G.R. No.

L-15380

September 30, 1960

CHAN WAN, plaintiff-appellant,

vs.
TAN KIM and CHEN SO, defendants-appellees.
Manuel Domingo for appellant.
C.M. de los Reyes for appellees.
BENGZON, J.:
This suit to collect eleven checks totalling P4,290.00 is here for decision
because it involves no issue of fact.
Such checks payable to "cash or bearer" and drawn by defendant Tan Kim
(the other defendant is her husband) upon the Equitable Banking
Corporation, were all presented for payment by Chan Wan to the drawee
bank, but they "were all dishonored and returned to him unpaid due to
insufficient funds and/or causes attributable to the drawer."
At the hearing of the case, in the Manila court of first instance, the plaintiff
did not take the witness stand. His attorney, however, testified only to
identify the checks which are Exhibits A to K plus the letters of demand
upon defendants.
On the other hand, Tan Kim declared without contradiction that the checks
had been issued to two persons named Pinong and Muy for some shoes the
former had promised to make and "were intended as mere receipts".
In view of such circumstances, the court declined to order payment for two
principal reasons: (a) plaintiff failed to prove he was a holder in due course,
and (b) the checks being crossed checks should not have been deposited
instead with the bank mentioned in the crossing.
It may be stated in this connection, that defendants asserted a counterclaim,
the court dismissed it for failure of proof, and from such dismissal they did
not appeal.
The only issue is, therefore, the plaintiff's right to collect on the eleven
commercial documents.
The Negotiable Instruments Law regulating the issuance of negotiable
checks, the rights and the liabilities arising therefrom, does not mention
"crossed checks". Art. 541 of the Code of Commerce refers to such
instruments. 1 The bills of Exchange Act of England of 1882, contains several

provisions about them, some of which are quoted in the margin. 2 In

the Philippine National Bank vs. Zulueta, 101 Phil., 1071; 55 Off. Gaz., 222,
we applied some provisions of said Bills of Exchange Act because the
Negotiable Law, originating from England and codified in the United States,
permits resort thereto in matters not covered by it and local legislation.3
Eight of the checks here in question bear across their face two parallel
transverse lines between which these words are written: non-negotiable
China Banking Corporation. These checks have, therefore, been crossed
specially to the China Banking Corporation, and should have been presented
for payment by China Banking, and not by Chan Wan.4 Inasmuch as Chan
Wan did present them for payment himself the Manila court said there
was no proper presentment, and the liability did not attach to the drawer.
We agree to the legal premises and conclusion. It must be remembered, at
this point, that the drawer in drawing the check engaged that "on due
presentment, the check would be paid, and that if it be dishonored . . . he
will pay the amount thereof to the holder".5 Wherefore, in the absence of due
presentment, the drawer did not become liable.
Nevertheless we find, on the backs of the checks, endorsements which
apparently show they had been deposited with the China Banking
Corporation and were, by the latter, presented to the drawee bank for
collection. For instance, on the back of the check Exhibit A (same as in Exh.
B), this endorsement appears:
For deposit to the account of White House Shoe Supply with the China
Banking Corporation.
and then this:
Cleared through the clearing office of Central Bank of the Philippines.
All prior endorsements and/or lack of endorsements guaranteed. China
Banking Corporation.
And on the back of Exh. G:
For deposit to the credit of our account. Viuda e Hijos de Chua Chiong
Pio. People's Shoe Company.
followed by the endorsement of China Banking Corporation as in Exhibits A
and B. All the crossed checks have the "clearance" endorsement of China
Banking Corporation.
These circumstances would seem to show deposit of the checks with China
Banking Corporation and subsequent presentation by the latter through the

clearing office; but as drawee had no funds, they were unpaid and returned,
some of them stamped "account closed". How they reached his hands,
plaintiff did not indicate. Most probably, as the trial court surmised, this is
not a finding of fact he got them after they had been thus returned,
because he presented them in court with such "account closed" stamps,
without bothering to explain. Naturally and rightly, the lower court held him
not to be a holder in due course under the circumstances, since he knew,
upon taking them up, that the checks had already been dishonored.6
Yet it does not follow as a legal proposition, that simply because he was not a
holder in due course Chan Wan could not recover on the checks. The
Negotiable Instruments Law does not provide that a holder7 who is not a
holder in due course, may not in any case, recover on the instrument. If B
purchases an overdue negotiable promissory note signed by A, he is not a
holder in due course; but he may recover from A,8 if the latter has no valid
excuse for refusing payment. The only disadvantage of holder who is not a
holder in due course is that the negotiable instrument is subject to defense
as if it were non- negotiable.9
Now what defense did the defendant Tan Kim prove? The lower court's
decision does not mention any; evidently His Honor had in mind the defense
pleaded in defendant's answer, but though it unnecessary to specify,
because the "crossing" and presentation incidents sufficed to bar recovery,
in his opinion.1awphl.nt
Tan Kim admitted on cross-examination either that the checks had been
issued as evidence of debts to Pinong and Muy, and/or that they had been
issued in payment of shoes which Pinong had promised to make for her.
Seeming to imply that Pinong had to make the shoes, she asserted Pinong
had "promised to pay the checks for me". Yet she did not complete the idea,
perhaps because she was just answering cross- questions, her main
testimony having referred merely to their counter-claim.
Needless to say, if it were true that the checks had been issued in payment
for shoes that were never made and delivered, Tan Kim would have a good
defense as against a holder who is not a holder in due course. 10
Considering the deficiency of important details on which a fair adjudication of
the parties' right depends, we think the record should be and is hereby
returned, in the interest of justice, to the court below for additional evidence,
and such further proceedings as are not inconsistent with this opinion. With
the understanding that, as defendants did not appeal, their counterclaim
must be and is hereby definitely dismissed. So ordered.

Paras, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.,

Barrera, Gutierrez David, Paredes and Dizon, JJ., concur.

Footnotes
1

SEC. 541. The maker or any legal holder of a check shall be entitled
to indicate therein that it be paid to certain banker or institution, which
he shall do by writing across the face the name of said banker or
institution, or only the words "and company."
The payment made to a person other than the banker or institution
shall not exempt the person on whom it is drawn, if the payment was
not correctly made.
2

76. [General and Special Crossing Defined.] (1) Where a check

bears across its face an addition of
(a) The words "and company" or any abbreviation thereof
between two parallel transverse lines, either with or
without the words "not negotiable;" or
(b) Two parallel transverse lines simply, either with or
without the words "not negotiable;" that addition
constitutes a crossing, and the cheque is crossed generally.
(2) Where a cheque bears across its face an addition of the name
of a banker, either with or without the words "not negotiable,"
that addition constitutes a crossing, and the cheque is crossed
specially and to that banker.
79. . . . (2) Where the banker on whom a cheque is drawn which is so
crossed nevertheless pays the same, or pays the same, or pays a
cheque crossed generally otherwise than to a banker, or if crossed
specially otherwise than to the banker to whom it is crossed, or his
agent for collection being a banker, he is liable to the true owner of the
cheque for any loss he may sustain owing to the cheque having been
so paid. (Taken from Brannan's Negotiable Instruments Law, 60th Ed.
1250-1251.)
3

Sec. 196, Negotiable Instruments Law.

If it is not presented by said Bank for payment, the drawee runs the
risk, in case of payment to persons not entitled thereto. So the practice

is for the drawee to refuse when presented by individuals. The check is

generally deposited with the bank mentioned in the crossing, so that
the latter may take charge of the collection.
5

Sec. 61. Negotiable Instruments Law.

Sec. 52 (b), Negotiable Instruments Law.

He was a holder all right, because he had possession of the checks

that were payable to bearer.
8

Sec. 51. Negotiable Instruments Law.

SEC. 58 Negotiable Instruments Law.

10

Lack of consideration is a defense. (Sec. 28, Negotiable Instruments

Law.)

G.R. No. 88866

February 18, 1991

METROPOLITAN BANK & TRUST COMPANY, petitioner,

vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC.,
LUCIA CASTILLO, MAGNO CASTILLO and GLORIA
CASTILLO, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia
Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings &
Loan Association, Inc.
CRUZ, J.:
This case, for all its seeming complexity, turns on a simple question of
negligence. The facts, pruned of all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches
throughout the Philippines and even abroad. Golden Savings and Loan
Association was, at the time these events happened, operating in Calapan,
Mindoro, with the other private respondents as its principal officers.
In January 1979, a certain Eduardo Gomez opened an account with Golden
Savings and deposited over a period of two months 38 treasury warrants

with a total value of P1,755,228.37. They were all drawn by the Philippine
Fish Marketing Authority and purportedly signed by its General Manager and
countersigned by its Auditor. Six of these were directly payable to Gomez
while the others appeared to have been indorsed by their respective payees,
followed by Gomez as second indorser. 1
On various dates between June 25 and July 16, 1979, all these warrants were
subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and
deposited to its Savings Account No. 2498 in the Metrobank branch in
Calapan, Mindoro. They were then sent for clearing by the branch office to
the principal office of Metrobank, which forwarded them to the Bureau of
Treasury for special clearing. 2
More than two weeks after the deposits, Gloria Castillo went to the Calapan
branch several times to ask whether the warrants had been cleared. She was
told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw
from his account. Later, however, "exasperated" over Gloria's repeated
inquiries and also as an accommodation for a "valued client," the petitioner
says it finally decided to allow Golden Savings to withdraw from the proceeds
of the
warrants. 3
The first withdrawal was made on July 9, 1979, in the amount of
P508,000.00, the second on July 13, 1979, in the amount of P310,000.00,
and the third on July 16, 1979, in the amount of P150,000.00. The total
withdrawal was P968.000.00. 4
In turn, Golden Savings subsequently allowed Gomez to make withdrawals
from his own account, eventually collecting the total amount of
P1,167,500.00 from the proceeds of the apparently cleared warrants. The
last withdrawal was made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the
warrants had been dishonored by the Bureau of Treasury on July 19, 1979,
and demanded the refund by Golden Savings of the amount it had previously
withdrawn, to make up the deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in the
Regional Trial Court of Mindoro. 5 After trial, judgment was rendered in favor
of Golden Savings, which, however, filed a motion for reconsideration even
as Metrobank filed its notice of appeal. On November 4, 1986, the lower
court modified its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against the plaintiff;

2. Dissolving and lifting the writ of attachment of the properties of

defendant Golden Savings and Loan Association, Inc. and defendant
Spouses Magno Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings
Account No. 2498 of the sum of P1,754,089.00 and to reinstate and
credit to such account such amount existing before the debit was
made including the amount of P812,033.37 in favor of defendant
Golden Savings and Loan Association, Inc. and thereafter, to allow
defendant Golden Savings and Loan Association, Inc. to withdraw the
amount outstanding thereon before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and Loan
Association, Inc. attorney's fees and expenses of litigation in the
amount of P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo
and Lucia Castillo attorney's fees and expenses of litigation in the
amount of P100,000.00.
SO ORDERED.
On appeal to the respondent court, 6 the decision was affirmed, prompting
Metrobank to file this petition for review on the following grounds:
1. Respondent Court of Appeals erred in disregarding and failing to
apply the clear contractual terms and conditions on the deposit slips
allowing Metrobank to charge back any amount erroneously credited.
(a) Metrobank's right to charge back is not limited to instances
where the checks or treasury warrants are forged or
unauthorized.
(b) Until such time as Metrobank is actually paid, its obligation is
that of a mere collecting agent which cannot be held liable for its
failure to collect on the warrants.
2. Under the lower court's decision, affirmed by respondent Court of
Appeals, Metrobank is made to pay for warrants already dishonored,
thereby perpetuating the fraud committed by Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as between
Metrobank and Golden Savings, the latter should bear the loss.
4. Respondent Court of Appeals erred in holding that the treasury
warrants involved in this case are not negotiable instruments.

The petition has no merit.

From the above undisputed facts, it would appear to the Court that
Metrobank was indeed negligent in giving Golden Savings the impression
that the treasury warrants had been cleared and that, consequently, it was
safe to allow Gomez to withdraw the proceeds thereof from his account with
it. Without such assurance, Golden Savings would not have allowed
the withdrawals; with such assurance, there was no reason not to
allow the withdrawal. Indeed, Golden Savings might even have incurred
liability for its refusal to return the money that to all appearances belonged
to the depositor, who could therefore withdraw it any time and for any
reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden
Savings deposited them to its account with Metrobank. Golden Savings had
no clearing facilities of its own. It relied on Metrobank to determine the
validity of the warrants through its own services. The proceeds of the
warrants were withheld from Gomez until Metrobank allowed Golden Savings
itself to withdraw them from its own deposit. 7 It was only when Metrobank
gave the go-signal that Gomez was finally allowed by Golden Savings to
withdraw them from his own account.
The argument of Metrobank that Golden Savings should have exercised more
care in checking the personal circumstances of Gomez before accepting his
deposit does not hold water. It was Gomez who was entrusting the warrants,
not Golden Savings that was extending him a loan; and moreover, the
treasury warrants were subject to clearing, pending which the depositor
could not withdraw its proceeds. There was no question of Gomez's identity
or of the genuineness of his signature as checked by Golden Savings. In fact,
the treasury warrants were dishonored allegedly because of the forgery of
the signatures of the drawers, not of Gomez as payee or indorser. Under the
circumstances, it is clear that Golden Savings acted with due care and
diligence and cannot be faulted for the withdrawals it allowed Gomez to
make.
By contrast, Metrobank exhibited extraordinary carelessness. The amount
involved was not trifling more than one and a half million pesos (and this
was 1979). There was no reason why it should not have waited until the
treasury warrants had been cleared; it would not have lost a single centavo
by waiting. Yet, despite the lack of such clearance and notwithstanding
that it had not received a single centavo from the proceeds of the treasury
warrants, as it now repeatedly stresses it allowed Golden Savings to
withdraw not once, not twice, but thrice from the uncleared treasury
warrants in the total amount of P968,000.00

Its reason? It was "exasperated" over the persistent inquiries of Gloria

Castillo about the clearance and it also wanted to "accommodate" a valued
client. It "presumed" that the warrants had been cleared simply because of
"the lapse of one week." 8 For a bank with its long experience, this
explanation is unbelievably naive.
And now, to gloss over its carelessness, Metrobank would invoke the
conditions printed on the dorsal side of the deposit slips through which the
treasury warrants were deposited by Golden Savings with its Calapan branch.
The conditions read as follows:
Kindly note that in receiving items on deposit, the bank obligates itself
only as the depositor's collecting agent, assuming no responsibility
beyond care in selecting correspondents, and until such time as actual
payment shall have come into possession of this bank, the right is
reserved to charge back to the depositor's account any amount
previously credited, whether or not such item is returned. This also
applies to checks drawn on local banks and bankers and their branches
as well as on this bank, which are unpaid due to insufficiency of funds,
forgery, unauthorized overdraft or any other reason. (Emphasis
supplied.)
According to Metrobank, the said conditions clearly show that it was acting
only as a collecting agent for Golden Savings and give it the right to "charge
back to the depositor's account any amount previously credited, whether or
not such item is returned. This also applies to checks ". . . which are unpaid
due to insufficiency of funds, forgery, unauthorized overdraft of any other
reason." It is claimed that the said conditions are in the nature of contractual
stipulations and became binding on Golden Savings when Gloria Castillo, as
its Cashier, signed the deposit slips.
Doubt may be expressed about the binding force of the conditions,
considering that they have apparently been imposed by the bank
unilaterally, without the consent of the depositor. Indeed, it could be argued
that the depositor, in signing the deposit slip, does so only to identify himself
and not to agree to the conditions set forth in the given permit at the back of
the deposit slip. We do not have to rule on this matter at this time. At any
rate, the Court feels that even if the deposit slip were considered a contract,
the petitioner could still not validly disclaim responsibility thereunder in the
light of the circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden Savings,
Metrobank seems to be suggesting that as a mere agent it cannot be liable
to the principal. This is not exactly true. On the contrary, Article 1909 of the
Civil Code clearly provides that

