G.R. No.

93048 March 3, 1994

BATAAN CIGAR AND CIGARETTE FACTORY, INC., petitioner,
vs.
THE COURT OF APPEALS and STATE INVESTMENT HOUSE, INC., respondents.
Teresita Gandiongco Oledan for petitioner.
Acaban & Sabado for private respondent.
NOCON, J.:
For our review is the decision of the Court of Appeals in the case entitled "State Investment House,
Inc. v. Bataan Cigar & Cigarette Factory Inc.," 1 affirming the decision of the Regional Trial Court 2 in a
complaint filed by the State Investment House, Inc. (hereinafter referred to as SIHI) for collection on three
unpaid checks issued by Bataan Cigar & Cigarette Factory, Inc. (hereinafter referred to as BCCFI). The
foregoing decisions unanimously ruled in favor of SIHI, the private respondent in this case.
Emanating from the records are the following facts. Petitioner, Bataan Cigar & Cigarette Factory, Inc.
(BCCFI), a corporation involved in the manufacturing of cigarettes, engaged one of its suppliers,
King Tim Pua George (herein after referred to as George King), to deliver 2,000 bales of tobacco leaf
starting October 1978. In consideration thereof, BCCFI, on July 13, 1978 issued crossed checks
post dated sometime in March 1979 in the total amount of P820,000.00. 3
Relying on the supplier's representation that he would complete delivery within three months from
December 5, 1978, petitioner agreed to purchase additional 2,500 bales of tobacco leaves, despite
the supplier's failure to deliver in accordance with their earlier agreement. Again petitioner issued
post dated crossed checks in the total amount of P1,100,000.00, payable sometime in September
1979. 4
During these times, George King was simultaneously dealing with private respondent SIHI. On July
19, 1978, he sold at a discount check TCBT 551826 5 bearing an amount of P164,000.00, post dated
March 31, 1979, drawn by petitioner, naming George King as payee to SIHI. On December 19 and 26,
1978, he again sold to respondent checks TCBT Nos. 608967 & 608968, 6 both in the amount of
P100,000.00, post dated September 15 & 30, 1979 respectively, drawn by petitioner in favor of George
King.
In as much as George King failed to deliver the bales of tobacco leaf as agreed despite petitioner's
demand, BCCFI issued on March 30, 1979, a stop payment order on all checks payable to George
King, including check TCBT 551826. Subsequently, stop payment was also ordered on checks TCBT
Nos. 608967 & 608968 on September 14 & 28, 1979, respectively, due to George King's failure to
deliver the tobacco leaves.
Efforts of SIHI to collect from BCCFI having failed, it instituted the present case, naming only BCCFI
as party defendant. The trial court pronounced SIHI as having a valid claim being a holder in due
course. It further said that the non-inclusion of King Tim Pua George as party defendant is
immaterial in this case, since he, as payee, is not an indispensable party.
The main issue then is whether SIHI, a second indorser, a holder of crossed checks, is a holder in
due course, to be able to collect from the drawer, BCCFI.
The Negotiable Instruments Law states what constitutes a holder in due course, thus:

Sec. 52 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
had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
Section 59 of the NIL further states that every holder is deemed prima facie a holder in due course.
However, when it is shown that the title of any person who has negotiated the instrument was
defective, the burden is on the holder to prove that he or some person under whom he claims,
acquired the title as holder in due course.
The facts in this present case are on all fours to the case of State Investment House, Inc. (the very
respondent in this case) v. Intermediate Appellate Court 7 wherein we made a discourse on the effects
of crossing of checks.
As preliminary, a check is defined by law as a bill of exchange drawn on a bank payable on
demand. 8 There are a variety of checks, the more popular of which are the memorandum check,
cashier's check, traveler's check and crossed check. Crossed check is one where two parallel lines are
drawn across its face or across a corner thereof. It may be crossed generally or specially.
A check is crossed specially when the name of a particular banker or a company is written between
the parallel lines drawn. It is crossed generally when only the words "and company" are written or
nothing is written at all between the parallel lines. It may be issued so that the presentment can be
made only by a bank. Veritably the Negotiable Instruments Law (NIL) does not mention "crossed
checks," although Article 541 9 of the Code of Commerce refers to such instruments.
According to commentators, the negotiability of a check is not affected by its being crossed, whether
specially or generally. It may legally be negotiated from one person to another as long as the one
who encashes the check with the drawee bank is another bank, or if it is specially crossed, by the
bank mentioned between the parallel lines. 10This is specially true in England where the Negotiable
Instrument Law originated.
In the Philippine business setting, however, we used to be beset with bouncing checks, forging of
checks, and so forth that banks have become quite guarded in encashing checks, particularly those
which name a specific payee. Unless one is a valued client, a bank will not even accept second
indorsements on checks.
In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of
a check should have the following effects: (a) the check may not be encashed but only deposited in
the bank; (b) the check may be negotiated only once to one who has an account with a bank; (c)
and the act of crossing the check serves aswarning to the holder that the check has been issued for
a definite purpose so that he must inquire if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course. 11

The foregoing was adopted in the case of SIHI v. IAC, supra. In that case, New Sikatuna Wood
Industries, Inc. also sold at a discount to SIHI three post dated crossed checks, issued by Anita
Pea Chua naming as payee New Sikatuna Wood Industries, Inc. Ruling that SIHI was not a holder
in due course, we then said:
The three 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 (SIHI) against the drawer
of the subject checks, private respondent wife (Anita), considering that petitioner is
not the proper party authorized to make presentment of the checks in question.
xxx xxx xxx
That the subject checks had been issued subject to the condition that private
respondents (Anita and her husband) on due date would make the back up deposit
for said checks but which condition apparently was not made, thus resulting in the
non-consummation of the loan intended to be granted by private respondents to New
Sikatuna Wood Industries, Inc., constitutes a good defense against petitioner who is
not a holder in due course. 12
It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the
duty to ascertain the indorser's title to the check or the nature of his possession. Failing in this
respect, the holder is declared guilty of gross negligence amounting to legal absence of good faith,
contrary to Sec. 52(c) of the Negotiable Instruments Law, 13 and as such the consensus of authority is
to the effect that the holder of the check is not a holder in due course.
In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is to George King.
Because, really, the checks were issued with the intention that George King would supply BCCFI
with the bales of tobacco leaf. There being failure of consideration, SIHI is not a holder in due
course. Consequently, BCCFI cannot be obliged to pay the checks.
The foregoing does not mean, however, that respondent could not recover from the checks. The only
disadvantage of a holder who is not a holder in due course is that the instrument is subject to
defenses as if it were non-negotiable. 14 Hence, respondent can collect from the immediate indorser, in
this case, George King.
WHEREFORE, finding that the court a quo erred in the application of law, the instant petition is
hereby GRANTED. The decision of the Regional Trial Court as affirmed by the Court of Appeals is
hereby REVERSED. Cost against private respondent.
SO ORDERED.

G.R. No. 96160 June 17, 1992

STELCO MARKETING CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS and STEELWELD CORPORATION OF THE PHILIPPINES,
INC., respondent.

NARVASA, c.J.:
Stelco Marketing Corporation is engaged in the distribution and sale to the public of structural steel
bars. 1 On seven (7) different occasions in September and October, 1980, it sold to RYL Construction, Inc.
quantities of steels bars of various sizes and rolls of G.I. wire. These bars and wire were delivered at
different places at the indication of RYL Construction, Inc. The aggregate price for the purchases was
P126,859.61.
Although the corresponding invoices issued by STELCO stipulated that RYL pay "COD" (cash on
delivery), the latter made no payments for the construction materials thus ordered and delivered
despite insistent demands for payment by the former.
On April 4, 1981, RYL gave to Armstrong, Industries described by STELCO as its "sister
corporation" and "manufacturing arm" 2 a check drawn against Metrobank in the amount of
P126,129.86, numbered 765380 and dated April 4, 1981. That check was a company check of another
corporation, Steelweld Corporation of the Philippines, signed by its President, Peter Rafael Limson, and
its Vice-President, Artemio Torres.
The check was issued by Limson at the behest of his friend, Romeo Y. Lim, President of RYL.
Romeo Lim had asked Limson, for financial assistance, and the latter had agreed to give Lim a
check only by way of accommodation, "only as guaranty but not to pay for anything." 3 Why the check
was made out in the amount of P126,129.86 is not explained. Anyway, the check was actually issued in
said amount of P126, 129.86, and as already stated, was given by R.Y. Lim to Armstrong Industries, 4 in
payment of an obligation. When the latter deposited the check at its bank, it was dishonored because
"drawn against insufficient funds." 5 When so deposited, the check bore two(2) endorsements, that of
"RYL Construction," followed by that of "Armstrong Industries." 6
On account of the dishonor of Metrobank Check No. 765380, and on complaint of Armstrong
Industries (through a Mr. Young), Rafael Limson and Artemio Torres were charged in the Regional
Trial Court of Manila with a violation ofBatas Pambansa Bilang 22. 7 They were acquitted in a decision
rendered on June 28, 1984 "on the ground that the check in question was not issued by the drawer "to
apply on account for value," it being merely for accommodation purposes. 8 The judgment however conditioned the
acquittal with the following pronouncement:

This is not however to release Steelweld Corporation from its liability under Sec. 29
of the Negotiable Instruments Law for having issued it for the accommodation of
Romeo Lim.
Eleven months or so later and some four (4) years after issuance of the check in question in
May, 1985, STELCO filed with the Regional Trial Court at Caloocan City a civil complaint 9 against
both RYL and STEELWELD for the recovery of the valued of the steel bars and wire sold to and delivered
to RYL (as already narrated) in the amount of P126,129.86, "plus 18% interest from August 20, 1980 . . .
(and) 25% of the total amount sought to be recovered as and by way of attorney's fees . . . ." 10 Among the
allegations of its complaint was that Metrobank Check No. 765380 above mentioned had been given to it

in payment of RYL's indebtedness, duly indorsed by R.Y. Lim. 11 A preliminary attachment was issued by
the trial court on the basis of the averments of the complaint but was shortly dissolved upon the filing of a
counter-bond by STEELWELD.

