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Trust Receipts Law: Allied Bank v Ordonez

Allied Banking Corporation provided commercial letters of credit to PBM to finance purchases. PBM defaulted on payments for goods received under trust receipts. Allied Bank sued Alfredo China under PD 115, which penalizes violations of obligations under trust receipts. China argued the goods were used in PBM's operations, not sold. The court held that PD 115 applies to any violation of obligations under a trust receipt, not just goods intended for resale. It does not matter if the goods were used in operations rather than sold. PBM violated its obligation to pay or return the goods, subjecting it to liability under PD 115.

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128 views1 page

Trust Receipts Law: Allied Bank v Ordonez

Allied Banking Corporation provided commercial letters of credit to PBM to finance purchases. PBM defaulted on payments for goods received under trust receipts. Allied Bank sued Alfredo China under PD 115, which penalizes violations of obligations under trust receipts. China argued the goods were used in PBM's operations, not sold. The court held that PD 115 applies to any violation of obligations under a trust receipt, not just goods intended for resale. It does not matter if the goods were used in operations rather than sold. PBM violated its obligation to pay or return the goods, subjecting it to liability under PD 115.

Uploaded by

Myles
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Allied Banking Corporation v Ordonez 192 scra 246

FACTS: PBM applied for the issuance of a commercial letters of credit in Allied Bank Corporations in
its Makati branch to finance the purchase of 500 m/t Mogtar Branch Dolomites and 1 lot high fixed
refractory sliding nozzle bricks. Nikko industry as the beneficiary of the irrevocable LC, 4 drafts were
drawn which were accepted by PBM which was duly honored and paid by Allied Bank. As a security
for the amount covered by the drafts 4 Trust receipts were executed acknowledging Allied Bank
ownership of the goods and its obligation to turn over the proceeds of the sale, if sold; or to return it
if unsold within the stated period. PBM defaulted in payment, despite repeated demands PBM
failed and refused to either turn over the proceeds of the sale or to return the same. Allied Bank
filed a complaint against Alfredo China for violation of PD 115. Ordonez alleged that PD 115 covers
goods or components of goods which are ultimately destined for sale. That the goods subject of the
case where shown to have been used or consumed in the operation of the equipment of the
corporation and therefore outside the ambit of PD 115.

ISSUE: Does the penal provision of PD 115 apply when the goods covered by trust receipt do not
form part of the finished products which are ultimately sold but are instead utilized/used up in the
operation of the equipment and machineries of of the entrustee-manufacturer?

HELD: The non-payment of the amount covered by a trust receipt is an act violative of the
entrustee’s obligation to pay. The penal provision of PD 115 encompasses any act violative of an
obligation covered by the trust receipt, it is not limited to the transaction in goods which are to be
sold (retailed), reshipped, stored or processed as a component of a product ultimately sold. Thus,
the entrustee could not escape criminal liability even if the goods subject of the transaction were
used in the operation of the equipment and machineries of the corporation.

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