G.R. No.

81559-60 April 6, 1992 offense mala prohibita.  The law only refers to the
relevant estafa provision in the Revised Penal Code.
PEOPLE OF THE PHILIPPINES and ALLIED The Court relied on the judicial pronouncements
BANKING CORPORATION vs. HON. JUDGE in People v. Cuevo, where, for lack of the required
DAVID G. NITAFAN and BETTY SIA ANG number of votes, this Court upheld the dismissal of
a charge for estafa for a violation of a trust receipt
FACTS: Petitioner Allied Banking Corporation agreement; and in Sia v. People where we held
charged Betty Sia Ang with estafa, alleging that the that the violation merely gives rise to a civil
said accused, being then the proprietress of Eckart obligation.
Enterprises feloniously defraud Allied Banking
Corporation, represented by its Account Officer, PRIVATE RESPONDENT’S CONTENTION
Raymund S. Li, in the following manner, to wit:
The private respondent adopted practically the
- the said accused received in trust from the same stance of the lower court. She likewise
aforesaid bank Gordon Plastics, plastic asserts that P.D. 115 is unconstitutional as it
sheeting and Hook Chromed, in the total violates the constitutional prohibition against
amount of P398,000.00, specified in a trust imprisonment for non-payment of a debt. She
receipt and covered by Domestic Letter of argues that where no malice exists in a breach of a
Credit No. DLC-002-801254, under the purely commercial undertaking, P.D. 115 imputes
express obligation on the part of said it.
accused to sell the same and account for
the proceeds of the sale thereof, if sold, or ISSUE: whether an entrustee in a trust receipt
to return said merchandise, if not sold, on agreement who fails to deliver the proceeds of the
or before October 16, 1980, or upon sale or to return the goods if not sold to the
demand entruster-bank is liable for the crime of estafa—
- but the said accused, once in possession of YES
the said articles, far from complying with
the aforesaid obligation, notwithstanding HELD:
repeated demands made upon her to that
effect, paid only the amount of The factual circumstances in the present case show
P283,115.78, thereby leaving unaccounted that the alleged violation was committed sometime
for the amount of P114,884.22 which, once in 1980 or during the effectivity of P.D. 115. The
in her possession, with intent to defraud, failure, therefore, to account for the P114,884.22
she misappropriated, misapplied and balance is what makes the accused-respondent
converted to her own personal use and criminally liable for estafa. The Court reiterates its
benefit, to the damage and prejudice of said definitive ruling that, in the Cuevo  and Sia  (1983)
Allied Banking Corporation in the aforesaid cases relied upon by the accused, P.D. 115 was not
sum of P114,884.22. applied because the questioned acts were
committed before its effectivity. At the time those
The accused filed a motion to quash the cases were decided, the failure to comply with the
information on the ground that the facts charged obligations under the trust receipt was susceptible
do not constitute an offense. to two interpretations. The Court in Sia  adopted
the view that a violation gives rise only to a civil
RTC’S RULING liability as the more feasible view "before the
promulgation of P.D. 115," notwithstanding prior
The respondent judge granted the motion to decisions where we ruled that a breach also gives
quash. The order was anchored on the premise rise to a liability for estafa.
that a trust receipt transaction is an evidence of a
loan being secured so that there is, as between the Contrary to the reasoning of the respondent court
parties to it, a creditor-debtor relationship. The and the accused, a trust receipt arrangement does
court ruled that the penal clause of Presidential not involve a simple loan transaction between a
Decree No. 15 on the Trust Receipts Law is creditor and debtor-importer. Apart from a loan
inoperative because it does not actually punish an feature, the trust receipt arrangement has a
security feature that is covered by the trust receipt As earlier stated, however, the law punishes the
itself. That second feature is what provides the dishonesty and abuse of confidence in the handling
much needed financial assistance to our traders in of money or goods to the prejudice of the bank.
the importation or purchase of goods or
merchandise through the use of those goods or The Court reiterates that the enactment of P.D. 115
merchandise as collateral for the advancements is a valid exercise of the police power of the State
made by a bank. The title of the bank to the and is, thus, constitutional. The arguments of the
security is the one sought to be protected and not respondent are appropriate for a repeal or
the loan which is a separate and distinct modification of the law and should be directed to
agreement. Congress. But until the law is repealed, we are
constrained to apply it.
The Trust Receipts Law punishes the dishonesty
and abuse of confidence in the handling of money WHEREFORE, the petition is hereby GRANTED.
or goods to the prejudice of another regardless of
whether the latter is the owner or not. The law
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.

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 ROSARIO TEXTILE MILLS CORPORATION and
and enforce the obligations of the parties involved EDILBERTO YUJUICO vs. HOME BANKERS
are the main thrusts of P.D. 115. As correctly SAVINGS AND TRUST COMPANY
observed by the Solicitor General, P.D. 115, like
Batas Pambansa Blg. 22, punishes the act "not as
FACTS:
an offense against property, but as an offense
against public order. . . ." The misuse of trust
Rosario Textile Mills Corporation (RTMC) applied
receipts therefore should be deterred to prevent
from Home Bankers Savings & Trust Co. for an
any possible havoc in trade circles and the banking
Omnibus Credit Line for ₱10 million. The bank
community. It is in the context of upholding public
approved RTMC’s credit line but for only ₱8 million.
interest that the law now specifically designates a
The bank notified RTMC of the grant of the said
breach of a trust receipt agreement to be an act
loan thru a letter which contains terms and
that "shall" make one liable for estafa.
conditions conformed by RTMC thru Edilberto V.
Yujuico. Yujuico then signed a Surety Agreement in
The offense is punished as a malum
favor of the bank, in which he bound himself jointly
prohibitum regardless of the existence of intent or and severally with RTMC for the payment of all
malice. A mere failure to deliver the proceeds of
RTMC’s indebtedness to the bank from 1989 to
the sale or the goods if not sold, constitutes a
1990. RTMC availed of the credit line by making
criminal offense that causes prejudice not only to
numerous drawdowns, each drawdown being
another, but more to the public interest.
covered by a separate promissory note and trust
receipt. RTMC, represented by Yujuico, executed in
We are continually re-evaluating the opposite view favor of the bank a total of eleven (11) promissory
which insists that the violation of a trust receipt notes.
agreement should result only in a civil action for
collection. The respondent contends that there is
Despite the lapse of the respective due dates under
no malice involved.
the promissory notes and notwithstanding the
bank’s demand letters, RTMC failed to pay its loans.
Hence, the bank filed a complaint for sum of 2. Whether petitioners are solidarily liable for
money against RTMC and Yujuico before the RTC the payment of their obligations to the
Manila. bank. (YES)
3. Whether the Court of Appeals violated the
In their answer, RTMC and Yujuico contend that Trust Receipts Law. (NO)
they should be absolved from liability. They claimed
that although the grant of the credit line and the RULING:
execution of the suretyship agreement are
admitted, the bank gave assurance that the 1. NO. It is clear that the principal transaction
suretyship agreement was merely a formality under between petitioner RTMC and the bank is a
which Yujuico will not be personally liable. They contract of loan. RTMC used the proceeds of
argue that the importation of raw materials under this loan to purchase raw materials from a
the credit line was with a grant of option to them supplier abroad. In order to secure the payment
to turn-over to the bank the imported raw materials of the loan, RTMC delivered the raw materials
should these fail to meet their manufacturing to the bank as collateral. Trust receipts were
requirements. RTMC offered to make such turn- executed by the parties to evidence this
over since the imported materials did not conform security arrangement. Simply stated, the trust
to the required specifications. However, the bank receipts were mere securities.
refused to accept the same, until the materials
were destroyed by a fire which gutted down In Sia vs. People, Abad vs. Court of
RTMC’s premises. Appeals, and PNB vs. Pineda, it was held that:

