CHECKS: Presentment for Payment

 Bishop of Malolos v. Intermediate Appellate Court

G.R. No. 72110, November 16, 1990

 Far East Bank & Trust Company v. Diaz Realty, Inc.

G.R. No. 138588, August 23, 2001

 Fortunado v. Court of Appeals

G.R. No. 78556, April 25, 1991

 International Corporate Bank v. Sps. Francis S. Gueco and Ma. Luz E. Gueco
G.R. No. 141968, February 12, 2001

 New Pacific Timber v. Seneris

G.R. No. L-41764, December 19, 1980

 Philippine Airlines v. Court of Appeals

G.R. No. L-49188, January 30, 1990

 Security Bank and Trust Company v. Rizal Commercial Banking Corporation

G.R. No. 170984, January 30, 2009

 Tibajia v. Court of Appeals

G.R. No. 100290, June 4, 1993

CHECKS: Presentment for Payment – Time

 International Corporate Bank v. Sps. Francis S. Gueco and Ma. Luz E. Gueco
G.R. No. 141968, February 12, 2001

CHECKS: Presentment for Payment – Effect of Delay

 ICB v. Gueco
G.R. No. 141968, February 12, 2001

CHECKS

 Bataan Cigar v. CA
G.R. No. 93048, March 3, 1994

 Equitable PCI v. Ong

G.R. No. 156207, September 15, 2006

 New Pacific Timber v. Hon. Seneris

G.R. No. L-41764, December 19, 1980

 Papa v. A.U. Valencia

G.R. No. 105188, January 23, 1998

 PNB v. National City Bank of New York

G.R. No. L-43596, October 31, 1936
  Security Bank and Trust Company v. RCBC
G.R. No. 170984, January 30, 2009

 State Investment House v. CA

G.R. No. 72764, July 13, 1989

 Stelco Marketing Corporation v. CA

G.R. No. 96160, June 17, 1992

 Villanueva v. Nite
G.R. No. 148211, July 25, 2006

LETTERS OF CREDIT

 Prudential Bank v. IAC

G.R. No. 74886, December 8, 1992

 Bank of America, NT & SA v. CA

G.R. No. 105395, December 10, 1993

 Lee v. CA
G.R. No. 117913; G.R. NO. 117914, February 1, 2002

 MWSS v. Daway
G.R. No. 160732, June 21, 2004

 Keng Hua Paper Products v. CA

G.R. No. 116863, February 12, 1998

 BPI v. De Remy Fabric

G.R. No. L-24821, October 16, 1970

 Transfield Phils. v. Luzon Hydro Corp.

G.R. No. 146717, November 22, 2004

 Land Bank v. Monet’s Export Manufacturing Corp.

G.R. No. 161865, March 10, 2005

 Feati Bank and Trust Co. v. CA

G.R. No. 94209, April 30, 1991

 The HSBC v. National Steel Corp.

G.R. No. 183486, February 24, 2016

 National Commercial Bank of Saudi Arabia v. CA

G.R. No. 124267, January 31, 2003

TRUST RECEIPTS LAW

 DBP v. Prudential Bank

G.R. No. 143772, November 22, 2005
  Ching v. Secretary of Justice
G. R. No. 164317, February 6, 2006

 Landl & Co. Phil. v. Metrobank

G.R. No. 159622, July 30, 2004

 People v. Cuevo
G.R. No. L-27607, May 7, 1981

 Melvin Colinares v. CA
G.R. No. 90828, September 5, 2000

 Rosario Textile Mills Corp. v. Home Bankers Savings and Trust Co.
G.R. No. 137232, June 29, 2005

 Samo v. People of the Philippines

G.R. Nos. L-17603-04, May 31, 1962

 State Investment v. CA, et. al.

G.R. No. 101163, January 11, 1993

 Ng v. People of the Philippines

G.R. No. 173905, April 23, 2010

 Metropolitan Bank v. Sec. Gonzales, et. al.

G.R. No. 180165, April 7, 2009

 Pilipinas Bank v. Alfredo T. Ong

G.R. No. 133176, August 8, 2002

 Gonzales v. HSBC
G. R. No. 164904, October 19, 2007

 Dela Cruz v. Planters Products, Inc.

G.R. No. 158649, February 18, 2013

 Transpacific Battery Corp. v. Security Bank and Trust Company

G.R. No. 173565; G.R. No. 173607, May 8, 2009

 PNB v. Soriano
G.R. No. 164051, October 3, 2012

WAREHOUSE RECEIPTS LAW

 Telengtan Bros. & Sons v. CA

G.R. No. 110581, September 21, 1994

 Philippine Trust Co. v. National Bank

G.R. No. L-16483, December 7, 1921

 Bank of Philippine Islands v. J.R. Herridge

 G.R. Nos. L-21000, 21002-21004, and 21006, December 20, 1924

 PNB v. Sayo
G.R. No. 129918, July 9, 1998

CHECKS: Presentment for Payment

ROMAN CATHOLIC BISHOP OF MALOLOS, INC. v. INTERMEDIATE APPELLATE COURT, and

ROBES-FRANCISCO REALTY AND DEVELOPMENT CORPORATION

G.R. No. 72110, November 16, 1990

SARMIENTO, J.

FACTS:

A contract over the land was executed between the Roman Catholic Bishop of Malolos as vendor and the
private respondent through its then president, Mr. Carlos F. Robes, as vendee, stipulating for a down payment of
P23,930 and the balance of P100,000 plus 12% interest per annum to be paid within four (4) years from
execution of the contract. The contract likewise provides for cancellation, forfeiture of previous payments, and
re-conveyance of the land in case of failure to pay within the period. After the expiration of the stipulated period
for payment, Atty. Adalia Francisco, new president of the company, wrote the formal request that her company
be allowed to pay the principal amount of P100,000 in 3 equal installments of 6 months each with the first
installment and the accrued interest of P24,000 to be paid immediately upon approval of the said request. The
petitioner formally denied the request of private respondent but granted a grace period of five (5) days from the
receipt of the denial to pay the total balance of P124,000. The private respondent wrote the petitioner requesting
an extension of 30 days from said date to fully settle its account but this was still denied. Consequently, Atty.
Francisco wrote a letter directly addressed to the petitioner, protesting the alleged refusal of the latter to accept
tender of payment made by the former on the last day of the grace period. But the private respondent demanded
the execution of a deed of absolute sale over the land in question.

ISSUE:

Is there a valid tender of payment by issuance of a certified check?

RULING:

No. Tender of payment involves a positive and unconditional act by the obligor of offering legal tender
currency as payment to the obligee for the former’s obligation and demanding that the latter accept the same.
Thus, tender of payment cannot be presumed by a mere inference from surrounding circumstances. At most,
sufficiency of available funds is only affirmative of the capacity or ability of the obligor to fulfill his part of the
bargain. In the case of Philippine Airlines v. Court of Appeals, it was held that since a negotiable instrument is
only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as
payment. A check, whether a manager’s check or ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. The
tender of payment by the private respondent was not valid for failure to comply with the requisite payment in
legal tender or currency stipulated within the grace period. Hence, the decision of the IAC is hereby SET
ASIDE and ANNULLED and the decision of the trial court favoring the petitioner is REINSTATED.
CHECKS: Presentment for Payment

FAR EAST BANK & TRUST COMPANY v. DIAZ REALTY INC.

G.R. No. 138588, August 23, 2001

PANGANIBAN, J.

FACTS:

Diaz and Company obtained a loan from Pacific Banking Corporation in 1974 in the amount of
P720,000 at 12% interest per annum which was increased thereafter. The said loan was secured with a real
estate mortgage over two parcels of land owned by Diaz Realty, herein respondent. Subsequently, the loan
account was purchased by the petitioner Far East Bank (FEBTC). Two years after, Diaz Realty through its
President inquired about its obligation and upon learning of the outstanding obligation, it tendered payment in
the form of an Interbank check in the amount of P1,450,000 in order to avoid the further imposition of interests.
The payment was with a notation for the full settlement of the obligation. FEBTC accepted the check but it
alleged in its defense that it was merely a deposit. When FEBTC refused to release the mortgage, Diaz Realty
filed a suit. The lower court ruled that there was a valid tender of payment and ordered FEBTC to cancel the
mortgage. Upon appeal, the appellate court affirmed the decision.

ISSUE:

Is there a valid tender of payment to extinguish the obligation?

RULING:
 Yes. Although jurisprudence tells us that a check is not a legal tender and a creditor may validly refuse it,
this dictum does not prevent a creditor from accepting a check as payment. Herein, FEBTC accepted the check
and the same was cleared. A tender of payment is the definitive act of of offering the creditor what is due him or
her, together with the demand that he accepts it. More important is that there must be a concurrence of intent,
ability and capability to make good such offer, and must be absolute and must cover the amount due. The acts of
Diaz Realty manifest its intent, ability and capability. Hence, there was a valid tender of payment. Meanwhile,
the transfer of credit from Pacific Bank to FEBTC did not involve an effective novation but an assignment of
credit. As such, FEBTC has the right to collect the full value of the credit from Diaz Realty subject to the
conditions of the promissory note previously executed.

CHECKS: Presentment for Payment

ALFARO FORTUNADO, EDITH FORTUNADO, NESTOR FORTUNADO and RAMON A.

GONZALES v. COURT OF APPEALS, BASILISA CAMPANO, as City Sheriff of Iligan City,
REGISTER OF DEEDS, Iligan City, ANGEL L. BAUTISTA and NATIONAL STEEL CORPORATION

G.R. No. 78556, April 25, 1991

CRUZ, J.

FACTS:

The RTC of Quezon City 2 rendered a judgment ordering Angel Bautista to pay damages to Alfaro
Fortunado. Pursuant thereto, Basilisa Campano, City Sheriff of Iligan City, levied upon two parcels of land in
the name of Bautista. The second lot had already been purchased by National Steel Corporation, but had not yet
been registered in its name. The lots were sold at public auction to the petitioners as the only bidder. NSC gave
notice to the sheriff of its intention to redeem the lots. NSC issued to the sheriff a PNB check as the redemption
price. Bautista sent the sheriff a letter bearing NSC’s conformity in which he availed himself of NSC’s check,
which was sufficient to cover the full redemption price for both lots. The sheriff acknowledged receipt of the
check as redemption money for the two parcels of land and issued a certificate of redemption in favor of NSC
and Bautista. The counsel of the petitioners told the sheriff that he was rejecting the check because it was not
legal tender and was not intended for payment but merely for deposit. They requested the sheriff to issue a final
deed of sale over the two lots and deliver the same to them on the ground that there is no valid redemption.
When the request was not granted, the petitioners filed with the respondent court a petition for mandamus. They
contended that the check issued by NSC, not being legal tender, could not be considered payment of the
redemption price.

ISSUE:

Is the redemption valid through the issuance of a check?

RULING:

Yes. Redemption is not rendered invalid by the fact that the said officer accepted a check for the amount
necessary to make the redemption instead of requiring payment in money. If he had seen fit to do so, the officer
could have required payment to be made in lawful money, and he undoubtedly, in accepting a check, placed
himself in a position where he could be liable to the purchaser at the public auction if any damage had been
suffered by the latter as a result of the medium in which payment was made. But this cannot affect the validity
of the payment. Further, a check may be used for the exercise of the right of redemption, the same being a right
and not an obligation. The tender of a check is sufficient to compel redemption but is not in itself a payment that
relieves the redemptioner from his liability to pay the redemption price. In other words, while private
respondents properly exercised their right of redemption, they remain liable, of course, for the payment of the
redemption price.

CHECKS: Presentment for Payment

THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES) v. SPS.
FRANCIS S. GUECO and MA. LUZ E. GUECO

G.R. No. 141968, February 12, 2001

KAPUNAN, J.

FACTS:

Spouses Gueco obtained a loan from International Corporate Bank to purchase a Nissan car. Spouses
executed promissory notes which were payable in monthly installments and chattel mortgage over the car to
serve as security. Spouses defaulted in payment of installments, thus the car was ordered to be returned to the
bank. However, after some negotiations and computation, spouses and the bank just agreed that the amount be
lowered.

Dr. Gueco delivered a manager’s check in the amount of P150, 000.00 but the car was not released
because of his refusal to sign the Joint Motion to Dismiss. The bank insisted that the Joint Motion to Dismiss is
a standard operating procedure to effect a compromise and to preclude future filing of claims or suits for
damages. Gueco spouses filed an action against the bank for fraud, failing to inform them regarding Joint
Motion to Dismiss during the meeting and for not releasing the car if they do not sign the said motion. Also, by
the time the case was instituted, the check had become stale in the hands of the bank.

ISSUE:

Should the bank be faulted for failure to present for payment the manager’s check?

RULING:

No. A check must be presented for payment within a reasonable time after its issue. In the case at bar,
however, the check involved is not an ordinary bill of exchange but a manager’s check. A manager’s check is
one drawn by the banks manager upon the bank itself. It is a bill of exchange drawn by the cashier of a bank
upon the bank itself, and accepted in advance by the act of its issuance. It is really the banks own check and
may be treated as a promissory note with the bank as a maker. The check becomes the primary obligation of the
bank which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is
considered an acceptance thereof. If treated as promissory note, the drawer would be the maker and in which
case the holder need not prove presentment for payment or present the bill to the drawee for acceptance.

In the case at bar, there is no doubt that the bank held on the check and refused to encash the same
because of the controversy surrounding the signing of the joint motion to dismiss. There is no bad faith or
negligence on its part.
CHECKS: Presentment for Payment

NEW PACIFIC TIMBER & SUPPLY COMPANY, INC. v. HON. ALBERTO V. SENERIS, RICARDO A.
TONG and EX-OFFICIO SHERIFF HAKIM S. ABDULWAHID

G.R. No. L-41764, December 19, 1980

CONCEPCION JR., J.

FACTS:

In a complaint for a collection of sum of money, New Pacific Timber failed to comply with his judgment
obligation in an amicable settlement with the private respondent. Thus a writ of execution was issued pursuant
to which, New Pacific Timber’s properties were levied and was held for auction. Prior to the auction, New
Pacific Timber deposited with the Clerk of Court, CFI, in his capacity as Ex-Officio Sheriff, the sum for the
payment of the judgment obligation. Private respondent refused to accept the check as well as the cash deposit
and requested the scheduled auction sale. Hon. Seneris sustained the contention of the private respondent. New
Pacific Timber questioned the order of the judge for denying his motion for issuance of certificate of
satisfaction of judgment.

ISSUE:

Is there a valid refusal to accept the payment of the judgment obligation made by New Pacific Timber?

RULING:

No, there is no valid refusal. A cashier’s check of the Equitable Bank Corporation is not an ordinary
check. It is a well-known and accepted practice in the business sector that a Cashier’s Check is deemed as cash.

Where a check is certified by the bank on which it is drawn, the certification is equivalent to acceptance.
By the certification of drawee bank, the funds represented by the check are transferred from the credit of the
maker to that of the payee or holder, and for all intents and purposes, the latter becomes the depositor of the
drawee bank. Said certification implies that the check is drawn upon sufficient funds in the hands of the drawee
that they have been set apart for its satisfaction, that they shall be so applied whenever the check is presented
for payment. The object of certifying a check, as regards to both parties, is to enable the holder to use it as
money. When the holder procures the check to be certified, the check operates as an assignment of a part of the
funds to the creditors. Certification of a check is an exception to the rule enunciated under Sec 63 of the CB
Act.

