PRUDENTIAL BANK, petitioner, a borrower.

Petitioner argues that in the latter the ownership of the

vs. mortgagor may not necessarily have any bearing on its acquisition,
NATIONAL LABOR RELATIONS COMMISSION, CECILIA whereas in the case of a trust receipt the acquisition of the goods
ORQUELLO, et al., ZENAIDA UCHI, et al., ALU-INTERASIA by the borrower results from the advances made by the bank. It
CONTAINER INDUSTRIES, INC., and RAUL concludes that the security title of the bank in a trust receipt must
REMODO, respondents necessarily be of the same or greater extent than the nature of the
security arising from a real estate mortgage. Petitioner maintains
G.R. No. 112592 December 19, 1995 that it is a preferred claimant to the proceeds from the foreclosure
to the extent of its security title in the goods which are valued at
FACTS: P46,100,253.92 otherwise its security title will become useless.
Interasia Container Industries, Inc. (INTERASIA) was embroiled in three
labor cases which were all resolved against it. Monetary awards Respondents‘ contention
consisting of 13th month pay differentials and other benefits were  In their comment, private respondents support the findings of the
granted to complainants. Subsequently the monetary award was NLRC. They submit that petitioner's negligence to immediately
recomputed to include separation pay in the total sum of P126,788.30 assert its right to cancel the Trust Receipt Agreements, upon
occasioned by the closure of operations of INTERASIA. Labor Arbiter INTERASIA's failure to comply with its obligation, is fatal to its
declared the closure or shutdown of operations effected by INTERASIA claim.
as illegal and awarded to complainants the sum of P1,188,466.32 as
wage differentials, separation pay and other benefits. ISSUES:
Whether petitioner could claim ownership of properties despite failure
With the finality of the three decisions, writs of execution were issued. to cancel the Trust Agreements
The Sheriff levied on execution personal properties located in the factory
of INTERASIA. RULING:
YES. We cannot subscribe to NLRC's simplistic interpretation of trust
Petitioner filed an Affidavit of Third-Party Claim asserting ownership over receipt arrangements. In effect, it has reduced the Trust Receipt
the seized properties on the strength of trust receipts executed by Agreements to a pure and simple loan transaction.
INTERASIA in its favor. As a result, the Sheriff suspended the public
auction sale. But Labor Arbiter denied the claim of petitioner and directed From the legal and jurisprudential standpoint it is clear that the security
the Sheriff to proceed with the levy of the properties. Petitioner then filed interest of the entruster is not merely an empty or idle title. To a certain
separate appeals to the NLRC. extent, such interest, such interest becomes a "lien" on the goods
because the entruster's advances will have to be settled first before the
Sheriff posted Notices of levy and Sale of the seized properties. entrustee can consolidate his ownership over the goods. A contrary view
However, no bidder appeared on the scheduled date hence the public would be disastrous. For to refuse to recognize the title of the banker
auction sale was postponed. At the rescheduled date the Sheriff under the trust receipt as security for the advance of the purchase price
declared Angel Peliglorio the highest bidder with an offer of P128,000.00 would be to strike down a bona fide and honest transaction of great
on the properties levied. commercial benefit and advantage founded upon a well-recognized
custom by which banking credit is officially mobilized for manufacturers
Labor Arbiter: and importers of small means.
 Labor Arbiter ordered the release of the properties to Peliglorio
prompting INTERASIA to file a Motion to Set Aside and/or Declare Significantly, the law uses the word "may" in granting to the entruster the
Public Auction Sale Null and Void Ab Initio for non-compliance with right to cancel the trust and take possession of the goods. Consequently,
legal requisites. Labor Arbiter denied the motion and directed the petitioner has the discretion to avail of such right or seek any alternative
Sheriff to break open the plant of INTERASIA in order that action, such as a third-party claim or a separate civil action which it
Peliglorio could enter and take possession of the auctioned deems best to protect its right, at anytime upon default or failure of the
properties. INTERASIA moved to reconsider the order. entrustee to comply with any of the terms and conditions of the trust
agreement.
 The Labor Arbiter inhibited himself from the case because of
INTERASIAS's accusation of partiality. The records were then Besides, as earlier stated, the law warrants the validity of petitioner's
forwarded to the NLRC. On the other hand, petitioner filed a Third- security interest in the goods pursuant to the written terms of the trust
Party Claimant's Appeal/Memorandum. receipt as against all creditors of the trust receipt agreement. The only
exception to the rule is when the properties are in the hands of an
NLRC: innocent purchaser for value and in good faith. The records however do
 NLRC dismissed petitioner's appeal as well as INTERASIA's MR. not show that the winning bidder is such purchaser. Neither can private
INTERASIA and petitioner separately moved to reconsider the respondents plead preferential claims to the properties as petitioner has
ruling but their motions were denied.Hence, petitioner brought this the primary right to them until its advances are fully paid.
present recourse raising questions on the validity not only of the
NLRC resolutions but also of the public auction sale. In fine, we hold that under the law and jurisprudence the NLRC
 Trust receipts are mere security transactions which do not vest committed grave abuse of discretion in disregarding the third-party claim
upon petitioner any title of ownership, and that although the Trust of petitioner. Necessarily the auction sale held on 5 November 1992
Receipt Agreements described petitioner as owner of the goods, should be set aside. For there would be neither justice nor equity in
there was no showing that it canceled the trust receipts and took taking the funds from the party whose means had purchased the
possession of the goods. property under the contract.

Petitioner’s contention WHEREFORE, the petition for certiorari is GRANTED. The Resolutions
 Public auction was conducted without notice and in a place other of the National Labor Relations Commission dated 18 August and 12
than the premises of INTERASIA as required by the Manual of November 1993 are SET ASIDE and a new judgment is entered
Instructions for Sheriffs. GRANTING the Third-Party Claim and ORDERING the Sheriff or his
representative to immediately deliver to petitioner PRUDENTIAL BANK
 It also raises issue on the extent of its security title over the the properties subject of the Trust Receipt Agreements.
properties subject of the levy on execution, submitting that while it
may not have absolute ownership over the properties, still it has
right, interest and ownership consisting of a security title which
attaches to the properties.

 Petitioner differentiates a trust receipt, which is a security for the

payment of the obligations of the importer, from a real estate
mortgage executed as security for the payment of an obligation of