Republic of the Philippines SUPREME COURT Manila FIRST DIVISION 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 ThirdParty Defendants. Costs against private respondent. SO ORDERED.

and in kind, and thereafter issued six (6) postdated checks amounting to P115,000.00 which were all dishonored by the drawee banks. Travel-On further alleged that in March 1972, private respondent made another payment of P10,000.00 reducing his indebtedness to P105,000.00. The writ of attachment was granted by the court a quo. In his answer, private respondent admitted having had transactions with Travel-On during the period stipulated in the complaint. Private respondent, however, claimed that he had already fully paid and even overpaid his obligations and that refunds were in fact due to him. He argued that he had issued the postdated checks for purposes of accommodation, as he had in the past accorded similar favors to petitioner. During the proceedings, private respondent contested several tickets alleged to have been erroneously debited to his account. He claimed reimbursement of his alleged over payments, plus litigation expenses, and exemplary and moral damages by reason of the allegedly improper attachment of his properties. In support of his theory that the checks were issued for accommodation, private respondent testified that he bad issued the checks in the name of Travel-On in order that its General Manager, Elita Montilla, could show to Travel-On's Board of Directors that the accounts receivable of the company were still good. He further stated that Elita Montilla tried to encash the same, but that these were dishonored and were subsequently returned to him after the accommodation purpose had been attained. Travel-On's witness, Elita Montilla, on the other hand explained that the "accommodation" extended to Travel-On by private respondent related to situations where one or more of its passengers needed money in Hongkong, and upon request of Travel-On respondent would contact his friends in Hongkong to advance Hongkong money to the passenger. The passenger then paid Travel-On upon his return to Manila and which payment would be credited by Travel-On to respondent's running account with it. In its decision dated 31 January 1975, the court a quo ordered Travel-On to pay private respondent the amount of P8,894.91 representing net overpayments by private respondent, moral damages of P10,000.00 for the wrongful issuance of the writ of attachment and for the filing of this case, P5,000.00 for attorney's fees and the costs of the suit. The trial court ruled that private respondent's indebtedness to petitioner was not satisfactorily established and that the postdated checks were issued not for the purpose of encashment to pay his indebtedness but to accommodate the General Manager of TravelOn to enable her to show to the Board of Directors that Travel-On was financially stable. Petitioner filed a motion for reconsideration that was, however, denied by the trial court, which in fact then increased the award of moral damages to P50,000.00.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. L-56169 June 26, 1992 TRAVEL-ON, INC., petitioner, vs. COURT OF APPEALS and ARTURO S. MIRANDA, respondents. RESOLUTION

FELICIANO, J.: Petitioner Travel-On. Inc. ("Travel-On") is a travel agency selling airline tickets on commission basis for and in behalf of different airline companies. Private respondent Arturo S. Miranda had a revolving credit line with petitioner. He procured tickets from petitioner on behalf of airline passengers and derived commissions therefrom. On 14 June 1972, Travel-On filed suit before the Court of First Instance ("CFI") of Manila to collect on six (6) checks issued by private respondent with a total face amount of P115,000.00. The complaint, with a prayer for the issuance of a writ of preliminary attachment and attorney's fees, averred that from 5 August 1969 to 16 January 1970, petitioner sold and delivered various airline tickets to respondent at a total price of P278,201.57; that to settle said account, private respondent paid various amounts in cash

On appeal, the Court of Appeals affirmed the decision of the trial court, but reduced the award of moral damages to P20,000.00, with interest at the legal rate from the date of the filing of the Answer on 28 August 1972. Petitioner moved for reconsideration of the Court of Appeal's' decision, without success. In the instant Petition for Review, it is urged that the postdated checks are per se evidence of liability on the part of private respondent. Petitioner further argues that even assuming that the checks were for accommodation, private respondent is still liable thereunder considering that petitioner is a holder for value. Both the trial and appellate courts had rejected the checks as evidence of indebtedness on the ground that the various statements of account prepared by petitioner did not show that Private respondent had an outstanding balance of P115,000.00 which is the total amount of the checks he issued. It was pointed out that while the various exhibits of petitioner showed various accountabilities of private respondent, they did not satisfactorily establish the amount of the outstanding indebtedness of private respondent. The appellate court made much of the fact that the figures representing private respondent's unpaid accounts found in the "Schedule of Outstanding Account" dated 31 January 1970 did not tally with the figures found in the statement which showed private respondent's transactions with petitioner for the years 1969 and 1970; that there was no satisfactory explanation as to why the total outstanding amount of P278,432.74 was still used as basis in the accounting of 7 April 1972 considering that according to the table of transactions for the year 1969 and 1970, the total unpaid account of private respondent amounted to P239,794.57. We have, however, examined the record and it shows that the 7 April 1972 Statement of Account had simply not been updated; that if we use as basis the figure as of 31 January 1970 which is P278,432.74 and from it deduct P38,638.17 which represents some of the payments subsequently made by private respondent, the figure P239,794.57 will be obtained. Also, the fact alone that the various statements of account had variances in figures, simply did not mean that private respondent had no more financial obligations to petitioner. It must be stressed that private respondent's account with petitioner was a running or open one, which explains the varying figures in each of the statements rendered as of a given date. The appellate court erred in considering only the statements of account in determining whether private respondent was indebted to petitioner under the checks. By doing so, it failed to give due importance to the most telling piece of evidence of private respondent's indebtedness the checks themselves which he had issued.

Contrary to the view held by the Court of Appeals, this Court finds that the checks are the all important evidence of petitioner's case; that these checks clearly established private respondent's indebtedness to petitioner; that private respondent was liable thereunder. It is important to stress that a check which is regular on its face is deemed prima facie to have been issued for a valuable consideration and every person whose signature appears thereon is deemed to have become a party thereto for value. 1 Thus, the mere introduction of the instrument sued on in evidence prima facie entitles the plaintiff to recovery. Further, the rule is quite settled that a negotiable instrument is presumed to have been given or indorsed for a sufficient consideration unless otherwise contradicted and overcome by other competent evidence. 2 In the case at bar, the Court of Appeals, contrary to these established rules, placed the burden of proving the existence of valuable consideration upon petitioner. This cannot be countenanced; it was up to private respondent to show that he had indeed issued the checks without sufficient consideration. The Court considers that Private respondent was unable to rebut satisfactorily this legal presumption. It must also be noted that those checks were issued immediately after a letter demanding payment had been sent to private respondent by petitioner Travel-On. The fact that all the checks issued by private respondent to petitioner were presented for payment by the latter would lead to no other conclusion than that these checks were intended for encashment. There is nothing in the checks themselves (or in any other document for that matter) that states otherwise. We are unable to accept the Court of Appeals' conclusion that the checks here involved were issued for "accommodation" and that accordingly private respondent maker of those checks was not liable thereon to petitioner payee of those checks. In the first place, while the Negotiable Instruments Law does refer to accommodation transactions, no such transaction was here shown. Section 29 of the Negotiable Instruments Law provides as follows: Sec. 29. Liability of accommodation party. An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party. In accommodation transactions recognized by the Negotiable Instruments Law, an accommodating party lends his credit to the accommodated party, by issuing

or indorsing a check which is held by a payee or indorsee as a holder in due course, who gave full value therefor to the accommodated party. The latter, in other words, receives or realizes full value which the accommodated party then must repay to the accommodating party, unless of course the accommodating party intended to make a donation to the accommodated party. But the accommodating party is bound on the check to the holder in due course who is necessarily a third party and is not the accommodated party. Having issued or indorsed the check, the accommodating party has warranted to the holder in due course that he will pay the same according to its tenor. 3 In the case at bar, Travel-On was payee of all six (6) checks, it presented these checks for payment at the drawee bank but the checks bounced. Travel-On obviously was not an accommodated party; it realized no value on the checks which bounced. Travel-On was entitled to the benefit of the statutory presumption that it was a holder in due course, 4 that the checks were supported by valuable consideration. 5 Private respondent maker of the checks did not successfully rebut these presumptions. The only evidence aliunde that private respondent offered was his own self-serving uncorroborated testimony. He claimed that he had issued the checks to Travel-On as payee to "accommodate" its General Manager who allegedly wished to show those checks to the Board of Directors of Travel-On to "prove" that Travel-On's account receivables were somehow "still good." It will be seen that this claim was in fact a claim that the checks were merely simulated, that private respondent did not intend to bind himself thereon. Only evidence of the clearest and most convincing kind will suffice for that purpose; 6 no such evidence was submitted by private respondent. The latter's explanation was denied by Travel-On's General Manager; that explanation, in any case, appears merely contrived and quite hollow to us. Upon the other hand, the "accommodation" or assistance extended to Travel-On's passengers abroad as testified by petitioner's General Manager involved, not the accommodation transactions recognized by the NIL, but rather the circumvention of then existing foreign exchange regulations by passengers booked by Travel-On, which incidentally involved receipt of full consideration by private respondent. Thus, we believe and so hold that private respondent must be held liable on the six (6) checks here involved. Those checks in themselves constituted evidence of indebtedness of private respondent, evidence not successfully overturned or rebutted by private respondent. Since the checks constitute the best evidence of private respondent's liability to petitioner Travel-On, the amount of such liability is the face amount of the checks, reduced only by the P10,000.00 which Travel-On admitted in its complaint to have been paid by private respondent sometime in March 1992.

The award of moral damages to Private respondent must be set aside, for the reason that Petitioner's application for the writ of attachment rested on sufficient basis and no bad faith was shown on the part of Travel-On. If anyone was in bad faith, it was private respondent who issued bad checks and then pretended to have "accommodated" petitioner's General Manager by assisting her in a supposed scheme to deceive petitioner's Board of Directors and to misrepresent Travel-On's financial condition. ACCORDINGLY, the Court Resolved to GRANT due course to the Petition for Review on Certiorari and to REVERSE and SET ASIDE the Decision dated 22 October 1980 and the Resolution of 23 January 1981 of the Court of Appeals, as well as the Decision dated 31 January 1975 of the trial court, and to enter a new decision requiring private respondent Arturo S. Miranda to pay to petitioner Travel-On the amount of P105,000.00 with legal interest thereon from 14 June 1972, plus ten percent (10%) of the total amount due as attorney's fees. Costs against Private respondent.

This suit to collect eleven checks totalling P4,290.00 is here for decision because it involves no issue of fact. Such checks payable to "cash or bearer" and drawn by defendant Tan Kim (the other defendant is her husband) upon the Equitable Banking Corporation, were all presented for payment by Chan Wan to the drawee bank, but they "were all dishonored and returned to him unpaid due to insufficient funds and/or causes attributable to the drawer." At the hearing of the case, in the Manila court of first instance, the plaintiff did not take the witness stand. His attorney, however, testified only to identify the checks which are Exhibits A to K plus the letters of demand upon defendants. On the other hand, Tan Kim declared without contradiction that the checks had been issued to two persons named Pinong and Muy for some shoes the former had promised to make and "were intended as mere receipts". In view of such circumstances, the court declined to order payment for two principal reasons: (a) plaintiff failed to prove he was a holder in due course, and (b) the checks being crossed checks should not have been deposited instead with the bank mentioned in the crossing. It may be stated in this connection, that defendants asserted a counterclaim, the court dismissed it for failure of proof, and from such dismissal they did not appeal. The only issue is, therefore, the plaintiff's right to collect on the eleven commercial documents. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-15380 September 30, 1960 The Negotiable Instruments Law regulating the issuance of negotiable checks, the rights and the liabilities arising therefrom, does not mention "crossed checks". Art. 541 of the Code of Commerce refers to such instruments. 1 The bills of Exchange Act of England of 1882, contains several provisions about them, some of which are quoted in the margin. 2 In the Philippine National Bank vs. Zulueta, 101 Phil., 1071; 55 Off. Gaz., 222, we applied some provisions of said Bills of Exchange Act because the Negotiable Law, originating from England and codified in the United States, permits resort thereto in matters not covered by it and local legislation.3 Eight of the checks here in question bear across their face two parallel transverse lines between which these words are written: non-negotiable China Banking Corporation. These checks have, therefore, been crossed specially to the China Banking Corporation, and should have been presented for payment by China Banking, and not by Chan Wan.4 Inasmuch as Chan Wan did present them for payment himself the Manila court said there was no proper presentment, and the liability did not attach to the drawer.

