G.R. No.

125851

July 11, 2006

respondents based on the Letters of Guaranty and Surety executed in favor

of ALLIED. However, respondents refused to pay, prompting ALLIED to file an
action for a sum of money.

ALLIED BANKING CORPORATION, petitioner,

vs.
COURT OF APPEALS, G.G. SPORTSWEAR MANUFACTURING
CORPORATION, NARI GIDWANI, SPOUSES LETICIA AND LEON DE
VILLA AND ALCRON INTERNATIONAL LTD., respondents.

In their joint answer, respondents GGS and Nari Gidwani admitted the due
execution of the export bill and the Letters of Guaranty in favor of ALLIED,
but claimed that they signed blank forms of the Letters of Guaranty and the
Surety, and the blanks were only filled up by ALLIED after they had affixed
their signatures. They also added that the documents did not cover the
transaction involving the subject export bill.

DECISION
QUISUMBING, J.:
This petition for review on certiorari assails (a) the July 31, 1996 Decision of
the Court of Appeals, ordering respondent G.G. Sportswear Manufacturing
Corp. to reimburse petitioner US $20,085; and exonerating the guarantors
from liability; and (b) the January 17, 1997 Resolution 2 denying the motion
for reconsideration.
1

The facts are undisputed.

On January 6, 1981, petitioner Allied Bank, Manila (ALLIED) purchased Export
Bill No. BDO-81-002 in the amount of US $20,085.00 from respondent G.G.
Sportswear Mfg. Corporation (GGS). The bill, drawn under a letter of credit
No. BB640549 covered Men's Valvoline Training Suit that was in transit to
West Germany (Uniger via Rotterdam) under Cont. #73/S0299. The export
bill was issued by Chekiang First Bank Ltd., Hongkong. With the purchase of
the bill, ALLIED credited GGS the peso equivalent of the aforementioned bill
amounting to P151,474.52 and the receipt of which was acknowledged by
the latter in its letter dated June 22, 1981.
On the same date, respondents Nari Gidwani and Alcron International Ltd.
(Alcron) executed their respective Letters of Guaranty, holding themselves
liable on the export bill if it should be dishonored or retired by the drawee for
any reason.
Subsequently, the spouses Leon and Leticia de Villa and Nari Gidwani also
executed a Continuing Guaranty/Comprehensive Surety (surety, for brevity),
guaranteeing payment of any and all such credit accommodations which
ALLIED may extend to GGS. When ALLIED negotiated the export bill to
Chekiang, payment was refused due to some material discrepancies in the
documents submitted by GGS relative to the exportation covered by the
letter of credit. Consequently, ALLIED demanded payment from all the

On the other hand, the respondents, spouses de Villa, claimed that they were
not aware of the existence of the export bill; they signed blank forms of the
surety; and averred that the guaranty was not meant to secure the export
bill.
Respondent Alcron, for its part, alleged that as a foreign corporation doing
business in the Philippines, its branch in the Philippines is merely a liaison
office confined to the following duties and responsibilities, to wit: acting as a
message center between its office in Hongkong and its clients in the
Philippines; conducting credit investigations on Filipino clients; and providing
its office in Hongkong with shipping arrangements and other details in
connection with its office in Hongkong. Respondent Alcron further alleged
that neither its liaison office in the Philippines nor its then representative,
Hans-Joachim Schloer, had the authority to issue Letters of Guaranty for and
in behalf of local entities and persons. It also invoked laches against
petitioner ALLIED.
GGS and Nari Gidwani filed a Motion for Summary Judgment on the ground
that since the plaintiff admitted not having protested the dishonor of the
export bill, it thereby discharged GGS from liability. But the trial court denied
the motion. After the presentation of evidence by the petitioner, only the
spouses de Villa presented their evidence. The other respondents did not.
The trial court dismissed the complaint.
On appeal, the Court of Appeals modified the ruling of the trial court holding
respondent GGS liable to reimburse petitioner ALLIED the peso equivalent of
the export bill, but it exonerated the guarantors from their liabilities under
the Letters of Guaranty. The CA decision reads as follows:

For the foregoing considerations, appellee GGS is obliged to

reimburse appellant Allied Bank the amount of P151,474.52 which
was the equivalent of GGS's contracted obligation of US$20,085.00.
The lower court however correctly exonerated the guarantors from
their liability under their Letters of Guaranty. A guaranty is an
accessory contract. What the guarantors guaranteed in the instant
case was the bill which had been discharged. Consequently, the
guarantors should be correspondingly released.
WHEREFORE, judgment is hereby rendered ordering defendantappellee G.G. Sportswear Mfg. Corporation to pay appellant the sum
of P151,474.52 with interest thereon at the legal rate from the filing
of the complaint, and the costs.
SO ORDERED.

The petitioner filed a Motion for Reconsideration, but to no avail. Hence, this
appeal, raising a single issue:
WHETHER OR NOT RESPONDENTS NARI, DE VILLA AND ALCRON ARE
LIABLE UNDER THE LETTERS OF GUARANTY AND THE CONTINUING
GUARANTY/ COMPREHENSIVE SURETY NOTWITHSTANDING THE FACT
THAT NO PROTEST WAS MADE AFTER THE BILL, A FOREIGN BILL OF
EXCHANGE, WAS DISHONORED.4
The main issue raised before us is: Can respondents, in their capacity as
guarantors and surety, be held jointly and severally liable under the Letters
of Guaranty and Continuing Guaranty/Comprehensive Surety, in the absence
of protest on the bill in accordance with Section 152 of the Negotiable
Instruments Law?5
The petitioner contends that part of the Court of Appeals' decision
exonerating respondents Nari Gidwani, Alcron International Ltd., and spouses
Leon and Leticia de Villa as guarantors and/or sureties. Respondents rely on
Section 152 of the Negotiable Instruments Law to support their contention.
Our review of the records shows that what transpired in this case is a
discounting arrangement of the subject export bill, between petitioner
ALLIED and respondent GGS. Previously, we ruled that in a letter of credit
transaction, once the credit is established, the seller ships the goods to the
buyer and in the process secures the required shipping documents of title. To
get paid, the seller executes a draft and presents it together with the

required documents to the issuing bank. The issuing bank redeems the draft
and pays cash to the seller if it finds that the documents submitted by the
seller conform with what the letter of credit requires. The bank then obtains
possession of the documents upon paying the seller. The transaction is
completed when the buyer reimburses the issuing bank and acquires the
documents entitling him to the goods.6 However, in most cases, instead of
going to the issuing bank to claim payment, the buyer (or the beneficiary of
the draft) may approach another bank, termed the negotiating bank, to have
the draft discounted.7 While the negotiating bank owes no contractual duty
toward the beneficiary of the draft to discount or purchase it, it may still do
so. Nothing can prevent the negotiating bank from requiring additional
requirements, like contracts of guaranty and surety, in consideration of the
discounting arrangement.
In this case, respondent GGS, as the beneficiary of the export bill, instead of
going to Chekiang First Bank Ltd. (issuing bank), went to petitioner ALLIED,
to have the export bill purchased or discounted. Before ALLIED agreed to
purchase the subject export bill, it required respondents Nari Gidwani and
Alcron to execute Letters of Guaranty, holding them liable on demand,in case
the subject export bill was dishonored or retired for any reason. 8
Likewise, respondents Nari Gidwani and spouses Leon and Leticia de Villa
executed Continuing Guaranty/Comprehensive Surety, holding themselves
jointly and severally liable on any and all credit accommodations,
instruments, loans, advances, credits and/or other obligation that may be
granted by the petitioner ALLIED to respondent GGS.9 The surety also
contained a clause whereby said sureties waive protest and notice of
dishonor of any and all such instruments, loans, advances, credits and/or
obligations.10 These letters of guaranty and surety are now the basis of the
petitioner's action.
At this juncture, we must stress that obligations arising from contracts have
the force of law between the parties and should be complied with in good
faith.11 Nothing can stop the parties from establishing stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy. 12
Here, Art. 2047 of the New Civil Code is pertinent. Art. 2047 states,
Art. 2047. By guaranty a person, called the guarantor, binds himself
to the creditor to fulfill the obligation of the principal debtor in case
the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the

