ADDENDUM

What are the obligations of the entrustee? (HIKRRO)

HOLD the goods, documents or instrument (GDI) in trust for the entruster and to dispose
of them strictly in accordance with the terms of the trust receipt.
INSURE goods, documents or instrument against loss from fire, theft, pilferage or other
casualties.
KEEP GDI or the proceeds thereof, whether in money or in form, separate and capable
of identification as property of the entruster.
RETURN GDI to the entruster in case they could not be sold or upon demand of the
entruster.
REC EIVE the proceeds of the sale for the entruster and to turn over the same to the
entruster to the extent of amount owing to the latter.
OBSERVE all other conditions of the trust receipt.

The proceeds of the sale of GDI shall be applied in the following:

 Expenses of the sale

 Expenses derived from re-taking, keeping and storing the GDI
 Principal Obligation (P.D. 115, Sec. 7)

What is the obligation of the entrustee in case the goods, documents or instruments
were not sold? The entrustee should return the GDI to the entruster.

Is the entrustee liable for the loss of the GDI? Yes. Entrustee shall bear the loss of the GDI
which are the subject of the trust receipt.

Elements of ESTAFA in a trust receipt

In order that the entrustee may be validly prosecuted for estafa, the following elements must be
established:

The entrustee:
1. Received the subject goods in trust or under the obligation to sell the same and to remit
the proceeds thereof to the entruster, or to return the goods if not sold.
2. Misappropriated or converted the goods and/or the proceeds of the sale.
3. Performed such acts with abuse of confidence to the damage and prejudice of the
entruster.
4. A demand was made by the entruster for othe remittance of the proceeds or return of the
unsold goods.
Penal sanction when the offender is a corporation.

Though the entrustee is a corporation, the law specifically makes the officers, employees or
other officers or persons responsible for the offense, without prejudice to the civil liabilities of
such corporation and/or board of directors, officers or other officials or employees responsible
for the offense.

What is the rationale behind the accountability of the officers of the corporation? Officers or
employees are vested with authority and responsibility to devise means necessary to ensure
compliance with the law and, if they fail to do so, are held criminally accountable. Thus, they
have responsible share in the violations of the law.

REMEDIES

1. Compliance with the terms of the trust receipt either by payment, return of the proceeds
or return of the goods.
2. Consignment.
3. Cancellation of the trust receipt agreement.
4. Compromise by the parties.

What are the defenses available to negate the criminal liability of the entrustee?

1. Non-receipt of the goods by the entrustee or where proof of delivery of goods to the
accused is insufficient.
2. Loss of the goods without the fault of the entrustee.

QUESTIONS AND ANSWERS

1. What is the loan and security feature of the trust receipt transaction?

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 as a 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).
2. Who is the owner of the articles subject of the TR?

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).

3. What is the penal sanction if offender is a corporation?

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).

4. 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?

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 deems best 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).

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

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 is extinguished. Hence, the breach in the subsequent agreement does not give rise
to a criminal liability under P.D. 115 but only civil liability (Philippine Bank versus Ong, G.R.
No. 133176, Aug. 8, 2002).

6. Can deposits in a savings account opened by the buyer subsequent to the TR

transaction be applied to outstanding obligations under the TR account?
 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).

7. What acts or omissions are penalized under the Trust Receipts Law?

It declares the failure to turn over goods or proceeds realized from sale thereof, as a
criminal offense under Article 315 (1) (b) of the Revised Penal Code. The law is violated
whenever the entrustee or person to whom trust receipts were issued to: (a) return the
goods covered by the trust receipts; or (b) return the proceeds of the sale of said goods
(Metropolitan Bank versus Tonda, G.R. No. 134436, August 16, 2000).

8. Is lack of intent to defraud a bar to the prosecution of these acts or omissions?

No. The TR 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. The mere failure to account or return gives rise to the crime which is
malumprohibitum. There is no requirement to prove intent to defraud (Ching versus
Secretary of Justice, G.R. No. 164317, February 6, 2006; Colinares versus Court of
Appeals, G.R. No. 90828, September 5, 2000; Ong versus Court of Appeals, G.R. No.
119858, April 29, 2003).