Sia vs. People of the Philippines

A conviction under Section 1, B.P. Blg. 22 cannot stand where the prosecution fails to prove that the drawer received written notice of dishonor; without such notice, the five-banking-day period cannot be determined and the prima facie presumption of knowledge under Section 2 cannot arise. The drawer has a right to demand that written notice of dishonor be sent to and received by him to enable him to avoid indictment.

Willy G. Sia, sole proprietor of WGS Construction Specialists, leased construction equipment from Consolidated Orient Leasing and Finance Corporation under an 18-month lease agreement; he and his wife Judy executed a surety agreement for his obligations. B.P. Blg. 22 punishes making or drawing and issuing a check for account or value with knowledge at the time of issue of insufficient funds or credit, and Section 2 creates a prima facie presumption of knowledge unless the drawer pays or arranges payment within five banking days after notice of dishonor.

On June 4, 1982, Consolidated Orient Leasing and Finance Corporation (COLF), as lessor, and Willy G. Sia, sole proprietor of WGS Construction Specialists, as lessee, executed a Lease Agreement for eighteen months covering one Komatsu Payloader, one Komatsu Bulldozer, and one Yutani Poclain. Under the lease, Sia was obliged to deposit ₱216,250.00 upon execution to guaranty payment of the agreed monthly rental of ₱44,980.00, payable at the COLF office. Sia and his wife Judy executed a surety agreement binding themselves jointly and severally to insure Sia's proper performance. Sia remitted the deposit and issued eighteen postdated checks for ₱44,980.00 each, drawn against his RCBC account, payable to COLF, to be deposited or encashed on their respective due dates.

COLF deposited the checks for the July to December 1982 rentals, and these were honored. It then deposited Check No. 233533, postdated January 4, 1983, for ₱44,980.00; the drawee bank dishonored it for "insufficient funds." On January 5, 1983, COLF wrote Sia informing him of the dishonor and requesting a replacement. On March 4, 1983, COLF deposited Check No. 233534, postdated March 4, 1983, for ₱44,980.00; the bank dishonored it for "account closed." On March 7, 1983, COLF wrote Sia of the dishonor. On March 10, 1983, COLF wrote Sia terminating the lease. Sia received the termination letter but did not respond. Despite termination, COLF deposited Check No. 233535 for ₱44,980.00 on April 4, 1983; the bank dishonored it for "account closed," and on April 6, 1983, COLF wrote Sia of the dishonor and requested a replacement. COLF received no reply.

On May 17, 1983, COLF filed a complaint for replevin and damages against Sia in the RTC of Makati, docketed as Civil Case No. 3958. On June 2, 1983, the RTC granted a writ of replevin, and a writ of seizure issued with a bond. Sia received the complaint and summons on October 21, 1983 but did not answer; on COLF's motion, he was declared in default. COLF presented evidence ex parte on February 8, 1984, but the sheriff failed to locate the equipment and did not seize it. On August 3, 1984, three Informations were filed with the RTC of Makati, docketed as Criminal Cases Nos. 11865, 11866, and 11867, charging Sia with violating B.P. Blg. 22 based on the dishonor of the checks postdated January 4, March 4, and April 4, 1983. Sia, assisted by counsel, pleaded not guilty.

Sia testified that upon executing the lease in 1982 he drew and delivered eighteen postdated checks for ₱44,980.00 each. Every month, as each check fell due, he informed COLF whether to deposit or encash the checks or to apply the current deposit for the rental due. He made good the first six checks but failed to fund the checks for January, March, and April 1983 because his financial condition was adversely affected by his Nueva Vizcaya project and RCBC had refused to extend credit. To facilitate payment, Sia asked COLF assistant manager Go Hong Ko to apply his ₱216,250.00 guaranty deposit to the postdated checks covering rentals from January 1983; Go Hong Ko told him there would be no problem because the deposit was intact and more than enough. Sia therefore no longer funded his account, thinking the deposit would answer for the checks. He alleged that he never received the January 5, March 7, and April 6, 1983 letters and was never notified that the checks were deposited and dishonored; he learned of the charges only when he received a subpoena from the Office of the City Prosecutor of Makati. He was not informed why his guaranty deposit was not applied to the three dishonored checks.

