Application of NIL

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-26767

February 22, 1968

ANG TIONG, plaintiff-appellee,

vs.
LORENZO TING, doing business under the name and style of PRUNES PRESERVED MFG.,
and FELIPE ANG, defendants.
FELIPE ANG, defendant-appellant.
Chipeco & Alcaraz, Jr. for plaintiff-appellee.
Ang, Atienza & Tabora for defendant-appellant.
CASTRO, J.:
On August 15, 1960 Lorenzo Ting issued Philippine Bank of Communications check K-81618,
for the sum of P4,000, payable to "cash or bearer". With Felipe Ang's signature (indorsement in
blank) at the back thereof, the instrument was received by the plaintiff Ang Tiong who thereafter
presented it to the drawee bank for payment. The bank dishonored it. The plaintiff then made written
demands on both Lorenzo Ting and Felipe Ang that they make good the amount represented by the
check. These demands went unheeded; so he filed in the municipal court of Manila an action for
collection of the sum of P4,000, plus P500 attorney's fees. On March 6, 1962 the municipal court
adjudged for the plaintiff against the two defendants.
Only Felipe Ang appealed to the Court of First Instance of Manila (civil case 50018), which
rendered judgment on July 31, 1962, amended by an order dated August 9, 1962, directing him to
pay to the plaintiff "the sum of P4,000, with interest at the legal rate from the date of the filing of the
complaint, a further sum of P400 as attorney's fees, and costs."
Felipe Ang then elevated the case to the Court of Appeals, which certified it to this Court
because the issues raised are purely of law.
The appellant imputes to the court a quo three errors, namely, (1) that it refused to apply
article 2071 of the new Civil Code to the case at bar; (2) that it adjudged him a general indorser
under the Negotiable Instruments Law (Act 2031); and (3) that it held that he "cannot obtain his
release from the contract of suretyship or obtain security to protect himself against any proceedings
on the part of the creditor and against the danger of insolvency of the principal debtor," because he
is "jointly and severally liable on the instrument."
This, appeal is absolutely without merit.

1. The genuineness and due execution of the instrument are not controverted. That the
appellee is a holder thereof for value is admitted.
Having arisen from a bank check which is indisputably a negotiable instrument, the present
case is, therefore, in so far as the indorsee is concerned vis-a-vis the indorser, governed solely
plaintiff the Negotiable Instruments Law (see secs. 1 and 185). Article 2071 of the new Civil Code,
invoked by the appellant, the pertinent portion of which states, "The guarantor, even before been
paid, may proceed against the principal debtor; (1) when he is sued for the payment; . . . the action
of the guarantor is to obtain release from the guaranty, to demand a security that shall protect him
from any proceedings by the creditor . . .," is here completely irrelevant and can have no application
whatsoever.
We are in agreement with the trial judge that nothing in the check in question indicates that the
appellant is not a general indorser within the purview of section 63 of the Negotiable Instruments
Law which makes "a person placing his signature upon an instrument otherwise than as maker,
drawer or acceptor" a general indorser, "unless he clearly indicates plaintiff appropriate words his
intention to be bound in some other capacity," which he did not do. And section 66 ordains that
"every indorser who indorses without qualification, warrants to all subsequent holders in due course"
(a) that the instrument is genuine and in all respects what it purports to be; (b) that he has a good
title to it; (c) that all prior parties have capacity to contract; and (d) that the instrument is at the time
of his indorsement valid and subsisting. In addition, "he engages that on due presentment, it shall be
accepted or paid, or both, as the case may be, and that if it be dishonored, he will pay the amount
thereof to the holder." 1
2. Even on the assumption that the appellant is a mere accommodation party, as he professes
to be, he is nevertheless, by the clear mandate of section 29 of the Negotiable Instruments Law, yet
"liable on the instrument to a holder for value, notwithstanding that such holder at the time of taking
the instrument knew him to be only an accommodation party." To paraphrase, the accommodation
party is liable to a holder for value as if the contract was not for accommodation. It is not a valid
defense that the accommodation party did not receive any valuable consideration when he executed
the instrument. Nor is it correct to say that the holder for value is not a holder in due course merely
because at the time he acquired the instrument, he knew that the indorser was only an
accommodation party. 2
3. That the appellant, again assuming him to be an accommodation indorser, may obtain
security from the maker to protect himself against the danger of insolvency of the latter, cannot in
any manner affect his liability to the appellee, as the said remedy is a matter of concern exclusively
between accommodation indorser and accommodated party. So that the fact that the appellant
stands only as a surety in relation to the maker, granting this to be true for the sake of argument, is
immaterial to the claim of the appellee, and does not a whit diminish nor defeat the rights of the latter
who is a holder for value. The liability of the appellant remains primary and unconditional. To
sanction the appellant's theory is to give unwarranted legal recognition to the patent absurdity of a
situation where an indorser, when sued on an instrument by a holder in due course and for value,
can escape liability on his indorsement by the convenient expedient of interposing the defense that
he is a mere accomodation indorser.

ACCORDINGLY, the judgment a quo is affirmed in toto, at appellant's cost.

Purpose of NIL
[G.R. No. 141278. March 23, 2004]
MICHAEL A. OSMEA, petitioner, vs. CITIBANK, N.A., ASSOCIATED BANK and FRANK
TAN, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of
the Decision[1] of the Court of Appeals in CA-G.R. CV No. 49529 which affirmed in toto the
Decision[2] of the Regional Trial Court of Makati City, Branch 38, in Civil Case No. 91-538.
As culled from the records, the appeal at bench stemmed from the following factual backdrop:
On February 22, 1991, the petitioner filed with the Regional Trial Court of Makati an action for
damages against the respondents Citibank, N.A. and Associated Bank. [3] The case was docketed as
Civil Case No. 91-538. The complaint materially alleged that, on or about August 25, 1989, the
petitioner purchased from the Citibank Managers Check No. 20-015301 (the check for brevity) in the
amount of P1,545,000 payable to respondent Frank Tan; the petitioner later received information that
the aforesaid managers check was deposited with the respondent Associated Bank, Rosario
Branch, to the account of a certain Julius Dizon under Savings Account No. 19877; the clearing
and/or payment by the respondents of the check to an improper party and the absence of any
indorsement by the payee thereof, respondent Frank Tan, is a clear violation of the respondents
obligations under the Negotiable Instruments Law and standard banking practice; considering that
the petitioners intended payee for the check, the respondent Frank Tan, did not receive the value
thereof, the petitioner demanded from the respondents Citibank and the Associated Bank the
payment or reimbursement of the value of the check; the respondents, however, obstinately refused
to heed his repeated demands for payment and/or reimbursement of the amount of the check;
hence, the petitioner was compelled to file this complaint praying for the restitution of the amount of
the check, and for moral damages and attorneys fees.
On June 17, 1991, the petitioner, with leave of court, filed an Amended Complaint [4] impleading
Frank Tan as an additional defendant. The petitioner averred therein that the check was purchased
by him as a demand loan to respondent Frank Tan. Since apparently respondent Frank Tan did not

receive the proceeds of the check, the petitioner might have no right to collect from respondent
Frank Tan and is consequently left with no recourse but to seek payment or reimbursement from
either or both respondents Citibank and/or Associated Bank.
In its answer to the amended complaint, [5] the respondent Associated Bank alleged that the
petitioner was not the real party-in-interest but respondent Frank Tan who was the payee of the
check. The respondent also maintained that the check was deposited to the account of respondent
Frank Tan, a.k.a. Julius Dizon, through its Ayala Head Office and was credited to the savings
account of Julius Dizon; the Ayala office confirmed with the Rosario Branch that the account of Julius
Dizon is also in reality that of respondent Frank Tan; it never committed any violation of its duties
and responsibilities as the proceeds of the check went and was credited to respondent Frank Tan,
a.k.a. Julius Dizon; the petitioners affirmative allegation of non-payment to the payee is self-serving;
as such, the petitioners claim for damages is baseless, unfounded and without legal basis.
On the other hand, the respondent Citibank, in answer to the amended complaint, [6] alleged that
the payment of the check was made by it in due course and in the exercise of its regular banking
function. Since a managers check is normally purchased in favor of a third party, the identity of
whom in most cases is unknown to the issuing bank, its only responsibility when paying the check
was to examine the genuineness of the check. It had no way of ascertaining the genuineness of the
signature of the payee respondent Frank Tan who was a total stranger to it. If at all, the petitioner
had a cause of action only against the respondent Associated Bank which, as depository or
collecting bank, was obliged to make sure that the check in question was properly endorsed by the
payee. It is not expected of the respondent Citibank to ascertain the genuineness of the
indorsement of the payee or even the lack of indorsement by him, most especially when the check
was presented for payment with the respondent Associated Banks guaranteeing all prior
indorsements or lack thereof.
On March 16, 1992, the trial court declared Frank Tan in default for failure to file his answer.
On June 10, 1992, the pre-trial conference was concluded without the parties reaching an
amicable settlement.[8] Hence, trial on the merits ensued.
[7]

After evaluating the evidence adduced by the parties, the trial court resolved that the
preponderance of evidence supports the claim of the petitioner as against respondent Frank Tan
only but not against respondents Banks. Hence, on February 21, 1995, the trial court rendered
judgment in favor of the petitioner and against respondent Frank Tan. The complaints against the
respondents Banks were dismissed. The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered as follows :
1. Ordering defendant Frank Tan to pay plaintiff Michael Osmea the amount of One Million Five Hundred
Forty-Five Thousand (P1,545,000.00) Pesos, Philippine Currency, with interest thereon at 12% per annum
from January 1990, date of extra-judicial demand until the full amount is paid;
2. Dismissing the complaint against defendants Citibank and Associated Bank;
3. Dismissing the counter-claims and the cross-claim of Citibank against Associated Bank for lack of merit.

With costs against defendant Frank Tan.[9]

The petitioner appealed the decision,[10] while respondent Frank Tan did not. On November 26,
1999, the appellate court rendered judgment affirming in toto the decision of the trial
court. Aggrieved, the petitioner assailed the decision in his petition at bar.
The petitioner contends that:
I. RESPONDENT COURT ERRED IN NOT HOLDING CITIBANK AND ASSOCIATED
BANK LIABLE TO PETITIONER FOR THE ENCASHMENT OF CITIBANK MANAGERS
CHECK NO. 20015301 BY JULIUS DIZON.
II. RESPONDENT COURT ERRED IN HOLDING THAT FRANK TAN AND JULIUS DIZON
ARE ONE AND THE SAME PERSON.
III. THE IDENTITY OF FRANK TAN AS JULIUS DIZON WAS KNOWN ONLY TO
ASSOCIATED BANK AND WAS NOT BINDING ON PETITIONER.[11]
The petition is denied.
The petitioner asserts that the check was payable to the order of respondent Tan. However, the
respondent Associated Bank ordered the check to be deposited to the account of one Julius Dizon,
although the check was not endorsed by respondent Tan. As Julius Dizon was not a holder of the
check in due course, he could not validly negotiate the check. The latter was not even a transferee
in due course because respondent Tan, the payee, did not endorse the said check. The position of
the respondent Bank is akin to that of a bank accepting a check for deposit wherein the signature of
the payee or endorsee has been forged.
The contention of the petitioner does not hold water.
The fact of the matter is that the check was endorsed by Julius Dizon and was deposited and
credited to Savings Account No. 19877 with the respondent Associated Bank. But the evidence on
record shows that the said account was in the name of Frank Tan Guan Leng, which is the Chinese
name of the respondent Frank Tan, who also uses the alias Julius Dizon. As correctly ruled by the
Court of Appeals:
On the other hand, Associated satisfactorily proved that Tan is using and is also known by his alias of Julius
Dizon. He signed the Agreement On Bills Purchased (Exh. 1) and Continuing Suretyship Agreement (Exh.
2) both acknowledged on January 16, 1989, where his full name is stated to be FRANK Tan Guan Leng (aka
JULIUS DIZON). Exh. 1 also refers to his Account No. SA#19877, the very same account to which
the P1,545,000.00 from the managers check was deposited. Osmea countered that such use of an alias is
illegal. That is but an irrelevant casuistry that does not detract from the fact that the payee Tan as Julius Dizon
has encashed and deposited the P1,545,000.00.[12]
The respondent Associated Bank presented preponderant evidence to support its assertion that
respondent Tan, the payee of the check, did receive the proceeds of the check. It adduced evidence

that Julius Dizon and Frank Tan are one and the same person. Respondent Tan was a regular
and trusted client or depositor of the respondent Associated Bank in its branch at Rosario, Binondo,
Manila. As such, respondent Tan was allowed to maintain two (2) savings accounts therein. [13] The
first is Savings Account No. 20161-3 under his name Frank Tan. [14] The other is Savings Account
No. 19877 under his assumed Filipino name Julius Dizon, [15] to which account the check was
deposited in the instant case. Both witnesses for the respondent Associated Bank, Oscar Luna
(signature verifier) and Luz Lagrimas (new accounts clerk), testified that respondent Tan was using
the alias Julius Dizon, and that both names referred to one and the same person, as Frank Tan
himself regularly transacted business at the bank under both names. [16] This is also evidenced by the
Agreement on Bills Purchased[17]and the Continuing Suretyship Agreement [18] executed between
Frank Tan and the respondent Associated Bank on January 16, 1989. Frank Tans name appears in
said document as FRANK TAN GUAN LENG (a.k.a. JULIUS DIZON). [19] The same documentary
evidence also made reference to Savings Account No. 19877, [20] the very same account to which the
check was deposited and the entire P1,545,000 was credited. Additionally, Citibank Check No.
075713[21] which was presented by the petitioner to prove one of the loans previously extended to
respondent Tan showed that the endorsement of respondent Tan at the dorsal side thereof [22] is
strikingly similar to the signatures of Frank Tan appearing in said agreements.
By seeking to recover the loan from respondent Tan, the petitioner admitted that respondent Tan
received the amount of the check. This apprehension was not without any basis at all, for after the
petitioner attempted to communicate with respondent Tan on January or February 1990, demanding
payment for the loan, respondent Tan became elusive of the petitioner. [23]As a matter of fact,
respondent Tan did not file his answer to the amended complaint and was never seen or heard of by
the petitioner.[24] Besides, if it were really a fact that respondent Tan did not receive the proceeds of
the check, he could himself have initiated the instant complaint against respondents Banks, or in the
remotest possibility, joined the petitioner in pursuing the instant claim.
The petitioner initially sought to recover from the respondents Banks the amount of P1,545,000
corresponding to the loan obtained by respondent Tan from him, obviously because respondent Tan
had no intent to pay the amount. The petitioner alleges that the respondents Banks were negligent
in paying the amount to a certain Julius Dizon, in relation to the pertinent provisions of the
Negotiable Instruments Law, without the proper indorsement of the payee, Frank Tan. The petitioner
cites the ruling of the Court in Associated Bank v. Court of Appeals,[25] in which we outlined the
respective responsibilities and liabilities of a drawee bank, such as the respondent Citibank, and a
collecting bank, such as the defendant Associated Bank, in the event that payment of a check to a
person not designated as the payee, or who is not a holder in due course, had been
made. However, the ruling of the Court therein does not apply to the present case for, as has been
amply demonstrated, the petitioner failed to establish that the proceeds of the check was indeed
wrongfully paid by the respondents Banks to a person other than the intended payee. In addition,
the Negotiable Instruments Law was enacted for the purpose of facilitating, not hindering or
hampering transactions in commercial paper. Thus, the said statute should not be tampered with
haphazardly or lightly. Nor should it be brushed aside in order to meet the necessities in a single
case.[26]
Moreover, the chain of events following the purported delivery of the check to respondent Tan
renders even more dubious the petitioners claim that respondent Tan had not received the proceeds

of the check. Thus, the petitioner never bothered to find out from the said respondent whether the
latter received the check from his messenger. And if it were to be supposed that respondent Tan did
not receive the check, given that his need for the money was urgent, it strains credulity that
respondent Tan never even made an effort to get in touch with the petitioner to inform the latter that
he did not receive the check as agreed upon, and to inquire why the check had not been delivered to
him. The petitioner and respondent Tan saw each other during social gatherings but they never took
the chance to discuss details on the loan or the check. [27] Their actuations are not those to be usually
expected of friends of 15 years who, as the petitioner would want to impress upon this Court, were
transacting business on the basis of confidence. [28] In fact, the first time that the petitioner attempted
to communicate with respondent Tan was on January or February 1990, almost five or six months
after the expected delivery of the check, for the purpose of demanding payment for the loan. And it
was only on that occasion that respondent Tan, as the petitioner insinuates, informed him that he
(Frank Tan) had not received the proceeds of the check and refused to pay his loan. [29] All told, the
petitioners allegation that respondent Tan did not receive the proceeds of the check [30] is belied by
the evidence on record and attendant circumstances.
Conversely, the records would disclose that even the petitioner himself had misgivings about
the truthfulness of his allegation that respondent Tan did not receive the amount of the check. This
is made implicit by respondent Tans being made a party-defendant to the case when the petitioner
filed his amended complaint. In his memorandum in the case below, the petitioner averred inter
alia that:
The amount of P1,545,000.00 is sought to be recovered from:
1. Frank Tan for his failure to pay the loan extended by plaintiff; and
2. Associated Bank and Citibank for having accepted for deposit and/or paid the Citibank managers check
despite the absence of any signature/endorsement by the named payee, Frank Tan.
The claim of the petitioner that respondent Tans use of an alias is illegal does not detract a whit
from the fact that respondent Tan had been credited by the respondent Associated Bank for the
amount of the check. Respondent Tan did not appeal the decision of the RTC.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision dated November
26, 1999 of the Court of Appeals in CA-G.R. CV No. 49529 is hereby AFFIRMED. Costs against the
petitioner.
SO ORDERED.
Treasury warrants not negotiable
G.R. No. 88866 February 18, 1991
METROPOLITAN BANK & TRUST COMPANY, petitioner,
vs.

COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO,
MAGNO CASTILLO and GLORIA CASTILLO, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan Association, Inc.

CRUZ, J.:p
This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned
of all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines
and even abroad. Golden Savings and Loan Association was, at the time these events happened,
operating in Calapan, Mindoro, with the other private respondents as its principal officers.
In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited
over a period of two months 38 treasury warrants with a total value of P1,755,228.37. They were all
drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager and
countersigned by its Auditor. Six of these were directly payable to Gomez while the others appeared
to have been indorsed by their respective payees, followed by Gomez as second indorser. 1
On various dates between June 25 and July 16, 1979, all these warrants were subsequently
indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account No.
2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch
office to the principal office of Metrobank, which forwarded them to the Bureau of Treasury for
special clearing. 2
More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to
ask whether the warrants had been cleared. She was told to wait. Accordingly, Gomez was
meanwhile not allowed to withdraw from his account. Later, however, "exasperated" over Gloria's
repeated inquiries and also as an accommodation for a "valued client," the petitioner says it finally
decided to allow Golden Savings to withdraw from the proceeds of the
warrants. 3 The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the
second on July 13, 1979, in the amount of P310,000.00, and the third on July 16, 1979, in the
amount of P150,000.00. The total withdrawal was P968.000.00. 4
In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account,
eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared
warrants. The last withdrawal was made on July 16, 1979.

On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored
by the Bureau of Treasury on July 19, 1979, and demanded the refund by Golden Savings of the
amount it had previously withdrawn, to make up the deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of
Mindoro. 5 After trial, judgment was rendered in favor of Golden Savings, which, however, filed a
motion for reconsideration even as Metrobank filed its notice of appeal. On November 4, 1986, the
lower court modified its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties of defendant Golden
Savings and Loan Association, Inc. and defendant Spouses Magno Castillo and
Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of
the sum of P1,754,089.00 and to reinstate and credit to such account such amount
existing before the debit was made including the amount of P812,033.37 in favor of
defendant Golden Savings and Loan Association, Inc. and thereafter, to allow
defendant Golden Savings and Loan Association, Inc. to withdraw the amount
outstanding thereon before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association,
Inc. attorney's fees and expenses of litigation in the amount of P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia
Castillo attorney's fees and expenses of litigation in the amount of P100,000.00.
SO ORDERED.
On appeal to the respondent court, 6 the decision was affirmed, prompting Metrobank to file this
petition for review on the following grounds:
1. Respondent Court of Appeals erred in disregarding and failing to apply the clear
contractual terms and conditions on the deposit slips allowing Metrobank to charge
back any amount erroneously credited.
(a) Metrobank's right to charge back is not limited to instances where the checks or
treasury warrants are forged or unauthorized.
(b) Until such time as Metrobank is actually paid, its obligation is that of a mere
collecting agent which cannot be held liable for its failure to collect on the warrants.

2. Under the lower court's decision, affirmed by respondent Court of Appeals,

Metrobank is made to pay for warrants already dishonored, thereby perpetuating the
fraud committed by Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as between Metrobank and
Golden Savings, the latter should bear the loss.
4. Respondent Court of Appeals erred in holding that the treasury warrants involved
in this case are not negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent
in giving Golden Savings the impression that the treasury warrants had been cleared and that,
consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his account with it.
Without such assurance, Golden Savings would not have allowed the withdrawals; with such
assurance, there was no reason not to allow the withdrawal. Indeed, Golden Savings might even
have incurred liability for its refusal to return the money that to all appearances belonged to the
depositor, who could therefore withdraw it any time and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them
to its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on
Metrobank to determine the validity of the warrants through its own services. The proceeds of the
warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them
from its own deposit. 7 It was only when Metrobank gave the go-signal that Gomez was finally
allowed by Golden Savings to withdraw them from his own account.
The argument of Metrobank that Golden Savings should have exercised more care in checking the
personal circumstances of Gomez before accepting his deposit does not hold water. It was Gomez
who was entrusting the warrants, not Golden Savings that was extending him a loan; and moreover,
the treasury warrants were subject to clearing, pending which the depositor could not withdraw its
proceeds. There was no question of Gomez's identity or of the genuineness of his signature as
checked by Golden Savings. In fact, the treasury warrants were dishonored allegedly because of the
forgery of the signatures of the drawers, not of Gomez as payee or indorser. Under the
circumstances, it is clear that Golden Savings acted with due care and diligence and cannot be
faulted for the withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling
more than one and a half million pesos (and this was 1979). There was no reason why it should not
have waited until the treasury warrants had been cleared; it would not have lost a single centavo by
waiting. Yet, despite the lack of such clearance and notwithstanding that it had not received a
single centavo from the proceeds of the treasury warrants, as it now repeatedly stresses it
allowed Golden Savings to withdraw not once, not twice, but thrice from the uncleared treasury
warrants in the total amount of P968,000.00

Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance
and it also wanted to "accommodate" a valued client. It "presumed" that the warrants had been
cleared simply because of "the lapse of one week." 8 For a bank with its long experience, this
explanation is unbelievably naive.
And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the
dorsal side of the deposit slips through which the treasury warrants were deposited by Golden
Savings with its Calapan branch. The conditions read as follows:
Kindly note that in receiving items on deposit, the bank obligates itself only as the
depositor's collecting agent, assuming no responsibility beyond care in selecting
correspondents, and until such time as actual payment shall have come into
possession of this bank, the right is reserved to charge back to the depositor's
account any amount previously credited, whether or not such item is returned. This
also applies to checks drawn on local banks and bankers and their branches as well
as on this bank, which are unpaid due to insufficiency of funds, forgery, unauthorized
overdraft or any other reason. (Emphasis supplied.)
According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent
for Golden Savings and give it the right to "charge back to the depositor's account any amount
previously credited, whether or not such item is returned. This also applies to checks ". . . which are
unpaid due to insufficiency of funds, forgery, unauthorized overdraft of any other reason." It is
claimed that the said conditions are in the nature of contractual stipulations and became binding on
Golden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.
Doubt may be expressed about the binding force of the conditions, considering that they have
apparently been imposed by the bank unilaterally, without the consent of the depositor. Indeed, it
could be argued that the depositor, in signing the deposit slip, does so only to identify himself and
not to agree to the conditions set forth in the given permit at the back of the deposit slip. We do not
have to rule on this matter at this time. At any rate, the Court feels that even if the deposit slip were
considered a contract, the petitioner could still not validly disclaim responsibility thereunder in the
light of the circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be
suggesting that as a mere agent it cannot be liable to the principal. This is not exactly true. On the
contrary, Article 1909 of the Civil Code clearly provides that
Art. 1909. The agent is responsible not only for fraud, but also for negligence,
which shall be judged 'with more or less rigor by the courts, according to whether the
agency was or was not for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the
clearance given by it that assured Golden Savings it was already safe to allow Gomez to withdraw
the proceeds of the treasury warrants he had deposited Metrobank misled Golden Savings. There
may have been no express clearance, as Metrobank insists (although this is refuted by Golden
Savings) but in any case that clearance could be implied from its allowing Golden Savings to

withdraw from its account not only once or even twice but three times. The total withdrawal was in
excess of its original balance before the treasury warrants were deposited, which only added to its
belief that the treasury warrants had indeed been cleared.
Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any
reason is not acceptable. Any reason does not mean no reason at all. Otherwise, there would have
been no need at all for Golden Savings to deposit the treasury warrants with it for clearance. There
would have been no need for it to wait until the warrants had been cleared before paying the
proceeds thereof to Gomez. Such a condition, if interpreted in the way the petitioner suggests, is not
binding for being arbitrary and unconscionable. And it becomes more so in the case at bar when it is
considered that the supposed dishonor of the warrants was not communicated to Golden Savings
before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence in giving express or at least
implied clearance to the treasury warrants and allowing payments therefrom to Golden Savings. But
that is not all. On top of this, the supposed reason for the dishonor, to wit, the forgery of the
signatures of the general manager and the auditor of the drawer corporation, has not been
established. 9 This was the finding of the lower courts which we see no reason to disturb. And as we
said in MWSS v. Court of Appeals: 10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be
established by clear, positive and convincing evidence. This was not done in the
present case.
A no less important consideration is the circumstance that the treasury warrants in question are not
negotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and
this is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund
501.
The following sections of the Negotiable Instruments Law, especially the underscored parts, are
pertinent:
Sec. 1. Form of negotiable instruments. An instrument to be negotiable must
conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.

xxx xxx xxx

Sec. 3. When promise is unconditional. An unqualified order or promise to pay is
unconditional within the meaning of this Act though coupled with
(a) An indication of a particular fund out of which reimbursement is to be made or a
particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument judgment.
But an order or promise to pay out of a particular fund is not unconditional.
The indication of Fund 501 as the source of the payment to be made on the treasury warrants
makes the order or promise to pay "not unconditional" and the warrants themselves non-negotiable.
There should be no question that the exception on Section 3 of the Negotiable Instruments Law is
applicable in the case at bar. This conclusion conforms to Abubakar vs. Auditor General 11 where the
Court held:
The petitioner argues that he is a holder in good faith and for value of a negotiable
instrument and is entitled to the rights and privileges of a holder in due course, free
from defenses. But this treasury warrant is not within the scope of the negotiable
instrument law. For one thing, the document bearing on its face the words "payable
from the appropriation for food administration, is actually an Order for payment out of
"a particular fund," and is not unconditional and does not fulfill one of the essential
requirements of a negotiable instrument (Sec. 3 last sentence and section [1(b)] of
the Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that
they were "genuine and in all respects what they purport to be," in accordance with Section 66 of the
Negotiable Instruments Law. The simple reason is that this law is not applicable to the nonnegotiable treasury warrants. The indorsement was made by Gloria Castillo not for the purpose of
guaranteeing the genuineness of the warrants but merely to deposit them with Metrobank for
clearing. It was in fact Metrobank that made the guarantee when it stamped on the back of the
warrants: "All prior indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust
Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands, 12 but we
feel this case is inapplicable to the present controversy. That case involved checks whereas this
case involves treasury warrants. Golden Savings never represented that the warrants were
negotiable but signed them only for the purpose of depositing them for clearance. Also, the fact of
forgery was proved in that case but not in the case before us. Finally, the Court found the Jai Alai
Corporation negligent in accepting the checks without question from one Antonio Ramirez
notwithstanding that the payee was the Inter-Island Gas Services, Inc. and it did not appear that he
was authorized to indorse it. No similar negligence can be imputed to Golden Savings.

We find the challenged decision to be basically correct. However, we will have to amend it insofar as
it directs the petitioner to credit Golden Savings with the full amount of the treasury checks deposited
to its account.
The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was
allowed to withdraw P1,167,500.00 before Golden Savings was notified of the dishonor. The amount
he has withdrawn must be charged not to Golden Savings but to Metrobank, which must bear the
consequences of its own negligence. But the balance of P586,589.00 should be debited to Golden
Savings, as obviously Gomez can no longer be permitted to withdraw this amount from his deposit
because of the dishonor of the warrants. Gomez has in fact disappeared. To also credit the balance
to Golden Savings would unduly enrich it at the expense of Metrobank, let alone the fact that it has
already been informed of the dishonor of the treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the
dispositive portion of the judgment of the lower court shall be reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter
allowing defendant Golden Savings & Loan Association, Inc. to withdraw the amount
outstanding thereon, if any, after the debit.
SO ORDERED.

Biils of exchange
G.R. No. L-4067

November 29, 1951

In the Matter of the will of ANTERO MERCADO, deceased. ROSARIO GARCIA, petitioner,
vs.
JULIANA LACUESTA, ET AL., respondents.
Elviro L. Peralta and Hermenegildo A. Prieto for petitioner.
Faustino B. Tobia, Juan I. Ines and Federico Tacason for respondents.
PARAS, C.J.:
This is an appeal from a decision of the Court of Appeals disallowing the will of Antero Mercado
dated January 3, 1943. The will is written in the Ilocano dialect and contains the following attestation
clause:

We, the undersigned, by these presents to declare that the foregoing testament of Antero
Mercado was signed by himself and also by us below his name and of this attestation clause
and that of the left margin of the three pages thereof. Page three the continuation of this
attestation clause; this will is written in Ilocano dialect which is spoken and understood by the
testator, and it bears the corresponding number in letter which compose of three pages and
all them were signed in the presence of the testator and witnesses, and the witnesses in the
presence of the testator and all and each and every one of us witnesses.
In testimony, whereof, we sign this statement, this the third day of January, one thousand
nine hundred forty three, (1943) A.D.

(Sgd.) NUMERIANO EVANGELISTA

(Sgd.) "ROSENDA CORTES

(Sgd.) BIBIANA ILLEGIBLE

The will appears to have been signed by Atty. Florentino Javier who wrote the name of Antero
Mercado, followed below by "A reugo del testator" and the name of Florentino Javier. Antero
Mercado is alleged to have written a cross immediately after his name. The Court of Appeals,
reversing the judgement of the Court of First Instance of Ilocos Norte, ruled that the attestation
clause failed (1) to certify that the will was signed on all the left margins of the three pages and at the
end of the will by Atty. Florentino Javier at the express request of the testator in the presence of the
testator and each and every one of the witnesses; (2) to certify that after the signing of the name of
the testator by Atty. Javier at the former's request said testator has written a cross at the end of his
name and on the left margin of the three pages of which the will consists and at the end thereof; (3)
to certify that the three witnesses signed the will in all the pages thereon in the presence of the
testator and of each other.
In our opinion, the attestation clause is fatally defective for failing to state that Antero Mercado
caused Atty. Florentino Javier to write the testator's name under his express direction, as required by
section 618 of the Code of Civil Procedure. The herein petitioner (who is appealing by way of
certiorari from the decision of the Court of Appeals) argues, however, that there is no need for such
recital because the cross written by the testator after his name is a sufficient signature and the
signature of Atty. Florentino Javier is a surplusage. Petitioner's theory is that the cross is as much a
signature as a thumbmark, the latter having been held sufficient by this Court in the cases of De
Gala vs. Gonzales and Ona, 53 Phil., 104; Dolar vs. Diancin, 55 Phil., 479; Payad vs. Tolentino, 62
Phil., 848; Neyra vs. Neyra, 76 Phil., 296 and Lopez vs. Liboro, 81 Phil., 429.
It is not here pretended that the cross appearing on the will is the usual signature of Antero Mercado
or even one of the ways by which he signed his name. After mature reflection, we are not prepared
to liken the mere sign of the cross to a thumbmark, and the reason is obvious. The cross cannot and
does not have the trustworthiness of a thumbmark.
What has been said makes it unnecessary for us to determine there is a sufficient recital in the
attestation clause as to the signing of the will by the testator in the presence of the witnesses, and by
the latter in the presence of the testator and of each other.
Wherefore, the appealed decision is hereby affirmed, with against the petitioner. So ordered.

