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SECOND DIVISION

[G.R. No. 170912. April 19, 2010.] ROBERT DINO, petitioner, vs. MARIA LUISA JUDAL-LOOT, joined by her husband VICENTE LOOT, respondents. DECISION CARPIO, J :
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The Case This is a petition for review 1 of the 16 August 2005 Decision 2 and 30 November 2005 Resolution 3 of the Court of Appeals in CA-G.R. CV No. 57994. The Court of Appeals affirmed the decision of the Regional Trial Court, 7th Judicial Region, Branch 56, Mandaue City (trial court), with the deletion of the award of interest, moral damages, attorney's fees and litigation expenses. The trial court ruled that respondents Maria Luisa Judal-Loot and Vicente Loot are holders in due course of Metrobank Check No. C-MA 142119406 CA and ordered petitioner Robert Dino as drawer, together with co-defendant Fe Lobitana as indorser, to solidarily pay respondents the face value of the check, among others. The Facts Sometime in December 1992, a syndicate, one of whose members posed as an owner of several parcels of land situated in Canjulao, Lapu-lapu City, approached petitioner and induced him to lend the group P3,000,000.00 to be secured by a real estate mortgage on the properties. A member of the group, particularly a woman pretending to be a certain Vivencia Ompok Consing, even offered to execute a Deed of Absolute Sale covering the properties, instead of the usual mortgage contract.4 Enticed and convinced by the syndicate's offer, petitioner issued three Metrobank checks totaling P3,000,000.00, one of which is Check No. C-MA-142119406-CA postdated 13 February 1993 in the amount of P1,000,000.00 payable to Vivencia Ompok Consing and/or Fe Lobitana. 5 Upon scrutinizing the documents involving the properties, petitioner discovered that the documents covered rights over government properties. Realizing he had

been deceived, petitioner advised Metrobank to stop payment of his checks. However, only the payment of Check No. C-MA- 142119406-CA was ordered stopped. The other two checks were already encashed by the payees. Meanwhile, Lobitana negotiated and indorsed Check No. C-MA-142119406-CA to respondents in exchange for cash in the sum of P948,000.00, which respondents borrowed from Metrobank and charged against their credit line. Before respondents accepted the check, they first inquired from the drawee bank, Metrobank, Cebu-Mabolo Branch which is also their depositary bank, if the subject check was sufficiently funded, to which Metrobank answered in the positive. However, when respondents deposited the check with Metrobank, Cebu-Mabolo Branch, the same was dishonored by the drawee bank for reason "PAYMENT STOPPED."
ESTDIA

Respondents filed a collection suit 6 against petitioner and Lobitana before the trial court. In their Complaint, respondents alleged, among other things, that they are holders in due course and for value of Metrobank Check No. C-MA142119406-CA and that they had no prior information concerning the transaction between defendants. In his Answer, petitioner denied respondents' allegations that "on the face of the subject check, no condition or limitation was imposed" and that respondents are holders in due course and for value of the check. For her part, Lobitana denied the allegations in the complaint and basically claimed that the transaction leading to the issuance of the subject check is a sale of a parcel of land by Vivencia Ompok Consing to petitioner and that she was made a payee of the check only to facilitate its discounting. The trial court ruled in favor of respondents and declared them due course holders of the subject check, since there was no privity between respondents and defendants. The dispositive portion of the 14 March 1996 Decision of the trial court reads:
In summation, this Court rules for the Plaintiff and against the Defendants and hereby orders: 1.)defendants to pay to Plaintiff, and severally, the amount of P1,000,000.00 representing the face value of subject Metrobank check; 2.)to pay to Plaintiff herein, jointly and severally, the sum of P101,748.00 for accrued and paid interest;

3.)to pay to Plaintiff, jointly and severally, moral damages in the amount of P100,000.00; 4.)to pay to Plaintiff, jointly and severally, the sum of P200,000.00 for attorney's fees; and 5.)to pay to Plaintiff, jointly and severally, litigation expenses in the sum of P10,000.00 and costs of the suit. SO ORDERED.
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Only petitioner filed an appeal. Lobitana did not appeal the trial court's judgment. The Ruling of the Court of Appeals The Court of Appeals affirmed the trial court's finding that respondents are holders in due course of Metrobank Check No. C-MA-142119406-CA. The Court of Appeals pointed out that petitioner's own admission that respondents were never parties to the transaction among petitioner, Lobitana, Concordio Toring, Cecilia Villacarlos, and Consing, proved respondents' lack of knowledge of any infirmity in the instrument or defect in the title of the person negotiating it. Moreover, respondents verified from Metrobank whether the check was sufficiently funded before they accepted it. Therefore, respondents must be excluded from the ambit of petitioner's stop payment order.
AaIDCS

The Court of Appeals modified the trial court's decision by deleting the award of interest, moral damages, attorney's fees and litigation expenses. The Court of Appeals opined that petitioner "was only exercising (although incorrectly), what he perceived to be his right to stop the payment of the check which he rediscounted." The Court of Appeals ruled that petitioner acted in good faith in ordering the stoppage of payment of the subject check and thus, he must not be made liable for those amounts. In its 16 August 2005 Decision, the Court of Appeals affirmed the trial court's decision with modifications, thus:
WHEREFORE, premises considered, finding no reversible error in the decision of the lower court, WE hereby DISMISS the appeal and AFFIRM the decision of the court a quo with modifications that the award of interest, moral damages, attorney's fees and litigation expenses be deleted.

No pronouncement as to costs. SO ORDERED.


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In its 30 November 2005 Resolution, the Court of Appeals denied petitioner's motion for reconsideration. In denying the petitioner's motion for reconsideration, the Court of Appeals noted that petitioner raised the defense that the check is a crossed check for the first time on appeal (particularly in the motion for reconsideration). The Court of Appeals rejected such defense considering that to entertain the same would be offensive to the basic rules of fair play, justice, and due process. Hence, this petition. The Issues Petitioner raises the following issues:
I.THE COURT OF APPEALS ERRED IN HOLDING THAT THE RESPONDENTS WERE HOLDERS IN DUE COURSE. THE FACT THAT METROBANK CHECK NO. 142119406 IS A CROSSED CHECK CONSTITUTES SUFFICIENT WARNING TO THE RESPONDENTS TO EXERCISE EXTRAORDINARY DILIGENCE TO DETERMINE THE TITLE OF THE INDORSER. II.THE COURT OF APPEALS ERRED IN DENYING PETITIONER'S MOTION FOR RECONSIDERATION UPON THE GROUND THAT THE ARGUMENTS RELIED UPON HAVE ONLY BEEN RAISED FOR THE FIRST TIME. EQUITY DEMANDS THAT THE COURT OF APPEALS SHOULD HAVE MADE AN EXCEPTION TO PREVENT THE COMMISSION OF MANIFEST WRONG AND INJUSTICE UPON THE PETITIONER. 9
HATEDC

The Ruling of this Court The petition is meritorious. Respondents point out that petitioner raised the defense that Metrobank Check No. C-MA-142119406-CA is a crossed check for the first time in his motion for reconsideration before the Court of Appeals. Respondents insist that issues not raised during the trial cannot be raised for the first time on appeal as it would be offensive to the elementary rules of fair play, justice and due process. Respondents further assert that a change of theory on appeal is improper.

In his Answer, petitioner specifically denied, among others, (1) Paragraph 4 of the Complaint, concerning the allegation that on the face of the subject check, no condition or limitation was imposed, and (2) Paragraph 8 of the Complaint, regarding the allegation that respondents were holders in due course and for value of the subject check. In his "Special Affirmative Defenses," petitioner claimed that "for want or lack of the prestation," he could validly stop the payment of his check, and that by rediscounting petitioner's check, respondents "took the risk of what might happen on the check." Essentially, petitioner maintained that respondents are not holders in due course of the subject check, and as such, respondents could not recover any liability on the check from petitioner. Indeed, petitioner did not expressly state in his Answer or raise during the trial that Metrobank Check No. C-MA-142119406-CA is a crossed check. It must be stressed, however, that petitioner consistently argues that respondents are not holders in due course of the subject check, which is one of the possible effects of crossing a check. The act of crossing a check serves as a warning to the holder that the check has been issued for a definite purpose so that the holder thereof must inquire if he has received the check pursuant to that purpose; otherwise, he is not a holder in due course. 10 Contrary to respondents' view, petitioner never changed his theory, that respondents are not holders in due course of the subject check, as would violate fundamental rules of justice, fair play, and due process. Besides, the subject check was presented and admitted as evidence during the trial and respondents did not and in fact cannot deny that it is a crossed check. In any event, the Court is clothed with ample authority to entertain issues or matters not raised in the lower courts in the interest of substantial justice. 11 In Casa Filipina Realty v. Office of the President, 12 the Court held:
[T]he trend in modern-day procedure is to accord the courts broad discretionary power such that the appellate court may consider matters bearing on the issues submitted for resolution which the parties failed to raise or which the lower court ignored. Since rules of procedure are mere tools designed to facilitate the attainment of justice, their strict and rigid application which would result in technicalities that tend to frustrate rather than promote substantial justice, must always be avoided. Technicality should not be allowed to stand in the way of equitably and completely resolving the rights and obligations of the parties. 13
IcDCaT

Having disposed of the procedural issue, the Court shall now proceed to the merits of the case. The main issue is whether respondents are holders in due course of Metrobank Check No. C-MA 142119406 CA as to entitle them to collect the face value of the check from its drawer or petitioner herein. Section 52 of the Negotiable Instruments Law defines a holder in due course, thus:
A holder in due course is a holder who has taken the instrument under the following conditions: (a)That it is complete and regular upon its face; (b)That he became the holder of it before it was overdue, and without notice that it has been previously dishonored, if such was the fact; (c)That he took it in good faith and for value; (d)That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

In the case of a crossed check, as in this case, the following principles must additionally be considered: A crossed check (a) may not be encashed but only deposited in the bank; (b) may be negotiated only once to one who has an account with a bank; and (c) warns the holder that it has been issued for a definite purpose so that the holder thereof must inquire if he has received the check pursuant to that purpose; otherwise, he is not a holder in due course. 14
HECTaA

Based on the foregoing, respondents had the duty to ascertain the indorser's, in this case Lobitana's, title to the check or the nature of her possession. This respondents failed to do. Respondents' verification from Metrobank on the funding of the check does not amount to determination of Lobitana's title to the check. Failing in this respect, respondents are guilty of gross negligence amounting to legal absence of good faith, 15 contrary to Section 52 (c) of the Negotiable Instruments Law. Hence, respondents are not deemed holders in due course of the subject check. 16

State Investment House v. Intermediate Appellate Court

squarely applies to this case. There, New Sikatuna Wood Industries, Inc. sold at a discount to State Investment House three post-dated crossed checks, issued by Anita Pea Chua
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naming as payee New Sikatuna Wood Industries, Inc. The Court found State Investment House not a holder in due course of the checks. The Court also expounded on the effect of crossing a check, thus:
Under usual practice, crossing a check is done by placing two parallel lines diagonally on the left top portion of the check. The crossing may be special wherein between the two parallel lines is written the name of a bank or a business institution, in which case the drawee should pay only with the intervention of that bank or company, or crossing may be general wherein between two parallel diagonal lines are written the words "and Co." or none at all as in the case at bar, in which case the drawee should not encash the same but merely accept the same for deposit. The effect therefore of crossing a check relates to the mode of its presentment for payment. Under Section 72 of the Negotiable Instruments Law, presentment for payment to be sufficient must be made (a) by the holder, or by some person authorized to receive payment on his behalf . . . As to who the holder or authorized person will be depends on the instructions stated on the face of the check. The three subject checks in the case at bar had been crossed generally and issued payable to New Sikatuna Wood Industries, Inc. which could only mean that the drawer had intended the same for deposit only by the rightful person, i.e., the payee named therein. Apparently, it was not the payee who presented the same for payment and therefore, there was no proper presentment, and the liability did not attach to the drawer. Thus, in the absence of due presentment, the drawer did not become liable. Consequently, no right of recourse is available to petitioner against the drawer of the subject checks, private respondent wife, considering that petitioner is not the proper party authorized to make presentment of the checks in question.

In this case, there is no question that the payees of the check, Lobitana or Consing, were not the ones who presented the check for payment. Lobitana negotiated and indorsed the check to respondents in exchange for P948,000.00. It was respondents who presented the subject check for payment; however, the check was dishonored for reason "PAYMENT STOPPED." In other words, it was not the payee who presented the check for payment; and thus, there was no proper presentment. As a result, liability did not attach to the drawer. Accordingly, no right of recourse is available to respondents against the drawer

of the check, petitioner herein, since respondents are not the proper party authorized to make presentment of the subject check.
cHAaCE

However, the fact that respondents are not holders in due course does not automatically mean that they cannot recover on the check. 18 The Negotiable Instruments Law does not provide that a holder who is not a holder in due course may not in any case recover on the instrument. The only disadvantage of a holder who is not in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable. 19 Among such defenses is the absence or failure of consideration, 20which petitioner sufficiently established in this case. Petitioner issued the subject check supposedly for a loan in favor of Consing's group, who turned out to be a syndicate defrauding gullible individuals. Since there is in fact no valid loan to speak of, there is no consideration for the issuance of the check. Consequently, petitioner cannot be obliged to pay the face value of the check. Respondents can collect from the immediate indorser, 21 in this case Lobitana. Significantly, Lobitana did not appeal the trial court's decision, finding her solidarily liable to pay, among others, the face value of the subject check. Therefore, the trial court's judgment has long become final and executory as to Lobitana. WHEREFORE, we GRANT the petition. We SET ASIDE the 16 August 2005 Decision and 30 November 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 57994. SO ORDERED.