provisions of Section 4, Chapter 3, Title I of this Book shall be
observed. In such case the contract is called a suretyship.
In this case, the Letters of Guaranty and Surety clearly show that
respondents undertook and bound themselves as guarantors and surety to
pay the full amount of the export bill.
Respondents claim that the petitioner did not protest13 upon dishonor of the
export bill by Chekiang First Bank, Ltd. According to respondents, since there
was no protest made upon dishonor of the export bill, all of them, as
indorsers were discharged under Section 152 of the Negotiable Instruments
Law.
Section 152 of the Negotiable Instruments Law pertaining to indorsers, relied
on by respondents, is not pertinent to this case. There are well-defined
distinctions between the contract of an indorser and that of a
guarantor/surety of a commercial paper, which is what is involved in this
case. The contract of indorsement is primarily that of transfer, while the
contract of guaranty is that of personal security.14 The liability of a
guarantor/surety is broader than that of an indorser. Unless the bill is
promptly presented for payment at maturity and due notice of dishonor
given to the indorser within a reasonable time, he will be discharged from
liability thereon.15 On the other hand, except where required by the
provisions of the contract of suretyship, a demand or notice of default is not
required to fix the surety's liability.16 He cannot complain that the creditor
has not notified him in the absence of a special agreement to that effect in
the contract of suretyship.17 Therefore, no protest on the export bill is
necessary to charge all the respondents jointly and severally liable with G.G.
Sportswear since the respondents held themselves liable upon demand in
case the instrument was dishonored and on the surety, they even waived
notice of dishonor as stipulated in their Letters of Guarantee.
As to respondent Alcron, it is bound by the Letter of Guaranty executed by its
representative Hans-Joachim Schloer. As to the other respondents, not to be
overlooked is the fact that, the "Suretyship Agreement" they executed,
expressly contemplated a solidary obligation, providing as it did that " the
sureties hereby guarantee jointly and severally the punctual payment of any
and all such credit accommodations, instruments, loans, which is/are now
or may hereafter become due or owing by the borrower".18 It is a cardinal
rule that if the terms of a contract are clear and leave no doubt as to the
intention of the contracting parties, the literal meaning of its stipulation shall
control.19 In the present case, there can be no mistaking about respondents'

intent, as sureties, to be jointly and severally obligated with respondent G.G.

Sportswear.
Respondents also aver that, (1) they only signed said documents in blank; (2)
they were never made aware that said documents will cover the payment of
the export bill; and (3) laches have set in.
Respondents' stance lacks merit. Under Section 3 (d), Rule 131 of the Rules
of Court, it is presumed that a person takes ordinary care of his concerns.
Hence, the natural presumption is that one does not sign a document
without first informing himself of its contents and consequences. Said
presumption acquires greater force in the case at bar where not only one
document but several documents were executed at different times and at
different places by the herein respondent guarantors and sureties. 20
In this case, having affixed their consenting signatures in several documents
executed at different times, it is safe to presume that they had full
knowledge of its terms and conditions, hence, they are precluded from
asserting ignorance of the legal effects of the undertaking they assumed
thereunder. It is also presumed that private transactions have been fair and
regular21 and that he who alleges has the burden of proving his allegation
with the requisite quantum of evidence.22 But here the records of this case do
not support their claims.
Last, we find the defense of laches unavailing. The question of laches is
addressed to the sound discretion of the court and since laches is an
equitable doctrine, its application is controlled by equitable considerations. 23
Respondents, however, failed to show that the collection suit against them as
sureties was inequitable. Remedies in equity address only situations tainted
with inequity, not those expressly governed by statutes. 24
After considering the facts of this case vis--vis the pertinent laws, we are
constrained to rule for the petitioner.
WHEREFORE, the instant petition is GRANTED.The assailed Decision of the
Court of Appeals is hereby MODIFIED, and we hold that respondent Alcron
International Ltd. is subsidiarily liable, while respondents Nari Gidwani, and
Spouses Leon and Leticia de Villa are jointly and severally liable together
with G.G. Sportswear, to pay petitioner Bank the sum of P151,474.52 with
interest at the legal rate from the filing of the complaint, and the costs.
SO ORDERED.

G.R. No. 142641

July 17, 2006

PACIFICO B. ARCEO, JR., petitioner,

vs.
PEOPLE OF THE PHILIPPINES, respondent.
DECISION
CORONA, J.:
This petition for review on certiorari assails the April 28, 1999 decision 1 and
March 27, 2000 resolution2 of the Court of Appeals in CA-G.R. CR No. 19601
affirming the trial courts judgment finding petitioner Pacifico B. Arceo, Jr.
liable for violation of Batas Pambansa Blg. (BP) 22, otherwise known as the
"Bouncing Checks Law."
The facts of the case as found by the trial court and adopted by the Court of
Appeals follow.
On March 14, 1991, [petitioner], obtained a loan from private
complainant Josefino Cenizal [] in the amount of P100,000.00.
Several weeks thereafter, [petitioner] obtained an additional loan of
P50,000.00 from [Cenizal]. [Petitioner] then issued in favor of
Cenizal, Bank of the Philippine Islands [(BPI)] Check No. 163255,
postdated August 4, 1991, for P150,000.00, at Cenizals house
located at 70 Panay Avenue, Quezon City. When August 4, 1991
came, [Cenizal] did not deposit the check immediately because
[petitioner] promised [] that he would replace the check with cash.
Such promise was made verbally seven (7) times. When his patience
ran out, [Cenizal] brought the check to the bank for encashment. The
head office of the Bank of the Philippine Islands through a letter
dated December 5, 1991, informed [Cenizal] that the check bounced
because of insufficient funds.
Thereafter, [Cenizal] went to the house of [petitioner] to inform him
of the dishonor of the check but [Cenizal] found out that [petitioner]
had left the place. So, [Cenizal] referred the matter to a lawyer who
wrote a letter giving [petitioner] three days from receipt thereof to
pay the amount of the check. [Petitioner] still failed to make good the
amount of the check. As a consequence, [Cenizal] executed on
January 20, 1992 before the office of the City Prosecutor of Quezon
City his affidavit and submitted documents in support of his
complaint for [e]stafa and [v]iolation of [BP 22] against [petitioner].

