Bank Closure Suspends Obligations: Impact on B.P. 22 Cases

When a bank is ordered closed by the Monetary Board and placed under receivership, its officers may no longer be able to fund postdated checks they previously issued. In Allan S. Cu v. Small Business Guarantee and Finance Corporation (G.R. No. 211222, August 7, 2017), the Supreme Court ruled that such closure suspends the bank's obligations, and criminal liability under Batas Pambansa Blg. 22 (B.P. 22) may not attach under these circumstances.

The Facts of the Case

Golden 7 Bank (Rural Bank of Nabua, Inc.) obtained a credit line from the Small Business Guarantee and Finance Corporation (SB Corp.) for re-lending to micro, small, and medium enterprises. Allan S. Cu, as a bank officer, signed promissory notes and issued postdated checks to cover the drawdowns.

On July 31, 2008, the Bangko Sentral ng Pilipinas (BSP) placed Golden 7 Bank under receivership by the Philippine Deposit Insurance Corporation (PDIC). The PDIC took over the bank's assets and records, issued a cease and desist order against its officers, and closed all the bank's deposit accounts—including the checking account against which the subject checks were drawn.

When SB Corp. deposited the postdated checks in October 2008, they were dishonored for "Account Closed." SB Corp. filed criminal complaints for violation of B.P. 22 against Cu and a co-signatory.

The Issue

The central question was whether Cu could be held criminally liable under B.P. 22 for checks that were dishonored because the issuing bank had been closed by the Monetary Board and placed under receivership before the checks matured.

The Ruling

The Supreme Court held that the closure of Golden 7 Bank suspended the bank's obligations to SB Corp. Applying the ruling in Gidwani v. People, the Court explained that when a lawful order suspends obligations, the contract temporarily ceases to be operative. The closure of the bank, the appointment of PDIC as receiver, and the filing of a petition for assistance in liquidation had the effect of suspending or staying the demandability of the bank's loan obligation.

At the time SB Corp. presented the checks, it had no right to demand payment because the underlying obligation was not yet due and demandable. The exact amount SB Corp. was entitled to recover had yet to be determined by the liquidation court pursuant to PDIC's distribution plan. Until that determination, the debtor's obligation to pay was likewise suspended.

The Court also noted that SB Corp. acted in bad faith when it deposited the checks knowing that the bank was already under receivership and that PDIC had closed all its accounts. It was legally impossible for Cu or any bank officer to fund those checks.

A Procedural Note: Who May Appeal Criminal Cases

The Court also addressed a procedural matter: SB Corp., as a private complainant, lacked the authority to appeal the dismissal of the criminal cases before the Court of Appeals. Only the State, through the Office of the Solicitor General, may appeal the criminal aspect of a dismissed case. However, the Court made an exception in this case to write finis to the proceedings and for justice to prevail.

Practical Takeaways

• Bank closure suspends obligations. When a bank is closed by the Monetary Board and placed under PDIC receivership, its obligations—including those covered by postdated checks—are suspended pending liquidation proceedings.
• B.P. 22 liability may not attach. If checks are dishonored because the issuing bank's accounts were closed by PDIC after the Monetary Board's closure order, the maker may not be criminally liable under B.P. 22, as the underlying obligation is not yet due and demandable.
• Presenting checks after closure may constitute bad faith. A payee who deposits checks knowing the issuing bank has been closed and its accounts shut may be acting in bad faith.
• Claims must be filed with the liquidation court. Creditors of a closed bank must pursue their claims through the liquidation proceedings, not through criminal prosecution of the bank's officers.
• Only the Solicitor General may appeal criminal dismissals. A private complainant cannot appeal the dismissal of a criminal case on its criminal aspect; it may only pursue the civil aspect of the case.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.