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Trust Receipts Law

1. Vintola v. Insular Bank - Joben

Emergency Recit:
Spouses Vintola are engaged in the manufacture of raw sea shells into finished product. VINTOLAS granted a LOC
by Insular Bank of Asia and America (IBAA) for the purchase of seashells. After receiving the shells, the VINTOLAS
executed a Trust Receipt agreement with IBAA to pay IBAA with the proceeds from said shells. They defaulted on
their obligation. IBAA charged them with estafa but the VINTOLAS were acquitted. CFI said remedy of IBAA is civil,
not criminal in nature. RTC ordered the VINTOLAS to pay IBAA. Present petition.

Whether or not the VINTOLAS acquittal in the estafa case bars IBAA's filing of the civil action. NOPE
The civil suit instituted by IBAA is based ex contractu for breach of the Letter of Credit Trust Receipt and as such
is distinct and independent from any criminal proceedings and may proceed regardless of the result of the latter.

Whether or not IBAA became the real owners of the goods. NOPE
IBAA did not become the real owner of the goods. It was merely the holder of a security title for the advances it
had made to the VINTOLAS The goods the VINTOLAS had purchased through IBAA financing remain their own
property and they hold it at their own risk. The trust receipt arrangement did not convert the IBAA into an
investor; the latter remained a lender and creditor.

FACTS:
Spouses Tirso and Loreta Vintola (the VINTOLAS, for short), doing business under the name "Dax Kin International,"
engaged in the manufacture of raw sea shells into finished product. They were granted a domestic letter of credit
by the Insular Bank of Asia and America (IBAA) for P40,000 for the purchase of puka and olive seashells. In
consideration thereof, the VINTOLAS, jointly and severally, agreed to pay the bank at maturity date.

After receiving the shells, the VINTOLAS executed a Trust Receipt agreement with IBAA. Under that Agreement,
the VINTOLAS agreed to hold the goods in trust for IBAA as the "latter's property with liberty to sell the same for
its account, " and "in case of sale" to turn over the proceeds to IBAA.

Having defaulted on their obligation, IBAA demanded payment from the VINTOLAS unable to dispose of the shells,
responded by offering to return the goods. IBAA refused to accept the merchandise, and due to the continued
refusal of the VINTOLAS to make good their undertaking, IBAA charged them with Estafa for having
misappropriated for their own personal use and benefit the aforesaid goods.

CFI Cebu acquitted the VINTOLAS. In its conclusion, the bank is entitled to take possession of the goods or to
recover its equivalent value together with the usual charges. In either case, the remedy of the Bank is civil and not
criminal in nature. RTC Cebu (civil action) ordered that the VINTOLAS jointly and severally pay IBAA.

ISSUE:
Whether or not the VINTOLAS acquittal in the estafa case bars IBAA's filing of the civil action. NOPE
Whether or not IBAA became the real owners of the goods. NOPE

RATIO:
In a letter of credit- trust receipt arrangement, a bank extends a loan covered by the Letter of Credit, with the trust
receipt as a 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.

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."

IBAA did not become the real owner of the goods. It was merely the holder of a security title for the advances it
had made to the VINTOLAS The goods the VINTOLAS had purchased through IBAA financing remain their own

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property and they hold it at their own risk. The trust receipt arrangement did not convert the IBAA into an
investor; the latter remained a lender and creditor.

Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that because they have
surrendered the goods to IBAA and subsequently deposited them in the custody of the court, they are absolutely
relieved of their obligation to pay their loan because of their inability to dispose of the goods. The fact that they
were unable to sell the seashells in question does not affect IBAA's right to recover the advances it had made
under the Letter of Credit. In so arguing, the VINTOLAS conveniently close their eyes to their application for a
Letter of Credit wherein they expressly obligated themselves

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.

The civil suit instituted by IBAA is based ex contractu for breach of the Letter of Credit Trust Receipt and as such
is distinct and independent from any criminal proceedings and may proceed regardless of the result of the latter.

WHEREFORE, finding no reversible error in the judgment appealed from, the same is hereby AFFIRMED. No
costs.

