ANNOTATION SOME SIGNIFICANT DECISIONS ON BANKING TRANSACTIONS

By SEVERIANO S. TABIOS

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I. Introduction, p. 440 II. Responsibility of Bank Officers, p. 440 III. Issue on Bank's liability over safety deposit box losses, p. 443 IV. Issues involving deed of assignment, p. 445 V. Limitations of escalation clauses in loan transactions, p. 446 VI. Prohibition against issuance of bouncing checks, p. 452

I. Introduction

Recent decisions of the Supreme Court announce some very instructive developments affecting banking transactions. If these decisions can provide a trend, then they shall form part of what can be considered an innovative trend in banking jurisprudence. It is therefore important to know what they are and appreciate the changes that they have introduced in the art of banking. However, because of the number of issues discussed in these Supreme Court decisions, only some of these issues can be discussed in this article. ; II. Responsibility of bank officers

There is no doubt that bank officers are responsible for their actions. They are clothed with authority to bind [their respective employer banks for actions pursued within the

scope of their duties and positions. However, if they are responsible for their actions, a question was posed as to whether their employers can hold them liable for wrong decisions.

It appears obvious that an employer can hold an officer liable for wrong decisions. In fact, an officer who commits a blunder that would cause financial damage to his company may be dismissed from employment after appropriate investigation is made. However, should the officer claim good faith in his dicisions, would his error of judgment that caused financial Iosses to a company make him liable for damages to his company? In earlier cases decided by the Supreme Court, such as the cases of Sunio vs. NLRC, 127 SCRA 90, decided in 1984, and Garcia vs. NLRC, 15 SCRA 69, decided in 1987, the Supreme Court ruled that "liability of corporate officers in their personal capacities x x x depends on whether or not (their) act(s) were tainted with evident malice and bad faith". But this liability of corporate officers appears to be a joint and several liability with the employer as this was specifically stressed in the case of General Bank & Trust Company vs. Court of Appeals, 15 SCRA 569, decided in 1985, where the Supreme Court upheld the lower court's decision holding the bank's officers jointly and severally liable for acting jointly in bad faith in causing the illegal and unjustifiable dismissal of some bank personnel. However, while these rulings held corporate officers jointly and severally liable with their employers for actions that were injurious to others when done in bad faith, because of Articles 19, 20 and 21 of the New Civil Code, however, they were silent on whether or not they can be held personally liable to their employers for damages for actions that the employers were held liable by others.However, a clearer verdict on the personal liability of corporate officers was made by the Supreme Court in the case of Pacific Banking Corporation, et. al. vs. Hart, et. al., L-45656, May 5, 1989, where the right of the bank to seek reimbursement from the corporate officer of what the bank has been held liable to third parties was recognized. For a clearer understanding, the facts and issues should be discussed and these are as follows:

Facts: Spouses Joseph and Eleanor Hart organized Insular Farms, Inc. Because of its need for funds, Insular Farms borrowed P250,000 from Pacific Banking Corporation and executed a promissory note which stipulated that the loan shall be payable in five equal annual installments and that default in the payment of any installment when due shall result in the maturity of all other installments. The loan was released upon the continuing guarantee of John Clarkin who owned 7 1/2% of the capital of Pacific Bank.

Unfortunately, business became bad and Insular Farms failed to pay the maturing installment. However, the Bank's Executive Vice President did not demand payment but asked for collaterals in addition to Clarkin's guaranty. For this purpose, Hart pledged to Pacific Bank all Insular Farms shares to ensure extension of the period to pay the maturing installment.

The pledge was executed on February 19, 1958 but on March 4, 1958, Pacific Bank through its EVP required Insular Farms to pay the entire loan within 48 hours. Then, on March 7, 1958, Hart received notice that the pledged shares of stock of Insular Farms would be sold at public auction to satis fy its obligation and on March 21, 1958, Pacific Bank through its lawyer-Notary Public sold the pledged shares of Insular Farms to Pacific Farms for P285,126.99.

Hart filed a case for reconveyance against Pacific Bank and its Executive Vice President but lost in the lower court. However, on appeal, the Court of Appeals modified the judgment by requiring Pacific Bank and its EVP to pay Hart P100 ,000, plus interest from date of foreclosure until fully paid, plus P 15,000 attorney's fees also with interest, subject to :reimbursement of Pacific Bank from its EVP whatever Pacific Bank should pay unto Hart.

