Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No.

180257 February 23, 2011

others, the solidary liability of Gonzales and the spouses Panlilio for the payment of the loans. However, it was the spouses Panlilio who received the loan proceeds of PhP 1,800,000. The monthly interest dues of the loans were paid by the spouses Panlilio through the automatic debiting of their account with PCIB. But the spouses Panlilio, from the month of July 1998, defaulted in the payment of the periodic interest dues from their PCIB account which apparently was not maintained with enough deposits. PCIB allegedly called the attention of Gonzales regarding the July 1998 defaults and the subsequent accumulating periodic interest dues which were left still left unpaid. In the meantime, Gonzales issued a check dated September 30, 1998 in favor of Rene Unson (Unson) for PhP 250,000 drawn against the credit line (COHLA). However, on October 13, 1998, upon presentment for payment by Unson of said check, it was dishonored by PCIB due to the termination by PCIB of the credit line under COHLA on October 7, 1998 for the unpaid periodic interest dues from the loans of Gonzales and the spouses Panlilio. PCIB likewise froze the FCD account of Gonzales. Consequently, Gonzales had a falling out with Unson due to the dishonor of the check. They had a heated argument in the premises of the Philippine Columbian Association (PCA) where they are both members, which caused great embarrassment and humiliation to Gonzales. Thereafter, on November 5, 1998, Unson sent a demand letter to Gonzales for the PhP 250,000. And on December 3, 1998, the counsel of Unson sent a second demand letter to Gonzales with the threat of legal action. With his FCD account that PCIB froze, Gonzales was forced to source out and pay the PhP 250,000 he owed to Unson in cash.

EUSEBIO GONZALES, Petitioner, vs. PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK, EDNA OCAMPO, and ROBERTO NOCEDA,Respondents. DECISION VELASCO, JR., J.: The Case

This is an appeal via a Petition for Review on Certiorari under Rule 45 from the Decision dated October 22, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 74466, which denied petitioners appeal from the December 10, 2001 De cision in Civil Case No. 99-1324 of the Regional Trial Court (RTC), Branch 138 in Makati City. The RTC found justification for respondents dishonor of petitioners check and found petitioner solidarily liable with the spouses Jose and Jocelyn Panlilio (spouses Panlilio) for the three promissory notes they executed in favor of respondent Philippine Commercial and On January 28, 1999, Gonzales, through counsel, wrote PCIB insisting that the check he International Bank (PCIB). issued had been fully funded, and demanded the return of the proceeds of his FCD as well as damages for the unjust dishonor of the check. PCIB replied on March 22, 1999 The Facts and stood its ground in freezing Gonzales accounts due to the outstanding dues of the loans. On May 26, 1999, Gonzales reiterated his demand, reminding PCIB that it knew Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good 15 years before well that the actual borrowers were the spouses Panlilio and he never benefited from the he filed the instant case. His account with PCIB was handled by respondent Edna proceeds of the loans, which were serviced by the PCIB account of the spouses Panlilio. Ocampo (Ocampo) until she was replaced by respondent Roberto Noceda (Noceda). PCIBs refusal to heed his demands compelled Gonzales to fi le the instant case for In October 1992, PCIB granted a credit line to Gonzales through the execution of a damages with the RTC, on account of the alleged unjust dishonor of the check issued in Credit-On-Hand Loan Agreement (COHLA), in which the aggregate amount of the favor of Unson. accounts of Gonzales with PCIB served as collateral for and his availment limit under the credit line. Gonzales drew from said credit line through the issuance of check. At the The Ruling of the RTC institution of the instant case, Gonzales had a Foreign Currency Deposit (FCD) of USD 8,715.72 with PCIB. After due trial, on December 10, 2001, the RTC rendered a Decision in favor of PCIB. On October 30, 1995, Gonzales and his wife obtained a loan for PhP 500,000. The decretal portion reads: Subsequently, on December 26, 1995 and January 3, 1999, the spouses Panlilio and Gonzales obtained two additional loans from PCIB in the amounts of PhP 1,000,000 and WHEREFORE, judgment is rendered as follows PhP 300,000, respectively. These three loans amounting to PhP 1,800,000 were covered by three promissory notes. To secure the loans, a real estate mortgage (REM) over a (a) on the first issue, plaintiff is liable to pay defendant Bank as principal under parcel of land covered by Transfer Certificate of Title (TCT) No. 38012 was executed by the promissory notes, Exhibits A, B and C; Gonzales and the spouses Panlilio. Notably, the promissory notes specified, among

(b) on the second issue, the Court finds that there is justification on part of the defendant Bank to dishonor the check, Exhibit H; (c) on the third issue, plaintiff and defendants are not entitled to damages from each other. No pronouncement as to costs. SO ORDERED. The RTC found Gonzales solidarily liable with the spouses Panlilio on the three promissory notes relative to the outstanding REM loan. The trial court found no fault in the termination by PCIB of the COHLA with Gonzales and in freezing the latters accounts to answer for the past due PhP 1,800,000 loan. The trial court ruled that the dishonor of the check issued by Gonzales in favor of Unson was proper considering that the credit line under the COHLA had already been terminated or revoked before the presentment of the check. Aggrieved, Gonzales appealed the RTC Decision before the CA. The Ruling of the CA

"1", "2" AND "3", RESPONDENT) PERTAINED TO BORROWER JOSE MA. PANLILIO AND NOT TO APPELLANT AS RECOGNIZED AND ACKNOWLEDGE[D] BY RESPONDENT PHILIPPINE COMMERCIAL & INDUSTRIAL BANK (RESPONDENT BANK). II - IN FINDING THAT THE RESPONDENTS WERE NOT AT FAULT NOR GUILTY OF GROSS NEGLIGENCE IN DISHONORING PETITIONERS CHECK DATED 30 SEPTEMBER 1998 IN THE AMOUNT OF P250,000.00 FOR THE REASON "ACCOUNT CLOSED", INSTEAD OF MERELY "REFER TO DRAWER" GIVEN THE FACT THAT EVEN AFTER DISHONOR, RESPONDENT SIGNED A CERTIFICATION DATED 7 DECEMBER 1998 THAT CREDIT ON HAND (COH) LOAN AGREEMENT WAS STILL VALID WITH A COLLATERAL OF FOREIGN CURRENCY DEPOSIT (FCD) OF [USD] 48,715.72. III - IN NOT AWARDING DAMAGES AGAINST RESPONDENTS DESPITE PRESENTATION OF CLEAR PROOF TO SUPPORT ACTION FOR DAMAGES. The Courts Ruling

The core issues can be summarized, as follows: first, whether Gonzales is liable for the three promissory notes covering the PhP 1,800,000 loan he made with the spouses On September 26, 2007, the appellate court rendered its Decision dismissing Gonzales Panlilio where a REM over a parcel of land covered by TCT No. 38012 was constituted as security; and second, whether PCIB properly dishonored the check of Gonzales drawn appeal and affirming in toto the RTC Decision. The fallo reads: against the COHLA he had with the bank. WHEREFORE, in view of the foregoing, the decision, dated December 10, 2001, in Civil The petition is partly meritorious. Case No. 99-1324 is hereby AFFIRMED in toto. SO ORDERED. First Issue: Solidarily Liability on Promissory Notes

In dismissing Gonzales appeal, the CA, first, confirmed the RTCs findings that Gonzales A close perusal of the records shows that the courts a quo correctly found Gonzales was indeed solidarily liable with the spouses Panlilio for the three promissory notes solidarily liable with the spouses Panlilio for the three promissory notes. executed for the REM loan; second, it likewise found neither fault nor negligence on the part of PCIB in dishonoring the check issued by Gonzales in favor of Unson, ratiocinating The promissory notes covering the PhP 1,800,000 loan show the following: that PCIB was merely exercising its rights under the contractual stipulations in the COHLA brought about by the outstanding past dues of the REM loan and interests for (1) Promissory Note BD-090-1766-95, dated October 30, 1995, for PhP 500,000 which Gonzales was solidarily liable with the spouses Panlilio to pay under the was signed by Gonzales and his wife, Jessica Gonzales; promissory notes. Thus, we have this petition. The Issues Gonzales, as before the CA, raises again the following assignment of errors: (2) Promissory Note BD-090-2122-95, dated December 26, 1995, for PhP 1,000,000 was signed by Gonzales and the spouses Panlilio; and (3) Promissory Note BD-090-011-96, dated January 3, 1996, for PhP 300,000 was signed by Gonzales and the spouses Panlilio.

Clearly, Gonzales is liable for the loans covered by the above promissory notes. First, I - IN NOT CONSIDERING THAT THE LIABILITY ARISING FROM Gonzales admitted that he is an accommodation party which PCIB did not dispute. In his PROMISSORY NOTES (EXHIBITS "A", "B" AND "C", PETITIONER; EXHIBITS

testimony, Gonzales admitted that he merely accommodated the spouses Panlilio at the Q: So these two officers Ocampo and Noceda knew that this was actually the account of suggestion of Ocampo, who was then handling his accounts, in order to facilitate the fast Mr. Panlilio and not your account? release of the loan. Gonzales testified: ATTY. DE JESUS: A: Yes, sir. In fact even if there is a change of account officer they are always informing me that the account will be debited to Mr. Panlilios account.

Now in this case you filed against the bank you mentioned there was a loan also applied Moreover, the first note for PhP 500,000 was signed by Gonzales and his wife as for by the Panlilios in the sum of P1.8 Million Pesos. Will you please tell this Court how borrowers, while the two subsequent notes showed the spouses Panlilio sign as this came about? borrowers with Gonzales. It is, thus, evident that Gonzales signed, as borrower, the promissory notes covering the PhP 1,800,000 loan despite not receiving any of the proceeds. GONZALES: Mr. Panlilio requested his account officer . . . . at that time it is a P42.0 Million loan and if Second, the records of PCIB indeed bear out, and was admitted by Noceda, that the PhP he secures another P1.8 Million loan the release will be longer because it has to pass to 1,800,000 loan proceeds went to the spouses Panlilio, thus: XO. ATTY. DE JESUS: [on Cross-Examination] Q: After that what happened? Is it not a fact that as far as the records of the bank [are] concerned the proceeds of the A: So as per suggestion since Mr. Panlilio is a good friend of mine and we co-owned the 1.8 million loan was received by Mr. Panlilio? property I agreed initially to use my name so that the loan can be utilized immediately by Mr. Panlilio. NOCEDA: Q: Who is actually the borrower of this P1.8 Million Pesos? A: Well, in paper me and Mr. Panlilio. Q: Who received the proceeds of said loan? A: Mr. Panlilio. Yes sir. The fact that the loans were undertaken by Gonzales when he signed as borrower or coborrower for the benefit of the spouses Panlilio as shown by the fact that the proceeds went to the spouses Panlilio who were servicing or paying the monthly dues is beside the point. For signing as borrower and co-borrower on the promissory notes with the proceeds of the loans going to the spouses Panlilio, Gonzales has extended an accommodation to said spouses.

Q: Do you have any proof that it was Mr. Panlilio who actually received the proceeds of Third, as an accommodation party, Gonzales is solidarily liable with the spouses Panlilio this P1.8 Million Pesos loan? for the loans. In Ang v. Associated Bank, quoting the definition of an accommodation party under Section 29 of the Negotiable Instruments Law, the Court cited that an accommodation party is a person "who has signed the instrument as maker, drawer, A: A check was deposited in the account of Mr. Panlilio. acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person." The Court further explained: xxxx Q: By the way upon whose suggestion was the loan of Mr. Panlilio also placed under [A]n accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not your name initially? receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person. An accommodation party lends his name to enable the A: Well it was actually suggested by the account officer at that time Edna Ocampo. accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes liability to the other party/ies thereto. The accommodation party is liable on the instrument to a holder for value even though the Q: How about this Mr. Rodolfo Noceda? holder, at the time of taking the instrument, knew him or her to be merely an accommodation party, as if the contract was not for accommodation. A: As you look at the authorization aspect of the loan Mr. Noceda is the boss of Edna so he has been familiar with my account ever since its inception.

As petitioner acknowledged it to be, the relation between an accommodation party and the accommodated party is one of principal and suretythe accommodation party being the surety. As such, he is deemed an original promisor and debtor from the beginning; he is considered in law as the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter since their liabilities are interwoven as to be inseparable. Although a contract of suretyship is in essence accessory or collateral to a valid principal obligation, the suretys liability to the creditor is immediate, primary and absolute; he is directly and equally bound with the principal. As an equivalent of a regular party to the undertaking, a surety becomes liable to the debt and duty of the principal obligor even without possessing a direct or personal interest in the obligations nor does he receive any benefit therefrom.

Gonzales argues otherwise, pointing out that he was not informed about the default of the spouses Panlilio and that the September 21, 1998 account statement of the credit line shows a balance of PhP 270,000 which was likewise borne out by the December 7, 1998 PCIBs certification that he has USD 8,715.72 in his FCD account which is more than sufficient collateral to guarantee the PhP 250,000 check, dated September 30, 1998, he issued against the credit line. A careful scrutiny of the records shows that the courts a quo committed reversible error in not finding negligence by PCIB in the dishonor of the PhP 250,000 check.

