Banco Filipino Savings and Mortgage
Bank vs. Central Bank
G.R. No. 70054, December 11, 1991
Pendency of the case did not diminish the powers and authority of the designated liquidator to
effectuate and carry on the administration of the bank. In the instant case, the basic standards of
substantial due process were not observed.
Facts:
Top Management Programs Corporation and Pilar Development Corporation are corporations
engaged in the business of developing residential subdivisions.Top Management and Pilar
Development obtained several loans from Banco Filipino all secured by real estate mortgage in their
various properties in Cavite.
The Monetary Board by Ramon Tiaoqui, Special Assistant to the Governor and Head, SES
Department III submitted a report finding that the bank is insolvent and recommending the
appointment of a receiver. The Monetary Board, based on the Tiaoqui report, issued a resolution
finding Banco Filipino insolvent and placing it under receivership. Subsequently, the Monetary Board
issued another resolution placing the bank under liquidation and designated a liquidator. By virtue of
her authority as liquidator, Valenzuela appointed the law firm of Sycip, Salazar, et al. to represent
Banco Filipino in all litigations.
Banco Filipino filed the petition for certiorari questioning the validity of the resolutions issued by the
Monetary Board authorizing the receivership and liquidation of Banco Filipino.A temporary
restraining order was issued enjoining the respondents from executing further acts of liquidation of
the bank. However, acts and other transactions pertaining to normal operations of a bank are not
enjoined. Subsequently, Top Management and Pilar Development failed to pay their loans on the due
date. Hence, the law firm of Sycip, Salazar, et al. acting as counsel for Banco Filipino under authority
of the liquidator, applied for extra-judicial foreclosure of the mortgage over Top Management and
Pilar Developments properties. Thus, the Ex-Officio Sheriff of the Regional Trial Court of Cavite
issued a notice of extra-judicial foreclosure sale of the properties. Top Management and Pilar
Development filed 2 separate petitions for injunction and prohibition with the respondent appellate
court seeking to enjoin the Regional Trial Court of Cavite, the ex-officio sheriff of said court and
Sycip, Salazar, et al. from proceeding with foreclosure sale which were subsequently dismissed by the
court. Hence this petition
Issue:
1) Whether or not the liquidator has the authority to prosecute as well as to defend suits and to
foreclose mortgages for and behalf of the bank while the issue on the validity of the receivership and
liquidation is still pending resolution.
2) Whether or not the closure of the bank based on the Tiaoqui report is correct.
BANKING NO. 10 1
Held:
1) Whether or not the liquidator has the authority to prosecute as well as to defend suits and to
foreclose mortgages for and behalf of the bank while the issue on the validity of the receivership and
liquidation is still pending resolution.
Section 29 of the Republic Act No. 265, as amended known as the Central Bank Act, provides that
when a bank is forbidden to do business in the Philippines and placed under receivership, the person
designated as receiver shall immediately take charge of the bank s assets and liabilities, as
expeditiously as possible, collect and gather all the assets and administer the same for the benefit of
its creditors, and represent the bank personally or through counsel as he may retain in all actions or
proceedings for or against the institution, exercising all the powers necessary for these purposes
including, but not limited to, bringing and foreclosing mortgages in the name of the bank. If the
Monetary Board shall later determine and confirm that banking institution is insolvent or cannot
resume business safety to depositors, creditors and the general public, it shall, public interest requires,
order its liquidation and appoint a liquidator who shall take over and continue the functions of
receiver previously appointed by Monetary Board. The liquid for may, in the name of the bank and
with the assistance counsel as he may retain, institute such actions as may necessary in the appropriate
court to collect and recover a counts and assets of such institution or defend any action ft against the
institution.
Pendency of the case did not diminish the powers and authority of the designated liquidator to
effectuate and carry on the administration of the bank. The Court did not prohibit however acts a as
receiving collectibles and receivables or paying off credits claims and other transactions pertaining to
normal operate of a bank. There is no doubt that the prosecution of suits collection and the
foreclosure of mortgages against debtors the bank by the liquidator are among the usual and ordinary
transactions pertaining to the administration of a bank.
