Selected Cases on Commercial Documents and Chattels

WAREHOUSE RECEIPTS LAW

Martinez vs PNB (1953)

Where a warehouse receipt or quedan is transferred or endorsed to a creditor only to secure the payment of a loan or debt, the transferee or endorsee does not automatically become the owner of the goods covered by the warehouse receipt or quedan but he merely retains the right to keep, and with the consent of the owner to sell, them so as to satisfy the obligation from the proceeds of the sale, this for the simple reason that the transaction involved is not a sale but only a mortgage or pledge, and if the property covered by the quedans or warehouse receipts is lost later without the fault or negligence of the mortgagee or pledgee or the transferee or endorsee of the warehouse receipt or quedan, then said goods are to be regarded as lost on account of the real owner, mortgagor or pledgor.


Estrada vs CAR (1961)

(No surrender needed if ordered by court) The SC ordered the manager of Moncada Bonded Warehouse to release shares in palay without the necessity of producing and surrendering the original of the warehouse receipts issued. The SC stated “our order must be carried out in the meantime that this cases have not been finally decided in order to ameliorate the precarious situation in which said petitioners find themselves.”


PNB vs. Se (1996)

While the PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shall be effected only upon payment of the storage fees. Imperative is the right of the warehouseman to demand payment of his lien at this juncture, because in accordance with Section 29 of the Warehouse Receipts Law, the warehouseman loses his lien upon goods by surrendering possession thereof. In other words, the lien may be lost where the warehouseman surrenders the possession of the goods without requiring payment of his lien, because a warehouseman's lien is possessory in nature.

But the warehouseman cannot refuse to deliver the goods because of an adverse claim of ownership [PNB vs. Sayo, 292 SCRA 202 (1998)]


GENERAL BONDED WAREHOUSE LAW

Purpose:

1. An act to regulate the business of receiving commodities for storage, giving the director of Commerce and Industry the duty to enforce if, providing penalties for violation of the provisions, exempting cooperative marketing associations of commodity producers from application thereof.

2. To protect depositors by giving them a direct recourse against the bond filed by the warehouseman in case of the latter’s insolvency.

3. To encourage the establishment of more warehouses.


Limjoco vs Director of Commerce (1965)

Any contract or transaction wherein the palay delivered is to be milled for and on account of the owner shall be deemed included in the business of receiving rice for storage. In other words, it is enough that the palay is delivered, even if only to have it milled. In this case it is a fact that palay is delivered to appellant and sometimes piled inside her "camalig" in appreciable quantities, to wait for its turn in the milling process. This is precisely the situation covered by the statute. The main intention of the law-maker is to give protection to the owner of the commodity against possible abuses (and we might add negligence) of the person to whom the physical control of his properties is delivered.


LETTERS OF CREDIT

Purpose:

1. To satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying. (Bank of America vs. CA, 1993)

2. The primary purpose of the LoC is to substitute for and support the agreement of the buyer/importer to pay money under a contract or other arrangement. It creates in the seller/exporter a secure expectation of payment.


Bank of America vs. CA (1993)

If there is no provision in the Code of Commerce, follow Uniform Customs and Practice or generally observed usages and customs

Rule of Strict Conformity/Compliance: Documents tendered must strictly conform to the terms of the LoC. The tender of documents by the beneficiary (seller) must include all documents required by the letter. A correspondent bank which departs from what has been stipulated under the letter of credit, as when it accepts a faulty tender, acts on its own risks and it may not thereafter be able to recover from the buyer or the issuing bank, as the case may be, the money thus paid to the beneficiary


Feati Bank vs CA (1991)

An advising or notifying bank does not incur any obligation by the notification. Its only obligation is to check the apparent authenticity of the Letter of Credit.

Negotiating bank has a right of recourse against the issuer bank. Until the negotiating bank is reimbursed, drawer of the draft is still contingently liable.

Relationship between the seller and the negotiating bank is like that between drawer and purchaser of drafts, ie. the involved bank deals only with documents and not on the goods described in the documents.

Independence Principle: Negotiating bank has no duty to verify if what is described in the LoC or shipping documents actually tallies with that loaded aboard a ship. Banks do not deal with the property to be exported or shipped to the importer, but deal only with documents. International custom negates any duty on the part of a bank to verify whether what has been described in letters of credits or drafts or shipping documents actually tallies with what was loaded aboard ship


BPI vs De Reny Fabrics (1970)

A Letter of Credit is a primary obligation of the bank. It is separate from the underlying contract it may support, and is not merely an accessory contract.


TRUST RECEIPTS LAW

Landl & Co. (Phil) Inc. vs Metropolitan Bank (2004)

A trust receipt agreement is merely a collateral agreement, the purpose of which is to serve as
security for a loan.


Allied Banking vs Ordonez (1990)

(Capital goods are covered.)

Applies even to goods not destined for sale or manufacture, and would include items obtained to repair and maintain equipment used in business.


