Trust Receipts Law in the Philippines: Criminal Liability of Corporate Officers and Defenses When the Corporation Fails to Pay the Bank
Introduction: Why trust receipt cases expose directors and officers to jail time
Trust receipt transactions are commonly used by banks to finance importations and inventories. When a corporation (as entrustee) fails to remit sale proceeds or return the goods covered by a trust receipt, the exposure is not limited to a collection case against the company: the Trust Receipts Law treats certain failures as estafa and allows imprisonment of the responsible human actors behind the corporate entrustee.
This makes trust receipt disputes uniquely risky for corporate directors and officers. Understanding who can be prosecuted—and what defenses are recognized—matters for compliance, documentation, and early dispute management.
Governing law: The Trust Receipts Law and its criminal trigger
The governing statute is Presidential Decree No. 115 (Trust Receipts Law, 1973). Section 13 provides that the entrustee’s failure either (a) to turn over the proceeds of sale to the extent of what is owed to the entruster/bank, or (b) to return the goods/documents/instruments if not sold or disposed of according to the trust receipt, constitutes estafa punishable under Article 315(1)(b) of the Revised Penal Code. The same section also states that when the violator is a corporation or other juridical entity, the penalty is imposed on the directors, officers, employees, or other officials or persons responsible for the offense (P.D. No. 115, Sec. 13, 1973).
Jurisprudence repeatedly characterizes the trust receipt offense as malum prohibitum, meaning the prosecution generally focuses on the statutory failure to remit or return—rather than proving intent to defraud (e.g., Ong v. Court of Appeals, G.R. No. 119858, 2003; Gonzalez v. Hongkong & Shanghai Banking Corporation, G.R. No. 164904, 2007).
What acts create criminal exposure under P.D. No. 115
Under Section 13 and the Supreme Court’s formulations, the Trust Receipts Law is violated when the entrustee fails to do either of the following:
- Turn over the proceeds of the sale of the goods/documents/instruments covered by the trust receipt to the extent of the amount owed; or
- Return the goods/documents/instruments if they were not sold or not disposed of according to the trust receipt’s terms (P.D. No. 115, Sec. 13, 1973; Ong v. Court of Appeals, G.R. No. 119858, 2003).
Because a corporation cannot be imprisoned, the statute and cases place penal responsibility on the human agents who are responsible for compliance (Ong v. Court of Appeals, G.R. No. 119858, 2003; Gonzalez v. HSBC, G.R. No. 164904, 2007).
Exactly which corporate officers may be held criminally liable
The statute does not limit criminal liability to a single position (e.g., “president” or “treasurer”). Instead, it attaches liability to the directors, officers, employees, or other officials or persons responsible for the offense when the entrustee is a corporation (P.D. No. 115, Sec. 13, 1973).
1) Signatories to the trust receipt on behalf of the corporation
Supreme Court rulings consistently allow prosecution of corporate officers who signed the trust receipts for the corporate entrustee. The Court has rejected defenses that the signer acted only “in an official capacity,” or lacked physical possession of the goods, because the law explicitly extends penal responsibility to responsible officers and because corporate compliance is implemented through such officers (Gonzalez v. HSBC, G.R. No. 164904, 2007; Ong v. Court of Appeals, G.R. No. 119858, 2003).
Relatedly, the Court has held that an officer who signed trust receipts on behalf of the corporation may still be held criminally liable even when he frames his role as merely accommodating the company (e.g., claiming he signed as surety or only as an officer) (Ching v. Secretary of Justice, G.R. No. 164317, 2006).
2) “Responsible officers” even beyond the signatory, when facts show responsibility
Section 13’s text covers not just directors and officers but also employees, officials, or other persons “responsible for the offense” (P.D. No. 115, Sec. 13, 1973). In practice, the strongest prosecutorial posture is against officers who:
- Had authority over the importation/inventory financed by the bank;
- Controlled the disposition of the goods or proceeds; and/or
- Had the duty to ensure remittance/return under the trust receipt arrangement (as recognized in rationale cited in Gonzalez v. HSBC, G.R. No. 164904, 2007).
Liability map: criminal exposure vs. civil exposure
| Person/Role | Possible criminal liability under P.D. 115, Sec. 13 | Automatic personal civil liability for the corporation’s debt? |
|---|---|---|
| Corporate entrustee (corporation) | No imprisonment (juridical entity cannot be jailed); prosecution targets responsible persons | Corporation remains liable on the contract |
| Officer who signed the trust receipt for the corporation | Yes, may be charged as a responsible officer (Gonzalez v. HSBC, 2007; Ong v. CA, 2003; Ching v. SOJ, 2006) | No, not automatically; requires separate personal undertaking/guarantee (Ong v. CA, 2003) |
| Officer/director who did not sign but exercised control over goods/proceeds and compliance | Potentially, if proven “responsible for the offense” under Sec. 13 (P.D. No. 115, 1973) | Not automatic; depends on personal undertaking or exceptional grounds |
| Officer who signed a personal guarantee clause (with waiver of excussion) | Still may face criminal exposure if responsible under Sec. 13 | Yes, may be held personally (often solidarily, depending on the guarantee language) (Crisologo v. People, G.R. No. 199481, 2012) |
Typical scenarios that lead to prosecution
- Inventory is sold, but sale proceeds are used for operating expenses or to pay other creditors instead of remitting to the bank.