RYL
could
no
longer
be
located
and
could
not
be
served
with
summons. 12 It never appeared. Only STEELWELD filed an answer, under date of July 16, 1985. 13 In said
pleading, it specifically denied the facts alleged in the complaint, the truth, according to Steelweld, being
basically that
1) STELCO "is a complete stranger to it;" it had "not entered into any transaction or business dealing
of any kind" with STELCO, the transactions described in the complaint having been solely and
exclusively between the plaintiff and RYL Construction;
2) the check in question was "only given to a certain R. Lim to be used as collateral for another
obligation . . . (but) in breach of his agreement (Lim) utilized and negotiated the check for another
purpose. . . .;
3)
nevertheless,
the
check
"is
wholly
inoperative
since
.
.
.
Steelweld
. . . did not issue it for any valuable consideration either to R. Lim or to the plaintiff not to mention
also the fact that the said plaintiff failed to comply with the requirements of the law to hold the said
defendant
(STEELWELD)
liable
. . ."
Trial ensued upon these issues, after which judgment was rendered on June 26, 1986. 14 The
judgment sentenced "the defendant Steelweld Corporation to pay to . . . (Stelco Marketing Corporation)
the amount of P126,129.86 with legal rate of interest from May 9, 1985, when this case was instituted
until fully paid, plus another sum equivalent to 25% of the total amount due as and for attorney's
fees . . . 15 That disposition was justified in the judgment as follows: 16
There is no question, then, that as far as any commercial transaction is concerned
between plaintiff and defendant Steelweld no such transaction ever occurred.
Ordinarily, under civil law rules, there having been no transaction between them
involving the purchase of certain merchandise there would be no privity of contract
between them, and plaintiff will have no right to sue the defendant for payment of
said merchandise for the simple reason that the defendant did not order them, such
less receive them.
But we have here a case where the defendant Steelweld thru its President Peter
Rafael Limson admitted to have issued a check payable to cash in favor of his friend
Romeo Lim who was the President of RYL Construction by way of accommodation.
Under the Negotiable Instruments Law an accommodation party is liable.
Sec. 29. Liability of an accommodation party. An accommodation
party is one who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such a person is
liable on the instrument to a holder for value notwithstanding such
holder at the time of taking the instrument knew him to be only an
accommodation party.
From this adverse judgment STEELWELD appealed to the Court of Appeals 17 and there succeeded in
reversing the judgment. By Decision promulgated on May 29, 1990, 18 the Court of Appeals 19 ordered "the

complaint against appellant (STEELWELD) DISMISSED; (and the appellee, STELCO) to pay appellant
the sum of P15,000.00 as attorney's fees and cost of litigation, the suit . . . (being) a baseless one that
dragged appellant in court and caused it to incur attorney's fees and expense of litigation.

STELCO's motion for reconsideration was denied by the Appellate Tribunal's resolution dated
November 13, 1990.20 The Court stressed that
. . . as far as Steelweld is concerned, there was no commercial transaction between
said appellant and appellee. Moreover, there is no evidence that appellee Stelco
Marketing became a holder for value. Nowhere in the check itself does the name of
Stelco Marketing appear as payee, indorsee or depositor thereof. Finally, appellee's
complaint is for the collection of the unpaid accounts for delivery of steels bars and
construction materials. It having been established that appellee had no commercial
transaction with appellant Stelco, appellee had no cause of action against said
appellant.
STELCO appealed to this Court in accordance with Rule 45 of the Rules of Court. In this Court it
seeks to make the following points in connection with its plea for the overthrow of the Appellate
Tribunal's aforesaid decision, viz.:
1) said decision is "not in accord with law and jurisprudence;"
2) "STELCO is a "holder" within the meaning of the Negotiable Instruments Law;"
3) "STELCO is a holder in due course of Metrobank Check No. 765380 . . . (and hence) holds the
same free from personal or equitable defense;" and
4) "Negotiation in breach of faith is a personal defense . . . (and hence) not effective as against a
holder in due course."
The points are not well taken.
The crucial question is whether or not STELCO ever became a holder in due course of Check No.
765380, a bearer instrument, within the contemplation of the Negotiable Instruments Law. It never
did.
STELCO evidently places much reliance on the pronouncement of the Regional Trial Court in
Criminal Case No. 66571, 21 that the acquittal of the two (2) accused (Limson and Torres) did not operate
"to release Steelweld Corporation from its liability under Sec. 29 of the Negotiable Instruments Law for
having issued . . . (the check) for the accommodation of Romeo Lim." The cited provision reads as
follows:
Sec. 29. Liability of accommodation party. An accommodation party is one who
has singed the instrument as maker, drawer, acceptor, or indorser, without receiving
valued therefor, and for the purpose of lending his name to some other person. Such
a person is liable on the instrument to a holder for value, notwithstanding such
holder, at the time of taking the instrument, knew him to be only an accommodation
party.
It is noteworthy that the Trial Court's pronouncement containing reference to said Section 29 did not
specify to whom STEELWELD, as accommodation party, is supposed to be liable; and certain it is

that neither said pronouncement nor any other part of the judgment of acquittal declared it liable to
STELCO.
"A holder in due course," says the law, 22 "is a holder who has taken the instrument
under the following conditions:
(a) That is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it
had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the
instrument or defect in the title of the persons negotiating it.
To be sure, as regards an accommodation party (such as STEELWELD), the fourth condition, i.e.,
lack of notice of any infirmity in the instruments or defect in title of the persons negotiating it, has no
application. This is because Section 29 of the law above quoted preserves the right of recourse of a
"holder for value" against the accommodation party notwithstanding that "such holder, at the time of
taking
the
instrument,
knew
him
to
be
only
an
accommodation
party." 23
Now, STELCO theorizes that it should be deemed a "holder for value" of STEELWELD's Check No.
765380 because the record shows it to have been in "actual possession" thereof; otherwise, it "could
not have presented, marked and introduced (said check) in evidence . . . before the court a quo."
"Besides," it adds, the check in question was presented by STELCO to the drawee bank for payment
through Armstrong Industries, the manufacturing arm of STELCO and its sister company." 24
The trouble is, there is no evidence whatever that STELCO's possession of Check No. 765380 ever
dated back to nay time before the instrument's presentment and dishonor. There is no evidence
whatsoever that the check was ever given to it, or indorsed to it in any manner or form in payment of
an obligation or as security for an obligation, or for any other purpose before it was presented for
payment. On the contrary, the factual finding of the Court of Appeals, which by traditional precept is
normally conclusive on this Court, is that STELCO never became a holder for value and that
"(n)owhere in the check itself does the name of Stelco Marketing appear as payee, indorsee or
depositor thereof." 25
What the record shows is that: (1) the STEELWELD company check in question was given by its
president to R.Y. Lim; (2) it was given only by way of accommodation, to be "used as collateral for
another obligation;" (3) in breach of the agreement, however, R.Y. Lim indorsed the check to
Armstrong in payment of obligation; (4) Armstrong deposited the check to its account, after indorsing
it; (5) the check was dishonored. The record does not show any intervention or participation by
STELCO in any manner of form whatsoever in these transactions, or any communication of any sort
between STEELWELD and STELCO, or between either of them and Armstrong Industries, at any
time before the dishonor of the check.
The record does show that after the check had been deposited and dishonored, STELCO came into
possession of it in some way, and was able, several years after the dishonor of the check, to give it
in evidence at the trial of the civil case it had instituted against the drawers of the check (Limson and
Torres) and RYL. But, as already pointed out, possession of a negotiable instrument after
presentment and dishonor, or payment, is utterly inconsequential; it does not make the possessor a

