Atty.

Myra-
Diwata A.
TRUST RECEIPTS LAW Rivera-Caroy
 Atty. Myra-
Diwata A.
TRUST RECEIPTS LAW Rivera-Caroy
 POLICY OBJECTIVES

1. To encourage and promote the use of trust receipts

2. To provide for the regulation of trust receipt
transactions
3. To penalize violations as a criminal offense (Sec. 2)
 WHAT IS A ‘TRUST RECEIPT’?

It is a written or printed document signed by the

entrustee in favor of the entruster containing terms
and conditions substantially complying with the
provisions of this Decree. (Sec. 3, cf. Sec. 4)
 WHAT IS A ‘TRUST RECEIPT’?

Points to Ponder:

1. It is more than a simple loan between the creditor

(entruster) and the debtor (entrustee). The law
recognizes the entruster’s security interest over
the goods covered by the trust agreement.
2. The security interest holds priority over that of the
other creditors of the entrustee. The goods
covered cannot be levied upon by such creditors.
 PARTIES TO A TRUST RECEIPT

1.Entruster – person holding title over the goods,

documents or instruments
2.Entrustee – person having or taking possession of
goods, documents or instruments (Sec. 3)
 WHAT IS A ‘TRUST RECEIPT
TRANSACTION’?

 Any transaction by and between the entruster and the

entrustee, whereby the entruster, who owns or holds
absolute title or security interests over certain specified
goods, documents or instruments, releases the same to the
possession of the entrustee upon the latter's execution and
delivery to the entruster of a trust receipt, or for other
purposes substantially equivalent to those specified in Sec.
4
 WHAT IS A ‘TRUST RECEIPT
TRANSACTION’?

It covers
1. Sale of goods
2. Manufacture or processing with the purpose of ultimate
sale (in which case the entruster retains title over the
goods whether in their original or processed form)

(N.B. Estafa only covers the first transaction)

 FORM OF TRUST RECEIPTS

A trust receipt need not be in any particular form but it

must substantially contain:

1. a description of the goods, documents or

instruments subject of the trust receipt

2. the total invoice value of the goods and the amount

of the draft to be paid by the entrustee
3. an undertaking or a commitment of the entrustee
to:
o hold in trust for the entruster the goods, documents or
instruments therein described;
o dispose of them in the manner provided for in the trust
receipt; and
o to turn over the proceeds of the sale of the goods,
documents or instruments to the entruster to the
extent of the amount owing to the entruster or as
appears in the trust receipt or to return the goods,
documents or instruments in the event of their non-sale
within the period specified therein. (Sec. 5)
 ORIGIN OF TRUST RECEIPTS

 The device first came into general use in importing

transactions, where goods were consigned directly
to a bank which paid a draft for the price on the
credit of the intended buyer who engaged to repay
the bank’s advances
 USE OF TRUST RECEIPTS

 It is a convenient aid to commerce and trade

 Over time, trust receipts have become indispensable
contracts in international and domestic business
transactions (People vs. Nitafan)
 HOW DOES IT WORK?

Foreign Seller

Contract of Sale Letter of Credit Proper

Importer Bank

Reimbursement
Agreement
Trust Receipt Agreement
 HOW DOES IT WORK?

ANTECEDENT ACTS in a trust receipt transaction:

1. Application and approval of letter of credit (Reimbursement
Agreement)
2. Making of marginal deposit
3. Effective importation of goods through the efforts of the
importer (Colinares vs. CA)
 HOW DOES IT WORK?

Traditionally, there are 3 parties to a trust receipt transaction:

1. The importer/entrustee
2. The bank/entruster
3. The foreign seller

However, the Supreme Court has held that even a bipartite

contract is covered by PD 115 (Robles vs. CA)
 BASIC FEATURES OF TRUST RECEIPT AGREEMENTS

1. Loan feature – usually represented by a Letter

of Credit
2. Security feature – the trust receipt proper
(Vintola vs. IBAA)
 SECURITY FEATURE

 A trust receipt is a security agreement pursuant to which

the entruster acquires a “security interest” in the goods.
 SECURITY INTEREST, defined. It is property interest in
goods, documents or instruments to secure performance of
some obligations of the entrustee or of some third persons
to the entruster and includes title, whether or not expressed
to be absolute, whenever such title is in substance taken or
retained for security only. (Sec. 3)
 SECURITY FEATURE

 The security interest is similar to a “lien” on the goods

because the entruster’s advances will have to be settled first
before the entrustee can consolidate his ownership over the
goods. (Prudential Bank vs. NLRC)
 The entruster’s security interest is valid against all creditors
for the duration of the trust receipt agreement (Sec. 12)
 SECURITY FEATURE

 “The title of the bank to the security is the one

sought to be protected (by the law) and not the
loan which is a separate and distinct
agreement.” (Prudential Bank vs. NLRC)
 WHO HOLDS TITLE?

