TRUST RECEIPTS LAW

Presidential Decree No. 115 January 29, 1973

Policy Considerations
To Encourage and Promote

To Regulate Transactions

To Punish Misuse

Parties

Entruster Entrustee

Rights of Entruster
1. Right to Proceeds 2. Right to Cancel 3. Not Principal or Vendor

Rights of the Entrustee

1. 2. 3. 4. 5. 6. 7. To receive surplus of sale To hold and dispose To receive the proceeds ITF To secure the goods To keep in a separate account To return goods not sold To follow the other terms of the Trust Receipt

Liabilities of the Entrustee

1. Liable for deficiency in the sale 2. Liable for the loss 3. Estafa

TRANSACTION CYCLE
Entruster turns over the goods/documents to Entrustee

Entrustee turns over the profit to the entrustor/returns the goods or documents not sold

Entrustee issues a trust receipt over the goods/documents received from the Entrustor

Entrustee sells/dispose the goods/documents according to the terms of the trust receipt

Contents of a Trust Receipt

1. 2. 3. 4. Description of Goods Value of the Goods Commitment of the Entrustee Other Terms

People v. Yu Chai Ho (1928) I/We hereby agree to hold said goods in trust for the said corporation, and as its property with liberty to sell the same for its account, but without authority to make any other disposition whatever of the said goods or any part thereof (or to proceeds thereof) either by way of conditional sale, pledge, or otherwise. In case of sale I/We further agree to hand the proceeds, as soon as received, to the International Banking Corporation to apply against the relative acceptances (as described above) and for the payment of any other indebtedness of mine/ours to the International Banking Corporation.

Cases
Ong v. Court of Appeals

Two Counts of Estafa for Violation of Trust Receipts Law

Petitioner contends that the Court of Appeals erred in finding him liable for the default of ARMAGRI, arguing that in signing the trust receipts, he merely acted as an agent of ARMAGRI. Petitioner asserts that nowhere in the trust receipts did he assume personal responsibility for the undertakings of ARMAGRI which was the entrustee. If the violation is committed by a corporation, partnership, association or other juridical entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the offense. The Trust Receipts Law is violated whenever the entrustee fails to: (1) turn over the proceeds of the sale of the goods, or (2) return the goods covered by the trust receipts if the goods are not sold.

Lee v. Rodil The liability for estafa of an entrustee in a trust receipt agreement who disposes of the goods covered by it but fails to deliver the proceeds of the sale to the bank The petitioner has failed to make out a strong case that P.D. 115 conflicts with the constitutional prohibition against imprisonment for non-payment of debt. The criminal liability springs from the violation of the trust receipt. The legislative intent to meet a pressing need is clearly expressed. We see no unconstitutionality in the means deliberately employed to enforce the integrity of trust receipts.

Sia v. People The issue raised is whether petitioner Jose O. Sia, having only acted for and in behalf of the Metal Manufacturing Company of the Philippines as President thereof in dealing with the Continental Bank, he may be liable for the crime charged. A corporation is an artificial person, an abstract being. If the defense theory is followed unscrupulously legions would form corporations to commit swindle right and left where nobody could be convicted, for it would be futile and ridiculous to convict an abstract being that cannot be pinched and confined in jail like a natural, living person, hence the result of the defense theory would be hopeless chose in business and finance. It is completely untenable.

Sia v. People The next question is whether the violation of a trust receipt constitutes estafa under Art. 315 (1-[2]) of the Revised Penal Code, as also raised by the petitioner. The parties are deemed to have consciously entered into a purely commercial transaction that could give rise only to civil liability, never to subject the "entrustee" to criminal prosecution. We consider the view that the trust receipt arrangement gives rise only to civil liability as the more feasible, before the promulgation of P.D. 115.