Art. 1909. The agent is responsible not only for fraud, but also for
negligence, which shall be judged 'with more or less rigor by the
courts, according to whether the agency was or was not for a
compensation.
The negligence of Metrobank has been sufficiently established. To repeat for
emphasis, it was the clearance given by it that assured Golden Savings it
was already safe to allow Gomez to withdraw the proceeds of the treasury
warrants he had deposited Metrobank misled Golden Savings. There may
have been no express clearance, as Metrobank insists (although this is
refuted by Golden Savings) but in any case that clearance could be implied
from its allowing Golden Savings to withdraw from its account not only once
or even twice but three times. The total withdrawal was in excess of its
original balance before the treasury warrants were deposited, which only
added to its belief that the treasury warrants had indeed been cleared.
Metrobank's argument that it may recover the disputed amount if the
warrants are not paid for any reason is not acceptable. Any reason does not
mean no reason at all. Otherwise, there would have been no need at all for
Golden Savings to deposit the treasury warrants with it for clearance. There
would have been no need for it to wait until the warrants had been cleared
before paying the proceeds thereof to Gomez. Such a condition, if interpreted
in the way the petitioner suggests, is not binding for being arbitrary and
unconscionable. And it becomes more so in the case at bar when it is
considered that the supposed dishonor of the warrants was not
communicated to Golden Savings before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence in
giving express or at least implied clearance to the treasury warrants and
allowing payments therefrom to Golden Savings. But that is not all. On top of
this, the supposed reason for the dishonor, to wit, the forgery of the
signatures of the general manager and the auditor of the drawer corporation,
has not been established. 9 This was the finding of the lower courts which we
see no reason to disturb. And as we said in MWSS v. Court of Appeals: 10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA
238). It must be established by clear, positive and convincing
evidence. This was not done in the present case.
A no less important consideration is the circumstance that the treasury
warrants in question are not negotiable instruments. Clearly stamped on
their face is the word "non-negotiable." Moreover, and this is of equal
significance, it is indicated that they are payable from a particular fund, to
wit, Fund 501.

The following sections of the Negotiable Instruments Law, especially the

underscored parts, are pertinent:
Sec. 1. Form of negotiable instruments. An instrument to be
negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand, or at a fixed or determinable future
time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named
or otherwise indicated therein with reasonable certainty.
xxx

xxx

xxx

Sec. 3. When promise is unconditional. An unqualified order or

promise to pay is unconditional within the meaning of this Act though
coupled with
(a) An indication of a particular fund out of which reimbursement is to
be made or a particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument
judgment.
But an order or promise to pay out of a particular fund is not
unconditional.
The indication of Fund 501 as the source of the payment to be made on the
treasury warrants makes the order or promise to pay "not unconditional" and
the warrants themselves non-negotiable. There should be no question that
the exception on Section 3 of the Negotiable Instruments Law is applicable in
the case at bar. This conclusion conforms to Abubakar vs. Auditor
General 11 where the Court held:
The petitioner argues that he is a holder in good faith and for value of
a negotiable instrument and is entitled to the rights and privileges of a
holder in due course, free from defenses. But this treasury warrant is
not within the scope of the negotiable instrument law. For one thing,
the document bearing on its face the words "payable from the

appropriation for food administration, is actually an Order for payment

out of "a particular fund," and is not unconditional and does not fulfill
one of the essential requirements of a negotiable instrument (Sec. 3
last sentence and section [1(b)] of the Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the warrants in general, Golden
Savings assumed that they were "genuine and in all respects what they
purport to be," in accordance with Section 66 of the Negotiable Instruments
Law. The simple reason is that this law is not applicable to the nonnegotiable treasury warrants. The indorsement was made by Gloria Castillo
not for the purpose of guaranteeing the genuineness of the warrants but
merely to deposit them with Metrobank for clearing. It was in fact Metrobank
that made the guarantee when it stamped on the back of the warrants: "All
prior indorsement and/or lack of endorsements guaranteed, Metropolitan
Bank & Trust Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the
Philippine Islands, 12 but we feel this case is inapplicable to the present
controversy.1wphi1 That case involved checks whereas this case involves
treasury warrants. Golden Savings never represented that the
warrants were negotiable but signed them only for the purpose of
depositing them for clearance. Also, the fact of forgery was proved in
that case but not in the case before us. Finally, the Court found the Jai Alai
Corporation negligent in accepting the checks without question from one
Antonio Ramirez notwithstanding that the payee was the Inter-Island Gas
Services, Inc. and it did not appear that he was authorized to indorse it. No
similar negligence can be imputed to Golden Savings.
We find the challenged decision to be basically correct. However, we will
have to amend it insofar as it directs the petitioner to credit Golden Savings
with the full amount of the treasury checks deposited to its account.
The total value of the 32 treasury warrants dishonored was P1,754,089.00,
from which Gomez was allowed to withdraw P1,167,500.00 before Golden
Savings was notified of the dishonor. The amount he has withdrawn must be
charged not to Golden Savings but to Metrobank, which must bear the
consequences of its own negligence. But the balance of P586,589.00 should
be debited to Golden Savings, as obviously Gomez can no longer be
permitted to withdraw this amount from his deposit because of the dishonor
of the warrants. Gomez has in fact disappeared. To also credit the balance to
Golden Savings would unduly enrich it at the expense of Metrobank, let alone
the fact that it has already been informed of the dishonor of the treasury
warrants.

WHEREFORE, the challenged decision is AFFIRMED, with the modification

that Paragraph 3 of the dispositive portion of the judgment of the lower court
shall be reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only
and thereafter allowing defendant Golden Savings & Loan Association,
Inc. to withdraw the amount outstanding thereon, if any, after the
debit.

G.R. No. L-40824 February 23, 1989

GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner,
vs.
COURT OF APPEALS and MR. & MRS. ISABELO R. RACHO, respondents.
The Government Corporate Counsel for petitioner.
Lorenzo A. Sales for private respondents.

REGALADO , J.:
Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the
spouses Mr. and Mrs Flaviano Lagasca, executed a deed of mortgage, dated
November 13, 1957, in favor of petitioner Government Service Insurance
System (hereinafter referred to as GSIS) and subsequently, another deed of
mortgage, dated April 14, 1958, in connection with two loans granted by the
latter in the sums of P 11,500.00 and P 3,000.00, respectively. 1 A parcel of
land covered by Transfer Certificate of Title No. 38989 of the Register of
Deed of Quezon City, co-owned by said mortgagor spouses, was given as
security under the aforesaid two deeds. 2 They also executed a 'promissory
note" which states in part:
... for value received, we the undersigned ... JOINTLY, SEVERALLY
and SOLIDARILY, promise to pay the GOVERNMENT SERVICE
INSURANCE SYSTEM the sum of . . . (P 11,500.00) Philippine
Currency, with interest at the rate of six (6%) per centum
compounded monthly payable in . . . (120)equal monthly
installments of . . . (P 127.65) each. 3

On July 11, 1961, the Lagasca spouses executed an instrument denominated

"Assumption of Mortgage" under which they obligated themselves to assume
the aforesaid obligation to the GSIS and to secure the release of the
mortgage covering that portion of the land belonging to herein private
respondents and which was mortgaged to the GSIS. 4 This undertaking was
not fulfilled. 5
Upon failure of the mortgagors to comply with the conditions of the
mortgage, particularly the payment of the amortizations due, GSIS
extrajudicially foreclosed the mortgage and caused the mortgaged property
to be sold at public auction on December 3, 1962. 6
More than two years thereafter, or on August 23, 1965, herein private
respondents filed a complaint against the petitioner and the Lagasca spouses
in the former Court of
First Instance of Quezon City, 7 praying that the extrajudicial foreclosure
"made on, their property and all other documents executed in relation
thereto in favor of the Government Service Insurance System" be declared
null and void. It was further prayed that they be allowed to recover said
property, and/or the GSIS be ordered to pay them the value thereof, and/or
they be allowed to repurchase the land. Additionally, they asked for actual
and moral damages and attorney's fees.
In their aforesaid complaint, private respondents alleged that they signed the
mortgage contracts not as sureties or guarantors for the Lagasca spouses
but they merely gave their common property to the said co-owners who were
solely benefited by the loans from the GSIS.
The trial court rendered judgment on February 25, 1968 dismissing the
complaint for failure to establish a cause of action. 8
Said decision was reversed by the respondent Court of Appeals
that:

which held

... although formally they are co-mortgagors, they are so only for
accomodation (sic) in that the GSIS required their consent to the
mortgage of the entire parcel of land which was covered with
only one certificate of title, with full knowledge that the loans
secured thereby were solely for the benefit of the appellant (sic)
spouses who alone applied for the loan.

xxxx
'It is, therefore, clear that as against the GSIS, appellants have a
valid cause for having foreclosed the mortgage without having
given sufficient notice to them as required either as to their
delinquency in the payment of amortization or as to the
subsequent foreclosure of the mortgage by reason of any default
in such payment. The notice published in the newspaper, 'Daily
Record (Exh. 12) and posted pursuant to Sec 3 of Act 3135 is not
the notice to which the mortgagor is entitled upon the
application being made for an extrajudicial foreclosure. ... 10
On the foregoing findings, the respondent court consequently decreed thatIn view of all the foregoing, the judgment appealed from is
hereby reversed, and another one entered (1) declaring the
foreclosure of the mortgage void insofar as it affects the share of
the appellants; (2) directing the GSIS to reconvey to appellants
their share of the mortgaged property, or the value thereof if
already sold to third party, in the sum of P 35,000.00, and (3)
ordering the appellees Flaviano Lagasca and Esther Lagasca to
pay the appellants the sum of P 10,00.00 as moral damages, P
5,000.00 as attorney's fees, and costs. 11
The case is now before us in this petition for review.
In submitting their case to this Court, both parties relied on the provisions of
Section 29 of Act No. 2031, otherwise known as the Negotiable Instruments
Law, which provide that an accommodation party is one who has signed an
instrument as maker, drawer, acceptor of indorser without receiving value
therefor, but is held liable on the instrument to a holder for value although
the latter knew him to be only an accommodation party.
This approach of both parties appears to be misdirected and their reliance
misplaced. The promissory note hereinbefore quoted, as well as the
mortgage deeds subject of this case, are clearly not negotiable
instruments. These documents do not comply with the fourth
requisite to be considered as such under Section 1 of Act No. 2031
because they are neither payable to order nor to bearer. The note is
payable to a specified party, the GSIS. Absent the aforesaid requisite,

the provisions of Act No. 2031 would not apply; governance shall be afforded,
instead, by the provisions of the Civil Code and special laws on mortgages.
As earlier indicated, the factual findings of respondent court are that private
respondents signed the documents "only to give their consent to the
mortgage as required by GSIS", with the latter having full knowledge that the
loans secured thereby were solely for the benefit of the Lagasca
spouses. 12 This appears to be duly supported by sufficient evidence on
record. Indeed, it would be unusual for the GSIS to arrange for and deduct
the monthly amortizations on the loans from the salary as an army officer of
Flaviano Lagasca without likewise affecting deductions from the salary of
Isabelo Racho who was also an army sergeant. Then there is also the
undisputed fact, as already stated, that the Lagasca spouses executed a socalled "Assumption of Mortgage" promising to exclude private respondents
and their share of the mortgaged property from liability to the mortgagee.
There is no intimation that the former executed such instrument for a
consideration, thus confirming that they did so pursuant to their original
agreement.
The parol evidence rule 13 cannot be used by petitioner as a shield in this
case for it is clear that there was no objection in the court below regarding
the admissibility of the testimony and documents that were presented to
prove that the private respondents signed the mortgage papers just to
accommodate their co-owners, the Lagasca spouses. Besides, the
introduction of such evidence falls under the exception to said rule, there
being allegations in the complaint of private respondents in the court below
regarding the failure of the mortgage contracts to express the true
agreement of the parties.14
However, contrary to the holding of the respondent court, it cannot be said
that private respondents are without liability under the aforesaid mortgage
contracts. The factual context of this case is precisely what is contemplated
in the last paragraph of Article 2085 of the Civil Code to the effect that third
persons who are not parties to the principal obligation may secure the latter
by pledging or mortgaging their own property
So long as valid consent was given, the fact that the loans were solely for the
benefit of the Lagasca spouses would not invalidate the mortgage with
respect to private respondents' share in the property. In consenting thereto,
even assuming that private respondents may not be assuming personal

liability for the debt, their share in the property shall nevertheless secure and
respond for the performance of the principal obligation. The parties to the
mortgage could not have intended that the same would apply only to the
aliquot portion of the Lagasca spouses in the property, otherwise the consent
of the private respondents would not have been required.
The supposed requirement of prior demand on the private respondents
would not be in point here since the mortgage contracts created obligations
with specific terms for the compliance thereof. The facts further show that
the private respondents expressly bound themselves as solidary debtors in
the promissory note hereinbefore quoted.
Coming now to the extrajudicial foreclosure effected by GSIS, We cannot
agree with the ruling of respondent court that lack of notice to the private
respondents of the extrajudicial foreclosure sale impairs the validity thereof.
InBonnevie, et al. vs. Court of appeals, et al., 15 the Court ruled that Act No.
3135, as amended, does not require personal notice on the mortgagor,
quoting the requirement on notice in such cases as follows:
Section 3. Notice shall be given by posting notices of sale for not
less than twenty days in at least three public places of the
municipality where the property is situated, and if such property
is worth more than four hundred pesos, such notice shall also be
published once a week for at least three consecutive weeks in a
newspaper of general circulation in the municipality or city.
There is no showing that the foregoing requirement on notice was not
complied with in the foreclosure sale complained of .
The respondent court, therefore, erred in annulling the mortgage insofar as it
affected the share of private respondents or in directing reconveyance of
their property or the payment of the value thereof Indubitably, whether or
not private respondents herein benefited from the loan, the mortgage and
the extrajudicial foreclosure proceedings were valid.
WHEREFORE, judgment is hereby rendered REVERSING the decision of the
respondent Court of Appeals and REINSTATING the decision of the court a
quo in Civil Case No. Q-9418 thereof.

