Land Bank of the Philippines vs. Jacinto

The pendency of a civil action for declaration of novation does not constitute a prejudicial question in a prosecution for violation of B.P. 22, because novation of the underlying obligation does not extinguish the criminal liability for issuing a worthless check; the gravamen of the offense is the act of making and issuing a worthless check, and the agreement surrounding its issuance is irrelevant to the prosecution.

The First Women's Credit Corporation (FWCC) obtained a loan from Land Bank of the Philippines in the aggregate amount of ₱400 million, evidenced by a Credit Line Agreement dated August 22, 1997. As security for the loan, Ramon P. Jacinto, President of FWCC, issued in favor of Land Bank nine postdated checks amounting to ₱465 million drawn against FWCC's account at the Philippine National Bank. Before the checks matured, Land Bank and Jacinto executed several letter agreements which culminated in the execution of a Restructuring Agreement on June 3, 1998, under which the loan obligation contracted under the Credit Line Agreement was restructured, its terms of payment, among others, having been changed or modified.

When FWCC defaulted in the payment of the loan obligation under the terms of the restructured agreement, Land Bank presented for payment to the drawee bank the postdated checks as they matured. All the checks were dishonored or refused payment for the reason "Payment Stopped" or "Drawn Against Insufficient Funds." Jacinto failed to make good the checks despite demands.

On January 13, 1999, Land Bank, through its Assistant Vice President, Udela C. Salvo, Financial Institutions Department, filed before the Makati City Prosecutor's Office a Complaint-Affidavit against Jacinto for violation of B.P. 22. Jacinto filed his Counter-Affidavit denying the charges and averring that the complaint was baseless and utterly devoid of merit as the loan obligation had been extinguished by payment and novation by virtue of the execution of the Restructuring Agreement. He also invoked the proscription in the May 28, 1998 Order of the RTC of Makati City, Branch 133 in Special Proceedings No. M-4686 for Involuntary Insolvency, which forbade FWCC from paying any of its debts.

In a Resolution dated March 3, 1999, Prosecutor George V. De Joya dismissed the complaint against Jacinto, finding that the letter-agreements between Land Bank and FWCC restructured and novated the original loan agreement; it was held that, there being novation, the checks issued pursuant to the original loan obligation had lost their efficacy and validity and could not be a valid basis to sustain the charge of violation of B.P. 22. On June 21, 1999, Land Bank's motion for reconsideration was denied.

Land Bank elevated the matter to the DOJ for review. On April 10, 2000, the DOJ issued a Resolution dismissing the appeal. However, upon Land Bank's motion for reconsideration, the DOJ reversed its ruling and issued a Resolution dated October 25, 2000 holding that novation is not a mode of extinguishing criminal liability, and directed the City Prosecutor of Makati to file the appropriate informations for violation of B.P. 22 (nine counts) against Jacinto. Jacinto's motion for reconsideration was denied in a Resolution dated December 18, 2000, prompting him to file a petition for certiorari before the CA.

On November 28, 2001, the CA reversed the DOJ Resolution and reinstated the Resolution of Prosecutor De Joya dismissing the complaint. While the CA ruled that novation is not a mode of extinguishing criminal liability, it nevertheless held that novation may prevent criminal liability from arising in certain cases if novation occurs before the criminal information is filed in court because the novation causes doubt as to the true nature of the obligation. The CA also found merit in Jacinto's assertion that a prejudicial question existed because the issue of whether the original obligation of FWCC subject of the dishonored checks had been novated by the subsequent agreements was already the subject of the appeal in Civil Case No. 98-2337 (First Women's Credit Corporation vs. Land Bank of the Philippines, for Declaration of Novation) pending before the CA. The CA also gave consideration to Jacinto's assertion that the May 28, 1998 Order of the RTC proscribing FWCC from paying its debts constituted a justifying circumstance which prevented criminal liability from attaching.