RTC: Rendered a judgment in favor of plaintiff and "If under the trust receipt, the bank is made to
against defendants who are ordered to pay jointly appear as the owner, it was but an artificial
and severally in favor of plaintiff, inclusive of expedient, more of legal fiction than fact, for if
stipulated 30% per annum interest and penalty of it were really so, it could dispose of the goods
3% per month until fully paid. in any manner it wants, which it cannot do, just
to give consistency with purpose of the trust
RTMC and Yujuico: Under the trust receipt receipt of giving a stronger security for the loan
contracts between the parties, they merely held obtained by the importer. To consider the
the goods described therein in trust for bank as the true owner from the inception
respondent bank which owns the same. Since of the transaction would be to disregard
the ownership of the goods remains with the bank, the loan feature thereof..."
then it should bear the loss. With the destruction of
the goods by fire, petitioners should have been Thus, petitioners cannot be relieved of their
relieved of any obligation to pay. obligation to pay their loan in favor of the bank.

CA: Affirmed the trial court’s judgment, holding 2. YES. Yujuico’s contentions were rejected for
that the bank is merely the holder of the security two reasons:
for its advance payments to petitioners; and that
the goods they purchased, through the credit line a. there is no record to support his allegation
extended by the bank, belong to them and hold that the surety agreement is a "mere
said goods at their own risk. formality;"
b. As correctly held by the Court of Appeals,
ISSUES: the Suretyship Agreement signed by
petitioner Yujuico binds him. The terms
1. Whether petitioners are relieved of their clearly show that he agreed to pay the bank
obligation to pay their loan after they tried jointly and severally with RTMC. The parole
to tender the goods to the bank which evidence rule under Section 9, Rule 130 of
refused to accept the same, and which the Revised Rules of Court is in point, thus:
goods were subsequently lost in a fire.
(NO) "SEC. 9. Evidence of written agreements . – When
the terms of an agreement have been reduced in
writing, it is considered as containing all the terms fixed limit of credit granted by a bank, retailer,
agreed upon and there can be, between the parties or credit card issuer to a customer, to the full
and their successors in interest, no evidence of extent of which the latter may avail himself of
such terms other than the contents of the written his dealings with the former but which he must
agreement. not exceed and is usually intended to cover a
series of transactions in which case, when the
However, a party may present evidence to modify, customer’s line of credit is nearly exhausted, he
explain, or add to the terms of the written is expected to reduce his indebtedness by
agreement if he puts in issue in his pleading: payments before making any further drawings.
 trust receipt: a security transaction intended
(a) An intrinsic ambiguity, mistake, or to aid in financing importers and retail dealers
imperfection in the written agreement; who do not have sufficient funds or resources
(b) The failure of the written agreement to to finance the importation or purchase of
express the true intent and agreement of merchandise, and who may not be able to
the parties thereto; acquire credit except through utilization, as
(c) The validity of the written agreement; or collateral, of the merchandise imported or
(d) The existence of other terms agreed to purchased. (Samo vs. People)
by the parties or their successors in interest
after the execution of the written A security agreement, pursuant to which a bank
agreement. acquires a ‘security interest’ in the goods. It
secures an indebtedness and there can be no
x x x." such thing as security interest that
secures no obligation." (Vintola vs. Insular
Under this Rule, the terms of a contract are Bank of Asia and America)
rendered conclusive upon the parties and
evidence aliunde is not admissible to vary or  Security Interest: a property interest in
contradict a complete and enforceable agreement goods, documents, or instruments to secure
embodied in a document. Upon careful examination performance of some obligation of the
of the Suretyship Agreement signed by Yujuico, it entrustee or of some third persons to the
was found no ambiguity therein. Documents must entruster and includes title, whether or not
be taken as explaining all the terms of the expressed to be absolute, whenever such title is
agreement between the parties when there in substance taken or retained for security
appears to be no ambiguity in the language of said only." (Section 3 (h) of the Trust Receipts Law)
documents nor any failure to express the true
intent and agreement of the parties.
Landl & Company (Phil.), Inc., et al. vs.
3. NO. The Court stress that the contract between Metropolitan Bank & Trust Co.
the parties is a loan. What respondent bank G.R. No. 159622, July 30, 2004, First
sought to collect as creditor was the loan it Division, J. Ynares Santiago
granted to petitioners. Petitioners’ recourse is to
sue their supplier, if indeed the materials were The possession by the bank of the goods
defective. under the trust receipts does not bar
collection of the loan. Mere possession does
WHEREFORE, the petition is DENIED. The not amount to foreclosure for foreclosure
assailed Decision and Resolution of the Court of denotes the procedure adopted by the
Appeals are AFFIRMED IN TOTO. mortgagee to terminate the rights of the
mortgagor on the property and includes the
NOTES: sale itself. Neither can said repossession
amount to dacion en pago. Dation in
 credit line: that amount of money or payment takes place when property is
merchandise which a banker, merchant, or alienated to the creditor in satisfaction of a
supplier agrees to supply to a person on credit debt in money and the same is governed by
and generally agreed to in advance." It is the 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 On November 23, 1983, the maturity date of the
obligation. trust receipt, petitioner corporation defaulted in the
payment of its obligation to respondent bank and
Facts: failed to turn over the goods to the latter On July
24, 1984, respondent bank demanded that
Respondent Metrobank filed a complaint for sum of Petitioners, as entrustees, turn over the goods
money against Landl and its directors, Percival G. subject of the trust receipt. On September 24,
Llaban and Manuel P. Lucente before the Regional 1984, petitioners turned over the subject goods to
Trial Court of Cebu City. the respondent bank.