On or before specific date

G.R. No. L-7185

August 31, 1955

REHABILITATION FINANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS and REALTY INVESTMENTS, INC., respondents.
Sixto de la Costa and Jose M. Garcia for petitioner.
Juan T. Chuidian for respondents.
REYES, A., J.:

On June 17, 1948, Delfin Dominguez signed a contract with Realty Investments, Inc., to purchase a
registered lot belonging to the latter, making a down payment of P39.98 and promising to pay the
balance of the stipulated price in 119 monthly installments. Some three months thereafter, to finance
the improvement of a house Dominguez had built on the lot of Rehabilitation Finance Corporation
hereafter called the RFCagreed to loan him P10,000 on the security of a mortgage upon said
house and lot, and, at his instance, wrote Realty Investments a letter, dated September 17, 1948,
requesting that the necessary documents for the transfer of title of the vendee be executed so that
the same could be registered together with mortgage, this with the assurance that as soon as title to
the lot had been issued in the name of Dominguez and the mortgage in favor of the RFC registered
as first lien on the lot and the building thereon, the RFC would pay Realty Investments "the balance
of the purchase price of the lot in the amount of P3,086.98." Complying with RFC's request and
relying on its assurance of payment, Realty Investments, on the 20th of that same month, deeded
over the lot to Dominguez "free of all liens and incumbrances" and thereafter the mortgage deed,
which Dominguez had executed in favor of RFC three days before, was recorded in the Registry of
Deeds for the City of Manila as first lien on the lot and the building thereon.
It would appear that once the mortgage was registered, the RFC let Dominguez have P6,500 out of
the proceeds of his loan, but that the remainder of the loan was never released because Dominguez
defaulted in the payment of the amortizations due on the amount he had already received, and as a
consequence the RFC foreclosed the mortgage, bought the mortgaged property in the foreclosure
sale, and obtained title thereto upon failure of the mortgagor to exercise his right of redemption.
Required to make good its promise to pay Realty Investments the balance of the purchase price of
the lot, the RFC refused, and so Realty Investments commenced the present action in the Court of
First Instance of Manila for the recovery of the said balance from either Delfin Dominguez or the
RFC.
The trial court allowed recovery from Dominguez, but absolved the RFC from the complaint. But on
appeal, the Court of Appeals reversed that verdict, declared the judgment against Dominguez void
for having been rendered after his exclusion from the case, and sentenced the RFC to pay plaintiff
the amount claimed together with interests and costs. From this judgment the RFC has appealed to
this Court.
We find no merit in the appeal. While the amount sought to be recovered by plaintiff was originally
owing from Dominguez, being the balance of the purchase price of the lot he had agreed to buy, the
obligation of paying it to plaintiff has already been assumed by the RFC with no other condition than
that title to the lot be first conveyed to Dominguez and RFC's mortgage lien thereon registered, and
that condition has already been fulfilled.
It is, however, contended for the RFC that its obligation to pay "has been modified, if not
extinguished" by plaintiff's letter of September 20, 1948, which reads as follows:
September 20, 1948
The R. F. C.
Manila
SIRS:
In connection with your guarantee to pay us the balance of P3,086.98 of the account of Mr.
Delfin Dominguez for the purchase of lot No. 15, block 7 of our Riverside Subdivision, which
lot has been conveyed to him on the strength of your guaranty to us the said balance, we

want to inform you that, at the request of Mr. Dominguez, we are agreeable to have that
amount paid us at the second release of proceeds of his loan, which he informs us will be on
or about October 15, 1948.

Yours truly,
REALTY INVESTMENTS, INC.
C. M. HONSKINS & CO., INC.
Managing Agents
By: (Sgd.) A. B. Aquino
President

Passing upon the above contention, the Court of Appeals says: "As narrated in the statement of the
case, both Dominguez and the appellee kept appellant ignorant on the terms and conditions of their
agreement concerning the loan of P10,000 and of the manner that sum was to be released, and in
such circumstances plaintiff's letter of September 20, 1948, cannot be construed in the manner
contended by appellee and sustained by the court, for plaintiff merely said in substance and effect
that it was agreeable to have the balance of P3,086.98 of the account of Delfin Dominguez paid to it
'at the second release of proceeds of his loan, which he (Dominguez) informs us will be on or
about October 15, 1948.' Defendant-appellee should know that it would be absurd for the plaintiff to
waive appellee's guaranty contained in its letter of September 17, 1948, wherein Governor E.
Ealdama bound the Rehabilitation Finance Corporation to pay the unpaid balance of the purchase
price of the lot in question after title thereof was transferred in the name of Dominguez free from any
incumbrance. If the Rehabilitation Finance Corporation was not to make any further release of funds
on the loan, or if such release was to be subject to future developments, it was the duty of the
Rehabilitation Finance Corporation to answer the latter's letter of September 20, 1948, and to inform
appellant of the terms and conditions of the loan, but the officers of the appellee failed to do this. For
this reason, appellee's contention in this respect is most unfair and cannot be upheld by the courts of
justice. It was the Rehabilitation Finance Corporation that induced plaintiff to issue title to the lot free
from all encumbrances to Dominguez on its guaranty, and it cannot now without any fault of the
plaintiff keep the lot in question and Dominguez' building without paying anything to the plaintiff.
Under the circumstance of the case, appellant was not under any obligation of assuming Dominguez'
right of redemption of the property foreclosed just to save said lot, payment for which was
guaranteed by the Rehabilitation Finance Corporation."
We are in accord with the above pronouncement. Plaintiff was induced to part with his title to a piece
of real property upon RFC's assurance that it would itself pay the balance of the purchase price due
from the purchaser after its mortgage lien thereon had been registered. Lulled by that assurance,
plaintiff thereafter looked to the RFC, instead of the purchase, for payment. It is true that plaintiff later
expressed willingness to have the payment made at a later date, whenso it was informed by the
buyer"the second release of proceeds of his loan" would take place. But it is evident that this
period of grace was granted by plaintiff in the belief that the information furnished by the buyer was
true, and, as found by the Court of Appeals (and this finding is conclusive upon this Court), RFC
never made plaintiff know that said information was not correct. In those circumstances, we do not
think it fair to construe plaintiff's letter to be anything more than a mere assent to a deferment of
payment, and such assent should not be taken as willingness on its part to have the payment made
only if and when there was to be second release of proceeds of the loan. It would be unreasonable

to suppose that the creditor, already assured of payment by the RFC itself, would want to create
uncertainty by making such payment dependent upon a contingency.
In view of the foregoing, the decision appealed from is affirmed, with costs against the RFC.

Negotiability
G.R. No. 97753 August 10, 1992
CALTEX (PHILIPPINES), INC., petitioner,
vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.
Bito, Lozada, Ortega & Castillo for petitioners.

Nepomuceno, Hofilea & Guingona for private.

REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by
respondent court on March 8, 1991 in CA-G.R. CV No. 23615 1 affirming with modifications, the
earlier decision of the Regional Trial Court of Manila, Branch XLII, 2 which dismissed the complaint
filed therein by herein petitioner against respondent bank.
The undisputed background of this case, as found by the court a quo and adopted by respondent
court, appears of record:
1. On various dates, defendant, a commercial banking institution, through its Sucat
Branch issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz
who deposited with herein defendant the aggregate amount of P1,120,000.00, as
follows: (Joint Partial Stipulation of Facts and Statement of Issues, Original Records,
p. 207; Defendant's Exhibits 1 to 280);
CTD CTD
Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000

Total 280 P1,120,000
===== ========
2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in
connection with his purchased of fuel products from the latter (Original Record, p.
208).
3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the
Sucat Branch Manger, that he lost all the certificates of time deposit in dispute. Mr.
Tiangco advised said depositor to execute and submit a notarized Affidavit of Loss,

as required by defendant bank's procedure, if he desired replacement of said lost

CTDs (TSN, February 9, 1987, pp. 48-50).
4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank
the required Affidavit of Loss (Defendant's Exhibit 281). On the basis of said affidavit
of loss, 280 replacement CTDs were issued in favor of said depositor (Defendant's
Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from
defendant bank in the amount of Eight Hundred Seventy Five Thousand Pesos
(P875,000.00). On the same date, said depositor executed a notarized Deed of
Assignment of Time Deposit (Exhibit 562) which stated, among others, that he (de la
Cruz) surrenders to defendant bank "full control of the indicated time deposits from
and after date" of the assignment and further authorizes said bank to pre-terminate,
set-off and "apply the said time deposits to the payment of whatever amount or
amounts may be due" on the loan upon its maturity (TSN, February 9, 1987, pp. 6062).
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex
(Phils.) Inc., went to the defendant bank's Sucat branch and presented for verification
the CTDs declared lost by Angel dela Cruz alleging that the same were delivered to
herein plaintiff "as security for purchases made with Caltex Philippines, Inc." by said
depositor (TSN, February 9, 1987, pp. 54-68).
7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from
herein plaintiff formally informing it of its possession of the CTDs in question and of
its decision to pre-terminate the same.
8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the
former "a copy of the document evidencing the guarantee agreement with Mr. Angel
dela Cruz" as well as "the details of Mr. Angel dela Cruz" obligation against which
plaintiff proposed to apply the time deposits (Defendant's Exhibit 564).
9. No copy of the requested documents was furnished herein defendant.
10. Accordingly, defendant bank rejected the plaintiff's demand and claim for
payment of the value of the CTDs in a letter dated February 7, 1983 (Defendant's
Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and
fell due and on August 5, 1983, the latter set-off and applied the time deposits in
question to the payment of the matured loan (TSN, February 9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant complaint, praying that
defendant bank be ordered to pay it the aggregate value of the certificates of time

deposit of P1,120,000.00 plus accrued interest and compounded interest therein at

16% per annum, moral and exemplary damages as well as attorney's fees.
After trial, the court a quo rendered its decision dismissing the instant complaint.

On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint,
hence this petition wherein petitioner faults respondent court in ruling (1) that the subject certificates
of deposit are non-negotiable despite being clearly negotiable instruments; (2) that petitioner did not
become a holder in due course of the said certificates of deposit; and (3) in disregarding the
pertinent provisions of the Code of Commerce relating to lost instruments payable to bearer. 4
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to provide a better
understanding of the issues involved in this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank the sum
of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT
OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to
said depositor 731 days. after date, upon presentation and surrender
of this certificate, with interest at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)

AUTHORIZED SIGNATURES 5
Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing as
follows:
. . . While it may be true that the word "bearer" appears rather boldly in the CTDs
issued, it is important to note that after the word "BEARER" stamped on the space
provided supposedly for the name of the depositor, the words "has deposited" a
certain amount follows. The document further provides that the amount deposited
shall be "repayable to said depositor" on the period indicated. Therefore, the text of

the instrument(s) themselves manifest with clarity that they are payable, not to
whoever purports to be the "bearer" but only to the specified person indicated
therein, the depositor. In effect, the appellee bank acknowledges its depositor Angel
dela Cruz as the person who made the deposit and further engages itself to pay said
depositor the amount indicated thereon at the stipulated date. 6
We disagree with these findings and conclusions, and hereby hold that the CTDs in question are
negotiable instruments. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments
Law, enumerates the requisites for an instrument to become negotiable, viz:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties'
bone of contention is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P.
Tiangco, Security Bank's Branch Manager way back in 1982, testified in open court that the
depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz.
xxx xxx xxx
Atty. Calida:
q In other words Mr. Witness, you are saying that per books of the
bank, the depositor referred (sic) in these certificates states that it
was Angel dela Cruz?
witness:
a Yes, your Honor, and we have the record to show that Angel dela
Cruz was the one who cause (sic) the amount.
Atty. Calida:
q And no other person or entity or company, Mr. Witness?
witness:
a None, your Honor. 7

xxx xxx xxx

Atty. Calida:
q Mr. Witness, who is the depositor identified in all of these
certificates of time deposit insofar as the bank is concerned?
witness:
a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is
determined from the writing, that is, from the face of the instrument itself. 9 In the construction of a bill
or note, the intention of the parties is to control, if it can be legally ascertained. 10 While the writing
may be read in the light of surrounding circumstances in order to more perfectly understand the
intent and meaning of the parties, yet as they have constituted the writing to be the only outward and
visible expression of their meaning, no other words are to be added to it or substituted in its stead.
The duty of the court in such case is to ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express, but what is the meaning of the words they have
used. What the parties meant must be determined by what they said. 11
Contrary to what respondent court held, the CTDs are negotiable instruments. The documents
provide that the amounts deposited shall be repayable to the depositor. And who, according to the
document, is the depositor? It is the "bearer." The documents do not say that the depositor is Angel
de la Cruz and that the amounts deposited are repayable specifically to him. Rather, the amounts
are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer
at the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could
have with facility so expressed that fact in clear and categorical terms in the documents, instead of
having the word "BEARER" stamped on the space provided for the name of the depositor in each
CTD. On the wordings of the documents, therefore, the amounts deposited are repayable to
whoever may be the bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel
de la Cruz is the depositor "insofar as the bank is concerned," but obviously other parties not privy to
the transaction between them would not be in a position to know that the depositor is not the bearer
stated in the CTDs. Hence, the situation would require any party dealing with the CTDs to go behind
the plain import of what is written thereon to unravel the agreement of the parties thereto through
facts aliunde. This need for resort to extrinsic evidence is what is sought to be avoided by the
Negotiable Instruments Law and calls for the application of the elementary rule that the interpretation
of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in
the negative. The records reveal that Angel de la Cruz, whom petitioner chose not to implead in this
suit for reasons of its own, delivered the CTDs amounting to P1,120,000.00 to petitioner without

informing respondent bank thereof at any time. Unfortunately for petitioner, although the CTDs are
bearer instruments, a valid negotiation thereof for the true purpose and agreement between it and
De la Cruz, as ultimately ascertained, requires both delivery and indorsement. For, although
petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a security for De la
Cruz' purchases of its fuel products. Any doubt as to whether the CTDs were delivered as payment
for the fuel products or as a security has been dissipated and resolved in favor of the latter by
petitioner's own authorized and responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr.,
Caltex Credit Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel
dela Cruz to guarantee his purchases of fuel products" (Emphasis ours.) 13 This admission is
conclusive upon petitioner, its protestations notwithstanding. Under the doctrine of estoppel, an
admission or representation is rendered conclusive upon the person making it, and cannot be denied
or disproved as against the person relying thereon. 14 A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon them. 15 In the law of evidence,
whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led
another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation
arising out of such declaration, act, or omission, be permitted to falsify it. 16
If it were true that the CTDs were delivered as payment and not as security, petitioner's credit
manager could have easily said so, instead of using the words "to guarantee" in the letter
aforequoted. Besides, when respondent bank, as defendant in the court below, moved for a bill of
particularity therein 17 praying, among others, that petitioner, as plaintiff, be required to aver with
sufficient definiteness or particularity (a) the due date or dates ofpayment of the alleged
indebtedness of Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that
the CTDs were delivered to it by De la Cruz as payment of the latter's alleged indebtedness to it,
plaintiff corporation opposed the motion. 18 Had it produced the receipt prayed for, it could have
proved, if such truly was the fact, that the CTDs were delivered as payment and not as security.
Having opposed the motion, petitioner now labors under the presumption that evidence willfully
suppressed would be adverse if produced. 19
Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs.
Philippine National Bank, et al. 20 is apropos:
. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote
therefrom:
The character of the transaction between the parties is to be
determined by their intention, regardless of what language was used
or what the form of the transfer was. If it was intended to secure the
payment of money, it must be construed as a pledge; but if there was
some other intention, it is not a pledge. However, even though a
transfer, if regarded by itself, appears to have been absolute, its
object and character might still be qualified and explained by
contemporaneous writing declaring it to have been a deposit of the
property as collateral security. It has been said that a transfer of

property by the debtor to a creditor, even if sufficient on its face to

make an absolute conveyance, should be treated as a pledge if the
debt continues in inexistence and is not discharged by the transfer,
and that accordingly the use of the terms ordinarily importing
conveyance of absolute ownership will not be given that effect in such
a transaction if they are also commonly used in pledges and
mortgages and therefore do not unqualifiedly indicate a transfer of
absolute ownership, in the absence of clear and unambiguous
language or other circumstances excluding an intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable
Instruments Law, an instrument is negotiated when it is transferred from one person to another in
such a manner as to constitute the transferee the holder thereof, 21 and a holder may be the payee
or indorsee of a bill or note, who is in possession of it, or the bearer thereof. 22 In the present case,
however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of
petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have
sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz (and we
even disregard the fact that the amount involved was not disclosed) could at the most constitute
petitioner only as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose
cannot be effected by mere delivery of the instrument since, necessarily, the terms thereof and the
subsequent disposition of such security, in the event of non-payment of the principal obligation, must
be contractually provided for.
The pertinent law on this point is that where the holder has a lien on the instrument arising from
contract, he is deemed a holder for value to the extent of his lien. 23 As such holder of collateral
security, he would be a pledgee but the requirements therefor and the effects thereof, not being
provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on
pledge of incorporeal rights, 24 which inceptively provide:
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be
pledged. The instrument proving the right pledged shall be delivered to the creditor,
and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description of the
thing pledged and the date of the pledge do not appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of
respondent court quoted at the start of this opinion show that petitioner failed to produce any
document evidencing any contract of pledge or guarantee agreement between it and Angel de la
Cruz. 25 Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right
effective against and binding upon respondent bank. The requirement under Article 2096
aforementioned is not a mere rule of adjective law prescribing the mode whereby proof may be
made of the date of a pledge contract, but a rule of substantive law prescribing a condition without
which the execution of a pledge contract cannot affect third persons adversely. 26