After due investigation, this case for [v]iolation of [BP 22] was filed
against [petitioner] on March 27, 1992. The check in question and
the return slip were however lost by [Cenizal] as a result of a fire that
occurred near his residence on September 16, 1992. [Cenizal]
executed an Affidavit of Loss regarding the loss of the check in
question and the return slip.3
After trial, petitioner was found guilty as charged. Aggrieved, he appealed to
the Court of Appeals. However, on April 28, 1999, the appellate court
affirmed the trial courts decision in toto. Petitioner sought reconsideration
but it was denied. Hence, this petition.
Petitioner claims that the trial and appellate courts erred in convicting him
despite the failure of the prosecution to present the dishonored check during
the trial. He also contends that he should not be held liable for the dishonor
of the check because it was presented beyond the 90-day period provided
under the law. Petitioner further questions his conviction since the notice
requirement was not complied with and he was given only three days to pay,
not five banking days as required by law. Finally, petitioner asserts that he
had already paid his obligation to Cenizal.
Petitioners contentions have no merit.
Significance of the 90-day Period
For Presentment of the Check
Petitioner asserts that there was no violation of BP 22 because the check was
presented to the drawee bank only on December 5, 1991 or 120 days from
the date thereof (August 4, 1991). He argues that this was beyond the 90day period provided under the law in connection with the presentment of the
check. We disagree.
Section 1 of 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.
Where the check is drawn by a corporation, company or entity, the
person or persons who actually signed the check in behalf of such
drawer shall be liable under this Act.
In Wong v. Court of Appeals,4 the Court ruled that the 90-day period provided
in the law is not an element of the offense. Neither does it discharge
petitioner from his duty to maintain sufficient funds in the account within a
reasonable time from the date indicated in the check. According to current
banking practice, the reasonable period within which to present a check to
the drawee bank is six months. Thereafter, the check becomes stale and the
drawer is discharged from liability thereon to the extent of the loss caused by
the delay.
Thus, Cenizals presentment of the check to the drawee bank 120 days (four
months) after its issue was still within the allowable period. Petitioner was
freed neither from the obligation to keep sufficient funds in his account nor
from liability resulting from the dishonor of the check.
Applicability of the
Best Evidence Rule
Petitioners insistence on the presentation of the check in evidence as a
condition sine qua non for conviction under BP 22 is wrong. Petitioner
anchors his argument on Rule 130, Section 3, of the Rules of Court, otherwise
known as the best evidence rule. However, the rule applies only where the
content of the document is the subject of the inquiry. Where the issue is the
execution or existence of the document or the circumstances surrounding its
execution, the best evidence rule does not apply and testimonial evidence is
admissible.5

The gravamen of the offense is the act of drawing and issuing a worthless
check.6 Hence, the subject of the inquiry is the fact of issuance or execution
of the check, not its content.
Here, the due execution and existence of the check were sufficiently
established. Cenizal testified that he presented the originals of the check, the
return slip and other pertinent documents before the Office of the City
Prosecutor of Quezon City when he executed his complaint-affidavit during
the preliminary investigation. The City Prosecutor found a prima facie case
against petitioner for violation of BP 22 and filed the corresponding
information based on the documents. Although the check and the return slip
were among the documents lost by Cenizal in a fire that occurred near his
residence on September 16, 1992, he was nevertheless able to adequately
establish the due execution, existence and loss of the check and the return
slip in an affidavit of loss as well as in his testimony during the trial of the
case.
Moreover, petitioner himself admited that he issued the check. He never
denied that the check was presented for payment to the drawee bank and
was dishonored for having been drawn against insufficient funds.
Presence of the
Elements of the Offense
Based on the allegations in the information,7 petitioner was charged for
violating the first paragraph of BP 22. The elements of the offense are:
1. the making, drawing and issuance of any check to apply to
account or for value;
2. knowledge of the maker, drawer, or issuer that at the time of issue
he does not have sufficient funds in or credit with the drawee bank
for the payment of the check in full upon its presentment; and
3. subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit, or dishonor of the check for the same
reason had not the drawer, without any valid cause, ordered the
bank to stop payment.8
All these elements are present in this case.
Both the trial and appellate courts found that petitioner issued BPI check no.
163255 postdated August 4, 1991 in the amount of P150,000 in

consideration of a loan which he obtained from Cenizal. When the check was
deposited, it was dishonored by the drawee bank for having been drawn
against insufficient funds. There was sufficient evidence on record that
petitioner knew of the insufficiency of his funds in the drawee bank at the
time of the issuance of the check. In fact, this was why, on maturity date, he
requested the payee not to encash it with the promise that he would replace
it with cash. He made this request and assurance seven times but repeatedly
failed to make good on his promises despite the repeated accommodation
granted him by the payee, Cenizal.
Notice of Dishonor to Petitioner
And Payment of the Obligation
The trial court found that, contrary to petitioners claim, Cenizals counsel
had informed petitioner in writing of the checks dishonor and demanded
payment of the value of the check. Despite receipt of the notice of dishonor
and demand for payment, petitioner still failed to pay the amount of the
check.
Petitioner cannot claim that he was deprived of the period of five banking
days from receipt of notice of dishonor within which to pay the amount of the
check.9 While petitioner may have been given only three days to pay the
value of the check, the trial court found that the amount due thereon
remained unpaid even after five banking days from his receipt of the notice
of dishonor. This negated his claim that he had already paid Cenizal and
should therefore be relieved of any liability.
Moreover, petitioners claim of payment was nothing more than a mere
allegation. He presented no proof to support it. If indeed there was payment,
petitioner should have redeemed or taken the check back in the ordinary
course of business.10 Instead, the check remained in the possession of the
payee who demanded the satisfaction of petitioners obligation when the
check became due as well as when the check was dishonored by the drawee
bank.
These findings (due notice to petitioner and nonpayment of the obligation)
were confirmed by the appellate court. This Court has no reason to rule
otherwise. Well-settled is the rule that the factual findings of the trial court,
when affirmed by the appellate court, are not to be disturbed. 11
WHEREFORE, the petition is hereby DENIED. The April 28, 1999 decision
and March 27, 2000 resolution of the Court of Appeals in CA-G.R. CR No.
19601 are AFFIRMED.

Costs against petitioner.

SO ORDERED.
G.R. No. 101163 January 11, 1993
STATE INVESTMENT HOUSE, INC., petitioner,
vs.
COURT OF APPEALS and NORA B. MOULIC, respondents.
Escober, Alon & Associates for petitioner.
Martin D. Pantaleon for private respondents.

BELLOSILLO, J.:
The liability to a holder in due course of the drawer of checks issued to
another merely as security, and the right of a real estate mortgagee after
extrajudicial foreclosure to recover the balance of the obligation, are the
issues in this Petition for Review of the Decision of respondent Court of
Appeals.
Private respondent Nora B. Moulic issued to Corazon Victoriano, as security
for pieces of jewelry to be sold on commission, two (2) post-dated Equitable
Banking Corporation checks in the amount of Fifty Thousand Pesos
(P50,000.00) each, one dated 30 August 1979 and the other, 30 September
1979. Thereafter, the payee negotiated the checks to petitioner State
Investment House. Inc. (STATE).
MOULIC failed to sell the pieces of jewelry, so she returned them to the
payee before maturity of the checks. The checks, however, could no longer
be retrieved as they had already been negotiated. Consequently, before their
maturity dates, MOULIC withdrew her funds from the drawee bank.
Upon presentment for payment, the checks were dishonored for insufficiency
of funds. On 20 December 1979, STATE allegedly notified MOULIC of the
dishonor of the checks and requested that it be paid in cash instead,
although MOULIC avers that no such notice was given her.
On 6 October 1983, STATE sued to recover the value of the checks plus
attorney's fees and expenses of litigation.

