CORDILLERA CAREER DEVELOPMENT COLLEGE

COLLEGE OF LAW

SPECIAL COMMERCIAL LAW

Trust Receipts Law

Submitted to:
Atty. Susana Umayat

Submitted by:
Awas, Marie Tess
Camsol, Jonathan
Poking, Samuel Jr.

Group 5
 TRUST RECEIPTS LAW
Purposes:
1. To encourage and promote the use of the trust receipts as an additional
and convenient aid to commerce and trade;
2. To offer an additional layer of security to the lending bank; and
3. To safeguard commercial transactions.

Definition of 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 provision of PD 115 whereby the bank as entruster releases the
goods to the possession of the entrustee but retain ownership thereof
while the entrustee may sell the goods and apply the proceeds for the full
payment of his liability to the bank.
- Trust Receipt is a type of short-term import loan to provide the buyer
with financing to settle goods imported under Letter of Credit where title
of goods is held by the bank. Under the Trust Receipt arrangement, the
Bank retains title to the goods but allows the buyer to take possession of
the goods on trust for resale before paying the Bank on trust receipt due
date.

Trust Receipt Transaction

- A transaction between an entruster and an entrustee whereby the
entruster, who owns or holds absolute title or security in interest 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 wherein the entrustee binds himself to
hold the designated goods, documents or instruments, with the
obligation to turn over the entruster the proceeds thereof to the extent of
the amount owing to the entruster or the goods, documents or
instruments themselves if they are unsold or not otherwise disposed of.
(Sec. 4, PD No. 115)

Parties in a Trust Receipt Transaction:

1. Entruster – A lender, financer or creditor. Person holding title over the
goods, documents or instrument subject of a Trust Receipt transaction;
releases possession of the goods upon execution of the Trust Receipt.
2. Entrustee – A borrower, buyer, importer or debtor. He is the 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 to the
entruster, in case of non-sale.

Importance of Trust Receipt

1. Trust receipt serves as a promissory note to the bank that the loan
amount will be repaid upon sale of the goods.
2. Trust receipt helps in facilitating commercial and trade transactions
between buyer and seller companies.

Subjects of a Trust Receipt Transaction

 1. Goods – shall include chattels and personal property other than money,
things in action, or things so affixed to land as to become a part thereof.
2. Documents – written or printed evidence of title to goods.
3. Instruments – negotiable instruments; certificates of stock or bond or
debenture for the payment of money issued by a corporation, or
certificates of deposit, participation certificates or receipts, credit or
investment instruments of a sort marketed in the ordinary course of
business or finance.

Difference of Trust Receipts & Letters of Credit

Trust Receipts (TR) Letters of Credit (L/C)
- A document of release of goods - A document issued by a bank
to a customer by a bank. After that guarantees payment to a
an L/C is drafted and the seller for a specified amount, at
import shipment has arrived, a certain period of time. The
this type of additional financing buyer gains protection through
may be offered in a place of a absolute compliance to the L/C
buyers immediate payment. terms before the payment to the
seller is released.
PURPOSE
- To aid in financing importers - To ensure certainty of payment
and retail dealers who do not
have sufficient funds
PARTIES
a. Entruster a. Applicant/Buyer/Importer
b. Entrustee b. Issuing Bank
c. Beneficiary/Seller/Exporter
SUBJECT
a. Goods a. Money
b. Documents b. Goods
c. Instruments
*For Document, Letter of credit may be a *Cannot have Trust Receipt as Subject
subject for Trust Receipt
FEATURE
1. Loan Feature – is brought - Ensure certainty of payment
about by the fact that the through a bank which
entruster financed the undertakes the commitment to
importation or purchase of pay.
the goods under the TR.
2. Security Feature – property
interest in the goods,
document, or instrument to
secure performance of some
obligation of the entrustee or
of some third persons to the
entruster.

A. Definition/Concept of a trust receipt transaction

Two Features of a Trust Receipt Transaction
1. Loan feature – is brought about by the fact that the entruster financed
the importation or purchase of the goods under trust receipt.
 2. Security feature – property interest in the goods, documents or
instruments to secure performance of some obligation of the entrustee or
of some obligation of the entruster.

Ownership of the goods, documents, and instruments under a trust

receipt
- The real owner of the articles subject of the trust receipt is the entrustee
who binds himself to hold the designated goods, documents and
instruments.
- The entruster merely holds a security interest.
- Under the trust receipt agreement, the bank is made to appear as the
owner, it was but an artificial expedient, more of legal fiction than fact,
for if it were really so, it could dispose of the goods in any manner it
wants, which it cannot do.
- The entrustee, however, cannot mortgage the goods because one of the
requisites of a valid mortgage is that the mortgagor must be the absolute
owner of the property mortgaged or must have free disposal thereof.
Entrustee is not the absolute owner of the goods under trust receipt nor
has free disposal thereof.
- The entruster is not responsible as principal or vendor under any sale or
contract to sell made by the entrustee.

B. Rights of the Entruster

1. To be entitled to the proceeds from the sale of the goods, documents or
instruments to the extent of the amount owing to him.
2. To the return of the goods, documents or instruments in case of non-sale
and enforcement of all other rights conferred to him in the trust receipt.
3. May cancel the trust and take possession of the goods, upon default or
failure of the entrustee to comply with any of the terms and conditions of
the trust receipt.
4. To sell the goods with at least five (5) day notice to the entrustee and
apply the proceeds in payment of the obligation. Entrustee liable to pay
deficiency, if any.