Dear Attorney,

I hope this letter finds you well. I am writing on behalf of a family member who recently received a subpoena from the City Prosecutor’s Office for an alleged violation of the Philippine Bouncing Checks Law. The checks in question were issued as payment for a debt that carries a 10% interest rate. However, they were dishonored upon presentment. My family member has been given ten (10) days to file a counter-affidavit, and if she fails to comply, she will supposedly waive her right to defend herself during the preliminary investigation.

We wish to understand the legal remedies available to us and the best possible approach to address this issue. We are prepared to cooperate with the legal process fully but want to ensure that we observe all pertinent timelines, comply with applicable laws, and explore any defenses or remedies that the Philippine legal system may provide.

Thank you, and I look forward to your esteemed advice on the matter.

Respectfully, A Concerned Family Representative

LEGAL ARTICLE ON PHILIPPINE LAW CONCERNING BOUNCING CHECKS, INTEREST RATES, AND REMEDIES

Introduction

When checks are issued in the Philippines and subsequently dishonored due to insufficient funds, the drawer may face criminal charges under the Bouncing Checks Law—commonly referred to as Batas Pambansa Bilang 22 (B.P. 22). In addition to potential criminal liability, the issuer of the dishonored checks may also be liable for civil obligations to the payee, including principal amounts owed plus interest, if stipulated under a contract or through an agreement. This article covers every crucial aspect of dealing with a charge for bounced checks, highlighting procedural guidelines for preliminary investigations, the necessity of filing a counter-affidavit, common defenses, relevant jurisprudence, interest rate considerations, and the potential repercussions of non-compliance.

The situation referenced in this discussion involves an individual who received a subpoena from the City Prosecutor’s Office for alleged violations of B.P. 22. The checks that were dishonored served as payment for an existing debt carrying a 10% interest rate. Because the checks bounced, a complaint was lodged, and now the party accused must submit a counter-affidavit within ten (10) days. Failure to file said counter-affidavit might effectively waive one’s right to present defenses, making it absolutely essential to understand both the procedural and substantive aspects of the case.

Below is a meticulous discussion of Philippine legal principles pertinent to B.P. 22, interest rates, the role of the prosecutor, and defenses or remedies an accused might invoke.

1. Overview of Batas Pambansa Bilang 22 (B.P. 22)

1.1 Elements of B.P. 22

B.P. 22 penalizes the making or drawing and issuance of a check that is subsequently dishonored due to insufficient or closed accounts, provided the issuer fails to pay the amount of the check or make arrangements with the drawee bank within five (5) banking days after receiving notice of dishonor. Under Philippine jurisprudence, the following are the elements to establish a violation:

The making, drawing, or issuance of a check to apply on account or for value;
The knowledge by the maker or drawer that at the time of issue, the funds deposited are insufficient to cover the amount of the check, or that the bank account is already closed;
The subsequent dishonor of the check by the drawee bank for insufficiency of funds, or for being drawn against a closed account; and
Failure of the drawer to pay or settle the amount of the check within five (5) banking days from receipt of the notice of dishonor from the bank or payee.

Notably, knowledge of insufficiency of funds is inferred if the issuer fails to pay the holder of the check or arrange for its payment within five (5) banking days after notice has been given.

1.2 Penalties under B.P. 22

Historically, B.P. 22 carries penalties of imprisonment of up to one (1) year, a fine of up to double the amount of the check (but not exceeding Php 200,000), or both. However, Supreme Court Circular No. 57-97 and related circulars have introduced more lenient approaches: courts often favor a fine over imprisonment if extenuating circumstances exist. Nonetheless, it remains critical to understand that imprisonment can still be an option, depending on the court’s discretion and a thorough evaluation of the facts.

1.3 Nature of the Case

B.P. 22 is considered a special penal law where criminal liability is determined apart from civil liability. The cause of action does not rest solely on the dishonored check as an isolated document but is deeply connected with the act of issuing a check that one knows may not be funded. The nature of the debt—whether it arises from a loan, goods sold and delivered, or a personal obligation—becomes relevant in determining the total civil liability. Nonetheless, the primary inquiry in B.P. 22 remains whether the individual had knowledge of insufficient funds and still issued the check.

2. Interest Rate on the Underlying Debt

2.1 Conventional Interest vs. Legal Interest

In this scenario, the complaint arises from a debt subject to a 10% interest rate. Philippine law generally allows parties to stipulate their own interest rates, known as conventional interest, provided the rate is not excessive or unconscionable. Courts have, in specific cases, struck down interest rates that are grossly excessive (e.g., 36%, 60%, or more) for being contrary to morals, public policy, or Article 1306 of the Civil Code.

When no specific interest rate is agreed upon, the legal interest rate under Central Bank Circulars, as interpreted by Supreme Court jurisprudence, typically applies. The current legal interest rate, especially for loans or forbearances of money, is 6% per annum. If an agreement sets a higher interest rate, it must not run counter to the prohibition on usurious rates. Although formal usury laws have been effectively suspended, courts still look at unconscionability as a check against predatory interest.