In her Answer, MOULIC contends that she incurred no obligation on the

checks because the jewelry was never sold and the checks were negotiated
without her knowledge and consent. She also instituted a Third-Party
Complaint against Corazon Victoriano, who later assumed full responsibility
for the checks.
On 26 May 1988, the trial court dismissed the Complaint as well as the ThirdParty Complaint, and ordered STATE to pay MOULIC P3,000.00 for attorney's
fees.
STATE elevated the order of dismissal to the Court of Appeals, but the
appellate court affirmed the trial court on the ground that the Notice of
Dishonor to MOULIC was made beyond the period prescribed by the
Negotiable Instruments Law and that even if STATE did serve such notice on
MOULIC within the reglementary period it would be of no consequence as the
checks should never have been presented for payment. The sale of the
jewelry was never effected; the checks, therefore, ceased to serve their
purpose as security for the jewelry.
We are not persuaded.
The negotiability of the checks is not in dispute. Indubitably, they were
negotiable. After all, at the pre-trial, the parties agreed to limit the issue to
whether or not STATE was a holder of the checks in due course. 1
In this regard, Sec. 52 of the Negotiable Instruments Law provides
Sec. 52. What constitutes a holder in due course. A holder
in due course is a holder who has taken the instrument under
the following conditions: (a) That it is complete and regular
upon its face; (b) That he became the holder of it before it
was overdue, and without notice that it was previously
dishonored, if such was the fact; (c) That he took it in good
faith and for value; (d) That at the time it was negotiated to
him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.
Culled from the foregoing, a prima facie presumption exists that the holder of
a negotiable instrument is a holder in due course. 2 Consequently, the burden
of proving that STATE is not a holder in due course lies in the person who
disputes the presumption. In this regard, MOULIC failed.

The evidence clearly shows that: (a) on their faces the post-dated checks
were complete and regular: (b) petitioner bought these checks from the
payee, Corazon Victoriano, before their due dates; 3 (c) petitioner took these
checks in good faith and for value, albeit at a discounted price; and, (d)
petitioner was never informed nor made aware that these checks were
merely issued to payee as security and not for value.
Consequently, STATE is indeed a holder in due course. As such, it holds the
instruments free from any defect of title of prior parties, and from defenses
available to prior parties among themselves; STATE may, therefore, enforce
full payment of the checks. 4
MOULIC cannot set up against STATE the defense that there was failure or
absence of consideration. MOULIC can only invoke this defense against
STATE if it was privy to the purpose for which they were issued and therefore
is not a holder in due course.
That the post-dated checks were merely issued as security is not a ground
for the discharge of the instrument as against a holder in due course. For the
only grounds are those outlined in Sec. 119 of the Negotiable Instruments
Law:
Sec. 119. Instrument; how discharged. A negotiable
instrument is discharged: (a) By payment in due course by or
on behalf of the principal debtor; (b) By payment in due
course by the party accommodated, where the instrument is
made or accepted for his accommodation; (c) By the
intentional cancellation thereof by the holder; (d) By any
other act which will discharge a simple contract for the
payment of money; (e) When the principal debtor becomes
the holder of the instrument at or after maturity in his own
right.
Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible
grounds for the discharge of the instrument. But, the intentional cancellation
contemplated under paragraph (c) is that cancellation effected by destroying
the instrument either by tearing it up, 5 burning it, 6 or writing the word
"cancelled" on the instrument. The act of destroying the instrument must
also be made by the holder of the instrument intentionally. Since MOULIC
failed to get back possession of the post-dated checks, the intentional
cancellation of the said checks is altogether impossible.

On the other hand, the acts which will discharge a simple contract for the
payment of money under paragraph (d) are determined by other existing
legislations since Sec. 119 does not specify what these acts are, e.g., Art.
1231 of the Civil Code 7 which enumerates the modes of extinguishing
obligations. Again, none of the modes outlined therein is applicable in the
instant case as Sec. 119 contemplates of a situation where the holder of the
instrument is the creditor while its drawer is the debtor. In the present action,
the payee, Corazon Victoriano, was no longer MOULIC's creditor at the time
the jewelry was returned.
Correspondingly, MOULIC may not unilaterally discharge herself from her
liability by the mere expediency of withdrawing her funds from the drawee
bank. She is thus liable as she has no legal basis to excuse herself from
liability on her checks to a holder in due course.
Moreover, the fact that STATE failed to give Notice of Dishonor to MOULIC is
of no moment. The need for such notice is not absolute; there are exceptions
under Sec. 114 of the Negotiable Instruments Law:
Sec. 114. When notice need not be given to drawer. Notice
of dishonor is not required to be given to the drawer in the
following cases: (a) Where the drawer and the drawee are
the same person; (b) When the drawee is a fictitious person
or a person not having capacity to contract; (c) When the
drawer is the person to whom the instrument is presented for
payment: (d) Where the drawer has no right to expect or
require that the drawee or acceptor will honor the
instrument; (e) Where the drawer had countermanded
payment.
Indeed, MOULIC'S actuations leave much to be desired. She did not retrieve
the checks when she returned the jewelry. She simply withdrew her funds
from her drawee bank and transferred them to another to protect herself.
After withdrawing her funds, she could not have expected her checks to be
honored. In other words, she was responsible for the dishonor of her checks,
hence, there was no need to serve her Notice of Dishonor, which is simply
bringing to the knowledge of the drawer or indorser of the instrument, either
verbally or by writing, the fact that a specified instrument, upon proper
proceedings taken, has not been accepted or has not been paid, and that the
party notified is expected to pay it. 8
In addition, the Negotiable Instruments Law was enacted for the purpose of
facilitating, not hindering or hampering transactions in commercial paper.
Thus, the said statute should not be tampered with haphazardly or lightly.

Nor should it be brushed aside in order to meet the necessities in a single

case. 9
The drawing and negotiation of a check have certain effects aside from the
transfer of title or the incurring of liability in regard to the instrument by the
transferor. The holder who takes the negotiated paper makes a contract with
the parties on the face of the instrument. There is an implied representation
that funds or credit are available for the payment of the instrument in the
bank upon which it is drawn. 10 Consequently, the withdrawal of the money
from the drawee bank to avoid liability on the checks cannot prejudice the
rights of holders in due course. In the instant case, such withdrawal renders
the drawer, Nora B. Moulic, liable to STATE, a holder in due course of the
checks.
Under the facts of this case, STATE could not expect payment as MOULIC left
no funds with the drawee bank to meet her obligation on the checks, 11 so
that Notice of Dishonor would be futile.
The Court of Appeals also held that allowing recovery on the checks would
constitute unjust enrichment on the part of STATE Investment House, Inc.
This is error.
The record shows that Mr. Romelito Caoili, an Account Assistant, testified that
the obligation of Corazon Victoriano and her husband at the time their
property mortgaged to STATE was extrajudicially foreclosed amounted to
P1.9 million; the bid price at public auction was only P1 million. 12 Thus, the
value of the property foreclosed was not even enough to pay the debt in full.
Where the proceeds of the sale are insufficient to cover the debt in an
extrajudicial foreclosure of mortgage, the mortgagee is entitled to claim the
deficiency from the debtor. 13 The step thus taken by the mortgagee-bank in
resorting to an extra-judicial foreclosure was merely to find a proceeding for
the sale of the property and its action cannot be taken to mean a waiver of
its right to demand payment for the whole debt. 14 For, while Act 3135, as
amended, does not discuss the mortgagee's right to recover such deficiency,
it does not contain any provision either, expressly or impliedly, prohibiting
recovery. In this jurisdiction, when the legislature intends to foreclose the
right of a creditor to sue for any deficiency resulting from foreclosure of a
security given to guarantee an obligation, it so expressly provides. For
instance, with respect to pledges, Art. 2115 of the Civil Code 15 does not
allow the creditor to recover the deficiency from the sale of the thing
pledged. Likewise, in the case of a chattel mortgage, or a thing sold on
installment basis, in the event of foreclosure, the vendor "shall have no

