Trust Receipts Law Q & A

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).

The Balik Scientist Program

Patriotism is being inculcated among Filipinos as early as childhood years. This is the same patriotism spirit
Filipinos who left the country bring with them which encourages them to go back and serve our country.
Through the Balik Scientist Program (BSP) of the Department of Science and Technology (DOST) Filipino
scientists, technologists, and experts are encouraged to return to the country and share their expertise in order
to promote scientific, agro-industrial, and economic development, including the development of our human
capital in science, technology and innovation.

In June 15, 2018, president Rodrigo R. Duterte institutionalized the program with RA 11035 "Balik Scientist
Act" also known as the Balik Scientist Act. Then after three (3) months, the DOST crafted the implementing
rules and regulations (IRR) and MC No. 006 of the Balik Scientist Law. The Balik Scientist Program aims to:
1. Reverse the effect of the brain drain
2. Strengthen S & T capabilities
3. Accelerate flow of technologies
4. Promote knowledge sharing
Application and Selection
Qualification
The right to submit applications and be awarded as a Balik Scientists shall be enjoyed by:
1. Foreign-based Filipinos or foreigners of Filipino descent, with graduate/advanced degrees and
internationally-recognized experts in the priority sectors of DOST, who are willing to come back and serve on a
short term, medium term or long term basis
2. Expertise needed by public and private institutions

APPLICATION TO THE BALIK SCIENTIST PROGRAM (BSP)

Science and Technology experts who are Filipinos, or foreigners of Filipino descent shall be encouraged to
return or reside in the Philippines, and share their expertise in order to accelerate the scientific, agro-industrial
and economic development of the country. If requirements are complete, the processing of application and
admission to the Balik Scientist Program (BSP) may take at most one (1) month.

WHAT IS THE PROGRAM AND WHO IS A BALIK SCIENTIST?

The Balik Scientist Program (BSP) of the Department of Science and Technology (DOST) encourages Filipino
scientists, technologists, and experts to return to the country and share their expertise in order to promote
scientific, agro-industrial, and economic development. The BSP also aims to support and strengthen the
scientific and technological human resources in the Philippines.

A Balik Scientist is a science and technology expert who is a Filipino citizen or a foreigner of Filipino descent,
residing abroad and contracted by the Government to return and work in the Philippines along his/her field of
expertise.

PRIORITY AREAS OF THE PROGRAM

Agriculture and Food, Biotechnology, Disaster Mitigation and Management, Environment and Natural
Resources, Electronics, Energy, Genomics, Health, ICT, Manufacturing, Nanotechnology, and Semiconductors.

QUALIFICATIONS OF BALIK SCIENTIST APPLICANTS

• He/She must be of Filipino origin or descent, and is based abroad.
• He/She must have made an outstanding contribution in his/her field of specialization
• He/She must be in good health.
• He/She must be a holder of a graduate degree and must have practiced his/her profession for not less than
three (3) years after obtaining his/her masters or doctorate degree.
A Balik Scientist Applicant without a graduate degree but with a highly specialized skill may be qualified on
special cases as long as his/her field of expertise must be consistent with the science and technology (S&T)
priorities promulgated by the DOST.

PUBLIC SERVICE ACT

Amendments To The Public Service Act And Its Effect On Public Utility Ownership
Restrictions

On March 21, 2022, President Rodrigo R. Duterte signed Republic Act No. 11659 into law. The law amends the
decades-old Commonwealth Act No. 146, otherwise known as the Public Service Act (PSA), which was passed
in 1936.

The PSA defines “public service” to include every person that owns, operates, manages or controls in the
Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any common carrier, wharf, dock, and those who provide
gas, electric light, heat and power, water supply and power, petroleum, sewerage system, wire or wireless
communications systems, among others.

The 1987 Philippine Constitution provides that no franchise for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporations or associations organized under Philippine law that are
at least 60% owned by Filipino citizens.

With the amendments, the PSA now limits the scope of a public utility to persons who operate, manage and
control for public use any of the following: (i) electricity distribution; (ii) electricity transmission; (iii)
petroleum and petroleum products pipelines transmissions systems; (iv) water pipeline distribution systems
and wastewater pipeline systems, including sewerage pipeline systems; (v) seaports; and (vi) public utility
vehicles.

