NEGOTIABLE INSTRUMENTS AND

BOUNCING CHECKS LAW REVIEW

SYLLABUS CONTENTS:

I. Negotiable Instruments
A. Negotiability of Instrument
B. Abnormal negotiable instruments
C. Incomplete but delivered instruments
D. Incomplete and undelivered instruments
E. Complete but undelivered instruments
F. Instruments with forged signature

II. Bouncing Checks

A. Checks without insufficient funds
B. Evidence of knowledge of insufficient funds
C. Duty of Drawee
D. Credit Construed

A. BASIC CONCEPTS

1. What are negotiable instruments?

(a) They are written contracts for the payment of money;

by its form, intended as a substitute for money and intended to pass from
hand to hand, to give the holder in due course the right to hold the same
and collect the sum due.

2. Characteristics of negotiable instruments:

 (a) Negotiability – right of transferee to hold the instrument and collect the
sum due
(b) Accumulation of secondary contracts – instrument is negotiated from
person to person

3. What are the differences between negotiable instruments and non-

negotiable instruments?

Negotiable Instruments Non-Negotiable

Instruments
Law Contains all the requisites of Does not contain all the
Sec. 1 of the NIL requisites of Sec. 1 of the
NIL
Transfer Transferred by negotiation Transferred by assignment
HDC* Holder in due course may Transferee acquires rights
have better rights than only of his transferor
transferor
Warranty of Prior parties warrant Prior parties merely warrant
Prior parties payment legality of title
Right of Transferee has right of Transferee has no right of
Recourse recourse against recourse
intermediate parties

*PLEASE NOTE:

Sec. 52. What constitutes a holder in due course. - A holder in

due course  is  a  holder  who  has  taken  the  instrument 
under  the following conditions:
 
      (a) That it is complete and regular upon its face;
        
      (b) That he became the holder of it before it was overdue,
and without notice that it has been previously dishonored, if
such was the fact;
         
      (c) That he took it in good faith and for value;
        
      (d) That at the time it was negotiated to him, he had no
notice of any infirmity in the instrument or defect in the title
of the person negotiating it.  
 
4. What is a promissory note?

(a) It is an unconditional promise to pay in writing by one person to

another, signed by the maker, engaging to pay on demand or at a fixed
or determinable future time a sum certain in money to order or bearer.
When the note is drawn to maker's own order, it is not complete until
indorsed by him. (Sec. 184, NIL)
(b) The parties to a promissory note are (1) the maker and the (2) payee.

5. What is a bill of exchange?

(a) It is an unconditional order in writing addressed by one person to

another, signed by the person giving it, requiring the person to whom it
is addressed to pay on demand or at a fixed or determinable future time
a sum certain in money to order or bearer. (Sec. 126)
(b) The parties to a promissory note are (1) the drawer, (2) the payee and
(3) the drawee/acceptor.

B. REQUISITES OF NEGOTIABILITY

a. What are the requisites of negotiability?

i. According to Sec. 1 of the NIL, "(a)n instrument to be
negotiable must conform to the following requirements
(Mnemonic - WUPOA):
1. It must be in writing and signed by the maker or drawer;
2. It must contain an unconditional promise or order to pay
a sum certain in money;
 3. It must be payable on demand or at a fixed or
determinable future time;
4. It must be payable to order or bearer; and
5. Where the instrument is addressed to a drawee, he must
be named or otherwise indicated therein with reasonable
certainty.

ii. A promissory note must possess the first four (4) requisites,
whereas a bill of exchange must possess all five (5) requisites.

iii. In order to be negotiable, there must be a writing of some kind,

else there would be nothing to be negotiated or passed from
hand to hand. The writing may be in ink, print or pencil. It may
be upon parchment, cloth, leather, or any substitute of paper.

iv. It must be signed by the maker or drawer. It may consist of

mere initials or even numbers, but the holder must prove that
what is written is intended as a signature of the person sought
to be charged. The signature may appear in any part of the
instrument, whether at the top, middle or bottom or at the
margins.
1. Note, however, that if the signature is so placed upon
the instrument that it is not clear in what capacity the
person intended to sign, he is deemed an indorser only
and not a maker or drawer. (Sec. 17)
2. Where the genuineness of the signature of the maker or
drawer is denied, the signature is nevertheless presumed
valid. The maker or drawer must provide some evidence
of the signature's invalidity.

v. The bill of exchange must contain an order, something more

than the mere asking of a favor.

vi. The sum payable must be in money only. It cannot be made

 payable in goods, wares, or merchandise or in property.
1. The promise or order may designate "a particular kind
of current money in which payment is to be made."
(Sec. 6[e])
2. The term money properly includes all legal tender.
a. Note, however, that money as used in the law is
not necessarily limited to "legal tender" as
defined by law.

vii. A drawee's name may be filled in under Sec. 14.

1. Like the drawee, the payee must be named with
reasonable certainty if the instrument is payable to
order (Sec. 8, par. 2)

C. ABNORMALITIES/DEFICIENCIES IN THE INSTRUMENT

a. What are the steps in the issuance of a negotiable instrument?

i. There are two (2) steps involved in the issuance of every

negotiable instrument, namely:
1. the mechanical act of writing the instrument completely
and in accordance with the requirements of Sec. 1; and
2. the delivery of the instrument by the maker or drawer to
the payee or holder with the intention of giving effect to
it.
ii. Such instrument, complete and delivered, is negotiable and may
be enforced accordingly

b. A subsequent holder in due course (see Sec. 52) is not affected by

the following deficiencies:
i. Incomplete but delivered instrument (Sec. 14)
ii. Complete but undelivered instrument (Sec. 16)
iii. Complete and delivered instrument issued without
consideration or a consideration consisting of a promise which
 was not fulfilled (Sec. 28)
1. In all three cases above, the deficiency creates a mere
personal defense which does not affect the title of the
holder in due course.