2) Whether or not the closure of the bank based on the Tiaoqui report is correct.
Clearly, Tiaoqui based his report on an incomplete examination of petitioner bank and outrightly
concluded therein that the latters financial status was one of insolvency or illiquidity. In the instant
case, the basic standards of substantial due process were not observed. Time and again, We have held
in several cases, that the procedure of administrative tribunals must satisfy the fundamentals of fair
play and that their judgment should express a well-supported conclusion. The test of insolvency laid
down in Section 29 of the Central Bank Act is measured by determining whether the realizable assets
of a bank are leas than its liabilities. Hence, a bank is solvent if the fair cash value of all its assets,
realizable within a reasonable time by a reasonable prudent person, would equal or exceed its total
liabilities exclusive of stock liability; but if such fair cash value so realizable is not sufficient to pay
such liabilities within a reasonable time, the bank is insolvent.
Examination appraises the soundness of the institutions assets, the quality and character of
management and determines the institutions compliance with laws, rules and regulations. Audit is a
detailed inspection of the institutions books, accounts, vouchers, ledgers, etc. to determine the
recording of all assets and liabilities. Hence, examination concerns itself with review and appraisal,
while audit concerns itself with verification.
BANKING NO. 10 2
Banco Filipino Savings and Mortgage Bank vs. The Monetary Board
G.R. No. 70054 December 11, 1991
Facts
Banco Filipino Savings and Mortgage Bank commenced operations on July 9, 1964. It has 89
operating branches with more than 3 million depositors. It has an approved emergency advance of
P119.7 million.
The Monetary Board placed Banco Filipino Savings and Mortgage Bank under conservatorship of
Basilio Estanislao. He was later replaced by Gilberto Teodoro as conservator on August 10, 1984.
Gilberto Teodoro submitted a report dated January 8, 1985 to respondent The Monetary Board on the
conservatorship of the bank.
Subsequently, another report dated January 23, 1985 was submitted to the Monetary Board by Ramon
Tiaoqui regarding the major findings of examination on the financial condition of Banco Filipino Savings
and Mortgage Bank as of July 31, 1984, finding the bank one of insolvency and illiquidity and provides
sufficient justification for forbidding the bank from engaging in banking.
The Monetary Board ordered the closure of Banco Filipino and designated Mrs. Carlota P. Valenzuela
as Receiver.
Banco Filipino filed a complaint with the RTC to set aside the action of the Monetary Board placing the
bank under receivership and filed with the SC the petition for certiorari and mandamus.
Carlota Valenzuela, as Receiver and Arnulfo Aurellano and Ramon Tiaoqui as Deputy Receivers of
Banco Filipino submitted their report on the receivership of the bank to the Monetary Board, finding that
the condition of the banking institution continues to be one of insolvency, i.e., its realizable assets are
insufficient to meet all its liabilities and that the bank cannot resume business with safety to its
depositors, other creditors and the general public, and recommends the liquidation of the bank.
Banco Filipino filed a motion before the SC praying that a restraining order or a writ of preliminary
injunction be issued to enjoin respondents from causing the dismantling of Banco Filipino signs in its
main office and 89 branches. The SC ordered the issuance of the temporary restraining order.
The SC directed the Monetary Board and Central Bank hold hearings at which the Banco Filipino
should be heard.
Issue
BANKING NO. 10 3
Whether or not the Central Bank and the Monetary Board acted arbitrarily and in bad faith in finding and
thereafter concluding that Banco Filipino Savings and Mortgage Bank is insolvent, and in ordering its closure
Ruling
The SC granted the petitions, annulled and set aside the order of the Central Bank and the Monetary Board.
The Central Bank and the Monetary Board are ordered to reorganize Banco Filipino Savings and Mortgage
Bank and allow the latter to resume business in the Philippines under the comptrollership of both the Central
Bank and the Monetary Board.
The closure and receivership of Banco Filipino Savings and Mortgage Bank, which was ordered by the
Monetary Board on is null and void.
