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Negotiable Instruments - Atty. Ampil AY 2017 - 2018 - Term 1

01 SPOUSES TIRSO and LORETA VINTOLA v. INSULAR BANK OF ASIA AND AMERICA Facts:

1. The Vintolas was doing business under "Dax Kin International," engaged in the

manufacture of raw sea shells into finished products.

● They were granted a domestic letter of credit by the Insular Bank for

P40,000.

● The Letter of Credit authorized the bank to negotiate for their account drafts drawn by their supplier, one Stalin Tan, on Dax Kin International for the purchase of puka and olive seashells.

● In consideration thereof, the Vintolas, jointly and severally, agreed to pay the bank “at maturity.”

2. On the same day, having received from Stalin Tan the puka and olive shells worth

P40,000, the Vintolas executed a Trust Receipt agreement with Insular Bank.

● Under that Agreement, the Vintolas agreed to hold the goods in trust for Insular Bank as the "latter's property with liberty to sell the same for its account, "and "in case of sale" to turn over the proceeds as soon as received to Insular Bank.

3. Having defaulted on their obligation, Insular Bank demanded payment from the

Vintolas, who were unable to dispose of the shells.

● The Vintolas responded by offering to return the goods.

● Insular refused to accept the merchandise, and due to the continued refusal of the Vintolas to make good their undertaking, Insular Bank charged them with Estafa.

● During the trial of the criminal case, the Vintolas turned over the seashells to the custody of the CFI. They were acquitted.

● Insular Bank filed the present civil action to recover the value of the goods.

Issue: Should Insular Bank be allowed to recover the value of the goods? - YES.

Doctrine: 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 receipt arrangement did not convert a lender and creditor into an investor.

Held: The Vintolas are held liable.

1. A letter of credit-trust receipt arrangement is where:

● A bank extends a loan covered by the Letter of Credit, with the trust receipt as a security for the loan. The transaction involves a loan feature represented by the letter of credit, and a security feature which is in the covering trust receipt.

2. Regarding the trust receipt:

● Contrary to the allegation of the VIntolas, Insular Bank did not become the real owner of the goods. It was merely the holder of a security title for the advances it had made to the Vintolas.

● The goods the Vintolas had purchased through Insular Bank remain their own property and they hold it at their own risk. The trust receipt arrangement did not convert the Insular Banks into an investor; the latter remained a lender and creditor.

Garcia, Pernes, Tagacay, Villasanta

3. Since Insular Bank is not the factual owner of the goods, the Vintolas cannot claim

that because they have surrendered the goods, and subsequently deposited them in the custody of the court, they are absolutely relieved of their obligation to pay their loan.

● The fact that they were unable to sell the seashells does not affect Insular Bank’s right to recover the advances it had made under the Letter of Credit.

● In so arguing, the Vintolas conveniently close their eyes to their application for a Letter of Credit wherein they expressly obligated themselves.

4. It follows that acquittal of Vintolas in the Estafa case is no bar to the institution of a

civil action for collection.

● This amounts to a reservation of the civil action in Insular Bank’s favor.

● The Vintolas are liable ex contractu for breach of the Letter of Credit — Trust Receipt, whether they did or they did not "misappropriate, misapply or convert" the merchandise as charged in the criminal case.

● Rather, the civil suit instituted by Insular Bank is based ex contractu and as such is distinct and independent from any criminal proceedings and may proceed regardless of the result of the latter.

02 Metrobank v Tonda Doctrine: Failure to turn over the goods or the proceeds realized form the sale thereof will give rise to a criminal offense punishable under Art. 315 (estafa). The Trust receipts Law is violated whenever the entrustee fails to return the goods covered by the trust receipts or return the proceeds of the sale of the said goods.

FACTS

Tondas acting in their capacity as officers of Honey Tree Apparel, applied for and were granted commercial letters of credit by Metrobank for a period of 8 months in connection with the importation of raw materials to be used in the manufacturing of garments.

Tondas executed 11 trust receipts to secure the release of raw materials to Honey Tree.

The materials were withdrawn by the HTAC using the 11 trust receipts representing 2.8M in value

The Tondas failed to pay such after several demands from Metrobank hence, Metrobank filed before the prosecutor a complaint-affidavit against Tondas in vioalation of the Trust Receipts Law in relation to Art. 315 of the RPC (estafa)

Prosecutor found no probable cause and recommended the dismissal of the case

Metrobank filed before the DOJ an appeal and the DOJ found probable cause for Tondas to be liable.

CA reversed the DOJ decision stating that the obligation of the Tondas from Metrobank was already extinguished because of their compliance with the loan restructuring program of Metrobank.

ISSUE: WON Tondas violated the trust receipts law

HELD: YES

Negotiable Instruments - Atty. Ampil AY 2017 - 2018 - Term 1

Pursuant to the Penalty clause of the PD 115, failure to turn over the goods or the proceeds realized from the sale thereof, constitutes a criminal offense under Section 1(b) Art. 315 of the RPC (Estafa).

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

03 Colinares vs. CA G.R. No. 90828 September 5, 2000 Facts:

1. Petitioners Melvin Colinares and Lordino Veloso were contracted by the Carmelite Sisters of Cagayan de Oro City to renovate the latter's convent at Camaman-an, Cagayan de Oro City.