Considering that the whole amount deposited by the petitioner consisting of Cashier’s Check of P50,
000.00 and P13, 130.00 in cash covers the judgment obligation of P63,000.00 as mentioned in the writ of
execution, then, we see no valid reason for the private respondent to have refused acceptance of the payment of
the obligation in his favor.

CHECKS: Presentment for Payment

PHILIPPINE AIRLINES, INC v. HON. COURT OF APPEALS, HON. JUDGE RICARDO D. GALANO,
Court of First Instance of Manila, Branch XIII, JAIME K. DEL ROSARIO, Deputy Sheriff, Court of
First Instance, Manila, and AMELIA TAN

G.R. No. L-49188, January 30, 1990

 GUTIERREZ, JR., J.

FACTS:

Amelia Tan commenced a complaint for damages before the CFI against Philippine Airlines, Inc.(PAL).
CFI rendered a judgment in favor of Tan. PAL filed its appeal with the CA, and the CA affirmed the judgment
of the lower court with the modification that PAL is condemned to pay the sum of P25, 000.00 as damages.
Judgment became final and executory. The trial court upon the motion of Amelia Tan issued an order of
execution with the corresponding writ in favor of Tan. Said writ was duly referred to Deputy Sheriff Reyes for
enforcement.

Four months later, Amelia Tan moved for the issuance of an alias writ of execution, stating that the
judgment remained unsatisfied. PAL opposed the motion, stating that it had already fully paid its obligation
through the issuance of checks payable to the deputy sheriff who later did not appear with his return and instead
absconded. PAL filed an urgent motion to quash the alias writ of execution stating that no return of the writ had
as yet been made by Deputy Sheriff Reyes and that judgment debt had already been fully satisfied by the former
as evidenced by the cash vouchers signed and received by the executing sheriff.

ISSUE:

Is the payment made in checks to the sheriff and under his name a valid payment to extinguish judgment
of debt of PAL?

RULING:

No. Article 1249 of the Civil Code provides: “The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender
in the Philippines”.

Unless authorized to do so by law or by consent of the obligee, a public officer has no authority to
accept anything other than money in payment of an obligation under a judgment being executed. Strictly
speaking, the acceptance by the sheriff of the petitioner’s checks does not, per se, operate as a discharge of the
judgment of debt. A check, whether manager’s check or ordinary check, is not legal tender, and an offer of a
check in payment of a debt is not a valid tender or payment and may be refused receipt by the creditor. Hence,
the obligation is not extinguished.

CHECKS: Presentment for Payment

SECURITY BANK AND TRUST COMPANY v. RIZAL COMMERCIAL BANKING CORPORATION

(RCBC)

G.R. No. 170984, January 30, 2009

QUISUMBING, Acting C.J.

FACTS:

Security Bank and Trust Company (SBTC) issued a managers check for P8 million, payable to CASH,
as proceeds of the loan granted to Guidon Construction and Development Corporation (GCDC). On the same
day, the P8-million check, along with other checks, was deposited by Continental Manufacturing Corporation
(CMC) in its Current Account with RCBC. Immediately, RCBC honored the P8-million check and allowed
CMC to withdraw the same. On the next banking day, GCDC issued a Stop Payment Order to SBTC, claiming
that the check was released to a third party by mistake. Consequently, SBTC dishonored and returned the
manager’s check to RCBC. Thereafter, the check was returned back and forth between the two banks, resulting
in automatic debits and credits in each banks clearing balance.

RCBC filed a complaint for damages against SBTC. RCBC avers that the manager’s check issued by
SBTC is substantially as good as the money it represents because by its peculiar character, its issuance has the
effect of an advance acceptance. RCBC claims that it is a holder in due course when it credited the P8-million
manager’s check to CMC’s account. On the other hand, SBTC contends that RCBC violated Monetary Board
Resolution No. 2202 of the Central Bank mandating all banks to verify the genuineness and validity of all
checks before allowing drawings of the same. SBTC insists that RCBC should bear the consequences of
allowing CMC to withdraw the amount of the check before it was cleared.

ISSUE:

Is SBTC liable on its manager’s check?

RULING:

Yes. The questioned check issued by SBTC is not just an ordinary check but a manager’s check. A
manager’s check is one drawn by a bank’s manager upon the bank itself. It stands on the same footing as a
certified check, which is deemed to have been accepted by the bank that certified it. As the bank’s own check, a
manager’s check becomes the primary obligation of the bank and is accepted in advance by the act of its
issuance. In this case, RCBC, in immediately crediting the amount of P8 million to CMCs account, relied on the
integrity and honor of the check as it is regarded in commercial transactions. Where the questioned check,
which was payable to Cash, appeared regular on its face, and the bank found nothing unusual in the transaction,
as the drawer usually issued checks in big amounts made payable to cash, RCBC cannot be faulted in paying the
value of the questioned check. SBTC cannot escape liability by invoking Monetary Board Resolution No. 2202.

CHECKS: Presentment for Payment

NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA v. THE HONORABLE COURT OF APPEALS and
EDEN TAN

G.R. No. 100290, June 4, 1993

PADILLA, J.

FACTS:

A suit for collection of sum of money was ruled in favor of Eden Tan and against the spouses Norberto
Jr. and Carmen Tibajia. After the decision was made final, Tan filed a motion for execution and levied upon the
garnished funds which were deposited by the spouses with the cashier of the Regional Trial Court of Pasig. The
spouses, however, delivered to the deputy sheriff the total money judgment in the form of Cashier’s Check
(P262,750) and Cash (P135,733.70). Tan refused the payment and insisted upon the garnished funds to satisfy
the judgment obligation.

The spouses filed a motion to lift the writ of execution on the ground that the judgment debt had already
been paid. The motion was denied.

ISSUE:

Is the payment by means of a cashier’s check considered payment in legal tender?

RULING:

No. A check, whether a manager’s check or ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. A
check is not legal tender and that a creditor may validly refuse payment by check, whether it be a manager’s,
cashier’s or personal check.

The Supreme Court stressed that, “We are not, by this decision, sanctioning the use of a check for the
payment of obligations over the objection of the creditor.”

CHECKS: Presentment for Payment – Time

THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES) v. SPS.
FRANCIS S. GUECO and MA. LUZ E. GUECO

G.R. No. 141968, February 12, 2001

KAPUNAN, J.

FACTS:

The respondents Gueco Spouses obtained a loan from petitioner International Corporate Bank to
purchase a car. In consideration thereof, the Spouses executed promissory notes which were payable in monthly
installments and chattel mortgage over the car to serve as security for the notes. The Spouses defaulted in
payment of installments. Consequently, the Bank filed a civil action for "Sum of Money with Prayer for a Writ
of Replevin" before the MeTC of Pasay, City. Desi Tomas, the Bank's Assistant Vice President demanded
payment of the amount of P184,000.00 which represents the unpaid balance for the car loan. After some
negotiations and computation, the amount was lowered to P154,000.00 which amount was further reduced after
a renegotiation to P 150,000.00. Dr. Gueco delivered a manager's check representing the reduced amount of
P150,000.00. However, since Dr. Gueco refused to sign the joint motion to dismiss, he was made to execute a
statement to the effect that he was withholding the payment of the check. Subsequently, in a letter addressed to
the bank, Dr. Gueco instructed the bank to disregard the hold order letter and demanded the immediate release
of his car, to which the former replied that the condition of signing the joint motion to dismiss must be satisfied
and that they had kept the check which could be claimed by Dr. Gueco anytime. While the controversy
continues, it appears from the pleadings that said check has not been en-cashed and become stale.

ISSUE:

Should the bank bear the loss because the check had become stale due to the failure of presentment?
RULING:

No. A stale check is one which has not been presented for payment within a reasonable time after its
issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments law, when the
instrument is payable on demand, presentment must be made within a reasonable time after its issue. In
determining what is a "reasonable time," regard is to be had to the nature of the instrument, the usage of trade or
business with respect to such instruments, and the facts of the particular case. The test is whether the payee
employed such diligence as a prudent man exercises in his own affairs. This is because the nature and theory
behind the use of a check points to its immediate use and payability.

In a case, a check payable on demand which was long overdue by about two and a half years was
considered a stale check. Failure of a payee to encash a check for more than ten (10) years undoubtedly resulted
in the check becoming stale. Thus, even a delay of one week or two days, under the specific circumstances of
the cited cases constituted unreasonable time as a matter of law.

In the case at bar, however, the check involved is not an ordinary bill of exchange but a manager's check.
A manager's check is one drawn by the bank's manager upon the bank itself. It is similar to a cashier's check
both as to effect and use. A cashier's check is a check of the bank's cashier on his own or another check. In
effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance by
the act of its issuance. It is really the bank's own check and may be treated as a promissory note with the bank as
a maker. The check becomes the primary obligation of the bank which issues it and constitutes its written
promise to pay upon demand. The mere issuance of it is considered an acceptance thereof. If treated as
promissory note, the drawer would be the maker and in which case the holder need not prove presentment for
payment or present the bill to the drawee for acceptance.
CHECKS: Presentment for Payment – Effect of Delay

THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES) v. SPS.
FRANCIS S. GUECO and MA. LUZ E. GUECO

G.R. No. 141968, February 12, 2001

KAPUNAN, J.

FACTS:

The respondents Gueco Spouses obtained a loan from petitioner International Corporate Bank to
purchase a car. In consideration thereof, the Spouses executed promissory notes which were payable in monthly
installments and chattel mortgage over the car to serve as security for the notes. The Spouses defaulted in
payment of installments. Consequently, the Bank filed a civil action for "Sum of Money with Prayer for a Writ
of Replevin" before the MeTC of Pasay, City. Desi Tomas, the Bank's Assistant Vice President demanded
payment of the amount of P184,000.00 which represents the unpaid balance for the car loan. After some
negotiations and computation, the amount was lowered to P154,000.00 which amount was further reduced after
a renegotiation to P 150,000.00. Dr. Gueco delivered a manager's check representing the reduced amount of
P150,000.00. However, since Dr. Gueco refused to sign the joint motion to dismiss, he was made to execute a
statement to the effect that he was withholding the payment of the check. Subsequently, in a letter addressed to
the bank, Dr. Gueco instructed the bank to disregard the hold order letter and demanded the immediate release
of his car, to which the former replied that the condition of signing the joint motion to dismiss must be satisfied
and that they had kept the check which could be claimed by Dr. Gueco anytime. While the controversy
continues, it appears from the pleadings that said check has not been en-cashed and become stale.

ISSUE:

Did the check in question become stale due to the delay in presentment?

RULING:

No. In the case at bar, even assuming that presentment is needed, failure to present for payment within a
reasonable time will result to the discharge of the drawer only to the extent of the loss caused by the delay.
Failure to present on time, thus, does not totally wipe out all liability. In fact, the legal situation amounts to an
acknowledgment of liability in the sum stated in the check. In this case, the Gueco spouses have not alleged,
much less shown that they or the bank which issued the manager's check has suffered damage or loss caused by
the delay or non-presentment. Definitely, the original obligation to pay certainly has not been erased. It has been
held that, if the check had become stale, it becomes imperative that the circumstances that caused its non-
presentment be determined. In the case at bar, there is no doubt that the petitioner bank held on the check and
refused to encash the same because of the controversy surrounding the signing of the joint motion to dismiss.
The Court sees no bad faith or negligence in this position taken by the Bank.

CHECKS

BATAAN CIGAR AND CIGARETTE FACTORY, INC. v. THE COURT OF APPEALS and STATE
INVESTMENT HOUSE, INC.
 G.R. No. 93048, March 3, 1994
NOCON, J.

FACTS:

Bataan Cigar & Cigarette Factory, Inc. (BCCFI), engaged with King Tim Pua George, to deliver 2,000
bales of tobacco leaf. BCCFI issued post dated crossed checks in exchange. Trusting King's words, BCCFI
issued another post-dated cross check for another purchase of tobacco leaves. During these time, King was
dealing with State Investment House Inc. (SIHI). On two separate occasions, King sold the post-dated cross
checks to SIHI that was drawn by BCCFI in favor of King. Because King failed to deliver the leaves, BCFI
issued a stop payment to all the checks, including those sold to SIHI. The RTC held that SIHI had a valid claim
of being a holder in due course and to collect the checks issued by BCCFI.

ISSUE:

Is SIHI, a second indorser, a holder of crossed checks, is a holder in due course, to be able to collect
from the drawer, BCCFI?

RULING:

No. SIHI is not a holder in due course. It does not mean however, that respondent could not recover
from the checks. As a preliminary, a check is defined by law as a bill of exchange drawn on a bank payable on
demand. There are a variety of checks, the more popular of which are the memorandum check, cashier’s check,
traveler’s check and crossed check. Crossed check is one where two parallel lines are drawn across its face or
across a corner thereof. It may be crossed generally or specially. A check is crossed specially when the name of
a particular banker or a company is written between the parallel lines drawn. It is crossed generally when only
the words “and company” are written or nothing is written at all between the parallel lines. It may be issued so
that presentment can be made only by a bank. In order to preserve the credit worthiness of checks, jurisprudence
has pronounced that crossing of a check should have the following effects: (a) it cannot be en-cashed but only
deposited in a bank; (b) it can only be negotiated on its respective bank once; (c) it serves as a warning to the
holder that it has been issued for a definite purpose thus making SIHI not a holder in due course.

It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the duty
to ascertain the indorser’s title to the check or the nature of his possession. Failing in this respect, the holder is
declared guilty of gross negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of the
Negotiable Instruments Law, and as such the consensus of authority is to the effect that the holder of the check
is not a holder in due course.

CHECKS

EQUITABLE PCI BANK (the Banking Entity into which Philippine Commercial International Bank was
merged) v. ROWENA ONG

G.R. No. 156207, September 15, 2006

CHICO-NAZARIO, J.

FACTS:

Warliza Sarande deposited in her account at Philippine Commercial International Bank a check in the
amount of P225,000.00. Sarande was then informed that said check has been cleared. Relying on such
assurance, she issued two (2) checks where one was issued to respondent Rowena Ong owing to a business
transaction. The latter then requested PCI Bank to convert the proceeds thereof into a manager's check, which
the PCI Bank obliged. When Ong deposited the manager's check in her account with Equitable Banking
Corporation, she received a check return-slip informing her that PCI Bank had stopped the payment of the said
check on the ground of irregular issuance. Ong then filed a complaint for sum of money against herein
petitioner. Petitioner countered that the check was returned as the account against which it was drawn was
already closed.

ISSUE:

Is petitioner Bank liable to pay the questioned check?

RULING:

Yes. By admitting it committed an error, clearing the manager's check of Sarande and issuing in favor of
Ong not just any check but a manager's check for that matter, PCI Bank's liability is fixed. Since the Bank had
certified that check, such certification is equivalent to acceptance and petitioner bank as drawee bank is bound
on the instrument upon certification and it is immaterial to such liability in favor of the plaintiff who is a holder
in due course whether the drawer had funds or not with the defendant-bank or the drawer was indebted to the
bank for more than the amount of the check. Therefore, when the aforementioned check was endorsed and
presented by the plaintiff and certified to and accepted by defendant-bank in the purchase of PCIB Manager's
Check No. 1983 in the amount ofP132,000.00, there was a valid consideration. Moreover, what Ong obtained
from PCI Bank was not just any ordinary check but a manager's check. A manager's check is an order of the
bank to pay, drawn upon itself, committing in effect its total resources, integrity and honor behind its issuance.
By its peculiar character and general use in commerce, a manager's check is regarded substantially to be as good
as the money it represents. A manager's check stands on the same footing as a certified check. The effect of
certification is found in Section 187, Negotiable Instruments Law which provides: "Where a check is certified
by the bank on which it is drawn, the certification is equivalent to an acceptance." By accepting said check and
issuing in turn a manager's check in exchange thereof, PCI Bank assumed the liabilities of an acceptor under
Section 62 of the Negotiable Instruments Law.