c. A subsequent holder in due course is affected by the following

abnormality/deficiency:
i. Incomplete and undelivered instrument (Sec. 15)
ii. The maker or drawer's signature is forged (Sec. 23)
1. This time, the above circumstances create a real defense
which is available against all parties to the instrument,
including a holder in due course.

d. To what kind of incomplete instruments does Sec. 14 apply?

i. When considering Sec. 14, it is important to bear in mind the
distinction between two classes of instruments:
1. Those in which obvious blanks are left at the time they
are made or indorsed, of such a character as manifestly
to indicate that the instruments are incomplete until
such blanks shall be filled up;
a. One who signs or indorses such an instrument is
liable to bona fide holders thereof on the
doctrine of implied authority. (National
Exchange Bank v. Lester, 194 N.Y. 464)
2. Those which are apparently complete, containing blanks
only because the written matter does not so fully occupy
the entire paper as to preclude the insertion of additional
words or figures, or both.
a. The liability for the amount of the instrument
which has been increased by filling up
unoccupied spaces therein is placed upon the
doctrine of negligence. (Ibid.)
ii. Sec. 14 applies only to instruments which are (1) wanting in
any material particular, or (2) where only a signature on a blank
 paper is delivered. If the instrument as it originally appears is
already complete on its face, Sec. 14 does not apply, and any
person or holder who introduces other matters into the
instrument thereby increasing liability therefor shall be himself
liable for it except if he acted with authority.

e. What is a material particular?

i. It may be defined as any particular proper to be inserted in a
negotiable instrument to make it complete. (Linthlicum v.
Bagby, 102 Atl 997)
1. The word "material," as used in Section 14, is not
synonymous with "necessary" so as to restrict the right
of filling a blank to something essential to a complete
negotiable instrument. (Johnson v. Hoover, 117 N.W.
277.)
2. The authority to complete is not an authority to alter.
(Sec. 124)
ii. The power to fill in the blanks extends to every incomplete
feature of the instrument.
iii. A signature on a blank paper delivered in order that it may be
converted into a negotiable instrument operates as a prima facie
authority to fill it up as such for any amount.

f. Prior to completion, may an incomplete instrument be enforced

against any party thereto?

i. The instrument as such may only be enforced if:

1. filled up strictly in accordance with the authority given;
and
2. within a reasonable time.

ii. If an instrument is incomplete when delivered, the holder has

prima facie (based on the first impression) authority to fill up
the blanks thereon. If a blank paper is delivered by the person
 making the signature, the holder has prima facie authority to fill
it up for any amount if the person making the signature
intended to convert it into a negotiable instrument. In either
case, the presumption is that the blank was filled up in
accordance with the authority given and within a reasonable
time. (Sec. 193)

iii. The person who signed his name has the burden to rebut the
presumption of agency by contrary proof of want of authority,
or proving that the authority granted was exceeded. Such
"reasonable time" for filling up the instrument is to be reckoned
from the time of the issuance of the instrument because the
interest involved is that of the issuer, and not from the time of
each successive negotiation.

iv. The defense that the instrument had not been filled up in
accordance with the authority given and within a reasonable
time is not available as against a HIDC. It raises merely a
personal defense.

g. If an instrument is incomplete and undelivered, may it be enforced

against any party if completed and negotiated?

i. The answer should be qualified in accordance with Sec. 15. The

fact that the instrument is undelivered is crucial – if the
deficiency is filled up without authority, it operates as a real
defense available even against a HDC. (Sec. 58)

ii. Note that there is still a presumption of delivery as far as a

HDC is concerned. The maker or drawer should rebut such
presumption in order to escape liability.

iii. The invalidity of the above instrument is only with reference to

the parties whose signatures appear on the instrument before
 and not after delivery.
1. Therefore, an indorser to the instrument who negotiated
the same after the instrument has been apparently
completed and delivered is liable therefor. The defense
abovementioned is not available to them as against any
subsequent party.

h. If an instrument is complete but undelivered, may it be enforced

against any party thereto?

i. Every contract on a negotiable instrument is incomplete and

revocable until delivery of the instrument for the purpose of
giving effect thereto. (Sec. 16)

ii. If the instrument, complete in its terms, is in the hands of a

subsequent party:
1. A valid and intentional delivery is presumed until the
contrary is proved.
2. If he is a HDC, a valid delivery thereof by all parties
prior to him so as to make them liable is conclusively
presumed.
a. But in a case, for example, where there was no
actual delivery to anyone for any purpose by the
maker of a promissory note who was a victim of
theft or robbery committed in his house and
there was nothing to show any fault or
negligence on his part, it would be unreasonable
to hold him liable even to an innocent holder for
value. A note in the hands of the maker, albeit
complete, is, in law, but a blank piece of paper.
Its wrongful seizure cannot create against his
will a valid contract where none existed before.

