GR 84096 Jan.
26, 1995 Commission (SEC), not the regular courts, had
RAUL H. SESBRENO, pet.,
vs.
CA and HERMILO RODIS, SR., rsps..
QUIASON, J.:
Pr.rsps. Hermilo Rodis, Sr., together with Douglas
Sandiego and Ricardo Silverio, Sr., was charged
with estafa before the RTC, Branch 20, Cebu, in an
information docketed as Crim.case No. CU-10568,
which reads as follows:
That on or about the 9th day of Feb.,
1981, and for sometime prior and
subsequent thereto, in the City of
Cebu, Philippines, and within the
jurisdiction of this Honorable Court,
the said accused, conniving and
confederating together and mutually
helping one another, having received
from Atty. Raul H. Sesbreno the sum
of P300K as money market
placement for 32 days at 20%
interest with said corporation or a
maturity date of March 13, 1981,
with the obligation on their part to
immediately account for and turn
over to said Atty. Raul H. Sesbreno
the aforesaid sum of money
including the 20% interest upon
maturity, or the total sum of
P305,333.33, the said accused,
once in possession of said sum of
money, far from complying with their
obligation, with deliberate intent, with
intent of gain and of defrauding the
herein complainant, did then and
there misappropriate, misapply and
convert into their own personal use
and benefit the same, and despite
repeated demands made upon them
by Atty. Raul H. Sesbreno, they have
failed and refused and up to the
present time still fail and refuse to
comply with their obligation, to the
damage and prejudice of Atty. Raul
H. Sesbreno, in the aforementioned
sum of P300K Philippine Currency
(Rollo, p. 80).
Rsp. Rodis moved to quash the information on the
ground that the Securities and Exchange
jurisdiction over the offense charged and that the
facts stated herein did not constitute an offense
(Record [Folio No. I], p. 309). The TC denied the
motion and private rsp. elevated the case to the
then Intermediate Appellate Court on a petition for
certiorari docketed as AC-G.R. SP No. 15448.
On Aug. 16, 1983, the appellate court dismissed
the petition after finding no grave abuse of
discretion on the part of the TC in denying the
motion to quash (Record [Folio No. I], p. 633). The
MR was, likewise, denied. Thus, private rsp. was,
likewise, denied. Thus, private rsp. filed a petition
for review on certiorari with this Court, docketed as
GR 65477. On Feb. 6, 1984, the petition was
denied.
Hence, trial ensued in the crim.case. However, after
the prosecution had rested its case, private rsp.
filed a MTD on demurrer to evidence based on the
core proposition that there was no criminal offense
of estafa from the non-payment of a money market
placement (Record [Folio No. II], p. 210). The
motion alleged that herein pet. had also filed a
similar complaint against Elizabeth de Villa
involving the same money market placement before
the City Fiscal of Cebu; but, upon review of the
complaint, then Minister of Justice Estelito
Mendoza directed the dismissal of the complaint on
the ground that a money market placement partook
of the nature of a loan and therefore no criminal
liability for estafa could arise from non-payment
thereof.
On March 13, 1985, the TC denied the MTD
(Record [Folio No. II], p. 310). On June 21, 1985, it
issued an order stating that private rsp. had waived
his right to present evidence by his dilatory motions
to postpone the trial of the case (Ibid., p. 329).
Private rsp. then filed a petition for certiorari and
prohibition before the Intermediate Appellate Court
under Docket No. AC-G.R. SP No. 6315 (Ibid., p.
365) assailing the Order of March 13, 1985 as
tainted with grave abuse of discretion amounting to
lack or excess of jurisdiction.
On Dec. 29, 1987, the appellate court rendered a
decision based on Perez v. CA, 127 SCRA 636
(1984), upholding private rsp.'s contention that a
money market placement is in the nature of a loan
which entails the transfer of ownership of the
money so invested and therefore the liability for its
return is civil in nature (Rollo, p. 79). The
dispositive portion of the decision reads:
 WHEREFORE, finding the present
petition to be impressed with merit,
the same petition to be impressed
with merit, the same is accordingly
GRANTED, and the Order of March
13, 1985, as well as that of June 21,
1985 in Crim.case No. CU-10568,
are (sic) hereby set aside. The rsp.
Judge is directed to issue in lieu
thereof an appropriate order (i)
granting pet.'s MTD on demurrer to
evidence; (ii) dismissing Crim.case
No. CU-10568 in due course; and
(iii) declaring mooted all acts, orders
and processes made and done
therein during the pendency of this
petition (Rollo, p. 86).
Upon a motion for the reconsideration of said
decision, the CA modified the dispositive portion of
the decision as follows:
WHEREFORE, finding the present
petition to be impressed with merit,
the same is accordingly GRANTED,
and the Order of March 13, 1985 in
Crim.case No. CU-10568, is hereby
set aside. The rsp. Judge is directed
to issue in lieu thereof an
appropriate order (i) granting pet.'s
MTD on demurrer to evidence; (ii)
dismissing Crim.case No. CU-10568
as against pet. Hermilo Rodis, Sr.
only; and (iii) directing rsp. judge to
determine the civil liability, if any, of
pet. Hermilo Rodis, Sr. to private rsp.
Raul H. Sesbreno from the evidence
extant in the record of said case
(CU-10568) (Rollo, p. 117).
Consequently, pet. interposed the instant petition
alleging that the CA gravely erred in:
a. Taking cognizance over CA-GR
SP No. 06315 even if it has NO
JURISDICTION over the issue
raised by the petition for certiorari
filed therein;
b. Deciding CA-GR SP No. 06315 in
a way probably not in accord with
law or with the applicable decisions
of this Honorable SC (Rollo, p. 10).
On the issue of jurisdiction, pet. contends that by
the filing of a MTD on demurrer to evidence, private
rsp., in effect, admitted the truth of the allegations
in the information, as well as the evidence
presented by the prosecution to support said
allegations. Therefore, the only issue raised by
private rsp. before the CA, i.e., W/N he can be held
liable for estafa under the facts obtaining in the
case, is purely a question of law for which said
appellate court had no jurisdiction (Rollo, pp. 12-
13).
In Bernardo v. CA, 216 SCRA 224 (1992), this
Court clarified the distinction between a question of
law and a question of fact in this wise:
. . . . As distinguished from a
question of law which exists "when
the doubt or difference arises as to
what the law is on certain state of
facts" — "there is a question of fact
when the doubt or difference arises
as to the truth or the falsehood of
alleged facts;" or when the "query
necessarily invites calibration of the
whole evidence considering mainly
the credibility of witnesses,
existence and relevancy of specific
surrounding circumstances, their
relation to each other and to the
whole and the probabilities of the
situation."
An examination of the petition filed before the CA
disclosed that indeed no question of fact was
raised. What private rsp. asserted therein was that
the facts as alleged and proved by pet. did not
constitute a criminal offense. Clearly then, the only
issue to be resolved by the CA, which it did resolve,
was whether private rsp. could be held liable for
estafa under the facts obtaining in the crim.case.
This certainly is a question of law that should fall
within the jurisdiction of this Court.
Pet. did not assail the jurisdiction of the CA during
the pendency of his petition in AC-G.R. SP No.
63151. As a matter of fact, he actively participated
in the proceedings before said appellate court.
While it is true that jurisdiction over the subject
matter of a case may be raised at any time of the
proceedings, this rule presupposes that laches or
estoppel has not supervened. In this regard,
Banaga v. Commission on the Settlement of Land
Problems, 181 SCRA 599, 608-609 (1990) is most
enlightening. The Court therein stated:
This Court has time and again
frowned upon the undesirable
 practice of party submitting his case
for decision and then accepting the
judgment, only if favorable when
adverse. Here, a party may be
estopped or barred from raising the
question of jurisdiction for the first
time in a petition before the SC
when it failed to do so in the early
stages of the proceedings. This
principle should deter those who are
disposed to tifle with the courts by
taking inconsistent positions contrary
to the elementary principles of right
dealing and good faith (Tijam v.
Sibonghanoy, No. L-21450, April 15,
1968, 23 SCRA 29; Capilitan v. dela
Cruz, Nos. L-29536-37, Feb. 28,
1974, 55 SCRA 706; Marquez v.
Secretary of Labor, G.R. 80685,
March 16, 1989). . . .
On the pivotal issue of W/N private rsp. may be
held liable for estafa under the facts obtaining in the
TC, rsp. court held that private rsp.'s liability, if any,
is only civil. The nature of a money market
transaction is explained by the Court in Perez v.
CA (supra, pp. 645-646) as follows:
. . . .What is involved here in a
money market transaction. As
defined by Lawrence Smith, "the
money market is a market dealing in
standardized short-term credit
instruments (involving large
amounts) where lenders and
borrowers do not deal directly with
each other but through a middle man
or dealer in the open market." It
involves "commercial papers" which
are instruments "evidencing
indebtedness of any person or entity
. . . which are issued, endorsed, sold
or transferred or in any manner
conveyed to another person or
entity, with or without recourse." The
fundamental function of the money
market device in its operation is to
match and bring together in a most
impersonal manner both the "fund
users" and the "fund suppliers." The
money market is an "impersonal
market", free from personal
considerations. The market
mechanism is intended "to provide
quick mobility of money and
securities."
The impersonal character of the
money market device overlooks the
individuals or entities concerned.
The issuer of a commercial paper in
the money market necessarily
knows in advance that it would be
expeditiously transacted and
transferred to any investor/lender
without need of notice to said issuer.
In practice, no notification is given to
the borrower or issuer of commercial
paper of the sale or transfer to the
investor.
The CA, therefore, correctly ruled that a money
market transaction partakes of the nature of a loan
and therefore "nonpayment thereof would not give
rise to criminal liability for estafa through
misappropriation or conversion." Citing Yam v.
Malik, 94 SCRA 30 (1979), the CA noted that
private rsp. or Philfinance was not obliged under
the money market transaction to return the same
money he or the corporation had received from
pet.. In fact, the CA noted that pet. admitted on the
witness stand that he had "invested" his money;
that "he was not concerned about the same money
because what is important is the same amount will
be returned to me plus its earnings, because
naturally when you give the money with the same
serial numbers and you entrust it for investment
purposes, when it is invested and there are returns,
the same money with the same serial numbers will
not be returned to you;" and that private rsp. would
be "held liable to me in case of their failure to
account" for the investment (Rollo, p. 83).
In money market placement, the investor is a
lender who loans his money to a borrower through
a middleman or dealer. Pet. here loaned his money
to a borrower through Philfinance. When the latter
failed to deliver back pet.'s placement with the
corresponding interest earned at the maturity date,
the liability incurred by Philfinance was a civil one.
As such, pet. could have instituted against
Philfinance before the ordinary courts a simple
action for recovery of the amount he had invested
and he could have prayed therein for damages (Lim
Sio Bio v. CA, 221 SCRA 307 [1993]; Orosa, Jr., v.
CA, 193 SCRA 391 [1991]; Manila Electric
Company v. Genbancor Development Corporation,
72 SCRA 249 [1976]).
It appears, however, that pet. did not even implead
Philfinance in the complaint for damages arising
from the nonreturn of investment with respect to the
same money market placement involved herein,
which he eventually filed against Delta Motors
Corporation and Pilipinas Bank before the RTC of
Cebu City on Sept. 28, 1982. The said complaint
having been dismissed for lack of merit, pet.
appealed to the CA which, on March 21, 1989,
affirmed the dismissal order. The CA held that
Philfinance is "solely and legally obligated to return
the investment of plaintiff, together with its
earnings, and to answer all the damages plaintiff
has suffered incident thereto." Pet. thereafter filed a
petition for review on certiorari, which this Court
docketed as GR 89252.
On May 24, 1993, the Court, through Associate
Justice Feliciano, rendered a decision in GR 89252
ordering Pilipinas Bank to pay pet. the amount of
P304,533.33 in damages plus legal interest thereon
at the rate of six percent (6%) per annum counted
from April 2, 1981. Pilipinas Bank was the
custodian-depositary of DMC PN No. 2731
evidencing pet.'s money market placement. In
holding Pilipinas Bank liable for damages for
breach of duty, the Court said:
. . . . By failing to deliver the Note to
the pet. as depositor-beneficiary of
the thing deposited, Pilipinas
effectively and unlawfully deprived
pet. of the Note deposited with it.
W/N Pilipinas itself benefitted from
such conversion or unlawful
deprivation inflicted upon pet., is of
no moment for present purposes.
Prima facie, the damages suffered
by pet. consisted of P304,533.33,
the portion of the DMC PN No. 2731
assigned to pet. but lost by him
reason of discharge of the Note by
compensation, plus legal interest of
six percent (6%) per annum counting
from 14 March 1981.
The conclusion we have here
reached is, of course, without to
such right of reimbursement as
Pilipinas may have vis-a-vis
Philfinance (GR 89252, Rollo, pp.
295-296).
Pet.'s recovery of his investment and the dismissal
of the criminal aspect of the case he had filed
against private rsp. as a consequence of this
decision notwithstanding, he still has an opportunity
to hold private rsp. liable in Crim.case No. CU-
10568. In People v. Tugbang, 196 SCRA 341
(1991), the Court categorically pronounced that
". . . an accused acquitted of a criminal charge may
nevertheless be held in the same case civilly liable
where the facts established by the evidence so
warrants."
WHEREFORE, the petition is DENIED and the
Decision of the CA, as modified by its Resolution of
May 27, 1988, is AFFIRMED in toto.
GR 85419 March 9, 1993
DEVELOPMENT BANK OF RIZAL, plaintiff-pet.,
vs.
SIMA WEI and/or LEE KIAN HUAT, MARY
CHENG UY, SAMSON TUNG, ASIAN
INDUSTRIAL PLASTIC CORPORATION and
PRODUCERS BANK OF THE PHILIPPINES,
defendants-rsps..
Yngson & Associates for pet..
Henry A. Reyes & Associates for Samso Tung &
Asian Industrial Plastic Corporation.
Eduardo G. Castelo for Sima Wei.
Monsod, Tamargo & Associates for Producers
Bank.
Rafael S. Santayana for Mary Cheng Uy.
CAMPOS, JR., J.:
On July 6, 1986, the Development Bank of Rizal
(pet. Bank for brevity) filed a complaint for a sum of
money against rsps. Sima Wei and/or Lee Kian
Huat, Mary Cheng Uy, Samson Tung, Asian
Industrial Plastic Corporation (Plastic Corporation
for short) and the Producers Bank of the
Philippines, on two causes of action:
(1) To enforce payment of the
balance of P1,032,450.02 on a
promissory note executed by rsp.
Sima Wei on June 9, 1983; and
(2) To enforce payment of two
checks executed by Sima Wei,
payable to pet., and drawn against
the China Banking Corporation, to
 pay the balance due on the
promissory note.
Except for Lee Kian Huat, defendants filed their
separate Motions to Dismiss alleging a common
ground that the complaint states no cause of action.
The TC granted the defendants' Motions to
Dismiss. The CA affirmed this decision, * to which
the pet. Bank, represented by its Legal Liquidator,
filed this Petition for Review by Certiorari, assigning
the following as the alleged errors of the CA: 1
(1) THE CA ERRED IN HOLDING
THAT THE PLAINTIFF-PET. HAS
NO CAUSE OF ACTION AGAINST
DEFENDANTS-RSPS. HEREIN.
(2) THE CA ERRED IN HOLDING
THAT SEC. 13, RULE 3 OF THE
REVISED RULES OF COURT ON
ALTERNATIVE DEFENDANTS IS
NOT APPLICABLE TO HEREIN
DEFENDANTS-RSPS..
The antecedent facts of this case are as follows:
In consideration for a loan extended by pet. Bank to
rsp. Sima Wei, the latter executed and delivered to
the former a promissory note, engaging to pay the
pet. Bank or order the amount of P1,820,000.00 on
or before June 24, 1983 with interest at 32% per
annum. Sima Wei made partial payments on the
note, leaving a balance of P1,032,450.02. On Nov.
18, 1983, Sima Wei issued two crossed checks
payable to pet. Bank drawn against China Banking
Corporation, bearing respectively the serial
numbers 384934, for the amount of P550,000.00
and 384935, for the amount of P500,000.00. The
said checks were allegedly issued in full settlement
of the drawer's account evidenced by the
promissory note. These two checks were not
delivered to the pet.-payee or to any of its
authorized representatives. For reasons not shown,
these checks came into the possession of rsp. Lee
Kian Huat, who deposited the checks without the
pet.-payee's indorsement (forged or otherwise) to
the account of rsp. Plastic Corporation, at the
Balintawak branch, Caloocan City, of the Producers
Bank. Cheng Uy, Branch Manager of the
Balintawak branch of Producers Bank, relying on
the assurance of rsp. Samson Tung, President of
Plastic Corporation, that the transaction was legal
and regular, instructed the cashier of Producers
Bank to accept the checks for deposit and to credit
them to the account of said Plastic Corporation,
inspite of the fact that the checks were crossed and
payable to pet. Bank and bore no indorsement of
the latter. Hence, pet. filed the complaint as
aforestated.
The main issue before Us is whether pet. Bank has
a cause of action against any or all of the
defendants, in the alternative or otherwise.
A cause of action is defined as an act or omission
of one party in violation of the legal right or rights of
another. The essential elements are: (1) legal right
of the plaintiff; (2) correlative obligation of the
defendant; and (3) an act or omission of the
defendant in violation of said legal right. 2
The normal parties to a check are the drawer, the
payee and the drawee bank. Courts have long
recognized the business custom of using printed
checks where blanks are provided for the date of
issuance, the name of the payee, the amount
payable and the drawer's signature. All the drawer
has to do when he wishes to issue a check is to
properly fill up the blanks and sign it. However, the
mere fact that he has done these does not give rise
to any liability on his part, until and unless the
check is delivered to the payee or his
representative. A negotiable instrument, of which a
check is, is not only a written evidence of a contract
right but is also a species of property. Just as a
deed to a piece of land must be delivered in order
to convey title to the grantee, so must a negotiable
instrument be delivered to the payee in order to
evidence its existence as a binding contract. Sec.
16 of the Negotiable Instruments Law, which
governs checks, provides in part:
Every contract on a negotiable
instrument is incomplete and
revocable until delivery of the
instrument for the purpose of giving
effect thereto. . . .
Thus, the payee of a negotiable instrument
acquires no interest with respect thereto until its
delivery to him. 3 Delivery of an instrument means
transfer of possession, actual or constructive, from
one person to another. 4 Without the initial delivery
of the instrument from the drawer to the payee,
there can be no liability on the instrument.
Moreover, such delivery must be intended to give
effect to the instrument.
The allegations of the pet. in the original complaint
show that the two (2) China Bank checks,
numbered 384934 and 384935, were not delivered
to the payee, the pet. herein. Without the delivery of
said checks to pet.-payee, the former did not
acquire any right or interest therein and cannot
therefore assert any cause of action, founded on
said checks, whether against the drawer Sima Wei
or against the Producers Bank or any of the other
rsps..
In the original complaint, pet. Bank, as plaintiff,
sued rsp. Sima Wei on the promissory note, and
the alternative defendants, including Sima Wei, on
the two checks. On appeal from the orders of
dismissal of the RTC, pet. Bank alleged that its
cause of action was not based on collecting the
sum of money evidenced by the negotiable
instruments stated but on quasi-delict — a claim for
damages on the ground of fraudulent acts and
evident bad faith of the alternative rsps.. This was
clearly an attempt by the pet. Bank to change not
only the theory of its case but the basis of his cause
of action. It is well-settled that a party cannot
change his theory on appeal, as this would in effect
deprive the other party of his day in court. 5
Notwithstanding the above, it does not necessarily
follow that the drawer Sima Wei is freed from
liability to pet. Bank under the loan evidenced by
the promissory note agreed to by her. Her
allegation that she has paid the balance of her loan
with the two checks payable to pet. Bank has no
merit for, as We have earlier explained, these
checks were never delivered to pet. Bank. And
even granting, without admitting, that there was
delivery to pet. Bank, the delivery of checks in
payment of an obligation does not constitute
payment unless they are cashed or their value is
impaired through the fault of the creditor. 6 None of
these exceptions were alleged by rsp. Sima Wei.
Therefore, unless rsp. Sima Wei proves that she
has been relieved from liability on the promissory
note by some other cause, pet. Bank has a right of
action against her for the balance due thereon.
However, insofar as the other rsps. are concerned,
pet. Bank has no privity with them. Since pet. Bank
never received the checks on which it based its
action against said rsps., it never owned them (the
checks) nor did it acquire any interest therein.
Thus, anything which the rsps. may have done with
respect to said checks could not have prejudiced
pet. Bank. It had no right or interest in the checks
which could have been violated by said rsps.. Pet.
Bank has therefore no cause of action against said
rsps., in the alternative or otherwise. If at all, it is
Sima Wei, the drawer, who would have a cause of
action against her
co-rsps., if the allegations in the complaint are
found to be true.
With respect to the second assignment of error
raised by pet. Bank regarding the applicability of
Sec. 13, Rule 3 of the Rules of Court, We find it
unnecessary to discuss the same in view of Our
finding that the pet. Bank did not acquire any right
or interest in the checks due to lack of delivery. It
therefore has no cause of action against the rsps.,
in the alternative or otherwise.
In the light of the foregoing, the judgment of the CA
dismissing the pet.'s complaint is AFFIRMED
insofar as the second cause of action is concerned.
On the first cause of action, the case is
REMANDED to the TC for a trial on the merits,
consistent with this decision, in order to determine
whether rsp. Sima Wei is liable to the Development
Bank of Rizal for any amount under the promissory
note allegedly signed by her.
G.R. Nos. L-25836-37 Jan. 31, 1981
THE PHILIPPINE BANK OF COMMERCE,
plaintiff-appellee,
vs.
JOSE M. ARUEGO, defendant-appellant.
FERNANDEZ, J.:
The defendant, Jose M. Aruego, appealed to the
CA from the order of the Court of First Instance of
Manila, Branch XIII, in Civil Case No. 42066
denying his motion to set aside the order declaring
him in default, 1 and from the order of said court in
the same case denying his motion to set aside the
judgment rendered after he was declared in default.
2
These two appeals of the defendant were
docketed as CA-GR 27734-R and CA-GR 27940-R,
respectively.
Upon motion of the defendant on July 25, 1960, 3
he was allowed by the CA to file one consolidated
record on appeal of CA-GR 27734-R and CA-GR
27940-R. 4
In a resolution promulgated on March 1, 1966, the
CA, First Division, certified the consolidated appeal
to the SC on the ground that only questions of law
are involved. 5
On Dec. 1, 1959, the Philippine Bank of Commerce
instituted against Jose M. Aruego Civil Case No.
42066 for the recovery of the total sum of about
P35,000.00 with daily interest thereon from Nov.
17, 1959 until fully paid and commission equivalent
to 3/8% for every thirty (30) days or fraction thereof
plus attorney's fees equivalent to 10% of the total
amount due and costs. 6 The complaint filed by the
Philippine Bank of Commerce contains twenty-two
(22) causes of action referring to twenty-two (22)
transactions entered into by the said Bank and
Aruego on different dates covering the period from
Aug. 28, 1950 to March 14, 1951. 7 The sum sought
to be recovered represents the cost of the printing
of "World Current Events," a periodical published
by the defendant. To facilitate the payment of the
printing the defendant obtained a credit
accommodation from the plaintiff. Thus, for every
printing of the "World Current Events," the printer,
Encal Press and Photo Engraving, collected the
cost of printing by drawing a draft against the
plaintiff, said draft being sent later to the defendant
for acceptance. As an added security for the
payment of the amounts advanced to Encal Press
and Photo-Engraving, the plaintiff bank also
required defendant Aruego to execute a trust
receipt in favor of said bank wherein said defendant
undertook to hold in trust for plaintiff the periodicals
and to sell the same with the promise to turn over
to the plaintiff the proceeds of the sale of said
publication to answer for the payment of all
obligations arising from the draft. 8
Aruego received a copy of the complaint together
with the summons on Dec. 2, 1959. 9 On Dec. 14,
1959 defendant filed an urgent motion for extension
of time to plead, and set the hearing on Dec. 16,
1959. 10 At the hearing, the court denied
defendant's motion for extension. Whereupon, the
defendant filed a MTD the complaint on Dec. 17,
1959 on the ground that the complaint states no
cause of action because:
a) When the various bills of exchange were
presented to the defendant as drawee for
acceptance, the amounts thereof had already been
paid by the plaintiff to the drawer (Encal Press and
Photo Engraving), without knowledge or consent of
the defendant drawee.
b) In the case of a bill of exchange, like those
involved in the case at bar, the defendant drawee is
an accommodating party only for the drawer (Encal
Press and Photo-Engraving) and win be liable in
the event that the accommodating party (drawer)
fails to pay its obligation to the plaintiff. 11
The complaint was dismissed in an order dated
Dec. 22, 1959, copy of which was received by the
defendant on Dec. 24, 1959. 12
On Jan. 13, 1960, the plaintiff filed a MR. 13 On
March 7, 1960, acting upon the MR filed by the
plaintiff, the TC set aside its order dismissing the
complaint and set the case for hearing on March
15, 1960 at 8:00 in the morning. 14 A copy of the
order setting aside the order of dismissal was
received by the defendant on March 11, 1960 at
5:00 o'clock in the afternoon according to the
affidavit of the deputy sheriff of Manila, Mamerto de
la Cruz. On the following day, March 12, 1960, the
defendant filed a motion to postpone the trial of the
case on the ground that there having been no
answer as yet, the issues had not yet been joined.
15
On the same date, the defendant filed his answer
to the complaint interposing the following defenses:
That he signed the document upon which the
plaintiff sues in his capacity as President of the
Philippine Education Foundation; that his liability is
only secondary; and that he believed that he was
signing only as an accommodation party. 16
On March 15, 1960, the plaintiff filed an ex parte
motion to declare the defendant in default on the
ground that the defendant should have filed his
answer on March 11, 1960. He contends that by
filing his answer on March 12, 1960, defendant was
one day late. 17 On March 19, 1960 the TC declared
the defendant in default. 18 The defendant learned
of the order declaring him in default on March 21,
1960. On March 22, 1960 the defendant filed a
motion to set aside the order of default alleging that
although the order of the court dated March 7, 1960
was received on March 11, 1960 at 5:00 in the
afternoon, it could not have been reasonably
expected of the defendant to file his answer on the
last day of the reglementary period, March 11,
1960, within office hours, especially because the
order of the court dated March 7, 1960 was brought
to the attention of counsel only in the early hours of
March 12, 1960. The defendant also alleged that he
has a good and substantial defense. Attached to
the motion are the affidavits of deputy sheriff
Mamerto de la Cruz that he served the order of the
court dated March 7, 1960 on March 11, 1960, at
5:00 o'clock in the afternoon and the affidavit of the
defendant Aruego that he has a good and
substantial defense. 19 The TC denied the
defendant's motion on March 25, 1960. 20 On May
6, 1960, the TC rendered judgment sentencing the
defendant to pay to the plaintiff the sum of
P35,444.35 representing the total amount of his
obligation to the said plaintiff under the twenty-two
(22) causes of action alleged in the complaint as of
Nov. 15, 1957 and the sum of P10K as attorney's
fees. 21
On May 9, 1960 the defendant filed a notice of
appeal from the order dated March 25, 1961
denying his motion to set aside the order declaring
him in default, an appeal bond in the amount of
P60.00, and his record on appeal. The plaintiff filed
his opposition to the approval of defendant's record
on appeal on May 13, 1960. The following day, May
14, 1960, the lower court dismissed defendant's
appeal from the order dated March 25, 1960
denying his motion to set aside the order of default.
22
On May 19, 1960, the defendant filed a MR of the
TC's order dismissing his appeal. 23 The plaintiff, on
May 20, 1960, opposed the defendant's MR of the
order dismissing appeal. 24 On May 21, 1960, the
TC reconsidered its previous order dismissing the
appeal and approved the defendant's record on
appeal. 25 On May 30, 1960, the defendant received
a copy of a notice from the Clerk of Court dated
May 26, 1960, informing the defendant that the
record on appeal filed ed by the defendant was
forwarded to the Clerk of CA. 26
On June 1, 1960 Aruego filed a motion to set aside
the judgment rendered after he was declared in
default reiterating the same ground previously
advanced by him in his motion for relief from the
order of default. 27 Upon opposition of the plaintiff
filed on June 3, 1960, 28 the TC denied the
defendant's motion to set aside the judgment by
default in an order of June 11, 1960. 29 On June 20,
1960, the defendant filed his notice of appeal from
the order of the court denying his motion to set
aside the judgment by default, his appeal bond, and
his record on appeal. The defendant's record on
appeal was approved by the TC on June 25, 1960.
30
Thus, the defendant had two appeals with the
CA: (1) Appeal from the order of the lower court
denying his motion to set aside the order of default
docketed as CA-GR 27734-R; (2) Appeal from the
order denying his motion to set aside the judgment
by default docketed as CA-GR 27940-R.
In his brief, the defendant-appellant assigned the
following errors:
I held office only up to 5:00 o'clock in the afternoon.
THE LOWER COURT ERRED IN
HOLDING THAT THE DEFENDANT
WAS IN DEFAULT.
II
THE LOWER COURT ERRED IN
ENTERTAINING THE MOTION TO
DECLARE DEFENDANT IN
DEFAULT ALTHOUGH AT THE
TIME THERE WAS ALREADY ON
FILE AN ANSWER BY HIM
WITHOUT FIRST DISPOSING OF
SAID ANSWER IN AN
APPROPRIATE ACTION.
III
THE LOWER COURT ERRED IN
DENYING DEFENDANT'S
PETITION FOR RELIEF OF ORDER
OF DEFAULT AND FROM
JUDGMENT BY DEFAULT
AGAINST DEFENDANT. 31
It has been held that to entitle a party to relief from
a judgment taken against him through his mistake,
inadvertence, surprise or excusable neglect, he
must show to the court that he has a meritorious
defense. 32 In other words, in order to set aside the
order of default, the defendant must not only show
that his failure to answer was due to fraud,
accident, mistake or excusable negligence but also
that he has a meritorious defense.
The record discloses that Aruego received a copy
of the complaint together with the summons on
Dec. 2, 1960; that on Dec. 17, 1960, the last day for
filing his answer, Aruego filed a MTD; that on Dec.
22, 1960 the lower court dismissed the complaint;
that on Jan. 23, 1960, the plaintiff filed a MR and on
March 7, 1960, acting upon the MR, the TC issued
an order setting aside the order of dismissal; that a
copy of the order was received by the defendant on
March 11, 1960 at 5:00 o'clock in the afternoon as
shown in the affidavit of the deputy sheriff; and that
on the following day, March 12, 1960, the
defendant filed his answer to the complaint.
The failure then of the defendant to file his answer
on the last day for pleading is excusable. The order
setting aside the dismissal of the complaint was
received at 5:00 o'clock in the afternoon. It was
therefore impossible for him to have filed his
answer on that same day because the courts then
Moreover, the defendant immediately filed his
answer on the following day.
However, while the defendant successfully proved
that his failure to answer was due to excusable
negligence, he has failed to show that he has a
meritorious defense. The defendant does not have
a good and substantial defense.
Defendant Aruego's defenses consist of the
following:
a) The defendant signed the bills of exchange
referred to in the plaintiff's complaint in a
representative capacity, as the then President of
the Philippine Education Foundation Company,
publisher of "World Current Events and Decision
Law Journal," printed by Encal Press and Photo-
Engraving, drawer of the said bills of exchange in
favor of the plaintiff bank;
b) The defendant signed these bills of exchange
not as principal obligor, but as accommodation or
additional party obligor, to add to the security of
said plaintiff bank. The reason for this statement is
that unlike real bills of exchange, where payment of
the face value is advanced to the drawer only upon
acceptance of the same by the drawee, in the case
in question, payment for the supposed bills of
exchange were made before acceptance; so that in
effect, although these documents are labelled bills
of exchange, legally they are not bills of exchange
but mere instruments evidencing indebtedness of
the drawee who received the face value thereof,
with the defendant as only additional security of the
same. 33
The first defense of the defendant is that he signed
the supposed bills of exchange as an agent of the
Philippine Education Foundation Company where
he is president. Sec. 20 of the Negotiable
Instruments Law provides that "Where the
instrument contains or a person adds to his
signature words indicating that he signs for or on
behalf of a principal or in a representative capacity,
he is not liable on the instrument if he was duly
authorized; but the mere addition of words
describing him as an agent or as filing a
representative character, without disclosing his
principal, does not exempt him from personal
liability."
An inspection of the drafts accepted by the
defendant shows that nowhere has he disclosed
that he was signing as a representative of the
Philippine Education Foundation Company. 34 He
merely signed as follows: "JOSE ARUEGO
(Acceptor) (SGD) JOSE ARGUEGO For failure to
disclose his principal, Aruego is personally liable for
the drafts he accepted.
The defendant also contends that he signed the
drafts only as an accommodation party and as
such, should be made liable only after a showing
that the drawer is incapable of paying. This
contention is also without merit.
An accommodation party is one who has signed the
instrument as maker, drawer, indorser, without
receiving value therefor and for the purpose of
lending his name to some other person. Such
person is liable on the instrument to a holder for
value, notwithstanding such holder, at the time of
the taking of the instrument knew him to be only an
accommodation party. 35 In lending his name to the
accommodated party, the accommodation party is
in effect a surety for the latter. He lends his name to
enable the accommodated party to obtain credit or
to raise money. He receives no part of the
consideration for the instrument but assumes
liability to the other parties thereto because he
wants to accommodate another. In the instant case,
the defendant signed as a drawee/acceptor. Under
the Negotiable Instrument Law, a drawee is
primarily liable. Thus, if the defendant who is a
lawyer, he should not have signed as an
acceptor/drawee. In doing so, he became primarily
and personally liable for the drafts.
The defendant also contends that the drafts signed
by him were not really bills of exchange but mere
pieces of evidence of indebtedness because
payments were made before acceptance. This is
also without merit. Under the Negotiable
Instruments Law, a bill of exchange is an
unconditional order in writting addressed by one
person to another, signed by the person giving it,
requiring the person to whom it is addressed to pay
on demand or at a fixed or determinable future time
a sum certain in money to order or to bearer. 36 As
long as a commercial paper conforms with the
definition of a bill of exchange, that paper is
considered a bill of exchange. The nature of
acceptance is important only in the determination of
the kind of liabilities of the parties involved, but not
in the determination of whether a commercial paper
is a bill of exchange or not.
It is evident then that the defendant's appeal can
not prosper. To grant the defendant's prayer will
result in a new trial which will serve no purpose and
will just waste the time of the courts as well as of
the parties because the defense is nil or ineffective.
37
WHEREFORE, the order appealed from in Civil
Case No. 42066 of the Court of First Instance of
Manila denying the petition for relief from the
judgment rendered in said case is hereby affirmed,
without pronouncement as to costs.
GR 116320 Nov. 29, 1999
ADALIA FRANCISCO, pet.,
vs.
CA, HERBY COMMERCIAL & CONSTRUCTION
CORPORATION AND JAIME C. ONG, rsps..
GONZAGA-REYES, J.:
Assailed in this petition for review on certiorari is
the decision 1 of the CA affirming the decision 2
rendered by Branch 168 of the RTC of Pasig in
Civil Case No. 35231 in favor of pr.rsps..
The controversy before this Court finds its origins in
a Land Development and Construction Contract
which was entered into on June 23, 1977 by A.
Francisco Realty & Development Corporation
(AFRDC), of which pet. Adalia Francisco
(Francisco) is the president, and private rsp. Herby
Commercial & Construction Corporation (HCCC),
represented by its President and General Manager
private rsp. Jaime C. Ong (Ong), pursuant to a
housing project of AFRDC at San Jose del Monte,
Bulacan, financed by the Government Service
Insurance System (GSIS). Under the contract,
HCCC agreed to undertake the construction of 35
housing units and the development of 35 hectares
of land. The payment of HCCC for its services was
on a turn-key basis, that is, HCCC was to be paid
on the basis of the completed houses and
developed lands delivered to and accepted by
AFRDC and the GSIS. To facilitate payment,
AFRDC executed a Deed of Assignment in favor of
HCCC to enable the latter to collect payments
directly from the GSIS. Furthermore, the GSIS and
AFRDC put up an Executive Committee Account
with the Insular Bank of Asia & America (IBAA) in
the amount of P4,000,000.00 from which checks
would be issued and co-signed by pet. Francisco
and the GSIS Vice-President Armando Diaz (Diaz).
On Feb. 10, 1978, HCCC filed a complaint 3 with
the RTC of QC against Francisco, AFRDC and the
GSIS for the collection of the unpaid balance under
the Land Development and Construction Contract
in the amount of P515,493.89 for completed and
delivered housing units and land development.
However, the parties eventually arrived at an
amicable settlement of their differences, which was
embodied in a Memorandum Agreement executed
by HCCC and AFRDC on July 21, 1978. Under the
agreement, the parties stipulated that HCCC had
turned over 83 housing units which have been
accepted and paid for by the GSIS. The GSIS
acknowledged that it still owed HCCC P520,177.50
representing incomplete construction of housing
units, incomplete land development and 5%
retention, which amount will be discharged when
the defects and deficiencies are finally completed
by HCCC. It was also provided that HCCC was
indebted to AFRDC in the amount of P180,234.91
which the former agreed would be paid out of the
proceeds from the 40 housing units still to be
turned over by HCCC or from any amount due to
HCCC from the GSIS. Consequently, the TC
dismissed the case upon the filing by the parties of
a joint MTD.
Sometime in 1979, after an examination of the
records of the GSIS, Ong discovered that Diaz and
Francisco had executed and signed seven checks
4
, of various dates and amounts, drawn against the
IBAA and payable to HCCC for completed and
delivered work under the contract. Ong, however,
claims that these checks were never delivered to
HCCC. Upon inquiry with Diaz, Ong learned that
the GSIS gave Francisco custody of the checks
since she promised that she would deliver the
same to HCCC. Instead, Francisco forged the
signature of Ong, without his knowledge or
consent, at the dorsal portion of the said checks to
make it appear that HCCC had indorsed the
checks; Francisco then indorsed the checks for a
second time by signing her name at the back of the
checks and deposited the checks in her IBAA
savings account. IBAA credited Francisco's account
with the amount of the checks and the latter
withdrew the amount so credited.
On June 7, 1979, Ong filed complaints with the
office of the city fiscal of QC, charging Francisco
with estafa thru falsification of commercial
documents. Francisco denied having forged Ong's
signature on the checks, claiming that Ong himself
indorsed the seven checks in behalf of HCCC and
delivered the same to Francisco in payment of the
loans extended by Francisco to HCCC. According
to Francisco, she agreed to grant HCCC the loans
in the total amount of P585,000.00 and covered by
eighteen promissory notes in order to obviate the
risk of the non-completion of the project. As a
means of repayment, Ong allegedly issued a
Certification authorizing Francisco to collect
HCCC's receivables from the GSIS. Assistant City
Fiscal Ramon M. Gerona gave credence to
Francisco's claims and accordingly, dismissed the
complaints, which dismissal was affirmed by the
Minister of Justice in a resolution issued on June 5,
1981.
The present case was brought by pr.rsps. on Nov.
19, 1979 against Francisco and IBAA for the
recovery of P370,475.00, representing the total
value of the seven checks, and for damages,
attorney's fees, expenses of litigation and costs.
After trial on the merits, the TC rendered its
decision in favor of pr.rsps., the dispositive portion
of which provides —
WHEREFORE, premises
considered, judgment is hereby
rendered in favor of the plaintiffs and
against the defendants INSULAR
BANK OF ASIA & AMERICA and
ATTY. ADALIA FRANCISCO, to
jointly and severally pay the plaintiffs
the amount of P370.475.00 plus
interest thereon at the rate of 12%
per annum from the date of the filing
of the complaint until the full amount
is paid; moral damages to plaintiff
Jaime Ong in the sum of
P50,000.00; exemplary damages of
P50,000.00; litigation expenses of
P5,000.00; and attorney's fees of
P50,000.00.
With respect to the cross-claim of
the defendant IBAA against its co-
defendant Atty. Adalia Francisco, the
latter is ordered to reimburse the
former for the sums that the Bank
shall pay to the plaintiff on the forged
checks including the interests paid
thereon.
Further, the defendants are ordered
to pay the costs.
Based upon the findings of handwriting experts
from the National Bureau of Investigation (NBI), the
TC held that Francisco had indeed forged the
signature of Ong to make it appear that he had
indorsed the checks. Also, the court ruled that there
were no loans extended, reasoning that it was
unbelievable that HCCC was experiencing financial
difficulties so as to compel it to obtain the loans
from AFRDC in view of the fact that the GSIS had
issued checks in favor of HCCC at about the same
time that the alleged advances were made. The TC
stated that it was plausible that Francisco
concealed the fact of issuance of the checks from
pr.rsps. in order to make it appear as if she were
accommodating pr.rsps., when in truth she was
lending HCCC its own money.
With regards to the Memorandum Agreement
entered into between AFRDC and HCCC in Civil
Case No. Q-24628, the TC held that the same did
not make any mention of the forged checks since
pr.rsps. were as of yet unaware of their existence,
that fact having been effectively concealed by
Francisco, until pr.rsps. acquired knowledge of
Francisco's misdeeds in 1979.
IBAA was held liable to pr.rsps. for having honored
the checks despite such obvious irregularities as
the lack of initials to validate the alterations made
on the check, the absence of the signature of a co-
signatory in the corporate checks of HCCC and the
deposit of the checks on a second indorsement in
the savings account of Francisco. However, the TC
allowed IBAA recourse against Francisco, who was
ordered to reimburse the IBAA for any sums it shall
have to pay to pr.rsps.. 5
Both Francisco and IBAA appealed the TC's
decision, but the CA dismissed IBAA's appeal for its
failure to file its brief within the 45-day extension
granted by the appellate court. IBAA's MR and
petition for review on certiorari filed with this Court
were also similarly denied. On Nov. 21, 1989, IBAA
and HCCC entered into a Compromise Agreement
which was approved by the TC, wherein HCCC
acknowledged receipt of the amount of
P370,475.00 in full satisfaction of its claims against
IBAA, without prejudice to the right of the latter to
pursue its claims against Francisco.
On June 29, 1992, the CA affirmed the TC's ruling,
hence this petition for review on certiorari filed by
pet., assigning the following errors to the appealed
decision —
1. The rsp. CA erred
in concluding that
pr.rsps. did not owe
Pet. the sum covered
by the Promissory
Notes Exh. 2-2-A-2-P
(FRANCISCO). Such
conclusion was based
mainly on
conjectures, surmises
and speculation
contrary to the
unrebutted pleadings
 and evidence finding that the subject matter of the present case,
presented by pet.. specifically the seven checks, drawn by GSIS and
AFRDC, dated between Oct. to Nov. 1977, in the
2. The rsp. CA erred total amount of P370,475.00 and payable to HCCC,
in holding that Pet. was not included in the Memorandum Agreement
falsified the signature executed by HCCC and AFRDC in Civil Case No.
of private rsp. ONG Q-24628. As observed by the TC, aside from there
on the checks in being absolutely no mention of the checks in the
question without any said agreement, the amounts represented by said
authority therefor checks could not have been included in the
which is patently Memorandum Agreement executed in 1978
contradictory to the because pr.rsps. only discovered Francisco's acts
unrebutted pleading of forgery in 1979. The lower courts found that
and evidence that Francisco was able to easily conceal from pr.rsps.
pet. was expressly even the fact of the issuance of the checks since
authorized by rsp. she was a co-signatory thereof. 7 We also note that
HERBY thru ONG to Francisco had custody of the checks, as proven by
collect all receivables the check vouchers bearing her uncontested
of HERBY from GSIS signature, 8 by which she, in effect, acknowledged
to pay the loans having received the checks intended for HCCC.
extended to them. This contradicts Francisco's claims that the checks
(Exhibit 3). were issued to Ong who delivered them to
Francisco already indorsed. 9
3. That rsp. CA erred
in holding that the As regards the forgery, we concur with the lower
seven checks in courts', finding that Francisco forged the signature
question were not of Ong on the checks to make it appear as if Ong
taken up in the had indorsed said checks and that, after indorsing
liquidation and the checks for a second time by signing her name
reconciliation of all at the back of the checks, Francisco deposited said
outstanding account checks in her savings account with IBAA. The
between AFRDC and forgery was satisfactorily established in the TC
HERBY as upon the strength of the findings of the NBI
acknowledged by the handwriting expert. 10 Other than pet.'s self-serving
parties in denials, there is nothing in the records to rebut the
Memorandum NBI's findings. Well-entrenched is the rule that
Agreement (Exh. 5) is findings of TCs which are factual in nature,
a pure conjecture, especially when affirmed by the CA, deserve to be
surmise and respected and affirmed by the SC, provided it is
speculation contrary supported by substantial evidence on record, 11 as it
to the unrebutted is in the case at bench.
evidence presented
by pet/s. It is an Pet. claims that she was, in any event, authorized
inference made which to sign Ong's name on the checks by virtue of the
is manifestly Certification executed by Ong in her favor giving
mistaken. her the authority to collect all the receivables of
HCCC from the GSIS, including the questioned
4. The rsp. CA erred checks. 12 Pet.'s alternative defense must similarly
in affirming the fail. The Negotiable Instruments Law provides that
decision of the lower where any person is under obligation to indorse in a
court and dismissing representative capacity, he may indorse in such
the appeal. 6 terms as to negative personal liability. 13 An agent,
when so signing, should indicate that he is merely
The pivotal issue in this case is W/N Francisco signing in behalf of the principal and must disclose
forged the signature of Ong on the seven checks. the name of his principal; otherwise he shall be
In this connection, we uphold the lower courts' held personally liable. 14 Even assuming that
Francisco was authorized by HCCC to sign Ong's
name, still, Francisco did not indorse the instrument
in accordance with law. Instead of signing Ong's
name, Francisco should have signed her own name
and expressly indicated that she was signing as an
agent of HCCC. Thus, the Certification cannot be
used by Francisco to validate her act of forgery.
Every person who, contrary to law, wilfully or
negligently causes damage to another, shall
indemnify the latter for the same. 15 Due to her
forgery of Ong's signature which enabled her to
deposit the checks in her own account, Francisco
deprived HCCC of the money due it from the GSIS
pursuant to the Land Development and
Construction Contract. Thus, we affirm rsp. court's
award of compensatory damages in the amount of
P370,475.00, but with a modification as to the
interest rate which shall be six percent (6%) per
annum, to be computed from the date of the filing of
the complaint since the amount of damages was
alleged in the complaint; 16 however, the rate of
interest shall be twelve percent (12%) per annum
from the time the judgment in this case becomes
final and executory until its satisfaction and the
basis for the computation of this twelve percent
(12%) rate of interest shall be the amount of
P370,475.00. This is in accordance with the
doctrine enunciated in Eastern Shipping Lines, Inc.
vs. CA, et al., 17 which was reiterated in PNB vs.
CA, 18 Philippine Airlines, Inc. vs. CA 19 and in Keng
Hua Paper Products Co., Inc. vs. CA, 20 which
provides that —
1. When an obligation is breached, and it consists
in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be
that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall
be 12% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and
subject to the provisions of Art. 1169 of the CC.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed
at the discretion of the court at the rate of six
percent (6%) per annum. No interest, however,
shall be adjudged on unliquidated claims or
damages except when or until the demand can be
established with reasonable certainty. Accordingly,
where the demand is established with reasonable
certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially
(Art. 1169, CC) but when such certainty cannot be
so reasonably established at the time the demand
is made, the interest shall begin to run only from
the date the judgment of the court is made (at
which time the quantification of damages may be
deemed to have been reasonably ascertained). The
actual base for the computation of legal interest
shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum
of money becomes final and executory, the rate of
legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be twelve
percent (12%) per annum from such finality until its
satisfaction, this interim period being deemed to be
by then an equivalent to a forbearance of credit.
We also sustain the award of exemplary damages
in the amount of P50,000.00. Under Art. 2229 of the
CC, exemplary damages are imposed by way of
example or correction for the public good, in
addition to the moral, temperate, liquidated or
compensatory damages. Considering pet.'s
fraudulent act, we hold that an award of P50,000.00
would be adequate, fair and reasonable. The grant
of exemplary damages justifies the award of
attorney's fees in the amount of P50,000.00, and
the award of P5,000.00 for litigation
expenses. 21
The appellate court's award of P50,000.00 in moral
damages is warranted. Under Art. 2217 of the CC,
moral damages may be granted upon proof of
physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation and similar injury. 22
Ong testitified that he suffered sleepless nights,
embarrassment, humiliation and anxiety upon
discovering that the checks due his company were
forged by pet. and that pet. had filed baseless
criminal complaints against him before the fiscal's
office of QC which disrupted HCCC's business
operations. 23
WHEREFORE, we AFFIRM the rsp. court's
decision promulgated on June 29, 1992, upholding
the Feb. 16, 1988 decision of the TC in favor of
pr.rsps., with the modification that the interest upon
the actual damages awarded shall be at six percent
(6%) per annum, which interest rate shall be
computed from the time of the filing of the
complaint on Nov. 19, 1979. However, the interest
rate shall be twelve percent (12%) per annum from
the time the judgment in this case becomes final
and executory and until such amount is fully paid.
The basis for computation of the six percent and 4. Drawn by the Roxas Manufacturing, Inc. upon
twelve percent rates of interest shall be the amount the PNB and payable to the Inter-Island Gas
of P370,475.00. No pronouncement as to costs. Service, Inc. order:

5/14/59 1860160 P 500.00 26

JAI-ALAI CORPORATION OF THE PHILIPPINES, 5/18/59 1860660 P 500.00 27

Pet., v. BANK OF THE PHILIPPINE ISLAND,
Rsp.. All the foregoing checks, which were acquired by
the pet. from one Antonio J. Ramirez, a sales agent
CASTRO, J.: of the Inter-Island Gas and a regular bettor at jai-
alai games, were, upon deposit, temporarily
This is a petition by the Jai-Alai Corporation of the credited to the pet.'s account in accordance with
Philippines (hereinafter referred to as the pet.) for the clause printed on the deposit slips issued by the
review of the decision of the CA in C.A.-G.R. rsp. and which reads:
34042-R dated June 25, 1968 in favor of the Bank
of the Philippine Islands (hereinafter referred to as "Any credit allowed the depositor on the books of
the rsp.). the Bank for checks or drafts hereby received for
deposit, is provisional only, until such time as the
From April 2, 1959 to May 18, 1959, ten checks proceeds thereof, in current funds or solvent
with a total face value of P8,030.58 were deposited credits, shall have been actually received by the
by the pet. in its current account with the rsp. bank. Bank and the latter reserves to itself the right to
The particulars of these checks are as follows: charge back the item to the account of its depositor,
at any time before that event, regardless of W/N the
1. Drawn by the Delta Engineering Service upon item itself can be returned."
the Pacific Banking Corporation and payable to the
Inter-Island Gas Service Inc. or order: About the latter part of July 1959, after Ramirez
had resigned from the Inter-Island Gas and after
Date Check Exhibit the checks had been submitted to inter-bank
clearing, the Inter-Island Gas discovered that all the
Deposited Number Amount Number indorsements made on the checks purportedly by
its cashiers, Santiago Amplayo and Vicenta Mucor
4/2/59 B-352680 P500.00 18 (who were merely authorized to deposit checks
issued payable to the said company) as well as the
4/20/59 A-156907 372.32 19 rubber stamp impression thereon reading "Inter-
Island Gas Service, Inc.," were forgeries. In due
4/24/59 A-156924 397.82 20 time, the Inter-Island Gas advised the pet., the rsp.,
the drawers and the drawee-banks of the said
5/4/59 B-364764 250.00 23 checks about the forgeries, and filed a criminal
complaint against Ramirez with the Office of the
5/6/59 B-364775 250.00 24 City Fiscal of Manila. 1

2. Drawn by the Enrique Cortiz & Co. upon the The rsp.'s cashier, Ramon Sarthou, upon receipt of
Pacific Banking Corporation and payable to the the latter of Inter-Island Gas dated Aug. 31, 1959,
Inter-Island Gas Service, Inc. or bearer: called up the pet.'s cashier, Manuel Garcia, and
advised the latter that in view of the circumstances
4/13/59 B-335063 P 2108.70 21 he would debit the value of the checks against the
pet.'s account as soon as they were returned by the
4/27/59 B-335072 P2210.94 22 respective drawee-banks.

3. Drawn by the Luzon Tinsmith & Company upon Meanwhile, the drawers of the checks, having been
the China Banking Corporation and payable to the notified of the forgeries, demanded reimbursement
Inter-Island Gas Service, Inc. or bearer: to their respective accounts from the drawee-
banks, which in turn demanded from the rsp., as
5/18/59 VN430188 P940.80 25 collecting bank, the return of the amounts they had
paid on account thereof. When the drawee-banks
returned the checks to the rsp., the latter paid their
value which the former in turn paid to the Inter-
Island Gas. The rsp., for its part, debited the pet.'s
current account and forwarded to the latter the
checks containing the forged indorsements, which
the pet., however, refused to accept.
On Oct. 8, 1959 the pet. drew against its current
account with the rsp. a check for P135,000 payable
to the order of the Mariano Olondriz y Cia. in
payment of certain shares of stock. The check was,
however, dishonored by the rsp. as its records
showed that as of Oct. 8, 1959 the current account
of the pet., after netting out the value of the checks
P8,030.58) with the forged indorsements, had a
balance of only P128,257.65.
The pet. then filed a complaint against the rsp. with
the Court of First Instance of Manila, which was
however dismissed by the TC after due trial, and as
well by the CA, on appeal.
Hence, the present recourse.
The issues posed by the pet. in the instant petition
may be briefly stated as follows:
(a) Whether the rsp. had the right to debit the pet.'s
current account in the amount corresponding to the
total value of the checks in question after more than
three months had elapsed from the date their value
was credited to the pet.'s account:(b) Whether the
rsp. is estopped from claiming that the amount of
P8,030.58, representing the total value of the
checks with the forged indorsements, had not been
properly credited to the pet.'s account, since the
same had already been paid by the drawee-banks
and received in due course by the rsp.; and(c) On
the assumption that the rsp. had improperly debited
the pet.'s current account, whether the latter is
entitled to damages.
These three issues interlock and will be resolved
jointly.
In our opinion, the rsp. acted within legal bounds
when it debited the pet.'s account. When the pet.
deposited the checks with the rsp., the nature of the
relationship created at that stage was one of
agency, that is, the bank was to collect from the
drawees of the checks the corresponding proceeds.
It is true that the rsp. had already collected the
proceeds of the checks when it debited the pet.'s
account, so that following the rule in Gullas vs. PNB
2 it might be argued that the relationship between
the parties had become that of creditor and debtor
as to preclude the rsp. from using the pet.'s funds
to make payments not authorized by the latter. It is
our view nonetheless that no creditor-debtor
relationship was created between the parties.
Sec. 23 of the Negotiable Instruments Law (Act
2031) states that 3 —
"When a signature is forged or made without the
authority of the person whose signature it purports
to be, it is wholly inoperative, and no right to retain
the instrument, or to give a discharge therefor, or to
enforce payment thereof against any party thereto,
can be acquired through or under such signature,
unless the party against whom it is sought to
enforce such right is precluded from setting up the
forgery or want of authority."
Since under the foregoing provision, a forged
signature in a negotiable instrument is wholly
inoperative and no right to discharge it or enforce
its payment can be acquired through or under the
forged signature except against a party who cannot
invoke the forgery, it stands to reason, upon the
facts of record, that the rsp., as a collecting bank
which indorsed the checks to the drawee-banks for
clearing, should be liable to the latter for
reimbursement, for, as found by the court a quo
and by the appellate court, the indorsements on the
checks had been forged prior to their delivery to the
pet.. In legal contemplation, therefore, the
payments made by the drawee-banks to the rsp. on
account of the said checks were ineffective; and,
such being the case, the relationship of creditor and
debtor between the pet. and the rsp. had not been
validly effected, the checks not having been
properly and legitimately converted into cash. 4
In Great Eastern Life Ins. Co. vs. Hongkong &
Shanghai Bank, 5 the Court ruled that it is the
obligation of the collecting bank to reimburse the
drawee-bank the value of the checks subsequently
found to contain the forged indorsement of the
payee. The reason is that the bank with which the
check was deposited has no right to pay the sum
stated therein to the forger "or anyone else upon a
forged signature." "It was its duty to know," said the
Court, "that [the payee's] endorsement was
genuine before cashing the check." The pet. must
in turn shoulder the loss of the amounts which the
rsp.; as its collecting agent, had to reimburse to the
drawee-banks.
We do not consider material for the purposes of the
case at bar that more than three months had
elapsed since the proceeds of the checks in
question were collected by the rsp.. The record
shows that the rsp. had acted promptly after being
informed that the indorsements on the checks were
forged. Moreover, having received the checks
merely for collection and deposit, the rsp. cannot he
expected to know or ascertain the genuineness of
all prior indorsements on the said checks. Indeed,
having itself indorsed them to the rsp. in
accordance with the rules and practices of
commercial banks, of which the Court takes due
cognizance, the pet. is deemed to have given the
warranty prescribed in Sec. 66 of the Negotiable
Instruments Law that every single one of those
checks "is genuine and in all respects what it
purports to be.".
The pet. was, moreover, grossly recreant in
accepting the checks in question from Ramirez. It
could not have escaped the attention of the pet.
that the payee of all the checks was a corporation
— the Inter-Island Gas Service, Inc. Yet, the pet.
cashed these checks to a mere individual who was
admittedly a habitue at its jai-alai games without
making any inquiry as to his authority to exchange
checks belonging to the payee-corporation. In
Insular Drug Co. vs. National 6 the Court made the
pronouncement that.
". . . The right of an agent to indorse commercial
paper is a very responsible power and will not be
lightly inferred. A salesman with authority to collect
money belonging to his principal does not have the
implied authority to indorse checks received in
payment. Any person taking checks made payable
to a corporation, which can act only by agents,
does so at his peril, and must abide by the
consequences if the agent who indorses the same
is without authority." (underscoring supplied)
It must be noted further that three of the checks in
question are crossed checks, namely, exhs. 21, 25
and 27, which may only be deposited, but not
encashed; yet, the pet. negligently accepted them
for cash. That two of the crossed checks, namely,
exhs. 21 and 25, are bearer instruments would not,
in our view, exculpate the pet. from liability with
respect to them. The fact that they are bearer
checks and at the same time crossed checks
should have aroused the pet.'s suspicion as to the
title of Ramirez over them and his authority to cash
them (apparently to purchase jai-alai tickets from
the pet.), it appearing on their face that a corporate
entity — the Inter Island Gas Service, Inc. — was
the payee thereof and Ramirez delivered the said
checks to the pet. ostensibly on the strength of the
payee's cashiers' indorsements.
At all events, under Sec. 67 of the Negotiable
Instruments Law, "Where a person places his
indorsement on an instrument negotiable by
delivery he incurs all the liability of an indorser,"
and under Sec. 66 of the same statute a general
indorser warrants that the instrument "is genuine
and in all respects what it purports to be."
Considering that the pet. indorsed the said checks
when it deposited them with the rsp., the pet. as an
indorser guaranteed the genuineness of all prior
indorsements thereon. The rsp. which relied upon
the pet.'s warranty should not be held liable for the
resulting loss. This conclusion applied similarly to
exh. 22 which is an uncrossed bearer instrument,
for under Sec. 65 of the Negotiable Instrument Law.
"Every person negotiating an instrument by delivery
. . . warrants (a) That the instrument is genuine and
in all respects what it purports to be." Under that
same Sec. this warranty "extends in favor of no
holder other than the immediate transferee," which,
in the case at bar, would be the rsp..
The provision in the deposit slip issued by the rsp.
which stipulates that it "reserves to itself the right to
charge back the item to the account of its
depositor," at any time before "current funds or
solvent credits shall have been actually received by
the Bank," would not materially affect the
conclusion we have reached. That stipulation
prescribes that there must be an actual receipt by
the bank of current funds or solvent credits; but as
we have earlier indicated the transfer by the
drawee-banks of funds to the rsp. on account of the
checks in question was ineffectual because made
under the mistaken and valid assumption that the
indorsements of the payee thereon were genuine.
Under Art. 2154 of the NCC "If something is
received when there is no right to demand it and it
was unduly delivered through mistake, the
obligation to return it arises." There was, therefore,
in contemplation of law, no valid payment of money
made by the drawee-banks to the rsp. on account
of the questioned checks.
ACCORDINGLY, the judgment of the CA is
affirmed, at pet.'s cost.
GR L-40796 July 31, 1975
REPUBLIC BANK, plaintiff-appellee,
vs.
MAURICIA T. EBRADA, defendant-appellant.
Sabino de Leon, Jr. for plaintiff-appellee.
Julio Baldonado for defendant-appellant.
MARTIN, J.:
Appeal on a question of law of the decision of the
Court of First Instance of Manila, Branch XXIII in
Civil Case No. 69288, entitled "Republic Bank vs.
Mauricia T. Ebrada."
On or about Feb. 27, 1963 defendant Mauricia T.
Ebrada, encashed Back Pay Check No. 508060
dated Jan. 15, 1963 for P1,246.08 at the main
office of the plaintiff Republic Bank at Escolta,
Manila. The check was issued by the Bureau of
Treasury. 1 Plaintiff Bank was later advised by the
said bureau that the alleged indorsement on the
reverse side of the aforesaid check by the payee,
"Martin Lorenzo" was a forgery 2 since the latter had
allegedly died as of July 14, 1952. 3 Plaintiff Bank
was then requested by the Bureau of Treasury to
refund the amount of P1,246.08. 4 To recover what
it had refunded to the Bureau of Treasury, plaintiff
Bank made verbal and formal demands upon
defendant Ebrada to account for the sum of
P1,246.08, but said defendant refused to do so. So
plaintiff Bank sued defendant Ebrada before the
City Court of Manila.
On July 11, 1966, defendant Ebrada filed her
answer denying the material allegations of the
complaint and as affirmative defenses alleged that
she was a holder in due course of the check in
question, or at the very least, has acquired her
rights from a holder in due course and therefore
entitled to the proceeds thereof. She also alleged
that the plaintiff Bank has no cause of action
against her; that it is in estoppel, or so negligent as
not to be entitled to recover anything from her. 5
About the same day, July 11, 1966 defendant
Ebrada filed a Third-Party complaint against
Adelaida Dominguez who, in turn, filed on Sept. 14,
1966 a Fourth-Party complaint against Justina
Tinio.
On March 21, 1967, the City Court of Manila
rendered judgment for the plaintiff Bank against
defendant Ebrada; for Third-Party plaintiff against
Third-Party defendant, Adelaida Dominguez, and
for Fourth-Party plaintiff against Fourth-Party
defendant, Justina Tinio.
From the judgment of the City Court, defendant
Ebrada took an appeal to the Court of First
Instance of Manila where the parties submitted a
partial stipulation of facts as follows:
COME NOW the undersigned
counsel for the plaintiff, defendant,
Third-Party defendant and Fourth-
Party plaintiff and unto this
Honorable Court most respectfully
submit the following:
PARTIAL STIPULATION OF FACTS
1. That they admit their respective
capacities to sue and be sued;
2. That on Jan. 15, 1963 the
Treasury of the Philippines issued its
Check No. BP-508060, payable to
the order of one MARTIN
LORENZO, in the sum of P1,246.08,
and drawn on the Republic Bank,
plaintiff herein, which check will be
marked as Exhibit "A" for the
plaintiff;
3. That the back side of
aforementioned check bears the
following signatures, in this order:
1) MARTIN LORENZO;
2) RAMON R. LORENZO;
3) DELIA DOMINGUEZ; and
4) MAURICIA T. EBRADA;
4. That the aforementioned check was delivered to
the defendant MAURICIA T. EBRADA by the Third-
Party defendant and Fourth-Party plaintiff
ADELAIDA DOMINGUEZ, for the purpose of
encashment;
5. That the signature of defendant
MAURICIA T. EBRADA was affixed
on said check on Feb. 27, 1963
when she encashed it with the
plaintiff Bank;
6. That immediately after defendant
MAURICIA T. EBRADA received the
cash proceeds of said check in the
sum of P1,246.08 from the plaintiff
Bank, she immediately turned over
the said amount to the third-party
 defendant and fourth-party plaintiff
ADELAIDA DOMINGUEZ, who in
turn handed the said amount to the
fourth-party defendant JUSTINA
TINIO on the same date, as
evidenced by the receipt signed by
her which will be marked as Exhibit
"1-Dominguez"; and
7. That the parties hereto reserve
the right to present evidence on any
other fact not covered by the
foregoing stipulations,
Manila, Philippines, June 6, 1969.
Based on the foregoing stipulation of facts and the
documentary evidence presented, the TC rendered
a decision, the dispositive portion of which reads as
follows:
WHEREFORE, the Court renders
judgment ordering the defendant
Mauricia T. Ebrada to pay the
plaintiff the amount of ONE
THOUSAND TWO FORTY-SIX
08/100 (P1,246.08), with interest at
the legal rate from the filing of the
complaint on June 16, 1966, until
fully paid, plus the costs in both
instances against Mauricia T.
Ebrada.
The right of Mauricia T. Ebrada to file
whatever claim she may have
against Adelaida Dominguez in
connection with this case is hereby
reserved. The right of the estate of
Dominguez to file the fourth-party
complaint against Justina Tinio is
also reserved.
SO ORDERED.
In her appeal, defendant-appellant presses that the
lower court erred:
IN ORDERING THE APPELLANT
TO PAY THE APPELLEE THE FACE
VALUE OF THE SUBJECT CHECK
AFTER FINDING THAT THE
DRAWER ISSUED THE SUBJECT
CHECK TO A PERSON ALREADY
DECEASED FOR 11-½ YEARS AND
THAT THE APPELLANT DID NOT
BENEFIT FROM ENCASHING SAID
CHECK.
From the stipulation of facts it is admitted that the
check in question was delivered to defendant-
appellant by Adelaida Dominguez for the purpose
of encashment and that her signature was affixed
on said check when she cashed it with the plaintiff
Bank. Likewise it is admitted that defendant-
appellant was the last indorser of the said check.
As such indorser, she was supposed to have
warranted that she has good title to said check; for
under Sec. 65 of the Negotiable Instruments Law: 6
Every person negotiating an
instrument by delivery or by qualified
indorsement, warrants:
(a) That the instrument is genuine
and in all respects what it purports to
be.
(b) That she has good title to it.
xxx xxx xxx
and under Sec. 65 of the same Act:
Every indorser who indorses without
qualification warrants to all
subsequent holders in due course:
(a) The matters and things
mentioned in subdivisions (a), (b),
and (c) of the next preceding Sec.s;
(b) That the instrument is at the time
of his indorsement valid and
subsisting.
It turned out, however, that the signature of the
original payee of the check, Martin Lorenzo was a
forgery because he was already dead 7 almost 11
years before the check in question was issued by
the Bureau of Treasury. Under action 23 of the
Negotiable Instruments Law (Act 2031):
When a signature is forged or made
without the authority of the person
whose signature it purports to be, it
is wholly inoperative, and no right to
retain the instruments, or to give a
discharge thereof against any party
thereto, can be acquired through or
under such signature unless the
 party against whom it is sought to
enforce such right is precluded from
setting up the forgery or want of
authority.
It is clear from the provision that where the
signature on a negotiable instrument if forged, the
negotiation of the check is without force or effect.
But does this mean that the existence of one forged
signature therein will render void all the other
negotiations of the check with respect to the other
parties whose signature are genuine?
In the case of Beam vs. Farrel, 135 Iowa 670, 113
N.W. 590, where a check has several indorsements
on it, it was held that it is only the negotiation based
on the forged or unauthorized signature which is
inoperative. Applying this principle to the case
before Us, it can be safely concluded that it is only
the negotiation predicated on the forged
indorsement that should be declared inoperative.
This means that the negotiation of the check in
question from Martin Lorenzo, the original payee, to
Ramon R. Lorenzo, the second indorser, should be
declared of no affect, but the negotiation of the
aforesaid check from Ramon R. Lorenzo to
Adelaida Dominguez, the third indorser, and from
Adelaida Dominguez to the defendant-appellant
who did not know of the forgery, should be
considered valid and enforceable, barring any claim
of forgery.
What happens then, if, after the drawee bank has
paid the amount of the check to the holder thereof,
it was discovered that the signature of the payee
was forged? Can the drawee bank recover from the
one who encashed the check?
In the case of State v. Broadway Mut. Bank, 282
S.W. 196, 197, it was held that the drawee of a
check can recover from the holder the money paid
to him on a forged instrument. It is not supposed to
be its duty to ascertain whether the signatures of
the payee or indorsers are genuine or not. This is
because the indorser is supposed to warrant to the
drawee that the signatures of the payee and
previous indorsers are genuine, warranty not
extending only to holders in due course. One who
purchases a check or draft is bound to satisfy
himself that the paper is genuine and that by
indorsing it or presenting it for payment or putting it
into circulation before presentation he impliedly
asserts that he has performed his duty and the
drawee who has paid the forged check, without
actual negligence on his part, may recover the
money paid from such negligent purchasers. In
such cases the recovery is permitted because
although the drawee was in a way negligent in
failing to detect the forgery, yet if the encasher of
the check had performed his duty, the forgery
would in all probability, have been detected and the
fraud defeated. The reason for allowing the drawee
bank to recover from the encasher is:
Every one with even the least
experience in business knows that
no business man would accept a
check in exchange for money or
goods unless he is satisfied that the
check is genuine. He accepts it only
because he has proof that it is
genuine, or because he has
sufficient confidence in the honesty
and financial responsibility of the
person who vouches for it. If he is
deceived he has suffered a loss of
his cash or goods through his own
mistake. His own credulity or
recklessness, or misplaced
confidence was the sole cause of
the loss. Why should he be
permitted to shift the loss due to his
own fault in assuming the risk, upon
the drawee, simply because of the
accidental circumstance that the
drawee afterwards failed to detect
the forgery when the check was
presented? 8
Similarly, in the case before Us, the defendant-
appellant, upon receiving the check in question
from Adelaida Dominguez, was duty-bound to
ascertain whether the check in question was
genuine before presenting it to plaintiff Bank for
payment. Her failure to do so makes her liable for
the loss and the plaintiff Bank may recover from her
the money she received for the check. As reasoned
out above, had she performed the duty of
ascertaining the genuineness of the check, in all
probability the forgery would have been detected
and the fraud defeated.
In our jurisdiction We have a case of similar import.
9 The Great Eastern Life Insurance Company drew
its check for P2000.00 on the Hongkong and
Shanghai Banking Corporation payable to the order
of Lazaro Melicor. A certain E. M. Maasin
fraudulently obtained the check and forged the
signature of Melicor, as an indorser, and then
personally indorsed and presented the check to the
PNB where the amount of the check was placed to
his (Maasin's) credit. On the next day, the PNB
indorsed the cheek to the Hongkong and Shanghai
Banking Corporation which paid it and charged the
amount of the check to the insurance company.
The Court held that the Hongkong and Shanghai
Banking Corporation was liable to the insurance
company for the amount of the check and that the
PNB was in turn liable to the Hongkong and
Shanghai Banking Corporation. Said the Court:
Where a check is drawn payable to
the order of one person and is
presented to a bank by another and
purports upon its face to have been
duly indorsed by the payee of the
check, it is the duty of the bank to
know that the check was duly
indorsed by the original payee, and
where the bank pays the amount of
the check to a third person, who has
forged the signature of the payee,
the loss falls upon the bank who
cashed the check, and its only
remedy is against the person to
whom it paid the money.
With the foregoing doctrine We are to concede that
the plaintiff Bank should suffer the loss when it paid
the amount of the check in question to defendant-
appellant, but it has the remedy to recover from the
latter the amount it paid to her. Although the
defendant-appellant to whom the plaintiff Bank paid
the check was not proven to be the author of the
supposed forgery, yet as last indorser of the check,
she has warranted that she has good title to it 10
even if in fact she did not have it because the
payee of the check was already dead 11 years
before the check was issued. The fact that
immediately after receiving title cash proceeds of
the check in question in the amount of P1,246.08
from the plaintiff Bank, defendant-appellant
immediately turned over said amount to Adelaida
Dominguez (Third-Party defendant and the Fourth-
Party plaintiff) who in turn handed the amount to
Justina Tinio on the same date would not exempt
her from liability because by doing so, she acted as
an accommodation party in the check for which she
is also liable under Sec. 29 of the Negotiable
Instruments Law (Act 2031), thus: .An
accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the
purpose of lending his name to some other person.
Such a person is liable on the instrument to a
holder for value, notwithstanding such holder at the
time of taking the instrument knew him to be only
an accommodation party.
IN VIEW OF THE FOREGOING, the judgment
appealed from is hereby affirmed in toto with costs
against defendant-appellant.
GR 126000 Oct. 7, 1998
METROPOLITAN WATERWORKS AND
SEWERAGE SYSTEM (MWSS), pet.,
vs.
CA, HON. PERCIVAL LOPEZ, AYALA
CORPORATION and AYALA LAND, INC., rsps..
GR 128520 Oct. 7, 1998
METROPOLITAN WATERWORKS AND
SEWERAGE SYSTEM, pet.,
vs.
HON. PERCIVAL MANDAP LOPEZ, CAPITOL
HILLS GOLF AND COUNTRY CLUB INC.,
SILHOUETTE TRADING CORPORATION, and
PABLO ROMAN JR., rsps..
MARTINEZ, J.:
These are consolidated petitions for review
emanating from Civil Case No. Q-93-15266 of the
RTC of QC, Branch 78, entitled "Metropolitan
Waterworks and Sewerage System (hereafter
MWSS) vs. Capitol Hills Golf & Country Club Inc.
(hereafter, CHGCCI), STC (hereafter,
SILHOUETTE), Ayala Corporation, Ayala Land, Inc.
(hereafter AYALA) Pablo Roman, Jr., Josefina A.
Roxas, Jesus Hipolito, Alfredo Juinito, National
Treasurer of the Philippines and the Register of
Deeds of QC."
From the voluminous pleadings and other
documents submitted by the parties and their
divergent styles in the presentation of the facts, the
basic antecedents attendant herein are as follows:
Sometime in 1965, pet. MWSS (then known as
NAWASA) leased around one hundred twenty eight
(128) hectares of its land (hereafter, subject
property) to rsp. CHGCCI (formerly the
International Sports Development Corporation) for
twenty five (25) years and renewable for another
fifteen (15) years or until the year 2005, with the
stipulation allowing the latter to exercise a right of
first refusal should the subject property be made
open for sale. The terms and conditions of rsp.
CHGCCI's purchase thereof shall nonetheless be
subject to presidential approval.
Pursuant to Letter of instruction (LOI) No. 440
issued on July 29,1976 by then President
Ferdinand E. Marcos directing pet. MWSS to
negotiate the cancellation of the MWSS-CHGCCI
lease agreement for the disposition of the subject
property, Oscar Ilustre, then General Manager of
pet. MWSS, sometime in Nov. of 1980 informed
rsp. CHGCCI, through its president herein rsp.
Pablo Roman, Jr., of its preferential right to buy the
subject property which was up for sale. Valuation
thereof was to be made by an appraisal company
of pet. MWSS' choice, the Asian Appraisal Co., Inc.
which, on Jan. 30, 1981, pegged a fair market
value of P40.00 per square meter or a total of
P53,800,000.00 for the subject property.
Upon being informed that pet. MWSS and rsp.
CHGCCI had already agreed in principle on the
purchase of the subject property, President Marcos
expressed his approval of the sale as shown in his
marginal note on the letter sent by rsps. Jose
Roxas and Pablo Roman, Jr. dated Dec. 20, 1982.
The Board of Trustees of pet. MWSS thereafter
passed Resolution 36-83, approving the sale of the
subject property in favor of rsp. SILHOUETTE, as
assignee of rsp. CHGCCI, at the appraised value
given by Asian Appraisal Co., Inc. Said Board
Resolution reads:
NOW, THEREFORE, BE IT
RESOLVED, as it is hereby
resolved, that in accordance with
Sec. 3, Par. (g) of the MWSS
Charter and subject to the approval
of the President of the Philippines,
the sale of a parcel of land located in
Balara, QC, covered by TCT No.
36069 of the Registry of Deeds of
QC, containing an area of ONE
HUNDRED TWENTY SEVEN
(127.313) hectares more or less,
which is the remaining portion of the
area under lease after segregating a
BUFFER ZONE already surveyed
along the undeveloped area near the
treatment plant and the developed
portion of the CHGCCI golf course,
to SILHOUETTE TRADING
CORPORATION as Assignee of
Capitol Hills Golf & Country Club,
Inc., at FORTY (P40.00) PESOS per
square meter, be and is hereby
approved.
BE IT RESOLVED FURTHER, that
the General Manager be authorized,
as he is hereby authorized to sign
for and in behalf of the MWSS the
contract papers and other pertinent
documents relative thereto.
The MWSS-SILHOUETTE sales agreement
eventually pushed through. Per the Agreement
dated May 11, 1983 covering said purchase, the
total price for the subject property is P50,925,200,
P25 Million of which was to be paid upon President
Marcos' approval of the contract and the balance to
be paid within one (1) year from the transfer of the
title to rsp. SILHOUETTE as vendee with interest at
12% per annum. The balance was also secured by
an irrevocable letter of credit. A Supplemental
Agreement was forged between pet. MWSS and
rsp. SILHOUETTE on Aug. 11, 1983 to accurately
identify the subject property.
Subsequently, rsp. SILHOUETTE, under a deed of
sale dated July 26, 1984, sold to rsp. AYALA about
sixty-seven (67) hectares of the subject property at
P110.00 per square meter. Of the total price of
around P74 Million, P25 Million was to be paid by
rsp. AYALA directly to pet. MWSS for rsp.
SILHOUETTE's account and P2 Million directly to
rsp. SILHOUETTE. P11,600,000 was to be paid
upon the issuance of title in favor of rsp. AYALA,
and the remaining balance to be payable within one
(1) year with 12% per annum interest.
Rsp. AYALA developed the land it purchased into a
prime residential area now known as the Ayala
Heights Subdivision.
Almost a decade later, pet. MWSS on March 26,
1993 filed an action against all herein named rsps.
before the RTC of QC seeking for the declaration of
nullity of the MWSS-SILHOUETTE sales
agreement and all subsequent conveyances
involving the subject property, and for the recovery
thereof with damages.
Rsp. AYALA filed its answer pleading the affirmative
defenses of (1) prescription, (2) laches, (3)
waiver/estoppel/ratification, (4) no cause of action,
(5) non-joinder of indispensable parties, and (6)
non-jurisdiction of the court for non-specification of
amount of damages sought.
On June 10, 1993; the TC issued an Order
dismissing the complaint of pet. MWSS on grounds
of prescription, laches, estoppel and non-joinder of
indispensable parties.
Pet. MWSS's MR of such Order was denied, factual moorings of
forcing it to seek relief from the rsp. Court where its their motion.
appeal was docketed as CA-G.R. CV No. 50654. It
assigned as errors the following: IV. The lower court
acted without
I. The court a quo jurisdiction and
committed manifest committed manifest
serious error and error when it resolved
gravely abused its factual issues and
discretion when it made findings and
ruled that plaintiffs conclusions of facts
cause of action is for all in favor of the
annulment of contract Ayalas in the absence
which has already of any evidence
prescribed in the face presented by the
of the clear and parties.
unequivocal recitation
of six causes of V. The court a quo
action in the erred when, contrary
complaint, none of to the rules and
which is for jurisprudence, it
annulment. prematurely ruled that
laches and estoppel
II. The lower court bar the complaint as
erred and exceeded against Ayalas or that
its jurisdiction when, otherwise the alleged
contrary to the rules failure to implead
of court and indispensable parties
jurisprudence, it dictates the dismissal
treated and of the complaint.
considered the
affirmative defenses In the meantime, rsps. CHGCCI and Roman filed
of Ayalas — defenses their own motions to hear their affirmative defenses
not categorized by which were identical to those adduced by rsp.
the rules as grounds AYALA. For its part, rsp. SILHOUETTE filed a
for a MTD — as similarly grounded MTD.
grounds of a MTD
which justify the Ruling upon these motions, the TC issued an order
dismissal of the dated Dec. 13, 1993 denying all of them. The
complaint. motions for reconsideration of the rsps. concerned
met a similar fate in the May 9, 1994 Order of the
III. The lower court TC. They thus filed special civil actions for certiorari
abused its discretion before the rsp. Court which were docketed as CA-
and exceeded its G.R. SP Nos. 34605, 34718 and 35065 and
jurisdiction when it thereafter consolidated with CA-G.R. CV No. 50694
favorably acted on for disposition.
Ayala's motion for
preliminary hearing of Rsp. court, on Aug. 19, 1996, rendered the assailed
affirmative defenses decision, the dispositive portion of which reads:
(MTD) by dismissing
the complaint without WHEREFORE, judgment is
conducting a hearing rendered:
or otherwise requiring
the Ayalas to present 1.) DENYING the petitions for writ of
evidence on the certiorari for lack of merit; and
 2.) AFFIRMING the order of the
lower court dismissing the complaint
against the appellees Ayalas.
SO ORDERED.
In GR 128520, pet. MWSS avers that:
Pet. MWSS appealed to this Court that portion of
the rsp. Court's decision affirming the TC's
dismissal of its complaint against rsp. AYALA,
docketed as GR 126000. The portion dismissing
the petition for certiorari (CA-GR Nos. 34605,
347718 and 35065) of rsps. Roman, CHGCCI and
SILHOUETTE, however, became final and
executory for their failure to appeal therefrom.
Nonetheless, these rsps. were able to thereafter file
before the TC another MTD grounded, again, on
prescription which the TC in an Order of Oct. 1996
granted.
This prompted pet. MWSS to file another petition
for review of said TC Order before this Court and
docketed as GR 128520. On motion of pet. MWSS,
this Court in a Resolution dated Dec. 3, 1997
directed the consolidation of G.R. Nos. 126000 and
128520.
The errors assigned by pet. MWSS in CA-GR No.
126000 are:
I.
In holding, per the questioned
Decision dated 19 Aug. 1996, that
plaintiffs cause of action is for
annulment of contract which has
already prescribed in the face of the
clear and unequivocal recitation of
six causes of action in the complaint,
none of which is for annulment, and
in effect affirming the dismissal by
the rsp. judge of the complaint
against rsp. Ayalas. This conclusion
of rsp. CH is, with due respect,
manifestly mistaken and legally
absurd.
II.
In failing to consider that the
complaint recited six alternative
causes of action, such that the
insufficiency of one cause —
assuming there is such insufficiency
— does not render insufficient the
other causes and the complaint
itself. The contrary ruling in this
regard by rsp. CA is founded entirely
on speculation and conjecture and is
constitutive of grave abuse of
discretion.
I.
The court of origin erred in belatedly
granting rsp.'s motions to dismiss
which are but a rehash, a
disqualification, of their earlier
motion for preliminary hearing of
affirmative defense / MTD. These
previous motions were denied by the
lower court, which denial the rsps.
raised to the CA by way of perfection
for certiorari, which petitions in turn
were dismissed for lack of merit by
the latter court. The correctness and
validity of the lower court's previous
orders denying movant's motion for
preliminary hearing of affirmative
defense / MTD has accordingly been
settled already with finality and
cannot be disturbed or challenged
anew at this instance of defendant's
new but similarly anchored motions
to dismiss, without committing
procedural heresy causative of
miscarriage of justice.
II.
The lower court erred in not
implementing correctly the decision
of the Court of Appeal. After all,
rsps.' own petitions for certiorari
questioning the earlier denial of their
motion for preliminary hearing of
affirmative defense / MTD were
dismissed by the Court of Appeal, in
the process of affirming the validity
and legality of such denial by the
court a quo. The dismissal of the
rsps.' petitions are embodied in the
dispositive portion of the said
decision of the CA dated 19 Aug.
1996. The lower court cannot
choose to disregard such decretal
aspect of the decision and instead
implement an obiter dictum.
III.
 That part of the decision of the
decision of the CA resolving the
issue of prescription attendant to the
appeal of plaintiff against the Ayalas,
has been appealed by plaintiff to the
SC by way of a petition for review on
certiorari. Not yet being final and
executory, the lower court erred in
making capital out of the same to
dismiss the case against the other
defendants, who are the rsps.
herein.
IV.
The lower court erred in holding, per
the questioned orders, that plaintiff's
cause of action is for annulment of
contract which has already
prescribed in the face of the clear
and unequivocal recitation of six
causes of action in the complaint,
none of which is for annulment. This
conclusion of public rsp. is
manifestly mistaken and legally
absurd.
V.
The court a quo erred in failing to
consider the complaint recites six
alternative causes of action, such
that the insufficiency of one cause —
assuming there is such insufficiency
— does not render insufficient the
other cause and the complaint itself.
The contrary ruling in this regard by
public rsp. is founded entirely on
speculation and conjecture and is
constitutive of grave abuse of
discretion.
In disposing of the instant petition, this Court shall
dwell on the more crucial grounds upon which the
TC and rsp. based their respective rulings
unfavorable to pet. MWSS; i.e., prescription,
laches, estoppel/ratification and non-joinder of
indispensable parties.
RE: Prescription
Pet. MWSS claims as erroneous both the lower
courts' uniform finding that the action has
prescribed, arguing that its complaint is one to
declare the MWSS-SILHOUETTE sale, and all
subsequent conveyances of the subject property,
void which is imprescriptible.
We disagree.
The very allegations in pet. MWSS' complaint show
that the subject property was sold through contracts
which, at most, can be considered only as voidable,
and not void. Paragraph 12 of the complaint reads
in part:
12. . . . .
The plaintiff has been in continuous,
peaceful and public possession and
ownership of the afore-described
properties, the title (TCT No. [36069]
199170) thereto, including its
derivative titles TCT Nos. 213872
and 307655, having been duly
issued in its name. However, as a
result of fraudulent and illegal acts of
herein defendants, as described in
the paragraphs hereinafter following,
the original of said title/s were
cancelled and in lieu thereof new
titles were issued to corporate
defendant/s covering subject
127.9271 hectares. . . . .
Paragraph 34 alleges:
34. Sometime thereafter, clearly
influenced by the premature if not
questionable approval by Mr. Marcos
of a non-existent agreement, and
despite full knowledge that both the
assessed and market value of
subject property were much higher,
the MWSS Board of Trusties illegally
passed an undated resolution
("Resolution No. 36-83"), approving
the "sale" of the property to CHGCCI
at P40/sq.m. and illegally authorizing
General Manager Ilustre to sign the
covering contract.
This "resolution" was signed by
Messrs. Jesus Hipolito as Chairman;
Oscar Ilustre, as Vice Chairman;
Aflredo Junio, as Member; and
Silvestre Payoyo, as Member; . . . .
Paragraph 53 states:
 53. Defendants Pablo Roman, Jr.,
Josefino Cenizal, and Jose Roxas
as well as defendant corporations
(CHGCCI, STC and Ayala) who
acted through the former and their
other principal officers, knowingly
induced and caused then President
Marcos and the former officers of
plaintiff MWSS to enter into the
aforesaid undated "Agreement"
which are manifestly and grossly
disadvantageous to the government
and which gave the same
defendants unwarranted benefits,
i.e., the ownership and dominion of
the afore-described property of
plaintiff.
Paragraph 54 avers:
54. Defendants Jesus Hipolito and
Alfredo Junio, then public officers,
together with the other public officers
who are now deceased (Ferdinand
Marcos, Oscar Ilustre, and Sivestre
Payoyo) knowingly allowed
themselves to be persuaded,
induced and influenced to approve
and/or enter into the aforementioned
"Agreements" which are grossly and
manifestly disadvantageous to the
MWSS/government and which
bestowed upon the other defendants
the unwarranted benefit/ownership
of subject property.
The three elements of a contract — consent, the
object, and the cause of obligation 1 are all present.
It cannot be otherwise argued that the contract had
for its object the sale of the property and the cause
or consideration thereof was the price to be paid
(on the part of rsps. CHGCCI/SILHOUETTE) and
the land to be sold (on the part of pet. MWSS).
Likewise, pet. MWSS' consent to the May 11, 1983
and Aug. 11, 1983 Agreements is patent on the
face of these documents and on its own resolution
No. 36-83.
As noted by both lower courts, pet. MWSS admits
that it consented to the sale of the property, with the
qualification that such consent was allegedly unduly
influenced by the President Marcos. Taking such
allegation to be hypothetically true, such would
have resulted in only voidable contracts because all
three elements of a contract, still obtained
nonetheless. The alleged vitiation of MWSS'
consent did not make the sale null and void ab
initio. Thus, "a contract where consent is given
through mistake, violence, intimidation, undue
influence or fraud, is voidable" 2. Contracts "where
consent is vitiated by mistake, violence,
intimidation, undue influence or fraud" are voidable
or annullable 3. These are not void as —
Concepts of Voidable Contracts. —
Voidable or anullable contracts are
existent, valid, and binding, although
they can be annulled because of
want of capacity or vitiated consent
of the one of the parties, but before
annulment, they are effective and
obligatory between parties. Hence, it
is valid until it is set aside and its
validity may be assailed only in an
action for that purpose. They can be
confirmed or ratified. 4
As the contracts were voidable at the most, the four
year prescriptive period under Art. 1391 of the NCC
will apply. This Art. provides that the prescriptive
period shall begin in the cases of intimidation,
violence or undue influence, from the time the
defect of the consent ceases", and "in case of
mistake or fraud, from the time of the discovery of
the same time".
Hypothetically admitting that President Marcos
unduly influenced the sale, the prescriptive period
to annul the same would have begun on Feb. 26,
1986 which this Court takes judicial notice of as the
date President Marcos was deposed. Prescription
would have set in by Feb. 26, 1990 or more than
three years before pet. MWSS' complaint was
failed.
However, if pet. MWSS' consent was vitiated by
fraud, then the prescriptive period commenced
upon discovery. Discovery commenced from the
date of the execution of the sale documents as pet.
was party thereto. At the least, discovery is deemed
to have taken place on the date of registration of
the deeds with the register of Deeds as registration
is constructive notice to the world. 5 Given these
two principles on discovery, the prescriptive period
commenced in 1983 as pet. MWSS actually knew
of the sale, or, in 1984 when the agreements were
registered and titles thereafter were issued to rsp.
SILHOUTTE. At the latest, the action would have
prescribed by 1988, or about five years before the
complaint was instituted. Thus, in Aznar vs.
Bernard 6, this Court held that:
 Lastly, even assuming that the pet/s
had indeed failed to raise the
affirmative defense of prescription in
a MTD or in an appropriate pleading
(answer, or amended or
supplemental answer) and an
amendment would no longer be
feasible, still prescription, if apparent
on the face of the complaint, may be
favorably considered. In the case at
bar, the pr.rsps. admit in their
complaint that the contract or real
estate mortgage which they alleged
to be fraudulent and which had been
foreclosed, giving rise to this
controversy with the pet/s, was
executed on July 17, 1978, or more
than eight long years before the
commencement of the suit in the
court a quo, on Sept. 15, 1986. And
an action declare a contract null and
void on the ground of fraud must be
instituted within four years.
Extinctive prescription is thus
apparent on the face of the
complaint itself as resolved by the
Court.
Pet. MWSS further contends that prescription does
not apply as its complaint prayed not for the
nullification of voidable contracts but for the
declaration of nullity of void ab initio contracts
which are imprescriptible. This is incorrect, as the
prayers in a complaint are not determinative of
what legal principles will operate based on the
factual allegations of the complaint. And these
factual allegations, assuming their truth, show that
MWSS consented to the sale, only that such
consent was purportedly vitiated by undue
influence or fraud. Therefore, the rules on
prescription will operate. Even if pet. MWSS asked
for the declaration of nullity of these contracts, the
prayers will not be controlling as only the factual
allegations in the complaint determine relief. "(I)t is
the material allegations of fact in the complaint, not
the legal conclusion made therein or the prayer that
determines the relief to which the plaintiff is
entitled" 7. Rsp. court is thus correct in holding that:
xxx xxx xxx
The totality then of those allegations
in the complaint makes up a case of
a voidable contract of sale — not a
void one. The determinative
allegations are those that point out
that the consent of MWSS in the
Agreement of Sale was vitiated
either by fraud or undue for the
declaration of nullity of the said
contract because the Complaint
says no. Basic is the rule however
that it is the body and not the caption
nor the prayer of the Complaint that
determines the nature of the action.
True, the caption and prayer of the
Complaint state that the action is for
a judicial declaration of nullity of a
contract, but alas, as already pointed
out, its body unmistakably alleges
only a voidable contract. One cannot
change the real nature of an action
adopting a different nomenclature
any more than one can change gin
into whisky by just replacing the
label on the bottle with that of the
latter's and calling it whisky. No
matter what, the liquid inside
remains gin.
xxx xxx xxx
Pet. MWSS also theorizes that the May 11, 1983
MWSS-SILHOUTTE Agreement and the Aug. 11,
1983 Supplemental Agreement were void ab initio
because the "initial agreement" from which these
agreements emanated was executed "without the
knowledge, much less the approval" of pet. MWSS
through its Board of Trustees. The "initial
agreement" referred to in pet. MWSS' argument is
the Dec. 20, 1982 letter of rsps. Roxas and Roman,
Jr. to President Marcos where the authors
mentioned that they had reached an agreement
with pet.'s then general manager, Mr. Oscar Ilustre.
Pet. MWSS maintains that Mr. Ilustre was not
authorized to enter into such "initial agreement",
contrary to Art. 1874 of the NCC which provides
that "when a sale of a parcel of land or any interest
therein is through an agent, the authority of the
latter shall be in writing otherwise the sale shall be
void." It then concludes that since its Res. No. 36-
83 and the May 11, 1983 and Aug. 11, 1983
Agreements are "fruits" of the "initial agreement"
(for which Mr. Ilustre was allegedly not authorized
in writing), all of these would have been also void
under Art. 1422 of NCC, which provides that a
contract which is the direct result of a pronounced
illegal contract, is also void and inexistent."
The argument does not impress. The "initial
agreement" reflected in the Dec. 20, 1982 letter of
rsp. Roman to Pres. Marcos, is not a sale under
Art. 1874. Since the nature of the "initial n
agreement" is crucial, we made
quotes 8 the letter in full: a
counte
We respectfully approach Your r-offer
Excellency in all humility and in the and
spirit of the Yuletide Season. We our
have explained to Your Excellency accept
when you allowed us the honor to ance
see you, that the negotiations with counte
MWSS which the late Pablo R. r-offer.
Roman initiated way back in 1975,
with your kind approval, will finally However, we were informed by Mr.
be concluded. Ilustre that only written instruction
from Your Excellency will allow us to
We have agreed in principle with Mr. finally sign the Agreement.
Oscar Ilustre on the terms of the
sale as evidenced by the following: In sum, our Agreement is for the
purchase price of FIFTY-SEVEN
1. Our MILLION TWO-HUNDRED-FORTY
written THOUSAND PESOS (P57,240,000)
agree for the entire leased area of 135
ment hectares; TWENTY-SEVEN
to hire MILLION PESOS (P27,000,000)
Asian payable upon approval of the
Apprai contract by Your Excellency and the
sal balance of THIRTY MILLION TWO
Compa HUNDRED FORTY THOUSAND
ny to PESOS (P30,240,000) after one (1)
apprai year inclusive of a 12% interest.
se the
entire We believe that this arrangement is
leased fair and equitable to both parties
area considering that the value of the land
which was appraised by a reputable
then company and independent appraisal
be the company jointly commissioned by
basis both parties and considering further
for the that Capitol Hills has still a 23-year
negoti lien on the property by virtue of its
ations existing lease contract with MWSS.
of the
purcha We humbly seek your instruction,
se Your Excellency and please accept
price our families' sincere wish for a Merry
of the Christmas and a Happy New Year to
propert you and the First Family.
y; and
The foregoing does not document a sale, but at
2. Our most, only the conditions proposed by rsp. Roman
exchan to enter into one. By the terms thereof, it refers only
ge of to an "agreement in principle". Reflecting a future
comm consummation, the letter mentions "negotiations
unicati with MWSS (which) with your (Marcos) kind
ons approval, will finally be concluded". It must likewise
wherei be noted that presidential approval had yet to be
obtained. Thus, the "initial agreement" was not a part of
sale as it did not in any way transfer ownership the
over the property. The proposed terms had yet to defend
be approval by the President and the agreement in ant, or
principle still had to be formalized in a deed of sale. one
Written authority as is required under Art. 1834 of under
the NCC, was not needed at the point of the "initial whom
agreement". he
claims,
Verily, the principle on prescription of actions is giving
designed to cover situations such as the case at rise to
bar, where there have been a series of transfers to the
innocent purchasers for value. To set aside these situatio
transactions only to accommodate a party who has n that
slept on his rights is anathema to good order. 9 led to
the
RE: Laches compla
int and
Even assuming, for argument's sake, that the for
allegations in the complaint establish the absolute which
nullity of the assailed contracts and hence the
imprescriptible, the complaint can still be dismissed compla
on the ground of laches which is different from int
prescription. This Court, as early as 1966, has seeks
distinguished these two concepts in this wise: a
remed
. . . (T)he defense of laches applies y;
independently of prescription.
Laches is different from the statute (2)
of limitations. Prescription is delay
concerned with the fact of delay, in
whereas laches, is concerned with asserti
the effect of delay. Prescription is a ng the
matter of time; laches is principally a compla
question of inequity of permitting a inant's
claim to be enforced, this inequity rights,
being founded on some change in having
the condition of the property or the had
relation of the parties. Prescription is knowle
statutory; laches is not. Laches dge or
applies in inequity, whereas notice
prescription applies at law. of the
Prescription is based on fixed-time; defend
laches is not. 10 ant's
conduc
Thus, the prevailing doctrine is that the right t and
to have a contract declared void ab initio having
may be barred by laches although not been
barred by prescription. 11 afforde
d an
opport
It has, for all its elements are present, viz:
unity to
institut
(1) e a
conduc suit;
t on
the
 (3) The second element of delay is evident from the
lack of fact that pet. tarried for almost ten (10) years from
knowle the conclusion of the sale sometime in 1983 before
dge or formally laying claim to the subject property in
notice 1993.
on the
part of The third element is present as can be deduced
the from the allegations in the complaint that pet.
defend MWSS (a) demanded for a downpayment for no
ant less than three times; (b) accepted downpayment
that for P25 Million; and (c) accepted a letter of credit
the for the balance. The pertinent paragraphs in the
compla complaint thus read:
inant
would 38. In a letter dated Sept. 19, 1983,
assert for failure of CHGCCI to pay on time,
the Mr. Ilustre demanded payment of the
right downpayment of P25 Million which
on was due as of 18 April 1983. A copy
which of this letter is hereto attached as
he Annex "X";
bases
his 39. Again, in a letter dated Feb. 7,
suit; 1984, then MWSS Acting General
and Manager Aber Canlas demanded
payment from CHGCCI of the
(4) purchase price long overdue. A copy
injury of this letter is hereto attached as
or Annex "Y";
prejudi
ce to 40. Likewise, in a letter dated March
the 14, 1984, Mr. Canlas again
defend demanded from CHGCCI payment
ant in of the price. A copy of this demand
the letter is hereto attached as Annex
event "Z";
relief is
accord 41. Thereafter, in a letter dated July
ed to 27, 1984, another entity, defendant
the Ayala Corporation, through SVP
compla Renato de la Fuente, paid with a
inant, check the long overdue
or the downpayment of P25,000,000.00 of
suit is STC/CHGCCI. Likewise a domestic
not stand-by letter of credit for the
held balance was issued in favor of
barred. MWSS; Copies of the said letter,
12
check and letter of credit are hereto
attached as Annexes "AA", "BB",
There is no question on the presence of the first and "CC", respectively.
element. the main thrust of pet. MWSS's complaint
is to bring to the fore what it claims as fraudulent Under these facts supplied by pet. MWSS
and/or illegal acts of the rsps. in the acquisition of itself, rsps. have every good reason to
the subject property. believe that pet. was honoring the validity of
the conveyances of the subject property,
and that the sudden institution of the
 complaint in 1993 alleging the nullity of such
conveyances was surely an unexpected
turn of events for rsps.. Hence, pet. MWSS
cannot escape the effect of laches.
RE: Ratification
Pertinent to this issue is the claim of pet. MWSS
that Mr. Ilustre was never given the authority by its
Board of Trustees to enter into the "initial
agreement" of Dec. 20, 1982 and therefore, the
sale of the subject property is invalid.
Pet. MWSS misses the paint. The perceived
infirmity in the "initial agreement" can be cured by
ratification. So settled is the precept that ratification
can be made by the corporate board either
expressly or impliedly. Implied ratification may take
various forms — like silence or acquiescence; by
acts showing approval or adoption of the contract;
or by acceptance and retention of benefits flowing
therefrom. 13 Both modes of ratification have been
made in this case.
There was express ratification made by the Board
of pet. MWSS when it passed Resolution No. 36-83
approving the sale of the subject property to rsp.
SILHOUETTE and authorizing Mr. Ilustre, as
General Manager, "to sign for and in behalf of the
MWSS the contract papers and other pertinent
documents relative thereto." Implied ratification by
"silence or acquiescence" is revealed from the acts
of pet. MWSS in (a) sending three (3) demand
letters for the payment of the purchase price, (b)
accepting P25 Million as downpayment, and (c)
accepting a letter of credit for the balance, as
hereinbefore mentioned. It may well be pointed out
also that nowhere in pet. MWSS' complaint is it
alleged that it returned the amounts, or any part
thereof, covering the purchase price to any of the
rsps.-vendees at any point in time. This is only
indicative of pet. MWSS' acceptance and retention
of benefits flowing from the sales transactions
which is another form of implied ratification.
RE: Non-joinder of indispensable parties
There is no denying that pet. MWSS' action against
herein rsps. for the recovery of the subject property
now converted into a prime residential subdivision
would ultimately affect the proprietary rights of the
many lot owners to whom the land has already
been parceled out. They should have been
included in the suit as parties-defendants, for "it is
well established that owners of property over which
reconveyance is asserted are indispensable parties
without whom no relief is available and without
whom the court can render no valid judgment." 14
Being indispensable parties, the absence of these
lot-owners in the suit renders all subsequent
actions of the TC null and void for want of authority
to act, not only as to the absent parties but even as
to those present. 15 Thus, when indispensable
parties are not before the court, the action should
be dismissed. 16
WHEREFORE, in view of the foregoing, the
consolidated petitions are hereby DENIED.
GR 74917 Jan. 20, 1988
BANCO DE ORO SAVINGS AND MORTGAGE
BANK, pet.,
vs.
EQUITABLE BANKING CORPORATION,
PHILIPPINE CLEARING HOUSE CORPORATION,
AND RTC OF QC, BRANCH XCII (92), rsps..
GANCAYCO, J.:
This is a petition for review on certiorari of a
decision of the RTC of QC promulgated on March
24, 1986 in Civil Case No. Q-46517 entitled Banco
de Oro Savings and Mortgage Bank versus
Equitable Banking Corporation and the Philippine
Clearing House Corporation after a review of the
Decision of the Board of Directors of the Philippine
Clearing House Corporation (PCHC) in the case of
Equitable Banking Corporation (EBC) vs. Banco de
Oro Savings and Mortgage (BCO), ARBICOM Case
No. 84033.
The undisputed facts are as follows:
It appears that some time in March,
April, May and Aug. 1983, plaintiff
through its Visa Card Department,
drew six crossed Manager's check
(Exhibits "A" to "F", and herein
referred to as Checks) having an
aggregate amount of Forty Five
Thousand Nine Hundred and Eighty
Two & 23/100 (P45,982.23) Pesos
and payable to certain member
establishments of Visa Card.
Subsequently, the Checks were
deposited with the defendant to the
credit of its depositor, a certain Aida
Trencio.
Following normal procedures, and
after stamping at the back of the
Checks the usual endorsements. All
prior and/or lack of endorsement
guaranteed the defendant sent the
checks for clearing through the
Philippine Clearing House
Corporation (PCHC). Accordingly,
plaintiff paid the Checks; its clearing
account was debited for the value of
the Checks and defendant's clearing
account was credited for the same
amount,
Thereafter, plaintiff discovered that
the endorsements appearing at the
back of the Checks and purporting to
be that of the payees were forged
and/or unauthorized or otherwise
belong to persons other than the
payees.
Pursuant to the PCHC Clearing
Rules and Regulations, plaintiff
presented the Checks directly to the
defendant for the purpose of
claiming reimbursement from the
latter. However, defendant refused to
accept such direct presentation and
to reimburse the plaintiff for the
value of the Checks; hence, this
case.
In its Complaint, plaintiff prays for
judgment to require the defendant to
pay the plaintiff the sum of
P45,982.23 with interest at the rate
of 12% per annum from the date of
the complaint plus attorney's fees in
the amount of P10K as well as the
cost of the suit.
In accordance with Sec. 38 of the
Clearing House Rules and
Regulations, the dispute was
presented for Arbitration; and Atty.
Ceasar Querubin was designated as
the Arbitrator.
After an exhaustive investigation and
hearing the Arbiter rendered a
decision in favor of the plaintiff and
against the defendant ordering the
PCHC to debit the clearing account
of the defendant, and to credit the
clearing account of the plaintiff of the
amount of P45,982.23 with interest
at the rate of 12% per annum from
date of the complaint and Attorney's
fee in the amount of P5,000.00. No
pronouncement as to cost was
made. 1
In a MR filed by the pet., the Board of Directors of
the PCHC affirmed the decision of the said Arbiter
in this wise:
In view of all the foregoing, the
decision of the Arbiter is confirmed;
and the Philippine Clearing House
Corporation is hereby ordered to
debit the clearing account of the
defendant and credit the clearing
account of plaintiff the amount of
Forty Five Thousand Nine Hundred
Eighty Two & 23/100 (P45,982.23)
Pesos with interest at the rate of
12% per annum from date of the
complaint, and the Attorney's fee in
the amount of Five Thousand
(P5,000.00) Pesos.
Thus, a petition for review was filed with the RTC of
QC, Branch XCII, wherein in due course a decision
was rendered affirming in toto the decision of the
PCHC.
Hence this petition.
The petition is focused on the following issues:
1. Did the PCHC have any jurisdiction to give due
course to and adjudicate Arbicom Case No. 84033?
2. Were the subject checks non-negotiable and if
not, does it fall under the ambit of the power of the
PCHC?
3. Is the Negotiable Instrument Law, Act No. 2031
applicable in deciding controversies of this nature
by the PCHC?
4. What law should govern in resolving
controversies of this nature?
5. Was the pet. bank negligent and thus
responsible for any undue payment?
Pet. maintains that the PCHC is not clothed with
jurisdiction because the Clearing House Rules and
Regulations of PCHC cover and apply only to
checks that are genuinely negotiable. Emphasis is
laid on the primary purpose of the PCHC in the
Art.s of Incorporation, which states:
To provide, maintain and render an
effective, convenient, efficient,
economical and relevant exchange
and facilitate service limited to check
processing and sorting by way of
assisting member banks, entities in
clearing checks and other clearing
items as defined in existing and in
future Central Bank of the
Philippines circulars, memoranda,
circular letters, rules and regulations
and policies in pursuance to the
provisions of Sec. 107 of R.A.
265. ...
and Sec. 107 of R.A. 265 which provides:
xxx xxx xxx
The deposit reserves maintained by
the banks in the Central Bank, in
accordance with the provisions of
Sec. 1000 shall serve as a basis for
the clearing of checks, and the
settlement of interbank balances ...
Pet. argues that by law and common sense, the
term check should be interpreted as one that fits
the Art.s of incorporation of the PCHC, the Central
Bank and the Clearing House Rules stating that it is
a negotiable instrument citing the definition of a
"check" as basically a "bill of exchange" under Sec.
185 of the NIL and that it should be payable to
"order" or to "bearer" under Sec. 126 of game law.
Pet. alleges that with the cancellation of the printed
words "or bearer from the face of the check, it
becomes non-negotiable so the PCHC has no
jurisdiction over the case.
The RTC took exception to this stand and
conclusion put forth by the herein pet. as it held:
Pet.'s theory cannot be maintained.
As will be noted, the PCHC makes
no distinction as to the character or
nature of the checks subject of its
jurisdiction. The pertinent provisions
quoted in pet/s memorandum simply
refer to check(s). Where the law
does not distinguish, we shall not
distinguish.
In the case of Reyes vs. Chuanico
(CA-GR 20813 R, Feb. 5, 1962) the
Appellate Court categorically stated
that there are four kinds of checks in
this jurisdiction; the regular check;
the cashier's check; the traveller's
check; and the crossed check. The
Court, further elucidated, that while
the Negotiable Instruments Law
does not contain any provision on
crossed checks, it is coon practice in
commercial and banking operations
to issue checks of this character,
obviously in accordance with Art.
541 of the Code of Commerce.
Attention is likewise called to Sec.
185 of the Negotiable Instruments
Law:
Sec. 185. Check
defined. — A check is
a bill of exchange
drawn on a bank
payable on demand.
Except as herein
otherwise provided,
the provisions of this
act applicable to a bill
of exchange payable
on demand apply to a
check
and the provisions of Sec. 61 (supra)
that the drawer may insert in the
instrument an express stipulation
negating or limiting his own liability
to the holder. Consequently, it
appears that the use of the term
"check" in the Art.s of Incorporation
of PCHC is to be perceived as not
limited to negotiable checks only, but
to checks as is generally known in
use in commercial or business
transactions.
Anent Pet.'s liability on said
instruments, this court is in full
accord with the ruling of the PCHC
Board of Directors that:
In presenting the
Checks for clearing
and for payment, the
 defendant made an non-negotiable checks are within the ambit of its
express guarantee on jurisdiction.
the validity of "all prior
endorsements." Thus, In a previous case, this Court had occasion to rule:
stamped at the back "Ubi lex non distinguish nec nos distinguere
of the checks are the debemos." 2 It was enunciated in Loc Cham v.
defendant's clear Ocampo, 77 Phil. 636 (1946):
warranty; ALL PRIOR
ENDORSEMENTS The rule, founded on logic is a
AND/OR LACK OF corollary of the principle that general
ENDORSEMENTS words and phrases in a statute
GUARANTEED. With. should ordinarily be accorded their
out such warranty, natural and general significance. In
plaintiff would not other words, there should be no
have paid on the distinction in the application of a
checks. statute where none is indicated.

