Introduction
In the Philippine legal system, the issuance of checks is governed by a combination of civil and criminal laws, primarily the Negotiable Instruments Law (Act No. 2031) and Batas Pambansa Blg. 22 (BP 22), also known as the Bouncing Checks Law. An accommodation party plays a unique role in negotiable instruments, often signing a check or note to assist another party in obtaining credit or funds without directly benefiting from the transaction. However, this act of accommodation can lead to significant legal liabilities, especially when the check bounces due to insufficient funds or account closure. This article explores the concept of an accommodation party, the extent of their liability for bouncing checks, relevant legal provisions, defenses available, and pertinent jurisprudence from Philippine courts.
Definition and Role of an Accommodation Party
Under Section 29 of the Negotiable Instruments Law (NIL), an accommodation party is defined as one who signs the instrument as a maker, drawer, acceptor, or indorser without receiving value therefor, and for the purpose of lending their name to some other person. This means the accommodation party acts as a surety or guarantor, enabling the accommodated party (the principal debtor) to secure a loan or credit from a third party, such as a bank or creditor.
In the context of checks, the accommodation party might sign as a co-maker or indorser on a post-dated check issued by the principal party. The key characteristic is that the accommodation party does not receive any direct consideration or benefit from the transaction; their involvement is purely to accommodate the needs of another. However, this does not absolve them from liability. The NIL treats accommodation parties as fully liable to holders in due course, though they may have recourse against the accommodated party.
Legal Framework Governing Bouncing Checks
Negotiable Instruments Law (Act No. 2031)
The NIL provides the foundational rules for negotiable instruments, including checks. Section 60 holds the maker of a promissory note (analogous to a check's drawer) liable to pay according to the instrument's tenor. For accommodation parties, Section 29 stipulates that they are liable on the instrument to a holder for value, even if the holder knew of the accommodation nature at the time of taking the instrument. This creates primary liability for the accommodation party vis-à-vis innocent third parties.
However, between the accommodation party and the accommodated party, the relationship is one of principal and surety. Section 196 of the NIL allows the accommodation party to seek reimbursement from the accommodated party after paying the instrument.
Batas Pambansa Blg. 22 (Bouncing Checks Law)
BP 22 criminalizes the issuance of worthless checks. Section 1 makes it unlawful for any person to make or draw and issue any check to apply on account or for value, knowing at the time of issue that they do not have sufficient funds in or credit with the drawee bank, or if the check is dishonored for insufficiency of funds or credit.
The law imposes penalties including imprisonment or fines, or both, depending on the amount involved. Importantly, BP 22 applies to post-dated checks issued as security for loans or obligations, as long as they are issued for value.
For accommodation parties, the question arises whether they can be held criminally liable under BP 22. The law does not explicitly distinguish between principal drawers and accommodation parties, but jurisprudence has clarified that accommodation parties can face criminal charges if they knowingly participate in issuing a check that bounces.
Civil Liability of Accommodation Parties for Bouncing Checks
Civil liability stems from the NIL and the Civil Code of the Philippines (Republic Act No. 386). As a party to the instrument, the accommodation party is solidarily liable with the accommodated party to the payee or holder. This means the creditor can directly sue the accommodation party for the full amount without first exhausting remedies against the principal debtor.
Under Article 2047 of the Civil Code, the accommodation party is considered a surety, bound solidarily with the principal obligor. Upon payment, the accommodation party can seek indemnification from the accommodated party, including legal interest and expenses (Article 2066).
In cases of bouncing checks, the civil aspect often involves collection suits where the accommodation party may be held liable for the face value of the check, plus interest, damages, and attorney's fees. The Supreme Court has consistently upheld that accommodation parties cannot escape liability by claiming lack of consideration, as this defense is not available against holders for value.
Criminal Liability Under BP 22
Criminal liability under BP 22 requires two elements: (1) the making, drawing, and issuance of a check for payment of account or for value, and (2) knowledge at the time of issuance that the drawer does not have sufficient funds or credit.
