NEGOTIABLE INSTRUMENTS LAW – CASE DIGESTS
There are, therefore, two obligations in a trust receipt transaction: the first refers
1 ANTHONY NG VS. PEOPLE OF THE PHILIPPINES
GR NO. 173905, April 23, 2010
FACTS: Anthony Ng was engaged in the business of building and fabricating
telecommunication towers under the trade name Capitol Blacksmith and
Builders. Petitioner applied for a credit line of Php3,000,000 with Asia trust.
In support of Asia trusts credit investigation, petitioner voluntarily submitted the
following documents:
(1) the contracts he had with Islacom, Smart, and Infocom;
(2) the list of projects wherein he was commissioned by the said
telecommunication companies to build several steel towers; and
(3) the collectible amounts he has with the said companies.
Asiatrust approved petitioner’s loan application. Petitioner was then requiredto
sign several documents, among which are the Credit Line Agreement, Application
and Agreement for Irrevocable L/C, Trust Receipt Agreements and Promissory
Notes.
Though the Promissory Notes had maturity dates, the two Trust Receipt
Agreements did not bear any maturity dates. After petitioner received the goods,
consisting of chemicals and metal plates from his suppliers, he utilized them to
fabricate the communication towers ordered from him by his clients. As
petitioner realized difficulty in collecting from his client Islacom, he failed to pay
his loan to Asiatrust.
Asiatrusts representative appraiser, reported that approximately 97% of the
subject goods of the Trust Receipts were sold-out and that only 3 % of the goods
remained. Efforts towards a settlement failed to be reached. Asiatrust Account
Officer filed a Complaint-Affidavit for Estafa, as defined and penalized under Art.
315, par. 1(b) of the RPC in relation to Sec. 3, PD115 or the Trust Receipts Law.
ISSUE: Whether the petitioner is liable for Estafa under Art. 315, par. 1(b) of the
RPC in relation to PD 115.
RULING: A trust receipt transaction is one where the entrustee has the obligation
to deliver to the entruster the price of the sale, or if the merchandise is not sold,
to return the merchandise to the entruster.
1| Elixir C. Langanlangan
Negotiable Instruments Law – Atty. Soraya Laut
XU – College of Law, 2019-2020
BATCH 6
to money received under the obligation involving the duty to turn it over
(entregarla) to the owner of the merchandise sold, while the second refers to the
merchandise received under the obligation to return it (devolvera) to the owner.
A violation of any of these undertakings constitutes Estafa defined under Art.
315, par.1(b) of the RPC, as provided in Sec. 13 of PD 115, viz:
Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds
of the sale of the goods, documents or instruments covered by a trust receipt to
the extent of the amount owing to the entruster or as appears in the trust receipt
or to return said goods, documents or instruments if they were not sold or
disposed of in accordance with the terms of the trust receipt shall constitute the
crime of estafa, punishable under the provisions of Article Three hundred fifteen,
paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen,
as amended, otherwise known as the Revised Penal Code.
A trust receipt is considered a security transaction intended to aid in financing
importers and retail dealers who do not have sufficient funds or resources to
finance the importation or purchase of merchandise, and who may not be able to
acquire credit except through utilization, as collateral, of the merchandise
imported or purchased.
The principle is of course not limited in its application to financing importations,
since the principle is equally applicable to domestic transactions. Regardless of
whether the transaction is foreign or domestic, it is important to note that the
transactions discussed
In relation to trust receipts mainly involved sales.
The release of such goods to the entrustee is conditioned upon his execution and
delivery to the entruster of a trust receipt wherein the former binds himself to
hold the specific goods in trust for the entruster and to sell or otherwise dispose
of the goods with the obligation to turn over to the entruster the proceeds to the
extent of the amount owing to the entruster or the goods themselves if they are
unsold.
Considering that the goods in this case were never intended for sale but for use
in the fabrication of steel communication towers, the trial court erred in ruling
that the agreement is a trust receipt transaction.
Petitioner is correct that there was no misappropriation or conversion on his
part, because his liability for the amount of the goods subject of the trust receipts
 NEGOTIABLE INSTRUMENTS LAW
arises and becomes due only upon receipt of the proceeds of the sale and not
prior to the receipt of the full price of the goods. PD 115provides that an
entrustee is only liable for Estafa when he fails to turn over the proceeds of the
sale of the goods covered by a trust receipt to the extent of the amount owing to
the entruster or as appears in the trust receipt in accordance with the terms of
the trust receipt.
2 LANDBANK OF THE PHILIPPINES VS. ANTHONY PEREZ
GR NO. 166884, June 13, 2012
DOCTRINES OF THE CASE:
1. Under the Trust Receipts Law, intent to defraud is presumed when
a) the entrustee fails to turn over the proceeds of the sale of goods
covered by the trust receipt to the entruster; or
b) when the entrustee fails to return the goods under trust, if they are not
disposed of in accordance with the terms of the trust receipts.
2. In all trust receipt transactions, both obligations on the part of the trustee
exist in the alternative – the return of the proceeds of the sale or the return
or recovery of the goods, whether raw or processed.