Issue: 1. Is the Bank's officer liable to the client? 2. Is Pacific Bank entitled to reimbursement from its officers?

Decision: As the court was convinced that Hart had been given the assurance by the conduct of the Bank's EVP that payment would not as yet be pressed, the obligation was considered extended, because even the pledge did not contain a provision on the first installment that was due. In this

regard, the pledge on the shares of stock of Insular Farms was a sufficient consideration for the extension as it was the additional collateral required by Pacific Bank. As it was established that an agreement to extend indefinitely the payment of the installment was made, Pacific Bank was therefore precluded from enforcing payment of the installment before the indefinite period of extension could be fixed by the court as provided in Article 1197 of the Civil Code. For this reason, the foreclosure of the pledge was an act of bad faith.

In the light of the finding that the foreclosure sale was premature and done in bad faith, Pacific Bank and its EVP were held liable for damages arising from a quasidelict. However, in answer to the question of whether Pacific Bank would be entitled to reimbursement from its officer, the Supreme Court cited Articles 2180 and 2181 of the Civil Code.

It should be noted that Article 2180 provides that employers shall be liable for damages caused by their employees acting within the scope of their assigned tasks. On the other hand, Article 2181 of the Civil Code provides that whoever pays, for damages caused by his dependents or employees may recover from the latter what he has paid or delivered in satisfaction of the c aim. On this basis, the officer was liable to Pacific Bank for what Pacific Bank would be required to pay. However, as between them, the law merely gives the employer a right to be reimbursed from the employee for what it paid. The law does not make recovery from the employee a mandatory requirement. For this reason, there is a need for Pacific Bank to file a claim against the officer and its failure to do so cannot cause a judgment for reimbursement against the officer. Accordingly, the matter was left to the two petitioners' own internal arrangement. Ill. Issue on bank's liability over safety deposit box losses Normally, when a client makes use of the safety deposit box facilitates of a commercial bank, the contract that he executes with the bank is a contract of lease over the safety deposit box. Under that contract, it is usually provided that the bank is not a depository of the contents of the box and it therefore as-

sumes absolutely no liability in connection therewith. The question that comes to mind therefore is whether or not the bank will be liable to the client for losses from the safety deposit box.

In CA Agro-industrial Development Corp. vs. Court of Appeals, GR No. 90027, March 3, 1993, the Supreme Court held a bank liable to the client inspite of the disclaimer of liability provided in its contract of lease with its client. Thus:

Facts: CA Agro-industrial Development Corp. and spouses Ramon and Paula Pugao by virtue of their' agreement to deposit the latter's certificates of title over the lands that the former was buying contracted with Security Bank and Trust Company for

the lease of a safety deposit box where the certificates of title were placed. After execution of the lease, the bank gave separate keys to each of the renter while it retained a guard key to the safety deposit box. However, when the renters subsequently went to the bank and opened the safety deposit box, the certificates of title were no longer inside. As a result, the bank was sued.

Issue: Is the bank liable for the loss?

Decision: In the context of our laws authorizing banks to rent out safety deposit box, Section 72 of the General Banking Act provides that the bank in renting safety deposit boxes for safeguarding documents and valuable objects shall perform its services as depositories or agents. In other words, the renting out of a safety deposit box is not independent from! but related to or in conjunction with, the contract of deposit. As the depositary, the bank would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement. In the absence of any stipulation prescribing the degree of diligence required, that of a good father of the family is to be observed. Hence, any stipulation exempting the depositary from any liability arising from the loss of the thing deposited on account of fraud, negligence or delay would be void for being contrary to law and public policy.

However, while the bank can be held liable for the loss of documents placed inside a safety deposit box, however, in the case at bar, the bank exonerated from liability because of the absence of proof that the bank was aware of the agreement

between the renters that the certificates of title were withdrawable from the safety deposit box only upon both parties' joint signatures. Neither was there any proof that the loss was due to the fraud or negligence of the bank. IV. Issues involving deed of assignment

Normally, a Deed of Assignment to provide security for a loan accommodation by a bank provides as follows:

"For and in consideration of certain loans, credit lines and/or other credit accommodations in the principal amount of PESOS ___________, Philippine currency, obtained and/or to be obtained by the Assignor from the Assignee as or to be evidenced by promissory notes, agreements or otherwise, the Assignor hereby assigns, transfers and conveys in favor of Assignee, its successors or assigns, all its rights, interests and claims in and over (the properties assigned).