3. If they are immediate parties and/or the subsequent

 party is not a HDC, the delivery in order to be effectual
must be made either by or under the authority of the
party making, drawing, accepting or indorsing, as the
case may be; and in such case the delivery may be
shown to have been conditional, or for a special purpose
only, and not for the purpose of transferring the property
in the instrument.
a. The phrase immediate parties, as used in this
section, has a broader meaning than its literal
signification. It "refers to those who are
'immediate' in the sense of having or being held
to know of the conditions or limitations placed
upon the delivery of the instrument." In other
words, it contemplates privity not proximity,
(see Sec. 58)
b. Remote parties are parties who are not in direct
contractual relation to each other, (see Sec. 58)
But if they are chargeable, for example, with
knowledge or notice of any infirmities in the
instrument or defect in the title of the person
negotiating the same (see Sec. 56), they will be
considered as immediate parties for purposes of
Sec. 16.

iii. The place where the instrument was written, signed, or dated
does not necessarily fix or determine the place where it was
executed. What is of decisive importance is the delivery
thereof. The delivery of the instrument is the final act essential
to its consummation as an obligation. (People v. Yaibut, 76
SCRA 624 [1977]; Lim v. Court of Appeals, 251 SCRA 408
[1995])

A. Section 14 INCOMPLETE and DELIVERED (personal defense)

(Personal/equitable defenses growing out of agreement; renders it inequitable to be
enforced vs. defendant

Real/absolute defenses attach to the instrument and are available against all holders,
whether in due course or not, but only the entitled party/ies can raise them. This is on
the principle that the right sought to be enforced never existed/as if there was no
contract at all)

(4) RULES

1. AUTHORITY TO FILL UP THE BLANKS

- The HOLDER/person in possession has prima facie authority TO COMPLETE an
INCOMPLETE INSTRUMENT by filling up the blanks therein
The law speaks of MATERIAL PARTICULAR (blanks for date, due date, name of
PAYEE, amount, rate of interest) may be filled in. It has been held that even the blank
for the name of the DRAWER may be filled up.
*The authority to complete is not an authority to alter. So, the HOLDER has NO
AUTHORITY to change the amount after it has been filled in, or to insert the words
OR ORDER or OR BEARER after the name of the PAYEE.

2. AUTHORITY TO PUT ANY AMOUNT

- A signature on a BLANK paper delivered in order to be converted into a NI is a
prima facie authority to fill it up as such for any amount.

3. RIGHT AGAINST PARTY PRIOR TO COMPLETION

- If an instrument is incomplete when delivered, the HOLDER has prima facie
authority to fill up the blanks thereon.
- If a blank paper is delivered by the person making the signature, the HOLDER has
prima facie authority to fill it up for any amount if the person making the signature
INTENDED TO CONVERT it into NI.
- In either case of the above (2) situations, the presumption is that the BLANK was
filled in ACCORDANCE W/ THE AUTHORITY GIVEN and W/IN REASONABLE
TIME.

4. RIGHT OF HDC
- not enforceable; personal defenses
- The rule is founded upon the principle that where one of 2 persons must suffer by
the bad faith of another, the loss must fall upon the one who FIRST REPOSED
confidence and made it possible for the loss to occur.

B. Section 15 INCOMPLETE and UNDELIVERED (real defense)

When an INCOMPLETE instrument is UNDELIVERED, if completed & negotiated
w/o authority, be a VALID CONTRACT in the hands of ANY HOLDER, as against
any person whose signature was placed thereon before delivery.
In the absence of any delivery, the instrument though complete in all particulars, there
is NO CONTRACT.

(2) RULES

1. DEFENSE EVEN AGAINST HDC

- Law is specific that instrument is NOT a VALID CONTRACT in the hands of any
HOLDER even HDC.

2. DEFENSE AVAILABLE TO PARTIES PRIOR TO DELIVERY

- The invalidity of the instrument is only w/ reference to the parties whose signatures
appear on the instrument BEFORE and NOT AFTER DELIVERY.
(eg. A(maker) – P(steals) – B – C – D; Instrument can be enforced against P, B, C
because, as indorsers, they warrant that the instrument is GENUINE and in all
respects what it purports to be, etc. As their signatures appear on the instrument after
delivery, the instrument is valid as to them; In case of P, he is liable not merely
because he is an indorser but also because he is the one responsible for the theft, and
the completion and negotiation of the instrument.)

C. Section 16 COMPLETE and UNDELIVERED (personal defenses)

(4) RULES

1. UNDELIVERED
– Every contract on NI even if it is completely written is INCOMPLETE AND
REVOCABLE UNTIL it is delivery for the purpose of giving it effect.
a. DELIVERY – transfer of possession, actual/constructive, from one person to
another. It may be made either by the maker/drawer himself or through a duly
authorized agent.
b. ISSUE – FIRST delivery of the instrument, complete in form, to a person who
takes it as HOLDER.
C. HOLDER – PAYEE/INDORSEE of bill/note who is in possession of it, or the
BEARER thereof.

2. IN POSSESSION OF PARTY OTHER THAN HDC

- If a complete instrument is found in the possession of an IMMEDIATE PARTY
(know the conditions/limitations placed upon delivery of instrument) or a REMOTE
PARTY (indirect contractual relation to each other) other than HDC, there is prima
facie presumption of delivery but subject to rebuttal.
- An UNDELIVERED instrument is INOPERATIVE because DELIVERY is a
PREREQUISITE to LIABILITY. However, if instrument is NO LONGER in the
possession of the person who signed it and it is COMPLETE in its terms, “a VALID
AND INTENTIONAL delivery by him is PRESUMED until the contrary is proved”.