3. In order that the respondents “may be validly prosecuted for Estafa under
Article 315, paragraph 1(b) of the Revised Penal code, in relation with
Section 13 of the Trust Receipts Law, the following elements must be
established:
(a) they received the subject goods in trust or under the obligation to sell
the same and to remit the proceeds thereof to [the trustor], or to
return the goods if not sold;
(b) they misappropriated or converted the goods and0or the proceeds of
the sale;
(c) they performed such acts with abuse of confidence to the damage and
prejudice of Metrobank; and
(d) demand was made on them by [the trustor] for the remittance of the
proceeds or the return of the unsold goods.”
2| Elixir C. Langanlangan
Negotiable Instruments Law – Atty. Soraya Laut
XU – College of Law, 2019-2020
– CASE DIGESTS BATCH 6
DECISION
BRION, J.:
Before this Court is a petition for review on certiorari,1 under Rule 45 of the Rules of
Court, assailing the decision2 dated January 20, 2005 of the Court of Appeals in CA-
G.R. SP No. 76588. In the assailed decision, the Court of Appeals dismissed the
criminal complaint for estafa against the respondents, Lamberto C. Perez, Nestor C.
Kun, Ma. Estelita P. Angeles-Panlilio and Napoleon Garcia, who allegedly violated
Article 315, paragraph 1(b) of the Revised Penal Code, in relation with Section 13 of
Presidential Decree No. (P.D.) 115 – the "Trust Receipts Law."
Petitioner Land Bank of the Philippines (LBP) is a government financial institution
and the official depository of the Philippines.3 Respondents are the officers and
representatives of Asian Construction and Development Corporation (ACDC), a
corporation incorporated under Philippine law and engaged in the construction
business.4
On June 7, 1999, LBP filed a complaint for estafa or violation of Article 315, paragraph
1(b) of the Revised Penal Code, in relation to P.D. 115, against the respondents before
the City Prosecutor’s Office in Makati City. In the affidavit-complaint5 of June 7, 1999,
the LBP’s Account Officer for the Account Management Development, Edna L. Juan,
stated that LBP extended a credit accommodation to ACDC through the execution of
an Omnibus Credit Line Agreement (Agreement)6 between LBP and ACDC on October
29, 1996. In various instances, ACDC used the Letters of Credit/Trust Receipts Facility
of the Agreement to buy construction materials. The respondents, as officers and
representatives of ACDC, executed trust receipts7 in connection with the construction
materials, with a total principal amount of ₱52,344,096.32. The trust receipts
matured, but ACDC failed to return to LBP the proceeds of the construction projects
or the construction materials subject of the trust receipts. LBP sent ACDC a demand
letter,8 dated May 4, 1999, for the payment of its debts, including those under the
Trust Receipts Facility in the amount of ₱66,425,924.39. When ACDC failed to comply
with the demand letter, LBP filed the affidavit-complaint.
The respondents filed a joint affidavit9 wherein they stated that they signed the trust
receipt documents on or about the same time LBP and ACDC executed the loan
documents; their signatures were required by LBP for the release of the loans. The
trust receipts in this case do not contain (1) a description of the goods placed in trust,
(2) their invoice values, and (3) their maturity dates, in violation of Section 5(a) of
P.D. 115. Moreover, they alleged that ACDC acted as a subcontractor for government
projects such as the Metro Rail Transit, the Clark Centennial Exposition and the
Quezon Power Plant in Mauban, Quezon. Its clients for the construction projects,
which were the general contractors of these projects, have not yet paid them; thus,
ACDC had yet to receive the proceeds of the materials that were the subject of the
 NEGOTIABLE INSTRUMENTS LAW
trust receipts and were allegedly used for these constructions. As there were no
proceeds received from these clients, no misappropriation thereof could have taken
place.
On September 30, 1999, Makati Assistant City Prosecutor Amador Y. Pineda issued a
Resolution10 dismissing the complaint. He pointed out that the evidence presented
by LBP failed to state the date when the goods described in the letters of credit were
actually released to the possession of the respondents. Section 4 of P.D. 115 requires
that the goods covered by trust receipts be released to the possession of the entrustee
after the latter’s execution and delivery to the entruster of a signed trust receipt. He
adds that LBP’s evidence also fails to show the date when the trust receipts were
executed since all the trust receipts are undated. Its dispositive portion reads:
WHEREFORE, premises considered, and for insufficiency of evidence, it is respectfully
recommended that the instant complaints be dismissed, as upon approval, the same
are hereby dismissed.11
LBP filed a motion for reconsideration which the Makati Assistant City Prosecutor
denied in his order of January 7, 2000.12
On appeal, the Secretary of Justice reversed the Resolution of the Assistant City
Prosecutor. In his resolution of August 1, 2002,13 the Secretary of Justice pointed out
that there was no question that the goods covered by the trust receipts were received
by ACDC. He likewise adopted LBP’s argument that while the subjects of the trust
receipts were not mentioned in the trust receipts, they were listed in the letters of
credit referred to in the trust receipts. He also noted that the trust receipts contained
maturity dates and clearly set out their stipulations. He further rejected the
respondents’ defense that ACDC failed to remit the payments to LBP due to the failure
of the clients of ACDC to pay them. The dispositive portion of the resolution reads:
WHEREFORE, the assailed resolution is REVERSED and SET ASIDE. The City
Prosecutor of Makati City is hereby directed to file an information for estafa under
Art. 315 (1) (b) of the Revised Penal Code in relation to Section 13, Presidential
Decree No. 115 against respondents Lamberto C. Perez, Nestor C. Kun, [Ma. Estelita P.