2. Petitioners obtained various construction materials from CM Builders Centre

for the said project. Thereafter, petitioners applied for a commercial letter of credit with the Philippine Banking Corporation (PBC), Cagayan de Oro City Branch in favor of CM Builders Centre.

3. (Buyer/entrustee - Melvin Colinares and Lordino Veloso, Issuing Bank/entruser - Philippine Banking Corporation (PBC), Seller - CM Builders)

4. PBC approved the letter of credit to cover the full invoice value of the goods. Petitioners signed the pro-forma trust receipt as security. Eventually the loan fell due but the petitioners failed to pay despite demands. Petitioners proposed that terms for the payment of the load be modified. Pending approval of said proposal, petitioners paid some of the amount.

5. Concurrently with the separate demand for attorney's fees by PBC's legal counsel, PBC continued to demand payment of the balance. Thereafter, petitioners were charged with violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of the Revised Penal Code.

Garcia, Pernes, Tagacay, Villasanta

2. 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

3. Petitioners 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.

4. 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. At no time did title over the construction materials pass to the bank, but directly to the Petitioners from CM Builders Centre.

5. This impresses upon the trust receipt in question vagueness and ambiguity, which should not be the basis for criminal prosecution in the event of violation of its provisions.

6. 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.

7. The mala prohibita nature of the alleged offense notwithstanding, intent as a state of mind was not proved to be present in Petitioners' situation. Petitioners employed no artifice in dealing with PBC and never did they evade payment of their obligation nor attempt to abscond. Instead, Petitioners sought favorable terms precisely to meet their obligation.

04 Consolidated Bank and Trust Corporation vs CA FACTS:

- On July 13, 1982 Respondent Continental Cement Corporation and Gregory T. Lim (president of the Corporation) obtained from Petitioner Consolidated Bank and Trust Corporation Letter of Credit No. DOM 232-77 in the amount of PHP1,068,150.00.

a.

Petitioners argues that the transaction was that of a simple loan.

o

On the same date, respondent paid a marginal deposit of

The Letter of Credit was used to purchase around 500 thousand

Petitioners further maintained that when PBC allowed them to pay in installment, the agreement was novated and a creditor-debtor relationship was created.

6. RTC convicted petitioners. CA affirmed and increased penalty. Raised to the

o

PHP320,445.00 to petitioner.

liters pf bunker fuel oil from Petrophil Corporation which the latter delivered directly to respondent Corp in its Bulacan Plant.

SC. Petitioners filed a Motion to Dismiss on the ground that they fully paid PBC.

o

In relation to the same transaction, a trust receipt for the amount of PHP1,001,520.93 was executed by respondent Corporation, which Lim signed as signatory.

Issue:WON the transaction involved a trustor-trustee or a creditor-debtor relationship – creditor-debtor relationship

- Claiming that respondents failed to turn over the goods covered by the trust

receipt or the proceeds thereof, petitioner filed a complaint for sum of money with application for preliminary attachment before the RTC.

Held: Petitioners ACQUITTED.

o

In their answer to the complaint, respondents averred that the

1.

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;

transaction between them was a simple loan and not a trust receipt transaction and that the amount claimed by petitioner did not take into account payments already made by them.

hence, the importer has never owned the goods and is not able to deliver possession.

o

Respondents further prayed for reimbursement of alleged overpayment to petitioner of the amount of PHP490,228.90

- RTC ruled in favour of the respondents and ordered the petitioner to pay the former the amount overpaid.

Negotiable Instruments - Atty. Ampil AY 2017 - 2018 - Term 1

- Both parties appealed to the CA which affirmed with modification the ruling of the RTC by deleting the attorney’s fees.

- Hence this appeal.

ISSUE: WON the transaction between the parties is in the nature of a trust receipt?

HELD: NO. It is merely a simple loan.

The recent case of Colinares vs CA appears to be foursquare with the facts obtaining in the case at bar.

- There, we found that inasmuch as the debtor received the goods subject of the trust receipt before the trust receipt itself was entered into, the transaction in question was a simple loan and not a trust receipt agreement.

- Prior to the date of execution of the trust receipt, ownership over the goods was already transferred to the debtor.

- This situation is inconsistent with what normally obtains in a pure trust receipt transaction, wherein the goods belong in ownership to the bank and are only released to the importer in trust after the loan is granted.

- 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.

In this case, at no time did title over the oil pass to petitioner but directly to respondent corporation to which the oil was directly delivered long before the trust receipt was executed. The fact that ownership of the oil belonged to respondent Corporation, through its President, Gregory Lim, was acknowledged by petitioner's own account officer on the witness stand.

- The delivery to respondent Corporation of the goods subject of the trust receipt occurred long before the trust receipt itself was executed. More

specifically, delivery of the bunker fuel oil to respondent Corporation's Bulacan plant commenced on July 7, 1982 and was completed by July 19,

1982.

- Further, the oil was used up by respondent Corporation in its normal operations by August, 1982. 14 On the other hand, the subject trust receipt was only executed nearly two months after full delivery of the oil was made to respondent Corporation, or on September 2, 1982.

- As sufficiently proven during the trial, respondent corporation was required to sign the trust receipt simply to facilitate collection by petitioner of the loan it had extended to the former.

