qna trust recipt

7/26/2019 QnA TRust Recipt

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Trust Receipts Law Q & ACredit Transactions

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Q: What is the loan and security feature of the trust

receipt transaction?

A: A trust receipt arrangement is endowed with its own distinctive features and characteristics.

Under that set-up, a bank extends a loan covered by the Letter of Credit, with the trust receipt asa security for the loan. In other words, the transaction involves a loan feature represented by the

letter of credit, and a security feature which is in the covering trust receipt. A trust receipt,

therefore, is a security agreement, pursuant to which a bank acquires a "security interest" in the

goods. It secures an indebtedness and there can be no such thing as security interest that

secures no obligation. (Sps. Vintola vs. Insular Bank of Asia and America, G.R. No. 73271, May

29, 1987)

Q: Who is the owner of the articles subject of the TR?
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A: The entrustee. A trust receipt has two features, the loan and security features. The loan is

brought about by the fact that the entruster financed the importation or purchase of the goods

under TR. Until and unless this loan is paid, the obligation to pay subsists. If the entrustee 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 that it wants, which it cannot do.

To consider the entrustee as the true owner from the inception of the transaction would be to

disregard the loan feature thereof. (Rosario Textile Mills Corp. v. Home Bankers Savings and

Trust Company, G.R. No. 137232. June 29, 2005)

Q: What is the penal sanction if offender is a

corporation?

A: The Trust Receipts Law recognizes the impossibility of imposing the penalty of imprisonment

on a corporation. Hence, if the entrustee is a corporation, the law makes the officers or

employees or other persons responsible for the offense liable to suffer the penalty of

imprisonment. The reason is obvious, corporations, partnerships, associations and other juridical

entities cannot be put to jail. Hence, the criminal liability falls on the human agent responsible for

the violation of the Trust Receipts Law. (Ong vs. CA, G.R. No. 119858, April 29, 2003)

Q: In the event of default by the entrustee on his

obligation under the trust receipt agreement, is it

absolutely necessary for the entruster to cancel the trust

and take possession of the goods to be able to enforce

his right thereunder?

A: The law uses the word "may" in granting to the entruster the right to cancel the trust and take

possession of the goods. Consequently, the entrustee has the discretion to avail of such right or

seek any alternative action, such as a third party claim or a separate civil action which it deemsbest to protect its right, at any time upon default or failure of the entrustee to comply with any of

the terms and conditions of the trust agreement. (South City Homes, Inc. v. BA Finance

Corporation, G.R. No. 135462, Dec. 7, 2001)

Q. What is the effect of novation of a trust agreement?

A. Where the entruster and entrustee entered into an agreement which provides for conditions

incompatible with the trust receipt agreement, the obligation under the trust receipt isextinguished. Hence, the breach in the subsequent agreement does not give rise to a criminal


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liability under P.D. 115 but only civil liability. (Philippine Bank v. Ong, G.R. No. 133176, Aug. 8,

2002)

Q: Can deposits in a savings account opened by the

buyer subsequent to the TR transaction be applied to

outstanding obligations under the TR account?

A: No, the receipt of the bank of a sum of money without reference to the trust receipt obligation

does not obligate the bank to apply the money received against the trust receipt obligation.

Neither does compensation arise because compensation is not proper when one of the debts

consists in civil liability arising from criminal. (Metropolitan Bank and Trust Co. v. Tonda, G.R. No.

134436, Aug. 16, 2000).

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