GR 159622; (July, 2004) (Digest)
G.R. No. 159622 ; July 30, 2004
LANDL & COMPANY (PHIL.) INC., PERCIVAL G. LLABAN and MANUEL P. LUCENTE, petitioners, vs. METROPOLITAN BANK & TRUST COMPANY, respondent.
FACTS
Petitioner Landl & Company obtained a commercial letter of credit from respondent Metrobank to import welding rods. To secure this, Landl executed a trust receipt, making it the entrustee holding the goods in trust for Metrobank as entruster, with the obligation to either sell the goods and remit the proceeds or return the unsold goods by November 23, 1983. Petitioners Llaban and Lucente executed a Continuing Suretyship Agreement to guarantee the obligation. Landl defaulted on the maturity date. After a demand, Landl turned over the unsold goods to Metrobank in September 1984. Metrobank subsequently sold the goods at a public auction in July 1985 for P30,000, which was insufficient to cover the total obligation.
ISSUE
Whether an entruster (Metrobank), after taking possession of the goods covered by a trust receipt and selling them, can still demand payment of the deficiency from the entrustee (Landl) and its sureties.
RULING
Yes. The Supreme Court affirmed the right of the entruster to claim a deficiency. The Court explained that a trust receipt transaction is a security agreement, not a sale on credit. The entruster’s right to the goods is merely by way of security for the advancement made under the letter of credit. The primary obligation of the entrustee is to pay the amount due or to return the goods. The failure to do either constitutes default. The remedies provided to the entruster under Section 7 of the Trust Receipts Law (P.D. No. 115)—such as taking possession of the goods and selling them—are cumulative and not alternative. The law does not state that taking possession and selling the goods extinguishes the entrustee’s monetary obligation. The entruster’s act of foreclosing on the chattel security does not bar a subsequent action for the recovery of the unpaid balance. The Court further held that petitioners Llaban and Lucente, as sureties under a Continuing Suretyship Agreement that stipulated solidary liability, were jointly and severally liable with the corporation for the deficiency. The award was modified only as to the deletion of a separate service charge, as it was deemed included in the stipulated interest.