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent
bank was embodied in a public instrument. 27 With regard to this other mode of transfer, the Civil
Code specifically declares:
Art. 1625. An assignment of credit, right or action shall produce no effect as against
third persons, unless it appears in a public instrument, or the instrument is recorded
in the Registry of Property in case the assignment involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as
purchaser, assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent
of its lien nor the execution of any public instrument which could affect or bind private respondent.
Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the better
right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the question of whether or not
private respondent observed the requirements of the law in the case of lost negotiable instruments
and the issuance of replacement certificates therefor, on the ground that petitioner failed to raised
that issue in the lower court. 28
On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private
respondent was not included in the stipulation of the parties and in the statement of issues submitted
by them to the trial court. 29 The issues agreed upon by them for resolution in this case are:
1. Whether or not the CTDs as worded are negotiable instruments.
2. Whether or not defendant could legally apply the amount covered by the CTDs
against the depositor's loan by virtue of the assignment (Annex "C").
3. Whether or not there was legal compensation or set off involving the amount
covered by the CTDs and the depositor's outstanding account with defendant, if any.
4. Whether or not plaintiff could compel defendant to preterminate the CTDs before
the maturity date provided therein.
5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
6. Whether or not the parties can recover damages, attorney's fees and litigation
expenses from each other.
As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the
foregoing enumeration does not include the issue of negligence on the part of respondent bank. An
issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is
barred by estoppel. 30 Questions raised on appeal must be within the issues framed by the parties
and, consequently, issues not raised in the trial court cannot be raised for the first time on appeal. 31

Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case
are properly raised. Thus, to obviate the element of surprise, parties are expected to disclose at a
pre-trial conference all issues of law and fact which they intend to raise at the trial, except such as
may involve privileged or impeaching matters. The determination of issues at a pre-trial conference
bars the consideration of other questions on appeal. 32
To accept petitioner's suggestion that respondent bank's supposed negligence may be considered
encompassed by the issues on its right to preterminate and receive the proceeds of the CTDs would
be tantamount to saying that petitioner could raise on appeal any issue. We agree with private
respondent that the broad ultimate issue of petitioner's entitlement to the proceeds of the questioned
certificates can be premised on a multitude of other legal reasons and causes of action, of which
respondent bank's supposed negligence is only one. Hence, petitioner's submission, if accepted,
would render a pre-trial delimitation of issues a useless exercise. 33
Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner
still cannot have the odds in its favor. A close scrutiny of the provisions of the Code of Commerce
laying down the rules to be followed in case of lost instruments payable to bearer, which it invokes,
will reveal that said provisions, even assuming their applicability to the CTDs in the case at bar, are
merely permissive and not mandatory. The very first article cited by petitioner speaks for itself.
Art 548. The dispossessed owner, no matter for what cause it may be, may apply to
the judge or court of competent jurisdiction, asking that the principal, interest or
dividends due or about to become due, be not paid a third person, as well as in order
to prevent the ownership of the instrument that a duplicate be issued him. (Emphasis
ours.)
xxx xxx xxx
The use of the word "may" in said provision shows that it is not mandatory but discretionary on the
part of the "dispossessed owner" to apply to the judge or court of competent jurisdiction for the
issuance of a duplicate of the lost instrument. Where the provision reads "may," this word shows that
it is not mandatory but discretional. 34 The word "may" is usually permissive, not mandatory. 35 It is an
auxiliary verb indicating liberty, opportunity, permission and possibility. 36
Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code of
Commerce, on which petitioner seeks to anchor respondent bank's supposed negligence, merely
established, on the one hand, a right of recourse in favor of a dispossessed owner or holder of a
bearer instrument so that he may obtain a duplicate of the same, and, on the other, an option in
favor of the party liable thereon who, for some valid ground, may elect to refuse to issue a
replacement of the instrument. Significantly, none of the provisions cited by petitioner categorically
restricts or prohibits the issuance a duplicate or replacement instrument sans compliance with the
procedure outlined therein, and none establishes a mandatory precedent requirement therefor.
WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealed
decision is hereby AFFIRMED.

SO ORDERED.

Negotiability
G.R. No. L-18103

June 8, 1922

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
MANILA OIL REFINING & BY-PRODUCTS COMPANY, INC., defendant-appellant.
Antonio Gonzalez for appellant.
Roman J. Lacson for appellee.
Hartigan and Welch; Fisher and De Witt; Perkins and Kincaid; Gibbs, Mc Donough and Johnson;
Julian Wolfson; Ross and Lawrence; Francis B. Mahoney, and Jose A. Espiritu, amici curiae.
MALCOLM, J.:
The question of first impression raised in this case concerns the validity in this jurisdiction of a
provision in a promissory note whereby in case the same is not paid at maturity, the maker
authorizes any attorney to appear and confess judgment thereon for the principal amount, with
interest, costs, and attorney's fees, and waives all errors, rights to inquisition, and appeal, and all
property exceptions.
On May 8, 1920, the manager and the treasurer of the Manila Oil Refining & By-Products Company,
Inc., executed and delivered to the Philippine National Bank, a written instrument reading as follows:
RENEWAL.
P61,000.00
MANILA, P.I., May 8, 1920.
On demand after date we promise to pay to the order of the Philippine National Bank sixtyone thousand only pesos at Philippine National Bank, Manila, P.I.
Without defalcation, value received; and to hereby authorize any attorney in the Philippine
Islands, in case this note be not paid at maturity, to appear in my name and confess
judgment for the above sum with interest, cost of suit and attorney's fees of ten (10) per cent
for collection, a release of all errors and waiver of all rights to inquisition and appeal, and to
the benefit of all laws exempting property, real or personal, from levy or sale. Value received.
No. ____ Due ____
MANILA OIL REFINING & BY-PRODUCTS CO., INC.,
(Sgd.) VICENTE SOTELO,
Manager.
MANILA OIL REFINING & BY-PRODUCTS CO., INC.,
(Sgd.) RAFAEL LOPEZ,
Treasurer

The Manila Oil Refining and By-Products Company, Inc. failed to pay the promissory note on
demand. The Philippine National Bank brought action in the Court of First Instance of Manila, to
recover P61,000, the amount of the note, together with interest and costs. Mr. Elias N. Rector, an
attorney associated with the Philippine National Bank, entered his appearance in representation of
the defendant, and filed a motion confessing judgment. The defendant, however, in a sworn
declaration, objected strongly to the unsolicited representation of attorney Recto. Later, attorney
Antonio Gonzalez appeared for the defendant and filed a demurrer, and when this was overruled,
presented an answer. The trial judge rendered judgment on the motion of attorney Recto in the
terms of the complaint.
The foregoing facts, and appellant's three assignments of error, raise squarely the question which
was suggested in the beginning of this opinion. In view of the importance of the subject to the
business community, the advice of prominent attorneys-at-law with banking connections, was
solicited. These members of the bar responded promptly to the request of the court, and their
memoranda have proved highly useful in the solution of the question. It is to the credit of the bar that
although the sanction of judgement notes in the Philippines might prove of immediate value to
clients, every one of the attorneys has looked upon the matter in a big way, with the result that out of
their independent investigations has come a practically unanimous protest against the recognition in
this jurisdiction of judgment notes.1
Neither the Code of Civil Procedure nor any other remedial statute expressly or tacitly recognizes a
confession of judgment commonly called a judgment note. On the contrary, the provisions of the
Code of Civil Procedure, in relation to constitutional safeguards relating to the right to take a man's
property only after a day in court and after due process of law, contemplate that all defendants shall
have an opportunity to be heard. Further, the provisions of the Code of Civil Procedure pertaining to
counter claims argue against judgment notes, especially as the Code provides that in case the
defendant or his assignee omits to set up a counterclaim, he cannot afterwards maintain an action
against the plaintiff therefor. (Secs. 95, 96, 97.) At least one provision of the substantive law, namely,
that the validity and fulfillment of contracts cannot be left to the will of one of the contracting parties
(Civil Code, art. 1356), constitutes another indication of fundamental legal purposes.
The attorney for the appellee contends that the Negotiable Instruments Law (Act No. 2031)
expressly recognizes judgment notes, and that they are enforcible under the regular procedure. The
Negotiable Instruments Law, in section 5, provides that "The negotiable character of an instrument
otherwise negotiable is not affected by a provision which ". . . (b) Authorizes a confession of
judgment if the instrument be not paid at maturity." We do not believe, however, that this provision of
law can be taken to sanction judgments by confession, because it is a portion of a uniform law which
merely provides that, in jurisdiction where judgment notes are recognized, such clauses shall not
affect the negotiable character of the instrument. Moreover, the same section of the Negotiable
Instruments. Law concludes with these words: "But nothing in this section shall validate any
provision or stipulation otherwise illegal."
The court is thus put in the position of having to determine the validity in the absence of statute of a
provision in a note authorizing an attorney to appear and confess judgment against the maker. This
situation, in reality, has its advantages for it permits us to reach that solution which is best grounded
in the solid principles of the law, and which will best advance the public interest.

The practice of entering judgments in debt on warrants of attorney is of ancient origin. In the course
of time a warrant of attorney to confess judgement became a familiar common law security. At
common law, there were two kinds of judgments by confession; the one a judgment by cognovit
actionem, and the other by confessionrelicta verificatione. A number of jurisdictions in the United
States have accepted the common law view of judgments by confession, while still other jurisdictions
have refused to sanction them. In some States, statutes have been passed which have either
expressly authorized confession of judgment on warrant of attorney, without antecedent process, or
have forbidden judgments of this character. In the absence of statute, there is a conflict of authority
as to the validity of a warrant of attorney for the confession of judgement. The weight of opinion is
that, unless authorized by statute, warrants of attorney to confess judgment are void, as against
public policy.
Possibly the leading case on the subject is First National Bank of Kansas City vs. White ([1909], 220
Mo., 717; 16 Ann. Cas., 889; 120 S. W., 36; 132 Am. St. Rep., 612). The record in this case
discloses that on October 4, 1990, the defendant executed and delivered to the plaintiff an obligation
in which the defendant authorized any attorney-at-law to appear for him in an action on the note at
any time after the note became due in any court of record in the State of Missouri, or elsewhere, to
waive the issuing and service of process, and to confess judgement in favor of the First National
Bank of Kansas City for the amount that might then be due thereon, with interest at the rate therein
mentioned and the costs of suit, together with an attorney's fee of 10 per cent and also to waive and
release all errors in said proceedings and judgment, and all proceedings, appeals, or writs of error
thereon. Plaintiff filed a petition in the Circuit Court to which was attached the above-mentioned
instrument. An attorney named Denham appeared pursuant to the authority given by the note sued
on, entered the appearance of the defendant, and consented that judgement be rendered in favor of
the plaintiff as prayed in the petition. After the Circuit Court had entered a judgement, the
defendants, through counsel, appeared specially and filed a motion to set it aside. The Supreme
Court of Missouri, speaking through Mr. Justice Graves, in part said:
But going beyond the mere technical question in our preceding paragraph discussed, we
come to a question urged which goes to the very root of this case, and whilst new and novel
in this state, we do not feel that the case should be disposed of without discussing and
passing upon that question.
xxx

xxx

xxx

And if this instrument be considered as security for a debt, as it was by the common law, it
has never so found recognition in this state. The policy of our law has been against such
hidden securities for debt. Our Recorder's Act is such that instruments intended as security
for debt should find a place in the public records, and if not, they have often been viewed
with suspicion, and their bona fides often questioned.
Nor do we thing that the policy of our law is such as to thus place a debtor in the absolute
power of his creditor. The field for fraud is too far enlarged by such an instrument.
Oppression and tyranny would follow the footsteps of such a diversion in the way of security
for debt. Such instruments procured by duress could shortly be placed in judgment in a
foreign court and much distress result therefrom.

Again, under the law the right to appeal to this court or some other appellate court is granted
to all persons against whom an adverse judgment is rendered, and this statutory right is by
the instrument stricken down. True it is that such right is not claimed in this case, but it is a
part of the bond and we hardly know why this pound of flesh has not been demanded.
Courts guard with jealous eye any contract innovations upon their jurisdiction. The
instrument before us, considered in the light of a contract, actually reduces the courts to
mere clerks to enter and record the judgment called for therein. By our statute (Rev. St.
1899, sec. 645) a party to a written instrument of this character has the right to show a failure
of consideration, but this right is brushed to the wind by this instrument and the jurisdiction of
the court to hear that controversy is by the whose object is to oust the jurisdiction of the
courts are contrary to public policy and will not be enforced. Thus it is held that any
stipulation between parties to a contract distinguishing between the different courts of the
country is contrary to public policy. The principle has also been applied to a stipulation in a
contract that a party who breaks it may not be sued, to an agreement designating a person
to be sued for its breach who is nowise liable and prohibiting action against any but him, to a
provision in a lease that the landlord shall have the right to take immediate judgment against
the tenant in case of a default on his part, without giving the notice and demand for
possession and filing the complaint required by statute, to a by-law of a benefit association
that the decisions of its officers on claim shall be final and conclusive, and to many other
agreements of a similar tendency. In some courts, any agreement as to the time for suing
different from time allowed by the statute of limitations within which suit shall be brought or
the right to sue be barred is held void.
xxx

xxx

xxx

We shall not pursue this question further. This contract, in so far as it goes beyond the usual
provisions of a note, is void as against the public policy of the state, as such public policy is
found expressed in our laws and decisions. Such agreements are iniquitous to the uttermost
and should be promptly condemned by the courts, until such time as they may receive
express statutory recognition, as they have in some states.
xxx

xxx

xxx

From what has been said, it follows that the Circuit Court never had jurisdiction of the
defendant, and the judgement is reversed.
The case of Farquhar and Co. vs. Dehaven ([1912], 70 W. Va., 738; 40 L.R.A. [N. S.], 956; 75 S.E.,
65; Ann. Cas. [1914-A], 640), is another well-considered authority. The notes referred to in the record
contained waiver of presentment and protest, homestead and exemption rights real and personal,
and other rights, and also the following material provision: "And we do hereby empower and
authorize the said A. B. Farquhar Co. Limited, or agent, or any prothonotary or attorney of any Court
of Record to appear for us and in our name to confess judgement against us and in favor of said A.
B. Farquhar Co., Limited, for the above named sum with costs of suit and release of all errors and
without stay of execution after the maturity of this note." The Supreme Court of West Virginia, on
consideration of the validity of the judgment note above described, speaking through Mr. Justice
Miller, in part said:

As both sides agree the question presented is one of first impression in this State. We have
no statutes, as has Pennsylvania and many other states, regulating the subject. In the
decision we are called upon to render, we must have recourse to the rules and principles of
the common law, in force here, and to our statute law, applicable, and to such judicial
decisions and practices in Virginia, in force at the time of the separation, as are properly
binding on us. It is pertinent to remark in this connection, that after nearly fifty years of
judicial history this question, strong evidence, we think, that such notes, if at all, have never
been in very general use in this commonwealth. And in most states where they are current
the use of them has grown up under statutes authorizing them, and regulating the practice of
employing them in commercial transactions.
xxx

xxx

xxx

It is contended, however, that the old legal maxim, qui facit per alium, facit per se, is as
applicable here as in other cases. We do not think so. Strong reasons exist, as we have
shown, for denying its application, when holders of contracts of this character seek the aid of
the courts and of their execution process to enforce them, defendant having had no day in
court or opportunity to be heard. We need not say in this case that a debtor may not, by
proper power of attorney duly executed, authorize another to appear in court, and by proper
endorsement upon the writ waive service of process, and confess judgement. But we do not
wish to be understood as approving or intending to countenance the practice employing in
this state commercial paper of the character here involved. Such paper has heretofore had
little if any currency here. If the practice is adopted into this state it ought to be, we think, by
act of the Legislature, with all proper safeguards thrown around it, to prevent fraud and
imposition. The policy of our law is, that no man shall suffer judgment at the hands of our
courts without proper process and a day to be heard. To give currency to such paper by
judicial pronouncement would be to open the door to fraud and imposition, and to subject the
people to wrongs and injuries not heretofore contemplated. This we are unwilling to do.
A case typical of those authorities which lend support to judgment notes is First National Bank of Las
Cruces vs. Baker ([1919], 180 Pac., 291). The Supreme Court of New Mexico, in a per
curiam decision, in part, said:
In some of the states the judgments upon warrants of attorney are condemned as being
against public policy. (Farquhar and Co. vs. Dahaven, 70 W. Va., 738; 75 S.E., 65; 40 L.R.A.
[N. S.], 956; Ann. Cas. [1914 A]. 640, and First National Bank of Kansas City vs. White, 220
Mo., 717; 120 S. W., 36; 132 Am. St. Rep., 612; 16 Ann. Cas., 889, are examples of such
holding.) By just what course of reasoning it can be said by the courts that such judgments
are against public policy we are unable to understand. It was a practice from time
immemorial at common law, and the common law comes down to us sanctioned as justified
by the reason and experience of English-speaking peoples. If conditions have arisen in this
country which make the application of the common law undesirable, it is for the Legislature
to so announce, and to prohibit the taking of judgments can be declared as against the
public policy of the state. We are aware that the argument against them is that they enable
the unconscionable creditor to take advantage of the necessities of the poor debtor and cut
him off from his ordinary day in court. On the other hand, it may be said in their favor that it

frequently enables a debtor to obtain money which he could by no possibility otherwise

obtain. It strengthens his credit, and may be most highly beneficial to him at times. In some
of the states there judgments have been condemned by statute and of course in that case
are not allowed.
Our conclusion in this case is that a warrant of attorney given as security to a creditor
accompanying a promissory note confers a valid power, and authorizes a confession of
judgment in any court of competent jurisdiction in an action to be brought upon said note;
that our cognovit statute does not cover the same field as that occupied by the common-law
practice of taking judgments upon warrant of attorney, and does not impliedly or otherwise
abrogate such practice; and that the practice of taking judgments upon warrants of attorney
as it was pursued in this case is not against any public policy of the state, as declared by its
laws.
With reference to the conclusiveness of the decisions here mentioned, it may be said that they are
based on the practice of the English-American common law, and that the doctrines of the common
law are binding upon Philippine courts only in so far as they are founded on sound principles
applicable to local conditions.
Judgments by confession as appeared at common law were considered an amicable, easy, and
cheap way to settle and secure debts. They are a quick remedy and serve to save the court's time.
They also save the time and money of the litigants and the government the expenses that a long
litigation entails. In one sense, instruments of this character may be considered as special
agreements, with power to enter up judgments on them, binding the parties to the result as they
themselves viewed it.
On the other hand, are disadvantages to the commercial world which outweigh the considerations
just mentioned. Such warrants of attorney are void as against public policy, because they enlarge
the field for fraud, because under these instruments the promissor bargains away his right to a day
in court, and because the effect of the instrument is to strike down the right of appeal accorded by
statute. The recognition of such a form of obligation would bring about a complete reorganization of
commercial customs and practices, with reference to short-term obligations. It can readily be seen
that judgement notes, instead of resulting to the advantage of commercial life in the Philippines
might be the source of abuse and oppression, and make the courts involuntary parties thereto. If the
bank has a meritorious case, the judgement is ultimately certain in the courts.
We are of the opinion that warrants of attorney to confess judgment are not authorized nor
contemplated by our law. We are further of the opinion that provisions in notes authorizing attorneys
to appear and confess judgments against makers should not be recognized in this jurisdiction by
implication and should only be considered as valid when given express legislative sanction.
The judgment appealed from is set aside, and the case is remanded to the lower court for further
proceedings in accordance with this decision. Without special finding as to costs in this instance, it is
so ordered.

Managers check
[G.R. NO. 148789. January 16, 2003]
BPI Family Savings Bank, Inc. and Hedzelito Noel Bayaborda, petitioners, vs. Romeo
Manikan, respondent.
DECISION
VITUG, J.:
Petitioners seek a review of the decision of the Court of Appeals in C.A. G.R. SP. No. 48011
which has affirmed the judgment of the Regional Trial Court, Branch 26, of Iloilo City, dismissing the
complaint of petitioners for mandamus and ordering them to pay respondent the sum of P30,000.00
by way of attorney's fees.
It would appear that respondent, being the City Treasurer of Iloilo City, assessed petitioner bank
business taxes for the years 1992 and 1993. On 26 January 1994, the bank issued two manager's
checks payable to the City Treasurer of Iloilo City, the first, Manager's Check No. 010649 for
P462,270.60, was to cover the business tax for the year 1992, and the second, Manager's Check
No. 010650 in the amount of P482,988.45, was to settle the business tax for the year
1993. Hedzelito Bayaborda, then manager of the banks Iloilo Branch, instructed an employee,

Edmund Sabio, to deliver the two manager's checks to the Secretary to the City Mayor, a certain
Toto Espinosa, who, in turn, handed them over to his secretary, Leila Salcedo, for transmittal to the
City Treasurer. The value of the checks were eventually credited to the account of the City
Treasurer of Iloilo City. The checks, however, were not applied to satisfy the tax liabilities of
petitioner but of other taxpayers.
The misapplication of the proceeds of the checks came to the knowledge of respondent City
Treasurer who, thereupon, created a committee to look into the matter. The investigation revealed
that it was upon the representation of Leila Salcedo that the manager's checks were used to pay tax
liabilities of other taxpayers and not those of petitioner bank. Meanwhile, the bank, through
counsel, made a demand on respondent to issue official receipts to show that it had paid its
business taxes for the years 1992 and 1993 covered by the diverted manager's checks. When he
refused to issue the receipts requested, respondent was sued by petitioners for mandamus and
damages.
The Regional Trial Court dismissed the complaint for mandamus and ruled that petitioners had
no clear legal right to demand the issuance of official receipts nor could respondent, given the
circumstances, be compelled to issue another set of receipts in the name of the bank. The trial court
further ordered petitioners to pay respondent the sum of P30,000.00 by way of attorney's fees.
The Court of Appeals, on appeal by petitioners, sustained the trial court in toto.
In their petition for review before this Court, petitioners urge a reversal of the decision of the
appellate court contending that a) AN ACTION FOR MANDAMUS NECESSARILY INCLUDES INDEMNIFICATION FOR DAMAGES
AND IS ASSESSED ON A PUBLIC OFFICIAL'S PRIVATE CAPACITY. HENCE, SUING A PUBLIC
OFFICIAL IN HIS PRIVATE CAPACITY DOES NOT AS A MATTER OF RIGHT ENTITLE HIM TO AN
AWARD OF ATTORNEY'S FEES BY WAY OF COUNTERCLAIM.
b) THE RECEIPT BY THE CITY TREASURER'S OFFICE OF ILOILO OF THE FACE VALUE OF THE
TWO MANAGER'S CHECKS INTENDED FOR PAYMENT OF ITS BUSINESS TAXES FOR THE YEAR
1992 AND 1993 ENTITLES IT TO THE ISSUANCE OF AN OFFICIAL RECEIPT ENFORCEABLE BY A
WRIT OF MANDAMUS.
In order that a writ of mandamus may aptly issue, it is essential that, on the one hand, the
person petitioning for it has a clear legal right to the claim that is sought and that, on the other hand,
the respondent has an imperative duty to perform that which is demanded of him. [1] Mandamus will
not issue to enforce a right, or to compel compliance with a duty, which is questionable or over which
a substantial doubt exists. The principal function of the writ of mandamus is to command and to
expedite, not to inquire and to adjudicate; thus, it is neither the office nor the aim of the writ to secure
a legal right but to implement that which is already established. Unless the right to the relief sought
is unclouded, mandamus will not issue.[2]
The checks delivered by petitioner bank to Toto Espinosa were managers checks. A managers
check, like a cashiers check, is an order of the bank to pay, drawn upon itself, committing in effect

its total resources, integrity and honor behind its issuance. By its peculiar character and general use
in commerce, a managers check or a cashiers check is regarded substantially to be as good as the
money it represents.[3]
By allowing the delivery of the subject checks to a person who is not directly charged with the
collection of its tax liabilities, the bank must be deemed to have assumed the risk of a possible
misuse thereof even as it appears to have fallen short of the diligence ordinarily expected of it. The
bank, of course, is not precluded from pursuing a right of action against those who could have been
responsible for the wrongdoing or who might have been unjustly benefited thereby.
The award of attorneys fees in favor of respondent City Treasurer, however, should be
deleted. Such an award, in the concept of damages under Article 2208 of the Civil Code, demands
factual and legal justifications.[4] While the law allows some degree of discretion on the part of the
courts in awarding attorneys fees and expenses of litigation, the use of that judgment, however,
must be done with great care approximating as closely as possible the instances exemplified by the
law. Attorneys fees in the concept of damages are not recoverable against a party just because of
an unfavorable judgment. Repeatedly, it has been said that no premium should be placed on the
right to litigate.[5]
WHEREFORE, the instant petition is partly granted. The appealed decision is affirmed save for
the award of attorneys fees in favor of private respondent which is ordered deleted. No costs.
SO ORDERED.

Managers check
[G.R. No. 156846. February 23, 2004]
TEDDY G. PABUGAIS, petitioner, vs. DAVE P. SAHIJWANI, respondent.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review on certiorari is the January 16, 2003 Amended Decision [1] of
the Court of Appeals[2] in CA-G.R. CV No. 55740 which set aside the November 29, 1996
Decision[3] of the Regional Trial Court of Makati, Branch 64, in Civil Case No. 94-2363.

Pursuant to an Agreement And Undertaking [4] dated December 3, 1993, petitioner Teddy G.
Pabugais, in consideration of the amount of Fifteen Million Four Hundred Eighty Seven Thousand
Five Hundred Pesos (P15,487,500.00), agreed to sell to respondent Dave P. Sahijwani a lot
containing 1,239 square meters located at Jacaranda Street, North Forbes Park, Makati, Metro
Manila. Respondent paid petitioner the amount of P600,000.00 as option/reservation fee and the
balance of P14,887,500.00 to be paid within 60 days from the execution of the contract,
simultaneous with delivery of the owners duplicate Transfer Certificate of Title in respondents name
the Deed of Absolute Sale; the Certificate of Non-Tax Delinquency on real estate taxes and
Clearance on Payment of Association Dues. The parties further agreed that failure on the part of
respondent to pay the balance of the purchase price entitles petitioner to forfeit the P600,000.00
option/reservation fee; while non-delivery by the latter of the necessary documents obliges him to
return to respondent the said option/reservation fee with interest at 18% per annum, thus
5.
DEFAULT In case the FIRST PARTY [herein respondent] fails to pay the balance of the purchase
price within the stipulated due date, the sum of P600,000.00 shall be deemed forfeited, on the other hand,
should the SECOND PARTY [herein petitioner] fail to deliver within the stipulated period the documents
hereby undertaken, the SECOND PARTY shall return the sum of P600,000.00 with interest at 18% per annum.
[5]

Petitioner failed to deliver the required documents. In compliance with their agreement, he
returned to respondent the latters P600,000.00 option/reservation fee by way of Far East Bank &
Trust Company Check No. 25AO54252P, which was, however, dishonored.
What transpired thereafter is disputed by both parties. Petitioner claimed that he twice tendered
to respondent, through his counsel, the amount of P672,900.00 (representing the P600,000.00
option/reservation fee plus 18% interest per annum computed from December 3, 1993 to August 3,
1994) in the form of Far East Bank & Trust Company Managers Check No. 088498, dated August 3,
1994, but said counsel refused to accept the same. His first attempt to tender payment was
allegedly made on August 3, 1994 through his messenger; [6] while the second one was on August 8,
1994,[7] when he sent via DHL Worldwide Services, the managers check attached to a letter dated
August 5, 1994.[8] On August 11, 1994, petitioner wrote a letter to respondent saying that he is
consigning the amount tendered with the Regional Trial Court of Makati City.[9] On August 15, 1994,
petitioner filed a complaint for consignation.[10]
Respondents counsel, on the other hand, admitted that his office received petitioners letter
dated August 5, 1994, but claimed that no check was appended thereto. [11] He averred that there was
no valid tender of payment because no check was tendered and the computation of the amount to
be tendered was insufficient,[12] because petitioner verbally promised to pay 3% monthly interest and
25% attorneys fees as penalty for default, in addition to the interest of 18% per annum on the
P600,000.00 option/reservation fee.[13]
On November 29, 1996, the trial court rendered a decision declaring the consignation invalid for
failure to prove that petitioner tendered payment to respondent and that the latter refused to receive
the same. It further held that even assuming that respondent refused the tender, the same is
justified because the managers check allegedly offered by petitioner was not legal tender, hence,
there was no valid tender of payment. The trial court ordered petitioner to pay respondent the

amount of P600,000.00 with interest of 18% per annum from December 3, 1993 until fully paid, plus
moral damages and attorneys fees.[14]
Petitioner appealed the decision to the Court of Appeals. Meanwhile, his counsel, Atty.
Wilhelmina V. Joven, died and she was substituted by Atty. Salvador P. De Guzman, Jr.[15] On
December 20, 2001, petitioner executed a Deed of Assignment [16] assigning in favor of Atty. De
Guzman, Jr., part of the P672,900.00 consigned with the trial court as partial payment of the latters
attorneys fees.[17] Thereafter, on January 7, 2002, petitioner filed an Ex Parte Motion to Withdraw
Consigned Money.[18] This was followed by a Motion to Intervene filed by Atty. De Guzman, Jr.,
praying that the amount consigned be released to him by virtue of the Deed of Assignment. [19]
Petitioners motion to withdraw the amount consigned was denied by the Court of Appeals and
the decision of the trial court was affirmed with modification as to the amount of moral damages and
attorneys fees.[20]
On a motion for reconsideration, the Court of Appeals declared the consignation as valid in an
Amended Decision dated January 16, 2003. It held that the validity of the consignation had the
effect of extinguishing petitioners obligation to return the option/reservation fee to
respondent. Hence, petitioner can no longer withdraw the same. The decretal portion of the
Amended Decision states:
WHEREFORE, premises considered, our decision dated April 26, 2002 is RECONSIDERED. The trial courts
decision is hereby REVERSED and SET ASIDE, and a new one is entered (1) DECLARING as valid the
consignation by the plaintiff-appellant in favor of defendant-appellee of the amount of P672,900.00 with the
Makati City RTC Clerk of Court and deposited under Official Receipt No. 379061 dated 15 August 1994 and
(2) DECLARING as extinguished appellants obligation in favor of appellee under paragraph 5 of the parties
AGREEMENT AND UNDERTAKING. Neither party shall recover costs from the other.
SO ORDERED.[21]
Unfazed, petitioner filed the instant petition for review contending, inter alia, that he can
withdraw the amount deposited with the trial court as a matter of right because at the time he moved
for the withdrawal thereof, the Court of Appeals has yet to rule on the consignations validity and the
respondent had not yet accepted the same.
The resolution of the case at bar hinges on the following issues: (1) Was there a valid
consignation? and (2) Can petitioner withdraw the amount consigned as a matter of right?
Consignation is the act of depositing the thing due with the court or judicial authorities whenever
the creditor cannot accept or refuses to accept payment and it generally requires a prior tender of
payment.[22] In order that consignation may be effective, the debtor must show that: (1) there was a
debt due; (2) the consignation of the obligation had been made because the creditor to whom tender
of payment was made refused to accept it, or because he was absent or incapacitated, or because
several persons claimed to be entitled to receive the amount due or because the title to the
obligation has been lost; (3) previous notice of the consignation had been given to the person
interested in the performance of the obligation; (4) the amount due was placed at the disposal of the

court; and (5) after the consignation had been made the person interested was notified
thereof. Failure in any of these requirements is enough ground to render a consignation ineffective.
[23]

The issues to be resolved in the instant case concerns one of the important requisites of
consignation, i.e, the existence of a valid tender of payment. As testified by the counsel for
respondent, the reasons why his client did not accept petitioners tender of payment were (1) the
check mentioned in the August 5, 1994 letter of petitioner manifesting that he is settling the
obligation was not attached to the said letter; and (2) the amount tendered was insufficient to cover
the obligation. It is obvious that the reason for respondents non-acceptance of the tender of
payment was the alleged insufficiency thereof and not because the said check was not tendered to
respondent, or because it was in the form of managers check. While it is true that in general, a
managers check is not legal tender, the creditor has the option of refusing or accepting it.
[24]
Payment in check by the debtor may be acceptable as valid, if no prompt objection to said
payment is made.[25] Consequently, petitioners tender of payment in the form of managers check is
valid.
Anent the sufficiency of the amount tendered, it appears that only the interest of 18% per
annum on the P600,000.00 option/reservation fee stated in the default clause of the Agreement And
Undertaking was agreed upon by the parties, thus
5.
DEFAULT In case the FIRST PARTY [herein respondent] fails to pay the balance of the purchase
price within the stipulated due date, the sum of P600,000.00 shall be deemed forfeited, on the other hand,
should the SECOND PARTY [herein petitioner] fail to deliver within the stipulated period the documents
hereby undertaken, the SECOND PARTY shall return the sum of P600,000.00 with interest at 18% per annum.
[26]

The managers check in the amount of P672,900.00 (representing the P600,000.00

option/reservation fee plus 18% interest per annum computed from December 3, 1993 to August 3,
1994) which was tendered but refused by respondent, and thereafter consigned with the court, was
enough to satisfy the obligation.
There being a valid tender of payment in an amount sufficient to extinguish the obligation, the
consignation is valid.
As regards petitioners right to withdraw the amount consigned, reliance on Article 1260 of the
Civil Code is misplaced. The said Article provides
Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of
the obligation.
Before the creditor has accepted the consignation, or before a judicial confirmation that the consignation has
been properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to
remain in force.