In connection with the above-quoted Deed of Assignment, two issues elevated to the Supreme Court involved the questions of whether or not the loan obligation in the Deed of Assignment was deemed paid by the assignment and whether or not the prohibition against pactum commissorium or automatic appropriation of security applies to a Deed of Assignment. In disposing of the issues, the Supreme Court in Integrated Realty Corporation, et al. vs. P.N.B., et. al., GR 60705, June 28, 1989, declared that the irrevocable assignment of time deposit certificates in a Deed of Assignment did not constitute a payment of the obligation of a principal obligation; (2) that pledgor is an absolute owner of the thing pledged; (3) that the person constituting the pledge has the free disposal of the property; and (4) that the thing pledged be placed in the possession of the creditor. This last requirement was complied with by the deed of assignment in favor of PNB.

With respect to the second issue which the Supreme Court resolved by declaring that a Deed of Assignment is not a pactum commissorium, the facts of the case and the corresponding issue and decision thereon are as follows:

Facts: Petitioner executed Deeds of Assignment of her time deposits in the amount of P320,000 with Family Savings Bank as security for a contract with CAMS Trading allowing

her to withdraw cement from said company. On July 24, [1990, she incurred an unpaid account of P314,639.75. Thus, CAMS Trading asked the Bank to allow encashment of the deposits and presented a letter, dated July 18, 1980, where petitioner acknowledged by indebtedness as of that date as P404,500. The Bank obtained petitioner's verbal clearance to encash the time deposits but upon being informed of the encashment, petitioner made demands on the Bank and CAMs Trading to restore her time deposits. Both parties refused. Hence, petitioner filed a case which was dismissed. In her appeal, petitioner contended that encashment of her time deposits constituted a pactum commissorium prohibited under Article 12088 of the New Civil Code.

Issue: Is the Deed of Assignment authorizing encashment of the assigned time deposit a pactum commissorium?

Decision: In upholding the decision of the Court of Appeals, the Supreme Court declared that the encashment of the time deposit certificates under a Deed of Assignment did not constitute a pactum commissorium. For this purpose, it was explained by the Supreme Court that Article 2088 of the New Civil Code, which prohibits pactum commissorium as the automatic appropriation of the pledged or mortgaged property by the creditor in payment of the loan upon its maturity, is intended to protect a debtor whose security has more value than the debt owed from being overreached by a creditor and not where the security is also money deposited in a bank, the amount of which is less than the debt. Therefore, it was not illegal for the creditor to encash debtor's time deposit certificates to pay its obligation with said creditor. V. Limitations of escalation clauses in loan transactions ; Two cases were decided by the Supreme Court regulating escalation clauses in loan transactions. In the case of Banco Pilipino vs. Navarro, et. al., 152 SCRA 346 (1987), the Supreme Court declared that the escalation clause was defective for failing to include a de-escalation clause and limiting its application to cases where interest rates were increased by law, secured thereby. On the other hand, in Yau Chu vs. Court

of Appeals, et. al., 177 SCRA 793, the High Court declared that the prohibition against pactum commissorium or the automatic appropriation of security does not apply when the security for a debt is also money deposited in a bank the amount of which is less than the debt.

For a clearer understanding of the issues involved and the consequent ruling thereon, the following facts of the case and the resolution of issues thereon should be pertinent.

Facts: On January 11, 1967, Raul Santos deposited with Overseas Bank of Manila (OBM) P500,000 and on February 6, 1967, he made another deposit of P200,000 for which he was issued a certificate of time deposit for each deposited amount. These two time deposit certificates became subsequently the subject of a Deed of

Assignment which Raul Santos executed on August 11, 1967 in favor of PNB as a security for a loan and/or credit line for P700,000 obtained from the bank by Integrated Realty Corporation (IRC) of which Raul Santos was the President on February 9, 1967. Both OBM and IRC gave their respective conformity to the assignment.