CHECKS

NEW PACIFIC TIMBER & SUPPLY COMPANY, INC. v. HON. ALBERTO V. SENERIS, RICARDO A.
TONG and EX-OFFICIO SHERIFF HAKIM S. ABDULWAHID

G.R. No. L-41764, December 19, 1980

CONCEPCION JR., J.

FACTS:

In a case for collection of sum of money filed by Ricardo Tong against New Pacific Timber, a
compromise judgment was rendered against the latter. For its failure to comply with judgment obligation, a writ
of execution was issued for the amount of P63,130.00 pursuant to which, the Ex-Officio Sheriff levied on the
personal properties of the petitioner.

Before the date of the auction sale, petitioner deposited with the Clerk of Court in his capacity as the Ex-
Officio Sheriff P50,000.00 in Cashier's Check of the Equitable Banking Corporation and P13,130.00 in cash.
Private respondent refused to accept the check and the cash and requested for the auction sale to proceed. The
properties were sold for P50,000.00 to the highest bidder with a deficiency of P13,130.00.

New Pacific subsequently filed an ex-parte motion for issuance of certificate of satisfaction of judgment
which was denied by the respondent Judge. Hence this present this petition, alleging that the respondent Judge
abused his discretion in not granting the requested motion for the reason that the judgment obligation was fully
satisfied before the auction sale with the deposit made by the petitioner to the Ex-Officio Sheriff.

ISSUE:

Can the respondent validly refuse acceptance of the payment of the judgment obligation in cashier’s
check which it deposited with the sheriff before the date of the scheduled auction sale?

RULING:

No. It is to be emphasized in this connection that the check deposited by the petitioner in the amount of
P50, 000.00 is not an ordinary check but a Cashier’s Check of the Equitable Banking Corporation, a bank of
good standing and reputation. As testified to by the Ex-Officio Sheriff with whom it has been deposited, it is a
certified crossed check. It is a well-known and accepted practice in the business sector that a Cashier’s Check is
deemed as cash. Moreover, since the said check had been certified by the drawee bank, by the certification, the
funds represented by the check are transferred from the credit of the maker to that of the payee or holder, and
for all intents and purposes, the latter becomes the depositor of the drawee bank, with rights and duties of one in
such situation.

CHECKS

MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte v. A.U. VALENCIA and CO.
INC., FELIX PEÑARROYO, SPS. ARSENIO B. REYES & AMANDA SANTOS, and DELFIN JAO

G.R. No. 105188, January 23, 1998

KAPUNAN, J.

FACTS:

A.U. Valencia and Felix Penarroyo filed a complaint for specific performance against Myron Papa in his
capacity as administrator of the Testate Estate of Angela Butte. Papa sold to Penarroyo a parcel of land; prior to
the sale of the said land, the lot was mortgaged to the Associated Banking Corporation which refused to release
it until all the other mortgaged properties of Butte were also redeemed. Penarroyo then caused the annotation on
the title of the lot his rights and interests over the property. The trial court rendered a decision in favor of
Penarroyo and Valencia. Upon Appeal to the CA, Papa alleged that the sale was never “consummated” as he did
not encash the check paid by Penarroyo. Hed maintained that the payment made was only in the amount of
P5,000.00 in cash as earnest money. This appeal was however dismissed.

ISSUE:

Was the sale consummated?

RULING:

Yes. It is an undisputed fact that Valencia and Peñarroyo had given Papa the amounts in cash and in
check as payment of the purchase price of the subject lot. Papa himself admits having received said amounts,
and having issued receipts therefor. Granting that petitioner had never encashed the check, his failure to do so
for more than ten (10) years undoubtedly resulted in the impairment of the check through his unreasonable and
unexplained delay. While it is true that the delivery of a check produces the effect of payment only when it is
cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditor's
unreasonable delay in presentment. It has been held that if no presentment is made at all, the drawer cannot be
held liable irrespective of loss or injury unless presentment is otherwise excused. This is in harmony with
Article 1249 of the Civil Code under which payment by way of check or other negotiable instrument is
conditioned on its being cashed, except when through the fault of the creditor, the instrument is impaired. The
payee of a check would be a creditor under this provision and if its no-payment is caused by his negligence,
payment will be deemed effected and the obligation for which the check was given as conditional payment will
be discharged. Considering that respondents Valencia and Peñ arroyo had fulfilled their part of the contract of
sale by delivering the payment of the purchase price, said respondents, therefore, had the right to compel
petitioner to deliver to them the owner's duplicate of TCT No. 28993 of Angela M. Butte and the peaceful
possession and enjoyment of the lot in question.

CHECKS

PHILIPPINE NATIONAL BANK v. THE NATIONAL CITY BANK OF NEW YORK, and MOTOR
SERVICE COMPANY, INC.,

G.R. No. L-43596, October 31, 1936

RECTO, J.

FACTS:

On 7 and 9 April 1933, unknown persons negotiated with defendant Motor Service Company, Inc.
(MSCI) checks in payment for automobile tires purchased from them alleging to have been issued by the
manager and Treasurer of Pangasinan Transportation Co. Inc. (PTCI), J.L. Klar against PNB in favor of
International Auto Repair Shop for P144.50 and P215.75. Said checks were indorsed by MSCI believing that
the signatures of J.L. Klar were genuine. MSCI indorsed said checks for deposit at the National City Bank of
New York (NCBNY) and was credited with the respective amounts thereof. Said checks were then cleared and
PNB credited NCBNY for the same amounts. PNB later found out that the alleged signatures of J.L. Klar were
forged and thereafter informed MSCI of such and demanded for the reimbursement of the amounts credited to
their account through NCBNY, to which both defendants refused. PTCI likewise objected to have the proceeds
deducted from their deposit.

ISSUE:

Can PNB recover from NCBNY the value of the checks on which the signatures of the drawer was
forged?

RULING:

Yes. A check is a bill of exchange payable on demand and only the rules governing bills of exchanges
payable on demand are applicable to it. In view of the fact that acceptance is a step necessary insofar as
negotiable instruments are concerned, it follows that the provisions relative to acceptance are without
application to checks. Acceptance implies subsequent negotiation of the instrument, which is not true in the case
of checks because from the moment it is paid, it is withdrawn from circulation. When the drawee banks cashes
or pays a check, the cycle of negotiation is terminated and it is illogical thereafter to speak of subsequent
holders who can invoke the warrant against the drawee. Further, in determining the relative rights of a drawee
who under a mistake of fact, has paid, a holder who has received such payment, upon a check to which the
name of the drawer has been forged, it is only fair to consider the question of diligence and negligence of the
parties in respect thereto. The responsibility of the drawee who pays a forged check, for the genuineness of the
drawer’s signature is absolute only in favor of one who has not, by his own fault or negligence, contributed to
the success of the fraud or to mislead the drawee. According to the undisputed facts, NCBNY in purchasing the
papers in question from unknown persons without making any inquiry as to the identity and authority of said
persons negotiating and indorsing them, acted negligently and contributed to the constructive loss of PNB in
failing to detect the forgery.

CHECKS

SECURITY BANK AND TRUST COMPANY v. RIZAL COMMERCIAL BANKING CORPORATION

G.R. No. 170984, January 30, 2009

QUISUMBING, Acting C.J.

FACTS:

Security Bank and Trust Company (SBTC) issued a manager’s check for 8 million pesos, payable to
cash, as proceeds of the loan granted to Guidon Construction Development Corporation (GCDC). On the same
day, the same check was deposited by Continental Manufacturing Corporation (CMC) in its current account
with Rizal Commercial Banking Corporation (RCBC). RCBC immediately honoured the 8 million pesos check
and allowed CMC to withdraw the same. The next day, GCDC issued a stop payment order to SBTC claiming
that the check was released to a third party by mistake. Consequently, SBTC dishonoured and returned the
manager’s check to RCBC. Thereafter, the check was returned back and forth between the two banks resulting
in automatic debits and credits in each banks’ clearing balance. RCBC then filed a complaint for damages
against SBTC. RCBC claims it is a holder in due course. SBTC contended that all banks are mandated to verify
the genuineness and validity of all checks before allowing drawings of the same. Thus RCBC should bear the
consequences.

ISSUE:

Is SBTC liable on the manager’s check it issued?

RULING:

YES. It must be noted that the questioned check issued by SBTC is not just an ordinary check but a
manager’s check. A manager’s check is one drawn by a bank’s manager upon the bank itself. It stands on the
same footing as a certified check, which is deemed to have been accepted by the bank that certified it. As the
bank’s own check, a manager’s check becomes the primary obligation of the bank and is accepted in advance by
the act of its issuance.

SBTC cannot escape liability by invoking Monetary Board Resolution No. 2202 dated December 21,
1979, prohibiting drawings against uncollected deposits. SBTC’s liability as drawer remains the same − by
drawing the instrument, it admits the existence of the payee and his then capacity to indorse; and engages that
on due presentment, the instrument will be accepted, or paid, or both, according to its tenor.

CHECKS

STATE INVESTMENT HOUSE v. INTERMEDIATE APPELLATE COURT, ANITA PEÑA CHUA and
HARRIS CHUA
 G.R. No. 72764, July 13, 1989
FERNAN, C.J.

FACTS:

Spouses Chua (private respondents) gave three (3) cross checks to New Sikatuna Wood Industries due to
the conditional loan requested by the latter. However, before the happening of this condition to perfect the
contract of loan, New Sikatuna entered to a check re-discounting agreement with herein petitioner State
Investment House which includes the 3 subject cross checks. These cross checks when presented was
dishonored for insufficiency of funds. Petitioner filed before the court for its payment. Spouses Chua then filed
a third party complaint against New Sikatuna.

ISSUE:

Is State Investment House a holder in due course of the 3 cross checks it acquired in a re-discounting
agreement issued in the name of New Sikatuna Wood Industry as payee?

RULING:

No. Relying on the ruling in Ocampo v. Gatchalian, the Intermediate Appellate Court, correctly
elucidated that the effects of crossing a check are: the check may not be en-cashed but only deposited in the
bank; the check may be negotiated only once to one who has an account with a bank; and the act of crossing the
check serves as a warning to the holder that the check has been issued for a definite purpose so that he must
inquire if he has received the check pursuant to that purpose, otherwise he is not a holder in due course. Further,
as the CA said: “It results therefore that when appellee re-discounted the check knowing that it was a crossed
check he was knowingly violating the avowed intention of crossing the check. Furthermore, his failure to
inquire from the holder, party defendant New Sikatuna Wood Industries, Inc., the purpose for which the three
checks were cross despite the warning of the crossing, prevents him from being considered in good faith and
thus he is not a holder in due course. Being not a holder in due course, plaintiff is subject to personal defenses,
such as lack of consideration between appellants and New Sikatuna Wood Industries.” The three subject checks
in the case at bar had been crossed generally and issued payable to New Sikatuna Wood Industries, Inc. which
could only mean that the drawer had intended the same for deposit only by the rightful person, i.e., the payee
named therein. Apparently, it was not the payee who presented the same for payment and therefore, there was
no proper presentment, and the liability did not attach to the drawer. Thus, in the absence of due presentment,
the drawer did not become liable. Consequently, no right of recourse is available to petitioner against the drawer
of the subject checks, private respondent wife, considering that petitioner is not the proper party authorized to
make presentment of the checks in question.

CHECKS

STELCO MARKETING CORPORATION v. HON. COURT OF APPEALS and STEELWELD

CORPORATION OF THE PHILIPPINES, INC.

G.R. No. 96160, June 17, 1992

NARVASA, C.J.

FACTS:

Stelco Marketing Corporation sold structural steel bars to RYL Construction Inc. RYL gave Stelco’s
“sister corporation,” Armstrong Industries, a MetroBank check from Steelweld Corporation. The check was
issued by Steelweld’s President to Romeo Lim, President of RYL, by way of accommodation, as a guaranty and
not in payment of an obligation. When Armstrong deposited the check at its bank, it was dishonored because it
was drawn against insufficient funds. When so deposited, the check bore two indorsements, i.e. RYL and
Armstrong. Subsequently, Stelco filed a civil case against RYL and Steelweld to recover the value of the steel
products.

ISSUE:

May Stelco be considered a holder of the check for value?

RULING:

What the record shows is that: (1) the STEELWELD company check in question was given by its
president to R.Y. Lim; (2) it was given only by way of accommodation, to be “used as collateral for another
obligation;” (3) in breach of the agreement, however, R.Y. Lim indorsed the check to Armstrong in payment of
an obligation; (4) Armstrong deposited the check to its account, after indorsing it; (5) the check was dishonored.
The record does not show any intervention or participation by STELCO in any manner or form whatsoever in
these transactions, or any communication of any sort between STEELWELD and STELCO, or between either of
them and Armstrong Industries, at any time before the dishonor of the check.

The record does show that after the check had been deposited and dishonored, STELCO came into
possession of it in some way, and was able, several years after the dishonor of the check, to give it in evidence
at the trial of the civil case it had instituted against the drawers of the check (Limson and Torres) and RYL. But,
as already pointed out, possession of a negotiable instrument after presentment and dishonor, or payment, is
utterly inconsequential; it does not make the possessor a holder for value within the meaning of the law; it gives
rise to no liability on the part of the maker or drawer and indorsers.

It is clear from the relevant circumstances that STELCO cannot be deemed a holder of the check for
value. It does not meet two of the essential requisites prescribed by the statute. It did not become “the holder of
it before it was overdue, and without notice that it had been previously dishonored,” and it did not take the
check “in good faith and for value.”

CHECKS

SINCERE Z. VILLANUEVA v. MARLYN P. NITE

G.R. No. 148211, July 25, 2006

CORONA, J.

FACTS:

Marlyn Nite took out a loan of P409,000 from Sincere Villanueva. Nite issued an Asian Bank
Corporation (ABC) check worth P325,500. The check was dishonored due to material alteration. Then,
throughNite's representative, she remitted P235,000 to Villanueva as partial payment. The other balance was to
be paid on a much later date.

A few days later, Villanueva filed an action for a sum of money and damages against ABC for the full
amount of the dishonored check. The RTC ruled in his favor but when Nite was to withdraw money from her
account, she was unable to do so because the RTC had ordered ABC to pay Villanueva the P325,000 check.

ABC then remitted to the sheriff the check which Villanueva received. Nite filed a petition to seek to
annul the RTC's decision. The CA held in favor Nite and was ordered to pay Nite a sum of money for extrinsic
fraud.
ISSUE:

Does Villanueva has a course of action against ABC?

RULING:

No, Villanueva cannot sue ABC.

Section 185of the Negotiable Instruments Law provides that “A check is a bill of exchange drawn on a
bank payable on demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of
exchange payable on demand apply to a check.”

Section 189 of the Negotiable Instruments law provides that “A check of itself does not operate as an
assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the
holder, unless and until it accepts or certifies the check.”

Invoking Sections 185 and 189 of the Negotiable Instruments Law, if a bank refuses to pay a check, the
payee-holder cannot sue the bank. the payee should instead sue the holder who might in turn sue the bank.
there is no privity of contract that exists between the drawee-bank and the payee.

LETTERS OF CREDIT

PRUDENTIAL BANK v. INTERMEDIATE APPELLATE COURT, PHILIPPINE RAYON MILLS, INC.

and ANACLETO R. CHI

G.R. No. 74886, December 8, 1992

DAVIDE, JR., J.