Colinares vs CA (2000)

(Loan vs trust receipts transaction)

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. 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. The bank takes full title to the goods and continues to hold that as his indispensable security until the goods are sold and the vendee is called upon to pay for them. 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.


Consolidated Bank vs CA (2001)

(Simple loan vs trust receipt transaction)

The delivery to Corporation of the goods subject of the trust receipt occurred long before the trust receipt itself was executed. 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.

Robles vs CA (1991)

(Bipartite transactions are covered).

In deciding WON the delivery trust receipts covered a trial sale transaction or one that fell under the trust receipts law, the SC found that the requisites under Sec 4 were met: 1) Paramount retained ownership of the office equipment covered by the receipts; 2) possession of the goods was subject to a fiduciary obligation to return them within a specified period or to account for the proceeds thereof.


DBP vs. Pudential Bank, G.R. 143772, Nov. 22, 2005

The entrustee has NO authority to mortgage goods covered by trust receipt.


Prudential Bank vs NLRC (1995)

(Nature of interest of entruster in goods covered)

The security interest of the entruster is not merely an empty or idle title. To a certain extent, 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. The law warrants the validity of petitioner's security interest as against all creditors of the trust receipt agreement. The only exception is when the properties are in the hands of an innocent purchaser for value and in good faith.


Prudential Bank vs NLRC (1995)

The goods covered by trust receipts cannot be levied upon by creditors of the entrustee. The entruster may cancel the trust and take possession of the goods, documents or instruments subject of the trust or of the proceeds realized therefrom at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the trust receipt or any other agreement between the entruster and the entrustee.

The entruster in possession of the goods, documents or instruments may, on or after default, give notice to the entrustee of the intention to sell, and may, not less than five days after serving or sending of such notice, sell the goods, documents or instruments at public or private sale, and the entruster may, at a public sale, become a purchaser.

The proceeds of any such sale, whether public or private, shall be applied:

• to the payment of the expenses thereof;
• to the payment of the expenses of retaking, keeping and storing the goods, documents or instruments;
• to the satisfaction of the entrustee's indebtedness to the entruster.

The entrustee shall receive any surplus but shall be liable to the entruster for any deficiency.


Lee vs Rodil (1989)

Acts involving the violation of trust receipt agreements occurring after 29 Jan 1973 would make the accused criminally liable for estafa under par1(b), Art 315 of the RPC, pursuant to the explicit provision in Sec. 13 of P.D. 115.


Allied vs. Ordoñez

The penal provisions of PD 115 encompasses any act violative of the obligation covered by the trust receipt. It is not limited to transactions in goods which are to be sold, reshipped or stored, but also applies to goods processed as a component of a product ultimately sold to the general public.


Sarmiento, Jr. vs. CA (2002)

The breach of obligation of a trust receipt agreement is separate and distinct from any criminal liability for “misuse and/or misappropriation of goods or proceeds realized from the sale of goods, documents or instruments released under trust receipts”, punishable under Sec. 13 of the Trust Receipts Law (PD 115) in relation to Article 315(1) (b) of the Revised Penal Code. Being based on an obligation ex contractu and not ex delicto, the civil action may proceed independently of the criminal proceedings instituted against petitioners regardless of the result of the latter.


People vs Nitafan (1992)

(Violation of PD 115 is an offense against public order, not property)

The Trust Receipts Law punishes the dishonesty and abuse of confidence in the handling of money or goods - it does not seek to enforce payment of the loan. Thus, there can be no violation of a right against imprisonment for non-payment of a debt. P.D. 115, like BP 22, punishes the act "not as an offense against property, but as an offense against public order.” Thus the law states that a breach of a trust receipt agreement makes one liable for estafa.


Philippines Bank vs Ong (2002)

The Supreme Court ruled that a Memorandum of Agreement entered into between the bank entruster and entrustee extinguished the obligation under the existing trust receipt because the agreement did not only reschedule the debts of the entrustee but it provided principal conditions which are incompatible with the trust agreement. Hence, the liability for breach of the Memorandum of Agreement would be purely civil in nature and no criminal liability under the Trust Receipt Law can be imposed.


Prudential Bank vs. NLRC (1995)

Entrustor can:
• cancel trust and take possession of the goods
• file a 3rd party claim or separate civil action at any time upon default or failure of entrustee to comply with terms and conditions of the trust agreement.


Tupaz VI, et. al. vs. CA and BPI, G.R. 145578, Nov. 18, 2005

Here, BPI chose not to file a separate civil action to recover payment under the trust receipts. Instead, respondent bank sought to recover payment in Criminal Case Nos. 8848 and 8849. Although the trial court acquitted petitioner Jose Tupaz, his acquittal did NOT extinguish his civil liability. His liability arose not from the criminal act of which he was acquitted (ex delicto) but from the trust receipt contract (ex contractu) of 30 September 1981. Petitioner Jose Tupaz signed the trust receipt of 30 September 1981 in his personal capacity. Acquittal in a criminal case for estafa does not extinguish civil liability arising from breach of trust receipt contract.