- Goods are transferred to an affiliate, third party, or another warehouse without the bank’s consent and without remittance.
- Goods are lost or damaged and the entrustee fails to return the goods or otherwise account in the manner required by the trust receipt terms, triggering disputes on whether lawful disposition occurred.
Defenses available when the corporation fails to pay the bank
Defenses generally fall into two buckets: (a) defenses challenging whether the elements of Section 13 are met; and (b) defenses challenging whether the accused is truly a “responsible person” within the meaning of Section 13. Because the offense is often treated as malum prohibitum, defenses that rely purely on lack of fraudulent intent are usually weak compared with defenses tied to statutory compliance, authority, and proof.
1) Not a “responsible officer” under Section 13
Section 13 penalizes directors, officers, employees, or other persons “responsible for the offense” (P.D. No. 115, Sec. 13, 1973). A principal defense is that the accused had no responsibility for the goods/proceeds, no control over compliance, and did not participate in the acts or omissions that produced the failure to remit/return.
However, where the accused is the signatory to the trust receipt, jurisprudence shows courts are receptive to treating that officer as responsible for compliance (Gonzalez v. HSBC, 2007; Ong v. CA, 2003; Ching v. SOJ, 2006).
2) No failure to “turn over proceeds” or “return goods” within the meaning of Section 13
The prosecution must still prove the statutory failure: either the non-remittance of proceeds to the extent owed, or the non-return of the goods/documents/instruments when not sold or not disposed in accordance with the trust receipt (P.D. No. 115, Sec. 13, 1973; Ong v. CA, 2003).
Documentation-based defenses may arise where the entrustee can show, for example:
- Remittance was made (full or partial) consistent with the trust receipt; or
- Goods were returned or tendered for return but refused; or
- Disposition occurred with the entruster’s consent under amended terms or agreed restructuring (facts must be supported by written records given the written nature of trust receipt transactions).
3) The dispute is purely civil and does not fit a trust receipt transaction
While trust receipt cases often accompany collection disputes, Section 13 requires the presence of a trust receipt arrangement covering identified goods/documents/instruments and an entrustee obligation to remit proceeds or return items. Where the underlying transaction is mischaracterized as a trust receipt when it is actually another credit/security structure, the accused may contest the application of P.D. No. 115.
This defense is highly fact-specific and depends on the written instruments the parties executed. If the documents are clear trust receipts, courts generally enforce the statutory consequences.
4) Defenses relating to personal civil liability (separate from criminal liability)
Even when an officer faces criminal exposure under Section 13 as a responsible officer, personal civil liability for the corporation’s debt is a separate inquiry. The Supreme Court has held that a trust receipt signatory is not automaticallycivilly liable for the corporation’s obligation absent a separate undertaking such as a guarantee (Ong v. Court of Appeals, 2003).
Conversely, where an officer signs a guarantee clause in his personal capacity and waives excussion, personal liability may attach based on the contract’s terms (Crisologo v. People, 2012). In related rulings, the Court has also explained that even an acquittal in the criminal case does not necessarily extinguish civil liability arising from the contract (ex contractu) (Tupaz v. Court of Appeals, G.R. No. 145578, 2005).
Compliance measures that reduce the risk of prosecution (and strengthen defenses)
- Control signatories: Limit trust receipt signatories to officers who truly supervise inventory/proceeds and have reporting capacity. Avoid “courtesy signing.”
- Segregate proceeds: Implement internal controls so proceeds from sale of trust receipt goods are trackable and remittable to the bank.
- Maintain an audit trail: Keep purchase/import documents, warehouse receipts, delivery receipts, sales invoices, and remittance proof tied to each trust receipt line.
- Document bank consents and amendments: If restructuring occurs, ensure written confirmation of revised payment/remittance or disposition terms.
- Avoid unintended personal undertakings: Review trust receipt forms for guarantee clauses, waiver of excussion, and solidary liability language before signing (Crisologo v. People, 2012; Ong v. CA, 2003).
Conclusion: What directors and officers should remember
Under P.D. No. 115, Section 13 (1973), a corporation’s failure to remit proceeds or return goods covered by a trust receipt can result in estafa charges, with imprisonment directed at the responsible directors, officers, employees, or other officials rather than the corporate entity. Supreme Court decisions recognize criminal exposure of officers who sign trust receipts for the corporation and emphasize that the offense is typically treated as malum prohibitum (Ong v. Court of Appeals, G.R. No. 119858, 2003; Gonzalez v. HSBC, G.R. No. 164904, 2007; Ching v. Secretary of Justice, G.R. No. 164317, 2006).
For defense planning, the most viable approaches usually focus on (1) disproving that the accused was a responsible person for compliance, and/or (2) disproving the statutory failure to remit or return within the meaning of Section 13—supported by a clean paper trail. Separately, officers should distinguish criminal exposure from personal civil liability, which generally requires a distinct personal undertaking such as a guarantee (Ong v. Court of Appeals, 2003; Crisologo v. People, 2012; Tupaz v. Court of Appeals, 2005).
About Nicolas and De Vega Law Offices
Nicolas and de Vega Law Offices is a full-service law firm in the Philippines. You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines. You may also call us at +632 84706126, +632 84706130, +632 84016392 or e-mail us at [email protected]. Visit our website https://ndvlaw.com.
