PROVIDING FOR THE REGULATION OF TRUST RECEIPTS TRANSACTIONS

• Number: Presidential Decree No. 115
• Sections: 18

Preamble

WHEREAS, the utilization of trust receipts, as a convenient

business device to assist importers and merchants solve their financing

problems, had gained popular acceptance in international and domestic

business practices, particularly in commercial banking transactions;

WHEREAS, there is no specific law in the Philippines that

governs trust receipt transactions, especially the rights and

obligations of the parties involved therein and the enforcement of the

said rights in case of default or violation of the terms of the trust

receipt agreement; and

WHEREAS, the recommendations contained in the report on the

financial system which have been accepted, with certain modifications

by the monetary authorities included, among others, the enactment of a

law regulating the trust receipt transactions;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the

Philippines, by virtue of the powers in me vested by the Constitution as

Commander-in-Chief of the Armed Forces of the Philippines, and pursuant

to Proclamation No. 1081, dated September 21, 1972, and General Order

No. 1, dated September 22, 1972, as amended, and in order to effect the

desired changes and reforms in the social, economic, and political

structure of our society, do hereby order and decree and make as part of

the law of the land the following:

Section 1 Short Title.

SECTION 1. Short Title. — This Decree shall be known

as the Trust Receipts Law.

Section 2 Declaration of Policy.

SEC. 2. Declaration of Policy. — It is

hereby declared to be the policy of the State (a) to encourage and

promote the use of the trust receipts as an additional and convenient

aid to commerce and trade; (b) to provide for the regulation of trust

receipt transactions in order to assure the protection of the rights and

the enforcement of obligations of the parties involved therein; and (c)

to declare the misuse and/or misappropriation of goods or proceeds

realized from the sale of goods, documents or instruments released under

trust receipts as a criminal offense punishable under Article Three

Hundred and Fifteen of the Revised Penal Code.

Section 3 Definition of terms.

SEC. 3. Definition of terms. — As used in this

Decree, unless the context otherwise requires, the term —

(a) "Document" shall mean written or printed evidence of title

to goods.

(b) "Entrustee" shall refer to the person having or taking

possession of goods, documents or instruments under a trust receipt

transaction, and any successor in interest of such person for the

purpose or purposes specified in the trust receipt agreement

(c) "Entruster" shall refer to the person holding title over the

goods, documents, or instruments subject of a trust receipt transaction,

and any successor in interest of such person.

(d) "Goods" shall include chattels and personal property other than:

money, things in action, or things so affixed to land as to become a

part thereof.

(e) "Instrument" means any negotiable instrument as defined in

the Negotiable Instrument Law; any certificate of stock, or bond or

debenture for the payment of money issued by a public or private

corporation, or any certificate of deposit, participation certificate or

receipt, any credit or investment instrument of a sort marketed in the

ordinary course of business or finance, whereby the entrustee, after the

issuance of the trust receipt, appears by virtue of possession and the

face of the instrument to be the owner. "Instrument" shall not include a

document as defined in this Decree.

(f) "Purchase" means taking by sale, conditional sale, lease,

mortgage, or pledge, legal or equitable.

(g) "Purchaser" means any person taking by purchase.

(h) "Security Interest" means a property interest in goods,

documents or instruments to^ secure performance of some obligations of

the entrustee or of some third persons to the entruster and includes

title, whether or not expressed to be absolute, whenever such title is

in substance taken or retained for security only.

(i) "Person" means, as the case may be, an individual, trustee,

receiver, or other fiduciary, partnership, corporation, business trust

or other association, and two or more persons having a joint or common

interest.

(j) "Trust Receipt" shall refer to the written or printed document

signed by the entrustee in favor of the entruster containing terms and

conditions substantially complying with the provisions of this Decree,

No further formality of execution or authentication shall be necessary

to die validity of a trust receipt.

(k) "Value" means any consideration sufficient to support a simple

contract.

Section 4 What constitutes a trust receipt transaction.

SEC. 4. What constitutes a trust receipt transaction.