further action against the purchaser to recover any unpaid balance of the
price. Any agreement to the contrary will be void". 16
It is clear then that in the absence of a similar provision in Act No. 3135, as
amended, it cannot be concluded that the creditor loses his right recognized
by the Rules of Court to take action for the recovery of any unpaid balance
on the principal obligation simply because he has chosen to extrajudicially
foreclose the real estate mortgage pursuant to a Special Power of Attorney
given him by the mortgagor in the contract of mortgage. 17
The filing of the Complaint and the Third-Party Complaint to enforce the
checks against MOULIC and the VICTORIANO spouses, respectively, is just
another means of recovering the unpaid balance of the debt of the
VICTORIANOs.
In fine, MOULIC, as drawer, is liable for the value of the checks she issued to
the holder in due course, STATE, without prejudice to any action for
recompense she may pursue against the VICTORIANOs as Third-Party
Defendants who had already been declared as in default.
WHEREFORE, the petition is GRANTED. The decision appealed from is
REVERSED and a new one entered declaring private respondent NORA B.
MOULIC liable to petitioner STATE INVESTMENT HOUSE, INC., for the value of
EBC Checks Nos. 30089658 and 30089660 in the total amount of
P100,000.00, P3,000.00 as attorney's fees, and the costs of suit, without
prejudice to any action for recompense she may pursue against the
VICTORIANOs as Third-Party Defendants.

of Batas Pambansa Blg. 22 (the Bouncing Checks Law) violations, and

sentencing him to imprisonment of four (4) months for each count, and to
pay private respondent the amounts of P5,500.00, P6,410.00 and P3,375.00,
respectively, corresponding to the value of the checks involved, with the
legal rate of interest from the time of filing of the criminal charges, as well as
to pay the costs.1wphi1.nt
The factual antecedents of the case are as follows:
Petitioner Wong was an agent of Limtong Press. Inc. (LPI), a manufacturer of
calendars. LPI would print sample calendars, then give them to agents to
present to customers. The agents would get the purchase orders of
customers and forward them to LPI. After printing the calendars, LPI would
ship the calendars directly to the customers. Thereafter, the agents would
come around to collect the payments. Petitioner, however, had a history of
unremitted collections, which he duly acknowledged in a confirmation receipt
he co-signed with his wife.2 Hence, petitioners customers were required to
issue postdated checks before LPI would accept their purchase orders.
In early December 1985, Wong issued six (6) postdated checks totaling
P18,025.00, all dated December 30, 1985 and drawn payable to the order of
LPI, as follows:
(1) Allied Banking Corporation (ABC) Check No. 660143464-C for
P6,410.00 (Exh. "B");
(2) ABC Check No. 660143460-C for P540.00 (Exh. "C");

Costs against private respondent.

(3) ABC Check No. PA660143451-C for P5,500.00 (Exh. "D");

SO ORDERED.

(4) ABC Check No. PA660143465-C for P1,100.00 (Exh. "E");

G.R. No. 117857

February 2, 2001

LUIS S. WONG, petitioner,

vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
QUISUMBING, J.:
For review on certiorari is the decision dated October 28, 1994 of the Court
of Appeals in C.A. G.R. CR 118561 which affirmed the decision of the Regional
Trial Court of Cebu City, Branch 17, convicting petitioner on three (3) counts

(5) ABC Check No. PA660143463-C for P3,375.00 (Exh. "F");

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

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

Manuel T. Limtong, general manager of LPI, testified on behalf of the

company, Limtong averred that he refused to accept the personal checks of
petitioner since it was against company policy to accept personal checks
from agents. Hence, he and petitioner simply agreed to use the checks to
pay petitioners unremitted collections to LPI. According to Limtong, a few
days before maturity of the checks, Wong requested him to defer the deposit
of said checks for lack of funds. Wong promised to replace them within thirty
days, but failed to do so. Hence, upon advice of counsel, he deposited the
checks which were subsequently returned on the ground of "account closed."
The version of the defense is that petitioner issued the six (6) checks to
guarantee the 1985 calendar bookings of his customers. According to
petitioner, he issued the checks not as payment for any obligation, but to
guarantee the orders of his customers. In fact, the face value of the six (6)
postdated checks tallied with the total amount of the calendar orders of the
six (6) customers of the accused, namely, Golden Friendship Supermarket,
Inc. (P6,410.00), New Society Rice and Corn Mill (P5,500.00), Cuesta
Enterprises (P540.00), Pelrico Marketing (P1,100.00), New Asia Restaurant
P3,375.00), and New China Restaurant (P1,100.00). Although these
customers had already paid their respective orders, petitioner claimed LPI
did not return the said checks to him.
On August 30, 1990, the trial court issued its decision, disposing as follows: 7
"Wherefore, premises considered, this Court finds the accused Luis S.
Wong GUILTY beyond reasonable doubt of the offense of Violations of
Section 1 of Batas Pambansa Bilang 22 in THREE (3) Counts and is
hereby sentenced to serve an imprisonment of FOUR (4) MONTHS for
each count; to pay Private Complainant Manuel T. Limtong the sums
of Five Thousand Five Hundred (P5,500.00) Pesos, Six Thousand Four
Hundred Ten (P6,410.00) Pesos and Three Thousand Three Hundred
Seventy-Five (P3,375.00) Pesos corresponding to the amounts
indicated in Allied Banking Checks Nos. 660143451, 66[0]143464
and 660143463 all issued on December 30, 1985 together with the
legal rate of interest from the time of the filing of the criminal
charges in Court and pay the costs."8
Petitioner appealed his conviction to the Court of Appeals. On October 28,
1994, it affirmed the trial courts decision in toto.9
Hence, the present petition.10 Petitioner raises the following questions of law
-11

May a complainant successfully prosecute a case under BP 22 --- if

there is no more consideration or price or value ever the binding tie
that it is in contracts in general and in negotiable instruments in
particular behind the checks? if even before he deposits the
checks, he has ceased to be a holder for value because the purchase
orders (POs) guaranteed by the checks were already paid?
Given the fact that the checks lost their reason for being, as above
stated, is it not then the duty of complainant knowing he is no
longer a holder for value to return the checks and not to deposit
them ever? Upon what legal basis then may such a holder deposit
them and get paid twice?
Is petitioner, as the drawer of the guarantee checks which lost their
reason for being, still bound under BP 22 to maintain his account
long after 90 days from maturity of the checks?
May the prosecution apply the prima facie presumption of
"knowledge of lack of funds" against the drawer if the checks were
belatedly deposited by the complainant 157 days after maturity, or
will it be then necessary for the prosecution to show actual proof of
"lack of funds" during the 90-day term?
Petitioner insists that the checks were issued as guarantees for the 1985
purchase orders (POs) of his customers. He contends that private
respondent is not a "holder for value" considering that the checks were
deposited by private respondent after the customers already paid their
orders. Instead of depositing the checks, private respondent should have
returned the checks to him. Petitioner further assails the credibility of
complainant considering that his answers to cross-examination questions
included: "I cannot recall, anymore" and "We have no more record."
In his Comment,12 the Solicitor General concedes that the checks might have
been initially intended by petitioner to guarantee payments due from
customers, but upon the refusal of LPI to accept said personal checks per
company policy, the parties had agreed that the checks would be used to
pay off petitioners unremitted collections. Petitioners contention that he did
not demand the return of the checks because he trusted LPIs good faith is
contrary to human nature and sound business practice, according to the
Solicitor General.
The issue as to whether the checks were issued merely as guarantee or for
payment of petitioners unremitted collections is a factual issue involving as