2. Metropolitan Bank v. Tonda - Lex

METROPOLITAN BANK and TRUST COMPANY, petitioner, vs. JOAQUIN TONDA and MA. CRISTINA TONDA,
respondents.
(by AQUINO)

Emergency Recit:
TONDAs were granted LOCs by Metrobank. They executed 11 trust receipts to secure the release of raw materials
for their corporation, HTAC. TONDAs failed to settle their obligations despite repeated demands. They tried to
restructure their loan but they did not come up with a final agreement. The TONDAs deposited P2.8M with
Metrobank but they didnt specify that this would be applied to their obligation with the said bank. Metrobank
filed a complaint against the TONDAs for the violation of the Trust Receipts Law. The SC held that the amount of
P2.8 million was not directly paid to METROBANK to settle the trust receipt accounts, but deposited in a joint
account of Joaquin G. Tonda and a certain Wang Tien En. Furthermore, the Trust Receipts Law is violated
whenever the entrustee or the person to whom the trust receipts were issued in favor of fails to: (1) return the
goods covered by the trust receipts; or (2) return the proceeds of the sale of the said goods. Given that various
trust receipts were executed by the TONDAS and that as entrustees, they did not return the proceeds from the
goods sold nor the goods themselves to METROBANK, there is no dispute that that the TONDAS failed to comply
with the obligations under the trust receipts despite several demands from METROBANK. In Trust Receipts law
(like BP 22) the offense is punished as a malum prohibitum.
[G.R. No. 134436. August 16, 2000]
_

GONZAGA REYES, J.:

I. FACTS

Spouses TONDA, applied for and were granted commercial letters of credit by METROBANK for a period of
8 months in connection with the importation of raw textile materials to be used in the manufacturing of
garments.

The TONDAS acting both in their capacity as officers of Honey Tree Apparel Corporation (HTAC) and in
their personal capacities, executed eleven 11 trust receipts to secure the release of the raw materials to
HTAC.

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TONDAS failed to settle their obligations under the trust receipts upon maturity even after repeated
demands.

Metrobank, filed with the Provincial Prosecutor of Rizal a complaint/affidavit against the TONDAS for
violation of Trust Receipts Law

Assistant Prosecutor of Rizal recommended that the complaint be dismissed on the ground that the
complainants had failed to establish the existence of the essential elements of Estafa as charged.
Approved.

METROBANK then appealed to the DOJ. Undersecretary Esguerra reversed the findings of the Provincial
Prosecutor of Rizal and ordered the latter to file the appropriate information against the TONDAS as
charged in the complaint.

The Court of Appeals granted the TONDAS' petition and ordered the criminal complaint against them
dismissed.
o

METROBANK had failed to show a prima facie case that the TONDAS violated the Trust Receipts
Law in relation to Art. 315 (1) (b) of the Revised Penal Code

The relevant portions of the Court of Appeals decision are quoted as follows:

"HTAC had financial problems so they proposed a loan restructuring agreement with
METROBANK to enable them to finally settle all outstanding obligations with the latter.

Trust Receipts - The new management and. Mr. Joaquin G. Tonda will pay
immediately the entire principal of the outstanding Trust Receipts amounting to
P2,803,097.14. While the interest accrued up to September 13, 1991 amounting
to P409,601.57 plus the additional interest shall be re-structured together with
item no. 2 below. A joint sharing account in the name of Joaquin G. Tonda and
Wang Tien En equal to Trust Receipt amount of 1.8 Million will be opened at
Metrobank Makati. (emphasis supplied)

It would appear that the aforestated amount of 1.8 Million was erroneously written since the intention of
the petitioners was to open an account of P2.8 Million to pay the entire principal of the outstanding trust
receipts account. In fact, Joaquin Tonda and Wang Tien En deposited four different checks with a total
amount of 2.8M with Metrobank.

It was settled between the parties that the amount of P2.8 Million should be paid to cover all outstanding
obligations under the trust receipts account. Despite the inability of both parties to reach a mutually
agreeable loan restructured agreement, the amount of P2.8 Million which was deposited by the
petitioners appears to remain intact and untouched.

Tan Tiong Tick vs. American Apothecaries: if the parties fail to reach an agreement regarding the
restructuring of HTAC's loan, Metrobank can validly apply the amount deposited by the petitioners as
payment of the principal obligation under the trust receipts account.

The Court ruled that the amount of P2.8 Million deposited under petitioners' savings account with
Metrobank was indeed intended to be applied as payment for the outstanding obligations of HTAC under
the trust receipts. Metrobank had failed to show a prima facie case that the petitioners had violated the
Trust Receipts Law.

