TRUST RECEIPTS LAW.doc

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Commercial Law Review

Trust Receipts Law

Maria Zarah Villanueva - Castro

TRUST RECEIPTS LAW

Trust Receipt is a security transactionintended to aid in fnancing importers or

dealers in merchandize by allowing them to

obtain delivery o goods under certain

covenants!

Q: "ho e#ecutes trust receipt$

A: %uyer&'ntrustee (%orrower) in avor o the

lender &entrustor (%an*)

Q: "hat are the relationships created$

A: +! 'ntruster-entrustee, ! .eller-buyer

Q: "hat is the ob/ective o the trust

receipts$

A: To release the goods in avor o the

entruster!

0Trust Receipt Law does not inringe the

1hilippine Constitution on non-imprisonment

or non-payment o contractual debt because

what the trust receipt law punishes is the

abuse made by the entrustee!

TRUST RECEIPT TRANSACTION

Sec. o! t"e Trust Receipt Law providesthat2 34 trust receipt transaction5 within the

meaning o this 6ecree5 is any transaction by

and between a person reerred to in this

6ecree as the entruster5 and another person

reerred to in this 6ecree as entrustee5

whereby the entruster5 who owns or holds

absolute title or security interests over

certain specifed goods5 documents or

instruments5 releases the same to the

possession o the entrustee upon the latter7se#ecution and delivery to the entruster o a

signed document called a 8trust receipt8

wherein the entrustee binds himsel to hold

the designated goods5 documents or

instruments in trust or the entruster and to

sell or otherwise dispose o the goods5

documents or instruments with the

obligation to turn over to the entruster the

proceeds thereo to the e#tent o the amount

owing to the entruster or as appears in the

trust receipt or the goods5 documents or

instruments themselves i they are unsold or

not otherwise disposed o5 in accordance

with the terms and conditions specifed in

the trust receipt5 or or other purposes

substantially e9uivalent to any o the

ollowing2 +! :n the case o goods or

documents5 (a) to sell the goods or procure

their sale, or (b) to manuacture or process

the goods with the purpose o ultimate sale21rovided5 That5 in the case o goods

delivered under trust receipt or the purpose

o manuacturing or processing beore its

ultimate sale5 the entruster shall retain its

title over the goods whether in its original or

processed orm until the entrustee has

complied ully with his obligation under the

trust receipt, or (c) to load5 unload5 ship or

tranship or otherwise deal with them in a

manner preliminary or necessary to their

sale, or ! :n the case o instruments5 (a)

to sell or procure their sale or e#change, or

(b) to deliver them to a principal, or (c) to

e;ect the consummation o some

transactions involving delivery to a

depository or register, or (d) to e;ect their

presentation5 collection or renewal! The sale

o goods5 documents or instruments by a

person in the business o selling goods5

documents or instruments or proft who5 at

the outset o the transaction5 has5 as againstthe buyer5 general property rights in such

goods5 documents or instruments5 or who

sells the same to the buyer on credit5

retaining title or other interest as security or

the payment o the purchase price5 does not

constitute a trust receipt transaction and is

outside the purview and coverage o this

6ecree! 3

#OR$ O# TRUST RECEIPT

Sec. % o! t"e Trust Receipt Law provides

that2 34 trust receipt need not be in any

particular orm5 but every such receipt must

substantially contain (a) a description o the

goods5 documents or instruments sub/ect o

the trust receipt, () the total invoice value

o the goods and the amount o the drat to

be paid by the entrustee, (<) an underta*ing

or a commitment o the entrustee (a) to hold

in trust or the entruster the goods5documents or instruments therein described,

(b) to dispose o them in the manner

provided or in the trust receipt, and (c) to

turn over the proceeds o the sale o the

goods5 documents or instruments to the

entruster to the e#tent o the amount owing

to the entruster or as appears in the trust

+




Trust Receipts Law


receipt or to return the goods5 documents or

instruments in the event o their non-sale

within the period specifed therein! The trustreceipt may contain other terms and

conditions agreed upon by the parties in

addition to those hereinabove enumerated

provided that such terms and conditions

shall not be contrary to the provisions o this

6ecree5 any e#isting laws5 public policy or

morals5 public order or good customs!=

PARTIES TO A TRUST RECEIPT

TRANSACTION

+! 'ntruster > release the possession o

the goods to the entrustee upon the

latter?s e#ecution o the trust receipt!! 'ntrustee > Sec. & o! t"e Trust

Receipt Law provides that2 3The

entrustee shall (+) hold the goods5

documents or instruments in trust or

the entruster and shall dispose o

them strictly in accordance with the

terms and conditions o the trust

receipt, () receive the proceeds in

trust or the entruster and turn over

the same to the entruster to the

e#tent o the amount owing to the

entruster or as appears on the trust

receipt, (<) insure the goods or their

total value against loss rom fre5 thet5

pilerage or other casualties, (@) *eep

said goods or proceeds thereo

whether in money or whatever orm5

separate and capable o identifcationas property o the entruster, (A) return

the goods5 documents or instruments

in the event o non-sale or upon

demand o the entruster, and (B)

observe all other terms and conditions

o the trust receipt not contrary to the

provisions o this 6ecree!=<! .eller o the oods - Dot strictly and

actually a party to the trust receipt

transaction, but merely a party to the

contract o sale with the

buyer&importer (entrustee)!