FALLO: WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The Decision of the Court of Appeals dated July 26, 1993 in CA-G.R. CV No. 29950 is AFFIRMED. IN SHORT, RESPONDENT WON AS PETITIONER WAS

Garcia, Pernes, Tagacay, Villasanta

NOT ABLE TO PROVE THAT THE TRANSACTION BETWEEN THEM WAS IN THE FORM OF A TRUST RECEIPT.

05 RAMON L. ABAD v. CA & THE PHILIPPINE COMMERCIAL AND INDUSTRIAL BANK (PCIB) Facts:

1. TOMCO, Inc., now known as Southeast Timber, was granted by PCIB, a domestic

letter of credit for P80,000 in favor of its supplier, Oregon Industries, to pay for one Skagit Yarder with accessories.

● PCIB paid to Oregon Industries the cost of the machinery against a bill of exchange for P80,000.

2. After making the required marginal deposit of P28,000, TOMCO signed and

delivered to the bank a trust receipt acknowledging receipt of the merchandise in trust for the bank,

● with the obligation "to hold the same in storage" as property of PCIB, with a

right to sell the same for cash provided that the entire proceeds thereof are turned over to the bank.

● In consideration of the release to TOMCO by PCIB of the machinery covered by the trust receipt, Ramon Abad signed an undertaking entitled, "Deed of Continuing Guaranty" whereby he promised to pay the obligation jointly and severally with TOMCO.

● Except for TOMCO's P28,000 marginal deposit in the bank, no payment has been made to PCIB by either TOMCO, Inc. or its surety, Abad, on the P80,000 letter of credit.

3. Consequently, PCIB sued TOMCO and Abad in a Civil Case for P125,766.13.

● TOMCO did not deny its liability to PCIB under the letter of credit but it alleged that since it made a marginal deposit of P28,000, this amount should have been deducted from its principal obligation, leaving a balance of P52,000 only.

Issue: WON the debtor (or its surety) is entitled to deduct the debtor's cash marginal deposit from the principal obligation under a letter of credit and to have the interest charges computed only on the balance of the said obligation? - YES.

Held: Petition Granted.

1. The marginal deposit requirement is a Central Bank measure to cut off excess

currency liquidity which would create inflationary pressure.

● It is a collateral security given by the debtor, and is supposed to be returned to him upon his compliance with his secured obligation.

2. It is only fair then that the importer's marginal deposit (as was made in this case),

should be set off against his debt,

● for while the importer earns no interest on his marginal deposit, the bank, apart from being able to use said deposit for its own purposes, also earns interest on the money it loaned to the importer.

● It would be onerous to compute interest and other charges on the face value of the letter of credit which the bank issued, without first crediting or setting off the marginal deposit which the importer paid to the bank.

● Compensation is proper and should take effect by operation of law.

Negotiable Instruments - Atty. Ampil AY 2017 - 2018 - Term 1

● Although Abad is only a surety, he may set up compensation as regards what the creditor owes the principal debtor, TOMCO.

3. It is safe to assume that the bank used TOMCO's marginal deposit to partially fund the P80,000 letter of credit it issued to TOMCO, hence,

● the interests and other charges on said letter of credit should be levied only on the balance of P52,000 which was the portion that was actually funded or loaned by the bank from its own funds.

● Requiring the importer to pay interest on the entire letter of credit without deducting first him marginal deposit, would be a clear case of unjust enrichment by the bank.

06 People v Yu Chai Doctrine: As long as the elements in the penalty clause of Trust Receipts Law has been breached. The entrustee is liable for estafa.

FACTS

Gui Sing & Co represented by its managing partner Yu Chai placed an order with Wm. H Anderson for Colgate perfume and Soap

The trade route was from NY to Cebu

A bill of lading was forwarded to international banking corp. subject to delivery to Gui Sing upon payment of $259

Gui Sing didn’t pay

The Manager of Wm. H Anderson & the international banking Corp agreed to deliver the documents to Gui Sing upon issuance of a trust receipt. It was executed by Gui Sing and was delivered to International Banking Corp.

Gui Sing has sold the merchandise held in trust but wasn’t able to deliver the proceeds thereof to International Banking Corp.

Wm. H. Anderson. As guarantor of Gui Sing to said Trust Agreement were compelled to pay the amount of the draft for the purchase price of the merchandise to International banking Corp.

International Banking Corp filed a complaint-affidavit against Gui Sing & Co for violation of the trust receipts law

Yu chai contended that International Bank did not bear any loss as Wm. Anderson has paid Int’l Banking Corp, so why should he be liable for the penalty clause stated in the trust receipts law

ISSUE: Is Yu Chai liable even if his guarantor has already paid purchase value to Int’l Banking Corp. YES.

HELD: Whenever damages are caused as a consequence of appropriation or taking away, the act constitutes estafa, even though the person who suffered the damage is a third party and not the one to whom the misappropriated or converted goods belongs or to whom it is to be returned, for this is an incidental element which is no way affects the juridical nature of the crime. SC ordered Yu Chai to indemnify Wm. Anderson Corp.

Garcia, Pernes, Tagacay, Villasanta

07 People v. Cuevo G.R. No. L-27607 May 7, 1981 Facts:

1. This case presents for reexamination the liability for estafa of the holder of a trust receipt, accused Ben Cuevo, who disposed of the goods covered thereby and, in violation of its terms, failed to deliver to the bank the proceeds of the sale as payment of the debt secured by the trust receipt.