2.2 Possible Usury and Excessive Interest Concerns

While usury laws have been generally liberalized, a 10% per annum rate often passes judicial scrutiny as a reasonable conventional interest rate if freely agreed upon by the parties. However, if the interest is not properly documented or if the lender cannot prove that the borrower freely consented to such a rate, the court may reduce the interest. In extreme cases, the court can declare certain rates null and void. Whether 10% is per annum or per month must also be clarified, as 10% monthly would be considered excessively high. Assuming the 10% interest is per annum, this is typically within acceptable limits unless other predatory conditions exist.

2.3 Penalties for Non-Payment of Interest

The court may award not just the principal amount of the debt but also accrued interest if the checks were intended to cover both principal and interest due. Bouncing the checks does not absolve the debtor from paying lawful interest owed. Instead, the amount due may continue to accrue interest until fully settled, subject to court determination if litigation ensues.

3. The Importance of Submitting a Counter-Affidavit

3.1 Nature and Purpose of the Counter-Affidavit

Once an individual receives a subpoena in connection with a criminal complaint for violation of B.P. 22, the City Prosecutor’s Office commences a preliminary investigation. During this stage, the responding party (i.e., the accused) must submit a counter-affidavit under oath, containing factual and legal defenses, and attach relevant evidence (such as bank certifications, proof of payment, or any documentation that may negate liability).

Failure to file a counter-affidavit within the prescribed period—commonly set at ten (10) days—may lead to a finding of probable cause based solely on the complainant’s evidence. Consequently, the respondent effectively waives the right to present exculpatory evidence at this critical juncture. While there might be procedures allowing for a motion for extension of time to file a counter-affidavit, these are generally discretionary on the part of the investigating prosecutor.

3.2 Strategic Considerations

A properly prepared counter-affidavit should meticulously address each allegation set forth in the complaint. It must show, for instance, any defenses that might contradict the elements of B.P. 22, such as:

No Notice of Dishonor: If the complainant did not properly serve a notice of dishonor, or the address used was incorrect, the presumption of knowledge does not arise.
Payment or Arrangement Within Five (5) Banking Days: If the issuer managed to pay the holder or make arrangements for the check’s payment upon receiving notice, then there might be no liability under B.P. 22.
Purely Civil Debt: Arguments may be raised that the issuance of checks was purely for the payment of a civil obligation, and that there was no fraudulent intent. This defense can be weak, however, if the elements of B.P. 22 are present and remain unrefuted.
Other Technical Defenses: Challenging the validity of the complaint, authenticity of the checks, or the identity of the issuer, or alleging that the checks were presented beyond a reasonable period, among other defenses.

3.3 Evidence in Support of the Counter-Affidavit

Common forms of evidence include:

Bank statements showing sufficient balance during relevant dates;
Bank certifications indicating whether the account was closed or active;
Proof of payment to the payee after the dishonor;
Correspondence (text messages, emails, or letters) indicating that the lender agreed to defer or restructure the debt;
Sworn statements from witnesses attesting to relevant facts, including prior negotiations regarding the check issuance or partial payments already made.

Every piece of evidence can shape the prosecutor’s assessment regarding probable cause. In the absence of a properly executed counter-affidavit, the prosecutor may rely entirely on the complainant’s evidence and eventually file an information in court, leading to a criminal trial if no settlement is reached.

4. Remedies and Legal Strategies for the Accused

4.1 Filing a Motion for Extension of Time

If the accused needs more time to gather evidence or prepare an affidavit, they may file a motion for extension of time to submit their counter-affidavit. Although granting such an extension is at the prosecutor’s discretion, a well-founded motion stating valid reasons (e.g., illness, unavailability of crucial documents, or the need to secure counsel) may be considered favorably.

4.2 Settling the Obligations and Seeking Withdrawal of Complaint

The parties may negotiate a settlement of the civil obligation. If the complainant is amenable, the accused can pay the debt or any outstanding portion thereof. In many instances, settling the monetary obligation can persuade the complainant to withdraw the complaint or at least refrain from pursuing it vigorously. However, keep in mind that a criminal complaint under B.P. 22 is considered an offense against the state. A private complainant’s withdrawal does not automatically guarantee that the prosecutor will dismiss the case, especially if the public prosecutor believes the elements of the offense are sufficiently established. Still, settlement is often a strong factor that can lead to the prosecutor’s recommendation to dismiss the case, or to the court’s leniency at sentencing.

4.3 Filing a Motion to Dismiss

After submission of the counter-affidavit, if the accused believes that probable cause does not exist, they may file a motion to dismiss, attaching persuasive legal arguments and evidence. Should the prosecutor find that the elements of B.P. 22 are not satisfied or that the complaint is defective, a resolution to dismiss the complaint might be issued.