First. There was no proper notice to Gonzales of the default and delinquency of the PhP 1,800,000 loan. It must be borne in mind that while solidarily liable with the spouses Thus, the knowledge, acquiescence, or even demand by Ocampo for an accommodation Panlilio on the PhP 1,800,000 loan covered by the three promissory notes, Gonzales is by Gonzales in order to extend the credit or loan of PhP 1,800,000 to the spouses only an accommodation party and as such only lent his name and credit to the spouses Panlilio does not exonerate Gonzales from liability on the three promissory notes. Panlilio. While not exonerating his solidary liability, Gonzales has a right to be properly apprised of the default or delinquency of the loan precisely because he is a co-signatory Fourth, the solidary liability of Gonzales is clearly stipulated in the promissory notes of the promissory notes and of his solidary liability. which uniformly begin, "For value received, the undersigned (the "BORROWER") jointly and severally promise to pay x x x." Solidary liability cannot be presumed but must be We note that it is indeed understandable for Gonzales to push the spouses Panlilio to pay established by law or contract. Article 1207 of the Civil Code pertinently states that "there the outstanding dues of the PhP 1,800,000 loan, since he was only an accommodation is solidary liability only when the obligation expressly so states, or when the obligation party and was not personally interested in the loan. Thus, a meeting was set by Gonzales requires solidarity." This is true in the instant case where Gonzales, as accommodation with the spouses Panlilio and the PCIB officers, Noceda and Ocampo, in the spouses party, is immediately, equally, and absolutely bound with the spouses Panlilio on the Panlilios jewelry shop in SM Megamall on October 5, 1998. Unfortunately, the meeting promissory notes which indubitably stipulated solidary liability for all the borrowers. did not push through due to the heavy traffic Noceda and Ocampo encountered. Moreover, the three promissory notes serve as the contract between the parties. Contracts have the force of law between the parties and must be complied with in good Such knowledge of the default by Gonzales was, however, not enough to properly faith. apprise Gonzales about the default and the outstanding dues. Verily, it is not enough to be merely informed to pay over a hundred thousand without being formally apprised of Second Issue: Improper Dishonor of Check the exact aggregate amount and the corresponding dues pertaining to specific loans and the dates they became due. Having ruled that Gonzales is solidarily liable for the three promissory notes, We shall now touch upon the question of whether it was proper for PCIB to dishonor the check Gonzales testified that he was not duly notified about the outstanding interest dues of the issued by Gonzales against the credit line under the COHLA. loan: We answer in the negative. ATTY. DE JESUS:

As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is limited to review Now when Mr. Panlilios was encountering problems with the bank did the defendant of errors of law. The factual findings of the trial court, especially when affirmed by the bank [advise] you of any problem with the same account? 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. The instant case GONZALES: falls within the exception. The courts a quo found and held that there was a proper dishonor of the PhP 250,000 They never [advised] me in writing. check issued by Gonzales against the credit line, because the credit line was already closed prior to the presentment of the check by Unson; and the closing of the credit line Q: How did you come to know that there was a problem? was likewise proper pursuant to the stipulations in the promissory notes on the banks right to set off or apply all moneys of the debtor in PCIBs hand and the stipulations in the A: When my check bounced sir. COHLA on the PCIBs right to terminate the credit line on grounds of default by Gonzales.

On the other hand, the PCIB contends otherwise, as Corazon Nepomuceno testified: ATTY. PADILLA:

NOCEDA: Yes sir.

Can you tell this Honorable Court what is it that you told Mr. Gonzales when you spoke to Indeed, no evidence was presented tending to show that Gonzales was periodically sent him at the celphone? notices or notified of the various periodic interest dues covering the three promissory notes. Neither do the records show that Gonzales was aware of amounts for the periodic interests and the payment for them. Such were serviced by the spouses Panlilio. NEPOMUCENO: I just told him to update the interest so that we would not have to cancel the COH Line and he could withdraw the money that was in the deposit because technically, if an account is past due we are not allowed to let the client withdraw funds because they are allowed to offset funds so, just to help him get his money, just to update the interest so that we could allow him to withdraw. Q: Withdraw what? A: His money on the COH, whatever deposit he has with us. Thus, PCIB ought to have notified Gonzales about the status of the default or delinquency of the interest dues that were not paid starting July 1998. And such notification must be formal or in written form considering that the outstanding periodic interests became due at various dates, i.e., on July 8, 17, and 28, 1998, and the various amounts have to be certain so that Gonzales is not only properly apprised but is given the opportunity to pay them being solidarily liable for the loans covered by the promissory notes.

It is the bank which computes these periodic interests and such dues must be put into writing and formally served to Gonzales if he were asked to pay them, more so when the payments by the spouses Panlilio were charged through the account of the spouses Q: Did you inform him that if he did not update the interest he would not be able to Panlilio where the interest dues were simply debited. Such arrangement did not cover Gonzales bank account with PCIB, since he is only an accomm odation party who has no withdraw his money? personal interest in the PhP 1,800,000 loan. Without a clear and determinate demand A: Yes sir, we will be forced to hold on to any assets that he has with us so thats why we through a formal written notice for the exact periodic interest dues for the loans, Gonzales suggested just to update the interest because at the end of everything, he would be able cannot be expected to pay for them. to withdraw more funds than the interest that the money he would be needed to update In business, more so for banks, the amounts demanded from the debtor or borrower have the interest. to be definite, clear, and without ambiguity. It is not sufficient simply to be informed that From the foregoing testimonies, between the denial of Gonzales and the assertion by one must pay over a hundred thousand aggregate outstanding interest dues without clear PCIB that Gonzales was properly apprised, we find for Gonzales. We find the testimonies and certain figures. Thus, We find PCIB negligent in not properly informing Gonzales, of the former PCIB employees to be self-serving and tenuous at best, for there was no who is an accommodation party, about the default and the exact outstanding periodic proper written notice given by the bank. The record is bereft of any document showing interest dues. Without being properly apprised, Gonzales was not given the opportunity to that, indeed, Gonzales was formally informed by PCIB about the past due periodic properly act on them. interests. PCIB is well aware and did not dispute the fact that Gonzales is an accommodation party. It also acted in accordance with such fact by releasing the proceeds of the loan to the spouses Panlilio and likewise only informed the spouses Panlilio of the interest dues. The spouses Panlilio, through their account with PCIB, were paying the periodic interest dues and were the ones periodically informed by the bank of the debiting of the amounts for the periodic interest payments. Gonzales never paid any of the periodic interest dues. PCIBs Noceda admitted as much in his cross-examination: ATTY. DE JESUS: [on Cross-Examination] It was only through a letter sent by PCIB dated October 2, 1998 but incongruously showing the delinquencies of the PhP 1,800,000 loan at a much later date, i.e., as of October 31, 1998, when Gonzales was formally apprised by PCIB. In it, the interest due was PhP 106,1616.71 and penalties for the unpaid interest due of PhP 64,766.66, or a total aggregate due of PhP 171,383.37. But it is not certain and the records do not show when the letter was sent and when Gonzales received it. What is clear is that such letter was belatedly sent by PCIB and received by Gonzales after the fact that the latters FCD was already frozen, his credit line under the COHLA was terminated or suspended, and his PhP 250,000 check in favor of Unson was dishonored.
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And way much later, or on May 4, 1999, was a demand letter from the counsel of PCIB sent to Gonzales demanding payment of the PhP 1,800,000 loan. Obviously, these And there was no instance that Mr. Gonzales ever made even interest for this loan, is it formal written notices sent to Gonzales were too late in the day for Gonzales to act not, its always Mr. Panlilio who was paying the interest for this loan? properly on the delinquency and he already suffered the humiliation and embarrassment from the dishonor of his check drawn against the credit line.

To reiterate, a written notice on the default and deficiency of the PhP 1,800,000 loan A: It was during the time that we were going to Megamall, it was relayed by Liza that he covered by the three promissory notes was required to apprise Gonzales, an has to pay his obligations or else it will adversely affect the status of the account. accommodation party. PCIB is obliged to formally inform and apprise Gonzales of the defaults and the outstanding obligations, more so when PCIB was invoking the solidary On the other hand, the testimony of Corazon Nepomuceno shows: liability of Gonzales. This PCIB failed to do. ATTY. DE JESUS: [on Cross-Examination] Second. PCIB was grossly negligent in not giving prior notice to Gonzales about its course of action to suspend, terminate, or revoke the credit line, thereby violating the Now we go to the other credit facility which is the credit on hand extended solely of clear stipulation in the COHLA. course to Mr. Eusebio Gonzales who is the plaintiff here, Mr. Panlilio is not included in this credit on hand facility. Did I gather from you as per your Exhibit 7 as of October 2, The COHLA, in its effectivity clause, clearly provides: 1998 you were the one who recommended the cancellation of this credit on hand facility? 4. EFFECTIVITY The COH shall be effective for a period of one (1) year commencing NEPOMUCENO: from the receipt by the CLIENT of the COH checkbook issued by the BANK, subject to automatic renewals for same periods unless terminated by the BANK upon prior notice It was recommended by the account officer and I supported it. served on CLIENT. (Emphasis ours.) It is undisputed that the bank unilaterally revoked, suspended, and terminated the Q: And you approved it? COHLA without giving Gonzales prior notice as required by the above stipulation in the 32 COHLA. Noceda testified on cross-examination on the Offering Ticket recommending A: Yes sir. the termination of the credit line, thus: ATTY. DE JESUS: [on Cross-Examination] Q: Did you inform Mr. Gonzales that you have already cancelled his credit on hand facility?

This Exhibit 8, you have not furnished at anytime a copy to the plaintiff Mr. Gonzales is it A: As far as I know, it is the account officer who will inform him. not? Q: But you have no record that he was informed? NOCEDA: A: I dont recall and we have to look at the folder to determine if they were informed. No sir but verbally it was relayed to him. Q: If you will notice, this letter . . . what do you call this letter of yours? Q: But you have no proof that Mr. Gonzales came to know about this Exhibit 8? A: It was relayed to him verbally. Q: But there is no written proof? A: No sir. Q: Now, I call your attention madam witness, there is nothing in this letter to the clients advising them or Mr. Gonzales that his credit on hand facility was already cancelled? A: That is our letter advising them or reminding them of their unpaid interest and that if he is able to update his interest he can extend the promissory note or restructure the outstanding.

Q: And it is only now that you claim that it was verbally relayed to him, its only now when A: I dont know if there are other letters aside from this. you testified in Court? Q: So in this letter there is nothing to inform or to make Mr. Eusebio aware that his credit on hand facility was already cancelled? A: Before . . . Q: To whom did you relay this information? A: No actually he can understand it from the last sentence. "If you will be able to update your outstanding interest, we can apply the extention of your promissory note" so in other words we are saying that if you dont, you cannot extend the promissory note.

Q: You will notice that the subject matter of this October 2, 1998 letter is only the loan of Third. There is no dispute on the right of PCIB to suspend, terminate, or revoke the 1.8 million is it not, as you can see from the letter? Okay? COHLA under the "cross default provisions" of both the promissory notes and the COHLA. However, these cross default provisions do not confer absolute unilateral right to PCIB, as they are qualified by the other stipulations in the contracts or specific A: Ah . . . circumstances, like in the instant case of an accommodation party. Q: Okay. There is nothing there that will show that that also refers to the credit on hand The promissory notes uniformly provide: facility which was being utilized by Mr. Gonzales is it not? A: But I dont know if there are other letters that are not presented to me now.
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The foregoing testimonies of PCIB officers clearly show that not only did PCIB fail to give prior notice to Gonzales about the Offering Ticket for the process of termination, suspension, or revocation of the credit line under the COHLA, but PCIB likewise failed to inform Gonzales of the fact that his credit line has been terminated. Thus, we find PCIB grossly negligent in the termination, revocation, or suspension of the credit line under the COHLA. While PCIB invokes its right on the so-called "cross default provisions," it may not with impunity ignore the rights of Gonzales under the COHLA. Indeed, the business of banking is impressed with public interest and great reliance is made on the banks sworn profession of diligence and meticulousness in giving irreproachable service. Like a common carrier whose business is imbued with public interest, a bank should exercise extraordinary diligence to negate its liability to the 35 depositors. In this instance, PCIB is sorely remiss in the diligence required in treating with its client, Gonzales. It may not wantonly exercise its rights without respecting and honoring the rights of its clients.

The lender is hereby authorized, at its option and without notice, to set off or apply to the payment of this Note any and all moneys which may be in its hands on deposit or otherwise belonging to the Borrower. The Borrower irrevocably appoint/s the Lender, effective upon the nonpayment of this Note on demand/at maturity or upon the happening of any of the events of default, but without any obligation on the Lenders part should it choose not to perform this mandate, as the attorney-in-fact of the Borrower, to sell and dispose of any property of the Borrower, which may be in the Lenders possession by public or private sale, and to apply the proceeds thereof to the payment of 41 this Note; the Borrower, however, shall remain liable for any deficiency. (Emphasis ours.) The above provisos are indeed qualified with the specific circumstance of an accommodation party who, as such, has not been servicing the payment of the dues of the loans, and must first be properly apprised in writing of the outstanding dues in order to answer for his solidary obligation. The same is true for the COHLA, which in its default clause provides:

Art. 19 of the New Civil Code clearly provides that "[e]very person must, in the exercise of 16. DEFAULT The CLIENT shall be considered in default under the COH if any of the his rights and in the performance of his duties, act with justice, give everyone his due, following events shall occur: and observe honesty and good faith." This is the basis of the principle of abuse of right 1. x x x which, in turn, is based upon the maxim suum jus summa injuria (the abuse of right is the 36 greatest possible wrong). In order for Art. 19 to be actionable, the following elements must be present: "(1) the existence of a legal right or duty, (2) which is exercised in bad faith, and (3) for the sole 37 intent of prejudicing or injuring another." We find that such elements are present in the instant case. The effectivity clause of the COHLA is crystal clear that termination of the COH should be done only upon prior notice served on the CLIENT. This is the legal duty of PCIBto inform Gonzales of the termination. However, as shown by the above testimonies, PCIB failed to give prior notice to Gonzales. 2. Violation of the terms and conditions of this Agreement or any contract of the CLIENT with the BANK or any bank, persons, corporations or entities for the 42 payment of borrowed money, or any other event of default in such contracts. The above pertinent default clause must be read in conjunction with the effectivity clause (No. 4 of the COHLA, quoted above), which expressly provides for the right of client to prior notice. The rationale is simple: in cases where the bank has the right to terminate, revoke, or suspend the credit line, the client must be notified of such intent in order for the latter to act accordinglywhether to correct any ground giving rise to the right of the bank to terminate the credit line and to dishonor any check issued or to act in accord with such termination, i.e., not to issue any check drawn from the credit line or to replace any checks that had been issued. This, the bank with gross negligencefailed to accord Gonzales, a valued client for more than 15 years.