G.R. No. 16454

September 29, 1921

GEORGE A. KAUFFMAN, plaintiff-appellee,

vs.
THE PHILIPPINE NATIONAL BANK, defendant-appellant.
Roman J. Lacson for appellant.
Ross and Lawrence for appellee.
STREET, J.:
At the time of the transaction which gave rise to this litigation the plaintiff,
George A. Kauffman, was the president of a domestic corporation engaged
chiefly in the exportation of hemp from the Philippine Islands and known as
the Philippine Fiber and Produce Company, of which company the plaintiff
apparently held in his own right nearly the entire issue of capital stock. On
February 5, 1918, the board of directors of said company, declared a
dividend of P100,000 from its surplus earnings for the year 1917, of which
the plaintiff was entitled to the sum of P98,000. This amount was accordingly
placed to his credit on the books of the company, and so remained until in
October of the same year when an unsuccessful effort was made to transmit
the whole, or a greater part thereof, to the plaintiff in New York City.
In this connection it appears that on October 9, 1918, George B. Wicks,
treasurer of the Philippine Fiber and Produce Company, presented himself in
the exchange department of the Philippine National Bank in Manila and
requested that a telegraphic transfer of $45,000 should be made to the
plaintiff in New York City, upon account of the Philippine Fiber and Produce
Company. He was informed that the total cost of said transfer, including
exchange and cost of message, would be P90,355.50. Accordingly, Wicks, as
treasurer of the Philippine Fiber and Produce Company, thereupon drew and
delivered a check for that amount on the Philippine National Bank; and the
same was accepted by the officer selling the exchange in payment of the
transfer in question. As evidence of this transaction a document was made
out and delivered to Wicks, which is referred to by the bank's assistant
cashier as its official receipt. This memorandum receipt is in the following
language:

October 9th, 1918.

CABLE TRANSFER BOUGHT FROM

PHILIPPINE NATIONAL BANK,
Manila, P.I.
Stamp P18

Foreign
$45,000.

Amount
3/8 %

Rate
P90,337.50

Payable through Philippine National Bank, New York. To G. A. Kauffman,

New York. Total P90,355.50. Account of Philippine Fiber and Produce
Company. Sold to Messrs. Philippine Fiber and Produce Company,
Manila.

(Sgd.) Y LERMA,
Manager, Foreign
Department.

On the same day the Philippine National Bank dispatched to its New York
agency a cablegram to the following effect:
Pay George A. Kauffman, New York, account Philippine Fiber Produce
Co., $45,000. (Sgd.) PHILIPPINE NATIONAL BANK, Manila.
Upon receiving this telegraphic message, the bank's representative in New
York sent a cable message in reply suggesting the advisability of withholding
this money from Kauffman, in view of his reluctance to accept certain bills of
the Philippine Fiber and Produce Company. The Philippine National Bank
acquiesced in this and on October 11 dispatched to its New York agency
another message to withhold the Kauffman payment as suggested.
Meanwhile Wicks, the treasurer of the Philippine Fiber and Produce Company,
cabled to Kauffman in New York, advising him that $45,000 had been placed
to his credit in the New York agency of the Philippine National Bank; and in
response to this advice Kauffman presented himself at the office of the
Philippine National Bank in New York City on October 15, 1918, and
demanded the money. By this time, however, the message from the
Philippine National Bank of October 11, directing the withholding of payment
had been received in New York, and payment was therefore refused.
In view of these facts, the plaintiff Kauffman instituted the present action in
the Court of First Instance of the city of Manila to recover said sum, with
interest and costs; and judgment having been there entered favorably to the
plaintiff, the defendant appealed.
Among additional facts pertinent to the case we note the circumstance that
at the time of the transaction above-mentioned, the Philippines Fiber and
Produce Company did not have on deposit in the Philippine National Bank
money adequate to pay the check for P90,355.50, which was delivered in

payment of the telegraphic order; but the company did have credit to that
extent, or more, for overdraft in current account, and the check in question
was charged as an overdraft against the Philippine Fiber and Produce
Company and has remained on the books of the bank as an interest-bearing
item in the account of said company.
It is furthermore noteworthy that no evidence has been introduced tending to
show failure of consideration with respect to the amount paid for said
telegraphic order. It is true that in the defendant's answer it is suggested
that the failure of the bank to pay over the amount of this remittance to the
plaintiff in New York City, pursuant to its agreement, was due to a desire to
protect the bank in its relations with the Philippine Fiber and Produce
Company, whose credit was secured at the bank by warehouse receipts on
Philippine products; and it is alleged that after the exchange in question was
sold the bank found that it did not have sufficient to warrant payment of the
remittance. In view, however, of the failure of the bank to substantiate these
allegations, or to offer any other proof showing failure of consideration, it
must be assumed that the obligation of the bank was supported by adequate
consideration.
In this court the defense is mainly, if not exclusively, based upon the
proposition that, inasmuch as the plaintiff Kauffman was not a party to the
contract with the bank for the transmission of this credit, no right of action
can be vested in him for the breach thereof. "In this situation," we here
quote the words of the appellant's brief, "if there exists a cause of action
against the defendant, it would not be in favor of the plaintiff who had taken
no part at all in the transaction nor had entered into any contract with the
plaintiff, but in favor of the Philippine Fiber and Produce Company, the party
which contracted in its own name with the defendant."
The question thus placed before us is one purely of law; and at the very
threshold of the discussion it can be stated that the provisions of the
Negotiable Instruments Law can come into operation there must be
a document in existence of the character described in section 1 of
the Law; and no rights properly speaking arise in respect to said
instrument until it is delivered. In the case before us there was an order,
it is true, transmitted by the defendant bank to its New York branch, for the
payment of a specified sum of money to George A. Kauffman. But this order
was not made payable "to order or "to bearer," as required in subsection (d)
of that Act; and inasmuch as it never left the possession of the bank, or its
representative in New York City, there was no delivery in the sense intended
in section 16 of the same Law. In this connection it is unnecessary to point
out that the official receipt delivered by the bank to the purchaser of the
telegraphic order, and already set out above, cannot itself be viewed in the
light of a negotiable instrument, although it affords complete proof of the
obligation actually assumed by the bank.

Stated in bare simplicity the admitted facts show that the defendant bank for
a valuable consideration paid by the Philippine Fiber and Produce Company
agreed on October 9, 1918, to cause a sum of money to be paid to the
plaintiff in New York City; and the question is whether the plaintiff can
maintain an action against the bank for the nonperformance of said
undertaking. In other words, is the lack of privity with the contract on the
part of the plaintiff fatal to the maintenance of an action by him?
The only express provision of law that has been cited as bearing directly on
this question is the second paragraph of article 1257 of the Civil Code; and
unless the present action can be maintained under the provision, the plaintiff
admittedly has no case. This provision states an exception to the more
general rule expressed in the first paragraph of the same article to the effect
that contracts are productive of effects only between the parties who
execute them; and in harmony with this general rule are numerous decisions
of this court (Wolfson vs. Estate of Martinez, 20 Phil., 340; Ibaez de
Aldecoa vs. Hongkong and Shanghai Banking Corporation, 22 Phil., 572, 584;
Manila Railroad Co.vs. Compaia Trasatlantica and Atlantic, Gulf and Pacific
Co., 38 Phil., 873, 894.)
The paragraph introducing the exception which we are now to consider is in
these words:
Should the contract contain any stipulation in favor of a third person,
he may demand its fulfillment, provided he has given notice of his
acceptance to the person bound before the stipulation has been
revoked. (Art. 1257, par. 2, Civ. Code.)
In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), is found an
elaborate dissertation upon the history and interpretation of the paragraph
above quoted and so complete is the discussion contained in that opinion
that it would be idle for us here to go over the same matter. Suffice it to say
that Justice Trent, speaking for the court in that case, sums up its conclusions
upon the conditions governing the right of the person for whose benefit a
contract is made to maintain an action for the breach thereof in the following
words:
So, we believe the fairest test, in this jurisdiction at least, whereby to
determine whether the interest of a third person in a contract is a
stipulation pour autrui, or merely an incidental interest, is to rely upon
the intention of the parties as disclosed by their contract.
If a third person claims an enforcible interest in the contract, the
question must be settled by determining whether the contracting
parties desired to tender him such an interest. Did they deliberately
insert terms in their agreement with the avowed purpose of conferring

a favor upon such third person? In resolving this question, of course,

the ordinary rules of construction and interpretation of writings must
be observed. (Uy Tam and Uy Yet vs. Leonard, supra.)
Further on in the same opinion he adds: "In applying this test to a
stipulation pour autrui, it matters not whether the stipulation is in the nature
of a gift or whether there is an obligation owing from the promise to the third
person. That no such obligation exists may in some degree assist in
determining whether the parties intended to benefit a third person, whether
they stipulated for him." (Uy Tam and Uy Yet vs. Leonard, supra.)
In the light of the conclusion thus stated, the right of the plaintiff to maintain
the present action is clear enough; for it is undeniable that the bank's
promise to cause a definite sum of money to be paid to the plaintiff in New
York City is a stipulation in his favor within the meaning of the paragraph
above quoted; and the circumstances under which that promise was given
disclose an evident intention on the part of the contracting parties that the
plaintiff should have the money upon demand in New York City. The
recognition of this unqualified right in the plaintiff to receive the money
implies in our opinion the right in him to maintain an action to recover it; and
indeed if the provision in question were not applicable to the facts now
before us, it would be difficult to conceive of a case arising under it.
It will be noted that under the paragraph cited a third person seeking to
enforce compliance with a stipulation in his favor must signify his acceptance
before it has been revoked. In this case the plaintiff clearly signified his
acceptance to the bank by demanding payment; and although the Philippine
National Bank had already directed its New York agency to withhold payment
when this demand was made, the rights of the plaintiff cannot be considered
to as there used, must be understood to imply revocation by the mutual
consent of the contracting parties, or at least by direction of the party
purchasing he exchange.
In the course of the argument attention was directed to the case of
Legniti vs. Mechanics, etc. Bank (130 N.E. Rep., 597), decided by the Court of
Appeals of the State of New York on March 1, 1921, wherein it is held that, by
selling a cable transfer of funds on a foreign country in ordinary course, a
bank incurs a simple contractual obligation, and cannot be considered as
holding the money which was paid for the transfer in the character of a
specific trust. Thus, it was said, "Cable transfers, therefore, mean a method
of transmitting money by cable wherein the seller engages that he has the
balance at the point on which the payment is ordered and that on receipt of
the cable directing the transfer his correspondent at such point will make
payment to the beneficiary described in the cable. All these transaction are
matters of purchase and sale create no trust relationship."

As we view it there is nothing in the decision referred to decisive of the

question now before us, wish is merely that of the right of the beneficiary to
maintain an action against the bank selling the transfer.
Upon the considerations already stated, we are of the opinion that the right
of action exists, and the judgment must be affirmed. It is so ordered, with
costs against the appellant. Interest will be computed as prescribed in
section 510 of the Code of Civil Procedure.

[G.R. No. 75908. October 22, 1999]

FEDERICO O. BORROMEO, LOURDES O. BORROMEO and FEDERICO O.
BORROMEO, INC, petitioners vs. AMANCIO SUN and the COURT
OF APPEALS, respondents.
DECISION
PURISIMA, J.:
At bar is a Petition for review on Certiorari under Rule 45 of the Revised
Rules of Court seeking to set aside the Resolution of the then Intermediate
Appellate Court[1], dated March 13, 1986, in AC-G.R. CV NO. 67988, which
reversed its earlier Decision dated February 12, 1985, setting aside the
Decision of the former Court of the First Instance of Rizal, Branch X, in Civil
Case No. 19466.
The antecedent facts are as follows:
Private respondent Amancio Sun brought before the then Court of the
First Instance of Rizal, Branch X, an action against Lourdes O. Borromeo (in
her capacity as corporate secretary), Federico O. Borromeo and Federico O.
Borromeo (F.O.B.), Inc., to compel the transfer to his name in the books of
F.O.B., Inc., 23,223 shares of stock registered in the name of Federico O.
Borromeo, as evidenced by a Deed of Assignment dated January 16, 1974.
Private respondent averred[2] that all the shares of stock of F.O.B. Inc.
registered in the name of Federico O. Borromeo belong to him, as the said
shares were placed in the name of Federico O. Borromeo only to give the
latter personality and importance in the business world. [3] According to the
private respondent, on January 16, 1974 Federico O. Borromeo executed in

his favor a Deed of Assignment with respect to the said 23,223 shares of
stock.
On the other hand, petitioner Federico O. Borromeo disclaimed any
participation in the execution of the Deed of Assignment, theorizing that his
supposed signature thereon was forged.
After trial, the lower court of origin came out with a decision declaring the
questioned signature on subject Deed of Assignment, dated January 16,
1974, as the genuine signature of Federico O. Borromeo; ratiocinating thus:
After considering the testimonies of the two expert witnesses for the parties
and after a careful and judicious study and analysis of the questioned
signature as compared to the standard signatures, the Court is not in a
position to declare that the questioned signature in Exh. A is a forgery. On
the other hand, the Court is of the opinion that the questioned signature is
the real signature of Federico O. Borromeo between the years 1954 to 1957
but definitely is not his signature in 1974 for by then he has changed his
signature. Consequently, to the mind of the Court Exhibit A was signed by
defendant Federico O. Borromeo between the years 1954 to 1957 although
the words in the blank were filled at a much later date.[4]
On appeal by petitioners, the Court of Appeals adjudged as forgery the
controverted signature of Federico O. Borromeo; disposing as follows:
WHEREFORE, the judgment of the Court a quo as to the second cause of
action dated March 12, 1980 is hereby reversed and set aside and a new
judgment is hereby rendered:
1. Ordering the dismissal of the complaint as to defendant-appellants;
2. Ordering plaintiff-appellee on appellants counterclaim to pay the latter:
a) P 20,000.00 as moral damages;
b) P 10,000.00 as exemplary damages;
c) P 10,000.00 as attorneys fees.
3. Ordering plaintiff-appellee to pay the costs.[5]