FACTS:

Philippine Rayon Mills, Inc. (PRMI) entered into a contract with Nissho Co., Ltd. of Japan for the
importation of textile machineries under a five-year deferred payment. To effect payment for said machineries,
PRMI applied for a commercial letter of credit with the Prudential Bank and Trust Company in favor of Nissho.
Against this letter of credit, drafts were drawn and issued by Nissho, which were all paid by the Prudential Bank
through its correspondent in Japan, the Bank of Tokyo, Ltd. As indicated on their faces, two of these drafts were
accepted by PRMI through its president, Anacleto R. Chi, while the others were not. PRMI was able to take
delivery of the textile machineries and installed the same at its factory site. When the obligation of PRMI
arising from the letter of credit and the trust receipt remained unpaid and unliquidated, an action for the
collection was filed against PRMI and Anacleto R. Chi. Chi argued that presentment for acceptance was
necessary to make PRMI liable. The trial court ruled that that presentment for acceptance was an indispensable
requisite for Philippine Rayon’s liability on the drafts to attach. Intermediate Appellate Court also ruled that
with regard to the ten drafts which were not presented and accepted, no valid demand for payment can be made.

ISSUE:

Is presentment for acceptance of the drafts indispensable to make Philippine Rayon liable thereon?
RULING:

No. A letter of credit is defined as an engagement by a bank or other person made at the request of a
customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions
specified in the credit. Through a letter of credit, the bank merely substitutes its own promise to pay for one of
its customers who in return promises to pay the bank the amount of funds mentioned in the letter of credit plus
credit or commitment fees mutually agreed upon. In the instant case then, the drawee was necessarily the herein
petitioner. It was to the latter that the drafts were presented for payment. In fact, there was no need for
acceptance as the issued drafts are sight drafts. Presentment for acceptance is necessary only in the cases
expressly provided for in Section 143 of the Negotiable Instruments Law. Obviously then, sight drafts do not
require presentment for acceptance.

LETTERS OF CREDIT

BANK OF AMERICA, NT & SA v. COURT OF APPEALS, INTER-RESIN INDUSTRIAL

CORPORATION, FRANCISCO TRAJANO, JOHN DOE AND JANE DOE

G.R. No. 105395, December 10, 1993

VITUG, J.

FACTS:

Bank of America, NT & SA, Manila, received an Irrevocable Letter of Credit issued by Bank of
Ayudhya for the account of General Chemicals, Ltd., to cover the sale of plastic ropes and agricultural files with
Inter-Resin Industrial Corporation as beneficiary. Inter-Resin sought to make a partial availment under the letter
of credit by submitting to Bank of America invoices, covering the shipment of 24,000 bales of polyethylene
rope to General Chemicals the packing list, export declaration and bill of lading. Then, Bank of America issued
to Inter-Resin a Cashier's Check. The Bank of America wrote Bank of Ayudhya stating the availment under the
letter of credit and sought the corresponding reimbursement. The Bank of Ayudhya declared the letter of credit
fraudulent and Bank of America stopped the processing of Inter-Resin's documents. Sensing a fraud, Bank of
America sought the assistance of the National Bureau of Investigation. NBI discovered that the vans exported
by Inter-Resin did not contain ropes but plastic strips, wrappers, rags and waste materials. Bank of America
sued Inter-Resin for the recovery of the amount on partial availment of letter of credit.

ISSUE:

Did Bank of America warrant the genuineness and authenticity of the letter of credit and act merely as
an advising bank or as a confirming bank

RULING:

Bank of America has only been an advising, not confirming bank, and this much is clearly evident,
among other things, by the provisions of the letter of credit itself, the bank's letter of advice, its request for
payment of advising fee, and the admission of Inter-Resin that it has paid the same. Bank of America has asked
Inter-Resin to submit documents required by the letter of credit and eventually has paid the proceeds, did not
obviously make it a confirming bank. The fact that the draft required by the letter of credit is to be drawn under
the account of General Chemicals only means the same had to be presented to Bank of Ayudhya for payment.
The letter of credit is an engagement of the issuing bank, not the advising bank, to pay the draft. As an advising
or notifying bank, Bank of America did not incur any obligation more than just notifying Inter-Resin of the
letter of credit issued in its favor, let alone to confirm the letter of credit. Inter-Resin itself cannot claim to have
been all that free from fault. As the seller, the issuance of the letter of credit should have obviously been a great
concern to it. In the ordinary course of business, the perfection of contract precedes the issuance of a letter of
credit. As advising bank, Bank of America is bound only to check the "apparent authenticity" of the letter of
credit, which it did.

LETTERS OF CREDIT

CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD VELASCO and
ALFONSO CO v. COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS

G.R. No. 117913; G.R. NO. 117914, February 1, 2002

DE LEON, JR., J.

FACTS:

Charles Lee, as President of MICO wrote private respondent Philippine Bank of Communications
(PBCom) requesting for a grant of a discounting loan/credit line in the sum of P3,000,000.00 for the purpose of
carrying out MICO’s line of business as well as to maintain its volume of business. On the same day, Charles
Lee requested for another discounting loan/credit line of P3,000,000.00 from PBCom for the purpose of
opening letters of credit and trust receipts. Another loan of P1,000,000.00 was availed of by MICO from
PBCom which was likewise later on renewed. Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and
Richard Velasco, in their personal capacities executed a Surety Agreement in favor of PBCom whereby the
petitioners jointly and severally, guaranteed the prompt payment on due dates or at maturity of overdrafts,
promissory notes, discounts, drafts, letters of credit, bills of exchange, trust receipts, and other obligations of
every kind and nature, for which MICO may be held accountable by PBCom. Charles Lee, in his capacity as
president of MICO, wrote PBCom and applied for an additional loan in the sum of P4,000,000.00. Upon
approval of the said application for loan, MICO availed of the additional loan of P4,000,000.00. To secure the
trust receipts transactions, MICO and Lee executed a real estate mortgage in favor of PBCOM over several
properties it owns. Upon maturity of all credit availments obtained by MICO from PBCom, the latter made a
demand for payment. For failure of petitioner MICO to pay the obligations incurred despite repeated demands,
PBCom extrajudicially foreclosed MICO’s real estate mortgage and sold the said mortgaged properties in a
public auction sale.

ISSUE:

Are the subject letters of credit negotiable instruments?

RULING:

No, the subject letters of credit are not negotiable instruments. Negotiable instruments which are meant
to be substitutes for money, must conform to the following requisites to be considered as such a) it must be in
writing; b) it must be signed by the maker or drawer; c) it must contain an unconditional promise or order to pay
a sum certain in money; d) it must be payable on demand or at a fixed determinable future time; e) it must be
payable to order or bearer; and f) where it is a bill of exchange, the drawee must be named or otherwise
indicated with reasonable certainty. Negotiable instruments include promissory notes, bills of exchange and
checks. Letters of credit and trust receipts are, however, not negotiable instruments. But drafts issued in
connection with letters of credit are negotiable instruments.

LETTERS OF CREDIT
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM v. HON. REYNALDO B. DAWAY, in
his capacity as Presiding Judge of the Regional Trial Court of Quezon City, Branch 90 and Maynilad
Water Services, Inc.

G.R. No. 160732, June 21, 2004

AZCUNA, J.

FACTS:

MWSS entered into a Concession Agreement with Maynilad for twenty-year period to manage, operate,
repair, decommission and refurbish the existing MWSS water delivery and sewerage services. Maynilad was
required to put up a security acceptable to MWSS. In compliance, Maynilad arranged for a three-year facility
led by Citicorp International Limited, for the issuance of an Irrevocable Standby Letter of Credit in the amount
of US$120,000,000 in favor of MWSS. Maynilad requested MWSS for a mechanism to recover the losses it had
allegedly incurred. Failing to get what it desired, Maynilad issued a Force Majeure Notice and unilaterally
suspended the payment of the concession fees. Thereafter, the parties entered into a Memorandum of Agreement
wherein Maynilad was allowed to recover foreign exchange losses. Maynilad again filed another Force Majeure
Notice which but to no avail. This resulted in the amendment of the Concession Agreement. However, Maynilad
served upon MWSS a Notice of Event of Termination, claiming that MWSS failed to comply with its
obligations. In relation to such, Maynilad is required to pay the concession fees that had fallen due. MWSS,
thereafter, notified Citicorp International Limited, as agent for the participating banks, that it was drawing on
the Irrevocable Standby Letter of Credit and thereby demanded payment.

ISSUE:

Is the obligation of Maynilad and the banks solidary in nature?

RULING:

Yes. The terms of the Irrevocable Standby Letter of Credit do not show that the obligations of the banks
are not solidary with those of Maynilad. On the contrary, it is issued at the request of and for the account of
Maynilad Water Services, Inc., in favor of the Metropolitan Waterworks and Sewerage System, as a bond for the
full and prompt performance of the obligations by the concessionaire under the Concession Agreement and
herein MWSS is authorized by the banks to draw on it by the simple act of delivering to the agent a written
certification substantially in the form Annex B of the Letter of Credit. Taking into consideration our own rulings
on the nature of letters of credit and the customs and usage developed over the years in the banking and
commercial practice of letters of credit, we hold that except when a letter of credit specifically stipulates
otherwise, the obligation of the banks issuing letters of credit are solidary with that of the person or entity
requesting for its issuance, the same being a direct, primary, absolute and definite undertaking to pay the
beneficiary upon the presentation of the set of documents required therein.
LETTERS OF CREDIT

KENG HUA PAPER PRODUCTS CO. INC. v. COURT OF APPEALS; REGIONAL TRIAL COURT OF
MANILA, BR. 21; and SEA-LAND SERVICE, INC.

G.R. No. 116863, February 12, 1998

PANGANIBAN, J.

FACTS:

Plaintiff is a foreign shipping corporation licensed to do business in the Philippines. On June 29, 1982,
the carrier, Private Respondent Sea-land Service, Inc., received at its Hong Kong terminal a sealed container
containing seventy-six bales of “unsorted waste paper” for shipment to consignee, Petitioner Keng Hua Paper
Products, Co. in Manila. The shipment was covered by a bill of lading which the consignee received
immediately after arrival but it refused to accept the shipment because the merchandise was in excess of 10
metric tons. The shipment was discharged at the Manila International Container Port. However, the consignee
failed to discharge the shipment from the container during the grace period despite notices of arrival. The
shipment remained inside the shipper’s container for four hundred eighty-one (481) days – from the moment the
grace period expired until the time when the shipment was unloaded from the container. During the 481-day
period, demurrage charges accrued. Meanwhile, the shipper demanded payment but the consignee refused to
settle its obligation.

ISSUE:

Is a bill of lading separate and independent from other letter of credit transactions?

RULING:

Yes. In a letter of credit, there are three distinct and independent contracts: (1) the contract of sale
between the buyer and the seller, (2) the contract of the buyer with the issuing bank, and (3) the letter of credit
proper in which the bank promises to pay the seller pursuant to the terms and conditions stated therein. Few
things are more clearly settled in law than that the three contracts which make up the letter of credit
arrangement are to be maintained in a state of perpetual separation. A transaction involving the purchase of
goods may also require, apart from a letter of credit, a contract of transportation specially when the seller and
the buyer are not in the same locale or country, and the goods purchased have to be transported to the latter.
Hence, the contract of carriage, as stipulated in the bill of lading in the present case, must be treated
independently of the contract of sale between the seller and the buyer, and the contract for the issuance of a
letter of credit between the buyer and the issuing bank. As the bank cannot be expected to look beyond the
documents presented to it by the seller pursuant to the letter of credit, neither can the carrier be expected to go
beyond the representations of the shipper in the bill of lading and to verify their accuracy vis-a-vis the
commercial invoice and the letter of credit. Thus, the discrepancy between the amount of goods indicated in the
invoice and the amount in the bill of lading cannot negate petitioners obligation to private respondent arising
from the contract of transportation.
LETTERS OF CREDIT

BANK OF THE PHILIPPINE ISLANDS v. DE RENY FABRIC INDUSTRIES, INC., AURORA T.

TUYO and AURORA CARCERENY alias AURORA C. GONZALES

G.R. No. L-24821, October 16, 1970

CASTRO, J.

FACTS:

De Reny Fabric Industries (De Reny) purchased dyestuffs in a contract of sale of good from their foreign
supplier, J.B. Distributing company. In order to cover for the payments, De Reny applied for four commercial
letters of credit before Bank of Philippine Islands (BPI). In pursuance to banking procedures and the approval of
the application of De Reny, BPI issued four (4) irrevocable commercial letters of credit addressed to its bank in
the US with the authority to negotiate with J.B Distributing Company. As each shipment arrived in the
Philippines, De Reny made partial payments to the bank. However it was discontinued, when it was established
by chemical test conducted by National Science Development Board, that the goods arrived were colored chalk
instead of dyestuff. De Reny also refused to take possession of said goods which caused them to be deposited
with a bonded warehouse, hence the filing of complaint by BPI against De Reny. Defendant argues that it was
the duty of the correspondent bank of BPI in US to insure that the goods shipped und the L/C conformed with
the items appearing therein. With its failure, the bank does not have a cause of action against De Reny for the
defective delivery of the goods.

ISSUE:

Is De Reny liable under the Letter of Credit?

RULING:

Yes. There is a stipulation that the bank will not be liable for any defect in the goods, any delay in the
delivery, or any difference to the quantity or quality. But even without any stipulation, De Reny cannot shift the
burden of loss to BPI because of a violation on the contract of sale between J.B. Distributing Company. It was
incontrovertibly proven by the Bank during the trial that banks, in providing financing in international business
transactions such as those entered into by the defendant corporation, do not deal with the property to be
exported or shipped to the importer, but deal only with documents.

The existence of a custom in international banking and financing circles negating any duty on the part of
a bank to verify whether what has been described in letters of credits or drafts or shipping documents actually
tallies with what was loaded aboard ship, having been positively proven as a fact, the defendants are bound by
this established usage. Hence the Bank cannot be held liable. The courts ordered De Reny to pay their debt
accrued on the Letter of Credit and the Bonded Warehouse with interest.

LETTERS OF CREDIT

TRANSFIELD PHILIPPINES, INC. v. LUZON HYDRO CORPORATION, AUSTRALIA and NEW

ZEALAND BANKING GROUP LIMITED and SECURITY BANK CORPORATION

G.R. No. 146717, November 22, 2004

TINGA, J.

FACTS:

Transfield Philippines (Transfield) entered into a turn-key contract with Luzon Hydro Corp.
(LHC).Under the contract, Transfield were to construct a hydro-electric plants in Benguet and Ilocos. Transfield
was given the sole responsibility for the design, construction, commissioning, testing and completion of the
Project. The contract provides for a period for which the project is to be completed and also allows for the
extension of the period provided that the extension is based on justifiable grounds such as fortuitous event. In
order to guarantee performance by Transfield, two stand-by letters of credit were required to be opened. During
the construction of the plant, Transfield requested for extension of time citing typhoon and various disputes
delaying the construction. LHC did not give due course to the extension of the period prayed for but referred the
matter to arbitration committee. Because of the delay in the construction of the plant, LHC called on the stand-
by letters of credit. However, the demand was objected by Transfield on the ground that there is still pending
arbitration on their request for extension of time.

ISSUE:

Is the independence principle applicable in the case?