RI'(TS O# T(E ENTRUSTER

Sec. ) o! t"e Trust Receipt Law provides

that2 3The entruster shall be entitled to the

proceeds rom the sale o the goods5

documents or instruments released under a

trust receipt to the entrustee to the e#tent o

the amount owing to the entruster or asappears in the trust receipt5 or to the return

o the goods5 documents or instruments in

case o non-sale5 and to the enorcement o

all other rights conerred on him in the trust

receipt provided such are not contrary to the

provisions o this 6ecree! The entruster may

cancel the trust and ta*e possession o the

goods5 documents or instruments sub/ect o

the trust or o the proceeds realized

thererom at any time upon deault or ailure

o the entrustee to comply with any o the

terms and conditions o the trust receipt or

any other agreement between the entruster

and the entrustee5 and the entruster in

possession o the goods5 documents or

instruments may5 on or ater deault5 give

notice to the entrustee o the intention to

sell5 and may5 not less than fve days ater

serving or sending o such notice5 sell the

goods5 documents or instruments at public or

private sale5 and the entruster may5 at apublic sale5 become a purchaser! The

proceeds o any such sale5 whether public or

private5 shall be applied (a) to the payment

o the e#penses thereo, (b) to the payment

o the e#penses o re-ta*ing5 *eeping and

storing the goods5 documents or

instruments, (c) to the satisaction o the

entrustee7s indebtedness to the entruster!

The entrustee shall receive any surplus but

shall be liable to the entruster or anydefciency! Dotice o sale shall be deemed

suEciently given i in writing5 and either

personally served on the entrustee or sent

by post-paid ordinary mail to the entrustee7s

last *nown business address!=

0:n Rosario Te*tile v (ome +a,-ers5 the

.C held that ownership o the entruster o

the goods is only a fction! The one really

owns the goods are the entrustee!

0'ntruster is entitled to defciency!

0'ntrustee is entitled to receive surplus!

Sec. / o! t"e Trust Receipt Law provides

that2 3The entruster holding a security

interest shall not5 merely by virtue o such

interest or having given the entrustee liberty

o sale or other disposition o the goods5

documents or instruments under the terms




Trust Receipts Law


o the trust receipt transaction be

responsible as principal or as vendor under

any sale or contract to sell made by theentrustee!=

Sec. 01 o! t"e Trust Receipt Law provides

that2 3The entruster7s security interest in

goods5 documents5 or instruments pursuant

to the written terms o a trust receipt shall

be valid as against all creditors o the

entrustee or the duration o the trust receipt

agreement!=

O+LI'ATIONS2LIA+ILITIES O# T(E

ENTRUSTEE

Sec. & o! t"e Trust Receipt Law states

that2 3The entrustee shall (+) hold the goods5

documents or instruments in trust or the

entruster and shall dispose o them strictly in

accordance with the terms and conditions o

the trust receipt, () receive the proceeds in

trust or the entruster and turn over the

same to the entruster to the e#tent o the

amount owing to the entruster or as appears

on the trust receipt, (<) insure the goods or

their total value against loss rom fre5 thet5

pilerage or other casualties, (@) *eep said

goods or proceeds thereo whether in money

or whatever orm5 separate and capable o

identifcation as property o the entruster, (A)

return the goods5 documents or instruments

in the event o non-sale or upon demand o

the entruster, and (B) observe all other terms

and conditions o the trust receipt not

contrary to the provisions o this 6ecree!=0Failure to return the proceeds or ailure to

return the goods in case o non-sale is

e9uivalent to estaa!

Sec. 03 o! t"e Trust Receipt Law states

that2 3The ris* o loss shall be borne by the

entrustee! Loss o goods5 documents or

instruments which are the sub/ect o a trust

receipt5 pending their disposition5

irrespective o whether or not it was due to

the ault or negligence o the entrustee5 shallnot e#tinguish his obligation to the entruster

or the value thereo!=

0:n Landl G Co! (1hil!) v Metroban*5 the .C

held that the entrustee is still liable to pay

the entruster (ban*) even i the goods were

returned to the latter!

Reaso, w"4 e,trustee is o5li6ate7 to

retur, t"e 6oo7s to t"e e,truster: To

put the goods in the disposal o the entruster(ban*)

RI'(TS O# PURC(ASER


that2 34ny purchaser o goods rom an

entrustee with right to sell5 or o documents

or instruments through their customary orm

o transer5 who buys the goods5 documents5

or instruments or value and in good aith

rom the entrustee5 ac9uires said goods5documents or instruments ree rom the

entruster7s security interest!=

PENALTIES


that2 3The ailure o an entrustee to turn over

the proceeds o the sale o the goods5

documents or instruments covered by a trust

receipt to the e#tent o the amount owing to

the entruster or as appears in the trustreceipt or to return said goods5 documents or

instruments i they were not sold or disposed

o in accordance with the terms o the trust

receipt shall constitute the crime o estaa5

punishable under the provisions o 4rticle

Three hundred and fteen5 paragraph one (b)

o 4ct Dumbered Three thousand eight

hundred and fteen5 as amended5 otherwise

*nown as the Revised 1enal Code! : the

violation or o;ense is committed by a

corporation5 partnership5 association or other

/uridical entities5 the penalty provided or in

this 6ecree shall be imposed upon the

directors5 oEcers5 employees or other

oEcials or persons therein responsible or

the o;ense5 without pre/udice to the civil

liabilities arising rom the criminal o;ense!=

0The criminal liability does not inringe the

Constitution because what the law punishes

is the abuse in the use o the commercial

acility made by the entrustee!0This is not a dacion en pago because the

liability o the entrustee is not e#tinguished

rom the moment the goods are returned to

the entruster!

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