When the loan was not paid, PNB demanded payment from OBM of the time deposit certificates upon maturity but OBM did not pay. PNB also demanded payment from IRC and Santos but both claimed that IRC's loan was deemed paid with the irrevocable assignment of the time deposit certificates. Thus, PNB filed a complaint to collect the P700,000 loan from IRC and Santos and impleaded OBM to compel it to redeem and pay to it Santos' time deposit certificates with interest, plus exemplary and corrective damages, attorney's fees and costs.

Issue: Is the liability of IRC and Santos with PNB deemed paid by the Deed of Assignment?

Decision: On the contention of IRC and Santos that the irrevocable assignment of time deposit certificates to PNB constituted payment of their obligations, the Supreme Court agreed with the Court of Appeals that where a certificate of deposit in a bank, payable at a future day, was handed over by a debtor to his creditor, it was not payment unless there was an express agreement on the part of the creditor to receive it as such. For this purpose, the Court pointed out that it would not have been necessary on the part of IRC and Santos to

execute promissory notes in favor of PNB if the assignment of Santos' time deposits was really intended as an absolute conveyance. As further pointed out by the Court, if the P700,000 loan had already been paid or otherwise extinguished upon execution of the Deed of Assignment on August 11, 1967, defendants would not have executed the promissory notes on August 16, 1967.

In view of this, the Deed of Assignment is actually a pledge. It has satisfied the requirements of a contract of pledge, namely: (1) that it be constituted to secure fulfillment while in the case of Insular Bank of Asia and America (IBAA) vs. Salazar, et. al, 159 SCRA 133 (1988), the Supreme Court refused to apply the escalation clause, even if it was valid, because the remaining maturity of the loan to which it was sought to be applied was less than what the law required. However, in both

cases, escalation clauses were recognized as valid stipulations in commercial contracts such as, among others, loan transactions, to maintain fiscal stability and retain the value of money in such long term contracts. As observed by the Supreme Court in the Banco Pilipino case, "the Court further finds as a matter of law that the cost of living index adjustment, or escalator clause, is not substantially unconscionable." Escalation clauses are authorized by P.D. No. 1684 which provides that parties to an agreement pertaining to a loan could stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased "by law or by the Monetary Board". However, while escalation clauses in loan transactions are allowed under Section 7-a of P.D. No. 1684, there are specific limitations required, namely: (1) that such stipulation shall be valid only if there is also a stipulation in the agreement that the rate of interest agreed upon shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board; and (2) that the adjustment in the rate of interest agreed upon shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest. While a third limitation, which requires that the remaining maturity of the loan to which it should apply should be more than 730 days, as enunciated by the Central

Bank and reflected in the records of the case of Banco Pilipino vs. Navarro, et. al., it was however in the case of IBAA vs. Salazar that this third limitation was specifically applied.

For a clearer understanding of how the decisions resolved the issues submitted, a study of the facts of the cases is needed. For this purpose, in the case of Banco Pilipino vs. Navarro, et. al., the facts, issues and decisions are as follows:

Facts: On May 20, 1975, respondent Florante del Valle (the BORROWER) obtained a loan secured by a real estate mortgage (the LOAN, for short) from petitioner Banco Pilipino in the sum of Forty One Thousand Three Hundred (P41,300.00) Pesos, payable and to be amortized within 15 years at 12% interest annually.

Stamped on the promissory note evidencing the loan is an Escalation Clause, based upon CB Circular No. 494 issued on January 2, 1976, reading as follows:

"I/We hereby authorize Banco Pilipino to correspondingly increase the interest rate stipulated in this contract without advance notice to me/us in the event a law should be enacted increasing the lawful rates of interest that may be charged on this particular kind of loan."

On the strength of CB Circular No. 494, Banco Pilipino gave notice to the BORROWER on June 30, 1976 of the increase of interest rate on the loan from 12% to 17% per annum effective on March 1, 1976.

Contending that Circular No. 494 was not the law contemplated in the Escalation Clause of the promissory note, the BORROWER filed suit against Banco Pilipino for "Declaratory Relief", praying that the Escalation Clause be declared null and void and that Banco Pilipino be ordered to desist from enforcing the increased rate of interest on the BORROWER's real estate loan.

In its judgment, the respondent court nullified th Escalation Clause and ordered Banco Pilipino to desist from enforcing the increased rate of interest on the BORROWER's loan. Hence, Banco Pilipino elevated the case to the Supreme Court in a Petition for Certiorari.