Angeles-Panlilio] and Napoleon O. Garcia and to report the action taken within ten
(10) days from receipt hereof.14
The respondents filed a motion for reconsideration of the resolution dated August 1,
2002, which the Secretary of Justice denied.15 He rejected the respondents’
submission that Colinares v. Court of Appeals16 does not apply to the case. He
explained that in Colinares, the building materials were delivered to the accused
before they applied to the bank for a loan to pay for the merchandise; thus, the
ownership of the merchandise had already been transferred to the entrustees before
the trust receipts agreements were entered into. In the present case, the parties have
3| Elixir C. Langanlangan
Negotiable Instruments Law – Atty. Soraya Laut
XU – College of Law, 2019-2020
– CASE DIGESTS BATCH 6
already entered into the Agreement before the construction materials were delivered
to ACDC.
Subsequently, the respondents filed a petition for review before the Court of Appeals.
After both parties submitted their respective Memoranda, the Court of Appeals
promulgated the assailed decision of January 20, 2005.17 Applying the doctrine in
Colinares, it ruled that this case did not involve a trust receipt transaction, but a mere
loan. It emphasized that construction materials, the subject of the trust receipt
transaction, were delivered to ACDC even before the trust receipts were executed. It
noted that LBP did not offer proof that the goods were received by ACDC, and that the
trust receipts did not contain a description of the goods, their invoice value, the
amount of the draft to be paid, and their maturity dates. It also adopted ACDC’s
argument that since no payment for the construction projects had been received by
ACDC, its officers could not have been guilty of misappropriating any payment. The
dispositive portion reads:
WHEREFORE, in view of the foregoing, the Petition is GIVEN DUE COURSE. The
assailed Resolutions of the respondent Secretary of Justice dated August 1, 2002 and
February 17, 2003, respectively in I.S. No. 99-F-9218-28 are hereby REVERSED and
SET ASIDE.18
LBP now files this petition for review on certiorari, dated March 15, 2005, raising the
following error:
THE COURT OF APPEALS GRAVELY ERRED WHEN IT REVERSED AND SET ASIDE THE
RESOLUTIONS OF THE HONORABLE SECRETARY OF JUSTICE BY APPLYING THE
RULING IN THE CASE OF COLINARES V. COURT OF APPEALS, 339 SCRA 609, WHICH
IS NOT APPLICABLE IN THE CASE AT BAR.19
On April 8, 2010, while the case was pending before this Court, the respondents filed
a motion to dismiss.20 They informed the Court that LBP had already assigned to
Philippine Opportunities for Growth and Income, Inc. all of its rights, title and
interests in the loans subject of this case in a Deed of Absolute Sale dated June 23,
2005 (attached as Annex "C" of the motion). The respondents also stated that Avent
Holdings Corporation, in behalf of ACDC, had already settled ACDC’s obligation to LBP
on October 8, 2009. Included as Annex "A" in this motion was a certification21 issued
by the Philippine Opportunities for Growth and Income, Inc., stating that it was LBP’s
successor-in-interest insofar as the trust receipts in this case are concerned and that
Avent Holdings Corporation had already settled the claims of LBP or obligations of
ACDC arising from these trust receipts. We deny this petition.
The disputed transactions are not trust receipts.
 NEGOTIABLE INSTRUMENTS LAW
Section 4 of P.D. 115 defines a trust receipt transaction in this manner:
Section 4. What constitutes a trust receipt transaction. A trust receipt transaction,
within the meaning of this Decree, is any transaction by and between a person
referred to in this Decree as the entruster, and another person referred to in this
Decree as 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
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, or for other purposes substantially equivalent to any of the following:
1. In the case of goods or documents, (a) to sell the goods or procure their sale; or (b)
to manufacture or process the goods with the purpose of ultimate sale: Provided,
That, in the case of goods delivered under trust receipt for the purpose of
manufacturing or processing before its ultimate sale, the entruster shall retain its title
over the goods whether in its original or processed form until the entrustee has
complied fully with his obligation under the trust receipt; or (c) to load, unload, ship
or tranship or otherwise deal with them in a manner preliminary or necessary to their
sale[.]
There are two obligations in a trust receipt transaction. The first is covered by the
provision that refers to money under the obligation to deliver it (entregarla) to the
owner of the merchandise sold. The second is covered by the provision referring to
merchandise received under the obligation to return it (devolvera) to the owner.
Thus, under the Trust Receipts Law,22 intent to defraud is presumed when (1) the
entrustee fails to turn over the proceeds of the sale of goods covered by the trust
receipt to the entruster; or (2) when the entrustee fails to return the goods under
trust, if they are not disposed of in accordance with the terms of the trust receipts.23
In all trust receipt transactions, both obligations on the part of the trustee exist in the
alternative – the return of the proceeds of the sale or the return or recovery of the
goods, whether raw or processed.24 When both parties enter into an agreement
knowing that the return of the goods subject of the trust receipt is not possible even
without any fault on the part of the trustee, it is not a trust receipt transaction
penalized under Section 13 of P.D. 115; the only obligation actually agreed upon by
the parties would be the return of the proceeds of the sale transaction. This
transaction becomes a mere loan,25 where the borrower is obligated to pay the bank
the amount spent for the purchase of the goods.