The Monetary Board may order the cessation of operations of a bank in the Philippine and place it under
receivership upon a finding of insolvency or when its continuance in business would involve probable loss its
depositors or creditors. If the Monetary Board shall determine and confirm within 60 days that the bank is
insolvent or can no longer resume business with safety to its depositors, creditors and the general public, it
shall, if public interest will be served, order its liquidation.
Under Section 29 of the Central Bank Act, the following are the mandatory requirements to be complied with
before a bank found to be insolvent is ordered closed and forbidden to do business in the Philippines: (1)an
examination shall be conducted by the head of the appropriate supervising or examining department or his
examiners or agents into the condition of the bank; (2) it shall be disclosed in the examination that the condition
of the bank is one of insolvency, or that its continuance in business would involve probable loss to its
depositors or creditors; (3) the department head concerned shall inform the Monetary Board in writing, of the
facts; and (4) the Monetary Board shall find the statements of the department head to be true.
Clearly, Tiaoqui based his report on an incomplete examination of the bank and outrightly concluded that the
latter's financial status was one of insolvency or illiquidity. He arrived at the conclusion: that as of July 31, 1984,
total capital accounts consisting of paid-in capital and other capital accounts such as surplus, surplus reserves
and undivided profits aggregated 351.8 million; that capital adjustments, however, wiped out the capital
accounts and placed the bank with a capital deficiency amounting to 334.956 million; that the biggest
adjustment which contributed to the deficit is the provision for estimated losses on accounts classified as
doubtful and loss which was computed at 600.4 million pursuant to the examination. The valuation which was
set up or deducted against the capital accounts of the bank in arriving at the latter's financial condition. Tiaoqui
admits the insufficiency and unreliability of the findings of the examiner as to the setting up of recommended
valuation reserves from the assets of the bank.
The examination contemplated in Sec. 29 of the CB Act as a mandatory requirement was not completely and
fully complied with. Despite the existence of the partial list of findings in the examination of the bank, there
were still highly significant items to be weighed and determined such as the matter of valuation reserves,
before these can be considered in the financial condition of the bank. It would be a drastic move to conclude
prematurely that a bank is insolvent if the basis for such conclusion is lacking and insufficient, especially if
doubt exists as to whether such bases or findings faithfully represent the real financial status of the bank.
In arriving at the computation of realizable assets of Banco Filipino, respondents used its books which
undoubtedly are not reflective of the actual cash or fair market value of its assets which is not the proper
procedure contemplated in Sec. 29 of the Central Bank Act. The receivership of Banco Filipino, indicates that
total liabilities of 4,540.84 million does not exceed the total assets of 4,981.53 million. Likewise, the
consolidated statement of condition of the bank prepared by the Central Bank Authorized Deputy Receiver
Artemio Cruz shows that total assets amounting to 4,981,522,996.22 even exceeds total liabilities amounting
to 4,540,836,834.15. Based on the foregoing, there was no valid reason for the Valenzuela, Aurellano and
Tiaoqui report to finally recommend the liquidation of Banco Filipino instead of its rehabilitation.
BANKING NO. 10 4
Trust Receipts Law
Definition/Concept of a Trust Receipt Transaction
Loan/Security Feature
The Trust Receipts Law punishes the dishonesty and abuse of confidence in the handling of money or goods to
the prejudice of another regardless of whether the latter is the owner or not. The law does not seek to enforce
payment of the loan, thus, there is no violation of the constitutional provision against imprisonment for non-
payment of debt. (People vs. Hon. Nitafan and Betty Sia Ang, 207 SCRA 726 (1992)
BANKING NO. 10 5
[G.R. No. 119858. April 29, 2003]
EDWARD C. ONG, petitioner, vs. THE COURT OF APPEALS AND THE PEOPLE OF
THE PHILIPPINES, respondents.
Facts:
Assistant City Prosecutor Dina P. Teves of the City of Manila charged petitioner and
Benito Ong with two counts of estafa under separate Informations dated 11 October
1991.