Issue: Is the Escalation Clause valid?

Decision: It is clear from the stipulation between the parties that the interest rate may be increased "in the event a law should be enacted increasing the lawful rate of interest that may be charged on this particular kind of loan". The Escalation Clause was dependent on an increase of rate made by "law" alone.

Although CB Circular No. 494 which was adopted pursuant to law has the force and effect of law, it is not strictly a statute or a law. This distinction was recognized by P.D. No. 1684 when it provided that parties to an agreement pertaining to a loan could stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased "by law or by the Monetary Board"

As provided in Section 7-a, P.D. No. 1684, parties to an agreement pertaining to a loan or forebearance of money, goods or credits may stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased by law or by the Monetary Board; provided, That such stipulation shall be valid only if there is also a stipulation in the agreement that the rate of interest agreed upon shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board. It is therefore clear from the above provisions that escalation clauses to be valid should specifically provide: (1) that there can be an increase in interest if increased by law or by the Monetary Board; and (2) in order for such stipulation to be valid, it must include a provision for reduction of the stipulated interest "in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board". Appropriately, where an Escalation Clause fails to provide a de-escalation clause, as in the case of the Escalation Clause in question, that Escalation Clause should not be given effect, because of its one-sidedness in favor of the lender.

On the other hand, the facts, issue and decision in the case of IBAA vs. Salazar, supra., are as follows:

Facts: Spouses Epifania and Ricardo Salazar obtained a loan from Insular Bank of Asia and America (IBAA) in the amount of P42,050.00 payable on or before December 12,] 1980. They signed a Promissory Note binding them jointly and

severally to pay the amount with interest at 19% per annum and with express authority to increase without notice the rate of interest up to the maximum allowed by law and subject further: to penalty charges or liquidated damages upon default equivalent to 2% per month on any amount due and unpaid. When CB Circular No. 705, dated December, 1, 1979, was issued; the bank increased the rate of interest from 19% to 21%.

The promissory note matured but the borrowers failed to pay their account. It was only after several demands that the spouses were able to make partial payments. As of November 25, 1983, they were able to pay a total of P68,676.75 which payments were applied to partially satisfy the penalty and interest charges.

When the matter reached the Supreme Court, one of the issues was whether or not the lower court erred in not awarding interest on the loan at 21% per annum.

Issue: Is the bank entitled to charge 21% interest per annum on the basis of its escalation clause?

Decision: It is the rule that escalation clauses are valid stipulations in commercial contracts to maintain fiscal stability and to retain the value of money in long term contracts. However, the enforcement of such stipulations are subject to certain conditions. For this purpose, an escalation clause is a valid provision in the loan agreement provided that the increased rate imposed or charged by the lender does not exceed the ceiling fixed by law or the Monetary Board, the effectivity of the increase is not earlier than the effectivity of the law or regulation authorizing such increase and the remaining maturities of the loans are more than 730 days as of the effectivity of the law or regulation authorizing such increase.

It was observed by the Supreme Court that since the loan which was obtained on November 21, 1978 was payable on or before November 12, 1980 and that CB Circular No. 705, authorizing the increase from 19% to 21% was issued on December 1, 1979, obviously, as of December 1, 1979, the remaining maturity of the loan was less than 730 days. Hence, the bank was not entitled to enforce the increase interest rate on the basis of its escalation clause. VI. Prohibition against issuance of bouncing checks

As observed by the Supreme Court in Lozano vs. Martinez, and related cases, 146 SCRA 323 (1986), bouncing checks are worthless checks which are dishonored upon their presentation for payment. The acts of making and issuing these checks are what Batas Pambansa Blg. 22, known as Bouncing Checks Law, prohibits.

Pointing to statistics of the Central Bank which showed that one-third of the entire money supply of the country, roughly totaling P32.3 billion, consisted of peso demand deposits against which, among others, commercial papers like checks are drawn, the Supreme Court explained that the magnitude of the amount involved amply justifies the legitimate concern of the State in preserving the integrity of the banking system. For this purpose, the Supreme Court pointed out that since flooding the banking system with worthless checks is like pouring garbage into the bloodstream of the nation's economy, the harmful practice of putting valueless commercial papers in circulation is prohibited, because it injures the banking system and eventually hurts the welfare of society and the public interest.