holder for value within the meaning of the law; it gives rise to no liability on the part of the maker or
drawer and indorsers.
It is clear from the relevant circumstances that STELCO cannot be deemed a holder of the check for
value. It does not meet two of the essential requisites prescribed by the statute. It did not become
"the holder of it before it was overdue, and without notice that it had been previously dishonored,"
and it did not take the check "in good faith and for value." 26
Neither is there any evidence whatever that Armstrong Industries, to whom R.Y. Lim negotiated the
check accepted the instrument and attempted to encash it in behalf, and as agent of STELCO. On
the contrary, the indications are that Armstrong was really the intended payee of the check and was
the party actually injured by its dishonor; it was after all its representative (a Mr. Young) who
instituted the criminal prosecution of the drawers, Limson and Torres, albeit unsuccessfully.
The petitioner has failed to show any sufficient cause for modification or reversal of the challenged
judgment of the Court of Appeals which, on the contrary, appears to be entirely in accord with the
facts and the applicable law.
WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals in CA-G.R. CV No.
13418 is AFFIRMED in toto. 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 Third-Party Complaint, and
ordered STATE to pay MOULIC P3,000.00 for attorney's fees.
STATE elevated the order of dismissal to the Court of Appeals, but the appellate court affirmed the
trial court on the ground that the Notice of Dishonor to MOULIC was made beyond the period
prescribed by the Negotiable Instruments Law and that even if STATE did serve such notice on
MOULIC within the reglementary period it would be of no consequence as the checks should never
have been presented for payment. The sale of the jewelry was never effected; the checks, therefore,
ceased to serve their purpose as security for the jewelry.
We are not persuaded.

The negotiability of the checks is not in dispute. Indubitably, they were negotiable. After all, at the
pre-trial, the parties agreed to limit the issue to whether or not STATE was a holder of the checks in
due course. 1
In this regard, Sec. 52 of the Negotiable Instruments Law provides
Sec. 52. What constitutes a holder in due course. A holder in due course is a
holder who has taken the instrument under the following conditions: (a) That it is
complete and regular upon its face; (b) That he became the holder of it before it was
overdue, and without notice that it was previously dishonored, if such was the fact;
(c) That he took it in good faith and for value; (d) That at the time it was negotiated to
him he had no notice of any infirmity in the instrument or defect in the title of the
person negotiating it.
Culled from the foregoing, a prima facie presumption exists that the holder of a negotiable
instrument is a holder in due course. 2 Consequently, the burden of proving that STATE is not a holder in
due course lies in the person who disputes the presumption. In this regard, MOULIC failed.
The evidence clearly shows that: (a) on their faces the post-dated checks were complete and
regular: (b) petitioner bought these checks from the payee, Corazon Victoriano, before their due
dates; 3 (c) petitioner took these checks in good faith and for value, albeit at a discounted price; and, (d)
petitioner was never informed nor made aware that these checks were merely issued to payee as security
and not for value.
Consequently, STATE is indeed a holder in due course. As such, it holds the instruments free from
any defect of title of prior parties, and from defenses available to prior parties among themselves;
STATE may, therefore, enforce full payment of the checks. 4
MOULIC cannot set up against STATE the defense that there was failure or absence of
consideration. MOULIC can only invoke this defense against STATE if it was privy to the purpose for
which they were issued and therefore is not a holder in due course.
That the post-dated checks were merely issued as security is not a ground for the discharge of the
instrument as against a holder in due course. For the only grounds are those outlined in Sec. 119 of
the Negotiable Instruments Law:
Sec. 119. Instrument; how discharged. A negotiable instrument is discharged: (a)
By payment in due course by or on behalf of the principal debtor; (b) By payment in
due course by the party accommodated, where the instrument is made or accepted
for his accommodation; (c) By the intentional cancellation thereof by the holder; (d)
By any other act which will discharge a simple contract for the payment of money; (e)
When the principal debtor becomes the holder of the instrument at or after maturity in
his own right.
Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the discharge of
the instrument. But, the intentional cancellation contemplated under paragraph (c) is that
cancellation effected by destroying the instrument either by tearing it up, 5 burning it, 6 or writing the
word "cancelled" on the instrument. The act of destroying the instrument must also be made by the holder
of the instrument intentionally. Since MOULIC failed to get back possession of the post-dated checks, the
intentional cancellation of the said checks is altogether impossible.

On the other hand, the acts which will discharge a simple contract for the payment of money under
paragraph (d) are determined by other existing legislations since Sec. 119 does not specify what
these acts are, e.g., Art. 1231 of the Civil Code 7 which enumerates the modes of extinguishing
obligations. Again, none of the modes outlined therein is applicable in the instant case as Sec. 119
contemplates of a situation where the holder of the instrument is the creditor while its drawer is the debtor.
In the present action, the payee, Corazon Victoriano, was no longer MOULIC's creditor at the time the
jewelry was returned.
Correspondingly, MOULIC may not unilaterally discharge herself from her liability by the mere
expediency of withdrawing her funds from the drawee bank. She is thus liable as she has no legal
basis to excuse herself from liability on her checks to a holder in due course.
Moreover, the fact that STATE failed to give Notice of Dishonor to MOULIC is of no moment. The
need for such notice is not absolute; there are exceptions under Sec. 114 of the Negotiable
Instruments Law:
Sec. 114. When notice need not be given to drawer. Notice of dishonor is not
required to be given to the drawer in the following cases: (a) Where the drawer and
the drawee are the same person; (b) When the drawee is a fictitious person or a
person not having capacity to contract; (c) When the drawer is the person to whom
the instrument is presented for payment: (d) Where the drawer has no right to expect
or require that the drawee or acceptor will honor the instrument; (e) Where the
drawer had countermanded payment.
Indeed, MOULIC'S actuations leave much to be desired. She did not retrieve the checks when she
returned the jewelry. She simply withdrew her funds from her drawee bank and transferred them to
another to protect herself. After withdrawing her funds, she could not have expected her checks to
be honored. In other words, she was responsible for the dishonor of her checks, hence, there was
no need to serve her Notice of Dishonor, which is simply bringing to the knowledge of the drawer or
indorser of the instrument, either verbally or by writing, the fact that a specified instrument, upon
proper proceedings taken, has not been accepted or has not been paid, and that the party notified is
expected to pay it. 8
In addition, the Negotiable Instruments Law was enacted for the purpose of facilitating, not hindering
or hampering transactions in commercial paper. Thus, the said statute should not be tampered with
haphazardly or lightly. Nor should it be brushed aside in order to meet the necessities in a single
case. 9
The drawing and negotiation of a check have certain effects aside from the transfer of title or the
incurring of liability in regard to the instrument by the transferor. The holder who takes the negotiated
paper makes a contract with the parties on the face of the instrument. There is an implied
representation that funds or credit are available for the payment of the instrument in the bank upon
which it is drawn. 10 Consequently, the withdrawal of the money from the drawee bank to avoid liability on
the checks cannot prejudice the rights of holders in due course. In the instant case, such withdrawal
renders the drawer, Nora B. Moulic, liable to STATE, a holder in due course of the checks.
Under the facts of this case, STATE could not expect payment as MOULIC left no funds with the
drawee bank to meet her obligation on the checks, 11 so that Notice of Dishonor would be futile.
The Court of Appeals also held that allowing recovery on the checks would constitute unjust
enrichment on the part of STATE Investment House, Inc. This is error.

The record shows that Mr. Romelito Caoili, an Account Assistant, testified that the obligation of
Corazon Victoriano and her husband at the time their property mortgaged to STATE was
extrajudicially foreclosed amounted to P1.9 million; the bid price at public auction was only P1
million. 12 Thus, the value of the property foreclosed was not even enough to pay the debt in full.
Where the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of
mortgage, the mortgagee is entitled to claim the deficiency from the debtor. 13 The step thus taken by
the mortgagee-bank in resorting to an extra-judicial foreclosure was merely to find a proceeding for the
sale of the property and its action cannot be taken to mean a waiver of its right to demand payment for
the whole debt. 14 For, while Act 3135, as amended, does not discuss the mortgagee's right to recover
such deficiency, it does not contain any provision either, expressly or impliedly, prohibiting recovery. In this
jurisdiction, when the legislature intends to foreclose the right of a creditor to sue for any deficiency
resulting from foreclosure of a security given to guarantee an obligation, it so expressly provides. For
instance, with respect to pledges, Art. 2115 of the Civil Code 15 does not allow the creditor to recover the
deficiency from the sale of the thing pledged. Likewise, in the case of a chattel mortgage, or a thing sold
on installment basis, in the event of foreclosure, the vendor "shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the contrary will be void". 16
It is clear then that in the absence of a similar provision in Act No. 3135, as amended, it cannot be
concluded that the creditor loses his right recognized by the Rules of Court to take action for the
recovery of any unpaid balance on the principal obligation simply because he has chosen to
extrajudicially foreclose the real estate mortgage pursuant to a Special Power of Attorney given him
by the mortgagor in the contract of mortgage. 17
The filing of the Complaint and the Third-Party Complaint to enforce the checks against MOULIC
and the VICTORIANO spouses, respectively, is just another means of recovering the unpaid balance
of the debt of the VICTORIANOs.
In fine, MOULIC, as drawer, is liable for the value of the checks she issued to the holder in due
course, STATE, without prejudice to any action for recompense she may pursue against the
VICTORIANOs as Third-Party Defendants who had already been declared as in default.
WHEREFORE, the petition is GRANTED. The decision appealed from is REVERSED and a new
one entered declaring private respondent NORA B. MOULIC liable to petitioner STATE
INVESTMENT HOUSE, INC., for the value of EBC Checks Nos. 30089658 and 30089660 in the total
amount of P100,000.00, P3,000.00 as attorney's fees, and the costs of suit, without prejudice to any
action for recompense she may pursue against the VICTORIANOs as Third-Party Defendants.
Costs against private respondent.
SO ORDERED.