On March 12, 1984, the RTC rendered judgment in Civil Case No. 3958 in favor of COLF, ordering WGS Construction Specialists to pay ₱179,920.00 in accrued rentals, 3% penalty per month from January 1983 to May 17, 1983, ₱5,000.00 attorney's fees, ₱494,780.00 as actual value of the unrecovered leased property plus legal interest, and costs; it ordered the ₱216,250.00 guaranty deposit applied to the judgment and Sia and Judy jointly and severally liable for any unpaid balance. The decision became final and executory because Sia did not appeal. At the criminal trial, the prosecution's only witness was Eduardo R. Alvarez of COLF's collection department. He testified that he signed letters dated January 5, 1983 and July 7, 1983 addressed to Sia notifying him of the dishonor of the subject checks, but admitted that after signing he transmitted them to the collection department and had no personal knowledge whether they were sent to and actually received by Sia; the collection department merely told him they were sent. There was no evidence how the letters were sent, whether by personal delivery or registered mail. The RTC did not declare in its decision that COLF sent notices of dishonor to Sia and that he received them; it relied principally on Sia's admission that when Check No. 233533 became due his funds were insufficient, that his account was already closed when Check No. 233534 was deposited, and that he no longer funded the ensuing checks.

• Notice of Dishonor as Condition Precedent: Petitioner argued that a written notice or letter informing him of dishonor, giving him five banking days to pay or arrange payment, is mandatory; the notice and lapse of the five-day period are conditions precedent without which he cannot be charged or convicted under Section 1, first paragraph, B.P. Blg. 22.
• Prosecution's Burden Despite Admission: Petitioner maintained that his admission did not relieve the prosecution of proving beyond reasonable doubt that the checks were deposited, dishonored for insufficiency or closed account, that he was notified in writing of dishonor, and that five banking days from notice had elapsed without payment or arrangement; he did not admit knowledge at the time of issue.
• Application of Guaranty Deposit: Petitioner contended that he and COLF, through Go Hong Ko, agreed that his ₱216,250.00 guaranty deposit would be applied to the subject checks totaling ₱99,960.00, so there was no factual basis for indictment; he cited Ting vs. Court of Appeals.

• Sufficiency of Admission: The Office of the Solicitor General asserted that Sia's admission relieved the prosecution of the burden to prove that he knew of insufficient funds when he drew and issued the checks in 1982.
• Optional Application of Deposit: The OSG averred that under the lease agreement it was optional for COLF to apply the guaranty deposit to back rentals and the subject checks; Sia was obliged to fund the checks on due dates to avoid indictment under B.P. Blg. 22.

• Necessity of Written Notice: Whether a written notice of dishonor and the five-banking-day period are mandatory before a drawer may be convicted under Section 1, B.P. Blg. 22.
• Prima Facie Presumption: Whether the prosecution must prove that the drawer received written notice of dishonor before the prima facie presumption of knowledge under Section 2, B.P. Blg. 22 may arise.
• Knowledge at Time of Issue: Whether the drawer's admission that he had insufficient funds on the due dates and that his account was closed amounted to proof of knowledge at the time of issue.

• Necessity of Written Notice: Yes. A written notice of dishonor is required; the drawer has a right to demand that it be sent and received to enable him to avoid indictment, and without it the five-day period cannot be determined.
• Prima Facie Presumption: No. The prosecution failed to prove that COLF or the drawee bank sent written notice and that Sia received it; absent that factual basis, the presumption under Section 2 cannot arise.
• Knowledge at Time of Issue: No. Sia's admission that funds were insufficient when the checks fell due and that the account was closed did not admit knowledge when he issued the checks in June 1982; the first six checks were honored and the bank had extended credit.