2. The accused received, in trust from the Prudential Bank and Trust Company, merchandise specified in a trust receipt covered by a Letter of Credit executed by the said accused in favor of the bank, under the express obligation to account for the merchandise or to deliver and turn over the proceeds of the sale thereof.

3. Accused, however, failed to comply with his obligation despite repeated demands made upon him. He was therefor charged with estafa under article 315(1)(b) of the Revised Penal Code. He pleaded not guilty. Case was dismissed by Judge Kapunan, Jr.

4. Hence, this appeal. The accused claims that the dismissal of the case against him amounted to an acquittal and would place him in jeopardy.

Issue:WON accused is guilty – YES

Held:Judgement affirmed. The Chief Justice and six Justices voted to reverse the

order of dismissal. Justices Teehankee and De Castro dissented. As only seven

Justices voted to reverse the order of dismissal, the same has to be affirmed.

We hold that even if the accused did not receive the merchandise for deposit, he is,

nevertheless, covered by article 315(1)(b) because after receiving the price of the sale, he did not deliver the money to the bank or, if he did not sell the merchandise, he did not return it to the bank.

Those two situations are within the purview of article 315(1)(b). The first situation 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 other contingency is covered by the provision which refers to merchandise

received under the obligation to "return" it (devolverla) to the owner.

08. SIA vs PEOPLE

FACTS:

- Accused Jose O. Sia was the General Manager of the Metal Manufacturing

Company of the Philippines, Inc. engaged in the manufacture of steel office equipment.

o On May, 1963, because his company was in need of raw materials to be

imported from abroad, he applied for a letter of credit to import steel sheets from Mitsui Busaan Kaisha, Ltd. of Tokyo, Japan.

o The application being directed to the Continental Bank, and his application having

been approved, the letter of credit was opened and the goods arrived sometime in

July, 1963.

Negotiable Instruments - Atty. Ampil AY 2017 - 2018 - Term 1

WHERETHECONFLICTSTARTED

- According to the information filed against the accused before the CFI, Jose O.

Sia obtained the delivery of the Cold Rolled Steel Sheets valued at P71k under a trust receipt agreement under L/C No. 63/109, which cold rolled steel sheets were consigned to the Continental Bank, under the express obligation on the part of said

accused of holding the said steel sheets in trust and selling them and turning over the proceeds of the sale to the Continental Bank.

- But the said accused, once in possession of the said good, far from complying

with the aforesaid obligation and despite demands made upon him to do so, failed to and refused to return the said cold rolled sheet or account for the proceeds thereof , if sold, which the said accused willfully, unlawfully and feloniously misappropriated, misapplied and converted to his own personal use and benefit, to the damage and prejudice of the said Continental Bank in the total amount of P46.8k.

CFIconvictedtheaccusedforestafa.CAAffirmedthe decisionofCFI. SC reversed the decision of the CFI and acquitted SIA.

ISSUE: WON the violation of the trust receipt law constitutes estafa under Art 315 (1-2) of the RPC?

HELD: NO. The Court herein ruled that to answer this question, it is imperative to make an in depth analysis of the conditions usually embodied in a trust receipt to best their legal sufficiency to constitute the basis for holding the violation of said conditions as estafa under the RPC.

As executed, the trust receipt in question reads:

"I/WE HEREBY AGREE TO HOLD SAID GOODS IN TRUST FOR THE SAID BANK as its property with liberty to sell the same for its account but without authority to make any other disposition whatsoever of the said goods or any part thereof (or the proceeds thereof) either way of conditional sale, pledge or otherwise;.

"In case of sale I/we further agree to hand the proceeds as soon as received to the BANK to apply against the relative acceptance (as described above) and for the payment of any other indebtedness of mine/ours to CONTINENTAL BANK." (Original Records, p. 108).

- One view is to consider the transaction as merely that of a security of a loan, and

that the trust element is but and inherent feature of the security aspect of the arrangement where the goods are placed in the possession of the "entrustee," to use

the term used in P.D. 115, violation of the element of trust not being intended to be in the same concept as how it is understood in the criminal sense.

- The other view is that the bank as the owner and "entrustor" delivers the goods to

the "entrustee," with the authority to sell the goods, but with the obligation to give the proceeds to the "entrustor" or return the goods themselves if not sold, a trust being thus created in the full sense as contemplated by Art. 315, par. 1 (b).

Garcia, Pernes, Tagacay, Villasanta

the view that the trust receipt arrangement gives rise only

to civil liability as the more feasible, before the promulgation of P.D. 115.

The transaction being contractual, the intent of the parties should govern.

● Since the trust receipt has, by its nature, to be executed upon the arrival of the goods imported, and acquires legal standing as such receipt only upon acceptance by the "entrustee,"

○ the trust receipt transaction itself, the antecedent acts consisting of the application of the L/C, the approval of the L/C and the making of the marginal deposit and the effective importation of the goods, all through the efforts of the importer who has to find his supplier, arrange for the payment and shipment of the imported goods

○ - all these circumstances would negate any intent of subjecting the importer to criminal prosecution, which could possibly give rise to a case of imprisonment for non-payment of a debt.

