Trust Receipts and Estafa: What Philippine Businesses Should Know

Metropolitan Bank & Trust Company v. Secretary of Justice Gonzales (G.R. No. 180165, April 7, 2009) is a significant ruling on how trust receipt transactions are treated under Philippine law. The Supreme Court clarified the standard for determining probable cause in estafa cases arising from violations of Presidential Decree No. 115, the Trust Receipts Law. For businesses and individuals engaged in import financing, this decision underscores the serious criminal consequences of failing to account for goods held under trust receipts.

The Facts of the Case

Private respondents, as representatives of Visaland Inc., applied for 24 letters of credit with Metropolitan Bank & Trust Company to finance the importation of materials for a sister company. The aggregate amount reached approximately P68.7 million. Simultaneously, they signed trust receipts binding themselves to sell the imported goods and remit the proceeds to the bank, or to return the goods if unsold, by agreed maturity dates.

When the trust receipts matured, the respondents failed to return the goods or their value despite demand. The bank filed a criminal complaint for estafa. The respondents claimed the transaction was actually a loan secured by a real estate mortgage, not a trust receipt arrangement, and that they were not fully apprised of the documents they signed.

The Procedural History

The City Prosecutor initially dismissed the case for lack of evidence of prior demand. After the bank submitted a demand letter, probable cause was found and 23 Informations for estafa were filed. However, the Secretary of Justice reversed this finding, ruling that the relationship was merely a contract of loan and not covered by PD 115. The Court of Appeals affirmed the Secretary's decision, prompting the bank to elevate the case to the Supreme Court.

The Supreme Court's Ruling

The Supreme Court granted the bank's petition, reversing the Court of Appeals. The Court held that the Secretary of Justice committed grave abuse of discretion by ruling on the nature of the contractual relationship between the parties. Determining whether a trust receipt transaction existed is an evidentiary matter that should be resolved during trial, not during preliminary investigation.

The Court emphasized that probable cause does not require proof beyond reasonable doubt. It merely requires such facts and circumstances that would lead a reasonable person to believe that the accused committed the crime. The evidence on record—including trust receipts bearing genuine signatures, a demand letter, and the respondents' admission of receiving the imported goods—was sufficient to establish probable cause.

The Nature of Trust Receipt Violations

The Court explained that a trust receipt transaction involves an entruster who releases goods to an entrustee, who holds them in trust and must either sell them and remit the proceeds or return the goods if unsold. Under Section 13 of PD 115, failure to comply constitutes estafa under Article 315(1)(b) of the Revised Penal Code.

Significantly, the Court noted that violations of the Trust Receipts Law are malum prohibitum—wrong because prohibited, not because inherently immoral. A mere failure to deliver proceeds or return goods constitutes a criminal offense. The Court found it improbable that respondents mistook trust receipt documents for a loan contract, given that the documents were clearly labeled "Trust Receipts" in bold letters.

Practical Takeaways

• Trust receipt transactions carry serious criminal liability. Failure to remit proceeds or return unsold goods can result in estafa charges, regardless of intent.
• The crime of estafa under PD 115 is malum prohibitum; mere failure to comply with the trust receipt obligations is enough for prosecution.
• In preliminary investigations, prosecutors need only establish probable cause—not proof beyond reasonable doubt. Evidentiary questions about the nature of transactions are best resolved at trial.
• Signing commercial documents without understanding them is not a viable defense, especially for transactions of significant value.
• The Secretary of Justice's power to review prosecutor findings is not absolute; grave abuse of discretion can be corrected by the courts.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.