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Nego Cases (page 2 of syllabus)
Cordillera Legis Integrated Batch 2019- uhaaa
32. Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-29900 June 28, 1974
IN THE MATTER OF THE INTESTATE ESTATE OF JUSTO PALANCA, Deceased, GEORGE PAY, petitioner-appellant,
vs.
SEGUNDINA CHUA VDA. DE PALANCA, oppositor-appellee.
Florentino B. del Rosario for petitioner-appellant.
Manuel V. San Jose for oppositor-appellee.
FERNANDO, J.:p
There is no difficulty attending the disposition of this appeal by petitioner on questions of law. While several points were
raised, the decisive issue is whether a creditor is barred by prescription in his attempt to collect on a promissory note
executed more than fifteen years earlier with the debtor sued promising to pay either upon receipt by him of his share
from a certain estate or upon demand, the basis for the action being the latter alternative. The lower court held that the
ten-year period of limitation of actions did apply, the note being immediately due and demandable, the creditor admitting
expressly that he was relying on the wording "upon demand." On the above facts as found, and with the law being as it is,
it cannot be said that its decision is infected with error. We affirm.
From the appealed decision, the following appears: "The parties in this case agreed to submit the matter for resolution on
the basis of their pleadings and annexes and their respective memoranda submitted. Petitioner George Pay is a creditor
of the Late Justo Palanca who died in Manila on July 3, 1963. The claim of the petitioner is based on a promissory note
dated January 30, 1952, whereby the late Justo Palanca and Rosa Gonzales Vda. de Carlos Palanca promised to pay
George Pay the amount of P26,900.00, with interest thereon at the rate of 12% per annum. George Pay is now before this
Court, asking that Segundina Chua vda. de Palanca, surviving spouse of the late Justo Palanca, he appointed as
administratrix of a certain piece of property which is a residential dwelling located at 2656 Taft Avenue, Manila, covered by
Tax Declaration No. 3114 in the name of Justo Palanca, assessed at P41,800.00. The idea is that once said property is
brought under administration, George Pay, as creditor, can file his claim against the administratrix." 1 It then stated that the
petition could not prosper as there was a refusal on the part of Segundina Chua Vda. de Palanca to be appointed as
administratrix; that the property sought to be administered no longer belonged to the debtor, the late Justo Palanca; and
that the rights of petitioner-creditor had already prescribed. The promissory note, dated January 30, 1962, is worded thus:
" `For value received from time to time since 1947, we [jointly and severally promise to] pay to Mr. [George Pay] at his
office at the China Banking Corporation the sum of [Twenty Six Thousand Nine Hundred Pesos] (P26,900.00), with
interest thereon at the rate of 12% per annum upon receipt by either of the undersigned of cash payment from the Estate
of the late Don Carlos Palanca or upon demand'. . . . As stated, this promissory note is signed by Rosa Gonzales Vda. de
Carlos Palanca and Justo Palanca." 2 Then came this paragraph: "The Court has inquired whether any cash payment has
been received by either of the signers of this promissory note from the Estate of the late Carlos Palanca. Petitioner
informed that he does not insist on this provision but that petitioner is only claiming on his right under the promissory

note ." 3 After which, came the ruling that the wording of the promissory note being "upon demand," the obligation was
immediately due. Since it was dated January 30, 1952, it was clear that more "than ten (10) years has already transpired
from that time until to date. The action, therefore, of the creditor has definitely prescribed." 4 The result, as above noted,
was the dismissal of the petition.
In an exhaustive brief prepared by Attorney Florentino B. del Rosario, petitioner did assail the correctness of the rulings of
the lower court as to the effect of the refusal of the surviving spouse of the late Justo Palanca to be appointed as
administratrix, as to the property sought to be administered no longer belonging to the debtor, the late Justo Palanca, and
as to the rights of petitioner-creditor having already prescribed. As noted at the outset, only the question of prescription
need detain us in the disposition of this appeal. Likewise, as intimated, the decision must be affirmed, considering the
clear tenor of the promissory note.
From the manner in which the promissory note was executed, it would appear that petitioner was hopeful that the
satisfaction of his credit could he realized either through the debtor sued receiving cash payment from the estate of the
late Carlos Palanca presumptively as one of the heirs, or, as expressed therein, "upon demand." There is nothing in the
record that would indicate whether or not the first alternative was fulfilled. What is undeniable is that on August 26, 1967,
more than fifteen years after the execution of the promissory note on January 30, 1952, this petition was filed. The
defense interposed was prescription. Its merit is rather obvious. Article 1179 of the Civil Code provides: "Every obligation
whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is
demandable at once." This used to be Article 1113 of the Spanish Civil Code of 1889. As far back as Floriano v.
Delgado, 5 a 1908 decision, it has been applied according to its express language. The well-known Spanish commentator,
Manresa, on this point, states: "Dejando con acierto, el caracter mas teorico y grafico del acto, o sea la perfeccion de
este, se fija, para determinar el concepto de la obligacion pura, en el distinctive de esta, y que es consecuencia de aquel:
la exigibilidad immediata." 6
The obligation being due and demandable, it would appear that the filing of the suit after fifteen years was much too late.
For again, according to the Civil Code, which is based on Section 43 of Act No. 190, the prescriptive period for a written
contract is that of ten years. 7 This is another instance where this Court has consistently adhered to the express language
of the applicable norm. 8 There is no necessity therefore of passing upon the other legal questions as to whether or not it
did suffice for the petition to fail just because the surviving spouse refuses to be made administratrix, or just because the
estate was left with no other property. The decision of the lower court cannot be overturned.
WHEREFORE, the lower court decision of July 24, 1968 is affirmed. Costs against George Pay.
Zaldivar (Chairman), Barredo, Antonio, Fernandez and Aquino, JJ., concur.


SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 170325 September 26, 2008
PHILIPPINE NATIONAL BANK, Petitioner,

vs.
ERLANDO T. RODRIGUEZ and NORMA RODRIGUEZ, Respondents.
DECISION
REYES, R.T., J.:
WHEN the payee of the check is not intended to be the true recipient of its proceeds, is it payable to order or bearer?
What is the fictitious-payee rule and who is liable under it? Is there any exception?
These questions seek answers in this petition for review on certiorari of the Amended Decision 1 of the Court of Appeals
(CA) which affirmed with modification that of the Regional Trial Court (RTC). 2
The Facts
The facts as borne by the records are as follows:
Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine National Bank (PNB), Amelia
Avenue Branch, Cebu City. They maintained savings and demand/checking accounts, namely, PNBig Demand Deposits
(Checking/Current Account No. 810624-6 under the account name Erlando and/or Norma Rodriguez), and PNBig
Demand Deposit (Checking/Current Account No. 810480-4 under the account name Erlando T. Rodriguez).
The spouses were engaged in the informal lending business. In line with their business, they had a
discounting3 arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an association of
PNB employees. Naturally, PEMSLA was likewise a client of PNB Amelia Avenue Branch. The association maintained
current and savings accounts with petitioner bank.
PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated checks issued to
members whenever the association was short of funds. As was customary, the spouses would replace the postdated
checks with their own checks issued in the name of the members.
It was PEMSLAs policy not to approve applications for loans of members with outstanding debts. To subvert this policy,
some PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan accounts. They took
out loans in the names of unknowing members, without the knowledge or consent of the latter. The PEMSLA checks
issued for these loans were then given to the spouses for rediscounting. The officers carried this out by forging the
indorsement of the named payees in the checks.
In return, the spouses issued their personal checks (Rodriguez checks) in the name of the members and delivered the
checks to an officer of PEMSLA. The PEMSLA checks, on the other hand, were deposited by the spouses to their
account.

Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement
from the named payees. This was an irregular procedure made possible through the facilitation of Edmundo Palermo, Jr.,
treasurer of PEMSLA and bank teller in the PNB Branch. It appears that this became the usual practice for the parties.
For the period November 1998 to February 1999, the spouses issued sixty nine (69) checks, in the total amount
of P2,345,804.00. These were payable to forty seven (47) individual payees who were all members of PEMSLA. 4
Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this scheme, PNB closed the current
account of PEMSLA. As a result, the PEMSLA checks deposited by the spouses were returned or dishonored for the
reason "Account Closed." The corresponding Rodriguez checks, however, were deposited as usual to the PEMSLA
savings account. The amounts were duly debited from the Rodriguez account. Thus, because the PEMSLA checks given
as payment were returned, spouses Rodriguez incurred losses from the rediscounting transactions.
RTC Disposition
Alarmed over the unexpected turn of events, the spouses Rodriguez filed a civil complaint for damages against PEMSLA,
the Multi-Purpose Cooperative of Philnabankers (MCP), and petitioner PNB. They sought to recover the value of their
checks that were deposited to the PEMSLA savings account amounting to P2,345,804.00. The spouses contended that
because PNB credited the checks to the PEMSLA account even without indorsements, PNB violated its contractual
obligation to them as depositors. PNB paid the wrong payees, hence, it should bear the loss.
PNB moved to dismiss the complaint on the ground of lack of cause of action. PNB argued that the claim for damages
should come from the payees of the checks, and not from spouses Rodriguez. Since there was no demand from the said
payees, the obligation should be considered as discharged.
In an Order dated January 12, 2000, the RTC denied PNBs motion to dismiss.
In its Answer,5 PNB claimed it is not liable for the checks which it paid to the PEMSLA account without any indorsement
from the payees. The bank contended that spouses Rodriguez, the makers, actually did not intend for the named payees
to receive the proceeds of the checks. Consequently, the payees were considered as "fictitious payees" as defined under
the Negotiable Instruments Law (NIL). Being checks made to fictitious payees which are bearer instruments, the checks
were negotiable by mere delivery. PNBs Answer included its cross-claim against its co-defendants PEMSLA and the
MCP, praying that in the event that judgment is rendered against the bank, the cross-defendants should be ordered to
reimburse PNB the amount it shall pay.
After trial, the RTC rendered judgment in favor of spouses Rodriguez (plaintiffs). It ruled that PNB (defendant) is liable to
return the value of the checks. All counterclaims and cross-claims were dismissed. The dispositive portion of the RTC
decision reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment, as follows:
1. Defendant is hereby ordered to pay the plaintiffs the total amount of P2,345,804.00 or reinstate or restore the
amount of P775,337.00 in the PNBig Demand Deposit Checking/Current Account No. 810480-4 of Erlando T.
Rodriguez, and the amount of P1,570,467.00 in the PNBig Demand Deposit, Checking/Current Account No.
810624-6 of Erlando T. Rodriguez and/or Norma Rodriguez, plus legal rate of interest thereon to be computed
from the filing of this complaint until fully paid;
2. The defendant PNB is hereby ordered to pay the plaintiffs the following reasonable amount of damages
suffered by them taking into consideration the standing of the plaintiffs being sugarcane planters, realtors,
residential subdivision owners, and other businesses:

(a) Consequential damages, unearned income in the amount of P4,000,000.00, as a result of their having
incurred great dificulty (sic) especially in the residential subdivision business, which was not pushed
through and the contractor even threatened to file a case against the plaintiffs;
(b) Moral damages in the amount of P1,000,000.00;
(c) Exemplary damages in the amount of P500,000.00;
(d) Attorneys fees in the amount of P150,000.00 considering that this case does not involve very
complicated issues; and for the
(e) Costs of suit.
3. Other claims and counterclaims are hereby dismissed.6
CA Disposition
PNB appealed the decision of the trial court to the CA on the principal ground that the disputed checks should be
considered as payable to bearer and not to order.
In a Decision7 dated July 22, 2004, the CA reversed and set aside the RTC disposition. The CA concluded that the checks
were obviously meant by the spouses to be really paid to PEMSLA. The court a quo declared:
We are not swayed by the contention of the plaintiffs-appellees (Spouses Rodriguez) that their cause of action arose from
the alleged breach of contract by the defendant-appellant (PNB) when it paid the value of the checks to PEMSLA despite
the checks being payable to order. Rather, we are more convinced by the strong and credible evidence for the defendant-
appellant with regard to the plaintiffs-appellees and PEMSLAs business arrangement that the value of the rediscounted
checks of the plaintiffs-appellees would be deposited in PEMSLAs account for payment of the loans it has approved in
exchange for PEMSLAs checks with the full value of the said loans. This is the only obvious explanation as to why all the
disputed sixty-nine (69) checks were in the possession of PEMSLAs errand boy for presentment to the defendant-
appellant that led to this present controversy. It also appears that the teller who accepted the said checks was PEMSLAs
officer, and that such was a regular practice by the parties until the defendant-appellant discovered the scam. The logical
conclusion, therefore, is that the checks were never meant to be paid to order, but instead, to PEMSLA. We thus find no
breach of contract on the part of the defendant-appellant.
According to plaintiff-appellee Erlando Rodriguez testimony, PEMSLA allegedly issued post-dated checks to its qualified
members who had applied for loans. However, because of PEMSLAs insufficiency of funds, PEMSLA approached the
plaintiffs-appellees for the latter to issue rediscounted checks in favor of said applicant members. Based on the
investigation of the defendant-appellant, meanwhile, this arrangement allowed the plaintiffs-appellees to make a profit by
issuing rediscounted checks, while the officers of PEMSLA and other members would be able to claim their loans, despite
the fact that they were disqualified for one reason or another. They were able to achieve this conspiracy by using other
members who had loaned lesser amounts of money or had not applied at all. x x x. 8 (Emphasis added)
The CA found that the checks were bearer instruments, thus they do not require indorsement for negotiation; and that
spouses Rodriguez and PEMSLA conspired with each other to accomplish this money-making scheme. The payees in the
checks were "fictitious payees" because they were not the intended payees at all.
The spouses Rodriguez moved for reconsideration. They argued, inter alia, that the checks on their faces were
unquestionably payable to order; and that PNB committed a breach of contract when it paid the value of the checks to
PEMSLA without indorsement from the payees. They also argued that their cause of action is not only against PEMSLA
but also against PNB to recover the value of the checks.

On October 11, 2005, the CA reversed itself via an Amended Decision, the last paragraph and fallo of which read:
In sum, we rule that the defendant-appellant PNB is liable to the plaintiffs-appellees Sps. Rodriguez for the following:
1. Actual damages in the amount of P2,345,804 with interest at 6% per annum from 14 May 1999 until fully paid;
2. Moral damages in the amount of P200,000;
3. Attorneys fees in the amount of P100,000; and
4. Costs of suit.
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by Us AFFIRMING WITH MODIFICATION
the assailed decision rendered in Civil Case No. 99-10892, as set forth in the immediately next preceding paragraph
hereof, and SETTING ASIDE Our original decision promulgated in this case on 22 July 2004.
SO ORDERED.9
The CA ruled that the checks were payable to order. According to the appellate court, PNB failed to present sufficient
proof to defeat the claim of the spouses Rodriguez that they really intended the checks to be received by the specified
payees. Thus, PNB is liable for the value of the checks which it paid to PEMSLA without indorsements from the named
payees. The award for damages was deemed appropriate in view of the failure of PNB to treat the Rodriguez account with
the highest degree of care considering the fiduciary nature of their relationship, which constrained respondents to seek
legal action.
Hence, the present recourse under Rule 45.
Issues
The issues may be compressed to whether the subject checks are payable to order or to bearer and who bears the loss?
PNB argues anew that when the spouses Rodriguez issued the disputed checks, they did not intend for the named
payees to receive the proceeds. Thus, they are bearer instruments that could be validly negotiated by mere delivery.
Further, testimonial and documentary evidence presented during trial amply proved that spouses Rodriguez and the
officers of PEMSLA conspired with each other to defraud the bank.
Our Ruling
Prefatorily, amendment of decisions is more acceptable than an erroneous judgment attaining finality to the prejudice of
innocent parties. A court discovering an erroneous judgment before it becomes final may, motu proprio or upon motion of
the parties, correct its judgment with the singular objective of achieving justice for the litigants. 10
However, a word of caution to lower courts, the CA in Cebu in this particular case, is in order. The Court does not sanction
careless disposition of cases by courts of justice. The highest degree of diligence must go into the study of every
controversy submitted for decision by litigants. Every issue and factual detail must be closely scrutinized and analyzed,
and all the applicable laws judiciously studied, before the promulgation of every judgment by the court. Only in this
manner will errors in judgments be avoided.
Now to the core of the petition.


As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is considered as a
bearer instrument. A check is "a bill of exchange drawn on a bank payable on demand." 11 It is either an order or a bearer
instrument. Sections 8 and 9 of the NIL states:
SEC. 8. When payable to order. The instrument is payable to order where it is drawn payable to the order of a specified
person or to him or his order. It may be drawn payable to the order of
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable
certainty.
SEC. 9. When payable to bearer. The instrument is payable to bearer
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person, and such fact is known to the person
making it so payable; or
(d) When the name of the payee does not purport to be the name of any person; or
(e) Where the only or last indorsement is an indorsement in blank. 12 (Underscoring supplied)
The distinction between bearer and order instruments lies in their manner of negotiation. Under Section 30 of the NIL, an
order instrument requires an indorsement from the payee or holder before it may be validly negotiated. A bearer
instrument, on the other hand, does not require an indorsement to be validly negotiated. It is negotiable by mere delivery.
The provision reads:
SEC. 30. What constitutes negotiation. An instrument is negotiated when it is transferred from one person to another in
such 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 of the holder completed by delivery.
A check that is payable to a specified payee is an order instrument. However, under Section 9(c) of the NIL, a check
payable to a specified payee may nevertheless be considered as a bearer instrument if it is payable to the order of a
fictitious or non-existing person, and such fact is known to the person making it so payable. Thus, checks issued to
"Prinsipe Abante" or "Si Malakas at si Maganda," who are well-known characters in Philippine mythology, are bearer
instruments because the named payees are fictitious and non-existent.

We have yet to discuss a broader meaning of the term "fictitious" as used in the NIL. It is for this reason that We look
elsewhere for guidance. Court rulings in the United States are a logical starting point since our law on negotiable
instruments was directly lifted from the Uniform Negotiable Instruments Law of the United States. 13
A review of US jurisprudence yields that an actual, existing, and living payee may also be "fictitious" if the maker of the
check did not intend for the payee to in fact receive the proceeds of the check. This usually occurs when the maker places
a name of an existing payee on the check for convenience or to cover up an illegal activity.14 Thus, a check made
expressly payable to a non-fictitious and existing person is not necessarily an order instrument. If the payee is not the
intended recipient of the proceeds of the check, the payee is considered a "fictitious" payee and the check is a bearer
instrument.
In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss. When faced with a
check payable to a fictitious payee, it is treated as a bearer instrument that can be negotiated by delivery. The underlying
theory is that one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon. And since
the maker knew this limitation, he must have intended for the instrument to be negotiated by mere delivery. Thus, in case
of controversy, the drawer of the check will bear the loss. This rule is justified for otherwise, it will be most convenient for
the maker who desires to escape payment of the check to always deny the validity of the indorsement. This despite the
fact that the fictitious payee was purposely named without any intention that the payee should receive the proceeds of the
check.15
The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty Insurance Bank. 16 In the said case, the corporation
Mueller & Martin was defrauded by George L. Martin, one of its authorized signatories. Martin drew seven checks payable
to the German Savings Fund Company Building Association (GSFCBA) amounting to $2,972.50 against the account of
the corporation without authority from the latter. Martin was also an officer of the GSFCBA but did not have signing
authority. At the back of the checks, Martin placed the rubber stamp of the GSFCBA and signed his own name as
indorsement. He then successfully drew the funds from Liberty Insurance Bank for his own personal profit. When the
corporation filed an action against the bank to recover the amount of the checks, the claim was denied.
The US Supreme Court held in Mueller that when the person making the check so payable did not intend for the specified
payee to have any part in the transactions, the payee is considered as a fictitious payee. The check is then considered as
a bearer instrument to be validly negotiated by mere delivery. Thus, the US Supreme Court held that Liberty Insurance
Bank, as drawee, was authorized to make payment to the bearer of the check, regardless of whether prior indorsements
were genuine or not.17
The more recent Getty Petroleum Corp. v. American Express Travel Related Services Company, Inc. 18 upheld the
fictitious-payee rule. The rule protects the depositary bank and assigns the loss to the drawer of the check who was in a
better position to prevent the loss in the first place. Due care is not even required from the drawee or depositary bank in
accepting and paying the checks. The effect is that a showing of negligence on the part of the depositary bank will not
defeat the protection that is derived from this rule.
However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of commercial bad faith on the
part of the drawee bank, or any transferee of the check for that matter, will work to strip it of this defense. The exception
will cause it to bear the loss. Commercial bad faith is present if the transferee of the check acts dishonestly, and is a party
to the fraudulent scheme. Said the US Supreme Court in Getty:
Consequently, a transferees lapse of wary vigilance, disregard of suspicious circumstances which might have well
induced a prudent banker to investigate and other permutations of negligence are not relevant considerations under
Section 3-405 x x x. Rather, there is a "commercial bad faith" exception to UCC 3-405, applicable when the transferee
"acts dishonestly where it has actual knowledge of facts and circumstances that amount to bad faith, thus itself
becoming a participant in a fraudulent scheme. x x x Such a test finds support in the text of the Code, which omits a

standard of care requirement from UCC 3-405 but imposes on all parties an obligation to act with "honesty in fact." x x
x19 (Emphasis added)
Getty also laid the principle that the fictitious-payee rule extends protection even to non-bank transferees of the checks.
In the case under review, the Rodriguez checks were payable to specified payees. It is unrefuted that the 69 checks were
payable to specific persons. Likewise, it is uncontroverted that the payees were actual, existing, and living persons who
were members of PEMSLA that had a rediscounting arrangement with spouses Rodriguez.
What remains to be determined is if the payees, though existing persons, were "fictitious" in its broader context.
For the fictitious-payee rule to be available as a defense, PNB must show that the makers did not intend for the named
payees to be part of the transaction involving the checks. At most, the banks thesis shows that the payees did not have
knowledge of the existence of the checks. This lack of knowledge on the part of the payees, however, was not tantamount
to a lack of intention on the part of respondents-spouses that the payees would not receive the checks proceeds.
Considering that respondents-spouses were transacting with PEMSLA and not the individual payees, it is understandable
that they relied on the information given by the officers of PEMSLA that the payees would be receiving the checks.
Verily, the subject checks are presumed order instruments. This is because, as found by both lower courts, PNB failed to
present sufficient evidence to defeat the claim of respondents-spouses that the named payees were the intended
recipients of the checks proceeds. The bank failed to satisfy a requisite condition of a fictitious-payee situation that the
maker of the check intended for the payee to have no interest in the transaction.
Because of a failure to show that the payees were "fictitious" in its broader sense, the fictitious-payee rule does not apply.
Thus, the checks are to be deemed payable to order. Consequently, the drawee bank bears the loss. 20
PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or tellers accepted the 69 checks
for deposit to the PEMSLA account even without any indorsement from the named payees. It bears stressing that order
instruments can only be negotiated with a valid indorsement.
A bank that regularly processes checks that are neither payable to the customer nor duly indorsed by the payee is
apparently grossly negligent in its operations.21 This Court has recognized the unique public interest possessed by the
banking industry and the need for the people to have full trust and confidence in their banks. 22 For this reason, banks are
minded to treat their customers accounts with utmost care, confidence, and honesty.23
In a checking transaction, the drawee bank has the duty to verify the genuineness of the signature of the drawer and to
pay the check strictly in accordance with the drawers instructions, i.e., to the named payee in the check. It should charge
to the drawers accounts only the payables authorized by the latter. Otherwise, the drawee will be violating the instructions
of the drawer and it shall be liable for the amount charged to the drawers account. 24
In the case at bar, respondents-spouses were the banks depositors. The checks were drawn against respondents-
spouses accounts. PNB, as the drawee bank, had the responsibility to ascertain the regularity of the indorsements, and
the genuineness of the signatures on the checks before accepting them for deposit. Lastly, PNB was obligated to pay the
checks in strict accordance with the instructions of the drawers. Petitioner miserably failed to discharge this burden.
The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of indorsement, forged or
otherwise. The facts clearly show that the bank did not pay the checks in strict accordance with the instructions of the
drawers, respondents-spouses. Instead, it paid the values of the checks not to the named payees or their order, but to
PEMSLA, a third party to the transaction between the drawers and the payees.alf-ITC

Moreover, PNB was negligent in the selection and supervision of its employees. The trustworthiness of bank employees is
indispensable to maintain the stability of the banking industry. Thus, banks are enjoined to be extra vigilant in the
management and supervision of their employees. In Bank of the Philippine Islands v. Court of Appeals, 25 this Court
cautioned thus:
Banks handle daily transactions involving millions of pesos. 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. For obvious reasons, the banks are expected to exercise the highest degree of diligence in the selection and
supervision of their employees.26
PNBs tellers and officers, in violation of banking rules of procedure, permitted the invalid deposits of checks to the
PEMSLA account. Indeed, when it is the gross negligence of the bank employees that caused the loss, the bank should
be held liable.27
PNBs argument that there is no loss to compensate since no demand for payment has been made by the payees must
also fail. Damage was caused to respondents-spouses when the PEMSLA checks they deposited were returned for the
reason "Account Closed." These PEMSLA checks were the corresponding payments to the Rodriguez checks. Since they
could not encash the PEMSLA checks, respondents-spouses were unable to collect payments for the amounts they had
advanced.
A bank that has been remiss in its duty must suffer the consequences of its negligence. Being issued to named payees,
PNB was duty-bound by law and by banking rules and procedure to require that the checks be properly indorsed before
accepting them for deposit and payment. In fine, PNB should be held liable for the amounts of the checks.
One Last Note
We note that the RTC failed to thresh out the merits of PNBs cross-claim against its co-defendants PEMSLA and MPC.
The records are bereft of any pleading filed by these two defendants in answer to the complaint of respondents-spouses
and cross-claim of PNB. The Rules expressly provide that failure to file an answer is a ground for a declaration that
defendant is in default.28 Yet, the RTC failed to sanction the failure of both PEMSLA and MPC to file responsive pleadings.
Verily, the RTC dismissal of PNBs cross-claim has no basis. Thus, this judgment shall be without prejudice to whatever
action the bank might take against its co-defendants in the trial court.
To PNBs credit, it became involved in the controversial transaction not of its own volition but due to the actions of some of
its employees. Considering that moral damages must be understood to be in concept of grants, not punitive or corrective
in nature, We resolve to reduce the award of moral damages to P50,000.00.29
WHEREFORE, the appealed Amended Decision is AFFIRMED with the MODIFICATION that the award for moral
damages is reduced to P50,000.00, and that this is without prejudice to whatever civil, criminal, or administrative action
PNB might take against PEMSLA, MPC, and the employees involved.
SO ORDERED.
RUBEN T. REYES
Associate Justice
WE CONCUR:

34. G.R. No. 157943 September 4, 2013
PEOPLE OF THE PHILIPPINES, PLAINTIFF-APPELLEE,

vs.
GILBERT REYES WAGAS, ACCUSED-APPELLANT.
DECISION
BERSAMIN, J.:
The Bill of Rights guarantees the right of an accused to be presumed innocent until the contrary is proved. In order to
overcome the presumption of innocence, the Prosecution is required to adduce against him nothing less than proof
beyond reasonable doubt. Such proof is not only in relation to the elements of the offense, but also in relation to the
identity of the offender. If the Prosecution fails to discharge its heavy burden, then it is not only the right of the accused to
be freed, it becomes the Courts constitutional duty to acquit him.
The Case
Gilbert R. Wagas appeals his conviction for estafa under the decision rendered on July 11, 2002 by the Regional Trial
Court, Branch 58, in Cebu City (RTC), meting on him the indeterminate penalty of 12 years of prision mayor, as minimum,
to 30 years of reclusion perpetua, as maximum.
Antecedents
Wagas was charged with estafa under the information that reads:
That on or about the 30th day of April, 1997, and for sometime prior and subsequent thereto, in the City of Cebu,
Philippines, and within the jurisdiction of this Honorable Court, the said accused, with deliberate intent, with intent to gain
and by means of false pretenses or fraudulent acts executed prior to or simultaneously with the commission of the fraud,
to wit: knowing that he did not have sufficient funds deposited with the Bank of Philippine Islands, and without informing
Alberto Ligaray of that circumstance, with intent to defraud the latter, did then and there issue Bank of the Philippine
Islands Check No. 0011003, dated May 08, 1997 in the amount of P200,000.00, which check was issued in payment of an
obligation, but which check when presented for encashment with the bank, was dishonored for the reason "drawn against
insufficient funds" and inspite of notice and several demands made upon said accused to make good said check or
replace the same with cash, he had failed and refused and up to the present time still fails and refuses to do so, to the
damage and prejudice of Alberto Ligaray in the amount aforestated.
CONTRARY TO LAW.1
After Wagas entered a plea of not guilty,2 the pre-trial was held, during which the Defense admitted that the check alleged
in the information had been dishonored due to insufficient funds. 3 On its part, the Prosecution made no admission.4
At the trial, the Prosecution presented complainant Alberto Ligaray as its lone witness. Ligaray testified that on April 30,
1997, Wagas placed an order for 200 bags of rice over the telephone; that he and his wife would not agree at first to the
proposed payment of the order by postdated check, but because of Wagas assurance that he would not disappoint them
and that he had the means to pay them because he had a lending business and money in the bank, they relented and
accepted the order; that he released the goods to Wagas on April 30, 1997 and at the same time received Bank of the
Philippine Islands (BPI) Check No. 0011003 for P200,000.00 payable to cash and postdated May 8, 1997; that he later
deposited the check with Solid Bank, his depository bank, but the check was dishonored due to insufficiency of
funds;5 that he called Wagas about the matter, and the latter told him that he would pay upon his return to Cebu; and that
despite repeated demands, Wagas did not pay him.6

On cross-examination, Ligaray admitted that he did not personally meet Wagas because they transacted through
telephone only; that he released the 200 bags of rice directly to Robert Caada, the brother-in-law of Wagas, who signed
the delivery receipt upon receiving the rice.7
After Ligaray testified, the Prosecution formally offered the following: (a) BPI Check No. 0011003 in the amount
of P200,000.00 payable to "cash;" (b) the return slip dated May 13, 1997 issued by Solid Bank; (c) Ligarays affidavit; and
(d) the delivery receipt signed by Caada. After the RTC admitted the exhibits, the Prosecution then rested its case. 8
In his defense, Wagas himself testified. He admitted having issued BPI Check No. 0011003 to Caada, his brother-in-law,
not to Ligaray. He denied having any telephone conversation or any dealings with Ligaray. He explained that the check
was intended as payment for a portion of Caadas property that he wanted to buy, but when the sale did not push
through, he did not anymore fund the check.9
On cross-examination, the Prosecution confronted Wagas with a letter dated July 3, 1997 apparently signed by him and
addressed to Ligarays counsel, wherein he admitted owing Ligaray P200,000.00 for goods received, to wit:
This is to acknowledge receipt of your letter dated June 23, 1997 which is self-explanatory. It is worthy also to discuss with
you the environmental facts of the case for your consideration, to wit:
It is true that I obtained goods from your client worth P200,000.00 and I promised to settle the same last May 10, 1997,
but to no avail. On this point, let me inform you that I sold my real property to a buyer in Manila, and promised to pay the
consideration on the same date as I promised with your client. Unfortunately, said buyer likewise failed to make good with
such obligation. Hence, I failed to fulfill my promise resultant thereof. (sic)
Again, I made another promise to settle said obligation on or before June 15, 1997, but still to no avail attributable to the
same reason as aforementioned. (sic)
To arrest this problem, we decided to source some funds using the subject property as collateral. This other means is
resorted to for the purpose of settling the herein obligation. And as to its status, said funds will be rele[a]sed within thirty
(30) days from today.
In view of the foregoing, it is my sincere request and promise to settle said obligation on or before August 15, 1997.
Lastly, I would like to manifest that it is not my intention to shy away from any financial obligation.
xxxx
Respectfully yours,
(SGD.)
GILBERT R. WAGAS10
Wagas admitted the letter, but insisted that it was Caada who had transacted with Ligaray, and that he had signed the
letter only because his sister and her husband (Caada) had begged him to assume the responsibility.11 On redirect
examination, Wagas declared that Caada, a seafarer, was then out of the country; that he signed the letter only to
accommodate the pleas of his sister and Caada, and to avoid jeopardizing Caadas application for overseas
employment.12 The Prosecution subsequently offered and the RTC admitted the letter as rebuttal evidence. 13
Decision of the RTC


As stated, the RTC convicted Wagas of estafa on July 11, 2002, viz:
WHEREFORE, premises considered, the Court finds the accused GUILTY beyond reasonable doubt as charged and he is
hereby sentenced as follows:
To suffer an indeterminate penalty of from twelve (12) years of pris[i]on mayor, as minimum, to thirty (30) years of
reclusion perpetua as maximum;
To indemnify the complainant, Albert[o] Ligaray in the sum of P200,000.00;
To pay said complainant the sum of P30,000.00 by way of attorneys fees; and the costs of suit.
SO ORDERED.14
The RTC held that the Prosecution had proved beyond reasonable doubt all the elements constituting the crime of estafa,
namely: (a) that Wagas issued the postdated check as payment for an obligation contracted at the time the check was
issued; (b) that he failed to deposit an amount sufficient to cover the check despite having been informed that the check
had been dishonored; and (c) that Ligaray released the goods upon receipt of the postdated check and upon Wagas
assurance that the check would be funded on its date.
Wagas filed a motion for new trial and/or reconsideration, 15 arguing that the Prosecution did not establish that it was he
who had transacted with Ligaray and who had negotiated the check to the latter; that the records showed that Ligaray did
not meet him at any time; and that Ligarays testimony on their alleged telephone conversation was not reliable because it
was not shown that Ligaray had been familiar with his voice. Wagas also sought the reopening of the case based on
newly discovered evidence, specifically: (a) the testimony of Caada who could not testify during the trial because he was
then out of the country, and (b) Ligarays testimony given against Wagas in another criminal case for violation of Batas
Pambansa Blg. 22.
On October 21, 2002, the RTC denied the motion for new trial and/or reconsideration, opining that the evidence Wagas
desired to present at a new trial did not qualify as newly discovered, and that there was no compelling ground to reverse
its decision.16
Wagas appealed directly to this Court by notice of appeal. 17
Prior to the elevation of the records to the Court, Wagas filed a petition for admission to bail pending appeal. The RTC
granted the petition and fixed Wagas bond at P40,000.00.18 Wagas then posted bail for his provisional liberty pending
appeal.19
The resolution of this appeal was delayed by incidents bearing on the grant of Wagas application for bail. On November
17, 2003, the Court required the RTC Judge to explain why Wagas was out on bail. 20 On January 15, 2004, the RTC
Judge submitted to the Court a so-called manifestation and compliance which the Court referred to the Office of the Court
Administrator (OCA) for evaluation, report, and recommendation. 21 On July 5, 2005, the Court, upon the OCAs
recommendation, directed the filing of an administrative complaint for simple ignorance of the law against the RTC
Judge.22 On September 12, 2006, the Court directed the OCA to comply with its July 5, 2005 directive, and to cause the
filing of the administrative complaint against the RTC Judge. The Court also directed Wagas to explain why his bail should
not be cancelled for having been erroneously granted. 23 Finally, in its memorandum dated September 27, 2006, the OCA
manifested to the Court that it had meanwhile filed the administrative complaint against the RTC Judge. 24
Issues

In this appeal, Wagas insists that he and Ligaray were neither friends nor personally known to one other; that it was highly
incredible that Ligaray, a businessman, would have entered into a transaction with him involving a huge amount of money
only over the telephone; that on the contrary, the evidence pointed to Caada as the person with whom Ligaray had
transacted, considering that the delivery receipt, which had been signed by Caada, indicated that the goods had been
"Ordered by ROBERT CAADA," that the goods had been received by Caada in good order and condition, and that
there was no showing that Caada had been acting on behalf of Wagas; that he had issued the check to Caada upon a
different transaction; that Caada had negotiated the check to Ligaray; and that the element of deceit had not been
established because it had not been proved with certainty that it was him who had transacted with Ligaray over the
telephone.
The circumstances beg the question: did the Prosecution establish beyond reasonable doubt the existence of all the
elements of the crime of estafa as charged, as well as the identity of the perpetrator of the crime?
Ruling
The appeal is meritorious.
Article 315, paragraph 2(d) of the Revised Penal Code, as amended, provides:
Article 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned hereinbelow
shall be punished by:
xxxx
2. By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneously with the
commission of the fraud:
xxxx
(d) By postdating a check, or issuing a check in payment of an obligation when the offender had no funds in the bank, or
his funds deposited therein were not sufficient to cover the amount of the check. The failure of the drawer of the check to
deposit the amount necessary to cover his check within three (3) days from receipt of notice from the bank and/or the
payee or holder that said check has been dishonored for lack or insufficiency of funds shall be prima facie evidence of
deceit constituting false pretense or fraudulent act.
In order to constitute estafa under this statutory provision, the act of postdating or issuing a check in payment of an
obligation must be the efficient cause of the defraudation. This means that the offender must be able to obtain money or
property from the offended party by reason of the issuance of the check, whether dated or postdated. In other words, the
Prosecution must show that the person to whom the check was delivered would not have parted with his money or
property were it not for the issuance of the check by the offender.25
The essential elements of the crime charged are that: (a) a check is postdated or issued in payment of an obligation
contracted at the time the check is issued; (b) lack or insufficiency of funds to cover the check; and (c) damage to the
payee thereof.26 It is the criminal fraud or deceit in the issuance of a check that is punishable, not the non-payment of a
debt.27 Prima facie evidence of deceit exists by law upon proof that the drawer of the check failed to deposit the amount
necessary to cover his check within three days from receipt of the notice of dishonor.
The Prosecution established that Ligaray had released the goods to Caada because of the postdated check the latter
had given to him; and that the check was dishonored when presented for payment because of the insufficiency of funds.

In every criminal prosecution, however, the identity of the offender, like the crime itself, must be established by proof
beyond reasonable doubt.28 In that regard, the Prosecution did not establish beyond reasonable doubt that it was Wagas
who had defrauded Ligaray by issuing the check.
Firstly, Ligaray expressly admitted that he did not personally meet the person with whom he was transacting over the
telephone, thus:
Q:
On April 30, 1997, do you remember having a transaction with the accused in this case?
A:
Yes, sir. He purchased two hundred bags of rice from me.
Q:
How did this purchase of rice transaction started? (sic)
A:
He talked with me over the phone and told me that he would like to purchase two hundred bags of rice and he will just
issue a check.29
Even after the dishonor of the check, Ligaray did not personally see and meet whoever he had dealt with and to whom he
had made the demand for payment, and that he had talked with him only over the telephone, to wit:
Q:
After the check was (sic) bounced, what did you do next?
A:
I made a demand on them.
Q:
How did you make a demand?
A:
I called him over the phone.
Q:
Who is that "him" that you are referring to?
A:
Gilbert Wagas.30

Secondly, the check delivered to Ligaray was made payable to cash. Under the Negotiable Instruments Law, this type of
check was payable to the bearer and could be negotiated by mere delivery without the need of an indorsement. 31 This
rendered it highly probable that Wagas had issued the check not to Ligaray, but to somebody else like Caada, his
brother-in-law, who then negotiated it to Ligaray.1wphi1 Relevantly, Ligaray confirmed that he did not himself see or meet
Wagas at the time of the transaction and thereafter, and expressly stated that the person who signed for and received the
stocks of rice was Caada.
It bears stressing that the accused, to be guilty of estafa as charged, must have used the check in order to defraud the
complainant. What the law punishes is the fraud or deceit, not the mere issuance of the worthless check. Wagas could not
be held guilty of estafa simply because he had issued the check used to defraud Ligaray. The proof of guilt must still
clearly show that it had been Wagas as the drawer who had defrauded Ligaray by means of the check.
Thirdly, Ligaray admitted that it was Caada who received the rice from him and who delivered the check to him.
Considering that the records are bereft of any showing that Caada was then acting on behalf of Wagas, the RTC had no
factual and legal bases to conclude and find that Caada had been acting for Wagas. This lack of factual and legal bases
for the RTC to infer so obtained despite Wagas being Caadas brother-in-law.
Finally, Ligarays declaration that it was Wagas who had transacted with him over the telephone was not reliable because
he did not explain how he determined that the person with whom he had the telephone conversation was really Wagas
whom he had not yet met or known before then. We deem it essential for purposes of reliability and trustworthiness that a
telephone conversation like that one Ligaray supposedly had with the buyer of rice to be first authenticated before it could
be received in evidence. Among others, the person with whom the witness conversed by telephone should be first
satisfactorily identified by voice recognition or any other means. 32 Without the authentication, incriminating another person
just by adverting to the telephone conversation with him would be all too easy. In this respect, an identification based on
familiarity with the voice of the caller, or because of clearly recognizable peculiarities of the caller would have
sufficed.33 The identity of the caller could also be established by the callers self-identification, coupled with additional
evidence, like the context and timing of the telephone call, the contents of the statement challenged, internal patterns, and
other distinctive characteristics, and disclosure of knowledge of facts known peculiarly to the caller. 34
Verily, it is only fair that the caller be reliably identified first before a telephone communication is accorded probative
weight. The identity of the caller may be established by direct or circumstantial evidence. According to one ruling of the
Kansas Supreme Court:
Communications by telephone are admissible in evidence where they are relevant to the fact or facts in issue, and
admissibility is governed by the same rules of evidence concerning face-to-face conversations except the party against
whom the conversations are sought to be used must ordinarily be identified. It is not necessary that the witness be able, at
the time of the conversation, to identify the person with whom the conversation was had, provided subsequent
identification is proved by direct or circumstantial evidence somewhere in the development of the case. The mere
statement of his identity by the party calling is not in itself sufficient proof of such identity, in the absence of corroborating
circumstances so as to render the conversation admissible. However, circumstances preceding or following the
conversation may serve to sufficiently identify the caller. The completeness of the identification goes to the weight of the
evidence rather than its admissibility, and the responsibility lies in the first instance with the district court to determine
within its sound discretion whether the threshold of admissibility has been met. 35 (Bold emphasis supplied)
Yet, the Prosecution did not tender any plausible explanation or offer any proof to definitely establish that it had been
Wagas whom Ligaray had conversed with on the telephone. The Prosecution did not show through Ligaray during the trial
as to how he had determined that his caller was Wagas. All that the Prosecution sought to elicit from him was whether he
had known and why he had known Wagas, and he answered as follows:
Q:

Do you know the accused in this case?
A:
Yes, sir.
Q:
If he is present inside the courtroom []
A:
No, sir. He is not around.
Q:
Why do you know him?
A:
I know him as a resident of Compostela because he is an ex-mayor of Compostela. 36
During cross-examination, Ligaray was allowed another opportunity to show how he had determined that his caller was
Wagas, but he still failed to provide a satisfactory showing, to wit:
Q:
Mr. Witness, you mentioned that you and the accused entered into [a] transaction of rice selling, particularly with these
200 sacks of rice subject of this case, through telephone conversation?
A:
Yes, sir.
Q:
But you cannot really ascertain that it was the accused whom you are talking with?
A:
I know it was him because I know him.
Q:
Am I right to say [that] that was the first time that you had a transaction with the accused through telephone conversation,
and as a consequence of that alleged conversation with the accused through telephone he issued a check in your favor?
A:
No. Before that call I had a talk[ ] with the accused.


Q:
But still through the telephone?
A:
Yes, sir.
Q:
There was no instant (sic) that the accused went to see you personally regarding the 200 bags rice transaction?
A:
No. It was through telephone only.
Q:
In fact[,] you did not cause the delivery of these 200 bags of rice through the accused himself?
A:
Yes. It was through Robert.
Q:
So, after that phone call[,] you deliver[ed] th[ose] 200 sacks of rice through somebody other than the accused?
A:
Yes, sir.37
Ligarays statement that he could tell that it was Wagas who had ordered the rice because he "know[s]" him was still
vague and unreliable for not assuring the certainty of the identification, and should not support a finding of Ligarays
familiarity with Wagas as the caller by his voice. It was evident from Ligarays answers that Wagas was not even an
acquaintance of Ligarays prior to the transaction. Thus, the RTCs conclusion that Ligaray had transacted with Wagas
had no factual basis. Without that factual basis, the RTC was speculating on a matter as decisive as the identification of
the buyer to be Wagas.
The letter of Wagas did not competently establish that he was the person who had conversed with Ligaray by telephone to
place the order for the rice. The letter was admitted exclusively as the States rebuttal evidence to controvert or impeach
the denial of Wagas of entering into any transaction with Ligaray on the rice; hence, it could be considered and
appreciated only for that purpose. Under the law of evidence, the court shall consider evidence solely for the purpose for
which it is offered,38 not for any other purpose.39 Fairness to the adverse party demands such exclusivity. Moreover, the
high plausibility of the explanation of Wagas that he had signed the letter only because his sister and her husband had
pleaded with him to do so could not be taken for granted.
It is a fundamental rule in criminal procedure that the State carries the onus probandi in establishing the guilt of the
accused beyond a reasonable doubt, as a consequence of the tenet ei incumbit probation, qui dicit, non qui negat, which
means that he who asserts, not he who denies, must prove, 40 and as a means of respecting the presumption of innocence

in favor of the man or woman on the dock for a crime. Accordingly, the State has the burden of proof to show: (1) the
correct identification of the author of a crime, and (2) the actuality of the commission of the offense with the participation of
the accused. All these facts must be proved by the State beyond reasonable doubt on the strength of its evidence and
without solace from the weakness of the defense. That the defense the accused puts up may be weak is inconsequential
if, in the first place, the State has failed to discharge the onus of his identity and culpability. The presumption of innocence
dictates that it is for the Prosecution to demonstrate the guilt and not for the accused to establish innocence. 41 Indeed, the
accused, being presumed innocent, carries no burden of proof on his or her shoulders. For this reason, the first duty of the
Prosecution is not to prove the crime but to prove the identity of the criminal. For even if the commission of the crime can
be established, without competent proof of the identity of the accused beyond reasonable doubt, there can be no
conviction.42
There is no question that an identification that does not preclude a reasonable possibility of mistake cannot be accorded
any evidentiary force.43 Thus, considering that the circumstances of the identification of Wagas as the person who
transacted on the rice did not preclude a reasonable possibility of mistake, the proof of guilt did not measure up to the
standard of proof beyond reasonable doubt demanded in criminal cases. Perforce, the accuseds constitutional right of
presumption of innocence until the contrary is proved is not overcome, and he is entitled to an acquittal, 44 even though his
innocence may be doubted.45
Nevertheless, an accused, though acquitted of estafa, may still be held civilly liable where the preponderance of the
established facts so warrants.46 Wagas as the admitted drawer of the check was legally liable to pay the amount of it to
Ligaray, a holder in due course.47 Consequently, we pronounce and hold him fully liable to pay the amount of the
dishonored check, plus legal interest of 6% per annum from the finality of this decision.
WHEREFORE, the Court REVERSES and SETS ASIDE the decision rendered on July 11, 2002 by the Regional Trial
Court, Branch 58, in Cebu City; and ACQUITS Gilbert R. Wagas of the crime of estafa on the ground of reasonable doubt,
but ORDERS him to pay Alberto Ligaray the amount of P200,000.00 as actual damages, plus interest of 6% per annum
from the finality of this decision.
No pronouncement on costs of suit.
SO ORDERED.

35. THE SAME WITH CASE #33 (PNB VS SPS RODRIGUEZ)

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 97753 August 10, 1992
CALTEX (PHILIPPINES), INC., petitioner,

vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofilea & Guingona for private.
REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by respondent
court on March 8, 1991 in CA-G.R. CV No. 23615 1 affirming with modifications, the earlier decision of the Regional
Trial Court of Manila, Branch XLII, 2 which dismissed the complaint filed therein by herein petitioner against respondent
bank.
The undisputed background of this case, as found by the court a quo and adopted by respondent court, appears of
record:
1. On various dates, defendant, a commercial banking institution, through its Sucat Branch issued
280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz who deposited with herein
defendant the aggregate amount of P1,120,000.00, as follows: (Joint Partial Stipulation of Facts and
Statement of Issues, Original Records, p. 207; Defendant's Exhibits 1 to 280);
CTD CTD
Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000

26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000

Total 280 P1,120,000
===== ========
2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in connection with
his purchased of fuel products from the latter (Original Record, p. 208).
3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch
Manger, that he lost all the certificates of time deposit in dispute. Mr. Tiangco advised said depositor
to execute and submit a notarized Affidavit of Loss, as required by defendant bank's procedure, if he
desired replacement of said lost CTDs (TSN, February 9, 1987, pp. 48-50).
4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank the required
Affidavit of Loss (Defendant's Exhibit 281). On the basis of said affidavit of loss, 280 replacement
CTDs were issued in favor of said depositor (Defendant's Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant bank in the
amount of Eight Hundred Seventy Five Thousand Pesos (P875,000.00). On the same date, said
depositor executed a notarized Deed of Assignment of Time Deposit (Exhibit 562) which stated,
among others, that he (de la Cruz) surrenders to defendant bank "full control of the indicated time
deposits from and after date" of the assignment and further authorizes said bank to pre-terminate,
set-off and "apply the said time deposits to the payment of whatever amount or amounts may be
due" on the loan upon its maturity (TSN, February 9, 1987, pp. 60-62).
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to
the defendant bank's Sucat branch and presented for verification the CTDs declared lost by Angel
dela Cruz alleging that the same were delivered to herein plaintiff "as security for purchases made
with Caltex Philippines, Inc." by said depositor (TSN, February 9, 1987, pp. 54-68).
7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from herein plaintiff
formally informing it of its possession of the CTDs in question and of its decision to pre-terminate the
same.
8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the former "a copy of
the document evidencing the guarantee agreement with Mr. Angel dela Cruz" as well as "the details
of Mr. Angel dela Cruz" obligation against which plaintiff proposed to apply the time deposits
(Defendant's Exhibit 564).
9. No copy of the requested documents was furnished herein defendant.
10. Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of the value of
the CTDs in a letter dated February 7, 1983 (Defendant's Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and fell due and on
August 5, 1983, the latter set-off and applied the time deposits in question to the payment of the
matured loan (TSN, February 9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant complaint, praying that defendant bank be
ordered to pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plus

accrued interest and compounded interest therein at 16% per annum, moral and exemplary
damages as well as attorney's fees.
After trial, the court a quo rendered its decision dismissing the instant complaint. 3
On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint, hence this
petition wherein petitioner faults respondent court in ruling (1) that the subject certificates of deposit are non-
negotiable despite being clearly negotiable instruments; (2) that petitioner did not become a holder in due course of
the said certificates of deposit; and (3) in disregarding the pertinent provisions of the Code of Commerce relating to
lost instruments payable to bearer. 4
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to provide a better understanding of the issues
involved in this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS:
FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 & 00
CTS Pesos, Philippine Currency, repayable to said depositor 731 days. after date,
upon presentation and surrender of this certificate, with interest at the rate
of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)
AUTHORIZED SIGNATURES 5
Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing as follows:
. . . While it may be true that the word "bearer" appears rather boldly in the CTDs issued, it is
important to note that after the word "BEARER" stamped on the space provided supposedly for the
name of the depositor, the words "has deposited" a certain amount follows. The document further
provides that the amount deposited shall be "repayable to said depositor" on the period indicated.
Therefore, the text of the instrument(s) themselves manifest with clarity that they are payable, not to
whoever purports to be the "bearer" but only to the specified person indicated therein, the depositor.
In effect, the appellee bank acknowledges its depositor Angel dela Cruz as the person who made the
deposit and further engages itself to pay said depositor the amount indicated thereon at the
stipulated date. 6

We disagree with these findings and conclusions, and hereby hold that the CTDs in question are negotiable
instruments. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the
requisites for an instrument to become negotiable, viz:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.
The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties' bone of contention
is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's Branch
Manager way back in 1982, testified in open court that the depositor reffered to in the CTDs is no other than Mr.
Angel de la Cruz.
xxx xxx xxx
Atty. Calida:
q In other words Mr. Witness, you are saying that per books of the bank, the
depositor referred (sic) in these certificates states that it was Angel dela Cruz?
witness:
a Yes, your Honor, and we have the record to show that Angel dela Cruz was the one
who cause (sic) the amount.
Atty. Calida:
q And no other person or entity or company, Mr. Witness?
witness:
a None, your Honor. 7
xxx xxx xxx
Atty. Calida:
q Mr. Witness, who is the depositor identified in all of these certificates of time
deposit insofar as the bank is concerned?
witness:

a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is determined from the
writing, that is, from the face of the instrument itself. 9 In the construction of a bill or note, the intention of the parties is to
control, if it can be legally ascertained. 10 While the writing may be read in the light of surrounding circumstances in order
to more perfectly understand the intent and meaning of the parties, yet as they have constituted the writing to be the only
outward and visible expression of their meaning, no other words are to be added to it or substituted in its stead. The duty
of the court in such case is to ascertain, not what the parties may have secretly intended as contradistinguished from what
their words express, but what is the meaning of the words they have used. What the parties meant must be determined by
what they said. 11
Contrary to what respondent court held, the CTDs are negotiable instruments. The documents provide that the
amounts deposited shall be repayable to the depositor. And who, according to the document, is the depositor? It is
the "bearer." The documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are
repayable specifically to him. Rather, the amounts are to be repayable to the bearer of the documents or, for that
matter, whosoever may be the bearer at the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could have with facility
so expressed that fact in clear and categorical terms in the documents, instead of having the word "BEARER"
stamped on the space provided for the name of the depositor in each CTD. On the wordings of the documents,
therefore, the amounts deposited are repayable to whoever may be the bearer thereof. Thus, petitioner's aforesaid
witness merely declared that Angel de la Cruz is the depositor "insofar as the bank is concerned," but obviously
other parties not privy to the transaction between them would not be in a position to know that the depositor is not
the bearer stated in the CTDs. Hence, the situation would require any party dealing with the CTDs to go behind the
plain import of what is written thereon to unravel the agreement of the parties thereto through facts aliunde. This
need for resort to extrinsic evidence is what is sought to be avoided by the Negotiable Instruments Law and calls for
the application of the elementary rule that the interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in the negative. The
records reveal that Angel de la Cruz, whom petitioner chose not to implead in this suit for reasons of its own,
delivered the CTDs amounting to P1,120,000.00 to petitioner without informing respondent bank thereof at any time.
Unfortunately for petitioner, although the CTDs are bearer instruments, a valid negotiation thereof for the true
purpose and agreement between it and De la Cruz, as ultimately ascertained, requires both delivery and
indorsement. For, although petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a security
for De la Cruz' purchases of its fuel products. Any doubt as to whether the CTDs were delivered as payment for the
fuel products or as a security has been dissipated and resolved in favor of the latter by petitioner's own authorized
and responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr., Caltex Credit
Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his
purchases of fuel products" (Emphasis ours.) 13 This admission is conclusive upon petitioner, its protestations
notwithstanding. Under the doctrine of estoppel, an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon. 14 A party may not go back on his own
acts and representations to the prejudice of the other party who relied upon them. 15 In the law of evidence, whenever a
party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing
true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted
to falsify it. 16

If it were true that the CTDs were delivered as payment and not as security, petitioner's credit manager could have
easily said so, instead of using the words "to guarantee" in the letter aforequoted. Besides, when respondent bank,
as defendant in the court below, moved for a bill of particularity therein 17 praying, among others, that petitioner, as
plaintiff, be required to aver with sufficient definiteness or particularity (a) the due date or dates of payment of the alleged
indebtedness of Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that the CTDs were
delivered to it by De la Cruz as payment of the latter's alleged indebtedness to it, plaintiff corporation opposed the
motion. 18 Had it produced the receipt prayed for, it could have proved, if such truly was the fact, that the CTDs were
delivered as payment and not as security. Having opposed the motion, petitioner now labors under the presumption that
evidence willfully suppressed would be adverse if produced. 19
Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs. Philippine National
Bank, et al. 20 is apropos:
. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote therefrom:
The character of the transaction between the parties is to be determined by their

intention, regardless of what language was used or what the form of the transfer was.
If it was intended to secure the payment of money, it must be construed as a pledge;
but if there was some other intention, it is not a pledge. However, even though a
transfer, if regarded by itself, appears to have been absolute, its object and character
might still be qualified and explained by contemporaneous writing declaring it to have
been a deposit of the property as collateral security. It has been said that a transfer
of property by the debtor to a creditor, even if sufficient on its face to make an
absolute conveyance, should be treated as a pledge if the debt continues in
inexistence and is not discharged by the transfer, and that accordingly the use of the
terms ordinarily importing conveyance of absolute ownership will not be given that
effect in such a transaction if they are also commonly used in pledges and
mortgages and therefore do not unqualifiedly indicate a transfer of absolute
ownership, in the absence of clear and unambiguous language or other
circumstances excluding an intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable Instruments Law,
an instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the
transferee the holder thereof, 21 and a holder may be the payee or indorsee of a bill or note, who is in possession of it, or
the bearer thereof. 22 In the present case, however, there was no negotiation in the sense of a transfer of the legal title to
the CTDs in favor of petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have
sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz (and we even disregard the fact
that the amount involved was not disclosed) could at the most constitute petitioner only as a holder for value by reason of
his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument since,
necessarily, the terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal
obligation, must be contractually provided for.
The pertinent law on this point is that where the holder has a lien on the instrument arising from contract, he is
deemed a holder for value to the extent of his lien. 23 As such holder of collateral security, he would be a pledgee but
the requirements therefor and the effects thereof, not being provided for by the Negotiable Instruments Law, shall be
governed by the Civil Code provisions on pledge of incorporeal rights, 24 which inceptively provide:

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The
instrument proving the right pledged shall be delivered to the creditor, and if negotiable, must be
indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged
and the date of the pledge do not appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of respondent court
quoted at the start of this opinion show that petitioner failed to produce any document evidencing any contract of
pledge or guarantee agreement between it and Angel de la Cruz. 25 Consequently, the mere delivery of the CTDs did
not legally vest in petitioner any right effective against and binding upon respondent bank. The requirement under Article
2096 aforementioned is not a mere rule of adjective law prescribing the mode whereby proof may be made of the date of
a pledge contract, but a rule of substantive law prescribing a condition without which the execution of a pledge contract
cannot affect third persons adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was
embodied in a public instrument. 27 With regard to this other mode of transfer, the Civil Code specifically declares:
Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons,
unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in
case the assignment involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as purchaser,
assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent of its lien nor the execution
of any public instrument which could affect or bind private respondent. Necessarily, therefore, as between petitioner
and respondent bank, the latter has definitely the better right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the question of whether or not private respondent
observed the requirements of the law in the case of lost negotiable instruments and the issuance of replacement
certificates therefor, on the ground that petitioner failed to raised that issue in the lower court. 28
On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private respondent was
not included in the stipulation of the parties and in the statement of issues submitted by them to the trial court. 29 The
issues agreed upon by them for resolution in this case are:
1. Whether or not the CTDs as worded are negotiable instruments.
2. Whether or not defendant could legally apply the amount covered by the CTDs against the
depositor's loan by virtue of the assignment (Annex "C").
3. Whether or not there was legal compensation or set off involving the amount covered by the CTDs
and the depositor's outstanding account with defendant, if any.
4. Whether or not plaintiff could compel defendant to preterminate the CTDs before the maturity date
provided therein.
5. Whether or not plaintiff is entitled to the proceeds of the CTDs.


6. Whether or not the parties can recover damages, attorney's fees and litigation expenses from
each other.
As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the foregoing
enumeration does not include the issue of negligence on the part of respondent bank. An issue raised for the first
time on appeal and not raised timely in the proceedings in the lower court is barred by estoppel. 30 Questions raised
on appeal must be within the issues framed by the parties and, consequently, issues not raised in the trial court cannot be
raised for the first time on appeal. 31
Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are properly
raised. Thus, to obviate the element of surprise, parties are expected to disclose at a pre-trial conference all issues
of law and fact which they intend to raise at the trial, except such as may involve privileged or impeaching matters.
The determination of issues at a pre-trial conference bars the consideration of other questions on appeal. 32
To accept petitioner's suggestion that respondent bank's supposed negligence may be considered encompassed by
the issues on its right to preterminate and receive the proceeds of the CTDs would be tantamount to saying that
petitioner could raise on appeal any issue. We agree with private respondent that the broad ultimate issue of
petitioner's entitlement to the proceeds of the questioned certificates can be premised on a multitude of other legal
reasons and causes of action, of which respondent bank's supposed negligence is only one. Hence, petitioner's
submission, if accepted, would render a pre-trial delimitation of issues a useless exercise. 33
Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner still cannot
have the odds in its favor. A close scrutiny of the provisions of the Code of Commerce laying down the rules to be
followed in case of lost instruments payable to bearer, which it invokes, will reveal that said provisions, even
assuming their applicability to the CTDs in the case at bar, are merely permissive and not mandatory. The very first
article cited by petitioner speaks for itself.
Art 548. The dispossessed owner, no matter for what cause it may be, may apply to the judge or
court of competent jurisdiction, asking that the principal, interest or dividends due or about to
become due, be not paid a third person, as well as in order to prevent the ownership of the
instrument that a duplicate be issued him. (Emphasis ours.)
xxx xxx xxx
The use of the word "may" in said provision shows that it is not mandatory but discretionary on the part of the
"dispossessed owner" to apply to the judge or court of competent jurisdiction for the issuance of a duplicate of the
lost instrument. Where the provision reads "may," this word shows that it is not mandatory but discretional. 34 The
word "may" is usually permissive, not mandatory. 35 It is an auxiliary verb indicating liberty, opportunity, permission and
possibility. 36
Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code of Commerce, on which
petitioner seeks to anchor respondent bank's supposed negligence, merely established, on the one hand, a right of
recourse in favor of a dispossessed owner or holder of a bearer instrument so that he may obtain a duplicate of the same,
and, on the other, an option in favor of the party liable thereon who, for some valid ground, may elect to refuse to issue a
replacement of the instrument. Significantly, none of the provisions cited by petitioner categorically restricts or prohibits the
issuance a duplicate or replacement instrument sans compliance with the procedure outlined therein, and none
establishes a mandatory precedent requirement therefor.

WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealed decision is
hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Padilla and Nocon, JJ., concur.