G.R. No. 105188 January 23, 1998

MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte, petitioner,
vs.
A.U. VALENCIA and CO. INC., FELIX PEARROYO, SPS. ARSENIO B. REYES & AMANDA
SANTOS, and DELFIN JAO, respondents.
KAPUNAN, J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Myron C. Papa
seeks to reverse and set aside 1) the Decision dated 27 January 1992 of the Court of Appeals which
affirmed with modification the decision of the trial court; and 2) the Resolution dated 22 April 1992 of
the same court, which denied petitioner's motion for reconsideration of the above decision.
The antecedent facts of this case are as follows:
Sometime in June 1982, herein private respondents A.U. Valencia and Co., Inc. (hereinafter referred
to as respondent Valencia, for brevity) and Felix Pearroyo (hereinafter called respondent
Pearroyo), filed with the Regional Trial Court of Pasig, Branch 151, a complaint for specific
performance against herein petitioner Myron C. Papa, in his capacity as administrator of the Testate
Estate of one Angela M. Butte.
The complaint alleged that on 15 June 1973, petitioner Myron C. Papa, acting as attorney-in-fact of
Angela M. Butte, sold to respondent Pearroyo, through respondent Valencia, a parcel of land,
consisting of 286.60 square meters, located at corner Retiro and Cadiz Streets, La Loma, Quezon
City, and covered by Transfer Certificate of Title No. 28993 of the Register of Deeds of Quezon City;
that prior to the alleged sale, the said property, together with several other parcels of land likewise
owned by Angela M. Butte, had been mortgaged by her to the Associated Banking Corporation (now
Associated Citizens Bank); that after the alleged sale, but before the title to the subject property had
been released, Angela M. Butte passed away; that despite representations made by herein
respondents to the bank to release the title to the property sold to respondent Pearroyo, the bank
refused to release it unless and until all the mortgaged properties of the late Angela M. Butte were
also redeemed; that in order to protect his rights and interests over the property, respondent
Pearroyo caused the annotation on the title of an adverse claim as evidenced by Entry No. P.E.6118/T-28993, inscribed on 18 January 1997.
The complaint further alleged that it was only upon the release of the title to the property, sometime
in April 1977, that respondents Valencia and Pearroyo discovered that the mortgage rights of the
bank had been assigned to one Tomas L. Parpana (now deceased), as special administrator of the
Estate of Ramon Papa, Jr., on 12 April 1977; that since then, herein petitioner had been collecting
monthly rentals in the amount of P800.00 from the tenants of the property, knowing that said
property had already been sold to private respondents on 15 June 1973; that despite repeated
demands from said respondents, petitioner refused and failed to deliver the title to the property.
Thereupon, respondents Valencia and Pearroyo filed a complaint for specific performance, praying
that petitioner be ordered to deliver to respondent Pearroyo the title to the subject property (TCT
28993); to turn over to the latter the sum of P72,000.00 as accrued rentals as of April 1982, and the
monthly rental of P800.00 until the property is delivered to respondent Pearroyo; to pay
respondents the sum of P20,000.00 as attorney's fees; and to pay the costs of the suit.
In his Answer, petitioner admitted that the lot had been mortgaged to the Associated Banking
Corporation (now Associated Citizens Bank). He contended, however, that the complaint did not
state a cause of action; that the real property in interest was the Testate Estate of Angela M. Butte,

which should have been joined as a party defendant; that the case amounted to a claim against the
Estate of Angela M. Butte and should have been filed in Special Proceedings No. A-17910 before
the Probate Court in Quezon City; and that, if as alleged in the complaint, the property had been
assigned to Tomas L. Parpana, as special administrator of the Estate of Ramon Papa, Jr., said
estate should be impleaded. Petitioner, likewise, claimed that he could not recall in detail the
transaction which allegedly occurred in 1973; that he did not have TCT No. 28993 in his possession;
that he could not be held personally liable as he signed the deed merely as attorney-in-fact of said
Angela M. Butte. Finally, petitioner asseverated that as a result of the filing of the case, he was
compelled to hire the services of counsel for a fee of P20,000.00 for which respondents should be
held liable.
Upon his motion, herein private respondent Delfin Jao was allowed to intervene in the case. Making
common cause with respondents Valencia and Pearroyo, respondent Jao alleged that the subject
lot which had been sold to respondent Pearroyo through respondent Valencia was in turn sold to
him on 20 August 1973 for the sum of P71,500.00, upon his paying earnest money in the amount of
P5,000.00. He, therefore, prayed that judgment be rendered in favor of respondents, the latter in turn
be ordered to execute in his favor the appropriate deed of conveyance covering the property in
question and to turn over to him the rentals which aforesaid respondents sought to collect from
petitioner Myron V. Papa.
Respondent Jao, likewise, averred that as a result of petitioner's refusal to deliver the title to the
property to respondents Valencia and Pearroyo, who in turn failed to deliver the said title to him, he
suffered mental anguish and serious anxiety for which he sought payment of moral damages; and,
additionally, the payment of attorney's fees and costs.
For his part, petitioner, as administrator of the Testate Estate of Angela M. Butte, filed a third-party
complaint against herein private respondents, spouses Arsenio B. Reyes and Amanda Santos
(respondent Reyes spouses, for short). He averred, among other's that the late Angela M. Butte was
the owner of the subject property; that due to non-payment of real estate tax said property was sold
at public auction the City Treasurer of Quezon City to the respondent Reyes spouses on 21 January
1980 for the sum of P14,000.00; that the one-year period of redemption had expired; that
respondents Valencia and Pearroyo had sued petitioner Papa as administrator of the estate of
Angela M. Butte, for the delivery of the title to the property; that the same aforenamed respondents
had acknowledged that the price paid by them was insufficient, and that they were willing to add a
reasonable amount or a minimum of P55,000.00 to the price upon delivery of the property,
considering that the same was estimated to be worth P143,000.00; that petitioner was willing to
reimburse respondents Reyes spouses whatever amount they might have paid for taxes and other
charges, since the subject property was still registered in the name of the late Angela M. Butte; that it
was inequitable to allow respondent Reyes spouses to acquire property estimated to be worth
P143,000.00, for a measly sum of P14,000.00. Petitioner prayed that judgment be rendered
canceling the tax sale to respondent Reyes spouses; restoring the subject property to him upon
payment by him to said respondent Reyes spouses of the amount of P14,000.00, plus legal interest;
and, ordering respondents Valencia and Pearroyo to pay him at least P55,000.00 plus everything
they might have to pay the Reyes spouses in recovering the property.
Respondent Reyes spouses in their Answer raised the defense of prescription of petitioner's right to
redeem the property.
At the trial, only respondent Pearroyo testified. All the other parties only submitted documentary
proof.
On 29 June 1987, the trial court rendered a decision, the dispositive portion of which reads:

WHEREUPON, judgment is hereby rendered as follows:

1) Allowing defendant to redeem from third-party defendants and ordering the latter
to allow the former to redeem the property in question, by paying the sum of
P14,000.00 plus legal interest of 12% thereon from January 21, 1980;
2) Ordering defendant to execute a Deed of Absolute Sale in favor of plaintiff Felix
Pearroyo covering the property in question and to deliver peaceful possession and
enjoyment of the said property to the said plaintiff, free from any liens and
encumbrances;
Should this not be possible, for any reason not attributable to defendant, said
defendant is ordered to pay to plaintiff Felix Pearroyo the sum of P45,000.00 plus
legal interest of 12% from June 15, 1973;
3) Ordering plaintiff Felix Pearroyo to execute and deliver to intervenor a deed of
absolute sale over the same property, upon the latter's payment to the former of the
balance of the purchase price of P71,500.00;
Should this not be possible, plaintiff Felix Pearroyo is ordered to pay intervenor the
sum of P5,000.00 plus legal interest of 12% from August 23, 1973; and
4) Ordering defendant to pay plaintiffs the amount of P5,000.00 for and as attorney's
fees and litigation expenses.
SO ORDERED. 1
Petitioner appealed the aforesaid decision of the trial court to the Court of Appeals, alleging among
others that the sale was never "consummated" as he did not encash the check (in the amount of
P40,000.00) given by respondents Valencia and Pearroyo in payment of the full purchase price of
the subject lot. He maintained that what said respondent had actually paid was only the amount of
P5,000.00 (in cash) as earnest money.
Respondent Reyes spouses, likewise, appealed the above decision. However, their appeal was
dismissed because of failure to file their appellant's brief.
On 27 January 1992, the Court of Appeals rendered a decision, affirming with modification the trial
court's decision, thus:
WHEREFORE, the second paragraph of the dispositive portion of the appealed
decision is MODIFIED, by ordering the defendant-appellant to deliver to plaintiffappellees the owner's duplicate of TCT No. 28993 of Angela M. Butte and the
peaceful possession and enjoyment of the lot in question or, if the owner's duplicate
certificate cannot be produced, to authorize the Register of Deeds to cancel it and
issue a certificate of title in the name of Felix Pearroyo. In all other respects, the
decision appealed from is AFFIRMED. Costs against defendant-appellant Myron C.
Papa.
SO ORDERED. 2

