In Allan S. Cu v. Small Business Guarantee and Finance Corporation, the Supreme Court ruled that the closure of a bank by the Monetary Board and its subsequent takeover by the Philippine Deposit Insurance Corporation (PDIC) suspends the obligations of the bank, thus affecting the liability of its officers for checks issued prior to the closure but presented afterwards. This decision clarifies that after a bank’s closure, obligations are subject to the liquidation process, making demands for payment premature until the liquidation court determines the exact amount due. The ruling emphasizes that criminal liability under B.P. 22 cannot arise when the ability to fund checks is legally impossible due to the bank’s closure.

Checks and Balances: When Bank Closure Shields Against B.P. 22 Charges

The case revolves around Allan S. Cu, an officer of Golden 7 Bank (G7 Bank), who, along with another officer, issued postdated checks to Small Business Guarantee and Finance Corporation (SB Corp.) as payment for drawdowns on a credit line. G7 Bank was later placed under receivership by the Bangko Sentral ng Pilipinas (BSP), and the Philippine Deposit Insurance Corporation (PDIC) took over its assets. Consequently, the checks issued by Cu were dishonored due to the closure of the bank’s accounts. SB Corp. filed charges against Cu for violation of Batas Pambansa Blg. 22 (B.P. 22), or the Bouncing Checks Law. The Metropolitan Trial Court (MeTC) dismissed the cases, a decision upheld by the Regional Trial Court (RTC), but reversed by the Court of Appeals (CA).

The Supreme Court addressed two primary issues. The first concerned whether SB Corp., as a private complainant, had the authority to appeal the dismissal of the criminal cases. The second was whether the CA erred in reversing the decisions of the RTC and MeTC. Regarding the first issue, the Court reaffirmed the principle that only the Solicitor General (OSG) can represent the State in appealing a criminal case. However, the Court acknowledged exceptions where it may give due course to actions to serve the interest of justice, even when the OSG’s representation is absent.

The Court then turned to the central question of whether the dismissal of the B.P. 22 cases against Cu was proper. It looked into the legal basis for the MeTC and RTC decisions, ultimately affirming their dismissals. The Supreme Court drew an analogy from Gidwani v. People, which involved a similar situation where a Securities and Exchange Commission (SEC) order suspending payments affected the liability for dishonored checks. The Court found that the closure of G7 Bank by the Monetary Board and the subsequent takeover by PDIC had a similar effect, suspending the demandability of the bank’s obligations.

Considering that there was a lawful Order from the SEC, the contract is deemed suspended. When a contract is suspended, it temporarily ceases to be operative; and it again becomes operative when a condition [occurs -] or a situation arises – warranting the termination of the suspension of the contract.

The Court emphasized that SB Corp. was aware of G7 Bank’s closure when it presented the checks for payment. The court questioned SB Corp.’s good faith, highlighting the impossibility of Cu funding the checks after the PDIC takeover. This impossibility stemmed from the closure of G7 Bank’s accounts. The Court underscored that the exact amount of the obligation was yet to be determined by the liquidation court, making any demand for payment premature.

The Court differentiated this situation from cases like Rosario v. Co, where the dishonor of the checks preceded the petition for suspension of payments. In Rosario, the obligation to pay was already established before the SEC order. Here, the closure of G7 Bank occurred before the presentment of the checks, thus suspending the obligation.

Furthermore, the Court pointed out that SB Corp.’s right to pursue its claim against G7 Bank was not diminished. Instead, it was subject to the liquidation proceedings overseen by the PDIC and the liquidation court. The Court clarified that what was suspended was not the birth of the loan obligation itself, but the creditor’s right to demand payment until the liquidation process determined the exact amount due.

The petition for assistance in the liquidation of a closed bank is a special proceeding for the liquidation of a closed bank, and includes the declaration of the concomitant rights of its creditors and the order of payment of their valid claims in the disposition of assets.

The ruling underscores the critical role of PDIC as receiver and liquidator in ensuring an orderly resolution of claims against closed banks. By filing its Notice of Appearance with Notice of Claims with the liquidation court, SB Corp. had acknowledged this process and was bound by it.

The Court concluded that because the payment of the subject checks was contingent on the outcome of the bank’s liquidation, Cu could not be held liable for violation of B.P. 22. The decision serves as a reminder that the application of B.P. 22 requires a careful consideration of the circumstances surrounding the issuance and presentment of checks, especially in cases involving bank closures and liquidation proceedings. Ultimately, the Supreme Court reversed the CA’s decision and reinstated the dismissal of the criminal cases against Allan S. Cu.

FAQs

What was the key issue in this case?	The key issue was whether Allan S. Cu could be held liable for violating B.P. 22 when the checks he issued were dishonored due to the closure of Golden 7 Bank by the Monetary Board.
Why did the checks get dishonored?	The checks were dishonored because the Bangko Sentral ng Pilipinas placed Golden 7 Bank under receivership, and the PDIC took over its assets, closing all its deposit accounts, including the one against which the checks were drawn.
What is B.P. 22?	B.P. 22, also known as the Bouncing Checks Law, penalizes the act of issuing checks without sufficient funds or credit with the drawee bank, and subsequently failing to cover the amount within five banking days after receiving notice of dishonor.
What was the role of the PDIC in this case?	The PDIC acted as the receiver and liquidator of Golden 7 Bank, managing its assets and liabilities after the bank’s closure, and overseeing the liquidation process.
How did the Supreme Court justify the dismissal of the charges?	The Supreme Court justified the dismissal by drawing an analogy to cases where a suspension of payments or similar legal impediments prevented the fulfillment of financial obligations, rendering the demand for payment premature and negating criminal liability.
Can SB Corp. still recover the money owed to them?	Yes, SB Corp. retains the right to pursue its claim against Golden 7 Bank for the value of the dishonored checks, but it must do so through the liquidation proceedings managed by the PDIC and the liquidation court.
What is the significance of the Gidwani v. People case in this ruling?	The Supreme Court applied the principle established in Gidwani v. People, where the court ruled that a suspension of payments suspends the contract and the obligation of the issuer of the check.
What is a liquidation court?	A liquidation court is a court with jurisdiction over the liquidation of a closed bank, which includes resolving claims against the bank and determining the order of payment to creditors.

This case provides valuable insight into the impact of bank closures on financial obligations and the application of B.P. 22. It illustrates that the closure of a bank and the commencement of liquidation proceedings can suspend the demandability of debts, affecting the liability of individuals who issued checks on behalf of the bank. The ruling underscores the importance of adhering to established legal processes in resolving financial claims against closed banking institutions.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Allan S. Cu v. SB Corp., G.R. No. 211222, August 07, 2017