CHAN WAN, plaintiff-appellant, vs. TAN KIM and CHEN SO, defendants-appellees. Manuel Domingo for appellant. C.M. de los Reyes for appellees. BENGZON, J.:

We agree to the legal premises and conclusion. It must be remembered, at this point, that the drawer in drawing the check engaged that "on due presentment, the check would be paid, and that if it be dishonored . . . he will pay the amount thereof to the holder".5 Wherefore, in the absence of due presentment, the drawer did not become liable. Nevertheless we find, on the backs of the checks, endorsements which apparently show they had been deposited with the China Banking Corporation and were, by the latter, presented to the drawee bank for collection. For instance, on the back of the check Exhibit A (same as in Exh. B), this endorsement appears: For deposit to the account of White House Shoe Supply with the China Banking Corporation. and then this: Cleared through the clearing office of Central Bank of the Philippines. All prior endorsements and/or lack of endorsements guaranteed. China Banking Corporation. And on the back of Exh. G: For deposit to the credit of our account. Viuda e Hijos de Chua Chiong Pio. People's Shoe Company. followed by the endorsement of China Banking Corporation as in Exhibits A and B. All the crossed checks have the "clearance" endorsement of China Banking Corporation. These circumstances would seem to show deposit of the checks with China Banking Corporation and subsequent presentation by the latter through the clearing office; but as drawee had no funds, they were unpaid and returned, some of them stamped "account closed". How they reached his hands, plaintiff did not indicate. Most probably, as the trial court surmised, this is not a finding of fact he got them after they had been thusreturned, because he presented them in court with such "account closed" stamps, without bothering to explain. Naturally and rightly, the lower court held him not to be a holder in due course under the circumstances, since he knew, upon taking them up, that the checks had already been dishonored.6 Yet it does not follow as a legal proposition, that simply because he was not a holder in due course Chan Wan could not recover on the checks. The Negotiable Instruments Law does not provide that a holder7 who is not a holder in due course, may not in any case, recover on the instrument. If B purchases an overdue negotiable promissory note signed by A, he is not a holder in due course; but he may recover from A,8 if the latter has no valid

excuse for refusing payment. The only disadvantage of holder who is not a holder in due course is that the negotiable instrument is subject to defense as if it were non- negotiable.9 Now what defense did the defendant Tan Kim prove? The lower court's decision does not mention any; evidently His Honor had in mind the defense pleaded in defendant's answer, but though it unnecessary to specify, because the "crossing" and presentation incidents sufficed to bar recovery, in his opinion.1awphl.nt Tan Kim admitted on cross-examination either that the checks had been issued as evidence of debts to Pinong and Muy, and/or that they had been issued in payment of shoes which Pinong had promised to make for her. Seeming to imply that Pinong had to make the shoes, she asserted Pinong had "promised to pay the checks for me". Yet she did not complete the idea, perhaps because she was just answering cross- questions, her main testimony having referred merely to their counter-claim. Needless to say, if it were true that the checks had been issued in payment for shoes that were never made and delivered, Tan Kim would have a good defense as against a holder who is not a holder in due course. 10 Considering the deficiency of important details on which a fair adjudication of the parties' right depends, we think the record should be and is hereby returned, in the interest of justice, to the court below for additional evidence, and such further proceedings as are not inconsistent with this opinion. With the understanding that, as defendants did not appeal, their counterclaim must be and is hereby definitely dismissed. So ordered.

That on or about the 20th day of August 1992, in the Municipality of Candelaria, Province of Quezon, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused did then and there willfully, unlawfully and feloniously issue and make out Check No. 054936 dated August 29, 1992, in the amount of FIFTY-FIVE THOUSAND PESOS (P55,000.00) Philippine Currency, drawn against the PSBank, Candelaria Branch, Candelaria, Quezon, payable to Cash and give the said check to one Dolores Evangelista in exchange for cash although the said accused knew fully well at the time of issuance of said check that he did not have sufficient funds in or credit with the drawee bank for payment of said check in full upon presentment; that upon presentation of said check to the bank for payment, the same was dishonored and refused payment for the reason that the drawer thereof, the herein accused, had no sufficient fund therein, and that despite due notice, said accused failed to deposit the necessary amount to cover said check or to pay in full the amount of said check, to the damage and prejudice of said Dolores Evangelista in the aforesaid amount. Contrary to law.[3] The Case for the Prosecution At about noon on August 20, 1992, Alicia Rubia arrived at the grocery store of Dolores Evangelista in Candelaria, Quezon, and asked the latter to rediscount Philippine Savings Bank (PSBank) Check No. 054936 in the amount of P55,000.00. The check was drawn by Leodegario Bayani against his account with the PSBank and postdated August 29, 1992.[4] Rubia told Evangelista that Bayani asked her to rediscount the check for him because he needed the money.[5] Considering that Rubia and Bayani were long-time customers at the store and she knew Bayani to be a good man, Evangelista agreed to rediscount the check.[6] After Rubia endorsed the check, Evangelista gave her the amount of P55,000.00.[7] However, when Evangelista deposited the check in her account with the Far East Bank & Trust Company on September 11, 1992, it was dishonored by the drawee bank for the reason that on September 1, 1992, Bayani closed his account with the PSBank. [8] The reason for the dishonor of the check was stamped at its dorsal portion. As of August 27, 1992, the balance of Bayanis account with the bank was P2,414.96.[9] Evangelista then informed Rubia of the dishonor of the check and demanded the return of her P55,000.00. Rubia replied that she was only requested by Bayani to have the check rediscounted and advised Evangelista to see him. When Evangelista talked to Bayani, she was told that Rubia borrowed the check from him.[10] Thereafter, Evangelista, Rubia, Bayani and his wife, Aniceta, had a conference in the office of Atty. Emmanuel Velasco, Evangelistas lawyer. Later, in the Office of the Barangay Captain Nestor Baera, Evangelista showed Bayani a photocopy of the dishonored check and demanded payment thereof. Bayani and Aniceta, on one hand, and Rubia, on the other, pointed to each other and denied liability thereon. Aniceta told Rubia that she should be the one to pay since the P55,000.00 was with her, but the latter insisted that the said

SECOND DIVISION [G.R. No. 154947. August 11, 2004] LEODEGARIO BAYANI, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent. DECISION CALLEJO, SR., J.: This is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-G.R. CR No. 22861 affirming on appeal the Decision [2] of the Regional Trial Court of Lucena City, Branch 59, in Criminal Case No. 93-135 convicting the accused therein, now the petitioner, for violation of Batas Pambansa (B.P.) Blg. 22. On February 9, 1993, Leodegario Bayani was charged with violation of B.P. Blg. 22 in an Information which reads:

amount was in payment of the pieces of jewelry Aniceta purchased from her. [11] Upon Atty. Velascos prodding, Evangelista suggested Bayani and Rubio to pay P25,000.00 each. Still, Bayani and Rubio pointed to the other as the one solely liable for the amount of the check. [12] Rubia reminded Aniceta that she was given the check as payment of the pieces of jewelry Aniceta bought from her. The Case for the Petitioner Bayani testified that he was the proprietor of a funeral parlor in Candelaria, Quezon. He maintained an account with the PSBank in Candelaria, Quezon, and was issued a checkbook which was kept by his wife, Aniceta Bayani. Sometime in 1992, he changed his residence. In the process, his wife lost four (4) blank checks, one of which was Check No. 054936[13] which formed part of the checks in the checkbook issued to him by the PSBank.[14] He did not report the loss to the police authorities. He reported such loss to the bank after Evangelista demanded the refund of the P55,000.00 from his wife.[15] He then closed his account with the bank on September 11, 1992, but was informed that he had closed his account much earlier. He denied ever receiving the amount ofP55,000.00 from Rubia.[16] Bayani further testified that his wife discovered the loss of the checks when he brought his wife to the office of Atty. Emmanuel Velasco.[17] He did not see Evangelista in the office of the lawyer, and was only later informed by his wife that she had a conference with Evangelista. His wife narrated that according to Evangelista, Rubia had rediscounted a check he issued, which turned out to be the check she (Aniceta) had lost. He was also told that Evangelista had demanded the refund of the amount of the check.[18] He later tried to contact Rubia but failed. He finally testified that he could not recall having affixed his signature on the check.[19] Aniceta Bayani corroborated the testimony of her husband. She testified that she was invited to go to the office of Atty. Velasco where she, Rubia and Evangelista had a conference. It was only then that she met Evangelista. Rubia admitted that she rediscounted the complainants check with Evangelista. When Evangelista asked her to pay the amount of the check, she asked that the check be shown to her, but Evangelista refused to do so. She further testified that her husband was not with her and was in their office at the time. At the conclusion of the trial, the court rendered judgment finding Bayani guilty beyond reasonable doubt of violation of Section 1 of B.P. Blg. 22. The decretal portion of the decision reads: WHEREFORE, premises considered, the Court finds the accused Leodegario Bayani guilty beyond reasonable doubt of violation of Section 1, Batas Pambansa Bilang 22 and hereby sentences him to suffer an imprisonment of ONE (1) YEAR, or to pay a fine of ONE HUNDRED TEN THOUSAND PESOS (P110,000.00), to pay to complaining witness Dolores Evangelista the sum of FIFTY-FIVE THOUSAND PESOS (P55,000.00), the value of the check and to pay the costs.

SO ORDERED.[20] On appeal, the petitioner averred that the prosecution failed to adduce evidence that he affixed his signature on the check, or received from Rubia the amount of P55,000.00, thus negating his guilt of the crime charged. The petitioner asserts that even Teresita Macabulag, the bank manager of PSB who authenticated his specimen signatures on the signature card he submitted upon opening his account with the bank, failed to testify that the signature on the check was his genuine signature. On January 30, 2002, the Court of Appeals rendered judgment[21] affirming the decision of the RTC with modification as to the penalty imposed on the petitioner. The petitioner asserts in the petition at bar that THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING WITH MODIFICATION THE CONVICTION OF PETITIONER BY THE TRIAL COURT FOR ALLEGED VIOLATION OF BATAS PAMBANSA BLG. 22 NOTWITHSTANDING THAT THE PROSECUTION MISERABLY FAILED TO PROVE THAT THE CHECK WAS ISSUED FOR A VALUABLE CONSIDERATION.[22] The petitioner contends that the prosecution failed to prove all the essential elements of the crime of violation of Section 1, B.P. Blg. 22. He asserts that the prosecution failed to prove that he issued the check. He avers that even assuming that he issued the check, the prosecution failed to prove that it was issued for valuable consideration, and that he received the amount of P55,000.00 from Rubia. Hence, in light of the ruling of this Court in Magno vs. Court of Appeals,[23] he is entitled to an acquittal on such grounds. The petitioner further contends that Evangelistas testimony, that Rubia told her that it was the petitioner who asked her to have the check rediscounted, is hearsay and, as such, even if he did not object thereto is inadmissible in evidence against him. He avers that the prosecution failed to present Rubia as a witness, depriving him of his right to cross-examine her. He contends that any declaration made by Rubia to Evangelista is inadmissible in evidence against him. The petition is denied. We agree with the submission of the petitioner that Evangelistas testimony, that Rubia told her that the petitioner requested that the subject check be rediscounted, is hearsay. Evangelista had no personal knowledge of such request of the petitioner to Rubia. Neither is the information relayed by Rubia to Evangelista as to the petitioners request admissible in evidence against the latter, because the prosecution failed to present Rubia as a witness, thus, depriving the petitioner of his right of cross-examination. However, the evidence belies the petitioners assertion that the prosecution failed to adduce evidence that he issued the subject check. Evangelista testified that when she talked to the petitioner upon Rubias suggestion, the petitioner admitted that he gave the check to Rubia, but claimed that the latter borrowed the check from him.

Q When this check in question was returned to you because of the closed account, what did you do, if you did anything? A A A A A I talked to Alicia Rubia, Sir. Alicia Rubia told me that she was just requested by Leodegario Bayani, Sir. She advised me to go to Leodegario Bayani, Sir. Yes, Sir. He told me that Alicia Rubia borrowed the check from him, Sir.[24] Q And what did Alicia Rubia tell you in connection with the check in question? Q And what else did she tell you? Q Did you go to Leodegario Bayani as per instruction of Alicia Rubia? Q And what did Leodegario Bayani tell you in connection with this check? Evangelista testified that she showed to the petitioner and his wife, Aniceta, a photocopy of the subject check in the office of Atty. Velasco, where they admitted to her that they owned the check: ATTY. ALZAGA (TO WITNESS) Q When you shown (sic) the check to Leodegario Bayani and his wife in the law office of Atty. Velasco, what did they tell you? ATTY. VELASCO: Misleading. The question is misleading because according to the question, Your Honor, he had shown the check but that was not the testimony. The testimony was the xerox copy of the check was the one shown. ATTY. ALZAGA The xerox copy of the check. COURT As modified, answer the question. WITNESS A They told me they owned the check but they were pointing to each other as to who will pay the amount, Sir.[25]

The evidence on record shows that Evangelista rediscounted the check and gave P55,000.00 to Rubia after the latter endorsed the same. As such, Evangelista is a holder of the check in due course.[28] Under Section 28 of the Negotiable Instruments Law (NIL), absence or failure of consideration is a matter of defense only as against any person not a holder in due course, thus: SECTION 28. Effect of want of consideration. Absence or failure of consideration is a matter of defense as against any person not a holder in due course; and partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise. Moreover, Section 24 of the NIL provides the presumption of consideration, viz: 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 thereto for value. Such presumption cannot be overcome by the petitioners bare denial of receipt of the amount of P55,000.00 from Rubia. The petitioner cannot, likewise, seek refuge in the ruling of this Court in Magno vs. Court of Appeals[29] because the facts and issues raised therein are substantially different from those extant in this case. Indeed, the Court ruled in the said case that: It is intriguing to realize that Mrs. Teng did not want the petitioner to know that it was she who accommodated petitioners request for Joey Gomez, to source out the needed funds for the warranty deposit. Thus, it unfolds the kind of transaction that is shrouded with mystery, gimmickry and doubtful legality. It is in simple language, a scheme whereby Mrs. Teng as the supplier of the equipment in the name of her corporation, Mancor, would be able to sell or lease its goods as in this case, and at the same time, privately financing those who desperately need petty accommodations as this one. This modus operandi has in so many instances victimized unsuspecting businessmen, who likewise need protection from the law, by availing of the deceptively called warranty deposit not realizing that they also fall prey to leasing equipment under the guise of lease-purchase agreement when it is a scheme designed to skim off business clients.[30] Equally futile is the petitioners contention that the prosecution failed to prove the crime charged. For the accused to be guilty of violation of Section 1 of B.P. Blg. 22, the prosecution is mandated to prove the essential elements thereof, to wit: 1. That a person makes or draws and issues any check. 2. That the check is made or drawn and issued to apply on account or for value. 3. That the person who makes or draws and issues the check knows at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment.