Respondent alleged that petitioner corporation is On July 31, 1985, in the presence of
engaged in the business of selling imported welding representatives of the petitioners and respondent
rods and alloys. On June 17, 1983, it opened bank, the goods were sold at public auction. The
Commercial Letter of Credit with respondent bank, goods were sold for P30,000.00 to respondent bank
in the amount of US$19,606.77, which was as the highest bidder.
equivalent to P218,733.92 in Philippine currency at
the time the transaction was consummated. The The proceeds of the auction sale were insufficient
letter of credit was opened to purchase various to completely satisfy petitioners outstanding
welding rods and electrodes from Perma Alloys, obligation to respondent bank, notwithstanding the
Inc., New York, U.S.A., as evidenced by a Pro- application of the time deposit account of petitioner
Forma Invoice dated March 10, 1983. Petitioner Lucente. Accordingly, respondent bank demanded
corporation put up a marginal deposit of that petitioners pay the remaining balance of their
P50,414.00 from the proceeds of a separate clean obligation. After petitioners failed to do so,
loan. respondent bank instituted the instant case to
collect the said deficiency.
As an additional security, and as a condition for the
approval of petitioner corporations application for Ruling of the RTC:
the opening of the commercial letter of credit,
respondent bank required petitioners Llaban and Ruled in favor of respondent Bank.
Lucente to execute a Continuing Suretyship
Agreement to the extent of P400,000.00, excluding Ruling of the CA:
interest, in favor of respondent bank. Petitioner
Lucente also executed a Deed of Assignment in the Affirmed in toto the decision of the RTC.
amount of P35,000.00 in favor of respondent bank
to cover the amount of petitioner corporations Issue:
obligation to the bank. Upon compliance with these
requisites, respondent bank opened an irrevocable Whether or not possession by the bank of the
letter of credit for the petitioner corporation. goods under the trust receipts does not bar
collection of the loan.
To secure the indebtedness of petitioner
corporation, respondent bank required the Ruling:
execution of a Trust Receipt in an amount
equivalent to the letter of credit, on the condition The initial repossession by the bank of the goods
that petitioner corporation would hold the goods in subject of the trust receipt did not result in the full
trust for respondent bank, with the right to sell the satisfaction of the petitioners’ loan obligation.
goods and the obligation to turn over to Petitioners are apparently laboring under the
respondent bank the proceeds of the sale, if any. If mistaken impression that the full turn-over of the
the goods remained unsold, petitioner corporation goods suffices to divest them of their obligation to
had the further obligation to return them to repay the principal amount of their loan obligation.
respondent bank on or before November 23, 1983. The entrustee’s possession of the subject
Thereafter, upon arrival of the goods in the machinery and equipment being precisely as a form
Philippines, petitioner corporation took possession of security for the advances given to TCC under the
and custody thereof. Letter of Credit, said possession by itself cannot be
considered payment of the loan secured thereby. vs.
Payment would legally result only after PNB had INSULAR BANK OF ASIA AND
foreclosed on said securities, sold the same and AMERICA, plaintiff-appellee.
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 MELENCIO-HERRERA, J.:
of the mortgagor on the property and includes the
sale itself. Neither can said repossession amount to On August 20, 1975 the spouses Tirso and Loreta
dacion en pago. Dation in payment takes place Vintola (the VINTOLAS, for short), doing business
when property is alienated to the creditor in under the name and style "Dax Kin International,"
satisfaction of a debt in money and the same is engaged in the manufacture of raw sea shells into
governed by sales. Dation in payment is the finished products, applied for and were granted a
delivery and transmission of ownership of a thing domestic letter of credit by the Insular Bank of Asia
by the debtor to the creditor as an accepted and America (IBAA), Cebu City.  in the amount of
equivalent of the performance of the obligation. P40,000.00. The Letter of Credit authorized the
bank to negotiate for their account drafts drawn by
A trust receipt is inextricably linked with the their supplier, one Stalin Tan, on Dax Kin
primary agreement between the parties. Time and International for the purchase of puka and olive
again, we have emphasized that a trust receipt seashells. In consideration thereof, the VINTOLAS,
agreement is merely a collateral agreement, the jointly and severally, agreed to pay the bank "at
purpose of which is to serve as security for a loan. maturity, in Philippine currency, the equivalent, of
Thus, in Abad v. Court of Appeals, we ruled: A the aforementioned amount or such portion thereof
letter of credit-trust receipt arrangement is as may be drawn or paid, upon the faith of the said
endowed with its own distinctive features and credit together with the usual charges."
characteristics. Under that set-up, a bank extends a
loan covered by the letter of credit, with the trust On the same day, August 20, 1975, having received
receipt as security for the loan. In other words, the from Stalin Tan the puka and olive shells worth
transaction involves a loan feature represented by P40,000.00, the VINTOLAS executed a Trust
the letter of credit, and a security feature which is Receipt agreement with IBAA, Cebu City. Under
in the covering trust receipt. x x x. A trust receipt, that Agreement, the VINTOLAS agreed to hold the
therefore, is a security agreement, pursuant to goods in trust for IBAA as the "latter's property
which a bank acquires a “security interest” in the with liberty to sell the same for its account, " and
goods. It secures an indebtedness and there can be "in case of sale" to turn over the proceeds as soon
no such thing as security interest that secures no as received to (IBAA) the due date indicated in the
obligation. The Trust Receipts Law was enacted to document was October 19, 1975.
safeguard commercial transactions and to offer an
additional layer of security to the lending bank. Having defaulted on their obligation, IBAA
Trust receipts are indispensable contracts in demanded payment from the VINTOLAS in a letter
international and domestic business transactions. dated January 1, 1976. The VINTOLAS, who were
The prevalent use of trust receipts, the danger of unable to dispose of the shells, responded by
their misuse and/or misappropriation of the goods offering to return the goods. IBAA refused to
or proceeds realized from the sale of goods, accept the merchandise, and due to the continued
documents or instruments held in trust for refusal of the VINTOLAS to make good their
entruster banks, and the need for regulation of undertaking, IBAA charged them with Estafa for
trust receipt transactions to safeguard the rights having misappropriated, misapplied and converted
and enforce the obligations of the parties involved for their own personal use and benefit the
are the main thrusts of the Trust Receipts Law. aforesaid goods.
Court of First Instance of Cebu, Branch VII,
