RETAIL TRADE, ANTI-DUMMY & TRUST RECEIPTS
BF GOODRICH v REYES WHEREFORE, the lower court decision is affirmed
121 SCRA 363
FACTS:
Relying on the equal protection clause, BF Goodrich
contends that it does not fall within the ban. It is engaged in the
business of manufacturing and selling rubber products to
dealers, who in turn sells it to others. Under the statute, it
cannot engage in retail business, namely to sell direct to the
general public, merchandise, commodities or goods for
consumption. It admitted that it sold directly to the government
and all its instrumentalities and/or agencies; public utilities;
agricultural enterprises; logging, mining, and natural resources
exploration firms; automotive assembly plants who buy its
products in large bulk; industrial enterprises; and employees
and officers of its company.
Accordingly, a restraining order was issued by the RTC.
Subsequently, the answer was duly filed, the principal defenses
being that the petitioner should not be considered exempt as it
is not a corporation wholly owned by citizens of the Philippines
and that even on the assumption that such was the case, it
being alleged in the petition that only 1.46% of its capital stock
was owned by aliens, non-Filipinos or non-Americans, the Parity
Amendment being still in force and effect at the time of the
filing of this petition, still Republic Act 1180 is quite clear as to
its not being applicable to petitioner considering the allegations
of the petition. The plea was for dismissal.
In the stipulation of facts, the allegations set forth
above were admitted as to its selling to dealers and distributors
primarily but likewise selling directly to certain entities and
individuals named. Paragraph XX of the stipulation of facts
made mention of the opinion of the then Secretary of Justice,
Pedro Tuason, who ruled that a corporation whose capital stock
was 99.99% Filipino and 0.01% alien was exempt from the
provisions of Republic Act No. 1180, based on the doctrine of
"de minimis non curat lex"; hence, the said corporation could
retail.
ISSUE:
Whether the business of BF Goodrich constitutes “retail
trade” and thus, restrained from engaging in the business.
HELD:
A ruling on the question raised as to the precise
meaning of retail business is obviated by the issuance of
Presidential Decree No. 714 amending Republic Act No. 1180.
Under the former, which took effect without presidential
approval on June 19, 1954, the term "retail business" covers
"any act, occupation or calling of habitually selling direct to the
general public merchandise, commodities or goods for
consumption, but shall not include: (a) a manufacturer,
processor, laborer or worker selling to the general public the
products manufactured, processed or produced by him if his
capital does not exceed five thousand pesos, or (b) a farmer or
agriculturist selling the product of his farm." Under the aforesaid
PD, two more paragraphs were included. They are: "(c) a
manufacturer or processor selling to the industrial and
commercial users or consumers who use the products bought by
them to render service to the general public and/or to produce
or manufacture goods which are in turn sold to them; (d) a
hotel- owner or keeper operating a restaurant irrespective of the
amount of capital, provided that the restaurant is necessarily
included in, or incidental to, the hotel business." It is clear from
the above that proprietary planters and persons engaged in the
exploration of natural resources are included within the
aforesaid amendment. The lower court decision, however, is in
accordance with law insofar as employees and officers of
petitioners are concerned. As thus modified, the decision calls
for affirmance.
declaring that petitioner is not engaged in retail business within
the purview of Section 4 of Republic Act No. 1180 in accordance
with Presidential Decree No. 714, except as to its sales to its
employees and offices. The restraining order issued is likewise
made permanent but subject to the above modification. No
costs.
MARSMAN v FIRST COCONUT CENTRAL
162 SCRA 206
FACTS:
First Coconut Central Co., Inc. purchased on installment
one diesel generating unit worth P21,000.00 from Madrid
Trading. As down payment, the defendant company paid the
amount of P4,000.00 to Madrid. Upon delivery, they agreed that
the payment of the balance of P17,000.00 in three (3) equal
monthly installments to begin from date of delivery with usual
clause on interests and attorney's fees. As security for the
satisfaction of the said obligation, a chattel mortgageover the
same diesel generating unit was constituted by the defendant
First Coconut Central Co., Inc. in favor of Madrid Trading. Madrid
Trading assigned all its rights under the chattel mortgage to the
herein plaintiff, Marsman & Company, Inc. by virtue of a Deed of
Assignment. Then the defendant company paid Marsman &
Company, Inc. the sum of P2,000.00, leaving a balance of
P15,000.00.
