G.R. No. L-43548 June 29, 1981
LEONILA S. PEREZ, petitioner, vs. THE PEOPLE OF THE PHILIPPINES and THE HONORABLE COURT OF APPEALS, respondents.

FACTS

Petitioner Leonila S. Perez was convicted of estafa under Article 315(1)(b) of the Revised Penal Code for abuse of confidence. The prosecution alleged that between February 11 and 14, 1964, Perez, through fraudulent representations that she needed to activate her bank account to secure a loan to help complainant Petra Farin finance a building, induced Farin to engage in an exchange of checks. Farin issued checks to Perez, who in turn issued thirteen checks totaling P377,930. Perez encashed Farin’s checks, but her own checks were dishonored for insufficient funds.
The factual backdrop reveals a more complex arrangement. The parties were introduced by mutual bank associates. They engaged in a series of reciprocal check exchanges, a practice described as a “kiting” operation, designed to artificially inflate their bank balances by depositing each other’s checks. The transaction subject to the criminal charge was part of this ongoing scheme. Notably, Farin herself had issued checks to Perez that were dishonored, and she had previously filed a civil action to recover sums from these dealings.

ISSUE

Whether the act of issuing dishonored checks within a reciprocal “kiting” arrangement constitutes the crime of estafa through abuse of confidence under Article 315(1)(b) of the Revised Penal Code.

RULING

No. The Supreme Court reversed the conviction and acquitted Perez. The legal logic is anchored on the nature of the transaction and the element of deceit in estafa. The Court found that the exchange of checks was part of a mutual “kiting game,” an illicit agreement to manipulate bank credit. Both parties were aware of the inherent risk of dishonored checks. The arrangement was essentially a contract, albeit one with an illicit purpose, where each party assumed the risk of the other’s default.
For estafa under paragraph 1(b) to prosper, the accused must have received money or property in trust or under an agreement to administer or return it, and subsequently misappropriated it. Here, the funds were not received by Perez under an obligation to return the same specific amount; they were received as part of a reciprocal exchange of value (checks for checks) under a scheme where both parties intended to use the proceeds temporarily. The subsequent dishonor of her checks constituted a breach of their mutual agreement, not a criminal misappropriation. The breach gives rise to a civil liability for the value of the encashed checks, not criminal liability for estafa. The proper remedy is the pending civil action for recovery, not a criminal prosecution.