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 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)

Q: Who is the owner of the articles subject of the TR?

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 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)

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 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 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).