The Supreme Court affirmed that failing to turn over proceeds from the sale of goods under a trust receipt constitutes estafa, punishable under Article 315 of the Revised Penal Code. This ruling reinforces the enforceability of trust receipt agreements and upholds the criminal liability of entrustees who misappropriate goods or proceeds held in trust.

When a Loan Turns Criminal: Examining Trust Receipts and Estafa

This case revolves around Albert K.S. Tan II, representing AT Intergrouppe, Inc. (ATII), who secured a loan from the Development Bank of the Philippines (DBP) to finance the purchase of materials for an automotive painting system destined for Indonesia. As part of the credit facility, ATII executed trust receipts in favor of DBP, obligating them to hold the goods in trust and remit the proceeds from their sale to the bank. ATII defaulted on the loan, failing to either pay or return the materials, prompting DBP to file a criminal complaint for estafa. The central legal question is whether the failure to comply with the trust receipt agreement constitutes a criminal offense or merely a civil liability.

The Regional Trial Court (RTC) initially dismissed the case, viewing the transaction as a simple loan secured by a trust receipt, and holding that failure to comply would only give rise to civil liability. However, the Court of Appeals (CA) reversed this decision, finding that the transactions fell under the purview of Presidential Decree No. (PD) 115, also known as the Trust Receipts Law, and that probable cause existed to prosecute Tan for estafa. The CA emphasized that PD 115 remains a valid law and is applicable to the facts of the case.

At the heart of the Supreme Court’s analysis is the interpretation of PD 115 and its relationship with Article 315 of the Revised Penal Code (RPC). The RTC’s reliance on Sia v. People was misplaced, as that case involved a trust receipt arrangement initiated before the promulgation of PD 115. The Supreme Court stated,

“[T]he trust receipt arrangement gave rise only to civil liability before the promulgation of PD 115, since the provisions of Article 315(1)(b) of the RPC did not cover the precise situation at hand.”

Thus, the court emphasized that PD 115 explicitly criminalizes the failure of an entrustee to fulfill their obligations under a trust receipt.

Section 13 of PD 115 is unequivocal in its penal 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.”

The Supreme Court emphasized that PD 115 defines a trust receipt transaction as one where the entruster releases goods to the entrustee, who then agrees to hold the goods in trust and to sell or dispose of them with the obligation to turn over the proceeds to the entruster. This definition, as outlined in Section 4 of PD 115, includes scenarios where goods are processed before ultimate sale. The Court also cited several cases, including Ng v. People, which clarified that PD 115 applies regardless of whether the transaction is foreign or domestic, so long as the goods are intended for sale.

The elements necessary to prove estafa under Article 315(1)(b) of the RPC, in relation to Section 13 of the Trust Receipts Law, were also discussed. These include: (a) receipt of goods in trust, (b) misappropriation or conversion of goods or proceeds, (c) performance of such acts with abuse of confidence, and (d) demand for remittance of proceeds or return of goods. The Court found that there was probable cause based on the evidence presented during the preliminary investigation. This evidence included the trust receipts bearing Tan’s signature, DBP’s demand letter, and Tan’s admission that he received the goods in trust.

Tan argued that the dismissal of the criminal case against him had become final, and therefore double jeopardy applied. However, the Court rejected this argument, stating that double jeopardy requires a valid indictment, a court of competent jurisdiction, arraignment, a valid plea, and acquittal or conviction, or dismissal of the case without the accused’s express consent. In this case, the dismissal was upon Tan’s motion, and it was not based on an assessment of the evidence’s insufficiency or a violation of the right to speedy disposition of cases.

Tan also claimed a violation of his right to speedy disposition of cases, citing a six-year delay in the preliminary investigation. The Court clarified that inordinate delay is not determined by mere mathematical reckoning but requires examination of the specific facts and circumstances. The Court referred to Cagang v. Sandiganbayan, 5^th Division, Quezon City, et al., which emphasized the need to consider time periods prescribed by applicable laws or rules for the proceeding in question. The Supreme Court found that the periods taken were justifiable in light of the need for the prosecution to pursue available remedies.

The Supreme Court, however, disagreed with the CA’s assertion that the RTC judge should have inhibited himself from the case. While the dismissal of the case was erroneous, it was based on a legal interpretation, not on personal interest or extraneous information. The Court emphasized that bias and prejudice must be proven with clear and convincing evidence, and bare allegations of partiality are insufficient grounds for voluntary inhibition.

Finally, the Court upheld the CA’s decision to grant the OSG’s Motion for Extension of Time to File Petition for Certiorari. Although A.M. No. 07-7-12-SC amended Section 4, Rule 65 of the Rules of Court to restrict extensions, the Court clarified that this does not absolutely prohibit extensions in exceptional cases, particularly those involving public interest. The Court determined that the CA had sufficient basis to grant the extension, considering the public interest in the enforcement of trust receipt obligations.

FAQs

What is a trust receipt transaction?	It is a transaction where a bank (entruster) releases goods to a borrower (entrustee) who agrees to hold the goods in trust for the bank and to sell them, remitting the proceeds to the bank.
What is estafa in the context of trust receipts?	It is the crime committed when an entrustee fails to turn over the proceeds of the sale of goods or the goods themselves, as required by the trust receipt agreement, thereby misappropriating the goods or proceeds to their own benefit.
What law governs trust receipt transactions in the Philippines?	Presidential Decree No. 115 (PD 115), also known as the Trust Receipts Law, governs trust receipt transactions. It defines the rights and obligations of the entruster and the entrustee.
What is the significance of PD 115?	PD 115 provides the legal framework for trust receipt transactions, facilitating trade and commerce by allowing banks to finance the acquisition of goods while retaining a security interest in those goods.
What are the elements to prove estafa in trust receipt cases?	The elements are: (1) receipt of goods in trust, (2) misappropriation or conversion, (3) abuse of confidence, and (4) demand for remittance or return of goods.
What is the effect of failing to comply with a trust receipt agreement?	Failure to comply can lead to both civil liability for breach of contract and criminal liability for estafa under Article 315 of the Revised Penal Code, as supplemented by PD 115.
Does the Supreme Court allow extensions for filing certiorari petitions?	While generally restricted, the Court may allow extensions in exceptional cases involving public interest, as determined on a case-by-case basis.
What is double jeopardy?	Double jeopardy prevents an accused person from being tried again for the same offense if they have already been acquitted or convicted.
When does double jeopardy not apply?	It does not apply when the case is dismissed upon the accused’s motion and the dismissal is not based on the insufficiency of evidence or a violation of the right to speedy disposition of cases.

In conclusion, the Supreme Court’s decision underscores the importance of adhering to trust receipt agreements and reinforces the potential for criminal liability when these agreements are breached. This ruling serves as a reminder to entrustees of their fiduciary duties and the legal consequences of failing to fulfill them.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Albert K.S. Tan II v. People, G.R. No. 242866, July 06, 2022