— A trust receipt transaction, within the meaning of this Decree, is

any transaction by and between a person referred to in this Decree as

the entruster, and another person referred to in this Decree as the

entrustee, whereby the entruster, who owns or holds absolute title or

security interests over certain specified goods, documents or

instruments, releases the same to the possession of the entrustee upon

the latter's execution and delivery to the entruster of a signed

document called a "trust receipt" wherein the entrustee binds

himself to hold the designated goods, documents or instruments in

trust for the entruster and to sell of otherwise dispose of the goods,

documents or instruments with the obligation to turn over to the

entruster the proceeds thereof to the extent of the amount owing to the

entruster or as appears in the trust receipt or 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, or for other purposes substantially equivalent to any one of

the following:

In the case of goods or documents — (a) to sell the goods

or procure their sale; or (b) to manufacture or process the goods with

the purpose of ultimate sale: Provided, That, in the case of goods

delivered under trust receipt for the purpose of manufacturing or

processing before its ultimate sale, the entruster shall retain its

title over the goods whether in its original or processed form until the

entrustee has complied fully with his obligation under the trust

receipt; or (c) to load, unload, ship or tranship or otherwise deal with

them in a manner preliminary or necessary to their sale; or

In the case of instruments — (a) to sell or procure their

sale or exchange; or (b) to deliver them to a principal; or (c) to

effect the consummation of some transactions involving delivery to a

depository or register; or (d) to effect their presentation, collection

or renewal.

The sale of goods, documents or instruments by a person in the

business of selling goods, documents or instruments for profit who, at

the outset of the transaction, has, as against the buyer, general

property rights in such goods, documents or instruments, or who sells

the same to the buyer on credit, retaining title or other interest as

security for the payment of the purchase price, does not constitute a

trust receipt transaction and is outside the purview and coverage of

this Decree.

Section 5 Form of trust receipts; contents.

SEC. 5. Form of trust receipts; contents. — A trust

receipt need not be in any particular form, but every such receipt must

substantially 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 described;

(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 amount 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 in addition to those hereinabove enumerated

provided that such terms and conditions shall not be contrary to the

provisions of this Decree, any existing laws, public policy or morals,

public order or good customs.

Section 6 Currency in which a trust receipt may be denominated.

SEC. 6. Currency in which a trust receipt may be

denominated. — A trust receipt may be denominated in Philippine

currency or any foreign currency acceptable and eligible as part of

international reserves of the Philippines, the provisions of existing

law, executive orders, rules and regulations to the contrary

notwithstanding: Provided, however. That in the case of trust receipts

denominated 'in foreign currency, payment shall be made in its

equivalent in Philippine currency computed at the prevailing exchange

rate on the date the proceeds of sale of the goods, documents or

instruments held in trust by the entrustee are turned over to the

entruster or on such other date as may be stipulated in the trust

receipt or other agreements executed between the entruster and the

entrustee.

Section 7 Rights of the entruster.

SEC. 7. Rights of the entruster. — The entruster

shall be entitled to the proceeds from the sale of the goods, documents

or instruments released under a trust receipt to the entrustee to the

extent of the amount owing to the entruster or as appears in the trust

receipt, or to the return of the goods, documents or instruments in case

of non-sale, and to the enforcement of all other rights conferred on

him in the trust receipt provided such are not contrary to the

provisions of this Decree.

The entruster may cancel the trust and take possession of the

goods, documents or instruments subject to the trust or of the proceeds

realized therefrom at any time upon default or failure of the entrustee

to comply with any of the terms and conditions of the trust receipt or

any other agreement between the entruster and the entrustee, and the

entruster in possession of the goods, documents or instruments may, on

or after default give notice to the entrustee of the intention to sell,

and may, not less than five days after serving or sending of such

notice, sell the goods, documents or instruments at public or private

sale, and the entruster may, at a public sale, become a purchaser. The

proceeds of any such sale, whether public or private, shall be applied

(a) to the payment of the expenses thereof; (b) to the payment of the

expenses of re-taking, keeping and storing the goods, documents or

instruments; (c) to the satisfaction of the entrustee's indebtedness to

the entruster. The entrustee shall receive any surplus but shall be

liable to the entruster for any deficiency. Notice of sale shall be

deemed sufficiently given if in writing, and either personally served on

the entrustee or sent by post-paid ordinary mail to the entrustee's

last known business address.