On March 29, 1985, Amancio Sun interposed a motion for reconsideration

of the said decision, contending that Segundo Tabayoyong, petitioners expert
witness, is not a credible witness as found and concluded in the following
disposition by this Court in Cesar vs. Sandigan Bayan[6]:
The testimony of Mr. Segundo Tabayoyong on March 5, 1980, part of which is
cited on pages 19-23 of the petition, shows admissions which are
summarized by the petitioner as follows:
He never finished any degree in Criminology. Neither did he obtain any
degree in physics or chemistry. He was a mere trainee in the NBI
laboratory. He said he had gone abroad only once-to Argentina which,
according to him is the only one country in the world that gives this degree
(?) People go there where they obtain this sort of degree (?) where they are
authorized to practice (sic) examination of questioned documents.
His civil service eligibility was second grade (general clerical). His present
position had to be re-classified confidential in order to qualify him to it. He
never passed any Board Examination.
He has never authored any book on the subject on which he claimed to be
an expert. Well, he did write a so-called pamphlet pretentiously called
Fundamentals of Questioned Documents Examination and Forgery Detection.
In that pamphlet, he mentioned some references (some) are Americans and
one I think is a British, sir, like in the case of Dr. Wilson Harrison, a British (he
repeated with emphasis). Many of the theories contained in his pamphlet
were lifted body and soul from those references, one of them being Albert
Osborn. His pamphlet has neither quotations nor footnotes, although he was
too aware of the crime committed by many an author called plagiarism. But
that did not deter him, nor bother him in the least. He has never been a
member of any professional organization of experts in his supposed field of
expertise, because he said there is none locally. Neither is he on an
international level.[7]
Acting on the aforesaid motion for reconsideration, the Court of Appeals
reconsidered its decision of February 12, 1985 aforementioned. Thereafter,
the parties agreed to have subject Deed of Assignment examined by the
Philippine Constabulary (PC) Crime Laboratory, which submitted a Report on
January 9, 1986, the pertinent portion of which, stated:

1. Comparative examination and analysis of the questioned and the

standard signature reveal significant similarities in the freedom of
movement, good quality of lines, skills and individual handwriting
characteristics.
2. By process of interpolation the questioned signature fits in and can
be bracketed in time with the standard signatures written in the
years between 1956 to 1959. Microscopic examination of the ink
used in the questioned signature and the standard signature in
document dated 30 July 1959 marked Exh. E indicate gallotanic ink.
xxx
1. The questioned signature FEDERICO O. BORROMEO marked Q
appearing in the original Deed of Assignment dated 16 January
1974 and the submitted standard signatures of Federico O.
Borromeo marked S-1 to S-49 inclusive were written BY ONE AND
THE SAME PERSON.
2. The questioned signature FEDERICO O. BORROMEO marked Q
COULD HAVE BEEN SIGNED IN THE YEARS BETWEEN 1950-1957. [8]
After hearing the arguments the lawyers of record advanced on the said
Report of the PC Crime Laboratory, the Court of Appeals resolved:
"xxx
1) to ADMIT the Report dated Jan. 9, 1986 of the PC Crime Laboratory
on the Deed of Assignment in evidence, without prejudice to the
parties assailing the credibility of said Report;
2) to GIVE both parties a non-extendible period of FIVE (5) DAYS from
February 27, 1986, within which to file simultaneous memoranda.[9]
On March 13, 1986, the Court of Appeals reversed its decision of February
12, 1985, which affirmed in toto the decision of the trial court of origin;
resolving thus:
WHEREFORE, finding the Motion for Reconsideration meritorious, We hereby
set aside our Decision, dated February 12, 1985 and in its stead a new

judgment is hereby rendered affirming intoto the decision of the trial Court,
dated March 12, 1980, without pronouncement as to costs.
SO ORDERED.[10]
Therefrom, petitioners found their way to this court via the present Petition;
theorizing that:
I.
THE RESPONDENT COURT ERRED IN HOLDING THAT WHEN PETITIONER
AGREED TO THE SUGGESTION OF RESPONDENT COURT TO HAVE THE
QUESTIONED DOCUMENT EXAMINED BY THE PC CRIME LABORATORY THEY
COULD NO LONGER QUESTION THE COMPETENCY OF THE DOCUMENT.
II
THE COURT OF APPEALS ERRED IN HOLDING THAT THE QUESTIONED
DOCUMENT WAS SIGNED IN 1954 BUT WAS DATED IN 1974.
III
THE COURT OF APPEALS ERRED IN HOLDING THAT THE SIGNATURE OF
FEDERICO O. BORROMEO IN THE DEED OF ASSIGNMENT (EXHIBIT A ) IS A
GENUINE SIGNATURE CIRCA 1954-1957.
The Petition is barren of merit.
Well-settled is the rule that factual finding of the Court of Appeals are
conclusive on the parties and not reviewable by the Supreme Court and they
carry even more weight when the Court of Appeals affirms the factual
findings of the trial court. [11]
In the present case, the trial court found that the signature in question is
the genuine signature of Federico O. Borromeo between the years 1954 to
1957 although the words in the blank space of the document in question
were written on a much later date. The same conclusion was arrived at by
the Court of Appeals on the basis of the Report of the PC crime Laboratory
corroborating the findings of Col. Jose Fernandez that the signature under
controversy is genuine.

It is significant to note that Mr. Tabayoyong, petitioners expert witness,

limited his comparison of the questioned signature with the 1974 standard
signature of Federico O. Borromeo. No comparison of the subject signature
with the 1950 - 1957 standard signature was ever made by Mr. Tabayoyong
despite his awareness that the expert witness of private respondent, Col.
Jose Fernandez, made a comparison of said signatures and notwithstanding
his (Tabayoyongs) access to such signatures as they were all submitted to
the lower Court. As correctly ratiocinated[12] by the Court of origin, the only
conceivable reason why Mr. Tabayoyong avoided making such a comparison
must have been, that even to the naked eye, the questioned signature
affixed to the Deed of Assignment, dated January 16, 1974, is strikingly
similar to the 1950 to 1954 standard signature of Federico O. Borromeo, such
that if a comparison thereof was made by Mr. Tabayoyong, he would have
found the questioned signature genuine.
That the Deed of Assignment is dated January 16, 1974 while the
questioned signature was found to be circa 1954-1957, and not that of 1974,
is of no moment. It does not necessarily mean, that the deed is a
forgery. Pertinent records reveal that the subject Deed of Assignment is
embodied in a blank form for the assignment of shares with authority to
transfer such shares in the books of the corporation. It was clearly intended
to be signed in blank to facilitate the assignment of shares from one person
to another at any future time. This is similar to Section 14 of the Negotiable
Instruments Law where the blanks may be filled up by the holder, the signing
in blank being with the assumed authority to do so. Indeed, as the shares
were registered in the name of Federico O. Borromeo just to give him
personality and standing in the business community, private respondent had
to have a counter evidence of ownership of the shares involve. Thus the
execution of the deed of assignment in blank, to be filled up whenever
needed. The same explains the discrepancy between the date of the deed of
assignment and the date when the signature was affixed thereto.
While it is true that the 1974 standard signature of Federico O. Borromeo
is to the naked eye dissimilar to his questioned signature circa 1954-1957,
which could have been caused by sheer lapse of time, Col. Jose Fernandez,
respondents expert witness, found the said signatures similar to each other
after subjecting the same to stereomicroscopic examination and analysis
because the intrinsic and natural characteristic of Federico O. Borromeos
handwriting were present in all the exemplar signatures used by both
Segundo Tabayoyong and Col. Jose Fernandez.

It is therefore beyond cavil that the findings of the Court of origin

affirmed by the Court of Appeals on the basis of the corroborative findings of
the Philippine Constabulary Crime Laboratory confirmed the genuineness of
the signature of Federico O. Borromeo in the Deed of Assignment dated
January 16, 1974.
Petitioners, however, question the Report of the document examiner on
the ground that they were not given an opportunity to cross-examine the
Philippine Constabulary document examiner; arguing that they never waived
their right to question the competency of the examiner concerned. While the
Court finds merit in the contention of petitioners, that they did not actually
waived their right to cross-examine on any aspect of subject Report of the
Philippine Constabulary Crime Laboratory, the Court discerns no proper basis
for deviating from the findings of the Court of Appeals on the matter. It is
worthy to stress that courts may place whatever weight due on the
testimony of an expert witness.[13] Conformably, in giving credence and
probative value to the said Report of the Philippine Constabulary Crime
Laboratory, corroborating the findings of the trial Court, the Court of Appeals
merely exercised its discretion. There being no grave abuse in the exercise of
such judicial discretion, the findings by the Court of Appeals should not be
disturbed on appeal.
Premises studiedly considered, the Court is of the irresistible conclusion,
and so holds, that the respondent court erred not in affirming the decision of
the Regional Trial Court a quo in Civil Case No. 19466.
WHEREFORE, the Petition is DISMISSED for lack of merit and the
assailed Resolution, dated March 13, 1986, AFFIRMED. No pronouncement as
to costs.

G.R. No. L-85785 April 24, 1989

BENITO SY y ONG, petitioner,
vs.
PEOPLE OF THE PHILIPPINES PHILIPPINES and COURT OF
APPEALS, respondents.
Law Firm of Raymundo A. Armovit for petitioner.

The Solicitor General for respondent.

MELENCIO-HERRERA, J.:
Convicted of Estafa under Article 315, Paragraph 1(b) of the Revised Penal
Code by three (3) Courts, namely, the Metropolitan Trial Court, Caloocan City,
Branch 52; 1 the Regional Trial Court of the same City, Branch 129 ; 2 and
respondent Court of Appeals, petitioner now seeks to break the chain of
convictions.
The indictment against petitioner-accused, filed on 18 August 1986, reads:
That on or about and during the month of January 1986 in
Caloocan City, Metro Manila and within the jurisdiction of this
Honorable Court, the above- named accused received from the
Panama Sawmill Inc., represented in this case by TE PENG MEN,
PBC Check No. 291616 dated January 15, 1986 for P6,000.00
which check was subsequently encashed by said accused for the
purpose of and under the express obligation on his part to use
the said amount in securing a Marine Insurance coverage for
P3,000,000.00 on a shipment of logs owned by Panama Sawmill,
Inc. but said accused with abuse of trust and confidence reposed
upon him far from complying with his obligation and with intent
to deceive and defraud said corporation, did then and there
willfully, unlawfully and feloniously receive a Marine Insurance
coverage for only Pl,000,000.00 to cover said shipment of logs,
paying therefor only the amount of P2,712.50 as insurance
premium without the knowledge and consent of said Panama
Sawmill, Inc., and thereafter, said accused misappropriated and
converted to his own personal use and benefit the balance of
P3,287.50, and despite repeated demands upon him, said
accused refused and failed to account for said sum of P3,287.50
to the damage and prejudice of said Panama Sawmill Inc., in the
aforestated amount of P3,287.50. (p. 3, Original Record)
After trial on the merits, the Metropolitan Trial Court of Caloocan City
convicted petitioner in a Decision, dated 17 December 1986, the dispositive
portion of which reads:

WHEREFORE, by proof beyond reasonable doubt, the accused

BENITO SY is found GUILTY of violating Art. 315, Par. 3 of the
Revised Penal Code, he is sentenced to a straight penalty of
FOUR (4) MONTHS imprisonment, to reimburse or give restitution
in the amount of THREE THOUSAND TWO HUNDRED EIGHTY
SEVEN (3,287.50) PESOS AND 50/100 CENTAVOS and to pay
costs. (p. 37, Original Record.)
On appeal before it, the Regional Trial Court of Caloocan City, affirmed the
judgment of conviction on 3 June 1987, but increased the penalty, as follows:
IN VIEW OF THE FOREGOING, this Court finds the accused Benito
Sy y Ong guilty beyond reasonable doubt of the crime of estafa,
thru misappropriation, as defined under par. 1(b) and penalized
under the 3rd par. of Art 315 of the Revised Penal Code and there
being no attendant mitigating nor aggravating circumstance, he
is hereby sentenced to suffer an indeterminate penalty of THREE
(3) MONTHS OF ARRESTO MAYOR TO ONE (1) YEAR AND ONE (1)
DAY OF PRISION CORRECCIONAL; to suffer the accessory
penalties provided for by law; and to pay complainant Panama
Sawmill Co., by way of reparation, the amount of P3,287.50.
Costs against appellant. (p. 304, Original Record)
On 30 June 1988 respondent Court of Appeals affirmed the Regional Trial
Court Decision 3 notwithstanding two (2) Manifestations in lieu of Comment
submitted by the Office of the Solicitor General, dated 3 March 1988 and 3
October 1988, respectively, recommending acquittal of petitioner-accused.
Before us now, petitioner re-asserts his innocence. The Solicitor General has
also reiterated his recommendation for acquittal.
According to Te Peng Men Manager of Panama Sawmill, Inc. (henceforth,
simply "Panama") and sole witness of the prosecution, the developments in
this case unfolded as follows:
1. Sometime in January 1986 "Panama" engaged petitioner, an insurance
agent, to obtain marine insurance in the amount of P3M to cover its log
shipment from Palawan to Manila.
2. As instructed,on l4 January l986 petitioner secured Marine Insurance Policy
No. OAC-M-86/002 from Oriental Assurance Corporation ("Oriental", for

short), with a face value of P3M (Exhibit "A"). Only the duplicate original of
the Policy was left with "Panama".
3. On 15 January 1986, "Panama" gave petitioner Philippine Bank of
Communication Check No. 291616 in the amount of P6,000.00 payable to
"Oriental" for the policy coverage of P3M.
4. On 28 January 1986 some of the logs valued at P1.2M were lost when the
barge transporting the shipment encountered rough seas in the vicinity of
Dumaran Island, Palawan.
5. "Panama" filed a claim for loss against "Oriental" only to be informed by
the latter that its marine insurance coverage was only for P1M and that
petitioner had paid a premium of only P2,712.50 (Exhibit "D")
6. Contending that petitioner had misappropriated the difference of
P3,287.50 for his personal use and benefit to its prejudice, "Panama" charged
petitioner with Estafa.
For his part, petitioner maintains that the following details constitute the
truth:
a) Petitioner had never, at any one time, dealt with prosecution witness, Te
Peng Men. It was only through one Tau Tian that petitioner had any contact
with "Panama".
b) "Oriental" had issued a Marine Insurance Policy in the amount of P3M in
favor of "Panama" through petitioner's efforts.
c) However, Tau Tian requested petitioner to return the Policy since the rate
was quite high and "Panama" wanted to pay only P6,000.00. Thereafter, Tau
Tian returned the original of the Policy to petitioner but retained the
duplicate copy. Tau Tian instructed petitioner to obtain a reduction of the
premium from P8,137.50 to P6,000.00.
d) Since petitioner was not able to secure a reduction in the premium, he
obtained instead a P1M policy from "Oriental" paying for that purpose a
premium of P2,712.50. In addition, he obtained a P2M policy from the First
Integrated Insurance Co., Inc. paying a premium therefor of P3,255.00. The
two policies totalled P3M and the premiums paid reached P5,967.50, or
almost P6,000.00.