3. DELIVERED UNCONDITIONALLY OR FOR A SPECIAL PURPOSE

- If delivery was made/authorized, it may be shown to have been conditional, or for a
special purpose only and not for the purpose of transferring the property (title) to the
instrument.
- When delivery is made, it is presumed to be made w/ the intention to transfer
ownership of the instrument to the payee.
- (eg. A delivers the note to B on condition that it will not be binding on him UNTIL
co-maker has been procured or for safekeeping, or for collection only.
B cannot enforce the instrument against A because A can set up the defense that the
delivery was conditional or for a special purpose only and not for the purpose of
transferring title to the instrument.
4. IN THE HANDS OF HDC
- If a COMPLETE instrument is in the hands of HDC, a valid delivery thereof by all
parties PRIOR to him is CONCLUSIVELY PRESUMED.
A presumption is said to be CONCLUSIVE when it admits of no evidence to the
contrary

A brief summary of the rules above follows:

SECTION 14 SECTION 15 SECTION 16
INCOMPLETE BUT INCOMPLETE AND COMPLETE BUT
DELIVERED UNDELIVERED UNDELIVERED
Personal Defense Real Defense Personal Defense
-if it is wrongfully -invalid even against a -not enforceable at all. If found
completed, it is HIDC for want of in the possession of a HDC, the
nonetheless enforceable delivery presumption of delivery
if delivered to a HIDC. becomes conclusive.
-there is a prima facie However, a prima facie If found in the possession of
authority to complete it presumption of delivery another, there is a prima facie
by the holder thereof if it is in the hands of a presumption of delivery.
HIDC, which may be
rebutted by proof of non-
delivery

INSTRUMENTS WITH FORGED SIGNATURES

In case of forgery (Sec. 23)
a. By forgery is meant "the counterfeit-making or fraudulent
alteration of a writing, and may consist in the signing of
another's name or the alteration of an instrument in the name,
amount, description of the person and the like, with intent
thereby to defraud."
i) The intent to defraud distinguishes forgery from innocent
alteration and spoliation.

b. Note that in cases of forgery, it is only the forged signature that

is wholly inoperative, and not the instrument.

c. Cutoff Rule – Parties prior to the forged signature are cut-

off from the parties after the forgery in the sense that prior
 parties cannot be held liable and can raise the defense of
forgery. The holder can only enforce the instrument against
parties who became such after the forgery. Although rights may
exist between and among the parties subsequent to the forged
indorsement, not one of them can acquire rights against parties
prior to the forgery. Such forged signature cuts off the rights of
all subsequent parties as against parties prior to the forgery.
(Gempesaw v. CA, G.R. No. 92244, February 9, 1993) The
exceptions to the cutoff rule are:
i) Persons who warrant the genuineness of the signature in
question, such as indorsers, acceptors, and persons who
negotiate by mere delivery; and
ii) Those who by their acts, silence or negligence are estopped
from setting up the defense of forgery.

d. Some of the rules regarding forgery are summarized as follows:

i) If the forged signature is that of the maker in a promissory
note or the drawer in a bill of exchange, they shall not be
liable on the instrument; the same rule is true whether it is
an order or bearer instrument.
 Subsequent indorsers to an order instrument are liable;
if a special indorsement is found in a bearer instrument,
it will operate to create a specific liability on his part as
regards the person obtaining title through his
indorsement.
 The drawee in a bill of exchange is liable if he paid; this
is because he admitted the genuineness of the drawer's
signature in so paying (and, in the case of drawee banks,
they are presumed to know the signature of the drawer-
depositor and cannot later on refute liability by asserting
its forgery).
ii) If the forged signature is that of the payee, he shall not be
liable on the instrument except if it is a bearer instrument
 (because his indorsement is not necessary in order to
negotiate the instrument, as mere delivery is sufficient);
 Subsequent indorsers to an order instrument are liable;
if a special indorsement is found in a bearer instrument,
it will operate to create a specific liability on his part as
regards the person obtaining title through his
indorsement.
 The maker will not be liable in an order instrument, due
to the cut-off rule; the same is true for the drawer or
drawee.
 The drawee is liable in a bearer instrument because
there is no privity of contract between the payee and the
drawee, as all that is needed is for the drawee to honor
the instrument on the strength of the genuineness of the
drawer's signature.

iii) If the forged signature is that of the indorser, he shall not be

liable on the instrument except if it is a bearer instrument
(again, because his indorsement is not necessary in order to
negotiate the instrument);
 Subsequent indorsers to an order instrument are liable;
if a special indorsement is found in a bearer instrument,
it will operate to create a specific liability on his part as
regards the person obtaining title through his
indorsement.
 The cutoff rule applies to all indorsers, hence, all
indorsers prior to the forged indorsement shall not be
liable.
 The maker will not be liable in an order instrument, due
to the cut-off rule; the same is true for the drawer or
drawee.
 The drawee is liable in a bearer instrument because
there is no privity of contract between the indorser and
 the drawee, as all that is needed is for the drawee to
honor the instrument on the strength of the genuineness
of the drawer's signature.

Review for purposes of determining liability:

Sec.  9.  When  payable  to  bearer.  -  The  instrument  is  payable  to bearer:
 
      (a) When it is expressed to be so payable; or
      (b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person,  and  such 
fact  was  known  to  the  person  making  it  so payable; or
      (d)  When  the  name  of  the  payee  does  not  purport  to  be  the name of any
person; or
      (e)  When  the  only  or  last  indorsement  is  an  indorsement  in blank.  

BOUNCING CHECKS LAW

Batas Pambansa Blg. 22, Otherwise Known As Bouncing Checks Law

“An Act Penalizing the Making or Drawing and Issuance of a Check Without
Sufficient Funds or Credit and For Other Purposes” -Approved on April 3, 1979

Checks – a written request or order by a depositor called the “drawer” to a bank,

called the “drawee,” to pay on demand a person called a “payee” a certain sum of
money

Bouncing check – check that has no funds or credit to cover its amount i.e. DAIF
(drawn against insufficient fund check) or NSF (no-sufficient fund check).