Brion, Del Castillo, Abad and Perez, JJ., concur.


Footnotes

1.Under Rule 45 of the Rules of Court. 2.Rollo, pp. 24-32. Penned by Associate Justice Enrico A. Lanzanas with Associate Justices Arsenio J. Magpale and Sesinando E. Villon, concurring. 3.Id. at 34-36. 4.Records, p. 22. 5.Id.

6.Docketed as Civil Case No. MAN-1843. 7.Rollo, p. 77. 8.Id. at 31. 9.Id. at 14-15. 10.State Investment House v. Intermediate Appellate Court, G.R. No. 72764, 13 July 1989, 175 SCRA 310, 315. 11.Phil. Commercial & Industrial Bank v. CA, 242 Phil. 497, 503-504 (1988). See also Ortigas, Jr. v. Lufthansa German Airlines, 159-A Phil. 863, 889 (1975). 12.311 Phil. 170, 181 (1995). 13.Id. 14.State Investment House v. Intermediate Appellate Court, supra note 10; Bataan Cigar and Cigarette Factory, Inc. v. Court of Appeals, G.R. No. 93048, 3 March 1994, 230 SCRA 643, 648. 15.Vicente R. de Ocampo & Co. v. Gatchalian, No. L-15126, 30 November 1961, 3 SCRA 596, 603. 16.State Investment House v. Intermediate Appellate Court, supra note 10. 17.Id. at 316-317. 18.Bataan Cigar and Cigarette Factory, Inc. v. Court of Appeals, supra note 14 at 649. 19.Id., citing Chan Wan v. Tan Kim and Chen So, 109 Phil. 706 (1960). 20.Section 28, Negotiable Instruments Law. 21.Bataan Cigar and Cigarette Factory, Inc. v. Court of Appeals, supra.

FIRST DIVISION

[G.R. No. 19461. March 28, 1923.] CHARLES A. FOSSUM, plaintiff-appellant, vs. FERNANDEZ HERMANOS, a general partnership, and JOSE F. FERNANDEZ Y CASTRO and RAMON FERNANDEZ Y CASTRO, members of the said partnership of FERNANDEZ HERMANOS, defendants-appellees.

Chas. E. Tenney for appellant. Ernesto Zaragoza and Jose Varela Calderon for appellees.
SYLLABUS 1.BILLS AND NOTES; FAILURE OF CONSIDERATION; TITLE DERIVED FROM HOLDER IN DUE COURSE. A person who is not himself a holder in due course of a negotiable instrument may yet recover against the person primarily liable thereon, even though the consideration for the instrument has failed, where it appears that such holder derives his title through a holder in due course. But in order that the holder may recover on the instrument under such circumstances, it is incumbent upon him to show that he person through whom he derives his indefeasible title was a holder in due course; and this must be proved as an independent matter of fact. 2.ID.; PRESUMPTION IN FAVOR OF HOLDER HAVING PRESENT POSSESSION. The presumption expressed in section 59 of the Negotiable Instruments Law, to the effect that every holder is deemed prima facie to be a holder in due course, arises only in favor of a person who is a holder in the sense defined in section 191 of the same Law, that is, a payee or indorses who is in possession of the draft, or the bearer thereof. There is no presumption that a person through whose hands an instrument has passed was a holder in due course. 3.ID.; FAILURE OF CONSIDERATION; HOLDER IN DUE COURSE; RETRANSFER TO ORIGINAL PAYEE OR HIS AGENT. If the original payee of a note unenforceable for lack consideration repurchases the instrument after transferring it to a holder in due course, the paper again becomes subject in the payee's hands to the same defense to which it would have been subject if the paper had never passed through the hands of a holder in due course. The same is true where the instrument is retransferred to an agent of the payee.

DECISION STREET, J :
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Prior to the date of the making of the contract which gave rise to this litigation the plaintiff, Charles A. Fossum, was the resident agent in Manila of the American Iron Products Company, Inc., a concern engaged in business in New York City; and on February 10, 1920, the said Fossum, acting as agent of that company, procedures an order from Fernandez Hermanos, a general commercial partnership engaged in business the Philippine Islands, to deliver to said firm a tail shaft, to be installed on the ship Romulus, then operated by Fernandez Hermanos, as managers of La Compania Maritima. It was stipulated that said tail shaft would be in accordance with the specifications contained in a blueprint which had been placed in the hands of Fossum on or about December 18, 1919; and it was further understood that the should be shipped from New York upon some steamer sailing in March or April of the year 1920. Considerable delay seems to have been encountered in the matter of the manufacture and shipment of the shaft; but in the autumn of 1920 it was dispatched to Manila, having arrived in January, 1921. Meanwhile the American Iron Products Company, Inc., had drawn a time draft, at sixty days, upon Fernandez Hermanos, for the purchase price of the shaft, the same being in the amount of $2,250, and payable to the Philippine National Bank. In due course the draft was presented to Fernandez Hermanos for acceptance, and was accepted by said firm on December 15, 1920, according to its tenor. Upon inspection after arrival in Manila the shaft was found not to be in conformity with the specifications and was incapable of use for the purpose for which it had been intended. Upon discovering this Fernandez Hermanos refused to pay the draft, and it remained for a time dishonored in the hands of the Philippine National Bank in Manila. Later the bank indorsed the draft in blank, without consideration, and delivered it to the plaintiff, Charles A. Fossum, who thereupon instituted the present action on the instrument against the acceptor, Fernandez Hermanos, and the two individuals named as defendants in the complaint, in the character of members of said partnership. On the foregoing statement it is evident that the consideration for the draft in question and for the acceptance placed thereon by Fernandez Hermanos, has completely failed; and no action whatever can be maintained on the instrument by the American Iron Products Company, Inc., or by any

other person against whom the defense of failure of consideration is available. In recognition of this fact, and considering that the plaintiff Fossum, in whose name the action is brought, was individual who had acted for the American Iron Products Company, Inc., in the making of the contract, the trial court held that the action could not be maintained and absolved the defendants from the complaint. From this judgment the plaintiff appealed. We are of the opinion that the trial judge has committed no error. To begin with, the plaintiff himself is far from being a holder of this draft in due course. In the first place, he was himself a party to the contract which supplied the consideration for the draft, albeit he there acted in a representative capacity. In the second place, he procured the instrument to be indorsed by the bank and delivered to himself without the payment of value, after it was overdue, and with full notice that, as between the original parties, the consideration had completely failed. Under these circumstances recovery on this draft by the plaintiff by virtue of any merit in his own position is out of the question. His attorney, however, calls attention to in due course may yet recover against the person primarily liable where it appears that such holder derives his title through a holder in due course. The difficulty of the plaintiff's position from this point of view is that there is not a line of proof in the record tending to show as a fact that the bank itself was ever a holder of this draft in due course. In this connection it was incumbent on the plaintiff to show, as an independent matter of fact, that the person under whom the plaintiff claims i. e., the bank was a holder in due course; and upon this point the plaintiff can have no assistance from the presumption, expressed in section 59 of the Negotiable Instruments Law, to the effect that every holder is deemed prima facie to be a holder i n due course. The presumption expressed in that section arises only in favor of a person who is a holder in the same defined in section 191 of the same law, that is, a payee or indorse is in possession of the draft, or the bearer thereof. Under this definition, in order to be a holder, one must be in possession of the note or the bearer thereof. (Night & Day Bank vs. Rosenbaum, 191 Mo. App., 559, 574.) If this action had been instituted by the bank itself, the presumption that the bank was a holder in due course would have arisen from the tenor of the draft and the fact that it was in the bank's possession; but when the instrument passed out the possession of the bank and into the possession of the present plaintiff, no presumption arises as to the character in which the bank held the paper. The bank's relation to the instrument became history when it delivered the document to the plaintiff; and it was incumbent upon the plaintiff in this action to show that the bank had in fact acquired the instrument for value and under such conditions as would

constitute it a holder in due course. In the entire absence of proof on this point, the action must fail. There is another circumstance which exerted a decisive influence on the mind of the trial judge in deciding the case for the defendants. This is found in the fact that the plaintiff personally made the contract which constituted the consideration for this draft. He was therefore a party in fact, if not in law, to the transaction giving origin to the instrument; and it is difficult to see how the plaintiff could strip himself of the character of agent with respect to the origin of the contract and maintain this action in his own name where his principal could not. Certainly an agent who actually makes a contract, and who has notice of all equities emanating therefrom, can stand on no better footing than his principal with respect to commercial paper growing out of the transaction. To place him on any higher plane would be incompatible with the fundamental conception underlying the relation of principal and agent. We note that in the present case there is no proof that the plaintiff Fossum has ceased to be the ceased to the agent of the American Iron Products Company, Inc; and in the absence of proof the presumption must be that he still occupies the relation of agent to that company. It is a well-known rule of law that if the original payee of a note unenforceable for lack of consideration repurchases the instrument after transferring it to a holder in due course, the paper again becomes subject in the payee's hands to the same defenses to which it would have been subject if the paper had never passed through the hands of a holder in due course. (Kost vs. Bender, 25 Mich., 515; Shade vs. Hayes, L. R. A. [1915D], 271; 8 C. J., 470.) The same is true where the instrument is re-transferred it an agent of the payee (Battersbee vs. Calkins, 128 Mich., 569). In Dollarhide vs. Hopkins (72 III. App., 509), the plaintiff, as agent of a corporation engaged in manufacturing agricultural implements, sold to the defendant a separator for threshing small grain, with a general warranty that the machine, properly handled, would thresh and clean grain as well as any other separator of like size. The notes in suit were executed by the defendant in payment of the separator, and were assigned to the plaintiff before maturity. They were then indorsed by the plaintiff to a bank which became holder in due course; but afterwards, and before the commencement of the action, the notes were retransferred by the bank to the plaintiff. In an action upon the notes the defendant alleged and proved breach of warranty and showed that the plaintiff knew of the defect in the separator at the time he purchased the notes. It was held that the plaintiff could not recover, notwithstanding the fact that the notes had passed through a bank, in whose

hands they would not have been subject to the defense which had been subject to the defense which had been interposed (54 L. R. A., 678). We find nothing in the Negotiable Instruments Law that would interfere with the application of the doctrine applied in the cases above cited, for the rule that identifies the agent with the principal, so far as the legal consequences of certain acts are concerned, is a rule of general jurisprudence that must operate in conjunction with that Law. We consider the situation to be the same in practical effect as if the action had been brought in the name of the American Iron Products Company, Inc., itself; and the use of the same of Fossum strikes us a mere attempt at an evasion of the rule of law that would have been fatal to the success of an action instituted by that company. It appears from statements of Mr. Fossum on the witness stand that the draft in question was indorsed and delivered to him by the bank in order that suit might be brought thereon in his name for the use and benefit of the bank, which is said to be the real party in interest. In addition to this it appears that during the pendency of the cause in this court on appeal a formal transfer, or assignment, to the bank was made by Fossum of all his interest in the draft and in the cause of action. Assuming that the suggestion thus made is true, and that the bank is the real party in interest, the result of the lawsuit in this court is not thereby affected, since it has not been affirmatively shown that the bank is an innocent purchaser for value. It is therefore unnecessary to discuss the bearing of this circumstance on the second feature of the case discussed in this opinion. For the reasons stated the judgment appealed from must be affirmed, and it is so ordered, with costs against the appellant.

Araullo, C.J., Avancea, Villamor, Johns, and Romualdez, JJ., concur. Ostrand, J., concurs in the result.

Separate Opinions
MALCOLM, J., dissenting: The bill of exchange mentioned in the majority opinion, and here in question, was drawn by the American Iron Products Company, Inc., in New York, payable sixty days after sight to the order of the Philippine National Bank, and addressed to Fernandez Hermanos of Manilas drawee. The said bill

of exchange was accepted by Fernandez Hermanos, as appears from the following: "Accepted, 15th Dec., 1920, Due, 13 February, 1920, A. C. Varadero de Manila. (Sgd.) Fernandez Hermanos." The Philippine National Bank later indorsed the bill of exchange to Charles A. Fossum, as appears from the following: "Philippine National Bank, Manila, P.I., (Sgd.) E. O. Kaufman." Such are the facts. Section 58 of the Negotiable Instruments Law provides: ". . . A holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter." Under the provisions of this section, Fossum is in exactly the same situation as the Philippine National Bank would be. Fossum entitled to all the rights that pertain to the Philippine National Bank as holder in due course. Such is the law. The absence or failure of consideration is not a defense against a holder in due course, although it is a defense against a holder not in due course, as clearly appears from the Negotiable Instruments Law. (Act. No. 2031, seas. 28, 51, 52, 57, 58, 59.) The plain provisions of the Negotiable Instruments Law should not be ignored and they should be construed and applied in accordance with the language of the Act and in accordance with precedents construing and applying the Uniform Negotiable Instruments Law. Accordingly, I must dissent.

FIRST DIVISION
[G.R. No. 132403. September 28, 2007.] HI-CEMENT CORPORATION, petitioner, vs. INSULAR BANK OF ASIA AND AMERICA (later PHILIPPINE COMMERCIAL INTERNATIONAL BANK and now, EQUITABLE-PCI BANK), respondent. [G.R. No. 132419. September 28, 2007.]