e) The real reason why "Panama" was not able to recover on the
aforementioned policies was because the policy of "Oriental" was for total
loss only and not for partial loss. In fact, even the Tan Gatue Adjustment
Company sustained the rejection of "Panama's" claim for that reason.
Defense witness, Kent Cotoco, the Underwriting Manager of "Oriental"
corroborated petitioner's testimony that the P3M Policy first issued by
"Oriental" (Exhibit "1") was cancelled and replaced by a P1M Policy (Exhibit
"3"). He explained that before the P3M Policy was cancelled, petitioner had
surrendered the original to "Oriental"; that the original and the replacement
Policies bear the same serial number 86/002 because it is company policy for
the replacement Policy to carry the same number as the original Policy; and
that he was aware that the First Integrated Insurance Co., Inc., had issued a
P2M Policy for "Panama" (t.s.n., November 21, 1986, pp. 78-80) because the
latter company charges a lower premium rate than "Oriental" (ibid., pp. 8082).
Is the accused guilty of Estafa committed through misappropriation under
paragraph l(b), Article 325 of the Revised Penal Code? Said provision reads:
ART. 315. Swindling (estafa). Any person who shall defraud
another by any of the means mentioned herein-below shall be
punished by:
xxxxxxxxx
(b) By appropriating or converting, to the prejudice of another,
money, goods, or any other personal property received by the
offender in trust or on commission, or for administration, or
under any other obligation involving the duty to make delivery of
or to return the same, even though such obligation be totally or
partially guaranteed by a bond or by denying having received
such money, goods, or other property.
For the crime of Estafa through misappropriation to exist the following
elements must be present:
1. That money, goods or other personal property is received by
the offender in trust, or on commission, or for administration, or
under any other obligation involving the duty to make delivery
of, or to return, the same;

2. That there be misappropriation or conversion of such money

or property by the offender, or denial on his part of such receipt;
3. That such misappropriation or conversion or denial is to the
prejudice of another; and
4. That there is a demand made by the offended party to the
offender. (II Criminal Law, Luis B. Reyes, 12th Edition, p. 717)
Have the foregoing elements been met in respect of petitioner-accused?
Petitioner, supported by the Solicitor General, avers that they have not
because no conversion or misappropriation has been committed and that
there was no demand for the return of the P6,000.00 given to petitioner. In
other words, elements 2, 3, and 4 of the crime are lacking.
The totality of the evidence yields the following incontrovertible data in
chronological order:
Jan. 14, 1986 - Issuance of Oriental Marine Insurance
Policy No. OAC-M-86/002 for P 3M, with a total
premium of P8,137.50. "against total loss only."
(carbon copy, Exhibit "A", original, Exhibit "1").
Jan. 15, 1986 - PBC Check No. 291616 payable to
Oriental Assurance Corporation for P6,000.00 (Exhibit
"C"), endorsed at the back by petitioner (Exhibit "C1") and stamped "cleared' on the same day, January
15, 1986.
Jan. 15, 1986 - Issuance of First Integrated Marine
Insurance Policy No. 00266 for P2M with a premium
of P3,000.00 plus P225.00 documentary stamps with
a coverage "Total Loss by Total Loss of the Vessel
Only" (Exhibit "2").
Jan. 20, 1986 - Issuance of "Oriental" Marine
Insurance OAC-M-861002 for P1M, with a total
premium of P2,712.50 "against total loss only."
(Exhibit "3").

Jan. 21, 1986 - Official receiptof "Oriental"for

P2,712.50 representing premium for Policy No. M861002 in the amount of P1M (Exhibits "D" and 4").
Jan. 28, 1986 - Partial loss of the log shipment.
Feb. 28, 1986 - Report of the Tan-Gatue Adjustment
Co., Inc., that the loss was not compensable under
the terms and conditions "Total Loss Only" stipulated
in the "Oriental" Policy (Exhibit "6").
May 2, 1986 - Endorsement No. M-0001 of First
Integrated declaring that its Marine Cargo Policy No.
00266, issued on January 15, 1986, is "CANCELLED
effective as of its inception date, for non-payment of
premium" (Exhibit "E"; "E-1").
May , 1986 - Investigation of case by City Fiscal of
Caloocan city.
June 10, 1986 - First Integrated Official Receipt for
P3,255.00 in payment of premium for Marine Cargo
Policy No. 00266 issued (Exhibit "5")
June 10, 1986 - Endorsement No. NPA/M-0002/86
First Integrated, reinstating Marine Cargo Policy No.
00266 provided no loss "has occurred prior to the
date of issuance of this endorsement" (Exhibit "7").
Aug. 18, 1986 - Information for Estafa filed before the
Metropolitan Trial Court, Caloocan City.
Upon the established facts, there can be no dispute that petitioner received
a check in the amount of P6,000.00 from "Panama" for the particular
purpose of securing a marine insurance coverage of P3M. That marked the
creation of a fiduciary relation between them, the existence of which, either
in the form of a trust or under any other obligation involving the duty to
make delivery of the same, is an essential element of the crime of Estafa by
misappropriation or conversion. The first element of the crime of Estafa,
therefore, is satisfied.

As to the second element of "misappropriation or conversion" of the money

or property received, petitioner contends that the same is in attendant
because petitioner had, in fact, procured the P3M insurance coverage from
two companies, spending therefor all of the entrusted amount of P6,000.00
for premiums.
We find ourselves in disagreement.
To "convert" ("distraer") connotes the act of using or disposing of another's
property as if it were one's own. And to "misappropriate" ("appropiar")
means to own, to take something for one's own benefit (II Criminal Law, Luis
B. Reyes, 12th Edition, p. 729). That there was conversion or
misappropriation by petitioner is immediately shown by the fact that, as
admitted by him on cross-examination, he had deposited the "Panama"
check of P6,000.00 payable to "Oriental" in his own personal account (t.s.n.,
November 21, 1986, p. 30) even though he was not authorized to do so by
"Oriental" being merely an ordinary, not a special agent, as testified to by
the underwriting agent of "Oriental" (ibid., pp. 70-74). Petitioner assumed the
right to dispose of it as if it were his, thus committing conversion with
unfaithfulness and a clear breach of trust. A check while not regarded as
legal tender is normally, under commercial usage, a substitute for
cash. The credit represented by it in stated monetary value is
properly capable of appropriation (Galvez vs. Court of Appeals, L- 22760,
November 29, 1971, 42 SCRA 278).
More, petitioner only gave a duplicate original copy of the "Oriental" policy to
"Panama", which accepted it as the right policy. If, as petitioner alleges,
"Panama" had asked him to secure a reduction in premium, it would have
been a simple matter for him to have informed "Panama" of the second
Policy for P1M he had secured from "Oriental" as well as the P2M Policy from
First Integrated. But, no. All these were fraudulently concealed from
"Panama" and were brought out only during the preliminary investigation of
the case before the City Fiscal's Office.
Petitioner's obtainment of the First Integrated Policy, with a coverage of P2M,
was only on paper. He had failed to pay the premium therefor of P3,255.00 at
the time of issuance so that the Policy never became valid and binding (Sec.
77, Insurance Code of 1978). Eloquent proof of that is the Endorsement of 2
May 1986 of First Integrated cancelling its said Policy for non-payment of
premium "effective as of its inception date," or on 15 January 1986.

Petitioner's explanation that he paid for the premium twice - the first time on
21 January 1986 except that he was not issued a receipt because he paid for
it in cash (t.s.n., November 21, 1986, pp. 36-37), and the second time on 10
June 1986 "because the first time my sub-agent did not pay it directly to the
company on the first time so I paid it again," (ibid., p. 38) - is prevarication,
pure and simple.
Petitioner paid the premium for the First Integrated Policy only on 10 June
1986 or five (5) months after its issuance and five (5) months after the
partial loss of the shipment, and while the case was already pending
investigation at the City Fiscal's Office. The company reinstated the Policy,
also on 10 June 1986, but on the condition that "no loss had occurred prior to
the date of issuance of this endorsement." It was a useless reinstatement,
therefore, and the stark fact remains that at the time of loss there was no
coverage from First Integrated because of non-payment of premium.
Evidently petitioner paid the premium at that late date in a futile attempt to
revive the Policy and as a last-ditch effort to show that the entire P6,000.00
amount received from "Panama" was used by petitioner for the purpose
intended - namely, the payment of premium for marine insurance coverage
of P3M. Indications are that no payment of premium to First Integrated would
have been made either, but for this criminal charge. The evidence is clear
that he had utilized the balance of the P6,000.00 (after deducting the
premium of P2,712.50 paid to "Oriental") for his own benefit, and with abuse
of confidence, which is the very essence of misappropriation. And he would
have gotten away scot-free if no loss of the shipment had occurred.
The third element of Estafa is likewise present. The misappropriation or
conversion resulted in prejudice to "Panama" which had believed all along
that its shipment was insured for P3M. There was disturbance in its property
rights, and, although temporary, is sufficient to constitute injury within the
meaning of Article 315(1-b) of the Revised Penal Code (Lu Hayco vs. Court of
Appeals, L-49607-13 & 55775-86, August 26, 1985, 138 SCRA 227).
As to the fourth essential element, that of demand made by the offended
party to the offender, which petitioner claims is wanting in this case, suffice
it to state that demand is not necessary when there is evidence of
misappropriation as in this case.
It so happens only that failure to account, upon demand, for
funds or property held in trust, is circumstantial evidence of

misappropriation. The same may, however, be established by

other proof, such as that introduced in the case at bar. (Tubb vs.
People, et al., 101 Phil. 114 [1957])
All the essential elements of Estafa through misappropriation or conversion
being present, we do not see our way clear to breaking the chain of
convictions by the other Courts before us. The guilt of petitioner-accused has
been proven beyond reasonable doubt.
WHEREFORE, the judgment under review is hereby AFFIRMED. With costs
against petitioner-accused, Benito Sy y Ong.
SO ORDERED.

BANK OF THE PHILIPPINEISLANDS,

Petitioner,

G.R. No. 176664

Present:

- versus -

SPOUSES REYNALDO AND

VICTORIA ROYECA,
Respondents.

QUISUMBING, J.,*
YNARES-SANTIAGO,
Chairperson,
AUSTRIA-MARTINEZ,
NACHURA, and
REYES, JJ.
Promulgated:
July 21, 2008

x-----------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
Bank of the Philippine Islands (BPI) seeks a review of the Court of Appeals
(CA) Decision[1] dated July 12, 2006, and Resolution[2] dated February 13,
2007, which dismissed its complaint for replevin and damages and granted
the respondents counterclaim for damages.
The case stems from the following undisputed facts:

On August 23, 1993, spouses Reynaldo and Victoria Royeca

(respondents) executed and delivered to Toyota Shaw, Inc. a Promissory
Note[3] for P577,008.00 payable in 48 equal monthly installments
of P12,021.00, with a maturity date of August 18, 1997. The Promissory Note
provides for a penalty of 3% for every month or fraction of a month that an
installment remains unpaid.
To secure the payment of said Promissory Note, respondents executed
a Chattel Mortgage[4] in favor of Toyota over a certain motor vehicle, more
particularly described as follows:
Make and Type 1993 Toyota Corolla 1.3 XL
Motor No. 2E-2649879
Serial No. EE100-9512571
Color D.B. Gray Met.
Toyota, with notice to respondents, executed a Deed of
Assignment[5] transferring all its rights, title, and interest in the Chattel
Mortgage to Far East Bank and Trust Company (FEBTC).
Claiming that the respondents failed to pay four (4) monthly
amortizations covering the period from May 18, 1997 to August 18, 1997,
FEBTC sent a formal demand to respondents on March 14, 2000 asking for
the payment thereof, plus penalty. [6] The respondents refused to pay on the
ground that they had already paid their obligation to FEBTC.
On April 19, 2000, FEBTC filed a Complaint for Replevin and Damages
against the respondents with the Metropolitan Trial Court (MeTC) of Manila
praying for the delivery of the vehicle, with an alternative prayer for the
payment of P48,084.00 plus interest and/or late payment charges at the rate
of 36% per annum from May 18, 1997 until fully paid. The complaint likewise
prayed for the payment of P24,462.73 as attorneys fees, liquidated
damages, bonding fees and other expenses incurred in the seizure of the
vehicle. The complaint was later amended to substitute BPI as plaintiff when
it merged with and absorbed FEBTC.[7]
In their Answer, respondents alleged that on May 20, 1997, they delivered to
the Auto Financing Department of FEBTC eight (8) postdated checks in
different amounts totaling P97,281.78. The Acknowledgment Receipt,[8] which
they attached to the Answer, showed that FEBTC received the following
checks:
DATE
26 May 97
6 June 97
30 May 97
15 June 97

BANK
Landbank
Head Office
FEBTC
Shaw Blvd.

CHECK NO.
#610945
#610946
#17A00-11550P
#17A00-11549P

AMOUNT
P13,824.15
12,381.63
12,021.00
12,021.00

30 June 97
18 June 97
18 July 97
18 August 97

"
Landbank
Head Office

#17A00-11551P
#610947
#610948
#610949

12,021.00
11,671.00
11,671.00
11,671.00

The respondents further averred that they did not receive any notice
from the drawee banks or from FEBTC that these checks were dishonored.
They explained that, considering this and the fact that the checks were
issued three years ago, they believed in good faith that their obligation had
already been fully paid. They alleged that the complaint is frivolous and
plainly vexatious. They then prayed that they be awarded moral and
exemplary damages, attorneys fees and costs of suit.[9]
During trial, Mr. Vicente Magpusao testified that he had been
connected with FEBTC since 1994 and had assumed the position of Account
Analyst since its merger with BPI. He admitted that they had, in fact,
received the eight checks from the respondents. However, two of these
checks (Landbank Check No. 0610947 and FEBTC Check No. 17A00-11551P)
amounting to P23,692.00 were dishonored. He recalled that the remaining
two checks were not deposited anymore due to the previous dishonor of the
two checks. He said that after deducting these payments, the total
outstanding balance of the obligation was P48,084.00, which represented the
last four monthly installments.
On February 23, 2005, the MeTC dismissed the case and granted the
respondents counterclaim for damages, thus:
WHEREFORE, judgment is hereby rendered dismissing the
complaint for lack of cause of action, and on the counterclaim,
plaintiff is ordered to indemnify the defendants as follows:
a)

The sum of PhP30,000.00 as and by way of moral

damages;
b)
The sum of PhP30,000.00 as and by way of
exemplary damages;
c)
The sum of PhP20,000.00 as and by way of attorneys
fees; and
d)
To pay the costs of the suit.
SO ORDERED.[10]
On appeal, the Regional Trial Court (RTC) set aside the MeTC Decision
and ordered the respondents to pay the amount claimed by the petitioner.
The dispositive portion of its Decision[11] dated August 11, 2005 reads:

WHEREFORE, premises considered, the Decision of the

Metropolitan Trial Court, Branch 9 dated February 23, 2005 is
REVERSED and a new one entered directing the defendantsappellees to pay the plaintiff-appellant, jointly and severally,
1.

The sum of P48,084.00 plus interest and/or late

payment charges thereon at the rate of 36% per
annum from May 18, 1997 until fully paid;
2.
The sum of P10,000.00 as attorneys fees; and
3.
The costs of suit.
SO ORDERED.[12]

The RTC denied the respondents motion for reconsideration.[13]

The respondents elevated the case to the Court of Appeals (CA)
through a petition for review. They succeeded in obtaining a favorable
judgment when the CA set aside the RTCs Decision and reinstated the MeTCs
Decision on July 12, 2006.[14] On February 13, 2007, the CA denied the
petitioners motion for reconsideration.[15]
The issues submitted for resolution in this petition for review are as
follows:
I.

