TRUST RECEIPTS LAW effect the consummation of some transactions involving
delivery to a depository or register; or (d) to effect their
Trust Receipt is a security transaction intended to aid in presentation, collection or renewal. The sale of goods, financing importers or dealers in merchandize by documents or instruments by a person in the business allowing them to obtain delivery of goods under certain of selling goods, documents or instruments for profit covenants. who, at the outset of the transaction, has, as against the Q: Who executes trust receipt? buyer, general property rights in such goods, documents A: Buyer/Entrustee (Borrower) in favor of the lender or instruments, or who sells the same to the buyer on /entrustor (Bank) credit, retaining title or other interest as security for the Q: What are the relationships created? payment of the purchase price, does not constitute a A: 1. Entruster-entrustee; 2. Seller-buyer trust receipt transaction and is outside the purview and Q: What is the objective of the trust receipts? coverage of this Decree. A: To release the goods in favor of the entruster. *Trust Receipt Law does not infringe the Philippine FORM OF TRUST RECEIPT Constitution on non-imprisonment for non-payment of contractual debt because what the trust receipt law Sec. 5 of the Trust Receipt Law provides that: A trust receipt need not be in any particular form, but every punishes is the abuse made by the entrustee. such receipt must substantially contain (a) a description TRUST RECEIPT TRANSACTION of the goods, documents or instruments subject of the trust receipt; (2) the total invoice value of the goods and Sec. 4 of the Trust Receipt Law provides that: A trust the amount of the draft to be paid by the entrustee; (3) receipt transaction, within the meaning of this Decree, an undertaking or a commitment of the entrustee (a) to is any transaction by and between a person referred to hold in trust for the entruster the goods, documents or in this Decree as the entruster, and another person instruments therein described; (b) to dispose of them in referred to in this Decree as entrustee, whereby the the manner provided for in the trust receipt; and (c) to entruster, who owns or holds absolute title or security turn over the proceeds of the sale of the goods, interests over certain specified goods, documents or documents or instruments to the entruster to the extent instruments, releases the same to the possession of the of the amount owing to the entruster or as appears in entrustee upon the latter's execution and delivery to the the trust receipt or to return the goods, documents or entruster of a signed document called a "trust receipt" instruments in the event of their non-sale within the wherein the entrustee binds himself to hold the period specified therein. The trust receipt may contain designated goods, documents or instruments in trust for other terms and conditions agreed upon by the parties the entruster and to sell or otherwise dispose of the in addition to those hereinabove enumerated provided goods, documents or instruments with the obligation to that such terms and conditions shall not be contrary to turn over to the entruster the proceeds thereof to the the provisions of this Decree, any existing laws, public extent of the amount owing to the entruster or as policy or morals, public order or good customs. appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not PARTIES TO A TRUST RECEIPT TRANSACTION otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other 1. Entruster release the possession of the goods to the entrustee upon the latters execution of purposes substantially equivalent to any of the following: 1. In the case of goods or documents, (a) to the trust receipt. 2. Entrustee Sec. 9 of the Trust Receipt Law sell the goods or procure their sale; or (b) to provides that: The entrustee shall (1) hold the manufacture or process the goods with the purpose of goods, documents or instruments in trust for ultimate sale: Provided, That, in the case of goods the entruster and shall dispose of them strictly delivered under trust receipt for the purpose of in accordance with the terms and conditions of manufacturing or processing before its ultimate sale, the trust receipt; (2) receive the proceeds in the entruster shall retain its title over the goods trust for the entruster and turn over the same whether in its original or processed form until the to the entruster to the extent of the amount entrustee has complied fully with his obligation under owing to the entruster or as appears on the the trust receipt; or (c) to load, unload, ship or tranship trust receipt; (3) insure the goods for their total or otherwise deal with them in a manner preliminary or value against loss from fire, theft, pilferage or necessary to their sale; or 2. In the case of other casualties; (4) keep said goods or instruments, (a) to sell or procure their sale or proceeds thereof whether in money or exchange; or (b) to deliver them to a principal; or (c) to 1 whatever form, separate and capable of virtue of such interest or having given the entrustee identification as property of the entruster; (5) liberty of sale or other disposition of the goods, return the goods, documents or instruments in documents or instruments under the terms of the trust the event of non-sale or upon demand of the receipt transaction be responsible as principal or as entruster; and (6) observe all other terms and