E.T. HENRY & CO. and SPOUSES ENRIQUE TAN and LILIA TAN, petitioners, vs. INSULAR BANK OF ASIA AND AMERICA (later PHILIPPINE COMMERCIAL INTERNATIONAL BANK and now, EQUITABLE-PCI BANK), respondent. DECISION CORONA, J :
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At bar are consolidated petitions assailing the decision of the Court of Appeals (CA) dated January 21, 1998 in CA-G.R. CV No. 31600 entitled Insular Bank of

Asia and America [now Philippine Commercial International Bank/(PCIB)] v. E.T. Henry & Co., et al. 1
The antecedent facts follow. Petitioners Enrique Tan and Lilia Tan (spouses Tan) were the controlling stockholders of E.T. Henry & Co., Inc. (E.T. Henry), a company engaged in the business of processing and distributing bunker fuel. 2 Among E.T. Henry's customers were petitioner Hi-Cement Corporation (Hi-Cement), 3 Riverside Mills Corporation (Riverside) and Kanebo Cosmetics Philippines, Inc. (Kanebo). For their purchases, these corporations issued postdated checks to E.T. Henry. Sometime in 1979, respondent Insular Bank of Asia and America (later PCIB and now Equitable PCI-Bank) granted E.T. Henry a credit facility known as "Purchase of Short Term Receivables." Through this arrangement, E.T. Henry was able to encash, with pre-deducted interest, the postdated checks of its clients. In other words, E.T. Henry and respondent were into "re-discounting" of checks. For every transaction, respondent required E.T. Henry to execute a promissory note and a deed of assignment bearing the conformity of the client to the rediscounting. 4 From 1979 to 1981, E.T. Henry was able to re-discount its clients' checks (with deeds of assignment) with respondent. However, in February 1981, 20 checks 5 of Hi-Cement (which were crossed and which bore the restriction "deposit to payee's account only") were dishonored. So were the checks of Riverside and Kanebo. 6

Respondent filed a complaint for sum of money 7 in the then Court of First Instance of Rizal 8 against E.T. Henry, the spouses Tan, Hi-Cement (including its general manager 9 and its treasurer 10 as signatories of the postdated crossed checks), Riverside and Kanebo. 11 In its complaint, respondent claimed that, due to the dishonor of the checks, it suffered actual damages equivalent to their value, exclusive of accrued and accruing interests, charges and penalties such as attorney's fees and expenses of litigation, as follows:
1.Riverside Mills CorporationP115,312.50 2.Kanebo Cosmetics Philippines, Inc.5,811,750.00 3.Hi-Cement Corporation10,000,000.00

Respondent also sought to collect from E.T. Henry and the spouses Tan other loan obligations (amounting to P1,661,266.51 and P4,900,805, respectively) as deficiencies resulting from the foreclosure of the real estate mortgage on E.T. Henry's property in Sucat, Paraaque. 12 Hi-Cement filed its answer alleging, among others, that: (1) its general manager and treasurer were not authorized to issue the postdated crossed checks in E.T. Henry's favor; (2) the deed of assignment purportedly executed by Hi-Cement assigning them to respondent only bore the conformity of its treasurer and (3) respondent was not a holder in due course as it should not have discounted them for being "crossed checks." 13 In their answer (with counterclaim against respondent and cross-claims against Hi-Cement, Riverside and Kanebo), 14 E.T. Henry and the spouses Tan claimed that: (1) the drawers of the postdated checks failed to honor them due to the adverse economic conditions prevailing at the time respondent presented them for payment; (2) the extra-judicial sale of the mortgaged Sucat property was void due to gross inadequacy of the bid price 15 and (3) their loans were subjected to a usurious interest rate of 21% p.a. For their part, Riverside and Kanebo sought the dismissal of the case against them, arguing that they were not privy to the re-discounting arrangement between respondent and E.T. Henry. On June 30, 1989, the trial court rendered a decision which read:

WHEREFORE, in view of the foregoing, and as a consequence of the preponderance of evidence, this Court hereby renders judgment in favor of [respondent] and against [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo], to wit: 1.Ordering [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo], jointly and severally, to pay [respondent] damages represented by the face value of the postdated checks as follows: (a)Riverside Mills CorporationP115,312.50 (b)Kanebo Cosmetics Philippines, Inc.5,811,750.00 (c)Hi-Cement Corporation10,000,000.00 plus interests, services, charges and penalties until fully paid; 2.Ordering [E.T. Henry] and/or [spouses Tan] to pay to [respondent] the sum of P4,900,805.00 plus accrued interests, charges, penalties until fully paid; 3.Ordering [E.T. Henry and spouses Tan] to pay [respondent] the sum of P1,661,266.51 plus interests, charges, and penalties until fully paid; 4.Ordering [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo] to pay [respondent] [a]ttorney's fees and expenses of litigation in the amount of P200,000.00 and pay the cost of this suit. 16 SO ORDERED.
17

Only petitioners appealed the decision to the CA which affirmed it in toto. Hence, these petitions. In G.R. No. 132403, petitioner Hi-Cement disclaims liability for the postdated crossed checks because (1) it did not authorize their issuance; (2) respondent was not a holder in due course and (3) there was no basis for the lower court's holding that it was solidarily liable for the face value of Riverside's and Kanebo's checks. 18 In G.R. No. 132419, on the other hand, E.T. Henry and the spouses Tan essentially contend that the lower courts erred in: (1) applying the doctrine of piercing the veil of the corporate entity to make the spouses Tan solidarily liable

with E.T. Henry; (2) not ruling on their cross-claims and counterclaims, and (3) not declaring the foreclosure of E.T. Henry's Sucat property as void. 19 (A) G.R. 132403 As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is limited to review of errors of law. 20 The factual findings of the trial court, specially when affirmed by the appellate court, are generally binding on us unless there was a misapprehension of facts or when the inference drawn from the facts was manifestly mistaken. 21 This case falls within the exception. AUTHORITY OF HI-CEMENT'S GENERAL MANAGER AND TREASURER TO ISSUE THE POSTDATED CROSSED CHECKS Both the trial court and the CA concluded that Hi-Cement authorized its general manager and treasurer to issue the subject postdated crossed checks. They both held that Hi-Cement was already estopped from denying such authority since it never objected to the signatories' issuance of all previous checks to E.T. Henry which the latter, in turn, was able to re-discount with respondent. We agree with the lower courts that both the general manager and treasurer of Hi-Cement were authorized to issue the subjects checks. However, notwithstanding such fact, respondent could not be considered a holder in due course. RESPONDENT BANK NOT A HOLDER IN DUE COURSE The Negotiable Instruments Law (NIL), specifically Section 191,
22

provides:

"Holder" means the payee or indorsee of a bill or a note, or the person who is in possession of it, or the bearer thereof.

On the other hand, Section 52

23

states:

A holder in due course is a holder who has taken the instrument under the following conditions: (a) it is complete and regular on its face; (b) he became the holder of it before it was overdue, and without notice that it has previously been dishonored, if such was the fact; (c) he took it in good faith and for value and (d) 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.

Absent any of the elements set forth in Section 52, the holder is not a holder in due course. In the case at bar, the last two requirements were not met. In Bataan Cigar and Cigarette Factory, Inc. (BCCF) v. CA, 24 we held that the holder of crossed checks was not a holder in due course. There, the drawer (BCCF) issued postdated crossed checks in favor of one of its suppliers (George King) who promised to deliver bales of tobacco leaf but failed. George King, however, sold the checks on discount to State Investment House, Inc. (SIHI) and upon the latter's presentment to the drawee bank, BCCF ordered a "stop payment." Thereafter, SIHI filed a collection case against it. In ruling that SIHI was not a holder in due course, we explained:
In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check should have the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once to one who has an account with a bank [and]; (c) the act of crossing the checks serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course.

Likewise, in Atrium Management Corporation v. CA, 25 where E.T. Henry, HiCement and its treasurer 26 again engaged in a legal scuffle over four postdated crossed checks, we held that Atrium (with which the checks were re-discounted) was not a holder in due course. In that case, E.T. Henry was the payee of four Hi-Cement postdated checks which it endorsed to Atrium. When the latter presented the crossed checks to the drawee bank, Hi-Cement stopped payment. 27 We held that Atrium was not a holder in due course:

In the instant case, the checks were crossed and specifically indorsed for deposit to payee's account only. From the beginning, Atrium was aware of the fact that the checks were all for deposit only to payee's account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder in due course.

In the case at bar, respondent's claim that it acted in good faith when it accepted and discounted Hi-Cement's postdated crossed checks from E.T. Henry (as payee therein) fails to convince us. Good faith becomes inconsequential

amidst proof of respondent's grossly negligent conduct in dealing with the subject checks. Respondent was all too aware that subject checks were crossed and bore restrictions that they were for deposit to payee's account only; hence, they could not be further negotiated to it. The records likewise reveal that respondent completely disregarded a telling sign of irregularity in the re-discounting of the checks when the general manager did not acquiesce to it as only the treasurer's signature appeared on the deed of assignment. As a banking institution, it behooved respondent to act with extraordinary diligence in every transaction. 28 Its business is impressed with public interest, thus, it was not expected to be careless and negligent, specially so where the checks it dealt with were crossed. In Bataan Cigar and Cigarette Factory, Inc., 29 we ruled:
It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorser's title to the check or the nature of his possession. Failing in this respect, the holder is declared guilty of gross negligence amounting to legal absence of good faith. . . and as such[,] the consensus of authority is to the effect that the holder of the check is not a holder in due course. (emphasis supplied)

The next query is whether Hi-Cement can still be made liable for the checks. We answer in the negative. In State Investment House, Inc. (SIHI) v. Intermediate Appellate Court, 30 SIHI re-discounted crossed checks and was declared not a holder in due course. As a result, when it presented the checks for deposit, we deemed that its presentment to the drawee bank was not proper, hence, the liability did not attach to the drawer of the checks. We ruled that:
The three subject checks in the case at bar had been crossed . . . which could only mean that the drawer had intended the same for deposit only by the rightful person, i.e., the payee named therein. Apparently, it was not the payee who presented the same for payment and therefore, there was no proper presentment, and the liability did not attach to the drawer. Thus, in the absence of due presentment, the drawer did not become liable. 31

Our resolution in the foregoing case was reiterated in Atrium Management Corporation v. CA, 32 where we affirmed the CA ruling that the drawer of the postdated crossed checks was not liable to the holder who was deemed not a holder in due course.

We note, however, that in the two aforementioned cases, we made it clear that the NIL does not absolutely bar a holder who is not a holder in due course from recovering on the checks. In both, we ruled that it may recover from the party who indorsed/encashed the checks "if the latter has no valid excuse for refusing payment." Here, there was no doubt that it was E.T. Henry that re-discounted Hi-Cement's checks and received their value from respondent. Since E.T. Henry had no justification to refuse payment, it should pay respondent. SOLIDARY LIABILITY OF HICEMENT FOR THE FACE VALUE OF RIVERSIDE'S AND KANEBO'S CHECKS Hi-Cement could not also be made solidarily liable with Riverside and Kanebo for the face value of their checks. Hi-Cement had nothing to do with the checks of these two corporations. However, although the language of the trial court decision's dispositive portion seemed confusing, a reading of the decision in its entirety reveals that the fallo was for each corporation to be liable solidarily with E.T. Henry and/or the spouses Tan for the respective values of their checks. Furthermore, solidary liability cannot be presumed but must be established by law or contract. Neither is present here. Articles 1207 and 1208 of the Civil Code provide:
Art. 1207. The concurrence of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the presentation. There is solidary liability only when the obligation expressly so states, or when the obligation requires solidarity. (emphasis supplied) Art. 1208. If from the law, or the nature of the wording of the obligations to which the preceding article refers to the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules governing the multiplicity of suits.

At any rate, the issue has become moot in view of our ruling that Hi-Cement is not liable for the checks. (B) G.R. No. 132419

DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY In their petition, E.T. Henry and the spouses Tan argue that the lower courts erred in applying the "piercing the veil of corporate entity" doctrine to their case. They claim that both the trial and appellate courts failed to cite the reasons why the doctrine was relevant to them. We agree with petitioners E.T. Henry and the spouses Tan in this respect. If any general rule can be laid down, it is that the corporation will be looked upon as a legal entity until sufficient reasons to the contrary appear. 33 It is only when the fiction or notion of legal entity is used to defeat public convenience, justify wrong, perpetuate fraud or defend crime that the law will shred the corporate legal veil and regard it as a mere association of persons. 34 This is referred to as the doctrine of piercing the veil of corporate entity. After a careful study of the records, we hold that E.T. Henry's corporate veil should not have been pierced at all.

First, the trial court failed to provide a clear ground why the doctrine was used.
It merely stated that it agreed with respondent's arguments but did not explain why the doctrine was relevant to petitioner E.T. Henry's and the spouses Tan's case. On the other hand, the CA held:
. . . It appears that spouses Tan are controlling stockholders of E.T. Henry & Co., Inc. as well as its authorized signatories. The business of the corporation was conducted solely for the benefit of the spouses Tan who colluded with [Hi-Cement] in defrauding [respondent]. As the lower court cited . . . [I]t is a settled law in this and other jurisdictions that when the corporation is a mere alter ego of a person, same being true when the corporation is controlled, and its affairs are so conducted to make it merely an instrumentality, agency or conduit of another. 35

Similarly, the CA left a gaping hole by failing to provide the basis for its ruling that E.T. Henry and the spouses Tan defrauded respondent. It did not also state what act constituted the fraud. Fraud is an allegation of fact that demands clear and convincing evidence. 36 It is never presumed. 37

Second, the mere ownership by a single stockholder or by another corporation of


all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. 38 For this ground to

stand in this case, there must be proof that the spouses Tan: (1) had control or complete domination of E.T. Henry's finances and that the latter had no separate existence with respect to the act complained of; (2) used such control to commit fraud or wrong and (3) the control was the proximate cause of the loss or injury complained of by respondent. 39 The records of this case do not show that these elements were present. INADEQUACY OF THE BID PRICE TO ANNUL FORECLOSURE PROCEEDING With respect to the allegation that foreclosure was void due to the inadequacy of the bid price, we agree with the CA that the "mere inadequacy of the price obtained at the [s]heriff's sale, unless shocking to the conscience, (was) not sufficient to set aside the sale if there (was) no showing that, in the event of a regular sale, a better price (could) be obtained." 40 Furthermore, in the absence of any irregularity in the foreclosure proceeding or proof that it was carried out without strict observance of the procedure, we will continue to assume its regularity and strike down any attempt to vitiate it. In this case, E.T. Henry and the spouses Tan made no mention of any anomaly to support the nullification of the foreclosure sale but merely alleged a disparity in the bid price and the property's fair market value. COUNTERCLAIMS AND CROSS-CLAIMS Lastly, E.T. Henry and the spouses Tan call this Court's attention to the alleged failure of the lower court to pass upon their counterclaim against respondent or cross-claims against Hi-Cement, Riverside and Kanebo. They ask us now to hold these parties liable on the basis of said claims. We decline to do so.