Malice or bad faith is at the core of Art. 19. Malice or bad faith "implies a conscious and 38 intentional design to do a wrongful act for a dishonest purpose or moral obliquity." In the instant case, PCIB was able to send a letter advising Gonzales of the unpaid interest on 39 the loans but failed to mention anything about the termination of the COHLA. More significantly, no letter was ever sent to him about the termination of the COHLA. The failure to give prior notice on the part of PCIB is already prima facie evidence of bad Fourth. We find the testimony43 of Ocampo incredible on the point that the principal 40 faith. Therefore, it is abundantly clear that this case falls squarely within the purview of borrower of the PhP 1,800,000 loan covered by the three promissory notes is Gonzales the principle of abuse of rights as embodied in Art. 19. for which the bank officers had special instructions to grant and that it was through the

instructions of Gonzales that the payment of the periodic interest dues were debited from The termination of the COHLA by PCIB without prior notice and the subsequent dishonor the account of the spouses Panlilio. of the check issued by Gonzales constitute acts of contra bonus mores. Art. 21 of the Civil Code refers to such acts when it says, "Any person who willfully causes loss or For one, while the first promissory note dated October 30, 1995 indeed shows Gonzales injury to another in a manner that is contrary to morals, good customs or public policy as the principal borrower, the other promissory notes dated December 26, 1995 and shall compensate the latter for damage." January 3, 1996 evidently show that it was Jose Panlilio who was the principal borrower with Gonzales as co-borrower. For another, Ocampo cannot feign ignorance on the arrangement of the payments by the spouses Panlilio through the debiting of their bank account. It is incredulous that the payment arrangement is merely at the behest of Gonzales and at a mere verbal directive to do so. The fact that the spouses Panlilio not only received the proceeds of the loan but were servicing the periodic interest dues reinforces the fact that Gonzales was only an accommodation party. Thus, due to PCIBs negligence in not giving Gonzalesan accommodation party proper notice relative to the delinquencies in the PhP 1,800,000 loan covered by the three promissory notes, the unjust termination, revocation, or suspension of the credit line under the COHLA from PCIBs gross negligence in not honoring its obligation to give prior notice to Gonzales about such termination and in not informing Gonzales of the fact of such termination, treating Gonzales account as closed and dishonoring his PhP 250,000 check, was certainly a reckless act by PCIB. This resulted in the actual injury of PhP 250,000 to Gonzales whose FCD account was frozen and had to look elsewhere for money to pay Unson. Accordingly, this Court finds that such acts warrant the payment of indemnity in the form of nominal damages.1avvphi1Nominal damages "are recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no 49 actual present loss of any kind x x x." We further explained the nature of nominal damages in Almeda v. Cario: x x x Its award is thus not for the purpose of indemnification for a loss but for the recognition and vindication of a right. Indeed, nominal damages are damages in name only and not in fact. When granted by the courts, they are not treated as an equivalent of a wrong inflicted but simply a recognition of the existence of a technical injury. A violation of the plaintiffs right, even if only technical, is sufficient to su pport an award of nominal damages. Conversely, so long as there is a showing of a violation of the right of the 50 plaintiff, an award of nominal damages is proper. (Emphasis Ours.)

In the present case, Gonzales had the right to be informed of the accrued interest and most especially, for the suspension of his COHLA. For failure to do so, the bank is liable to pay nominal damages. The amount of such damages is addressed to the sound 51 With banks, the degree of diligence required is more than that of a good father of the discretion of the court, taking into account the relevant circumstances. In this case, the family considering that the business of banking is imbued with public interest due to the Court finds that the grant of PhP 50,000 as nominal damages is proper. nature of their function. The law imposes on banks a high degree of obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary Moreover, as We held in MERALCO v. CA,52 failure to give prior notice when required, 44 nature of banking. Had Gonzales been properly notified of the delinquencies of the PhP such as in the instant case, constitutes a breach of contract and is a clear violation of Art. 1,800,000 loan and the process of terminating his credit line under the COHLA, he could 21 of the Code. In cases such as this, Art. 2219 of the Code provides that moral have acted accordingly and the dishonor of the check would have been avoided. damages may be recovered in acts referred to in its Art. 21. Further, Art. 2220 of the Code provides that "[w]illful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted The banking system has become an indispensable institution in the modern world and fraudulently or in bad faith." Similarly, "every person who, contrary to law, willfully or causes damage to another, shall indemnify the latter for the plays a vital role in the economic life of every civilized society banks have attained a negligently 53 same." Evidently, Gonzales is entitled to recover moral damages. ubiquitous presence among the people, who have come to regard them with respect and even gratitude and most of all, confidence, and it is for this reason, banks should guard 45 against injury attributable to negligence or bad faith on its part. Even in the absence of malice or bad faith, a depositor still has the right to recover reasonable moral damages, if the depositor suffered mental anguish, serious anxiety, 54 In the instant case, Gonzales suffered from the negligence and bad faith of PCIB. From embarrassment, and humiliation. Although incapable of pecuniary estimation, moral 46 the testimonies of Gonzales witnesses, particularly those of Dominador Santos and damages are certainly recoverable if th ey are the proximate result of the defendants 47 Freddy Gomez, the embarrassment and humiliation Gonzales has to endure not only wrongful act or omission. The factual antecedents bolstered by undisputed testimonies before his former close friend Unson but more from the members and families of his likewise show the mental anguish and anxiety Gonzales had to endure with the threat of friends and associates in the PCA, which he continues to experience considering the Unson to file a suit. Gonzales had to pay Unson PhP 250,000, while his FCD account in confrontation he had with Unson and the consequent loss of standing and credibility PCIB was frozen, prompting Gonzales to demand from PCIB and to file the instant suit. Third Issue: Award of Damages among them from the fact of the apparent bouncing check he issued. Credit is very important to businessmen and its loss or impairment needs to be recognized and The award of moral damages is aimed at a restoration within the limits of the possible, of 48 compensated. the spiritual status quo anteit must always reasonably approximate the extent of injury 55 and be proportional to the wrong committed. Thus, an award of PhP 50,000 is reasonable moral damages for the unjust dishonor of the PhP 250,000 which was the

proximate cause of the consequent humiliation, embarrassment, anxiety, and mental anguish suffered by Gonzales from his loss of credibility among his friends, colleagues and peers.

Republic of the Philippines SUPREME COURT Baguio City

SECOND DIVISION Furthermore, the initial carelessness of the banks omission in not properly informing Gonzales of the outstanding interest duesaggravated by its gross neglect in omitting to give prior notice as stipulated under the COHLA and in not giving actual notice of the G.R. No. 170912 April 19, 2010 termination of the credit linejustifies the grant of exemplary damages of PhP 10,000. Such an award is imposed by way of example or correction for the public good. ROBERT DINO, Petitioner, vs. Finally, an award for attorneys fees is likewise called for from PCIBs negligence which MARIA LUISA JUDAL-LOOT, joined by her husband VICENTE LOOT, Respondents. compelled Gonzales to litigate to protect his interest. In accordance with Art. 2208(1) of the Code, attorneys fees may be recovered when exemplary damages are awarded. We DECISION find that the amount of PhP 50,000 as attorneys fees is reasonable. WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the CA Decision dated CARPIO, J.: October 22, 2007 in CA-G.R. CV No. 74466 is hereby REVERSED and SET ASIDE. The Philippine Commercial and International Bank (now Banco De Oro) is ORDERED to pay The Case Eusebio Gonzales PhP 50,000 as nominal damages, PhP 50,000 as moral damages, 1 2 PhP 10,000 as exemplary damages, and PhP 50,000 as attorneys fees. This is a petition for review of the 16 August 2005 Decision and 30 November 2005 3 Resolution of the Court of Appeals in CA-G.R. CV No. 57994. The Court of Appeals No pronouncement as to costs. 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, attorneys fees and litigation expenses. The trial court ruled that respondents Maria Luisa SO ORDERED. 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 PRESBITERO J. VELASCO, JR. Fe Lobitana as indorser, to solidarily pay respondents the face value of the check, among Associate Justice 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 4 properties, instead of the usual mortgage contract. Enticed and convinced by the syndicates 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 5 of P1,000,000.00 payable to Vivencia Ompok Consing and/or Fe Lobitana. 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

The Court of Appeals affirmed the trial courts finding that respondents are holders in due course of Metrobank Check No. C-MA- 142119406-CA. The Court of Appeals pointed out that petitioners 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 6 Respondents filed a collection suit against petitioner and Lobitana before the trial court. excluded from the ambit of petitioners stop payment order. In their Complaint, respondents alleged, among other things, that they are holders in due course and for value of Metrobank Check No. C-MA-142119406-CA and that they had no The Court of Appeals modified the trial courts decision by deleting the award of interest, prior information concerning the transaction between defendants. moral damages, attorneys fees and litigation expenses. The Court of Appeals opined that petitioner "was only exercising (although incorrectly), what he perceived to be his In his Answer, petitioner denied respondents allegations that "on the face of the subject right to stop the payment of the check which he rediscounted." The Court of Appeals check, no condition or limitation was imposed" and that respondents are holders in due ruled that petitioner acted in good faith in ordering the stoppage of payment of the subject course and for value of the check. For her part, Lobitana denied the allegations in the check and thus, he must not be made liable for those amounts. 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." 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 In its 16 August 2005 Decision, the Court of Appeals affirmed the trial courts decision was made a payee of the check only to facilitate its discounting. with modifications, thus: The trial court ruled in favor of respondents and declared them due course holders of the WHEREFORE, premises considered, finding no reversible error in the decision of the subject check, since there was no privity between respondents and defendants. The lower court, WE hereby DISMISS the appeal and AFFIRM the decision of the court a quo dispositive portion of the 14 March 1996 Decision of the trial court reads: with modifications that the award of interest, moral damages, attorneys fees and litigation expenses be deleted. In summation, this Court rules for the Plaintiff and against the Defendants and hereby orders: No pronouncement as to costs. 1.) defendants to pay to Plaintiff, and severally, the amount of P1,000,000.00 SO ORDERED. representing the face value of subject Metrobank check;
8

In its 30 November 2005 Resolution, the Court of Appeals denied petitioners motion for 2.) to pay to Plaintiff herein, jointly and severally, the sum of P101,748.00 for reconsideration. accrued and paid interest; In denying the petitioners motion for reconsideration, the Court of Appeals noted that 3.) to pay to Plaintiff, jointly and severally, moral damages in the amount petitioner raised the defense that the check is a crossed check for the first time on appeal of P100,000.00; (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 4.) to pay to Plaintiff, jointly and severally, the sum of P200,000.00 for attorneys fair play, justice, and due process. fees; and Hence, this petition. 5.) to pay to Plaintiff, jointly and severally, litigation expenses in the sum of P10,000.00 and costs of the suit. SO ORDERED.
7

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

Only petitioner filed an appeal. Lobitana did not appeal the trial courts judgment. The Ruling of the Court of Appeals

EXERCISE EXTRAORDINARY DILIGENCE TO DETERMINE THE TITLE OF [T]he trend in modern-day procedure is to accord the courts broad discretionary power THE INDORSER. 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 II. THE COURT OF APPEALS ERRED IN DENYING PETITIONERS MOTION procedure are mere tools designed to facilitate the attainment of justice, their strict and FOR RECONSIDERATION UPON THE GROUND THAT THE ARGUMENTS rigid application which would result in technicalities that tend to frustrate rather than RELIED UPON HAVE ONLY BEEN RAISED FOR THE FIRST TIME. EQUITY promote substantial justice, must always be avoided. Technicality should not be allowed in the way of equitably and completely resolving the rights and obligations of the DEMANDS THAT THE COURT OF APPEALS SHOULD HAVE MADE AN to stand 13 parties. EXCEPTION TO PREVENT THE COMMISSION OF MANIFEST WRONG AND INJUSTICE UPON THE PETITIONER.
9

The Ruling of this Court The petition is meritorious.

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: Respondents point out that petitioner raised the defense that Metrobank Check No. CMA-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 A holder in due course is a holder who has taken the instrument under the following cannot be raised for the first time on appeal as it would be offensive to the elementary conditions: rules of fair play, justice and due process. Respondents further assert that a change of theory on appeal is improper. (a) That it is complete and regular upon its face; In his Answer, petitioner specifically denied, among others, (1) Paragraph 4 of the (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; 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 (c) That he took it in good faith and for value; "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 petitioners (d) That at the time it was negotiated to him, he had no notice of any infirmity in check, respondents "took the risk of what might happen on the check." Essentially, the instrument or defect in the title of the person negotiating it. 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. 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; Indeed, petitioner did not expressly state in his Answer or raise during the trial that (b) may be negotiated only once to one who has an account with a bank; and (c) Metrobank Check No. C-MA-142119406-CA is a crossed check. It must be stressed, warns the holder that it has been issued for a definite purpose so that the holder thereof received the check pursuant to that purpose; otherwise, he is not a however, that petitioner consistently argues that respondents are not holders in due must inquire if he has 14 holder in due course. 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 Based on the foregoing, respondents had the duty to ascertain the indorsers, in this case 10 pursuant to that purpose; otherwise, he is not a holder in due course. Contrary to Lobitanas, title to the check or the nature of her possession. This respondents failed to respondents view, petitioner never changed his theory, that respondents are not holders do. Respondents verification from Metrobank on the funding of the check does not in due course of the subject check, as would violate fundamental rules of justice, fair play, amount to determination of Lobitanas title to the check. Failing in this respect, and due process. Besides, the subject check was presented and admitted as evidence respondents are guilty of gross negligence amounting to legal absence of good during the trial and respondents did not and in fact cannot deny that it is a crossed check. faith,15 contrary to Section 52(c) of the Negotiable Instruments Law. Hence, respondents 16 are not deemed holders in due course of the subject check. In any event, the Court is clothed with ample authority to entertain issues or matters not 11 raised in the lower courts in the interest of substantial justice. In Casa Filipina Realty v. State Investment House v. Intermediate Appellate Court 17 squarely applies to this case. 12 Office of the President, the Court held: There, New Sikatuna Wood Industries, Inc. sold at a discount to State Investment House three post-dated crossed checks, issued by Anita Pea Chua 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, Respondents can collect from the immediate indorser, in this case Lobitana. thus: Significantly, Lobitana did not appeal the trial courts decision, finding her solidarily liable to pay, among others, the face value of the subject check. Therefore, the trial courts Under usual practice, crossing a check is done by placing two parallel lines diagonally on judgment has long become final and executory as to Lobitana. 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 WHEREFORE, we GRANT the petition. We SET ASIDE the 16 August 2005 Decision drawee should pay only with the intervention of that bank or company, or crossing may and 30 November 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 57994. 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 SO ORDERED. but merely accept the same for deposit. ANTONIO T. CARPIO The effect therefore of crossing a check relates to the mode of its presentment for Associate Justice 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 x x x 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 forP948,000.00. 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. However, the fact that respondents are not holders in due course does not automatically 18 mean that they cannot recover on the check. 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 19 negotiable instrument is subject to defenses as if it were non-negotiable. Among such 20 defenses is the absence or failure of consideration, which petitioner sufficiently established in this case. Petitioner issued the subject check supposedly for a loan in favor of Consings 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.1avvphi1

21

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 158143 September 21, 2011

On September 22, 2000, the RTC issued a decision in favor of PCIB, with the following dispositive portion: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants as follows: 1. Ordering defendant Antonio Balmaceda to pay the amount of P11,042,150.00 with interest thereon at the legal rate from [the] date of his misappropriation of the said amount until full restitution shall have been made[.] 2. Ordering defendant Rolando Ramos to pay the amount of P895,000.00 with interest at the legal rate from the date of misappropriation of the said amount until full restitution shall have been made[.] 3. Ordering the defendants to pay plaintiff moral damages in the sum of P500,000.00 and attorneys fees in the amount of ten (10%) percent of the total misappropriated amounts sought to be recovered.

