When Does Selling Imported Goods Become a Crime Under the Trust Receipts Law (P.D. No. 115) and Lead to Imprisonment?
Introduction: why a business inventory sale can turn into a criminal case
In ordinary business, selling inventory and paying the supplier or lender later is common. But when imported goods are released to a borrower under a trust receipt, the law treats the borrower (the entrustee) as holding the goods and/or sale proceeds in trust for the bank or financing company (the entruster). If the entrustee sells the goods and fails to turn over the proceeds (up to the amount due), or fails to return the goods if unsold, the act can immediately expose the entrustee—and in corporate settings, the responsible officers—to prosecution for estafa with possible imprisonment.
Governing law: the Trust Receipts Law and why it is treated as estafa
The controlling statute is Presidential Decree No. 115 (Trust Receipts Law). It declares as State policy the regulation of trust receipt transactions and expressly treats misuse or misappropriation of the goods or proceeds as a criminal offense punishable as estafa under the Revised Penal Code (P.D. No. 115, Section 2, 1973).
Most importantly, Section 13 provides that the entrustee’s failure to (a) turn over the proceeds of sale to the extent of the amount owing, or (b) return the goods if not sold as agreed, “shall constitute the crime of estafa” under Article 315(1)(b) of the Revised Penal Code (P.D. No. 115, Section 13, 1973).
What is a trust receipt transaction in import financing?
A common setup is importation financed through a bank using a letter of credit or similar credit accommodation. After the bank pays the exporter/supplier, the importer may withdraw the goods from customs by executing a trust receipt, acknowledging the bank’s title and agreeing to hold the goods (and the proceeds of sale) in trust.
This is also recognized in tax guidance describing that, for imported goods, the importer may be allowed to withdraw the goods upon executing a Trust Receipt acknowledging the local bank’s legal title over the imported goods and the goods’ release to the importer under a trust agreement (Revenue Memorandum Circular No. 51-2010, 2010).
The doctrine: violation is malum prohibitum—intent to defraud is not required
Philippine jurisprudence consistently treats violation of the Trust Receipts Law as malum prohibitum. This means criminal liability arises from the mere failure to comply with the trust receipt obligation to remit proceeds or return the goods—intent to defraud is immaterial.
In Chua, et al. v. Secretary of Justice, et al., G.R. No. 214960, 2022, the Supreme Court stressed that the offense is malum prohibitum; mere failure to turn over proceeds or return the goods constitutes the violation, regardless of intent.
Similarly, Ong v. Court of Appeals, et al., G.R. No. 119858, 2003 and United Coconut Planters Bank v. Looyuko, et al., G.R. No. 156337, 2007 reiterate that the Trust Receipts Law is violated when the entrustee fails either to return the goods or to deliver the proceeds, and that proving intent to defraud is not required.
What exactly triggers criminal exposure under P.D. No. 115, Section 13?
Under Section 13, criminal exposure is triggered by either of these acts after a trust receipt is executed:
(1) Failure to turn over the proceeds of sale of the goods, documents, or instruments covered by the trust receipt, to the extent of the amount owing to the entruster; or
(2) Failure to return the goods (or documents/instruments) if they were not sold or disposed of in accordance with the trust receipt terms.
This is why trust receipt cases often arise after the bank makes demand and the borrower cannot account for the inventory or the sales proceeds. The prosecution theory is straightforward: the goods were held in trust; selling them creates proceeds held in trust; non-remittance or non-return triggers estafa by operation of law (P.D. No. 115, Section 13, 1973; Metropolitan Bank and Trust Company v. Tonda, et al., G.R. No. 134436, 2000).
Who can go to jail: corporate officers and “persons responsible”
When the entrustee is a corporation or other juridical entity, P.D. No. 115 makes the penalty imposable on the directors, officers, employees, or other officials or persons responsible for the offense (P.D. No. 115, Section 13, 1973).
