Regulation of Trust Receipt Transactions Law

Policy and declared purpose

Section 2 declares State policy to encourage and promote the use of trust receipts as an additional and convenient aid to commerce and trade.
Section 2 requires regulation of trust receipt transactions to assure protection of rights and enforcement of obligations of the parties.
Section 2 declares misuse and/or misappropriation of goods or proceeds released under trust receipts as a criminal offense punishable under Article Three Hundred and Fifteen of the Revised Penal Code.

Core definitions and key terms

Section 3(a) defines “Document” as written or printed evidence of title to goods.
Section 3(b) defines “Entrustee” as the person having or taking possession of goods, documents, or instruments under a trust receipt transaction, including any successor in interest for the purposes specified in the trust receipt agreement.
Section 3(c) defines “Entruster” as the person holding title over the goods, documents, or instruments subject of the trust receipt transaction, including any successor in interest.
Section 3(d) defines “Goods” to include chattels and personal property other than money, things in action, or things so affixed to land as to become a part thereof.
Section 3(e) defines “Instrument” to include specified negotiable and investment-type instruments (including certificates and receipts) whereby the entrustee, after the issuance of the trust receipt, appears by virtue of possession and the face of the instrument to be the owner, and states that “Instrument” shall not include a document as defined in Section 3(a).
Section 3(f) defines “Purchase” to include taking by sale, conditional sale, lease, mortgage, or pledge (legal or equitable).
Section 3(g) defines “Purchaser” as any person taking by purchase.
Section 3(h) defines “Security Interest” as a property interest in goods, documents, or instruments to secure performance of obligations of the entrustee or third persons to the entruster, including title whether or not expressed to be absolute, where such title is taken or retained for security only.
Section 3(i) defines “Person” to include individuals, fiduciaries, partnerships, corporations, business trusts or other associations, and two or more persons having a joint or common interest.
Section 3(j) defines “Trust Receipt” as the written or printed document signed by the entrustee in favor of the entruster containing terms and conditions substantially complying with the Decree, and provides that no further formality of execution or authentication is necessary for validity.
Section 3(k) defines “Value” as any consideration sufficient to support a simple contract.

What transactions qualify as trust receipts

Section 4 defines a trust receipt transaction as any transaction between an entruster and an entrustee where the entruster releases specified goods, documents, or instruments to the entrustee’s possession upon the entrustee’s execution and delivery of a signed trust receipt.
Under Section 4, the entrustee must bind himself to hold the designated goods, documents, or instruments in trust for the entruster and to sell or otherwise dispose of them, with an obligation to turn over proceeds to the extent of the amount owing (as owing or as appears in the trust receipt) or to return the goods/documents/instruments if unsold or not otherwise disposed, all in accordance with the trust receipt terms.
Section 4 permits disposition of goods/documents under trust receipt for:
- (a) sale or procurement of sale;
- (b) manufacturing or processing with purpose of ultimate sale, with the entruster retaining title (in original or processed form) until the entrustee fully complies; or
- (c) loading, unloading, shipping, transshipment, or other dealings preliminary or necessary to sale.
Section 4 permits disposition of instruments for:
- (a) sale or procurement of sale or exchange;
- (b) delivery to a principal;
- (c) consummation of transactions involving delivery to a depository or register; or
- (d) presentation, collection, or renewal.
Section 4 excludes from coverage: a sale by a person in the business of selling goods/documents/instruments for profit who, at the outset, has general property rights against the buyer, or who sells on credit retaining title or other interest as security for the purchase price.

Trust receipt form, content, and currency

Section 5 requires that a trust receipt need not be in any particular form, but must substantially contain:
- (1) a description of the goods/documents/instruments;
- (2) the total invoice value of the goods and the amount of the draft to be paid by the entrustee;
- (3) an undertaking by the entrustee to:
  - (a) hold the items in trust for the entruster;
  - (b) dispose of them as provided; and
  - (c) turn over sale proceeds to the extent of the amount owing or return the items if not sold within the specified period.
Section 5 allows additional terms and conditions agreed by the parties, provided they are not contrary to the Decree or to existing laws, public policy or morals, public order, or good customs.
Section 6 allows trust receipts to be denominated in Philippine currency or any foreign currency acceptable and eligible as part of international reserves of the Philippines, notwithstanding contrary provisions of existing law, executive orders, rules, and regulations.
Section 6 provides that when denominated in foreign currency, payment is made in Philippine currency equivalent computed at the prevailing exchange rate on the date the proceeds are turned over, or on such other date stipulated in the trust receipt or other agreements.