acquitted the VINTOLAS of the crime charged.
G.R. No. 73271 May 29, 1987 IBAA commenced the present civil action to recover
the value of the goods before the Regional Trial
SPOUSES TIRSO I. VINTOLA and LORETO DY Court of Cebu
VINTOLA, defendants-appellants,
VINTOLAS rest their present appeal on the principal specified in the trust receipt, or for
allegation that their acquittal in the Estafa case other purposes substantially
bars IBAA's filing of the civil action because IBAA equivalent to any one of the
had not reserved in the criminal case its right to following:
enforce separately their civil liability. They maintain
that by intervening actively in the prosecution of 1. In the case of goods or
the criminal case through a private prosecutor, documents, (a) to sell the goods or
IBAA had chosen to file the civil action impliedly procure their sale, ...
with the criminal action.
Further, the VINTOLAS take the position that their A trust receipt, therefore, is a security agreement,
obligation to IBAA has been extinguished inasmuch pursuant to which a bank acquires a "security
as, through no fault of their own, they were unable interest" in the goods. "It secures an indebtedness
to dispose of the seashells. and there can be no such thing as security interest
ISSUE: WON the acquittal from estafa extinguishes that secures no obligation." As defined in our laws:
their civil liability?
(h) "Security Interest"means a property interest in
HELD: A letter of credit-trust receipt arrangement is goods, documents or instruments to secure
endowed with its own distinctive features and performance of some obligations of the entrustee
characteristics. Under that set-up, a bank extends a or of some third persons to the entruster and
loan covered by the Letter of Credit, with the trust includes title, whether or not expressed to be
receipt as a security for the loan. In other words, absolute, whenever such title is in substance taken
the transaction involves a loan feature represented or retained for security only.
by the letter of credit, and a security feature which
is in the covering trust receipt. As elucidated in Samo vs. People6 "a trust receipt is
considered as a security transaction intended to aid
Thus, Section 4 of P.D. No. 115 defines a trust in financing importers and retail dealers who do not
receipt transaction as: have sufficient funds or resources to finance the
importation or purchase of merchandise, and who
... any transaction by and between a may not be able to acquire credit except through
person referred to in this Decree as utilization, as collateral of the merchandise
the entruster, and another person imported or purchased."
referred to in this Decree as the
entrustee, whereby the entruster, Contrary to the allegation of the VINTOLAS, IBAA
who owns or holds absolute title or did not become the real owner of the goods. It was
security interests over certain merely the holder of a security title for the
specified goods, documents or advances it had made to the VINTOLAS The goods
instruments, releases the same to the VINTOLAS had purchased through IBAA
the possession of the entrustee upon financing remain their own property and they hold
the latter's execution and delivery to it at their own risk.
the entruster of a signed document Since the IBAA is not the factual owner of the
called a "trust receipt" wherein the goods, the VINTOLAS cannot justifiably claim that
entrustee binds himself to hold the because they have surrendered the goods to IBAA
designated goods, documents or and subsequently deposited them in the custody of
instruments in trust for the entruster the court, they are absolutely relieved of their
and to sell or otherwise dispose of obligation to pay their loan because of their
the goods, documents or instrument inability to dispose of the goods. The fact that they
thereof to the extent of the amount were unable to sell the seashells in question does
owing to the entruster or as appears not affect IBAA's right to recover the advances it
in the trust receipt or the goods, had made under the Letter of Credit.
documents or instruments The foregoing premises considered, it follows that
themselves if they are unsold or not the acquittal of the VINTOLAS in the Estafa case is
otherwise disposed of, in accordance no bar to the institution of a civil action for
with the terms and conditions 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 due dates, BMC failed to comply with the trust
might arise, did not exist, for, it will be recalled that receipt agreement. 
the decision of acquittal expressly declared that
"the remedy of the Bank is civil and not criminal in BMC filed with the Securities and Exchange
nature." This amounts to a reservation of the civil Commission (SEC) a Petition for Rehabilitation and
action in IBAA's favor, for the Court would not have for a Declaration in a State of Suspension of
dwelt on a civil liability that it had intended to Payments.
extinguish by the same decision. 9 The VINTOLAS
are liable ex contractu for breach of the Letter of The SEC issued an order creating a Management
Credit — Trust Receipt, whether they did or they Committee which shall, among others, undertake
did not "misappropriate, misapply or convert" the the management of BMC, take custody and control
merchandise as charged in the criminal case.  of all its existing assets and liabilities, study, review
and evaluate its operation and/or the feasibility of
Pilipinas Bank vs. Alfredo T. Ong and Leoncia its being restructured.
Lim
G.R. No. 133176, August 8, 2002, J. Sandoval- BMC and a consortium of 14 of its creditor banks
Gutierrez entered into a MOA rescheduling the payment of
BMCs existing debts. The SEC approved the
Trust Receipts Law; Obligation and Liability of the Rehabilitation Plan of BMC as contained in the MOA
Entrustee and declaring it in a state of suspension of
No criminal liability in the following cases – payments. However, BMC and Ong defaulted in the
Novation payment of their obligations under the rescheduled
payment scheme provided in the MOA.
Mere failure to deliver the proceeds of the sale or
the goods, if not sold, constitutes violation of PD Thus, the bank filed a complaint charging
No. 115. However, what is being punished by the respondents Ong and Leoncia Lim (as president
law is the dishonesty and abuse of confidence in and treasurer of BMC, respectively) with violation of
the handling of money or goods to the prejudice of the Trust Receipts Law on the ground that they
another regardless of whether the latter is the failed to pay their obligations under the trust
owner receipts despite demand. The complaint was
dismissed.
In Quinto vs. People, Court held that there are two
ways which could indicate the presence of novation Upon appeal by the bank, the Department of
producing the effect of extinguishing an obligation Justice (DOJ) rendered judgment denying the same
by another which substitutes the same: first, when for lack of merit. Its motion for reconsideration was
novation has been stated and declared in likewise denied. The bank filed a petition for
unequivocal terms, and second when the old and certiorari and mandamus seeking to annul the
the new obligations are incompatible on every resolution of the DOJ before the Supreme Court.
point. The Supreme Court referred the petition to the
Court of Appeals for proper determination and
FACTS: disposition.