PHILIPPINE COMMERCIAL INTERNATIONAL BANK, Petitioner, vs. ANTONIO B. BALMACEDA and ROLANDO N. RAMOS, Respondents. DECISION BRION, J.:
1

Before us is a petition for review on certiorari, filed by the Philippine Commercial 2 3 International Bank (Bank or PCIB), to reverse and set aside the decision dated April 29, 4. Plus costs of suit. 2003 of the Court of Appeals (CA) in CA-G.R. CV No. 69955. The CA overturned the September 22, 2000 decision of the Regional Trial Court (RTC) of Makati City, Branch 4 148, in Civil Case No. 93-3181, which held respondent Rolando Ramos liable to PCIB for SO ORDERED. the amount ofP895,000.00. FACTUAL ANTECEDENTS On September 10, 1993, PCIB filed an action for recovery of sum of money with damages before the RTC against Antonio Balmaceda, the Branch Manager of its Sta. Cruz, Manila branch. In its complaint, PCIB alleged that between 1991 and 1993, Balmaceda, by taking advantage of his position as branch manager, fraudulently obtained and encashed 31 Managers checks in the total amount of Ten Million Seven Hundred Eighty Two Thousand One Hundred Fifty Pesos (P10,782,150.00).

On February 28, 1994, PCIB moved to be allowed to file an amended complaint to implead Rolando Ramos as one of the recipients of a portion of the proceeds from Balmacedas alleged fraud. PCIB also increased the number of fraudule ntly obtained and encashed Managers checks to 34, in the total amount of Eleven Million Nine Hundred Thirty Seven Thousand One Hundred Fifty Pesos (P11,937,150.00). The RTC granted In ruling that Ramos acted in collusion with Balmaceda, the RTC noted that although the this motion. Managers checks payable to Ramos were crossed checks, Balmaceda wa s still able to 6 encash the checks. After Balmaceda encashed three of these Managers checks, he Since Balmaceda did not file an Answer, he was declared in default. On the other hand, deposited most of the money into Ramos account.7 The RTC concluded that from Ramos filed an Answer denying any knowledge of Balmacedas scheme. According to the P11,937,150.00 that Balmaceda misappropriated from PCIB, P895,000.00 actually Ramos, he is a reputable businessman engaged in the business of buying and selling went to Ramos. Since the RTC disbelieved Ramos allegation that t he sum of money fighting cocks, and Balmaceda was one of his clients. Ramos admitted receiving money deposited into his Savings Account (PCIB, Pasig branch) were proceeds from the sale of from Balmaceda as payment for the fighting cocks that he sold to Balmaceda, but fighting cocks, it held Ramos liable to pay PCIB the amount of P895,000.00. maintained that he had no knowledge of the source of Balmacedas money. THE RTC DECISION THE COURT OF APPEALS DECISION

From the evidence presented, the RTC found that Balmaceda, by taking undue advantage of his position and authority as branch manager of the Sta. Cruz, Manila branch of PCIB, successfully obtained and misappropriated the banks funds by falsifying several commercial documents. He accomplished this by claiming that he had been instructed by one of the Banks corporate clients to purchase Managers checks on its behalf, with the value of the checks to be debited from the clients corporate bank account. First, he would instruct the Bank staff to prepare the application forms for the purchase of Managers checks, payable to several persons. Then, he would forge the signature of the clients authorized representative on these forms and sign the forms as PCIBs approving officer. Finally, he would have an authorized officer of PCIB issue the Managers checks. Balmaceda would subsequently ask his subordinates to release the Managers checks to him, claiming that the client had requested that he deliver the 5 checks. After receiving the Managers checks, he encashed them by forging the signatures of the payees on the checks.

On appeal, the CA dismissed the complaint against Ramos, holding that no sufficient evidence existed to prove that Ramos colluded with Balmaceda in the latters fraudulent 8 manipulations. According to the CA, the mere fact that Balmaceda made Ramos the payee in some of the Managers checks does not suffice to prove that Ramos was complicit in Balmacedas fraudulent scheme. It observed that other persons were also named as payees in the checks that Balmaceda acquired and encashed, and PCIB only chose to go after Ramos. With PCIBs failure to prove Ramos actual participation in Balmacedas fraud, no legal and factual basis exists to hold him liable.

THE APPELLATE COURT ERRED IN ORDERING THE PETITIONER TO RELEASE THE AMOUNT OFP251,910.96 TO RESPONDENT RAMOS AND TO PAY THE LATTER MORAL AND EXEMPLARY DAMAGES AND 10 ATTORNEYS FEES

PCIB contends that the circumstantial evidence shows that Ramos had knowledge of, and acted in complicity with Balmaceda in, the perpetuation of the fraud. Ramos explanation that he is a businessman and that he received the Managers checks as payment for the fighting cocks he sold to Balmaceda is unconvincing, given the large sum of money involved. While Ramos presented evidence that he is a reputable businessman, this evidence does not explain why the Managers checks were made The CA also found that PCIB acted illegally in freezing and debiting P251,910.96 from payable to him in the first place. Ramos bank account. The CA thus decreed: PCIB maintains that it had the right to freeze and debit the amount of P251,910.96 from WHEREFORE, the appeal is granted. The Decision of the trial court rendered on Ramos bank account, even without his consent, since legal compensation had taken September 22, 2000[,] insofar as appellant Ramos is concerned, is SET ASIDE, and the place between them by operation of law. PCIB debited Ramos bank account, believing in good faith that Ramos was not entitled to the proceeds of the Managers checks and was complaint below against him is DISMISSED. actually privy to the fraud perpetrated by Balmaceda. PCIB cannot thus be held liable for moral and exemplary damages. Appellee is hereby ordered to release the amount of P251,910.96 to appellant Ramos plus interest at [the] legal rate computed from September 30, 1993 until appellee shall OUR RULING have fully complied therewith. Appellee is likewise ordered to pay appellant Ramos the following: a) P50,000.00 as moral damages b) P50,000.00 as exemplary damages, and c) P20,000.00 as attorneys fees. No costs. SO ORDERED.
9

We partly grant the petition. At the outset, we observe that the petition raises mainly questions of fact whose resolution requires the re-examination of the evidence on record. As a general rule, 11 petitions for review on certiorari only involve questions of law. By way of exception, however, we can delve into evidence and the factual circumstance of the case when the findings of fact in the tribunals below (in this case between those of the CA and of the RTC) are conflicting. When the exception applies, we are given latitude to review the 12 evidence on record to decide the case with finality. Ramos participation in Balmacedas scheme not proven From the testimonial and documentary evidence presented, we find it beyond question that Balmaceda, by taking advantage of his position as branch manager of PCIBs Sta. Cruz, Manila branch, was able to apply for and obtain Managers checks drawn against the bank account of one of PCIBs clients. The unsettled question is whether Ramos, who received a portion of the money that Balmaceda took from PCIB, should also be held liable for the return of this money to the Bank.

THE PETITION In the present petition, PCIB avers that: I

PCIB insists that it presented sufficient evidence to establish that Ramos colluded with THE APPELLATE COURT ERRED IN HOLDING THAT THERE IS NO Balmaceda in the scheme to fraudulently secure Managers checks and to EVIDENCE TO HOLD THAT RESPONDENT RAMOS ACTED IN COMPLICITY misappropriate their proceeds. Since Ramos defense anchored on mere denial of any participation in Balmacedas wrongdoing is an intrinsically weak defense, it was error WITH RESPONDENT BALMACEDA for the CA to exonerate Ramos from any liability. II In civil cases, the party carrying the burden of proof must establish his case by a preponderance of evidence, or evidence which, to the court, is more worthy of belief than

the evidence offered in opposition. This Court, inEncinas v. National Bookstore, Mrs. Elizabeth Costes, the Area Manager of PCIB at the time of the relevant events, 14 Inc., defined "preponderance of evidence" in the following manner: testified that Balmaceda committed all the acts necessary to obtain the unauthorized Managers checks from filling up the application form by forging the signature of the "Preponderance of evidence" is the weight, credit, and value of the aggregate evidence clients representative, to forging the signatures of the payees in order to encash the on either side and is usually considered to be synonymous with the term "greater weight checks. As Mrs. Costes stated in her testimony: of the evidence" or "greater weight of the credible evidence." Preponderance of evidence is a phrase which, in the last analysis, means probability of the truth. It is evidence which Q: I am going into [these] particular instances where you said that Mr. Balmaceda [has] is more convincing to the court as worthy of belief than that which is offered in opposition been making unauthorized withdrawals from particular account of a client or a client of thereto. yours at Sta. Cruz branch. Would you tell us how he effected his unauthorized withdrawals? The party, whether the plaintiff or the defendant, who asserts the affirmative of an issue has the onus to prove his assertion in order to obtain a favorable judgment, subject to the overriding rule that the burden to prove his cause of action never leaves the plaintiff. For the defendant, an affirmative defense is one that is not merely a denial of an essential ingredient in the plaintiff's cause of action, but one which, if established, will constitute an 15 "avoidance" of the claim. A: He prevailed upon the domestic remittance clerk to prepare the application of a Managers check which [has] been debited to a clients account. This particular Managers check will be payable to a certain individual thru his account as the instruction of the client.

13

Q: What was your findings in so far as the particular alleged instruction of a client is Thus, PCIB, as plaintiff, had to prove, by preponderance of evidence, its positive concerned? assertion that Ramos conspired with Balmaceda in perpetrating the latters scheme to defraud the Bank. In PCIBs estimation, it successfully accomplished this through the A: We found out that he forged the signature of the client. submission of the following evidence: Q: On that particular application? [1] Exhibits "A," "D," "PPPP," "QQQQ," and "RRRR" and their submarkings, the application forms for MCs, show that [these MCs were applied for in favor of A: Yes sir. Ramos;] [2] Exhibits "K," "N," "SSSS," "TTTT," and "UUUU" and their submarkings prove Q: Showing to you several applications for Managers Check previously atta ched as Annexes "A, B, C, D and E["] of the complaint. Could you please tell us where is that that the MCs were issued in favor of x x x Ramos[; and] particular alleged signature of a client applying for the Managers check which you claimed to have been forged by Mr. Balmaceda? 16 [3] [T]estimonies of the witness for [PCIB]. We cannot accept these submitted pieces of evidence as sufficient to satisfy the burden of proof that PCIB carries as plaintiff. On its face, all that PCIBs evidence proves is that Balmaceda used Ramos name as a payee when he filled up the application forms for the Managers checks. But, as the CA correctly observed, the mere fact that Balmaceda made Ramos the payee on some of the Managers checks is not enough basis to conclude that Ramos was complicit in Balmacedas fraud; a number of other people were made payees on the other Managers checks yet PCIB never alleged them to be liable, nor did the Bank adduce any other evidence pointing to Ramos participation that would justify his separate treatment from the others. Also, while Ramos is Balmacedas brother -in-law, their relationship is not sufficient, by itself, to render Ramos liable, absent concrete proof of his actual participation in the fraudulent scheme. A: Here sir. xxxx Q: After the accomplishment of this application form as you stated Mrs. witness, do you know what happened to the application form? A: Before that application form is processed it goes to several stages. Here for example this was signed supposed to be by the client and his signature representing that, he certified the signature based on their records to be authentic. Q: When you said he to whom are you referring to?

A: Mr. Balmaceda. And at the same time he approved the transaction. Moreover, the evidence on record clearly shows that Balmaceda acted on his own when he applied for the Managers checks against the bank account of one of PCIBs clients, xxxx as well as when he encashed the fraudulently acquired Managers checks.

Q: Do you know if the corresponding checks applied for in the application forms were A: He is also the right signer and approved officer and he was authorized to debit on file. issued? xxxx A: Yes sir. Q: And do you know if these particular checks marked as Exhibit G-2 to triple FFF were Q: Could you please show us where these checks are now, the one applied for in Exhibit subsequently encashed? "A" which is in the amount of P150,000.00, where is the corresponding check? A: Yes sir. A: Rolando Ramos dated December 26, 1991 and one of the signatories with higher authority, this is Mr. Balmacedas signature. Q: Were you able to find out who encashed? Q: In other words he is likewise approving signatory to the Managers check? A: Yes sir. This is an authority that the check [has] been encashed. xxxx Q: In other words this check issued to Rolando Ramos dated December 26, 1991 is a cross check but nonetheless he allowed to encash by granting it. Q: Do you know if this particular person having in fact withdraw of received the proceeds of [these] particular checks, the payee? Could you please show us? A: No sir. ATTY. PACES: Witness pointing to an initial of the defendant Antonio Balmaceda, the notation cross check. Q: It was all Mr. Balmaceda dealing with you? A: And this is his signature. xxxx A: Yes sir. Q: In other words it would be possible that Mr. Balmaceda himself gotten the proceeds of the checks by forging the payees signature? A: Mr. Balmaceda himself and besides he approved the encashment because of the signature that he allowed the encashment of the check.

Q: How about the check corresponding to Exhibit E-2 which is an application 18 for P125,000.00 for a certain Rolando Ramos. Do you have the check? A: Yes sir. (emphases ours) A: Yes sir. Mrs. Nilda Laforteza, the Commercial Account Officer of PCIBs Sta. Cruz, Manila branch at the time the events of this case occurred, confirmed Mrs. Costes testimony by stating ATTY. PACES: Witness producing a check dated December 19, 1991 the amount that it was Balmaceda who forged Ramos signature on the Managers checks where 19 of P125,000.00 payable to certain Rolando Ramos. Ramos was the payee, so as to encash the amounts indicated on the checks. Mrs. Laforteza also testified that Ramos never went to the PCIB, Sta. Cruz, Manila branch to Q: Can you tell us whether the same modus operandi was ad[o]pted by Mr. Balmaceda in encash the checks since Balmaceda was the one who deposited the checks into Ramos bank account. As revealed during Mrs. Lafortezas cross-examination: so far as he is concerned? A: Yes sir he is also the right signer and he authorized the cancellation of the cross Q: Mrs. Laforteza, these checks that were applied for by Mr. Balmaceda, did you ever 17 see my client go to the bank to encash these checks? check. (emphasis ours) xxxx A: No it is Balmaceda who is depositing in his behalf.