In affirming the trial court's decision, respondent court held that contrary to petitioner's claim that he
did not encash the aforesaid check, and therefore, the sale was not consummated, there was no
evidence at all that petitioner did not, in fact, encash said check. On the other hand, respondent
Pearroyo testified in court that petitioner Papa had received the amount of P45,000.00 and issued
receipts therefor. According to respondent court, the presumption is that the check was encashed,
especially since the payment by check was not denied by defendant-appellant (herein petitioner)
who, in his Answer, merely alleged that he "can no longer recall the transaction which is supposed to
have happened 10 years ago." 3
On petitioner's claim that he cannot be held personally liable as he had acted merely as attorney-infact of the owner, Angela M. Butte, respondent court held that such contention is without merit. This
action was not brought against him in his personal capacity, but in his capacity as the administrator
of the Testate Estate of Angela M. Butte. 4
On petitioner's contention that the estate of Angela M. Butte should have been joined in the action as
the real party in interest, respondent court held that pursuant to Rule 3, Section 3 of the Rules of
Court, the estate of Angela M. Butte does not have to be joined in the action. Likewise, the estate of
Ramon Papa, Jr., is not an indispensable party under Rule 3, Section 7 of the same Rules. For the
fact is that Ramon Papa, Jr., or his estate, was not a party to the Deed of Absolute Sale, and it is
basic law that contracts bind only those who are parties thereto. 5
Respondent court observed that the conditions under which the mortgage rights of the bank were
assigned are not clear. In any case, any obligation which the estate of Angela M. Butte might have to
the estate of Ramon Papa, Jr. is strictly between them. Respondents Valencia and Pearroyo are
not bound by any such obligation.
Petitioner filed a motion for reconsideration of the above decision, which motion was denied by
respondent Court of Appeals.
Hence, this petition wherein petitioner raises the following issues:
I. THE CONCLUSION OR FINDING OF THE COURT OF APPEALS THAT THE
SALE IN QUESTION WAS CONSUMMATED IS GROUNDED ON SPECULATION
OR CONJECTURE, AND IS CONTRARY TO THE APPLICABLE LEGAL
PRINCIPLE.
II. THE COURT OF APPEALS, IN MODIFYING THE DECISION OF THE TRIAL
COURT, ERRED BECAUSE IT, IN EFFECT, CANCELLED OR NULLIFIED AN
ASSIGNMENT OF THE SUBJECT PROPERTY IN FAVOR OF THE ESTATE OF
RAMON PAPA, JR. WHICH IS NOT A PARTY IN THIS CASE.
III. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ESTATE OF
ANGELA M. BUTTE AND THE ESTATE OF RAMON PAPA, JR. ARE
INDISPENSABLE
PARTIES
IN
THIS
CASE. 6
Petitioner argues that respondent Court of Appeals erred in concluding that alleged sale of the
subject property had been consummated. He contends that such a conclusion is based on the
erroneous presumption that the check (in the amount of P40,000.00) had been cashed, citing Art.
1249 of the Civil Code, which provides, in part, that payment by checks shall produce the effect of
payment only when they have been cashed or when through the fault of the creditor they have been
impaired. 7 Petitioner insists that he never cashed said check; and, such being the case, its delivery never

produced the effect of payment. Petitioner, while admitting that he had issued receipts for the payments,
asserts that said receipts, particularly the receipt of PCIB Check No. 761025 in the amount of P40,000.00,
do not prove payment. He avers that there must be a showing that said check had been encashed. If,
according to petitioner, the check had been encashed, respondent Pearroyo should have presented
PCIB Check No. 761025 duly stamped received by the payee, or at least its microfilm copy.

Petitioner finally avers that, in fact, the consideration for the sale was still in the hands of
respondents Valencia and Pearroyo, as evidenced by a letter addressed to him in which said
respondents wrote, in part:
. . . Please be informed that I had been authorized by Dr. Ramon Papa, Jr., heir of
Mrs. Angela M. Butte to pay you the aforementioned amount of P75,000.00 for the
release and cancellation of subject property's mortgage. The money is with me and if
it is alright with you, I would like to tender the payment as soon as possible. . . . 8
We find no merit in petitioner's arguments.
It is an undisputed fact that respondents Valencia and Pearroyo had given petitioner Myron C.
Papa the amounts of Five Thousand Pesos (P5,000.00) in cash on 24 May 1973, and Forty
Thousand Pesos (P40,000.00) in check on 15 June 1973, in payment of the purchase price of the
subject lot. Petitioner himself admits having received said amounts, 9 and having issued receipts
therefor. 10 Petitioner's assertion that he never encashed the aforesaid check is not substantiated and is at
odds with his statement in his answer that "he can no longer recall the transaction which is supposed to
have happened 10 years ago." After more than ten (10) years from the payment in party by cash and in
part by check, the presumption is that the check had been encashed. As already stated, he even waived
the presentation of oral evidence.
Granting that petitioner had never encashed the check, his failure to do so for more than ten (10)
years undoubtedly resulted in the impairment of the check through his unreasonable and
unexplained delay.
While it is true that the delivery of a check produces the effect of payment only when it is cashed,
pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the
creditor's unreasonable delay in presentment. The acceptance of a check implies an undertaking of
due diligence in presenting it for payment, and if he from whom it is received sustains loss by want of
such diligence, it will be held to operate as actual payment of the debt or obligation for which it was
given. 11 It has, likewise, been held that if no presentment is made at all, the drawer cannot be held liable
irrespective of loss or injury 12 unless presentment is otherwise excused. This is in harmony with Article
1249 of the Civil Code under which payment by way of check or other negotiable instrument is
conditioned on its being cashed, except when through the fault of the creditor, the instrument is impaired.
The payee of a check would be a creditor under this provision and if its no-payment is caused by his
negligence, payment will be deemed effected and the obligation for which the check was given as
conditional payment will be discharged. 13
Considering that respondents Valencia and Pearroyo had fulfilled their part of the contract of sale
by delivering the payment of the purchase price, said respondents, therefore, had the right to compel
petitioner to deliver to them the owner's duplicate of TCT No. 28993 of Angela M. Butte and the
peaceful possession and enjoyment of the lot in question.
With regard to the alleged assignment of mortgage rights, respondent Court of Appeals has found
that the conditions under which said mortgage rights of the bank were assigned are not clear.
Indeed, a perusal of the original records of the case would show that there is nothing there that could
shed light on the transactions leading to the said assignment of rights; nor is there any evidence on

record of the conditions under which said mortgage rights were assigned. What is certain is that
despite the said assignment of mortgage rights, the title to the subject property has remained in the
name of the late Angela M. Butte. 14 This much is admitted by petitioner himself in his answer to
respondent's complaint as well as in the third-party complaint that petitioner filed against respondentspouses Arsenio B. Reyes and Amanda Santos. 15 Assuming arquendo that the mortgage rights of the
Associated Citizens Bank had been assigned to the estate of Ramon Papa, Jr., and granting that the
assigned mortgage rights validly exists and constitute a lien on the property, the estate may file the
appropriate action to enforce such lien. The cause of action for specific performance which respondents
Valencia and Pearroyo have against petitioner is different from the cause of action which the estate of
Ramon Papa, Jr. may have to enforce whatever rights or liens it has on the property by reason of its being
an alleged assignee of the bank's rights of mortgage.
Finally, the estate of Angela M. Butte is not an indispensable party. Under Section 3 of Rule 3 of the
Rules of Court, an executor or administrator may sue or be sued without joining the party for whose
benefit the action is presented or defended, thus:
Sec. 3. Representative parties. A trustee of an express trust, a guardian, executor
or administrator, or a party authorized by statute, may sue or be sued without joining
the party for whose benefit the action is presented or defended; but the court may, at
any stage of the proceedings, order such beneficiary to be made a party. An agent
acting in his own name and for the benefit of an undisclosed principal may sue or be
sued without joining the principal except when the contract involves things belonging
to the principal. 16
Neither is the estate of Ramon Papa, Jr. an indispensable party without whom, no final determination
of the action can be had. Whatever prior and subsisting mortgage rights the estate of Ramon Papa,
Jr. has over the property may still be enforced regardless of the change in ownership thereof.
WHEREFORE, the petition for review is hereby DENIED and the Decision of the Court of Appeals,
dated 27 January 1992 is AFFIRMED.
SO ORDERED.