The Bouncing Checks Law as embodied in Batas Pambansa Blg. 22 prohibits, under the pain of penal sanctions, the making of worthless checks and putting them in circulation. As explained by the Supreme Court in the Lozano case, the gravamen of the offense is the act of making and issuing a worthless check or a check that is dishonored upon its presentation for payment. However, as reiterated in Dingle vs. Intermediate Appellate Court, et. al., 148 SCRA 595 (1987), an essential element of the offense is knowledge on the part of the maker or drawer of the check of the insufficiency of his funds.

Moreover, considering that in the Dingle case "knowledge on the part of the maker or drawer of the check of the insufficiency of his funds" is an essential element of ):he offense, would it be necessary in the prosecution of violation of the Bouncing Checks Law to allege and prove that the maker or drawer of the check knew that he would not have sufficient funds for payment of the check in full upon presentment? In resolving the issue in People vs. Soriano, et. al., 171 SCRA 305

(1989), the Supreme Court after reviewing the provisions of B.P. Blg. 22 declared that there was no need for such proof.

It may therefore be summarized from the three cases on bouncing checks that because of the need to maintain the integrity of the banking system and protect society from injurious issuances of worthless checks, the Bouncing Checks Law prohibiting issuances of valueless checks is necessary and therefore constitutional under the Supreme Court's decision in the Lozano case. However, in order that one can be considered liable under the law, it is necessary under the Dingle case that the maker or drawer knew of the insufficiency of his funds. Moreover, according to the Supreme Court in People vs. Soriano, et. al., supra., it is not necessary to prove that maker or drawer knew of the insufficiency of his funds for payment of the check in full upon presentment, because of the legal presumption under the Bouncing Checks Law that the maker's knowledge of insufficiency of funds upon presentment of the check is legally presumed from the dishonor of the check for insufficiency of funds.

For a better appreciation of the decisions, a brief summary of the Cases is therefore reproduced hereunder.

In Lozano vs. Martinez, the facts, issue and decision are as follows:

Facts: The petitions questioning the constitutionality of Batas Pambansa Blg. 22 arose from cases involving prosecution of offenses under the statute. The defendants in those cases moved seasonably to quash the informations on the ground that the acts charged did not constitute an offense, the statute being unconstitutional. The motions were denied by the respondent trial courts, except in one case, which is the subject of G.R. No. 75789, wherein the trial court declared the law unconstitutional and dismissed the case. The parties adversely affected went to the Supreme Court for relief.

Issue: Has B.P. Blg. 22 transgressed the constitutional prohibition against imprisonment for debt?

Decision: To answer the question, it is necessary to examine what the statute prohibits and punishes as an offense. Is it the failure of the maker of the check to pay a debt? Or is it the making and issuance of a worthless check in payment of a debt? What is the gravamen of the offense? This question lies

at the heart of the issue before the Supreme Court.

According to the Supreme Court, the gravamen of the offense punished by BP 22 is the act of making and issuing a worthless check or a check that is dishonored upon its presentation for payment. It is not the non-payment of an obligation which the law punishes. The law is not intended or designed to coerce a debtor to pay his debt. The thrust of the law is to prohibit, under pain of penal sanctions, the making of worthless checks and putting them in circulation. Because of its deleterious effects on the public interest, the practice is proscribed by the law. The law punishes the act not as an offense against property, but as offense against public order.

The effects of the issuance of a worthless check transcends the private interests of the parties directly involved in the transaction and touches the interests of the community at large. The mischief it creates is not only a wrong to the payee or

holder, but also an injury to the public. The harmful practice of putting valueless commercial papers in circulation, multiplied thousand fold, can very well pollute the channels of trade and commerce, injure the banking system and eventu-ally hurt the welfare of society and the public interest.

In sum, the Supreme Court found the enactment of BP 22 a valid exercise of the police power and is not repugnant to the constitutional prohibition against imprisonment for debt.