Q: These particular checks [Mrs.] witness in your findings, do you know if Mr. Balmaceda Q: Did my client ever call up the bank concerning this amount? [has] again any participation in these checks?

A: Yes he is not going to call PCIBank Sta. Cruz branch because his account is PCIB itself at fault as employer maintained at Pasig. In considering this case, one point that cannot be disregarded is the significant role that Q: So Mr. Balmaceda was the one who just remitted or transmitted the amount that you PCIB played which contributed to the perpetration of the fraud. We cannot ignore that claimed [was sent] to the account of my client? Balmaceda managed to carry out his fraudulent scheme primarily because other PCIB employees failed to carry out their assigned tasks flaws imputable to PCIB itself as the 20 employer. A: Yes. (emphases ours) Even Mrs. Rodelia Nario, presented by PCIB as its rebuttal witness to prove that Ramos encashed a Managers check for P480,000.00, could only testify that the money was deposited into Ramos PCIB bank account. She could not attest that Ramos himself 21 presented the Managers check for deposit in his bank account. These testimonies clearly dispute PCIBs theory that Ramos was instrumental in the encashment of the Managers checks. Ms. Analiza Vega, an accounting clerk, teller and domestic remittance clerk working at the PCIB, Sta. Cruz, Manila branch at the time of the incident, testified that Balmaceda broke the Banks protocol when he ordered the Banks employees to fill up the application forms for the Managers checks, to be debited from the bank account of one of the banks 26 clients, without providing the necessary Authority to Debit from the client. PCIB also admitted that these Managers checks were subsequently released to B almaceda, and not to the clients representative, based solely on Balmacedas word that the client had 27 tasked him to deliver these checks.

We also find no reason to doubt Ramos claim that Balmaceda deposited these large sums of money into his bank account as payment for the fighting cocks that Balmaceda purchased from him. Ramos presented two witnesses Vicente Cosculluela and Crispin Despite Balmacedas gross violations of bank procedures mainly in the processing of Gadapan who testified that Ramos previously engaged in the business of buying and the applications for Managers checks and in the releasing of the Managers checks Balmacedas co-employees not only turned a blind eye to his actions, but actually selling fighting cocks, and that Balmaceda was one of Ramos biggest clients. complied with his instructions. In this way, PCIBs own employees were unwitting accomplices in Balmacedas fraud. Quoting from the RTC decision, PCIB stresses that Ramos own witness and business partner, Cosculluela, testified that the biggest net profit he and Ramos earned from a single transaction with Balmaceda amounted to no more than P100,000.00, for the sale Another telling indicator of PCIBs negligence is the fact that it allowed Balmaceda to 22 k is one of approximately 45 fighting cocks. In PCIBs view, this testimony directly contradicts encash the Managers checks that were plainly crossed checks. A crossed chec 28 where two parallel lines are drawn across its face or across its corner. Based on Ramos assertion that he received approximately P400,000.00 from his biggest transaction with Balmaceda. To PCIB, the testimony also renders questionable Ramos jurisprudence, the crossing of a check has the following effects: (a) the check may not be assertion that Balmaceda deposited large amounts of money into his bank account as encashed but only deposited in the bank; (b) the check may be negotiated only once to the one who has an account with the bank; and (c) the act of crossing the check payment for the fighting cocks. serves as a warning to the holder that the check has been issued for a definite purpose and he must inquire if he received the check pursuant to this purpose; otherwise, he is On this point, we find that PCIB misunderstood Cosculluelas testimony. A review of the not a holder in due course.29 In other words, the crossing of a check is a warning that the testimony shows that Cosculluela specifically referred to the net profit that they earned check should be deposited only in the account of the payee. When a check is crossed, it 23 from the sale of the fighting cocks; PCIB apparently did not take into account the is the duty of the collecting bank to ascertain that the check is only deposited to the capital, transportation and other expenses that are components of these transactions. payees account.30 In complete disregard of this duty, PCIBs systems allowed Obviously, in sales transactions, the buyer has to pay not only for the value of the thing Balmaceda to encash 26 Managers checks which were all crossed checks, or checks sold, but also for the shipping costs and other incidental costs that accompany the payable to the "payees account only." acquisition of the thing sold. Thus, while the biggest net profit that Ramos and 24 Cosculluela earned in a single transaction amounted to no more thanP100,000.00, the 31 inclusion of the actual acquisition costs of the fighting cocks, the transportation expenses The General Banking Law of 2000 requires of banks the highest standards of integrity (i.e., airplane tickets from Bacolod or Zamboanga to Manila) and other attendant and performance. The banking business is impressed with public interest. Of paramount expenses could account for theP400,000.00 that Balmaceda deposited into Ramos bank importance is the trust and confidence of the public in general in the banking industry. Consequently, the diligence required of banks is more than that of a Roman pater account. 32 33 familias or a good father of a family. The highest degree of diligence is expected. Given that PCIB failed to establish Ramos participation in Balmacedas scheme, it was not even necessary for Ramos to provide an explanation for the money he received from Balmaceda. Even if the evidence adduced by the plaintiff appears stronger than that presented by the defendant, a judgment cannot be entered in the plaint iffs favor if his 25 evidence still does not suffice to sustain his cause of action; to reiterate, a preponderance of evidence as defined must be established to achieve this result. While we appreciate that Balmaceda took advantage of his authority and position as the branch manager to commit these acts, this circumstance cannot be used to excuse the manner the Bank through its employees handled its clients bank accounts and thereby ignored established bank procedures at the branch managers mere order. This lapse is made all the more glaring by Balmacedas repetition of his modus operandi 33 more times in a period of over one yea r by the Banks own estimation. With this kind of

record, blame must be imputed on the Bank itself and its systems, not solely on the We also find that PCIB acted illegally in freezing and debiting Ramos bank account. In 36 weakness or lapses of individual employees. BPI Family Bank v. Franco, we cautioned against the unilateral freezing of bank accounts by banks, noting that: Principle of unjust enrichment not applicable More importantly, [BPI Family Bank] does not have a unilateral right to freeze the PCIB maintains that even if Ramos did not collude with Balmaceda, it still has the right to accounts of Franco based on its mere suspicion that the funds therein were proceeds of recover the amounts unjustly received by Ramos pursuant to the principle of unjust the multi-million peso scam Franco was allegedly involved in. To grant [BPI Family Bank], or any bank for that matter, the right to take whatever action it pleases on deposits which enrichment. This principle is embodied in Article 22 of the Civil Code which provides: it supposes are derived from shady transactions, would open the floodgates of public 37 distrust in the banking industry. Article 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter We see no legal merit in PCIBs claim that legal compensation took place between it and without just or legal ground, shall return the same to him. Ramos, thereby warranting the automatic deduction from Ramos bank account. For legal compensation to take place, two persons, in their own right, must first be creditors and To have a cause of action based on unjust enrichment, we explained in University of the debtors of each other.38 While PCIB, as the depositary bank, is Ramos debtor in the 34 Philippines v. Philab Industries, Inc. that: amount of his deposits, Ramos is not PCIBs debtor under the evidence the PCIB adduced. PCIB thus had no basis, in fact or in law, to automatically debit from Ramos Unjust enrichment claims do not lie simply because one party benefits from the efforts or bank account. obligations of others, but instead it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully. On the award of damages Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that another party knowingly received something of value to which he was not entitled and that the state of affairs are such that it would be unjust for the person to keep the benefit. Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request. Unjust enrichment is not itself a theory of reconvey. Rather, it is a prerequisite 35 for the enforcement of the doctrine of restitution. (emphasis ours) Ramos cannot be held liable to PCIB on account of unjust enrichment simply because he received payments out of money secured by fraud from PCIB. To hold Ramos accountable, it is necessary to prove that he received the money from Balmaceda, knowing that he (Ramos) was not entitled to it. PCIB must also prove that Ramos, at the time that he received the money from Balmaceda, knew that the money was acquired through fraud. Knowledge of the fraud is the link between Ramos and PCIB that would obligate Ramos to return the money based on the principle of unjust enrichment. However, as the evidence on record indicates, Ramos accepted the deposits that Balmaceda made directly into his bank account, believing that these deposits were payments for the fighting cocks that Balmaceda had purchased. Significantly, PCIB has not presented any evidence proving that Ramos participated in, or that he even knew of, the fraudulent sources of Balmacedas funds. PCIB illegally froze and debited Ramos assets Although PCIBs act of freezing and debiting Ramos account is unlawful, we cannot hold PCIB liable for moral and exemplary damages. Since a contractual relationship existed between Ramos and PCIB as the depositor and the depositary bank, respectively, the award of moral damages depends on the applicability of Article 2220 of the Civil Code, which provides: Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. [emphasis ours] Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious commission of a wrong; it partakes of the 39 nature of fraud. As the facts of this case bear out, PCIB did not act out of malice or bad faith when it froze Ramos bank account and subsequently de bited the amount of P251,910.96 therefrom. While PCIB may have acted hastily and without regard to its primary duty to treat the 40 accounts of its depositors with meticulous care and utmost fidelity, we find that its actions were propelled more by the need to protect itself, and not out of malevolence or ill 41 will. One may err, but error alone is not a ground for granting moral damages. We also disallow the award of exemplary damages. Article 2234 of the Civil Code requires a party to first prove that he is entitled to moral, temperate or compensatory damages before he can be awarded exemplary damages.1wphi1Since no reason exists to award moral damages, so too can there be no reason to award exemplary damages.

We deem it just and equitable, however, to uphold the award of attorneys fees in Ramos favor. Taking into consideration the time and efforts involved that went into this case, we increase the award of attorneys fees fromP20,000.00 to P75,000.00.

Republic of the Philippines SUPREME COURT Manila

WHEREFORE, the petition is PARTIALLY GRANTED. We AFFIRM the decision of the SECOND DIVISION Court of Appeals dated April 29, 2003 in CA-G.R. CV No. 69955 with the MODIFICATION that the award of moral and exemplary damages in favor of Rolando G.R. NO. 191404 July 5, 2010 N. Ramos is DELETED, while the award of attorneys fees is INCREASED to P75,000.00. Costs against the Philippine Commercial International EUMELIA R. MITRA, Petitioner, Bank. vs. PEOPLE OF THE PHILIPPINES and FELICISIMO S. TARCELO, Respondents. SO ORDERED. ARTURO D. BRION Associate Justice DECISION MENDOZA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the 1 July 31, 2009 Decision and the February 11, 2010 Resolution of the Court of Appeals (CA) in CA-G.R. CR No. 31740. The subject decision and resolution affirmed the August 22, 2007 Decision of the Regional Trial Court, Branch 2, Batangas City (RTC) which, in turn, affirmed the May 21, 2007 Decision of the Municipal Trial Court in Cities, Branch 2, Batangas City (MTCC). THE FACTS: Petitioner Eumelia R. Mitra (Mitra) was the Treasurer, and Florencio L. Cabrera, Jr. (now deceased) was the President, of Lucky Nine Credit Corporation (LNCC), a corporation engaged in money lending activities. Between 1996 and 1999, private respondent Felicisimo S. Tarcelo (Tarcelo) invested money in LNCC. As the usual practice in money placement transactions, Tarcelo was issued checks equivalent to the amounts he invested plus the interest on his investments. 2 The following checks, signed by Mitra and Cabrera, were issued by LNCC to Tarcelo. Bank Date Issued Date of Check Amount P 3,125.00 Check No. 0000045804

Security January 15, 1999 September 15, 1998 Bank -do-do-do-do-doSeptember 15, 1998 January 15, 1999 September 20, 1998 January 20, 1999 September 20, 1998 January 20, 1999 September 30, 1998 January 30, 1999 September 30, 1998 January 30, 1999

125,000.00 0000045805 2,500.00 0000045809

100,000.00 0000045810 5,000.00 0000045814

200,000.00 0000045815

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

October 3, 1998 October 3, 1998 November 17, 1998 November 17, 1998 November 17, 1998 November 19, 1998 November 19, 1998 November 19, 1998 November 19, 1998 November 20, 1998 November 20, 1998 November 20, 1998 November 20, 1998 November 30, 1998 November 30, 1998 November 30, 1998 November 30, 1998

February 3, 1999 February 3, 1999 February17, 1999 March 17, 1999 March 17, 1999 January 19, 1999 February19, 1999 March 19, 1999 March 19, 1999 January 20, 1999 February 20, 1999 March 20, 1999 March 20, 1999 January 30, 1999 February 28, 1999 March 30, 1999 March 30, 1999

2,500.00

0000045875

4. Criminal Case No. 43700 - P125,000.00 5. Criminal Case No. 43702 - P200,000.00 6. Criminal Case No. 43704 - P100,000.00

100,000.00 0000045876 5,000.00 5,000.00 0000046061 0000046062

200,000.00 0000046063 2,500.00 2,500.00 2,500.00 0000046065 0000046066 0000046067

7. Criminal Case No. 43706 - P100,000.00 Said accused, nevertheless, are adjudged civilly liable and are ordered to pay, in solidum, private complainant Felicisimo S. Tarcelo the amount of NINE HUNDRED TWENTY FIVE THOUSAND PESOS (P925,000.000). SO ORDERED. Mitra and Cabrera appealed to the Batangas RTC contending that: they signed the seven checks in blank with no name of the payee, no amount stated and no date of maturity; they did not know when and to whom those checks would be issued; the seven checks were only among those in one or two booklets of checks they were made to sign at that time; and that they signed the checks so as not to delay the transactions of LNCC 5 because they did not regularly hold office there. The RTC affirmed the MTCC decision and later denied their motion for reconsideration. 6 Meanwhile, Cabrera died. Mitra alone filed this petition for review claiming, among others, that there was no proper service of the notice of dishonor on her. The Court of Appeals dismissed her petition for lack of merit. Mitra is now before this Court on a petition for review and submits these issues:

100,000.00 0000046068 10,000.00 10,000.00 10,000.00 10,000.00 2,500.00 2,500.00 2,500.00 0000046070 0000046071 0000046072 0000046073 0000046075 0000046076 0000046077

100,000.00 0000046078

When Tarcelo presented these checks for payment, they were dishonored for the reason "account closed." Tarcelo made several oral demands on LNCC for the payment of these checks but he was frustrated. Constrained, in 2002, he caused the filing of seven informations for violation of Batas Pambansa Blg. 22 (BP 22) in the total amount 3 of P925,000.00 with the MTCC in Batangas City. 1avvphi1 After trial on the merits, the MTCC found Mitra and Cabrera guilty of the charges. The 4 fallo of the May 21, 2007 MTCC Decision reads:

1. WHETHER OR NOT THE ELEMENTS OF VIOLATION OF BATAS PAMBANSA BILANG 22 MUST BE PROVED BEYOND REASONABLE DOUBT AS AGAINST THE CORPORATION WHO OWNS THE CURRENT ACCOUNT WHERE THE SUBJECT CHECKS WERE DRAWN BEFORE LIABILITY ATTACHES TO THE SIGNATORIES. 2. WHETHER OR NOT THERE IS PROPER SERVICE OF NOTICE OF DISHONOR AND DEMAND TO PAY TO THE PETITIONER AND THE LATE FLORENCIO CABRERA, JR.