- The parties, therefore, are deemed to have consciously entered into a purely

- The Court considered

commercial transaction that could give rise only to civil liability, never to subject the "entrustee" to criminal prosecution.

With regard to the liability of herein petitioner, Sia:

- It is worthy of note that the civil liability imposed by the trust receipt is

exclusively on the Metal Company. Speaking of such liability alone, as one arising

from the contract, as distinguished from the civil liability arising out of a crime, the petitioner was never intended to be equally liable as the corporation.

- Without being made so liable personally as the corporation is, there would then

be no basis for holding him criminally liable, for any violation of the trust receipt.

- This is made clearly so upon consideration of the fact that in the violation of the

trust agreement and in the absence of positive evidence to the contrary, only the corporation benefited, not the petitioner personally, yet, the allegation of the information is to effect that the misappropriation or conversion was for the personal use and benefit of petitioner, with respect to which there is variance between the allegation and the evidence.

FINAL NOTE:

- It is also worthy of note that while the trust receipt speaks of authority to sell, the fact is undisputed that the imported goods were to be manufactured into finished products first before they could be sold, as the Bank had full knowledge of.

- This fact is, however, not embodied in the trust agreement, thus impressing on the trust receipt vagueness and ambiguity which should not be the basis for criminal prosecution, in the event of a violation of the terms of the trust receipt.

- P.D. 115 has express provision relative to the "manufacture or process of the good

with the purpose of ultimate sale," as a distinct condition from that of "to sell the goods or procure their sale" (Section 4, (1).

- Note that what is embodied in the receipt in question is the sale of imported goods,

the manufacture thereof not having been mentioned. The requirement in criminal prosecution, that there must be strict harmony, not variance, between the allegation and the evidence, may therefore, not be said to have been satisfied in the instance case.

Negotiable Instruments - Atty. Ampil AY 2017 - 2018 - Term 1

GUYS LAGAY KO THIS PART KASI TINANONG TO BEFORE SA CLASS NAMIN IN CREDTRANS, TO BE SURE LANG SORRY HABA TOPIC REGARDING THE JEWELRY OWNER:

Garcia, Pernes, Tagacay, Villasanta

1. The conversion by the importer of the goods covered by a trust receipt constitutes

estafa through misappropriation.

● Notwithstanding repeated oral and written demands by PBC, Lee had failed

-

from the owner for sale on commission, and the former misappropriates for his

Unlike, for instance, when several pieces of jewelry are received by a person

 

either to turn over to PBC the proceeds of the sale of the goods, or to return said goods if they were not sold, Lee is guilty of estafa.

personal use and bene t, either the jewelries or the proceeds of the sale, instead of

2.

Lee relies on the Cuevo and Sia cases, both violations of the trust receipt

returning them to the owner as is his obligation, the bank is not in the same concept

agreements happened in the 1960's, way before the promulgation of P.D. 115 in

as the jewelry owner with full power of disposition of the goods, which the bank does

1973.

 

not have, for the bank has previously extended a loan which the L/C represents to the importer, and by that loan, the importer should be the real owner of the goods.

 

In the present case, the accused was charged in 1985 for an act committed in 1982.

-

If under the trust receipt the bank is made to appear as the owner, it was but an

While the Cuevo and Sia cases were decided when P.D. 115 had already

Thus, the view held by the Court in the Sia case that violation of a trust

artificial expedient, more of a legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it wants, which it cannot do, just to give consistency with the purpose of the trust receipt of giving a stronger security for the

 

been promulgated, the decree was not applied in either of the cases because the questioned acts were committed before its effectivity.

loan obtained by the importer.

 

receipt only gives rise to civil liability did not take into consideration P.D. 115.

-

To consider the bank as the true owner from the inception of the transaction

would be to disregard the loan feature thereof, a feature totally absent in the case of the transaction between the jewel-owner and his agent.

Acts involving the violation of trust receipt agreements occurring after January 29, 1973 would make the accused criminally liable for estafa.

3.

The criminal liability springs from the violation of the trust receipt.

FALLO: We reverse the decision of the Court of Appeals and hereby acquit the petitioner.

09 ROSEMARIE LEE v. RTC Judge RODIL and PEOPLE OF THE PHILIPPINES Facts:

1. Lee was charged with estafa.

● Lee, being then the duly authorized representative of C.S. Lee Enterprises, Inc., after opening letter of credit with PBC for P154,711.97, covering the purchase price of a certain merchandise consisting of 23 ctns. Lab. Culture Media in favor of PBC, received from the latter the necessary document and thereafter the said merchandise

● Lee then executed trust receipt for the merchandise. She obligated herself to hold said merchandise in trust with liberty to sell the same in cash for the account of PBC and to account for the proceeds of the sale thereof, if sold or of returning the said merchandise PBC in case of failure to sell the same,

● but Lee, once in possession of the said merchandise, allegedly misappropriated the said merchandise or the value thereof, to her own personal use and benefit, to the damage and prejudice of the said PBC for

P154,711.97.

2. Lee, on the other hand, alleges that the violation of a trust receipt agreement does

not constitute estafa notwithstanding an express provision in the "Trust Receipts Law" (PD115) characterizing violation as estafa.

