Trust Receipts Law

1. Unknown Owner Of The Vessel M/V China Joy, Samsun

Shipping Ltd., And Inter-Asia Marine Transport, Inc., vs.
Asian Terminals, Inc., G.R. No. 195661, March 11, 2015
The functions of an arrastre operator involve thehandling of cargo
deposited on the wharf orbetween the establishment of the
consignee orshipper and the ship’s tackle. Being thecustodian of
the goods discharged from a vessel,an arrastre operator’s duty is to
take good careof the goods and to turn them over to the
partyentitled to their possession.” “The legalrelationship between
an arrastre operator and aconsignee is akin to that between
awarehouseman and a depositor. As to both thenature of the
functions and the place of theirperformance, an arrastre operator’s
services areclearly not maritime in character.
2. Metropolitan Bank & Trust Company vs. Tonda, 338 SCRA 254
(2000)
Compensation shall not be proper when one of the debts consists in
civil liability arising from a penal offense; moreover, any
compromise relating to the civil liability does not automatically
extinguish the criminal liability of the accused. The mere failure of
the entrustee 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.

3. Lee vs. Court of Appeals, 375 SCRA 579 (2002)

A trust receipt is a security transaction intended to aid in financing
importers and retail dealers who do not have sufficient funds or
resources to finance the importation or purchase of merchandise,
and who may not be able to acquire credit except through
utilization, as collateral of the merchandise imported or purchased.
Under a letter of credit-trust receipt arrangement, a bank extends a
loan covered by a letter of credit, with the trust receipt as a security
for the loan; hence, the transaction involves a loan feature
represented by a letter of credit, and a security feature which is in
the covering trust receipt which secures an indebtedness.

4. Colinares vs. Court of Appeals, 339 SCRA 609 (2000)

The transaction is a simple loan when the goods subject of the
agreement had been purchased and delivered to the supposed
entrustee prior to the execution of the trust receipt agreement. The
acquisition of ownership over the goods before the execution of the
trust receipt agreement makes the contract a simple loan,
regardless of the denomination of the contract.
5. Consolidated Bank & Trust Corp. vs. Court of Appeals, 356
SCRA 671 (2001)
Respondent Corporation is not an importer which acquired the
bunker fuel oil for re-sale; it needed the oil for its own
operations. More importantly, at no time did title over the oil pass
to petitioner bank, but directly to respondent Corporation to which
the oil was directly delivered long before the trust receipt was
executed; thus, the contract executed by the parties is a simple loan
and not a trust receipt agreement.

6. Prudential Bank vs. National Labor Relations Commission, 251

SCRA 412 (1995)
The security interest of the entruster pursuant to the written terms
of a trust receipt shall be valid as against all creditors of the
entrustee for the duration of the trust receipt agreement, including
among others, the laborers of the entrustee. The only exception to
the rule is when the properties are in the hands of an innocent
purchaser for value and in good faith.

7. Pilipinas Bank vs. Ong, 387 SCRA 37 (2002)

Failure of the entrustee to turn over the proceeds of the sale of the
goods covered by a trust receipt to the entruster or to return the
goods, if they were not disposed of, shall constitute the crime of
estafa. However, what is being punished by law is the dishonesty
and abuse of confidence in the handling of money or goods to the
prejudice of another regardless of whether the latter is the owner. No
dishonesty nor abuse of confidence can be attributed to the entrustee
if the latter failed to comply with its obligation upon maturity of the
trust receipt due to serious liquidity problems and after it was placed
under the control of the management committee created by SEC
which took custody of the entrustee’s assets, including lumbers
subject of the trust receipt. Clearly, it was the management
committee which could settle the entrustee’s obligations. The mala
prohibita nature of the offense notwithstanding, the entrustee’s
intent to misuse or misappropriate the goods or their proceeds has
not been established based on the circumstances.

Also, the Memorandum of Agreement between the parties did not

only reschedule the entrustee’s debts, but more importantly, it
provided principal conditions which are incompatible with the trust
agreement. Hence, the MOA novated and effectively extinguished
the entrustee’s obligation under the trust receipt agreement.

8. Anthony L. Ng vs. People of the Philippines, G.R. No. 173905,

April 23, 2010
When the goods subject of the transaction, such as chemicals and
metal plates, were not intended for sale or resale but for use in the
fabrication of steel communication towers, the agreement cannot
 be considered a trust receipt transaction but a simple loan. P.D.
No. 115 punishes the entrustee for his failure to deliver the price of
the sale, or if the goods are not sold, to return them to the entruster,
which, in the present case, is absent and could not have been
complied with; therefore, the liability of the entrustee is only civil
in nature.

