1

G.R. No. 113236

Republic of the Philippines

SUPREME COURT
Manila

withdrawal slips drawn upon the defendant would be equally sufficiently funded.
Relying on such confidence and belief and as a direct consequence thereof,
plaintiff extended to Fojas-Arca other purchases on credit of its products.

SECOND DIVISION

On the following dates Fojas-Arca purchased Firestone products on credit (Exh.

M, I, J, K) and delivered to plaintiff the corresponding special withdrawal slips in
payment thereof drawn upon the defendant, to wit:

March 5, 2001

FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents.

DATE

WITHDRAWAL
SLIP NO.

AMOUNT

QUISUMBING, J.:
This petition assails the decision 1 dated December 29, 1993 of the Court of Appeals in
CA-G.R. CV No. 29546, which affirmed the judgment 2 of the Regional Trial Court of
Pasay City, Branch 113 in Civil Case No. PQ-7854-P, dismissing Firestone's complaint
for damages.
The facts of this case, adopted by the CA and based on findings by the trial court, are as
follows:
. . . [D]efendant is a banking corporation. It operates under a certificate of
authority issued by the Central Bank of the Philippines, and among its activities,
accepts savings and time deposits. Said defendant had as one of its clientdepositors the Fojas-Arca Enterprises Company ("Fojas-Arca" for brevity). FojasArca maintaining a special savings account with the defendant, the latter
authorized and allowed withdrawals of funds therefrom through the medium of
special withdrawal slips. These are supplied by the defendant to Fojas-Arca.
In January 1978, plaintiff and Fojas-Arca entered into a "Franchised Dealership
Agreement" (Exh. B) whereby Fojas-Arca has the privilege to purchase on credit
and sell plaintiff's products.
On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid Agreement,
Fojas-Arca purchased on credit Firestone products from plaintiff with a total
amount of P4,896,000.00. In payment of these purchases, Fojas-Arca delivered
to plaintiff six (6) special withdrawal slips drawn upon the defendant. In turn,
these were deposited by the plaintiff with its current account with the Citibank. All
of them were honored and paid by the defendant. This singular circumstance
made plaintiff believe [sic] and relied [sic] on the fact that the succeeding special

June 15, 1978

42127

P1,198,092.80

July 15, 1978

42128

940,190.00

Aug. 15, 1978

42129

880,000.00

Sep. 15, 1978

42130

981,500.00

These were likewise deposited by plaintiff in its current account with Citibank and
in turn the Citibank forwarded it [sic] to the defendant for payment and collection,
as it had done in respect of the previous special withdrawal slips. Out of these
four (4) withdrawal slips only withdrawal slip No. 42130 in the amount of
P981,500.00 was honored and paid by the defendant in October 1978. Because
of the absence for a long period coupled with the fact that defendant honored
and paid withdrawal slips No. 42128 dated July 15, 1978, in the amount of
P981,500.00 plaintiff's belief was all the more strengthened that the other
withdrawal slips were likewise sufficiently funded, and that it had received full
value and payment of Fojas-Arca's credit purchased then outstanding at the time.
On this basis, plaintiff was induced to continue extending to Fojas-Arca further
purchase on credit of its products as per agreement (Exh. "B").

2
However, on December 14, 1978, plaintiff was informed by Citibank that special
withdrawal slips No. 42127 dated June 15, 1978 for P1,198,092.80 and No.
42129 dated August 15, 1978 for P880,000.00 were dishonored and not paid for
the reason 'NO ARRANGEMENT.' As a consequence, the Citibank debited
plaintiff's account for the total sum of P2,078,092.80 representing the aggregate
amount of the above-two special withdrawal slips. Under such situation, plaintiff
averred that the pecuniary losses it suffered is caused by and directly attributable
to defendant's gross negligence.
On September 25, 1979, counsel of plaintiff served a written demand upon the
defendant for the satisfaction of the damages suffered by it. And due to
defendant's refusal to pay plaintiff's claim, plaintiff has been constrained to file
this complaint, thereby compelling plaintiff to incur litigation expenses and
attorney's fees which amount are recoverable from the defendant.
Controverting the foregoing asseverations of plaintiff, defendant asserted, inter
alia that the transactions mentioned by plaintiff are that of plaintiff and Fojas-Arca
only, [in] which defendant is not involved; Vehemently, it was denied by defendant
that the special withdrawal slips were honored and treated as if it were checks,
the truth being that when the special withdrawal slips were received by
defendant, it only verified whether or not the signatures therein were authentic,
and whether or not the deposit level in the passbook concurred with the savings
ledger, and whether or not the deposit is sufficient to cover the withdrawal; if
plaintiff treated the special withdrawal slips paid by Fojas-Arca as checks then
plaintiff has to blame itself for being grossly negligent in treating the withdrawal
slips as check when it is clearly stated therein that the withdrawal slips are nonnegotiable; that defendant is not a privy to any of the transactions between
Fojas-Arca and plaintiff for which reason defendant is not duty bound to notify nor
give notice of anything to plaintiff. If at first defendant had given notice to plaintiff
it is merely an extension of usual bank courtesy to a prospective client; that
defendant is only dealing with its depositor Fojas-Arca and not the plaintiff. In
summation, defendant categorically stated that plaintiff has no cause of action
against it (pp. 1-3, Dec.; pp. 368-370, id).3
Petitioner's complaint4 for a sum of money and damages with the Regional Trial Court of
Pasay City, Branch 113, docketed as Civil Case No. 29546, was dismissed together with
the counterclaim of defendant.
Petitioner appealed the decision to the Court of Appeals. It averred that respondent
Luzon Development Bank was liable for damages under Article 21765 in relation to
Articles 196 and 207 of the Civil Code. As noted by the CA, petitioner alleged the following
tortious acts on the part of private respondent: 1) the acceptance and payment of the
special withdrawal slips without the presentation of the depositor's passbook thereby

giving the impression that the withdrawal slips are instruments payable upon
presentment; 2) giving the special withdrawal slips the general appearance of checks;
and 3) the failure of respondent bank to seasonably warn petitioner that it would not
honor two of the four special withdrawal slips.
On December 29, 1993, the Court of Appeals promulgated its assailed decision. It denied
the appeal and affirmed the judgment of the trial court. According to the appellate court,
respondent bank notified the depositor to present the passbook whenever it received a
collection note from another bank, belying petitioner's claim that respondent bank was
negligent in not requiring a passbook under the subject transaction. The appellate court
also found that the special withdrawal slips in question were not purposely given the
appearance of checks, contrary to petitioner's assertions, and thus should not have been
mistaken for checks. Lastly, the appellate court ruled that the respondent bank was
under no obligation to inform petitioner of the dishonor of the special withdrawal slips, for
to do so would have been a violation of the law on the secrecy of bank deposits.
Hence, the instant petition, alleging the following assignment of error:
25. The CA grievously erred in holding that the [Luzon Development] Bank was
free from any fault or negligence regarding the dishonor, or in failing to give fair
and timely advice of the dishonor, of the twointermediate LDB Slips and in failing
to award damages to Firestone pursuant to Article 2176 of the New Civil Code. 8
The issue for our consideration is whether or not respondent bank should be held liable
for damages suffered by petitioner, due to its allegedly belated notice of non-payment of
the subject withdrawal slips.
The initial transaction in this case was between petitioner and Fojas-Arca, whereby the
latter purchased tires from the former with special withdrawal slips drawn upon FojasArca's special savings account with respondent bank. Petitioner in turn deposited these
withdrawal slips with Citibank. The latter credited the same to petitioner's current
account, then presented the slips for payment to respondent bank. It was at this point
that the bone of contention arose.
On December 14, 1978, Citibank informed petitioner that special withdrawal slips Nos.
42127 and 42129 dated June 15, 1978 and August 15, 1978, respectively, were refused
payment by respondent bank due to insufficiency of Fojas-Arca's funds on deposit. That
information came about six months from the time Fojas-Arca purchased tires from
petitioner using the subject withdrawal slips. Citibank then debited the amount of these
withdrawal slips from petitioner's account, causing the alleged pecuniary damage subject
of petitioner's cause of action.

