Broken Promises Aren’t a Get-Out-of-Jail-Free Card: Criminal Liability for Bouncing Checks Remains Despite Payment Agreements

Issuing a bad check in the Philippines is a serious offense under Batas Pambansa Blg. 22 (B.P. Blg. 22), the Bouncing Checks Law. Even if you try to make amends later with payment plans or promises, these attempts, legally termed ‘novation,’ generally won’t erase your criminal liability once the check has bounced. The Supreme Court case of Nilo B. Diongzon v. Court of Appeals and People of the Philippines clarifies this point, emphasizing that while civil obligations can be modified, criminal liability for issuing a bouncing check is not easily escaped through subsequent agreements.

G.R. No. 114823, December 23, 1999

INTRODUCTION

Imagine running a business and accepting checks as payment, only to find out they bounce. Frustrating, right? Now, imagine being the one who issued those checks, thinking you could smooth things over later. In the Philippines, B.P. Blg. 22 makes issuing bouncing checks a crime, and the case of Nilo Diongzon highlights a crucial defense that often fails: novation. Diongzon, a sales supervisor, issued checks that bounced and later tried to argue that his payment arrangements with the company constituted novation, thus extinguishing his criminal liability. The Supreme Court, however, firmly rejected this argument. The central legal question: Can a subsequent agreement to pay a bounced check erase the criminal liability already incurred under B.P. Blg. 22?

LEGAL CONTEXT: B.P. BLG. 22 and the Limits of Novation

B.P. Blg. 22, enacted to bolster confidence in the Philippine banking system and deter the issuance of bad checks, penalizes two key acts: making or drawing and issuing a check knowing that at the time of issue, or subsequently, the drawer does not have sufficient funds or credit with the bank, and having sufficient funds but failing to maintain them to cover the check upon presentment. The law aims to punish the act of issuing a worthless check, not merely the failure to pay a debt.

The critical elements of the offense are:

1. Making, drawing, and issuing any check;
2. Presentment of the check for payment within ninety (90) days from the date of the check;
3. Dishonor of the check by the drawee bank for insufficiency of funds or credit, or closed account; and
4. Notice of dishonor to the maker or drawer and failure of the drawer to pay the amount of the check within five (5) banking days from receipt of notice.

Now, let’s talk about ‘novation.’ In civil law, novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one. It essentially replaces an old contract with a new one. There are two types: ‘extinctive’ novation, where the old obligation is completely extinguished, and ‘modificatory’ novation, where the obligation is merely changed or modified. For novation to be valid, several requisites must concur:

1. A previous valid obligation;
2. Agreement of all parties to the new contract;
3. Extinguishment of the old contract; and
4. Validity of the new one.

However, the crucial point emphasized in Diongzon, and in Philippine jurisprudence, is that novation, while effective in civil obligations, generally does not extinguish criminal liability. As the Supreme Court has stated in previous cases, criminal liability is public in nature and cannot be simply bargained away by private agreements.

CASE BREAKDOWN: Diongzon’s Bouncing Checks and Failed Defense

Nilo Diongzon was a sales supervisor at Filipro, Inc. (now Nestle Philippines, Inc.). His job involved authorizing product withdrawals, collecting payments, and depositing them. Filipro’s accounting department noticed irregularities – unusually large orders signed by Diongzon. An investigation ensued, led by Area Sales Manager Anacleto Palisoc. Palisoc discovered that some dealers denied receiving goods under delivery orders signed by Diongzon.

Here’s where the checks come in. Diongzon approached a sales representative, Rene Garibay, and offered to help collect payments. He then presented three checks to Garibay, ostensibly to pay for invoices issued to dealers Queensland, Queendies, and Cokins. These checks totaled a substantial P298,119.75.

Filipro deposited these checks, but they bounced. Two were dishonored due to signature discrepancies, and the third for insufficient funds. When confronted, Diongzon admitted issuing the checks from his account. His explanation? He was engaged in ‘credit riding,’ an unofficial practice to boost sales by allowing unauthorized dealers to use authorized dealers’ credit lines. He claimed he issued the checks to cover these unauthorized transactions, expecting payment from the actual recipients of the goods.

During the trial at the Regional Trial Court (RTC), Diongzon’s defense was inconsistent. He initially denied the signatures on two checks, then argued the checks weren’t issued ‘on account’ or ‘for value’ – essential elements under B.P. Blg. 22. Later, he even claimed the third check was a replacement for the second, which he supposedly didn’t issue. The RTC, unconvinced, found him guilty.