37.
G.R. No. 76788 January 22, 1990
JUANITA SALAS, petitioner,

vs.
HON. COURT OF APPEALS and FIRST FINANCE & LEASING CORPORATION, respondents.
Arsenio C. Villalon, Jr. for petitioner.
Labaguis, Loyola, Angara & Associates for private respondent.
FERNAN, C.J.:
Assailed in this petition for review on certiorari is the decision of the Court of Appeals in C.A.-G.R. CV No. 00757
entitled "Filinvest Finance & Leasing Corporation v. Salas", which modified the decision of the Regional Trial Court
of San Fernando, Pampanga in Civil Case No. 5915, a collection suit between the same parties.
Records disclose that on February 6, 1980, Juanita Salas (hereinafter referred to as petitioner) bought a motor
vehicle from the Violago Motor Sales Corporation (VMS for brevity) for P58,138.20 as evidenced by a promissory
note. This note was subsequently endorsed to Filinvest Finance & Leasing Corporation (hereinafter referred to as
private respondent) which financed the purchase.
Petitioner defaulted in her installments beginning May 21, 1980 allegedly due to a discrepancy in the engine and
chassis numbers of the vehicle delivered to her and those indicated in the sales invoice, certificate of registration
and deed of chattel mortgage, which fact she discovered when the vehicle figured in an accident on 9 May 1980.
This failure to pay prompted private respondent to initiate Civil Case No. 5915 for a sum of money against petitioner
before the Regional Trial Court of San Fernando, Pampanga.
In its decision dated September 10, 1982, the trial court held, thus:
WHEREFORE, and in view of all the foregoing, judgment is hereby rendered ordering the defendant
to pay the plaintiff the sum of P28,414.40 with interest thereon at the rate of 14% from October 2,
1980 until the said sum is fully paid; and the further amount of P1,000.00 as attorney's fees.
The counterclaim of defendant is dismissed.
With costs against defendant. 1
Both petitioner and private respondent appealed the aforesaid decision to the Court of Appeals.
Imputing fraud, bad faith and misrepresentation against VMS for having delivered a different vehicle to petitioner, the
latter prayed for a reversal of the trial court's decision so that she may be absolved from the obligation under the
contract.
On October 27, 1986, the Court of Appeals rendered its assailed decision, the pertinent portion of which is quoted
hereunder:

The allegations, statements, or admissions contained in a pleading are conclusive as against the
pleader. A party cannot subsequently take a position contradictory of, or inconsistent with his
pleadings (Cunanan vs. Amparo, 80 Phil. 227). Admissions made by the parties in the pleadings, or
in the course of the trial or other proceedings, do not require proof and cannot be contradicted
unless previously shown to have been made through palpable mistake (Sec. 2, Rule 129, Revised
Rules of Court; Sta. Ana vs. Maliwat, L-23023, Aug. 31, 1968, 24 SCRA 1018).
When an action or defense is founded upon a written instrument, copied in or attached to the
corresponding pleading as provided in the preceding section, the genuineness and due execution of
the instrument shall be deemed admitted unless the adverse party, under oath, specifically denied
them, and sets forth what he claims to be the facts (Sec. 8, Rule 8, Revised Rules of Court;
Hibbered vs. Rohde and McMillian, 32 Phil. 476).
A perusal of the evidence shows that the amount of P58,138.20 stated in the promissory note is the
amount assumed by the plaintiff in financing the purchase of defendant's motor vehicle from the
Violago Motor Sales Corp., the monthly amortization of winch is Pl,614.95 for 36 months.
Considering that the defendant was able to pay twice (as admitted by the plaintiff, defendant's
account became delinquent only beginning May, 1980) or in the total sum of P3,229.90, she is
therefore liable to pay the remaining balance of P54,908.30 at l4% per annum from October 2, 1980
until full payment.
WHEREFORE, considering the foregoing, the appealed decision is hereby modified ordering the
defendant to pay the plaintiff the sum of P54,908.30 at 14% per annum from October 2, 1980 until
full payment. The decision is AFFIRMED in all other respects. With costs to defendant. 2
Petitioner's motion for reconsideration was denied; hence, the present recourse.
In the petition before us, petitioner assigns twelve (12) errors which focus on the alleged fraud, bad faith and
misrepresentation of Violago Motor Sales Corporation in the conduct of its business and which fraud, bad faith and
misrepresentation supposedly released petitioner from any liability to private respondent who should instead
proceed against VMS. 3
Petitioner argues that in the light of the provision of the law on sales by description 4 which she alleges is applicable
here, no contract ever existed between her and VMS and therefore none had been assigned in favor of private
respondent.
She contends that it is not necessary, as opined by the appellate court, to implead VMS as a party to the case
before it can be made to answer for damages because VMS was earlier sued by her for "breach of contract with
damages" before the Regional Trial Court of Olongapo City, Branch LXXII, docketed as Civil Case No. 2916-0. She
cites as authority the decision therein where the court originally ordered petitioner to pay the remaining balance of
the motor vehicle installments in the amount of P31,644.30 representing the difference between the agreed
consideration of P49,000.00 as shown in the sales invoice and petitioner's initial downpayment of P17,855.70
allegedly evidenced by a receipt. Said decision was however reversed later on, with the same court ordering
defendant VMS instead to return to petitioner the sum of P17,855.70. Parenthetically, said decision is still pending
consideration by the First Civil Case Division of the Court of Appeals, upon an appeal by VMS, docketed as AC-G.R.
No. 02922. 5
Private respondent in its comment, prays for the dismissal of the petition and counters that the issues raised and the
allegations adduced therein are a mere rehash of those presented and already passed upon in the court below, and

that the judgment in the "breach of contract" suit cannot be invoked as an authority as the same is still pending
determination in the appellate court.
We see no cogent reason to disturb the challenged decision.
The pivotal issue in this case is whether the promissory note in question is a negotiable instrument which will bar
completely all the available defenses of the petitioner against private respondent.
Petitioner's liability on the promissory note, the due execution and genuineness of which she never denied under
oath is, under the foregoing factual milieu, as inevitable as it is clearly established.
The records reveal that involved herein is not a simple case of assignment of credit as petitioner would have it
appear, where the assignee merely steps into the shoes of, is open to all defenses available against and can
enforce payment only to the same extent as, the assignor-vendor.
Recently, in the case of Consolidated Plywood Industries Inc. v. IFC Leasing and Acceptance Corp., 6 this Court had
the occasion to clearly distinguish between a negotiable and a non-negotiable instrument.
Among others, the instrument in order to be considered negotiable must contain the so-called "words of negotiability
i.e., must be payable to "order" or "bearer"". Under Section 8 of the Negotiable Instruments Law, there are only
two ways by which an instrument may be made payable to order. There must always be a specified person named
in the instrument and the bill or note is to be paid to the person designated in the instrument or to any person to
whom he has indorsed and delivered the same. Without the words "or order or "to the order of", the instrument is
payable only to the person designated therein and is therefore non-negotiable. Any subsequent purchaser thereof
will not enjoy the advantages of being a holder of a negotiable instrument, but will merely "step into the shoes" of the
person designated in the instrument and will thus be open to all defenses available against the latter. Such being the
situation in the above-cited case, it was held that therein private respondent is not a holder in due course but a mere
assignee against whom all defenses available to the assignor may be raised. 7
In the case at bar, however, the situation is different. Indubitably, the basis of private respondent's claim against
petitioner is a promissory note which bears all the earmarks of negotiability.
The pertinent portion of the note reads:
PROMISSORY NOTE
(MONTHLY)
P58,138.20
San Fernando, Pampanga, Philippines
Feb. 11, 1980
For value received, I/We jointly and severally, promise to pay Violago Motor Sales Corporation or
order, at its office in San Fernando, Pampanga, the sum of FIFTY EIGHT THOUSAND ONE
HUNDRED THIRTY EIGHT & 201/100 ONLY (P58,138.20) Philippine currency, which amount
includes interest at 14% per annum based on the diminishing balance, the said principal sum, to be
payable, without need of notice or demand, in installments of the amounts following and at the dates
hereinafter set forth, to wit: P1,614.95 monthly for "36" months due and payable on the 21st day of
each month starting March 21, 1980 thru and inclusive of February 21, 1983. P_________ monthly
for ______ months due and payable on the ______ day of each month starting _____198__ thru and

inclusive of _____, 198________ provided that interest at 14% per annum shall be added on each
unpaid installment from maturity hereof until fully paid.
xxx xxx xxx
Maker; Co-Maker:
(SIGNED) JUANITA SALAS _________________
Address:
____________________ ____________________
WITNESSES
SIGNED: ILLEGIBLE SIGNED: ILLEGIBLE

TAN # TAN #
PAY TO THE ORDER OF

FILINVEST FINANCE AND LEASING CORPORATION
VIOLAGO MOTOR SALES CORPORATION

BY: (SIGNED) GENEVEVA V. BALTAZAR
Cash Manager 8
A careful study of the questioned promissory note shows that it is a negotiable instrument, having complied with the
requisites under the law as follows: [a] it is in writing and signed by the maker Juanita Salas; [b] it contains an
unconditional promise to pay the amount of P58,138.20; [c] it is payable at a fixed or determinable future time which
is "P1,614.95 monthly for 36 months due and payable on the 21 st day of each month starting March 21, 1980 thru
and inclusive of Feb. 21, 1983;" [d] it is payable to Violago Motor Sales Corporation, or order and as such, [e] the
drawee is named or indicated with certainty. 9
It was negotiated by indorsement in writing on the instrument itself payable to the Order of Filinvest Finance and
Leasing Corporation 10 and it is an indorsement of the entire instrument. 11
Under the circumstances, there appears to be no question that Filinvest is a holder in due course, having taken the
instrument under the following conditions: [a] it is complete and regular upon its face; [b] it became the holder
thereof before it was overdue, and without notice that it had previously been dishonored; [c] it took the same in good
faith and for value; and [d] when it was negotiated to Filinvest, the latter had no notice of any infirmity in the
instrument or defect in the title of VMS Corporation. 12
Accordingly, respondent corporation holds the instrument free from any defect of title of prior parties, and free from
defenses available to prior parties among themselves, and may enforce payment of the instrument for the full
amount thereof. 13 This being so, petitioner cannot set up against respondent the defense of nullity of the contract of sale
between her and VMS.
Even assuming for the sake of argument that there is an iota of truth in petitioner's allegation that there was in fact
deception made upon her in that the vehicle she purchased was different from that actually delivered to her, this
matter cannot be passed upon in the case before us, where the VMS was never impleaded as a party.

Whatever issue is raised or claim presented against VMS must be resolved in the "breach of contract" case.
Hence, we reach a similar opinion as did respondent court when it held:
We can only extend our sympathies to the defendant (herein petitioner) in this unfortunate incident.
Indeed, there is nothing We can do as far as the Violago Motor Sales Corporation is concerned since
it is not a party in this case. To even discuss the issue as to whether or not the Violago Motor Sales
Corporation is liable in the transaction in question would amount, to denial of due process, hence,
improper and unconstitutional. She should have impleaded Violago Motor Sales. 14
IN VIEW OF THE FOREGOING, the assailed decision is hereby AFFIRMED. With costs against petitioner.
SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Corts, JJ., concur.


38.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 72593 April 30, 1987
CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and RODOLFO T. VERGARA, petitioners,
vs.
IFC LEASING AND ACCEPTANCE CORPORATION, respondent.
Carpio, Villaraza & Cruz Law Offices for petitioners.
Europa, Dacanay & Tolentino for respondent.
GUTIERREZ, JR., J.:
This is a petition for certiorari under Rule 45 of the Rules of Court which assails on questions of law a decision of the
Intermediate Appellate Court in AC-G.R. CV No. 68609 dated July 17, 1985, as well as its resolution dated October
17, 1985, denying the motion for reconsideration.
The antecedent facts culled from the petition are as follows:
The petitioner is a corporation engaged in the logging business. It had for its program of logging activities for the
year 1978 the opening of additional roads, and simultaneous logging operations along the route of said roads, in its
logging concession area at Baganga, Manay, and Caraga, Davao Oriental. For this purpose, it needed two (2)
additional units of tractors.
Cognizant of petitioner-corporation's need and purpose, Atlantic Gulf & Pacific Company of Manila, through its sister
company and marketing arm, Industrial Products Marketing (the "seller-assignor"), a corporation dealing in tractors
and other heavy equipment business, offered to sell to petitioner-corporation two (2) "Used" Allis Crawler Tractors,
one (1) an HDD-21-B and the other an HDD-16-B.
In order to ascertain the extent of work to which the tractors were to be exposed, (t.s.n., May 28, 1980, p. 44) and to
determine the capability of the "Used" tractors being offered, petitioner-corporation requested the seller-assignor to
inspect the job site. After conducting said inspection, the seller-assignor assured petitioner-corporation that the
"Used" Allis Crawler Tractors which were being offered were fit for the job, and gave the corresponding warranty of
ninety (90) days performance of the machines and availability of parts. (t.s.n., May 28, 1980, pp. 59-66).
With said assurance and warranty, and relying on the seller-assignor's skill and judgment, petitioner-corporation
through petitioners Wee and Vergara, president and vice- president, respectively, agreed to purchase on installment
said two (2) units of "Used" Allis Crawler Tractors. It also paid the down payment of Two Hundred Ten Thousand
Pesos (P210,000.00).

On April 5, 1978, the seller-assignor issued the sales invoice for the two 2) units of tractors (Exh. "3-A"). At the same
time, the deed of sale with chattel mortgage with promissory note was executed (Exh. "2").
Simultaneously with the execution of the deed of sale with chattel mortgage with promissory note, the seller-
assignor, by means of a deed of assignment (E exh. " 1 "), assigned its rights and interest in the chattel mortgage in
favor of the respondent.
Immediately thereafter, the seller-assignor delivered said two (2) units of "Used" tractors to the petitioner-
corporation's job site and as agreed, the seller-assignor stationed its own mechanics to supervise the operations of
the machines.
Barely fourteen (14) days had elapsed after their delivery when one of the tractors broke down and after another
nine (9) days, the other tractor likewise broke down (t.s.n., May 28, 1980, pp. 68-69).
On April 25, 1978, petitioner Rodolfo T. Vergara formally advised the seller-assignor of the fact that the tractors
broke down and requested for the seller-assignor's usual prompt attention under the warranty (E exh. " 5 ").
In response to the formal advice by petitioner Rodolfo T. Vergara, Exhibit "5," the seller-assignor sent to the job site
its mechanics to conduct the necessary repairs (Exhs. "6," "6-A," "6-B," 16 C," "16-C-1," "6-D," and "6-E"), but the
tractors did not come out to be what they should be after the repairs were undertaken because the units were no
longer serviceable (t. s. n., May 28, 1980, p. 78).
Because of the breaking down of the tractors, the road building and simultaneous logging operations of petitioner-
corporation were delayed and petitioner Vergara advised the seller-assignor that the payments of the installments
as listed in the promissory note would likewise be delayed until the seller-assignor completely fulfills its obligation
under its warranty (t.s.n, May 28, 1980, p. 79).
Since the tractors were no longer serviceable, on April 7, 1979, petitioner Wee asked the seller-assignor to pull out
the units and have them reconditioned, and thereafter to offer them for sale. The proceeds were to be given to the
respondent and the excess, if any, to be divided between the seller-assignor and petitioner-corporation which
offered to bear one-half (1/2) of the reconditioning cost (E exh. " 7 ").
No response to this letter, Exhibit "7," was received by the petitioner-corporation and despite several follow-up calls,
the seller-assignor did nothing with regard to the request, until the complaint in this case was filed by the respondent
against the petitioners, the corporation, Wee, and Vergara.
The complaint was filed by the respondent against the petitioners for the recovery of the principal sum of One Million
Ninety Three Thousand Seven Hundred Eighty Nine Pesos & 71/100 (P1,093,789.71), accrued interest of One
Hundred Fifty One Thousand Six Hundred Eighteen Pesos & 86/100 (P151,618.86) as of August 15, 1979, accruing
interest thereafter at the rate of twelve (12%) percent per annum, attorney's fees of Two Hundred Forty Nine
Thousand Eighty One Pesos & 71/100 (P249,081.7 1) and costs of suit.
The petitioners filed their amended answer praying for the dismissal of the complaint and asking the trial court to
order the respondent to pay the petitioners damages in an amount at the sound discretion of the court, Twenty
Thousand Pesos (P20,000.00) as and for attorney's fees, and Five Thousand Pesos (P5,000.00) for expenses of
litigation. The petitioners likewise prayed for such other and further relief as would be just under the premises.
In a decision dated April 20, 1981, the trial court rendered the following judgment:

WHEREFORE, judgment is hereby rendered:
1. ordering defendants to pay jointly and severally in their official and personal capacities the
principal sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED NINETY EIGHT
PESOS & 71/100 (P1,093,798.71) with accrued interest of ONE HUNDRED FIFTY ONE
THOUSAND SIX HUNDRED EIGHTEEN PESOS & 86/100 (P151,618.,86) as of August 15, 1979
and accruing interest thereafter at the rate of 12% per annum;
2. ordering defendants to pay jointly and severally attorney's fees equivalent to ten percent (10%) of
the principal and to pay the costs of the suit.
Defendants' counterclaim is disallowed. (pp. 45-46, Rollo)
On June 8, 1981, the trial court issued an order denying the motion for reconsideration filed by the petitioners.
Thus, the petitioners appealed to the Intermediate Appellate Court and assigned therein the following errors:
THAT THE LOWER COURT ERRED IN FINDING THAT THE SELLER ATLANTIC GULF AND PACIFIC COMPANY
OF MANILA DID NOT APPROVE DEFENDANTS-APPELLANTS CLAIM OF WARRANTY.
II
THAT THE LOWER COURT ERRED IN FINDING THAT PLAINTIFF- APPELLEE IS A HOLDER IN DUE COURSE
OF THE PROMISSORY NOTE AND SUED UNDER SAID NOTE AS HOLDER THEREOF IN DUE COURSE.
On July 17, 1985, the Intermediate Appellate Court issued the challenged decision affirming in toto the decision of
the trial court. The pertinent portions of the decision are as follows:
xxx xxx xxx
From the evidence presented by the parties on the issue of warranty, We are of the considered
opinion that aside from the fact that no provision of warranty appears or is provided in the Deed of
Sale of the tractors and even admitting that in a contract of sale unless a contrary intention appears,
there is an implied warranty, the defense of breach of warranty, if there is any, as in this case, does
not lie in favor of the appellants and against the plaintiff-appellee who is the assignee of the
promissory note and a holder of the same in due course. Warranty lies in this case only between
Industrial Products Marketing and Consolidated Plywood Industries, Inc. The plaintiff-appellant
herein upon application by appellant corporation granted financing for the purchase of the
questioned units of Fiat-Allis Crawler,Tractors.
xxx xxx xxx
Holding that breach of warranty if any, is not a defense available to appellants either to withdraw
from the contract and/or demand a proportionate reduction of the price with damages in either case
(Art. 1567, New Civil Code). We now come to the issue as to whether the plaintiff-appellee is a
holder in due course of the promissory note.

To begin with, it is beyond arguments that the plaintiff-appellee is a financing corporation engaged in
financing and receivable discounting extending credit facilities to consumers and industrial,
commercial or agricultural enterprises by discounting or factoring commercial papers or accounts
receivable duly authorized pursuant to R.A. 5980 otherwise known as the Financing Act.
A study of the questioned promissory note reveals that it is a negotiable instrument which was
discounted or sold to the IFC Leasing and Acceptance Corporation for P800,000.00 (Exh. "A")
considering the following. it is in writing and signed by the maker; it contains an unconditional
promise to pay a certain sum of money payable at a fixed or determinable future time; it is payable to
order (Sec. 1, NIL); the promissory note was negotiated when it was transferred and delivered by
IPM to the appellee and duly endorsed to the latter (Sec. 30, NIL); it was taken in the conditions that
the note was complete and regular upon its face before the same was overdue and without notice,
that it had been previously dishonored and that the note is in good faith and for value without notice
of any infirmity or defect in the title of IPM (Sec. 52, NIL); that IFC Leasing and Acceptance
Corporation held the instrument free from any defect of title of prior parties and free from defenses
available to prior parties among themselves and may enforce payment of the instrument for the full
amount thereof against all parties liable thereon (Sec. 57, NIL); the appellants engaged that they
would pay the note according to its tenor, and admit the existence of the payee IPM and its capacity
to endorse (Sec. 60, NIL).
In view of the essential elements found in the questioned promissory note, We opine that the same
is legally and conclusively enforceable against the defendants-appellants.
WHEREFORE, finding the decision appealed from according to law and evidence, We find the
appeal without merit and thus affirm the decision in toto. With costs against the appellants. (pp. 50-
55, Rollo)
The petitioners' motion for reconsideration of the decision of July 17, 1985 was denied by the Intermediate Appellate
Court in its resolution dated October 17, 1985, a copy of which was received by the petitioners on October 21, 1985.
Hence, this petition was filed on the following grounds:
I.
ON ITS FACE, THE PROMISSORY NOTE IS CLEARLY NOT A NEGOTIABLE INSTRUMENT AS DEFINED
UNDER THE LAW SINCE IT IS NEITHER PAYABLE TO ORDER NOR TO BEARER.
II
THE RESPONDENT IS NOT A HOLDER IN DUE COURSE: AT BEST, IT IS A MERE ASSIGNEE OF THE
SUBJECT PROMISSORY NOTE.
III.
SINCE THE INSTANT CASE INVOLVES A NON-NEGOTIABLE INSTRUMENT AND THE TRANSFER OF RIGHTS
WAS THROUGH A MERE ASSIGNMENT, THE PETITIONERS MAY RAISE AGAINST THE RESPONDENT ALL
DEFENSES THAT ARE AVAILABLE TO IT AS AGAINST THE SELLER- ASSIGNOR, INDUSTRIAL PRODUCTS
MARKETING.

IV.
THE PETITIONERS ARE NOT LIABLE FOR THE PAYMENT OF THE PROMISSORY NOTE BECAUSE:
A) THE SELLER-ASSIGNOR IS GUILTY OF BREACH OF WARRANTY UNDER THE LAW;
B) IF AT ALL, THE RESPONDENT MAY RECOVER ONLY FROM THE SELLER-ASSIGNOR OF THE
PROMISSORY NOTE.
V.
THE ASSIGNMENT OF THE CHATTEL MORTGAGE BY THE SELLER- ASSIGNOR IN FAVOR OF THE
RESPONDENT DOES NOT CHANGE THE NATURE OF THE TRANSACTION FROM BEING A SALE ON
INSTALLMENTS TO A PURE LOAN.
VI.
THE PROMISSORY NOTE CANNOT BE ADMITTED OR USED IN EVIDENCE IN ANY COURT BECAUSE THE
REQUISITE DOCUMENTARY STAMPS HAVE NOT BEEN AFFIXED THEREON OR CANCELLED.
The petitioners prayed that judgment be rendered setting aside the decision dated July 17, 1985, as well as the
resolution dated October 17, 1985 and dismissing the complaint but granting petitioners' counterclaims before the
court of origin.
On the other hand, the respondent corporation in its comment to the petition filed on February 20, 1986, contended
that the petition was filed out of time; that the promissory note is a negotiable instrument and respondent a holder in
due course; that respondent is not liable for any breach of warranty; and finally, that the promissory note is
admissible in evidence.
The core issue herein is whether or not the promissory note in question is a negotiable instrument so as to bar
completely all the available defenses of the petitioner against the respondent-assignee.
Preliminarily, it must be established at the outset that we consider the instant petition to have been filed on time
because the petitioners' motion for reconsideration actually raised new issues. It cannot, therefore, be considered
pro- formal.
The petition is impressed with merit.
First, there is no question that the seller-assignor breached its express 90-day warranty because the findings of the
trial court, adopted by the respondent appellate court, that "14 days after delivery, the first tractor broke down and 9
days, thereafter, the second tractor became inoperable" are sustained by the records. The petitioner was clearly a
victim of a warranty not honored by the maker.
The Civil Code provides that:
ART. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing
sold may have, should they render it unfit for the use for which it is intended, or should they diminish
its fitness for such use to such an extent that, had the vendee been aware thereof, he would not
have acquired it or would have given a lower price for it; but said vendor shall not be answerable for

patent defects or those which may be visible, or for those which are not visible if the vendee is an
expert who, by reason of his trade or profession, should have known them.
ART. 1562. In a sale of goods, there is an implied warranty or condition as to the quality or fitness of
the goods, as follows:
(1) Where the buyer, expressly or by implication makes known to the seller the particular purpose for
which the goods are acquired, and it appears that the buyer relies on the sellers skill or judge
judgment (whether he be the grower or manufacturer or not), there is an implied warranty that the
goods shall be reasonably fit for such purpose;
xxx xxx xxx
ART. 1564. An implied warranty or condition as to the quality or fitness for a particular purpose may
be annexed by the usage of trade.
xxx xxx xxx
ART. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold
even though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of
the hidden faults or defects in the thing sold. (Emphasis supplied).
It is patent then, that the seller-assignor is liable for its breach of warranty against the petitioner. This liability as a
general rule, extends to the corporation to whom it assigned its rights and interests unless the assignee is a holder
in due course of the promissory note in question, assuming the note is negotiable, in which case the latter's rights
are based on the negotiable instrument and assuming further that the petitioner's defenses may not prevail against
it.
Secondly, it likewise cannot be denied that as soon as the tractors broke down, the petitioner-corporation notified
the seller-assignor's sister company, AG & P, about the breakdown based on the seller-assignor's express 90-day
warranty, with which the latter complied by sending its mechanics. However, due to the seller-assignor's delay and
its failure to comply with its warranty, the tractors became totally unserviceable and useless for the purpose for
which they were purchased.
Thirdly, the petitioner-corporation, thereafter, unilaterally rescinded its contract with the seller-assignor.
Articles 1191 and 1567 of the Civil Code provide that:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
xxx xxx xxx


ART. 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect
between withdrawing from the contract and demanding a proportionate reduction of the price, with
damages in either case. (Emphasis supplied)
Petitioner, having unilaterally and extrajudicially rescinded its contract with the seller-assignor, necessarily can no
longer sue the seller-assignor except by way of counterclaim if the seller-assignor sues it because of the rescission.
In the case of the University of the Philippines v. De los Angeles (35 SCRA 102) we held:
In other words, the party who deems the contract violated may consider it resolved or rescinded, and
act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final
judgment of the corresponding court that will conclusively and finally settle whether the action taken
was or was not correct in law. But the law definitely does not require that the contracting party who
believes itself injured must first file suit and wait for adjudgement before taking extrajudicial steps to
protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and
watch its damages accumulate during the pendency of the suit until the final judgment of rescission
is rendered when the law itself requires that he should exercise due diligence to minimize its own
damages (Civil Code, Article 2203). (Emphasis supplied)
Going back to the core issue, we rule that the promissory note in question is not a negotiable instrument.
The pertinent portion of the note is as follows:
FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS
MARKETING, the sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED EIGHTY
NINE PESOS & 71/100 only (P 1,093,789.71), Philippine Currency, the said principal sum, to be
payable in 24 monthly installments starting July 15, 1978 and every 15th of the month thereafter until
fully paid. ...
Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a promissory note "must
be payable to order or bearer, " it cannot be denied that the promissory note in question is not a negotiable
instrument.
The instrument in order to be considered negotiablility-i.e. must contain the so-called 'words of
negotiable, must be payable to 'order' or 'bearer'. These words serve as an expression of consent
that the instrument may be transferred. This consent is indispensable since a maker assumes
greater risk under a negotiable instrument than under a non-negotiable one. ...
xxx xxx xxx
When instrument is payable to order.
SEC. 8. WHEN PAYABLE TO ORDER. The instrument is payable to order where it is drawn
payable to the order of a specified person or to him or his order. . . .
xxx xxx xxx
These are the only two ways by which an instrument may be made payable to order. There must
always be a specified person named in the instrument. It means that the bill or note is to be paid to

the person designated in the instrument or to any person to whom he has indorsed and delivered the
same. Without the words "or order" or"to the order of, "the instrument is payable only to the person
designated therein and is therefore non-negotiable. Any subsequent purchaser thereof will not enjoy
the advantages of being a holder of a negotiable instrument but will merely "step into the shoes" of
the person designated in the instrument and will thus be open to all defenses available against the
latter." (Campos and Campos, Notes and Selected Cases on Negotiable Instruments Law, Third
Edition, page 38). (Emphasis supplied)
Therefore, considering that the subject promissory note is not a negotiable instrument, it follows that the respondent
can never be a holder in due course but remains a mere assignee of the note in question. Thus, the petitioner may
raise against the respondent all defenses available to it as against the seller-assignor Industrial Products Marketing.
This being so, there was no need for the petitioner to implied the seller-assignor when it was sued by the
respondent-assignee because the petitioner's defenses apply to both or either of either of them. Actually, the
records show that even the respondent itself admitted to being a mere assignee of the promissory note in question,
to wit:
ATTY. PALACA:
Did we get it right from the counsel that what is being assigned is the Deed of Sale
with Chattel Mortgage with the promissory note which is as testified to by the witness
was indorsed? (Counsel for Plaintiff nodding his head.) Then we have no further
questions on cross,
COURT:
You confirm his manifestation? You are nodding your head? Do you confirm that?
ATTY. ILAGAN:
The Deed of Sale cannot be assigned. A deed of sale is a transaction between two
persons; what is assigned are rights, the rights of the mortgagee were assigned to
the IFC Leasing & Acceptance Corporation.
COURT:
He puts it in a simple way as one-deed of sale and chattel mortgage were assigned; .
. . you want to make a distinction, one is an assignment of mortgage right and the
other one is indorsement of the promissory note. What counsel for defendants wants
is that you stipulate that it is contained in one single transaction?
ATTY. ILAGAN:
We stipulate it is one single transaction. (pp. 27-29, TSN., February 13, 1980).
Secondly, even conceding for purposes of discussion that the promissory note in question is a negotiable
instrument, the respondent cannot be a holder in due course for a more significant reason.

The evidence presented in the instant case shows that prior to the sale on installment of the tractors, there was an
arrangement between the seller-assignor, Industrial Products Marketing, and the respondent whereby the latter
would pay the seller-assignor the entire purchase price and the seller-assignor, in turn, would assign its rights to the
respondent which acquired the right to collect the price from the buyer, herein petitioner Consolidated Plywood
Industries, Inc.
A mere perusal of the Deed of Sale with Chattel Mortgage with Promissory Note, the Deed of Assignment and the
Disclosure of Loan/Credit Transaction shows that said documents evidencing the sale on installment of the tractors
were all executed on the same day by and among the buyer, which is herein petitioner Consolidated Plywood
Industries, Inc.; the seller-assignor which is the Industrial Products Marketing; and the assignee-financing company,
which is the respondent. Therefore, the respondent had actual knowledge of the fact that the seller-assignor's right
to collect the purchase price was not unconditional, and that it was subject to the condition that the tractors -sold
were not defective. The respondent knew that when the tractors turned out to be defective, it would be subject to the
defense of failure of consideration and cannot recover the purchase price from the petitioners. Even assuming for
the sake of argument that the promissory note is negotiable, the respondent, which took the same with actual
knowledge of the foregoing facts so that its action in taking the instrument amounted to bad faith, is not a holder in
due course. As such, the respondent is subject to all defenses which the petitioners may raise against the seller-
assignor. Any other interpretation would be most inequitous to the unfortunate buyer who is not only saddled with
two useless tractors but must also face a lawsuit from the assignee for the entire purchase price and all its incidents
without being able to raise valid defenses available as against the assignor.
Lastly, the respondent failed to present any evidence to prove that it had no knowledge of any fact, which would
justify its act of taking the promissory note as not amounting to bad faith.
Sections 52 and 56 of the Negotiable Instruments Law provide that: negotiating it.
xxx xxx xxx
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:
xxx xxx xxx
xxx xxx xxx
(c) That he took it in good faith and for value
(d) That the time it was negotiated by him he had no notice of any infirmity in the instrument of
deffect in the title of the person negotiating it
xxx xxx xxx
SEC. 56. WHAT CONSTITUTES NOTICE OF DEFFECT. To constitute notice of an infirmity in the
instrument or defect in the title of the person negotiating the same, the person to whom it is
negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts
that his action in taking the instrument amounts to bad faith. (Emphasis supplied)
We subscribe to the view of Campos and Campos that a financing company is not a holder in good faith as to the
buyer, to wit:

In installment sales, the buyer usually issues a note payable to the seller to cover the purchase
price. Many times, in pursuance of a previous arrangement with the seller, a finance company pays
the full price and the note is indorsed to it, subrogating it to the right to collect the price from the
buyer, with interest. With the increasing frequency of installment buying in this country, it is most
probable that the tendency of the courts in the United States to protect the buyer against the finance
company will , the finance company will be subject to the defense of failure of consideration and
cannot recover the purchase price from the buyer. As against the argument that such a rule would
seriously affect "a certain mode of transacting business adopted throughout the State," a court in
one case stated:
It may be that our holding here will require some changes in business methods and
will impose a greater burden on the finance companies. We think the buyer-Mr. &
Mrs. General Public-should have some protection somewhere along the line. We
believe the finance company is better able to bear the risk of the dealer's insolvency
than the buyer and in a far better position to protect his interests against
unscrupulous and insolvent dealers. . . .
If this opinion imposes great burdens on finance companies it is a potent argument in

favor of a rule which win afford public protection to the general buying public against
unscrupulous dealers in personal property. . . . (Mutual Finance Co. v. Martin, 63 So.
2d 649, 44 ALR 2d 1 [1953]) (Campos and Campos, Notes and Selected Cases on
Negotiable Instruments Law, Third Edition, p. 128).
In the case of Commercial Credit Corporation v. Orange Country Machine Works (34 Cal. 2d 766) involving similar
facts, it was held that in a very real sense, the finance company was a moving force in the transaction from its very
inception and acted as a party to it. When a finance company actively participates in a transaction of this type from
its inception, it cannot be regarded as a holder in due course of the note given in the transaction.
In like manner, therefore, even assuming that the subject promissory note is negotiable, the respondent, a financing
company which actively participated in the sale on installment of the subject two Allis Crawler tractors, cannot be
regarded as a holder in due course of said note. It follows that the respondent's rights under the promissory note
involved in this case are subject to all defenses that the petitioners have against the seller-assignor, Industrial
Products Marketing. For Section 58 of the Negotiable Instruments Law provides that "in the hands of any holder
other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-
negotiable. ... "
Prescinding from the foregoing and setting aside other peripheral issues, we find that both the trial and respondent
appellate court erred in holding the promissory note in question to be negotiable. Such a ruling does not only violate
the law and applicable jurisprudence, but would result in unjust enrichment on the part of both the assigner-
assignor and respondent assignee at the expense of the petitioner-corporation which rightfully rescinded an
inequitable contract. We note, however, that since the seller-assignor has not been impleaded herein, there is no
obstacle for the respondent to file a civil Suit and litigate its claims against the seller- assignor in the rather unlikely
possibility that it so desires,
WHEREFORE, in view of the foregoing, the decision of the respondent appellate court dated July 17, 1985, as well
as its resolution dated October 17, 1986, are hereby ANNULLED and SET ASIDE. The complaint against the
petitioner before the trial court is DISMISSED.
SO ORDERED.

Fernan, Paras, Padilla, Bidin and Cortes, JJ., concur.

SUPREME COURT
Manila
EN BANC
G.R. No. L-2516 September 25, 1950
ANG TEK LIAN, petitioner,

vs.
THE COURT OF APPEALS, respondent.
Laurel, Sabido, Almario and Laurel for petitioner.

Office of the Solicitor General Felix Bautista Angelo and Solicitor Manuel Tomacruz for respondent.
BENGZON, J.:
For having issued a rubber check, Ang Tek Lian was convicted of estafa in the Court of First Instance of Manila. The
Court of Appeals affirmed the verdict.
It appears that, knowing he had no funds therefor, Ang Tek Lian drew on Saturday, November 16, 1946, the check
Exhibits A upon the China Banking Corporation for the sum of P4,000, payable to the order of "cash". He delivered it
to Lee Hua Hong in exchange for money which the latter handed in act. On November 18, 1946, the next business
day, the check was presented by Lee Hua Hong to the drawee bank for payment, but it was dishonored for
insufficiency of funds, the balance of the deposit of Ang Tek Lian on both dates being P335 only.
The Court of Appeals believed the version of Lee Huan Hong who testified that "on November 16, 1946, appellant
went to his (complainant's) office, at 1217 Herran, Paco, Manila, and asked him to exchange Exhibit A which he
(appellant) then brought with him with cash alleging that he needed badly the sum of P4,000 represented by the
check, but could not withdraw it from the bank, it being then already closed; that in view of this request and relying
upon appellant's assurance that he had sufficient funds in the blank to meet Exhibit A, and because they used to
borrow money from each other, even before the war, and appellant owns a hotel and restaurant known as the North
Bay Hotel, said complainant delivered to him, on the same date, the sum of P4,000 in cash; that despite repeated
efforts to notify him that the check had been dishonored by the bank, appellant could not be located any-where, until
he was summoned in the City Fiscal's Office in view of the complaint for estafa filed in connection therewith; and
that appellant has not paid as yet the amount of the check, or any part thereof."
Inasmuch as the findings of fact of the Court of Appeals are final, the only question of law for decision is whether
under the facts found, estafa had been accomplished.
Article 315, paragraph (d), subsection 2 of the Revised Penal Code, punishes swindling committed "By post dating a
check, or issuing such check in payment of an obligation the offender knowing that at the time he had no funds in
the bank, or the funds deposited by him in the bank were not sufficient to cover the amount of the check, and
without informing the payee of such circumstances".

We believe that under this provision of law Ang Tek Lian was properly held liable. In this connection, it must be
stated that, as explained in People vs. Fernandez (59 Phil., 615), estafa is committed by issuing either a postdated
check or an ordinary check to accomplish the deceit.
It is argued, however, that as the check had been made payable to "cash" and had not been endorsed by Ang Tek
Lian, the defendant is not guilty of the offense charged. Based on the proposition that "by uniform practice of all
banks in the Philippines a check so drawn is invariably dishonored," the following line of reasoning is advanced in
support of the argument:
. . . When, therefore, he (the offended party ) accepted the check (Exhibit A) from the appellant, he did so
with full knowledge that it would be dishonored upon presentment. In that sense, the appellant could not be
said to have acted fraudulently because the complainant, in so accepting the check as it was drawn, must
be considered, by every rational consideration, to have done so fully aware of the risk he was running
thereby." (Brief for the appellant, p. 11.)
We are not aware of the uniformity of such practice. Instances have undoubtedly occurred wherein the Bank
required the indorsement of the drawer before honoring a check payable to "cash." But cases there are too, where
no such requirement had been made . It depends upon the circumstances of each transaction.
Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the order of "cash" is a check payable
to bearer, and the bank may pay it to the person presenting it for payment without the drawer's indorsement.
A check payable to the order of cash is a bearer instrument. Bacal vs. National City Bank of New York
(1933), 146 Misc., 732; 262 N. Y. S., 839; Cleary vs. De Beck Plate Glass Co. (1907), 54 Misc., 537; 104 N.
Y. S., 831; Massachusetts Bonding & Insurance Co. vs. Pittsburgh Pipe & Supply Co. (Tex. Civ. App., 1939),
135 S. W. (2d), 818. See also H. Cook & Son vs. Moody (1916), 17 Ga. App., 465; 87 S. E., 713.
Where a check is made payable to the order of "cash", the word cash "does not purport to be the name of
any person", and hence the instrument is payable to bearer. The drawee bank need not obtain any
indorsement of the check, but may pay it to the person presenting it without any indorsement. . . . (Zollmann,
Banks and Banking, Permanent Edition, Vol. 6, p. 494.)
Of course, if the bank is not sure of the bearer's identity or financial solvency, it has the right to demand identification
and /or assurance against possible complications, for instance, (a) forgery of drawer's signature, (b) loss of the
check by the rightful owner, (c) raising of the amount payable, etc. The bank may therefore require, for its protection,
that the indorsement of the drawer or of some other person known to it be obtained. But where the Bank is
satisfied of the identity and /or the economic standing of the bearer who tenders the check for collection, it will pay
the instrument without further question; and it would incur no liability to the drawer in thus acting.
A check payable to bearer is authority for payment to holder. Where a check is in the ordinary form, and is
payable to bearer, so that no indorsement is required, a bank, to which it is presented for payment, need not
have the holder identified, and is not negligent in falling to do so. . . . (Michie on Banks and Banking,
Permanent Edition, Vol. 5, p. 343.)
. . . Consequently, a drawee bank to which a bearer check is presented for payment need not necessarily
have the holder identified and ordinarily may not be charged with negligence in failing to do so. See
Opinions 6C:2 and 6C:3 If the bank has no reasonable cause for suspecting any irregularity, it will be
protected in paying a bearer check, "no matter what facts unknown to it may have occurred prior to the
presentment." 1 Morse, Banks and Banking, sec. 393.

Although a bank is entitled to pay the amount of a bearer check without further inquiry, it is entirely
reasonable for the bank to insist that holder give satisfactory proof of his identity. . . . (Paton's Digest, Vol. I,
p. 1089.)
Anyway, it is significant, and conclusive, that the form of the check Exhibit A was totally unconnected with its
dishonor. The Court of Appeals declared that it was returned unsatisfied because the drawer had insufficient
funds not because the drawer's indorsement was lacking.
Wherefore, there being no question as to the correctness of the penalty imposed on the appellant, the writ
of certiorari is denied and the decision of the Court of Appeals is hereby affirmed, with costs.
Moran, C. J., Ozaeta, Paras, Pablo, Tuason, and Reyes, JJ., concur

SUPREME COURT
THIRD DIVISION
G.R. No. 161756 December 16, 2005
VICTORIA J. ILANO represented by her Attorney-in-fact, MILO ANTONIO C. ILANO, Petitioners,

vs.
HON. DOLORES L. ESPAOL, in her capacity as Executive Judge, RTC of Imus, Cavite, Br. 90, and, AMELIA
ALONZO, EDITH CALILAP, DANILO CAMACLANG, ESTELA CAMACLANG, ALLAN CAMACLANG, LENIZA
REYES, EDWIN REYES, JANE BACAREL, CHERRY CAMACLANG, FLORA CABRERA, ESTELITA LEGASPI,
CARMENCITA GONZALES, NEMIA CASTRO, GLORIA DOMINGUEZ, ANNILYN C. SABALE and several JOHN
DOES, Respondents.
DECISION
CARPIO MORALES, J.:
The Court of Appeals having affirmed the dismissal by Branch 20 of the Regional Trial Court (RTC) of Cavite at
Imus, for lack of cause of action, Civil Case No. 2079-00, the complaint filed by herein petitioner Victoria J. Ilano
for Revocation/Cancellation of Promissory Notes and Bills of Exchange (Checks) with Damages and Prayer for
Preliminary Injunction or Temporary Restraining Order (TRO), 1 against herein respondents 15 named defendants
(and several John Does), a recital of the pertinent allegations in the complaint, quoted verbatim as follows, is in
order:
xxx
3. That defendant AMELIA O. ALONZO, is a trusted employee of [petitioner]. She has been with them for several
years already, and through the years, defendant ALONZO was able to gain the trust and confidence of [petitioner]
and her family;
4. That due to these trust and confidence reposed upon defendant ALONZO by [petitioner], there were occasions
when defendant ALONZO was entrusted with [petitioners] METROBANK Check Book containing either signed or
unsigned blank checks, especially in those times when [petitioner] left for the United States for medical check-up;
5. Sometime during the second week of December 1999, or thereabouts, defendant ALONZO by means of deceit
and abuse of confidence succeeded in procuring Promissory Notes and signed blank checks from
[petitioner] who was then recuperating from illness;
6. That as stated, aside from the said blank checks, defendant ALONZO likewise succeeded
in inducing [petitioner] to sign the Promissory Notes antedated June 8, 1999 in the amount of PESOS: ONE
MILLION FOUR HUNDRED TWENTY EIGHT THOUSAND TWO HUNDRED SEVENTY TWO (Php 1,428,272.00)
payable to defendants EDITH CALILAP and DANILO CALILAP, and another Promissory Noted dated March
1999 in the amount of PESOS: ONE MILLION (Php 1,000,000.00) payable to the same defendants EDITH
CALILAP and DANILO CALILAP, copies of said Promissory Notes are hereto attached as Annexes "A" and "A-1"
hereof;
7. That another Promissory Note antedated October 1, 1999 thru the machination of defendant ALONZO, was
signed by [petitioner] in the amount of PESOS: THREE MILLION FORTY SIX THOUSAND FOUR HUNDRED
ONE (Php 3,046,401.00) excluding interest, in favor of her co-defendants ESTELA CAMACLANG, ALLAN
CAMACLANG, LENIZA REYES, EDWIN REYES, JANE BACAREL and CHERRY CAMACLANG, a copy of said
Promissory Note is hereto attached as Annex "B" hereof;

8. That the Promissory Notes and blank checks were procured thru fraud and deceit. The consent of the
[petitioner] in the issuance of the two (2) aforementioned Promissory Notes was vitiated. Furthermore, the
same were issued for want of consideration, hence, the same should be cancelled, revoked or declared null and
void;
9. That as clearly shown heretofore, defendant ALONZO in collusion with her co-defendants, ESTELA
CAMACLANG, ALLAN CAMACLANG and ESTELITA LEGASPI likewise was able to induce plaintiff to sign
several undated blank checks, among which are:
Metrobank Check No. 0111544
all in the total amount of Php 3,031,600.00, copies of said checks are hereto attached as Annexes "C", "C-1", "C-2",
"C-3" and "C-4", respectively;
10. That aside from the checks mentioned heretofore, defendant ALONZO, confederated and conspired with the
following co-defendants, FLORA CABRERA, NEMIA CASTRO, EDITH CALILAP, DANILO CALILAP, GLORIA
DOMINGUEZ, CARMENCITA GONZALES and ANNILYN C. SABALE and took advantage of the signature of
[petitioner] in said blank checks which were later on completed by them indicated opposite their respective
names and the respective amount thereof, as follows:
NAME AMOUNT METROBANK

Check No.
Flora Cabrera Php 337,584.58 0111460
Flora Cabrera 98,000.00 0111514
Nemia Castro 100,000.00 0111542
Nemia Castro 150,000.00 0084078
Edith Calilap/Danilo Calilap 490,000.00 0111513
Edith Calilap/Danilo Calilap 790,272.00 0111512

Edith Calilap/Danilo Calilap 1,220,000.00 0111462
Gloria Dominguez/ 1,046,040.00 0111543
Carmencita Gonzales
Annilyn C. Sable 150,000.00 0085134
Annilyn C. Sable 250,000.00 0085149
Annilyn C. Sable 186,000.00 0085112
Copy attached as Annexes "D", "D-1", "D-2", "D-3", "D-4", "D-5", "D-6", "D-7", "D-8", "D-9" and "D-10", respectively;
Furthermore, defendant ALONZO colluded and conspired with defendant NEMIA CASTO in procuring the
signature of [petitioner] in documents denominated as "Malayang Salaysay" dated July 22, 1999 in the
amount of PESOS: ONE HUNDRED FIFTY THOUSAND (Php 150,000.00) and another "Malayang Salaysay"
dated November 22, 1999 in the amount of PESOS: ONE HUNDRED THOUSAND (Php 100,000.00) Annexes "D-
11" and "D-12" hereof;
11. That said defendants took undue advantage of the signature of [petitioner] in the said blank checks and
furthermore forged and or falsified the signature of [petitioner] in other unsigned checks and as it was
made to appear that said [petitioner] is under the obligation to pay them several amounts of money, when in
truth and in fact, said [petitioner] does not owe any of said defendant any single amount;
12. That the issuance of the aforementioned checks or Promissory Notes or the aforementioned "Malayang
Salaysay" to herein defendants were tainted with fraud and deceit, and defendants conspired with one
another to defraud herein [petitioner] as the aforementioned documents were issued for want of
consideration;
13. That the aforesaid defendants conspiring and confederating together and helping one another committed
acts of falsification and defraudation which they should be held accountable under law;
14. The foregoing acts, and transactions, perpetrated by herein defendants in all bad faith and malice, with
malevolence and selfish intent are causing anxiety, tension, sleepless nights, wounded feelings, and
embarrassment to [petitioner] entitling her to moral damages of at least in the amount of PESOS: FIVE
HUNDRED THOUSAND (Php 500,000.00);
15. That to avoid repetition of similar acts and as a correction for the public good, the defendants should be held
liable to [petitioner] for exemplary damages in the sum of not less than the amount of PESOS: TWO HUNDRED
THOUSAND (Php 200,000.00);
16. That to protect the rights and interest of the [petitioner] in the illegal actuations of the defendants, she was forced
to engage the services of counsel for which she was obliged to pay the sum of PESOS: ONE HUNDRED
THOUSAND (Php 100,000.00) by way of Attorneys fees plus the amount of PESOS: THREE THOUSAND (Php
3,000.00) per appearance in court;

x x x (Emphasis and underscoring supplied)
The named defendants-herein respondents filed their respective Answers invoking, among other grounds for
dismissal, lack of cause of action, for while the checks subject of the complaint had been issued on account and for
value, some had been dishonored due to "ACCOUNT CLOSED;" and the allegations in the complaint are bare and
general.
By Order2 dated October 12, 2000, the trial court dismissed petitioners complaint for failure "to allege the ultimate
facts"-bases of petitioners claim that her right was violated and that she suffered damages thereby.
On appeal to the Court of Appeals, petitioner contended that the trial court:
A. . . . FAILED TO STATE CLEARLY AND DISTINCTLY THE FACTS AND LAW ON WHICH THE APPEALED
ORDER WAS BASED, THEREBY RENDERING SAID ORDER NULL AND VOID.
B. . . . ERRED IN HOLDING THAT THE COMPLAINT FAILED TO ALLEGE ULTIMATE FACTS ON WHICH
[PETITIONER] RELIES ON HER CLAIM THEREBY DISMISSING THE CASE FOR LACK OF CAUSE OF ACTION.
C. . . . ERRED IN GIVING DUE COURSE TO THE MOTION TO DISMISS THAT CONTAINED A FAULTY NOTICE
OF HEARING AS THE SAME IS MERELY ADDRESSED TO THE BRANCH CLERK OF COURT.3
In its Decision4 of March 21, 2003 affirming the dismissal order of the trial court, the appellate court held that the
elements of a cause of action are absent in the case:
xxx
Such allegations in the complaint are only general averments of fraud, deceit and bad faith. There were no
allegations of facts showing that the acts complained of were done in the manner alleged. The complaint did not
clearly ascribe the extent of the liability of each of [respondents]. Neither did it state any right or cause of action on
the part of [petitioner] to show that she is indeed entitled to the relief prayed for. In the first place, the record shows
that subject checks which she sought to cancel or revoke had already been dishonored and stamped "ACCOUNT
CLOSED." In fact, there were already criminal charges for violation of Batas Pambansa Blg. 22 filed against
[petitioner] previous to the filing of the civil case for revocation/cancellation. Such being the case, there was actually
nothing more to cancel or revoke. The subject checks could no longer be negotiated. Thus, [petitioners] allegation
that the [respondents] were secretly negotiating with third persons for their delivery and/or assignment, is untenable.
In the second place, we find nothing on the face of the complaint to show that [petitioner] denied the genuineness or
authenticity of her signature on the subject promissory notes and the allegedly signed blank checks. She merely
alleged abuse of trust and confidence on the part of [Alonzo]. Even assuming arguendo that such allegations were
true, then [petitioner] cannot be held totally blameless for her predicament as it was by her own negligence that
subject instruments/signed blank checks fell into the hands of third persons. Contrary to [petitioners] allegations, the
promissory notes show that some of the [respondents] were actually creditors of [petitioner] and who were issued
the subject checks as securities for the loan/obligation incurred. Having taken the instrument in good faith and for
value, the [respondents] are therefore considered holders thereof in due course and entitled to payment.
x x x (Underscoring supplied)
Hence, the present petition for review on certiorari, petitioner faulting the appellate court:
1. . . . in sustaining the dismissal of the complaint upon the ground of failure to state a cause of action when there
are other several causes of action which ventilate such causes of action in the complaint;
2. . . . in finding that a requirement that a Decision which should express therein clearly and distinctly the facts and
the law on which it is based does not include cases which had not reached pre-trial or trial stage;

3. . . . in not finding that a notice of hearing which was addressed to the Clerk of Court is totally defective and that
subsequent action of the court did not cure the flaw.5
In issue then is whether petitioners complaint failed to state a cause of action.
A cause of action has three elements: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant,
and (3) the act or omission of the defendant in violation of said legal right. In determining the presence of these
elements, inquiry is confined to the four corners of the complaint 6 including its annexes, they being parts thereof.7 If
these elements are absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to
state a cause of action.8
As reflected in the above-quoted allegations in petitioners complaint, petitioner is seeking twin reliefs, one for
revocation/cancellation of promissory notes and checks, and the other for damages.
Thus, petitioner alleged, among other things, that respondents, through "deceit," "abuse of confidence"
"machination," "fraud," "falsification," "forgery," "defraudation," and "bad faith," and "with malice, malevolence and
selfish intent," succeeded in inducing her to sign antedated promissory notes and some blank checks, and "[by
taking] undue advantage" of her signature on some other blank checks, succeeded in procuring them, even if there
was no consideration for all of these instruments on account of which she suffered "anxiety, tension, sleepless
nights, wounded feelings and embarrassment."
While some of the allegations may lack particulars, and are in the form of conclusions of law, the elements of a
cause of action are present. For even if some are not stated with particularity, petitioner alleged 1) her legal right not
to be bound by the instruments which were bereft of consideration and to which her consent was vitiated; 2) the
correlative obligation on the part of the defendants-respondents to respect said right; and 3) the act of the
defendants-respondents in procuring her signature on the instruments through "deceit," "abuse of confidence"
"machination," "fraud," "falsification," "forgery," "defraudation," and "bad faith," and "with malice, malevolence and
selfish intent."
Where the allegations of a complaint are vague, indefinite, or in the form of conclusions, its dismissal is not proper
for the defendant may ask for more particulars.9
With respect to the checks subject of the complaint, it is gathered that, except for Check No. 0084078, 10 they were
drawn all against petitioners Metrobank Account No. 00703-955536-7.
Annex "D-8"11 of the complaint, a photocopy of Check No. 0085134, shows that it was dishonored on January 12,
2000 due to "ACCOUNT CLOSED." When petitioner then filed her complaint on March 28, 2000, all the checks
subject hereof which were drawn against the same closed account were already rendered valueless or non-
negotiable, hence, petitioner had, with respect to them, no cause of action.
With respect to above-said Check No. 0084078, however, which was drawn against another account of petitioner,
albeit the date of issue bears only the year 1999, its validity and negotiable character at the time the complaint
was filed on March 28, 2000 was not affected. For Section 6 of the Negotiable Instruments Law provides:
Section 6. Omission; seal; particular money. The validity and negotiable character of an instrument are not
affected by the fact that
(a) It is not dated; or
(b) Does not specify the value given, or that any value had been given therefor; or
(c) Does not specify the place where it is drawn or the place where it is payable; or
(d) Bears a seal; or


(e) Designates a particular kind of current money in which payment is to be made.
x x x (Emphasis supplied)
However, even if the holder of Check No. 0084078 would have filled up the month and day of issue thereon to be
"December" and "31," respectively, it would have, as it did, become stale six (6) months or 180 days thereafter,
following current banking practice.12
It is, however, with respect to the questioned promissory notes that the present petition assumes merit. For,
petitioners allegations in the complaint relative thereto, even if lacking particularity, does not as priorly stated call for
the dismissal of the complaint.
WHEREFORE, the petition is PARTLY GRANTED.
The March 21, 2003 decision of the appellate court affirming the October 12, 2000 Order of the trial court, Branch 20
of the RTC of Imus, Cavite, is AFFIRMED with MODIFICATION in light of the foregoing discussions.
The trial court is DIRECTED to REINSTATE Civil Case No. 2079-00 to its docket and take further proceedings
thereon only insofar as the complaint seeks the revocation/cancellation of the subject promissory notes and
damages.
Let the records of the case be then REMANDED to the trial court.
SO ORDERED.

41.

SUPREME COURT
Manila
EN BANC
G.R. No. L-24571 December 18, 1970
JOSE L. PONCE DE LEON, plaintiff-appellant,

vs.
REHABILITATION FINANCE CORPORATION, defendant-appellant and third-party defendant-
appellant, ROSALINA SORIANO, TEOFILA SORIANO and REV. FR. EUGENIO R. SORIANO, third-party plaintiffs-
appellants.
CONCEPCION, C.J.:
Appeal from a decision of the Court of First Instance of Rizal, the dispositive part of which reads:
IN VIEW OF THE FOREGOING, the Court hereby renders judgment dismissing plaintiff's complaint
with costs against plaintiff; ordering plaintiff Jose Ponce de Leon to pay the defendant RFC the
amount of FIVE HUNDRED TWENTY-NINE THOUSAND TWO HUNDRED SIXTY FIVE PESOS
AND FIFTY FOUR (P529,265.54) CENTAVOS, with interest at six percent per annum from
November 24, 1954 until fully paid, the further sum of ONE HUNDRED EIGHTY (P180.00) pesos per
month from May 20, 1955 until plaintiff vacates the house and lot at Taft Avenue, Pasay City, and
FIVE THOUSAND (P5,000.00) PESOS as damages for the injunction and costs.
The Court declares the mortgage of one-half of the lot covered by Original transfer certificate of title
No. 8094 of the lands records of Rizal Province belonging to the third-party plaintiffs, namely
Rosalina Soriano, Rev. Fr. Eugenio Soriano and Teofila Soriano del Rosario null and void and the
sheriff's sale in favor of the RFC of said one-half share likewise null and void. 1
As correctly set forth in said decision, the main facts are:
On August 14, 1945, herein plaintiff Jose L. Ponce de Leon and Francisco Soriano, father of third-
party plaintiffs Teofila Soriano del Rosario, Rosalina Soriano and Rev. Fr. Eugenio Soriano, obtained
a loan for P10,000.00 from the Philippine National Bank (PNB), Manila, mortgaging a parcel of land
situated at Barrio Ibayo, Municipality of Paraaque, Rizal, covered by original certificate of title No.
8094 of the land records of Rizal Province in the name of Francisco Soriano, married to Tomasa
Rodriguez, as security for the loan (Exhibit 15-Soriano). On August 16, 1945, Ponce de Leon gave
P2,000.00 to Soriano from the proceeds of the loan (Exhibit "N"). The loan was subsequently
increased to P17,500.00 and an amendment to the real estate mortgage, Exhibit "15-Soriano," was
executed by Jose L. Ponce de Leon and Francisco Soriano on March 13, 1946 (Exhibit "16-
Soriano").

On May 4, 1951, Jose L. Ponce de Leon filed with the Rehabilitation Finance Corporation (RFC for
short) Manila, his loan application, Exhibit "1-RFC," for an industrial loan, for putting up a sawmill, in
the amount of P800,000.00 offering as security certain parcels of land, among which, was the parcel
which Ponce de Leon and Soriano mortgaged to the PNB. The application stated that the properties
offered for security for the RFC loan are encumbered to the PNB, Bacolod, and to Cu Unjieng Bros.
The properties offered for security to the RFC were inspected by the appraisers of the latter, who
submitted the following appraisals:
1. Land ............................................. P480,228.00
2. Building ........................................ P 12,000.00
3. Machinery & equiptment .......... P 67,101.00
4. Transportation equipment ......... P 14,000.00
Total .............................................. P573,329.00

(Exh. "6-a RFC")
The application was approved for P495,000.00 and the mortgage contract (Exhibit "A," also "16-RFC
& "33-Soriano") was executed on October 8, 1951 by Jose L. Ponce de Leon, his wife Carmelina
Russel, and Francisco Soriano. The same parties signed a promissory note (Exhibit "A") for
P495,000.00, with interest at 6% per annum, payable on installments every month for P28,831.64 in
connection with the mortgage deed. Before the mortgage deed was signed, the Notary Public, Felipe
Cuaderno, Jr. before whom it was acknowledged, translated it in Tagalog to Francisco Soriano, who
thereafter affixed his signature to the document. At the time that Francisco Soriano signed the
mortgage deed, Exhibit "A," his spouse Tomasa Rodriguez was already dead leaving as her heirs,
her children namely, Rosalina, Teofila and Rev. Fr. Eugenio Soriano, none of whom signed the said
mortgage deed or the promissory note.
The mortgage deed specifically stipulated that the proceeds thereof shall be used exclusively for the
purchase of machinery and equipment, construction of buildings and the payment of obligations and
that the release of the amounts loaned shall be at the discretion of the RFC. In view of these
conditions, the RFC paid Ponce de Leon's obligations of P100,000.00 to the PNB; P30,000.00 to Cu
Unjieng Bros; and P5,000.00 to Arturo Colmenares. From the balance of P360,000.00, the sum of
P352,000.00 was released to Jose L. Ponce de Leon at various amounts during the period from
December, 1951 to July 1952. The checks covering these releases were issued to Jose L. Ponce de
Leon in view of the authority given to him in writing by Francisco Soriano and Carmelina Russel
(Exhibit "33-A-Soriano," Exhibit "A" and Exhibit "16-RFC").
On March 12, 1952, Jose L. Ponce de Leon and his wife Carmelina Russel executed an addendum
to the chattel mortgage for machineries and equipments (Exhibit "F").
None of the amortization and interests which had become due was paid and, for this reason, the
RFC took steps for the extra-judicial foreclosure of the mortgaged properties consisting of real
estates and the sawmill and its equipments of Ponce de Leon situated in two places in Samar. The
RFC was the purchaser of all the mortgaged properties in the ensuing sheriff's sales, with the
exception of two parcels of land situated in Bacolod City which were purchased by private

individuals. Many items of the mortgaged machineries and equipments could not be found. The
parcels of land mortgaged were sold as follows:
1) Nine parcels at Bacolod City ................................................P78,800.00
2) Two parcels acquired by private individuals .................... P5,790.00
3) Two parcels at Pasay City with improvements ................. P15,000.00
4) The land of Soriano at Paraaque, Rizal ............................ P10,000.00
5) The Machineries & equipments that were left ............................. P6,000.00
The Sheriff sold the land covered by original certificate of Title No. 8094 in the name of Francisco
Soriano, married to Tomasa Rodriguez, on June 15, 1954 and the deed of sale, dated April 19, 1955
was executed by the sheriff in favor of the purchaser thereof, the RFC, including all the other
properties sold (Exhibit "15-RFC," also "54-Soriano").
Previous to the expiration of the one-year period of redemption, Francisco Soriano, through Teofila
Soriano del Rosario offered to repurchase the Soriano lot for P14,000.00 and on June 14, 1955, the
last day for the redemption of the lot, Francisco Soriano, in company with his daughter, Rosalina and
Teofila, went to see Mr. Bernardo, Chief of the assets department of the RFC, and offered to redeem
said lot for P14,000.00 but the offer was rejected and they were told to participate in the public sale
of the land to be conducted by the RFC. Jose L. Ponce de Leon did not offer to redeem the
mortgaged properties sold at anytime before the expiration of the period of redemption.
The RFC scheduled a public sale of the lot registered in the name of Francisco Soriano and of the
other lots which the RFC acquired in the Sheriff's sale for February 20, 1956 in view of the inability of
Ponce de Leon or Soriano to legally redeem the properties sold by the Sheriff within the one year
period after the sale.
On February 18, 1956, Jose L. Ponce de Leon instituted the present action alleging that there was
delay in the releases of the amount of the loan; that the RFC withheld the amount of P19,000.00
from the loan until it had verified whether Ponce de Leon had still an unpaid indebtedness to the
defunct Agricultural and Industrial Bank, the RFC's predecessor, and this was paid only after one
year had passed; that the typhoon in October and November, 1952 had caused destructions to his
sawmills and hampered his operations for which reason, he asks, in his complaint, that the
amortizations on his obligations which became due since October, 1952 be declared extinguished;
that the sheriff's sales be declared null and void because the properties were sold at grossly
inadequate prices and that said sales were not conducted in accordance with law; that the RFC be
compelled to account for his machineries and equipments at his lumber mill in Calbayog and to
reimburse him for the value of the unaccounted machineries and equipments; that the RFC be
ordered to pay him actual and moral damages for P105,000.00 and costs. De Leon asked for the
issuance of a writ of preliminary injunction to restrain the RFC from carrying out its contemplated
public sale. The Court set the petition for injunction for hearing but no one appeared for the RFC at
the hearing thereof so that the Court had to issue the preliminary injunction prayed for. De Leon
caused notice of lis pendens to be recorded in relation with this case.

