METROPOLITAN BANK & TRUST COMPANY, PETITIONER, VS. HON. SECRETARY OF JUSTICE RAUL M. GONZALES, OLIVER T. YAO AND DIANA T. YAO, RESPONDENTS.

Metropolitan Bank and Trust Company versus Secretary of Justice Gonzales

The Case

This is a petition for review on certiorari brought by Metropolitan Bank and Trust Company against the Secretary of Justice and private respondents Oliver Yao and Diana Yao. The bank asks the Supreme Court to overturn the Court of Appeals, which had sustained the Secretary of Justice in ordering the withdrawal of estafa charges against the Yaos. The case matters because it draws the boundary between the prosecutor's narrow task at preliminary investigation and the trial judge's task of weighing evidence, and because it restates when trust receipt violations become estafa under the Trust Receipts Law.

Procedural History

The bank filed a criminal complaint for estafa with the Office of the City Prosecutor of Manila. After preliminary investigation, the City Prosecutor dismissed the complaint for lack of evidence of prior demand. On motion for reconsideration, the bank attached a demand letter, and the City Prosecutor then found probable cause and filed separate Informations for estafa before the Regional Trial Court of Manila. The Yaos appealed the investigating prosecutor's resolution to the Secretary of Justice. The Secretary of Justice ruled that no probable cause existed, reasoning that the real relationship between the parties was a mere contract of loan, and directed the City Prosecutor to move for the withdrawal of the Informations. The Regional Trial Court granted the motion and withdrew the cases, and it refused to reconsider. The bank then filed a petition for certiorari before the Court of Appeals, which dismissed the petition and found no grave abuse of discretion on the part of the Secretary of Justice. The bank's motion for reconsideration was denied. The bank then came to the Supreme Court by petition for review on certiorari.

Facts

Metropolitan Bank and Trust Company is a banking institution. Oliver Yao and Diana Yao were the authorized representatives of Visaland Incorporated, a domestic corporation engaged in real estate development. To finance the importation of materials for its sister company, Titan Ikeda Construction and Development Corporation, the Yaos applied with the bank for twenty four letters of credit, with an aggregate amount of 68,749,487.96 pesos. Simultaneous with the issuance of the letters of credit, the Yaos signed trust receipts in favor of the bank. Under these receipts, they bound themselves to sell the goods covered by the letters of credit and remit the proceeds to the bank if sold, or to return the goods if not sold, on or before the agreed maturity dates.

When the trust receipts matured, the Yaos failed to return the goods or their value of 68,749,487.96 pesos despite demand. The bank filed a criminal complaint for estafa. In their counter-affidavit, the Yaos denied entering into trust receipt transactions. They claimed the contract was a loan secured by a real estate mortgage over two parcels of land in Tagaytay City registered in the names of the spouses King. They said the bank made them sign documents bearing fine print without explaining the real nature of the transaction, and that they learned of the trust receipt arrangement only when they received the complaint.

The City Prosecutor first dismissed the complaint for lack of proof of prior demand. After the bank submitted a demand letter dated 27 February 2001, the City Prosecutor found probable cause and filed twenty three Informations for estafa under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to Presidential Decree No. 115. On appeal, the Secretary of Justice reversed, holding that the relationship was a simple loan and that violations of its terms were not covered by the Trust Receipts Law, and directed withdrawal of the Informations.

Issues

• Whether or not probable cause exists for the prosecution of private respondents for the crime of estafa in relation to Presidential Decree No. 115.

Applicable Provisions

Section 4 of Presidential Decree No. 115 defines a trust receipt transaction:

Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this Decree, is any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as the entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt.

This definition supplies the elements the prosecutor must test at preliminary investigation, and it frames whether the transaction was a trust receipt at all.

Section 13 of Presidential Decree No. 115 provides the penalty clause:

Section 13. Penalty 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.

This is the provision that converts a failure to account into the crime of estafa, and it is the provision the Secretary of Justice was accused of misapplying.

Article 315, paragraph 1(b) of the Revised Penal Code punishes estafa committed as follows:

ARTICLE 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned hereinbelow shall be punished by: 1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if the amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos, and if such amount exceeds the latter sum, the penalty provided in this paragraph shall be imposed in its maximum period, adding one year for each additional 10,000 pesos; but the total penalty which may be imposed shall not exceed twenty years.

This is the penal provision that Presidential Decree No. 115 expressly incorporates by reference.

Ruling

The Supreme Court granted the petition. On the sole issue, the Court held that probable cause does exist to prosecute the Yaos for estafa in relation to Presidential Decree No. 115. The Court defined probable cause as the existence of such facts and circumstances as would excite the belief in a reasonable mind, acting on the facts within the knowledge of the prosecutor, that the person charged was guilty of the crime for which he was prosecuted. It stressed that probable cause does not mean actual or positive cause and does not import absolute certainty; it does not require an inquiry into whether there is sufficient evidence to procure a conviction.

The Court found grave abuse of discretion in the Secretary of Justice's act of holding that the contractual relationship was a simple loan. In so doing, the Secretary assumed the function of a trial judge in calibrating evidence, a task done only after a full blown trial on the merits. The Court explained that the existence or non-existence of a trust receipt transaction is evidentiary in nature, and its veracity can best be passed upon after trial, because it is virtually impossible to ascertain the real nature of the transaction based solely on the self-serving allegations in the opposing parties' pleadings.

The Court then examined the evidence and found sufficient basis for probable cause: the trust receipts bearing the genuine signatures of the private respondents, the demand letter addressed to them, and their initial admission of receipt of the imported goods. It added that the offense under Presidential Decree No. 115 is in the nature of malum prohibitum, meaning an act prohibited by law regardless of intent, so a mere failure to deliver the proceeds or the goods, if not sold, constitutes a criminal offense. It also found it incredible that the Yaos would not give significance to documents they signed, given the enormous value of the transaction, when the heading on the documents read Trust Receipts in bold and legible letters.

Doctrine

Probable cause for purposes of preliminary investigation is a probability, not an absolute or moral certainty. It is enough that the prosecutor believes the act or omission complained of constitutes the offense charged. A preliminary investigation does not require a full and exhaustive presentation of the parties' evidence, and the complainant need not present proof beyond reasonable doubt.

The determination of whether a transaction is a trust receipt under Section 4 of Presidential Decree No. 115, or a simple loan, is evidentiary in nature and must be resolved at trial on the merits, not by the Secretary of Justice at the preliminary investigation stage. A violation of the entrustee's undertakings constitutes estafa under Article 315, paragraph 1(b) of the Revised Penal Code, as provided by Section 13 of Presidential Decree No. 115, and the offense is malum prohibitum.

Disposition

The petition was granted; the Court of Appeals Decision and Resolution were reversed and set aside, and the Secretary of Justice was ordered to direct the Office of the City Prosecutor of Manila to forthwith file Informations for estafa against Oliver Yao and Diana Yao before the appropriate court.

Remember This

Memorize this line: probable cause is concerned with probability, not absolute or moral certainty, and the Secretary of Justice cannot usurp the trial judge's function of weighing evidence at preliminary investigation. Examiners use this case in criminal procedure on probable cause and the scope of the Secretary of Justice's review power, and in commercial law on trust receipt violations as estafa under Presidential Decree No. 115.