G.R. No. 112592 December 19, 1995 PRUDENTIAL BANK, petitioner, vs.

NATIONAL LABOR RELATIONS COMMISSION, CECILIA ORQUELLO, e !"., #ENAIDA UC$I, e !"., ALU%INTERASIA CONTAINER INDUSTRIES, INC., !&' RAUL REMODO, respondents. BELLOSILLO, J.: This petition for certiorari impugns the Resolutions of the National Labor Relations Commission (NLRC) dated 18 August and 1 November 1!!" in NLRC Cases Nos. RA#$%%%$&8'$8 ((r)uillo v. %nterasia Container %ndustries, %n*.), RA#$%%%$"$&8&$8 , (+*hi v. %nterasia Container %ndustries, %n*.) and RA#$%%%$'8$ '',!$8-, (AL+$%nterasia Container %ndustries, %n*. v. %nterasia Container %ndustries, %n*.) dismissing the appeal of petitioner from the order of the Labor Arbiter den.ing its third$part. *laim to the personal properties sub/e*t of lev. on e0e*ution based on its trust re*eipts. The re*ords sho1 that %nterasia Container %ndustries, %n*. (%NT2RA3%A), 1as embroiled in three (") labor *ases 1hi*h 1ere eventuall. resolved against it. Thus in NLRC Cases Nos. RA#$%%%$'"$&8'$8 and RA#$%%%$ '"$&8&$8 monetar. a1ards *onsisting of 1"th$month pa. differentials and other benefits 1ere granted to *omplainants. 3ubse)uentl. the monetar. a1ard 1as re*omputed to in*lude separation pa. in the total sum of 41 5,-88."' o**asioned b. the *losure of operations of %NT2RA3%A. %n RA#$'"$'8$'',!$8- the Labor Arbiter de*lared the *losure or shutdo1n of operations effe*ted b. %NT2RA3%A as illegal and a1arded to *omplainants the sum of 41,188,,55." as 1age differentials, separation pa. and other benefits. 6ith the finalit. of the three (") de*isions, 1rits of e0e*ution 1ere issued. The 3heriff levied on e0e*ution personal properties lo*ated in the fa*tor. of %NT2RA3%A thus 7 8 For Case 580 and 5859 (ne (1) lot$plasti* sa*:s (s*rap, one (1) lot 7 sling sa*:s, one (1) lot 7 plasti* in spools; and, For Case 00499 <ive hundred (&'') bags 7 plasti* resins, one (1) lot plasti* resins s1eaping (s*rap) and one (1) lot 7 all plasti* linings.8 4etitioner filed an Affidavit of Third$4art. Claim asserting o1nership over the sei=ed properties on the strength of trust re*eipts e0e*uted b. %NT2RA3%A in its favor. As a result, the 3heriff suspended the publi* au*tion sale. #ut on 18 3eptember 1!! the Labor Arbiter denied the *laim of petitioner and dire*ted the 3heriff to pro*eed 1ith the lev. of the properties. 4etitioner then filed separate appeals to the NLRC. (n 1, (*tober 1!! the 3heriff posted Noti*es of lev. and 3ale of the sei=ed properties on 1 (*tober 1!! . >o1ever, no bidder appeared on the s*heduled date hen*e the publi* au*tion sale 1as postponed to & November 1!! . At the res*heduled date the 3heriff de*lared Angel 4eliglorio the highest bidder 1ith an offer of 41 8,'''.'' on the properties levied in Cases Nos. &8' (RA#$%%%$&8'$8 ) and &8& (RA#$%%%$"$&8&$ 8 ), and 41,1!1,11'.'' in Case No. '',! (RA#$111$'8$'',!$8-). (n 1 ?e*ember 1!! the Labor Arbiter ordered the release of the properties to 4eliglorio prompting %NT2RA3%A to file a @otion to 3et Aside andAor ?e*lare 4ubli* Au*tion 3ale Null and Boid Ab Initio for non$ *omplian*e 1ith legal re)uisites. (n " ?e*ember 1!! the Labor Arbiter denied the motion and dire*ted the 3heriff to brea: open the plant of %NT2RA3%A in order that 4eliglorio *ould enter and ta:e possession of the au*tioned properties. %NT2RA3%A moved to re*onsider the order. (n 1 Canuar. 