The RFC filed its answer sustaining the legality of the mortgage and Sheriff's sales and counter-
claimed that Ponce de Leon be ordered to pay the deficiency claim representing the balance of the
latter's indebtedness, rental of the lot and house at Taft Avenue, Pasay City occupied by Ponce de
Leon and damages.
Subsequent to the filing of Ponce de Leon's complaint against the RFC, Francisco Soriano wrote a
letter, dated February 20, 1956, to the President asking the latter's intervention so that the projected
sale on the same date to be conducted by the RFC may be suspended insofar as the lot in his name
is concerned and that he be allowed to redeem it (Exhibit "27-Soriano"). This letter was referred by
the Executive Office to the RFC, which sent a letter, Exhibit "29-Soriano," to Francisco Soriano
informing the latter that he could redeem his former property for not less than its appraised value of
P59,647.05, payable 20% down and the balance in ten years, with 6% interest. Soriano did not
redeem the lot under the conditions of the RFC. He then filed a third-party complaint in this case with
the RFC and Jose L. Ponce de Leon as the third-party defendants. Due to the death of Francisco
Soriano, he was substituted as third-party plaintiff by his children, namely, Teofila Soriano del
Rosario, Rosalina Soriano and Rev. Fr. Eugenio Soriano.
The Sorianos contend that the mortgage in favor of the RFC and promissory note signed by
Francisco Soriano lacked the latter's consent and was without consideration insofar as Francisco
Soriano is concerned and hence null and void as to him and his children; that the lot covered by
original certificate of title No. 8094 in the name of Francisco Soriano belonged to the conjugal
partnership of the latter and his wife, Tomasa Rodriguez, now deceased, and since the latter was
already dead when the mortgage was executed and her children who have thus inherited her share
have not signed the mortgage contract and promissory note, at least, the one-half share of the lot
belonging now to the Soriano sisters and brothers, the third-party plaintiffs, have not been legally
included in the mortgage to the RFC so that the latter had not acquired said one-half share in the
sheriff's sale. The Sorianos further ask that they be allowed to redeem the remaining one-half share,
that which belonged to their father, for one-half of P10,000.00 which was the amount for which the
RFC acquired the whole lot in the sheriff's sale. The third party-plaintiffs also ask that Ponce de Leon
be ordered to reimburse them for whatever amount they may use in redeeming the lot and expenses
incident thereto and that Ponce de Leon and the RFC be made to pay them moral damages which
their father suffered and attorney's fees.
Answering the third-party complaint, the RFC and Ponce de Leon affirm the legality of the mortgage
deed insofar as Soriano is concerned. The RFC further contends that the mortgage was binding on
the whole Soriano lot and that there was no valid redemption of this lot.
Ponce de Leon interposed a counterclaim for various sums of money allegedly received from him by
Francisco Soriano and the present third-party plaintiffs. 2
In due course, the lower court rendered judgment the dispositive part of which is quoted at the beginning of this
decision. Said court held that the typhoons in October and November 1952 did not relieve the plaintiff from his
obligations under the promissory note and the deed of mortgage in favor of the RFC; that the sheriff's sale of the
mortgaged properties is valid; that the RFC need not account for the machineries and equipment of the sawmill in
Samar or reimburse the value of such machinery and equipment as may be unaccounted for, they having become
property of the RFC, owing to plaintiff's failure to exercise the right of redemption in accordance with law; that
neither may he recover damages from the RFC for the alleged delay in the releases made by the same, since their
contract stipulates that the proceeds of the loan shall be released at the discretion of the Mortgagee and plaintiff's
offer of redemption came long after the expiration of the period therefor, and was not for the full amount of plaintiff's

liability, which he, moreover, asked to be reduced and wanted to pay in installments; and that, accordingly, plaintiff
has no right to recover any damages.
Upon the other hand, the court found that plaintiff should pay: (1) rentals for the use of the mortgaged property
(house and lot) at Pasay City, after the title thereto had passed to the RFC, and (2) the sum of P529,265.54,
representing the balance of plaintiff's obligation in favor of the RFC which, as of November 24, 1954, amounted
to P583,270.49, plus 10% thereof, as stipulated penalty, or the aggregate sum of P641,597.54 -after deducting
therefrom the sum of P112,332.00 for which the mortgaged properties had been sold, (3) apart from the sum of
P5,000.00, as damages for the injunction issued, at his behest, and the costs.
As regards the third party complaint of the Sorianos, the lower court: (1) overruled their claim to the effect that
Francisco Soriano had signed the promissory note and the deed of mortgage in favor of the RFC without knowledge
of the contents thereof and without any consideration therefor; but (b) held that, being registered in the name of
"Francisco Soriano, married to Tomasa Rodriguez," the property covered by original certificate of title No. 8094
hereinafter referred to as the Paraaque property is presumed to belong to the conjugal partnership of said
spouses, and that, the RFC having failed to offset this presumption, the mortgage on and the sale of the property by
the sheriff are null and void as to one-half () thereof.
Moreover, the court declared: (a) that the RFC was justified in rejecting the offer, made by the Sorianos, to redeem
said property for, pursuant to section 78 of Republic Act No. 337, redemption could be effected "only by paying the
amount fixed in the order of execution;" (b) that plaintiff's counterclaim against the Sorianos is barred by the statute
of limitations; (c) that neither may he recover damages from the Sorianos, their alleged bad faith not bound to pay
damages to the RFC, the action of the former against the latter not being altogether unjustified.
All of the parties namely, plaintiff, Jose Ponce de Leon, defendant, Rehabilitation Finance Corporation,
hereinafter referred to as RFC (now Development Bank of the Philippines), and Rosalina Soriano, Fr. Eugenio
Soriano and Teofila Soriano del Rosario, hereinafter referred to as the Sorianos have appealed from said
decision.
Appeal of the Sorianos
The Sorianos maintain that the lower court erred: (1) in holding that the promissory note and the deed of mortgage
executed by Francisco Soriano in favor of the RFC are valid as regards one-half of the Paraaque property; (2) in
ruling that the extrajudicial sale thereof to the RFC is valid as to the aforementioned one-half of said property; (3) in
not sentencing the RFC to allow the redemption of such half of said property by the Sorianos, as heirs of the
deceased Francisco Soriano, for one-half of the sum of P10,000 for which the whole lot was sold to the RFC, or, at
least, for the whole sum of P10,000; (4) in not declaring that section 78 of Rep. Act No. 337 is unconstitutional and
in holding that the same, instead of Act No. 3135, as amended by Act No. 4118, is the law applicable to the case; (5)
in considering that the case of Villar v. de Paderanga 3 is authoritative or controlling in the case at bar; (6) in not
sentencing the plaintiff and the RFC to pay damages to the Sorianos; (7) in not ordering the RFC to return OCT No. 8094,
covering the Paraaque property, to the Sorianos, free from any lien or encumbrance; and (8) in denying the motion for
reconsideration of the Sorianos.
The latter's first assignment of error is predicated upon theory that, when the promissory note and the deed of
mortgage in question were executed by Francisco Soriano, he was somewhat absent-minded, owing to senility, he
being then a septuagenarian, apart from illiterate, for he could write only his name; that he was persuaded to sign
said promissory note and deed of mortrage thru fraud, deceit and undue influence, and did not know the true nature
of these instruments when he affixed his signatures thereon; and that said instruments are also null and void for lack
of cause and consideration. In this connection, the appealed decision has the following to say:

The third-party plaintiffs ask that the mortgage deed and promissory note be declared null and void
with respect to Francisco Soriano for lack of consent and consideration. It is claimed that Francisco
Soriano was made to believe by Ponce de Leon when he signed the mortgage deed and the
promissory note that these were documents releasing his land from the previous mortgage in favor
of the PNB and that Francisco Soriano did not receive a single centavo out of the RFC loan.
The principal witness on the above allegation of the third-party plaintiffs is Rosalina Soriano, who
testified that her father, Francisco was an old man who was absent-minded; that in 1945, Ponce de
Leon merely borrowed her father's certificate of title on the pretext that he would see if it were valid;
that she gave it to Ponce de Leon who never returned the certificate and it turned out that the latter
mortgaged it to the PNB by deceiving her father in signing the mortgage contract; that in 1951, her
father received a sheriff's notice that the land would be foreclosed; that her father went to see Ponce
de Leon in Negros but the latter assured him that nothing would happen to his land; that in October,
1951, she and her father went to see Ponce de Leon; that when the latter told her father that the
property was mortgaged to the RFC, her father got angry at Ponce de Leon saying that the latter
fooled him but Ponce de Leon assured him that he would redeem the land but he failed to do so.
Ponce de Leon denied having deceived Francisco Soriano into signing the mortgage deed covering
his land, saying that the transaction was with the full and complete knowledge and understanding of
Francisco Soriano. He was supported by Felipe Cuaderno, Jr., the Notary Public, who notarized the
mortgage deed, who said that he explained and translated into Tagalog, a language known and
spoken by Francisco Soriano, the mortgage deed.
The fact that Francisco Soriano may have been absent-minded could not be said to have the effect
of vitiating his consent to the mortgage deed because the execution and signing of a contract is not
a matter that concerns past events in which absent-mindedness may be taken into account.
Besides, the testimony of Rosalina Soriano to the effect that her father told Ponce de Leon that the
latter fooled him shows that the old man Soriano could remember past events, for if truly absent-
minded, Francisco would not recollect what he claims to be what really took place at the RFC office
as testified to by Rosalina.
Neither could Francisco Soriano be considered feeble-minded if we believe the testimony of

Rosalina which shows Soriano's determination to see to it that the wrong done him was righted and
that his property may not be taken away from him, for according to Rosalina, he even went to
Negros alone to see Ponce de Leon he received the Sheriff's notice of foreclosure and as shown by
his alleged going to see Ponce de Leon a number of times about his land and of his enlisting the aid
of Ramon Lacson.
The Sorianos stress that, according to Felipe Cuaderno, Jr., the Notary Public, when the latter asked
Francisco Soriano, after he had translated the mortgage deed into Tagalog if he (Francisco)
understood it, it was Ponce de Leon who said that the old man already (k)new it. But, granting that
this was what happened, yet, Francisco Soriano would certainly have protested against the
statement of Ponce de Leon if Francisco did not really know what the transaction was about or he
would have told Cuaderno that the document was not in accordance with the agreement between
him and Ponce de Leon considering that the document was already translated to the old man by
Cuaderno in the Tagalog language which Soriano understood.
Besides, if Ponce de Leon really deceived Francisco Soriano into signing the mortgage deed and
promissory note so much so that in October, 1951, the old man Soriano was so angry at Ponce de

Leon that he told the latter that he fooled him as testified to by Rosalina Soriano, then why was it
that Ponce de Leon was made one of the sponsors of the thanksgiving mass of the Neo-Prysbeter
Rev. Fr. Eugenio Soriano, the old man's son and one of the present third-party plaintiffs? The
conduct of the Sorianos in making Ponce de Leon one of the sponsors in the thanksgiving mass of
Rev. Fr. Eugenio Soriano in which Ponce de Leon spent a considerable amount for the big feast that
followed the mass is inconsistent with the Sorianos' claim that Ponce de Leon had hoodwinked
Francisco Soriano into signing the mortgage instrument and the promissory note.
Moreover, the mere oral unsupported testimony of Rosalina Soriano, an interested party and one of
the plaintiffs herein, is not sufficient to overcome the legal presumption of the regularity of the
mortgage deed, a contract celebrated with all the legal requisites under the safeguard of a notarial
certificate (Naval, et al. v. Enriquez, 3 Phil. 670-72). Such unsupported testimony of the interested
party Rosalina Soriano is not that clear, strong and convincing evidence beyond mere
preponderance of evidence, required to show the falsity or nullity of a notarial document (Sigue, et
al. v. Escaro CA, 53 Q.C. 1161; Jocson v. Ratacion, G.R. No. 41687; Palanca v. Chillanchin v.
Coquinco, G.R. No. L-1355; Robinson v. Villafuerte, 18 Phil. 171).
With reference to the contention that there was no consideration received by Francisco Soriano out
of the mortgage contract and the promissory note executed in connection therewith, this is a matter
which concerned merely Francisco Soriano and Jose L. Ponce de Leon for Francisco Soriano had
expressly in writing (Exhibit '33-a-Soriano') authorized Jose L. Ponce de Leon to have the check or
checks covering the amount of the mortgage issued in the name of said Jose L. Ponce de Leon.
Whatever arrangements the latter and Francisco Soriano may have had with respect to the amounts
thus given by the RFC on account of the mortgage is not the concern of the RFC if Ponce de Leon
did not in fact give any portion of the amount to Francisco Soriano. At any rate, there is ample
evidence to show that Francisco Soriano received part of the consideration of the loan from the
RFC. It will be recalled that part of this loan was paid for the obligation of Francisco Soriano and
Ponce de Leon to the Philippine National Bank secured by a mortgage of the lot in the name of
Francisco Soriano. That Francisco Soriano received portions of this PNB loan from Ponce de Leon is
shown by the fact that on August 16, 1945, Francisco Soriano received the amount of
P2,000.00 from Ponce de Leon, evidenced by the receipt exhibit "N", and this amount must have
been part of the P10,000.00 consideration of the PNB mortgage because this mortgage was
executed on August 11, 1945 or two days before Soriano received from Ponce de Leon the amount
of P2,000.00 on August 16, 1945. And two days thereafter, on August 18, 1945, Francisco Soriano
again received from Ponce de Leon the amount of P350.00 as shown by the receipt exhibit '0-3'
and, on April 27, 1945, the amount of P1,000.00 was received by Francisco Soriano from Ponce de
Leon as shown by his receipt exhibit "0-1" to pay the mortgage on his lot to Apolonio Pascual. On
March 12, 1952, Francisco Soriano received the amount of P3,000.00 from de Leon as shown by the
check exhibit 'X-2" and on June 3, 1952, the amount of P50.00 as shown by the check exhibit "X-
6" and P200.00 on October 22, 1952 as shown by the check exhibit "X-7". Rosalina Soriano herself
received P50.00 on March 30, 1952 from Ponce de Leon as shown by the check marked Exhibit "X-
3" and third-party plaintiff Rev. Eugenio Soriano received P100.00 on March 3, 1952 as shown by
the check exhibit "X-1" and P50.00 on March 13, 1952 as shown by exhibit "X-4." There is therefore
no ground for declaring the mortgage contract and promissory note invalid for lack of consideration
insofar as Francisco Soriano and his children are concerned. 4
The facts thus relied upon by His Honor, the Trial Judge, are borne out by the record, and We are fully in accord with
the conclusions drawn therefrom.

In support of their second assignment of error, the Sorianos maintain that the sum of P10,000, for which the
Paraaque property was sold to the RFC, is ridiculously inadequate, considering that said property had been
assessed at P59,647.05. This pretense is devoid of merit, for said property was subject to redemption and:
... where there is the right to redeem ... inadequacy of price should not be material, because the
judgment debtor may re-acquire the property or else sell his right to redeem and thus recover any
loss he claims to have suffered by reason of the price obtained at the execution sale. 5
Then, again, as the trial court had correctly of served:
But, mere inadequacy of the price obtained at the sheriff's sale unless shocking to the conscience
will not be sufficient to set aside the sale if there is no showing that, in the event of a regular sale, a
better price can be obtained. The reason is that, generally, and, in forced sales, low prices are
usually offered (1 Moran's Rules of Court, pp. 834-835). Considering that in Gov't of P.I. v. Sorna,
G.R. No. 32196, wherein property worth P120,000.00 was sold for only P15,000.00, in Philippine
National Bank v. Gonzales, 45 Phil. 693, wherein property valued at P45,000.00 was sold for
P15,000.00 and in Cu Unjieng & Sons v. Mabalacat Sugar Co., 58 Phil. 439, property worth
P300,000.00 to P400,000.00 was sold for P177,000.00, the Court cannot consider the sale of the
Bacolod properties, the Taft Avenue house and lot and the Paraaque property of the Sorianos null
and void for having been sold at inadequate prices shocking to the conscience and there being no
showing that in the event of a resale, better prices can be obtained. 6
The third, fourth and fifth assignments of error of the Sorianos refer to the amount for which they feel entitled to
redeem the aforementioned property.
It will be recalled that, before the expiration of the redemption period, Teofila Soriano del Rosario offered to
repurchase said property for P14,000; that she and her sister Rosalina reiterated the offer on the last day of said
period; and that the offer was rejected by the RFC, whose action was upheld by the lower court, inasmuch as sec.
78 of Rep. Act 337 provides that, "(i)n the event of foreclosure ... the mortgagor or debtor whose real property has
been sold at public auction ... for the ... payment of an obligation to any bank, banking, or credit institution, ... shall
have the right ... to redeem the property by paying the amount fixed by the court in the order of execution, ...," not
the amount for which it had been purchased by the buyer at public auction. We have already declared that" ... (o)nly
foreclosure of mortgages to banking institutions (including the Rehabilitation Finance Corporation) and those
made extrajudicially are subject to legal redemption, by express provision of statute, ..." 7 and, although neither an ordinary
bank nor the RFC was involved in the case in which this pronouncement had been made, the same was relevant to the subject-matter of said case and to the
issue raised therein. At any rate, We reiterate the aforementioned pronouncement, it being in accordance with law, for, pursuant to Rep. Act No. 337:
... The terms "banking institution" and "bank," as used in this Act, are synonymous and
interchangeable and specifically include banks, banking institutions, commercial banks, savings
banks, mortgage banks, trust companies, building and loan associations, branches and agencies in
the Philippines of foreign banks, hereinafter called Philippine branches, and all other corporations,
companies, partnerships, and associations performing banking functions in the Philippines. 8
The Sorianos insist that the present case is governed, not by Rep. Act No. 337, but by Act No. 3135, as amended by
Act No. 4118 pursuant to which, in relation to section 465 of Act No. 190, the redemption may be made by
"paying the purchaser the amount of his purchase," with interest and taxes the deed of real estate mortgage in
favor of the RFC having allegedly been executed and the aforementioned property having been sold pursuant to
said Acts Nos. 3135 and 4118.

The conclusion drawn by the Sorianos from these facts is untenable. As set forth in its title, Act No. 3135 was
promulgated "to regulate the sale of property under special powers inserted in or annexed to real estate mortgages,"
Section 6 thereof provides that in all cases of "extrajudicial sale ... made under the special power hereinbefore
referred to," the property sold may be redeemed within "one year from and after the date of the sale ...." Act No.
4118 amended Act No. 3135 by merely adding thereto three (3) new sections. Upon the other hand, Rep. Act No.
337, otherwise known as "The General Banking Act," is entitled "An Act Regulating Banks and Banking
Institutions and for other purposes." Section 78 thereof limits the amount of the loans that may be given by banks
and banking or credit institutions on the basis of the appraised value of the property given as security, as well as
provides that, in the event of foreclosure of a real estate mortgage to said banks or institutions, the property sold
may be redeemed "by paying the amount fixed by the court in the order of execution," or the amount judicially
adjudicated to the creditor bank. This provision had the effect of ammending section 6 of Act No. 3135, insofar as
the redemption price is concerned, when the mortgagee is a bank or a banking or credit institution, said section 6 of
Act No. 3135 being, in this respect, inconsistent with the above-quoted portion of section 78 of Rep. Act No. 337. In
short, the Paraaque property was sold pursuant to said Act No. 3135, but the sum for which it is redeemable shall
be governed by Rep. Act No. 337, which partakes of the nature of an amendment to Act No. 3135, insofar as
mortgages to banks are banking or credit institutions are concerned, to which class the RFC belongs. At any rate,
the conflict between the two (2) laws must be resolved in favor of Rep. Act No. 337, both as a special and as the
subsequent legislation. 9
The sixth, seventh and eighth assignments of error made by the Sorianos are mere consequences of those already
disposed of. Hence, no further discussion thereof is necessary.
Plaintiff's Appeal
Plaintiff Ponce de Leon alleges that the lower court has erred: (1) "in not setting aside the foreclosure sales on the
mortgage contract dated October 8, 1951"; (2) "in stating that the proceeds of the foreclosure sales were
conscionable"; (3) in not granting Ponce de Leon's claim for adjustment and not "giving him a reasonable time to
pay whatever obligations he may have"; (4) in not granting him damages nor directing the return of his properties;
(5) "in not ordering a new trial for the purpose of adjusting" his "obligations and determining the terms and
conditions of his obligation"; and (6) in not granting his claim against the Sorianos.
With respect to his first assignment of error, plaintiff maintains that his promissory note Exhibit A was not yet
overdue when the mortgage was foreclosed, because the installments stipulated in said promissory note have "no
fixed or determined dates of payment," so that the note is unenforceable and "the RFC should have first asked the
court to determine the terms, conditions and period of maturity thereof."
In this connection, it should be noted that, pursuant to Exhibit A, the total sum of P495,000 involved therein shall be
satisfied in quarterly installments of P28,831.64 each representing interest and amortization and that, although
the date of maturity of the first installment was left blank, the promissory note states that the "date of maturity (was)
to be fixed as of the date of the last release," completing the delivery to the plaintiff of the sum of P495,000 lent to
him by the RFC. He now says that this sum of P495,000 has not, as yet, been fully released by the RFC. But this is
contrary to the facts of record, for, during the trial, his counsel, Atty. Jose Orozco, made the following admission:
Out of the loan of P495,000.00, the following were paid to the creditors of Jose Ponce de Leon:
P100,000.00 to the PNB, P30,000.00 to Cu Unijeng Bros. P5,000.00 to Arturo Colmenares,
P1,000.00 to Lorenzo Balagtas. The total amount paid to the creditors is P136,000.00 which
were taken out of the proceeds of P495,000.00. The rest were all paid in the name of Jose Ponce de
Leon. 10

In short, part of the sum of P495,000 had been delivered by the RFC to the creditors of the plaintiff and Francisco
Soriano, as agreed upon by them, in payment of their outstanding obligations, and the balance of said sum of
P495,000 was turned over to the plaintiff, with the written authorization and conformity of Francisco Soriano. This is
borne out by the fact that, prior to the institution of this case, plaintiff had not complained of failure of the RFC to fully
release the aforementioned sum of P495,000. Indeed, in his own complaint herein, he merely alleged a "delay in the
release." Even so, he impliedly admitted that the first installment was due in October 1952 or, more specifically,
on October 24, 1952, this being the date given therefor in the letter-demands of the RFC, the accuracy of which
were not questioned by the plaintiff so that the last release made by the RFC to complete the sum of P495,000
must have taken place on July 24, 1952, although, in answer to a question propounded to him, by his own counsel,
as regards the date he "received the total amount granted by the RFC," plaintiff said on the witness stand he
"believed that it was in the last part or quarter of 1953." At this juncture, it is noteworthy that plaintiff claims the right
to a suspension of payment or an extension of the period to pay the RFC owing to the typhoons that had lashed his
sawmill in October and November 1952, thus indicating clearly that the amount of the loan extended to him and
Francisco Soriano had then been fully released by the RFC three (3) months before October 1952 and that the first
installment under the promissory note Exhibit A was due that month, as claimed by the RFC.
At any rate, Annex A, in effect, authorized the RFC to fix the date of maturity of the installments therein stipulated,
which is allowed by the Negotiable Instruments Law 11 and when a promissory note expresses "no time for payment," it
is deemed "payable on demand." 12
Under his second assignment of error, plaintiff maintains that the aggregate price of P112,332.00, for which the
mortgaged properties had been sold at public auction, is unconscionable, said properties being allegedly worth
P1,202,976. This premise is inaccurate.
It should be noted that plaintiff and Francisco Soriano were granted a P495,000 loan on the security, not only, of
the existing properties offered as guarantee, but, also, on that of assets appraised at P570,000 yet to be
acquired only plaintiff, partly with money thus received from the RFC and partly with his own funds. After obtaining
said loan and receiving the amount thereof, less the sum of P136,000 applied to the payment of outstanding
obligations, plaintiff failed to purchase the machinery and equiptment he had promised to get, or to set up the
constructions he had undertaken to make. Moreover, the RFC found that the mortgaged lots in the cities of Pasay
and Bacolod, which were originally appraised at P492,288.00, were actually worth P172,530,00 only. Again, a good
part of the machinery and equipment existing in one of the mortgaged lands, when it was inspected before the
granting of the loan, were subsequently lost or missing, and those that remained were, at the time of the sale to the
RFC, in bad shape, so that the appraised value thereof was then estimated at P10,000 only. Under these
circumstances, it is clear that the lower court did not err in approving the sale of the mortgaged properties for the
aggregate sum of P112,332.
As regards his third assignment of error, it is urged by the plaintiff that he is entitled to a "suspension of payment," or
a postponement of the date of maturity of obligation to pay, in view of the typhoons that had "practically wiped out"
his sawmill in Samar during the months of October and November 1952. This claim is predicated upon Article 1174
of our Civil Code, reading:
... Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or
when the nature of the obligation requires the assumption of risk, no person shall be responsible for
those events which could not be foreseen, or which, though foreseen, were inevitable.
Plaintiff cannot avail of the benefits of this provision since he was not bound to deliver the aforementioned sawmill,
or any other specific thing damaged or destroyed by typhoons, to the RFC. His obligation was merely generic,
namely, to pay certain sums of money to the RFC, at stated intervals. As His Honor, the Trial Judge had aptly put it:

... in the instant case, there was an obligation on the part of the debtor to pay his loan, independently
of the purpose for which the money loaned was intended to be used and this obligation to pay
continues to subsist notwithstanding the fact that it may have become impossible for the debtor to
use the money loaned for the particular purpose that was intended (Milan v. Rio y Glabarrieta, 45
Phil. 718). There is hence no ground for declaring the amortizations due on the principal loan since
October, 1952 as extinguished due to fortuitous event or to grant plaintiff a reasonable time to pay
the due amortizations as asked for by Ponce de Leon in his complaint. 13
Being mere corollaries to his first three assignments of error, which cannot be sustained, plaintiff's fourth, fifth and
sixth assignments of error must have the same fate.
Defendant's Appeals
The RFC contends that the lower court erred: (1) in holding that the Paraaque property is presumed to belong to
the conjugal partnership of Mr. and Mrs. Francisco Soriano; (2) in failing to give due weight to the testimony of
Gregorio Soriano, and in holding that the same is insufficient to overcome the presumption in favor of the conjugal
nature of said property; (3) in failing to consider that the Sorianos are now estopped from questioning the validity of
the mortgage on and the foreclosure sale of said property; (4) in annulling the mortgage insofar as one-half of said
property is concerned, despite the finding that part of the proceeds of the RFC loan was paid to settle the PNB loan
secured by the same property; and (5) in holding that the mortgage thereon and the sheriff's sale thereof to the RFC
are null and void as regards, one-half of said property. These assignments of error may be reduced to one, namely
that the lower court erred in avoiding the sale to the RFC of the Paraaque property, upon the ground that the same
formed part of the conjugal partnership of Mr. and Mrs. Francisco Soriano.
In this connection, it appears that the property was registered in the name of "Francisco Soriano, married to Tomasa
Rodriguez," and that based upon this fact alone without any proof establishing satisfactorily that the property had
been acquired during coverture the lower court presumed that it belongs to the conjugal partnership of said
spouses. We agree with the RFC that the lower court has erred in applying said presumption.
We should not overlook the fact that the title to said property was not a transfer certificate of title, but an original one,
issued in accordance with a decree which, pursuant to law, merely confirms a pre-existing title. 14 Said original
certificate of title does not establish, therefore, the time of acquisition of the Paraaque property by the registered owner
thereof.
Then, again, the lower court applied said presumption, having in mind, presumably, Article 160 of our Civil Code,
which reads:
... All property of the marriage is presumed to belong to the conjugal partnership, unless it be proved
that it pertains exclusively to the husband or to the wife.
This provision must be construed in relation to Articles 153 to 159 of the same Code, enumerating the properties
"acquired ... during the marriage" that constitute the conjugal partnership. Consistently therewith, We have held that
"the party who invokes this presumption must first prove that the property in controversy was acquired during the
marriage. In other words, proof of acquisition during coverture is a condition sine qua non for the operation of the
presumption in favor of conjugal partnership." 15 It had, earlier, been declared, 16 that "(t)he presumption under Article
160 of the Civil Code refers to property acquired during the marriage ...." We even added that, there being "no showing as
to when the property in question was acquired ... the fact that the title is in the wife's name alone is determinative." This is
borne out by the fact that, in the previous cases applying said presumption, 17 it was duly established that the property in

question therein had been acquired during coverture. Such was, also, the situation obtaining in Servidad v.
Alejandrino 18 cited in the decision appealed from.
The case at bar is differently situated. The Sorianos have not succeeded in proving that the Paraaque property
was acquired "during the marriage" of their parents. What is more, there is substantial evidence to the contrary.
Gregorio Soriano testified that his first cousin, Francisco Soriano, had acquired said property from his parents, long
before he got married. In this connection, the lower court, however, said that:
... the credibility of this witness is subject to doubt for it was shown that he had an improper motive in
testifying against the third-party plaintiffs because he had a niece who was prosecuted by the third-
party plaintiffs for estafa, .... 19
This observation is, to our mind, hardly justifiable. To begin with, when counsel for the Sorianos asked the witness
whether or not his grandchild or grandniece Flordeliza Clemente had been accused of "estafa" by the Sorianos,
counsel for the RFC objected thereto, and the court sustained the objection, upon the ground that the question was
"irrelevant." As a consequence, there is no evidence of the prosecution of Flordeliza Clemente by the Sorianos.
What is more, the ruling of the court declaring the matter "irrelevant" to the present case rendered it unnecessary for
the RFC to prove that said prosecution if it were a fact had nothing to do with the testimony of Gregorio
Soriano. It would, therefore, be less than fair to the RFC to draw an inference adverse thereto resulting from the
absence of evidence to this effect. At any rate, said prosecution does not necessarily warrant the conclusion that
Gregorio Soriano was impelled by an "improper motive" in testifying as he did. After all, the Sorianos are, likewise,
nieces of Gregorio Soriano and he was not the party allegedly accused by them.
Again, this witness testified in a straightforward manner, and disclosed a good number of details bearing the ear-
marks of veracity. What is more, his testimony was corroborated, not only by Felipe Cuaderno, Jr. and OCT No.
8094, but, also, by the testimony of third-party plaintiff Rosalina Soriano. Indeed, Felipe Cuaderno, Jr. an
assistant attorney and notary public of the RFC, before whom the deed of mortgage was acknowledged testified
that, in a conference he had before the execution of the promissory note and the deed of mortgage in favor of said
institution, Francisco Soriano assured him that the Paraaque property was "his own separate property, having
acquired it from his deceased father by inheritance and that his children have nothing to do with the property." This
was, in effect, confirmed by no less than Rosalina Soriano, for she stated, on cross-examination, that her father,
Francisco Soriano, "was born and ... raised" in said property, so that contrary to her testimony in chief he could
not have told her that he and his wife had bought it, as the Sorianos would have Us believe.
Needless to say, had the property been acquired by them during coverture, it would have been registered, in the
name not of "Francisco Soriano, married to Tomasa Rodriguez," but of the spouses "Francisco Soriano and Tomasa
Rodriguez." In Litam v. Espiritu, 20 We quoted with approval the following observation made in the decision under review
therein:
Further strong proofs that the properties in question are the paraphernal properties of Marcosa
Rivera, are the very Torrens Titles covering said properties. All the said properties are registered in
the name of "Marcosa Rivera, married to Rafael Litam." This circumstance indicates that the
properties in question belong to the registered owner, Marcosa Rivera, as her paraphernal
properties, for if they were conjugal, the titles coveting the same should have been issued in the
names of Rafael Litam and Marcosa Rivera. The words 'married to Rafael Litam'written after the
name of Marcosa Rivera, in each of the above mentioned titles are merely descriptive of the civil
status of Marcosa Rivera, the registered owner of the properties covered by said titles.

The records further show that on August 16, 1945 or two (2) days after the execution of the deed of mortgage for
P10,000 in favor of the PNB Francisco Soriano received P2,000 from plaintiff herein; that, early in 1951,
Francisco Soriano received a letter informing him that the PNB mortgage on the Paraaque property would be
foreclosed, unless the debt guaranteed therewith were settled; that, accordingly, his children came to know of the
mortgage in favor of the PNB; that on October 8, 1951, said mortgage was transferred to the RFC; that, thereafter,
or from March to October 1952, Francisco Soriano and his children, Rosalina Soriano and Eugenio Soriano,
received several sums of money, aggregating P3,450, from plaintiff herein; that the latter, moreover, spent over
P6,000 on the occasion of the ordination of third-party plaintiff, Eugenio Soriano, as a priest, on April 20, 1952; that
plaintiff, also, paid the bills of Francisco Soriano in the Singian Clinic when he fell sick in 1953; and that the former
had, likewise, paid the real estate tax on the Paraaque property from 1947 to 1952.
Under these circumstances, it is difficult to believe that Sorianos did not know then of the mortgage constituted by
Francisco Soriano, on October 8, 1951, in favor of the RFC. In fact, Rosalina Soriano testified that when, that
month, Francisco Soriano and she conferred with the plaintiff, he stated that the Paraaque property was mortgaged
to the RFC, whereupon her father got angry at the plaintiff and said that he had fooled him (Francisco Soriano).
Being thus aware of said mortgage since October 1951, the Sorianos did not question its validity until January
12, 1957, when they filed in this cage their third-party complaint in intervention as regards, at least, one-half of
the Paraaque property, which they now claim to be their mother's share in the conjugal partnership. Worse
still, after the foreclosure sale in favor of the RFC, they tried to redeem the property for P14,000, and, when the RFC
did not agree thereto, they even sought the help of the Office of the President to effect said redemption.
Their aforementioned failure to contest the legality of the mortgage for over five (5) years and these attempts to
redeem the property constitute further indicia that the same belonged exclusively to Francisco Soriano, not to the
conjugal partnership with his deceased wife, Tomasa Rodriguez. Apart from the fact that said attempts to redeem
the property constitute an implied admission of the validity of its sale and, hence, of its mortgage to the RFC
there are authorities to the effect that they bar the Sorianos from assailing the same.
... defendants, by their repeated requests for time to redeem had impliedly admitted and were
estopped to question the validity and regularity of the Sheriff's sale. 21
The petitioner himself believed that the company had a right to cancel, because in March, 1932, i.e., after
the cancellation, he proposed the repurchase of the property, and the company agreed to resell it to
him .... Unluckily he could make no down payment and the repurchase fell through. Wherefore, it is now
too late for him to question the cancellation, inasmuch as he practically ratified it, .... 22
The fact that Mallorca failed to exercise her right of redemption, which she sought to enforce in a judicial
court, ends her interest to the land she claims, and, doubtless, estops her from denying PNB's mortgage
lien thereon. 23
It is thus clear that the lower court erred in annulling the RFC mortgage on the Paraaque property and its sale to
the RFC as regards one-half of said property, and that the decision appealed from should, accordingly, be modified,
by eliminating therefrom the second paragraph of its dispositive part, quoted earlier in this decision.
With this modification and that of other pertinent parts of the decision appealed from, the same is hereby affirmed in
all other respects, with the costs of this instance against plaintiff, Jose L. Ponce de Leon and third-party plaintiffs,
Rosalina Soriano, Teofila Soriano del Rosario and Father Eugenio Soriano. It is so ordered.
Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo and Villamor, JJ., concur.

Dizon and Makasiar, JJ., are on leave.

42. G.R. No. L-14883 July 31, 1963
NARCISA BUENCAMINO, AMADA DE LEON-ERAA, ENCARNACION DE LEON and BIENVENIDO B.

ERAA,petitioners-appellants,
vs.
C. HERNANDEZ, as City Treasurer of Quezon City,
JAIME HERNANDEZ, as Secretary of Finance and
LAND TENURE ADMINISTRATION, respondents-appellees.
N. S. Sison for petitioners-appellants.

Revilla, Lustre and Agloro for respondents-appellees.
REGALA, J.:
This is an appeal from the order of the Quezon City Court of First Instance, Judge Nicasio Yatco, presiding,
dismissing the petition for mandamus filed by the herein petitioners to compel the respondent City Treasurer of
Quezon City to accept Government negotiable land certificates as payment for land taxes.
The respondent City Treasurer accepts the following statement of facts set forth in the petitioners' brief:
On May 11, 1957, the Land Tenure Administration, LTA for short, purchased from the petitioners Narcisa
Buencamino, Amada de Leon-Eraa, and Encarnacion de Leon, and other members of the de Leon family their
hacienda in Talavera, Nueva Ecija for a total consideration of P2,746,000.00. For the purpose, a Memorandum
Agreement was executed on the said date which expressly declared that the LTA was purchasing the hacienda upon
petition of the tenants thereof in accordance with Republic Act No. 1400, otherwise known as the Land Reform Act
of 1955.
The parties to the sale agreed that of the full price of P2,746,000.00, 50% or P1,373,000.00 was to be paid in cash
and the balance in negotiable land certificates. Below is a reproduction of one such negotiable land certificate
typical of and identical to all the other issued by the LTA to the petitioners.
AMOUNT: P10,000.00
NEGOTIABLE LAND CERTIFICATE

THE GOVERNMENT OF THE REPUBLIC OF
THE PHILIPPINES
is indebted unto the

BEARER
in the sum of TEN THOUSAND PESOS. This certificate is issued in accordance with the provisions
of Section 9, Republic Act No. 1400, entitled "AN ACT DEFINING A LAND TENURE POLICY,
PROVIDING FOR AN INSTRUMENTALITY TO CARRY OUT THE POLICY, AND APPROPRIATING
FUNDS FOR ITS IMPLEMENTATION", approved September 9, 1955, and is due and payable to
BEARER on demand and upon presentation at the Central Bank of the Philippines without interest, if
presented for payment within five years from the date of issue; with interest at the rate of 4 per
centum per annum, if presented for payment after five years from the date of issue; with interest at
the rate of 4- per centum per annum, if presented for payment after ten years from the date of
issue; and, with interest at the rate of 5 per centum per annum, if presented for payment after fifteen
years from the date of issue. Both principal and interest are payable by the Treasurer of the
Philippines, through the Central Bank of the Philippines, in legal tender currency of the Philippines.
This land certificate is part of the total negotiable land certificates issued and limited to the aggregate
principal sum of SIXTY MILLION PESOS a year, to be issued during the first two years from

September 9, 1955 when Republic Act No. 1400 was approved, and P30 million each year during
the succeeding years, for the purchase of private agricultural lands for resale at cost to bona-fide
tenants or occupants, or, in the case of estates abandoned by the owners for the last five years, to
private individuals who will work the lands themselves and who are qualified to acquire or own lands,
but who do not own more than six hectares of lands in the Philippines.
Manila, Philippines, August 9, 1957.
Encashment of this certificate may not be made until after five (5) years from the date of execution of
the Deed of Sale of Hacienda de Leon, pursuant to the conditions under Paragraph "b" of the
Memorandum Agreement executed between the Land Tenure Administration and the owners of
Hacienda de Leon on May 11, 1957, acknowledged before Marcelo Lagramada, Notary Public for
Manila, as Doc. No. 324, Page 66, Book No. 6, Series of 1957.
(Sgd.) JUAN CAIZARES

Registrar of the Central
Bank of the Philippines
(Sgd.) CARLOS P. GARCIA

President of the Phil.
(Sgd.) VICENTE GELLA

Treasurer of the Phil.
Date of issue: August 9, 1957

Recorded: Illegible
Examined: Illegible
The condition in the certificate regarding its encashment only after the lapse of five years from the date of execution
of the Deed of Sale of Hacienda de Leon was adopted or taken from the Memorandum Agreement of May 11, 1957
first mentioned above and which was subsequently ratified by the Cabinet and the President. As stipulated in the
said document, the condition reads:
B. That the mode of payment shall be 50% in cash and 50% in negotiable land certificates except that the
encashment of the said negotiable land certificate may not be made until after five (5) years from the date of
the execution of the deed of sale with the payments of the corresponding interest, said negotiable land
certificate may be applied and used for all the purposes authorized by Republic Act No. 1400 and other
pertinent laws on the matter within the said period of five (5) years; (page 3, Memorandum Agreement). 1wph1.t
Subsequently, this stipulation was incorporated and clarified in the Absolute Deed of Sale executed to formalize the
terms contained in the Memorandum Agreement. Under the deed of sale, dated July 31, 1957, the above condition
was
That the VENDORS shall not, however, within five (5) years, present for encashment the negotiable land
certificates amounting to ONE MILLION THREE HUNDRED SEVENTY THREE THOUSAND PESOS
(P1,373,000.00) but nevertheless, shall be authorized to use the same for payment of land taxes or
obligations due and payable in favor of the Government and such other uses or purposes provided for by
Section 10 of Republic Act No. 1400 within the said period of five (5) years from this date. (page 4, Absolute
Deed of Sale)

Doubtless, therefore, the aforecited provisions of the Memorandum Agreement and the Absolute Deed of Sale in
relation to the condition in the negotiable land certificate were mere implementation of Section 10 of Republic Act
No. 1400, which provided:
Sec. 10. Uses of certificates. Negotiable land certificates maybe used by the holder thereof for any of the
following purposes:
xxx xxx xxx
(3) Payment of all tax obligations of the holder thereof, or of any debt or monetary obligation of the holder to
the Government or any of its instrumentalities or agencies, including the Rehabilitation Finance Corporation
and the Philippine National Bank; Provided, however, That payment of indebtedness shall not be less than
twenty per centum of the total indebtedness of the debtor; and .
xxx xxx xxx
Availing themselves of what they considered was their contractual and statutory rights under the certificate, the
petitioners presented two of them to the respondent City Treasurer in payment of certain 1957 realty tax obligations
to Quezon City. The respondent Treasurer refused to accept the same and claimed that as per the opinion rendered
by the Secretary of Finance, it was discretionary on his part, the respondent Treasurer, to accept or reject the said
certificates. And, invoking his discretion in the premises, the respondent Treasurer explained that he could not
accept the certificates offered as Quezon City was then in great need of funds.
The petitioners were thus obliged to settle in cash the 1957 tax obligation aforementioned. Subsequently, however,
the petitioners tendered once more the same certificates in payment of their 1958 realty taxes and the respondent
Treasurer similarly rejected the tender. As a result, the petitioners filed the instant mandamus proceedings with the
Court of First Instance of Quezon City.
To the above petition, the LTA filed a timely answer sustaining the petitioners' stand. The Secretary of Finance,
represented by the Solicitor General, also filed an answer, which argued that he was not a necessary party to the
case as he was not the officer with the duty of collecting taxes.
The respondent Treasurer did not file an answer. Instead, represented by the City Attorney's Office, he filed a Motion
to Dismiss on the ground that the petition filed to state a cause of action.
The Motion to Dismiss discussed various arguments for the position of the respondent that he could not be
compelled to accept the certificates. In effect, however, they resolve themselves into the single question of whether
or not the said certificates where drawn payable on demand as required by Section 9 of Republic Act 1400.
The respondent Treasurer contends that the certificates in question were not issued strictly in accordance with the
provisions of Republic Act No. 1400 because while Section 9 of that Act inquires that "negotiable land certificates
shall be issued in denominations of one thousand pesos or multiples of one thousand pesos and shall be payable to
bearer on demand . . ., " the ones issue to the petitioners were payable to bearer not on demand but, only upon the
expiration of the five-year period there in specified.
On the other hand, the petitioners contend that although the certificates issued could not really be encashed within
the period therein mentioned, they could, however, still be used for the settlement of tax liabilities at any time after
their issue in accordance with Section 10 of the same Act. The petitioners maintain that the 5-year restriction against
encashment referred merely and exclusively to the time when the certificates may be converted to cash and not
anymore to the utility of the said instruments as substitutes for tax obligations.
The court a quo sustained the position of the respondent Treasurer and dismissed the suit for mandamus. Thus, this
appeal.

Although the issue raised by the instant appeal has already been rendered moot, by time, it is the sense of this
Court that a brief discussion of the point of controversy will favor the best interest of justice as well as of the parties
hereto.
We hold the refusal of the respondent Treasurer to accept the land certificates to be legally justified. They failed to
comply with the requirements of Republic Act No. 1400.
Under the above-mentioned law, the land certificates "shall be payable to bearer on demand." (Section 9) The one
issued, however, were payable to bearer only after the lapse of five years from a given period. Obviously then, the
requirement that they should be payable on demand was not met since an instrument payable on demand is one
which (a) is expressed to be payable on demand, or at sight, or on presentation; or (b) expresses no time for
payment (Sec. 7, Negotiable Instruments Law) The 5-year period within which the certificates could not be
encashed was an expression of the time for payment contrary to paragraph (b) of the last law cited.
The petitioners maintain, as already indicated above, that although the questioned certificates may not really be
payable on demand, they may nevertheless be used for the payment of realty obligations to the Government
because of Section 10 of Republic Act No. 1400. As expressed by the petitioners, "as to Government agencies and
instrumentalities, the certificate is payable to bearer on demand during that first five-year period."
There is no merit in the above assertion. It is a conclusion unsupported by any provision of law. While Section 10 of
Republic Act No. 1400 expressly authorizes the use of the said certificates for the "payment of all tax obligations of
the holder thereof," the said section can only have meant such certificates as were issued strictly in accordance with
Section 9 of the same Act, i.e., that the instrument is payable on demand. And, as discussed above, the certificates
issued were not payable on demand, then the benefits of Section 10 cannot be properly invoked.
IN VIEW OF ALL THE FOREGOING, the order appealed from is hereby affirmed, with costs against the appellants.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes and Dizon, JJ., concur.
Padilla, J., took no part.
Makalintal, J., reserves his vote.

43. G.R. No. 126670 December 2, 1999
ERNESTO T. PACHECO and VIRGINIA O. PACHECO, petitioners,

vs.
HON. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
YNARES-SANTIAGO, J.:
Petitioner spouses are engaged in the construction business. Complainant Romualdo Vicencio was a former Judge
and his wife, Luz Vicencio, owns a pawnshop in Samar. On May 17, 1989, due to financial difficulties arising from
the repeated delays in the payment of their receivables for the construction projects from the DPWH, 1 petitioners
were constrained to obtain a loan of P10,000.00 from Mrs. Vicencio. The latter acceded. Instead of merely requiring a
note of indebtedness, however, her husband Mr. Vicencio required petitioners to issue an undated check as evidence of
the loan which allegedly will not be presented to the bank. Despite being informed by petitioners that their bank account
no longer had any funds, Mrs. Vicencio insisted that issue the check, which according to her was only a formality. Thus,
petitioner Virginia Pacheco issued on May 17, 1989 an undated RCBC 2 check with number CT 101756 for P10,000.00.
However, she only received the amount of P9,000.00 as the 10% interest on the loan was already deducted. Mrs.
Vicencio also required Virginia's husband, herein petitioner Ernesto Pacheco, to sign the check on the same
understanding that the check is not to be encashed but merely intended as an evidence of indebtedness which cannot be
negotiated.
On June 14, 1989, Virginia obtained another loan of P50,000.00 from Mrs. Vicencio. She received only P35,000.00
as the previous loan of P10,000.00 as well as the 10% interest amounting to P5,000.00 on the new loan were
deducted by the latter. With the payment of the previous debt, Virginia asked for the return of the first check (RCBC
check no. 101756) but Mrs. Vicencio told her that her filing clerk was absent. Despite several demands for the return
of the first check, Mrs. Vicencio told Virginia that they can no longer locate the folder containing that check. For the
new loan, she also required Virginia to issue three (3) more checks in various amounts two checks for
P20,000.00 each and the third check for P10,000.00. Petitioners were not amendable to these requirements, but
Mrs. Vicencio insisted that they issue the same assuring them that the checks will not be presented to the banks but
will merely serve as guarantee for the loan since there was no promissory note required of them. Due to her dire
financial needs, Virginia issued three undated RCBC checks numbered 101783 and 101784 in the sum of
P20,000.00 each and 101785 for P10,000.00, and again informed Mrs. Vicencio that the cheeks cannot be
encashed as the same were not funded. Petitioner Ernesto also signed the three checks as required by Mrs.
Vicencio on the same conditions as the first check.
On June 20 and July 21, 1989, petitioner Virginia obtained two more loans, one for P10,000.00 and another for
P15,000.00. Again she issued two more RCBC checks (No. 101768 for P10,000.00 and No. 101774 for P15,000.00)
as required by Mrs. Vicencio with the same assurance that the checks shall not be presented for payment but shall
stand only as evidence of indebtedness in lieu of the usual promissory note.
All the checks were undated at the time petitioners handed them to Mrs. Vicencio. The six checks represent a total
obligation of P85,000.00. However, since the loan of P10,000.00 under the first check was already paid when the
amount thereof was deducted from the proceeds of the second loan, the remaining account was only P75,000.00.
Of this amount, petitioners were able to settle and pay in cash P60,000.00 in July 1989. Petitioners never had any
transaction nor ever dealt with Mrs. Vicencio's husband, the complainant herein.

When the remaining balance of P15,000.00 on the loans became due and demandable, petitioners were not able to
pay despite demands to do so. On August 3, 1992, Mrs. Vicencio together with her husband and their daughter
Lucille, went to petitioners' residence to persuade Virginia to place the date "August 15, 1992" on checks nos.
101756 and 101774, although said checks were respectively given undated to Mrs. Vicencio on May 17, 1989 and
July 21, 1989. Check no. 101756 was required by Mrs. Vicencio to be dated as additional guarantee for the
P15,000.00 unpaid balance allegedly under check no. 101774. Despite being informed by petitioner Virginia that
their account with RCBC had been closed as early as August 17, 1989, Mrs. Vicencio and her daughter insisted that
she place a date on the checks allegedly so that it will become evidence of their indebtedness. The former
reluctantly wrote the date on the checks for fear that she might not be able to obtain future loans from Mrs. Vicencio.
Later, petitioners were surprised to receive on August 29, 1992 a demand letter from Mrs. Vicencio's spouse
informing them that the checks when presented for payment on August 25, 1992 were dishonored due to "Account
Closed". Consequently, upon the complaint of Mrs., Vicencio's husband with whom petitioners never had any
transaction, two informations for estafa, defined in Article 315 (2) (d) of the Revised Penal Code, were filed against
them. The informations which were amended on April 1, 1993 alleged that petitioners "through fraud and false
pretenses and in payment of a diamond ring (gold necklace)" issued checks which when presented for payment
were dishonored due to account closed. 3 After entering a plea of not guilty during arraignment, petitioners were tried
and sentenced to suffer imprisonment and ordered to indemnify the complainant in the total amount of P25,000.00. 4 On
appeal, the Court of Appeals (CA) affirmed the decision of the court a quo. 5 Hence this petition.
Estafa may be committed in several ways. One of these is by postdating a check or issuing a check in payment of
an obligation, as provided in Article 315, paragraph 2(d) of the RPC, viz:
Art. 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned
hereinbelow shall be punished by:
xxx xxx xxx
2. By means of any of the following false pretenses or fraudulent acts executed prior to or
simultaneously with the commission of the fraud:
xxx xxx xxx
(d) By postdating a check, or issuing a check in payment of an obligation when the offender had no
funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the
check. The failure of the drawer of the check to deposit the amount necessary to cover his check
within three (3) days from receipt of notice from the bank and/or the payee or holder that said check
has been dishonored for lack or insufficiency of funds shall be prima facie evidence of deceit
constituting false pretense or fraudulent act.
The essential elements in order to sustain a conviction under the above paragraph are:
1. that the offender postdated or issued a check in payment of an payment obligation

contracted at the time the check was issued;
2. that such postdating or issuing a check was done when the offender had no funds
in the bank, or his funds deposited therein were not sufficient to cover the amount of
the check;

3. deceit or damage to the payee thereof. 6
The first and third elements are not present in this case. A check has the character of negotiability and at the same
time it constitutes an evidence of indebtedness. By mutual agreement of the parties, the negotiable character of a
check may be waived and the instrument may be treated simply as proof of an obligation. There cannot be deceit on
the part of the obligor, petitioners herein, because they agreed with the obligee at the time of the issuance and
postdating of the checks that the same shall not be encashed or presented to the banks. As per assurance of the
lender, the checks are nothing but evidence of the loan or security thereof in lieu of and for the same purpose as a
promissory note. By their own covenant, therefore, the checks became mere evidence of indebtedness. It has been
ruled that a drawer who issues a check as security or evidence of investment is not liable for estafa. 7 Mrs. Vicencio
could not have been deceived nor defrauded by petitioners in order to obtain the loans because she was informed that
they no longer have funds in their RCBC accounts. In 1992, when the Vicencio family asked Virginia to place a date on
the check, the latter again informed Mrs. Vicencio that their account with RCBC was already closed as early as August
1989. With the assurance, however, that the check will only stand as a firm evidence of indebtedness, Virginia placed a
date on the check. Under these circumstances, Mrs. Vicencio cannot claim that she was deceived or defrauded by
petitioners in obtaining the loan. In the absence of the essential element of deceit, 8 no estafa was committed by
petitioners.
Both courts below relied so much on the fact that Mrs. Vicencio's husband is a former Judge who knows the law. He
should have known, then, that he need not even ask the petitioners to place a date on the check, because as holder
of the check, he could have inserted the date pursuant to Section 13 of the Negotiable Instruments Law
(NIL). 9 Moreover, as stated in Section 14 thereof, complainant, as the person in possession of the check, has prima
facie authority to complete it by filling up the blanks therein. Besides, pursuant to Section 12 of the same law, a negotiable
instrument is not rendered invalid by reason only that it is antedated or postdated. 10 Thus, the allegation of Mrs. Vicencio
that the date to be placed by Virginia was necessary so as to make the check evidence of indebtedness is nothing but a
ploy. Petitioners openly disclosed and never hid the fact that they no longer have funds in the bank as their bank account
was already closed. Knowledge by the complainant that the drawer does not have sufficient funds in the bank at the time it
was issued to him does not give rise to a case for estafa through bouncing
checks. 11
Moreover, a check must be presented within a reasonable time from

issue. 12 By current banking practice, a check becomes stale after more than six (6) months. In fact a check long overdue
for more than two and one-half years is considered stale. 13 In this case, the checks were issued more than three years
prior to their presentment. In his complaint, complainant alleged that petitioners bought jewelry from him and that he
would not have parted with his jewelry had not petitioners issued the checks. The evidence on record, however, does not
support the theory of the crime.
There were six checks given by petitioners to Mrs. Vicencio but only two were presented for encashment. If all were
issued in payment of the alleged jewelry, why were not all the checks presented? There was a deliberate choice of
these two checks as the total amount reflected therein is equivalent to the amount due under the unpaid obligation.
The other checks, on the other hand, could not be used as the amounts therein do not jibe with the amount of the
unpaid balance. Following complainant's theory that he would not have sold the jewelries had not petitioners issued
"postdated" checks, still no estafa can be imputed to petitioners. It is clear that the checks were not intended for
encashment with the bank, but were delivered as mere security for the payment of the loan and under an agreement
that the checks would be redeemed with cash as they fell due. Hence, the checks were not intended by the parties
to be modes of payment but only as promissory notes. Since complainant and his wife were well aware of that fact,
they cannot now complain there was deception on the part of petitioners. Awareness by the complainant of the
fictitious nature of the pretense cannot give rise to estafa by means of deceit. 14 When the payee was informed by the
by the drawer that the checks are not covered by adequate funds it does not give rise to bad faith or estafa. 15

Moreover, complainant's allegations that the two subject checks were issued in 1992 as payment for the jewelry he
allegedly sold to petitioners is belied by the evidence on record. First, complainant is not engaged in the sale of
jewelry. 16 Neither are petitioners. If the pieces of jewelry were important to complainant considering that they were with
him for more than twenty-five years already, 17 he would not have easily parted with them in consideration for unfunded
personal checks in favor of persons whose means of living or source of income were unknown to him. 18 Applicable here is
the legal precept that persons are presumed to have taken care of their business. 19
Second, petitioners' bank account with RCBC was opened on March 26, 1987 and was closed on April 17, 1989,
during the span of which they were issued 10 check booklets with the last booklet issued on April 6, 1984. This last
booklet contains 50 checks consecutively numbered from 101751 to 101800. The two subject checks came from
this booklet. All the checks in this booklet were issued in the year 1989 including the two subject checks, so that the
complainants' theory that the jewelry were sold in 1992 cannot be believed.
The rule that factual findings of the trial court bind this court is not absolute but admits of exceptions such as when
the conclusion is a finding grounded on speculation, surmise, and conjecture and when the findings of the lower
court is premised on the absence of evidence and is contradicted by the evidence on record. 20 Based on the
foregoing discussions, this Court is constrained to depart from the general rule. Equally applicable is what Vice-Chancellor
Van Fleet once said: 21
Evidence to be believed must not only proceed from the mouth of a credible witness but must be
credible in itself such as the common experience and observation of mankind can approve as
probable under the circumstances. We have no test of the truth of human testimony, except its
conformity to our knowledge, observation and experience. Whatever is repugnant to these belongs
to the miraculous, and is outside of judicial cognizance.
Petitioners, however, are not without liability. An accused acquitted of a criminal charge may nevertheless be held
civilly liable in the same case where the facts established by the evidence so warrant. 22 Based on the records, they
still have an outstanding obligation of P15,000.00 in favor of Mrs. Vicencio. There was mention that the loan shall earn
interests. However, an agreement as to payment of interest must be in writing, otherwise it cannot be valid, 23 although
there was actual payment of interests by virtue of the advance deductions from the loan. Once the judgment becomes
final and executory, the amount due is deemed equivalent to a forbearance of credit during the interim period from the
finality of judgment until full payment, in which case it shall earn legal interest at the rate of twelve per cent (12%) per
annum pursuant to Central Bank (CB) Circular No. 416. 24
WHEREFORE, the assailed Decision is REVERSED and SET ASIDE. Petitioners are ACQUITTED of the charge of
estafa but they are ORDERED to pay Mrs. Vicencio the amount of P15,000.00 without interest. However, from the
time this judgment becomes final and executory, the amount due shall earn legal interest of twelve percent
(12%) per annum until full payment.
SO ORDERED.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 123567 June 5, 1998
PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
ROBERTO TONGKO, accused-appellant.
PUNO, J.:
This is an appeal by accused Roberto Tongko from the Decision of the RTC of Pasig City, Branch 156 finding him
guilty of estafa under Article 315 (2) (d) of the Revised Penal Code. He was sentenced to suffer twenty seven (27)
years of reclusion perpetua and to indemnify Carmelita v. Santos by way of actual damges in the sum of
P100,000.00 and to pay the cost of suit.
Accused was charged under the following Information:
That on or about the 20th day of August, 1993, in the Municipality of Pasig, Metro Manila, Philippines
and within the jurisdiction of this Honorable Court, the above-named accused, by means of deceit
and false pretenses committed prior to or simultaneously with the commission of the fraudulent acts,
did then and there willfully, unlawfully and feloniously make or draw and issue to one, Carmelita
Santos to apply on account or for value, the check described below:
BANK CHECK NO. DATE AMOUNT
Phil. Amanah Bank 203729 12-20-93 P10,000.00
Phil. Amanah Bank 203730 12-20-93 10,000.00
Phil. Amanah Bank 203731 12-20-93 10,000.00
Phil. Amanah Bank 203732 12-20-93 10,000.00
Phil. Amanah Bank 203733 12-20-93 10,000.00
Phil. Amanah Bank 203737 12-20-93 10,000.00
Phil. Amanah Bank 203738 12-20-93 10,000.00
Phil. Amanah Bank 203739 12-20-93 10,000.00


Phil. Amanah Bank 203740 12-20-93 10,000.00
Phil. Amanah Bank 203741 12-20-93 10,000.00
said accused well knowing at the time of issue he did not have sufficient funds in or credit with the
drawee bank for the payment in full of the face amount of such check upon presentment which
check when presented for payment within ninety (90) days from the date thereof was subsequently
dishonored by the drawee bank for the reason "Account Closed" and despite the lapse of three (3)
banking days from receipt of notice that said check has been dishonored, the accused failed to pay
said payee the face amount of such check or to make arrangement for full payment thereof, to the
damage and prejudice of said Carmelita Santos in the total amount of P100,000.00.
CONTRARY TO LAW.
Accused pled not quilty and underwent trial.
The evidence for the prosecution shows that on September 21, 1990, accused opened savings and current account
with Amanah Bank. 1 In the morning of August 20, 1993, Marites Bo-ot brought the accused to the office of Carmelita V.
Santos at Room 504 Pacific Place, Pearl Drive, Ortigas Center, Pasig City to borrow money. 2 The accused asked for
P50,000.00 to be paid not later than December 1993. 3 He assured Santos that his receivables would come in by
November 1993. He persuaded Santos to give the loan by issuing five (5) check, each in the sum of P10,000.00,
postdated December 20, 1993 and by signing a promissory note. 4 The promissory note was co-signed by Bo-ot. In the
afternoon of the same date, the accused returned to Santos and borrowed an additional P50,000.00. Again, he issued five
(5) checks, each worth P10,000.00 postdated December 20, 1993. He also signed a promissory note together with Bo-
ot. 5
On September 14, 1993, Amanah Bank closed accused's current account for lack of funds. On October 19, 1993,
accused himself requested for the closing of his savings account. 6
Santos did not present accused's checks to the drawee bank on their due date upon the request of accused
himself. 7 Instead, the checks were presented on March 1, 1994 but were dishonored as accused's accounts had been
closed. 8 Accused was informed that his checks had bounced. He promised to make good the checks. He failed to redeem
his promise, hence, the case at bar. 9
The accused testified for himself. Nobody corroborated his testimony. He admitted the evidence of the prosecution
but alleged that the postdated checks were issued a day or two after he signed the promissory notes. 10 Obviously,
he was relying on the defense that the checks were in payment of a pre-existing obligation.
As aforestated, the trial court convicted the accused. He appealed to this Court and changed his counsel. 11
He now
contends:
THE TRIAL COURT ERRED IN HOLDING THAT THE ISSUANCE OF THE TEN (10) POSTDATED
CHECKS (EXHS. "C" TO "L") BY THE ACCUSED-APPELLANT CONSTITUTED FRAUD WHICH
INDUCED THE PRIVATE COMPLAINANT TO EXTEND THE LOANS. IT IS RESPECTFULLY
SUBMITTED THAT THE INDUCEMENT WAS THE EXECUTION OF THE TWO (2) PROMISSORY
NOTES AS WELL AS THE CO-SIGNING THEREOF BY MA. THERESA DEL ROSARIO BO-OT

(WHO INTRODUCED ACCUSED-APPELLANT TO PRIVATE COMPLAINANT), IN A JOINT AND
SEVERAL CAPACITY.
II
THE TRIAL COURT ERRED IN NOT HOLDING THAT THE POST-DATED CHECKS WERE IN
PAYMENT OF PRE-EXISTING OBLIGATIONS.
III
THE TRIAL COURT ERRED IN FINDING THE ACCUSED-APPELLANT GUILTY OF ESTAFA AS

CHARGED, AND IN IMPOSING A STIFF PRISON TERM OF 27 YEARS
OF RECLUSIONPERPETUA, A PENALTY "TOO HARSH AND OUT OF PROPORTION" AS TO BE
VIOLATIVE OF THE CONSTITUTION.
The appeal is without merit.
Estafa, under Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Republic Act. No. 4885, has
the following elements: (1) postdating or issuance of a check in payment of an obligation contracted at the time the
check was issued; (2) lack of sufficiency of funds to cover the check; and (3) damage to the payee thereof.
To avoid the first element, appellant contends that he was able to borrow P100,000.00 from Santos due to the
promissory notes he co-signed with Bo-ot and not due to the postdated checks he issued. We reject this contention.
Firstly, this contention was contrived only after appellant's conviction in the trial court. The records show that
appellant did not raise this defense in the trial court. He cannot fault the trial court for failing to consider a defense
which he never raised. Secondly, Santos is the best person who can testify on what induced her to lend
P100,000.00 to the appellant. Santos categorically declared that it was the issuance of postdated checks which
persuaded her to part with her money. We quote her testimony, viz.: 12
Q What happened to those checks you mentioned in the promissory note?
A When presented to the bank they were all returned by the bank for reason, account
closed.
Q Before this was deposited to the bank when the accused came to your office and
loaned money from you, what was his representation if any to you?
A That his collection will come in by Nov. 1993 and also the checks issued to me will
be definitely funded on the date that it will become due.
Q Were you persuaded as a result of the statement of the accused that these checks
will be good that you parted away the amount?
A Yes, sir.
There is likewise no merit to the submission of appellant that his postdated checks were in payment of a pre-existing
obligation. Again, we note appellant's change of theory in foisting this argument. In the trial court, appellant testified
that he issued the postdated checks, thru Bo-ot, a day or two after he obtained the P100,000.00 loan from
Santos. 13 The falsity of the uncorroborated claim, however, is too obvious and the trial court correctly rejected it. The

claim cannot succeed in light of Santos' testimony that the issuance of said checks persuaded her to grant the loans. A
look at the two promissory notes will show that they bear the date August 20, 1993 and they referred to the postdated
checks issued by the appellant. There could be no reference to the postdated checks if they were issued a day or two
after the loans. In this appeal, however, appellant offers the new thesis that since the checks were postdated December
1993, ergo, they were issued in payment of the P100,000.00 he got from Santos on August 20, 1993. The postdating of
the checks to December 1993 simply means that on said date the checks would be properly funded. It does not mean that
the checks should be deemed as issued only on December 1993.
Lastly, appellant contends that the penalty of twenty seven (27) years of reclusion perpetua is too harsh and out of
proportion to the crime he committed. He submits that his sentence violates section 19(1), Article III of the
Constitution which prohibits the infliction of cruel, degrading or inhuman punishment. We are not persuaded.
In People v. de la Cruz, 14 we held that ". . . the prohibition of cruel and unusual punishments is generally aimed at the
form or character of the punishment rather than its severity in respect of duration or amount, and apply to punishments
which never existed in America or which public sentiment has regarded as cruel or obsolete . . . for instance those inflicted
at the whipping post, or in the pillory, burning at the stake, breaking on the wheel, disemboweling, and the like . . ."
In People v. Estoista, 15 we further held:
It takes more than merely being harsh, excessive, out of proportion, or severe for a penalty to be
obnoxious to the Constitution. The fact that the punishment authorized by the statute is severe does
not make it cruel and unusual. Expressed in other terms, it has been held that to come under the
ban, the punishment must be "flagrantly and plainly oppressive," "wholly disproportionate to the
nature of the offense as to shock the moral sense of the community."
The legislature was not thoughtless in imposing severe penalties for violation of par. 2(d) of Article 315 of the
Revised Penal Code. The history of the law will show that the severe penalties were intended to stop the
upsurge of swindling by issuance of bouncing checks. It was felt that unless aborted, this kind of estafa ". . .
would erode the people's confidence in the use of negotiable instruments as a medium of commercial
transaction and consequently result in the retardation of trade and commerce and the undermining of the
banking system of the country." 16 The Court cannot impugn the wisdom of Congress in setting this policy.
IN VIEW WHEREOF, the Decision dated January 16, 1996 of the RTC of Pasig City, Br. 156 in Criminal Case No.
106614 convicting appellant is affirmed. Costs against appellant.
SO ORDERED.
Regalado, Mendoza and Martinez, JJ., concur.
Melo, J., is on leave.

45.
epublic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 167398 August 9, 2011
AUGUSTUS GONZALES and spouses NESTOR victor and MA. LOURDES RODRIGUEZ, Petitioners,
vs.
QUIRICO PE, Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari seeking to set aside the Decision 1 dated June 23, 2004 and
Resolution2 dated February 23, 2005 of the Court of Appeals (CA), Twentieth Division, in CA-G.R. SP No. 73171,
entitled Quirico Pe v. Honorable Judge Rene Hortillo, in his capacity as Presiding Judge of the Regional Trial Court
of Iloilo City, Branch 31, Augustus Gonzales and Spouses Engr. Nestor Victor and Dr. Ma. Lourdes
Rodriguez, which granted the petition of respondent Quirico Pe. The CA Decision reversed and set aside the
Order3 dated September 23, 2002 of the Regional Trial Court (RTC) of Iloilo City, Branch 31, which dismissed
respondent's appeal for non-payment of docket and other lawful fees, and directing the issuance of the writ of
execution for the implementation of its Decision4 dated June 28, 2002 in favor of the petitioners and against the
respondent. The CA Decision also directed the RTC to assess the appellate docket fees to be paid by the
respondent, if it has not done so, and allow him to pay such fees and give due course to his appeal.
The antecedents are as follows:
Respondent Quirico Pe was engaged in the business of construction materials, and had been transacting business
with petitioner Spouses Nestor Victor Rodriguez and Ma. Lourdes Rodriguez. The Department of Public Works and
Highways (DPWH) awarded two contracts in favor of petitioner Nestor Rodriguez for the following projects, namely,
construction of "Lanot-Banga Road (Kalibo Highway) km. 39 + 200 to km. 40 + 275 Section IV (Aklan side)" and
concreting of "Laua-an Pandan Road (Tibial-Culasi Section), Province of Antique." In 1998, respondent agreed to
supply cement for the construction projects of petitioner Spouses Rodriguez. Petitioner Nestor Rodriguez availed of
the DPWHs pre-payment program for cement requirement regarding the Lanot-Banga Road, Kalibo Highway
project (Kalibo project), wherein the DPWH would give an advance payment even before project completion upon
his presentment, among others, of an official receipt for the amount advanced. Petitioner Nestor Rodriguez gave
Land Bank of the Philippines (LBP) Check No. 6563066 to respondent, which was signed by co-petitioners (his wife
Ma. Lourdes Rodriguez and his business partner Augustus Gonzales), but leaving the amount and date in blank.
The blank LBP check was delivered to respondent to guarantee the payment of 15,698 bags of Portland cement
valued at P1,507,008.00, covered by Official Receipt No. 1175,5issued by respondent (as owner of Antique
Commercial), in favor of petitioner Nestor Rodriguez (as owner of Greenland Builders). However, a year later,
respondent filled up blank LBP Check No. 6563066, by placing P2,062,000.00 and June 30, 1999, corresponding to
the amount and date.

