Saturday, April 14, 2012

The Bouncing Check Law and valid cause for a "stop payment"

What may constitute valid cause or good reason to legally justify “stop payment” of a check under Batas Pambansa (BP) Blg. 22?

The law enumerates the elements of BP Blg. 22 to be (1) the making, drawing, and issuance of any check to apply for account or for value; (2) the knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of the check in full upon its presentment; and (3) the subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.

In a case decided by the Supreme Court (Daleon vs. Tan [2010]), it held that placing a check on a “stop payment” may be justified provided that there is a good reason to do so.

These are the facts:

Pursuant to the terms of their agreement on the purchase of the Daleons’ undivided land, the Tans gave the Daleons a down payment of P10.861 million and issued in their favor 12 postdated checks in the amount of P658,750.00 per check to cover the remaining balance of P7.905 million.

Eight days after the parties executed their agreement, one Bartolome Sy caused to be annotated on the title to the property an adverse claim on the undivided share of one of the Daleons.  For this reason, the Tans placed a stop payment order on their first postdated check and repeatedly wrote the Daleons that, until the adverse claim on the property was canceled, they were stopping payment on their checks.

The Daleons deposited the first three checks in their bank but these were returned for the reason “SPO/DAIF” or “stop payment order/drawn against insufficient funds.”  Meanwhile, the Daleons succeeded in getting a court order that directed the cancellation of Bartolome Sy’s adverse claim on their title to the property.  They then deposited the other checks that the Tans gave them but these, too, were returned for the reason “SPO/DAIF.”

Subsequently, the Tans wrote the Daleons, informing them that they were ready to make good on their checks provided the Daleons presented to them a clean title to the property.  In addition, they requested the Daleons to submit to them the documents specified in the contract to sell as a prerequisite to the payment of the last two checks.  Meanwhile, the Tans’ stop payment order on their checks remained in force.

While the issue in this case does not refer to the matter of violation of BP 22 itself, the Supreme Court has declared that, “the Tans had to place that stop payment for a valid reason.  They agreed to buy the property believing that the seller’s title was unblemished by any lien or unfavorable claim.  Bartolome Sy’s adverse claim, which came shortly after the execution of the contract and the initial payment to the Daleons of P10.861 million, was certainly distressing.  Its annotation on the title served as warning to third parties like the Tans that someone claimed an interest or a better right to the property than the registered owner. Certainly, the Tans were justified in placing a stop payment order on their checks to avoid greater loss since it may be assumed that they did not want to buy such an expensive property that had a cloud on its title.”

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