WHEREFORE, foregoing premises considered, the accused FLORENCIO I. CABRERA, JR., and EUMELIA R. MITRA are hereby found guilty of the offense of violation of Batas The Court denies the petition. Pambansa Bilang 22 and are hereby ORDERED to respectively pay the following fines for each violation and with subsidiary imprisonment in all cases, in case of insolvency: A check is a negotiable instrument that serves as a substitute for money and as a convenient form of payment in financial transactions and obligations. The use of checks 1. Criminal Case No. 43637 - P200,000.00 as payment allows commercial and banking transactions to proceed without the actual handling of money, thus, doing away with the need to physically count bills and coins 2. Criminal Case No. 43640 - P100,000.00 whenever payment is made. It permits commercial and banking transactions to be carried out quickly and efficiently. But the convenience afforded by checks is damaged by 3. Criminal Case No. 43648 - P100,000.00

unfunded checks that adversely affect confidence in our commercial and banking The Court finds Itself unable to agree with Mitra's posture. The third paragraph of Section activities, and ultimately injure public interest. 1 of BP 22 reads: "Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable BP 22 or the Bouncing Checks Law was enacted for the specific purpose of addressing under this Act." This provision recognizes the reality that a corporation can only act the problem of the continued issuance and circulation of unfunded checks by through its officers. Hence, its wording is unequivocal and mandatory - that the person irresponsible persons. To stem the harm caused by these bouncing checks to the who actually signed the corporate check shall be held liable for a violation of BP 22. This community, BP 22 considers the mere act of issuing an unfunded check as an offense provision does not contain any condition, qualification or limitation. not only against property but also against public order. The purpose of BP 22 in declaring the mere issuance of a bouncing check as malum prohibitum is to punish the offender in order to deter him and others from committing the offense, to isolate him from 8 society, to reform and rehabilitate him, and to maintain social order. The penalty is stiff. BP 22 imposes the penalty of imprisonment for at least 30 days or a fine of up to double the amount of the check or both imprisonment and fine. Specifically, BP 22 provides: SECTION 1. Checks Without Sufficient Funds. - Any person who makes or draws and issues any check to apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment, shall be punished by imprisonment of not less than thirty days but not more than one (1) year or by a fine of not less than but not more than double the amount of the check which fine shall in no case exceed Two Hundred Thousand Pesos, or both such fine and imprisonment at the discretion of the court. The same penalty shall be imposed upon any person who, having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit to cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank.
7

In the case of Llamado v. Court of Appeals, the Court ruled that the accused was liable on the unfunded corporate check which he signed as treasurer of the corporation. He could not invoke his lack of involvement in the negotiation for the transaction as a defense because BP 22 punishes the mere issuance of a bouncing check, not the purpose for which the check was issued or in consideration of the terms and conditions relating to its issuance. In this case, Mitra signed the LNCC checks as treasurer. Following Llamado, she must then be held liable for violating BP 22. Another essential element of a violation of BP 22 is the drawer's knowledge that he has insufficient funds or credit with the drawee bank to cover his check. Because this involves a state of mind that is difficult to establish, BP 22 creates the prima facie presumption that once the check is dishonored, the drawer of the check gains knowledge of the insufficiency, unless within five banking days from receipt of the notice of dishonor, the drawer pays the holder of the check or makes arrangements with the drawee bank for the payment of the check. The service of the notice of dishonor gives the drawer the opportunity to make good the check within those five days to avert his prosecution for violating BP 22.

10

Mitra alleges that there was no proper service on her of the notice of dishonor and, so, an essential element of the offense is missing. This contention raises a factual issue that is not proper for review. It is not the function of the Court to re-examine the finding of facts of the Court of Appeals. Our review is limited to errors of law and cannot touch errors of facts unless the petitioner shows that the trial court overlooked facts or circumstances 11 that warrant a different disposition of the case or that the findings of fact have no basis on record. Hence, with respect to the issue of the propriety of service on Mitra of the notice of dishonor, the Court gives full faith and credit to the consistent findings of the Where the check is drawn by a corporation, company or entity, the person or persons MTCC, the RTC and the CA. who actually signed the check in behalf of such drawer shall be liable under this Act. The defense postulated that there was no demand served upon the accused, said denial deserves scant consideration. Positive allegation of the prosecution that a demand letter was served upon the accused prevails over the denial made by the accused. Though, having denied that there was no demand letter served on April 10, 2000, however, the prosecution positively alleged and proved that the questioned demand letter was served upon the accused on April 10, 2000, that was at the time they were attending Court hearing before Branch I of this Court. In fact, the prosecution had submitted a Certification issued by the other Branch of this Court certifying the fact that the accused were present during the April 10, 2010 hearing. With such straightforward and categorical Mitra posits in this petition that before the signatory to a bouncing corporate check can be testimony of the witness, the Court believes that the prosecution has achieved what was held liable, all the elements of the crime of violation of BP 22 must first be proven against dismally lacking in the three (3) cases of Betty King, Victor Ting and Caras - evidence of the corporation. The corporation must first be declared to have committed the violation the receipt by the accused of the demand letter sent to her. The Court accepts the 9 prosecution's narrative that the accused refused to sign the same to evidence their before the liability attaches to the signatories of the checks. receipt thereof. To require the prosecution to produce the signature of the accused on SECTION 2. Evidence of Knowledge of Insufficient Funds. - The making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee.

said demand letter would be imposing an undue hardship on it. As well, actual receipt acknowledgment is not and has never been required of the prosecution either by law or 12 jurisprudence. [emphasis supplied] With the notice of dishonor duly served and disregarded, there arose the presumption that Mitra and Cabrera knew that there were insufficient funds to cover the checks upon their presentment for payment. In fact, the account was already closed. G.R. No. 165339

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION August 23, 2010

To reiterate the elements of a violation of BP 22 as contained in the above-quoted EQUITABLE PCI BANK, Petitioner, provision, a violation exists where: vs. ARCELITO B. TAN, Respondent. 1. a person makes or draws and issues a check to apply on account or for value; DECISION 2. the person who makes or draws and issues the check knows at the time of PERALTA, J.: issue that he does not have sufficient funds in or credit with the drawee bank for the full payment of the check upon its presentment; and Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court 1 2 seeking to set aside the Decision and the Resolution of the Court of Appeals (CA) in 3. the check is subsequently dishonored by the drawee bank for insufficiency of CA-G.R. CV No. 41928. funds or credit, or would have been dishonored for the same reason had not the 13 drawer, without any valid reason, ordered the bank to stop payment. The antecedents are as follows: There is no dispute that Mitra signed the checks and that the bank dishonored the checks because the account had been closed. Notice of dishonor was properly given, but Mitra failed to pay the checks or make arrangements for their payment within five days from notice. With all the above elements duly proven, Mitra cannot escape the civil and 14 criminal liabilities that BP 22 imposes for its breach. Respondent Arcelito B.Tan maintained a current and savings account with Philippine 3 Commercial International Bank (PCIB), now petitioner Equitable PCI Bank. On May 13, 4 1992, respondent issued PCIB Check No. 275100 postdated May 30, 1992 in the amount of P34,588.72 in favor of Sulpicio Lines, Inc. As of May 14, 1992, respondent's balance with petitioner was P35,147.59. On May 14, 1992, Sulpicio Lines, Inc. deposited the aforesaid check to its account with Solid Bank, Carbon Branch, Cebu City. After WHEREFORE, the July 31, 2009 Decision and the February 11, 2010 Resolution of the clearing, the amount of the check was immediately debited by petitioner from Court of Appeals in CA-G.R. CR No. 31740 are hereby AFFIRMED. respondent's account thereby leaving him with a balance of onlyP558.87. SO ORDERED. JOSE CATRAL MENDOZA Associate Justice Meanwhile, respondent issued three checks from May 9 to May 16, 1992, specifically, PCIB Check No. 275080 dated May 9, 1992, payable to Agusan del Sur Electric Cooperative Inc. (ASELCO) for the amount of P6,427.68; PCIB Check No. 275097 dated May 10, 1992 payable to Agusan del Norte Electric Cooperative Inc., (ANECO) for the amount of P6,472.01; and PCIB Check No. 314104 dated May 16, 1992 payable in cash for the amount ofP10,000.00. When presented for payment, PCIB Check Nos. 275080, 275097 and 314014 were dishonored for being drawn against insufficient funds. As a result of the dishonor of Check Nos. 275080 and 275097 which were payable to ASELCO and ANECO, respectively, the electric power supply for the two mini-sawmills owned and operated by respondent, located in Talacogon, Agusan del Sur; and in Golden Ribbon, Butuan City, was cut off on June 1, 1992 and May 28, 1992, respectively, and it was restored only on July 20 and August 24, 1992, respectively. Due to the foregoing, respondent filed with the Regional Trial Court (RTC) of Cebu City a complaint against petitioner, praying for payment of losses consisting of unrealized

income in the amount of P1,864,500.00. He also prayed for payment of moral damages, exemplary damages, attorney's fees and litigation expenses. Respondent claimed that Check No. 275100 was a postdated check in payment of Bills of Lading Nos. 15, 16 and 17, and that his account with petitioner would have had sufficient funds to cover payment of the three other checks were it not for the negligence of petitioner in immediately debiting from his account Check No. 275100, in the amount of P34,588.72, even as the said check was postdated to May 30, 1992. As a consequence of petitioner's error, which brought about the dishonor of the two checks paid to ASELCO and ANECO, the electric supply to his two mini-sawmills was cut off, the business operations thereof were stopped, and purchase orders were not duly served causing tremendous losses to him.

IV THE COURT OF APPEALS ERRED IN AWARDING ACTUAL DAMAGES, MORAL DAMAGES, EXEMPLARY DAMAGES AND ATTORNEY'S FEES. Anent the first issue, petitioner submits that the CA defied Office Order No. 82-04-CG dated April 5, 2004 issued by then CA Presiding Justice Cancio C. Garcia when it failed to unload CA-G.R. CV No. 41928 so that it may be re-raffled among the Divisions in Cebu City. Office Order No. 82-04-CG provides:
7

xxxx In its defense, petitioner denied that the questioned check was postdated May 30, 1992 and claimed that it was a current check dated May 3, 1992. It alleged further that the disconnection of the electric supply to respondent's sawmills was not due to the dishonor In view of the reorganization of the different Divisions due to the appointment of eighteen of the checks, but for other reasons not attributable to the bank. (18) new Justices to the additional divisions in the cities of Cebu and Cagayan de Oro, the raffle of civil, criminal and special cases submitted for decision and falling within the 5 After trial, the RTC, in its Decision dated June 21, 1993, ruled in favor of petitioner and jurisdiction of the additional divisions shall commence on April 6, 2004. dismissed the complaint. The raffle of newly-filed cases and those for completion likewise falling within the 6 Aggrieved by the Decision, respondent filed a Notice of Appeal. In its Decision dated jurisdiction of the additional divisions, shall start on April 12, 2004. May 31, 2004, the Court of Appeals reversed the decision of the trial court and directed petitioner to pay respondent the sum ofP1,864,500.00 as actual damages, P50,000.00 by xxxx way of moral damages, P50,000.00 as exemplary damages and attorney's fees in the amount of P30,000.00. Petitioner filed a motion for reconsideration, which the CA denied Petitioner alleged that since the aforementioned Office Order directed the raffle of civil, in a Resolution dated August 24, 2004. criminal and special cases submitted for decision and falling within the jurisdiction of the Hence, the instant petition assigning the following errors: I Respondent argued that the CA's Fourth Division correctly acted in taking cognizance of cases already submitted for THE FOURTH DIVISION OF THE COURT OF APPEALS DEFIED OFFICE the case. The CA defended its jurisdiction by ruling that 8 ORDER NO. 82-04-CG BY HOLDING ON TO THIS CASE AND DECIDING IT decision as of the effectivity of Republic Act (R.A.) 8246 on February 1, 1997 were no INSTEAD OF UNLOADING IT AND HAVING IT RE-RAFFLED AMONG THE longer included for re-raffle to the newly-created Visayas and Mindanao Divisions of the CA, conformable to Section 5 of the said statute. DIVISIONS IN CEBU CITY. II Petitioner's argument is misplaced. Under Section 3 of R.A. 8246, it is provided that: additional divisions on April 6, 2004, CA-G.R. CV No. 41928 should have been unloaded by the CA's Fourth Division and re-raffled to the CA's Division in Cebu City instead of deciding the case on May 31, 2004.

THE COURT OF APPEALS ERRED IN REVERSING THE FINDING OF THE Section 3. Section 10 of Batas Pambansa Blg. 129, as amended, is hereby further REGIONAL TRIAL COURT THAT CHECK NO. 275100 WAS DATED MAY 3, amended to read as follows: 1992. Sec. 10. Place of Holding Sessions. The Court of Appeals shall have its permanent stations as follows: The first seventeen (17) divisions shall be stationed in the City of III Manila for cases coming from the First to the Fifth Judicial Regions; the Eighteenth, Nineteenth, and Twentieth Divisions shall be in Cebu City for cases coming from the THE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT'S Sixth, Seventh and Eighth Judicial Regions; the Twenty-first, Twenty-second and TwentyWAY OF WRITING THE DATE ON CHECK NO. 275100 WAS THE third Divisions shall be in Cagayan de Oro City for cases coming from the Ninth, Tenth, PROXIMATE CAUSE OF THE DISHONOR OF HIS THREE OTHER CHECKS.