• Necessity of Written Notice: Section 1, B.P. Blg. 22 punishes making, drawing, or issuing a check for account or value with knowledge at the time of issue that the drawer has insufficient funds or credit, when the check is subsequently dishonored. The SC enumerated the elements in King vs. People: (1) the accused makes, draws, or issues a check to apply to account or for value; (2) the check is subsequently dishonored for insufficiency of funds or credit, or would have been dishonored had not the drawer, without valid reason, ordered stop payment; and (3) the accused knows at the time of issuance that he or she does not have sufficient funds in or credit with the drawee bank for full payment upon presentment. The law is malum prohibitum and punishes the issuance of a worthless check, not the purpose for which it was issued; it safeguards the banking system and is not designed to coerce a debtor. Section 2 creates a prima facie presumption of knowledge, but only if the check is presented within 90 days, the drawer receives notice that the check was not paid, and the drawer fails to pay or arrange payment within five banking days after notice. The notice may be sent by the drawee bank, holder, or offended party by personal delivery or registered mail. Domagsang vs. Court of Appeals requires the notice to be in writing; an oral notice is insufficient, and Section 3 requires that insufficiency be explicitly stated in the notice of dishonor or refusal. Lao vs. Court of Appeals explains that the five-day period allows the drawer to pay or arrange payment, which is a complete defense. Without written notice or proof of receipt, the five-day period cannot be determined and the presumption cannot arise. Thus written notice is mandatory.
• Prima Facie Presumption: The prosecution failed to establish the factual basis for the presumption. The only witness, Eduardo R. Alvarez, signed letters dated January 5, 1983 and July 7, 1983 but admitted he had no personal knowledge whether they were sent to and received by Sia; the collection department merely told him they were sent. There was no evidence whether the letters were sent by personal delivery or registered mail. The RTC did not declare that COLF sent notices of dishonor and that Sia received them. Because there was no proof of written notice and receipt, the five-day period could not be determined and the prima facie presumption of knowledge under Section 2 did not arise. The CA erred in treating notice as immaterial.
• Knowledge at Time of Issue: Sia admitted that when Check No. 233533 became due his funds were insufficient and that when Check No. 233534 was deposited his account was closed, and that he no longer funded the ensuing checks. That admission concerned the due dates, not the time of issue in June 1982. Sia testified that the bank had extended credit facilities to him and that the first six postdated checks for July to December 1982 were honored; the bank closed the account only after he suffered financial reverses. The prosecution had to prove knowledge at the time of issue and could not rely on the weakness of Sia's evidence. Even assuming knowledge, Sia could have paid or arranged payment if he had been notified; COLF's failure to notify deprived him of that chance.

• Elements of violation of Section 1, B.P. Blg. 22 — The prosecution must prove: (1) the accused makes, draws, or issues a check to apply to account or for value; (2) the check is subsequently dishonored for insufficiency of funds or credit, or would have been dishonored had not the drawer, without valid reason, ordered stop payment; and (3) the accused knows at the time of issuance that he or she does not have sufficient funds in or credit with the drawee bank for full payment upon presentment. The SC applied this by requiring proof of knowledge at the time of issue, not merely at the due date.
• Written notice of dishonor — Under Section 2, B.P. Blg. 22, the prima facie presumption of knowledge arises only if (a) the check is presented within 90 days from its date; (b) the drawer receives notice that the check was not paid by the drawee; and (c) the drawer fails to pay the holder or make arrangements for full payment within five banking days after receiving notice. The notice must be in writing and may be sent by the drawee bank, holder, or offended party by personal delivery or registered mail. The SC applied this by acquitting Sia because there was no proof of written notice and receipt.
• Prima facie presumption of knowledge — The presumption is not automatic; the prosecution must first prove its factual basis. Only then does the burden of evidence shift to the drawer to prove lack of knowledge at the time of issue. The SC applied this by holding that absent proof of notice, the presumption could not arise.
• Five-banking-day period as complete defense — If the maker or drawer pays the amount due or makes arrangements with the drawee bank for payment within five banking days from notice of dishonor, it is a complete defense; the accused may no longer be indicted, or may set up payment as a defense. The SC applied this by noting that COLF's failure to notify deprived Sia of the chance to avoid prosecution.
• B.P. Blg. 22 as malum prohibitum — The law punishes the issuance of a worthless check, not the purpose for which it was issued or the terms of its issuance; it is intended to safeguard the banking system and legitimate checking account users, not to coerce a debtor to pay. The SC applied this by focusing on the statutory elements and notice requirement rather than the lease or deposit arrangement.

