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    Landl & Company Inc V Metropolitan Bank & Trust Company

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    ShariefaAichaseAsali
    1) The petitioner corporation defaulted on a trust receipt agreement with the respondent bank for goods imported using a letter of credit. 2) The bank repossessed and auctioned the goods but the proceeds were insufficient to pay off the loan, so the bank sued for the deficiency. 3) The court ruled in favor of the bank, finding that under the Trust Receipts Law, the entruster (bank) is entitled to any deficiency remaining after repossessing and selling the goods.

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    Landl & Company Inc V Metropolitan Bank & Trust Company

    Uploaded by

    ShariefaAichaseAsali
    91 views1 page
    1) The petitioner corporation defaulted on a trust receipt agreement with the respondent bank for goods imported using a letter of credit. 2) The bank repossessed and auctioned the goods but the proceeds were insufficient to pay off the loan, so the bank sued for the deficiency. 3) The court ruled in favor of the bank, finding that under the Trust Receipts Law, the entruster (bank) is entitled to any deficiency remaining after repossessing and selling the goods.

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    Landl & Company Inc v Metropolitan Bank & Trust Company

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    1) The petitioner corporation defaulted on a trust receipt agreement with the respondent bank for goods imported using a letter of credit. 2) The bank repossessed and auctioned the goods but the proceeds were insufficient to pay off the loan, so the bank sued for the deficiency. 3) The court ruled in favor of the bank, finding that under the Trust Receipts Law, the entruster (bank) is entitled to any deficiency remaining after repossessing and selling the goods.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    91 views1 page

    Landl & Company Inc V Metropolitan Bank & Trust Company

    Uploaded by

    ShariefaAichaseAsali
    1) The petitioner corporation defaulted on a trust receipt agreement with the respondent bank for goods imported using a letter of credit. 2) The bank repossessed and auctioned the goods but the proceeds were insufficient to pay off the loan, so the bank sued for the deficiency. 3) The court ruled in favor of the bank, finding that under the Trust Receipts Law, the entruster (bank) is entitled to any deficiency remaining after repossessing and selling the goods.

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    © All Rights Reserved
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    of 1

    REMEDY OF ENTRUSTER

    Landl & Company Inc v Metropolitan Bank & Trust Company (G.R. No. 159622 July 30, 2004)

    FACTS: Petitioner Corporation 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 evidenced by a Pro-Forma
    Invoice dated March 10, 1983. Petitioner corporation put up a marginal deposit of P50,414.00 from the proceeds of a separate clean
    loan. Aside from a Continuing Surety Agreement, secure the indebtedness of petitioner corporation, respondent bank required the
    execution of a Trust Receipt in an amount equivalent to the letter of credit, on the condition that petitioner corporation would hold
    the goods in trust for respondent bank, with the right to sell the goods and the obligation to turn over to respondent bank the
    proceeds of the sale, if any. If the goods remained unsold, petitioner corporation had the further obligation to return them to
    respondent bank on or before November 23, 1983.

    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. On July 24, 1984, respondent bank demanded that petitioners, as entrustees, turn over the goods subject of the trust
    receipt. On September 24, 1984, petitioners turned over the subject goods to the respondent bank. It was later sold in a public
    auction. BUT proceeds of the auction sale were insufficient to completely satisfy petitioners' outstanding obligation to respondent
    bank. 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.

    TC ruled in favor of the bank. CA affirmed in toto the decision of the trial court. Hence, this case.

    ISSUE: WON in a trust receipt transaction, an entruster which had taken actual and juridical possession of the goods covered by the
    trust receipt may subsequently avail of the right to demand from the entrustee the deficiency of the amount covered by the trust
    receipt.

    RULING: YES. 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. Respondent bank's repossession of
    the properties and subsequent sale of the goods were completely in accordance with its statutory and contractual rights upon
    default of petitioner corporation. The second paragraph of Section 7 of Presidential Decree No. 115, or the Trust Receipts Law
    expressly provides that the entrustee shall be liable to the entruster for any deficiency after the proceeds of the sale have been
    applied to the payment of the expenses of the sale, the payment of the expenses of re-taking, keeping and storing the goods,
    documents or instruments, and the satisfaction of the entrustee's indebtedness to the entruster. In the case at bar, the proceeds of
    the auction sale were insufficient to satisfy entirely petitioner corporation's indebtedness to the respondent bank. Respondent bank
    was thus well within its rights to institute the instant case to collect the deficiency.

    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, court 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.”

    Sec. 7. Rights of the entruster. - The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released under a trust receipt to the
    entrustee to the extent of the amount owing to the entruster or as appears in the trust receipt, or to the return of the goods, documents or instruments in case of
    non-sale, and to the enforcement of all other rights conferred on him in the trust receipt provided such are not contrary to the provisions of this Decree.

    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, and
    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 (a) to the payment of the expenses thereof; (b) to the payment of the expenses of
    re-taking, keeping and storing the goods, documents or instruments; (c) 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. Notice of sale shall be deemed sufficiently given if in writing, and either personally
    served on the entrustee or sent by post-paid ordinary mail to the entrustee's last known business address.

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