In Ong v. Court of Appeals, et al., G.R. No. 119858, 2003, the Supreme Court held that a person who signs the trust receipts for the corporation may be held criminally liable as a “person responsible,” even if signing as an agent. However, the Court also clarified that such person is not automatically civilly liable for the corporation’s debt unless there is a separate personal undertaking or guarantee.
Can restructuring, payment extensions, or “novation” erase criminal liability?
Re-arranging payment terms does not automatically extinguish criminal liability. Novation must be shown by unequivocal terms or by an absolute incompatibility between the old and new obligations.
In Chua, et al. v. Secretary of Justice, et al., G.R. No. 214960, 2022, the Supreme Court ruled that mere modification of payment terms does not, by itself, amount to novation that would extinguish criminal liability under the Trust Receipts Law.
Does payment or settlement after default stop prosecution?
Settlement or payment after the violation does not automatically bar prosecution because the offense is considered an affront against public order, not merely a private injury that parties can simply settle.
In Metropolitan Bank and Trust Company v. Tonda, et al., G.R. No. 134436, 2000, the Court explained that payment or settlement of the civil liability after the offense does not necessarily bar criminal prosecution for violation of the Trust Receipts Law. Osental v. People of the Philippines, G.R. No. 225697, 2018 likewise recognizes that compromise cannot extinguish criminal liability for estafa under Article 315(1)(b) in relation to Section 13 of P.D. No. 115.
Common scenarios that lead to Trust Receipts Law complaints
Below are recurring fact patterns that often appear in complaints for violation of P.D. No. 115:
1) Inventory sold, proceeds used for other expenses
The company sells the imported goods but uses the cash for payroll, rent, other suppliers, or expansion rather than remitting to the bank.
2) Inventory cannot be accounted for
When asked to return unsold goods, the company cannot produce them (e.g., goods were transferred, commingled, lost, or disposed of without proper accounting).
3) “Roll-over” financing without clear novation
The borrower believes new promissory notes or payment schedules replaced the trust receipt obligations; courts require clear proof of novation.
Summary table: civil debt vs. trust receipt criminal exposure
| Situation | Typical legal character | Why it matters |
|---|---|---|
| Simple loan not tied to trust receipt goods/proceeds | Primarily civil obligation | Non-payment alone generally leads to civil collection remedies |
| Trust receipt: goods released to importer for sale; proceeds held in trust | Estafa exposure under P.D. No. 115, Sec. 13 in relation to RPC Art. 315(1)(b) | Mere failure to remit proceeds/return goods may trigger criminal case (malum prohibitum) |
| Corporate entrustee | Criminal liability may attach to responsible officers/persons | Corporations cannot be imprisoned; responsible human agents may be prosecuted (P.D. No. 115, Sec. 13) |
Actionable compliance advice for importers and corporate officers
1) Treat trust receipt goods and proceeds as segregated “trust property.” Maintain separate records for inventory movements and sales proceeds traceable to each trust receipt.
2) Set internal controls before releasing inventory for sale. If the business model requires commingling cash, consider negotiating financing structures that are not trust receipt-based, or ensure clear remittance workflows to the entruster.
3) Document any restructuring carefully. If the parties intend novation, it must be explicit and clearly incompatible with the prior obligation; otherwise, the trust receipt undertaking may remain enforceable for criminal purposes (Chua, G.R. No. 214960, 2022).
4) Identify who signs and who is accountable. Since responsible signatories/officers may face criminal exposure, board approvals and compliance roles should be clear, and signatories should have visibility over inventory/proceeds handling (Ong, G.R. No. 119858, 2003).
5) Respond to demands with accounting, not only promises. In many cases, what escalates risk is failure to produce a credible accounting of goods or proceeds after demand.
Conclusion
The Trust Receipts Law creates an exceptional legal consequence in commercial financing: a borrower’s failure to turn over sale proceeds of trust receipt goods (or to return the goods if unsold) can be treated as estafa punishable by imprisonment, even without proof of intent to defraud. For importers and corporate officers, the safest approach is disciplined custody of inventory and proceeds, traceable accounting per trust receipt, and carefully documented arrangements if the parties truly intend to replace the original trust receipt obligations.
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