WHETHER OR NOT RESPONDENTS WERE ABLE TO PROVE

FULL PAYMENT OF THEIR OBLIGATION AS ONE OF THEIR
AFFIRMATIVE DEFENSES.

II.

WHETHER OR NOT TENDER OF CHECKS CONSTITUTES

PAYMENT.

III. WHETHER OR NOT RESPONDENTS ARE ENTITLED TO MORAL

AND EXEMPLARY DAMAGES AND ATTORNEYS FEES.[16]
The petitioner insists that the respondents did not sufficiently prove
the alleged payment. It avers that, under the law and existing jurisprudence,
delivery of checks does not constitute payment. It points out that this
principle stands despite the fact that there was no notice of dishonor of the
two checks and the demand to pay was made three years after default.
On the other hand, the respondents postulate that they have
established payment of the amount being claimed by the petitioner and,
unless the petitioner proves that the checks have been dishonored, they
should not be made liable to pay the obligation again.[17]
The petition is partly meritorious.
In civil cases, the party having the burden of proof must establish his
case by a preponderance of evidence, or evidence which is more convincing
to the court as worthy of belief than that which is offered in opposition
thereto.[18] Thus, the party, whether plaintiff or defendant, who asserts the
affirmative of an issue has the onus to prove his assertion in order to obtain
a favorable judgment. For the plaintiff, the burden to prove its positive
assertions never parts. For the defendant, an affirmative defense is one
which is not a denial of an essential ingredient in the plaintiffs cause of
action, but one which, if established, will be a good defense i.e. an avoidance
of the claim.[19]

In Jimenez v. NLRC,[20] cited by both the RTC and the CA, the Court
elucidated on who, between the plaintiff and defendant, has the burden to
prove the affirmative defense of payment:
As a general rule, one who pleads payment has the
burden of proving it. Even where the plaintiff must allege nonpayment, the general rule is that the burden rests on the
defendant to prove payment, rather than on the plaintiff to prove
non-payment. The debtor has the burden of showing with
legal certainty that the obligation has been discharged
by payment.
When the existence of a debt is fully established by the
evidence contained in the record, the burden of proving that it
has been extinguished by payment devolves upon the debtor
who offers such a defense to the claim of the creditor. Where the
debtor introduces some evidence of payment, the burden of
going forward with the evidence - as distinct from the general
burden of proof - shifts to the creditor, who is then under a duty
of producing some evidence to show non-payment.[21]

In applying these principles, the CA and the RTC, however, arrived at

different conclusions. While both agreed that the respondents had the
burden of proof to establish payment, the two courts did not agree on
whether the respondents were able to present sufficient evidence of
payment enough to shift the burden of evidence to the petitioner. The RTC
found that the respondents failed to discharge this burden because they did
not introduce evidence of payment, considering that mere delivery of
checks does not constitute payment.[22] On the other hand, the CA
concluded that the respondents introduced sufficient evidence of payment,
as opposed to the petitioner, which failed to produce evidence that the
checks were in fact dishonored. It noted that the petitioner could have easily
presented the dishonored checks or the advice of dishonor and required
respondents to replace the dishonored checks but none was presented.
Further, the CA remarked that it is absurd for a bank, such as petitioner, to
demand payment of a failed amortization only after three years from the due
date.
The divergence in this conflict of opinions can be narrowed down to
the issue of whether the Acknowledgment Receipt was sufficient proof of
payment. As correctly observed by the RTC, this is only proof that

respondents delivered eight checks in payment of the amount due.

Apparently, this will not suffice to establish actual payment.
Settled is the rule that payment must be made in legal tender. A
check is not legal tender and, therefore, cannot constitute a valid
tender of payment.[23] Since a negotiable instrument is only a
substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment. Mere delivery of
checks does not discharge the obligation under a judgment. The
obligation is not extinguished and remains suspended until the
payment by commercial document is actually realized.[24]
To establish their defense, the respondents therefore had to
present proof, not only that they delivered the checks to the
petitioner, but also that the checks were encashed. The respondents
failed to do so. Had the checks been actually encashed, the respondents
could have easily produced the cancelled checks as evidence to prove the
same. Instead, they merely averred that they believed in good faith that the
checks were encashed because they were not notified of the dishonor of the
checks and three years had already lapsed since they issued the checks.
Because of this failure of the respondents to present sufficient proof of
payment, it was no longer necessary for the petitioner to prove nonpayment, particularly proof that the checks were dishonored. The burden of
evidence is shifted only if the party upon whom it is lodged was able to
adduce preponderant evidence to prove its claim.[25]
To stress, the obligation to prove that the checks were not dishonored,
but were in fact encashed, fell upon the respondents who would benefit from
such fact. That payment was effected through the eight checks was the
respondents affirmative allegation that they had to establish with legal
certainty. If the petitioner were seeking to enforce liability upon the check,
the burden to prove that a notice of dishonor was properly given would have
devolved upon it.[26] The fact is that the petitioners cause of action was based
on the original obligation as evidenced by the Promissory Note and the
Chattel Mortgage, and not on the checks issued in payment thereof.
Further, it should be noted that the petitioner, as payee, did not have a
legal obligation to inform the respondents of the dishonor of the checks. A
notice of dishonor is required only to preserve the right of the payee to
recover on the check. It preserves the liability of the drawer and the
indorsers on the check. Otherwise, if the payee fails to give notice to them,
they are discharged from their liability thereon, and the payee is precluded
from enforcing payment on the check. The respondents, therefore, cannot
fault the petitioner for not notifying them of the non-payment of the checks

because whatever rights were transgressed by such omission belonged only

to the petitioner.
In all, we find that the evidence at hand preponderates in favor of the
petitioner. The petitioners possession of the documents pertaining to the
obligation strongly buttresses its claim that the obligation has not been
extinguished. The creditors possession of the evidence of debt is proof that
the debt has not been discharged by payment. [27] A promissory note in
the hands of the creditor is a proof of indebtedness rather than
proof of payment.[28] In an action for replevin by a mortgagee, it is prima
facie evidence that the promissory note has not been paid. [29] Likewise, an
uncanceled mortgage in the possession of the mortgagee gives rise to the
presumption that the mortgage debt is unpaid.[30]
Finally, the respondents posit that the petitioners claim is barred by
laches since it has been three years since the checks were issued. We do not
agree. Laches is a recourse in equity. Equity, however, is applied only in the
absence, never in contravention, of statutory law. Thus, laches cannot, as a
rule, abate a collection suit filed within the prescriptive period mandated by
the New Civil Code.[31] The petitioners action was filed within the ten-year
prescriptive period provided under Article 1144 of the New Civil Code. Hence,
there is no room for the application of laches.
Nonetheless, the Court cannot ignore what the respondents have
consistently raised that they were not notified of the non-payment of the
checks. Reasonable banking practice and prudence dictates that,
when a check given to a creditor bank in payment of an obligation is
dishonored, the bank should immediately return it to the debtor and
demand its replacement or payment lest it causes any prejudice to
the drawer. In light of this and the fact that the obligation has been
partially paid, we deem it just and equitable to reduce the 3% per month
penalty charge as stipulated in the Promissory Note to 12% per annum.
[32]
Although a court is not at liberty to ignore the freedom of the parties to
agree on such terms and conditions as they see fit, as long as they
contravene no law, morals, good customs, public order or public policy, a
stipulated penalty, nevertheless, may be equitably reduced by the courts if it
is iniquitous or unconscionable, or if the principal obligation has been partly
or irregularly complied with.[33]
WHEREFORE, premises considered, the petition is PARTIALLY
GRANTED. The Court of Appeals Decision dated July 12, 2006, and
Resolution datedFebruary 13, 2007, are REVERSED and SET ASIDE. The
Decision of the Regional Trial Court, dated August 11, 2005,
is REINSTATED with theMODIFICATION that respondents are ordered to
deliver the possession of the subject vehicle, or in the alternative, pay the
petitioner P48,084.00 plus late penalty charges/interest thereon at the rate
of 12% per annum from May 18, 1997 until fully paid.

[G.R. No. 138588. August 23, 2001]

FAR EAST BANK & TRUST COMPANY, petitioner, vs. DIAZ REALTY
INC., respondent.
DECISION
PANGANIBAN, J.:
For a valid tender of payment, it is necessary that there be a fusion
of intent, ability and capability to make good such offer, which must be
absolute and must cover the amount due. Though a check is not legal
tender, and a creditor may validly refuse to accept it if tendered as payment,
one who in fact accepted a fully funded check after the debtors
manifestation that it had been given to settle an obligation is estopped from
later on denouncing the efficacy of such tender of payment.
The Case
The foregoing principle is used by this Court in resolving the Petition for
Review[1] on Certiorari before us, challenging the January 26, 1999
Decision[2] of the Court of Appeals[3] (CA) in CA-GR CV No. 45349. The
dispositive portion of the assailed Decision reads as follows:
WHEREFORE, the judgment appealed from is hereby MODIFIED, to read as
follows:
WHEREFORE, JUDGMENT IS HEREBY RENDERED, ORDERING:
1. The plaintiffs to pay Far East Bank & Trust Company the principal sum
of P1,067,000.00 plus interests thereon computed at 12% per annum from
July 9, 1988 until fully paid;
2. The parties to negotiate for a new lease over the subject premises; and
3. The defendant to pay the plaintiff the sum of fifteen thousand
(P15,000.00) pesos as and for attorneys fees plus the costs of litigation.
All other claims of the parties against each other are DENIED.[4]

Likewise assailed is the May 4, 1999 CA Resolution, [5] which denied

petitioners Motion for Reconsideration.
The Facts
The court a quo summarized the antecedents of the case as follows:
Sometime in August 1973, Diaz and Company got a loan from the former
PaBC [Pacific Banking Corporation] in the amount of P720,000.00, with
interest at 12% per annum, later increased to 14%, 16%, 18% and 20%. The
loan was secured by a real estate mortgage over two parcels of land owned
by the plaintiff Diaz Realty, both located in Davao City. In 1981, Allied
Banking Corporation rented an office space in the building constructed on
the properties covered by the mortgage contract, with the conformity of
mortgagee PaBC, whereby the parties agreed that the monthly rentals shall
be paid directly to the mortgagee for the lessors account, either to partly or
fully pay off the aforesaid mortgage indebtedness. Pursuant to such contract,
Allied Bank paid the monthly rentals to PaBC instead of to the plaintiffs. On
July 5, 1985, the Central Bank closed PaBC, placed it under receivership, and
appointed Renan Santos as its liquidator. Sometime in December 1986,
appellant FEBTC purchased the credit of Diaz & Company in favor of PaBC,
but it was not until March 23, 1988 that Diaz was informed about it.
According to the plaintiff as alleged in the complaint and testified to by
Antonio Diaz (President of Diaz & Company and Vice-President of Diaz
Realty), on March 23, 1988, he went to office of PaBC which by then housed
FEBTC and was told that the latter had acquired PaBC; that Cashier Ramon
Lim told him that as of such date, his loan was P1,447,142.03; that he (Diaz)
asked the defendant to make an accounting of the monthly rental payments
made by Allied Bank; that on December 14, 1988,[6] Diaz tendered to FEBTC
the amount of P1,450,000.00 through an Interbank check, in order to prevent
the imposition of additional interests, penalties and surcharges on its loan;
that FEBTC did not accept it as payment; that instead, Diaz was asked to
deposit the amount with the defendants Davao City Branch Office, allegedly
pending the approval of Central Bank Liquidator Renan Santos; that in the
meantime, Diaz wrote the defendant, asking that the interest rate be
reduced from 20% to 12% per annum, but no reply was ever made; that
subsequently, the defendant told him to change the P1,450,000.00 deposit
into a money market placement, which he did; that the money market
placement expired on April 14, 1989; that when there was still no news from
the defendant whether or not it [would] accept his tender of payment, he
filed this case at the Regional Trial Court of Davao City.

In its responsive pleading, the defendant set up the following

special/affirmative defenses: that sometime in December 1986, FEBTC
purchased from the PaBC the account of the plaintiffs for a total
consideration of P1,828,875.00; that despite such purchase, PaBC Davao
Branch continued to collect interests and penalty charges on the loan from
January 6, 1987 to July 8, 1988; that it was therefore not FEBTC which
collected the interest rates mentioned in the complaint, but PaBC; that it is
not true that FEBTC was trying to impose [exorbitant] rates of interest; that
as a matter of fact, after the transfer of plaintiffs account, it sought to
negotiate with the plaintiffs, and in fact, negotiations were made for a
settlement and possible reduction of charges; that FEBTC has no knowledge
of the rates of interest imposed and collected by PaBC prior to the purchase
of the account from the latter, hence it could not be held responsible for
those transactions which transpired prior to the purchase; and that the
defendant acted at the opportune time for the settlement of the account,
albeit exercising prudence in the handling of such account. The rest of the
affirmative defenses are bare denials.
After trial, the court a quo rendered judgment on August 6, 1993, the
dispositive portion of which reads as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. The plaintiff and defendant shall jointly compute the interest due on
the P1,057,000.00 loan from April 18, 1985 until November 14, 1988 at 12%
per annum (IBAA Salazar Case Supra).
2. That the parties shall then add the result of the joint computation
mentioned in paragraph one of the dispositive portion to the P1,057,000.00
principal.
3. The result of the addition of the P1,057,000.00 principal and the interests
arrived at shall then be compared with the P1,450,000.00 deposit and
if P1,450,000.00 is not enough, then the plaintiff shall pay the
difference/deficiency between the P1,450,000.00 deposit and what the
parties jointly computed[;] conversely, if the P1,450,000.00 is more than
what the parties have arrived [at] after the computation, the defendant shall
return the difference or the excess to the plaintiffs.
4. The defendant shall cancel the mortgage.
5. Paragraph eight of the Lease Contract between Allied Bank and the
plaintiffs in which the defendants predecessor, Pacific Banking gave its
conformity (Exh. H) is hereby cancelled, so that the rental should now be
paid to the plaintiffs.