The amount consigned with the trial court can no longer be withdrawn by petitioner because
respondents prayer in his answer that the amount consigned be awarded to him is equivalent to an
acceptance of the consignation, which has the effect of extinguishing petitioners obligation.
Moreover, petitioner failed to manifest his intention to comply with the Agreement And
Undertaking by delivering the necessary documents and the lot subject of the sale to respondent in
exchange for the amount deposited. Withdrawal of the money consigned would enrich petitioner
and unjustly prejudice respondent.
The withdrawal of the amount deposited in order to pay attorneys fees to petitioners counsel,
Atty. De Guzman, Jr., violates Article 1491 of the Civil Code which forbids lawyers from acquiring by
assignment, property and rights which are the object of any litigation in which they may take part by
virtue of their profession.[27] Furthermore, Rule 10 of the Canons of Professional Ethics provides that
the lawyer should not purchase any interest in the subject matter of the litigation which he is
conducting. The assailed transaction falls within the prohibition because the Deed assigning the
amount of P672,900.00 to Atty. De Guzman, Jr., as part of his attorneys fees was executed during
the pendency of this case with the Court of Appeals. In his Motion to Intervene, Atty. De Guzman,
Jr., not only asserted ownership over said amount, but likewise prayed that the same be released to
him. That petitioner knowingly and voluntarily assigned the subject amount to his counsel did not
remove their agreement within the ambit of the prohibitory provisions. [28] To grant the withdrawal
would be to sanction a void contract.[29]
WHEREFORE, in view of all the foregoing, the instant petition for review is DENIED. The
January 16, 2003 Amended Decision of the Court of Appeals in CA-G.R. CV No. 55740, which
declared the consignation by the petitioner in favor of respondent of the amount of P672,900.00 with
the Clerk of Court of the Regional Trial Court of Makati City valid, and which declared petitioners
obligation to respondent under paragraph 5 of the Agreement And Undertaking as having been
extinguished, is AFFIRMED. No costs.
SO ORDERED.

Crossed Check
G.R. No. 93048 March 3, 1994
BATAAN CIGAR AND CIGARETTE FACTORY, INC., petitioner,
vs.
THE COURT OF APPEALS and STATE INVESTMENT HOUSE, INC., respondents.
Teresita Gandiongco Oledan for petitioner.
Acaban & Sabado for private respondent.

NOCON, J.:
For our review is the decision of the Court of Appeals in the case entitled "State Investment House,
Inc. v. Bataan Cigar & Cigarette Factory Inc.," 1 affirming the decision of the Regional Trial Court 2 in a
complaint filed by the State Investment House, Inc. (hereinafter referred to as SIHI) for collection on three
unpaid checks issued by Bataan Cigar & Cigarette Factory, Inc. (hereinafter referred to as BCCFI). The
foregoing decisions unanimously ruled in favor of SIHI, the private respondent in this case.
Emanating from the records are the following facts. Petitioner, Bataan Cigar & Cigarette Factory, Inc.
(BCCFI), a corporation involved in the manufacturing of cigarettes, engaged one of its suppliers,
King Tim Pua George (herein after referred to as George King), to deliver 2,000 bales of tobacco leaf
starting October 1978. In consideration thereof, BCCFI, on July 13, 1978 issued crossed checks
post dated sometime in March 1979 in the total amount of P820,000.00. 3
Relying on the supplier's representation that he would complete delivery within three months from
December 5, 1978, petitioner agreed to purchase additional 2,500 bales of tobacco leaves, despite
the supplier's failure to deliver in accordance with their earlier agreement. Again petitioner issued
post dated crossed checks in the total amount of P1,100,000.00, payable sometime in September
1979. 4

During these times, George King was simultaneously dealing with private respondent SIHI. On July
19, 1978, he sold at a discount check TCBT 551826 5 bearing an amount of P164,000.00, post dated
March 31, 1979, drawn by petitioner, naming George King as payee to SIHI. On December 19 and 26,
1978, he again sold to respondent checks TCBT Nos. 608967 & 608968, 6 both in the amount of
P100,000.00, post dated September 15 & 30, 1979 respectively, drawn by petitioner in favor of George
King.
In as much as George King failed to deliver the bales of tobacco leaf as agreed despite petitioner's
demand, BCCFI issued on March 30, 1979, a stop payment order on all checks payable to George
King, including check TCBT 551826. Subsequently, stop payment was also ordered on checks TCBT
Nos. 608967 & 608968 on September 14 & 28, 1979, respectively, due to George King's failure to
deliver the tobacco leaves.
Efforts of SIHI to collect from BCCFI having failed, it instituted the present case, naming only BCCFI
as party defendant. The trial court pronounced SIHI as having a valid claim being a holder in due
course. It further said that the non-inclusion of King Tim Pua George as party defendant is
immaterial in this case, since he, as payee, is not an indispensable party.
The main issue then is whether SIHI, a second indorser, a holder of crossed checks, is a holder in
due course, to be able to collect from the drawer, BCCFI.
The Negotiable Instruments Law states what constitutes a holder in due course, thus:
Sec. 52 A holder in due course is a holder who has taken the instrument under the
following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it
had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
Section 59 of the NIL further states that every holder is deemed prima facie a holder in due course.
However, when it is shown that the title of any person who has negotiated the instrument was
defective, the burden is on the holder to prove that he or some person under whom he claims,
acquired the title as holder in due course.
The facts in this present case are on all fours to the case of State Investment House, Inc. (the very
respondent in this case) v. Intermediate Appellate Court 7 wherein we made a discourse on the effects
of crossing of checks.

As preliminary, a check is defined by law as a bill of exchange drawn on a bank payable on

demand. 8 There are a variety of checks, the more popular of which are the memorandum check,
cashier's check, traveler's check and crossed check. Crossed check is one where two parallel lines are
drawn across its face or across a corner thereof. It may be crossed generally or specially.
A check is crossed specially when the name of a particular banker or a company is written between
the parallel lines drawn. It is crossed generally when only the words "and company" are written or
nothing is written at all between the parallel lines. It may be issued so that the presentment can be
made only by a bank. Veritably the Negotiable Instruments Law (NIL) does not mention "crossed
checks," although Article 541 9 of the Code of Commerce refers to such instruments.
According to commentators, the negotiability of a check is not affected by its being crossed, whether
specially or generally. It may legally be negotiated from one person to another as long as the one
who encashes the check with the drawee bank is another bank, or if it is specially crossed, by the
bank mentioned between the parallel lines. 10 This is specially true in England where the Negotiable
Instrument Law originated.
In the Philippine business setting, however, we used to be beset with bouncing checks, forging of
checks, and so forth that banks have become quite guarded in encashing checks, particularly those
which name a specific payee. Unless one is a valued client, a bank will not even accept second
indorsements on checks.
In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of
a check should have the following effects: (a) the check may not be encashed but only deposited in
the bank; (b) the check may be negotiated only once to one who has an account with a bank; (c)
and the act of crossing the check serves as warning to the holder that the check has been issued for
a definite purpose so that he must inquire if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course. 11
The foregoing was adopted in the case of SIHI v. IAC, supra. In that case, New Sikatuna Wood
Industries, Inc. also sold at a discount to SIHI three post dated crossed checks, issued by Anita
Pea Chua naming as payee New Sikatuna Wood Industries, Inc. Ruling that SIHI was not a holder
in due course, we then said:
The three checks in the case at bar had been crossed generally and issued payable
to New Sikatuna Wood Industries, Inc. which could only mean that the drawer had
intended the same for deposit only by the rightful person, i.e. the payee named
therein. Apparently, it was not the payee who presented the same for payment and
therefore, there was no proper presentment, and the liability did not attach to the
drawer. Thus, in the absence of due presentment, the drawer did not become liable.
Consequently, no right of recourse is available to petitioner (SIHI) against the drawer
of the subject checks, private respondent wife (Anita), considering that petitioner is
not the proper party authorized to make presentment of the checks in question.
xxx xxx xxx

That the subject checks had been issued subject to the condition that private
respondents (Anita and her husband) on due date would make the back up deposit
for said checks but which condition apparently was not made, thus resulting in the
non-consummation of the loan intended to be granted by private respondents to New
Sikatuna Wood Industries, Inc., constitutes a good defense against petitioner who is
not a holder in due course. 12
It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the
duty to ascertain the indorser's title to the check or the nature of his possession. Failing in this
respect, the holder is declared guilty of gross negligence amounting to legal absence of good faith,
contrary to Sec. 52(c) of the Negotiable Instruments Law, 13 and as such the consensus of authority is
to the effect that the holder of the check is not a holder in due course.
In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is to George King.
Because, really, the checks were issued with the intention that George King would supply BCCFI
with the bales of tobacco leaf. There being failure of consideration, SIHI is not a holder in due
course. Consequently, BCCFI cannot be obliged to pay the checks.
The foregoing does not mean, however, that respondent could not recover from the checks. The only
disadvantage of a holder who is not a holder in due course is that the instrument is subject to
defenses as if it were
non-negotiable. 14 Hence, respondent can collect from the immediate indorser, in this case, George King.
WHEREFORE, finding that the court a quo erred in the application of law, the instant petition is
hereby GRANTED. The decision of the Regional Trial Court as affirmed by the Court of Appeals is
hereby REVERSED. Cost against private respondent.
SO ORDERED.

Crossed Check
G.R. No. 89802 May 7, 1992
ASSOCIATED BANK and CONRADO CRUZ, petitioners,
vs.
HON. COURT OF APPEALS, and MERLE V. REYES, doing business under the name and style
"Melissa's RTW," respondents.
Soluta, Leonidas, Marifosque, Javier, Liboon & aguila Law Offices for petitioners.
Roberto B. Lugue for private respondent.

CRUZ, J.:

The sole issue raised in this case is whether or not the private respondent has a cause of action
against the petitioners for their encashment and payment to another person of certain crossed
checks issued in her favor.
The private respondent is engaged in the business of ready-to-wear garments under the firm name
"Melissa's RTW." She deals with, among other customers, Robinson's Department Store, Payless
Department Store, Rempson Department Store, and the Corona Bazaar.
These companies issued in payment of their respective accounts crossed checks payable to
Melissa's RTW in the amounts and on the dates indicated below:
PAYOR BANK AMOUNT DATE
Payless Solid Bank P3,960.00 January 19, 1982
Robinson's FEBTC 4,140.00 December 18, 1981
Robinson's FEBTC 1,650.00 December 24, 1981
Robinson's FEBTC 1,980.00 January 12, 1982
Rempson TRB 1,575.00 January 9, 1982
Corona RCBC 2,500.00 December 22, 1981
When she went to these companies to collect on what she thought were still unpaid accounts, she
was informed of the issuance of the above-listed crossed checks. Further inquiry revealed that the
said checks had been deposited with the Associated Bank (hereinafter, "the Bank") and
subsequently paid by it to one Rafael Sayson, one of its "trusted depositors," in the words of its
branch manager and co-petitioner, Conrado Cruz, Sayson had not been authorized by the private
respondent to deposit and encash the said checks.
The private respondent sued the petitioners in the Regional Trial Court of Quezon City for recovery
of the total value of the checks plus damages. After trial, judgment was rendered requiring them to
pay the private respondent the total value of the subject checks in the amount of P15,805.00 plus
12% interest, P50,000.00 actual damages, P25,000.00 exemplary damages, P5,000.00 attorney's
fees, and the costs of the suit. 1
The petitioners appealed to the respondent court, reiterating their argument that the private
respondent had no cause of action against them and should have proceeded instead against the
companies that issued the checks. In disposing of this contention, the Court of Appeals 2 said:
The cause of action of the appellee in the case at bar arose from the illegal,
anomalous and irregular acts of the appellants in violating common banking practices
to the damage and prejudice of the appellees, in allowing to be deposited and
encashed as well as paying to improper parties without the knowledge, consent,
authority or endorsement of the appellee which totalled P15,805.00, the six (6)
checks in dispute which were "crossed checks" or "for payee's account only," the
appellee being the payee.

The three (3) elements of a cause of action are present in the case at bar, namely:
(1) a right in favor of the plaintiff by whatever means and under whatever law it arises
or is created; (2) an obligation on the part of the named defendant to respect or not
to violate such right; and (3) an act or omission on the part of such defendant
violative of the right of the plaintiff or constituting a breach thereof. (Republic Planters
Bank vs. Intermediate Appellate Court, 131 SCRA 631).
And such cause of action has been proved by evidence of great weight. The contents
of the said checks issued by the customers of the appellee had not been questioned.
There is no dispute that the same are crossed checks or for payee's account only,
which is Melissa's RTW. The appellee had clearly shown that she had never
authorized anyone to deposit the said checks nor to encash the same; that the
appellants had allowed all said checks to be deposited, cleared and paid to one
Rafael Sayson in violation of the instructions in the said crossed checks that the
same were for payee's account only; and that the appellee maintained a savings
account with the Prudential Bank, Cubao Branch, Quezon City which never cleared
the said checks and the appellee had been damaged by such encashment of the
same.
We affirm.
Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on
the left top portion of the checks. The crossing is special where the name of a bank or a business
institution is written between the two parallel lines, which means that the drawee should pay only
with the intervention of that company. 3 The crossing is general where the words written between the
two parallel lines are "and Co." or "for payee's account only," as in the case at bar. This means that the
drawee bank should not encash the check but merely accept it for deposit. 4
In State Investment House vs. IAC, 5 this Court declared that "the effects of crossing a check are: (1)
that the check may not be encashed but only deposited in the bank; (2) that the check may be negotiated
only once to one who has an account with a bank; and (3) that the act of crossing the check serves as
a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he
has received the check pursuant to that purpose."
The effects therefore of crossing a check relate to the mode of its presentment for payment. Under
Sec. 72 of the Negotiable Instruments Law, presentment for payment, to be sufficient, must be made
by the holder or by some person authorized to receive payment on his behalf. Who the holder or
authorized person is depends on the instruction stated on the face of the check.
The six checks in the case at bar had been crossed and issued "for payee's account only." This
could only signify that the drawers had intended the same for deposit only by the person indicated,
to wit, Melissa's RTW.
The petitioners argue that the cause of action for violation of the common instruction found on the
face of the checks exclusively belongs to the issuers thereof and not to the payee. Moreover, having
acted in good faith as they merely facilitated the encashment of the checks, they cannot be made
liable to the private respondent.

The subject checks were accepted for deposit by the Bank for the account of Rafael Sayson
although they were crossed checks and the payee was not Sayson but Melissa's RTW. The Bank
stamped thereon its guarantee that "all prior endorsements and/or lack of endorsements (were)
guaranteed." By such deliberate and positive act, the Bank had for all legal intents and purposes
treated the said checks as negotiable instruments and, accordingly, assumed the warranty of the
endorser.
The weight of authority is to the effect that "the possession of check on a forged or unauthorized
indorsement is wrongful, and when the money is collected on the check, the bank can be held 'for
moneys had and received." 6The proceeds are held for the rightful owner of the payment and may be
recovered by him. The position of the bank taking the check on the forged or unauthorized indorsement is
the same as if it had taken the check and collected without indorsement at all. The act of the bank
amounts to conversion of the check. 7
It is not disputed that the proceeds of the subject checks belonged to the private respondent. As she
had not at any time authorized Rafael Sayson to endorse or encash them, there was conversion of
the funds by the Bank.
When the Bank paid the checks so endorsed notwithstanding that title had not passed to the
endorser, it did so at its peril and became liable to the payee for the value of the checks. This liability
attached whether or not the Bank was aware of the unauthorized endorsement. 8
The petitioners were negligent when they permitted the encashment of the checks by Sayson. The
Bank should have first verified his right to endorse the crossed checks, of which he was not the
payee, and to deposit the proceeds of the checks to his own account. The Bank was by reason of
the nature of the checks put upon notice that they were issued for deposit only to the private
respondent's account. Its failure to inquire into Sayson's authority was a breach of a duty it owed to
the private respondent.
As the Court stressed in Banco de Oro Savings and Mortgage Bank vs. Equitable Banking
Corp., 9 "the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it,
for the purpose of determining their genuineness and regularity. The collecting bank, being primarily
engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a
high standard of conduct."
The petitioners insist that the private respondent has no cause of action against them because they
have no privity of contract with her. They also argue that it was Eddie Reyes, the private
respondent's own husband, who endorsed the checks.
Assuming that Eddie Reyes did endorse the crossed checks, we hold that the Bank would still be
liable to the private respondent because he was not authorized to make the endorsements. And
even if the endorsements were forged, as alleged, the Bank would still be liable to the private
respondent for not verifying the endorser's authority. There is no substantial difference between an
actual forging of a name to a check as an endorsement by a person not authorized to make the
signature and the affixing of a name to a check as an endorsement by a person not authorized to
endorse it. 10

The Bank does not deny collecting the money on the endorsement. It was its responsibility to inquire
as to the authority of Rafael Sayson to deposit crossed checks payable to Melissa's RTW upon a
prior endorsement by Eddie Reyes. The failure of the Bank to make this inquiry was a breach of duty
that made it liable to the private respondent for the amount of the checks.
There being no evidence that the crossed checks were actually received by the private respondent,
she would have a right of action against the drawer companies, which in turn could go against their
respective drawee banks, which in turn could sue the herein petitioner as collecting bank. In a similar
situation, it was held that, to simplify proceedings, the payee of the illegally encashed checks should
be allowed to recover directly from the bank responsible for such encashment regardless of whether
or not the checks were actually delivered to the payee. 11 We approve such direct action in the case at
bar.
It is worth repeating that before presenting the checks for clearing and for payment, the Bank had
stamped on the back thereof the words: "All prior endorsements and/or lack of endorsements
guaranteed," and thus made the assurance that it had ascertained the genuineness of all prior
endorsements.
We find that the respondent court committed no reversible error in holding that the private
respondent had a valid cause of action against the petitioners and that the latter are indeed liable to
her for their unauthorized encashment of the subject checks. We also agree with the reduction of the
award of the exemplary damages for lack of sufficient evidence to support them.
WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered.