Baliwag Mahogany Corporation (BMC), through its The CA set aside the resolutions and directs the
president, respondent Alfredo T. Ong, applied for a public respondents to file the appropriate criminal
domestic commercial letter of credit with petitioner charges for violation of P.D. No. 115, otherwise
Pilipinas Bank to finance the purchase of about known as The Trust Receipts Law, against private
100,000 board feet of "Air Dried, Dark Red Lauan" respondents. However, upon respondent’s motion
sawn lumber. The bank approved the application for reconsideration, the CA reversed itself, holding
and issued Letter of Credit in the amount of that the execution of the MOA constitutes novation
P3,500,000.00. To secure payment of the amount, which "places petitioner Bank in estoppel to insist
BMC, through respondent Ong, executed two (2) on the original trust relation and constitutes a bar
trust receipts providing inter alia that it shall turn to the filing of any criminal information for violation
over the proceeds of the goods to the bank, if sold, of the trust receipts law."
or return the goods, if unsold, upon maturity. On
Petitioner bank contends that the MOA did not records. Clearly, it was the Management Committee
novate, much less extinguish, the existing which could settle BMC’s obligations. 
obligations of BMC under the trust receipt
agreement. Respondents Ong and Lim maintain Supreme Court held that the MOA novated and
that the MOA, which has the effect of a effectively extinguished BMC's obligations under the
compromise agreement, novated BMC’s existing trust receipt agreement. Contrary to petitioner's
obligations under the trust receipt agreement. The contention, the MOA did not only reschedule BMC’s
novation converted the parties’ relationship into debts, but more importantly, it provided principal
one of an ordinary creditor and debtor. Moreover, conditions which are incompatible with the trust
the execution of the MOA precludes any criminal agreement. In Quinto vs. People, the Supreme
liability on their part which may arise in case they Court held that one way to indicate the presence of
violate any provision thereof. novation is when the old and the new obligations
are incompatible on every point. The test of
incompatibility is whether or not the two
ISSUES: obligations can stand together. If they cannot, they
Whether or not the MOA executed by the parties are incompatible and the latter obligation novates
had the effect of novating BMC’s obligations under the first. Corollarily, changes that breed
the trust receipt agreement? (YES)  incompatibility must be essential in nature and not
merely accidental. The incompatibility must take
RULING:  place in any of the essential elements of the
obligation, such as its object, cause or principal
Failure of the entrustee to turn over the proceeds conditions, otherwise, the change is merely
of the sale of the goods covered by a trust receipt modificatory in nature and insufficient to extinguish
to the entruster or to return the goods, if they were the original obligation. 
not disposed of, shall constitute the crime of estafa
under Article 315, par. 1(b) of the Revised Penal Petitioner bank's argument that BMC's non-
Code. Mere failure to deliver the proceeds of the compliance with the MOA revived respondents’
sale or the goods, if not sold, constitutes violation original liabilities under the trust receipt agreement
of PD No. 115. However, what is being punished by is completely misplaced. Section 8.4 of the MOA on
the law is the dishonesty and abuse of confidence termination reads: 
in the handling of money or goods to the prejudice "8.4 Termination. Any provision of this
of another regardless of whether the latter is the Agreement to the contrary notwithstanding, if
owner.  the conditions for rescheduling specified in
Section 7 shall not be complied with on such
In this case, no dishonesty nor abuse of confidence later date as the Qualified Majority Lenders in
can be attributed to respondents. Record shows their sole and absolute discretion may agree
that BMC failed to comply with its obligations upon in writing, then 
maturity of the trust receipts due to serious (i) the obligation of the Lenders to reschedule
liquidity problems, prompting it to file a Petition for the Existing Credits as contemplated hereby
Rehabilitation and Declaration in a State of shall automatically terminate on such date: 
Suspension of Payments. It bears emphasis that (ii) the Existing Agreements shall continue in
when petitioner bank made a demand upon BMC to full force and effect on the remaining loan
comply with its obligations under the trust receipts, balances as if this Agreement had not been
the latter was already under the control of the entered into; 
Management Committee created by the SEC, which (iii) all the rights of the lenders against the
took custody of all BMCs assets and liabilities, borrower and Spouses Ong prior to the
including the red lauan lumber subject of the trust agreement shall revest to the lenders." 
receipts, and authorized their use in the ordinary
course of business operations. Moreover, Ong paid Indeed, what is automatically terminated in case
P21,000,000.00 in compliance with the equity BMC failed to comply with the conditions under the
infusion required by the MOA. The mala prohibita MOA is not the MOA itself but merely the obligation
nature of the offense notwithstanding, respondents’ of the lender (the bank) to reschedule the existing
intent to misuse or misappropriate the goods or credits. Moreover, it is erroneous to assume that
their proceeds has not been established by the the revesting of "all the rights of lenders against
the borrower" means that petitioner can charge In all trust receipt transactions, both obligations on
respondents for violation of the Trust Receipts Law the part of the trustee exist in the alternative the
under the original trust receipt agreement. As return of the proceeds of the sale or the return or
explained earlier, the execution of the MOA recovery of the goods, whether raw or processed.
extinguished respondents’ obligation under the When both parties enter into an agreement
trust receipts. Respondents’ liability, if any, would knowing that the return of the goods subject of the
only be civil in nature since the trust receipts were trust receipt is not possible even without any fault
transformed into mere loan documents after the on the part of the trustee, it is not a trust receipt
execution of the MOA. This is reinforced by the fact transaction penalized under Section 13 of P.D. 115;
that the mortgage contracts executed by the BMC the only obligation actually agreed upon by the
survive despite its non-compliance with the parties would be the return of the proceeds of the
conditions set forth in the MOA.  sale transaction. This transaction becomes a mere
loan, where the borrower is obligated to pay the
bank the amount spent for the purchase of the
In Quinto vs. People, this Court held that there are goods. We note in this regard that at the onset of
two ways which could indicate the presence of these transactions, LBP knew that ACDC was in the
novation, thereby producing the effect of construction business and that the materials that it
extinguishing an obligation by another which sought to buy under the letters of credit were to be
substitutes the same. used for the following projects: the Metro Rail
1. when novation has been stated and Transit Project and the Clark Centennial Exposition
declared in unequivocal terms; Project. LBP had in fact authorized the delivery of
2. when the old and the new obligations are the materials on the construction sites for these
incompatible on every point.  projects, as seen in the letters of credit it attached
to its complaint. Clearly, they were aware of the
The test of incompatibility is whether or not the fact that there was no way they could recover the
two obligations can stand together. If they cannot, buildings or constructions for which the materials
they are incompatible and the latter obligation subject of the alleged trust receipts had been used.
novates the first. Corollarily, changes that breed
incompatibility must be essential in nature and not The fact that LBP had knowingly authorized the
merely accidental. The incompatibility must take delivery of construction materials to a construction
place in any of the essential elements of the site of two government projects, as well as
obligation, such as its object, cause or principal unspecified construction sites, repudiates the idea
conditions, otherwise, the change is merely that LBP intended to be the owner of those
modificatory in nature and insufficient to extinguish construction materials.
the original obligation. Thus, in concluding that the transaction was a loan
and not a trust receipt, we noted in Colinares that
Contrary to petitioner's contention, the MOA did not the industry or line of work that the borrowers
only reschedule BMCs debts, but more importantly, were engaged in was construction.
it provided principal conditions which Based on these premises, we cannot consider the
are incompatible with the trust agreement. agreements between the parties in this case to be
trust receipt transactions because (1) from the
Hence, applying the pronouncement in Quinto, we start, the parties were aware that ACDC could not
can safely conclude that the MOA novated and possibly be obligated to reconvey to LBP the
effectively extinguished BMC's obligations under the materials or the end product for which they were
trust receipt agreement. used; and (2) from the moment the materials were
used for the government projects, they became
public, not LBPs, property.