it does the credibility of witnesses. Said factual issue has been settled by the
trial court and Court of Appeals. Although initially intended to be used as
guarantee for the purchase orders of customers, they found the checks were
eventually used to settle the remaining obligations of petitioner with LPI.
Although Manuel Limtong was the sole witness for the prosecution, his
testimony was found sufficient to prove all the elements of the offense
charged.13 We find no cogent reason to depart from findings of both the trial
and appellate courts. In cases elevated from the Court of Appeals, our review
is confined to allege errors of law. Its findings of fact are generally
conclusive. Absent any showing that the findings by the respondent court are
entirely devoid of any substantiation on record, the same must stand. 14 The
lack of accounting between the parties is not the issue in this case. As
repeatedly held, this Court is not a trier of facts. 15 Moreover, in Llamado v.
Court of Appeals,16 we held that "[t]o determine the reason for which checks
are issued, or the terms and conditions for their issuance, will greatly erode
the faith the public reposes in the stability and commercial value of checks
as currency substitutes, and bring about havoc in trade and in banking
communities. So what the law punishes is the issuance of a bouncing check
and not the purpose for which it was issued nor the terms and conditions
relating to its issuance. The mere act of issuing a worthless check is malum
prohibitum." Nothing herein persuades us to hold otherwise.
The only issue for our resolution now is whether or not the prosecution was
able to establish beyond reasonable doubt all the elements of the offense
penalized under B.P. Blg. 22.
There are two (2) ways of violating B.P. Blg. 22: (1) by making or drawing and
issuing a check to apply on account or for value knowing at the time of issue
that the check is not sufficiently funded; and (2) by having sufficient funds in
or credit with the drawee bank at the time of issue but failing to keep
sufficient funds therein or credit with said bank to cover the full amount of
the check when presented to the drawee bank within a period of ninety (90)
days.17
The elements of B.P. Blg. 22 under the first situation, pertinent to the present
case, are:18
"(1) The making, drawing and issuance of any check to apply for
account or for value;
(2) The knowledge of the maker, drawer, or issuer that at the time of
issue he does not have sufficient funds in or credit with the drawee
bank for the payment of such check in full upon its presentment; and

(3) The subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same reason had
not the drawer, without any valid cause, ordered the bank to stop
payment."
Petitioner contends that the first element does not exist because the checks
were not issued to apply for account or for value. He attempts to distinguish
his situation from the usual "cut-and-dried" B.P. 22 case by claiming that the
checks were issued as guarantee and the obligations they were supposed to
guarantee were already paid. This flawed argument has no factual basis, the
RTC and CA having both ruled that the checks were in payment for
unremitted collections, and not as guarantee. Likewise, the argument has no
legal basis, for what B.P. Blg. 22 punishes is the issuance of a bouncing check
and not the purpose for which it was issued nor the terms and conditions
relating to its issuance.19
As to the second element, B.P. Blg. 22 creates a presumption juris tantum
that the second element prima facie exists when the first and third elements
of the offense are present.20 Thus, the makers knowledge is presumed from
the dishonor of the check for insufficiency of funds. 21
Petitioner avers that since the complainant deposited the checks on June 5,
1986, or 157 days after the December 30, 1985 maturity date, the
presumption of knowledge of lack of funds under Section 2 of B.P. Blg. 22
should not apply to him. He further claims that he should not be expected to
keep his bank account active and funded beyond the ninety-day period.
Section 2 of B.P. Blg. 22 provides:
Evidence of knowledge of insufficient funds. The making, drawing
and issuance of a check payment of which is refused by the drawee
because of insufficient funds in or credit with such bank, when
presented within ninety (90) days from the date of the check, shall
be prima facie evidence of knowledge of such insufficiency of funds
or credit unless such maker or drawer pays the holder thereof the
amount due thereon, or makes arrangements for payment in full by
the drawee of such check within five (5) banking days after receiving
notice that such check has not been paid by the drawee.
An essential element of the offense is "knowledge" on the part of the maker
or drawer of the check of the insufficiency of his funds in or credit with the
bank to cover the check upon its presentment. Since this involves a state of
mind difficult to establish, the statute itself creates a prima facie

presumption of such knowledge where payment of the check "is refused by

the drawee because of insufficient funds in or credit with such bank when
presented within ninety (90) days from the date of the check." To mitigate
the harshness of the law in its application, the statute provides that such
presumption shall not arise if within five (5) banking days from receipt of the
notice of dishonor, the maker or drawer makes arrangements for payment of
the check by the bank or pays the holder the amount of the check. 22
Contrary to petitioners assertions, nowhere in said provision does the law
require a maker to maintain funds in his bank account for only 90 days.
Rather, the clear import of the law is to establish a prima facie presumption
of knowledge of such insufficiency of funds under the following conditions (1)
presentment within 90 days from date of the check, and (2) the dishonor of
the check and failure of the maker to make arrangements for payment in full
within 5 banking days after notice thereof. That the check must be deposited
within ninety (90) days is simply one of the conditions for the prima facie
presumption of knowledge of lack of funds to arise. It is not an element of
the offense. Neither does it discharge petitioner from his duty to maintain
sufficient funds in the account within a reasonable time thereof. Under
Section 186 of the Negotiable Instruments Law, "a check must be presented
for payment within a reasonable time after its issue or the drawer will be
discharged from liability thereon to the extent of the loss caused by the
delay." By current banking practice, a check becomes stale after more than
six (6) months,23 or 180 days. Private respondent herein deposited the
checks 157 days after the date of the check. Hence said checks cannot be
considered stale. Only the presumption of knowledge of insufficiency of funds
was lost, but such knowledge could still be proven by direct or circumstantial
evidence. As found by the trial court, private respondent did not deposit the
checks because of the reassurance of petitioner that he would issue new
checks. Upon his failure to do so, LPI was constrained to deposit the said
checks. After the checks were dishonored, petitioner was duly notified of
such fact but failed to make arrangements for full payment within five (5)
banking days thereof. There is, on record, sufficient evidence that petitioner
had knowledge of the insufficiency of his funds in or credit with the drawee
bank at the time of issuance of the checks. And despite petitioners insistent
plea of innocence, we find no error in the respondent courts affirmance of
his conviction by the trial court for violations of the Bouncing Checks Law.
However, pursuant to the policy guidelines in Administrative Circular No. 122000, which took effect on November 21, 2000, the penalty imposed on
petitioner should now be modified to a fine of not less than but not more
than double the amount of the checks that were dishonored.

