12.1 METROPOLITAN BANK and TRUST COMPANY vs.

JOAQUIN TONDA
and MA. CRISTINA TONDA, respondents. [G.R. No. 134436. August 16, 2000]

MP: Under trust receipts arrangements, the title of the bank to the security is the one
sought to be protected and not the loan which is a separate and distinct agreement.

The mere failure to deliver the proceeds of the sale or the goods if not sold, constitutes a
criminal offense that causes prejudice not only to another, but more to the public interest.

Ponente: Justice Gonzales-Reyes

Facts: Spouses Joaquin G. Tonda and Ma. Cristina U. Tonda, hereinafter referred to as
the TONDAS, applied for and were granted commercial letters of credit by petitioner
Metropolitan Bank and Trust Company, hereinafter referred to as METROBANK for a
period of eight (8) months beginning June 14, 1990 to February 1, 1991 in connection
with the importation of raw textile materials to be used in the manufacturing of
garments. The TONDAS acting both in their capacity as officers of Honey Tree Apparel
Corporation (HTAC) and in their personal capacities, executed eleven (11) trust receipts
to secure the release of the raw materials to HTAC. The imported fabrics with a principal
value of P2,803,000.00 were withdrawn by HTAC under the 11 trust receipts executed by
the TONDAS. Due to their failure to settle their obligations under the trust receipts upon
maturity, METROBANK through counsel, sent a letter dated August 10, 1992, making its
final demand upon the TONDAS to settle their past due TR/LC accounts on or before
August 15, 1992. They were informed that by said date, the obligations would amount to
P4,870,499.13. Despite repeated demands therefor, the TONDAS failed to comply with
their obligations stated in the trust receipts agreements, i.e. the TONDAS failed to
account to METROBANK the goods and/or proceeds of sale of the merchandise, subject
of the trust receipts.

Issue: WHETHER METROBANK HAS SHOWN A PRIMA FACIE VIOLATION OF

THE TRUST RECEIPTS LAW IN RELATION TO ART. 315 OF THE REVISED
PENAL CODE.

Held: SEC. 13 of P.D. 115 provides that the failure of an entrustee to turn over the
proceeds of the sale of the goods, documents or instruments covered by a trust receipt to
the extent of the amount owing to the entruster or as appears in the trust receipt or to
return said goods, documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the crime of estafa.

Given that various trust receipts were executed by the TONDAS and that as entrustees,
they did not return the proceeds from the goods sold nor the goods themselves to
METROBANK, there is no dispute that that the TONDAS failed to comply with the
obligations under the trust receipts despite several demands from METROBANK.

.It is in the context of upholding public interest that the law now specifically designates a
breach of a trust receipt agreement to be an act that "shall" make one liable for estafa."
12.2 Development Bank of the Philippines vs. Prudential Bank [G.R. No.
143772. November 22, 2005]

MP: In a trust receipt transaction, the goods are released by the entruster (who owns or
holds absolute title or security interests over the said goods) to the entrustee on the
latters execution and delivery to the entruster of a trust receipt.

It is essential that the pledgor or mortgagor should be the absolute owner of the things
pledged or mortgaged.