Bouncing Check - a check issued for valuable consideration but when presented for
payment on its due date, the check is dishonored for insufficiency of funds or because
the account is closed.
Insufficient fund

B) if the amount of the check is bigger than the balance of fund which is used
to pay the check; insufficient of fund to pay the

amount stated in the check

Account is closed

- if one opens a checking account, he is now a current account holder. On a

current day, one must maintain a sufficient fund in order to consider such
account valid or active. If one cannot put up the minimum maintaining
balance despite notice to him, then the bank will consider such account as
closed; or one uses the remaining check in the booklet even if the deposit
is exhausted

Post dated check – one that is dated after it is issued and delivered / check that has a
date later than its actual date of issue

Reason for enactment – Art. 315, Par2d of the RPC does not include in the crime of
estafa the act of issuing a bounced check in payment of pre-existing obligation

Purpose of BP 22 – to put a stop to the harmful practice of circulating worthless

check which when multiplied a thousand-fold, can very well pollute the channels of
trade and hurt the welfare of society and public interest. (Pp. vs. Lozano)

Constitutionality – BP 22 is a fundamental exercise by the state of its police power

or to pass laws that will promote health, morals and general welfare of the people.
What BP 22 punishes is the issuance of a worthless check and not the non-payment of
debt.

It does not violate the non – impairment clause because checks are not merely
contracts but are substitute for money. They form part of the banking system and not
entirely free from the regulatory power of the state.
Checks covered: present-dated or post-dated, issued to apply on account (to pay a
pre-existing obligation), or for value (given in mutual or simultaneous exchange for
something of value), guarantee, accommodation or deposit checks, memorandum and
foreign checks

A memorandum check is an ordinary check with the word "Memorandum", "Memo",

or "Mem" written across the face, signifying that the maker or drawer engages to pay
its holder absolutely thus partaking the nature of a promissory note. It is drawn on a
bank and is a bill of exchange within the purview of Section 185 of the Negotiable
Instruments Law.

Duty of the Drawee

• to cause to be written, printed, or stamped in plain language thereon, or

attached thereto, the reason for drawee's dishonor or refusal to pay the same
• Where there are no sufficient funds in or credit with such drawee bank, such
fact shall always be explicitly stated in the notice of dishonor or refusal.
• Notwithstanding receipt of an order to stop payment, the drawee shall state in
the notice that there were no sufficient funds in or credit with such bank for
the payment in full of such check, if such be the fact.

Acts Punished

1. Issuing any check to apply on account or for value, knowing at the time of issue
that he does not have sufficient funds with the bank for payment of such checks
upon presentment, which check is subsequently dishonored by the bank for
insufficiency of funds or would have been dishonored for the same reason had not
the drawer, without any valid reason, ordered the bank to stop payment
Elements (First Offense)

1. A person issues any check.

 2. Check is made to apply on account or for value.
3. The person knows at the time of issuance that he does not have sufficient
funds with the bank.

4. The check is subsequently dishonored, or would have been dishonored for the
same reason had not the drawer, without any valid reason, ordered the bank to
stop payment.

2. Having sufficient funds with the bank when he issues a check, but failed to keep
sufficient funds to cover the full amount of the check if presented within a period
of 90 days from the date appearing thereon for which reason it is dishonored by
the bank.
Elements (Second Offense)

1. The person has sufficient funds in the bank when he issues a check.
2. He fails to keep sufficient funds to cover the full amount of the check if
presented within 90 days from the date thereon.
3. The check is dishonored.

Imposable Penalties (Update: RA 10951)

- Imprisonment of not less than 30 days but not exceeding 1 year.

- Fine of not less than but not more than double the amount of the check, which shall
not exceed Php 200,000
- Both imprisonment and fine.

Circular # 12-2000 (not a defense but may mitigate liability)

- if there is good faith or a clear mistake on the part of the accused and he is a
first-time offender or the issuance of the check was the offshoot of a legitimate
business transaction, imposition of fine alone should be considered as the more
appropriate penalty.

Circular #13-2001
 - It clarifies that circular # 12-2000 does not remove imprisonment as an
alternative penalty for violations of BP22. It also stated that circular #12-2000
does not remove imprisonment as an alternative penalty but merely lays down a
rule of preference in the application of the penalties.

In effect, judges are not directed to impose fine only as penalty for BP 22, instead
they are directed to exercise their sound discretion, and taking into consideration
the peculiar circumstances of each case, to determine whether the imposition of a
fine alone would best serve the interests of justice or whether non-imposition of
imprisonment would be contrary to the imperatives of justice.

In April 2003 in order to facilitate an expeditious and inexpensive determination

of BP 22 cases, the SC had included the violation of BP 22 as one of the cases
governed by the Rules of Summary Procedure. One notable provision under the
Summary Procedure is that the Court shall not order the arrest of a person who
was charged except for failure to appear in Court whenever required.

Aside from threat of imprisonment that an issuer of a bum check may face, he
shall, after conviction, be disqualified to run for public office for a certain period
of time. Under the Omnibus Election Code, any person who has been sentenced
by final judgment for a crime involving moral turpitude, shall be disqualified to be
a candidate and to hold any office. As held by the SC, violation of BP 22 is
considered a crime involving moral turpitude, just like the crime of
embezzlement, forgery, robbery and swindling.

Persons Liable
Personal checks – the signatory or the signatories

Corporate checks – the person or persons who actually signed the bounced check.

Lina Lim Lao vs. Court of Appeals – the SC underscored the point that being a
signatory to the dishonored corporate checks nearly engenders the prima facie
 presumption that as officer of the corporation, the accused who co-signed the
check knew of the insufficiency of funds. It does not, however, make the accused
automatically guilty under BP22.

Rule on Notice of Dishonor

Corporate checks – Responsibilities under BP22 is personal to the accused so that
the latter’s own knowledge of the dishonor is necessary. Constructive notice to the
corporation, as when the demand was sent to the main and not to its extension
office where the accused was on field duty is not enough to satisfy due process.
Notice to the corporation which has a personality distinct and separate from the
officer who issued the check is not tantamount to notice to the latter. (Lina Lim
Lao vs. CA)

The insufficiency of funds shall be explicitly stated in the dishonor, hence, a mere
oral notice or demand to pay is insufficient for conviction under BP 22
(Domagsang vs. CA)

A signatory to the check who was not informed of the dishonor is not liable.

