Supplier Fraud (Estafa) in the Philippines

A comprehensive legal primer for practitioners, compliance teams, auditors and entrepreneurs

1. What is “supplier fraud” and why does Philippine law treat it as estafa?

In ordinary business language supplier fraud describes any scheme in which a supplier (or someone acting as a supplier) cheats the buyer, the buyer’s company, or the ultimate customer—through fake billings, ghost deliveries, substitution of inferior goods, kickbacks, bid‑rigging, forged documents, or other deceptions.

Under Philippine criminal law, most of these acts are prosecuted as estafa because they involve (a) deceit/fraudulent maneuvers or (b) abuse of confidence that result in damage to another. Estafa is found in Article 315 of the Revised Penal Code (RPC), amended by R.A. 10951 (2017) to update value thresholds and penalties. Government‑related supplier scams may also trigger R.A. 3019 (Anti‑Graft and Corrupt Practices Act), while cyber‑enabled variants engage R.A. 10175 (Cybercrime Prevention Act).

2. Core legal foundations

Instrument	Key provisions relevant to supplier fraud
RPC Art. 315 (Estafa)	Defines 13 modes, notably: • Art. 315 (1)(b) – Misappropriation or conversion of goods received in trust or on commission. • Art. 315 (2)(a–d) – False pretenses (fake name/qualifications, false power to sell, post‑dating cheques without funds, etc.).
R.A. 10951	Adjusted “damage” thresholds: over ₱2,000 but ≤₱40,000 → prision correccional; >₱40,000 but ≤₱1.2 M → prision mayor; >₱1.2 M → reclusion temporal. Fines are set at double the damage.
R.A. 10175 §6(c)	Computer‑related estafa: any estafa committed with or through information and communication technologies → penalty one degree higher.
R.A. 3019	Applies when the defrauded party is a gov’t entity; covers supplier kickbacks, collusive bidding, overpricing, split contracts, etc.
B.P. 22 (Bouncing Cheques)	Often charged together with estafa where fraudulent post‑dated cheques were issued to secure supplies.
Civil Code Arts. 19–21 (Abuse of Rights), 1170 (Fraud in obligations)	Basis for civil actions for damages alongside criminal prosecution.

3. Elements the prosecution must prove (based on prevailing jurisprudence)

A. Estafa by misappropriation / conversion – Art. 315 (1)(b)

Receipts on trust – Accused received money, goods, or other personal property in trust, on commission, or for administration or under any obligation to return or deliver.
Conversion – Accused misappropriated or converted the same, or denied receipt.
Prejudice – Owner suffered damage.
Demand – While not an element per se, jurisprudence treats prior demand as persuasive proof of misappropriation.

Typical supplier scenario: A distributor receives consigned inventory, sells it, then pockets proceeds without remitting; or a procurement officer receives goods for company storage then diverts them.

B. Estafa by false pretenses – Art. 315 (2)(a–d)

False representation – Prior to or during a transaction, the accused made untruthful statements about identity, qualification, ownership, power to sell, availability of funds, etc.
Reliance – Victim relied on these pretenses.
Delivery – Victim parted with money, goods, or documents.
Damage – Resulting prejudice.

Typical supplier scenario: “Paper” supplier wins a bidding using forged SEC papers and performance bond; issues post‑dated cheques knowing funds are insufficient; collects 50 % down‑payment and disappears.

4. Jurisprudential themes and illustrative cases

Case (G.R. No.)	Facts / Holding	Supplier‑fraud takeaway
People v. Locson (473 Phil 863)	Broker received farm equipment “for sale on commission,” sold them and did not remit proceeds despite demand. Convicted.	Misappropriation covers proceeds, not just the physical thing.
Lydia Reyes v. People (G.R. 162420, 2010)	Issued post‑dated cheques as payment for chicken supply knowing account was closed. Convicted under Art. 315 (2)(d) plus B.P. 22.	Double‑barrel liability is allowed; deceit precedes issuance.
People v. Mateo (G.R. 232012, 2021)	Government procurement: dummy suppliers colluded in rigged bidding, overpriced medicines. Estafa plus R.A. 3019.	Estafa may coexist with graft when gov’t funds are involved.
Spouses Banez v. People (G.R. 194765, 2016)	Demand letter not received; court ruled demand is not indispensable when conversion is proven by other means.	Suppliers caught on CCTV diverting warehouse stocks can be charged even absent written demand.

