G.R. No. 166018 - Hongkong and Shanghai Banking Corp. Ltd.-Phil. Branch vs. Commissioner of Internal Revenue

On August 24, 1989, petitioner Francisco T. Sycip, Jr. entered into a contract to buy, on installment, a townhouse unit from Francel Realty Corporation (FRC) for a project in Bacoor, Cavite.
As a requirement under the contract, petitioner issued forty-eight (48) postdated checks, each valued at ₱9,304.00, corresponding to the 48 monthly installments.

After moving into the unit, petitioner complained about defects in the townhouse and the incomplete development of the project.
Petitioner issued two notarial notices to FRC declaring the suspension of his installment payments pending compliance with the approved project plans and specifications of the Housing and Land Use Regulatory Board (HLURB).
Subsequently, petitioner, together with 12 other unit buyers, filed a complaint with the HLURB. Although the complaint regarding defects was dismissed, the HLURB ordered FRC to complete the incomplete features of the townhouse project.

Despite petitioner’s suspension notices, FRC continued to present the postdated checks for encashment.
Petitioner responded by issuing “stop payment orders” to the bank; however, the bank advised him to close his checking account in order to avoid incurring high bank charges from multiple stop-payment orders.
As a result of closing his account, six of the postdated checks were dishonored by the drawee bank due to insufficient funds.

On November 8, 1991, prompted by the dishonor of the checks, the Quezon City Prosecutor’s Office filed six criminal cases (Criminal Cases Nos. Q-91-25910 to Q-91-25915) charging petitioner with violations of B.P. Blg. 22 (the Bouncing Checks Law).
The accusatory portion in Criminal Case No. Q-91-25910 detailed that petitioner, on or about October 30, 1990, knowingly issued a check despite insufficient funds in his Citibank account, which was later dishonored upon presentation.
Similar charges, with variations only in dates and check numbers, were consolidated and jointly tried.

Upon arraignment, petitioner pleaded “Not Guilty” to the charges.
The prosecution’s case was built on the evidence that petitioner issued checks as part of his contractual obligation and that the checks were dishonored due to account closure—not due to a lack of funds at the time of issuance.
Petitioner’s defense emphasized that the suspension of payments was based on valid grounds stemming from defects in the townhouse and incomplete project development, invoking his statutory rights under P.D. No. 957.
Evidence showed that petitioner had ample funds (at least ₱150,000.00 in cash or credit with Citibank) at the time of check presentation, and that the closure of his account was executed on the bank’s advice to avoid stop-payment charges.

On March 11, 1994, the Regional Trial Court found petitioner guilty in each of the six cases, sentencing him to thirty (30) days imprisonment for every case and ordering him to pay actual damages of ₱55,824.00 with interest.
Dissatisfied with the decision, petitioner appealed the conviction, but the Court of Appeals on February 29, 1996, upheld the trial court’s ruling, rejecting petitioner’s reliance on P.D. No. 957 and his argument that the checks were stopped for valid reasons.
Petitioner filed a motion for reconsideration, which was denied per the Resolution dated April 22, 1996.
The assignment of errors in petitioner’s appeal outlined several issues, including:

Whether petitioner had justifiable cause to stop or prevent the payment of the subject checks.
Whether petitioner had waived his right to complain about the defects in the townhouse unit and project.
Whether there was sufficient evidence to establish that petitioner did not have funds in the account upon check presentation.
Whether the awarding of damages in favor of FRC was proper.

The principal issue was whether petitioner’s right under P.D. No. 957 to suspend installment payments—due to FRC’s failure to complete the townhouse project—served as a valid defense against the charges under B.P. Blg. 22.
The Solicitor General maintained that the act of issuing a bad check, regardless of any statutory right to suspension of payments, constituted an offense under the Bouncing Checks Law.
The gravamen of the charge was the issuance of a worthless check, which the prosecution argued was immaterial to the circumstances or intent provided that the check was dishonored.

Whether petitioner had a justifiable cause to stop payment on the postdated checks, considering his statutory right under P.D. No. 957.
Whether the defects in the townhouse unit and the incomplete development of the project were valid grounds to suspend payment of installment checks.
Whether the elements of the offense—particularly the requirement of knowledge of insufficient funds at the time of check issuance—were proven beyond reasonable doubt.
Whether the presumption of knowledge of insufficient funds (arising from the dishonor of the check) could be rebutted by evidence showing that petitioner had sufficient funds as of the time of check presentation.
Whether the application of B.P. Blg. 22 was appropriate when considering the conflicting statutory provisions and the protective rights granted to townhouse buyers under P.D. No. 957.