4| Elixir C. Langanlangan
Negotiable Instruments Law – Atty. Soraya Laut
XU – College of Law, 2019-2020
– CASE DIGESTS BATCH 6
Article 1371 of the Civil Code provides that "[i]n order to judge the intention of the
contracting parties, their contemporaneous and subsequent acts shall be principally
considered." Under this provision, we can examine the contemporaneous actions of
the parties rather than rely purely on the trust receipts that they signed in order to
understand the transaction through their intent.
We note in this regard that at the onset of these transactions, LBP knew that ACDC
was in the construction business and that the materials that it sought to buy under
the letters of credit were to be used for the following projects: the Metro Rail Transit
Project and the Clark Centennial Exposition Project.26 LBP had in fact authorized the
delivery of the materials on the construction sites for these projects, as seen in the
letters of credit it attached to its complaint.27 Clearly, they were aware of the fact that
there was no way they could recover the buildings or constructions for which the
materials subject of the alleged trust receipts had been used. Notably, despite the
allegations in the affidavit-complaint wherein LBP sought the return of the
construction materials,28 its demand letter dated May 4, 1999 sought the payment of
the balance but failed to ask, as an alternative, for the return of the construction
materials or the buildings where these materials had been used.29
The fact that LBP had knowingly authorized the delivery of construction materials to
a construction site of two government projects, as well as unspecified construction
sites, repudiates the idea that LBP intended to be the owner of those construction
materials. As a government financial institution, LBP should have been aware that the
materials were to be used for the construction of an immovable property, as well as a
property of the public domain. As an immovable property, the ownership of whatever
was constructed with those materials would presumably belong to the owner of the
land, under Article 445 of the Civil Code which provides:
Article 445. Whatever is built, planted or sown on the land of another and the
improvements or repairs made thereon, belong to the owner of the land, subject to
the provisions of the following articles.
Even if we consider the vague possibility that the materials, consisting of cement,
bolts and reinforcing steel bars, would be used for the construction of a movable
property, the ownership of these properties would still pertain to the government and
not remain with the bank as they would be classified as property of the public domain,
which is defined by the Civil Code as:
Article 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of
similar character;
 NEGOTIABLE INSTRUMENTS LAW
(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national
wealth.
In contrast with the present situation, it is fundamental in a trust receipt transaction
that the person who advanced payment for the merchandise becomes the absolute
owner of said merchandise and continues as owner until he or she is paid in full, or if
the goods had already been sold, the proceeds should be turned over to him or to
her.30
Thus, in concluding that the transaction was a loan and not a trust receipt, we noted
in Colinares that the industry or line of work that the borrowers were engaged in was
construction. We pointed out that the borrowers were not importers acquiring goods
for resale.31 Indeed, goods sold in retail are often within the custody or control of the
trustee until they are purchased. In the case of materials used in the manufacture of
finished products, these finished products – if not the raw materials or their
components – similarly remain in the possession of the trustee until they are sold. But
the goods and the materials that are used for a construction project are often placed
under the control and custody of the clients employing the contractor, who can only
be compelled to return the materials if they fail to pay the contractor and often only
after the requisite legal proceedings. The contractor’s difficulty and uncertainty in
claiming these materials (or the buildings and structures which they become part of),
as soon as the bank demands them, disqualify them from being covered by trust
receipt agreements.
Based on these premises, we cannot consider the agreements between the parties in
this case to be trust receipt transactions because (1) from the start, the parties were
aware that ACDC could not possibly be obligated to reconvey to LBP the materials or
the end product for which they were used; and (2) from the moment the materials
were used for the government projects, they became public, not LBP’s, property.
Since these transactions are not trust receipts, an action for estafa should not be
brought against the respondents, who are liable only for a loan. In passing, it is useful
to note that this is the threat held against borrowers that Retired Justice Claudio
Teehankee emphatically opposed in his dissent in People v. Cuevo,32 restated in Ong
v. CA, et al.:33
The very definition of trust receipt x x x sustains the lower court’s rationale in
dismissing the information that the contract covered by a trust receipt is merely a
secured loan. The goods imported by the small importer and retail dealer through the
bank’s financing remain of their own property and risk and the old capitalist
orientation of putting them in jail for estafa for non-payment of the secured loan
(granted after they had been fully investigated by the bank as good credit risks)
5| Elixir C. Langanlangan
Negotiable Instruments Law – Atty. Soraya Laut
XU – College of Law, 2019-2020
– CASE DIGESTS BATCH 6
through the fiction of the trust receipt device should no longer be permitted in this
day and age.
As the law stands today, violations of Trust Receipts Law are criminally punishable,
but no criminal complaint for violation of Article 315, paragraph 1(b) of the Revised
Penal Code, in relation with P.D. 115, should prosper against a borrower who was not
part of a genuine trust receipt transaction.
Misappropriation or abuse of confidence is absent in this case.
