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Validity of Entruster’s Security Interest as Against Creditors Under the Trust Receipts Law

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Published — June 6, 2021

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

VALIDITY OF ENTRUSTER’S SECURITY INTEREST AS AGAINST CREDITORS UNDER THE TRUST RECEIPTS LAW; read also: FUND MANAGER UNDER THE REAL ESTATE INVESTMENT TRUST (REIT) ACT OF 2009

  • 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.

  • The entruster’s security interest in goods, documents, or instruments 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.

  • In case of loss of goods, documents or instruments which are the subject of a trust receipt, pending their disposition, irrespective of whether or not it was due to the fault or negligence of the entrustee, the loss shall not extinguish his obligation to the entruster for the value thereof.

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. 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. A violation of any of these undertakings constitutes Estafa. (Hur Tin Yang vs. People of The Philippines G.R. No. 195117 August 14, 2013)

What is the validity of entruster’s security interest as against creditors?

Presidential Decree No. 115 or Trust Receipts Law provides that:

The entruster’s security interest in goods, documents, or instruments 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.

In case of loss of goods, documents or instruments which are the subject of a trust receipt, pending their disposition, irrespective of whether or not it was due to the fault or negligence of the entrustee, the loss shall not extinguish his obligation to the entruster for the value thereof.

 

Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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