Entruster rights and default remedies

Section 7 entitles the entruster to:
- proceeds from sale to the extent of the amount owing or as appears in the trust receipt; and
- the return of goods/documents/instruments in case of non-sale.
Section 7 also entitles the entruster to enforce other rights conferred in the trust receipt, so long as those rights are not contrary to the Decree.
Section 7 allows the entruster to cancel the trust and take possession at any time upon default or failure of the entrustee to comply with terms and conditions of the trust receipt or any other agreement.
Section 7 allows the entruster, upon default, to give notice of intention to sell, and requires a minimum period of not less than five days after serving or sending notice before the sale.
Section 7 provides that the entruster may sell at public or private sale, and the entruster may become a purchaser at a public sale.
Section 7 requires application of sale proceeds to:
- (a) payment of sale expenses;
- (b) payment of expenses of re-taking, keeping, and storing the goods/documents/instruments; and
- (c) satisfaction of the entrustee’s indebtedness to the entruster.
Section 7 requires that any surplus goes to the entrustee, and the entrustee remains liable for any deficiency.
Section 7 provides that notice of sale is sufficiently given if it is written and either personally served on the entrustee or sent by post-paid ordinary mail to the entrustee’s last known business address.

Entruster responsibility limitation

Section 8 provides that the entruster holding a security interest is not responsible merely by virtue of that interest or by granting the entrustee liberty of sale/disposition under the trust receipt terms.
Section 8 bars treating the entruster as principal or vendor under any sale or contract to sell made by the entrustee.

Entrustee obligations and segregation

Section 9 requires the entrustee to:
- (1) hold goods/documents/instruments in trust and dispose strictly per trust receipt terms;
- (2) receive proceeds in trust and turn them over to the entruster to the extent of the amount owing or as appears in the trust receipt;
- (3) insure the goods for their total value against loss from fire, theft, pilferage, or other casualties;
- (4) keep goods or proceeds (in money or other forms) separate and capable of identification as property of the entruster;
- (5) return goods/documents/instruments upon non-sale or upon demand; and
- (6) observe all other trust receipt terms not contrary to the Decree.

Risk of loss rule

Section 10 provides that the risk of loss is borne by the entrustee.
Section 10 provides that loss of goods/documents/instruments pending disposition does not extinguish the entrustee’s obligation for the value thereof, regardless of whether the loss was due to fault or negligence.

Protection of good-faith purchasers

Section 11 protects a purchaser of goods, documents, or instruments from an entrustee with the right to sell or transfer in customary form.
Section 11 provides that a buyer who purchases for value and in good faith acquires the items free from the entruster’s security interest.

Entruster security interest vs creditors

Section 12 provides that the entruster’s security interest in goods/documents/instruments under the written terms of a trust receipt is valid against all creditors of the entrustee for the duration of the trust receipt agreement.

Criminal liability for misappropriation

Section 13 provides that failure of the entrustee to:
- turn over proceeds to the extent of the amount owing or as appears in the trust receipt, or
- return unsold or not disposed goods/documents/instruments in accordance with trust receipt terms,
  constitutes the crime of estafa.
Section 13 provides that the offense is punishable under Article Three Hundred and Fifteen, Paragraph One (b) of Act Numbered Three Thousand Eight Hundred and Fifteen, as amended, otherwise known as the Revised Penal Code.
Section 13 provides that if the violation is committed by a corporation, partnership, association, or other juridical entities, the penalty is imposed on the directors, officers, employees, or other officials or persons responsible for the offense, without prejudice to civil liabilities arising from the criminal offense.

Governing rules, separability, and repeal

Section 14 provides that cases not provided for by the Decree are governed by the applicable provisions of existing laws.
Section 15 establishes a separability clause: invalidity of any section or its application does not affect other provisions or applications.
Section 16 includes a repealing clause: all acts inconsistent with the Decree are repealed.