Significantly, the amendment further provides that “[n]o person shall be deemed to be a public utility unless
otherwise subsequently provided by law.” This means that only those persons that fall within the definition of a
public utility are subject to the foreign ownership restrictions on public utilities under the 1987 Philippine
Constitution as public utilities are only those enumerated in the PSA. The amendments also appear to suggest
that those previously considered public utilities under law or jurisprudence are no longer subject to foreign
ownership restrictions, as the word “subsequently” is used to qualify the provision.

The same can be said for those that fall under the definition a public service, but not a public utility, as the PSA
now expressly provides that “[n]otwithstanding any law to the contrary, nationality requirements shall not be
imposed by the relevant administrative agencies on any public service not classified as a public utility.” Hence,
despite still being subject to regulation by the relevant administrative agency (e.g., National
Telecommunications Commission for telecommunications, Civil Aviation Authority of the Philippines for
aviation) those public services which are not public utilities by definition can now be 100% foreign owned.

While the amendments to the PSA are envisioned to pave the way for more foreign investment in various
Philippine industries, it also appears to have balanced the liberalization of the ownership of certain industries
and the protection of critical businesses by introducing protective mechanisms against foreign control of public
services.

The PSA has introduced the concept of “critical infrastructure”, which is “any public service that owns, uses, or
operates systems and assets, whether physical or virtual” that are so vital to the Philippines that the incapacity
or destruction of such systems would have a detrimental effect on national security, including
telecommunications and such other vital services as nay be declared by the President of the Philippines”.

The amendments provide for a prohibition against foreign state-owned enterprises from owning capital in any
public service classified as “critical infrastructure”. Nonetheless, the prohibition only applies to investments
made after the effectivity of the amendments. Foreign state-owned enterprises that own capital prior to the
effectivity cannot invest in additional capital of a public service upon the effectivity of the amendments.
However, sovereign wealth funds and independent pension funds of states may collectively own up to 30% of
the capital of such public services.

Foreign nationals shall not be allowed to own more than 50% of the capital of entities engaged in the operation
and management of critical infrastructure unless the country of said foreigner grants reciprocity to Filipinos by
law or treaty.

The amendments also provide that the employment of foreign nationals by public service entities will only be
allowed if it can be shown that there is a nonavailability of Philippine nationals who are competent, willing, and
able to take on the job desired, unless otherwise provided by law, or by any international agreement.

The relevant administrative agencies are given six (6) months from the effectivity of Republic Act No. 11659 to
issue implementing rules and regulations, which will further institutionalize the amendments to the PSA.

On 7 January 2020, House Bill No. 78 was filed at the lower house of Congress, proposing amendments to the
Public Service Act (Commonwealth Act No. 46), which shall be known as the New Public Service Act. The
proposed law seeks to limit the term “public utility” to electricity distribution and transmission sector and the
water pipeline and sewerage pipeline system. The New Public Service Act, which also prescribes a mechanism
for rate fixing that allows a reasonable rate of return to attract investments into public utilities, was approved
on third and final reading on 20 February 2020 and was transmitted to the Senate on 11 March 2020.

New Public Service Act, Allowing 100% Foreign Ownership in TELCOs and other Public
Services
PURPOSE OF HOUSE BILL NO. 78
In the explanatory note of the proposed law, the principal sponsor, Joey S. Salceda, explained that the Public
Service Act (Commonwealth Act No. 46) was crafted in 1936 to govern public services in the Philippines. It no
longer sufficiently addresses the changes in the economic framework brought about by globalization and rapid
technological innovation. There is, therefore, a need to adjust the provisions of the Public Service Act to bring it
to the 21st century and enable it to fulfil its purpose of truly serving the public.

Competition and foreign investment are inhibited because limitations that should only apply to the operation
of public utilities are also applied to all public services. The key to fixing the problem is to develop a clear
statutory definition of a public utility by amending the Public Service Act. More competition among providers
would result in lower prices and improved quality of basic services in the Philippines, creating a more
competitive economy towards a better quality of life for all.