3
At the outset, we note that petitioner admits that the withdrawal slips in question were
non-negotiable.9 Hence, the rules governing the giving of immediate notice of dishonor of
negotiable instruments do not apply in this case.10 Petitioner itself concedes this
point.11 Thus, respondent bank was under no obligation to give immediate notice that it
would not make payment on the subject withdrawal slips. Citibank should have known
that withdrawal slips were not negotiable instruments. It could not expect these slips to
be treated as checks by other entities. Payment or notice of dishonor from respondent
bank could not be expected immediately, in contrast to the situation involving checks.
In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon
Development Bank, had honored and paid the previous withdrawal slips, automatically
credited petitioner's current account with the amount of the subject withdrawal slips, then
merely waited for the same to be honored and paid by respondent bank. It presumed that
the withdrawal slips were "good."
It bears stressing that Citibank could not have missed the non-negotiable nature of the
withdrawal slips. The essence of negotiability which characterizes a negotiable paper as
a credit instrument lies in its freedom to circulate freely as a substitute for money.12 The
withdrawal slips in question lacked this character.
A bank is under obligation to treat the accounts of its depositors with meticulous care,
whether such account consists only of a few hundred pesos or of millions of pesos. 13 The
fact that the other withdrawal slips were honored and paid by respondent bank was no
license for Citibank to presume that subsequent slips would be honored and paid
immediately. By doing so, it failed in its fiduciary duty to treat the accounts of its clients
with the highest degree of care.14
In the ordinary and usual course of banking operations, current account deposits are
accepted by the bank on the basis of deposit slips prepared and signed by the depositor,
or the latter's agent or representative, who indicates therein the current account number
to which the deposit is to be credited, the name of the depositor or current account
holder, the date of the deposit, and the amount of the deposit either in cash or in check.15
The withdrawal slips deposited with petitioner's current account with Citibank were not
checks, as petitioner admits. Citibank was not bound to accept the withdrawal slips as a
valid mode of deposit. But having erroneously accepted them as such, Citibank and
petitioner as account-holder must bear the risks attendant to the acceptance of these
instruments. Petitioner and Citibank could not now shift the risk and hold private
respondent liable for their admitted mistake.
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CAG.R. CV No. 29546 is AFFIRMED. Costs against petitioner.

SO ORDERED.
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ ., concur.

Footnotes
1

Rollo, pp. 27-34.

Id. at 44-48.

Id. at 27-30.

Id. at 35-43.

ARTICLE 2176. Whoever by act or omission causes damage to another, there

being fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the parties, is
called a quasi-delict and is governed by the provisions of this Chapter.
5

ARTICLE 19. The local civil registrar shall require the payment of the fees
prescribed by law or regulations before the issuance of the marriage license. No
other sum shall be collected in the nature of a fee or tax of any kind for the
issuance of said license. It shall, however, be issued free of charge to indigent
parties, that is, those who have no visible means of income or whose income is
insufficient for their subsistence, a fact established by their affidavit or by their
oath before the local civil registrar.
6

ARTICLE 20. The license shall be valid in any part of the Philippines for a
period of one hundred twenty days from the date of issue, and shall be deemed
automatically cancelled at the expiration of said period if the contracting parties
have not made use of it. The expiry date shall be stamped in bold characters on
the face of every license issued.
7

Rollo, p. 13.

Id. at 19; Petition, paragraph 34, subparagraph B.

10

NEGOTIABLE INSTRUMENTS LAW ACT NO. 2031

4
SECTION 89. To whom notice of dishonor must be given. Except as
otherwise provided, when a negotiable instrument has been dishonored
by non-acceptance or non-payment, notice of dishonor must be given to
the drawer and to each indorser, and any drawer or indorser to whom
such notice is not given is discharge.
SECTION 103. Where parties reside in same place. Where the person
giving and the person to receive notice reside in the same place, notice
must be given within the following times:
(a) If given at the place of business of the person to receive notice, it
must be given before the close of business hours the day following;
(b) If given at his residence, it must be given before the usual hours of
rest on the day following;

Republic of the Philippines

SUPREME COURT
Manila

(c) If sent by mail, it must be deposited in the post-office in time to reach

him in usual course on the day following.

G.R. NO. 191404

(a) If sent by mail, it must be deposited in the post-office in time to go by

mail the day following the day of dishonor, or if there be no mail at a
convenient hour on that day, by the next mail thereafter;

EUMELIA R. MITRA, Petitioner,

vs.
PEOPLE OF THE PHILIPPINES and FELICISIMO S. TARCELO, Respondents.

(b) If given otherwise than through the post-office, then within the time
that notice would have been received in due course of mail if it had been
deposited in the post-office within the time specified in the last
subdivision.
11

Supra, note 9.

12

Traders Royal Bank vs. Court of Appeals, 269 SCRA 15, 26 (1997).

13

Philippine National Bank vs. Court of Appeals, 315 SCRA 309, 314-315 (1999).

Philippine Bank of Commerce vs. Court of Appeals, 269 SCRA 695, 708-709
(1997).
14

15

SECOND DIVISION

SECTION 104. Where parties reside in different places. Where the

person giving and the person to receive notice reside in different places,
the notice must be given within the following times:

Id. at 699.

July 5, 2010

DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
July 31, 2009 Decision1and the February 11, 2010 Resolution of the Court of Appeals
(CA) in CA-G.R. CR No. 31740. The subject decision and resolution affirmed the August
22, 2007 Decision of the Regional Trial Court, Branch 2, Batangas City (RTC) which, in
turn, affirmed the May 21, 2007 Decision of the Municipal Trial Court in Cities, Branch 2,
Batangas City (MTCC).
THE FACTS:

5
Petitioner Eumelia R. Mitra (Mitra) was the Treasurer, and Florencio L. Cabrera, Jr. (now
deceased) was the President, of Lucky Nine Credit Corporation (LNCC), a corporation
engaged in money lending activities.
Between 1996 and 1999, private respondent Felicisimo S. Tarcelo (Tarcelo) invested
money in LNCC. As the usual practice in money placement transactions, Tarcelo was
issued checks equivalent to the amounts he invested plus the interest on his
investments. The following checks, signed by Mitra and Cabrera, were issued by LNCC
to Tarcelo.2

-do-do-

November 30, 1998

November 30, 1998

March 30, 1999

March 30, 1999

2,500.00
100,000.0
0

0000046077
0000046078

When Tarcelo presented these checks for payment, they were dishonored for the reason
"account closed." Tarcelo made several oral demands on LNCC for the payment of these
checks but he was frustrated. Constrained, in 2002, he caused the filing of seven
informations for violation of Batas Pambansa Blg. 22 (BP 22) in the total amount
of P925,000.00 with the MTCC in Batangas City.3
1avvphi1

Bank

Date Issued

Date of Check

Securit
y Bank

September 15, 1998

-do-

September 15, 1998

January 15, 1999

January 15, 1999

-do-do-

September 20, 1998

September 20, 1998

January 20, 1999

January 20, 1999

-do-do-

September 30, 1998

September 30, 1998

January 30, 1999

January 30, 1999

-do-do-

October 3, 1998
October 3, 1998

February 3, 1999
February 3, 1999

-do-do-do-

November 17, 1998

November 17, 1998
November 17, 1998

February17, 1999
March 17, 1999
March 17, 1999

-do-do-do-

November 19, 1998

November 19, 1998
November 19, 1998

January 19, 1999

February19, 1999

-do-

November 19, 1998

-do-do-do-do-do-do-

November 20, 1998

November 20, 1998
November 20, 1998
November 20, 1998
November 30, 1998
November 30, 1998

Amount

Check No.