First, E.T. Henry and the spouses Tan failed to implead Hi-Cement, Riverside and
Kanebo as parties in the case at bar. Under Rule 3 of the Rules of Court, every action, including a counterclaim (or a cross-claim), must be prosecuted or defended in the name of the real party in interest. 41 The term "defendant" may refer to the original defending party, the defendant in a counterclaim, the crossdefendant or the third (fourth, etc.) party defendant. 42 Hence, for this technical lapse, we are constrained not to pass on E.T. Henry's and the spouses Tan's cross-claims.

Second, E.T. Henry and the spouses Tan filed the counterclaim against

respondent on the basis of an alleged void foreclosure proceeding on E.T.

Henry's Sucat property due to an inadequate bid price. It is no longer necessary to delve into this matter in view of our finding that the mere inadequacy of the bid price on the property did not automatically render the foreclosure sale irregular or void.

Incidentally, the petition in G.R. No. 132419 posed no contest on the lower courts' ruling on E.T. Henry's and the spouses Tan's solidary liability with Riverside and Kanebo vis-a-vis their checks. 43 To be consistent, however, with our dictum on the separate personality of E.T. Henry and the spouses Tan, the solidarity liability arising from the checks of Riverside and Kanebo shall only be enforced against E.T. Henry. WHEREFORE, the assailed decision of the Court of Appeals in CA-G.R. CV No. 31600 is hereby AFFIRMED with MODIFICATION. Accordingly, petitioner HiCement Corporation is discharged from any liability. Only petitioner E.T. Henry & Co. is ORDERED to pay respondent Insular Bank of Asia and America (later Philippine Commercial International Bank and now Equitable PCI-Bank) the following: 1.P10,000,000 representing the value of Hi-Cement's checks it received from respondent plus accrued interests, charges and penalties until fully paid, and 2.the loans for P1,661,266.51 and P4,900,805 plus accrued interests, charges and penalties until fully paid. Let the records of this case be remanded to the trial court for the proper computation of E.T. Henry's, Riverside's and Kanebo's liabilities for the checks, attorney's fees and costs of litigation. Costs against petitioners E.T. Henry and the spouses Enrique and Lilia Tan. SO ORDERED.

Puno, C.J., Sandoval-Gutierrez, Azcuna and Garcia, JJ., concur.


Footnotes

1.Penned by Justice B.A. Adelfuin-de la Cruz (retired) with the concurrence of Justices Alicia Austria-Martinez (now Supreme Court Justice) and Roberto A. Barrios

(deceased), Fifteenth Division of the Court of Appeals. Rollo (G.R. No. 132403), pp. 42-45. 2.The spouses Tan and E.T. Henry are the petitioners in G.R. No. 132419. 3.Hi-Cement is the petitioner in G.R. No. 132403. 4.Respondent's Comment, rollo (G.R. No. 132403), p. 74. 5.For the total amount of P10 million. 6.Riverside's check was worth P115,312.50 and Kanebo's 19 checks amounted to P5,811,750. 7.With application for a writ of preliminary attachment. 8.Now Regional Trial Court (RTC). 9.Antonio de las Alas. 10.Lourdes Meer de Leon. 11.The complaint also impleaded Philip Tanchi and Edward Lee as signatories of Riverside and Kanebo. 12.E.T. Henry obtained loans (on separate dates) from respondent. The payment of these loans was secured by two real estate mortgages on E.T. Henry's Sucat, Paraaque property which were enforced by respondent after the latter failed to pay the loans. 13.Under the Negotiable Instruments Law, particularly Section 52 thereof, a holder in due course is a holder who has taken the instrument under the following conditions: (a) it is complete and regular on its face; (b) he became the holder of it before it was overdue, and without notice that it has previously been dishonored, if such was the fact; (c) he took it in good faith and for value and (d) 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. Under Section 191 of the same law, a "holder" is the payee or indorsee of a bill or a note, or the person who is in possession of either. 14.E.T. Henry filed the counterclaim against respondent to nullify the foreclosure sale and cross-claims against Hi-Cement, Riverside and Kanebo for the value of their dishonored checks.

15.E.T. Henry and spouses Tan claimed that the Sucat property was worth P23 million during the foreclosure sale but was awarded to respondent as the highest bidder for only P10 million. 16.Decided by Judge Jainal D. Rasul. Rollo (G.R. No. 132419), pp. 38-A to 42. 17.Rollo (G.R. No. 132419), p. 42. The trial court previously dropped the charges against de las Alas and de Leon on findings that they merely acted in a representative capacity. 18.Rollo (G.R. No. 132403), p. 22. 19.Id. (G.R. No. 132419), p. 23. 20.Usero v. CA, G.R. No. 152115, 26 January 2005, 449 SCRA 352. 21.Casol v. Purefoods Corporation, G.R. No. 166550, 22 September 2005, 470 SCRA 585. 22.Supra at note 13. 23.Id. 24.G.R. No. 93048, 3 March 1994, 230 SCRA 643. 25.The full title of the case was Atrium Management Corporation v. CA, E.T. Henry

and Co., Lourdes Victoria M. De Leon, Rafael De Leon and Hi-Cement Corporation, G.R. No. 109491, 28 February 2001, 353 SCRA 23, consolidated with G.R. No. 121794, Lourdes de Leon v. CA and Hi-Cement Corporation.

26.Lourdes Meer de Leon. 27.Hi-Cement stopped payment claiming the checks were issued without its authority. In this case, Hi-Cement's treasurer (de Leon) was found to have been negligent when she signed the confirmation letter (deed of assignment) for the rediscounting of the crossed checks issued in favor of E.T. Henry. According to the Court, she was aware that the checks were strictly indorsed for deposit only to the payee's account and not to be further negotiated. 28.Solidbank Corporation v. Spouses Tan, G.R. No. 167346, 2 April 2007. 29.Supra at note 24. 30.G.R. No. 72764, 13 July 1989, 175 SCRA 310.

31.Id., pp. 316-317. 32.Supra at note 25. 33.Francisco v. Mejia, G.R. No. 141617, 14 August 2001, 362 SCRA 738. 34.Id. 35.Supra at note 1. 36.Cathay Pacific Airways, Ltd. v. Sps. Vazquez, 447 Phil. 306 (2003); Maestrado v. CA, 384 Phil. 418 (2000); Loyola v. CA, 383 Phil. 171 (2000). 37.Cathay Pacific Airways, Ltd. v. Sps. Vasquez, supra. 38.Francisco v. Mejia, supra. See also Pabalan v. NLRC, G.R. No. 89879, 20 April 1990, 184 SCRA 495; Traders Royal Bank v. CA, 336 Phil. 15 (1997). 39.Manila Hotel Corp. v. NLRC, 397 Phil. 1 (2000). 40.Supra at note 1. See also Ponce de Leon v. Rehabilitation Finance Corporation, No. L-24571, 18 December 1970, 36 SCRA 289. 41.Rule 3, Section 2. See also Tankiko v. Cezar, 362 Phil. 184 (1999). 42.Rule 3, Section 1. 43.Since Riverside and Kanebo did not appeal the trial court's decision, it is deemed final and executory to them.

SECOND DIVISION
[G.R. No. 70145. November 13, 1986.] MARCELO A. MESINA, petitioner, vs. THE HONORABLE INTERMEDIATE APPELLATE COURT, HON. ARSENIO M. GONONG, in his capacity as Judge of Regional Trial Court Manila (Branch VIII), JOSE GO, and ALBERT UY, respondents.

DECISION PARAS, J :
p

This is an appeal by certiorari from the decision of the then Intermediate Appellate Court (IAC for short), now the Court of Appeals (CA) in AC-G.R. S.P. 04710, dated Jan. 22, 1985, which dismissed the petition for certiorari and prohibition filed by Marcelo A. Mesina against the trial court in Civil Case No. 8422515. Said case (an Interpleader) was filed by Associated Bank against Jose Go and Marcelo A. Mesina regarding their conflicting claims over Associated Bank Cashier's Check No. 011302 for P800,000.00, dated December 29, 1983. Briefly, the facts and statement of the case are as follows: Respondent Jose Go, on December 29, 1983, purchased from Associated Bank Cashier's Check No. 011302 for P800,000.00. Unfortunately, Jose Go left said check on the top of the desk of the bank manager when he left the bank. The bank manager entrusted the check for safekeeping to a bank official, a certain Albert Uy, who had then a visitor in the person of Alexander Lim, Uy had to answer a phone call on a nearby telephone after which he proceeded to the men's room. When he returned to his desk, his visitor Lim was already gone. When Jose Go inquired for his cashier's check from Albert Uy, the check was not in his folder and nowhere to be found. The latter advised Jose Go to go to the bank to accomplish a "STOP PAYMENT" order, which suggestion Jose Go immediately followed. He also executed an affidavit of loss. Albert Uy went to the police to report the loss of the check, pointing to the person of Alexander Lim as the one who could shed light on it. The records of the police show that Associated Bank received the lost check for clearing on December 31, 1983, coming from Prudential Bank, Escolta Branch. The check was immediately dishonored by Associated Bank by sending it back to Prudential Bank, with the words "Payment Stopped" stamped on it. However, the same was again returned to Associated Bank on January 4, 1984 and for the second time it was dishonored. Several days later, respondent Associated Bank received a letter, dated January 9, 1984, from a certain Atty. Lorenzo Navarro demanding payment on the cashier's check in question, which was being held by his client. He however refused to reveal the name of his client and threatened to sue, if payment is not made. Respondent bank, in its letter, dated January 20, 1984, replied saying the check belonged to Jose Go who lost it in the bank and is laying claim to it.

On February 1, 1984, police sent a letter to the Manager of the Prudential Bank, Escolta Branch, requesting assistance in identifying the person who tried to encash the check but said bank refused saying that it had to protect its client's interest and the identity could only be revealed with the client's conformity. Unsure of what to do on the matter, respondent Associated Bank on February 2, 1984 filed an action for Interpleader naming as respondent, Jose Go and one John Doe, Atty. Navarro's then unnamed client. On even date, respondent bank received summons and copy of the complaint for damages of a certain Marcelo A. Mesina from the Regional Trial Court (RTC) of Caloocan City filed on January 23, 1984 bearing the number C-11139. Respondent bank moved to amend its complaint, having been notified for the first time of the name of Atty. Navarro's client and substituted Marcelo A. Mesina for John Doe. Simultaneously, respondent bank, thru representative Albert Uy, informed Cpl. Gimao of the Western Police District that the lost check of Jose Go is in the possession of Marcelo Mesina, herein petitioner. When Cpl. Gimao went to Marcelo Mesina to ask how he came to possess the check, he said it was paid to him by Alexander Lim in a "certain transaction" but refused to elucidate further. An information for theft (Annex J) was instituted against Alexander Lim and the corresponding warrant for his arrest was issued (Annex 6-A) which up to the date of the filing of this instant petition remains unserved because of Alexander Lim's successful evasion thereof. Meanwhile, Jose Go filed his answer on February 24, 1984 in the Interpleader Case and moved to participate as intervenor in the complaint for damages. Albert Uy filed a motion for intervention and answer in the complaint for Interpleader. On the scheduled date of pre-trial conference in the interpleader case, it was disclosed that the "John Doe" impleaded as one of the defendants is actually petitioner Marcelo A. Mesina. Petitioner instead of filing his answer to the complaint in the interpleader filed on May 17, 1984 an Omnibus Motion to Dismiss Ex Abudante Cautela alleging lack of jurisdiction in view of the absence of an order to litigate, failure to state a cause of action and lack of personality to sue. Respondent bank in the other civil case (CC-11139) for damages moved to dismiss suit in view of the existence already of the Interpleader case. The trial court in the interpleader case issued an order dated July 13, 1984, denying the motion to dismiss of petitioner Mesina and ruling that respondent bank's complaint sufficiently pleaded a cause of action for interpleader. Petitioner filed his motion for reconsideration which was denied by the trial court on September 26, 1984. Upon motion for respondent Jose Go dated October 31, 1984, respondent judge issued an order on November 6, 1984 declaring

petitioner in default since his period to answer has already expired and set the ex-parte presentation of respondent bank's evidence on November 7, 1984. Petitioner Mesina filed a petition for certiorari with preliminary injunction with IAC to set aside 1) order of respondent court denying his omnibus Motion to Dismiss 2) order of respondent court denying his Motion for Reconsideration and 3) the order of default against him. On January 22, 1985, IAC rendered its decision dismissing the petition for certiorari. Petitioner Mesina filed his Motion for Reconsideration which was also denied by the same court in its resolution dated February 18, 1985. Meanwhile, on same date (February 18, 1985), the trial court in Civil Case #8422515 (Interpleader) rendered a decision, the dispositive portion reading as follows:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered ordering plaintiff Associate Bank to replace Cashier's Check No. 011302 in favor of Jose Go or its cash equivalent with legal rate of interest from date of complaint, and with costs of suit against the latter. SO ORDERED."