Land Bank of the Philippines v. Lamberto C. FACTS:

Perez, Nestor C. Kun, Ma. Estrelita Angeles- Petitioner Land Bank of the Philippines (LBP) is a
Panlilio, and Napoleon O. Garcia (GR No. government financial institution and the official
166884, June 13, 2012) depository of the Philippines. Respondents are the
officers and representatives of Asian Construction
and Development Corporation (ACDC), a
corporation incorporated under Philippine law and On September 30, 1999, Makati Assistant City
engaged in the construction business. Prosecutor Amador Y. Pineda issued a
On June 7, 1999, LBP filed a complaint for estafa or Resolution dismissing the complaint. He pointed out
violation of Article 315, paragraph 1(b) of the that the evidence presented by LBP failed to state
Revised Penal Code, in relation to P.D. 115, against the date when the goods described in the letters of
the respondents before the City Prosecutor’s Office credit were actually released to the possession of
in Makati City. In the affidavit-complaint  of June 7, the respondents. Section 4 of P.D. 115 requires
1999, the LBP’s Account Officer for the Account that the goods covered by trust receipts be
Management Development, Edna L. Juan, stated released to the possession of the entrustee after
that LBP extended a credit accommodation to the latter’s execution and delivery to the entruster
ACDC through the execution of an Omnibus Credit of a signed trust receipt. He adds that LBP’s
Line Agreement (Agreement) between LBP and evidence also fails to show the date when the trust
ACDC on October 29, 1996. receipts were executed since all the trust receipts
are undated.
Petitioner’s contention: On appeal, the Secretary of Justice reversed the
In various instances, ACDC used the Letters of Resolution of the Assistant City Prosecutor. The
Credit/Trust Receipts Facility of the Agreement to Secretary of Justice pointed out that there was no
buy construction materials. The respondents, as question that the goods covered by the trust
officers and representatives of ACDC, executed receipts were received by ACDC. He likewise
trust receipts in connection with the construction adopted LBPs argument that while the subjects of
materials, with a total principal amount of the trust receipts were not mentioned in the trust
₱52,344,096.32. The trust receipts matured, but receipts, they were listed in the letters of credit
ACDC failed to return to LBP the proceeds of the referred to in the trust receipts. Subsequently, the
construction projects or the construction materials respondents filed a petition for review before the
subject of the trust receipts. LBP sent ACDC a Court of Appeals. The Court of Appeals applying
demand letter, dated May 4, 1999, for the payment the Colinares doctrine ruled that this case did not
of its debts, including those under the Trust involve a trust receipt transaction, but a mere loan.
Receipts Facility in the amount of ₱66,425,924.39. LBP then filed a petition for certiorari.
When ACDC failed to comply with the demand
letter, LBP filed the affidavit-complaint. ISSUE: Whether or not the disputed transactions
are covered by trust receipts?
Respondent’s contention:
The respondents filed a joint affidavit  wherein they RULING: No, the dispusted transactions are not
stated that they signed the trust receipt documents covered by trust receipts.
on or about the same time LBP and ACDC executed There are two obligations in a trust receipt
the loan documents; their signatures were required transaction. The first is covered by the provision
by LBP for the release of the loans. The trust that refers to money under the obligation to deliver
receipts in this case do not contain (1) a it to the owner of the merchandise sold. The
description of the goods placed in trust, (2) their second is covered by the provision referring to
invoice values, and (3) their maturity dates, in merchandise received under the obligation to
violation of Section 5(a) of P.D. 115. Moreover, return it to the owner.
they alleged that ACDC acted as a subcontractor Thus, under the Trust Receipts Law, intent to
for government projects such as the Metro Rail defraud is presumed when (1) the entrustee fails to
Transit, the Clark Centennial Exposition and the turn over the proceeds of the sale of goods covered
Quezon Power Plant in Mauban, Quezon. Its clients by the trust receipt to the entruster; or (2) when
for the construction projects, which were the the entrustee fails to return the goods under trust,
general contractors of these projects, have not yet if they are not disposed of in accordance with the
paid them; thus, ACDC had yet to receive the terms of the trust receipts.
proceeds of the materials that were the subject of In all trust receipt transactions, both obligations on
the trust receipts and were allegedly used for these the part of the trustee exist in the alternative the
constructions. As there were no proceeds received return of the proceeds of the sale or the return or
from these clients, no misappropriation thereof recovery of the goods, whether raw or processed.
could have taken place 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 construction of a movable property, the ownership
on the part of the trustee, it is not a trust receipt of these properties would still pertain to the
transaction penalized under Section 13 of P.D. 115; government and not remain with the bank as they
the only obligation actually agreed upon by the would be classified as property of the public
parties would be the return of the proceeds of the domain, which is defined by the Civil Code as:
sale transaction. This transaction becomes a mere In contrast with the present situation, it is
loan, where the borrower is obligated to pay the fundamental in a trust receipt transaction that the
bank the amount spent for the purchase of the person who advanced payment for the
goods. merchandise becomes the absolute owner of said
Article 1371 of the Civil Code provides that on order merchandise and continues as owner until he or
to judge the intention of the contracting parties, she is paid in full, or if the goods had already been
their contemporaneous and subsequent acts shall sold, the proceeds should be turned over to him or
be principally considered. Under this provision, we to her.
can examine the contemporaneous actions of the
parties rather than rely purely on the trust receipts HUR TIN YANG , petitioner, vs. PEOPLE OF
that they signed in order to understand the THE PHILIPPINES, respondent
transaction through their intent. [G.R. No. 195117. August 14, 2013.]