OTHER NOTES

A. BP 22 complaints are filed before the MTC and McTC and do not need
preliminary investigations. (SC AM No. 00-11-01-SC; Sec 1, par. B (4),
Revised Rule on Summary Procedure)

B. The court shall not order the arrest of the accused except for failure to appear
whenever required. (Sec. 16, Revised Rule on Summary Procedure)

C. Hold-departure orders shall be only issued within the exclusive jurisdiction of

the RTC. (OCA Circular No. 39-97)

Doctrine of continuous transaction – if there is a previous transaction between the

accused and the complainant prior to the issuance of the bounced check, deceit is
negated and there can be no estafa, only violation of BP 22.
If the complainant parted with his property to the accused not because of any other
consideration but because of the check issued by the accused which later bounced,
Estafa under RPC is committed.

Valid Defenses against BP 22

1. The subject was NOT made drawn and issued by petitioner in EXCHANGE
FOR VALUE as received as to qualify it as a check on account or for value.

2. There is NO sufficient basis to conclude that petitioner at the time of issue of

the check had actual knowledge of the sufficiency of funds.

3. Lack of notice of Dishonor – failure to notify the accused of the dishonor of

the checks will defeat the presumption of knowledge of insufficiency of funds.
*not a mode of extinguishing criminal liability
4. There was NO check actually served on petitioner payee.
5. The amount appearing in the check is FULLY PAID within five banking days
from notice of dishonor.
6. Complainant knew at the time the accused issued the checks that the latter did
not have sufficient funds in the bank to cover the same (estoppel)/ Knowledge
by the payee that the check was not supported by sufficient funds when the
issuer issued the check.
7. Forgery – a check is forged when the signature appearing thereon was mode
without the authority of the person whose signature appears it.
 In the case of PNB vs. CA, the SC decided that the dishonor of a check is a
defense when the stop payment requested by the drawer was due to forgery in
the endorsement of a lost check.
8. Prescription – termination of the right or power to prosecute or punish the
offender after the lapse of a definite period from the commission of the crime,
or if not known, from the day of its discovery. BP 22 prescribes after 4 years
beginning from the lapse of 5 banking days from notice of dishonor.
9. Duplicity of Offense – a single information charges more than one offense.
Duplicity is a defense in BP 22 if there is also an information for estafa that
 embodies all the elements of any of the offenses punishable under BP22.
10. Failure to bring the accused for trial within the time limit set by the Speedy
Trial Act and Rules of Criminal Procedure. (Rule 119, Sec 9, Rules of
Criminal Procedure)
11. Failure to present the checks for payment within 90 days from the date of
issue.
12. Lack of the necessary Signature/s – as to corporate, association or
partnership check wherein particular officers are authorized signatories, proof
that not all of such authorized signatories or less that that required have signed
the check is a defense. The incompleteness or unauthorized drawing of the
check did not make the check a valid order to the bank to pay. As a result, the
drawer is not under obligation to deposit or maintain sufficient funds for its
payment.
13. Dishonor with a mere stamp in the check “stop payment” – the bank is
directed as well to state in the notice of dishonor even against a “stop
payment” that there were no sufficient funds in or credit with it to pay the
check.
14. Lack, or illegal consideration in the issuance of the check – the Supreme
Court held in a case that malice or intent is immaterial, the offense being
malum prohibitum, “could not be an absolute proposition without descending
to absurdity.” Also, in the case of Magno vs. Court of Appeals, the SC will not
limit itself to determining the commission of the prohibited act. It must go one
step backward by ascertaining the nature of the transaction under which the
check was issued not only to find out if the same was drawn for an actual
valuable consideration, but also to determine, who, between the drawer and
the payee, is the actual and potential wrongdoer. Hence, if a check were issued
by a kidnap victim to the kidnapper for ransom, it would be improper to hold
the drawer liable if the check was dishonored and unpaid.
15. Stop payment order pursuant to a valid reason such as non-delivery of goods
or services.
16. Novation or change in the underlying obligation of the parties before the
filing of the criminal case in court.
17. Payment of the value of the check before the filing of the criminal case in
court. - *it was redeemed by the accused
 18. Payment of the value of dishonored check within five (5) banking days from
receipt of notice of dishonor.

Where what was stamped on the check is “DAUD” meaning drawn against
uncollected deposits, the bank may still honor the check at its discretion in favor of
favored clients, in which case there would be no violation of BP 22.

Uncollected deposits are not the same as insufficient funds.

CASES

*Lozano vs. Martinez- the gravamen of the offense punishable by BP 22 is the act of
making and issuing a worthless check. It is not the non-payment of an obligation
which the law punishes. The law is not intended to coerce a debtor to pay his debt.
-the freedom of contract which is constitutionally protected is freedom to
enter into lawful contracts. Contract which contravenes public policy are not lawful.
Checks cannot be categorized as mere contracts. It is a commercial instrument which
forms part of the banking system and therefore not entirely free from the regulatory
power of the state.

*Vaca vs. Court of Appeals- refer to circular # 12-2000 and circular #13-2001

*Lim vs. Court of Appeals - there are certain crimes in which some acts material and
essential to the crimes and requisite to the consummation occurs in one place and
some in another. These are the so-called transitory or continuing crime under which
the violation of BP 22 is categorized.