On March 29, 1985, the trial court in Civil Case No. C-11139, for damages, issued an order, the pertinent portion of which states:
"The records of this case show that on August 20, 1984 proceedings in this case was (were) ordered suspended because the main issue in Civil Case No. 84-22515 and in this instant case are the same which is: who between Marcelo Mesina and Jose Go is entitled to payment of Associated Bank's Cashier's Check No. CC-011302? Said issue having been resolved already in Civil Case No. 84-22515, really this instant case has become moot and academic. WHEREFORE, in view of the foregoing, the motion should be as it is hereby granted and this case is ordered dismissed. In view of the foregoing ruling no more action should be taken on the "Motion For Reconsideration (of the Order admitting the Intervention)" dated June 21, 1984 as well as the Motion For Reconsideration dated September 10, 1984. SO ORDERED."

Petitioner now comes to Us, alleging that:


1.IAC erred in ruling that a cashier's check can be countermanded even in the hands of a holder in due course. 2.IAC erred in countenancing the filing and maintenance of an interpleader suit by a party who had earlier been sued on the same claim. 3.IAC erred in upholding the trial court's order declaring petitioner as in default when there was no proper order for him to plead in the interpleader complaint. 4.IAC went beyond the scope of its certiorari jurisdiction by making findings of facts in advance of trial.

Petitioner now interposes the following prayer:


1.Reverse the decision of the IAC, dated January 22, 1985 and set aside the February 18, 1985 resolution denying the Motion for Reconsideration. 2.Annul the orders of respondent Judge of RTC Manila giving due course to the interpleader suit and declaring petitioner in default.

Petitioner's allegations hold no water. Theories and examples advanced by petitioner on causes and effects of a cashier's check such as 1) it cannot be countermanded in the hands of a holder in due course and 2) a cashier's check is a bill of exchange drawn by the bank against itself are general principles which cannot be aptly applied to the case at bar, without considering other things. Petitioner failed to substantiate his claim that he is a holder in due course and for consideration or value as shown by the established facts of the case. Admittedly, petitioner became the holder of the cashier's check as endorsed by Alexander Lim who stole the check. He refused to say how and why it was passed to him. He had therefore notice of the defect of his title over the check from the start. The holder of a cashier's check who is not a holder in due course cannot enforce such check against the issuing bank which dishonors the same. If a payee of a cashier's check obtained it from the issuing bank by fraud, or if there is some other reason why the payee is not entitled to collect the check, the respondent bank would, of course, have the right to refuse payment of the check when presented by the payee, since respondent bank was aware of the facts surrounding I he loss of the check in question. Moreover, there is no similarity in the cases cited by petitioner since respondent bank did not issue the cashier's

check in payment of its obligation. Jose Go bought it from respondent bank for purposes of transferring his funds from respondent bank to another bank near his establishment realizing that carrying money in this form is safer than if it wherein cash. The check was Jose Go's property when it was misplaced or stolen hence he stopped its payment. At the outset, respondent bank knew it was Jose Go's check and no one else since Go had not paid or indorsed it to anyone. The bank was therefore liable to nobody on the check but Jose Go. The bank had no intention to issue it to petitioner but only to buyer Jose Go. When payment on it was therefore stopped, respondent bank was not the one who did it but Jose Go, the owner of the check. Respondent bank could not be drawer and drawee for clearly, Jose Go owns the money it represents and he is therefore the drawer and the drawee in the same manner as if he has a current account and he issued a check against it; and from the moment said cashier's check was lost and or stolen no one outside of Jose Go can be termed a holder in due course because Jose Go had not indorsed it in due course. The check in question suffers from the infirmity of not having been properly negotiated and for value by respondent Jose Go who as already been said is the real owner of said instrument.

In his second assignment of error, petitioner stubbornly insists that there is no showing of conflicting claims and interpleader is out of the question. There is enough evidence to establish the contrary. Considering the aforementioned facts and circumstances, respondent bank merely took the necessary precaution not to make a mistake as to whom to pay and therefore interpleader was its proper remedy. It has been shown that the interpleader suit was filed by respondent bank because petitioner and Jose Go were both laying their claims on the check, petitioner asking payment thereon and Jose Go as the purchaser or owner. The allegation of petitioner that respondent bank had effectively relieved itself of its primary liability under the check by simply filing a complaint for interpleader is belied by the willingness of respondent bank to issue a certificate of time deposit in the amount of P800,000 representing the cashier's check in question in the name of the Clerk of Court of Manila to be awarded to whoever will be found by the court as validly entitled to it. Said validity will depend on the strength of the parties' respective rights and titles thereto. Bank filed the interpleader suit not because petitioner sued it but because petitioner is laying claim to the same check that Go is claiming. On the very day that the bank instituted the case in interpleader, it was not aware of any suit for damages filed by petitioner against it as supported by the fact that the interpleader case was first entitled Associated Bank vs. Jose Go and John Doe, but later on changed to Marcelo A. Mesina for John Doe when his name became known to respondent bank.

In his third assignment of error, petitioner assails the then respondent IAC in upholding the trial court's order declaring petitioner in default when there was no proper order for him to plead in the interpleader case. Again, such contention is untenable. The trial court issued an order, compelling petitioner and respondent Jose Go to file their Answers setting forth their respective claims. Subsequently, a Pre-Trial Conference was set with notice to parties to submit position papers. Petitioner argues in his memorandum that this order requiring petitioner to file his answer was issued without jurisdiction alleging that since he is presumably a holder in due course and for value, how can he be compelled to litigate against Jose Go who is not even a party to the check? Such argument is trite and ridiculous if we have to consider that neither his name or Jose Go's name appears on the check. Following such line of argument. petitioner is not a party to the check either and therefore has no valid claim to the Check. Furthermore, the Order of the trial court requiring the parties to file their answers is to all intents and purposes an order to interplead, substantially and essentially and therefore in compliance with the provisions of Rule 63 of the Rules of Court. What else is the purpose of a law suit but to litigate?
LLphil

The records of the case show that respondent bank had to resort to details in support of its action for Interpleader. Before it resorted to Interpleader, respondent bank took all precautionary and necessary measures to bring out the truth. On the other hand, petitioner concealed the circumstances known to him and now that private respondent bank brought these circumstances out in court (which eventually rendered its decision in the light of these facts), petitioner charges it with "gratuitous excursions into these non-issues." Respondent IAC cannot rule on whether respondent RTC committed an abuse of discretion or not, without being apprised of the facts and reasons why respondent Associated Bank instituted the Interpleader case. Both parties were given an opportunity to present their sides. Petitioner chose to withhold substantial facts. Respondents were not forbidden to present their side this is the purpose of the Comment of respondent to the petition. IAC decided the question by considering both the facts submitted by petitioner and those given by respondents. IAC did not act therefore beyond the scope of the remedy sought in the petition. WHEREFORE, finding that the instant petition is merely dilatory, the same is hereby denied and the assailed orders of the respondent court are hereby AFFIRMED in toto. SO ORDERED.

Feria, Fernan, Alampay and Gutierrez, Jr., JJ ., concur.

EN BANC
[G.R. No. L-2861. February 26, 1951.] ENRIQUE P. MONTINOLA, plaintiff-appellant, vs. THE PHILIPPINE NATIONAL BANK, ET AL., defendants-appellees.

Quijano, Rosete & Lucena, for appellant.


Philippine National Bank.

Second Assistant Corporate Counsel Hilarion U. Jarencio, for appellee

Solicitor General Felix Bautista Angelo and Solicitor Augusto M. Luciano,for appellee Provincial Treasurer of Misamis Oriental.
SYLLABUS 1.NEGOTIABLE INSTRUMENT; MATERIAL ALTERATION WHICH DISCHARGES THE INSTRUMENT. On May 2, 1942, L in his capacity as Provincial Treasurer of Misamis Oriental as drawer, issued a check to R in the sum of P100,000, on the Philippines National Bank as drawee. R sold P30,000 of the check to m for P90,000 Japanese Military notes, of which only P45,000 was paid by M. The writing made by R at the back of the check was to the effect that he was assigning only P30,000 of the value of the document with an instruction to the bank to pay P30,000 to m and to deposit the balance to R's credit. This writing was, however, mysteriously obliterated and in its place, a supposed indorsement appearing on the back of the check was made. At the time of the transfer of this check to M about the last days of December, 1944 or the first days of January, 1845, the check was long overdue by about 2-1/2 years. In August, 1947, M instituted an action against the Philippine National Bank and the Provincial Treasurer of Misamis Oriental to collect the sum of P100,000, the amount of the aforesaid check. There now appears on the face of said check the words in parenthesis "Agent, Phil. National Bank" under the signature of L purportedly showing that L issued the check as agent of the Philippine National Bank. Held: The words "Agent, Phil. National Bank" now appearing on the face of the check were added or placed in the instrument after it was issued by the Provincial Treasurer L to R. The check was issued by only as Provincial Treasure and as an official of the Government, which was under obligation to provide the USAFE with advance funds, and not as agent of the bank, which had no such obligation. The

addition of those words was made after the check had been transferred by R to M. The insertion of the words "Agent, Phil. National Bank," which converts the bank from a mere drawee to a drawer and therefore changes its liability, constitutes a material alteration of the instrument without the consent of the parties liable thereon, and so discharges the instrument. 2.ID.; INDORSEMENT OF PART OF AMOUNT PAYABLE, IS NOT NEGOTIATION OF INSTRUMENT BUT MAY BE REGARDED AS MERE ASSIGNMENT. Where the indorsement of a check is only for a part of the amount payable, it is not legally negotiated within the meaning of section 32 of the Negotiable Instruments Law which provides that "the indorsement must be an indorsement of the entire instrument. An indorsement which purports to transfer to the indorse a part only of the amount payable does not operate as a negotiation of the instrument." M may, therefore, not be regarded as an indorse. At most he may be regarded as a mere assignee of the P30,000 sold to him by R, in which case, as such Provincial Treasurer of Misamis Oriental against R. 3.ID.; HOLDER IN DUE COURSE; HOLDER WHO HAS TAKEN THE INSTRUMENT AFTER IT WAS LONG OVERDUE; ASSIGNEE IS NOT A PAYEE. Neither can M de considered as a holder in due course because section 52 of the Negotiable Instruments Law defines a holder in due course as a holder who taken the instrument under certain conditions, one of which is that he became the holder before it was overdue. When M received the check, it was long overdue. And, M is not even a holder because section 191 of the same law defines holder as the payee or indorse of a bill or note and m is not a payee. Neither is he an indorse, for being only indorse he is considered merely as an assignee. 4.ID.; INSTRUMENT ISSUED TO DISTRIBUTION OFFICER OF USAFE, WHO HAS NO RIGHT TO INDORSE IT PERSONALLY. Where an instrument was issued to R not as a person but as the disbursing officer of the USAFE, he has no right to indorse the instrument personally and if he does, the negotiation constitutes a breach of trust, and he transfers nothing to the indorse. 5.QUESTIONED DOCUMENTS; DISCREPANCIES BETWEEN PHOTOSTATIC COPY TAKEN BEFORE TEARING AND BURNING OF CHECK AND PRESENT CONDITION THEREOF SHOW WORDS IN QUESTION WERE INSERTED AFTER SAID TEARING AND BURNING. Recovery on a check, Exhibit A, depended on the presence of the words "Agent, Phil. National Bank" under the signature of L, at time Exhibit A was drawn. But the photostatic copy, Exhibit B, admittedly taken before Exhibit A was burned and torn, showed marked discrepancies between Exhibits A and B as to the

position of the words in question in relation to the words "Provincial Treasurer". Held: The inference is plain that the words "Agent, Phil. National Bank" were inserted after the check was burned and torn. DECISION MONTEMAYOR, J :
p

