Rosario Textile Mills v.

Home Bankers Savings:

TRUST RECEIPTS Trust receipt, therefore, is a security agreement,
pursuant to which a bank acquires a 'security
Definition/Concept of a Trust Receipt interest' in the goods. It secures an indebtedness
Transaction and there can be no such thing as security
1. A security transaction intended to aid in interest that secures no obligation."
financing importers and retail dealers who do
not have sufficient funds or resources to Security Interest means a property interest in
finance the importation or purchase of goods, documents, or instruments to secure
merchandise, and who may not be able to performance of some obligation of the entrustee
acquire credit except through utilization, as or of some third persons to the entruster and
collateral of the merchandise imported or includes title, whether or not expressed to be
purchased. absolute, whenever such title is in substance
taken or retained for security only.
Lee v. CA: A trust receipt is considered as a
security transaction intended to aid in financing 3. The loan should be granted to finance
importers and retail dealers who do not have acquisition of the goods under trust receipt.
sufficient funds or resources to finance the If no loan is granted when entrustee already
importation or purchase of merchandise, and who has ownership of goods, transaction only a
may not be able to acquire credit except through simple loan
utilization, as collateral of the merchandise Colinares v. CA: There are two possible
imported or purchased. A trust receipt, therefor, is a situations in a trust receipt transaction. The first
document of security pursuant to which a bank is covered by the provision which refers to
acquires a "security interest" in the goods under money received under the obligation involving
trust receipt. Under a letter of credit-trust receipt the duty to deliver it (entregarla) to the owner of
arrangement, a bank extends a loan covered by a the merchandise sold. The second is covered by
letter of credit, with the trust receipt as a security for the provision which refers to merchandise
the loan. The transaction involves a loan feature received under the obligation to "return" it
represented by a letter of credit, and a security (devolvera) to the owner.
feature which is in the covering trust receipt which
secures an indebtedness. A thorough examination of the facts obtaining in
the case at bar reveals that the transaction
2. The loan and security features of a trust intended by the parties was a simple loan, not a
receipt trust receipt agreement. Petitioners received the
Vintola v. Insular Bank of Asia: A letter of merchandise from CM Builders Centre on
credit-trust receipt arrangement is endowed with October 1979. On that day, ownership over the
its own distinctive features and characteristics. merchandise was already transferred to
Under that set-up, a bank extends a loan covered Petitioners who were to use the materials for
by the Letter of Credit, with the trust receipt as a their construction project. It was only a day
security for the loan. In other words, the later, 31 October 1979, that they went to the
transaction involves a loan feature represented bank to apply for a loan to pay for the
by the letter of credit, and a security feature merchandise.
which is in the covering trust receipt. (Here, Colinares already received the goods
before he applied for a loan to the bank that
A trust receipt, therefore, is a security would be covered supposedly by a trust receipt.)
agreement, pursuant to which a bank acquires a
"security interest" in the goods. "It secures an Consolidated Bank v. CA: Inasmuch as the
indebtedness and there can be no such thing as debtor received the goods subject of the trust
security interest that secures no obligation." receipt before the trust receipt itself was entered
into, the transaction in question was a simple
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 loan and not a trust receipt agreement. Prior to buildings and structures which they become part
the date of execution of the trust receipt, of), as soon as the bank demands them,
ownership over the goods was already disqualify them from being covered by trust
transferred to the debtor. This situation is receipt agreements.
inconsistent with what normally obtains in a
pure trust receipt transaction, wherein the goods Hur Ting Yang v. People: The transactions in
belong in ownership to the bank and are only the instant case are not trust receipts transactions
released to the importer in trust after the loan is but contracts of simple loan. The fact that the
granted. entruster bank, Metrobank in this case, knew
even before the execution of the alleged trust
4. The goods must be intended for sale or receipt agreements that the covered construction
resale, otherwise, it is a simple loan. materials were never intended by the entrustee
Ng v. People: Regardless of whether the (petitioner) for resale or for the manufacture of
transaction is foreign or domestic, it is important items to be sold would take the transaction
to note that the transactions discussed in relation between petitioner and Metrobank outside the
to trust receipts mainly involved sales. ambit of the Trust Receipts Law.