IMPACT OF AMENDMENTS
The amendment of the Public Service Law has created a big issue. What is the controversy all about? The
amendments allow 100% foreign ownership of certain industries traditionally reserved to Filipinos. The
Philippine Constitution provides that foreign ownership of public utilities must be limited to 40%. Section 11 of
Article XII of the Constitution provides that:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall
be granted except to citizens of the Philippines or to corporations or associations organized under the laws of
the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise,
certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any
such franchise or right be granted except under the condition that it shall be subject to amendment, alteration,
or repeal by the Congress when the common good so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of foreign investors in the governing body of any public
utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing
officers of such corporation or association must be citizens of the Philippines.[Emphasis supplied]

There is, however, no definition of a “public utility,” whether under the Constitution or any law. Based on the
existing regulatory framework, public services are considered public utilities. With the definition provided
under the New Public Service Law, the constitutional limitation on foreign ownership no longer applies to
public services. The constitutional foreign ownership limitation applies only to public utilities.

PUBLIC SERVICE
As noted above, 100% ownership of foreign investors is allowed for public services. Under the proposed New
Public Service Act, the term “public service” includes every person that now or hereafter may own, operate,
manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for the general use business purposes, services which are non-
rivalrous or imbued with public interest, such as:

any common carrier, railroad, street railway, traction railway, sub-way motor vehicle, either for freight or
passenger, or both with or without fixed route and whether may be its classification, freight or carrier service of
any class
express service, steamboat or steamship line, pontines, ferries, and water craft, engaged in the transportation
of passengers or freight or both
shipyard
marine railways
marine repair shop
wharf or dock
canal
public market
irrigation system
gas
electric light
heat and power
water supply and power
petroleum
sewerage system
telecommunications system
wire or wireless communications system
wire or wireless broadcasting stations
other similar public services

However, a person engaged in agriculture, not otherwise a public service, who owns a motor vehicle and uses it
personally and/or enters into a special contract whereby said motor vehicle is offered for hire or compensation
to a third party or third parties engaged in agriculture, not itself or themselves a public service, for operation by
the latter for a limited time and for a specific purpose directly connected with the cultivation of his or their
farm, the transportation, processing, and marketing of agricultural products of such third party or third parties
shall not be considered as operating a public service.

The word “person” includes every individual, co-partnership, joint-stock company or corporation, whether
domestic or foreign, their lessees, trustees, or receivers, as well as any municipality, province, city,
government-owned or controlled corporation, or agency of the Government of the Philippines, and whatever
other persons or entities that may own or possess or operate public services.

In the interest of national security, the restriction on foreign ownership imposed on public utilitiesunder the
1987 Constitution shall continue to apply to a person that manages, operates, and controls public services
involving air transportation, Philippine ports, and airports.

EXEMPT ENTITIES: NOT CONSIDERED PUBLIC SERVICE

The following are exempted from the provisions on public service (including the requirement of a franchise):

(a) Warehouses;
(b) Vehicles drawn by animals and bancas moved by oar, sail, and tugboats and lighters;
(c) Airships within the Philippines, except as regards the fixing of their maximum rates on freight and
passengers;
(d) Radio companies, except with respect to the fixing of rates; and
(e) Public services owned or operated by any instrumentality of the National Government or bay any
government-owned or controlled corporation, except with respect to the fixing of rates.
PUBLIC UTILITY: DEFINED; ENUMERATION
Under the proposed New Public Service Act, a public service that meets all of the following criterial is deemed a
public utility:

(i) The person or entity regularly supplies, transmits and distributes to the public through a network a
commodity or service of public consequence;
(ii) The public service is a natural monopoly that needs to be regulated. For this purpose, natural monopoly
exists when the market demand for a commodity or service can be supplied by a single entity at a lower cost
than by two or more entities;
(iii) The commodity or service is necessary for the maintenance of life and occupation of the public; and
(iv) The person or entity is obligated to provide adequate service to the public on demand.
An entity that operates, manages or controls for public use, any of the following systems is a public utility:

(i) Distribution of electricity;

(ii) Transmission of electricity;
(iii) Water pipeline distribution; and
(iv) Sewerage pipeline.
A concessionaire granted a concession by a government agency engaged in public utility operations shall be
deemed a public utility.

The National Economic and Development Authority (NEDA), in consultation with the Philippine Competition
Commission (PCC), shall recommend to Congress the classification of a public service as a public utility,
provided that such public service is able to meet all the criteria enumerated above. No other person shall be
deemed a public utility unless otherwise subsequently provided by law.