In August, 1947, Enrique P. Montinola filed a complaint in the Court of First Instance of Manila against the Philippine National Bank and the Provincial Treasurer of Misamis Oriental to collect the sum of P100,000, the amount of Check No. 1382 issued on May 2, 1942 by the Provincial Treasurer of Misamis Oriental to Mariano V. Ramos and supposedly indorsed to Montinola. After hearing, the court rendered a decision dismissing the complaint with costs against plaintiff-appellant. Montinola has appealed from that decision directly to this Court inasmuch as the amount in controversy exceeds P50,000. There is no dispute as to the following facts. In April and May, 1942, Ubaldo D. Laya was the Provincial Treasurer of Misamis Oriental. As such Provincial Treasurer he was ex officio agent of the Philippine National Bank branch in that province. Mariano V. Ramos worked under him as assistant agent in the bank branch aforementioned. In April of that year 1942, the currency being used in Mindanao, particularly Misamis Oriental and Lanao which had not yet been occupied by the Japanese invading forces, was the emergency currency which had been issued since January, 1942 by the Mindanao Emergency Currency Board by authority of the late President Quezon. About April 26, 1942, thru the recommendation of Provincial Treasurer Laya, his assistant agent M. V. Ramos was inducted into the United States Armed Forces in the Far East (USAFFE) as disbursing officer of an army division. As such disbursing officer, M. V. Ramos on April 30, 1942, went to the neighboring Province of Lanao to procure a cash advance in the amount of P800,000 for the use of the USAFFE in Cagayan de Misamis. Pedro Encarnacion, Provincial Treasurer of Lanao did not have that amount in cash. So, he gave Ramos P300,000 in emergency notes and a check for P500,000. On May 2, 1942 Ramos went to the office of Provincial Treasurer Laya at Misamis Oriental to encash the check for P500,000 which he had received from the Provincial Treasurer of Lanao. Laya did not have enough cash to

cover the check so he gave Ramos P400,000 in emergency notes and a check No. 1382 for P100,000 drawn on the Philippine National Bank. According to Laya he had previously deposited P500,000 emergency notes in the Philippine National Bank branch in Cebu and he expected to have the check issued by him cashed in Cebu against said deposit. Ramos had no opportunity to cash the check because in the evening of the same day the check was issued to him, the Japanese forces entered the capital of Misamis Oriental, and on June 10, 1942, the USAFFE forces to which he was attached surrendered. Ramos was made a prisoner of war until February 12, 1943, after which, he was released and he resumed his status as a civilian. About the last days of December, 1944 or the first days of January, 1945, M. V. Ramos allegedly indorsed this check No. 1382 to Enrique P. Montinola. The circumstances and conditions under which the negotiation or transfer was made are in controversy. According to Montinola's version, sometime in June, 1944, Ramos, needing money with which to buy foodstuffs and medicine, offered to sell him the check; to be sure that it was genuine and negotiable, Montinola, accompanied by his agents and by Ramos himself, went to see President Carmona of the Philippine National Bank in Manila about said check; that after examining it President Carmona told him that it was negotiable but that he should not let the Japanese catch him with it because possession of the same would indicate that he was still waiting for the return of the Americans to the Philippines; that he and Ramos finally agreed to the sale of the check for P850,000 Japanese military notes, payable in installments; that of this amount, P450,000 was paid to Ramos in Japanese military notes in five installments, and the balance of P400,000 was paid in kind, namely, four bottles of sulphatiasole, each bottle containing 1,000 tablets, and each tablet valued at P100; that upon payment of the full price, M. V. Ramos duly indorsed the check to him. This indorsement which now appears on the back of the document is described in detail by the trial court as follows:
"The endorsement now appearing at the back of the check (see Exhibit A-1) may be described as follows: The words, 'pay to the order of ' in rubber stamp and in violet color are placed about one inch from the top. This is followed by the words 'Enrique P. Montinola' in typewriting which is approximately 5/8 of an inch below the stamped words 'pay to the order of'. Below 'Enrique P. Montinola', in typewriting are the words and figures also in typewriting, '517 Isabel Street' and about 1/8 of an inch therefrom, the edges of the check appear to have been burned, but there are words stamped apparently in rubber stamp

which, according to Montinola, are a facsimile of the signature of Ramos. There is a signature which apparently reads 'M. V. Ramos' also in green ink but made in handwriting."

To the above description we may add that the name of M. V. Ramos is handprinted in green ink, under the signature. According to Montinola, he asked Ramos to handprint it because Ramos' signature was not clear. Ramos in his turn told the court that the agreement between himself and Montinola regarding the transfer of the check was that he was selling only P30,000 of the check and for this reason, at the back of the document he wrote in longhand the following:
"Pay to the order of Enrique P. Montinola P30,000 only. The balance to be deposited in the Philippine National Bank to the credit of M. V. Ramos."

Ramos further said that in exchange for this assignment of P30,000 Montinola would pay him P90,000 in Japanese military notes but that Montinola gave him only two checks of P20,000 and P25,000, leaving a balance unpaid of P45,000. In this he was corroborated by Atty. Simeon Ramos Jr. who told the court that the agreement between Ramos and Montinola was that the latter, for the sale to him of P30,000 of the check, was to pay Ramos P90,000 in Japanese military notes; that when the first check for P20,000 was issued by Montinola, he (Simeon) prepared a document evidencing said payment of P20,000; that when the second check for P25,000 was issued by Montinola, he (Simeon) prepared another document with two copies, one for Montinola and the other for Ramos, both signed by Montinola and M. V. Ramos, evidencing said payment, with the understanding that the balance of P45,000 would be paid in a few days. The indorsement or writing described by M. V. Ramos which had been written by him at the back of the check, Exhibit A, does not now appear at the back of said check. What appears thereon is the indorsement testified to by Montinola and described by the trial court as reproduced above. Before going into a discussion of the merits of the version given by Ramos and Montinola as to the indorsement or writing at the back of the check, it is well to give a further description of it as we shall do later. When Montinola filed his complaint in 1947 he stated therein that the check had been lost, and so in lieu thereof he filed a supposed photostatic copy. However, at the trial, he presented the check itself and had its face marked Exhibit A and the back thereof Exhibit A-1. But the check is badly mutilated, blotted, torn and partly burned, and its condition can best be

appreciated by seeing it. Roughly, it may be stated that looking at the face of the check (Exhibit A) we see that the left third portion of the paper has been cut off perpendicularly and severed from the remaining 2/3 portion; a triangular portion of the upper right hand corner of said remaining 2/3 portion has been similarly cut off and severed, and to keep and attach this triangular portion and the rectangular 1/3 portion to the rest of the document, the entire check is pasted on both sides with cellophane; the edges of the severed portions as well as of the remaining major portion, where cut bear traces of burning and searing; there is a big blot with indelible ink about the right middle portion, which seems to have penetrated to the back of the check (Exhibit A-1), which back bears a larger smear right under the blot, but not as black and sharp as the blot itself; finally, all this tearing, burning, blotting and smearing and pasting of the check renders it difficult if not impossible to read some of the words and figures on the check. In explanation of the mutilation of the check Montinola told the court that several months after indorsing and delivering the check to him, Ramos demanded the return of the check to him, threatening Montinola with bodily harm, even death by himself or his guerrilla forces if he did not return said check, and that in order to justify the non-delivery of the document and to discourage Ramos from getting it back, he (Montinola) had to resort to the mutilation of the document. As to what was really written at the back of the check which Montinola claims to be a full indorsement of the check, we agree with the trial court that the original writing of Ramos on the back of the check was to the effect that he was assigning only P30,000 of the value of the document and that he was instructing the bank to deposit to his credit the balance. This writing was in some mysterious way obliterated, and in its place was placed the present indorsement appearing thereon. Said present indorsement occupies a good portion of the back of the check. It has already been described in detail. As to how said present indorsement came to be written, the circumstances surrounding its preparation, the supposed participation of M. V. Ramos in it and the writing originally appearing on the reverse side of the check, Exhibit A-1, we quote with approval what the trial court presided over by Judge Conrado V. Sanchez, in its well-prepared decision, says on these points:
"The alleged indorsement: 'Pay to the order of Enrique P. Montinola the amount of P30,000 only. The balance to be deposited to the credit of M. V. Ramos', signed by M. V. Ramos according to the latter does not now appear at the back of the check. A different indorsement, as aforesaid, now appears.

"Had Montinola really paid in full the sum of P850,000 in Japanese Military Notes as consideration for the check? The following observations are in point:. "(a)According to plaintiff's witness Gregorio A. Cortado, the oval line in violet, enclosing 'P.' of the words 'Enrique P. Montinola' and the line in the form of cane handle crossing the word 'street' in the words and figures '517 Isabel Street' in the endorsement Exhibit A-1, are 'unusual' to him, and that as far as he could remember this writing did not appear on the instrument and he had no knowledge as to how it happened to be there. Obviously Cortado had no recollection as to how such marks ever were stamped at the back of the check. "(b)Again Cortado, speaking of the endorsement as it now appears at the back of the check (Exh. A-1) stated that Ramos typewrote these words outside of the premises of Montinola, that is, in a nearby house. Montinola, on the other hand, testified that Ramos typewrote the words 'Enrique P. Montinola, 517 Isabel Street', in his own house. Speaking of the rubber stamp used at the back of the check and which produced the words 'pay to the order of', Cortado stated that when he (Cortado), Atadero, Montinola and Ramos returned in group to the house of Montinola, the rubber stamp was already in the house of Montinola, and it was on the table of the upper floor of the house, together with the stamp pad used to stamp the same. Montinola, on the other hand, testified that Ramos carried in his pocket the said rubber stamp as well as the ink pad, and stamped it in his house. "The unusually big space occupied by the indorsement on the back of the check and the discrepancies in the versions of Montinola and his witness Cortado just noted, create doubts as to whether or not really Ramos made the indorsement as it now appears at the back of Exhibit A. One thing difficult to understand is why Ramos should go into the laborious task of placing the rubber stamp 'Pay to the order of' and afterwards move to the typewriter and write the words 'Enrique P. Montinola' and '517 Isabel Street', and finally sign his name too far below the main indorsement. "(c)Another circumstance which bears heavily upon the claim of plaintiff Montinola that he acquired the full value of the check and paid the full consideration therefor is the present condition of said check. It is now so unclean and discolored; it is pasted in cellophane, blotted with ink on both sides torn into three parts, and with portions thereof burned - all done by plaintiff, the alleged owner thereof. "The acts done by the very plaintiff on a document so important and valuable to him, and which according to him involves his life savings, approximate intentional cancellation. The only reason advanced by plaintiff as to why he tore the check, burned the torn

edges and blotted out the registration at the back, is found in the following: That Ramos came to his house, armed with a revolver, threatened his life and demanded from him the return of the check; that when he informed Ramos that he did not have it in the house, but in some deposit outside thereof and that Ramos promised to return the next day; that the same night he tore the check into three parts, burned the sides with a parrafin candle to show traces of burning; and that upon the return of Ramos the next day he showed the two parts of the check, the triangle on the right upper part and the torn piece on the left part, and upon seeing the condition thereof Ramos did not bother to get the check back. He also said that he placed the blots in indelible ink to prevent Ramos if he would be forced to surrender the middle part of the check from seeing that it was registered in the General Auditing Office. "Conceding at the moment these facts to be true, the question is: Why should Montinola be afraid of Ramos? Montinola claims that Ramos went there about April, 1945, that is, during liberation. If he believed he was standing by his rights, he could have very well sought police protection or transferred to some place where Ramos could not bother him. And then, if really Ramos did not have anything more to do with this check for the reason that Montinola had obtained in full the amount thereof, there could not be any reason why Ramos should have threatened Montinola as stated by the latter. Under the circumstances, the most logical conclusion is that Ramos wanted the check at all costs because Montinola did not acquire the check to such an extent that it borders on intentional cancellation thereof (see Sections 119- 123 Negotiable Instruments Law) there is room to believe that Montinola did not have so much investments in that check as to have adopted an 'what do I care?' attitude. "And there is the circumstance of the alleged loss of the check. At the time of the filing of the complaint the check was allegedly lost, so much so that a photostatic copy thereof was merely attached to the complaint (see paragraph 7 of the complaint). Yet, during the trial the original check Exhibit A was produced in court. "But a comparison between the photostatic copy and the original check reveals discrepancies between the two. The condition of the check as it was produced is such that it was partially burned, partially blotted, badly mutilated, discolored and pasted with cellophane. What is worse is that Montinola's excuse as to how it was lost, that it was mixed up with household effects is not plausible, considering the fact that it involves his life savings, and that before the alleged loss, he took extreme pains and precautions to save the check from the possible ravages of the war,

had it photographed, registered said check with the General Auditing Office and he knew that Ramos, since liberation, was not after the possession of that check. "(d)It seems that Montinola was not so sure as to what he had testified to in reference to the consideration he paid for the check. In court he testified that he paid P450,000 in cash from June to December 1944, and P400,000 worth of sulphatiazole in January 1945 to complete the alleged consideration of P850,000. When Montinola testified this way in court, obviously he overlooked a letter he wrote to the provincial treasurer of Cagayan, Oriental Misamis, dated May 1, 1947, Erhibit 8 of the record. In that letter Exhibit 3, Montinola told Provincial Treasurer Elizalde of Misamis Oriental that 'Ramos endorsed it (referring to check) to me for goods in kind, medicine, etc., received by him for the use of the guerrillas.' In said letter Exhibit 3, Montinola did not mention the cash that he paid for the check. "From the foregoing the court concludes that plaintiff Montinola came into the possession of the check in question about the end of December 1944 by reason of the fact that M. V. Ramos sold to him P30,000 of the face value thereof in consideration of the sum of P90,000 Japanese money, of which only one-half or P45,000 (in Japanese money) was actually paid by said plaintiff to Ramos." (R. on A., pp. 3133; Brief of Appellee, pp. 14-20.)

