Magno v. Court of Appeals

In April 1983, Oriel Magno, representing Ultra Sources International Corporation, was setting up a car repair shop but lacked the funds to buy the equipment. He approached Corazon Teng, vice president of Mancor Industries, which distributed the equipment. Knowing his situation, she referred him to LS Finance and Management Corporation. LS Finance agreed to lease the equipment to him, with an option to buy, on condition that he put up a warranty deposit of 30% of the equipment's value, P29,790. Under the leasing agreement the deposit was security for his obligations and refundable at the end of the lease. Magno could not raise the deposit and asked LS Finance's vice president, Joey Gomez, to find a third party to lend it. Unknown to Magno, it was Teng who advanced it, as a short-term loan at 3% interest, and she asked that her role not be disclosed. Magno issued a postdated check that Gomez passed to Teng. When it matured, Magno asked that it not be deposited because he no longer banked with that bank, and he replaced it with six postdated checks. Two cleared. Four Piso Bank checks, totalling P25,192.16, were held at his request because they were not funded. When Magno could not pay the monthly rentals, the equipment was pulled out, and only then did he learn that Teng had advanced the deposit. He promised to pay her but never did, and the four checks were dishonored for “account closed.” The RTC of Quezon City convicted him on four counts of violating BP 22, reasoning that the offense is malum prohibitum and good faith is no defense. The Court of Appeals affirmed, holding that the checks were issued for value and that Magno had not proved the deposit was returned to Teng.

1. 1Whether checks issued to cover a warranty deposit under a lease arrangement were drawn “to apply on account or for value” within Section 1 of BP 22.
2. 2Whether Magno was properly convicted of violating BP 22.

Reversed; Magno acquitted (Paras, J.). The Court looked at the real nature of the warranty deposit. The transaction never ripened into a purchase. It remained a lease, and the lessor pulled out the equipment when he stopped paying rentals. The deposit was never withdrawn or used by Magno and remained with the financing company throughout. Charging him for its refund would make him pay an unjust debt for money he never received. The Court found the arrangement irregular. Teng, an officer of the supplier, concealed her role while privately financing the deposit, a scheme by which the supplier could lease out its goods while making petty loans to businessmen who needed them. BP 22 was devised to protect the banking system and legitimate check users, not to let people enrich themselves by manipulating it. Applying the protective theory of punishment, the Court said retribution should be directed at actual and potential wrongdoers, and the potential wrongdoer here was not Magno. The four checks collateralized an accommodation and did not cover the receipt of an actual account or credit for value, so he should not be punished for merely issuing them. The Court of Appeals also disregarded the presumption of innocence by requiring Magno to prove that the deposit had been returned to Teng, evidence he could hardly obtain. The element of knowing, at issuance, that funds were insufficient was “inversely applied.” From the start Magno openly told the parties that he did not have the funds for the deposit. Narvasa, C.J. concurred in the result.