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Q: What is the loan and security feature of the trust receipt transaction?

A: A 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 a 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. A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a "security interest" in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no obligation. (Sps. Vintola vs. Insular Bank of Asia and America, G.R. No. 73271, May 29, 1987) Q: Who is the owner of the articles subject of the TR? A: The entrustee. A trust receipt has two features, the loan and security features. The loan is brought about by the fact that the entruster financed the importation or purchase of the goods under TR. Until and unless this loan is paid, the obligation to pay subsists. If the entrustee is made to appear as the owner, it was but an artificial expedient, more of legal fiction than fact, for if it were really so, it could dispose of the goods in any manner that it wants, which it cannot do. To consider the entrustee as the true owner from the inception of the transaction would be to disregard the loan feature thereof. (Rosario Textile Mills Corp. v. Home Bankers Savings and Trust Company, G.R. No. 137232. June 29, 2005) Q: What is the penal sanction if offender is a corporation? A: The Trust Receipts Law recognizes the impossibility of imposing the penalty of imprisonment on a corporation. Hence, if the entrustee is a corporation, the law makes the officers or employees or other persons responsible for the offense liable to suffer the penalty of imprisonment. The reason is obvious, corporations, partnerships, associations and other juridical entities cannot be put to jail. Hence, the criminal liability falls on the human agent responsible for the violation of the Trust Receipts Law. (Ong vs. CA, G.R. No. 119858, April 29, 2003)

Q: In the event of default by the entrustee on his obligation under the trust receipt agreement, is it absolutely necessary for the entruster to cancel the

trust and take possession of the goods to be able to enforce his right thereunder? A: The law uses the word "may" in granting to the entruster the right to cancel the trust and take possession of the goods. Consequently, the entrustee has the discretion to avail of such right or seek any alternative action, such as a third party claim or a separate civil action which it deems best to protect its right, at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the trust agreement. (South City Homes, Inc. v. BA Finance Corporation, G.R. No. 135462, Dec. 7, 2001)

Q. What is the effect of novation of a trust agreement? A. Where the entruster and entrustee entered into an agreement which provides for conditions incompatible with the trust receipt agreement, the obligation under the trust receipt is extinguished. Hence, the breach in the subsequent agreement does not give rise to a criminal liability under P.D. 115 but only civil liability. (Philippine Bank v. Ong, G.R. No. 133176, Aug. 8, 2002)

Q: Can deposits in a savings account opened by the buyer subsequent to the TR transaction be applied to outstanding obligations under the TR account? A: No, the receipt of the bank of a sum of money without reference to the trust receipt obligation does not obligate the bank to apply the money received against the trust receipt obligation. Neither does compensation arise because compensation is not proper when one of the debts consists in civil liability arising from criminal. (Metropolitan Bank and Trust Co. v. Tonda, G.R. No. 134436, Aug. 16, 2000)

What is a trust receipt transaction? It is any transaction between the entruster and entrustee:

1. Whereby the entruster who owns or holds absolute title or security interests over certain specified goods, documents or instrument, releases the same to the possession of entrustee upon the latters execution of a TR agreement. 2. Wherein the entrustee binds himself to hold the designated goods in trust for the entruster and, in case of default, to sell such goods, documents or instrument with the obligation to turn over to the entruster the proceeds to the extent of the amount owing to it or to turn over the goods, documents or instrument itself if not sold. (Sec. 4, P.D. 115)

What is a trust receipt (TR)? It is the written or printed document signed by the entrustee in favor of the entruster containing terms and conditions substantially complying with the provisions of PD 115. Chapter III. Deposits And Checks. What Is A Deposit?
A "deposit" is the right to receive money from a bank. Or it is the obligation of a bank to pay money. Deposit Books And Duplicate Slips. - When a customer opens an account with a bank he is given a deposit book, known also as a "pass book" or "bank book." Every time he makes a deposit (by putting in cash or discounting or in any other way) the total is entered in the pass book. The pass book is the depositor's evidence of deposit, and is in most banks not "balanced," a statement of the account being rendered at regular intervals instead. In a savings bank the book contains the bank's account with the depositor, has debit and credit sides, and withdrawals are entered as well as deposits.

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