(The list is illustrative; numerous intermediate‑level cases from the Court of Appeals discuss nuances on demand, computation of damages, and cyber evidence.)

5. Interaction with other offenses

Qualified theft (Art. 310). When the perpetrator is an employee who takes company supplies without deceit but with grave abuse of confidence. The choice between qualified theft and estafa hinges on possession: material vs. juridical.
Falsification (Art. 171/172). Fake delivery receipts, invoices, or inspection reports can lead to complex crimes (estafa through falsification).
Cybercrime aggravation (R.A. 10175 §6(c)). Using doctored e‑invoices, phishing, or ERP manipulation increases the penalty by one degree.
Anti‑Money Laundering (R.A. 9160 as amended). Laundered proceeds exceeding ₱500,000 within one transaction or series fall under AMLA; banks must file suspicious transaction reports.

6. Civil, administrative and tax consequences

Aspect	Notes
Civil liability ex delicto	Art. 100 RPC – Convicted supplier must return property or equivalent plus interest. Corporate officers may be solidarily liable when they personally acted.
Independent civil actions	Based on Civil Code Arts. 19‑21 (abuse of rights), 2176 (quasi‑delict), 1170 (fraud). May be filed separately or simultaneously.
Tax exposure	Fraudulent invoices = undeclared income → deficiency income tax & VAT, plus 50 % fraud surcharge (Sec. 248 NIRC). False VAT input claims may violate Sec. 255 (false returns).
Administrative sanctions	SEC may revoke corporate license; DTI can cancel business name; BIR may suspend sales invoices; PCAB blacklists contractors; PhilGEPS blacklists suppliers.

7. Procedure, evidence and defenses

A. Venue & jurisdiction

Estafa up to ₱1.2 M → Regional Trial Court (RTC) if penalty >6 years; otherwise Metropolitan/ Municipal Trial Court.
Cyber‑related liability falls under RTC designated as cybercrime courts.

B. Prescription

Estafa prescribes in 15 years if penalty is prision mayor; 10 years if prision correccional. Prescription starts from discovery and demand (when needed).

C. Evidence

Paper trail – Purchase orders, contracts, delivery receipts, inspection reports, cheques.
Digital trail – Emails, ERP logs, e‑signatures (E‑Commerce Act).
Expert audits – COA findings (for government), external forensic accountants.
Demand letter – While not indispensable, strongly establishes misappropriation timeline.

D. Common defenses

No deceit / good faith – Supplier argues honest mistake, force majeure, or that buyer knew risks (e.g., goods sold as‑is).
Civil liability only – “Business deal gone sour.” Courts look for ab initio fraudulent intent; partial payments or settlement offers are not automatic defenses but may create reasonable doubt.
No damage – Goods eventually delivered or money already returned before filing.
Defective demand – Where demand is required but was not sufficiently proved.

8. Compliance and risk‑mitigation checklist for companies

Robust vendor onboarding – Verify SEC/DTI, mayor’s permit, tax clearance, reference checks.
Segregation of duties – Separate requisition, approvals, receiving, and payments.
Use of PhilGEPS & GPPB rules – For government entities; prevents collusion.
Automated three‑way match – PO vs. receiving vs. invoice. Exceptions routed for approval.
Random post‑delivery inspections – Catch ghost deliveries and substitution.
Whistle‑blower channels – Employees and sub‑suppliers report anomalies; covered by R.A. 6981 (Witness Protection) & company policy.
Supplier scorecards & rotation – Avoid dependency and detect unusual pricing trends.
Cybersecurity controls – MFA on ERP, immutable logs, e‑invoice authenticity checks (QR code under BIR’s e‑Invoicing).
Contract clauses – Stipulate right to audit, documentary completeness, liquidated damages, hold‑out on final payment until acceptance.
Ethics training – Emphasize criminal consequences of estafa, graft and AMLA.