4.4 Availing Other Legal Defenses

If the case proceeds to court, the accused may raise additional defenses in a Motion to Quash the Information or during arraignment and trial. However, the preliminary investigation stage remains the best time to present evidence that could prevent the escalation of the matter to a full-blown criminal case.

5. Procedural Safeguards in Criminal Investigations

5.1 Right to Counsel

During the preliminary investigation, the accused has the right to counsel. While not strictly required, seeking legal advice is crucial due to the complexities of B.P. 22. An experienced lawyer can help craft a comprehensive counter-affidavit, ensure compliance with procedural deadlines, and protect the accused’s rights.

5.2 Notice of Dishonor Requirement

A hallmark requirement in B.P. 22 cases is the proper issuance of a notice of dishonor. The payee or holder must serve written notice to the drawer that the check has been dishonored, stating the reason for the dishonor. The Supreme Court has repeatedly emphasized that actual notice—preferably through registered mail or personal delivery—creates the presumption that the drawer had knowledge of the dishonor. If notice is not properly given, or if it is defective or served at a wrong address, it can be a strong defense.

5.3 Waiver of Right to Present Evidence

If the accused fails to submit any counter-affidavit or evidence during the preliminary investigation, the investigating prosecutor will resolve the case based on the complaint’s evidence alone. In many instances, failing to participate at this stage can lead to a probable cause finding. Participation, timely submission of defenses, and evidence can significantly alter the outcome.

6. Potential Civil and Criminal Liabilities

6.1 Criminal Aspect under B.P. 22

If probable cause is found, the prosecutor files the information in court, and the accused will be arraigned. If found guilty, potential penalties include fines or imprisonment, or both, subject to the court’s discretion and relevant case law.

6.2 Civil Liability

The issuer of the bounced check may still be held liable for the underlying debt plus accrued interest. Even if an accused is acquitted of B.P. 22 charges, civil liability may survive if the debt remains unpaid. The complainant can file or maintain a separate civil case to collect the unpaid obligation, or it can be instituted jointly with the B.P. 22 criminal action (as provided under the Rules of Court).

6.3 Impact of Payment After Filing of the Case

Payment of the debt or settlement after the filing of the criminal information does not automatically extinguish criminal liability. However, in practice, the court and the prosecutor may give weight to a full settlement as grounds for leniency. On certain occasions, parties present affidavits of desistance or compromise agreements, which, while not binding on the prosecutor, often guide the resolution of the case toward dismissal or an acquittal, especially if no further interest of justice is served by continuing litigation.

7. Practical Tips and Best Practices

Never Ignore the Subpoena: Failure to respond within the stipulated time frame can lead to a finding of probable cause without your side of the story.
Seek Legal Counsel Promptly: A lawyer can help structure your defenses, secure critical evidence, and ensure strict adherence to procedural requirements.
Gather Documentary Evidence: Obtain bank statements, letters, or agreements that can show you had funds at the relevant time or that the payee was informed of your intention to settle.
Negotiate in Good Faith: If it is within your capacity, aim for an amicable settlement. Settling obligations can often persuade the complainant to reconsider or withdraw the complaint.
Insist on Proper Notice of Dishonor: Confirm whether you truly received the notice. If not, lack of proper notice is a potent defense.
File a Motion for Extension if Necessary: If you cannot meet the deadline, do not hesitate to formally request more time to gather evidence or hire counsel.
Maintain Full Documentation: Copies of all correspondences, receipts, and sworn statements will help your counsel present a coherent defense.

8. Conclusion

In the Philippine legal landscape, bouncing checks can trigger both civil and criminal repercussions. B.P. 22 imposes sanctions on issuers of dishonored checks if they fail to remedy the insufficiency of funds within five (5) banking days upon notice of dishonor. The preliminary investigation before the City Prosecutor is a critical stage: failing to file a counter-affidavit means waiving essential defenses. Thus, any accused must respond promptly to subpoenas, ideally under the guidance of competent legal counsel.

Additionally, interest rates, while not strictly capped by law, must be reasonable and conscionable. A 10% interest rate per annum on a loan is generally viewed as within permissible bounds, but it must be clearly documented and freely agreed upon by both parties. If the lender imposes an unreasonably high or unclear rate, courts may strike down or reduce such interest, especially if the rate contravenes public policy.

Ultimately, the best remedy for someone facing B.P. 22 charges is a proactive, well-prepared defense that addresses both the criminal and civil dimensions of the case. Submitting a timely counter-affidavit is essential, as is exploring any viable settlement that might secure a withdrawal of the complaint. Compliance with procedural rules, respectful engagement with the prosecutor’s office, and the thoughtful presentation of defenses or mitigating circumstances can help protect one’s rights and possibly avert the worst outcomes. By adhering to these practices and seeking reputable legal counsel, individuals confronted with allegations of issuing bouncing checks stand a better chance of securing a favorable resolution, whether through dismissal, settlement, or acquittal in court.