Feati Bank & Trust Company

 Villaluz entered into a contract of sale with Christiansen for 2000 cubic meters of lauan logs. On the
arrangements made and upon the instructions of Consignee (Hanmi Trade), the Security Pacific
National Bank of Los Angeles issued an irrevocable letter of credit in favor of Villaluz.

 The LOC was mailed to petitioner bank with instructions to “forward the enclosed letter of credit to
the beneficiary” with the corresponding instruction that the draft was to be drawn on Security Pacific
National Bank and it be accompanied by certain documents.
 The logs were loaded but Christiansen refused to use the certification required in the terms of the
LOC.
 Because of the absence of the certification, petitioner bank refused to advance the payment of the
letter of credit.
 Villaluz filed a case for mandamus and specific performance against Christiansen and petitioner bank.
 Christiansen fled the country and Villaluz amended the complaint claiming petitioner bank is liable
for the total amount of the LOC.

ISSUE: Whether or not petitioner bank is liable for the payment

HELD: No. Following the rule on strict compliance, in commercial transactions involving LOCs, the documents
tendered must strictly conform to the terms of the LOC.
 The tender of documents by the beneficiary (Villaluz) must include all documents required.
 There is no discretion in the bank or trust company to waive any requirements as the terms of the
letter constitutes an agreement between the purchaser and the bank.
 A bank which departs from what has been stipulated under the LOC acts on its own risks and may
not be able to recover from the buyer or the issuing bank. Feati cannot be faulted for not issuing the
payment as the required certification was missing.

HSBC vs NSC
 NSC entered into a contract with Klockner for the purchase of 1200 metric tons of prime cold rolled
coils.
 Klockner applied for an irrevocable LOC with HSBC in favor of NSC and HSBC issued the same stating
that the LOC is governed by UCP 400.
o Under UCP 400, HSBC as the issuing bank, has the obligation to immediately pay NSC upon
presentment of the documents listed in the Letter of Credit.
 NSC coursed the collection of its payment through City Trust and the latter sent a collection order to
HSBC but Klockner refused to pay.
o Under the collection order, City Trust stated that it was subject to URC 322.
 HSBC returned to documents to City Trust with an accompanying letter stating that it considered
itself discharged of its duty under the transaction.
 NSC as beneficiary filed a complaint against HSBC for the collection of sum of money and demanded
payment under the LOC.
 HSBC denied any liability under the Letter of Credit. It argued in its Answer that CityTrust modified
the obligation when it stated in its Collection Order that the transaction is subject to URC 322 and
not under UCP 400.

ISSUE: Whether or not HSBC is liable for the LOC

HELD: YES. An irrevocable letter of credit cannot, during its lifetime, be cancelled or modified without the
express permission of the beneficiary.
 The LOC categorically stated that it is subject to UCP 400.
 From the moment HSBC agreed to the LOC, all actions in connection with the transaction
automatically became bound by the rules set in UCP 400.
o Under UCP 400, an irrevocable credit payable on sight, such as the letter of credit in this case,
constituted a definite undertaking of the issuing bank to pay, provided that the stipulated
documents are presented and the terms are complied with.
 The subsequent telegrams of City Trust to HSBC claiming that the rules of URC 322 should govern is
of no moment as NSC, as a notifying bank, is not a party to the contract between the issuing bank
and the buyer regarding the issuance of an LOC.
Marphil Export vs Allied Banking
 Petitioner is engaged in the exportation of cuttle fish, cashew nuts and similar agricultural products.
 TO finance its purchase and export, Allied Bank graded Marphil a credit line from which Marphil
availed of several loans evidenced by promissory notes.
 In turn, Allied Bank required Marphil, through its authorized signatories Lim and Rebecca Lim So, to
execute a Letter of Agreement where they undertake to reimburse Allied Bank in the event the export
bills/drafts covering the letters of credit are refused by the drawee. Upon negotiations of export
bills/drafts that Allied Bank purchases from Marphil, the amount of the face value of the letters of
credit is credited in favor of the latter
 The transaction in issue involved the export of cashew nits to Intan Trading. Upon the application of
Intan, Nanyang Bank (based in China) issued irrevocable letters of credit.
 The LOC had Marphil as beneficiary and Allied Bank as correspondent bank.
 Allied notified Marphil that there are some discrepancies in the shipping documents and Intan refused
to accept them.
 Nanyand refused to reimburse Allied Bank the amount the latter had credited to Marphils credit line.
 Allied Bank filed a collection case against all sureties.
 Marphil argues that Allied Bank, as correspondent bank, assumed the risk when it confirmed the
letter of credit.
 It invokes the ruling in Feati Bank & Trust Company v. Court of Appeals on the rule of strict
compliance in letters of credit stating that a correspondent bank which departs from what has been
stipulated under the letter of credit, as when it accepts a faulty tender, acts on its own risks and it
may not thereafter be able to recover from the buyer or the issuing bank