Eleventh, and Twelfth Judicial Regions. Whenever demanded by public interest, or whenever justified by an increase in case load, the Supreme Court, upon its own initiative or upon recommendation of the Presiding Justice of the Court of Appeals, may authorize any division of the Court to hold sessions periodically, or for such periods and at such places as the Supreme Court may determine, for the purpose of hearing and deciding cases. Trials or hearings in the Court of Appeals must be continuous and must be completed within three (3) months unless extended by the Chief Justice of the Supreme Court.

The issue to be resolved in this case is whether or not the date of PCIB Check No. 275100 is May 3, 1992 as contended by the defendant, or May 30, 1992 as claimed by the plaintiff. The date of the check is written as follows 5/3/0/92. From the manner by which the date of the check is written, the Court cannot really make a pronouncement as to whether the true date of the check is May 3 or May 30, 1992, without inquiring into the background facts leading to the issuance of said check.

According to the plaintiff, the check was issued to Sulpicio Lines in payment of bill of lading nos. 15, 16 and 17. An examination of bill of lading no. 15, however, shows that Further, Section 5 of the same Act provides: the same was issued, not in favor of plaintiff but in favor of Coca Cola Bottlers Philippines, Inc. Bill of Lading No. 16 is issued in favor of Suson Lumber and not to Upon the effectivity of this Act, all pending cases, except those which have been plaintiff. Likewise, Bill of Lading No. 17 shows that it was issued to Jazz Cola and not to submitted for resolution, shall be referred to the proper division of the Court of plaintiff. Furthermore, the receipt for the payment of the freight for the shipments reflected 9 in these three bills of lading shows that the freight was paid by Coca Cola Bottlers Appeals. Philippines, Inc. and not by plaintiff. Although CA-G.R. CV No. 41928 originated from Cebu City and is thus referable to the CA's Divisions in Cebu City, the said case was already submitted for decision as of July 10 25, 1994. Hence, CA-G.R. CV No. 41928, which was already submitted for decision as of the effectivity of R.A. 8246, i.e., February 1, 1997, can no longer be referred to the CA's Division in Cebu City. Thus, the CA's Former Fourth Division correctly ruled that CA-G.R. CV No. 41928 pending in its division was not among those cases that had to be re-raffled to the newly-created CA Divisions in the Visayas Region. Moreover, the said receipt shows that it was paid in cash and not by check. From the foregoing, the evidence on record does not support the claim of the plaintiff that Check No. 275100 was issued in payment of bills of lading nos. 15, 16 and 17. Hence, the conclusion of the Court is that the date of the check was May 3, 1992 and not 13 May 30, 1992.

xxxx Further, administrative issuances must not override, supplant or modify the law, but must 11 remain consistent with the law they intend to carry out. Thus, Office Order No. 82-04CG cannot defeat the provisions of R.A. 8246. In fine, the RTC concluded that the check was dated May 3, 1992 and not May 30, 1992, because the same check was not issued to pay for Bills of Lading Nos. 15, 16 and 17, as As to the second issue, petitioner maintains that the CA erred in reversing the finding of respondent claims. The trial court's conclusion is preposterous and illogical. The purpose the RTC that Check No. 275100 was dated May 3, 1992. Petitioner argued that in arriving for the issuance of the check has no logical connection with the date of the check. at the conclusion that Check No. 275100 was postdated May 30, 1992, the CA just made Besides, the trial court need not look into the purpose for which the check was issued. A 14 a visual examination of the check, unlike the RTC which verified the truth of respondent's reading of Check No. 275100 would readily show that it was dated May 30, 1992. As testimony relative to the issuance of Check No. 275100. Respondent argued that the correctly observed by the CA: check was carefully examined by the CA which correctly found that Check No. 275100 was postdated to May 30, 1992 and not May 3, 1992. On the first issue, we agree with appellant that appellee Bank apparently erred in The principle is well established that this Court is not a trier of facts. Therefore, in an appeal by certiorari under Rule 45 of the Rules of Court, only questions of law may be raised. The resolution of factual issues is the function of the lower courts whose findings on these matters are received with respect and are, as a rule, binding on this Court. However, this rule is subject to certain exceptions. One of these is when the findings of 12 the appellate court are contrary to those of the trial court. Due to the divergence of the findings of the CA and the RTC, We shall re-examine the facts and evidence presented before the lower courts. The RTC ruled that: xxxx misappreciating the date of Check No. 275100. We have carefully examined the check in question (Exh. DDDD) and we are convinced that it was indeed postdated to May 30, 1992 and not May 3, 1992 as urged by appellee. The date written on the check clearly appears as "5/30/1992" (Exh. DDDD-4). The first bar (/) which separates the numbers "5" and "30" and the second bar (/) which further separates the number "30" from the year 1992 appear to have been done in heavy, well-defined and bold strokes, clearly indicating the date of the check as "5/30/1992" which obviously means May 30, 1992. On the other hand, the alleged bar (/) which appellee points out as allegedly separating the numbers "3" and "0," thereby leading it to read the date as May 3, 1992, is not actually a bar or a slant but appears to be more of an unintentional marking or line done with a very light stroke. The presence of the figure "0" after the number "3" is quite significant. In fact, a close examination thereof would unerringly show that the said number zero or "0" is connected to the preceeding number "3." In other words, the drawer of the check wrote the figures "30" in one continuous stroke, thereby contradicting appellees theory that the number "3" is separated from the figure "0" by a bar. Besides, appellees theory that the date of the check is May 3, 1992 is clearly untenable considering the presence of the

figure "0" after "3" and another bar before the year 1992. And if we were to accept appellees theory that what we find to be an unintentional mark or line between the figures "3" and "0" is a bar separating the two numbers, the date of the check would then appear as "5/3/0/1992, which is simply absurd. Hence, we cannot go along with appellees theory which will lead us to an absurd result. It is therefore our conclusion that the check was postdated to May 30, 1992 and appellee Bank or its personnel erred in debiting the amount of the check from appellants account even before the checks due date. Undoubtedly, had not appellee bank prematurely debited the amount of the check from appellants account before its due date, the two other checks (Exhs. LLLL and GGGG) successively dated May 9, 1992 and May 16, 1992 which were paid by appellant to ASELCO and ANECO, respectively, would not have been dishonored and the said payees would not have disconnected their supply of electric power to appellants sawmills, and the latter would not have suffered losses. The law imposes on banks high standards in view of the fiduciary nature of banking. 15 Section 2 of R.A. 8791 decrees: Declaration of Policy. The State recognizes the vital role of banks in providing an environment conducive to the sustained development of the national economy and the fiduciary nature of banking that requires high standards of integrity and performance. In furtherance thereof, the State shall promote and maintain a stable and efficient banking and financial system that is globally competitive, dynamic and responsive to the demands of a developing economy. Although R.A. 8791 took effect only in the year 2000, the Court had already imposed on banks the same high standard of diligence required under R.A. 8791 at the time of the untimely debiting of respondent's account by petitioner in May 1992. In Simex 16 International (Manila), Inc. v. Court of Appeals, which was decided in 1990, the Court held that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good father of a 17 family. In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank 18 will deliver it as and to whomever he directs. From the foregoing, it is clear that petitioner bank did not exercise the degree of diligence that it ought to have exercised in dealing with its client.

writing the date of the check, as it was very clear that he intended Check No. 275100 to be dated May 30, 1992 and not May 3, 1992. The proximate cause is petitioners own negligence in debiting the account of the respondent prior to the date as appearing in the check, which resulted in the subsequent dishonor of several checks issued by the respondent and the disconnection by ASELCO and ANECO of his electric supply. The bank on which the check is drawn, known as the drawee bank, is under strict liability to pay to the order of the payee in accordance with the drawers instructions as reflected 20 on the face and by the terms of the check. Thus, payment made before the date specified by the drawer is clearly against the drawee bank's duty to its client. In its memorandum filed before the RTC, petitioner submits that respondent caused confusion on the true date of the check by writing the date of the check as 5/3/0/92. If, indeed, petitioner was confused on whether the check was dated May 3 or May 30 because of the "/" which allegedly separated the number "3" from the "0," petitioner should have required respondent drawer to countersign the said "/" in order to ascertain the true intent of the drawer before honoring the check. As a matter of practice, bank tellers would not receive nor honor such checks which they believe to be unclear, without the counter-signature of its drawer. Petitioner should have exercised the highest degree of diligence required of it by ascertaining from the respondent the accuracy of the entries therein, in order to settle the confusion, instead of proceeding to honor and receive the check. Further, petitioner's branch manager, Pedro D. Tradio, in a letter addressed to ANECO, explained the circumstances surrounding the dishonor of PCIB Check No. 275097. Thus: June 11, 1992 ANECO Agusan del Norte Gentlemen: This refer (sic) to PCIB Check No. 275097 dated May 16, 1992 in the amount of P6,472.01 payable to your goodselves issued by Mr. Arcelito B. Tan (MANWOOD Industries) which was returned by PCIB Mandaue Branch for insufficiency of funds.
22 21

Please be advised that the return of the aforesaid check was a result of an earlier negotiation to PCIB-Mandaue Branch through a deposit made on May 14, 1992 with SOLIDBANK Carbon Branch, or through Central Bank clearing via Philippine Clearing House Corporation facilities, of a postdated check which ironically and without bad faith With respect to the third issue, petitioner submits that respondent's way of writing the passed undetected through several eyes from the payee of the check down to the date on Check No. 275100 was the proximate cause of the dishonor of his three other depository bank and finally the drawee bank (PCIB) the aforesaid Check No. 275097 checks. Contrary to petitioners view, the Court finds that its negligence is the proximate issued to you would have been honored because it would have been sufficiently funded cause of respondents loss. at the time it was negotiated. It should be emphasized, however, that Mr. Arcelito B. Tan was in no way responsible for the dishonor of said PCIB Check No. 275097. Proximate cause is that cause which, in a natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would 19 not have occurred. The proximate cause of the loss is not respondent's manner of

We hope that the foregoing will sufficiently explain the circumstances of the dishonor of Actual or compensatory damages are those awarded in order to compensate a party for PCIB Check No. 275097 and would clear the name and credit of Mr. Arcelito Tan from an injury or loss he suffered. They arise out of a sense of natural justice and are aimed at any misimpressions which may have resulted from the dishonor of said check. repairing the wrong done. Except as provided by law or by stipulation, a party is entitled 26 to an adequate compensation only for such pecuniary loss as he has duly proven. To recover actual damages, not only must the amount of loss be capable of proof; it must Thank you. also be actually proven with a reasonable degree of certainty, premised upon competent 27 proof or the best evidence obtainable. xxxx Respondent's claim for damages was based on purchase orders from various customers which were allegedly not met due to the disruption of the operation of his sawmills. However, aside from the purchase orders and his testimony, respondent failed to present competent proof on the specific amount of actual damages he suffered during the entire period his power was cut off. No other evidence was provided by respondent to show that the foregoing purchase orders were not met or were canceled by his various customers. The Court cannot simply rely on speculation, conjecture or guesswork in determining the 28 In the aforequoted letter of its Manager, appellee Bank expressly acknowledged that amount of damages. Check No. 275097 (Exh. GGGG) which appellant paid to ANECO "was sufficiently funded at the time it was negotiated," but it was dishonored as a "result of an earlier negotiation Moreover, an examination of the purchase orders and job orders reveal that the orders to PCIB-Mandaue Branch through a deposit made on May 14, 1992 with SOLIDBANK were due for delivery prior to the period when the power supply of respondent's two xxx xxx xxx of a postdated check which xxx xxx passed undetected." He further admitted sawmills was cut off on June 1, 1992 to July 20, 1992 and May 28, 1992 to August 24, that "Mr. Arcelito B. Tan was in no way responsible for the dishonor of said PCIB Check 1992, respectively. Purchase Order No. 990629 delivery date is May 4, 1992; Purchase No. 275097." Needless to state, since appellee's Manager has cleared appellant of any Order No. 926930 delivery date is March 19, 1992; Purchase Order No. 147796 31 is due fault in the dishonor of the ANECO check, it [necessarily] follows that responsibility for delivery on January 31, 1992; Purchase Order No. 76000 32 delivery date is February therefor or fault for the dishonor of the check should fall on appellee bank. Appellee's and March 1992; and Job Order No. 1824,33 dated March 18, 1992, has a 15 days attempt to extricate itself from its inadvertence must therefore fail in the face of its duration of work. Clearly, the disconnection of his electricity during the period May 28, Manager's explicit acknowledgment of responsibility for the inadvertent dishonor of the 1992 to August 24, 1992 could not possibly affect his sawmill operations and prior orders 23 ANECO check. therefrom. Although petitioner failed to specify in the letter the other details of this "postdated check," which passed undetected from the eyes of the payee down to the petitioner drawee bank, the Court finds that petitioner was evidently referring to no other than Check No. 275100 which was deposited to Solidbank, and was postdated May 30, 1992. As correctly found by the CA: Evidently, the bank's negligence was the result of lack of due care required of its Given the dearth of respondent's evidence on the matter, the Court resolves to delete the managers and employees in handling the accounts of its clients. Petitioner was negligent award of actual damages rendered by the CA in favor of respondent for his unrealized 24 in the selection and supervision of its employees. In Citibank, N.A. v. Cabamongan, the income. Court ruled: Nonetheless, in the absence of competent proof on the actual damages suffered, respondent is entitled to temperate damages. Under Article 2224 of the Civil Code of the Philippines, temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with 34 certainty. The allowance of temperate damages when actual damages were not adequately proven is ultimately a rule drawn from equity, the principle affording relief to 35 We now resolve the question on the award of actual, moral and exemplary damages, as those definitely injured who are unable to prove how definite the injury. well as attorney's fees by the CA to the respondent. x x x Banks handle daily transactions involving millions of pesos. By the very nature of their works the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees. It is apparent that respondent suffered pecuniary loss. The negligence of petitioner The CA based the award of actual damages in the amount of P1,864,500.00 on the triggered the disconnection of his electrical supply, which temporarily halted his business 25 operations and the consequent loss of business opportunity. However, due to the purchase orders submitted by respondent. The CA ruled that: insufficiency of evidence before Us, We cannot place its amount with certainty. Article 36 x x x In the case at bar, appellant [respondent herein] presented adequate evidence to 2216 of the Civil Code instructs that assessment of damages is left to the discretion of prove losses consisting of unrealized income that he sustained as a result of the appellee the court according to the circumstances of each case. Under the circumstances, the Bank's gross negligence. Appellant identified certain Purchase Orders from various sum of P50,000.00 as temperate damages is reasonable. customers which were not met by reason of the disruption of the operation of his sawmills when ANECO and ASELCO disconnected their supply of electricity thereto. x x x