G.R. No. 148211

July 25, 2006

SINCERE Z. VILLANUEVA, petitioner, vs.

MARLYN P. NITE,* respondent.
CORONA, J.:
In this petition for review on certiorari under Rule 45, petitioner submits that the Court of Appeals
(CA) erred in annulling and setting aside the Regional Trial Court (RTC) decision on the ground of
extrinsic fraud.
The facts follow.1
Respondent allegedly took out a loan of P409,000 from petitioner. To secure the loan, respondent
issued petitioner an Asian Bank Corporation (ABC) check (Check No. AYA 020195) in the amount
of P325,500 dated February 8, 1994. The date was later changed to June 8, 1994 with the consent
and concurrence of petitioner.
The check was, however, dishonored due to a material alteration when petitioner deposited the
check on due date. On August 24, 1994, respondent, through her representative Emily P. Abojada,
remitted P235,000 to petitioner as partial payment of the loan. The balance of P174, 000 was due on
or before December 8, 1994.
On August 24, 1994, however, petitioner filed an action for a sum of money and damages (Civil Case
No. Q-94-21495) against ABC for the full amount of the dishonored check. And in a decision dated
May 23, 1997, the RTC of Quezon City, Branch 101 ruled in his favor. 2 When respondent went to
ABC Salcedo Village Branch on June 30, 1997 to withdraw money from her account, she was
unable to do so because the trial court had ordered ABC to pay petitioner the value of respondents
ABC check.
On August 25, 1997, ABC remitted to the sheriff a managers check amounting to P325,500 drawn
on respondents account. The check was duly received by petitioner on the same date.
Respondent then filed a petition in the CA seeking to annul and set aside the trial courts decision
ordering ABC to pay petitioner the value of the ABC check.3 The CA ruled:
WHEREFORE, premises considered, the petition is GRANTED and the Decision dated May
23, 1997 of the public respondent is hereby ANNULLED and SET ASIDE for extrinsic fraud.
[Petitioner] Villanueva is hereby ordered to pay [Nite]
1) the sum of [P146,500] as actual damages plus interest at 12% per annum from August 25,
1997 until full payment;
2) the sum of [P75,000] as moral damages;
3) the sum of [P50,000] as exemplary damages; and
4) the sum of [P50,000] as attorneys fees and cost of suit.
SO ORDERED.4

Thus, this petition. We find for respondent.

Annulment of judgment is a remedy in law independent of the case where the judgment sought to be
annulled is promulgated. It can be filed by one who was not a party to the case in which the assailed
judgment was rendered.Section 1 of Rule 47 provides:
Section 1. Coverage. This Rule shall govern the annulment by the Court of Appeals of
judgments or final orders and resolutions in civil actions of Regional Trial Courts for which
the ordinary remedies of new trial, appeal, petition for relief or other appropriate remedies
are no longer available through no fault of the petitioner.
Respondent may avail of the remedy of annulment of judgment under Rule 47. The ordinary
remedies of new trial, appeal and petition for relief were not available to her for the simple reason
that she was not made a party to the suit against ABC. Thus, she was neither able to participate in
the original proceedings nor resort to the other remedies because the case was filed when she was
abroad.
Annulment of judgment may be based only on extrinsic fraud and lack of jurisdiction. 5 Extrinsic or
collateral fraud pertains to such fraud which prevents the aggrieved party from having a trial or
presenting his case to the court, or is used to procure the judgment without fair submission of
the controversy.6 This refers to acts intended to keep the unsuccessful party away from the courts as
when there is a false promise of compromise or when one is kept in ignorance of the suit. 7
We uphold the appellate courts finding of extrinsic fraud:
Barely 6 days after receipt of the partial payment of P235,000.00 and agreeing that the
balance of P174,000.00 shall be paid on or before December 8, 1994, [Sincere] filed his
complaint against [ABC] for the full amount of the dishonored check in the sum of
P320,500.00 without impleading petitioner. The apparent haste by which [Sincere] filed his
complaint and his failure to implead [Marlyn] clearly shows his intent to prevent [Marlyn] from
opposing his action.
[A]t the time news about [Marlyn] having left the country was widespread, appearing even in
print media as early as May 1994, [Marlyn] paid [Sincere] the amount of P235,000.00 as
partial payment on [August 18, 1994], through a representative.
Notwithstanding the foregoing, SIX (6) days later or on [August 24, 1994, Sincere] instituted
an action for collection with damages for the whole amount of the issued check.
[Sincere] does not deny knowledge of such payment neither of the fact that he concurred in
settling the balance of P174,000.00 on December 8, 1994.
[His] actuation and pronouncement shows not only bad faith on his part but also of his
fraudulent intention to completely exclude [Marlyn] from the proceedings in the court a
quo. By doing what he did he prevented the [trial court] from fully appreciating the particulars
of the case.8
In any event, the RTC decision may be annulled for lack of jurisdiction over the person of
respondent. The pertinent provisions of the Negotiable Instruments Law are enlightening:

SEC. 185. Check, defined. A check is a bill of exchange drawn on a bank payable on
demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of
exchange payable on demand apply to a check.9 (emphasis ours)
SEC. 189. When check operates as an assignment. A check of itself does not operate as
an assignment of any part of the funds to the credit of the drawer with the bank, and the
bank is not liable to the holder, unless and until it accepts or certifies the
check. (emphasis ours)
If a bank refuses to pay a check (notwithstanding the sufficiency of funds), the payee-holder cannot,
in view of the cited sections, sue the bank. The payee should instead sue the drawer who might in
turn sue the bank. Section 189 is sound law based on logic and established legal principles: no
privity of contract exists between the drawee-bank and the payee. Indeed, in this case, there was no
such privity of contract between ABC and petitioner.
Petitioner should not have sued ABC. Contracts take effect only between the parties, their assigns
and heirs, except in cases where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. 10 None of the foregoing
exceptions to the relativity of contracts applies in this case.
The contract of loan was between petitioner and respondent. No collection suit could prosper without
respondent who was an indispensable party. Rule 3, Sec. 7 of the Rules of Court states:
Sec. 7. Compulsory joinder of indispensable parties. Parties in interest without whom no
final determination can be had of an action shall be joined either as plaintiffs or
defendants. (emphasis ours)
An indispensable party is one whose interest in the controversy is such that a final decree will
necessarily affect his rights. The court cannot proceed without his presence. 11 If an indispensable
party is not impleaded, any judgment is ineffective. 12 On this, Aracelona v. Court of
Appeals13 declared:
Rule 3, Section 7 of the Rules of Court defines indispensable parties as parties-in-interest
without whom there can be no final determination of an action. As such, they must be joined
either as plaintiffs or as defendants. The general rule with reference to the making of parties
in a civil action requires, of course, the joinder of all necessary parties where possible, and
the joinder of all indispensable parties under any and all conditions, their presence
being sine qua non for the exercise of judicial power. It is precisely "when an indispensable
party is not before the court (that) the action should be dismissed." The absence of an
indispensable party renders all subsequent actions of the court null and void for want of
authority to act, not only as to the absent parties but even as to those present.
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals in CA-G.R. SP
No. 44971 is AFFIRMED in toto.
Costs against petitioner.
SO ORDERED.

G.R. No. 156207

September 15, 2006

EQUITABLE PCI BANK petitioner,

vs.
ROWENA ONG, respondent.
CHICO-NAZARIO, J.:
On 29 November 1991, Warliza Sarande deposited in her account at Philippine Commercial
International (PCI) Bank Magsaysay Avenue, Santa Ana District, Davao City Branch, under Account
No. 8502-00347-6, a PCI Bank General Santos City Branch, TCBT 1 Check No. 0249188 in the
amount of P225,000.00. Upon inquiry by Serande at PCI Bank on 5 December 1991 on whether
TCBT Check No. 0249188 had been cleared, she received an affirmative answer. Relying on this
assurance, she issued two checks drawn against the proceeds of TCBT Check No. 0249188. One of
these was PCI Bank Check No. 073661 dated 5 December 1991 for P132,000.00 which Sarande
issued to respondent Rowena Ong Owing to a business transaction. On the same day, Ong
presented to PCI Bank Magsaysay Avenue Branch said Check No. 073661, and instead of
encashing it, requested PCI Bank to convert the proceeds thereof into a manager's check, which the
PCI Bank obliged. Whereupon, Ong was issued PCI Bank Manager's Check No. 10983 dated 5
December 1991 for the sum of P132,000.00, the value of Check No. 073661.
The next day, 6 December 1991, Ong deposited PCI Bank Manager's Check No. 10983 in her
account with Equitable Banking Corporation Davao City Branch. On 9 December 1991, she received
a check return-slip informing her that PCI Bank had stopped the payment of the said check on the
ground of irregular issuance. Despite several demands made by her to PCI Bank for the payment of
the amount in PCI Bank Manager's Check No. 10983, the same was met with refusal; thus, Ong was
constrained to file a Complaint for sum of money, damages and attorney's fees against PCI Bank. 2
From PCI Bank's version, TCBT-General Santos City Check No. 0249188 was returned on 5
December 1991 at 5:00 pm on the ground that the account against which it was drawn was already
closed. According to PCI Bank, it immediately gave notice to Sarande and Ong about the return of
Check No. 0249188 and requested Ong to return PCI Bank Manager's Check No. 10983 inasmuch
as the return of Check No. 0249188 on the ground that the account from which it was drawn had
already been closed resulted in a failure or want of consideration for the issuance of PCI Bank
Manager's Check No. 10983.3
After the pre-trial conference, Ong filed a motion for summary judgment. 4 Though they were duly
furnished with a copy of the motion for summary judgment, PCI Bank and its counsel failed to
appear at the scheduled hearing.5Neither did they file any written comment or opposition thereto.
The trial court thereafter ordered Ong to formally offer her exhibits in writing, furnishing copies of the
same to PCI Bank which was directed to file its comment or objection. 6
Ong complied with the Order of the trial court, but PCI Bank failed to file any comment or objection
within the period given to it despite receipt of the same order.7 The trial court then granted the motion
for summary judgment and in its Order dated 2 March 1995, it held:
IN THE LIGHT OF THE FOREGOING, the motion for summary judgment is GRANTED,
ordering defendant Philippine Commercial International Bank to pay the plaintiff the amount
of ONE HUNDRED THIRTY-TWO THOUSAND PESOS (P132,000.00) equivalent to the
amount of PCIB Manager's Check No. 10983.