In Criminal Case No. 92-101989, the Information indicts petitioner and Benito Ong of the
crime of estafa committed as follows:
That on or about July 23, 1990, in the City of Manila, Philippines, the said accused,
representing ARMAGRI International Corporation, conspiring and confederating together
did then and there willfully, unlawfully and feloniously defraud the SOLIDBANK
Corporation represented by its Accountant, DEMETRIO LAZARO, a corporation duly
organized and existing under the laws of the Philippines located at Juan Luna Street,
Binondo, this City, in the following manner, to wit: the said accused received in trust
from said SOLIDBANK Corporation the following, to wit: 10,000 bags of urea valued at
P2,050,000.00 specified in a Trust Receipt Agreement and covered by a Letter
of Credit No. DOM GD 90-009 in favor of the Fertiphil Corporation.
In Criminal Case No. 92-101990, the Information likewise charges petitioner of the crime
of estafa committed as follows:
That on or about July 6, 1990, in the City of Manila, Philippines, the said accused,
representing ARMAGRI International Corporation, defraud the SOLIDBANK Corporation
represented by its Accountant, DEMETRIO LAZARO. The said accused received in trust
from said SOLIDBANK Corporation the following goods, to wit: 125 pcs. Rear diff. assy
BANKING NO. 10 6
RNZO 49 50 pcs. Front & Rear diff assy. Isuzu Elof, 85 units 1-Beam assy. Isuzu Spz all
valued at P2,532,500.00 specified in a Trust Receipt Agreement and covered by a
Domestic Letter of Credit No. DOM GD 90-006 in favor of the Metropole Industrial Sales
with address at P.O. Box AC 219, Quezon City.
Issue: WON PETITIONER WAS NECESSARILY THE ONE RESPONSIBLE FOR THE OFFENSE,
BY THE MERE CIRCUMSTANCE THAT PETITIONER ACTED AS AGENT AND SIGNED FOR THE
ENTRUSTEE CORPORATION.
Held: Section 13 of the Trust Receipts Law which provides: x x x. If the violation is
committed by a corporation, partnership, association or other juridical entities, the
penalty provided for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense, without
prejudice to the civil liabilities arising from the offense. We hold that petitioner is a
person responsible for violation of the Trust Receipts Law.
The Trust Receipts Law is violated whenever the entrustee fails to: (1) turn over the
proceeds of the sale of the goods, or (2) return the goods covered by the trust receipts if
the goods are not sold.[18] The mere failure to account or return gives rise to the crime
which is malum prohibitum.[19] There is no requirement to prove intent to defraud.[20]
The Trust Receipts Law recognizes the impossibility of imposing the penalty of
imprisonment on a corporation. Hence, if the entrustee is a corporation, the law makes
the officers or employees or other persons responsible for the offense liable to suffer the
penalty of imprisonment. The reason is obvious: corporations, partnerships, associations
and other juridical entities cannot be put to jail. Hence, the criminal liability falls on the
human agent responsible for the violation of the Trust Receipts Law.
Colinares v CA G.R. No. 90828.
September 5, 2000
The ownership of the merchandise continues to be vested in the person who had advanced payment
until he has been paid in full, or if the merchandise has already been sold, the proceeds of the sale
should be turned over to him by the importer or by his representative or successor in interest.
Facts: Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a
consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the latters
convent at Camaman-an, Cagayan de Oro City. Colinares applied for a commercial letter of credit
with the Philippine Banking Corporation, Cagayan de Oro City branch (hereafter PBC) in favor of
CM Builders Centre. PBC approved the letter of credit for P22,389.80 to cover the full invoice value
of the goods. Petitioners signed a pro-forma trust receipt as security.
