Trust Receipts

Question 1

What is a trust receipt?

Answer 1

It is a convenient business device that assists importers and merchants (the entrustee) in solving their financing problems. It is intended to aid in financing importers and merchants who do not have sufficient fund or resources to finance the importation of purchase of merchandise, and who may not be able to acquire credit except through the utilization, as collateral, of the merchandise imported or purchased.

Question 2

What is a trust receipt transaction?

Answer 2

A trust receipt transaction is a security transaction where a person (the entruster) who owns certain specified goods, documents or instruments, releases the same to the possession of an entrustee who binds himself to hold the goods, document or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster:

1. The proceeds, to the extent of the amount owing to the entruster, or
2. The goods, documents or instruments themselves, if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt.

Question 3

Who are the parties to a trust receipt transaction?

Answer 3

The parties are:

1. Entruster - owns or holds absolute title or security interest over certain specified goods; party who releases the goods to the possession of the entrustee for a specific purpose;
2. Entrustee - party who binds himself or herself to to hold the goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds or the goods themselves.

Question 4

What is the form of a trust receipt/

Answer 4

A trust receipt is not required to be in a particular form. However, under Sec. 5 of the Trust Receipts Law, it is implied that the trust receipt transaction must be in writing because the trust receipts must contain:

• (1) A description of the goods, documents or instruments subject of the trust receipt;
• (2) The total invoice value of the goods and the amount of the draft to be paid by the entrustee;
• (3) An undertaking or a commitment of the entrustee:
  
  • (a) to hold in trust for the entruster the goods, documents or instruments therein provided;
  • (b) to dispose of them in the manner provided for in the trust receipt; and
  • (c) to turn over the proceeds of the sale of the goods, documents or instruments to the entruster to the extent of the amoung owing to the entruster or as appears in the trust receipt or to return the goods, documents or instruments in the event of their non-sale within the period specified therein.
• The trust receipt may contain other terms and conditions agreed upon by the parties.

Question 5

What must the trust receipts contain?

Answer 5

• (1) A description of the goods, documents or instruments subject of the trust receipt;
• (2) The total invoice value of the goods and the amount of the draft to be paid by the entrustee;
• (3) An undertaking or a commitment of the entrustee:
  
  • (a) to hold in trust for the entruster the goods, documents or instruments therein provided;
  • (b) to dispose of them in the manner provided for in the trust receipt; and
  • (c) to turn over the proceeds of the sale of the goods, documents or instruments to the entruster to the extent of the amoung owing to the entruster or as appears in the trust receipt or to return the goods, documents or instruments in the event of their non-sale within the period specified therein.
• The trust receipt may contain other terms and conditions agreed upon by the parties.

Question 6

What may be the denomination of the currency for a trust receipt?

Answer 6

A trust receipt may be denominated in the Philippine currency or any foreign currency acceptable and eligible as part of international reserves of the Philippines. (Sec.6 Trust Receipts Law)