ISSUE: Whether or not Allied Bank may demand reimbursement for the amount credited to Marphils credit
line

HELD: YES. Allied did not undertake to assume to obligation of Nanyang to Marphil as its own as if it had
itself issued the LOC.
 In order to consider a correspondent bank as a confirming bank, it must have assumed a direct
obligation to the seller as if it had issued the letter of credit itself; a categorical declaration should
have been stated in the letter of credit that the [correspondent bank] is to honor all drafts drawn in
conformity with the letter of credit.
 Allied acted as negotiating bank with a right of recourse against the issuing bank, and until
reimbursement is obtained, the drawer of the draft continues to assume a contingent liability.
 Allied bank may seek resumburse,ent of the amount credited to Marphil’s account on an independent
obligation it undertook under the Letter of Agreement.

A negotiating bank is a correspondent bank which buys or discounts a draft under the L/C. Its liability is
dependent upon the stage of the negotiation. If before negotiation, it has no liability with respect to the
seller but after negotiation, a contractual relationship will then prevail between the negotiating bank and
the seller.
A confirming bank is a correspondent bank which assumes a direct obligation to the seller and its liability is
a primary one as if the correspondent bank itself had issued the L/C.

Robles vs CA
 Roberto Ng, as owner and sales manager of Paramount Business Machines, entrusted to Damian
Robles certain equipment which were covered by a trust receipt.
 Robles gave Roberto post dated cheques to cover the machines.
 For all the items delivered to Robles, he agreed to sell them and remit the proceeds to Roberto , or
to return them if they are unsold.
 The postdated cheques were refused by drawee bank.
 Despite demands, Robles failed and refused to remit the amount of the equipment or to return the
same to Roberto.
 Roberto filed a case for Estafa under 315 of the RPC.

ISSUE: Whether or not Robles is liable for Estafa

HELD: YES.
  Under Sec 13 of the Trust Receipts Law, the failure of a trustee to turn over the proceeds of the sale
of the goods, documents or instruments covered by a trust receipt or to return the same if they are
unsold shall constitute the crime of estafa punishable by 315 of the RPC.
 The failure of Roles to turnover to the entruster the proceeds of the sale covered by th trust receipt
and to return the unsold goods constituted estafa.

Sps Dela Cruz vs PPI

 Sps Dela Cruz operated the Barangay Agricultural Supply located in Nueva Ecija, the business Is
engaged in the distribution and sale of fertilizers and agricultural chemical products
 Gloria applied for and was granted by PPI a regular credit line with trust receipts as collateral. The
transaction had farmer-participants as beneficiaries of the amount they will receive.
 The spouses submitted a list of their assets in support of the credit application and the products were
released to Gloria.
 The 60 day credit term lapsed without Gloria paying her obligation and so PPI wrote collection letters.
 PPI then brought against the spouses a complaint for the recovery of sum of money with a prayer
for a writ of preliminary attachment.
 Gloria claimed that they were merely a marketing outlet for PPI and not a dealer primarily obligated
to PPI for the products delivered to her. Further, she claims she had not collected from the farmers
participating in the SCS program because of typhoon Kadling.
 Gloria further claimed that the farmer participants were liable because the inputs had been delivered
to them.
ISSUE: Whether or not the transaction entered into was a TRUST RECEIPT

HELD: NO.
 A trust receipt is a security transaction intended to aid in financing importers and retail dealers who
do not have sufficient funds or resources to finance the importation or purchase of merchandize. It
is a security agreement that secures an indebtedness and there can be no such thing as security
interest that secures no obligation.
 Gloria entered an agreement wherein she made herself directly liable to PPI for the value of inputs
delivered to the farmer-participants.
 There are 2 obligations in a trust receipt transaction:
1. To deliver the money to the owner of the merchandise sold
2. Obligation to return unsold products
 When both parties enter into an agreement knowing that the return of the goods subject of the trust
receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt
transaction penalized under Section 13 of P.D. 115; the only obligation actually agreed upon by the
parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere
loan, where the borrower is obligated to pay the bank the amount spent for the purchase of the
goods.

