POINTERS IN TRUST RECEIPTS LAW

(2018 Bar Examinations)

Atty. Maria Diory Rabajante

TRUST RECEIPT, NATURE

A trust receipt 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. (Abad v. Court of Appeals, G.R. No. L-42735, 22 January
1990, citing PNB vs. General Acceptance & Finance Corporation, et al. [G.R. No. L-30751, 24
May 1988]) 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.
(Id.)

A trust receipt transaction is one where the entrustee has the obligation to deliver to
the entruster the price of the sale, or if the merchandise is not sold, to return the merchandise
to the entruster. (Security Bank Corporation v. Great Wall Commercial Press Company, Inc.,
G.R. No. 219345, 30 January 2017)

There are, therefore, two obligations in a trust receipt transaction: the first refers to
money received under the obligation involving the duty to turn it over (entregarla) to the owner
of the merchandise sold, while the second refers to the merchandise received under the
obligation to "return" it (devolvera) to the owner. (Security Bank Corporation v. Great Wall
Commercial Press Company, Inc., supra.)

The obligations under the trust receipts are governed by a special law, Presidential
Decree (P.D.) No. 115, and non-compliance have particular legal consequences. (Security
Bank Corporation v. Great Wall Commercial Press Company, Inc., supra.)

BANK AS A MERE HOLDER OF A SECURITY TITLE

The bank does not become the real owner of the goods. It is merely the holder of a
security title for the advances it had made to the importer. The goods the importer had
purchased through the bank financing, remain the importer's property and he holds it at his
own risk. This is so because the bank had previously extended a loan which the letter of credit
represents to the importer, and by that loan, the importer should be the real owner of the
goods. (Abad v. Court of Appeals, supra., citing PNB vs. General Acceptance & Finance
Corporation, et al., supra.)

If under the trust receipt, the bank is made to appear as the owner, it was but an
artificial expedient, more of a legal fiction than fact, for if it were so, it could dispose of the
goods in any manner it wants, which it cannot do, just to give consistency with the purpose of
the trust receipt of giving a stronger security for the loan obtained by the importer. To consider
the bank as the true owner from the inception of the transaction would be to disregard the loan
feature involved. (Id.)

SECURITY INTEREST OF THE ENTRUSTER

The security interest of the entruster in the goods pursuant to the written terms of the
trust receipt shall be valid as against all creditors of the trust receipt agreement. The only
exception to the rule is when the properties are in the hands of an innocent purchaser for value
and in good faith. (Prudential Bank v. NLRC, G.R. No. 112592, 19 December 1995)

FAILURE TO TURN OVER THE PROCEEDS OR TO RETURN THE GOODS

Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by
the trust receipt to the entruster or to return said goods if they were not disposed of in
accordance with the terms of the trust receipt shall be punishable as estafa under Article
315 (1) of the Revised Penal Code (RPC), without need of proving intent to defraud. The
offense punished under Presidential Decree (P.D.) No. 115 is in the nature of malum
prohibitum. Mere failure to deliver the proceeds of the sale or the goods, if not sold,
constitutes a criminal offense that causes prejudice not only to another, but more to the public
interest. (Security Bank Corporation v. Great Wall Commercial Press Company, Inc., supra.)

A fortiori, in a civil case involving a trust receipt, the entrustee's failure to comply with
its obligations under the trust receipt constitutes as civil fraud provided that it is alleged, and
substantiated with specificity, in the complaint, its attachments and supporting evidence.
(Security Bank Corporation v. Great Wall Commercial Press Company, Inc., supra.) The
circumstances of the fraud committed by the entrustee in the performance of its obligation
may support the issuance of a writ of preliminary attachment in favor of the entruster. (Id.)

WHEN THE RETURN OF GOODS IS NOT POSSIBLE

When both parties enter into an agreement knowing fully well that the return of the
goods subject of the trust receipt is not possible even without any fault on the part of the
trustee, it is not a trust receipt transaction penalized under Section 13 of P.D. No. 115 in
relation to Article 315, paragraph 1(b) of the RPC, as the only obligation actually agreed upon
by the parties would be the return of the proceeds of the sale transaction. This transaction
becomes a mere loan, where the borrower is obligated to pay the bank the amount spent for
the purchase of the goods. (Hur Tin Yang v. People, G.R. No. 195117, 14 August 2013)

Thus, if the goods were never intended for sale but for use in the fabrication of steel
communication towers, it is erroneous for the trial court to rule that the agreement is a trust
receipt transaction. (Hur Tin Yang v. People, supra.)

Moreover, if the bank knew that the borrower was in the construction business and that
the materials that it sought to buy under the letters of credit were to be used for the following
projects: the Metro Rail Transit Project and the Clark Centennial Exposition Project, there is
no trust receipt transaction. In such case, the bank had in fact authorized the delivery of the
materials on the construction sites for these projects. Clearly, it was aware of the fact that
there was no way it could recover the buildings or constructions for which the materials subject
of the alleged trust receipts had been used. (Land Bank of the Philippines v. Perez, G.R. No.
166884, 13 June 2012)

The goods and the materials that are used for a construction project are often placed
under the control and custody of the clients employing the contractor, who can only be
compelled to return the materials if they fail to pay the contractor and often only after the
requisite legal proceedings. The contractor’s difficulty and uncertainty in claiming these
materials (or the buildings and structures which they become part of), as soon as the bank
demands them, disqualify them from being covered by trust receipt agreements. (Land Bank
of the Philippines v. Perez, G.R. No. 166884, 13 June 2012)
 The concept of trust receipt is likewise inconsistent with that of an assignment of credit
where there is an absolute conveyance of title that would have in effect given authority to the
bank to foreclose the mortgage. (Bangko Sentral ng Pilipinas v. Agustin Libo-on, G.R. No.
173864, 23 November 2015)