Section 8 Entruster not responsible on sate by entrustee.

SEC. 8. Entruster not responsible on sate by

entrustee. — The entruster holding a security interest shall not,

merely by virtue of such interest or having given the entrustee liberty

of sale or other disposition of the goods, documents or instruments

under the terms of the trust receipt transaction, be responsible as

principal or as vendor under any sale or contract to sell made by the

entrustee.

Section 9 Obligations of the entrustee.

SEC. 9. Obligations of the entrustee. — The entrustee

shall (1) hold the goods, documents or instruments in trust for the

entruster and shall dispose of them strictly in accordance with the

terms and conditions of the trust receipt; (2) receive the proceeds in

trust for the entruster and rum over the same to the entruster to the

extent of the amourit owing to the entruster or as appears on the trust

receipt; (3) insure the goods for their total value against loss from

fire, theft, pilferage or other casualties; (4) keep said goods or

proceeds thereof whether in money or whatever form, separate and capable

of identification as property of the entruster; (5) return the goods,

documents or instruments in the event of non-sale or upon demand of the

entruster; and (6) observe all other terms and conditions of the trust

receipt not contrary to the provisions of this Decree.

Section 10 Liability of entrustee for loss.

SEC. 10. Liability of entrustee for loss. — The risk

of loss shall be borne by the entrustee. 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, shall not extinguish his obligation to the

entruster for the value thereof.

Section 11 Rights of purchaser for value in good faith.

SEC. 11. Rights of purchaser for value in good faith.

— Any purchaser of goods from an entrustee with right to sell, or of

documents or instruments through their customary form of transfer, who

buys the goods, documents, or instruments for value and in good faith

from the entrustee, acquires said goods, documents, or instruments free

from the entruster's security interest.

Section 12 Validity of entruster's security interest as against creditors.

SEC. 12. Validity of entruster's security interest as

against creditors. — 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.

Section 13 Penalty clause.

SEC. 13. Penalty clause. — The failure of an

entrustee to turn over the proceeds of the sale of the goods, documents

or instruments covered by a trust receipt to the extent of the amount

owing to the entruster or as appears in the trust receipt or to return

said goods, documents or instruments if they were not sold or disposed

of in accordance with the terms of the trust receipt shall constitute

the crime of estafa, punishable under the provisions of Article Three

Hundred and Fifteen, Paragraph One (b) of Act Numbered Three Thousand

Eight Hundred and Fifteen, as amended, otherwise known as the Revised

Penal Code. If the violation or offense is committed by a corporation,

partnership, association or other juridical entities, the penalty

provided for in this Decree shall be imposed upon the directors,

officers, employees or other officials or persons therein responsible

for the offense, without prejudice to the civil liabilities arising from

the criminal offense.

Section 14 Cases not covered by this Decree.

SEC. 14. Cases not covered by this Decree. — Cases

not provided for in this Decree shall be governed by the applicable

provisions of existing laws.

Section 15 Separability clause.

SEC. 15. Separability clause. — If any provision or

section of this Decree or the application thereof to any person or

circumstance is held invalid, the other provisions or sections hereof

and the application of such provisions or sections to other persons or

circumstances shall not be affected thereby.

Section 16 Repealing clause.

SEC. 16. Repealing clause. — All acts inconsistent

with this Decree are hereby repealed.

Section 17

SEC. 17. This Decree shall take effect immediately.

Done in the City of Manila, this 29th day of January, in the year

of Our Lord, nineteen hundred and seventy-three.

(Sgd.) FERDINAND E. MARCOS

President

Republic of the Philippines

By the President:

(Sgd.) ALEJANDRO MELCHOR

Executive Secretary