P 3,125.00
125,000.0
0
2,500.00
100,000.0
0
5,000.00
200,000.0
0
2,500.00
100,000.0
0
5,000.00
5,000.00
200,000.0
0
2,500.00
2,500.00
2,500.00

0000045804
0000045805

100,000.0
0
10,000.00
10,000.00
10,000.00
10,000.00
2,500.00
2,500.00

0000046068

0000045809
0000045810
0000045814
0000045815
0000045875
0000045876

WHEREFORE, foregoing premises considered, the accused FLORENCIO I. CABRERA,

JR., and EUMELIA R. MITRA are hereby found guilty of the offense of violation of Batas
Pambansa Bilang 22 and are hereby ORDERED to respectively pay the following fines
for each violation and with subsidiary imprisonment in all cases, in case of insolvency:
1. Criminal Case No. 43637 - P200,000.00
2. Criminal Case No. 43640 - P100,000.00
3. Criminal Case No. 43648 - P100,000.00
4. Criminal Case No. 43700 - P125,000.00

0000046061
0000046062
0000046063

5. Criminal Case No. 43702 - P200,000.00

0000046065
0000046066
0000046067

7. Criminal Case No. 43706 - P100,000.00

March 19, 1999

March 19, 1999
January 20, 1999
February 20, 1999
March 20, 1999
March 20, 1999
January 30, 1999
February 28, 1999

After trial on the merits, the MTCC found Mitra and Cabrera guilty of the charges. The
fallo of the May 21, 2007 MTCC Decision4 reads:

0000046070
0000046071
0000046072
0000046073
0000046075
0000046076

6. Criminal Case No. 43704 - P100,000.00

Said accused, nevertheless, are adjudged civilly liable and are ordered to pay, in
solidum, private complainant Felicisimo S. Tarcelo the amount of NINE HUNDRED
TWENTY FIVE THOUSAND PESOS (P925,000.000).
SO ORDERED.
Mitra and Cabrera appealed to the Batangas RTC contending that: they signed the
seven checks in blank with no name of the payee, no amount stated and no date of
maturity; they did not know when and to whom those checks would be issued; the seven

6
checks were only among those in one or two booklets of checks they were made to sign
at that time; and that they signed the checks so as not to delay the transactions of LNCC
because they did not regularly hold office there.5
The RTC affirmed the MTCC decision and later denied their motion for reconsideration.
Meanwhile, Cabrera died. Mitra alone filed this petition for review6 claiming, among
others, that there was no proper service of the notice of dishonor on her. The Court of
Appeals dismissed her petition for lack of merit.
Mitra is now before this Court on a petition for review and submits these issues:
1. WHETHER OR NOT THE ELEMENTS OF VIOLATION OF BATAS
PAMBANSA BILANG 22 MUST BE PROVED BEYOND REASONABLE
DOUBT AS AGAINST THE CORPORATION WHO OWNS THE CURRENT
ACCOUNT WHERE THE SUBJECT CHECKS WERE DRAWN BEFORE
LIABILITY ATTACHES TO THE SIGNATORIES.
2. WHETHER OR NOT THERE IS PROPER SERVICE OF NOTICE OF
DISHONOR AND DEMAND TO PAY TO THE PETITIONER AND THE LATE
FLORENCIO CABRERA, JR.
The Court denies the petition.
A check is a negotiable instrument that serves as a substitute for money and as a
convenient form of payment in financial transactions and obligations. The use of checks
as payment allows commercial and banking transactions to proceed without the actual
handling of money, thus, doing away with the need to physically count bills and coins
whenever payment is made. It permits commercial and banking transactions to be
carried out quickly and efficiently. But the convenience afforded by checks is damaged by
unfunded checks that adversely affect confidence in our commercial and banking
activities, and ultimately injure public interest.
BP 22 or the Bouncing Checks Law was enacted for the specific purpose of addressing
the problem of the continued issuance and circulation of unfunded checks by
irresponsible persons. To stem the harm caused by these bouncing checks to the
community, BP 22 considers the mere act of issuing an unfunded check as an offense
not only against property but also against public order.7 The purpose of BP 22 in
declaring the mere issuance of a bouncing check as malum prohibitum is to punish the
offender in order to deter him and others from committing the offense, to isolate him from
society, to reform and rehabilitate him, and to maintain social order.8The penalty is stiff.
BP 22 imposes the penalty of imprisonment for at least 30 days or a fine of up to double
the amount of the check or both imprisonment and fine.

Specifically, BP 22 provides:
SECTION 1. Checks Without Sufficient Funds. - Any person who makes or draws and
issues any check to apply on account or for value, knowing at the time of issue that he
does not have sufficient funds in or credit with the drawee bank for the payment of such
check in full upon its presentment, which check is subsequently dishonored by the
drawee bank for insufficiency of funds or credit or would have been dishonored for the
same reason had not the drawer, without any valid reason, ordered the bank to stop
payment, shall be punished by imprisonment of not less than thirty days but not more
than one (1) year or by a fine of not less than but not more than double the amount of the
check which fine shall in no case exceed Two Hundred Thousand Pesos, or both such
fine and imprisonment at the discretion of the court.
The same penalty shall be imposed upon any person who, having sufficient funds in or
credit with the drawee bank when he makes or draws and issues a check, shall fail to
keep sufficient funds or to maintain a credit to cover the full amount of the check if
presented within a period of ninety (90) days from the date appearing thereon, for which
reason it is dishonored by the drawee bank.
Where the check is drawn by a corporation, company or entity, the person or persons
who actually signed the check in behalf of such drawer shall be liable under this Act.
SECTION 2. Evidence of Knowledge of Insufficient Funds. - The making, drawing and
issuance of a check payment of which is refused by the drawee because of insufficient
funds in or credit with such bank, when presented within ninety (90) days from the date
of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or
credit unless such maker or drawer pays the holder thereof the amount due thereon, or
makes arrangements for payment in full by the drawee of such check within five (5)
banking days after receiving notice that such check has not been paid by the drawee.
Mitra posits in this petition that before the signatory to a bouncing corporate check can
be held liable, all the elements of the crime of violation of BP 22 must first be proven
against the corporation. The corporation must first be declared to have committed the
violation before the liability attaches to the signatories of the checks. 9
The Court finds Itself unable to agree with Mitra's posture. The third paragraph of Section
1 of BP 22 reads: "Where the check is drawn by a corporation, company or entity, the
person or persons who actually signed the check in behalf of such drawer shall be liable
under this Act." This provision recognizes the reality that a corporation can only act
through its officers. Hence, its wording is unequivocal and mandatory - that the person
who actually signed the corporate check shall be held liable for a violation of BP 22. This
provision does not contain any condition, qualification or limitation.