On December 9, 1999, petitioners filed an Amended Complaint 6 for Declaration of Payment, Cancellation of
Documents and Damages against respondent with the RTC, Branch 31, Iloilo City, docketed as Civil Case No.
25945. The amended complaint alleged that they entrusted blank LBP Check No. 6563066 to respondent so as to
facilitate the approval of the pre-payment application of petitioner Nestor Rodriguez with the DPWH. They stated
that the blank LBP check would "serve as collateral" to guarantee the payment for 15,698 bags to be used for the
Kalibo project, amounting to P1,507,008.00, and that after payment of the said amount, respondent would return the
LBP check. According to them, after having paid respondent the amount of P2,306,500.00, which is P139,160.00
more than the amount of P2,167,340.00 (representing the value for 23,360 bags of cement taken for the Kalibo
project), they were cleared of any liability.
On January 6, 2000, respondent filed an Answer to Amended Complaint, 7 averring that he had so far delivered
40,360 bags of cement to petitioners who remitted P2,306,500.00, thereby leaving an outstanding amount
of P2,062,000.00. He countered that when petitioners stopped the bank-to-bank online payments to him, he filled up
the amount of P2,062,000.00 and made the LBP check payable on June 30, 1999. The LBP check was dishonored
for being "drawn against insufficient funds (DAIF)." By way of compulsory counterclaim, he sought recovery of the
balance of P2,062,000.00, with interest at 24% from January 29, 1999 until fully paid as actual damages.
In the Pre-trial Order8 dated January 28, 2000, the trial court determined the following to be the delimited issues, to
wit:
(1) whether plaintiffs [herein petitioners] liability to defendant [herein respondent] for 15,698 bags priced
at P1,507,008.00 subject of the earlier-mentioned pre-payment program and covered by the "blank" LBP
Check No. 6563066 has already been paid, hence, plaintiffs are no longer liable to the defendant for this
amount;
(2) whether this LBP Check No. 6563066 should not be returned by defendant to plaintiffs, or failing in
which, should now be declared as cancelled, null and void;
(3) whether plaintiffs have completely paid to the defendant the price of the cement used for the Kalibo
project which specifically is the amount of 23,360 bags of cement valued in the total amount
of P2,167,340.00;
(4) whether plaintiffs are entitled to damages and attorneys fees; and
(5) whether this case be dismissed and with the dismissal of the complaint to proceed with the
counterclaim.9
In a Decision dated June 28, 2002, the trial court, applying Section 14 10 of the Negotiable Instruments Law, found
that respondents subsequent filling up of LBP Check No. 6563066 in the amount of P2,062,000.00 was not made
strictly in accordance with the authority given to him by petitioner Nestor Rodriguez, and that since one year had
already lapsed, the same was not done within a reasonable time. As to the 23,360 bags of cement for the Kalibo
project, valued at P2,167,340.00 which was subject of previous transactions, the trial court ruled that the same had
been fully paid and considered a settled issue. Consequently, the RTC rendered judgment in favor of the petitioners
and against the respondent, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant, as follows:

1. Declaring plaintiffs' obligation to the defendant for the cement supplied for the Kalibo (Lanot-Banga) Road
Construction Project in the amount of P2,167,340.00 as already and fully paid, hence, plaintiffs are no longer
liable to the defendant;
2. Declaring Land Bank Check No. 6563066 dated June 30, 1999 for P2,062,000.00 as null and void and
without any legal effect;
3. Ordering defendant to pay each plaintiff the sums of P100,000.00 as actual damages; P500,000.00 as
moral damages; P200,000.00 as attorney's fees and P2,000.00 per hearing as appearance fee; P50,000.00
as miscellaneous actual and necessary litigation expenses; and
4. To pay the costs.
Defendant's counterclaim is hereby DISMISSED.
SO ORDERED.11
After receipt of a copy of the said RTC Decision on July 26, 2002, respondent filed a Notice of Appeal on July 30,
2002.
In an Order12 dated August 5, 2002, the trial court gave due course to respondent's appeal, and directed the Branch
Clerk of Court to transmit the entire records of the case to the CA.
On August 26, 2002, petitioners filed a Motion for Reconsideration, to Dismiss Appeal, and for Issuance of Writ of
Execution,13 stating that respondents appeal should be dismissed as the same was not perfected due to non-
payment of docket and other lawful fees as required under Section 4, Rule 41 of the Rules of Court. Claiming that
since the respondents appeal was not perfected and, as a consequence, the RTC Decision dated June 28, 2002
became final and executory, petitioners sought the issuance of a writ of execution for the implementation of the said
RTC Decision. To buttress their motion, petitioners also appended a Certification 14 dated August 19, 2002, issued by
the Clerk of Court of the Office of the Clerk of Court (OCC) of the RTC, Iloilo City, certifying that no appeal fees in
the case had been paid and received by the OCC.
In the Order dated September 23, 2002, the trial court dismissed respondent's appeal and directed the issuance of a
writ of execution to implement the RTC Decision dated June 28, 2002.
On October 2, 2002, the Clerk of Court and Ex-officio Provincial Sheriff of Iloilo issued the Writ of
Execution15directing the execution of the RTC Decision dated June 28, 2002.
On October 7, 2002, respondent filed a Petition for Certiorari and Prohibition with Application for Writ of Preliminary
Injunction and Prayer for Temporary Restraining Order,16 seeking to set aside the RTC Order dated September 23,
2002 (which dismissed his appeal and directed the issuance of a writ of execution to implement the RTC Decision
dated June 28, 2002), and to enjoin the implementation of the Writ of Execution dated October 2, 2002.
In a Resolution17 dated October 9, 2002, the CA granted the respondents prayer for Temporary Restraining Order
and, in the Resolution18 dated August 20, 2003, approved the respondents injunction bond and directed the Division
Clerk of Court to issue the writ of preliminary injunction.
On August 20, 2003, the Division Clerk of Court issued the Writ of Preliminary Injunction, 19 thereby enjoining the
implementation of the Writ of Execution dated October 2, 2002.

On June 23, 2004, the CA rendered a Decision in favor of the respondent, the dispositive portion of which reads:
WHEREFORE, the petition is granted. The assailed order and writ of execution of the Regional Trial Court must be,
as it is hereby, SET ASIDE. The trial court is hereby ordered to assess the appellate docket fees, if it has not done
so, and allow the petitioner to pay such fees and give due course to the petitioner's appeal. No costs.
SO ORDERED.20
Aggrieved, petitioners filed a Motion for Reconsideration 21 on August 24, 2004, which, however, was denied by the
CA in a Resolution22 dated February 23, 2005.
Hence, petitioner filed this present petition raising the sole issue that:
THE COURT OF APPEALS PATENTLY ERRED IN REVERSING THE DECISION OF THE LOWER COURT AND
ALLOWING RESPONDENT TO BELATEDLY PAY THE REQUIRED APPELLATE DOCKET AND OTHER LEGAL
FEES.
Petitioners allege that since respondent failed to pay the docket and other legal fees at the time he filed the Notice
of Appeal, his appeal was deemed not perfected in contemplation of the law. Thus, petitioners pray that the CA
decision be set aside and a new one be rendered dismissing the respondents appeal and ordering the execution of
the RTC Decision dated June 28, 2002.
On the other hand, respondent, citing Section 9, Rule 41 of the Rules of Court, maintains that his appeal has been
perfected by the mere filing of the notice of appeal. Respondent theorizes that with the perfection of his appeal, the
trial court is now divested of jurisdiction to dismiss his appeal and, therefore, only the CA has jurisdiction to
determine and rule on the propriety of his appeal. He raises the defense that his failure to pay the required docket
and other legal fees was because the RTC Branch Clerk of Court did not make an assessment of the appeal fees to
be paid when he filed the notice of appeal.
The petition is meritorious.
In cases of ordinary appeal, Section 2, Rule 41 of the Rules of Court provides that the appeal to the CA in cases
decided by the RTC in the exercise of its original jurisdiction shall be taken by filing a notice of appeal with the RTC
(the court which rendered the judgment or final order appealed from) and serving a copy thereof upon the adverse
party. Section 3 thereof states that the appeal shall be taken within fifteen (15) days from notice of the judgment or
final order appealed from. Concomitant with the filing of a notice of appeal is the payment of the required appeal
fees within the 15-day reglementary period set forth in Section 4 of the said Rule. Thus,
SEC. 4. Appellate court docket and other lawful fees. Within the period for taking an appeal, the appellant shall
pay to the clerk of the court which rendered the judgment or final order appealed from, the full amount of the
appellate court docket and other lawful fees. Proof of payment of said fees shall be transmitted to the appellate
court together with the original record or the record on appeal.
In reversing the ruling of the trial court, the CA cited Yambao v. Court of Appeals 23 as justification for giving due
course to respondents petition and ordering the belated payment of docket and other legal fees. In Yambao, the CA
dismissed therein petitioners appeal from the RTC decision for failure to pay the full amount of the required docket
fee. Upon elevation of the case, the Court, however, ordered the CA to give due course to their appeal, and ruled
that their subsequent payment of the P20.00 deficiency, even before the CA had passed upon their motion for
reconsideration, was indicative of their good faith and willingness to comply with the Rules.

The ruling in Yambao is not applicable to the present case as herein respondent never made any payment of the
docket and other lawful fees, not even an attempt to do so, simultaneous with his filing of the Notice of Appeal.
Although respondent was able to file a timely Notice of Appeal, however, he failed to pay the docket and other legal
fees, claiming that the Branch Clerk of Court did not issue any assessment. This procedural lapse on the part of the
respondent rendered his appeal with the CA to be dismissible and, therefore, the RTC Decision, dated June 28,
2002, to be final and executory.
In Far Corporation v. Magdaluyo,24 as with other subsequent cases25 of the same ruling, the Court explained that the
procedural requirement under Section 4 of Rule 41 is not merely directory, as the payment of the docket and other
legal fees within the prescribed period is both mandatory and jurisdictional. It bears stressing that an appeal is not a
right, but a mere statutory privilege. An ordinary appeal from a decision or final order of the RTC to the CA must be
made within 15 days from notice. And within this period, the full amount of the appellate court docket and other
lawful fees must be paid to the clerk of the court which rendered the judgment or final order appealed from. The
requirement of paying the full amount of the appellate docket fees within the prescribed period is not a mere
technicality of law or procedure. The payment of docket fees within the prescribed period is mandatory for the
perfection of an appeal. Without such payment, the appeal is not perfected. The appellate court does not acquire
jurisdiction over the subject matter of the action and the Decision sought to be appealed from becomes final and
executory. Further, under Section 1 (c), Rule 50, an appeal may be dismissed by the CA, on its own motion or on
that of the appellee, on the ground of the non-payment of the docket and other lawful fees within the reglementary
period as provided under Section 4 of Rule 41. The payment of the full amount of the docket fee is an indispensable
step for the perfection of an appeal. In both original and appellate cases, the court acquires jurisdiction over the
case only upon the payment of the prescribed docket fees.
Respondents claim that his non-payment of docket and other lawful fees should be treated as mistake and
excusable negligence, attributable to the RTC Branch Clerk of Court, is too superficial to warrant consideration. This
is clearly negligence of respondent's counsel, which is not excusable. Negligence to be excusable must be one
which ordinary diligence and prudence could not have guarded against. 26 Respondent's counsel filed a notice of
appeal within the reglementary period for filing the same without, however, paying the appellate docket fees. He
simply ignored the basic procedure of taking an appeal by filing a notice of appeal, coupled with the payment of the
full amount of docket and other lawful fees. Respondents counsel should keep abreast of procedural laws and his
ignorance of the procedural requirements shall bind the respondent. In National Power Corporation v. Laohoo, 27 we
ruled that therein counsels failure to file the appeal in due time does not amount to excusable negligence. The non-
perfection of the appeal on time is not a mere technicality. Besides, to grant therein petitioners plea for the
relaxation of the rules on technicality would disturb a well-entrenched ruling that could make uncertain when a
judgment attains finality, leaving the same to depend upon the resourcefulness of a party in concocting implausible
excuses to justify an unwarranted departure from the time-honored policy of the law that the period for the perfection
of an appeal is mandatory and jurisdictional.
The CA took cognizance over the case, based on the wrong premise that when the RTC issued the Order dated
August 5, 2002 giving due course to respondents Notice of Appeal and directing the Branch Clerk of Court to
transmit the entire records of the case to the CA, it ipso facto lost jurisdiction over the case. Section 9, 28 Rule 41 of
the Rules explains that the court of origin loses jurisdiction over the case only upon the perfection of the appeal filed
in due time by the appellant and the expiration of the time to appeal of the other parties. Withal, prior to the
transmittal of the original records of the case to the CA, the RTC may issue orders for the protection and
preservation of the rights of the prevailing party, as in this case, the issuance of the writ of execution because the
respondents appeal was not perfected.
Moreover, Section 13, Rule 41 of the Rules states that the CA may dismiss an appeal taken from the RTC on the
ground of non-payment of the docket and other lawful fees within the 15-day reglementary period:

SEC 13. Dismissal of appeal. Prior to the transmittal of the original record or the record on appeal to the appellate
court, the trial court may motu proprio or on motion dismiss the appeal for having been taken out of time, or for non-
payment of the docket and other lawful fees within the reglementary period. (As amended by A.M. No. 00-2-10-SC,
May 1, 2000.)
Since respondents appeal was not perfected within the 15-day reglementary period, it was as if no appeal was
actually taken. Therefore, the RTC retains jurisdiction to rule on pending incidents lodged before it, such as the
petitioners Motion for Reconsideration, to Dismiss Appeal, and for Issuance of Writ of Execution, filed on August 26,
2002, which sought to set aside its Order dated August 5, 2002 that gave due course to respondents Notice of
Appeal, and directed the issuance of a writ of execution. Having no jurisdiction over the case, the prudent thing that
the CA should have done was to dismiss the respondents appeal for failure to pay the appeal fees, and declare that
the RTC Decision dated June 28, 2002 has now become final and executory.
As an incidental matter on the propriety of petitioners petition for review on certiorari under Rule 45 of the Rules,
respondent raises the argument that since the subject of the present petition is the writ of preliminary injunction
granted by the CA (in favor of the respondent enjoining the execution of the RTC Decision dated June 28, 2002), in
CA-G.R. SP No. 73171, which is interlocutory in nature, petitioners petition should be denied for being the wrong
remedy. In other words, respondent advances the theory that since the assailed CA Decision dated June 23, 2004
partakes of an interlocutory order, i.e., enjoining the finality of the RTC Decision dated June 28, 2002, petitioners
should have availed of the remedy of a petition for certiorari under Rule 65, not a petition for review on certiorari
under Rule 45.
Respondents argument is unfounded. The proper remedy of a party aggrieved by a decision of the CA is a petition
1avvphi1
for review on certiorari under Rule 45, which is not identical to a petition for certiorari under Rule 65. Rule 45
provides that decisions, final orders or resolutions of the CA in any case, i.e., regardless of the nature of the action
or proceedings involved, may be appealed to Us by filing a petition for review on certiorari, which would be but a
continuation of the appellate process over the original case. 29 Therefore, petitioners filing of the present petition for
review on certiorari under Rule 45 is the proper and adequate remedy to challenge the Decision dated June 24,
2004 and Resolution dated February 23, 2005 of the CA. 1avvphi1
To recapitulate, one who seeks to avail of the right to appeal must strictly comply with the requirements of the rules,
and failure to do so leads to the loss of the right to appeal. 30 The rules require that from the date of receipt of the
assailed RTC order denying ones motion for reconsideration, an appellant may take an appeal to the CA by filing a
notice of appeal with the RTC and paying the required docket and other lawful fees with the RTC Branch Clerk of
Court, within the 15-day reglementary period for the perfection of an appeal. Otherwise, the appellant's appeal is not
perfected, and the CA may dismiss the appeal on the ground of non-payment of docket and other lawful fees. As a
consequence, the assailed RTC decision shall become final and executory and, therefore, the prevailing parties can
move for the issuance of a writ of execution.
Since the CA erroneously took cognizance over the case, its Decision dated June 23, 2004 and Resolution dated
February 23, 2005 should be overturned, and the Writ of Preliminary Injunction issued on August 20, 2003 should
likewise be lifted. Thus, the RTC Decision dated June 28, 2002 is reinstated and, as the said decision having
become final and executory, the case is remanded for its prompt execution.
While every litigant must be given the amplest opportunity for the proper and just determination of his cause, free
from the constraints of technicalities, the failure to perfect an appeal within the reglementary period is not a mere
technicality. It raises jurisdictional problem, as it deprives the appellate court of its jurisdiction over the appeal. After
a decision is declared final and executory, vested rights are acquired by the winning party. Just as a losing party has

the right to appeal within the prescribed period, the winning party has the correlative right to enjoy the finality of the
decision on the case.31
WHEREFORE, the petition is GRANTED. The Decision dated June 23, 2004 and Resolution dated February 23,
2005 of the Court of Appeals, in CA-G.R. SP No. 73171, are REVERSED and SET ASIDE. The Writ of Preliminary
Injunction, issued by the Court of Appeals on August 20, 2003, is LIFTED.
The Decision dated June 28, 2002 of the Regional Trial Court, Branch 31, Iloilo City is REINSTATED and, in view of
its finality, the case is REMANDED for its prompt execution.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:

46.
G.R. No. 75908 October 22, 1999
FEDERICO O. BORROMEO, LOURDES O. BORROMEO and FEDERICO O. BORROMEO, INC., petitioners,

vs.
AMANCIO SUN and the COURT OF APPEALS, respondents.
PURISIMA, J.:
At bar is a Petition for review on Certiorari under Rule 45 of the Revised Rules of Court seeking to set aside the
Resolution of the then Intermediate Appellate Court 1, dated March 13, 1986, in AC-G.R. CV NO. 67988, which
reversed its earlier Decision dated February 12, 1985, setting aside the Decision of the former Court of the First Instance
of Rizal, Branch X, in Civil Case No. 19466.
The antecedent facts are as follows:
Private respondent Amancio Sun brought before the then Court of the First Instance of Rizal, Branch X, an action
against Lourdes O. Borromeo (in her capacity as corporate secretary), Federico O. Borromeo and Federico O.
Borromeo (F.O.B.), Inc., to compel the transfer to his name in the books of F.O.B., Inc., 23,223 shares of stock
registered in the name of Federico O. Borromeo, as evidenced by a Deed of Assignment dated January 16, 1974.
Private respondent averred 2 that all the shares of stock of F.O.B. Inc. registered in the name of Federico O. Borromeo
belong to him, as the said shares were placed in the name of Federico O. Borromeo "only to give the latter personality
and importance in the business world." 3 According to the private respondent, on January 16, 1974 Federico O. Borromeo
executed in his favor a Deed of Assignment with respect to the said 23,223 shares of stock.
On the other hand, petitioner Federico O. Borromeo disclaimed any participation in the execution of the Deed of
Assignment, theorizing that his supposed signature thereon was forged. 1wphi1.nt
After trial, the lower court of origin came out with a decision declaring the questioned signature on subject Deed of
Assignment, dated January 16, 1974, as the genuine signature of Federico O. Borromeo; ratiocinating thus:
After considering the testimonies of the two expert witnesses for the parties and after a careful and
judicious study and analysis of the questioned signature as compared to the standard signatures,
the Court is not in a position to declare that the questioned signature in Exh. A is a forgery. On the
other hand, the Court is of the opinion that the questioned signature is the real signature of Federico
O. Borromeo between the years 1954 to 1957 but definitely is not his signature in 1974 for by then
he has changed his signature. Consequently, to the mind of the Court Exhibit A was signed by
defendant Federico O. Borromeo between the years 1954 to 1957 although the words in the blank
were filled at a much later date. 4
On appeal by petitioners, the Court of Appeals adjudged as forgery the controverted signature of Federico O.
Borromeo; disposing as follows:
WHEREFORE, the judgment of the Court a quo as to the second cause of action dated March 12,
1980 is hereby reversed and set aside and a new judgment is hereby rendered:
1. Ordering the dismissal of the complaint as to defendant-appellants;


2. Ordering plaintiff-appellee on appellants' counterclaim to pay the latter:
a) P20,000.00 as moral damages;
b) P10,000.00 as exemplary damages;
c) P 10,000.00 as attorney's fees.
3. Ordering plaintiff-appellee to pay the costs. 5
On March 29, 1985, Amancio Sun interposed a motion for reconsideration of the said decision, contending that
Segundo Tabayoyong, petitioners' expert witness, is not a credible witness as found and concluded in the following
disposition by this Court in Cesar vs. Sandigan Bayan 6:
The testimony of Mr. Segundo Tabayoyong on March 5, 1980, part of which is cited on pages 19-23
of the petition, shows admissions which are summarized by the petitioner as follows:
He never finished any degree in Criminology. Neither did he obtain any degree in
physics or chemistry. He was a mere trainee in the NBI laboratory. He said he had
gone abroad only once-to Argentina which, according to him is the only one country
in the world that gives this degree (?) . . . "People go there where they obtain this
sort of degree (?) where they are authorized to practice (sic) examination of
questioned documents."
His civil service eligibility was second grade (general clerical). His present position
had to be "re-classified" "confidential" in order to qualify him to it. He never passed
any Board Examination.
He has never authored any book on the subject on which he claimed to be an

"expert." Well, he did "write" a so-called pamphlet pretentiously called "Fundamentals
of Questioned Documents Examination and Forgery Detection." In that pamphlet, he
mentioned some references' (some) are Americans and one I think is a British, sir,
like in the case of Dr. Wilson Harrison, a British' (he repeated with emphasis). Many
of the "theories" contained in his pamphlet were lifted body and soul from those
references, one of them being Albert Osborn. His pamphlet has neither quotations
nor footnotes, although he was too aware of the crime committed by many an author
called "plagiarism." But that did not deter him, nor bother him in the least.
He has never been a member of any professional organization of experts in his

supposed field of expertise, because he said there is none locally. Neither is he on
an international level. 7
Acting an the aforesaid motion for reconsideration, the Court of Appeals reconsidered its decision of February 12,
1985 aforementioned. Thereafter, the parties agreed to have subject Deed of Assignment examined by the
Philippine Constabulary (PC) Crime Laboratory, which submitted a Report on January 9, 1986, the pertinent portion
of which, stated:

1. Comparative examination and analysis of the questioned and the standard
signature reveal significant similarities in the freedom of movement, good quality of
lines, skills and individual handwriting characteristics.
2. By process of interpolation the questioned signature fits in and can be bracketed in

time with the standard signatures written in the years between 1956 to 1959.
Microscopic examination of the ink used in the questioned signature and the
standard signature in document dated 30 July 1959 marked Exh. "E" indicate
gallotanic ink.
xxx xxx xxx
1. The questioned signature FEDERICO O. BORROMEO marked "Q" appearing in

the original Deed of Assignment dated 16 January 1974 and the submitted standard
signatures of Federico O. Borromeo marked "S-1" to "S-49" inclusive were written BY
ONE AND THE SAME PERSON.
2. The questioned signature FEDERICO O. BORROMEO marked "Q" COULD HAVE

BEEN SIGNED IN THE YEARS BETWEEN 1950-1957. 8
After hearing the arguments the lawyers of record advanced on the said "Report" of the PC Crime Laboratory, the
Court of Appeals resolved:
xxx xxx xxx
1) to ADMIT the Report dated Jan. 9, 1986 of the PC Crime Laboratory on the Deed of Assignment
in evidence, without prejudice to the parties' assailing the credibility of said Report;
2) to GIVE both parties a non-extendible period of FIVE (5) DAYS from February 27, 1986, within
which to file simultaneous memoranda. 9
On March 13, 1986, the Court of Appeals reversed its decision of February 12, 1985, which affirmed in toto the
decision of the trial court of origin; resolving thus:
WHEREFORE, finding the Motion for Reconsideration meritorious. We hereby set aside our
Decision, dated February 12, 1985 and in its stead a new judgment is hereby rendered affirming in
toto the decision of the trial Court, dated March 12, 1980, without pronouncement as to costs.
SO ORDERED. 10
Therefrom, petitioners found their way to this court via the present Petition; theorizing that:
THE RESPONDENT COURT ERRED IN HOLDING THAT WHEN PETITIONER AGREED TO THE
SUGGESTION OF RESPONDENT COURT TO HAVE THE QUESTIONED DOCUMENT EXAMINED
BY THE PC CRIME LABORATORY THEY COULD NO LONGER QUESTION THE COMPETENCY
OF THE DOCUMENT.

II
THE COURT OF APPEALS ERRED IN HOLDING THAT THE QUESTIONED DOCUMENT WAS
SIGNED IN 1954 BUT WAS DATED IN 1974.
III
THE COURT OF APPEALS ERRED IN HOLDING THAT THE SIGNATURE OF FEDERICO O.

BORROMEO IN THE DEED OF ASSIGNMENT (EXHIBIT "A") IS A GENUINE SIGNATURE CIRCA
1954-1957.
The Petition is barren of merit.
Well-settled is the rule that "factual findings of the Court of Appeals are conclusive on the parties and not reviewable
by the Supreme Court and they carry even more weight when the Court of Appeals affirms the factual findings of
the trial court." 11
In the present case, the trial court found that the signature in question is the genuine signature of Federico O.
Borromeo between the years 1954 to 1957 although the words in the blank space of the document in question were
written on a much later date. The same conclusion was arrived at by the Court of Appeals on the basis of the Report
of the PC crime Laboratory corroborating the findings of Col. Jose Fernandez that the signature under controversy
is genuine.
It is significant to note that Mr. Tabayoyong, petitioners' expert witness, limited his comparison of the questioned
signature with the 1974 standard signature of Federico O. Borromeo. No comparison of the subject signature with
the 1950 1957 standard signature was ever made by Mr. Tabayoyong despite his awareness that the expert
witness of private respondent, Col. Jose Fernandez, made a comparison of said signatures and notwithstanding his
(Tabayoyong's) access to such signatures as they were all submitted to the lower Court. As correctly
ratiocinated 12 by the Court of origin, the only conceivable reason why Mr. Tabayoyong avoided making such a
comparison must have been, that even to the naked eye the questioned signature affixed to the Deed of Assignment,
dated January 16, 1974, is strikingly similar to the 1950 to 1954 standard signature of Federico O. Borromeo, such that if
a comparison thereof was made by Mr. Tabayoyong, he would have found the questioned signature genuine.
That the Deed of Assignment is dated January 16, 1974 while the questioned signature was found to be circa 1954-
1957, and not that of 1974, is of no moment. It does not necessarily mean, that the deed is a forgery. Pertinent
records reveal that the subject Deed of Assignment is embodied in a blank form for the assignment of shares with
authority to transfer such shares in the books of the corporation. It was clearly intended to be signed in blank to
facilitate the assignment of shares from one person to another at any future time. This is similar to Section 14 of the
Negotiable Instruments Law where the blanks may be filled up by the holder, the signing in blank being with the
assumed authority to do so. Indeed, as the shares were registered in the name of Federico O. Borromeo just to give
him personality and standing in the business community, private respondent had to have a counter evidence of
ownership of the shares involved. Thus, the execution of the deed of assignment in blank, to be filled up whenever
needed. The same explains the discrepancy between the date of the deed of assignment and the date when the
signature was affixed thereto.
While it is true that the 1974 standard signature of Federico O. Borromeo is to the naked eye dissimilar to his
questioned signature circa 1954-1957, which could have been caused by sheer lapse of time, Col. Jose Fernander,
respondent's expert witness, found the said signatures similar to each other after subjecting the same to
stereomicroscopic examination and analysis because the intrinsic and natural characteristics of Federico O.

Borromeo's handwriting were present in all the exemplar signatures used by both Segundo Tabayoyong and Col.
Jose Fernandez.
It is therefore beyond cavil that the findings of the Court of origin affirmed by the Court of Appeals on the basis of the
corroborative findings of the Philippine Constabulary Crime Laboratory confirmed the genuineness of the signature
of Federico O. Borromeo in the Deed of Assignment dated January 16, 1974.
Petitioners, however, question the "Report" of the document examiner on the ground that they were not given an
opportunity to cross-examine the Philippine Constabulary document examiner; arguing that they never waived their
right to question the compentecy of the examiner concerned. While the Court finds merit in the contention of
petitioners, that they did not actually waive their right to cross-examine on any aspect of subject Report of the
Philippine Constabulary Crime Laboratory, the Court discerns no proper basis for deviating from the findings of the
Court of Appeals on the matter. It is worthy to stress that courts may place whatever weight due on the testimony of
an expert witness. 13 Conformably, in giving credence and probative value to the said "Report" of the Philippine
Constabulary Crime Laboratory, corroborating the findings of the trial Court, the Court of Appeals merely exercised its
discretion. There being no grave abuse in the exercise of such judicial discretion, the findings by the Court of Appeals
should not be disturbed on appeal.1wphi1.nt
Premises studiedly considered, the Court is of the irresistible conclusion, and so holds, that the respondent Court
erred not in affirming the decision of the Regional Trial Court a quo in Civil Case No. 19466.
WHEREFORE, the Petition is DISMISSED for lack of merit and the assailed Resolution, dated March 13, 1986,
AFFIRMED. No pronouncement as to costs.
SO ORDERED.

47.
G.R. No. 126568 April 30, 2003
QUIRINO GONZALES LOGGING CONCESSIONAIRE, QUIRINO GONZALES and EUFEMIA

GONZALES,petitioners,
vs.
THE COURT OF APPEALS (CA) and REPUBLIC PLANTERS BANK, respondents.
CARPIO MORALES, J.:
In the expansion of its logging business, petitioner Quirino Gonzales Logging Concessionaire (QGLC), through its
proprietor, general manager co-petitioner Quirino Gonzales, applied on October 15, 1962 for credit
accommodations1 with respondent Republic Bank (the Bank), later known as Republic Planters Bank.
The Bank approved QGLC's application on December 21, 1962, granting it a credit line of P900,000.00 2 broken into
an overdraft line of P500,000.00 which was later reduced to P450,000.00 and a Letter of Credit (LC) line of
P400,000.00.3
Pursuant to the grant, the Bank and petitioners QGLC and the spouses Quirino and Eufemia Gonzales executed ten
documents: two denominated "Agreement for Credit in Current Account,"4 four denominated "Application and
Agreement for Commercial Letter of Credit,"5 and four denominated "Trust Receipt."6
Petitioners' obligations under the credit line were secured by a real estate mortgage on four parcels of land: two in
Pandacan, Manila, one in Makati (then part of Rizal), and another in Diliman, Quezon City.7
In separate transactions, petitioners, to secure certain advances from the Bank in connection with QGLC's
exportation of logs, executed a promissory note in 1964 in favor of the Bank. They were to execute three more
promissory notes in 1967.
In 1965, petitioners having long defaulted in the payment of their obligations under the credit line, the Bank
foreclosed the mortgage and bought the properties covered thereby, it being the highest bidder in the auction sale
held in the same year. Ownership over the properties was later consolidated in the Bank on account of which new
titles thereto were issued to it.8
On January 27, 1977, alleging non-payment of the balance of QGLC's obligation after the proceeds of the
foreclosure sale were applied thereto, and non-payment of the promissory notes despite repeated demands, the
Bank filed a complaint for "sum of money" (Civil Case No. 106635) against petitioners before the Regional Trial
Court (RTC) of Manila.
The complaint listed ten causes of action. The first concerns the overdraft line under which the Bank claimed that
petitioners withdrew amounts (unspecified) at twelve percent per annum which were unpaid at maturity and that
after it applied the proceeds of the foreclosure sale to the overdraft debt, there remained an unpaid balance of
P1,224,301.56.
The Bank's second to fifth causes of action pertain to the LC line under which it averred that on the strength of the
LCs it issued, the beneficiaries thereof drew and presented sight drafts to it which it all paid after petitioners'
acceptance; and that it delivered the tractors and equipment subject of the LCs to petitioners who have not paid
either the full or part of the face value of the drafts.

Specifically with respect to its second cause of action, the Bank alleged that it issued LC No. 63-0055D on January
15, 1963 in favor of Monark International Incorporated9 covering the purchase of a tractor10 on which the latter
allegedly drew a sight draft with a face value of P71,500.00, 11 which amount petitioners have not, however, paid in
full.
Under its third cause of action, the Bank charged that it issued LC No. 61-1110D on December 27, 1962 also in
favor of Monark International covering the purchase of another tractor and other equipment; 12 and that Monark
International drew a sight draft with a face value of P80,350.00, 13 and while payments for the value thereof had been
made by petitioners, a balance of P68,064.97 remained.
Under the fourth cause of action, the Bank maintained that it issued LC No. 63-0182D on February 11, 1963 in favor
of J.B.L. Enterprises, Inc.14 covering the purchase of two tractors,15 and J.B.L. Enterprises drew on February 13,
1963 a sight draft on said LC in the amount of P155,000.00 but petitioners have not paid said amount.
On its fifth cause of action, the Bank alleged that it issued LC No. 63-0284D on March 14, 1963 in favor of Super
Master Auto Supply (SMAS) covering the purchase of "Eight Units GMC (G.I.) Trucks"; that on March 14, 1963,
SMAS drew a sight draft with a face value of P64,000.0016 on the basis of said LC; and that the payments made by
petitioners for the value of said draft were deficient by P45,504.74.
The Bank thus prayed for the settlement of the above-stated obligations at an interest rate of eleven percent per
annum, and for the award of trust receipt commissions, attorney's fees and other fees and costs of collection.
The sixth to ninth causes of action are anchored on the promissory notes issued by petitioners allegedly to secure
certain advances from the Bank in connection with the exportation of logs as reflected above. 17 The notes were
payable 30 days after date and provided for the solidary liability of petitioners as well as attorney's fees at ten
percent of the total amount due18 in the event of their non-payment at maturity.
The note dated June 18, 1964, subject of the sixth cause of action, has a face value of P55,000.00 with interest rate
of twelve percent per annum;19 that dated July 7, 1967 subject of the seventh has a face value of P20,000.00; 20 that
dated July 18, 1967 subject of the eighth has a face value of P38,000.00; 21 and that dated August 23, 1967 subject
of the ninth has a face value of P11,000.00.22 The interest rate of the last three notes is pegged at thirteen
percent per annum.23
On its tenth and final cause of action, the Bank claimed that it has accounts receivable from petitioners in the
amount of P120.48.
In their Answer24 of March 3, 1977, petitioners admit the following: having applied for credit accommodations totaling
P900,000.00 to secure which they mortgaged real properties; opening of the LC/Trust Receipt Line; the issuance by
the Bank of the various LCs; and the foreclosure of the real estate mortgage and the consolidation of ownership
over the mortgaged properties in favor of the Bank. They deny, however, having availed of the credit
accommodations and having received the value of the promissory notes, as they do deny having physically received
the tractors and equipment subject of the LCs.
As affirmative defenses, petitioners assert that the complaint states no cause of action, and assuming that it does,
the same is/are barred by prescription or null and void for want of consideration.
By Order of March 10, 1977, Branch 36 of the Manila RTC attached the preferred shares of stocks of the spouses
Quirino and Eufemia Gonzales with the Bank with a total par value of P414,000.00.

Finding for petitioners, the trial court rendered its Decision of April 22, 1992 the dispositive portion of which reads:
WHEREFORE, judgment is rendered as follows:
1. All the claims of plaintiff particularly those described in the first to the tenth causes of action of its
complaint are denied for the reasons earlier mentioned in the body of this decision;
2. As regards the claims of defendants pertaining to their counterclaim (Exhibits "1", "2" and "3"), they are
hereby given ten (10) years from the date of issuance of the torrens title to plaintiff and before the transfer
thereof in good faith to a third party buyer within which to ask for the reconveyance of the real properties
foreclosed by plaintiff,
3. The order of attachment which was issued against the preferred shares of stocks of defendants-spouses
Quirino Gonzales and Eufemia Gonzales with the Republic Bank now known as Republic Planters Bank
dated March 21, 1977 is hereby dissolved and/or lifted, and
4. Plaintiff is likewise ordered to pay the sum of P20,000.00, as and for attorney's fees, with costs against
plaintiff.
SO ORDERED.
In finding for petitioners, the trial court ratiocinated: 25
Art. 1144 of the Civil Code states that an action upon a written contract prescribes in ten (10) years from the
time the right of action accrues. Art. 1150 states that prescription starts to run from the day the action may
be brought. The obligations allegedly created by the written contracts or documents supporting plaintiff's first
to the sixth causes of action were demandable at the latest in 1964. Thus when the complaint was filed on
January 27, 1977 more than ten (10) years from 1964 [when the causes of action accrued] had already
lapsed. The first to the sixth causes of action are thus barred by prescription. . . .
As regards the seventh and eight causes of action, the authenticity of which documents were partly in doubt
in the light of the categorical and uncontradicted statements that in 1965, defendant Quirino Gonzales
logging concession was terminated based on the policy of the government to terminate logging concessions
covering less than 20,000 hectares. If this is the case, the Court is in a quandary why there were log exports
in 1967? Because of the foregoing, the Court does not find any valid ground to sustain the seventh and
eight causes of action of plaintiff's complaint.
As regards the ninth cause of action, the Court is baffled why plaintiff extended to defendants another loan
when defendants according to plaintiff's records were defaulting creditors? The above facts and
circumstances has (sic) convinced this Court to give credit to the testimony of defendants' witnesses that the
Gonzales spouses signed the documents in question in blank and that the promised loan was never
released to them. There is therefore a total absence of consent since defendants did not give their consent
to loans allegedly procured, the proceeds of which were never received by the alleged debtors, defendants
herein. . . .
Plaintiff did not present evidence to support its tenth cause of action. For this reason, it must consequently
be denied for lack of evidence.

On the matter of [the] counterclaims of defendants, they seek the return of the real and personal properties
which they have given in good faith to plaintiff. Again, prescription may apply. The real properties of
defendants acquired by plaintiff were foreclosed in 1965 and consequently, defendants had one (1) year to
redeem the property or ten (10) years from issuance of title on the ground that the obligation foreclosed was
fictitious.
xxx xxx xxx
On appeal,26 the Court of Appeals (CA) reversed the decision of the trial court by Decision 27 of June 28, 1996 which
disposed as follows:28
WHEREFORE, premises considered, the appealed decision (dated April 22, 1992) of the Regional Trial
Court (Branch 36) in Manila in Civil Case No. 82-4141 is hereby REVERSED and let the case be
remanded back to the court a quo for the determination of the amount(s) to be awarded to the [the Bank]-
appellant relative to its claims against the appellees.
SO ORDERED.
With regard to the first to sixth causes of action, the CA upheld the contention of the Bank that the notices of
foreclosure sale were "tantamount" to demand letters upon the petitioners which interrupted the running of the
prescriptive period.29
As regards the seventh to ninth causes of action, the CA also upheld the contention of the Bank that the written
agreements-promissory notes prevail over the oral testimony of petitioner Quirino Gonzales that the cancellation of
their logging concession in 1967 made it unbelievable for them to secure in 1967 the advances reflected in the
promissory notes.30
With respect to petitioners' counterclaim, the CA agreed with the Bank that: 31
Certainly, failure on the part of the trial court to pass upon and determine the authenticity and genuineness
of [the Bank's] documentary evidence [the trial court having ruled on the basis of prescription of the Bank's
first to sixth causes of action] makes it impossible for the trial court' to eventually conclude that the obligation
foreclosed (sic) was fictitious. Needless to say, the trial court's ruling averses (sic) the well-entrenched rule
that 'courts must render verdict on their findings of facts." (China Banking Co. vs. CA, 70 SCRA 398)
Furthermore, the defendants-appellees' [herein petitioners'] counterclaim is basically an action for the
reconveyance of their properties, thus, the trial court's earlier ruling that the defendants-appellees'
counterclaim has prescribed is itself a ruling that the defendants-appellees' separate action for
reconveyance has also prescribed.
The CA struck down the trial court's award of attorney's fees for lack of legal basis. 32
Hence, petitioners now press the following issues before this Court by the present petition for review on certiorari:
1. WHETHER OR NOT RESPONDENT COURT ERRED IN SO HOLDING THAT RESPONDENT-

APPELLEES (SIC.) REPUBLIC PLANTERS BANK['S] FIRST, SECOND, THIRD, FOURTH, FIFTH AND
SIXTH CAUSES OF ACTION HAVE NOT PRESCRIBED CONTRARY TO THE FINDINGS OF THE LOWER
COURT, RTC BRANCH 36 THAT THE SAID CAUSES OF ACTION HAVE ALREADY PRESCRIBED.

2. WHETHER OR NOT RESPONDENT COURT ERRED IN SO HOLDING THAT RESPODNENT-
APPELLEES (SIC.) REPUBLIC PLANTERS BANK['S] SEVENTH, EIGHT AND NINTH CAUSES OF
ACTION APPEARS (SIC.) TO BE IMPRESSED WITH MERIT CONTRARY TO THE FINDINGS OF THE
LOWER COURT RTC BRANCH 36 THAT THE SAID CAUSES HAVE NO VALID GROUND TO SUSTAIN
[THEM] AND FOR LACK OF EVIDENCE.
3. WHETHER OR NOT RESPONDENT COURT [ERRED] IN REVERSING THE FINDINGS OF THE

REGIONAL TRIAL COURT BRANCH 36 OF MANILA THAT PETITIONERS-APPELLANT (SIC.) MAY SEEK
THE RETURN OF THE REAL AND PERSONAL PROPERTIES WHICH THEY MAY HAVE GIVEN IN GOOD
FAITH AS THE SAME IS BARRED BY PRESCRIPTION AND THAT PETITIONERS-APPELLANT (SIC.)
HAD ONE (1) YEAR TO REDEEM THE PROPERTY OR TEN (10) YEARS FROM ISSUANCE OF THE
TITLE ON THE GROUND THAT THE OBLIGATION FORECLOSED WAS FICTITIOUS.
4. WHETHER OR NOT RESPONDENT COURT ERRED IN SO HOLDING THAT PEITIONERS-

APPELLANTS [SIC] ARE NOT ENTITLED TO AN AWARD OF ATTORNEY'S FEES.
The petition is partly meritorious.
On the first issue. The Civil Code provides that an action upon written contract, an obligation created by law, and a
judgment must be brought within ten years from the time the right of action accrues. 33
The finding of the trial court that more than ten years had elapsed since the right to bring an action on the Bank's
first to sixth causes had arisen34 is not disputed. The Bank contends, however, that "the notices of foreclosure sale in
the foreclosure proceedings of 1965 are tantamount to formal demands upon petitioners for the payment of their
past due loan obligations with the Bank, hence, said notices of foreclosure sale interrupted/forestalled the running of
the prescriptive period."35
The Bank's contention does not impress. Prescription of actions is interrupted when they are filed before the court,
when there is a written extrajudicial demand by the creditors, and when there is any written acknowledgment of the
debt by the debtor.36
The law specifically requires a written extrajudicial demand by the creditors which is absent in the case at bar. The
contention that the notices of foreclosure are "tantamount" to a written extrajudicial demand cannot be appreciated,
the contents of said notices not having been brought to light.
But even assuming arguendo that the notices interrupted the running of the prescriptive period, the argument would
still not lie for the following reasons:
With respect to the first to the fifth causes of action, as gleaned from the complaint, the Bank seeks the recovery of
the deficient amount of the obligation after the foreclosure of the mortgage. Such suit is in the nature of a mortgage
action because its purpose is precisely to enforce the mortgage contract. 37 A mortgage action prescribes after ten
years from the time the right of action accrued.38
The law gives the mortgagee the right to claim for the deficiency resulting from the price obtained in the sale of the
property at public auction and the outstanding obligation at the time of the foreclosure proceedings. 39 In the present
case, the Bank, as mortgagee, had the right to claim payment of the deficiency after it had foreclosed the mortgage
in 1965.40 In other words, the prescriptive period started to run against the Bank in 1965. As it filed the complaint
only on January 27, 1977, more than ten years had already elapsed, hence, the action on its first to fifth causes had
by then prescribed. No other conclusion can be reached even if the suit is considered as one upon a written contract

or upon an obligation to pay the deficiency which is created by law,41 the prescriptive period of both being also ten
years.42
As regards the promissory note subject of the sixth cause of action, its period of prescription could not have been
interrupted by the notices of foreclosure sale not only because, as earlier discussed, petitioners' contention that the
notices of foreclosure are tantamount to written extra-judicial demand cannot be considered absent any showing of
the contents thereof, but also because it does not appear from the records that the said note is covered by the
mortgage contract.
Coming now to the second issue, petitioners seek to evade liability under the Bank's seventh to ninth causes of
action by claiming that petitioners Quirino and Eufemia Gonzales signed the promissory notes in blank; that they
had not received the value of said notes, and that the credit line thereon was unnecessary in view of their money
deposits, they citing "Exhibits 2 to 2-B,"43 in, and unremitted proceeds on log exports from, the Bank. In support of
their claim, they also urge this Court to look at Exhibits "B" (the Bank's recommendation for approval of petitioners'
application for credit accommodations), "P" (the "Application and Agreement for Commercial Letter of Credit" dated
January 16, 1963) and "T" (the "Application and Agreement for Commercial Letter of Credit" dated February 14,
1963).
The genuineness and due execution of the notes had, however, been deemed admitted by petitioners, they having
failed to deny the same under oath.44 Their claim that they signed the notes in blank does not thus lie.
Petitioners' admission of the genuineness and due execution of the promissory notes notwithstanding, they raise
want of consideration45 thereof. The promissory notes, however, appear to be negotiable as they meet the
requirements of Section 146 of the Negotiable Instruments Law. Such being the case, the notes are prima
facie deemed to have been issued for consideration.47 It bears noting that no sufficient evidence was adduced by
petitioners to show otherwise.
Exhibits "2" to "2-B" to which petitioners advert in support of their claim that the credit line on the notes was
unnecessary because they had deposits in, and remittances due from, the Bank deserve scant consideration. Said
exhibits are merely claims by petitioners under their then proposals for a possible settlement of the case dated
February 3, 1978. Parenthetically, the proposals were not even signed by petitioners but by certain Attorneys
Osmundo R. Victoriano and Rogelio P. Madriaga.
In any case, it is no defense that the promissory notes were signed in blank as Section 14 48 of the Negotiable
Instruments Law concedes the prima facie authority of the person in possession of negotiable instruments, such as
the notes herein, to fill in the blanks.
As for petitioners' reliance on Exhibits "B", "P" and "T," they have failed to show the relevance thereof to the seventh
up to the ninth causes of action of the Bank.
On the third issue, petitioners asseverate that with the trial court's dismissal of the Bank's complaint and the denial
of its first to sixth causes of action, it is but fair and just that the real properties which were mortgaged and
foreclosed be returned to them.49 Such, however, does not lie. It is not disputed that the properties were foreclosed
under Act No. 3135 (An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real
Estate Mortgages), as amended. Though the Bank's action for deficiency is barred by prescription, nothing irregular
attended the foreclosure proceedings to warrant the reconveyance of the properties covered thereby.
As for petitioners' prayer for moral and exemplary damages, it not having been raised as issue before the courts
below, it can not now be considered. Neither can the award of attorney's fees for lack of legal basis.

WHEREFORE, the CA Decision is hereby AFFIRMED with MODIFICATION.
Republic Bank's Complaint with respect to its first to sixth causes of action is hereby DISMISSED. Its complaint with
respect to its seventh to ninth causes of action is REMANDED to the court of origin, the Manila Regional Trial Court,
Branch 36, for it to determine the amounts due the Bank thereunder.
SO ORDERED.
Puno, Panganiban, Sandoval-Gutierrez and Corona, JJ ., concur.

48.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 85419 March 9, 1993
DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner,

vs.
SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG, ASIAN INDUSTRIAL PLASTIC
CORPORATION and PRODUCERS BANK OF THE PHILIPPINES, defendants-respondents.
Yngson & Associates for petitioner.
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 (petitioner Bank for brevity) filed a complaint for a sum of money
against respondents 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

respondent Sima Wei on June 9, 1983; and
(2) To enforce payment of two checks executed by Sima Wei, payable to petitioner, 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 trial court granted the defendants' Motions to Dismiss. The Court of
Appeals affirmed this decision, * to which the petitioner Bank, represented by its Legal Liquidator, filed this Petition
for Review by Certiorari, assigning the following as the alleged errors of the Court of Appeals: 1
(1) THE COURT OF APPEALS ERRED IN HOLDING THAT THE PLAINTIFF-PETITIONER HAS NO
CAUSE OF ACTION AGAINST DEFENDANTS-RESPONDENTS HEREIN.

(2) THE COURT OF APPEALS ERRED IN HOLDING THAT SECTION 13, RULE 3 OF THE
REVISED RULES OF COURT ON ALTERNATIVE DEFENDANTS IS NOT APPLICABLE TO
HEREIN DEFENDANTS-RESPONDENTS.
The antecedent facts of this case are as follows:
In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the latter executed and delivered to
the former a promissory note, engaging to pay the petitioner 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 November 18, 1983, Sima Wei issued two crossed checks payable to petitioner 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 petitioner-
payee or to any of its authorized representatives. For reasons not shown, these checks came into the possession of
respondent Lee Kian Huat, who deposited the checks without the petitioner-payee's indorsement (forged or
otherwise) to the account of respondent 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 respondent 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 petitioner Bank and bore no
indorsement of the latter. Hence, petitioner filed the complaint as aforestated.
The main issue before Us is whether petitioner 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. Section 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. 3Delivery
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 petitioner in the original complaint show that the two (2) China Bank checks, numbered
384934 and 384935, were not delivered to the payee, the petitioner herein. Without the delivery of said checks to

petitioner-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 respondents.
In the original complaint, petitioner Bank, as plaintiff, sued respondent 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
Regional Trial Court, petitioner 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 respondents. This was clearly an attempt by the petitioner
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 petitioner
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 petitioner Bank has no merit for, as We have earlier explained,
these checks were never delivered to petitioner Bank. And even granting, without admitting, that there was delivery
to petitioner 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
respondent Sima Wei.
Therefore, unless respondent Sima Wei proves that she has been relieved from liability on the promissory note by
some other cause, petitioner Bank has a right of action against her for the balance due thereon.
However, insofar as the other respondents are concerned, petitioner Bank has no privity with them. Since petitioner
Bank never received the checks on which it based its action against said respondents, it never owned them (the
checks) nor did it acquire any interest therein. Thus, anything which the respondents may have done with respect to
said checks could not have prejudiced petitioner Bank. It had no right or interest in the checks which could have
been violated by said respondents. Petitioner Bank has therefore no cause of action against said respondents, in
the alternative or otherwise. If at all, it is Sima Wei, the drawer, who would have a cause of action against her
co-respondents, if the allegations in the complaint are found to be true.
With respect to the second assignment of error raised by petitioner Bank regarding the applicability of Section 13,
Rule 3 of the Rules of Court, We find it unnecessary to discuss the same in view of Our finding that the petitioner
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 respondents, in the alternative or otherwise.
In the light of the foregoing, the judgment of the Court of Appeals dismissing the petitioner'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 trial
court for a trial on the merits, consistent with this decision, in order to determine whether respondent Sima Wei is
liable to the Development Bank of Rizal for any amount under the promissory note allegedly signed by her.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Nocon, JJ., concur.


49. SAME WITH DBP VS SIMA WEI CASE #48

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 175350 June 13, 2012
EQUITABLE BANKING CORPORATION, INC. Petitioner,

vs.
SPECIAL STEEL PRODUCTS, and AUGUSTO L. PARDO, Respondents.
DECISION
DEL CASTILLO, J.:
A crossed check with the notation "account payee only" can only be deposited in the named payees account. It is
gross negligence for a bank to ignore this rule solely on the basis of a third partys oral representations of having a
good title thereto.
Before the Court is a Petition for Review on Certiorari of the October 13, 2006 Decision of the Court of Appeals (CA)
in CA-G.R. CV No. 62425. The dispositive portion of the assailed Decision reads:
WHEREFORE, premises considered, the May 4, 1998 Decision of the Regional Trial Court of Pasig City, Branch
168, in Civil Case No. 63561, is hereby AFFIRMED.
SO ORDERED.1
Factual Antecedents
Respondent Special Steel Products, Inc. (SSPI) is a private domestic corporation selling steel products. Its co-
respondent Augusto L. Pardo (Pardo) is SSPIs President and majority stockholder.2
International Copra Export Corporation (Interco) is its regular customer.3
Jose Isidoro4 Uy, alias Jolly Uy (Uy), is an Interco employee, in charge of the purchasing department, and the son-
in-law of its majority stockholder.5
Petitioner Equitable Banking Corporation (Equitable or bank) is a private domestic corporation engaged in
banking6 and is the depository bank of Interco and of Uy.
In 1991, SSPI sold welding electrodes to Interco, as evidenced by the following sales invoices:
Sales Invoice No. 65042 dated February 14, 1991 for P325,976.347
Sales Invoice No. 65842 dated April 11, 1991 for P345,412.808
Sales Invoice No. 65843 dated April 11, 1991 for P313,845.849

The due dates for these invoices were March 16, 1991 (for the first sales invoice) and May 11, 1991 (for the others).
The invoices provided that Interco would pay interest at the rate of 36% per annum in case of delay.
In payment for the above welding electrodes, Interco issued three checks payable to the order of SSPI on July 10,
1991,10 July 16, 1991,11 and July 29, 1991.12 Each check was crossed with the notation "account payee only" and
was drawn against Equitable. The records do not identify the signatory for these three checks, or explain how Uy,
Intercos purchasing officer, came into possession of these checks.
The records only disclose that Uy presented each crossed check to Equitable on the day of its issuance and
claimed that he had good title thereto.13 He demanded the deposit of the checks in his personal accounts in
Equitable, Account No. 18841-2 and Account No. 03474-0. 14
Equitable acceded to Uys demands on the assumption that Uy, as the son-in-law of Intercos majority
stockholder,15 was acting pursuant to Intercos orders. The bank also relied on Uys status as a valued client. 16Thus,
Equitable accepted the checks for deposit in Uys personal accounts 17 and stamped "ALL PRIOR ENDORSEMENT
AND/OR LACK OF ENDORSEMENT GUARANTEED" on their dorsal portion. 18 Uy promptly withdrew the proceeds
of the checks.
In October 1991, SSPI reminded Interco of the unpaid welding electrodes, amounting to P985,234.98.19 It reiterated
its demand on January 14, 1992.20 SSPI explained its immediate need for payment as it was experiencing some
financial crisis of its own. Interco replied that it had already issued three checks payable to SSPI and drawn against
Equitable. SSPI denied receipt of these checks.
On August 6, 1992, SSPI requested information from Equitable regarding the three checks. The bank refused to
give any information invoking the confidentiality of deposits.21
The records do not disclose the circumstances surrounding Intercos and SSPIs eventual discovery of Uys scheme.
Nevertheless, it was determined that Uy, not SSPI, received the proceeds of the three checks that were payable to
SSPI. Thus, on June 30, 1993 (twenty-three months after the issuance of the three checks), Interco finally paid the
value of the three checks to SSPI, plus a portion of the accrued interests. Interco refused to pay the entire accrued
interest of P767,345.64 on the ground that it was not responsible for the delay. Thus, SSPI was unable to
collect P437,040.35 (at the contracted rate of 36% per annum) in interest income.22
SSPI and its president, Pardo, filed a complaint for damages with application for a writ of preliminary attachment
against Uy and Equitable Bank. The complaint alleged that the three crossed checks, all payable to the order of
SSPI and with the notation "account payee only," could be deposited and encashed by SSPI only. However, due to
Uys fraudulent representations, and Equitables indispensable connivance or gross negligence, the restrictive
nature of the checks was ignored and the checks were deposited in Uys account. Had the defendants not diverted
the three checks in July 1991, the plaintiffs could have used them in their business and earned money from them.
Thus, the plaintiffs prayed for an award of actual damages consisting of the unrealized interest income from the
proceeds of the checks for the two-year period that the defendants withheld the proceeds from them (from July 1991
up to June 1993).23
In his personal capacity, Pardo claimed an award of P3 million as moral damages from the defendants. He allegedly
suffered hypertension, anxiety, and sleepless nights for fear that the government would charge him for tax evasion
or money laundering. He maintained that defendants actions amounted to money laundering and that it unfairly
implicated his company in the scheme. As for his fear of tax evasion, Pardo explained that the Bureau of Internal
Revenue might notice a discrepancy between the financial reports of Interco (which might have reported the checks

as SSPIs income in 1991) and those of SSPI (which reported the income only in 1993). Since Uy and Equitable
were responsible for Pardos worries, they should compensate him jointly and severally therefor.24
SSPI and Pardo also prayed for exemplary damages and attorneys fees.25
In support of their application for preliminary attachment, the plaintiffs alleged that the defendants are guilty of fraud
in incurring the obligation upon which the action was brought and that there is no sufficient security for the claim
sought to be enforced in this action.26
The trial court granted plaintiffs application.27 It issued the writ of preliminary attachment on September 20,
1993,28 upon the filing of plaintiffs bond for P500,000.00. The sheriff served and implemented the writ against the
personal properties of both defendants.29
Upon Equitables motion and filing of a counter-bond, however, the trial court eventually discharged the
attachment30 against it.31
Equitable then argued for the dismissal of the complaint for lack of cause of action. It maintained that interest
income is due only when it is expressly stipulated in writing. Since Equitable and SSPI did not enter into any
contract, Equitable is not liable for damages, in the form of unobtained interest income, to SSPI. 32 Moreover, SSPIs
acceptance of Intercos payment on the sales invoices is a waiver or extinction of SSPIs cause of action based on
the three checks.33
Equitable further argued that it is not liable to SSPI because it accepted the three crossed checks in good
faith.34Equitable averred that, due to Uys close relations with the drawer of the checks, the bank had basis to
assume that the drawer authorized Uy to countermand the original order stated in the check (that it can only be
deposited in the named payees account). Since only Uy is responsible for the fraudulent conversion of the checks,
he should reimburse Equitable for any amounts that it may be made liable to plaintiffs. 35
The bank counter-claimed that SSPI is liable to it in damages for the wrongful and malicious attachment of
Equitables personal properties. The bank maintained that SSPI knew that the allegation of fraud against the bank is
a falsehood. Further, the bank is financially capable to meet the plaintiffs claim should the latter receive a favorable
judgment. SSPI was aware that the preliminary attachment against the bank was unnecessary, and intended only to
humiliate or destroy the banks reputation.36
Meanwhile, Uy answered that the checks were negotiated to him; that he is a holder for value of the checks and that
he has a good title thereto.37 He did not, however, explain how he obtained the checks, from whom he obtained his
title, and the value for which he received them. During trial, Uy did not present any evidence but adopted Equitables
evidence as his own.
Ruling of the Regional Trial Court 38
The RTC clarified that SSPIs cause of action against Uy and Equitable is for quasi-delict. SSPI is not seeking to
enforce payment on the undelivered checks from the defendants, but to recover the damage that it sustained from
the wrongful non-delivery of the checks.39
The crossed checks belonged solely to the payee named therein, SSPI. Since SSPI did not authorize anyone to
receive payment in its behalf, Uy clearly had no title to the checks and Equitable had no right to accept the said
checks from Uy. Equitable was negligent in permitting Uy to deposit the checks in his account without verifying Uys
right to endorse the crossed checks. The court reiterated that banks have the duty to scrutinize the checks

deposited with it, for a determination of their genuineness and regularity. The law holds banks to a high standard
because banks hold themselves out to the public as experts in the field. Thus, the trial court found Equitables
explanation regarding Uys close relations with the drawer unacceptable. 40
Uys conversion of the checks and Equitables negligence make them liable to compensate SSPI for the actual
damage it sustained. This damage consists of the income that SSPI failed to realize during the delay.41 The trial
court then equated this unrealized income with the interest income that SSPI failed to collect from Interco. Thus, it
ordered Uy and Equitable to pay, jointly and severally, the amount of P437,040.35 to SSPI as actual damages.42
It also ordered the defendants to pay exemplary damages of P500,000.00, attorneys fees amounting
to P200,000.00, as well as costs of suit.43
The trial court likewise found merit in Pardos claim for moral damages. It found that Pardo suffered anxiety,
sleepless nights, and hypertension in fear that he would face criminal prosecution. The trial court awarded Pardo the
amount of P3 million in moral damages.44
The dispositive portion of the trial courts Decision reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs Special Steel Products, Inc., and Augusto L. Pardo
and against defendants Equitable Banking Corporation [and] Jose Isidoro Uy, alias "Jolly Uy," ordering defendants
to jointly and severally pay plaintiffs the following:
1. P437,040.35 as actual damages;
2. P3,000,000.00 as moral damages to Augusto L. Pardo;
3. P500,000.00 as exemplary damages;
4. P200,000.00 as attorneys fees; and
5. Costs of suit.
Defendant EBCs counterclaim is hereby DISMISSED for lack of factual and legal basis.
Likewise, the crossclaim filed by defendant EBC against defendant Jose Isidoro Uy and the crossclaim filed by
defendant Jose Isidoro Uy against defendant EBC are hereby DISMISSED for lack of factual and legal basis.
SO ORDERED.
Pasig City, May 4, 1998.45
The trial court denied Equitables motion for reconsideration in its Order dated November 19, 1998. 46
Only Equitable appealed to the CA,47 reiterating its defenses below.
Appealed Ruling of the Court of Appeals48
The appellate court found no merit in Equitables appeal.


It affirmed the trial courts ruling that SSPI had a cause of action for quasi-delict against Equitable. 49 The CA noted
that the three checks presented by Uy to Equitable were crossed checks, and strictly made payable to SSPI only.
This means that the checks could only be deposited in the account of the named payee. 50 Thus, the CA found that
Equitable had the responsibility of ensuring that the crossed checks are deposited in SSPIs account only. Equitable
violated this duty when it allowed the deposit of the crossed checks in Uys account. 51
The CA found factual and legal basis to affirm the trial courts award of moral damages in favor of Pardo. 52
It likewise affirmed the award of exemplary damages and attorneys fees in favor of SSPI. 53
Issues
1. Whether SSPI has a cause of action against Equitable for quasi-delict;
2. Whether SSPI can recover, as actual damages, the stipulated 36% per annum interest from Equitable;
3. Whether speculative fears and imagined scenarios, which cause sleepless nights, may be the basis for the award
of moral damages; and
4. Whether the attachment of Equitables personal properties was wrongful.
Our Ruling
SSPIs cause of action
This case involves a complaint for damages based on quasi-delict. SSPI asserts that it did not receive prompt
payment from Interco in July 1991 because of Uys wilful and illegal conversion of the checks payable to SSPI, and
of Equitables gross negligence, which facilitated Uys actions. The combined actions of the defendants deprived
SSPI of interest income on the said moneys from July 1991 until June 1993. Thus, SSPI claims damages in the form
of interest income for the said period from the parties who wilfully or negligently withheld its money from it.
Equitable argues that SSPI cannot assert a right against the bank based on the undelivered checks. 54 It cites
provisions from the Negotiable Instruments Law and the case of Development Bank of Rizal v. Sima Wei 55 to argue
that a payee, who did not receive the check, cannot require the drawee bank to pay it the sum stated on the checks.
Equitables argument is misplaced and beside the point. SSPIs cause of action is not based on the three checks.
SSPI does not ask Equitable or Uy to deliver to it the proceeds of the checks as the rightful payee. SSPI does not
assert a right based on the undelivered checks or for breach of contract. Instead, it asserts a cause of action based
on quasi-delict. A quasi-delict is an act or omission, there being fault or negligence, which causes damage to
another. Quasi-delicts exist even without a contractual relation between the parties. The courts below correctly ruled
that SSPI has a cause of action for quasi-delict against Equitable.
The checks that Interco issued in favor of SSPI were all crossed, made payable to SSPIs order, and contained the
notation "account payee only." This creates a reasonable expectation that the payee alone would receive the
proceeds of the checks and that diversion of the checks would be averted. This expectation arises from the
accepted banking practice that crossed checks are intended for deposit in the named payees account only and no
other.56 At the very least, the nature of crossed checks should place a bank on notice that it should exercise more
caution or expend more than a cursory inquiry, to ascertain whether the payee on the check has authorized the
holder to deposit the same in a different account. It is well to remember that "[t]he 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 [sic] ubiquitous presence among the people, who have come to regard
them with respect and even gratitude and, above all, trust and confidence. In this connection, it is important that
banks should guard against injury attributable to negligence or bad faith on its part. As repeatedly emphasized,
since the banking business is impressed with public interest, the trust and confidence of the public in it is of
paramount importance. Consequently, the highest degree of diligence is expected, and high standards of integrity
and performance are required of it."57
Equitable did not observe the required degree of diligence expected of a banking institution under the existing
factual circumstances.
The fact that a person, other than the named payee of the crossed check, was presenting it for deposit should have
put the bank on guard. It should have verified if the payee (SSPI) authorized the holder (Uy) to present the same in
its behalf, or indorsed it to him. Considering however, that the named payee does not have an account with
Equitable (hence, the latter has no specimen signature of SSPI by which to judge the genuineness of its
indorsement to Uy), the bank knowingly assumed the risk of relying solely on Uys word that he had a good title to
the three checks. Such misplaced reliance on empty words is tantamount to gross negligence, which is the
"absence of or failure to exercise even slight care or diligence, or the entire absence of care, evincing a thoughtless
disregard of consequences without exerting any effort to avoid them."58
Equitable contends that its knowledge that Uy is the son-in-law of the majority stockholder of the drawer, Interco,
made it safe to assume that the drawer authorized Uy to countermand the order appearing on the check. In other
words, Equitable theorizes that Interco reconsidered its original order and decided to give the proceeds of the
checks to Uy.59 That the bank arrived at this conclusion without anything on the face of the checks to support it is
demonstrative of its lack of caution. It is troubling that Equitable proceeded with the transaction based only on its
knowledge that Uy had close relations with Interco. The bank did not even make inquiries with the drawer, Interco
(whom the bank considered a "valued client"), to verify Uys representation. The banking system is placed in peril
when bankers act out of blind faith and empty promises, without requiring proof of the assertions and without
making the appropriate inquiries. Had it only exercised due diligence, Equitable could have saved both Interco and
the named payee, SSPI, from the trouble that the banks mislaid trust wrought for them.
Equitables pretension that there is nothing under the circumstances that rendered Uys title to the checks
questionable is outrageous. These are crossed checks, whose manner of discharge, in banking practice, is
restrictive and specific. Uys name does not appear anywhere on the crossed checks. Equitable, not knowing the
named payee on the check, had no way of verifying for itself the alleged genuineness of the indorsement to Uy. The
checks bear nothing on their face that supports the belief that the drawer gave the checks to Uy. Uys relationship to
Intercos majority stockholder will not justify disregarding what is clearly ordered on the checks.
Actual damages
For its role in the conversion of the checks, which deprived SSPI of the use thereof, Equitable is solidarily liable with
Uy to compensate SSPI for the damages it suffered.
Among the compensable damages are actual damages, which encompass the value of the loss sustained by the
plaintiff, and the profits that the plaintiff failed to obtain. 60 Interest payments, which SSPI claims, fall under the
second category of actual damages.