Anent the award of moral damages, it is settled that moral damages are meant to 1. The award of One Million Eight Hundred Sixty-Four Thousand and Five compensate the claimant for any physical suffering, mental anguish, fright, serious Hundred Pesos (P1,864,500.00) as actual damages, in favor of respondent Arcelito B. Tan, is DELETED; and anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and 37 38 similar injuries unjustly caused. In Philippine National Bank v. Court of Appeals, the Court held that a bank is under obligation to treat the accounts of its depositors with 2. Petitioner Equitable PCI Bank is instead directed to pay respondent the meticulous care whether such account consists only of a few hundred pesos or of millions amount of Fifty Thousand Pesos (P50,000.00) as temperate damages. of pesos. Responsibility arising from negligence in the performance of every kind of obligation is demandable. While petitioner's negligence in that case may not have been attended with malice and bad faith, the banks' negligence caused respondent to suffer SO ORDERED. mental anguish, serious anxiety, embarrassment and humiliation. In said case, We ruled that respondent therein was entitled to recover reasonable moral damages. 1wphi1 DIOSDADO M. PERALTA Associate Justice In this case, the unexpected cutting off of respondent's electricity, which resulted in the stoppage of his business operations, had caused him to suffer humiliation, mental anguish and serious anxiety. The award of P50,000.00 is reasonable, considering the reputation and social standing of respondent. As found by the CA, as an accredited supplier, respondent had been reposed with a certain degree of trust by various reputable and well- established corporations. On the award of exemplary damages, Article 2229 of the Civil Code states: Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages. The law allows the grant of exemplary damages to set an example for the public good. The banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized society. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have attained an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and most of all, confidence. For this reason, banks should guard against injury attributable to negligence or bad faith on its part. Without a doubt, it has been repeatedly emphasized that since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are even required of 39 it. Petitioner, having failed in this respect, the award of exemplary damages in the amount of P50,000.00 is in order. As to the award of attorney's fees, Article 2208 of the Civil Code provides, among others, that attorney's fees may be recovered when exemplary damages are awarded or when the defendant's act or omission has compelled the plaintiff to litigate with third 41 persons or to incur expenses to protect his interest. Respondent has been forced to undergo unnecessary trouble and expense to protect his interest. The Court affirms the appellate courts award of attorneys fees in the amount of P30,000.00. WHEREFORE, the petition is PARTIALLY GRANTED. The Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 41928, dated May 31, 2004 and August 24, 2004, respectively, are AFFIRMED with the followingMODIFICATIONS:
40

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 167567 September 22, 2010

The investigating prosecutor, Elizabeth Yu Guray found that the "relationship between [SMC] and [Puzon] appears to be one of credit or creditor-debtor relationship. The problem lies in the reconciliation of accounts and the non-payment of beer empties which 3 cannot give rise to a criminal prosecution for theft." Thus, in her July 31, 2001 4 Resolution, she recommended the dismissal of the case for lack of evidence. SMC appealed. On June 4, 2003, the DOJ issued its resolution affirming the prosecutors Resolution dismissing the case. Its motion for reconsideration having been denied in the April 23, 6 2004 DOJ Resolution, SMC filed a petition for certiorari with the CA. Ruling of the Court of Appeals
5

SAN MIGUEL CORPORATION, Petitioner, vs. BARTOLOME PUZON, JR., Respondent. DECISION DEL CASTILLO, J.:

The CA found that the postdated checks were issued by Puzon merely as a security for the payment of his purchases and that these were not intended to be encashed. It thus concluded that SMC did not acquire ownership of the checks as it was duty bound to 1 This petition for review assails the December 21, 2004 Decision and March 28, 2005 return the same checks to Puzon after the transactions covering them were settled. The 2 Resolution of the Court of Appeals (CA) in CA-G.R. SP No. 83905, which dismissed the CA agreed with the prosecutor that there was no theft, considering that a person cannot petition before it and denied reconsideration, respectively. be charged with theft for taking personal property that belongs to himself. It disposed of the appeal as follows: Factual Antecedents Respondent Bartolome V. Puzon, Jr., (Puzon) owner of Bartenmyk Enterprises, was a dealer of beer products of petitioner San Miguel Corporation (SMC) for Paraaque City. Puzon purchased SMC products on credit. To ensure payment and as a business practice, SMC required him to issue postdated checks equivalent to the value of the products purchased on credit before the same were released to him. Said checks were returned to Puzon when the transactions covered by these checks were paid or settled in full. WHEREFORE, finding no grave abuse of discretion committed by public respondent, the instant petition is herebyDISMISSED. The assailed Resolutions of public respondent, dated 04 June 2003 and 23 April 2004, areAFFIRMED. No costs at this instance. SO ORDERED.
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The motion for reconsideration of SMC was denied. Hence, the present petition.

Issues On December 31, 2000, Puzon purchased products on credit amounting to P11,820,327 for which he issued, and gave to SMC, Bank of the Philippine Islands (BPI) Check Nos. 27904 (for P309,500.00) and 27903 (forP11,510,827.00) to cover the said transaction. Petitioner now raises the following issues: I On January 23, 2001, Puzon, together with his accountant, visited the SMC Sales Office in Paraaque City to reconcile his account with SMC. During that visit Puzon allegedly requested to see BPI Check No. 17657. However, when he got hold of BPI Check No. WHETHER X X X PUZON HAD STOLEN FROM SMC ON JANUARY 23, 2001, AMONG 27903 which was attached to a bond paper together with BPI Check No. 17657 he OTHERS BPI CHECK NO. 27903 DATED MARCH 30, 2001 IN THE AMOUNT OF allegedly immediately left the office with his accountant, bringing the checks with them. PESOS: ELEVEN MILLION FIVE HUNDRED TEN THOUSAND EIGHT HUNDRED TWENTY SEVEN (Php11,510,827.00) SMC sent a letter to Puzon on March 6, 2001 demanding the return of the said checks. Puzon ignored the demand hence SMC filed a complaint against him for theft with the II City Prosecutors Office of Paraaque City. Rulings of the Prosecutor and the Secretary of Department of Justice (DOJ) WHETHER X X X THE POSTDATED CHECKS ISSUED BY PUZON, PARTICULARLY BPI CHECK NO. 27903 DATED MARCH 30, 2001 IN THE AMOUNT OF PESOS: ELEVEN MILLION FIVE HUNDRED TEN THOUSAND EIGHT HUNDRED TWENTY SEVEN (Php11,510,827.00), WERE ISSUED IN PAYMENT OF HIS BEER PURCHASES

OR WERE USED MERELY AS SECURITY TO ENSURE PAYMENT OF PUZONS petition for review on certiorari which is rooted merely on the resolution of the prosecutor OBLIGATION. finding no probable cause for the filing of an information for theft. The third issue raised by petitioner, on the other hand, would entail venturing into constitutional matters for a complete resolution. This route is unnecessary in the present WHETHER X X X THE PRACTICE OF SMC IN RETURNING THE POSTDATED case considering that the main matter for resolution here only concerns grave abuse of CHECKS ISSUED IN PAYMENT OF BEER PRODUCTS PURCHASED ON CREDIT discretion and the existence of probable cause for theft, which at this point is more SHOULD THE TRANSACTIONS COVERED BY THESE CHECKS [BE] SETTLED ON properly resolved through another more clear cut route. [THE] MATURITY DATES THEREOF COULD BE LIKENED TO A CONTRACT OF Probable Cause for Theft PLEDGE. "Probable cause is defined as such facts and circumstances that will engender a wellfounded belief that a crime has been committed and that the respondent is probably 9 fine points of the determination of WHETHER X X X SMC HAD ESTABLISHED PROBABLE CAUSE TO JUSTIFY THE guilty thereof and should be held for trial." On the 10 INDICTMENT OF PUZON FOR THE CRIME OF THEFT PURSUANT TO ART. 308 OF probable cause, Reyes v. Pearlbank Securities, Inc. comprehensively elaborated that: 8 THE REVISED PENAL CODE. The determination of [the existence or absence of probable cause] lies within the discretion of the prosecuting officers after conducting a preliminary investigation upon Petitioner's Arguments complaint of an offended party. Thus, the decision whether to dismiss a complaint or not is dependent upon the sound discretion of the prosecuting fiscal. He may dismiss the SMC contends that Puzon was positively identified by its employees to have taken the complaint forthwith, if he finds the charge insufficient in form or substance or without any subject postdated checks. It also contends that ownership of the checks was transferred ground. Or he may proceed with the investigation if the complaint in his view is sufficient to it because these were issued, not merely as security but were, in payment of Puzons and in proper form. To emphasize, the determination of probable cause for the filing of purchases. SMC points out that it has established more than sufficient probable cause to information in court is an executive function, one that properly pertains at the first justify the indictment of Puzon for the crime of Theft. instance to the public prosecutor and, ultimately, to the Secretary of Justice, who may direct the filing of the corresponding information or move for the dismissal of the case. Ultimately, whether or not a complaint will be dismissed is dependent on the sound Respondents Arguments discretion of the Secretary of Justice. And unless made with grave abuse of discretion, On the other hand, Puzon contends that SMC raises questions of fact that are beyond findings of the Secretary of Justice are not subject to review. the province of an appeal on certiorari. He also insists that there is no probable cause to charge him with theft because the subject checks were issued only as security and he For this reason, the Court considers it sound judicial policy to refrain from interfering in the conduct of preliminary investigations and to leave the Department of Justice ample therefore retained ownership of the same. latitude of discretion in the determination of what constitutes sufficient evidence to establish probable cause for the prosecution of supposed offenders. Consistent with this Our Ruling policy, courts do not reverse the Secretary of Justice's findings and conclusions on the matter of probable cause except in clear cases of grave abuse of discretion. The petition has no merit. In the present case, we are also not sufficiently convinced to deviate from the general rule of non-interference. Indeed the CA did not err in dismissing the petition for certiorari before it, absent grave abuse of discretion on the part of the DOJ Secretary in not finding At the outset we find that as pointed out by Puzon, SMC raises questions of fact. The probable cause against Puzon for theft. resolution of the first issue raised by SMC of whether respondent stole the subject check, which calls for the Court to determine whether respondent is guilty of a felony, first The Revised Penal Code provides: requires that the facts be duly established in the proper forum and in accord with the proper procedure. This issue cannot be resolved based on mere allegations of facts and affidavits. The same is true with the second issue raised by petitioner, to wit: whether the Art. 308. Who are liable for theft. - Theft is committed by any person who, with intent to checks issued by Puzon were payments for his purchases or were intended merely as gain but without violence against, or intimidation of persons nor force upon things, shall security to ensure payment. These issues cannot be properly resolved in the present take personal property of another without the latters consent. Preliminary Matters xxxx IV III

When taken in conjunction with the counter-affidavit of Puzon where he states that "As the [liquid beer] contents are paid for, SMC return[s] to me the corresponding PDCs or 15 request[s] me to replace them with whatever was the unpaid balance." it becomes clear that both parties did not intend for the check to pay for the beer products. The evidence proves that the check was accepted, not as payment, but in accordance with the long-standing policy of SMC to require its dealers to issue postdated checks to cover Considering that the second element is that the thing taken belongs to another, it is its receivables. The check was only meant to cover the transaction and in the meantime relevant to determine whether ownership of the subject check was transferred to Puzon was to pay for the transaction by some other means other than the check. This being so, title to the check did not transfer to SMC; it remained with Puzon. The second petitioner. On this point the Negotiable Instruments Law provides: element of the felony of theft was therefore not established. Petitioner was not able to show that Puzon took a check that belonged to another. Hence, the prosecutor and the Sec. 12. Antedated and postdated The instrument is not invalid for the reason only that DOJ were correct in finding no probable cause for theft. it is antedated or postdated, provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument so dated is delivered acquires the title thereto as of Consequently, the CA did not err in finding no grave abuse of discretion committed by the the date of delivery. (Underscoring supplied.) DOJ in sustaining the dismissal of the case for theft for lack of probable cause. "[T]he essential elements of the crime of theft are the following: (1) that there be a taking of personal property; (2) that said property belongs to another; (3) that the taking be done with intent to gain; (4) that the taking be done without the consent of the owner; and (5) that the taking be accomplished without the use of violence or intimidation against 11 persons or force upon things." Note however that delivery as the term is used in the aforementioned provision means 12 that the party delivering did so for the purpose of giving effect thereto. Otherwise, it WHEREFORE, the petition is DENIED. The December 21, 2004 Decision and March 28, cannot be said that there has been delivery of the negotiable instrument. Once there is 2005 Resolution of the Court of Appeals in CA-G.R. SP. No. 83905 are AFFIRMED. delivery, the person to whom the instrument is delivered gets the title to the instrument completely and irrevocably. SO ORDERED. If the subject check was given by Puzon to SMC in payment of the obligation, the MARIANO C. DEL CASTILLO purpose of giving effect to the instrument is evident thus title to or ownership of the check Associate Justice was transferred upon delivery. However, if the check was not given as payment, there being no intent to give effect to the instrument, then ownership of the check was not transferred to SMC. The evidence of SMC failed to establish that the check was given in payment of the obligation of Puzon. There was no provisional receipt or official receipt issued for the amount of the check. What was issued was a receipt for thedocument, a "POSTDATED 13 CHECK SLIP." Furthermore, the petitioner's demand letter sent to respondent states "As per company policies on receivables, all issuances are to be covered by post-dated checks. However, you have deviated from this policy by forcibly taking away the check you have issued to 14 us to cover the December issuance." Notably, the term "payment" was not used instead the terms "covered" and "cover" were used. Although the petitioner's witness, Gregorio L. Joven III, states in paragraph 6 of his affidavit that the check was given in payment of the obligation of Puzon, the same is contradicted by his statements in paragraph 4, where he states that "As a standard company operating procedure, all beer purchases by dealers on credit shall be coveredby postdated checks equivalent to the value of the beer products purchased"; in paragraph 9 where he states that "the transaction covered by the said check had not yet been paid for," and in paragraph 8 which clearly shows that partial payment is expected to be made by the return of beer empties, and not by the deposit or encashment of the check.1avvphi1 Clearly the term "cover" was not meant to be used interchangeably with "payment."