7
In the case of Llamado v. Court of Appeals,10 the Court ruled that the accused was liable
on the unfunded corporate check which he signed as treasurer of the corporation. He
could not invoke his lack of involvement in the negotiation for the transaction as a
defense because BP 22 punishes the mere issuance of a bouncing check, not the
purpose for which the check was issued or in consideration of the terms and conditions
relating to its issuance. In this case, Mitra signed the LNCC checks as treasurer.
Following Llamado, she must then be held liable for violating BP 22.
Another essential element of a violation of BP 22 is the drawer's knowledge that he has
insufficient funds or credit with the drawee bank to cover his check. Because this
involves a state of mind that is difficult to establish, BP 22 creates the prima facie
presumption that once the check is dishonored, the drawer of the check gains knowledge
of the insufficiency, unless within five banking days from receipt of the notice of dishonor,
the drawer pays the holder of the check or makes arrangements with the drawee bank
for the payment of the check. The service of the notice of dishonor gives the drawer the
opportunity to make good the check within those five days to avert his prosecution for
violating BP 22.
Mitra alleges that there was no proper service on her of the notice of dishonor and, so,
an essential element of the offense is missing. This contention raises a factual issue that
is not proper for review. It is not the function of the Court to re-examine the finding of
facts of the Court of Appeals. Our review is limited to errors of law and cannot touch
errors of facts unless the petitioner shows that the trial court overlooked facts or
circumstances that warrant a different disposition of the case 11 or that the findings of fact
have no basis on record. Hence, with respect to the issue of the propriety of service on
Mitra of the notice of dishonor, the Court gives full faith and credit to the consistent
findings of the MTCC, the RTC and the CA.
The defense postulated that there was no demand served upon the accused, said denial
deserves scant consideration. Positive allegation of the prosecution that a demand letter
was served upon the accused prevails over the denial made by the accused. Though,
having denied that there was no demand letter served on April 10, 2000, however, the
prosecution positively alleged and proved that the questioned demand letter was served
upon the accused on April 10, 2000, that was at the time they were attending Court
hearing before Branch I of this Court. In fact, the prosecution had submitted a
Certification issued by the other Branch of this Court certifying the fact that the accused
were present during the April 10, 2010 hearing. With such straightforward and categorical
testimony of the witness, the Court believes that the prosecution has achieved what was
dismally lacking in the three (3) cases of Betty King, Victor Ting and Caras - evidence of
the receipt by the accused of the demand letter sent to her. The Court accepts the
prosecution's narrative that the accused refused to sign the same to evidence their
receipt thereof. To require the prosecution to produce the signature of the accused on
said demand letter would be imposing an undue hardship on it. As well, actual receipt

acknowledgment is not and has never been required of the prosecution either by law or
jurisprudence.12 [emphasis supplied]
With the notice of dishonor duly served and disregarded, there arose the presumption
that Mitra and Cabrera knew that there were insufficient funds to cover the checks upon
their presentment for payment. In fact, the account was already closed.
To reiterate the elements of a violation of BP 22 as contained in the above-quoted
provision, a violation exists where:
1. a person makes or draws and issues a check to apply on account or for value;
2. the person who makes or draws and issues the check knows at the time of
issue that he does not have sufficient funds in or credit with the drawee bank for
the full payment of the check upon its presentment; and
3. the check is subsequently dishonored by the drawee bank for insufficiency of
funds or credit, or would have been dishonored for the same reason had not the
drawer, without any valid reason, ordered the bank to stop payment. 13
There is no dispute that Mitra signed the checks and that the bank dishonored the
checks because the account had been closed. Notice of dishonor was properly given, but
Mitra failed to pay the checks or make arrangements for their payment within five days
from notice. With all the above elements duly proven, Mitra cannot escape the civil and
criminal liabilities that BP 22 imposes for its breach. 14
WHEREFORE, the July 31, 2009 Decision and the February 11, 2010 Resolution of the
Court of Appeals in CA-G.R. CR No. 31740 are hereby AFFIRMED.
SO ORDERED.
JOSE CATRAL MENDOZA
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
ANTONIO EDUARDO B. NACHURA
Associate Justice

DIOSDADO M. PERALTA
Associate Justice

8
ROBERTO A. ABAD
Associate Justice

after the lower court acquitted the accused of criminal liability under BP 22. Note
that this is a totally different case from the present case as the issue here is both
criminal and civil liability.

ATT E S TATI O N
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.

Republic of the Philippines

SUPREME COURT
Manila

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

THIRD DIVISION
C E R TI F I C ATI O N

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court's
Division.

G.R. No. 176664

July 21, 2008

BANK OF THE PHILIPPINE ISLANDS, Petitioner,

vs.
SPOUSES REYNALDO AND VICTORIA ROYECA, Respondents.
DECISION

RENATO C. CORONA
Chief Justice

Footnotes
1
Penned by Associate Justice Bienvenido L. Reyes with Associate Justice Isaias
P. Dicdican and Associate Justice Marlene Gonzales-Sison concurring.
2
Complaint-Affidavits, Rollo, pp. 109-115.
3
Id. at 116-129.
4
Id. at 130-134.
5
Id. at 143.
6
Id. at 75-105.
7
Lozano v. Martinez, 230 Phil. 406, 428 (1986).
8
Rosario v. Co, G.R. No. 133608, August 26, 2008, 563 SCRA 239, 253.
9
Rollo, p. 47.
10
337 Phil. 153, 160 (1997).
11
American Home Assurance Company v. Chua, 368 Phil. 555, 569 (1999).
12
Rollo, p. 133.
13
Rigor v. People, 485 Phil. 125, 139 (2004).
In Gosiaco v. Ching, G.R. No. 173807, April 16, 2009, 585 SCRA 471, 483, we
held an accused corporate officer free from civil liability for the corporate debt
14

NACHURA, J.:
Bank of the Philippine Islands (BPI) seeks a review of the Court of Appeals (CA)
Decision1 dated July 12, 2006, and Resolution2 dated February 13, 2007, which
dismissed its complaint for replevin and damages and granted the respondents
counterclaim for damages.
The case stems from the following undisputed facts:
On August 23, 1993, spouses Reynaldo and Victoria Royeca (respondents) executed
and delivered to Toyota Shaw, Inc. a Promissory Note3 for P577,008.00 payable in 48
equal monthly installments of P12,021.00, with a maturity date of August 18, 1997. The
Promissory Note provides for a penalty of 3% for every month or fraction of a month that
an installment remains unpaid.
To secure the payment of said Promissory Note, respondents executed a Chattel
Mortgage4 in favor of Toyota over a certain motor vehicle, more particularly described as
follows:
<
p>Make and Type 1993 Toyota Corolla 1.3 XL

9
Motor No. 2E-2649879

18 August 97

Serial No. EE100-9512571

Color D.B. Gray Met.
Toyota, with notice to respondents, executed a Deed of Assignment5 transferring all its
rights, title, and interest in the Chattel Mortgage to Far East Bank and Trust Company
(FEBTC).
Claiming that the respondents failed to pay four (4) monthly amortizations covering the
period from May 18, 1997 to August 18, 1997, FEBTC sent a formal demand to
respondents on March 14, 2000 asking for the payment thereof, plus penalty.6 The
respondents refused to pay on the ground that they had already paid their obligation to
FEBTC.
On April 19, 2000, FEBTC filed a Complaint for Replevin and Damages against the
respondents with the Metropolitan Trial Court (MeTC) of Manila praying for the delivery of
the vehicle, with an alternative prayer for the payment of P48,084.00 plus interest and/or
late payment charges at the rate of 36% per annum from May 18, 1997 until fully paid.
The complaint likewise prayed for the payment of P24,462.73 as attorneys fees,
liquidated damages, bonding fees and other expenses incurred in the seizure of the
vehicle. The complaint was later amended to substitute BPI as plaintiff when it merged
with and absorbed FEBTC.7
In their Answer, respondents alleged that on May 20, 1997, they delivered to the Auto
Financing Department of FEBTC eight (8) postdated checks in different amounts
totaling P97,281.78. The Acknowledgment Receipt,8which they attached to the Answer,
showed that FEBTC received the following checks:
DATE

BANK

CHECK NO.

AMOUNT

26 May 97

Landbank

#610945

6 June 97

Head Office

#610946

30 May 97

FEBTC

#17A00-11550P

15 June 97

Shaw Blvd.