BANKING NO. 10 7
PBC debited P6,720 from Petitioners marginal deposit as partial payment of the loan. After the
initial payment, the spouses defaulted. PBC wrote to Petitioners demanding that the amount be paid
within seven days from notice. Instead of complying with PBCs demand, Veloso confessed that they
lost P19,195.83 in the Carmelite Monastery Project and requested for a grace period of until 15 June
1980 to settle the account. Colinares proposed that the terms of payment of the loan be
modified P2,000 on or before 3 December 1980, and P1,000 per month . Pending approval of the
proposal, Petitioners paid P1,000 to PBC on 4 December 1980, and thereafter P500 on 11 February
1981, 16 March 1981, and 20 April 1981. Concurrently with the separate demand for attorneys fees
by PBCs legal counsel, PBC continued to demand payment of the balance. On 14 January 1983,
Petitioners were charged with the violation of P.D. No. 115 (Trust Receipts Law) in relation to Article
315 of the Revised Penal Code
During trial, petitioner Veloso insisted that the transaction was a clean loan as per verbal guarantee
of Cayo Garcia Tuiza, PBCs former manager. He and petitioner Colinares signed the documents
without reading the fine print, only learning of the trust receipt implication much later. When he
brought this to the attention of PBC, Mr. Tuiza assured him that the trust receipt was a mere formality.
The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the
dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another
regardless of whether the latter is the owner. Here, it is crystal clear that on the part of Petitioners
there was neither dishonesty nor abuse of confidence in the handling of money to the prejudice of
PBC. Petitioners continually endeavored to meet their obligations, as shown by several receipts issued
by PBC acknowledging payment of the loan.
Issue: Whether or not the transaction of Colinares falls within the ambit of the Law on Trust Receipt
Held: Colinares received the merchandise from CM Builders Centre on 30 October 1979. On that day,
ownership over the merchandise was already transferred to Petitioners who were to use the materials
for their construction project. It was only a day later, 31 October 1979, that they went to the bank to
apply for a loan to pay for the merchandise. This situation belies what normally obtains in a pure trust
receipt transaction where goods are owned by the bank and only released to the importer in trust
subsequent to the grant of the loan.
The bank acquires a security interest in the goods as holder of a security title for the advances it had
made to the entrustee. The ownership of the merchandise continues to be vested in the person who
had advanced payment until he has been paid in full, or if the merchandise has already been sold, the
proceeds of the sale should be turned over to him by the importer or by his representative or successor
in interest. To secure that the bank shall be paid, it takes full title to the goods at the very beginning
and continues to hold that title as his indispensable security until the goods are sold and the vendee is
called upon to pay for them; hence, the importer has never owned the goods and is not able to deliver
possession. In a certain manner, trust receipts partake of the nature of a conditional sale where the
importer becomes absolute owner of the imported merchandise as soon as he has paid its price. There
are two possible situations in a trust receipt transaction. The first is covered by the provision which
refers to money received under the obligation involving the duty to deliver it (entregarla) to the owner
of the merchandise sold. The second is covered by the provision which refers to merchandise received
under the obligation to return it (devolvera) to the owner. Failure of the entrustee to turn over the
proceeds of the sale of the goods, covered by the trust receipt to the entruster or to return said goods if
they were not disposed of in accordance with the terms of the trust receipt shall be punishable as
estafa under Article 315 (1) of the Revised Penal Code, without need of proving intent to defraud.
BANKING NO. 10 8
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 73271 May 29, 1987
SPOUSES TIRSO I. VINTOLA and LORETO DY VINTOLA, defendants-appellants,
vs.
INSULAR BANK OF ASIA AND AMERICA, plaintiff-appellee.
MELENCIO-HERRERA, J.:
This case was appealed to the Intermediate Appellate Court which, however, certified the same to this
Court, the issue involved being purely legal.
The facts are not disputed.
On August 20, 1975 the spouses Tirso and Loreta Vintola (the VINTOLAS, for short), doing business
under the name and style "Dax Kin International," engaged in the manufacture of raw sea shells into
finished products, applied for and were granted a domestic letter of credit by the Insular Bank of Asia
and America (IBAA), Cebu City. in the amount of P40,000.00. The Letter of Credit authorized the
bank to negotiate for their account drafts drawn by their supplier, one Stalin Tan, on Dax Kin
International for the purchase of puka and olive seashells. In consideration thereof, the VINTOLAS,
jointly and severally, agreed to pay the bank "at maturity, in Philippine currency, the equivalent, of the
aforementioned amount or such portion thereof as may be drawn or paid, upon the faith of the said
credit together with the usual charges."