Considering that the goods in this case were 5. No trust receipt, notwithstanding the label, if
never intended for sale but for use in the goods offered as security for a loan
fabrication of steel communication towers, the accommodation are goods sold to the debtor
trial court erred in ruling that the agreement is a Sps. Dela Cruz v. Planter’s Products Inc.: Gloria
trust receipt transaction. signed the list of the properties involved as
"dealer," thereby ineluctably manifesting that
Land Bank v. Perez: When both parties enter Gloria considered herself a dealer of the
into an agreement knowing that the return of the products delivered by PPI under the credit line.
goods subject of the trust receipt is not possible In this connection, a dealer is "a person who
even without any fault on the part of the trustee, makes a business of buying and selling goods,
it is not a trust receipt transaction. especially as distinguished from a manufacturer,
without altering their condition." In other words,
Here, the parties were aware of the fact that a dealer is "one who buys to sell again."
there was no way they could recover the
buildings or constructions for which the The sale of goods by a person in the business of
materials subject of the alleged trust receipts had selling goods for profit who, at the outset of the
been used. transaction, has, as against the buyer, general
property rights in such goods, or who sells the
Indeed, goods sold in retail are often within the goods to the buyer on credit, retaining title or
custody or control of the trustee until they are other interest as security for the payment of the
purchased. In the case of materials used in the purchase price, does not constitute a trust receipt
manufacture of finished products, these finished transaction and is outside the purview and
products — if not the raw materials or their coverage of the law.
components — similarly remain in the
possession of the trustee until they are sold. But 6. Failure of the entrustee to remit sale proceeds
the goods and the materials that are used for a or return the goods in case of non-sale
construction project are often placed under the constitutes criminal liability
control and custody of the clients employing the
contractor, who can only be compelled to return 7. Crime against public Order
the materials if they fail to pay the contractor People v. Nitafan:
and often only after the requisite legal
proceedings. The contractor's difficulty and Metropolitan Bank v. Tonda: [T]he Trust
uncertainty in claiming these materials (or the Receipts Law declares the failure to turn over
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 the goods or the proceeds realized from the sale mortgagor should be the absolute owner of the
thereof, as a criminal offense punishable under thing pledged or mortgaged. Article 2085 (3)
Article 315 (1) (b) of the Revised Penal Code. further mandates that the person constituting the
The law is violated whenever the entrustee or pledge or mortgage must have the free disposal
the person to whom the trust receipts were of his property, and in the absence thereof, that
issued in favor of fails to: (1) return the goods he be legally authorized for the purpose. Litex
covered by the trust receipts; or (2) return the had neither absolute ownership, free disposal
proceeds of the sale of the said goods. The nor the authority to freely dispose of the articles.
foregoing acts constitute estafa punishable under Litex could not have subjected them to a chattel
Article 315 (1) (b) of the Revised Penal Code. mortgage. Their inclusion in the mortgage was
Given that various trust receipts were executed void and had no legal effect. There being no
by the TONDAS and that as entrustees, they did valid mortgage, there could also be no valid
not return the proceeds from the goods sold nor foreclosure or valid auction sale. Thus, DBP
the goods themselves to METROBANK, there could not be considered either as a mortgagee or
is no dispute that that the TONDAS failed to as a purchaser in good faith.
comply with the obligations under the trust
receipts despite several demands from Rights of the Enrtuster
METROBANK. 1. Validity of the Security Interest as Against
the Creditors of the Entrustee/Innocent
Ownership of the Goods, Documents and Purchaser for Value
Instruments under a Trust Receipt Prudential Bank v. NLRC: From the legal and
1. Entrustee is the owner of the goods jurisprudential standpoint it is clear that the
Vintola v. Insular Bank: For the bank has security interest of the entruster is not merely an
previously extended a loan which the L/C empty or idle title. To a certain extent, such
represents to the importer, and by that loan, the interest, such interest becomes a "lien" on the
importer should be the real owner of the goods. goods because the entruster's advances will have
If under the trust receipt, the bank is made to to be settled first before the entrustee can
appear as the owner, it was but an artificial consolidate his ownership over the goods.
expedient, more of a legal fiction than fact, for if Significantly, the law uses the word "may" in
it were so, it could dispose of the goods in any granting to the entruster the right to cancel the
manner it wants, which it cannot do, just to give trust and take possession of the goods.
consistency with the purpose of the trust receipt Consequently, petitioner has the discretion to
of giving a stronger security for the loan avail of such right or seek any alternative action,
obtained by the importer. To consider the bank such as a third-party claim or a separate civil
as the true owner from the inception of the action which it deems best to protect its right, at
transaction would be to disregard the loan any time upon default or failure of the entrustee
feature thereof. to comply with any of the terms and conditions
of the trust agreement.
Rosario Textile Mills v. Home Bankers: same as
the Vintola case The law warrants the validity of petitioner's
security interest in the goods pursuant to the
2. Entrustee cannot mortgage the goods under written terms of the trust receipt as against all
trust receipt creditors of the trust receipt agreement. The
DBP v. Prudential Bank: While it was allowed only exception to the rule is when the properties
to sell the items, Litex had no authority to are in the hands of an innocent purchaser for
dispose of them or any part thereof or their value and in good faith. The records however do
proceeds through conditional sale, pledge or any not show that the winning bidder is such
other means. Article 2085 (2) of the Civil Code purchaser. Neither can private respondents plead
requires that, in a contract of pledge or preferential claims to the properties as petitioner
mortgage, it is essential that the pledgor or
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 has the primary right to them until its advances BMC's debts, but more importantly, it provided
are fully paid. principal conditions which are incompatible with
the trust agreement. Hence, applying the
Obligation and Liability of the Entrustee pronouncement in Quinto, we can safely conclude
1. No criminal liability in the following cases that the MOA novated and effectively extinguished
Entrustee already owns the goods when loan BMC's obligations under the trust receipt
under TR granted agreement. What is automatically terminated in case
Colinares v. CA: No TR transaction. BMC failed to comply with the conditions under the
Consolidated Bank v. CA: No TR transaction MOA is not the MOA itself but merely the
obligation of the lender (the bank) to reschedule the
Goods not intended for sale or resale existing credits. Moreover, it is erroneous to assume
Ng v. People that the revesting of "all the rights of lenders against
Land Bank v. Perez the borrower" means that petitioner can charge
Hur Tin Yang v. People respondents for violation of the Trust Receipts Law
under the original trust receipt agreement.
These cases involve construction materials. From Respondents' liability, if any, would only be civil in
there alone, it can be inferred that the goods subject nature since the trust receipts were transformed into
of the TR are not intended for sale. Hence, there can mere loan documents after the execution of the
be no TR transaction. MOA. This is reinforced by the fact that the
mortgage contracts executed by the BMC survive
Non-delivery of the goods despite its non-compliance with the conditions set
Ramos v. CA: The trust receipts do not fare any forth in the MOA.
better as proofs of the delivery to Ramos of the
goods. Except for the invoices, any documents Payment/Delivery of Proceeds of Sale or
relating to each trust receipt agreement, including Disposition of Goods, Documents or Instrument
the trust receipts themselves, appear to be standard
Bank forms accomplished by the Bank personnel, Return of Goods, Documents or Instruments in
and were all signed by Ramos in one sitting, no Case of Non-Sale
doubt with a view to facilitating the pending Vintola v. Insular Bank: Since the IBAA is not the
transactions between the parties factual owner of the goods, the VINTOLAS cannot
justifiably claim that because they have surrendered
Novation the goods to IBAA and subsequently deposited
Ong v. CA: A criminal and a civil case were filed them in the custody of the court, they are absolutely
separately against the petitioner. A compromise relieved of their obligation to pay their loan because
agreement was entered into by the parties in the of their inability to dispose of the goods. The fact
civil case. Subsequently, thepetitioner filed a that they were unable to sell the seashells in
motion to quash the information filed against him. question does not affect IBAA's right to recover the
However, the Supreme Court ruled that novation is advances it had made under the Letter of Credit
not one of the means recognized by the Penal Code
whereby criminal liability can be extinguished; Liability for Loss of Goods, Documents or
hence, the role of novation may only be to either Instruments
prevent the rise of criminal liability or to cast doubt Rosario Textile Mills v. Home Bankers:
on the true nature of the original basic transaction,
whether or not it was such that its breach would not Penal Sanctions if Offender is a Corporation
give rise to penal responsibility, as when money 1. Criminal liability of directors, officers and
loaned is made to appear as a deposit, or other agents
similar disguise is resorted to. Ong v. CA:
Ching v. Sec. of Justice:
Pilipinas Bank v. Ong: Contrary to petitioner's
contention, the MOA did not only reschedule
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2. Directors and officers of the corporation not
civilly liable unless they assume personal
liability
Tupaz IV. CA
BDO Unibank, Inc. v. Choa