#17A00-11549P

30 June 97

"

#17A00-11551P

18 June 97

Landbank

#610947

11,671.00

18 July 97

Head Office

#610948

11,671.00

P13,824.15

#610949

11,671.00

The respondents further averred that they did not receive any notice from the drawee
banks or from FEBTC that these checks were dishonored. They explained that,
considering this and the fact that the checks were issued three years ago, they believed
in good faith that their obligation had already been fully paid. They alleged that the
complaint is frivolous and plainly vexatious. They then prayed that they be awarded
moral and exemplary damages, attorneys fees and costs of suit.9
During trial, Mr. Vicente Magpusao testified that he had been connected with FEBTC
since 1994 and had assumed the position of Account Analyst since its merger with BPI.
He admitted that they had, in fact, received the eight checks from the respondents.
However, two of these checks (Landbank Check No. 0610947 and FEBTC Check No.
17A00-11551P) amounting to P23,692.00 were dishonored. He recalled that the
remaining two checks were not deposited anymore due to the previous dishonor of the
two checks. He said that after deducting these payments, the total outstanding balance
of the obligation was P48,084.00, which represented the last four monthly installments.
On February 23, 2005, the MeTC dismissed the case and granted the respondents
counterclaim for damages, thus:
WHEREFORE, judgment is hereby rendered dismissing the complaint for lack of cause
of action, and on the counterclaim, plaintiff is ordered to indemnify the defendants as
follows:
a) The sum of PhP30,000.00 as and by way of moral damages;
b) The sum of PhP30,000.00 as and by way of exemplary damages;
c) The sum of PhP20,000.00 as and by way of attorneys fees; and
d) To pay the costs of the suit.

12,381.63 SO ORDERED.10
12,021.00
On appeal, the Regional Trial Court (RTC) set aside the MeTC Decision and ordered the
12,021.00 respondents to pay the amount claimed by the petitioner. The dispositive portion of its
11
12,021.00 Decision dated August 11, 2005 reads:

10
WHEREFORE, premises considered, the Decision of the Metropolitan Trial Court,
Branch 9 dated February 23, 2005 is REVERSED and a new one entered directing the
defendants-appellees to pay the plaintiff-appellant, jointly and severally,
1. The sum of P48,084.00 plus interest and/or late payment charges thereon at
the rate of 36% per annum from May 18, 1997 until fully paid;
2. The sum of P10,000.00 as attorneys fees; and
3. The costs of suit.
SO ORDERED.12
The RTC denied the respondents motion for reconsideration.13
The respondents elevated the case to the Court of Appeals (CA) through a petition for
review. They succeeded in obtaining a favorable judgment when the CA set aside the
RTCs Decision and reinstated the MeTCs Decision on July 12, 2006. 14 On February 13,
2007, the CA denied the petitioners motion for reconsideration. 15
The issues submitted for resolution in this petition for review are as follows:
I. WHETHER OR NOT RESPONDENTS WERE ABLE TO PROVE FULL
PAYMENT OF THEIR OBLIGATION AS ONE OF THEIR AFFIRMATIVE
DEFENSES.
II. WHETHER OR NOT TENDER OF CHECKS CONSTITUTES PAYMENT.
III. WHETHER OR NOT RESPONDENTS ARE ENTITLED TO MORAL AND
EXEMPLARY DAMAGES AND ATTORNEYS FEES.16
The petitioner insists that the respondents did not sufficiently prove the alleged payment.
It avers that, under the law and existing jurisprudence, delivery of checks does not
constitute payment. It points out that this principle stands despite the fact that there was
no notice of dishonor of the two checks and the demand to pay was made three years
after default.
On the other hand, the respondents postulate that they have established payment of the
amount being claimed by the petitioner and, unless the petitioner proves that the checks
have been dishonored, they should not be made liable to pay the obligation again. 17
The petition is partly meritorious.

In civil cases, the party having the burden of proof must establish his case by a
preponderance of evidence, or evidence which is more convincing to the court as worthy
of belief than that which is offered in opposition thereto.18 Thus, the party, whether plaintiff
or defendant, who asserts the affirmative of an issue has the onus to prove his assertion
in order to obtain a favorable judgment. For the plaintiff, the burden to prove its positive
assertions never parts. For the defendant, an affirmative defense is one which is not a
denial of an essential ingredient in the plaintiffs cause of action, but one which, if
established, will be a good defense i.e. an "avoidance" of the claim. 19
In Jimenez v. NLRC,20 cited by both the RTC and the CA, the Court elucidated on who,
between the plaintiff and defendant, has the burden to prove the affirmative defense of
payment:
As a general rule, one who pleads payment has the burden of proving it. Even where the
plaintiff must allege non-payment, the general rule is that the burden rests on the
defendant to prove payment, rather than on the plaintiff to prove non-payment. The
debtor has the burden of showing with legal certainty that the obligation has been
discharged by payment.
When the existence of a debt is fully established by the evidence contained in the record,
the burden of proving that it has been extinguished by payment devolves upon the debtor
who offers such a defense to the claim of the creditor. Where the debtor introduces some
evidence of payment, the burden of going forward with the evidence - as distinct from the
general burden of proof - shifts to the creditor, who is then under a duty of producing
some evidence to show non-payment.21
In applying these principles, the CA and the RTC, however, arrived at different
conclusions. While both agreed that the respondents had the burden of proof to establish
payment, the two courts did not agree on whether the respondents were able to present
sufficient evidence of payment enough to shift the burden of evidence to the petitioner.
The RTC found that the respondents failed to discharge this burden because they did not
introduce evidence of payment, considering that mere delivery of checks does not
constitute payment.22 On the other hand, the CA concluded that the respondents
introduced sufficient evidence of payment, as opposed to the petitioner, which failed to
produce evidence that the checks were in fact dishonored. It noted that the petitioner
could have easily presented the dishonored checks or the advice of dishonor and
required respondents to replace the dishonored checks but none was presented. Further,
the CA remarked that it is absurd for a bank, such as petitioner, to demand payment of a
failed amortization only after three years from the due date.
The divergence in this conflict of opinions can be narrowed down to the issue of whether
the Acknowledgment Receipt was sufficient proof of payment. As correctly observed by

11
the RTC, this is only proof that respondents delivered eight checks in payment of the
amount due. Apparently, this will not suffice to establish actual payment.
Settled is the rule that payment must be made in legal tender. A check is not legal tender
and, therefore, cannot constitute a valid tender of payment. 23 Since a negotiable
instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment. Mere delivery of checks does not
discharge the obligation under a judgment. The obligation is not extinguished and
remains suspended until the payment by commercial document is actually realized. 24
To establish their defense, the respondents therefore had to present proof, not only that
they delivered the checks to the petitioner, but also that the checks were encashed. The
respondents failed to do so. Had the checks been actually encashed, the respondents
could have easily produced the cancelled checks as evidence to prove the same.
Instead, they merely averred that they believed in good faith that the checks were
encashed because they were not notified of the dishonor of the checks and three years
had already lapsed since they issued the checks.
1avvphi1

Because of this failure of the respondents to present sufficient proof of payment, it was
no longer necessary for the petitioner to prove non-payment, particularly proof that the
checks were dishonored. The burden of evidence is shifted only if the party upon whom it
is lodged was able to adduce preponderant evidence to prove its claim. 25
To stress, the obligation to prove that the checks were not dishonored, but were in fact
encashed, fell upon the respondents who would benefit from such fact. That payment
was effected through the eight checks was the respondents affirmative allegation that
they had to establish with legal certainty. If the petitioner were seeking to enforce liability
upon the check, the burden to prove that a notice of dishonor was properly given would
have devolved upon it.26 The fact is that the petitioners cause of action was based on the
original obligation as evidenced by the Promissory Note and the Chattel Mortgage, and
not on the checks issued in payment thereof.
Further, it should be noted that the petitioner, as payee, did not have a legal obligation to
inform the respondents of the dishonor of the checks. A notice of dishonor is required
only to preserve the right of the payee to recover on the check. It preserves the liability of
the drawer and the indorsers on the check. Otherwise, if the payee fails to give notice to
them, they are discharged from their liability thereon, and the payee is precluded from
enforcing payment on the check. The respondents, therefore, cannot fault the petitioner
for not notifying them of the non-payment of the checks because whatever rights were
transgressed by such omission belonged only to the petitioner.
In all, we find that the evidence at hand preponderates in favor of the petitioner. The
petitioners possession of the documents pertaining to the obligation strongly buttresses