1!!" the Labor Arbiter inhibited himself from the *ase be*ause of %NT2RA3%A3Ds a**usation of partialit.. The re*ords 1ere then for1arded to the NLRC. (n the other hand, petitioner filed a Third$4art. ClaimantDs AppealA@emorandum. (n 18 August 1!!" the NLRC dismissed petitionerDs appeal as 1ell as %NT2RA3%ADs @otion for Re*onsideration of the resolution dated " ?e*ember 1!! . %NT2RA3%A and petitioner separatel. moved to re*onsider the ruling but on 1 November 1!!" their motions 1ere denied. 1 >en*e petitioner brought this present re*ourse raising )uestions on the validit. not onl. of the NLRC resolutions of 18 August and 1 November 1!!" but also of the publi* au*tion sale. 2 4etitioner rails against the publi* au*tion of & November 1!! 1hi*h 1as allegedl. *ondu*ted 1ithout noti*e and in a pla*e other than the premises of %NT2RA3%A as re)uired b. the @anual of %nstru*tions for 3heriffs. %t also raises issue on the e0tent of its se*urit. title over the properties sub/e*t of the lev. on e0e*ution, submitting that 1hile it ma. not have absolute o1nership over the properties, still it has right, interest and o1nership *onsisting of a se*urit. title 1hi*h atta*hes to the properties. 4etitioner differentiates

a trust re*eipt, 1hi*h is a se*urit. for the pa.ment of the obligations of the importer, from a real estate mortgage e0e*uted as se*urit. for the pa.ment of an obligation of a borro1er. 4etitioner argues that in the latter the o1nership of the mortgagor ma. not ne*essaril. have an. bearing on its a*)uisition, 1hereas in the *ase of a trust re*eipt the a*)uisition of the goods b. the borro1er results from the advan*es made b. the ban:. %t *on*ludes that the se*urit. title of the ban: in a trust re*eipt must ne*essaril. be of the same or greater e0tent than the nature of the se*urit. arising from a real estate mortgage. 4etitioner maintains that it is a preferred *laimant to the pro*eeds from the fore*losure to the e0tent of its se*urit. title in the goods 1hi*h are valued at 4,5,1'', &".! other1ise its se*urit. title 1ill be*ome useless. ( %n their *omment, private respondents support the findings of the NLRC. The. submit that petitionerDs negligen*e to immediatel. assert its right to *an*el the Trust Re*eipt Agreements, upon %NT2RA3%ADs failure to *ompl. 1ith its obligation, is fatal to its *laim. <or its part, the NLRC *laims to rel. on our pronoun*ement on trust re*eipts in Vintola v. Insular Bank of Asia and America. ) %t /ustifies the dismissal of petitionerDs third$part. *laim on the ground that trust re*eipts are mere se*urit. transa*tions 1hi*h do not vest upon petitioner an. title of o1nership, and that although the Trust Re*eipt Agreements des*ribed petitioner as o1ner of the goods, there 1as no sho1ing that it *an*eled the trust re*eipts and too: possession of the goods. 5 The petition is impressed 1ith merit. 6e *annot subs*ribe to NLRCDs simplisti* interpretation of trust re*eipt arrangements. %n effe*t, it has redu*ed the Trust Re*eipt Agreements to a pure and simple loan transa*tion. This per*eption 1as *learl. dispelled in People v. itafan, * citin! the Bintola and 3amo *ases, 1here 1e e0plained the nature of a trust re*eipt thus 7 (A) trust re*eipt arrangement does not involve a simple loan transa*tion bet1een a *reditor and debtor$importer. Apart from a loan feature, the trust re*eipt arrangement has a se*urit. feature that is *overed b. the trust re*eipt itself. (Bintola v. %nsular #an: of Asia and Ameri*a, 1&' 3CRA &-8 E1!8-F That se*ond feature is 1hat provides the mu*h needed finan*ial assistan*e to our traders in the importation or pur*hase of goods or mer*handise through the use of those