• "The act sought to be prevented by the law is the act of making and issuing a check with the knowledge that, at the time of issue, the drawer issuing the check does not have sufficient funds in or credit with the bank for payment and the check was subsequently dishonored upon presentment." — Defines the act punished and emphasizes that knowledge must exist at the time of issue.
• "The drawer or maker of a check has a right, under the law, to demand that a written notice of dishonor be sent to and received by him to enable him to avoid indictment for violation of B.P. Blg. 22." — States the drawer's right to written notice as a safeguard against prosecution.
• "Unless and until the drawer or maker of the check receives a written notice of dishonor of the check, or where there is no proof as to when such notice of dishonor was received by the drawer or maker, the five-day period within which the drawer or maker has to pay the amount due or made arrangements with the drawee bank for the payment of the check, cannot be determined. In such case, the prima facie presumption cannot arise." — Explains why proof of written notice and receipt is a precondition to the prima facie presumption.
• "If the maker or drawer pays, or makes arrangements with the drawee bank for the payment of the amount due within the five-day period from notice of the dishonor given to the drawer, it is a complete defense; the accused may no longer be indicted for violation of Section 1, B.P. Blg. 22." — Identifies payment or arrangement within the five-day period as a complete defense.

• King vs. People, 319 SCRA 654, 666 (1994) — Controlling precedent for the three elements of Section 1, B.P. Blg. 22.
• Domagsang vs. Court of Appeals, 347 SCRA 75 (2000) — Followed; held that notice of dishonor must be in writing.
• Lao vs. Court of Appeals, 274 SCRA 375 (1997) — Followed; explained the five-banking-day period and payment or arrangement as a complete defense.
• Danao vs. Court of Appeals, 358 SCRA 450 (2001) — Followed; held that without proof of written notice or receipt, the five-day period cannot be determined and the prima facie presumption cannot arise.
• Lagman vs. People, 371 SCRA 686 (2001) — Cited for the rule that the law punishes issuance of a worthless check, not the purpose for which it was issued.
• Lozano vs. Martinez, 146 SCRA 323 (1986) — Cited for the rule that B.P. Blg. 22 is not intended to coerce a debtor to pay.
• Griffith vs. Court of Appeals, 379 SCRA 94 (2002) — Cited for the rule that the law safeguards the banking system and legitimate checking account users.
• Navarro vs. Court of Appeals, 234 SCRA 639 (1994) — Cited in Lao vs. Court of Appeals for payment of the amount due as a complete defense.

• Section 1, B.P. Blg. 22 — Defines the crime of making or drawing and issuing a check for account or value with knowledge at the time of issue of insufficient funds or credit, when the check is subsequently dishonored. The SC applied it by requiring proof of all elements, including knowledge at the time of issue.
• Section 2, B.P. Blg. 22 — Creates a prima facie presumption of knowledge where the check is presented within 90 days, the drawer receives notice of nonpayment, and the drawer fails to pay or arrange payment within five banking days after notice. The SC applied it by holding that absent proof of written notice and receipt, the presumption cannot arise.
• Section 3, B.P. Blg. 22 — As construed in Domagsang vs. Court of Appeals, requires that insufficiency of funds be explicitly stated in the notice of dishonor or refusal. The SC applied it to support the requirement of written notice.