Metrobank appealed, hence this case.

Issue
Whether or not the dismissal by the Court of Appeals of the charge for violation of the Trust Receipts Law in
relation to Art. 315(1) (b) of the Revised Penal Code against the TONDAS is warranted by the evidence at hand and

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by law. Bank won; Tondas lost

Held: WHEREFORE, the petition is hereby GRANTED. The assailed Decision is REVERSED and SET ASIDE.
Ratio:

The CA gravely erred in reversing the Department of Justice on the finding of probable cause to hold the
TONDAS for trial. The documentary evidence presented during the preliminary investigation clearly show
that there was probable cause to warrant a criminal prosecution for violation of the Trust Receipts Law.

The Trust Receipts Law declares the failure to turn over the goods or the proceeds realized from the
sale thereof, as a criminal offense punishable under Article 315 (1) (b) of the Revised Penal Code. The
law is violated whenever the entrustee or the person to whom the trust receipts were issued in favor of
fails to: (1) return the goods covered by the trust receipts; or (2) return the proceeds of the sale of the
said goods. The foregoing acts constitute estafa punishable under Article 315 (1) (b) of the Revised
Penal Code. Given that various trust receipts were executed by the TONDAS and that as entrustees,
they did not return the proceeds from the goods sold nor the goods themselves to METROBANK, there
is no dispute that that the TONDAS failed to comply with the obligations under the trust receipts
despite several demands from METROBANK.

[CAs wrong decision] The Court of Appeals held that: (1) the TONDAS opened a savings account of P2.8
Million to pay the entire principal of the outstanding trust receipts account; (2) the TONDAS obtained
from a METROBANK officer a written acknowledgement of receipt of checks totaling P2.8 Million in order
to show proof of compliance with the loan restructuring proposal; (3) it was settled between the parties
that the amount of 2.8 Million should be paid to cover all outstanding obligations under the trust receipts
account; (4) the money remains deposited under the savings account of petitioners awaiting a final
agreement with METROBANK regarding the loan restructuring arrangement; and that (5) there is no
evidence suggesting that METROBANK has been damaged by the proposal and the deposit or that the
TONDAS employed fraud and deceit in their dealings with the bank.
o

(1) the amount of P2.8 million was not directly paid to METROBANK to settle the trust receipt accounts,
but deposited in a joint account of Joaquin G. Tonda and a certain Wang Tien En.
o

The parties failed to agree on the terms of the loan restructuring agreement as the offer by the
TONDAS to restructure the loan was followed by a series of counter-offers which yielded
nothing. It is axiomatic that acceptance of an offer must be unqualified and absolute to perfect a
contract.

(2) the handwritten note by the METROBANK officer acknowledging receipt of the checks amounting to
P2.8 Million made no reference to the TONDAS' trust receipt obligations, and we cannot presume that it
was anything more than an ordinary bank deposit.
o

ERRONEOUS

Article 1288 of the Civil Code provides that "compensation shall not be proper when one of the
debts consists in civil liability arising from a penal offense" as in the case at bar. The raison d'etre
for this is that, "if one of the debts consists in civil liability arising from a penal offense,
compensation would be improper and inadvisable because the satisfaction of such obligation is
imperative."[16]

(3) reliance on the negotiations for the settlement of the trust receipts obligations between the TONDAS
and METROBANK is simply misplaced. The negotiations pertain and affect only the civil aspect of the case
but does not preclude prosecution for the offense already committed. It has been held that "[a]ny
compromise relating to the civil liability arising from an offense does not automatically terminate the
criminal proceeding against or extinguish the criminal liability of the malefactor." All told, the P2.8 Million
deposit could not be considered as having settled the trust receipts obligations of the TONDAS to the end

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of extinguishing any incipient criminal culpability arising therefrom.

People vs. Nitafan:

o

"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 P.D. 115. As correctly observed by the Solicitor General, P.D. 115, like Batas
Pambansa Blg. 22, punishes the act "not as an offense against property, but as an offense
against public order. x x x The misuse of trust receipts therefore should be deterred to prevent
any possible havoc in trade circles and the banking community.

The finding that there was no fraud and deceit is likewise misplaced considering that the offense is
punished as a malum prohibitum regardless of the existence of intent or malice. A mere failure to deliver
the proceeds of the sale or the goods if not sold, constitutes a criminal offense that causes prejudice not
only to another, but more to the public interest.