For failure to pay the remaining balance despite
repeated demands, Marsman & Company, Inc. brought this
action to recover the balance of defendant company's account
in the sum of Fourteen Thousand Pesos (P14,000.00).
CFI rendered a judgement in favor of the plaintiff and
against the defendant in the amount of P14,000.00, with
interest at the rate of 12% per annum plus attorneys fees and
other fees.
First Coconut appealed to the CA. The CA stated that
the sale in question violated Republic Act No. 1180, setting
aside the judgement of the CFI and dismissing the case. Hence,
this petition.
ISSUE:
Whether the sale of industrial machinery covered by
the Anti-Dummy Law and the Retail Trade Nationalization Law.
HELD:
NO! Marsman cannot be guilty of violating the Anti-
Dummy Law or of using a dummy since it is not prohibited by
the Retail Trade Nationalization Law from selling the diesel
generating unit to herein respondent.
For a sale to be considered as retail, the following
elements should concur: (1) The seller should be habitually
engaged in selling; (2) The sale must be direct to the general
public; and (3) The object of the sale is limited to merchandise,
commodities or goods for consumption.
In this case, the first two elements are present. It is the
presence of the third element that must be determined. The last
element refers to the subject of the retailer's activities or what
he is selling, i.e., consumption goods or consumer goods.
Consumer goods may be defined as "goods which are used or
bought for use primarily for personal, family or household
purposes. Such goods are not intended for resale or further use
in the production of other products." In other words, consumer
goods are goods which by their very nature are ready for
consumption.
In the case at bar, the article in controversy is a piece
of industrial machinery—a diesel generating unit. The said unit
was purchased by respondent to be used in its coconut central
and as such may be classified as "production or producer
goods." Since the diesel generating unit is not a consumer item,
SOTELO, M.S. | 1
 RETAIL TRADE, ANTI-DUMMY & TRUST RECEIPTS
it necessarily does not come within the ambit of retail business
as defined by Republic Act No. 1180.
MACARIO v HERNAEZ
4 SCRA 792
FACTS:
Macario King, a naturalized Filipino citizen, became the
owner of the business establishment known as "Import Meat and
Produce", a grocery wholesale and retail business, previously
owned by the Philippine Cold Stores, Inc. In the business 15
persons were employed 12 of whom are Filipinos and the other
3 Chinese. The three Chinese were old employees of the
previous owner, the Philippine Cold Stores, Inc., one having
been employed as purchaser and the other two as salesmen.
Three weeks after King had acquired the business as
aforesaid, he sought permission from the President of the
Philippines to retain the services of the three Chinese
employees pursuant to Section 2-A of Commonwealth Act 108,
coursing his letter thru the Secretary of Commerce and Industry.
This official recommended to the President the disapproval of
King's request on the ground that aliens may not be appointed
to operate or administer a retail business The President
approved the recommendation of the Secretary of Commerce
and Industry since the positions of purchaser and salesmen
occupied by the three Chinese employees are not technical
positions within the meaning of Section 2-A of Commonwealth
Act 108, as amended by Republic Act No. 134.
As a result of such adverse ruling, Macario King and his
three Chinese employees filed a petition for declaratory relief,
injunction and mandamus against the Secretary of Commerce
and Industry and the Executive Secretary before the CFI. The CFI
entered judgment holding that petitioner King may employ any
person, although not a citizen of the Philippines or of the United
States of America, including the three petitioners herein as
purchaser and salesmen, in any position in his retail business
not involving participation, or intervention in the management,
operation, administration or control of said business. Hence, this
petition.
ISSUE:
Whether King may validly hire the three Chinese
nationals in his business.
HELD:
NO! It is a violation of the anti-dummy law. The
prevailing idea is to secure both ownership and management of
the retail business in Filipino hands. It prohibits a person not a
Filipino from engaging in retail trade directly or indirectly while
it limits the management, operation, administration and control
to Filipino citizens. These words may be technically synonymous
in the sense that they all refer to the exercise of a directing,
restraining or governing influence over an affair or business to
which they relate, but it cannot be denied that by reading them
in connection with the positions therein enumerated one cannot
draw any other conclusion than that they cover the entire range
of employment regardless of whether they involve control or
non-control activities. When the law says that you cannot
employ an alien in any position pertaining to management,
operation, administration and control, "whether as an officer,
employee, or laborer therein", it only means one thing: the
employment of a person who is not a Filipino citizen even in a
minor or clerical or non-control position is prohibited. The reason
is obvious: to plug any loophole or close any avenue that an
unscrupulous alien may resort to flout the law or defeat its
purpose, for no one can deny that while one may be employed
in a non-control position who apparently is harmless he may
later turn out to be a mere tool to further the evil designs of the
employer. It is imperative that the law be interpreted in a
manner that would stave off any attempt at circumvention of
this legislative purpose.