No amount of legal There should be no distinction in the application of

jargon can reverse a statute where none is indicated for courts are not
the clear meaning of authorized to distinguish where the law makes no
defendant's warranty. distinction. They should instead administer the law
As the warranty has not as they think it ought to be but as they find it
proven to be false and without regard to consequences. 3
and inaccurate, the
defendant is liable for The term check as used in the said Art.s of
any damage arising Incorporation of PCHC can only connote checks in
out of the falsity of its general use in commercial and business activities.
representation. It cannot be conceived to be limited to negotiable
checks only.
The principle of
estoppel, effectively Checks are used between banks and bankers and
prevents the their customers, and are designed to facilitate
defendant from banking operations. It is of the essence to be
denying liability for payable on demand, because the contract between
any damage the banker and the customer is that the money is
sustained by the needed on demand. 4
plaintiff which, relying
upon an action or The participation of the two banks, pet. and private
declaration of the rsp., in the clearing operations of PCHC is a
defendant, paid on manifestation of their submission to its jurisdiction.
the Checks. The Sec. 3 and 36.6 of the PCHC-CHRR clearing rules
same principle of and regulations provide:
estoppel effectively
prevents the
SEC. 3. AGREEMENT TO THESE
defendant from
RULES. — It is the general
denying the existence
agreement and understanding that
of the Checks. (Pp.
any participant in the Philippine
1011 Decision; pp.
Clearing House Corporation, MICR
4344, Rollo)
clearing operations by the mere fact
of their participation, thereby
We agree. manifests its agreement to these
Rules and Regulations and its
As provided in the aforecited Art.s of incorporation subsequent amendments."
of PCHC its operation extend to "clearing checks
and other clearing items." No doubt transactions on Sec 36.6. (ARBITRATION) — The
fact that a bank participates in the
 clearing operations of the PCHC
shall be deemed its written and
subscribed consent to the binding
effect of this arbitration agreement
as if it had done so in accordance
with Sec. 4 of the Republic Act No.
876, otherwise known as the
Arbitration Law.
Further Sec. 2 of the Arbitration Law mandates:
Two or more persons or parties may
submit to the arbitration of one or
more arbitrators any controversy
existing between them at the time of
the submission and which may be
the subject of an action, or the
parties of any contract may in such
contract agree to settle by arbitration
a controversy thereafter arising
between them. Such submission or
contract shall be valid and
irrevocable, save upon grounds as
exist at law for the revocation of any
contract.
Such submission or contract may
include question arising out of
valuations, appraisals or other
controversies which may be
collateral, incidental, precedent or
subsequent to any issue between
the parties. ...
Sec. 21 of the same rules, says:
Items which have been the subject
of material alteration or items
bearing forged endorsement when
such endorsement is necessary for
negotiation shall be returned by
direct presentation or demand to the
Presenting Bank and not through the
regular clearing house facilities
within the period prescribed by law
for the filing of a legal action by the
returning bank/branch, institution or
entity sending the same. (Emphasis
supplied)
Viewing these provisions the conclusion is clear
that the PCHC Rules and Regulations should not
be interpreted to be applicable only to checks which
are negotiable instruments but also to non-
negotiable instruments and that the PCHC has
jurisdiction over this case even as the checks
subject of this litigation are admittedly non-
negotiable.
Moreover, pet. is estopped from raising the defense
of non-negotiability of the checks in question. It
stamped its guarantee on the back of the checks
and subsequently presented these checks for
clearing and it was on the basis of these
endorsements by the pet. that the proceeds were
credited in its clearing account.
The pet. by its own acts and representation can not
now deny liability because it assumed the liabilities
of an endorser by stamping its guarantee at the
back of the checks.
The pet. having stamped its guarantee of "all prior
endorsements and/or lack of endorsements" (Exh.
A-2 to F-2) is now estopped from claiming that the
checks under consideration are not negotiable
instruments. The checks were accepted for deposit
by the pet. stamping thereon its guarantee, in order
that it can clear the said checks with the rsp. bank.
By such deliberate and positive attitude of the pet. it
has for all legal intents and purposes treated the
said cheeks as negotiable instruments and
accordingly assumed the warranty of the endorser
when it stamped its guarantee of prior
endorsements at the back of the checks. It led the
said rsp. to believe that it was acting as endorser of
the checks and on the strength of this guarantee
said rsp. cleared the checks in question and
credited the account of the pet.. Pet. is now barred
from taking an opposite posture by claiming that the
disputed checks are not negotiable instrument.
This Court enunciated in PNB vs. CA 5 a point
relevant to the issue when it stated the doctrine of
estoppel is based upon the grounds of public policy,
fair dealing, good faith and justice and its purpose
is to forbid one to speak against his own act,
representations or commitments to the injury of one
to whom they were directed and who reasonably
relied thereon.
A commercial bank cannot escape the liability of an
endorser of a check and which may turn out to be a
forged endorsement. Whenever any bank treats the
signature at the back of the checks as
endorsements and thus logically guarantees the
same as such there can be no doubt said bank has
considered the checks as negotiable.
Apropos the matter of forgery in endorsements, this
Court has succinctly emphasized that the collecting
bank or last endorser generally suffers the loss
because it has the duty to ascertain the
genuineness of all prior endorsements considering
that the act of presenting the check for payment to
the drawee is an assertion that the party making
the presentment has done its duty to ascertain the
genuineness of the endorsements. This is laid
down in the case of PNB vs. National City Bank. 6
In another case, this court held that if the drawee-
bank discovers that the signature of the payee was
forged after it has paid the amount of the check to
the holder thereof, it can recover the amount paid
from the collecting bank. 7
A truism stated by this Court is that — "The
doctrine of estoppel precludes a party from
repudiating an obligation voluntarily assumed after
having accepted benefits therefrom. To
countenance such repudiation would be contrary to
equity and put premium on fraud or
misrepresentation". 8
We made clear in Our decision in PNB vs. The
National City Bank of NY & Motor Service Co. that:
Where a check is accepted or
certified by the bank on which it is
drawn, the bank is estopped to deny
the genuineness of the drawers
signature and his capacity to issue
the instrument.
If a drawee bank pays a forged
check which was previously
accepted or certified by the said
bank, it can not recover from a
holder who did not participate in the
forgery and did not have actual
notice thereof.
The payment of a check does not
include or imply its acceptance in the
sense that this word is used in Sec.
62 of the Negotiable Instruments
Act. 9
The point that comes uppermost is whether the
drawee bank was negligent in failing to discover the
alteration or the forgery. Very akin to the case at
bar is one which involves a suit filed by the drawer
of checks against the collecting bank and this came
about in Farmers State Bank 10 where it was held:
A cause of action against the
(collecting bank) in favor of the
appellee (the drawer) accrued as a
result of the bank breaching its
implied warranty of the genuineness
of the indorsements of the name of
the payee by bringing about the
presentation of the checks (to the
drawee bank) and collecting the
amounts thereof, the right to enforce
that cause of action was not
destroyed by the circumstance that
another cause of action for the
recovery of the amounts paid on the
checks would have accrued in favor
of the appellee against another or to
others than the bank if when the
checks were paid they have been
indorsed by the payee. (US vs.
National Exchange Bank, 214 US,
302, 29 S CT665, 53 L. Ed 1006, 16
Am. Cas. 11 84; Onondaga County
Savings Bank vs. US (E.C.A.) 64 F
703)
Sec. 66 of the Negotiable Instruments ordains that:
Every indorser who indorsee 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 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. 11
It has been enunciated in an American case
particularly in American Exchange National Bank
vs. Yorkville Bank 12 that: "the drawer owes no duty
of diligence to the collecting bank (one who had
accepted an altered check and had paid over the
proceeds to the depositor) except of seasonably
discovering the alteration by a comparison of its
returned checks and check stubs or other
equivalent record, and to inform the drawee
thereof." In this case it was further held that:
The real and underlying reasons
why negligence of the drawer
constitutes no defense to the
collecting bank are that there is no
privity between the drawer and the
collecting bank (Corn Exchange
Bank vs. Nassau Bank, 204 N.Y.S.
80) and the drawer owe to that bank
no duty of vigilance (New York
Produce Exchange Bank vs. Twelfth
Ward Bank, 204 N.Y.S. 54) and no
 act of the collecting bank is induced And Give Rise To An
by any act or representation or Obligation
admission of the drawer (Seaboard
National Bank vs. Bank of America To Return Amounts
(supra) and it follows that negligence Received
on the part of the drawer cannot
create any liability from it to the Nothing is more clear than that
collecting bank, and the drawer thus neither the defendant's depositor nor
is neither a necessary nor a proper the defendant is entitled to receive
party to an action by the drawee payment payable for the Checks. As
bank against such bank. It is quite the checks are not payable to
true that depositors in banks are defendant's depositor, payments to
under the obligation of examining persons other than payees named
their passbooks and returned therein, their successor-in-interest or
vouchers as a protection against the any person authorized to receive
payment by the depository bank payment are not valid. Art. 1240,
against forged checks, and NCC of the Philippines
negligence in the performance of unequivocably provides that:
that obligation may relieve that bank
of liability for the repayment of "Art. 1240. Payment
amounts paid out on forged checks, shall be made to the
which but for such negligence it person in whose favor
would be bound to repay. A leading the obligation has
case on that subject is Morgan vs. been constituted, or
US Mortgage and Trust Col. 208 his successo-in-
N.Y. 218, 101 N.E. 871 Amn. Cas. interest, or any
1914D, 462, L.R.A. 1915D, 74. person authorized to
receive it. "
Thus We hold that while the drawer generally owes
no duty of diligence to the collecting bank, the law Considering that neither the
imposes a duty of diligence on the collecting bank defendant's depositor nor the
to scrutinize checks deposited with it for the defendant is entitled to receive
purpose of determining their genuineness and payments for the Checks, payments
regularity. The collecting bank being primarily to any of them give rise to an
engaged in banking holds itself out to the public as obligation to return the amounts
the expert and the law holds it to a high standard of received. Sec. 2154 of the NCC
conduct. mandates that:

And although the subject checks are non- Art. 2154. If

negotiable the responsibility of pet. as indorser something is received
thereof remains. when there is no right
to demand it, and it
To countenance a repudiation by the pet. of its was unduly delivered
obligation would be contrary to equity and would through mistake, the
deal a negative blow to the whole banking system obligation to return it
of this country. arises.

The court reproduces with approval the following
disquisition of the PCHC in its decision —
II. Payments To Persons Other
Than The Payees Are
Not Valid
It is contended that plaintiff should
be held responsible for issuing the
Checks notwithstanding that the
underlying transactions were
fictitious This contention has no
basis in our jurisprudence.
The nullity of the underlying
transactions does not diminish, but
in fact strengthens, plaintiffs right to
recover from the defendant. Such
nullity clearly emphasizes the
obligation of the payees to return the
proceeds of the Checks. If a failure
of consideration is sufficient to
warrant a finding that a payee is not
entitled to payment or must return
payment already made, with more
reason the defendant, who is neither
the payee nor the person authorized
by the payee, should be compelled
to surrender the proceeds of the
Checks received by it. Defendant
does not have any title to the
Checks; neither can it claim any
derivative title to them.
III. Having Violated Its Warranty
On Validity Of All
Endorsements,
Collecting Bank
Cannot Deny
liability To Those Who
Relied
On Its Warranty
In presenting the Checks for clearing
and for payment, the defendant
made an express guarantee on the
validity of "all prior endorsements."
Thus, stamped at the bank of the
checks are the defendant's clear
warranty: ALL PRIOR
ENDORSEMENTS AND/OR LACK
OF ENDORSEMENTS
GUARANTEED. Without such
warranty, plaintiff would not have
paid on the checks.
No amount of legal jargon can
reverse the clear meaning of
defendant's warranty. As the
warranty has proven to be false and
inaccurate, the defendant is liable for
any damage arising out of the falsity
of its representation.
The principle of estoppel effectively
prevents the defendant from denying
liability for any damages sustained
by the plaintiff which, relying upon
an action or declaration of the
defendant, paid on the Checks. The
same principle of estoppel effectively
prevents the defendant from denying
the existence of the Checks.
Whether the Checks have been
issued for valuable considerations or
not is of no serious moment to this
case. These Checks have been
made the subject of contracts of
endorsement wherein the defendant
made expressed warranties to
induce payment by the drawer of the
Checks; and the defendant cannot
now refuse liability for breach of
warranty as a consequence of such
forged endorsements. The
defendant has falsely warranted in
favor of plaintiff the validity of all
endorsements and the genuineness
of the cheeks in all respects what
they purport to be.
The damage that will result if
judgment is not rendered for the
plaintiff is irreparable. The collecting
bank has privity with the depositor
who is the principal culprit in this
case. The defendant knows the
depositor; her address and her
history, Depositor is defendant's
client. It has taken a risk on its
depositor when it allowed her to
collect on the crossed-checks.
Having accepted the crossed checks
from persons other than the payees,
the defendant is guilty of negligence;
the risk of wrongful payment has to
be assumed by the defendant.
On the matter of the award of the
interest and attorney's fees, the
Board of Directors finds no reason to
reverse the decision of the Arbiter.
The defendant's failure to reimburse
the plaintiff has constrained the
plaintiff to regular the services of
counsel in order to protect its
interest notwithstanding that
plaintiffs claim is plainly valid just
and demandable. In addition,
defendant's clear obligation is to
reimburse plaintiff upon direct
presentation of the checks; and it is
 undenied that up to this time the I
defendant has failed to make such
reimbursement. THE RSP. CA ERRED IN RULING
THAT THE NEGLIGENCE OF THE
WHEREFORE, the petition is DISMISSED for lack DRAWER IS THE PROXIMATE
of merit without pronouncement as to costs. The CAUSE OF THE RESULTING
decision of the rsp. court of 24 March 1986 and its INJURY TO THE DRAWEE BANK,
order of 3 June 1986 are hereby declared to be AND THE DRAWER IS
immediately executory. PRECLUDED FROM SETTING UP
THE FORGERY OR WANT OF
GR 92244 Feb. 9, 1993 AUTHORITY.

NATIVIDAD GEMPESAW, pet., II

vs.
THE CA and PHILIPPINE BANK OF THE RSP. CA ALSO ERRED IN
COMMUNICATIONS, rsps.. NOT FINDING AND RULING THAT
IT IS THE GROSS AND
L.B. Camins for pet.. INEXCUSABLE NEGLIGENCE AND
FRAUDULENT ACTS OF THE
Angara, Abello, Concepcion, Regals & Cruz for OFFICIALS AND EMPLOYEES OF
private rsp. THE RSP. BANK IN FORGING THE
SIGNATURE OF THE PAYEES AND
THE WRONG AND/OR ILLEGAL
PAYMENTS MADE TO PERSONS,
CAMPOS, JR., J.: OTHER THAN TO THE INTENDED
PAYEES SPECIFIED IN THE
CHECKS, IS THE DIRECT AND
From the adverse decision * of the CA (CA-G.R. CV
PROXIMATE CAUSE OF THE
No. 16447), pet., Natividad Gempesaw, appealed
DAMAGE TO PET. WHOSE
to this Court in a Petition for Review, on the issue of
SAVING (SIC) ACCOUNT WAS
the right of the drawer to recover from the drawee
DEBITED.
bank who pays a check with a forged indorsement
of the payee, debiting the same against the
drawer's account. III

The records show that on Jan. 23, 1985, pet. filed a THE RSP. CA ALSO ERRED IN
Complaint against the private rsp. Philippine Bank NOT ORDERING THE RSP. BANK
of Communications (rsp. drawee Bank) for recovery TO RESTORE OR RE-CREDIT THE
of the money value of eighty-two (82) checks CHECKING ACCOUNT OF THE
charged against the pet.'s account with the rsp. PET. IN THE CALOOCAN CITY
drawee Bank on the ground that the payees' BRANCH BY THE VALUE OF THE
indorsements were forgeries. The RTC, Branch EIGHTY-TWO (82) CHECKS
CXXVIII of Caloocan City, which tried the case, WHICH IS IN THE AMOUNT OF
rendered a decision on Nov. 17, 1987 dismissing P1,208,606.89 WITH LEGAL
the complaint as well as the rsp. drawee Bank's INTEREST.
counterclaim. On appeal, the CA in a decision
rendered on Feb. 22, 1990, affirmed the decision of From the records, the relevant facts are as follows:
the RTC on two grounds, namely (1) that the
plaintiff's (pet. herein) gross negligence in issuing Pet. Natividad O. Gempesaw (pet.) owns and
the checks was the proximate cause of the loss and operates four grocery stores located at Rizal
(2) assuming that the bank was also negligent, the Avenue Extension and at Second Avenue,
loss must nevertheless be borne by the party Caloocan City. Among these groceries are D.G.
whose negligence was the proximate cause of the Shopper's Mart and D.G. Whole Sale Mart. Pet.
loss. On March 5, 1990, the pet. filed this petition maintains a checking account numbered 13-00038-
under Rule 45 of the Rules of Court setting forth the 1 with the Caloocan City Branch of the rsp. drawee
following as the alleged errors of the rsp. Court: 1 Bank. To facilitate payment of debts to her
suppliers, pet. draws checks against her checking
account with the rsp. bank as drawee. Her
customary practice of issuing checks in payment of
her suppliers was as follows: the checks were
prepared and filled up as to all material particulars
by her trusted bookkeeper, Alicia Galang, an
employee for more than eight (8) years. After the
bookkeeper prepared the checks, the completed
checks were submitted to the pet. for her signature,
together with the corresponding invoice receipts
which indicate the correct obligations due and
payable to her suppliers. Pet. signed each and
every check without bothering to verify the
accuracy of the checks against the corresponding
invoices because she reposed full and implicit trust
and confidence on her bookkeeper. The issuance
and delivery of the checks to the payees named
therein were left to the bookkeeper. Pet. admitted
that she did not make any verification as to W/N the
checks were delivered to their respective payees.
Although the rsp. drawee Bank notified her of all
checks presented to and paid by the bank, pet. did
not verify he correctness of the returned checks,
much less check if the payees actually received the
checks in payment for the supplies she received. In
the course of her business operations covering a
period of two years, pet. issued, following her usual
practice stated above, a total of eighty-two (82)
checks in favor of several suppliers. These checks
were all presented by the indorsees as holders
thereof to, and honored by, the rsp. drawee Bank.
Rsp. drawee Bank correspondingly debited the
amounts thereof against pet.'s checking account
numbered 30-00038-1. Most of the aforementioned
checks were for amounts in excess of her actual
obligations to the various payees as shown in their
corresponding invoices. To mention a few:
. . . 1) in Check No. 621127, dated
June 27, 1984 in the amount of
P11,895.23 in favor of Kawsek Inc.
(Exh. A-60), appellant's actual
obligation to said payee was only
P895.33 (Exh. A-83); (2) in Check
No. 652282 issued on Sept. 18,
1984 in favor of Senson Enterprises
in the amount of P11,041.20 (Exh. A-
67) appellant's actual obligation to
said payee was only P1,041.20
(Exh. 7); (3) in Check No. 589092
dated April 7, 1984 for the amount of
P11,672.47 in favor of Marchem
(Exh. A-61) appellant's obligation
was only P1,672.47 (Exh. B); (4) in
Check No. 620450 dated May 10,
1984 in favor of Knotberry for
P11,677.10 (Exh. A-31) her actual
obligation was only P677.10 (Exhs.
C and C-1); (5) in Check No. 651862
dated Aug. 9, 1984 in favor of
Malinta Exchange Mart for
P11,107.16 (Exh. A-62), her
obligation was only P1,107.16 (Exh.
D-2); (6) in Check No. 651863 dated
Aug. 11, 1984 in favor of Grocer's
International Food Corp. in the
amount of P11,335.60 (Exh. A-66),
her obligation was only P1,335.60
(Exh. E and E-1); (7) in Check No.
589019 dated March 17, 1984 in
favor of Sophy Products in the
amount of P11,648.00 (Exh. A-78),
her obligation was only P648.00
(Exh. G); (8) in Check No. 589028
dated March 10, 1984 for the
amount of P11,520.00 in favor of the
Yakult Philippines (Exh. A-73), the
latter's invoice was only P520.00
(Exh. H-2); (9) in Check No. 62033
dated May 23, 1984 in the amount of
P11,504.00 in favor of Monde
Denmark Biscuit (Exh. A-34), her
obligation was only P504.00 (Exhs.
I-1 and I-2). 2
Practically, all the checks issued and honored by
the rsp. drawee bank were crossed checks. 3 Aside
from the daily notice given to the pet. by the rsp.
drawee Bank, the latter also furnished her with a
monthly statement of her transactions, attaching
thereto all the cancelled checks she had issued and
which were debited against her current account. It
was only after the lapse of more two (2) years that
pet. found out about the fraudulent manipulations of
her bookkeeper.
All the eighty-two (82) checks with forged
signatures of the payees were brought to Ernest L.
Boon, Chief Accountant of rsp. drawee Bank at the
Buendia branch, who, without authority therefor,
accepted them all for deposit at the Buendia branch
to the credit and/or in the accounts of Alfredo Y.
Romero and Benito Lam. Ernest L. Boon was a
very close friend of Alfredo Y. Romero. Sixty-three
(63) out of the eighty-two (82) checks were
deposited in Savings Account No. 00844-5 of
Alfredo Y. Romero at the rsp. drawee Bank's
Buendia branch, and four (4) checks in his Savings
Account No. 32-81-9 at its Ongpin branch. The rest
of the checks were deposited in Account No. 0443-
4, under the name of Benito Lam at the Elcaño
branch of the rsp. drawee Bank.
About thirty (30) of the payees whose names were
specifically written on the checks testified that they
did not receive nor even see the subject checks
and that the indorsements appearing at the back of
the checks were not theirs.
The team of auditors from the main office of the
rsp. drawee Bank which conducted periodic
inspection of the branches' operations failed to
discover, check or stop the unauthorized acts of
Ernest L. Boon. Under the rules of the rsp. drawee
Bank, only a Branch Manager and no other official
of the rsp. drawee bank, may accept a second
indorsement on a check for deposit. In the case at
bar, all the deposit slips of the eighty-two (82)
checks in question were initialed and/or approved
for deposit by Ernest L. Boon. The Branch
Managers of the Ongpin and Elcaño branches
accepted the deposits made in the Buendia branch
and credited the accounts of Alfredo Y. Romero and
Benito Lam in their respective branches.
On Nov. 7, 1984, pet. made a written demand on
rsp. drawee Bank to credit her account with the
money value of the eighty-two (82) checks totalling
P1,208.606.89 for having been wrongfully charged
against her account. Rsp. drawee Bank refused to
grant pet.'s demand. On Jan. 23, 1985, pet. filed
the complaint with the RTC.
This is not a suit by the party whose signature was
forged on a check drawn against the drawee bank.
The payees are not parties to the case. Rather, it is
the drawer, whose signature is genuine, who
instituted this action to recover from the drawee
bank the money value of eighty-two (82) checks
paid out by the drawee bank to holders of those
checks where the indorsements of the payees were
forged. How and by whom the forgeries were
committed are not established on the record, but
the respective payees admitted that they did not
receive those checks and therefore never indorsed
the same. The applicable law is the Negotiable
Instruments Law 4 (heretofore referred to as the
NIL). Sec. 23 of the NIL provides:
When a signature is forged or made
without the authority of the person
whose signature it purports to be, it
is wholly inoperative, and no right to
retain the instrument, or to give a
discharge therefor, or to enforce
payment thereof against any party
thereto, can be acquired through or
under such signature, unless the
party against whom it is sought to
enforce such right is precluded from
setting up the forgery or want of
authority.
Under the aforecited provision, forgery is a
real or absolute defense by the party whose
signature is forged. A party whose signature
to an instrument was forged was never a
party and never gave his consent to the
contract which gave rise to the instrument.
Since his signature does not appear in the
instrument, he cannot be held liable thereon
by anyone, not even by a holder in due
course. Thus, if a person's signature is
forged as a maker of a promissory note, he
cannot be made to pay because he never
made the promise to pay. Or where a
person's signature as a drawer of a check is
forged, the drawee bank cannot charge the
amount thereof against the drawer's
account because he never gave the bank
the order to pay. And said Sec. does not
refer only to the forged signature of the
maker of a promissory note and of the
drawer of a check. It covers also a forged
indorsement, i.e., the forged signature of the
payee or indorsee of a note or check. Since
under said provision a forged signature is
"wholly inoperative", no one can gain title to
the instrument through such forged
indorsement. Such an indorsement prevents
any subsequent party from acquiring any
right as against any party whose name
appears prior to the forgery. Although rights
may exist between and among parties
subsequent to the forged indorsement, not
one of them can acquire rights against
parties prior to the forgery. Such forged
indorsement cuts off the rights of all
subsequent parties as against parties prior
to the forgery. However, the law makes an
exception to these rules where a party is
precluded from setting up forgery as a
defense.
As a matter of practical significance, problems
arising from forged indorsements of checks may
generally be broken into two types of cases: (1)
where forgery was accomplished by a person not
associated with the drawer — for example a mail
robbery; and (2) where the indorsement was forged
by an agent of the drawer. This difference in
situations would determine the effect of the
drawer's negligence with respect to forged
indorsements. While there is no duty resting on the
depositor to look for forged indorsements on his
cancelled checks in contrast to a duty imposed
upon him to look for forgeries of his own name, a
depositor is under a duty to set up an accounting
system and a business procedure as are
reasonably calculated to prevent or render difficult
the forgery of indorsements, particularly by the
depositor's own employees. And if the drawer
(depositor) learns that a check drawn by him has
been paid under a forged indorsement, the drawer
is under duty promptly to report such fact to the
drawee bank. 5 For his negligence or failure either
to discover or to report promptly the fact of such
forgery to the drawee, the drawer loses his right
against the drawee who has debited his account
under a forged indorsement. 6 In other words, he is
precluded from using forgery as a basis for his
claim for re-crediting of his account.
In the case at bar, pet. admitted that the checks
were filled up and completed by her trusted
employee, Alicia Galang, and were given to her for
her signature. Her signing the checks made the
negotiable instrument complete. Prior to signing the
checks, there was no valid contract yet.
Every contract on a negotiable instrument is
incomplete and revocable until delivery of the
instrument to the payee for the purpose of giving
effect thereto. 7 The first delivery of the instrument,
complete in form, to the payee who takes it as a
holder, is called issuance of the instrument. 8
Without the initial delivery of the instrument from
the drawer of the check to the payee, there can be
no valid and binding contract and no liability on the
instrument.
Pet. completed the checks by signing them as
drawer and thereafter authorized her employee
Alicia Galang to deliver the eighty-two (82) checks
to their respective payees. Instead of issuing the
checks to the payees as named in the checks,
Alicia Galang delivered them to the Chief
Accountant of the Buendia branch of the rsp.
drawee Bank, a certain Ernest L. Boon. It was
established that the signatures of the payees as
first indorsers were forged. The record fails to show
the identity of the party who made the forged
signatures. The checks were then indorsed for the
second time with the names of Alfredo Y. Romero
and Benito Lam, and were deposited in the latter's
accounts as earlier noted. The second
indorsements were all genuine signatures of the
alleged holders. All the eighty-two (82) checks
bearing the forged indorsements of the payees and
the genuine second indorsements of Alfredo Y.
Romero and Benito Lam were accepted for deposit
at the Buendia branch of rsp. drawee Bank to the
credit of their respective savings accounts in the
Buendia, Ongpin and Elcaño branches of the same
bank. The total amount of P1,208,606.89,
represented by eighty-two (82) checks, were
credited and paid out by rsp. drawee Bank to
Alfredo Y. Romero and Benito Lam, and debited
against pet.'s checking account No. 13-00038-1,
Caloocan branch.
As a rule, a drawee bank who has paid a check on
which an indorsement has been forged cannot
charge the drawer's account for the amount of said
check. An exception to this rule is where the drawer
is guilty of such negligence which causes the bank
to honor such a check or checks. If a check is
stolen from the payee, it is quite obvious that the
drawer cannot possibly discover the forged
indorsement by mere examination of his cancelled
check. This accounts for the rule that although a
depositor owes a duty to his drawee bank to
examine his cancelled checks for forgery of his own
signature, he has no similar duty as to forged
indorsements. A different situation arises where the
indorsement was forged by an employee or agent
of the drawer, or done with the active participation
of the latter. Most of the cases involving forgery by
an agent or employee deal with the payee's
indorsement. The drawer and the payee often time
shave business relations of long standing. The
continued occurrence of business transactions of
the same nature provides the opportunity for the
agent/employee to commit the fraud after having
developed familiarity with the signatures of the
parties. However, sooner or later, some leak will
show on the drawer's books. It will then be just a
question of time until the fraud is discovered. This
is specially true when the agent perpetrates a
series of forgeries as in the case at bar.
The negligence of a depositor which will prevent
recovery of an unauthorized payment is based on
failure of the depositor to act as a prudent
businessman would under the circumstances. In
the case at bar, the pet. relied implicitly upon the
honesty and loyalty of her bookkeeper, and did not
even verify the accuracy of amounts of the checks
she signed against the invoices attached thereto.
Furthermore, although she regularly received her
bank statements, she apparently did not carefully
examine the same nor the check stubs and the
returned checks, and did not compare them with
the same invoices. Otherwise, she could have
easily discovered the discrepancies between the
checks and the documents serving as bases for the
checks. With such discovery, the subsequent
forgeries would not have been accomplished. It
was not until two years after the bookkeeper
commenced her fraudulent scheme that pet.
discovered that eighty-two (82) checks were
wrongfully charged to her account, at which she
notified the rsp. drawee bank.
It is highly improbable that in a period of two years,
not one of Pet.'s suppliers complained of non-
payment. Assuming that even one single complaint
had been made, pet. would have been duty-bound,
as far as the rsp. drawee Bank was concerned, to
make an adequate investigation on the matter. Had
this been done, the discrepancies would have been
discovered, sooner or later. Pet.'s failure to make
such adequate inquiry constituted negligence which
resulted in the bank's honoring of the subsequent
checks with forged indorsements. On the other
hand, since the record mentions nothing about
such a complaint, the possibility exists that the
checks in question covered inexistent sales. But
even in such a case, considering the length of a
period of two (2) years, it is hard to believe that pet.
did not know or realize that she was paying more
than she should for the supplies she was actually
getting. A depositor may not sit idly by, after
knowledge has come to her that her funds seem to
be disappearing or that there may be a leak in her
business, and refrain from taking the steps that a
careful and prudent businessman would take in
such circumstances and if taken, would result in
stopping the continuance of the fraudulent scheme.
If she fails to take steps, the facts may establish her
negligence, and in that event, she would be
estopped from recovering from the bank. 9
One thing is clear from the records — that the pet.
failed to examine her records with reasonable
diligence whether before she signed the checks or
after receiving her bank statements. Had the pet.
examined her records more carefully, particularly
the invoice receipts, cancelled checks, check book
stubs, and had she compared the sums written as
amounts payable in the eighty-two (82) checks with
the pertinent sales invoices, she would have easily
discovered that in some checks, the amounts did
not tally with those appearing in the sales invoices.
Had she noticed these discrepancies, she should
not have signed those checks, and should have
conducted an inquiry as to the reason for the
irregular entries. Likewise had pet. been more
vigilant in going over her current account by taking
careful note of the daily reports made by rsp.
drawee Bank in her issued checks, or at least made
random scrutiny of cancelled checks returned by
rsp. drawee Bank at the close of each month, she
could have easily discovered the fraud being
perpetrated by Alicia Galang, and could have
reported the matter to the rsp. drawee Bank. The
rsp. drawee Bank then could have taken immediate
steps to prevent further commission of such fraud.
Thus, pet.'s negligence was the proximate cause of
her loss. And since it was her negligence which
caused the rsp. drawee Bank to honor the forged
checks or prevented it from recovering the amount
it had already paid on the checks, pet. cannot now
complain should the bank refuse to recredit her
account with the amount of such checks. 10 Under
Sec. 23 of the NIL, she is now precluded from using
the forgery to prevent the bank's debiting of her
account.
The doctrine in the case of Great Eastern Life
Insurance Co. vs. Hongkong & Shanghai Bank 11 is
not applicable to the case at bar because in said
case, the check was fraudulently taken and the
signature of the payee was forged not by an agent
or employee of the drawer. The drawer was not
found to be negligent in the handling of its business
affairs and the theft of the check by a total stranger
was not attributable to negligence of the drawer;
neither was the forging of the payee's indorsement
due to the drawer's negligence. Since the drawer
was not negligent, the drawee was duty-bound to
restore to the drawer's account the amount
theretofore paid under the check with a forged
payee's indorsement because the drawee did not
pay as ordered by the drawer.
Pet. argues that rsp. drawee Bank should not have
honored the checks because they were crossed
checks. Issuing a crossed check imposes no legal
obligation on the drawee not to honor such a check.
It is more of a warning to the holder that the check
cannot be presented to the drawee bank for
payment in cash. Instead, the check can only be
deposited with the payee's bank which in turn must
present it for payment against the drawee bank in
the course of normal banking transactions between
banks. The crossed check cannot be presented for
payment but it can only be deposited and the
drawee bank may only pay to another bank in the
payee's or indorser's account.
Pet. likewise contends that banking rules prohibit
the drawee bank from having checks with more
than one indorsement. The banking rule banning
acceptance of checks for deposit or cash payment
with more than one indorsement unless cleared by
some bank officials does not invalidate the
instrument; neither does it invalidate the negotiation
or transfer of the said check. In effect, this rule
destroys the negotiability of bills/checks by limiting
their negotiation by indorsement of only the payee.
Under the NIL, the only kind of indorsement which
stops the further negotiation of an instrument is a
restrictive indorsement which prohibits the further
negotiation thereof.
Sec. 36. When indorsement
restrictive. — An indorsement is
restrictive which either
(a) Prohibits further negotiation of
the instrument; or
xxx xxx xxx
In this kind of restrictive indorsement, the
prohibition to transfer or negotiate must be written
in express words at the back of the instrument, so
that any subsequent party may be forewarned that
ceases to be negotiable. However, the restrictive
indorsee acquires the right to receive payment and
bring any action thereon as any indorser, but he
can no longer transfer his rights as such indorsee
where the form of the indorsement does not
authorize him to do so. 12
Although the holder of a check cannot compel a
drawee bank to honor it because there is no privity
between them, as far as the drawer-depositor is
concerned, such bank may not legally refuse to
honor a negotiable bill of exchange or a check
drawn against it with more than one indorsement if
there is nothing irregular with the bill or check and
the drawer has sufficient funds. The drawee cannot
be compelled to accept or pay the check by the
drawer or any holder because as a drawee, he
incurs no liability on the check unless he accepts it.
But the drawee will make itself liable to a suit for
damages at the instance of the drawer for wrongful
dishonor of the bill or check.
Thus, it is clear that under the NIL, pet. is precluded
from raising the defense of forgery by reason of her
gross negligence. But under Sec. 196 of the NIL,
any case not provided for in the Act shall be
governed by the provisions of existing legislation.
Under the laws of quasi-delict, she cannot point to
the negligence of the rsp. drawee Bank in the
selection and supervision of its employees as being
the cause of the loss because negligence is the
proximate cause thereof and under Art. 2179 of the
CC, she may not be awarded damages. However,
under Art. 1170 of the same Code the rsp. drawee
Bank may be held liable for damages. The Art.
provides —
Those who in the performance of
their obligations are guilty of fraud,
negligence or delay, and those who
in any manner contravene the tenor
thereof, are liable for damages.
There is no question that there is a contractual
relation between pet. as depositor (obligee) and the
rsp. drawee bank as the obligor. In the performance
of its obligation, the drawee bank is bound by its
internal banking rules and regulations which form
part of any contract it enters into with any of its
depositors. When it violated its internal rules that
second endorsements are not to be accepted
without the approval of its branch managers and it
did accept the same upon the mere approval of
Boon, a chief accountant, it contravened the tenor
of its obligation at the very least, if it were not
actually guilty of fraud or negligence.
Furthermore, the fact that the rsp. drawee Bank did
not discover the irregularity with respect to the
acceptance of checks with second indorsement for
deposit even without the approval of the branch
manager despite periodic inspection conducted by
a team of auditors from the main office constitutes
negligence on the part of the bank in carrying out
its obligations to its depositors. Art. 1173 provides
—
The fault or negligence of the obligor
consists in the omission of that
diligence which is required by the
nature of the obligation and
corresponds with the circumstance
of the persons, of the time and of the
place. . . .
We hold that banking business is so impressed with
public interest where the trust and confidence of the
public in general is of paramount importance such
that the appropriate standard of diligence must be a
high degree of diligence, if not the utmost diligence.
Surely, rsp. drawee Bank cannot claim it exercised
such a degree of diligence that is required of it.
There is no way We can allow it now to escape
liability for such negligence. Its liability as obligor is
not merely vicarious but primary wherein the
defense of exercise of due diligence in the selection
and supervision of its employees is of no moment.
Premises considered, rsp. drawee Bank is
adjudged liable to share the loss with the pet. on a
fifty-fifty ratio in accordance with Art. 172 which
provides:
 Responsibility arising from
negligence in the performance of
every kind of obligation is also
demandable, but such liability may
be regulated by the courts according
to the circumstances.
With the foregoing provisions of the CC being relied
upon, it is being made clear that the decision to
hold the drawee bank liable is based on law and
substantial justice and not on mere equity. And
although the case was brought before the court not
on breach of contractual obligations, the courts are
not precluded from applying to the circumstances of
the case the laws pertinent thereto. Thus, the fact
that pet.'s negligence was found to be the
proximate cause of her loss does not preclude her
from recovering damages. The reason why the
decision dealt on a discussion on proximate cause
is due to the error pointed out by pet. as allegedly
committed by the rsp. court. And in breaches of
contract under Art. 1173, due diligence on the part
of the defendant is not a defense.
PREMISES CONSIDERED, the case is hereby
ordered REMANDED to the TC for the reception of
evidence to determine the exact amount of loss
suffered by the pet., considering that she partly
benefited from the issuance of the questioned
checks since the obligation for which she issued
them were apparently extinguished, such that only
the excess amount over and above the total of
these actual obligations must be considered as loss
of which one half must be paid by rsp. drawee bank
to herein pet..
GR 107382/GR 107612 Jan. 31, 1996
ASSOCIATED BANK, pet.,
vs.
HON. CA, PROVINCE OF TARLAC and PNB,
rsps..
xxxxxxxxxxxxxxxxxxxxx
GR 107612 Jan. 31, 1996
PNB, pet.,
vs.
CA, PROVINCE OF TARLAC, and ASSOCIATED
BANK, rsps..
DECISION
ROMERO, J.:
Where thirty checks bearing forged endorsements
are paid, who bears the loss, the drawer, the
drawee bank or the collecting bank?
This is the main issue in these consolidated
petitions for review assailing the decision of the CA
in "Province of Tarlac v. PNB v. Associated Bank v.
Fausto Pangilinan, et. al." (CA-GR CV No. 17962).
1
The facts of the case are as follows:
The Province of Tarlac maintains a current account
with the PNB Tarlac Branch where the provincial
funds are deposited. Checks issued by the
Province are signed by the Provincial Treasurer
and countersigned by the Provincial Auditor or the
Secretary of the Sangguniang Bayan.
A portion of the funds of the province is allocated to
the Concepcion Emergency Hospital. 2 The
allotment checks for said government hospital are
drawn to the order of "Concepcion Emergency
Hospital, Concepcion, Tarlac" or "The Chief,
Concepcion Emergency Hospital, Concepcion,
Tarlac." The checks are released by the Office of
the Provincial Treasurer and received for the
hospital by its administrative officer and cashier.
In Jan. 1981, the books of account of the Provincial
Treasurer were post-audited by the Provincial
Auditor. It was then discovered that the hospital did
not receive several allotment checks drawn by the
Province.
On Feb. 19, 1981, the Provincial Treasurer
requested the manager of the PNB to return all of
its cleared checks which were issued from 1977 to
1980 in order to verify the regularity of their
encashment. After the checks were examined, the
Provincial Treasurer learned that 30 checks
amounting to P203,300.00 were encashed by one
Fausto Pangilinan, with the Associated Bank acting
as collecting bank.
It turned out that Fausto Pangilinan, who was the
administrative officer and cashier of payee hospital
until his retirement on Feb. 28, 1978, collected the
questioned checks from the office of the Provincial
Treasurer. He claimed to be assisting or helping the
hospital follow up the release of the checks and
had official receipts. 3 Pangilinan sought to encash
the first check 4 with Associated Bank. However, the
manager of Associated Bank refused and
suggested that Pangilinan deposit the check in his
personal savings account with the same bank.
Pangilinan was able to withdraw the money when
the check was cleared and paid by the drawee
bank, PNB.
After forging the signature of Dr. Adena Canlas who
was chief of the payee hospital, Pangilinan followed
the same procedure for the second check, in the
amount of P5,000.00 and dated April 20, 1978, 5 as
well as for twenty-eight other checks of various
amounts and on various dates. The last check
negotiated by Pangilinan was for f8,000.00 and
dated Feb. 10, 1981. 6 All the checks bore the
stamp of Associated Bank which reads "All prior
endorsements guaranteed ASSOCIATED BANK."
Jesus David, the manager of Associated Bank
testified that Pangilinan made it appear that the
checks were paid to him for certain projects with
the hospital. 7 He did not find as irregular the fact
that the checks were not payable to Pangilinan but
to the Concepcion Emergency Hospital. While he
admitted that his wife and Pangilinan's wife are first
cousins, the manager denied having given
Pangilinan preferential treatment on this account. 8
On Feb. 26, 1981, the Provincial Treasurer wrote
the manager of the PNB seeking the restoration of
the various amounts debited from the current
account of the Province. 9
In turn, the PNB manager demanded
reimbursement from the Associated Bank on May
15, 1981. 10
As both banks resisted payment, the Province of
Tarlac brought suit against PNB which, in turn,
impleaded Associated Bank as third-party
defendant. The latter then filed a fourth-party
complaint against Adena Canlas and Fausto
Pangilinan. 11
After trial on the merits, the lower court rendered its
decision on March 21, 1988, disposing as follows:
WHEREFORE, in view of the foregoing,
judgment is hereby rendered:
1. On the basic complaint, in favor of
plaintiff Province of Tarlac and against
defendant PNB, ordering the latter to pay to
the former, the sum of Two Hundred Three
Thousand Three Hundred (P203,300.00)
Pesos with legal interest thereon from
March 20, 1981 until fully paid;
2. On the third-party complaint, in favor of
defendant/third-party plaintiff PNB and
against third-party defendant/fourth-party
plaintiff Associated Bank ordering the latter
to reimburse to the former the amount of
Two Hundred Three Thousand Three
Hundred (P203,300.00) Pesos with legal
interests thereon from March 20, 1981 until
fully paid;.
3. On the fourth-party complaint, the same
is hereby ordered dismissed for lack of
cause of action as against fourth-party
defendant Adena Canlas and lack of
jurisdiction over the person of fourth-party
defendant Fausto Pangilinan as against the
latter.
4. On the counterclaims on the complaint,
third-party complaint and fourth-party
complaint, the same are hereby ordered
dismissed for lack of merit.
SO ORDERED. 12
PNB and Associated Bank appealed to the CA. 13
Rsp. court affirmed the TC's decision in toto on
Sept. 30, 1992.
Hence these consolidated petitions which seek a
reversal of rsp. appellate court's decision.
PNB assigned two errors. First, the bank contends
that rsp. court erred in exempting the Province of
Tarlac from liability when, in fact, the latter was
negligent because it delivered and released the
questioned checks to Fausto Pangilinan who was
then already retired as the hospital's cashier and
administrative officer. PNB also maintains its
innocence and alleges that as between two
innocent persons, the one whose act was the
cause of the loss, in this case the Province of
Tarlac, bears the loss.
Next, PNB asserts that it was error for the court to
order it to pay the province and then seek
reimbursement from Associated Bank. According to
pet. bank, rsp. appellate Court should have directed
Associated Bank to pay the adjudged liability
directly to the Province of Tarlac to avoid circuity. 14
Associated Bank, on the other hand, argues that
the order of liability should be totally reversed, with
the drawee bank (PNB) solely and ultimately
bearing the loss.
Rsp. court allegedly erred in applying Sec. 23 of the
Philippine Clearing House Rules instead of Central
Bank Circular No. 580, which, being an
administrative regulation issued pursuant to law,
has the force and effect of law. 15 The PCHC Rules
are merely contractual stipulations among and
between member-banks. As such, they cannot
prevail over the aforesaid CB Circular.
It likewise contends that PNB, the drawee bank, is
estopped from asserting the defense of guarantee
of prior indorsements against Associated Bank, the
collecting bank. In stamping the guarantee (for all
prior indorsements), it merely followed a mandatory
requirement for clearing and had no choice but to
place the stamp of guarantee; otherwise, there
would be no clearing. The bank will be in a "no-win"
situation and will always bear the loss as against
the drawee bank. 16
Associated Bank also claims that since PNB
already cleared and paid the value of the forged
checks in question, it is now estopped from
asserting the defense that Associated Bank
guaranteed prior indorsements. The drawee bank
allegedly has the primary duty to verify the
genuineness of payee's indorsement before paying
the check. 17
While both banks are innocent of the forgery,
Associated Bank claims that PNB was at fault and
should solely bear the loss because it cleared and
paid the forged checks.
xxx xxx xxx
The case at bench concerns checks payable to the
order of Concepcion Emergency Hospital or its
Chief. They were properly issued and bear the
genuine signatures of the drawer, the Province of
Tarlac. The infirmity in the questioned checks lies in
the payee's (Concepcion Emergency Hospital)
indorsements which are forgeries. At the time of
their indorsement, the checks were order
instruments.
Checks having forged indorsements should be
differentiated from forged checks or checks bearing
the forged signature of the drawer.
Sec. 23 of the Negotiable Instruments Law (NIL)
provides:
Sec. 23. FORGED SIGNATURE, EFFECT
OF. — When a signature is forged or made
without authority of the person whose
signature it purports to be, it is wholly
inoperative, and no right to retain the
instrument, or to give a discharge therefor,
or to enforce payment thereof against any
party thereto, can be acquired through or
under such signature unless the party
against whom it is sought to enforce such
right is precluded from setting up the forgery
or want of authority.
A forged signature, whether it be that of the drawer
or the payee, is wholly inoperative and no one can
gain title to the instrument through it. A person
whose signature to an instrument was forged was
never a party and never consented to the contract
which allegedly gave rise to such instrument. 18
Sec. 23 does not avoid the instrument but only the
forged signature. 19 Thus, a forged indorsement
does not operate as the payee's indorsement.
The exception to the general rule in Sec. 23 is
where "a party against whom it is sought to enforce
a right is precluded from setting up the forgery or
want of authority." Parties who warrant or admit the
genuineness of the signature in question and those
who, by their acts, silence or negligence are
estopped from setting up the defense of forgery,
are precluded from using this defense. Indorsers,
persons negotiating by delivery and acceptors are
warrantors of the genuineness of the signatures on
the instrument. 20
In bearer instruments, the signature of the payee or
holder is unnecessary to pass title to the
instrument. Hence, when the indorsement is a
forgery, only the person whose signature is forged
can raise the defense of forgery against a holder in
due course. 21
The checks involved in this case are order
instruments, hence, the following discussion is
made with reference to the effects of a forged
indorsement on an instrument payable to order.
Where the instrument is payable to order at the
time of the forgery, such as the checks in this case,
the signature of its rightful holder (here, the payee
hospital) is essential to transfer title to the same
instrument. When the holder's indorsement is
forged, all parties prior to the forgery may raise the
real defense of forgery against all parties
subsequent thereto. 22
An indorser of an order instrument warrants "that
the instrument is genuine and in all respects what it
purports to be; that he has a good title to it; that all
prior parties had capacity to contract; and that the
instrument is at the time of his indorsement valid
and subsisting." 23 He cannot interpose the defense
that signatures prior to him are forged.
A collecting bank where a check is deposited and
which indorses the check upon presentment with
the drawee bank, is such an indorser. So even if
the indorsement on the check deposited by the
banks's client is forged, the collecting bank is
bound by his warranties as an indorser and cannot
set up the defense of forgery as against the drawee
bank.
The bank on which a check is drawn, known as the
drawee bank, is under strict liability to pay the
check to the order of the payee. The drawer's
instructions are reflected on the face and by the
terms of the check. Payment under a forged
indorsement is not to the drawer's order. When the
drawee bank pays a person other than the payee, it
does not comply with the terms of the check and
violates its duty to charge its customer's (the
drawer) account only for properly payable items.
Since the drawee bank did not pay a holder or
other person entitled to receive payment, it has no
right to reimbursement from the drawer. 24 The
general rule then is that the drawee bank may not
debit the drawer's account and is not entitled to
indemnification from the drawer. 25 The risk of loss
must perforce fall on the drawee bank.
However, if the drawee bank can prove a failure by
the customer/drawer to exercise ordinary care that
substantially contributed to the making of the forged
signature, the drawer is precluded from asserting
the forgery.
If at the same time the drawee bank was also
negligent to the point of substantially contributing to
the loss, then such loss from the forgery can be
apportioned between the negligent drawer and the
negligent bank. 26
In cases involving a forged check, where the
drawer's signature is forged, the drawer can
recover from the drawee bank. No drawee bank
has a right to pay a forged check. If it does, it shall
have to recredit the amount of the check to the
account of the drawer. The liability chain ends with
the drawee bank whose responsibility it is to know
the drawer's signature since the latter is its
customer. 27
In cases involving checks with forged
indorsements, such as the present petition, the
chain of liability does not end with the drawee bank.
The drawee bank may not debit the account of the
drawer but may generally pass liability back
through the collection chain to the party who took
from the forger and, of course, to the forger himself,
if available. 28 In other words, the drawee bank
canseek reimbursement or a return of the amount it
paid from the presentor bank or person. 29
Theoretically, the latter can demand reimbursement
from the person who indorsed the check to it and
so on. The loss falls on the party who took the
check from the forger, or on the forger himself.
In this case, the checks were indorsed by the
collecting bank (Associated Bank) to the drawee
bank (PNB). The former will necessarily be liable to
the latter for the checks bearing forged
indorsements. If the forgery is that of the payee's or
holder's indorsement, the collecting bank is held
liable, without prejudice to the latter proceeding
against the forger.
Since a forged indorsement is inoperative, the
collecting bank had no right to be paid by the
drawee bank. The former must necessarily return
the money paid by the latter because it was paid
wrongfully. 30
More importantly, by reason of the statutory
warranty of a general indorser in Sec. 66 of the
Negotiable Instruments Law, a collecting bank
which indorses a check bearing a forged
indorsement and presents it to the drawee bank
guarantees all prior indorsements, including the
forged indorsement. It warrants that the instrument
is genuine, and that it is valid and subsisting at the
time of his indorsement. Because the indorsement
is a forgery, the collecting bank commits a breach
of this warranty and will be accountable to the
drawee bank. This liability scheme operates without
regard to fault on the part of the
collecting/presenting bank. Even if the latter bank
was not negligent, it would still be liable to the
drawee bank because of its indorsement.
The Court has consistently ruled that "the collecting
bank or last endorser generally suffers the loss
because it has the duty to ascertain the
genuineness of all prior endorsements considering
that the act of presenting the check for payment to
the drawee is an assertion that the party making
the presentment has done its duty to ascertain the
genuineness of the endorsements." 31
The drawee bank is not similarly situated as the
collecting bank because the former makes no
warranty as to the genuineness. of any
indorsement. 32 The drawee bank's duty is but to
verify the genuineness of the drawer's signature
and not of the indorsement because the drawer is
its client.
Moreover, the collecting bank is made liable
because it is privy to the depositor who negotiated
the check. The bank knows him, his address and
history because he is a client. It has taken a risk on
his deposit. The bank is also in a better position to
detect forgery, fraud or irregularity in the
indorsement.
Hence, the drawee bank can recover the amount
paid on the check bearing a forged indorsement
from the collecting bank. However, a drawee bank
has the duty to promptly inform the presentor of the
forgery upon discovery. If the drawee bank delays
in informing the presentor of the forgery, thereby
depriving said presentor of the right to recover from
the forger, the former is deemed negligent and can
no longer recover from the presentor. 33
Applying these rules to the case at bench, PNB, the
drawee bank, cannot debit the current account of
the Province of Tarlac because it paid checks which
bore forged indorsements. However, if the Province
of Tarlac as drawer was negligent to the point of
substantially contributing to the loss, then the
drawee bank PNB can charge its account. If both
drawee bank-PNB and drawer-Province of Tarlac
were negligent, the loss should be properly
apportioned between them.
The loss incurred by drawee bank-PNB can be
passed on to the collecting bank-Associated Bank
which presented and indorsed the checks to it.
Associated Bank can, in turn, hold the forger,
Fausto Pangilinan, liable.
If PNB negligently delayed in informing Associated
Bank of the forgery, thus depriving the latter of the
opportunity to recover from the forger, it forfeits its
right to reimbursement and will be made to bear the
loss.
After careful examination of the records, the Court
finds that the Province of Tarlac was equally
negligent and should, therefore, share the burden
of loss from the checks bearing a forged
indorsement.
The Province of Tarlac permitted Fausto Pangilinan
to collect the checks when the latter, having already
retired from government service, was no longer
connected with the hospital. With the exception of
the first check (dated Jan. 17, 1978), all the checks
were issued and released after Pangilinan's
retirement on Feb. 28, 1978. After nearly three
years, the Treasurer's office was still releasing the
checks to the retired cashier. In addition, some of
the aid allotment checks were released to
Pangilinan and the others to Elizabeth Juco, the
new cashier. The fact that there were now two
persons collecting the checks for the hospital is an
unmistakable sign of an irregularity which should
have alerted employees in the Treasurer's office of
the fraud being committed. There is also evidence
indicating that the provincial employees were aware
of Pangilinan's retirement and consequent
dissociation from the hospital. Jose Meru, the
Provincial Treasurer, testified:.
ATTY. MORGA:
Q Now, is it true that for a given month there
were two releases of checks, one went to
Mr. Pangilinan and one went to Miss Juco?
JOSE MERU:
A Yes, sir.
Q Will you please tell us how at the time
(sic) when the authorized representative of
Concepcion Emergency Hospital is and was
supposed to be Miss Juco?
A Well, as far as my investigation show (sic)
the assistant cashier told me that Pangilinan
represented himself as also authorized to
help in the release of these checks and we
were apparently misled because they
accepted the representation of Pangilinan
that he was helping them in the release of
the checks and besides according to them
they were, Pangilinan, like the rest, was
able to present an official receipt to
acknowledge these receipts and according
to them since this is a government check
and believed that it will eventually go to the
hospital following the standard procedure of
negotiating government checks, they
released the checks to Pangilinan aside
from Miss Juco.34
The failure of the Province of Tarlac to exercise due
care contributed to a significant degree to the loss
tantamount to negligence. Hence, the Province of
Tarlac should be liable for part of the total amount
paid on the questioned checks.
The drawee bank PNB also breached its duty to
pay only according to the terms of the check.
Hence, it cannot escape liability and should also
bear part of the loss.
As earlier stated, PNB can recover from the
collecting bank.
In the case of Associated Bank v. CA, 35 six
crossed checks with forged indorsements were
deposited in the forger's account with the collecting
bank and were later paid by four different drawee
banks. The Court found the collecting bank
(Associated) to be negligent and held:
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 rsp.'s
account. . . .
The situation in the case at bench is analogous to
the above case, for it was not the payee who
deposited the checks with the collecting bank.
Here, the checks were all payable to Concepcion
Emergency Hospital but it was Fausto Pangilinan
who deposited the checks in his personal savings
account.
Although Associated Bank claims that the
guarantee stamped on the checks (All prior and/or
lack of endorsements guaranteed) is merely a
requirement forced upon it by clearing house rules,
it cannot but remain liable. The stamp guaranteeing
prior indorsements is not an empty rubric which a
bank must fulfill for the sake of convenience. A
bank is not required to accept all the checks
negotiated to it. It is within the bank's discretion to
receive a check for no banking institution would
consciously or deliberately accept a check bearing
a forged indorsement. When a check is deposited
with the collecting bank, it takes a risk on its
depositor. It is only logical that this bank be held
accountable for checks deposited by its customers.
A delay in informing the collecting bank (Associated
Bank) of the forgery, which deprives it of the
opportunity to go after the forger, signifies
negligence on the part of the drawee bank (PNB)
and will preclude it from claiming reimbursement.
It is here that Associated Bank's assignment of
error concerning C.B. Circular No. 580 and Sec. 23
of the Philippine Clearing House Corporation Rules
comes to fore. Under Sec. 4(c) of CB Circular No.
580, items bearing a forged endorsement shall be
returned within twenty-Sour (24) hours after
discovery of the forgery but in no event beyond the
period fixed or provided by law for filing of a legal
action by the returning bank. Sec. 23 of the PCHC
Rules deleted the requirement that items bearing a
forged endorsement should be returned within
twenty-four hours. Associated Bank now argues
that the aforementioned Central Bank Circular is
applicable. Since PNB did not return the questioned
checks within twenty-four hours, but several days
later, Associated Bank alleges that PNB should be
considered negligent and not entitled to
reimbursement of the amount it paid on the checks.
The Court deems it unnecessary to discuss
Associated Bank's assertions that CB Circular No.
580 is an administrative regulation issued pursuant
to law and as such, must prevail over the PCHC
rule. The Central Bank circular was in force for all
banks until June 1980 when the Philippine Clearing
House Corporation (PCHC) was set up and
commenced operations. Banks in Metro Manila
were covered by the PCHC while banks located
elsewhere still had to go through Central Bank
Clearing. In any event, the twenty-four-hour return
rule was adopted by the PCHC until it was changed
in 1982. The contending banks herein, which are
both branches in Tarlac province, are therefore not
covered by PCHC Rules but by CB Circular No.
580. Clearly then, the CB circular was applicable
when the forgery of the checks was discovered in
1981.
The rule mandates that the checks be returned
within twenty-four hours after discovery of the
forgery but in no event beyond the period fixed by
law for filing a legal action. The rationale of the rule
is to give the collecting bank (which indorsed the
check) adequate opportunity to proceed against the
forger. If prompt notice is not given, the collecting
bank maybe prejudiced and lose the opportunity to
go after its depositor.
The Court finds that even if PNB did not return the
questioned checks to Associated Bank within
twenty-four hours, as mandated by the rule, PNB
did not commit negligent delay. Under the
circumstances, PNB gave prompt notice to
Associated Bank and the latter bank was not
prejudiced in going after Fausto Pangilinan. After
the Province of Tarlac informed PNB of the
forgeries, PNB necessarily had to inspect the
checks and conduct its own investigation.
Thereafter, it requested the Provincial Treasurer's
office on March 31, 1981 to return the checks for
verification. The Province of Tarlac returned the
checks only on April 22, 1981. Two days later,
Associated Bank received the checks from PNB. 36
Associated Bank was also furnished a copy of the
Province's letter of demand to PNB dated March
20, 1981, thus giving it notice of the forgeries. At
this time, however, Pangilinan's account with
Associated had only P24.63 in it. 37 Had Associated
Bank decided to debit Pangilinan's account, it could
not have recovered the amounts paid on the
questioned checks. In addition, while Associated
Bank filed a fourth-party complaint against Fausto
Pangilinan, it did not present evidence against
Pangilinan and even presented him as its rebuttal
witness. 38 Hence, Associated Bank was not
prejudiced by PNB's failure to comply with the
twenty-four-hour return rule.
Next, Associated Bank contends that PNB is
estopped from requiring reimbursement because
the latter paid and cleared the checks. The Court
finds this contention unmeritorious. Even if PNB
cleared and paid the checks, it can still recover
from Associated Bank. This is true even if the
payee's Chief Officer who was supposed to have
indorsed the checks is also a customer of the
drawee bank. 39 PNB's duty was to verify the
genuineness of the drawer's signature and not the
genuineness of payee's indorsement. Associated
Bank, as the collecting bank, is the entity with the
duty to verify the genuineness of the payee's
indorsement.
PNB also avers that rsp. court erred in adjudging
circuitous liability by directing PNB to return to the
Province of Tarlac the amount of the checks and
then directing Associated Bank to reimburse PNB.
The Court finds nothing wrong with the mode of the
award. The drawer, Province of Tarlac, is a clientor
customer of the PNB, not of Associated Bank.
There is no privity of contract between the drawer
and the collecting bank.
The TC made PNB and Associated Bank liable with
legal interest from March 20, 1981, the date of
extrajudicial demand made by the Province of
Tarlac on PNB. The payments to be made in this
case stem from the deposits of the Province of
Tarlac in its current account with the PNB. Bank
deposits are considered under the law as loans. 40
Central Bank Circular No. 416 prescribes a twelve
percent (12%) interest per annum for loans,
forebearance of money, goods or credits in the
absence of express stipulation. Normally, current
accounts are likewise interest-bearing, by express
contract, thus excluding them from the coverage of
CB Circular No. 416. In this case, however, the
actual interest rate, if any, for the current account
opened by the Province of Tarlac with PNB was not
given in evidence. Hence, the Court deems it wise
to affirm the TC's use of the legal interest rate, or
six percent (6%) per annum. The interest rate shall
be computed from the date of default, or the date of
judicial or extrajudicial demand. 41 The TC did not
err in granting legal interest from March 20, 1981,
the date of extrajudicial demand.
The Court finds as reasonable, the proportionate
sharing of fifty percent - fifty percent (50%-50%).
Due to the negligence of the Province of Tarlac in
releasing the checks to an unauthorized person
(Fausto Pangilinan), in allowing the retired hospital
cashier to receive the checks for the payee hospital
for a period close to three years and in not properly
ascertaining why the retired hospital cashier was
collecting checks for the payee hospital in addition
to the hospital's real cashier, rsp. Province
contributed to the loss amounting to P203,300.00
and shall be liable to the PNB for fifty (50%)
percent thereof. In effect, the Province of Tarlac can
only recover fifty percent (50%) of P203,300.00
from PNB.
The collecting bank, Associated Bank, shall be
liable to PNB for fifty (50%) percent of
P203,300.00. It is liable on its warranties as
indorser of the checks which were deposited by
Fausto Pangilinan, having guaranteed the
genuineness of all prior indorsements, including
that of the chief of the payee hospital, Dr. Adena
Canlas. Associated Bank was also remiss in its
duty to ascertain the genuineness of the payee's
indorsement.
IN VIEW OF THE FOREGOING, the petition for
review filed by the PNB (GR 107612) is hereby
PARTIALLY GRANTED. The petition for review filed
by the Associated Bank (GR 107382) is hereby
DENIED. The decision of the TC is MODIFIED. The
PNB shall pay fifty percent (50%) of P203,300.00 to
the Province of Tarlac, with legal interest from
March 20, 1981 until the payment thereof.
Associated Bank shall pay fifty percent (50%) of
P203,300.00 to the PNB, likewise, with legal
interest from March 20, 1981 until payment is
made.
GR L-55079 Nov. 19, 1982
METROBANK, pet.,
vs.
THE FIRST NATIONAL CITY BANK and THE CA,
rsps..
Resales, Perez & Assoc. for pet..
Siguion, Reyna, Montecillo and Ongsiako for rsp.
PNCB.
MELENCIO-HERRERA, J.:
This is a Petition for Review on certiorari of the
Decision of the CA in CA-GR 57129-R entitled, First
National City Bank vs. METROBANK, which
affirmed in toto the Decision of the Court of First
Instance of Manila, Branch VIII, in Civil Case No.
61488, ordering pet. herein, Metropolitan Bank, to
reimburse rsp. First National City Bank the amount
of P50,000.00, with legal rate of interest from June
25, 1965, and to pay attorney's fees of P5,000.00
and costs.
The controversy arose from the following facts:
On Aug. 25, 1964, Check No. 7166 dated July 8,
1964 for P50,000.00, payable to CASH, drawn by
Joaquin Cunanan & Company on First National City
Bank (FNCB for brevity) was deposited with
METROBANK (Metro Bank for short) by a certain
Salvador Sales. Earlier that day, Sales had opened
a current account with Metro Bank depositing
P500.00 in cash. 1 Metro Bank immediately sent the
cash check to the Clearing House of the Central
Bank with the following words stamped at the back
of the check:
METROBANK Cleared (illegible)
office All prior endorsements and/or
Lack of endorsements Guaranteed. 2
The check was cleared the same day. Private rsp.
paid pet. through clearing the amount of
P50,000.00, and Sales was credited with the said
amount in his deposit with Metro Bank.
On Aug. 26, 1964, Sales made his first withdrawal
of P480.00 from his current account. On Aug. 28,
1964, he withdrew P32,100.00. Then on Aug. 31,
1964, he withdrew the balance of P17,920.00 and
closed his account with Metro Bank.
On Sept. 3, 1964, or nine (9) days later, FNCB
returned cancelled Check No. 7166 to drawer
Joaquin Cunanan & Company, together with the
monthly statement of the company's account with
FNCB. That same day, the company notified FNCB
that the check had been altered. The actual amount
of P50.00 was raised to P50,000.00, and over the
name of the payee, Manila Polo Club, was
superimposed the word CASH.
FNCB notified Metro Bank of the alteration by
telephone, confirming it the same day with a letter,
which was received by Metro Bank on the following
day, Sept. 4, 1964.
On Sept. 10, 1964, FNCB wrote Metro Bank asking
for reimbursement of the amount of P50,000.00.
The latter did not oblige, so that FNCB reiterated its
request on Sept. 29, 1964. Metro Bank was
adamant in its refusal.
On June 29, 1965, FNCB filed in the Court of First
Instance of Manila, Branch VIII, Civil Case No.
61488 against Metro Bank for recovery of the
amount of P50,000.00.
On Jan. 27, 1975, the TC rendered its Decision
ordering Metro Bank to reimburse FNCB the
amount of P50,000.00 with legal rate of interest
from June 25, 1965 until fully paid, to pay attorney's
fees of P5,000.00, and costs.
Pet. appealed said Decision to the CA (CA-GR
57129-R). On Aug. 29, 1980, rsp. Appellate Court 3
affirmed in toto the judgment of the TC.
Pet. came to this instance on appeal by Certiorari,
alleging:
I
The Rsp. CA erred in completely
ignoring and disregarding the 24-
hour clearing house rule provided for
under Central Bank Circular No. 9,
as amended, although:
1. The 24-hour regulation of the
Central Bank in clearing house
operations is valid and banks are
subject to and are bound by the
same; and
2. The 24-hour clearing house rule
applies to the present case of the
pet. and the private rsp..
 II
The Rsp. CA erred in relying heavily
on its decision in Gallaites, et al. vs.
RCA, etc., promulgated on Oct. 23,
1950 for the same is not controlling
and is not applicable to the present
case.
III
The Rsp. CA erred in disregarding
and in not applying the doctrines in
the cases of Republic of the
Philippines vs. Equitable Banking
Corporation (10 SCRA 8) and
Hongkong & Shanghai Banking
Corporation vs. People's Bank and
Trust Company (35 SCRA 140) for
the same are controlling and apply
four square to the present case.
IV
The Rsp. CA erred in not finding the
private rsp. guilty of operative
negligence which is the proximate
cause of the loss.
The material facts of the case are not disputed. The
issue for resolution is, which bank is liable for the
payment of the altered check, the drawee bank
(FNCB) or the collecting bank (Metro Bank)?
The transaction occurred during the effectivity of
Central Bank Circular No. 9 (Feb. 17, 1949) as
amended by Circular No. 138 (Jan. 30, 1962), and
Circular No. 169 (March 30, 1964). Sec. 4 of said
Circular, as amended, states:
Sec. 4. Clearing Procedures.
(c) Procedures for Returned Items
Items which should be returned for
any reason whatsoever shall be
delivered to and received through
the clearing Office in the special red
envelopes and shall be considered
and accounted as debits to the
banks to which the items are
returned. Nothing in this Sec. shall
prevent the returned items from
being settled by reinbursement to
the bank, institution or entity
returning the items. All items cleared
on a particular clearing shall be
returned not later than 3:30 P.M. on
the following business day.
xxx xxx xxx
The facts of this case fall within said Circular. Under
the procedure prescribed, the drawee bank
receiving the check for clearing from the Central
Bank Clearing House must return the check to the
collecting bank within the 24-hour period if the
check is defective for any reason.
Metro Bank invokes this 24-hour regulation of the
Central Bank as its defense. FNCB on the other
hand, relies on the guarantee of all previous
indorsements made by Metro Bank which
guarantee had allegedly misled FNCB into
believing that the check in question was regular
and the payee's indorsements genuine; as well as
on "the general rule of law founded on equity and
justice that a drawee or payor bank which in good
faith pays the amount of materially altered check to
the holder thereof is entitled to recover its payment
from the said holder, even if he be an innocent
holder. 4
The validity of the 24-hour clearing house
regulation has been upheld by this Court in
Republic vs. Equitable Banking Corporation, 10
SCRA 8 (1964). As held therein, since both parties
are part of our banking system, and both are
subject to the regulations of the Central Bank, they
are bound by the 24-hour clearing house rule of the
Central Bank.
In this case, the check was not returned to Metro
Bank in accordance with the 24-hour clearing
house period, but was cleared by FNCB. Failure of
FNCB, therefore, to call the attention of Metro Bank
to the alteration of the check in question until after
the lapse of nine days, negates whatever right it
might have had against Metro Bank in the light of
the said Central Bank Circular. Its remedy lies not
against Metro Bank, but against the party
responsible for the changing the name of the payee
5
and the amount on the face of the check.
FNCB contends that the stamp reading,
METROBANK Cleared (illegible)
office All prior endorsements and/or
Lack of endorsements Guaranteed. 6
made by Metro Bank is an unqualified
representation that the endorsement on the check
was that of the true payee, and that the amount
thereon was the correct amount. In that connection,
this Court in the Hongkong & Shanghai Bank case,
supra, ruled:
.. But Plaintiff Bank insists that
Defendant Bank is liable on its
indorsement during clearing house
operations. The indorsement, itself,
is very clear when it begins with
words 'For clearance, clearing office
**** In other words, such an
indorsement must be read together
with the 24-hour regulation on
clearing House Operations of the
Central Bank. Once that 24- hour
period is over, the liability on such an
indorsement has ceased. This being
so, Plaintiff Bank has not made out a
case for relief. 7
Consistent with this ruling, Metro Bank can not be
held liable for the payment of the altered check.
Moreover, FNCB did not deny the allegation of
Metro Bank that before it allowed the withdrawal of
the balance of P17,920.00 by Salvador Sales,
Metro Bank withheld payment and first verified,
through its Assistant Cashier Federico Uy, the
regularity and genuineness of the check deposit
from Marcelo Mirasol, Department Officer of FNCB,
because its (Metro Bank) attention was called by
the fast movement of the account. Only upon being
assured that the same is not unusual' did Metro
Bank allow the withdrawal of the balance.
Reliance by rsp. CA, on its own ruling in Gallaites
vs. RCA, CA-GR 3805, Oct. 23, 1950, by stating:
... The laxity of appellant in its
dealing with customers, particularly
in cases where the Identity of the
person is new to them (as in the
case at bar) and in the obvious
carelessness of the appellant in
handling checks which can easily be
forged or altered boil down to one
conclusion-negligence in the first
order. This negligence enabled a
swindler to succeed in fraudulently
encashing the chock in question
thereby defrauding drawee bank
(appellee) in the amount thereof.
is misplaced not only because the factual milieu is
not four square with this case but more so because
it cannot prevail over the doctrine laid down by this
Court in the Hongkong & Shanghai Bank case
which is more in point and, hence, controlling:
WHEREFORE, the challenged Decision of rsp. CA
of Aug. 29, 1980 is hereby set aside, and Civil Case
No. 61488 is hereby dismissed.
Costs against private rsp. The First National City
Bank.
[GR 42725. April 22, 1991.]
REPUBLIC BANK, Pet., v. CA and FIRST
NATIONAL CITY BANK, Rsps..
Lourdes C. Dorado for Pet..
Siguion Reyna, Montecillo & Ongsiako for
private rsp. Citibank.
SYLLABUS
1. COMMERCIAL LAW; BANKING LAWS; 24-
HOUR CLEARING HOUSE RULE APPLIES TO
COMMERCIAL BANKS; FAILURE OF DRAWEE
BANK TO COMPLY WITH RULE ABSOLVES
COLLECTING BANKS. — The 24-hour clearing
house rule is a valid rule applicable to commercial
banks (Republic v. Equitable Banking Corporation,
10 SCRA 8 [1964]; Metropolitan Bank & Trust Co. v.
First National City Bank, 118 SCRA 537). It is true
that when an endorsement is forged, the collecting
bank or last endorser, as a general rule, bears the
loss (Banco de Oro Savings & Mortgage Bank v.
Equitable Banking Corp., 157 SCRA 188). But the
unqualified endorsement of the collecting bank on
the check should be read together with the 24-hour
regulation on clearing house operation
(Metropolitan Bank & Trust Co. v. First National City
Bank, supra). Thus, when the drawee bank fails to
return a forged or altered check to the collecting
bank within the 24-hour clearing period, the
collecting bank is absolved from liability. The
following decisions of this Court are also relevant
and persuasive.
2. ID.; ID.; ID.; ID.; REMEDY OF DRAWEE BANK
IS AGAINST PARTY RESPONSIBLE FOR
FORGERY OR ALTERATION. — Every bank that
issues checks for the use of its customers should
know W/N the drawer’s signature thereon is
genuine, whether there are sufficient funds in the
drawer’s 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 an alteration is
attributable to the fault or negligence of the drawer
himself, such as when he leaves spaces on the
check which would allow the fraudulent insertion of
additional numerals in the amount appearing
thereon, the remedy of the drawee bank that
negligently clears a forge and/or altered check for
payment is against the party responsible for the
forgery or alteration (Hongkong & Shanghai
Banking Corp. v. People’s Bank & Trust Co., 35
SCRA 140), otherwise, it bears the loss. It may not
charge the amount so paid to the account of the
drawer, if the latter was free from blame, nor
recover it from the collecting bank if the latter made
payment after proper clearance from the drawee.
DECISION
GRIÑO-AQUINO, J.:
On Jan. 25, 1966, San Miguel Corporation (SMC
for short), drew a dividend Check No. 108854 for
P240, Philippine currency, on its account in the rsp.
First National City Bank ("FNCB" for brevity) in
favor of J. Roberto C. Delgado, a stockholder. After
the check had been delivered to Delgado, the
amount on its face was fraudulently and without
authority of the drawer, SMC, altered by increasing
it from P240 to P9,240. The check was indorsed
and deposited on March 14, 1966 by Delgado in his
account with the pet. Republic Bank (hereafter
"Republic").
Republic accepted the check for deposit without
ascertaining its genuineness and regularity. Later,
Republic endorsed the check to FNCB by stamping
on the back of the check "all prior and/or lack of
indorsement guaranteed" and presented it to FNCB
for payment through the Central Bank Clearing
House. Believing the check was genuine, and
relying on the guaranty and endorsement of
Republic appearing on the back of the check,
FNCB paid P9,240 to Republic through the Central
Bank Clearing House on March 15, 1966.
On April 19, 1966, SMC notified FNCB of the
material alteration in the amount of the check in
question. FNCB lost no time in recrediting P9,240
to SMC. On May 19, 1966, FNCB informed
Republic in writing of the alteration and the forgery
of the endorsement of J. Roberto C. Delgado. By
then, Delgado had already withdrawn his account
from Republic.
On Aug. 15, 1966, FNCB demanded that Republic
refund the P9,240 on the basis of the latter’s
endorsement and guaranty. Republic refused,
claiming there was delay in giving it notice of the
alteration; that it was not guilty of negligence; that it
was the drawer’s (SMC’s) fault in drawing the
check in such a way as to permit the insertion of
numerals increasing the amount; that FNCB, as
drawee, was absolved of any liability to the drawer
(SMC), thus, FNCB had no right of recourse
against Republic.
On April 8, 1968, the TC rendered judgment
ordering Republic to pay P9,240 to FNCB with 6%
interest per annum from Feb. 27, 1967 until fully
paid, plus P2,000 for attorney’s fees and costs of
the suit. The CA affirmed that decision, but modified
the award of attorney’s fees by reducing it to
P1,000 without pronouncement as to costs (CA-GR
41691-R, Dec. 22, 1975).chanrobles virtual
lawlibrary
In this petition for review, the lone issue is whether
Republic, as the collecting bank, is protected, by
the 24-hour clearing house rule, found in CB
Circular No. 9, as amended, from liability to refund
the amount paid by FNCB, as drawee of the SMC
dividend check.
The petition for review is meritorious and must be
granted.
The 24-hour clearing house rule embodied in Sec.
4(c) of Central Bank Circular No. 9, as amended,
provides:jgc:chanrobles.com.ph
"Items which should be returned for any reason
whatsoever shall be returned directly to the bank,
institution or entity from which the item was
received. For this purpose, the Receipt for
Returned Checks (Cash Form No. 9) should be
used. The original and duplicate copies of said
Receipt shall be given to the Bank, institution or
entity which returned the items and the triplicate
copy should be retained by the bank, institution or
entity whose demand is being returned. At the
following clearing, the original of the Receipt for
Returned Checks shall be presented through the
Clearing Office as a demand against the bank,
institution or entity whose item has been returned.
Nothing in this Sec. shall prevent the returned items
from being settled by direct reimbursement to the
bank, institution or entity returning the items. All
items cleared at 11:00 o’clock A.M. shall be
returned not later than 2:00 o’clock P.M. on the
same day and all items cleared at 3:00 o’clock P.M.
shall be returned not later than 8:30 A.M. of the
following business day except for items cleared on
Saturday which may be returned not later than 8:30
A.M. of the following day."cralaw virtua1aw library
The 24-hour clearing house rule is a valid rule
applicable to commercial banks (Republic v.
Equitable Banking Corporation, 10 SCRA 8 [1964];
Metropolitan Bank & Trust Co. v. First National City
Bank, 118 SCRA 537).
It is true that when an endorsement is forged, the
collecting bank or last endorser, as a general rule,
bears the loss (Banco de Oro Savings & Mortgage
Bank v. Equitable Banking Corp., 167 SCRA 188).
But the unqualified endorsement of the collecting
bank on the check should be read together with the
24-hour regulation on clearing house operation
(Metropolitan Bank & Trust Co. v. First National City
Bank, supra). Thus, when the drawee bank fails to
return a forged or altered check to the collecting
bank within the 24-hour clearing period, the
collecting bank is absolved from liability. The
following decisions of this Court are also relevant
and persuasive:chanrob1es virtual 1aw library
In Hongkong & Shanghai Banking Corp. v. People’s
Bank & Trust Co. (35 SCRA 140), a check for
P14,608.05 was drawn by the Philippine Long
Distance Telephone Company on the Hongkong &
Shanghai Banking Corporation payable to the same
bank. It was mailed to the payee but fell into the
hands of a certain Florentino Changco who erased
the name of the payee, typed his own name, and
thereafter deposited the altered check in his
account in the People’s Bank & Trust Co. which
presented it to the drawee bank with the following
indorsement:chanrobles law library
"For clearance, clearing office. All prior
endorsements and or lack of endorsements
guaranteed. People’s Bank and Trust
Company."cralaw virtua1aw library
The check was cleared by the drawee bank
(Hongkong & Shanghai Bank), whereupon the
People’s Bank credited Changco with the amount
of the check. Changco thereafter withdrew the
contents of his bank account. A month later, when
the check was returned to PLDT, the alteration was
discovered. The Hongkong & Shanghai Bank sued
to recover from the People’s Bank the sum of
P14,608.05. The complaint was dismissed.
Affirming the decision of the TC, this Court
held:jgc:chanrobles.com.ph
"The entire case of plaintiff is based on the
indorsement that has been heretofore copied —
namely, a guarantee of all prior indorsement, made
by People’s Bank and since such an indorsement
carries with it a concomitant guarantee of
genuineness, the People’s Bank is liable to the
Hongkong Shanghai Bank for alteration made in
the name of payee. On the other hand, the
People’s Bank relies on the ‘24-hour’ regulation of
the Central Bank that requires after a clearing, that
all cleared items must be returned not later than
3:00 P.M. of the following business day. And since
the Hongkong Shanghai Bank only advised the
People’s Bank as to the alteration on April 12, 1965
or 27 days after clearing, the People’s Bank claims
that it is now too late to do so. This regulation of the
Central Bank as to 24 hours is challenged by
Plaintiff Bank as being merely part of an ingenious
device to facilitate banking transactions. Be that
what it may — as both Plaintiff as well as
Defendant Banks are part of our banking system
and both are subject to regulations of the Central
Bank — they are both bound by such
regulations. . . . But Plaintiff Bank insists that
Defendant Bank is liable on its indorsement during
clearing house operations. The indorsement, itself,
is very clear when it begins with the words `For
clearance, clearing office . . .’ In other words, such
an indorsement must be read together with the 24-
hour regulation on clearing House Operations of
the Central Bank. Once that 24-hour period is over,
the liability on such an indorsement has ceased.
This being so, Plaintiff Bank has not made out a
case for relief."cralaw virtua1aw library
"x x x
"Moreover, in one of the very cases relied upon by
plaintiff, as appellant, mention is made of a
principle on which defendant Bank could have
acted without incurring the liability now sought to be
imposed by plaintiff. Thus: ‘It is a settled rule that a
person who presents for payment checks such as
are here involved guarantees the genuineness of
the check, and the drawee bank need concern itself
with nothing but the genuineness of the signature,
and the state of the account with it of the drawee.’
(Interstate Trust Co. v. US National Bank, 185 Pac.
260 [1919]). If at all, then, whatever remedy the
plaintiff has would lie not against defendant Bank
but as against the party responsible for changing
the name of the payee. Its failure to call the
attention of defendant Bank as to such alteration
until after the lapse of 27 days would, in the light of
the above Central Bank circular, negate whatever
right it might have had against defendant
Bank. . . ." (35 SCRA 140, 142-143; 145-146.)
In Metropolitan Bank & Trust Co. v. First National
City Bank, Et. Al. (118 SCRA 537, 542) a check for
P50, drawn by Joaquin Cunanan and Company on
its account at FNCB and payable to Manila Polo
Club, was altered by changing the amount to
P50,000 and the payee was changed to "Cash." It
was deposited by a certain Salvador Sales in his
current account in the Metropolitan Bank which
sent it to the clearing house. The check was
cleared the same day by FNCB which paid the
amount of P50,000 to Metro Bank. Sales
immediately withdrew the whole amount and closed
his account. Nine (9) days later, the alteration was
discovered and FNCB sought to recover from Metro
Bank what it had paid. The TC and the CA
rendered judgment for FNCB but this Court
reversed it. We ruled:jgc:chanrobles.com.ph
"The validity of the 24-hour clearing house
regulation has been upheld by this Court in
Republic v. Equitable Banking Corporation, 10
SCRA 8 (1964). As held therein, since both parties
are part of our banking system, and both are
subject to the regulations of the Central Bank, they
are bound by the 24-hour clearing house rule of the
Central Bank.chanrobles.com.ph : virtual law library
"In this case, the check was not returned to Metro
Bank in accordance with the 24-hour clearing
house period, but was cleared by FNCB. Failure of
FNCB, therefore, to call the attention of Metro Bank
to the alteration of the check in question until after
the lapse of nine days, negates whatever right it
might have had against Metro Bank in the light of
the said Central Bank Circular. Its remedy lies not
against Metro Bank, but against the party
responsible for changing the name of the payee
(Hongkong & Shanghai Banking Corp. v. People’s
Bank & Trust Co., 35 SCRA 140) and the amount
on the face of the check." (p. 542.)
Every bank that issues checks for the use of its
customers should know W/N 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 an
alteration is attributable to the fault or negligence of
the drawer himself, such as when he leaves spaces
on the check which would allow the fraudulent
insertion of additional numerals in the amount
appearing thereon, 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 (Hongkong & Shanghai
Banking Corp. v. People’s Bank & Trust Co., 35
SCRA 140), otherwise, it bears the loss. It may not
charge the amount so paid to the account of the
drawer, if the latter was free from blame, nor
recover it from the collecting bank if the latter made
payment after proper clearance from the drawee.
As this Court pointed out in PNB v. Quimpo, Et Al.,
158 SCRA 582, 584:jgc:chanrobles.com.ph
"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, 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."cralaw
virtua1aw library
The CA erred in laying upon Republic, instead of on
FNCB the drawee bank, the burden of loss for the
payment of the altered SMC check, the fraudulent
character of which FNCB failed to detect and warn
Republic about, within the 24-hour clearing house
rule. The CA departed from the ruling of this Court
in an earlier PNB case, that:jgc:chanrobles.com.ph
"Where a loss, which must be borne by one of two
parties alike innocent of forgery, can be traced to
the neglect or fault of either, it is reasonable that it
would be borne by him, even if innocent of any
intentional fraud, through whose means it has
succeeded. (Phil. National Bank v. National City
Bank of New York, 63 Phil. 711, 733.)"
WHEREFORE, the petition for review is granted.
The decision of the CA is hereby reversed and set
aside, and another is entered absolving the pet.
Republic Bank from liability to refund to the First
National City Bank the sum of P9,240, which the
latter paid on the check in question. No costs.
GR 121413 Jan. 29, 2001
PHILIPPINE COMMERCIAL INTERNATIONAL
BANK (formerly INSULAR BANK OF ASIA AND
AMERICA), pet.,
vs.
CA and FORD PHILIPPINES, INC. and
CITIBANK, N.A., rsps..
In GR 128604, pet. Ford Philippines assails the
Oct. 15, 1996 Decision3 of the CA and its March 5,
1997 Resolution4 in CA-GR 28430 entitled "Ford
Philippines, Inc. vs. Citibank, N.A. and Philippine
Commercial International Bank," affirming in toto
the judgment of the TC holding the defendant
drawee bank, Citibank, N.A., solely liable to pay the
amount of P12,163,298.10 as damages for the
misapplied proceeds of the plaintiff's Citibanl Check
Numbers SN-10597 and 16508.
I. G.R. Nos. 121413 and 121479

The stipulated facts submitted by the parties as

accepted by the CA are as follows:
GR 121479 Jan. 29, 2001
"On Oct. 19, 1977, the plaintiff Ford drew
FORD PHILIPPINES, INC., pet.-plaintiff, and issued its Citibank Check No. SN-
vs. 04867 in the amount of P4,746,114.41, in
CA and CITIBANK, N.A. and PHILIPPINE favor of the Commissioner of Internal
COMMERCIAL INTERNATIONAL BANK, rsps.. Revenue as payment of plaintiff;s
percentage or manufacturer's sales taxes
for the third quarter of 1977.

