GR 112592; (December, 1995) (Digest)
G.R. No. 112592, December 19, 1995
PRUDENTIAL BANK, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, CECILIA ORQUELLO, et al., ZENAIDA UCHI, et al., ALU-INTERASIA CONTAINER INDUSTRIES, INC., and RAUL REMODO, respondents.
FACTS
Interasia Container Industries, Inc. (INTERASIA) lost three labor cases, resulting in final monetary awards to its employees. To satisfy these judgments, the Sheriff levied on execution various personal properties found in INTERASIA’s factory. Petitioner Prudential Bank filed a third-party claim over these properties, asserting ownership based on trust receipts executed by INTERASIA. The Labor Arbiter denied the claim, and the NLRC subsequently dismissed the Bank’s appeal. The NLRC ruled that the trust receipts were mere security transactions that did not vest ownership in the Bank, especially since it had not canceled the trust receipts and taken possession of the goods. Meanwhile, the levied properties were sold at a public auction.
ISSUE
Whether the NLRC committed grave abuse of discretion in dismissing the Bank’s third-party claim and disregarding its security title over the properties covered by the trust receipts.
RULING
Yes. The Supreme Court granted the petition, setting aside the NLRC resolutions and the auction sale. The Court clarified that a trust receipt arrangement is not a simple loan but a security transaction with a dual character. While the entrustee (INTERASIA) holds the goods, the entruster (the Bank) retains a security interest or legal title as security for the advances made. Under the Trust Receipts Law (P.D. No. 115), this security interest is valid against all creditors of the entrustee. The NLRC erred in requiring the Bank to have first canceled the trust receipts and taken possession to assert its claim. The law uses the permissive “may,” granting the Bank discretion to choose its remedy upon the entrustee’s default, including filing a third-party claim. The Bank’s security title is superior to the claims of INTERASIA’s judgment creditors. The winning bidder at the auction was not shown to be an innocent purchaser for value whose rights could override the Bank’s. Consequently, the properties should be delivered to the Bank.