3. Colinares and Veloso vs. CA and People of the Philippines
-Keith
ito muna basahin niyo. Haba ng case eh.
Emergency Recit:
Colinares and Veloso were to renovate Carmelit Sisters Covenant
Bought materials from CM builders for the construction project
The next day, applied for a letter of Credit with Phil Bank Corp (PBC) in favor of CM Builders
C&V supposedly signed a Trust Receipt which was written in fine print.
o Recognized Bank as owner of the goods, and that C&V holds them in trust while the loan has not
yet been paid. In case of default, they should sell such goods and give proceeds to the bank or in
case of no sale, return the goods to the bank.
C&V defaulted on payments. They requested that their payment terms be restructured.
Granted by the bank. But still C&V failed to pay full amount.
However, PBC filed a criminal case against C&V. Violation of PD No. 115 in relation to Article 315 Estafa.
Trial Court ruled against C&V
CA affirmed.
C&V contend that the transaction between them and the bank was only a loan and not a trust receipt
transaction.
Issue: is it a loan or trust receipt? LOAN
It was a loan. CM Builders delivered the materials to C&V and hence they are owners. The banks were not
the owners of the materials and hence they cannot entrust it.
What militates against a trust receipt transaction was that C&V applied for credit accommodation the day
after they purchased the goods.
If it were a trust receipt, the bank should have been the one who purchased the goods making them the
owners. Subsequently, they will entrust its possession to C&V and grant a loan at the same time. Then
C&V should repay the loan within the period (which would make C&V owners of the materials),
otherwise, in case of default, return the goods or its value. (In such a way, it can be considered as a
conditional sale made by the bank)

Facts:
Melvin Colinares and Lordino Veloso (C & V) were contracted by Carmelite Sisters of Cagayan de Oro City
to renovate their covenant at Camaman-an, CDO
C&V obtained materials (acoustical board, wood tiles, economy tiles, cement adhesive) form CM Builders
Centre for the construction project.

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The next day, C&V applied for a commercial letter of credit with Philippine Bank Corporation (PBC) as
payment for the goods.
PBC approved the letter of credit for P22,389.80 to cover the full invoice value of the goods.
Petitioners signed a pro-forma trust receipt as security.
o C&V were to 1) hold the materials in trust for PBC, and/or 2) to sell on cash basis and give the
proceeds to the bank or 3) if there is no sale, to return such items on Jan. 29, 1980
Loan was due on Jan. 29 1980. So C&V still had the option to pay their debt. However, In case of default,
they should sell the materials and give the proceeds to PBC or if there is no sale, to turn over the items to
PBC.
On 31 October 1979, C8&V made partial payment of P6,720
On May 7 1980, PBC demanded from C&V payment of the unpaid balance.
Instead of complying with PBCs demand, Veloso confessed that they lostP19,195.83 in the Carmelite
Monastery Project and requested for a grace period of until 15 June 1980 to settle the account. Granted.
New demand by PBC on Oct 16 1980 -> balance was 20,824.
Instead of paying, C&V proposed to restructure their payment.
o P2000 on Dec
o 1,000 per month afterwards
PBC continued to demand payment pending approval of restructure. C&V were able to make partial
payments
Subsequently in 1983, C&V were charged with violation of PD No. 115 (Trust Receipts Law) in relation to
Article 315 of the RPC (estafa).
INFORMATION:
o That contrary to the agreement laid out in the Trust Receipt, C&V refused to remit the proceeds
of the sale to the Bank and instead misappropriated to their own personal use to the prejudice of
PBC.
At the trial,
o Veloso insisted that the transaction was a clean loan per verbal guarantee of PBC Bank
Manager then.
o They signed the documents without reading the fine print, only learning of the trust receipt
implication much later.
o They were assured that the trust receipt was a mere formality.
Trial court ruled conviction. They were sentenced to 2yrs 1 day of prision correctional as minimum.
Maximum was 6yrs 1 day of prision mayor. Order to indemnify as well (20,824.44)
In such judgment, Trial Court Considered:
o The transaction as a trust receipt under Sec. 4 PD No. 115
o The Use of the goods in the monastery an act of disposing contemplated under Sec. 13 PD No
115
o The charge invoice for goods issued by CM Builders Centre as document within the meaning of
SEC. 3
o Failure of petitioners to turn over the amount they owed to PBC constituted estafa.
C&V appealed. No trust receipt transaction. At most, civil liability only.
CA denied and modified to increase their penalty. PM 6yrs 1 day 14yrs 8ms 1 day RT
o Documentary evidence prevails over Velosos testimony.
Motion for Reinvestigation by C&V. Presented new evidence.
o Disclosure on Loan Credit/Transaction. Such document would have proved that the transaction
was a simple loan because it bore 14% interest as opposed to trust receipts which did not bear
interests.
o Also, since they were allowed by PBC to pay in installments, there was a novation which created
a creditor debtor relationship.
Denied by CA. Evidence does not alter the result of the case. Hence this petition.
C&V contends that there was already full payment. THEY want new trial.