Even if we assume that the transactions were trust receipts, the complaint against the
respondents still should have been dismissed. 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 singularly seek to enforce payment of the loan, as "there can be no violation
of [the] right against imprisonment for non-payment of a debt."34
In order that the respondents "may be validly prosecuted for estafa under Article 315,
paragraph 1(b) of the Revised Penal Code,35 in relation with Section 13 of the Trust
Receipts Law, the following elements must be established: (a) they received the
subject goods in trust or under the obligation to sell the same and to remit the
proceeds thereof to [the trustor], or to return the goods if not sold; (b) they
misappropriated or converted the goods and/or the proceeds of the sale; (c) they
performed such acts with abuse of confidence to the damage and prejudice of
Metrobank; and (d) demand was made on them by [the trustor] for the remittance of
the proceeds or the return of the unsold goods."36
In this case, no dishonesty or abuse of confidence existed in the handling of the
construction materials.
In this case, the misappropriation could be committed should the entrustee fail to
turn over the proceeds of the sale of the goods covered by the trust receipt transaction
or fail to return the goods themselves. The respondents could not have failed to return
the proceeds since their allegations that the clients of ACDC had not paid for the
projects it had undertaken with them at the time the case was filed had never been
questioned or denied by LBP. What can only be attributed to the respondents would
be the failure to return the goods subject of the trust receipts.
We do not likewise see any allegation in the complaint that ACDC had used the
construction materials in a manner that LBP had not authorized. As earlier pointed
out, LBP had authorized the delivery of these materials to these project sites for which
they were used. When it had done so, LBP should have been aware that it could not
possibly recover the processed materials as they would become part of government
 NEGOTIABLE INSTRUMENTS LAW
projects, two of which (the Metro Rail Transit Project and the Quezon Power Plant
Project) had even become part of the operations of public utilities vital to public
service. It clearly had no intention of getting these materials back; if it had, as a
primary government lending institution, it would be guilty of extreme negligence and
incompetence in not foreseeing the legal complications and public inconvenience that
would arise should it decide to claim the materials. ACDC’s failure to return these
materials or their end product at the time these "trust receipts" expired could not be
attributed to its volition. No bad faith, malice, negligence or breach of contract has
been attributed to ACDC, its officers or representatives. Therefore, absent any abuse
of confidence or misappropriation on the part of the respondents, the criminal
proceedings against them for estafa should not prosper.
In Metropolitan Bank,37 we affirmed the city prosecutor’s dismissal of a complaint
for violation of the Trust Receipts Law. In dismissing the complaint, we took note of
the Court of Appeals’ finding that the bank was interested only in collecting its money
and not in the return of the goods. Apart from the bare allegation that demand was
made for the return of the goods (raw materials that were manufactured into textiles),
the bank had not accompanied its complaint with a demand letter. In addition, there
was no evidence offered that the respondents therein had misappropriated or
misused the goods in question.
The petition should be dismissed because the OSG did not file it and the civil liabilities
have already been settled.
The proceedings before us, regarding the criminal aspect of this case, should be
dismissed as it does not appear from the records that the complaint was filed with the
participation or consent of the Office of the Solicitor General (OSG). Section 35,
Chapter 12, Title III, Book IV of the Administrative Code of 1987 provides that:
Section 35. Powers and Functions. — The Office of the Solicitor General shall
represent the Government of the Philippines, its agencies and instrumentalities and
its officials and agents in any litigation, proceedings, investigation or matter requiring
the services of lawyers. x x x It shall have the following specific powers and functions:
(1) Represent the Government in the Supreme Court and the Court of Appeals in all
criminal proceedings; represent the Government and its officers in the Supreme
Court, the Court of Appeals and all other courts or tribunals in all civil actions and
special proceedings in which the Government or any officer thereof in his official
capacity is a party. (Emphasis provided.)
In Heirs of Federico C. Delgado v. Gonzalez,38 we ruled that the preliminary
investigation is part of a criminal proceeding. As all criminal proceedings before the
Supreme Court and the Court of Appeals may be brought and defended by only the
Solicitor General in behalf of the Republic of the Philippines, a criminal action brought
6| Elixir C. Langanlangan
Negotiable Instruments Law – Atty. Soraya Laut
XU – College of Law, 2019-2020
– CASE DIGESTS BATCH 6
to us by a private party alone suffers from a fatal defect. The present petition was
brought in behalf of LBP by the Government Corporate Counsel to protect its private
interests. Since the representative of the "People of the Philippines" had not taken any
part of the case, it should be dismissed.1âwphi1
On the other hand, if we look at the mandate given to the Office of the Government
Corporate Counsel, we find that it is limited to the civil liabilities arising from the
crime, and is subject to the control and supervision of the public prosecutor. Section
2, Rule 8 of the Rules Governing the Exercise by the Office of the Government
Corporate Counsel of its Authority, Duties and Powers as Principal Law Office of All
Government Owned or Controlled Corporations, filed before the Office of the National
Administration Register on September 5, 2011, reads:
Section 2. Extent of legal assistance – The OGCC shall represent the complaining
GOCC in all stages of the criminal proceedings. The legal assistance extended is not
limited to the preparation of appropriate sworn statements but shall include all
aspects of an effective private prosecution including recovery of civil liability arising
from the crime, subject to the control and supervision of the public prosecutor.
