STEPHANY A.

POLINAR

TRUST RECEIPTS LAW

A. Definition/ Concept of Trust Receipt Transaction
 Trust Receipt—it is a written or printed document signed by the entrustee in favor of the entruster
whereby the latter releases the goods to the possession of the former upon the entrustee’s
promise to hold said goods in trust for the entruster, to sell or dispose of the goods, and to return
the proceeds thereof to the extent of the amount owing to the entruster, or to return the goods if
unsold or not otherwise disposed of.
 Trust Receipt Transaction
A trust receipt transaction is any transaction by and between a person (entruster) and another
person (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 signed document called a
"trust receipt".

The entrustee binds himself to hold the designated goods, documents or instruments in trust for
the entruster and to sell or otherwise dispose of the goods, documents or instruments with the
obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to
the entruster or as appears in the trust receipt or the goods, documents or instruments themselves
if they are unsold or not otherwise disposed of, in accordance with the terms and conditions
specified in the trust receipt (Sec. 4).

 Concept of a Trust Receipt

It is a separate and independent security transaction intended to aid in financing importers and
retail dealers who do not have sufficient funds to finance the importation/ purchases and who may
not be able to acquire credit except through utilization, as collateral, of the merchandise imported/
purchased.

1. Loan/ Security Feature

The transaction involves a loan feature represented by the letter of credit, and a security feature which
is in the covering trust receipt.

The nature of trust receipt can be best illustrated in a letter of credit-trust receipt arrangement, where
a bank extends to a borrower a loan covered by the letter of credit, with the trust receipt as security of
the loan. It has a dual feature, namely, a loan feature and a security feature. The money from the loan
will then be used by the entrustee to purchase goods from a seller in a separate contract of sale.

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2. Ownership of the Goods, Documents and Instruments Under a Trust Receipt

 Parties to a Trust Receipt Transactions
a) Entruster—
 Lender/ financer
 Person holding title over the goods, documents or instruments subject of a trust receipt
transaction; releases possession of the goods upon execution of trust receipt.
 Not the owner of the goods, but merely a holder of security interest.
 If it is made to appear in the trust receipt as the owner of the goods purchased, it is merely
theoretical, an artificial expedient and more of fiction than fact.

b) Entrustee—

 Borrower/ buyer/ importer

 Person to whom the goods are delivered for sale or processing in trust, with the obligation
to return the proceeds of sale of the goods or the goods themselves to the entruster.

 The owner of the goods purchased. In fact, the law imposes on him the risk of loss of the
goods under the doctrine of “Res perit domino”.

c) Seller of the Good—Not strictly and actually a party to the trust receipt transaction; but a party to
the contract of sale with the buyer/ importer (entrustee).

B. Rights of the Entruster

a) Entitled to the proceeds from the sale of goods, documents or instruments;
b) Entitled to the return of goods, etc. in case of non-sale;
c) To enforce all other rights conferred on him under the TRL;
d) To cancel the trust, take possession of goods, and to sell the goods in a public sale in case of default;
e) May purchase at the intended public sale. (Sec. 7)

1. Validity of the Security Interest as Against the Creditors of the Entrustee/ Innocent
Purchasers for Value
 Extent of security interest:
 As against innocent purchaser for value – NOT preferred (Sec. 11)
 As against creditors of entrustee – preferred (Sec. 12)

C. Obligations and Liability of the Entrustee

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1. Payment/Delivery of Proceeds of Sale or Disposition of Goods, Documents or

Instruments
Q. What is the obligation of an entrustee when there has been a sale or disposition of goods, documents
or instruments?

A: The following are the obligations of the entrustee:

a) Hold the goods, documents or instruments in trust for the entruster and shall dispose them strictly in
accordance with the terms and conditions of the trust receipt;
b) 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 in the trust receipt;
c) Insure the goods for their total value against loss from fire, theft, pilferage or other casualties.
d) Keep said goods or proceeds thereof whether in money or whatever form, separate and capable of
identification as property of the entruster.