vendor under any sale or contract to sell made by the conditions of the trust receipt not contrary to entrustee. the provisions of this Decree. Sec. 12 of the Trust Receipt Law provides that: The 3. Seller of the Goods - Not strictly and actually a entruster's security interest in goods, documents, or party to the trust receipt transaction; but instruments pursuant to the written terms of a trust merely a party to the contract of sale with the receipt shall be valid as against all creditors of the buyer/importer (entrustee). entrustee for the duration of the trust receipt agreement. RIGHTS OF THE ENTRUSTER OBLIGATIONS/LIABILITIES OF THE ENTRUSTEE Sec. 7 of the Trust Receipt Law provides that: The entruster shall be entitled to the proceeds from the sale Sec. 9 of the Trust Receipt Law states that: The of the goods, documents or instruments released under entrustee shall (1) hold the goods, documents or a trust receipt to the entrustee to the extent of the instruments in trust for the entruster and shall dispose amount owing to the entruster or as appears in the trust of them strictly in accordance with the terms and receipt, or to the return of the goods, documents or conditions of the trust receipt; (2) receive the proceeds instruments in case of non-sale, and to the enforcement in trust for the entruster and turn over the same to the of all other rights conferred on him in the trust receipt entruster to the extent of the amount owing to the provided such are not contrary to the provisions of this entruster or as appears on the trust receipt; (3) insure Decree. The entruster may cancel the trust and take the goods for their total value against loss from fire, possession of the goods, documents or instruments theft, pilferage or other casualties; (4) keep said goods subject of the trust or of the proceeds realized or proceeds thereof whether in money or whatever therefrom at any time upon default or failure of the form, separate and capable of identification as property entrustee to comply with any of the terms and of the entruster; (5) return the goods, documents or conditions of the trust receipt or any other agreement instruments in the event of non-sale or upon demand of between the entruster and the entrustee, and the the entruster; and (6) observe all other terms and entruster in possession of the goods, documents or conditions of the trust receipt not contrary to the instruments may, on or after default, give notice to the provisions of this Decree. entrustee of the intention to sell, and may, not less than *Failure to return the proceeds or failure to return the five days after serving or sending of such notice, sell the goods in case of non-sale is equivalent to estafa. goods, documents or instruments at public or private Sec. 10 of the Trust Receipt Law states that: The risk of sale, and the entruster may, at a public sale, become a loss shall be borne by the entrustee. Loss of goods, purchaser. The proceeds of any such sale, whether documents or instruments which are the subject of a public or private, shall be applied (a) to the payment of trust receipt, pending their disposition, irrespective of the expenses thereof; (b) to the payment of the whether or not it was due to the fault or negligence of expenses of re-taking, keeping and storing the goods, the entrustee, shall not extinguish his obligation to the documents or instruments; (c) to the satisfaction of the entruster for the value thereof. entrustee's indebtedness to the entruster. The entrustee *In Landl & Co. (Phil.) v Metrobank, the SC held that the shall receive any surplus but shall be liable to the entrustee is still liable to pay the entruster (bank) even if entruster for any deficiency. Notice of sale shall be the goods were returned to the latter. deemed sufficiently given if in writing, and either Reason why entrustee is obligated to return the goods personally served on the entrustee or sent by post-paid to the entruster: To put the goods in the disposal of the ordinary mail to the entrustee's last known business entruster (bank) address. *In Rosario Textile v Home Bankers, the SC held that RIGHTS OF PURCHASER ownership of the entruster of the goods is only a fiction. Sec. 11 of the Trust Receipt Law provides that: Any The one really owns the goods are the entrustee. purchaser of goods from an entrustee with right to sell, *Entruster is entitled to deficiency. or of documents or instruments through their *Entrustee is entitled to receive surplus. customary form of transfer, who buys the goods, Sec. 8 of the Trust Receipt Law provides that: The documents, or instruments for value and in good faith entruster holding a security interest shall not, merely by 2 from the entrustee, acquires said goods, documents or instruments free from the entruster's security interest.
PENALTIES
Sec. 13 of the Trust Receipt Law provides that: The
failure of an entrustee to turn over the proceeds of the sale of the goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code. If the violation or offense is committed by a corporation, partnership, association or other juridical entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense. *The criminal liability does not infringe the Constitution because what the law punishes is the abuse in the use of the commercial facility made by the entrustee. *This is not a dacion en pago because the liability of the entrustee is not extinguished from the moment the goods are returned to the entruster.