RULING:
 Yes. In commercial transactions, a letter of credit serves to reduce the risk of nonpayment of the
purchase price under the contract for the sale of goods. However, credits are also used in non-sale settings
where they serve to reduce the risk of nonperformance. This is the standby type, wherein the credit is payable
upon certification of a party's nonperformance of the agreement. The independence principle assures the seller
or the beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing
bank from determining whether the main contract is actually accomplished or not. The independence principle
liberates the issuing bank from the duty of ascertaining compliance by the parties in the main contract. As the
principles nomenclature clearly suggests, the obligation under the letter of credit is independent of the related
and originating contract. In the instant case, the right of LHC to call on the Securities was contractually rooted
and subject to the express stipulations in the Turnkey Contract. A careful perusal of the Turnkey Contract
reveals the intention of the parties to make the Securities answerable for the liquidated damages occasioned by
any delay on the part of petitioner. Thus, even without the use of the independence principle, the Turnkey
Contract itself bestows upon LHC the right to call on the Securities in the event of default.

LETTERS OF CREDIT

LAND BANK OF THE PHILIPPINES v. MONET’S EXPORT AND MANUFACTURING

CORPORATION, SPOUSES VICENTE V. TAGLE, SR. and MA. CONSUELO G. TAGLE

G.R. No. 161865, March 10, 2005

YNARES-SANTIAGO, J.

FACTS:

Land Bank and Monet’s executed an Export Packing Credit Line Agreement in which Monet was given
a credit line in the amount of P250,000, secured by the proceeds of its export letters of credit. The credit line
agreement was renewed and amended several times until it was increased to P5,000,000.00. Owing to the
continued failure and refusal of Monet, notwithstanding repeated demands to pay its indebtedness to Land
Bank, a complaint for collection of sum of money with prayer for preliminary attachment was filed by Land
Bank. Monet and the Tagle spouses filed their answer and alleged that Land Bank failed and refused to collect
the receivables on their export letter of credit against Wishbone Trading Company of Hong Kong, while it made
unauthorized payments on their import letter of credit to Beautilike (H.K.) Ltd.

ISSUE:

Does Land Bank, as the issuing bank in the Beautilike transaction involving an import letter of credit,
only deal with documents and it is not involved in the contract between the parties?

RULING:

Yes. The relationship between the beneficiary and the issuer of a letter of credit is not strictly
contractual, because both privity and a meeting of the minds are lacking. Thus, upon receipt by Land Bank of
the documents of title which conform with what the letter of credit requires, it is duty bound to pay the seller, as
it did in this case. In Transfield Philippines, Inc. v. Luzon Hydro Corporation, et al., we held that the
engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the required
documents are presented to it. The so-called independence principle assures the seller or the beneficiary of
prompt payment independent of any breach of the main contract and precludes the issuing bank from
determining whether the main contract is actually accomplished or not. For, if the letter of credit is drawable
only after the settlement of any dispute on the main contract entered into by the applicant of the said letter of
credit and the beneficiary, then there would be no practical and beneficial use for letters of credit in commercial
transactions.
 Thus, no fault or acts of mismanagement can be attributed to Land Bank relative to Monets import letter
of credit. Its actions find solid footing on the legal principles and jurisprudence earlier discussed. Consequently,
it was error for the trial court and for the Court of Appeals to grant opportunity losses to the respondents on this
account.

LETTERS OF CREDIT

FEATI BANK & TRUST COMPANY (now CITYTRUST BANKING CORPORATION) v. THE
COURT OF APPEALS, and BERNARDO E. VILLALUZ

G.R. No. 94209, April 30, 1991

GUTIERREZ, JR., J.

FACTS:

Bernardo E. Villaluz agreed to sell to Axel Christiansen lauan logs. The consignee, Hanmi Trade
Development, Ltd. made arrangements with the Security Pacific National Bank of Los Angeles, California to
issue Irrevocable Letter of Credit in favor of Villaluz. The letter of credit was mailed to the Feati Bank and Trust
Company with the instruction that it be accompanied by specific documents. However, one of the needed
documents- certification by Christiansen, was not presented. As such, Feati Bank refused to advance the
payment on the letter of credit. Since the demands by the private respondent for Christiansen to execute the
certification proved futile, Villaluz, instituted an action for mandamus and specific performance against
Christiansen and the Feati Bank.

ISSUE:

Is the correspondent bank liable under the letter of credit despite non-compliance by the beneficiary with
the terms thereof?

RULING:

No. In commercial transactions involving letters of credit, the documents tendered must strictly conform
to the terms of the letter of credit. Under the Uniform Customs and Practice for Documentary Credit, the bank
may only negotiate, accept or pay, if the documents tendered to it are on their face in accordance with the terms
and conditions of the documentary credit. The absence of any document required in the documentary credit
justifies the refusal by the correspondent bank to negotiate, accept or pay the beneficiary, as it is not its
obligation to look beyond the documents. It merely has to rely on the completeness of the documents tendered
by the beneficiary. In commercial transactions involving letters of credit, the functions assumed by a
correspondent bank are classified according to the obligations taken up by it. The correspondent bank may be
called a notifying bank, a negotiating bank, or a confirming bank. In case of a notifying bank, the correspondent
bank assumes no liability except to notify and/or transmit to the beneficiary the existence of the letter of credit.
Since the petitioner was only a notifying bank, its responsibility was solely to notify and/or transmit the
documentary of credit to the private respondent and its obligation ends there. At the most, when the petitioner
extended the loan to the private respondent, it assumed the character of a negotiating bank. Even then, the
petitioner will still not be liable, for a negotiating bank before negotiation has no contractual relationship with
the seller. Whether therefore the petitioner is a notifying bank or a negotiating bank, it cannot be held liable.

LETTERS OF CREDIT
 THE HONGKONG & SHANGHAI BANKING CORPORATION, LIMITED v. NATIONAL STEEL
CORPORATION and CITYTRUST BANKING CORPORATION (NOW BANK OF THE PHILIPPINE
ISLANDS)

G.R. No. 183486, February 24, 2016

JARDELEZA, J.

FACTS:

Respondent National Steel Corporation entered into an Export Sales Contract with Klockner East Asia
Limited on October 12, 1993. NSC sold 1,200 metric tons of prime cold rolled coils to Klockner under FOB ST
Iligan terms. In accordance with the requirements in the Contract, Klockner applied for an irrevocable letter of
credit with HSBC in favor of NSC as the beneficiary in the amount of US$468,000. On October 22, 1993,
HSBC issued an irrevocable and onsight letter of credit no. HKH 239409 (the Letter of Credit) in favor of NSC.
The Letter of Credit stated that it is governed by UCP 400. 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. The Letter
of Credit was amended twice to reflect changes in the terms of delivery. The cargo arrived in Hongkong on
November 25, 1993. NSC coursed the collection of its payment from Klockner through CityTrust Banking
Corporation. NSC had earlier obtained a loan from CityTrust secured by the proceeds of the Letter of Credit
issued by HSBC.

Klockner persisted in its refusal to pay. Thus, HSBC returned the documents to CityTrust. In a letter
accompanying the returned documents, HSBC stated that it considered itself discharged of its duty under the
transaction. In response, CityTrust stated that it is "no longer possible for beneficiary to wait for you to get paid
by applicant." Disagreeing with HSBC's position, CityTrust insisted that HSBC should pay it in accordance
with the terms of the Letter of Credit which it issued on October 22, 1993. Meanwhile, NSC sent a letter to
HSBC where it, for the first time, demanded payment under the Letter of Credit. Its demands were made after
approximately four months from the expiration of the Letter of Credit. Unable to collect from HSBC, NSC filed
a complaint against it for collection of sum of money. The RTC rendered a decision ruling that HSBC is not
liable to pay NSC the amount stated in the Letter of Credit. The CA reversed the ruling of the trial court.

ISSUE:

Who among the parties bears the liability to pay the amount stated in the Letter of Credit?

RULING:

Letters of credit are governed primarily by their own provisions, by laws specifically applicable to them,
and by usage and custom. Applying this set of laws and rules, HSBC is liable under the provisions of the Letter
of Credit, in accordance with usage and custom as embodied in UCP 400, and under the provisions of general
civil law. From the moment that HSBC agreed to the terms of the Letter of Credit - which states that UCP 400
applies - its actions in connection with the transaction automatically became bound by the rules set in UCP 400.
Thus, when CityTrust forwarded the Letter of Credit with the attached documents to HSBC, it had the duty to
make a determination of whether its obligation to pay arose by properly examining the documents. It is
significant to stress that an irrevocable letter of credit cannot, during its lifetime, be cancelled or modified
without the express permission of the beneficiary. Not even partial payment of the obligation by the applicant-
buyer would amend or modify the obligation of the issuing bank. The subsequent correspondences of CityTrust
to HSBC, thus, could not in any way affect or amend the letter of credit, as it was not a party thereto. As a
notifying bank, it has nothing to do with the contract between the issuing bank and the buyer regarding the
issuance of the letter of credit.
 Notwithstanding any statements by CityTrust in the Collection Order as to the applicable rules, HSBC
had the independent duty of ascertaining whether the presentment of the Letter of Credit and the attached
documents gave rise to an obligation which it had to Klockner (its client) and NSC (the beneficiary). A bank
exercising the appropriate degree of diligence would have, at the very least, inquired if NSC was seeking
payment under the Letter of Credit or merely seeking collection under URC 322. In failing to do so, HSBC fell
below the standard of care imposed upon it. CityTrust's presentment of the Letter of Credit with the attached
documents in behalf of NSC, constitutes due presentment. HSBC's persistent refusal to comply with its
obligation notwithstanding due presentment constitutes delay contemplated in Article 1169 of the Civil Code.

In transactions where the letter of credit is payable on sight, as in this case, the issuer must pay upon due
presentment, As long as the proper documents are presented, the issuing bank has an obligation to pay even if
the buyer should later on refuse payment. Hence, Klockner's refusal to pay carries no effect whatsoever on
HSBC's obligation to pay under the Letter of Credit. To allow HSBC to refuse to honor the Letter of Credit
simply because it could not collect first from Klockner is to countenance a breach of the Independence
Principle. When NSC obtained the services of CityTrust in collecting under the Letter of Credit, it constituted
CityTrust as its agent. Article 1868 of the Civil Code states that a contract of agency exists when a person binds
himself or herself to render some service, or to do something in representation or on behalf of another with the
consent or authority of the latter; in this case, CityTrust bound itself to collect under the Letter of Credit in
behalf of NSC.

One of the obligations of an agent is to carry out the agency in accordance with the instructions of the
principal. HSBC persistently communicated with CityTrust and consistently repeated that it will proceed with
collection under URC 322. At no point did CityTrust correct HSBC or seek clarification from NSC. In insisting
upon its course of action, CityTrust failed to act in accordance with the instructions given by NSC, its principal.
Nevertheless while this Court recognizes that CityTrust committed a breach of its obligation to NSC, this carries
no implications on the clear liability of HSBC. HSBC had a separate obligation that it failed to perform by
reason of acts independent of CityTrust's breach of its obligation under its contract of agency. If CityTrust has
incurred any liability, it is to its principal NSC. However, NSC has not raised any claim against CityTrust at any
point in these proceedings.

LETTERS OF CREDIT

NATIONAL COMMERCIAL BANK OF SAUDI ARABIA v. COURT OF APPEALS and PHILIPPINE

BANKING CORPORATION

G.R. No. 124267, January 31, 2003

CARPIO MORALES, J.

FACTS:

Petitioner National Commercial Bank of Saudi Arabia (NCBSA) filed a case against respondent
Philippine Banking Corporation (PBC) to recover the duplicate payment of the proceeds of a letter of credit
issued by NCBSA in view of the fact that both the head office and Makati branch of PBC collected the proceeds
of the letter of credit.

NCBSA called for the strict application of the rules of procedure to prevent any more delay in the
disposition of the case, which has been pending for more than seventeen years. On the other hand, the defense
of prescription was invoked by the defendant claiming that solutio indebiti cases prescribe in six years and,
therefore, when NCBSA filed its complaint nine years after the cause of action arose, it had prescribed.
 The Regional Trial Court of Makati ruled in favor of NCBSA. PBC filed a Motion for Reconsideration.
NCBSA filed a Manifestation pointing out that PBC's Motion for Reconsideration did not contain any notice of
hearing. The trial court struck from the records of the case PBC's Motion for Reconsideration of its decision and
granted NCBSA's Motion for Writ of Execution.On Appeal, the CA stated that to deny the MR is too harsh an
application of procedural rules especially so when petitioner has filed a motion to set the motion for
reconsideration for hearing and had furnished private respondent a copy of the motion, a fact which is not
denied by the latter.

ISSUE:

Is the claim filed by the petitioner arising from letters of credit already barred by prescription?

RULING:

No. Under the law, the prescriptive period for filing an action based on written contract is 10 years. In
this case, PBC and NCBSA were bound by their contract, the letter of credit, under which NCBSA obliged itself
to pay PBC, subject to compliance by the latter with certain conditions provided therein. As such, the cause of
action was based on a contract, and the prescriptive period is ten years and not six years.

Courts are not permitted to apply the doctrine of laches earlier than the expiration of time limited for the
commencement of action of law. Therefore, the claim of petitioner has not yet prescribed.

TRUST RECEIPTS LAW

DEVELOPMENT BANK OF THE PHILIPPINES v. PRUDENTIAL BANK

G.R. No. 143772, November 22, 2005

CORONA, J.

FACTS:

Lirag Textile Mills, Inc. (Litex) opened a Letter of Credit with Prudential Bank for importation of
machineries and equipment. These were released to Litex under covering "trust receipts" it executed in favor of
Prudential Bank. Later, DBP granted a loan to Litex. Litex executed a REM and chattel mortgages which
includes the machineries and equipment covered by the "trust receipts." Prudential Bank notified DBP of its
claim covered by the "trust receipts" and 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. However, DBP still foreclosed
the properties and was sold subject properties. Thus, Prudential Bank filed a complaint for a sum of money with
damages against DBP with RTC. Both the lower courts ruled in favor of Prudential Bank. It applied the
provisions of PD 115 and held that ownership over the contested articles belonged to Prudential Bank as
entrustor, not to Litex.

ISSUE:

Is the transaction between Litex and Prudential Bank were trust receipt transactions within the meaning
of PD 115, thus, cannot be the subject of a mortgage contract?

RULING:

Yes. 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 latter’s execution and delivery to the
entruster of a trust receipt. Here, the articles were not released to Litex to be sold. Nor was the transfer of
possession intended to be a preliminary step for the said goods to be ultimately or subsequently sold. Thus, 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) of the Civil Code requires that, in a contract of pledge or
mortgage, the pledgor or mortgagor should be the absolute owner of the thing. 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. 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. 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 Bank’s demand. By its failure to pay or return
them despite Prudential Bank’s repeated demands and by selling them to Lyon without Prudential Bank’s
knowledge and conformity, DBP became a trustee ex maleficio.

TRUST RECEIPTS LAW

ALFREDO CHING v. THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN

BURGOS-VILLAVERT, JUDGE EDGARDO SUDIAM of the Regional Trial Court, Manila, Branch 52;
RIZAL COMMERCIAL BANKING CORP. and THE PEOPLE OF THE PHILIPPINES

G. R. No. 164317, February 6, 2006

CALLEJO, SR., J.

FACTS:

In 1980, Philippine Blooming Mills, Inc., through petitioner, applied with the Rizal Commercial
Banking Corporation for the issuance of commercial letters of credit to finance its importation of assorted
goods. Respondent bank approved the application, and irrevocable letters of credit were issued in favor of
petitioner. The goods were purchased and delivered in trust to PBMI. Petitioner signed 13 trust receipts as
surety, acknowledging delivery of the goods. When the trust receipts matured, petitioner failed to return the
goods to respondent bank, or to return their value amounting to ₱6,940,280.66 despite demands. Thus, the bank
filed a criminal complaint for estafa against petitioner.