Ng vs People
 Ng was engaged in the business of building telecom towers
 Ng applied for a credit line with Asia Trust and the same was approved after Ng signed a Credit Line
Agreement and Trust Receipt agreements.
 After receiving the goods (metals and chemicals), they were utilized to build towers
 Because he had difficulty in collecting from his clients, he defaulted on his obligation with Asia Trust.
 At a surprise ocular inspection Asia Trust discovered that around 97% of the goods under the trust
receipts were “sold out” and only 3% remained accounted for.
 Asia Trust filed a case for Estafa under the trust receipts law and 315 of the RPC.

ISSUE: Whether or not Ng can be held liable for estafa under the trust receipt law

HELD: NO. PD 115 is not applicable to the case as the agreement was a mere loan and not a trust receipt.
 A trust receipt transaction is one where the entrustee has the obligation to deliver to the entruster
the price of the sale, or if the merchandise is not sold, to return the merchandise to the entruster.
There are, therefore, two obligations in a trust receipt transaction: the first refers to money received
under the obligation involving the duty to turn it over (entregarla) to the owner of the merchandise
sold, while the second refers to the merchandise received under the obligation to "return" it
(devolvera) to the owner.
  From the beginning, the purpose of the agreement was the construction of the towers in accordance
with his contracts with Islacom, Smart and Infocom. Under these contracts, he was commissioned
to build the towers and not sell them.
 Even assuming that PD 115 applies, petitioner is not liable for estafa under the trust receipt law as
Sec 13 provides that “an entrustee is only liable for Estafa when he fails "to turn over the proceeds
of the sale of the goods x x x”
 Ng informed Asia Trust that he was having extreme difficulties in collecting from Islacom the full
contracted price of the towers. Thus, the duty of petitioner to remit the proceeds of the goods has
not yet arisen since he has yet to receive proceeds of the goods.

Colinares vs CA
 Petitioners were contracted by Carmelite Sisters of CDO to renovate their covenant.
 Petitioners applied for a commercial letter of credit with PBC in favor of CM Builders Centre.
 The LOC was approved and petitioners signed a pro-forma trust receipt as security.
 Petitioners defaulted on their obligation
 Petitioners are insisting that the transaction was a “clean loan”, that they signed the documents
without reading the fine print and that the general manager informed them that the trust receipt was
a mere formality.

ISSUE: Whether or not the transaction was a trust receipt

HELD: NO. It was a simple loan.

 The ownership of the merchandise continues to be vested in the person who had advanced payment
until he has been paid in full, or if the merchandise has already been sold, the proceeds of the sale
should be turned over to him by the importer or by his representative or successor in interest. To
secure that the bank shall be paid, it takes full title to the goods at the very beginning and continues
to hold that title as his indispensable security until the goods are sold and the vendee is called upon
to pay for them; hence, the importer has never owned the goods and is not able to deliver
possession. In a certain manner, trust receipts partake of the nature of a conditional sale where
the importer becomes absolute owner of the imported merchandise as soon as he has paid its price.
 In this case, petitioners received the merchandize from their supplier and ownership of the same
immediately transferred to them so they can use the materials for their construction project. (they
only went to the bank the day after to pay for the materials)

DEFINITION OF TRUST RECEIPT:

 Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt transaction as any transaction
by and between a person referred to as the entruster, and another person referred to as the
entrustee, whereby the entruster who owns or holds absolute title or security interest over certain
specified goods, documents or instruments, releases the same to the possession of the entrustee
upon the latters execution and delivery to the entruster of a signed document called a trust receipt
wherein the entrustee binds himself to hold the designated goods, documents or instruments with
the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing
to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves
if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified
in the trust receipt.
 There are two possible situations in a trust receipt transaction. The first is covered by the provision
which refers to money received under the obligation involving the duty to deliver it (entregarla) to
the owner of the merchandise sold. The second is covered by the provision which refers to
merchandise received under the obligation to return it (devolvera) to the owner.
 Failure of the trustee to turn over the proceeds of the sale or the goods themselves if not sold, is
punishable as estafa under 315(1) of the RPC without need or proving intent to defraud.