Issue: Does a violation of a trust receipt agreement constitute the crime of estafa? - YES.

Doctrine: The violation of a trust receipt agreement constitutes the crime of estafa.

Held: PD 115 is constitutional. Case remanded for further proceedings.

● The loan feature is separate and distinct from the trust receipt. The violation of a trust receipt committed by disposing of the goods covered thereby and failing to deliver the proceeds of such sale has been squarely made to fall under estafa.

10. Allied Bank v Ordonez Doctrine: Even if the goods held in by trust are not for sale, the non-payment of the amount covered by trust receipt is an act violative of the entrustee's obligation to pay. There is no reason why the law should not apply to all transactions covered by trust receipts, except those expressly excluded

FACTS

● Philippine Blooming Mills through hits authorized officer Alfredo Ching applied for issuance of letter of credit with Allied bank to finance the purchase of two machineries. (Sliding Nozzle Bricks & Dolomites)

● An irrevocable letter of credit was issued in favor of Nikko Industry and the latter drew 4 drafts accepted by Philippine Blooming Mills. It was duly honored and paid by Allied Bank

● As security Philippine Blooming Mills issued 4 Trust Receipts acknowledging Allied Bank to be the owner of the goods.

● PBM wasn’t able to pay the obligation

● Allied Bank filed before the prosecutor an affidavit-complaint against Phil. Bloom Mills on violation of PD 115.

● PBM contended that the goods covered by the Trust receipts was for manufacturing and not for sale.

ISSUE: WON the Penalty Clause of PD 115 applies when the goods covered by the Trust Receipts are not to be sold but to be used for manufacturing - YES.

HELD: Sec. 4 of PD 115 states that a Trust Receipt Transaction is:

Negotiable Instruments - Atty. Ampil AY 2017 - 2018 - Term 1

Any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's 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 in trust for the entruster and to sell or otherwise dispose of the 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.

Hence PD 115 encomapsses any act violative of an obligation covered by the trust receipt. It is not limited to transactions in goods which are to be sold, reshipped, sstored or processed as a component of a product ultimately sold.

11 People v. Nitafan G.R. Nos. 81559-60 April 6, 1992 Facts:

In this petition for certiorari, the public petitioner is asking for a re-examination of our

decisions on the issue of whether or not an entrustee in a trust receipt agreement who fails to deliver the proceeds of the sale or to return the goods if not sold to the entruster-bank is liable for the crime of estafa.

On July 18, 1980, petitioner Allied Banking Corporation charged Betty Sia Ang with estafa. Accused filed a motion to quash the information on the ground that the facts do not constitute an offense. Respondent judge granted the motion to quash.

The factual circumstances in the present case show that the alleged violation was committed sometime in 1980 or during the effectivity of P.D. 115. The failure, therefore, to account for the P114,884.22 balance is what makes the accused-respondent criminally liable for estafa.

Issue: WON an entrustee in a trust receipt agreement who fails to deliver proceeds of sale or to return goods if not sold to the entruster-bank is liable for estafa – YES

Held: Petition GRANTED

A trust receipt arrangement does not involve a simple loan transaction between a

creditor and a debtor importer. Apart from a loan feature, the trust receipt arrangement has a security feature that is covered by the trust receipt itself.

That second feature is what provides the much needed financial assistance to our traders in the importation or purchase of goods or merchandise through the use of those goods or merchandise as collateral for the advancements made a bank. 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.

Garcia, Pernes, Tagacay, Villasanta

The offense is punished as a malum prohibitum regardless of the existence of intent or malice. A 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.

12 Prudential Bank vs NLRC Facts

● Interasia was a party in 3 labor cases, wherein they were ordered to pay monetary awards. When the writs of execution were issued, the sheriff levied the personal properties in the factory of Interasia for the satisfaction of the writ.

● However, Prudential bank filed an Affidavit of Third Party Claim asserting ownership over the properties seized based on the trust receipts issued by Interasia in its favor. The Labor Arbiter denied the claim and ordered the sheriff to continue with the sale. Since the first sale was unsuccessful, the sheriff conducted another sale wherein Angel Peliglorio was the highest bidder. Thereafter, the Labor Arbiter ordered the release of the properties to Angel.

● The NLRC denied the third party claim of Prudential Bank. Hence this petition. Prudential Bank assails the public sale because of the lack notice and the sale not being conducted in the premises of Interasia, and that Prudential has security title over the properties based on the trust receipts, therefore it is a preferred claimant over the proceeds from the foreclosure to the extent of its security title.

● The respondents submit that it was Prudential’s negligence in exercising its right to cancel the trust receipt arrangement when Interasia failed to comply. The NLRC also relies on the pronouncement on trust receipts in Vintola v Insular Bank, when a third party claim on the ground of trust receipts was dismissed because since there was no showing that the trust receipt was cancelled.

Issue: Is Prudential Bank a preferred claimant? - YES.

Held

- Under the Trust Receipts Law, Sec 12., the security interest of the entruster (Prudential) is not a mere empty title. Such interest becomes a lien on the goods because the advances of Prudential must be settled first before the entrustee can consolidate his ownership over the goods.

- As discussed in People v Nitafan, citing Vintola, the nature of a trust receipt arrangement does not involve a simple loan. There is also a security feature covered by the trust receipt. The second feature is separate and distinct from the first, and serves as the title of the bank to the security to be protected.