At the beginning of this decision, we stated that as Provincial Treasurer of Misamis Oriental, Ubaldo D. Laya was ex officio agent of the Philippine National Bank branch in that province. On the face of the check (Exh. A) we now find the words in parenthesis "Agent, Phil. National Bank" under the signature of Laya, purportedly showing that he issued the check as agent of the Philippine National Bank. If this is true, then the bank is not only drawee but also a drawer of the check, and Montinola evidently is trying to hold the Philippine National Bank liable in that capacity of drawer, because as drawee alone, inasmuch as the bank has not yet accepted or certified the check, it may yet avoid payment. Laya, testifying in court, stated that he issued the check only as Provincial Treasurer, and that the words in parenthesis "Agent, Phil. National Bank" now appearing under his signature did not appear on the check when he issued the same. In this he was corroborated by the payee M. V. Ramos who equally assured the court that when he received the check and then delivered it to Montinola, those words did not appear under the signature of Ubaldo D. Laya. We again quote with approval the pertinent portion of the trial court's decision:

"The question is reduced to whether or not the words, 'Agent, Phil, National Bank' were added after Laya had issued the check. In a straightforward manner and without vacillation Laya positively testified that the check Exhibit A was issued by him in his capacity as Provincial Treasurer of Misamis Oriental and that the words 'Agent, Phil. National Bank' which now appear on the check Exhibit A were not typewritten below his signature when he signed the said check and delivered the same to Ramos. Laya assured the court that there could not be any mistake as to this. For, according to Laya, when he issued checks in his capacity as agent of the Misamis Oriental agency of the Philippine National Bank the said check must be countersigned by the cashier of the said agency not by the provincial auditor. He also testified that the said check was issued by him in his capacity as provincial treasurer of Misamis Oriental and that is why the same was countersigned by Provincial Auditor Flores. The Provincial Auditor at that time had no connection in any capacity with the Misamis Oriental agency of the Philippine National Bank. Plaintiff Montinola on the other hand testified that when he received the check Exhibit A it already bore the words 'Agent, Phil. National Bank' below the signature of Laya and the printed words 'Provincial Treasurer'. "After considering the testimony of the one and the other, the court finds that the preponderance of the evidence supports Laya's testimony. In the first place, his testimony was corroborated by the payee M. V. Ramos. But what renders more probable the testimony of Laya and Ramos is the fact that the money for which the check was issued was expressly for the use of the USAFFE of which Ramos was then disbursing officer, so much so that upon the delivery of the P400,000 in emergency notes and the P100,000 check to Remos, Laya credited his depository accounts as provincial treasurer with the corresponding credit entry. In the normal course of events the check could not have been issued by the bank, and this is borne by the fact that the signature of Laya was countersigned by the provincial auditor, not the bank cashier. And then, too there is the circumstance that this check was issued by the provincial treasurer of Lanao to Ramos who requisitioned the said funds in his capacity as disbursing officer of the USAFFE. The check, Exhibit A is not what we may term in business parlance, 'certified check' or 'cashier's check.'. "Besides, at the time the check was issued, Laya already knew that Cebu and Manila were already occupied. He could not have therefore issued the check as a bank employee payable at the central office of the Philippine National Bank. "Upon the foregoing circumstances the court concludes that the words 'Agent, Phil. National Bank' below the signature of Ubaldo D. Laya

and the printed words 'Provincial Treasurer' were added in the check after the same was issued by the Provincial Treasurer of Misamis Oriental."

From all the foregoing, we may safely conclude as we do that the words "Agent, Phil. National Bank" now appearing on the face of the check (Exh. A) were added or placed in the instrument after it was issued by Provincial Treasurer Laya to M. V. Ramos. There is no reason known to us why Provincial Treasurer Laya should issue the check (Exh. A) as agent of the Philippine National Bank. Said check for P100,000 was issued to complete the payment of the other check for P500,000 issued by the Provincial Treasurer of Lanao to Ramos, as part of the advance funds for the USAFFE in Cagayan de Misamis. The balance of P400,000 in cash was paid to Ramos by Laya from the funds, not of the bank but of the Provincial Treasury. Said USAFFE were being financed not by the Bank but by the Government and, presumably, one of the reasons for the issuance of the emergency notes in Mindanao was for this purpose. As already stated, according to Provincial Treasurer Laya, upon receiving a relatively considerable amount of these emergency notes for his office, he deposited P500,000 of said currency in the Philippine National Bank branch in Cebu, and that in issuing the check (Exh. A), he expected to have it cashed at said Cebu bank branch against his deposit of P500,000. The logical conclusion, therefore, is that the check was issued by Laya only as Provincial Treasurer and as an official of the Government which was under obligation to provide the USAFFE with advance funds, and not by the Philippine National Bank which had no such obligation. The very Annex C, made part of plaintiff's complaint, and later introduced in evidence for him as Exhibit E states that Laya issued the check "in his capacity as Provincial Treasurer of Misamis Oriental", obviously, not as agent of the Bank. Now, did M. V. Ramos add or place those words below the signature of Laya before transferring the check to Montinola? Let us bear in mind that Ramos before his induction into the USAFFE had been working as assistant of Treasurer Laya as ex-officio agent of the Misamis Oriental branch of the Philippine National Bank. Naturally, Ramos must have known the procedure followed there as to the issuance of checks, namely, that when a check is issued by the Provincial Treasurer as such, it is countersigned by the Provincial Auditor as was done on the check (Exhibit A), but that if the Provincial Treasurer issues a check as agent of the Philippine National Bank, the check is countersigned not by the Provincial Auditor who has nothing to do with the bank, but by the bank cashier, which was not done in this case. It is not likely, therefore, that Ramos had made the insertion of the words "Agent, Phil. National Bank" after he received the check, because he should

have realized that following the practice already described, the check having been issued by Laya as Provincial Treasurer, and not as agent of the bank, and since the check bears the countersignature not of the Bank cashier but of the Provincial Auditor, the addition of the words "Agent, Phil. National Bank" could not change the status and responsibility of the bank. It is therefore more logical to believe and to find that the addition of those words was made after the check had been transferred by Ramos to Montinola. Moreover, there are other facts and circumstances involved in the case which support this view. Referring to the mimeographed record on appeal filed by the plaintiffappellant, we find that in transcribing and copying the check, particularly the face of it (Exhibit A) in the complaint, the words "Agent, Phil. National Bank" now appearing on the face of the check under the signature of the Provincial Treasurer, is missing. Unless the plaintiff in making this copy or transcription in the complaint committed a serious omission which is decisive as far as the bank is concerned, the inference is, that at the time the complaint was filed, said phrase did not appear on the face of the check. That probably was the reason why the bank in its motion to dismiss dated September 2, 1947, contended that if the check in question had been issued by the provincial treasurer in his capacity as agent of the Philippine National Bank, said treasurer would have placed below his signature the words "Agent of the Philippine National Bank". The plaintiff because of the alleged loss of the check, allegedly attached to the complaint a photostatic copy of said check and marked it as Annex A. But in transcribing and copying said Annex A in his complaint, the phrase "Agent, Phil. National Bank" does not appear under the signature of the provincial treasurer. We tried to verify this discrepancy by going over the original records of the Court of First Instance so as to compare the copy of Annex A in the complaint, with the original Annex A, the photostatic copy, but said original Annex A appears to be missing from the record. How it disappeared is not explained. Of course, now we have in the list of exhibits a photostatic copy marked Annex A and Exhibit B, but according to the manifestation of counsel for the plaintiff dated October 15, 1948, said photostatic copy now marked Annex A and Exhibit B was submitted on October 15, 1948, in compliance with the verbal order of the trial court. It is therefore evident that the Annex A now available is not the same original Annex A attached to the complaint in 1947. There is one other circumstance, important and worth noting. If Annex A also marked Exhibit B is the photostatic copy of the original check No. 1382 particularly the face thereof (Exhibit A), then said photostatic copy should be a faithful and accurate reproduction of the check, particularly of the phrase

"Agent, Phil. National Bank" now appearing under the signature of the Provincial Treasurer on the face of the original check (Exhibit A). But a minute examination of and comparison between Annex A, the photostatic copy also marked Exhibit B and the face of the check, Exhibit A, especially with the aid of a hand lens, show notable differences and discrepancies. For instance, on Exhibit A, the letter A of the word "Agent" is toward the right of the tail of the beginning letter of the signature of Ubaldo D. Laya; this same letter "A" however in Exhibit B is directly under said tail. The letter "N" of the word "National" on Exhibit A is underneath the space between "Provincial" and "Treasurer"; but the same letter "N" is directly under the letter "I" of the word "Provincial" in Exhibit B. The first letter "a" of the word "National" is under "T" of the word "Treasurer" in Exhibit A; but the same letter "a" in Exhibit "B" is just below the space between the words "Provincial" and "Treasurer". The letter "k" of the word "Bank" in Exhibit A is after the green perpendicular border line near the lower righthand corner of the edge of the check (Exh. A); this same letter "k" however, on Exhibit B is on the very border line itself or even before said border line. The closing parenthesis ")" on Exhibit A is a little far from the perpendicular green border line and appears to be double instead of one single line; this same ")" on Exhibit B appears in a single line and is relatively nearer to the border line. There are other notable discrepancies between the check Annex A and the photostatic copy, Exhibit B, as regards the relative position of the phrase "Agent, Phil. National Bank", with the title Provincial Treasurer, giving ground to the doubt that Exhibit B is a photostatic copy of the check (Exhibit A). We then have the following facts. Exhibit A was issued by Laya in his capacity as Provincial Treasurer of Misamis Oriental as drawer on the Philippine National Bank as drawee. Ramos sold P30,000 of the check to Enrique P. Montinola for P90,000 Japanese military notes, of which only P45,000 was paid by Montinola. The writing made by Ramos at the back of the check was an instruction to the bank to pay P30,000 to Montinola and to deposit the balance to his (Ramos) credit. This writing was obliterated and in its place we now have the supposed indorsement appearing on the back of the check (Exh. A-1). At the time of the transfer of this check (Exh. A) to Montinola about the last days of December, 1944, or the first days of January, 1945, the check which, being a negotiable instrument, was payable on demand, was long overdue by about 2 1/2 years. It may therefore be considered even then, a

stale check. Of course, Montinola claims that about June, 1944 when Ramos supposedly approached him for the purpose of negotiating the check, he (Montinola) consulted President Carmona of the Philippine National Bank who assured him that the check was good and negotiable. However, President Carmona on the witness stand flatly denied Montinola's claim and assured the court that the first time that he saw Montinola was after the Philippine National Bank, of which he was President, reopened, after liberation, around August or September, 1945, and that when shown the check he told Montinola that it was stale. M. V. Ramos also told the court that it is not true that he ever went with Montinola to see President Carmona about the check in 1944. On the basis of the facts above related there are several reasons why the complaint of Montinola cannot prosper. The insertion of the words "Agent, Phil. National Bank" which converts the bank from a mere drawee to a drawer and therefore changes its liability, constitutes a material alteration of the instrument without the consent of the parties liable thereon, and so discharges the instrument. (Section 124 of the Negotiable Instruments Law). The check was not legally negotiated within the meaning of the Negotiable Instruments Law. Section 32 of the same law provides that "the indorsement must be an indorsement of the entire instrument. An indorsement which purports to transfer to the indorsee a part only of the amount payable, . . . (as in this case) does not operate as a negotiation of the instrument." Montinola may therefore not be regarded as an indorsee. At most he may be regarded as a mere assignee of the P30,000 sold to him by Ramos, in which case, as such assignee, he is subject to all defenses available to the drawer Provincial Treasurer of Misamis Oriental and against Ramos. Neither can Montinola be considered as a holder in due course because section 52 of said law defines a holder in due course as a holder who has taken the instrument under certain conditions, one of which is that he became the holder before it was overdue. When Montinola received the check, it was long overdue. And, Montinola is not even a holder because section 191 of the same law defines holder as the payee or indorsee of a bill or note and Montinola is not a payee. Neither is he an indorsee for as already stated, at most he can be considered only as assignee. Neither could it be said that he took it in good faith. As already stated, he has not paid the full amount of P90,000 for which Ramos sold him P30,000 of the value of the check. In the second place, as was stated by the trial court in its decision, Montinola speculated on the check and took a chance on its being paid after the war. Montinola must have known that at the time the check was issued in May, 1942, the money circulating in Mindanao and the Visayas was only the emergency notes and that the check

was intended to be payable in that currency. Also, he should have known that a check for such a large amount of P100,000 could not have been issued to Ramos in his private capacity but rather in his capacity as disbursing officer of the USAFFE, and that at the time that Ramos sold a part of the check to him, Ramos was no longer connected with the USAFFE but already a civilian who needed the money only for himself and his family. As already stated, as a mere assignee Montinola is subject to all the defenses available against assignor Ramos. And, Ramos had he retained the check may not now collect its value because it had been issued to him as disbursing officer. As observed by the trial court, the check was issued to M. V. Ramos not as a person but M. V. Ramos as the disbursing officer of the USAFFE. Therefore, he had no right to indorse it personally to plaintiff. It was negotiated in breach of trust, hence he transferred nothing to the plaintiff. In view of all the foregoing, finding no reversible error in the decision appealed from, the same is hereby affirmed with costs. In the prayer for relief contained at the end of the brief for the Philippine National Bank dated September 27, 1949, we find this prayer:.
"It is also respectfully prayed that this Honorable Court refer the check, Exhibit A, to the City Fiscal's Office for appropriate criminal action against the plaintiff-appellant if the facts so warrant."

Subsequently, in a petition signed by plaintiff-appellant Enrique P. Montinola dated February 27, 1950 he asked this Court to allow him to withdraw the original check (Exh. A) for him to keep, expressing his willingness to submit it to the Court whenever needed for examination and verification. The bank on March 2, 1950 opposed the said petition on the ground that inasmuch as the appellant's cause of action in this case is based on the said check, it is absolutely necessary for the court to examine the original in order to see the actual alterations supposedly made thereon, and that should this Court grant the prayer contained in the bank's brief that the check be later referred to the city fiscal for appropriate action, said check may no longer be available if the appellant is allowed to withdraw said document. In view of said opposition this Court by resolution of March 6, 1950, denied said petition for withdrawal. Acting upon the petition contained in the bank's brief already mentioned, once the decision becomes final, let the Clerk of Court transmit to the city fiscal the check (Exh. A) together with all pertinent papers and documents in this case, for any action he may deem proper in the premises.

Moran, C.J., Paras, Feria, Pablo, Bengzon, Padilla, Tuason, Reyes and Bautista Angelo, JJ., concur.

THIRD DIVISION
[G.R. No. 76788. January 22, 1990.] JUANITA SALAS, petitioner, vs. HON. COURT OF APPEALS and FILINVEST FINANCE & LEASING CORPORATION, respondents.