its claim that the obligation has not been extinguished. The creditors possession of the
evidence of debt is proof that the debt has not been discharged by payment. 27 A
promissory note in the hands of the creditor is a proof of indebtedness rather than proof
of payment.28 In an action for replevin by a mortgagee, it is prima facie evidence that the
promissory note has not been paid.29Likewise, an uncanceled mortgage in the
possession of the mortgagee gives rise to the presumption that the mortgage debt is
unpaid.30
Finally, the respondents posit that the petitioners claim is barred by laches since it has
been three years since the checks were issued. We do not agree. Laches is a recourse
in equity. Equity, however, is applied only in the absence, never in contravention, of
statutory law. Thus, laches cannot, as a rule, abate a collection suit filed within the
prescriptive period mandated by the New Civil Code. 31 The petitioners action was filed
within the ten-year prescriptive period provided under Article 1144 of the New Civil Code.
Hence, there is no room for the application of laches.
Nonetheless, the Court cannot ignore what the respondents have consistently raised
that they were not notified of the non-payment of the checks. Reasonable banking
practice and prudence dictates that, when a check given to a creditor bank in payment of
an obligation is dishonored, the bank should immediately return it to the debtor and
demand its replacement or payment lest it causes any prejudice to the drawer. In light of
this and the fact that the obligation has been partially paid, we deem it just and equitable
to reduce the 3% per month penalty charge as stipulated in the Promissory Note to 12%
per annum.32 Although a court is not at liberty to ignore the freedom of the parties to
agree on such terms and conditions as they see fit, as long as they contravene no law,
morals, good customs, public order or public policy, a stipulated penalty, nevertheless,
may be equitably reduced by the courts if it is iniquitous or unconscionable, or if the
principal obligation has been partly or irregularly complied with.33
WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court
of Appeals Decision dated July 12, 2006, and Resolution dated February 13, 2007, are
REVERSED and SET ASIDE. The Decision of the Regional Trial Court, dated August 11,
2005, is REINSTATED with the MODIFICATION that respondents are ordered to deliver
the possession of the subject vehicle, or in the alternative, pay the petitioner P48,084.00
plus late penalty charges/interest thereon at the rate of 12% per annum from May 18,
1997 until fully paid.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice
WE CONCUR:

12
LEONARDO A. QUISUMBING*
Associate Justice
CONSUELO YNARES-SANTIAGO
Associate Justice

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

RUBEN T. REYES
Associate Justice
ATT E S TATI O N
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
C E R TI F I C ATI O N
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's
Attestation, I certify that the conclusions in the above decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.
REYNATO S. PUNO
Chief Justice

Footnotes
*
In lieu of Associate Justice Minita V. Chico-Nazario, per Special Order No. 508
dated June 25, 2008.
1
Penned by Associate Justice Eliezer R. de los Santos, with Associate Justices
Fernanda Lampas-Peralta and Myrna Dimaranan Vidal concurring; rollo, pp. 2531.
2
Rollo, p. 33.
3
Id. at 37.
4
Id. at 42-45.
5
Id. at 39.
6
Id. at 58.
7
Id. at 46-49.

Id. at 56.
Id. at 53.
10
Id at 62-63.
11
Id. at 64-73.
12
Id. at 73.
13
Id. at 11.
14
Id. at 31.
15
Id. at 33.
16
Id. at 15.
17
Id. at 124.
18
Encinas v. National Bookstore, Inc., G.R. No. 162704, November 19, 2004, 443
SCRA 293, 302.
19
DBP Pool of Accredited Insurance Companies v. Radio Mindanao Network,
Inc., G.R. No. 147039, January 27, 2006, 480 SCRA 314, 322-323.
20
326 Phil. 89 (1996).
21
Id. at 95.
22
Rollo, p. 72.
23
Abalos v. Macatangay, Jr., G.R. No. 155043, September 30, 2004, 439 SCRA
649, 659.
24
Philippine Airlines, Inc. v. Court of Appeals, G.R. No. 49188, January 30, 1990,
181 SCRA 557, 568.
25
Asian Transmission Corporation v. Canlubang Sugar Estates, 457 Phil. 260,
290 (2003).
26
See Negotiable Instruments Law, Sec. 89.
27
Redmond v. Hughes, 135 N.Y.S. 843, 151 App. Div. 99 (1912).
28
Biala v. Court of Appeals, G.R. No. 43503, October 31, 1990, 191 SCRA 50,
59.
29
Heagney v. J. I. Case Threshing Mach. Co., 99 N.W. 260 (1904).
30
Guerin v. Cassidy, 38 NJ Super 454, 119 A2d 780 (1956); Beattie v. Meeker,
149 N.Y.S. 453 (1914).
31
Agra v. Philippine National Bank, 368 Phil. 829 (1999).
32
Article 1229 of the Civil Code authorizes the judge to equitably reduce the
penalty when the principal obligation has been partly or irregularly complied with
by the debtor.
33
Ligutan v. Court of Appeals, 427 Phil. 42, 51 (2002).
Republic of the Philippines
SUPREME COURT
Manila
8
9

EN BANC

13
G.R. No. L-22405 June 30, 1971
PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,
vs.
MAURICIO A. SORIANO, ET AL., defendant-appellees.
Marcial Esposo for plaintiff-appellant.

On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order
Division of the Manila Post Office, acting for and in behalf of his co-appellee, Postmaster
Enrico Palomar, notified the Bank of America that money order No. 124688 attached to
his letter had been found to have been irregularly issued and that, in view thereof, the
amount it represented had been deducted from the bank's clearing account. For its part,
on August 2 of the same year, the Bank of America debited appellant's account with the
same amount and gave it advice thereof by means of a debit memo.

DIZON, J.:

On October 12, 1961 appellant requested the Postmaster General to reconsider the
action taken by his office deducting the sum of P200.00 from the clearing account of the
Bank of America, but his request was denied. So was appellant's subsequent request
that the matter be referred to the Secretary of Justice for advice. Thereafter, appellant
elevated the matter to the Secretary of Public Works and Communications, but the latter
sustained the actions taken by the postal officers.

An appeal from a decision of the Court of First Instance of Manila dismissing the
complaint filed by the Philippine Education Co., Inc. against Mauricio A. Soriano, Enrico
Palomar and Rafael Contreras.

In connection with the events set forth above, Montinola was charged with theft in the
Court of First Instance of Manila (Criminal Case No. 43866) but after trial he was
acquitted on the ground of reasonable doubt.

On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office ten
(10) money orders of P200.00 each payable to E.P. Montinola withaddress at Lucena,
Quezon. After the postal teller had made out money ordersnumbered 124685, 124687124695, Montinola offered to pay for them with a private checks were not generally
accepted in payment of money orders, the teller advised him to see the Chief of the
Money Order Division, but instead of doing so, Montinola managed to leave building with
his own check and the ten(10) money orders without the knowledge of the teller.

On January 8, 1962 appellant filed an action against appellees in the Municipal Court of
Manila praying for judgment as follows:

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio G.
Ibarra and Attorney Concepcion Torrijos-Agapinan for defendants-appellees.

On the same date, April 18, 1958, upon discovery of the disappearance of the unpaid
money orders, an urgent message was sent to all postmasters, and the following day
notice was likewise served upon all banks, instructing them not to pay anyone of the
money orders aforesaid if presented for payment. The Bank of America received a copy
of said notice three days later.
On April 23, 1958 one of the above-mentioned money orders numbered 124688 was
received by appellant as part of its sales receipts. The following day it deposited the
same with the Bank of America, and one day thereafter the latter cleared it with the
Bureau of Posts and received from the latter its face value of P200.00.