ISSUE:

Can petitioner be held liable for acts performed pursuant to his function in the Corporation?

RULING:

Yes. The transaction between petitioner and respondent bank falls under the trust receipt transactions
envisaged in P.D. No. 115. The Court rules that although petitioner signed the trust receipts merely as Senior
Vice-President of PBMI and had no physical possession of the goods, he cannot avoid prosecution for violation
of P.D. No. 115. It must be stressed that P.D. No. 115, as a matter of public policy, the failure of person to turn
over the proceeds of the sale of the goods covered by a trust receipt or to return said goods, if not sold, is a
public nuisance to be abated by the imposition of penal sanctions. The crime defined in P.D. No. 115 is malum
prohibitum but is classified as estafa under paragraph 1(b), Article 315 of the Revised Penal Code, or estafa
with abuse of confidence. It may be committed by a corporation or other juridical entity or by natural persons.

Though the entrustee is a corporation, nevertheless, the law specifically makes the officers, employees
or other officers or persons responsible for the offense, without prejudice to the civil liabilities of such
corporation and/or board of directors, officers, or other officials or employees responsible for the offense. The
rationale is that such officers or employees are vested with the authority and responsibility to devise means
necessary to ensure compliance with the law and, if they fail to do so, are held criminally accountable; thus,
they have a responsible share in the violations of the law.

TRUST RECEIPTS LAW

LANDL & COMPANY (PHIL.) INC., PERCIVAL G. LLABAN and MANUEL P. LUCENTE v.
METROPOLITAN BANK & TRUST COMPANY

G.R. No. 159622, July 30, 2004

YNARES-SANTIAGO, J.

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:

Does possession by the bank of the goods under the trust receipts not bar collection of the loan?

RULING:

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. 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, the
Court 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, it was ruled that: 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.

TRUST RECEIPTS LAW

THE PEOPLE OF THE PHILIPPINES v. BEN CUEVO

G.R. No. L-27607, May 7, 1981

AQUINO, J.

FACTS:

In this case, respondent Cuevo was charged with estafa when he feloniously defrauded Prudential Bank
and Trust Company when he received in trust from the bank a merchandise of 1000 bags of grind yellow corn
and 1000 bags of palay specified in a trust receipt covered by a Letter of Credit executed by him in favor of
Prudential Bank to be sold by him under the express obligation to account the merchandise and turn over to the
bank the proceeds of the sale. But Cuevo failed to do so even after repeated demands were made upon him and
had intentionally defrauded the bank when he used the proceeds to his own personal use and benefit which
caused damages to Prudential Bank. The lower court decided that the contract covered by a trust receipt is
merely a secured loan where the borrower is allowed to dispose of the collateral, whereas, in a deposit the
depositary is not empowered to dispose of the property deposited. Hence, the lower court concluded that the
violation of the provisions of the trust receipt gives rise to a civil action and not to a criminal prosecution for
estafa.

ISSUE:

Is the contract between Cuevo and Prudential Bank and Trust Company covered by Article 315(l) (b)?

RULING:

Yes. Even if the accused did not receive the merchandise for deposit, he is, nevertheless, covered by
article 315(l) (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. Thus, it was held that where, notwithstanding
repeated oral and written demands by the bank, the petitioner had failed either to turn over to the said bank the
proceeds of the sale of the goods, or to return said goods if they were not sold, the petitioner is guilty of estafa
under article 315(l) (b). In this connection, it is relevant to state that Presidential Decree No. 115, the Trust
Receipts Law, regulating trust receipts transactions, was issued on January 29, 1973. Section 13 of the decree
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, punishable under the provisions" of article
315 of the Revised Penal Code. The enactment of the said penal provision is confirmatory of existing
jurisprudence and should not be construed as meaning that, heretofore, the misappropriation of the proceeds of a
sale made under a trust receipt was not punishable under article 315.

TRUST RECEIPTS LAW

MELVIN COLINARES and LORDINO VELOSO v. HONORABLE COURT OF APPEALS, and THE
PEOPLE OF THE PHILIPPINES

G.R. No. 90828, September 5, 2000

DAVIDE, JR., C.J.

FACTS:

In 1978 Melvin Colinares and Lordino were contracted for a consideration of Php. 40, 000 by the
Carmelite Sisters of Cagayan de Oro city to renovate the latter’s convent ot Camaman-an, Cagayan de Oro City.
Colinares applied for a commercial letter of credit with the PBC, Cagayan de Oro branch in favour of CM
Builders Centre. PBC approved the letter of credit for Php. 22, 398.80 to cover the full invoice value of the
goods. Petitioners signed a trust receipt as security. PBC debited Php.6, 720 from petitioners marginal deposit as
partial payment of the loan. PBC wrote to petitioners demanding that the amount to be paid within seven days
from notice. Instead of complying with PBC’s demand, Veloso confessed that they lost Php. 19, 195.83 in the
Carmelite Monastery Project and requested for a grace period to settle the account. Petitioners proposed that
the terms of payment of the loan be modified until the account is fully paid. Pending approval of the proposal,
petitioners paid Php. 1000 to PBC and thereafter Php. 500 but PBC continued to demand payment for the
balance. Petitioners were then charged with the violation of P.D, No. 115, Trust Receipt Law in relation to
Article 315 of the Revised Penal Code.

ISSUE:

Is the transaction of Colinares within the scope of the0Law on Trust Receipts?

RULING:

No. The transaction intended by the parties was a simple loan, not a trust receipt agreement. Petitioners
received the merchandise from CM Builders Centre and on that day, ownership of the merchandise was already
transferred to petitioners who were to use the materials for their construction project. It was only a day later that
they went to the bank to apply for 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 a 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. 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 receipt partake of the nature of a
conditional sale where the importer becomes absolute owner of the imported merchandise imported or
purchased.

TRUST RECEIPTS LAW

ROSARIO TEXTILE MILLS CORPORATION and EDILBERTO YUJUICO v. HOME BANKERS

SAVINGS AND TRUST COMPANY

G.R. No. 137232, June 29, 2005

SANDOVAL-GUTIERREZ, J.

FACTS:

Rosario Textile Mills Corporation (RTMC) applied from Home Bankers Savings & Trust Co. for an
Omnibus Credit Line for P10 million. The bank approved RTMC’s credit line but for only P8 million. The bank
notified RTMC of the grant of the said loan thru a letter which contains terms and conditions conformed by
RTMC thru Edilberto V. Yujuico. Yujuico signed a Surety Agreement in favor of the bank, in which he bound
himself jointly and severally with RTMC for the payment of all RTMC’s indebtedness to the bank. RTMC
availed of the credit line by making numerous drawdowns, each drawdown being covered by a separate
promissory note and trust receipt. RTMC, represented by Yujuico, executed in favor of the bank a total of
eleven (11) promissory notes. Despite the lapse of the respective due dates under the promissory notes and
notwithstanding the bank’s demand letters, RTMC failed to pay its loans. Hence, the bank filed a complaint for
sum of money against RTMC and Yujuico.

On the other hand, RTMC and Yujuico claimed that although the grant of the credit line and the
execution of the suretyship agreement are admitted, the bank gave assurance that the suretyship agreement was
merely a formality under which Yujuico will not be personally liable; that the importation of raw materials
under the credit line was with a grant of option to them to turn-over to the bank the imported raw materials
should these fail to meet their manufacturing requirements. RTMC offered to make such turn-over since the
imported materials did not conform to the required specifications. However, the bank refused to accept the
same, until the materials were destroyed by a fire which gutted down RTMC’s premises. He theorized that when
RTMC imported the raw materials needed for its manufacture, using the credit line, it was merely acting on
behalf of the bank, the true owner of the goods by virtue of the trust receipts.

ISSUE:

Are RMTC and Yujuico correct in contending that the bank is the owner of the materials pursuant to
trust receipts, hence, the bank should bear the loss?

RULING:

No. The principal transaction between petitioner RTMC and the bank is a contract of loan. Petitioners’
stance conveniently ignores the true nature of its transaction with the bank. In banking and commerce, a credit
line is “that amount of money or merchandise which a banker, merchant, or supplier agrees to supply to a
person on credit and generally agreed to in advance.” It is the fixed limit of credit granted by a bank, retailer, or
credit card issuer to a customer, to the full extent of which the latter may avail himself of his dealings with the
former but which he must not exceed and is usually intended to cover a series of transactions in which case,
when the customer’s line of credit is nearly exhausted, he is expected to reduce his indebtedness by payments
before making any further drawings. It is thus clear that the principal transaction between petitioner RTMC and
the bank is a contract of loan. RTMC used the proceeds of this loan to purchase raw materials from a supplier
abroad. In order to secure the payment of the loan, RTMC delivered the raw materials to the bank as collateral.
Trust receipts were executed by the parties to evidence this security arrangement. Simply stated, the trust
receipts were mere securities.

A trust receipt is a security agreement pursuant to which a bank acquires a ‘security interest’ in the
goods. In Vintola vs. Insular Bank of Asia and America, we elucidated further that “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.” We described a trust
receipt as “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 merchandise, and who may not be able to
acquire credit except through utilization, as collateral, of the merchandise imported or purchased.”

If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more
of 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 purpose of the trust receipt of giving a stronger security for the loan
obtained by the importer. To consider the bank as the true owner from the inception of the transaction would be
to disregard the loan feature thereof.
TRUST RECEIPTS LAW

CEFERINA SAMO v. THE PEOPLE OF THE PHILIPPINES, ET AL.

G.R. Nos. L-17603-04, May 31, 1962

DIZON, J.

FACTS:

Prior to the two transactions in question, the complainant Bank of the Philippine Islands had been
extending credit facilities to petitioner in relation to petitioner’s business. To facilitate the importation of 1487
cartons of tins of squids valued and 889 cartons of canned Rosebowl sardines, petitioner opened in 1954 two
letters of credit with petitioner bank. Upon the arrival of the goods the bank advanced or paid the balances due
in order that the goods could be released, and required petitioner to execute two trust receipts in its favor as a
condition for the turning over of their possession to her. On July petitioner executed the two trust receipts
wherein she acknowledged having received in trust from the bank the aforementioned goods and obligated
herself to hold them in trust for the latter. The document authorized her to sell the goods for the account of the
bank, under the obligation to remit to the latter the proceeds of the sale to return them, if not sold.

Petitioner having failed to account for the goods and the proceeds thereof despite repeated oral and
written demands by the bank, Criminal Cases for estafa were instituted against petitioner. However after the
filing of said cases, petitioner made partial payments to her obligation. After trial, the Court of First Instance
convicted petitioner. On appeal, the Court of Appeals affirmed the conviction.

ISSUE:

Is the petitioner liable for estafa in violation of the conditions in the trust receipts?

RULING:

Yes. The Court reiterated its previous decision and stated that upon the issue whether a party who fails to
comply with the terms of a trust receipt executed by him, particularly to make payment of his obligation
thereunder, such could be prosecuted for estafa. Such failure would be a good ground for prosecution.

The execution of the two trusts receipts were undisputed. Accordingly, petitioner had failed either to turn
over to the latter the proceeds of the sale of the goods covered by the trust receipts, or to return said goods, if
they were not sold as provided by the conditions in the trust receipts. As such the Court found the petitioner
guilty of estafa. Accordingly, the fact that there were subsequent partial payments by the petitioner does not
alter the situation. Payment does not extinguish criminal liability for estafa.

TRUST RECEIPTS LAW

 STATE INVESTMENT HOUSE, INC. v. COURT OF APPEALS and NORA B. MOULIC

G.R. No. 101163, January 11, 1993

BELLOSILLO, J.

FACTS:

Respondent Moulic issued 2 Php 50,000.00 each post-dated Equitable Bank checks to Corazon
Victoriano with the maturity dates of August 30 and September 30, 1979 as security for the latter’s jewelry to be
sold on commission. Corazon then negotiated the checks to petitioner. However, after failing to sell the pieces
of jewelry, Moulic returned them before the maturity of the said checks, but they could not be retrieved as they
were with petitioner, and that, Moulic also withdrew her funds before the said maturity dates. When petitioner
presented the checks for payment, they were dishonored for insufficiency of funds. It sent a notice of dishonor
to Moulic on December 20, 1979, and subsequently sued her on October 6, 1983.

ISSUE:

Is failure to give a notice of dishonor fatal to petitioner’s case?

RULING:

No. The non-issuance of the notice of dishonor is not fatal to the case. Under Sec. 114:

Sec. 114. When notice need not be given to drawer. — Notice of dishonor is not required to be given to
the drawer in the following cases: (a) Where the drawer and the drawee are the same person; (b) When the
drawee is a fictitious person or a person not having capacity to contract; (c) When the drawer is the person to
whom the instrument is presented for payment: (d) Where the drawer has no right to expect or require that the
drawee or acceptor will honor the instrument; (e) Where the drawer had countermanded payment.

Such issuance is not necessary. By withdrawing her funds from the bank after failing to retrieve the
checks, she singlehandedly dishonored the 2 checks with her knowledge, thus, a notice of dishonor is not
necessary. The issuance of checks sends an implied representation that there are available funds in the issuer’s
account, and by withdrawing the funds to avoid liability of the checks cannot prejudice holders in due course.

Thus, respondent is liable to petitioner for the amount of the checks plus attorney’s fees.

TRUST RECEIPTS LAW

ANTHONY L. NG v. PEOPLE OF THE PHILIPPINES

G.R. No. 173905, April 23, 2010

VELASCO, JR.

FACTS:
 Anthony Ng was engaged in the business of building and fabricating telecommunication towers under
the trade name Capitol Blacksmith and Builders. Petitioner applied for a credit line of Php 3,000,000 with Asia
trust. In support of Asia trusts credit investigation, petitioner voluntarily submitted the following documents: (1)
the contracts he had with Islacom, Smart, and Infocom; (2) the list of projects wherein he was commissioned by
the said telecommunication companies to build several steel towers; and (3) the collectible amounts he has with
the said companies. Asiatrust approved petitioner’s loan application. Petitioner was then required to sign several
documents, among which are the Credit Line Agreement, Application and Agreement for Irrevocable L/C, Trust
Receipt Agreements, and Promissory Notes. Though the Promissory Notes had maturity dates, the two Trust
Receipt Agreements did not bear any maturity dates. After petitioner received the goods, consisting of
chemicals and metal plates from his suppliers, he utilized them to fabricate the communication towers ordered
from him by his clients. As petitioner realized difficulty in collecting from his client Islacom, he failed to pay
his loan to Asiatrust. Asiatrust’s representative appraiser, reported that approximately 97% of the subject goods
of the Trust Receipts were sold-out and that only 3% of the goods remained. Efforts towards a settlement failed
to be reached. Asiatrust Account Officer filed a Complaint-Affidavit for Estafa, as defined and penalized under
Art. 315, par. 1(b) of the RPC in relation to Sec. 3, PD 115 or the Trust Receipts Law.

ISSUE:

Is the transaction between petitioner and Asiatrust a trust receipt transaction?

RULING:

No. 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. A violation of any of these
undertakings constitutes Estafa defined under Art. 315, par. 1(b) of the RPC, as provided in Sec. 13 of PD 115.

A trust receipt is considered 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 merchandise,
and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported
or purchased. The principle is of course not limited in its application to financing importations, since the
principle is equally applicable to domestic transactions. Regardless of whether the transaction is foreign or
domestic, it is important to note that the transactions discussed in relation to trust receipts mainly involved
sales.