Material Alteration, Serial Number

G.R. No. 148196 September 30, 2005
BPI FAMILY BANK, Petitioners,
vs.
EDGARDO BUENAVENTURA, MYRNA LIZARDO and YOLANDA TICA, Respondent.
x--------------------------x
G.R. No. 148259
EDGARDO BUENAVENTURA, MYRNA LIZARDO and YOLANDA TICA, Petitioners,
vs.
BPI FAMILY BANK, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us are two consolidated petitions for review on certiorari under Rule 45 of the Rules of Court
assailing the Decision1 of the Court of Appeals (CA) dated November 27, 2000 in CA-G.R. CV No.
53962, which affirmed with modification the Decision dated August 11, 1995 of the Regional Trial
Court, Branch 25, Manila (Manila RTC); and the CA Resolution dated May 3, 2001, which denied the
parties separate motions for reconsideration.
The factual background of the case is as follows:
On May 23, 1990, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et al.),
all officers of the International Baptist Church and International Baptist Academy in Malabon, Metro
Manila, filed a complaint for "Reinstatement of Current Account/Release of Money plus Damages"
against BPI Family Bank (BPI-FB) before the Manila RTC, docketed as Civil Case No. 90-53154. 2
They alleged that: on August 30, 1989, they accepted from Amado Franco BPI-FB Check No.
129004 dated August 29, 1989 in the amount of P500,000.00, jointly issued by Eladio Teves and
Joseph Teves;3 they opened Current Account No. 807-065314-0 with the BPI-FB Branch at Bonifacio
Market, Edsa, Caloocan City and deposited the check as initial deposit; the check was subsequently
cleared and the amount was credited to their Current
Account; on September 3, 1989, they drew a check in the amount of P10,171.50 and pursuant to
normal banking procedure the check was honored and debited from their Current Account, leaving a
balance of P490,328.50; on September 4, 1989, they drew another check in the amount
of P46,189.60; instead of debiting the said amount against their Current
Account, it was debited, without their knowledge and consent, against their Savings Account No. 0895332-5 with the same branch; on September 9, 1989, they drew a check for P91,270.00 which,

upon presentment for payment, was dishonored for the reason "account closed," in spite of the
balance in the Current Account ofP490,328.50; they thereafter learned from BPI-FB that their
Current Account had been frozen upon instruction of Severino P. Coronacion, Vice-President of BPIFB on the ground that the source of fund was illegal or unauthorized; they demanded the
reinstatement of the account, but BPI-FB refused.
On June 20, 1990, BPI-FB filed a motion to dismiss on the ground of litis pendentia, alleging that
there is a pending case for recovery of sum of money arising from the BPI-FB Check No. 129004
dated August 29, 1989 before the Regional Trial Court (RTC), Branch 146, Makati 4 and
Buenaventura is one of the defendants therein.5Buenaventura, et al. opposed the motion to dismiss
on the ground that there is no identity of parties, rights asserted and reliefs prayed between the two
cases.6
On October 10, 1990, the Manila RTC denied the motion to dismiss, ruling that there can be no res
judicatabetween the two cases since the parties are different and the causes of action are not the
same.7
On December 10, 1990, BPI-FB filed its answer alleging that: the check received by
Buenaventura, et al. from Amado Franco was drawn by Eladio Teves and Joseph Teves against the
Current Account of the Tevesteco Arrastre Stevedoring Co., Inc. (Tevesteco); the funds in the said
Tevesteco account allegedly consisted mainly of funds in the amount of P80,000,000.00 transferred
to it from another account belonging to the First Metro Investment Corporation (FMIC); such transfer
of funds was effected on the basis of an Authority to Debit bearing the signatures of certain officers
of FMIC; upon its investigation, BPI-FB found that the signatures in the Authority to Debit were
forged; before this, however, Tevesteco had already issued several checks against its Current
Account, one of which is the BPI-FB Check No. 129004 received by Buenaventura, et al. from
Amado Franco, after a series of indorsements; it has the right to consider the Current Account of
Buenaventura, et al., which is funded from BPI-FB Check No. 129004, as closed and to refuse any
further withdrawal from the same; assuming that the forgery claim of FMIC is untrue and incorrect, it
is the right of the BPI-FB, as a matter of protecting its interests, to freeze their account or to hold it in
suspense and not to allow any withdrawals therefrom in the meantime that the issue of forgery
remains unsettled; FMIC has instituted another civil action, presently pending appeal, against BPIFB and several other defendants for the recovery of the P80,000,000.00 transferred from the
formers account to Tevestecos account.8
Following trial on the merits, on August 11, 1995, the Manila RTC rendered its decision, finding that:
BPI-FB had no right to unilaterally freeze the deposits of Buenaventura, et al. since the latter had no
participation in any fraud that may have attended the prior fund transfers from FMIC to Tevesteco; as
holders in good faith and for value of the BPI-FB Check No. 129004, their rights to the sum
embodied in the said check should have been respected; BPI-FBs unilateral action of freezing the
Current Account amounted to an unlawful confiscation of their property without due process. The
dispositive portion of the RTC decision reads as follows:
WHEREFORE, in view of the foregoing judgment is rendered in favor of the plaintiff and against the
defendant bank and the latter is ordered as follows:

1. To pay the plaintiff the sum of P490,328.50 representing the balance of the plaintiffs deposit
under Account No. 807-065-313-0 which was unlawfully frozen by the bank and finally debited
against said account with legal rate of interest from date of closure;
2. To pay the sum of P200,000.00 as moral damages;
3. To pay the amount of P200,000.00 as exemplary damages to serve as an example and lesson to
serve as a deterrent for similar action which the bank may take against its depositors in the future;
4. To pay the sum of P50,000.00 as attorneys fees.
SO ORDERED.9
Dissatisfied, BPI-FB appealed to the CA. It alleged that: the case should have been dismissed for
lack of cause of action because it is the International Baptist Academy which is the owner of the
funds deposited with BPI-FB and therefore the real party-in-interest, although the account is in the
name of Buenaventura, et al.; the RTC should not have ordered the payment of the balance of the
Current Account of Buenaventura, et al. because the latter were interested only in the reinstatement
of their Current Account; the provisions of the Negotiable Instruments Law should not have been
applied by the RTC to support its position that Buenaventura, et al. are the owners of the funds in
their Current Account; BPI-FB is entitled to freeze the account of Buenaventura, et al. and to disallow
any withdrawals therefrom as a measure to protect its interest; BPI-FB, not Buenaventura, et al., is
entitled to damages.
On November 27, 2000, the CA affirmed the decision of the Manila RTC, holding that BPI-FB did not
act in accordance with law.10 It ruled that the relationship between the bank and the depositor is that
of debtor and creditor and, as such, BPI-FB could not lawfully refuse to make payments on the
checks drawn and issued by Buenaventura, et al., provided only that there are funds available in the
latters deposit. It further declared that BPI-FB is not justified in freezing the amounts deposited by
Buenaventura, et al. for suspicion of being "illegal" or "unauthorized" as a result of the claimed fraud
perpetuated against FMIC because: (a) it has not been sufficiently shown that the funds in the
account of Buenaventura, et al. were derived exclusively from the allegedP80,000,000.00 unlawfully
transferred from the funds of FMIC or that the deposit under the name of Tevesteco consisted
exclusively of the said P80,000,000.00 debited from FMICs account; and (b) there is no clear proof
of any involvement of Buenaventura, et al., the International Baptist Church or International Baptist
Academy in the alleged irregularities attending the fund transfer from FMIC to Tevesteco.
The CA also found unmeritorious BPI-FBs claim that Buenaventura, et al. have no cause of action
since the International Baptist Academy is the real party-in-interest. It held that since it is undisputed
that it is the Current Account of Buenaventura, et al. which was frozen and closed by BPI-FB, then
the former are the parties-in-interest in the reopening of the said account. It found no error in the
Manila RTCs order that BPI-FB pay the amount of P490,328.50 plus interest directly to
Buenaventura, et al. since the reinstatement of the Current Account would mean the same thing as
the payment of the balance; Buenaventura, et al. would necessarily have the right to withdraw their
deposit if and when they see it fit. Furthermore, the CA held that the RTCs disposition falls under the

general prayer of Buenaventura, et al. for such other reliefs as may be just and equitable under the
attendant circumstances.
With regard to award of damages, the CA sustained the award of moral damages and attorneys
fees, holding that BPI-FBs actuations were established to have caused Buenaventura, et al. to incur
the distrust of their Baptist brethren, besides suffering mental anguish, serious anxiety, wounded
feelings, and moral shock but found no basis for the award of exemplary damages of P200,000.00
for lack of showing that BPI-FB was not animated by any wanton, fraudulent, reckless, oppressive or
malevolent intent.
Both parties filed separate motions for reconsideration. Buenaventura, et al. sought reconsideration
of the deletion of the award of exemplary damages.11 On the other hand, BPI-FB reiterated its
argument that the International Baptist Academy is the real party-in-interest. It also assailed the
findings and conclusions of the CA.12
On May 3, 2001, the CA denied both motions for reconsideration.13
Hence, the present two consolidated petitions for review on certiorari.
In G.R No. 148196, BPI-FB ascribes six errors upon the CA, to wit:
I. The Honorable Court of Appeals committed a reversible error in holding that the respondents are
the real parties-in-interest in this case contrary to the admissions of respondents themselves that it is
the International Baptist Academy who is the owner of the funds in question and hence it is and out
to be the real party in interest in this case.
II. The Honorable Court of Appeals committed a grave abuse of discretion in not dismissing
respondents complaint for lack of cause of action.
III. The Honorable Court of Appeals committed a reversible error in NOT holding, based on a
misapprehension of facts that BPI-FB is entitled to freeze respondents account and to disallow any
withdrawal therefrom as a measure to protect its interest.
IV. The Honorable Court of Appeals committed a reversible error in holding, based on a
misapprehension of facts, that it has not been sufficiently shown that the funds in deposit with BPIFB under the name of the respondents were derived exclusively from the alleged 80 million pesos
unlawfully transferred from the funds of FMIC or that the deposit under the name of Tevesteco
consisted exclusively of the said 80 million pesos debited from FMICs account.
V. The Honorable Court of Appeals committed a grave abuse of discretion in NOT upholding the
position of BPI-FB on the freezing of respondents current account when it held that there was no
clear proof of any involvement by the respondents with the alleged irregularities attending the fund
transfer from FMIC to Tevesteco.
VI. The Honorable Court of Appeals committed a grave abuse of discretion, in holding, in effect, that
there is nothing wrong with the Lower Courts order directing BPI-FB to pay to respondents directly

the balance of their account plus interest although their prayer in their complaint was only to
reinstate their current account.14
Anent the first and second grounds, BPI-FB maintains that the complaint should have been
dismissed for lack of cause of action because Buenaventura et al. admit that the International Baptist
Academy is the owner of the funds in question and therefore the real party-in-interest to prosecute
the action.
On the third ground, BPI-FB asserts that it has the right to consider the account of Buenaventura, et
al. as frozen and to refuse any withdrawals
from the same because of the forgery claim of FMIC. Assuming the forgery claim of FMIC is true and
correct, the amount transferred from FMICs account to Tevestecos account is the money of BPI-FB
under the principle that a bank is deemed to have disbursed its own funds. It submits that as an
original owner who is restored in possession of stolen property, it has a better right over such
property than a mere transferee no matter how innocent the latter may be.
Concerning the fourth ground, BPI-FB submits that ample proof was presented by it that the deposit
under the name of Tevesteco consisted exclusively of the P80,000,000.00 debited from FMICs
account and the funds in deposit with BPI-FB under the name of Buenaventura, et al. were derived
exclusively from the P80,000,000.00 unlawfully transferred from the funds of FMIC.
With regard to the fifth ground, BPI-FB concedes that there is no clear proof of any involvement by
Buenaventura,et al. in the alleged irregularities attending the fund transfer from FMIC to Tevesteco. It
insists, however, that the freezing of the account was triggered by the forgery claim of FMIC and the
unauthorized fund transfer to Tevesteco based on the principle that a bank is deemed to have
disbursed its own funds, and not its depositors, where the authority for such disbursement is a
forgery and null and void. It had the right to set up its ownership of the money as against that of
Buenaventura, et al. and to refuse to return the same to them.
As to the sixth ground, BPI-FB points out that Buenaventura, et al. originally prayed in the alternative
for the reinstatement of their Current Account or for payment of the balance remaining in said
account but they subsequently chose to delete that portion praying for the payment of the balance of
their account. It submits that Buenaventura, et al. deliberately did this to sidestep the other pending
case filed against the suspected perpetrators of the fraud, including Amado Franco and
Buenaventura, before RTC, Branch 146, Makati.
In G.R. No. 148259, Buenaventura, et al. anchor their petition on a sole ground, to wit:
The Honorable Court of Appeals has decided the case in a way not in accord with law and applicable
jurisprudence in the deletion of the award of exemplary damages granted by the court a quo. 15
They submit that BPI-FB acted in a wanton, reckless, oppressive and malevolent manner in freezing,
and subsequently closing, their account without prior notification. They insist that BPI-FB failed in its
obligation, as an entity engaged in business affected with public interest, to treat the accounts of its
depositors with meticulous care, having in mind the fiduciary nature of their relationship. Moreover,

as if to compound its reckless conduct, BPI-FB declared itself the owner of the money which the
depositors have placed in its care, freezing and later closing the depositors account, all before due
notice and without first giving the latter the opportunity to properly present their side or at least
sufficient time to direct their course of action, like refraining from issuing any check, to eventually
save themselves from any embarrassment and/or possible criminal prosecution for estafa or
violation of Batas Pambansa Blg. 22.
We rule in favor of Buenaventura, et al.
It is elementary that it is only in the name of a real party-in-interest that a civil suit may be
prosecuted. Under Section 2, Rule 3 of the Rules of Civil Procedure, a real party-in-interest is the
party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the
avails of the suit. "Interest" within the meaning of the rule means material interest, an interest in
issue and to be affected by the decree, as distinguished from mere interest in the question involved,
or a mere incidental interest.16 One having no right or interest to protect cannot invoke the jurisdiction
of the court as a party plaintiff in an action.17 To qualify a person to be a real party-in-interest in
whose name an action must be prosecuted, he must appear to be the present real owner of the right
sought to be enforced.18 Since a contract may be violated only by the parties thereto as against each
other, in an action upon that contract, the real parties-in-interest, either as plaintiff or as defendant,
must be parties to the said contract.19
In the present case, Buenaventura, et al. are the real parties-in-interest. They are the parties who
contracted with BPI-FB with regard to the Current Account. While the funds were used for purposes
of the International Baptist Church and the International Baptist Academy, it must be noted that the
Current Account is in the name of Buenaventura, et al. They are the signatories of the check which
was dishonored by BPI-FB upon presentment and the ones who will be held accountable for the
nonpayment or dishonor of any check they issued. Thus, they are the real parties-in-interest to
enforce the terms of the contract of deposit with BPI-FB.
Furthermore, BPI-FB has no unilateral right to freeze the current account of Buenaventura, et
al. based on the suspicion that the funds in the latters account are illegal or unauthorized having
been sourced from the
unlawful transfer of funds from the account of FMIC to Tevesteco and disallow any withdrawal
therefrom to allegedly protect its interest.
Needless to stress, the contract between a bank and its depositor is governed by the provisions of
the Civil Code on simple loan.20 Thus, there is a debtor-creditor relationship between a bank and its
depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank
money and the bank agrees to pay the depositor on demand. The savings or current deposit
agreement between the bank and the depositor is the contract that determines the rights and
obligations of the parties.
Every bank that issues checks for the use of its customers should know whether or not the drawer's
signature thereon is genuine, whether there are sufficient funds in the drawers account to cover
checks issued, and it should be able to detect alterations, erasures, superimpositions or