We note in this regard that at the onset of these When both parties enter into an agreement
transactions, LBP knew that ACDC was in the knowing fully well that the return of the goods
construction business and that the materials that it subject of the trust receipt is not possible even
sought to buy under the letters of credit were to be without any fault on the part of the trustee, it is
used for the following projects: the Metro Rail not a trust receipt transaction penalized under Sec.
Transit Project and the Clark Centennial Exposition 13 of PD 115 in relation to Art. 315, par. 1 (b) of
Project. LBP had in fact authorized the delivery of the RPC, as the only obligation actually agreed
the materials on the construction sites for these upon by the parties would be the return of the
projects, as seen in the letters of credit it attached proceeds of the sale transaction. This transaction
to its complaint. Clearly, they were aware of the becomes a mere loan, where the borrower is
fact that there was no way they could recover the obligated to pay the bank the amount spent for the
buildings or constructions for which the materials purchase of the goods.
subject of the alleged trust receipts had been used.
FACTS:
Notably, despite the allegations in the affidavit-
complaint wherein LBP sought the return of the In twenty-four 24 consolidated Informations,
construction materials, its demand letter dated May petitioner Hur Tin Yang was charged at the
4, 1999 sought the payment of the balance but instance of the same complainant with the crime of
failed to ask, as an alternative, for the return of the Estafa under Article 315, par. 1 (b) of the RPC, 4 in
construction materials or the buildings where these relation to PD 115.
materials had been used.
The fact that LBP had knowingly authorized the Metropolitan Bank and Trust Company (Metrobank)
delivery of construction materials to a construction extended several commercial letters of credit (LCs)
site of two government projects, as well as to Supermax. These commercial LCs were used by
unspecified construction sites, repudiates the idea Supermax to pay for the delivery of several
that LBP intended to be the owner of those construction materials which will be used in their
construction materials. As a government financial construction business. Thereafter, Metrobank
institution, LBP should have been aware that the required Hur Tin Yang (petitioner), as
materials were to be used for the construction of representative and Vice-President for Internal
an immovable property, as well as a property of the Affairs of Supermax, to sign 24 trust receipts as
public domain. As an immovable property, the security for the construction materials and to hold
ownership of whatever was constructed with those those materials or the proceeds of the sales in trust
materials would presumably belong to the owner of for Metrobank to the extent of the amount stated in
the land, under Article 445 of the Civil Code the trust receipts.
Even if we consider the vague possibility that the
materials, consisting of cement, bolts and When the 24 trust receipts fell due and despite,
reinforcing steel bars, would be used for the Supermax failed to pay or deliver the goods or
proceeds to Metrobank. Instead, Supermax, the proceeds of the sale or goods, if not
through petitioner, requested the restructuring of sold, is sufficient to justify a conviction
the loan. When the intended restructuring of the under PD 115.
loan did not materialize, Metrobank sent another
demand letter dated October 11, 2001. As the ISSUE: Whether petitioner is liable for Estafa
demands fell on deaf ears, Metrobank, through its under Art. 315, par. 1 (b) of the RPC in relation to
representative, Winnie M. Villanueva, filed the PD 115, even if it was sufficiently proved that the
instant criminal complaints against petitioner. entruster (Metrobank) knew beforehand that the
goods (construction materials) subject of the trust
Petitioner’s contentions:
receipts were never intended to be sold but only
- While admitting signing the trust receipts, for use in the entrustee's construction business
(NO)
petitioner argued that said trust receipts
were demanded by Metrobank as additional RULING:
security for the loans extended to Supermax
for the purchase of construction equipment The petitioner was charged with Estafa committed
in what is called, under PD 115, a "trust receipt
and materials. In support of this argument,
transaction," which is defined as:
petitioner presented as witness, Priscila
Alfonso, who testified that the construction Section 4. What constitutes a
materials covered by the trust receipts were trust receipts transaction. — A trust
delivered way before petitioner signed the receipt transaction, within the meaning of
this Decree, is any transaction by and
corresponding trust receipts.
between a person referred to in this Decree
as the entruster, and another person
- Petitioner argued that Metrobank knew all
referred to in this Decree as entrustee,
along that the construction materials
whereby the entruster, who owns or holds
subject of the trust receipts were not absolute title or security interests over
intended for resale but for personal use of certain specified goods, documents or
Supermax relating to its construction instruments, releases the same to the
business. possession of the entrustee upon the latter's
execution and delivery to the entruster of a
RTC found petitioner guilty as charged signed document called a "trust receipt"
wherein the entrustee binds himself to hold
CA upheld RTC’s findings that the prosecution has the designated goods, documents or
satisfactorily established the guilt of petitioner instruments in trust for the entruster and to
beyond reasonable doubt, including the following sell or otherwise dispose of the goods,
critical facts: documents or instruments with the
obligation to turn over to the entruster the
- Petitioner signing the trust receipts
proceeds thereof to the extent of the
agreement; Supermax failing to pay the amount owing to the entruster or as
loan; and Supermax failing to turn over the appears in the trust receipt or the goods,
proceeds of the sale or the goods to documents or instruments themselves if
Metrobank upon demand they are unsold or not otherwise disposed
- CA also found that even before the of, in accordance with the terms and
conditions specified in the trust receipt, or
execution of the trust receipts, Metrobank
for other purposes substantially equivalent
knew or should have known that the subject
to any of the following:
construction materials were never intended
for resale or for the manufacture of items to 1. In the case of goods or
be sold. documents: (a) to sell the goods or procure
their sale; or (b) to manufacture or process
- The CA ruled that since the offense
the goods with the purpose of ultimate sale:
punished under PD 115 is in the nature of
Provided, That, in the case of goods
malum prohibitum, a mere failure to deliver
 delivered under trust receipt for the purpose amended, otherwise known as the Revised
of manufacturing or processing before its Penal Code
ultimate sale, the entruster shall retain its
title over the goods whether in its original When both parties enter into an agreement
or processed form until the entrustee has knowing fully well that the return of the goods
complied full with his obligation under the subject of the trust receipt is not possible even
trust receipt; or (c) to load, unload, ship or without any fault on the part of the trustee, it is not
transship or otherwise deal with them in a a trust receipt transaction penalized under Sec. 13
manner preliminary or necessary to their of PD 115 in relation to Art. 315, par. 1 (b) of the
sale; or RPC, as the only obligation actually agreed upon by
the parties would be the return of the proceeds of
2. In the case of instruments: (a) to the sale transaction. This transaction becomes
sell or procure their sale or exchange; or (b) a mere loan, where the borrower is obligated
to deliver them to a principal; or (c) to to pay the bank the amount spent for the
effect the consummation of some purchase of the goods.
transactions involving delivery to a
depository or register; or (d) to effect their The Court cited 2 cases the facts of which fall
presentation, collection or renewal. squarely to this case:

Simply stated, a trust receipt transaction is one 1. Ng v. People

where the entrustee has the obligation to deliver to
the entruster the price of the sale, or if the This Court acquitted Anthony Ng and ruled
merchandise is not sold, to return the merchandise that the Trust Receipts Law was created to
to the entruster. There are, therefore, two "to aid in financing importers and retail
obligations in a trust receipt transaction: dealers who do not have sufficient funds or
resources to finance the importation or
1. The first refers to money received under the purchase of merchandise, and who may not
obligation involving the duty to turn it over be able to acquire credit except through
(entregarla) to the owner of the utilization, as collateral, of the merchandise
imported or purchased."
merchandise sold
Since Asiatrust knew that Anthony Ng was
2. The second refers to the merchandise neither an importer nor retail dealer, it
received under the obligation to "return" it should have known that the said agreement
(devolvera) to the owner could not possibly apply to petitioner, viz.:

A violation of any of these undertakings Considering that the goods in this case were
constitutes Estafa defined under Art. 315, par. 1 never intended for sale but for use in the
(b) of the RPC, as provided in Sec. 13 of PD 115, fabrication of steel communication towers,
viz.: the trial court erred in ruling that the
agreement is a trust receipt transaction.
Section 13. Penalty Clause. — The failure of
an entrustee to turn over the proceeds To emphasize, the Trust Receipts Law
of the sale of the goods, documents or was created to "to aid in financing
instruments covered by a trust receipt to importers and retail dealers who do
the extent of the amount owing to the not have sufficient funds or resources
entruster or as appears in the trust receipt to finance the importation or purchase
or to return said goods, documents or of merchandise, and who may not be
instruments if they were not sold or able to acquire credit except through
disposed of in accordance with the utilization, as collateral, of the
terms of the trust receipt shall constitute merchandise imported or purchased."
the crime of estafa, punishable under the Since Asiatrust knew that petitioner
provisions of Article Three hundred fifteen, was neither an importer nor retail
paragraph one (b) of Act Numbered Three dealer, it should have known that the
thousand eight hundred and fifteen, as
 said agreement could not possibly of), as soon as the bank demands
apply to petitioner. them, disqualify them from being
covered by trust receipt
2. Land Bank of the Philippines v. Perez agreements.

This Court, like in Ng, acquitted all the The fact that the entruster bank, Metrobank in this
respondents on the postulate that the parties case, knew even before the execution of the
really intended a simple contract of loan and alleged trust receipt agreements that the covered
not a trust receipts transaction, viz.: construction materials were never intended by the
entrustee (petitioner) for resale or for the
When both parties enter into an manufacture of items to be sold would take the
agreement knowing that the return transaction between petitioner and Metrobank
of the goods subject of the trust outside the ambit of the Trust Receipts Law.
receipt is not possible even without
any fault on the part of the trustee, For reasons discussed above, the subject
it is not a trust receipt transaction transactions in the instant case are not trust
penalized under Section 13 of P.D. receipts transactions. Thus, the consolidated
115; the only obligation actually agreed complaints for Estafa in relation to PD 115
upon by the parties would be the return have really no leg to stand on.
of the proceeds of the sale transaction.
This transaction becomes a mere loan, Additional notes:
where the borrower is obligated to pay
the bank the amount spent for the The Court's ruling in Colinares v. Court of Appeals
purchase of the goods. 21 is very apt, thus:

Thus, in concluding that the The practice of banks of making borrowers

transaction was a loan and not a sign trust receipts to facilitate collection of
trust receipt, we noted in Colinares loans and place them under the threats of
that the industry or line of work criminal prosecution should they be unable
that the borrowers were engaged to pay it may be unjust and inequitable, if
in was construction. We pointed not reprehensible. Such agreements are
out that the borrowers were not contracts of adhesion which borrowers have
importers acquiring goods for no option but to sign lest their loan be
resale. Indeed, goods sold in retail are disapproved. The resort to this scheme
often within the custody or control of leaves poor and hapless borrowers at the
the trustee until they are purchased. In mercy of banks, and is prone to
the case of materials used in the misinterpretation
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