GR 128604 Jan. 29, 2001 The aforesaid check was deposited with the
degendant IBAA (now PCIBank) and was
FORD PHILIPPINES, INC., pet., subsequently cleared at the Central Bank.
vs. Upon presentment with the defendant
CITIBANK, N.A., PHILIPPINE COMMERCIAL Citibank, the proceeds of the check was
INTERNATIONAL BANK and CA, rsps.. paid to IBAA as collecting or depository
bank.
QUISUMBING, J.:
The proceeds of the same Citibank check of
the plaintiff was never paid to or received by
These consolidated petitions involve several
the payee thereof, the Commissioner of
fraudulently negotiated checks.
Internal Revenue.
The original actions a quo were instituted by Ford
As a consequence, upon demand of the
Philippines to recover from the drawee bank,
Bureau and/or Commissioner of Internal
CITIBANK, N.A. (Citibank) and collecting bank,
Revenue, the plaintiff was compelled to
Philippine Commercial International Bank
make a second payment to the Bureau of
(PCIBank) [formerly Insular Bank of Asia and
Internal Revenue of its
America], the value of several checks payable to
percentage/manufacturers' sales taxes for
the Commissioner of Internal Revenue, which were
the third quarter of 1977 and that said
embezzled allegedly by an organized
second payment of plaintiff in the amount of
syndicate.1âwphi1.nêt
P4,746,114.41 was duly received by the
Bureau of Internal Revenue.
G.R. Nos. 121413 and 121479 are twin petitions for
review of the March 27, 1995 Decision 1 of the CA in
It is further admitted by defendant Citibank
CA-G.R. CV No. 25017, entitled "Ford Philippines,
that during the time of the transactions in
Inc. vs. Citibank, N.A. and Insular Bank of Asia and
question, plaintiff had been maintaining a
America (now Philipppine Commercial International
checking account with defendant Citibank;
Bank), and the Aug. 8, 1995 Resolution, 2 ordering
that Citibank Check No. SN-04867 which
the collecting bank, Philippine Commercial
was drawn and issued by the plaintiff in
International Bank, to pay the amount of Citibank
favor of the Commissioner of Internal
Check No. SN-04867.
Revenue was a crossed check in that, on its
face were two parallel lines and written in
between said lines was the phrase "Payee's
Account Only"; and that defendant Citibank
paid the full face value of the check in the
amount of P4,746,114.41 to the defendant
IBAA.
It has been duly established that for the
payment of plaintiff's percentage tax for the
last quarter of 1977, the Bureau of Internal
Revenue issued Revenue Tax Receipt No.
18747002, dated Oct. 20, 1977, designating
therein in Muntinlupa, Metro Manila, as the
authorized agent bank of Metrobanl,
Alabang branch to receive the tax payment
of the plaintiff.
On Dec. 19, 1977, plaintiff's Citibank Check
No. SN-04867, together with the Revenue
Tax Receipt No. 18747002, was deposited
with defendant IBAA, through its Ermita
Branch. The latter accepted the check and
sent it to the Central Clearing House for
clearing on the samd day, with the
indorsement at the back "all prior
indorsements and/or lack of indorsements
guaranteed." Thereafter, defendant IBAA
presented the check for payment to
defendant Citibank on same date, Dec. 19,
1977, and the latter paid the face value of
the check in the amount of P4,746,114.41.
Consequently, the amount of P4,746,114.41
was debited in plaintiff's account with the
defendant Citibank and the check was
returned to the plaintiff.
Upon verification, plaintiff discovered that its
Citibank Check No. SN-04867 in the
amount of P4,746,114.41 was not paid to
the Commissioner of Internal Revenue.
Hence, in separate letters dated Oct. 26,
1979, addressed to the defendants, the
plaintiff notified the latter that in case it will
be re-assessed by the BIR for the payment
of the taxes covered by the said checks,
then plaintiff shall hold the defendants liable
for reimbursement of the face value of the
same. Both defendants denied liability and
refused to pay.
In a letter dated Feb. 28, 1980 by the Acting
Commissioner of Internal Revenue
addressed to the plaintiff - supposed to be
Exhibit "D", the latter was officially informed,
among others, that its check in the amount
of P4, 746,114.41 was not paid to the
government or its authorized agent and
instead encashed by unauthorized persons,
hence, plaintiff has to pay the said amount
within fifteen days from receipt of the letter.
Upon advice of the plaintiff's lawyers,
plaintiff on March 11, 1982, paid to the
Bureau of Internal Revenue, the amount of
P4,746,114.41, representing payment of
plaintiff's percentage tax for the third quarter
of 1977.
As a consequence of defendant's refusal to
reimburse plaintiff of the payment it had
made for the second time to the BIR of its
percentage taxes, plaintiff filed on Jan. 20,
1983 its original complaint before this Court.
On Dec. 24, 1985, defendant IBAA was
merged with the Philippine Commercial
International Bank (PCI Bank) with the latter
as the surviving entity.
Defendant Citibank maintains that; the
payment it made of plaintiff's Citibank Check
No. SN-04867 in the amount of
P4,746,114.41 "was in due course"; it
merely relied on the clearing stamp of the
depository/collecting bank, the defendant
IBAA that "all prior indorsements and/or lack
of indorsements guaranteed"; and the
proximate cause of plaintiff's injury is the
gross negligence of defendant IBAA in
indorsing the plaintiff's Citibank check in
question.
It is admitted that on Dec. 19, 1977 when
the proceeds of plaintiff's Citibank Check
No. SN-048867 was paid to defendant IBAA
as collecting bank, plaintiff was maintaining
a checking account with defendant
Citibank."5
Although it was not among the stipulated facts, an
investigation by the National Bureau of
Investigation (NBI) revealed that Citibank Check
No. SN-04867 was recalled by Godofredo Rivera,
the General Ledger Accountant of Ford. He
purportedly needed to hold back the check because
there was an error in the computation of the tax due
to the Bureau of Internal Revenue (BIR). With
Rivera's instruction, PCIBank replaced the check
with two of its own Manager's Checks (MCs).
Alleged members of a syndicate later deposited the
two MCs with the Pacific Banking Corporation.
Ford, with leave of court, filed a third-party
complaint before the TC impleading Pacific Banking
Corporation (PBC) and Godofredo Rivera, as third
party defendants. But the court dismissed the
complaint against PBC for lack of cause of action.
The course likewise dismissed the third-party
complaint against Godofredo Rivera because he
could not be served with summons as the NBI
declared him as a "fugitive from justice".
On June 15, 1989, the TC rendered its decision, as
follows:
"Premises considered, judgment is hereby
rendered as follows:
"1. Ordering the defendants Citibank
and IBAA (now PCI Bank), jointly
and severally, to pay the plaintiff the
amount of P4,746,114.41
representing the face value of
plaintiff's Citibank Check No. SN-
04867, with interest thereon at the
legal rate starting Jan. 20, 1983, the
date when the original complaint
was filed until the amount is fully
paid, plus costs;
"2. On defendant Citibank's cross-
claim: ordering the cross-defendant
IBAA (now PCI Bank) to reimburse
defendant Citibank for whatever
amount the latter has paid or may
pay to the plaintiff in accordance
with next preceding paragraph;
"3. The counterclaims asserted by
the defendants against the plaintiff,
as well as that asserted by the
cross-defendant against the cross-
claimant are dismissed, for lack of
merits; and
"4. With costs against the
defendants.
SO ORDERED."6
Not satisfied with the said decision, both
defendants, Citibank and PCIBank, elevated their
respective petitions for review on certiorari to the
Courts of Appeals. On March 27, 1995, the
appellate court issued its judgment as follows:
"WHEREFORE, in view of the foregoing,
the court AFFIRMS the appealed decision
with modifications.
The court hereby renderes judgment:
1. Dismissing the complaint in Civil
Case No. 49287 insofar as
defendant Citibank N.A. is
concerned;
2. Ordering the defendant IBAA now
PCI Bank to pay the plaintiff the
amount of P4,746,114.41
representing the face value of
plaintiff's Citibank Check No. SN-
04867, with interest thereon at the
legal rate starting Jan. 20, 1983, the
date when the original complaint
was filed until the amount is fully
paid;
3. Dismissing the counterclaims
asserted by the defendants against
the plaintiff as well as that asserted
by the cross-defendant against the
cross-claimant, for lack of merits.
Costs against the defendant IBAA
(now PCI Bank).
IT IS SO ORDERED."7
PCI Bank moved to reconsider the above-quoted
decision of the CA, while Ford filed a "Motion for
Partial Reconsideration." Both motions were denied
for lack of merit.
Separately, PCIBank and Ford filed before this
Court, petitions for review by certiorari under Rule
45.
In GR 121413, PCIBank seeks the reversal of the
decision and resolution of the Twelfth Division of
the CA contending that it merely acted on the
instruction of Ford and such casue of action had
already prescribed.
PCIBank sets forth the following issues for
consideration:
I. Did the rsp. court err when, after finding
that the pet. acted on the check drawn by
rsp. Ford on the said rsp.'s instructions, it
 nevertheless found the pet. liable to the said
rsp. for the full amount of the said check.
II. Did the rsp. court err when it did not find
prescription in favor of the pet..8
In a counter move, Ford filed its petition docketed
as GR 121479, questioning the same decision and
resolution of the CA, and praying for the
reinstatement in toto of the decision of the TC
which found both PCIBank and Citibank jointly and
severally liable for the loss.
In GR 121479, appellant Ford presents the
following propositions for consideration:
I. Rsp. Citibank is liable to pet. Ford
considering that:
1. As drawee bank, rsp. Citibank
owes to pet. Ford, as the drawer of
the subject check and a depositor of
rsp. Citibank, an absolute and
contractual duty to pay the proceeds
of the subject check only to the
payee thereof, the Commissioner of
Internal Revenue.
2. Rsp. Citibank failed to observe its
duty as banker with respect to the
subject check, which was crossed
and payable to "Payee's Account
Only."
3. Rsp. Citibank raises an issue for
the first time on appeal; thus the
same should not be considered by
the Honorable Court.
4. As correctly held by the TC, there
is no evidence of gross negligence
on the part of pet. Ford.9
II. PCI Bank is liable to pet. Ford
considering that:
1. There were no instructions from
pet. Ford to deliver the proceeds of
the subject check to a person other
than the payee named therein, the
Commissioner of the Bureau of
Internal Revenue; thus, PCIBank's
only obligation is to deliver the
proceeds to the Commissioner of the
Bureau of Internal Revenue.10
2. PCIBank which affixed its
indorsement on the subject check
("All prior indorsement and/or lack of
indorsement guaranteed"), is liable
as collecting bank.11
3. PCIBank is barred from raising
issues of fact in the instant
proceedings.12
4. Pet. Ford's cause of action had
not prescribed.13
II. GR 128604
The same sysndicate apparently embezzled the
proceeds of checks intended, this time, to settle
Ford's percentage taxes appertaining to the second
quarter of 1978 and the first quarter of 1979.
The facts as narrated by the CA are as follows:
Ford drew Citibank Check No. SN-10597 on July
19, 1978 in the amount of P5,851,706.37
representing the percentage tax due for the second
quarter of 1978 payable to the Commissioner of
Internal Revenue. A BIR Revenue Tax Receipt No.
28645385 was issued for the said purpose.
On April 20, 1979, Ford drew another Citibank
Check No. SN-16508 in the amount of
P6,311,591.73, representing the payment of
percentage tax for the first quarter of 1979 and
payable to the Commissioner of Internal Revenue.
Again a BIR Revenue Tax Receipt No. A-1697160
was issued for the said purpose.
Both checks were "crossed checks" and contain
two diagonal lines on its upper corner between,
which were written the words "payable to the
payee's account only."
The checks never reached the payee, CIR. Thus, in
a letter dated Feb. 28, 1980, the BIR, Region 4-B,
demanded for the said tax payments the
corresponding periods above-mentioned.
As far as the BIR is concernced, the said two BIR
Revenue Tax Receipts were considered "fake and
spurious". This anomaly was confirmed by the NBI
upon the initiative of the BIR. The findings forced
Ford to pay the BIR a new, while an action was filed
against Citibank and PCIBank for the recovery of
the amount of Citibank Check Numbers SN-10597
and 16508.
The RTC of Makati, Branch 57, which tried the
case, made its findings on the modus operandi of
the syndicate, as follows:
"A certain Mr. Godofredo Rivera was
employed by the plaintiff FORD as its
General Ledger Accountant. As such, he
prepared the plaintiff's check marked Ex. 'A'
[Citibank Check No. Sn-10597] for payment
to the BIR. Instead, however, fo delivering
the same of the payee, he passed on the
check to a co-conspirator named Remberto
Castro who was a pro-manager of the San
Andres Branch of PCIB.* In connivance with
one Winston Dulay, Castro himself
subsequently opened a Checking Account
in the name of a fictitious person
denominated as 'Reynaldo reyes' in the
Meralco Branch of PCIBank where Dulay
works as Assistant Manager.
After an initial deposit of P100.00 to validate
the account, Castro deposited a worthless
Bank of America Check in exactly the same
amount as the first FORD check (Exh. "A",
P5,851,706.37) while this worthless check
was coursed through PCIB's main office
enroute to the Central Bank for clearing,
replaced this worthless check with FORD's
Exhibit 'A' and accordingly tampered the
accompanying documents to cover the
replacement. As a result, Exhibit 'A' was
cleared by defendant CITIBANK, and the
fictitious deposit account of 'Reynaldo
Reyes' was credited at the PCIB Meralco
Branch with the total amount of the FORD
check Exhibit 'A'. The same method was
again utilized by the syndicate in profiting
from Exh. 'B' [Citibank Check No. SN-
16508] which was subsequently pilfered by
Alexis Marindo, Rivera's Assistant at FORD.
From this 'Reynaldo Reyes' account, Castro
drew various checks distributing the sahres
of the other participating conspirators
namely (1) CRISANTO BERNABE, the
mastermind who formulated the method for
the embezzlement; (2) RODOLFO R. DE
LEON a customs broker who negotiated the
initial contact between Bernabe, FORD's
Godofredo Rivera and PCIB's Remberto
Castro; (3) JUAN VASTILLO who assisted
de Leon in the initial arrangements; (4)
GODOFREDO RIVERA, FORD's
accountant who passed on the first check
(Exhibit "A") to Castro; (5) REMERTO
CASTRO, PCIB's pro-manager at San
Andres who performed the switching of
checks in the clearing process and opened
the fictitious Reynaldo Reyes account at the
PCIB Meralco Branch; (6) WINSTON
DULAY, PCIB's Assistant Manager at its
Meralco Branch, who assisted Castro in
switching the checks in the clearing process
and facilitated the opening of the fictitious
Reynaldo Reyes' bank account; (7) ALEXIS
MARINDO, Rivera's Assistant at FORD,
who gave the second check (Exh. "B") to
Castro; (8) ELEUTERIO JIMENEZ, BIR
Collection Agent who provided the fake and
spurious revenue tax receipts to make it
appear that the BIR had received FORD's
tax payments.
Several other persons and entities were
utilized by the syndicate as conduits in the
disbursements of the proceeds of the two
checks, but like the aforementioned
participants in the conspiracy, have not
been impleaded in the present case. The
manner by which the said funds were
distributed among them are traceable from
the record of checks drawn against the
original "Reynaldo Reyes" account and
indubitably identify the parties who illegally
benefited therefrom and readily indicate in
what amounts they did so."14
On Dec. 9, 1988, RTC of Makati, Branch 57, held
drawee-bank, Citibank, liable for the value of the
two checks while adsolving PCIBank from any
liability, disposing as follows:
"WHEREFORE, judgment is hereby
rendered sentencing defendant CITIBANK
to reimburse plaintiff FORD the total amount
of P12,163,298.10 prayed for in its
complaint, with 6% interest thereon from
date of first written demand until full
payment, plus P300K attorney's fees and
expenses litigation, and to pay the
defendant, PCIB (on its counterclaim to
crossclaim) the sum of P300K as attorney's
fees and costs of litigation, and pay the
costs.
SO ORDERED."15
Both Ford and Citibank appealed to the CA which
affirmed, in toto, the decision of the TC. Hence, this
petition.
Pet. Ford prays that judgment be rendered setting
aside the portion of the CA decision and its
resolution dated March 5, 1997, with respect to the
dismissal of the complaint against PCIBank and
holding Citibank solely responsible for the proceeds
of Citibank Check Numbers SN-10597 and 16508
for P5,851,706.73 and P6,311,591.73 respectively.
Ford avers that the CA erred in dismissing the
complaint against defendant PCIBank considering
that:
I. Defendant PCIBank was clearly negligent
when it failed to exercise the diligence
required to be exercised by it as a banking
insitution.
II. Defendant PCIBank clearly failed to
observe the diligence required in the
selection and supervision of its officers and
employees.
III. Defendant PCIBank was, due to its
negligence, clearly liable for the loss or
damage resulting to the plaintiff Ford as a
consequence of the substitution of the
check consistent with Sec. 5 of Central
Bank Circular No. 580 series of 1977.
IV. Assuming arguedo that defedant
PCIBank did not accept, endorse or
negotiate in due course the subject checks,
it is liable, under Art. 2154 of the CC, to
return the money which it admits having
received, and which was credited to it its
Central bank account.16
The main issue presented for our consideration by
these petitions could be simplified as follows: Has
pet. Ford the right to recover from the collecting
bank (PCIBank) and the drawee bank (Citibank) the
value of the checks intended as payment to the
Commissioner of Internal Revenue? Or has Ford's
cause of action already prescribed?
Note that in these cases, the checks were drawn
against the drawee bank, but the title of the person
negotiating the same was allegedly defective
because the instrument was obtained by fraud and
unlawful means, and the proceeds of the checks
were not remitted to the payee. It was established
that instead of paying the checks to the CIR, for the
settlement of the approprite quarterly percentage
taxes of Ford, the checks were diverted and
encashed for the eventual distribution among the
mmbers of the syndicate. As to the unlawful
negotiation of the check the applicable law is Sec.
55 of the Negotiable Instruments Law (NIL), which
provides:
"When title defective -- The title of a person
who negotiates an instrument is defective
within the meaning of this Act when he
obtained the instrument, or any signature
thereto, by fraud, duress, or fore and fear, or
other unlawful means, or for an illegal
consideration, or when he negotiates it in
breach of faith or under such circumstances
as amount to a fraud."
Pursuant to this provision, it is vital to show that the
negotiation is made by the perpetator in breach of
faith amounting to fraud. The person negotiating
the checks must have gone beyond the authority
given by his principal. If the principal could prove
that there was no negligence in the performance of
his duties, he may set up the personal defense to
escape liability and recover from other parties who.
Though their own negligence, alowed the
commission of the crime.
In this case, we note that the direct perpetrators of
the offense, namely the embezzlers belonging to a
syndicate, are now fugitives from justice. They
have, even if temporarily, escaped liability for the
embezzlement of millions of pesos. We are thus left
only with the task of determining who of the present
parties before us must bear the burden of loss of
these millions. It all boils down to thequestion of
liability based on the degree of negligence among
the parties concerned.
Foremost, we must resolve whether the injured
party, Ford, is guilty of the "imputed contributory
negligence" that would defeat its claim for
reimbursement, bearing ing mind that its
employees, Godofredo Rivera and Alexis Marindo,
were among the members of the syndicate.
Citibank points out that Ford allowed its very own
employee, Godofredo Rivera, to negotiate the
checks to his co-conspirators, instead of delivering
them to the designated authorized collecting bank
(Metrobank-Alabang) of the payee, CIR. Citibank
bewails the fact that Ford was remiss in the
supervision and control of its own employees,
inasmuch as it only discovered the syndicate's
activities through the information given by the
payee of the checks after an unreasonable period
of time.
PCIBank also blames Ford of negligence when it
allegedly authorized Godofredo Rivera to divert the
proceeds of Citibank Check No. SN-04867, instead
of using it to pay the BIR. As to the subsequent run-
around of unds of Citibank Check Nos. SN-10597
and 16508, PCIBank claims that the proximate
cause of the damge to Ford lies in its own officers
and employees who carried out the fradulent
schemes and the transactions. These
circumstances were not checked by other officers
of the company including its comptroller or internal
auditor. PCIBank contends that the inaction of Ford
despite the enormity of the amount involved was a
sheer negligence and stated that, as between two
innocent persons, one of whom must suffer the
consequences of a breach of trust, the one who
made it possible, by his act of negligence, must
bear the loss.
For its part, Ford denies any negligence in the
performance of its duties. It avers that there was no
evidence presented before the TC showing lack of
diligence on the part of Ford. And, citing the case of
Gempesaw vs. CA,17 Ford argues that even if there
was a finding therein that the drawer was negligent,
the drawee bank was still ordered to pay damages.
Furthermore, Ford contends the Godofredo rivera
was not authorized to make any representation in
its behalf, specifically, to divert the proceeds of the
checks. It adds that Citibank raised the issue of
imputed negligence against Ford for the first time
on appeal. Thus, it should not be considered by this
Court.
On this point, jurisprudence regarding the imputed
negligence of employer in a master-servant
relationship is instructive. Since a master may be
held for his servant's wrongful act, the law imputes
to the master the act of the servant, and if that act
is negligent or wrongful and proximately results in
injury to a third person, the negligence or wrongful
conduct is the negligence or wrongful conduct of
the master, for which he is liable. 18 The general rule
is that if the master is injured by the negligence of a
third person and by the concuring contributory
negligence of his own servant or agent, the latter's
negligence is imputed to his superior and will defeat
the superior's action against the third person,
asuming, of course that the contributory negligence
was the proximate cause of the injury of which
complaint is made.19
Accordingly, we need to determine W/N the action
of Godofredo Rivera, Ford's General Ledger
Accountant, and/or Alexis Marindo, his assistant,
was the proximate cause of the loss or damage. AS
defined, proximate cause is that which, in the
natural and continuous sequence, unbroken by any
efficient, intervening cause produces the injury and
without the result would not have occurred.20
It appears that although the employees of Ford
initiated the transactions attributable to an
organized syndicate, in our view, their actions were
not the proximate cause of encashing the checks
payable to the CIR. The degree of Ford's
negligence, if any, could not be characterized as
the proximate cause of the injury to the parties.
The Board of Directors of Ford, we note, did not
confirm the request of Godofredo Rivera to recall
Citibank Check No. SN-04867. Rivera's instruction
to replace the said check with PCIBank's
Manager's Check was not in theordinary course of
business which could have prompted PCIBank to
validate the same.
As to the preparation of Citibank Checks Nos. SN-
10597 and 16508, it was established that these
checks were made payable to the CIR. Both were
crossed checks. These checks were apparently
turned around by Ford's emploees, who were
acting on their own personal capacity.
Given these circumstances, the mere fact that the
forgery was committed by a drawer-payor's
confidential employee or agent, who by virtue of his
position had unusual facilities for perpertrating the
fraud and imposing the forged paper upon the
bank, does notentitle the bank toshift the loss to the
drawer-payor, in the absence of some circumstance
raising estoppel against the drawer.21 This rule
likewise applies to the checks fraudulently
negotiated or diverted by the confidential
employees who hold them in their possession.
With respect to the negligence of PCIBank in the
payment of the three checks involved, separately,
the TCs found variations between the negotiation of
Citibank Check No. SN-04867 and the
misapplication of total proceeds of Checks SN-
10597 and 16508. Therefore, we have to scrutinize,
separately, PCIBank's share of negligence when
the syndicate achieved its ultimate agenda of
stealing the proceeds of these checks.
G.R. Nos. 121413 and 121479
Citibank Check No. SN-04867 was deposited at
PCIBank through its Ermita Branch. It was coursed
through the ordinary banking transaction, sent to
Central Clearing with the indorsement at the back
"all prior indorsements and/or lack of indorsements
guaranteed," and was presented to Citibank for
payment. Thereafter PCIBank, instead of remitting
the proceeds to the CIR, prepared two of its
Manager's checks and enabled the syndicate to
encash the same.
On record, PCIBank failed to verify the authority of
Mr. Rivera to negotiate the checks. The neglect of
PCIBank employees to verify whether his letter
requesting for the replacement of the Citibank
Check No. SN-04867 was duly authorized, showed
lack of care and prudence required in the
circumstances.
Furthermore, it was admitted that PCIBank is
authorized to collect the payment of taxpayers in
behalf of the BIR. As an agent of BIR, PCIBank is
duty bound to consult its principal regarding the
unwarranted instructions given by the payor or its
agent. As aptly stated by the TC, to wit:
"xxx. Since the questioned crossed check
was deposited with IBAA [now PCIBank],
which claimed to be a depository/collecting
bank of BIR, it has the responsibility to
make sure that the check in question is
deposited in Payee's account only.
xxx xxx xxx
As agent of the BIR (the payee of the
check), defendant IBAA should receive
instructions only from its principal BIR and
not from any other person especially so
when that person is not known to the
defendant. It is very imprudent on the part of
the defendant IBAA to just rely on the
alleged telephone call of the one Godofredo
Rivera and in his signature considering that
the plaintiff is not a client of the defendant
IBAA."
It is a well-settled rule that the relationship between
the payee or holder of commercial paper and the
bank to which it is sent for collection is, in the
absence of an argreement to the contrary, that of
principal and agent.22 A bank which receives such
paper for collection is the agent of the payee or
holder.23
Even considering arguendo, that the diversion of
the amount of a check payable to the collecting
bank in behalf of the designated payee may be
allowed, still such diversion must be properly
authorized by the payor. Otherwise stated, the
diversion can be justified only by proof of authority
from the drawer, or that the drawer has clothed his
agent with apparent authority to receive the
proceeds of such check.
Citibank further argues that PCI Bank's clearing
stamp appearing at the back of the questioned
checks stating that ALL PRIOR INDORSEMENTS
AND/OR LACK OF INDORSEMENTS
GURANTEED should render PCIBank liable
because it made it pass through the clearing house
and therefore Citibank had no other option but to
pay it. Thus, Citibank had no other option but to pay
it. Thus, Citibank assets that the proximate cause
of Ford's injury is the gross negligence of PCIBank.
Since the questione dcrossed check was deposited
with PCIBank, which claimed to be a
depository/collecting bank of the BIR, it had the
responsibility to make sure that the check in
questions is deposited in Payee's account only.
Indeed, the crossing of the check with the phrase
"Payee's Account Only," is a warning that the check
should be deposited only in the account of the CIR.
Thus, it is the duty of the collecting bank PCIBank
to ascertain that the check be deposited in payee's
account only. Therefore, it is the collecting bank
(PCIBank) which is bound to scruninize the check
and to know its depositors before it could make the
clearing indorsement "all prior indorsements and/or
lack of indorsement guaranteed".
In Banco de Oro Savings and Mortgage Bank vs.
Equitable Banking Corporation,24 we ruled:
"Anent pet.'s liability on said instruments,
this court is in full accord with the ruling of
the PCHC's Board of Directors that:
'In presenting the checks for clearing and
for payment, the defendant made an
express guarantee on the validity of "all
prior endorsements." Thus, stamped at the
back of the checks are the defedant's clear
warranty: ALL PRIOR ENDORSEMENTS
AND/OR LACK OF ENDORSEMENTS
GUARANTEED. Without such warranty,
plaintiff would not have paid on the checks.'
No amount of legal jargon can reverse the
clear meaning of defendant's warranty. As
the warranty has proven to be false and
inaccurate, the defendant is liable for any
damage arising out of the falsity of its
representation."25
Lastly, banking business requires that the one who
first cashes and negotiates the check must take
some percautions to learn W/N it is genuine. And if
the one cashing the check through indifference or
othe circumstance assists the forger in committing
the fraud, he should not be permitted to retain the
proceeds of the check from the drawee whose sole
fault was that it did not discover the forgery or the
defect in the title of the person negotiating the
instrument before paying the check. For this
reason, a bank which cashes a check drawn upon
another bank, without requiring proof as to the
identity of persons presenting it, or making inquiries
with regard to them, cannot hold the proceeds
against the drawee when the proceeds of the
checks were afterwards diverted to the hands of a
third party. In such cases the drawee bank has a
right to believe that the cashing bank (or the
collecting bank) had, by the usual proper
investigation, satisfied itself of the authenticity of
the negotiation of the checks. Thus, one who
encashed a check which had been forged or
diverted and in turn received payment thereon from
the drawee, is guilty of negligence which
proximately contributed to the success of the fraud
practiced on the drawee bank. The latter may
recover from the holder the money paid on the
check.26
Having established that the collecting bank's
negligence is the proximate cause of the loss, we
conclude that PCIBank is liable in the amount
corresponding to the proceeds of Citibank Check
No. SN-04867.
GR 128604
The TC and the CA found that PCIBank had no
official act in the ordinary course of business that
would attribute to it the case of the embezzlement
of Citibank Check Numbers SN-10597 and 16508,
because PCIBank did not actually receive nor hold
the two Ford checks at all. The TC held, thus:
"Neither is there any proof that defendant
PCIBank contributed any official or
conscious participation in the process of the
embezzlement. This Court is convinced that
the switching operation (involving the
checks while in transit for "clearing") were
the clandestine or hidden actuations
performed by the members of the syndicate
in their own personl, covert and private
capacity and done without the knowledge of
the defendant PCIBank…"27
In this case, there was no evidence presented
confirming the conscious particiapation of PCIBank
in the embezzlement. As a general rule, however, a
banking corporation is liable for the wrongful or
tortuous acts and declarations of its officers or
agents within the course and scope of their
employment.28 A bank will be held liable for the
negligence of its officers or agents when acting
within the course and scope of their employment. It
may be liable for the tortuous acts of its officers
even as regards that species of tort of which malice
is an essential element. In this case, we find a
situation where the PCIBank appears also to be the
victim of the scheme hatched by a syndicate in
which its own management employees had
particiapted.
The pro-manager of San Andres Branch of
PCIBank, Remberto Castro, received Citibank
Check Numbers SN-10597 and 16508. He passed
the checks to a co-conspirator, an Assistant
Manager of PCIBank's Meralco Branch, who
helped Castro open a Checking account of a
fictitious person named "Reynaldo Reyes." Castro
deposited a worthless Bank of America Check in
exactly the same amount of Ford checks. The
syndicate tampered with the checks and succeeded
in replacing the worthless checks and the eventual
encashment of Citibank Check Nos. SN 10597 and
16508. The PCIBank Ptro-manager, Castro, and his
co-conspirator Assistant Manager apparently
performed their activities using facilities in their
official capacity or authority but for their personal
and private gain or benefit.
A bank holding out its officers and agents as worthy
of confidence will not be permitted to profit by the
frauds these officers or agents were enabled to
perpetrate in the apparent course of their
employment; nor will t be permitted to shirk its
responsibility for such frauds, even though no
benefit may accrue to the bank therefrom. For the
general rule is that a bank is liable for the
fraudulent acts or representations of an officer or
agent acting within the course and apparent scope
of his employment or authority.29 And if an officer or
employee of a bank, in his official capacity, receives
money to satisfy an evidence of indebetedness
lodged with his bank for collection, the bank is
liable for his misappropriation of such sum.30
Moreover, as correctly pointed out by Ford, Sec. 531
of Central Bank Circular No. 580, Series of 1977
provides that any theft affecting items in transit for
clearing, shall be for the account of sending bank,
which in this case is PCIBank.
But in this case, responsibility for negligence does
not lie on PCIBank's shoulders alone.
The evidence on record shows that Citibank as
drawee bank was likewise negligent in the
performance of its duties. Citibank failed to
establish that its payment of Ford's checjs were
made in due course and legally in order. In its
defense, Citibank claims the genuineness and due
execution of said checks, considering that Citibank
(1) has no knowledge of any informity in the
issuance of the checks in question (2) coupled by
the fact that said checks were sufficiently funded
and (3) the endorsement of the Payee or lack
thereof was guaranteed by PCI Bank (formerly
IBAA), thus, it has the obligation to honor and pay
the same.
For its part, Ford contends that Citibank as the
drawee bank owes to Ford an absolute and
contractual duty to pay the proceeds of the subject
check only to the payee thereof, the CIR. Citing
Sec. 6232 of the Negotiable Instruments Law, Ford
argues that by accepting the instrument, the
acceptro which is Citibank engages that it will pay
according to the tenor of its acceptance, and that it
will pay only to the payee, (the CIR), considering
the fact that here the check was crossed with
annotation "Payees Account Only."
As ruled by the CA, Citibank must likewise answer
for the damages incurred by Ford on Citibank
Checks Numbers SN 10597 and 16508, because of
the contractual relationship existing between the
two. Citibank, as the drawee bank breached its
contractual obligation with Ford and such degree of
culpability contributed to the damage caused to the
latter. On this score, we agree with the rsp. court's
ruling.
Citibank should have scrutinized Citibank Check
Numbers SN 10597 and 16508 before paying the
amount of the proceeds thereof to the collecting
bank of the BIR. One thing is clear from the record:
the clearing stamps at the back of Citibank Check
Nos. SN 10597 and 16508 do not bear any initials.
Citibank failed to notice and verify the absence of
the clearing stamps. Had this been duly examined,
the switching of the worthless checks to Citibank
Check Nos. 10597 and 16508 would have been
discovered in time. For this reason, Citibank had
indeed failed to perform what was incumbent upon
it, which is to ensure that the amount of the checks
should be paid only to its designated payee. The
fact that the drawee bank did not discover the
irregularity seasonably, in our view, consitutes
negligence in carrying out the bank's duty to its
depositors. The point is that as a business affected
with public interest and because of the nature of its
functions, the bank is under obligation to treat the
accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their
relationship.33
Thus, invoking the doctrine of comparative
negligence, we are of the view that both PCIBank
and Citibank failed in their respective obligations
and both were negligent in the selection and
supervision of their employees resulting in the
encashment of Citibank Check Nos. SN 10597
AND 16508. Thus, we are constrained to hold them
equally liable for the loss of the proceeds of said
checks issued by Ford in favor of the CIR.
Time and again, we have stressed that banking
business is so impressed with public interest where
the trust and confidence of the public in general is
of paramount umportance such that the appropriate
standard of diligence must be very high, if not the
highest, degree of diligence.34 A bank's liability as
obligor is not merely vicarious but primary, wherein
the defense of exercise of due diligence in the
selection and supervision of its employees is of no
moment.35
Banks handle daily transactions involving millions
of pesos.36 By the very nature of their work the
degree of responsibility, care and trustworthiness
expected of their employees and officials is far
greater than those of ordinary clerks and
employees.37 Banks are expected to exercise the
highest degree of diligence in the selection and
supervision of their employees.38
On the issue of prescription, PCIBank claims that
the action of Ford had prescribed because of its
inability to seek judicial relief seasonably,
considering that the alleged negligent act took
place prior to Dec. 19, 1977 but the relief was
sought only in 1983, or seven years thereafter.
The statute of limitations begins to run when the
bank gives the depositor notice of the payment,
which is ordinarily when the check is returned to the
alleged drawer as a voucher with a statement of his
account,39 and an action upon a check is ordinarily
governed by the statutory period applicable to
instruments in writing.40
Our laws on the matter provide that the action upon
a written contract must be brought within ten year
from the time the right of action accrues. 41 hence,
the reckoning time for the prescriptive period
begins when the instrument was issued and the
corresponding check was returned by the bank to
its depositor (normally a month thereafter). Applying
the same rule, the cause of action for the recovery
of the proceeds of Citibank Check No. SN 04867
would normally be a month after Dec. 19, 1977,
when Citibank paid the face value of the check in
the amount of P4,746,114.41. Since the original
complaint for the cause of action was filed on Jan.
20, 1984, barely six years had lapsed. Thus, we
conclude that Ford's cause of action to recover the
amount of Citibank Check No. SN 04867 was
seasonably filed within the period provided by law.
Finally, we also find thet Ford is not completely
blameless in its failure to detect the fraud. Failure
on the part of the depositor to examine its
passbook, statements of account, and cancelled
checks and to give notice within a reasonable time
(or as required by statute) of any discrepancy which
it may in the exercise of due care and diligence find
therein, serves to mitigate the banks' liability by
reducing the award of interest from twelve percent
(12%) to six percent (6%) per annum. As provided
in Art. 1172 of the CC of the Philippines,
respondibility arising from negligence in the
performance of every kind of obligation is also
demandable, but such liability may be regulated by
the courts, according to the circumstances. In
quasi-delicts, the contributory negligence of the
plaintiff shall reduce the damages that he may
recover.42
WHEREFORE, the assailed Decision and
Resolution of the CA in CA-G.R. CV No. 25017 are
AFFIRMED. PCIBank, know formerly as Insular
Bank of Asia and America, id declared solely
responsible for the loss of the proceeds of Citibank
Check No SN 04867 in the amount P4,746,114.41,
which shall be paid together with six percent (6%)
interest thereon to Ford Philippines Inc. from the
date when the original complaint was filed until said
amount is fully paid.
However, the Decision and Resolution of the CA in
CA-GR 28430 are MODIFIED as follows: PCIBank
and Citibank are adjudged liable for and must share
the loss, (concerning the proceeds of Citibank
Check Numbers SN 10597 and 16508 totalling
P12,163,298.10) on a fifty-fifty ratio, and each bank
is ORDERED to pay Ford Philippines Inc.
P6,081,649.05, with six percent (6%) interest
thereon, from the date the complaint was filed until
full payment of said amount.1âwphi1.nêt
Costs against Philippine Commercial International
Bank and Citibank N.A.
GR 139130 Nov. 27, 2002
RAMON K. ILUSORIO, pet.,
vs.
HON. CA, and THE MANILA BANKING
CORPORATION, rsps..
DECISION
QUISUMBING, J.:
This petition for review seeks to reverse the
decision1 promulgated on Jan. 28, 1999 by the CA
in CA-G.R. CV No. 47942, affirming the decision of
the then Court of First Instance of Rizal, Branch XV
(now the RTC of Makati, Branch 138) dismissing
Civil Case No. 43907, for damages.
The facts as summarized by the CA are as follows:
Pet. is a prominent businessman who, at the time
material to this case, was the Managing Director of
Multinational Investment Bancorporation and the
Chairman and/or President of several other
corporations. He was a depositor in good standing
of rsp. bank, the Manila Banking Corporation, under
current Checking Account No. 06-09037-0. As he
was then running about 20 corporations, and was
going out of the country a number of times, pet.
entrusted to his secretary, Katherine2 E. Eugenio,
his credit cards and his checkbook with blank
checks. It was also Eugenio who verified and
reconciled the statements of said checking
account.3
Between the dates Sept. 5, 1980 and Jan. 23,
1981, Eugenio was able to encash and deposit to
her personal account about seventeen (17) checks
drawn against the account of the pet. at the rsp.
bank, with an aggregate amount of P119,634.34.
Pet. did not bother to check his statement of
account until a business partner apprised him that
he saw Eugenio use his credit cards. Pet. fired
Eugenio immediately, and instituted a criminal
action against her for estafa thru falsification before
the Office of the Provincial Fiscal of Rizal. Private
rsp., through an affidavit executed by its employee,
Mr. Dante Razon, also lodged a complaint for
estafa thru falsification of commercial documents
against Eugenio on the basis of pet.’s statement
that his signatures in the checks were forged. 4 Mr.
Razon’s affidavit states:
That I have examined and scrutinized the following
checks in accordance with prescribed verification
procedures with utmost care and diligence by
comparing the signatures affixed thereat against
the specimen signatures of Mr. Ramon K. Ilusorio
which we have on file at our said office on such
dates,
xxx
That the aforementioned checks were among those
issued by Manilabank in favor of its client MR.
RAMON K. ILUSORIO,…
That the same were personally encashed by
KATHERINE E. ESTEBAN, an executive secretary
of MR. RAMON K. ILUSORIO in said Investment
Corporation;
That I have met and known her as KATHERINE E.
ESTEBAN the attending verifier when she
personally encashed the above-mentioned checks
at our said office;
That MR. RAMON K. ILUSORIO executed an
affidavit expressly disowning his signature
appearing on the checks further alleged to have not
authorized the issuance and encashment of the
same.…5
Pet. then requested the rsp. bank to credit back
and restore to its account the value of the checks
which were wrongfully encashed but rsp. bank
refused. Hence, pet. filed the instant case.6
At the trial, pet. testified on his own behalf, attesting
to the truth of the circumstances as narrated above,
and how he discovered the alleged forgeries.
Several employees of Manila Bank were also called
to the witness stand as hostile witnesses. They
testified that it is the bank’s standard operating
procedure that whenever a check is presented for
encashment or clearing, the signature on the check
is first verified against the specimen signature
cards on file with the bank.
Manila Bank also sought the expertise of the
National Bureau of Investigation (NBI) in
determining the genuineness of the signatures
appearing on the checks. However, in a letter dated
March 25, 1987, the NBI informed the TC that they
could not conduct the desired examination for the
reason that the standard specimens submitted
were not sufficient for purposes of rendering a
definitive opinion. The NBI then suggested that pet.
be asked to submit seven (7) or more additional
standard signatures executed before or about, and
immediately after the dates of the questioned
checks. Pet., however, failed to comply with this
request.
After evaluating the evidence on both sides, the
court a quo rendered judgment on May 12, 1994
with the following dispositive portion:
WHEREFORE, finding no sufficient basis for
plaintiff's cause herein against defendant bank, in
the light of the foregoing considerations and
established facts, this case would have to be, as it
is hereby DISMISSED.
Defendant’s counterclaim is likewise DISMISSED
for lack of sufficient basis.
SO ORDERED.7
Aggrieved, pet. elevated the case to the CA by way
of a petition for review but without success. The
appellate court held that pet.’s own negligence was
the proximate cause of his loss. The appellate court
disposed as follows:
WHEREFORE, the judgment appealed from is
AFFIRMED. Costs against the appellant.
SO ORDERED.8
Before us, pet. ascribes the following errors to the
CA:
A. THE CA ERRED IN NOT HOLDING THAT THE
RSP. BANK IS ESTOPPED FROM RAISING THE
DEFENSE THAT THERE WAS NO FORGERY OF
THE SIGNATURES OF THE PET. IN THE CHECK
BECAUSE THE RSP. FILED A CRIMINAL
COMPLAINT FOR ESTAFA THRU FALSIFICATION
OF COMMERCIAL DOCUMENTS AGAINST
KATHERINE EUGENIO USING THE AFFIDAVIT
OF PET. STATING THAT HIS SIGNATURES
WERE FORGED AS PART OF THE AFFIDAVIT-
COMPLAINT.9
B. THE CA ERRED IN NOT APPLYING SEC. 23,
NEGOTIABLE INSTRUMENTS LAW.10
C. THE CA ERRED IN NOT HOLDING THE
BURDEN OF PROOF IS WITH THE RSP. BANK
TO PROVE THE DUE DILIGENCE TO PREVENT
DAMAGE, TO THE PET., AND THAT IT WAS NOT
NEGLIGENT IN THE SELECTION AND
SUPERVISION OF ITS EMPLOYEES. 11
D. THE CA ERRED IN NOT HOLDING THAT RSP.
BANK SHOULD BEAR THE LOSS, AND SHOULD
BE MADE TO PAY PET., WITH RECOURSE
AGAINST KATHERINE EUGENIO ESTEBAN.12
Essentially the issues in this case are: (1) W/N pet.
has a cause of action against private rsp.; and (2)
W/N private rsp., in filing an estafa case against
pet.’s secretary, is barred from raising the defense
that the fact of forgery was not established.
Pet. contends that Manila Bank is liable for
damages for its negligence in failing to detect the
discrepant checks. He adds that as a general rule a
bank which has obtained possession of a check
upon an unauthorized or forged endorsement of the
payee’s signature and which collects the amount of
the check from the drawee is liable for the proceeds
thereof to the payee. Pet. invokes the doctrine of
estoppel, saying that having itself instituted a
forgery case against Eugenio, Manila Bank is now
estopped from asserting that the fact of forgery was
never proven.
For its part, Manila Bank contends that rsp.
appellate court did not depart from the accepted
and usual course of judicial proceedings, hence
there is no reason for the reversal of its ruling.
Manila Bank additionally points out that Sec. 2313 of
the Negotiable Instruments Law is inapplicable,
considering that the fact of forgery was never
proven. Lastly, the bank negates pet.’s claim of
estoppel.14
On the first issue, we find that pet. has no cause of
action against Manila Bank. To be entitled to
damages, pet. has the burden of proving
negligence on the part of the bank for failure to
detect the discrepancy in the signatures on the
checks. It is incumbent upon pet. to establish the
fact of forgery, i.e., by submitting his specimen
signatures and comparing them with those on the
questioned checks. Curiously though, pet. failed to
submit additional specimen signatures as
requested by the National Bureau of Investigation
from which to draw a conclusive finding regarding
forgery. The CA found that pet., by his own inaction,
was precluded from setting up forgery. Said the
appellate court:
We cannot fault the court a quo for such
declaration, considering that the plaintiff’s evidence
on the alleged forgery is not convincing enough.
The burden to prove forgery was upon the plaintiff,
which burden he failed to discharge. Aside from his
own testimony, the appellant presented no other
evidence to prove the fact of forgery. He did not
even submit his own specimen signatures, taken on
or about the date of the questioned checks, for
examination and comparison with those of the
subject checks. On the other hand, the appellee
presented specimen signature cards of the
appellant, taken at various years, namely, in 1976,
1979 and 1981 (Exhibits "1", "2", "3" and "7"),
showing variances in the appellant’s unquestioned
signatures. The evidence further shows that the
appellee, as soon as it was informed by the
appellant about his questioned signatures, sought
to borrow the questioned checks from the appellant
for purposes of analysis and examination (Exhibit
"9"), but the same was denied by the appellant. It
was also the former which sought the assistance of
the NBI for an expert analysis of the signatures on
the questioned checks, but the same was
unsuccessful for lack of sufficient specimen
signatures.15
Moreover, pet.’s contention that Manila Bank was
remiss in the exercise of its duty as drawee lacks
factual basis. Consistently, the CA and the RTC
found that Manila Bank employees exercised due
diligence in cashing the checks. The bank’s
employees in the present case did not have a hint
as to Eugenio’s modus operandi because she was
a regular customer of the bank, having been
designated by pet. himself to transact in his behalf.
According to the appellate court, the employees of
the bank exercised due diligence in the
performance of their duties. Thus, it found that:
The evidence on both sides indicates that TMBC’s
employees exercised due diligence before
encashing the checks. Its verifiers first verified the
drawer’s signatures thereon as against his
specimen signature cards, and when in doubt, the
verifier went further, such as by referring to a more
experienced verifier for further verification. In some
instances the verifier made a confirmation by
calling the depositor by phone. It is only after taking
such precautionary measures that the subject
checks were given to the teller for payment.
Of course it is possible that the verifiers of TMBC
might have made a mistake in failing to detect any
forgery -- if indeed there was. However, a mistake
is not equivalent to negligence if they were honest
mistakes. In the instant case, we believe and so
hold that if there were mistakes, the same were not
deliberate, since the bank took all the precautions.16
As borne by the records, it was pet., not the bank,
who was negligent. Negligence is the omission to
do something which a reasonable man, guided by
those considerations which ordinarily regulate the
conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man
would do.17 In the present case, it appears that pet.
accorded his secretary unusual degree of trust and
unrestricted access to his credit cards, passbooks,
check books, bank statements, including custody
and possession of cancelled checks and
reconciliation of accounts. Said the CA on this
matter:
Moreover, the appellant had introduced his
secretary to the bank for purposes of reconciliation
of his account, through a letter dated July 14, 1980
(Exhibit "8"). Thus, the said secretary became a
familiar figure in the bank. What is worse, whenever
the bank verifiers call the office of the appellant, it is
the same secretary who answers and confirms the
checks.
The trouble is, the appellant had put so much trust
and confidence in the said secretary, by entrusting
not only his credit cards with her but also his
checkbook with blank checks. He also entrusted to
her the verification and reconciliation of his
account. Further adding to his injury was the fact
that while the bank was sending him the monthly
Statements of Accounts, he was not personally
checking the same. His testimony did not indicate
that he was out of the country during the period
covered by the checks. Thus, he had all the
opportunities to verify his account as well as the
cancelled checks issued thereunder -- month after
month. But he did not, until his partner asked him
whether he had entrusted his credit card to his
secretary because the said partner had seen her
use the same. It was only then that he was minded
to verify the records of his account. 18
The abovecited findings are binding upon the
reviewing court. We stress the rule that the factual
findings of a TC, especially when affirmed by the
appellate court, are binding upon us19 and entitled
to utmost respect20 and even finality. We find no
palpable error that would warrant a reversal of the
appellate court’s assessment of facts anchored
upon the evidence on record.
Pet.’s failure to examine his bank statements
appears as the proximate cause of his own
damage. Proximate cause is that cause, which, in
natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury, and
without which the result would not have occurred.21
In the instant case, the bank was not shown to be
remiss in its duty of sending monthly bank
statements to pet. so that any error or discrepancy
in the entries therein could be brought to the bank’s
attention at the earliest opportunity. But, pet. failed
to examine these bank statements not because he
was prevented by some cause in not doing so, but
because he did not pay sufficient attention to the
matter. Had he done so, he could have been
alerted to any anomaly committed against him. In
other words, pet. had sufficient opportunity to
prevent or detect any misappropriation by his
secretary had he only reviewed the status of his
accounts based on the bank statements sent to him
regularly. In view of Art. 2179 of the NCC, 22 when
the plaintiff’s own negligence was the immediate
and proximate cause of his injury, no recovery
could be had for damages.
Pet. further contends that under Sec. 23 of the
Negotiable Instruments Law a forged check is
inoperative, and that Manila Bank had no authority
to pay the forged checks. True, it is a rule that when
a signature is forged or made without the authority
of the person whose signature it purports to be, the
check is wholly inoperative. No right to retain the
instrument, or to give a discharge therefor, or to
enforce payment thereof against any party, can be
acquired through or under such signature.
However, the rule does provide for an exception,
namely: "unless the party against whom it is sought
to enforce such right is precluded from setting up
the forgery or want of authority." In the instant case,
it is the exception that applies. In our view, pet. is
precluded from setting up the forgery, assuming
there is forgery, due to his own negligence in
entrusting to his secretary his credit cards and
checkbook including the verification of his
statements of account.
Pet.’s reliance on Associated Bank vs. CA23 and
Philippine Bank of Commerce vs. CA24 to buttress
his contention that rsp. Manila Bank as the
collecting or last endorser generally suffers the loss
because it has the duty to ascertain the
genuineness of all prior endorsements is
misplaced. In the cited cases, the fact of forgery
was not in issue. In the present case, the fact of
forgery was not established with certainty. In those
cited cases, the collecting banks were held to be
negligent for failing to observe precautionary
measures to detect the forgery. In the case before
us, both courts below uniformly found that Manila
Bank’s personnel diligently performed their duties,
having compared the signature in the checks from
the specimen signatures on record and satisfied
themselves that it was pet.’s.
On the second issue, the fact that Manila Bank had
filed a case for estafa against Eugenio would not
estop it from asserting the fact that forgery has not
been clearly established. Pet. cannot hold private
rsp. in estoppel for the latter is not the actual party
to the criminal action. In a criminal action, the State
is the plaintiff, for the commission of a felony is an
offense against the State.25 Thus, under Sec. 2,
Rule 110 of the Rules of Court the complaint or
information filed in court is required to be brought in
the name of the "People of the Philippines." 26
Further, as pet. himself stated in his petition, rsp.
bank filed the estafa case against Eugenio on the
basis of pet.’s own affidavit, 27 but without admitting
that he had any personal knowledge of the alleged
forgery. It is, therefore, easy to understand that the
filing of the estafa case by rsp. bank was a last
ditch effort to salvage its ties with the pet. as a
valuable client, by bolstering the estafa case which
he filed against his secretary.
All told, we find no reversible error that can be
ascribed to the CA.
WHEREFORE, the instant petition is DENIED for
lack of merit. The assailed decision of the CA dated
Jan. 28, 1999 in CA-G.R. CV No. 47942, is
AFFIRMED.
GR 129015 Aug. 13, 2004
SAMSUNG CONSTRUCTION COMPANY
PHILIPPINES, INC., pet.,
vs.
FAR EAST BANK AND TRUST COMPANY AND
CA, rsps..
DECISION
TINGA, J.:
Called to fore in the present petition is a classic
textbook question – if a bank pays out on a forged
check, is it liable to reimburse the drawer from
whose account the funds were paid out? The CA, in
reversing a TC decision adverse to the bank,
invoked tenuous reasoning to acquit the bank of
liability. We reverse, applying time-honored
principles of law.
The salient facts follow.
Plaintiff Samsung Construction Company
Philippines, Inc. ("Samsung Construction"), while
based in Biñan, Laguna, maintained a current
account with defendant Far East Bank and Trust
Company1 ("FEBTC") at the latter’s Bel-Air, Makati
branch.2 The sole signatory to Samsung
Construction’s account was Jong Kyu Lee ("Jong"),
its Project Manager,3 while the checks remained in
the custody of the company’s accountant, Kyu Yong
Lee ("Kyu").4
On 19 March 1992, a certain Roberto Gonzaga
presented for payment FEBTC Check No. 432100
to the bank’s branch in Bel-Air, Makati. The check,
payable to cash and drawn against Samsung
Construction’s current account, was in the amount
of Nine Hundred Ninety Nine Thousand Five
Hundred Pesos (P999,500.00). The bank teller,
Cleofe Justiani, first checked the balance of
Samsung Construction’s account. After ascertaining
there were enough funds to cover the check, 5 she
compared the signature appearing on the check
with the specimen signature of Jong as contained
in the specimen signature card with the bank. After
comparing the two signatures, Justiani was
satisfied as to the authenticity of the signature
appearing on the check. She then asked Gonzaga
to submit proof of his identity, and the latter
presented three (3) identification cards.6
At the same time, Justiani forwarded the check to
the branch Senior Assistant Cashier Gemma Velez,
as it was bank policy that two bank branch officers
approve checks exceeding One Hundred Thousand
Pesos, for payment or encashment. Velez likewise
counterchecked the signature on the check as
against that on the signature card. He too
concluded that the check was indeed signed by
Jong. Velez then forwarded the check and
signature card to Shirley Syfu, another bank officer,
for approval. Syfu then noticed that Jose Sempio III
("Sempio"), the assistant accountant of Samsung
Construction, was also in the bank. Sempio was
well-known to Syfu and the other bank officers, he
being the assistant accountant of Samsung
Construction. Syfu showed the check to Sempio,
who vouched for the genuineness of Jong’s
signature. Confirming the identity of Gonzaga,
Sempio said that the check was for the purchase of
equipment for Samsung Construction. Satisfied
with the genuineness of the signature of Jong, Syfu
authorized the bank’s encashment of the check to
Gonzaga.
The following day, the accountant of Samsung
Construction, Kyu, examined the balance of the
bank account and discovered that a check in the
amount of Nine Hundred Ninety Nine Thousand
Five Hundred Pesos (P999,500.00) had been
encashed. Aware that he had not prepared such a
check for Jong’s signature, Kyu perused the
checkbook and found that the last blank check was
missing.7 He reported the matter to Jong, who then
proceeded to the bank. Jong learned of the
encashment of the check, and realized that his
signature had been forged. The Bank Manager
reputedly told Jong that he would be reimbursed for
the amount of the check.8 Jong proceeded to the
police station and consulted with his lawyers. 9
Subsequently, a crim.case for qualified theft was
filed against Sempio before the Laguna court.10
In a letter dated 6 May 1992, Samsung
Construction, through counsel, demanded that
FEBTC credit to it the amount of Nine Hundred
Ninety Nine Thousand Five Hundred Pesos
(P999,500.00), with interest.11 In response, FEBTC
said that it was still conducting an investigation on
the matter. Unsatisfied, Samsung Construction filed
a Complaint on 10 June 1992 for violation of Sec.
23 of the Negotiable Instruments Law, and prayed
for the payment of the amount debited as a result of
the questioned check plus interest, and attorney’s
fees.12 The case was docketed as Civil Case No.
92-61506 before the RTC ("RTC") of Manila,
Branch 9.13
During the trial, both sides presented their
respective expert witnesses to testify on the claim
that Jong’s signature was forged. Samsung
Corporation, which had referred the check for
investigation to the NBI, presented Senior NBI
Document Examiner Roda B. Flores. She testified
that based on her examination, she concluded that
Jong’s signature had been forged on the check. On
the other hand, FEBTC, which had sought the
assistance of the Philippine National Police
(PNP),14 presented Rosario C. Perez, a document
examiner from the PNP Crime Laboratory. She
testified that her findings showed that Jong’s
signature on the check was genuine.15
Confronted with conflicting expert testimony, the
RTC chose to believe the findings of the NBI
expert. In a Decision dated 25 April 1994, the RTC
held that Jong’s signature on the check was forged
and accordingly directed the bank to pay or credit
back to Samsung Construction’s account the
amount of Nine Hundred Ninety Nine Thousand
Five Hundred Pesos (P999,500.00), together with
interest tolled from the time the complaint was filed,
and attorney’s fees in the amount of Fifteen
Thousand Pesos (P15,000.00).
FEBTC timely appealed to the CA. On 28 Nov.
1996, the Special Fourteenth Division of the CA
rendered a Decision,16 reversing the RTC Decision
and absolving FEBTC from any liability. The CA
held that the contradictory findings of the NBI and
the PNP created doubt as to whether there was
forgery.17 Moreover, the appellate court also held
that assuming there was forgery, it occurred due to
the negligence of Samsung Construction, imputing
blame on the accountant Kyu for lack of care and
prudence in keeping the checks, which if observed
would have prevented Sempio from gaining access
thereto.18 The CA invoked the ruling in PNB v.
National City Bank of New York19 that, if a loss,
which must be borne by one or two innocent
persons, can be traced to the neglect or fault of
either, such loss would be borne by the negligent
party, even if innocent of intentional fraud.20
Samsung Construction now argues that the CA had
seriously misapprehended the facts when it
overturned the RTC’s finding of forgery. It also
contends that the appellate court erred in finding
that it had been negligent in safekeeping the check,
and in applying the equity principle enunciated in
PNB v. National City Bank of New York.
Since the TC and the CA arrived at contrary
findings on questions of fact, the Court is obliged to
examine the record to draw out the correct
conclusions. Upon examination of the record, and
based on the applicable laws and jurisprudence, we
reverse the CA.
Sec. 23 of the Negotiable Instruments Law states:
When a signature is forged or made without
the authority of the person whose signature
it purports to be, it is wholly inoperative,
and no right to retain the instrument, or to
give a discharge therefor, or to enforce
payment thereof against any party thereto,
can be acquired through or under such
signature, unless the party against whom it
is sought to enforce such right is precluded
from setting up the forgery or want of
authority. (Emphasis supplied)
The general rule is to the effect that a forged
signature is "wholly inoperative," and payment
made "through or under such signature" is
ineffectual or does not discharge the instrument.21 If
payment is made, the drawee cannot charge it to
the drawer’s account. The traditional justification for
the result is that the drawee is in a superior position
to detect a forgery because he has the maker’s
signature and is expected to know and compare
it.22 The rule has a healthy cautionary effect on
banks by encouraging care in the comparison of
the signatures against those on the signature cards
they have on file. Moreover, the very opportunity of
the drawee to insure and to distribute the cost
among its customers who use checks makes the
drawee an ideal party to spread the risk to
insurance.23
Brady, in his treatise The Law of Forged and
Altered Checks, elucidates:
When a person deposits money in a general
account in a bank, against which he has the
privilege of drawing checks in the ordinary
course of business, the relationship
between the bank and the depositor is that
of debtor and creditor. So far as the legal
relationship between the two is concerned,
the situation is the same as though the bank
had borrowed money from the depositor,
agreeing to repay it on demand, or had
bought goods from the depositor, agreeing
to pay for them on demand. The bank owes
the depositor money in the same sense that
any debtor owes money to his creditor.
Added to this, in the case of bank and
depositor, there is, of course, the bank’s
obligation to pay checks drawn by the
depositor in proper form and presented in
due course. When the bank receives the
deposit, it impliedly agrees to pay only upon
the depositor’s order. When the bank pays a
check, on which the depositor’s signature is
a forgery, it has failed to comply with its
contract in this respect. Therefore, the bank
is held liable.
The fact that the forgery is a clever one is
immaterial. The forged signature may so
closely resemble the genuine as to defy
detection by the depositor himself. And yet,
if a bank pays the check, it is paying out its
own money and not the depositor’s.
The forgery may be committed by a trusted
employee or confidential agent. The bank
still must bear the loss. Even in a case
where the forged check was drawn by the
depositor’s partner, the loss was placed
upon the bank. The case referred to is
Robinson v. Security Bank, Ark., 216 S. W.
Rep. 717. In this case, the plaintiff brought
suit against the defendant bank for money
which had been deposited to the plaintiff’s
credit and which the bank had paid out on
checks bearing forgeries of the plaintiff’s
signature.
xxx
It was held that the bank was liable. It was
further held that the fact that the plaintiff
waited eight or nine months after
discovering the forgery, before notifying the
bank, did not, as a matter of law, constitute
a ratification of the payment, so as to
preclude the plaintiff from holding the bank
liable. xxx
This rule of liability can be stated briefly in
these words: "A bank is bound to know its
depositors’ signature." The rule is variously
expressed in the many decisions in which
the question has been considered. But they
all sum up to the proposition that a bank
must know the signatures of those whose
general deposits it carries.24
By no means is the principle rendered obsolete with
the advent of modern commercial transactions.
Contemporary texts still affirm this well-entrenched
standard. Nickles, in his book Negotiable
Instruments and Other Related Commercial Paper
wrote, thus:
The deposit contract between a payor bank
and its customer determines who can draw
against the customer’s account by
specifying whose signature is necessary on
checks that are chargeable against the
customer’s account. Therefore, a check
drawn against the account of an individual
customer that is signed by someone other
than the customer, and without authority
from her, is not properly payable and is not
chargeable to the customer’s account,
inasmuch as any "unauthorized signature
on an instrument is ineffective" as the
signature of the person whose name is
signed.25
Under Sec. 23 of the Negotiable Instruments Law,
forgery is a real or absolute defense by the party
whose signature is forged.26 On the premise that
Jong’s signature was indeed forged, FEBTC is
liable for the loss since it authorized the discharge
of the forged check. Such liability attaches even if
the bank exerts due diligence and care in
preventing such faulty discharge. Forgeries often
deceive the eye of the most cautious experts; and
when a bank has been so deceived, it is a harsh
rule which compels it to suffer although no one has
suffered by its being deceived.27 The forgery may
be so near like the genuine as to defy detection by
the depositor himself, and yet the bank is liable to
the depositor if it pays the check.28
Thus, the first matter of inquiry is into whether the
check was indeed forged. A document formally
presented is presumed to be genuine until it is
proved to be fraudulent. In a forgery trial, this
presumption must be overcome but this can only be
done by convincing testimony and effective
illustrations.29
In ruling that forgery was not duly proven, the CA
held:
[There] is ground to doubt the findings of the
TC sustaining the alleged forgery in view of
the conflicting conclusions made by
handwriting experts from the NBI and the
PNP, both agencies of the government.
xxx
These contradictory findings create doubt
on whether there was indeed a forgery. In
the case of Tenio-Obsequio v. CA, 230
SCRA 550, the SC held that forgery cannot
be presumed; it must be proved by clear,
positive and convincing evidence.
This reasoning is pure sophistry. Any litigator worth
his or her salt would never allow an opponent’s
expert witness to stand uncontradicted, thus the
spectacle of competing expert witnesses is not
unusual. The trier of fact will have to decide which
version to believe, and explain why or why not such
version is more credible than the other. Reliance
therefore cannot be placed merely on the fact that
there are colliding opinions of two experts, both
clothed with the presumption of official duty, in
order to draw a conclusion, especially one which is
extremely crucial. Doing so is tantamount to a
jurisprudential cop-out.
Much is expected from the CA as it occupies the
penultimate tier in the judicial hierarchy. This Court
has long deferred to the appellate court as to its
findings of fact in the understanding that it has the
appropriate skill and competence to plough through
the minutiae that scatters the factual field. In failing
to thoroughly evaluate the evidence before it, and
relying instead on presumptions haphazardly
drawn, the CA was sadly remiss. Of course, courts,
like humans, are fallible, and not every error
deserves a stern rebuke. Yet, the appellate court’s
error in this case warrants special attention, as it is
absurd and even dangerous as a precedent. If this
rationale were adopted as a governing standard by
every court in the land, barely any actionable claim
would prosper, defeated as it would be by the mere
invocation of the existence of a contrary "expert"
opinion.
On the other hand, the RTC did adjudge the
testimony of the NBI expert as more credible than
that of the PNP, and explained its reason behind
the conclusion:
After subjecting the evidence of both parties
to a crucible of analysis, the court arrived at
the conclusion that the testimony of the NBI
document examiner is more credible
because the testimony of the PNP Crime
Laboratory Services document examiner
reveals that there are a lot of differences in
the questioned signature as compared to
the standard specimen signature.
Furthermore, as testified to by Ms. Rhoda
Flores, NBI expert, the manner of execution
of the standard signatures used reveals that
it is a free rapid continuous execution or
stroke as shown by the tampering terminal
stroke of the signatures whereas the
questioned signature is a hesitating slow
drawn execution stroke. Clearly, the person
who executed the questioned signature was
hesitant when the signature was made.30
During the testimony of PNP expert Rosario Perez,
the RTC bluntly noted that "apparently, there [are]
differences on that questioned signature and the
standard signatures."31 This Court, in examining the
signatures, makes a similar finding. The PNP
expert excused the noted "differences" by asserting
that they were mere "variations," which are normal
deviations found in writing.32 Yet the RTC, which
had the opportunity to examine the relevant
documents and to personally observe the expert
witness, clearly disbelieved the PNP expert. The
Court similarly finds the testimony of the PNP
expert as unconvincing. During the trial, she was
confronted several times with apparent differences
between strokes in the questioned signature and
the genuine samples. Each time, she would just
blandly assert that these differences were just
"variations,"33 as if the mere conjuration of the word
would sufficiently disquiet whatever doubts about
the deviations. Such conclusion, standing alone,
would be of little or no value unless supported by
sufficiently cogent reasons which might amount
almost to a demonstration.34
The most telling difference between the questioned
and genuine signatures examined by the PNP is in
the final upward stroke in the signature, or "the
point to the short stroke of the terminal in the
capital letter ‘L,’" as referred to by the PNP
examiner who had marked it in her comparison
chart as "point no. 6." To the plain eye, such
upward final stroke consists of a vertical line which
forms a ninety degree (90º) angle with the previous
stroke. Of the twenty one (21) other genuine
samples examined by the PNP, at least nine (9)
ended with an upward stroke.35 However, unlike the
questioned signature, the upward strokes of eight
(8) of these signatures are looped, while the
upward stroke of the seventh36 forms a severe
forty-five degree (45º) with the previous stroke. The
difference is glaring, and indeed, the PNP examiner
was confronted with the inconsistency in point no.
6.
Q: Now, in this questioned document point
no. 6, the "s" stroke is directly upwards.
A: Yes, sir.
Q: Now, can you look at all these standard
signature (sic) were (sic) point 6 is repeated
or the last stroke "s" is pointing directly
upwards?
A: There is none in the standard signature,
sir.37
Again, the PNP examiner downplayed the
uniqueness of the final stroke in the questioned
signature as a mere variation,38 the same excuse
she proffered for the other marked differences
noted by the Court and the counsel for pet..39
There is no reason to doubt why the RTC gave
credence to the testimony of the NBI examiner, and
not the PNP expert’s. The NBI expert, Rhoda
Flores, clearly qualifies as an expert witness. A
document examiner for fifteen years, she had been
promoted to the rank of Senior Document Examiner
with the NBI, and had held that rank for twelve
years prior to her testimony. She had placed among
the top five examinees in the Competitive Seminar
in Question Document Examination, conducted by
the NBI Academy, which qualified her as a
document examiner.40 She had trained with the
Royal Hongkong Police Laboratory and is a
member of the International Association for
Identification.41 As of the time she testified, she had
examined more than fifty to fifty-five thousand
questioned documents, on an average of fifteen to
twenty documents a day.42 In comparison, PNP
document examiner Perez admitted to having
examined only around five hundred documents as
of her testimony.43
In analyzing the signatures, NBI Examiner Flores
utilized the scientific comparative examination
method consisting of analysis, recognition,
comparison and evaluation of the writing habits with
the use of instruments such as a magnifying lense,
a stereoscopic microscope, and varied lighting
substances. She also prepared enlarged
photographs of the signatures in order to facilitate
the necessary comparisons.44 She compared the
questioned signature as against ten (10) other
sample signatures of Jong. Five of these signatures
were executed on checks previously issued by
Jong, while the other five contained in business
letters Jong had signed.45 The NBI found that there
were significant differences in the handwriting
characteristics existing between the questioned and
the sample signatures, as to manner of execution,
link/connecting strokes, proportion characteristics,
and other identifying details.46
The RTC was sufficiently convinced by the NBI
examiner’s testimony, and explained her reasons in
its Decisions. While the CA disagreed and upheld
the findings of the PNP, it failed to convincingly
demonstrate why such findings were more credible
than those of the NBI expert. As a throwaway, the
assailed Decision noted that the PNP, not the NBI,
had the opportunity to examine the specimen
signature card signed by Jong, which was relied
upon by the employees of FEBTC in authenticating
Jong’s signature. The distinction is irrelevant in
establishing forgery. Forgery can be established
comparing the contested signatures as against
those of any sample signature duly established as
that of the persons whose signature was forged.
FEBTC lays undue emphasis on the fact that the
PNP examiner did compare the questioned
signature against the bank signature cards. The
crucial fact in question is W/N the check was
forged, not whether the bank could have
detected the forgery. The latter issue becomes
relevant only if there is need to weigh the
comparative negligence between the bank and
the party whose signature was forged.
At the same time, the CA failed to assess the effect
of Jong’s testimony that the signature on the check
was not his.47 The assertion may seem self-serving
at first blush, yet it cannot be ignored that Jong was
in the best position to know W/N the signature on
the check was his. While his claim should not be
taken at face value, any averments he would have
on the matter, if adjudged as truthful, deserve
primacy in consideration. Jong’s testimony is
supported by the findings of the NBI examiner.
They are also backed by factual circumstances that
support the conclusion that the assailed check was
indeed forged. Judicial notice can be taken that is
highly unusual in practice for a business
establishment to draw a check for close to a million
pesos and make it payable to cash or bearer, and
not to order. Jong immediately reported the forgery
upon its discovery. He filed the appropriate criminal
charges against Sempio, the putative forger.48
Now for determination is whether Samsung
Construction was precluded from setting up the
defense of forgery under Sec. 23 of the Negotiable
Instruments Law. The CA concluded that Samsung
Construction was negligent, and invoked the
doctrines that "where a loss must be borne by one
of two innocent person, can be traced to the
neglect or fault of either, it is reasonable that it
would be borne by him, even if innocent of any
intentional fraud, through whose means it has
succeeded49 or who put into the power of the third
person to perpetuate the wrong."50 Applying these
rules, the CA determined that it was the negligence
of Samsung Construction that allowed the
encashment of the forged check.
In the case at bar, the forgery appears to
have been made possible through the acts
of one Jose Sempio III, an assistant
accountant employed by the plaintiff
Samsung [Construction] Co. Philippines,
Inc. who supposedly stole the blank check
and who presumably is responsible for its
encashment through a forged signature of
Jong Kyu Lee. Sempio was assistant to the
Korean accountant who was in possession
of the blank checks and who through
negligence, enabled Sempio to have access
to the same. Had the Korean accountant
been more careful and prudent in keeping
the blank checks Sempio would not have
had the chance to steal a page thereof and
to effect the forgery. Besides, Sempio was
an employee who appears to have had
dealings with the defendant Bank in behalf
of the plaintiff corporation and on the date
the check was encashed, he was there to
certify that it was a genuine check issued to
purchase equipment for the company.51
We recognize that Sec. 23 of the Negotiable
Instruments Law bars a party from setting up the
defense of forgery if it is guilty of negligence. 52 Yet,
we are unable to conclude that Samsung
Construction was guilty of negligence in this case.
The appellate court failed to explain precisely how
the Korean accountant was negligent or how more
care and prudence on his part would have
prevented the forgery. We cannot sustain this "tar
and feathering" resorted to without any basis.
The bare fact that the forgery was committed by an
employee of the party whose signature was forged
cannot necessarily imply that such party’s
negligence was the cause for the forgery.
Employers do not possess the preternatural gift of
cognition as to the evil that may lurk within the
hearts and minds of their employees. The Court’s
pronouncement in PCI Bank v. CA53 applies in this
case, to wit:
[T]he mere fact that the forgery was
committed by a drawer-payor’s confidential
employee or agent, who by virtue of his
position had unusual facilities for
perpetrating the fraud and imposing the
forged paper upon the bank, does not entitle
the bank to shift the loss to the drawer-
payor, in the absence of some circumstance
raising estoppel against the drawer.54
Admittedly, the record does not clearly establish
what measures Samsung Construction employed to
safeguard its blank checks. Jong did testify that his
accountant, Kyu, kept the checks inside a "safety
box,"55 and no contrary version was presented by
FEBTC. However, such testimony cannot prove
that the checks were indeed kept in a safety box,
as Jong’s testimony on that point is hearsay, since
Kyu, and not Jong, would have the personal
knowledge as to how the checks were kept.
Still, in the absence of evidence to the contrary, we
can conclude that there was no negligence on
Samsung Construction’s part. The presumption
remains that every person takes ordinary care of
his concerns,56 and that the ordinary course of
business has been followed.57 Negligence is not
presumed, but must be proven by him who alleges
it.58 While the complaint was lodged at the instance
of Samsung Construction, the matter it had to prove
was the claim it had alleged - whether the check
was forged. It cannot be required as well to prove
that it was not negligent, because the legal
presumption remains that ordinary care was
employed.
Thus, it was incumbent upon FEBTC, in defense, to
prove the negative fact that Samsung Construction
was negligent. While the payee, as in this case,
may not have the personal knowledge as to the
standard procedures observed by the drawer, it well
has the means of disputing the presumption of
regularity. Proving a negative fact may be "a difficult
office,"59 but necessarily so, as it seeks to
overcome a presumption in law. FEBTC was
unable to dispute the presumption of ordinary care
exercised by Samsung Construction, hence we
cannot agree with the CA’ finding of negligence.
The assailed Decision replicated the extensive
efforts which FEBTC devoted to establish that there
was no negligence on the part of the bank in its
acceptance and payment of the forged check.
However, the degree of diligence exercised by the
bank would be irrelevant if the drawer is not
precluded from setting up the defense of forgery
under Sec. 23 by his own negligence. The rule of
equity enunciated in PNB v. National City Bank of
New York, 60 as relied upon by the CA, deserves
careful examination.
The point in issue has sometimes been said
to be that of negligence. The drawee who
has paid upon the forged signature is
held to bear the loss, because he has
been negligent in failing to recognize
that the handwriting is not that of his
customer. But it follows obviously that if the
payee, holder, or presenter of the forged
paper has himself been in default, if he has
himself been guilty of a negligence prior to
that of the banker, or if by any act of his own
he has at all contributed to induce the
banker's negligence, then he may lose his
right to cast the loss upon the banker. 61
(Emphasis supplied)
Quite palpably, the general rule remains that the
drawee who has paid upon the forged signature
bears the loss. The exception to this rule arises
only when negligence can be traced on the part of
the drawer whose signature was forged, and the
need arises to weigh the comparative negligence
between the drawer and the drawee to determine
who should bear the burden of loss. The Court
finds no basis to conclude that Samsung
Construction was negligent in the safekeeping of its
checks. For one, the settled rule is that the mere
fact that the depositor leaves his check book lying
around does not constitute such negligence as will
free the bank from liability to him, where a clerk of
the depositor or other persons, taking advantage of
the opportunity, abstract some of the check blanks,
forges the depositor’s signature and collect on the
checks from the bank.62 And for another, in point of
fact Samsung Construction was not negligent at all
since it reported the forgery almost immediately
upon discovery.63
It is also worth noting that the forged signatures in
PNB v. National City Bank of New York were not of
the drawer, but of indorsers. The same
circumstance attends PNB v. CA,64 which was also
cited by the CA. It is accepted that a forged
signature of the drawer differs in treatment than a
forged signature of the indorser.
The justification for the distinction between
forgery of the signature of the drawer and
forgery of an indorsement is that the drawee
is in a position to verify the drawer’s
signature by comparison with one in his
hands, but has ordinarily no opportunity to
verify an indorsement.65
Thus, a drawee bank is generally liable to
its depositor in paying a check which bears
either a forgery of the drawer’s signature or
a forged indorsement. But the bank may, as
a general rule, recover back the money
which it has paid on a check bearing a
forged indorsement, whereas it has not this
right to the same extent with reference to a
check bearing a forgery of the drawer’s
signature.66
The general rule imputing liability on the drawee
who paid out on the forgery holds in this case.
Since FEBTC puts into issue the degree of care it
exercised before paying out on the forged check,
we might as well comment on the bank’s
performance of its duty. It might be so that the bank
complied with its own internal rules prior to paying
out on the questionable check. Yet, there are
several troubling circumstances that lead us to
believe that the bank itself was remiss in its duty.
The fact that the check was made out in the
amount of nearly one million pesos is unusual
enough to require a higher degree of caution on the
part of the bank. Indeed, FEBTC confirms this
through its own internal procedures. Checks below
twenty-five thousand pesos require only the
approval of the teller; those between twenty-five
thousand to one hundred thousand pesos
necessitate the approval of one bank officer; and
should the amount exceed one hundred thousand
pesos, the concurrence of two bank officers is
required.67
In this case, not only did the amount in the check
nearly total one million pesos, it was also payable
to cash. That latter circumstance should have
aroused the suspicion of the bank, as it is not
ordinary business practice for a check for such
large amount to be made payable to cash or to
bearer, instead of to the order of a specified
person.68 Moreover, the check was presented for
payment by one Roberto Gonzaga, who was not
designated as the payee of the check, and who did
not carry with him any written proof that he was
authorized by Samsung Construction to encash the
check. Gonzaga, a stranger to FEBTC, was not
even an employee of Samsung Construction.69
These circumstances are already suspicious if
taken independently, much more so if they are
evaluated in concurrence. Given the shadiness
attending Gonzaga’s presentment of the check, it
was not sufficient for FEBTC to have merely
complied with its internal procedures, but
mandatory that all earnest efforts be undertaken to
ensure the validity of the check, and of the authority
of Gonzaga to collect payment therefor.
According to FEBTC Senior Assistant Cashier
Gemma Velez, the bank tried, but failed, to contact
Jong over the phone to verify the check.70 She
added that calling the issuer or drawer of the check
to verify the same was not part of the standard
procedure of the bank, but an "extra effort."71 Even
assuming that such personal verification is
tantamount to extraordinary diligence, it cannot be
denied that FEBTC still paid out the check despite
the absence of any proof of verification from the
drawer. Instead, the bank seems to have relied
heavily on the say-so of Sempio, who was present
at the bank at the time the check was presented.
FEBTC alleges that Sempio was well-known to the
bank officers, as he had regularly transacted with
the bank in behalf of Samsung Construction. It was
even claimed that everytime FEBTC would contact
Jong about problems with his account, Jong would
hand the phone over to Sempio.72 However, the
only proof of such allegations is the testimony of
Gemma Velez, who also testified that she did not
know Sempio personally,73 and had met Sempio for
the first time only on the day the check was
encashed.74 In fact, Velez had to inquire with the
other officers of the bank as to whether Sempio
was actually known to the employees of the bank.75
Obviously, Velez had no personal knowledge as to
the past relationship between FEBTC and Sempio,
and any averments of her to that effect should be
deemed hearsay evidence. Interestingly, FEBTC
did not present as a witness any other employee of
their Bel-Air branch, including those who
supposedly had transacted with Sempio before.
Even assuming that FEBTC had a standing habit of
dealing with Sempio, acting in behalf of Samsung
Construction, the irregular circumstances attending
the presentment of the forged check should have
put the bank on the highest degree of alert. The
Court recently emphasized that the highest degree
of care and diligence is required of banks.
Banks are engaged in a business
impressed with public interest, and it is their
duty to protect in return their many clients
and depositors who transact business with
them. They have the obligation to treat their
client’s account meticulously and with the
highest degree of care, considering the
fiduciary nature of their relationship. The
diligence required of banks, therefore, is
more than that of a good father of a family.76
Given the circumstances, extraordinary diligence
dictates that FEBTC should have ascertained from
Jong personally that the signature in the
questionable check was his.
Still, even if the bank performed with utmost
diligence, the drawer whose signature was forged
may still recover from the bank as long as he or she
is not precluded from setting up the defense of
forgery. After all, Sec. 23 of the Negotiable
Instruments Law plainly states that no right to
enforce the payment of a check can arise out of a
forged signature. Since the drawer, Samsung
Construction, is not precluded by negligence from
setting up the forgery, the general rule should
apply. Consequently, if a bank pays a forged check,
it must be considered as paying out of its funds and
cannot charge the amount so paid to the account of
the depositor.77 A bank is liable, irrespective of its
good faith, in paying a forged check.78
WHEREFORE, the Petition is GRANTED. The
Decision of the CA dated 28 Nov. 1996 is
REVERSED, and the Decision of the RTC of
Manila, Branch 9, dated 25 April 1994 is
REINSTATED. Costs against rsp..
GR 156132 Oct. 12, 2006
CITIBANK, N.A. (Formerly First National City
Bank) and INVESTORS' FINANCE
CORPORATION, doing business under the
name and style of FNCB Finance, pet/s,
vs.
MODESTA R. SABENIANO, rsp..
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on
Certiorari,1 under Rule 45 of the Revised Rules of
Court, of the Decision2 of the CA in CA-G.R. CV
No. 51930, dated 26 March 2002, and the
Resolution,3 dated 20 Nov. 2002, of the same court
which, although modifying its earlier Decision, still
denied for the most part the MR of herein pet/s.
Pet. Citibank, N.A. (formerly known as the First
National City Bank) is a banking corporation duly
authorized and existing under the laws of the US of
America and licensed to do commercial banking
activities and perform trust functions in the
Philippines.
Pet. Investor's Finance Corporation, which did
business under the name and style of FNCB
Finance, was an affiliate company of pet. Citibank,
specifically handling money market placements for
its clients. It is now, by virtue of a merger, doing
business as part of its successor-in-interest, BPI
Card Finance Corporation. However, so as to
consistently establish its identity in the Petition at
bar, the said pet. shall still be referred to herein as
FNCB Finance.4
Rsp. Modesta R. Sabeniano was a client of both
pet/s Citibank and FNCB Finance. Regrettably, the
business relations among the parties subsequently
went awry.
On 8 Aug. 1985, rsp. filed a Complaint5 against
pet/s, docketed as Civil Case No. 11336, before the
RTC (RTC) of Makati City. Rsp. claimed to have
substantial deposits and money market placements
with the pet/s, as well as money market placements
with the Ayala Investment and Development
Corporation (AIDC), the proceeds of which were
supposedly deposited automatically and directly to
rsp.'s accounts with pet. Citibank. Rsp. alleged that
pet/s refused to return her deposits and the
proceeds of her money market placements despite
her repeated demands, thus, compelling rsp. to file
Civil Case No. 11336 against pet/s for "Accounting,
Sum of Money and Damages." Rsp. eventually filed
an Amended Complaint6 on 9 Oct. 1985 to include
additional claims to deposits and money market
placements inadvertently left out from her original
Complaint.
In their joint Answer7 and Answer to Amended
Complaint,8 filed on 12 Sept. 1985 and 6 Nov.
1985, respectively, pet/s admitted that rsp. had
deposits and money market placements with them,
including dollar accounts in the Citibank branch in
Geneva, Switzerland (Citibank-Geneva). Pet/s
further alleged that the rsp. later obtained several
loans from pet. Citibank, for which she executed
Promissory Notes (PNs), and secured by (a) a
Declaration of Pledge of her dollar accounts in
Citibank-Geneva, and (b) Deeds of Assignment of
her money market placements with pet. FNCB
Finance. When rsp. failed to pay her loans despite
repeated demands by pet. Citibank, the latter
exercised its right to off-set or compensate rsp.'s
outstanding loans with her deposits and money
market placements, pursuant to the Declaration of
Pledge and the Deeds of Assignment executed by
rsp. in its favor. Pet. Citibank supposedly informed
rsp. Sabeniano of the foregoing compensation
through letters, dated 28 Sept. 1979 and 31 Oct.
1979. Pet/s were therefore surprised when six
years later, in 1985, rsp. and her counsel made
repeated requests for the withdrawal of rsp.'s
deposits and money market placements with pet.
Citibank, including her dollar accounts with
Citibank-Geneva and her money market
placements with pet. FNCB Finance. Thus, pet/s
prayed for the dismissal of the Complaint and for
the award of actual, moral, and exemplary
damages, and attorney's fees.
When the parties failed to reach a compromise
during the pre-trial hearing,9 trial proper ensued and
the parties proceeded with the presentation of their
respective evidence. Ten years after the filing of the
Complaint on 8 Aug. 1985, a Decision 10 was finally
rendered in Civil Case No. 11336 on 24 Aug. 1995
by the fourth Judge11 who handled the said case,
Judge Manuel D. Victorio, the dispositive portion of
which reads –
 WHEREFORE, in view of all the foregoing, a quo is hereby AFFIRMED with
decision is hereby rendered as follows: MODIFICATION, as follows:

(1) Declaring as illegal, null and void 1. Declaring as illegal, null and void
the setoff effected by the defendant the set-off effected by the defendant-
Bank [pet. Citibank] of plaintiff's [rsp. appellant Bank of the plaintiff-
Sabeniano] dollar deposit with appellant's dollar deposit with
Citibank, Switzerland, in the amount Citibank, Switzerland, in the amount
of US$149,632.99, and ordering the of US$149,632.99, and ordering
said defendant [pet. Citibank] to defendant-appellant Citibank to
refund the said amount to the refund the said amount to the
plaintiff with legal interest at the rate plaintiff-appellant with legal interest
of twelve percent (12%) per annum, at the rate of twelve percent (12%)
compounded yearly, from 31 Oct. per annum, compounded yearly,
1979 until fully paid, or its peso from 31 Oct. 1979 until fully paid, or
equivalent at the time of payment; its peso equivalent at the time of
payment;
(2) Declaring the plaintiff [rsp.
Sabeniano] indebted to the 2. As defendant-appellant Citibank
defendant Bank [pet. Citibank] in the failed to establish by competent
amount of P1,069,847.40 as of 5 evidence the alleged indebtedness
Sept. 1979 and ordering the plaintiff of plaintiff-appellant, the set-off of
[rsp. Sabeniano] to pay said amount, P1,069,847.40 in the account of Ms.
however, there shall be no interest Sabeniano is hereby declared as
and penalty charges from the time without legal and factual basis;
the illegal setoff was effected on 31
Oct. 1979; 3. As defendants-appellants failed to
account the following plaintiff-
(3) Dismissing all other claims and appellant's money market
counterclaims interposed by the placements, savings account and
parties against each other. current accounts, the former is
hereby ordered to return the same,
Costs against the defendant Bank. in accordance with the terms and
conditions agreed upon by the
All the parties appealed the foregoing Decision of contending parties as evidenced by
the RTC to the CA, docketed as CA-G.R. CV No. the certificates of investments, to wit:
51930. Rsp. questioned the findings of the RTC
that she was still indebted to pet. Citibank, as well (i) Citibank NNPN
as the failure of the RTC to order pet/s to render an Serial No. 023356
accounting of rsp.'s deposits and money market (Cancels and
placements with them. On the other hand, pet/s Supersedes NNPN
argued that pet. Citibank validly compensated rsp.'s No. 22526) issued on
outstanding loans with her dollar accounts with 17 March 1977,
Citibank-Geneva, in accordance with the P318,897.34 with
Declaration of Pledge she executed in its favor. 14.50% interest p.a.;
Pet/s also alleged that the RTC erred in not
declaring rsp. liable for damages and interest. (ii) Citibank NNPN
Serial No. 23357
On 26 March 2002, the CA rendered its Decision 12 (Cancels and
affirming with modification the RTC Decision in Civil Supersedes NNPN
Case No. 11336, dated 24 Aug. 1995, and ruling No. 22528) issued on
entirely in favor of rsp. in this wise – 17 March 1977,
P203,150.00 with
Wherefore, premises considered, the 14.50 interest p.a.;
assailed 24 Aug. 1995 Decision of the court
 (iii) FNCB NNPN immediately with this Court on 3 May 2002 a
Serial No. 05757 Motion for Extension of Time to File a Petition for
(Cancels and Review,13 which, after payment of the docket and
Supersedes NNPN other lawful fees, was assigned the docket number
No. 04952), issued on GR 152985. In the said Motion, rsp. alleged that
02 June 1977, she received a copy of the assailed CA Decision on
P500,000.00 with 18 April 2002 and, thus, had 15 days therefrom or
17% interest p.a.; until 3 May 2002 within which to file her Petition for
Review. Since she informed her counsel of her
(iv) FNCB NNPN desire to pursue an appeal of the CA Decision only
Serial No. 05758 on 29 April 2002, her counsel neither had enough
(Cancels and time to file a MR of the said Decision with the CA,
Supersedes NNPN nor a Petition for Certiorari with this Court. Yet, the
No. 04962), issued on Motion failed to state the exact extension period
02 June 1977, rsp. was requesting for.
P500,000.00 with
17% interest per Since this Court did not act upon rsp.'s Motion for
annum; Extension of Time to file her Petition for Review,
then the period for appeal continued to run and still
(v) The Two Million expired on 3 May 2002.14 Rsp. failed to file any
(P2,000,000.00) Petition for Review within the prescribed period for
money market appeal and, hence, this Court issued a
placements of Ms. Resolution,15 dated 13 Nov. 2002, in which it
Sabeniano with the pronounced that –
Ayala Investment &
Development GR 152985 (Modesta R. Sabeniano vs.
Corporation (AIDC) CA, et al.). – It appearing that pet. failed to
with legal interest at file the intended petition for review on
the rate of twelve certiorari within the period which expired on
percent (12%) per May 3, 2002, the Court Resolves to
annum compounded DECLARE THIS CASE TERMINATED and
yearly, from 30 Sept. DIRECT the Division Clerk of Court to
1976 until fully paid; INFORM the parties that the judgment
sought to be reviewed has become final and
4. Ordering defendants-appellants to executory.
jointly and severally pay the plaintiff-
appellant the sum of FIVE The said Resolution was duly recorded in the Book
HUNDRED THOUSAND PESOS of Entries of Judgments on 3 Jan. 2003.
(P500,000.00) by way of moral
damages, FIVE HUNDRED GR 156132
THOUSAND PESOS (P500,000.00)
as exemplary damages, and ONE Meanwhile, pet/s filed with the CA a MR of its
HUNDRED THOUSAND PESOS Decision in CA-G.R. CV No. 51930, dated 26
(P100,000.00) as attorney's fees. March 2002. Acting upon the said Motion, the CA
issued the Resolution,16 dated 20 Nov. 2002,
Apparently, the parties to the case, namely, the modifying its Decision of 26 March 2002, as follows
rsp., on one hand, and the pet/s, on the other, –
made separate attempts to bring the
aforementioned Decision of the CA, dated 26 WHEREFORE, premises considered, the
March 2002, before this Court for review. instant MR is PARTIALLY GRANTED as
Sub-paragraph (V) paragraph 3 of the
GR 152985 assailed Decision's dispositive portion is
hereby ordered DELETED.
Rsp. no longer sought a reconsideration of the
Decision of the CA in CA-G.R. CV No. 51930,
dated 26 March 2002, and instead, filed
 The challenged 26 March 2002 Decision of
the Court is AFFIRMED with
MODIFICATION.
Assailing the Decision and Resolution of the CA in
CA-G.R. CV No. 51930, dated 26 March 2002 and
20 Nov. 2002, respectively, pet/s filed the present
Petition, docketed as GR 156132. The Petition was
initially denied17 by this Court for failure of the pet/s
to attach thereto a Certification against Forum
Shopping. However, upon pet/s' Motion and
compliance with the requirements, this Court
resolved18 to reinstate the Petition.
The Petition presented fourteen (14) assignments
of errors allegedly committed by the CA in its
Decision, dated 26 March 2002, involving both
questions of fact and questions of law which this
Court, for the sake of expediency, discusses jointly,
whenever possible, in the succeeding paragraphs.
I
The Resolution of this Court, dated 13 Nov.
2002, in GR 152985, declaring the Decision of
the CA, dated 26 March 2002, final and
executory, pertains to rsp. Sabeniano alone.
Before proceeding to a discussion of the merits of
the instant Petition, this Court wishes to address
first the argument, persistently advanced by rsp. in
her pleadings on record, as well as her numerous
personal and unofficial letters to this Court which
were no longer made part of the record, that the
Decision of the CA in CA-G.R. CV No. 51930,
dated 26 March 2002, had already become final
and executory by virtue of the Resolution of this
Court in GR 152985, dated 13 Nov. 2002.
GR 152985 was the docket number assigned by
this Court to rsp.'s Motion for Extension of Time to
File a Petition for Review. Rsp., though, did not file
her supposed Petition. Thus, after the lapse of the
prescribed period for the filing of the Petition, this
Court issued the Resolution, dated 13 Nov. 2002,
declaring the Decision of the CA, dated 26 March
2002, final and executory. It should be pointed out,
however, that the Resolution, dated 13 Nov. 2002,
referred only to GR 152985, rsp.'s appeal, which
she failed to perfect through the filing of a Petition
for Review within the prescribed period. The
declaration of this Court in the same Resolution
would bind rsp. solely, and not pet/s which filed
their own separate appeal before this Court,
docketed as GR 156132, the Petition at bar. This
would mean that rsp., on her part, should be bound
by the findings of fact and law of the CA, including
the monetary amounts consequently awarded to
her by the appellate court in its Decision, dated 26
March 2002; and she can no longer refute or assail
any part thereof. 19
This Court already explained the matter to rsp.
when it issued a Resolution20 in GR 156132, dated
2 Feb. 2004, which addressed her Urgent Motion
for the Release of the Decision with the
Implementation of the Entry of Judgment in the
following manner –
[A]cting on Citibank's and FNCB Finance's
MR, we resolved to grant the motion,
reinstate the petition and require Sabeniano
to file a comment thereto in our Resolution
of June 23, 2003. Sabeniano filed a
Comment dated July 17, 2003 to which
Citibank and FNCB Finance filed a Reply
dated Aug. 20, 2003.
From the foregoing, it is clear that
Sabeniano had knowledge of, and in fact
participated in, the proceedings in GR
156132. She cannot feign ignorance of the
proceedings therein and claim that the
Decision of the CA has become final and
executory. More precisely, the Decision
became final and executory only with
regard to Sabeniano in view of her failure
to file a petition for review within the
extended period granted by the Court, and
not to Citibank and FNCB Finance whose
Petition for Review was duly reinstated and
is now submitted for decision.
Accordingly, the instant Urgent Motion is
hereby DENIED. (Emphasis supplied.)
To sustain the argument of rsp. would result in an
unjust and incongruous situation wherein one party
may frustrate the efforts of the opposing party to
appeal the case by merely filing with this Court a
Motion for Extension of Time to File a Petition for
Review, ahead of the opposing party, then not
actually filing the intended Petition.21 The party who
fails to file its intended Petition within the
reglementary or extended period should solely bear
the consequences of such failure.
Rsp. Sabeniano did not commit forum
shopping.
Another issue that does not directly involve the
merits of the present Petition, but raised by pet/s, is
whether rsp. should be held liable for forum
shopping.
Pet/s contend that rsp. committed forum shopping
on the basis of the following facts:
While pet/s' MR of the Decision in CA-G.R. CV No.
51930, dated 26 March 2002, was still pending
before the CA, rsp. already filed with this Court on 3
May 2002 her Motion for Extension of Time to File a
Petition for Review of the same CA Decision,
docketed as GR 152985. Thereafter, rsp. continued
to participate in the proceedings before the CA in
CA-G.R. CV No. 51930 by filing her Comment,
dated 17 July 2002, to pet/s' MR; and a Rejoinder,
dated 23 Sept. 2002, to pet/s' Reply. Thus, pet/s
argue that by seeking relief concurrently from this
Court and the CA, rsp. is undeniably guilty of forum
shopping, if not indirect contempt.
This Court, however, finds no sufficient basis to
hold rsp. liable for forum shopping.
Forum shopping has been defined as the filing of
two or more suits involving the same parties for the
same cause of action, either simultaneously or
successively, for the purpose of obtaining a
favorable judgment.22 The test for determining
forum shopping is whether in the two (or more)
cases pending, there is an identity of parties, rights
or causes of action, and relief sought.23 To guard
against this deplorable practice, Rule 7, Sec. 5 of
the revised Rules of Court imposes the following
requirement –
SEC. 5. Certification against forum
shopping. – The plaintiff or principal party
shall certify under oath in the complaint or
other initiatory pleading asserting a claim for
relief, or in a sworn certification annexed
thereto and simultaneously filed therewith:
(a) that he has not theretofore commenced
any action or filed any claim involving the
same issues in any court, tribunal or quasi-
judicial agency and, to the best of his
knowledge, no such other action or claim is
pending therein; (b) if there is such other
pending action or claim, a complete
statement of the present status thereof; and
(c) if he should thereafter learn that the
same or similar action or claim has been
filed or is pending, he shall report that fact
within five (5) days therefrom to the court
wherein his aforesaid complaint or initiatory
pleading has been filed.
Failure to comply with the foregoing
requirements shall not be curable by mere
amendment of the complaint or other
initiatory pleading but shall be cause for the
dismissal of the case without prejudice,
unless otherwise provided, upon motion and
after hearing. The submission of a false
certification or non-compliance with any of
the undertakings therein shall constitute
indirect contempt of court, without prejudice
to the corresponding administrative and
criminal actions. If the acts of the party or
his counsel clearly constitute willful and
deliberate forum shopping, the same shall
be ground for summary dismissal with
prejudice and shall constitute direct
contempt, as well as cause for
administrative sanctions.
Although it may seem at first glance that rsp. was
simultaneously seeking recourse from the CA and
this Court, a careful and closer scrutiny of the
details of the case at bar would reveal otherwise.
It should be recalled that rsp. did nothing more in
GR 152985 than to file with this Court a Motion for
Extension of Time within which to file her Petition
for Review. For unexplained reasons, rsp. failed to
submit to this Court her intended Petition within the
reglementary period. Consequently, this Court was
prompted to issue a Resolution, dated 13 Nov.
2002, declaring GR 152985 terminated, and the
therein assailed CA Decision final and executory.
GR 152985, therefore, did not progress and rsp.'s
appeal was unperfected.
The Petition for Review would constitute the
initiatory pleading before this Court, upon the timely
filing of which, the case before this Court
commences; much in the same way a case is
initiated by the filing of a Complaint before the TC.
The Petition for Review establishes the identity of
parties, rights or causes of action, and relief sought
from this Court, and without such a Petition, there is
technically no case before this Court. The Motion
filed by rsp. seeking extension of time within which
to file her Petition for Review does not serve the
same purpose as the Petition for Review itself.
Such a Motion merely presents the important dates
and the justification for the additional time
requested for, but it does not go into the details of
the appealed case.
Without any particular idea as to the assignments
of error or the relief rsp. intended to seek from this
Court, in light of her failure to file her Petition for
Review, there is actually no second case involving
the same parties, rights or causes of action, and
relief sought, as that in CA-G.R. CV No. 51930.
It should also be noted that the Certification against
Forum Shopping is required to be attached to the
initiatory pleading, which, in GR 152985, should
have been rsp.'s Petition for Review. It is in that
Certification wherein rsp. certifies, under oath, that:
(a) she has not commenced any action or filed any
claim involving the same issues in any court,
tribunal or quasi-judicial agency and, to the best of
her knowledge, no such other action or claim is
pending therein; (b) if there is such other pending
action or claim, that she is presenting a complete
statement of the present status thereof; and (c) if
she should thereafter learn that the same or similar
action or claim has been filed or is pending, she
shall report that fact within five days therefrom to
this Court. Without her Petition for Review, rsp. had
no obligation to execute and submit the foregoing
Certification against Forum Shopping. Thus, rsp.
did not violate Rule 7, Sec. 5 of the Revised Rules
of Court; neither did she mislead this Court as to
the pendency of another similar case.
Lastly, the fact alone that the Decision of the CA,
dated 26 March 2002, essentially ruled in favor of
rsp., does not necessarily preclude her from
appealing the same. Granted that such a move is
ostensibly irrational, nonetheless, it does not
amount to malice, bad faith or abuse of the court
processes in the absence of further proof. Again, it
should be noted that the rsp. did not file her
intended Petition for Review. The Petition for
Review would have presented before this Court the
grounds for rsp.'s appeal and her arguments in
support thereof. Without said Petition, any reason
attributed to the rsp. for appealing the 26 March
2002 Decision would be grounded on mere
speculations, to which this Court cannot give
credence.
II
As an exception to the general rule, this Court
takes cognizance of questions of fact raised in
the Petition at bar.
It is already a well-settled rule that the jurisdiction of
this Court in cases brought before it from the CA by
virtue of Rule 45 of the Revised Rules of Court is
limited to reviewing errors of law. Findings of fact of
the CA are conclusive upon this Court. There are,
however, recognized exceptions to the foregoing
rule, namely: (1) when the findings are grounded
entirely on speculation, surmises, or conjectures;
(2) when the interference made is manifestly
mistaken, absurd, or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the
findings of fact are conflicting; (6) when in making
its findings, the CA went beyond the issues of the
case, or its findings are contrary to the admissions
of both the appellant and the appellee; (7) when the
findings are contrary to those of the TC; (8) when
the findings are conclusions without citation of
specific evidence on which they are based; (9)
when the facts set forth in the petition as well as in
the pet.'s main and reply briefs are not disputed by
the rsp.; and (10) when the findings of fact are
premised on the supposed absence of evidence
and contradicted by the evidence on record.24
Several of the enumerated exceptions pertain to
the Petition at bar.
It is indubitable that the CA made factual findings
that are contrary to those of the RTC, 25 thus,
resulting in its substantial modification of the TC's
Decision, and a ruling entirely in favor of the rsp.. In
addition, pet/s invoked in the instant Petition for
Review several exceptions that would justify this
Court's review of the factual findings of the CA, i.e.,
the CA made conflicting findings of fact; findings of
fact which went beyond the issues raised on appeal
before it; as well as findings of fact premised on the
supposed absence of evidence and contradicted by
the evidence on record.
On the basis of the foregoing, this Court shall
proceed to reviewing and re-evaluating the
evidence on record in order to settle questions of
fact raised in the Petition at bar.
The fact that the trial judge who rendered the
RTC Decision in Civil Case No. 11336, dated 24
Aug. 1995, was not the same judge who heard
and tried the case, does not, by itself, render
the said Decision erroneous.
The Decision in Civil Case No. 11336 was rendered
more than 10 years from the institution of the said
case. In the course of its trial, the case was
presided over by four (4) different RTC judges.26 It
was Judge Victorio, the fourth judge assigned to
the case, who wrote the RTC Decision, dated 24
Aug. 1995. In his Decision,27 Judge Victorio made
the following findings –
After carefully evaluating the mass of
evidence adduced by the parties, this Court
 is not inclined to believe the plaintiff's
assertion that the promissory notes as well
as the deeds of assignments of her FNCB
Finance money market placements were
simulated. The evidence is overwhelming
that the plaintiff received the proceeds of
the loans evidenced by the various
promissory notes she had signed. What is
more, there was not an iota of proof save
the plaintiff's bare testimony that she had
indeed applied for loan with the
Development Bank of the Philippines.
More importantly, the two deeds of
assignment were notarized, hence they
partake the nature of a public document. It
makes more than preponderant proof to
overturn the effect of a notarial attestation.
Copies of the deeds of assignments were
actually filed with the Records Management
and Archives Office.
Finally, there were sufficient evidence
wherein the plaintiff had admitted the
existence of her loans with the defendant
Bank in the total amount of P1,920,000.00
exclusive of interests and penalty charges
(Exhibits "28", "31", "32", and "33").
In fine, this Court hereby finds that the
defendants had established the
genuineness and due execution of the
various promissory notes heretofore
identified as well as the two deeds of
assignments of the plaintiff's money market
placements with defendant FNCB Finance,
on the strength of which the said money
market placements were applied to partially
pay the plaintiff's past due obligation with
the defendant Bank. Thus, the total sum of
P1,053,995.80 of the plaintiff's past due
obligation was partially offset by the said
money market placement leaving a balance
of P1,069,847.40 as of 5 Sept. 1979 (Exhibit
"34").
Disagreeing in the foregoing findings, the CA
stressed, in its Decision in CA-G.R. CV No. 51930,
dated 26 March 2002, "that the ponente of the
herein assailed Decision is not the Presiding Judge
who heard and tried the case."28 This brings us to
the question of whether the fact alone that the RTC
Decision was rendered by a judge other than the
judge who actually heard and tried the case is
sufficient justification for the appellate court to
disregard or set aside the findings in the Decision
of the court a quo?
This Court rules in the negative.
What deserves stressing is that, in this jurisdiction,
there exists a disputable presumption that the RTC
Decision was rendered by the judge in the regular
performance of his official duties. While the said
presumption is only disputable, it is satisfactory
unless contradicted or overcame by other
evidence.29 Encompassed in this presumption of
regularity is the presumption that the RTC judge, in
resolving the case and drafting his Decision,
reviewed, evaluated, and weighed all the evidence
on record. That the said RTC judge is not the same
judge who heard the case and received the
evidence is of little consequence when the records
and transcripts of stenographic notes (TSNs) are
complete and available for consideration by the
former.
In People v. Gazmen,30 this Court already
elucidated its position on such an issue –
Accused-appellant makes an issue of the
fact that the judge who penned the decision
was not the judge who heard and tried the
case and concludes therefrom that the
findings of the former are erroneous.
Accused-appellant's argument does not
merit a lengthy discussion. It is well-settled
that the decision of a judge who did not try
the case is not by that reason alone
erroneous.
It is true that the judge who ultimately
decided the case had not heard the
controversy at all, the trial having been
conducted by then Judge Emilio L. Polig,
who was indefinitely suspended by this
Court. Nonetheless, the transcripts of
stenographic notes taken during the trial
were complete and were presumably
examined and studied by Judge Baguilat
before he rendered his decision. It is not
unusual for a judge who did not try a case to
decide it on the basis of the record. The fact
that he did not have the opportunity to
observe the demeanor of the witnesses
during the trial but merely relied on the
transcript of their testimonies does not for
that reason alone render the judgment
erroneous.
 (People vs. Jaymalin, 214 SCRA 685, 692 not be, his only consideration. Even more vital for
[1992]) the TC judge's decision are the contents and
substance of the witnesses' testimonies, as borne
Although it is true that the judge who heard out by the TSNs, as well as the object and
the witnesses testify is in a better position to documentary evidence submitted and made part of
observe the witnesses on the stand and the records of the case.
determine by their demeanor whether they
are telling the truth or mouthing falsehood, it This Court proceeds to making its own findings
does not necessarily follow that a judge who of fact.
was not present during the trial cannot
render a valid decision since he can rely on Since the Decision of the CA in CA-G.R. CV No.
the transcript of stenographic notes taken 51930, dated 26 March 2002, has become final and
during the trial as basis of his decision. executory as to the rsp., due to her failure to
interpose an appeal therefrom within the
Accused-appellant's contention that the trial reglementary period, she is already bound by the
judge did not have the opportunity to factual findings in the said Decision. Likewise,
observe the conduct and demeanor of the rsp.'s failure to file, within the reglementary period,
witnesses since he was not the same judge a MR or an appeal of the Resolution of the CA in
who conducted the hearing is also the same case, dated 20 Nov. 2002, which modified
untenable. While it is true that the trial judge its earlier Decision by deleting paragraph 3(v) of its
who conducted the hearing would be in a dispositive portion, ordering pet/s to return to rsp.
better position to ascertain the truth and the proceeds of her money market placement with
falsity of the testimonies of the witnesses, it AIDC, shall already bar her from questioning such
does not necessarily follow that a judge who modification before this Court. Thus, what is for
was not present during the trial cannot review before this Court is the Decision of the CA,
render a valid and just decision since the dated 26 March 2002, as modified by the
latter can also rely on the transcribed Resolution of the same court, dated 20 Nov. 2002.
stenographic notes taken during the trial as
the basis of his decision. Rsp. alleged that she had several deposits and
money market placements with pet/s. These
(People vs. De Paz, 212 SCRA 56, 63 deposits and money market placements, as
[1992]) determined by the CA in its Decision, dated 26
March 2002, and as modified by its Resolution,
At any rate, the test to determine the value dated 20 Nov. 2002, are as follows –
of the testimony of the witness is W/N such
is in conformity with knowledge and
Deposit/Placement A
consistent with the experience of mankind
(People vs. Morre, 217 SCRA 219 Dollar deposit with Citibank-Geneva
[1993]). $
Further, the credibility of witnesses can also 1
be assessed on the basis of the substance
Money market placement with Citibank, evidenced by Promissory Note (PN) P
of their testimony and the surrounding
No. 23356 (which cancels and supersedes PN No. 22526), earning 14.5% 3
circumstances (People v. Gonzales, 210
interest per annum (p.a.)
SCRA 44 [1992]). A critical evaluation of the
testimony of the prosecutionMoney witnesses
market placement with Citibank, evidenced by PN No. 23357 (which P
reveals that their testimony accords withand
cancels the supersedes PN No. 22528), earning 14.5% interest p.a. 2
aforementioned tests, and carries with it the
ring of truth end perforce, must beMoney
givenmarket
full placement with FNCB Finance, evidenced by PN No. 5757 P
weight and credit. (which cancels and supersedes PN No. 4952), earning 17% interest p.a. 5
Money market placement with FNCB Finance, evidenced by PN No. 5758 P
Irrefragably, by reason alone that the(which
judge cancels
who and supersedes PN No. 2962), earning 17% interest p.a. 5
penned the RTC Decision was not the same judge
who heard the case and received the evidence
therein would not render the findings in the said This Court is tasked to determine whether pet/s are
Decision erroneous and unreliable. While the indeed liable to return the foregoing amounts,
conduct and demeanor of witnesses may sway a together with the appropriate interests and
TC judge in deciding a case, it is not, and should penalties, to rsp.. It shall trace rsp.'s transactions
with pet/s, from her money market placements with
pet. Citibank and pet. FNCB Finance, to her
savings and current accounts with pet. Citibank,
and to her dollar accounts with Citibank-Geneva.
Money market placements with pet. Citibank
The history of rsp.'s money market placements with
pet. Citibank began on 6 Dec. 1976, when she
made a placement of P500,000.00 as principal
amount, which was supposed to earn an interest of
16% p.a. and for which PN No. 20773 was issued.
Rsp. did not yet claim the proceeds of her
placement and, instead, rolled-over or re-invested
the principal and proceeds several times in the
succeeding years for which new PNs were issued
by pet. Citibank to replace the ones which matured.
Pet. Citibank accounted for rsp.'s original placement
and the subsequent roll-overs thereof, as follows –
Date
PN No. Cancels PN No.
(mm/dd/yyyy)
12/06/1976 20773 None
01/14/1977 21686 20773
22526 21686
02/09/1977
22528 21686
23356 22526
03/17/1977
23357 22528
Pet. Citibank alleged that it had already paid
to rsp. the principal amounts and proceeds
of PNs No. 23356 and 23357, upon their
maturity. Pet. Citibank further averred that
rsp. used the P500,000.00 from the
payment of PNs No. 23356 and 23357, plus
P600,000.00 sourced from her other funds,
to open two time deposit (TD) accounts with
pet. Citibank, namely, TD Accounts No.
17783 and 17784.
Pet. Citibank did not deny the existence nor
questioned the authenticity of PNs No.
23356 and 23357 it issued in favor of rsp.
for her money market placements. In fact, it
admitted the genuineness and due
execution of the said PNs, but qualified that
they were no longer outstanding.31 In
Hibberd v. Rohde and McMillian,32 this Court
delineated the consequences of such an
admission –
By the admission of the genuineness
and due execution of an instrument,
as provided in this Sec., is meant
that the party whose signature it
bears admits that he signed it or that
it was signed by another for him with
his authority; that at the time it was
signed it was in words and figures
exactly as set out in the pleading of
the party relying upon it; that the
document was delivered; and that
any formal requisites required by
law, such as a seal, an
acknowledgment, or revenue stamp,
which it lacks, are waived by him.
Hence, such defenses as that the
signature is a forgery (Puritan Mfg.
Co. vs. Toti & Gradi, 14 N. M., 425;
Cox vs. Northwestern Stage Co., 1
Idaho, 376; Woollen vs. Whitacre, 73
Ind., 198; Smith vs. Ehnert, 47 Wis.,
479; Faelnar vs. Escaño, 11 Phil.
Rep., 92); or that it was
unauthorized, as in the case of an
agent signing for his principal, or one
signing in behalf of a partnership
(Country Bank vs. Greenberg, 127
Cal., 26; Henshaw vs. Root, 60 Inc.,
220; Naftzker vs. Lantz, 137 Mich.,
441) or of a corporation (Merchant
vs. International Banking
Corporation, 6 Phil Rep., 314;
Wanita vs. Rollins, 75 Miss., 253;
Barnes vs. Spencer & Barnes Co.,
162 Mich., 509); or that, in the case
of the latter, that the corporation was
authorized under its charter to sign
the instrument (Merchant vs.
International Banking Corporation,
supra); or that the party charged
signed the instrument in some other
capacity than that alleged in the
pleading setting it out (Payne vs.
National Bank, 16 Kan., 147); or that
it was never delivered (Hunt vs.
Weir, 29 Ill., 83; Elbring vs. Mullen, 4
Idaho, 199; Thorp vs. Keokuk Coal
Co., 48 N.Y., 253; Fire Association of
Philadelphia vs. Ruby, 60 Neb., 216)
are cut off by the admission of its
genuineness and due execution.
The effect of the admission is such
that in the case of a promissory note
a prima facie case is made for the
plaintiff which dispenses with the
 necessity of evidence on his part
and entitles him to a judgment on
the pleadings unless a special
defense of new matter, such as
payment, is interposed by the
defendant (Papa vs. Martinez, 12
Phil. Rep., 613; Chinese Chamber of
Commerce vs. Pua To Ching, 14
Phil. Rep., 222; Banco Español-
Filipino vs. McKay & Zoeller, 27 Phil.
Rep., 183). x x x
Since the genuineness and due execution
of PNs No. 23356 and 23357 are
uncontested, rsp. was able to establish
prima facie that pet. Citibank is liable to her
for the amounts stated therein. The
assertion of pet. Citibank of payment of the
said PNs is an affirmative allegation of a
new matter, the burden of proof as to such
resting on pet. Citibank. Rsp. having proved
the existence of the obligation, the burden
of proof was upon pet. Citibank to show that
it had been discharged.33 It has already
been established by this Court that –
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
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 the duty of producing
some evidence of non-payment.34
Reviewing the evidence on record, this
Court finds that pet. Citibank failed to
satisfactorily prove that PNs No. 23356 and
23357 had already been paid, and that the
amount so paid was actually used to open
one of rsp.'s TD accounts with pet. Citibank.
Pet. Citibank presented the testimonies of
two witnesses to support its contention of
payment: (1) That of Mr. Herminio Pujeda, 35
the officer-in-charge of loans and
placements at the time when the questioned
transactions took place; and (2) that of Mr.
Francisco Tan,36 the former Assistant Vice-
President of Citibank, who directly dealt with
rsp. with regard to her deposits and loans.
The relevant portion37 of Mr. Pujeda's
testimony as to PNs No. 23356 and 23357
(referred to therein as Exhibits No. "47" and
"48," respectively) is reproduced below –
Atty. Mabasa:
Okey [sic]. Now Mr. Witness,
you were asked to testify in
this case and this case is
[sic] consist [sic] of several
documents involving
transactions between the
plaintiff and the defendant.
Now, were you able to make
your own memorandum
regarding all these
transactions?
A Yes, based on my recollection of
these facts, I did come up of [sic] the
outline of the chronological
sequence of events.
Court:
Are you trying to say that you
have personal knowledge or
participation to these
transactions?
A Yes, your Honor, I was the officer-
in charge of the unit that was
processing these transactions.
Some of the documents bear my
signature.
Court:
And this resume or summary
that you have prepared is
 based on purely your A In the amount of P500,000.00.
recollection or documents?
Q And outside this P500,000.00
A Based on documents, your Honor. which you said was booked out of
the proceeds of Exhs. "47" and "48",
Court: were there other time deposits
opened by Mrs. Modesta Sabeniano
Are these documents still at that time.
available now?
A Yes, she also opened another time
A Yes, your honor. deposit for P600,000.00.

Court: Q So all in all Mr. Witness, sometime

in April of 1978 Mrs. Modesta
Better present the Sabeneano [sic] had time deposit
documents. placements with Citibank in the
amount of P500,000.00 which is the
Atty. Mabasa: proceeds of Exh. "47" and "48" and
another P600,000.00, is it not?
Yes, your Honor, that is why
your Honor. A Yes, sir.

Atty. Mabasa: Q And would you know where did

Q Now, basing on the notes that you
prepared, Mr. Witness, and
according to you basing also on your
personal recollection about all the
transactions involved between
Modesta Sabeniano and defendant
City Bank [sic] in this case. Now,
would you tell us what happened to
the money market placements of
Modesta Sabeniano that you have
earlier identified in Exhs. "47" and
"48"?
A The transactions which I said
earlier were terminated and booked
to time deposits.
Q And you are saying time deposits
with what bank?
A With First National Citibank.
Q Is it the same bank as Citibank,
N.A.?
A Yes, sir.
Q And how much was the amount
booked as time deposit with
defendant Citibank?
the other P600,000 placed by Mrs.
Sabeneano [sic] in a time deposit
with Citibank, N.A. came [sic] from?
A She funded it directly.
Q What are you saying Mr. Witness
is that the P600,000 is a [sic] fresh
money coming from Mrs. Modesta
Sabeneano [sic]?
A That is right.
In his deposition in Hong Kong, Mr. Tan
recounted what happened to PNs No.
23356 and 23357 (referred to therein as
Exhibits "E" and "F," respectively), as
follows –
Atty. Mabasa : Now from the Exhibits
that you have identified Mr. Tan from
Exhibits "A" to "F", which are
Exhibits of the plaintiff. Now, do I
understand from you that the original
amount is Five Hundred Thousand
and thereafter renewed in the
succeeding exhibits?
Mr. Tan : Yes, Sir.
 Atty. Mabasa : Alright, after these
Exhibits "E" and "F" matured, what
happened thereafter?
Mr. Tan : Split into two time deposits.
Atty. Mabasa : Exhibits "E" and "F"?
Before anything else, it should be noted that
when Mr. Pujeda's testimony before the
RTC was made on 12 March 1990 and Mr.
Tan's deposition in Hong Kong was
conducted on 3 Sept. 1990, more than a
decade had passed from the time the
transactions they were testifying on took
place. This Court had previously recognized
the frailty and unreliability of human memory
with regards to figures after the lapse of five
years.38 Taking into consideration the
substantial length of time between the
transactions and the witnesses' testimonies,
as well as the undeniable fact that bank
officers deal with multiple clients and
process numerous transactions during their
tenure, this Court is reluctant to give much
weight to the testimonies of Mr. Pujeda and
Mr. Tan regarding the payment of PNs No.
23356 and 23357 and the use by rsp. of the
proceeds thereof for opening TD accounts.
This Court finds it implausible that they
should remember, after all these years, this
particular transaction with rsp. involving her
PNs No. 23356 and 23357 and TD
accounts. Both witnesses did not give any
reason as to why, from among all the clients
they had dealt with and all the transactions
they had processed as officers of pet.
Citibank, they specially remembered rsp.
and her PNs No. 23356 and 23357. Their
testimonies likewise lacked details on the
circumstances surrounding the payment of
the two PNs and the opening of the time
deposit accounts by rsp., such as the date
of payment of the two PNs, mode of
payment, and the manner and context by
which rsp. relayed her instructions to the
officers of pet. Citibank to use the proceeds
of her two PNs in opening the TD accounts.
Moreover, while there are documentary
evidences to support and trace rsp.'s money
market placements with pet. Citibank, from
the original PN No. 20773, rolled-over
several times to, finally, PNs No. 23356 and
23357, there is an evident absence of any
documentary evidence on the payment of
these last two PNs and the use of the
proceeds thereof by rsp. for opening TD
accounts. The paper trail seems to have
ended with the copies of PNs No. 23356
and 23357. Although both Mr. Pujeda and
Mr. Tan said that they based their
testimonies, not just on their memories but
also on the documents on file, the supposed
documents on which they based those
portions of their testimony on the payment
of PNs No. 23356 and 23357 and the
opening of the TD accounts from the
proceeds thereof, were never presented
before the courts nor made part of the
records of the case. Rsp.'s money market
placements were of substantial amounts –
consisting of the principal amount of
P500,000.00, plus the interest it should
have earned during the years of placement
– and it is difficult for this Court to believe
that pet. Citibank would not have had
documented the payment thereof.
When Mr. Pujeda testified before the RTC
on 6 Feb. 1990,39 pet/s' counsel attempted
to present in evidence a document that
would supposedly support the claim of pet.
Citibank that the proceeds of PNs No.
23356 and 23357 were used by rsp. to open
one of her two TD accounts in the amount
of P500,000.00. Rsp.'s counsel objected to
the presentation of the document since it
was a mere "xerox" copy, and was blurred
and hardly readable. Pet/s' counsel then
asked for a continuance of the hearing so
that they can have time to produce a better
document, which was granted by the court.
However, during the next hearing and
continuance of Mr. Pujeda's testimony on 12
March 1990, pet/s' counsel no longer
referred to the said document.
As rsp. had established a prima facie case
that pet. Citibank is obligated to her for the
amounts stated in PNs No. 23356 and
23357, and as pet. Citibank failed to present
sufficient proof of payment of the said PNs
and the use by the rsp. of the proceeds
thereof to open her TD accounts, this Court
finds that PNs No. 23356 and 23357 are
still outstanding and pet. Citibank is still
liable to rsp. for the amounts stated
therein.
The significance of this Court's declaration
that PNs No. 23356 and 23357 are still
outstanding becomes apparent in the light
of pet/s' next contentions – that rsp. used
the proceeds of PNs No. 23356 and 23357,
together with additional money, to open TD
Accounts No. 17783 and 17784 with pet.
Citibank; and, subsequently, rsp. pre-
terminated these TD accounts and
transferred the proceeds thereof, amounting
to P1,100,000.00, to pet. FNCB Finance for
money market placements. While rsp.'s
money market placements with pet. FNCB
Finance may be traced back with
definiteness to TD Accounts No. 17783 and
17784, there is only flimsy and
unsubstantiated connection between the
said TD accounts and the supposed
proceeds paid from PNs No. 23356 and
23357. With PNs No. 23356 and 23357 still
unpaid, then they represent an obligation of
pet. Citibank separate and distinct from the
obligation of pet. FNCB Finance arising
from rsp.'s money market placements with
the latter.
Money market placements with pet. FNCB
Finance
According to pet/s, rsp.'s TD Accounts No.
17783 and 17784, in the total amount of
P1,100,000.00, were supposed to mature
on 15 March 1978. However, rsp., through a
letter dated 28 April 1977,40 pre-terminated
the said TD accounts and transferred all the
proceeds thereof to pet. FNCB Finance for
money market placement. Pursuant to her
instructions, TD Accounts No. 17783 and
17784 were pre-terminated and pet.
Citibank (then still named First National City
Bank) issued Manager's Checks (MC) No.
19925341 and 19925142 for the amounts of
P500,000.00 and P600,00.00, respectively.
Both MCs were payable to Citifinance
(which, according to Mr. Pujeda,43 was one
with and the same as pet. FNCB Finance),
with the additional notation that "A/C
MODESTA R. SABENIANO." Typewritten on
MC No. 199253 is the phrase "Ref.
Proceeds of TD 17783," and on MC No.
199251 is a similar phrase, "Ref. Proceeds
of TD 17784." These phrases purportedly
established that the MCs were paid from the
proceeds of rsp.'s pre-terminated TD
accounts with pet. Citibank. Upon receipt of
the MCs, pet. FNCB Finance deposited the
same to its account with Feati Bank and
Trust Co., as evidenced by the rubber
stamp mark of the latter found at the back of
both MCs. In exchange, pet. FNCB Finance
booked the amounts received as money
market placements, and accordingly issued
PNs No. 4952 and 4962, for the amounts of
P500,000.00 and P600,000.00, respectively,
payable to rsp.'s savings account with pet.
Citibank, S/A No. 25-13703-4, upon their
maturity on 1 June 1977. Once again, rsp.
rolled-over several times the principal
amounts of her money market placements
with pet. FNCB Finance, as follows –
Maturity Date Amount
PN No. Cancels PN No.
(mm/dd/yyyy) (P)
4952 None 06/01/1977 500,000.00
4962 None 06/01/1977 600,000.00
5757 4952 08/31/1977 500,000.00
5758 4962 08/31/1977 500,000.00
8167 5757 08/25/1978 500,000.00
8169 5752 08/25/1978 500,000.00
As presented by the pet. FNCB Finance, rsp.
rolled-over only the principal amounts of her money
market placements as she chose to receive the
interest income therefrom. Pet. FNCB Finance also
pointed out that when PN No. 4962, with principal
amount of P600,000.00, matured on 1 June 1977,
rsp. received a partial payment of the principal
which, together with the interest, amounted to
P102,633.33;44 thus, only the amount of
P500,000.00 from PN No. 4962 was rolled-over to
PN No. 5758.
Based on the foregoing records, the principal
amounts of PNs No. 5757 and 5758, upon their
maturity, were rolled over to PNs No. 8167 and
8169, respectively. PN No. 816745 expressly
canceled and superseded PN No. 5757, while PN
No. 816946 also explicitly canceled and superseded
PN No. 5758. Thus, it is patently erroneous for the
CA to still award to rsp. the principal amounts and
interests covered by PNs No. 5757 and 5758 when
these were already canceled and superseded. It is
now incumbent upon this Court to determine what
subsequently happened to PNs No. 8167 and
8169.
Pet. FNCB Finance presented four checks as proof
of payment of the principal amounts and interests
of PNs No. 8167 and 8169 upon their maturity. All
the checks were payable to rsp.'s savings account On 3 Sept. 1979, pet. FNCB Finance issued Check
with pet. Citibank, with the following details – No. 100168, pay to the order of "Citibank N.A. A/C
Modesta Sabeniano," in the amount of
P1,022,916.66, as full payment of the principal
Date of Chec Amount Notation
amounts and interests of both PNs No. 20138 and
Issuance k No. (P)
20139 and, resultantly, canceling the said PNs.48
(mm/dd/yyy
Rsp. actually admitted the issuance and existence
y)
of Check No. 100168, but with the qualification that
09/01/1978 7696 12,833.34 Interest the proceeds thereof were turned over to pet.
2 payment Citibank.49 Rsp. did not clarify the circumstances
on attending the supposed turn over, but on the basis
PN#0816 of the allegations of pet. Citibank itself, the
7 proceeds of PNs No. 20138 and 20139, amounting
to P1,022,916.66, was used by it to liquidate rsp.'s
09/01/1978 7696 12,833.34 Interest outstanding loans. Therefore, the determination of
1 payment W/N rsp. is still entitled to the return of the
on proceeds of PNs No. 20138 and 20139 shall be
PN#0816 dependent on the resolution of the issues raised as
9 to the existence of the loans and the authority of
09/05/1978 7703 500,000.0 Full pet. Citibank to use the proceeds of the said PNs,
5 0 payment together with rsp.'s other deposits and money
of market placements, to pay for the same.
principal
on Savings and current accounts with pet. Citibank
PN#0816
7 which Rsp. presented and submitted before the RTC
is hereby deposit slips and bank statements to prove
cancelled deposits made to several of her accounts with pet.
Citibank, particularly, Accounts No. 00484202,
09/05/ 1978 7703 500,000.0 Full 59091, and 472-751, which would have amounted
4 0 payment to a total of P3,812,712.32, had there been no
of withdrawals or debits from the said accounts from
principal the time the said deposits were made.
on
PN#0816
Although the RTC and the CA did not make any
9 which
definitive findings as to the status of rsp.'s savings
is hereby
and current accounts with pet. Citibank, the
cancelled
Decisions of both the trial and appellate courts
effectively recognized only the P31,079.14 coming
Then again, Checks No. 77035 and 77034 were from rsp.'s savings account which was used to off-
later returned to pet. FNCB Finance together with a set her alleged outstanding loans with pet.
memo,47 dated 6 Sept. 1978, from Mr. Tan of pet. Citibank.50
Citibank, to a Mr. Bobby Mendoza of pet. FNCB
Finance. According to the memo, the two checks, in Since both the RTC and the CA had consistently
the total amount of P1,000,000.00, were to be recognized only the P31,079.14 of rsp.'s savings
returned to rsp.'s account with instructions to book account with pet. Citibank, and that rsp. failed to
the said amount in money market placements for move for reconsideration or to appeal this particular
one more year. Pursuant to the said memo, Checks finding of fact by the trial and appellate courts, it is
No. 77035 and 77034 were invested by pet. FNCB already binding upon this Court. Rsp. is already
Finance, on behalf of rsp., in money market precluded from claiming any greater amount in her
placements for which it issued PNs No. 20138 and savings and current accounts with pet. Citibank.
20139. The PNs each covered P500,000.00, to Thus, this Court shall limit itself to determining W/N
earn 11% interest per annum, and to mature on 3 rsp. is entitled to the return of the amount of
Sept. 1979. P31,079.14 should the off-set thereof by pet.
Citibank against her supposed loans be found
invalid.
Dollar accounts with Citibank-Geneva the latter to off-set rsp.'s outstanding loans. The
balance of rsp.'s accounts with Citibank-Geneva,
Rsp. made an effort of preparing and presenting after the remittance to pet. Citibank in Manila,
before the RTC her own computations of her amounted to US$7,309.71, which was
money market placements and dollar accounts with subsequently expended by a transfer to another
Citibank-Geneva, purportedly amounting to a total account with Citibank-Zuerich, in the amount of
of US (US) $343,220.98, as of 23 June 1985.51 In US$6,998.84, and by payment of various bank
her Memorandum filed with the RTC, she claimed a charges, including closing charges, in the amount
much bigger amount of deposits and money market of US$310.87. Rightly so, both the RTC and the CA
placements with Citibank-Geneva, totaling gave more credence to the computation of
US$1,336,638.65.52 However, rsp. herself also Citibank-Geneva as to the status of rsp.'s accounts
submitted as part of her formal offer of evidence the with the said bank, rather than the one prepared by
computation of her money market placements and rsp. herself, which was evidently self-serving. Once
dollar accounts with Citibank-Geneva as again, this Court shall limit itself to determining W/N
determined by the latter. 53
Citibank-Geneva rsp. is entitled to the return of the amount of
accounted for rsp.'s money market placements and US$149,632.99 should the off-set thereof by pet.
dollar accounts as follows – Citibank against her alleged outstanding loans be
found invalid. Rsp. cannot claim any greater
amount since she did not perfect an appeal of the
MODESTA SABENIANO &/OR
Decision of the CA, dated 26 March 2002, which
==================
found that she is entitled only to the return of the
US$ 30'000.-- said amount, as far as her accounts with Citibank-
Principal Fid. Placement
Geneva is concerned.
+ US$ 339.06 Interest at 3,875% p.a. from 12.07. –
25.10.79 III
- US$ 95.-- Commission (minimum)
Pet. Citibank was able to establish by
US$ 30'244.06 Total proceeds onpreponderance
25.10.1979 of evidence the existence of
US$ 114'000.-- rsp.'s
Principal Fid. Placement loans.