WHEREFORE, the petition is DENIED. Petitioner Luis S. Wong is found liable

for violation of Batas Pambansa Blg. 22 but the penalty imposed on him is
hereby MODIFIED so that the sentence of imprisonment is deleted.
Petitioner is ORDERED to pay a FINE of (1) P6,750.00, equivalent to double
the amount of the check involved in Criminal Case No. CBU-12057, (2)
P12,820.00, equivalent to double the amount of the check involved in
Criminal Case No. CBU-12058, and (3) P11,000.00, equivalent to double the
amount of the check involved in Criminal Case No. CBU-12055, with
subsidiary imprisonment24 in case of insolvency to pay the aforesaid fines.
Finally, as civil indemnity, petitioner is also ordered to pay to LPI the face
value of said checks totaling P18,025.00 with legal interest thereon from the
time of filing the criminal charges in court, as well as to pay the
costs.1wphi1.nt
SO ORDERED.
[G.R. No. 141968. February 12, 2001]
THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE
PHILIPPINES), petitioner, vs. SPS. FRANCIS S. GUECO and MA. LUZ E.
GUECO, respondents.
DECISION
KAPUNAN, J.:
The respondents Gueco Spouses obtained a loan from petitioner
International Corporate Bank (now Union Bank of the Philippines) to
purchase a car a Nissan Sentra 1600 4DR, 1989 Model. In consideration
thereof, the Spouses executed promissory notes which were payable in
monthly installments and chattel mortgage over the car to serve as security
for the notes.
The Spouses defaulted in payment of installments. Consequently, the Bank
filed on August 7, 1995 a civil action docketed as Civil Case No. 658-95 for
Sum of Money with Prayer for a Writ of Replevini[1] before the Metropolitan
Trial Court of Pasay City, Branch 45.ii[2] On August 25, 1995, Dr. Francis
Gueco was served summons and was fetched by the sheriff and
representative of the bank for a meeting in the bank premises. Desi Tomas,
the Banks Assistant Vice President demanded payment of the amount of
P184,000.00 which represents the unpaid balance for the car loan. After
some negotiations and computation, the amount was lowered to
P154,000.00, However, as a result of the non-payment of the reduced
amount on that date, the car was detained inside the banks compound.
On August 28, 1995, Dr. Gueco went to the bank and talked with its
Administrative Support, Auto Loans/Credit Card Collection Head, Jefferson
Rivera. The negotiations resulted in the further reduction of the outstanding
loan to P150,000.00.
On August 29, 1995, Dr. Gueco delivered a managers check in the amount of
P150,000.00 but the car was not released because of his refusal to sign the
Joint Motion to Dismiss. It is the contention of the Gueco spouses and their
counsel that Dr. Gueco need not sign the motion for joint dismissal
considering that they had not yet filed their Answer. Petitioner, however,

insisted that the joint motion to dismiss is standard operating procedure in

their bank to effect a compromise and to preclude future filing of claims,
counterclaims or suits for damages.
After several demand letters and meetings with bank representatives, the
respondents Gueco spouses initiated a civil action for damages before the
Metropolitan Trial Court of Quezon City, Branch 33. The Metropolitan Trial
Court dismissed the complaint for lack of merit. iii[3]
On appeal to the Regional Trial Court, Branch 227 of Quezon City, the
decision of the Metropolitan Trial Court was reversed. In its decision, the RTC
held that there was a meeting of the minds between the parties as to the
reduction of the amount of indebtedness and the release of the car but said
agreement did not include the signing of the joint motion to dismiss as a
condition sine qua non for the effectivity of the compromise. The court
further ordered the bank:
1. to return immediately the subject car to the appellants in good working
condition; Appellee may deposit the Managers check the proceeds of
which have long been under the control of the issuing bank in favor of the
appellee since its issuance, whereas the funds have long been paid by
appellants to secure said Managers Check, over which appellants have no
control;
2. to pay the appellants the sum of P50,000.00 as moral damages;
P25,000.00 as exemplary damages, and P25,000.00 as attorneys fees, and
3. to pay the cost of suit.
In other respect, the decision of the Metropolitan Trial Court Branch 33 is
hereby AFFIRMED.iv[4]
The case was elevated to the Court of Appeals, which on February 17, 2000,
issued the assailed decision, the decretal portion of which reads:
WHEREFORE, premises considered, the petition for review on certiorari is
hereby DENIED and the Decision of the Regional Trial Court of Quezon City,
Branch 227, in Civil Case No. Q-97-31176, for lack of any reversible error, is
AFFIRMED in toto. Costs against petitioner.
SO ORDERED.v[5]
The Court of Appeals essentially relied on the respect accorded to the finality
of the findings of facts by the lower court and on the latter's finding of the
existence of fraud which constitutes the basis for the award of damages.
The petitioner comes to this Court by way of petition for review on certiorari
under Rule 45 of the Rules of Court, raising the following assigned errors:
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
AGREEMENT WITH RESPECT TO THE EXECUTION OF THE JOINT MOTION TO
DISMISS AS A CONDITION FOR THE COMPROMISE AGREEMENT.
II
THE COURT OF APPEALS ERRED IN GRANTING MORAL AND EXEMPLARY
DAMAGES AND ATTORNEYS FEES IN FAVOR OF THE RESPONDENTS.
III
THE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONER RETURN
THE SUBJECT CAR TO THE RESPONDENTS, WITHOUT MAKING ANY PROVISION
FOR THE ISSUANCE OF THE NEW MANAGERS/CASHIERS CHECK BY THE
RESPONDENTS IN FAVOR OF THE PETITIONER IN LIEU OF THE ORIGINAL
CASHIERS CHECK THAT ALREADY BECAME STALE. vi[6]

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

P150,000.00 and that upon payment of which, plaintiff was

informed that the subject motor vehicle would be released to him.
(Rollo, p. 12)
The lower court, on the other hand, expressly made a finding that petitioner
failed to include the aforesaid signing of the Joint Motion to Dismiss as part of
the agreement. In dismissing petitioners claim, the lower court declared,
thus:
If it is true, as the appellees allege, that the signing of the joint motion was a
condition sine qua non for the reduction of the appellants obligation, it is
only reasonable and logical to assume that the joint motion should have
been shown to Dr. Gueco in the August 28, 1995 meeting. Why Dr. Gueco
was not given a copy of the joint motion that day of August 28, 1995, for his
family or legal counsel to see to be brought signed, together with the
P150,000.00 in managers check form to be submitted on the following day
on August 29, 1995? (sic) [I]s a question whereby the answer up to now
eludes this Courts comprehension. The appellees would like this Court to
believe that Dr. Gueco was informed by Mr. Rivera of the bank requirement of
signing the joint motion on August 28, 1995 but he did not bother to show a
copy thereof to his family or legal counsel that day August 28, 1995. This
part of the theory of appellee is too complicated for any simple oral
agreement. The idea of a Joint Motion to Dismiss being signed as a condition
to the pushing through a deal surfaced only on August 29, 1995.
This Court is not convinced by the appellees posturing. Such claim rests on
too slender a frame, being inconsistent with human experience. Considering
the effect of the signing of the Joint Motion to Dismiss on the appellants
substantive right, it is more in accord with human experience to expect Dr.
Gueco, upon being shown the Joint Motion to Dismiss, to refuse to pay the
Managers Check and for the bank to refuse to accept the manager's check.
The only logical explanation for this inaction is that Dr. Gueco was not shown
the Joint Motion to Dismiss in the meeting of August 28, 1995, bolstering his
claim that its signing was never put into consideration in reaching a
compromise. xxx.ix[9]
We see no reason to reverse
Anent the issue of award of damages, we find the claim of petitioner
meritorious. In finding the petitioner liable for damages, both the Regional
Trial Court and the Court of Appeals ruled that there was fraud on the part of
the petitioner. The CA thus declared:
The lower court's finding of fraud which became the basis of the award of
damages was likewise sufficiently proven. Fraud under Article 1170 of the
Civil Code of the Philippines, as amended is the deliberate and intentional
evasion of the normal fulfillment of obligation When petitioner refused to
release the car despite respondent's tender of payment in the form of a
manager's check, the former intentionally evaded its obligation and thereby
became liable for moral and exemplary damages, as well as attorneys fees. x
[10]
We disagree.
Fraud has been defined as the deliberate intention to cause damage or
prejudice. It is the voluntary execution of a wrongful act, or a willful
omission, knowing and intending the effects which naturally and necessarily
arise from such act or omission; the fraud referred to in Article 1170 of the
Civil Code is the deliberate and intentional evasion of the normal fulfillment

