When Banks Can Refuse Payment: B.P. 22 and Bank Closure in Cu v. SB Corp.

The Supreme Court's 2017 decision in Cu v. Small Business Guarantee and Finance Corporation (G.R. No. 211222) clarifies a critical point for businesses and bank officers: when a bank is closed by the Monetary Board and placed under receivership, the obligation to fund postdated checks may be suspended. This means that criminal liability under Batas Pambansa Blg. 22 (B.P. 22), the law penalizing the issuance of bouncing checks, may not attach in such circumstances.

The Facts of the Case

Golden 7 Bank (G7 Bank) obtained a credit line from the Small Business Guarantee and Finance Corporation (SB Corp.), a government financial institution. The bank's officers, including Allan S. Cu, issued over a hundred postdated checks to cover the loan drawdowns.

On July 31, 2008, the Bangko Sentral ng Pilipinas (BSP) placed G7 Bank under receivership by the Philippine Deposit Insurance Corporation (PDIC). PDIC immediately took over the bank's assets and records, issued a cease and desist order against its officers, and closed all of the bank's deposit accounts—including the checking account against which the postdated checks were drawn.

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

The Issue

The central question was whether Cu could be held criminally liable under B.P. 22 for checks that could not be funded because the issuing bank had been closed and placed under receivership before the checks matured.

The Court's Ruling

The Supreme Court ruled in favor of Cu, holding that the closure of the bank and the PDIC takeover suspended the demandability of the underlying loan obligation. The Court applied the ruling in Gidwani v. People by analogy.

Under B.P. 22, an accused may be excused from liability if there was no obligation to pay at the time the check was presented. The Court explained that when a bank is closed by the Monetary Board and PDIC takes over as receiver, the bank's obligations become subject to the liquidation process. The exact amount a creditor may recover is determined by the liquidation court pursuant to PDIC's distribution plan, in accordance with the Rules on Concurrence and Preference of Credits under the Civil Code.

The Court also noted that SB Corp. acted in bad faith. It knew G7 Bank was under receivership when it deposited the checks, and there was no way any bank officer could fund them since all accounts had been closed.

The Procedural Point: Who May Appeal a Criminal Case

The decision also addressed an important procedural matter. The Court held that a private complainant like SB Corp. lacks the authority to appeal the dismissal of a criminal case on its criminal aspect. Only the Office of the Solicitor General (OSG) may represent the People of the Philippines in such appeals. The private complainant may only appeal insofar as the civil aspect is concerned.

However, the Court made an exception in this case to write finis to the criminal proceedings, noting that the dismissal by the lower courts was correct on the merits.

Practical Takeaways

• Bank closure suspends obligations. When a bank is placed under receivership by the Monetary Board, its obligations—including those covered by postdated checks—are suspended and become subject to the liquidation process.
• No B.P. 22 liability when payment is legally impossible. If a check cannot be funded because of a lawful order closing the bank, the issuer may not be held criminally liable under B.P. 22.
• Creditors must file claims with the liquidation court. The proper remedy for recovering amounts owed by a closed bank is to file a claim with the liquidation court, not to pursue criminal prosecution.
• Only the OSG may appeal criminal dismissals. Private complainants cannot appeal the dismissal of a criminal case on its criminal aspect; they may only pursue the civil aspect.
• Good faith matters. Depositing checks with knowledge that the issuing bank is under receivership may be considered bad faith and will not strengthen a B.P. 22 case.

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