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Trust Receipts Law Maria Zarah Villanueva - Castro TRUST RECEIPTS LAW Trust Receipt is a security transaction intended to aid in financing importers or dealers in merchandize by allowing them to obtain delivery of goods under certain covenants Q: !ho e"ecutes trust receipt# A: $uyer%&ntrustee '$orrower( in favor of the lender %entrustor '$an)( Q: !hat are the relationships created# A: * &ntruster-entrustee+ , -eller-buyer Q: !hat is the ob.ective of the trust receipts# A: To release the goods in favor of the entruster /Trust Receipt Law does not infringe the 0hilippine Constitution on non-imprisonment for non-payment of 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 provides that1 23 trust receipt transaction4 within the meaning of this 5ecree4 is any transaction by and between a person referred to in this 5ecree as the entruster4 and another person referred to in this 5ecree as entrustee4 whereby the entruster4 who owns or holds absolute title or security interests over certain specified goods4 documents or instruments4 releases the same to the possession of the entrustee upon the latter6s e"ecution and delivery to the entruster of a signed document called a 7trust receipt7 wherein the entrustee binds himself to hold the designated goods4 documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods4 documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the e"tent of the amount owing to the entruster or as appears in the trust receipt or the goods4 documents or instruments themselves if they are unsold or not otherwise disposed of4 in accordance with the terms and conditions specified in the trust receipt4 or for other purposes substantially e8uivalent to any of the following1 * 9n the case of goods or documents4 'a( to sell the goods or procure their sale+ or 'b( to manufacture or process the goods with the purpose of ultimate sale1 0rovided4 That4 in the case of goods delivered under trust receipt for the purpose of manufacturing or processing before its ultimate sale4 the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has complied fully with his obligation under the trust receipt+ or 'c( to load4 unload4 ship or tranship or otherwise deal with them in a manner preliminary or necessary to their sale+ or , 9n the case of instruments4 'a( to sell or procure their sale or e"change+ or 'b( to deliver them to a principal+ or 'c( to effect the consummation of some transactions involving delivery to a depository or register+ or 'd( to effect their presentation4 collection or renewal The sale of goods4 documents or instruments by a person in the business of selling goods4 documents or instruments for profit who4 at the outset of the transaction4 has4 as against the buyer4 general property rights in such goods4 documents or instruments4 or who sells the same to the buyer on credit4 retaining title or other interest as security for the payment of the purchase price4 does not constitute a trust receipt transaction and is outside the purview and coverage of this 5ecree 2 #OR$ O# TRUST RECEIPT Sec. % o! t"e Trust Receipt Law provides that1 23 trust receipt need not be in any particular form4 but every such receipt must substantially contain 'a( a description of the goods4 documents or instruments sub.ect of the trust receipt+ ',( the total invoice value of the goods and the amount of the draft to be paid by the entrustee+ ':( an underta)ing or a commitment of the entrustee 'a( to hold in trust for the entruster the goods4 documents or instruments therein described+ 'b( to dispose of them in the manner provided for in the trust receipt+ and 'c( to turn over the proceeds of the sale of the goods4 documents or instruments to the entruster to the e"tent of the amount owing to the entruster or as appears in the trust receipt or to return the goods4 documents or instruments in the event of their nonsale within the period specified therein The trust receipt 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 of this 5ecree4 any e"isting laws4 public policy or morals4 public order or good customs ; PARTIES TO A TRUST RECEIPT TRANSACTION * &ntruster < release the possession of the goods to the entrustee upon the latter=s e"ecution of the trust receipt &ntrustee < Sec. & o! t"e Trust Receipt Law provides that1 2The entrustee shall '*( hold the goods4 documents or instruments in trust for the entruster and shall dispose of *
RI'(TS O# T(E ENTRUSTER Sec. ) o! t"e Trust Receipt Law provides that1 2The entruster shall be entitled to the proceeds from the sale of the goods4 documents or instruments released under a trust receipt to the entrustee to the e"tent of the amount owing to the entruster or as appears in the trust receipt4 or to the return of the goods4 documents or instruments in case of non-sale4 and to the enforcement of all other rights conferred on him in the trust receipt provided such are not contrary to the provisions of this 5ecree The entruster may cancel the trust and ta)e possession of the goods4 documents or instruments sub.ect of the trust or of the proceeds realized therefrom at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the trust receipt or any other agreement between the entruster and the entrustee4 and the entruster in possession of the goods4 documents or instruments may4 on or after default4 give notice to the entrustee of the intention to sell4 and may4 not less than five days after serving or sending of such notice4 sell the goods4 documents or instruments at public or private sale4 and the entruster may4 at a public sale4 become a purchaser The proceeds of any such sale4 whether public or private4 shall be applied 'a( to the payment of the e"penses thereof+ 'b( to the
Sec. & o! t"e Trust Receipt Law states that1 2The entrustee shall '*( hold the goods4 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+ ',( receive the proceeds in trust for the entruster and turn over the same to the entruster to the e"tent of the amount owing to the entruster or as appears on the trust receipt+ ':( insure the goods for their total value against loss from fire4 theft4 pilferage or other casualties+ '>( )eep said goods or proceeds thereof whether in money or whatever form4 separate and capable of identification as property of the entruster+ '?( return the goods4 documents or instruments in the event of non-sale or upon demand of the entruster+ and '@( observe all other terms and conditions of the trust receipt not contrary to the provisions of this 5ecree ; ,