The petitioner cannot escape criminal liability by denying that he received the amount of P55,000.00 from Rubia after he issued the check to her. As we ruled in Lozano vs. Martinez:[26] The gravamen of the offense punished by BP 22 is the act of making and issuing a worthless check or a check that is dishonored upon its presentation for payment. It is not the nonpayment of an obligation which the law punishes. The law is not intended or designed to coerce a debtor to pay his debt. The thrust of the law is to prohibit, under pain of penal sanctions, the making of worthless checks and putting them in circulation. Because of its deleterious effects on the public interest, the practice is proscribed by the law. The law punishes the act not as an offense against property, but an offense against public order.[27]

4. That the check is subsequently dishonored by the drawee bank for insufficiency of funds or credit, or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment.[31] In this case, the prosecution adduced documentary evidence that when the petitioner issued the subject check on or about August 20, 1992, the balance of his account with the drawee bank was only P2,414.96. During the conference in the office of Atty. Emmanuel Velasco, Evangelista showed to the petitioner and his wife a photocopy of the subject check, with the notation at its dorsal portion that it was dishonored for the reason account closed. Despite Evangelistas demands, the petitioner refused to pay the amount of the check and, with his wife, pointed to Rubia as the one liable for the amount. The collective evidence of the prosecution points to the fact that at the time the petitioner drew and issued the check, he knew that the residue of the funds in his account with the drawee bank was insufficient to pay the amount of the check. IN LIGHT OF ALL THE FOREOING, the petition is DENIED DUE COURSE. The decision of the Court of Appeals is AFFIRMED. No costs. SO ORDERED.

REGALADO, J.: Petitioner spouses George and Librada Moran are the owners of the Wack-Wack Petron gasoline station located at Shaw Boulevard, corner Old Wack-Wack Road, Mandaluyong, Metro Manila. They regularly purchased bulk fuel and other related products from Petrophil Corporation on cash on delivery (COD) basis. Orders for bulk fuel and other related products were made by telephone and payments were effected by personal checks upon delivery. 1 Petitioners maintained three joint accounts, namely one current account (No. 37-00066-7) and two savings accounts, (Nos. 1037002387 and 1037001372) with the Shaw Boulevard branch of Citytrust Banking Corporation. As a special privilege to the Morans, whom it considered as valued clients, the bank allowed them to maintain a zero balance in their current account. Transfers from Saving Account No. 1037002387 to their current account could be made only with their prior authorization, but they gave written authority to Citytrust to automatically transfer funds from their Savings Account No. 1037001372 to their Current Account No. 37-00066-7 at any time whenever the funds in their current account were insufficient to meet withdrawals from said current account. Such arrangement for automatic transfer of funds was called a pre-authorized transfer (PAT) agreement. 2 The PAT letter-agreement entered into by the parties on March 19, 1982 contained the following provisions:

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

xxx xxx xxx 1. The transfer may be effected on the day following the overdrawing of the current account, but the check/s would be honored if the savings account has sufficient balance to cover the overdraft. 2. The regular charges on overdraft, and activity fees will be imposed by the Bank. 3. This is merely an accommodation on our part and we have the right, at all times and for any reasonwhatsoever, to refuse to effect transfer of funds at our sole and absolute option and discretion, reserving our right to terminate this arrangement at any time without written notice to you. 4. You hold CITYTRUST free and harmless for any and all omissions or oversight in executing this automatic transfer of funds; . . . 3 xxx xxx xxx

G.R. No. 105836 March 7, 1994 SPOUSES GEORGE MORAN and LIBRADA P. MORAN, petitioners, vs. THE HON. COURT OF APPEALS and CITYTRUST BANKING CORPORATION, respondents. Gonzales, Batiller, Bilog & Associates for petitioners. Agcaoli & Associates for private respondent.

On December 12, 1983, petitioners, through Librada Moran, drew a check (Citytrust No. 041960) for P50,576.00 payable to Petrophil Corporation. 4 The next day, December 13, 1983, petitioners, again through Librada Moran, issued another check (Citytrust No. 041962) in the amount of P56,090.00 in favor of the same corporation. 5 The total sum of the two checks was P106,666.00. On December 14, 1983, Petrophil Corporation deposited the two aforementioned checks to its account with the Pandacan branch of the Philippine National Bank (PNB), the collecting bank. In turn, PNB, Pandacan branch presented them for clearing with the Philippine Clearing House Corporation in the afternoon of the same day. The records show that on December 14, 1983, Current Account No. 37-00066-7 had a zero balance, while Savings Account No. 1037001372 (covered by the PAT) had an available balance of P26,104.30 6 and Savings Account No. 1037002387 had an available balance of P43,268.39. 7 At about ten o'clock in the morning of the following day, December 15, 1983, petitioner George Moran went to the bank, as was his regular practice, to personally oversee their daily transactions with the bank. He deposited in their Savings Account No. 1037002387 the amounts of P10,874.58 and P6,754.25, 8 and he likewise deposited in their Savings Account No. 1037001372 the amounts of P5,900.00, P35,100.00 and 30.00. 9 The amount of P40,000.00 was then transferred by him from Saving Account No. 1037002387 to their current account by means of a pro forma withdrawal form (a debit memorandum), which was provided by the bank, authorizing the latter to make the necessary transfer. At the same time, the amount of P66,666.00 was transferred from Savings Account No. 1037001372 to the same current account through the pre-authorized transfer (PAT) agreement. 10 Sometime on December 15 or 16, 1983 George Moran was informed by his wife Librada, that Petrophil refused to deliver their orders on a credit basis because the two checks they had previously issued were dishonored upon presentment for payment. Apparently, the bank dishonored the checks due to "insufficiency of funds." 11 The non-delivery of gasoline forced petitioners to temporarily stop business operations, allegedly causing them to suffer loss of earnings. In addition, Petrophil cancelled their credit accommodation, forcing them to pay for their purchases in cash. 12 George Moran, furious and upset, demanded an explanation from Raul Diaz, the branch manager. Failing to get a sufficient explanation, he talked to a certain Villareal, a bank officer, who allegedly told him that Amy Belen Ragodo, the customer service officer, had committed a "grave error". 13 On December 16 or 17, 1983, Diaz went to the Moran residence to get the signatures of the petitioners on an application for a manager's check so that the dishonored checks could be redeemed. Diaz then went to Petrophil to personally present the checks in payment for the two dishonored checks. 14

In a chance meeting around May or June, 1984, George Moran learned from one Constancio Magno, credit manager of Petrophil, that the latter received from Citytrust, through Diaz, a letter dated December 16, 1983, notifying them that the two aforementioned checks were "inadvertently dishonored . . . due to operational error." Said letter was received by Petrophil on January 4, 1984. 15 On July 24, 1984, or a little over six months after the incident, petitioners, through counsel, wrote Citytrust claiming that the bank's dishonor of the checks caused them besmirched business and personal reputation, shame and anxiety, hence they were contemplating the filing of the necessary legal actions unless the bank issued a certification clearing their name and paid them P1,000,000.00 as moral damages. 16 The bank did not act favorably on their demands, hence petitioners filed a complaint for damages on September 8, 1984, with the Regional Trial Court, Branch 159 at Pasig, Metro Manila, which was docketed therein as Civil Case No. 51549. In turn, Citytrust filed a counterclaim for damages, alleging that the case filed against it was unfounded and unjust. After trial, a decision dated October 9, 1989 was rendered by the trial court dismissing both the complaint and the counterclaim. 17 On appeal, the Court of Appeals rendered judgment in CA-G.R. CV No. 25009 on October 9, 1989 affirming the decision of the trial court. 18 We start some basic and accepted rules, statutory and doctrinal. A check is a bill of exchange drawn on a bank payable on demand. 19 Thus, a check is a written order addressed to a bank or persons carrying on the business of banking, by a party having money in their hands, requesting them to pay on presentment, to a person named therein or to bearer or order, a named sum of money. 20 Fixed savings and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. 21 In other words, the relationship between the bank and the depositor is that of a debtor and creditor. 22 By virtue of the contract of deposit between the banker and its depositor, the banker agrees to pay checks drawn by the depositor provided that said depositor has money in the hands of the bank. 23 Hence, where the bank possesses funds of a depositor, it is bound to honor his checks to the extent of the amount of his deposits. The failure of a bank to pay the check of a merchant or a trader, when the deposit is sufficient, entitles the drawer to substantial damages without any proof of actual damages. 24 Conversely, a bank is not liable for its refusal to pay a check on account of insufficient funds, notwithstanding the fact that a deposit may be made later in the day. 25 Before a bank depositor may maintain a suit to recover a specific amount from his bank, he must first show that he had on deposit sufficient funds to meet his demand. 26

The present action for damages accordingly hinges on the resolution of the inquiry as to whether or not petitioners had sufficient funds in their accounts when the bank dishonored the checks in question. In view of the factual findings of the two lower courts the correctness of which are challenged by what appear to be plausible, arguments, we feel that the same should properly be resolved by us. This would necessarily require us to inquire into both the savings and current accounts of petitioners in relation to the PAT arrangement. On December 14, 1983, when PNB, Pandacan branch, presented the checks for collection, the available balance for Savings Account No. 1037001372 was P26,104.30 while Current Account No. 37-00066-7 expectedly had a zero balance. On December 15, 1983, at approximately ten o'clock in the morning, petitioners, through George Moran, learned that P66,666.00 from Saving Account No. 1037001372 was transferred to their current account. Another P40,000.00 was transferred from Saving Accounts No. 1037002387 to the current account. Considering that the transfers were by then sufficient to cover the two checks, it is asserted by petitioners that such fact should have prevented the dishonor of the checks. It appears, however, that it was not so. As explained by respondent court in its decision, Gerard E. Rionisto, head of the centralized clearing unit of Citytrust, detailed on the witness stand the standard clearing procedure adopted by respondent bank and the Philippine Clearing House Corporation, to wit:. Q: Let me again re-phase the question. Most of (sic) these two checks issued by Mrs. Librada Moran under the accounts of the plaintiffs with Citytrust Banking Corporation were drawn dated December 12, 1983 and December 13, 1983(and) these two (2) checks were made payable to Petrophil Corporation. On record, Petrophil Corporation presented these two (2) checks for clearing with PNB Pandacan Branch on December 14, 1983. Now in accordance with the bank, what would happen with these checks drawn with (sic) PNB on December 14, 1983?. A: So these checks will now be presented by PNB with the Philippine Clearing House on December 14, and then the Philippine Clearing House will process it until midnight of December 14. Citytrust will send a clearing representative to the Philippine Clearing House at around 2:00 o'clock in the morning of December 15 and then get the checks. The checks

will now be processed at the Citytrust Computer at around 3:00 o'clock in the morning of December 14 (sic)but it will be processed for balance of Citytrust as of December 14 because for one, we have not opened on December 15 at 3:00 o'clock. Under the clearing house rules, we are supposed to process it on the date it was presented for clearing. (tsn, September 9, 1988, pp. 9-10). 27 Considering the clearing process adopted, as explained in the aforequoted testimony, it is clear that the available balance on December 14, 1983 was used by the bank in determining whether or not there was sufficient cash deposited to fund the two checks, although what was stamped on the dorsal side of the two checks in question was "DAIF/1215-83," since December 15, 1983 was the actual date when the checks were processed. As earlier stated, when petitioners' checks were dishonored due to insufficiency of funds, the available balance of Savings Account No. 1037001372, which was the subject of the PAT agreement, was not enough to cover either of the two checks. On December 14, 1983, when PNB, Pandacan branch presented the checks for collection, the available balance for Savings Account No. 1037001372, to repeat, was only P26,104.30 while Current Account No. 37-0006-7 had no available balance. It was only on December 15, 1983 at around ten o'clock in the morning that the necessary funds were deposited, which unfortunately was too late to prevent the dishonor of the checks. Petitioners argue that public respondent, by relying heavily on Rionisto's testimony, failed to consider the fact that the witness himself admitted that he had no personal knowledge surrounding the dishonor of the two checks in question. Thus, although he knew the standard clearing procedure, it does not necessarily mean that the same procedure was adopted with regard to the two checks. We do not agree. Section 3(q), Rule 131 of the Rules of Court provides a disputable presumption in law that the ordinary course of business has been followed. In the absence of a contrary showing, it is presumed that the acts in question were in conformity with the usual conduct of business. In the case at bar, petitioners failed to present countervailing evidence to rebut the presumption that the checks involved underwent the same regular process for clearing of checks followed by the bank since 1983. Petitioner had no reason to complain, for they alone were at fault. A drawer must remember his responsibilities every time he issues a check. He must personally keep track of his available balance in the bank and not rely on the bank to notify him of the necessity to fund certain check she previously issued. A check, as distinguished from an ordinary bill of exchange, is supposed to be drawn against a previous deposit of funds for it is ordinarily intended for immediately payment. 28

Moreover, between the time of the issuance of said checks on December 12 and 13 and the time of their presentment on December 14, petitioners had, at the very least, twentyfour hours to replenish their balance in the bank. As previously noted, it was only during business hours in the morning of December 15, 1983, that P66,666.00 was automatically transferred from Savings Account No. 1037001372 to Current Account No. 37-00066-7, and another P40,000.00 was transferred from Savings Account No. 1037002387 to the same current by a debit memorandum. Petitioners argue that if indeed the checks were dishonored in the early morning of December 15, 1983, the bank would not have automatically transferred P66,666.00 to said current account. They theorize that the checks having already been dishonored, there was no necessity to put into effect the pre-authorized transfer agreement. That theory is incorrect. When the transfer from both savings accounts to the current account were made, they were done in the hope that the checks may be retrieved, thus preventing their dishonor. Unfortunately, respondent bank did not succeed in effectuating its good intentions. The transfers were made to preserve its relations with petitioners whom it knew were valued clients, hence it wanted to prevent the dishonor of their checks, if the same was at all possible. Although not admitting fault, it tried its best to make sure that the checks would not bounce. Under similar circumstances, it was held in Whitman vs. First National Bank 29 that a bank performs its full duty where, upon the receipt of a check drawn against an account in which there are insufficient funds to pay it in full, it endeavors to induce the drawer to make good his account so that the check can be paid, and failing in this, it protests the check on the following morning and notifies its correspondent bank by the telegraph of the protest. It cannot, therefore, be held liable to the payee and holder of the check for not protesting it upon the day when it was received. In fact, the court added that the bank did more that it was required to do by making an effort to induce the drawer to deposit sufficient money to make the check good, and by notifying its correspondent of the dishonor of the check by telegram. Petitioners maintain that at the time the checks were dishonored, they had already deposited sufficient funds to cover said checks. To prove their point, petitioners quoted in their petition the following testimony of said witness Rionisto, to wit: Q: Now according to you, you would receive the checks from (being deposited to) the collecting bank which in this particular example was the Pandacan Branch of PNB which in turn will deliver it to the Philippine Clearing House and the Philippine