*Vallarta vs. Court of Appeals - if the sale of jewelry, for instance, was on sale on
approval, ownership posses to the buyer upon its delivery. A check issued
simultaneously with the delivery of the jewelry is not deemed as payment of a pre-
existing obligation but issued for value. Complainant parted with the jewelry because
of the check issued by the accused which later bounced. Estafa under RPC is
committed.

What are the elements of estafa through the issuance of bouncing checks?

This form of estafa has the following elements:

1. Postdating or issuance of a check in payment of an obligation contracted at the
time the check was issued

2. Insufficiency of funds to cover the check, and

3. Damage to the payee thereof.

If any of these elements is not present, then a person cannot be held liable for estafa.

Problem:
Remy went to a boutique to shop for jewelries. Since she is a relative of the store
owner, she was allowed to pay later. After 30 days, Remy issued a check in payment
of the clothes she bought. The check bounced to the dismay of the store owner. Can
Remy be held liable for estafa?

No. Remy cannot be held liable for estafa because the check was issued in payment
of a pre-existing debt. As mentioned earlier, estafa through the issuance of a
bouncing check can be committed only if the check was issued in payment of an
obligation contracted at the time the check was issued. Note, however, that while
there is no estafa, nevertheless, Marian can be held liable for another crime, which
will be discussed below.

Problem:
A, a businessman, borrowed P500,000.00 from B, a friend. To pay the loan, A
issued a postdated check to be presented for payment 30 days after the transaction.
Two days before the maturity date of the check, A called up B and told him not to
deposit the check on the date stated on the face thereof, as A had not deposited in the
drawee bank the amount needed to cover the check. Nevertheless, B deposited the
check in question and the same was dishonored of insufficiency of funds. A failed to
settle the amount with B in spite of the latter's demands. Is A guilty of violating B.P.
Blg. 22, otherwise known as the Bouncing Checks Law?

Yes, A Is liable for violation of BP 22. Although knowledge by the drawer of

insufficiency or lack of funds at the time of the issuance of the check is an essential
element of the violation, the law presumes prima facie such knowledge, unless within
five (5) banking days of notice of dishonor or nonpayment, the drawer pays the
holder thereof the amount due thereon or makes arrangements for payment in full by
the drawee of such checks. A mere notice by the drawer A to the payee B before the
maturity date of the check will not defeat the presumption of knowledge created by
the law; otherwise, the purpose and spirit of BP 22 will be rendered useless.

Can the issuance of bouncing checks give rise to other offense aside from estafa?

Yes. A single act of issuance of bouncing checks may give rise to several offenses
such as estafa and violation of B.P. 22 or the Bouncing Checks Law.

How is a violation of the Bouncing Checks Law committed?

There are two possible ways by which this can be committed, to wit:

1. Making or drawing and issuing any check to apply on account or for value,
knowing at the time of issue that he does not have sufficient funds in or credit
with the drawee bank for the payment of such check in full upon its
presentment, which check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit or would have been dishonored for the same
reason had not the drawer, without any valid reason, ordered the bank to stop
payment

2. Having sufficient funds in or credit with the drawee bank when he makes or
draws and issues a check, shall fail to keep sufficient funds or to maintain a
credit to cover the full amount of the check if presented within a period of
ninety (90) days from the date appearing thereon, for which reason it is
dishonored by the drawee bank.
What are the elements of violation of the Bouncing Checks Law?

An offence under this law is committed when the following elements are present:

1. Making, drawing and issuance of any check to apply for account or for
value;

The gravamen of the offense punished by B.P. Blg. 22 is the act of making or issuing
a worthless check or a check that is dishonored upon its presentation for payment.
The mere act of issuing a worthless check – whether as a deposit, as a guarantee or
even as evidence of pre-existing debt – is malum prohibitum.

2. 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 such check in full upon its presentment;

The prosecution must establish that the accused was actually notified that the check
was dishonored, and that he or she failed, within five banking days from receipt of
the notice, to pay the holder of the check the amount due thereon or to make
arrangement for its payment. The notice of dishonor of a check to the maker must be
in writing.

and

3. 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.

Under Section 3 of BP 22, "the introduction in evidence of any unpaid and
dishonored check, having the drawee’s refusal to pay stamped or written thereon, or
attached thereto, with the reason therefor as aforesaid, shall be prima facie evidence
of the making or issuance of said check, and the due presentment to the drawee for
payment and the dishonor thereof, and that the same was properly dishonored for the
reason written, stamped, or attached by the drawee on such dishonored check." For
instance, when the prosecution presented the checks which were stamped with the
words “ACCOUNT CLOSED,” supported by the returned check tickets issued by the
depository bank stating that the checks had been dishonored. The documents
constitute prima facie evidence that the drawee bank dishonored the checks, and no
evidence was presented to rebut the claim.

How can there be presumption that the maker, drawer, or issuer had knowledge
of the insufficiency of funds?

The presumption arises only after it is proved that the issuer received a notice of
dishonor and that within 5 days from receipt thereof, he failed to pay the amount of
the check or make arrangement for its payment.

Ruiz vs. People, G.R. No. 160893, November 18, 2005

B.P. 22 covers any check which bounces. It does not matter then that the subject
check belongs to the accused or another person. xxx The mere act of issuing a
worthless check, either as a deposit, as a guarantee, or even as an evidence of a pre-
existing debt or as a mode of payment is covered by B.P. 22. It is a crime classified as
malum prohibitum. The law is broad enough to include, within its coverage, the
making and issuing of a check by one who has no account with a bank, or where such
account was already closed when the check was presented for payment.

Mitra vs People, G.R. No. 191404, July 5, 2010

In the case of Llamado v. Court of Appeals [G.R. No. 99032, March 26, 1997], the
Court ruled that the accused was liable on the unfunded corporate check which he
signed as treasurer of the corporation. He could not invoke his lack of involvement in
the negotiation for the transaction as a defense because BP 22 punishes the mere
issuance of a bouncing check, not the purpose for which the check was issued or in
consideration of the terms and conditions relating to its issuance.