Based on jurisprudence, there are two exceptions when a private party complainant
or offended party in a criminal case may file a petition with this Court, without the
intervention of the OSG: (1) when there is denial of due process of law to the
prosecution, and the State or its agents refuse to act on the case to the prejudice of
the State and the private offended party;39 and (2) when the private offended party
questions the civil aspect of a decision of the lower court.40
In this petition, LBP fails to allege any inaction or refusal to act on the part of the OSG,
tantamount to a denial of due process. No explanation appears as to why the OSG was
not a party to the case. Neither can LBP now question the civil aspect of this decision
as it had already assigned ACDC’s debts to a third person, Philippine Opportunities
for Growth and Income, Inc., and the civil liabilities appear to have already been
settled by Avent Holdings Corporation, in behalf of ACDC. These facts have not been
disputed by LBP. Therefore, we can reasonably conclude that LBP no longer has any
claims against ACDC, as regards the subject matter of this case, that would entitle it to
file a civil or criminal action.
WHEREFORE, we DENY the petition and AFFIRM the January 20, 2005 decision of the
Court of Appeals in CA-G.R. SP No. 76588. No costs. SO ORDERED.
 NEGOTIABLE INSTRUMENTS LAW
3 LANDBANK OF THE PHILIPPINES VS. ANTHONY PEREZ
GR NO. 166884, June 13, 2012
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 latter’s 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.
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 PBC’s 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 attorney’s fees by PBC’s 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, PBC’s 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
7| Elixir C. Langanlangan
Negotiable Instruments Law – Atty. Soraya Laut
XU – College of Law, 2019-2020
– CASE DIGESTS BATCH 6
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.
 NEGOTIABLE INSTRUMENTS LAW
4 SPS DELA CRUZ VS PLANTERS PRODUCTS INC.
G.R. No. 158649 February 18, 2013
FACTS: Spouses Quirino V. Dela Cruz and Gloria Dela Cruz, petitioners herein,
operated the Barangay Agricultural Supply, an agricultural supply store in Aliaga,
Nueva Ecija engaged in the distribution and sale of fertilizers and agricultural
chemical products, among others. At the time material to the case, Quirino, a
lawyer, was the Municipal Mayor of Aliaga, Nueva Ecija. On March 23, 1978,
Gloria applied for and was granted by respondent Planters Products, Inc. (PPI) a
regular credit line of P200,000.00 for a 60-day term, with trust receipts as
collaterals. Quirino and Gloria submitted a list of their assets in support of her
credit application for participation in the Special Credit Scheme (SCS) of PPI. On
August 28, 1978, Gloria signed in the presence of the PPI distribution
officer/assistant sales representative two documents labelled “Trust
Receipt/Special Credit Scheme,” indicating the invoice number, quantity, value,
and names of the agricultural inputs (i.e., fertilizer or agricultural chemicals) she
received “upon the trust” of PPI. Gloria thereby subscribed to specific
undertakings.
ISSUE: Whether or not Gloria can be held liable on the basis of the signed Trust
receipt/SCS.
HELD: Yes. To be clear, the obligation assumed by Gloria under the Trust
Receipt/SCS involved “the execution of a Trust Agreement by the farmer-
participants” in her favor, which, in turn, she would assign “in favor of PPI with
recourse” in case of delivery and sale to the farmer-participants. The term
recourse as thus used means “resort to a person who is secondarily liable after
the default of the person who is primarily liable.” An indorsement “with
recourse” of a note, for instance, makes the indorser a general indorser, because
the indorsement is without qualification. Accordingly, the term with recourse
confirms the obligation of a general indorser, who has the same liability as the
original obligor. As the assignor “with recourse” of the Trust Agreement executed
by the farmer participating in the SCS, therefore, Gloria made herself directly
liable to PPI for the value of the inputs delivered to the farmer-participants.
Obviously, the signature of the representative of PPI found in the demand letters
Gloria sent to the farmer-participants only indicated that the Trust Agreement
was part of the SCS of PPI.
The petitioners could not validly justify the non-compliance by Gloria with her
obligations under the Trust Receipt/SCS by citing the loss of the farm outputs due
8| Elixir C. Langanlangan
Negotiable Instruments Law – Atty. Soraya Laut
XU – College of Law, 2019-2020
– CASE DIGESTS BATCH 6
to typhoon Kading. There is no question that she had expressly agreed that her
liability would not be extinguished by the destruction or damage of the crops.
The use of the term with recourse was, in fact, consonant with the provision of
the Trust Receipt/SCS stating that if Gloria could not deliver or serve “all the
inputs” to the farmer-participants within 60 days, she agreed that “the
undelivered inputs will be charged” to her “regular credit line.” Under her
arrangement with PPI, the trust receipts were mere securities for the credit line
granted by PPI, having in fact indicated in her application for the credit line that
the trust receipts were “collaterals” or separate obligations “attached to any
other contract to guaranty its performance.
ROSARIO TEXTILE MILLS V HOME BANKERS SAVINGS
5 AND TRUST COMPANY
G.R. No. 137232 June 29, 2005
A trust receipt is a security agreement pursuant to which a bank acquires a
‘security interest’ in the goods. In Vintola vs. Insular Bank of Asia and
America, we elucidated further that “a trust receipt, therefore, is a security
agreement, pursuant to which a bank acquires a ‘security interest’ in the
goods. It secures an indebtedness and there can be no such thing as security
interest that secures no obligation.”
FACTS: Sometime in 1989, Rosario Textile Mills Corporation (RTMC) applied
from Home Bankers Savings & Trust Co. for an Omnibus Credit Line for P10
million. The bank approved RTMC’s credit line but for only P8 million. The bank
notified RTMC of the grant of the said loan thru a letter dated March 2, 1989
which contains terms and conditions conformed by RTMC thru Edilberto V.