LUZON STEVEDORING v. ANTI DUMMY BOARD
46 SCRA 474
FACTS:
Plaintiff-appellant Luzon Stevedoring Corporation filed a
complaint for declaratory relief alleging among others that it has
nine (9) non-American aliens under its employ since long before
the decision on in Macario v Hernaez, which ruled that aliens
other than Americans may not be employed in whatever
capacity in any retail business in the Philippine because of the
Retail Trade Law, in conjunction with Section 2-A of
Commonwealth Act No. 108, as amended by Republic Act No.
134; and that defendant-appellee Anti-Dummy Board in a letter
dated February 27, 1963 advised plaintiff-appellant that the
Secretary of Justice rendered an opinion to the effect that the
employment of non-American aliens in public utility corporations
is prohibited by Section 2-A of the Anti-Dummy Law; and prays
for a judicial construction of the provisions of Section 16(a) of
the Public Service Act in relation to Section 2-A of the Anti-
Dummy Law, as amended with particular reference to the right
of public utility corporations to keep non-American aliens in their
employ.
ISSUE:
Whether the prohibition against the employment of
non-American aliens in public utility corporations refers only to
business, right, franchise or privilege which is completely
nationalized.
HELD:
NO! It applies to partly nationalized industries. Section
2-A applies to a public utility the capital of which, by law, may
be owned by aliens up to 40%. The court stated that to hold that
a partially nationalized corporation or association will not be
liable under said Section 2-A would be to grant more rights and
greater immunities to a partially nationalized corporation or
association, other than to a Filipino citizen or a completely
nationalized corporation or association. "This theory offends all
logic and reason which could not have been intended by
Congress in enacting R.A. No. 134 purposely fashioned to
implement and strengthen the provision of C.A. No. 108."
ALLIED BANKING v. ORDONEZ
192 SCRA 246
FACTS:
Philippine Blooming Mills, thru Alfredo Ching, applied
for LC with Allied Bank Makati Branch to finance its purchase of
Dolomites and Nozzle Bricks. The LC was issued in favor of Nikko
Industries who drew drafts paid by the petitioner bank. To
secure the payment of the LC, PBM executed four (4) Trust
Receipts in favor of Allied Banking.
PBM defaulted in its obligation to deliver the proceeds
of the sale of the good which are the subject of the TR or to
return the same to Allied Bank despite the repeated demand of
the latter.
Consequently, a criminal complaint was files against
PBM for violation of PD 115.
ISSUE:
Whether or not PD 115 (Trust Receipts Law) apply
when the goods covered by a Trust Receipt do not form part of
the finished products which are ultimately sold but are instead,
utilized/used up in the operation of the equipment and
machineries of PBM.
HELD:
YES. The Supreme Court ruled that: Trust Receipts
Law includes goods used by the business in its
operation. The trust receipts, there is an obligation to repay
the entruster. Their terms are to be interpreted in accordance
SOTELO, M.S. | 2
 RETAIL TRADE, ANTI-DUMMY & TRUST RECEIPTS
with the general rules on contracts, the law being alert in all
cases to prevent fraud on the part of either party to the
transaction. The entrustee binds himself to sell or otherwise
dispose of the entrusted goods with the obligation to turn over
to the entruster the proceeds if sold, or return the goods if
unsold or not otherwise disposed of, in accordance with the
terms and conditions specified in the trust receipt. A violation of
this undertaking constitutes estafa under Sec. 13, PD 115.
CONSOLIDATED BANK v. CA
356 SCRA 671
FACTS:
Continental Cement Corporation (hereinafter, respondent
Corporation) and Gregory T. Lim (hereinafter, respondent Lim)
obtained from petitioner Consolidated Bank and Trust
Corporation Letter of Credit No. DOM-23277 in the amount of
P1,068,150.00 On the same date, respondent Corporation paid
a marginal deposit of P320,445.00 to petitioner. The letter of
credit was used to purchase around five hundred thousand liters
of bunker fuel oil from Petrophil Corporation, which the latter
delivered directly to respondent Corporation in its Bulacan
plant. In relation to the same transaction, a trust receipt for the
amount of P1,001,520.93 was executed by respondent
Corporation, with respondent Lim as signatory.