+ US$ 1'358.50 Interest at 4,125% p.a.version

Pet/s' from of
12.07.
events–
25.10.79
- US$ 41.17 Commission In sum, the following amounts were used by pet.
Citibank to liquidate rsp.'s purported outstanding
US$ 115'317.33 Total proceeds onloans
25.10.1979
–
US$ 145'561.39 Total proceeds of both placements on
25.10.1979 Description
+ US$ 11'381.31 total of both current accounts Principal and interests of PNs No. 2013
20139
US$ 156'942.70 Total funds available
(money market placements with pet.
- US$ 149'632.99 Transfer to Citibank Finance)
Manila on
26.10.1979
Savings account with pet. Citibank
(counter value of Pesos 1'102'944.78)
Dollar remittance from Citibank-Geneva
US$ 7'309.71 Balance in current accounts
equivalent of US$149,632.99)
- US$ 6'998.84 Transfer to Citibank Zuerich – ac no.
121359 on March 13, 1980
Total
US$ 310.87 various charges including closing
charges According to pet. Citibank, rsp. incurred her loans
under the circumstances narrated below.
According to the foregoing computation, by 25 Oct.
1979, rsp. had a total of US$156,942.70, from As early as 9 Feb. 1978, rsp. obtained her first loan
which, US$149,632.99 was transferred by Citibank- from pet. Citibank in the principal amount of
Geneva to pet. Citibank in Manila, and was used by P200,000.00, for which she executed PN No.
 31504.54 Pet. Citibank extended to her several 35695 03/19/1979 05/29/1979
other loans in the succeeding months. Some of
these loans were paid, while others were rolled- 356946 03/20/1979 05/29/1979
over or renewed. Significant to the Petition at bar
35697 03/30/1979 05/29/1979
are the loans which rsp. obtained from July 1978 to
Jan. 1979, appropriately covered by PNs (first Total
set).55 The aggregate principal amount of these
loans was P1,920,000.00, which could be broken down
All the PNs stated that the purpose of the loans
as follows – covered thereby is "To liquidate existing obligation,"
except for PN No. 34534, which stated for its
ate of Date of purpose "personal investment."
Principal Date of Release
suance Maturity
Amount (mm/dd/yyyy)
mm/dd/yyyy) (mm/dd/yyyy) Rsp. secured her foregoing loans with pet. Citibank
by executing Deeds of Assignment of her money
7/20/1978 09/18/1978 P 400,000.00 07/20/1978
market placements with pet. FNCB Finance. On 2
0/13/1978 12/12/1978 100,000.00 Unrecovered March 1978, rsp. executed in favor of pet. Citibank
a Deed of Assignment57 of PN No. 8169, which was
0/19/1978 11/03/1978 100,000.00 10/19/1978 issued by pet. FNCB Finance, to secure payment of
1/15/1978 01/15/1979 150,000.00 11/16/1978 the credit and banking facilities extended to her by
pet. Citibank, in the aggregate principal amount of
1/21/1978 01/19/1979 250,000.00 11/21/1978 P500,000.00. On 9 March 1978, rsp. executed in
favor of pet. Citibank another Deed of
2/04/1978 01/18/1979 100,000.00 12/05/1978
Assignment,58 this time, of PN No. 8167, also
2/26/1978 02/23/1979 300,000.00 12/26/1978 issued by pet. FNCB Finance, to secure payment of
the credit and banking facilities extended to her by
1/09/1979 03/09/1979 150,000.00 01/09/1979 pet. Citibank, in the aggregate amount of
1/17/1979 03/19/1979 150,000.00 01/17/1979 P500,000.00. When PNs No. 8167 and 8169,
representing rsp.'s money market placements with
1/30/1979 03/30/1979 220,000.00 01/30/1979 pet. FNCB Finance, matured and were rolled-over
to PNs No. 20138 and 20139, rsp. executed new
Deeds of Assignment,59 in favor of pet. Citibank, on
P 1,920,000.00
25 Aug. 1978. According to the more recent Deeds,
rsp. assigned PNs No. 20138 and 20139,
When rsp. was unable to pay the first set of PNs representing her rolled-over money market
upon their maturity, these were rolled-over or placements with pet. FNCB Finance, to pet.
renewed several times, necessitating the execution Citibank as security for the banking and credit
by rsp. of new PNs in favor of pet. Citibank. As of 5 facilities it extended to her, in the aggregate
April 1979, rsp. had the following outstanding PNs principal amount of P500,000.00 per Deed.
(second set),56 the principal amount of which
remained at P1,920,000.00 – In addition to the Deeds of Assignment of her
money market placements with pet. FNCB Finance,
Date of Issuance Date rsp. also
of executed a Declaration of Pledge, 60 in
Maturity
PN No. which she supposedly pledged "[a]ll present and
(mm/dd/yyyy) (mm/dd/yyyy)
future fiduciary placements held in my personal
34510 01/01/1979 03/02/1979and/or joint name with Citibank, Switzerland," to
34509 01/02/1979 03/02/1979secure all claims the pet. Citibank may have or, in
the future, acquire against rsp.. The pet/s' copy of
34534 01/09/1979 03/09/1979the Declaration of Pledge is undated, while that of
the rsp., a copy certified by a Citibank-Geneva
34612 01/19/1979 03/16/1979officer, bore the date 24 Sept. 1979.61
34741 01/26/1979 03/12/1979
When rsp. failed to pay the second set of PNs upon
35689 02/23/1979 05/29/1979their maturity, an exchange of letters ensued
35694 03/19/1979 05/29/1979between rsp. and/or her representatives, on one
hand, and the representatives of pet/s, on the other.
The first letter62 was dated 5 April 1979, addressed
to rsp. and signed by Mr. Tan, as the manager of
pet. Citibank, which stated, in part, that –
Despite our repeated requests and follow-
up, we regret you have not granted us with
any response or payment.
We, therefore, have no alternative but to call
your loan of P1,920,000.00 plus interests
and other charges due and demandable. If
you still fail to settle this obligation by
4/27/79, we shall have no other alternative
but to refer your account to our lawyers for
legal action to protect the interest of the
bank.
Rsp. sent a reply letter63 dated 26 April 1979,
printed on paper bearing the letterhead of rsp.'s
company, MC Adore International Palace, the body
of which reads –
This is in reply to your letter dated April 5,
1979 inviting my attention to my loan which
has become due. Pursuant to our
representation with you over the telephone
through Mr. F. A. Tan, you allow us to pay
the interests due for the meantime.
Please accept our Comtrust Check in the
amount of P62,683.33.
Please bear with us for a little while, at most
ninety days. As you know, we have a
pending loan with the Development Bank of
the Philippines in the amount of P11-M. This
loan has already been recommended for
approval and would be submitted to the
Board of Governors. In fact, to further
facilitate the early release of this loan, we
have presented and furnished Gov. J.
Tengco a xerox copy of your letter.
You will be doing our corporation a very
viable service, should you grant us our
request for a little more time.
A week later or on 3 May 1979, a certain C. N.
Pugeda, designated as "Executive Secretary," sent
a letter64 to pet. Citibank, on behalf of rsp.. The
letter was again printed on paper bearing the
letterhead of MC Adore International Palace. The
pertinent paragraphs of the said letter are
reproduced below –
Per instructions of Mrs. Modesta R.
Sabeniano, we would like to request for a
re-computation of the interest and penalty
charges on her loan in the aggregate
amount of P1,920,000.00 with maturity date
of all promissory notes at June 30, 1979. As
she has personally discussed with you
yesterday, this date will more or less assure
you of early settlement.
In this regard, please entrust to bearer, our
Comtrust check for P62,683.33 to be
replaced by another check with amount
resulting from the new computation. Also, to
facilitate the processing of the same, may
we request for another set of promissory
notes for the signature of Mrs. Sabeniano
and to cancel the previous ones she has
signed and forwarded to you.
This was followed by a telegram,65 dated 5 June
1979, and received by pet. Citibank the following
day. The telegram was sent by a Dewey G.
Soriano, Legal Counsel. The telegram
acknowledged receipt of the telegram sent by pet.
Citibank regarding the "re-past due obligation" of
McAdore International Palace. However, it reported
that rsp., the President and Chairman of MC Adore
International Palace, was presently abroad
negotiating for a big loan. Thus, he was requesting
for an extension of the due date of the obligation
until rsp.'s arrival on or before 31 July 1979.
The next letter,66 dated 21 June 1979, was signed
by rsp. herself and addressed to Mr. Bobby
Mendoza, a Manager of pet. FNCB Finance. Rsp.
wrote therein –
Re: PN No. 20138 for P500,000.00
& PN No. 20139 for P500,000.00
totalling P1 Million, both PNs will
mature on 9/3/1979.
This is to authorize you to release the
accrued quarterly interests payment from
my captioned placements and forward
directly to Citibank, Manila Attention: Mr. F.
A. Tan, Manager, to apply to my interest
payable on my outstanding loan with
Citibank.
Please note that the captioned two
placements are continuously
pledged/hypothecated to Citibank, Manila to
support my personal outstanding loan.
Therefore, please do not release the
 captioned placements upon maturity until
you have received the instruction from
Citibank, Manila.
On even date, rsp. sent another letter 67 to Mr. Tan
of pet. Citibank, stating that –
Re: S/A No. 25-225928
and C/A No. 484-946
This letter serves as an authority to debit
whatever the outstanding balance from my
captioned accounts and credit the amount
to my loan outstanding account with you.
Unlike rsp.'s earlier letters, both letters, dated 21
June 1979, are printed on plain paper, without the
letterhead of her company, MC Adore International
Palace.
By 5 Sept. 1979, rsp.'s outstanding and past due
obligations to pet. Citibank totaled P2,123,843.20,
representing the principal amounts plus interests.
Relying on rsp.'s Deeds of Assignment, pet.
Citibank applied the proceeds of rsp.'s money
market placements with pet. FNCB Finance, as well
as her deposit account with pet. Citibank, to partly
liquidate rsp.'s outstanding loan balance, 68 as follows
– the CC. He further declared that rsp.'s obligation to
Rsp.'s outstanding obligation (principal and interest)Unfortunately, on 7 Oct. 1987, a fire gutted the 7 th
Less: Proceeds from rsp.'s money market placements
with pet. FNCB Finance (principal and interest)
Deposits in rsp.'s bank accounts with pet.
Citibank
Balance of rsp.'s obligation
Mr. Tan of pet. Citibank subsequently sent a letter, 69
dated 28 Sept. 1979, notifying rsp. of the status of
her loans and the foregoing compensation which
pet. Citibank effected. In the letter, Mr. Tan informed
rsp. that she still had a remaining past-due
obligation in the amount of P1,069,847.40, as of 5
Sept. 1979, and should rsp. fail to pay the amount
by 15 Oct. 1979, then pet. Citibank shall proceed to
off-set the unpaid amount with rsp.'s other
collateral, particularly, a money market placement
in Citibank-Hongkong.
On 5 Oct. 1979, rsp. wrote Mr. Tan of pet. Citibank,
on paper bearing the letterhead of MC Adore
International Palace, as regards the P1,920,000.00
loan account supposedly of MC Adore Finance &
Investment, Inc., and requested for a statement of
account covering the principal and interest of the
loan as of 31 Oct. 1979. She stated therein that the
loan obligation shall be paid within 60 days from
receipt of the statement of account.
Almost three weeks later, or on 25 Oct. 1979, a
certain Atty. Moises Tolentino dropped by the office
of pet. Citibank, with a letter, dated 9 Oct. 1979,
and printed on paper with the letterhead of MC
Adore International Palace, which authorized the
bearer thereof to represent the rsp. in settling the
overdue account, this time, purportedly, of MC
Adore International Palace Hotel. The letter was
signed by rsp. as the President and Chairman of
the Board.
Eventually, Atty. Antonio Agcaoili of Agcaoili &
Associates, as counsel of pet. Citibank, sent a letter
to rsp., dated 31 Oct. 1979, informing her that pet.
Citibank had effected an off-set using her account
with Citibank-Geneva, in the amount of
US$149,632.99, against her "outstanding, overdue,
demandable and unpaid obligation" to pet. Citibank.
Atty. Agcaoili claimed therein that the compensation
or off-set was made pursuant to and in accordance
with the provisions of Art.s 1278 through 1290 of
pet. Citibank was now fully paid and liquidated.
floor of pet. Citibank's building at Paseo de Roxas
St., Makati, Metro Manila. Pet/s submitted a
Certification70 to this effect, dated 17 Jan. 1991,
issued by the Chief of the Arson Investigation Sec.,
Fire District III, Makati Fire Station, Metropolitan
Police Force. The 7th floor of pet. Citibank's building
housed its Control Division, which was in charge of
keeping the necessary documents for cases in
which it was involved. After compiling the
documentary evidence for the present case, Atty.
Renato J. Fernandez, internal legal counsel of pet.
Citibank, forwarded them to the Control Division.
The original copies of the MCs, which supposedly
represent the proceeds of the first set of PNs, as
well as that of other documentary evidence related
to the case, were among those burned in the said
fire.71
Rsp.'s version of events
Rsp. disputed pet/s' narration of the circumstances
surrounding her loans with pet. Citibank and the
alleged authority she gave for the off-set or
compensation of her money market placements
and deposit accounts with pet/s against her loan
obligation.
Rsp. denied outright executing the first set of PNs,
except for one (PN No. 34534 in particular).
Although she admitted that she obtained several
loans from pet. Citibank, these only amounted to
P1,150,000.00, and she had already paid them.
She secured from pet. Citibank two loans of
P500,000.00 each. She executed in favor of pet.
Citibank the corresponding PNs for the loans and
the Deeds of Assignment of her money market
placements with pet. FNCB Finance as security. 72
To prove payment of these loans, rsp. presented
two provisional receipts of pet. Citibank – No.
19471,73 dated 11 Aug. 1978, and No. 12723,74
dated 10 Nov. 1978 – both signed by Mr. Tan, and
acknowledging receipt from rsp. of several checks
in the total amount of P500,744.00 and
P500,000.00, respectively, for "liquidation of loan."
She borrowed another P150,000.00 from pet.
Citibank for personal investment, and for which she
executed PN No. 34534, on 9 Jan. 1979. Thus, she
admitted to receiving the proceeds of this loan via
MC No. 228270. She invested the loan amount in
another money market placement with pet. FNCB
Finance. In turn, she used the very same money
market placement with pet. FNCB Finance as
security for her P150,000.00 loan from pet.
Citibank. When she failed to pay the loan when it
became due, pet. Citibank allegedly forfeited her
money market placement with pet. FNCB Finance
and, thus, the loan was already paid.75
Rsp. likewise questioned the MCs presented by
pet/s, except for one (MC No. 228270 in particular),
as proof that she received the proceeds of the
loans covered by the first set of PNs. As recounted
in the preceding paragraph, rsp. admitted to
obtaining a loan of P150,000.00, covered by PN
No. 34534, and receiving MC No. 228270
representing the proceeds thereof, but claimed that
she already paid the same. She denied ever
receiving MCs No. 220701 (for the loan of
P400,000.00, covered by PN No. 33935) and No.
226467 (for the loan of P250,000.00, covered by
PN No. 34079), and pointed out that the checks did
not bear her indorsements. She did not deny
receiving all other checks but she interposed that
she received these checks, not as proceeds of
loans, but as payment of the principal amounts
and/or interests from her money market placements
with pet. Citibank. She also raised doubts as to the
notation on each of the checks that reads "RE:
Proceeds of PN#[corresponding PN No.]," saying
that such notation did not appear on the MCs when
she originally received them and that the notation
appears to have been written by a typewriter
different from that used in writing all other
information on the checks (i.e., date, payee, and
amount).76 She even testified that MCs were not
supposed to bear notations indicating the purpose
for which they were issued.
As to the second set of PNs, rsp. acknowledged
having signed them all. However, she asserted that
she only executed these PNs as part of the
simulated loans she and Mr. Tan of pet. Citibank
concocted. Rsp. explained that she had a pending
loan application for a big amount with the
Development Bank of the Philippines (DBP), and
when Mr. Tan found out about this, he suggested
that they could make it appear that the rsp. had
outstanding loans with pet. Citibank and the latter
was already demanding payment thereof; this might
persuade DBP to approve rsp.'s loan application.
Mr. Tan made the rsp. sign the second set of PNs,
so that he may have something to show the DBP
investigator who might inquire with pet. Citibank as
to rsp.'s loans with the latter. On her own copies of
the said PNs, rsp. wrote by hand the notation, "This
isa (sic) simulated non-negotiable note, signed
copy given to Mr. Tan., (sic) per agreement to be
shown to DBP representative. itwill (sic) be
returned to me if the P11=M (sic) loan for MC Adore
Palace Hotel is approved by DBP."77
Findings of this Court as to the existence of the
loans
After going through the testimonial and
documentary evidence presented by both sides to
this case, it is this Court's assessment that rsp. did
indeed have outstanding loans with pet. Citibank at
the time it effected the off-set or compensation on
25 July 1979 (using rsp.'s savings deposit with pet.
Citibank), 5 Sept. 1979 (using the proceeds of
rsp.'s money market placements with pet. FNCB
Finance) and 26 Oct. 1979 (using rsp.'s dollar
accounts remitted from Citibank-Geneva). The
totality of pet/s' evidence as to the existence of the
said loans preponderates over rsp.'s. Preponderant
evidence means that, as a whole, the evidence
adduced by one side outweighs that of the adverse
party.78
Rsp.'s outstanding obligation for P1,920,000.00
had been sufficiently documented by pet. Citibank.
The second set of PNs is a mere renewal of the
prior loans originally covered by the first set of PNs,
except for PN No. 34534. The first set of PNs is
supported, in turn, by the existence of the MCs that
represent the proceeds thereof received by the
rsp..
It bears to emphasize that the proceeds of the
loans were paid to rsp. in MCs, with the rsp.
specifically named as payee. MCs checks are
drawn by the bank's manager upon the bank itself
and regarded to be as good as the money it
represents.79 Moreover, the MCs were crossed
checks, with the words "Payee's Account Only."
In general, a crossed check cannot be presented to
the drawee bank for payment in cash. Instead, the
check can only be deposited with the payee's bank
which, in turn, must present it for payment against
the drawee bank in the course of normal banking
hours. The crossed check cannot be presented for
payment, but it can only be deposited and the
drawee bank may only pay to another bank in the
payee's or indorser's account.80 The effect of
crossing a check was described by this Court in
Philippine Commercial International Bank v. CA81 –
[T]he crossing of a check with the phrase
"Payee's Account Only" is a warning that the
check should be deposited in the account of
the payee. Thus, it is the duty of the
collecting bank PCI Bank to ascertain that
the check be deposited in payee's account
only. It is bound to scrutinize the check and
to know its depositors before it can make
the clearing indorsement "all prior
indorsements and/or lack of indorsement
guaranteed."
The crossed MCs presented by pet. Bank were
indeed deposited in several different bank accounts
and cleared by the Clearing Office of the Central
Bank of the Philippines, as evidenced by the stamp
marks and notations on the said checks. The
crossed MCs are already in the possession of pet.
Citibank, the drawee bank, which was ultimately
responsible for the payment of the amount stated in
the checks. Given that a check is more than just an
instrument of credit used in commercial
transactions for it also serves as a receipt or
evidence for the drawee bank of the cancellation of
the said check due to payment,82 then, the
possession by pet. Citibank of the said MCs, duly
stamped "Paid" gives rise to the presumption that
the said MCs were already paid out to the intended
payee, who was in this case, the rsp..
This Court finds applicable herein the presumptions
that private transactions have been fair and
regular,83 and that the ordinary course of business
has been followed.84 There is no question that the
loan transaction between pet. Citibank and the rsp.
is a private transaction. The transactions revolving
around the crossed MCs – from their issuance by
pet. Citibank to rsp. as payment of the proceeds of
her loans; to its deposit in rsp.'s accounts with
several different banks; to the clearing of the MCs
by an independent clearing house; and finally, to
the payment of the MCs by pet. Citibank as the
drawee bank of the said checks – are all private
transactions which shall be presumed to have been
fair and regular to all the parties concerned. In
addition, the banks involved in the foregoing
transactions are also presumed to have followed
the ordinary course of business in the acceptance
of the crossed MCs for deposit in rsp.'s accounts,
submitting them for clearing, and their eventual
payment and cancellation.
The afore-stated presumptions are disputable,
meaning, they are satisfactory if uncontradicted, but
may be contradicted and overcome by other
evidence.85 Rsp., however, was unable to present
sufficient and credible evidence to dispute these
presumptions.
It should be recalled that out of the nine MCs
presented by pet. Citibank, rsp. admitted to
receiving one as proceeds of a loan (MC No.
228270), denied receiving two (MCs No. 220701
and 226467), and admitted to receiving all the rest,
but not as proceeds of her loans, but as return on
the principal amounts and interests from her money
market placements.
Rsp. admitted receiving MC No. 228270
representing the proceeds of her loan covered by
PN No. 34534. Although the principal amount of the
loan is P150,000.00, rsp. only received
P146,312.50, because the interest and handling fee
on the loan transaction were already deducted
therefrom.86 Stamps and notations at the back of
MC No. 228270 reveal that it was deposited at the
Bank of the Philippine Islands (BPI), Cubao Branch,
in Account No. 0123-0572-28.87 The check also
bore the signature of rsp. at the back.88 And,
although rsp. would later admit that she did sign PN
No. 34534 and received MC No. 228270 as
proceeds of the loan extended to her by pet.
Citibank, she contradicted herself when, in an
earlier testimony, she claimed that PN No. 34534
was among the PNs she executed as simulated
loans with pet. Citibank.89
Rsp. denied ever receiving MCs No. 220701 and
226467. However, considering that the said checks
were crossed for payee's account only, and that
they were actually deposited, cleared, and paid,
then the presumption would be that the said checks
were properly deposited to the account of rsp., who
was clearly named the payee in the checks. Rsp.'s
bare allegations that she did not receive the two
checks fail to convince this Court, for to sustain her,
would be for this Court to conclude that an
irregularity had occurred somewhere from the time
of the issuance of the said checks, to their deposit,
clearance, and payment, and which would have
involved not only pet. Citibank, but also BPI, which
accepted the checks for deposit, and the Central
Bank of the Philippines, which cleared the checks.
It falls upon the rsp. to overcome or dispute the
presumption that the crossed checks were issued,
accepted for deposit, cleared, and paid for by the
banks involved following the ordinary course of
their business.
The mere fact that MCs No. 220701 and 226467 do
not bear rsp.'s signature at the back does not
negate deposit thereof in her account. The liability
for the lack of indorsement on the MCs no longer
fall on pet. Citibank, but on the bank who received
the same for deposit, in this case, BPI Cubao
Branch. Once again, it must be noted that the MCs
were crossed, for payee's account only, and the
payee named in both checks was none other than
rsp.. The crossing of the MCs was already a
warning to BPI to receive said checks for deposit
only in rsp.'s account. It was up to BPI to verify
whether it was receiving the crossed MCs in
accordance with the instructions on the face
thereof. If, indeed, the MCs were deposited in
accounts other than rsp.'s, then the rsp. would have
a cause of action against BPI.90
BPI further stamped its guarantee on the back of
the checks to the effect that, "All prior endorsement
and/or Lack of endorsement guaranteed." Thus,
BPI became the indorser of the MCs, and assumed
all the warranties of an indorser,91 specifically, that
the checks were genuine and in all respects what
they purported to be; that it had a good title to the
checks; that all prior parties had capacity to
contract; and that the checks were, at the time of
their indorsement, valid and subsisting.92 So even if
the MCs deposited by BPI's client, whether it be by
rsp. herself or some other person, lacked the
necessary indorsement, BPI, as the collecting
bank, is bound by its warranties as an indorser and
cannot set up the defense of lack of indorsement as
against pet. Citibank, the drawee bank.93
Furthermore, rsp.'s bare and unsubstantiated
denial of receipt of the MCs in question and their
deposit in her account is rendered suspect when
MC No. 220701 was actually deposited in Account
No. 0123-0572-28 of BPI Cubao Branch, the very
same account in which MC No. 228270 (which rsp.
admitted to receiving as proceeds of her loan from
pet. Citibank), and MCs No. 228203, 228357, and
228400 (which rsp. admitted to receiving as
proceeds from her money market placements) were
deposited. Likewise, MC No. 226467 was
deposited in Account No. 0121-002-43 of BPI
Cubao Branch, to which MCs No. 226285 and
226439 (which rsp. admitted to receiving as
proceeds from her money market placements) were
deposited. It is an apparent contradiction for rsp. to
claim having received the proceeds of checks
deposited in an account, and then deny receiving
the proceeds of another check deposited in the
very same account.
Another inconsistency in rsp.'s denial of receipt of
MC No. 226467 and her deposit of the same in her
account, is her presentation of Exhibit "HHH," a
provisional receipt which was supposed to prove
that rsp. turned over P500,000.00 to Mr. Tan of pet.
Citibank, that the said amount was split into three
money market placements, and that MC No.
226467 represented the return on her investment
from one of these placements.94 Because of her
Exhibit "HHH," rsp. effectively admitted receipt of
MC No. 226467, although for reasons other than as
proceeds of a loan.
Neither can this Court give credence to rsp.'s
contention that the notations on the MCs, stating
that they were the proceeds of particular PNs, were
not there when she received the checks and that
the notations appeared to be written by a typewriter
different from that used to write the other
information on the checks. Once more, rsp.'s
allegations were uncorroborated by any other
evidence. Her and her counsel's observation that
the notations on the MCs appear to be written by a
typewriter different from that used to write the other
information on the checks hardly convinces this
Court considering that it constitutes a mere opinion
on the appearance of the notation by a witness who
does not possess the necessary expertise on the
matter. In addition, the notations on the MCs were
written using both capital and small letters, while
the other information on the checks were written
using capital letters only, such difference could
easily confuse an untrained eye and lead to a hasty
conclusion that they were written by different
typewriters.
Rsp.'s testimony, that based on her experience
transacting with banks, the MCs were not supposed
to include notations on the purpose for which the
checks were issued, also deserves scant
consideration. While rsp. may have extensive
experience dealing with banks, it still does not
qualify her as a competent witness on banking
procedures and practices. Her testimony on this
matter is even belied by the fact that the other MCs
issued by pet. Citibank (when it was still named
First National City Bank) and by pet. FNCB
Finance, the existence and validity of which were
not disputed by rsp., also bear similar notations that
state the reason for which they were issued.
Rsp. presented several more pieces of evidence to
substantiate her claim that she received MCs No.
226285, 226439, 226467, 226057, 228357, and
228400, not as proceeds of her loans from pet.
Citibank, but as the return of the principal amounts
and payment of interests from her money market
placements with pet/s. Part of rsp.'s exhibits were
personal checks95 drawn by rsp. on her account
with Feati Bank & Trust Co., which she allegedly
invested in separate money market placements
with both pet/s, the returns from which were paid to
her via MCs No. 226285 and 228400. Yet, to this
Court, the personal checks only managed to
establish rsp.'s issuance thereof, but there was
nothing on the face of the checks that would reveal
the purpose for which they were issued and that
they were actually invested in money market
placements as rsp. claimed.
Rsp. further submitted handwritten notes that
purportedly computed and presented the returns on
her money market placements, corresponding to
the amount stated in the MCs she received from
pet. Citibank. Exhibit "HHH-1"96 was a handwritten
note, which rsp. attributed to Mr. Tan of pet.
Citibank, showing the breakdown of her BPI Check
for P500,000.00 into three different money market
placements with pet. Citibank. This Court, however,
noticed several factors which render the note highly
suspect. One, it was written on the reversed side of
Provisional Receipt No. 12724 of pet. Citibank
which bore the initials of Mr. Tan acknowledging
receipt of rsp.'s BPI Check No. 120989 for
P500,000.00; but the initials on the handwritten
note appeared to be that of Mr. Bobby Mendoza of
pet. FNCB Finance.97 Second, according to
Provisional Receipt No. 12724, BPI Check No.
120989 for P500,000.00 was supposed to be
invested in three money market placements with
pet. Citibank for the period of 60 days. Since all
these money market placements were made
through one check deposited on the same day, 10
Nov. 1978, it made no sense that the handwritten
note at the back of Provisional Receipt No. 12724
provided for different dates of maturity for each of
the money market placements (i.e., 16 Nov. 1978,
17 Jan. 1979, and 21 Nov. 1978), and such dates
did not correspond to the 60 day placement period
stated on the face of the provisional receipt. And
third, the principal amounts of the money market
placements as stated in the handwritten note –
P145,000.00, P145,000.00 and P242,000.00 –
totaled P532,000.00, and was obviously in excess
of the P500,000.00 acknowledged on the face of
Provisional Receipt No. 12724.
Exhibits "III" and "III-1," the front and bank pages of
a handwritten note of Mr. Bobby Mendoza of pet.
FNCB Finance,98 also did not deserve much
evidentiary weight, and this Court cannot rely on
the truth and accuracy of the computations
presented therein. Mr. Mendoza was not presented
as a witness during the trial before the RTC, so that
the document was not properly authenticated nor
its contents sufficiently explained. No one was able
to competently identify whether the initials as
appearing on the note were actually Mr. Mendoza's.
Also, going by the information on the front page of
the note, this Court observes that payment of rsp.'s
alleged money market placements with pet. FNCB
Finance were made using Citytrust Checks; the
MCs in question, including MC No. 228057, were
issued by pet. Citibank. Although Citytrust (formerly
Feati Bank & Trust Co.), pet. FNCB Finance, and
pet. Citibank may be affiliates of one another, they
each remained separate and distinct corporations,
each having its own financial system and records.
Thus, this Court cannot simply assume that one
corporation, such as pet. Citibank or Citytrust, can
issue a check to discharge an obligation of pet.
FNCB Finance. It should be recalled that when pet.
FNCB Finance paid for rsp.'s money market
placements, covered by its PNs No. 8167 and
8169, as well as PNs No. 20138 and 20139, pet.
FNCB Finance issued its own checks.
As a last point on this matter, if rsp. truly had
money market placements with pet/s, then these
would have been evidenced by PNs issued by
either pet. Citibank or pet. FNCB Finance,
acknowledging the principal amounts of the
investments, and stating the applicable interest
rates, as well as the dates of their of issuance and
maturity. After rsp. had so meticulously
reconstructed her other money market placements
with pet/s and consolidated the documentary
evidence thereon, she came surprisingly short of
offering similar details and substantiation for these
particular money market placements.
Since this Court is satisfied that rsp. indeed
received the proceeds of the first set of PNs, then it
proceeds to analyze her evidence of payment
thereof.
In support of rsp.'s assertion that she had already
paid whatever loans she may have had with pet.
Citibank, she presented as evidence Provisional
Receipts No. 19471, dated 11 Aug. 1978, and No.
12723, dated 10 Nov. 1978, both of pet. Citibank
and signed by Mr. Tan, for the amounts of
P500,744.00 and P500,000.00, respectively. While
these provisional receipts did state that Mr. Tan, on
behalf of pet. Citibank, received rsp.'s checks as
payment for her loans, they failed to specifically
identify which loans were actually paid. Pet.
Citibank was able to present evidence that rsp. had
executed several PNs in the years 1978 and 1979
to cover the loans she secured from the said bank.
Pet. Citibank did admit that rsp. was able to pay for
some of these PNs, and what it identified as the
first and second sets of PNs were only those which
remained unpaid. It thus became incumbent upon
rsp. to prove that the checks received by Mr. Tan
were actually applied to the PNs in either the first or
second set; a fact that, unfortunately, cannot be
determined from the provisional receipts submitted
by rsp. since they only generally stated that the
checks received by Mr. Tan were payment for rsp.'s
loans.
Mr. Tan, in his deposition, further explained that
provisional receipts were issued when payment to
the bank was made using checks, since the checks
would still be subject to clearing. The purpose for
the provisional receipts was merely to acknowledge
the delivery of the checks to the possession of the
bank, but not yet of payment.99 This bank practice
finds legitimacy in the pronouncement of this Court
that a check, whether an MC or an ordinary check,
is not legal tender and, therefore, cannot constitute
valid tender of payment. In Philippine Airlines, Inc.
v. CA, 100 this Court elucidated that:
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 (Sec. 189, Act
2031 on Negs. Insts.; Art. 1249, CC; Bryan
Landon Co. v. American Bank, 7 Phil. 255;
Tan Sunco, v. Santos, 9 Phil. 44; 21 R.C.L.
60, 61). A check, whether a manager's
check or ordinary check, is not legal tender,
and an offer of a check in payment of a debt
is not a valid tender of payment and may be
refused receipt by the obligee or creditor.
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 (Art. 1249,
CC, par. 3).
In the case at bar, the issuance of an official receipt
by pet. Citibank would have been dependent on
whether the checks delivered by rsp. were actually
cleared and paid for by the drawee banks.
As for PN No. 34534, rsp. asserted payment
thereof at two separate instances by two different
means. In her formal offer of exhibits, rsp.
submitted a deposit slip of pet. Citibank, dated 11
Aug. 1978, evidencing the deposit of BPI Check
No. 5785 for P150,000.00.101 In her Formal Offer of
Documentary Exhibits, dated 7 July 1989, rsp.
stated that the purpose for the presentation of the
said deposit slip was to prove that she already paid
her loan covered by PN No. 34534.102 In her
testimony before the RTC three years later, on 28
Nov. 1991, she changed her story. This time she
narrated that the loan covered by PN No. 34534
was secured by her money market placement with
pet. FNCB Finance, and when she failed to pay the
said PN when it became due, the security was
applied to the loan, therefore, the loan was
considered paid.103 Given the foregoing, rsp.'s
assertion of payment of PN No. 34534 is extremely
dubious.
According to pet. Citibank, the PNs in the second
set, except for PN No. 34534, were mere renewals
of the unpaid PNs in the first set, which was why
the PNs stated that they were for the purpose of
liquidating existing obligations. PN No. 34534,
however, which was part of the first set, was still
valid and subsisting and so it was included in the
second set without need for its renewal, and it still
being the original PN for that particular loan, its
stated purpose was for personal investment.104
Rsp. essentially admitted executing the second set
of PNs, but they were only meant to cover
simulated loans. Mr. Tan supposedly convinced her
that her pending loan application with DBP would
have a greater chance of being approved if they
made it appear that rsp. urgently needed the
money because pet. Citibank was already
demanding payment for her simulated loans.
Rsp.'s defense of simulated loans to escape liability
for the second set of PNs is truly a novel
one.1âwphi1 It is regrettable, however, that she
was unable to substantiate the same. Yet again,
rsp.'s version of events is totally based on her own
uncorroborated testimony. The notations on the
second set of PNs, that they were non-negotiable
simulated notes, were admittedly made by rsp.
herself and were, thus, self-serving. Equally self-
serving was rsp.'s letter, written on 7 Oct. 1985, or
more than six years after the execution of the
second set of PNs, in which she demanded return
of the simulated or fictitious PNs, together with the
letters relating thereto, which Mr. Tan purportedly
asked her to execute. Rsp. further failed to present
any proof of her alleged loan application with the
DBP, and of any circumstance or correspondence
wherein the simulated or fictitious PNs were indeed
used for their supposed purpose.
In contrast, pet. Citibank, as supported by the
testimonies of its officers and available
documentation, consistently treated the said PNs
as regular loans – accepted, approved, and paid in
the ordinary course of its business.
The PNs executed by the rsp. in favor of pet.
Citibank to cover her loans were duly-filled out and
signed, including the disclosure statement found at
the back of the said PNs, in adherence to the
Central Bank requirement to disclose the full
finance charges to a loan granted to borrowers.
Mr. Tan, then an account officer with the Marketing
Department of pet. Citibank, testified that he dealt
directly with rsp.; he facilitated the loans; and the
PNs, at least in the second set, were signed by rsp.
in his presence.105
Mr. Pujeda, the officer who was previously in
charge of loans and placements, confirmed that the
signatures on the PNs were verified against rsp.'s
specimen signature with the bank.106
Ms. Cristina Dondoyano, who worked at pet.
Citibank as a loan processor, was responsible for
booking rsp.'s loans. Booking the loans means
recording it in the General Ledger. She explained
the procedure for booking loans, as follows: The
account officer, in the Marketing Department, deals
directly with the clients who wish to borrow money
from pet. Citibank. The Marketing Department will
forward a loan booking checklist, together with the
borrowing client's PNs and other supporting
documents, to the loan pre-processor, who will
check whether the details in the loan booking
checklist are the same as those in the PNs. The
documents are then sent to Signature Control for
verification of the client's signature in the PNs, after
which, they are returned to the loan pre-processor,
to be forwarded finally to the loan processor. The
loan processor shall book the loan in the General
Ledger, indicating therein the client name, loan
amount, interest rate, maturity date, and the
corresponding PN number. Since she booked rsp.'s
loans personally, Ms. Dondoyano testified that she
saw the original PNs. In 1986, Atty. Fernandez of
pet. Citibank requested her to prepare an
accounting of rsp.'s loans, which she did, and
which was presented as Exhibit "120" for the pet/s.
The figures from the said exhibit were culled from
the bookings in the General Ledger, a fact which
rsp.'s counsel was even willing to stipulate.107
Ms. Teresita Glorioso was an Investigation and
Reconcilement Clerk at the Control Department of
pet. Citibank. She was presented by pet. Citibank
to expound on the microfilming procedure at the
bank, since most of the copies of the PNs were
retrieved from microfilm. Microfilming of the
documents are actually done by people at the
Operations Department. At the end of the day or
during the day, the original copies of all bank
documents, not just those pertaining to loans, are
microfilmed. She refuted the possibility that
insertions could be made in the microfilm because
the microfilm is inserted in a cassette; the cassette
is placed in the microfilm machine for use; at the
end of the day, the cassette is taken out of the
microfilm machine and put in a safe vault; and the
cassette is returned to the machine only the
following day for use, until the spool is full. This is
the microfilming procedure followed everyday.
When the microfilm spool is already full, the
microfilm is developed, then sent to the Control
Department, which double checks the contents of
the microfilms against the entries in the General
Ledger. The Control Department also conducts a
random comparison of the contents of the
microfilms with the original documents; a random
review of the contents is done on every role of
microfilm.108
Ms. Renee Rubio worked for pet. Citibank for 20
years. She rose from the ranks, initially working as
a secretary in the Personnel Group; then as a
secretary to the Personnel Group Head; a Service
Assistant with the Marketing Group, in 1972 to
1974, dealing directly with corporate and individual
clients who, among other things, secured loans
from pet. Citibank; the Head of the Collection
Group of the Foreign Department in 1974 to 1976;
the Head of the Money Transfer Unit in 1976 to
1978; the Head of the Loans and Placements Unit
up to the early 1980s; and, thereafter, she
established operations training for pet. Citibank in
the Asia-Pacific Region responsible for the training
of the officers of the bank. She testified on the
standard loan application process at pet. Citibank.
According to Ms. Rubio, the account officer or
marketing person submits a proposal to grant a
loan to an individual or corporation. Pet. Citibank
has a worldwide policy that requires a credit
committee, composed of a minimum of three
people, which would approve the loan and amount
thereof. There can be no instance when only one
officer has the power to approve the loan
application. When the loan is approved, the
account officer in charge will obtain the
corresponding PNs from the client. The PNs are
sent to the signature verifier who would validate the
signatures therein against those appearing in the
signature cards previously submitted by the client
to the bank. The Operations Unit will check and
review the documents, including the PNs, if it is a
clean loan, and securities and deposits, if it is
collateralized. The loan is then recorded in the
General Ledger. The Loans and Placements
Department will not book the loans without the PNs.
When the PNs are liquidated, whether they are paid
or rolled-over, they are returned to the client. 109 Ms.
Rubio further explained that she was familiar with
rsp.'s accounts since, while she was still the Head
of the Loan and Placements Unit, she was asked
by Mr. Tan to prepare a list of rsp.'s outstanding
obligations.110 She thus calculated rsp.'s
outstanding loans, which was sent as an
attachment to Mr. Tan's letter to rsp., dated 28
Sept. 1979, and presented before the RTC as
Exhibits "34-B" and "34-C."111
Lastly, the exchange of letters between pet.
Citibank and rsp., as well as the letters sent by
other people working for rsp., had consistently
recognized that rsp. owed pet. Citibank money.
In consideration of the foregoing discussion, this
Court finds that the preponderance of evidence
supports the existence of the rsp.'s loans, in the
principal sum of P1,920,000.00, as of 5 Sept. 1979.
While it is well-settled that the term "preponderance
of evidence" should not be wholly dependent on the
number of witnesses, there are certain instances
when the number of witnesses become the
determining factor –
The preponderance of evidence may be
determined, under certain conditions, by the
number of witnesses testifying to a
particular fact or state of facts. For instance,
one or two witnesses may testify to a given
state of facts, and six or seven witnesses of
equal candor, fairness, intelligence, and
truthfulness, and equally well corroborated
by all the remaining evidence, who have no
greater interest in the result of the suit,
testify against such state of facts. Then the
preponderance of evidence is determined
by the number of witnesses. (Wilcox vs.
Hines, 100 Tenn. 524, 66 Am. St. Rep.,
761.)112
Best evidence rule
This Court disagrees in the pronouncement made
by the CA summarily dismissing the documentary
evidence submitted by pet/s based on its broad and
indiscriminate application of the best evidence rule.
In general, the best evidence rule requires that the
highest available degree of proof must be
produced. Accordingly, for documentary evidence,
the contents of a document are best proved by the
production of the document itself,113 to the exclusion
of any secondary or substitutionary evidence.114
The best evidence rule has been made part of the
revised Rules of Court, Rule 130, Sec. 3, which
reads –
SEC. 3. Original document must be
produced; exceptions. – When the subject
of inquiry is the contents of a document, no
evidence shall be admissible other than the
original document itself, except in the
following cases:
(a) When the original has been lost
or destroyed, or cannot be produced
in court, without bad faith on the part
of the offeror;
(b) When the original is in the
custody or under the control of the
party against whom the evidence is
offered, and the latter fails to
produce it after reasonable notice;
(c) When the original consists of
numerous accounts or other
documents which cannot be
examined in court without great loss
of time and the fact sought to be
 established from them is only the
general result of the whole; and
(d) When the original is a public
record in the custody of a public
officer or is recorded in a public
office.
As the afore-quoted provision states, the best
evidence rule applies only when the subject of the
inquiry is the contents of the document. The scope
of the rule is more extensively explained thus –
But even with respect to documentary
evidence, the best evidence rule applies
only when the content of such document is
the subject of the inquiry. Where the issue is
only as to whether such document was
actually executed, or exists, or on the
circumstances relevant to or surrounding its
execution, the best evidence rule does not
apply and testimonial evidence is
admissible (5 Moran, op. cit., pp. 76-66; 4
Martin, op. cit., p. 78). Any other
substitutionary evidence is likewise
admissible without need for accounting for
the original.
Thus, when a document is presented to
prove its existence or condition it is offered
not as documentary, but as real, evidence.
Parol evidence of the fact of execution of
the documents is allowed (Hernaez, et al.
vs. McGrath, etc., et al., 91 Phil 565). x x x
115
In Estrada v. Desierto,116 this Court had occasion to
rule that –
It is true that the Court relied not upon the
original but only copy of the Angara Diary as
published in the Philippine Daily Inquirer on
Feb. 4-6, 2001. In doing so, the Court, did
not, however, violate the best evidence rule.
Wigmore, in his book on evidence, states
that:
"Production of the original may be
dispensed with, in the TC's discretion,
whenever in the case in hand the opponent
does not bona fide dispute the contents of
the document and no other useful purpose
will be served by requiring production.24
"x x x x
"In several Canadian provinces, the
principle of unavailability has been
abandoned, for certain documents in which
ordinarily no real dispute arised. This
measure is a sensible and progressive one
and deserves universal adoption (post, sec.
1233). Its essential feature is that a copy
may be used unconditionally, if the
opponent has been given an opportunity to
inspect it." (Emphasis supplied.)
This Court did not violate the best evidence rule
when it considered and weighed in evidence the
photocopies and microfilm copies of the PNs, MCs,
and letters submitted by the pet/s to establish the
existence of rsp.'s loans. The terms or contents of
these documents were never the point of
contention in the Petition at bar. It was rsp.'s
position that the PNs in the first set (with the
exception of PN No. 34534) never existed, while
the PNs in the second set (again, excluding PN No.
34534) were merely executed to cover simulated
loan transactions. As for the MCs representing the
proceeds of the loans, the rsp. either denied receipt
of certain MCs or admitted receipt of the other MCs
but for another purpose. Rsp. further admitted the
letters she wrote personally or through her
representatives to Mr. Tan of pet. Citibank
acknowledging the loans, except that she claimed
that these letters were just meant to keep up the
ruse of the simulated loans. Thus, rsp. questioned
the documents as to their existence or execution, or
when the former is admitted, as to the purpose for
which the documents were executed, matters which
are, undoubtedly, external to the documents, and
which had nothing to do with the contents thereof.
Alternatively, even if it is granted that the best
evidence rule should apply to the evidence
presented by pet/s regarding the existence of rsp.'s
loans, it should be borne in mind that the rule
admits of the following exceptions under Rule 130,
Sec. 5 of the revised Rules of Court –
SEC. 5. When the original document is
unavailable. – When the original document
has been lost or destroyed, or cannot be
produced in court, the offeror, upon proof of
its execution or existence and the cause of
its unavailability without bad faith on his
part, may prove its contents by a copy, or by
a recital of its contents in some authentic
document, or by the testimony of witnesses
in the order stated.
The execution or existence of the original copies of
the documents was established through the
testimonies of witnesses, such as Mr. Tan, before
whom most of the documents were personally
executed by rsp.. The original PNs also went
through the whole loan booking system of pet.
Citibank – from the account officer in its Marketing
Department, to the pre-processor, to the signature
verifier, back to the pre-processor, then to the
processor for booking.117 The original PNs were
seen by Ms. Dondoyano, the processor, who
recorded them in the General Ledger. Mr. Pujeda
personally saw the original MCs, proving rsp.'s
receipt of the proceeds of her loans from pet.
Citibank, when he helped Attys. Cleofe and
Fernandez, the bank's legal counsels, to
reconstruct the records of rsp.'s loans. The original
MCs were presented to Atty. Cleofe who used the
same during the preliminary investigation of the
case, sometime in years 1986-1987. The original
MCs were subsequently turned over to the Control
and Investigation Division of pet. Citibank.118
It was only pet. FNCB Finance who claimed that
they lost the original copies of the PNs when it
moved to a new office. Citibank did not make a
similar contention; instead, it explained that the
original copies of the PNs were returned to the
borrower upon liquidation of the loan, either through
payment or roll-over. Pet. Citibank proffered the
excuse that they were still looking for the
documents in their storage or warehouse to explain
the delay and difficulty in the retrieval thereof, but
not their absence or loss. The original documents in
this case, such as the MCs and letters, were
destroyed and, thus, unavailable for presentation
before the RTC only on 7 Oct. 1987, when a fire
broke out on the 7th floor of the office building of
pet. Citibank. There is no showing that the fire was
intentionally set. The fire destroyed relevant
documents, not just of the present case, but also of
other cases, since the 7th floor housed the Control
and Investigation Division, in charge of keeping the
necessary documents for cases in which pet.
Citibank was involved.
The foregoing would have been sufficient to allow
the presentation of photocopies or microfilm copies
of the PNs, MCs, and letters by the pet/s as
secondary evidence to establish the existence of
rsp.'s loans, as an exception to the best evidence
rule.
The impact of the Decision of the CA in the Dy case
In its assailed Decision, the CA made the following
pronouncement –
Besides, We find the declaration and
conclusions of this Court in CA-G.R. CV No.
15934 entitled Sps. Dr. Ricardo L. Dy and
Rosalind O. Dy vs. City Bank, N.A., et al,
promulgated on 15 Jan. 1990, as
disturbing taking into consideration the
similarities of the fraud, machinations, and
deceits employed by the defendant-
appellant Citibank and its Account Manager
Francisco Tan.
Worthy of note is the fact that Our
declarations and conclusions against
Citibank and the person of Francisco Tan in
CA-G.R. CV No. 15934 were affirmed in
toto by the Highest Magistrate in a Minute
Resolution dated 22 Aug. 1990 entitled
Citibank, N.A., vs. CA, G.R. 93350.
As the factual milieu of the present appeal
created reasonable doubts as to whether
the nine (9) Promissory Notes were indeed
executed with considerations, the doubts,
coupled by the findings and conclusions of
this Court in CA-G.R. CV No. 15934 and
the SC in GR 93350. should be construed
against herein defendants-appellants
Citibank and FNCB Finance.
What this Court truly finds disturbing is the
significance given by the CA in its assailed Decision
to the Decision119 of its Third Division in CA-G.R.
CV No. 15934 (or the Dy case), when there is an
absolute lack of legal basis for doing such.
Although pet. Citibank and its officer, Mr. Tan, were
also involved in the Dy case, that is about the only
connection between the Dy case and the one at
bar. Not only did the Dy case tackle transactions
between parties other than the parties presently
before this Court, but the transactions are
absolutely independent and unrelated to those in
the instant Petition.
In the Dy case, Severino Chua Caedo managed to
obtain loans from herein pet. Citibank amounting to
P7,000,000.00, secured to the extent of
P5,000,000.00 by a Third Party Real Estate
Mortgage of the properties of Caedo's aunt,
Rosalind Dy. It turned out that Rosalind Dy and her
husband were unaware of the said loans and the
mortgage of their properties. The transactions were
carried out exclusively between Caedo and Mr. Tan
of pet. Citibank. The RTC found Mr. Tan guilty of
fraud for his participation in the questionable
transactions, essentially because he allowed
Caedo to take out the signature cards, when these
should have been signed by the Dy spouses
personally before him. Although the Dy spouses'
signatures in the PNs and Third Party Real Estate
Mortgage were forged, they were approved by the
signature verifier since the signature cards against
which they were compared to were also forged.
Neither the RTC nor the CA, however, categorically
declared Mr. Tan personally responsible for the
forgeries, which, in the narration of the facts, were
more likely committed by Caedo.
In the Petition at bar, rsp. dealt with Mr. Tan directly,
there was no third party involved who could have
perpetrated any fraud or forgery in her loan
transactions. Although rsp. attempted to raise
suspicion as to the authenticity of her signatures on
certain documents, these were nothing more than
naked allegations with no corroborating evidence;
worse, even her own allegations were replete with
inconsistencies. She could not even establish in
what manner or under what circumstances the
fraud or forgery was committed, or how Mr. Tan
could have been directly responsible for the same.
While the CA can take judicial notice of the
Decision of its Third Division in the Dy case, it
should not have given the said case much weight
when it rendered the assailed Decision, since the
former does not constitute a precedent. The CA, in
the challenged Decision, did not apply any legal
argument or principle established in the Dy case
but, rather, adopted the findings therein of
wrongdoing or misconduct on the part of herein pet.
Citibank and Mr. Tan. Any finding of wrongdoing or
misconduct as against herein pet/s should be made
based on the factual background and pieces of
evidence submitted in this case, not those in
another case.
It is apparent that the CA took judicial notice of the
Dy case not as a legal precedent for the present
case, but rather as evidence of similar acts
committed by pet. Citibank and Mr. Tan. A basic
rule of evidence, however, states that, "Evidence
that one did or did not do a certain thing at one time
is not admissible to prove that he did or did not do
the same or similar thing at another time; but it may
be received to prove a specific intent or knowledge,
identity, plan, system, scheme, habit, custom or
usage, and the like."120 The rationale for the rule is
explained thus –
The rule is founded upon reason, public
policy, justice and judicial convenience. The
fact that a person has committed the same
or similar acts at some prior time affords, as
a general rule, no logical guaranty that he
committed the act in question. This is so
because, subjectively, a man's mind and
even his modes of life may change; and,
objectively, the conditions under which he
may find himself at a given time may
likewise change and thus induce him to act
in a different way. Besides, if evidence of
similar acts are to be invariably admitted,
they will give rise to a multiplicity of
collateral issues and will subject the
defendant to surprise as well as confuse the
court and prolong the trial.121
The factual backgrounds of the two cases are so
different and unrelated that the Dy case cannot be
used to prove specific intent, knowledge, identity,
plan, system, scheme, habit, custom or usage on
the part of pet. Citibank or its officer, Mr. Tan, to
defraud rsp. in the present case.
IV
The liquidation of rsp.'s outstanding loans were
valid in so far as pet. Citibank used rsp.'s
savings account with the bank and her money
market placements with pet. FNCB Finance; but
illegal and void in so far as pet. Citibank used
rsp.'s dollar accounts with Citibank-Geneva.
Savings Account with pet. Citibank
Compensation is a recognized mode of
extinguishing obligations. Relevant provisions of
the CC provides –
Art. 1278. Compensation shall take place
when two persons, in their own right, are
creditors and debtors of each other.
Art. 1279. In order that compensation may
be proper, it is necessary;
(1) That each one of the obligors be
bound principally, and that he be at
the same time a principal creditor of
the other;
(2) That both debts consist in a sum
of money, or if the things due are
consumable, they be of the same
 kind, and also of the same quality if
the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and
demandable;
(5) That over neither of them there
be any retention or controversy,
commenced by third persons and
communicated in due time to the
debtor.
There is little controversy when it comes to the right
of pet. Citibank to compensate rsp.'s outstanding
loans with her deposit account. As already found by
this Court, pet. Citibank was the creditor of rsp. for
her outstanding loans. At the same time, rsp. was
the creditor of pet. Citibank, as far as her deposit
account was concerned, since bank deposits,
whether fixed, savings, or current, should be
considered as simple loan or mutuum by the
depositor to the banking institution.122 Both debts
consist in sums of money. By June 1979, all of
rsp.'s PNs in the second set had matured and
became demandable, while rsp.'s savings account
was demandable anytime. Neither was there any
retention or controversy over the PNs and the
deposit account commenced by a third person and
communicated in due time to the debtor concerned.
Compensation takes place by operation of law, 123
therefore, even in the absence of an expressed
authority from rsp., pet. Citibank had the right to
effect, on 25 June 1979, the partial compensation
or off-set of rsp.'s outstanding loans with her
deposit account, amounting to P31,079.14.
Money market placements with FNCB Finance
Things though are not as simple and as
straightforward as regards to the money market
placements and bank account used by pet. Citibank
to complete the compensation or off-set of rsp.'s
outstanding loans, which came from persons other
than pet. Citibank.
Rsp.'s money market placements were with pet.
FNCB Finance, and after several roll-overs, they
were ultimately covered by PNs No. 20138 and
20139, which, by 3 Sept. 1979, the date the check
for the proceeds of the said PNs were issued,
amounted to P1,022,916.66, inclusive of the
principal amounts and interests. As to these money
market placements, rsp. was the creditor and pet.
FNCB Finance the debtor; while, as to the
outstanding loans, pet. Citibank was the creditor
and rsp. the debtor. Consequently, legal
compensation, under Art. 1278 of the CC, would
not apply since the first requirement for a valid
compensation, that each one of the obligors be
bound principally, and that he be at the same time a
principal creditor of the other, was not met.
What pet. Citibank actually did was to exercise its
rights to the proceeds of rsp.'s money market
placements with pet. FNCB Finance by virtue of the
Deeds of Assignment executed by rsp. in its favor.
The CA did not consider these Deeds of
Assignment because of pet/s' failure to produce the
original copies thereof in violation of the best
evidence rule. This Court again finds itself in
disagreement in the application of the best
evidence rule by the appellate court.
To recall, the best evidence rule, in so far as
documentary evidence is concerned, requires the
presentation of the original copy of the document
only when the context thereof is the subject of
inquiry in the case. Rsp. does not question the
contents of the Deeds of Assignment. While she
admitted the existence and execution of the Deeds
of Assignment, dated 2 March 1978 and 9 March
1978, covering PNs No. 8169 and 8167 issued by
pet. FNCB Finance, she claimed, as defense, that
the loans for which the said Deeds were executed
as security, were already paid. She denied ever
executing both Deeds of Assignment, dated 25
Aug. 1978, covering PNs No. 20138 and 20139.
These are again issues collateral to the contents of
the documents involved, which could be proven by
evidence other than the original copies of the said
documents.
Moreover, the Deeds of Assignment of the money
market placements with pet. FNCB Finance were
notarized documents, thus, admissible in evidence.
Rule 132, Sec. 30 of the Rules of Court provides
that –
SEC. 30. Proof of notarial documents. –
Every instrument duly acknowledged or
proved and certified as provided by law,
may be presented in evidence without
further proof, the certificate of
acknowledgement being prima facie
evidence of the execution of the instrument
or document involved.
Significant herein is this Court's elucidation in De
Jesus v. CA,124 which reads –
 On the evidentiary value of these
documents, it should be recalled that the
notarization of a private document converts
it into a public one and renders it admissible
in court without further proof of its
authenticity (Joson vs. Baltazar, 194 SCRA
114 [1991]). This is so because a public
document duly executed and entered in the
proper registry is presumed to be valid and
genuine until the contrary is shown by clear
and convincing proof (Asido vs. Guzman, 57
Phil. 652 [1918]; U.S. vs. Enriquez, 1 Phil
241 [1902]; Favor vs. CA, 194 SCRA 308
[1991]). As such, the party challenging the
recital of the document must prove his claim
with clear and convincing evidence (Diaz
vs. CA, 145 SCRA 346 [1986]).
The rule on the evidentiary weight that must be
accorded a notarized document is clear and
unambiguous. The certificate of acknowledgement
in the notarized Deeds of Assignment constituted
prima facie evidence of the execution thereof.
Thus, the burden of refuting this presumption fell on
rsp.. She could have presented evidence of any
defect or irregularity in the execution of the said
documents125 or raised questions as to the verity of
the notary public's acknowledgment and certificate
in the Deeds.126 But again, rsp. admitted executing
the Deeds of Assignment, dated 2 March 1978 and
9 March 1978, although claiming that the loans for
which they were executed as security were already
paid. And, she assailed the Deeds of Assignment,
dated 25 Aug. 1978, with nothing more than her
bare denial of execution thereof, hardly the clear
and convincing evidence required to trounce the
presumption of due execution of a notarized
document.
Pet/s not only presented the notarized Deeds of
Assignment, but even secured certified literal
copies thereof from the National Archives.127 Mr.
Renato Medua, an archivist, working at the
Records Management and Archives Office of the
National Library, testified that the copies of the
Deeds presented before the RTC were certified
literal copies of those contained in the Notarial
Registries of the notary publics concerned, which
were already in the possession of the National
Archives. He also explained that he could not bring
to the RTC the Notarial Registries containing the
original copies of the Deeds of Assignment,
because the Department of Justice (DOJ) Circular
No. 97, dated 8 Nov. 1968, prohibits the bringing of
original documents to the courts to prevent the loss
of irreplaceable and priceless documents.128
Accordingly, this Court gives the Deeds of
Assignment grave importance in establishing the
authority given by the rsp. to pet. Citibank to use as
security for her loans her money her market
placements with pet. FNCB Finance, represented
by PNs No. 8167 and 8169, later to be rolled-over
as PNs No. 20138 and 20139. These Deeds of
Assignment constitute the law between the parties,
and the obligations arising therefrom shall have the
force of law between the parties and should be
complied with in good faith.129 Standard clauses in
all of the Deeds provide that –
The ASSIGNOR and the ASSIGNEE hereby
further agree as follows:
xxxx
2. In the event the OBLIGATIONS
are not paid at maturity or upon
demand, as the case may be, the
ASSIGNEE is fully authorized and
empowered to collect and receive
the PLACEMENT (or so much
thereof as may be necessary) and
apply the same in payment of the
OBLIGATIONS. Furthermore, the
ASSIGNOR agrees that at any time,
and from time to time, upon request
by the ASSIGNEE, the ASSIGNOR
will promptly execute and deliver any
and all such further instruments and
documents as may be necessary to
effectuate this Assignment.
xxxx
5. This Assignment shall be
considered as sufficient authority to
FNCB Finance to pay and deliver
the PLACEMENT or so much
thereof as may be necessary to
liquidate the OBLIGATIONS, to the
ASSIGNEE in accordance with
terms and provisions hereof.130
Pet. Citibank was only acting upon the authority
granted to it under the foregoing Deeds when it
finally used the proceeds of PNs No. 20138 and
20139, paid by pet. FNCB Finance, to partly pay for
rsp.'s outstanding loans. Strictly speaking, it did not
effect a legal compensation or off-set under Art.
1278 of the CC, but rather, it partly extinguished
rsp.'s obligations through the application of the
security given by the rsp. for her loans. Although
the pertinent documents were entitled Deeds of
Assignment, they were, in reality, more of a pledge
by rsp. to pet. Citibank of her credit due from pet.
FNCB Finance by virtue of her money market
placements with the latter. According to Art. 2118 of
the CC –
ART. 2118. If a credit has been pledged
becomes due before it is redeemed, the
pledgee may collect and receive the amount
due. He shall apply the same to the
payment of his claim, and deliver the
surplus, should there be any, to the pledgor.
PNs No. 20138 and 20139 matured on 3 Sept.
1979, without them being redeemed by rsp., so that
pet. Citibank collected from pet. FNCB Finance the
proceeds thereof, which included the principal
amounts and interests earned by the money market
placements, amounting to P1,022,916.66, and
applied the same against rsp.'s outstanding loans,
leaving no surplus to be delivered to rsp..
Dollar accounts with Citibank-Geneva
Despite the legal compensation of rsp.'s savings
account and the total application of the proceeds of
PNs No. 20138 and 20139 to rsp.'s outstanding
loans, there still remained a balance of
P1,069,847.40. Pet. Citibank then proceeded to
applying rsp.'s dollar accounts with Citibank-
Geneva against her remaining loan balance,
pursuant to a Declaration of Pledge supposedly
executed by rsp. in its favor.
Certain principles of private international law should
be considered herein because the property pledged
was in the possession of an entity in a foreign
country, namely, Citibank-Geneva. In the absence
of any allegation and evidence presented by pet/s
of the specific rules and laws governing the
constitution of a pledge in Geneva, Switzerland,
they will be presumed to be the same as Philippine
local or domestic laws; this is known as processual
presumption.131
Upon closer scrutiny of the Declaration of Pledge,
this Court finds the same exceedingly suspicious
and irregular.
First of all, it escapes this Court why pet. Citibank
took care to have the Deeds of Assignment of the
PNs notarized, yet left the Declaration of Pledge
unnotarized. This Court would think that pet.
Citibank would take greater cautionary measures
with the preparation and execution of the
Declaration of Pledge because it involved rsp.'s "all
present and future fiduciary placements" with a
Citibank branch in another country, specifically, in
Geneva, Switzerland. While there is no express
legal requirement that the Declaration of Pledge
had to be notarized to be effective, even so, it could
not enjoy the same prima facie presumption of due
execution that is extended to notarized documents,
and pet. Citibank must discharge the burden of
proving due execution and authenticity of the
Declaration of Pledge.
Second, pet. Citibank was unable to establish the
date when the Declaration of Pledge was actually
executed. The photocopy of the Declaration of
Pledge submitted by pet. Citibank before the RTC
was undated.132 It presented only a photocopy of
the pledge because it already forwarded the
original copy thereof to Citibank-Geneva when it
requested for the remittance of rsp.'s dollar
accounts pursuant thereto. Rsp., on the other hand,
was able to secure a copy of the Declaration of
Pledge, certified by an officer of Citibank-Geneva,
which bore the date 24 Sept. 1979.133 Rsp.,
however, presented her passport and plane tickets
to prove that she was out of the country on the said
date and could not have signed the pledge. Pet.
Citibank insisted that the pledge was signed before
24 Sept. 1979, but could not provide an explanation
as to how and why the said date was written on the
pledge. Although Mr. Tan testified that the
Declaration of Pledge was signed by rsp.
personally before him, he could not give the exact
date when the said signing took place. It is
important to note that the copy of the Declaration of
Pledge submitted by the rsp. to the RTC was
certified by an officer of Citibank-Geneva, which
had possession of the original copy of the pledge. It
is dated 24 Sept. 1979, and this Court shall abide
by the presumption that the written document is
truly dated.134 Since it is undeniable that rsp. was
out of the country on 24 Sept. 1979, then she could
not have executed the pledge on the said date.
Third, the Declaration of Pledge was irregularly
filled-out. The pledge was in a standard printed
form. It was constituted in favor of Citibank, N.A.,
otherwise referred to therein as the Bank. It should
be noted, however, that in the space which should
have named the pledgor, the name of pet. Citibank
was typewritten, to wit –
The pledge right herewith constituted shall
secure all claims which the Bank now has or
in the future acquires against Citibank, N.A.,
Manila (full name and address of the
Debtor), regardless of the legal cause or the
 transaction (for example current account,
securities transactions, collections, credits,
payments, documentary credits and
collections) which gives rise thereto, and
including principal, all contractual and
penalty interest, commissions, charges, and
costs.
The pledge, therefore, made no sense, the pledgor
and pledgee being the same entity. Was a mistake
made by whoever filled-out the form? Yes, it could
be a possibility. Nonetheless, considering the value
of such a document, the mistake as to a significant
detail in the pledge could only be committed with
gross carelessness on the part of pet. Citibank, and
raised serious doubts as to the authenticity and due
execution of the same. The Declaration of Pledge
had passed through the hands of several bank
officers in the country and abroad, yet, surprisingly
and implausibly, no one noticed such a glaring
mistake.
Lastly, rsp. denied that it was her signature on the
Declaration of Pledge. She claimed that the
signature was a forgery. When a document is
assailed on the basis of forgery, the best evidence
rule applies –
Basic is the rule of evidence that when the
subject of inquiry is the contents of a
document, no evidence is admissible other
than the original document itself except in
the instances mentioned in Sec. 3, Rule 130
of the Revised Rules of Court. Mere
photocopies of documents are inadmissible
pursuant to the best evidence rule. This is
especially true when the issue is that of
forgery.
As a rule, forgery cannot be presumed and
must be proved by clear, positive and
convincing evidence and the burden of
proof lies on the party alleging forgery. The
best evidence of a forged signature in an
instrument is the instrument itself reflecting
the alleged forged signature. The fact of
forgery can only be established by a
comparison between the alleged forged
signature and the authentic and genuine
signature of the person whose signature is
theorized upon to have been forged.
Without the original document containing
the alleged forged signature, one cannot
make a definitive comparison which would
establish forgery. A comparison based on a
mere xerox copy or reproduction of the
document under controversy cannot
produce reliable results.135
Rsp. made several attempts to have the original
copy of the pledge produced before the RTC so as
to have it examined by experts. Yet, despite several
Orders by the RTC,136 pet. Citibank failed to comply
with the production of the original Declaration of
Pledge. It is admitted that Citibank-Geneva had
possession of the original copy of the pledge. While
pet. Citibank in Manila and its branch in Geneva
may be separate and distinct entities, they are still
incontestably related, and between pet. Citibank
and rsp., the former had more influence and
resources to convince Citibank-Geneva to return,
albeit temporarily, the original Declaration of
Pledge. Pet. Citibank did not present any evidence
to convince this Court that it had exerted diligent
efforts to secure the original copy of the pledge, nor
did it proffer the reason why Citibank-Geneva
obstinately refused to give it back, when such
document would have been very vital to the case of
pet. Citibank. There is thus no justification to allow
the presentation of a mere photocopy of the
Declaration of Pledge in lieu of the original, and the
photocopy of the pledge presented by pet. Citibank
has nil probative value.137 In addition, even if this
Court cannot make a categorical finding that rsp.'s
signature on the original copy of the pledge was
forged, it is persuaded that pet. Citibank willfully
suppressed the presentation of the original
document, and takes into consideration the
presumption that the evidence willfully suppressed
would be adverse to pet. Citibank if produced.138
Without the Declaration of Pledge, pet. Citibank
had no authority to demand the remittance of rsp.'s
dollar accounts with Citibank-Geneva and to apply
them to her outstanding loans. It cannot effect legal
compensation under Art. 1278 of the CC since, pet.
Citibank itself admitted that Citibank-Geneva is a
distinct and separate entity. As for the dollar
accounts, rsp. was the creditor and Citibank-
Geneva is the debtor; and as for the outstanding
loans, pet. Citibank was the creditor and rsp. was
the debtor. The parties in these transactions were
evidently not the principal creditor of each other.
Therefore, this Court declares that the remittance of
rsp.'s dollar accounts from Citibank-Geneva and
the application thereof to her outstanding loans with
pet. Citibank was illegal, and null and void.
Resultantly, pet. Citibank is obligated to return to
rsp. the amount of US$149,632,99 from her
Citibank-Geneva accounts, or its present equivalent
value in Philippine currency; and, at the same time,
rsp. continues to be obligated to pet. Citibank for
the balance of her outstanding loans which, as of 5
Sept. 1979, amounted to P1,069,847.40.
V and there is a close inter-relation between the
The parties shall be liable for interests on their
monetary obligations to each other, as
determined herein.
In summary, pet. Citibank is ordered by this Court
to pay rsp. the proceeds of her money market
placements, represented by PNs No. 23356 and
23357, amounting to P318,897.34 and
P203,150.00, respectively, earning an interest of
14.5% per annum as stipulated in the PNs,139
beginning 17 March 1977, the date of the
placements.
Pet. Citibank is also ordered to refund to rsp. the
amount of US$149,632.99, or its equivalent in
Philippine currency, which had been remitted from
her Citibank-Geneva accounts. These dollar
accounts, consisting of two fiduciary placements
and current accounts with Citibank-Geneva shall
continue earning their respective stipulated
interests from 26 Oct. 1979, the date of their
remittance by Citibank-Geneva to pet. Citibank in
Manila and applied against rsp.'s outstanding
loans.
As for rsp., she is ordered to pay pet. Citibank the
balance of her outstanding loans, which amounted
to P1,069,847.40 as of 5 Sept. 1979. These loans
continue to earn interest, as stipulated in the
corresponding PNs, from the time of their
respective maturity dates, since the supposed
payment thereof using rsp.'s dollar accounts from
Citibank-Geneva is deemed illegal, null and void,
and, thus, ineffective.
VI
Pet. Citibank shall be liable for damages to rsp..
Pet/s protest the award by the CA of moral
damages, exemplary damages, and attorney's fees
in favor of rsp.. They argued that the RTC did not
award any damages, and rsp., in her appeal before
the CA, did not raise in issue the absence of such.
While it is true that the general rule is that only
errors which have been stated in the assignment of
errors and properly argued in the brief shall be
considered, this Court has also recognized
exceptions to the general rule, wherein it authorized
the review of matters, even those not assigned as
errors in the appeal, if the consideration thereof is
necessary in arriving at a just decision of the case,
omitted assignment of error and those actually
assigned and discussed by the appellant.140 Thus,
the CA did not err in awarding the damages when it
already made findings that would justify and
support the said award.
Although this Court appreciates the right of pet.
Citibank to effect legal compensation of rsp.'s local
deposits, as well as its right to the proceeds of PNs
No. 20138 and 20139 by virtue of the notarized
Deeds of Assignment, to partly extinguish rsp.'s
outstanding loans, it finds that pet. Citibank did
commit wrong when it failed to pay and properly
account for the proceeds of rsp.'s money market
placements, evidenced by PNs No. 23356 and
23357, and when it sought the remittance of rsp.'s
dollar accounts from Citibank-Geneva by virtue of a
highly-suspect Declaration of Pledge to be applied
to the remaining balance of rsp.'s outstanding
loans. It bears to emphasize that banking is
impressed with public interest and its fiduciary
character requires high standards of integrity and
performance.141 A bank is under the obligation to
treat the accounts of its depositors with meticulous
care whether such accounts consist only of a few
hundred pesos or of millions of pesos. 142 The bank
must record every single transaction accurately,
down to the last centavo, and as promptly as
possible.143 Pet. Citibank evidently failed to exercise
the required degree of care and transparency in its
transactions with rsp., thus, resulting in the
wrongful deprivation of her property.
Rsp. had been deprived of substantial amounts of
her investments and deposits for more than two
decades. During this span of years, rsp. had found
herself in desperate need of the amounts
wrongfully withheld from her. In her testimony144
before the RTC, rsp. narrated –
Q By the way Mrs. Witness will you kindly
tell us again, you said before that you are a
businesswoman, will you tell us again what
are the businesses you are engaged into
[sic]?
A I am engaged in real estate. I am the
owner of the Modesta Village 1 and 2 in San
Mateo, Rizal. I am also the President and
Chairman of the Board of Macador [sic] Co.
and Business Inc. which operates the
Macador [sic] International Palace Hotel. I
am also the President of the Macador [sic]
International Palace Hotel, and also the
Treasures Home Industries, Inc. which I am
the Chairman and president of the Board
and also operating affiliated company in the
name of Treasures Motor Sales engaged in
car dealers [sic] like Delta Motors, we are
the dealers of the whole Northern Luzon
and I am the president of the Disto
Company, Ltd., based in Hongkong licensed
in Honkong [sic] and now operating in Los
Angeles, California.
Q What is the business of that Disto
Company Ltd.?
A Disto Company, Ltd., is engaged in real
estate and construction.
Q Aside from those businesses are you a
member of any national or community
organization for social and civil activities?
A Yes sir.
Q What are those?
A I am the Vice-President of thes [sic]
Subdivision Association of the Philippines in
1976, I am also an officer of the …
Chamber of Real Estate Business
Association; I am also an officer of the
Chatholic [sic] Women's League and I am
also a member of the CMLI, I forgot the
definition.
Q How about any political affiliation or
government position held if any?
A I was also a candidate for Mayo last Jan.
30, 1980.
Q Where?
A In Dagupan City, Pangasinan.
Q What else?
A I also ran as an Assemblywoman last
May, 1984, Independent party in Regional I,
Pangasinan.
Q What happened to your businesses you
mentioned as a result of your failure to
recover you [sic] investments and bank
deposits from the defendants?
A They are not all operating, in short, I was
hampered to push through the businesses
that I have.
A [sic] Of all the businesses and enterprises
that you mentioned what are those that are
paralyzed and what remain inactive?
A Of all the company [sic] that I have, only
the Disto Company that is now operating in
California.
Q How about your candidacy as Mayor of
Dagupan, [sic] City, and later as
Assemblywoman of Region I, what
happened to this?
A I won by voting but when election comes
on [sic] the counting I lost and I protested
this, it is still pending and because I don't
have financial resources I was not able to
push through the case. I just have it pending
in the Comelec.
Q Now, do these things also affect your
social and civic activities?
A Yes sir, definitely.
Q How?
A I was embarrassed because being a
businesswoman I would like to inform the
Honorable Court that I was awarded as the
most outstanding businesswoman of the
year in 1976 but when this money was not
given back to me I was not able to comply
with the commitments that I have promised
to these associations that I am engaged into
[sic], sir.
For the mental anguish, serious anxiety,
besmirched reputation, moral shock and social
humiliation suffered by the rsp., the award of moral
damages is but proper. However, this Court
reduces the amount thereof to P300K, for the
award of moral damages is meant to compensate
for the actual injury suffered by the rsp., not to
enrich her.145
Having failed to exercise more care and prudence
than a private individual in its dealings with rsp.,
pet. Citibank should be liable for exemplary
damages, in the amount of P250,000.00, in
accordance with Art. 2229146 and 2234147 of the CC.
With the award of exemplary damages, then rsp.
shall also be entitled to an award of attorney's
fees.148 Additionally, attorney's fees may be
awarded when a party is compelled to litigate or to
incur expenses to protect his interest by reason of
an unjustified act of the other party.149 In this case,
an award of P200,000.00 attorney's fees shall be
satisfactory.
In contrast, this Court finds no sufficient basis to
award damages to pet/s.1âwphi1 Rsp. was
compelled to institute the present case in the
exercise of her rights and in the protection of her
interests. In fact, although her Complaint before the
RTC was not sustained in its entirety, it did raise
meritorious points and on which this Court rules in
her favor. Any injury resulting from the exercise of
one's rights is damnum absque injuria.150
IN VIEW OF THE FOREGOING, the instant
Petition is PARTLY GRANTED. The assailed
Decision of the CA in CA-GR 51930, dated 26
March 2002, as already modified by its Resolution,
dated 20 Nov. 2002, is hereby AFFIRMED WITH
MODIFICATION, as follows –
1. PNs No. 23356 and 23357 are
DECLARED subsisting and outstanding.
Pet. Citibank is ORDERED to return to rsp.
the principal amounts of the said PNs,
amounting to Three Hundred Eighteen
Thousand Eight Hundred Ninety-Seven
Pesos and Thirty-Four Centavos
(P318,897.34) and Two Hundred Three
Thousand One Hundred Fifty Pesos
(P203,150.00), respectively, plus the
stipulated interest of Fourteen and a half
percent (14.5%) per annum, beginning 17
March 1977;
2. The remittance of One Hundred Forty-
Nine Thousand Six Hundred Thirty Two US
Dollars and Ninety-Nine Cents
(US$149,632.99) from rsp.'s Citibank-
Geneva accounts to pet. Citibank in Manila,
and the application of the same against
rsp.'s outstanding loans with the latter, is
DECLARED illegal, null and void. Pet.
Citibank is ORDERED to refund to rsp. the
said amount, or its equivalent in Philippine
currency using the exchange rate at the
time of payment, plus the stipulated interest
for each of the fiduciary placements and
current accounts involved, beginning 26
Oct. 1979;
3. Pet. Citibank is ORDERED to pay rsp.
moral damages in the amount of Three
Hundred Thousand Pesos (P300K);
exemplary damages in the amount of Two
Hundred Fifty Thousand Pesos
(P250,000.00); and attorney's fees in the
amount of Two Hundred Thousand Pesos
(P200,000.00); and
4. Rsp. is ORDERED to pay pet. Citibank
the balance of her outstanding loans, which,
from the respective dates of their maturity to
5 Sept. 1979, was computed to be in the
sum of One Million Sixty-Nine Thousand
Eight Hundred Forty-Seven Pesos and
Forty Centavos (P1,069,847.40), inclusive
of interest. These outstanding loans shall
continue to earn interest, at the rates
stipulated in the corresponding PNs, from 5
Sept. 1979 until payment thereof.
GR 107508 April 25, 1996
PNB, pet.,
vs.
CA, CAPITOL CITY DEVELOPMENT BANK,
PHILIPPINE BANK OF COMMUNICATIONS, and
F. ABANTE MARKETING, rsps..
KAPUNAN, J.:p
This is a petition for review on certiorari under Rule
45 of the Rules of Court assailing the decision
dated April 29, 1992 of rsp. CA in CA-G.R. CV No.
24776 and its resolution dated Sept. 16, 1992,
denying pet. PNB's MR of said decision.
The facts of the case are as follows.
A check with serial number 7-3666-223-3, dated
Aug. 7, 1981 in the amount of P97,650.00 was
issued by the Ministry of Education and Culture
(now Department of Education, Culture and Sports
[DECS]) payable to F. Abante Marketing. This
check was drawn against PNB (herein pet.).
On Aug. 11, 1981, F. Abante Marketing, a client of
Capitol City Development Bank (Capitol), deposited
the questioned check in its savings account with
said bank. In turn, Capitol deposited the same in its
account with the Philippine Bank of
Communications (PBCom) which, in turn, sent the
check to pet. for clearing.
Pet. cleared the check as good and, thereafter,
PBCom credited Capitol's account for the amount
stated in the check. However, on Oct. 19, 1981,
pet. returned the check to PBCom and debited
PBCom's account for the amount covered by the
check, the reason being that there was a "material
alteration" of the check number.
PBCom, as collecting agent of Capitol, then
proceeded to debit the latter's account for the same
amount, and subsequently, sent the check back to
pet.. Pet., however, returned the check to PBCom.
On the other hand, Capitol could not, in turn, debit
F. Abante Marketing's account since the latter had
already withdrawn the amount of the check as of
Oct. 15, 1981. Capitol sought clarification from
PBCom and demanded the re-crediting of the
amount. PBCom followed suit by requesting an
explanation and re-crediting from pet..
Since the demands of Capitol were not heeded, it
filed a civil suit with the RTC of Manila against
PBCom which, in turn, filed a third-party complaint
against pet. for reimbursement/indemnity with
respect to the claims of Capitol. Pet., on its part,
filed a fourth-party complaint against F. Abante
Marketing.
On Oct. 3, 1989; the RTC rendered its decision the
dispositive portion of which reads:
WHEREFORE, judgment is hereby
rendered as follows:
1.) On plaintiffs complaint, defendant
Philippine Bank of Communications
is ordered to re-credit or reimburse
plaintiff Capitol City Development
Bank the amount of P97,650.00,
plus interest of 12 percent thereto
from Oct. 19, 1981 until the amount
is fully paid;
2.) On Philippine Bank of
Communications third-party
complaint third-party defendant PNB
is ordered to reimburse and
indemnify Philippine Bank of
Communications for whatever
amount PBCom pays to plaintiff;
3.) On PNB's fourth-party complaint,
F. Abante Marketing is ordered to
reimburse and indemnify PNB for
whatever amount PNB pays to
PBCom;
4.) On attorney's fees, Philippine
Bank of Communications is ordered
to pay Capitol City Development
Bank attorney's fees in the amount
of Ten Thousand (P10K) Pesos; but
PBCom is entitled to
reimbursement/indemnity from PNB;
and PNB to be, in turn reimbursed or
indemnified by F. Abante Marketing
for the same amount;
5.) The Counterclaims of PBCom
and PNB are hereby dismissed;
6.) No pronouncement as to costs.
SO ORDERED. 1
An appeal was interposed before the rsp. CA which
rendered its decision on April 29, 1992, the decretal
portion of which reads:
WHEREFORE, the judgment
appealed from is modified by
exempting PBCom from liability to
plaintiff-appellee for attorney's fees
and ordering PNB to honor the
check for P97,650.00, with interest
as declared by the TC, and pay
plaintiff-appellee attorney's fees of
P10K. After the check shall have
been honored by PNB, PBCom shall
re-credit plaintiff-appellee's account
with it with the amount. No
pronouncement as to costs.
SO ORDERED. 2
A MR of the decision was denied by the rsp. Court
in its resolution dated Sept. 16, 1992 for lack of
merit. 3
Hence, pet. filed the instant petition which raises
the following issues:
 I (e) The medium or currency in which
W/N AN ALTERATION OF THE
SERIAL NUMBER OF A CHECK IS
A MATERIAL ALTERATION UNDER
THE NEGOTIABLE INSTRUMENTS
LAW.
II
W/N A CERTIFICATION HEREIN
ISSUED BY THE MINISTRY OF
EDUCATION CAN BE GIVEN
WEIGHT IN EVIDENCE.
III
W/N A DRAWEE BANK WHO
FAILED TO RETURN A. CHECK
WITHIN THE TWENTY FOUR (24)
HOUR CLEARING PERIOD MAY
RECOVER THE VALUE OF THE
CHECK FROM THE COLLECTING
BANK.
IV
W/N IN THE ABSENCE OF MALICE
OR ILL WILL PET. PNB MAY BE
HELD LIABLE FOR ATTORNEY'S
FEES. 4
We find no merit in the petition.
We shall first deal with the effect of the alteration of
the serial number on the negotiability of the check
in question.
Pet. anchors its position on Sec. 125 of the
Negotiable Instruments Law (ACT No. 2031) 5
which provides:
Sec. 225. What constitutes a
material alteration. Any alteration
which changes:
(a) The date;
(b) The sum payable, either for
principal or interest;
(c) The time or place of payment;
(d) The number or the relations of
the parties;
payment is to be made;
(f) Or which adds a place of payment
where no place of payment is
specified, or any other change or
addition which alters the effect of the
instrument in any respect, is a
material alteration.
Pet. alleges that there is no hard and fast rule in the
interpretation of the aforequoted provision of the
Negotiable Instruments Law. It maintains that under
Sec. 125(f), any change that alters the effect of the
instrument is a material alteration. 6
We do not agree.
An alteration is said to be material if it alters the
effect of the
instrument. 7 It means an unauthorized change in
an instrument that purports to modify in any respect
the obligation of a party or an unauthorized addition
of words or numbers or other change to an
incomplete instrument relating to the obligation of a
party. 8 In other words, a material alteration is one
which changes the items which are required to be
stated under Sec. 1 of the Negotiable Instruments
Law.
Sec. 1 of the Negotiable Instruments Law provides:
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.
In his book entitled "Pandect of Commercial Law
and Jurisprudence," Justice Jose C. Vitug opines
that "an innocent alteration (generally, changes on
items other than those required to be stated under
Sec. 1, N.I.L.) and spoliation (alterations done by a
stranger) will not avoid the instrument, but the
holder may enforce it only according to its original
tenor." 9
Reproduced hereunder are some examples of
material and immaterial alterations:
A. Material Alterations:
(1) Substituting the words "or
bearer" for "order."
(2) Writing "protest waived" above
blank indorsements.
(3) A change in the date from which
interest is to run.
(4) A check was originally drawn as
follows: "Iron County Bank, Crystal
Falls, Mich. Aug. 5, 1901. Pay to
G.L. or order $9 fifty cents CTR" The
insertion of the figure 5 before the
figure 9, the instrument being
otherwise unchanged.
(5) Adding the words "with interest"
with or without a fixed rate.
(6) An alteration in the maturity of a
note, whether the time for payment
is thereby curtailed or extended.
(7) An instrument was payable "First
Nat'l Bank" the plaintiff added the
word "Marion."
(8) Plaintiff, without consent of the
defendant, struck out the name of
the defendant as payee and inserted
the name of the maker of the original
note.
(9) Striking out the name of the
payee and substituting that of the
person who actually discounted the
note.
(10) Substituting the address of the
maker for the name of a co-maker. 10
B. Immaterial Alterations:
(1) Changing "I promise to pay" to
"We promise to pay", where there
are two makers.
(2) Adding the word "annual" after
the interest clause.
(3) Adding the date of maturity as a
marginal notation.
(4) Filling in the date of actual
delivery where the makers of a note
gave it with the date in blank, "July
____."
(5) An alteration of the marginal
figures of a note where the sum
stated in words in the body remained
unchanged.
(6) The insertion of the legal rate of
interest where the note had a
provision for "interest at _______
per cent."
(7) A printed form of promissory note
had on the margin the printed words,
"Extended to ________." The holder
on or after maturity wrote in the
blank space the words "May 1,
1913," as a reference memorandum
of a promise made by him to the
principal maker at the time the words
were written to extend the time of
payment.
(8) Where there was a blank for the
place of payment, filling in the blank
with the place desired.
(9) Adding to an indorsee's name the
abbreviation "Cash" when it had
been agreed that the draft should be
discounted by the trust company of
which the indorsee was cashier.
(10) The indorsement of a note by a
stranger after its delivery to the
payee at the time the note was
negotiated to the plaintiff.
(11) An extension of time given by
the holder of a note to the principal
 maker, without the consent of a
surety co-maker. 11
The case at bench is unique in the sense that what
was altered is the serial number of the check in
question, an item which, it can readily be observed,
is not an essential requisite for negotiability under
Sec. 1 of the Negotiable Instruments Law. The
aforementioned alteration did not change the
relations between the parties. The name of the
drawer and the drawee were not altered. The
intended payee was the same. The sum of money
due to the payee remained the same. Despite
these findings, however, pet. insists, that:
xxx xxx xxx
It is an accepted concept, besides
being a negotiable instrument itself,
that a TCAA check by its very nature
is the medium of exchange of
governments (sic) instrumentalities
of agencies. And as (a) safety
measure, every government office
o(r) agency (is) assigned TCAA
checks bearing different number
series.
A concrete example is that of the
disbursements of the Ministry of
Education and Culture. It is issued
by the Bureau of Treasury sizeable
bundles of checks in booklet form
with serial numbers different from
other government office or agency.
Now, for fictitious payee to succeed
in its malicious intentions to defraud
the government, all it need do is to
get hold of a TCAA Check and have
the serial numbers of portion (sic)
thereof changed or altered to make it
appear that the same was issued by
the MEG.
Otherwise, stated, it is through the
serial numbers that (a) TCAA Check
is determined to have been issued
by a particular office or agency of
the government. 12
xxx xxx xxx
Pet.'s arguments fail to convince. The check's serial
number is not the sole indication of its origin.. As
succinctly found by the CA, the name of the
government agency which issued the subject check
was prominently printed therein. The check's issuer
was therefore sufficiently identified, rendering the
referral to the serial number redundant and
inconsequential. Thus, we quote with favor the
findings of the rsp. court:
xxx xxx xxx
If the purpose of the serial number is
merely to identify the issuing
government office or agency, its
alteration in this case had no
material effect whatsoever on the
integrity of the check. The identity of
the issuing government office or
agency was not changed thereby
and the amount of the check was not
charged against the account of
another government office or agency
which had no liability under the
check. The owner and issuer of the
check is boldly and clearly printed
on its face, second line from the top:
"MINISTRY OF EDUCATION AND
CULTURE," and below the name of
the payee are the rubber-stamped
words: "Ministry of Educ. & Culture."
These words are not alleged to have
been falsely or fraudulently
intercalated into the check. The
ownership of the check is
established without the necessity of
recourse to the serial number.
Neither there any proof that the
amount of the check was
erroneously charged against the
account of a government office or
agency other than the Ministry of
Education and Culture. Hence, the
alteration in the number of the check
did not affect or change the liability
of the Ministry of Education and
Culture under the check and,
therefore, is immaterial. The
genuineness of the amount and the
signatures therein of then Deputy
Minister of Education Hermenegildo
C. Dumlao and of the resident
Auditor, Penomio C. Alvarez are not
challenged. Neither is the
authenticity of the different codes
appearing therein questioned . . . 13
(Emphasis ours.)
Pet., thus cannot refuse to accept the check in
question on the ground that the serial number was
altered, the same being an immaterial or innocent
one.
We now go to the second issue. It is pet.'s
submission that the certification issued by Minrado
C. Batonghinog, Cashier III of the MEC clearly
shows that the check was altered. Said certification
reads:
TO WHOM IT MAY CONCERN:
This is to certify that according to the
records of this Office, TCAA PNB
Check Mo. SN7-3666223-3 dated
Aug. 7, 1981 drawn in favor of F.
Abante Marketing in the amount of
NINETY (S)EVEN THOUSAND SIX
HUNDRED FIFTY PESOS ONLY
(P97,650.00) was not issued by this
Office nor released to the payee
concerned. The series number of
said check was not included among
those requisition by this Office from
the Bureau of Treasury.
(SGD.) MINRADO
BATONGHINOG
Pet. claims that even if the author of the
certification issued by the Ministry of Education and
Culture (MEG) was not presented, still the best
evidence of the material alteration would be the
disputed check itself and the serial number thereon.
Pet. thus assails the refusal of rsp. court to give
weight to the certification because the author
thereof was not presented to identify it and to be
cross-examined thereon. 15
We agree with the rsp. court.
The one who signed the certification was not
presented before the TC to prove that the said
document was really the document he prepared
and that the signature below the said document is
his own signature. Neither did pet. present an
eyewitness to the execution of the questioned
document who could possibly identify it. 16 Absent
this proof, we cannot rule on the authenticity of the
contents of the certification. Moreover, as we
previously emphasized, there was no material
alteration on the check, the change of its serial
number not being substantial to its negotiability.
Anent the third issue — W/N the drawee bank may
still recover the value of the check from the
collecting bank even if it failed to return the check
within the twenty-four (24) hour clearing period
because the check was tampered — suffice it to
July 22,state
1985that since there is no material alteration in the
check, pet. has no right to dishonor it and return it
to PBCom, the same being in all respects
negotiable.
However, the amount of P10K as attorney's fees is
hereby deleted. In their respective decisions, the
TC and the CA failed to explicitly state the rationale
for the said award. The TC merely ruled as follows:
With respect to Capitol's claim for
damages consisting of alleged loss
of opportunity, this Court finds that
Capitol failed to adequately
substantiate its claim. What Capitol
had presented was a self-serving,
unsubstantiated and speculative
computation of what it allegedly
Very truly yours, could have earned or realized were
it not for the debit made by PBCom
C. which was triggered by the return
and debit made by PNB. However,
this Court finds that it would be fair
Cashier III and reasonable to impose interest at
12% per annum on the principal
amount of the check computed from
Oct. 19, 1981 (the date PBCom
debited Capitol's account) until the
amount is fully paid and reasonable
attorney's fees. 17 (Emphasis ours.)
And contrary to the Court of Appeal's resolution,
pet. unambiguously questioned before it the award
of attorney's fees, assigning the latter as one of the
errors committed by the TC. 18
The foregoing is in conformity with the guiding
principles laid down in a long line of cases and
reiterated recently in Consolidated Bank & Trust
Corporation (Solidbank) v. CA: 19
The award of attorney's fees lies
within the discretion of the court and
depends upon the circumstances of
each case. However, the discretion
of the court to award attorney's fees
under Art. 2208 of the CC of the
 Philippines demands factual, legal
and equitable justification, without
which the award is a conclusion
without a premise and improperly left
to speculation and conjecture. It
becomes a violation of the
proscription against the imposition of
a penalty on the right to litigate
(Universal Shipping Lines, Inc. v.
Intermediate Appellate Court, 188
SCRA 170 [1990]). The reason for
the award must be stated in the text
of the court's decision. If it is stated
only in the dispositive portion of the
decision, the same shall be
disallowed. As to the award of
attorney's fees being an exception
rather than the rule, it is necessary
for the court to make findings of fact
and law that would bring the case
within the exception and justify the
grant of the award (Refractories
Corporation of the Philippines v.
Intermediate Appellate Court, 176
SCRA 539 [176 SCRA 539]).
WHEREFORE, premises considered, except for the
deletion of the award of attorney's fees, the
decision of the CA is hereby AFFIRMED.
GR L-2861 Feb. 26, 1951
ENRIQUE P. MONTINOLA, plaintiff-appellant,
vs.
THE PNB, ET AL., defendants-appellees.
Quijano, Rosete and Lucena for appellant.
Second Assistant Corporate Counsel Hilarion U.
Jarencio for appellee PNB.
Office of the Solicitor General Felix Bautista Angelo
and Solicitor Aug.o M. Luciano for appellee
Provincial Treasurer of Misamis Oriental.
MONTEMAYOR, J.:
In Aug., 1947, Enrique P. Montinola filed a
complaint in the Court of First Instance of Manila
against the PNB and the Provincial Treasurer of
Misamis Oriental to collect the sum of P100,000,
the amount of Check No. 1382 issued on May 2,
1942 by the Provincial Treasurer of Misamis
Oriental to Mariano V. Ramos and supposedly
indorsed to Montinola. After hearing, the court
rendered a decision dismissing the complaint with
costs against plaintiff-appellant. Montinola has
appealed from that decision directly to this Court
inasmuch as the amount in controversy exceeds
P50,000.
There is no dispute as to the following facts. In April
and May, 1942, Ubaldo D. Laya was the Provincial
Treasurer of Misamis Oriental. As such Provincial
Treasurer he was ex officio agent of the PNB
branch in the province. Mariano V. Ramos worked
under him as assistant agent in the bank branch
aforementioned. In April of that year 1942, the
currency being used in Mindanao, particularly
Misamis Oriental and Lanao which had not yet
been occupied by the Japanese invading forces,
was the emergency currency which had been
issued since Jan., 1942 by the Mindanao
Emergency Currency Board by authority of the late
President Quezon.
About April 26, 1942, thru the recommendation of
Provincial Treasurer Laya, his assistant agent M. V.
Ramos was inducted into the US Armed Forces in
the Far East (USAFFE) as disbursing officer of an
army division. As such disbursing officer, M. V.
Ramos on April 30, 1942, went to the neighboring
Province Lanao to procure a cash advance in the
amount of P800,000 for the use of the USAFFE in
Cagayan de Misamis. Pedro Encarnacion,
Provincial Treasurer of Lanao did not have that
amount in cash. So, he gave Ramos P300,000 in
emergency notes and a check for P500,000. On
May 2, 1942 Ramos went to the office of Provincial
Treasurer Laya at Misamis Oriental to encash the
check for P500,000 which he had received from the
Provincial Treasurer of Lanao. Laya did not have
enough cash to cover the check so he gave Ramos
P400,000 in emergency notes and a check No.
1382 for P100,000 drawn on the PNB. According to
Laya he had previously deposited P500,000
emergency notes in the PNB branch in Cebu and
he expected to have the check issued by him
cashed in Cebu against said deposit.
Ramos had no opportunity to cash the check
because in the evening of the same day the check
was issued to him, the Japanese forces entered the
capital of Misamis Oriental, and on June 10, 1942,
the USAFFE forces to which he was attached
surrendered. Ramos was made a prisoner of war
until Feb. 12, 1943, after which, he was released
and he resumed his status as a civilian.
About the last days of Dec., 1944 or the first days
of Jan., 1945, M. V. Ramos allegedly indorsed this
check No. 1382 to Enrique P. Montinola. The
circumstances and conditions under which the
negotiation or transfer was made are in
controversy.
According to Montinola's version, sometime in
June, 1944, Ramos, needing money with which to
buy foodstuffs and medicine, offered to sell him the
check; to be sure that it was genuine and
negotiable, Montinola, accompanied by his agents
and by Ramos himself, went to see President
Carmona of the PNB in Manila about said check;
that after examining it President Carmona told him
that it was negotiable but that he should not let the
Japanese catch him with it because possession of
the same would indicate that he was still waiting for
the return of the Americans to the Philippines; that
he and Ramos finally agreed to the sale of the
check for P850,000 Japanese military notes,
payable in installments; that of this amount,
P450,000 was paid to Ramos in Japanese military
notes in five installments, and the balance of
P400,000 was paid in kind, namely, four bottles of
sulphatia sole, each bottle containing 1,000 tablets,
and each tablet valued at P100; that upon payment
of the full price, M. V. Ramos duly indorsed the
check to him. This indorsement which now appears
on the back of the document is described in detail
by TC as follows:
The endorsement now appearing at the
back of the check (see Exhibit A-1) may be
described as follows: The woods, "pay to
the order of" — in rubber stamp and in violet
color are placed about one inch from the
top. This is followed by the words "Enrique
P. Montinola" in typewriting which is
approximately 5/8 an inch below the
stamped words "pay to the order of". Below
"Enrique P. Montinola", in typewriting are
words and figures also in typewriting, "517
Isabel Street" and about ¹/8 of an inch
therefrom, the edges of the check appear to
have been burned, but there are words
stamped apparently in rubber stamp which,
according to Montinola, are a facsimile of
the signature of Ramos. There is a
signature which apparently reads "M. V.
Ramos" also in green ink but made in
handwriting."
To the above description we may add that the name
of M. V. Ramos is hand printed in green ink, under
the signature. According to Montinola, he asked
Ramos to hand print it because Ramos' signature
was not clear.
Ramos in his turn told the court that the agreement
between himself and Montinola regarding the
transfer of the check was that he was selling only
P30,000 of the check and for this reason, at the
back of the document he wrote in longhand the
following:
Pay to the order of Enrique P. Montinola
P30,000 only. The balance to be deposited
in the PNB to the credit of M. V. Ramos.
Ramos further said that in exchange for this
assignment of P30,000 Montinola would pay him
P90,000 in Japanese military notes but that
Montinola gave him only two checks of P20,000
and P25,000, leaving a balance unpaid of P45,000.
In this he was corroborated by Atty. Simeon Ramos
Jr. who told the court that the agreement between
Ramos and Montinola was that the latter, for the
sale to him of P30,000 of the check, was to pay
Ramos P90,000 in Japanese military notes; that
when the first check for P20,000 was issued by
Montinola, he (Simeon) prepared a document
evidencing said payment of P20,000; that when the
second check for P25,000 was issued by
Montinola, he (Simeon) prepared another
document with two copies, one for Montinola and
the other for Ramos, both signed by Montinola and
M. V. Ramos, evidencing said payment, with the
understanding that the balance of P45,000 would
be paid in a few days.
The indorsement or writing described by M. V.
Ramos which had been written by him at the back
of the check, Exhibit A, does not now appear at the
back of said check. What appears thereon is the
indosement testified to by Montinola and described
by the TC as reproduced above. Before going into
a discussion of the merits of the version given by
Ramos and Montinola as to the indorsement or
writing at the back of the check, it is well to give a
further description of it as we shall later.
When Montinola filed his complaint in 1947 he
stated therein that the check had been lost, and so
in lieu thereof he filed a supposed photostic copy.
However, at the trial, he presented the check itself
and had its face marked Exhibit A and the back
thereof Exhibit A-1. But the check is badly
mutilated, bottled, torn and partly burned, and its
condition can best be appreciated by seeing it.
Roughly, it may be stated that looking at the face of
the check (Exhibit A) we see that the left third
portion of the paper has been cut off
perpendicularly and severed from the remaining 2/3
portion; a triangular portion of the upper right hand
corner of said remaining 2/3 portion has been
similarly cut off and severed, and to keep and
attach this triangular portion and the rectangular ¹/3
portion to the rest of the document, the entire check
is pasted on both sides with cellophane; the edges
of the severed portions as well as of the remaining
major portion, where cut bear traces of burning and
searing; there is a big blot with indelible ink about
the right middle portion, which seems to have
penetrated to the back of the check (Exhibit A-1),
which back bears a larger smear right under the
blot, but not black and sharp as the blot itself;
finally, all this tearing, burning, blotting and
smearing and pasting of the check renders it
difficult if not impossible to read some of the words
and figures on the check.
In explanation of the mutilation of the check
Montinola told the court that several months after
indorsing and delivering the check to him, Ramos
demanded the return of the check to him,
threatening Montinola with bodily harm, even death
by himself or his guerrilla forces if he did not return
said check, and that in order to justify the non-
delivery of the document and to discourage Ramos
from getting it back, he (Montinola) had to resort to
the mutilation of the document.
As to what was really written at the back of the
check which Montinola claims to be a full
indorsement of the check, we agree with TC that
the original writing of Ramos on the back of the
check was to the effect that he was assigning only
P30,000 of the value of the document and that he
was instructing the bank to deposit to his credit the
balance. This writing was in some mysterious way
obliterated, and in its place was placed the present
indorsement appearing thereon. Said present
indorsement occupies a good portion of the back of
the check. It has already been described in detail.
As to how said present indorsement came to be
written, the circumstances surrounding its
preparation, the supposed participation of M. V.
Ramos in it and the writing originally appearing on
the reverse side of the check, Exhibit A-1, we quote
with approval what the TC presided over by Judge
Conrado V. Sanchez, in its well-prepared decision,
says on these points:
The allegedly indorsement: "Pay to the
order of Enrique P. Montinola the amount of
P30,000 only. The balance to be deposited
to the credit of M. V. Ramos", signed by M.
V. Ramos-according to the latter-does not
now appear at the back of the check. A
different indorsement, as aforesaid, now
appears.
Had Montinola really paid in full the sum of
P850,000 in Japanese Military Notes as
consideration for the check? The following
observations are in point:
(a) According to plaintiff's witness Gregorio
A. Cortado, the oval line in violet, enclosing
"P." of the words "Enrique P. Montinola" and
the line in the form of cane handle crossing
the word "street" in the words and figures
"517 Isabel Street" in the endorsement
Exhibit A-1 "unusual" to him, and that as far
as he could remember this writing did not
appear on the instrument and he had no
knowledge as to how it happened to be
there. Obviously Cortado had no
recollection as to how such marks ever
were stamped at the back of the check.
(b) Again Cortado, speaking of the
endorsement as it now appears at the back
of the check (Exh. A-1) stated that Ramos
typewrote these words outside of the
premises of Montinola, that is, a nearby
house. Montinola, on the other hand,
testified that Ramos typewrote the words
"Enrique P. Montinola 517 Isabel Street", in
his own house. Speaking of the rubber
stamp used at the back of the check and
which produced the words "pay to the order
of", Cortado stated that when he (Cortado),
Atadero, Montinola and Ramos returned in
group to the house of Montinola, the rubber
stamp was already in the house of
Montinola, and it was on the table of the
upper floor of the house, together with the
stamp pad used to stamp the same.
Montinola, on the other hand, testified that
Ramos carried in his pocket the said rubber
stamp as well as the ink pad, and stamped
it in his house.
The unusually big space occupied by the
indorsement on the back of the check and
the discrepancies in the versions of
Montinola and his witness Cortado just
noted, create doubts as to W/N really
Ramos made the indorsement as it now
appears at the back of Exhibit A. One thing
difficult to understand is why Ramos should
go into the laborious task of placing the
rubber stamp "Pay to the order of" and
afterwards move to the typewriter and write
the words "Enrique P. Montinola" "and "517
Isabel Street", and finally sign his name too
far below the main indorsement.
(c) Another circumstances which bears
heavily upon the claim of plaintiff Montinola
that he acquired the full value of the check
and paid the full consideration therefor is
the present condition of said check. It is now
so unclean and discolored; it is pasted in
cellophane, bottled with ink on both sides
torn three parts, and with portions thereof
burned-all done by plaintiff, the alleged
owner thereof.
The acts done by the very plaintiff on a
document so important and valuable to him,
and which according to him involves his life
savings, approximate intentional
cancellation. The only reason advanced by
plaintiff as to why tore check, burned the
torn edges and bottled out the registration at
the back, is found in the following: That
Ramos came to his house, armed with a
revolver, threatened his life and demanded
from him the return of the check; that when
he informed Ramos that he did not have it in
the house, but in some deposit outside
thereof and that Ramos promised to return
the next day; that the same night he tore the
check into three parts, burned the sides with
a parrafin candle to show traces of burning;
and that upon the return of Ramos the next
day he showed the two parts of the check,
the triangle on the right upper part and the
torn piece on the left part, and upon seeing
the condition thereof Ramos did not bother
to get the check back. He also said that he
placed the blots in indelible ink to prevent
Ramos — if he would be forced to surrender
the middle part of the check — from seeing
that it was registered in the General Auditing
Office.
Conceding at the moment these facts to be
true, the question is: Why should Montinola
be afraid of Ramos? Montinola claims that
Ramos went there about April, 1945, that is,
during liberation. If he believed he was
standing by his rights, he could have very
well sought police protection or transferred
to some place where Ramos could not
bother him. And then, really Ramos did not
have anything more to do with this check for
the reason that Montinola had obtained in
full the amount thereof, there could not be
any reason why Ramos should have
threatened Montinola as stated by the latter.
Under the circumstances, the most logical
conclusion is that Ramos wanted the check
at all costs because Montinola did not
acquire the check to such an extent that it
borders on intentional cancellation thereof
(see Sec.s 119-123 Negotiable Instruments
Law) there is room to believe that Montinola
did not have so much investments in that
check as to adopted an "what do I care?"
attitude.
And there is the circumstance of the alleged
loss of the check. At the time of the filing of
the complaint the check was allegedly lost,
so much so that a photostatic copy thereof
was merely attached to the complaint (see
paragraph 7 of the complaint). Yet, during
the trial the original check Exhibit A was
produced in court.
But a comparison between the photostatic
copy and the original check reveals
discrepancies between the two. The
condition of the check as it was produced is
such that it was partially burned, partially
blotted, badly mutilated, discolored and
pasted with cellophane. What is worse is
that Montinola's excuse as to how it was
lost, that it was mixed up with household
effects is not plausible, considering the fact
that it involves his life savings, and that
before the alleged loss, he took extreme
pains and precautions to save the check
from the possible ravages of the war, had it
photographed, registered said check with
the General Auditing Office and he knew
that Ramos, since liberation, was hot after
the possession of that check.
(d) It seems that Montinola was not so sure
as to what he had testified to in reference to
the consideration he paid for the check. In
court he testified that he paid P450,000 in
cash from June to Dec. 1944, and P400,000
worth of sulphatiazole in Jan. 1945 to
complete the alleged consideration of
P850,000. When Montinola testified this
way in court, obviously he overlooked a
letter he wrote to the provincial treasurer of
Cagayan, Oriental Misamis, dated May 1,
1947, Exhibit 3 the record. In that letter
Exhibit 3, Montinola told Provincial
Treasurer Elizalde of Misamis Oriental that
"Ramos endorsed it (referring to check) to
 me for goods in kind, medicine, etc.,
received by him for the use of the
guerrillas." In said letter Exhibit 3, Montinola
did not mention the cash that he paid for the
check.
From the foregoing the court concludes that
plaintiff Montinola came into the possession
of the check in question about the end of
Dec. 1944 by reason of the fact that M. V.
Ramos sold to him P30,000 of the face
value thereof in consideration of the sum of
P90,000 Japanese money, of which only
one-half or P45,000 (in Japanese money)
was actually paid by said plaintiff to Ramos.
(R. on A., pp. 31-33; Brief of Appellee, pp.
14-20.)
At the beginning of this decision, we stated that as
Provincial Treasurer of Misamis Oriental, Ubaldo D.
Laya was ex officio agent of the PNB branch in that
province. On the face of the check (Exh. A) we now
find the words in parenthesis "Agent, Phil. National
Bank" under the signature of Laya, purportedly
showing that he issued the check as agent of the
PNB. It this is true, then the bank is not only
drawee but also a drawer of the check, and
Montinola evidently is trying to hold the PNB liable
in that capacity of drawer, because as drawee
alone, inasmuch as the bank has not yet accepted
or certified the check, it may yet avoid payment.
Laya, testifying in court, stated that he issued the
check only as Provincial Treasurer, and that the
words in parenthesis "Agent, Phil. National Bank"
now appearing under his signature did not appear
on the check when he issued the same. In this he
was corroborated by the payee M. V. Ramos who
equally assured the court that when he received the
check and then delivered it to Montinola, those
words did not appear under the signature of Ubaldo
D. Laya. We again quote with approval the
pertinent portion of the TC's decision:
The question is reduced to W/N the words,
"Agent, Phil. National Bank" were added
after Laya had issued the check. In a
straightforward manner and without
vacillation Laya positively testified that the
check Exhibit A was issued by him in his
capacity as Provincial Treasurer of Misamis
Oriental and that the words "Agent, Phil.
National Bank" which now appear on the
check Exhibit A were not typewritten below
his signature when he signed the said check
and delivered the same to Ramos. Laya
assured the court that there could not be
any mistake as to this. For, according to
Laya, when he issued check in his capacity
as agent of the Misamis Oriental agency of
the PNB the said check must be
countersigned by the cashier of the said
agency — not by the provincial auditor. He
also testified that the said check was issued
by him in his capacity as provincial treasurer
of Misamis Oriental and that is why the
same was countersigned by Provincial
Auditor Flores. The Provincial Auditor at that
time had no connection in any capacity with
the Misamis Oriental agency of the PNB.
Plaintiff Montinola on the other hand
testified that when he received the check
Exhibit A it already bore the words "Agent,
Phil. National Bank" below the signature of
Laya and the printed words "Provincial
Treasurer".
After considering the testimony of the one
and the other, the court finds that the
preponderance of the evidence supports
Laya's testimony. In the first place, his
testimony was corroborated by the payee
M. V. Ramos. But what renders more
probable the testimony of Laya and Ramos
is the fact that the money for which the
check was issued was expressly for the use
of the USAFFE of which Ramos was then
disbursing officer, so much so that upon the
delivery of the P400,000 in emergency
notes and the P100,000 check to Ramos,
Laya credited his depository accounts as
provincial treasurer with the corresponding
credit entry. In the normal course of events
the check could not have been issued by
the bank, and this is borne by the fact that
the signature of Laya was countersigned by
the provincial auditor, not the bank cashier.
And then, too there is the circumstance that
this check was issued by the provincial
treasurer of Lanao to Ramos who
requisitioned the said funds in his capacity
as disbursing officer of the USAFFE. The
check, Exhibit A is not what we may term in
business parlance, "certified check" or
"cashier's check."
Besides, at the time the check was issued,
Laya already knew that Cebu and Manila
were already occupied. He could not have
therefore issued the check-as a bank
employee-payable at the central office of
the PNB.
 Upon the foregoing circumstances the court
concludes that the words "Agent, Phil.
National Bank' below the signature of
Ubaldo D. Laya and the printed words
"Provincial Treasurer" were added in the
check after the same was issued by the
Provincial Treasurer of Misamis Oriental.
From all the foregoing, we may safely conclude as
we do that the words "Agent, Phil. National Bank"
now appearing on the face of the check (Exh. A)
were added or placed in the instrument after it was
issued by Provincial Treasurer Laya to M. V.
Ramos. There is no reason known to us why
Provincial Treasurer Laya should issue the check
(Exh. A) as agent of the PNB. Said check for
P100,000 was issued to complete the payment of
the other check for P500,000 issued by the
Provincial Treasurer of Lanao to Ramos, as part of
the advance funds for the USAFFE in Cagayan de
Misamis. The balance of P400,000 in cash was
paid to Ramos by Laya from the funds, not of the
bank but of the Provincial Treasury. Said USAFFE
were being financed not by the Bank but by the
Government and, presumably, one of the reasons
for the issuance of the emergency notes in
Mindanao was for this purpose. As already stated,
according to Provincial Treasurer Laya, upon
receiving a relatively considerable amount of these
emergency notes for his office, he deposited
P500,000 of said currency in the PNB branch in
Cebu, and that in issuing the check (Exh. A), he
expected to have it cashed at said Cebu bank
branch against his deposit of P500,000.
The logical conclusion, therefore, is that the check
was issued by Laya only as Provincial Treasurer
and as an official of the Government which was
under obligation to provide the USAFFE with
advance funds, and not by the PNB which has no
such obligation. The very Annex C, made part of
plaintiff's complaint, and later introduced in
evidence for him as Exhibit E states that Laya
issued the check "in his capacity as Provincial
Treasurer of Misamis Oriental", obviously, not as
agent of the Bank.
Now, did M. V. Ramos add or place those words
below the signature of Laya before transferring the
check to Montinola? Let us bear in mind that
Ramos before his induction into the USAFFE had
been working as assistant of Treasurer Laya as ex-
officio agent of the Misamis Oriental branch of the
PNB. Naturally, Ramos must have known the
procedure followed there as to the issuance of
checks, namely, that when a check is issued by the
Provincial Treasurer as such, it is countersigned by
the Provincial Auditor as was done on the check
(Exhibit A), but that if the Provincial Treasurer
issues a check as agent of the PNB, the check is
countersigned not by the Provincial Auditor who
has nothing to do with the bank, but by the bank
cashier, which was not done in this case. It is not
likely, therefore, that Ramos had made the insertion
of the words "Agent, Phil. National Bank" after he
received the check, because he should have
realized that following the practice already
described, the check having been issued by Laya
as Provincial Treasurer, and not as agent of the
bank, and since the check bears the
countersignature not of the Bank cashier of the
Provincial Auditor, the addition of the words "Agent,
Phil. National Bank" could not change the status
and responsibility of the bank. It is therefore more
logical to believe and to find that the addition of
those words was made after the check had been
transferred by Ramos to Montinola. Moreover, there
are other facts and circumstances involved in the
case which support this view. Referring to the
mimeographed record on appeal filed by the
plaintiff-appellant, we find that in transcribing and
copying the check, particularly the face of it (Exhibit
A) in the complaint, the words "Agent, Phil. National
Bank" now appearing on the face of the check
under the signature of the Provincial Treasurer, is
missing. Unless the plaintiff in making this copy or
transcription in the complaint committed a serious
omission which is decisive as far as the bank is
concerned, the inference is, that at the time the
complaint was filed, said phrase did not appear on
the face of the check. That probably was the
reason why the bank in its MTD dated Sept. 2,
1947, contended that if the check in question had
been issued by the provincial treasurer in his
capacity as agent of the PNB, said treasurer would
have placed below his signature the words "Agent
of the PNB". The plaintiff because of the alleged
loss of the check, allegedly attached to the
complaint a photostatic copy of said check and
marked it as Annex A. But in transcribing and
copying said Annex A in his complaint, the phrase
"Agent, Phil. National Bank" does not appear under
the signature of the provincial treasurer. We tried to
verify this discrepancy by going over the original
records of the Court of First Instance so as to
compare the copy of Annex A in the complaint, with
the original Annex A, the photostatic copy, but said
original Annex A appears to be missing from the
record. How it disappeared is not explained. Of
course, now we have in the list of exhibit a
photostatic copy marked Annex A and Exhibit B, but
according to the manifestation of counsel for the
plaintiff dated Oct. 15, 1948, said photostatic copy
now marked Annex A and Exhibit B was submitted
on Oct. 15, 1948, in compliance with the verbal
order of the TC. It is therefore evident that the
Annex A now available is not the same original
Annex A attached to the complaint in 1947.
There is one other circumstance, important and
worth nothing. If Annex A also marked Exhibit B is
the photostatic copy of the original check No. 1382
particularly the face thereof (Exhibit A), then said
photostatic copy should be a faithful and accurate
reproduction of the check, particularly of the phrase
"Agent, Phil. National Bank" now appearing under
the signature of the Provincial Treasurer on the
face of the original check (Exhibit A). But a minute
examination of and comparison between Annex A,
the photostatic copy also marked Exhibit B and the
face of the check, Exhibit A, especially with the aid
of a handlens, show notable differences and
discrepancies. For instance, on Exhibit A, the letter
A of the word "Agent" is toward the right of the tail
of the beginning letter of the signature of Ubaldo D.
Laya; this same letter "A" however in Exhibit B is
directly under said tail.
The letter "N" of the word "National" on Exhibit A is
underneath the space between "Provincial" and
"Treasurer"; but the same letter "N" is directly under
the letter "I" of the word "Provincial" in Exhibit B.
The first letter "a" of the word "National" is under
"T" of the word "Treasurer" in Exhibit A; but the
same letter "a" in Exhibit "B" is just below the space
between the words "Provincial" and "Treasurer".
The letter "k" of the word "Bank" in Exhibit A is after
the green perpendicular border line near the lower
right hand corner of the edge of the check (Exh. A);
this same letter "k" however, on Exhibit B is on the
very border line itself or even before said border
line.
The closing parenthesis ")" on Exhibit A is a little far
from the perpendicular green border line and
appears to be double instead of one single line; this
same ")" on Exhibit B appears in a single line and is
relatively nearer to the border line.
There are other notable discrepancies between the
check Annex A and the photostatic copy, Exhibit B,
as regards the relative position of the phrase
"Agent, Phil. National Bank", with the title Provincial
Treasurer, giving ground to the doubt that Exhibit B
is a photostatic copy of the check (Exhibit A).
We then have the following facts. Exhibit A was
issued by Laya in his capacity as Provincial
Treasurer of Misamis Oriental as drawer on the
PNB as drawee. Ramos sold P30,000 of the check
to Enrique P. Montinola for P90,000 Japanese
military notes, of which only P45,000 was paid by
Montinola. The writing made by Ramos at the back
of the check was an instruction to the bank to pay
P30,000 to Montinola and to deposit the balance to
his (Ramos) credit. This writing was obliterated and
in its place we now have the supposed indorsement
appearing on the back of the check (Exh. A-1).
At the time of the transfer of this check (Exh. A) to
Montinola about the last days of Dec., 1944, or the
first days of Jan., 1945, the check which, being a
negotiable instrument, was payable on demand,
was long overdue by about 2 ½ years. It may
therefore be considered, even then, a stable check.
Of course, Montinola claims that about June, 1944
when Ramos supposedly approached him for the
purpose of negotiating the check, he (Montinola)
consulted President Carmona of the PNB who
assured him that the check was good and
negotiable. However, President Carmona on the
witness stand flatly denied Montinola's claim and
assured the court that the first time that he saw
Montinola was after the PNB, of which he was
President, reopened, after liberation, around Aug.
or Sept., 1945, and that when shown the check he
told Montinola that it was stale. M. V. Ramos also
told the court that it is not true that he ever went
with Montinola to see President Carmona about the
check in 1944.
On the basis of the facts above related there are
several reasons why the complaint of Montinola
cannot prosper. The insertion of the words "Agent,
Phil. National Bank" which converts the bank from
a mere drawee to a drawer and therefore changes
its liability, constitutes a material alteration of the
instrument without the consent of the parties liable
thereon, and so discharges the instrument. (Sec.
124 of the Negotiable Instruments Law). The check
was not legally negotiated within the meaning of the
Negotiable Instruments Law. Sec. 32 of the same
law provides that "the indorsement must be an
indorsement of the entire instrument. An
indorsement which purports to transfer to the
indorsee a part only of the amount payable, . . . (as
in this case) does not operate as a negotiation of
the instrument." Montinola may therefore not be
regarded as an indorsee. At most he may be
regarded as a mere assignee of the P30,000 sold
to him by Ramos, in which case, as such assignee,
he is subject to all defenses available to the drawer
Provincial Treasurer of Misamis Oriental and
against Ramos. Neither can Montinola be
considered as a holder in due course because Sec.
52 of said law defines a holder in due course as a
holder who has taken the instrument under certain
conditions, one of which is that he became the
holder before it was overdue. When Montinola
received the check, it was long overdue. And,
Montinola is not even a holder because Sec. 191 of
the same law defines holder as the payee or
indorsee of a bill or note and Montinola is not a
payee. Neither is he an indorsee for as already
stated, at most he can be considered only as
assignee. Neither could it be said that he took it in
good faith. As already stated, he has not paid the
full amount of P90,000 for which Ramos sold him
P30,000 of the value of the check. In the second
place, as was stated by the TC in its decision,
Montinola speculated on the check and took a
chance on its being paid after the war. Montinola
must have known that at the time the check was
issued in May, 1942, the money circulating in
Mindanao and the Visayas was only the emergency
notes and that the check was intended to be
payable in that currency. Also, he should have
known that a check for such a large amount of
P100,000 could not have been issued to Ramos in
his private capacity but rather in his capacity as
disbursing officer of the USAFFE, and that at the
time that Ramos sold a part of the check to him,
Ramos was no longer connected with the USAFFE
but already a civilian who needed the money only
for himself and his family.
As already stated, as a mere assignee Montinola is
subject to all the defenses available against
assignor Ramos. And, Ramos had he retained the
check may not now collect its value because it had
been issued to him as disbursing officer. As
observed by the TC, the check was issued to M. V.
Ramos not as a person but M. V. Ramos as the
disbursing officer of the USAFFE. Therefore, he
had no right to indorse it personally to plaintiff. It
was negotiated in breach of trust, hence he
transferred nothing to the plaintiff.
In view of all the foregoing, finding no reversible
error in the decision appealed from, the same is
hereby affirmed with costs.
In the prayer for relief contained at the end of the
brief for the PNB dated Sept. 27, 1949, we find this
prayer:
It is also respectfully prayed that this
Honorable Court refer the check, Exhibit A,
to the City Fiscal's Office for appropriate
criminal action against the plaintiff-appellant
if the facts so warrant.
Subsequently, in a petition signed by plaintiff-
appellant Enrique P. Montinola dated Feb. 27,
1950, he asked this Court to allow him to withdraw
the original check (Exh. A) for him to keep,
expressing his willingness to submit it to the court
whenever needed for examination and verification.
The bank on March 2, 1950 opposed the said
petition on the ground that inasmuch as the
appellant's cause of action in this case is based on
the said check, it is absolutely necessary for the
court to examine the original in order to see the
actual alterations supposedly made thereon, and
that should this Court grant the prayer contained in
the bank's brief that the check be later referred to
the city fiscal for appropriate action, said check may
no longer be available if the appellant is allowed to
withdraw said document. In view of said opposition
this Court resolution of March 6, 1950, denied said
petition for withdrawal.
Acting upon the petition contained in the bank's
brief already mentioned, once the decision
becomes final, let the Clerk of Court transmit to the
city fiscal the check (Exh. A) together with all
pertinent papers and documents in this case, for
any action he may deem proper in the premises.
GR 129910 Sept. 5, 2006
THE INTERNATIONAL CORPORATE BANK,
INC., pet.,
vs.
CA and PNB, rsps..
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review 1 assailing
the 9 Aug. 1994 Amended Decision2 and the 16
July 1997 Resolution3 of the CA in CA-G.R. CV No.
25209.
The Antecedent Facts
The case originated from an action for collection of
sum of money filed on 16 March 1982 by the
International Corporate Bank, Inc.4 ("pet.") against
the PNB ("rsp."). The case was raffled to the then
Court of First Instance (CFI) of Manila, Branch 6. instituted an action for collection of sums of money
The complaint was amended on 19 March 1982. against rsp. to recover the value of the checks.
The case was eventually re-raffled to the RTC of
Manila, Branch 52 ("TC"). The Ruling of the TC

The Ministry of Education and Culture issued 15 The TC ruled that rsp. is expected to use
checks5 drawn against rsp. which pet. accepted for reasonable business practices in accepting and
deposit on various dates. The checks are as paying the checks presented to it. Thus, rsp. cannot
follows: be faulted for the delay in clearing the checks
considering the ingenuity in which the alterations
Check Number Date Payee were effected. The TC observed that there was no
7-3694621-4 7-20-81 attempt
Trade Factors, from pet. to verify the status of the checks
Inc.
7-3694609-6 7-27-81 Romero D. Palmarespaid the value of the checks or allowed
before pet.
7-3666224-4 8-03-81 withdrawal
Trade Factors, Inc. of the deposits. According to the TC,
pet., as collecting bank, could have inquired by
7-3528348-4 8-07-81 Trade Factors, Inc.
telephone from rsp., as drawee bank, about the
7-3666225-5 8-10-81 Antonio Lisan
status of the checks before paying their value.
7-3688945-6 8-10-81 Antonio Lisan
Since the immediate cause of pet.’s loss was the
7-4535674-1 8-21-81 Golden City
lackTrading
of caution of its personnel, the TC held that
7-4535675-2 8-21-81 Red Arrowpet. is not entitled to recover the value of the
Trading
7-4535699-5 8-24-81 checks from rsp..
Antonio Lisan
7-4535700-6 8-24-81 Antonio Lisan
7-4697902-2 9-18-81 The dispositive
Ace Enterprises, Inc. portion of the TC’s Decision reads:
7-4697925-6 9-18-81 Golden City Trading
7-4697011-6 10-02-81 WHEREFORE,
Wintrade Marketing judgment is hereby
rendered dismissing both the complaint and
7-4697909-4 10-02-81 ABC Trading, Inc.
the counterclaim. Costs shall, however be
7-4697922-3 10-05-81 Golden Enterprises
assessed against the plaintiff.