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Sol Gen said that such payment was akin to voluntary surrender or plea of guilty which does not
extinguish their criminal liability

Issue: Is it a pure loan or Trust Receipt Transaction? LOAN

Ratio:
(Not nego)
The document of DISCLOSURE OF LOAN and CREDIT TRANSACTION is not newly discovered evidence. No need for
new trial.
The evidence could have been presented in trial which C&V did not present.
The alleged newly discovered evidence is mere forgotten evidence that jurisprudence excludes as a ground for
new trial.

NEGO
It was however a loan.
Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt transaction as any transaction by and
between a person referred to as the entruster, and another person referred to as the entrustee, whereby the
entruster who owns or holds absolute title or security interest over certain specified goods, documents or
instruments, releases the same to the possession of the entrustee upon the latters execution and delivery to the
entruster of a signed document called a trust receipt wherein the entrustee binds himself to hold the designated
goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the
extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or
instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and
conditions specified in the trust receipt.
There are two possible situations in a trust receipt transaction. The first is covered by the provision which refers to
money received under the obligation involving the duty to deliver it (entregarla) to the owner of the merchandise
sold. The second is covered by the provision which refers to merchandise received under the obligation to return
nd
it (devolvera) to the owner. (2 situation would have been applied if proper. But no, as the case involved a loan.)

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

A thorough examination of the facts obtaining in the case at bar reveals that the transaction intended by the
parties was a simple loan, not a trust receipt agreement.

Petitioners received the merchandise from CM Builders Centre on 30 October 1979. On that day, ownership over
the merchandise was already transferred to Petitioners who were to use the materials for their construction
project. It was only a day later, 31 October 1979, that they went to the bank to apply for a loan to pay for the
merchandise.

This situation belies what normally obtains in a pure trust receipt transaction where goods are owned by the
bank and only released to the importer in trust subsequent to the grant of the loan.

The bank made it appear that they owned the goods. They changed the date of purchase of goods from October
30 to October 31 to make it prior to the granting of the loan. But what really happened was C&V bought the
goods and next day they applied for a loan.
The Information charges Petitioners with intent to defraud and misappropriating the money for their personal
use. The mala prohibita nature of the alleged offense notwithstanding, intent as a state of mind was not proved to

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be present in Petitioners situation. Petitioners employed no artifice in dealing with PBC and never did they evade
payment of their obligation nor attempt to abscond. Instead, Petitioners sought favorable terms precisely to meet
their obligation.
Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale, contrary to the
express provision embodied in the trust receipt. They are contractors who obtained the fungible goods for their
construction project. At no time did title over the construction materials pass to the bank, but directly to the
Petitioners from CM Builders Centre. This impresses upon the trust receipt in question vagueness and ambiguity,
which should not be the basis for criminal prosecution in the event of violation of its provisions.

NATURE OF TRUST RECEIPT
The bank acquires a security interest in the goods as holder of a security title for the advances it had made to the
entrustee. The ownership of the merchandise continues to be vested in the person who had advanced payment
until he has been paid in full, or if the merchandise has already been sold, the proceeds of the sale should be
turned over to him by the importer or by his representative or successor in interest. To secure that the bank shall
be paid, it takes full title to the goods at the very beginning and continues to hold that title as his indispensable
security until the goods are sold and the vendee is called upon to pay for them; hence, the importer has never
owned the goods and is not able to deliver possession. In a certain manner, trust receipts partake of the nature of
a conditional sale where the importer becomes absolute owner of the imported merchandise as soon as he has
paid its price.

Trust receipt transactions are 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.