KNOW YOUR SMALL BIZ LAW: The Anti-Bouncing Checks Law

check

Checks are being used all the time for business as well as personal purposes.  Checks are easier to carry around than bundles of currency; they are safer as you can readily stop payment on a check in case it gets lost or stolen; and they are easier to monitor and record as you can keep track of who you remitted a check to, for how much, when it was issued, and other particulars regarding the payment.

For this reason, most, if not all businesses, conduct their financial transactions using a checking account.

A business – or any person for that matter —  however, gets into trouble when it issues a worthless check, that is, a check that doesn’t have sufficient funds to back it up and “bounces”  when the person to whom it was issued attempts to encash or deposit it.

The issuance of bouncing checks is prohibited by Batas Pambansa 22 or the Anti-Bouncing Check Law.

Section 1 of BP 22 provides: “Any person who makes or draws and issues 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” shall be punished in accordance with the law.

Violators of BP 22 may be held for imprisonment of 30 days to one year or a fine double the value of the check or both at the discretion of the court. Moreover, the issuer of the check may also be liable for imprisonment, even if only a fine is imposed by the court, if the issuer has no sufficient resources to pay the fine imposed, in which case he or she shall be liable to serve a prison term at the rate of one day for each eight pesos of the unpaid fine.

Another manner in which a person becomes liable under BP 22 is when the issuer orders his or her bank to make a stop payment of the check without any valid reason and the check would have been dishonored for insufficiency of funds had it not been for the stop payment order given by the issuer.

According to Nicolas and De Vega Law Offices, there are possible defences against an indictment for those who violate the law.  These include:  1) payment of the value of the dishonored check within five banking days from receipt of the notice of dishonor; 2) payment of the value of the check before filing of the criminal case in court; 3) failure to serve a written notice of dishonor of the check to the issuer; 4) novation or change in the underlying obligation of the parties before the filing of the criminal case in court; 5) a stop payment order pursuant to a valid reason such as non-delivery of goods or services; and 6) knowledge by the payee that the check was not supported by sufficient funds when the issuer issued the check.

In a ruling, the Supreme Court has emphasized that “ what the law punishes is the issuance of a bouncing check and not the purpose for which the check was issued, nor the terms and conditions of its issuance.”

In other words, 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 law.”

Kelvin Lee, writing in Sunstar.com.ph, points that the point of prohibiting and punishing  the issuance of bouncing checks is to safeguard the financial system. If bouncing checks were allowed to happen without penal sanction, it is possible that this would wreak havoc on trade and in banking communities.

Photo: from flickr.com (creative commons), some rights reserved

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