What is a trust receipt?
A trust receipt refers to the written or printed document signed by the entrustee in favor of the entruster containing terms and conditions substantially complying with the provisions of Presidential Decree No. 115 (P.D. No. 115), otherwise known as the Trust Receipts Law.[1]
Who are the parties to a Trust Receipt transaction?
The parties to a Trust Receipt transaction are the entruster and entrustee.
The entrustee shall refer to the person having or taking possession of goods, documents or instruments under a trust receipt transaction, and any successor in interest of such person for the purpose or purposes specified in the trust receipt agreement.[2]
The entruster shall refer to the person holding title over the goods, documents, or instruments subject of a trust receipt transaction, and any successor in interest of such person.[3]
How does a Trust Receipt transaction work?
P.D. No. 115 recognizes the utilization of trust receipts as a convenient business device to assist importers and merchants solve their financing problems. Obviously, the State, in enacting the law, sought to find a way to assist importers and merchants in their financing in order to encourage commerce in the Philippines.[4]
To illustrate, X is an importer of goods. To facilitate the importation, he opens a Letter of Credit with Y Bank. Upon the arrival of the goods in the Philippines, Y Bank requires X to execute a trust receipt under which X shall sell the goods for the account of Y Bank with the obligation to turn over to the latter the proceeds thereof, or to return the goods if they are unsold. Here, X is the entrustee while Y Bank is the entruster.
A trust receipt is a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased.[5]
What are the principal duties of the entrustee under a trust receipt?
There are two obligations in a trust receipt transaction. The first is covered by the provision that refers to money under the obligation to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision referring to merchandise received under the obligation to return it (devolvera) to the owner.[6]
In other words, among the obligations of the entrustee under the law[7] is 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. However, in the event of non-sale, he shall return the goods, documents or instruments to the entruster.
What if the entrustee fails to perform his obligations?
Under Sec. 13 of P.D. No. 1115 which provides for the penalty clause, the failure of the entrustee to perform any of his obligations as mentioned above shall constitute the crime of Estafa under Art. 315, paragraph 1 (b) of the Revised Penal Code of the Philippines.
The offense is punished as a malum prohibitum regardless of the existence of intent or malice. A mere failure to deliver the proceeds of the sale or the goods if not sold, constitutes a criminal offense that causes prejudice not only to another, but more to the public interest.[8]
The prevalent use of trust receipts, the danger of their misuse and/or misappropriation of the goods or proceeds realized from the sale of goods, documents or instruments held in trust for entruster-banks, and the need for regulation of trust receipt transactions to safeguard the rights and enforce the obligations of the parties involved are the main thrusts of P.D. 115.[9]
[1] Section 3 (j), P.D. No. 115. [2] Sec. 3 (b), P.D. No. 115. [3] Sec. 3 (c), P.D. No. 115. [4] Hur Tin Yang v. People of the Philippines, G.R. No. 195117, August 14, 2013. [5] Spouses Dela Cruz v. Planters Products, Inc., G.R. No. 158649, February 18, 2013. [6] Land Bank of the Philippines v. Perez, G.R. No. 166884, June 13, 2012. [7] Sec. 9, P.D. No. 115. [8] People of the Philippines v. Hon. Nitafan, G.R. No. 81559-60, April 6, 1992. [9] Id.