FRANCHISE REQUIRED FOR PUBLIC SERVICE

No public service shall operate in the Philippines without possessing a valid and subsisting franchise,
certificate, concession, or any other appropriate form of authorization for the operation of a public service,
from Congress, and/or the proper administrative agency, as the case may be, to the effect that the operation of
said service and the authorization to do business will promote the public interests in a proper and suitable
manner.

CONDITIONS OF FRANCHISE OR CERTIFICATE

The Administrative Agency shall prescribe as a condition for the issuance of the franchise, certificate,
concession, or any other appropriate form of authorization for the operation of a public service, that the service
can be acquired by the Republic of the Philippines or by any instrumentality thereof upon payment of the cost
price of its capital stock, useful equipment, infrastructure, or property, less reasonable depreciation; and
likewise, that the violation of any of these conditions shall produce the immediate cancellation of the franchise,
certificate, concession, or any other appropriate form of authorization for the operation of a public service
without the necessity of any express action on the part of the administrative agency.

RECIPROCITY REQUIREMENT ON OWNERSHIP BY FOREIGN NATIONALS

No foreign national shall be allowed to own capital stock of any public service classified as a public utility prior
to this Act, unless the country of such foreign national accords reciprocal rights to Philippine nationals as may
be provided by foreign law, treaty or international agreement. Reciprocity may be satisfied by according rights
of similar value in other economic sectors.

EMPLOYMENT OF FOREIGN NATIONALS

Unless otherwise provided by law or by any international agreement, a public service shall employ a foreign
national only after the determination of non-availability of a Philippine national who is competent, able and
willing to perform the services for which the foreign national is desired. In no case shall the employed foreign
nationals comprise more than 25% of the total employees of the public service.

Any foreign national seeking admission to the Philippines for employment purposes and any public service
which desires to engage a foreign national for employment in the Philippines must obtain an employment
permit pursuant to Presidential Decree No. 442, otherwise known as the Labor Code of the Philippines, as
amended.

MERGERS AND ACQUISITIONS

In the interest of national security, the President may suspend or prohibit any proposed merger or acquisition
transaction, or any investment in a public service that effectively results in the grant of control, whether direct
or indirect, to a foreigner or a foreign corporation. The NEDA shall promulgate rules and regulations to
implement this rule.

The Philippine Competition Commission shall be consulted on all matters relating to mergers and acquisitions.
ADMINISTRATIVE AGENCIES; JURISDICTION
The Administrative Agency shall have jurisdiction, supervision, and control over all public services and their
franchises, equipment, and other properties, and in the exercise of its authority, it shall have the necessary
powers and the aid of the public force.

Public services owned or operated by government entities or government-owned or controlled corporations

shall be regulated by the Administrative Agency in the same way as privately-owned public services. The
requirement of a franchise, certificate, concession, or any other appropriate form of authorization for the
operation of a public service shall apply in case the charter or enabling law of a public service owned or
operated by a government entity or GOCC does not explicitly require the same.

The Administrative Agencies to which the powers of the former Public Service Commission were transferred
include:

Civil Aeronautics Board (CAB);

Civil Aviation Authority of the Philippines (CAAP);
Department of Energy (DOE);
Department of Energy and Natural Resources (DENR);
Department of Information and Communications Technology (DICT);
Department of Transportation (DOTr);
Energy Regulatory Commission (ERC);
Land Transportation Franchising and Regulatory Board (LTFRB);
Land Transportation Office (LTO);
Local Water Utilities Administration (LWUA);
Maritime Industry Authority (MARINA);
Metropolitan Waterworks and Sewerage System (MWSS);
National Telecommunications Commission (NTC);
National Water Resources Board (NWRB);
Philippine Ports Authority (PPA); and
Toll Regulatory Board (TRB)

OTHER UNLAWFUL ACTS

In addition to the unlawful acts provided under the Public Service Act, the New Public Service Act adds a new
illegal act, punishable by imprisonment – To refuse or neglect, when requested by the Administrative Agency
to Urgently use, deliver or render the public service for the purpose of avoiding further loss on human,
material, economic, or environment during a state of calamity.

~o~

On August 28, 2019, the President signed into law Republic Act No. 11449 (RA 11449) which provides for
additional prohibitions to and increasing penalties for violations of the “Access Devices Regulation Act of 1998”
or Republic Act No. 8484 (RA 8484).

