp. 19-20). On the same date, South City Homes, Inc.represented by Edgar C. Rodrigueza and Aurelio F. Tablante,likewise executed a Continuing Suretyship Agreement in whichsaid corporation "jointly and severally unconditionally" guaranteedthe "full, faithful and prompt payment and discharge of any and allindebtedness" of Fortune Motors Corporation to BA Finance

Corporation.

Fortune Motors Corporation thereafter executed trust receiptscovering the motor vehicles delivered to it by CARCO underwhich it agreed to remit to the Entruster (CARCO) the proceeds ofany sale and immediately surrender the remaining unsoldvehicles. ). The drafts and trust receipts were assigned to plaintiff-appellant, under Deeds of Assignment executed by CARCO.Upon failure of the defendant-appellant Fortune MotorsCorporation to pay the amounts due under the drafts and to remitthe proceeds of motor vehicles sold or to return those remainingunsold in accordance with the terms of the trust receiptagreements, BA Finance Corporation sent demand letter to EdgarC. Rodrigueza, South City Homes, Inc., Aurelio Tablante,Palawan Lumber Manufacturing Corporation, Joseph L. G. Chua,

George D. Tan and Joselito C. Baltazar (Folder of Exhibits, pp.29-37). Since the defendants-appellants failed to settle theiroutstanding account with plaintiff-appellant, the latter filed onDecember 22, 1983 a complaint for a sum of money with prayerfor preliminary attachment, with the Regional Trial Court ofManila.Issue: WON respondent BAFC has a valid cause of action for asum of money following the drafts and trust receipts transactions. Held:As an entruster, respondent BAFC must first demand thereturn 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 FortuneMotors Corporation and the action for collection of sum of money

was, therefore, premature.A trust receipt is a security transaction intended to aid in financingimporters and retail dealers who do not have sufficient funds orresources to finance the importation or purchase of merchandise,and who may not be able to acquire credit except throughutilization, as collateral, of the merchandise imported orpurchased.9 In the event of default by the entrustee on hisobligations under the trust receipt agreement, it is not absolutelynecessary that the entruster cancel the trust and take possessionof the goods to be able to enforce his rights thereunder.


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PHILIPPINE BANK OF COMMUNICATIONS, petitioner,vs.HON. COURT OF APPEALS and FILIPINAS TEXTILE MILLS,INC., respondents.Facts:petitioner, on April 8, 1991, of a Complaint against privaterespondent Bernardino Villanueva, private respondent FilipinasTextile Mills and one Sochi Villanueva (now deceased) before theRegional Trial Court of Manila. In the said Complaint, petitionersought the payment of P2,244,926.30 representing the proceedsor value of various textile goods, the purchase of which wascovered by irrevocable letters of credit and trust receipts executedby petitioner with private respondent Filipinas Textile Mills asobligor; which, in turn, were covered by surety agreementsexecuted by private respondent Bernardino Villanueva and SochiVillanueva. In their Answer, private respondents admitted theexistence of the surety agreements and trust receipts butcountered that they had already made payments on the amountdemanded and that the interest and other charges imposed bypetitioner were onerous.On May 31, 1993, petitioner filed a Motion for Attachment,contending that violation of the trust receipts law constitutesestafa, thus providing ground for the issuance of a writ ofpreliminary attachment.Issue: WON there was a sufficient basis for the issuance of thewrit of preliminary attachment.Held: NO. The Motion for Attachment filed by petitioner and itssupporting affidavit did not sufficiently establish the grounds reliedupon in applying for the writ of preliminary attachment. While theMotion refers to the transaction complained of as involving trustreceipts, the violation of the terms of which is qualified by law asconstituting estafa, it does not follow that a writ of attachment canand should automatically issue. private respondents claimed thatsubstantial payments were made on the proceeds of the trustreceipts sued upon. They also refuted the allegations of fraud,embezzlement and misappropriation by averring that privaterespondent Filipinas Textile Mills could not have done these as ithad ceased its operations starting in June of 1984 due to workers'

strike.

Documents

SPCL Trust Receipts Digests