- Therefore, the claim of Prudential is valid against all creditors of Interasia, and is only defeated is when the properties are in the hands of an innocent purchaser for value and in good faith. It was not shown in this case that Angel was such a purchaser.

Negotiable Instruments - Atty. Ampil AY 2017 - 2018 - Term 1

Garcia, Pernes, Tagacay, Villasanta

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It was also discussed in other jurisprudence that the entruster obtains FULL

● The declaration of acquittal to the effect that "if any responsibility was

title over the goods at the time he buys the goods and continues to hold

incurred by the accused — that is civil in nature and not criminal" amounts to

such title as his security until the goods are sold.

a

reservation of the civil action in favor of the offended party.

 

● Catipon executed the trust receipt, he is liable ex contractu for its breach,

If

Doctrine

whether he did or he did not "misappropriate, misapply or convert the said merchandise" as charged in the information filed in the criminal case.

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The security interest of an entruster is valid as against all creditors of the

There are two features to a trust receipt arrangement, the loan feature and

2.

Whether or not Catipon appended his signature to the trust receipts at the request

entrustee. Therefore, the credit of the entruster should be settled first before the others. Except as against an innocent purchaser for value and in good

of the son of his cosigner J. V. Ramirez, and regardless of the arrangements between them,

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faith.

● the fact remains that by signing the trust receipt, Catipon caused PNB to

● and PNB having acted on that assumption, induced by Catipon, the latter

the security feature, which are separate and distinct from one another.

believe he assumed the obligations thereunder together with his co-signer;

cannot now deny his liability, under the well known principle of estoppel.

13 PNB v. DALMACIO CATIPON

Facts:

The parties stipulate:

● Catipon affixed his signature on the Trust Receipt, because of his strong desire to get the onions purchased by him from J. V. Ramirez & Co., Inc., and which were duly paid for to said J. V. Ramirez & Co., Inc., and not to PNB, as evidenced by 3 receipts;

● that his signature was affixed at the Divisoria Market when a son of J. V. Ramirez told him to sign it so that he will get the onions;

● that PNB filed a claim against J. V. Ramirez in the Insolvency Proceedings of J. V. Ramirez & Co., Inc. long before the present complaint was filed but PNB did not realize any cent out of its claim.

● Catipon was also charged with estafa for having misappropriated the merchandise covered by the Trust Receipt; but was later acquitted. Shortly thereafter, PNB commenced the present action to recover the value of the goods. Catipon avers:

● That his acquittal in the estafa case is a bar to PNB’s instituting the present civil action;

● That he was not liable under the trust receipt; and

● That if at all, he should be held liable only for ½ of the value of the goods under trust, there being no stipulation that he would be solidarily liable with his co-signer.

Issues: 1. Is the acquittal in the estafa case a bar to filing a civil case? - NO.

2. Is he liable under the trust receipt considering he is signed the same? - YES.

Doctrines: An acquittal of the charge of estafa does not preclude a suit to enforce the civil liability for the same act or omission under the new Civil Code. By signing the trust receipt, one cannot, in the spirit of equity, be heard to deny his liability under the principle of estoppel.

Held:

1. The decision acquitting Catipon of the charge of estafa does not bar the filing of

this action to enforce his liability as one of the signers of the trust receipt.

3. Since the merchandise (onions) covered by the trust receipt were delivered by

Ramirez to Catipon, who disposed thereof,

it

is but right that he should be the one to answer for their value.

Catipon’s payments to Ramirez cannot diminish the rights of PNB, since the trust receipt expressly obligated Catipon to pay PNB and not to his co-signer.

14 Ong v CA Doctrine: The Trust Receipts Law recognizes the impossibility of imposing penalty of imprisonment on a corporation. Hence, if the entrustee is a corporation, the law makes the officers or employees or other persons responsible for the offense liable to suffer the penalty of imprisonment. This is because juridical persons can't be put to jail.

FACTS

AMARGI represented by Eduardo Ong applied for an issuance of letter of credit from SOLIDBANK to fund the purchase of 10,000 bags of Urea from Fertiphil.

SOLIDBANK issued a letter of credit in favor of Fertiphil.

As security Ong issued Trust Receipts acknowledging ownership of SOLIDBANK over the bags of Urea.

Ong was not able to perform his obligation covered by the Trust Receipt Agreement to return the goods or to deliver the proceeds thereof upon SOLIDBANK. Hence, he was accused of violating the trust receipts law.

Ong pleaded not guilty stating that he signed the Agreement to represent AMARGI as an officer of the company

ISSUE: WON Ong is liable to the Trust Receipt he issued in a representative capacity - YES.

HELD:

● Trust Receipt Law is violated when entrustee fails to turn over the proceeds of the sale of goods or return the goods covered by the trust receipts if the goods are not sold.

Negotiable Instruments - Atty. Ampil AY 2017 - 2018 - Term 1

● The mere failure to account or return gives rise to the crime which is malum prohibitum. There is no requirement to prove intent to defraud.

● The trust receipts law recognizes the impossibility of imposing the penalty of imprisonment on a corporation. Hence, if the entrustee is a corporation, the law makes the officers or employees or other persons responsible for the offense liable to suffer the penalty of imprisonment.

