Legal Memorandum

Trust Receipts
Issues for Discussion:
1. What is a private document?
2. What is a commercial document?
3. Is a trust receipt a commercial document?
Discussion:
1. What is a private document?
A private document is a deed or instrument executed by a private person without the
intervention of a public notary or of other person legally authorized, by which some disposition
or agreement is proved, evidenced or set forth.
2. What is a commercial document?
A commercial document is one used by merchants or businessmen to promote or facilitate
trade or credit transactions, or one regulated by the Code of Commerce or other commercial law.
3. Is a trust receipt a commercial document?
While there has yet to be a categorical pronouncement on the recognition of a trust receipt as
a commercial document, the Supreme Court has been consistent in ruling that it is an
indispensable tool in commercial transactions and has uniformly recognized the vital role
trust receipts play in international and domestic commerce. It also held that it facilitates
transaction of great commercial benefit and advantage founded upon a well-recognized custom
by which banking credit is officially mobilized for manufacturers and importers of small means.
Moreover, receipts issued by business and traders have also been considered as vital pieces of
evidence of commercial transactions.
Based on the foregoing, it would be logical and reasonable to conclude that a trust receipt is,
indubitably, a commercial document.
Jurisprudence:
AUREA R. MONTEVERDE vs. PEOPLE. G.R. No. 139610. August 12, 2002.
The Sales Invoice is a commercial document. Commercial documents or papers are
those used by merchants or businessmen to promote or facilitate trade or credit
transactions. This Court has previously characterized such documents in this wise: ". . . . In
most cases, these commercial forms [receipts, order slips and invoices] are not always fully
accomplished to contain all the necessary information describing the whole business transaction.
The sales clerks merely indicate a description and the price of each item sold without bothering
to fill up all the available spaces in the particular receipt or invoice, and without proper regard
for any legal repercussion for such neglect. Certainly, it would not hurt if businessmen and
traders would strive to make the receipts and invoices they issue complete, as far as practicable,
in material particulars. These documents are not mere scraps of paper bereft of probative
value but vital pieces of evidence of commercial transactions. They are written memorials
of the details of the consummation of contracts."
NOE S. ANDAYA vs. PEOPLE. G.R. No. 168486. June 27, 2006.
The second element of the offense charged in the information, i.e., the falsification was
committed in Disbursement Voucher No. 58380, a private document, is likewise present. It
appears that the public prosecutor erroneously characterized the disbursement voucher as a
commercial document so that he designated the offense as estafa through falsification of
commercial document in the preamble of the information. However, as correctly ruled by the
trial court, the subject voucher is a private document only; it is not a commercial document

because it is not a document used by merchants or businessmen to promote or facilitate

trade or credit transactions nor is it defined and regulated by the Code of Commerce or
other commercial law. Rather, it is a private document, which has been defined as a deed or
instrument executed by a private person without the intervention of a public notary or of
other person legally authorized, by which some disposition or agreement is proved,
evidenced or set forth, because it acted as the authorization for the release of the P21,000.00
finder's fee to Guilas and as the receipt evidencing the payment of this finder's fee.
ALFREDO CHING vs. CA, et al. G.R. No. 110844. April 27, 2000.
Contrary to petitioner's assertions and in view of jurisprudence established in this
jurisdiction, a trust receipt is not merely an additional or side document to a principal contract,
which in the instant case is alleged by petitioner to be a pure and simple loan. As elucidated in
Samo vs. People, 5 SCRA 354 [1962], 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. Further, a
trust receipt is a document in which is expressed a security transaction whereunder the lender,
having no prior title in the goods on which the lien is to be given and not having possession
which remains in the borrower, lends his money to the borrower on security of the goods which
the borrower is privileged to sell clear of the lien with an agreement to pay all or part of the
proceeds of the sale to the lender. It 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. Clearly, a trust receipt partakes the nature of a
security transaction. It could never be a mere additional or side document as alleged by
petitioner. Otherwise, a party to a trust receipt agreement could easily renege on its obligations
thereunder, thus undermining the importance and defeating with impunity the purpose of
such an indispensable tool in commercial transactions.
PRUDENTIAL BANK vs. NLRC, et al. G.R. No. 112592. December 19, 1995.
The mechanics and effects flowing from a trust receipt transaction, particularly the
importance given to the security held by the entruster, i.e., the person holding title over the
goods, were fully discussed in earlier decisions, as follows By this arrangement a banker
advances money to an intending importer, and thereby lends the aid of capital, of credit, or of
business facilities and agencies abroad, to the enterprise of foreign commerce. Much of this trade
could hardly be carried on by any other means, and therefore it is of the first importance that the
fundamental factor in the transaction, the banker's advance of money and credit, should receive
the amplest protection. Accordingly, in order to secure that the banker shall be repaid at the
critical point that is, when the imported goods finally reach the hands of the intended vendee
the banker takes the full title to the goods at the very beginning; he takes it as soon as the
goods are bought and settled for by his payments or acceptances in the foreign country, and he
continues to hold that title as his indispensable security until the goods are sold and the vendee is
called upon to pay for them. This security is not an ordinary pledge by the importer to the banker,
for the importer has never owned the goods, and moreover, he is not able to deliver the
possession; but the security is the complete title vested originally in the bankers, and this
characteristic of the transaction has again and again been recognized and protected by the courts.
Of course, the title is at bottom a security title, as it has sometimes been called, and the banker is
always under the obligation to reconvey; but only after his advances have been fully repaid and
after the importer has fulfilled the other terms of the contract. . . . [I]n a certain manner, (trust
receipt contracts) partake of the nature of a conditional sale as provided by the Chattel Mortgage
Law, that is, the importer becomes absolute owner of the imported merchandise as soon as he has
paid its price. The ownership of the merchandise continues to be vested in the owner thereof or
in the person who has advanced payment, until he has been paid in full, or if the merchandise has
already been sold, the proceeds of the sale should be turned over to him by the importer or by his
representative or successor-in-interest. More importantly, owing to the vital role trust receipts
play in international and domestic commerce, Sec. 12 of P.D. No. 115 assures the entruster of the
validity of his claim against all creditors by providing 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. From the
legal and jurisprudential standpoint it is clear that the security interest of the entruster is not
merely an empty or idle title. To a certain extent, such interest becomes a "lien" on the goods
because the entruster's advances will have to be settled first before the entrustee can consolidate
his ownership over the goods. A contrary view would be disastrous. For to refuse to recognize
the title of the banker under the trust receipt as security for the advance of the purchase
price would be to strike down a bona fide and honest transaction of great commercial
benefit and advantage founded upon a well-recognized custom by which banking credit is
officially mobilized for manufacturers and importers of small means.
PEOPLE vs. NITAFAN et al. G.R. Nos. 81559-60. April 6, 1992.
The offense is punished as a malum prohibitum regardless of the existence of intent or
malice. A mere failure to deliver the proceeds of the sale or the goods if not sold, constitutes a
criminal offense that causes prejudice not only to another, but more to the public interest. We are
continually re-evaluating the opposite view which insists that the violation of a trust receipt
agreement should result only in a civil action for collection. The respondent contends that there
is no malice involved. She cites the dissent of the late Chief Justice Claudio Teehankee in Ong v.
Court of Appeals, (124 SCRA 578 [1983]) to wit: "The old capitalist orientation of putting
importers in jail for supposed estafa or swindling for non-payment of the price of the imported
goods released to them under trust receipts (a purely commercial transaction) under the fiction of
the trust receipt device, should no longer be permitted in this day and age." As earlier stated,
however, the law punishes the dishonesty and abuse of confidence in the handling of money or
goods to the prejudice of the bank.