The checks were deposited on the following dates SO ORDERED.7

for the following accounts:
Pet. appealed the TC’s Decision before the CA.
Check Number Date Deposited
7-3694621-4 7-23-81 The Ruling of the CA
7-3694609-6 7-28-81
7-3666224-4 8-4-81 In its 10 Oct. 1991 Decision, 8 the CA reversed the
7-3528348-4 8-11-81 TC’s Decision. Applying Sec. 4(c) of Central Bank
7-3666225-5 8-11-81 Circular No. 580, series of 1977, 9 the CA held that
7-3688945-6 8-17-81 checks that have been materially altered shall be
7-4535674-1 8-26-81 returned within 24 hours after discovery of the
alteration. However, the CA ruled that even if the
7-4535675-2 8-27-81
drawee bank returns a check with material
7-4535699-5 8-31-81 alterations after discovery of the alteration, the
7-4535700-6 8-24-81 return would not relieve the drawee bank from any
7-4697902-2 9-23-81 liability for its failure to return the checks within the
7-4697925-6 9-23-81 24-hour clearing period. The CA explained:
7-4697011-6 10-7-81
7-4697909-4 10-7-81 Does this mean that, as long as the drawee
bank returns a check with material alteration
After 24 hours from submission of the checks to within 24 hour[s] after discovery of such
rsp. for clearing, pet. paid the value of the checks alteration, such return would have the effect
and allowed the withdrawals of the deposits. of relieving the bank of any liability
However, on 14 Oct. 1981, rsp. returned all the whatsoever despite its failure to return the
checks to pet. without clearing them on the ground check within the 24- hour clearing house
that they were materially altered. Thus, pet. rule?
We do not think so.
Obviously, such bank cannot be held liable
for its failure to return the check in question
not later than the next regular clearing.
However, this Court is of the opinion and so
holds that it could still be held liable if it fails
to exercise due diligence in verifying the
alterations made. In other words, such bank
would still be expected, nay required, to
make the proper verification before the 24-
hour regular clearing period lapses, or in
cases where such lapses may be deemed
inevitable, that the required verification
should be made within a reasonable time.
The implication of the rule that a check shall
be returned within the 24-hour clearing
period is that if the collecting bank paid the
check before the end of the aforesaid 24-
hour clearing period, it would be responsible
therefor such that if the said check is
dishonored and returned within the 24-hour
clearing period, the drawee bank cannot be
held liable. Would such an implication apply
in the case of materially altered checks
returned within 24 hours after discovery?
This Court finds nothing in the letter of the
above-cited C.B. Circular that would justify a
negative answer. Nonetheless, the drawee
bank could still be held liable in certain
instances. Even if the return of the check/s
in question is done within 24 hours after
discovery, if it can be shown that the drawee
bank had been patently negligent in the
performance of its verification function, this
Court finds no reason why the said bank
should be relieved of liability.
Although banking practice has it that the
presumption of clearance is conclusive
when it comes to the application of the 24-
hour clearing period, the same principle
may not be applied to the 24-hour period
vis-a-vis material alterations in the sense
that the drawee bank which returns
materially altered checks within 24 hours
after discovery would be conclusively
relieved of any liability thereon. This is
because there could well be various
intervening events or factors that could
affect the rights and obligations of the
parties in cases such as the instant one
including patent negligence on the part of
the drawee bank resulting in an
unreasonable delay in detecting the
alterations. While it is true that the pertinent
proviso in C.B. Circular No. 580 allows the
drawee bank to return the altered check
within the period "provided by law for filing a
legal action", this does not mean that this
would entitle or allow the drawee bank to be
grossly negligent and, inspite thereof, avail
itself of the maximum period allowed by the
above-cited Circular. The discovery must be
made within a reasonable time taking into
consideration the facts and circumstances
of the case. In other words, the
aforementioned C.B. Circular does not
provide the drawee bank the license to be
grossly negligent on the one hand nor does
it preclude the collecting bank from raising
available defenses even if the check is
properly returned within the 24-hour period
after discovery of the material alteration.10
The CA rejected the TC’s opinion that pet. could
have verified the status of the checks by telephone
call since such imposition is not required under
Central Bank rules. The dispositive portion of the
10 Oct. 1991 Decision reads:
PREMISES CONSIDERED, the decision
appealed from is hereby REVERSED and
the defendant-appellee PNB is declared
liable for the value of the fifteen checks
specified and enumerated in the decision of
the TC (page 3) in the amount of
P1,447,920.00
SO ORDERED.11
Rsp. filed a MR of the 10 Oct. 1991 Decision. In its
9 Aug. 1994 Amended Decision, the CA reversed
itself and affirmed the Decision of the TC
dismissing the complaint.
In reversing itself, the CA held that its 10 Oct. 1991
Decision failed to appreciate that the rule on the
return of altered checks within 24 hours from the
discovery of the alteration had been duly passed by
the Central Bank and accepted by the members of
the banking system. Until the rule is repealed or
amended, the rule has to be applied.
Pet. moved for the reconsideration of the Amended
Decision. In its 16 July 1997 Resolution, the CA
denied the motion for lack of merit.
Hence, the recourse to this Court.
The Issues
Pet. raises the following issues in its Memorandum:
1. Whether the checks were materially
altered;
2. Whether rsp. was negligent in failing to
recognize within a reasonable period the
altered checks and in not returning the
checks within the period; and
3. Whether the MR filed by rsp. was out of
time thus making the 10 Oct. 1991 Decision
final and executory.12
The Ruling of This Court
Filing of the Petition under both Rules 45 and
65
Rsp. asserts that the petition should be dismissed
outright since pet. availed of a wrong mode of
appeal. Rsp. cites Ybañez v. CA13 where the Court
ruled that "a petition cannot be subsumed
simultaneously under Rule 45 and Rule 65 of the
Rules of Court, and neither may pet/s delegate
upon the court the task of determining under which
rule the petition should fall."
The remedies of appeal and certiorari are mutually
exclusive and not alternative or successive.14
However, this Court may set aside technicality for
justifiable reasons. The petition before the Court is
clearly meritorious. Further, the petition was filed on
time both under Rules 45 and 65.15 Hence, in
accordance with the liberal spirit which pervades
the Rules of Court and in the interest of justice,16
we will treat the petition as having been filed under
Rule 45.
Alteration of Serial Number Not Material
The alterations in the checks were made on their
serial numbers.
Sec.s 124 and 125 of Act No. 2031, otherwise
known as the Negotiable Instruments Law, provide:
SEC. 124. Alteration of instrument; effect of.
― Where a negotiable instrument is
materially altered without the assent of all
parties liable thereon, it is avoided, except
as against a party who has himself made,
authorized, or assented to the alteration and
subsequent indorsers.
But when an instrument has been materially
altered and is in the hands of a holder in
due course, not a party to the alteration, he
may enforce payment thereof according to
its original tenor.
SEC. 125. What constitutes a material
alteration. ― Any alteration which changes:
(a) The date;
(b) The sum payable, either for
principal or interest;
(c) The time or place of payment;
(d) The number or the relations of
the parties;
(e) The medium or currency in which
payment is to be made;
or which adds a place of payment where no
place of payment is specified, or any other
change or addition which alters the effect of
the instrument in any respect, is a material
alteration.
The question on whether an alteration of the serial
number of a check is a material alteration under the
Negotiable Instruments Law is already a settled
matter. In PNB v. CA, this Court ruled that the
alteration on the serial number of a check is not a
material alteration. Thus:
An alteration is said to be material if it alters
the effect of the instrument. It means an
unauthorized change in an instrument that
purports to modify in any respect the
obligation of a party or an unauthorized
addition of words or numbers or other
change to an incomplete instrument relating
to the obligation of a party. In other words, a
material alteration is one which changes the
items which are required to be stated under
Sec. 1 of the Negotiable Instrument[s] Law.
Sec. 1 of the Negotiable Instruments Law
provides:
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.
In his book entitled "Pandect of Commercial
Law and Jurisprudence," Justice Jose C.
Vitug opines that "an innocent alteration
(generally, changes on items other than
those required to be stated under Sec. 1,
N.I.L.) and spoliation (alterations done by a
stranger) will not avoid the instrument, but
the holder may enforce it only according to
its original tenor.
xxxx
The case at the bench is unique in the
sense that what was altered is the serial
number of the check in question, an item
which, it can readily be observed, is not an
essential requisite for negotiability under
Sec. 1 of the Negotiable Instruments Law.
The aforementioned alteration did not
change the relations between the parties.
The name of the drawer and the drawee
were not altered. The intended payee was
the same. The sum of money due to the
payee remained the same. x x x
xxxx
The check’s serial number is not the sole
indication of its origin. As succinctly found
by the CA, the name of the government
agency which issued the subject check was
prominently printed therein. The check’s
issuer was therefore sufficiently identified,
rendering the referral to the serial number
redundant and inconsequential. x x x
xxxx
Pet., thus cannot refuse to accept the check
in question on the ground that the serial
number was altered, the same being an
immaterial or innocent one.17
Likewise, in the present case the alterations of the
serial numbers do not constitute material alterations
on the checks.
Incidentally, we agree with the pet.’s observation
that the check in the PNB case appears to belong
to the same batch of checks as in the present case.
The check in the PNB case was also issued by the
Ministry of Education and Culture. It was also
drawn against PNB, rsp. in this case. The serial
number of the check in the PNB case is 7-3666-
223-3 and it was issued on 7 Aug. 1981.
Timeliness of Filing of Rsp.’s MR
Rsp. filed its MR of the 10 Oct. 1991 Decision on 6
Nov. 1991. Rsp.’s MR states that it received a copy
of the 10 Oct. 1991 Decision on 22 Oct. 1991. 18
Thus, it appears that the MR was filed on time.
However, the Registry Return Receipt shows that
counsel for rsp. or his agent received a copy of the
10 Oct. 1991 Decision on 16 Oct. 1991, 19 not on 22
Oct. 1991 as rsp. claimed. Hence, the CA is correct
when it noted that the MR was filed late. Despite its
late filing, the CA resolved to admit the MR "in the
interest of substantial justice."20
There are instances when rules of procedure are
relaxed in the interest of justice. However, in this
case, rsp. did not proffer any explanation for the
late filing of the MR. Instead, there was a deliberate
attempt to deceive the CA by claiming that the copy
of the 10 Oct. 1991 Decision was received on 22
Oct. 1991 instead of on 16 Oct. 1991. We find no
justification for the posture taken by the CA in
admitting the MR. Thus, the late filing of the MR
rendered the 10 Oct. 1991 Decision final and
executory.
The 24-Hour Clearing Time
The Court will not rule on the proper application of
Central Bank Circular No. 580 in this case. Since
there were no material alterations on the checks,
rsp. as drawee bank has no right to dishonor them
and return them to pet., the collecting bank. 21 Thus,
rsp. is liable to pet. for the value of the checks, with
legal interest from the time of filing of the complaint
on 16 March 1982 until full payment.22 Further,
considering that rsp.’s MR was filed late, the 10
Oct. 1991 Decision, which held rsp. liable for the
value of the checks amounting to P1,447,920, had
become final and executory.
WHEREFORE, we SET ASIDE the 9 Aug. 1994
Amended Decision and the 16 July 1997
Resolution of the CA. We rule that rsp. PNB is
liable to pet. International Corporate Bank, Inc. for
the value of the checks amounting to P1,447,920,
with legal interest from 16 March 1982 until full
payment. Costs against rsp..
GR L-17845 April 27, 1967
INTESTATE ESTATE OF VICTOR SEVILLA.
SIMEON SADAYA, pet.,
vs.
FRANCISCO SEVILLA, rsp..
Belen Law Offices for pet..
Poblador, Cruz & Nazareno for rsp..
SANCHEZ, J.:
On March 28, 1949, Victor Sevilla, Oscar Varona
and Simeon Sadaya executed, jointly and severally,
in favor of the Bank of the Philippine Islands, or its
order, a promissory note for P15,000.00 with
interest at 8% per annum, payable on demand. The
entire, amount of P15,000.00, proceeds of the
promissory note, was received from the bank by
Oscar Varona alone. Victor Sevilla and Simeon
Sadaya signed the promissory note as co-makers
only as a favor to Oscar Varona. Payments were
made on account. As of June 15, 1950, the
outstanding balance stood P4,850.00. No payment
thereafter made.
On Oct. 6, 1952, the bank collected from Sadaya
the foregoing balance which, together with interest,
totalled P5,416.12. Varona failed to reimburse
Sadaya despite repeated demands.
Victor Sevilla died. Intestate estate proceedings
were started in the Court of First Instance of Rizal,
Special Proceeding No. 1518. Francisco Sevilla
was named administrator.
In Special Proceeding No. 1518, Sadaya filed a
creditor's claim for the above sum of P5,746.12,
plus attorneys fees in the sum of P1,500.00. The
administrator resisted the claim upon the averment
that the deceased Victor Sevilla "did not receive
any amount as consideration for the promissory
note," but signed it only "as surety for Oscar
Varona".
On June 5, 1957, the TC issued an order admitting
the claim of Simeon Sadaya in the amount of
P5,746.12, and directing the administrator to pay
the same from any available funds belonging to the
estate of the deceased Victor Sevilla.
The motion to reconsider having been overruled,
the administrator appealed.1 The CA, in a decision
promulgated on July, 15, 1960, voted to set aside
the order appealed from and to disapprove and
disallow "appellee's claim of P5,746.12 against the
intestate estate."
The case is now before this Court on certiorari to
review the judgment of the CA.
Sadaya's brief here seeks reversal of the appellate
court's decision and prays that his claim "in the
amount of 50% of P5,746.12, or P2,873.06, against
the intestate estate of the deceased Victor Sevilla,"
be approved.
1. That Victor Sevilla and Simeon Sadaya were
joint and several accommodation makers of the
15,000.00-peso promissory note in favor of the
Bank of the Philippine Islands, need not be
essayed. As such accommodation the makers, the
individual obligation of each of them to the bank is
no different from, and no greater and no less than,
that contract by Oscar Varona. For, while these two
did not receive value on the promissory note, they
executed the same with, and for the purpose of
lending their names to, Oscar Varona. Their liability
to the bank upon the explicit terms of the
promissory note is joint and several. 2 Better yet, the
bank could have pursued its right to collect the
unpaid balance against either Sevilla or Sadaya.
And the fact is that one of the last two, Simeon
Sadaya, paid that balance.
2. It is beyond debate that Simeon Sadaya could
have sought reimbursement of the total amount
paid from Oscar Varona. This is but right and just.
Varona received full value of the promissory note. 3
Sadaya received nothing therefrom. He paid the
bank because he was a joint and several obligor.
The least that can be said is that, as between
Varona and Sadaya, there is an implied contract of
indemnity. And Varona is bound by the obligation to
reimburse Sadaya.4
3. The common creditor, the Bank of the Philippine
Islands, now out of the way, we first look into the
relations inter se amongst the three consigners of
the promissory note. Their relations vis-a-vis the
Bank, we repeat, is that of joint and several
obligors. But can the same thing be said about the
relations of the three consigners, in respect to each
other?
Surely enough, as amongst the three, the obligation
of Varona and Sevilla to Sadaya who paid can not
be joint and several. For, indeed, had payment
been made by Oscar Varona, instead of Simeon
Sadaya, Varona could not have had reason to seek
reimbursement from either Sevilla or Sadaya, or
both. After all, the proceeds of the loan went to
Varona and the other two received nothing
therefrom.
4. On principle, a solidary accommodation maker
— who made payment — has the right to
contribution, from his co-accommodation maker, in
the absence of agreement to the contrary between
them, and subject to conditions imposed by law.
This right springs from an implied promise between
the accommodation makers to share equally the
burdens that may ensue from their having
consented to stamp their signatures on the
promissory note.5 For having lent their signatures to
the principal debtor, they clearly placed themselves
— in so far as payment made by one may create
liability on the other — in the category of mere joint
grantors of the former. 6 This is as it should be. Not
one of them benefited by the promissory note. They
stand on the same footing. In misfortune, their
burdens should be equally spread.
Manresa, commenting on Art. 1844 of the CC of
Spain,7 which is substantially reproduced in Art.
20738 of our CC, on this point stated:
5. And now, to the requisites before one
accommodation maker can seek reimbursement
from a co-accommodation maker.
By Art. 18 of the CC in matters not covered by the
special laws, "their deficiency shall be supplied by
the provisions of this Code". Nothing extant in the
Negotiable Instruments Law would define the right
of one accommodation maker to seek
reimbursement from another. Perforce, we must go
to the CC.1äwphï1.ñët
Because Sevilla and Sadaya, in themselves, are
but co-guarantors of Varona, their case comes
within the ambit of Art. 2073 of the CC which reads:
ART. 2073. When there are two or more
guarantors of the same debtor and for the
same debt, the one among them who has
paid may demand of each of the others the
share which is proportionally owing from
him.
If any of the guarantors should be insolvent,
his share shall be borne by the others,
including the payer, in the same proportion.
The provisions of this Art. shall not be
applicable, unless the payment has been
made in virtue of a judicial demand or
unless the principal debtor is insolvent.10
As Mr. Justice Street puts it: "[T]hat Art. deals with
the situation which arises when one surety has paid
the debt to the creditor and is seeking contribution
from his cosureties."11
Not that the requirements in paragraph 3, Art. 2073,
just quoted, are devoid of cogent reason. Says
Manresa:12
6. All of the foregoing postulate the following rules:
(1) A joint and several accommodation maker of a
negotiable promissory note may demand from the
principal debtor reimbursement for the amount that
he paid to the payee; and (2) a joint and several
accommodation maker who pays on the said
promissory note may directly demand
reimbursement from his co-accommodation maker
without first directing his action against the principal
debtor provided that (a) he made the payment by
virtue of a judicial demand, or (b) a principal debtor
is insolvent.
The CA found that Sadaya's payment to the bank
"was made voluntarily and without any judicial
demand," and that "there is an absolute absence of
evidence showing that Varona is insolvent". This
combination of fact and lack of fact epitomizes the
fatal distance between payment by Sadaya and
Sadaya's right to demand of Sevilla "the share
which is proportionately owing from him."
For the reasons given, the judgment of the CA
under review is hereby affirmed. No costs. So
ordered.
GR 80599 Sept. 15, 1989
ERNESTINA CRISOLOGO-JOSE, pet.,
vs.
CA and RICARDO S. SANTOS, JR. in his own
behalf and as Vice-President for Sales of Mover
Enterprises, Inc., rsps..
Melquiades P. de Leon for pet..
Rogelio A. Ajes for private rsp..
REGALADO, J.:
Pet. seeks the annulment of the decision 1 of rsp.
CA, promulgated on Sept. 8, 1987, which reversed
the decision of the TC 2 dismissing the complaint
for consignation filed by therein plaintiff Ricardo S.
Santos, Jr.
The parties are substantially agreed on the
following facts as found by both lower courts:
In 1980, plaintiff Ricardo S. Santos,
Jr. was the vice-president of Mover
Enterprises, Inc. in-charge of
marketing and sales; and the
president of the said corporation was
Atty. Oscar Z. Benares. On April 30,
1980, Atty. Benares, in
accommodation of his clients, the
spouses Jaime and Clarita Ong,
issued Check No. 093553 drawn
against Traders Royal Bank, dated
June 14, 1980, in the amount of
P45,000.00 (Exh- 'I') payable to
defendant Ernestina Crisologo-Jose.
Since the check was under the
account of Mover Enterprises, Inc.,
the same was to be signed by its
president, Atty. Oscar Z. Benares,
and the treasurer of the said
corporation. However, since at that
time, the treasurer of Mover
Enterprises was not available, Atty.
Benares prevailed upon the plaintiff,
Ricardo S. Santos, Jr., to sign the
aforesaid chEck as an alternate
story. Plaintiff Ricardo S. Santos, Jr.
did sign the check.
It appears that the check (Exh. '1')
was issued to defendant Ernestina
Crisologo-Jose in consideration of
the waiver or quitclaim by said
defendant over a certain property
which the Government Service
Insurance System (GSIS) agreed to
sell to the clients of Atty. Oscar
Benares, the spouses Jaime and
Clarita Ong, with the understanding
that upon approval by the GSIS of
the compromise agreement with the
spouses Ong, the check will be
encashed accordingly. However,
since the compromise agreement
was not approved within the
expected period of time, the
aforesaid check for P45,000.00
(Exh. '1') was replaced by Atty.
Benares with another Traders Royal
Bank cheek bearing No. 379299
dated Aug. 10, 1980, in the same
amount of P45,000.00 (Exhs. 'A' and
'2'), also payable to the defendant
Jose. This replacement check was
also signed by Atty. Oscar Z.
Benares and by the plaintiff Ricardo
S. Santos, Jr. When defendant
deposited this replacement check
(Exhs. 'A' and '2') with her account at
Family Savings Bank, Mayon
Branch, it was dishonored for
insufficiency of funds. A subsequent
redepositing of the said check was
likewise dishonored by the bank for
the same reason. Hence, defendant
through counsel was constrained to
file a criminal complaint for violation
of Batas Pambansa Blg. 22 with the
QC Fiscal's Office against Atty.
Oscar Z. Benares and plaintiff
Ricardo S. Santos, Jr. The
investigating Assistant City Fiscal,
Alfonso Llamas, accordingly filed an
amended information with the court
charging both Oscar Benares and
Ricardo S. Santos, Jr., for violation
of Batas Pambansa Blg. 22
docketed as Crim.case No. Q-14867
of then Court of First Instance of
Rizal, QC.
Meanwhile, during the preliminary
investigation of the criminal charge
against Benares and the plaintiff
herein, before Assistant City Fiscal
Alfonso T. Llamas, plaintiff Ricardo
S. Santos, Jr. tendered cashier's
check No. CC 160152 for
P45,000.00 dated April 10, 1981 to
the defendant Ernestina Crisologo-
Jose, the complainant in that
crim.case. The defendant refused to
 receive the cashier's check in
payment of the dishonored check in
the amount of P45,000.00. Hence,
plaintiff encashed the aforesaid
cashier's check and subsequently
deposited said amount of
P45,000.00 with the Clerk of Court
on Aug. 14, 1981 (Exhs. 'D' and 'E').
Incidentally, the cashier's check
adverted to above was purchased by
Atty. Oscar Z. Benares and given to
the plaintiff herein to be applied in
payment of the dishonored check. 3
After trial, the court a quo, holding that it was "not
persuaded to believe that consignation referred to
in Art. 1256 of the CC is applicable to this case,"
rendered judgment dismissing plaintiff s complaint
and defendant's counterclaim. 4
As earlier stated, rsp. court reversed and set aside
said judgment of dismissal and revived the
complaint for consignation, directing the TC to give
due course thereto.
Hence, the instant petition, the assignment of errors
wherein are prefatorily stated and discussed
seriatim.
1. Pet. contends that rsp. CA erred
in holding that private rsp., one of
the signatories of the check issued
under the account of Mover
Enterprises, Inc., is an
accommodation party under the
Negotiable Instruments Law and a
debtor of pet. to the extent of the
amount of said check.
Pet. avers that the accommodation party in this
case is Mover Enterprises, Inc. and not private rsp.
who merely signed the check in question in a
representative capacity, that is, as vice-president of
said corporation, hence he is not liable thereon
under the Negotiable Instruments Law.
The pertinent provision of said law referred to
provides:
Sec. 29. Liability of accommodation
party an accommodation party is
one who has signed the instrument
as maker, drawer, acceptor, or
indorser, without receiving value
therefor, and for the purpose of
lending his name to some other
person. Such a person is liable on
the instrument to a holder for value,
notwithstanding such holder, at the
time of taking the instrument, knew
him to be only an accommodation
party.
Consequently, to be considered an accommodation
party, a person must (1) be a party to the
instrument, signing as maker, drawer, acceptor, or
indorser, (2) not receive value therefor, and (3) sign
for the purpose of lending his name for the credit of
some other person.
Based on the foregoing requisites, it is not a valid
defense that the accommodation party did not
receive any valuable consideration when he
executed the instrument. From the standpoint of
contract law, he differs from the ordinary concept of
a debtor therein in the sense that he has not
received any valuable consideration for the
instrument he signs. Nevertheless, he is liable to a
holder for value as if the contract was not for
accommodation 5 in whatever capacity such
accommodation party signed the instrument,
whether primarily or secondarily. Thus, it has been
held that in lending his name to the accommodated
party, the accommodation party is in effect a surety
for the latter. 6
Assuming arguendo that Mover Enterprises, Inc. is
the accommodation party in this case, as pet.
suggests, the inevitable question is W/N it may be
held liable on the accommodation instrument, that
is, the check issued in favor of herein pet..
We hold in the negative.
The aforequoted provision of the Negotiable
Instruments Law which holds an accommodation
party liable on the instrument to a holder for value,
although such holder at the time of taking the
instrument knew him to be only an accommodation
party, does not include nor apply to corporations
which are accommodation parties. 7 This is
because the issue or indorsement of negotiable
paper by a corporation without consideration and
for the accommodation of another is ultra vires. 8
Hence, one who has taken the instrument with
knowledge of the accommodation nature thereof
cannot recover against a corporation where it is
only an accommodation party. If the form of the
instrument, or the nature of the transaction, is such
as to charge the indorsee with knowledge that the
issue or indorsement of the instrument by the
corporation is for the accommodation of another, he
cannot recover against the corporation thereon. 9
By way of exception, an officer or agent of a
corporation shall have the power to execute or
indorse a negotiable paper in the name of the
corporation for the accommodation of a third
person only if specifically authorized to do so. 10
Corollarily, corporate officers, such as the president
and vice-president, have no power to execute for
mere accommodation a negotiable instrument of
the corporation for their individual debts or
transactions arising from or in relation to matters in
which the corporation has no legitimate concern.
Since such accommodation paper cannot thus be
enforced against the corporation, especially since it
is not involved in any aspect of the corporate
business or operations, the inescapable conclusion
in law and in logic is that the signatories thereof
shall be personally liable therefor, as well as the
consequences arising from their acts in connection
therewith.
The instant case falls squarely within the purview of
the aforesaid decisional rules. If we indulge pet. in
her aforesaid postulation, then she is effectively
barred from recovering from Mover Enterprises,
Inc. the value of the check. Be that as it may, pet. is
not without recourse.
The fact that for lack of capacity the corporation is
not bound by an accommodation paper does not
thereby absolve, but should render personally
liable, the signatories of said instrument where the
facts show that the accommodation involved was
for their personal account, undertaking or purpose
and the creditor was aware thereof.
Pet., as hereinbefore explained, was evidently
charged with the knowledge that the cheek was
issued at the instance and for the personal account
of Atty. Benares who merely prevailed upon rsp.
Santos to act as co-signatory in accordance with
the arrangement of the corporation with its
depository bank. That it was a personal undertaking
of said corporate officers was apparent to pet. by
reason of her personal involvement in the financial
arrangement and the fact that, while it was the
corporation's check which was issued to her for the
amount involved, she actually had no transaction
directly with said corporation.
There should be no legal obstacle, therefore, to
pet.'s claims being directed personally against Atty.
Oscar Z. Benares and rsp. Ricardo S. Santos, Jr.,
president and vice-president, respectively, of Mover
Enterprises, Inc.
2. On her second assignment of
error, pet. argues that the CA erred
in holding that the consignation of
the sum of P45,000.00, made by
private rsp. after his tender of
payment was refused by pet., was
proper under Art. 1256 of the CC.
Pet.'s submission is that no creditor-debtor
relationship exists between the parties, hence
consignation is not proper. Concomitantly, this
argument was premised on the assumption that
private rsp. Santos is not an accommodation party.
As previously discussed, however, rsp. Santos is
an accommodation party and is, therefore, liable for
the value of the check. The fact that he was only a
co-signatory does not detract from his personal
liability. A co-maker or co-drawer under the
circumstances in this case is as much an
accommodation party as the other co-signatory or,
for that matter, as a lone signatory in an
accommodation instrument. Under the doctrine in
Philippine Bank of Commerce vs. Aruego, supra,
he is in effect a co-surety for the accommodated
party with whom he and his co-signatory, as the
other co-surety, assume solidary liability ex lege for
the debt involved. With the dishonor of the check,
there was created a debtor-creditor relationship, as
between Atty. Benares and rsp. Santos, on the one
hand, and pet., on the other. This circumstance
enables rsp. Santos to resort to an action of
consignation where his tender of payment had
been refused by pet..
We interpose the caveat, however, that by holding
that the remedy of consignation is proper under the
given circumstances, we do not thereby rule that all
the operative facts for consignation which would
produce the effect of payment are present in this
case. Those are factual issues that are not clear in
the records before us and which are for the RTC of
QC to ascertain in Civil Case No. Q-33160, for
which reason it has advisedly been directed by rsp.
court to give due course to the complaint for
consignation, and which would be subject to such
issues or claims as may be raised by defendant
and the counterclaim filed therein which is hereby
ordered similarly revived.
3. That rsp. court virtually prejudged
Crim.case No. Q-14687 of the RTC
of QC filed against private rsp. for
 violation of Batas Pambansa Blg. 22,
by holding that no criminal liability
had yet attached to private rsp.
when he deposited with the court the
amount of P45,000.00 is the final
plaint of pet..
We sustain pet. on this score.
Indeed, rsp. court went beyond the ratiocination
called for in the appeal to it in CA-G.R. CV. No.
05464. In its own decision therein, it declared that
"(t)he lone issue dwells in the question of whether
an accommodation party can validly consign the
amount of the debt due with the court after his
tender of payment was refused by the creditor." Yet,
from the commercial and civil law aspects
determinative of said issue, it digressed into the
merits of the aforesaid Crim.case No. Q-14867,
thus:
Sec. 2 of B.P. 22 establishes the
prima facie evidence of knowledge
of such insufficiency of funds or
credit. Thus, 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 is prima facie
evidence of knowledge of
insufficiency of funds or credit, when
the check is presented within 90
days from the date of the check.
It will be noted that the last part of
Sec. 2 of B.P. 22 provides that the
element of knowledge of
insufficiency of funds or credit is not
present and, therefore, the crime
does not exist, when the drawer
pays the holder the amount due 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.
Based on the foregoing
consideration, this Court finds that
the plaintiff-appellant acted within
Ms legal rights when he consigned
the amount of P45,000.00 on Aug.
14, 1981, between Aug. 7, 1981, the
date when plaintiff-appellant receive
(sic) the notice of non-payment, and
Aug. 14, 1981, the date when the
debt due was deposited with the
Clerk of Court (a Saturday and a
Sunday which are not banking days)
intervened. The fifth banking day fell
on Aug. 14, 1981. Hence, no
criminal liability has yet attached to
plaintiff-appellant when he deposited
the amount of P45,000.00 with the
Court a quo on Aug. 14, 1981. 11
That said observations made in the civil case at bar
and the intrusion into the merits of the crim.case
pending in another court are improper do not have
to be belabored. In the latter case, the criminal TC
has to grapple with such factual issues as, for
instance, W/N the period of five banking days had
expired, in the process determining whether notice
of dishonor should be reckoned from any prior
notice if any has been given or from receipt by
pr.rsps. of the subpoena therein with supporting
affidavits, if any, or from the first day of actual
preliminary investigation; and whether there was a
justification for not making the requisite
arrangements for payment in full of such check by
the drawee bank within the said period. These are
matters alien to the present controversy on tender
and consignation of payment, where no such period
and its legal effects are involved.
These are aside from the considerations that the
disputed period involved in the crim.case is only a
presumptive rule, juris tantum at that, to determine
W/N there was knowledge of insufficiency of funds
in or credit with the drawee bank; that payment of
civil liability is not a mode for extinguishment of
criminal liability; and that the requisite quantum of
evidence in the two types of cases are not the
same.
To repeat, the foregoing matters are properly
addressed to the TC in Crim.case No. Q-14867, the
resolution of which should not be interfered with by
rsp. CA at the present posture of said case, much
less preempted by the inappropriate and
unnecessary holdings in the aforequoted portion of
the decision of said rsp. court. Consequently, we
modify the decision of rsp. court in CA-G.R. CV No.
05464 by setting aside and declaring without force
and effect its pronouncements and findings insofar
as the merits of Crim.case No. Q-14867 and the
liability of the accused therein are concerned.
WHEREFORE, subject to the aforesaid
modifications, the judgment of rsp. CA is
AFFIRMED.
GR 96160 June 17, 1992
STELCO MARKETING CORPORATION, pet.,
vs.
HON. CA and STEELWELD CORPORATION OF
THE PHILIPPINES, INC., rsp..
NARVASA, c.J.:
Stelco Marketing Corporation is engaged in the
distribution and sale to the public of structural steel
bars. 1 On seven (7) different occasions in Sept.
and Oct., 1980, it sold to RYL Construction, Inc.
quantities of steels bars of various sizes and rolls of
G.I. wire. These bars and wire were delivered at
different places at the indication of RYL
Construction, Inc. The aggregate price for the
purchases was P126,859.61.
Although the corresponding invoices issued by
STELCO stipulated that RYL pay "COD" (cash on
delivery), the latter made no payments for the
construction materials thus ordered and delivered
despite insistent demands for payment by the
former.
On April 4, 1981, RYL gave to Armstrong, Industries
— described by STELCO as its "sister corporation"
and "manufacturing arm" 2 — a check drawn
against Metrobank in the amount of P126,129.86,
numbered 765380 and dated April 4, 1981. That
check was a company check of another
corporation, Steelweld Corporation of the
Philippines, signed by its President, Peter Rafael
Limson, and its Vice-President, Artemio Torres.
The check was issued by Limson at the behest of
his friend, Romeo Y. Lim, President of RYL. Romeo
Lim had asked Limson, for financial assistance, and
the latter had agreed to give Lim a check only by
way of accommodation, "only as guaranty but not
to pay for anything." 3 Why the check was made out
in the amount of P126,129.86 is not explained.
Anyway, the check was actually issued in said
amount of P126, 129.86, and as already stated,
was given by R.Y. Lim to Armstrong Industries, 4 in
payment of an obligation. When the latter deposited
the check at its bank, it was dishonored because
"drawn against insufficient funds." 5 When so
deposited, the check bore two(2) endorsements,
that of "RYL Construction," followed by that of
"Armstrong Industries." 6
On account of the dishonor of Metrobank Check
No. 765380, and on complaint of Armstrong
Industries (through a Mr. Young), Rafael Limson
and Artemio Torres were charged in the RTC of
Manila with a violation of Batas Pambansa Bilang
22. 7 They were acquitted in a decision rendered on
June 28, 1984 "on the ground that the check in
question was not issued by the drawer "to apply on
account for value," it being merely for
accommodation purposes. 8 The judgment
however conditioned the acquittal with the following
pronouncement:
This is not however to release
Steelweld Corporation from its
liability under Sec. 29 of the
Negotiable Instruments Law for
having issued it for the
accommodation of Romeo Lim.
Eleven months or so later — and some four (4)
years after issuance of the check in question — in
May, 1985, STELCO filed with the RTC at
Caloocan City a civil complaint 9 against both RYL
and STEELWELD for the recovery of the valued of
the steel bars and wire sold to and delivered to RYL
(as already narrated) in the amount of
P126,129.86, "plus 18% interest from Aug. 20,
1980 . . . (and) 25% of the total amount sought to
be recovered as and by way of attorney's
fees . . . ." 10 Among the allegations of its complaint
was that Metrobank Check No. 765380 above
mentioned had been given to it in payment of RYL's
indebtedness, duly indorsed by R.Y. Lim. 11 A
preliminary attachment was issued by the TC on
the basis of the averments of the complaint but was
shortly dissolved upon the filing of a counter-bond
by STEELWELD.
RYL could no longer be located and could not be
served with
summons. 12 It never appeared. Only STEELWELD
filed an answer, under date of July 16, 1985. 13 In
said pleading, it specifically denied the facts alleged
in the complaint, the truth, according to Steelweld,
being basically that —
1) STELCO "is a complete stranger to it;" it had
"not entered into any transaction or business
dealing of any kind" with STELCO, the transactions
described in the complaint having been solely and
exclusively between the plaintiff and RYL
Construction;
2) the check in question was "only given to a
certain R. Lim to be used as collateral for another
obligation . . . (but) in breach of his agreement signed the instrument
(Lim) utilized and negotiated the check for another as maker, drawer,
purpose. . . .; acceptor, or indorser,
without receiving
3) nevertheless, the check "is wholly inoperative value therefor, and for
since . . . Steelweld the purpose of
. . . did not issue it for any valuable consideration lending his name to
either to R. Lim or to the plaintiff not to mention also some other person.
the fact that the said plaintiff failed to comply with Such a person is
the requirements of the law to hold the said liable on the
defendant (STEELWELD) liable instrument to a holder
. . ." for value
notwithstanding such
Trial ensued upon these issues, after which holder at the time of
judgment was rendered on June 26, 1986. 14 The taking the instrument
judgment sentenced "the defendant Steelweld knew him to be only
Corporation to pay to . . . (Stelco Marketing an accommodation
Corporation) the amount of P126,129.86 with legal party.
rate of interest from May 9, 1985, when this case
was instituted until fully paid, plus another sum From this adverse judgment STEELWELD
equivalent to 25% of the total amount due as and appealed to the CA 17 and there succeeded in
for attorney's fees . . . 15 That disposition was reversing the judgment. By Decision promulgated
justified in the judgment as follows: 16 on May 29, 1990, 18 the CA 19 ordered "the
complaint against appellant (STEELWELD)
There is no question, then, that as DISMISSED; (and the appellee, STELCO) to pay
far as any commercial transaction is appellant the sum of P15,000.00 as attorney's fees
concerned between plaintiff and and cost of litigation, the suit . . . (being) a baseless
defendant Steelweld no such one that dragged appellant in court and caused it to
transaction ever occurred. Ordinarily, incur attorney's fees and expense of litigation.
under civil law rules, there having
been no transaction between them STELCO's MR was denied by the Appellate
involving the purchase of certain Tribunal's resolution dated Nov. 13, 1990. 20 The
merchandise there would be no Court stressed that —
privity of contract between them, and
plaintiff will have no right to sue the . . . as far as Steelweld is concerned,
defendant for payment of said there was no commercial transaction
merchandise for the simple reason between said appellant and
that the defendant did not order appellee. Moreover, there is no
them, such less receive them. evidence that appellee Stelco
Marketing became a holder for
But we have here a case where the value. Nowhere in the check itself
defendant Steelweld thru its does the name of Stelco Marketing
President Peter Rafael Limson appear as payee, indorsee or
admitted to have issued a check depositor thereof. Finally, appellee's
payable to cash in favor of his friend complaint is for the collection of the
Romeo Lim who was the President unpaid accounts for delivery of
of RYL Construction by way of steels bars and construction
accommodation. Under the materials. It having been established
Negotiable Instruments Law an that appellee had no commercial
accommodation party is liable. transaction with appellant Stelco,
appellee had no cause of action
Sec. 29. Liability of against said appellant.
an accommodation
party. — An STELCO appealed to this Court in accordance with
accommodation party Rule 45 of the Rules of Court. In this Court it seeks
is one who has to make the following points in connection with its
plea for the overthrow of the Appellate Tribunal's
aforesaid decision, viz.:
1) said decision is "not in accord with law and
jurisprudence;"
2) "STELCO is a "holder" within the meaning of the
Negotiable Instruments Law;"
3) "STELCO is a holder in due course of Metrobank
Check No. 765380 . . . (and hence) holds the same
free from personal or equitable defense;" and
4) "Negotiation in breach of faith is a personal
defense . . . (and hence) not effective as against a
holder in due course."
The points are not well taken.
The crucial question is W/N STELCO ever became
a holder in due course of Check No. 765380, a
bearer instrument, within the contemplation of the
Negotiable Instruments Law. It never did.
STELCO evidently places much reliance on the
pronouncement of the RTC in Crim.case No.
66571, 21 that the acquittal of the two (2) accused
(Limson and Torres) did not operate "to release
Steelweld Corporation from its liability under Sec.
29 of the Negotiable Instruments Law for having
issued . . . (the check) for the accommodation of
Romeo Lim." The cited provision reads as follows:
Sec. 29. Liability of accommodation
party. — An accommodation party is
one who has singed the instrument
as maker, drawer, acceptor, or
indorser, without receiving valued
therefor, and for the purpose of
lending his name to some other
person. Such a person is liable on
the instrument to a holder for value,
notwithstanding such holder, at the
time of taking the instrument, knew
him to be only an accommodation
party.
It is noteworthy that the TC's pronouncement
containing reference to said Sec. 29 did not specify
to whom STEELWELD, as accommodation party, is
supposed to be liable; and certain it is that neither
said pronouncement nor any other part of the
judgment of acquittal declared it liable to STELCO.
"A holder in due course," says the
law, 22 "is a holder who has taken the
instrument under the following
conditions:
(a) That 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 persons negotiating it.
To be sure, as regards an accommodation party
(such as STEELWELD), the fourth condition, i.e.,
lack of notice of any infirmity in the instruments or
defect in title of the persons negotiating it, has no
application. This is because Sec. 29 of the law
above quoted preserves the right of recourse of a
"holder for value" against the accommodation party
notwithstanding that "such holder, at the time of
taking the instrument, knew him to be only an
accommodation
party." 23
Now, STELCO theorizes that it should be deemed a
"holder for value" of STEELWELD's Check No.
765380 because the record shows it to have been
in "actual possession" thereof; otherwise, it "could
not have presented, marked and introduced (said
check) in evidence . . . before the court a quo."
"Besides," it adds, the check in question was
presented by STELCO to the drawee bank for
payment through Armstrong Industries, the
manufacturing arm of STELCO and its sister
company." 24
The trouble is, there is no evidence whatever that
STELCO's possession of Check No. 765380 ever
dated back to nay time before the instrument's
presentment and dishonor. There is no evidence
whatsoever that the check was ever given to it, or
indorsed to it in any manner or form in payment of
an obligation or as security for an obligation, or for
any other purpose before it was presented for
payment. On the contrary, the factual finding of the
CA, which by traditional precept is normally
conclusive on this Court, is that STELCO never
became a holder for value and that "(n)owhere in of the CA which, on the contrary, appears to be
the check itself does the name of Stelco Marketing entirely in accord with the facts and the applicable
appear as payee, indorsee or depositor thereof." 25 law.

What the record shows is that: (1) the STEELWELD WHEREFORE, the petition is DENIED and the
company check in question was given by its Decision of the CA in CA-G.R. CV No. 13418 is
president to R.Y. Lim; (2) it was given only by way AFFIRMED in toto. Costs against pet..
of accommodation, to be "used as collateral for
another obligation;" (3) in breach of the agreement, GR L-56169 June 26, 1992
however, R.Y. Lim indorsed the check to Armstrong
in payment of obligation; (4) Armstrong deposited TRAVEL-ON, INC., pet.,
the check to its account, after indorsing it; (5) the vs.
check was dishonored. The record does not show CA and ARTURO S. MIRANDA, rsps..
any intervention or participation by STELCO in any
manner of form whatsoever in these transactions, RESOLUTION
or any communication of any sort between
STEELWELD and STELCO, or between either of
them and Armstrong Industries, at any time before
the dishonor of the check.
FELICIANO, J.:
The record does show that after the check had
Pet. Travel-On. Inc. ("Travel-On") is a travel agency
been deposited and dishonored, STELCO came
selling airline tickets on commission basis for and in
into possession of it in some way, and was able,
behalf of different airline companies. Private rsp.
several years after the dishonor of the check, to
Arturo S. Miranda had a revolving credit line with
give it in evidence at the trial of the civil case it had
pet.. He procured tickets from pet. on behalf of
instituted against the drawers of the check (Limson
airline passengers and derived commissions
and Torres) and RYL. But, as already pointed out,
therefrom.
possession of a negotiable instrument after
presentment and dishonor, or payment, is utterly
inconsequential; it does not make the possessor a On 14 June 1972, Travel-On filed suit before the
holder for value within the meaning of the law; it Court of First Instance ("CFI") of Manila to collect
gives rise to no liability on the part of the maker or on six (6) checks issued by private rsp. with a total
drawer and indorsers. face amount of P115,000.00. The complaint, with a
prayer for the issuance of a writ of preliminary
attachment and attorney's fees, averred that from 5
It is clear from the relevant circumstances that
Aug. 1969 to 16 Jan. 1970, pet. sold and delivered
STELCO cannot be deemed a holder of the check
various airline tickets to rsp. at a total price of
for value. It does not meet two of the essential
P278,201.57; that to settle said account, private
requisites prescribed by the statute. It did not
rsp. paid various amounts in cash and in kind, and
become "the holder of it before it was overdue, and
thereafter issued six (6) postdated checks
without notice that it had been previously
amounting to P115,000.00 which were all
dishonored," and it did not take the check "in good
dishonored by the drawee banks. Travel-On further
faith and for value." 26
alleged that in March 1972, private rsp. made
another payment of P10K reducing his
Neither is there any evidence whatever that indebtedness to P105,000.00. The writ of
Armstrong Industries, to whom R.Y. Lim negotiated attachment was granted by the court a quo.
the check accepted the instrument and attempted
to encash it in behalf, and as agent of STELCO. On
In his answer, private rsp. admitted having had
the contrary, the indications are that Armstrong was
transactions with Travel-On during the period
really the intended payee of the check and was the
stipulated in the complaint. Private rsp., however,
party actually injured by its dishonor; it was after all
claimed that he had already fully paid and even
its representative (a Mr. Young) who instituted the
overpaid his obligations and that refunds were in
criminal prosecution of the drawers, Limson and
fact due to him. He argued that he had issued the
Torres, albeit unsuccessfully.
postdated checks for purposes of accommodation,
as he had in the past accorded similar favors to
The pet. has failed to show any sufficient cause for pet.. During the proceedings, private rsp. contested
modification or reversal of the challenged judgment
several tickets alleged to have been erroneously
debited to his account. He claimed reimbursement
of his alleged over payments, plus litigation
expenses, and exemplary and moral damages by
reason of the allegedly improper attachment of his
properties.
In support of his theory that the checks were issued
for accommodation, private rsp. testified that he
bad issued the checks in the name of Travel-On in
order that its General Manager, Elita Montilla, could
show to Travel-On's Board of Directors that the
accounts receivable of the company were still good.
He further stated that Elita Montilla tried to encash
the same, but that these were dishonored and were
subsequently returned to him after the
accommodation purpose had been attained.
Travel-On's witness, Elita Montilla, on the other
hand explained that the "accommodation" extended
to Travel-On by private rsp. related to situations
where one or more of its passengers needed
money in Hongkong, and upon request of Travel-
On rsp. would contact his friends in Hongkong to
advance Hongkong money to the passenger. The
passenger then paid Travel-On upon his return to
Manila and which payment would be credited by
Travel-On to rsp.'s running account with it.
In its decision dated 31 Jan. 1975, the court a quo
ordered Travel-On to pay private rsp. the amount of
P8,894.91 representing net overpayments by
private rsp., moral damages of P10K for the
wrongful issuance of the writ of attachment and for
the filing of this case, P5,000.00 for attorney's fees
and the costs of the suit.
The TC ruled that private rsp.'s indebtedness to
pet. was not satisfactorily established and that the
postdated checks were issued not for the purpose
of encashment to pay his indebtedness but to
accommodate the General Manager of Travel-On to
enable her to show to the Board of Directors that
Travel-On was financially stable.
Pet. filed a MR that was, however, denied by the
TC, which in fact then increased the award of moral
damages to P50,000.00.
On appeal, the CA affirmed the decision of the TC,
but reduced the award of moral damages to P20K,
with interest at the legal rate from the date of the
filing of the Answer on 28 Aug. 1972.
Pet. moved for reconsideration of the Court of
Appeal's' decision, without success.
In the instant Petition for Review, it is urged that the
postdated checks are per se evidence of liability on
the part of private rsp.. Pet. further argues that
even assuming that the checks were for
accommodation, private rsp. is still liable
thereunder considering that pet. is a holder for
value.
Both the trial and appellate courts had rejected the
checks as evidence of indebtedness on the ground
that the various statements of account prepared by
pet. did not show that Private rsp. had an
outstanding balance of P115,000.00 which is the
total amount of the checks he issued. It was
pointed out that while the various exhibits of pet.
showed various accountabilities of private rsp., they
did not satisfactorily establish the amount of the
outstanding indebtedness of private rsp.. The
appellate court made much of the fact that the
figures representing private rsp.'s unpaid accounts
found in the "Schedule of Outstanding Account"
dated 31 Jan. 1970 did not tally with the figures
found in the statement which showed private rsp.'s
transactions with pet. for the years 1969 and 1970;
that there was no satisfactory explanation as to why
the total outstanding amount of P278,432.74 was
still used as basis in the accounting of 7 April 1972
considering that according to the table of
transactions for the year 1969 and 1970, the total
unpaid account of private rsp. amounted to
P239,794.57.
We have, however, examined the record and it
shows that the 7 April 1972 Statement of Account
had simply not been updated; that if we use as
basis the figure as of 31 Jan. 1970 which is
P278,432.74 and from it deduct P38,638.17 which
represents some of the payments subsequently
made by private rsp., the figure — P239,794.57 will
be obtained.
Also, the fact alone that the various statements of
account had variances in figures, simply did not
mean that private rsp. had no more financial
obligations to pet.. It must be stressed that private
rsp.'s account with pet. was a running or open one,
which explains the varying figures in each of the
statements rendered as of a given date.
The appellate court erred in considering only the
statements of account in determining whether
private rsp. was indebted to pet. under the checks.
By doing so, it failed to give due importance to the
most telling piece of evidence of private rsp.'s
indebtedness — the checks themselves which he
had issued.
Contrary to the view held by the CA, this Court
finds that the checks are the all important evidence
of pet.'s case; that these checks clearly established
private rsp.'s indebtedness to pet.; that private rsp.
was liable thereunder.
It is important to stress that a check which is
regular on its face is deemed prima facie to have
been issued for a valuable consideration and every
person whose signature appears thereon is
deemed to have become a party thereto for value. 1
Thus, the mere introduction of the instrument sued
on in evidence prima facie entitles the plaintiff to
recovery. Further, the rule is quite settled that a
negotiable instrument is presumed to have been
given or indorsed for a sufficient consideration
unless otherwise contradicted and overcome by
other competent evidence. 2
In the case at bar, the CA, contrary to these
established rules, placed the burden of proving the
existence of valuable consideration upon pet.. This
cannot be countenanced; it was up to private rsp. to
show that he had indeed issued the checks without
sufficient consideration. The Court considers that
Private rsp. was unable to rebut satisfactorily this
legal presumption. It must also be noted that those
checks were issued immediately after a letter
demanding payment had been sent to private rsp.
by pet. Travel-On.
The fact that all the checks issued by private rsp. to
pet. were presented for payment by the latter would
lead to no other conclusion than that these checks
were intended for encashment. There is nothing in
the checks themselves (or in any other document
for that matter) that states otherwise.
We are unable to accept the CA' conclusion that
the checks here involved were issued for
"accommodation" and that accordingly private rsp.
maker of those checks was not liable thereon to
pet. payee of those checks.
In the first place, while the Negotiable Instruments
Law does refer to accommodation transactions, no
such transaction was here shown. Sec. 29 of the
Negotiable Instruments Law provides as follows:
Sec. 29. Liability of accommodation
party. — An accommodation party is
one who has signed the instrument
as maker, drawer, acceptor, or
indorser, without receiving value
therefor, and for the purpose of
lending his name to some other
person. Such a person is liable on
the instrument to a holder for value,
notwithstanding such holder, at the
time of taking the instrument, knew
him to be only an accommodation
party.
In accommodation transactions recognized
by the Negotiable Instruments Law, an
accommodating party lends his credit to the
accommodated party, by issuing or
indorsing a check which is held by a payee
or indorsee as a holder in due course, who
gave full value therefor to the
accommodated party. The latter, in other
words, receives or realizes full value which
the accommodated party then must repay to
the accommodating party, unless of course
the accommodating party intended to make
a donation to the accommodated party. But
the accommodating party is bound on the
check to the holder in due course who is
necessarily a third party and is not the
accommodated party. Having issued or
indorsed the check, the accommodating
party has warranted to the holder in due
course that he will pay the same according
to its tenor. 3
In the case at bar, Travel-On was payee of all six
(6) checks, it presented these checks for payment
at the drawee bank but the checks bounced.
Travel-On obviously was not an accommodated
party; it realized no value on the checks which
bounced.
Travel-On was entitled to the benefit of the
statutory presumption that it was a holder in due
course, 4 that the checks were supported by
valuable consideration. 5 Private rsp. maker of the
checks did not successfully rebut these
presumptions. The only evidence aliunde that
private rsp. offered was his own self-serving
uncorroborated testimony. He claimed that he had
issued the checks to Travel-On as payee to
"accommodate" its General Manager who allegedly
wished to show those checks to the Board of
Directors of Travel-On to "prove" that Travel-On's
account receivables were somehow "still good." It
will be seen that this claim was in fact a claim that
the checks were merely simulated, that private rsp.
did not intend to bind himself thereon. Only
evidence of the clearest and most convincing kind
will suffice for that purpose; 6 no such evidence was
submitted by private rsp.. The latter's explanation
was denied by Travel-On's General Manager; that
explanation, in any case, appears merely contrived
and quite hollow to us. Upon the other hand, the
"accommodation" or assistance extended to Travel-
On's passengers abroad as testified by pet.'s
General Manager involved, not the accommodation
transactions recognized by the NIL, but rather the
circumvention of then existing foreign exchange
regulations by passengers booked by Travel-On,
which incidentally involved receipt of full
consideration by private rsp..
Thus, we believe and so hold that private rsp. must
be held liable on the six (6) checks here involved.
Those checks in themselves constituted evidence
of indebtedness of private rsp., evidence not
successfully overturned or rebutted by private rsp..
Since the checks constitute the best evidence of
private rsp.'s liability to pet. Travel-On, the amount
of such liability is the face amount of the checks,
reduced only by the P10K which Travel-On
admitted in its complaint to have been paid by
private rsp. sometime in March 1992.
The award of moral damages to Private rsp. must
be set aside, for the reason that Pet.'s application
for the writ of attachment rested on sufficient basis
and no bad faith was shown on the part of Travel-
On. If anyone was in bad faith, it was private rsp.
who issued bad checks and then pretended to have
"accommodated" pet.'s General Manager by
assisting her in a supposed scheme to deceive
pet.'s Board of Directors and to misrepresent
Travel-On's financial condition.
ACCORDINGLY, the Court Resolved to GRANT
due course to the Petition for Review on Certiorari
and to REVERSE and SET ASIDE the Decision
dated 22 Oct. 1980 and the Resolution of 23 Jan.
1981 of the CA, as well as the Decision dated 31
Jan. 1975 of the TC, and to enter a new decision
requiring private rsp. Arturo S. Miranda to pay to
pet. Travel-On the amount of P105,000.00 with
legal interest thereon from 14 June 1972, plus ten
percent (10%) of the total amount due as attorney's
fees. Costs against Private rsp..
GR 112392 Feb. 29, 2000
BANK OF THE PHILIPPINE ISLANDS, pet.,
vs.
CA and BENJAMIN C. NAPIZA, rsps..
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the
Decision1 of the CA in CA-G.R. CV No. 37392
affirming in toto that of the RTC of Makati, Branch
139,2 which dismissed the complaint filed by pet.
Bank of the Philippine Islands against private rsp.
Benjamin C. Napiza for sum of money.
On Sept. 3, 1987, private rsp. deposited in Foreign
Currency Deposit Unit (FCDU) Savings Account
No. 028-1873 which he maintained in pet. bank's
Buendia Avenue Extension Branch, Continental
Bank Manager's Check No. 000147574 dated Aug.
17, 1984, payable to "cash" in the amount of Two
Thousand Five Hundred Dollars ($2,500.00) and
duly endorsed by private rsp. on its dorsal side. 5 It
appears that the check belonged to a certain Henry
who went to the office of private rsp. and requested
him to deposit the check in his dollar account by
way of accommodation and for the purpose of
clearing the same. Private rsp. acceded, and
agreed to deliver to Chan a signed blank
withdrawal slip, with the understanding that as soon
as the check is cleared, both of them would go to
the bank to withdraw the amount of the check upon
private rsp.'s presentation to the bank of his
passbook.
Using the blank withdrawal slip given by private rsp.
to Chan, on Oct. 23, 1984, one Ruben Gayon, Jr.
was able to withdraw the amount of $2,541.67 from
FCDU Savings Account No. 028-187. Notably, the
withdrawal slip shows that the amount was payable
to Ramon A. de Guzman and Agnes C. de Guzman
and was duly initialed by the branch assistant
manager, Teresita Lindo.6
On Nov. 20, 1984, pet. received communication
from the Wells Fargo Bank International of New
York that the said check deposited by private rsp.
was a counterfeit check7 because it was "not of the
type or style of checks issued by Continental Bank
International."8 Consequently, Mr. Ariel Reyes, the
manager of pet.'s Buendia Avenue Extension
Branch, instructed one of its employees, Benjamin
D. Napiza IV, who is private rsp.'s son, to inform his
father that the check bounced.9 Reyes himself sent
a telegram to private rsp. regarding the dishonor of
the check. In turn, private rsp.'s son wrote to Reyes
stating that the check been assigned "for
encashment" to Ramon A. de Guzman and/or
Agnes C. de Guzman after it shall have been
cleared upon instruction of Chan. He also said that
upon learning of the dishonor of the check, his
father immediately tried to contact Chan but the
latter was out of town.10
Private rsp.'s son undertook to return the amount of
$2,500.00 to pet. bank. On Dec. 18, 1984, Reyes
reminded private rsp. of his son's promise and
warned that should he fail to return that amount
within seven (7) days, the matter would be referred
to the bank's lawyers for appropriate action to
protect the bank's interest.11 This was followed by a
letter of the bank's lawyer dated April 8, 1985
demanding the return of the $2,500.00.12
In reply, private rsp. wrote pet.'s counsel on April
20, 198513 stating that he deposited the check "for
clearing purposes" only to accommodate Chan. He
added:
Further, please take notice that said check
was deposited on Sept. 3, 1984 and
withdrawn on Oct. 23, 1984, or a total
period of fifty (50) days had elapsed at the
time of withdrawal. Also, it may not be amiss
to mention here that I merely signed an
authority to withdraw said deposit subject to
its clearing, the reason why the transaction
is not reflected in the passbook of the
account. Besides, I did not receive its
proceeds as may be gleaned from the
withdrawal slip under the captioned
signature of recipient.1âwphi1.nêt
If at all, my obligation on the transaction is
moral in nature, which (sic) I have been and
is (sic) still exerting utmost and maximum
efforts to collect from Mr. Henry Chan who
is directly liable under the circumstances.
xxx xxx xxx
On Aug. 12, 1986, pet. filed a complaint against
private rsp., praying for the return of the amount of
$2,500.00 or the prevailing peso equivalent plus
legal interest from date of demand to date of full
payment, a sum equivalent to 20% of the total
amount due as attorney's fees, and litigation and/or
costs of suit.
Private rsp. filed his answer, admitting that he
indeed signed a "blank" withdrawal slip with the
understanding that the amount deposited would be
withdrawn only after the check in question has
been cleared. He likewise alleged that he instructed
the party to whom he issued the signed blank
withdrawal slip to return it to him after the bank
draft's clearance so that he could lend that party his
passbook for the purpose of withdrawing the
amount of $2,500.00. However, without his
knowledge, said party was able to withdraw the
amount of $2,541.67 from his dollar savings
account through collusion with one of pet.'s
employees. Private rsp. added that he had "given
the Plaintiff fifty one (51) days with which to clear
the bank draft in question." Pet. should have
disallowed the withdrawal because his passbook
was not presented. He claimed that pet. had no one
to blame except itself "for being grossly negligent;"
in fact, it had allegedly admitted having paid the
amount in the check "by mistake" . . . "if not
altogether due to collusion and/or bad faith on the
part of (its) employees." Charging pet. with
"apparent ignorance of routine bank procedures,"
by way of counterclaim, private rsp. prayed for
moral damages of P100,000.00, exemplary
damages of P50,000.00 and attorney's fees of 30%
of whatever amount that would be awarded to him
plus an honorarium of P500.00 per appearance in
court.
Private rsp. also filed a motion for admission of a
third party complaint against Chan. He alleged that
"thru strategem and/or manipulation," Chan was
able to withdraw the amount of $2,500.00 even
without private rsp.'s passbook. Thus, private rsp.
prayed that third party defendant Chan be made to
refund to him the amount withdrawn and to pay
attorney's fees of P5,000.00 plus P300.00
honorarium per appearance.
Pet. filed a comment on the motion for leave of
court to admit the third party complaint, whenever it
asserted that per paragraph 2 of the Rules and
Regulations governing BPI savings accounts,
private rsp. alone was liable "for the value of the
credit given on account of the draft or check
deposited." It contended that private rsp. was
estopped from disclaiming liability because he
himself authorized the withdrawal of the amount by
signing the withdrawal slip. Pet. prayed for the
denial of the said motion so as not to unduly delay
the disposition of the main case asserting that
private rsp.'s claim could be ventilated in another
case.
Private rsp. replied that for the parties to obtain
complete relief and to avoid multiplicity of suits, the
motion to admit third party complaint should be
granted. Meanwhile, the TC issued orders on Aug.
25, 1987 and Oct. 28, 1987 directing private rsp. to
actively participate in locating Chan. After private
rsp. failed to comply, the TC, on May 18, 1988,
dismissed the third party complaint without
prejudice.
On Nov. 4, 1991, a decision was rendered
dismissing the complaint. The lower court held that
pet. could not hold private rsp. liable based on the
check's face value alone. To so hold him liable
"would render inutile the requirement of "clearance"
from the drawee bank before the value of a
particular foreign check or draft can be credited to
the account of a depositor making such deposit."
The lower court further held that "it was incumbent
upon the pet. to credit the value of the check in
question to the account of the private rsp. only
upon receipt of the notice of final payment and
should not have authorized the withdrawal from the
latter's account of the value or proceeds of the
check." Having admitted that it committed a
"mistake" in not waiting for the clearance of the
check before authorizing the withdrawal of its value
or proceeds, pet. should suffer the resultant loss.
On appeal, the CA affirmed the lower court's
decision. The appellate court held that pet.
committed "clears gross negligence" in allowing
Ruben Gayon, Jr. to withdraw the money without
presenting private rsp.'s passbook and, before the
check was cleared and in crediting the amount
indicated therein in private rsp.'s account. It
stressed that the mere deposit of a check in private
rsp.'s account did not mean that the check was
already private rsp.'s property. The check still had
to be cleared and its proceeds can only be
withdrawn upon presentation of a passbook in
accordance with the bank's rules and regulations.
Furthermore, pet.'s contention that private rsp.
warranted the check's genuineness by endorsing it
is untenable for it would render useless the
clearance requirement. Likewise, the requirement
of presentation of a passbook to ascertain the
propriety of the accounting reflected would be a
meaningless exercise. After all, these requirements
are designed to protect the bank from deception or
fraud.
The CA cited the case of Roman Catholic Bishop of
Malolos, Inc. v. IAC,14 where this Court stated that a
personal check is not legal tender or money, and
held that the check deposited in this case must be
cleared before its value could be properly
transferred to private rsp.'s account.
Without filing a motion for the reconsideration of the
CA' Decision, pet. filed this petition for review on
certiorari, raising the following issues:
1. W/N RSP. NAPIZA IS LIABLE UNDER
HIS WARRANTIES AS A GENERAL
INDORSER.
2. W/N A CONTRACT OF AGENCY WAS
CREATED BETWEEN RSP. NAPIZA AND
RUBEN GAYON.
3. W/N PET. WAS GROSSLY NEGLIGENT
IN ALLOWING THE WITHDRAWAL.
Pet. claims that private rsp., having affixed his
signature at the dorsal side of the check, should be
liable for the amount stated therein in accordance
with the following provision of the Negotiable
Instruments Law (Act No. 2031):
Sec. 66. Liability of general indorser. —
Every indorser who indorses without
qualification, warrants to all subsequent
holders in due course —
(a) The matters and things mentioned in
subdivisions (a), (b), and (c) of the next
preceding Sec.; and
(b) That the instrument is at the time of his
indorsement, valid and subsisting.
And, in addition, he engages that on due
presentment, it shall be accepted or paid, or
both, as the case may be, according to its
tenor, and that if it be dishonored, and the
necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who
may be compelled to pay it.
Sec. 65, on the other hand, provides for the
following warranties of a person negotiating an
instrument by delivery or by qualified indorsement:
(a) that the instrument is genuine and in all
respects what it purports to be; (b) that he has a
good title to it, and (c) that all prior parties had
capacity to contract.15 In People v. Maniego,16 this
Court described the liabilities of an indorser as
follows:
Appellant's contention that as mere
indorser, she may not be liable on account
of the dishonor of the checks indorsed by
her, is likewise untenable. Under the law,
the holder or last indorsee of a negotiable
instrument has the right "to enforce
payment of the instrument for the full
amount thereof against all parties liable
thereon. Among the "parties liable thereon."
Is an indorser of the instrument, i.e., "a
person placing his signature upon an
instrument otherwise than as a maker,
 drawer or acceptor * * unless he clearly
indicated by appropriate words his intention
to be bound in some other capacity." Such
an indorser "who indorses without
qualification," inter alia "engages that on
due presentment, * * (the instrument) shall
be accepted or paid, or both, as the case
may be, according to its tenor, and that if it
be dishonored, and the necessary
proceedings on dishonor be duly taken, he
will pay the amount thereof to the holder, or
any subsequent indorser who may be
compelled to pay it." Maniego may also be
deemed an "accommodation party" in the
light of the facts, i.e., a person "who has
signed the instrument as maker, drawer,
acceptor, or indorser, without receiving
value thereof, and for the purpose of lending
his name to some other person." As such,
she is under the law "liable on the
instrument to a holder for value,
notwithstanding such holder at the time of
taking the instrument knew * * (her) to be
only an accommodation party," although she
has the right, after paying the holder, to
obtain reimbursement from the party
accommodated, "since the relation between
them is in effect that of principal and surety,
the accommodation party being the surety.
It is thus clear that ordinarily private rsp. may be
held liable as an indorser of the check or even as
an accommodation party.17 However, to hold private
rsp. liable for the amount of the check he deposited
by the strict application of the law and without
considering the attending circumstances in the
case would result in an injustice and in the erosion
of the public trust in the banking system. The
interest of justice thus demands looking into the
events that led to the encashment of the check.
Pet. asserts that by signing the withdrawal slip,
private rsp. "presented the opportunity for the
withdrawal of the amount in question." Pet. relied
"on the genuine signature on the withdrawal slip,
the personality of private rsp.'s son and the lapse of
more than fifty (50) days from date of deposit of the
Continental Bank draft, without the same being
returned yet."18 We hold, however, that the propriety
of the withdrawal should be gauged by compliance
with the rules thereon that both pet. bank and its
depositors are duty-bound to observe.
In the passbook that pet. issued to private rsp., the
following rules on withdrawal of deposits appear:
4. Withdrawals must be made by the
depositor personally but in some
exceptional circumstances, the Bank may
allow withdrawal by another upon the
depositor's written authority duly
authenticated; and neither a deposit nor a
withdrawal will be permitted except upon the
presentation of the depositor's savings
passbook, in which the amount deposited
withdrawn shall be entered only by the
Bank.
5. Withdrawals may be made by draft, mail
or telegraphic transfer in currency of the
account at the request of the depositor in
writing on the withdrawal slip or by
authenticated cable. Such request must
indicate the name of the payee/s, amount
and the place where the funds are to be
paid. Any stamp, transmission and other
charges related to such withdrawals shall be
for the account of the depositor and shall be
paid by him/her upon demand. Withdrawals
may also be made in the form of travellers
checks and in pesos. Withdrawals in the
form of notes/bills are allowed subject
however, to their (availability).
6. Deposits shall not be subject to
withdrawal by check, and may be
withdrawal only in the manner above
provided, upon presentation of the
depositor's savings passbook and with the
withdrawal form supplied by the Bank at the
counter.19
Under these rules, to be able to withdraw from the
savings account deposit under the Philippine
foreign currency deposit system, two requisites
must be presented to pet. bank by the person
withdrawing an amount: (a) a duly filled-up
withdrawal slip, and (b) the depositor's passbook.
Private rsp. admits he signed a blank withdrawal
slip ostensibly in violation of Rule No. 6 requiring
that the request for withdrawal must name the
payee, the amount to be withdrawn and the place
where such withdrawal should be made. That the
withdrawal slip was in fact a blank one with only
private rsp.'s two signatures affixed on the proper
spaces is buttressed by pet.'s allegation in the
instant petition that had private rsp. indicated
therein the person authorized to receive the money,
then Ruben Gayon, Jr. could not have withdrawn
any amount. Pet. contends that "(I)n failing to do so
(i.e., naming his authorized agent), he practically
authorized any possessor thereof to write any
amount and to collect the same."20
Such contention would have been valid if not for the
fact that the withdrawal slip itself indicates a special
instruction that the amount is payable to "Ramon A.
de Guzman &/or Agnes C. de Guzman." Such
being the case, pet.'s personnel should have been
duly warned that Gayon, who was also employed in
pet.'s Buendia Ave. Extension branch,21 was not the
proper payee of the proceeds of the check.
Otherwise, either Ramon or Agnes de Guzman
should have issued another authority to Gayon for
such withdrawal. Of course, at the dorsal side of
the withdrawal slip is an "authority to withdraw"
naming Gayon the person who can withdraw the
amount indicated in the check. Private rsp. does
not deny having signed such authority. However,
considering pet.'s clear admission that the
withdrawal slip was a blank one except for private
rsp.'s signature, the unavoidable conclusion is that
the typewritten name of "Ruben C. Gayon, Jr." was
intercalated and thereafter it was signed by Gayon
or whoever was allowed by pet. to withdraw the
amount. Under these facts, there could not have
been a principal-agent relationship between private
rsp. and Gayon so as to render the former liable for
the amount withdrawn.
Moreover, the withdrawal slip contains a boxed
warning that states: "This receipt must be signed
and presented with the corresponding foreign
currency savings passbook by the depositor in
person. For withdrawals thru a representative,
depositor should accomplish the authority at the
back." The requirement of presentation of the
passbook when withdrawing an amount cannot be
given mere lip service even though the person
making the withdrawal is authorized by the
depositor to do so. This is clear from Rule No. 6 set
out by pet. so that, for the protection of the bank's
interest and as a reminder to the depositor, the
withdrawal shall be entered in the depositor's
passbook. The fact that private rsp.'s passbook was
not presented during the withdrawal is evidenced
by the entries therein showing that the last
transaction that he made with the bank was on
Sept. 3, 1984, the date he deposited the
controversial check in the amount of $2,500.00.22
In allowing the withdrawal, pet. likewise overlooked
another rule that is printed in the passbook. Thus:
2. All deposits will be received as current
funds and will be repaid in the same
manner; provided, however, that deposits of
drafts, checks, money orders, etc. will be
accented as subject to collection only and
credited to the account only upon receipt of
the notice of final payment. Collection
charges by the Bank's foreign corrsp. in
effecting such collection shall be for the
account of the depositor. If the account has
sufficient balance, the collection shall be
debited by the Bank against the account. If,
for any reason, the proceeds of the
deposited checks, drafts, money orders,
etc., cannot be collected or if the Bank is
required to return such proceeds, the
provisional entry therefor made by the Bank
in the savings passbook and its records
shall be deemed automatically cancelled
regardless of the time that has elapsed, and
W/N the defective items can be returned to
the depositor; and the Bank is hereby
authorized to execute immediately the
necessary corrections, amendments or
changes in its record, as well as on the
savings passbook at the first opportunity to
reflect such cancellation. (Emphasis and
underlining supplied.)
As correctly held by the CA, in depositing the check
in his name, private rsp. did not become the
outright owner of the amount stated therein. Under
the above rule, by depositing the check with pet.,
private rsp. was, in a way, merely designating pet.
as the collecting bank. This is in consonance with
the rule that a negotiable instrument, such as a
check, whether a manager's check or ordinary
check, is not legal tender.23 As such, after receiving
the deposit, under its own rules, pet. shall credit the
amount in private rsp.'s account or infuse value
thereon only after the drawee bank shall have paid
the amount of the check or the check has been
cleared for deposit. Again, this is in accordance
with ordinary banking practices and with this
Court's pronouncement that "the collecting bank or
last endorser generally suffers the loss because
has the duty to ascertain the genuineness of all
prior endorsements considering that the act of
presenting the check for payment to the drawee is
an assertion that the party making the presentment
has done its duty to ascertain the genuineness of
the endorsements."24 The rule finds more meaning
in this case where the check involved is drawn on a
foreign bank and therefore collection is more
difficult than when the drawee bank is a local one
even though the check in question is a manager's
check.25
In Banco Atlantico v. Auditor General,26 Banco
Atlantico, a commercial bank in Madrid, Spain, paid
the amounts represented in three (3) checks to
Virginia Boncan, the finance officer of the Philippine
Embassy in Madrid. The bank did so without
previously clearing the checks with the drawee
bank, the PNB in New York, on account of the
"special treatment" that Boncan received from the
personnel of Banco Atlantico's foreign department.
The Court held that the encashment of the checks
without prior clearance is "contrary to normal or
ordinary banking practice specially so where the
drawee bank is a foreign bank and the amounts
involved were large." Accordingly, the Court
approved the Auditor General's denial of Banco
Atlantico's claim for payment of the value of the
checks that was withdrawn by Boncan.
Said ruling brings to light the fact that the banking
business is affected with public interest. By the
nature of its functions, a bank is under obligation to
treat the accounts of its depositors "with meticulous
care, always having in mind the fiduciary nature of
their relationship."27 As such, in dealing with its
depositors, a bank should exercise its functions not
only with the diligence of a good father of a family
but it should do so with the highest degree of
care.28
In the case at bar, pet., in allowing the withdrawal of
private rsp.'s deposit, failed to exercise the
diligence of a good father of a family. In total
disregard of its own rules, pet.'s personnel
negligently handled private rsp.'s account to pet.'s
detriment. As this Court once said on this matter:
Negligence is the omission to do something
which a reasonable man, guided by those
considerations which ordinarily regulate the
conduct of human affairs, would do, or the
doing of something which a prudent and
reasonable man would do. The seventy-
eight (78)-year-old, yet still relevant, case of
Picart v. Smith, provides that test by which
to determine the existence of negligence in
a particular case which may be stated as
follows: Did the defendant in doing the
alleged negligent act use that reasonable
care and caution which an ordinarily prudent
person would have used in the same
situation? If not, then he is guilty of
negligence. The law here in effect adopts
the standard supposed to be supplied by
the imaginary conduct of the discreet pater-
familias of the Roman law. The existence of
negligence in a given case is not
determined by reference to the personal
judgment of the actor in the situation before
him. The law considers what would be
reckless, blameworthy, or negligent in the
man of ordinary intelligence and prudence
and determines liability by that.29
Pet. violated its own rules by allowing the
withdrawal of an amount that is definitely over and
above the aggregate amount of private rsp.'s dollar
deposits that had yet to be cleared. The bank's
ledger on private rsp.'s account shows that before
he deposited $2,500.00, private rsp. had a balance
of only $750.00.30 Upon private rsp.'s deposit of
$2,500.00 on Sept. 3, 1984, that amount was
credited in his ledger as a deposit resulting in the
corresponding total balance of $3,250.00.31 On
Sept. 10, 1984, the amount of $600.00 and the
additional charges of $10.00 were indicated therein
as withdrawn thereby leaving a balance $2,640.00.
On Sept. 30, 1984, an interest of $11.59 was
reflected in the ledger and on Oct. 23, 1984, the
amount of $2,541.67 was entered as withdrawn
with a balance of $109.92. 32 On Nov. 19, 1984 the
word "hold" was written beside the balance of
$109.92.33 That must have been the time when
Reyes, pet.'s branch manager, was informed
unofficially of the fact that the check deposited was
a counterfeit, but pet.'s Buendia Ave. Extension
Branch received a copy of the communication
thereon from Wells Fargo Bank International in
New York the following day, Nov. 20, 1984.34
According to Reyes, Wells Fargo Bank International
handled the clearing of checks drawn against U.S.
banks that were deposited with pet..35
From these facts on record, it is at once apparent
that pet.'s personnel allowed the withdrawal of an
amount bigger than the original deposit of $750.00
and the value of the check deposited in the amount
of $2,500.00 although they had not yet received
notice from the clearing bank in the US on W/N the
check was funded. Reyes' contention that after the
lapse of the 35-day period the amount of a
deposited check could be withdrawn even in the
absence of a clearance thereon, otherwise it could
take a long time before a depositor could make a
withdrawal,36 is untenable. Said practice amounts to
a disregard of the clearance requirement of the
banking system.
While it is true that private rsp.'s having signed a
blank withdrawal slip set in motion the events that
resulted in the withdrawal and encashment of the
counterfeit check, the negligence of pet.'s
personnel was the proximate cause of the loss that
pet. sustained. Proximate cause, which is
determined by a mixed consideration of logic,
common sense, policy and precedent, is "that
cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause,
produces the injury, and without which the result
would not have occurred."37 The proximate cause of
the withdrawal and eventual loss of the amount of
$2,500.00 on pet.'s part was its personnel's
negligence in allowing such withdrawal in disregard
of its own rules and the clearing requirement in the
banking system. In so doing, pet. assumed the risk
of incurring a loss on account of a forged or
counterfeit foreign check and hence, it should suffer
the resulting damage.1âwphi1.nêt
WHEREFORE, the petition for review on certiorari
is DENIED. The Decision of the CA in CA-G.R. CV
No. 37392 is AFFIRMED.
GR 117660 Dec. 18, 2000
AGRO CONGLOMERATES, INC. and MARIO
SORIANO, pet/s,
vs.
THE HON. CA and REGENT SAVINGS and LOAN
BANK, INC., rsps..
DECISION
QUISUMBING, J.:
This is a petition for review challenging the
decision1 dated Oct. 17, 1994 of the CA in CA-GR
32933, which affirmed in toto the judgment of the
Manila RTC, Branch 27, in consolidated Cases
Nos. 86-37374, 86-37388, 86-37543.
This petition springs from three complaints for sums
of money filed by rsp. bank against herein pet/s. In
the decision of the CA, pet/s were ordered to pay
rsp. bank, as follows:
Wherefore, judgment is hereby rendered in favor of
plaintiff and against defendants, as follows:
1) In Civil Case No. 86-37374, defendants
[pet/s, herein] are ordered jointly and
severally, to pay to plaintiff the amount of
P78,212.29, together with interest and
service charge thereon, at the rates of 14%
and 3% per annum, respectively, computed
from Nov. 10, 1982, until fully paid, plus
stipulated penalty on unpaid principal at the
rate of 6% per annum, computed from Nov.
10, 1982, plus 15% as liquidated damage
plus 10% of the total amount due, as
attorney’s fees, plus costs;
2) In Civil Case No. 86-37388, defendant is
ordered to pay plaintiff the amount of
P632,911.39, together with interest and
service charge thereon at the rate of 14%
and 3% per annum, respectively, computed
from Jan. 15, 1983, until fully paid, plus
stipulated penalty on unpaid principal at the
rate of 6% per annum, computed from Jan.
15, 1983, plus liquidated damages
equivalent to 15% of the total amount due,
plus attorney’s fees equivalent to 10% of the
total amount due, plus costs; and
3) In Civil Case No. 86-37543, defendant is
ordered to pay plaintiff, on the first cause of
action, the amount of P510,000.00, together
with interest and service charge thereon, at
the rates of 14% and 2% per annum,
respectively, computed from March 13,
1983, until fully paid, plus a penalty of 6%
per annum, based on the outstanding
principal of the loan, computed from March
13, 1983, until fully paid; and on the second
cause of action, the amount of P494,936.71,
together with interest and service charge
thereon at the rates of 14% and 2%, per
annum, respectively, computed from March
30, 1983, until fully paid, plus a penalty
charge of 6% per annum, based on the
unpaid principal, computed from March 30,
1983, until fully paid, plus (on both causes
of action) an amount equal to 15% of the
total amounts due, as liquidated damages,
plus attorney’s fees equal to 10% of the
total amounts due, plus costs.2
Based on the records, the following are the factual
antecedents.
On July 17, 1982, pet. Agro Conglomerates, Inc. as
vendor, sold two parcels of land to Wonderland
Food Industries, Inc. In their Memorandum of
Agreement,3 the parties covenanted that the
purchase price of Five Million (P5,000,000.00)
Pesos would be settled by the vendee, under the
following terms and conditions: (1) One Million
(P1,000,000.00) Pesos shall be paid in cash upon
the signing of the agreement; (2) Two Million
(P2,000,000.00) Pesos worth of common shares of
stock of the Wonderland Food Industries, Inc.; and
(3) The balance of P2,000,000.00 shall be paid in
four equal installments, the first installment falling
due, 180 days after the signing of the agreement understood that while the loan will be
and every six months thereafter, with an interest secured from and in the name of the
rate of 18% per annum, to be advanced by the VENDOR, the VENDEE will be the one
vendee upon the signing of the agreement. liable to pay the entire proceeds thereof
including interest and other charges.5
On July 19, 1982, the vendor, the vendee, and the
rsp. bank Regent Savings & Loan Bank (formerly This addendum was not notarized.
Summa Savings & Loan Association), executed an
Addendum4 to the previous Memorandum of Consequently, pet. Mario Soriano signed as maker
Agreement. The new arrangement pertained to the several promissory notes,6 payable to the rsp.
revision of settlement of the initial payments of bank. Thereafter, the bank released the proceeds
P1,000,000.00 and prepaid interest of P360,000.00 of the loan to pet/s. However, pet/s failed to meet
(18% of P2,000,000.00) as follows: their obligations as they fell due. During that time,
the bank was experiencing financial turmoil and
Whereas, the parties have agreed to qualify the was under the supervision of the Central Bank.
stipulated terms for the payment of the said ONE Central Bank examiner and liquidator Cordula de
MILLION THREE HUNDRED SIXTY THOUSAND Jesus, endorsed the subject promissory notes to
(P1,360,000.00) PESOS. the bank’s counsel for collection. The bank gave
pet/s opportunity to settle their account by
WHEREFORE, in consideration of the mutual extending payment due dates. Mario Soriano
covenant and agreement of the parties, they do manifested his intention to re-structure the loan, yet
further covenant and agree as follows: did not show up nor submit his formal written
request.
1. That the VENDEE instead of paying the
amount of ONE MILLION THREE Rsp. bank filed three separate complaints before the
HUNDRED SIXTY THOUSAND RTC of Manila for Collection of Sums of money. The
(P1,360,000.00) PESOS in cash, hereby corresponding case histories are illustrated in the table
authorizes the VENDOR to obtain a loan below:
from Summa Savings and Loan Association
with office address at Valenzuela, Metro
Manila, being represented herein by its Date Amount Paymen Payment
President, Mr. Jaime Cariño and referred to of t Extensio
hereafter as Financier; in the amount of Loan Due n
ONE MILLION THREE HUNDRED SIXTY Date Dates
THOUSAND (P1,360,000.00)PESOS, plus
interest thereon at such rate as the Civil P Nov. 10, Feb. 8,
VENDEE and the Financier may agree, Case 78,212.29 1982 1983
which amount shall cover the ONE MILLION 86- May 9,
(P1,000,000.00) PESOS cash which was 3737 1983
agreed to be paid upon signing of the 4 Aug. 7,
Memorandum of Agreement, plus 18% Aug. 1983
interest on the balance of two million pesos 12,
stipulated upon in Item No. 1(c) of the said 1982
agreement; provided however, that said
loan shall be made for and in the name of Civil P Jan. 15, May 16,
the VENDOR. Case 632,911.3 1983 1983
86- 9 Aug. 14,
2. The VENDEE also agrees that the full 3738 1983
amount of ONE MILLION THREE 8
HUNDRED SIXTY THOUSAND July
(P1,360,000.00) PESOS be paid directly to 19,
the VENDOR; however, the VENDEE 1982
hereby undertakes to pay the full amount of
the said loan to the Financier on such terms Civil P March June 11,
and conditions agreed upon by the Case 510,000.0 13, 1983 1983
Financier and the VENDOR, it being

