Letter to Attorney

Dear Attorney,

I hope this letter finds you well. I am writing to seek legal guidance concerning a serious issue I am currently facing. I took out a loan from a lending corporation, for which I issued twelve post-dated checks, with each check dated to correspond to my monthly payments. Unfortunately, due to unforeseen financial problems and significant health challenges, including a recent surgery, I was unable to fund the remaining eleven checks.

As a result, the lending corporation has now sued me, and I am required to face them in court this coming Friday. I am deeply worried about the consequences of this situation, and I need legal advice on how I should proceed.

I would appreciate your guidance on the following points:

What are my potential defenses in this case?
How does Philippine law treat cases involving unpaid post-dated checks, especially when health issues or financial difficulties are involved?
Could this situation lead to criminal liability under the Bouncing Checks Law (BP 22)?
Are there any alternatives available that might allow me to resolve this case more favorably, such as settlement options or restructuring my loan?
What should I prepare for this court appearance, and what can I expect in terms of possible penalties or repercussions?

I understand that this is a complex matter, but I trust in your expertise and look forward to your advice on how best to navigate this legal challenge.

Sincerely,

A Concerned Borrower

Legal Article: Understanding Bouncing Checks, Loan Agreements, and Possible Defenses Under Philippine Law

In the Philippines, issuing post-dated checks as a mode of payment is a common practice, especially in loan agreements with lending corporations. The primary legal issue that arises when these checks are dishonored due to insufficient funds, stop payment orders, or other reasons is the potential criminal liability under Batas Pambansa Blg. 22 (BP 22), commonly referred to as the Bouncing Checks Law. In addition, civil liability for non-payment of the loan may also be pursued by the lending corporation.

In this comprehensive legal discussion, we will explore all relevant aspects of the case involving unpaid post-dated checks in loan transactions, the legal implications of issuing a check that is subsequently dishonored, the potential defenses available to the accused, and the possible remedies under Philippine law. We will also touch on practical considerations for borrowers facing litigation over unpaid checks due to personal and financial hardships, as well as the rights of creditors to recover the amounts owed to them.

I. Batas Pambansa Blg. 22 (The Bouncing Checks Law)

Under BP 22, the issuance of a check that is dishonored upon presentment for payment can give rise to criminal liability. Specifically, BP 22 provides that any person who makes or draws and issues any check to apply for account or for value, knowing at the time of issue that he or she does not have sufficient funds or credit with the bank, shall be liable.

For criminal liability to attach under BP 22, the following elements must be present:

The offender made, drew, and issued a check.
The check was issued as payment for a debt or obligation.
The bank dishonored the check upon presentment for payment due to insufficient funds, closed account, or a stop payment order issued by the drawer.
The drawer was notified of the dishonor, but failed to pay the amount due within five banking days from receipt of the notice of dishonor.

The penalty for violating BP 22 may include imprisonment for a term of up to 30 days to one year or a fine ranging from the amount of the check to double its amount, but not exceeding P200,000, or both, at the discretion of the court. The law aims to promote confidence in the use of checks by punishing those who issue worthless checks and ensuring that people can rely on checks as a form of payment.

II. Civil Liability in Loan Agreements

In addition to potential criminal liability under BP 22, a person who issues a dishonored check in connection with a loan agreement may also face civil liability for the unpaid loan amount. When a borrower fails to make the payments due, the lender has the right to sue for the recovery of the outstanding amount.

The New Civil Code of the Philippines provides for remedies that a creditor can pursue in cases of non-payment of a debt. These include:

Demand for Payment – The creditor may send a formal demand for payment to the borrower, specifying the outstanding amount and any applicable penalties for non-payment.
Collection Suit – If the borrower fails to pay after receiving a demand, the creditor may file a collection suit in court to recover the amount of the loan plus any interest, penalties, and legal fees stipulated in the loan agreement.
Foreclosure of Security – If the loan was secured by collateral (e.g., a mortgage or a pledge), the creditor may foreclose on the security to recover the debt. In this case, the proceeds from the sale of the collateral would be applied to the outstanding loan balance.