Clearing House will deliver it to your office around 12:00 o'clock of December . . . ? A: Around 2:00 o'clock of December 15. We sent a clearing representative. Q: And the checks will be processed in accordance with the balance available as of December 14? A: Yes, sir. Q: And naturally you will place there "drawn against insufficient funds, December 14, 1983"? A: Yes, sir. Q: Are you sure about that? A: Yes, sir . . . (tsn, September 9, 1988, p. 14) 30 Obviously witness Rionisto was merely confused as to the dates (December 14 and 15) because it did not jibe with his previous testimony, wherein he categorically stated that "the checks will now be processed as the Citytrust Computer at around 3:00 in the morning of December 14 (sic) but it will be processed for balance of Citytrust as of December 14 because for one, we have not opened on December 15 at 3:00 o'clock. Under the clearing house rules, we are supposed to process it on the date it was presented for clearing." 31 Analyzing the procedure he had previously explained, and analyzing his testimony in its entirety and not in truncated portions, it would logically and ineluctably appear that he actually meant December 15, and not December 14. In the early morning of every business day, prior to banking hours, the various branches of Citytrust would receive a computer printout called the "rejected transactions" report from the head office. The report contains, among others, a listing of "checks to be funded." When Citytrust, Shaw Boulevard branch, received said report in the early morning of December 15, 1983, the two checks involved were included in the "checks to be funded." That report was used by the bank as its basis in dishonoring the two checks in question. Petitioner contends that the bank erred when it did so because on previous occasions, the report was merely used by the bank as a basis for determining whether or not it was necessary to notify them of the need to deposit certain amounts in their accounts. Amy Belen Rogado, a bank employee, testified that she would normally copy the details stated in the report and transfer in on a "pink slip." These pink slips were then given to George Moran. In turn, George Moran testified that he would deposit the necessary funds

stated in the pink slips. As a matter of fact, so petitioner asseverated, not a single check written on the notices was ever dishonored after he had funded said checks with the bank. Thus, petitioner argues, the checks were not yet dishonored after the bank received the report in the early morning of December 15, 1983. Said argument does not persuade. If ever petitioners on previous occasions were given notices every time a check was presented for clearing and payment and there were no adequate funds in their accounts, these were, at most, mere accommodations on the part of respondent bank. It was not a requirement or a general banking practice, hence noncompliance therewith could not lay the bank open to blame or rebuke. Legally, the bank had all the right to dishonor the checks because there were no sufficient funds to speak of in the first place. If the demand is by check, a drawer must have to his credit enough to cover the demand. If his credit with the bank is less than the amount on the face of the check, the bank may lawfully refuse payment. 32 Pursuing this matter further, the bank could also not be faulted for not accepting either of the two checks. The first check issued was in the amount of P50,576.00, while the second one was for P56,090.00. Savings Account No. 1307001372 then had a balance of only P26,104.30. This being the case, Citytrust could not be expected to accept for payment either one of the two checks nor partially honor one check. A bank is under no obligation to make part payment on a check, up to only the amount of the drawer's funds, where the check is drawn for an amount larger than what the drawer has on deposit. Such a practice of paying checks in part has never existed. Upon partial payment, the check holder could not be called upon to surrender the check, and the bank would be without a voucher affording a certain means of showing the payment. The rule is based on commercial convenience, and any rule that would work such manifest inconvenience should not be recognized. A check is intended not only to transfer a right to the amount named in it, but to serve the further purpose of affording evidence for the bank of the payment of such amount when the check is taken up. 33 On the other hand, assuming arguendo that Savings Account No. 1037002387, which is not covered by a pre-arranged automatic transfer agreement, had enough amount deposited to cover both checks (which is not so in this case), the bank still had no obligation to honor said checks as there was then no authority given to it to make the transfer of funds. Where a depositor has two accounts with a bank, an open account and a savings account, and draws a check upon the open account for more money than the account contains, the bank may rightfully refuse to pay the check, and is under no duty to make up the deficiency from the savings account. 34 We are agree with respondent Court of Appeals in its assessment and interpretation of the nature of the letter of Citytrust to Petrophil, dated December 16, 1983. As aptly and

correctly stated by said court, ". . . the letter is not an admission of liability as it was written merely to maintain the goodwill and continued patronage of plaintiff-appellants. (This) cannot be characterized as baseless, considering the totality of the circumstances surrounding its writing." 35 In the present case, the actions taken by the bank after the incident clearly show that there was neither malice nor bad faith, but rather a clear intent to mollify an obviously agitated client. Raul Diaz, the branch manager, even went for this purpose to the Moran residence to facilitate their application for a manager's check. Later, he went to the Petrophil Corporation to personally redeem the checks. Still later, the letter was sent by respondent bank to Petrophil explaining that the dishonor of the checks was due to "operational error." However, we reiterate, it would be a mistake to construe that letter as an admission of guilt on the part of the bank. It knew that it was confronted with a client who obviously was not willing to admit any fault on his part, although the facts show otherwise. Thus, respondent bank ran the risk of losing the business of an important and influential member of the financial community if it did not do anything to assuage the feelings of petitioners. It will be recalled that the credit standing of the Morans with Petrophil Corporation was involved, which fact, more than anything, displeased them, to say the least. On demand of petitioners that their names be cleared, the bank considered it more prudent to send the letter. It never realized that it would thereafter be used by petitioners as one of the bases of their legal action. It will be noted that there was no reason for the bank to send the letter to Petrophil Corporation since the latter was not a client nor was it demanding any explanation. Clearly, therefore, the letter was merely intended to accommodate the request of the Morans and was part of the series of damage-control measures taken by the bank to placate petitioners. Respondent Court of Appeals perceptively observed that "all these somehow pacified plaintiffs-appellants (herein petitioners) for they did not thereafter take immediate punitive action against the defendant-appellee (herein private respondent). As pointed out by the court a quo, it took plaintiffs-appellants about six (6) months after the dishonor of the checks to demand that defendant-appellee pay them P1,000,000.00 as damages. At that time, plaintiffs-appellants had discovered the letter of Mr. Diaz attributing the dishonor of their checks to 'operational error'. The attempt to unduly ride on the letter of Mr. Diaz speaks for itself." 36 On the above premises which irresistibly commend themselves to our acceptance, we find no cogent and sufficient to award actual, moral, or exemplary damages to petitioners. Although we take judicial notice of the fact that there is a fiduciary relationship between a bank and its depositors, as well as the extent of diligence expected of it in handling the accounts entrusted to its care, 37 the bank may not be held responsible for such damages in the absence of fraud, bad faith, malice, or wanton attitude. 38

WHEREFORE, finding no reversible error in the judgment appealed from, the same is hereby AFFIRMED, with costs against petitioners. SO ORDERED. Republic of the Philippines Supreme Court Manila SECOND DIVISION G.R. NO. 191404 Present: CARPIO, J., Chairperson, NACHURA, PERALTA, ABAD, and MENDOZA, JJ.

EUMELIA R. MITRA, Petitioner,

- versus -

PEOPLE OF THE PHILIPPINESand FELICISIMO S. TARCELO, Respondents.

Promulgated: July 5, 2010

X --------------------------------------------------------------------------------------X DECISION MENDOZA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the July 31, 2009 Decision[1] and the February 11, 2010 Resolution of the Court of Appeals (CA) in CA-G.R. CR No. 31740. The subject decision and resolution affirmed the August 22, 2007 Decision of the Regional Trial Court, Branch 2, Batangas City (RTC) which, in turn, affirmed the May 21, 2007 Decision of the Municipal Trial Court in Cities, Branch 2, Batangas City (MTCC). THE FACTS: Petitioner Eumelia R. Mitra (Mitra) was the Treasurer, and Florencio L. Cabrera, Jr. (now deceased) was the President, of Lucky Nine Credit Corporation (LNCC), a corporation engaged in money lending activities. Between 1996 and 1999, private respondent Felicisimo S. Tarcelo (Tarcelo) invested money in LNCC. As the usual practice in money placement transactions, Tarcelo was issued checks equivalent to the amounts he invested plus the interest on his investments. The following checks, signed by Mitra and Cabrera, were issued by LNCC to Tarcelo.[2]

-doBank Date Issued Date of Check Amount Check No. -doSecurity Bank September 15, 1998 January 15, 1999 P 3,125.00 0000045804 -do-doSeptember 15, 1998 January 15, 1999 125,000.000000045805 -do-doSeptember 20, 1998 January 20, 1999 2,500.000000045809 -do-doSeptember 20, 1998 January 20, 1999 100,000.000000045810 -do-doSeptember 30, 1998 January 30, 1999 5,000.000000045814 -do-doSeptember 30, 1998 January 30, 1999 200,000.000000045815 -do-doOctober 3, 1998 February 3, 1999 2,500.000000045875 -do-doOctober 3, 1998 February 3, 1999 100,000.000000045876 -do-doNovember 17, 1998 February17, 1999 5,000.000000046061 -do-doNovember 17, 1998 March 17, 1999 5,000.000000046062 -do-doNovember 17, 1998 March 17, 1999 200,000.000000046063

November 19, 1998 January 19, 1999

2,500.000000046065

November 19, 1998 February19, 1999

2,500.000000046066

November 19, 1998

March 19, 1999

2,500.000000046067

November 19, 1998

March 19, 1999

100,000.000000046068

November 20, 1998 January 20, 1999

10,000.000000046070

November 20, 1998 February 20, 1999

10,000.000000046071

November 20, 1998 March 20, 1999

10,000.000000046072

November 20, 1998 March 20, 1999

10,000.000000046073

November 30, 1998 January 30, 1999

2,500.000000046075

November 30, 1998 February 28, 1999

2,500.000000046076

November 30, 1998 March 30, 1999

2,500.000000046077

November 30, 1998 March 30, 1999

100,000.000000046078

When Tarcelo presented these checks for payment, they were dishonored for the reason account closed. Tarcelo made several oral demands on LNCC for the payment of

these checks but he was frustrated. Constrained, in 2002, he caused the filing of seven informations for violation of Batas Pambansa Blg. 22 (BP 22) in the total amount of P925,000.00 with the MTCC in Batangas City.[3] After trial on the merits, the MTCC found Mitra and Cabrera guilty of the charges. The fallo of the May 21, 2007 MTCC Decision[4] reads: WHEREFORE, foregoing premises considered, the accused FLORENCIO I. CABRERA, JR., and EUMELIA R. MITRA are hereby found guilty of the offense of violation of Batas Pambansa Bilang 22 and are herebyORDERED to respectively pay the following fines for each violation and with subsidiary imprisonment in all cases, in case of insolvency: 1. 2. 3. 4. 5. 6. 7. Criminal Case No. 43637 Criminal Case No. 43640 Criminal Case No. 43648 Criminal Case No. 43700 Criminal Case No. 43702 Criminal Case No. 43704 Criminal Case No. 43706 - P200,000.00 - P100,000.00 - P100,000.00 - P125,000.00 - P200,000.00 - P100,000.00 - P100,000.00

THE CURRENT ACCOUNT WHERE THE SUBJECT CHECKS WERE DRAWN BEFORE LIABILITY ATTACHES TO THE SIGNATORIES. 2. WHETHER OR NOT THERE IS PROPER SERVICE OF NOTICE OF DISHONOR AND DEMAND TO PAY TO THE PETITIONER AND THE LATE FLORENCIO CABRERA, JR. The Court denies the petition. A check is a negotiable instrument that serves as a substitute for money and as a convenient form of payment in financial transactions and obligations. The use of checks as payment allows commercial and banking transactions to proceed without the actual handling of money, thus, doing away with the need to physically count bills and coins whenever payment is made. It permits commercial and banking transactions to be carried out quickly and efficiently. But the convenience afforded by checks is damaged by unfunded checks that adversely affect confidence in our commercial and banking activities, and ultimately injure public interest. BP 22 or the Bouncing Checks Law was enacted for the specific purpose of addressing the problem of the continued issuance and circulation of unfunded checks by irresponsible persons. To stem the harm caused by these bouncing checks to the community, BP 22 considers the mere act of issuing an unfunded check as an offense not only against property but also against public order. [7] The purpose of BP 22 in declaring the mere issuance of a bouncing check asmalum prohibitum is to punish the offender in order to deter him and others from committing the offense, to isolate him from society, to reform and rehabilitate him, and to maintain social order.[8] The penalty is stiff. BP 22 imposes the penalty of imprisonment for at least 30 days or a fine of up to double the amount of the check or both imprisonment and fine. Specifically, BP 22 provides: SECTION 1. Checks Without Sufficient Funds. Any person who makes or draws and issues any check to apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment, shall be punished by imprisonment of not less than thirty days but not more than one (1) year or by a fine of not less than but not more than double the amount of the check which fine shall in no case exceed Two Hundred Thousand Pesos, or both such fine and imprisonment at the discretion of the court.