Diongzon appealed to the Court of Appeals (CA), raising the same defenses and adding a new one: novation. He argued that the third check, partial payments, and a written undertaking to pay the balance constituted a novation, extinguishing his obligation and any criminal liability. The CA affirmed the RTC’s decision, stating that novation doesn’t erase criminal liability.

Finally, Diongzon reached the Supreme Court. He reiterated the novation argument, claiming the new agreement predated the filing of the criminal information. The Supreme Court, in its decision penned by Justice Mendoza, firmly rejected this defense. The Court highlighted that:

“As the Court of Appeals held, novation is not a mode of extinguishing criminal liability and criminal liability, once incurred, cannot be compromised.”

The Court further elaborated, stating:

“Nor is novation a mode of extinguishing criminal liability. As held by this Court, novation ‘may prevent the rise of criminal liability as long as it occurs prior to the filing of the criminal information in court.’ In other words, novation does not extinguish criminal liability but may only prevent its rise.”

Because the issuance of the bouncing checks and their dishonor had already occurred, the criminal liability had already arisen. Diongzon’s subsequent payment arrangements were deemed irrelevant to the already committed crime. The Supreme Court affirmed the Court of Appeals’ decision, with a minor modification regarding subsidiary imprisonment.

PRACTICAL IMPLICATIONS: Bouncing Checks and Your Business

The Diongzon case serves as a stark reminder of the serious consequences of issuing bouncing checks in the Philippines. For businesses and individuals, the implications are clear:

• Issuing a check without sufficient funds is a crime: B.P. Blg. 22 is not just about debt collection; it’s about maintaining the integrity of checks as a form of payment.
• Payment arrangements after a check bounces don’t erase criminal liability: While attempting to rectify the situation is commendable, it doesn’t undo the crime already committed. Criminal liability is triggered at the moment the check is issued and dishonored.
• Focus on prevention: Businesses should implement robust internal controls to prevent issuing or accepting bouncing checks. This includes careful monitoring of bank balances and due diligence when accepting checks.
• Negotiate *before* issuing a check if you foresee funding issues: If you anticipate difficulty covering a payment, communicate with the payee *before* issuing a check. Explore alternative payment methods or negotiate payment terms upfront.

Key Lessons

• Criminal liability under B.P. Blg. 22 arises upon issuance and dishonor of a bouncing check.
• Novation or subsequent payment arrangements generally do not extinguish pre-existing criminal liability for bouncing checks.
• Prevention is key: Ensure sufficient funds before issuing checks to avoid legal repercussions.

FREQUENTLY ASKED QUESTIONS (FAQs)

Q: What is B.P. Blg. 22?

A: B.P. Blg. 22, or the Bouncing Checks Law, is a Philippine law that penalizes the making, drawing, and issuance of bouncing checks.

Q: Can I go to jail for issuing a bouncing check?

A: Yes, B.P. Blg. 22 carries penalties that can include imprisonment, fines, or both, depending on the specific circumstances and the court’s discretion.

Q: If I pay the amount of the bounced check after it’s dishonored, will I still be criminally liable?

A: Potentially, yes. While paying the amount may mitigate damages and could be considered in sentencing, it doesn’t automatically erase the criminal liability that arose when you issued the check without sufficient funds. The Diongzon case clarifies this point.

Q: What is ‘novation’ and how does it relate to bouncing checks?

A: Novation is the substitution of an old obligation with a new one. In the context of bouncing checks, some individuals attempt to argue that a subsequent payment agreement is a novation that extinguishes their criminal liability. However, Philippine courts, as seen in Diongzon, have consistently held that novation typically does not extinguish criminal liability for B.P. Blg. 22 violations.

Q: What should I do if I receive a notice of dishonor for a check I issued?

A: Immediately contact the payee and make arrangements to pay the amount of the check within five (5) banking days to potentially mitigate further legal action. However, remember this payment might not eliminate criminal liability entirely.

Q: I am a business owner and I frequently receive checks. How can I protect myself from bouncing checks?

A: Implement measures such as verifying the check issuer’s identity, checking their bank account details if possible, and considering alternative payment methods like bank transfers or credit card payments for larger transactions.

Q: Does this mean payment agreements are completely useless after a check bounces?

A: No, payment agreements are still crucial for resolving the civil aspect of the obligation. While they may not erase criminal liability, they demonstrate good faith and can influence sentencing and prevent further civil suits. They are important for damage control and mitigating losses.

ASG Law specializes in criminal defense and commercial litigation, including cases involving B.P. Blg. 22. Contact us or email hello@asglawpartners.com to schedule a consultation.