9. Land Bank of the Philippines vs. Perez, G.R. No. 166884, June
13, 2012
Under the Trust Receipts Law, intent to defraud is presumed when
(1) the entrustee fails to turn over the proceeds of the sale of goods
covered by the trust receipt to the entruster; or (2) when the
entrustee fails to return the goods under trust, if they are not
disposed of in accordance with the terms of the trust receipts.
When both parties know that the entrustee could not have
complied with the obligations under the trust receipt without his
fault, as when the goods subject of the agreement were not
intended for sale or resale, the transaction cannot be considered a
trust receipt but a simple loan, where the liability is limited to the
payment of the purchase price.
10. Hur Tin Yang vs. People of the Philippines, G.R. No. 195117,
August 14, 2013
When both parties entered into an agreement knowing fully well
that the return of the goods subject of the trust receipt is not
possibleeven without any fault on the part of the trustee, it is not a
trust receipttransaction penalized under Sec. 13 of PD 115 in
relation to Art. 315, par. 1(b) of the RPC, as the only obligation
actually agreed upon by the partieswould 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.

11. Vintola vs. Insular Bank of Asia and America, 150 SCRA 140
(1987)
A trust receipt transaction is a security agreement, pursuant to
which the entruster acquires a security interest in the goods, which
are released to the possession of the entrustee who binds himself to
hold the goods in trust for the entruster and to sell or otherwise
dispose of the goods or to return them in case of non-sale. The
return of the goods to the entruster however, does not relieve the
entrustee of the obligation to pay the loan because the entruster is
not the factual owner of the goods and merely holds them as owner
in the artificial concept for the purpose of giving stronger security
for the loan.

12. Rosario Textile Mills Corp. vs. Home Bankers Savings and
Trust Company, 462 SCRA 88 (2005)
 Where the entrustee tendered the return of the articles to the
entrustee because they did not meet its manufacturing requirements
but the latter refused to accept and as a consequence, the entruster
stored them in its warehouse which was, however, gutted by fire,
the entrustee’s obligation was not extinguished despite the tender
and its invocation of the principle of res perit domino. Under the
Trust Receipts law, the loss of the goods under trust receipt
regardless of the cause and the period or time it occurred, does not
extinguish the civil obligation of 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. The principle of res perit domino
will not apply if under the trust receipt, the bank 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, 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 thereof.

13. Ong vs. Court of Appeals, 401 SCRA 649 (2003)

Recognizing the impossibility of imposing the penalty of
imprisonment on a corporation, it was provided that if the entrustee
is a corporation, the penalty shall be imposed upon the directors,
officers, employees or other officials or persons responsible for the
offense. However, the person signing the trust receipt for the
corporation is not solidarily liable with the entrustee-corporation
for the civil liability arising from the criminal offense unless he
personally bound himself under a separate contract of surety or
guaranty.

14. Alfredo Ching vs. Secretary of Justice, 481 SCRA 609 (2006)
The fact that the officer who signed the trust receipt on behalf of
the entrustee-corporation signed in his official capacity without
receiving the goods as he had never taken possession of such nor
committing dishonesty and abuse of confidence in transacting with
the entrustor, is immaterial. The law specifically makes the
director, officer, employee or any person responsible criminally
liable precisely for the reason that a corporation, being a juridical
entity, cannot be the subject of the penalty of imprisonment.

15. South
City Homes, Inc. vs. BA Finance Corporation, 371 SCRA
603 (2001)
When the entrustee defaults on his obligation, the entruster has the
discretion to avail of remedies which it deems best to protect its
right. The law uses the word “may” in granting to the entruster the
 right to cancel the trust and take possession of the goods; hence,
the option is given to the entruster.

16. Sarmiento vs. Court of Appeals, 394 SCRA 315 (2002)

A civil case filed by the entruster against the entrustees based on
the failure of the latter to comply with their obligation under the
Trust Receipt agreement is proper because this breach of obligation
is separate and distinct from any criminal liability for misuse
and/or misappropriation of goods or proceeds realized from the
sale of goods released under the trust receipts. Being based on an
obligation ex contractu and not ex delicto, the civil action may
proceed independently of the criminal proceedings instituted
against the entrustees regardless of the result of the latter.

17. Landl& Company vs. Metropolitan Bank, 435 SCRA 639

(2004)
As provided under Section 7, P.D. No. 115, in the event of default
of the entrustee, the entruster may cancel the trust and take
possession of the goods subject of the trust or of the proceeds
realized therefrom at any time; the entruster may, not less than five
days after serving or sending of notice of intention to sell, proceed
with the sale of the goods at public or private sale where the
entrustee shall receive any surplus but shall be liable to the
entruster for any deficiency. This is by reason of the fact that the
initial repossession by the bank of the goods subject of the trust
receipt did not result in the full satisfaction of the entrustee’s loan
obligation.
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