Set the reception of the plaintiff's evidence with respect to the damages claimed in the
complaint.8
PCI Bank filed a Motion for Reconsideration which the trial court denied in its Order dated 11 April
1996.9 After the reception of Ong's evidence in support of her claim for damages, the trial court
rendered its Decision10 dated 3 May 1999 wherein it ruled:
IN LIGHT OF THE FOREGOING CONSIDERATION, and as plaintiff has preponderantly
established by competent evidence her claims in the Complaint, judgment in hereby
rendered for the plaintiff against the defendant-bank ordering the latter:
1. To pay the plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00) in the
concept of moral damages;
2. To pay the plaintiff the sum of TWENTY THOUSAND PESOS (P20,000.00) as
exemplary damages;
3. To pay the plaintiff the sum of THREE THOUSAND FIVE HUNDRED PESOS
(P3,500.00) representing actual expenses;
4. To pay the plaintiff the sum of TWENTY THOUSAND PESOS (P20,000.00) as and
for attorney's fee's; and
5. To pay the costs.11
From this decision, PCI Bank sought recourse before the Court of Appeals. In a Decision 12 dated 29
October 2002, the appellate court denied the appeal of PCI Bank and affirmed the orders and
decision of the trial court.
Unperturbed, PCI Bank then filed the present petition for review before this Court and raised the
following issues:
1. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A GRAVE AND
REVERSIBLE ERROR WHEN IT SUSTAINED THE LOWER COURT'S ORDER DATED 2
MARCH 1999 GRANTING RESPONDENT'S MOTION FOR SUMMARY JUDGMENT
NOTWITHSTANDING THE GLARING FACT THAT THERE ARE GENUINE, MATERIAL AND
FACTUAL ISSUES WHICH REQUIRE THE PRESENTATION OF EVIDENCE.
2. WHETHER OR NOT THE COURT OF APPEALS WAS IN ERROR WHEN IT SUSTAINED
THE LOWER COURT'S DECISION DATED 3 MAY 1999 GRANTING THE RELIEFS
PRAYED FOR IN RESPONDENT ONG'S COMPLAINT INSPITE OF THE FACT THAT
RESPONDENT ONG WOULD BE "UNJUSTLY ENRICHED" AT THE EXPENSE OF
PETITIONER BANK, IF PETITIONER BANK WOULD BE REQUIRED TO PAY AN
UNFUNDED CHECK.
3. WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERRORS
WHEN IT AFFIRMED THE COURT A QUO'S DECISIION DATED 3 MAY 1999 AWARDING
DAMAGES TO RESPONDENT ONG AND HOLDING THAT RESPONDENT ONG HAD
PREPONDERANTLY ESTABLISHED BY COMPETENT EVIDENCE HER CLAIMS IN THE
COMPLAINT INSPITE OF THE FACT THAT THE EVIDENCE ON RECORD DOES NOT
JUSTIFY THE AWARD OF DAMAGES.

4. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR

WHEN IT AFFIRMED THE LOWER COURT'S FACTUAL FINDING IN ITS DECISION
DATED 3 MAY 1999 HOLDING RESPONDENT ONG A "HOLDER IN DUE COURSE"
INSPITE OF THE FACT THAT THE REQUISITE OF "GOOD FAITH" AND FOR VALUE IS
LACKING AND DESPITE THE ABSENCE OF A PROPER TRIAL TO DETERMINE SUCH
FACTUAL ISSUE.
5. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR
WHEN IT UPHELD THE LOWER COURT'S DECISION DATED 3 MAY 1999 DENYING
PETITIONER EPCI BANK'S COUNTERCLAIM INSPITE OF THE FACT THAT IT WAS
SHOWN THAT RESPONDENT ONG'S COMPLAINT LACKS MERIT.13
We affirm the Decision of the trial court and the Court of Appeals.
The provision on summary judgment is found in Section 1, Rule 35 of the 1997 Rules of Court:
SECTION 1. Summary judgment for claimant. A party seeking to recover upon a claim,
counterclaim, or cross-claim or to obtain a declaratory relief may, at any time after the
pleading in answer thereto has been served, move with supporting affidavits, depositions or
admissions for a summary judgment in his favor upon all or any part thereof.
Thus, it has been held that a summary judgment is proper where, upon a motion filed after the
issues had been joined and on the basis of the pleadings and papers filed, the court finds that there
is no genuine issue as to any material fact to except as to the amount of damages. A genuine issue
has been defined as an issue of fact which calls for the presentation of evidence, as distinguished
from an issue which is sham, fictitious, contrived and patently unsubstantial so as not to constitute a
genuine issue for trial.14
A court may grant summary judgment to settle expeditiously a case if, on motion of either party,
there appears from the pleadings, depositions, admissions, and affidavits that no important issues of
fact are involved, except the amount of damages. 15 Rule 35, Section 3, of the Rules of Court
provides two requisites for summary judgment to be proper: (1) there must be no genuine issue as to
any material fact, except for the amount of damages; and (2) the party presenting the motion for
summary judgment must be entitled to a judgment as a matter of law.16
Certainly, when the facts as pleaded appear uncontested or undisputed, then there's no real or
genuine issue or question as to the facts, and summary judgment is called for.17
By admitting it committed an error, clearing the check of Sarande and issuing in favor of Ong not just
any check but a manager's check for that matter, PCI Bank's liability is fixed. Under the
circumstances, we find that summary judgment was proper and a hearing would serve no purpose.
That summary judgment is appropriate was incisively expounded by the trial court when it made the
following observation:
[D]efendant-bank had certified plaintiff's PCIB Check No. 073661 and since certification is
equivalent to acceptance, defendant-bank as drawee bank is bound on the instrument upon
certification and it is immaterial to such liability in favor of the plaintiff who is a holder in due
course whether the drawer (Warliza Sarande) had funds or not with the defendant-bank
(Security vs. State Bank, 154 N.W. 282) or the drawer was indebted to the bank for more
than the amount of the check (Nat. Bank vs. Schmelz, Nat. Bank, 116 S.E. 880) as the
certifying bank as all the liabilities under Sec. 62 of the Negotiable Instruments Law which
refers to liability of acceptor (Title Guarantee vs. Emadee Realty Corp., 240 N.Y. 36).