6. The defendant shall pay the plaintiffs the sums:

6-A. Fifteen thousand pesos as attorneys fees.
6-B. Three [h]undred [t]housand [p]esos (P300,000.00) as exemplary
damages.
6-C. The cost of suit.
SO ORDERED.
Upon a motion for reconsideration filed by defendant FEBTC and after due
notice and hearing, the court a quo issued an order on October 12, 1993,
modifying the aforequoted decision, such that its dispositive portion as
amended would now read as follows:
IN VIEW WHEREOF, the decision rendered last August 6, is modified,
accordingly, to wit:
1. The plaintiff and defendant shall jointly compute the interest due on
the P1,167,000.00 loan from April 18, 1985 until November 14, 1988 at 12%
per annum.
2. That the parties shall then add the result of the joint computation
mentioned in paragraph one above to the P1,067,000.00 principal.
3. The result of the addition of the P1,067,000.00 principal and the interests
arrived at shall then be compared with the P1,450,000.00 money market
placement put up by the plaintiff with the defendant bank if the same is still
existing or has not yet matured.
4. The defendant shall cancel the mortgage.
5. Paragraph eight of the lease contract between Allied Bank and the plaintiff
in which the defendant[s predecessor], Pacific Banking gave its conformity
(Exh. H) is hereby cancelled and deleted, so that the rental should now be
paid to the plaintiff.
6. The defendant shall pay the plaintiff the sums:
6.A Fifteen [t]housand [p]esos as attorneys fees;
6.B Cost of suit.[7]
The CA Ruling

The CA sustained the trial courts finding that there was a valid tender of
payment in the sum of P1,450,000, made by Diaz Realty Inc. in favor of Far
East Bank and Trust Company. The appellate court reasoned that petitioner
failed to effectively rebut respondents evidence that it so tendered the
check to liquidate its indebtedness, and that petitioner had unilaterally
treated the same as a deposit instead.
The CA further ruled that in the computation of interest charges, the
legal rate of 12 percent per annum should apply, reckoned from July 9, 1988,
until full and final payment of the whole indebtedness. It explained that while
petitioners purchase of respondents account from Pacific Banking
Corporation (PaBC) was valid, the 20 percent interest stipulated in the
Promissory Note should not apply, because the account transfer was without
the knowledge and the consent of respondent-obligor.
The appellate court, however, sustained petitioners assertion that the
trial court should not have cancelled the real estate mortgage contract,
inasmuch as the principal obligation upon which it was anchored was yet to
be extinguished. As to the lease contract, the CA held that the same was
subject to renegotiation by the parties.
Lastly, the court a quo upheld the trial courts award of attorneys fees,
pointing to petitioners negligence in not immediately informing respondent
of the purchase and transfer of its credit, and in failing to negotiate in order
to avoid litigation.
Issues
Petitioner submits for our resolution the following issues:
A.
Whether or not the Court of Appeals correctly ruled that the validity of the
tender of payment was not properly raised in the trial court and could not
thus be raised in the appeal.
B.
Whether or not the Court of Appeals erred in failing to apply settled
jurisprudential principles militating against the private respondents
contention that a valid tender of payment had been made by it.
C.

Whether or not the Court of Appeals correctly found that the transaction
between petitioner and PaBC was an ineffective novation and that the
consent of private respondent was necessary therefor.
D.
Whether or not the Court of Appeals erred in refusing to apply the rate of
interest freely stipulated upon by the parties to the respondents obligation.
E.
Whether or not the Court of Appeals committed an irreconcilable error in
ordering the parties to re-negotiate the terms of the contract while finding at
the same time that the mortgage contract containing the lease was valid.
F.
Whether or not the petition, as argued by private respondent, raises
questions of fact not reviewable by certiorari.[8]
In the main, the Court will determine (1) the efficacy of the alleged
tender of payment made by respondent, (2) the effect of the transfer to
petitioner of respondents account with PaBC, (3) the interest rate applicable,
and (4) the status of the Real Estate Mortgage.
The Courts Ruling
The Petition[9] is not meritorious.
First Issue: Tender of Payment
Petitioner resolutely argues that the CA erred in upholding the validity of
the tender of payment made by respondent. What the latter had
tendered to settle its outstanding obligation, it points out, was a
check which could not be considered legal tender.
We disagree. The records show that petitioner bank purchased
respondents account from PaBC in December 1986, and that the latter was
notified of the transaction only on March 23, 1988.Thereafter, Antonio Diaz,
president of respondent corporation, inquired from petitioner on the status
and the amount of its obligation. He was informed that the obligation
summed up toP1,447,142.03. On November 14, 1988, petitioner received
from respondent Interbank Check No. 81399841 dated November 13, 1988,

bearing the amount of P1,450,000, with the notation Re: Full Payment of
Pacific Bank Account now turn[ed] over to Far East Bank. [10] The check was
subsequently cleared and honored by Interbank, as shown by the
Certification it issued on January 20, 1992.[11]
True, jurisprudence holds that, in general, a check does not constitute
legal tender, and that a creditor may validly refuse it. [12] It must be
emphasized, however, that this dictum does not prevent a creditor from
accepting a check as payment. In other words, the creditor has
the option and the discretion of refusing or accepting it.
In the present case, petitioner bank did not refuse respondents
check. On the contrary, it accepted the check which, it insisted, was
a deposit. As earlier stated, the check proved to be fully funded and
was in fact honored by the drawee bank. Moreover, petitioner was
in possession of the money for several months.
In further contending that there was no valid tender of payment,
petitioner emphasizes our pronouncement in Roman Catholic Bishop of
Malolos, Inc. v. Intermediate Appellate Court,[13] as follows:
Tender of payment involves a positive and unconditional act by the obligor of
offering legal tender currency as payment to the obligee for the formers
obligation and demanding that the latter accept the same.
xxxxxxxxx
Thus, tender of payment cannot be presumed by a mere inference from
surrounding circumstances. At most, sufficiency of available funds is only
affirmative of the capacity or ability of the obligor to fulfill his part of the
bargain. But whether or not the obligor avails himself of such funds to settle
his outstanding account remains to be proven by independent and credible
evidence.Tender of payment presupposes not only that the obligor is able,
ready, and willing, but more so, in the act of performing his obligation. Ab
posse ad actu non vale illatio. A proof that an act could have been done is no
proof that it was actually done.
In other words, tender of payment is the definitive act of offering
the creditor what is due him or her, together with the demand that
the creditor accept the same. More important, there must be a
fusion of intent, ability and capability to make good such offer,
which must be absolute and must cover the amount due.[14]
That respondent intended to settle its obligation with petitioner is evident
from the records of the case. After learning that its loan balance
was P1,447,142.03, it presented to petitioner a check in the amount
of P1,450,000, with the specific notation that it was for full payment of its
Pacific Bank account that had been purchased by petitioner. The latter

accepted the check, even if it now insists that it considered the same as a
mere deposit. The check was sufficiently funded, as in fact it was honored by
the drawee bank. When petitioner refused to release the mortgage,
respondent instituted the present case to compel the bank to acknowledge
the tender of payment, accept payment and cancel the mortgage. These
acts demonstrate respondents intent, ability and capability to fully
settle and extinguish its obligation to petitioner.
That respondent subsequently withdrew the money from petitioner-bank
is of no moment, because such withdrawal would not affect the efficacy or
the legal ramifications of the tender of payment made on November 14,
1988. As already discussed, the tender of payment to settle respondents
obligation as computed by petitioner was accepted, the check given in
payment thereof converted into money, and the money kept in petitioners
possession for several months.
Finally, petitioner points out that, in any case, tender of payment
extinguishes the obligation only after proper consignation, which respondent
did not do.
The argument does not persuade. For a consignation to be necessary, the
creditor must have refused, without just cause, to accept the debtors
payment.[15] However,
as
pointed
out
earlier,
petitioner accepted respondents check.
To iterate, the tender was made by respondent for the purpose of settling
its obligation. It was incumbent upon petitioner to refuse, or accept it as
payment. The latter did not have the right or the option to accept and treat it
as a deposit. Thus, by accepting the tendered check and converting it into
money, petitioner is presumed to have accepted it as payment. To hold
otherwise would be inequitable and unfair to the obligor.
Second Issue: Nature of the Transfer of Respondents Account
Petitioner bewails the CAs characterization of the transfer of respondents
account from Pacific Banking Corporation to petitioner as an ineffective
novation. Petitioner contends that the transfer was an assignment of credit.
Indeed, the transfer of respondents credit from PaBC to petitioner was an
assignment of credit. Petitioners acquisition of respondents credit did not
involve any changes in the original agreement between PaBC and
respondent; neither did it vary the rights and the obligations of the
parties. Thus, no novation by conventional subrogation could have taken
place.
An assignment of credit is an agreement by virtue of which the owner of
a credit (known as the assignor), by a legal cause -- such as sale, dation in

payment, exchange or donation -- andwithout the need of the debtors

consent, transfers that credit and its accessory rights to another (known as
the assignee), who acquires the power to enforce it, to the same extent as
the assignor could have enforced it against the debtor.[16]
In the present case, it is undisputed that petitioner purchased
respondents loan from PaBC. In doing so, the former acquired all of the
latters rights against respondent. Thus, petitioner had the right to collect the
full value of the credit from respondent, subject to the terms as originally
agreed upon in the Promissory Note.
Third Issue: Applicable Interest Rate
Petitioner bank, as assignee of respondents credit, is entitled to the
interest rate of 20 percent in the computation of the debt of private
respondent, as stipulated in the August 26, 1983 Promissory Note executed
by the latter in favor of PaBC.[17]
However, because there was a valid tender of payment made on
November 14, 1988, the accrual of interest based on the stipulated rate
should stop on that date. Thus, respondent should pay petitioner-bank its
principal obligation in the amount of P1,067,000 plus accrued interest
thereon at 20 percent per annum until November 14, 1988, less interest
payments given to PaBC from December 1986 to July 8, 1988. [18] Thereafter,
the interest shall be computed at 12 percent per annum until full payment.
Fourth Issue: Status of Mortgage Contract
The Real Estate Mortgage executed between respondent and PaBC to
secure the formers principal obligation, as well as the provision in the
Contract of Lease between respondent and Allied Bank with regard to the
application of rent payment to the formers indebtedness, should subsist until
full and final settlement of such obligation pursuant to the guidelines set
forth in this Decision. Thereafter, the parties are free to negotiate a renewal
of either or both contracts, or to end any and all of their contractual
relations.
WHEREFORE, the Petition is hereby DENIED. The assailed Decision of
the
Court
of
Appeals
is AFFIRMED with
the
following
modifications: Respondent Diaz Realty Inc. is ORDEREDto pay Far East Bank
and Trust Co. its principal loan obligation in the amount of P1,067,000, with
interest thereon computed at 20 percent per annum until November 14,
1988, less any interest payments made to PaBC, petitioners

assignor. Thereafter, interest shall be computed at 12 percent per annum

until fully paid.
SO ORDERED.
Melo,
(Chairman),
JJ., concur.

[1]

Rollo, pp. 26-68.

[2]

Ibid., pp. 10-20.

Vitug,

Gonzaga-Reyes, and Sandoval-Gutierrez,

[3]

Third Division. Penned by Justice Delilah Vidallon-Magtolis, with the

concurrence of Justices Artemon D. Luna (Division chairman) and Rodrigo
V. Cosico (member).
[4]

CA Decision, p. 10; rollo, p. 19.

[5]

Rollo, p. 85.

[6]

The subject Interbank check, dated November 13, 1988, was received by
petitioner bank on November 14, 1988. See RTC Records, p. 219.
[7]

Assailed Decision, pp. 2-4; rollo, pp. 11-13.

[8]

Petitioners Memorandum, pp. 21-22; rollo, pp. 188-189.

[9]

This case was deemed submitted for resolution on February 10, 2000,
upon receipt by the Court of the Memorandum for respondent. Said
Memorandum was signed by Atty. Roberto T. Sencio. Petitioners
Memorandum, submitted by Ponce Enrile Reyes & Manalastas, was received
earlier on January 17, 2000.
[10]

RTC Records, p. 219.

[11]

Ibid., p. 268.

[12]

Tibajia, Jr. v. Court of Appeals, 223 SCRA 163, June 4, 1993; Roman
Catholic Bishop of Malolos, Inc. v. Intermediate Appellate Court, 191 SCRA
411, November 16, 1990.
[13]

191 SCRA 411, November 16, 1990, per Sarmiento, J.

[14]

Ibid.
[15]

Article 1256, Civil Code of the Philippines. If the creditor to whom

tender of payment has been made refuses without just cause to accept it,
the debtor shall be released from responsibility by the consignation of the
thing or sum due. Consignation alone shall produce the same effect in the
following cases:

(1) When the creditor is absent or unknown, or does not appear at the place
of payment;
(2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost.
[16]

Tolentino, Civil Code of the Philippines, Book V, p. 188. See Casabuena v.

Court of Appeals, 286 SCRA 594, February 27, 1998; Rodriguez v. Court of
Appeals, 207 SCRA 553, March 25, 1992; Nyco Sales Corporation v. BA
Finance Corporation, 200 SCRA 637, August 16, 1991.
[17]

RTC Records, p. 24.

[18]

The records reflect that even though respondent corporations account

was purchased in December 1986, the defunct PaBC continued collecting
interest and penalty charges on such account until July 8, 1988. Thus, in the
computation of the sum owed to petitioner, this matter should be taken into
consideration.

G.R. No. L-35767 June 18, 1976

RAYMUNDO A. CRYSTAL, Petitioner, vs. COURT OF APPEALS and
PELAGIA OCANG, PACITA, TEODULO, FELICISIMO, PABLO, LYDIA,
DIOSCORA and RODRIGO, all surnamed DE GRACIA, Respondents.
RESOLUTION
BARREDO, J.:
Motion for reconsideration of the decision of this Court in this case
promulgated on February 25, 1975 affirming the decision of the Court of
Appeals in favor of private respondents which held that petitioner's
redemption of the property acquired by said respondents in an execution
sale pursuant to a final judgment of the trial court in Civil Case No. R-1666,
Court of First Instance of Cebu, was invalid inasmuch as the check which
petitioner had used in paying the redemption price had been either
dishonored or had become state, hence its value was never this upholding in
the process the jurisdiction of the trial court to rule on the question of
validity of the redemption in question notwithstanding that by order of that
same court, said matter had been made the subject of a separate suit, Civil
as No. 62-T also of the Court of First Instance of Cebu, filed on August 9,
1960.