• Novation: Petitioner asserted that the June 3, 1998 Restructuring Agreement did not release FWCC from its obligation with Land Bank; it merely accommodated FWCC's sister company, RJ Ventures and Development Corporation.
• Nature of B.P. 22: Petitioner argued that whether there was novation or not is not determinative of respondent's responsibility for violation of B.P. 22, as the special law punishes the act of issuing a worthless check and not the purpose for which the check was issued or the terms and conditions relating to its issuance.
• Insolvency Order: Petitioner argued that in ruling that the May 28, 1998 Order of the RTC constituted a justifying circumstance, the CA failed to take judicial notice of Section 86-B(4) of Republic Act No. 7907, which excludes the proceeds of the checks from the property of the insolvent FWCC.

• Novation: Respondent countered that there was novation which occurred prior to the institution of the criminal complaint against him and that, if proven, it would affect his criminal liability; he averred that if the CA would judicially confirm the existence of novation in the appeal of Civil Case No. 98-2337, then the value represented by the subject checks would be extinguished.
• Modification of Consideration: Respondent argued that the consideration or value of the subject checks had been modified or novated with the execution of the Restructuring Agreement; payment of the obligation depended on the terms and conditions of the Restructuring Agreement and no longer on the respective maturity dates of the checks, rendering the value or consideration of the checks inexistent.
• Extinguishment of Criminal Liability: Respondent maintained that the subject checks can no longer be the basis of criminal liability since the obligation for which they were issued had already been novated or abrogated.

• Prejudicial Question: Whether the pendency of Civil Case No. 98-2337 for Declaration of Novation raises a prejudicial question that bars the prosecution of respondent for violation of B.P. 22.
• Justifying Circumstance: Whether the May 28, 1998 Order of the RTC of Makati in Special Proceedings No. M-4686 for Involuntary Insolvency constitutes a justifying circumstance that prevents criminal liability from attaching to respondent.
• Probable Cause: Whether the CA erred in reversing the DOJ Resolution finding probable cause to hold respondent liable for violation of B.P. 22.

• Prejudicial Question: No. The question of novation is not determinative of criminal liability under B.P. 22, since the gravamen of the offense is the act of making and issuing a worthless check and the agreement surrounding its issuance is irrelevant to the prosecution.
• Justifying Circumstance: No. The insolvency order was directed only against FWCC and cannot be invoked by respondent, who as surety remained bound by his obligation on the checks.
• Probable Cause: Yes. The CA erred in reversing the DOJ Resolution; the DOJ correctly found probable cause for nine counts of violation of B.P. 22.

