Trust Receipts; Loan/Security Feature

Loan/Security Feature

            A trust receipt is inextricably linked with the primary agreement between the parties. Time and again, we have emphasized that a trust receipt agreement is merely a collateral agreement, the purpose of which is to serve as security for a loan. Thus, in Abad v. Court of Appeals,[1] we ruled:

            A letter of credit-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 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. x x x.

            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.[2] (Landl & Company (Phil), Inc. vs. Metrobank, G.R. No. 159622, July 30, 2004, [Ynares-Santiago])

            [A] trust receipt is considered 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. Similarly, American Jurisprudence demonstrates that trust receipt transactions always refer to a method of "financing importations or financing sales."[3] The principle is of course not limited in its application to financing importations, since the principle is equally applicable to domestic transactions.[4]Regardless of whether the transaction is foreign or domestic, it is important to note that the transactions discussed in relation to trust receipts mainly involved sales. (Ng vs. People, G.R. No. 173905, April 30, 2010, [Velasco, Jr.])

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[1] G.R. No. 42735, 22 January 1990, 181 SCRA 191.

[2] Abad v. Court of Appeals, G.R. No. L-42735, 181 SCRA 191, 194-195 (1990), citing PNB v. General Acceptance and Finance Corp., et al., G.R. No. L-30751, and Vintola v. Insular Bank of Asia and America, G.R. No. L-73271, 29 May 1987, 150 SCRA 578.

[3] 49 A.L.R. 282.

[4] Id.