SSPI computed its claim for interest payments based on the interest rate stipulated in its contract with Interco. It
explained that the stipulated interest rate is the actual interest income it had failed to obtain from Interco due to the
defendants tortious conduct.
The Court finds the application of the stipulated interest rate erroneous.
SSPI did not recover interest payments at the stipulated rate from Interco because it agreed that the delay was not
Intercos fault, but that of the defendants. If that is the case, then Interco is not in delay (at least not after issuance
of the checks) and the stipulated interest payments in their contract did not become operational. If Interco is not
liable to pay for the 36% per annum interest rate, then SSPI did not lose that income. SSPI cannot lose something
that it was not entitled to in the first place. Thus, SSPIs claim that it was entitled to interest income at the rate
stipulated in its contract with Interco, as a measure of its actual damage, is fallacious.
More importantly, the provisions of a contract generally take effect only among the parties, their assigns and
heirs.61 SSPI cannot invoke the contractual stipulation on interest payments against Equitable because it is neither a
party to the contract, nor an assignee or an heir to the contracting parties.
Nevertheless, it is clear that defendants actions deprived SSPI of the present use of its money for a period of two
years. SSPI is therefore entitled to obtain from the tortfeasors the profits that it failed to obtain from July 1991 to
June 1993. SSPI should recover interest at the legal rate of 6% per annum, 62 this being an award for damages
based on quasi-delict and not for a loan or forbearance of money.
Moral damages
Both the trial and appellate courts awarded Pardo P3 million in moral damages. Pardo claimed that he was
frightened, anguished, and seriously anxious that the government would prosecute him for money laundering and
tax evasion because of defendants actions.63 In other words, he was worried about the repercussions that
defendants actions would have on him.
Equitable argues that Pardos fears are all imagined and should not be compensated. The bank points out that none
of Pardos fears panned out.64
Moral damages are recoverable only when they are the proximate result of the defendants wrongful act or
omission.65 Both the trial and appellate courts found that Pardo indeed suffered as a result of the diversion of the
three checks. It does not matter that the things he was worried and anxious about did not eventually materialize. It is
rare for a person, who is beset with mounting problems, to sift through his emotions and distinguish which fears or
anxieties he should or should not bother with. So long as the injured partys moral sufferings are the result of the
defendants actions, he may recover moral damages.
The Court, however, finds the award of P3 million excessive. Moral damages are given not to punish the defendant
but only to give the plaintiff the means to assuage his sufferings with diversions and recreation. 66 We find that the
award of P50,000.0067 as moral damages is reasonable under the circumstances.
Equitable to recover amounts from Uy
Equitable then insists on the allowance of their cross-claim against Uy. The bank argues that it was Uy who was
enriched by the entire scheme and should reimburse Equitable for whatever amounts the Court might order it to pay
in damages to SSPI.68

Equitable is correct. There is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is
derived at the expense of or with damages to another.69 In the instant case, the fraudulent scheme concocted by Uy
allowed him to improperly receive the proceeds of the three crossed checks and enjoy the profits from these
proceeds during the entire time that it was withheld from SSPI. Equitable, through its gross negligence and mislaid
trust on Uy, became an unwitting instrument in Uys scheme. Equitables fault renders it solidarily liable with Uy,
insofar as respondents are concerned. Nevertheless, as between Equitable and Uy, Equitable should be allowed to
recover from Uy whatever amounts Equitable may be made to pay under the judgment. It is clear that Equitable did
not profit in Uys scheme. Disallowing Equitables cross-claim against Uy is tantamount to allowing Uy to unjustly
enrich himself at the expense of Equitable. For this reason, the Court allows Equitables cross-claim against Uy.
Preliminary attachment
Equitable next assails as error the trial courts dismissal of its counter-claim for wrongful preliminary attachment. It
maintains that, contrary to SSPIs allegation in its application for the writ, there is no showing whatsoever that
Equitable was guilty of fraud in allowing Uy to deposit the checks. Thus, the trial court should not have issued the
writ of preliminary attachment in favor of SSPI. The wrongful attachment compelled Equitable to incur expenses for
a counter-bond, amounting to P30,204.26, and caused it to sustain damage, amounting to P5 million, to its goodwill
and business credit.70
SSPI submitted the following affidavit in support of its application for a writ of preliminary attachment:
I, Augusto L. Pardo, of legal age, under oath hereby depose and declare:
1. I am one of the plaintiffs in the above-entitled case; the other plaintiff is our family corporation, Special
Steel Products, Inc., of which I am the president and majority stockholder; I caused the preparation of the
foregoing Complaint, the allegations of which I have read, and which I hereby affirm to be true and correct
out of my own personal knowledge;
2. The corporation and I have a sufficient cause of action against defendants Isidoro Uy alias Jolly Uy and
Equitable Banking Corporation, who are guilty of fraud in incurring the obligation upon which this action is
brought, as particularly alleged in the Complaint, which allegations I hereby adopt and reproduce herein;
3. There is no sufficient security for our claim in this action and that the amount due us is as much as the
sum for which the order is granted above all legal counterclaims;
4. We are ready and able to put up a bond executed to the defendants in an amount to be fixed by the
Court[,] conditioned on the payment of all costs[,] which may be adjudged to defendants[,] and all
damages[,] which they may sustain by reason of the attachment of the court, should [the court] finally
adjudge that we are not entitled thereto.71
The complaint (to which the supporting affidavit refers) cites the following factual circumstances to justify
SSPIs application:
6. x x x Yet, notwithstanding the fact that SPECIAL STEEL did not open an account with EQUITABLE BANK
as already alleged, thru its connivance with defendant UY in his fraudulent scheme to defraud SPECIAL
STEEL, or at least thru its gross negligence EQUITABLE BANK consented to or allowed the opening of
Account No. 18841-2 at its head office and Account No. 03474-0 at its Ermita Branch in the name of
SPECIAL STEEL without the latters knowledge, let alone authority or consent, but obviously on the bases of

spurious or falsified documents submitted by UY or under his authority, which documents EQUITABLE
BANK did not bother to verify or check their authenticity with SPECIAL STEEL. 72
xxxx
9. On August 6, 1992, plaintiffs, thru counsel, wrote EQUITABLE BANK about the fraudulent transactions
involving the aforesaid checks, which could not have been perpetrated without its indispensable participation
and cooperation, or gross negligence, and therein solicited its cooperation in securing information as to the
anomalous and irregular opening of the false accounts maintained in SPECIAL STEELs name, but
EQUITABLE BANK malevolently shirking from its responsibility to prevent the further perpetration of fraud,
conveniently, albeit unjustifiably, invoked the confidentiality of the deposits and refused to give any
information, and accordingly denied SPECIAL STEELs valid request, thereby knowingly shielding the
identity of the ma[le]factors involved [in] the unlawful and fraudulent transactions. 73
The above affidavit and the allegations of the complaint are bereft of specific and definite allegations of fraud against
Equitable that would justify the attachment of its properties. In fact, SSPI admits its uncertainty whether Equitables
participation in the transactions involved fraud or was a result of its negligence. Despite such uncertainty with
respect to Equitables participation, SSPI applied for and obtained a preliminary attachment of Equitables properties
on the ground of fraud. We believe that such preliminary attachment was wrongful. "[A] writ of preliminary
attachment is too harsh a provisional remedy to be issued based on mere abstractions of fraud. Rather, the rules
require that for the writ to issue, there must be a recitation of clear and concrete factual circumstances manifesting
that the debtor practiced fraud upon the creditor at the time of the execution of their agreement in that said debtor
had a preconceived plan or intention not to pay the creditor."74 No proof was adduced tending to show that Equitable
had a preconceived plan not to pay SSPI or had knowingly participated in Uys scheme.
That the plaintiffs eventually obtained a judgment in their favor does not detract from the wrongfulness of the
preliminary attachment. While "the evidence warrants [a] judgment in favor of [the] applicant, the proofs may
1wphi1
nevertheless also establish that said applicants proffered ground for attachment was inexistent or specious, and
hence, the writ should not have issued at all x x x." 75
For such wrongful preliminary attachment, plaintiffs may be held liable for damages. However, Equitable is entitled
only to such damages as its evidence would allow,76 for the wrongfulness of an attachment does not automatically
warrant the award of damages. The debtor still has the burden of proving the nature and extent of the injury that it
suffered by reason of the wrongful attachment.77
The Court has gone over the records and found that Equitable has duly proved its claim for, and is entitled to
recover, actual damages. In order to lift the wrongful attachment of Equitables properties, the bank was compelled
to pay the total amount of P30,204.26 in premiums for a counter-bond.78 However, Equitable failed to prove that it
sustained damage to its "goodwill and business credit" in consequence of the alleged wrongful attachment. There
was no proof of Equitables contention that respondents actions caused it public embarrassment and a bank run.
WHEREFORE, premises considered, the Petition is PARTIALLY GRANTED. The assailed October 13, 2006
Decision of the Court of Appeals in CA-G.R. CV No. 62425 is MODIFIED by:
1. REDUCING the award of actual damages to respondents to the rate of 6% per annum of the value of the
three checks from July 1991 to June 1993 or a period of twenty-three months;
2. REDUCING the award of moral damages in favor of Augusto L. Pardo from P3,000,000.00
to P 50,000.00; and

3. REVERSING the dismissal of Equitable Banking Corporations cross-claim against Jose Isidoro Uy, alias
Jolly Uy. Jolly Uy is hereby ORDERED to REIMBURSE Equitable Banking Corporation the amounts that the
latter will pay to respondents.
Additionally, the Court hereby REVERSES the dismissal of Equitable Banking Corporations counterclaim for
damages against Special Steel Products, Inc. This Court ORDERS Special Steel Products, Inc. to PAY Equitable
Banking Corporation actual damages in the total amount of P30,204.36, for the wrongful preliminary attachment of
its properties.
The rest of the assailed Decision is AFFIRMED.
SO ORDERED.
MARIANO C. DEL


51.
G.R. No. 111190 June 27, 1995
LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in his personal capacity as
garnishee, petitioner,
vs.
HON. JOSE P. BURGOS, Presiding Judge, RTC, Br. XVII, Cebu City, and RAUL H. SESBREO, respondents.
BELLOSILLO, J.:
RAUL H. SESBREO filed a complaint for damages against Assistant City Fiscals Bienvenido N. Mabanto, Jr., and
Dario D. Rama, Jr., before the Regional Trial Court of Cebu City. After trial judgment was rendered ordering the
defendants to pay P11,000.00 to the plaintiff, private respondent herein. The decision having become final and
executory, on motion of the latter, the trial court ordered its execution. This order was questioned by the defendants
before the Court of Appeals. However, on 15 January 1992 a writ of execution was issued.
On 4 February 1992 a notice of garnishment was served on petitioner Loreto D. de la Victoria as City Fiscal of
Mandaue City where defendant Mabanto, Jr., was then detailed. The notice directed petitioner not to disburse,
transfer, release or convey to any other person except to the deputy sheriff concerned the salary checks or other
checks, monies, or cash due or belonging to Mabanto, Jr., under penalty of law. 1 On 10 March 1992 private
respondent filed a motion before the trial court for examination of the garnishees.
On 25 May 1992 the petition pending before the Court of Appeals was dismissed. Thus the trial court, finding no
more legal obstacle to act on the motion for examination of the garnishees, directed petitioner on 4 November 1992
to submit his report showing the amount of the garnished salaries of Mabanto, Jr., within fifteen (15) days from
receipt 2 taking into consideration the provisions of Sec. 12, pars. (f) and (i), Rule 39 of the Rules of Court.
On 24 November 1992 private respondent filed a motion to require petitioner to explain why he should not be cited
in contempt of court for failing to comply with the order of 4 November 1992.
On the other hand, on 19 January 1993 petitioner moved to quash the notice of garnishment claiming that he was
not in possession of any money, funds, credit, property or anything of value belonging to Mabanto, Jr., except his
salary and RATA checks, but that said checks were not yet properties of Mabanto, Jr., until delivered to him. He
further claimed that, as such, they were still public funds which could not be subject to garnishment.
On 9 March 1993 the trial court denied both motions and ordered petitioner to immediately comply with its order of 4
November 1992. 3 It opined that the checks of Mabanto, Jr., had already been released through petitioner by the
Department of Justice duly signed by the officer concerned. Upon service of the writ of garnishment, petitioner as
custodian of the checks was under obligation to hold them for the judgment creditor. Petitioner became a virtual party to,
or a forced intervenor in, the case and the trial court thereby acquired jurisdiction to bind him to its orders and processes
with a view to the complete satisfaction of the judgment. Additionally, there was no sufficient reason for petitioner to hold
the checks because they were no longer government funds and presumably delivered to the payee, conformably with the
last sentence of Sec. 16 of the Negotiable Instruments Law.

With regard to the contempt charge, the trial court was not morally convinced of petitioner's guilt. For, while his
explanation suffered from procedural infirmities nevertheless he took pains in enlightening the court by sending a
written explanation dated 22 July 1992 requesting for the lifting of the notice of garnishment on the ground that the
notice should have been sent to the Finance Officer of the Department of Justice. Petitioner insists that he had no
authority to segregate a portion of the salary of Mabanto, Jr. The explanation however was not submitted to the trial
court for action since the stenographic reporter failed to attach it to the record. 4
On 20 April 1993 the motion for reconsideration was denied. The trial court explained that it was not the duty of the
garnishee to inquire or judge for himself whether the issuance of the order of execution, writ of execution and notice
of garnishment was justified. His only duty was to turn over the garnished checks to the trial court which issued the
order of execution. 5
Petitioner raises the following relevant issues: (1) whether a check still in the hands of the maker or its duly
authorized representative is owned by the payee before physical delivery to the latter: and, (2) whether the salary
check of a government official or employee funded with public funds can be subject to garnishment.
Petitioner reiterates his position that the salary checks were not owned by Mabanto, Jr., because they were not yet
delivered to him, and that petitioner as garnishee has no legal obligation to hold and deliver them to the trial court to
be applied to Mabanto, Jr.'s judgment debt. The thesis of petitioner is that the salary checks still formed part of
public funds and therefore beyond the reach of garnishment proceedings.
Petitioner has well argued his case.
Garnishment is considered as a species of attachment for reaching credits belonging to the judgment debtor owing
to him from a stranger to the litigation. 6 Emphasis is laid on the phrase "belonging to the judgment debtor" since it is the
focal point in resolving the issues raised.
As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds. He receives his compensation in
the form of checks from the Department of Justice through petitioner as City Fiscal of Mandaue City and head of
office. Under Sec. 16 of the Negotiable Instruments Law, every contract on a negotiable instrument is incomplete
and revocable until delivery of the instrument for the purpose of giving effect thereto. As ordinarily understood,
delivery means the transfer of the possession of the instrument by the maker or drawer with intent to transfer title to
the payee and recognize him as the holder thereof. 7
According to the trial court, the checks of Mabanto, Jr., were already released by the Department of Justice duly
signed by the officer concerned through petitioner and upon service of the writ of garnishment by the sheriff
petitioner was under obligation to hold them for the judgment creditor. It recognized the role of petitioner
as custodian of the checks. At the same time however it considered the checks as no longer government funds and
presumed delivered to the payee based on the last sentence of Sec. 16 of the Negotiable Instruments Law which
states: "And where the instrument is no longer in the possession of a party whose signature appears thereon, a
valid and intentional delivery by him is presumed." Yet, the presumption is not conclusive because the last portion of
the provision says "until the contrary is proved." However this phrase was deleted by the trial court for no apparent
reason. Proof to the contrary is its own finding that the checks were in the custody of petitioner. Inasmuch as said
checks had not yet been delivered to Mabanto, Jr., they did not belong to him and still had the character of public
funds. In Tiro v. Hontanosas 8 we ruled that
The salary check of a government officer or employee such as a teacher does not belong to him
before it is physically delivered to him. Until that time the check belongs to the government.

Accordingly, before there is actual delivery of the check, the payee has no power over it; he cannot
assign it without the consent of the Government.
As a necessary consequence of being public fund, the checks may not be garnished to satisfy the judgment. 9 The
rationale behind this doctrine is obvious consideration of public policy. The Court succinctly stated in Commissioner of
Public Highways v. San Diego 10 that
The functions and public services rendered by the State cannot be allowed to be paralyzed or
disrupted by the diversion of public funds from their legitimate and specific objects, as appropriated
by law.
In denying petitioner's motion for reconsideration, the trial court expressed the additional ratiocination that it was not
the duty of the garnishee to inquire or judge for himself whether the issuance of the order of execution, the writ of
execution, and the notice of garnishment was justified, citing our ruling in Philippine Commercial Industrial Bank v.
Court of Appeals. 11 Our precise ruling in that case was that "[I]t is not incumbent upon the garnishee to inquire or to judge
for itself whether or not the order for the advance execution of a judgment is valid." But that is invoking only the general
rule. We have also established therein the compelling reasons, as exceptions thereto, which were not taken into account
by the trial court, e.g., a defect on the face of the writ or actual knowledge by the garnishee of lack of entitlement on the
part of the garnisher. It is worth to note that the ruling referred to the validity of advance execution of judgments, but a
careful scrutiny of that case and similar cases reveals that it was applicable to a notice of garnishment as well. In the case
at bench, it was incumbent upon petitioner to inquire into the validity of the notice of garnishment as he had actual
knowledge of the non-entitlement of private respondent to the checks in question. Consequently, we find no difficulty
concluding that the trial court exceeded its jurisdiction in issuing the notice of garnishment concerning the salary checks of
Mabanto, Jr., in the possession of petitioner.
WHEREFORE, the petition is GRANTED. The orders of 9 March 1993 and 20 April 1993 of the Regional Trial Court
of Cebu City, Br. 17, subject of the petition are SET ASIDE. The notice of garnishment served on petitioner dated 3
February 1992 is ordered DISCHARGED.
SO ORDERED.
Quiason and Kapunan, JJ., concur.
Separate Opinions
DAVIDE, JR., J., concurring and dissenting:
This Court may take judicial notice of the fact that checks for salaries of employees of various Departments all over
the country are prepared in Manila not at the end of the payroll period, but days before it to ensure that they reach
the employees concerned not later than the end of the payroll period. As to the employees in the provinces or cities,
the checks are sent through the heads of the corresponding offices of the Departments. Thus, in the case of

Prosecutors and Assistant Prosecutors of the Department of Justice, the checks are sent through the Provincial
Prosecutors or City Prosecutors, as the case may be, who shall then deliver the checks to the payees.
Involved in the instant case are the salary and RATA checks of then Assistant City Fiscal Bienvenido Mabanto, Jr.,
who was detailed in the Office of the City Fiscal (now Prosecutor) of Mandaue City. Conformably with the aforesaid
practice, these checks were sent to Mabanto thru the petitioner who was then the City Fiscal of Mandaue City.
The ponencia failed to indicate the payroll period covered by the salary check and the month to which the RATA
check corresponds.
I respectfully submit that if these salary and RATA checks corresponded, respectively, to a payroll period and to a
month which had already lapsed at the time the notice of garnishment was served, the garnishment would be valid,
as the checks would then cease to be property of the Government and would become property of Mabanto. Upon
the expiration of such period and month, the sums indicated therein were deemed automatically segregated from
the budgetary allocations for the Department of Justice under the General Appropriations Act.
It must be recalled that the public policy against execution, attachment, or garnishment is directed to public funds.
Thus, in the case of Director of the Bureau of Commerce and Industry vs. Concepcion 1 where the core issue was
whether or not the salary due from the Government to a public officer or employee can, by garnishment, be seized before
being paid to him and appropriated to the payment of his judgment debts, this Court held:
A rule, which has never been seriously questioned, is that money in the hands of public officers,
although it may be due government employees, is not liable to the creditors of these employees in
the process of garnishment. One reason is, that the State, by virtue of its sovereignty, may not be
sued in its own courts except by express authorization by the Legislature, and to subject its officers
to garnishment would be to permit indirectly what is prohibited directly. Another reason is that
moneys sought to be garnished, as long as they remain in the hands of the disbursing officer of the
Government, belong to the latter, although the defendant in garnishment may be entitled to a
specific portion thereof. And still another reason which covers both of the foregoing is that every
consideration of public policy forbids it.
The United States Supreme Court, in the leading case of Buchanan vs. Alexander ([1846], 4 How.,
19), in speaking of the right of creditors of seamen, by process of attachment, to divert the public
money from its legitimate and appropriate object, said:
To state such a principle is to refute it. No government can sanction it. At all times it
would be found embarrassing, and under some circumstances it might be fatal to the
public service. . . . So long as money remains in the hands of a disbursing officer, it
is as much the money of the United States, as if it had not been drawn from the
treasury. Until paid over by the agent of the government to the person entitled to it,
the fund cannot, in any legal sense, be considered a part of his effects." (See,
further, 12 R.C.L., p. 841; Keene vs. Smith [1904], 44 Ore., 525; Wild vs. Ferguson
[1871], 23 La. Ann., 752; Bank of Tennessee vs. Dibrell [1855], 3 Sneed [Tenn.],
379). (emphasis supplied)
The authorities cited in the ponencia are inapplicable. Garnished or levied on therein were public funds, to wit: (a)
the pump irrigation trust fund deposited with the Philippine National Bank (PNB) in the account of the Irrigation
Service Unit in Republic vs. Palacio; 2 (b) the deposits of the National Media Production Center in Traders Royal Bank

vs. Intermediate Appellate Court; 3 and (c) the deposits of the Bureau of Public Highways with the PNB under a current
account, which may be expended only for their legitimate object as authorized by the corresponding legislative
appropriation in Commissioner of Public Highways vs. Diego. 4
Neither is Tiro vs. Hontanosas 5 squarely in point. The said case involved the validity of Circular No. 21, series of 1969,
issued by the Director of Public Schools which directed that "henceforth no cashier or disbursing officer shall pay to
attorneys-in-fact or other persons who may be authorized under a power of attorney or other forms of authority to collect
the salary of an employee, except when the persons so designated and authorized is an immediate member of the family
of the employee concerned, and in all other cases except upon proper authorization of the Assistant Executive Secretary
for Legal and Administrative Matters, with the recommendation of the Financial Assistant." Private respondent Zafra
Financing Enterprise, which had extended loans to public school teachers in Cebu City and obtained from the
latter promissory notes and special powers of attorney authorizing it to take and collect their salary checks from the
Division Office in Cebu City of the Bureau of Public Schools, sought, inter alia, to nullify the Circular. It is clear that the
teachers had in fact assigned to or waived in favor of Zafra their future salaries which were still public funds. That
assignment or waiver was contrary to public policy.
I would therefore vote to grant the petition only if the salary and RATA checks garnished corresponds to an
unexpired payroll period and RATA month, respectively.
Padilla, J., concurs.
Separate Opinions
DAVIDE, JR., J., concurring and dissenting:
This Court may take judicial notice of the fact that checks for salaries of employees of various Departments all over
the country are prepared in Manila not at the end of the payroll period, but days before it to ensure that they reach
the employees concerned not later than the end of the payroll period. As to the employees in the provinces or cities,
the checks are sent through the heads of the corresponding offices of the Departments. Thus, in the case of
Prosecutors and Assistant Prosecutors of the Department of Justice, the checks are sent through the Provincial
Prosecutors or City Prosecutors, as the case may be, who shall then deliver the checks to the payees.
Involved in the instant case are the salary and RATA checks of then Assistant City Fiscal Bienvenido Mabanto, Jr.,
who was detailed in the Office of the City Fiscal (now Prosecutor) of Mandaue City. Conformably with the aforesaid
practice, these checks were sent to Mabanto thru the petitioner who was then the City Fiscal of Mandaue City.
The ponencia failed to indicate the payroll period covered by the salary check and the month to which the RATA
check corresponds.
I respectfully submit that if these salary and RATA checks corresponded, respectively, to a payroll period and to a
month which had already lapsed at the time the notice of garnishment was served, the garnishment would be valid,
as the checks would then cease to be property of the Government and would become property of Mabanto. Upon
the expiration of such period and month, the sums indicated therein were deemed automatically segregated from
the budgetary allocations for the Department of Justice under the General Appropriations Act.
It must be recalled that the public policy against execution, attachment, or garnishment is directed to public funds.

Thus, in the case of Director of the Bureau of Commerce and Industry vs. Concepcion 1 where the core issue was
whether or not the salary due from the Government to a public officer or employee can, by garnishment, be seized before
being paid to him and appropriated to the payment of his judgment debts, this Court held:
A rule, which has never been seriously questioned, is that money in the hands of public officers,
although it may be due government employees, is not liable to the creditors of these employees in
the process of garnishment. One reason is, that the State, by virtue of its sovereignty, may not be
sued in its own courts except by express authorization by the Legislature, and to subject its officers
to garnishment would be to permit indirectly what is prohibited directly. Another reason is that
moneys sought to be garnished, as long as they remain in the hands of the disbursing officer of the
Government, belong to the latter, although the defendant in garnishment may be entitled to a
specific portion thereof. And still another reason which covers both of the foregoing is that every
consideration of public policy forbids it.
The United States Supreme Court, in the leading case of Buchanan vs. Alexander ([1846], 4 How.,
19), in speaking of the right of creditors of seamen, by process of attachment, to divert the public
money from its legitimate and appropriate object, said:
To state such a principle is to refute it. No government can sanction it. At all times it
would be found embarrassing, and under some circumstances it might be fatal to the
public service. . . . So long as money remains in the hands of a disbursing officer, it
is as much the money of the United States, as if it had not been drawn from the
treasury. Until paid over by the agent of the government to the person entitled to it,
the fund cannot, in any legal sense, be considered a part of his effects." (See,
further, 12 R.C.L., p. 841; Keene vs. Smith [1904], 44 Ore., 525; Wild vs. Ferguson
[1871], 23 La. Ann., 752; Bank of Tennessee vs. Dibrell [1855], 3 Sneed [Tenn.],
379). (emphasis supplied)
The authorities cited in the ponencia are inapplicable. Garnished or levied on therein were public funds, to wit: (a)
the pump irrigation trust fund deposited with the Philippine National Bank (PNB) in the account of the Irrigation
Service Unit in Republic vs. Palacio; 2 (b) the deposits of the National Media Production Center in Traders Royal Bank
vs. Intermediate Appellate Court; 3 and (c) the deposits of the Bureau of Public Highways with the PNB under a current
account, which may be expended only for their legitimate object as authorized by the corresponding legislative
appropriation in Commissioner of Public Highways vs. Diego. 4
Neither is Tiro vs. Hontanosas 5 squarely in point. The said case involved the validity of Circular No. 21, series of 1969,
issued by the Director of Public Schools which directed that "henceforth no cashier or disbursing officer shall pay to
attorneys-in-fact or other persons who may be authorized under a power of attorney or other forms of authority to collect
the salary of an employee, except when the persons so designated and authorized is an immediate member of the family
of the employee concerned, and in all other cases except upon proper authorization of the Assistant Executive Secretary
for Legal and Administrative Matters, with the recommendation of the Financial Assistant." Private respondent Zafra
Financing Enterprise, which had extended loans to public school teachers in Cebu City and obtained from the
latter promissory notes and special powers of attorney authorizing it to take and collect their salary checks from the
Division Office in Cebu City of the Bureau of Public Schools, sought, inter alia, to nullify the Circular. It is clear that the
teachers had in fact assigned to or waived in favor of Zafra their future salaries which were still public funds. That
assignment or waiver was contrary to public policy.
I would therefore vote to grant the petition only if the salary and RATA checks garnished corresponds to an
unexpired payroll period and RATA month, respectively.

Padilla, J., concurs.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 167567 September 22, 2010
SAN MIGUEL CORPORATION, Petitioner,

vs.
BARTOLOME PUZON, JR., Respondent.
DECISION
DEL CASTILLO, J.:
This petition for review assails the December 21, 2004 Decision1 and March 28, 2005 Resolution2 of the Court of
Appeals (CA) in CA-G.R. SP No. 83905, which dismissed the petition before it and denied reconsideration,
respectively.
Factual Antecedents
Respondent Bartolome V. Puzon, Jr., (Puzon) owner of Bartenmyk Enterprises, was a dealer of beer products of
petitioner San Miguel Corporation (SMC) for Paraaque City. Puzon purchased SMC products on credit. To ensure
payment and as a business practice, SMC required him to issue postdated checks equivalent to the value of the
products purchased on credit before the same were released to him. Said checks were returned to Puzon when the
transactions covered by these checks were paid or settled in full.
On December 31, 2000, Puzon purchased products on credit amounting to P11,820,327 for which he issued, and
gave to SMC, Bank of the Philippine Islands (BPI) Check Nos. 27904 (for P309,500.00) and 27903
(for P11,510,827.00) to cover the said transaction.
On January 23, 2001, Puzon, together with his accountant, visited the SMC Sales Office in Paraaque City to
reconcile his account with SMC. During that visit Puzon allegedly requested to see BPI Check No. 17657. However,
when he got hold of BPI Check No. 27903 which was attached to a bond paper together with BPI Check No. 17657
he allegedly immediately left the office with his accountant, bringing the checks with them.
SMC sent a letter to Puzon on March 6, 2001 demanding the return of the said checks. Puzon ignored the demand
hence SMC filed a complaint against him for theft with the City Prosecutors Office of Paraaque City.
Rulings of the Prosecutor and the Secretary of Department of Justice (DOJ)
The investigating prosecutor, Elizabeth Yu Guray found that the "relationship between [SMC] and [Puzon] appears
to be one of credit or creditor-debtor relationship. The problem lies in the reconciliation of accounts and the non-
payment of beer empties which cannot give rise to a criminal prosecution for theft." 3 Thus, in her July 31, 2001
Resolution,4 she recommended the dismissal of
the case for lack of evidence. SMC appealed.


On June 4, 2003, the DOJ issued its resolution5 affirming the prosecutors Resolution dismissing the case. Its motion
for reconsideration having been denied in the April 23, 2004 DOJ Resolution, 6 SMC filed a petition for certiorari with
the CA.
Ruling of the Court of Appeals
The CA found that the postdated checks were issued by Puzon merely as a security for the payment of his
purchases and that these were not intended to be encashed. It thus concluded that SMC did not acquire ownership
of the checks as it was duty bound to return the same checks to Puzon after the transactions covering them were
settled. The CA agreed with the prosecutor that there was no theft, considering that a person cannot be charged
with theft for taking personal property that belongs to himself. It disposed of the appeal as follows:
WHEREFORE, finding no grave abuse of discretion committed by public respondent, the instant petition is
hereby DISMISSED. The assailed Resolutions of public respondent, dated 04 June 2003 and 23 April 2004,
are AFFIRMED. No costs at this instance.
SO ORDERED.7
The motion for reconsideration of SMC was denied. Hence, the present petition.
Issues
Petitioner now raises the following issues:
WHETHER X X X PUZON HAD STOLEN FROM SMC ON JANUARY 23, 2001, AMONG OTHERS BPI CHECK NO.
27903 DATED MARCH 30, 2001 IN THE AMOUNT OF PESOS: ELEVEN MILLION FIVE HUNDRED TEN
THOUSAND EIGHT HUNDRED TWENTY SEVEN (Php11,510,827.00)
II
WHETHER X X X THE POSTDATED CHECKS ISSUED BY PUZON, PARTICULARLY BPI CHECK NO. 27903
DATED MARCH 30, 2001 IN THE AMOUNT OF PESOS: ELEVEN MILLION FIVE HUNDRED TEN THOUSAND
EIGHT HUNDRED TWENTY SEVEN (Php11,510,827.00), WERE ISSUED IN PAYMENT OF HIS BEER
PURCHASES OR WERE USED MERELY AS SECURITY TO ENSURE PAYMENT OF PUZONS OBLIGATION.
III
WHETHER X X X THE PRACTICE OF SMC IN RETURNING THE POSTDATED CHECKS ISSUED IN PAYMENT
OF BEER PRODUCTS PURCHASED ON CREDIT SHOULD THE TRANSACTIONS COVERED BY THESE
CHECKS [BE] SETTLED ON [THE] MATURITY DATES THEREOF COULD BE LIKENED TO A CONTRACT OF
PLEDGE.
IV
WHETHER X X X SMC HAD ESTABLISHED PROBABLE CAUSE TO JUSTIFY THE INDICTMENT OF PUZON
FOR THE CRIME OF THEFT PURSUANT TO ART. 308 OF THE REVISED PENAL CODE.8

Petitioner's Arguments
SMC contends that Puzon was positively identified by its employees to have taken the subject postdated checks. It
also contends that ownership of the checks was transferred to it because these were issued, not merely as security
but were, in payment of Puzons purchases. SMC points out that it has established more than sufficient probable
cause to justify the indictment of Puzon for the crime of Theft.
Respondents Arguments
On the other hand, Puzon contends that SMC raises questions of fact that are beyond the province of an appeal on
certiorari. He also insists that there is no probable cause to charge him with theft because the subject checks were
issued only as security and he therefore retained ownership of the same.
Our Ruling
The petition has no merit.
Preliminary Matters
At the outset we find that as pointed out by Puzon, SMC raises questions of fact. The resolution of the first issue
raised by SMC of whether respondent stole the subject check, which calls for the Court to determine whether
respondent is guilty of a felony, first requires that the facts be duly established in the proper forum and in accord with
the proper procedure. This issue cannot be resolved based on mere allegations of facts and affidavits. The same is
true with the second issue raised by petitioner, to wit: whether the checks issued by Puzon were payments for his
purchases or were intended merely as security to ensure payment. These issues cannot be properly resolved in the
present petition for review on certiorari which is rooted merely on the resolution of the prosecutor finding no
probable cause for the filing of an information for theft.
The third issue raised by petitioner, on the other hand, would entail venturing into constitutional matters for a
complete resolution. This route is unnecessary in the present case considering that the main matter for resolution
here only concerns grave abuse of discretion and the existence of probable cause for theft, which at this point is
more properly resolved through another more clear cut route.
Probable Cause for Theft
"Probable cause is defined as such facts and circumstances that will engender a well-founded belief that a crime
has been committed and that the respondent is probably guilty thereof and should be held for trial." 9 On the fine
points of the determination of probable cause, Reyes v. Pearlbank Securities, Inc.10 comprehensively elaborated
that:
The determination of [the existence or absence of probable cause] lies within the discretion of the prosecuting
officers after conducting a preliminary investigation upon complaint of an offended party. Thus, the decision whether
to dismiss a complaint or not is dependent upon the sound discretion of the prosecuting fiscal. He may dismiss the
complaint forthwith, if he finds the charge insufficient in form or substance or without any ground. Or he may
proceed with the investigation if the complaint in his view is sufficient and in proper form. To emphasize, the
determination of probable cause for the filing of information in court is an executive function, one that properly
pertains at the first instance to the public prosecutor and, ultimately, to the Secretary of Justice, who may direct the
filing of the corresponding information or move for the dismissal of the case. Ultimately, whether or not a complaint

will be dismissed is dependent on the sound discretion of the Secretary of Justice. And unless made with grave
abuse of discretion, findings of the Secretary of Justice are not subject to review.
For this reason, the Court considers it sound judicial policy to refrain from interfering in the conduct of preliminary
investigations and to leave the Department of Justice ample latitude of discretion in the determination of what
constitutes sufficient evidence to establish probable cause for the prosecution of supposed offenders. Consistent
with this policy, courts do not reverse the Secretary of Justice's findings and conclusions on the matter of probable
cause except in clear cases of grave abuse of discretion.
In the present case, we are also not sufficiently convinced to deviate from the general rule of non-interference.
Indeed the CA did not err in dismissing the petition for certiorari before it, absent grave abuse of discretion on the
part of the DOJ Secretary in not finding probable cause against Puzon for theft.
The Revised Penal Code provides:
Art. 308. Who are liable for theft. - Theft is committed by any person who, with intent to gain but without violence
against, or intimidation of persons nor force upon things, shall take personal property of another without the latters
consent.
xxxx
"[T]he essential elements of the crime of theft are the following: (1) that there be a taking of personal property; (2)
that said property belongs to another; (3) that the taking be done with intent to gain; (4) that the taking be done
without the consent of the owner; and (5) that the taking be accomplished without the use of violence or intimidation
against persons or force upon things."11
Considering that the second element is that the thing taken belongs to another, it is relevant to determine whether
ownership of the subject check was transferred to petitioner. On this point the Negotiable Instruments Law provides:
Sec. 12. Antedated and postdated The instrument is not invalid for the reason only that it is antedated or
postdated, provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument so dated
is delivered acquires the title thereto as of the date of delivery. (Underscoring supplied.)
Note however that delivery as the term is used in the aforementioned provision means that the party delivering did
so for the purpose of giving effect thereto.12 Otherwise, it cannot be said that there has been delivery of the
negotiable instrument. Once there is delivery, the person to whom the instrument is delivered gets the title to the
instrument completely and irrevocably.
If the subject check was given by Puzon to SMC in payment of the obligation, the purpose of giving effect to the
instrument is evident thus title to or ownership of the check was transferred upon delivery. However, if the check was
not given as payment, there being no intent to give effect to the instrument, then ownership of the check was not
transferred to SMC.
The evidence of SMC failed to establish that the check was given in payment of the obligation of Puzon. There was
no provisional receipt or official receipt issued for the amount of the check. What was issued was a receipt for
the document, a "POSTDATED CHECK SLIP."13
Furthermore, the petitioner's demand letter sent to respondent states "As per company policies on receivables, all
issuances are to be covered by post-dated checks. However, you have deviated from this policy by forcibly taking

away the check you have issued to us to cover the December issuance." 14 Notably, the term "payment" was not
used instead the terms "covered" and "cover" were used.
Although the petitioner's witness, Gregorio L. Joven III, states in paragraph 6 of his affidavit that the check was
given in payment of the obligation of Puzon, the same is contradicted by his statements in paragraph 4, where he
states that "As a standard company operating procedure, all beer purchases by dealers on credit shall
be covered by postdated checks equivalent to the value of the beer products purchased"; in paragraph 9 where he
states that "the transaction covered by the said check had not yet been paid for," and in paragraph 8 which clearly
shows that partial payment is expected to be made by the return of beer empties, and not by the deposit or
encashment of the check. Clearly the term "cover" was not meant to be used interchangeably with "payment."
1avvphi1
When taken in conjunction with the counter-affidavit of Puzon where he states that "As the [liquid beer] contents
are paid for, SMC return[s] to me the corresponding PDCs or request[s] me to replace them with whatever was the
unpaid balance."15 it becomes clear that both parties did not intend for the check to pay for the beer products. The
evidence proves that the check was accepted, not as payment, but in accordance with the long-standing policy of
SMC to require its dealers to issue postdated checks to cover its receivables. The check was only meant
to cover the transaction and in the meantime Puzon was to pay for the transaction by some other means other than
the check. This being so, title to the check did not transfer to SMC; it remained with Puzon. The second element of
the felony of theft was therefore not established. Petitioner was not able to show that Puzon took a check
that belonged to another. Hence, the prosecutor and the DOJ were correct in finding no probable cause for theft.
Consequently, the CA did not err in finding no grave abuse of discretion committed by the DOJ in sustaining the
dismissal of the case for theft for lack of probable cause.
WHEREFORE, the petition is DENIED. The December 21, 2004 Decision and March 28, 2005 Resolution of the
Court of Appeals in CA-G.R. SP. No. 83905 are AFFIRMED.
SO ORDERED.
53.
G.R. No. 198660 October 23, 2013
TING TING PUA, Petitioner,

vs.
SPOUSES BENITO LO BUN TIONG and CAROLINE SIOK CHING TENG, Respondents.
RESOLUTION
VELASCO, JR., J.:
Under consideration is the Motion for Reconsideration interposed by petitioner Ting Ting Pua Pua) of our Resolution
dated April 18, 2012 effectively affirming the Decision1 and Resolution2 dated March 31, 2011 and September 26,
2011, respectively, of the Court of Appeals CA) In CA- G.R. CV No. 93755, which, in turn, reversed the Decision of
the Regional Trial Court RTC) of the City of Manila, Branch 29 in Civil Case No. 97-83027.
As culled from the adverted R TC Decision, as adopted for the most part by the CA, the antecedent facts may be
summarized as follows:
The controversy arose from a Complaint for a Sum of Money3 filed by petitioner Pua against respondent-spouses
Benito Lo Bun Tiong Benito) and Caroline Siok Ching Teng Caroline). In the complaint, Pua prayed that, among
other things, respondents, or then defendants, pay Pua the amount eight million five hundred thousand pesos (PhP
8,500,000), covered by a check. (Exhibit "A," for plaintiff)
During trial, petitioner Pua clarified that the PhP 8,500,000 check was given by respondents to pay the loans they
obtained from her under a compounded interest agreement on various dates in 1988. 4 As Pua narrated, her sister,
Lilian Balboa (Lilian), vouched for respondents ability to pay so that when respondents approached her, she
immediately acceded and lent money to respondents without requiring any collateral except post-dated checks
bearing the borrowed amounts.5 In all, respondents issued 176 checks for a total amount of one million nine hundred
seventy-five thousand pesos (PhP 1,975,000). These checks were dishonored upon presentment to the drawee
bank.7
As a result of the dishonor, petitioner demanded payment. Respondents, however, pleaded for more time because
of their financial difficulties.8 Petitioner Pua obliged and simply reminded the respondents of their indebtedness from
time to time.9
Sometime in September 1996, when their financial situation turned better, respondents allegedly called and asked
petitioner Pua for the computation of their loan obligations.10 Hence, petitioner handed them a computation dated
October 2, 199611 which showed that, at the agreed 2% compounded interest rate per month, the amount of the loan
payable to petitioner rose to thirteen million two hundred eighteen thousand five hundred forty-four pesos and
20/100 (PhP 13,218,544.20).12 On receiving the computation, the respondents asked petitioner to reduce their
indebtedness to PhP 8,500,000.13 Wanting to get paid the soonest possible time, petitioner Pua agreed to the
lowered amount.14
Respondents then delivered to petitioner Asiatrust Check No. BND057750 bearing the reduced amount of PhP
8,500,000 dated March 30, 1997 with the assurance that the check was good. 15 In turn, respondents demanded the

return of the 17 previously dishonored checks. Petitioner, however, refused to return the bad checks and advised
respondents that she will do so only after the encashment of Asiatrust Check No. BND057750. 16
Like the 17 checks, however, Check No. BND057750 was also dishonored when it was presented by petitioner to
the drawee bank. Hence, as claimed by petitioner, she decided to file a complaint to collect the money owed her by
respondents.
For the defense, both respondents Caroline and Benito testified along with Rosa Dela Cruz Tuazon (Tuazon), who
was the OIC-Manager of Asiatrust-Binondo Branch in 1997. Respondents categorically denied obtaining a loan from
petitioner.17 Respondent Caroline, in particular, narrated that, in August 1995, she and petitioners sister, Lilian,
forged a partnership that operated a mahjong business. Their agreement was for Lilian to serve as the capitalist
while respondent Caroline was to act as the cashier. Caroline also agreed to use her personal checks to pay for the
operational expenses including the payment of the winners of the games. 18 As the partners anticipated that Caroline
will not always be in town to prepare these checks, she left with Lilian five (5) pre-signed and consecutively
numbered checks19 on the condition that these checks will only be used to cover the costs of the business
operations and in no circumstance will the amount of the checks exceed PhP 5,000. 20
In March 1996, however, respondent Caroline and Lilian had a serious disagreement that resulted in the dissolution
of their partnership and the cessation of their business. In the haste of the dissolution and as a result of their bitter
separation, respondent Caroline alleged that she forgot about the five (5) pre-signed checks she left with Lilian. 21 It
was only when Lilians husband, Vicente Balboa (Vicente), filed a complaint for sum of money in February 1997
against respondents to recover five million one hundred seventy-five thousand two hundred fifty pesos (PhP
5,175,250), covering three of the five post-dated and pre-signed checks. 22
Respondent Caroline categorically denied having completed Check No. BND057750 by using a check writer or
typewriter as she had no check writer and she had always completed checks in her own handwriting. 23 She insisted
that petitioner and her sister completed the check after its delivery.24 Furthermore, she could not have gone to see
petitioner Pua with her husband as they had been separated in fact for nearly 10 years. 25 As for the 17 checks
issued by her in 1988, Caroline alleged that they were not intended for Pua but were issued for the benefit of other
persons.26 Caroline postulated that the complaint is designed to allow Puas sister, Lilian, to recover her losses in the
foreign exchange business she had with Caroline in the 1980s. Respondent Benito corroborated Carolines
testimony respecting their almost a decade separation. 27 As such, he could not have had accompanied his wife to
see petitioner to persuade the latter to lower down any alleged indebtedness. 28 In fact, Benito declared, before the
filing of the Complaint, he had never met petitioner Pua, let alone approached her with his wife to borrow
money.29 He claimed that he was impleaded in the case to attach his property and force him to enter into an
amicable settlement with petitioner.30 Benito pointed out that Check No. BND057750 was issued under Asiatrust
Account No. 5513-0054-9, which is solely under the name of his wife. 31
The witness for the respondents, Ms. Tuazon, testified that respondent Caroline opened Asiatrust Account No. 5513-
0054-9 in September 1994.32 She claimed that the average maintaining balance of respondent Caroline was PhP
2,000 and the highest amount issued by Caroline from her account was PhP 435,000. 33 She maintained that
respondent Caroline had always completed her checks with her own handwriting and not with a check writer. On
October 15, 1996, Carolines checking account was closed at the instance of the bank due to 69 instances of check
issuance against insufficient balance.34
After trial, the RTC issued its Decision dated January 31, 2006 in favor of petitioner. In holding thus, the RTC stated
that the possession by petitioner of the checks signed by Caroline, under the Negotiable Instruments Law, raises the
presumption that they were issued and delivered for a valuable consideration. On the other hand, the court a quo
discounted the testimony for the defense completely denying respondents loan obligation to Pua. 35

The trial court, however, refused to order respondents to pay petitioner the amount of PhP 8,500,000 considering
that the agreement to pay interest on the loan was not expressly stipulated in writing by the parties. The RTC,
instead, ordered respondents to pay the principal amount of the loan as represented by the 17 checks plus legal
interest from the date of demand. As rectified,36 the dispositive portion of RTCs Decision reads:
Defendant-spouses Benito Lo Bun Tiong and Caroline Siok Ching Teng, are hereby ordered jointly and solidarily:
1. To pay plaintiff P1,975,000.00 plus 12% interest per annum from September 30, 1998, until fully paid;
2. To pay plaintiff attorneys fees of P200,000.00; and
3. To pay the costs of the suit.
Aggrieved, respondents went to the CA arguing that the court a quo erred in finding that they obtained and are liable
for a loan from petitioner. To respondents, petitioner has not sufficiently proved the existence of the loan that they
supposedly acquired from her way back in the late 1980s by any written agreement or memorandum.
By Decision of March 31, 2011, as reiterated in a Resolution dated September 26, 2011, the appellate court set
aside the RTC Decision holding that Asiatrust Bank Check No. BND057550 was an incomplete delivered instrument
and that petitioner has failed to prove the existence of respondents indebtedness to her. Hence, the CA added,
petitioner does not have a cause of action against respondents.37
Hence, petitioner came to this Court via a Petition for Review on Certiorari 38 alleging grievous reversible error on the
part of the CA in reversing the findings of the court a quo.
As adverted to at the outset, the Court, in a Minute Resolution dated April 18, 2012, resolved to deny the petition. 39
In this Motion for Reconsideration,40 petitioner pleads that this Court take a second hard look on the facts and issues
of the present case and affirm the RTCs case disposition. Petitioner argues, in the main, that the finding of the
appellate court that petitioner has not established respondents indebtedness to her is not supported by the
evidence on record and is based solely on respondents general denial of liability.
Respondents, on the other hand, argued in their Comment on the Motion for Reconsideration dated October 6, 2012
that the CA correctly ruled that Asiatrust Check No. BND057550 is an incomplete instrument which found its way
into petitioners hands and that the petitioner failed to prove respondents indebtedness to her. Petitioner, so
respondents contend, failed to show to whom the 17 1988 checks were delivered, for what consideration or
purpose, and under whose account said checks were deposited or negotiated.
Clearly, the issue in the present case is factual in nature as it involves an inquiry into the very existence of the debt
supposedly owed by respondents to petitioner.
The general rule is that this Court in petitions for review on certiorari only concerns itself with questions of law, not of
fact,41 the resolution of factual issues being the primary function of lower courts. 42 However, several exceptions have
been laid down by jurisprudence to allow the scrutiny of the factual arguments advanced by the contending parties,
viz: (1) the conclusion is grounded on speculations, surmises or conjectures; (2) the inference is manifestly
mistaken, absurd or impossible ; (3) there is grave abuse of discretion; (4) the judgment is based on a
misapprehension of facts; (5) the findings of fact are conflicting ; (6) there is no citation of specific evidence on which
the factual findings are based; (7) the findings of absence of fact are contradicted by the presence of evidence on
record ; (8) the findings of the CA are contrary to those of the trial court ; (9) the CA manifestly overlooked certain

relevant and undisputed facts that, if properly considered, would justify a different conclusion ; (10) the findings of
the CA are beyond the issues of the case; and (11) such findings are contrary to the admissions of both parties. 43 At
the very least, therefore, the inconsonance of the findings of the RTC and the CA regarding the existence of the loan
sanctions the recalibration of the evidence presented by the parties before the trial court.
In the main, petitioner asserts that respondents owed her a sum of money way back in 1988 for which the latter
gave her several checks. These checks, however, had all been dishonored and petitioner has not been paid the
amount of the loan plus the agreed interest. In 1996, respondents approached her to get the computation of their
liability including the 2% compounded interest. After bargaining to lower the amount of their liability, respondents
supposedly gave her a postdated check bearing the discounted amount of the money they owed to petitioner. Like
the 1988 checks, the drawee bank likewise dishonored this check. To prove her allegations, petitioner submitted the
original copies of the 17 checks issued by respondent Caroline in 1988 and the check issued in 1996, Asiatrust
Check No. BND057750. In ruling in her favor, the RTC sustained the version of the facts presented by petitioner.
Respondents, on the other hand, completely deny the existence of the debt asserting that they had never
approached petitioner to borrow money in 1988 or in 1996. They hypothesize, instead, that petitioner Pua is simply
acting at the instance of her sister, Lilian, to file a false charge against them using a check left to fund a gambling
business previously operated by Lilian and respondent Caroline. While not saying so in express terms, the appellate
court considered respondents denial as worthy of belief.
After another circumspect review of the records of the present case, however, this Court is inclined to depart from
the findings of the CA.
Certainly, in a suit for a recovery of sum of money, as here, the plaintiff-creditor has the burden of proof to show that
defendant had not paid her the amount of the contracted loan. However, it has also been long established that
where the plaintiff-creditor possesses and submits in evidence an instrument showing the indebtedness, a
presumption that the credit has not been satisfied arises in her favor. Thus, the defendant is, in appropriate
instances, required to overcome the said presumption and present evidence to prove the fact of payment so that no
judgment will be entered against him.44
In overruling the trial court, however, the CA opined that petitioner "failed to establish [the] alleged indebtedness in
writing."45 Consequently, so the CA held, respondents were under no obligation to prove their defense. Clearly, the
CA had discounted the value of the only hard pieces of evidence extant in the present casethe checks issued by
respondent Caroline in 1988 and 1996 that were in the possession of, and presented in court by, petitioner.
In Pacheco v. Court of Appeals,46 this Court has expressly recognized that a check "constitutes an evidence of
indebtedness"47 and is a veritable "proof of an obligation."48 Hence, it can be used "in lieu of and for the same
purpose as a promissory note."49 In fact, in the seminal case of Lozano v. Martinez,50 We pointed out that a check
functions more than a promissory note since it not only contains an undertaking to pay an amount of money but is
an "order addressed to a bank and partakes of a representation that the drawer has funds on deposit against which
the check is drawn, sufficient to ensure payment upon its presentation to the bank." 51 This Court reiterated this rule
in the relatively recent Lim v. Mindanao Wines and Liquour Galleria stating that "a check, the entries of which are in
writing, could prove a loan transaction."52 This very same principle underpins Section 24 of the Negotiable
Instruments Law (NIL):
Section 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 for value.

Consequently, the 17 original checks, completed and delivered to petitioner, are sufficient by themselves to prove
the existence of the loan obligation of the respondents to petitioner. Note that respondent Caroline had not denied
the genuineness of these checks.53 Instead, respondents argue that they were given to various other persons and
petitioner had simply collected all these 17 checks from them in order to damage respondents reputation. 54This
account is not only incredible; it runs counter to human experience, as enshrined in Sec. 16 of the NIL which
provides that when an instrument is no longer in the possession of the person who signed it and it is complete in its
terms "a valid and intentional delivery by him is presumed until the contrary is proved."
The appellate courts justification in giving credit to respondents contention that the respondents had delivered the
17 checks to persons other than petitioner lies on the supposed failure of petitioner "to establish for whose accounts
[the checks] were deposited and subsequently dishonored."55 This is clearly contrary to the evidence on record. It
seems that the appellate court overlooked the original copies of the bank return slips offered by petitioner in
evidence. These return slips show that the 1988 checks issued by respondent Caroline were dishonored by the
drawee banks because they were "drawn against insufficient funds."56 Further, a close scrutiny of these return slips
will reveal that the checks were deposited either in petitioners account 57 or in the account of her brother, Ricardo
Yuloa fact she had previously testified to explaining that petitioner indorsed some checks to her brother to pay for
a part of the capital she used in her financing business.58
As for the Asiatrust check issued by respondent Caroline in 1996 to substitute the compounded value of the 1988
checks, the appellate court likewise sympathized with respondents version of the story holding that it is buttressed
by respondents allegations describing the same defense made in the two related cases filed against them by
petitioners brother-in-law, Vicente Balboa. These related cases consisted of a criminal case for violation of BP
1wphi1
2259 and a civil case for collection of sum of money60 involving three (3) of the five (5) consecutively numbered
checks she allegedly left with Lilian.61 It should be noted, however, that while respondents were exculpated from
their criminal liability,62 in Sps. Benito Lo Bun Tiong and Caroline Siok Ching Teng v. Vicente Balboa, 63 this Court
sustained the factual findings of the appellate court in the civil case finding respondents civilly liable to pay the
amount of the checks.
It bears to note that the Decision of the appellate court categorically debunked the same defense advanced by
respondents in the present case primarily because of Carolines admission to the contrary. The Decision of the
appellate court found without any reversible error by this Court reads, thus:
The claim of Caroline Siok Ching Teng that the three (3) checks were part of the blank checks she issued and
delivered to Lilian Balboa, wife of plaintiff-appellee, and intended solely for the operational expenses of their
mahjong business is belied by her admission that she issued three (3) checks (Exhs. "A", "B" "C") because Vicente
showed the listing of their account totaling P5,175,250.00 (TSN, November 17, 1997, p. 10).64 x x x
Clearly, respondents defense that Caroline left blank checks with petitioners sister who, it is said, is now
determined to recoup her past losses and bring financial ruin to respondents by falsifying the same blank checks,
had already been thoroughly passed upon and rejected by this Court. It cannot, therefore, be used to support
respondents denial of their liability.
Respondents other defenses are equally unconvincing. They assert that petitioner could not have accepted a check
worth PhP 8.5 million considering that she should have known that respondent Caroline had issued several checks
for PhP 25,000 each in favor of Lilian and all of them had bounced. 65 Needless to state, an act done contrary to law
cannot be sustained to defeat a legal obligation; repeated failure to honor obligations covered by several negotiable
instruments cannot serve to defeat yet another obligation covered by another instrument.

Indeed, it seems that respondent Caroline had displayed a cavalier attitude towards the value, and the obligation
concomitant with the issuance, of a check. As attested to by respondents very own witness, respondent Caroline
has a documented history of issuing insufficiently funded checks for 69 times, at the very least. 66 This fact alone
bolsters petitioners allegation that the checks delivered to her by respondent Caroline were similarly not funded.
In Magdiwang Realty Corp. v. Manila Banking Corp., We stressed that the quantum of evidence required in civil
casespreponderance of evidence"is a phrase which, in the last analysis, means probability to truth. It is
evidence which is more convincing to the court as worthier of belief than that which is offered in opposition
thereto."67 Based on the evidence submitted by the parties and the legal presumptions arising therefrom, petitioners
evidence outweighs that of respondents. This preponderance of evidence in favor of Pua requires that a judgment
ordering respondents to pay their obligation be entered.
As aptly held by the court a quo, however, respondents cannot be obliged to pay the interest of the loan on the
ground that the supposed agreement to pay such interest was not reduced to writing. Article 1956 of the Civil Code,
which refers to monetary interest, specifically mandates that no interest shall be due unless it has been expressly
stipulated in writing.68 Thus, the collection of interest in loans or forbearance of money is allowed only when these
two conditions concur: (1) there was an express stipulation for the payment of interest; (2) the agreement for the
payment of the interest was reduced in writing.69 Absent any of these two conditions, the money debtor cannot be
made liable for interest. Thus, petitioner is entitled only to the principal amount of the loan plus the allowable legal
interest from the time of the demand,70 at the rate of 6% per annum.71
Respondent Benito cannot escape the joint and solidary liability to pay the loan on the ground that the obligation
arose from checks solely issued by his wife. Without any evidence to the contrary, it is presumed that the proceeds
of the loan redounded to the benefit of their family. Hence, the conjugal partnership is liable therefor.72The
unsupported allegation that respondents were separated in fact, standing alone, does not persuade this Court to
solely bind respondent Caroline and exempt Benito. As the head of the family, there is more reason that respondent
Benito should answer for the liability incurred by his wife presumably in support of their family.
WHEREFORE, the Motion for Reconsideration is GRANTED. The Resolution of this Court dated April 18, 2012 is
set aside and a new one entered REVERSING and SETTING ASIDE the Decision dated March 31, 2011 and the
Resolution dated September 26, 2011 of the Court of Appeals in CA-G.R. CV No. 93755. The Decision in Civil Case
No. 97-83027 of the Regional Trial Court (RTC) of the City of Manila, Branch 29 is REINSTATED with
MODIFICATION.
Accordingly, respondents Benito Lo Bun Tiong and Caroline Siok Ching Teng are ordered jointly and solidarily to pay
petitioner PhP 1,975,000 plus 6% interest per annum from April 18, 1997, until fully paid, and P200,000.00 as
attorneys fees.
SO ORDERED.
PRESBITERO J. VELASCO, JR.

Associate Justice
WE CONCUR:

54.
ASTRO ELECTRONICS CORP. and PETER ROXAS, petitioner, vs. PHILIPPINE

EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION, respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court is
the decision of the Court of Appeals in CA-G.R. CV No. 41274, affirming the decision of
[1]
the Regional Trial Court (Branch 147) of Makati, then Metro Manila, whereby petitioners
Peter Roxas and Astro Electronics Corp. (Astro for brevity) were ordered to pay
respondent Philippine Export and Foreign Loan Guarantee Corporation (Philguarantee),
jointly and severally, the amount of P3,621,187.52 with interests and costs.
The antecedent facts are undisputed.
Astro was granted several loans by the Philippine Trust Company (Philtrust)
amounting to P3,000,000.00 with interest and secured by three promissory notes: PN NO.
PFX-254 dated December 14, 1981 for P600,000.00, PN No. PFX-258 also dated
December 14, 1981 for P400,000.00 and PN No. 15477 dated August 27, 1981 for
P2,000,000.00. In each of these promissory notes, it appears that petitioner Roxas signed
twice, as President of Astro and in his personal capacity. Roxas also signed a Continuing
[2]
Surety ship Agreement in favor of Philtrust Bank, as President of Astro and as surety. [3]
Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust

the payment of 70% of Astros loan, subject to the condition that upon payment by
[4]
Philguanrantee of said amount, it shall be proportionally subrogated to the rights of

Philtrust against Astro.[5]
As a result of Astros failure to pay its loan obligations, despite demands, Philguarantee
paid 70% of the guaranteed loan to Philtrust. Subsequently, Philguarantee filed against
Astro and Roxas a complaint for sum of money with the RTC of Makati.
In his Answer, Roxas disclaims any liability on the instruments, alleging, inter alia, that
he merely signed the same in blank and the phrases in his personal capacity and in his
official capacity were fraudulently inserted without his knowledge. [6]

After trial, the RTC rendered its decision in favor of Philguarantee with the following
dispositive portion:
WHEREFORE, in view of all the foregoing, the Court hereby renders judgment in favor or (sic) the
plaintiff and against the defendants Astro Electronics Corporation and Peter T. Roxas, ordering the
then (sic) to pay, jointly and severally, the plaintiff the sum of P3,621.187.52 representing the total
obligation of defendants in favor of plaintiff Philguarantee as of December 31, 1984 with interest at
the stipulated rate of 16% per annum and stipulated penalty charges of 16% per annum computed
from January 1, 1985 until the amount is fully paid. With costs.
SO ORDERED. [7]
The trial court observed that if Roxas really intended to sign the instruments merely in
his capacity as President of Astro, then he should have signed only once in the promissory
note.[8]
On appeal, the Court of Appeals affirmed the RTC decision agreeing with the trial court
that Roxas failed to explain satisfactorily why he had to sign twice in the contract and
therefore the presumption that private transactions have been fair and regular must be
sustained. [9]
In the present petition, the principal issue to be resolved is whether or not Roxas
should be jointly and severally liable (solidary) with Astro for the sum awarded by the RTC.
The answer is in the affirmative.
Astros loan with Philtrust Bank is secured by three promissory notes. These
promissory notes are valid and binding against Astro and Roxas. As it appears on the
notes, Roxas signed twice: first, as president of Astro and second, in his personal
capacity. In signing his name aside from being the President of Asro, Roxas became a co-
maker of the promissory notes and cannot escape any liability arising from it. Under the
Negotiable Instruments Law, persons who write their names on the face of promissory
notes are makers, promising that they will pay to the order of the payee or any holder
[10]
according to its tenor. Thus, even without the phrase personal capacity, Roxas will still be
[11]
primarily liable as a joint and several debtor under the notes considering that his intention
to be liable as such is manifested by the fact that he affixed his signature on each of the
promissory notes twice which necessarily would imply that he is undertaking the obligation
in two different capacities, official and personal.