WHEREFORE, plaintiff prays that after hearing defendants be ordered:

(a) To countermand the notice given to the Bank of America on
September 27, 1961, deducting from the said Bank's clearing account the
sum of P200.00 represented by postal money order No. 124688, or in the
alternative indemnify the plaintiff in the same amount with interest at 8-
% per annum from September 27, 1961, which is the rate of interest
being paid by plaintiff on its overdraft account;
(b) To pay to the plaintiff out of their own personal funds, jointly and
severally, actual and moral damages in the amount of P1,000.00 or in
such amount as will be proved and/or determined by this Honorable
Court: exemplary damages in the amount of P1,000.00, attorney's fees of
P1,000.00, and the costs of action.

14
Plaintiff also prays for such other and further relief as may be deemed
just and equitable.
On November 17, 1962, after the parties had submitted the stipulation of facts
reproduced at pages 12 to 15 of the Record on Appeal, the above-named court rendered
judgment as follows:
WHEREFORE, judgment is hereby rendered, ordering the defendants to
countermand the notice given to the Bank of America on September 27,
1961, deducting from said Bank's clearing account the sum of P200.00
representing the amount of postal money order No. 124688, or in the
alternative, to indemnify the plaintiff in the said sum of P200.00 with
interest thereon at the rate of 8-% per annum from September 27, 1961
until fully paid; without any pronouncement as to cost and attorney's fees.
The case was appealed to the Court of First Instance of Manila where, after the parties
had resubmitted the same stipulation of facts, the appealed decision dismissing the
complaint, with costs, was rendered.
The first, second and fifth assignments of error discussed in appellant's brief are related
to the other and will therefore be discussed jointly. They raise this main issue: that the
postal money order in question is a negotiable instrument; that its nature as such is not in
anyway affected by the letter dated October 26, 1948 signed by the Director of Posts and
addressed to all banks with a clearing account with the Post Office, and that money
orders, once issued, create a contractual relationship of debtor and creditor, respectively,
between the government, on the one hand, and the remitters payees or endorses, on the
other.
It is not disputed that our postal statutes were patterned after statutes in force in the
United States. For this reason, ours are generally construed in accordance with the
construction given in the United States to their own postal statutes, in the absence of any
special reason justifying a departure from this policy or practice. The weight of authority
in the United States is that postal money orders are not negotiable instruments
(Bolognesi vs. U.S. 189 Fed. 395; U.S. vs. Stock Drawers National Bank, 30 Fed. 912),
the reason behind this rule being that, in establishing and operating a postal money order
system, the government is not engaging in commercial transactions but merely exercises
a governmental power for the public benefit.

It is to be noted in this connection that some of the restrictions imposed upon money
orders by postal laws and regulations are inconsistent with the character of negotiable
instruments. For instance, such laws and regulations usually provide for not more than
one endorsement; payment of money orders may be withheld under a variety of
circumstances (49 C.J. 1153).
Of particular application to the postal money order in question are the conditions laid
down in the letter of the Director of Posts of October 26, 1948 (Exhibit 3) to the Bank of
America for the redemption of postal money orders received by it from its depositors.
Among others, the condition is imposed that "in cases of adverse claim, the money order
or money orders involved will be returned to you (the bank) and the, corresponding
amount will have to be refunded to the Postmaster, Manila, who reserves the right to
deduct the value thereof from any amount due you if such step is deemed necessary."
The conditions thus imposed in order to enable the bank to continue enjoying the
facilities theretofore enjoyed by its depositors, were accepted by the Bank of America.
The latter is therefore bound by them. That it is so is clearly referred from the fact that,
upon receiving advice that the amount represented by the money order in question had
been deducted from its clearing account with the Manila Post Office, it did not file any
protest against such action.
Moreover, not being a party to the understanding existing between the postal officers, on
the one hand, and the Bank of America, on the other, appellant has no right to assail the
terms and conditions thereof on the ground that the letter setting forth the terms and
conditions aforesaid is void because it was not issued by a Department Head in
accordance with Sec. 79 (B) of the Revised Administrative Code. In reality, however, said
legal provision does not apply to the letter in question because it does not provide for a
department regulation but merely sets down certain conditions upon the privilege granted
to the Bank of Amrica to accept and pay postal money orders presented for payment at
the Manila Post Office. Such being the case, it is clear that the Director of Posts had
ample authority to issue it pursuant to Sec. 1190 of the Revised Administrative Code.
In view of the foregoing, We do not find it necessary to resolve the issues raised in the
third and fourth assignments of error.
WHEREFORE, the appealed decision being in accordance with law, the same is hereby
affirmed with costs.

15
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo
and Villamor, JJ., concur.

told Yu An Kiong not to permit anyone to redeem the jewelry because she was the lawful
owner thereof. Petitioner claims that Yu An Kiong agreed.

Castro and Makasiar, JJ., took no part.

On 9 July 1968, petitioner went to the Manila Police Department to report the loss, and a
complaint first for qualified theft and later changed to estafa was subsequently filed
against Josefina Rocco. On the same date, Detective Corporal Oswaldo Mateo of the
Manila Police also claims to have gone to the pawnshop, showed Yu An Kiong
petitioner's report and left the latter a note asking him to hold the jewelry and notify the
police in case some one should redeem the same. The next day, on 10 July 1968, Yu An
Kiong permitted one Tomasa de Leon, exhibiting the appropriate pawnshop ticket, to
redeem the jewelry.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 45125

April 22, 1991

LORETA SERRANO, petitioner,

vs.
COURT OF APPEALS and LONG LIFE PAWNSHOP, INC., respondents.
Cecilio D. Ignacio for petitioner.
Hildawa & Gomez for private respondent.

RESOLUTION
FELICIANO, J.:
Sometime in early March 1968, petitioner Loreta Serrano bought some pieces of jewelry
for P48,500.00 from Niceta Ribaya. On 21 March 1968, petitioner, then in need of
money, instructed her private secretary, Josefina Rocco, to pawn the jewelry. Josefina
Rocco went to private respondent Long Life Pawnshop, Inc. ("Long Life"), pledged the
jewelry for P22,000.00 with its principal owner and General Manager, Yu An Kiong, and
then absconded with said amount and the pawn ticket. The pawnshop ticket issued to
Josefina Rocco stipulated that it was redeemable "on presentation by the bearer."
Three (3) months later, Gloria Duque and Amalia Celeste informed Niceta Ribaya that a
pawnshop ticket issued by private respondent was being offered for sale. They told
Niceta the ticket probably covered jewelry once owned by the latter which jewelry had
been pawned by one Josefina Rocco. Suspecting that it was the same jewelry she had
sold to petitioner, Niceta informed the latter of this offer and suggested that petitioner go
to the Long Life pawnshop to check the matter out. Petitioner claims she went to private
respondent pawnshop, verified that indeed her missing jewelry was pledged there and

On 4 October 1968, petitioner filed a complaint with the then Court of First Instance of
Manila for damages against private respondent Long Life for failure to hold the jewelry
and for allowing its redemption without first notifying petitioner or the police. After trial,
the trial judge, Hon. Luis B. Reyes, rendered a decision in favor of petitioner, awarding
her P26,500.00 as actual damages, with legal interest thereon from the date of the filing
of the complaint, P2,000.00 as attorney's fees, and the costs of the suit.
Judge L.B. Reyes' decision was reversed on appeal and the complaint dismissed by the
public respondent Court of Appeals in a Decision promulgated on 26 September 1976.
The Court of Appeals gave credence to Yu An Kiong's testimony that neither petitioner
nor Detective Mateo ever apprised him of the misappropriation of petitioner's loan, or
obtained a commitment from him not to permit redemption of the jewelry, prior to 10 July
1968. Yu An Kiong claims to have become aware of the loan's misappropriation only on
16 August 1968 when a subpoena duces tecum was served by the Manila Fiscal's Office
requiring him to bring the record of the pledge in connection with the preliminary
investigation of the estafa charge against Josefina Rocco. Consequently, the appellate
court ruled, there could have been no negligence, much less a grave one amounting to
bad faith, imputable to Yu An Kiong as the basis for an award of damages.
In this Petition for Review, petitioner seeks reversal of the Public respondent's findings
relating to the credibility of witnesses and the restoration of the trial court's decision.
Deliberating on the present Petition for Review, the Court considers that the public
respondent Court of Appeals committed reversible error in rendering its questioned
Decision.
It is a settled principle of civil procedure that the conclusions of the trial court regarding
the credibility of witnesses are entitled to great respect from the appellate courts because
the trial court had an opportunity to observe the demeanor of witnesses while giving
testimony which may indicate their candor or lack thereof. While the Supreme Court
1