Arsenio C. Villalon, Jr. for petitioner. Labaguis, Loyola, Angara & Associates for private respondent.
SYLLABUS 1.COMMERCIAL LAW; NEGOTIABLE INSTRUMENT; REQUISITES; SATISFIED IN CASE AT BAR. The questioned promissory note shows that it is a negotiable instrument, having complied with the requisites under the law as follows: [a] it is in writing and signed by the maker Juanita Salas; [b] it contains an unconditional promise to pay the amount of P58,138.20; [c] it is payable at a fixed or determinable future time which is "P1,614.95 monthly for 36 months due and payable on the 21st day of each month starting March 21, 1980 thru and inclusive of Feb. 21, 1983;" [d] it is payable to Violago Motor Sales Corporation, or order and as such, [e] the drawee is named or indicated with certainty. 2.ID.; NEGOTIABLE AND NON-NEGOTIABLE INSTRUMENT, DISTINGUISHED. In the case of Consolidated Plywood Industries Inc. v. IFC Leasing and Acceptance Corp., this Court had the occasion to clearly distinguish between a negotiable and a non-negotiable instrument. Among others, the instrument in order to be considered negotiable must contain the so-called "words of negotiability i.e., must be payable to 'order' or 'bearer.'" Under Section 8 of the Negotiable Instruments Law, there are only two ways by which an instrument may be made payable to order. There must always be a specified person named in the instrument and the bill or note is to be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same. Without the words "or order" or "to the order of", the instrument is payable only to the person designated therein and is therefore nonnegotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument, but will merely "step into the shoes" of the person designated in the instrument and will thus be open to all defenses available against the latter.

3.ID.; NEGOTIABLE INSTRUMENTS; REQUISITES OF HOLDER IN DUE COURSE. A holder in due course, having taken the instrument under the following conditions: [a] it is complete and regular upon its face; [b] it became the holder thereof before it was overdue, and without notice that it had previously been dishonored; [c] it took the same in good faith and for value; and [d] when it was negotiated to Filinvest, the latter had no notice of any infirmity in the instrument or defect in the title of VMS Corporation. 4.ID.; ID.; RIGHT OF A HOLDER IN DUE COURSE; APPLICABLE IN THE CASE AT BAR. Respondent corporation holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof. This being so, petitioner cannot set up against respondent the defense of nullity of the contract of sale between her and VMS. Even assuming for the sake of argument that there is an iota of truth in petitioner's allegation that there was in fact deception made upon her in that the vehicle she purchased was different from that actually delivered to her, this matter cannot be passed upon in the case before us, where the VMS was never impleaded as a party. DECISION FERNAN, C.J :
p

Assailed in this petition for review on certiorari is the decision of the Court of Appeals in C.A.-G.R. CV No. 00757 entitled "Filinvest Finance & Leasing Corporation v. Salas", which modified the decision of the Regional Trial Court of San Fernando, Pampanga in Civil Case No. 5915, a collection suit between the same parties. Records disclose that on February 6, 1980, Juanita Salas (hereinafter referred to as petitioner) bought a motor vehicle from the Violago Motor Sales Corporation (VMS for brevity) for P58,138.20 as evidenced by a promissory note. This note was subsequently endorsed to Filinvest Finance & Leasing Corporation (hereinafter referred to as private respondent) which financed the purchase. Petitioner defaulted in her installments beginning May 21, 1980 allegedly due to a discrepancy in the engine and chassis numbers of the vehicle delivered to her and those indicated in the sales invoice, certificate of registration and deed of

chattel mortgage, which fact she discovered when the vehicle figured in an accident on 9 May 1980. This failure to pay prompted private respondent to initiate Civil Case No. 5915 for a sum of money against petitioner before the Regional Trial Court of San Fernando, Pampanga. In its decision dated September 10, 1982, the trial court held, thus:
"WHEREFORE, and in view of all the foregoing, judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of P28,414.40 with interest thereon at the rate of 14% from October 2, 1980 until the said sum is fully paid; and the further amount of P1,000.00 as attorney's fees. "The counterclaim of defendant is dismissed. "With costs against defendant."
1

Both petitioner and private respondent appealed the aforesaid decision to the Court of Appeals. Imputing fraud, bad faith and misrepresentation against VMS for having delivered a different vehicle to petitioner, the latter prayed for a reversal of the trial court's decision so that she may be absolved from the obligation under the contract. On October 27, 1986, the Court of Appeals rendered its assailed decision, the pertinent portion of which is quoted hereunder:
"The allegations, statements, or admissions contained in a pleading are conclusive as against the pleader. A party cannot subsequently take a position contradictory of, or inconsistent with his pleadings (Cunanan vs. Amparo, 80 Phil. 227). Admissions made by the parties in the pleadings, or in the course of the trial or other proceedings, do not require proof and cannot be contradicted unless previously shown to have been made through palpable mistake (Sec. 2, Rule 129, Revised Rules of Court; Sta. Ana vs. Maliwat, L-23023, Aug. 31, 1968, 24 SCRA 1018). "When an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath,

specifically denied them, and sets forth what he claims to be the facts (Sec. 8, Rule 8, Revised Rules of Court; Hibbered vs. Rohde and Mc Millian, 32 Phil. 476). "A perusal of the evidence shows that the amount of P58,138.20 stated in the promissory note is the amount assumed by the plaintiff in financing the purchase of defendant's motor vehicle from the Violago Motor Sales Corp., the monthly amortization of which is P1,614.95 for 36 months. Considering that the defendant was able to pay twice (as admitted by the plaintiff, defendant's account became delinquent only beginning May, 1980) or in the total sum of P3,229.90, she is therefore liable to pay the remaining balance of P54,908.30 at 14% per annum from October 2, 1980 until full payment. "WHEREFORE, considering the foregoing, the appealed decision is hereby modified ordering the defendant to pay the plaintiff the sum of P54,908.30 at 14%per annum from October 2, 1980 until full payment. The decision is AFFIRMED in all other respects. With costs to defendant." 2

Petitioner's motion for reconsideration was denied; hence, the present recourse.
LLphil

In the petition before us, petitioner assigns twelve (12) errors which focus on the alleged fraud, bad faith and misrepresentation of Violago Motor Sales Corporation in the conduct of its business and which fraud, bad faith and misrepresentation supposedly released petitioner from any liability to private respondent who should instead proceed against VMS. 3 Petitioner argues that in the light of the provision of the law on sales by description 4 which she alleges is applicable here, no contract ever existed between her and VMS and therefore none had been assigned in favor of private respondent. She contends that it is not necessary, as opined by the appellate court, to implead VMS as a party to the case before it can be made to answer for damages because VMS was earlier sued by her for "breach of contract with damages" before the Regional Trial Court of Olongapo City, Branch LXXII, docketed as Civil Case No. 2916-0. She cites as authority the decision therein where the court originally ordered petitioner to pay the remaining balance of the motor vehicle installments in the amount of P31,644.30 representing the difference between the agreed consideration of P49,000.00 as shown in the sales invoice and petitioner's initial downpayment of P17,855.70 allegedly evidenced

by a receipt. Said decision was however reversed later on, with the same court ordering defendant VMS instead to return to petitioner the sum of P17,855.70. Parenthetically, said decision is still pending consideration by the First Civil Case Division of the Court of Appeals, upon an appeal by VMS, docketed as AC-G.R. No. 02922. 5 Private respondent in its comment, prays for the dismissal of the petition and counters that the issues raised and the allegations adduced therein are a mere rehash of those presented and already passed upon in the court below, and that the judgment in the "breach of contract" suit cannot be invoked as an authority as the same is still pending determination in the appellate court. We see no cogent reason to disturb the challenged decision. The pivotal issue in this case is whether the promissory note in question is a negotiable instrument which will bar completely all the available defenses of the petitioner against private respondent. Petitioner's liability on the promissory note, the due execution and genuineness of which she never denied under oath is, under the foregoing factual milieu, as inevitable as it is clearly established.

The records reveal that involved herein is not a simple case of assignment of credit as petitioner would have it appear, where the assignee merely steps into the shoes of, is open to all defenses available against and can enforce payment only to the same extent as, the assignor-vendor. Recently, in the case of Consolidated Plywood Industries Inc. v. IFC Leasing and Acceptance Corp., 6 this Court had the occasion to clearly distinguish between a negotiable and a non-negotiable instrument.
LLjur

Among others, the instrument in order to be considered negotiable must contain the so-called "words of negotiability i.e., must be payable to 'order' or 'bearer.'" Under Section 8 of the Negotiable Instruments Law, there are only two ways by which an instrument may be made payable to order. There must always be a specified person named in the instrument and the bill or note is to be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same. Without the words "or order" or "to the order of", the instrument is payable only to the person designated therein and is therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the

advantages of being a holder of a negotiable instrument, but will merely "step into the shoes" of the person designated in the instrument and will thus be open to all defenses available against the latter. Such being the situation in the abovecited case, it was held that therein private respondent is not a holder in due course but a mere assignee against whom all defenses available to the assignor may be raised. 7 In the case at bar, however, the situation is different. Indubitably, the basis of private respondent's claim against petitioner is a promissory note which bears all the earmarks of negotiability. The pertinent portion of the note reads:
"PROMISSORY NOTE (MONTHLY) "P58,138.20 San Fernando, Pampanga, Philippines Feb. 11, 1980 "For value received, I/We jointly and severally, promise to pay Violago Motor Sales Corporation or order, at its office in San Fernando, Pampanga, the sum of FIFTY EIGHT THOUSAND ONE HUNDRED THIRTY EIGHT & 20/100 ONLY (P58,138.20) Philippine currency, which amount includes interest at 14% per annum based on the diminishing balance, the said principal sum, to be payable, without need of notice or demand, in installments of the amounts following and at the dates hereinafter set forth, to wit: P1,614.95 months for "36" monthly due and payable on the 21st day of each month starting March 21, 1980 thru and inclusive of February 21, 1983. P __________ monthly for ___________ month due and payable on the ___________ day of each months starting _____________, ___________ 198 __________ thru and inclusive of _______, 198 __________ provided that interest at 14% per annum shall be added on each unpaid installment from maturity hereof until fully paid. xxx xxx xxx "Maker:Co-Maker: (SIGNED) JUANITA SALAS_____________________________ Address:

___________________________________________________ "WITNESSES SIGNED: ILLEGIBLESIGNED:ILLEGIBLE TAN #TAN # "PAY TO THE ORDER OF FILINVEST FINANCE AND LEASING CORPORATION "VIOLAGO MOTOR SALES CORPORATION By: (SIGNED) GENEVEVA V. BALTAZAR Cash Manager" 8

A careful study of the questioned promissory note shows that it is a negotiable instrument, having complied with the requisites under the law as follows: [a] it is in writing and signed by the maker Juanita Salas; [b] it contains an unconditional promise to pay the amount of P58,138.20; [c] it is payable at a fixed or determinable future time which is "P1,614.95 monthly for 36 months due and payable on the 21st day of each month starting March 21, 1980 thru and inclusive of Feb. 21, 1983;" [d] it is payable to Violago Motor Sales Corporation, or order and as such, [e] the drawee is named or indicated with certainty. 9 It was negotiated by indorsement in writing on the instrument itself payable to the Order of Filinvest Finance and Leasing Corporation 10 and it is an indorsement of the entire instrument. 11 Under the circumstances, there appears to be no question that Filinvest is a holder in due course, having taken the instrument under the following conditions: [a] it is complete and regular upon its face; [b] it became the holder thereof before it was overdue, and without notice that it had previously been dishonored; [c] it took the same in good faith and for value; and [d] when it was negotiated to Filinvest, the latter had no notice of any infirmity in the instrument or defect in the title of VMS Corporation. 12 Accordingly, respondent corporation holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof. 13 This being so, petitioner cannot set up against respondent the defense of nullity of the contract of sale between her and VMS.
prcd

Even assuming for the sake of argument that there is an iota of truth in petitioner's allegation that there was in fact deception made upon her in that the vehicle she purchased was different from that actually delivered to her, this matter cannot be passed upon in the case before us, where the VMS was never impleaded as a party. Whatever issue is raised or claim presented against VMS must be resolved in the "breach of contract" case. Hence, we reach a similar opinion as did respondent court when it held:
"We can only extend our sympathies to the defendant (herein petitioner) in this unfortunate incident. Indeed, there is nothing We can do as far as the Violago Motor Sales Corporation is concerned since it is not a party in this case. To even discuss the issue as to whether or not the Violago Motor Sales Corporation is liable in the transaction in question would amount, to denial of due process, hence, improper and unconstitutional. She should have impleaded Violago Motor Sales." 14

IN VIEW OF THE FOREGOING, the assailed decision is hereby AFFIRMED. With costs against petitioner.
llcd

SO ORDERED.

Gutierrez, Jr., Feliciano, Bidin and Cortes, JJ., concur.


Footnotes

1.Rollo, p. 21. 2.Rollo, pp. 23-24. 3.Rollo, pp. 57-59. 4.Art. 1481, New Civil Code. 5.Rollo, p. 10. 6.149 SCRA 459 (1987). 7.Ibid. 8.Ex. "7"; Folder of Exhibits.

9.Section 1, Negotiable Instruments Law,emphasis supplied. 10.Section 31, NIL. 11.Section 32, NIL. 12.Section 52, NIL. 13.Section 57, Negotiable Instruments Law; Consolidated Plywood Industries, Inc. v. IFC Leasing and Acceptance Corporation (supra). 14.Rollo, pp. 22-23.