RA 8484 is a law enacted to regulate the issuance and use of access devices and prohibit fraudulent acts
committed in relation to such devices. This is in view of the State’s recognition of recent advances in technology
and the widespread use of access devices in commercial transactions. As more people adapt to the said
technological advances, the more the State’s imperative duty to protect the rights and define the liabilities of
parties in such commercial transactions by regulating the issuance and use of access devices arises (Section 2,
RA 8484 and Section 1, RA 11449).

Republic Act 8484: Access Devices Regulation Act of 1998, as amended

Access Devices are any card, plate, code, account number, electronic serial number, personal
identification number, or other telecommunications service, equipment, or instrumental identifier, or other
means of account access that can be used to obtain money, good, services, or any other thing of value or to
initiate a transfer of funds (other than a transfer originated solely by paper instrument). The two (2) most
common examples of this are, credit cards and debit cards.

In relation to credit cards, we find it necessary to discuss one of the most common questions asked as far
as said cards are concerned, it is, can a credit card holder be imprisoned for failure to pay debts owed in credit
cards? The answer is in the negative. The mere failure to pay debts owed in credit cards is not a ground for a
person to be imprisoned. In fact, under Section 20 of Article III (Bill of Rights) of the 1987 Constitution
expressly provides that “no person shall be imprisoned for debts.” However, a different intention of the
cardholder would result to different result. For instance, what if the credit card holder obtained money through
the use thereof with intent to defraud or intent to gain money and flee thereafter? The answer will be different.

Under Section 9 of RA 8484 in relation to Section 3 of RA 11449, obtaining money or anything of value
through the use of an access device (such as credit card), with intent to defraud or with intent to gain and
fleeing thereafter is a prohibited act punishable by imprisonment of at least 4 to 6 years, and a fine that is
double that value of the fraudulently obtained credit. Furthermore, in relation to intent to defraud, 5 of RA
11449 provides that, if the cardholder who abandons or surreptitiously leaves the place of employment,
business or residence stated in his application for credit card, without informing the credit card company of the
place where he could actually be found, if at the time of such abandonment or surreptitious leaving, the
outstanding and unpaid balance is past due for at least ninety (90) days and is more than P200,000.00, shall
be prima facie presumed to have used his credit card with intent to defraud. Thus, to be clear, only if the credit
cardholder used said device to gain money and to defraud the issuing bank will a penalty of imprisonment be
meted out.

As regards debit cards, it is defined by RA 11449 as “payment cards.” Payment Cards under Section 2 of
RA 11449, refer to any card of whatever material or from including any kind of debit card, but not a credit card,
issued by a bank or business entity that enables a customer to access an automated teller machine (ATM) in
order to perform transactions such as deposits, cash withdrawals and obtaining account information. A
payment card shall be considered as an access device.

RA 8484 punishes several fraudulent tactics in relation to payments cards, and in light of its recent
amendments, aside from increasing the penalties for its violation, new prohibited acts are introduced, these
are:

Skimming, copying or counterfeiting any credit card, payment card or debit card, and obtaining any
information therein with the intent of accessing the account and operating the same regardless whether there
will be monetary loss/injury;

Production or possession of any software component such as programs, application, or malware, or any
hardware component such as skimming device or any electronic gadget or equipment that is used to perpetuate
any of the foregoing acts;

Accessing with or without authority, any application, online banking account, credit card account, ATM
account, debit card account, in a fraudulent manner, regardless whether monetary loss will result thereafter;
Hacking through unauthorized access into or interference in a computer system/ server, or information and
communication system, or any access in order to corrupt, alter, steal, or destroy using a computer or other
similar information and communication devices without the knowledge and consent of the owner of the
computer or information and communication system, including the introduction of computer viruses and the
like resulting in the corruption, destruction, alteration, theft, or loss of electronic data messages or electronic
documents.

As the state acknowledges that the commission of a crime using access devices is a form of economic sabotage
and a heinous crime and shall be punishable to the maximum level allowed by law (Section 1 of RA 11449), the
new law provides that in relation to hacking of a system as well as skimming of at least fifty (50) debit or credit
cards, and bank accounts, these are punishable by a term of life imprisonment and fines ranging from P1
million to P5 million.

In addition, possession of at least 10 counterfeit devices and the successful illegal access of an account is
punishable with imprisonment ranging from 12 to 20 years and a fine of at least P500,000.