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ordinarily does not rule on the issue of credibility of witnesses, that being a question of
fact not properly raised in a petition under Rule 45, the Court has undertaken to do so in
exceptional situations where, for instance, as here, the trial court and the Court of
Appeals arrived at divergent conclusions on questions of fact and the credibility of
witnesses.
2

The Court of Appeals rejected what it considered to be the incredible testimony of

petitioner and Detective Mateo. It faulted petitioner for failing to report to the police
authorities the loss of her jewelry immediately on 21 March 1968 when Josefina Rocco
failed to return to her either the loan proceeds or the jewelry. But it must be noted that
Josefina Rocco simply disappeared without a trace on said date. Petitioner had no way
of knowing if Josefina had misappropriated her jewelry, or had first pledged the jewelry
as instructed and then misappropriated the proceeds of the loan. In the latter case, which
was in fact what had occurred, petitioner could have had no idea as to the identity of the
pawnbroker. Moreover, this Court has several times recognized that different people may
have diverse reasons for failing to report promptly to the police their having been
victimized by some criminal or fraudulent scheme and that such failure does not by itself
render their subsequent testimony unworthy of credence.
3

The Court of Appeals also found it hard to believe that Detective Mateo had failed to
obtain a written acknowledgment from Yu An Kiong of the receipt of the note as
corroboration for his testimony. However, absent evidence that it was an established
practice for police officers to obtain such acknowledgment in situations like the one here,
it is difficult to see why Detective Mateo's behavior should be considered unbelievable.
On the other hand, as the trial court pointed out, it would not have been sensible for
Detective Mateo to leave a note reminding Yu An Kiong to hold unto the jewelry if the
latter had in fact then told the policeman that the jewelry had already been redeemed.
The public respondent apparently believed petitioner had failed to establish her
ownership of the jewelry pledged by Josefina Rocco, such failure purportedly
engendering doubt that Tomasa de Leon may have redeemed jewelry different from that
owned by petitioner. This is curious and untenable because the record on appeal
indicates that Yu An Kiong had admitted in his answer and memorandum before the trial
court that he received pledged jewelry from Josefina Rocco and, in his memorandum,
that such jewelry had been entrusted to Josefina by petitioner as the latter's employer. It
is clear from these judicial admissions that he considered petitioner to have been the true
owner of the jewelry.
Finally, the Court of Appeals did not believe petitioner's testimony because of a claimed
material inconsistency therein. On direct examination, petitioner said she "immediately"
went to the private respondent's establishment upon being informed by Niceta Ribaya of
the possible whereabouts of her jewelry. On cross-examination, she said she went to the
establishment "a few days later." If this is an inconsistency, it relates to an unimportant
1wphi1

detail. What is clear is that in any event, petitioner testified that she went to the
respondent's pawnshop to meet Yu An Kiong and notify him of the
misappropriation before anyone had redeemed the jewelry.
We must also note that the Court of Appeals apparently over-looked a fact of substance
which did not escape the attention of the trial court. Petitioner's version of events was
corroborated by Police Detective Mateo and by Niceta Ribaya. These were two (2)
individuals who had nothing to gain from the outcome of the case. Certainly, their
disinterested testimony should have been accorded more probative weight than the
negative, uncorroborated and self-serving testimony of Yu An Kiong, which presented a
diametrically opposed version of events calculated to show that in permitting redemption
of the jewelry, he was acting in good faith.
4

The testimony of Detective Mateo was moreover supported by the presumption that he
had acted in the regular performance of his official duty as a police officer, a presumption
that Yu An Kiong did not try to rebut.
This being a civil case, it was enough for petitioner to show, by a preponderance of
evidence, that her version of events did in fact occur. We agree with the trial court that
this burden of proof had been discharged by petitioner because her evidence was direct
and more credible and persuasive than that propounded by Yu An Kiong, and
corroborated by disinterested witnesses.
5

Turning to the substantive legal rights and duties of the parties, we believe and so hold
that, having been notified by petitioner and the police that jewelry pawned to it was either
stolen or involved in an embezzlement of the proceeds of the pledge, private respondent
pawnbroker became duty bound to hold the things pledged and to give notice to
petitioner and the police of any effort to redeem them. Such a duty was imposed by
Article 21 of the Civil Code. The circumstance that the pawn ticket stated that the pawn
was redeemable by the bearer, did not dissolve that duty. The pawn ticket was not a
negotiable instrument under the Negotiable Instruments Law nor a negotiable document
of title under Articles 1507 et seq. of the Civil Code. If the third person Tomasa de Leon,
who redeemed the things pledged a day after petitioner and the police had notified Long
Life, claimed to be owner thereof, the prudent recourse of the pawnbroker was to file an
interpleader suit, impleading both petitioner and Tomasa de Leon. The respondent
pawnbroker was, of course, entitled to demand payment of the loan extended on the
security of the pledge before surrendering the jewelry, upon the assumption that it had
given the loan in good faith and was not a "fence" for stolen articles and had not
conspired with the faithless Josefina Rocco or with Tomasa de Leon. Respondent
pawnbroker acted in reckless disregard of that duty in the instant case and must bear the
consequences, without prejudice to its right to recover damages from Josefina Rocco.
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The trial court correctly held that private respondent was liable to petitioner for actual
damages which corresponded to the difference in the value of the jewelry (P48,500.00)
and the amount of the loan (P22,000.00), or the sum of P26,500.00. Petitioner is entitled
to collect the balance of the value of the jewelry, corresponding to the amount of the
loan, in an appropriate action against Josefina Rocco. Private respondent Long Life in
turn is entitled to seek reimbursement from Josefina Rocco of the amount of the
damages it must pay to petitioner.
ACCORDINGLY, the Petition is GRANTED. The Decision of the Court of Appeals dated
23 September 1976 is hereby REVERSED and SET ASIDE. The Decision of the Court of
First Instance dated 22 May 1970 is hereby REINSTATED in toto. No pronouncement as
to costs.
Fernan, C.J., Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.

Footnotes
1

Vda. de Alberto v. Court of Appeals, 173 SCRA 436 (1989).

Robleza v. Court of Appeals, 174 SCRA 354 (1989).

E.g., People v. Pacabes, 137 SCRA 158 (1985); People vs. Coronado, 145
SCRA 250 (1986).
3

Vda. de Alberto v. Court of Appeals, supra.

Stronghold Insurance Co., Inc. v. Court of Appeals, 173 SCRA 619 (1989).

Article 21 of the Civil Code provides:

Any person who wilfully causes loss or injury to another in a manner that
is contrary to morals, good customs or public policy shall compensate the
latter for the damage.
The problems exemplified in this case are now addressed by P.D. No.
114 entitled the "Pawnshop Regulation Act," dated 29 January 1973.
Section 13 of this statute grants the pawner an automatic grace period of
ninety (90) days from the date of maturity of the obligation, within which
to redeem the pawn by payment of the principal of the debt with interest,
principal and interest being compounded at the time the obligation
matured. Under Section 15 of the same statute, the pawnbroker is
expressly forbidden to sell or otherwise dispose of things received in
pawn or pledge to anyone other than the pawner, except at public
auction, under the control and direction of a licensed auctioneer, and then
only after publication of notice in at least two (2) daily newspapers during
the week preceding the date of such public auction sale. Section 14
expressly requires the pawnbroker to notify the pawner of the date, hour
and place of the sale.