9. Special contexts

Context	Distinct rules / additional exposure
Government procurement	R.A. 9184 (Procurement Law) + R.A. 3019; administrative blacklisting; COA disallowances.
Public‑private partnerships	NEDA JV Guidelines; fraudulent misrepresentation grounds for rescission and blacklisting across gov’t agencies.
Cross‑border supply chain	May invoke Art. 31 Revised Penal Code (extraterritoriality if forged docs were executed in PH); MLATs for evidence abroad.
SME factoring / supply‑chain finance	Falsified receivables can be estafa vs. financing company; covered by R.A. 9474 (Lending Company Regulation Act) and SEC rules.

10. Penalties snapshot (after R.A. 10951)

Amount defrauded	Penalty	Equivalent imprisonment
≤ ₱2,000	Arresto menor or mayor to 6 months	1 day – 6 months
> ₱2,000 – ₱40,000	Arresto mayor to prision correccional	6 months – 6 years
> ₱40,000 – ₱1.2 M	Prision correccional in its max to prision mayor	4 years 2 mths – 12 years
> ₱1.2 M	Prision mayor max to reclusion temporal	12 years 1 day – 20 years
Cyber‑estafa	Penalty one degree higher than above
If supplier an offended gov’t entity	May carry perpetual disqualification from public office under R.A. 3019

11. Investigatory bodies and complaint avenues

National Bureau of Investigation – Anti‑Fraud Division
Philippine National Police – Anti‑Cybercrime Group (for ICT‑mediated scams)
Office of the Ombudsman / Sandiganbayan (when public funds or officials are involved)
Department of Justice – Office of Cybercrime
Securities and Exchange Commission – Enforcement and Investor Protection Department
Commission on Audit (government transactions)
Banking compliance teams (SAR, CTR under AMLA)

12. Practical litigation tips

Quantify damage early – Obtain independent valuation to meet RPC thresholds; supports restitution claims.
Preserve digital evidence – Hash files, execute affidavits of preservation to satisfy Rules on Electronic Evidence.
Consider civil compromise – Under Art. 23 RPC, compromise after filing does not extinguish criminal liability, but restitution can mitigate penalty and aid probation.
Strategic venue selection – Where one essential element occurred (e.g., demand letter sent).
Explore plea bargaining – Smaller-value estafa may plea to theft or access‑device fraud.
Coordinate with AMLC – Freeze order on suspect accounts may secure restitution.

13. Forward‑looking developments

E‑Invoicing and real‑time BIR reporting (R.A. 10963 TRAIN Law) will reduce fake ORs/DRs.
Proposed measure on Financial Products and Services Consumer Protection could heighten liability for fintech‑based supplier scams.
Electronic notarization and blockchain smart contracts may enhance evidentiary integrity.
Regional Comprehensive Economic Partnership (RCEP) may introduce cross‑border dispute‑resolution mechanisms for supplier fraud.

14. Concluding insights

Supplier fraud, while essentially a commercial wrong, squarely fits within the classic contours of estafa under Article 315 when deceit or abuse of confidence causes damage. Philippine law responds with a layered framework—RPC, special penal statutes, civil liabilities, administrative blacklisting and tax sanctions—creating a multi‑front deterrent. For enterprises, the key takeaway is preventive governance: robust due diligence, digital controls and contractual safeguards are far cheaper than litigation after the fact. For counsel, mastery of jurisdictional nuances, cyber‑evidence rules and restitution strategies is indispensable to an effective prosecution—or defense—of supplier‑fraud cases.

Supplier Fraud (Estafa) in the Philippines