MARLON ECHAVEZ, PETITIONER, VS. NORA COLIAMCO, RESPONDENT.

Echavez versus Coliamco

The Case

This is the case of Echavez versus Coliamco, a petition for review brought by Marlon Echavez against Nora Coliamco. Echavez had been charged with violating the Bouncing Checks Law, Batas Pambansa Bilang Dalawampu't Dalawa, for issuing checks that were dishonored because the account was closed. He was acquitted of the crime, yet the trial court still ordered him to pay the face value of the checks as civil liability. The case matters because it teaches the bar candidate two enduring lessons: that an acquittal based on reasonable doubt does not extinguish the civil liability arising from the same transaction, and that the mere replacement of dishonored checks does not amount to novation. It is a favorite of examiners on the civil aspect of criminal cases and on the requisites of novation.

Procedural History

Twelve separate Informations for violation of the Bouncing Checks Law were filed against Echavez and his co-accused, Marilou Gonzales, before the Municipal Trial Court of Paniqui, Tarlac. Both pleaded not guilty and trial ensued. The Municipal Trial Court acquitted them of the crime for failure of the prosecution to prove guilt beyond reasonable doubt, but nonetheless adjudged them solidarily liable to pay the total face value of the two Westmont Bank checks, amounting to three million three hundred sixty-four thousand five hundred ninety-two pesos and thirty centavos, with interest at twelve percent per annum. Echavez appealed to the Regional Trial Court of Paniqui, Tarlac, Branch Sixty-Seven, which affirmed the decision of the Municipal Trial Court. His motion for reconsideration was denied. He then filed a petition for review under Rule 42 before the Supreme Court. Coliamco failed to file her comment and her memorandum, so the petition was submitted for decision without them.

Facts

On various occasions, Echavez and Gonzales purchased large quantities of lumber and construction materials from Coliamco, and they also received cash from her. In payment, they issued two Westmont Bank checks: one for two million eight hundred twenty-seven thousand five hundred fifty pesos, and another for five hundred thirty-seven thousand forty-two pesos and thirty centavos.

When Coliamco presented the two checks for payment, both were dishonored for the reason account closed. She went to the house of Gonzales in Tarlac to inform her of the dishonor and to demand payment. Gonzales then issued ten RCBC replacement checks in exchange for the two Westmont Bank checks that had bounced. But when the ten RCBC checks were presented for payment, they too were dishonored.

Despite oral and written demands, Echavez and Gonzales refused and failed to settle their obligation. Coliamco thus filed a criminal complaint, and after probable cause was found, twelve separate Informations for violation of the Bouncing Checks Law were filed against them.

Issues

• Whether or not the absence of notice of dishonor and demand for payment results in the petitioner's discharge as drawer of the checks, and therefore from any civil liability.
• Whether or not the issuance of the ten replacement checks by Gonzales and their acceptance by Coliamco created a novation by substitution of debtor, thus discharging the petitioner from any civil obligation.

Applicable Provisions

Section 89 of the Negotiable Instruments Law provides:

When a negotiable instrument has been dishonored by non-acceptance or non-payment, notice of dishonor must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is not given is discharged.

This is the provision Echavez invokes, but the Court holds that it discharges him only from the criminal charge, not from the civil debt.

Section 119 of the Negotiable Instruments Law provides:

SECTION 119. Instrument; how discharged. — A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal debtor; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other act which will discharge a simple contract for the payment of money; (e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right.

This provision frames the Court's discussion of how an instrument, and the obligation it secures, may be discharged.

Article 1231 of the New Civil Code, as discussed in the decision, provides that novation is one of the modes of extinguishing an obligation. The Court explains that novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor.

Ruling

On the first issue, the Court ruled against Echavez. It is settled that the extinction of the penal action does not carry with it the extinction of the civil liability where the acquittal is based on reasonable doubt, because only preponderance of evidence is required in civil cases. The lack of notice of dishonor may have removed an essential element of the crime, but the civil liability rests on a different footing: the fact that Echavez and Gonzales owed Coliamco the amount corresponding to the face value of the two Westmont Bank checks they issued. The Court relied on its ruling in Lim versus Mindanao Wines and Liquor Galleria, quoting:

Conversely, the lack of such proof of dishonor does not mean that Emilia has no existing debt with Mindanao Wines, a civil aspect which is proven by another quantum of evidence, a mere preponderance of evidence.

On the second issue, the Court also ruled against Echavez. For novation to take place, four requisites must concur: there must be a previous valid obligation; the parties concerned must agree to a new contract; the old contract must be extinguished; and there must be a valid new contract. Not all of these are present. First, there was no express agreement that Echavez and Gonzales were already discharged from their liability, and novation is never presumed. Second, there was no incompatibility, since the Westmont checks and the RCBC checks were given precisely for the purpose of paying the same amount, and there was no substantial change in the object or principal condition of the obligation. Third, when the RCBC checks were presented, they were again dishonored, so the obligation secured by the Westmont checks was never extinguished. The Court quoted its earlier ruling:

First, novation must be explicitly stated and declared in unequivocal terms as novation is never presumed. Secondly, the old and the new obligations must be incompatible on every point.

Finally, the Court modified the rate of interest. Applying Nacar versus Gallery Frames, and in the absence of any stipulation between the parties, it imposed legal interest at six percent per annum on the civil liability, computed from the finality of the decision until fully paid.

Doctrine

First, the extinction of the penal action does not carry with it the extinction of the civil liability where the acquittal is based on reasonable doubt, because the civil case requires only preponderance of evidence. An accused acquitted for lack of notice of dishonor under Section 89 of the Negotiable Instruments Law may still be held civilly liable for the face value of the checks he issued.

Second, novation is never presumed. It must be expressly stated and declared in unequivocal terms, or the old and new obligations must be incompatible on every point, meaning they cannot stand together, each having its own independent existence. The acceptance of replacement checks for dishonored checks does not by itself novate the obligation, especially where the replacement checks are themselves dishonored.

Third, for novation to take place, four requisites must concur: a previous valid obligation; agreement of the parties to a new contract; extinguishment of the old contract; and a valid new contract.

Fourth, in the absence of a stipulation on interest, the legal rate is six percent per annum, computed from the finality of the decision until full satisfaction.

Disposition

The petition was denied. The decision and resolution of the Regional Trial Court were affirmed with modification, imposing interest at six percent per annum on the civil liability of Echavez, computed from the finality of the decision until fully paid.

Remember This

Memorize this line: an acquittal based on reasonable doubt does not extinguish the civil liability, and novation is never presumed. Examiners use this case to test the civil aspect of criminal cases and the requisites of novation by substitution of debtor.