Unnoticed by both the trial court and the Court of Appeals, a closer examination of the
signatures affixed by Roxas on the promissory notes, Exhibits A-4 and 3-A and B-4 and 4-
A readily reveals that portions of his signatures covered portions of the typewritten words
personal capacity indicating with certainty that the typewritten words were already existing
at the time Roxas affixed his signatures thus demolishing his claim that the typewritten
words were just inserted after he signed the promissory notes. If what he claims is true,
then portions of the typewritten words would have covered portions of his signatures, and
not vice versa.
As to the third promissory note, Exhibit C-4 and 5-A, the copy submitted is not clear so
that this Court could not discern the same observations on the notes, Exhibits A-4 and 3-A
and B-4 and 4-A.
Nevertheless, the following discussions equally apply to all three promissory notes.
The three promissory notes uniformly provide: FOR VALUE RECEIVED, I/We jointly,
severally and solidarily, promise to pay to PHILTRUST BANK or order... An instrument
[12]
which begins with I, We, or Either of us promise to pay, when signed by two or more
persons, makes them solidarily liable. Also, the phrase joint and several binds the
[13]
makers jointly and individually to the payee so that all may be sued together for its
enforcement, or the creditor may select one or more as the object of the suit. Having
[14]
signed under such terms, Roxas assumed the solidary liability of a debtor and Philtrust
Bank may choose to enforce the notes against him alone or jointly with Astro.
Roxas claim that the phrases in his personal capacity and in his official capacity were
inserted on the notes without his knowledge was correctly disregarded by the RTC and
the Court of Appeals. It is not disputed that Roxas does not deny that he signed the notes
twice. As aptly found by both the trial and appellate court, Roxas did not offer any
explanation why he did so. It devolves upon him to overcome the presumptions that
private transactions are presumed to be fair and regular and that a person takes ordinary
[15]
care of his concerns. Aside from his self-serving allegations, Roxas failed to prove the
[16]
truth of such allegations. Thus, said presumptions prevail over his claims. Bare
allegations, when unsubstantiated by evidence, documentary or otherwise, are not
equivalent to proof under our Rules of Court. [17]
Roxas is the President of Astro and reasonably, a businessman who is presumed to

take ordinary care of his concerns. Absent any countervailing evidence, it cannot be
gainsaid that he will not sign document without first informing himself of its contents and
consequences. Clearly, he knew the nature of the transactions and documents involved as

he not only executed these notes on two different dates but he also executed, and again,
signed twice, a continuing Surety ship Agreement notarized on July 31, 1981, wherein he
guaranteed, jointly and severally with Astro the repayment of P3,000,000.00 due to
Philtrust. Such continuing suretyship agreement even re-enforced his solidary liability
Philtrust because as a surety, he bound himself jointly and severally with Astros obligation.
Roxas cannot now avoid liability by hiding under the convenient excuse that he merely
[18]
signed the notes in blank and the phrases in personal capacity and in his official capacity
were fraudulently inserted without his knowledge.
Lastly, Philguarantee has all the right to proceed against petitioner, it is subrogated to
the rights of Philtrust to demand for and collect payment from both Roxas and Astro since
it already paid the value of 70% of roxas and Astro Electronics Corp.s loan obligation. In
compliance with its contract of Guarantee in favor of Philtrust.
Subrogation is the transfer of all the rights of the creditor to a third person, who
substitutes him in all his rights. It may either be legal or conventional. Legal subrogation
[19]
is that which takes place without agreement but by operation of law because of certain
acts. Instances of legal subrogation are those provided in Article 1302 of the Civil
[20]
Code. Conventional subrogation, on the other hand, is that which takes place by
agreement of the parties. [21]
Roxas acquiescence is not necessary for subrogation to take place because the
instant case is one of the legal subrogation that occurs by operation of law, and without
need of the debtors knowledge. Further, Philguarantee, as guarantor, became the
[22]
transferee of all the rights of Philtrust as against Roxas and Astro because the guarantor
who pays is subrogated by virtue thereof to all the rights which the creditor had against the
debtor. [23]
WHEREFORE, finding no error with the decision of the Court of Appeals dated
December 10, 1998, the same is hereby AFFIRMED in toto.
SO ORDERED.
Bellosillo, (Chairman), Callejo, Sr., and Tinga, JJ., concur.


55.
G.R. No. 101163 January 11, 1993
STATE INVESTMENT HOUSE, INC., petitioner,

vs.
COURT OF APPEALS and NORA B. MOULIC, respondents.
Escober, Alon & Associates for petitioner.
Martin D. Pantaleon for private respondents.
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 respondent Court of Appeals.
Private respondent 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 August 1979 and the other, 30 September 1979. Thereafter, the payee negotiated
the checks to petitioner 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 December 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 October 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, the trial court 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 the Court of Appeals, but the appellate court affirmed the trial court 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 whether or not 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) petitioner
bought these checks from the payee, Corazon Victoriano, before their due dates; 3 (c) petitioner took these checks in
good faith and for value, albeit at a discounted price; and, (d) petitioner 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 Civil Code 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.
The Court of Appeals 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 Civil Code 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 private respondent NORA B. MOULIC liable to petitioner 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 private respondent.
SO ORDERED.

56.
G.R. No. 93073 December 21, 1992
REPUBLIC PLANTERS BANK, petitioner,

vs.
COURT OF APPEALS and FERMIN CANLAS, respondents.
CAMPOS, JR., J.:
This is an appeal by way of a Petition for Review on Certiorari from the decision * of the Court of Appeals in CA G.R. CV No.
07302, entitled "Republic Planters Bank.Plaintiff-Appellee vs. Pinch Manufacturing Corporation, et al., Defendants, and Fermin Canlas, Defendant-Appellant",
which affirmed the decision ** in Civil Case No. 82-5448 except that it completely absolved Fermin Canlas from liability under the promissory notes and reduced
the award for damages and attorney's fees. The RTC decision, rendered on June 20, 1985, is quoted hereunder:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff Republic
Planters Bank, ordering defendant Pinch Manufacturing Corporation (formerly Worldwide Garment
Manufacturing, Inc.) and defendants Shozo Yamaguchi and Fermin Canlas to pay, jointly and
severally, the plaintiff bank the following sums with interest thereon at 16% per annum from the
dates indicated, to wit:
Under the promissory note (Exhibit "A"), the sum of P300,000.00 with interest from January 29, 1981
until fully paid; under promissory note (Exhibit "B"), the sum of P40,000.00 with interest from
November 27, 1980; under the promissory note (Exhibit "C"), the sum of P166,466.00 which interest
from January 29, 1981; under the promissory note (Exhibit "E"), the sum of P86,130.31 with interest
from January 29, 1981; under the promissory note (Exhibit "G"), the sum of P12,703.70 with interest
from November 27, 1980; under the promissory note (Exhibit "H"), the sum of P281,875.91 with
interest from January 29, 1981; and under the promissory note (Exhibit "I"), the sum of P200,000.00
with interest from January 29, 1981.
Under the promissory note (Exhibit "D") defendants Pinch Manufacturing Corporation (formerly
named Worldwide Garment Manufacturing, Inc.), and Shozo Yamaguchi are ordered to pay jointly
and severally, the plaintiff bank the sum of P367,000.00 with interest of 16% per annum from
January 29, 1980 until fully paid
Under the promissory note (Exhibit "F") defendant corporation Pinch (formerly Worldwide) is ordered
to pay the plaintiff bank the sum of P140,000.00 with interest at 16% per annum from November 27,
1980 until fully paid.
Defendant Pinch (formely Worldwide) is hereby ordered to pay the plaintiff the sum of P231,120.81
with interest at 12% per annum from July 1, 1981, until fully paid and the sum of P331,870.97 with
interest from March 28, 1981, until fully paid.
All the defendants are also ordered to pay, jointly and severally, the plaintiff the sum of P100,000.00
as and for reasonable attorney's fee and the further sum equivalent to 3% per annum of the
respective principal sums from the dates above stated as penalty charge until fully paid, plus one
percent (1%) of the principal sums as service charge.

With costs against the defendants.
SO ORDERED. 1
From the above decision only defendant Fermin Canlas appealed to the then Intermediate Court (now the Court
Appeals). His contention was that inasmuch as he signed the promissory notes in his capacity as officer of the
defunct Worldwide Garment Manufacturing, Inc, he should not be held personally liable for such authorized
corporate acts that he performed. It is now the contention of the petitioner Republic Planters Bank that having
unconditionally signed the nine (9) promissory notes with Shozo Yamaguchi, jointly and severally, defendant Fermin
Canlas is solidarity liable with Shozo Yamaguchi on each of the nine notes.
We find merit in this appeal.
From the records, these facts are established: Defendant Shozo Yamaguchi and private respondent Fermin Canlas
were President/Chief Operating Officer and Treasurer respectively, of Worldwide Garment Manufacturing, Inc.. By
virtue of Board Resolution No.1 dated August 1, 1979, defendant Shozo Yamaguchi and private respondent Fermin
Canlas were authorized to apply for credit facilities with the petitioner Republic Planters Bank in the forms of export
advances and letters of credit/trust receipts accommodations. Petitioner bank issued nine promissory notes, marked
as Exhibits A to I inclusive, each of which were uniformly worded in the following manner:
___________, after date, for value received, I/we, jointly and severaIly promise to pay to the
ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of
___________ PESOS(....) Philippine Currency...
On the right bottom margin of the promissory notes appeared the signatures of Shozo Yamaguchi and Fermin
Canlas above their printed names with the phrase "and (in) his personal capacity" typewritten below. At the bottom
of the promissory notes appeared: "Please credit proceeds of this note to:
________ Savings Account ______XX Current Account
No. 1372-00257-6
of WORLDWIDE GARMENT MFG. CORP.
These entries were separated from the text of the notes with a bold line which ran horizontally across the pages.
In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment Manufacturing, Inc. was
apparently rubber stamped above the signatures of defendant and private respondent.
On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its corporate name to Pinch
Manufacturing Corporation.
On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of money covered among others, by
the nine promissory notes with interest thereon, plus attorney's fees and penalty charges. The complainant was
originally brought against Worldwide Garment Manufacturing, Inc. inter alia, but it was later amended to drop
Worldwide Manufacturing, Inc. as defendant and substitute Pinch Manufacturing Corporation it its place. Defendants
Pinch Manufacturing Corporation and Shozo Yamaguchi did not file an Amended Answer and failed to appear at the
scheduled pre-trial conference despite due notice. Only private respondent Fermin Canlas filed an Amended Answer
wherein he, denied having issued the promissory notes in question since according to him, he was not an officer of

Pinch Manufacturing Corporation, but instead of Worldwide Garment Manufacturing, Inc., and that when he issued
said promissory notes in behalf of Worldwide Garment Manufacturing, Inc., the same were in blank, the typewritten
entries not appearing therein prior to the time he affixed his signature.
In the mind of this Court, the only issue material to the resolution of this appeal is whether private respondent
Fermin Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing Corporation and Shozo
Yamaguchi, on the nine promissory notes.
We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes bearing his
signature for the following reasons:
The promissory motes are negotiable instruments and must be governed by the Negotiable Instruments Law. 2
Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are makers
and are liable as such. 3 By signing the notes, the maker promises to pay to the order of the payee or any
holder 4 according to the tenor thereof. 5 Based on the above provisions of law, there is no denying that private respondent
Fermin Canlas is one of the co-makers of the promissory notes. As such, he cannot escape liability arising therefrom.
Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are deemed to
be jointly and severally liable thereon. 6 An instrument which begins" with "I" ,We" , or "Either of us" promise to, pay,
when signed by two or more persons, makes them solidarily liable. 7 The fact that the singular pronoun is used indicates
that the promise is individual as to each other; meaning that each of the co-signers is deemed to have made an
independent singular promise to pay the notes in full.
In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and certain, without
reason for ambiguity, by the presence of the phrase "joint and several" as describing the unconditional promise to
pay to the order of Republic Planters Bank. A joint and several note is one in which the makers bind themselves
both jointly and individually to the payee so that all may be sued together for its enforcement, or the creditor may
select one or more as the object of the suit. 8 A joint and several obligation in common law corresponds to a civil law solidary obligation; that is,
one of several debtors bound in such wise that each is liable for the entire amount, and not merely for his proportionate share. 9 By making a joint and
several promise to pay to the order of Republic Planters Bank, private respondent Fermin Canlas assumed the solidary
liability of a debtor and the payee may choose to enforce the notes against him alone or jointly with Yamaguchi and Pinch
Manufacturing Corporation as solidary debtors.
As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures of the makers in
the notes will affect the liability of the makers, We do not find it necessary to resolve and decide, because it is
immaterial and will not affect to the liability of private respondent Fermin Canlas as a joint and several debtor of the
notes. With or without the presence of said phrase, private respondent Fermin Canlas is primarily liable as a co-
maker of each of the notes and his liability is that of a solidary debtor.
Finally, the respondent Court made a grave error in holding that an amendment in a corporation's Articles of
Incorporation effecting a change of corporate name, in this case from Worldwide Garment manufacturing Inc to
Pinch Manufacturing Corporation extinguished the personality of the original corporation.
The corporation, upon such change in its name, is in no sense a new corporation, nor the successor of the original
corporation. It is the same corporation with a different name, and its character is in no respect changed. 10
A change in the corporate name does not make a new corporation, and whether effected by special act or under a
general law, has no affect on the identity of the corporation, or on its property, rights, or liabilities. 11

The corporation continues, as before, responsible in its new name for all debts or other liabilities which it had
previously contracted or incurred. 12
As a general rule, officers or directors under the old corporate name bear no personal liability for acts done or
contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such officers acted in their
capacity as agent of the old corporation and the change of name meant only the continuation of the old juridical
entity, the corporation bearing the same name is still bound by the acts of its agents if authorized by the Board.
Under the Negotiable Instruments Law, the liability of a person signing as an agent is specifically provided for as
follows:
Sec. 20. Liability of a person signing as agent and so forth. 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 filling a representative character, without
disclosing his principal, does not exempt him from personal liability.
Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a
representative capacity or the name of the third party for whom he might have acted as agent, the agent is
personally liable to take holder of the instrument and cannot be permitted to prove that he was merely acting as
agent of another and parol or extrinsic evidence is not admissible to avoid the agent's personal liability. 13
On the private respondent's contention that the promissory notes were delivered to him in blank for his signature, we
rule otherwise. A careful examination of the notes in question shows that they are the stereotype printed form of
promissory notes generally used by commercial banking institutions to be signed by their clients in obtaining loans.
Such printed notes are incomplete because there are blank spaces to be filled up on material particulars such as
payee's name, amount of the loan, rate of interest, date of issue and the maturity date. The terms and conditions of
the loan are printed on the note for the borrower-debtor 's perusal. An incomplete instrument which has been
delivered to the borrower for his signature is governed by Section 14 of the Negotiable Instruments Law which
provides, in so far as relevant to this case, thus:
Sec. 14. Blanks: when may be filled. Where the instrument is wanting in any material particular,
the person in possesion thereof has a prima facie authority to complete it by filling up the blanks
therein. ... In order, however, that any such instrument when completed may be enforced against any
person who became a party thereto prior to its completion, it must be filled up strictly in accordance
with the authority given and within a reasonable time...
Proof that the notes were signed in blank was only the self-serving testimony of private respondent Fermin Canlas,
as determined by the trial court, so that the trial court ''doubts the defendant (Canlas) signed in blank the promissory
notes". We chose to believe the bank's testimony that the notes were filled up before they were given to private
respondent Fermin Canlas and defendant Shozo Yamaguchi for their signatures as joint and several promissors.
For signing the notes above their typewritten names, they bound themselves as unconditional makers. We take
judicial notice of the customary procedure of commercial banks of requiring their clientele to sign promissory notes
prepared by the banks in printed form with blank spaces already filled up as per agreed terms of the loan, leaving
the borrowers-debtors to do nothing but read the terms and conditions therein printed and to sign as makers or co-
makers. When the notes were given to private respondent Fermin Canlas for his signature, the notes were complete
in the sense that the spaces for the material particular had been filled up by the bank as per agreement. The notes
were not incomplete instruments; neither were they given to private respondent Fermin Canlas in blank as he
claims. Thus, Section 14 of the NegotiabIe Instruments Law is not applicable.

The ruling in case of Reformina vs. Tomol relied upon by the appellate court in reducing the interest rate on the
promissory notes from 16% to 12% per annum does not squarely apply to the instant petition. In the abovecited
case, the rate of 12% was applied to forebearances of money, goods or credit and court judgemets thereon, only in
the absence of any stipulation between the parties.
In the case at bar however , it was found by the trial court that the rate of interest is 9% per annum, which interest
rate the plaintiff may at any time without notice, raise within the limits allowed law. And so, as of February 16, 1984 ,
the plaintiff had fixed the interest at 16% per annum.
This Court has held that the rates under the Usury Law, as amended by Presidential Decree No. 116, are applicable
only to interests by way of compensation for the use or forebearance of money. Article 2209 of the Civil Code, on the
other hand, governs interests by way of damages. 15 This fine distinction was not taken into consideration by the
appellate court, which instead made a general statement that the interest rate be at 12% per annum.
Inasmuch as this Court had declared that increases in interest rates are not subject to any ceiling prescribed by the
Usury Law, the appellate court erred in limiting the interest rates at 12% per annum. Central Bank Circular No. 905,
Series of 1982 removed the Usury Law ceiling on interest rates. 16
In the 1ight of the foregoing analysis and under the plain language of the statute and jurisprudence on the matter,
the decision of the respondent: Court of Appeals absolving private respondent Fermin Canlas is REVERSED and
SET ASIDE. Judgement is hereby rendered declaring private respondent Fermin Canlas jointly and severally liable
on all the nine promissory notes with the following sums and at 16% interest per annum from the dates indicated, to
wit:
Under the promissory note marked as exhibit A, the sum of P300,000.00 with interest from January 29, 1981 until
fully paid; under promissory note marked as Exhibit B, the sum of P40,000.00 with interest from November 27,
1980: under the promissory note denominated as Exhibit C, the amount of P166,466.00 with interest from January
29, 1981; under the promissory note denominated as Exhibit D, the amount of P367,000.00 with interest from
January 29, 1981 until fully paid; under the promissory note marked as Exhibit E, the amount of P86,130.31 with
interest from January 29, 1981; under the promissory note marked as Exhibit F, the sum of P140,000.00 with
interest from November 27, 1980 until fully paid; under the promissory note marked as Exhibit G, the amount of
P12,703.70 with interest from November 27, 1980; the promissory note marked as Exhibit H, the sum of
P281,875.91 with interest from January 29, 1981; and the promissory note marked as Exhibit I, the sum of
P200,000.00 with interest on January 29, 1981.
The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing, Inc.) and
Shozo Yamaguchi, for not having appealed from the decision of the trial court, shall be adjudged in accordance with
the judgment rendered by the Court a quo.
With respect to attorney's fees, and penalty and service charges, the private respondent Fermin Canlas is hereby
held jointly and solidarity liable with defendants for the amounts found, by the Court a quo. With costs against
private respondent.
SO ORDERED.
Narvasa, C.J., (Chairman), Feliciano, Regalado and Nocon, JJ., concur.


57.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 74451 May 25, 1988
EQUITABLE BANKING CORPORATION, petitioner,

vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT and THE EDWARD J. NELL CO., respondents.
William R. Veto for petitioner.
Pelaez, Adriano & Gregorio for respondents.
MELENCIO-HERRERA, J.:
In this Petition for Review on certiorari petitioner, Equitable Banking Corporation, prays that the adverse judgment
against it rendered by respondent Appellate Court, 1 dated 4 October 1985, and its majority Resolution, dated 28 April
1986, denying petitioner's Motion for Reconsideration, 2 be annulled and set aside.
The facts pertinent to this Petition, as summarized by the Trial Court and adopted by reference by Respondent
Appellate Court, emanated from the case entitled "Edward J. Nell Co. vs. Liberato V. Casals, Casville Enterprises,
Inc., and Equitable Banking Corporation" of the Court of First Instance of Rizal (Civil Case No. 25112), and read:
From the evidence submitted by the parties, the Court finds that sometime in 1975 defendant
Liberato Casals went to plaintiff Edward J. Nell Company and told its senior sales engineer, Amado
Claustro that he was interested in buying one of the plaintiff's garrett skidders. Plaintiff was a dealer
of machineries, equipment and supplies. Defendant Casals represented himself as the majority
stockholder, president and general manager of Casville Enterprises, Inc., a firm engaged in the large
scale production, procurement and processing of logs and lumber products, which had a plywood
plant in Sta. Ana, Metro Manila.
After defendant Casals talked with plaintiff's sales engineer, he was referred to plaintiffs executive
vice-president, Apolonio Javier, for negotiation in connection with the manner of payment. When
Javier asked for cash payment for the skidders, defendant Casals informed him that his corporation,
defendant Casville Enterprises, Inc., had a credit line with defendant Equitable Banking Corporation.
Apparently, impressed with this assertion, Javier agreed to have the skidders paid by way of a
domestic letter of credit which defendant Casals promised to open in plaintiffs favor, in lieu of cash
payment. Accordingly, on December 22, 1975, defendant Casville, through its president, defendant
Casals, ordered from plaintiff two units of garrett skidders ...
The purchase order for the garrett skidders bearing No. 0051 and dated December 22, 1975 (Exhibit
"A") contained the following terms and conditions:

Two (2) units GARRETT Skidders Model 30A complete as basically described in the bulletin
PRICE: F.O.B. dock
Manila P485,000.00/unit
For two (2) units P970,000.00
SHIPMENT: We will inform you the date and name of the vessel as soon as arranged.
TERMS: By irrevocable domestic letter of credit to be issued in favor of THE EDWARD J. NELL CO.
or ORDER payable in thirty six (36) months and will be opened within ninety (90) days after date of
shipment. at first installment will be due one hundred eighty (180) days after date of shipment.
Interest-14% per annum (Exhibit A)
xxx xxx xxx
... in a letter dated April 21, 1976, defendants Casals and Casville requested from plaintiff the
delivery of one (1) unit of the bidders, complete with tools and cables, to Cagayan de Oro, on or
before Saturday, April 24,1976, on board a Lorenzo shipping vessel, with the information that an
irrevocable Domestic Letter of Credit would be opened in plaintiff's favor on or before June 30, 1976
under the terms and conditions agreed upon (Exhibit "B")
On May 3, 1976, in compliance with defendant Casvile's recognition request, plaintiff shipped to
Cagayan de Oro City a Garrett skidder. Plaintiff paid the shipping cost in the amount of P10,640.00
because of the verbal assurance of defendant Casville that it would be covered by the letter of credit
soon to be opened.
xxx xxx xxx
On July 15, 1976, defendant Casals handed to plaintiff a check in the amount of P300,000.00
postdated August 4, 1976, which was followed by another check of same date. Plaintiff considered
these checks either as partial payment for the skidder that was already delivered to Cagayan de Oro
or as reimbursement for the marginal deposit that plaintiff was supposed to pay.
In a letter dated August 3, 1976 (Exhibit "C"), defendants Casville informed the plaintiff that their
application for a letter of credit for the payment of the Garrett skidders had been approved by the
Equitable Banking Corporation. However, the defendants said that they would need the sum of
P300,000.00 to stand as collateral or marginal deposit in favor of Equitable Banking Corporation and
an additional amount of P100,000.00, also in favor of Equitable Banking Corporation, to clear the
title of the Estrada property belonging to defendant Casals which had been approved as security for
the trust receipts to be issued by the bank, covering the above-mentioned equipment.
Although the marginal deposit was supposed to be produced by defendant Casville Enterprises,
plaintiff agreed to advance the necessary amount in order to facilitate the transaction. Accordingly,
on August 5,1976, plaintiff issued a check in the amount of P400,000.00 (Exhibit "2") drawn against
the First National City Bank and made payable to the order of Equitable Banking Corporation and
with the following notation or memorandum:

a/c of Casville Enterprises Inc. for Marginal deposit and payment of balance on
Estrada Property to be used as security for trust receipt for opening L/C of Garrett
Skidders in favor of the Edward J. Nell Co." Said check together with the cash
disbursement voucher (Exhibit "2-A") containing the explanation:
Payment for marginal deposit and other expenses re opening of L/C for account of
Casville Ent..
A covering letter (Exhibit "3") was also sent and when the three documents were presented to
Severino Santos, executive vice president of defendant bank, Santos did not accept them because
the terms and conditions required by the bank for the opening of the letter of credit had not yet been
agreed on.
On August 9, 1976, defendant Casville wrote the bank applying for two letters of credit to cover its
purchase from plaintiff of two Garrett skidders, under the following terms and conditions:
a) On sight Letter of Credit for P485,000.00; b) One 36 months Letter of Credit for P606,000.00; c)
P300,000.00 CASH marginal deposit1 d) Real Estate Collateral to secure the Trust Receipts; e) We
shall chattel mortgage the equipments purchased even after payment of the first L/C as additional
security for the balance of the second L/C and f) Other conditions you deem necessary to protect the
interest of the bank."
In a letter dated August 11, 1976 (Exhibit "D-l"), defendant bank replied stating that it was ready to
open the letters of credit upon defendant's compliance of the following terms and conditions:
c) 30% cash margin deposit; d) Acceptable Real Estate Collateral to secure the Trust Receipts; e)
Chattel Mortgage on the equipment; and Ashville f) Other terms and conditions that our bank may
impose.
Defendant Casville sent a copy of the foregoing letter to the plaintiff enclosing three postdated
checks. In said letter, plaintiff was informed of the requirements imposed by the defendant bank
pointing out that the "cash marginal required under paragraph (c) is 30% of Pl,091,000.00 or
P327,300.00 plus another P100,000.00 to clean up the Estrada property or a total of P427,300.00"
and that the check covering said amount should be made payable "to the Order of EQUITABLE
BANKING CORPORATION for the account of Casville Enterprises Inc." Defendant Casville also
stated that the three (3) enclosed postdated checks were intended as replacement of the checks that
were previously issued to plaintiff to secure the sum of P427,300.00 that plaintiff would advance to
defendant bank for the account of defendant Casville. All the new checks were postdated November
19, 1976 and drawn in the sum of Pl45,500.00 (Exhibit "F"), P181,800.00 (Exhibit "G") and
P100,000.00 (Exhibit "H").
On the same occasion, defendant Casals delivered to plaintiff TCT No. 11891 of the Register of
Deeds of Quezon City and TCT No. 50851 of the Register of Deeds of Rizal covering two pieces of
real estate properties.
Subsequently, Cesar Umali, plaintiffs credit and collection manager, accompanied by a

representative of defendant Casville, went to see Severino Santos to find out the status of the credit
line being sought by defendant Casville. Santos assured Umali that the letters of credit would be

opened as soon as the requirements imposed by defendant bank in its letter dated August 11, 1976
had been complied with by defendant Casville.
On August 16, 1976, plaintiff issued a check for P427,300.00, payable to the "order of EQUITABLE
BANKING CORPORATION A/C CASVILLE ENTERPRISES, INC." and drawn against the first
National City Bank (Exhibit "E-l"). The check did not contain the notation found in the previous check
issued by the plaintiff (Exhibit "2") but the substance of said notation was reproduced in a covering
letter dated August 16,1976 that went with the check (Exhibit "E"). Both the check and the covering
<re||an1w>
letter were sent to defendant bank through defendant Casals. Plaintiff entrusted the delivery of the
check and the latter to defendant Casals because it believed that no one, including defendant
Casals, could encash the same as it was made payable to the defendant bank alone. Besides,
defendant Casals was known to the bank as the one following up the application for the letters of
credit.
Upon receiving the check for P427,300.00 entrusted to him by plaintiff defendant Casals immediately
deposited it with the defendant bank and the bank teller accepted the same for deposit in defendant
Casville's checking account. After depositing said check, defendant Casville, acting through
defendant Casals, then withdrew all the amount deposited.
Meanwhile, upon their presentation for encashment, plaintiff discovered that the three checks
(Exhibits "F, "G" and "H") in the total amount of P427,300.00, that were issued by defendant Casville
as collateral were all dishonored for having been drawn against a closed account.
As defendant Casville failed to pay its obligation to defendant bank, the latter foreclosed the
mortgage executed by defendant Casville on the Estrada property which was sold in a public auction
sale to a third party.
Plaintiff allowed some time before following up the application for the letters of credit knowing that it
took time to process the same. However, when the three checks issued to it by defendant Casville
were dishonored, plaintiff became apprehensive and sent Umali on November 29, 1976, to inquire
about the status of the application for the letters of credit. When plaintiff was informed that no letters
of credit were opened by the defendant bank in its favor and then discovered that defendant Casville
had in the meanwhile withdrawn the entire amount of P427,300.00, without paying its obligation to
the bank plaintiff filed the instant action.
While the the instant case was being tried, defendants Casals and Casville assigned the garrett
skidder to plaintiff which credited in favor of defendants the amount of P450,000.00, as partial
satisfaction of plaintiff's claim against them.
Defendants Casals and Casville hardly disputed their liability to plaintiff. Not only did they show lack
of interest in disputing plaintiff's claim by not appearing in most of the hearings, but they also
assigned to plaintiff the garrett skidder which is an action of clear recognition of their liability.
What is left for the Court to determine, therefore, is only the liability of defendant bank to plaintiff.
xxx xxx xxx
Resolving that issue, the Trial Court rendered judgment, affirmed by Respondent Court in toto, the pertinent portion
of which reads:

xxx xxx xxx
Defendants Casals and Casville Enterprises and Equitable Banking Corporation are ordered to pay
plaintiff, jointly and severally, the sum of P427,300.00, representing the amount of plaintiff's check
which defendant bank erroneously credited to the account of defendant Casville and which
defendants Casal and Casville misappropriated, with 12% interest thereon from April 5, 1977, until
the said sum is fully paid.
Defendant Equitable Banking Corporation is ordered to pay plaintiff attorney's fees in the sum of
P25,000.00 .
Proportionate cost against all the defendants.
SO ORDERED.
The crucial issue to resolve is whether or not petitioner Equitable Banking Corporation (briefly, the Bank) is liable to
private respondent Edward J. Nell Co. (NELL, for short) for the value of the second check issued by NELL, Exhibit
"E-l," which was made payable
to the order of EQUITABLE Ashville BANIUNG CORPORATION A/C OF CASVILLE ENTERPRISES

INC.
and which the Bank teller credited to the account of Casville.
The Trial Court found that the amount of the second check had been erroneously credited to the Casville account;
held the Bank liable for the mistake of its employees; and ordered the Bank to pay NELL the value of the check in
the sum of P427,300.00, with legal interest. Explained the Trial Court:
The Court finds that the check in question was payable only to the defendant bank and to no one
else. Although the words "A/C OF CASVILLE ENTERPRISES INC. "appear on the face of the check
after or under the name of defendant bank, the payee was still the latter. The addition of said words
did not in any way make Casville Enterprises, Inc. the Payee of the instrument for the words merely
indicated for whose account or in connection with what account the check was issued by the plaintiff.
Indeed, the bank teller who received it was fully aware that the check was not negotiable since he
stamped thereon the words "NON-NEGOTIABLE For Payee's Account Only" and "NON-
NEGOTIABLE TELLER NO. 4, August 17,1976 EQUITABLE BANKING CORPORATION.
But said teller should have exercised more prudence in the handling of Id check because it was not
made out in the usual manner. The addition of the words A/C OF CASVILLE ENTERPRISES INC."
should have placed the teller on guard and he should have clarified the matter with his superiors.
Instead of doing so, however, the teller decided to rely on his own judgment and at the risk of making
a wrong decision, credited the entire amount in the name of defendant Casville although the latter
was not the payee named in the check. Such mistake was crucial and was, without doubt, the
proximate cause of plaintiffs defraudation.
xxx xxx xxx
Respondent Appellate Court upheld the above conclusions stating in addition:


1) The appellee made the subject check payable to appellant's order, for the account of Casville
Enterprises, Inc. In the light of the other facts, the directive was for the appellant bank to apply the
value of the check as payment for the letter of credit which Casville Enterprises, Inc. had previously
applied for in favor of the appellee (Exhibit D-1, p. 5). The issuance of the subject check was
precisely to meet the bank's prior requirement of payment before issuing the letter of credit
previously applied for by Casville Enterprises in favor of the appellee;
xxx xxx xxx
We disagree.
1) The subject check was equivocal and patently ambiguous. By making the check read:
Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES,

INC.
the payee ceased to be indicated with reasonable certainty in contravention of Section 8 of the Negotiable
Instruments Law. 3 As worded, it could be accepted as deposit to the account of the party named after the symbols "A/C,"
or payable to the Bank as trustee, or as an agent, for Casville Enterprises, Inc., with the latter being the ultimate
beneficiary. That ambiguity is to be taken contra proferentem that is, construed against NELL who caused the ambiguity
and could have also avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code, provides:
Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity.
2) Contrary to the finding of respondent Appellate Court, the subject check was, initially, not non-negotiable. Neither
was it a crossed check. The rubber-stamping transversall on the face of the subject check of the words "Non-
negotiable for Payee's Account Only" between two (2) parallel lines, and "Non-negotiable, Teller- No. 4, August 17,
1976," separately boxed, was made only by the Bank teller in accordance with customary bank practice, and not by
NELL as the drawer of the check, and simply meant that thereafter the same check could no longer be negotiated.
3) NELL's own acts and omissions in connection with the drawing, issuance and delivery of the 16 August 1976
check, Exhibit "E-l," and its implicit trust in Casals, were the proximate cause of its own defraudation: (a) The
original check of 5 August 1976, Exhibit "2," was payable to the order solely of "Equitable Banking Corporation."
NELL changed the payee in the subject check, Exhibit "E", however, to "Equitable Banking Corporation, A/C of
Casville Enterprises Inc.," upon Casals request. NELL also eliminated both the cash disbursement voucher
accompanying the check which read:
Payment for marginal deposit and other expense re opening of L/C for account of Casville
Enterprises.
and the memorandum:
a/c of Casville Enterprises Inc. for Marginal deposit and payment of balance on Estrada Property to
be used as security for trust receipt for opening L/C of Garrett Skidders in favor of the Edward
Ashville J Nell Co.
Evidencing the real nature of the transaction was merely a separate covering letter, dated 16 August 1976, which
Casals, sinisterly enough, suppressed from the Bank officials and teller.

(b) NELL entrusted the subject check and its covering letter, Exhibit "E," to Casals who, obviously, had his own
antagonistic interests to promote. Thus it was that Casals did not purposely present the subject check to the
Executive Vice-President of the Bank, who was aware of the negotiations regarding the Letter of Credit, and who
had rejected the previous check, Exhibit "2," including its three documents because the terms and conditions
required by the Bank for the opening of the Letter of Credit had not yet been agreed on.
(c) NELL was extremely accommodating to Casals. Thus, to facilitate the sales transaction, NELL even advanced
the marginal deposit for the garrett skidder. It is, indeed, abnormal for the seller of goods, the price of which is to be
covered by a letter of credit, to advance the marginal deposit for the same.
(d) NELL had received three (3) postdated checks all dated 16 November, 1976 from Casvine to secure the subject
check and had accepted the deposit with it of two (2) titles of real properties as collateral for said postdated checks.
Thus, NELL was erroneously confident that its interests were sufficiently protected. Never had it suspected that
those postdated checks would be dishonored, nor that the subject check would be utilized by Casals for a purpose
other than for opening the letter of credit.
In the last analysis, it was NELL's own acts, which put it into the power of Casals and Casville Enterprises to
perpetuate the fraud against it and, consequently, it must bear the loss (Blondeau, et al., vs. Nano, et al., 61 Phil.
625 [1935]; Sta. Maria vs. Hongkong and Shanghai Banking Corporation, 89 Phil. 780 [1951]; Republic of the
Philippines vs. Equitable Banking Corporation, L-15895, January 30,1964, 10 SCRA 8).
... As between two innocent persons, one of whom must suffer the consequence of a breach of trust,
the one who made it possible by his act of confidence must bear the loss.
WHEREFORE, the Petition is granted and the Decision of respondent Appellate Court, dated 4 October 1985, and
its majority Resolution, dated 28 April 1986, denying petitioner's Motion for Reconsideration, are hereby SET ASIDE.
The Decision of the then Court of First Instance of Rizal, Branch XI. is modified in that petitioner Equitable Banking
Corporation is absolved from any and all liabilities to the private respondent, Edward J. Nell Company, and the
Amended Complaint against petitioner bank is hereby ordered dismissed. No costs.
SO ORDERED.
Yap, C.J., Paras and Sarmiento, J.J., concur.
Padilla, J., took no part.


58.
G.R. No. L-16968 July 31, 1962
PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
CONCEPCION MINING COMPANY, INC., ET AL., defendants-appellants.
Ramon B. de los Reyes for plaintiff-appellee.

Demetrio Miraflor for defendants-appellants.
LABRADOR, J.:
Appeal from a judgment or decision of the Court of First Instance of Manila, Hon. Gustavo Victoriano, presiding,
sentencing defendants Concepcion Mining Company and Jose Sarte to pay jointly and severally to the plaintiff the
amount of P7,197.26 with interest up to September 29, 1959, plus a daily interest of P1.3698 thereafter up to the
time the amount is fully paid, plus 10% of the amount as attorney's fees, and costs of this suit.
The present action was instituted by the plaintiff to recover from the defendants the face of a promissory note the
pertinent part of which reads as follows:
Manila, March 12, 1954
NINETY DAYS after date, for value received, I promise to pay to the order of the Philippine National Bank . . . .
In case it is necessary to collect this note by or through an attorney-at-law, the makers and indorsers shall pay ten
percent (10%) of the amount due on the note as attorney's fees, which in no case shall be less than P100.00
exclusive of all costs and fees allowed by law as stipulated in the contract of real estate mortgage. Demand and
Dishonor Waived. Holder may accept partial payment reserving his right of recourse again each and all indorsers.
(Purpose mining industry)

CONCEPCION MINING COMPANY, INC.,
By:
(Sgd.) VICENTE LEGARDA
President
(Sgd.) VICENTE LEGARDA
(Sgd.) JOSE S SARTE
"Please issue check to

Mr. Jose S. Sarte"
Upon the filing of the complaint the defendants presented their answer in which they allege that the co-maker the
promissory note Don Vicente L. Legarda died on February 24, 1946 and his estate is in the process of judicial
determination in Special Proceedings No. 29060 of the Court of First Instance of Manila. On the basis of this
allegation it is prayed, as a special defense, that the estate of said deceased Vicente L. Legarda be included as
party-defendant. The court in its decision ruled that the inclusion of said defendant is unnecessary and immaterial, in
accordance with the provisions of Article 1216 of the Deny Civil Code and section 17 (g) of the Negotiable
Instruments Law.

A motion to reconsider this decision was denied and thereupon defendants presented a petition for relief, asking that
the effects of the judgment be suspended for the reason that the deceased Vicente L. Legarda should have been
included as a party-defendant and his liability should be determined in pursuance of the provisions of the promissory
note. This motion for relief was also denied, hence defendant appealed to this Court.
Section 17 (g) of the Negotiable Instruments Law provides as follows:
SEC. 17. Construction where instrument is ambiguous. Where the language of the instrument is
ambiguous or there are omissions therein, the following rules of construction apply:
xxx xxx xxx
(g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are
deemed to be jointly and severally liable thereon.
And Article 1216 of the Civil Code of the Philippines also provides as follows:
ART. 1216. The creditor may proceed against any one of the solidary debtors or some of them
simultaneously. The demand made against one of them shall not be an obstacle to those which may
subsequently be directed against the others so long as the debt has not been fully collected.
In view of the above quoted provisions, and as the promissory note was executed jointly and severally by the same
parties, namely, Concepcion Mining Company, Inc. and Vicente L. Legarda and Jose S. Sarte, the payee of the
promissory note had the right to hold any one or any two of the signers of the promissory note responsible for the
payment of the amount of the note. This judgment of the lower court should be affirmed.
Our attention has been attracted to the discrepancies in the printed record on appeal. We note, first, that the names
of the defendants, who are evidently the Concepcion Mining Co., Inc. and Jose S. Sarte, do not appear in the
printed record on appeal. The title of the complaint set forth in the record on appeal does not contain the name of
Jose Sarte, when it should, as two defendants are named in the complaint and the only defense of the defendants is
the non-inclusion of the deceased Vicente L. Legarda as a defendant in the action. We also note that the copy of the
promissory note which is set forth in the record on appeal does not contain the name of the third maker Jose S.
Sarte. Fortunately, the brief of appellee on page 4 sets forth said name of Jose S. Sarte as one of the co-maker of
the promissory note. Evidently, there is an attempt to mislead the court into believing that Jose S. Sarte is no one of
the co-makers. The attorney for the defendants Atty. Jose S. Sarte himself and he should be held primarily
responsible for the correctness of the record on appeal. We, therefore, order the said Atty. Jose S. Sarte to explain
why in his record on appeal his own name as one of the defendants does not appear and neither does his name
appear as one of the co-signers of the promissory note in question. So ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur.
Reyes, J.B.L., J., took no part.

59.
G.R. No. 148864 August 21, 2003
SPOUSES EDUARDO B. EVANGELISTA and EPIFANIA C. EVANGELISTA, Petitioners,

vs.
MERCATOR FINANCE CORP., LYDIA P. SALAZAR, LAMEC'S** REALTY AND DEVELOPMENT CORP. and the
REGISTER OF DEEDS OF BULACAN, Respondents.
DECISION
PUNO, J.:
Petitioners, Spouses Evangelista ("Petitioners"), are before this Court on a Petition for Review on Certiorari under
Rule 45 of the Revised Rules of Court, assailing the decision of the Court of Appeals dismissing their petition.
Petitioners filed a complaint1 for annulment of titles against respondents, Mercator Finance Corporation, Lydia P.
Salazar, Lamecs Realty and Development Corporation, and the Register of Deeds of Bulacan. Petitioners claimed
being the registered owners of five (5) parcels of land2 contained in the Real Estate Mortgage3 executed by them
and Embassy Farms, Inc. ("Embassy Farms"). They alleged that they executed the Real Estate Mortgage in favor of
Mercator Financing Corporation ("Mercator") only as officers of Embassy Farms. They did not receive the proceeds
of the loan evidenced by a promissory note, as all of it went to Embassy Farms. Thus, they contended that the
mortgage was without any consideration as to them since they did not personally obtain any loan or credit
accommodations. There being no principal obligation on which the mortgage rests, the real estate mortgage is
void.4 With the void mortgage, they assailed the validity of the foreclosure proceedings conducted by Mercator, the
sale to it as the highest bidder in the public auction, the issuance of the transfer certificates of title to it, the
subsequent sale of the same parcels of land to respondent Lydia P. Salazar ("Salazar"), and the transfer of the titles
to her name, and lastly, the sale and transfer of the properties to respondent Lamecs Realty & Development
Corporation ("Lamecs").
Mercator admitted that petitioners were the owners of the subject parcels of land. It, however, contended that "on
February 16, 1982, plaintiffs executed a Mortgage in favor of defendant Mercator Finance Corporation for and in
consideration of certain loans, and/or other forms of credit accommodations obtained from the Mortgagee
(defendant Mercator Finance Corporation) amounting to EIGHT HUNDRED FORTY-FOUR THOUSAND SIX
HUNDRED TWENTY-FIVE & 78/100 (P844,625.78) PESOS, Philippine Currency and to secure the payment of the
same and those others that the MORTGAGEE may extend to the MORTGAGOR (plaintiffs) x x x." 5 It contended
that since petitioners and Embassy Farms signed the promissory note6 as co-makers, aside from the Continuing
Suretyship Agreement7 subsequently executed to guarantee the indebtedness of Embassy Farms, and the
succeeding promissory notes8 restructuring the loan, then petitioners are jointly and severally liable with Embassy
Farms. Due to their failure to pay the obligation, the foreclosure and subsequent sale of the mortgaged properties
are valid.
Respondents Salazar and Lamecs asserted that they are innocent purchasers for value and in good faith, relying on
the validity of the title of Mercator. Lamecs admitted the prior ownership of petitioners of the subject parcels of land,
but alleged that they are the present registered owner. Both respondents likewise assailed the long silence and
inaction by petitioners as it was only after a lapse of almost ten (10) years from the foreclosure of the property and
the subsequent sales that they made their claim. Thus, Salazar and Lamecs averred that petitioners are in estoppel
and guilty of laches.9
During pre-trial, the parties agreed on the following issues:
a. Whether or not the Real Estate Mortgage executed by the plaintiffs in favor of defendant Mercator
Finance Corp. is null and void;

b. Whether or not the extra-judicial foreclosure proceedings undertaken on subject parcels of land to satisfy
the indebtedness of Embassy Farms, Inc. is (sic) null and void;
c. Whether or not the sale made by defendant Mercator Finance Corp. in favor of Lydia Salazar and that
executed by the latter in favor of defendant Lamecs Realty and Development Corp. are null and void;
d. Whether or not the parties are entitled to damages.10
After pre-trial, Mercator moved for summary judgment on the ground that except as to the amount of damages,
there is no factual issue to be litigated. Mercator argued that petitioners had admitted in their pre-trial brief the
existence of the promissory note, the continuing suretyship agreement and the subsequent promissory notes
restructuring the loan, hence, there is no genuine issue regarding their liability. The mortgage, foreclosure
proceedings and the subsequent sales are valid and the complaint must be dismissed. 11
Petitioners opposed the motion for summary judgment claiming that because their personal liability to Mercator is at
issue, there is a need for a full-blown trial.12
The RTC granted the motion for summary judgment and dismissed the complaint. It held:
A reading of the promissory notes show (sic) that the liability of the signatories thereto are solidary in view of the
phrase "jointly and severally." On the promissory note appears (sic) the signatures of Eduardo B. Evangelista,
Epifania C. Evangelista and another signature of Eduardo B. Evangelista below the words Embassy Farms, Inc. It is
crystal clear then that the plaintiffs-spouses signed the promissory note not only as officers of Embassy Farms, Inc.
but in their personal capacity as well(.) Plaintiffs(,) by affixing their signatures thereon in a dual capacity have bound
themselves as solidary debtor(s) with Embassy Farms, Inc. to pay defendant Mercator Finance Corporation the
amount of indebtedness. That the principal contract of loan is void for lack of consideration, in the light of the
foregoing is untenable.13
Petitioners motion for reconsideration was denied for lack of merit.14 Thus, petitioners went up to the Court of
Appeals, but again were unsuccessful. The appellate court held:
The appellants insistence that the loans secured by the mortgage they executed were not personally theirs but
those of Embassy Farms, Inc. is clearly self-serving and misplaced. The fact that they signed the subject promissory
notes in the(ir) personal capacities and as officers of the said debtor corporation is manifest on the very face of the
said documents of indebtedness (pp. 118, 128-131, Orig. Rec.). Even assuming arguendo that they did not, the
appellants lose sight of the fact that third persons who are not parties to a loan may secure the latter by pledging or
mortgaging their own property (Lustan vs. Court of Appeals, 266 SCRA 663, 675). x x x. In constituting a mortgage
over their own property in order to secure the purported corporate debt of Embassy Farms, Inc., the appellants
undeniably assumed the personality of persons interested in the fulfillment of the principal obligation who, to save
the subject realities from foreclosure and with a view towards being subrogated to the rights of the creditor, were
free to discharge the same by payment (Articles 1302 [3] and 1303, Civil Code of the Philippines). 15 (emphases in
the original)
The appellate court also observed that "if the appellants really felt aggrieved by the foreclosure of the subject
mortgage and the subsequent sales of the realties to other parties, why then did they commence the suit only on
August 12, 1997 (when the certificate of sale was issued on January 12, 1987, and the certificates of title in the
name of Mercator on September 27, 1988)?" Petitioners "procrastination for about nine (9) years is difficult to
understand. On so flimsy a ground as lack of consideration, (w)e may even venture to say that the complaint was
not worth the time of the courts."16
A motion for reconsideration by petitioners was likewise denied for lack of merit. 17 Thus, this petition where they
allege that:

The court a quo erred and acted with grave abuse of discretion amounting to lack or excess of jurisdiction in
affirming in toto the May 4, 1998 order of the trial court granting respondents motion for summary judgment despite
the existence of genuine issues as to material facts and its non-entitlement to a judgment as a matter of law, thereby
deciding the case in a way probably not in accord with applicable decisions of this Honorable Court. 18
we affirm.
Summary judgment "is a procedural technique aimed at weeding out sham claims or defenses at an early stage of
the litigation."19 The crucial question in a motion for summary judgment is whether the issues raised in the pleadings
are genuine or fictitious, as shown by affidavits, depositions or admissions accompanying the motion. A genuine
issue means "an issue of fact which calls for the presentation of evidence, as distinguished from an issue which is
fictitious or contrived so as not to constitute a genuine issue for trial." 20 To forestall summary judgment, it is essential
for the non-moving party to confirm the existence of genuine issues where he has substantial, plausible and fairly
arguable defense, i.e., issues of fact calling for the presentation of evidence upon which a reasonable finding of fact
could return a verdict for the non-moving party. The proper inquiry would therefore be whether the affirmative
defenses offered by petitioners constitute genuine issue of fact requiring a full-blown trial. 21
In the case at bar, there are no genuine issues raised by petitioners. Petitioners do not deny that they obtained a
loan from Mercator. They merely claim that they got the loan as officers of Embassy Farms without intending to
personally bind themselves or their property. However, a simple perusal of the promissory note and the continuing
suretyship agreement shows otherwise. These documentary evidence prove that petitioners are solidary obligors
with Embassy Farms.
The promissory note22 states:
For value received, I/We jointly and severally promise to pay to the order of MERCATOR FINANCE CORPORATION
at its office, the principal sum of EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE
PESOS & 78/100 (P 844,625.78), Philippine currency, x x x, in installments as follows:
September 16, 1982 - P154,267.87

October 16, 1982 - P154,267.87
November 16, 1982 - P154,267.87
December 16, 1982 - P154,267.87
January 16, 1983 - P154,267.87
February 16, 1983 - P154,267.87
xxx xxx xxx
The note was signed at the bottom by petitioners Eduardo B. Evangelista and Epifania C. Evangelista, and
Embassy Farms, Inc. with the signature of Eduardo B. Evangelista below it.
The Continuing Suretyship Agreement23 also proves the solidary obligation of petitioners, viz:
(Embassy Farms, Inc.)

Principal
(Eduardo B. Evangelista)
Surety

(Epifania C. Evangelista)
Surety
(Mercator Finance Corporation)

Creditor
To: MERCATOR FINANCE COPORATION
(1) For valuable and/or other consideration, EDUARDO B. EVANGELISTA and EPIFANIA C.
EVANGELISTA (hereinafter called Surety), jointly and severally unconditionally guarantees (sic) to
MERCATOR FINANCE COPORATION (hereinafter called Creditor), the full, faithful and prompt
payment and discharge of any and all indebtedness of EMBASSY FARMS, INC. (hereinafter called
Principal) to the Creditor.
xxx xxx xxx
(3) The obligations hereunder are joint and several and independent of the obligations of the
Principal. A separate action or actions may be brought and prosecuted against the Surety whether or
not the action is also brought and prosecuted against the Principal and whether or not the Principal
be joined in any such action or actions.
xxx xxx xxx
The agreement was signed by petitioners on February 16, 1982. The promissory notes 24 subsequently executed by
petitioners and Embassy Farms, restructuring their loan, likewise prove that petitioners are solidarily liable with
Embassy Farms.
Petitioners further allege that there is an ambiguity in the wording of the promissory note and claim that since it was
Mercator who provided the form, then the ambiguity should be resolved against it.
Courts can interpret a contract only if there is doubt in its letter.25 But, an examination of the promissory note shows
no such ambiguity. Besides, assuming arguendo that there is an ambiguity, Section 17 of the Negotiable
Instruments Law states, viz:
SECTION 17. Construction where instrument is ambiguous. Where the language of the instrument is ambiguous
or there are omissions therein, the following rules of construction apply:
xxx xxx xxx
(g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed
to be jointly and severally liable thereon.
Petitioners also insist that the promissory note does not convey their true intent in executing the document. The1wphi1
defense is unavailing. Even if petitioners intended to sign the note merely as officers of Embassy Farms, still this
does not erase the fact that they subsequently executed a continuing suretyship agreement. A surety is one who is
solidarily liable with the principal.26 Petitioners cannot claim that they did not personally receive any consideration for
the contract for well-entrenched is the rule that the consideration necessary to support a surety obligation need not
pass directly to the surety, a consideration moving to the principal alone being sufficient. A surety is bound by the
same consideration that makes the contract effective between the principal parties thereto. 27 Having executed the
suretyship agreement, there can be no dispute on the personal liability of petitioners.
Lastly, the parol evidence rule does not apply in this case.28 We held in Tarnate v. Court of Appeals,29 that where the
parties admitted the existence of the loans and the mortgage deeds and the fact of default on the due repayments
but raised the contention that they were misled by respondent bank to believe that the loans were long-term

accommodations, then the parties could not be allowed to introduce evidence of conditions allegedly agreed upon
by them other than those stipulated in the loan documents because when they reduced their agreement in writing, it
is presumed that they have made the writing the only repository and memorial of truth, and whatever is not found in
the writing must be understood to have been waived and abandoned.
IN VIEW WHEREOF, the petition is dismissed. Treble costs against the petitioners.
SO ORDERED.
Panganiban, and Sandoval-Gutierrez, JJ., concur.

Corona, and Carpio-Morales, JJ., on official leave.

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 116320 November 29, 1999
ADALIA FRANCISCO, petitioner,

vs.
COURT OF APPEALS, HERBY COMMERCIAL & CONSTRUCTION CORPORATION AND JAIME C.
ONG, respondents.
GONZAGA-REYES, J.:
Assailed in this petition for review on certiorari is the decision 1 of the Court of Appeals affirming the decision 2rendered
by Branch 168 of the Regional Trial Court of Pasig in Civil Case No. 35231 in favor of private respondents.
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 petitioner
Adalia Francisco (Francisco) is the president, and private respondent Herby Commercial & Construction Corporation
(HCCC), represented by its President and General Manager private respondent 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 petitioner Francisco and the GSIS Vice-President Armando Diaz (Diaz).
On February 10, 1978, HCCC filed a complaint 3 with the Regional Trial Court of Quezon City 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 trial court dismissed the case upon the filing by the parties of a joint motion to dismiss.
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 Quezon City, 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 private respondents on November 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 trial court rendered its decision in favor of private
respondents, 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 trial court 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 trial court stated that it
was plausible that Francisco concealed the fact of issuance of the checks from private respondents in order to make
it appear as if she were accommodating private respondents, 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 trial court held that the same did not make any mention of the forged checks since private respondents were as
of yet unaware of their existence, that fact having been effectively concealed by Francisco, until private respondents
acquired knowledge of Francisco's misdeeds in 1979.

IBAA was held liable to private respondents 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 trial court allowed IBAA recourse against Francisco, who was ordered to reimburse the
IBAA for any sums it shall have to pay to private respondents. 5
Both Francisco and IBAA appealed the trial court's decision, but the Court of Appeals dismissed IBAA's appeal for
its failure to file its brief within the 45-day extension granted by the appellate court. IBAA's motion for
reconsideration and petition for review on certiorari filed with this Court were also similarly denied. On November 21,
1989, IBAA and HCCC entered into a Compromise Agreement which was approved by the trial court, 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 Court of Appeals affirmed the trial court's ruling, hence this petition for review
on certiorari filed by petitioner, assigning the following errors to the appealed decision
1. The respondent Court of Appeals erred in concluding that private respondents did
not owe Petitioner 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 presented by
petitioner.
2. The respondent Court of Appeals erred in holding that Petitioner falsified the
signature of private respondent ONG on the checks in question without any authority
therefor which is patently contradictory to the unrebutted pleading and evidence that
petitioner was expressly authorized by respondent HERBY thru ONG to collect all
receivables of HERBY from GSIS to pay the loans extended to them. (Exhibit 3).
3. That respondent Court of Appeals erred in holding that the seven checks in
question were not taken up in the liquidation and reconciliation of all outstanding
account between AFRDC and HERBY as acknowledged by the parties in
Memorandum Agreement (Exh. 5) is a pure conjecture, surmise and speculation
contrary to the unrebutted evidence presented by petitioners. It is an inference made
which is manifestly mistaken.
4. The respondent Court of Appeals erred in affirming the decision of the lower court
and dismissing the appeal. 6
The pivotal issue in this case is whether or not Francisco forged the signature of Ong on the seven checks. In this
connection, we uphold the lower courts' finding that the subject matter of the present case, specifically the seven
checks, drawn by GSIS and AFRDC, dated between October to November 1977, in the total amount of P370,475.00
and payable to HCCC, was not included in the Memorandum Agreement executed by HCCC and AFRDC in Civil
Case No. Q-24628. As observed by the trial court, aside from there being absolutely no mention of the checks in the
said agreement, the amounts represented by said checks could not have been included in the Memorandum
Agreement executed in 1978 because private respondents only discovered Francisco's acts of forgery in 1979. The
lower courts found that Francisco was able to easily conceal from private respondents even the fact of the issuance
of the checks since she was a co-signatory thereof. 7 We also note that Francisco had custody of the checks, as proven
by the check vouchers bearing her uncontested signature, 8 by which she, in effect, acknowledged having received the

checks intended for HCCC. This contradicts Francisco's claims that the checks were issued to Ong who delivered them to
Francisco already indorsed. 9
As regards the forgery, we concur with the lower courts', finding that Francisco forged the signature of Ong on the
checks to make it appear as if Ong had indorsed said checks and that, after indorsing the checks for a second time
by signing her name at the back of the checks, Francisco deposited said checks in her savings account with IBAA.
The forgery was satisfactorily established in the trial court upon the strength of the findings of the NBI handwriting
expert. 10 Other than petitioner's self-serving denials, there is nothing in the records to rebut the NBI's findings. Well-
entrenched is the rule that findings of trial courts which are factual in nature, especially when affirmed by the Court of
Appeals, deserve to be respected and affirmed by the Supreme Court, provided it is supported by substantial evidence on
record, 11 as it is in the case at bench.
Petitioner claims that she was, in any event, authorized to sign Ong's name on the checks by virtue of the
Certification executed by Ong in her favor giving her the authority to collect all the receivables of HCCC from the
GSIS, including the questioned checks. 12 Petitioner's alternative defense must similarly fail. The Negotiable Instruments
Law provides that where any person is under obligation to indorse in a representative capacity, he may indorse in such
terms as to negative personal liability. 13 An agent, when so signing, should indicate that he is merely signing in behalf of
the principal and must disclose the name of his principal; otherwise he shall be 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 respondent 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. Court of Appeals, et al., 17 which was reiterated
in Philippine National Bank vs. Court of Appeals, 18 Philippine Airlines, Inc. vs. Court of Appeals 19 and in Keng Hua Paper
Products Co., Inc. vs. Court of Appeals, 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 Article 1169 of the Civil Code.
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, Civil Code) 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 Article 2229 of the Civil
Code, 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 petitioner'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 Article 2217 of the Civil Code,
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 petitioner and that petitioner had filed baseless criminal complaints against him before the fiscal's office of Quezon City
which disrupted HCCC's business operations. 23
WHEREFORE, we AFFIRM the respondent court's decision promulgated on June 29, 1992, upholding the February
16, 1988 decision of the trial court in favor of private respondents, 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 November 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 twelve percent rates of interest shall be the amount of
P370,475.00. No pronouncement as to costs.
SO ORDERED.
Melo, Vitug, Panganiban and Purisima, JJ., concur.


61. G.R. Nos. L-25836-37 January 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 Court of Appeals 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, 1and
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-G.R. NO. 27734-R and CA-G.R. NO.
27940-R, respectively.
Upon motion of the defendant on July 25, 1960, 3 he was allowed by the Court of Appeals to file one consolidated
record on appeal of CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court of Appeals, First Division, certified the consolidated appeal
to the Supreme Court on the ground that only questions of law are involved. 5
On December 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 November 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 August 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 December 2, 1959. 9 On December 14, 1959
defendant filed an urgent motion for extension of time to plead, and set the hearing on December 16, 1959. 10 At the
hearing, the court denied defendant's motion for extension. Whereupon, the defendant filed a motion to dismiss the
complaint on December 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 December 22, 1959, copy of which was received by the defendant
on December 24, 1959. 12
On January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On March 7, 1960, acting upon the motion for
reconsideration filed by the plaintiff, the trial court 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 trial court 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 trial court denied
the defendant's motion on March 25, 1960. 20 On May 6, 1960, the trial court 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 November 15, 1957 and the sum of P10,000.00 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 motion for reconsideration of the trial court's
order dismissing his appeal. 23 The plaintiff, on May 20, 1960, opposed the defendant's motion for reconsideration of the
order dismissing appeal. 24 On May 21, 1960, the trial court 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 Court of Appeals. 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 trial court 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 trial court on June 25, 1960. 30 Thus, the defendant had two appeals with the Court
of Appeals: (1) Appeal from the order of the lower court denying his motion to set aside the order of default docketed as
CA-G.R. NO. 27734-R; (2) Appeal from the order denying his motion to set aside the judgment by default docketed as CA-
G.R. NO. 27940-R.

In his brief, the defendant-appellant assigned the following errors:
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 December 2,
1960; that on December 17, 1960, the last day for filing his answer, Aruego filed a motion to dismiss; that on
December 22, 1960 the lower court dismissed the complaint; that on January 23, 1960, the plaintiff filed a motion for
reconsideration and on March 7, 1960, acting upon the motion for reconsideration, the trial court 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 held office only up to 5:00 o'clock in the afternoon.
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. Section 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.
SO ORDERED.
Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera JJ., concur.


62.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 89802 May 7, 1992
ASSOCIATED BANK and CONRADO CRUZ, petitioners,

vs.
HON. COURT OF APPEALS, and MERLE V. REYES, doing business under the name and style "Melissa's
RTW," respondents.
Soluta, Leonidas, Marifosque, Javier, Liboon & aguila Law Offices for petitioners.
Roberto B. Lugue for private respondent.
CRUZ, J.:
The sole issue raised in this case is whether or not the private respondent has a cause of action against the
petitioners for their encashment and payment to another person of certain crossed checks issued in her favor.
The private respondent is engaged in the business of ready-to-wear garments under the firm name "Melissa's
RTW." She deals with, among other customers, Robinson's Department Store, Payless Department Store, Rempson
Department Store, and the Corona Bazaar.
These companies issued in payment of their respective accounts crossed checks payable to Melissa's RTW in the
amounts and on the dates indicated below:
PAYOR BANK AMOUNT DATE
Payless Solid Bank P3,960.00 January 19, 1982

Robinson's FEBTC 4,140.00 December 18, 1981
Robinson's FEBTC 1,650.00 December 24, 1981
Robinson's FEBTC 1,980.00 January 12, 1982
Rempson TRB 1,575.00 January 9, 1982
Corona RCBC 2,500.00 December 22, 1981
When she went to these companies to collect on what she thought were still unpaid accounts, she was informed of
the issuance of the above-listed crossed checks. Further inquiry revealed that the said checks had been deposited
with the Associated Bank (hereinafter, "the Bank") and subsequently paid by it to one Rafael Sayson, one of its

"trusted depositors," in the words of its branch manager and co-petitioner, Conrado Cruz, Sayson had not been
authorized by the private respondent to deposit and encash the said checks.
The private respondent sued the petitioners in the Regional Trial Court of Quezon City for recovery of the total value
of the checks plus damages. After trial, judgment was rendered requiring them to pay the private respondent the
total value of the subject checks in the amount of P15,805.00 plus 12% interest, P50,000.00 actual damages,
P25,000.00 exemplary damages, P5,000.00 attorney's fees, and the costs of the suit. 1
The petitioners appealed to the respondent court, reiterating their argument that the private respondent had no
cause of action against them and should have proceeded instead against the companies that issued the checks. In
disposing of this contention, the Court of Appeals 2 said:
The cause of action of the appellee in the case at bar arose from the illegal, anomalous and irregular
acts of the appellants in violating common banking practices to the damage and prejudice of the
appellees, in allowing to be deposited and encashed as well as paying to improper parties without
the knowledge, consent, authority or endorsement of the appellee which totalled P15,805.00, the six
(6) checks in dispute which were "crossed checks" or "for payee's account only," the appellee being
the payee.
The three (3) elements of a cause of action are present in the case at bar, namely: (1) a right in favor
of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on
the part of the named defendant to respect or not to violate such right; and (3) an act or omission on
the part of such defendant violative of the right of the plaintiff or constituting a breach thereof.
(Republic Planters Bank vs. Intermediate Appellate Court, 131 SCRA 631).
And such cause of action has been proved by evidence of great weight. The contents of the said
checks issued by the customers of the appellee had not been questioned. There is no dispute that
the same are crossed checks or for payee's account only, which is Melissa's RTW. The appellee had
clearly shown that she had never authorized anyone to deposit the said checks nor to encash the
same; that the appellants had allowed all said checks to be deposited, cleared and paid to one
Rafael Sayson in violation of the instructions in the said crossed checks that the same were for
payee's account only; and that the appellee maintained a savings account with the Prudential Bank,
Cubao Branch, Quezon City which never cleared the said checks and the appellee had been
damaged by such encashment of the same.
We affirm.
Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on the left top
portion of the checks. The crossing is special where the name of a bank or a business institution is written between
the two parallel lines, which means that the drawee should pay only with the intervention of that company. 3 The
crossing is general where the words written between the two parallel lines are "and Co." or "for payee's account only," as
in the case at bar. This means that the drawee bank should not encash the check but merely accept it for deposit. 4
In State Investment House vs. IAC, 5 this Court declared that "the effects of crossing a check are: (1) that the check may
not be encashed but only deposited in the bank; (2) that the check may be negotiated only once to one who has an
account with a bank; and (3) that the act of crossing the check serves as a warning to the holder that the check has been
issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose."