Civil liability can result in a judgment against the borrower, requiring them to pay the outstanding debt. If the borrower fails to comply with the court's order, the lender may enforce the judgment by garnishing wages, attaching assets, or taking other legal measures to satisfy the debt.

III. Possible Defenses Against Criminal and Civil Liability

In the situation where a borrower has issued post-dated checks that were dishonored due to insufficient funds, several defenses may be raised to mitigate or avoid liability. These defenses may vary depending on the circumstances of the case, but the following are some of the most common:

Lack of Notice of Dishonor – Under BP 22, the law requires that the drawer of the check be notified of the dishonor and be given an opportunity to make good on the payment within five banking days from receipt of the notice. If the lender failed to provide such notice, this could be a valid defense to criminal liability.
Good Faith and Absence of Intent to Defraud – BP 22 is primarily intended to punish those who issue checks with fraudulent intent. If the borrower can prove that the issuance of the check was not done with intent to defraud but was instead due to unforeseen circumstances (e.g., health issues, financial difficulties), this could be used as a defense. Courts may be more sympathetic to borrowers who can show that their failure to pay was unintentional and the result of events beyond their control.
Post-Issuance Change in Financial Situation – If the borrower issued the post-dated checks with the honest belief that they would have sufficient funds in their account by the time the checks were presented for payment, but their financial situation changed due to unforeseen events (e.g., loss of employment, medical emergencies), this could be a mitigating factor. While this may not absolve the borrower of civil liability, it could potentially reduce the penalties in a criminal case.
Settlement and Restructuring of the Loan – In some cases, borrowers may be able to negotiate a settlement with the lender, either by paying a lump sum amount or restructuring the loan to make smaller, more manageable payments. This could prevent the case from proceeding to court or result in the dismissal of the criminal case.
Compromise Agreement – Under Article 2028 of the Civil Code, parties to a dispute may enter into a compromise agreement to settle their differences. If the borrower can reach a compromise with the lending corporation, this could resolve the case without the need for further litigation. A compromise agreement may involve payment of a reduced amount or an extended payment plan that is mutually acceptable to both parties.

IV. Remedies for Borrowers in Financial Distress

Borrowers who find themselves unable to pay their debts due to financial distress or health problems have several options for addressing their situation. These remedies may help to alleviate the burden of debt and avoid legal consequences:

Debt Restructuring – Debt restructuring involves renegotiating the terms of the loan to make the payments more manageable. This could involve extending the repayment period, reducing the interest rate, or lowering the monthly payments. Many lenders are open to debt restructuring, especially if the borrower can demonstrate genuine financial hardship.
Voluntary Surrender of Collateral – If the loan is secured by collateral, the borrower may opt to voluntarily surrender the collateral to the lender in exchange for the cancellation of the remaining debt. This is often a last resort, but it can help borrowers avoid legal action and further financial strain.
Loan Refinancing – Loan refinancing involves taking out a new loan to pay off the existing loan. This can be beneficial if the new loan offers better terms, such as a lower interest rate or a longer repayment period. Refinancing can help borrowers manage their debt more effectively and avoid defaulting on their payments.
Seeking Legal Assistance – Borrowers who are facing legal action should seek the assistance of a lawyer who specializes in debt recovery and credit transactions. A lawyer can help the borrower understand their legal rights, negotiate with the lender, and represent them in court if necessary.

V. Conclusion

In conclusion, borrowers who issue post-dated checks as payment for a loan must be aware of the serious legal consequences that can arise if those checks are dishonored. Under BP 22, the issuance of a bounced check can lead to both criminal and civil liability. However, borrowers who are unable to fund their checks due to financial difficulties or health issues may have valid defenses, such as lack of intent to defraud, lack of notice of dishonor, or unforeseen changes in their financial situation.

Borrowers facing legal action should take immediate steps to address the situation, whether through negotiation with the lender, debt restructuring, or seeking legal representation. By understanding

the relevant laws and available remedies, borrowers can better protect their rights and work towards a favorable resolution of their case.