The release of such goods to the entrustee is conditioned upon his execution and delivery to the entruster
of a trust receipt wherein the former binds himself to hold the specific goods in trust for the entruster and to sell
or otherwise dispose of the goods with the obligation to turn over to the entruster the proceeds to the extent of
the amount owing to the entruster or the goods themselves if they are unsold.

A thorough examination of the facts obtaining in the instant case reveals that the transaction between
petitioner and Asiatrust is not a trust receipt transaction but one of simple loan. Considering that the goods in
this case were never intended for sale but for use in the fabrication of steel communication towers, the trial
court erred in ruling that the agreement is a trust receipt transaction.

Petitioner is correct that there was no misappropriation or conversion on his part, because his liability for
the amount of the goods subject of the trust receipts arises and becomes due only upon receipt of the proceeds
of the sale and not prior to the receipt of the full price of the goods. PD 115 provides that an entrustee is only
liable for Estafa when he fails to turn over the proceeds of the sale of the goods covered by a trust receipt to the
extent of the amount owing to the entruster or as appears in the trust receipt in accordance with the terms of the
trust receipt.

TRUST RECEIPTS LAW

METROPOLITAN BANK & TRUST COMPANY v. HON. SECRETARY OF JUSTICE RAUL M.

GONZALES, OLIVER T. YAO and DIANA T. YAO

G.R. No. 180165, April 7, 2009

CHICO-NAZARIO, J.

FACTS:

Petitioner is a banking institution duly authorized to engage in the banking business under Philippine
laws. Private respondents were the duly authorized representatives of Visaland Inc. (Visaland), likewise a
domestic corporation engaged in the real estate development business. In order to finance the importation of
materials necessary for the operations of its sister company, Titan Ikeda Construction and Development
Corporation (TICDC), private respondents, on behalf of Visaland, applied with petitioner for 24 letters of credit,
the aggregate amount of which reached the sum of P68,749,487.96. Simultaneous with the issuance of the
letters of credit, private respondents signed trust receipts in favor of metrobank. Private respondents bound
themselves to sell the goods covered by the letters of credit and to remit the proceeds to petitioner, if sold, or to
return the goods, if not sold, on or before their agreed maturity dates. When the trust receipts matured, private
respondents failed to return the goods to petitioner, or to return their value amounting to P68,749,487.96 despite
demand. Thus, petitioner filed a criminal complaint for estafa against Visaland and private respondents with the
Office of the City Prosecutor of Manila (City Prosecutor).

ISSUE:
 Does probable cause exists for the prosecution of private respondents for the crime of estafa in relation
to P.D. 115?

RULING:

Yes. That private respondents did not sell the goods under the trust receipt but allowed it to be used by
their sister company is of no moment. The offense punished under Presidential Decree No. 115 is in the nature
of malum prohibitum. 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. Even more incredible
is the contention of private respondents that they did not give much significance to the documents they signed,
considering the enormous value of the transaction involved. Thus, it is highly improbable to mistake trust
receipt documents for a contract of loan when the heading thereon printed in bold and legible letters reads:
"Trust Receipts." We are not prejudging this case on the merits. However, by merely glancing at the documents
submitted by petitioner entitled "Trust Receipts" and the arguments advanced by private respondents, we are
convinced that there is probable cause to file the case and to hold them for trial. All told, the evidentiary
measure for the propriety of filing criminal charges has been reduced and liberalized to a mere probable cause.

TRUST RECEIPTS LAW

PILIPINAS BANK v. ALFREDO T. ONG and LEONCIA LIM

G.R. No. 133176, August 8, 2002

SANDOVAL-GUTIERREZ, J.

FACTS:

Baliwag Mahogany Corporation (BMC), through its president, respondent Alfredo T. Ong, applied for a
domestic commercial letter of credit with petitioner Pilipinas Bank to finance the purchase of about 100,000
board feet of "Air Dried, Dark Red Lauan" sawn lumber. The bank approved the application and issued Letter
of Credit in the amount of P3,500,000.00. To secure payment of the amount, BMC, through respondent Ong,
executed two (2) trust receipts providing inter alia that it shall turn over the proceeds of the goods to the bank, if
sold, or return the goods, if unsold, upon maturity. On due dates, BMC failed to comply with the trust receipt
agreement prompting it to file a petition for rehabilitation and declaration of a state of suspension of payments
with the Securities and Exchange Commission informing its creditors, which was later granted. SEC also issued
an order creating a Management Committee wherein the bank is represented. The Committee shall, among
others, undertake the management of BMC, take custody and control of all its existing assets and liabilities,
study, review and evaluate its operation and/or the feasibility of its being restructured. BMC and a consortium
of 14 of its creditor banks entered into MOA rescheduling the payment of BMC’s existing debts. However,
BMC and respondent Ong defaulted in the payment of their obligations under the rescheduled payment scheme
provided in the MOA.

ISSUE:

Can the respondents be held liable for violation of the Trust Receipts Law?

RULING:

No. Mere failure to deliver the proceeds of the sale or the goods, if not sold, constitutes violation of PD
No. 115. However, what is being punished by the law is 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. In this case, neither
dishonesty nor abuse of confidence can be attributed to respondents. It bears emphasis that when petitioner bank
made a demand upon BMC on to comply with its obligations under the trust receipts, the latter was already
under the control of the Management Committee created by the SEC in its Order. The Management Committee
took custody of all BMC’s assets and liabilities, including the red lauan lumber subject of the trust receipts, and
authorized their use in the ordinary course of business operations. Clearly, it was the Management Committee
which could settle BMC’s obligations. Indeed, what is automatically terminated in case BMC failed to comply
with the conditions under the MOA is not the MOA itself but merely the obligation of the lender (the bank) to
reschedule the existing credits. Moreover, the execution of the MOA extinguished respondents’ obligation under
the trust receipts. Respondents’ liability, if any, would only be civil in nature.
TRUST RECEIPTS LAW

JOSE ANTONIO U. GONZALEZ v. HONGKONG & SHANGHAI BANKING CORPORATION

G. R. No. 164904, October 19, 2007

CHICO-NAZARIO, J.

FACTS:

Petitioner Gonzalez, in behalf of Mondragon Leisure and Resorts Corporation (MLRC), acknowledged
receipt of various golfing equipments and assorted Walt Disney items, and signed the corresponding two Trust
Receipt agreements both in favor of respondent Hongkong & Shanghai Banking Corporation (HSBC). When
the due dates of subject Trust Receipts came and went without word from MLRC, respondent HSBC demanded
from MLRC the turnover of the proceeds of the sale of the assorted goods covered by the Trust Receipts or the
return of said goods. Despite demand, however, MLRC failed to return the assorted goods or their value.
Consequently, Felipe, for respondent HSBC, filed a criminal complaint for estafa for violation of PD 115 Trust
Receipts Law against the petitioner.

Petitioner Gonzalez argued that he cannot be held criminally responsible for alleged violation of the
Trust Receipts subject hereof. The aforesaid transactions, while reportedly denominated as Trust Receipts were
not really intended by the parties to be trust receipt transaction within the purview of P.D. 115. At best, they are
loan transactions, for which the respondent cannot be held criminally liable.

ISSUE:

Is the transaction a Trust Receipt?

RULING:

Yes. In the case at bar, petitioner Gonzalez is charged by respondent HSBC with violating Presidential
Decree No. 115. Section 4 of the Trust Receipts Law defines a trust receipt transaction. In general, a trust
receipt transaction imposes upon the entrustee the obligation to deliver to the entruster the price of the sale, or if
the merchandise is not sold, to return the same to the entruster. There are thus 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 merchandise received under the obligation to
return it (devolvera) to the owner. A violation of any of these undertakings constitutes estafa defined under Art.
315(1)(b) of the Revised Penal Code, as provided by Sec. 13 of Presidential Decree 115. Petitioner Gonzalez is
charged with failing to turn over to the Bank a single centavo of the proceeds of the sale of the (assorted) goods
covered by the Trust Receipts, or to return any of the assorted goods. Hence, petitioner Gonzalez is liable for
violation of PD 115.
TRUST RECEIPTS LAW

SPOUSES QUIRINO V. DELA CRUZ and GLORIA DELA CRUZ v. PLANTERS PRODUCTS, INC.

G.R. No. 158649, February 18, 2013

BERSAMIN, J.

FACTS:

Spouses Quirino V. Dela Cruz and Gloria Dela Cruz, petitioners herein, operated the Barangay
Agricultural Supply, an agricultural supply store in Aliaga, Nueva Ecija engaged in the distribution and sale of
fertilizers and agricultural chemical products, among others. At the time material to the case, Quirino, a lawyer,
was the Municipal Mayor of Aliaga, Nueva Ecija. On March 23, 1978, Gloria applied for and was granted by
respondent Planters Products, Inc. (PPI) a regular credit line of P200,000.00 for a 60-day term, with trust
receipts as collaterals. Quirino and Gloria submitted a list of their assets in support of her credit application for
participation in the Special Credit Scheme (SCS) of PPI. On August 28, 1978, Gloria signed in the presence of
the PPI distribution officer/assistant sales representative two documents labeled “Trust Receipt/Special Credit
Scheme,” indicating the invoice number, quantity, value, and names of the agricultural inputs (i.e., fertilizer or
agricultural chemicals) she received “upon the trust” of PPI. Gloria thereby subscribed to specific undertakings.

ISSUE:

Is the contract entered into between Sps. Dela Cruz and Planter’s Products, Inc. one of a Trust Receipt
transaction?

RULING:

No, in all Trust Receipt transactions, both obligations on the part of the entrustee exist in the alternative-
the return of the proceeds of the sale or the return of the goods, whether raw or processed. More so, 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 entrustee, it is not a Trust Receipt transaction penalized under Sec. 13,
P.D. 115. Furthermore, when the only obligation actually agreed upon by the parties would be the return of the
proceeds of the sale transaction, this becomes a mere loan, where the borrower is obligated to pay the bank the
amount spent for the purchase of the goods. Finally, in this case, the contract, its label notwithstanding, was not
a trust receipt transaction in legal contemplation or within the purview of the Trust Receipts Law (Presidential
Decree No. 115) such that its breach would render Gloria criminally liable for estafa. Under Section 4 of the
Trust Receipts Law, the sale of goods by a person in the business of selling goods for profit who, at the outset of
the transaction, has, as against the buyer, general property rights in such goods, or who sells the goods to the
buyer on credit, retaining title or other interest as security for the payment of the purchase price, does not
constitute a trust receipt transaction and is outside the purview and coverage of the law.

TRUST RECEIPTS LAW

TRANSPACIFIC BATTERY, CORPORATION and MICHAEL G. SAY v. SECURITY BANK & TRUST
CO.

G.R. No. 173565; G.R. No. 173607, May 8, 2009

TINGA, J.

FACTS:
 Transpacific, represented by its officers, Michael G. Say, Josephine G. Say and Myrna Magpantay,
entered into a Credit Line Agreement with the Security Bank to facilitate the importation and/or purchases of
certain merchandise, goods and supplies for its business. The Bank issued the corresponding Letter of Credit to
Transpacific. Transpacific then executed and delivered to the Security Bank, as entrustor nine trust receipt
agreements for the release of the imported merchandise and supplies in its favor. The said officers bind
themselves to be solidarily liable with Transpacific to the Bank for the value of the merchandise and supplies
covered by the trust receipts. Under the terms of the trust receipts, the entrustees agreed to hold the goods,
merchandise and supplies, as well as the proceeds of the sale and collection thereof, in trust for the Bank for the
payment of petitioners acceptance, bank commissions and charges, and/or any other indebtedness of Officers of
the Transpacific to the Security Bank, and deliver the same to the Bank upon maturity date of said trust receipts.
On the maturity dates of the trust receipts, officers of the transpacific failed to make good of their debt. The
officers of transpacific and the Security Bank executed a letter-agreement restructuring the former’s obligation
to accommodate the entrustees and give them a longer period to pay. Despite of this they still failed to pay.

Alleging that out of the total obligation of P3, 082,029.00, the amount of P2, 290,865.41 remained
unpaid, the Bank demanded the payment of the unpaid balance. Despite repeated demands, petitioners failed to
comply with the restructuring agreement, hence they filed a case with the RTC.

The petitioner contended that the obligation had already been paid or if not totally paid, the same is very
minimal and further contended that said obligation had already been extinguished by novation due to the
restructuring of the agreement. It also contended that the terms of the restructuring agreement are absolutely
incompatible with the terms of the trust receipts, the maturity date, Manner of payment, the rate of interest was
changed, and time of interest payments was added on the restructured agreement.

The Security Bank dismisses any incompatibility between the restructuring agreement and the trust
receipt transactions. It alleges that the restructuring agreement even made an express recognition of the trust
receipts when it obliged the debtors pay all interests and other charges prior to restructuring.

ISSUE:

Is the obligation under the trust receipts novated by the restructuring agreement?

RULING:

NO. There is no express novation since the restructuring agreement does not state in clear terms that the
obligation under the trust receipts is extinguished and in lieu thereof the restructuring agreement will be
substituted. Neither is there an implied novation since the restructuring agreement is not incompatible with the
trust receipt transactions. The restructuring agreement even recognizes the obligation due under the trust
receipts when it required payment of all interest and other charges prior to restructuring.

There was even a proviso under the agreement that the amount due is subject to the joint and solidary
liability of Spouses Miguel and Mary Say and Michael Go Say. The old obligation continues to subsist subject
to the modifications agreed upon by the parties. The circumstance that motivated the parties to enter into a
restructuring agreement was the failure of petitioners to account for the goods received in trust and/or deliver
the proceeds thereof.

To remedy the situation, the parties executed an agreement to restructure Transpacific’s obligations. The
parties will not be relieved from their obligations as there was absolutely no intention by the parties to
supersede or abrogate the trust receipt transactions. The intention of the new agreement was precisely to revive
the old obligation after the original period expired and the loan remained unpaid. Well-settled is the rule that,
with respect to obligations to pay a sum of money, the obligation is not novated by an instrument that expressly
recognizes the old, changes only the terms of payment, adds other obligations not incompatible with the old
ones, or the new contract merely supplements the old one. The trust receipts transactions and the restructuring
agreement can both stand together. Petitioners have not shown that they were expressly released from the
obligation. From the beginning, they were joint and solidary debtors under the trust receipts, the obligation of
which subsist vis-a-vis the restructuring agreement. Being joint and solidary debtors, they are liable for the
entirety of the obligation.

Novation is never presumed, and the animus novandi, whether totally or partially, must appear by
express agreement of the parties, or by their acts that are too clear and unmistakable. The extinguishment of the
old obligation by the new one is a necessary element of novation, which may be effected either expressly or
impliedly. The contracting parties must incontrovertibly disclose that their object in executing the new contract
is to extinguish the old one.

TRUST RECEIPTS LAW

PHILIPPINE NATIONAL BANK v. LILIAN S. SORIANO

G.R. No. 164051, October 3, 2012

PEREZ, J.

FACTS:

PNB extended a credit facility in the form of a Floor Stock Line (FSL) to Lisam Enterprises, Inc.
(LISAM) Soriano is the chairman and president of LISAM, she is also the authorized signatory in all LISAM’s
Transactions with PNB. The proceeds of which were credited to its current account with PNB. For each
availment, LISAM through Soriano executed 52 trust receipts, with the duty to turn-over the proceeds of the
sale thereof to PNB. Afterwards, despite several formal demands, respondent Soriano failed and refused to turn
over the said amount to the prejudice of PNB. When her husband Leandro A. Soriano, Jr. was still alive, LISAM
submitted proposals to PNB for the restructuring of all of LISAM’s credit facilities. Subsequently a letter was
sent to LISAM informing PNB’s lack of objection to LISAM’s proposal of restructuring all its obligations and
"Full waiver of penalty charges on RCL, FSL (which is the Floor Stock Line on which the trust receipts are
availments) and Time Loan and that the FSL and the availments thereon allegedly secured by Trust Receipts,
therefore, was already converted into, and included in , an Omnibus Line of ₱106 million on September 22,
1998, which was actually a Revolving Credit Line.