The effects therefore of crossing a check relate to the mode of its presentment for payment. Under Sec. 72 of the
Negotiable Instruments Law, presentment for payment, to be sufficient, must be made by the holder or by some
person authorized to receive payment on his behalf. Who the holder or authorized person is depends on the
instruction stated on the face of the check.
The six checks in the case at bar had been crossed and issued "for payee's account only." This could only signify
that the drawers had intended the same for deposit only by the person indicated, to wit, Melissa's RTW.
The petitioners argue that the cause of action for violation of the common instruction found on the face of the checks
exclusively belongs to the issuers thereof and not to the payee. Moreover, having acted in good faith as they merely
facilitated the encashment of the checks, they cannot be made liable to the private respondent.
The subject checks were accepted for deposit by the Bank for the account of Rafael Sayson although they were
crossed checks and the payee was not Sayson but Melissa's RTW. The Bank stamped thereon its guarantee that
"all prior endorsements and/or lack of endorsements (were) guaranteed." By such deliberate and positive act, the
Bank had for all legal intents and purposes treated the said checks as negotiable instruments and, accordingly,
assumed the warranty of the endorser.
The weight of authority is to the effect that "the possession of check on a forged or unauthorized indorsement is
wrongful, and when the money is collected on the check, the bank can be held 'for moneys had and received." 6The
proceeds are held for the rightful owner of the payment and may be recovered by him. The position of the bank taking the
check on the forged or unauthorized indorsement is the same as if it had taken the check and collected without
indorsement at all. The act of the bank amounts to conversion of the check. 7
It is not disputed that the proceeds of the subject checks belonged to the private respondent. As she had not at any
time authorized Rafael Sayson to endorse or encash them, there was conversion of the funds by the Bank.
When the Bank paid the checks so endorsed notwithstanding that title had not passed to the endorser, it did so at its
peril and became liable to the payee for the value of the checks. This liability attached whether or not the Bank was
aware of the unauthorized endorsement. 8
The petitioners were negligent when they permitted the encashment of the checks by Sayson. The Bank should
have first verified his right to endorse the crossed checks, of which he was not the payee, and to deposit the
proceeds of the checks to his own account. The Bank was by reason of the nature of the checks put upon notice
that they were issued for deposit only to the private respondent's account. Its failure to inquire into Sayson's
authority was a breach of a duty it owed to the private respondent.
As the Court stressed in Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corp., 9 "the law imposes
a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their
genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the
expert on this field, and the law thus holds it to a high standard of conduct."
The petitioners insist that the private respondent has no cause of action against them because they have no privity
of contract with her. They also argue that it was Eddie Reyes, the private respondent's own husband, who endorsed
the checks.
Assuming that Eddie Reyes did endorse the crossed checks, we hold that the Bank would still be liable to the
private respondent because he was not authorized to make the endorsements. And even if the endorsements were
forged, as alleged, the Bank would still be liable to the private respondent for not verifying the endorser's authority.

There is no substantial difference between an actual forging of a name to a check as an endorsement by a person
not authorized to make the signature and the affixing of a name to a check as an endorsement by a person not
authorized to endorse it. 10
The Bank does not deny collecting the money on the endorsement. It was its responsibility to inquire as to the
authority of Rafael Sayson to deposit crossed checks payable to Melissa's RTW upon a prior endorsement by Eddie
Reyes. The failure of the Bank to make this inquiry was a breach of duty that made it liable to the private respondent
for the amount of the checks.
There being no evidence that the crossed checks were actually received by the private respondent, she would have
a right of action against the drawer companies, which in turn could go against their respective drawee banks, which
in turn could sue the herein petitioner as collecting bank. In a similar situation, it was held that, to simplify
proceedings, the payee of the illegally encashed checks should be allowed to recover directly from the bank
responsible for such encashment regardless of whether or not the checks were actually delivered to the
payee. 11 We approve such direct action in the case at bar.
It is worth repeating that before presenting the checks for clearing and for payment, the Bank had stamped on the
back thereof the words: "All prior endorsements and/or lack of endorsements guaranteed," and thus made the
assurance that it had ascertained the genuineness of all prior endorsements.
We find that the respondent court committed no reversible error in holding that the private respondent had a valid
cause of action against the petitioners and that the latter are indeed liable to her for their unauthorized encashment
of the subject checks. We also agree with the reduction of the award of the exemplary damages for lack of sufficient
evidence to support them.
WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered.
Narvasa, C.J., Grio-Aquino, Medialdea and Bellosillo, JJ., concur.


63.
G.R. No. 149454 May 28, 2004
BANK OF THE PHILIPPINE ISLANDS, petitioner,

vs.
CASA MONTESSORI INTERNATIONALE LEONARDO T. YABUT, respondents.
x ----------------------------- x
G.R. No. 149507 May 28, 2004
CASA MONTESSORI INTERNATIONALE, petitioner,

vs.
BANK OF THE PHILIPPINE ISLANDS, respondent.
DECISION
PANGANIBAN, J.:
By the nature of its functions, a bank is required to take meticulous care of the deposits of its clients, who have the
right to expect high standards of integrity and performance from it.
Among its obligations in furtherance thereof is knowing the signatures of its clients. Depositors are not estopped
from questioning wrongful withdrawals, even if they have failed to question those errors in the statements sent by
the bank to them for verification.
The Case
Before us are two Petitions for Review1 under Rule 45 of the Rules of Court, assailing the March 23, 2001
Decision2 and the August 17, 2001 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 63561. The decretal
portion of the assailed Decision reads as follows:
"WHEREFORE, upon the premises, the decision appealed from is AFFIRMED with the modification that
defendant bank [Bank of the Philippine Islands (BPI)] is held liable only for one-half of the value of the forged
checks in the amount of P547,115.00 after deductions subject to REIMBURSEMENT from third party
defendant Yabut who is likewise ORDERED to pay the other half to plaintiff corporation [Casa Montessori
Internationale (CASA)]."4
The assailed Resolution denied all the parties Motions for Reconsideration.
The Facts
The facts of the case are narrated by the CA as follows:
"On November 8, 1982, plaintiff CASA Montessori International5 opened Current Account No. 0291-0081-01
with defendant BPI[,] with CASAs President Ms. Ma. Carina C. Lebron as one of its authorized signatories.
"In 1991, after conducting an investigation, plaintiff discovered that nine (9) of its checks had been encashed
by a certain Sonny D. Santos since 1990 in the total amount of P782,000.00, on the following dates and
amounts:

Check No. Date Amount
1. 839700 April 24, 1990 P 43,4
2. 839459 Nov. 2, 1990 110,5
3. 839609 Oct. 17, 1990 47,7
4. 839549 April 7, 1990 90,7
5. 839569 Sept. 23, 1990 52,2
6. 729149 Mar. 22, 1990 148,0
7. 729129 Mar. 16, 1990 51,0
8. 839684 Dec. 1, 1990 140,0
9. 729034 Mar. 2, 1990 98,9
Total -- P 782,60
"It turned out that Sonny D. Santos with account at BPIs Greenbelt Branch [was] a fictitious name used by
third party defendant Leonardo T. Yabut who worked as external auditor of CASA. Third party defendant
voluntarily admitted that he forged the signature of Ms. Lebron and encashed the checks. "The PNP Crime
Laboratory conducted an examination of the nine (9) checks and concluded that the handwritings thereon
compared to the standard signature of Ms. Lebron were not written by the latter.
"On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages against defendant bank
praying that the latter be ordered to reinstate the amount of P782,500.007 in the current and savings
accounts of the plaintiff with interest at 6% per annum.
"On February 16, 1999, the RTC rendered the appealed decision in favor of the plaintiff." 8
Ruling of the Court of Appeals
Modifying the Decision of the Regional Trial Court (RTC), the CA apportioned the loss between BPI and CASA. The
appellate court took into account CASAs contributory negligence that resulted in the undetected forgery. It then
ordered Leonardo T. Yabut to reimburse BPI half the total amount claimed; and CASA, the other half. It also
disallowed attorneys fees and moral and exemplary damages.
Hence, these Petitions.9
Issues
In GR No. 149454, Petitioner BPI submits the following issues for our consideration:
"I. The Honorable Court of Appeals erred in deciding this case NOT in accord with the applicable
decisions of this Honorable Court to the effect that forgery cannot be presumed; that it must be proved by
clear, positive and convincing evidence; and that the burden of proof lies on the party alleging the forgery.
"II. The Honorable Court of Appeals erred in deciding this case not in accord with applicable laws, in
particular the Negotiable Instruments Law (NIL) which precludes CASA, on account of its own negligence,
from asserting its forgery claim against BPI, specially taking into account the absence of any negligence on
the part of BPI."10

In GR No. 149507, Petitioner CASA submits the following issues:
"1. The Honorable Court of Appeals erred when it ruled that there is no showing that [BPI], although
negligent, acted in bad faith x x x thus denying the prayer for the award of attorneys fees, moral damages
and exemplary damages to [CASA]. The Honorable Court also erred when it did not order [BPI] to pay
interest on the amounts due to [CASA].
"2. The Honorable Court of Appeals erred when it declared that [CASA] was likewise negligent in the case at
bar, thus warranting its conclusion that the loss in the amount of P547,115.00 be apportioned between
[CASA] and [BPI] x x x."11
These issues can be narrowed down to three. First, was there forgery under the Negotiable Instruments Law
(NIL)? Second, were any of the parties negligent and therefore precluded from setting up forgery as a
defense? Third, should moral and exemplary damages, attorneys fees, and interest be awarded?
The Courts Ruling
The Petition in GR No. 149454 has no merit, while that in GR No. 149507 is partly meritorious.
First Issue:
Forged Signature Wholly Inoperative
Section 23 of the NIL provides:
"Section 23. Forged signature; effect of. -- 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 x x x 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." 12
Under this provision, a forged signature is a real13 or absolute defense,14 and a person whose signature on a
negotiable instrument is forged is deemed to have never become a party thereto and to have never consented to
the contract that allegedly gave rise to it.15
The counterfeiting of any writing, consisting in the signing of anothers name with intent to defraud, is forgery.16
In the present case, we hold that there was forgery of the drawers signature on the check.
First, both the CA17 and the RTC18 found that Respondent Yabut himself had voluntarily admitted, through an
Affidavit, that he had forged the drawers signature and encashed the checks. 19 He never refuted these
findings.20 That he had been coerced into admission was not corroborated by any evidence on record. 21
Second, the appellate and the trial courts also ruled that the PNP Crime Laboratory, after its examination of the said
checks,22 had concluded that the handwritings thereon -- compared to the standard signature of the drawer -- were
not hers.23 This conclusion was the same as that in the Report24 that the PNP Crime Laboratory had earlier issued to
BPI -- the drawee bank -- upon the latters request.
Indeed, we respect and affirm the RTCs factual findings, especially when affirmed by the CA, since these are
supported by substantial evidence on record.25
Voluntary Admission Not Violative of Constitutional Rights


The voluntary admission of Yabut did not violate his constitutional rights (1) on custodial investigation, and (2)
against self-incrimination.
In the first place, he was not under custodial investigation. 26 His Affidavit was executed in private and before private
individuals.27 The mantle of protection under Section 12 of Article III of the 1987 Constitution 28 covers only the period
"from the time a person is taken into custody for investigation of his possible participation in the commission of a
crime or from the time he is singled out as a suspect in the commission of a crime although not yet in custody." 29
Therefore, to fall within the ambit of Section 12, quoted above, there must be an arrest or a deprivation of freedom,
with "questions propounded on him by the police authorities for the purpose of eliciting admissions, confessions, or
any information."30 The said constitutional provision does "not apply to spontaneous statements made in a voluntary
manner"31 whereby an individual orally admits to authorship of a crime. 32 "What the Constitution proscribes is the
compulsory or coercive disclosure of incriminating facts."33
Moreover, the right against self-incrimination34 under Section 17 of Article III35 of the Constitution, which is ordinarily
available only in criminal prosecutions, extends to all other government proceedings -- including civil actions,
legislative investigations,36 and administrative proceedings that possess a criminal or penal aspect 37 -- but not to
private investigations done by private individuals. Even in such government proceedings, this right may be
waived,38 provided the waiver is certain; unequivocal; and intelligently, understandingly and willingly made. 39
If in these government proceedings waiver is allowed, all the more is it so in private investigations. It is of no
moment that no criminal case has yet been filed against Yabut. The filing thereof is entirely up to the appropriate
authorities or to the private individuals upon whom damage has been caused. As we shall also explain later, it is not
mandatory for CASA -- the plaintiff below -- to implead Yabut in the civil case before the lower court.
Under these two constitutional provisions, "[t]he Bill of Rights 40 does not concern itself with the relation between a
private individual and another individual. It governs the relationship between the individual and the
State."41Moreover, the Bill of Rights "is a charter of liberties for the individual and a limitation upon the power of the
[S]tate."42 These rights43 are guaranteed to preclude the slightest coercion by the State that may lead the accused "to
admit something false, not prevent him from freely and voluntarily telling the truth." 44
Yabut is not an accused here. Besides, his mere invocation of the aforesaid rights "does not automatically entitle
him to the constitutional protection."45 When he freely and voluntarily executed46 his Affidavit, the State was not even
involved. Such Affidavit may therefore be admitted without violating his constitutional rights while under custodial
investigation and against self-incrimination.
Clear, Positive and Convincing Examination and Evidence
The examination by the PNP, though inconclusive, was nevertheless clear, positive and convincing.
Forgery "cannot be presumed."47 It must be established by clear, positive and convincing evidence. 48 Under the best
evidence rule as applied to documentary evidence like the checks in question, no secondary or substitutionary
evidence may inceptively be introduced, as the original writing itself must be produced in court. 49But when, without
bad faith on the part of the offeror, the original checks have already been destroyed or cannot be produced in court,
secondary evidence may be produced.50 Without bad faith on its part, CASA proved the loss or destruction of the
original checks through the Affidavit of the one person who knew of that fact 51 -- Yabut. He clearly admitted to
discarding the paid checks to cover up his misdeed. 52 In such a situation, secondary evidence like microfilm copies
may be introduced in court.
The drawers signatures on the microfilm copies were compared with the standard signature. PNP Document
Examiner II Josefina de la Cruz testified on cross-examination that two different persons had written them. 53Although
no conclusive report could be issued in the absence of the original checks, 54 she affirmed that her findings were 90
percent conclusive.55 According to her, even if the microfilm copies were the only basis of comparison, the
differences were evident.56 Besides, the RTC explained that although the Report was inconclusive, no conclusive

report could have been given by the PNP, anyway, in the absence of the original checks. 57 This explanation is valid;
otherwise, no such report can ever be relied upon in court.
Even with respect to documentary evidence, the best evidence rule applies only when the contents of a document --
such as the drawers signature on a check -- is the subject of inquiry.58 As to whether the document has been
actually executed, this rule does not apply; and testimonial as well as any other secondary evidence is
admissible.59 Carina Lebron herself, the drawers authorized signatory, testified many times that she had never
signed those checks. Her testimonial evidence is admissible; the checks have not been actually executed. The
genuineness of her handwriting is proved, not only through the courts comparison of the questioned handwritings
and admittedly genuine specimens thereof,60 but above all by her.
The failure of CASA to produce the original checks neither gives rise to the presumption of suppression of
evidence61 nor creates an unfavorable inference against it.62 Such failure merely authorizes the introduction of
secondary evidence63 in the form of microfilm copies. Of no consequence is the fact that CASA did not present the
signature card containing the signatures with which those on the checks were compared. 64 Specimens of standard
signatures are not limited to such a card. Considering that it was not produced in evidence, other documents that
bear the drawers authentic signature may be resorted to. 65 Besides, that card was in the possession of BPI -- the
adverse party.
We have held that without the original document containing the allegedly forged signature, one cannot make a
definitive comparison that would establish forgery; 66 and that a comparison based on a mere reproduction of the
document under controversy cannot produce reliable results.67 We have also said, however, that a judge cannot
merely rely on a handwriting experts testimony,68 but should also exercise independent judgment in evaluating the
authenticity of a signature under scrutiny.69 In the present case, both the RTC and the CA conducted independent
examinations of the evidence presented and arrived at reasonable and similar conclusions. Not only did they admit
secondary evidence; they also appositely considered testimonial and other documentary evidence in the form of the
Affidavit.
The best evidence rule admits of exceptions and, as we have discussed earlier, the first of these has been met. 70The
result of examining a questioned handwriting, even with the aid of experts and scientific instruments, may be
inconclusive;71 but it is a non sequitur to say that such result is not clear, positive and convincing. The
preponderance of evidence required in this case has been satisfied. 72
Second Issue:
Negligence Attributable to BPI Alone
Having established the forgery of the drawers signature, BPI -- the drawee -- erred in making payments by virtue
thereof. The forged signatures are wholly inoperative, and CASA -- the drawer whose authorized signatures do not
appear on the negotiable instruments -- cannot be held liable thereon. Neither is the latter precluded from setting up
forgery as a real defense.
Clear Negligence in Allowing Payment Under a Forged Signature
We have 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
diligence73 is expected,74 and high standards of integrity and performance are even required, of it. 75 By the nature of
its functions, a bank is "under obligation to treat the accounts of its depositors with meticulous care, 76always having
in mind the fiduciary nature of their relationship."77
BPI contends that it has a signature verification procedure, in which checks are honored only when the signatures
therein are verified to be the same with or similar to the specimen signatures on the signature cards. Nonetheless, it
still failed to detect the eight instances of forgery. Its negligence consisted in the omission of that degree of diligence
required78 of a bank. It cannot now feign ignorance, for very early on we have already ruled that a bank is "bound to

know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment
out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name
was forged."79 In fact, BPI was the same bank involved when we issued this ruling seventy years ago.
Neither Waiver nor Estoppel Results from Failure to Report Error in Bank Statement
The monthly statements issued by BPI to its clients contain a notice worded as follows: "If no error is reported in ten
(10) days, account will be correct."80 Such notice cannot be considered a waiver, even if CASA failed to report the
error. Neither is it estopped from questioning the mistake after the lapse of the ten-day period.
This notice is a simple confirmation81 or "circularization" -- in accounting parlance -- that requests client-depositors to
affirm the accuracy of items recorded by the banks.82 Its purpose is to obtain from the depositors a direct
corroboration of the correctness of their account balances with their respective banks. 83 Internal or external auditors
of a bank use it as a basic audit procedure84 -- the results of which its client-depositors are neither interested in nor
privy to -- to test the details of transactions and balances in the banks records. 85 Evidential matter obtained from
independent sources outside a bank only serves to provide greater assurance of reliability 86than that obtained solely
within it for purposes of an audit of its own financial statements, not those of its client-depositors.
Furthermore, there is always the audit risk that errors would not be detected 87 for various reasons. One, materiality is
a consideration in audit planning;88 and two, the information obtained from such a substantive test is merely
presumptive and cannot be the basis of a valid waiver.89 BPI has no right to impose a condition unilaterally and
thereafter consider failure to meet such condition a waiver. Neither may CASA renounce a right 90it has never
possessed.91
Every right has subjects -- active and passive. While the active subject is entitled to demand its enforcement, the
passive one is duty-bound to suffer such enforcement. 92
On the one hand, BPI could not have been an active subject, because it could not have demanded from CASA a
response to its notice. Besides, the notice was a measly request worded as follows: "Please examine x x x and
report x x x."93 CASA, on the other hand, could not have been a passive subject, either, because it had no obligation
to respond. It could -- as it did -- choose not to respond.
Estoppel precludes individuals from denying or asserting, by their own deed or representation, anything contrary to
that established as the truth, in legal contemplation.94 Our rules on evidence even make a juris et de
jure presumption95 that whenever one has, by ones own act or omission, intentionally and deliberately led another to
believe a particular thing to be true and to act upon that belief, one cannot -- in any litigation arising from such act or
omission -- be permitted to falsify that supposed truth. 96
In the instant case, CASA never made any deed or representation that misled BPI. The formers omission, if any,
may only be deemed an innocent mistake oblivious to the procedures and consequences of periodic audits. Since
its conduct was due to such ignorance founded upon an innocent mistake, estoppel will not arise. 97 A person who
has no knowledge of or consent to a transaction may not be estopped by it. 98 "Estoppel cannot be sustained by
mere argument or doubtful inference x x x."99 CASA is not barred from questioning BPIs error even after the lapse of
the period given in the notice.
Loss Borne by Proximate Source of Negligence
For allowing payment100 on the checks to a wrongful and fictitious payee, BPI -- the drawee bank -- becomes liable to
its depositor-drawer. Since the encashing bank is one of its branches, 101 BPI can easily go after it and hold it liable
for reimbursement.102 It "may not debit the drawers account103 and is not entitled to indemnification from the
drawer."104 In both law and equity, when one of two innocent persons "must suffer by the wrongful act of a third
person, the loss must be borne by the one whose negligence was the proximate cause of the loss or who put it into
the power of the third person to perpetrate the wrong." 105

Proximate cause is determined by the facts of the case.106 "It 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."107
Pursuant to its prime duty to ascertain well the genuineness of the signatures of its client-depositors on checks
being encashed, BPI is "expected to use reasonable business prudence." 108 In the performance of that obligation, it
is bound by its internal banking rules and regulations that form part of the contract it enters into with its depositors. 109
Unfortunately, it failed in that regard. First, Yabut was able to open a bank account in one of its branches without
privity;110 that is, without the proper verification of his corresponding identification papers. Second, BPI was unable to
discover early on not only this irregularity, but also the marked differences in the signatures on the checks and those
on the signature card. Third, despite the examination procedures it conducted, the Central Verification Unit 111 of the
bank even passed off these evidently different signatures as genuine. Without exercising the required prudence on
its part, BPI accepted and encashed the eight checks presented to it. As a result, it proximately contributed to the
fraud and should be held primarily liable112 for the "negligence of its officers or agents when acting within the course
and scope of their employment."113 It must bear the loss.
CASA Not Negligent in Its Financial Affairs
In this jurisdiction, the negligence of the party invoking forgery is recognized as an exception 114 to the general rule
that a forged signature is wholly inoperative.115 Contrary to BPIs claim, however, we do not find CASA negligent in
handling its financial affairs. CASA, we stress, is not precluded from setting up forgery as a real defense.
Role of Independent Auditor
The major purpose of an independent audit is to investigate and determine objectively if the financial statements
submitted for audit by a corporation have been prepared in accordance with the appropriate financial reporting
practices116 of private entities. The relationship that arises therefrom is both legal and moral. 117 It begins with the
execution of the engagement letter118 that embodies the terms and conditions of the audit and ends with the fulfilled
expectation of the auditors ethical119 and competent performance in all aspects of the audit.120
The financial statements are representations of the client; but it is the auditor who has the responsibility for the
accuracy in the recording of data that underlies their preparation, their form of presentation, and the
opinion121expressed therein.122 The auditor does not assume the role of employee or of management in the clients
conduct of operations123 and is never under the control or supervision124 of the client.
Yabut was an independent auditor125 hired by CASA. He handled its monthly bank reconciliations and had access to
all relevant documents and checkbooks.126 In him was reposed the clients127 trust and confidence128 that he would
perform precisely those functions and apply the appropriate procedures in accordance with generally accepted
auditing standards.129 Yet he did not meet these expectations. Nothing could be more horrible to a client than to
discover later on that the person tasked to detect fraud was the same one who perpetrated it.
Cash Balances Open to Manipulation
It is a non sequitur to say that the person who receives the monthly bank statements, together with the cancelled
checks and other debit/credit memoranda, shall examine the contents and give notice of any discrepancies within a
reasonable time. Awareness is not equipollent with discernment.
Besides, in the internal accounting control system prudently installed by CASA, 130 it was Yabut who should examine
those documents in order to prepare the bank reconciliations.131 He owned his working papers,132 and his output
consisted of his opinion as well as the clients financial statements and accompanying notes thereto. CASA had
every right to rely solely upon his output -- based on the terms of the audit engagement -- and could thus be
unwittingly duped into believing that everything was in order. Besides, "[g]ood faith is always presumed and it is the
burden of the party claiming otherwise to adduce clear and convincing evidence to the contrary." 133

Moreover, there was a time gap between the period covered by the bank statement and the date of its actual
receipt. Lebron personally received the December 1990 bank statement only in January 1991 134 -- when she was
also informed of the forgery for the first time, after which she immediately requested a "stop payment order." She
cannot be faulted for the late detection of the forged December check. After all, the bank account with BPI was not
personal but corporate, and she could not be expected to monitor closely all its finances. A preschool teacher
charged with molding the minds of the youth cannot be burdened with the intricacies or complexities of corporate
existence.
There is also a cutoff period such that checks issued during a given month, but not presented for payment within
that period, will not be reflected therein.135 An experienced auditor with intent to defraud can easily conceal any
devious scheme from a client unwary of the accounting processes involved by manipulating the cash balances on
record -- especially when bank transactions are numerous, large and frequent. CASA could only be blamed, if at all,
for its unintelligent choice in the selection and appointment of an auditor -- a fault that is not tantamount to
negligence.
Negligence is not presumed, but proven by whoever alleges it.136 Its mere existence "is not sufficient without proof
that it, and no other cause,"137 has given rise to damages.138 In addition, this fault is common to, if not prevalent
among, small and medium-sized business entities, thus leading the Professional Regulation Commission (PRC),
through the Board of Accountancy (BOA), to require today not only accreditation for the practice of public
accountancy,139 but also the registration of firms in the practice thereof. In fact, among the attachments now required
upon registration are the code of good governance140 and a sworn statement on adequate and effective training.141
The missing checks were certainly reported by the bookkeeper 142 to the accountant143 -- her immediate supervisor --
and by the latter to the auditor. However, both the accountant and the auditor, for reasons known only to them,
assured the bookkeeper that there were no irregularities.
The bookkeeper144 who had exclusive custody of the checkbooks145 did not have to go directly to CASAs president or
to BPI. Although she rightfully reported the matter, neither an investigation was conducted nor a resolution of it was
arrived at, precisely because the person at the top of the helm was the culprit. The vouchers, invoices and check
stubs in support of all check disbursements could be concealed or fabricated -- even in collusion -- and
management would still have no way to verify its cash accountabilities.
Clearly then, Yabut was able to perpetrate the wrongful act through no fault of CASA. If auditors may be held liable
for breach of contract and negligence,146 with all the more reason may they be charged with the perpetration of fraud
upon an unsuspecting client. CASA had the discretion to pursue BPI alone under the NIL, by reason of expediency
or munificence or both. Money paid under a mistake may rightfully be recovered, 147 and under such terms as the
injured party may choose.
Third Issue:
Award of Monetary Claims
Moral Damages Denied
We deny CASAs claim for moral damages.
In the absence of a wrongful act or omission,148 or of fraud or bad faith,149 moral damages cannot be awarded.150 The
adverse result of an action does not per se make the action wrongful, or the party liable for it. One may err, but error
alone is not a ground for granting such damages.151 While no proof of pecuniary loss is necessary therefor -- with the
amount to be awarded left to the courts discretion152 -- the claimant must nonetheless satisfactorily prove the
existence of its factual basis153 and causal relation154 to the claimants act or omission.155
Regrettably, in this case CASA was unable to identify the particular instance -- enumerated in the Civil Code -- upon
which its claim for moral damages is predicated.156 Neither bad faith nor negligence so gross that it amounts to

malice157 can be imputed to BPI. Bad faith, under the law, "does not simply connote bad judgment or negligence; 158 it
imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty
through some motive or interest or ill will that partakes of the nature of fraud." 159
As a general rule, a corporation -- being an artificial person without feelings, emotions and senses, and having
existence only in legal contemplation -- is not entitled to moral damages,160 because it cannot experience physical
suffering and mental anguish.161 However, for breach of the fiduciary duty required of a bank, a corporate client may
claim such damages when its good reputation is besmirched by such breach, and social humiliation results
therefrom.162 CASA was unable to prove that BPI had debased the good reputation of, 163 and consequently caused
incalculable embarrassment to, the former. CASAs mere allegation or supposition thereof, without any sufficient
evidence on record,164 is not enough.
Exemplary Damages Also Denied
We also deny CASAs claim for exemplary damages.
Imposed by way of correction165 for the public good,166 exemplary damages cannot be recovered as a matter of
right.167 As we have said earlier, there is no bad faith on the part of BPI for paying the checks of CASA upon forged
signatures. Therefore, the former cannot be said to have acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner.168 The latter, having no right to moral damages, cannot demand exemplary damages. 169
Attorneys Fees Granted
Although it is a sound policy not to set a premium on the right to litigate, 170 we find that CASA is entitled to
reasonable attorneys fees based on "factual, legal, and equitable justification." 171
When the act or omission of the defendant has compelled the plaintiff to incur expenses to protect the latters
interest,172 or where the court deems it just and equitable,173 attorneys fees may be recovered. In the present case,
BPI persistently denied the claim of CASA under the NIL to recredit the latters account for the value of the forged
checks. This denial constrained CASA to incur expenses and exert effort for more than ten years in order to protect
its corporate interest in its bank account. Besides, we have already cautioned BPI on a similar act of negligence it
had committed seventy years ago, but it has remained unrelenting. Therefore, the Court deems it just and equitable
to grant ten percent (10%)174 of the total value adjudged to CASA as attorneys fees.
Interest Allowed
For the failure of BPI to pay CASA upon demand and for compelling the latter to resort to the courts to obtain
payment, legal interest may be adjudicated at the discretion of the Court, the same to run from the filing 175 of the
Complaint.176 Since a court judgment is not a loan or a forbearance of recovery, the legal interest shall be at six
percent (6%) per annum.177 "If the obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of x x x legal
interest, which is six percent per annum."178 The actual base for its computation shall be "on the amount finally
adjudged,"179 compounded180 annually to make up for the cost of money181 already lost to CASA.
Moreover, the failure of the CA to award interest does not prevent us from granting it upon damages awarded for
breach of contract.182 Because BPI evidently breached its contract of deposit with CASA, we award interest in
addition to the total amount adjudged. Under Section 196 of the NIL, any case not provided for shall be "governed
by the provisions of existing legislation or, in default thereof, by the rules of the law merchant." 183 Damages are not
provided for in the NIL. Thus, we resort to the Code of Commerce and the Civil Code. Under Article 2 of the Code of
Commerce, acts of commerce shall be governed by its provisions and, "in their absence, by the usages of
commerce generally observed in each place; and in the absence of both rules, by those of the civil law." 184This law
being silent, we look at Article 18 of the Civil Code, which states: "In matters which are governed by the Code of
Commerce and special laws, their deficiency shall be supplied" by its provisions. A perusal of these three statutes
unmistakably shows that the award of interest under our civil law is justified.

WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and that in GR No. 149507 PARTLY GRANTED.
The assailed Decision of the Court of Appeals is AFFIRMED with modification: BPI is held liable for P547,115, the
total value of the forged checks less the amount already recovered by CASA from Leonardo T. Yabut, plus interest
at the legal rate of six percent (6%) per annum -- compounded annually, from the filing of the complaint until paid in
full; and attorneys fees of ten percent (10%) thereof, subject to reimbursement from Respondent Yabut for the
entire amount, excepting attorneys fees. Let a copy of this Decision be furnished the Board of Accountancy of the
Professional Regulation Commission for such action as it may deem appropriate against Respondent Yabut. No
costs.
SO ORDERED.
Davide, Jr.*, Ynares-Santiago**, Carpio, and Azcuna, JJ., concur.


64.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 74917 January 20, 1988
BANCO DE ORO SAVINGS AND MORTGAGE BANK, petitioner,

vs.
EQUITABLE BANKING CORPORATION, PHILIPPINE CLEARING HOUSE CORPORATION, AND REGIONAL
TRIAL COURT OF QUEZON CITY, BRANCH XCII (92), respondents.
GANCAYCO, J.:
This is a petition for review on certiorari of a decision of the Regional Trial Court of Quezon City 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 August 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 P10,000.00 as well as the cost of the suit.
In accordance with Section 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 motion for reconsideration filed by the petitioner, 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 Regional Trial Court of Quezon City, 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 petitioner bank negligent and thus responsible for any undue payment?
Petitioner 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 Articles 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 Section 107 of R.A. 265. ...

and Section 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 Section 1000 shall serve as a basis for the clearing of checks, and the settlement of interbank
balances ...
Petitioner argues that by law and common sense, the term check should be interpreted as one that fits the articles
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 Section 185 of the NIL and that it
should be payable to "order" or to "bearer" under Section 126 of game law. Petitioner 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 Regional Trial Court took exception to this stand and conclusion put forth by the herein petitioner as it held:
Petitioner'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
petitioners memorandum simply refer to check(s). Where the law does not distinguish, we shall not
distinguish.
In the case of Reyes vs. Chuanico (CA-G.R. No. 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 Article 541 of the Code of Commerce. Attention is likewise called to Section 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 Section 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 Articles 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 Petitioner'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
express guarantee on the validity of "all prior endorsements." Thus, stamped at the
back of the checks are the defendant's clear warranty; ALL PRIOR
ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. With. out
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 damage 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. (Pp. 1011
Decision; pp. 4344, Rollo)
We agree.
As provided in the aforecited articles of incorporation of PCHC its operation extend to "clearing checks and other
clearing items." No doubt transactions on non-negotiable checks are within the ambit of its jurisdiction.
In a previous case, this Court had occasion to rule: "Ubi lex non distinguish nec nos distinguere debemos." 2 It was
enunciated in Loc Cham v. Ocampo, 77 Phil. 636 (1946):
The rule, founded on logic is a corollary of the principle that general words and phrases in a statute
should ordinarily be accorded their natural and general significance. In other words, there should be
no distinction in the application of a statute where none is indicated.
There should be no distinction in the application of a statute where none is indicated for courts are not authorized to
distinguish where the law makes no distinction. They should instead administer the law not as they think it ought to
be but as they find it and without regard to consequences. 3
The term check as used in the said Articles of Incorporation of PCHC can only connote checks in general use in
commercial and business activities. It cannot be conceived to be limited to negotiable checks only.
Checks are used between banks and bankers and their customers, and are designed to facilitate banking
operations. It is of the essence to be payable on demand, because the contract between the banker and the
customer is that the money is needed on demand. 4
The participation of the two banks, petitioner and private respondent, in the clearing operations of PCHC is a
manifestation of their submission to its jurisdiction. Sec. 3 and 36.6 of the PCHC-CHRR clearing rules and
regulations provide:
SEC. 3. AGREEMENT TO THESE RULES. It is the general agreement and understanding that
any participant in the Philippine Clearing House Corporation, MICR clearing operations by the mere
fact of their participation, thereby manifests its agreement to these Rules and Regulations and its
subsequent amendments."
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 section 4 of the Republic Act No. 876, otherwise
known as the Arbitration Law.
Further Section 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, petitioner 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 petitioner that the proceeds were credited in its clearing account.
The petitioner 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 petitioner 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 petitioner stamping thereon its guarantee, in order that it can clear the said checks
with the respondent bank. By such deliberate and positive attitude of the petitioner 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 respondent to believe
that it was acting as endorser of the checks and on the strength of this guarantee said respondent cleared the
checks in question and credited the account of the petitioner. Petitioner is now barred from taking an opposite
posture by claiming that the disputed checks are not negotiable instrument.
This Court enunciated in Philippine National Bank vs. Court of Appeals 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 Philippine National Bank 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 Section 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. (United States vs. National Exchange Bank, 214 US, 302, 29 S
CT665, 53 L. Ed 1006, 16 Am. Cas. 11 84; Onondaga County Savings Bank vs. United States
(E.C.A.) 64 F 703)
Section 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 by any act or representation or admission of the drawer (Seaboard
National Bank vs. Bank of America (supra) and it follows that negligence on the part of the drawer
cannot create any liability from it to the collecting bank, and the drawer thus is neither a necessary
nor a proper party to an action by the drawee bank against such bank. It is quite true that depositors
in banks are under the obligation of examining their passbooks and returned vouchers as a
protection against the payment by the depository bank against forged checks, and negligence in the
performance of that obligation may relieve that bank of liability for the repayment of amounts paid
out on forged checks, which but for such negligence it would be bound to repay. A leading case on
that subject is Morgan vs. United States Mortgage and Trust Col. 208 N.Y. 218, 101 N.E. 871 Amn.
Cas. 1914D, 462, L.R.A. 1915D, 74.
Thus We hold that while the drawer generally owes no duty of diligence to the collecting bank, 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 and the law holds it to a high standard of conduct.
And although the subject checks are non-negotiable the responsibility of petitioner as indorser thereof remains.
To countenance a repudiation by the petitioner of its obligation would be contrary to equity and would deal a
negative blow to the whole banking system of this country.
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
And Give Rise To An Obligation
To Return Amounts Received
Nothing is more clear than that neither the defendant's depositor nor the defendant is entitled to
receive payment payable for the Checks. As the checks are not payable to defendant's depositor,
payments to persons other than payees named therein, their successor-in-interest or any person
authorized to receive payment are not valid. Article 1240, New Civil Code of the Philippines
unequivocably provides that:
"Art. 1240. Payment shall be made to the person in whose favor the obligation has
been constituted, or his successo-in-interest, or any person authorized to receive it. "

Considering that neither the defendant's depositor nor the defendant is entitled to receive payments
for the Checks, payments to any of them give rise to an obligation to return the amounts received.
Section 2154 of the New Civil Code mandates that:
Article 2154. 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.
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 defendant has failed to make such reimbursement.
WHEREFORE, the petition is DISMISSED for lack of merit without pronouncement as to costs. The decision of the
respondent court of 24 March 1986 and its order of 3 June 1986 are hereby declared to be immediately executory.
SO ORDERED.
Teehankee, C.J., Narvasa, Cruz and Paras, JJ., concur.


65. .R. No. 156132 February 6, 2007
CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS FINANCE CORPORATION, doing
business under the name and style of FNCB Finance, Petitioners,
vs.
MODESTA R. SABENIANO, Respondent.
RESOLUTION
CHICO-NAZARIO, J.:
On 16 October 2006, this Court promulgated its Decision 1 in the above-entitled case, the dispositive portion of which
reads
IN VIEW OF THE FOREGOING, the instant Petition is PARTLY GRANTED. The assailed Decision of the Court of
Appeals in CA-G.R. No. 51930, dated 26 March 2002, as already modified by its Resolution, dated 20 November
2002, is hereby AFFIRMED WITH MODIFICATION, as follows
1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding. Petitioner Citibank
is ORDERED to return to respondent 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 respondents Citibank-Geneva accounts to petitioner Citibank in Manila, and
the application of the same against respondents outstanding loans with the latter, is DECLARED illegal, null
and void. Petitioner Citibank is ORDERED to refund to respondent 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 October 1979;
3. Petitioner Citibank is ORDERED to pay respondent moral damages in the amount of Three Hundred
Thousand Pesos (P300,000.00); exemplary damages in the amount of Two Hundred Fifty Thousand Pesos
(P250,000.00); and attorneys fees in the amount of Two Hundred Thousand Pesos (P200,000.00); and
4. Respondent is ORDERED to pay petitioner Citibank the balance of her outstanding loans, which, from the
respective dates of their maturity to 5 September 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 September 1979 until payment thereof.
Subsequent thereto, respondent Modesta R. Sabeniano filed an Urgent Motion to Clarify and/or Confirm Decision
with Notice of Judgment on 20 October 2006; while, petitioners Citibank, N.A. and FNCB Finance 2 filed their Motion
for Partial Reconsideration of the foregoing Decision on 6 November 2006.
The facts of the case, as determined by this Court in its Decision, may be summarized as follows.
Respondent was a client of petitioners. She had several deposits and market placements with petitioners, among
which were her savings account with the local branch of petitioner Citibank (Citibank-Manila 3 ); money market
placements with petitioner FNCB Finance; and dollar accounts with the Geneva branch of petitioner Citibank
(Citibank-Geneva). At the same time, respondent had outstanding loans with petitioner Citibank, incurred at
Citibank-Manila, the principal amounts aggregating to P1,920,000.00, all of which had become due and demandable
by May 1979. Despite repeated demands by petitioner Citibank, respondent failed to pay her outstanding loans.

Thus, petitioner Citibank used respondents deposits and money market placements to off-set and liquidate her
outstanding obligations, as follows
Respondents outstanding obligation (principal and interest as of 26

October 1979) P 2,156,940.58
Less Proceeds from respondents money market placements with
: petitioner FNCB Finance (principal and interest as of 5
September 1979) (1,022,916.66)
Deposits in respondents bank accounts with petitioner
Citibank (31,079.14)
Proceeds of respondents money market placements and
dollar accounts with Citibank-Geneva (peso equivalent as of
26 October 1979) (1,102,944.78)
Balance of respondents obligation

P 0.00
Respondent, however, denied having any outstanding loans with petitioner Citibank. She likewise denied that she
was duly informed of the off-setting or compensation thereof made by petitioner Citibank using her deposits and
money market placements with petitioners. Hence, respondent sought to recover her deposits and money market
placements.
Respondent instituted a complaint for "Accounting, Sum of Money and Damages" against petitioners, docketed as
Civil Case No. 11336, before the Regional Trial Court (RTC) of Makati City. After trial proper, which lasted for a
decade, the RTC rendered a Decision4 on 24 August 1995, the dispositive portion of which reads
WHEREFORE, in view of all the foregoing, decision is hereby rendered as follows:
(1) Declaring as illegal, null and void the setoff effected by the defendant Bank [petitioner Citibank] of
plaintiffs [respondent Sabeniano] dollar deposit with Citibank, Switzerland, in the amount of US$149,632.99,
and ordering the said defendant [petitioner Citibank] to refund the said amount to the plaintiff with legal
interest at the rate of twelve percent (12%) per annum, compounded yearly, from 31 October 1979 until fully
paid, or its peso equivalent at the time of payment;
(2) Declaring the plaintiff [respondent Sabeniano] indebted to the defendant Bank [petitioner Citibank] in the
amount of P1,069,847.40 as of 5 September 1979 and ordering the plaintiff [respondent Sabeniano] to pay
said amount, however, there shall be no interest and penalty charges from the time the illegal setoff was
effected on 31 October 1979;
(3) Dismissing all other claims and counterclaims interposed by the parties against each other.
Costs against the defendant Bank.
All the parties appealed the afore-mentioned RTC Decision to the Court of Appeals, docketed as CA-G.R. CV No.
51930. On 26 March 2002, the appellate court promulgated its Decision, 5 ruling entirely in favor of respondent, to wit
Wherefore, premises considered, the assailed 24 August 1995 Decision of the court a quo is hereby AFFIRMED
with MODIFICATION, as follows:

1. Declaring as illegal, null and void the set-off effected by the defendant-appellant Bank of the plaintiff-
appellants dollar deposit with Citibank, Switzerland, in the amount of US$149,632.99, and ordering
defendant-appellant Citibank to refund the said amount to the plaintiff-appellant with legal interest at the rate
of twelve percent (12%) per annum, compounded yearly, from 31 October 1979 until fully paid, or its peso
equivalent at the time of payment;
2. As defendant-appellant Citibank failed to establish by competent evidence the alleged indebtedness of

plaintiff-appellant, the set-off of P1,069,847.40 in the account of Ms. Sabeniano is hereby declared as
without legal and factual basis;
3. As defendants-appellants failed to account the following plaintiff-appellants money market placements,

savings account and current accounts, the former is hereby ordered to return the same, in accordance with
the terms and conditions agreed upon by the contending parties as evidenced by the certificates of
investments, to wit:
(i) Citibank NNPN Serial No. 023356 (Cancels and Supersedes NNPN No. 22526) issued on 17
March 1977, P318,897.34 with 14.50% interest p.a.;
(ii) Citibank NNPN Serial No. 23357 (Cancels and Supersedes NNPN No. 22528) issued on 17
March 1977, P203,150.00 with 14.50 interest p.a.;
(iii) FNCB NNPN Serial No. 05757 (Cancels and Supersedes NNPN No. 04952), issued on 02 June
1977, P500,000.00 with 17% interest p.a.;
(iv) FNCB NNPN Serial No. 05758 (Cancels and Supersedes NNPN No. 04962), issued on 02 June
1977, P500,000.00 with 17% interest per annum;
(v) The Two Million (P2,000,000.00) money market placements of Ms. Sabeniano with the Ayala
Investment & Development Corporation (AIDC) with legal interest at the rate of twelve percent (12%)
per annum compounded yearly, from 30 September 1976 until fully paid;
4. Ordering defendants-appellants to jointly and severally pay the plaintiff-appellant the sum of FIVE
HUNDRED THOUSAND PESOS (P500,000.00) by way of moral damages, FIVE HUNDRED THOUSAND
PESOS (P500,000.00) as exemplary damages, and ONE HUNDRED THOUSAND PESOS (P100,000.00)
as attorneys fees.
Acting on petitioners Motion for Partial Reconsideration, the Court of Appeals issued a Resolution, 6 dated 20
November 2002, modifying its earlier Decision, thus
WHEREFORE, premises considered, the instant Motion for Reconsideration is PARTIALLY GRANTED as Sub-
paragraph (V) paragraph 3 of the assailed Decisions dispositive portion is hereby ordered DELETED.
The challenged 26 March 2002 Decision of the Court is AFFIRMED with MODIFICATION.
Since the Court of Appeals Decision, dated 26 March 2002, as modified by the Resolution of the same court, dated
20 November 2002, was still principally in favor of respondent, petitioners filed the instant Petition for Review
on Certiorari under Rule 45 of the Revised Rules of Court. After giving due course to the instant Petition, this Court
promulgated on 16 October 2006 its Decision, now subject of petitioners Motion for Partial Reconsideration. 1awphi1.net
Among the numerous grounds raised by petitioners in their Motion for Partial Reconsideration, this Court shall
address and discuss herein only particular points that had not been considered or discussed in its Decision. Even in
consideration of these points though, this Court remains unconvinced that it should modify or reverse in any way its
disposition of the case in its earlier Decision.

As to the off-setting or compensation of respondents outstanding loan balance with her dollar deposits in Citibank-
Geneva
Petitioners take exception to the following findings made by this Court in its Decision, dated 16 October 2006,
disallowing the off-setting or compensation of the balance of respondents outstanding loans using her dollar
deposits in Citibank-Geneva
Without the Declaration of Pledge, petitioner Citibank had no authority to demand the remittance of respondents
dollar accounts with Citibank-Geneva and to apply them to her outstanding loans. It cannot effect legal
compensation under Article 1278 of the Civil Code since, petitioner Citibank itself admitted that Citibank-Geneva is a
distinct and separate entity. As for the dollar accounts, respondent was the creditor and Citibank-Geneva is the
debtor; and as for the outstanding loans, petitioner Citibank was the creditor and respondent was the debtor. The
parties in these transactions were evidently not the principal creditor of each other.
Petitioners maintain that respondents Declaration of Pledge, by virtue of which she supposedly assigned her dollar
accounts with Citibank-Geneva as security for her loans with petitioner Citibank, is authentic and, thus, valid and
binding upon respondent. Alternatively, petitioners aver that even without said Declaration of Pledge, the off-setting
or compensation made by petitioner Citibank using respondents dollar accounts with Citibank-Geneva to liquidate
the balance of her outstanding loans with Citibank-Manila was expressly authorized by respondent herself in the
promissory notes (PNs) she signed for her loans, as well as sanctioned by Articles 1278 to 1290 of the Civil Code.
This alternative argument is anchored on the premise that all branches of petitioner Citibank in the Philippines and
abroad are part of a single worldwide corporate entity and share the same juridical personality. In connection
therewith, petitioners deny that they ever admitted that Citibank-Manila and Citibank-Geneva are distinct and
separate entities.
Petitioners call the attention of this Court to the following provision found in all of the PNs 7 executed by respondent
for her loans
At or after the maturity of this note, or when same becomes due under any of the provisions hereof, any money,
stocks, bonds, or other property of any kind whatsoever, on deposit or otherwise, to the credit of the undersigned on
the books of CITIBANK, N.A. in transit or in their possession, may without notice be applied at the discretion of the
said bank to the full or partial payment of this note.
It is the petitioners contention that the term "Citibank, N.A." used therein should be deemed to refer to all branches
of petitioner Citibank in the Philippines and abroad; thus, giving petitioner Citibank the authority to apply as payment
for the PNs even respondents dollar accounts with Citibank-Geneva. Still proceeding from the premise that all
branches of petitioner Citibank should be considered as a single entity, then it should not matter that the respondent
obtained the loans from Citibank-Manila and her deposits were with Citibank-Geneva. Respondent should be
considered the debtor (for the loans) and creditor (for her deposits) of the same entity, petitioner Citibank. Since
petitioner Citibank and respondent were principal creditors of each other, in compliance with the requirements under
Article 1279 of the Civil Code,8 then the former could have very well used off-setting or compensation to extinguish
the parties obligations to one another. And even without the PNs, off-setting or compensation was still authorized
because according to Article 1286 of the Civil Code, "Compensation takes place by operation of law, even though
the debts may be payable at different places, but there shall be an indemnity for expenses of exchange or
transportation to the place of payment."
Pertinent provisions of Republic Act No. 8791, otherwise known as the General Banking Law of 2000, governing
bank branches are reproduced below
SEC. 20. Bank Branches. Universal or commercial banks may open branches or other offices within or outside the
Philippines upon prior approval of the Bangko Sentral.
Branching by all other banks shall be governed by pertinent laws.


A bank may, subject to prior approval of the Monetary Board, use any or all of its branches as outlets for the
presentation and/or sale of the financial products of its allied undertaking or its investment house units.
A bank authorized to establish branches or other offices shall be responsible for all business conducted in such
branches and offices to the same extent and in the same manner as though such business had all been conducted
in the head office. A bank and its branches and offices shall be treated as one unit.
xxxx
SEC. 72. Transacting Business in the Philippines. The entry of foreign banks in the Philippines through the
establishment of branches shall be governed by the provisions of the Foreign Banks Liberalization Act.
The conduct of offshore banking business in the Philippines shall be governed by the provisions of Presidential
Decree No. 1034, otherwise known as the "Offshore Banking System Decree."
xxxx
SEC. 74. Local Branches of Foreign Banks. In case of a foreign bank which has more than one (1) branch in the
Philippines, all such branches shall be treated as one (1) unit for the purpose of this Act, and all references to the
Philippine branches of foreign banks shall be held to refer to such units.
SEC. 75. Head Office Guarantee. In order to provide effective protection of the interests of the depositors and
other creditors of Philippine branches of a foreign bank, the head office of such branches shall fully guarantee the
prompt payment of all liabilities of its Philippine branch.
Residents and citizens of the Philippines who are creditors of a branch in the Philippines of a foreign bank shall
have preferential rights to the assets of such branch in accordance with existing laws.
Republic Act No. 7721, otherwise known as the Foreign Banks Liberalization Law, lays down the policies and
regulations specifically concerning the establishment and operation of local branches of foreign banks. Relevant
provisions of the said statute read
Sec. 2. Modes of Entry. - The Monetary Board may authorize foreign banks to operate in the Philippine banking
system through any of the following modes of entry: (i) by acquiring, purchasing or owning up to sixty percent (60%)
of the voting stock of an existing bank; (ii) by investing in up to sixty percent (60%) of the voting stock of a new
banking subsidiary incorporated under the laws of the Philippines; or (iii) by establishing branches with full banking
authority: Provided, That a foreign bank may avail itself of only one (1) mode of entry: Provided, further, That a
foreign bank or a Philippine corporation may own up to a sixty percent (60%) of the voting stock of only one (1)
domestic bank or new banking subsidiary.
Sec. 5. Head Office Guarantee. - The head office of foreign bank branches shall guarantee prompt payment of all
liabilities of its Philippine branches.
It is true that the afore-quoted Section 20 of the General Banking Law of 2000 expressly states that the bank and its
branches shall be treated as one unit. It should be pointed out, however, that the said provision applies to a
universal9 or commercial bank,10 duly established and organized as a Philippine corporation in accordance with
Section 8 of the same statute,11 and authorized to establish branches within or outside the Philippines.
The General Banking Law of 2000, however, does not make the same categorical statement as regards to foreign
banks and their branches in the Philippines. What Section 74 of the said law provides is that in case of a foreign
bank with several branches in the country, all such branches shall be treated as one unit. As to the relations
between the local branches of a foreign bank and its head office, Section 75 of the General Banking Law of 2000
and Section 5 of the Foreign Banks Liberalization Law provide for a "Home Office Guarantee," in which the head
office of the foreign bank shall guarantee prompt payment of all liabilities of its Philippine branches. While the Home

Office Guarantee is in accord with the principle that these local branches, together with its head office, constitute but
one legal entity, it does not necessarily support the view that said principle is true and applicable in all
circumstances.
The Home Office Guarantee is included in Philippine statutes clearly for the protection of the interests of the
depositors and other creditors of the local branches of a foreign bank. 12 Since the head office of the bank is located
in another country or state, such a guarantee is necessary so as to bring the head office within Philippine
jurisdiction, and to hold the same answerable for the liabilities of its Philippine branches. Hence, the principle of the
singular identity of that the local branches and the head office of a foreign bank are more often invoked by the
clients in order to establish the accountability of the head office for the liabilities of its local branches. It is under such
attendant circumstances in which the American authorities and jurisprudence presented by petitioners in their
Motion for Partial Reconsideration were rendered.
Now the question that remains to be answered is whether the foreign bank can use the principle for a reverse
purpose, in order to extend the liability of a client to the foreign banks Philippine branch to its head office, as well as
to its branches in other countries. Thus, if a client obtains a loan from the foreign banks Philippine branch, does it
absolutely and automatically make the client a debtor, not just of the Philippine branch, but also of the head office
and all other branches of the foreign bank around the world? This Court rules in the negative.
There being a dearth of Philippine authorities and jurisprudence on the matter, this Court, just as what petitioners
have done, turns to American authorities and jurisprudence. American authorities and jurisprudence are significant
herein considering that the head office of petitioner Citibank is located in New York, United States of America
(U.S.A.).
Unlike Philippine statutes, the American legislation explicitly defines the relations among foreign branches of an
American bank. Section 25 of the United States Federal Reserve Act 13 states that
Every national banking association operating foreign branches shall conduct the accounts of each foreign branch
independently of the accounts of other foreign branches established by it and of its home office, and shall at the end
of each fiscal period transfer to its general ledger the profit or loss accrued at each branch as a separate item.
Contrary to petitioners assertion that the accounts of Citibank-Manila and Citibank-Geneva should be deemed as a
single account under its head office, the foregoing provision mandates that the accounts of foreign branches of an
American bank shall be conducted independently of each other. Since the head office of petitioner Citibank is in the
U.S.A., then it is bound to treat its foreign branches in accordance with the said provision. It is only at the end of its
fiscal period that the bank is required to transfer to its general ledger the profit or loss accrued at each branch, but
still reporting it as a separate item. It is by virtue of this provision that the Circuit Court of Appeals of New York
declared in Pan-American Bank and Trust Co. v. National City Bank of New York 14 that a branch is not merely a
tellers window; it is a separate business entity.
The circumstances in the case of McGrath v. Agency of Chartered Bank of India, Australia & China15 are closest to
the one at bar. In said case, the Chartered Bank had branches in several countries, including one in Hamburg,
Germany and another in New York, U.S.A., and yet another in London, United Kingdom. The New York branch
entered in its books credit in favor of four German firms. Said credit represents collections made from bills of
exchange delivered by the four German firms. The same four German firms subsequently became indebted to the
Hamburg branch. The London branch then requested for the transfer of the credit in the name of the German firms
from the New York branch so as to be applied or setoff against the indebtedness of the same firms to the Hamburg
branch. One of the question brought before the U.S. District Court of New York was "whether or not the debts and
the alleged setoffs thereto are mutual," which could be answered by determining first whether the New York and
Hamburg branches of Chartered Bank are individual business entities or are one and the same entity. In denying the
right of the Hamburg branch to setoff, the U.S. District Court ratiocinated that
The structure of international banking houses such as Chartered bank defies one rigorous description. Suffice it to
say for present analysis, branches or agencies of an international bank have been held to be independent
entities for a variety of purposes (a) deposits payable only at branch where made; Mutaugh v. Yokohama Specie

Bank, Ltd., 1933, 149 Misc. 693, 269 N.Y.S. 65; Bluebird Undergarment Corp. v. Gomez, 1931, 139 Misc. 742, 249
N.Y.S. 319; (b) checks need be honored only when drawn on branch where deposited; Chrzanowska v. Corn
Exchange Bank, 1916, 173 App. Div. 285, 159 N.Y.S. 385, affirmed 1919, 225 N.Y. 728, 122 N.E. 877; subpoena
duces tecum on foreign banks record barred; In re Harris, D.C.S.D.N.Y. 1939, 27 F. Supp. 480; (d) a foreign branch
separate for collection of forwarded paper; Pan-American Bank and Trust Company v. National City Bank of New
York, 2 Cir., 1925, 6 F. 2d 762, certiorari denied 1925, 269 U.S. 554, 46 S. Ct. 18, 70 L. Ed. 408. Thus in law there
is nothing innately unitary about the organization of international banking institutions.
Defendant, upon its oral argument and in its brief, relies heavily on Sokoloff v. National City Bank of New
York, 1928, 250 N.Y. 69, 164 N.E. 745, as authority for the proposition that Chartered Bank, not the Hamburg or
New York Agency, is ultimately responsible for the amounts owing its German customers and, conversely, it is to
Chartered Bank that the German firms owe their obligations. The Sokoloff case, aside from its violently different fact
situation, is centered on the legal problem of default of payment and consequent breach of contract by a branch
bank. It does not stand for the principle that in every instance an international bank with branches is but
one legal entity for all purposes. The defendant concedes in its brief (p. 15) that there are purposes for which the
various agencies and branches of Chartered Bank may be treated in law as separate entities. I fail to see the
applicability of Sokoloff either as a guide to or authority for the resolution of this problem. The facts before me and
the cases catalogued supra lend weight to the view that we are dealing here with Agencies independent of one
another.
xxxx
I hold that for instant purposes the Hamburg Agency and defendant were independent business entities, and the
attempted setoff may not be utilized by defendant against its debt to the German firms obligated to the Hamburg
Agency.
Going back to the instant Petition, although this Court concedes that all the Philippine branches of petitioner
Citibank should be treated as one unit with its head office, it cannot be persuaded to declare that these Philippine
branches are likewise a single unit with the Geneva branch. It would be stretching the principle way beyond its
intended purpose.
Therefore, this Court maintains its original position in the Decision that the off-setting or compensation of
respondents loans with Citibank-Manila using her dollar accounts with Citibank-Geneva cannot be effected. The
parties cannot be considered principal creditor of the other. As for the dollar accounts, respondent was the creditor
and Citibank-Geneva was the debtor; and as for the outstanding loans, petitioner Citibank, particularly Citibank-
Manila, was the creditor and respondent was the debtor. Since legal compensation was not possible, petitioner
Citibank could only use respondents dollar accounts with Citibank-Geneva to liquidate her loans if she had
expressly authorized it to do so by contract.
Respondent cannot be deemed to have authorized the use of her dollar deposits with Citibank-Geneva to liquidate
her loans with petitioner Citibank when she signed the PNs 16 for her loans which all contained the provision that
At or after the maturity of this note, or when same becomes due under any of the provisions hereof, any money,
stocks, bonds, or other property of any kind whatsoever, on deposit or otherwise, to the credit of the undersigned on
the books of CITIBANK, N.A. in transit or in their possession, may without notice be applied at the discretion of the
said bank to the full or partial payment of this note.
As has been established in the preceding discussion, "Citibank, N.A." can only refer to the local branches of
petitioner Citibank together with its head office. Unless there is any showing that respondent understood and
expressly agreed to a more far-reaching interpretation, the reference to Citibank, N.A. cannot be extended to all
other branches of petitioner Citibank all over the world. Although theoretically, books of the branches form part of the
books of the head office, operationally and practically, each branch maintains its own books which shall only be later
integrated and balanced with the books of the head office. Thus, it is very possible to identify and segregate the
books of the Philippine branches of petitioner Citibank from those of Citibank-Geneva, and to limit the authority
granted for application as payment of the PNs to respondents deposits in the books of the former.