86- 0 March Sept. 9,
3754 P 30, 1983 1983
3 494,936.7 June 28,
Sept. 1 1983
14, Sept. 26,
1982 1983
Oct.
1,
1982
In their answer, pet/s interposed the defense of
novation and insisted there was a valid substitution
of debtor. They alleged that the addendum
specifically states that although the promissory
notes were in their names, Wonderland shall be
responsible for the payment thereof.
The TC held that pet/s are liable, to wit:
The evidences, however, disclose that Wonderland
did not comply with its obligation under said
‘Addendum’ (Exh. ‘S’) as the agreement to turn
over the farmland to it, did not materialize (57 tsn,
May 29, 1990), and there was, actually no sale of
the land (58 tsn, ibid). Hence, Wonderland is not
answerable. And since the loans obtained under
the four promissory notes (Exhs. ‘A’, ‘C’, ‘G’, and
‘E’) have not been paid, despite opportunities given
by plaintiff to defendants to make payments, it
stands to reason that defendants are liable to pay
their obligations thereunder to plaintiff. In fact,
defendants failed to file a third-party complaint
against Wonderland, which shows the weakness of
its stand that Wonderland is answerable to make
said payments.7
Pet/s appealed to the CA. The TC’s decision was
affirmed by the appellate court.
Hence, this recourse, wherein pet/s raise the sole
issue of:
WHETHER THE CA ERRED IN NOT FINDING
THAT THE ADDENDUM, SIGNED BY THE PET/S,
RSP. BANK AND WONDERLAND INC.,
CONSTITUTES A NOVATION OF THE
CONTRACT BY SUBSTITUTION OF DEBTOR,
WHICH EXEMPTS THE PET/S FROM ANY
LIABILITY OVER THE PROMISSORY NOTES.
Revealed by the facts on record, the conflict among
the parties started from a contract of sale of a
farmland between pet/s and Wonderland Food
Industries, Inc. As found by the TC, no such sale
materialized.
A contract of sale is a reciprocal transaction. The
obligation or promise of each party is the cause or
consideration for the obligation or promise by the
other. The vendee is obliged to pay the price, while
the vendor must deliver actual possession of the
land. In the instant case the original plan was that
the initial payments would be paid in cash.
Subsequently, the parties (with the participation of
rsp. bank) executed an addendum providing
instead, that the pet/s would secure a loan in the
name of Agro Conglomerates Inc. for the total
amount of the initial payments, while the settlement
of said loan would be assumed by Wonderland.
Thereafter, pet. Soriano signed several promissory
notes and received the proceeds in behalf of pet.-
company.
By this time, we note a subsidiary contract of
suretyship had taken effect since pet/s signed the
promissory notes as maker and accommodation
party for the benefit of Wonderland. Pet/s became
liable as accommodation party. An accommodation
party is a person who has signed the instrument as
maker, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his
name to some other person and is liable on the
instrument to a holder for value, notwithstanding
such holder at the time of taking the instrument
knew (the signatory) to be an accommodation
party.8 He has the right, after paying the holder, to
obtain reimbursement from the party
accommodated, since the relation between them
has in effect become one of principal and surety,
the accommodation party being the surety. 9
Suretyship is defined as the relation which exists
where one person has undertaken an obligation
and another person is also under the obligation or
other duty to the obligee, who is entitled to but one
performance, and as between the two who are
bound, one rather than the other should perform.10
The surety’s liability to the creditor or promisee of
the principal is said to be direct, primary and
absolute; in other words, he is directly and equally
bound with the principal.11 And the creditor may
proceed against any one of the solidary debtors.12
We do not give credence to pet/s’ assertion that, as
provided by the addendum, their obligation to pay
the promissory notes was novated by "substitution"
of a new debtor, Wonderland. Contrary to pet/s’
contention, the attendant facts herein do not make
a case of novation.
Novation is the extinguishment of an obligation by
the substitution or change of the obligation by a
subsequent one which extinguishes or modifies the
first, either by changing the object or principal
conditions, or by substituting another in place of the
debtor, or by subrogating a third person in the rights
of the creditor.13 In order that a novation can take
place, the concurrence of the following requisites 14
are indispensable:
1) There must be a previous valid
obligation;
2) There must be an agreement of the
parties concerned to a new contract;
3) There must be the extinguishment of the
old contract; and
4) There must be the validity of the new
contract.
In the instant case, the first requisite for a valid
novation is lacking. There was no novation by
"substitution" of debtor because there was no prior
obligation which was substituted by a new contract.
It will be noted that the promissory notes, which
bound the pet/s to pay, were executed after the
addendum. The addendum modified the contract of
sale, not the stipulations in the promissory notes
which pertain to the surety contract. At this
instance, Wonderland apparently assured the
payment of future debts to be incurred by the pet/s.
Consequently, only a contract of surety arose. It
was wrong for pet/s to presume a novation had
taken place. The well-settled rule is that novation is
never presumed,15 it must be clearly and
unequivocally shown.16
As it turned out, the contract of surety between
Wonderland and the pet/s was extinguished by the
rescission of the contract of sale of the farmland.
With the rescission, there was confusion or merger
in the persons of the principal obligor and the
surety, namely the pet/s herein. The addendum
which was dependent thereon likewise lost its
efficacy.
It is true that the basic and fundamental rule in the
interpretation of contract is that, if the terms thereof
are clear and leave no doubt as to the intention of
the contracting parties, the literal meaning shall
control. However, in order to judge the intention of
the parties, their contemporaneous and subsequent
acts should be considered.17
The contract of sale between Wonderland and pet/s
did not materialize. But it was admitted that pet/s
received the proceeds of the promissory notes
obtained from rsp. bank.
Sec. 22 of the CC provides:
Every person who through an act of performance
by another, or any other means, acquires or comes
into possession of something at the expense of the
latter without just or legal ground, shall return the
same to him.
Pet/s had no legal or just ground to retain the
proceeds of the loan at the expense of private rsp..
Neither could pet/s excuse themselves and hold
Wonderland still liable to pay the loan upon the
rescission of their sales contract. If pet/s sustained
damages as a result of the rescission, they should
have impleaded Wonderland and asked damages.
The non-inclusion of a necessary party does not
prevent the court from proceeding in the action, and
the judgment rendered therein shall be without
prejudice to the rights of such necessary party. 18
But rsp. appellate court did not err in holding that
pet/s are duty-bound under the law to pay the
claims of rsp. bank from whom they had obtained
the loan proceeds.
WHEREFORE, the petition is DENIED for lack of
merit. The assailed decision of the CA dated Oct.
17, 1994 is AFFIRMED. Costs against pet/s.
GR L-15126 Nov. 30, 1961
VICENTE R. DE OCAMPO & CO., plaintiff-
appellee,
vs.
ANITA GATCHALIAN, ET AL., defendants-
appellants.
Vicente Formoso, Jr. for plaintiff-appellee.
Reyes and Pangalañgan for defendants-appellants.
LABRADOR, J.:
Appeal from a judgment of the Court of First
Instance of Manila, Hon. Conrado M. Velasquez,
presiding, sentencing the defendants to pay the
plaintiff the sum of P600, with legal interest from
Sept. 10, 1953 until paid, and to pay the costs.
The action is for the recovery of the value of a
check for P600 payable to the plaintiff and drawn
by defendant Anita C. Gatchalian. The complaint
sets forth the check and alleges that plaintiff
received it in payment of the indebtedness of one
Matilde Gonzales; that upon receipt of said check,
plaintiff gave Matilde Gonzales P158.25, the
difference between the face value of the check and
Matilde Gonzales' indebtedness. The defendants
admit the execution of the check but they allege in
their answer, as affirmative defense, that it was
issued subject to a condition, which was not
fulfilled, and that plaintiff was guilty of gross
negligence in not taking steps to protect itself.
At the time of the trial, the parties submitted a
stipulation of facts, which reads as follows:
Plaintiff and defendants through their
respective undersigned attorney's
respectfully submit the following Agreed
Stipulation of Facts;
First. — That on or about 8 Sept. 1953, in
the evening, defendant Anita C. Gatchalian
who was then interested in looking for a car
for the use of her husband and the family,
was shown and offered a car by Manuel
Gonzales who was accompanied by Emil
Fajardo, the latter being personally known
to defendant Anita C. Gatchalian;
Second. — That Manuel Gonzales
represented to defend Anita C. Gatchalian
that he was duly authorized by the owner of
the car, Ocampo Clinic, to look for a buyer
of said car and to negotiate for and
accomplish said sale, but which facts were
not known to plaintiff;
Third. — That defendant Anita C.
Gatchalian, finding the price of the car
quoted by Manuel Gonzales to her
satisfaction, requested Manuel Gonzales to
bring the car the day following together with
the certificate of registration of the car, so
that her husband would be able to see
same; that on this request of defendant
Anita C. Gatchalian, Manuel Gonzales
advised her that the owner of the car will not
be willing to give the certificate of
registration unless there is a showing that
the party interested in the purchase of said
car is ready and willing to make such
purchase and that for this purpose Manuel
Gonzales requested defendant Anita C.
Gatchalian to give him (Manuel Gonzales) a
check which will be shown to the owner as
evidence of buyer's good faith in the
intention to purchase the said car, the said
check to be for safekeeping only of Manuel
Gonzales and to be returned to defendant
Anita C. Gatchalian the following day when
Manuel Gonzales brings the car and the
certificate of registration, but which facts
were not known to plaintiff;
Fourth. — That relying on these
representations of Manuel Gonzales and
with his assurance that said check will be
only for safekeeping and which will be
returned to said defendant the following day
when the car and its certificate of
registration will be brought by Manuel
Gonzales to defendants, but which facts
were not known to plaintiff, defendant Anita
C. Gatchalian drew and issued a check,
Exh. "B"; that Manuel Gonzales executed
and issued a receipt for said check, Exh.
"1";
Fifth. — That on the failure of Manuel
Gonzales to appear the day following and
on his failure to bring the car and its
certificate of registration and to return the
check, Exh. "B", on the following day as
previously agreed upon, defendant Anita C.
Gatchalian issued a "Stop Payment Order"
on the check, Exh. "3", with the drawee
bank. Said "Stop Payment Order" was
issued without previous notice on plaintiff
not being know to defendant, Anita C.
Gatchalian and who furthermore had no
reason to know check was given to plaintiff;
Sixth. — That defendants, both or either of
them, did not know personally Manuel
Gonzales or any member of his family at
any time prior to Sept. 1953, but that
defendant Hipolito Gatchalian is personally
acquainted with V. R. de Ocampo;
Seventh. — That defendants, both or either
of them, had no arrangements or agreement
with the Ocampo Clinic at any time prior to,
on or after 9 Sept. 1953 for the
hospitalization of the wife of Manuel
Gonzales and neither or both of said
defendants had assumed, expressly or
impliedly, with the Ocampo Clinic, the
obligation of Manuel Gonzales or his wife
for the hospitalization of the latter;
Eight. — That defendants, both or either of
them, had no obligation or liability, directly
or indirectly with the Ocampo Clinic before,
or on 9 Sept. 1953;
Ninth. — That Manuel Gonzales having
received the check Exh. "B" from defendant
Anita C. Gatchalian under the
representations and conditions herein
above specified, delivered the same to the
Ocampo Clinic, in payment of the fees and
expenses arising from the hospitalization of
his wife;
Tenth. — That plaintiff for and in
consideration of fees and expenses of
hospitalization and the release of the wife of
Manuel Gonzales from its hospital,
accepted said check, applying P441.75
(Exhibit "A") thereof to payment of said fees
and expenses and delivering to Manuel
Gonzales the amount of P158.25 (as per
receipt, Exhibit "D") representing the
balance on the amount of the said check,
Exh. "B";
Eleventh. — That the acts of acceptance of
the check and application of its proceeds in
the manner specified above were made
without previous inquiry by plaintiff from
defendants:
Twelfth. — That plaintiff filed or caused to
be filed with the Office of the City Fiscal of
Manila, a complaint for estafa against
Manuel Gonzales based on and arising from
the acts of said Manuel Gonzales in paying
his obligations with plaintiff and receiving
the cash balance of the check, Exh. "B" and
that said complaint was subsequently
dropped;
Thirteenth. — That the exhibits mentioned
in this stipulation and the other exhibits
submitted previously, be considered as
parts of this stipulation, without necessity of
formally offering them in evidence;
WHEREFORE, it is most respectfully
prayed that this agreed stipulation of facts
be admitted and that the parties hereto be
given fifteen days from today within which to
submit simultaneously their memorandum to
discuss the issues of law arising from the
facts, reserving to either party the right to
submit reply memorandum, if necessary,
within ten days from receipt of their main
memoranda. (pp. 21-25, Defendant's
Record on Appeal).
No other evidence was submitted and upon said
stipulation the court rendered the judgment already
alluded above.
In their appeal defendants-appellants contend that
the check is not a negotiable instrument, under the
facts and circumstances stated in the stipulation of
facts, and that plaintiff is not a holder in due course.
In support of the first contention, it is argued that
defendant Gatchalian had no intention to transfer
her property in the instrument as it was for
safekeeping merely and, therefore, there was no
delivery required by law (Sec. 16, Negotiable
Instruments Law); that assuming for the sake of
argument that delivery was not for safekeeping
merely, delivery was conditional and the condition
was not fulfilled.
In support of the contention that plaintiff-appellee is
not a holder in due course, the appellant argues
that plaintiff-appellee cannot be a holder in due
course because there was no negotiation prior to
plaintiff-appellee's acquiring the possession of the
check; that a holder in due course presupposes a
prior party from whose hands negotiation
proceeded, and in the case at bar, plaintiff-appellee
is the payee, the maker and the payee being
original parties. It is also claimed that the plaintiff-
appellee is not a holder in due course because it
acquired the check with notice of defect in the title
of the holder, Manuel Gonzales, and because
under the circumstances stated in the stipulation of
facts there were circumstances that brought
suspicion about Gonzales' possession and
negotiation, which circumstances should have
placed the plaintiff-appellee under the duty, to
inquire into the title of the holder. The
circumstances are as follows:
The check is not a personal check of
Manuel Gonzales. (Paragraph Ninth,
Stipulation of Facts). Plaintiff could have
inquired why a person would use the check
of another to pay his own debt.
Furthermore, plaintiff had the "means of
knowledge" inasmuch as defendant Hipolito
Gatchalian is personally acquainted with V.
R. de Ocampo (Paragraph Sixth, Stipulation
of Facts.).
The maker Anita C. Gatchalian is a
complete stranger to Manuel Gonzales and
 Dr. V. R. de Ocampo (Paragraph Sixth,
Stipulation of Facts).
The maker is not in any manner obligated to
Ocampo Clinic nor to Manuel Gonzales.
(Par. 7, Stipulation of Facts.)
The check could not have been intended to
pay the hospital fees which amounted only
to P441.75. The check is in the amount of
P600.00, which is in excess of the amount
due plaintiff. (Par. 10, Stipulation of Facts).
It was necessary for plaintiff to give Manuel
Gonzales change in the sum P158.25 (Par.
10, Stipulation of Facts). Since Manuel
Gonzales is the party obliged to pay, plaintiff
should have been more cautious and wary
in accepting a piece of paper and disbursing
cold cash.
The check is payable to bearer. Hence, any
person who holds it should have been
subjected to inquiries. EVEN IN A BANK,
CHECKS ARE NOT CASHED WITHOUT
INQUIRY FROM THE BEARER. The same
inquiries should have been made by
plaintiff. (Defendants-appellants' brief, pp.
52-53)
Answering the first contention of appellant, counsel
for plaintiff-appellee argues that in accordance with
the best authority on the Negotiable Instruments
Law, plaintiff-appellee may be considered as a
holder in due course, citing Brannan's Negotiable
Instruments Law, 6th edition, page 252. On this
issue Brannan holds that a payee may be a holder
in due course and says that to this effect is the
greater weight of authority, thus:
Whether the payee may be a holder in due
course under the N. I. L., as he was at
common law, is a question upon which the
courts are in serious conflict. There can be
no doubt that a proper interpretation of the
act read as a whole leads to the conclusion
that a payee may be a holder in due course
under any circumstance in which he meets
the requirements of Sec. 52.
The argument of Professor Brannan in an
earlier edition of this work has never been
successfully answered and is here
repeated.
Sec. 191 defines "holder" as the payee or
indorsee of a bill or note, who is in
possession of it, or the bearer thereof. Sec.
52 defendants defines a holder in due
course as "a holder who has taken the
instrument under the following conditions: 1.
That it is complete and regular on its face.
2. 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. 3. That he took it in good faith and for
value. 4. 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."
Since "holder", as defined in sec. 191,
includes a payee who is in possession the
word holder in the first clause of sec. 52 and
in the second subSec. may be replaced by
the definition in sec. 191 so as to read "a
holder in due course is a payee or indorsee
who is in possession," etc. (Brannan's on
Negotiable Instruments Law, 6th ed., p.
543).
The first argument of the defendants-appellants,
therefore, depends upon W/N the plaintiff-appellee
is a holder in due course. If it is such a holder in
due course, it is immaterial that it was the payee
and an immediate party to the instrument.
The other contention of the plaintiff is that there has
been no negotiation of the instrument, because the
drawer did not deliver the instrument to Manuel
Gonzales with the intention of negotiating the
same, or for the purpose of giving effect thereto, for
as the stipulation of facts declares the check was to
remain in the possession Manuel Gonzales, and
was not to be negotiated, but was to serve merely
as evidence of good faith of defendants in their
desire to purchase the car being sold to them.
Admitting that such was the intention of the drawer
of the check when she delivered it to Manuel
Gonzales, it was no fault of the plaintiff-appellee
drawee if Manuel Gonzales delivered the check or
negotiated it. As the check was payable to the
plaintiff-appellee, and was entrusted to Manuel
Gonzales by Gatchalian, the delivery to Manuel
Gonzales was a delivery by the drawer to his own
agent; in other words, Manuel Gonzales was the
agent of the drawer Anita Gatchalian insofar as the
possession of the check is concerned. So, when
the agent of drawer Manuel Gonzales negotiated
the check with the intention of getting its value from
plaintiff-appellee, negotiation took place through no
fault of the plaintiff-appellee, unless it can be shown
that the plaintiff-appellee should be considered as
having notice of the defect in the possession of the
holder Manuel Gonzales. Our resolution of this
issue leads us to a consideration of the last
question presented by the appellants, i.e., whether
the plaintiff-appellee may be considered as a holder
in due course.
Sec. 52, Negotiable Instruments Law, defines
holder in due course, thus:
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.
The stipulation of facts expressly states that
plaintiff-appellee was not aware of the
circumstances under which the check was
delivered to Manuel Gonzales, but we agree with
the defendants-appellants that the circumstances
indicated by them in their briefs, such as the fact
that appellants had no obligation or liability to the
Ocampo Clinic; that the amount of the check did
not correspond exactly with the obligation of
Matilde Gonzales to Dr. V. R. de Ocampo; and that
the check had two parallel lines in the upper left
hand corner, which practice means that the check
could only be deposited but may not be converted
into cash — all these circumstances should have
put the plaintiff-appellee to inquiry as to the why
and wherefore of the possession of the check by
Manuel Gonzales, and why he used it to pay
Matilde's account. It was payee's duty to ascertain
from the holder Manuel Gonzales what the nature
of the latter's title to the check was or the nature of
his possession. Having failed in this respect, we
must declare that plaintiff-appellee was guilty of
gross neglect in not finding out the nature of the
title and possession of Manuel Gonzales,
amounting to legal absence of good faith, and it
may not be considered as a holder of the check in
good faith. To such effect is the consensus of
authority.
In order to show that the defendant had
"knowledge of such facts that his action in
taking the instrument amounted to bad
faith," it is not necessary to prove that the
defendant knew the exact fraud that was
practiced upon the plaintiff by the
defendant's assignor, it being sufficient to
show that the defendant had notice that
there was something wrong about his
assignor's acquisition of title, although he
did not have notice of the particular wrong
that was committed. Paika v. Perry, 225
Mass. 563, 114 N.E. 830.
It is sufficient that the buyer of a note had
notice or knowledge that the note was in
some way tainted with fraud. It is not
necessary that he should know the
particulars or even the nature of the fraud,
since all that is required is knowledge of
such facts that his action in taking the note
amounted bad faith. Ozark Motor Co. v.
Horton (Mo. App.), 196 S.W. 395. Accord.
Davis v. First Nat. Bank, 26 Ariz. 621, 229
Pac. 391.
Liberty bonds stolen from the plaintiff were
brought by the thief, a boy fifteen years old,
less than five feet tall, immature in
appearance and bearing on his face the
stamp a degenerate, to the defendants'
clerk for sale. The boy stated that they
belonged to his mother. The defendants
paid the boy for the bonds without any
further inquiry. Held, the plaintiff could
recover the value of the bonds. The term
'bad faith' does not necessarily involve
furtive motives, but means bad faith in a
commercial sense. The manner in which the
defendants conducted their Liberty Loan
department provided an easy way for
thieves to dispose of their plunder. It was a
case of "no questions asked." Although
gross negligence does not of itself
constitute bad faith, it is evidence from
which bad faith may be inferred. The
circumstances thrust the duty upon the
defendants to make further inquiries and
they had no right to shut their eyes
deliberately to obvious facts. Morris v. Muir,
111 Misc. Rep. 739, 181 N.Y. Supp. 913,
 affd. in memo., 191 App. Div. 947, 181 N.Y.
Supp. 945." (pp. 640-642, Brannan's
Negotiable Instruments Law, 6th ed.).
The above considerations would seem sufficient to
justify our ruling that plaintiff-appellee should not be
allowed to recover the value of the check. Let us
now examine the express provisions of the
Negotiable Instruments Law pertinent to the matter
to find if our ruling conforms thereto. Sec. 52 (c)
provides that a holder in due course is one who
takes the instrument "in good faith and for value;"
Sec. 59, "that every holder is deemed prima facie
to be a holder in due course;" and Sec. 52 (d), that
in order that one may be a holder in due course it is
necessary that "at the time the instrument was
negotiated to him "he had no notice of any . . .
defect in the title of the person negotiating it;" and
lastly Sec. 59, that every holder is deemed prima
facieto be a holder in due course.
In the case at bar the rule that a possessor of the
instrument is prima faciea holder in due course
does not apply because there was a defect in the
title of the holder (Manuel Gonzales), because the
instrument is not payable to him or to bearer. On
the other hand, the stipulation of facts indicated by
the appellants in their brief, like the fact that the
drawer had no account with the payee; that the
holder did not show or tell the payee why he had
the check in his possession and why he was using
it for the payment of his own personal account —
show that holder's title was defective or suspicious,
to say the least. As holder's title was defective or
suspicious, it cannot be stated that the payee
acquired the check without knowledge of said
defect in holder's title, and for this reason the
presumption that it is a holder in due course or that
it acquired the instrument in good faith does not
exist. And having presented no evidence that it
acquired the check in good faith, it (payee) cannot
be considered as a holder in due course. In other
words, under the circumstances of the case,
instead of the presumption that payee was a holder
in good faith, the fact is that it acquired possession
of the instrument under circumstances that should
have put it to inquiry as to the title of the holder who
negotiated the check to it. The burden was,
therefore, placed upon it to show that
notwithstanding the suspicious circumstances, it
acquired the check in actual good faith.
The rule applicable to the case at bar is that
described in the case of Howard National Bank v.
Wilson, et al., 96 Vt. 438, 120 At. 889, 894, where
the SC of Vermont made the following disquisition:
Prior to the Negotiable Instruments Act, two
distinct lines of cases had developed in this
country. The first had its origin in Gill v.
Cubitt, 3 B. & C. 466, 10 E. L. 215, where
the rule was distinctly laid down by the court
of King's Bench that the purchaser of
negotiable paper must exercise reasonable
prudence and caution, and that, if the
circumstances were such as ought to have
excited the suspicion of a prudent and
careful man, and he made no inquiry, he did
not stand in the legal position of a bona fide
holder. The rule was adopted by the courts
of this country generally and seem to have
become a fixed rule in the law of negotiable
paper. Later in Goodman v. Harvey, 4 A. &
E. 870, 31 E. C. L. 381, the English court
abandoned its former position and adopted
the rule that nothing short of actual bad faith
or fraud in the purchaser would deprive him
of the character of a bona fide purchaser
and let in defenses existing between prior
parties, that no circumstances of suspicion
merely, or want of proper caution in the
purchaser, would have this effect, and that
even gross negligence would have no
effect, except as evidence tending to
establish bad faith or fraud. Some of the
American courts adhered to the earlier rule,
while others followed the change
inaugurated in Goodman v. Harvey. The
question was before this court in Roth v.
Colvin, 32 Vt. 125, and, on full consideration
of the question, a rule was adopted in
harmony with that announced in Gill v.
Cubitt, which has been adhered to in
subsequent cases, including those cited
above. Stated briefly, one line of cases
including our own had adopted the test of
the reasonably prudent man and the other
that of actual good faith. It would seem that
it was the intent of the Negotiable
Instruments Act to harmonize this
disagreement by adopting the latter test.
That such is the view generally accepted by
the courts appears from a recent review of
the cases concerning what constitutes
notice of defect. Brannan on Neg. Ins. Law,
187-201. To effectuate the general purpose
of the act to make uniform the Negotiable
Instruments Law of those states which
should enact it, we are constrained to hold
(contrary to the rule adopted in our former
decisions) that negligence on the part of the
plaintiff, or suspicious circumstances
sufficient to put a prudent man on inquiry,
 will not of themselves prevent a recovery,
but are to be considered merely as
evidence bearing on the question of bad
faith. See G. L. 3113, 3172, where such a
course is required in construing other
uniform acts.
It comes to this then: When the case has
taken such shape that the plaintiff is called
upon to prove himself a holder in due
course to be entitled to recover, he is
required to establish the conditions entitling
him to standing as such, including good
faith in taking the instrument. It devolves
upon him to disclose the facts and
circumstances attending the transfer, from
which good or bad faith in the transaction
may be inferred.
In the case at bar as the payee acquired the check
under circumstances which should have put it to
inquiry, why the holder had the check and used it to
pay his own personal account, the duty devolved
upon it, plaintiff-appellee, to prove that it actually
acquired said check in good faith. The stipulation of
facts contains no statement of such good faith,
hence we are forced to the conclusion that plaintiff
payee has not proved that it acquired the check in
good faith and may not be deemed a holder in due
course thereof.
For the foregoing considerations, the decision
appealed from should be, as it is hereby, reversed,
and the defendants are absolved from the
complaint. With costs against plaintiff-appellee.
GR 70145 Nov. 13, 1986
MARCELO A. MESINA, pet.,
vs.
THE HONORABLE INTERMEDIATE APPELLATE
COURT, HON. ARSENIO M. GONONG, in his
capacity as Judge of RTC — Manila (Branch
VIII), JOSE GO, and ALBERT UY, rsps..
PARAS, J.:
This is an appeal by certiorari from the decision of
the then Intermediate Appellate Court (IAC for
short), now the CA (CA) in AC-G.R. S.P. 04710,
dated Jan. 22, 1985, which dismissed the petition
for certiorari and prohibition filed by Marcelo A.
Mesina against the TC in Civil Case No. 84-22515.
Said case (an Interpleader) was filed by Associated
Bank against Jose Go and Marcelo A. Mesina
regarding their conflicting claims over Associated
Bank Cashier's Check No. 011302 for P800,000.00,
dated Dec. 29, 1983.
Briefly, the facts and statement of the case are as
follows:
Rsp. Jose Go, on Dec. 29, 1983, purchased from
Associated Bank Cashier's Check No. 011302 for
P800,000.00. Unfortunately, Jose Go left said
check on the top of the desk of the bank manager
when he left the bank. The bank manager entrusted
the check for safekeeping to a bank official, a
certain Albert Uy, who had then a visitor in the
person of Alexander Lim. Uy had to answer a
phone call on a nearby telephone after which he
proceeded to the men's room. When he returned to
his desk, his visitor Lim was already gone. When
Jose Go inquired for his cashier's check from Albert
Uy, the check was not in his folder and nowhere to
be found. The latter advised Jose Go to go to the
bank to accomplish a "STOP PAYMENT" order,
which suggestion Jose Go immediately followed.
He also executed an affidavit of loss. Albert Uy
went to the police to report the loss of the check,
pointing to the person of Alexander Lim as the one
who could shed light on it.
The records of the police show that Associated
Bank received the lost check for clearing on Dec.
31, 1983, coming from Prudential Bank, Escolta
Branch. The check was immediately dishonored by
Associated Bank by sending it back to Prudential
Bank, with the words "Payment Stopped" stamped
on it. However, the same was again returned to
Associated Bank on Jan. 4, 1984 and for the
second time it was dishonored. Several days later,
rsp. Associated Bank received a letter, dated Jan.
9, 1984, from a certain Atty. Lorenzo Navarro
demanding payment on the cashier's check in
question, which was being held by his client. He
however refused to reveal the name of his client
and threatened to sue, if payment is not made.
Rsp. bank, in its letter, dated Jan. 20, 1984, replied
saying the check belonged to Jose Go who lost it in
the bank and is laying claim to it.
On Feb. 1, 1984, police sent a letter to the Manager
of the Prudential Bank, Escolta Branch, requesting
assistance in Identifying the person who tried to
encash the check but said bank refused saying that
it had to protect its client's interest and the Identity
could only be revealed with the client's conformity.
Unsure of what to do on the matter, rsp. Associated
Bank on Feb. 2, 1984 filed an action for
Interpleader naming as rsp., Jose Go and one John
Doe, Atty. Navarro's then unnamed client. On even
date, rsp. bank received summons and copy of the
complaint for damages of a certain Marcelo A.
Mesina from the RTC (RTC) of Caloocan City filed
on Jan. 23, 1984 bearing the number C-11139.
Rsp. bank moved to amend its complaint, having
been notified for the first time of the name of Atty.
Navarro's client and substituted Marcelo A. Mesina
for John Doe. Simultaneously, rsp. bank, thru
representative Albert Uy, informed Cpl. Gimao of
the Western Police District that the lost check of
Jose Go is in the possession of Marcelo Mesina,
herein pet.. When Cpl. Gimao went to Marcelo
Mesina to ask how he came to possess the check,
he said it was paid to him by Alexander Lim in a
"certain transaction" but refused to elucidate
further. An information for theft (Annex J) was
instituted against Alexander Lim and the
corresponding warrant for his arrest was issued
(Annex 6-A) which up to the date of the filing of this
instant petition remains unserved because of
Alexander Lim's successful evation thereof.
Meanwhile, Jose Go filed his answer on Feb. 24,
1984 in the Interpleader Case and moved to
participate as intervenor in the complain for
damages. Albert Uy filed a motion of intervention
and answer in the complaint for Interpleader. On
the Scheduled date of pretrial conference inthe
interpleader case, it was disclosed that the "John
Doe" impleaded as one of the defendants is
actually pet. Marcelo A. Mesina. Pet. instead of
filing his answer to the complaint in the interpleader
filed on May 17, 1984 an Omnibus MTD Ex
Abudante Cautela alleging lack of jurisdiction in
view of the absence of an order to litigate, failure to
state a cause of action and lack of personality to
sue. Rsp. bank in the other civil case (CC-11139)
for damages moved to dismiss suit in view of the
existence already of the Interpleader case.
The TC in the interpleader case issued an order
dated July 13, 1984, denying the MTD of pet.
Mesina and ruling that rsp. bank's complaint
sufficiently pleaded a cause of action for
itnerpleader. Pet. filed his MR which was denied by
the TC on Sept. 26, 1984. Upon motion for rsp.
Jose Go dated Oct. 31, 1984, rsp. judge issued an
order on Nov. 6, 1984, declaring pet. in default
since his period to answer has already expirecd
and set the ex-parte presentation of rsp. bank's
evidence on Nov. 7, 1984.
Pet. Mesina filed a petition for certioari with
preliminary injunction with IAC to set aside 1) order
of rsp. court denying his omnibus MTD 2) order of
3) the order of default against him.
On Jan. 22, 1985, IAC rendered its decision
dimissing the petition for certiorari. Pet. Mesina filed
his MR which was also denied by the same court in
its resolution dated Feb. 18, 1985.
Meanwhile, on same date (Feb. 18, 1985), the TC
in Civil Case #84-22515 (Interpleader) rendered a
decisio, the dispositive portion reading as follows:
WHEREFORE, in view of the
foregoing, judgment is hereby
rendered ordering plaintiff Associate
Bank to replace Cashier's Check No.
011302 in favor of Jose Go or its cas
equivalent with legal rate of itnerest
from date of complaint, and with
costs of suit against the latter.
SO ORDERED.
On March 29, 1985, the TC in Civil
Case No. C-11139, for damages,
issued an order, the pertinent portion
of which states:
The records of this case show that
on Aug. 20, 1984 proceedings in this
case was (were) ordered suspended
because the main issue in Civil Case
No. 84-22515 and in this instant
case are the same which is: who
between Marcelo Mesina and Jose
Go is entitled to payment of
Associated Bank's Cashier's Check
No. CC-011302? Said issue having
been resolved already in Civil casde
No. 84-22515, really this instant
case has become moot and
academic.
WHEREFORE, in view of the
foregoing, the motion sholud be as it
is hereby granted and this case is
ordered dismissed.
In view of the foregoing ruling no
more action should be taken on the
"MR (of the order admitting the
Intervention)" dated June 21, 1984
as well as the MR dated Sept. 10,
1984.
 SO ORDERED.
Pet. now comes to Us, alleging that:
1. IAC erred in ruling that a cashier's check can be
countermanded even in the hands of a holder in
due course.
2. IAC erred in countenancing the filing and
maintenance of an interpleader suit by a party who
had earlier been sued on the same claim.
3. IAC erred in upholding the TC's order declaring
pet. as in default when there was no proper order
for him to plead in the interpleader complaint.
4. IAC went beyond the scope of its certiorari
jurisdiction by making findings of facts in advance
of trial.
Pet. now interposes the following prayer:
1. Reverse the decision of the IAC, dated Jan. 22,
1985 and set aside the Feb. 18, 1985 resolution
denying the MR.
2. Annul the orders of rsp. Judge of RTC Manila
giving due course to the interpleader suit and
declaring pet. in default.
Pet.'s allegations hold no water. Theories and
examples advanced by pet. on causes and effects
of a cashier's check such as 1) it cannot be
countermanded in the hands of a holder in due
course and 2) a cashier's check is a bill of
exchange drawn by the bank against itself-are
general principles which cannot be aptly applied to
the case at bar, without considering other things.
Pet. failed to substantiate his claim that he is a
holder in due course and for consideration or value
as shown by the established facts of the case.
Admittedly, pet. became the holder of the cashier's
check as endorsed by Alexander Lim who stole the
check. He refused to say how and why it was
passed to him. He had therefore notice of the
defect of his title over the check from the start. The
holder of a cashier's check who is not a holder in
due course cannot enforce such check against the
issuing bank which dishonors the same. If a payee
of a cashier's check obtained it from the issuing
bank by fraud, or if there is some other reason why
the payee is not entitled to collect the check, the
rsp. bank would, of course, have the right to refuse
payment of the check when presented by the
payee, since rsp. bank was aware of the facts
surrounding the loss of the check in question.
Moreover, there is no similarity in the cases cited by
pet. since rsp. bank did not issue the cashier's
check in payment of its obligation. Jose Go bought
it from rsp. bank for purposes of transferring his
funds from rsp. bank to another bank near his
establishment realizing that carrying money in this
form is safer than if it were in cash. The check was
Jose Go's property when it was misplaced or
stolen, hence he stopped its payment. At the
outset, rsp. bank knew it was Jose Go's check and
no one else since Go had not paid or indorsed it to
anyone. The bank was therefore liable to nobody
on the check but Jose Go. The bank had no
intention to issue it to pet. but only to buyer Jose
Go. When payment on it was therefore stopped,
rsp. bank was not the one who did it but Jose Go,
the owner of the check. Rsp. bank could not be
drawer and drawee for clearly, Jose Go owns the
money it represents and he is therefore the drawer
and the drawee in the same manner as if he has a
current account and he issued a check against it;
and from the moment said cashier's check was lost
and/or stolen no one outside of Jose Go can be
termed a holder in due course because Jose Go
had not indorsed it in due course. The check in
question suffers from the infirmity of not having
been properly negotiated and for value by rsp. Jose
Go who as already been said is the real owner of
said instrument.
In his second assignment of error, pet. stubbornly
insists that there is no showing of conflicting claims
and interpleader is out of the question. There is
enough evidence to establish the contrary.
Considering the aforementioned facts and
circumstances, rsp. bank merely took the
necessary precaution not to make a mistake as to
whom to pay and therefore interpleader was its
proper remedy. It has been shown that the
interpleader suit was filed by rsp. bank because
pet. and Jose Go were both laying their claims on
the check, pet. asking payment thereon and Jose
Go as the purchaser or owner. The allegation of
pet. that rsp. bank had effectively relieved itself of
its primary liability under the check by simply filing a
complaint for interpleader is belied by the
willingness of rsp. bank to issue a certificate of time
deposit in the amount of P800,000 representing the
cashier's check in question in the name of the Clerk
of Court of Manila to be awarded to whoever wig be
found by the court as validly entitled to it. Said
validity will depend on the strength of the parties'
respective rights and titles thereto. Bank filed the
interpleader suit not because pet. sued it but
because pet. is laying claim to the same check that
Go is claiming. On the very day that the bank
instituted the case in interpleader, it was not aware
of any suit for damages filed by pet. against it as
supported by the fact that the interpleader case
was first entitled Associated Bank vs. Jose Go and
John Doe, but later on changed to Marcelo A.
Mesina for John Doe when his name became
known to rsp. bank.
In his third assignment of error, pet. assails the then
rsp. IAC in upholding the TC's order declaring pet.
in default when there was no proper order for him
to plead in the interpleader case. Again, such
contention is untenable. The TC issued an order,
compelling pet. and rsp. Jose Go to file their
Answers setting forth their respective claims.
Subsequently, a Pre-Trial Conference was set with
notice to parties to submit position papers. Pet.
argues in his memorandum that this order requiring
pet. to file his answer was issued without
jurisdiction alleging that since he is presumably a
holder in due course and for value, how can he be
compelled to litigate against Jose Go who is not
even a party to the check? Such argument is trite
and ridiculous if we have to consider that neither
his name or Jose Go's name appears on the check.
Following such line of argument, pet. is not a party
to the check either and therefore has no valid claim
to the Check. Furthermore, the Order of the TC
requiring the parties to file their answers is to all
intents and purposes an order to interplead,
substantially and essentially and therefore in
compliance with the provisions of Rule 63 of the
Rules of Court. What else is the purpose of a law
suit but to litigate?
The records of the case show that rsp. bank had to
resort to details in support of its action for
Interpleader. Before it resorted to Interpleader, rsp.
bank took an precautionary and necessary
measures to bring out the truth. On the other hand,
pet. concealed the circumstances known to him
and now that private rsp. bank brought these
circumstances out in court (which eventually
rendered its decision in the light of these facts), pet.
charges it with "gratuitous excursions into these
non-issues." Rsp. IAC cannot rule on whether rsp.
RTC committed an abuse of discretion or not,
without being apprised of the facts and reasons
why rsp. Associated Bank instituted the
Interpleader case. Both parties were given an
opportunity to present their sides. Pet. chose to
withhold substantial facts. Rsps. were not forbidden
to present their side-this is the purpose of the
Comment of rsp. to the petition. IAC decided the
question by considering both the facts submitted by
pet. and those given by rsps.. IAC did not act
therefore beyond the scope of the remedy sought in
the petition.
WHEREFORE, finding that the instant petition is
merely dilatory, the same is hereby denied and the
assailed orders of the rsp. court are hereby
AFFIRMED in toto.
GR L-39641 Feb. 28, 1983
METROPOL (BACOLOD) FINANCING &
INVESTMENT CORPORATION, plaintiff-appellee,
vs.
SAMBOK MOTORS COMPANY and NG
SAMBOK SONS MOTORS CO., LTD., defendants-
appellants.
Rizal Quimpo & Cornelio P. Revena for plaintiff-
appellee.
Diosdado Garingalao for defendants-appellants.
DE CASTRO, J.:
The former CA, by its resolution dated Oct. 16,
1974 certified this case to this Court the issue
issued therein being one purely of law.
On April 15, 1969 Dr. Javier Villaruel executed a
promissory note in favor of Ng Sambok Sons
Motors Co., Ltd., in the amount of P15,939.00
payable in twelve (12) equal monthly installments,
beginning May 18, 1969, with interest at the rate of
one percent per month. It is further provided that in
case on non-payment of any of the installments, the
total principal sum then remaining unpaid shall
become due and payable with an additional interest
equal to twenty-five percent of the total amount
due.
On the same date, Sambok Motors Company
(hereinafter referred to as Sambok), a sister
company of Ng Sambok Sons Motors Co., Ltd., and
under the same management as the former,
negotiated and indorsed the note in favor of plaintiff
Metropol Financing & Investment Corporation with
the following indorsement:
Pay to the order of Metropol Bacolod
Financing & Investment Corporation
with recourse. Notice of Demand;
 Dishonor; Protest; and Presentment
are hereby waived.
SAMB
OK
MOTO
RS CO.
(BACO
LOD)
By:
RODOLFO G. NONILLO Asst.
General Manager
The maker, Dr. Villaruel defaulted in the payment of
his installments when they became due, so on Oct.
30, 1969 plaintiff formally presented the promissory
note for payment to the maker. Dr. Villaruel failed to
pay the promissory note as demanded, hence
plaintiff notified Sambok as indorsee of said note of
the fact that the same has been dishonored and
demanded payment.
Sambok failed to pay, so on Nov. 26, 1969 plaintiff
filed a complaint for collection of a sum of money
before the Court of First Instance of Iloilo, Branch I.
Sambok did not deny its liability but contended that
it could not be obliged to pay until after its co-
defendant Dr. Villaruel has been declared insolvent.
During the pendency of the case in the TC,
defendant Dr. Villaruel died, hence, on Oct. 24,
1972 the lower court, on motion, dismissed the
case against Dr. Villaruel pursuant to Sec. 21, Rule
3 of the Rules of Court. 1
On plaintiff's motion for summary judgment, the TC
rendered its decision dated Sept. 12, 1973, the
dispositive portion of which reads as follows:
WHEREFORE, judgment is
rendered:
(a) Ordering Sambok Motors
Company to pay to the plaintiff the
sum of P15,939.00 plus the legal
rate of interest from Oct. 30, 1969;
(b) Ordering same defendant to pay
to plaintiff the sum equivalent to 25%
of P15,939.00 plus interest thereon
until fully paid; and
(c) To pay the cost of suit.
Not satisfied with the decision, the present appeal
was instituted, appellant Sambok raising a lone
assignment of error as follows:
The TC erred in not dismissing the
complaint by finding defendant
appellant Sambok Motors Company
as assignor and a qualified indorsee
of the subject promissory note and in
not holding it as only secondarily
liable thereof.
Appellant Sambok argues that by adding the words
"with recourse" in the indorsement of the note, it
becomes a qualified indorser that being a qualified
indorser, it does not warrant that if said note is
dishonored by the maker on presentment, it will pay
the amount to the holder; that it only warrants the
following pursuant to Sec. 65 of the Negotiable
Instruments Law: (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 had
capacity to contract; (d) that he has no knowledge
of any fact which would impair the validity of the
instrument or render it valueless.
The appeal is without merit.
A qualified indorsement constitutes the indorser a
mere assignor of the title to the instrument. It may
be made by adding to the indorser's signature the
words "without recourse" or any words of similar
import. 2 Such an indorsement relieves the indorser
of the general obligation to pay if the instrument is
dishonored but not of the liability arising from
warranties on the instrument as provided in Sec. 65
of the Negotiable Instruments Law already
mentioned herein. However, appellant Sambok
indorsed the note "with recourse" and even waived
the notice of demand, dishonor, protest and
presentment.
"Recourse" means resort to a person who is
secondarily liable after the default of the person
who is primarily liable. 3 Appellant, by indorsing the
note "with recourse" does not make itself a qualified
indorser but a general indorser who is secondarily
liable, because by such indorsement, it agreed that
if Dr. Villaruel fails to pay the note, plaintiff-appellee
can go after said appellant. The effect of such
indorsement is that the note was indorsed without
qualification. A person who indorses without
qualification engages that on due presentment, the
note 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. 4 Appellant Sambok's
intention of indorsing the note without qualification
is made even more apparent by the fact that the
notice of demand, dishonor, protest and
presentment were an waived. The words added by
said appellant do not limit his liability, but rather
confirm his obligation as a general indorser.
Lastly, the lower court did not err in not declaring
appellant as only secondarily liable because after
an instrument is dishonored by non-payment, the
person secondarily liable thereon ceases to be
such and becomes a principal debtor. 5 His liabiliy
becomes the same as that of the original obligor. 6
Consequently, the holder need not even proceed
against the maker before suing the indorser.
WHEREFORE, the decision of the lower court is
hereby affirmed. No costs.
GR 130756 Jan. 21, 1999
ESTER B. MARALIT, pet.,
vs.
JESUSA CORAZON L. IMPERIAL, rsp..
MENDOZA, J.:
This is a petition for review on certiorari of the
decision, dated Aug. 26, 1997, and the resolution,
dated Sept. 29, 1997, of the RTC of Naga City
(Branch 21) in Special Civil Case No. RTC '97-
3744.
The facts are as follows:
Pet. Ester B. Maralit filed three complaints for
estafa three falsification of commercial documents
through reckless imprudence against rsp. Jesusa
Corazon L. Imperial. 1 Maralit alleged that she was
assistant manager of the Naga City branch of the
PNB, (PNB); that on May 20, 1992, June 1, 1992,
and July 1, 1992 rsp. Imperial separately deposited
in her savings account at the PNB three US
treasury warrants bearing USTW Nos. 2034-
91254963, 2034-91180047, and 2034-33330760
and on the same days withdrew their peso
equivalent of P59,216.86, P130,743.60, and
P130,326.00, respectively; and that the treasury
warrants were subsequently returned one after the
other by the US Treasury, through the Makati
branch of the Citibank, on the ground that the
amounts thereof had been altered. Maralit claimed
that as a consequence, she was held personally
liable by the PNB for the total amount of
P320,287.30.
In her counter-affidavit, rsp. claimed that she
merely helped a relative, Aida Abengoza, encash
the treasury warrants; that she deposited the
treasury warrants in her savings account and then
withdrew their peso equivalent with the approval of
pet.; that she gave the money to Aida Abengoza;
that she did not know that the amounts on the
treasury warrants had been altered nor did she
represent to pet. that the treasury warrants were
genuine; and that upon being informed of the
dishonor of the warrants she immediately contacted
Aida Abengoza and signed an acknowledgment of
debt promising to pay the total amount of the
treasury warrants.
After preliminary investigation, the City Prosecutor
of Naga City filed three informations against rsp. in
the Municipal TC of Naga City (Branch 3).
On Sept. 26, 1996, judgment was rendered as
follows:
WHEREFORE, in view of the
foregoing considerations, the Court
finds no ground to hold the accused
criminally liable for which she is
charged, hence Corazon Jesusa L.
Imperial is ACQUITTED of all the
charges against her. The accused
however is civilly liable as indorser
of the checks which is (sic) the
subject matter of the criminal action.
2
The decision having become final and executory,
the MTC, on Nov. 11, 1996, ordered the
enforcement of the civil liability against the accused
arising from the criminal action. 3 The writ of
execution, dated Dec. 9, 1996, directed the sheriff
as follows: 4
NOW, THEREFORE, you are hereby
commanded to cause the execution
of the aforesaid judgment in the
amount of THREE HUNDRED
TWENTY THOUSAND TWO
HUNDRED EIGHTY SIX & 46/100
(P320,286.46) ONLY, equivalent to
the amount of the 3 three US$
checks amounting to $12,621.13,
and to levy the goods and chattels of
the defendant/s, except those which
are exempt from execution and to
 make the sale thereat in accordance
with the procedure outlined by Rule
39, Revised Rules of Court and such
cases made and provided, together
with all your lawful fees for the
services of this writ.
Accordingly, the sheriff served a notice of
garnishment on the PNB.
Rsp. at first moved to declare her savings account
exemp from execution on the ground that the same
represented her salary as an employee of the
Commission on Audit, which was not even sufficient
for expenses and that of her family. Later, she
moved to quash the writ of execution on the ground
"that the judgment did not order the accused to pay
[a] specific amount of money to a particular person
as it merely adjudicated the criminal aspect but not
the civil aspect hence there was no judgment
rendered which can be the subject of execution."
Both motions of rsp. were denied by the MTC for
lack of merit in its order, dated Feb. 24, 1997. 5
Accordingly, an alias writ of execution was issued.
On April 14, 1997, rsp. filed a petition for certiorari
and prohibition in the RTC of Naga City, contending
that the writ of execution issued by the MTC was at
variance with the judgment in the crim.cases.
The RTC issued a writ of preliminary injunction
enjoining enforcement of the writ of execution
issued by the M'TC. On Aug. 26, 1997, it rendered
a decision, which, among other things, made
permanent the injunction. The RTC held that the
decision of the MTC did not really find rsp. liable for
P320,286.46 because in fact it was pet. who was
found responsible for making the defraudation
possible.
Pet. moved for reconsideration alleging that rsp.
filed her petition for certiorari and prohibition more
than three months after the MTC had ordered
execution of its decision on Nov. 11, 1996,
However, her motion was denied on Sept. 28,
1997. 6 The RTC held that the three-month period
should be counted from April 1, 1997, when the
alias writ of execution was issued, or from April 7,
1997, when the MTC denied private rsp.'s MR of
the order denying her motion to quash the writ of
execution. The RTC likewise found the second
ground of pet.'s MR, i.e., that its decision was
contrary to law and jurisprudence, devoid of merit.
Hence, this petition. Pet. raises the following
issues: 7
1. Whether rsp.'s Petition for Certiorari
and Prohibition under Rule 65 of the
Rules of Court was filed out of time;
2. Whether this case warrants the
relaxation of the rule that "Certiorari
is not a substitute for a lost or lapsed
appeal."
3. W/N the MTC committed grave
abuse of discretion amounting to
lack or excess of jurisdiction, when it
issued the Order of Execution, Writ
of Execution and Alias Writ of
Execution to implement its final and
executory civil judgment in
Crim.cases No. 68697, 68698 and
68699, which reads:" . . . The
accused however is civilly liable as
indorser of the checks subject
matter of the criminal action."
4. W/N the MTC merely adjudicated
the criminal aspect but not the civil
aspect of Crim.cases 68697, 68698
and 68699.
5. Whether there was substantial
variance as between the dispositive
portion of the civil judgment and the
writ of execution issued thereunder.
6. W/N a court exercising certiorari
jurisdiction has the authority to
modify or alter the final and
executory decision of the lower court
even by way of an obiter dictum.
Pet. contends that the phrase "civilly liable" in the
judgment part of the MTC's decision also connotes
an order to pay on rsp.'s part.
It may fairly be assumed that the decision of the
MTC was an adjudication of both the criminal and
civil liability of rsp. inasmuch as it does not appear
that pet. instituted a separate civil action or
reserved or waived the right to bring such action.
The question is whether the decision of the MTC
finds rsp. civilly liable and, in the affirmative, for
how much. As already stated, the RTC held that the
MTC did not really find rsp. liable. In reaching that
conclusion, the RTC said:
A mere reading of the dispositive
portion of the judgment and the writ
of execution will readily show that to encash the peso
there is variance between the two. equivalent despite the
Whereas, the judgment pronounced fact that the check
[rsp. herein] to be "civilly liable" as was deposited for
indorser of the checks which is the collection and
subject matter of the criminal action," clearing. It is the
the writ of execution commanded the established
Sheriff "to cause the execution of the procedure of banks
aforesaid judgment in the amount of that out of town
THREE HUNDRED TWENTY checks and US
THOUSAND TWO HUNDRED Treasury Warrants
EIGHTY SIX & 46/100 should first be cleared
(P320,286.46) ONLY, equivalent to before the same is to
the amount of the 3 three US$ be paid. More so if
checks amounting to the holder is a second
$12,621.13, . . . ." In the judgment, indorser. The private
nothing is mentioned about the complainant in this
amount for which [rsp. herein] is regard explained that
liable as indorser, but in the writ of [as assistant branch
execution, the civil liability of the manager] she has the
[rsp. herein] has already been fixed discretion and that
at P320,286.46. The variance, there is no hold order
therefore, between the judgment and appearing in the
the writ of execution is substantial savings account of
because it consists of the addition of the accused. She
the amount of the civil liability of the likewise explained
[rsp. herein]. that she trusted the
accused whom she
xxx xxx xxx knew is working in the
same building and a
. . . The [MTC's] findings of facts and depositor. In short
conclusions of law as expressed in she took the risk of
the body of the decision do not approving the
support the dispositive portion of the withdrawal of the
judgment that [rsp. herein] is civilly peso equivalent,
liable. On the contrary a reading of without the check
the body of the judgment in question being cleared and if
will show that [rsp.] is not civilly the same is
liable. For three (3) times, the Court dishonored she
stated in the body of its decision that should be
it is [pet.] Maralit herself who should responsible. (page 5,
be faulted and be held responsible judgment).
for the payment of the dishonored
US Dollar checks. The information
accuses the accused
Hereunder quoted are portions of for disregarding the
the body of the decision in question banking laws and
showing that [rsp.] herein should be procedure of the
held civilly liable and that it was PNB. This is a
[pet.] Maralit who should be blamed generous statement.
and held responsible: In the first place the
accused is not an
. . . The Court employee of the
however is quite bank. She has no
intrigue[d] on why the control nor
accused was allowed supervision over its
 employees. If there is 3) . . . not tak[ing] the necessary precaution to
anyone who has determine the genuineness of the Treasury
disregarded banking Warrants and the alteration of the amount[s] therein
laws, it is the private deposited and [in] encash[ing] the checks, and 4) . .
complainant for . [her] negligence, carelessness, and imprudence
approving [which] caused damage and loss to [pet.]." 9
withdrawals before Nevertheless, the MTC held that rsp. was civilly
the check were liable as the penultimate paragraph of its decision
cleared. Mrs. Maralit makes clear:
is more
knowledgeable of the The Court symphatizes with the
banking procedures complainant that there was indeed
of the bank of which damage and loss, but said loss is
she is the assistant chargeable to the accused who upon
manager. She knows her indorsements warrant that the
the risk of approving instrument is genuine in all respect
encashment before what it purports to be and that she
clearing. She took the will pay the amount thereof in case
risk therefore she of dishonor. (Sec. 66 Negotiable
should be responsible Instrument Law). 10
for the outcome of the
risk she has taken. Thus, while the MTC found pet. partly responsible
(page 6, Judgment). for the encashment of the altered checks, it found
rsp. civilly liable because of her indorsements of the
The Court is of the treasury warrants, in addition to the fact that rsp.
opinion that there was executed a notarized acknowledgment of debt
negligence on both promising to pay the total amount of said warrants.
the complainant and
the accused but In this case, to affirm the RTC's decision would be
greater responsibility to hold that rsp. was absolved from both criminal
should be borne by and civil liability, by the MTC. Such reading of the
the private MTC decision will not, however, bear analysis. For
complainant. The one, the dispositive portion of the decision of the
accused could not MTC expressly declares rsp. to be "civilly liable as
have encashed and indorser of the checks which is [sic] the subject
deposited the checks matter of the criminal action." To find therefore that
without her approval. there is no declaration of civil liability of rsp. would
If the complainant be to disregard the judgment of the MTC. Worse, it
was not remiss in her would be to amend a final and executor decision of
duty in imposing the a court.
banking rules strictly,
then these things It is argued that the decision of the MTC did not
could not have order rsp., as accused in the case, to pay a specific
happened. (page 7, amount of money to any particular person such that
Judgment). 8 it could not be an adjudication of rsp.'s civil liability.
However, the ambiguity can easily be clarified by a
This portion of the decision of the MTC actually resort to the text of the decision or, what is properly
refers to rsp.'s criminal liability and not her civil called, the opinion part. Doing so, it is clear that it
liability. More specially, the portion in question can only be to pet. that rsp. was made liable as the
refers to the allegations in the three informations former was the offended party in the case. As for
that rsp. committed falsification of commercial that amount rsp. is liable, it can only be for the total
documents through reckless imprudence by "1) amount of the treasury warrants subject of the
taking advantage of [her] position as state auditor case, determined according to their peso
of the Commission on Audit assigned at the PNB, equivalent, in the decision of the MTC.
Naga Branch, 2) disregard[ing] existing procedure,
banking laws, policies, and circulars of the PNB,
For another, that rsp. should pay pet. the amounts
of the altered treasury warrants is the logical
consequence of the MTC's holding that private rsp.
is civilly liable for the treasury warrant subject of the
case. 11
WHEREFORE, the decision of the RTC of Naga
City (Branch 21) is REVERSED
GR 128927 Sept. 14, 1999
REMEDIOS NOTA SAPIERA, pet.,
vs.
CA and RAMON SUA, rsps..
BELLOSILLO, J.:
REMEDIOS NOTA SAPIERA appeals to us through
this petition for review the Decision of the CA 1
which acquitted her of the crime of estafa but held
her liable nonetheless for the value of the checks
she indorsed in favor of private rsp. Ramon Sua.
On several occasions pet. Remedios Nota Sapiera,
a sari-sari store owner, purchased from Monrico
Mart certain grocery items, mostly cigarettes, and
paid for them with checks issued by one Arturo de
Guzman: (a) PCIB Check No. 157059 dated 26
Feb. 1987 for P140,000.00; (b) PCIB Check No.
157073 dated 26 Feb. 1987 for P28,000.00; (c)
PCIB Check No. 157057 dated 27 Feb. 1987 for
P42,150.00; and, d) Metrobank Check No. DAG-
045104758 PA dated 2 March 1987 for
P125,000.00. These checks were signed at the
back by pet.. When presented for payment the
checks were dishonored because the drawer's
account was already closed. Private rsp. Ramon
Sua informed Arturo de Guzman and pet. about the
dishonor but both failed to pay the value of the
checks. Hence, four (4) charges of estafa were filed
against pet. with the RTC of Dagupan City,
docketed as Crim. Cases Nos. D-8728, D-8729, D-
8730 and D-8731. Arturo de Guzman was charged
with two (2) counts of violation of B.P. Blg. 22,
docketed as Crim. Cases Nos. D-8733 and D-8734.
These cases against pet. and de Guzman were
consolidated and tried jointly.
On 27 Dec. 1989 the court a quo 2 acquitted pet. of
all the charges of estafa but did not rule on whether
she could be held civilly liable for the checks she
indorsed to private rsp.. The TC found Arturo de
Guzman guilty of Violation of B.P. Blg. 22 on two (2)
counts and sentenced him to suffer imprisonment
of six (6) months and one (1) day in each of the
cases, and to pay private rsp. P167,150.00 as civil
indemnity.
Private rsp. filed a notice of appeal with the TC with
regard to the civil aspect but the court refused to
give due course to the appeal on the ground that
the acquittal of pet. was absolute. Private rsp. then
filed a petition for mandamus with the CA, docketed
as CA-GR SP No. 24626, praying that the court a
quo be ordered to give due course to the appeal on
the civil aspect of the decision. The CA granted the
petition and ruled that private rsp. could appeal with
respect to the civil aspect the judgment of acquittal
by the TC.
On 22 Jan. 1996, the CA in CA-GR CV No. 36376
rendered the assailed Decision insofar as it
sustained the appeal of private rsp. on the civil
aspect and ordering pet. to pay private rsp.
P335,000.00 representing the aggregate face value
of the four (4) checks indorsed by pet. plus legal
interest from the notice of dishonor.
Pet. filed a MR of the Decision. On 19 March 1997
the CA issued a Resolution noting the admission of
both parties that private rsp. had already collected
the amount of P125,000.00 from Arturo de Guzman
with regard to his civil liability in Crim. Cases Nos.
8733 and 8734. The appellate court noted that
private rsp. was the same offended party in the
crim.cases against pet. and against de Guzman.
Crim.cases Nos. 8733 and 8734 against De
Guzman, and Crim. Cases Nos. 8730 and 8729
against pet., involved the same checks, to wit:
PCIB Checks Nos. 157057 for P42,150.00 and
Metrobank Check No. DAG-045104758 PA for
P125,000.00.
Thus, the CA ruled that private rsp. could not
recover twice on the same checks. Since he had
collected P125,000.00 as civil indemnity in Crim.
Cases Nos. 8733 and 8734, this amount should be
deducted from the sum total of the civil indemnity
due him arising from the estafa cases against pet..
The appellate court then corrected its previous
award, which was erroneously placed, at
P335,000,00, to P335,150,00 as the sum total of
the amounts of the four (4) checks involved.
Deducting the amount of P125,000.00 already
collected by private rsp., pet. was adjudged to pay
P210,150.00 as civil liability to private rsp.. Hence,
this petition alleging that rsp. CA erred in holding
pet. civilly liable to private rsp. because her
acquittal by the TC from charges of estafa in Crim.
Cases Nos. D-8728, D-8729, D-8730 and D-8731
was absolute, the TC having declared in its (mostly cigarettes) which purchases
decision that the fact from which the civil liability were paid with checks issued by
might have arisen did not exist. Arturo de Guzman: that those
purchases and payments with
We cannot sustain pet.. The issue is whether rsp. checks were as follows:
CA committed reversible error in requiring pet. to
pay civil indemnity to private rsp. after the TC had (a) Sales Invoice No.
acquitted of her of the criminal charges. Sec. 2, par. 20104 dated Feb. 26,
(b), of Rule 111 of the Rules of Court, as amended, 1987 in the amount of
specifically provides: "Extinction of the penal action P28,000.00, that said
does not carry with it extinction of the civil, unless items purchased were
the extinction proceed from a declaration in a final paid with PCIBank
judgment that the fact from which the civil might Check No. 157073
arise did not exist." dated Feb. 26, 1987;

The judgment of acquittal extinguishes the liability (b) Sales Invoice No.
of the accused for damages only when it includes a 20108 dated Feb. 26,
declaration that the fact from which the civil liability 1987 in the amount of
might arise did not exist. Thus, the civil liability is P140,000.00; that
not extinguished by acquittal where: (a) the said items purchased
acquittal is based on reasonable doubt; (b) where were paid with
the court expressly declares that the liability of the PCIBank No. 157059
accused is not criminal but only civil in nature; and, dated Feb. 26, 1987;
(c) where the civil liability is not derived from or
based on the criminal act of which the accused is (c) Sales Invoice No.
acquitted. 3 Thus, under Art. 29 of the CC — 20120 dated Feb. 27,
1987 in the amount of
When the accused in a criminal P42,150.00; that said
prosecution is acquitted on the items were paid with
ground that his guilt has not been PCIBank Check No.
proved beyond reasonable doubt, a 157057 dated Feb.
civil action for damages for the same 27, 1987;
act or omission may be instituted.
Such action requires only a (d) Sales Invoice No.
preponderance of evidence. Upon 20148 and 20149
motion of the defendant, the court both dated March 2,
may require the plaintiff to file a 1987 in the amount of
bond to answer for damages in case P120,103.75; said
the complaint should be found to be items were paid with
malicious. Metrobank Check No.
045104758 dated
In a crim.case where the judgment March 2, 1987 in the
of acquittal is based upon amount of
reasonable doubt, the court shall so P125,000.00.
declare. In the absence of any
declaration to that effect, it may be That all these checks were
inferred from the text of the decision deposited with the Consolidated
W/N acquittal is due to that ground. Bank and Trust Company, Dagupan
Branch, for collection from the
An examination of the decision in the crim.cases drawee bank;
reveals these findings of the TC —
That when presented for payment by
Evidence for the prosecution tends the collecting bank to the drawee
to show that on various occasions, bank, said checks were dishonored
Remedios Nota Sapiera purchased due to account closed, as evidenced
from Monrico Mart grocery items by check return slips; . . . . .
 From the evidence, the Court finds
that accused Remedios Nota
Sapiera is the owner of a sari-sari
store inside the public market; that
she sells can(ned) goods, candies
and assorted grocery items; that she
knows accused Arturo De Guzman,
a customer since Feb. 1987; that de
Guzman purchases from her grocery
items including cigarettes; that she
knows Ramon Sua; that she has
business dealings with him for 5
years; that her purchase orders were
in clean sheets of paper; that she
never pays in check; that Ramon
Sua asked her to sign subject
checks as identification of the
signature of Arturo de Guzman; that
she pays in cash; sometimes
delayed by several days; that she
signed the four (4) checks on the
reverse side; that she did not know
the subject invoices; that de
Guzman made the purchases and
he issued the checks; that the goods
were delivered to de Guzman; that
she was not informed of dishonored
checks; and that counsel for Ramon
Sua informed de Guzman and told
him to pay . . . .
In the case of accused Remedios
Nota Sapiera, the prosecution failed
to prove conspiracy.
Based on the above findings of the TC, the
exoneration of pet. of the charges of estafa was
based on the failure of the prosecution to present
sufficient evidence showing conspiracy between
her and the other accused Arturo de Guzman in
defrauding private rsp.. However, by her own
testimony, pet. admitted having signed the four (4)
checks in question on the reverse side. The
evidence of the prosecution shows that pet.
purchased goods from the grocery store of private
rsp. as shown by the sales invoices issued by
private rsp.; that these purchases were paid with
the four (4) subject checks issued by de Guzman;
that pet. signed the same checks on the reverse
side; and when presented for payment, the checks
were dishonored by the drawee bank due to the
closure of the drawer's account; and, pet. was
informed of the dishonor.
We affirm the findings of the CA that despite the
conflicting versions of the parties, it is undisputed
that the four (4) checks issued by de Guzman were
signed by pet. at the back without any indication as
to how she should be bound thereby and, therefore,
she is deemed to be an indorser thereof. The
Negotiable Instruments Law clearly provides —
Sec. 17. Construction where
instrument is ambiguous. — Where
the language of the instrument is
ambiguous, or there are admissions
therein, the following rules of
construction apply: . . . . (f) Where a
signature is so placed upon the
instrument that it is not clear in what
capacity the person making the
same intended to sign, he is deemed
an indorser. . . .
Sec. 63. When person deemed
indorser. — A person placing his
signature upon all instrument
otherwise than as maker, drawer or
acceptor, is deemed to be an
indorser unless he clearly indicates
by appropriate words his intention to
be bound in some other capacity.
Sec. 66. Liability of general indorser.
— Every indorser who indorses
without qualification, warrants to all
subsequent holders in due course:
(a) The matters and things
mentioned in subdivisions (a), (b)
and (c) of the next preceding Sec.;
and (b) That the instrument is, at the
time of the indorsement, valid and
subsisting;
And, in addition, he engages that, on
due presentment, it shall be
accepted or paid or both, as the
case may be, according to its tenor,
and that if it be dishonored and the
necessary proceedings on dishonor
be duly taken, he will pay the
amount thereof to the holder or to
any subsequent indorser who may
be compelled to pay it.
The dismissal of the crim.cases against pet. did not
erase her civil liability since the dismissal was due
to insufficiency of evidence and not from a
declaration from the court that the fact from which
the civil action might arise did not exist. 4 An
accused acquitted of estafa may be nevertheless
be held civilly liable where the facts established by
the evidence so warrant. The accused should be
adjudged liable for the unpaid value of the checks
signed by her in favor of the complainant. 5
The rationale behind the award of civil indemnity
despite a judgment of acquittal when evidence is
sufficient to sustain the award was explained by the
Code Commission in connection with Art. 29 of the
CC, to wit:
The old rule that the acquittal of the
accused in a crim.case also releases
him from civil liability is one of the
most serious flaws in the Philippine
legal system. It has given rise to
numberless instances of miscarriage
of justice, where the acquittal was
due to a reasonable doubt in the
mind of the court as to the guilt of
the accused. The reasoning followed
is that inasmuch as the civil
responsibility is derived from the
criminal offense, when the latter is
not proved, civil liability cannot be
demanded.
This is one of those cases where
confused thinking leads to
unfortunate and deplorable
consequences. Such reasoning fails
to draw a clear line of demarcation
between criminal liability and civil
responsibility, and to determine the
logical result of the distinction. The
two liabilities are separate and
distinct from each other. One affects
the social order and the other private
rights. One is for punishment or
correction of the offender while the
other is for reparation of damages
suffered by file aggrieved party . . . .
It is just and proper that for the
purposes of imprisonment of or fine
upon the accused, the offense
should be proved beyond
reasonable doubt. But the purpose
of indemnifying the complaining
party, why should the offense also
be proved beyond reasonable
doubt? Is not the invasion or
violation of every private right to be
proved only by preponderance of
evidence? Is the right of the
aggrieved person any less private
because the wrongful acts is also
punishable by the criminal law? 6
Finally, with regard to the computation of the civil
liability of pet., the finding of the CA that pet. is
civilly liable for the aggregate value of the unpaid
four (4) checks subject of the crim.cases in the sum
of P335,150.00, less the amount of P125.000.00
already collected by private rsp. pending appeal,
resulting in the amount of P210,150.00 still due
private rsp., is a factual matter which is binding and
conclusive upon this Court.
WHEREFORE, the petition is DENIED. The
Decision of the CA dated 22 Jan. 1996 as amended
by its Resolution dated 19 March 1997 ordering
pet. Remedios Nota Sapiera to pay the private rsp.
Ramon Sua the remaining amount of P210,150.00
as civil liability, is AFFIRMED. Costs against pet/s.
SO ORDERED.
GR 112392 Feb. 29, 2000
BANK OF THE PHILIPPINE ISLANDS, pet.,
vs.
CA and BENJAMIN C. NAPIZA, rsps..
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the
Decision1 of the CA in CA-G.R. CV No. 37392
affirming in toto that of the RTC of Makati, Branch
139,2 which dismissed the complaint filed by pet.
Bank of the Philippine Islands against private rsp.
Benjamin C. Napiza for sum of money.
On Sept. 3, 1987, private rsp. deposited in Foreign
Currency Deposit Unit (FCDU) Savings Account
No. 028-1873 which he maintained in pet. bank's
Buendia Avenue Extension Branch, Continental
Bank Manager's Check No. 000147574 dated Aug.
17, 1984, payable to "cash" in the amount of Two
Thousand Five Hundred Dollars ($2,500.00) and
duly endorsed by private rsp. on its dorsal side. 5 It
appears that the check belonged to a certain Henry
who went to the office of private rsp. and requested
him to deposit the check in his dollar account by
way of accommodation and for the purpose of
clearing the same. Private rsp. acceded, and
agreed to deliver to Chan a signed blank
withdrawal slip, with the understanding that as soon
as the check is cleared, both of them would go to
the bank to withdraw the amount of the check upon
private rsp.'s presentation to the bank of his
passbook.
Using the blank withdrawal slip given by private rsp.
to Chan, on Oct. 23, 1984, one Ruben Gayon, Jr.
was able to withdraw the amount of $2,541.67 from
FCDU Savings Account No. 028-187. Notably, the
withdrawal slip shows that the amount was payable
to Ramon A. de Guzman and Agnes C. de Guzman
and was duly initialed by the branch assistant
manager, Teresita Lindo.6
On Nov. 20, 1984, pet. received communication
from the Wells Fargo Bank International of New
York that the said check deposited by private rsp.
was a counterfeit check7 because it was "not of the
type or style of checks issued by Continental Bank
International."8 Consequently, Mr. Ariel Reyes, the
manager of pet.'s Buendia Avenue Extension
Branch, instructed one of its employees, Benjamin
D. Napiza IV, who is private rsp.'s son, to inform his
father that the check bounced.9 Reyes himself sent
a telegram to private rsp. regarding the dishonor of
the check. In turn, private rsp.'s son wrote to Reyes
stating that the check been assigned "for
encashment" to Ramon A. de Guzman and/or
Agnes C. de Guzman after it shall have been
cleared upon instruction of Chan. He also said that
upon learning of the dishonor of the check, his
father immediately tried to contact Chan but the
latter was out of town.10
Private rsp.'s son undertook to return the amount of
$2,500.00 to pet. bank. On Dec. 18, 1984, Reyes
reminded private rsp. of his son's promise and
warned that should he fail to return that amount
within seven (7) days, the matter would be referred
to the bank's lawyers for appropriate action to
protect the bank's interest.11 This was followed by a
letter of the bank's lawyer dated April 8, 1985
demanding the return of the $2,500.00.12
In reply, private rsp. wrote pet.'s counsel on April
20, 198513 stating that he deposited the check "for
clearing purposes" only to accommodate Chan. He
added:
Further, please take notice that said check
was deposited on Sept. 3, 1984 and
withdrawn on Oct. 23, 1984, or a total
period of fifty (50) days had elapsed at the
time of withdrawal. Also, it may not be amiss
to mention here that I merely signed an
authority to withdraw said deposit subject to
its clearing, the reason why the transaction
is not reflected in the passbook of the
account. Besides, I did not receive its
proceeds as may be gleaned from the
withdrawal slip under the captioned
signature of recipient.1âwphi1.nêt
If at all, my obligation on the transaction is
moral in nature, which (sic) I have been and
is (sic) still exerting utmost and maximum
efforts to collect from Mr. Henry Chan who
is directly liable under the circumstances.
xxx xxx xxx
On Aug. 12, 1986, pet. filed a complaint against
private rsp., praying for the return of the amount of
$2,500.00 or the prevailing peso equivalent plus
legal interest from date of demand to date of full
payment, a sum equivalent to 20% of the total
amount due as attorney's fees, and litigation and/or
costs of suit.
Private rsp. filed his answer, admitting that he
indeed signed a "blank" withdrawal slip with the
understanding that the amount deposited would be
withdrawn only after the check in question has
been cleared. He likewise alleged that he instructed
the party to whom he issued the signed blank
withdrawal slip to return it to him after the bank
draft's clearance so that he could lend that party his
passbook for the purpose of withdrawing the
amount of $2,500.00. However, without his
knowledge, said party was able to withdraw the
amount of $2,541.67 from his dollar savings
account through collusion with one of pet.'s
employees. Private rsp. added that he had "given
the Plaintiff fifty one (51) days with which to clear
the bank draft in question." Pet. should have
disallowed the withdrawal because his passbook
was not presented. He claimed that pet. had no one
to blame except itself "for being grossly negligent;"
in fact, it had allegedly admitted having paid the
amount in the check "by mistake" . . . "if not
altogether due to collusion and/or bad faith on the
part of (its) employees." Charging pet. with
"apparent ignorance of routine bank procedures,"
by way of counterclaim, private rsp. prayed for
moral damages of P100,000.00, exemplary
damages of P50,000.00 and attorney's fees of 30%
of whatever amount that would be awarded to him
plus an honorarium of P500.00 per appearance in
court.
Private rsp. also filed a motion for admission of a
third party complaint against Chan. He alleged that
"thru strategem and/or manipulation," Chan was
able to withdraw the amount of $2,500.00 even
without private rsp.'s passbook. Thus, private rsp.
prayed that third party defendant Chan be made to
refund to him the amount withdrawn and to pay
attorney's fees of P5,000.00 plus P300.00
honorarium per appearance.
Pet. filed a comment on the motion for leave of
court to admit the third party complaint, whenever it
asserted that per paragraph 2 of the Rules and
Regulations governing BPI savings accounts,
private rsp. alone was liable "for the value of the
credit given on account of the draft or check
deposited." It contended that private rsp. was
estopped from disclaiming liability because he
himself authorized the withdrawal of the amount by
signing the withdrawal slip. Pet. prayed for the
denial of the said motion so as not to unduly delay
the disposition of the main case asserting that
private rsp.'s claim could be ventilated in another
case.
Private rsp. replied that for the parties to obtain
complete relief and to avoid multiplicity of suits, the
motion to admit third party complaint should be
granted. Meanwhile, the TC issued orders on Aug.
25, 1987 and Oct. 28, 1987 directing private rsp. to
actively participate in locating Chan. After private
rsp. failed to comply, the TC, on May 18, 1988,
dismissed the third party complaint without
prejudice.
On Nov. 4, 1991, a decision was rendered
dismissing the complaint. The lower court held that
pet. could not hold private rsp. liable based on the
check's face value alone. To so hold him liable
"would render inutile the requirement of "clearance"
from the drawee bank before the value of a
particular foreign check or draft can be credited to
the account of a depositor making such deposit."
The lower court further held that "it was incumbent
upon the pet. to credit the value of the check in
question to the account of the private rsp. only
upon receipt of the notice of final payment and
should not have authorized the withdrawal from the
latter's account of the value or proceeds of the
check." Having admitted that it committed a
"mistake" in not waiting for the clearance of the
check before authorizing the withdrawal of its value
or proceeds, pet. should suffer the resultant loss.
On appeal, the CA affirmed the lower court's
decision. The appellate court held that pet.
committed "clears gross negligence" in allowing
Ruben Gayon, Jr. to withdraw the money without
presenting private rsp.'s passbook and, before the
check was cleared and in crediting the amount
indicated therein in private rsp.'s account. It
stressed that the mere deposit of a check in private
rsp.'s account did not mean that the check was
already private rsp.'s property. The check still had
to be cleared and its proceeds can only be
withdrawn upon presentation of a passbook in
accordance with the bank's rules and regulations.
Furthermore, pet.'s contention that private rsp.
warranted the check's genuineness by endorsing it
is untenable for it would render useless the
clearance requirement. Likewise, the requirement
of presentation of a passbook to ascertain the
propriety of the accounting reflected would be a
meaningless exercise. After all, these requirements
are designed to protect the bank from deception or
fraud.
The CA cited the case of Roman Catholic Bishop of
Malolos, Inc. v. IAC,14 where this Court stated that a
personal check is not legal tender or money, and
held that the check deposited in this case must be
cleared before its value could be properly
transferred to private rsp.'s account.
Without filing a motion for the reconsideration of the
CA' Decision, pet. filed this petition for review on
certiorari, raising the following issues:
1. W/N RSP. NAPIZA IS LIABLE UNDER
HIS WARRANTIES AS A GENERAL
INDORSER.
2. W/N A CONTRACT OF AGENCY WAS
CREATED BETWEEN RSP. NAPIZA AND
RUBEN GAYON.
3. W/N PET. WAS GROSSLY NEGLIGENT
IN ALLOWING THE WITHDRAWAL.
Pet. claims that private rsp., having affixed his
signature at the dorsal side of the check, should be
liable for the amount stated therein in accordance
with the following provision of the Negotiable
Instruments Law (Act No. 2031):
Sec. 66. Liability of general indorser. —
Every indorser who indorses without
qualification, warrants to all subsequent
holders in due course —
(a) The matters and things mentioned in
subdivisions (a), (b), and (c) of the next
preceding Sec.; and
(b) That the instrument is at the time of his
indorsement, valid and subsisting.
And, in addition, he engages that on due
presentment, it shall be accepted or paid, or
both, as the case may be, according to its
tenor, and that if it be dishonored, and the
 necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who
may be compelled to pay it.
Sec. 65, on the other hand, provides for the
following warranties of a person negotiating an
instrument by delivery or by qualified indorsement:
(a) that the instrument is genuine and in all
respects what it purports to be; (b) that he has a
good title to it, and (c) that all prior parties had
capacity to contract.15 In People v. Maniego,16 this
Court described the liabilities of an indorser as
follows:
Appellant's contention that as mere
indorser, she may not be liable on account
of the dishonor of the checks indorsed by
her, is likewise untenable. Under the law,
the holder or last indorsee of a negotiable
instrument has the right "to enforce
payment of the instrument for the full
amount thereof against all parties liable
thereon. Among the "parties liable thereon."
Is an indorser of the instrument, i.e., "a
person placing his signature upon an
instrument otherwise than as a maker,
drawer or acceptor * * unless he clearly
indicated by appropriate words his intention
to be bound in some other capacity." Such
an indorser "who indorses without
qualification," inter alia "engages that on
due presentment, * * (the instrument) shall
be accepted or paid, or both, as the case
may be, according to its tenor, and that if it
be dishonored, and the necessary
proceedings on dishonor be duly taken, he
will pay the amount thereof to the holder, or
any subsequent indorser who may be
compelled to pay it." Maniego may also be
deemed an "accommodation party" in the
light of the facts, i.e., a person "who has
signed the instrument as maker, drawer,
acceptor, or indorser, without receiving
value thereof, and for the purpose of lending
his name to some other person." As such,
she is under the law "liable on the
instrument to a holder for value,
notwithstanding such holder at the time of
taking the instrument knew * * (her) to be
only an accommodation party," although she
has the right, after paying the holder, to
obtain reimbursement from the party
accommodated, "since the relation between
them is in effect that of principal and surety,
the accommodation party being the surety.
It is thus clear that ordinarily private rsp. may be
held liable as an indorser of the check or even as
an accommodation party.17 However, to hold private
rsp. liable for the amount of the check he deposited
by the strict application of the law and without
considering the attending circumstances in the
case would result in an injustice and in the erosion
of the public trust in the banking system. The
interest of justice thus demands looking into the
events that led to the encashment of the check.
Pet. asserts that by signing the withdrawal slip,
private rsp. "presented the opportunity for the
withdrawal of the amount in question." Pet. relied
"on the genuine signature on the withdrawal slip,
the personality of private rsp.'s son and the lapse of
more than fifty (50) days from date of deposit of the
Continental Bank draft, without the same being
returned yet."18 We hold, however, that the propriety
of the withdrawal should be gauged by compliance
with the rules thereon that both pet. bank and its
depositors are duty-bound to observe.
In the passbook that pet. issued to private rsp., the
following rules on withdrawal of deposits appear:
4. Withdrawals must be made by the
depositor personally but in some
exceptional circumstances, the Bank may
allow withdrawal by another upon the
depositor's written authority duly
authenticated; and neither a deposit nor a
withdrawal will be permitted except upon the
presentation of the depositor's savings
passbook, in which the amount deposited
withdrawn shall be entered only by the
Bank.
5. Withdrawals may be made by draft, mail
or telegraphic transfer in currency of the
account at the request of the depositor in
writing on the withdrawal slip or by
authenticated cable. Such request must
indicate the name of the payee/s, amount
and the place where the funds are to be
paid. Any stamp, transmission and other
charges related to such withdrawals shall be
for the account of the depositor and shall be
paid by him/her upon demand. Withdrawals
may also be made in the form of travellers
checks and in pesos. Withdrawals in the
form of notes/bills are allowed subject
however, to their (availability).
6. Deposits shall not be subject to
withdrawal by check, and may be
 withdrawal only in the manner above
provided, upon presentation of the
depositor's savings passbook and with the
withdrawal form supplied by the Bank at the
counter.19
Under these rules, to be able to withdraw from the
savings account deposit under the Philippine
foreign currency deposit system, two requisites
must be presented to pet. bank by the person
withdrawing an amount: (a) a duly filled-up
withdrawal slip, and (b) the depositor's passbook.
Private rsp. admits he signed a blank withdrawal
slip ostensibly in violation of Rule No. 6 requiring
that the request for withdrawal must name the
payee, the amount to be withdrawn and the place
where such withdrawal should be made. That the
withdrawal slip was in fact a blank one with only
private rsp.'s two signatures affixed on the proper
spaces is buttressed by pet.'s allegation in the
instant petition that had private rsp. indicated
therein the person authorized to receive the money,
then Ruben Gayon, Jr. could not have withdrawn
any amount. Pet. contends that "(I)n failing to do so
(i.e., naming his authorized agent), he practically
authorized any possessor thereof to write any
amount and to collect the same."20
Such contention would have been valid if not for the
fact that the withdrawal slip itself indicates a special
instruction that the amount is payable to "Ramon A.
de Guzman &/or Agnes C. de Guzman." Such
being the case, pet.'s personnel should have been
duly warned that Gayon, who was also employed in
pet.'s Buendia Ave. Extension branch,21 was not the
proper payee of the proceeds of the check.
Otherwise, either Ramon or Agnes de Guzman
should have issued another authority to Gayon for
such withdrawal. Of course, at the dorsal side of
the withdrawal slip is an "authority to withdraw"
naming Gayon the person who can withdraw the
amount indicated in the check. Private rsp. does
not deny having signed such authority. However,
considering pet.'s clear admission that the
withdrawal slip was a blank one except for private
rsp.'s signature, the unavoidable conclusion is that
the typewritten name of "Ruben C. Gayon, Jr." was
intercalated and thereafter it was signed by Gayon
or whoever was allowed by pet. to withdraw the
amount. Under these facts, there could not have
been a principal-agent relationship between private
rsp. and Gayon so as to render the former liable for
the amount withdrawn.
Moreover, the withdrawal slip contains a boxed
warning that states: "This receipt must be signed
and presented with the corresponding foreign
currency savings passbook by the depositor in
person. For withdrawals thru a representative,
depositor should accomplish the authority at the
back." The requirement of presentation of the
passbook when withdrawing an amount cannot be
given mere lip service even though the person
making the withdrawal is authorized by the
depositor to do so. This is clear from Rule No. 6 set
out by pet. so that, for the protection of the bank's
interest and as a reminder to the depositor, the
withdrawal shall be entered in the depositor's
passbook. The fact that private rsp.'s passbook was
not presented during the withdrawal is evidenced
by the entries therein showing that the last
transaction that he made with the bank was on
Sept. 3, 1984, the date he deposited the
controversial check in the amount of $2,500.00.22
In allowing the withdrawal, pet. likewise overlooked
another rule that is printed in the passbook. Thus:
2. All deposits will be received as current
funds and will be repaid in the same
manner; provided, however, that deposits of
drafts, checks, money orders, etc. will be
accented as subject to collection only and
credited to the account only upon receipt of
the notice of final payment. Collection
charges by the Bank's foreign corrsp. in
effecting such collection shall be for the
account of the depositor. If the account has
sufficient balance, the collection shall be
debited by the Bank against the account. If,
for any reason, the proceeds of the
deposited checks, drafts, money orders,
etc., cannot be collected or if the Bank is
required to return such proceeds, the
provisional entry therefor made by the Bank
in the savings passbook and its records
shall be deemed automatically cancelled
regardless of the time that has elapsed, and
W/N the defective items can be returned to
the depositor; and the Bank is hereby
authorized to execute immediately the
necessary corrections, amendments or
changes in its record, as well as on the
savings passbook at the first opportunity to
reflect such cancellation. (Emphasis and
underlining supplied.)
As correctly held by the CA, in depositing the check
in his name, private rsp. did not become the
outright owner of the amount stated therein. Under
the above rule, by depositing the check with pet.,
private rsp. was, in a way, merely designating pet.
as the collecting bank. This is in consonance with
the rule that a negotiable instrument, such as a
check, whether a manager's check or ordinary
check, is not legal tender.23 As such, after receiving
the deposit, under its own rules, pet. shall credit the
amount in private rsp.'s account or infuse value
thereon only after the drawee bank shall have paid
the amount of the check or the check has been
cleared for deposit. Again, this is in accordance
with ordinary banking practices and with this
Court's pronouncement that "the collecting bank or
last endorser generally suffers the loss because
has the duty to ascertain the genuineness of all
prior endorsements considering that the act of
presenting the check for payment to the drawee is
an assertion that the party making the presentment
has done its duty to ascertain the genuineness of
the endorsements."24 The rule finds more meaning
in this case where the check involved is drawn on a
foreign bank and therefore collection is more
difficult than when the drawee bank is a local one
even though the check in question is a manager's
check.25
In Banco Atlantico v. Auditor General,26 Banco
Atlantico, a commercial bank in Madrid, Spain, paid
the amounts represented in three (3) checks to
Virginia Boncan, the finance officer of the Philippine
Embassy in Madrid. The bank did so without
previously clearing the checks with the drawee
bank, the PNB in New York, on account of the
"special treatment" that Boncan received from the
personnel of Banco Atlantico's foreign department.
The Court held that the encashment of the checks
without prior clearance is "contrary to normal or
ordinary banking practice specially so where the
drawee bank is a foreign bank and the amounts
involved were large." Accordingly, the Court
approved the Auditor General's denial of Banco
Atlantico's claim for payment of the value of the
checks that was withdrawn by Boncan.
Said ruling brings to light the fact that the banking
business is affected with public interest. By the
nature of its functions, a bank is under obligation to
treat the accounts of its depositors "with meticulous
care, always having in mind the fiduciary nature of
their relationship."27 As such, in dealing with its
depositors, a bank should exercise its functions not
only with the diligence of a good father of a family
but it should do so with the highest degree of
care.28
In the case at bar, pet., in allowing the withdrawal of
private rsp.'s deposit, failed to exercise the
diligence of a good father of a family. In total
disregard of its own rules, pet.'s personnel
negligently handled private rsp.'s account to pet.'s
detriment. As this Court once said on this matter:
Negligence is the omission to do something
which a reasonable man, guided by those
considerations which ordinarily regulate the
conduct of human affairs, would do, or the
doing of something which a prudent and
reasonable man would do. The seventy-
eight (78)-year-old, yet still relevant, case of
Picart v. Smith, provides that test by which
to determine the existence of negligence in
a particular case which may be stated as
follows: Did the defendant in doing the
alleged negligent act use that reasonable
care and caution which an ordinarily prudent
person would have used in the same
situation? If not, then he is guilty of
negligence. The law here in effect adopts
the standard supposed to be supplied by
the imaginary conduct of the discreet pater-
familias of the Roman law. The existence of
negligence in a given case is not
determined by reference to the personal
judgment of the actor in the situation before
him. The law considers what would be
reckless, blameworthy, or negligent in the
man of ordinary intelligence and prudence
and determines liability by that.29
Pet. violated its own rules by allowing the
withdrawal of an amount that is definitely over and
above the aggregate amount of private rsp.'s dollar
deposits that had yet to be cleared. The bank's
ledger on private rsp.'s account shows that before
he deposited $2,500.00, private rsp. had a balance
of only $750.00.30 Upon private rsp.'s deposit of
$2,500.00 on Sept. 3, 1984, that amount was
credited in his ledger as a deposit resulting in the
corresponding total balance of $3,250.00.31 On
Sept. 10, 1984, the amount of $600.00 and the
additional charges of $10.00 were indicated therein
as withdrawn thereby leaving a balance $2,640.00.
On Sept. 30, 1984, an interest of $11.59 was
reflected in the ledger and on Oct. 23, 1984, the
amount of $2,541.67 was entered as withdrawn
with a balance of $109.92. 32 On Nov. 19, 1984 the
word "hold" was written beside the balance of
$109.92.33 That must have been the time when
Reyes, pet.'s branch manager, was informed
unofficially of the fact that the check deposited was
a counterfeit, but pet.'s Buendia Ave. Extension
Branch received a copy of the communication
thereon from Wells Fargo Bank International in
New York the following day, Nov. 20, 1984.34
According to Reyes, Wells Fargo Bank International
handled the clearing of checks drawn against U.S.
banks that were deposited with pet..35
From these facts on record, it is at once apparent
that pet.'s personnel allowed the withdrawal of an
amount bigger than the original deposit of $750.00
and the value of the check deposited in the amount
of $2,500.00 although they had not yet received
notice from the clearing bank in the US on W/N the
check was funded. Reyes' contention that after the
lapse of the 35-day period the amount of a
deposited check could be withdrawn even in the
absence of a clearance thereon, otherwise it could
take a long time before a depositor could make a
withdrawal,36 is untenable. Said practice amounts to
a disregard of the clearance requirement of the
banking system.
While it is true that private rsp.'s having signed a
blank withdrawal slip set in motion the events that
resulted in the withdrawal and encashment of the
counterfeit check, the negligence of pet.'s
personnel was the proximate cause of the loss that
pet. sustained. Proximate cause, which is
determined by a mixed consideration of logic,
common sense, policy and precedent, is "that
cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause,
produces the injury, and without which the result
would not have occurred."37 The proximate cause of
the withdrawal and eventual loss of the amount of
$2,500.00 on pet.'s part was its personnel's
negligence in allowing such withdrawal in disregard
of its own rules and the clearing requirement in the
banking system. In so doing, pet. assumed the risk
of incurring a loss on account of a forged or
counterfeit foreign check and hence, it should suffer
the resulting damage.1âwphi1.nêt
WHEREFORE, the petition for review on certiorari
is DENIED. The Decision of the CA in CA-G.R. CV
No. 37392 is AFFIRMED.
GR 156294 Nov. 29, 2006
MELVA THERESA ALVIAR GONZALES, Pet.,
vs.
RIZAL COMMERCIAL BANKING
CORPORATION, Rsp..
DECISION
GARCIA, J.:
An action for a sum of money originating from the
RTC (RTC) of Makati City, Branch 61, thereat
docketed as Civil Case No. 88-1502, was decided
in favor of therein plaintiff, now rsp. Rizal
Commercial Banking Corporation (RCBC). On
appeal to the CA (CA) in CA-G.R. CV No. 48596,
that court, in a decision 1 dated Aug. 30, 2002,
affirmed the RTC minus the award of attorney’s
fees. Upon the instance of herein pet. Melva
Theresa Alviar Gonzales, the case is now before
this Court via this petition for review on certiorari,
based on the following undisputed facts as
unanimously found by the RTC and the CA, which
the latter summarized as follows:
Gonzales was an employee of Rizal Commercial
Banking Corporation (or RCBC) as New Accounts
Clerk in the Retail Banking Department at its Head
Office.
A foreign check in the amount of $7,500 was drawn
by Dr. Don Zapanta of the Ade Medical Group with
address at 569 Western Avenue, Los Angeles,
California, against the drawee bank Wilshire Center
Bank, N.A., of Los Angeles, California, U.S.A., and
payable to Gonzales’ mother, defendant Eva Alviar
(or Alviar). Alviar then endorsed this check. Since
RCBC gives special accommodations to its
employees to receive the check’s value without
awaiting the clearing period, Gonzales presented
the foreign check to Olivia Gomez, the RCBC’s
Head of Retail Banking. After examining this, Olivia
Gomez requested Gonzales to endorse it which
she did. Olivia Gomez then acquiesced to the early
encashment of the check and signed the check but
indicated thereon her authority of "up to P17,500.00
only". Afterwards, Olivia Gomez directed Gonzales
to present the check to RCBC employee Carlos
Ramos and procure his signature. After inspecting
the check, Carlos Ramos also signed it with an "ok"
annotation. After getting the said signatures
Gonzales presented the check to Rolando Zornosa,
Supervisor of the Remittance Sec. of the Foreign
Department of the RCBC Head Office, who after
scrutinizing the entries and signatures therein
authorized its encashment. Gonzales then received
its peso equivalent of P155,270.85.
RCBC then tried to collect the amount of the check
with the drawee bank by the latter through its
corrsp. bank, the First Interstate Bank of California,
on two occasions dishonored the check because of
"END. IRREG" or irregular indorsement. Insisting,
RCBC again sent the check to the drawee bank,
but this time the check was returned due to
"account closed". Unable to collect, RCBC
demanded from Gonzales the payment of the peso
equivalent of the check that she received. Gonzales
settled the matter by agreeing that payment be
made thru salary deduction. This temporary
arrangement for salary deductions was
communicated by Gonzales to RCBC through a
letter dated Nov. 27, 1987 xxx
xxx xxx xxx
The deductions was implemented starting Oct.
1987. On March 7, 1988 RCBC sent a demand
letter to Alviar for the payment of her obligation but
this fell on deaf ears as RCBC did not receive any
response from Alviar. Taking further action to
collect, RCBC then conveyed the matter to its
counsel and on June 16, 1988, a letter was sent to
Gonzales reminding her of her liability as an
indorser of the subject check and that for her to
avoid litigation she has to fulfill her commitment to
settle her obligation as assured in her said letter.
On July 1988 Gonzales resigned from RCBC. What
had been deducted from her salary was only
P12,822.20 covering ten months.
It was against the foregoing factual backdrop that
RCBC filed a complaint for a sum of money against
Eva Alviar, Melva Theresa Alviar-Gonzales and the
latter’s husband Gino Gonzales. The spouses
Gonzales filed an Answer with Counterclaim
praying for the dismissal of the complaint as well as
payment of P10,822.20 as actual damages, P20K
as moral damages, P20K as exemplary damages,
and P20K as attorney’s fees and litigation
expenses. Defendant Eva Alviar, on the other hand,
was declared in default for having filed her Answer
out of time.
After trial, the RTC, in its three-page decision, 2 held
two of the three defendants liable as follows:
WHEREFORE, premises above considered and
plaintiff having established its case against the
defendants as above stated, judgment is hereby
rendered for plaintiff and as against defendant EVA.
P. ALVIAR as principal debtor and defendants
MELVA THERESA ALVIAR GONZLAES as
guarantor as follows:
1. To pay plaintiff the amount of
P142,648.65 (P155,270.85 less the amount
of P12,622.20, as salary deduction of
[Gonzales]), representing the outstanding
obligation of the defendants with interest of
12% per annum starting Feb. 1987 until fully
paid;
2. To pay the amount of P40,000.00 as and
for attorney’s fees; and to
3. Pay the costs of this suit.
SO ORDERED.
On appeal, the CA, except for the award of
attorney’s fees, affirmed the RTC judgment.
Hence, this recourse by the pet. on her submission
that the CA erred
XXX IN FINDING [PET.], AN
ACCOMMODATION PARTY TO A CHECK
SUBSEQUENTLY ENDORSED PARTIALLY,
LIABLE TO RCBC AS GUARANTOR;
XXX IN FINDING THAT THE SIGNATURE
OF GOMEZ, AN RCBC EMPLOYEE, DOES
NOT CONSTITUTE AS AN
ENDORSEMENT BUT ONLY AN INTER-
BANK APPROVAL OF SIGNATURE
NECESSARY FOR THE ENCASHMENT
OF THE CHECK;
XXX IN NOT FINDING RCBC LIABLE ON
THE COUNTERCLAIMS OF [THE PET.].
The recourse is impressed with merit.
The dollar-check3 in question in the amount of
$7,500.00 drawn by Don Zapanta of Ade Medical
Group (U.S.A.) against a Los Angeles, California
bank, Wilshire Center Bank N.A., was dishonored
because of "End. Irregular," i.e., an irregular
endorsement. While the foreign drawee bank did
not specifically state which among the four
signatures found on the dorsal portion of the check
made the check irregularly endorsed, it is
absolutely undeniable that only the signature of
Olivia Gomez, an RCBC employee, was a qualified
endorsement because of the phrase "up to
P17,500.00 only." There can be no other
acceptable explanation for the dishonor of the
foreign check than this signature of Olivia Gomez
with the phrase "up to P17,500.00 only"
accompanying it. This Court definitely agrees with
the pet. that the foreign drawee bank would not
have dishonored the check had it not been for this
signature of Gomez with the same phrase written
by her.
The foreign drawee bank, Wilshire Center Bank
N.A., refused to pay the bearer of this dollar-check
drawn by Don Zapanta because of the defect
introduced by RCBC, through its employee, Olivia
Gomez. It is, therefore, a useless piece of paper if
returned in that state to its original payee, Eva
Alviar.
There is no doubt in the mind of the Court that a
subsequent party which caused the defect in the
instrument cannot have any recourse against any
of the prior endorsers in good faith. Eva Alviar’s
and the pet.’s liability to subsequent holders of the
foreign check is governed by the Negotiable
Instruments Law as follows:
Sec. 66. Liability of general indorser. - Every
indorser who indorses without qualification,
warrants to all subsequent holders in due course;
(a) The matters and things mentioned in
subdivisions (a), (b), and (c) of the next
preceding Sec.; and
(b) That the instrument is, at the time of his
indorsement, valid and subsisting;
And, in addition, he engages that, on due
presentment, it shall be accepted or paid, or both,
as the case may be, according to its tenor, and that
if it be dishonored and the necessary proceedings
on dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent indorser
who may be compelled to pay it.
The matters and things mentioned in subdivisions
(a), (b) and (c) of Sec. 65 are the following:
(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 had capacity to
contract;
Under Sec. 66, the warranties for which Alviar and
Gonzales are liable as general endorsers in favor of
subsequent endorsers extend only to the state of
the instrument at the time of their endorsements,
specifically, that the instrument is genuine and in all
respects what it purports to be; that they have good
title thereto; that all prior parties had capacity to
contract; and that the instrument, at the time of their
endorsements, is valid and subsisting. This
provision, however, cannot be used by the party
which introduced a defect on the instrument, such
as rsp. RCBC in this case, which qualifiedly
endorsed the same, to hold prior endorsers liable
on the instrument because it results in the absurd
situation whereby a subsequent party may render
an instrument useless and inutile and let innocent
parties bear the loss while he himself gets away
scot-free. It cannot be over-stressed that had it not
been for the qualified endorsement ("up to
P17,500.00 only") of Olivia Gomez, who is the
employee of RCBC, there would have been no
reason for the dishonor of the check, and full
payment by drawee bank therefor would have
taken place as a matter of course.
Sec. 66 of the Negotiable Instruments Law which
further states that the general endorser additionally
engages that, on due presentment, the instrument
shall be accepted or paid, or both, as the case may
be, according to its tenor, and that if it be
dishonored and the necessary proceedings on
dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent
endorser who may be compelled to pay it, must be
read in the light of the rule in equity requiring that
those who come to court should come with clean
hands. The holder or subsequent endorser who
tries to claim under the instrument which had been
dishonored for "irregular endorsement" must not be
the irregular endorser himself who gave cause for
the dishonor. Otherwise, a clear injustice results
when any subsequent party to the instrument may
simply make the instrument defective and later
claim from prior endorsers who have no knowledge
or participation in causing or introducing said defect
to the instrument, which thereby caused its
dishonor.
Courts in this jurisdiction are not only courts of law
but also of equity, and therefore cannot
unqualifiedly apply a provision of law so as to
cause clear injustice which the framers of the law
could not have intended to so deliberately cause. In
Carceller v. CA,4 this Court had occasion to stress:
Courts of law, being also courts of equity, may not
countenance such grossly unfair results without
doing violence to its solemn obligation to administer
fair and equal justice for all.
RCBC, which caused the dishonor of the check
upon presentment to the drawee bank, through the
qualified endorsement of its employee, Olivia
Gomez, cannot hold prior endorsers, Alviar and
Gonzales in this case, liable on the instrument.
Moreover, it is a well-established principle in law
that as between two parties, he who, by his acts,
caused the loss shall bear the same.5 RCBC, in this
instance, should therefore bear the loss.
Relative to the pet.’s counterclaim against RCBC
for the amount of P12,822.20 which it admittedly
deducted from pet.’s salary, the Court must order
the return thereof to the pet., with legal interest of
12% per annum, notwithstanding the pet.’s
apparent acquiescence to such an arrangement. It
must be noted that pet. is not any ordinary client or
depositor with whom RCBC had this isolated
transaction. Pet. was a rank-and-file employee of
RCBC, being a new accounts clerk thereat. It is
easy to understand how a vulnerable Gonzales,
who is financially dependent upon RCBC, would
rather bite the bullet, so to speak, and expectedly
opt for salary deduction rather than lose her job and
her entire salary altogether. In this sense, we
cannot take pet.’s apparent acquiescence to the
salary deduction as being an entirely free and
voluntary act on her part. Additionally, under the
obtaining facts and circumstances surrounding the
present complaint for collection of sum of money by
RCBC against its employee, which may be deemed
tantamount to harassment, and the fact that RCBC
itself was the one, acting through its employee,
Olivia Gomez, which gave reason for the dishonor
of the dollar-check in question, RCBC may likewise
be held liable for moral and exemplary damages
and attorney’s fees by way of damages, in the
amount of P20K for each.
WHEREFORE, the assailed CA Decision dated
Aug. 30, 2002 is REVERSED and SET ASIDE and
the Complaint in this case DISMISSED for lack of
merit. Pet.’s counterclaim is GRANTED, ordering
the rsp. RCBC to reimburse pet. the amount
P12,822.20, with legal interest computed from the
time of salary deduction up to actual payment, and
to pay pet. the total amount of P60,000.00 as moral
and exemplary damages, and attorney’s fees.
Costs against the rsp..
GR 74886 Dec. 8, 1992
PRUDENTIAL BANK, pet.,
vs.
INTERMEDIATE APPELLATE COURT,
PHILIPPINE RAYON MILLS, INC. and
ANACLETO R. CHI, rsps..
DAVIDE, JR., J.:
Pet. seeks to review and set aside the decision 1 of
public rsp.; Intermediate Appellate Court (now CA),
dated 10 March 1986, in AC-GR 66733 which
affirmed in toto the 15 June 1978 decision of
Branch 9 (QC) of the then Court of First Instance
(now RTC) of Rizal in Civil Case No. Q-19312. The
latter involved an action instituted by the pet. for the
recovery of a sum of money representing the
amount paid by it to the Nissho Company Ltd. of
Japan for textile machinery imported by the
defendant, now private rsp., Philippine Rayon Mills,
Inc. (hereinafter Philippine Rayon), represented by
co-defendant Anacleto R. Chi.
The facts which gave rise to the instant controversy
are summarized by the public rsp. as follows:
On Aug. 8, 1962, defendant-
appellant Philippine Rayon Mills, Inc.
entered into a contract with Nissho
Co., Ltd. of Japan for the importation
of textile machineries under a five-
year deferred payment plan (Exhibit
B, Plaintiff's Folder of Exhibits, p 2).
To effect payment for said
machineries, the defendant-
appellant applied for a commercial
letter of credit with the Prudential
Bank and Trust Company in favor of
Nissho. By virtue of said application,
the Prudential Bank opened Letter of
Credit No. DPP-63762 for
$128,548.78 (Exhibit A, Ibid., p. 1).
Against this letter of credit, drafts
were drawn and issued by Nissho
(Exhibits X, X-1 to X-11, Ibid., pp.
65, 66 to 76), which were all paid by
the Prudential Bank through its
corrsp. in Japan, the Bank of Tokyo,
Ltd. As indicated on their faces, two
of these drafts (Exhibit X and X-1,
Ibid., pp. 65-66) were accepted by
the defendant-appellant through its
president, Anacleto R. Chi, while the
others were not (Exhibits X-2 to X-
11, Ibid., pp. 66 to 76).
Upon the arrival of the machineries,
the Prudential Bank indorsed the
shipping documents to the
defendant-appellant which accepted
delivery of the same. To enable the
defendant-appellant to take delivery
of the machineries, it executed, by
prior arrangement with the
Prudential Bank, a trust receipt
which was signed by Anacleto R. Chi
in his capacity as President (sic) of
defendant-appellant company
(Exhibit C, Ibid., p. 13).
At the back of the trust receipt is a
printed form to be accomplished by
two sureties who, by the very terms
and conditions thereof, were to be
jointly and severally liable to the
Prudential Bank should the
defendant-appellant fail to pay the
total amount or any portion of the
drafts issued by Nissho and paid for
by Prudential Bank. The defendant-
appellant was able to take delivery
of the textile machineries and
installed the same at its factory site
at 69 Obudan Street, QC.
Sometime in 1967, the defendant-
appellant ceased business operation
(sic). On Dec. 29, 1969, defendant-
appellant's factory was leased by
Yupangco Cotton Mills for an annual
rental of P200,000.00 (Exhibit I,
Ibid., p. 22). The lease was renewed
on Jan. 3, 1973 (Exhibit J, Ibid., p.
26). On Jan. 5, 1974, all the textile
machineries in the defendant-
appellant's factory were sold to AIC
Development Corporation for P300K
(Exhibit K, Ibid., p. 29).
The obligation of the defendant-
appellant arising from the letter of
credit and the trust receipt remained
unpaid and unliquidated. Repeated
formal demands (Exhibits U, V, and
W, Ibid., pp. 62, 63, 64) for the
payment of the said trust receipt
yielded no result Hence, the present
action for the collection of the
principal amount of P956,384.95
was filed on Oct. 3, 1974 against the
defendant-appellant and Anacleto R.
Chi. In their respective answers, the
defendants interposed identical
special defenses, viz., the complaint
states no cause of action; if there is,
the same has prescribed; and the
plaintiff is guilty of laches. 2
On 15 June 1978, the TC rendered its decision the
dispositive portion of which reads:
WHEREFORE, judgment is hereby
rendered sentencing the defendant
Philippine Rayon Mills, Inc. to pay
plaintiff the sum of P153,645.22, the
amounts due under Exhibits "X" &
"X-1", with interest at 6% per annum
beginning Sept. 15, 1974 until fully
paid.
Insofar as the amounts involved in
drafts Exhs. "X" (sic) to "X-11",
inclusive, the same not having been
accepted by defendant Philippine
Rayon Mills, Inc., plaintiff's cause of
action thereon has not accrued,
hence, the instant case is
premature.
Insofar as defendant Anacleto R. Chi
is concerned, the case is dismissed.
Plaintiff is ordered to pay defendant
Anacleto R. Chi the sum of P20K as
attorney's fees.
With costs against defendant
Philippine Rayon Mills, Inc.
SO ORDERED. 3
Pet. appealed the decision to the then Intermediate
Appellate Court. In urging the said court to reverse
or modify the decision, pet. alleged in its Brief that
the TC erred in (a) disregarding its right to
reimbursement from the pr.rsps. for the entire
unpaid balance of the imported machines, the total
amount of which was paid to the Nissho Company
Ltd., thereby violating the principle of the third party
payor's right to reimbursement provided for in the
second paragraph of Art. 1236 of the CC and under
the rule against unjust enrichment; (b) refusing to
hold Anacleto R. Chi, as the responsible officer of
defendant corporation, liable under Sec. 13 of P.D
No 115 for the entire unpaid balance of the
imported machines covered by the bank's trust
receipt (Exhibit "C"); (c) finding that the solidary
guaranty clause signed by Anacleto R. Chi is not a
guaranty at all; (d) controverting the judicial
admissions of Anacleto R. Chi that he is at least a
simple guarantor of the said trust receipt obligation;
(e) contravening, based on the assumption that Chi
is a simple guarantor, Art.s 2059, 2060 and 2062 of
the CC and the related evidence and jurisprudence
which provide that such liability had already
attached; (f) contravening the judicial admissions of therefore arise only when the principal debtor fails
Philippine Rayon with respect to its liability to pay to comply with his obligation. 5
the pet. the amounts involved in the drafts (Exhibits
"X", "X-l" to "X-11''); and (g) interpreting "sight" Its motion to reconsider the decision having been
drafts as requiring acceptance by Philippine Rayon denied by the public rsp. in its Resolution of 11
before the latter could be held liable thereon. 4 June 1986, 6 pet. filed the instant petition on 31 July
1986 submitting the following legal issues:
In its decision, public rsp. sustained the TC in all
respects. As to the first and last assigned errors, it I. W/N THE RSP. APPELLATE
ruled that the provision on unjust enrichment, Art. COURT GRIEVOUSLY ERRED IN
2142 of the CC, applies only if there is no express DENYING PET.'S CLAIM FOR FULL
contract between the parties and there is a clear REIMBURSEMENT AGAINST THE
showing that the payment is justified. In the instant PR.RSPS. FOR THE PAYMENT
case, the relationship existing between the pet. and PET. MADE TO NISSHO CO. LTD.
Philippine Rayon is governed by specific contracts, FOR THE BENEFIT OF PRIVATE
namely the application for letters of credit, the RSP. UNDER ART. 1283 OF THE
promissory note, the drafts and the trust receipt. NCC OF THE PHILIPPINES AND
With respect to the last ten (10) drafts (Exhibits "X- UNDER THE GENERAL
2" to "X-11") which had not been presented to and PRINCIPLE AGAINST UNJUST
were not accepted by Philippine Rayon, pet. was ENRICHMENT;
not justified in unilaterally paying the amounts
stated therein. The public rsp. did not agree with II. W/N RSP. CHI IS SOLIDARILY
the pet.'s claim that the drafts were sight drafts LIABLE UNDER THE TRUST
which did not require presentment for acceptance RECEIPT (EXH. C);
to Philippine Rayon because paragraph 8 of the
trust receipt presupposes prior acceptance of the III. W/N ON THE BASIS OF THE
drafts. Since the ten (10) drafts were not presented JUDICIAL ADMISSIONS OF RSP.
and accepted, no valid demand for payment can be CHI HE IS LIABLE THEREON AND
made. TO WHAT EXTENT;

Public rsp. also disagreed with the pet.'s contention IV. W/N RSP. CHI IS MERELY A
that private rsp. Chi is solidarily liable with SIMPLE GUARANTOR; AND IF SO;
Philippine Rayon pursuant to Sec. 13 of P.D. No. HAS HIS LIABILITY AS SUCH
115 and based on his signature on the solidary ALREADY ATTACHED;
guaranty clause at the dorsal side of the trust
receipt. As to the first contention, the public rsp. V. W/N AS THE SIGNATORY AND
ruled that the civil liability provided for in said Sec. RESPONSIBLE OFFICER OF RSP.
13 attaches only after conviction. As to the second, PHIL. RAYON RSP. CHI IS
it expressed misgivings as to whether Chi's PERSONALLY LIABLE PURSUANT
signature on the trust receipt made the latter TO THE PROVISION OF SEC. 13,
automatically liable thereon because the so-called P.D. 115;
solidary guaranty clause at the dorsal portion of the
trust receipt is to be signed not by one (1) person
VI. W/N RSP. PHIL. RAYON IS
alone, but by two (2) persons; the last sentence of
LIABLE TO THE PET. UNDER THE
the same is incomplete and unsigned by witnesses;
TRUST RECEIPT (EXH. C);
and it is not acknowledged before a notary public.
Besides, even granting that it was executed and
acknowledged before a notary public, Chi cannot VII. W/N ON THE BASIS OF THE
be held liable therefor because the records fail to JUDICIAL ADMISSIONS RSP. PHIL.
show that pet. had either exhausted the properties RAYON IS LIABLE TO THE PET.
of Philippine Rayon or had resorted to all legal UNDER THE DRAFTS (EXHS. X, X-
remedies as required in Art. 2058 of the CC. As 1 TO X-11) AND TO WHAT EXTENT;
provided for under Art.s 2052 and 2054 of the CC,
the obligation of a guarantor is merely accessory VIII. W/N SIGHT DRAFTS
and subsidiary, respectively. Chi's liability would REQUIRE PRIOR ACCEPTANCE
FROM RSP. PHIL. RAYON BEFORE
 THE LATTER BECOMES LIABLE
TO PET.. 7
In the Resolution of 12 March 1990, 8 this Court
gave due course to the petition after the filing of the
Comment thereto by private rsp. Anacleto Chi and
of the Reply to the latter by the pet.; both parties
were also required to submit their respective
memoranda which they subsequently complied
with.
are unable to agree with this proposition. The
transaction in the case at bar stemmed from
Philippine Rayon's application for a commercial
letter of credit with the pet. in the amount of
$128,548.78 to cover the former's contract to
purchase and import loom and textile machinery
from Nissho Company, Ltd. of Japan under a five-
year deferred payment plan. Pet. approved the
application. As correctly ruled by the TC in its Order
of 6 March 1975: 9