Claiming that respondents failed to turn over the goods
covered by the trust receipt or the proceeds thereof, petitioner
filed a complaint for sum of money with application for
preliminary attachment before the RTC. In answer to the
complaint, respondents averred that the transaction between
them was a simple loan and not a trust receipt transaction, and
that the amount claimed by petitioner did not take into account
payments already made by them. Respondent Lim also denied
any personal liability in the subject transactions.
RTC rendered its Decision, dismissing the Complaint and
ordering petitioner to pay respondents the following amounts
under their counterclaim: P490,228.90 representing
overpayment of respondent Corporation, with interest thereon
at the legal rate from July 26, 1988 until fully paid; P10,000.00
as attorney’s fees; and costs.
Both parties appealed to the Court of Appeals, which
partially modified the Decision by deleting the award of
attorney’s fees in favor of respondents and, instead, ordering
respondent Corporation to pay petitioner P37,469.22 as and for
attorney’s fees and litigation expenses. Hence this petition.
ISSUE:
Whether the transaction is a trust receipt transaction.
HELD:
NO! The petitioner failed to convince SC that its
transaction with respondent Corporation is really a trust receipt
transaction instead of merely a simple loan, as found by the
lower court and the CA.
The recent case of Colinares v. CA applies in this
case. There, it is found that inasmuch as the debtor received
the goods subject of the trust receipt before the trust receipt
itself was entered into, the transaction in question was a simple
loan and not a trust receipt agreement. Prior to the date of
execution of the trust receipt, ownership over the goods was
already transferred to the debtor. This situation is inconsistent
with what normally obtains in a pure trust receipt transaction,
wherein the goods belong in ownership to the bank and are only
released to the importer in trust after the loan is granted.
The Trust Receipts Law does not seek to enforce payment
of the loan, rather it punishes the dishonesty and abuse of
confidence in the handling of money or goods to the prejudice of
another regardless of whether the latter is the owner. Here, it is
crystal clear that on the part of Petitioners there was neither
dishonesty nor abuse of confidence in the handling of money to
the prejudice of PBC. Petitioners continually endeavored to
meet their obligations, as shown by several receipts issued by
PBC acknowledging payment of the loan.
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.
VINTOLA v INSULAR BANK
150 SCRA578
FACTS:
Spouses Vintola (VINTOLAS) applied for and were
granted a domestic letter of credit by the Insular Bank of Asia
and America (IBAA). 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.
VINTOLAS received from Stalin Tan the puka and olive
shells and 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 "incase of sale" to turn over the
proceeds.
Having defaulted on their obligation, IBAA demanded
payment from the VINTOLAS. The VINTOLAS, who were unable
to dispose of the shells, responded by offering to return
thegoods. 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
havingmisappropriated, misapplied and converted for their own
personal use and benefit theaforesaid goods.
The trial court acquitted the VINTOLAS of the offense
charged. IBAA commenced a civil action to recover the value of
the goods. The court dismissed the case holding that the
complaint was barred by the judgment of acquittal in the
criminal case.
ISSUE:
Whether or not acquittal from criminal offense
extinguish civil liability?
HELD:
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.
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 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.
The foregoing premises considered, it follows that
the acquittal of the VINTOLAS in the Estafa case is no bar
SOTELO, M.S. | 3
 RETAIL TRADE, ANTI-DUMMY & TRUST RECEIPTS
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."
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.
PHILIPPINE NATIONAL BANK v PINEDA
197 SCRA 1
FACTS:
The Arroyo Spouses obtained a loan of P580K from PNB
to purchase 60% of the subscribed capital stock, and thereby
acquire the controlling interest of Tayabas Cement Company,
Inc. (TCC). As security for said loan, the spouses executed a real
estate mortgage over a parcel of land known as the La Vista
property.