goods or mer*handise as *ollateral for the advan*ements made b. a ban: (3amo v. 4eople, 11& 4hil ",5 E1!5 F). The title of the ban: to the se*urit. is the one sought to be prote*ted and not the loan 1hi*h is a separate and distin*t agreement. Relian*e *annot be pla*ed upon the Vintola *ase as an e0*use for the dismissal of petitionerDs *laim. <or in that *ase 1e sustained, rather than frustrated, the *laim of the ban: for pa.ment of the advan*es it had made to the pur*haser of the goods, not1ithstanding that it 1as not the fa*tual o1ner thereof and that petitioners had alread. surrendered the goods to it due to their inabilit. to sell them. 6e stated that the fa*t that the Bintolas 1ere unable to sell the seashells in )uestion did not affe*t %#AADs right to re*over the advan*es it had made under the loan *overed b. the Letter of Credit, 1ith the trust re*eipt as a se*urit. for the loan. Thus, e0*ept for our dis)uisition on the nature of a trust re*eipt as restated in Nitafan, Bintola hardl. has an. bearing on the *ase at ben*h sin*e the issue here involves the effe*t and enfor*ement of the se*urit. aspe*t 1hereas the former *ase deals 1ith the loan aspe*t of a trust re*eipt transa*tion. Apparentl., the NLRC 1as *onfused about the nature of a trust re*eipt, spe*ifi*all. the se*urit. aspe*t thereof. The me*hani*s and effe*ts flo1ing from a trust re*eipt transa*tion, parti*ularl. the importan*e given to the se*urit. held b. the entruster, i.e., the person holding title over the goods, 1ere full. dis*ussed in earlier de*isions, as follo1s 7

#. this arrangement a ban:er advan*es mone. to an intending importer, and thereb. lends the
aid of *apital, of *redit, or of business fa*ilities and agen*ies abroad, to the enterprise of foreign *ommer*e. @u*h of this trade *ould hardl. be *arried on b. an. other means, and therefore it is of the first importan*e that the fundamental fa*tor in the transa*tion, the ban:erDs advan*e of mone. and *redit, should re*eive the amplest prote*tion. A**ordingl., in order to se*ure that the ban:er shall be repaid at the *riti*al point 7 that is, 1hen the imported goods finall. rea*h the hands of the intended vendee 7 t"e banker takes t"e full title to t"e !oods at t"e ver# be!innin!; "e takes it as soon as t"e !oods are bou!"t and settled for b# "is pa#ments or acceptances in t"e forei!n countr#$ and "e continues to "old t"at title as "is indispensable securit# until the goods are sold in the +nited 3tates and the vendee is *alled upon to pa. for them. This se*urit. is not an ordinar. pledge b. the importer to the ban:er, for the importer has never o1ned the goods, and moreover, he is not able to deliver the possession; but t"e securit#

is t"e complete title vested ori!inall# in t"e bankers$ and t"is c"aracteristic of t"e transaction "as a!ain and a!ain been reco!ni%ed and protected b# t"e courts . &f course$ t"e title is at bottom a securit# title$ as it "as sometimes been called$ and t"e banker is al'a#s under t"e obli!ation to reconve#;but onl# after "is advances "ave been full# repaid and after t"e importer "as fulfilled t"e ot"er terms of t"e contract (emphasis supplied). +

. . . . E%Fn a *ertain manner, (trust re*eipt *ontra*ts) parta:e of the nature of a *onditional sale
as provided b. the Chattel @ortgage La1, that is, t"e importer becomes absolute o'ner of t"e imported merc"andise as soon as "e "as paid its price . The o1nership of the mer*handise *ontinues to be vested in the o1ner thereof or in the person 1ho has advan*ed pa.ment, until he has been paid in full, or if the mer*handise has alread. been sold, the pro*eeds of the sale should be turned over to him b. the importer or b. his representative or su**essor in interest (emphasis supplied). ,