Said accused, nevertheless, are adjudged civilly liable and are ordered to pay, in solidum, private complainant Felicisimo S. Tarcelo the amount of NINE HUNDRED TWENTY FIVE THOUSAND PESOS (P925,000.000). SO ORDERED. Mitra and Cabrera appealed to the Batangas RTC contending that: they signed the seven checks in blank with no name of the payee, no amount stated and no date of maturity; they did not know when and to whom those checks would be issued; the seven checks were only among those in one or two booklets of checks they were made to sign at that time; and that they signed the checks so as not to delay the transactions of LNCC because they did not regularly hold office there.[5] The RTC affirmed the MTCC decision and later denied their motion for reconsideration. Meanwhile, Cabrera died. Mitra alone filed this petition for review[6] claiming, among others, that there was no proper service of the notice of dishonor on her. The Court of Appeals dismissed her petition for lack of merit. Mitra is now before this Court on a petition for review and submits these issues: 1. WHETHER OR NOT THE ELEMENTS OF VIOLATION OF BATAS PAMBANSA BILANG 22 MUST BE PROVED BEYOND REASONABLE DOUBT AS AGAINST THE CORPORATION WHO OWNS

The same penalty shall be imposed upon any person who, having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit to cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank. Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act. SECTION 2. Evidence of Knowledge of Insufficient Funds. The making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee. Mitra posits in this petition that before the signatory to a bouncing corporate check can be held liable, all the elements of the crime of violation of BP 22 must first be proven against the corporation. The corporation must first be declared to have committed the violation before the liability attaches to the signatories of the checks.[9] The Court finds Itself unable to agree with Mitras posture. The third paragraph of Section 1 of BP 22 reads: "Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act." This provision recognizes the reality that a corporation can only act through its officers. Hence, its wording is unequivocal and mandatory that the person who actually signed the corporate check shall be held liable for a violation of BP 22. This provision does not contain any condition, qualification or limitation. In the case of Llamado v. Court of Appeals,[10] the Court ruled that the accused was liable on the unfunded corporate check which he signed as treasurer of the corporation. He could not invoke his lack of involvement in the negotiation for the transaction as a defense because BP 22 punishes the mere issuance of a bouncing check, not the purpose for which the check was issued or in consideration of the terms and conditions relating to its issuance. In this case, Mitra signed the LNCC checks as treasurer. Following Llamado, she must then be held liable for violating BP 22. Another essential element of a violation of BP 22 is the drawers knowledge that he has insufficient funds or credit with the drawee bank to cover his check. Because this involves a state of mind that is difficult to establish, BP 22 creates the prima facie presumption that once the check is dishonored, the drawer of the check gains knowledge of the insufficiency, unless within five banking days from receipt of the notice of

dishonor, the drawer pays the holder of the check or makes arrangements with the drawee bank for the payment of the check. The service of the notice of dishonor gives the drawer the opportunity to make good the check within those five days to avert his prosecution for violating BP 22. Mitra alleges that there was no proper service on her of the notice of dishonor and, so, an essential element of the offense is missing. This contention raises a factual issue that is not proper for review. It is not the function of the Court to re-examine the finding of facts of the Court of Appeals. Our review is limited to errors of law and cannot touch errors of facts unless the petitioner shows that the trial court overlooked facts or circumstances that warrant a different disposition of the case[11] or that the findings of fact have no basis on record. Hence, with respect to the issue of the propriety of service on Mitra of the notice of dishonor, the Court gives full faith and credit to the consistent findings of the MTCC, the RTC and the CA. The defense postulated that there was no demand served upon the accused, said denial deserves scant consideration. Positive allegation of the prosecution that a demand letter was served upon the accused prevails over the denial made by the accused. Though, having denied that there was no demand letter served on April 10, 2000, however, the prosecution positively alleged and proved that the questioned demand letter was served upon the accused on April 10, 2000, that was at the time they were attending Court hearing before Branch I of this Court. In fact, the prosecution had submitted a Certification issued by the other Branch of this Court certifying the fact that the accused were present during the April 10, 2010 hearing. With such straightforward and categorical testimony of the witness, the Court believes that the prosecution has achieved what was dismally lacking in the three (3) cases of Betty King, Victor Ting and Caras evidence of the receipt by the accused of the demand letter sent to her. The Court accepts the prosecutions narrative that the accused refused to sign the same to evidence their receipt thereof. To require the prosecution to produce the signature of the accused on said demand letter would be imposing an undue hardship on it. As well, actual receipt acknowledgment is not and has never been required of the prosecution either by law or jurisprudence.[12] [emphasis supplied] With the notice of dishonor duly served and disregarded, there arose the presumption that Mitra and Cabrera knew that there were insufficient funds to cover the checks upon their presentment for payment. In fact, the account was already closed. To reiterate the elements of a violation of BP 22 as contained in the abovequoted provision, a violation exists where: 1. a person makes or draws and issues a check to apply on account or for value;

2. the person who makes or draws and issues the check knows at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the full payment of the check upon its presentment; and 3. the check is subsequently dishonored by the drawee bank for insufficiency of funds or credit, or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment. [13] There is no dispute that Mitra signed the checks and that the bank dishonored the checks because the account had been closed. Notice of dishonor was properly given, but Mitra failed to pay the checks or make arrangements for their payment within five days from notice. With all the above elements duly proven, Mitra cannot escape the civil and criminal liabilities that BP 22 imposes for its breach.[14] WHEREFORE, the July 31, 2009 Decision and the February 11, 2010 Resolution of the Court of Appeals in CA-G.R. CR No. 31740 are hereby AFFIRMED. SO ORDERED.

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 PLAINTIFFPETITIONER HAS NO CAUSE OF ACTION AGAINST DEFENDANTSRESPONDENTS 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

Republic of the Philippines 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, defendantsrespondents. Yngson & Associates for petitioner.

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. 4Without 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.

QUISUMBING, J.: For review on certiorari is the decision dated October 28, 1994 of the Court of Appeals in C.A. G.R. CR 118561which affirmed the decision of the Regional Trial Court of Cebu City, Branch 17, convicting petitioner on three (3) counts of Batas Pambansa Blg. 22 (the Bouncing Checks Law) violations, and sentencing him to imprisonment of four (4) months for each count, and to pay private respondent the amounts of P5,500.00, P6,410.00 and P3,375.00, respectively, corresponding to the value of the checks involved, with the legal rate of interest from the time of filing of the criminal charges, as well as to pay the costs.1wphi1.nt The factual antecedents of the case are as follows: Petitioner Wong was an agent of Limtong Press. Inc. (LPI), a manufacturer of calendars. LPI would print sample calendars, then give them to agents to present to customers. The agents would get the purchase orders of customers and forward them to LPI. After printing the calendars, LPI would ship the calendars directly to the customers. Thereafter, the agents would come around to collect the payments. Petitioner, however, had a history of unremitted collections, which he duly acknowledged in a confirmation receipt he co-signed with his wife.2 Hence, petitioners customers were required to issue postdated checks before LPI would accept their purchase orders. In early December 1985, Wong issued six (6) postdated checks totaling P18,025.00, all dated December 30, 1985 and drawn payable to the order of LPI, as follows: (1) Allied Banking Corporation (ABC) Check No. 660143464-C for P6,410.00 (Exh. "B"); (2) ABC Check No. 660143460-C for P540.00 (Exh. "C"); (3) ABC Check No. PA660143451-C for P5,500.00 (Exh. "D");

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 117857 February 2, 2001

(4) ABC Check No. PA660143465-C for P1,100.00 (Exh. "E"); (5) ABC Check No. PA660143463-C for P3,375.00 (Exh. "F"); (6) ABC Check No. PA660143452-C for P1,100.00 (Exh. "G"). These checks were initially intended to guarantee the calendar orders of customers who failed to issue post-dated checks. However, following company policy, LPI refused to accept the checks as guarantees. Instead, the parties agreed to apply the checks to the payment of petitioners unremitted collections for 1984 amounting to P18,077.07.3 LPI waived the P52.07 difference.

LUIS S. WONG, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

Before the maturity of the checks, petitioner prevailed upon LPI not to deposit the checks and promised to replace them within 30 days. However, petitioner reneged on his promise. Hence, on June 5, 1986, LPI deposited the checks with Rizal Commercial Banking Corporation (RCBC). The checks were returned for the reason "account closed." The dishonor of the checks was evidenced by the RCBC return slip. On June 20, 1986, complainant through counsel notified the petitioner of the dishonor. Petitioner failed to make arrangements for payment within five (5) banking days. On November 6, 1987, petitioner was charged with three (3) counts of violation of B.P. Blg. 224 under three separate Informations for the three checks amounting to P5,500.00, P3,375.00, and P6,410.00.5 The Information in Criminal Case No. CBU-12055 reads as follows:6 That on or about the 30th day of December, 1985 and for sometime subsequent thereto, in the City of Cebu, Philippines, and within the jurisdiction of this Honorable Court, the said accused, knowing at the time of issue of the check she/he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, with deliberate intent, with intent of gain and of causing damage, did then and there issue, make or draw Allied Banking Corporation Check No. 660143451 dated 12-30-85 in the amount of P5,500.00 payable to Manuel T. Limtong which check was issued in payment of an obligation of said accused, but when the said check was presented with said bank, the same was dishonored for reason ACCOUNT CLOSED and despite notice and demands made to redeem or make good said check, said accused failed and refused, and up to the present time still fails and refuses to do so, to the damage and prejudice of said Manuel T. Limtong in the amount of P5,500.00 Philippine Currency. Contrary to law. Petitioner was similarly charged in Criminal Case No. 12057 for ABC Check No. 660143463 in the amount of P3,375.00, and in Criminal Case No. 12058 for ABC Check No. 660143464 for P6,410.00. Both cases were raffled to the same trial court. Upon arraignment, Wong pleaded not guilty. Trial ensued. Manuel T. Limtong, general manager of LPI, testified on behalf of the company, Limtong averred that he refused to accept the personal checks of petitioner since it was against company policy to accept personal checks from agents. Hence, he and petitioner simply agreed to use the checks to pay petitioners unremitted collections to LPI. According to Limtong, a few days before maturity of the checks, Wong requested him to defer the

deposit of said checks for lack of funds. Wong promised to replace them within thirty days, but failed to do so. Hence, upon advice of counsel, he deposited the checks which were subsequently returned on the ground of "account closed." The version of the defense is that petitioner issued the six (6) checks to guarantee the 1985 calendar bookings of his customers. According to petitioner, he issued the checks not as payment for any obligation, but to guarantee the orders of his customers. In fact, the face value of the six (6) postdated checks tallied with the total amount of the calendar orders of the six (6) customers of the accused, namely, Golden Friendship Supermarket, Inc. (P6,410.00), New Society Rice and Corn Mill (P5,500.00), Cuesta Enterprises (P540.00), Pelrico Marketing (P1,100.00), New Asia Restaurant P3,375.00), and New China Restaurant (P1,100.00). Although these customers had already paid their respective orders, petitioner claimed LPI did not return the said checks to him. On August 30, 1990, the trial court issued its decision, disposing as follows:7 "Wherefore, premises considered, this Court finds the accused Luis S. Wong GUILTY beyond reasonable doubt of the offense of Violations of Section 1 of Batas Pambansa Bilang 22 in THREE (3) Counts and is hereby sentenced to serve an imprisonment of FOUR (4) MONTHS for each count; to pay Private Complainant Manuel T. Limtong the sums of Five Thousand Five Hundred (P5,500.00) Pesos, Six Thousand Four Hundred Ten (P6,410.00) Pesos and Three Thousand Three Hundred Seventy-Five (P3,375.00) Pesos corresponding to the amounts indicated in Allied Banking Checks Nos. 660143451, 66[0]143464 and 660143463 all issued on December 30, 1985 together with the legal rate of interest from the time of the filing of the criminal charges in Court and pay the costs."8 Petitioner appealed his conviction to the Court of Appeals. On October 28, 1994, it affirmed the trial courts decision in toto.9 Hence, the present petition.10 Petitioner raises the following questions of law -11 May a complainant successfully prosecute a case under BP 22 --- if there is no more consideration or price or value ever the binding tie that it is in contracts in general and in negotiable instruments in particular behind the checks? if even before he deposits the checks, he has ceased to be a holder for value because the purchase orders (POs) guaranteed by the checks were already paid? Given the fact that the checks lost their reason for being, as above stated, is it not then the duty of complainant knowing he is no longer a holder for value to return the checks and not to deposit them ever? Upon what legal basis then may such a holder deposit them and get paid twice?