On the other hand, in Dingle vs. Intermediate Appellate Court, et. al., supra., the facts, issue and decision are as follows:

Facts: Sps. Paz and Nestor Dingle are owners of a family business called "PMD Enterprises". In a transaction negotiated by Nestor Dingle with Ernesto Ang, PMD Enterprises would sell 400 tons of washed silica sand to Ang for which an advanced payment for P51,885.93 was received by Nestor Dingle. However, when Nestor Dingle failed to deliver the washed silica sand, he issued two post dated checks drawn by him and his wife, Paz Dingle, as authorized signatories of PMD Enterprises in the total of P51.885.93. The checks were dishonored for being drawn against insufficient funds. When informed of the dishonor, Nestor Dingle replaced the two checks with one Equitable Banking Corporation check for P51,885.93 also signed by both spouses. This was also dishon-

ered and when no payment was made both spouses were charged with violation of the Anti-Bouncing Checks Law. In her testimony before the court, Paz Dingle claimed that she signed the questioned checks in blank together with her husband, that she had no knowledge of its issuance, much less of the transaction and the fact of dishonor.

After trial, the spouses were found guilty by the trial court. When Paz Dingle appealed to the Court of Appeals, the penalty for imprisonment was reduced from six months to thirty days. insisting on her innocence, Paz Dingle filed a Petition for Review with the Supreme Court.

Issue: Is knowledge of issuance and dishonor of check an essential element of the offense under BP 22?

Decision: The Supreme Court took note from the testimony of the sole prosecution witness, Ernesto Ang, that he had dealt with Nestor Dingle exclusively. Nowhere in the testimony was the name of Paz Dingle mentioned in connection With the transaction and with the issuance of the check. In fact, Ang categorically stated that it was Nestor Dingle who received his two letters of demand. Forthwith, the Solicitor General recommended in his memorandum that petitioner be acquitted.

Considering that the records gave credence to the testimony of Paz Dingle that she signed the questioned checks in blank together with her husband without any knowledge of its issuance, much less of the transaction and the fact of dishonor, the Supreme Court acquitted Paz Dingle on reasonable doubt. Citing the case of Lozano vs. Martinez, the Supreme Court declared, as it was held in that case, that an essential element of the offense is knowledge on the part of the maker or drawer of the check of the insufficiency of his funds.

Moreover, in People vs. Soriano, et. al., supra., the facts, issue and decision are as follows:

Facts: One Eliseo Soriano was charged with violation of the Bouncing Checks Law for issuing a post dated check for P250,000.00, drawn against his Banco Pilipino current account which was a closed account. It was alleged in the information that the accused, with intent to defraud by means of deceit, knowing fully well that he had no funds and/or sufficient funds in the bank, for value received willfully, un-

lawfully and feloniously issued and made out a Banco Pilipino check No. 1679962, postdated July 18, 1984 to Lolita Hizon for P250,000.00 in payment of an obligation and when said check was presented for encashment, said check was dishonored and returned, with information that said check was drawn against "closed account".

During the trial, the accused admitted that when he issued the check he did not have enough funds in the bank, and that he failed to deposit the needed amount to

cover it. He however alleged that he issued the check as "a temporary receipt for what he had received".

In its decision, the trial court ruled that the accused could not be convicted of a violation of the Bouncing Checks Law, because the information failed to allege that he knew, when he issued the check, that he would not have sufficient funds for its payment in full upon its presentment to the drawee bank. Hence, the case was dismissed.

Issue: Is it required to allege and prove that accused knew that he would not have sufficient funds for payment of the check in full upon presentment?

Decision: According to the Supreme Court, the elements of the offense under Batas Pambansa Blg. 22 are: (1) the making, drawing and issuance of any check; (2) the maker, drawer or issuer knows 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; and (3) the 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.

However, while one of the elements of the offense is that the maker, drawer or issuer of the check knows 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, the allegation that accused foresaw or had foreknowledge of the insufficiency of his bank account upon presentment of the check for payment need not be made. For this purpose, the presence of the first and third elements of the offense constitutes prima facie evidence that the second element exists, because the maker's knowledge of the insuffi-

ciency of his funds is legally presumed under Section 2 of Batas Pambansa Blg. 22 from the dishonor of his check for insufficiency of funds.

The gravamen of the offense under B.P. Blg. 22 is the act of making and issuing a worthless check or a check that is dishonored upon its presentment for payment.

The law has made the mere act of issuing a bum check a malum prohibitum, an act proscribed by the legislature for being deemed pernicious and inimical to public welfare. [Some Significant Decisions on Banking Transactions, 219 SCRA 440(1993)]