1.

C contracted D to renovate his

commercial building. D
ordered construction materials
from E and received delivery
thereof. The following day, C
went to F Bank to apply for
loan to pay for the
construction materials. As
security for the loan, C was
made to execute a trust
receipt. One year later, after C
failed to pay the balance of
the loan, F Bank charged him
with violation of the Trust
Receipts Law.

a) What is a Trust Receipt?
Suggested Answer:
A trust receipt is a written or
printed document signed by the
entrustee in favor of the entruster
containing terms and conditions
substantially complying with the
provisions of the Trust Receipts Law,
whereby the bank as entruster
releases the goods to the possession
of the entrustee but retains
ownership thereof while the
entrustee may sell the goods and
apply the proceeds for full payment
of his liability to the bank (Section
3(j), Trust Receipts Law).
b) Will the case against C
prosper? Reason briefly.
Suggested Answer:
No, the case against C will not
prosper. Since C received the
construction materials from E before
the trust receipt transaction was
entered into, the transaction was a
simple loan, with the trust receipt
merely as a collateral or security for
the loan. This is inconsistent with a
trust receipt transaction where the
title to the goods remains with the
bank and the goods are released to
the entrustee before the loan is
granted (Consolidated Bank and
Trust Corporation vs CA, 356 SCRA
671 [2001]).
2. What acts or omissions are
penalized under the Trust
Receipts Law?
Suggested Answer:
Failure of the entrustee to turn
over the proceeds of the sale of the
goods, documents or instrument
covered by a trust receipt to the
extent of the amount owing to the
entruster or to return the goods,
documents or instruments if they
were not sold or disposed of in
accordance with the terms of the
trust receipt is penalized as estafa
under Article 315(1)(b) of the RPC
(Sec.13, PD No. 125).
3. Is lack of intent to defraud a
bar to the prosecution of these
acts or omissions?
Suggested Answer:
No. There is no requirement to
prove intent to defraud. The mere
failure to account for or return the
goods, documents or instruments in
question gives rise to the crime,
which is malum prohibitum (Ong vs
CA, 401 SCRA 648,658 [2003]).
4. Tom Cruz obtained a loan of
P1 Million from XYZ Bank to
finance his purchase of 5,000
bags of fertilizer. He executed
a trust receipt in favor of XYZ
Bank over the 5,000 bags of
fertilizer. Tom Cruz withdrew
the 5,000 bags from the
warehouse to be transported
to Lucena City where his store
was located. On the way,
armed robbers took from Tom
Cruz the 5,000 bags of fertilizer.
Tom Cruz now claims that the
obligation to pay the loan to
XYZ Bank is extinguished
because the loss was not due
to his fault. Is Tom Cruz
correct? Explain.
Suggested Answer:
Being the entrustee, the
obligation of Tom Cruz to pay XYZ
Bank is not extinguished by the loss
of the goods. Section 10 of the Trust
Receipts Law provides:
Section 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 entrustee for the value thereof.