Is petitioner, as the drawer of the guarantee checks which lost their reason for being, still bound under BP 22 to maintain his account long after 90 days from maturity of the checks? May the prosecution apply the prima facie presumption of "knowledge of lack of funds" against the drawer if the checks were belatedly deposited by the complainant 157 days after maturity, or will it be then necessary for the prosecution to show actual proof of "lack of funds" during the 90-day term? Petitioner insists that the checks were issued as guarantees for the 1985 purchase orders (POs) of his customers. He contends that private respondent is not a "holder for value" considering that the checks were deposited by private respondent after the customers already paid their orders. Instead of depositing the checks, private respondent should have returned the checks to him. Petitioner further assails the credibility of complainant considering that his answers to cross-examination questions included: "I cannot recall, anymore" and "We have no more record." In his Comment, the Solicitor General concedes that the checks might have been initially intended by petitioner to guarantee payments due from customers, but upon the refusal of LPI to accept said personal checks per company policy, the parties had agreed that the checks would be used to pay off petitioners unremitted collections. Petitioners contention that he did not demand the return of the checks because he trusted LPIs good faith is contrary to human nature and sound business practice, according to the Solicitor General.
12

relating to its issuance. The mere act of issuing a worthless check is malum prohibitum." Nothing herein persuades us to hold otherwise. The only issue for our resolution now is whether or not the prosecution was able to establish beyond reasonable doubt all the elements of the offense penalized under B.P. Blg. 22. There are two (2) ways of violating B.P. Blg. 22: (1) by making or drawing and issuing a check to apply on account or for value knowing at the time of issue that the check is not sufficiently funded; and (2) by having sufficient funds in or credit with the drawee bank at the time of issue but failing to keep sufficient funds therein or credit with said bank to cover the full amount of the check when presented to the drawee bank within a period of ninety (90) days.17 The elements of B.P. Blg. 22 under the first situation, pertinent to the present case, are:18 "(1) The making, drawing and issuance of any check to apply for account or for value; (2) The knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (3) The subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment." Petitioner contends that the first element does not exist because the checks were not issued to apply for account or for value. He attempts to distinguish his situation from the usual "cut-and-dried" B.P. 22 case by claiming that the checks were issued as guarantee and the obligations they were supposed to guarantee were already paid. This flawed argument has no factual basis, the RTC and CA having both ruled that the checks were in payment for unremitted collections, and not as guarantee. Likewise, the argument has no legal basis, for what B.P. Blg. 22 punishes is the issuance of a bouncing check and not the purpose for which it was issued nor the terms and conditions relating to its issuance.19 As to the second element, B.P. Blg. 22 creates a presumption juris tantum that the second element prima facieexists when the first and third elements of the offense are present.20 Thus, the makers knowledge is presumed from the dishonor of the check for insufficiency of funds.21 Petitioner avers that since the complainant deposited the checks on June 5, 1986, or 157 days after the December 30, 1985 maturity date, the presumption of knowledge of lack of

The issue as to whether the checks were issued merely as guarantee or for payment of petitioners unremitted collections is a factual issue involving as it does the credibility of witnesses. Said factual issue has been settled by the trial court and Court of Appeals. Although initially intended to be used as guarantee for the purchase orders of customers, they found the checks were eventually used to settle the remaining obligations of petitioner with LPI. Although Manuel Limtong was the sole witness for the prosecution, his testimony was found sufficient to prove all the elements of the offense charged.13 We find no cogent reason to depart from findings of both the trial and appellate courts. In cases elevated from the Court of Appeals, our review is confined to allege errors of law. Its findings of fact are generally conclusive. Absent any showing that the findings by the respondent court are entirely devoid of any substantiation on record, the same must stand.14 The lack of accounting between the parties is not the issue in this case. As repeatedly held, this Court is not a trier of facts.15 Moreover, in Llamado v. Court of Appeals,16 we held that "[t]o determine the reason for which checks are issued, or the terms and conditions for their issuance, will greatly erode the faith the public reposes in the stability and commercial value of checks as currency substitutes, and bring about havoc in trade and in banking communities. So what the law punishes is the issuance of a bouncing check and not the purpose for which it was issued nor the terms and conditions

funds under Section 2 of B.P. Blg. 22 should not apply to him. He further claims that he should not be expected to keep his bank account active and funded beyond the ninety-day period. Section 2 of B.P. Blg. 22 provides: Evidence of knowledge of insufficient funds. The making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee. An essential element of the offense is "knowledge" on the part of the maker or drawer of the check of the insufficiency of his funds in or credit with the bank to cover the check upon its presentment. Since this involves a state of mind difficult to establish, the statute itself creates a prima facie presumption of such knowledge where payment of the check "is refused by the drawee because of insufficient funds in or credit with such bank when presented within ninety (90) days from the date of the check." To mitigate the harshness of the law in its application, the statute provides that such presumption shall not arise if within five (5) banking days from receipt of the notice of dishonor, the maker or drawer makes arrangements for payment of the check by the bank or pays the holder the amount of the check.22 Contrary to petitioners assertions, nowhere in said provision does the law require a maker to maintain funds in his bank account for only 90 days. Rather, the clear import of the law is to establish a prima facie presumption of knowledge of such insufficiency of funds under the following conditions (1) presentment within 90 days from date of the check, and (2) the dishonor of the check and failure of the maker to make arrangements for payment in full within 5 banking days after notice thereof. That the check must be deposited within ninety (90) days is simply one of the conditions for the prima facie presumption of knowledge of lack of funds to arise. It is not an element of the offense. Neither does it discharge petitioner from his duty to maintain sufficient funds in the account within a reasonable time thereof. Under Section 186 of the Negotiable Instruments Law, "a check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay." By current banking practice, a check becomes stale after more than six (6) months,23 or 180 days. Private respondent herein deposited the checks 157 days after the date of the check. Hence said checks cannot be considered stale. Only the presumption of knowledge of insufficiency of funds was lost, but such knowledge could still be proven by direct or

circumstantial evidence. As found by the trial court, private respondent did not deposit the checks because of the reassurance of petitioner that he would issue new checks. Upon his failure to do so, LPI was constrained to deposit the said checks. After the checks were dishonored, petitioner was duly notified of such fact but failed to make arrangements for full payment within five (5) banking days thereof. There is, on record, sufficient evidence that petitioner had knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of issuance of the checks. And despite petitioners insistent plea of innocence, we find no error in the respondent courts affirmance of his conviction by the trial court for violations of the Bouncing Checks Law. However, pursuant to the policy guidelines in Administrative Circular No. 12-2000, which took effect on November 21, 2000, the penalty imposed on petitioner should now be modified to a fine of not less than but not more than double the amount of the checks that were dishonored. WHEREFORE, the petition is DENIED. Petitioner Luis S. Wong is found liable for violation of Batas Pambansa Blg. 22 but the penalty imposed on him is hereby MODIFIED so that the sentence of imprisonment is deleted. Petitioner is ORDERED to pay a FINE of (1) P6,750.00, equivalent to double the amount of the check involved in Criminal Case No. CBU-12057, (2) P12,820.00, equivalent to double the amount of the check involved in Criminal Case No. CBU-12058, and (3) P11,000.00, equivalent to double the amount of the check involved in Criminal Case No. CBU-12055, with subsidiary imprisonment24 in case of insolvency to pay the aforesaid fines. Finally, as civil indemnity, petitioner is also ordered to pay to LPI the face value of said checks totaling P18,025.00 with legal interest thereon from the time of filing the criminal charges in court, as well as to pay the costs.1wphi1.nt SO ORDERED.

FIRST DIVISION [G.R. No. 141968. February 12, 2001] THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES), petitioner, vs. SPS. FRANCIS S. GUECO and MA. LUZ E. GUECO, respondents. DECISION KAPUNAN, J.: The respondents Gueco Spouses obtained a loan from petitioner International Corporate Bank (now Union Bank of the Philippines) to purchase a car a Nissan Sentra 1600 4DR, 1989 Model. In consideration thereof, the Spouses executed promissory notes which were payable in monthly installments and chattel mortgage over the car to serve as security for the notes. The Spouses defaulted in payment of installments. Consequently, the Bank filed on August 7, 1995 a civil action docketed as Civil Case No. 658-95 for Sum of Money with Prayer for a Writ of Replevin[1] before the Metropolitan Trial Court of Pasay City, Branch 45.[2] On August 25, 1995, Dr. Francis Gueco was served summons and was fetched by the sheriff and representative of the bank for a meeting in the bank premises. Desi Tomas, the Banks Assistant Vice President demanded payment of the amount of P184,000.00 which represents the unpaid balance for the car loan. After some negotiations and computation, the amount was lowered to P154,000.00, However, as a result of the non-payment of the reduced amount on that date, the car was detained inside the banks compound. On August 28, 1995, Dr. Gueco went to the bank and talked with its Administrative Support, Auto Loans/Credit Card Collection Head, Jefferson Rivera. The negotiations resulted in the further reduction of the outstanding loan to P150,000.00. On August 29, 1995, Dr. Gueco delivered a managers check in the amount of P150,000.00 but the car was not released because of his refusal to sign the Joint Motion to Dismiss. It is the contention of the Gueco spouses and their counsel that Dr. Gueco need not sign the motion for joint dismissal considering that they had not yet filed their Answer. Petitioner, however, insisted that the joint motion to dismiss is standard operating procedure in their bank to effect a compromise and to preclude future filing of claims, counterclaims or suits for damages. After several demand letters and meetings with bank representatives, the respondents Gueco spouses initiated a civil action for damages before the Metropolitan Trial Court of Quezon City, Branch 33. The Metropolitan Trial Court dismissed the complaint for lack of merit.[3] On appeal to the Regional Trial Court, Branch 227 of Quezon City, the decision of the Metropolitan Trial Court was reversed. In its decision, the RTC held that there was a meeting of the minds between the parties as to the reduction of the amount of indebtedness and the release of the car but said agreement did not include the signing of

the joint motion to dismiss as a condition sine qua non for the effectivity of the compromise. The court further ordered the bank: 1. to return immediately the subject car to the appellants in good working condition; Appellee may deposit the Managers check the proceeds of which have long been under the control of the issuing bank in favor of the appellee since its issuance, whereas the funds have long been paid by appellants to secure said Managers Check, over which appellants have no control; 2. to pay the appellants the sum of P50,000.00 as moral damages; P25,000.00 as exemplary damages, and P25,000.00 as attorneys fees, and 3. to pay the cost of suit. In other respect, the decision of the Metropolitan Trial Court Branch 33 is hereby AFFIRMED.[4] The case was elevated to the Court of Appeals, which on February 17, 2000, issued the assailed decision, the decretal portion of which reads: WHEREFORE, premises considered, the petition for review on certiorari is hereby DENIED and the Decision of the Regional Trial Court of Quezon City, Branch 227, in Civil Case No. Q97-31176, for lack of any reversible error, is AFFIRMED in toto. Costs against petitioner. SO ORDERED.[5] The Court of Appeals essentially relied on the respect accorded to the finality of the findings of facts by the lower court and on the latter's finding of the existence of fraud which constitutes the basis for the award of damages. The petitioner comes to this Court by way of petition for review on certiorari under Rule 45 of the Rules of Court, raising the following assigned errors: I THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO AGREEMENT WITH RESPECT TO THE EXECUTION OF THE JOINT MOTION TO DISMISS AS A CONDITION FOR THE COMPROMISE AGREEMENT. II THE COURT OF APPEALS ERRED IN GRANTING MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES IN FAVOR OF THE RESPONDENTS. III THE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONER RETURN THE SUBJECT CAR TO THE RESPONDENTS, WITHOUT MAKING ANY PROVISION FOR THE ISSUANCE OF THE NEW MANAGERS/CASHIERS CHECK BY THE RESPONDENTS IN FAVOR OF THE PETITIONER IN LIEU OF THE ORIGINAL CASHIERS CHECK THAT ALREADY BECAME STALE.[6]

As to the first issue, we find for the respondents. The issue as to what constitutes the terms of the oral compromise or any subsequent novation is a question of fact that was resolved by the Regional Trial Court and the Court of Appeals in favor of respondents. It is well settled that the findings of fact of the lower court, especially when affirmed by the Court of Appeals, are binding upon this Court.[7] While there are exceptions to this rule, [8] the present case does not fall under any one of them, the petitioners claim to the contrary, notwithstanding. Being an affirmative allegation, petitioner has the burden of evidence to prove his claim that the oral compromise entered into by the parties on August 28, 1995 included the stipulation that the parties would jointly file a motion to dismiss. This petitioner failed to do. Notably, even the Metropolitan Trial Court, while ruling in favor of the petitioner and thereby dismissing the complaint, did not make a factual finding that the compromise agreement included the condition of the signing of a joint motion to dismiss. The Court of Appeals made the factual findings in this wise: In support of its claim, petitioner presented the testimony of Mr. Jefferson Rivera who related that respondent Dr. Gueco was aware that the signing of the draft of the Joint Motion to Dismiss was one of the conditions set by the bank for the acceptance of the reduced amount of indebtedness and the release of the car. (TSN, October 23, 1996, pp. 17-21, Rollo, pp. 18, 5). Respondents, however, maintained that no such condition was ever discussed during their meeting of August 28, 1995 (Rollo, p. 32). The trial court, whose factual findings are entitled to respect since it has the opportunity to directly observe the witnesses and to determine by their demeanor on the stand the probative value of their testimonies (People vs. Yadao, et al. 216 SCRA 1, 7 [1992]), failed to make a categorical finding on the issue. In dismissing the claim of damages of the respondents, it merely observed that respondents are not entitled to indemnity since it was their unjustified reluctance to sign of the Joint Motion to Dismiss that delayed the release of the car. The trial court opined, thus: As regards the third issue, plaintiffs claim for damages is unavailing. First, the plaintiffs could have avoided the renting of another car and could have avoided this litigation had he signed the Joint Motion to Dismiss. While it is true that herein defendant can unilaterally dismiss the case for collection of sum of money with replevin, it is equally true that there is nothing wrong for the plaintiff to affix his signature in the Joint Motion to Dismiss, for after all, the dismissal of the case against him is for his own good and benefit. In fact, the signing of the Joint Motion to Dismiss gives the plaintiff three (3) advantages. First, he will recover his car. Second, he will pay his obligation to the bank on its reduced amount of P150,000.00 instead of its original claim of P184,985.09. And third, the case against him will be dismissed. Plaintiffs, likewise, are not entitled to the award of moral damages and exemplary damages as there is no showing that the defendant bank acted fraudulently or in bad faith. (Rollo, p. 15)