Remedies Available
1. Criminal and civil actions
Vintola v. Insular Bank of Asia: The foregoing
premises considered, it follows that the acquittal
of the VINTOLAS in the Estafa case is no bar to
the institution of a civil action for collection. It
is inaccurate for the VINTOLAS to claim that
the judgment in the estafa case had declared that
the facts from which the civil action might arise,
did not exist, for, it will be recalled that the
decision of acquittal expressly declared that "the
remedy of the Bank is civil and not criminal in
nature." This amounts to a reservation of the
civil action in IBAA's favor, for the Court
would not have dwelt on a civil liability that it
had intended to extinguish by the same decision.
The VINTOLAS are liable ex contractu for
breach of the Letter of Credit — Trust Receipt,
whether they did or they did not
"misappropriate, misapply or convert" the
merchandise as charged in the criminal case.
Their civil liability does not arise ex delicto, the
action for the recovery of which would have
been deemed instituted with the criminal action
(unless waived or reserved) and where acquittal
based on a judicial declaration that the criminal
acts charged do not exist would have
extinguished the civil action. Rather, the civil
suit instituted by IBAA is based ex contractu
and as such is distinct and independent from any
criminal proceedings and may proceed
regardless of the result of the latter.

Sarmiento Jr. v. CA
2. Entruster’s repossession of the goods under
trust receipt not a bar to foreclosure of
mortgage of other collateral
PNB v. Pineda
3. Cancellation of trust and repossession of
goods
South City Homes v. BA Finance
4. Entrustee liable for deficiency
Landl & Company v. Metropolitan Bank:

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