Yujuico. On March 3, 1989, Yujuico signed a Surety Agreement in favor of the
bank, in which he bound himself jointly and severally with RTMC for the payment
of all RTMC’s indebtedness to the bank from 1989 to 1990. RTMC availed of the
credit line by making numerous drawdowns, each drawdown being covered by a
separate promissory note and trust receipt. RTMC, represented by Yujuico,
executed in favor of the bank a total of eleven (11) promissory notes.
Yujuico contend that he should be absolved from liability. They claimed that
although the grant of the credit line and the execution of the suretyship
agreement. They alleged that the bank gave assurance that the suretyship
agreement was merely a formality under which Yujuico will not be personally
liable. He theorized that when RTMC imported the raw materials needed for its
 NEGOTIABLE INSTRUMENTS LAW
manufacture, using the credit line, it was merely acting on behalf of the bank, the
true owner of the goods by virtue of the trust receipts.
ISSUE: Whether or not Yujuico is absolved from liability by the grant of the credit
line and the execution of the suretyship agreement
HELD: No. Yujuico’s argument conveniently ignores the true nature of its
transaction with the bank. A trust receipt is a security agreement pursuant to
which a bank acquires a ‘security interest’ in the goods. In Vintola vs. Insular Bank
of Asia and America, we elucidated further that “a trust receipt, therefore, is a
security agreement, pursuant to which a bank acquires a ‘security interest’ in the
goods. It secures an indebtedness and there can be no such thing as security
interest that secures no obligation.” In Samo vs. People, we described a trust
receipt as “a security transaction intended to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the importation
or purchase of merchandise, and who may not be able to acquire credit except
through utilization, as collateral, of the merchandise imported or purchased.”
“If under the trust receipt, the bank is made to appear as the owner, it was but an
artificial expedient, more of legal fiction than fact, for if it were really so, it could
dispose of the goods in any manner it wants, which it cannot do, just to give
consistency with purpose of the trust receipt of giving a stronger security for the
loan obtained by the importer. To consider the bank as the true owner from the
inception of the transaction would be to disregard the loan feature thereof.
RTMC filed with the bank an application for a credit line in the amount of P10
million, but only P8 million was approved. RTMC then made withdrawals from
this credit line and issued several promissory notes in favor of the bank. In
banking and commerce, a credit line is “that amount of money or merchandise
which a banker, merchant, or supplier agrees to supply to a person on credit and
generally agreed to in advance.”[3]It is the fixed limit of credit granted by a bank,
retailer, or credit card issuer to a customer, to the full extent of which the latter
may avail himself of his dealings with the former but which he must not exceed
and is usually intended to cover a series of transactions in which case, when the
customer’s line of credit is nearly exhausted, he is expected to reduce his
indebtedness by payments before making any further drawings.
9| Elixir C. Langanlangan
Negotiable Instruments Law – Atty. Soraya Laut
XU – College of Law, 2019-2020
– CASE DIGESTS BATCH 6
6
CHING VS. THE SECRETARY OF JUSTICE
G. R. No. 164317 February 6, 2006
The failure of person 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 not sold, is a
public nuisance to be abated by the imposition of penal sanctions
FACTS: Ching was the Senior Vice-President of Philippine Blooming Mills, Inc.
(PBMI). Sometime in September to October 1980, PBMI, through petitioner,
applied with the Rizal Commercial Banking Corporation (respondent bank) for
the issuance of commercial letters of credit to finance its importation of assorted
goods. Under the receipts, petitioner agreed to hold the goods in trust for the said
bank, with authority to sell but not by way of conditional sale, pledge or
otherwise; and in case such goods were sold, to turn over the proceeds thereof
as soon as received, to apply against the relative acceptances and payment of
other indebtedness to respondent bank. In case the goods remained unsold
within the specified period, the goods were to be returned to respondent bank
without any need of demand. Thus, said “goods, manufactured products or
proceeds thereof, whether in the form of money or bills, receivables, or accounts
separate and capable of identification” were respondent bank’s property. When
the trust receipts matured, petitioner failed to return the goods to respondent
bank, or to return their value amounting to P6,940,280.66 despite demands.
Thus, the bank filed a criminal complaint for estafa 6 against petitioner in the
Office of the City Prosecutor of Manila.
ISSUE: Whether or not Ching is liable for Estafa
HELD: In the case at bar, the transaction between petitioner and respondent
bank falls under the trust receipt transactions envisaged in P.D. No. 115.
Respondent bank imported the goods and entrusted the same to PBMI under the
trust receipts signed by petitioner, as entrustee, with the bank as entruster. The
failure of person 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 not sold, is a public
nuisance to be abated by the imposition of penal sanctions.—It must be stressed
that P.D. No. 115 is a declaration by legislative authority that, as a matter of public
policy, the failure of person to turn over the proceeds of the sale of the goods
covered by a trust receipt or to return said goods, if not sold, is a public nuisance
to be abated by the imposition of penal sanctions.
 NEGOTIABLE INSTRUMENTS LAW
Failure of the entrustee to turn over the proceeds of the sale of the goods covered
by the trust receipts to the entruster or to return said goods if they were not
disposed of in accordance with the terms of the trust receipt is a crime under P.D.