The Court has noted, however, that the trial court, in its findings of facts, clearly indicated that the agreement of the parties on August 28, 1995 was merely for the lowering of the price, hence xxx On August 28, 1995, bank representative Jefferson Rivera and plaintiff entered into an oral compromise agreement, whereby the original claim of the bank of P184,985.09 was reduced to P150,000.00 and that upon payment of which, plaintiff was informed that the subject motor vehicle would be released to him. (Rollo, p. 12) The lower court, on the other hand, expressly made a finding that petitioner failed to include the aforesaid signing of the Joint Motion to Dismiss as part of the agreement. In dismissing petitioners claim, the lower court declared, thus: If it is true, as the appellees allege, that the signing of the joint motion was a condition sine qua non for the reduction of the appellants obligation, it is only reasonable and logical to assume that the joint motion should have been shown to Dr. Gueco in the August 28, 1995 meeting. Why Dr. Gueco was not given a copy of the joint motion that day of August 28, 1995, for his family or legal counsel to see to be brought signed, together with the P150,000.00 in managers check form to be submitted on the following day on August 29, 1995? (sic) [I]s a question whereby the answer up to now eludes this Courts comprehension. The appellees would like this Court to believe that Dr. Gueco was informed by Mr. Rivera of the bank requirement of signing the joint motion on August 28, 1995 but he did not bother to show a copy thereof to his family or legal counsel that day August 28, 1995. This part of the theory of appellee is too complicated for any simple oral agreement. The idea of a Joint Motion to Dismiss being signed as a condition to the pushing through a deal surfaced only on August 29, 1995. This Court is not convinced by the appellees posturing. Such claim rests on too slender a frame, being inconsistent with human experience. Considering the effect of the signing of the Joint Motion to Dismiss on the appellants substantive right, it is more in accord with human experience to expect Dr. Gueco, upon being shown the Joint Motion to Dismiss, to refuse to pay the Managers Check and for the bank to refuse to accept the manager's check. The only logical explanation for this inaction is that Dr. Gueco was not shown the Joint Motion to Dismiss in the meeting of August 28, 1995, bolstering his claim that its signing was never put into consideration in reaching a compromise. xxx.[9] We see no reason to reverse. Anent the issue of award of damages, we find the claim of petitioner meritorious. In finding the petitioner liable for damages, both the Regional Trial Court and the Court of Appeals ruled that there was fraud on the part of the petitioner. The CA thus declared:

The lower court's finding of fraud which became the basis of the award of damages was likewise sufficiently proven. Fraud under Article 1170 of the Civil Code of the Philippines, as amended is the deliberate and intentional evasion of the normal fulfillment of obligation When petitioner refused to release the car despite respondent's tender of payment in the form of a manager's check, the former intentionally evaded its obligation and thereby became liable for moral and exemplary damages, as well as attorneys fees.[10] We disagree. Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission; the fraud referred to in Article 1170 of the Civil Code is the deliberate and intentional evasion of the normal fulfillment of obligation.[11] We fail to see how the act of the petitioner bank in requiring the respondent to sign the joint motion to dismiss could constitute as fraud. True, petitioner may have been remiss in informing Dr. Gueco that the signing of a joint motion to dismiss is a standard operating procedure of petitioner bank. However, this can not in anyway have prejudiced Dr. Gueco. The motion to dismiss was in fact also for the benefit of Dr. Gueco, as the case filed by petitioner against it before the lower court would be dismissed with prejudice. The whole point of the parties entering into the compromise agreement was in order that Dr. Gueco would pay his outstanding account and in return petitioner would return the car and drop the case for money and replevin before the Metropolitan Trial Court. The joint motion to dismiss was but a natural consequence of the compromise agreement and simply stated that Dr. Gueco had fully settled his obligation, hence, the dismissal of the case. Petitioner's act of requiring Dr. Gueco to sign the joint motion to dismiss can not be said to be a deliberate attempt on the part of petitioner to renege on the compromise agreement of the parties. It should, likewise, be noted that in cases of breach of contract, moral damages may only be awarded when the breach was attended by fraud or bad faith. [12] The law presumes good faith. Dr. Gueco failed to present an iota of evidence to overcome this presumption. In fact, the act of petitioner bank in lowering the debt of Dr. Gueco from P184,000.00 toP150,000.00 is indicative of its good faith and sincere desire to settle the case. If respondent did suffer any damage, as a result of the withholding of his car by petitioner, he has only himself to blame. Necessarily, the claim for exemplary damages must fail. In no way, may the conduct of petitioner be characterized as wanton, fraudulent, reckless, oppressive or malevolent.[13] We, likewise, find for the petitioner with respect to the third assigned error. In the meeting of August 29, 1995, respondent Dr. Gueco delivered a managers check representing the reduced amount of P150,000.00. Said check was given to Mr. Rivera, a representative of respondent bank. However, since Dr. Gueco refused to sign the joint motion to dismiss, he was made to execute a statement to the effect that he was withholding the payment of the check.[14]Subsequently, in a letter addressed to Ms. Desi Tomas, vice president of the bank, dated September 4, 1995, Dr. Gueco instructed the bank

to disregard the hold order letter and demanded the immediate release of his car,[15] to which the former replied that the condition of signing the joint motion to dismiss must be satisfied and that they had kept the check which could be claimed by Dr. Gueco anytime. [16] While there is controversy as to whether the document evidencing the order to hold payment of the check was formally offered as evidence by petitioners, [17] it appears from the pleadings that said check has not been encashed. The decision of the Regional Trial Court, which was affirmed in toto by the Court of Appeals, orders the petitioner: 1. to return immediately the subject car to the appellants in good working condition. Appellee may deposit the Managers Check the proceeds of which have long been under the control of the issuing bank in favor of the appellee since its issuance, whereas the funds have long been paid by appellants to secure said Managers Check over which appellants have no control.[18] Respondents would make us hold that petitioner should return the car or its value and that the latter, because of its own negligence, should suffer the loss occasioned by the fact that the check had become stale.[19] It is their position that delivery of the managers check produced the effect of payment[20] and, thus, petitioner was negligent in opting not to deposit or use said check. Rudimentary sense of justice and fair play would not countenance respondents position. A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments law, an instrument not payable on demand must be presented for payment on the day it falls due. When the instrument is payable on demand, presentment must be made within a reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the last negotiation thereof.[21] A check must be presented for payment within a reasonable time after its issue, and in determining what is a reasonable time, regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case.[23] The test is whether the payee employed such diligence as a prudent man exercises in his own affairs.[24] This is because the nature and theory behind the use of a check points to its immediate use and payability. In a case, a check payable on demand which was long overdue by about two and a half (2-1/2) years was considered a stale check.[25] Failure of a payee to encash a check for more than ten (10) years undoubtedly resulted in the check becoming stale. [26] Thus, even a delay of one (1) week[27] or two (2) days,[28] under the specific circumstances of the cited cases constituted unreasonable time as a matter of law.
[22]

of the banks cashier on his own or another check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance by the act of its issuance.[29] It is really the banks own check and may be treated as a promissory note with the bank as a maker.[30] The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance thereof. If treated as promissory note, the drawer would be the maker and in which case the holder need not prove presentment for payment or present the bill to the drawee for acceptance.[31] Even assuming that presentment is needed, failure to present for payment within a reasonable time will result to the discharge of the drawer only to the extent of the loss caused by the delay.[32] Failure to present on time, thus, does not totally wipe out all liability. In fact, the legal situation amounts to an acknowledgment of liability in the sum stated in the check. In this case, the Gueco spouses have not alleged, much less shown that they or the bank which issued the managers check has suffered damage or loss caused by the delay or non-presentment. Definitely, the original obligation to pay certainly has not been erased. It has been held that, if the check had become stale, it becomes imperative that the circumstances that caused its non-presentment be determined. [33] In the case at bar, there is no doubt that the petitioner bank held on the check and refused to encash the same because of the controversy surrounding the signing of the joint motion to dismiss. We see no bad faith or negligence in this position taken by the Bank. WHEREFORE, premises considered, the petition for review is given due course. The decision of the Court of Appeals affirming the decision of the Regional Trial Court is SET ASIDE. Respondents are further ordered to pay the original obligation amounting to P150,000.00 to the petitioner upon surrender or cancellation of the managers check in the latters possession, afterwhich, petitioner is to return the subject motor vehicle in good working condition. SO ORDERED.

In the case at bar, however, the check involved is not an ordinary bill of exchange but a managers check. A managers check is one drawn by the banks manager upon the bank itself. It is similar to a cashiers check both as to effect and use. A cashiers check is a check

SECOND DIVISION [G.R. No. 112214. June 18, 1998] SECURITY BANK & TRUST COMPANY, petitioner, vs. COURT OF APPEALS, CRISPULO IKE ARBOLEDA, and AMADOR LIBONGCO, respondents. DECISION MENDOZA, J.: This is an appeal from the decision of the Court of Appeals [1] in CA-G.R. No. 33716, affirming the ruling of the Regional Trial Court, Branch 58, of Makati, Metro Manila. The facts are as follows: Petitioner filed an action against private respondents for the recovery of a sum of money with damages and preliminary attachment. It alleged that sometime in 1983, A.T. Diaz Realty, through Anita Diaz, bought from Ricardo Lorenzo his undivided share in a parcel of land which he owned in common with Servando Solomon. In connection with this transaction, Diaz issued a check for P60,000.00 in the name of Ricardo Lorenzos agent, private respondent Crispulo Arboleda. The check, dated November 7, 1983, was to be drawn against the current account of A.T. Diaz Realty in the Marikina branch of the Security Bank and Trust Co. (SBTC). According to Diaz, the money was part of the purchase price of the land. It was to be used to pay the capital gains tax on the transaction and to reimburse Solomon for payments he had made for delinquent real estate taxes on the land. In return, Solomon would deliver to Diaz the title to the land. On November 8, 1983, Solomon informed Diaz that, as he had not yet been reimbursed by private respondent, he could not deliver to Diaz the title to the land. Diaz decided to reimburse Solomon and to pay the capital gains tax herself. Consequently, she issued two more checks, one for P20,000.00, in the name of Solomon for the reimbursement, and another one for P40,000.00, payable to bearer, for the payment of the tax. Thereafter, on the same date, she ordered petitioner to stop payment on the check. Diaz allegedly advised private respondent of the order and requested the return of the check to her. Instead of returning the check to Diaz, however, private respondent encashed it on November 24, 1983. For their part, employees of petitioner bank failed to notice that the check was the subject of a stop payment order and allowed private respondent to encash it. (It appears that the drawer, A.T. Diaz Realty, had two accounts with petitioner, a savings account and a current account. It had an agreement with petitioner for automatic transfer which made it possible for the drawer to draw a check against its current account and have it supported by funds from the savings account, if funds from the current account were insufficient to cover the amount of the check. The stop payment order issued by A.T. Diaz Realty was posted in the current account ledger. However, when the check was presented for encashment, bank personnel consulted not the current account ledger in which the stop payment order was posted but the savings account ledger, to see if the funds therein

deposited were sufficient to cover the amount of the check. Since no stop payment order was posted in that ledger, the check was encashed.) The error was discovered only the next day, November 25, 1983. Petitioner recredited the amount (P60,000.00) of the check to A.T. Diaz Realtys account. Bank officials went to see respondent Arboleda to ask for the return of the amount of P60,000.00. But they were told the money had been turned over to Amador Libongco. When asked by bank officials, Libongco did not deny receipt of the money, but said he would return it provided Diaz showed him the receipt for payment of the capital gains tax. As Diaz failed to show receipts, Arboleda and Libongco refused to return the money. Petitioner, therefore, filed the instant suit. In their answer, Arboleda and Libongco denied any obligation to return the money, alleging that it was due them, the P45,000.00 as payment for the balance of the purchase price, and the P15,000.00 as payment for Arboledas commission as agent. Arboleda also denied having been notified of the stop payment order, while Libongco denied having received the money.[2] Libongco died on January 19, 1989[3] and, accordingly, the case against him was dismissed.[4] On May 21, 1990, the trial court rendered its decision, dismissing petitioners complaint. It ruled that private respondent and Libongco had no obligation to return the P60,000.00 to Diaz. First, because private respondent was entitled to P15,000.00 as his commission. Second, because Diaz could not demand reimbursement for the amount she paid for capital gains tax without receipts to show for the payment. The trial court found that no tax had actually been paid as the sale of the land was antedated May 21, 1976 to avoid payment of the capital gains tax. Consequently, it was held, petitioner should not have recredited A.T. Diaz Realty with the P60,000.00. The reason given for the stop payment order was transaction incomplete. However, according to the trial court, since the sale of the land had been completed on November 22, 1983, when the sale to A.T. Diaz Realty was annotated on the title while the check was encashed on November 24, 1983, the transaction had already been completed at the time the check was encashed. The reason given for the stop payment order, i.e., that transaction incomplete was, thus, a gross misrepresentation.[5] The trial court ruled that petitioner incurred no liability even if it encashed the check despite a stop payment order, because of a note in the stop payment order form: [T]he depositor agrees . . . not to hold the bank liable on account of payment contrary to the request . . . if the same occurs through inadvertence, accident or oversight. . . .[6] Petitioner appealed to the Court of Appeals which, as earlier stated, affirmed the decision of the trial court. Hence, this petition. Petitioner contends:

1. The Court of Appeals erred in upholding the decision of the lower court dismissing the complaint and in not ordering respondent Arboleda to return the value of the subject check to petitioner. 2. The Court of Appeals erred in affirming the decision of the lower court not ordering respondent Arboleda to pay petitioner interest on the value of the subject check, and exemplary damages, attorneys fees and cost of suit.[7] The petition must fail. Petitioner contends that whatever claim respondent has against Anita Diaz is immaterial to this case. It is argued that private respondent has an obligation to return the money he received based on Art. 2154 of the Civil Code, which provides: 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. This contention has no merit. There was no contractual relation created between petitioner and private respondent as a result of the payment by the former of the amount of the check. Petitioner simply paid the check for and in behalf of Anita Diaz. Therefore, the question whether private respondent Crispulo Arboleda has a right to keep the proceeds of the check is very relevant to this action brought to recover the amount. As private respondent points out: It is Anita Diaz to whom respondent sold their property. It is Anita Diaz who issued the subject check in payment of the balance of the purchase price, and earmarked for the payment of the capital gains tax and agents commission for the sale of the property. If the check was dishonored upon presentment for payment, respondent cannot sue petitioner but only the drawer (Anita Diaz) for lack of privity. The funds from which the check shall be paid belong to Anita Diaz and merely deposited with the petitioner bank. The stop payment order was issued by Anita Diaz for alleged incomplete transaction which is a misrepresentation.[8] Whether petitioner is liable to Anita Diaz for cashing the check after it had been ordered not to pay is a matter between them. By restoring the amount it had paid to the account of A.T. Diaz Realty, petitioner merely stepped into the shoes of the drawer. Consequently, its present action is subject to the defenses which private respondent Arboleda might raise had this action been instituted by Anita Diaz. What appears to have happened in this case is that there was an agreement that if Anita Diaz, the drawer of the check, paid the capital gains tax, she would be reimbursed the amount she had paid to Arboleda. Claiming that she had paid the capital gains tax, Diaz issued a stop payment order to petitioner and asked for the return of the check she had issued to Arboleda. As she could not show any receipt for payment, however, Arboleda refused to return the check. Arboleda instead cashed the check and refused to pay its proceeds.