For accommodation parties, criminal liability attaches if they sign the check knowing it will likely bounce. The Supreme Court in cases like Lozano v. Martinez (1986) established that BP 22 is a malum prohibitum offense, meaning intent to defraud is not required; mere issuance of a worthless check suffices for prima facie evidence of knowledge of insufficiency.
However, accommodation parties may argue lack of knowledge or that they did not issue the check "for value" personally. Jurisprudence shows mixed outcomes:
In Magno v. Court of Appeals (1992), the Court held that an accommodation party who signs a check can be criminally liable under BP 22 if they knew or should have known about the insufficiency of funds.
Conversely, in People v. Nitafan (1992), the Court acquitted an accommodation indorser, ruling that indorsement alone does not constitute "issuance" under BP 22, as issuance pertains to the drawer.
The distinction often hinges on the capacity in which the accommodation party signs: as co-maker (potentially liable) versus mere indorser (less likely). Post-dated checks issued by accommodation parties for loans can still trigger liability if dishonored.
Prima facie evidence of knowledge arises if the check is dishonored and the drawer fails to pay within five banking days after notice (Section 2, BP 22). This applies equally to accommodation parties.
Penalties under BP 22 include imprisonment from 30 days to one year or a fine ranging from the check amount to double that amount (but not exceeding P200,000), or both. Subsidiary imprisonment applies if the fine is unpaid.
Defenses Available to Accommodation Parties
Accommodation parties have several defenses in both civil and criminal proceedings:
Lack of Knowledge of Insufficiency: In criminal cases, rebutting the prima facie presumption by proving they believed funds were sufficient or that the accommodated party assured replenishment.
No Direct Issuance: If the accommodation party did not "make or draw" the check but merely signed as surety, they may argue non-applicability of BP 22, as seen in indorsement cases.
Novation or Payment: If the obligation is extinguished by payment, novation, or other modes under the Civil Code, liability ceases.
Holder's Knowledge of Accommodation: While not a defense against liability to the holder, it affects recourse rights.
Estoppel or Waiver: If the payee waives rights or is estopped from enforcing the check.
Illegality of Underlying Transaction: If the check was issued for an illegal purpose, it may be unenforceable, though this is rare in BP 22 cases.
In civil suits, the accommodation party can invoke the benefit of excussion (Article 2058, Civil Code), requiring the creditor to first pursue the principal debtor's assets, but this is waived in solidary obligations.
Relevant Jurisprudence
Philippine Supreme Court decisions provide critical insights:
TownSavings and Loan Bank, Inc. v. CA (1993): Affirmed that accommodation makers are solidarily liable for bouncing checks, emphasizing NIL provisions.
People v. Manzanilla (2000): Held that an accommodation party who co-signs a check can be convicted under BP 22 if they fail to ensure funds availability.
Sycwin Coating & Wires, Inc. v. CA (2006): Clarified that accommodation parties are liable to holders in due course but can recover from the accommodated party.
Lim v. People (2008): Acquitted an accommodation indorser, ruling that indorsement does not equate to issuance under BP 22.
Bautista v. People (2012): Upheld conviction of an accommodation drawer who knew of insufficiency, rejecting the defense of good faith.
These cases illustrate that liability depends on factual circumstances, such as the party's role, knowledge, and the check's purpose.
Implications and Best Practices
Engaging as an accommodation party carries inherent risks, particularly with bouncing checks, which can lead to civil judgments, criminal records, and financial burdens. Individuals should exercise due diligence, verify the accommodated party's financial stability, and consider written agreements for reimbursement.
In practice, courts scrutinize the intent and circumstances surrounding the issuance. Legal counsel is essential to navigate defenses and mitigate liabilities.
This framework underscores the Philippine legal system's emphasis on protecting commerce and credit integrity while providing avenues for equitable recourse.