of obligation.xi[11] We fail to see how the act of the petitioner bank in

requiring the respondent to sign the joint motion to dismiss could constitute
as fraud. True, petitioner may have been remiss in informing Dr. Gueco that
the signing of a joint motion to dismiss is a standard operating procedure of
petitioner bank. However, this can not in anyway have prejudiced Dr.
Gueco. The motion to dismiss was in fact also for the benefit of Dr. Gueco,
as the case filed by petitioner against it before the lower court would be
dismissed with prejudice. The whole point of the parties entering into the
compromise agreement was in order that Dr. Gueco would pay his
outstanding account and in return petitioner would return the car and drop
the case for money and replevin before the Metropolitan Trial Court. The
joint motion to dismiss was but a natural consequence of the compromise
agreement and simply stated that Dr. Gueco had fully settled his obligation,
hence, the dismissal of the case. Petitioner's act of requiring Dr. Gueco to
sign the joint motion to dismiss can not be said to be a deliberate attempt
on the part of petitioner to renege on the compromise agreement of the
parties. It should, likewise, be noted that in cases of breach of contract,
moral damages may only be awarded when the breach was attended by
fraud or bad faith.xii[12] The law presumes good faith. Dr. Gueco failed to
present an iota of evidence to overcome this presumption. In fact, the act of
petitioner bank in lowering the debt of Dr. Gueco from P184,000.00 to
P150,000.00 is indicative of its good faith and sincere desire to settle the
case. If respondent did suffer any damage, as a result of the withholding of
his car by petitioner, he has only himself to blame. Necessarily, the claim for
exemplary damages must fail. In no way, may the conduct of petitioner be
characterized as wanton, fraudulent, reckless, oppressive or
malevolent.xiii[13]
We, likewise, find for the petitioner with respect to the third assigned error.
In the meeting of August 29, 1995, respondent Dr. Gueco delivered a
managers check representing the reduced amount of P150,000.00. Said
check was given to Mr. Rivera, a representative of respondent bank.
However, since Dr. Gueco refused to sign the joint motion to dismiss, he was
made to execute a statement to the effect that he was withholding the
payment of the check.xiv[14]Subsequently, in a letter addressed to Ms. Desi
Tomas, vice president of the bank, dated September 4, 1995, Dr. Gueco
instructed the bank to disregard the hold order letter and demanded the
immediate release of his car,xv[15] to which the former replied that the
condition of signing the joint motion to dismiss must be satisfied and that
they had kept the check which could be claimed by Dr. Gueco anytime. xvi
[16] While there is controversy as to whether the document evidencing the
order to hold payment of the check was formally offered as evidence by
petitioners,xvii[17] it appears from the pleadings that said check has not been
encashed.
The decision of the Regional Trial Court, which was affirmed in toto by the
Court of Appeals, orders the petitioner:
1. to return immediately the subject car to the appellants in good working
condition. Appellee may deposit the Managers Check the proceeds of
which have long been under the control of the issuing bank in favor of the
appellee since its issuance, whereas the funds have long been paid by
appellants to secure said Managers Check over which appellants have no
control.xviii[18]

Respondents would make us hold that petitioner should return the car or its
value and that the latter, because of its own negligence, should suffer the
loss occasioned by the fact that the check had become stale. xix[19] It is their
position that delivery of the managers check produced the effect of
paymentxx[20] and, thus, petitioner was negligent in opting not to deposit or
use said check. Rudimentary sense of justice and fair play would not
countenance respondents position.
A stale check is one which has not been presented for payment within a
reasonable time after its issue. It is valueless and, therefore, should not be
paid. Under the negotiable instruments law, an instrument not payable on
demand must be presented for payment on the day it falls due. When the
instrument is payable on demand, presentment must be made within a
reasonable time after its issue. In the case of a bill of exchange,
presentment is sufficient if made within a reasonable time after the last
negotiation thereof.xxi[21]
A check must be presented for payment within a reasonable time after its
issue,xxii[22] and in determining what is a reasonable time, regard is to be
had to the nature of the instrument, the usage of trade or business with
respect to such instruments, and the facts of the particular case. xxiii[23] The
test is whether the payee employed such diligence as a prudent man
exercises in his own affairs.xxiv[24] This is because the nature and theory
behind the use of a check points to its immediate use and payability. In a
case, a check payable on demand which was long overdue by about two and
a half (2-1/2) years was considered a stale check. xxv[25] Failure of a payee to
encash a check for more than ten (10) years undoubtedly resulted in the
check becoming stale.xxvi[26] Thus, even a delay of one (1) weekxxvii[27] or
two (2) days,xxviii[28] under the specific circumstances of the cited cases
constituted unreasonable time as a matter of law.
In the case at bar, however, the check involved is not an ordinary bill of
exchange but a managers check. A managers check is one drawn by the
banks manager upon the bank itself. It is similar to a cashiers check both
as to effect and use. A cashiers check is a check of the banks cashier on his
own or another check. In effect, it is a bill of exchange drawn by the cashier
of a bank upon the bank itself, and accepted in advance by the act of its
issuance.xxix[29] It is really the banks own check and may be treated as a
promissory note with the bank as a maker.xxx[30] The check becomes the
primary obligation of the bank which issues it and constitutes its written
promise to pay upon demand. The mere issuance of it is considered an
acceptance thereof. If treated as promissory note, the drawer would be the
maker and in which case the holder need not prove presentment for
payment or present the bill to the drawee for acceptance.xxxi[31]
Even assuming that presentment is needed, failure to present for payment
within a reasonable time will result to the discharge of the drawer only to the
extent of the loss caused by the delay. xxxii[32] Failure to present on time,
thus, does not totally wipe out all liability. In fact, the legal situation
amounts to an acknowledgment of liability in the sum stated in the check. In
this case, the Gueco spouses have not alleged, much less shown that they or
the bank which issued the managers check has suffered damage or loss
caused by the delay or non-presentment. Definitely, the original obligation
to pay certainly has not been erased.

It has been held that, if the check had become stale, it becomes imperative
that the circumstances that caused its non-presentment be determined. xxxiii
[33] In the case at bar, there is no doubt that the petitioner bank held on the
check and refused to encash the same because of the controversy
surrounding the signing of the joint motion to dismiss. We see no bad faith
or negligence in this position taken by the Bank.
WHEREFORE, premises considered, the petition for review is given due
course. The decision of the Court of Appeals affirming the decision of the

Regional Trial Court is SET ASIDE. Respondents are further ordered to pay
the original obligation amounting to P150,000.00 to the petitioner upon
surrender or cancellation of the managers check in the latters possession,
afterwhich, petitioner is to return the subject motor vehicle in good working
condition.
SO ORDERED.

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