As We see it, the issues may be reduced as . . . By virtue of said Application and
follows: Agreement for Commercial Letter of
Credit, plaintiff bank 10 was under
1. Whether obligation to pay through its corrsp.
presentment for bank in Japan the drafts that Nisso
acceptance of the (sic) Company, Ltd., periodically
drafts was drew against said letter of credit
indispensable to from 1963 to 1968, pursuant to
make Philippine plaintiff's contract with the defendant
Rayon liable thereon; Philippine Rayon Mills, Inc. In turn,
defendant Philippine Rayon Mills,
2. Whether Philippine Inc., was obligated to pay plaintiff
Rayon is liable on the bank the amounts of the drafts
basis of the trust drawn by Nisso (sic) Company, Ltd.
receipt; against said plaintiff bank together
with any accruing commercial
3. Whether private charges, interest, etc. pursuant to
rsp. Chi is jointly and the terms and conditions stipulated
severally liable with in the Application and Agreement of
Philippine Rayon for Commercial Letter of Credit Annex
the obligation sought "A".
to be enforced and if
not, whether he may A letter of credit is defined as an engagement by a
be considered a bank or other person made at the request of a
guarantor; in the latter customer that the issuer will honor drafts or other
situation, whether the demands for payment upon compliance with the
case should have conditions specified in the credit. 11 Through a letter
been dismissed on of credit, the bank merely substitutes its own
the ground of lack of promise to pay for one of its customers who in
cause of action as return promises to pay the bank the amount of
there was no prior funds mentioned in the letter of credit plus credit or
exhaustion of commitment fees mutually agreed upon. 12 In the
Philippine Rayon's instant case then, the drawee was necessarily the
properties. herein pet.. It was to the latter that the drafts were
presented for payment. In fact, there was no need
Both the TC and the public rsp. ruled that Philippine for acceptance as the issued drafts are sight drafts.
Rayon could be held liable for the two (2) drafts, Presentment for acceptance is necessary only in
Exhibits "X" and "X-1", because only these appear the cases expressly provided for in Sec. 143 of the
to have been accepted by the latter after due Negotiable Instruments Law (NIL). 13 The said Sec.
presentment. The liability for the remaining ten (10) reads:
drafts (Exhibits "X-2" to "X-11" inclusive) did not
arise because the same were not presented for Sec. 143. When presentment for
acceptance. In short, both courts concluded that acceptance must be made. —
acceptance of the drafts by Philippine Rayon was Presentment for acceptance must be
indispensable to make the latter liable thereon. We made:
(a) nce or
Where place
the bill of
is busine
payabl ss of
e after the
sight, drawe
or in e.
any
other In no other case is presentment for
case, acceptance necessary in order to
where render any party to the bill liable.
presen
tment Obviously then, sight drafts do not require
for presentment for acceptance.
accept
ance is The acceptance of a bill is the signification by the
necess drawee of his assent to the order of the drawer; 14
ary in this may be done in writing by the drawee in the bill
order itself, or in a separate instrument. 15
to fix
the The parties herein agree, and the TC explicitly
maturit ruled, that the subject, drafts are sight drafts. Said
y of the latter:
the
instru
. . . In the instant case the drafts
ment;
being at sight, they are supposed to
or
be payable upon acceptance unless
plaintiff bank has given the
(b) Philippine Rayon Mills Inc. time
Where within which to pay the same. The
the bill first two drafts (Annexes C & D, Exh.
expres X & X-1) were duly accepted as
sly indicated on their face (sic), and
stipulat upon such acceptance should have
es that been paid forthwith. These two
it shall drafts were not paid and although
be Philippine Rayon Mills
presen ought to have paid the same, the
ted for fact remains that until now they are
accept still unpaid. 16
ance;
or
Corollarily, they are, pursuant to Sec. 7 of the NIL,
payable on demand. Sec. 7 provides:
(c)
Where
Sec. 7. When payable on demand.
the bill
— An instrument is payable on
is
demand —
drawn
payabl
e (a)
elsewh When
ere so it is
than at expres
the sed to
reside be
payabl
 e on
deman
d, or at
sight,
or on
presen
tation;
or
(b) In
which
no
time
for
payme
nt in
expres
sed.
Where an instrument is issued,
accepted, or indorsed when
overdue, it is, as regards the person
so issuing, accepting, or indorsing it,
payable on demand. (emphasis
supplied)
Paragraph 8 of the Trust Receipt which
reads: "My/our liability for payment at
maturity of any accepted draft, bill of
exchange or indebtedness shall not be
extinguished or modified" 17 does not,
contrary to the holding of the public rsp.,
contemplate prior acceptance by Philippine
Rayon, but by the pet.. Acceptance,
however, was not even necessary in the first
place because the drafts which were
eventually issued were sight drafts And
even if these were not sight drafts, thereby
necessitating acceptance, it would be the
pet. — and not Philippine Rayon — which
had to accept the same for the latter was
not the drawee. Presentment for
acceptance is defined an the production of a
bill of exchange to a drawee for acceptance.
18
The TC and the public rsp., therefore,
erred in ruling that presentment for
acceptance was an indispensable requisite
for Philippine Rayon's liability on the drafts
to attach. Contrary to both courts'
pronouncements, Philippine Rayon
immediately became liable thereon upon
pet.'s payment thereof. Such is the essence
of the letter of credit issued by the pet.. A
different conclusion would violate the
principle upon which commercial letters of
credit are founded because in such a case,
both the beneficiary and the issuer, Nissho
Company Ltd. and the pet., respectively,
would be placed at the mercy of Philippine
Rayon even if the latter had already
received the imported machinery and the
pet. had fully paid for it. The typical setting
and purpose of a letter of credit are
described in Hibernia Bank and Trust Co.
vs. J. Aron & Co., Inc., 19 thus:
Commercial letters of credit have
come into general use in
international sales transactions
where much time necessarily
elapses between the sale and the
receipt by a purchaser of the
merchandise, during which interval
great price changes may occur.
Buyers and sellers struggle for the
advantage of position. The seller is
desirous of being paid as surely and
as soon as possible, realizing that
the vendee at a distant point has it in
his power to reject on trivial grounds
merchandise on arrival, and cause
considerable hardship to the shipper.
Letters of credit meet this condition
by affording celerity and certainty of
payment. Their purpose is to insure
to a seller payment of a definite
amount upon presentation of
documents. The bank deals only
with documents. It has nothing to do
with the quality of the merchandise.
Disputes as to the merchandise
shipped may arise and be litigated
later between vendor and vendee,
but they may not impede acceptance
of drafts and payment by the issuing
bank when the proper documents
are presented.
The TC and the public rsp. likewise erred in
disregarding the trust receipt and in not holding that
Philippine Rayon was liable thereon. In People vs.
Yu Chai Ho, 20 this Court explains the nature of a
trust receipt by quoting In re Dunlap Carpet Co., 21
thus:
By this arrangement a banker
advances money to an intending
importer, and thereby lends the aid
of capital, of credit, or of business
facilities and agencies abroad, to the
enterprise of foreign commerce.
Much of this trade could hardly be
 carried on by any other means, and
therefore it is of the first importance
that the fundamental factor in the
transaction, the banker's advance of
money and credit, should receive the
amplest protection. Accordingly, in
order to secure that the banker shall
be repaid at the critical point — that
is, when the imported goods finally
reach the hands of the intended
vendee — the banker takes the full
title to the goods at the very
beginning; he takes it as soon as the
goods are bought and settled for by
his payments or acceptances in the
foreign country, and he continues to
hold that title as his indispensable
security until the goods are sold in
the US and the vendee is called
upon to pay for them. This security is
not an ordinary pledge by the
importer to the banker, for the
importer has never owned the
goods, and moreover he is not able
to deliver the possession; but the
security is the complete title vested
originally in the bankers, and this
characteristic of the transaction has
again and again been recognized
and protected by the courts. Of
course, the title is at bottom a
security title, as it has sometimes
been called, and the banker is
always under the obligation to
reconvey; but only after his
advances have been fully repaid and
after the importer has fulfilled the
other terms of the contract.
As further stated in National Bank vs. Viuda e Hijos
de Angel Jose, 22 trust receipts:
. . . [I]n a certain manner, . . . partake
of the nature of a conditional sale as
provided by the Chattel Mortgage
Law, that is, the importer becomes
absolute owner of the imported
merchandise as soon an he has paid
its price. The ownership of the
merchandise continues to be vested
in the owner thereof or in the person
who has advanced payment, until he
has been paid in full, or if the
merchandise has already been sold,
the proceeds of the sale should be
turned over to him by the importer or
by his representative or successor in
interest.
Under P.D. No. 115, otherwise known an the Trust
Receipts Law, which took effect on 29 Jan. 1973, a
trust receipt transaction is defined as "any
transaction by and between a person referred to in
this Decree as the entruster, and another person
referred to in this Decree as the entrustee, whereby
the entruster, who owns or holds absolute title or
security interests' over certain specified goods,
documents or instruments, releases the same to
the possession of the entrustee upon the latter's
execution and delivery to the entruster of a signed
document called the "trust receipt" wherein the
entrustee binds himself to hold the designated
goods, documents or instruments in trust for the
entruster and to sell or otherwise dispose of the
goods, documents or instruments with the
obligation to turn over to the entruster the proceeds
thereof to the extent of the amount owing to the
entruster or as appears in the trust receipt or the
goods, instruments themselves if they are unsold or
not otherwise disposed of, in accordance with the
terms and conditions specified in the trusts receipt,
or for other purposes substantially equivalent to any
one of the following: . . ."
It is alleged in the complaint that pr.rsps. "not only
have presumably put said machinery to good use
and have profited by its operation and/or disposition
but very recent information that (sic) reached
plaintiff bank that defendants already sold the
machinery covered by the trust receipt to Yupangco
Cotton Mills," and that "as trustees of the property
covered by the trust receipt, . . . and therefore
acting in fiduciary (sic) capacity, defendants have
willfully violated their duty to account for the
whereabouts of the machinery covered by the trust
receipt or for the proceeds of any lease, sale or
other disposition of the same that they may have
made, notwithstanding demands therefor;
defendants have fraudulently misapplied or
converted to their own use any money realized
from the lease, sale, and other disposition of said
machinery." 23 While there is no specific prayer for
the delivery to the pet. by Philippine Rayon of the
proceeds of the sale of the machinery covered by
the trust receipt, such relief is covered by the
general prayer for "such further and other relief as
may be just and equitable on the premises." 24 And
although it is true that the pet. commenced a
criminal action for the violation of the Trust Receipts
Law, no legal obstacle prevented it from enforcing
the civil liability arising out of the trust, receipt in a
separate civil action. Under Sec. 13 of the Trust
Receipts Law, the failure of an entrustee to turn
over the proceeds of the sale of goods, documents
or instruments covered by a trust receipt to the
extent of the amount owing to the entruster or as
appear in the trust receipt or to return said goods,
documents or instruments if they were not sold or
disposed of in accordance with the terms of the
trust receipt shall constitute the crime of estafa,
punishable under the provisions of Art. 315,
paragraph 1(b) of the Revised Penal Code. 25
Under Art. 33 of the CC, a civil action for damages,
entirely separate and distinct from the criminal
action, may be brought by the injured party in cases
of defamation, fraud and physical injuries. Estafa
falls under fraud.
We also conclude, for the reason hereinafter
discussed, and not for that adduced by the public
rsp., that private rsp. Chi's signature in the dorsal
portion of the trust receipt did not bind him solidarily
with Philippine Rayon. The statement at the dorsal
portion of the said trust receipt, which pet.
describes as a "solidary guaranty clause", reads:
In consideration of the
PRUDENTIAL BANK AND TRUST
COMPANY complying with the
foregoing, we jointly and severally
agree and undertake to pay on
demand to the PRUDENTIAL BANK
AND TRUST COMPANY all sums of
money which the said PRUDENTIAL
BANK AND TRUST COMPANY may
call upon us to pay arising out of or
pertaining to, and/or in any event
connected with the default of and/or
non-fulfillment in any respect of the
undertaking of the aforesaid:
PHILIPPINE RAYON MILLS, INC.
We further agree that the
PRUDENTIAL BANK AND TRUST
COMPANY does not have to take
any steps or exhaust its remedy
against aforesaid:
before making demand on me/us.
(Sgd.)
ANACLETO R. CHI
Pet. insists that by virtue of the clear wording of the
statement, specifically the clause ". . . we jointly
and severally agree and undertake . . .," and the
concluding sentence on exhaustion, Chi's liability
therein is solidary.
In holding otherwise, the public rsp. ratiocinates as
follows:
With respect to the second
argument, we have our misgivings
as to whether the mere signature of
defendant-appellee Chi of (sic) the
guaranty agreement, Exhibit "C-1",
will make it an actionable document.
It should be noted that Exhibit "C-1"
was prepared and printed by the
plaintiff-appellant. A perusal of
Exhibit "C-1" shows that it was to be
signed and executed by two
persons. It was signed only by
defendant-appellee Chi. Exhibit "C-
1" was to be witnessed by two
persons, but no one signed in that
capacity. The last sentence of the
guaranty clause is incomplete.
Furthermore, the plaintiff-appellant
also failed to have the purported
guarantee clause acknowledged
before a notary public. All these
show that the alleged guaranty
provision was disregarded and,
therefore, not consummated.
But granting arguendo that the
guaranty provision in Exhibit "C-1"
was fully executed and
acknowledged still defendant-
appellee Chi cannot be held liable
thereunder because the records
show that the plaintiff-appellant had
neither exhausted the property of the
defendant-appellant nor had it
resorted to all legal remedies against
the said defendant-appellant as
provided in Art. 2058 of the CC. The
obligation of a guarantor is merely
accessory under Art. 2052 of the CC
and subsidiary under Art. 2054 of the
CC. Therefore, the liability of the
defendant-appellee arises only when
the principal debtor fails to comply
27
with his obligation.
Anacleto R. Chi
Our own reading of the questioned solidary
guaranty clause yields no other conclusion than
that the obligation of Chi is only that of a guarantor.
This is further bolstered by the last sentence which
speaks of waiver of exhaustion, which,
nevertheless, is ineffective in this case because the
space therein for the party whose property may not
be exhausted was not filled up. Under Art. 2058 of
the CC, the defense of exhaustion (excussion) may
be raised by a guarantor before he may be held
liable for the obligation. Pet. likewise admits that
the questioned provision is a solidary guaranty
clause, thereby clearly distinguishing it from a
contract of surety. It, however, described the
guaranty as solidary between the guarantors; this
would have been correct if two (2) guarantors had
signed it. The clause "we jointly and severally agree
and undertake" refers to the undertaking of the two
(2) parties who are to sign it or to the liability
existing between themselves. It does not refer to
the undertaking between either one or both of them
on the one hand and the pet. on the other with
respect to the liability described under the trust
receipt. Elsewise stated, their liability is not divisible
as between them, i.e., it can be enforced to its full
extent against any one of them.
Furthermore, any doubt as to the import, or true
intent of the solidary guaranty clause should be
resolved against the pet.. The trust receipt, together
with the questioned solidary guaranty clause, is on
a form drafted and prepared solely by the pet.;
Chi's participation therein is limited to the affixing of
his signature thereon. It is, therefore, a contract of
adhesion; 28 as such, it must be strictly construed
against the party responsible for its preparation. 29
Neither can We agree with the reasoning of the
public rsp. that this solidary guaranty clause was
effectively disregarded simply because it was not
signed and witnessed by two (2) persons and
acknowledged before a notary public. While indeed,
the clause ought to have been signed by two (2)
guarantors, the fact that it was only Chi who signed
the same did not make his act an idle ceremony or
render the clause totally meaningless. By his
signing, Chi became the sole guarantor. The
attestation by witnesses and the acknowledgement
before a notary public are not required by law to
make a party liable on the instrument. The rule is
that contracts shall be obligatory in whatever form
they may have been entered into, provided all the
essential requisites for their validity are present;
however, when the law requires that a contract be
in some form in order that it may be valid or
enforceable, or that it be proved in a certain way,
that requirement is absolute and indispensable. 30
With respect to a guaranty, 31 which is a promise to
answer for the debt or default of another, the law
merely requires that it, or some note or
memorandum thereof, be in writing. Otherwise, it
would be unenforceable unless ratified. 32 While the
acknowledgement of a surety before a notary public
is required to make the same a public document,
under Art. 1358 of the CC, a contract of guaranty
does not have to appear in a public document.
And now to the other ground relied upon by the pet.
as basis for the solidary liability of Chi, namely the
criminal proceedings against the latter for the
violation of P.D. No. 115. Pet. claims that because
of the said criminal proceedings, Chi would be
answerable for the civil liability arising therefrom
pursuant to Sec. 13 of P.D. No. 115. Public rsp.
rejected this claim because such civil liability
presupposes prior conviction as can be gleaned
from the phrase "without prejudice to the civil
liability arising from the criminal offense." Both are
wrong. The said Sec. reads:
Sec. 13. Penalty Clause. — The
failure of an entrustee to turn over
the proceeds of the sale of the
goods, documents or instruments
covered by a trust receipt to the
extent of the amount owing to the
entruster or as appears in the trust
receipt or to return said goods,
documents or instruments if they
were not sold or disposed of in
accordance with the terms of the
trust receipt shall constitute the
crime of estafa, punishable under
the provisions of Art. Three hundred
and fifteen, paragraph one (b) of Act
Numbered Three thousand eight
hundred and fifteen, as amended,
otherwise known as the Revised
Penal Code. If the violation or
offense is committed by a
corporation, partnership, association
or other juridical entities, the penalty
provided for in this Decree shall be
imposed upon the directors, officers,
employees or other officials or
persons therein responsible for the
offense, without prejudice to the civil
liabilities arising from the criminal
offense.
A close examination of the quoted provision reveals
that it is the last sentence which provides for the
correct solution. It is clear that if the violation or
offense is committed by a corporation, partnership,
association or other juridical entities, the penalty
shall be imposed upon the directors, officers,
employees or other officials or persons therein
responsible for the offense. The penalty referred to
is imprisonment, the duration of which would
depend on the amount of the fraud as provided for
in Art. 315 of the Revised Penal Code. The reason
for this is obvious: corporations, partnerships,
associations and other juridical entities cannot be
put in jail. However, it is these entities which are
made liable for the civil liability arising from the
criminal offense. This is the import of the clause
"without prejudice to the civil liabilities arising from
the criminal offense." And, as We stated earlier,
since that violation of a trust receipt constitutes
fraud under Art. 33 of the CC, pet. was acting well
within its rights in filing an independent civil action
to enforce the civil liability arising therefrom against
Philippine Rayon.
The remaining issue to be resolved concerns the
propriety of the dismissal of the case against
private rsp. Chi. The TC based the dismissal, and
the rsp. Court its affirmance thereof, on the theory
that Chi is not liable on the trust receipt in any
capacity — either as surety or as guarantor —
because his signature at the dorsal portion thereof
was useless; and even if he could be bound by
such signature as a simple guarantor, he cannot,
pursuant to Art. 2058 of the CC, be compelled to
pay until
after pet. has exhausted and resorted to all legal
remedies against the principal debtor, Philippine
Rayon. The records fail to show that pet. had done
so 33 Reliance is thus placed on Art. 2058 of the CC
which provides:
Art. 2056. The guarantor cannot be
compelled to pay the creditor unless
the latter has exhausted all the
property of the debtor, and has
resorted to all the legal remedies
against the debtor.
Simply stated, there is as yet no cause of action
against Chi.
We are not persuaded. Excussion is not a condition
sine qua non for the institution of an action against
a guarantor. In Southern Motors, Inc. vs. Barbosa,
34
this Court stated:
4. Although an ordinary personal
guarantor — not a mortgagor or
pledgor — may demand the
aforementioned exhaustion, the
creditor may, prior thereto, secure a
judgment against said guarantor,
who shall be entitled, however, to a
deferment of the execution of said
judgment against him until after the
properties of the principal debtor
shall have been exhausted to satisfy
the obligation involved in the case.
There was then nothing procedurally objectionable
in impleading private rsp. Chi as a co-defendant in
Civil Case No. Q-19312 before the TC. As a matter
of fact, Sec. 6, Rule 3 of the Rules of Court on
permissive joinder of parties explicitly allows it. It
reads:
Sec. 6. Permissive joinder of parties.
— All persons in whom or against
whom any right to relief in respect to
or arising out of the same
transaction or series of transactions
is alleged to exist, whether jointly,
severally, or in the alternative, may,
except as otherwise provided in
these rules, join as plaintiffs or be
joined as defendants in one
complaint, where any question of
law or fact common to all such
plaintiffs or to all such defendants
may arise in the action; but the court
may make such orders as may be
just to prevent any plaintiff or
defendant from being embarrassed
or put to expense in connection with
any proceedings in which he may
have no interest.
This is the equity rule relating to multifariousness. It
is based on trial convenience and is designed to
permit the joinder of plaintiffs or defendants
whenever there is a common question of law or
fact. It will save the parties unnecessary work,
trouble and expense. 35
However, Chi's liability is limited to the principal
obligation in the trust receipt plus all the
accessories thereof including judicial costs; with
respect to the latter, he shall only be liable for those
costs incurred after being judicially required to pay.
36
Interest and damages, being accessories of the
principal obligation, should also be paid; these,
however, shall run only from the date of the filing of
the complaint. Attorney's fees may even be allowed
in appropriate cases. 37
In the instant case, the attorney's fees to be paid by
Chi cannot be the same as that to be paid by
Philippine Rayon since it is only the trust receipt
that is covered by the guaranty and not the full
extent of the latter's liability. All things considered, the trust receipt and
he can be held liable for the sum of P10K as ordering him to pay
attorney's fees in favor of the pet.. the face value
thereof, with interest
Thus, the TC committed grave abuse of discretion at the legal rate,
in dismissing the complaint as against private rsp. commencing from the
Chi and condemning pet. to pay him P20K as date of the filing of
attorney's fees. the complaint in Civil
Case No. Q-19312
In the light of the foregoing, it would no longer until the same is fully
necessary to discuss the other issues raised by the paid as well as the
pet. costs and attorney's
fees in the sum of
WHEREFORE, the instant Petition is hereby P10K if the writ of
GRANTED. execution for the
enforcement of the
The appealed Decision of 10 March 1986 of above awards against
the public rsp. in AC-G.R. CV No. 66733 Philippine Rayon
and, necessarily, that of Branch 9 (QC) of Mills, Inc. is returned
the then Court of First Instance of Rizal in unsatisfied.
Civil Case No. Q-19312 are hereby
REVERSED and SET ASIDE and another is Costs against pr.rsps..
hereby entered:
GR 117857 Feb. 2, 2001
1. Declaring private
rsp. Philippine Rayon LUIS S. WONG, pet.,
Mills, Inc. liable on vs.
the twelve drafts in CA and PEOPLE OF THE PHILIPPINES, rsps..
question (Exhibits
"X", "X-1" to "X-11", QUISUMBING, J.:
inclusive) and on the
trust receipt (Exhibit For review on certiorari is the decision dated Oct.
"C"), and ordering it 28, 1994 of CA in C.A. G.R. CR 118561which
to pay pet.: (a) the affirmed the decision of RTC of Cebu City, Branch
amounts due thereon 17, convicting pet. on three (3) counts of Batas
in the total sum of Pambansa Blg. 22 (the Bouncing Checks Law)
P956,384.95 as of 15 violations, and sentencing him to imprisonment of
Sept. 1974, with four (4) months for each count, and to pay pr.rsp.
interest thereon at six the amounts of P5,500.00, P6,410.00 and
percent (6%) per P3,375.00, respectively, corresponding to the value
annum from 16 Sept. of the checks involved, with the legal rate of interest
1974 until it is fully from the time of filing of the criminal charges, as
paid, less whatever well as to pay the costs.1âwphi1.nêt
may have been
applied thereto by The factual antecedents of the case are as follows:
virtue of foreclosure
of mortgages, if any; Pet. Wong was an agent of Limtong Press. Inc.
(b) a sum equal to ten (LPI), a manufacturer of calendars. LPI would print
percent (10%) of the sample calendars, then give them to agents to
aforesaid amount as present to customers. The agents would get the
attorney's fees; and purchase orders of customers and forward them to
(c) the costs. LPI. After printing the calendars, LPI would ship the
calendars directly to the customers. Thereafter, the
2. Declaring private agents would come around to collect the payments.
rsp. Anacleto R. Chi Pet., however, had a history of unremitted
secondarily liable on collections, which he duly acknowledged in a
confirmation receipt he co-signed with his
wife.2Hence, pet.’s customers were required to
issue postdated checks before LPI would accept
their purchase orders.
In early Dec. 1985, Wong issued six (6) postdated
checks totaling P18,025.00, all dated Dec. 30, 1985
and drawn payable to the order of LPI, as follows:
(1) Allied Banking Corporation (ABC) Check
No. 660143464-C for P6,410.00 (Exh. "B");
(2) ABC Check No. 660143460-C for
P540.00 (Exh. "C");
(3) ABC Check No. PA660143451-C for
P5,500.00 (Exh. "D");
(4) ABC Check No. PA660143465-C for
P1,100.00 (Exh. "E");
(5) ABC Check No. PA660143463-C for
P3,375.00 (Exh. "F");
(6) ABC Check No. PA660143452-C for
P1,100.00 (Exh. "G").
These checks were initially intended to guarantee
the calendar orders of customers who failed to
issue post-dated checks. However, following
company policy, LPI refused to accept the checks
as guarantees. Instead, the parties agreed to apply
the checks to the payment of pet.’s unremitted
collections for 1984 amounting to P18,077.07. 3 LPI
waived the P52.07 difference.
Before the maturity of the checks, pet. prevailed
upon LPI not to deposit the checks and promised to
replace them within 30 days. However, pet.
reneged on his promise. Hence, on June 5, 1986,
LPI deposited the checks with Rizal Commercial
Banking Corporation (RCBC). The checks were
returned for the reason "account closed." The
dishonor of the checks was evidenced by the
RCBC return slip.
On June 20, 1986, complainant through counsel
notified the pet. of the dishonor. Pet. failed to make
arrangements for payment within five (5) banking
days.
On Nov. 6, 1987, pet. was charged with three (3)
counts of violation of B.P. Blg. 224 under three
separate Informations for the three checks
amounting to P5,500.00, P3,375.00, and
P6,410.00.5
The Information in Crim.case No. CBU-12055
reads as follows:6
That on or about the 30th day of Dec., 1985
and for sometime subsequent thereto, in the
City of Cebu, Philippines, and within the
jurisdiction of this Honorable Court, the said
accused, knowing at the time of issue of the
check she/he does not have sufficient funds
in or credit with the drawee bank for the
payment of such check in full upon its
presentment, with deliberate intent, with
intent of gain and of causing damage, did
then and there issue, make or draw Allied
Banking Corporation Check No. 660143451
dated 12-30-85 in the amount of P5,500.00
payable to Manuel T. Limtong which check
was issued in payment of an obligation of
said accused, but when the said check was
presented with said bank, the same was
dishonored for reason ‘ACCOUNT
CLOSED’ and despite notice and demands
made to redeem or make good said check,
said accused failed and refused, and up to
the present time still fails and refuses to do
so, to the damage and prejudice of said
Manuel T. Limtong in the amount of
P5,500.00 Philippine Currency.
Contrary to law.
Pet. was similarly charged in Crim.case No. 12057
for ABC Check No. 660143463 in the amount of
P3,375.00, and in Crim.case No. 12058 for ABC
Check No. 660143464 for P6,410.00. Both cases
were raffled to the same TC.
Upon arraignment, Wong pleaded not guilty. Trial
ensued.
Manuel T. Limtong, general manager of LPI,
testified on behalf of the company, Limtong averred
that he refused to accept the personal checks of
pet. since it was against company policy to accept
personal checks from agents. Hence, he and pet.
simply agreed to use the checks to pay pet.’s
unremitted collections to LPI. According to Limtong,
a few days before maturity of the checks, Wong
requested him to defer the deposit of said checks
for lack of funds. Wong promised to replace them
within thirty days, but failed to do so. Hence, upon
advice of counsel, he deposited the checks which
were subsequently returned on the ground of
"account closed."
The version of the defense is that pet. issued the
six (6) checks to guarantee the 1985 calendar
bookings of his customers. According to pet., he
issued the checks not as payment for any
obligation, but to guarantee the orders of his
customers. In fact, the face value of the six (6)
postdated checks tallied with the total amount of
the calendar orders of the six (6) customers of the
accused, namely, Golden Friendship Supermarket,
Inc. (P6,410.00), New Society Rice and Corn Mill
(P5,500.00), Cuesta Enterprises (P540.00), Pelrico
Marketing (P1,100.00), New Asia Restaurant
P3,375.00), and New China Restaurant
(P1,100.00). Although these customers had already
paid their respective orders, pet. claimed LPI did
not return the said checks to him.
On Aug. 30, 1990, TC issued its decision, disposing
as follows:7
"Wherefore, premises considered, this
Court finds the accused Luis S. Wong
GUILTY beyond reasonable doubt of the
offense of Violations of Section 1 of Batas
Pambansa Bilang 22 in THREE (3) Counts
and is hereby sentenced to serve an
imprisonment of FOUR (4) MONTHS for
each count; to pay Private Complainant
Manuel T. Limtong the sums of Five
Thousand Five Hundred (P5,500.00) Pesos,
Six Thousand Four Hundred Ten
(P6,410.00) Pesos and Three Thousand
Three Hundred Seventy-Five (P3,375.00)
Pesos corresponding to the amounts
indicated in Allied Banking Checks Nos.
660143451, 66[0]143464 and 660143463 all
issued on Dec. 30, 1985 together with the
legal rate of interest from the time of the
filing of the criminal charges in Court and
pay the costs."8
Pet. appealed his conviction to CA. On Oct. 28,
1994, it affirmed TC’s decision in toto.9
Hence, the present petition.10 Pet. raises the
following questions of law -11
May a complainant successfully prosecute a
case under BP 22 --- if there is no more
consideration or price or value – ever the
binding tie that it is in contracts in general
and in negotiable instruments in particular –
behind the checks? – if even before he
deposits the checks, he has ceased to be a
holder for value because the purchase
orders (PO’s) guaranteed by the checks
were already paid?
Given the fact that the checks lost their
reason for being, as above stated, is it not
then the duty of complainant – knowing he
is no longer a holder for value – to return
the checks and not to deposit them ever?
Upon what legal basis then may such a
holder deposit them and get paid twice?
Is pet., as the drawer of the guarantee
checks which lost their reason for being, still
bound under BP 22 to maintain his account
long after 90 days from maturity of the
checks?
May the prosecution apply the prima
facie presumption of "knowledge of lack of
funds" against the drawer if the checks were
belatedly deposited by the complainant 157
days after maturity, or will it be then
necessary for the prosecution to
show actual proof of "lack of funds" during
the 90-day term?
Pet. insists that the checks were issued as
guarantees for the 1985 purchase orders (PO’s) of
his customers. He contends that pr.rsp. is not a
"holder for value" considering that the checks were
deposited by pr.rsp. after the customers already
paid their orders. Instead of depositing the checks,
pr.rsp. should have returned the checks to him. Pet.
further assails the credibility of complainant
considering that his answers to cross-examination
questions included: "I cannot recall, anymore" and
"We have no more record."
In his Comment,12 the Solicitor General concedes
that the checks might have been initially intended
by pet. to guarantee payments due from customers,
but upon the refusal of LPI to accept said personal
checks per company policy, the parties had agreed
that the checks would be used to pay off pet.’s
unremitted collections. Pet.’s contention that he did
not demand the return of the checks because he
trusted LPI’s good faith is contrary to human nature
and sound business practice, according to the
Solicitor General.
The issue as to whether the checks were issued
merely as guarantee or for payment of pet.’s
unremitted collections is a factual issue involving as
it does the credibility of witnesses. Said factual
issue has been settled by TC and CA. Although
initially intended to be used as guarantee for the
purchase orders of customers, they found the
checks were eventually used to settle the remaining
obligations of pet. with LPI. Although Manuel
Limtong was the sole witness for the prosecution,
his testimony was found sufficient to prove all the
elements of the offense charged.13 We find no
cogent reason to depart from findings of both the
trial and appellate courts. In cases elevated from
CA, our review is confined to allege errors of law.
Its findings of fact are generally conclusive. Absent
any showing that the findings by the rsp. court are
entirely devoid of any substantiation on record, the
same must stand.14 The lack of accounting between
the parties is not the issue in this case. As
repeatedly held, this Court is not a trier of
facts.15 Moreover, in Llamado v. CA,16 we held that
"[t]o determine the reason for which checks are
issued, or the terms and conditions for their
issuance, will greatly erode the faith the public
reposes in the stability and commercial value of
checks as currency substitutes, and bring about
havoc in trade and in banking communities. So
what the law punishes is the issuance of a
bouncing check and not the purpose for which it
was issued nor the terms and conditions relating to
its issuance. The mere act of issuing a worthless
check is malum prohibitum." Nothing herein
persuades us to hold otherwise.
The only issue for our resolution now is W/N the
prosecution was able to establish beyond
reasonable doubt all the elements of the offense
penalized under B.P. Blg. 22.
There are two (2) ways of violating B.P. Blg. 22: (1)
by making or drawing and issuing a check to apply
on account or for value knowing at the time of issue
that the check is not sufficiently funded; and (2) by
having sufficient funds in or credit with the drawee
bank at the time of issue but failing to keep
sufficient funds therein or credit with said bank to
cover the full amount of the check when presented
to the drawee bank within a period of ninety (90)
days.17
The elements of B.P. Blg. 22 under the first
situation, pertinent to the present case, are:18
"(1) The making, drawing and issuance of
any check to apply for account or for value;
(2) The knowledge of the maker, drawer, or
issuer that at the time of issue he does not
have sufficient funds in or credit with the
drawee bank for the payment of such check
in full upon its presentment; and
(3) The subsequent dishonor of the check
by the drawee bank for insufficiency of
funds or credit or dishonor for the same
reason had not the drawer, without any valid
cause, ordered the bank to stop payment."
Pet. contends that the first element does not exist
because the checks were not issued to apply for
account or for value. He attempts to distinguish his
situation from the usual "cut-and-dried" B.P. 22
case by claiming that the checks were issued as
guarantee and the obligations they were supposed
to guarantee were already paid. This flawed
argument has no factual basis, the RTC and CA
having both ruled that the checks were in payment
for unremitted collections, and not as guarantee.
Likewise, the argument has no legal basis, for what
B.P. Blg. 22 punishes is the issuance of a bouncing
check and not the purpose for which it was issued
nor the terms and conditions relating to its
issuance.19
As to the second element, B.P. Blg. 22 creates a
presumption juris tantum that the second
element prima facie exists when the first and third
elements of the offense are present.20 Thus, the
maker’s knowledge is presumed from the dishonor
of the check for insufficiency of funds.21
Pet. avers that since the complainant deposited the
checks on June 5, 1986, or 157 days after the Dec.
30, 1985 maturity date, the presumption of
knowledge of lack of funds under Section 2 of B.P.
Blg. 22 should not apply to him. He further claims
that he should not be expected to keep his bank
account active and funded beyond the ninety-day
period.
Section 2 of B.P. Blg. 22 provides:
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.
An essential element of the offense is "knowledge"
on the part of the maker or drawer of the check of
the insufficiency of his funds in or credit with the
bank to cover the check upon its presentment.
Since this involves a state of mind difficult to
establish, the statute itself creates a prima
facie presumption of such knowledge where
payment of the check "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." To mitigate the harshness of
the law in its application, the statute provides that
such presumption shall not arise if within five (5)
banking days from receipt of the notice of dishonor,
the maker or drawer makes arrangements for
payment of the check by the bank or pays the
holder the amount of the check.22
Contrary to pet.’s assertions, nowhere in said
provision does the law require a maker to maintain
funds in his bank account for only 90 days. Rather,
the clear import of the law is to establish a prima
facie presumption of knowledge of such
insufficiency of funds under the following conditions
(1) presentment within 90 days from date of the
check, and (2) the dishonor of the check and failure
of the maker to make arrangements for payment in
full within 5 banking days after notice thereof. That
the check must be deposited within ninety (90)
days is simply one of the conditions for the prima
facie presumption of knowledge of lack of funds to
arise. It is not an element of the offense. Neither
does it discharge pet. from his duty to maintain
sufficient funds in the account within a reasonable
time thereof. Under Section 186 of the Negotiable
Instruments Law, "a check must be presented for
payment within a reasonable time after its issue or
the drawer will be discharged from liability thereon
to the extent of the loss caused by the delay." By
current banking practice, a check becomes stale
after more than six (6) months,23 or 180 days.
Pr.rsp. herein deposited the checks 157 days after
the date of the check. Hence said checks cannot be
considered stale. Only the presumption of
knowledge of insufficiency of funds was lost, but
such knowledge could still be proven by direct or
circumstantial evidence. As found by TC, pr.rsp. did
not deposit the checks because of the reassurance
of pet. that he would issue new checks. Upon his
failure to do so, LPI was constrained to deposit the
said checks. After the checks were dishonored, pet.
was duly notified of such fact but failed to make
arrangements for full payment within five (5)
banking days thereof. There is, on record, sufficient
evidence that pet. had knowledge of the
insufficiency of his funds in or credit with the
drawee bank at the time of issuance of the checks.
And despite pet.’s insistent plea of innocence, we
find no error in the rsp. court’s affirmance of his
conviction by TC for violations of the Bouncing
Checks Law.
However, pursuant to the policy guidelines
in Administrative Circular No. 12-2000, which took
effect on Nov. 21, 2000, the penalty imposed on
pet. should now be modified to a fine of not less
than but not more than double the amount of the
checks that were dishonored.
WHEREFORE, the petition is DENIED. Pet. Luis S.
Wong is found liable for violation of Batas
Pambansa Blg. 22 but the penalty imposed on him
is hereby MODIFIED so that the sentence of
imprisonment is deleted. Pet. is ORDERED to pay
a FINE of (1) P6,750.00, equivalent to double the
amount of the check involved in Crim.case No.
CBU-12057, (2) P12,820.00, equivalent to double
the amount of the check involved in Crim.case No.
CBU-12058, and (3) P11,000.00, equivalent to
double the amount of the check involved in
Crim.case No. CBU-12055, with subsidiary
imprisonment24 in case of insolvency to pay the
aforesaid fines. Finally, as civil indemnity, pet. is
also ordered to pay to LPI the face value of said
checks totaling P18,025.00 with legal interest
thereon from the time of filing the criminal charges
in court, as well as to pay the costs.1âwphi1.nêt
GR 141968 Feb. 12, 2001
THE INTERNATIONAL CORPORATE BANK (now
UNION BANK OF THE PHILIPPINES), pet.,
vs.
SPS. FRANCIS S. GUECO and MA. LUZ E.
GUECO, rsps..
KAPUNAN, J.:
The rsp. Gueco Spouses obtained a loan from pet.
International Corporate Bank (now Union Bank of
the Philippines) to purchase a car - a Nissan Sentra
1600 4DR, 1989 Model. In consideration thereof,
the Spouses executed promissory notes which
were payable in monthly installments and chattel
mortgage over the car to serve as security for the
notes.1âwphi1.nêt
The Spouses defaulted in payment of installments.
Consequently, the Bank filed on Aug. 7, 1995 a civil
action docketed as Civil Case No. 658-95 for "Sum
of Money with Prayer for a Writ of Replevin" 1 before
the Metropolitan TC of Pasay City, Branch 45. 2 On
Aug. 25, 1995, Dr. Francis Gueco was served
summons and was fetched by the sheriff and
representative of the bank for a meeting in the bank
premises. Desi Tomas, the Bank's Assistant Vice
President demanded payment of the amount of
P184,000.00 which represents the unpaid balance
for the car loan. After some negotiations and
computation, the amount was lowered to
P154,000.00, However, as a result of the non-
payment of the reduced amount on that date, the
car was detained inside the bank's compound.
On Aug. 28, 1995, Dr. Gueco went to the bank and
talked with its Administrative Support, Auto
Loans/Credit Card Collection Head, Jefferson
Rivera. The negotiations resulted in the further
reduction of the outstanding loan to P150,000.00.
On Aug. 29, 1995, Dr. Gueco delivered a
manager's check in amount of P150,000.00 but the
car was not released because of his refusal to sign
the Joint MTD. It is the contention of the Gueco
spouses and their counsel that Dr. Gueco need not
sign the motion for joint dismissal considering that
they had not yet filed their Answer. Pet., however,
insisted that the joint MTD is standard operating
procedure in their bank to effect a compromise and
to preclude future filing of claims, counterclaims or
suits for damages.
After several demand letters and meetings with
bank representatives, the rsps. Gueco spouses
initiated a civil action for damages before the
Metropolitan TC of QC, Branch 33. The
Metropolitan TC dismissed the complaint for lack of
merit.3
On appeal to RTC, Branch 227 of QC, the decision
of the Metropolitan TC was reversed. In its
decision, the RTC held that there was a meeting of
the minds between the parties as to the reduction
of the amount of indebtedness and the release of
the car but said agreement did not include the
signing of the joint MTD as a condition sine qua
non for the effectivity of the compromise. The court
further ordered the bank:
1. to return immediately the subject car to
the appellants in good working condition;
Appellee may deposit the Manager's check
- the proceeds of which have long been
under the control of the issuing bank in
favor of the appellee since its issuance,
whereas the funds have long been paid by
appellants to .secure said Manager's
Check, over which appellants have no
control;
2. to pay the appellants the sum of
P50,000.00 as moral damages; P25,000.00
as exemplary damages, and P25,000.00 as
attorney's fees, and
3. to pay the cost of suit.
In other respect, the decision of the
Metropolitan TC Branch 33 is hereby
AFFIRMED.4
The case was elevated to CA, which on Feb. 17,
2000, issued the assailed decision, the decretal
portion of which reads:
WHEREFORE, premises considered, the
petition for review on certiorari is hereby
DENIED and the Decision of RTC of QC,
Branch 227, in Civil Case No. Q-97-31176,
for lack of any reversible error, is
AFFIRMED in toto. Costs against pet..
SO ORDERED.5
CA essentially relied on the respect accorded to the
finality of the findings of facts by the lower court
and on the latter's finding of the existence of fraud
which constitutes the basis for the award of
damages.
The pet. comes to this Court by way of petition for
review on certiorari under Rule 45 of the Rules of
Court, raising the following assigned errors:
I
CA ERRED IN HOLDING THAT THERE
WAS NO AGREEMENT WITH RESPECT
TO THE EXECUTION OF THE JOINT MTD
AS A CONDITION FOR THE
COMPROMISE AGREEMENT.
II
CA ERRED IN GRANTING MORAL AND
EXEMPLARY DAMAGES AND
ATTORNEY'S FEES IN FAVOR OF THE
RSPS..
III
 CA ERRED IN HOLDING THAT THE PET.
RETURN THE SUBJECT CAR TO THE
RSPS., WITHOUT MAKING ANY
PROVISION FOR THE ISSUANCE OF THE
NEW MANAGER'S/CASHIER'S CHECK BY
THE RSPS. IN FAVOR OF THE PET. IN
LIEU OF THE ORIGINAL CASHIER'S
CHECK THAT ALREADY BECAME STALE.6
As to the first issue, we find for the rsps.. The issue
as to what constitutes the terms of the oral
compromise or any subsequent novation is a
question of fact that was resolved by RTC and CA
in favor of rsps.. It is well settled that the findings of
fact of the lower court, especially when affirmed by
CA, are binding upon this Court. 7 While there are
exceptions to this rule,8 the present case does not
fall under anyone of them, the pet.'s claim to the
contrary, notwithstanding.
Being an affirmative allegation, pet. has the burden
of evidence to prove his claim that the oral
compromise entered into by the parties on Aug. 28,
1995 included the stipulation that the parties would
jointly file a MTD. This pet. failed to do. Notably,
even the Metropolitan TC, while ruling in favor of
the pet. and thereby dismissing the complaint, did
not make a factual finding that the compromise
agreement included the condition of the signing of a
joint MTD.
CA made the factual findings in this wise:
In support of its claim, pet. presented the
testimony of Mr. Jefferson Rivera who
related that rsp. Dr. Gueco was aware that
the signing of the draft of the Joint MTD was
one of the conditions set by the bank for the
acceptance of the reduced amount of
indebtedness and the release of the car.
(TSN, Oct. 23, 1996, pp. 17-21, Rollo, pp.
18, 5). Rsps., however, maintained that no
such condition was ever discussed during
their meeting of Aug. 28, 1995 (Rollo, p. 32).
TC, whose factual findings are entitled to
respect since it has the 'opportunity to
directly observe the witnesses and to
determine by their demeanor on the stand
the probative value of their testimonies'
(People vs. Yadao, et al. 216 SCRA 1, 7
[1992]), failed to make a categorical finding
on the issue. In dismissing the claim of
damages of the rsps., it merely observed
that rsps. are not entitled to indemnity since
it was their unjustified reluctance to sign of
the Joint MTD that delayed the release of
the car. TC opined, thus:
'As regards the third issue, plaintiffs'
claim for damages is unavailing.
First, the plaintiffs could have
avoided the renting of another car
and could have avoided this litigation
had he signed the Joint MTD. While
it is true that herein defendant can
unilaterally dismiss the case for
collection of sum of money with
replevin, it is equally true that there
is nothing wrong for the plaintiff to
affix his signature in the Joint MTD,
for after all, the dismissal of the case
against him is for his own good and
benefit. In fact, the signing of the
Joint MTD gives the plaintiff three (3)
advantages. First, he will recover his
car. Second, he will pay his
obligation to the bank on its reduced
amount of P150,000.00 instead of its
original claim of P184,985.09. And
third, the case against him will be
dismissed. Plaintiffs, likewise, are
not entitled to the award of moral
damages and exemplary damages
as there is no showing that the
defendant bank acted fraudulently or
in bad faith.' (Rollo, p. 15)
The Court has noted, however, that TC, in
its findings of facts, clearly indicated that the
agreement of the parties on Aug. 28, 1995
was merely for the lowering of the price,
hence -
'xxx On Aug. 28, 1995, bank
representative Jefferson Rivera and
plaintiff entered into an oral
compromise agreement, whereby
the original claim of the bank of
P184,985.09 was reduced to
P150,000.00 and that upon payment
of which, plaintiff was informed that
the subject motor vehicle would be
released to him.' (Rollo, p. 12)
The lower court, on the other hand,
expressly made a finding that pet. failed to
include the aforesaid signing of the Joint
MTD as part of the agreement. In
dismissing pet.'s claim, the lower court
declared, thus:
 'If it is true, as the appellees allege,
that the signing of the joint motion
was a condition sine qua non for the
reduction of the appellants'
obligation, it is only reasonable and
logical to assume that the joint
motion should have been shown to
Dr. Gueco in the Aug. 28, 1995
meeting. Why Dr. Gueco was not
given a copy of the joint motion that
day of Aug. 28, 1995, for his family
or legal counsel to see to be brought
signed, together with the
P150,000.00 in manager's check
form to be submitted on the following
day on Aug. 29, 1995? (sic) [I]s a
question whereby the answer up to
now eludes this Court's
comprehension. The appellees
would like this Court to believe that
Dr Gueco was informed by Mr.
Rivera Rivera of the bank
requirement of signing the joint
motion on Aug. 28, 1995 but he did
not bother to show a copy thereof to
his family or legal counsel that day
Aug. 28, 1995. This part of the
theory of appellee is too complicated
for any simple oral agreement. The
idea of a Joint MTD being signed as
a condition to the pushing through a
deal surfaced only on Aug. 29, 1995.
'This Court is not convinced by the
appellees' posturing. Such claim
rests on too slender a frame, being
inconsistent with human experience.
Considering the effect of the signing
of the Joint MTD on the appellants'
substantive right, it is more in accord
with human experience to expect Dr.
Gueco, upon being shown the Joint
MTD, to refuse to pay the Manager's
Check and for the bank to refuse to
accept the manager's check. The
only logical explanation for this
inaction is that Dr. Gueco was not
shown the Joint MTD in the meeting
of Aug. 28, 1995, bolstering his claim
that its signing was never put into
consideration in reaching a likewise, be noted that in cases of breach of
compromise.' xxx.9
We see no reason to reverse.
Anent the issue of award of damages, we find the
claim of pet. meritorious. In finding the pet. liable for
damages, both .RTC and CA ruled that there was
fraud on the part of the pet.. The CA thus declared:
The lower court's finding of fraud which
became the basis of the award of damages
was likewise sufficiently proven. Fraud
under Art. 1170 of the CC of the Philippines,
as amended is the 'deliberate and
intentional evasion of the normal fulfillment
of obligation' When pet. refused to release
the car despite rsp.'s tender of payment in
the form of a manager's check, the former
intentionally evaded its obligation and
thereby became liable for moral and
exemplary damages, as well as attorney's
fees.10
We disagree.
Fraud has been defined as the deliberate intention
to cause damage or prejudice. It is the voluntary
execution of a wrongful act, or a willful omission,
knowing and intending the effects which naturally
and necessarily arise from such act or omission;
the fraud referred to in Art. 1170 of the CC is the
deliberate and intentional evasion of the normal
fulfillment of obligation.11 We fail to see how the act
of the pet. bank in requiring the rsp. to sign the joint
MTD could constitute as fraud. True, pet. may have
been remiss in informing Dr. Gueco that the signing
of a joint MTD is a standard operating procedure of
pet. bank. However, this can not in anyway have
prejudiced Dr. Gueco. The MTD was in fact also for
the benefit of Dr. Gueco, as the case filed by pet.
against it before the lower court would be
dismissed with prejudice. The whole point of the
parties entering into the compromise agreement
was in order that Dr. Gueco would pay his
outstanding account and in return pet. would return
the car and drop the case for money and replevin
before the Metropolitan TC. The joint MTD was but
a natural consequence of the compromise
agreement and simply stated that Dr. Gueco had
fully settled his obligation, hence, the dismissal of
the case. Pet.'s act of requiring Dr. Gueco to sign
the joint MTD can not be said to be a deliberate
attempt on the part of pet. to renege on the
compromise agreement of the parties. It should,
contract, moral damages may only be awarded
when the breach was attended by fraud or bad
faith.12 The law presumes good faith. Dr. Gueco
failed to present an iota of evidence to overcome
this presumption. In fact, the act of pet. bank in
lowering the debt of Dr. Gueco from P184,000.00 to
P150,000.00 is indicative of its good faith and
sincere desire to settle the case. If rsp. did suffer
any damage, as a result of the withholding of his
car by pet., he has only himself to blame.
Necessarily, the claim for exemplary damages must
fait. In no way, may the conduct of pet. be
characterized as "wanton, fraudulent, reckless,
oppressive or malevolent."13
We, likewise, find for the pet. with respect to the
third assigned error. In the meeting of Aug. 29,
1995, rsp. Dr. Gueco delivered a manager's check
representing the reduced amount of P150,000.00.
Said check was given to Mr. Rivera, a
representative of rsp. bank. However, since Dr.
Gueco refused to sign the joint MTD, he was made
to execute a statement to the effect that he was
withholding the payment of the
14
check. Subsequently, in a letter addressed to Ms.
Desi Tomas, vice president of the bank, dated Sept.
4, 1995, Dr. Gueco instructed the bank to disregard
the 'hold order" letter and demanded the immediate
release of his car,15 to which the former replied that
the condition of signing the joint MTD must be
satisfied and that they had kept the check which
could be claimed by Dr. Gueco anytime.16 While
there is controversy as to whether the document
evidencing the order to hold payment of the check
was formally offered as evidence by pet/s,17 it
appears from the pleadings that said check has not
been encashed.
The decision of RTC, which was affirmed in toto by
CA, orders the pet.:
1. to return immediately the subject car to
the appellants in good working condition.
Appellee may deposit the Manager's Check
- the proceeds of which have long been
under the control of the issuing bank in
favor of the appellee since its issuance,
whereas the funds have long been paid by
appellants to secure said Manager's Check
over which appellants have no control.18
Rsps. would make us hold that pet. should return
the car or its value and that the latter, because of its
own negligence, should suffer the loss occasioned
by the fact that the check had become stale. 19 It is
their position that delivery of the manager's check
produced the effect of payment20 and, thus, pet.
was negligent in opting not to deposit or use said
check. Rudimentary sense of justice and fair play
would not countenance rsps.' position.
A stale check is one which has not been presented
for payment within a reasonable time after its issue.
It is valueless and, therefore, should not be paid.
Under the negotiable instruments law, an
instrument not payable on demand must be
presented for payment on the day it falls due. When
the instrument is payable on demand, presentment
must be made within a reasonable time after its
issue. In the case of a bill of exchange,
presentment is sufficient if made within a
reasonable time after the last negotiation thereof.21
A check must be presented for payment within a
reasonable time after its issue,22 and in determining
what is a "reasonable time," regard is to be had to
the nature of the instrument, the usage of trade or
business with respect to such instruments, and the
facts of the particular case.23 The test is whether
the payee employed such diligence as a prudent
man exercises in his own affairs.24 This is because
the nature and theory behind the use of a check
points to its immediate use and payability. In a
case, a check payable on demand which was long
overdue by about two and a half (2-1/2) years was
considered a stale check.25 Failure of a payee to
encash a check for more than ten (10) years
undoubtedly resulted in the check becoming
stale.26 Thus, even a delay of one (1) week27 or two
(2) days,28 under the specific circumstances of the
cited cases constituted unreasonable time as a
matter of law.
In the case at bar, however, the check involved is
not an ordinary bill of exchange but a manager's
check. A manager's check is one drawn by the
bank's manager upon the bank itself. It is similar to
a cashier's check both as to effect and use. A
cashier's check is a check of the bank's cashier on
his own or another check. In effect, it is a bill of
exchange drawn by the cashier of a bank upon the
bank itself, and accepted in advance by the act of
its issuance.29 It is really the bank's own check and
may be treated as a promissory note with the bank
as a maker.30 The check becomes the primary
obligation of the bank which issues it and
constitutes its written promise to pay upon demand.
The mere issuance of it is considered an
acceptance thereof. If treated as promissory note,
the drawer would be the maker and in which case
the holder need not prove presentment for payment
or present the bill to the drawee for acceptance.31
Even assuming that presentment is needed, failure
to present for payment within a reasonable time will
result to the discharge of the drawer only to the
extent of the loss caused by the delay. 32 Failure to
present on time, thus, does not totally wipe out all
liability. In fact, the legal situation amounts to an
acknowledgment of liability in the sum stated in the
check. In this case, the Gueco spouses have not
alleged, much less shown that they or the bank
which issued the manager's check has suffered
damage or loss caused by the delay or non-
presentment. Definitely, the original obligation to
pay certainly has not been erased.
It has been held that, if the check had become
stale, it becomes imperative that the circumstances
that caused its non-presentment be
33
determined. In the case at bar, there is no doubt
that the pet. bank held on the check and refused to
encash the same because of the controversy
surrounding the signing of the joint MTD. We see
no bad faith or negligence in this position taken by
the Bank.1âwphi1.nêt
WHEREFORE, premises considered, the petition
for review is given due course. The decision of CA
affirming the decision of RTC is SET ASIDE. Rsps.
are further ordered to pay the original obligation
amounting to P150,000.00 to the pet. upon
surrender or cancellation of the manager's check in
the latter's possession, afterwhich, pet. is to return
the subject motor vehicle in good working condition.
GR 101163 Jan. 11, 1993
STATE INVESTMENT HOUSE, INC., pet.,
vs.
CA and NORA B. MOULIC, rsps..
Escober, Alon & Associates for pet..
Martin D. Pantaleon for pr.rsps..
BELLOSILLO, J.:
The liability to a holder in due course of the drawer
of checks issued to another merely as security, and
the right of a real estate mortgagee after
extrajudicial foreclosure to recover the balance of
the obligation, are the issues in this Petition for
Review of the Decision of rsp. CA.
Pr.rsp. Nora B. Moulic issued to Corazon
Victoriano, as security for pieces of jewelry to be
sold on commission, two (2) post-dated Equitable
Banking Corporation checks in the amount of Fifty
Thousand Pesos (P50,000.00) each, one dated 30
Aug. 1979 and the other, 30 Sept. 1979. Thereafter,
the payee negotiated the checks to pet. State
Investment House. Inc. (STATE).
MOULIC failed to sell the pieces of jewelry, so she
returned them to the payee before maturity of the
checks. The checks, however, could no longer be
retrieved as they had already been negotiated.
Consequently, before their maturity dates, MOULIC
withdrew her funds from the drawee bank.
Upon presentment for payment, the checks were
dishonored for insufficiency of funds. On 20 Dec.
1979, STATE allegedly notified MOULIC of the
dishonor of the checks and requested that it be
paid in cash instead, although MOULIC avers that
no such notice was given her.
On 6 Oct. 1983, STATE sued to recover the value
of the checks plus attorney's fees and expenses of
litigation.
In her Answer, MOULIC contends that she incurred
no obligation on the checks because the jewelry
was never sold and the checks were negotiated
without her knowledge and consent. She also
instituted a Third-Party Complaint against Corazon
Victoriano, who later assumed full responsibility for
the checks.
On 26 May 1988, TC dismissed the Complaint as
well as the Third-Party Complaint, and ordered
STATE to pay MOULIC P3,000.00 for attorney's
fees.
STATE elevated the order of dismissal to CA, but
the appellate court affirmed TC on the ground that
the Notice of Dishonor to MOULIC was made
beyond the period prescribed by the Negotiable
Instruments Law and that even if STATE did serve
such notice on MOULIC within the reglementary
period it would be of no consequence as the
checks should never have been presented for
payment. The sale of the jewelry was never
effected; the checks, therefore, ceased to serve
their purpose as security for the jewelry.
We are not persuaded.
The negotiability of the checks is not in dispute.
Indubitably, they were negotiable. After all, at the
pre-trial, the parties agreed to limit the issue to W/N
STATE was a holder of the checks in due course. 1
In this regard, Sec. 52 of the Negotiable
Instruments Law provides —
Sec. 52. What constitutes a holder
in due course. — 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 was 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.
Culled from the foregoing, a prima
facie presumption exists that the holder of a
negotiable instrument is a holder in due
course. 2 Consequently, the burden of proving that
STATE is not a holder in due course lies in the
person who disputes the presumption. In this
regard, MOULIC failed.
The evidence clearly shows that: (a) on their faces
the post-dated checks were complete and regular:
(b) pet. bought these checks from the payee,
Corazon Victoriano, before their due dates; 3 (c)
pet. took these checks in good faith and for value,
albeit at a discounted price; and, (d) pet. was never
informed nor made aware that these checks were
merely issued to payee as security and not for
value.
Consequently, STATE is indeed a holder in due
course. As such, it holds the instruments free from
any defect of title of prior parties, and from
defenses available to prior parties among
themselves; STATE may, therefore, enforce full
payment of the checks. 4
MOULIC cannot set up against STATE the defense
that there was failure or absence of consideration.
MOULIC can only invoke this defense against
STATE if it was privy to the purpose for which they
were issued and therefore is not a holder in due
course.
That the post-dated checks were merely issued as
security is not a ground for the discharge of the
instrument as against a holder in due course. For
the only grounds are those outlined in Sec. 119 of
the Negotiable Instruments Law:
Sec. 119. Instrument; how
discharged. — A negotiable
instrument is discharged: (a) By
payment in due course by or on
behalf of the principal debtor; (b) By
payment in due course by the party
accommodated, where the
instrument is made or accepted for
his accommodation; (c) By the
intentional cancellation thereof by
the holder; (d) By any other act
which will discharge a simple
contract for the payment of money;
(e) When the principal debtor
becomes the holder of the
instrument at or after maturity in his
own right.
Obviously, MOULIC may only invoke paragraphs
(c) and (d) as possible grounds for the discharge of
the instrument. But, the intentional cancellation
contemplated under paragraph (c) is that
cancellation effected by destroying the instrument
either by tearing it up, 5 burning it, 6 or writing the
word "cancelled" on the instrument. The act of
destroying the instrument must also be made by
the holder of the instrument intentionally. Since
MOULIC failed to get back possession of the post-
dated checks, the intentional cancellation of the
said checks is altogether impossible.
On the other hand, the acts which will discharge a
simple contract for the payment of money under
paragraph (d) are determined by other existing
legislations since Sec. 119 does not specify what
these acts are, e.g., Art. 1231 of the CC 7 which
enumerates the modes of extinguishing obligations.
Again, none of the modes outlined therein is
applicable in the instant case as Sec. 119
contemplates of a situation where the holder of the
instrument is the creditor while its drawer is the
debtor. In the present action, the payee, Corazon
Victoriano, was no longer MOULIC's creditor at the
time the jewelry was returned.
Correspondingly, MOULIC may not unilaterally
discharge herself from her liability by the mere
expediency of withdrawing her funds from the
drawee bank. She is thus liable as she has no legal
basis to excuse herself from liability on her checks
to a holder in due course.
Moreover, the fact that STATE failed to give Notice
of Dishonor to MOULIC is of no moment. The need
for such notice is not absolute; there are exceptions
under Sec. 114 of the Negotiable Instruments Law:
 Sec. 114. When notice need not be
given to drawer. — Notice of
dishonor is not required to be given
to the drawer in the following cases:
(a) Where the drawer and the
drawee are the same person; (b)
When the drawee is a fictitious
person or a person not having
capacity to contract; (c) When the
drawer is the person to whom the
instrument is presented for payment:
(d) Where the drawer has no right to
expect or require that the drawee or
acceptor will honor the instrument;
(e) Where the drawer had
countermanded payment.
Indeed, MOULIC'S actuations leave much to be
desired. She did not retrieve the checks when she
returned the jewelry. She simply withdrew her funds
from her drawee bank and transferred them to
another to protect herself. After withdrawing her
funds, she could not have expected her checks to
be honored. In other words, she was responsible
for the dishonor of her checks, hence, there was no
need to serve her Notice of Dishonor, which is
simply bringing to the knowledge of the drawer or
indorser of the instrument, either verbally or by
writing, the fact that a specified instrument, upon
proper proceedings taken, has not been accepted
or has not been paid, and that the party notified is
expected to pay it. 8
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. 9
The drawing and negotiation of a check have
certain effects aside from the transfer of title or the
incurring of liability in regard to the instrument by
the transferor. The holder who takes the negotiated
paper makes a contract with the parties on the face
of the instrument. There is an implied
representation that funds or credit are available for
the payment of the instrument in the bank upon
which it is drawn. 10 Consequently, the withdrawal of
the money from the drawee bank to avoid liability
on the checks cannot prejudice the rights of holders
in due course. In the instant case, such withdrawal
renders the drawer, Nora B. Moulic, liable to
STATE, a holder in due course of the checks.
Under the facts of this case, STATE could not
expect payment as MOULIC left no funds with the
drawee bank to meet her obligation on the
checks, 11 so that Notice of Dishonor would be futile.
CA also held that allowing recovery on the checks
would constitute unjust enrichment on the part of
STATE Investment House, Inc. This is error.
The record shows that Mr. Romelito Caoili, an
Account Assistant, testified that the obligation of
Corazon Victoriano and her husband at the time
their property mortgaged to STATE was
extrajudicially foreclosed amounted to P1.9 million;
the bid price at public auction was only P1
million. 12 Thus, the value of the property foreclosed
was not even enough to pay the debt in full.
Where the proceeds of the sale are insufficient to
cover the debt in an extrajudicial foreclosure of
mortgage, the mortgagee is entitled to claim the
deficiency from the debtor. 13 The step thus taken
by the mortgagee-bank in resorting to an extra-
judicial foreclosure was merely to find a proceeding
for the sale of the property and its action cannot be
taken to mean a waiver of its right to demand
payment for the whole debt. 14 For, while Act 3135,
as amended, does not discuss the mortgagee's
right to recover such deficiency, it does not contain
any provision either, expressly or impliedly,
prohibiting recovery. In this jurisdiction, when the
legislature intends to foreclose the right of a
creditor to sue for any deficiency resulting from
foreclosure of a security given to guarantee an
obligation, it so expressly provides. For instance,
with respect to pledges, Art. 2115 of the CC 15 does
not allow the creditor to recover the deficiency from
the sale of the thing pledged. Likewise, in the case
of a chattel mortgage, or a thing sold on installment
basis, in the event of foreclosure, the vendor "shall
have no further action against the purchaser to
recover any unpaid balance of the price. Any
agreement to the contrary will be void". 16
It is clear then that in the absence of a similar
provision in Act No. 3135, as amended, it cannot be
concluded that the creditor loses his right
recognized by the Rules of Court to take action for
the recovery of any unpaid balance on the principal
obligation simply because he has chosen to
extrajudicially foreclose the real estate mortgage
pursuant to a Special Power of Attorney given him
by the mortgagor in the contract of mortgage. 17
The filing of the Complaint and the Third-Party
Complaint to enforce the checks against MOULIC
and the VICTORIANO spouses, respectively, is just
another means of recovering the unpaid balance of
the debt of the VICTORIANOs.
In fine, MOULIC, as drawer, is liable for the value of
the checks she issued to the holder in due course,
STATE, without prejudice to any action for
recompense she may pursue against the
VICTORIANOs as Third-Party Defendants who had
already been declared as in default.
WHEREFORE, the petition is GRANTED. The
decision appealed from is REVERSED and a new
one entered declaring pr.rsp. NORA B. MOULIC
liable to pet. STATE INVESTMENT HOUSE, INC.,
for the value of EBC Checks Nos. 30089658 and
30089660 in the total amount of P100,000.00,
P3,000.00 as attorney's fees, and the costs of suit,
without prejudice to any action for recompense she
may pursue against the VICTORIANOs as Third-
Party Defendants.
Costs against pr.rsp..
GR 93048 March 3, 1994
BATAAN CIGAR AND CIGARETTE FACTORY,
INC., pet.,
vs.
CA and STATE INVESTMENT HOUSE,
INC., rsps..
Teresita Gandiongco Oledan for pet..
Acaban & Sabado for pr.rsp..
NOCON, J.:
For our review is the decision of CA in the case
entitled "State Investment House, Inc. v. Bataan
Cigar & Cigarette Factory Inc.," 1 affirming the
decision of RTC 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
pr.rsp. in this case.
Emanating from the records are the following facts.
Pet., 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 Oct. 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
Dec. 5, 1978, pet. agreed to purchase additional
2,500 bales of tobacco leaves, despite the
supplier's failure to deliver in accordance with their
earlier agreement. Again pet. issued post dated
crossed checks in the total amount of
P1,100,000.00, payable sometime in Sept. 1979. 4
During these times, George King was
simultaneously dealing with pr.rsp. 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 pet., naming
George King as payee to SIHI. On Dec. 19 and 26,
1978, he again sold to rsp. checks TCBT Nos.
608967 & 608968, 6 both in the amount of
P100,000.00, post dated Sept. 15 & 30, 1979
respectively, drawn by pet. in favor of George King.
In as much as George King failed to deliver the
bales of tobacco leaf as agreed despite pet.'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 Sept. 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. TC 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 rsp.
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 Art. 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 Peña
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 pet.
(SIHI) against the drawer of the
subject checks, pr.rsp. wife (Anita),
considering that pet. is not the
 proper party authorized to make CITYTRUST BANKING CORPORATION, pet.,
presentment of the checks in vs.
question. THE INTERMEDIATE APPELLATE COURT and
EMME HERRERO, rsps..
xxx xxx xxx
Agcaoili and Associates for pet..
That the subject checks had been
issued subject to the condition that David B. Agoncillo for pr.rsp..
pr.rsps. (Anita and her husband) on
due date would make the back up Humberto B. Basco, collaborating counsel for
deposit for said checks but which pr.rsp..
condition apparently was not made,
thus resulting in the non-
consummation of the loan intended
to be granted by pr.rsps. to New VITUG, J.:
Sikatuna Wood Industries, Inc.,
constitutes a good defense against This case emanated from a complaint filed by
pet. who is not a holder in due pr.rsp. Emme Herrero for damages against pet.
course. 12 Citytrust Banking Corporation. In her complaint,
pr.rsp. averred that she, a businesswoman, made
It is then settled that crossing of checks should put regular deposits, starting Sept. of 1979, with pet.
the holder on inquiry and upon him devolves the Citytrust Banking Corporation at its Burgos branch
duty to ascertain the indorser's title to the check or in Calamba, Laguna. On 15 May 1980, she
the nature of his possession. Failing in this respect, deposited with pet. the amount of Thirty One
the holder is declared guilty of gross negligence Thousand Five Hundred Pesos (P31,500.00), in
amounting to legal absence of good faith, contrary cash, in order to amply cover six (6) postdated
to Sec. 52(c) of the Negotiable Instruments checks she issued, viz:
Law, 13 and as such the consensus of authority is to
the effect that the holder of the check is not a Check
holder in due course. No.
Amoun
In the present case, BCCFI's defense in stopping t
payment is as good to SIHI as it is to George King.
Because, really, the checks were issued with the 00738
intention that George King would supply BCCFI 3 —
with the bales of tobacco leaf. There being failure of P1,507
consideration, SIHI is not a holder in due course. .00
Consequently, BCCFI cannot be obliged to pay the 00738
checks. 4 —
1,262.
The foregoing does not mean, however, that rsp. 00
could not recover from the checks. The only 00738
disadvantage of a holder who is not a holder in due 7 —
course is that the instrument is subject to defenses 4,299.
as if it were 00
non-negotiable. 14 Hence, rsp. can collect from the 00738
immediate indorser, in this case, George King. 7 —
2,204.
WHEREFORE, finding that the court a quo erred in 00
the application of law, the instant petition is hereby 00749
GRANTED. The decision of RTC as affirmed by CA 2 —
is hereby REVERSED. Cost against pr.rsp.. 6,281.
00
GR 84281 May 27, 1994 00740
0 —
 4,716.
00
When presented for encashment upon
maturity, all the checks were dishonored
due to "insufficient funds." The last check
No. 007400, however, was personally
redeemed by pr.rsp. in cash before it could
be redeposited.
Pet., in its answer, asserted that it was due to
pr.rsp.'s fault that her checks were dishonored. It
averred that instead of stating her correct account
number, i.e., 29000823, in her deposit slip, she
inaccurately wrote 2900823.
RTC (Branch XXXIV) of Calamba, Laguna, on
27 Feb. 1984, dismissed the complaint for lack of
merit; thus:
WHEREFORE, judgment is hereby
rendered in favor of the defendant
and against the plaintiff,
DISMISSING the complaint for lack
of merit, plaintiff is hereby adjudged
to pay the defendant reasonable
attorney's fee in the amount of FIVE
THOUSAND PESOS (P5,000.00)
plus cost of suit.
Pr.rsp. went to CA, which found the appeal
meritorious. Hence, it rendered judgment, on 15
July 1988, reversing TC's decision. The appellate
court ruled:
WHEREFORE, the judgment
appealed from is REVERSED and a
new one entered thereby ordering
defendant to pay plaintiff nominal
damages of P2,000.00, temperate
and moderate damages of
P5,000.00, and attorney's fees of
P4,000.00.
The counterclaim of defendant is
dismissed for lack of merit, with
costs against him.
Pet. Citytrust Banking Corporation is now before us
in this petition for review on certiorari.
Pet. bank concedes that it is its obligation to honor
checks issued by pr.rsp. which are sufficiently
funded, but, it contends, pr.rsp. has also the duty to
use her account in accordance with the rules of pet.
bank to which she has contractually acceded.
Among such rules, contained in its "brochures"
governing current account deposits, is the following
printed provision:
In making a deposit . . . kindly insure
accuracy in filing said deposit slip
forms as we hold ourselves free of
any liability for loss due to an
incorrect account number indicated
in the deposit slip although the name
of the depositor is correctly written.
Exactly the same issue was addressed by the
appellate court, which, after its deliberations, made
the following findings and conclusions: 1
We cannot uphold the position of
defendant. For, even if it be true that
there was error on the part of the
plaintiff in omitting a "zero" in her
account number, yet, it is a fact that
her name, "Emme E. Herrero", is
clearly written on said deposit slip
(Exh. "B"). This is controlling in
determining in whose account the
deposit is made or should be posted.
This is so because it is not likely to
commit an error in one's name than
merely relying on numbers which are
difficult to remember, especially a
number with eight (8) digits as the
account numbers of defendant's
depositors. We view the use of
numbers as simply for the
convenience of the bank but was
never intended to disregard the real
name of its depositors. The bank is
engaged in business impressed with
public interest, and it is its duty to
protect in return its many clients and
depositors who transact business
with it. It should not be a matter of
the bank alone receiving deposits,
lending out money and collecting
interests. It is also its obligation to
see to it that all funds invested with it
are properly accounted for and duly
posted in its ledgers.
In the case before Us, We are not
persuaded that defendant bank was
not free from blame for the fiasco. In
the first place, the teller should not
have accepted plaintiff's deposit
without correcting the account
number on the deposit slip which, be embarrassing to them as in the
obviously, was erroneous because, case of plaintiff.
as pointed out by defendant, it
contained only seven (7) digits We agree with plaintiff that —
instead of eight (8). Second, the
complete name of plaintiff depositor . . . even in
appears in bold letters on the computerized
deposit slip (Exh. "B"). There could systems of accounts,
be no mistaking in her name, and ways and means are
that the deposit was made in her available whereby
name, "Emma E. Herrero." In fact, deposits with
defendant's teller should not have erroneous account
fed her deposit slip to the computer numbers are properly
knowing that her account number credited depositor's
written thereon was wrong as it correct account
contained only seven (7) digits. As it numbers. They add
happened, according to defendant, that failure on the part
plaintiff's deposit had to be of the defendant to do
consigned to the suspense accounts so is negligence for
pending verification. This, indeed, which they are liable.
could have been avoided at the first As proof thereof
instance had the teller of defendant plaintiff alludes to five
bank performed her duties efficiently particular incidents
and well. For then she could have where plaintiff
readily detected that the account admittedly wrongly
number in the name of "Emma E. indicated her account
Herrero" was erroneous and would number in her deposit
be rejected by the computer. That is, slips
or should be, part of the training and (Exhs. "J", "L", "N",
standard operating procedure of the "O" and "P"), but were
bank's employees. On the other nevertheless properly
hand, the depositors are not credited her deposit
concerned with banking procedure. (pp. 4-5, Decision).
That is the responsibility of the bank
and its employees. Depositors are We have already ruled in Mundin
only concerned with the facility of v. Far East Bank & Trust Co., AC-
depositing their money, earning G.R. CV No. 03639, prom. Nov. 2,
interest thereon, if any, and 1985, quoting the court a quo in an
withdrawing therefrom, particularly almost identical set of facts, that —
businessmen, like plaintiff, who are
supposed to be always "on-the-go". Having accepted a
Plaintiff's account is a "current deposit in the course
account" which should immediately of its business
be posted. After all, it does not earn transactions, it
interest. At least, the forbearance behooved upon
should be commensurated with defendant bank to
prompt, efficient and satisfactory see to it and without
service. recklessness — that
the depositor was
Bank clients are supposed to rely on accurately credited
the services extended by the bank, therefor. To post a
including the assurance that their deposit in somebody
deposits will be duly credited them else's name despite
as soon as they are made. For, any the name of the
delay in crediting their account can depositor clearly
written on the deposit
 slip is indeed sheer
negligence which
could have easily
been avoided if
defendant bank
exercised due
diligence and
circumspection in the
acceptance and
posting of plaintiff's
deposit.
We subscribe to the above disquisitions of the
appellate court. In Simex International (Manila),
Inc. vs. CA, 183 SCRA 360, reiterated in Bank of
Philippine Islands vs. Intermediate Appellate
Court, 206 SCRA 408, we similarly said, in
cautioning depository banks on their fiduciary
responsibility, that —
In every case, the depositor expects
the bank to treat his account with
utmost fidelity, whether such account
consists only of a few hundred
pesos or of millions. The bank must
record every single transaction
accurately, down to the last centavo,
and as promptly as possible. This
has to be done if the account is to
reflect at any given time the amount
of money the depositor can dispose
of as he sees fit, confident that the
bank will deliver it as and to
whomever he directs. A blunder on
the part of the bank, such as the
dishonor of a check without good
reason, can cause the depositor not
a little embarrassment if not also
financial loss and perhaps even civil
and criminal litigation.
The point is that as a business
affected with public interest and
because of the nature of its
functions, the bank is under
obligation to treat the accounts of its
depositors with meticulous care,
always having in mind the fiduciary
nature of their relationship.
We agree with pet., however, that it is wrong to
award, along with nominal damages, temperate or
moderate damages. The two awards are
incompatible and cannot be granted concurrently.
Nominal damages are given in order that a right of
the plaintiff, which has been violated or invaded by
the defendant, may be vindicated or recognized,
and not for the purpose of indemnifying the plaintiff
for any loss suffered by him (Art. 2221,
NCC; Manila Banking Corp. vs. Intermediate
Appellate Court, 131 SCRA 271). Temperate or
moderate damages, which are more than nominal
but less than compensatory damages, on the other
hand, may be recovered when the court finds that
some pecuniary loss has been suffered but its
amount cannot, from the nature of the case, be
proved with reasonable certainty (Art. 2224, NCC).
In the instant case, we also find need for vindicating
the wrong done on pr.rsp., and we accordingly
agree with CA in granting to her nominal damages
but not in similarly awarding temperate or moderate
damages.
WHEREFORE, the appealed decision is
MODIFIED by deleting the award of temperate or
moderate damages. In all other respects, the
appellate court's decision is AFFIRMED. No costs
in this instance.
GR 108555 Dec. 20, 1994
RAMON TAN, pet.,
vs.
THE HONORABLE CA and RIZAL COMMERCIAL
BANKING CORPORATION, rsps..
Yulo, Quisumbing, Torres, Ali & Bello Law Offices
for pet..
Siguion Reyna, Montecillo & Ongsiako for pr.rsp..
KAPUNAN, J.:
This petition seeks to set aside the decision of CA
dated Jan. 12, 1993 in CA-G.R. CV No. 31083,
entitled Ramon Tan, plaintiff-appellee, vs. Rizal
Commercial Banking Corporation, defendant-
appellant, reversing the decision of RTC dated Dec.
28, 1990 ordering rsp. bank Rizal Commercial
Banking Corporation (RCBC), Binondo Branch, to
pay pet. damages and attorney's fees in the
amount of ONE MILLION THIRTY FIVE
THOUSAND (P1,035,000.00) PESOS.
The following are the uncontroverted facts:
Pet. Ramon Tan, a trader-businessman and
community leader in Puerto Princesa, had
maintained since 1976 Current Account No.
109058068 with rsp. bank's Binondo branch. On
March 11, 1988, to avoid carrying cash while
enroute to Manila, he secured a Cashier's Check
No. L 406000126 from the Philippine Commercial
Industrial Bank (PCIB), Puerto Princesa branch, in
the amount of Thirty Thousand (P30,000.00)
Pesos, payable to his order. He deposited the
check in his account with RCBC Binondo on March
15. On the same day, RCBC erroneously sent the
same cashier's check for clearing to the Central
Bank which was returned for having been "missent"
or "misrouted." 1 The next day, March 16, RCBC
debited the amount covered by the same cashier's
check from the account of the pet.. Rsp. bank at
this time had not informed the pet. of its action
which the latter claims he learned of only 42 days
after, specifically on March 16, when he received
the bank's debit memo.2 Relying on the common
knowledge that a cashier's check was as good as
cash, that the usual banking practice that local
checks are cleared within three (3) working days
and regional checks within seven (7) working days,
and the fact that the cashier's check was accepted,
pet. issued two (2) personal checks both dated
March 18. Check No. 040719 in the name of Go
Lac for Five Thousand Five Hundred (P5,5000.00)
Pesos was presented on April 25, 3 more than 30
days from pet.'s deposit date of the cashier's check.
Check
No. 040718 in the name of MS Development
Trading Corporation for Six Thousand Fifty-Three
Pesos and Seventy Centavos (P6,053.70) was
returned twice on March 24, nine (9) days from his
deposit date and again on April 26, twenty-two days
after the day the cashier's check was deposited for
insufficiency of funds. 4
Pet., alleging to have suffered humiliation and loss
of face in the business sector due to the bounced
checks, filed a complaint against RCBC for
damages in RTC of Palawan and Puerto Princesa,
Branch 47, docketed as Civil Case No. 2101. 5
During the trial, pet. sought to prove:
First, that it was RCBC's responsibility to call his
attention there and then that he had erroneously
filled the wrong deposit slip at the time he
deposited the cashier's check with the rsp. bank's
teller and it was negligence on RCBC's part not to
have done so; 6
Second, that RCBC had been remiss in the
performance of its obligation to the pet. when it
"missent" the cashier's check to the Central Bank
knowing, as it should, that the source of the check,
PCIB, Puerto Princesa Branch, is not included in
the areas required to be cleared by the Central
Bank, a fact known to the banking world and surely
to the rsp. bank; 7
Third, that RCBC upon knowing of its error in
"missending" the cashier's check to the Central
Bank did not attempt to rectify its "misclearing"
error by clearing it seasonably with PCIB, Puerto
Princesa, thru its own RCBC Puerto Princesa
Branch with whom it had direct radio contact; 8
Fourth, that as an old client, with twelve (12) years
of good standing then, RCBC should have given
him more consideration by exerting greater
diligence in clearing the check with PCIB, Puerto
Princesa, to protect its client's interest; 9
Fifth, that RCBC failed to inform pet. promptly that
the check had not been cleared, despite its debiting
without delay the amount covered by the check
from the account of the pet. and hastily charging
the latter service fees immediately after the return
of the "missent checks"; 10 and
Finally, that the bounced checks resulting from
RCBC's "misclearing" had put in doubt his
credibility among his business peers and sullied his
reputation as a community leader which he had
painstakingly cultivated for years. His community
standing as a business-socio-civic leader was a
source of pride for him in his old age of 70. He cited
being Chairman of Palawan Boy Scout Council, 2-
term President of the Rotary Club of Puerto
Princesa, member of Palawan Chamber of
Commerce and Industry, member of the Monitoring
Team of the Palawan Integrated Area Development
Project, member of Lion's Club, Philippine Rifle
Pistol Association and the Saturday Health Club to
justify his claim for moral damages. 11
In its defense, RCBC disowning any negligence,
put the blame for the "misrouting" on the pet. for
using the wrong check deposit slip. It insisted that
the misuse of a local check deposit slip, instead of
a regional check deposit slip, triggered the
"misrouting" by RCBC of the cashier's check to the
Central Bank and it was pet.'s negligent "misuse" of
a local deposit slip which was the proximate cause
of the "misrouting," thus he should bear the
consequence. 12
RCBC alleged that it complied strictly with accepted
banking practice when it debited the amount of
P30,000.00 against pet.'s account since under
Resolution No. 2202 dated Dec. 21, 1979 of the
Monetary Board, it is a matter of policy to prohibit
the drawing against uncollected deposits (DAUDS)
except when the drawings are made against
uncollected deposits representing bank
manager's/cashier's/treasurer's checks, treasury
warrants, postal money orders and duly funded "on
us" checks which may be permitted at the
discretion of each bank. 13Without crediting the
P30,000.00 deposit, pet.'s balance before and after
was Two Thousand Seven Hundred
Ninety-Two Pesos and the (P2,792.88) Eighty-Eight
Centavos. 14 Thus, it dishonored the two (2) checks
amounting to P11,553.70 since they were drawn
against insufficient funds. RCBC added that pet.
had no bills purchase (BP) line which allows a
depositor to receive or draw from proceeds of a
check without waiting it to be cleared. Besides,
RCBC maintained, had it forwarded the Cashier's
Check to PCIB Puerto Princesa, Palawan, it would
take at least twenty (20) working days for the
cashier's check to be cleared and it would take the
same length of time to clear the two (2) personal
checks of Tan. 15
RCBC further asseverated it was merely acting as
pet.'s collecting agent and it assumed no
responsibility beyond care in selecting corrsps.
under the theory that where a check is deposited
with a collecting bank the relationship created is
that of agency and not creditor-debtor, thus it
cannot be liable. 16
Finally, rsp. claimed that serious attempts were
made to contact pet. through the telephone
numbers in the signature specimen card of pet. but
to no avail. 17 The Assistant Branch Accountant of
RCBC Binondo Branch testified that the first
telephone number in the card had been deleted
from the phone company's list and that when
RCBC tried to contact pet.'s daughter Evelyn Tan-
Banzon thru a certain telephone number and when
they asked for Evelyn Tan, they were told there was
no such person. 18
TC rendered a decision on Dec. 28, 1990 in pet.'s
favor, the dispositive portion 19 of which reads:
WHEREFORE, premises
considered, plaintiff having proven
the allegations of his verified
complaint by preponderance of
evidence, the court hereby renders
judgment ordering defendant bank,
Binondo Branch, Manila, to pay him
damages and attorney's fees in the
total amount of P1,035,000.00
Philippine Currency, broken down as
follows: P700,000.00 as moral
damages, P200,000.00 as
exemplary damages; P135,000.00
which is 15% of the sum herein
awarded to plaintiff, as attorney's
fees and to pay costs of suit.
For having failed to prove by any
receipt or writing to underpin it,
plaintiff's claim for actual damage is
denied for lack of merit.
IT IS SO ORDERED.
RCBC appealed to CA contending that TC erred in
holding RCBC liable to pet. on account of its
alleged negligence and in awarding pet. moral and
exemplary damages and attorney's fees.
CA on Jan. 12, 1993 rendered a decision 20 with the
following decretal portion:
WHEREFORE, and upon all the
foregoing, the decision of the court
below is REVERSED and this
complaint is DISMISSED without
pronouncement as to cost.
CA' decision is based on the following findings: 21
What appeared to have caused the
unfortunate incident was that the
plaintiff filled up the wrong deposit
slip which led to the sending of the
check to the Central Bank when the
clearing should have been made
elsewhere.
But the claim of the plaintiff that he
was not advised that the Cashier's
check was missent does not seem to
be correct. The evidence indicated
that the defendant bank thru its
personnel had called him up thru
telephone in the number (No. 60-45-
23) which he gave in his specimen
signature card. But it came out, that
said telephone number was no
longer active or was already deleted
from the list of telephone numbers.
There was an instruction on the part
of the plaintiff for the bank to contact
his daughter, Mrs. Evelyn Tan
Banzon and according to the
plaintiff, she too, was not contacted
as per his instruction. The evidence,
however, indicated that Ms. Evelyn
Tan also could not be contacted at
the number supposed to pertain to
her as appeared in the specimen
signature card. In other words while
there was compliance with the
instructions given by the plaintiff but
said instructions were faulty. The
plaintiff as a customer of the bank is
under obligation to inform the
defendant of any changes in the
telephone numbers to be contacted
in the event of any exigency.
All in all, the facts indicate that the
refusal of RCBC to credit the amount
of P30,000.00 to the plaintiff's
current account is consistent with
the accepted banking practice. As
the defendant bank had claimed,
under Resolution No. 2202 dated
Dec. 21, 1979 of the Monetary
Board, it had been emphatically
declared as a matter of policy that
no drawings should be made against
uncollected deposits except when
the drawings are made against
uncollected deposits representing
bank manager's/cashier's/treasurer's
checks, treasury warrants, postal
money orders, and duly funded "on-
us" checks as may be permitted at
the discretion of each bank.
It is clear that immediate payment
without awaiting clearance of a
cashier's check is discretionary with
the bank to whom the check is
presented and such being the case,
the refusal to allow it as in this case
is not to be equated with negligence
in the basic perception that
discretion is not demandable as a
right. In the instant case, prior to the
deposit of P30,000.00, the plaintiff's
account appeared to be only in the
amount of P2,792.98. So the two (2)
checks issued by the plaintiff
amounting to P11,553.70 had to be
dishonored since they were drawn
against insufficient funds.
What the plaintiff should have done,
before issuing the two (2) checks,
was to await the clearance of the
Cashier's check and his failure to do
so is a fault not ascribable to the
defendant who appeared under the
circumstance merely to have
followed the usual banking practice.
Pet. now seeks to reverse the decision of CA and
affirm that of the lower court. He raises the
following errors:
1. THE HONORABLE CA
COMMITTED GROSS AND
MANIFEST ERROR IN
CONCLUDING THAT THE
NEGLIGENCE WAS ASCRIBABLE
TO HEREIN PET..
2. THE HONORABLE CA GRAVELY
ABUSED ITS DISCRETION IN
FINDING THAT THE RSP. BANK
HAD NOT BEEN REMISS IN THE
PERFORMANCE OF ITS
OBLIGATIONS TO HEREIN PET..
3. THE HONORABLE CA
COMMITTED GROSS AND
MANIFEST ERROR AND GRAVE
ABUSE OF DISCRETION IN
REVERSING THE AWARD OF
MORAL AND EXEMPLARY
DAMAGES TO THE PET..
4. THE HONORABLE CA
COMMITTED GROSS AND
MANIFEST ERROR AND GRAVE
ABUSE OF DISCRETION IN NOT
AWARDING ATTORNEY'S FEES
TO PET..
In a most recent case decided by this Court, City
Trust Corporation v. The Intermediate Appellate
Court, 22involving damages against City Trust
Banking Corporation, the depositor, instead of
stating her correct account number 29000823
inaccurately wrote 2900823. Because of this error,
six postdated checks amounting to P20,209.00 she
issued were dishonored for insufficiency of funds.
RTC dismissed the complaint for lack of merit. CA,
however, found the appeal meritorious and ordered
the bank to pay nominal damages of P2,000.00,
temperate and moderate damages of P5,000.00
and attorney's fees of P4,000.00. Upon review, this
Court quoted with favor the disquisition of the
appellate court:
We cannot uphold the position of
defendant. For, even if it be true that
there was error on the part of the
plaintiff in omitting a zero in her
account number, yet, it is a fact that
her name, Emma E. Herrero, is
clearly written on said deposit slip
(Exh. B). This is controlling in
determining in whose account the
deposit is made or should be posted.
This is so because it is not likely to
commit an error in one's name that
merely relying on numbers which are
difficult to remember, especially a
number with eight (8) digits as the
account numbers of defendant's
depositors. We view the use of
numbers as simply for the
convenience of the bank but was
never intended to disregard the real
name of its depositors. The bank is
engaged in business impressed with
public interests, and it is its duty to
protect in return its many clients and
depositors who transact business
with it. It should not be a matter of
the bank alone receiving deposits,
lending out money and collecting
interests. It is also its obligation to
see to it that all funds invested with it
are properly accounted for and duly
posted in its ledgers.
In the case before Us, we are not
persuaded that defendant bank was
not free from blame for the fiasco. In
the first place, the teller should not
have accepted plaintiff's deposit
without correcting the account
number on the deposit slip which,
obviously, was erroneous because,
as pointed out by defendant, it
contained only seven (7) digits
instead of eight (8). Second, the
complete name of plaintiff depositor
appears in bold letters on the
deposit slip (Exh. B). There could be
no mistaking in her name, and that
the deposit was made in her name,
Emma E. Herrero. In fact,
defendant's teller should not have
fed her deposit slip to the computer
knowing that her account number
written thereon was wrong as it
contained only seven (7) digits. As it
happened, according to defendant,
plaintiff's deposit had to be
consigned to the suspense accounts
pending verification. This, indeed,
could have been avoided at the first
instance had the teller of defendant
bank performed her duties efficiently
and well. For then she could have
readily detected that the account
number in the name of Emma E.
Herrero was erroneous and would
be rejected by the computer. That is,
or should be, part of the training and
standard operating procedure of the
bank's employees. On the other
hand, the depositors are not
concerned with banking procedure.
That is the responsibility of the bank
and its employees. Depositors are
only concerned with the facility of
depositing their money, earning
interest thereon, if any, and
withdrawing therefrom, particularly
businessmen, like plaintiff, who are
supposed to be always on-the-go.
Plaintiff's account is a current
account which should immediately
be posted. After all, it does not earn
interest. At least, the forbearance
should be commensurated with
prompt, efficient and satisfactory
service.
Bank clients are supposed to rely on
the services extended by the bank,
including the assurance that their
deposits will be duly credited them
as soon as they are made. For, any
delay in crediting their account can
be embarrassing to them as in the
case of plaintiff.
The point is that as a business
affected with public interest and
because of the nature of its
functions, the bank is under
obligation to treat the accounts of its
depositors with meticulous care,
always having in mind the fiduciary
nature of their relationship.
(Emphasis supplied).
In the light of the above-cited case, the rsp. bank
cannot exculpate itself from liability by claiming that
its depositor "impliedly instructed" the bank to clear
his check with the Central Bank by filling a local
check deposit slip. Such posture is disingenuous, to
say the least. First, why would RCBC follow a
patently erroneous act born of ignorance or
inattention or both. Second, bank transactions pass
through a succession of bank personnel whose
duty is to check and countercheck transactions for
possible errors. In the instant case, the teller should
not have accepted the local deposit slip with the
cashier's check that on its face was clearly a
regional check without calling the depositor's
attention to the mistake at the very moment this
was presented to her. Neither should everyone else
down the line who processed the same check for
clearing have allowed the check to be sent to
Central Bank. Depositors do not pretend to be past
master of banking technicalities, much more of
clearing procedures. As soon as their deposits are
accepted by the bank teller, they wholly repose
trust in the bank personnel's mastery of banking,
their and the bank's sworn profession of diligence
and meticulousness in giving irreproachable
service.
We do not subscribe to RCBC's assertion that
pet.'s use of the wrong deposit slip was the
proximate cause of the clearing fiasco and so, pet.
must bear the consequence. In Pilipinas Bank, v.
CA, 23 this Court said:
The bank is not expected to be
infallible but, as correctly observed
by rsp. Appellate Court, in this
instance, it must bear the blame for
not discovering the mistake of its
teller despite the established
procedure requiring the papers and
bank books to pass through a
battery of bank personnel whose
duty it is to check and countercheck
them for possible errors. Apparently,
the officials and employees tasked
to do that did not perform their duties
with due care, . . .
So it is in the instance case, where the conclusion
is inevitable that rsp. RCBC had been remiss in the
performance of its duty and obligation to its client,
as well as to itself. We draw attention to the fact
that the two dishonored checks issued by pet.,
Check No. 040719 and Check
24
No. 040718 were presented for payment more
than 45 days from the day the cashier's check was
deposited. This gave RCBC more than ample time
to have cleared the cashier's check had it corrected
its "missending" the same upon return from Central
Bank using the correct slip this time so it can be
cleared properly. Instead, RCBC promptly debited
the amount of P30,000.00 against pet.'s account
and left it at that.
We observe, likewise, that RCBC inquired about an
Evelyn Tan but no Evelyn Tan-Banzon as
specifically instructed in the same signature card.
(Emphasis supplied) 25
RCBC insists that immediate payment without
awaiting clearance of a cashier's check is
discretionary with the bank to whom the check is
presented and such being the case, its refusal to
immediately pay the cashier's check in this case is
not to be equated with negligence on its part. We
find this disturbing and unfortunate.
An ordinary check is not a mere undertaking to pay
an amount of money. There is an element of
certainty or assurance that it will be paid upon
presentation that is why it is perceived as a
convenient substitute for currency in commercial
and financial transactions. The basis of the
perception being confidence. Any practice that
destroys that confidence will impair the usefulness
of the check as a currency substitute and create
havoc in trade circles and the banking
community. 26
Now, what was presented for deposit in the instant
cases was not just an ordinary check but a
cashier's check payable to the account of the
depositor himself. A cashier's check is a primary
obligation of the issuing bank and accepted in
advance by its mere issuance. 27 By its very nature,
a cashier's check is the bank's order to pay drawn
upon itself, committing in effect its total resources,
integrity and honor behind the check. A cashier's
check by its peculiar character and general use in
the commercial world is regarded substantially to
be as good as the money which it represents.28 In
this case, therefore, PCIB by issuing the check
created an unconditional credit in favor of any
collecting bank.
All these considered, pet.'s reliance on the
layman's perception that a cashier's check is as
good as cash is not entirely misplaced, as it is
rooted in practice, tradition, and principle. We see
no reason thus why this so-called discretion was
not exercised in favor of pet., specially since PCIB
and RCBC are members of the same clearing
house group relying on each other's solvency.
RCBC could surely rely on the solvency of PCIB
when the latter issued its cashier's check.
On the third and fourth issue, RCBC contends that
moral damages cannot be recovered in an action
for breach of contract since under Art. 2219 of the
NCC, the instant case is not among those
enumerated. For an award of moral damages in a
breach of contract, it is imperative that the party
acted in bad faith or fraudulently as provided for in
Art. 2220 of the CC, to wit:
Art. 2220. Willful injury to property
may be a legal ground for awarding
moral damages if the court should
find that, under the circumstances,
such damages are justly due. The
same rule applies to breaches of
contract where the defendant acted
fraudulently or in bad faith.
In the absence of moral damages, RCBC argues,
exemplary damages cannot be awarded under Art.
2225 of the same Code which states:
Exemplary damages or corrective
damages are imposed, by way of
example or correction for the public
good, in addition to the moral,
temperate, liquidated or
compensatory damages.
We hold that pet. has the right to recover moral
damages even if the bank's negligence may not
have been attended with malice and bad faith.
In American Express International, Inc. v. IAC, 29 we
held:
While pet. was not in bad faith, its
negligence caused the pr.rsp. to
suffer mental anguish, serious
anxiety, embarrassment and
humiliation, for which he is entitled to
recover, reasonable moral damages
(Art. 2217, CC).
In Zenith Insurance Corporation v. CA, 30 we also
said that moral damages are not meant to enrich a
complainant at the expense of defendant. It is only
intended to alleviate the moral suffering he has
undergone. In the instant case, we find the award
of P700,000.00 as moral damages excessive and,
accordingly, reduce it to one hundred thousand
(P100,000.00) pesos. We find the award of
exemplary damages of P200,000.00 unjustified in
the absence of malice, bad faith or gross
negligence. 31 The award of reasonable attorney's
fees is proper for the pet. was compelled to litigate
to protect his interest. 32
IN VIEW WHEREOF, we REVERSE the decision of
rsp. CA and hereby order pr.rsp. RCBC, Binondo
Branch, to pay pet. the amount of one hundred
thousand (P100,000.00) pesos as moral damages
and the sum of fifty thousand (P50,000.00) pesos
as attorney's fees, plus costs.
GR 105188 Jan. 23, 1998
MYRON C. PAPA, Administrator of the Testate
Estate of Angela M. Butte, pet.,
vs.
A.U. VALENCIA and CO. INC., FELIX
PEÑARROYO, SPS. ARSENIO B. REYES &
AMANDA SANTOS, and DELFIN JAO, rsps..
KAPUNAN, J.:
In this petition for review on certiorari under Rule 45
of the Rules of Court, pet. Myron C. Papa seeks to
reverse and set aside 1) the Decision dated 27 Jan.
1992 of CA which affirmed with modification the
decision of TC; and 2) the Resolution dated 22 April
1992 of the same court, which denied pet.'s MR of
the above decision.
The antecedent facts of this case are as follows:
Sometime in June 1982, herein pr.rsps. A.U.
Valencia and Co., Inc. (hereinafter referred to as
rsp. Valencia, for brevity) and Felix Peñarroyo
(hereinafter called rsp. Peñarroyo), filed with RTC
of Pasig, Branch 151, a complaint for specific
performance against herein pet. Myron C. Papa, in
his capacity as administrator of the Testate Estate
of one Angela M. Butte.
The complaint alleged that on 15 June 1973, pet.
Myron C. Papa, acting as attorney-in-fact of Angela
M. Butte, sold to rsp. Peñarroyo, through rsp.
Valencia, a parcel of land, consisting of 286.60
square meters, located at corner Retiro and Cadiz
Streets, La Loma, QC, and covered by Transfer
Certificate of Title No. 28993 of the Register of
Deeds of QC; that prior to the alleged sale, the said
property, together with several other parcels of land
likewise owned by Angela M. Butte, had been
mortgaged by her to the Associated Banking
Corporation (now Associated Citizens Bank); that
after the alleged sale, but before the title to the
subject property had been released, Angela M.
Butte passed away; that despite representations
made by herein rsps. to the bank to release the title
to the property sold to rsp. Peñarroyo, the bank
refused to release it unless and until all the
mortgaged properties of the late Angela M. Butte
were also redeemed; that in order to protect his
rights and interests over the property, rsp.
Peñarroyo caused the annotation on the title of an
adverse claim as evidenced by Entry No. P.E.-
6118/T-28993, inscribed on 18 Jan. 1997.
The complaint further alleged that it was only upon
the release of the title to the property, sometime in
April 1977, that rsps. Valencia and Peñarroyo
discovered that the mortgage rights of the bank had
been assigned to one Tomas L. Parpana (now
deceased), as special administrator of the Estate of
Ramon Papa, Jr., on 12 April 1977; that since then,
herein pet. had been collecting monthly rentals in
the amount of P800.00 from the tenants of the
property, knowing that said property had already
been sold to pr.rsps. on 15 June 1973; that despite
repeated demands from said rsps., pet. refused
and failed to deliver the title to the property.
Thereupon, rsps. Valencia and Peñarroyo filed a
complaint for specific performance, praying that
pet. be ordered to deliver to rsp. Peñarroyo the title
to the subject property (TCT 28993); to turn over to
the latter the sum of P72,000.00 as accrued rentals
as of April 1982, and the monthly rental of P800.00
until the property is delivered to rsp. Peñarroyo; to
pay rsps. the sum of P20,000.00 as attorney's fees;
and to pay the costs of the suit.
In his Answer, pet. admitted that the lot had been
mortgaged to the Associated Banking Corporation
(now Associated Citizens Bank). He contended,
however, that the complaint did not state a cause of
action; that the real property in interest was the
Testate Estate of Angela M. Butte, which should
have been joined as a party defendant; that the
case amounted to a claim against the Estate of
Angela M. Butte and should have been filed in
Special Proceedings No. A-17910 before the
Probate Court in QC; and that, if as alleged in the
complaint, the property had been assigned to
Tomas L. Parpana, as special administrator of the
Estate of Ramon Papa, Jr., said estate should be
impleaded. Pet., likewise, claimed that he could not
recall in detail the transaction which allegedly
occurred in 1973; that he did not have TCT No.
28993 in his possession; that he could not be held
personally liable as he signed the deed merely as
attorney-in-fact of said Angela M. Butte. Finally, pet.
asseverated that as a result of the filing of the case,
he was compelled to hire the services of counsel
for a fee of P20,000.00 for which rsps. should be
held liable.
Upon his motion, herein pr.rsp. Delfin Jao was
allowed to intervene in the case. Making common
cause with rsps. Valencia and Peñarroyo, rsp. Jao
alleged that the subject lot which had been sold to
rsp. Peñarroyo through rsp. Valencia was in turn
sold to him on 20 Aug. 1973 for the sum of
P71,500.00, upon his paying earnest money in the
amount of P5,000.00. He, therefore, prayed that
judgment be rendered in favor of rsps., the latter in
turn be ordered to execute in his favor the
appropriate deed of conveyance covering the
property in question and to turn over to him the
rentals which aforesaid rsps. sought to collect from
pet. Myron V. Papa.
Rsp. Jao, likewise, averred that as a result of pet.'s
refusal to deliver the title to the property to rsps.
Valencia and Peñarroyo, who in turn failed to
deliver the said title to him, he suffered mental
anguish and serious anxiety for which he sought
payment of moral damages; and, additionally, the
payment of attorney's fees and costs.
For his part, pet., as administrator of the Testate
Estate of Angela M. Butte, filed a third-party
complaint against herein pr.rsps., spouses Arsenio
B. Reyes and Amanda Santos (rsp. Reyes
spouses, for short). He averred, among other's that
the late Angela M. Butte was the owner of the
subject property; that due to non-payment of real
estate tax said property was sold at public auction
the City Treasurer of QC to the rsp. Reyes spouses
on 21 Jan. 1980 for the sum of P14,000.00; that the
one-year period of redemption had expired; that
rsps. Valencia and Peñarroyo had sued pet. Papa
as administrator of the estate of Angela M. Butte,
for the delivery of the title to the property; that the
same aforenamed rsps. had acknowledged that the
price paid by them was insufficient, and that they
were willing to add a reasonable amount or a
minimum of P55,000.00 to the price upon delivery
of the property, considering that the same was
estimated to be worth P143,000.00; that pet. was
willing to reimburse rsps. Reyes spouses whatever
amount they might have paid for taxes and other
charges, since the subject property was still
registered in the name of the late Angela M. Butte;
that it was inequitable to allow rsp. Reyes spouses
to acquire property estimated to be worth
P143,000.00, for a measly sum of P14,000.00. Pet.
prayed that judgment be rendered canceling the tax
sale to rsp. Reyes spouses; restoring the subject
property to him upon payment by him to said rsp.
Reyes spouses of the amount of P14,000.00, plus
legal interest; and, ordering rsps. Valencia and
Peñarroyo to pay him at least P55,000.00 plus
everything they might have to pay the Reyes
spouses in recovering the property.
Rsp. Reyes spouses in their Answer raised the
defense of prescription of pet.'s right to redeem the
property.
At the trial, only rsp. Peñarroyo testified. All the
other parties only submitted documentary proof.
On 29 June 1987, TC rendered a decision, the
dispositive portion of which reads:
WHEREUPON, judgment is hereby
rendered as follows:
1) Allowing defendant to redeem
from third-party defendants and
ordering the latter to allow the former
to redeem the property in question,
by paying the sum of P14,000.00
plus legal interest of 12% thereon
from Jan. 21, 1980;
2) Ordering defendant to execute a
Deed of Absolute Sale in favor of
plaintiff Felix Peñarroyo covering the
property in question and to deliver
peaceful possession and enjoyment
of the said property to the said
plaintiff, free from any liens and
encumbrances;
Should this not be possible, for any
reason not attributable to defendant,
said defendant is ordered to pay to
plaintiff Felix Peñarroyo the sum of
P45,000.00 plus legal interest of
12% from June 15, 1973;
3) Ordering plaintiff Felix Peñarroyo
to execute and deliver to intervenor
a deed of absolute sale over the
same property, upon the latter's
payment to the former of the balance
of the purchase price of P71,500.00;
Should this not be possible, plaintiff
Felix Peñarroyo is ordered to pay
intervenor the sum of P5,000.00 plus
legal interest of 12% from Aug. 23,
1973; and
4) Ordering defendant to pay
plaintiffs the amount of P5,000.00 for
and as attorney's fees and litigation
expenses.
SO ORDERED. 1
Pet. appealed the aforesaid decision of TC to CA,
alleging among others that the sale was never
"consummated" as he did not encash the check (in
the amount of P40,000.00) given by rsps. Valencia
and Peñarroyo in payment of the full purchase price
of the subject lot. He maintained that what said rsp.
had actually paid was only the amount of P5,000.00
(in cash) as earnest money.
Rsp. Reyes spouses, likewise, appealed the above
decision. However, their appeal was dismissed
because of failure to file their appellant's brief.
On 27 Jan. 1992, CA rendered a decision, affirming
with modification TC's decision, thus:
WHEREFORE, the second
paragraph of the dispositive portion
of the appealed decision is
MODIFIED, by ordering the
defendant-appellant to deliver to
plaintiff-appellees the owner's
duplicate of TCT No. 28993 of
Angela M. Butte and the peaceful
possession and enjoyment of the lot
in question or, if the owner's
duplicate certificate cannot be
produced, to authorize the Register
of Deeds to cancel it and issue a
certificate of title in the name of Felix
Peñarroyo. In all other respects, the
decision appealed from is
AFFIRMED. Costs against
defendant-appellant Myron C. Papa.
SO ORDERED. 2
In affirming TC's decision, rsp. court held that
contrary to pet.'s claim that he did not encash the
aforesaid check, and therefore, the sale was not
consummated, there was no evidence at all that
pet. did not, in fact, encash said check. On the
other hand, rsp. Peñarroyo testified in court that
pet. Papa had received the amount of P45,000.00
and issued receipts therefor. According to rsp.
court, the presumption is that the check was
encashed, especially since the payment by check
was not denied by defendant-appellant (herein pet.)
who, in his Answer, merely alleged that he "can no
longer recall the transaction which is supposed to
have happened 10 years ago." 3
On pet.'s claim that he cannot be held personally
liable as he had acted merely as attorney-in-fact of
the owner, Angela M. Butte, rsp. court held that
such contention is without merit. This action was
not brought against him in his personal capacity,
but in his capacity as the administrator of the
Testate Estate of Angela M. Butte. 4
On pet.'s contention that the estate of Angela M.
Butte should have been joined in the action as the
real party in interest, rsp. court held that pursuant to
Rule 3, Section 3 of the Rules of Court, the estate
of Angela M. Butte does not have to be joined in the
action. Likewise, the estate of Ramon Papa, Jr., is
not an indispensable party under Rule 3, Section 7
of the same Rules. For the fact is that Ramon
Papa, Jr., or his estate, was not a party to the Deed
of Absolute Sale, and it is basic law that contracts
bind only those who are parties thereto. 5
Rsp. court observed that the conditions under
which the mortgage rights of the bank were
assigned are not clear. In any case, any obligation
which the estate of Angela M. Butte might have to
the estate of Ramon Papa, Jr. is strictly between
them. Rsps. Valencia and Peñarroyo are not bound
by any such obligation.
Pet. filed a MR of the above decision, which motion
was denied by rsp. CA.
Hence, this petition wherein pet. raises the
following issues:
I. THE CONCLUSION OR FINDING
OF CA THAT THE SALE IN
QUESTION WAS CONSUMMATED
IS GROUNDED ON SPECULATION
OR CONJECTURE, AND IS
CONTRARY TO THE APPLICABLE
LEGAL PRINCIPLE.
II. CA, IN MODIFYING THE
DECISION OF TC, ERRED
BECAUSE IT, IN EFFECT,
CANCELLED OR NULLIFIED AN
ASSIGNMENT OF THE SUBJECT
PROPERTY IN FAVOR OF THE
ESTATE OF RAMON PAPA, JR.
WHICH IS NOT A PARTY IN THIS
CASE.
III. CA ERRED IN NOT HOLDING
THAT THE ESTATE OF ANGELA M.
BUTTE AND THE ESTATE OF
RAMON PAPA, JR. ARE
INDISPENSABLE PARTIES IN
THIS
CASE. 6
Pet. argues that rsp. CA erred in concluding that
alleged sale of the subject property had been
consummated. He contends that such a conclusion
is based on the erroneous presumption that the
check (in the amount of P40,000.00) had been
cashed, citing Art. 1249 of the CC, which provides,
in part, that payment by checks shall produce the
effect of payment only when they have been
cashed or when through the fault of the creditor
they have been impaired. 7 Pet. insists that he
never cashed said check; and, such being the
case, its delivery never produced the effect of
payment. Pet., while admitting that he had issued
receipts for the payments, asserts that said
receipts, particularly the receipt of PCIB Check No.
761025 in the amount of P40,000.00, do not prove
payment. He avers that there must be a showing
that said check had been encashed. If, according to
pet., the check had been encashed, rsp. Peñarroyo
should have presented PCIB Check No. 761025
duly stamped received by the payee, or at least its
microfilm copy.
Pet. finally avers that, in fact, the consideration for
the sale was still in the hands of rsps. Valencia and
Peñarroyo, as evidenced by a letter addressed to
him in which said rsps. wrote, in part:
. . . Please be informed that I had
been authorized by Dr. Ramon
Papa, Jr., heir of Mrs. Angela M.
Butte to pay you the aforementioned
amount of P75,000.00 for the
release and cancellation of subject
property's mortgage. The money is
with me and if it is alright with you, I
would like to tender the payment as
soon as possible. . . . 8
We find no merit in pet.'s arguments.
It is an undisputed fact that rsps. Valencia and
Peñarroyo had given pet. Myron C. Papa the
amounts of Five Thousand Pesos (P5,000.00) in
cash on 24 May 1973, and Forty Thousand Pesos
(P40,000.00) in check on 15 June 1973, in payment
of the purchase price of the subject lot. Pet. himself
admits having received said amounts, 9 and having
issued receipts therefor. 10 Pet.'s assertion that he
never encashed the aforesaid check is not
substantiated and is at odds with his statement in
his answer that "he can no longer recall the
transaction which is supposed to have happened
10 years ago." After more than ten (10) years from
the payment in party by cash and in part by check,
the presumption is that the check had been
encashed. As already stated, he even waived the
presentation of oral evidence.
Granting that pet. had never encashed the check,
his failure to do so for more than ten (10) years
undoubtedly resulted in the impairment of the check
through his unreasonable and unexplained delay.
While it is true that the delivery of a check produces
the effect of payment only when it is cashed,
pursuant to Art. 1249 of the CC, the rule is
otherwise if the debtor is prejudiced by the
creditor's unreasonable delay in presentment. The
acceptance of a check implies an undertaking of
due diligence in presenting it for payment, and if he
from whom it is received sustains loss by want of
such diligence, it will be held to operate as actual
payment of the debt or obligation for which it was
given. 11 It has, likewise, been held that if no
presentment is made at all, the drawer cannot be
held liable irrespective of loss or injury 12 unless
presentment is otherwise excused. This is in
harmony with Art. 1249 of the CC under which
payment by way of check or other negotiable
instrument is conditioned on its being cashed,
except when through the fault of the creditor, the
instrument is impaired. The payee of a check would
be a creditor under this provision and if its no-
payment is caused by his negligence, payment will
be deemed effected and the obligation for which
the check was given as conditional payment will be
discharged. 13
Considering that rsps. Valencia and Peñarroyo had
fulfilled their part of the contract of sale by
delivering the payment of the purchase price, said
rsps., therefore, had the right to compel pet. to
deliver to them the owner's duplicate of TCT No.
28993 of Angela M. Butte and the peaceful
possession and enjoyment of the lot in question.
With regard to the alleged assignment of mortgage
rights, rsp. CA has found that the conditions under
which said mortgage rights of the bank were
assigned are not clear. Indeed, a perusal of the
original records of the case would show that there
is nothing there that could shed light on the
transactions leading to the said assignment of
rights; nor is there any evidence on record of the
conditions under which said mortgage rights were
assigned. What is certain is that despite the said
assignment of mortgage rights, the title to the
subject property has remained in the name of the
late Angela M. Butte. 14 This much is admitted by
pet. himself in his answer to rsp.'s complaint as well
as in the third-party complaint that pet. filed against
rsp.-spouses Arsenio B. Reyes and Amanda
Santos. 15 Assuming arquendo that the mortgage
rights of the Associated Citizens Bank had been
assigned to the estate of Ramon Papa, Jr., and
granting that the assigned mortgage rights validly
exists and constitute a lien on the property, the
estate may file the appropriate action to enforce
such lien. The cause of action for specific
performance which rsps. Valencia and Peñarroyo
have against pet. is different from the cause of
action which the estate of Ramon Papa, Jr. may
have to enforce whatever rights or liens it has on
the property by reason of its being an alleged
assignee of the bank's rights of mortgage.
Finally, the estate of Angela M. Butte is not an
indispensable party. Under Section 3 of Rule 3 of
the Rules of Court, an executor or administrator
may sue or be sued without joining the party for
whose benefit the action is presented or defended,
thus:
Sec. 3. Representative parties. — A
trustee of an express trust, a
guardian, executor or administrator,
or a party authorized by statute, may
sue or be sued without joining the
party for whose benefit the action is
presented or defended; but the court
may, at any stage of the
proceedings, order such beneficiary
to be made a party. An agent acting
in his own name and for the benefit
of an undisclosed principal may sue
or be sued without joining the
principal except when the contract
involves things belonging to the
principal. 16
Neither is the estate of Ramon Papa, Jr. an
indispensable party without whom, no final
determination of the action can be had. Whatever
prior and subsisting mortgage rights the estate of
Ramon Papa, Jr. has over the property may still be
enforced regardless of the change in ownership
thereof.
WHEREFORE, the petition for review is hereby
DENIED and the Decision of CA, dated 27 Jan.
1992 is AFFIRMED.
GR 148211 July 25, 2006
SINCERE Z. VILLANUEVA, pet.,
vs.
MARLYN P. NITE,* rsp..
DECISION
CORONA, J.:
In this petition for review on certiorari under Rule
45, pet. submits that CA (CA) erred in annulling and
setting aside RTC (RTC) decision on the ground of
extrinsic fraud.
The facts follow.1
Rsp. allegedly took out a loan of P409,000 from
pet.. To secure the loan, rsp. issued pet. an Asian
Bank Corporation (ABC) check (Check No. AYA
020195) in the amount of P325,500 dated Feb. 8,
1994. The date was later changed to June 8, 1994
with the consent and concurrence of pet..
The check was, however, dishonored due to
a material alteration when pet. deposited the check
on due date. On Aug. 24, 1994, rsp., through her
representative Emily P. Abojada, remitted P235,000
to pet. as partial payment of the loan. The balance
of P174, 000 was due on or before Dec. 8, 1994.
On Aug. 24, 1994, however, pet. filed an action for
a sum of money and damages (Civil Case No. Q-
94-21495) against ABC for the full amount of the
dishonored check. And in a decision dated May 23,
1997, the RTC of QC, Branch 101 ruled in his
favor.2 When rsp. went to ABC Salcedo Village
Branch on June 30, 1997 to withdraw money from
her account, she was unable to do so because TC
had ordered ABC to pay pet. the value of rsp.’s
ABC check.
On Aug. 25, 1997, ABC remitted to the sheriff a
manager’s check amounting to P325,500 drawn on
rsp.’s account. The check was duly received by pet.
on the same date.
Rsp. then filed a petition in the CA seeking to annul
and set aside TC’s decision ordering ABC to pay
pet. the value of the ABC check.3 The CA ruled:
WHEREFORE, premises considered, the
petition is GRANTED and the Decision
dated May 23, 1997 of the public rsp. is
hereby ANNULLED and SET ASIDE for
extrinsic fraud.
[Pet.] Villanueva is hereby ordered to pay
[Nite] —
1) the sum of [P146,500] as actual damages
plus interest at 12% per annum from Aug.
25, 1997 until full payment;
2) the sum of [P75,000] as moral damages;
3) the sum of [P50,000] as exemplary
damages; and
4) the sum of [P50,000] as attorney’s fees
and cost of suit.
SO ORDERED.4
Thus, this petition. We find for rsp..
Annulment of judgment is a remedy in law
independent of the case where the judgment
sought to be annulled is promulgated. It can be
filed by one who was not a party to the case in
which the assailed judgment was rendered. Section
1 of Rule 47 provides:
Section 1. Coverage. – This Rule shall
govern the annulment by CA of judgments
or final orders and resolutions in civil actions
of RTCs for which the ordinary remedies of
new trial, appeal, petition for relief or other
appropriate remedies are no longer
available through no fault of the pet..
Rsp. may avail of the remedy of annulment of
judgment under Rule 47. The ordinary remedies of
new trial, appeal and petition for relief were not
available to her for the simple reason that she was
not made a party to the suit against ABC. Thus,
she was neither able to participate in the original
proceedings nor resort to the other remedies
because the case was filed when she was abroad.
Annulment of judgment may be based only on
extrinsic fraud and lack of jurisdiction. 5 Extrinsic or
collateral fraud pertains to such fraud which
prevents the aggrieved party from having a trial or
presenting his case to the court, or is used to
procure the judgment without fair submission of
the controversy.6 This refers to acts intended to
keep the unsuccessful party away from the
courts as when there is a false promise of
compromise or when one is kept in ignorance of the
suit.7
We uphold the appellate court’s finding of extrinsic
fraud:
Barely 6 days after receipt of the partial
payment of P235,000.00 and agreeing that
the balance of P174,000.00 shall be paid on
or before Dec. 8, 1994, [Sincere] filed his
complaint against [ABC] for the full amount
of the dishonored check in the sum of
P320,500.00 without impleading pet.. The
apparent haste by which [Sincere] filed his
complaint and his failure to implead [Marlyn]
clearly shows his intent to prevent [Marlyn]
from opposing his action.
[A]t the time news about [Marlyn] having left
the country was widespread, appearing
even in print media as early as May 1994,
[Marlyn] paid [Sincere] the amount of
P235,000.00 as partial payment on [Aug.
18, 1994], through a representative.
Notwithstanding the foregoing, SIX (6) days
later or on [Aug. 24, 1994, Sincere]
instituted an action for collection with
damages for the whole amount of the
issued check.
[Sincere] does not deny knowledge of such
payment neither of the fact that he
concurred in settling the balance of
P174,000.00 on Dec. 8, 1994.
[His] actuation and pronouncement shows
not only bad faith on his part but also of his
fraudulent intention to completely exclude
[Marlyn] from the proceedings in the court a
quo. By doing what he did he prevented the
[TC] from fully appreciating the particulars of
the case.8
In any event, the RTC decision may be annulled for
lack of jurisdiction over the person of rsp.. The
pertinent provisions of the Negotiable Instruments
Law are enlightening:
SEC. 185. Check, defined. – A check is a
bill of exchange drawn on a bank payable
on demand. Except as herein otherwise
provided, the provisions of this Act
applicable to a bill of exchange payable on
demand apply to a check.9 (emphasis ours)
SEC. 189. When check operates as an
assignment. – A check of itself does not
operate as an assignment of any part of the
funds to the credit of the drawer with the
bank, and the bank is not liable to the
holder, unless and until it accepts or
certifies the check. (emphasis ours)
If a bank refuses to pay a check (notwithstanding
the sufficiency of funds), the payee-holder cannot,
in view of the cited sections, sue the bank. The
payee should instead sue the drawer who might in
turn sue the bank. Section 189 is sound law based
on logic and established legal principles: no privity
of contract exists between the drawee-bank and the
payee. Indeed, in this case, there was no such
privity of contract between ABC and pet..
Pet. should not have sued ABC. Contracts take
effect only between the parties, their assigns and
heirs, except in cases where the rights and
obligations arising from the contract are not
transmissible by their nature, or by stipulation or by
provision of law.10 None of the foregoing exceptions
to the relativity of contracts applies in this case.
The contract of loan was between pet. and rsp.. No
collection suit could prosper without rsp. who was
an indispensable party. Rule 3, Sec. 7 of the Rules
of Court states:
Sec. 7. Compulsory joinder of indispensable
parties. – Parties in interest without whom
no final determination can be had of an
action shall be joined either as plaintiffs or
defendants. (emphasis ours)
An indispensable party is one whose interest in the
controversy is such that a final decree will
necessarily affect his rights. The court cannot
proceed without his presence.11 If an indispensable
party is not impleaded, any judgment is
ineffective.12 On this, Aracelona v. CA13 declared:
Rule 3, Section 7 of the Rules of Court
defines indispensable parties as parties-in-
interest without whom there can be no final
determination of an action. As such, they
must be joined either as plaintiffs or as
 defendants. The general rule with reference
to the making of parties in a civil action
requires, of course, the joinder of all
necessary parties where possible, and the
joinder of all indispensable parties under
any and all conditions, their presence
being sine qua non for the exercise of
judicial power. It is precisely "when an
indispensable party is not before the court
(that) the action should be dismissed." The
absence of an indispensable party renders
all subsequent actions of the court null and
void for want of authority to act, not only as
to the absent parties but even as to those
present.
WHEREFORE, the petition is hereby DENIED. The
decision of CA in CA-G.R. SP No. 44971
is AFFIRMED in toto.
GR 137002 July 27, 2006
BANK OF THE PHILIPPINE ISLANDS, pet.,
vs.
COMMISSIONER OF INTERNAL REVENUE, rsp..
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under
Rule 45 of the 1997 Rules of Court, as amended,
seeking to set aside a Decision 1 of CA dated 14
Aug. 2004 ordering the pet. to pay rsp.
Commissioner of Internal Revenue (CIR) deficiency
documentary stamp tax of P690,030 for the year
1986, inclusive of surcharge and compromise
penalty, plus 20% annual interest until fully paid. CA
in its assailed Decision affirmed the Decision2 of the
Court of Tax Appeals (CTA) dated 31 May 1994.
From 28 Feb. 1986 to 8 Oct. 1986, pet. Bank of the
Philippine Islands (BPI) sold to the Central Bank of
the Philippines (now Bangko Sentral ng Pilipinas)
U.S. dollars for P1,608,541,900.00. BPI instructed,
by cable, its corrsp. bank in New York to transfer
U.S. dollars deposited in BPI's account therein to
the Federal Reserve Bank in New York for credit to
the Central Bank's account therein. Thereafter, the
Federal Reserve Bank sent to the Central Bank
confirmation that such funds had been credited to
its account and the Central Bank promptly
transferred to the pet.'s account in the Philippines
the corresponding amount in Philippine pesos.3
During the period starting 11 June 1985 until 9
March 1987, the Central Bank enjoyed tax
exemption privileges pursuant to Resolution No.
35-85 dated 3 May 1985 of the Fiscal Incentive
Review Board. However, in 1985, Presidential
Decree No. 1994 -- An Act Further Amending
Certain Provisions of the National Internal Revenue
Code was enacted. This law amended Section 222
(now 173) of the National Internal Revenue Code
(NIRC), by adding the foregoing:
[W]henever one party to the taxable
document enjoys exemption from the tax
herein imposed, the other party thereto who
is not exempt shall be the one directly liable
for the tax.
In 1988, rsp. CIR ordered an investigation to be
made on BPI's sale of foreign currency. As a result
thereof, the CIR issued a pre-assessment notice
informing BPI that in accordance with Section 195
(now Section 182)4 of the NIRC, BPI was liable for
documentary stamp tax at the rate of P0.30
per P200.00 on all foreign exchange sold to the
Central Bank. Total tax liability was assessed
at P3,016,316.06, which consists of a documentary
stamp tax liability of P2,412,812.85, a 25%
surcharge of P603,203.21, and a compromise
penalty of P300.00.5
BPI disputed the findings contained in the pre-
assessment notice. Nevertheless, the CIR issued
Assessment No. FAS-5-86-88-003022, dated 30
Sept. 1988, which BPI received on 11 Oct. 1988.
BPI formally protested the assessment, but the
protest was denied. On 10 July 1990, BPI received
the final notice and demand for payment of its 1986
assessment for deficiency documentary stamp tax
in the amount of P3,016,316.06. Consequently, a
petition for review was filed with the CTA on 9 Aug.
1990.6
On 31 May 1994, the CTA rendered the Decision
holding BPI liable for documentary stamp tax in
connection with the sale of foreign exchange to the
Central Bank from the period 29 July 1986 to 8 Oct.
1986 only, thus substantially reducing the CIR's
original assessment. The dispositive portion of the
said Decision reads:
WHEREFORE, premises considered, pet. is
hereby ordered to pay rsp. Commissioner of
Internal Revenue, the amount of P690,030
inclusive of surcharge and compromise
penalty, plus 20% annual interest until fully
 paid pursuant to Section 249 (cc) (sic) (3) of
the Tax Code.7
The CTA ruled that BPI's instructions to its corrsp.
bank in the U.S. to pay to the Federal Reserve
Bank in New York, for the account of the Central
Bank, a sum of money falls squarely within the
scope of Section 51 of The Revised Documentary
Stamp Tax Regulations (Regulations No. 26), dated
26 March 1924, the implementing rules to the
earlier provisions on documentary stamp tax, which
provides that: 8
What may be regarded as telegraphic
transfer. — a local bank cables to a certain
bank in a foreign country with which bank
said local bank has a credit, and directs that
foreign bank to pay to another bank or
person in the same locality a certain sum of
money, the document for and in respect
such transaction will be regarded as a
telegraphic transfer, taxable under the
provisions of Section 1449(i) of the
Administrative Code.
Nevertheless, the CTA also noted that although
Presidential Decree No. 1994, the law which
passes the liability on to the non-exempt party, was
published in the Official Gazette issue of 2 Dec.
1985, the same was released to the public only on
18 June 1986, as certified by the National Printing
Office. Therefore, Presidential Decree No. 1994
took effect only in July 1986 or 15 days after the
issue of Official Gazette where the law was actually
published, that is, circulated to the public. As a
result of the delay, BPI's transactions prior to the
effectivity of Presidential Decree No. 1994 were not
subject to documentary stamp tax. Hence, the CTA
reduced the assessment from P3,016,316.06
to P690,030.00, plus 20% annual interest until fully
paid pursuant to Section 249(c) of the NIRC.9
Both parties filed their respective Motions for
Reconsideration, which the CTA denied in a
Resolution dated 26 Sept. 1994. BPI filed a Petition
for Review with CA on 11 Nov. 1994. On 14 Aug.
1998, CA affirmed the Decision of the CTA. CA
ruled that the documentary stamp tax imposed
under Section 195 (now Section 182) is not limited
only to foreign bills of exchange and letters of credit
but also includes the orders made by telegraph or
by any other means for the payment of money
made by any person drawn in but payable out of
the Philippines. CA also maintained that telegraphic
transfers, such as the one BPI sent to its corrsp.
bank in the U.S., are proper subjects for the
imposition of documentary stamp tax under Section
195 (now Section 182) and Section 51 of Revenue
Regulation No. 26. CA likewise affirmed the CTA's
Decision imposing a 20% delinquency on the
reduced assessment, in accordance with Section
24(c)(3) of the NIRC and the case of Philippine
Refining Company v. CA.10
Pet. filed a Partial MR on 9 Sept. 1998, which CA
denied on 29 Dec. 1998.11
Hence this petition, wherein the pet. raised the
following issues:
I
W/N, CA GRIEVOUSLY ERRED IN
HOLDING THAT SALES OF FOREIGN
EXCHANGE (SPOT CASH), AS
DISTINGUISHED FROM SALES OF
FOREIGN BILLS OF EXCHANGE, ARE
SUBJECT TO DOCUMENTARY STAMP
TAX UNDER SECTION 182 OF THE TAX
CODE
II
W/N, CA GRIEVOUSLY ERRED IN
AFFIRMING THE IMPOSITION OF A
DELINQUENCY INTEREST OF 20% ON
THE REVISED DEFICIENCY STAMP
ASSESSMENT DESPITE A REDUCTION
THEREOF BY THE COUR T OF TAX
APPEALS WHICH ERRED IN ITS
ORIGINAL ASSESSMENT.12
The first issue raised by the pet. is whether BPI is
liable for documentary stamp taxes in connection
with its sale of foreign exchange to the Central
Bank in 1986 under Section 195 (now Section 182)
of the NIRC, quoted hereunder:
Sec. 182. Stamp tax on foreign bills of
exchange and letters of credit. On all foreign
bills of exchange and letters of credit
(including orders, by telegraph or otherwise,
for the payment of money issued by express
or steamship companies or by any person
or persons) drawn in but payable out of the
Philippines in a set of three or more
according to the custom of merchants and
bankers, there shall be collected a
documentary stamp tax of thirty centavos on
each two hundred pesos, or fractional part
thereof, of the face value of such bill of
exchange or letter of credit, or the Philippine
 equivalent of such face value, if expressed
in foreign country.
To determine what is being taxed under this
section, a discussion on the nature of the acts
covered by Section 195 (now Section 182) of the
NIRC is indispensable. This section imposes a
documentary stamp tax on (1) foreign bills of
exchange, (2) letters of credit, and (3) orders, by
telegraph or otherwise, for the payment of money
issued by express or steamship companies or by
any person or persons. This enumeration is further
limited by the qualification that they should be
drawn in the Philippines and payable outside of the
Philippines.
A definition of a "bill of exchange" is provided by
Section 39 of Regulations No. 26, the rules
governing documentary taxes promulgated by the
Bureau of Internal Revenue (BIR) in 1924:
Sec. 39. Definition of "bill of exchange". The
term bill of exchange denotes checks,
drafts, and all other kinds of orders for the
payment of money, payable at sight, or on
demand or after a specific period after sight
or from a stated date.
Section 126 of The Negotiable Instruments Law
(Act No. 2031) reiterates that it is an "order for the
payment of money" and specifies the particular
requisites that make it negotiable.
Sec. 126. Bill of exchange defined. – A bill
of exchange is an unconditional order in
writing addressed by one person to another,
signed by the person giving it, requiring the
person to whom it is addressed to pay on
demand or at fixed or determinable future
time a sum certain in money to order or to
bearer.
Section 129 of the same law classifies bills of
exchange as inland and foreign, the distinction is
laid down by where the bills are drawn and paid.
Thus, a "foreign bill of exchange" may be drawn
outside the Philippines, payable outside the
Philippines, or both drawn and payable outside of
the Philippines.
Sec. 129. Inland and foreign bills of
exchange. -- An inland bill of exchange is a
bill which is, or on its face purports to be,
both drawn and payable within the
Philippines. Any other bill is a foreign bill. x x
x
The Code of Commerce loosely defines a "letter of
credit" and provides for its essential conditions,
thus:
Art. 567. Letters of credit are those issued
by one merchant to another or for the
purpose of attending to a commercial
transaction.
Art 568. The essential conditions of letters
of credit shall be:
1. To be issued in favor of a definite
person and not to order.
2. To be limited to a fixed and
specified amount, or to one or more
undetermined amounts, but within a
maximum the limits of which has to
be stated exactly.
A more explicit definition of a letter of credit can be
found in the commentaries:
A letter of credit is one whereby one person
requests some other person to advance
money or give credit to a third person, and
promises that he will repay the same to the
person making the advancement, or accept
the bills drawn upon himself for the like
amount.13
A bill of exchange and a letter of credit may differ
as to their negotiability, and as to who owns the
funds used for the payment at the time payment is
made. However, in both bills of exchange and
letters of credit, a person orders another to pay
money to a third person.
The phrase "orders, by telegraph or otherwise, for
the payment of money" used in reference to
documentary stamp taxes may be found in an
earlier documentary tax provision, Section 1449(i)
of the Administrative Code of 1917, which was
substantially reproduced in Section 195 (now
Section 182) of the NIRC. Regulations No. 26,
which provided the rules and guidelines for the
documentary stamp tax imposed under the
Administrative Code of 1917, contains an
explanation for the phrase "orders, by telegraph or
otherwise, for the payment of money":
What may be regarded as telegraphic
transfer. — a local bank cables to a certain
bank in a foreign country with which bank
 said local bank has a credit, and directs that
foreign bank to pay to another bank or
person in the same locality a certain sum of
money, the document for and in respect
such transaction will be regarded as a
telegraphic transfer, taxable under the
provisions of Section 1449(i) of the
Administrative Code.
In this case, BPI ordered its corrsp. bank in the
U.S. to pay the Federal Reserve Bank in New York
a sum of money, which is to be credited to the
account of the Central Bank. These are the same
acts described under Section 51 of Regulations No.
26, interpreting the documentary stamp tax
provision in the Administrative Code of 1917, which
is substantially identical to Section 195 (now
Section 182) of the NIRC. These acts performed by
BPI incidental to its sale of foreign exchange to the
Central Bank are included among those taxed
under Section 195 (now Section 182) of the NIRC.
BPI alleges that the assailed decision must be
reversed since the sale between BPI and the
Central Bank of foreign exchange, as distinguished
from foreign bills of exchange, is not subject to the
documentary stamp taxes prescribed in Section
195 (now Section 182) of the NIRC. This argument
leaves much to be desired. In this case, it is not the
sale of foreign exchange per se that is being taxed
under Section 195 of the NIRC. This section refers
to a documentary stamp tax, which is an excise
upon the facilities used in the transaction of the
business separate and apart from the business
itself.14 It is not a tax upon the business itself which
is so transacted, but it is a duty upon the facilities
made use of and actually employed in the
transaction of the business, and separate and apart
from the business itself.15
Section 195 (now Section 182) of the NIRC covers
foreign bills of exchange, letters of credit, and
orders of payment for money, drawn in Philippines,
but payable outside the Philippines. From this
enumeration, two common elements need to be
present: (1) drawing the instrument or ordering a
drawee, within the Philippines; and (2) ordering that
drawee to pay another person a specified amount
of money outside the Philippines. What is being
taxed is the facility that allows a party to draw the
draft or make the order to pay within the Philippines
and have the payment made in another country.
A perusal of the facts contained in the record in this
case shows that BPI, while in the Philippines,
ordered its corrsp. bank by cable to make a
payment, and that payment is to be made to the
Federal Reserve Bank in New York. Thus, BPI
made use of the aforementioned facility. As a result,
BPI need not have sent a representative to New
York, nor did the Federal Reserve Bank have to go
to the Philippines to collect the funds which were to
be credited to the Central Bank's account with
them. The transaction was made at the shortest
time possible and at the greatest convenience to
the parties. The tax was laid upon this privilege or
facility used by the parties in their transactions,
transactions which they may effect through our
courts, and which are regulated and protected by
our government.
BPI further alleges that since the funds transferred
to the Federal Reserve Bank were taken from BPI's
account with the corrsp. bank, this is not the
transaction contemplated under Section 51 of
Regulations No. 26. BPI argues that Section 51 of
Regulations No. 26, in using the phrase "with which
local bank has credit," involves transactions
wherein the drawee bank pays with its own funds
and excludes from the coverage of the law
situations wherein the funds paid out by the corrsp.
bank are owned by the drawer. In the case
of Republic of the Philippines v. PNB,16 the Court
equated "credit" with the term "deposits," and
identified the depositor as the creditor and the bank
as the debtor.
And as correctly stated by TC, the term
"credit" in its usual meaning is a sum
credited on the books of a company to a
person who appears to be entitled to it. It
presupposes a creditor-debtor relationship,
and may be said to imply ability, by reason
of property or estates, to make a promised
payment. It is the correlative to debt or
indebtedness, and that which is due to any
person, as distinguished from that which he
owes. The same is true with the term
"deposits" in banks where the relationship
created between the depositor and the bank
is that of creditor and debtor.
By this definition of "credit," BPI's deposit account
with its corrsp. bank is much the same as the
"credit" referred to in Section 51 of Regulations No.
26. Thus, the fact that the funds transferred to the
Central Bank's account with the Federal Reserve
Bank are from BPI's deposit account with the
corrsp. bank can only underline that the present
case is the same situation described under Section
51 of Regulations No. 26.
Moreover, the fact that the funds belong to BPI and
were not advanced by the corrsp. bank will not
remove the transaction from the coverage of
Section 195 (now Section 182) of the NIRC. There
are transactions covered by this section wherein
funds belonging to the drawer are used for
payment. A bill of exchange, when drawn in the
Philippines but payable in another country, would
surely be covered by this section. And in the case
of a bill of exchange, the funds may belong to the
drawer and need not be advanced by the drawee,
as in the case of a check or a draft. In the
description of a draft provided hereunder, the
drawee is in possession of funds belonging to the
drawer of the bill:
A draft is a form of a bill of exchange used
mainly in transactions between persons
physically remote from each other. It is an
order made by one person, say the buyer of
goods, addressed to a person having in his
possession funds of such buyer ordering the
addressee to pay the purchase price to the
seller of the goods. Where the order is
made by one bank to another, it is referred
to as a bank draft.17
BPI argues that the foreign exchange sold was
deposited and transferred within the U.S. and is
therefore outside Philippine territory. This argument
is unsubstantial. The documentary stamp tax is not
imposed on the sale of foreign exchange, rather it
is an excise tax on the privilege or facility which the
parties used in their transaction. In the case
of Allied Thread Co., Inc. v. City Mayor of
Manila,18 the Court explained the scope
encompassed by the power to levy an excise tax:
The tax imposition here is upon the
performance of an act, enjoyment of a
privilege, or the engaging in an occupation,
and hence is in the nature of an excise tax.
The power to levy an excise upon the
performance of an act or the engaging in an
occupation does not depend upon the
domicile of the person subject to the excise,
nor upon the physical location of the
property and in connection with the act or
occupation taxed, but depends upon the
place in which the act is performed or
occupation engaged in (Emphasis
supplied).
In this case, the act of BPI instructing the corrsp.
bank to transfer the funds to the Federal Reserve
Bank was performed in the Philippines. Therefore,
the excise tax may be levied by the Philippine
government. Section 195 (now Section 182) of the
NIRC would be rendered invalid if the fact that the
payment was made outside of the country can be
used as a basis for nonpayment of the tax.
The second issue is whether the delinquency
interest of 20% per annum, as provided under
Section 249(c)(3) of the NIRC, is applicable in this
case.
In the case of Philippine Refining Company v.
CA,19 this Court categorically ruled that even if an
assessment was later reduced by the courts, a
delinquency interest should still be imposed from
the time demand was made by the CIR.
As correctly pointed out by the Solicitor
General, the deficiency tax assessment in
this case, which was the subject of the
demand letter of rsp. Commissioner dated
April 11, 1989, should have been paid within
thirty (30) days from receipt thereof. By
reason of pet.'s default thereon, the
delinquency penalties of 25% surcharge
and interest of 20% accrued from April 11,
1989. The fact that pet. appealed the
assessment to the CTA and that the same
was modified does not relieve pet. of the
penalties incident to delinquency. The
reduced amount of P237,381.25 is but a
part of the original assessment
of P1,892,584.00.
This doctrine is consistent with the earlier decisions
of this Court justifying the imposition of additional
charges and interests incident to delinquency by
explaining that the nature of additional charges is
compensatory and not a penalty.
The above legal provision makes no
distinctions nor does it establish exceptions.
It directs the collection of the surcharge and
interest at the stated rate upon any sum or
sums due and unpaid after the dates
prescribed in subsections (b), (c), and (d) of
the Act for the payment of the amounts due.
The provision therefore is mandatory in
case of delinquency. This is justified
because the intention of the law is precisely
to discourage delay in the payment of taxes
due to the State and, in this sense, the
surcharge and interest charged are not
penal but compensatory in nature – they are
compensation to the State for the delay in
 payment, or for the concomitant use of the
funds by the taxpayer beyond the date he is
supposed to have paid them to the State.20
The same principle was used in Ross v.
U.S.21 when the U.S. SC ruled that it was only
equitable for the government to collect interest from
a taxpayer who, by the government's error,
received a refund which was not due him.
Even though [the] taxpayer here did not
request the refund made to him, and the
situation is entirely due to an error on the
part of the government, taxpayer and not
the government has had the use of the
money during the period involved and it is
not unjustly penalizing taxpayer to require
him to pay compensation for this use of
money.
Based on established doctrine, these charges
incident to delinquency are compensatory in nature
and are imposed for the taxpayers' use of the funds
at the time when the State should have control of
said funds. Collecting such charges is mandatory.
Therefore, the Decision of CA imposing a 20%
delinquency interest over the assessment reduced
by the CTA was justified and in accordance with
Section 249(c)(3) of the NIRC.
WHEREFORE, premises considered, this
Court DENIES this petition and AFFIRMS the
Decision of CA in CA-G.R. SP No. 57362 dated 14
Aug. 1998, ordering that pet. Bank of the Philippine
Islands to pay Rsp. Commissioner of Internal
Revenue the deficiency documentary stamp tax in
the amount of P690,030.00 inclusive of surcharge
and compromise penalty, plus 20% annual interest
from 7 June 1990 until fully paid. Costs against the
pet..
GR 156207 Sept. 15, 2006
EQUITABLE PCI BANK (the Banking Entity into
which Philippine Commercial International Bank
was merged), pet.,
vs.
ROWENA ONG, rsp..
DECISION
CHICO-NAZARIO, J.:
On 29 Nov. 1991, Warliza Sarande deposited in her
account at Philippine Commercial International
(PCI) Bank Magsaysay Avenue, Santa Ana District,
Davao City Branch, under Account No. 8502-
00347-6, a PCI Bank General Santos City Branch,
TCBT1 Check No. 0249188 in the amount
of P225,000.00. Upon inquiry by Serande at PCI
Bank on 5 Dec. 1991 on whether TCBT Check No.
0249188 had been cleared, she received an
affirmative answer. Relying on this assurance, she
issued two checks drawn against the proceeds of
TCBT Check No. 0249188. One of these was PCI
Bank Check No. 073661 dated 5 Dec. 1991
for P132,000.00 which Sarande issued to rsp.
Rowena Ong Owing to a business transaction. On
the same day, Ong presented to PCI Bank
Magsaysay Avenue Branch said Check No.
073661, and instead of encashing it, requested PCI
Bank to convert the proceeds thereof into a
manager's check, which the PCI Bank obliged.
Whereupon, Ong was issued PCI Bank Manager's
Check No. 10983 dated 5 Dec. 1991 for the sum
of P132,000.00, the value of Check No. 073661.
The next day, 6 Dec. 1991, Ong deposited PCI
Bank Manager's Check No. 10983 in her account
with Equitable Banking Corporation Davao City
Branch. On 9 Dec. 1991, she received a check
return-slip informing her that PCI Bank had stopped
the payment of the said check on the ground of
irregular issuance. Despite several demands made
by her to PCI Bank for the payment of the amount
in PCI Bank Manager's Check No. 10983, the same
was met with refusal; thus, Ong was constrained to
file a Complaint for sum of money, damages and
attorney's fees against PCI Bank.2
From PCI Bank's version, TCBT-General Santos
City Check No. 0249188 was returned on 5 Dec.
1991 at 5:00 pm on the ground that the account
against which it was drawn was already closed.
According to PCI Bank, it immediately gave notice
to Sarande and Ong about the return of Check No.
0249188 and requested Ong to return PCI Bank
Manager's Check No. 10983 inasmuch as the
return of Check No. 0249188 on the ground that the
account from which it was drawn had already been
closed resulted in a failure or want of consideration
for the issuance of PCI Bank Manager's Check No.
10983.3
After the pre-trial conference, Ong filed a motion for
summary judgment.4 Though they were duly
furnished with a copy of the motion for summary
judgment, PCI Bank and its counsel failed to
appear at the scheduled hearing.5Neither did they
file any written comment or opposition thereto. TC
thereafter ordered Ong to formally offer her exhibits
in writing, furnishing copies of the same to PCI (P20,000.00) as and for attorney's
Bank which was directed to file its comment or fee's; and
objection.6
5. To pay the costs.11
Ong complied with the Order of TC, but PCI Bank
failed to file any comment or objection within the From this decision, PCI Bank sought recourse
period given to it despite receipt of the same before CA. In a Decision12 dated 29 Oct. 2002, the
order.7 TC then granted the motion for summary appellate court denied the appeal of PCI Bank and
judgment and in its Order dated 2 March 1995, it affirmed the orders and decision of TC.
held:
Unperturbed, PCI Bank then filed the present
IN THE LIGHT OF THE FOREGOING, the petition for review before this Court and raised the
motion for summary judgment is following issues:
GRANTED, ordering defendant Philippine
Commercial International Bank to pay the 1. W/N CA COMMITTED A GRAVE AND
plaintiff the amount of ONE HUNDRED REVERSIBLE ERROR WHEN IT
THIRTY-TWO THOUSAND PESOS SUSTAINED THE LOWER COURT'S
(P132,000.00) equivalent to the amount of ORDER DATED 2 MARCH 1999
PCIB Manager's Check No. 10983. GRANTING RSP.'S MOTION FOR
SUMMARY JUDGMENT
Set the reception of the plaintiff's evidence NOTWITHSTANDING THE GLARING FACT
with respect to the damages claimed in the THAT THERE ARE GENUINE, MATERIAL
complaint.8 AND FACTUAL ISSUES WHICH REQUIRE
THE PRESENTATION OF EVIDENCE.
PCI Bank filed a MR which TC denied in its Order
dated 11 April 1996.9 After the reception of Ong's 2. W/N CA WAS IN ERROR WHEN IT
evidence in support of her claim for damages, TC SUSTAINED THE LOWER COURT'S
rendered its Decision10 dated 3 May 1999 wherein it DECISION DATED 3 MAY 1999
ruled: GRANTING THE RELIEFS PRAYED FOR
IN RSP. ONG'S COMPLAINT INSPITE OF
IN LIGHT OF THE FOREGOIN THE FACT THAT RSP. ONG WOULD BE
CONSIDERATION, and as plaintiff has "UNJUSTLY ENRICHED" AT THE
preponderantly established by competent EXPENSE OF PET. BANK, IF PET. BANK
evidence her claims in the Complaint, WOULD BE REQUIRED TO PAY AN
judgment in hereby rendered for the plaintiff UNFUNDED CHECK.
against the defendant-bank ordering the
latter: 3. W/N CA COMMITTED REVERSIBLE
ERRORS WHEN IT AFFIRMED THE
1. To pay the plaintiff the sum of COURT A QUO'S DECISIION DATED 3
FIFTY THOUSAND PESOS MAY 1999 AWARDING DAMAGES TO RSP.
(P50,000.00) in the concept of moral ONG AND HOLDING THAT RSP. ONG
damages; HAD PREPONDERANTLY ESTABLISHED
BY COMPETENT EVIDENCE HER CLAIMS
2. To pay the plaintiff the sum of IN THE COMPLAINT INSPITE OF THE
TWENTY THOUSAND PESOS FACT THAT THE EVIDENCE ON RECORD
(P20,000.00) as exemplary DOES NOT JUSTIFY THE AWARD OF
damages; DAMAGES.