Moreover, the PNs can be considered a contract of adhesion, the PNs being in standard printed form prepared by
petitioner Citibank. Generally, stipulations in a contract come about after deliberate drafting by the parties thereto,
there are certain contracts almost all the provisions of which have been drafted only by one party, usually a
corporation. Such contracts are called contracts of adhesion, because the only participation of the party is the
affixing of his signature or his "adhesion" thereto. This being the case, the terms of such contract are to be
construed strictly against the party which prepared it.17
As for the supposed Declaration of Pledge of respondents dollar accounts with Citibank-Geneva as security for the
loans, this Court stands firm on its ruling that the non-production thereof is fatal to petitioners cause in light of
respondents claim that her signature on such document was a forgery. It bears to note that the original of the
Declaration of Pledge is with Citibank-Geneva, a branch of petitioner Citibank. As between respondent and
petitioner Citibank, the latter has better access to the document. The constant excuse forwarded by petitioner
Citibank that Citibank-Geneva refused to return possession of the original Declaration of Pledge to Citibank-Manila
only supports this Courts finding in the preceding paragraphs that the two branches are actually operating
separately and independently of each other.
Further, petitioners keep playing up the fact that respondent, at the beginning of the trial, refused to give her
specimen signatures to help establish whether her signature on the Declaration of Pledge was indeed forged.
Petitioners seem to forget that subsequently, respondent, on advice of her new counsel, already offered to
cooperate in whatever manner so as to bring the original Declaration of Pledge before the RTC for inspection. The
exchange of the counsels for the opposing sides during the hearing on 24 July 1991 before the RTC reveals the
apparent willingness of respondents counsel to undertake whatever course of action necessary for the production of
the contested document, and the evasive, non-committal, and uncooperative attitude of petitioners counsel. 18
Lastly, this Courts ruling striking down the Declaration of Pledge is not entirely based on respondents allegation of
forgery. In its Decision, this Court already extensively discussed why it found the said Declaration of Pledge highly
suspicious and irregular, to wit
First of all, it escapes this Court why petitioner 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 petitioner Citibank would take
greater cautionary measures with the preparation and execution of the Declaration of Pledge because it involved
respondents "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 petitioner Citibank must discharge the burden of proving due execution and authenticity
of the Declaration of Pledge.
Second, petitioner Citibank was unable to establish the date when the Declaration of Pledge was actually executed.
The photocopy of the Declaration of Pledge submitted by petitioner Citibank before the RTC was undated. 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 respondents dollar accounts pursuant thereto. Respondent, 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 September 1979. Respondent, 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. Petitioner Citibank insisted that the pledge
was signed before 24 September 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 respondent 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 respondent 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 September 1979, and this Court shall abide
by the presumption that the written document is truly dated. Since it is undeniable that respondent was out of the
country on 24 September 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 petitioner 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
petitioner 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, respondent 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 Section 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.
Respondent 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, petitioner 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 petitioner Citibank in Manila and its branch in Geneva may be separate and distinct
entities, they are still incontestably related, and between petitioner Citibank and respondent, the former had more
influence and resources to convince Citibank-Geneva to return, albeit temporarily, the original Declaration of Pledge.
Petitioner 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 petitioner 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 petitioner Citibank has nil probative value. In addition, even if this Court cannot make a
categorical finding that respondents signature on the original copy of the pledge was forged, it is persuaded that
petitioner Citibank willfully suppressed the presentation of the original document, and takes into consideration the
presumption that the evidence willfully suppressed would be adverse to petitioner Citibank if produced.
As far as the Declaration of Pledge is concerned, petitioners failed to submit any new evidence or argument that
was not already considered by this Court when it rendered its Decision.
As to the value of the dollar deposits in Citibank-Geneva ordered refunded to respondent
In case petitioners are still ordered to refund to respondent the amount of her dollar accounts with Citibank-Geneva,
petitioners beseech this Court to adjust the nominal values of respondents dollar accounts and/or her overdue peso
loans by using the values of the currencies stipulated at the time the obligations were established in 1979, to
address the alleged inequitable consequences resulting from the extreme and extraordinary devaluation of the
Philippine currency that occurred in the course of the Asian crisis of 1997. Petitioners base their request on Article
1250 of the Civil Code which reads, "In case an extraordinary inflation or deflation of the currency stipulated should

supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment,
unless there is an agreement to the contrary."
It is well-settled that Article 1250 of the Civil Code becomes applicable only when there is extraordinary inflation or
deflation of the currency. Inflation has been defined as the sharp increase of money or credit or both without a
corresponding increase in business transaction. There is inflation when there is an increase in the volume of money
and credit relative to available goods resulting in a substantial and continuing rise in the general price
level.19 In Singson v. Caltex (Philippines), Inc.,20 this Court already provided a discourse as to what constitutes as
extraordinary inflation or deflation of currency, thus
We have held extraordinary inflation to exist when there is a decrease or increase in the purchasing power of the
Philippine currency which is unusual or beyond the common fluctuation in the value of said currency, and such
increase or decrease could not have been reasonably foreseen or was manifestly beyond the contemplation of the
parties at the time of the establishment of the obligation.
An example of extraordinary inflation, as cited by the Court in Filipino Pipe and Foundry Corporation vs.
NAWASA, supra, is that which happened to the deutschmark in 1920. Thus:
"More recently, in the 1920s, Germany experienced a case of hyperinflation. In early 1921, the value of the German
mark was 4.2 to the U.S. dollar. By May of the same year, it had stumbled to 62 to the U.S. dollar. And as prices
went up rapidly, so that by October 1923, it had reached 4.2 trillion to the U.S. dollar!" (Bernardo M. Villegas & Victor
R. Abola, Economics, An Introduction [Third Edition]).
As reported, "prices were going up every week, then every day, then every hour. Women were paid several times a
day so that they could rush out and exchange their money for something of value before what little purchasing
power was left dissolved in their hands. Some workers tried to beat the constantly rising prices by throwing their
money out of the windows to their waiting wives, who would rush to unload the nearly worthless paper. A postage
stamp cost millions of marks and a loaf of bread, billions." (Sidney Rutberg, "The Money Balloon", New York: Simon
and Schuster, 1975, p. 19, cited in "Economics, An Introduction" by Villegas & Abola, 3rd ed.)
The supervening of extraordinary inflation is never assumed. The party alleging it must lay down the factual basis for
the application of Article 1250.
Thus, in the Filipino Pipe case, the Court acknowledged that the voluminous records and statistics submitted by
plaintiff-appellant proved that there has been a decline in the purchasing power of the Philippine peso, but this
downward fall cannot be considered "extraordinary" but was simply a universal trend that has not spared our
country. Similarly, in Huibonhoa vs. Court of Appeals, the Court dismissed plaintiff-appellant's unsubstantiated
allegation that the Aquino assassination in 1983 caused building and construction costs to double during the period
July 1983 to February 1984. In Serra vs. Court of Appeals, the Court again did not consider the decline in the peso's
purchasing power from 1983 to 1985 to be so great as to result in an extraordinary inflation.
Like the Serra and Huibonhoa cases, the instant case also raises as basis for the application of Article 1250 the
Philippine economic crisis in the early 1980s --- when, based on petitioner's evidence, the inflation rate rose to
50.34% in 1984. We hold that there is no legal or factual basis to support petitioner's allegation of the existence of
extraordinary inflation during this period, or, for that matter, the entire time frame of 1968 to 1983, to merit the
adjustment of the rentals in the lease contract dated July 16, 1968. Although by petitioner's evidence there was a
decided decline in the purchasing power of the Philippine peso throughout this period, we are hard put to treat this
as an "extraordinary inflation" within the meaning and intent of Article 1250.
Rather, we adopt with approval the following observations of the Court of Appeals on petitioner's evidence,
especially the NEDA certification of inflation rates based on consumer price index:
xxx (a) from the period 1966 to 1986, the official inflation rate never exceeded 100% in any single year; (b) the
highest official inflation rate recorded was in 1984 which reached only 50.34%; (c) over a twenty one (21) year

period, the Philippines experienced a single-digit inflation in ten (10) years (i.e., 1966, 1967, 1968, 1969, 1975,
1976, 1977, 1978, 1983 and 1986); (d) in other years (i.e., 1970, 1971, 1972, 1973, 1974, 1979, 1980, 1981, 1982,
1984 and 1989) when the Philippines experienced double-digit inflation rates, the average of those rates was only
20.88%; (e) while there was a decline in the purchasing power of the Philippine currency from the period 1966 to
1986, such cannot be considered as extraordinary; rather, it is a normal erosion of the value of the Philippine peso
which is a characteristic of most currencies.
"Erosion" is indeed an accurate description of the trend of decline in the value of the peso in the past three to four
decades. Unfortunate as this trend may be, it is certainly distinct from the phenomenon contemplated by Article
1250.
Moreover, this Court has held that the effects of extraordinary inflation are not to be applied without an official
declaration thereof by competent authorities.
The burden of proving that there had been extraordinary inflation or deflation of the currency is upon the party that
alleges it. Such circumstance must be proven by competent evidence, and it cannot be merely assumed. In this
case, petitioners presented no proof as to how much, for instance, the price index of goods and services had risen
during the intervening period.21 All the information petitioners provided was the drop of the U.S. dollar-Philippine
peso exchange rate by 17 points from June 1997 to January 1998. While the said figure was based on the statistics
of the Bangko Sentral ng Pilipinas (BSP), it is also significant to note that the BSP did not categorically declare that
the same constitute as an extraordinary inflation. The existence of extraordinary inflation must be officially
proclaimed by competent authorities, and the only competent authority so far recognized by this Court to make such
an official proclamation is the BSP.22
Neither can this Court, by merely taking judicial notice of the Asian currency crisis in 1997, already declare that
there had been extraordinary inflation. It should be recalled that the Philippines likewise experienced economic crisis
in the 1980s, yet this Court did not find that extraordinary inflation took place during the said period so as to warrant
the application of Article 1250 of the Civil Code.
Furthermore, it is incontrovertible that Article 1250 of the Civil Code is based on equitable considerations. Among
the maxims of equity are (1) he who seeks equity must do equity, and (2) he who comes into equity must come with
clean hands. The latter is a frequently stated maxim which is also expressed in the principle that he who has done
inequity shall not have equity.23 Petitioner Citibank, hence, cannot invoke Article 1250 of the Civil Code because it
does not come to court with clean hands. The delay in the recovery24 by respondent of her dollar accounts with
Citibank-Geneva was due to the unlawful act of petitioner Citibank in using the same to liquidate respondents loans.
Petitioner Citibank even attempted to justify the off-setting or compensation of respondents loans using her dollar
accounts with Citibank-Geneva by the presentation of a highly suspicious and irregular, and even possibly forged,
Declaration of Pledge.
The damage caused to respondent of the deprivation of her dollar accounts for more than two decades is
unquestionably relatively more extensive and devastating, as compared to whatever damage petitioner Citibank, an
international banking corporation with undoubtedly substantial capital, may have suffered for respondents non-
payment of her loans. It must also be remembered that petitioner Citibank had already considered respondents
loans paid or liquidated by 26 October 1979 after it had fully effected compensation thereof using respondents
deposits and money market placements. All this time, respondents dollar accounts are unlawfully in the possession
of and are being used by petitioner Citibank for its business transactions. In the meantime, respondents businesses
failed and her properties were foreclosed because she was denied access to her funds when she needed them
most. Taking these into consideration, respondents dollar accounts with Citibank-Geneva must be deemed to be
subsisting and continuously deposited with petitioner Citibank all this while, and will only be presently withdrawn by
respondent. Therefore, petitioner Citibank should refund to respondent the U.S. $149,632.99 taken from her
Citibank-Geneva accounts, 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 October
1979.
As to respondents Motion to Clarify and/or Confirm Decision with Notice of Judgment


Respondent, in her Motion, is of the mistaken notion that the Court of Appeals Decision, dated 26 March 2002, as
modified by the Resolution of the same court, dated 20 November 2002, would be implemented or executed
together with this Courts Decision.
This Court clarifies that its affirmation of the Decision of the Court of Appeals, as modified, is only to the extent that it
recognizes that petitioners had liabilities to the respondent. However, this Courts Decision modified that of the
appellate courts by making its own determination of the specific liabilities of the petitioners to respondent and the
amounts thereof; as well as by recognizing that respondent also had liabilities to petitioner Citibank and the amount
thereof.
Thus, for purposes of execution, the parties need only refer to the dispositive portion of this Courts Decision, dated
16 October 2006, should it already become final and executory, without any further modifications.
As the last point, there is no merit in respondents Motion for this Court to already declare its Decision, dated 16
October 2006, final and executory. A judgment becomes final and executory by operation of law and, accordingly,
the finality of the judgment becomes a fact upon the lapse of the reglementary period without an appeal or a motion
for new trial or reconsideration being filed.25 This Court cannot arbitrarily disregard the reglementary period and
declare a judgment final and executory upon the mere motion of one party, for to do so will be a culpable violation of
the right of the other parties to due process.
IN VIEW OF THE FOREGOING, petitioners Motion for Partial Reconsideration of this Courts Decision, dated 16
October 2006, and respondents Motion for this Court to declare the same Decision already final and executory, are
both DENIED for lack of merit.
SO ORDERED.
66.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 92244 February 9, 1993
NATIVIDAD GEMPESAW, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.
L.B. Camins for petitioner.
Angara, Abello, Concepcion, Regals & Cruz for private respondent
CAMPOS, JR., J.:


From the adverse decision * of the Court of Appeals (CA-G.R. CV No. 16447), petitioner, Natividad Gempesaw,
appealed to this Court in a Petition for Review, on the issue of the right of the drawer to recover from the drawee
bank who pays a check with a forged indorsement of the payee, debiting the same against the drawer's account.
The records show that on January 23, 1985, petitioner filed a Complaint against the private respondent Philippine
Bank of Communications (respondent drawee Bank) for recovery of the money value of eighty-two (82) checks
charged against the petitioner's account with the respondent drawee Bank on the ground that the payees'
indorsements were forgeries. The Regional Trial Court, Branch CXXVIII of Caloocan City, which tried the case,
rendered a decision on November 17, 1987 dismissing the complaint as well as the respondent drawee Bank's
counterclaim. On appeal, the Court of Appeals in a decision rendered on February 22, 1990, affirmed the decision of
the RTC on two grounds, namely (1) that the plaintiff's (petitioner herein) gross negligence in issuing the checks was
the proximate cause of the loss and (2) assuming that the bank was also negligent, the loss must nevertheless be
borne by the party whose negligence was the proximate cause of the loss. On March 5, 1990, the petitioner filed this
petition under Rule 45 of the Rules of Court setting forth the following as the alleged errors of the respondent
Court: 1
THE RESPONDENT COURT OF APPEALS ERRED IN RULING THAT THE NEGLIGENCE OF THE
DRAWER IS THE PROXIMATE CAUSE OF THE RESULTING INJURY TO THE DRAWEE BANK,
AND THE DRAWER IS PRECLUDED FROM SETTING UP THE FORGERY OR WANT OF
AUTHORITY.
II
THE RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT FINDING AND RULING THAT IT
IS THE GROSS AND INEXCUSABLE NEGLIGENCE AND FRAUDULENT ACTS OF THE
OFFICIALS AND EMPLOYEES OF THE RESPONDENT BANK IN FORGING THE SIGNATURE OF
THE PAYEES AND THE WRONG AND/OR ILLEGAL PAYMENTS MADE TO PERSONS, OTHER
THAN TO THE INTENDED PAYEES SPECIFIED IN THE CHECKS, IS THE DIRECT AND
PROXIMATE CAUSE OF THE DAMAGE TO PETITIONER WHOSE SAVING (SIC) ACCOUNT WAS
DEBITED.
III
THE RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT ORDERING THE

RESPONDENT BANK TO RESTORE OR RE-CREDIT THE CHECKING ACCOUNT OF THE
PETITIONER IN THE CALOOCAN CITY BRANCH BY THE VALUE OF THE EIGHTY-TWO (82)
CHECKS WHICH IS IN THE AMOUNT OF P1,208,606.89 WITH LEGAL INTEREST.
From the records, the relevant facts are as follows:
Petitioner Natividad O. Gempesaw (petitioner) owns and operates four grocery stores located at Rizal Avenue
Extension and at Second Avenue, Caloocan City. Among these groceries are D.G. Shopper's Mart and D.G. Whole
Sale Mart. Petitioner maintains a checking account numbered 13-00038-1 with the Caloocan City Branch of the
respondent drawee Bank. To facilitate payment of debts to her suppliers, petitioner draws checks against her
checking account with the respondent 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 petitioner for her signature, together with the corresponding invoice
receipts which indicate the correct obligations due and payable to her suppliers. Petitioner 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. Petitioner admitted that she did not make any verification as to
whether or not the checks were delivered to their respective payees. Although the respondent drawee Bank notified
her of all checks presented to and paid by the bank, petitioner 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, petitioner 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 respondent drawee Bank. Respondent drawee Bank
correspondingly debited the amounts thereof against petitioner'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 September 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 August 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 August 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 respondent drawee bank were crossed checks. 3 Aside from the
daily notice given to the petitioner by the respondent 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 petitioner 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 respondent 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 respondent 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 Elcao branch of the respondent 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 respondent 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 respondent drawee Bank, only a Branch Manager and no other official of the respondent 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 Elcao 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 November 7, 1984, petitioner made a written demand on respondent 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. Respondent drawee Bank refused to grant petitioner's demand. On January 23, 1985, petitioner filed the
complaint with the Regional Trial Court.
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).
Section 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 section
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, petitioner 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.
Petitioner 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 respondent 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 respondent drawee Bank to
the credit of their respective savings accounts in the Buendia, Ongpin and Elcao 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 respondent
drawee Bank to Alfredo Y. Romero and Benito Lam, and debited against petitioner'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 petitioner 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 petitioner discovered that eighty-two (82) checks were wrongfully charged to her account, at
which she notified the respondent drawee bank.
It is highly improbable that in a period of two years, not one of Petitioner's suppliers complained of non-payment.
Assuming that even one single complaint had been made, petitioner would have been duty-bound, as far as the
respondent 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. Petitioner'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 petitioner 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 petitioner failed to examine her records with reasonable diligence
whether before she signed the checks or after receiving her bank statements. Had the petitioner 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 petitioner been more vigilant in going over her current
account by taking careful note of the daily reports made by respondent drawee Bank in her issued checks, or at
least made random scrutiny of cancelled checks returned by respondent 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 respondent drawee Bank. The respondent drawee Bank then could have taken immediate steps to prevent
further commission of such fraud. Thus, petitioner's negligence was the proximate cause of her loss. And since it
was her negligence which caused the respondent drawee Bank to honor the forged checks or prevented it from
recovering the amount it had already paid on the checks, petitioner cannot now complain should the bank refuse to
recredit her account with the amount of such checks. 10 Under Section 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.
Petitioner argues that respondent 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.
Petitioner 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, petitioner is precluded from raising the defense of forgery by reason of her gross
negligence. But under Section 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
respondent 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 Article 2179 of the Civil Code, she may not be awarded
damages. However, under Article 1170 of the same Code the respondent drawee Bank may be held liable for
damages. The article 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 petitioner as depositor (obligee) and the respondent
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 respondent 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. Article 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, respondent 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, respondent drawee Bank is adjudged liable to share the loss with the petitioner on a fifty-fifty
ratio in accordance with Article 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 Civil Code 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 petitioner'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 petitioner as allegedly committed by the
respondent court. And in breaches of contract under Article 1173, due diligence on the part of the defendant is not a
defense.
PREMISES CONSIDERED, the case is hereby ordered REMANDED to the trial court for the reception of evidence
to determine the exact amount of loss suffered by the petitioner, 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 respondent drawee bank to herein petitioner.
SO ORDERED.
Narvasa, C.J., Feliciano, Regalado and Nocon, JJ., concur.


67.
FIRST DIVISION
[G.R. No. L-29432. August 6, 1975.]
JAI-ALAI CORPORATION OF THE PHILIPPINES, Petitioner, v. BANK OF THE PHILIPPINE ISLAND, Respondent.
Bausa, Ampil & Suarez for Petitioner.
Aviado & Aranda for Respondent.
SYNOPSIS
Petitioner deposited in its current account with respondent bank several checks with a total face value of P8,030.58, all
acquired from Antonio J. Ramirez, a regular bettor at the jai-alai games and a sale agent of the Inter-Island Gas Service,
Inc., the payee of the checks. The deposits were all temporarily credited to petitioners account in accordance with the clause
printed on the banks deposit slip. Subsequently, Ramirez resigned and after the checks had been submitted to inter-bank
clearing, the Inter-Island Gas discovered that all the indorsement made on the cheeks purportedly by its cashiers, as well as
the rubber stamp impression thereon reading "Inter-Island Gas Service, Inc.", were forgeries. It informed petitioner, the
respondent, the drawers and the drawee banks of the said checks and forgeries and filed a criminal complaint against its
former employee. In view of these circumstances, the respondent Bank debited the petitioners current account and
forwarded to the latter the checks containing the forged indorsements, which petitioner refused to accept. Later, petitioner
drew against its current account a check for P135,000.00. This check was dishonored by respondent as its records showed
that petitioners balance after netting out the value of the checks with the forged indorsement, was insufficient to cover the
value of the check drawn. A complaint was filed by petitioner with the Court of First Instance of Manila. The same was
dismissed by the said court after due trial, as well as by the Court of Appeals, on appeal. Hence, this petition for review.
The Supreme Court ruled that respondent acted within legal bounds when it debited petitioners account; that the payments
made by the drawee banks to the respondent on account of the checks with forged indorsements were ineffective; that on
account thereof, no creditor-debtor relationship was created between the parties; that petitioner was grossly recreant in
accepting the checks in question from Ramirez without making any inquiry as to authority to exchange checks belonging to
the payee-corporation; and that petitioner, in indorsing the said checks when it deposited them with respondent, guaranteed
the genuineness of all prior indorsement thereon so that the respondent, which relied upon its warranty, cannot be held liable
for the resulting loss.
Judgment affirmed
SYLLABUS
1. NEGOTIABLE INSTRUMENT; CHECKS; FORGED INDORSEMENTS EFFECT. A forged signature in a negotiable instrument
makes it 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.
2. ID.; ID.; ID.; NO RELATION OF CREDITOR-DEBTOR BETWEEN THE PARTIES CREATED EVEN IF DEPOSITARY OR
COLLECTING BANK HAD ALREADY COLLECTED THE PROCEEDS OF THE CHECKS WHEN IT DEBITED PETITIONERS ACCOUNT;
REASON. Where the indorsement made on the checks were forged prior to their delivery to depositor, the payments made
by the drawee-banks to the collecting bank on account of the said checks were ineffective. Such being the case, the
relationship of creditor and debtor between the depositor and the depository had not been validly effected, the checks not
having properly and legitimately converted into cash.
3. ID.; ID.; ID.; COLLECTING BANKS HAS DUTY TO REIMBURSE TO DRAWEE-BANKS THE VALUE OF CHECKS CONTAINING
FORGED INDORSEMENT; RULING IN THE CASE OF GREAT EASTERN LIFE INSURANCE CO. v. HONGKONG & SHANGHAI BANK.
In Great Eastern Life Ins. Co. v. Hongkong & Shanghai Bank, 43 Phil. 678 (1992), 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 to anyone else upon a forged signature." "It was its duty to know," said the Court, "that (the
payees) endorsement was genuine before cashing the check." The depositor must in turn shoulder the loss of the amounts
which the respondent, as its collecting agent, had no reimburse to the drawee-banks.
4. ID.; ID.; ACCEPTANCE OF CHECKS INDORSED BY AN AGENT; RULING IN THE CASE OF INSULAR DRUG CO. v. NATIONAL.
In Insular Drug Co. v. National, 58 Phil. 685 (1933), 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 by agents, does so at his peril, and must abide by the
consequences if the agent who endorses the same is without authority." cralaw virtua1aw library
5. ID.; ID.; LIABILITY OF AN INDORSER; NO LOSS TO BE SUFFERED BY A BANK WHO RELIED ON INDORSERS WARRANTY.
Under Section 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 Section 66 of the same statute a general indorser warrants
that the instrument "is genuine and in all respects what it purports to be." Where the depositor indorsed the checks with
forged indorsement when it deposited them with the collecting bank, the former as an endorser guaranteed the genuineness
of all prior indorsement thereon. The collecting bank which relied upon this warranty cannot be held liable for the resulting
loss.
6. ID.; ID.; FORGED CHECKS; TRANSFER OF FUNDS FROM DRAWEE TO COLLECTING BANK; APPLICATION OF ART. 2154 OF
THE CIVIL CODE. The transfer by the drawee-banks of funds to the collecting bank on account of forged checks would be
ineffectual when made under the mistaken and valid assumption that the indorsement of the payee thereon were genuine.
Under Article 2154 of the New Civil Code "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," By virtue thereof, there can be no valid payment of money by
drawee-banks to the collecting bank on account of forged checks.
DECISION
CASTRO, J.:
This is a petition by the Jai-Alai Corporation of the Philippines (hereinafter referred to as the petitioner) for review of the
decision of the Court of Appeals in C.A.-G.R. 34042-R dated June 25, 1968 in favor of the Bank of the Philippine Islands
(hereinafter referred to as the respondent).
From April 2, 1959 to May 18, 1959, ten checks with a total face value of P8,030.58 were deposited by the petitioner in its
current account with the respondent bank. The particulars of these checks are as follows: chanrob1es virtual 1aw library
1. Drawn by the Delta Engineering Service upon the Pacific Banking Corporation and payable to the Inter-Island Gas Service
Inc. or order: chanrob1es virtual 1aw library
Date Check Exhibit
Deposited Number Amount Number
4/2/59 B-352680 P500.00 18
4/20/59 A-156907 372.32 19
4/24/59 A-156924 397.82 20
5/4/59 B-364764 250.00 23
5/6/59 B-364775 250.00 24
2. Drawn by the Enrique Cortiz & Co. upon the Pacific Banking Corporation and payable to the Inter-Island Gas Service, Inc.
or bearer:chanrob1es virtual 1aw library
4/13/59 B-335063 P 2108.70 21
4/27/59 B-335072 P2210.94 22
3. Drawn by the Luzon Tinsmith & Company upon the China Banking Corporation and payable to the Inter-Island Gas
Service, Inc. or bearer: chanrob1es virtual 1aw library
5/18/59 VN430188 P940.8025 cralaw:re d
4. Drawn by the Roxas Manufacturing, Inc. upon the Philippine National Bank and payable to the Inter-Island Gas Service,
Inc. order: chanrob1es virtual 1aw library

5/14/59 1860160 P 500.00 26
5/18/59 1860660 P 500.00 27
All the foregoing checks, which were acquired by the petitioner from one Antonio J. Ramirez, a sales agent of the Inter-Island
Gas and a regular bettor at jai-alai games, were, upon deposit, temporarily credited to the petitioners account in accordance
with the clause printed on the deposit slips issued by the respondent and which reads: jgc:chanrobles.com .ph
"Any credit allowed the depositor on the books of the Bank for checks or drafts hereby received for deposit, is provisional
only, until such time as the proceeds thereof, in current funds or solvent credits, shall have been actually received by the
Bank and the latter reserves to itself the right to charge back the item to the account of its depositor, at any time before that
event, regardless of whether or not the item itself can be returned." cralaw virtua1aw library
About the latter part of July 1959, after Ramirez had resigned from the Inter-Island Gas and after the checks had been
submitted to inter-bank clearing, the Inter-Island Gas discovered that all the indorsements made on the checks purportedly
by its cashiers, Santiago Amplayo and Vicenta Mucor (who were merely authorized to deposit checks issued payable to the
said company) as well as the rubber stamp impression thereon reading "Inter-Island Gas Service, Inc.," were forgeries. In
due time, the Inter-Island Gas advised the petitioner, the respondent, the drawers and the drawee-banks of the said checks
about the forgeries, and filed a criminal complaint against Ramirez with the Office of the City Fiscal of Manila. 1
The respondents cashier, Ramon Sarthou, upon receipt of the latter of Inter-Island Gas dated August 31, 1959, called up the
petitioners cashier, Manuel Garcia, and advised the latter that in view of the circumstances he would debit the value of the
checks against the petitioners account as soon as they were returned by the respective drawee-banks.
Meanwhile, the drawers of the checks, having been notified of the forgeries, demanded reimbursement to their respective
accounts from the drawee-banks, which in turn demanded from the respondent, as collecting bank, the return of the
amounts they had paid on account thereof. When the drawee-banks returned the checks to the respondent, the latter paid
their value which the former in turn paid to the Inter-Island Gas. The respondent, for its part, debited the petitioners current
account and forwarded to the latter the checks containing the forged indorsements, which the petitioner, however, refused to
accept.
On October 8, 1959 the petitioner drew against its current account with the respondent 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
respondent as its records showed that as of October 8, 1959 the current account of the petitioner, after netting out the value
of the checks P8,030.58) with the forged indorsements, had a balance of only P128,257.65.
The petitioner then filed a complaint against the respondent with the Court of First Instance of Manila, which was however
dismissed by the trial court after due trial, and as well by the Court of Appeals, on appeal.
Hence, the present recourse.
The issues posed by the petitioner in the instant petition may be briefly stated as follows: chanrob1es virtual 1aw library
(a) Whether the respondent had the right to debit the petitioners 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
petitioners account:(b) Whether the respondent 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 petitioners account, since the
same had already been paid by the drawee-banks and received in due course by the respondent; and(c) On the assumption
that the respondent had improperly debited the petitioners current account, whether the latter is entitled to damages.
These three issues interlock and will be resolved jointly.
In our opinion, the respondent acted within legal bounds when it debited the petitioners account. When the petitioner
deposited the checks with the respondent, 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 respondent had already
collected the proceeds of the checks when it debited the petitioners account, so that following the rule in Gullas v. Philippine
National Bank 2 it might be argued that the relationship between the parties had become that of creditor and debtor as to
preclude the respondent from using the petitioners funds to make payments not authorized by the latter. It is our view
nonetheless that no creditor-debtor relationship was created between the parties.
Section 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." cralaw virtua1aw library
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 respondent, 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 petitioner. In legal
contemplation, therefore, the payments made by the drawee-banks to the respondent on account of the said checks were
ineffective; and, such being the case, the relationship of creditor and debtor between the petitioner and the respondent had
not been validly effected, the checks not having been properly and legitimately converted into cash. 4
In Great Eastern Life Ins. Co. v. 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 payees] endorsement was
genuine before cashing the check." The petitioner must in turn shoulder the loss of the amounts which the respondent; 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 Respondent. The record shows that the respondent 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 respondent cannot he expected to know or ascertain the genuineness of all prior indorsements on the said
checks. Indeed, having itself indorsed them to the respondent in accordance with the rules and practices of commercial
banks, of which the Court takes due cognizance, the petitioner is deemed to have given the warranty prescribed in Section
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 petitioner was, moreover, grossly recreant in accepting the checks in question from Ramirez. It could not have escaped
the attention of the petitioner that the payee of all the checks was a corporation the Inter-Island Gas Service, Inc. Yet, the
petitioner 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. v. 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 petitioner 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 petitioner from liability with respect to
them. The fact that they are bearer checks and at the same time crossed checks should have aroused the petitioners
suspicion as to the title of Ramirez over them and his authority to cash them (apparently to purchase jai-alai tickets from the
petitioner), 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 petitioner ostensibly on the strength of the payees cashiers indorsements.
At all events, under Section 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 Section 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 petitioner indorsed
the said checks when it deposited them with the respondent, the petitioner as an indorser guaranteed the genuineness of all
prior indorsements thereon. The respondent which relied upon the petitioners 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 Section 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 section this warranty "extends in favor of no holder
other than the immediate transferee," which, in the case at bar, would be the Respondent.
The provision in the deposit slip issued by the respondent 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 respondent 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 article 2154 of the New Civil
Code "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 respondent on account of the questioned checks.

ACCORDINGLY, the judgment of the Court of Appeals is affirmed, at petitioners cost.
Makasiar, Esguerra, Muoz Palma and Martin, JJ., concur.
Teehankee, J., is on leave.
68.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-55079 November 19, 1982

METROPOLITAN BANK and TRUST COMPANY, petitioner,
vs.
THE FIRST NATIONAL CITY BANK and THE COURT OF APPEALS, respondents.
Resales, Perez & Assoc. for petitioner.
Siguion, Reyna, Montecillo and Ongsiako for respondent PNCB.
MELENCIO-HERRERA, J.:
This is a Petition for Review on certiorari of the Decision of the Court of Appeals in CA-G.R. No. 57129-R entitled,
First National City Bank vs. Metropolitan Bank and Trust Company, which affirmed in toto the Decision of the Court
of First Instance of Manila, Branch VIII, in Civil Case No. 61488, ordering petitioner herein, Metropolitan Bank, to
reimburse respondent 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 August 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 Metropolitan Bank and
Trust Company (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:
Metropolitan Bank and Trust Company Cleared (illegible) office All prior endorsements and/or Lack
of endorsements Guaranteed. 2
The check was cleared the same day. Private respondent paid petitioner through clearing the amount of
P50,000.00, and Sales was credited with the said amount in his deposit with Metro Bank.
On August 26, 1964, Sales made his first withdrawal of P480.00 from his current account. On August 28, 1964, he
withdrew P32,100.00. Then on August 31, 1964, he withdrew the balance of P17,920.00 and closed his account with
Metro Bank.

On September 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, September 4, 1964.
On September 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 September 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 January 27, 1975, the Trial Court 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.
Petitioner appealed said Decision to the Court of Appeals (CA-G.R. No. 57129-R). On August 29, 1980, respondent
Appellate Court 3 affirmed in toto the judgment of the Trial Court.
Petitioner came to this instance on appeal by Certiorari, alleging:
The Respondent Court of Appeals 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 petitioner and the private
respondent.
II
The Respondent Court of Appeals erred in relying heavily on its decision in Gallaites, et al. vs. RCA,
etc., promulgated on October 23, 1950 for the same is not controlling and is not applicable to the
present case.
III
The Respondent Court of Appeals 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 Respondent Court of Appeals erred in not finding the private respondent 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 (February 17, 1949) as amended by
Circular No. 138 (January 30, 1962), and Circular No. 169 (March 30, 1964). Section 4 of said Circular, as
amended, states:
Section 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 section 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,
Metropolitan Bank and Trust Company 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 respondent Court of Appeals, on its own ruling in Gallaites vs. RCA, CA-G.R. No. 3805, October 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 respondent Court of Appeals of August 29, 1980 is hereby set aside, and
Civil Case No. 61488 is hereby dismissed.
Costs against private respondent The First National City Bank.
SO ORDERED.
Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.
Teehankee ** (Chairman), J., took no part.

69.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-62943 July 14, 1986
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner,

vs.
COURT OF APPEALS (Now INTERMEDIATE APPELLATE COURT) and THE PHILIPPINE NATIONAL
BANK, respondents.
Juan J. Diaz and Cesar T. Basa for respondent PNB.
San Juan, Africa, Gonzales & San Agustin Law Offices for respondent PCIB.
GUTIERREZ, JR., J.:
This petition for review asks us to set aside the October 29, 1982 decision of the respondent Court of Appeals, now
Intermediate Appellate Court which reversed the decision of the Court of First Instance of Manila, Branch XL, and
dismissed the plaintiff's complaint, the third party complaint, as well as the defendant's counterclaim.
The background facts which led to the filing of the instant petition are summarized in the decision of the respondent
Court of Appeals:
Metropolitan Waterworks and Sewerage System (hereinafter referred to as MWSS) is a government

owned and controlled corporation created under Republic Act No. 6234 as the successor-in- interest
of the defunct NWSA. The Philippine National Bank (PNB for short), on the other hand, is the
depository bank of MWSS and its predecessor-in-interest NWSA. Among the several accounts of
NWSA with PNB is NWSA Account No. 6, otherwise known as Account No. 381-777 and which is
presently allocated No. 010-500281. The authorized signature for said Account No. 6 were those of
MWSS treasurer Jose Sanchez, its auditor Pedro Aguilar, and its acting General Manager Victor L.
Recio. Their respective specimen signatures were submitted by the MWSS to and on file with the
PNB. By special arrangement with the PNB, the MWSS used personalized checks in drawing from
this account. These checks were printed for MWSS by its printer, F. Mesina Enterprises, located at
1775 Rizal Extension, Caloocan City.
During the months of March, April and May 1969, twenty-three (23) checks were prepared,
processed, issued and released by NWSA, all of which were paid and cleared by PNB and debited
by PNB against NWSA Account No. 6, to wit:
Check No. Date Payee Amount Date Paid


By PNB
1. 59546 8-21-69 Deogracias P 3,187.79 4-2-69
Estrella
2. 59548 3-31-69 Natividad 2,848.86 4-23 69
Rosario
3. 59547 3-31-69 Pangilinan 195.00 Unreleased
Enterprises
4. 59549 3-31-69 Natividad 3,239.88 4-23-69
Rosario
5. 59552 4-1-69 Villarama 987.59 5-6-69
& Sons
6. 59554 4-1-69 Gascom 6,057.60 4-16 69
Engineering
7. 59558 4-2-69 The Evening 112.00 Unreleased
News
8. 59544 3-27-69 Progressive 18,391.20 4-18 69
Const.
9. 59564 4-2-69 Ind. Insp. 594.06 4-18 69
Int. Inc.
10. 59568 4-7-69 Roberto 800.00 4-22-69
Marsan
11. 59570 4-7-69 Paz Andres 200.00 4-22-69
12. 59574 4-8-69 Florentino 100,000.00 4-11-69
Santos

13. 59578 4-8-69 Mla. Daily 95.00 Unreleased
Bulletin
14. 59580 4-8-69 Phil. Herald 100.00 5-9-69
15. 59582 4-8-69 Galauran 7,729.09 5-6-69
& Pilar
16. 59581 4-8-69 Manila 110.00 5-12 69
Chronicle
17. 59588 4-8-69 Treago 21,583.00 4-11 69
Tunnel
18. 59587 4-8-69 Delfin 120,000.00 4-11-69
Santiago
19. 59589 4-10-69 Deogracias 1,257.49 4-16 69
Estrella
20. 59594 4-14-69 Philam Ac- 33.03 4-29 69
cident Inc.
21. 59577 4-8-69 Esla 9,429.78 4-29 69
22. 59601 4-16-69 Justino 20,000.00 4-18-69
Torres
23. 59595 4-14-69 Neris Phil. 4,274.00 5-20-69
Inc. --------------------
P 320,636.26
During the same months of March, April and May 1969, twenty-three (23) checks bearing the same
numbers as the aforementioned NWSA checks were likewise paid and cleared by PNB and debited
against NWSA Account No. 6, to wit:
Check Date Payee Amount Date Paid
No. Issued By PNB


1. 59546 3-6-69 Raul Dizon P 84,401.00 3-16-69
2. 59548 3-11-69 Raul Dizon 104,790.00 4-1-69
3. 59547 3-14-69 Arturo Sison 56,903.00 4-11-69
4. 59549 3-20-69 Arturo Sison 48,903.00 4-15-69
5. 59552 3-24-69 Arturo Sison 63,845.00 4-16-69
6. 59544 3-26-69 Arturo Sison 98,450.00 4-17-69
7. 59558 3-28-69 Arturo Sison 114,840.00 4-21-69
8. 59544 3-16-69 Antonio 38,490.00 4-22-69 Mendoza
9. 59564 3-31-69 Arturo Sison 180,900.00 4-23-69
10.59568 4-2-69 Arturo Sison 134,940.00 4- 5-69
11.59570 4-1-69 Arturo Sison 64,550.00 4-28-69
12.59574 4-2-69 Arturo Sison 148,610.00 4-29-69
13.59578 4-10-69 Antonio 93,950.00 4-29-69

Mendoza
14.59580 4-8-69 Arturo Sison 160,000.00 5-2-69
15.59582 4-10-69 Arturo Sison 155,400.00 5-5-69
16.59581 4-8-69 Antonio 176,580.00 5-6-69
Mendoza
17.59588 4-16-69 Arturo Sison 176,000.00 5-8-69
18.59587 4-16-69 Arturo Sison 300,000.00 5-12-69
19.59589 4-18-69 Arturo Sison 122,000.00 5-14-69
20.59594 4-18-69 Arturo Sison 280,000.00 5-15-69
21.59577 4-14-69 Antonio 260,000.00 5-16-69
Mendoza
22.59601 4-18-69 Arturo Sison 400,000.00 5-19-69


23.59595 4-28-69 Arturo Sison 190,800.00 5-21-69
---------------
P3,457,903.00
The foregoing checks were deposited by the payees Raul Dizon, Arturo Sison and Antonio Mendoza
in their respective current accounts with the Philippine Commercial and Industrial Bank (PCIB) and
Philippine Bank of Commerce (PBC) in the months of March, April and May 1969. Thru the Central
Bank Clearing, these checks were presented for payment by PBC and PCIB to the defendant PNB,
and paid, also in the months of March, April and May 1969. At the time of their presentation to PNB
these checks bear the standard indorsement which reads 'all prior indorsement and/or lack of
endorsement guaranteed.'
Subsequent investigation however, conducted by the NBI showed that Raul Dizon, Arturo Sison and
Antonio Mendoza were all fictitious persons. The respective balances in their current account with
the PBC and/or PCIB stood as follows: Raul Dizon P3,455.00 as of April 30, 1969; Antonio Mendoza
P18,182.00 as of May 23, 1969; and Arturo Sison Pl,398.92 as of June 30, 1969.
On June 11, 1969, NWSA addressed a letter to PNB requesting the immediate restoration to its
Account No. 6, of the total sum of P3,457,903.00 corresponding to the total amount of these twenty-
three (23) checks claimed by NWSA to be forged and/or spurious checks. "In view of the refusal of
PNB to credit back to Account No. 6 the said total sum of P3,457,903.00 MWSS filed the instant
complaint on November 10, 1972 before the Court of First Instance of Manila and docketed thereat
as Civil Case No. 88950.
In its answer, PNB contended among others, that the checks in question were regular on its face in
all respects, including the genuineness of the signatures of authorized NWSA signing officers and
there was nothing on its face that could have aroused any suspicion as to its genuineness and due
execution and; that NWSA was guilty of negligence which was the proximate cause of the loss.
PNB also filed a third party complaint against the negotiating banks PBC and PCIB on the ground
that they failed to ascertain the Identity of the payees and their title to the checks which were
deposited in the respective new accounts of the payees with them.
xxx xxx xxx
On February 6, 1976, the Court of First Instance of Manila rendered judgment in favor of the MWSS. The dispositive
portion of the decision reads:
WHEREFORE, on the COMPLAINT by a clear preponderance of evidence and in accordance with

Section 23 of the Negotiable Instruments Law, the Court hereby renders judgment in favor of the
plaintiff Metropolitan Waterworks and Sewerage System (MWSS) by ordering the defendant
Philippine National Bank (PNB) to restore the total sum of THREE MILLION FOUR HUNDRED
FIFTY SEVEN THOUSAND NINE HUNDRED THREE PESOS (P3,457,903.00) to plaintiff's Account
No. 6, otherwise known as Account No. 010-50030-3, with legal interest thereon computed from the
date of the filing of the complaint and until as restored in the said Account No. 6.

On the THIRD PARTY COMPLAINT, the Court, for lack of evidence, hereby renders judgment in
favor of the third party defendants Philippine Bank of Commerce (PBC) and Philippine Commercial
and Industrial Bank (PCIB) by dismissing the Third Party Complaint.
The counterclaims of the third party defendants are likewise dismissed for lack of evidence.
No pronouncement as to costs.
As earlier stated, the respondent court reversed the decision of the Court of First Instance of Manila and rendered
judgment in favor of the respondent Philippine National Bank.
A motion for reconsideration filed by the petitioner MWSS was denied by the respondent court in a resolution dated
January 3, 1983.
The petitioner now raises the following assignments of errors for the grant of this petition:
I. IN NOT HOLDING THAT AS THE SIGNATURES ON THE CHECKS WERE FORGED, THE
DRAWEE BANK WAS LIABLE FOR THE LOSS UNDER SECTION 23 OF THE NEGOTIABLE
INSTRUMENTS LAW.
II. IN FAILING TO CONSIDER THE PROXIMATE NEGLIGENCE OF PNB IN ACCEPTING THE

SPURIOUS CHECKS DESPITE THE OBVIOUS IRREGULARITY OF TWO SETS OF CHECKS
BEARING IdENTICAL NUMBER BEING ENCASHED WITHIN DAYS OF EACH OTHER.
III. IN NOT HOLDING THAT THE SIGNATURES OF THE DRAWEE MWSS BEING CLEARLY
FORGED, AND THE CHECKS SPURIOUS, SAME ARE INOPERATIVE AS AGAINST THE
ALLEGED DRAWEE.
The appellate court applied Section 24 of the Negotiable Instruments Law which provides:
Every negotiable instrument is deemed prima facie to have been issued for valuable consideration
and every person whose signature appears thereon to have become a party thereto for value.
The petitioner submits that the above provision does not apply to the facts of the instant case because the
questioned checks were not those of the MWSS and neither were they drawn by its authorized signatories. The
petitioner states that granting that Section 24 of the Negotiable Instruments Law is applicable, the same creates
only a prima facie presumption which was overcome by the following documents, to wit: (1) the NBI Report of
November 2, 1970; (2) the NBI Report of November 21, 1974; (3) the NBI Chemistry Report No. C-74891; (4) the
Memorandum of Mr. Juan Dino, 3rd Assistant Auditor of the respondent drawee bank addressed to the Chief Auditor
of the petitioner; (5) the admission of the respondent bank's counsel in open court that the National Bureau of
Investigation found the signature on the twenty-three (23) checks in question to be forgeries; and (6) the admission
of the respondent bank's witness, Mr. Faustino Mesina, Jr. that the checks in question were not printed by his
printing press. The petitioner contends that since the signatures of the checks were forgeries, the respondent
drawee bank must bear the loss under the rulings of this Court.
A bank is bound to know the signatures of its customers; and if it pays a forged check it must be
considered as making the payment out of its obligation funds, and cannot ordinarily charge the
amount so paid to the account of the depositor whose name was forged.

xxx xxx xxx
The signatures to the checks being forged, under Section 23 of the Negotiable Instruments Law they
are not a charge against plaintiff nor are the checks of any value to the defendant.
It must therefore be held that the proximate cause of loss was due to the negligence of the Bank of
the Philippine Islands in honoring and cashing the two forged checks. (San Carlos Milling Co. v.
Bank of the P. I., 59 Phil. 59)
It is admitted that the Philippine National Bank cashed the check upon a forged signature, and
placed the money to the credit of Maasim, who was the forger. That the Philippine National Bank
then endorsed the chock and forwarded it to the Shanghai Bank by whom it was paid. The Philippine
National Bank had no license or authority to pay the money to Maasim or anyone else upon a forged
signature. It was its legal duty to know that Malicor's endorsement was genuine before cashing the
check. Its remedy is against Maasim to whom it paid the money. (Great Eastern Life Ins. Co. v.
Hongkong & Shanghai Bank, 43 Phil. 678).
We have carefully reviewed the documents cited by the petitioner. There is no express and categorical finding in
these documents that the twenty-three (23) questioned checks were indeed signed by persons other than the
authorized MWSS signatories. On the contrary, the findings of the National Bureau of Investigation in its Report
dated November 2, 1970 show that the MWSS fraud was an "inside job" and that the petitioner's delay in the
reconciliation of bank statements and the laxity and loose records control in the printing of its personalized checks
facilitated the fraud. Likewise, the questioned Documents Report No. 159-1074 dated November 21, 1974 of the
National Bureau of Investigation does not declare or prove that the signatures appearing on the questioned checks
are forgeries. The report merely mentions the alleged differences in the type face, checkwriting, and printing
characteristics appearing in the standard or submitted models and the questioned typewritings. The NBI Chemistry
Report No. C-74-891 merely describes the inks and pens used in writing the alleged forged signatures.
It is clear that these three (3) NBI Reports relied upon by the petitioner are inadequate to sustain its allegations of
forgery. These reports did not touch on the inherent qualities of the signatures which are indispensable in the
determination of the existence of forgery. There must be conclusive findings that there is a variance in the inherent
characteristics of the signatures and that they were written by two or more different persons.
Forgery cannot be presumed (Siasat, et al. v. Intermediate Appellate Court, et al, 139 SCRA 238). It must be
established by clear, positive, and convincing evidence. This was not done in the present case.
The cases of San Carlos Milling Co. Ltd. v. Bank of the Philippine Islands, et al. (59 Phil. 59) and Great Eastern Life
Ins., Co. v. Hongkong and Shanghai Bank (43 Phil. 678) relied upon by the petitioner are inapplicable in this case
because the forgeries in those cases were either clearly established or admitted while in the instant case, the
allegations of forgery were not clearly established during trial.
Considering the absence of sufficient security in the printing of the checks coupled with the very close similarities
between the genuine signatures and the alleged forgeries, the twenty-three (23) checks in question could have been
presented to the petitioner's signatories without their knowing that they were bogus checks. Indeed, the cashier of
the petitioner whose signatures were allegedly forged was unable to ten the difference between the allegedly forged
signature and his own genuine signature. On the other hand, the MWSS officials admitted that these checks could
easily be passed on as genuine.

The memorandum of Mr. A. T. Tolentino, no, Assistant Chief Accountant of the drawee Philippine National Bank to
Mr. E. Villatuya, Executive Vice-President of the petitioner dated June 9, 1969 cites an instance where even the
concerned NWSA officials could not ten the differences between the genuine checks and the alleged forged checks.
At about 12:00 o'clock on June 6, 1969, VP Maramag requested me to see him in his office at the
Cashier's Dept. where Messrs. Jose M. Sanchez, treasurer of NAWASA and Romeo Oliva of the
same office were present. Upon my arrival I observed the NAWASA officials questioning the issue of
the NAWASA checks appearing in their own list, xerox copy attached.
For verification purposes, therefore, the checks were taken from our file. To everybody there present
namely VIP Maramag, the two abovementioned NAWASA officials, AVP, Buhain, Asst. Cashier
Castelo, Asst. Cashier Tejada and Messrs. A. Lopez and L. Lechuga, both C/A bookkeepers, no one
was able to point out any difference on the signatures of the NAWASA officials appearing on the
checks compared to their official signatures on file. In fact 3 checks, one of those under question,
were presented to the NAWASA treasurer for verification but he could not point out which was his
genuine signature. After intent comparison, he pointed on the questioned check as bearing his
correct signature.
xxx xxx xxx
Moreover, the petitioner is barred from setting up the defense of forgery under Section 23 of the Negotiable
Instruments Law which provides that:
SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the 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.
because it was guilty of negligence not only before the questioned checks were negotiated but even after the same
had already been negotiated. (See Republic v. Equitable Banking Corporation, 10 SCRA 8) The records show that
at the time the twenty-three (23) checks were prepared, negotiated, and encashed, the petitioner was using its own
personalized checks, instead of the official PNB Commercial blank checks. In the exercise of this special privilege,
however, the petitioner failed to provide the needed security measures. That there was gross negligence in the
printing of its personalized checks is shown by the following uncontroverted facts, to wit:
(1) The petitioner failed to give its printer, Mesina Enterprises, specific instructions relative to the safekeeping and
disposition of excess forms, check vouchers, and safety papers;
(2) The petitioner failed to retrieve from its printer all spoiled check forms;
(3) The petitioner failed to provide any control regarding the paper used in the printing of said checks;
(4) The petitioner failed to furnish the respondent drawee bank with samples of typewriting, cheek writing, and print
used by its printer in the printing of its checks and of the inks and pens used in signing the same; and
(5) The petitioner failed to send a representative to the printing office during the printing of said checks.

This gross negligence of the petitioner is very evident from the sworn statement dated June 19, 1969 of Faustino
Mesina, Jr., the owner of the printing press which printed the petitioner's personalized checks:
xxx xxx xxx
7. Q: Do you have any business transaction with the National Waterworks and
Sewerage Authority (NAWASA)?
A: Yes, sir. I have a contract with the NAWASA in printing NAWASA Forms such as
NAWASA Check
xxx xxx xxx
15. Q: Were you given any ingtruction by the NAWASA in connection with the printing
of these check vouchers?
A: There is none, sir. No instruction whatsoever was given to me.
16. Q: Were you not advised as to what kind of paper would be used in the check
vouchers?
A: Only as per sample, sir.
xxx xxx xxx
20. Q: Where did you buy this Hammermill Safety check paper?
A: From Tan Chiong, a paper dealer with store located at Juan Luna, Binondo,
Manila. (In front of the Metropolitan Bank).
xxx xxx xxx
24. Q: Were all these check vouchers printed by you submitted to NAWASA?
A: Not all, sir. Because we have to make reservations or allowances for spoilage.
25. Q: Out of these vouchers printed by you, how many were spoiled and how many
were the excess printed check vouchers?
A: Approximately four hundred (400) sheets, sir. I cannot determine the proportion of
the excess and spoiled because the final act of perforating these check vouchers has
not yet been done and spoilage can only be determined after this final act of printing.
26. Q: What did you do with these excess check vouchers?
A: I keep it under lock and key in my firing cabinet.
xxx xxx xxx


28. Q: Were you not instructed by the NAWASA authorities to bum these excess
check vouchers?
A: No, sir. I was not instructed.
29. Q: What do you intend to do with these excess printed check vouchers?
A: I intend to use them for future orders from the
xxx xxx xxx
32. Q: In the process of printing the check vouchers ordered by the NAWASA, how
many sheets were actually spoiled?
A: I cannot approximate, sir. But there are spoilage in the process of printing and
perforating.
33. Q: What did you do with these spoilages?
A: Spoiled printed materials are usually thrown out, in the garbage can.
34. Q: Was there any representative of the NAWASA to supervise the printing or
watch the printing of these check vouchers?
A: None, sir.
xxx xxx xxx
39. Q: During the period of printing after the days work, what measures do you
undertake to safeguard the mold and other paraphernalia used in the printing of
these particular orders of NAWASA?
A: Inasmuch as I have an employee who sleeps in the printing shop and at the same
time do the guarding, we just leave the mold attached to the machine and the other
finished or unfinished work check vouchers are left in the rack so that the work could
be continued the following day.
The National Bureau of Investigation Report dated November 2, 1970 is even more explicit. Thus
xxx xxx xxx
60. We observed also that there is some laxity and loose control in the printing of
NAWASA cheeks. We gathered from MESINA ENTERPRISES, the printing firm that
undertook the printing of the check vouchers of NAWASA that NAWASA had no
representative at the printing press during the process of the printing and no
particular security measure instructions adopted to safeguard the interest of the
government in connection with printing of this accountable form.

Another factor which facilitated the fraudulent encashment of the twenty-three (23) checks in question was the
failure of the petitioner to reconcile the bank statements with its own records.
It is accepted banking procedure for the depository bank to furnish its depositors bank statements and debt and
credit memos through the mail. The records show that the petitioner requested the respondent drawee bank to
discontinue the practice of mailing the bank statements, but instead to deliver the same to a certain Mr. Emiliano
Zaporteza. For reasons known only to Mr. Zaporteza however, he was unreasonably delayed in taking prompt
deliveries of the said bank statements and credit and debit memos. As a consequence, Mr. Zaporteza failed to
reconcile the bank statements with the petitioner's records. If Mr. Zaporteza had not been remiss in his duty of
taking the bank statements and reconciling them with the petitioner's records, the fraudulent encashments of the
first checks should have been discovered, and further frauds prevented. This negligence was, therefore, the
proximate cause of the failure to discover the fraud. Thus,
When a person opens a checking account with a bank, he is given blank checks which he may fill
out and use whenever he wishes. Each time he issues a check, he should also fill out the check stub
to which the check is usually attached. This stub, if properly kept, will contain the number of the
check, the date of its issue, the name of the payee and the amount thereof. The drawer would
therefore have a complete record of the checks he issues. It is the custom of banks to send to its
depositors a monthly statement of the status of their accounts, together with all the cancelled checks
which have been cashed by their respective holders. If the depositor has filled out his check stubs
properly, a comparison between them and the cancelled checks will reveal any forged check not
taken from his checkbook. It is the duty of a depositor to carefully examine the bank's statement, his
cancelled checks, his check stubs and other pertinent records within a reasonable time, and to
report any errors without unreasonable delay. If his negligence should cause the bank to honor a
forged check or prevent it from recovering the amount it may have already paid on such check, he
cannot later complain should the bank refuse to recredit his account with the amount of such check.
(First Nat. Bank of Richmond v. Richmond Electric Co., 106 Va. 347, 56 SE 152, 7 LRA, NS 744
[1907]. See also Leather Manufacturers' Bank v. Morgan, 117 US 96, 6 S. Ct. 657 [1886]; Deer
Island Fish and Oyster Co. v. First Nat. Bank of Biloxi, 166 Miss. 162, 146 So. 116 [1933]). Campos
and Campos, Notes and Selected Cases on Negotiable Instruments Law, 1971, pp. 267-268).
This failure of the petitioner to reconcile the bank statements with its cancelled checks was noted by the National
Bureau of Investigation in its report dated November 2, 1970:
58. One factor which facilitate this fraud was the delay in the reconciliation of bank (PNB) statements
with the NAWASA bank accounts. x x x. Had the NAWASA representative come to the PNB early for
the statements and had the bank been advised promptly of the reported bogus check, the
negotiation of practically all of the remaining checks on May, 1969, totalling P2,224,736.00 could
have been prevented.
The records likewise show that the petitioner failed to provide appropriate security measures over its own records
thereby laying confidential records open to unauthorized persons. The petitioner's own Fact Finding Committee, in
its report submitted to their General manager underscored this laxity of records control. It observed that the "office of
Mr. Ongtengco (Cashier No. VI of the Treasury Department at the NAWASA) is quite open to any person known to
him or his staff members and that the check writer is merely on top of his table."
When confronted with this report at the Anti-Fraud Action Section of the National Bureau of Investigation. Mr.
Ongtengco could only state that:

A. Generally my order is not to allow anybody to enter my office. Only authorized
persons are allowed to enter my office. There are some cases, however, where some
persons enter my office because they are following up their checks. Maybe, these
persons may have been authorized by Mr. Pantig. Most of the people entering my
office are changing checks as allowed by the Resolution of the Board of Directors of
the NAWASA and the Treasurer. The check writer was never placed on my table.
There is a place for the check write which is also under lock and key.
Q. Is Mr. Pantig authorized to allow unauthorized persons to enter your office?
A. No, sir.
Q. Why are you tolerating Mr. Pantig admitting unauthorized persons in your office?
A. I do not want to embarrass Mr. Pantig. Most of the people following up checks are
employees of the NAWASA.
Q. Was the authority given by the Board of Directors and the approval by the
Treasurer for employees, and other persons to encash their checks carry with it their
authority to enter your office?
A. No, sir.
xxx xxx xxx
Q. From the answers that you have given to us we observed that actually there is
laxity and poor control on your part with regards to the preparations of check
payments inasmuch as you allow unauthorized persons to follow up their vouchers
inside your office which may leakout confidential informations or your books of
account. After being apprised of all the shortcomings in your office, as head of the
Cashiers' Office of the Treasury Department what remedial measures do you intend
to undertake?
A. Time and again the Treasurer has been calling our attention not to allow interested
persons to hand carry their voucher checks and we are trying our best and if I can do
it to follow the instructions to the letter, I will do it but unfortunately the persons who
are allowed to enter my office are my co-employees and persons who have
connections with our higher ups and I can not possibly antagonize them. Rest
assured that even though that everybody will get hurt, I win do my best not to allow
unauthorized persons to enter my office.
xxx xxx xxx
Q. Is it not possible inasmuch as your office is in charge of the posting of check

payments in your books that leakage of payments to the banks came from your
office?
A. I am not aware of it but it only takes us a couple of minutes to process the checks.
And there are cases wherein every information about the checks may be obtained

from the Accounting Department, Auditing Department, or the Office of the General
Manager.
Relying on the foregoing statement of Mr. Ongtengco, the National Bureau of Investigation concluded in its Report
dated November 2, 1970 that the fraudulent encashment of the twenty-three (23)cheeks in question was an "inside
job". Thus-
We have all the reasons to believe that this fraudulent act was an inside job or one pulled with inside
connivance at NAWASA. As pointed earlier in this report, the serial numbers of these checks in
question conform with the numbers in current use of NAWASA, aside from the fact that these
fraudulent checks were found to be of the same kind and design as that of NAWASA's own checks.
While knowledge as to such facts may be obtained through the possession of a NAWASA check of
current issue, an outsider without information from the inside can not possibly pinpoint which of
NAWASA's various accounts has sufficient balance to cover all these fraudulent checks. None of
these checks, it should be noted, was dishonored for insufficiency of funds. . .
Even if the twenty-three (23) checks in question are considered forgeries, considering the petitioner's gross
negligence, it is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law.
Nonetheless, the petitioner claims that it was the negligence of the respondent Philippine National Bank that was
the proximate cause of the loss. The petitioner relies on our ruling in Philippine National Bank v. Court of
Appeals (25 SCRA 693) that.
Thus, by not returning the cheek to the PCIB, by thereby indicating that the PNB had found nothing
wrong with the check and would honor the same, and by actually paying its amount to the PCIB, the
PNB induced the latter, not only to believe that the check was genuine and good in every respect,
but, also, to pay its amount to Augusto Lim. In other words, the PNB was the primary or proximate
cause of the loss, and, hence, may not recover from the PCIB.
The argument has no merit. The records show that the respondent drawee bank, had taken the necessary
measures in the detection of forged checks and the prevention of their fraudulent encashment. In fact, long before
the encashment of the twenty-three (23) checks in question, the respondent Bank had issued constant reminders to
all Current Account Bookkeepers informing them of the activities of forgery syndicates. The Memorandum of the
Assistant Vice-President and Chief Accountant of the Philippine National Bank dated February 17, 1966 reads in
part:
SUBJECT: ACTIVITIES OF FORGERY SYNDICATE
From reliable information we have gathered that personalized checks of current account depositors
are now the target of the forgery syndicate. To protect the interest of the bank, you are hereby
enjoined to be more careful in examining said checks especially those coming from the clearing,
mails and window transactions. As a reminder please be guided with the following:
1. Signatures of drawers should be properly scrutinized and compared with those we have on file.
2. The serial numbers of the checks should be compared with the serial numbers registered with the
Cashier's Dept.

3. The texture of the paper used and the printing of the checks should be compared with the sample
we have on file with the Cashier's Dept.
4. Checks bearing several indorsements should be given a special attention.
5. Alteration in amount both in figures and words should be carefully examined even if signed by the
drawer.
6. Checks issued in substantial amounts particularly by depositors who do not usually issue checks
in big amounts should be brought to the attention of the drawer by telephone or any fastest means of
communication for purposes of confirmation.
and your attention is also invited to keep abreast of previous circulars and memo instructions issued
to bookkeepers.
We cannot fault the respondent drawee Bank for not having detected the fraudulent encashment of the checks
because the printing of the petitioner's personalized checks was not done under the supervision and control of the
Bank. There is no evidence on record indicating that because of this private printing the petitioner furnished the
respondent Bank with samples of checks, pens, and inks or took other precautionary measures with the PNB to
safeguard its interests.
Under the circumstances, therefore, the petitioner was in a better position to detect and prevent the fraudulent
encashment of its checks.
WHEREFORE, the petition for review on certiorari is hereby DISMISSED for lack of merit. The decision of the
respondent Court of Appeals dated October 29, 1982 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Cruz, JJ., concur.
Paras * , J., took no part.


70.
R. No. 121413 January 29, 2001
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND

AMERICA),petitioner,
vs.
COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A., respondents.
G.R. No. 121479 January 29, 2001
FORD PHILIPPINES, INC., petitioner-plaintiff,

vs.
COURT OF APPEALS and CITIBANK, N.A. and PHILIPPINE COMMERCIAL INTERNATIONAL
BANK, respondents.
G.R. No. 128604 January 29, 2001
FORD PHILIPPINES, INC., petitioner,

vs.
CITIBANK, N.A., PHILIPPINE COMMERCIAL INTERNATIONAL BANK and COURT OF APPEALS, respondents.
QUISUMBING, J.:
These consolidated petitions involve several fraudulently negotiated checks.
The original actions a quo were instituted by Ford Philippines to recover from the drawee bank, CITIBANK, N.A.
(Citibank) and collecting bank, Philippine Commercial International Bank (PCIBank) [formerly Insular Bank of Asia
and America], the value of several checks payable to the Commissioner of Internal Revenue, which were embezzled
allegedly by an organized syndicate. 1wphi1.nt
G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995 Decision 1 of the Court of Appeals
in CA-G.R. CV No. 25017, entitled "Ford Philippines, Inc. vs. Citibank, N.A. and Insular Bank of Asia and America
(now Philipppine Commercial International Bank), and the August 8, 1995 Resolution, 2 ordering the collecting bank,
Philippine Commercial International Bank, to pay the amount of Citibank Check No. SN-04867.
In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996 Decision 3 of the Court of Appeals and
its March 5, 1997 Resolution4 in CA-G.R. No. 28430 entitled "Ford Philippines, Inc. vs. Citibank, N.A. and Philippine
Commercial International Bank," affirming in toto the judgment of the trial court 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 Court of Appeals are as follows:
"On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check No. SN-04867 in the amount of
P4,746,114.41, in favor of the Commissioner of Internal Revenue as payment of plaintiff;s percentage or
manufacturer's sales taxes for the third quarter of 1977.

The aforesaid check was deposited with the degendant IBAA (now PCIBank) and was subsequently cleared
at the Central Bank. Upon presentment with the defendant Citibank, the proceeds of the check was paid to
IBAA as collecting or depository bank.
The proceeds of the same Citibank check of the plaintiff was never paid to or received by the payee thereof,
the Commissioner of Internal Revenue.
As a consequence, upon demand of the Bureau and/or Commissioner of Internal Revenue, the plaintiff was
compelled to make a second payment to the Bureau of Internal Revenue of its percentage/manufacturers'
sales taxes for the third quarter of 1977 and that said second payment of plaintiff in the amount of
P4,746,114.41 was duly received by the Bureau of Internal Revenue.
It is further admitted by defendant Citibank that during the time of the transactions in question, plaintiff had
been maintaining a checking account with defendant Citibank; that Citibank Check No. SN-04867 which was
drawn and issued by the plaintiff in favor of the Commissioner of Internal 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 October 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 December 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, December 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 October 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 February 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 January 20, 1983 its original complaint before this
Court.
On December 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 December 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 trial court 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 trial court 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 January 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 January 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 Court of Appeals, 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 G.R. No. 121413, PCIBank seeks the reversal of the decision and resolution of the Twelfth Division of the Court of
Appeals 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 respondent court err when, after finding that the petitioner acted on the check drawn by
respondent Ford on the said respondent's instructions, it nevertheless found the petitioner liable to the said
respondent for the full amount of the said check.
II. Did the respondent court err when it did not find prescription in favor of the petitioner.8
In a counter move, Ford filed its petition docketed as G.R. No. 121479, questioning the same decision and
resolution of the Court of Appeals, and praying for the reinstatement in toto of the decision of the trial court which
found both PCIBank and Citibank jointly and severally liable for the loss.
In G.R. No. 121479, appellant Ford presents the following propositions for consideration:
I. Respondent Citibank is liable to petitioner Ford considering that:
1. As drawee bank, respondent Citibank owes to petitioner Ford, as the drawer of the subject check
and a depositor of respondent 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. Respondent 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. Respondent 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 trial court, there is no evidence of gross negligence on the part of
petitioner Ford.9
II. PCI Bank is liable to petitioner Ford considering that:
1. There were no instructions from petitioner 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. Petitioner Ford's cause of action had not prescribed.13
II. G.R. No. 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 Court of Appeals 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 February 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 Regional Trial Court 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 December 9, 1988, Regional Trial Court 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 P300,000.00 attorney's fees and expenses litigation, and to pay the
defendant, PCIB (on its counterclaim to crossclaim) the sum of P300,000.00 as attorney's fees and costs of
litigation, and pay the costs.
SO ORDERED."15
Both Ford and Citibank appealed to the Court of Appeals which affirmed, in toto, the decision of the trial court.
Hence, this petition.
Petitioner Ford prays that judgment be rendered setting aside the portion of the Court of Appeals 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 Court of Appeals 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 Section 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 Article 2154 of the Civil Code, 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 petitioner 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 Section 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 trial court showing lack of diligence on the part of Ford. And, citing the case of Gempesaw vs.

Court of Appeals,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 whether or not 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 trial courts
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 trial court, 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 petitioner'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 whether or not 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.
G.R. No. 128604
The trial court and the Court of Appeals 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 trial court 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, Section 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 Section 62 32 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 Court of Appeals, 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 respondent 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 December 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 December 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 January 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 Article 1172 of the Civil Code 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 Court of Appeals 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 Court of Appeals in CA-G.R. No. 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. 1wphi1.nt
Costs against Philippine Commercial International Bank and Citibank N.A.
SO ORDERED.
Bellosillo, Mendoza, Buena, De Leon, Jr., JJ, concur.
.

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Nego Cases (page 2 of syllabus)

Cordillera Legis Integrated Batch 2019- uhaaa

32. Republic of the Philippines

G.R. No. L-29900 June 28, 1974

Florentino B. del Rosario for petitioner-appellant.

Manuel V. San Jose for oppositor-appellee.

Cordillera Legis Integrated Batch 2019- uhaaa

Zaldivar (Chairman), Barredo, Antonio, Fernandez and Aquino, JJ., concur.

Cordillera Legis Integrated Batch 2019- uhaaa

G.R. No. 170325 September 26, 2008

PHILIPPINE NATIONAL BANK, Petitioner,

REYES, R.T., J.:

The facts as borne by the records are as follows:

Cordillera Legis Integrated Batch 2019- uhaaa

Cordillera Legis Integrated Batch 2019- uhaaa

(b) Moral damages in the amount of P1,000,000.00;

(c) Exemplary damages in the amount of P500,000.00;

(e) Costs of suit.

3. Other claims and counterclaims are hereby dismissed.6

Cordillera Legis Integrated Batch 2019- uhaaa

2. Moral damages in the amount of P200,000;

3. Attorneys fees in the amount of P100,000; and

Hence, the present recourse under Rule 45.

Now to the core of the petition.

Cordillera Legis Integrated Batch 2019- uhaaa

(a) A payee who is not maker, drawer, or drawee; or

(b) The drawer or maker; or

(c) The drawee; or

(d) Two or more payees jointly; or

(e) One or some of several payees; or

(f) The holder of an office for the time being.

SEC. 9. When payable to bearer. The instrument is payable to bearer

(a) When it is expressed to be so payable; or

(b) When it is payable to a person named therein or bearer; or

Cordillera Legis Integrated Batch 2019- uhaaa

Cordillera Legis Integrated Batch 2019- uhaaa

Cordillera Legis Integrated Batch 2019- uhaaa

One Last Note

Cordillera Legis Integrated Batch 2019- uhaaa

PEOPLE OF THE PHILIPPINES, PLAINTIFF-APPELLEE,

Cordillera Legis Integrated Batch 2019- uhaaa

Decision of the RTC

Cordillera Legis Integrated Batch 2019- uhaaa

To indemnify the complainant, Albert[o] Ligaray in the sum of P200,000.00;

Wagas appealed directly to this Court by notice of appeal. 17

Cordillera Legis Integrated Batch 2019- uhaaa

The appeal is meritorious.

Cordillera Legis Integrated Batch 2019- uhaaa

Yes, sir. He purchased two hundred bags of rice from me.

How did this purchase of rice transaction started? (sic)

I made a demand on them.

How did you make a demand?

I called him over the phone.

Who is that "him" that you are referring to?

Cordillera Legis Integrated Batch 2019- uhaaa

Cordillera Legis Integrated Batch 2019- uhaaa

If he is present inside the courtroom []

No, sir. He is not around.