TCC filed with petitioner bank an application and
agreement for the establishment of an 8 year deferred letter of
credit (L/C) for $7M in favor of Toyo Menka Kaisha to cover the
importation of a cement plant machinery and equipment. Upon
approval of the application and opening of an L/C by PNB in
favor of Toyo Menka Kaisha for the account of TCC, the Arroyo
spouses executed a surety agreement. The imported cement
plant machinery and equipment arrived from Japan and were
released to TCC under a trust receipt agreement. Subsequently,
Toyo Menka Kaisha made the corresponding drawings against
the L/C as scheduled.
TCC, however, failed to remit and/or pay the
corresponding amount covered by the drawings. Thus, pursuant
to the trust receipt agreement, PNB notified TCC of its intention
to repossess the imported machinery and equipment for failure
of TCC to settle its obligations under the L/C. PNB foreclosed the
real estate mortgages executed by the spouses Arroyo in TCC’s
favor. PNB contends that the sale of La Vista was made to
satisfy not only the amount owed by the spouses on their
personal loan but also the amount of expenses owed by said
spouses as sureties of TCC. The Arroyos oppose the foreclosure,
contending primarily that repossession of the imported
machinery and equipment by PNB amounted to dacion en pago
that extinguished their obligation as surety to TCC.
ISSUE:
WON the repossession of the machinery was
tantamount to a dacion en pago that absolved Arroyo spouses
as surety? NO.
HELD:
There was no 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. The repossession of the
machinery and equipment in question was merely to secure the
payment of TCC’s loan obligation and not for the purpose of
transferring ownership thereof to PNB in satisfaction of said
loan. Thus, no dacion en pago was ever accomplished.
PNB took possession of the imported cement plant
machinery and equipment pursuant to the trust receipt
agreement executed by and between PNB and TCC giving the
former the unqualified right to the possession and disposal of all
property shipped under the Letter of Credit until such time as all
the liabilities and obligations under said letter had been
discharged. PNB’s possession of the subject machinery and
equipment being precisely as a form of security for the
advances given to TCC under the Letter of Credit, said
possession by itself cannot be considered payment of the loan
secured thereby. Payment would legally result only after PNB
had foreclosed on said securities, sold the same and applied the
proceeds thereof to TCC’s 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.
The transfer of ownership to extinguish a pre-existing
obligation is the essence in dation in payment, therefore it is not
a consensual contract, but a real contract and novates the
original debt relationship into a consummated sale.
PRUDENTIAL BANK v. NLRC
251 SCRA 421
FACTS:
Interasia Container Industries, Inc. (INTERASIA), was
embroiled in three (3) labor cases which were eventually
resolved against it. With the finality of the three (3) decisions,
writs of execution were issued. The Sheriff levied on execution
personal properties located in the factory of INTERASIA.
Prudential Bank filed an Affidavit of Third-Party Claim asserting
ownership over the seized properties on the strength of trust
receipts executed by INTERASIA in its favor. As a result, the
Sheriff suspended the public auction sale. But on 18 September
1992 the Labor Arbiter denied the claim of petitioner and
directed the Sheriff to proceed with the levy of the properties.
Petitioner then filed separate appeals to the NLRC.
NLRC denied the petition relying on the pronouncement
on trust receipts in Vintola v. Insular Bank of Asia and America.
It justifies the dismissal of petitioner's third-party claim on the
ground that trust receipts are mere security transactions which
do not vest upon petitioner any title of ownership, and that
although the Trust Receipt Agreements described petitioner as
owner of the goods, there was no showing that it canceled the
trust receipts and took possession of the goods.
ISSUE:
Whether the trust receipts vested ownership to
Prudential
HELD:
YES! The issue here involves the effect and
enforcement of the security aspect of trust receipt whereas the
Vintola case deals with the loan aspect of a trust receipt
transaction. Apparently, the NLRC was confused about the
nature of a trust receipt, specifically the security aspect thereof.
From the legal and jurisprudential standpoint it is clear
that the security interest of the entruster is not merely an empty
or idle title. To a certain extent, such interest, such interest
becomes a "lien" on the goods because the entruster's
advances will have to be settled first before the entrustee can
consolidate his ownership over the goods. A contrary view would
be disastrous. For to refuse to recognize the title of the banker
under the trust receipt as security for the advance of the
purchase price would be to strike down a bona fide and honest
transaction of great commercial benefit and advantage founded
upon a well-recognized custom by which banking credit is
officially mobilized for manufacturers and importers of small
means.
SOTELO, M.S. | 4