• Prejudicial Question: The SC laid down the rule that a prejudicial question generally exists where a civil action and a criminal action are both pending, and there exists in the former an issue that must be preemptively resolved before the latter may proceed, because howsoever the issue raised in the civil action is resolved would be determinative juris et de jure of the guilt or innocence of the accused in the criminal case. Under Section 7, Rule 111 of the Revised Rules of Criminal Procedure, as amended, the elements are (i) the previously instituted civil action involves an issue similar or intimately related to the issue raised in the subsequent criminal action, and (ii) the resolution of such issue determines whether or not the criminal action may proceed. The SC stressed that not every defense raised in a civil action raises a prejudicial question; the defense must involve an issue similar or intimately related to the same issue raised in the criminal case, and its resolution should determine whether or not the latter action may proceed. If the resolution of the issue in the civil action will not determine the criminal responsibility of the accused based on the same facts, or if there is no necessity that the civil case be determined first, the civil case does not involve a prejudicial question; neither is there one if the civil and criminal actions can, according to law, proceed independently of each other. Applying these rules, the SC found that the question of whether there was novation of the Credit Line Agreement was not determinative of whether respondent should be prosecuted for violation of the Bouncing Checks Law. There was no express stipulation in the Restructuring Agreement releasing respondent from liability on the issued checks; on the contrary, the letter-agreements expressly provided that respondent's JSS (Joint and Several Signatures) continued to secure the loan obligation and the postdated checks continued to guaranty the obligation. The SC noted that eight of the nine checks were dated June 8 to October 30, 1998, or after the execution of the June 3, 1998 Restructuring Agreement, and that if his liability had indeed been extinguished, respondent should have demanded the return of the checks; there was no proof he had been released. The Restructuring Agreement itself contained a proviso that "This Agreement shall not novate or extinguish all previous security, mortgage, and other collateral agreements, promissory notes, solidary undertaking previously executed by and between the parties and shall continue in full force and effect modified only by the provisions of this Agreement." The SC further held that the mere act of issuing a worthless check, even if merely as an accommodation, is covered by B.P. 22, and that the agreement surrounding the issuance of dishonored checks is irrelevant to the prosecution. The gravamen of the offense is the act of making and issuing a worthless check or a check that is dishonored upon presentment for payment. Section 1 of B.P. 22 requires (1) the making, drawing, and issuance of any check to apply on account or for value; (2) the knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of the check in full upon its presentment; and (3) the subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit, or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment. Thus, even if it were subsequently declared that novation took place between FWCC and petitioner, respondent would not be exempt from prosecution for violation of B.P. 22.
• Justifying Circumstance: The SC ruled in the negative, holding that the May 28, 1998 Order of the RTC of Makati in Special Proceedings No. M-4686 forbade FWCC from paying its debts as well as from delivering any property belonging to it to any person for its benefit. Respondent, however, could not invoke this Order, which was directed only upon FWCC and was not applicable to him. As surety of the loan, respondent was not exempt from complying with his obligation for the issuance of the checks.
• Probable Cause: The SC concluded that the CA erred in reversing the DOJ Resolution. Since the novation issue did not raise a prejudicial question and the insolvency order did not constitute a justifying circumstance, the DOJ's finding of probable cause to hold respondent triable for nine counts of violation of B.P. 22 stood, and the Resolution dated October 25, 2000 directing the filing of the appropriate Informations was reinstated and upheld.

• Prejudicial Question — A prejudicial question is understood in law as that which must precede the criminal action and which requires a decision before a final judgment can be rendered in the criminal action with which said question is closely connected. It generally exists where a civil action and a criminal action are both pending, and there exists in the former an issue that must be preemptively resolved before the latter may proceed, because howsoever the issue raised in the civil action is resolved would be determinative juris et de jure of the guilt or innocence of the accused in the criminal case. Its elements under Section 7, Rule 111 of the Revised Rules of Criminal Procedure, as amended, are: (i) the previously instituted civil action involves an issue similar or intimately related to the issue raised in the subsequent criminal action, and (ii) the resolution of such issue determines whether or not the criminal action may proceed. The SC applied the doctrine by holding that the novation issue in Civil Case No. 98-2337 was not determinative of criminal liability under B.P. 22, and that the civil and criminal actions could proceed independently.
• Gravamen of B.P. 22 — The gravamen of the offense punished by B.P. 22 is the act of making and issuing a worthless check or a check that is dishonored upon its presentment for payment. The SC applied this by holding that the agreement surrounding the issuance of dishonored checks is irrelevant to the prosecution, and that the mere act of issuing a worthless check, even if merely as an accommodation, is covered by the law.
• Elements of Violation of B.P. 22 — Section 1 of B.P. 22 enumerates: (1) the making, drawing, and issuance of any check to apply on account or for value; (2) the knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of the check in full upon its presentment; and (3) the subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit, or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment. The SC applied these elements to hold that respondent remained liable notwithstanding the alleged novation.
• Novation Does Not Extinguish Criminal Liability — The SC held that even if it be subsequently declared that novation took place between FWCC and Land Bank, respondent is not exempt from prosecution for violation of B.P. 22 for the dishonored checks. Novation of the underlying civil obligation does not extinguish the criminal liability attaching to the issuance of a worthless check.
• Insolvency Order Binds Only the Debtor, Not the Surety — An order in involuntary insolvency proceedings forbidding the debtor from paying its debts is directed only upon the debtor and is not applicable to the surety, who remains bound by his obligation on the checks.