@ore importantl., o1ing to the vital role trust re*eipts pla. in international and domesti* *ommer*e, 3e*. 1 of 4.?. No. 11& 9 assures the entruster of the validit. of his *laim against all *reditors 7 3e*. 1 . Balidit. of entrusterDs se*urit. interest as against *reditors. 7 The entrusterDs se*urit. interest in goods, do*uments, or instruments pursuant to the 1ritten terms of a trust re*eipt s"all be valid as a!ainst all creditors of t"e entrustee for t"e duration of t"e trust receipt a!reement. <rom the legal and /urisprudential standpoint it is *lear that the se*urit. interest of the entruster is not merel. an empt. or idle title. To a *ertain e0tent, su*h interest, su*h interest be*omes a 8lien8 on the goods be*ause the entrusterDs advan*es 1ill have to be settled first before the entrustee *an *onsolidate his o1nership over the goods. A *ontrar. vie1 1ould be disastrous. <or to refuse to re*ogni=e the title of the ban:er under the trust re*eipt as se*urit. for the advan*e of the pur*hase pri*e 1ould be to stri:e do1n a bona fide and honest transa*tion of great *ommer*ial benefit and advantage founded upon a 1ell$ re*ogni=ed *ustom b. 1hi*h ban:ing *redit is offi*iall. mobili=ed for manufa*turers and importers of small means. 1The NLRC argues that inasmu*h as petitioner did not *an*el the Trust Re*eipt Agreements and too: possession of the properties it *ould not *laim o1nership of the properties. 6e do not agree. 3ignifi*antl., the la1 uses the 1ord 8ma.8 in granting to the entruster the right to *an*el the trust and ta:e possession of the goods. 11 Conse)uentl., petitioner has the dis*retion to avail of su*h right or see: an. alternative a*tion, su*h as a third$part. *laim or a separate *ivil a*tion 1hi*h it deems best to prote*t its right, at an#time upon default or failure of the entrustee to *ompl. 1ith an. of the terms and *onditions of the trust agreement. #esides, as earlier stated, the la1 1arrants the validit. of petitionerDs se*urit. interest in the goods pursuant to the 1ritten terms of the trust re*eipt as against all *reditors of the trust re*eipt agreement. 12 The onl. e0*eption to the rule is 1hen the properties are in the hands of an inno*ent pur*haser for value and in good faith. The re*ords ho1ever do not sho1 that the 1inning bidder is su*h pur*haser. Neither *an private respondents plead preferential *laims to the properties as petitioner has the primar. right to them until its advan*es are full. paid. %n fine, 1e hold that under the la1 and /urispruden*e the NLRC *ommitted grave abuse of dis*retion in disregarding the third$part. *laim of petitioner. Ne*essaril. the au*tion sale held on & November 1!! should be set aside. <or there 1ould be neither /usti*e nor e)uit. in ta:ing the funds from the part. 1hose means had pur*hased the propert. under the *ontra*t. 1( 6>2R2<(R2, the petition for *ertiorari is GRANT2?. The Resolutions of the National Labor Relations Commission dated 18 August and 1 November 1!!" are 32T A3%?2 and a ne1 /udgment is entered GRANT%NG the Third$4art. Claim and (R?2R%NG the 3heriff or his representative to immediatel. deliver to petitioner 4R+?2NT%AL #ANH the properties sub/e*t of the Trust Re*eipt Agreements. 3( (R?2R2?. Padilla$ (avide$ )r*$ +apunan and ,ermosisima$ )r*$ ))*$ concur*