On the same day, August 20, 1975, having received from Stalin Tan the puka and olive shells worth
P40,000.00, the VINTOLAS executed a Trust Receipt agreement with IBAA, Cebu City. 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 as soon as
received to (IBAA) the due date indicated in the document was October 19, 1975.
Having defaulted on their obligation, IBAA demanded payment from the VINTOLAS in a letter dated
January 1, 1976. The VINTOLAS, who were 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, misapplied and converted for their own personal use and benefit the aforesaid goods.
During the trial of the criminal case the VINTOLAS turned over the seashells to the custody of the
Trial Court.
BANKING NO. 10 9
On April 12, 1982, the then Court of First Instance of Cebu, Branch VII, acquitted the VINTOLAS of
the crime charged, after finding that the element of misappropriation or conversion was inexistent.
Concluded the Court:
Finally, it should be mentioned that under the trust receipt, in the event of default and/or non-
fulfillment on the part of the accused of their undertaking, 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. ... 2
Shortly thereafter, IBAA commenced the present civil action to recover the value of the goods before
the Regional Trial Court of Cebu, Branch XVI.
Holding that the complaint was barred by the judgment of acquittal in the criminal case, said Court
dismissed the complaint. However, on IBAA's motion, the Court granted reconsideration and:
1. Order(ed)defendants jointly and severally to pay the plaintiff the sum of Seventy Two Thousand
Nine Hundred Eighty Two and 27/100 (P72,982.27), Philippine Currency, plus interest of 14% per
annum and service charge of one (1%) per cent per annum computed from judicial demand and until
the obligation is fully paid;
2. Ordered defendants jointly and severally to pay attorney's fees to the plaintiff in the sum of Four
Thousand (P4,000.00) pesos, Philippine Currency, plus costs of the suit. 3
The VINTOLAS rest their present appeal on the principal allegation that their acquittal in the Estafa
case bars IBAA's filing of the civil action because IBAA had not reserved in the criminal case its right
to enforce separately their civil liability. They maintain that by intervening actively in the prosecution
of the criminal case through a private prosecutor, IBAA had chosen to file the civil action impliedly
with the criminal action, pursuant to Section 1, Rule 111 of the 1985 Rules on Criminal Procedure,
reading:
Section 1. Institution of criminal and civil action. When a criminal action is instituted, the civil
action for the recovery of civil liability arising from the offense charged is impliedly instituted with
the criminal action, unless the offended party expressly waives the civil action or reserves his right to
institute it separately. ...
and that since the judgment in the criminal case had made a declaration that the facts from which the
civil action might arise did not exist, the filing of the civil action arising from the offense is now
barred, as provided by Section 3-b of Rule 111 of the same Rules providing:
(b) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction
proceeds from a declaration in a final judgment that the fact from which the civil might arise did not
exist. In other cases, the person entitled to the civil action may institute it in the jurisdiction in the
manner provided by law against the person who may be liable for restitution of the thing and
reparation or indemnity for the damage suffered.
Further, the VINTOLAS take the position that their obligation to IBAA has been extinguished
inasmuch as, through no fault of their own, they were unable to dispose of the seashells, and that they
BANKING NO. 10 10
have relinguished possession thereof to the IBAA, as owner of the goods, by depositing them with the
Court.
The foregoing submission overlooks the nature and mercantile usage of the transaction involved. 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 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.
Thus, Section 4 of P.D. No. 115 defines a trust receipt transaction as:
... any transaction by and between a person referred to in this Decree as the entruster, and another
person referred to in this Decree as the entrustee, whereby the entruster, who owns or holds absolute
title or security interests over certain specified goods, documents or instruments, releases the same to
the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed
document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods,
documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods,
documents or instrument 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, or for other
purposes substantially equivalent to any one of the following:
1. In the case of goods or documents, (a) to sell the goods or procure their sale, ...
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." 4 As defined in our laws:
(h) "Security Interest"means a property interest in goods, documents or instruments to secure
performance of some obligations of the entrustee or of some third persons to the entruster and
includes title, whether or not expressed to be absolute, whenever such title is in substance taken or
retained for security only. 5
As elucidated in Samo vs. People 6 "a trust receipt is considered 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."