Ponente: Corona

Facts: Lirag Textile Mills, Inc. opened an irrevocable commercial letter of credit with
Prudential Bank for US$498,000, in connection with its importation of 5,000 spindles for
spinning machinery. These were released to Litex under covering trust receipts it
executed in favor of Prudential Bank. Litex installed and used the items in its textile mill
located in Montalban, Rizal. DBP granted a foreign currency loan in the amount of
US$4,807,551 to Litex. To secure the loan, Litex executed real estate and chattel
mortgages on its plant site in Montalban, Rizal. Among the machineries and equipments
mortgaged in favor of DBP were the articles covered by the trust receipts.
During the rehabilitation of Litex, Prudential Bank notified DBP of its claim over
the items covered by the trust receipt. It informed DBP that it was the absolute and
juridical owner of the said items and they were thus not part of the mortgaged assets that
could be legally ceded to DBP.
For the failure of Litex to pay its obligation, DBP extra-judicially foreclosed on the real
estate and chattel mortgages, including the articles claimed by Prudential Bank. During
the foreclosure sale, DBP acquired the foreclosed properties as the highest bidder.
Despite negotiations between Prudential and DBP, DBP sold the Litex textile mill to
Lyon Textile Mills Inc.
Prudential Bank filed a complaint for a sum of money with damages against DBP. The
trial court decided in favor of Prudential Bank. It ruled that DBP held no better right than
Litex and is thus bound to turn over whatever amount was due to Prudential Bank. DBP
is a mere trustee of Prudential Bank and an agent of Litex. The CA affirmed. It applied
the provisions of PD 115 and held that ownership over the contested articles belonged to
Prudential Bank as entrustor, not to Litex. Consequently, even if Litex mortgaged the
items to DBP and the latter foreclosed on such mortgage, DBP was duty-bound to turn
over the proceeds to Prudential Bank, being the party that advanced the payment for
them.

Issue: WON the transaction was a trust receipt transaction

Held: Yes. The various agreements between Prudential Bank and Litex commonly
denominated as trust receipts were valid. As the CA ruled, their provisions did not
contravene the law, morals, good customs, public order or public policy. The articles
were owned by Prudential Bank and they were only held by Litex in trust. While it was
allowed to sell the items, Litex had no authority to dispose of them or any part thereof or
their proceeds through conditional sale, pledge or any other means.
Article 2085 (2) CC requires that, in a contract of pledge or mortgage, it is essential that
the pledgor or mortgagor should be the absolute owner of the thing pledged or
mortgaged. Article 2085 (3) further mandates that the person constituting the pledge or
mortgage must have the free disposal of his property, and in the absence thereof, that he
be legally authorized for the purpose.
Litex had neither absolute ownership, free disposal nor the authority to freely dispose of
the articles. Litex could not have subjected them to a chattel mortgage. Their inclusion in
the mortgage was void and had no legal effect. There being no valid mortgage, there
could also be no valid foreclosure or valid auction sale. Thus, DBP could not be
considered either as a mortgagee or as a purchaser in good faith. No one can transfer a
right to another greater than what he himself has. Nemo dat quod non habet. Hence,
Litex could not transfer a right that it did not have over the disputed items. Corollarily,
DBP could not acquire a right greater than what its predecessor-in-interest had. The
spring cannot rise higher than its source. DBP merely stepped into the shoes of Litex as
trustee of the imported articles with an obligation to pay their value or to return them on
Prudential Banks demand. By its failure to pay or return them despite Prudential Banks
repeated demands and by selling them to Lyon without Prudential Banks knowledge and
conformity, DBP became a trustee ex maleficio.
On the matter of actual damages adjudged by the trial court and affirmed by the Court of
Appeals, DBP wants this Court to review the evidence presented during the trial and to
reverse the factual findings of the trial court. With regard to the imposition of exemplary
damages, the appellate court agreed with the trial court that the requirements for the
award thereof had been sufficiently established. Prudential Banks entitlement to
compensatory damages was likewise amply proven. It was also shown that DBP was
aware of Prudential Banks claim as early as July, 1982. However, it ignored the latters
demand, included the disputed articles in the mortgage foreclosure and caused their sale
in a public auction held on April 19, 1983 where it was declared as the highest bidder. It
smacked of bad faith, if not deceit. Thus, the award of exemplary damages was in order.
Due to the award of exemplary damages, the grant of attorneys fees was proper.
DBPs assertion that both the trial and appellate courts failed to address the issue of
prescription is of no moment. Its claim that, under Article 1146 (1) CC, Prudential
Banks cause of action had prescribed as it should be reckoned from the day the mortgage
was registered, is not correct. The written extra-judicial demand by the creditor
interrupted the prescription of action. Hence, the four-year prescriptive period which
DBP insists should be counted from the registration of the mortgage was interrupted
when Prudential Bank wrote the extra-judicial demands for the turn over of the articles or
their value. Thus, contrary to DBPs claim, Prudential Banks right to enforce its action
had not yet prescribed when it filed the complaint on May 24, 1988.