Colinares vs CA (GR 90828)

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.

Facts: Melvin Colinares and Lordino Veloso (hereafter Petitioners) were

contracted for a consideration of P40,000 by the Carmelite Sisters of
Cagayan de Oro City to renovate the latter’s convent at Camaman-an,
Cagayan de Oro City. Colinares applied for a commercial letter of credit with
the Philippine Banking Corporation, Cagayan de Oro City branch (hereafter
PBC) in favor of CM Builders Centre. PBC approved the letter of credit for
P22,389.80 to cover the full invoice value of the goods. Petitioners signed a
pro-forma trust receipt as security.

PBC debited P6,720 from Petitioners’ marginal deposit as partial payment of

the loan. After the initial payment, the spouses defaulted. PBC wrote to
Petitioners demanding that the amount be paid within seven days from
notice. Instead of complying with PBC’s demand, Veloso confessed that they
lost P19,195.83 in the Carmelite Monastery Project and requested for a grace
period of until 15 June 1980 to settle the account. Colinares proposed that
the terms of payment of the loan be modified P2,000 on or before 3
December 1980, and P1,000 per month . Pending approval of the proposal,
Petitioners paid P1,000 to PBC on 4 December 1980, and thereafter P500 on
11 February 1981, 16 March 1981, and 20 April 1981. Concurrently with the
separate demand for attorney’s fees by PBC’s legal counsel, PBC continued
to demand payment of the balance. On 14 January 1983, Petitioners were
charged with the violation of P.D. No. 115 (Trust Receipts Law) in relation to
Article 315 of the Revised Penal Code

During trial, petitioner Veloso insisted that the transaction was a “clean loan”
as per verbal guarantee of Cayo Garcia Tuiza, PBC’s former manager. He and
petitioner Colinares signed the documents without reading the fine print,
only learning of the trust receipt implication much 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 and abuse of confidence in the
handling of money or goods to the 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 nor abuse of confidence in the
handling of money to the prejudice of PBC. Petitioners continually
endeavored to meet their obligations, as shown by several receipts issued by
PBC acknowledging payment of the loan.

Issue: Whether or not the transaction of Colinares falls within the ambit of
the Law on Trust Receipt

Held: Colinares received the merchandise from CM Builders Centre on 30

October 1979. On that day, ownership over the merchandise was already
transferred to Petitioners who were to use the materials for their construction
project. It was only a day later, 31 October 1979, that they went to the bank
to apply for a loan to pay for the merchandise. This situation belies what
normally obtains in a pure trust receipt transaction where goods are owned
by the bank and only released to the importer in trust subsequent to the
grant of the loan.

The bank acquires a “security interest” in the goods as holder of a security

title for the advances it had made to the entrustee. 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. 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 entrustee to turn over the proceeds
of the sale of the goods, covered by the trust receipt to the entruster or to
return said goods if they were not disposed of in accordance with the terms
of the trust receipt shall be punishable as estafa under Article 315 (1) of the
Revised Penal Code, without need of proving intent to defraud.

Landl vs Metrobank (GR 159622)

The possession by the bank of the goods under the trust receipts does not
bar collection of the loan. Mere possession does not amount to foreclosure
for foreclosure denotes the procedure adopted by the mortgagee to
terminate the rights of the mortgagor on the property and includes the sale
itself. Neither can said repossession amount to dacion en pago. Dation in
payment takes place when property is alienated to the creditor in satisfaction
of a debt in money and the same is governed by sales. Dation in payment is
the delivery and transmission of ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of the obligation.

Facts: Landl Co opened Commercial Letter of Credit No. 4998 with

respondent bank, in the amount of US$19,606.77, which was equivalent to
P218,733.92 in Philippine currency at the time the transaction was
consummated. The letter of credit was opened to purchase various welding
rods and electrodes from Perma Alloys, Inc., New York, U.S.A., As an
additional security, and as a condition for the approval of petitioner
corporation’s application for the opening of the commercial letter of credit,
respondent bank required petitioners Percival G. Llaban and Manuel P.
Lucente to execute a Continuing Suretyship Agreement to the extent of
P400,000.00.

Upon arrival of the goods in the Philippines, petitioner corporation took

possession and custody thereof. On the maturity date of the trust receipt,
petitioner corporation defaulted in the payment of its obligation to
respondent bank and failed to turn over the goods to the latter. The goods
were sold for P30,000.00 to respondent bank as the highest bidder. The
proceeds of the auction sale were insufficient to completely satisfy
petitioners’ outstanding obligation to respondent bank, notwithstanding the
application of the time deposit account of petitioner Lucente. Accordingly,
respondent bank demanded that petitioners pay the remaining balance of
their obligation. After petitioners failed to do so, respondent bank instituted
the instant case to collect the said deficiency.

Issue: Whether or not possession by the bank of the goods under the trust
receipts does not bar collection of the loan.

Held: The initial repossession by the bank of the goods subject of the trust
receipt did not result in the full satisfaction of the petitioners’ loan obligation.
Petitioners are apparently laboring under the mistaken impression that the
full turn-over of the goods suffices to divest them of their obligation to repay
the principal amount of their loan obligation. The entrustee’s possession of
the subject machinery and equipment being precisely as a form of security
for the advances given to TCC under the Letter of Credit, said possession by
itself cannot be considered payment of the loan secured thereby. Payment
would legally result only after PNB had foreclosed on said securities, sold the
same and applied the proceeds thereof to TCC’s loan obligation. Mere
possession does not amount to foreclosure for foreclosure denotes the
procedure adopted by the mortgagee to terminate the rights of the
mortgagor on the property and includes the sale itself. Neither can said
repossession amount to dacion en pago. Dation in payment takes place when
property is alienated to the creditor in satisfaction of a debt in money and
the same is governed by sales. Dation in payment is the delivery and
transmission of ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of the obligation.

A trust receipt is inextricably linked with the primary agreement between the
parties. Time and again, we have emphasized that a trust receipt agreement
is merely a collateral agreement, the purpose of which is to serve as security
for a loan. Thus, in Abad v. Court of Appeals, we ruled: A letter of credit-trust
receipt arrangement is endowed with its own distinctive features and
characteristics. Under that set-up, a bank extends a loan covered by the
letter of credit, with the trust receipt as security for the loan. In other words,
the transaction involves a loan feature represented by the letter of credit,
and a security feature which is in the covering trust receipt. x x x. A trust
receipt, therefore, is a security agreement, pursuant to which a bank
acquires a “security interest” in the goods. It secures an indebtedness and
there can be no such thing as security interest that secures no obligation.
The Trust Receipts Law was enacted to safeguard commercial transactions
and to offer an additional layer of security to the lending bank. Trust receipts
are indispensable contracts in international and domestic business
transactions. The prevalent use of trust receipts, the danger of their misuse
and/or misappropriation of the goods or proceeds realized from the sale of
goods, documents or instruments held in trust for entruster banks, and the
need for regulation of trust receipt transactions to safeguard the rights and
enforce the obligations of the parties involved are the main thrusts of the
Trust Receipts Law.