3. To pay the plaintiff the sum of 4. W/N CA COMMITTED A REVERSIBLE

THREE THOUSAND FIVE ERROR WHEN IT AFFIRMED THE LOWER
HUNDRED PESOS (P3,500.00) COURT'S FACTUAL FINDING IN ITS
representing actual expenses; DECISION DATED 3 MAY 1999 HOLDING
RSP. ONG A "HOLDER IN DUE COURSE"
4. To pay the plaintiff the sum of INSPITE OF THE FACT THAT THE
TWENTY THOUSAND PESOS REQUISITE OF "GOOD FAITH" AND FOR
VALUE IS LACKING AND DESPITE THE
 ABSENCE OF A PROPER TRIAL TO
DETERMINE SUCH FACTUAL ISSUE.
5. W/N CA COMMITTED A REVERSIBLE
ERROR WHEN IT UPHELD THE LOWER
COURT'S DECISION DATED 3 MAY 1999
DENYING PET. EPCI BANK'S
COUNTERCLAIM INSPITE OF THE FACT
THAT IT WAS SHOWN THAT RSP. ONG'S
COMPLAINT LACKS MERIT.13
We affirm the Decision of TC and CA.
The provision on summary judgment is found in
Section 1, Rule 35 of the 1997 Rules of Court:
SECTION 1. Summary judgment for
claimant. – A party seeking to recover upon
a claim, counterclaim, or cross-claim or to
obtain a declaratory relief may, at any time
after the pleading in answer thereto has
been served, move with supporting
affidavits, depositions or admissions for a
summary judgment in his favor upon all or
any part thereof.
Thus, it has been held that a summary judgment is
proper where, upon a motion filed after the issues
had been joined and on the basis of the pleadings
and papers filed, the court finds that there is no
genuine issue as to any material fact to except as
to the amount of damages. A genuine issue has
been defined as an issue of fact which calls for the
presentation of evidence, as distinguished from an
issue which is sham, fictitious, contrived and
patently unsubstantial so as not to constitute a
genuine issue for trial.14
A court may grant summary judgment to settle
expeditiously a case if, on motion of either party,
there appears from the pleadings, depositions,
admissions, and affidavits that no important issues
of fact are involved, except the amount of
damages.15 Rule 35, Section 3, of the Rules of
Court provides two requisites for summary
judgment to be proper: (1) there must be no
genuine issue as to any material fact, except for the
amount of damages; and (2) the party presenting
the motion for summary judgment must be entitled
to a judgment as a matter of law.16
Certainly, when the facts as pleaded appear
uncontested or undisputed, then there's no real or
genuine issue or question as to the facts, and
summary judgment is called for.17
By admitting it committed an error, clearing the
check of Sarande and issuing in favor of Ong not
just any check but a manager's check for that
matter, PCI Bank's liability is fixed. Under the
circumstances, we find that summary judgment was
proper and a hearing would serve no purpose. That
summary judgment is appropriate was incisively
expounded by TC when it made the following
observation:
[D]efendant-bank had certified plaintiff's
PCIB Check No. 073661 and since
certification is equivalent to acceptance,
defendant-bank as drawee bank is bound
on the instrument upon certification and it is
immaterial to such liability in favor of the
plaintiff who is a holder in due course
whether the drawer (Warliza Sarande) had
funds or not with the defendant-bank
(Security vs. State Bank, 154 N.W. 282) or
the drawer was indebted to the bank for
more than the amount of the check (Nat.
Bank vs. Schmelz, Nat. Bank, 116 S.E. 880)
as the certifying bank as all the liabilities
under Sec. 62 of the Negotiable Instruments
Law which refers to liability of acceptor (Title
Guarantee vs. Emadee Realty Corp., 240
N.Y. 36).
It may be true that plaintiff's PCIB Check
No. 073661 for P132,000.00 which was paid
to her by Warliza Sarande was actually not
funded but since plaintiff became a holder in
due course, defendant-bank cannot
interpose a defense of want or lack of
consideration because that defense is
equitable or personal and cannot prosper
against a holder in due course pursuant to
Section 28 of the Negotiable Instruments
Law. Therefore, when the aforementioned
check was endorsed and presented by the
plaintiff and certified to and accepted by
defendant-bank in the purchase of PCIB
Manager's Check No. 1983 in the amount
of P132,000.00, there was a valid
consideration.18
The property of summary judgment was further
explained by this Court when it pronounced that:
The theory of summary judgment is that
although an answer may on its face appear
to tender issues – requiring trial – yet if it is
demonstrated by affidavits, depositions, or
admissions that those issues are not
genuine, but sham or fictitious, the Court is
 unjustified in dispensing with the trial and
rendering summary judgment for plaintiff.
The court is expected to act chiefly on the
basis of the affidavits, depositions,
admissions submitted by the movant, and
those of the other party in opposition
thereto. The hearing contemplated (with 10-
day notice) is for the purpose of determining
whether the issues are genuine or not, not
to receive evidence on the issues set up in
the pleadings. A hearing is not thus de
riguer. The matter may be resolved, and
usually is, on the basis of affidavits,
depositions, admissions. This is not to say
that a hearing may be regarded as a
superfluity. It is not, and the Court has
plenary discretion to determine the
necessity therefore.19
The second and fourth issues are inter-related and
so they shall be resolved together. The second
issue has reference to PCI Bank's claim of unjust
enrichment on the part of Ong if it would be
compelled to make good the manager's check it
had issued. As asserted by PCI Bank under the
fourth issue, Ong is not a holder in due course
because the manager's check was drawn against a
closed account; therefore, the same was issued
without consideration.
On the matter of unjust enrichment, the
fundamental doctrine of unjust enrichment is the
transfer of value without just cause or
consideration. The elements of this doctrine are:
enrichment on the part of the defendant;
impoverishment on the part of the plaintiff; and lack
of cause. The main objective is to prevent one to
enrich himself at the expense of another.20 It is
based on the equitable postulate that it is unjust for
a person to retain benefit without paying for it.21 It is
well to stress that the check of Sarande had been
cleared by the PCI Bank for which reason the
former issued the check to Ong. A check which has
been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the
creditor of cash in an amount equal to the amount
credited to his account.22
Having cleared the check earlier, PCI Bank,
therefore, became liable to Ong and it cannot
allege want or failure of consideration between it
and Sarande. Under settled jurisprudence, Ong is a
stranger as regards the transaction between PCI
Bank and Sarande.23
PCI Bank next insists that since there was no
consideration for the issuance of the manager's
check, ergo, Ong is not a holder in due course. This
claim is equally without basis. Pertinent provisions
of the Negotiable Instruments Law are hereunder
quoted:
SECTION 52. What constitutes a holder in
due course. – 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 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.
The same law provides further:
Sec. 24. Presumption of consideration. –
Every negotiable instrument is deemed
prima facie to have been issued for a
valuable consideration; and every person
whose signature appears thereon to have
become a party thereto for value.
Sec. 26. What constitutes holder for value. –
Where value has at any time been given for
the instrument, the holder is deemed a
holder for value in respect to all parties who
become such prior to that time.
Sec. 28. Effect of want of consideration. –
Absence or failure of consideration is a
matter of defense as against any person not
a holder in due course; and partial failure of
consideration is a defense pro tanto,
whether the failure is an ascertained and
liquidated amount or otherwise.
Easily discernible is that what Ong obtained from
PCI Bank was not just any ordinary check but a
manager's check. A manager's 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 manager's check is regarded
substantially to be as good as the money it
represents.24
A manager's check stands on the same footing as a
certified check.25 The effect of certification is found
in Section 187, Negotiable Instruments Law.
Sec. 187. Certification of check; effect of. –
Where a check is certified by the bank on
which it is drawn, the certification is
equivalent to an acceptance.26
The effect of issuing a manager's check was
incontrovertibly elucidated when we declared that:
A manager's check is one drawn by the
bank's manager upon the bank itself. It is
similar to a cashier's check both as to effect
and use. A cashier's check is a check of the
bank's cashier on his own or another check.
In effect, it is a bill of exchange drawn by
the cashier of a bank upon the bank itself,
and accepted in advance by the act of its
issuance. It is really the bank's own check
and may be treated as a promissory note
with the bank as a maker. The check
becomes the primary obligation of the bank
which issues it and constitutes its written
promise to pay upon demand. The mere
issuance of it is considered an acceptance
thereof. x x x.27
In the case of New Pacific Timber & Supply Co.,
Inc. v. Seneris28:
[S]ince the said check had been certified by
the drawee bank, by the certification, the
funds represented by the check are
transferred from the credit of the maker to
that of the payee or holder, and for all
intents and purposes, the latter becomes
the depositor of the drawee bank, with rights
and duties of one in such situation. Where a
check is certified by the bank on which it is
drawn, the certification is equivalent to
acceptance. Said certification "implies that
the check is drawn upon sufficient funds in
the hands of the drawee, that they have
been set apart for its satisfaction, and that
they shall be so applied whenever the check
is presented for payment. It is an
understanding that the check is good then,
and shall continue good, and this
agreement is as binding on the bank as its
notes circulation, a certificate of deposit
payable to the order of depositor, or any
other obligation it can assume. The object of
certifying a check, as regards both
parties, is to enable the holder to use it as
money." When the holder procures the
check to be certified, "the check operates as
an assignment of a part of the funds to the
creditors." Hence, the exception to the rule
enunciated under Section 63 of the Central
Bank Act to the effect "that a check which
has been cleared and credited to the
account of the creditor shall be equivalent to
a delivery to the creditor in cash in an
amount equal to the amount credited to his
account" shall apply in this case x x x.
By accepting PCI Bank Check No. 073661 issued
by Sarande to Ong and issuing in turn a manager's
check in exchange thereof, PCI Bank assumed the
liabilities of an acceptor under Section 62 of the
Negotiable Instruments Law which states:
Sec. 62. Liability of acceptor. – The
acceptor by accepting the instruments
engages that he will pay it according to the
tenor of his acceptance; and admits –
(a) The existence of the drawer, the
genuineness of his signature, and his
capacity and authority to draw the
instrument; and
(b) The existence of the payee and his then
capacity to indorse.
With the above jurisprudential basis, the issues on
Ong being not a holder in due course and failure or
want of consideration for PCI Bank's issuance of
the manager's check is out of sync.
Section 2, of Republic Act No. 8791, The General
Banking Law of 2000 decrees:
SEC. 2. Declaration of Policy. – The State
recognizes the vital role of banks in
providing an environment conducive to the
sustained development of the national
economy and the fiduciary nature of
banking that requires high standards of
integrity and performance. In furtherance
thereof, the State shall promote and
maintain a stable and efficient banking and
financial system that is globally competitive,
dynamic and responsive to the demands of
a developing economy.
In Associated Bank v. Tan,29 it was reiterated:
"x x x the degree of diligence required of
banks is more than that of a good father of a
family where the fiduciary nature of their
relationship with their depositors is
concerned." Indeed, the banking business is
vested with the trust and confidence of the
public; hence the "appropriate standard of
diligence must be very high, if not the
highest degree of diligence."
Measured against these standards, the next
question that needs to be addressed is: Did PCI
Bank exercise the requisite degree of diligence
required of it? From all indications, it did not. PCI
Bank distinctly made the following uncontested
admission:
1. On 29 Nov. 1991, one Warliza Sarande
deposited to her savings account with PCI
Bank's Magsaysay Avenue Branch, TCBT-
General Santos Branch Check No. 0249188
for P225,000.00. Said check, however,
was inadvertently sent by PCI Bank
through local clearing when it should
have been sent through inter-regional
clearing since the check was drawn at
TCBT-General Santos City.
2. On 5 Dec. 1991, Warliza Sarande
inquired whether TCBT Check No. 0249188
had been cleared. Not having received any
advice from the drawee bank within the
regular clearing period for the return of
locally cleared checks, and unaware then of
the error of not having sent the check
through inter-regional clearing, PCI Bank
advised her that Check No. 024188 is
treated as cleared. x x x.30(Emphasis
supplied.)
From the foregoing, it is palpable and readily
apparent that PCI Bank failed to exercise the
highest degree of care31 required of it under the
law.
In the case of PNB v. CA,32 we declared:
The banking system has become an
indispensable institution in the modern
world and plays a vital role in the economic
life of every civilized society. Whether as
mere passive entities for the safe-keeping
and saving of money or as active
instruments of business and commerce,
banks have attained an ubiquitous presence
among the people, who have come to
regard them with respect and even gratitude
and, most of all, confidence.
Having settled the other issues, we now resolve the
question on the award of moral and exemplary
damages by TC to the rsp..
Moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Though incapable of
pecuniary computation, moral damages may be
recovered if they are the proximate result of the
defendant's wrongful act or omission.33The
requisites for an award of moral damages are well-
defined, thus, firstly, evidence of besmirched
reputation or physical, mental or psychological
suffering sustained by the claimant; secondly, a
culpable act or omission factually
established; thirdly, proof that the wrongful act or
omission of the defendant is the proximate cause of
the damages sustained by the claimant;
and fourthly, that the case is predicated on any of
the instances expressed or envisioned by Art.
221934 and Art. 222035 of the CC. All these elements
are present in the instant case.36
In the first place, by refusing to make good the
manager's check it has issued, Ong suffered
embarrassment and humiliation arising from the
dishonor of the said check.37 Secondly, the culpable
act of PCI Bank in having cleared the check of
Serande and issuing the manager's check to Ong is
undeniable. Thirdly, the proximate cause of the loss
is attributable to PCI Bank. Proximate cause is
defined as that cause which, in natural and
continuous sequence, unbroken by any efficient
intervening cause, produces the injury, and without
which the result would not have occurred.38 In this
case, the proximate cause of the loss is the act of
PCI Bank in having cleared the check of Sarande
and its failure to exercise that degree of diligence
required of it under the law which resulted in the
loss to Ong.
On exemplary damages, Art. 2229 of the CC states:
Art. 2229. Exemplary or corrective damages
are imposed, by way of example or
correction for the public good, in addition to
the moral, temperate, liquidated or
compensatory damages.
The law allows the grant of exemplary damages to
set an example for the public good. The banking
system has become an indispensable institution in
the modern world and plays a vital role in the
economic life of every civilized society. Whether as
mere passive entities for the safe-keeping and
saving of money or as active instruments of
business and commerce, banks have attained an
ubiquitous presence among the people, who have
come to regard them with respect and even
gratitude and most of all, confidence. For this
reason, banks should guard against injury
attributable to negligence or bad faith on its
part.39 Without a doubt, it has been repeatedly
emphasized that since the banking business is
impressed with public interest, of paramount
importance thereto is the trust and confidence of
the public in general. Consequently, the highest
degree of diligence is expected, and high standards
of integrity and performance are even required of
it.40 Having failed in this respect, the award of
exemplary damages is warranted.
Art. 2216 of the CC provides:
ART. 2216. No proof of pecuniary loss is
necessary in order that moral, nominal,
temperate, liquidated or exemplary
damages may be adjudicated. The
assessment of such damages, except
liquidated ones, is left to the discretion of
the court, according to the circumstances of
each case.
Based on the above provision, the determination of
the amount to be awarded (except liquidated
damages) is left to the sound discretion of the court
according to the circumstances of each case.41 In
the case before us, we find that the award of moral
damages in the amount of P50,000.00 and
exemplary damages in the amount of P20,000.00 is
reasonable and justified.
With the above disquisition, there is no necessity of
further discussing the last issue on the PCI Bank's
counterclaim based on the supposed lack of merit
of Ong's complaint.
WHEREFORE, premises considered, the Petition
is DENIED and the Decision of CA dated 29 Oct.
2002 in CA-G.R. CV No. 65000 affirming the
Decision dated 3 may 1999, of RTC of Davao City,
Branch 14, in Civil Case No. 21458-92,
are AFFIRMED.
GR 164358 Dec. 20, 2006
THERESA MACALALAG, pet.,
vs.
PEOPLE OF THE PHILIPPINES, rsp..
DECISION
CHICO-NAZARIO, J.:
This Petition for Review seeks to set aside CA' 10
Oct. 2003 Decision1 convicting pet. Theresa
Macalalag (Macalalag) of Violation of Batas
Pambansa Blg. 22, and its 13 May 2004 Resolution
denying her MR.
The factual and procedural antecedents of this
case are as follows:
On two separate occasions, particularly on 30 July
1995 and 16 Oct. 1995, pet. Theresa Macalalag
obtained loans from Grace Estrella (Estrella), each
in the amount of P100,000.00, each bearing an
interest of 10% per month. Macalalag consistently
paid the interests starting 30 Aug. 1995. Finding the
interest rates so burdensome, Macalalag requested
Estrella for a reduction of the same to which the
latter agreed. On 16 April 1996 and 1 May 1996,
Macalalag executed Acknowledgment/Affirmation
Receipts promising to pay Estrella the face value of
the loans in the total amount of P200,000.00 within
two months from the date of its execution plus 6%
interest per month for each loan. Under the two
Acknowledgment/Affirmation Receipts, she further
obligated herself to pay for the two (2) loans the
total sum of P100,000.00 as liquidated damages
and attorney's fees in the total sum of P40,000.00
as stipulated by the parties the moment she
breaches the terms and conditions thereof.
As security for the payment of the aforesaid loans,
Macalalag issued two PNB Checks (Check No. C-
889835 and No. 889836) on 30 June 1996, each in
the amount of P100,000.00, in favor of Estrella.
However, when Estrella presented said checks for
payment with the drawee bank, the same were
dishonored for the reason that the account against
which the same was drawn was already closed.
Estrella sent a notice of dishonor and demand to
make good the said checks to Macalalag, but the
latter failed to do so. Hence, Estrella filed two
criminal complaints for Violation of Batas
Pambansa Blg. 22 before the Municipal TC in Cities
(MTCC) of Bacolod City, docketed as Crim.cases
No. 76367 and No. 76368.
When arraigned, Macalalag entered a plea of "not
guilty." On trial, Macalalag admitted her
indebtedness and the issuance of the two PNB
checks. She, however, stated that she already
made payments over and above the value of the
said checks. According to her, she made a total
payment of P355,837.98, including the payment
of P199,837.98 made during the pendency of the
cases. Estrella admitted the payment
of P199,837.98 but claimed that the same amount
was applied to the payment of the interest.
On 5 Feb. 2001, the MTCC of Bacolod City
rendered its Decision, disposing of the case as
follows:
WHEREFORE, PREMISES CONSIDERED,
judgment is hereby rendered declaring the
accused Theresa Macalalag guilty beyond
reasonable doubt of the crime charged.
Pursuant however to Eduardo Vaca vs. CA
case (GR 131714, Nov. 16, 1998[,] 298
SCRA 656) and the Rosa Lim vs. People x x
x case (GR 130038, Sept. 18, 2000) where
the SC deleted these penalty of
imprisonment, the penalty therefore
imposable is a fine of P100,000.00 for each
of the two (2) checks and subsidiary
imprisonment in case of insolvency or
failure to pay said fine.
As she is criminally liable, she is likewise
ordered to pay as civil indemnity the total
amount of P200,000.00 with interest at the
legal rate from the time of the filing of the
informations until the amount is fully paid;
less whatever amount was thus far paid and
validly deducted from the principal sum
originally claimed.2
Pet. Macalalag appealed with RTC (RTC) of
Bacolod City, which affirmed in toto the MTCC
Decision. Pet. Macalalag appealed anew with CA,
which affirmed the RTC and the MTCC decisions
with modification to the effect that, among other
things, accused was convicted only of one (1) count
of Violation of Batas Pambansa Blg. 22,
corresponding to the issuance of the second check.
The decretal portion of CA Decision reads:
WHEREFORE, foregoing premises
considered, the petition is PARTLY
GRANTED. Accordingly, the dispositive
portion of the Feb. 9, 2001 Decision of the
Municipal TC in Cities of Bacolod City,
Branch 3, as affirmed by RTC of Bacolod
City, Branch 43, is hereby MODIFIED to
read as follows:
"WHEREFORE, PREMISES
CONSIDERED, judgment is hereby
rendered declaring the accused Theresa
Macalalag guilty beyond reasonable doubt
of the crime charged. Pursuant however to
Eduardo Vaca vs. CA case (GR 131714,
Nov. 16, 1998[,] 298 SCRA 659) and the
Rosa Lim vs. People of the Philippines case
(GR 130038, Sept. 18, 2000) where the SC
deleted the penalty of imprisonment, the
penalty therefore imposable is a fine
of P100,000.00 for the second check and
subsidiary imprisonment in case of
insolvency or failure to pay said fine.
As she is criminally liable, she is
likewise ordered to pay civil
indemnity in the amount
of P100,000.00 with interest at the
legal rate from the time of the filing
of the information until the amount is
fully paid; less P195,837.98, the
amount credited to the accused after
paying the first loan, to be applied to
the second loan."3
In acquitting pet. Macalalag of one count of
violation of Batas Pambansa Blg. 22, CA reversed
the RTC ruling which held that Medel v. CA4 is not
applicable as it applies only in civil cases where the
validity of the interest rate is in issue, and cannot
be applied in crim.cases for violation of Batas
Pambansa Blg. 22.5 In Medel, we held that, while
the Usury Law is now legally inexistent, the
stipulated rate of interest at 5.5% per month is
iniquitous or unconscionable, which the court could
equitably reduce.
CA was correct in applying Medel to the case at
bar. The criminal action for violation of Batas
Pambansa Blg. 22 is deemed to include the
corresponding civil action.6 In fact, no reservation to
file such civil action shall be allowed. 7 Verily then,
whether the interest is unconscionable or not can
be determined in the instant case. Furthermore, in
all criminal prosecutions, any doubt should be
resolved in favor of the accused and strictly against
the State. Following this principle, the issue of
whether the Medel case should be applied in favor
of Macalalag should be resolved in her favor.
The stipulated interest of 10% per month, and even
the reduced rate of 6% per month, are higher than
the interest rates declared unconscionable
in Medel and in several other cases with allegations
of unconscionable interests. Such cases were
synthesized by then Associate Justice (now Chief
Justice) Reynato Puno in Ruiz v. CA8:
The foregoing rates of interests and
surcharges are in accord with Medel vs.
CA, Garcia vs. CA, Bautista vs. Pilar
Development Corporation, and the recent
case of Spouses Solangon vs. Salazar. This
Court invalidated a stipulated 5.5% per
month or 66% per annum interest on
a P500,000.00 loan in Medel and a 6% per
month or 72% per annum interest on
a P60,000.00 loan in Solangon for being
excessive, iniquitous, unconscionable and
exorbitant. In both cases, we reduced the
interest rate to 12% per annum. We held
that while the Usury Law has been
suspended by Central Bank Circular No.
905, s. 1982, effective on Jan. 1, 1983, and
parties to a loan agreement have been
given wide latitude to agree on any interest
rate, still stipulated interest rates are illegal
if they are unconscionable. Nothing in the
said circular grants lenders carte blanche
authority to raise interest rates to levels
which will either enslave their borrowers or
lead to a hemorrhaging of their assets. On
the other hand, in Bautista vs. Pilar
Development Corp., this Court upheld the
validity of a 21% per annum interest on
a P142,326.43 loan, and in Garcia vs. CA,
sustained the agreement of the parties to a
24% per annum interest on
an P8,649,250.00 loan. It is on the basis of
these cases that we reduce the 36% per
annum interest to 12%. An interest of 12%
per annum is deemed fair and reasonable.
While it is true that this Court invalidated a
much higher interest rate of 66% per annum
in Medel and 72% in Solangon it has
sustained the validity of a much lower
interest rate of 21% in Bautista and 24%
in Garcia. We still find the 36% per annum
interest rate in the case at bar to be
substantially greater than those upheld by
this Court in the two (2) aforecited cases.
Applying Medel, therefore, CA convicted pet.
Macalalag of one count of Batas Pambansa Blg. 22
and computed her civil liability as follows:
Thus, applying the Medel doctrine, the
interest rate imposed by Estrella on the
loans of Macalalag should be reduced to
12% per annum only plus 1% a month
penalty charge as liquidated damages on
each loan.
We now proceed to the determination of
whether Macalalag had already paid her
obligations to Estrella.
There is no dispute that Macalalag obtained
the first P100,000.00 loan from Estrella on
July 30, 1995. The said amount multiplied
by 1% interest per month until July 1, 1996,
the time the check representing the said
amount was dishonored (P100,000.00 x 1%
x 11 + P100,000.00), would be P111,000.00.
The second loan of P100,000.00 was
obtained on Oct. 16, 1995 and the check
that was issued for the payment of the said
loan was also dishonored on July 1, 1996.
Using the above formula (P100,000.00 x 1%
x 8.5 + P100,000.00), Macalalag's
obligation would only be P108,500.00.
Thus, when the checks were dishonored,
Macalalag's total obligation to Estrella
was P219,500.00.
In the instant case, it has been established
that Macalalag made a total payment
of P355,837.98 (P199,837.98
plus P156,000.00) (See 275-276, Records).
The P156,000.00 was paid starting Aug. 30,
1995 until June 15, 1996 while the amount
of P199,837.98 was paid to complainant
sometime in 1997 considering that the
acknowledgment receipt was dated Jan. 5,
1998.
In the Acknowledgment/Affirmation
Receipts, Macalalag promised to pay
Estrella the principal loans within two (2)
months after the execution of said
documents. Thus, the two (2) loans
of P100,000.00 each, or a total
of P200,000.00, were demandable only on
June 16, 1996 and July 1, 1996,
respectively. Hence, the total amount
of P156,000.00 already paid by Macalalag
to Estrella could very well be applied to the
face value of the first loan which fell due on
June 16, 1996, including the 1% interest
rate per month on the two (2) loans or a
total of 2% per month. Thus, Macalalag
could no longer be held liable for violation of
B.P. Blg. 22 insofar as the first check is
concerned since the same was already paid
prior to its presentment for payment.
However, with respect to the second check,
there is no doubt that Macalalag is liable
under B.P. Blg. 22. Macalalag admitted
having issued the said check and that said
check, when presented for payment for
payment with the drawee bank bounced for
the reason "account closed". Despite notice
of dishonor, Macalalag failed to make good
the said check. All the elements of violation
of B.P. Blg. 22, viz: a) the making, drawing
or issuance of any check to apply to
account or for value; b) the knowledge of
the maker[,] drawer, or issuer that at the
time of the issue he does not have sufficient
funds in, or credit with, the drawee bank for
the payment of the check in full upon its
presentment; and, c) the subsequent
dishonor of the check by the drawee bank
for insufficiency of funds or credit, or
dishonor for the same reason had not the
drawer, without any valid cause, ordered the
bank to stop payment (Sycip, Jr. vs. CA,
328 SCRA 447), are, therefore, present.
In view of the foregoing, the penalty
imposed on Macalalag by TC should be
modified. In accordance with the Vaca vs.
CA (294 SCRA 656) case, Macalalag
should be meted the penalty of fine
amounting to P100,000.00 only
corresponding to the face value of the
second check with subsidiary imprisonment
in case of insolvency. Likewise, Macalalag
should pay the civil indemnity in the total
amount of P100,000.00 with interest at the
legal rate from the time of the filing of the
Information until fully satisfied less the
amount of P195,837.98 which amount should
be credited to her. This amount represents the
balance after full payment of the first loan
computed as follows:
P355,837.98 - total amount paid by pet.interests
and P156,000.00)
LESS:
P160,000.00 - to fully pay the first loan (P
interests at P21,000.00 and P
P195,837.98 - amount to be credited to pet
We have repeatedly held that there is no violation
of Batas Pambansa Blg. 22 if the complainant was
actually told by the drawer that he has no sufficient
funds in a bank.10 Where, as in the case at bar, the
checks were issued as security for a loan, payment
by the accused of the amount of the check prior to
its presentation for payment would certainly serve
the same purpose.
Batas Pambansa Blg. 22 was not intended to
shelter or favor nor encourage users of the banking
system to enrich themselves through the
manipulation and circumvention of the noble
purpose and objectives of the law. 11Such
manipulation is manifest when payees of checks
issued as security for loans present such checks for
payment even after the payment of such loans.
Pet. Macalalag, however, claims that she should
not be convicted of even one count of Violation of
Batas Pambansa Blg. 22. Pet. Macalalag claims
that: (1) the payment of the accounts before the
checks became due and demandable and/or before
the same are presented for payment would exempt
the pet. from Violation of Batas Pambansa Blg.
22;12 (2) the redeemable value of the check is
limited only to its face value and does not include
interest;13 and (3) partial redemption of the check
will exempt the accused from criminal liability for
Violation of Batas Pambansa Blg. 22.14
Pet. Macalalag claims that, considering that she
had already paid P156,000.00 at the time the
subject checks were presented for payment, the
amount of P100,000.00 should be applied for
redemption of the first check and the remaining
amount of P56,000.00 should be treated as partial
redemption of the second check. Pet. Macalalag
posits that said partial redemption exempts her
from criminal liability because it was made before
the check was presented for payment.
The petition must fail.
Even if we agree with pet. Macalalag that the
to private complainant
on her ( not be imputed to the
loans should
face value of the checks she issued, pet. Macalalag
is still liable for Violation of Batas Pambansa Blg.
22. Pet. Macalalag herself declares that before the
institution of the two cases against her, she has
made a total payment of P156,000.00. Applying this
amount to the first check (No. C-889835), what will
be left is P56,000.00, an amount insufficient to
cover her obligation with respect to the second
check. As stated above, when Estrella presented
the checks for payment, the same were dishonored
on the ground that they were drawn against a
closed account. Despite notice of dishonor, pet.
Macalalag failed to pay the full face value of the
second check issued.
Only a full payment of the face value of the second
check at the time of its presentment or during the
five-day grace period15 could have exonerated her
from criminal liability. A contrary interpretation
would defeat the purpose of Batas Pambansa Blg.
22, that of safeguarding the interest of the banking
system and the legitimate public checking account
user,16 as the drawer could very well have himself
exonerated by the mere expediency of paying a
minimal fraction of the face value of the check.
Neither could pet. Macalalag's subsequent
payment of P199,837.98 during the pendency of
the cases against her before the MTCC result in
freeing her from criminal liability because the same
had already attached after the check was
dishonored. Said subsequent payments can only
affect her civil, not criminal, liability. A subsequent
payment by the accused would not obliterate the
criminal liability theretofore already incurred.17
It is well to note that the gravamen of Batas
Pambansa Blg. 22 is the issuance of a check, not
the nonpayment of an obligation. 18 The law has
made the act of issuing a bum check a malum
prohibitum.19 Consequently, the lack of criminal
intent on the part of the accused is irrelevant, 20 and
the accused will be convicted for violation thereof
as long as the following elements are proven:
1. The accused makes, draws or issues any check
to apply to account or for value;
2. The accused knows at the time of the issuance
that he or she does not have sufficient funds in, or
credit with, the drawee bank for the payment of the
check in full upon its presentment; and
3. The check is subsequently dishonored by the
drawee bank for insufficiency of funds or credit, or it
would have been dishonored for the same reason
had not the drawer, without any valid reason,
ordered the bank to stop payment.21
All these elements have been conclusively proven
in Court, the second element by the prima
facie evidence established by Section 2 of Batas
Pambansa Blg. 22, which provides:
SEC. 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.
WHEREFORE, the Petition is DENIED. CA
Decision dated 10 Oct. 2003 and Resolution dated
13 May 2004, affirming the conviction of pet.
Theresa Macalalag of one count of Violation of
Batas Pambansa Blg. 22, are AFFIRMED. No
costs.
GR 136202 Jan. 25, 2007
BANK OF THE PHILIPPINE ISLANDS, Pet.,
vs.
CA, ANNABELLE A. SALAZAR, and JULIO R.
TEMPLONUEVO, Rsps.
DECISION
AZCUNA, J.:
This is a petition for review under Rule 45 of the
Rules of Court seeking the reversal of the
Decision1 dated April 3, 1998, and the
Resolution2 dated Nov. 9, 1998, of CA in CA-G.R.
CV No. 42241.
The facts3 are as follows:
A.A. Salazar Construction and Engineering
Services filed an action for a sum of money with
damages against herein pet. Bank of the Philippine
Islands (BPI) on Dec. 5, 1991 before Branch 156 of
RTC (RTC) of Pasig City. The complaint was later
amended by substituting the name of Annabelle A.
Salazar as the real party in interest in place of A.A.
Salazar Construction and Engineering Services.
Pr.rsp. Salazar prayed for the recovery of the
amount of Two Hundred Sixty-Seven Thousand,
Seven Hundred Seven Pesos and Seventy
Centavos (P267,707.70) debited by pet. BPI from
her account. She likewise prayed for damages and
attorney’s fees.
Pet. BPI, in its answer, alleged that on Aug. 31,
1991, Julio R. Templonuevo, third-party defendant
and herein also a pr.rsp., demanded from the
former payment of the amount of Two Hundred
Sixty-Seven Thousand, Six Hundred Ninety-Two
Pesos and Fifty Centavos (P267,692.50)
representing the aggregate value of three (3)
checks, which were allegedly payable to him, but
which were deposited with the pet. bank to pr.rsp.
Salazar’s account (Account No. 0203-1187-67)
without his knowledge and corresponding
endorsement.
Accepting that Templonuevo’s claim was a valid
one, pet. BPI froze Account No. 0201-0588-48 of
A.A. Salazar and Construction and Engineering
Services, instead of Account No. 0203-1187-67
where the checks were deposited, since this
account was already closed by pr.rsp. Salazar or
had an insufficient balance.
Pr.rsp. Salazar was advised to settle the matter
with Templonuevo but they did not arrive at any
settlement. As it appeared that pr.rsp. Salazar was
not entitled to the funds represented by the checks
which were deposited and accepted for deposit,
pet. BPI decided to debit the amount
of P267,707.70 from her Account No. 0201-0588-
48 and the sum of P267,692.50 was paid to
Templonuevo by means of a cashier’s check. The
difference between the value of the checks
(P267,692.50) and the amount actually debited
from her account (P267,707.70) represented bank
charges in connection with the issuance of a
cashier’s check to Templonuevo.
In the answer to the third-party complaint, pr.rsp.
Templonuevo admitted the payment to him
of P267,692.50 and argued that said payment was
to correct the malicious deposit made by pr.rsp.
Salazar to her private account, and that pet. bank’s
negligence and tolerance regarding the matter was
violative of the primary and ordinary rules of
banking. He likewise contended that the debiting or
taking of the reimbursed amount from the account
of pr.rsp. Salazar by pet. BPI was a matter
exclusively between said parties and may be
pursuant to banking rules and regulations, but did
not in any way affect him. The debiting from
another account of pr.rsp. Salazar, considering that
her other account was effectively closed, was not
his concern.
After trial, the RTC rendered a decision, the
dispositive portion of which reads thus:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of the plaintiff [pr.rsp.
Salazar] and against the defendant [pet. BPI] and
ordering the latter to pay as follows:
1. The amount of P267,707.70 with 12%
interest thereon from Sept. 16, 1991 until
the said amount is fully paid;
2. The amount of P30,000.00 as and for
actual damages;
3. The amount of P50,000.00 as and for
moral damages;
4. The amount of P50,000.00 as and for
exemplary damages;
5. The amount of P30,000.00 as and for
attorney’s fees; and
6. Costs of suit.
The counterclaim is hereby ordered DISMISSED
for lack of factual basis.
The third-party complaint [filed by pet.] is hereby
likewise ordered DISMISSED for lack of merit.
Third-party defendant’s [i.e., pr.rsp. Templonuevo’s]
counterclaim is hereby likewise DISMISSED for
lack of factual basis.
SO ORDERED.4
On appeal, CA (CA) affirmed the decision of the
RTC and held that rsp. Salazar was entitled to the
proceeds of the three (3) checks notwithstanding
the lack of endorsement thereon by the payee. The
CA concluded that Salazar and Templonuevo had
previously agreed that the checks payable to JRT
Construction and Trading5 actually belonged to
Salazar and would be deposited to her account,
with pet. acquiescing to the arrangement.6
Pet. therefore filed this petition on these grounds:
I.
CA committed reversible error in misinterpreting
Section 49 of the Negotiable Instruments Law and
Section 3 (r and s) of Rule 131 of the New Rules on
Evidence.
II.
CA committed reversible error in NOT applying the
provisions of Art.s 22, 1278 and 1290 of the CC in
favor of BPI.
III.
CA committed a reversible error in holding, based
on a misapprehension of facts, that the account
from which BPI debited the amount of P267,707.70
belonged to a corporation with a separate and
distinct personality.
IV.
CA committed a reversible error in holding, based
entirely on speculations, surmises or conjectures,
that there was an agreement between SALAZAR
and TEMPLONUEVO that checks payable to
TEMPLONUEVO may be deposited by SALAZAR
to her personal account and that BPI was privy to
this agreement.
V.
CA committed reversible error in holding, based
entirely on speculation, surmises or conjectures,
that SALAZAR suffered great damage and
prejudice and that her business standing was
eroded.
VI.
CA erred in affirming instead of reversing the
decision of the lower court against BPI and
dismissing SALAZAR’s complaint.
VII.
The Honorable Court erred in affirming the decision
of the lower court dismissing the third-party
complaint of BPI.7
The issues center on the propriety of the
deductions made by pet. from pr.rsp. Salazar’s
account. Stated otherwise, does a collecting bank,
over the objections of its depositor, have the
authority to withdraw unilaterally from such
depositor’s account the amount it had previously
paid upon certain unendorsed order instruments
deposited by the depositor to another account that
she later closed?
Pet. argues thus:
1. There is no presumption in law that a
check payable to order, when found in the
possession of a person who is neither a
payee nor the indorsee thereof, has been
lawfully transferred for value. Hence, the CA
should not have presumed that Salazar was
a transferee for value within the
contemplation of Section 49 of the
Negotiable Instruments Law,8 as the latter
applies only to a holder defined under
Section 191of the same.9
2. Salazar failed to adduce sufficient
evidence to prove that her possession of the
three checks was lawful despite her
allegations that these checks were
deposited pursuant to a prior internal
arrangement with Templonuevo and that
pet. was privy to the arrangement.
3. The CA should have applied the CC
provisions on legal compensation because
in deducting the subject amount from
Salazar’s account, pet. was merely
rectifying the undue payment it made upon
the checks and exercising its prerogative to
alter or modify an erroneous credit entry in
the regular course of its business.
4. The debit of the amount from the account
of A.A. Salazar Construction and
Engineering Services was proper even
though the value of the checks had been
originally credited to the personal account of
Salazar because A.A. Salazar Construction
and Engineering Services, an
unincorporated single proprietorship, had no
separate and distinct personality from
Salazar.
5. Assuming the deduction from Salazar’s
account was improper, the CA should not
have dismissed pet.’s third-party complaint
against Templonuevo because the latter
would have the legal duty to return to pet.
the proceeds of the checks which he
previously received from it.
6. There was no factual basis for the award
of damages to Salazar.
The petition is partly meritorious.
First, the issue raised by pet. requires an inquiry
into the factual findings made by the CA. The CA’s
conclusion that the deductions from the bank
account of A.A. Salazar Construction and
Engineering Services were improper stemmed from
its finding that there was no ineffective payment to
Salazar which would call for the exercise of pet.’s
right to set off against the former’s bank deposits.
This finding, in turn, was drawn from the pleadings
of the parties, the evidence adduced during trial
and upon the admissions and stipulations of fact
made during the pre-trial, most significantly the
following:
(a) That Salazar previously had in her
possession the following checks:
(1) Solid Bank Check No. CB766556
dated Jan. 30, 1990 in the amount
of P57,712.50;
(2) Solid Bank Check No. CB898978
dated July 31, 1990 in the amount
of P55,180.00; and,
(3) Equitable Banking Corporation
Check No. 32380638 dated Aug. 28,
1990 for the amount of P154,800.00;
(b) That these checks which had an
aggregate amount of P267,692.50 were
payable to the order of JRT Construction
and Trading, the name and style under
which Templonuevo does business;
(c) That despite the lack of endorsement of
the designated payee upon such checks,
Salazar was able to deposit the checks in
her personal savings account with pet. and
encash the same;
(d) That pet. accepted and paid the checks
on three (3) separate occasions over a span
of eight months in 1990; and
(e) That Templonuevo only protested the
purportedly unauthorized encashment of the
checks after the lapse of one year from the
date of the last check.10
Pet. concedes that when it credited the value of the
checks to the account of pr.rsp. Salazar, it made a
mistake because it failed to notice the lack of
endorsement thereon by the designated payee.
The CA, however, did not lend credence to this
claim and concluded that pet.’s actions were
deliberate, in view of its admission that the
"mistake" was committed three times on three
separate occasions, indicating acquiescence to the
internal arrangement between Salazar and
Templonuevo. The CA explained thus:
It was quite apparent that the three checks which
appellee Salazar deposited were not indorsed.
Three times she deposited them to her account and
three times the amounts borne by these checks
were credited to the same. And in those separate
occasions, the bank did not return the checks to her
so that she could have them indorsed. Neither did
the bank question her as to why she was depositing
the checks to her account considering that she was
not the payee thereof, thus allowing us to come to
the conclusion that defendant-appellant BPI was
fully aware that the proceeds of the three checks
belong to appellee.
For if the bank was not privy to the agreement
between Salazar and Templonuevo, it is most
unlikely that appellant BPI (or any bank for that
matter) would have accepted the checks for deposit
on three separate times nary any question. Banks
are most finicky over accepting checks for deposit
without the corresponding indorsement by their
payee. In fact, they hesitate to accept indorsed
checks for deposit if the depositor is not one they
know very well.11
The CA likewise sustained Salazar’s position that
she received the checks from Templonuevo
pursuant to an internal arrangement between them,
ratiocinating as follows:
If there was indeed no arrangement between
Templonuevo and the plaintiff over the three
questioned checks, it baffles us why it was only on
Aug. 31, 1991 or more than a year after the third
and last check was deposited that he demanded for
the refund of the total amount of P267,692.50.
A prudent man knowing that payment is due him
would have demanded payment by his debtor from
the moment the same became due and
demandable. More so if the sum involved runs in
hundreds of thousand of pesos. By and large, every
person, at the very moment he learns that he was
deprived of a thing which rightfully belongs to him,
would have created a big fuss. He would not have
waited for a year within which to do so. It is most
inconceivable that Templonuevo did not do this.12
Generally, only questions of law may be raised in
an appeal by certiorari under Rule 45 of the Rules
of Court.13Factual findings of the CA are entitled to
great weight and respect, especially when the CA
affirms the factual findings of TC.14 Such questions
on whether certain items of evidence should be
accorded probative value or weight, or rejected as
feeble or spurious, or W/N the proofs on one side
or the other are clear and convincing and adequate
to establish a proposition in issue, are questions of
fact. The same holds true for questions on W/N the
body of proofs presented by a party, weighed and
analyzed in relation to contrary evidence submitted
by the adverse party may be said to be strong,
clear and convincing, or W/N inconsistencies in the
body of proofs of a party are of such gravity as to
justify refusing to give said proofs weight – all these
are issues of fact which are not reviewable by the
Court.15
This rule, however, is not absolute and admits of
certain exceptions, namely: a) when the conclusion
is a finding grounded entirely on speculations,
surmises, or conjectures; b) when the inference
made is manifestly mistaken, absurd, or impossible;
c) when there is a grave abuse of discretion; d)
when the judgment is based on a misapprehension
of facts; e) when the findings of fact are conflicting;
f) when the CA, in making its findings, went beyond
the issues of the case and the same are contrary to
the admissions of both appellant and appellee; g)
when the findings of the CA are contrary to those of
TC; h) when the findings of fact are conclusions
without citation of specific evidence on which they
are based; i) when the finding of fact of the CA is
premised on the supposed absence of evidence but
is contradicted by the evidence on record; and j)
when the CA manifestly overlooked certain relevant
facts not disputed by the parties and which, if
properly considered, would justify a different
conclusion.16
In the present case, the records do not support the
finding made by the CA and TC that a prior
arrangement existed between Salazar and
Templonuevo regarding the transfer of ownership of
the checks. This fact is crucial as Salazar’s
entitlement to the value of the instruments is based
on the assumption that she is a transferee within
the contemplation of Section 49 of the Negotiable
Instruments Law.
Section 49 of the Negotiable Instruments Law
contemplates a situation whereby the payee or
indorsee delivers a negotiable instrument for value
without indorsing it, thus:
Transfer without indorsement; effect of- Where the
holder of an instrument payable to his order
transfers it for value without indorsing it, the
transfer vests in the transferee such title as the
transferor had therein, and the transferee acquires
in addition, the right to have the indorsement of the
transferor. But for the purpose of determining
whether the transferee is a holder in due course,
the negotiation takes effect as of the time when the
indorsement is actually made. 17
It bears stressing that the above transaction is an
equitable assignment and the transferee acquires
the instrument subject to defenses and equities
available among prior parties. Thus, if the transferor
had legal title, the transferee acquires such title
and, in addition, the right to have the indorsement
of the transferor and also the right, as holder of the
legal title, to maintain legal action against the
maker or acceptor or other party liable to the
transferor. The underlying premise of this provision,
however, is that a valid transfer of ownership of the
negotiable instrument in question has taken place.
Transferees in this situation do not enjoy the
presumption of ownership in favor of holders since
they are neither payees nor indorsees of such
instruments. The weight of authority is that the
mere possession of a negotiable instrument does
not in itself conclusively establish either the right of
the possessor to receive payment, or of the right of
one who has made payment to be discharged from
liability. Thus, something more than mere
possession by persons who are not payees or
indorsers of the instrument is necessary to
authorize payment to them in the absence of any
other facts from which the authority to receive
payment may be inferred.18
The CA and TC surmised that the subject checks
belonged to pr.rsp. Salazar based on the pre-trial
stipulation that Templonuevo incurred a one-year
delay in demanding reimbursement for the
proceeds of the same. To the Court’s mind,
however, such period of delay is not of such
unreasonable length as to estop Templonuevo from
asserting ownership over the checks especially
considering that it was readily apparent on the face
of the instruments19 that these were crossed
checks.
In State Investment House v. IAC,20 the Court
enumerated the effects of crossing a check, thus:
(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 such holder must inquire if the check has been
received pursuant to that purpose.
Thus, even if the delay in the demand for
reimbursement is taken in conjunction with
Salazar’s possession of the checks, it cannot be
said that the presumption of ownership in
Templonuevo’s favor as the designated payee
therein was sufficiently overcome. This is
consistent with the principle that if instruments
payable to named payees or to their order have not
been indorsed in blank, only such payees or their
indorsees can be holders and entitled to receive
payment in their own right.21
The presumption under Section 131(s) of the Rules
of Court stating that a negotiable instrument was
given for a sufficient consideration will not inure to
the benefit of Salazar because the term "given"
does not pertain merely to a transfer of physical
possession of the instrument. The phrase "given or
indorsed" in the context of a negotiable instrument
refers to the manner in which such instrument may
be negotiated. Negotiable instruments are
negotiated by "transfer to one person or another in
such a manner as to constitute the transferee
the holder thereof. If payable to bearer it is
negotiated by delivery. If payable to order it is
negotiated by the indorsement completed by
delivery."22 The present case involves checks
payable to order. Not being a payee or indorsee of
the checks, pr.rsp. Salazar could not be
a holder thereof.
It is an exception to the general rule for a payee of
an order instrument to transfer the instrument
without indorsement. Precisely because the
situation is abnormal, it is but fair to the maker and
to prior holders to require possessors to prove
without the aid of an initial presumption in their
favor, that they came into possession by virtue of a
legitimate transaction with the last holder.23 Salazar
failed to discharge this burden, and the return of the
check proceeds to Templonuevo was therefore
warranted under the circumstances despite the fact
that Templonuevo may not have clearly
demonstrated that he never authorized Salazar to
deposit the checks or to encash the same.
Noteworthy also is the fact that pet. stamped on the
back of the checks the words: "All prior
endorsements and/or lack of endorsements
guaranteed," thereby making the assurance that it
had ascertained the genuineness of all prior
endorsements. Having assumed the liability of a
general indorser, pet.’s liability to the designated
payee cannot be denied.
Consequently, pet., as the collecting bank, had the
right to debit Salazar’s account for the value of the
checks it previously credited in her favor. It is of no
moment that the account debited by pet. was
different from the original account to which the
proceeds of the check were credited because both
admittedly belonged to Salazar, the former being
the account of the sole proprietorship which had no
separate and distinct personality from her, and the
latter being her personal account.
The right of set-off was explained in Associated
Bank v. Tan:24
A bank generally has a right of set-off over the
deposits therein for the payment of any withdrawals
on the part of a depositor. The right of a collecting
bank to debit a client's account for the value of a
dishonored check that has previously been credited
has fairly been established by jurisprudence. To
begin with, Art. 1980 of the CC provides that
"[f]ixed, savings, and current deposits of money in
banks and similar institutions shall be governed by
the provisions concerning simple loan."
Hence, the relationship between banks and
depositors has been held to be that of creditor and
debtor. Thus, legal compensation under Art. 1278
of the CC may take place "when all the requisites
mentioned in Art. 1279 are present," as follows:
(1) That each one of the obligors be bound
principally, and that he be at the same time
a principal creditor of the other;
(2) That both debts consist in a sum of
money, or if the things due are consumable,
they be of the same kind, and also of the
same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any
retention or controversy, commenced by
third persons and communicated in due
time to the debtor.
While, however, it is conceded that pet. had the
right of set-off over the amount it paid to
Templonuevo against the deposit of Salazar, the
issue of whether it acted judiciously is an entirely
different matter.25 As businesses affected with
public interest, and because of the nature of their
functions, banks are under obligation to treat the
accounts of their depositors with meticulous care,
always having in mind the fiduciary nature of their
relationship.26 In this regard, pet. was clearly remiss
in its duty to pr.rsp. Salazar as its depositor.
To begin with, the irregularity appeared plainly on
the face of the checks. Despite the obvious lack of
indorsement thereon, pet. permitted the
encashment of these checks three times on three
separate occasions. This negates pet.’s claim that it
merely made a mistake in crediting the value of the
checks to Salazar’s account and instead bolsters
the conclusion of the CA that pet. recognized
Salazar’s claim of ownership of checks and acted
deliberately in paying the same, contrary to
ordinary banking policy and practice. It must be
emphasized that 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.27 The taking and collection of a check
without the proper indorsement amount to a
conversion of the check by the bank.28
More importantly, however, solely upon the
prompting of Templonuevo, and with full knowledge
of the brewing dispute between Salazar and
Templonuevo, pet. debited the account held in the
name of the sole proprietorship of Salazar without
even serving due notice upon her. This ran contrary
to pet.’s assurances to pr.rsp. Salazar that the
account would remain untouched, pending the
resolution of the controversy between her and
Templonuevo.29 In this connection, the CA cited the
letter dated Sept. 5, 1991 of Mr. Manuel Ablan,
Senior Manager of pet. bank’s Pasig/Ortigas
branch, to pr.rsp. Salazar informing her that her
account had been frozen, thus:
From the tenor of the letter of Manuel Ablan, it is
safe to conclude that Account No. 0201-0588-48
will remain frozen or untouched until herein
[Salazar] has settled matters with Templonuevo.
But, in an unexpected move, in less than two
weeks (eleven days to be precise) from the time
that letter was written, [pet.] bank issued a
cashier’s check in the name of Julio R.
Templonuevo of the J.R.T. Construction and
Trading for the sum of P267,692.50 (Exhibit "8")
and debited said amount from Ms. Arcilla’s account
No. 0201-0588-48 which was supposed to be
frozen or controlled. Such a move by BPI is, to Our
minds, a clear case of negligence, if not a
fraudulent, wanton and reckless disregard of the
right of its depositor.
The records further bear out the fact that rsp.
Salazar had issued several checks drawn against
the account of A.A. Salazar Construction and
Engineering Services prior to any notice of
deduction being served. The CA sustained pr.rsp.
Salazar’s claim of damages in this regard:
The act of the bank in freezing and later debiting
the amount of P267,692.50 from the account of
A.A. Salazar Construction and Engineering
Services caused plaintiff-appellee great damage
and prejudice particularly when she had already
issued checks drawn against the said account. As
can be expected, the said checks bounced. To
prove this, plaintiff-appellee presented as exhibits
photocopies of checks dated Sept. 8, 1991, Oct.
28, 1991, and Nov. 14, 1991 (Exhibits "D", "E" and
"F" respectively)30
These checks, it must be emphasized, were
subsequently dishonored, thereby causing pr.rsp.
Salazar undue embarrassment and inflicting
damage to her standing in the business community.
Under the circumstances, she was clearly not given
the opportunity to protect her interest when pet.
unilaterally withdrew the above amount from her
account without informing her that it had already
done so.
For the above reasons, the Court finds no reason to
disturb the award of damages granted by the CA
against pet.. This whole incident would have been
avoided had pet. adhered to the standard of
diligence expected of one engaged in the banking
business. A depositor has the right to recover
reasonable moral damages even if the bank’s
negligence may not have been attended with
malice and bad faith, if the former suffered mental
anguish, serious anxiety, embarrassment and
humiliation.31 Moral damages are not meant to
enrich a complainant at the expense of defendant.
It is only intended to alleviate the moral suffering
she has undergone. The award of exemplary
damages is justified, on the other hand, when the
acts of the bank are attended by malice, bad faith
or gross negligence. The award of reasonable
attorney’s fees is proper where exemplary
damages are awarded. It is proper where
depositors are compelled to litigate to protect their
interest.32
WHEREFORE, the petition is
partially GRANTED. The assailed Decision dated
April 3, 1998 and Resolution dated April 3, 1998
rendered by CA in CA-G.R. CV No. 42241
are MODIFIED insofar as it ordered pet. Bank of
the Philippine Islands to return the amount of Two
Hundred Sixty-seven Thousand Seven Hundred
and Seven and 70/100 Pesos (P267,707.70) to rsp.
Annabelle A. Salazar, which portion
is REVERSED and SET ASIDE. In all other
respects, the same are AFFIRMED.
GR 125851 July 11, 2006
ALLIED BANKING CORPORATION, pet.,
vs.
CA, G.G. SPORTSWEAR MANUFACTURING
CORPORATION, NARI GIDWANI, SPOUSES
LETICIA AND LEON DE VILLA AND ALCRON
INTERNATIONAL LTD., rsps..
DECISION
QUISUMBING, J.:
This petition for review on certiorari assails (a) the
July 31, 1996 Decision1 of CA, ordering rsp. G.G.
Sportswear Manufacturing Corp. to reimburse pet.
US $20,085; and exonerating the guarantors from
liability; and (b) the Jan. 17, 1997
Resolution2 denying the MR.
The facts are undisputed.
On Jan. 6, 1981, pet. Allied Bank, Manila (ALLIED)
purchased Export Bill No. BDO-81-002 in the
amount of US $20,085.00 from rsp. G.G.
Sportswear Mfg. Corporation (GGS). The bill,
drawn under a letter of credit No. BB640549
covered Men's Valvoline Training Suit that was in
transit to West Germany (Uniger via Rotterdam)
under Cont. #73/S0299. The export bill was issued
by Chekiang First Bank Ltd., Hongkong. With the
purchase of the bill, ALLIED credited GGS the peso
equivalent of the aforementioned bill amounting
to P151,474.52 and the receipt of which was
acknowledged by the latter in its letter dated June
22, 1981.
On the same date, rsps. Nari Gidwani and Alcron
International Ltd. (Alcron) executed their respective
Letters of Guaranty, holding themselves liable on
the export bill if it should be dishonored or retired
by the drawee for any reason.
Subsequently, the spouses Leon and Leticia de
Villa and Nari Gidwani also executed a Continuing
Guaranty/Comprehensive Surety (surety, for
brevity), guaranteeing payment of any and all such
credit accommodations which ALLIED may extend
to GGS. When ALLIED negotiated the export bill to
Chekiang, payment was refused due to some
material discrepancies in the documents submitted
by GGS relative to the exportation covered by the
letter of credit. Consequently, ALLIED demanded
payment from all the rsps. based on the Letters of
Guaranty and Surety executed in favor of ALLIED.
However, rsps. refused to pay, prompting ALLIED
to file an action for a sum of money.
In their joint answer, rsps. GGS and Nari Gidwani
admitted the due execution of the export bill and
the Letters of Guaranty in favor of ALLIED, but
claimed that they signed blank forms of the Letters
of Guaranty and the Surety, and the blanks were
only filled up by ALLIED after they had affixed their
signatures. They also added that the documents
did not cover the transaction involving the subject
export bill.
On the other hand, the rsps., spouses de Villa,
claimed that they were not aware of the existence
of the export bill; they signed blank forms of the
surety; and averred that the guaranty was not
meant to secure the export bill.
Rsp. Alcron, for its part, alleged that as a foreign
corporation doing business in the Philippines, its
branch in the Philippines is merely a liaison office
confined to the following duties and responsibilities,
to wit: acting as a message center between its
office in Hongkong and its clients in the Philippines;
conducting credit investigations on Filipino clients;
and providing its office in Hongkong with shipping
arrangements and other details in connection with
its office in Hongkong. Rsp. Alcron further alleged
that neither its liaison office in the Philippines nor its
then representative, Hans-Joachim Schloer, had
the authority to issue Letters of Guaranty for and in
behalf of local entities and persons. It also invoked
laches against pet. ALLIED.
GGS and Nari Gidwani filed a Motion for Summary
Judgment on the ground that since the plaintiff
admitted not having protested the dishonor of the
export bill, it thereby discharged GGS from liability.
But TC denied the motion. After the presentation of
evidence by the pet., only the spouses de Villa
presented their evidence. The other rsps. did not.
TC dismissed the complaint.
On appeal, CA modified the ruling of TC holding
rsp. GGS liable to reimburse pet. ALLIED the peso
equivalent of the export bill, but it exonerated the
guarantors from their liabilities under the Letters of
Guaranty. The CA decision reads as follows:
For the foregoing considerations, appellee
GGS is obliged to reimburse appellant Allied
Bank the amount of P151,474.52 which was
the equivalent of GGS's contracted
obligation of US$20,085.00.
The lower court however correctly
exonerated the guarantors from their liability
under their Letters of Guaranty. A guaranty
is an accessory contract. What the
guarantors guaranteed in the instant case
was the bill which had been discharged.
Consequently, the guarantors should be
correspondingly released.
WHEREFORE, judgment is hereby
rendered ordering defendant-appellee G.G.
Sportswear Mfg. Corporation to pay
appellant the sum of P151,474.52 with
interest thereon at the legal rate from the
filing of the complaint, and the costs.
SO ORDERED.3
The pet. filed a MR, but to no avail. Hence, this
appeal, raising a single issue:
W/N RSPS. NARI, DE VILLA AND ALCRON
ARE LIABLE UNDER THE LETTERS OF
GUARANTY AND THE CONTINUING
GUARANTY/ COMPREHENSIVE SURETY
NOTWITHSTANDING THE FACT THAT NO
PROTEST WAS MADE AFTER THE BILL, A
FOREIGN BILL OF EXCHANGE, WAS
DISHONORED.4
The main issue raised before us is: Can rsps., in
their capacity as guarantors and surety, be held
jointly and severally liable under the Letters of
Guaranty and Continuing Guaranty/Comprehensive
Surety, in the absence of protest on the bill in
accordance with Section 152 of the Negotiable
Instruments Law?5
The pet. contends that part of CA' decision
exonerating rsps. Nari Gidwani, Alcron International
Ltd., and spouses Leon and Leticia de Villa as
guarantors and/or sureties. Rsps. rely on Section
152 of the Negotiable Instruments Law to support
their contention.
Our review of the records shows that what
transpired in this case is a discounting arrangement
of the subject export bill, between pet. ALLIED and
rsp. GGS. Previously, we ruled that in a letter of
credit transaction, once the credit is established,
the seller ships the goods to the buyer and in the
process secures the required shipping documents
of title. To get paid, the seller executes a draft and
presents it together with the required documents to
the issuing bank. The issuing bank redeems the
draft and pays cash to the seller if it finds that the
documents submitted by the seller conform with
what the letter of credit requires. The bank then
obtains possession of the documents upon paying
the seller. The transaction is completed when the
buyer reimburses the issuing bank and acquires the
documents entitling him to the goods.6 However, in
most cases, instead of going to the issuing bank to
claim payment, the buyer (or the beneficiary of the
draft) may approach another bank, termed the
negotiating bank, to have the draft
7
discounted. While the negotiating bank owes no
contractual duty toward the beneficiary of the draft
to discount or purchase it, it may still do so. Nothing
can prevent the negotiating bank from requiring
additional requirements, like contracts of guaranty
and surety, in consideration of the discounting
arrangement.
In this case, rsp. GGS, as the beneficiary of the
export bill, instead of going to Chekiang First Bank
Ltd. (issuing bank), went to pet. ALLIED, to have
the export bill purchased or discounted. Before
ALLIED agreed to purchase the subject export bill,
it required rsps. Nari Gidwani and Alcron to execute
Letters of Guaranty, holding them liable on
demand,in case the subject export bill was
dishonored or retired for any reason.8
Likewise, rsps. Nari Gidwani and spouses Leon
and Leticia de Villa executed Continuing
Guaranty/Comprehensive Surety, holding
themselves jointly and severally liable on any and
all credit accommodations, instruments, loans,
advances, credits and/or other obligation that may
be granted by the pet. ALLIED to rsp. GGS.9 The
surety also contained a clause whereby said
sureties waive protest and notice of dishonor of any
and all such instruments, loans, advances, credits
and/or obligations.10 These letters of guaranty and
surety are now the basis of the pet.'s action.
At this juncture, we must stress that obligations
arising from contracts have the force of law
between the parties and should be complied with in
good faith.11 Nothing can stop the parties from
establishing stipulations, clauses, terms and
conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs,
public order, or public policy.12
Here, Art. 2047 of the NCC is pertinent. Art. 2047
states,
Art. 2047. By guaranty a person, called the
guarantor, binds himself to the creditor to
fulfill the obligation of the principal debtor in
case the latter should fail to do so.
If a person binds himself solidarily with the
principal debtor, the provisions of Section 4,
Chapter 3, Title I of this Book shall be
observed. In such case the contract is
called a suretyship.
In this case, the Letters of Guaranty and Surety
clearly show that rsps. undertook and bound
themselves as guarantors and surety to pay the full
amount of the export bill.
Rsps. claim that the pet. did not protest13 upon
dishonor of the export bill by Chekiang First Bank,
Ltd. According to rsps., since there was no protest
made upon dishonor of the export bill, all of them,
as indorsers were discharged under Section 152 of
the Negotiable Instruments Law.
Section 152 of the Negotiable Instruments Law
pertaining to indorsers, relied on by rsps., is not
pertinent to this case. There are well-defined
distinctions between the contract of an indorser and
that of a guarantor/surety of a commercial paper,
which is what is involved in this case. The contract
of indorsement is primarily that of transfer, while the
contract of guaranty is that of personal
security.14 The liability of a guarantor/surety is
broader than that of an indorser. Unless the bill is
promptly presented for payment at maturity and
due notice of dishonor given to the indorser within a
reasonable time, he will be discharged from liability
thereon.15 On the other hand, except where
required by the provisions of the contract of
suretyship, a demand or notice of default is not
required to fix the surety's liability. 16 He cannot
complain that the creditor has not notified him in the
absence of a special agreement to that effect in the
contract of suretyship.17 Therefore, no protest on
the export bill is necessary to charge all the rsps.
jointly and severally liable with G.G. Sportswear
since the rsps. held themselves liable upon
demand in case the instrument was dishonored and
on the surety, they even waived notice of dishonor
as stipulated in their Letters of Guarantee.
As to rsp. Alcron, it is bound by the Letter of
Guaranty executed by its representative Hans-
Joachim Schloer. As to the other rsps., not to be
overlooked is the fact that, the "Suretyship
Agreement" they executed, expressly contemplated
a solidary obligation, providing as it did that "… the
sureties hereby guarantee jointly and severally the
punctual payment of any and all such credit
accommodations, instruments, loans, … which
is/are now or may hereafter become due or owing
… by the borrower".18 It is a cardinal rule that if the
terms of a contract are clear and leave no doubt as
to the intention of the contracting parties, the literal
meaning of its stipulation shall control.19 In the
present case, there can be no mistaking about
rsps.' intent, as sureties, to be jointly and severally
obligated with rsp. G.G. Sportswear.
Rsps. also aver that, (1) they only signed said
documents in blank; (2) they were never made
aware that said documents will cover the payment
of the export bill; and (3) laches have set in.
Rsps.' stance lacks merit. Under Section 3 (d), Rule
131 of the Rules of Court, it is presumed that a
person takes ordinary care of his concerns. Hence,
the natural presumption is that one does not sign a
document without first informing himself of its
contents and consequences. Said presumption
acquires greater force in the case at bar where not
only one document but several documents were
executed at different times and at different places
by the herein rsp. guarantors and sureties.20
In this case, having affixed their consenting
signatures in several documents executed at
different times, it is safe to presume that they had
full knowledge of its terms and conditions, hence,
they are precluded from asserting ignorance of the
legal effects of the undertaking they assumed
thereunder. It is also presumed that private
transactions have been fair and regular21 and that
he who alleges has the burden of proving his
allegation with the requisite quantum of
evidence.22 But here the records of this case do not
support their claims.
Last, we find the defense of laches unavailing. The
question of laches is addressed to the sound
discretion of the court and since laches is an
equitable doctrine, its application is controlled by
equitable considerations.23Rsps., however, failed to
show that the collection suit against them as
sureties was inequitable. Remedies in equity
address only situations tainted with inequity, not
those expressly governed by statutes.24
After considering the facts of this case vis-à-vis the
pertinent laws, we are constrained to rule for the
pet..
WHEREFORE, the instant petition
is GRANTED.The assailed Decision of CA is
hereby MODIFIED, and we hold that rsp. Alcron
International Ltd. is subsidiarily liable, while rsps.
Nari Gidwani, and Spouses Leon and Leticia de
Villa are jointly and severally liable together with
G.G. Sportswear, to pay pet. Bank the sum
of P151,474.52 with interest at the legal rate from
the filing of the complaint, and the costs.
GR 132560 Jan. 30, 2002
WESTMONT BANK (formerly ASSOCIATED
BANKING CORP.), pet.,
vs.
EUGENE ONG, rsp..
DECISION
QUISUMBING, J.:
This is a petition for review of the decision1 dated
Jan. 13, 1998, of CA in CA-G.R. CV No. 28304
ordering the pet. to pay rsp. P1,754,787.50 plus
twelve percent (12%) interest per annum computed
from Oct. 7, 1977, the date of the first extrajudicial
demand, plus damages.
The facts of this case are undisputed.
Rsp. Eugene Ong maintained a current account
with pet., formerly the Associated Banking
Corporation, but now known as Westmont Bank.
Sometime in May 1976, he sold certain shares of
stocks through Island Securities Corporation. To
pay Ong, Island Securities purchased two (2)
Pacific Banking Corporation manager’s
checks,2 both dated May 4, 1976, issued in the
name of Eugene Ong as payee. Before Ong could
get hold of the checks, his friend Paciano Tanlimco
got hold of them, forged Ong’s signature and
deposited these with pet., where Tanlimco was also
a depositor. Even though Ong’s specimen signature
was on file, pet. accepted and credited both checks
to the account of Tanlimco, without verifying the
‘signature indorsements’ appearing at the back
thereof. Tanlimco then immediately withdrew the
money and absconded.
Instead of going straight to the bank to stop or
question the payment, Ong first sought the help of
Tanlimco’s family to recover the amount. Later, he
reported the incident to the Central Bank, which like
the first effort, unfortunately proved futile.
It was only on Oct. 7, 1977, about five (5) months
from discovery of the fraud, did Ong cry foul and
demanded in his complaint that pet. pay the value
of the two checks from the bank on whose gross
negligence he imputed his loss. In his suit, he
insisted that he did not "deliver, negotiate, endorse
or transfer to any person or entity" the subject
checks issued to him and asserted that the
signatures on the back were spurious.3
The bank did not present evidence to the contrary,
but simply contended that since plaintiff Ong
claimed to have never received the originals of the
two (2) checks in question from Island Securities,
much less to have authorized Tanlimco to receive
the same, he never acquired ownership of these
checks. Thus, he had no legal personality to sue as
he is not a real party in interest. The bank then filed
a demurrer to evidence which was denied.
On Feb. 8, 1989, after trial on the merits, RTC of
Manila, Branch 38, rendered a decision, thus:
IN VIEW OF THE FOREGOING, the court hereby
renders judgment for the plaintiff and against the
defendant, and orders the defendant to pay the
plaintiff:
1. The sum of P1,754,787.50 representing
the total face value of the two checks in
question, exhibits "A" and "B", respectively,
with interest thereon at the legal rate of
twelve percent (12%) per annum computed
from Oct. 7, 1977 (the date of the first
extrajudicial demand) up to and until the
same shall have been paid in full;
2. Moral damages in the amount of
P250,000.00;
3. Exemplary or corrective damages in the
sum of P100,000.00 by way of example or
correction for the public good;
 4. Attorney’s fees of P50,000.00 and costs
of suit.
Defendant’s counterclaims are dismissed for lack of
merit.
SO ORDERED.4
Pet. elevated the case to CA without success. In its
decision, the appellate court held:
WHEREFORE, in view of the foregoing, the
appealed decision is AFFIRMED in toto.5
Pet. now comes before this Court on a petition for
review, alleging that CA erred:
I
... IN AFFIRMING TC’S CONCLUSION
THAT RSP. HAS A CAUSE OF ACTION
AGAINST THE PET..
II
... IN AFFIRMING TC’S DECISION
FINDING PET. LIABLE TO RSP. AND
DECLARING THAT THE LATTER MAY
RECOVER DIRECTLY FROM THE
FORMER; AND
III
... IN NOT ADJUDGING RSP. GUILTY OF
LACHES AND IN NOT ABSOLVING PET.
FROM LIABILITY.
Essentially the issues in this case are: (1) W/N rsp.
Ong has a cause of action against pet. Westmont
Bank; and (2) W/N Ong is barred to recover the
money from Westmont Bank due to laches.
Rsp. admitted that he was never in actual or
physical possession of the two (2) checks of the
Island Securities nor did he authorize Tanlimco or
any of the latter’s representative to demand, accept
and receive the same. For this reason, pet. argues,
rsp. cannot sue pet. because under Section 51 of
the Negotiable Instruments Law6 it is only when a
person becomes a holder of a negotiable
instrument can he sue in his own name.
Conversely, prior to his becoming a holder, he had
no right or cause of action under such negotiable
instrument. Pet. further argues that since Section
1917 of the Negotiable Instruments Law defines a
"holder" as the ‘payee or indorsee of a bill or note,
who is in possession of it, or the bearer thereof,’ in
order to be a holder, it is a requirement that he be
in possession of the instrument or the bearer
thereof. Simply stated, since Ong never had
possession of the checks nor did he authorize
anybody, he did not become a holder thereof hence
he cannot sue in his own name.8
Pet. also cites Art. 12499 of the CC explaining that a
check, even if it is a manager’s check, is not legal
tender. Hence, the creditor cannot be compelled to
accept payment thru this means.10 It is pet.’s
position that for all intents and purposes, Island
Securities has not yet tendered payment to rsp.
Ong, thus, any action by Ong should be directed
towards collecting the amount from Island
Securities. Pet. claims that Ong’s cause of action
against it has not ripened as of yet. It may be that
pet. would be liable to the drawee bank - - but that
is a matter between pet. and drawee-bank, Pacific
Banking Corporation.11
For its part, rsp. Ong leans on the ruling of TC and
CA which held that the suit of Ong against the pet.
bank is a desirable shortcut to reach the party who
ought in any event to be ultimately liable.12 It
likewise cites the ruling of the courts a quo which
held that according to the general rule, a bank who
has obtained possession of a check upon an
unauthorized or forged indorsement of the payee’s
signature and who collects the amount of the check
from the drawee is liable for the proceeds thereof to
the payee. The theory of said rule is that the
collecting bank’s possession of such check is
wrongful.13
Rsp. also cites Associated Bank vs. CA14 which
held that the collecting bank or last endorser
generally suffers the loss because it has the duty to
ascertain the genuineness of all prior
endorsements. The collecting bank is also made
liable because it is privy to the depositor who
negotiated the check. The bank knows him, his
address and history because he is a client. Hence,
it is in a better position to detect forgery, fraud or
irregularity in the indorsement.15
Anent Art. 1249 of the CC, Ong points out that bank
checks are specifically governed by the Negotiable
Instruments Law which is a special law and only in
the absence of specific provisions or deficiency in
the special law may the CC be invoked.16
Considering the contentions of the parties and the
evidence on record, we find no reversible error in
the assailed decisions of the appellate and TCs,
hence there is no justifiable reason to grant the
petition.
Pet.’s claim that rsp. has no cause of action against
the bank is clearly misplaced. As defined, a cause
of action is the act or omission by which a party
violates a right of another. 17 The essential elements
of a cause of action are: (a) a legal right or rights of
the plaintiff, (b) a correlative obligation of the
defendant, and (c) an act or omission of the
defendant in violation of said legal right.18
The complaint filed before TC expressly alleged
rsp.’s right as payee of the manager’s checks to
receive the amount involved, pet.’s
correlative duty as collecting bank to ensure that
the amount gets to the rightful payee or his order,
and a breach of that duty because of a blatant act
of negligence on the part of pet. which violated
rsp.’s rights.19
Under Section 23 of the Negotiable Instruments
Law:
When a signature is forged or made without the
authority of the person whose signature it purports
to be, it is wholly inoperative, and no right to retain
the instrument, or to give a discharge therefor, or to
enforce payment thereof against any party thereto,
can be acquired through or under such signature,
unless the party against whom it is sought to
enforce such right is precluded from setting up the
forgery or want of authority.
Since the signature of the payee, in the case at bar,
was forged to make it appear that he had made an
indorsement in favor of the forger, such signature
should be deemed as inoperative and ineffectual.
Pet., as the collecting bank, grossly erred in making
payment by virtue of said forged signature. The
payee, herein rsp., should therefore be allowed to
recover from the collecting bank.
The collecting bank is liable to the payee and must
bear the loss because it is its legal duty to ascertain
that the payee’s endorsement was genuine before
cashing the check.20 As a general rule, a bank or
corporation who has obtained possession of a
check upon an unauthorized or forged indorsement
of the payee’s signature and who collects the
amount of the check from the drawee, is liable for
the proceeds thereof to the payee or other owner,
notwithstanding that the amount has been paid to
the person from whom the check was obtained.21
The theory of the rule is that the possession of the
check on the forged or unauthorized indorsement is
wrongful, and when the money had been collected
on the check, the bank or other person or
corporation can be held as for moneys had and
received, and the proceeds are held for the rightful
owners who may recover them. 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 the money without
indorsement at all and the act of the bank amounts
to conversion of the check.22
Pet.’s claim that since there was no delivery yet
and rsp. has never acquired possession of the
checks, rsp.’s remedy is with the drawer and not
with pet. bank. Pet. relies on the view to the effect
that where there is no delivery to the payee and no
title vests in him, he ought not to be allowed to
recover on the ground that he lost nothing because
he never became the owner of the check and still
retained his claim of debt against the
drawer.23 However, another view in certain cases
holds that even if the absence of delivery is
considered, such consideration is not material. The
rationale for this view is that in said cases the
plaintiff uses one action to reach, by a desirable
short cut, the person who ought in any event to be
ultimately liable as among the innocent persons
involved in the transaction. In other words, the
payee ought to be allowed to recover directly from
the collecting bank, regardless of whether the
check was delivered to the payee or not.24
Considering the circumstances in this case, in our
view, pet. could not escape liability for its negligent
acts. Admittedly, rsp. Eugene Ong at the time the
fraudulent transaction took place was a depositor of
pet. bank. Banks are engaged in a business
impressed with public interest, and it is their duty to
protect in return their many clients and depositors
who transact business with them.25 They have the
obligation to treat their client’s account meticulously
and with the highest degree of care, considering
the fiduciary nature of their relationship. The
diligence required of banks, therefore, is more than
that of a good father of a family.26 In the present
case, pet. was held to be grossly negligent in
performing its duties. As found by TC:
xxx (A)t the time the questioned checks were
accepted for deposit to Paciano Tanlimco’s account
by defendant bank, defendant bank, admittedly had
in its files specimen signatures of plaintiff who
maintained a current account with them (Exhibits
"L-1" and "M-1"; testimony of Emmanuel Torio).
Given the substantial face value of the two checks,
totalling P1,754,787.50, and the fact that they were
being deposited by a person not the payee, the
very least defendant bank should have done, as
any reasonable prudent man would have done, was
to verify the genuineness of the indorsements
thereon. The Court cannot help but note that had
defendant conducted even the most cursory
comparison with plaintiff’s specimen signatures in
its files (Exhibit "L-1" and "M-1") it would have at
once seen that the alleged indorsements were
falsified and were not those of the plaintiff-payee.
However, defendant apparently failed to make such
a verification or, what is worse did so but, chose to
disregard the obvious dissimilarity of the
signatures. The first omission makes it guilty of
gross negligence; the second of bad faith. In either
case, defendant is liable to plaintiff for the proceeds
of the checks in question.27
These findings are binding and conclusive on the
appellate and the reviewing courts.
On the second issue, pet. avers that rsp. Ong is
barred by laches for failing to assert his right for
recovery from the bank as soon as he discovered
the scam. The lapse of five months before he went
to seek relief from the bank, according to pet.,
constitutes laches.
In turn, rsp. contends that pet. presented no
evidence to support its claim of laches. On the
contrary, the established facts of the case as found
by TC and affirmed by CA are that rsp. left no stone
unturned to obtain relief from his predicament.
On the matter of delay in reporting the loss, rsp.
calls attention to the fact that the checks were
issued on May 4, 1976, and on the very next day,
May 5, 1976, these were already credited to the
account of Paciano Tanlimco and presented for
payment to Pacific Banking Corporation. So even if
the theft of the checks were discovered and
reported earlier, rsp. argues, it would not have
altered the situation as the encashment of the
checks was consummated within twenty four hours
and facilitated by the gross negligence of the pet.
bank.28
Laches may be defined as the failure or neglect for
an unreasonable and unexplained length of time, to
do that which, by exercising due diligence, could or
should have been done earlier. It is negligence or
omission to assert a right within a reasonable time,
warranting a presumption that the party entitled
thereto has either abandoned or declined to assert
it.29 It concerns itself with W/N by reason of long
inaction or inexcusable neglect, a person claiming a
right should be barred from asserting the same,
because to allow him to do so would be unjust to
the person against whom such right is sought to be
enforced.30
In the case at bar, it cannot be said that rsp. sat on
his rights. He immediately acted after knowing of
the forgery by proceeding to seek help from the
Tanlimco family and later the Central Bank, to
remedy the situation and recover his money from
the forger, Paciano Tanlimco. Only after he had
exhausted possibilities of settling the matter
amicably with the family of Tanlimco and through
the CB, about five months after the unlawful
transaction took place, did he resort to making the
demand upon the pet. and eventually before the
court for recovery of the money value of the two
checks. These acts cannot be construed as undue
delay in or abandonment of the assertion of his
rights.
Moreover, the claim of pet. that rsp. should be
barred by laches is clearly a vain attempt to deflect
responsibility for its negligent act.1âwphi1 As
explained by the appellate court, it is pet. which had
the last clear chance to stop the fraudulent
encashment of the subject checks had it exercised
due diligence and followed the proper and regular
banking procedures in clearing checks.31 As we had
earlier ruled, the one who had the last clear
opportunity to avoid the impending harm but failed
to do so is chargeable with the consequences
thereof.32
WHEREFORE, the instant petition is DENIED for
lack of merit. The assailed decision of CA,
sustaining the judgment of RTC of Manila, is
AFFIRMED.
Costs against pet..