No. 115, without need of proving intent to defraud.—In Colinares v. Court of
Appeals, the Court declared that 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. Thus, failure of the entrustee to turn over the proceeds of the sale of
the goods cov- ered by the trust receipts to the entruster or to return said goods
if they were not disposed of in accordance with the terms of the trust receipt is a
crime under P.D. No. 115, without need of proving intent to defraud. The law
punishes dishonesty and abuse of confidence in the handling of money or goods
to the prejudice of the entruster, regardless of whether the latter is the owner or
not. A mere failure to deliver the proceeds of the sale of the goods, if not sold,
constitutes a criminal offense that causes prejudice, not only to another, but more
to the public interest.
P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph 1(b),
Article 315 of the Revised Penal Code, or estafa with abuse of confidence.—The
crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa
under paragraph 1(b), Article 315 of the Revised Penal Code, or estafa with abuse
of confidence. It may be committed by a corporation or other juridical entity or
by natural persons. However, the penalty for the crime is imprisonment for the
periods provided in said Article 315.
LANDL CO VS. METROPOLITAN BANK & TRUST
7 COMPANY
G.R. No. 159622 July 30, 2004
The possession by the bank of the goods under the trust receipts does not bar
collection of the loan. Mere possession does not amount to foreclosure for
foreclosure denotes the procedure adopted by the mortgagee to terminate
the rights of the mortgagor on the property and includes the sale itself.
Neither can said repossession amount to dacion en pago. Dation in payment
takes place when property is alienated to the creditor in satisfaction of a debt
in money and the same is governed by sales. Dation in payment is the delivery
10 | E l i x i r C . L a n g a n l a n g a n
Negotiable Instruments Law – Atty. Soraya Laut
XU – College of Law, 2019-2020
– CASE DIGESTS BATCH 6
and transmission of ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of the obligation.
FACTS: Landl Co opened Commercial Letter of Credit No. 4998 with respondent
bank, in the amount of US$19,606.77, which was equivalent to P218,733.92 in
Philippine currency at the time the transaction was consummated. The letter of
credit was opened to purchase various welding rods and electrodes from Perma
Alloys, Inc., New York, U.S.A., As an additional security, and as a condition for the
approval of petitioner corporation’s application for the opening of the
commercial letter of credit, respondent bank required petitioners Percival G.
Llaban and Manuel P. Lucente to execute a Continuing Suretyship Agreement to
the extent of P400,000.00.
Upon arrival of the goods in the Philippines, petitioner corporation took
possession and custody thereof. On the maturity date of the trust receipt,
petitioner corporation defaulted in the payment of its obligation to respondent
bank and failed to turn over the goods to the latter. The goods were sold for
P30,000.00 to respondent bank as the highest bidder. The proceeds of the
auction sale were insufficient to completely satisfy petitioners’ outstanding
obligation to respondent bank, notwithstanding the application of the time
deposit account of petitioner Lucente. Accordingly, respondent bank demanded
that petitioners pay the remaining balance of their obligation. After petitioners
failed to do so, respondent bank instituted the instant case to collect the said
deficiency.
ISSUE: Whether or not possession by the bank of the goods under the trust
receipts does not bar collection of the loan.
HELD: The initial repossession by the bank of the goods subject of the trust
receipt did not result in the full satisfaction of the petitioners’ loan obligation.
Petitioners are apparently laboring under the mistaken impression that the full
turn-over of the goods suffices to divest them of their obligation to repay the
principal amount of their loan obligation. The entrustee’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.
Neither can said repossession amount to dacion en pago. Dation in payment takes
place when property is alienated to the creditor in satisfaction of a debt in money
 NEGOTIABLE INSTRUMENTS LAW – CASE DIGESTS BATCH 6
and the same is governed by sales. Dation in payment is the delivery and
transmission of ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of the obligation.

A trust receipt is inextricably linked with the primary agreement between the
parties. Time and again, we have emphasized that a trust receipt agreement is
merely a collateral agreement, the purpose of which is to serve as security for a
loan. Thus, in Abad v. Court of Appeals, we ruled: A letter of credit-trust receipt
arrangement is endowed with its own distinctive features and characteristics.
Under that set-up, a bank extends a loan covered by the letter of credit, with the
trust receipt as security for the loan. In other words, the transaction involves a
loan feature represented by the letter of credit, and a security feature which is in
the covering trust receipt. x x x. A trust receipt, therefore, is a security agreement,
pursuant to which a bank acquires a “security interest” in the goods. It secures
an indebtedness and there can be no such thing as security interest that secures
no obligation. The Trust Receipts Law was enacted to safeguard commercial
transactions and to offer an additional layer of security to the lending bank. Trust
receipts are indispensable contracts in international and domestic business
transactions. The prevalent use of trust receipts, the danger of their misuse
and/or misappropriation of the goods or proceeds realized from the sale of
goods, documents or instruments held in trust for entruster banks, and the need
for regulation of trust receipt transactions to safeguard the rights and enforce the
obligations of the parties involved are the main thrusts of the Trust Receipts
Law.

11 | E l i x i r C . L a n g a n l a n g a n
Negotiable Instruments Law – Atty. Soraya Laut
XU – College of Law, 2019-2020