intercalations thereon, for these instruments are prepared, printed and issued by itself, it has control
of the drawer's account, and it is supposed to be familiar with the drawer's signature. It should
possess appropriate detecting devices for uncovering forgeries and/or alterations on these
instruments. Unless a forgery or alteration is attributable to the fault or negligence of the drawer
himself, the remedy of the drawee bank that negligently clears a forged and/or altered check for
payment is against the party responsible for the forgery or alteration, otherwise, it bears the loss. 21
There is nothing inequitable in such a rule for if in the regular course of business the check comes to
the drawee bank which, having the opportunity to ascertain its character, pronounces it to be valid
and pays it, as in this case, it is not only a question of payment under mistake, but payment in
neglect of duty which the commercial law places upon it, and the result of its negligence must rest
upon it.22
Having been negligent in detecting the forgery prior to clearing the check, BPI-FB should bear the
loss and cant shift the blame to Buenaventura, et al. having failed to show any participation on their
part in the forgery. BPI-FB fails to point any circumstance which should have put Buenaventura, et
al. on inquiry as to the why and wherefore of the possession of the check by Amado Franco.
Buenaventura, et al. were not privies to any transaction involving FMIC, Tevesteco or Franco. They
thus had no obligation to ascertain from Franco what the nature of the latters title to the checks was,
if any, or the nature of his possession. They cannot be guilty of gross neglect amounting to legal
absence of good faith, absent any showing that there was something amiss about Francos
acquisition or possession of the check, which was payable to bearer.23
Thus, the fact that the funds in deposit with BPI-FB under the name of Buenaventura, et al. were
allegedly derived exclusively from the alleged P80,000,000.00 unlawfully transferred from the funds
of FMIC or that the deposit under the name of Tevesteco consisted allegedly exclusively of the
said P80,000,000.00 debited from FMICs account is immaterial. These circumstances cannot be
used against a party not privy to the forgery.
There is no merit to the claim that the CA erred in affirming the RTCs order directing BPI-FB to pay
the balance of their account plus interest although the prayer was only to reinstate their Current
Account. The complaint does contain a general prayer "for such other relief as may be just and
equitable in the premises." And this general prayer is broad enough "to justify extension of a remedy
different from or together with the specific remedy sought."24 Indeed, a court may grant relief to a
party, even if the party awarded did not pray for it in his pleadings.25
As to the prayer of Buenaventura, et al. for exemplary damages, the Court finds that the CA erred in
deleting the award of exemplary damages. The law allows the grant of exemplary damages to set an
example for the public good.26 The business of a bank is affected with public interest; thus, it makes
a sworn profession of diligence and meticulousness in giving irreproachable service. 27 For this
reason, the bank should guard against injury attributable to negligence or bad faith on its part. 28 The
award of exemplary damages is proper as a warning to BPI-FB and all concerned not to recklessly
disregard their obligation to exercise the highest and strictest diligence in serving their depositors.
However, the award should be in a reduced amount of P50,000.00 since exemplary damages are
imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a
negative incentive to curb socially deleterious actions.29

In summation, the Court reminds BPI-FB that the banking sector must at all times maintain a high
level of meticulousness, always having in mind the fiduciary nature of its relationship with its
depositors.30 This fiduciary relationship means that the banks obligation to observe "high standards
of integrity and performance" is deemed written into every deposit agreement between a bank and
its depositor. Failure to comply with this standard shall render a bank liable to its depositors for
damages.
WHEREFORE, the petition in G.R. No. 148196 is DENIED and the petition in G.R. No. 148259
is GRANTED. The assailed Decision dated November 27, 2000 and Resolution dated May 3, 2001
of the Court of Appeals in CA-G.R. CV No. 53962, which affirmed with modification the Decision
rendered by the Regional Trial Court, Branch 25, Manila, dated August 11, 1995 in Civil Case No.
90-53154, are hereby AFFIRMED with the modification that BPI Family Bank is directed to pay
Buenaventura, et al. the amount of P50,000.00 as exemplary damages. Costs against BPI Family
Bank.
SO ORDERED.

Two promissory notes

G.R. No. 148864

August 21, 2003

SPOUSES EDUARDO B. EVANGELISTA and EPIFANIA C. EVANGELISTA, Petitioners,

vs.
MERCATOR FINANCE CORP., LYDIA P. SALAZAR, LAMEC'S** REALTY AND DEVELOPMENT
CORP. and the REGISTER OF DEEDS OF BULACAN, Respondents.
DECISION
PUNO, J.:
Petitioners, Spouses Evangelista ("Petitioners"), are before this Court on a Petition for Review
on Certiorari under Rule 45 of the Revised Rules of Court, assailing the decision of the Court of
Appeals dismissing their petition.
Petitioners filed a complaint1 for annulment of titles against respondents, Mercator Finance
Corporation, Lydia P. Salazar, Lamecs Realty and Development Corporation, and the Register of
Deeds of Bulacan. Petitioners claimed being the registered owners of five (5) parcels of
land2 contained in the Real Estate Mortgage3 executed by them and Embassy Farms, Inc.
("Embassy Farms"). They alleged that they executed the Real Estate Mortgage in favor of Mercator
Financing Corporation ("Mercator") only as officers of Embassy Farms. They did not receive the
proceeds of the loan evidenced by a promissory note, as all of it went to Embassy Farms. Thus, they
contended that the mortgage was without any consideration as to them since they did not personally
obtain any loan or credit accommodations. There being no principal obligation on which the
mortgage rests, the real estate mortgage is void.4 With the void mortgage, they assailed the validity
of the foreclosure proceedings conducted by Mercator, the sale to it as the highest bidder in the
public auction, the issuance of the transfer certificates of title to it, the subsequent sale of the same
parcels of land to respondent Lydia P. Salazar ("Salazar"), and the transfer of the titles to her name,
and lastly, the sale and transfer of the properties to respondent Lamecs Realty & Development
Corporation ("Lamecs").
Mercator admitted that petitioners were the owners of the subject parcels of land. It, however,
contended that "on February 16, 1982, plaintiffs executed a Mortgage in favor of defendant Mercator
Finance Corporation for and in consideration of certain loans, and/or other forms of credit
accommodations obtained from the Mortgagee (defendant Mercator Finance Corporation)
amounting to EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE &
78/100 (P844,625.78) PESOS, Philippine Currency and to secure the payment of the same and
those others that the MORTGAGEE may extend to the MORTGAGOR (plaintiffs) x x x." 5 It
contended that since petitioners and Embassy Farms signed the promissory note6 as co-makers,
aside from the Continuing Suretyship Agreement7 subsequently executed to guarantee the
indebtedness of Embassy Farms, and the succeeding promissory notes 8 restructuring the loan, then
petitioners are jointly and severally liable with Embassy Farms. Due to their failure to pay the
obligation, the foreclosure and subsequent sale of the mortgaged properties are valid.
Respondents Salazar and Lamecs asserted that they are innocent purchasers for value and in good
faith, relying on the validity of the title of Mercator. Lamecs admitted the prior ownership of
petitioners of the subject parcels of land, but alleged that they are the present registered owner. Both
respondents likewise assailed the long silence and inaction by petitioners as it was only after a lapse
of almost ten (10) years from the foreclosure of the property and the subsequent sales that they
made their claim. Thus, Salazar and Lamecs averred that petitioners are in estoppel and guilty of
laches.9
During pre-trial, the parties agreed on the following issues:

a. Whether or not the Real Estate Mortgage executed by the plaintiffs in favor of defendant
Mercator Finance Corp. is null and void;
b. Whether or not the extra-judicial foreclosure proceedings undertaken on subject parcels of
land to satisfy the indebtedness of Embassy Farms, Inc. is (sic) null and void;
c. Whether or not the sale made by defendant Mercator Finance Corp. in favor of Lydia
Salazar and that executed by the latter in favor of defendant Lamecs Realty and
Development Corp. are null and void;
d. Whether or not the parties are entitled to damages.10
After pre-trial, Mercator moved for summary judgment on the ground that except as to the amount of
damages, there is no factual issue to be litigated. Mercator argued that petitioners had admitted in
their pre-trial brief the existence of the promissory note, the continuing suretyship agreement and the
subsequent promissory notes restructuring the loan, hence, there is no genuine issue regarding their
liability. The mortgage, foreclosure proceedings and the subsequent sales are valid and the
complaint must be dismissed.11
Petitioners opposed the motion for summary judgment claiming that because their personal liability
to Mercator is at issue, there is a need for a full-blown trial.12
The RTC granted the motion for summary judgment and dismissed the complaint. It held:
A reading of the promissory notes show (sic) that the liability of the signatories thereto are solidary in
view of the phrase "jointly and severally." On the promissory note appears (sic) the signatures of
Eduardo B. Evangelista, Epifania C. Evangelista and another signature of Eduardo B. Evangelista
below the words Embassy Farms, Inc. It is crystal clear then that the plaintiffs-spouses signed the
promissory note not only as officers of Embassy Farms, Inc. but in their personal capacity as well(.)
Plaintiffs(,) by affixing their signatures thereon in a dual capacity have bound themselves as solidary
debtor(s) with Embassy Farms, Inc. to pay defendant Mercator Finance Corporation the amount of
indebtedness. That the principal contract of loan is void for lack of consideration, in the light of the
foregoing is untenable.13
Petitioners motion for reconsideration was denied for lack of merit.14 Thus, petitioners went up to the
Court of Appeals, but again were unsuccessful. The appellate court held:
The appellants insistence that the loans secured by the mortgage they executed were not personally
theirs but those of Embassy Farms, Inc. is clearly self-serving and misplaced. The fact that they
signed the subject promissory notes in the(ir) personal capacities and as officers of the said debtor
corporation is manifest on the very face of the said documents of indebtedness (pp. 118, 128-131,
Orig. Rec.). Even assuming arguendo that they did not, the appellants lose sight of the fact that third
persons who are not parties to a loan may secure the latter by pledging or mortgaging their own
property (Lustan vs. Court of Appeals, 266 SCRA 663, 675). x x x. In constituting a mortgage over
their own property in order to secure the purported corporate debt of Embassy Farms, Inc., the
appellants undeniably assumed the personality of persons interested in the fulfillment of the principal
obligation who, to save the subject realities from foreclosure and with a view towards being
subrogated to the rights of the creditor, were free to discharge the same by payment (Articles 1302
[3] and 1303, Civil Code of the Philippines).15 (emphases in the original)

The appellate court also observed that "if the appellants really felt aggrieved by the foreclosure of
the subject mortgage and the subsequent sales of the realties to other parties, why then did they
commence the suit only on August 12, 1997 (when the certificate of sale was issued on January 12,
1987, and the certificates of title in the name of Mercator on September 27, 1988)?" Petitioners
"procrastination for about nine (9) years is difficult to understand. On so flimsy a ground as lack of
consideration, (w)e may even venture to say that the complaint was not worth the time of the
courts."16
A motion for reconsideration by petitioners was likewise denied for lack of merit. 17 Thus, this petition
where they allege that:
The court a quo erred and acted with grave abuse of discretion amounting to lack or excess of
jurisdiction in affirming in toto the May 4, 1998 order of the trial court granting respondents motion
for summary judgment despite the existence of genuine issues as to material facts and its nonentitlement to a judgment as a matter of law, thereby deciding the case in a way probably not in
accord with applicable decisions of this Honorable Court. 18
we affirm.
Summary judgment "is a procedural technique aimed at weeding out sham claims or defenses at an
early stage of the litigation."19 The crucial question in a motion for summary judgment is whether the
issues raised in the pleadings are genuine or fictitious, as shown by affidavits, depositions or
admissions accompanying the motion. A genuine issue means "an issue of fact which calls for the
presentation of evidence, as distinguished from an issue which is fictitious or contrived so as not to
constitute a genuine issue for trial."20 To forestall summary judgment, it is essential for the nonmoving party to confirm the existence of genuine issues where he has substantial, plausible and
fairly arguable defense, i.e., issues of fact calling for the presentation of evidence upon which a
reasonable finding of fact could return a verdict for the non-moving party. The proper inquiry would
therefore be whether the affirmative defenses offered by petitioners constitute genuine issue of fact
requiring a full-blown trial.21
In the case at bar, there are no genuine issues raised by petitioners. Petitioners do not deny that
they obtained a loan from Mercator. They merely claim that they got the loan as officers of Embassy
Farms without intending to personally bind themselves or their property. However, a simple perusal
of the promissory note and the continuing suretyship agreement shows otherwise. These
documentary evidence prove that petitioners are solidary obligors with Embassy Farms.
The promissory note22 states:
For value received, I/We jointly and severally promise to pay to the order of MERCATOR FINANCE
CORPORATION at its office, the principal sum of EIGHT HUNDRED FORTY-FOUR THOUSAND
SIX HUNDRED TWENTY-FIVE PESOS & 78/100 (P 844,625.78), Philippine currency, x x x, in
installments as follows:
September 16, 1982

P154,267.87

October 16, 1982

P154,267.87

November 16, 1982

P154,267.87

December 16, 1982

P154,267.87

January 16, 1983

P154,267.87

February 16, 1983

xxx

xxx

P154,267.87

xxx

The note was signed at the bottom by petitioners Eduardo B. Evangelista and Epifania C.
Evangelista, and Embassy Farms, Inc. with the signature of Eduardo B. Evangelista below it.
The Continuing Suretyship Agreement23 also proves the solidary obligation of petitioners, viz:
(Embassy Farms, Inc.)
Principal
(Eduardo B. Evangelista)
Surety
(Epifania C. Evangelista)
Surety
(Mercator Finance Corporation)
Creditor
To: MERCATOR FINANCE COPORATION
(1) For valuable and/or other consideration, EDUARDO B. EVANGELISTA and
EPIFANIA C. EVANGELISTA (hereinafter called Surety), jointly and severally
unconditionally guarantees (sic) to MERCATOR FINANCE COPORATION
(hereinafter called Creditor), the full, faithful and prompt payment and discharge of
any and all indebtedness of EMBASSY FARMS, INC. (hereinafter called Principal) to
the Creditor.
xxx

xxx

xxx

(3) The obligations hereunder are joint and several and independent of the
obligations of the Principal. A separate action or actions may be brought and
prosecuted against the Surety whether or not the action is also brought and
prosecuted against the Principal and whether or not the Principal be joined in any
such action or actions.
xxx

xxx

xxx

The agreement was signed by petitioners on February 16, 1982. The promissory
notes24 subsequently executed by petitioners and Embassy Farms, restructuring their loan, likewise
prove that petitioners are solidarily liable with Embassy Farms.
Petitioners further allege that there is an ambiguity in the wording of the promissory note and claim
that since it was Mercator who provided the form, then the ambiguity should be resolved against it.
Courts can interpret a contract only if there is doubt in its letter.25 But, an examination of the
promissory note shows no such ambiguity. Besides, assuming arguendo that there is an ambiguity,
Section 17 of the Negotiable Instruments Law states, viz:

SECTION 17. Construction where instrument is ambiguous. Where the language of the instrument
is ambiguous or there are omissions therein, the following rules of construction apply:
xxx

xxx

xxx

(g) Where an instrument containing the word "I promise to pay" is signed by two or more persons,
they are deemed to be jointly and severally liable thereon.
Petitioners also insist that the promissory note does not convey their true intent in executing the
document. The defense is unavailing. Even if petitioners intended to sign the note merely as officers
of Embassy Farms, still this does not erase the fact that they subsequently executed a continuing
suretyship agreement. A surety is one who is solidarily liable with the principal. 26 Petitioners cannot
claim that they did not personally receive any consideration for the contract for well-entrenched is
the rule that the consideration necessary to support a surety obligation need not pass directly to the
surety, a consideration moving to the principal alone being sufficient. A surety is bound by the same
consideration that makes the contract effective between the principal parties thereto. 27 Having
executed the suretyship agreement, there can be no dispute on the personal liability of petitioners.
1wphi1

Lastly, the parol evidence rule does not apply in this case.28 We held in Tarnate v. Court of
Appeals,29 that where the parties admitted the existence of the loans and the mortgage deeds and
the fact of default on the due repayments but raised the contention that they were misled by
respondent bank to believe that the loans were long-term accommodations, then the parties could
not be allowed to introduce evidence of conditions allegedly agreed upon by them other than those
stipulated in the loan documents because when they reduced their agreement in writing, it is
presumed that they have made the writing the only repository and memorial of truth, and whatever is
not found in the writing must be understood to have been waived and abandoned.
IN VIEW WHEREOF, the petition is dismissed. Treble costs against the petitioners.
SO ORDERED.