 The entruster takes the full title to the goods at

the very beginning—as soon as goods are
bought and paid by him. (Ibid.)
 WHO OWNS THE GOODS?

o The goods remain the importer’s property. Entrustee is

factual owner.
o The bank does not become real owner of the goods. It
remains a lender and creditor. Entruster’s ownership is
merely legal fiction. (Abad vs. CA)
 NATURE OF TRUST RECEIPTS

 In a certain manner, a trust receipt partakes of the nature of

a conditional sale as provided in the Chattel Mortgage Law,
i.e., the importer becomes absolute owner of the imported
merchandise as soon as he has paid its price. (Ibid.)
 TR VS. CHATTEL MORTGAGE

It is not a chattel mortgage because:

- it does not require the formalities set forth in the Chattel
Mortgage Law, such as the affidavit and oath (Secs. 3(j)
and 5, cf. Sec. 5, Act 1508)
- it does not have to be registered with the Register of Deeds
(Sec. 3(j), cf. Sec. 198, Admin. Code)
 TR VS. CONDITIONAL SALE

It is not a conditional sale per se because:

- the entruster is not a seller as contemplated by law. He does
not take on the obligations and warranties of a seller (Sec.
8, cf. Arts. 1495-1581, Civil Code)
- the transaction between the entruster and the entrustee is
more akin to a credit transaction than a sale.
 TR VS. PLEDGE

It is not a pledge because:

- the entrustee/debtor is not the absolute owner of the goods
(cf. Art. 2085)
- the entrustee/debtor does not deliver the possession of the
goods to the entruster/creditor (cf. Art. 2093)
 TR VS. CONSIGNMENT

 It is different from consignment because the entrustee is

the real owner of the goods and not a mere dealer/agent

Note: But if the consignment is evidenced by a delivery trust receipt, it will

fall under the Trust Receipts Law (Robles vs. CA)
 RIGHTS OF THE ENTRUSTER

The entruster shall be entitled:

(a) to the proceeds of the sale of the goods, documents or

instruments covered by a trust receipt to the extent of the
amount owed to him; OR (b) to the return of such goods,
docs, or instruments in case of non-sale
(b) to enforce all other rights conferred to him in the trust
receipt
(c) to cancel the trust and take possession of the goods, etc.
in case of default or breach of the terms of the trust
receipt and to have these sold in a private or public auction
(Sec. 7)
 OBLIGATIONS OF THE ENTRUSTEE

1) To hold the goods, documents or instruments in trust for

the entruster and shall dispose of them strictly in
accordance with the terms and conditions of the trust
receipt;
2) To receive the proceeds in trust for the entruster and turn
over the same to the entruster to the extent of the amount
owing to the entruster or as appears on the trust receipt;
3) To insure the goods for their total value against loss from
fire, theft, pilferage or other casualties;
4) To keep said goods or proceeds thereof whether in money
or whatever form, separate and capable of identification as
property of the entruster;
 OBLIGATIONS OF THE ENTRUSTEE

5) To return the goods, documents or instruments in the event

of non-sale or upon demand of the entruster; and
6) To observe all other terms and conditions of the trust
receipt not contrary to the provisions of the law. (Sec. 9)

 In any event, entrustee bears risk of loss (Sec. 10)

 CRIMINAL LIABILITY

Art. 315 Revised Penal Code

1. With unfaithfulness or abuse of confidence, namely:
…
(b) By misappropriating or converting, to the prejudice of
another, money, goods, or any other personal property
received by the offender in trust or on commission, or for
administration, or under any other obligation involving the
duty to make delivery of or to return the same, even
though such obligation be totally or partially guaranteed by
a bond; or by denying having received such money, goods,
or other property.
THANK YOU!!!
END OF LECTURE…