2. Return of Goods, Documents or Instruments in Case of Non-Sale

Q. What is the obligation of an entrustee when there has been NO sale or disposition of goods, documents
or instruments?

A: The following are the obligations of the entrustee:

a) Return of goods, documents or instruments in case of non-sale or upon demand of the entruster;
and
b) Observe all other terms and conditions of the trust receipt not contrary to the provisions of this
Decree.
3. Liability for Loss of Goods, Documents or Instruments
The risk of loss shall be borne by the entrustee. Loss of goods, documents or instruments which are
subject of the trust receipt , pending their disposition, irrespective of whether or not it was due to the
fault or negligence of the entrustee, shall not extinguish his obligation to the entruster for the value
thereof.

4. Penal Sanction if Offender is a Corporation

If the entrustee is a corporation, the law makes the officers or employees of other persons responsible
for the offense liable to suffer the penalty of imprisonment. However, the person signing the trust
receipt for the corporation is not solidarily liable with the entrustee-corporation for the civil liability
arising from the criminal offense.

D. Remedies Available

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Q: What are the remedies available to the entruster against the entrustee?

A: If the entrustee did not comply with his obligations, he shall have the following liability:

a) Criminal liability for ESTAFA under both TRL and RPC;

b) Liable for DAMAGES under Article 33 of the NCC, without need of proving intent to defraud because it
is malum prohibitum.

Q: What are the remedies available to the entrustee if he has been criminally charged even though he
complied with his obligations?

a) If the entrustee complied with his obligations before there has been a criminal charge—no criminal
liability;
b) If the entrustee complied with his obligations after there has been a criminal charge—
extinguishment of criminal liability.

In the event of default by the entrustee, it is not necessary that the entruster cancel the trust and take
possession of the goods to be able to enforce his rights thereunder. He has the discretion to avail of
such right or seek any separate action, such as third party claim or separate civil action (South City
Homes v. BA Finance Corp., G.R. No. 135462, December 7, 2001).

The initial repossession by the bank of the goods subject of the trust receipt did not result in the full
satisfaction of the loan obligation. A claim for deficiency would thus be in order (Landl & Company Inc.,
v. Metropolitan Bank & Trust Company, G.R. No. 159622, July 30, 2004).

Neither can said repossession amount to dacion en pago. Dation in payment takes place when
property is alienated to the creditor in satisfaction of a debt in money and the same is governed by
sales. Dation in payment is the delivery and transmission of ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of the obligation (ibid, citing PNB v. Pineda, G.R.
No. 46658, May 13, 1991).

E. Warehouseman’s Lien
 Enforcement of Warehouseman’s Lien:
a) By refusing to deliver the goods until his lien is satisfied;
b) By causing extrajudicial sale of the property and applying the proceeds to the value of the lien.
NOTE: Effects of sale of goods:
i. The warehouseman is not liable for non-delivery even if the receipt given for the goods were
negotiated;
ii. Where the sale was made without the publication required and before the time provided by
law, such sale is void and the purchaser of the goods acquires no title in them.

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c) Other remedies allowed by law for the enforcement of a lien against personal property.

 Properties Subject to Warehouseman’s Lien:

a) Goods of the depositor who is liable to the warehouseman as debtor whenever such goods are
deposited; and
b) Goods of other persons stored by the depositor who is liable to the warehouseman or debtor with
authority to make a valid pledge.

 Instances Where Warehouseman’s Lien is Lost:

a) By surrendering possession thereof, or
b) By refusing to deliver the goods when a demand is made with which he is bound to comply.

 Nature of a Warehouseman’s Lien:

The warehouseman’s lien is possessory in nature. Involuntary parting with possession of goods ordinarily
does not result in loss of his lien by a warehouseman.

 Effect of the Release by Warehouseman of His Lien:

A warehouseman who has released his lien by the surrender of the goods may not thereafter claim a lien
on other goods of the same depositor for unpaid charges on the goods surrendered if the goods were
delivered to him under different bailments (covered by separate receipts).

However, the loss of the warehouseman’s lien does not necessarily mean the extinguishment of the
depositor’s obligation to pay the warehousing fees and charges which subsists to be a personal liability.

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