• "The gravamen of the offense punished by B.P. 22 is the act of making and issuing a worthless check or a check that is dishonored upon its presentment for payment." — This defines the core of the B.P. 22 offense and anchors the SC's holding that the agreement surrounding the check's issuance is irrelevant to the prosecution.
• "A prejudicial question is understood in law as that which must precede the criminal action and which requires a decision before a final judgment can be rendered in the criminal action with which said question is closely connected." — This is the canonical definition applied by the SC in rejecting the CA's finding of a prejudicial question.
• "This Agreement shall not novate or extinguish all previous security, mortgage, and other collateral agreements, promissory notes, solidary undertaking previously executed by and between the parties and shall continue in full force and effect modified only by the provisions of this Agreement." — The proviso in the Restructuring Agreement that the SC used to show respondent was not released from liability on the checks.
• "Even if it be subsequently declared that novation took place between the FWCC and petitioner, respondent is not exempt from prosecution for violation of B.P. 22 for the dishonored checks." — The ratio decidendi on the novation issue.

• Yap vs. Cabales, G.R. No. 159186, June 5, 2009, 588 SCRA 426 — Cited for the definition of a prejudicial question.
• Jose vs. Suarez, G.R. No. 176795, June 30, 2008, 556 SCRA 773 — Cited for the elements of a prejudicial question under Section 7, Rule 111 of the Revised Rules of Criminal Procedure.
• Berbari vs. Concepcion and Prosecuting Attorney of Manila, 40 Phil. 837 (1920) — Cited for the definition of a prejudicial question as one that must precede the criminal action.
• Ty-De Zuzuarregui vs. Hon. Villarosa, G.R. No. 183788, April 5, 2010 — Cited for the rule that there is no prejudicial question if the civil and criminal actions can proceed independently of each other.
• Saguiguit vs. People, G.R. No. 144054, June 30, 2006, 494 SCRA 128 — Cited for the rule that the mere act of issuing a worthless check, even if merely as an accommodation, is covered by B.P. 22.
• Dreamwork Construction, Inc. vs. Janiola, G.R. No. 184861, June 30, 2009, 591 SCRA 466 — Cited for the rule that the agreement surrounding the issuance of dishonored checks is irrelevant to the prosecution for violation of B.P. 22.
• Nuguid vs. Nicdao, G.R. No. 150785, September 15, 2006, 502 SCRA 93 — Cited for the rule that the gravamen of the offense punished by B.P. 22 is the act of making and issuing a worthless check.

• Section 1, Batas Pambansa Blg. 22 (The Bouncing Checks Law) — Enumerates the elements of the offense: (1) the making, drawing, and issuance of any check to apply on account or for value; (2) the knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of the check in full upon its presentment; and (3) the subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit, or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment. The SC applied these elements to hold respondent liable notwithstanding the alleged novation.
• Section 7, Rule 111, Revised Rules of Criminal Procedure, as amended — Provides the elements of a prejudicial question: (i) the previously instituted civil action involves an issue similar or intimately related to the issue raised in the subsequent criminal action, and (ii) the resolution of such issue determines whether or not the criminal action may proceed. The SC applied this to hold that no prejudicial question existed.
• Section 86-B(4), Republic Act No. 7907 (amending R.A. No. 3844, the Land Bank Charter) — Provides that securities on loans and/or other credit accommodations granted by the bank shall not be subject to attachment, execution, or any other court process, nor shall they be included in the property of insolvent persons or institutions, unless all debts and obligations of the debtors to the bank have been paid. Petitioner invoked this provision to argue that the CA should have taken judicial notice of it in rejecting the justifying-circumstance theory.