● This is because juridical persons can't be put to jail.

15 Ching vs. CA G.R. No. 110844 April 27, 2000 Facts:

Petitioner Alfredo Ching was charged before the RTC Makati with four counts of estafa punishable under Article 315, par. 1 (b) of the Revised Penal Code, in relation to Presidential Decree 115, otherwise known as the "Trust Receipts Law."

Petitioner filed an "Omnibus Motion to Strike Out Information, or in the Alternative to Require Public Prosecutor to Conduct Preliminary Investigation, and to Suspend in the Meantime Further Proceedings in these Cases."

Acting on the omnibus motion, the Regional Trial Court required the prosecutor's office to conduct a preliminary investigation and suspended further proceedings in the criminal cases. Petitioner Ching, together with Philippine Blooming Mills Co., Inc., filed a case before the RTC-Manila, for declaration of nullity of documents and for damages.

Then Ching filed a petition before the RTC-Makati for the suspension of the criminal proceedings on the ground of prejudicial question in a civil action. The RTC-Makati denied the petition for suspension and scheduled the arraignment and pre-trial of the criminal cases. As a result, petitioner moved to reconsider the order to which the prosecution filed an opposition which was denied.

Petitioner brought before the CA a petition for certiorari and prohibition, which sought to declare the nullity of the aforementioned orders. The CA denied the petition. MFR also denied hence, this petition.

Issue:WON pendency of a civil action for damages and declaration of nullity of documents, specifically trust receipts, warrants the suspension of criminal proceedings instituted for violation of Trust Receipts Law – NO

Held:CA affirmed. Petition dismissed.

It comes into play generally in a situation where a civil action and a criminal action are both pending and there exists in the former an issue which must be preemptively resolved before the criminal action may proceed, because howsoever the issue

raised in the civil action is resolved would be determinative juris et de jure of the guilt or innocence of the accused in the criminal case.

● The alleged prejudicial question in the civil case for declaration of nullity of documents and for damages, does not juris et de jure

Garcia, Pernes, Tagacay, Villasanta

determine the guilt or innocence of the accused in the criminal action for estafa.

Assuming arguendo that the court hearing the civil aspect of the case adjudicates that the transaction entered into between the parties was not a trust receipt agreement, nonetheless the guilt of the accused could still be established and his culpability under penal laws determined by other evidence.

● That an act violative of a trust receipt agreement is only one mode of committing estafa under the abovementioned provision of the Revised Penal Code.Stated differently, a violation of a trust receipt arrangement is not the sole basis for incurring liability under Article 315 1(b) of the Code.

16 Pilipinas Bank v Ong

Facts:

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Baliwag Mahogany Corporation (BMC), applied for a letter of credit with Pilipinas Bank (petitioner). Pilipinas Bank approved the LOC, BMC, in turn,

executed a trust receipt in favor of the Bank. However, BMC failed to comply with the trust receipt arrangement because it was insolvent.

o

BMC filed a petition for Rehabilitation and Declaration in a State of Suspension. After the creditors of BMC were informed, SEC created a Management Committee which took custody and control over all of BMC’s assets and liabilities, thereafter, BMC and all of its creditors entered into a Memorandum of Agreement (MOA) rescheduling of the debts.

o

This MOA and rehabilitation plan was approved by the SEC and declared BMC in a state of suspension of payments.

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However, BMC failed to pay for the obligations under the MOA prompting

Pilipinas Bank to file a complaint against BMC for violation of the Trust Receipt Law, arguing that the original Trust Receipt arrangement was revived when BMC defaulted in its payment under the MOA.

o The respondents countered that the MOA novated the trust receipt arrangement. The bank also argues, contrary to the respondent’s contention, that the MOA did not novate the obligations under the trust receipt arrangement.

Issue: Can the respondents be held liable under the Trust Receipts Law? - NO.

Held:

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The respondents cannot be held liable because the MOA novated the obligations under the trust receipt arrangement.

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Under the Trust Receipts Law, the mere failure to deliver the proceeds from the sale of the goods, or the goods themselves in the event of non-sale, already constitutes as a violation of the Trust Receipts Law which punishes dishonesty and abuse of confidence in the handling of money or goods to prejudice of another.

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In this case, there is no dishonesty nor abuse of confidence which can be attributed to the respondents because when the demand of the Bank on

Negotiable Instruments - Atty. Ampil AY 2017 - 2018 - Term 1

BMC for the compliance with the obligations under the Trust Receipt arrangement, the latter and its assets and liabilities were already under the control of the Management Committee.

- Also, the respondents paid P21M in compliance with the equity infusion required in the MOA, which destroys any showing any intent of the respondents to misuse the goods or its proceeds.

Doctrine (related to Trust Receipts): What is being punished by the Trust Receipts Law is the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another.

Held (regarding the novation):

- Novation occurs in 2 ways: (1) Expressly stated or (2) if the old and new obligations can stand together. In this case, the obligation under the MOA and the Trust Receipt arrangement are incompatible resulting in novation, thereby extinguishing BMC’s obligations under the trust receipt arrangement.

- Therefore, the liability of the respondents, if any, would only be civil because the trust receipt was transformed into a simple loan agreement.

Garcia, Pernes, Tagacay, Villasanta