It may be true that plaintiff's PCIB Check No. 073661 for P132,000.00 which was paid to her
by Warliza Sarande was actually not funded but since plaintiff became a holder in due
course, defendant-bank cannot interpose a defense of want or lack of consideration because
that defense is equitable or personal and cannot prosper against a holder in due course
pursuant to Section 28 of the Negotiable Instruments Law. Therefore, when the
aforementioned check was endorsed and presented by the plaintiff and certified to and
accepted by defendant-bank in the purchase of PCIB Manager's Check No. 1983 in the
amount of P132,000.00, there was a valid consideration.18
The property of summary judgment was further explained by this Court when it pronounced that:
The theory of summary judgment is that although an answer may on its face appear to
tender issues requiring trial yet if it is demonstrated by affidavits, depositions, or
admissions that those issues are not genuine, but sham or fictitious, the Court is unjustified
in dispensing with the trial and rendering summary judgment for plaintiff. The court is
expected to act chiefly on the basis of the affidavits, depositions, admissions submitted by
the movant, and those of the other party in opposition thereto. The hearing contemplated
(with 10-day notice) is for the purpose of determining whether the issues are genuine or not,
not to receive evidence on the issues set up in the pleadings. A hearing is not thus de riguer.
The matter may be resolved, and usually is, on the basis of affidavits, depositions,
admissions. This is not to say that a hearing may be regarded as a superfluity. It is not, and
the Court has plenary discretion to determine the necessity therefore. 19
The second and fourth issues are inter-related and so they shall be resolved together. The second
issue has reference to PCI Bank's claim of unjust enrichment on the part of Ong if it would be
compelled to make good the manager's check it had issued. As asserted by PCI Bank under the
fourth issue, Ong is not a holder in due course because the manager's check was drawn against a
closed account; therefore, the same was issued without consideration.
On the matter of unjust enrichment, the fundamental doctrine of unjust enrichment is the transfer of
value without just cause or consideration. The elements of this doctrine are: enrichment on the part
of the defendant; impoverishment on the part of the plaintiff; and lack of cause. The main objective is
to prevent one to enrich himself at the expense of another. 20 It is based on the equitable postulate
that it is unjust for a person to retain benefit without paying for it. 21 It is well to stress that the check of
Sarande had been cleared by the PCI Bank for which reason the former issued the check to Ong. A
check which has been cleared and credited to the account of the creditor shall be equivalent to a
delivery to the creditor of cash in an amount equal to the amount credited to his account. 22
Having cleared the check earlier, PCI Bank, therefore, became liable to Ong and it cannot allege
want or failure of consideration between it and Sarande. Under settled jurisprudence, Ong is a
stranger as regards the transaction between PCI Bank and Sarande. 23
PCI Bank next insists that since there was no consideration for the issuance of the manager's check,
ergo, Ong is not a holder in due course. This claim is equally without basis. Pertinent provisions of
the Negotiable Instruments Law are hereunder quoted:
SECTION 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 it had been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
The same law provides further:
Sec. 24. Presumption of consideration. Every negotiable instrument is deemed prima facie
to have been issued for a valuable consideration; and every person whose signature
appears thereon to have become a party thereto for value.
Sec. 26. What constitutes holder for value. Where value has at any time been given for the
instrument, the holder is deemed a holder for value in respect to all parties who become
such prior to that time.
Sec. 28. Effect of want of consideration. Absence or failure of consideration is a matter of
defense as against any person not a holder in due course; and partial failure of consideration
is a defense pro tanto, whether the failure is an ascertained and liquidated amount or
otherwise.
Easily discernible is that what Ong obtained from PCI Bank was not just any ordinary check but a
manager's check. A manager's check is an order of the bank to pay, drawn upon itself, committing in
effect its total resources, integrity and honor behind its issuance. By its peculiar character and
general use in commerce, a manager's check is regarded substantially to be as good as the money
it represents.24
A manager's check stands on the same footing as a certified check. 25 The effect of certification is
found in Section 187, Negotiable Instruments Law.
Sec. 187. Certification of check; effect of. Where a check is certified by the bank on which
it is drawn, the certification is equivalent to an acceptance.26
The effect of issuing a manager's check was incontrovertibly elucidated when we declared that:
A manager's check is one drawn by the bank's manager upon the bank itself. It is similar to a
cashier's check both as to effect and use. A cashier's check is a check of the bank's 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. It is really the
bank's own check and may be treated as a promissory note with the bank as a maker. 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.
x x x.27
In the case of New Pacific Timber & Supply Co., Inc. v. Seneris28:
[S]ince the said check had been certified by the drawee bank, by the certification, the funds
represented by the check are transferred from the credit of the maker to that of the payee or
holder, and for all intents and purposes, the latter becomes the depositor of the drawee

bank, with rights and duties of one in such situation. Where a check is certified by the bank
on which it is drawn, the certification is equivalent to acceptance. Said certification "implies
that the check is drawn upon sufficient funds in the hands of the drawee, that they have been
set apart for its satisfaction, and that they shall be so applied whenever the check is
presented for payment. It is an understanding that the check is good then, and shall continue
good, and this agreement is as binding on the bank as its notes circulation, a certificate of
deposit payable to the order of depositor, or any other obligation it can assume. The object of
certifying a check, as regards both parties, is to enable the holder to use it as money." When
the holder procures the check to be certified, "the check operates as an assignment of a part
of the funds to the creditors." Hence, the exception to the rule enunciated under Section 63
of the Central Bank Act to the effect "that a check which has been cleared and credited to the
account of the creditor shall be equivalent to a delivery to the creditor in cash in an amount
equal to the amount credited to his account" shall apply in this case x x x.
By accepting PCI Bank Check No. 073661 issued by Sarande to Ong and issuing in turn a
manager's check in exchange thereof, PCI Bank assumed the liabilities of an acceptor under Section
62 of the Negotiable Instruments Law which states:
Sec. 62. Liability of acceptor. The acceptor by accepting the instruments engages that he
will pay it according to the tenor of his acceptance; and admits
(a) The existence of the drawer, the genuineness of his signature, and his capacity and
authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.
With the above jurisprudential basis, the issues on Ong being not a holder in due course and failure
or want of consideration for PCI Bank's issuance of the manager's check is out of sync.
Section 2, of Republic Act No. 8791, The General Banking Law of 2000 decrees:
SEC. 2. 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.
In Associated Bank v. Tan,29 it was reiterated:
"x x x the degree of diligence required of banks is more than that of a good father of a family
where the fiduciary nature of their relationship with their depositors is concerned." Indeed,
the banking business is vested with the trust and confidence of the public; hence the
"appropriate standard of diligence must be very high, if not the highest degree of diligence."
Measured against these standards, the next question that needs to be addressed is: Did PCI Bank
exercise the requisite degree of diligence required of it? From all indications, it did not. PCI Bank
distinctly made the following uncontested admission:
1. On 29 November 1991, one Warliza Sarande deposited to her savings account with PCI
Bank's Magsaysay Avenue Branch, TCBT-General Santos Branch Check No. 0249188

for P225,000.00. Said check, however, was inadvertently sent by PCI Bank through
local clearing when it should have been sent through inter-regional clearing since the
check was drawn at TCBT-General Santos City.
2. On 5 December 1991, Warliza Sarande inquired whether TCBT Check No. 0249188 had
been cleared. Not having received any advice from the drawee bank within the regular
clearing period for the return of locally cleared checks, and unaware then of the error of not
having sent the check through inter-regional clearing, PCI Bank advised her that
Check No. 024188 is treated as cleared. x x x.30 (Emphasis supplied.)
From the foregoing, it is palpable and readily apparent that PCI Bank failed to exercise the highest
degree of care31required of it under the law.
In the case of Philippine National Bank v. Court of Appeals,32 we declared:
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 safe-keeping 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.
Having settled the other issues, we now resolve the question on the award of moral and exemplary
damages by the trial court to the respondent.
Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of
pecuniary computation, moral damages may be recovered if they are the proximate result of the
defendant's wrongful act or omission.33 The requisites for an award of moral damages are welldefined, thus, firstly, evidence of besmirched reputation or physical, mental or psychological
suffering sustained by the claimant; secondly, a culpable act or omission factually
established; thirdly, proof that the wrongful act or omission of the defendant is the proximate cause
of the damages sustained by the claimant; and fourthly, that the case is predicated on any of the
instances expressed or envisioned by Article 2219 34 and Article 222035 of the Civil Code. All these
elements are present in the instant case.36
In the first place, by refusing to make good the manager's check it has issued, Ong suffered
embarrassment and humiliation arising from the dishonor of the said check. 37 Secondly, the culpable
act of PCI Bank in having cleared the check of Serande and issuing the manager's check to Ong is
undeniable. Thirdly, the proximate cause of the loss is attributable to PCI Bank. Proximate cause is
defined as that cause which, in natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury, and without which the result would not have occurred. 38 In
this case, the proximate cause of the loss is the act of PCI Bank in having cleared the check of
Sarande and its failure to exercise that degree of diligence required of it under the law which
resulted in the loss to Ong.
On 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 safe-keeping 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. 39 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 it. 40 Having failed in
this respect, the award of exemplary damages is warranted.
Article 2216 of the Civil Code provides:
ART. 2216. No proof of pecuniary loss is necessary in order that moral, nominal, temperate,
liquidated or exemplary damages may be adjudicated. The assessment of such damages,
except liquidated ones, is left to the discretion of the court, according to the circumstances of
each case.
Based on the above provision, the determination of the amount to be awarded (except liquidated
damages) is left to the sound discretion of the court according to the circumstances of each
case.41 In the case before us, we find that the award of moral damages in the amount of P50,000.00
and exemplary damages in the amount of P20,000.00 is reasonable and justified.
With the above disquisition, there is no necessity of further discussing the last issue on the PCI
Bank's counterclaim based on the supposed lack of merit of Ong's complaint.
WHEREFORE, premises considered, the Petition is DENIED and the Decision of the Court of
Appeals dated 29 October 2002 in CA-G.R. CV No. 65000 affirming the Decision dated 3 may 1999,
of the Regional Trial Court of Davao City, Branch 14, in Civil Case No. 21458-92, are AFFIRMED.
SO ORDERED.