Not only was there no receipt presented in this case to prove payment of the tax by Anita Diaz. There are circumstances which render Anita Diaz claim that she has paid the tax doubtful: (1) the Deputy Registrar of Deeds of Marikina testified that they did not have any record showing payment of the capital gains tax;[9] (2) the check for the P40,000.00, which Anita Diaz claimed she had issued in payment of the tax, was payable to cash, [10] and thus, it could not be determined to whom the proceeds of such check were paid; and (3) Jose Angeles, to whom the check was allegedly given by Anita Diaz, was not presented in court. Petitioner contends that defenses against Anita Diaz should not be considered in this case because she has not been impleaded as a party. It appears, however, that petitioner was ordered by the trial court to implead Diaz but it did not do so on the ground that it was going to present her as a witness. Indeed, even if petitioner is considered to have paid Anita Diaz in behalf of Arboleda, its right to recover from Arboleda would be only to the extent that the payment benefitted Arboleda, because the payment (recrediting) was made without the consent of Arboleda. Since Arboleda denies owing any obligation to Diaz, petitioner cannot ask for reimbursement. Thus, Art. 1236 of the Civil Code states: The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. WHEREFORE, the decision of the Court of Appeals is AFFIRMED. SO ORDERED.

THIRD DIVISION G.R. No. 138510 October 10, 2002 TRADERS ROYAL BANK, petitioner, vs. RADIO PHILIPPINES NETWORK, INC., INTERCONTINENTAL BROADCASTING CORPORATION and BANAHAW BROADCASTING CORPORATION, through the BOARD OF ADMINISTRATORS, and SECURITY BANK AND TRUST COMPANY, respondents. DECISION CORONA, J.: Petitioner seeks the review and prays for the reversal of the Decision1 of April 30, 1999 of Court of Appeals in CA-G.R. CV No. 54656, the dispositive portion of which reads: WHEREFORE, the appealed decision is AFFIRMED with modification in the sense that appellant SBTC is hereby absolved from any liability. Appellant TRB is solely liable to the appellees for the damages and costs of suit specified in the dispositive portion of the appealed decision. Costs against appellant TRB. SO ORDERED.2 As found by the Court of Appeals, the antecedent facts of the case are as follows: On April 15, 1985, the Bureau of Internal Revenue (BIR) assessed plaintiffs Radio Philippines Network (RPN), Intercontinental Broadcasting Corporation (IBC), and Banahaw Broadcasting Corporation (BBC) of their tax obligations for the taxable years 1978 to 1983. On March 25, 1987, Mrs. Lourdes C. Vera, plaintiffs comptroller, sent a letter to the BIR requesting settlement of plaintiffs tax obligations. The BIR granted the request and accordingly, on June 26, 1986, plaintiffs purchased from defendant Traders Royal Bank (TRB) three (3) managers checks to be used as payment for their tax liabilities, to wit: Check Number 30652 30650 30796 Amount P4,155.835.00 3,949,406.12 1,685,475.75

Republic of the Philippines SUPREME COURT Manila

Defendant TRB, through Aida Nuez, TRB Branch Manager at Broadcast City Branch, turned over the checks to Mrs. Vera who was supposed to deliver the same to the BIR in payment of plaintiffs taxes. Sometime in September, 1988, the BIR again assessed plaintiffs for their tax liabilities for the years 1979-82. It was then they discovered that the three (3) managers checks (Nos. 30652, 30650 and 30796) intended as payment for their taxes were never delivered nor paid to the BIR by Mrs. Vera. Instead, the checks were presented for payment by unknown persons to defendant Security Bank and Trust Company (SBTC), Taytay Branch as shown by the banks routing symbol transit number (BRSTN 01140027) or clearing code stamped on the reverse sides of the checks.

Meanwhile, for failure of the plaintiffs to settle their obligations, the BIR issued warrants of levy, distraint and garnishment against them. Thus, they were constrained to enter into a compromise and paid BIR P18,962,225.25 in settlement of their unpaid deficiency taxes. Thereafter, plaintiffs sent letters to both defendants, demanding that the amounts covered by the checks be reimbursed or credited to their account. The defendants refused, hence, the instant suit.3 On February 17, 1985, the trial court rendered its decision, thus: WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiffs and against the defendants by : a) Condemning the defendant Traders Royal Bank to pay actual damages in the sum of Nine Million Seven Hundred Ninety Thousand and Seven Hundred Sixteen Pesos and Eighty-Seven Centavos (P9,790,716.87) broken down as follows: 1) To plaintiff RPN-9 - P4,155,835.00 2) To Plaintiff IBC-13 - P3,949,406.12 3) To Plaintiff BBC-2 - P1,685,475.72 plus interest at the legal rate from the filing of this case in court. b) Condemning the defendant Security Bank and Trust Company, being collecting bank, to reimburse the defendant Traders Royal Bank, all the amounts which the latter would pay to the aforenamed plaintiffs; c) Condemning both defendants to pay to each of the plaintiffs the sum of Three Hundred Thousand (P300,000.00) Pesos as exemplary damages and attorneys fees equivalent to twenty-five percent of the total amount recovered; and d) Costs of suit. SO ORDERED.4 Defendants Traders Royal Bank and Security Bank and Trust Company, Inc. both appealed the trial courts decision to the Court of Appeals. However, as quoted in the beginning hereof, the appellate court absolved defendant SBTC from any liability and held TRB solely liable to respondent networks for damages and costs of suit. In the instant petition for review on certiorari of the Court of Appeals decision, petitioner TRB assigns the following errors: (a) the Honorable Court of Appeals manifestly overlooked facts which would justify the conclusion that negligence on the part of RPN, IBC and BBC bars them from recovering anything from TRB, (b) the Honorable Court of Appeals plainly erred and misapprehended the facts in relieving SBTC of its liability to TRB as collecting bank and indorser by overturning the trial courts factual finding that SBTC did endorse the three (3) managers checks subject of the instant case, and (c) the Honorable Court of Appeals plainly misapplied the law in affirming the award of exemplary damages in favor of RPN, IBC and BBC. In reply, respondents RPN, IBC, and BBC assert that TRBs petition raises questions of fact in violation of Rule 45 of the 1997 Revised Rules on Civil Procedure which restricts petitions for review on certiorari of the decisions of the Court of Appeals on pure questions of law. RPN, IBC and BBC maintain that the issue of whether or not respondent networks had been negligent were already passed upon both by the trial and appellate courts, and that the factual findings of both courts are binding and conclusive upon this Court. Likewise, respondent SBTC denies liability on the ground that it had no participation in the negotiation of the checks, emphasizing that the BRSTN imprints at the back of the checks

cannot be considered as proof that respondent SBTC accepted the disputed checks and presented them to Philippine Clearing House Corporation for clearing. Setting aside the factual ramifications of the instant case, the threshold issue now is whether or not TRB should be held solely liable when it paid the amount of the checks in question to a person other than the payee indicated on the face of the check, the Bureau of Internal Revenue. "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."5 Consequently, if a bank pays a forged check, it must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor. In the instant case, the 3 checks were payable to the BIR. It was established, however, that said checks were never delivered or paid to the payee BIR but were in fact presented for payment by some unknown persons who, in order to receive payment therefor, forged the name of the payee. Despite this fraud, petitioner TRB paid the 3 checks in the total amount of P9,790,716.87. Petitioner ought to have known that, where a check is drawn payable to the order of one person and is presented for payment by another and purports upon its face to have been duly indorsed by the payee of the check, it is the primary duty of petitioner to know that the check was duly indorsed by the original payee and, where it pays the amount of the check to a third person who has forged the signature of the payee, the loss falls upon petitioner who cashed the check. Its only remedy is against the person to whom it paid the money.6 It should be noted further that one of the subject checks was crossed. The crossing of one of the subject checks should have put petitioner on guard; it was duty-bound to ascertain the indorsers title to the check or the nature of his possession. Petitioner should have known the effects of a crossed check: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once to one who has an account with a bank and (c) 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, otherwise, he is not a holder in due course.7 By encashing in favor of unknown persons checks which were on their face payable to the BIR, a government agency which can only act only through its agents, petitioner did so at its peril and must suffer the consequences of the unauthorized or wrongful endorsement.8 In this light, petitioner TRB cannot exculpate itself from liability by claiming that respondent networks were themselves negligent. A bank is engaged in a business impressed with public interest and it is its duty to protect its many clients and depositors who transact business with it. It is under the obligation to treat the accounts of the depositors and clients with meticulous care, whether such accounts consist only of a few hundreds or millions of pesos.9 Petitioner argues that respondent SBTC, as the collecting bank and indorser, should be held responsible instead for the amount of the checks. The Court of Appeals addressed exactly the same issue and made the following findings and conclusions:

As to the alleged liability of appellant SBTC, a close examination of the records constrains us to deviate from the lower courts finding that SBTC, as a collecting bank, should similarly bear the loss. "A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the banks client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank." To hold appellant SBTC liable, it is necessary to determine whether it is a party to the disputed transactions. Section 3 of the Negotiable Instruments Law reads: "SECTION 63. When person deemed indorser. - A person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor, is deemed to be an indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity." Upon the other hand, the Philippine Clearing House Corporation (PCHC) rules provide: "Sec. 17.- BANK GUARANTEE. All checks cleared through the PCHC shall bear the guarantee affixed thereto by the Presenting Bank/Branch which shall read as follows: "Cleared thru the Philippine Clearing House Corporation. All prior endorsements and/or lack of endorsement guaranteed. NAME OF BANK/BRANCH BRSTN (Date of clearing)." Here, not one of the disputed checks bears the requisite endorsement of appellant SBTC. What appears to be a guarantee stamped at the back of the checks is that of the Philippine National Bank, Buendia Branch, thereby indicating that it was the latter Bank which received the same. It was likewise established during the trial that whenever appellant SBTC receives a check for deposit, its practice is to stamp on its face the words, "non-negotiable". Lana Echevarrias testimony is relevant: "ATTY. ROMANO: Could you tell us briefly the procedure you follow in receiving checks? "A: First of all, I verify the check itself, the place, the date, the amount in words and everything. And then, if all these things are in order and verified in the data sheet I stamp my non-negotiable stamp at the face of the check." Unfortunately, the words "non-negotiable" do not appear on the face of either of the three (3) disputed checks. Moreover, the aggregate amount of the checks is not reflected in the clearing documents of appellant SBTC. Section 19 of the Rules of the PCHC states: "Section 19 Regular Item Procedure: Each clearing participant, through its authorized representatives, shall deliver to the PCHC fully qualified MICR checks grouped in 200 or less items to a batch and supported by an add-list, a batch control slip, and a delivery statement. It bears stressing that through the add-list, the PCHC can countercheck and determine which checks have been presented on a particular day by a particular bank for processing and clearing. In this case, however, the add-list submitted by appellant SBTC together with the checks it presented for clearing on August 3, 1987 does not show that Check No. 306502 in the sum of P3,949,406.12 was among those that passed for clearing with the PCHC on that date. The same is true with Check No. 30652 with a face amount of

P4,155,835.00 presented for clearing on August 11, 1987 and Check No. 30796 with a face amount of P1,685,475.75. The foregoing circumstances taken altogether create a serious doubt on whether the disputed checks passed through the hands of appellant SBTC."10 We subscribe to the foregoing findings and conclusions of the Court of Appeals. A collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement itself, and ultimately should be held liable therefor. However, it is doubtful if the subject checks were ever presented to and accepted by SBTC so as to hold it liable as a collecting bank, as held by the Court of Appeals. Since TRB did not pay the rightful holder or other person or entity entitled to receive payment, it has no right to reimbursement. Petitioner TRB was remiss in its duty and obligation, and must therefore suffer the consequences of its own negligence and disregard of established banking rules and procedures. We agree with petitioner, however, that it should not be made to pay exemplary damages to RPN, IBC and BBC because its wrongful act was not done in bad faith, and it did not act in a wanton, fraudulent, reckless or malevolent manner.11 We find the award of attorneys fees, 25% of P10 million, to be manifestly exorbitant.12 Considering the nature and extent of the services rendered by respondent networks counsel, however, the Court deems it appropriate to award the amount of P100,000 as attorneys fees. WHEREFORE, the appealed decision is MODIFIED by deleting the award of exemplary damages. Further, respondent networks are granted the amount of P100,000 as attorneys fees. In all other respects, the Court of Appeals decision is hereby AFFIRMED. SO ORDERED.