PNB maintained that Soriano’s criminal liability under the trust receipts and that while it is true that said
restructuring was approved, the same was never implemented because LISAM failed to comply with the
conditions of approval such as the payment of the interest and other charges and the submission of the title of
the 283 sq. m. of vacant residential lot.
ISSUE:

Did the restructuring of LISAM’s loan account extinguished Soriano’s criminal liability?

RULING:

No. The Restructuring of LISAM’s loan account did not extinguished Soriano’s criminal liability. To
begin with, the purported restructuring of the loan agreement did not constitute novation. Novation is never
presumed, without a written contract stating in unequivocal terms that the parties were novating the original
loan agreement, thus undoubtedly eliminating an express novation.

The court examined whether the Floor Stock Line is incompatible with the purported restructured
Omnibus Line. Incompatibility must be essential in nature and not merely accidental. The incompatibility must
take place in any of the essential elements of the obligation, such as its object, cause or principal conditions
thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original
obligation.

We have scoured the records and found no incompatibility between the Floor Stock Line and the
purported restructured Omnibus Line. While the restructuring was approved in principle, the effectivity thereof
was subject to conditions precedent such as the payment of interest and other charges, and the submission of the
titles to the real properties in Tandang Sora, Quezon City. These conditions precedent imposed on the
restructured Omnibus Line were never refuted by Soriano who, oddly enough, failed to file a Memorandum. To
our mind, Soriano’s bare assertion that the restructuring was approved by PNB cannot equate to a finding of an
implied novation which extinguished Soriano’s obligation as entrustee under the trust receipts.

Well-settled is the rule that, with respect to obligations to pay a sum of money, the obligation is not
novated by an instrument that expressly recognizes the old, changes only the terms of payment, adds other
obligations not incompatible with the old ones, or the new contract merely supplements the old one.

Besides, Novation does not extinguish criminal liability. It stands to reason therefore, that Soriano’s
criminal liability under the Trust Receipt’s subsists considering that the civil obligations under the Floor Stock
Line secured by Trust Receipt’s were not extinguished by the purported restructured Omnibus Line. The
intention of the new agreement was precisely to revive the old obligation after the original period expired and
the loan remained unpaid.
WAREHOUSE RECEIPTS LAW

TELENGTAN BROTHERS & SONS, INC. (LA SUERTE CIGAR & CIGARETTE) v. THE COURT OF
APPEALS, KAWASAKI KISHEN KAISHA, LTD. and SMITH, BELL & CO., INC.

G.R. No. 110581, September 21, 1994

MENDOZA, J.

FACTS:

On May 8, 1979, the Van Reekum Paper, Inc. entered into a contract of affreightment with the K-Line
for the shipment of 468 rolls of container board liners from Savannah, Georgia to Manila. The shipment was
consigned to herein petitioner La Suerte Cigar & Cigarette Factory. The contract of affreightment was embodied
in Bill of Lading No. 602 issued by the carrier to the shipper. ] The shipment was packed in 12 container vans
and loaded on board the carrier's vessel, SS Verrazano Bridge. At Tokyo, Japan, the cargo was transshipped on
two vessels of the K-Line. Ten container vans were loaded on the SS Far East Friendship, while two were
loaded on the SS Hangang Glory. On June 11, 1979, the SS Far East Friendship arrived at the port of Manila.
On June 21, 1979, the other vessel SS Hangang Glory, carrying petitioner's two other vans, arrived. Petitioner
was notified of the arrival of the both vessels. June 22, 1979, the Island Brokerage Co. presented, in behalf of
petitioner, the shipping documents to the Bureau of Customs. But the latter refused to act on them because the
manifest of the SS Far East Friendship covered only 10 containers, whereas the bill of lading covered 12
containers. The documents were then referred to Smith, Bell & Co and they added a note in the document. The
manifest was then approved for release on July 3, 1979.

On July 11, 1979, when the IBC tried to secure the release of the cargo, it was informed that the free
time for removing the containers from the container yard had expired on June 26, 1979, in the case of the SS
Far East Friendship, and on July 9, in the case of the SS Hangang Glory, and that demurrage charges had begun
to run. Petitioner then paid P47, 680.00 representing the total demurrage charges. The matter was then reported
by IBC in letters of complaint sent to the Philippine Ports Authority. In addition, on July 16, 1979, petitioner
sent a letter to Smith, Bell & Co, requesting reconsideration of the demurrage charges. Later on petitioner
refused to pay any more demurrage charges on the ground that there was agreement for their payment in the bill
of lading and that the delay in the release of the cargo was not due to its fault. On July 20, 1979 petitioner wrote
private respondent for a refund of the demurrage charges, private respondent denied the refund. Petitioner,
therefore, filed a suit for specific performance to compel private respondent, through its shipping agent to
release 7 container vans consigned to it free of charge and for a refund of the demurrage fees. The RTC held that
the bill of lading was the contract between the parties and, therefore, petitioner was liable for demurrage
charges. On appeal, the case was affirmed.

ISSUE:

Is petitioner liable for the demurrage charges?

RULING:

The Court held that petitioner is liable for demurrage for delay in removing its cargo from the containers
but only for the period July 3 to 13, 1979 with respect to ten containers and from July 10 to July 13, 1979, in
respect of two other containers. Petitioner’s liability on the demurrage was set in the bill of lading. Clause 23 of
the Bill of Lading provides for the payment by the consignee of demurrage for the detention of containers and
other equipment after the so-called free time has expired. The Court reiterated that a bill of lading is both a
receipt and a contract and as a contract, its terms and conditions are conclusive on the parties, including the
consignee.

However, the Court held that the demurrage charges may only accrue from July 3, 1979 for it is at that
time where that petitioner could have claimed its cargo and charged for any delay in removing its cargo from
the containers. The Court held that the delay in obtaining release of the goods was not due to its fault. The
evidence shows that because the manifest issued by the respondent K-Line, through the Smith, Bell & Co.,
stated only 10 containers, whereas the bill of lading also issued by the K-Line showed there were 12 containers,
the Bureau of Customs refused to give an entry permit to petitioner. Such cannot be attributed to the petitioner.

With respect to the other two containers which arrived on the SS Hangang Glory, demurrage was
properly considered to have accrued on July 10, 1979 since the "free time" expired on July 9. The period of
delay, however, for all the 12 containers must be deemed to have stopped on July 13, 1979. It would be unjust to
charge demurrage after July 13, 1979 since the delay in emptying the containers was not due to the fault of the
petitioner but of the breakdown of the arrastre equipment.

The Court concluded that petitioner can be held liable for demurrage only for the period July 3-13, 1979
and that in accordance with the stipulation in its bill of lading, it is liable for demurrage only in the amount of
P28, 480.00

WAREHOUSE RECEIPTS LAW

PHILIPPINE TRUST COMPANY, as assignee of Salvador Hermanos v. PHILIPPINE NATIONAL

BANK

G.R. No. L-16483, December 7, 1921

JOHNS, J.
FACTS:

Salvador Hermanos was a copartnership and during the month of January, 1919, executed to the
defendant eight promissory notes aggregating P156, 000, payable on demand, and each secured by a warehouse
receipt, issued by the firm of Nieva, Ruiz and Company. Each note recites that it is payable on demand after
date, for value received, and that the firm has deposited with the said bank as collateral security for the payment
of this note, or any note given in extension or renewal thereof, as well as for the payment of any other liability
or liabilities. The note then specifies the number of the quedan and the amount of copra in piculs, and states that
the quedan was issued by Nieva, Ruiz and Company.

On February 10, 1919, the firm of Salvador Hermanos withdrew from the defendant bank, by and with
its consent, warehouse receipts Nos. 33, 36, and 39 above described, which the bank was holding as collateral
security for each of the three 18,000-peso notes amounting to P54,000. On April 21, 1919, Salvador Hermanos
filed a petition of insolvency. Based upon its insolvency petition the firm of Salvador Hermanos was then
adjudged to be insolvent. The Philippine Trust Company was then elected as the assignee.

On September 13, 1919, the assignee made a demand upon the bank for the surrender and delivery of the
property described in all of the above receipts, and, upon the bank's refusal, commenced an action to recover its
value alleged to be P242, 579.61, claiming the firm of Salvador Hermanos was the sole and exclusive owner of
the property, and that the bank unlawfully seized and converted the copra to its own use, the value of which was
P192, 260. For answer, the bank makes a general denial of all of the material allegations of the complaint.

ISSUE:

Who is the lawful owner of the properties indicated in the receipts?

RULING:

The Court held that the PNB is the lawful owner of the properties indicated in the receipts. The
Warehouse Receipt was delivered to and held by the bank, and the warehouseman recognized the bank as the
owner of the property. Legally speaking, the owner of the warehouse receipts was the owner of the property
described in them, and the quedans were given as collateral to secure promissory notes, which, for value
received, were executed to the bank. The execution of the promissory notes and the pledging of the warehouse
receipts, as collateral, and the describing of them in the notes, and the manual delivery of the warehouse receipt
itself carries with it not only the title, but the legal possession of the property. The Court concluded that as to the
property described in the warehouse receipts, which were pledged, as collateral, in January, 1919, to secure the
eight respective promissory notes, both the title and the possession of that property were delivered to and vested
in the defendant bank in January, 1919. Three of those warehouse receipts, were returned to the firm by the
bank on February 10, 1919, but the bank still owned and held the notes, which were secured by those warehouse
receipts, and no part of the debt itself was paid by or through the surrender of the receipts. For such reason the
plaintiff cannot recover the properties for it is legally owned by the bank.

Accordingly the Court held that in January, 1919, the bank became and remained the owner of the five
quedans Nos. 30, 35, 38, 41 and 42; that they were in form negotiable, and that, as such owner, it was legally
entitled to the possession and control of the property therein described at the time the insolvency petition was
filed and had a right to sell it and apply the proceeds of the sale to its promissory notes.
WAREHOUSE RECEIPTS LAW

In the matter of the involuntary insolvency of Umberto de Poli. BANK OF THE PHILIPPINE ISLANDS,
ET AL. v. J.R. HERRIDGE, assignee of the insolvent estate of U. de Poli, BOWRING and CO., C.T.
BOWRING and CO., LTD., and T.R. YANGCO

G.R. Nos. L-21000, 21002-21004, and 21006, December 20, 1924

OSTRAND, J.

FACTS:

The insolvent Umberto de Poli was for several years engaged on an extensive scale in the exportation of
Manila hemp, maguey and other products of the country. In order to finance his commercial operations De Poli
established credits with some of the leading banking institutions doing business in Manila. De Poli opened a
current account credit with the bank against which he drew his checks in payment of the products bought by
him for exportation. Upon the purchase, the products were stored in one of his warehouses and warehouse
receipts issued therefor which were endorsed by him to the bank as security for the payment of his credit in the
account current. On December 8, 1920, De Poli was declared insolvent. Among the property taken over the
assignee was the merchandise stored in the various warehouses of the insolvent. This merchandise consisted
principally of hemp, maguey and tobacco. The various banks holding warehouse receipts issued by De Poli
claim ownership of this merchandise under their respective receipts, whereas the other creditors of the insolvent
maintain that the warehouse receipts are not negotiable, On July 20, 1921, the banks, who claim preference
under the warehouse receipts, entered into an agreement. The stipulation, in essence, sets forth the division of
the products in the warehouse based on each of the bank’s warehouse receipts. Protests were presented by the
unsecured creditors to the adjudication. The trial court held that the receipts in question were valid negotiable
warehouse receipts.

ISSUE:

Are the warehouse receipts negotiable?

RULING:

Yes, a warehouseman who deposited merchandise in his own warehouse, issued a warehouse receipts
therefore and thereafter negotiated the receipts by endorsement. The receipt recites that the goods were
deposited “pororden” of the depositor, the warehouseman, but contained no statement that the goods were to be
delivered to the bearer of the receipts or to a specified person. It is in the form of a warehouse receipts and was
not mark “nonnegotiable”. Therefore the receipts was negotiable warehouse receipts and the words “pororden”
must be construed to mean “to the order”. Further, the Court concluded that the receipt was styled "Quedan"
(warehouse receipt) and contains all the requisites of a warehouse receipt as prescribed by law. Except that it
does not, in express terms, state whether the goods received are to be delivered to bearer, to a specified person
or to his order. However, the intention to make it a negotiable warehouse receipt appears, nevertheless, quite
clearly from the document itself.
WAREHOUSE RECEIPTS LAW

PHILIPPINE NATIONAL BANK v. HON. MARCELINO L. SAYO, JR., in his capacity as Presiding
Judge of the Regional Trial Court of Manila (Branch 45), NOAH'S ARK SUGAR REFINERY,
ALBERTO T. LOOYUKO, JIMMY T. GO and WILSON T. GO

G.R. No. 129918, July 9, 1998

DAVIDE, JR., J.

FACTS:

In accordance with the Warehouse Receipts Law, Noah's Ark Sugar Refinery issued on several dates
Warehouse Receipts (quedans) covering sugar deposited by Rosa Sy, RNS Merchandising, and St. Therese
Merchandising. The receipts are substantially in the form, and contain the terms, prescribed for negotiable
warehouse receipts by Section 2 of the law. Subsequently, Warehouse Receipts were negotiated and endorsed to
Luis T. Ramos and to Cresencia K. Zoleta. Ramos and Zoleta then used the quedans as security for two loan
agreements — one for P15.6 million and the other for P23.5 million — obtained by them from the PNB. They
endorsed the aforementioned quedans to PNB. After the decision in G.R. No. 119231 (PNB v. Se) became final
and executory, various incidents took place before the trial court. Noah’s Ark and its officers filed a Motion for
Execution of Defendants’ Lien as Warehouseman pursuant to SC’s decision which was opposed by PNB. The
RTC, this time presided Hon. Marcelino L. Sayo Jr., granted the Motion for Execution. PNB was immediately
served with a Writ of Execution for the amount of P662,548,611.50. PNB thus filed an Urgent Motion seeking
the deferment of the enforcement of the Writ of Execution. Nevertheless, the Sheriff levied on execution several
properties of PNB. The said bank also filed a MR with Urgent Prayer for Quashal of Writ of Execution. After
several exchanges of motions, Judge Sayo denied with finality for lack of merit the motions filed by PNB.

ISSUE:

Does the loss of warehouseman’s lien extinguishes the obligation of PNB to pay storage fees and
charges?
RULING:

No. The warehouseman is entitled to the warehouseman’s lien that attaches to the goods that may be
invoked against anyone who claims a right of possession thereon. In this case, the lien was lost when the
respondents refused to deliver the goods, which were not anchored to a valid excuse (i.e. non satisfaction of
warehousemean’s lien) but on an adverse claim of ownership. However, the loss of Warehouseman’s lien does
not necessarily mean the extinguishment of the obligation to pay the Warehouseman’s fees and charges, which
continues to be a personal liability of the owners, PNB in this case. However, such fees and charges have ceased
to accrue from the date of the rejection by Noah’s Ark to heed the lawful demand for the release of the goods.
While PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shall be effected only
upon payment of the storage fees.