BP 22 applies to foreign checks

Under the Bouncing Checks Law, foreign checks, provided they are either drawn and
issued in the Philippines though payable outside thereof . . . are within the coverage
of said law. [De Villa vs Court of Appeals, G.R. No. 87416, April 8, 1991]

Presumption of knowledge of insufficiency of funds

Knowledge on the part of the drawer or maker of the insufficiency of funds or credit
in the drawee bank for the payment of a check upon its presentment is an essential
element of the offense. This element involves a state of the mind of the drawer or
maker of the check which is difficult for the prosecution to prove. To ease the burden
of the prosecution, Section 2 of BP 22 created a prima facie presumption of
knowledge on the part of the drawer or maker of the check of the insufficiency of his
fund in the drawee bank, thus:

SEC. 2. Evidence of knowledge of insufficient funds.-The making, drawing and

issuance of a check payment of which is refused by the drawee because of insufficient
funds in or credit with such bank, when presented within ninety (90) days from the
date of the check, shall be prima facie evidence of knowledge of such insufficiency of
funds or credit unless such maker or drawer pays the holder thereof the amount due
thereon, or makes arrangements for payment in full by the drawee of such check
within five (5) banking days after receiving notice that such check has not been paid
by the drawee.

However, for the presumption to arise, the prosecution must adduce evidence to prove
the factual basis for its onset, namely, (a) the check is presented within ninety (90)
days from the date of the check; (b) the drawer or maker of the check receives notice
that such check has not been paid by the drawer; and, (c) the drawer or maker of the
check fails to pay the holder of the check the amount due thereon, or makes
arrangements for payment in full within five (5) banking days after receiving notice
that such check has not been paid by the drawer.

With the onset of the presumption, the burden of evidence is shifted on the
drawer/maker of the check to prove that, when he issued the subject check, he had no
knowledge that he had insufficient funds in the drawee bank to answer for the amount
due. The notice of dishonor may be sent to the drawer or maker by the drawee bank,
the holder of the check, or the offended party, either by personal delivery or by
registered mail. 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 BP22. [Sia vs. People, G.R. No. 149695, April 28, 2004;
Mitra vs People, G.R. No. 191404, July 5, 2010]

(a) Notice of dishonor of check must be in writing

The service of the notice of dishonor gives the drawer the opportunity to make good
the check within those five days to avert his prosecution for violating BP 22. [Mitra
vs People, G.R. No. 191404, July 5, 2010]

The notice of dishonor of a check to the maker must be in writing.

A mere oral notice to the drawer or maker of the dishonor of his check is not enough.
xxx While, indeed, Section 2 of BP 22 does not state that the notice of dishonor be in
writing, taken in conjunction, however, with Section 3 of the law. i.e., "that where
there are no sufficient funds in or credit with such drawee bank, such fact shall always
be explicitly stated in the notice of dishonor or refusal," a mere oral notice or demand
to pay would appear to be insufficient for conviction under the law.

The Court is convinced that both the spirit and letter of the Bouncing Checks Law
would require for the act to be punished thereunder not only that the accused issued a
check that is dishonored, but that likewise the accused has actually been notified in
writing of the fact of dishonor. The consistent rule is that penal statutes have to be
construed strictly against the State and liberally in favor of the accused. [Sia vs.
People, G.R. No. 149695, April 28, 2004 citing Domagsang v. Court of Appeals, G.R.
No. 139292, December 5, 2000]

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. [Sia vs. People, G.R. No. 149695, April 28, 2004]

(b) Proof of receipt of notice of dishonor

Under Batas Pambansa Blg. 22 (BP 22), the prosecution must prove not only that the
accused issued a check that was subsequently dishonored. It must also establish that
the accused was actually notified that the check was dishonored, and that he or she
failed, within five banking days from receipt of the notice, to pay the holder of the
check the amount due thereon or to make arrangement for its payment. Absent proof
that the accused received such notice, a prosecution for violation of the Bouncing
Checks Law cannot prosper. [Danao vs. Court of Appeals, G.R. No. 122353, June 6,
2001]

People vs. Reyes, G.R. No. 154159, March 31, 2005; see also Pacheco v. Court of
Appeals

A check issued in payment of a pre-existing obligation does not constitute estafa even
if there is no fund in the bank to cover the amount of the check. xxx There is no estafa
through bouncing checks when it is shown that private complainant knew that the
drawer did not have sufficient funds in the bank at the time the check was issued to
him. Such knowledge negates the element of deceit and constitutes a defense in estafa
through bouncing checks.

BP 22 ESTAFA
Crime against public interest Crime against property
Mere issuance of a bounced check Deceit is essential, also damage
Failure of the drawer to settle the Failure of the drawer to settle the
amount within 5 banking account within 3 days is
days is conclusive evidence of
knowledge of insufficient funds conclusive evidence of deceit
Rules on summary procedure Rules of Criminal Procedure
MTC, MCTC RTC
Malum prohibitum Mala in se
It covers post-dated, present dated It only covers post-dated checks and
checks, check issued to checks issued for
apply on account (to pay a pre-existing value or given in mutual or simultaneous
obligation), or for exchange for
value. something of value.
penalty shall be imprisonment of not punishable by penalties of
less than 30 days but imprisonment ranging from 2
not more than 1 year, or by a fine of months to 8 years depending on the amount
not less than but not of the fraud
more than double the amount of the
check, which fine shall
not exceed P200,000.00, or both
such fine and
imprisonment at the discretion of
the court