Contrary to the allegation of the VINTOLAS, 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.
... for the bank has previously extended a loan which the L/C represents to the importer, and by that
loan, the importer should be the real owner of the goods. If under the trust receipt, the bank is made to
appear as the owner, it was but an artificial expedient, more of a legal fiction than fact, for if it were
so, it could dispose of the goods in any manner it wants, which it cannot do, just to give consistency
BANKING NO. 10 11
with the 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. ... 7
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 in these terms:
IN CONSIDERATION THEREOF, I/we promise and agree to pay you at maturity in Philippine
Currency the equivalent of the above amount or such portion thereof as may be drawn or paid upon
the faith of said credit together with the usual charges. ... (Exhibit "A")
They further agreed that their marginal deposit of P8,000.00, later increased to P11,000.00
be applied, without further proceedings or formalities to pay or reduce our obligation under this letter
of credit or its corresponding Trust Receipt. (Emphasis supplied) 8
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. 9 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. Under the situational circumstances of the parties, they are
governed by Article 31 of the Civil Code, explicitly providing:
Art. 31. When the civil action is based on an obligation not arising from the act or omission
complained of as a felony, such civil action may proceed independently of the criminal proceedings
and regardless of the result of the latter.
WHEREFORE, finding no reversible error in the judgment appealed from, the same is hereby
AFFIRMED. No costs.
SO ORDERED.
SPOUSES TIRSO VINTOLA AND LORETA DY VS INSULAR BANK OF ASIA ANDAMERICA, (1987)
150 SCRA 578
BANKING NO. 10 12
FACTS:
Petitioner spouses Vintola owns and manages manufacturing of raw seashells into finished products, under
their business name, Dax kin International. They applied for domestic letter of credit by respondent Insular
Bank of Asia and America which was granted. Then, executed a Trust Receipt Agreement with Insular bank
stipulating that the Vintolas shall hold the goods in trust for IBAA. Having defaulted in its payment, the Vintolas
offered to return the goods to IBAA, but the latter refused. Due to their continued refusal, IBAA charged them
with estafa. The Court acquitted the Vintolas.
ISSUE: Whether or not IBAA became the real owners of the goods held in trust by the Vintolas.
RULING: No. Insular bank of Asia and America did not become the holder or real owner of the goods. The
Vintolas retained ownership of the goods. TheCourt held that the trust receipt arrangement did not convert the
IBAA intoan investor, it remained a lendor and creditor. Under the law, a trust receipt is a document wherein the
entrustee binds himself to hold thedesignated goods, documents or instruments in trust for the entruster to sell
or otherwise dispose of the goods, to the amount owing to the entruster.
MELVIN COLINARES AND LORDINO VELOSO VS COURT OF APPEALS AND THE PEOPLE OF
THE PHILIPPINES, 339 SCRA 609
FACTS:
BANKING NO. 10 13
Petitioners Melvin Colinares and Lordino Veloso were contracted by the Carmelite Sisters of
Cagayan de Oro City to renovate the latters convent. In order to ensue the construction of the
convent, petitioners applied for a commercial letter of credit with Philippine Banking Corporation.
The latter approved the credit to cover the full invoice value of the goods to be used in the
construction. Petitioners signed a pro-forma trust receipt as security. Petitioners failed to pay on time,
hence Philippine Banking Corporation instituted a suit against petitioners charging them with violation
of the Trust Receipts Law or Presidential Decree 115. The trial court rendered its decision against
petitioners, contending that the transaction instituted between them is a trust receipt transaction. On
appeal, Court of Appeals modified the lowers court ruling by increasing the penalty to six (6) years.
Hence, the petition.
ISSUE:
Whether or not the transaction made was a trust receipt transaction or simple loan?
RULING:
A simple loan. The Court held that the transaction entered into between the petitioners and bank was
not a trust receipt transaction but a simple loan. Petitioners were acquitted.
BANKING NO. 10 14