In his motion for reconsideration, petitioner insists that it was an act in

excess of jurisdiction on the part of the trial court in R-1666, to issue on May
31, 1971 the writ of possession sought by private respondents, thru Pelagia
Ocang, in her motion of August 15, 1970, considering that court had
previously pointedly observed in its order of March 24, 1960 that "the
question as to whether or not the redemption allegedly made by Mr. Crystal
by paying the amount to Mrs. Pelagia Ocang without using the said P11,200
deposited with the sheriff is legal and effective" has to be decided in
"another proper case" and, furthermore, in its order of June 4, 1960 in the
same case, the same court had more definitely ruled that "the question of
ownership of Mr. Raymundo Crystal, the redemptioner, is not a proper matter
to be decided in this case but in another case where the legality or validity of
the alleged deed of redemption executed in favor of Mr. Crystal will be amply
raised and threshed out" and, accordingly, in attention to such observations
and ruling, petitioner did file Civil Case No. 62-T, which is still pending trial.
While, as already explained in Our decision, such pose of petitioner has its
merits, We deem it in advisable to this point to modify Our ruling that there
is really no issuance of jurisdiction involved here and that it is preferable,
under the peculiar circumstances obtaining in this particular case, that the
root of the controversy between the parties be inquired into and (determined
in the incident already taken cognizance of by the trial court in Civil Case No.
R-1666 regarding tile light of possession over tile alert in dispute. In this
connection, it is to be noted that even after he had filed Civil Case No. 62-T,
in of hat he must have considered as his right a redemption i of the property
sold in execution a judgment in Civil Case No. R-1666, petitioner regained
possession of the four (4) parcels of land in question without the torture of
the court, taking the same from Pelagia Ocang who his taken it from him also
extrajudicially that she had legally acquired the same precisely in the same
execution and that petitioner redemption as null and void because the cheek
he used to pay the redemption price had been dishonored for lack of
sufficient funds. In other words both petitioner and Ocang, predicating their
respective claims to rightful possession on the same sale on execution in the
same case, Civil Case No. R-l666, had alternately taken the law in their hands
to obtain possession of the lands in question in disregard of the toilet for the
complete satisfaction of that significant of the court in that case. In the light
of these peculiar circumstances, it does appear to be more that since it is the
Case in that Civil Case No. R-1666, that rendered the judgment and
subsequently ordered the execution from which the redemption was made, it
should to the people to settle the whole controversy among all the interested

statistics including even the judgment leftors 'the heirs of Nicolas Rafols
themselves, who, according to the records, have claim of that own relative to
the same redemption, which might just as well be inquired into in said case,
rather than in Case No. 62-T in which they are not parties. Otherwise, stated,
in issuing the impugned writ of possession, the court took the bull by the
horns, so to speak, thereby overturning its own previous stand on the matter
announced in its orders of March 24 and June 4, 1960 aforementioned.
Consequently, We overrule the argument of jurisdiction or even abuse of
discretion raised by petitioner and reiterate what We have said in regard
thereto ni Our decision.
This is not to say that the procedure followed by Ocang and sactioned by the
trial court of resorting to the issuance of a writ of possession is not open to
question, since a writ of possession is not always available in all
controversies concerning possession of real estate. But We see no need to
resolve that point here. More importantly, what impresses Us in the motion
for reconsideration is the possible injustice that might result from our
unqualified reliance in our decision on the finding of the Court of Appeals
that the check for P11,200 paid by petitioner for the redemption in
dispute had been dishonored, in the face of the other finding in the
same decision of the Court of Appeals indicating that instead of
having been dishonored, the said check had become state, albeit it
was being replaced with new ones from time to time. Surely, for a
check to the dishonored upon presentment on the one hand, and to be state
for not being presented at all in time, on the other, are incompatible
developments that naturally have variant legal consequences. Thus, if
needed the check in question had been dishonored, then there can be no
doubt that petitioner's redemption was null and void. On the oher hand, if it
had only become stale, then it becomes imperative that the circumstances
that caused its non-presentment be determined, for if this was not due to the
fault of the petitioner, then it would be unfair to deprive him of the rights he
had acquired as redemptioner, particularly, the value of the check has
otherwise been received or realized by the party concerned. From the motion
for reconsideration and its annexes, We gather that petitioner has ready
evidence showing that when Pelagia Ocang secured the writ of possession in
question, she had already been paid the full amount of the check in dispute.
What is more, there are a number of circumstances pointed out in said
motion, apparaently supported by corresponding evidence, tending to show
that a compromise had already been agreed upon by the parties, although
not yet approved by the court, or, at least, that Ocang has made admissions

which indicate that the issue regarding the supposed dishonorign or

becomeing state of the repeatedly mentioned check is no longer of any legal
significance and, for that matter, the observations we made in our decision
in regard to the duties of the sheriff in the premises have been rendered
academic.
Needless to say, the Supreme Court should not allow any of its decision to
become final when it is properly made to appear in a motion for
reconsideration based on relevant facts and circumstances not previously
brought to its attention, although demonstrable from the records, that even if
the technical consideration on which it is based is well taken, substantial
jusitce might be sacrificed, if further proceedings are not ordered to be held
to verify undeniable facts which might have escaped the eyes of the Court of
Appeals. In the instant case, We took it as proven, per statements of fact in
the decision of the Court of Appeals, that the check with which petitioner
redeemed the property in dispute had been dishonored. On that premise and
seeing that even if We upheld the technical point of jurisdiction raised by
petitioner, the final outcome of the controversy between the parties would
not be different, We proceeded to decide the merits of the respective
substantive claims of the parties. We felt that in view of the findings of fact
of the Court of Appeals, equity demanded that the case be earlier terminated
by ignoring not only whatever flaw ther was in the procedure adopted by the
court below but also the seemingly unusual departure by the Court of
Appeals from the orthodox rule requiring courts to confine its scrutiny in
certiorari cases only to the specific point of jurisdiction complained of.
Now, however, there is a strong showing in the motion for reconsideration,
presmised on no less than other portions of the very decision of the
intermediate court and other apparently credible evidence, that not only was
said check not dishonored, although it became stale, but that repondent
Pelagia Ocang had actually been paid already the full value thereof. And in
this connection, it is notable that in the comment of respondents on
petitioner's motion for reconsideration, there is no clear and categorical
denial of these important and decisive facts.
One more point. In our decision, We assumed that the findings of fact of the
Court of Appeals were the result of an exhaustive consideration of evidence
presented in due course by the parties. It turns out now, that inasmuch as
the trial court itself had previously ruled that the validity of the redemption
in controversy should be the subject of a separate action and that, in fact,

such separate action had already been filed by petitioner, it was in this other
case that petitioner was present the corresponding evidencence. Hence,
whatever evidence was before the trial court in Case No. R-1666 when it
issued the subject writ of possession could not have been complete, much
less incontrovertible.
With these substantial consideration in view, We find no just alternative than
to reconsider Our decision in so far as the matter of validity or invalidity of
petitioner's redemption is concerned. It being shown that the pivotal finding
of the Court of Appeals regarding the check in question might actually be
belied in a more appropriate proceeding, the foundation of Our own decision
has been shaken. Indeed, We are now convinced that is but fair and just that
the trial court should be allowed to receive all relevant and competent
evidence the parties may wish to present relative to the issue of whether or
not respondent Pelagia Ocang has already received in one form or another,
directly or indirectly, the full amount of P11,200 as redemption price of the
four (4) parcels of land in dispute, as well as to all other facts which might
affect the validity of the redemption here in controversy. Withal, should it be
found by the trial court that the redemption was invalid, because the
redemption price has not been fully paid, it should further determine who
made the improvements found on said lands, in order that if it should turn
out that they were introduced by petitioner, possession may not be awarded
to respondents unless said improvements are first properly and fully
reimbursed to petitioner. It goes without saying that the proceedings herein
contemplated are to be held in Civil Case No. R-1666. Correspondingly, Civil
Case No. 62-T and the other case reviewing the same should be deemed
academic.
WHEREFORE, the decision of this Court of February 25, 1975 is hereby
reconsidered and modified in line with the foregoing opinion and this case is
remanded to the trial court for further proceedings as therein indicated.

G.R. No. L-41764 December 19, 1980

NEW PACIFIC TIMBER & SUPPLY COMPANY, INC., petitioner,
vs.
HON. ALBERTO V. SENERIS, RICARDO A. TONG and EXOFFICIO SHERIFF HAKIM S. ABDULWAHID,respondents.

CONCEPCION JR., J.:

A petition for certiorari with preliminary injunction to annul and/or modify the
order of the Court of First Instance of Zamboanga City (Branch ii) dated
August 28, 1975 denying petitioner's Ex-Parte Motion for Issuance of
Certificate Of Satisfaction Of Judgment.
Herein petitioner is the defendant in a complaint for collection of a sum of
money filed by the private respondent. 1On July 19, 1974, a compromise
judgment was rendered by the respondent Judge in accordance with an
amicable settlement entered into by the parties the terms and conditions of
which, are as follows:
(1) That defendant will pay to the plaintiff the amount of Fifty
Four Thousand Five Hundred Pesos (P54,500.00) at 6% interest
per annum to be reckoned from August 25, 1972;
(2) That defendant will pay to the plaintiff the amount of Six
Thousand Pesos (P6,000.00) as attorney's fees for which
P5,000.00 had been acknowledged received by the plaintiff
under Consolidated Bank and Trust Corporation Check No. 16135022 amounting to P5,000.00 leaving a balance of One
Thousand Pesos (P1,000.00);
(3) That the entire amount of P54,500.00 plus interest, plus the
balance of P1,000.00 for attorney's fees will be paid by
defendant to the plaintiff within five months from today, July 19,
1974; and
(4) Failure one the part of the defendant to comply with any of
the above-conditions, a writ of execution may be issued by this
Court for the satisfaction of the obligation. 2
For failure of the petitioner to comply with his judgment obligation, the
respondent Judge, upon motion of the private respondent, issued an order for
the issuance of a writ of execution on December 21, 1974. Accordingly, writ
of execution was issued for the amount of P63,130.00 pursuant to which,
the Ex-Officio Sheriff levied upon the following personal properties of the
petitioner, to wit:

(1) Unit American Lathe 24

(1) Unit American Lathe 18 Cracker Wheeler
(1) Unit Rockford Shaper 24
and set the auction sale thereof on January 15, 1975. However, prior to
January 15, 1975, petitioner deposited with the Clerk of Court, Court of First
Instance, Zamboanga City, in his capacity as Ex-Officio Sheriff of Zamboanga
City, the sum of P63,130.00 for the payment of the judgment obligation,
consisting of the following:
1. P50.000.00 in Cashier's Check No. S-314361 dated January 3,
1975 of the Equitable Banking Corporation; and
2. P13,130.00 incash.

In a letter dated January 14, 1975, to the Ex-Officio Sheriff, 4 private

respondent through counsel, refused to accept the check as well as the cash
deposit. In the 'same letter, private respondent requested the scheduled
auction sale on January 15, 1975 to proceed if the petitioner cannot produce
the cash. However, the scheduled auction sale at 10:00 a.m. on January 15,
1975 was postponed to 3:00 o'clock p.m. of the same day due to further
attempts to settle the case. Again, the scheduled auction sale that afternoon
did not push through because of a last ditch attempt to convince the private
respondent to accept the check. The auction sale was then postponed on the
following day, January 16, 1975 at 10:00 o'clock a.m. 5 At about 9:15 a.m., on
January 16, 1975, a certain Mr. Taedo representing the petitioner appeared
in the office of the Ex-Officio Sheriff and the latter reminded Mr. Taedo that
the auction sale would proceed at 10:00 o'clock. At 10:00 a.m., Mr. Taedo
and Mr. Librado, both representing the petitioner requested the ExOfficio Sheriff to give them fifteen minutes within which to contract their
lawyer which request was granted. After Mr. Taedo and Mr. Librado failed to
return, counsel for private respondent insisted that the sale must proceed
and the Ex-Officio Sheriff proceeded with the auction sale. 6 In the course of
the proceedings, Deputy Sheriff Castro sold the levied properties item by
item to the private respondent as the highest bidder in the amount of
P50,000.00. As a result thereof, the Ex-Officio Sheriff declared a deficiency of
P13,130.00. 7 Thereafter, on January 16, 1975, the Ex-Officio Sheriff issued a
"Sheriff's Certificate of Sale" in favor of the private respondent, Ricardo Tong,
married to Pascuala Tong for the total amount of P50,000.00

only. 8 Subsequently, on January 17, 1975, petitioner filed an ex-parte motion

for issuance of certificate of satisfaction of judgment. This motion was denied
by the respondent Judge in his order dated August 28, 1975. In view thereof,
petitioner now questions said order by way of the present petition alleging in
the main that said respondent Judge capriciously and whimsically abused his
discretion in not granting the motion for issuance of certificate of satisfaction
of judgment for the following reasons: (1) that there was already a full
satisfaction of the judgment before the auction sale was conducted with the
deposit made to the Ex-Officio Sheriff in the amount of P63,000.00 consisting
of P50,000.00 in Cashier's Check and P13,130.00 in cash; and (2) that the
auction sale was invalid for lack of proper notice to the petitioner and its
counsel when the Ex-Officio Sheriff postponed the sale from June 15, 1975 to
January 16, 1976 contrary to Section 24, Rule 39 of the Rules of Court. On
November 10, 1975, the Court issued a temporary restraining order enjoining
the respondent Ex-Officio Sheriff from delivering the personal properties
subject of the petition to Ricardo A. Tong in view of the issuance of the
"Sheriff Certificate of Sale."
We find the petition to be impressed with merit.
The main issue to be resolved in this instance is as to whether or not
the private respondent can validly refuse acceptance of the
payment of the judgment obligation made by the petitioner
consisting of P50,000.00 in Cashier's Check and P13,130.00 in cash
which it deposited with the Ex-Officio Sheriff before the date of the
scheduled auction sale. In upholding private respondent's claim that he
has the right to refuse payment by means of a check, the respondent Judge
cited the following:
Section 63 of the Central Bank Act:
Sec. 63. Legal Character. Checks representing deposit
money do not have legal tender power and their
acceptance in payment of debts, both public and private,
is at the option of the creditor, Provided, however, 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.
Article 1249 of the New Civil Code:

Art. 1249. The payment of debts in money shall be made

in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is legal
tender in the Philippines.
The delivery of promissory notes payable to order, or bills
of exchange or other mercantile documents shall produce
the effect of payment only when they have been cashed,
or when through the fault of the creditor they have been
impaired.
In the meantime, the action derived from the original obligation
shall be held in abeyance.
Likewise, the respondent Judge sustained the contention of the private
respondent that he has the right to refuse payment of the amount of
P13,130.00 in cash because the said amount is less than the judgment
obligation, citing the following Article of the New Civil Code:
Art. 1248. Unless there is an express stipulation to that effect,
the creditor cannot be compelled partially to receive the
presentations in which the obligation consists. Neither may the
debtor be required to make partial payment.
However, when the debt is in part liquidated and in part
unliquidated, the creditor may demand and the debtor may
effect the payment of the former without waiting for the
liquidation of the latter.
It is to be emphasized in this connection that the check deposited by the
petitioner in the amount of P50,000.00 is not an ordinary check but a
Cashier's Check of the Equitable Banking Corporation, a bank of good
standing and reputation. As testified to by the Ex-Officio Sheriff with whom it
has been deposited, it is a certified crossed check. 9It is a well-known and
accepted practice in the business sector that a Cashier's Check is
deemed as cash. Moreover, since 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. 10 Where a check is
certified by the bank on which it is drawn, the certification is equivalent to

acceptance. 11 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 in circulation, a certificate of deposit payable to the order of the
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." 12 When the holder procures the check to be certified, "the check
operates as an assignment of a part of the funds to the creditors." 13 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. Considering that the whole amount
deposited by the petitioner consisting of Cashier's Check of P50,000.00 and
P13,130.00 in cash covers the judgment obligation of P63,000.00 as
mentioned in the writ of execution, then, We see no valid reason for the
private respondent to have refused acceptance of the payment of the
obligation in his favor. The auction sale, therefore, was uncalled for.
Furthermore, it appears that on January 17, 1975, the Cashier's Check was
even withdrawn by the petitioner and replaced with cash in the
corresponding amount of P50,000.00 on January 27, 1975 pursuant to an
agreement entered into by the parties at the instance of the respondent
Judge. However, the private respondent still refused to receive the same.
Obviously, the private respondent is more interested in the levied properties
than in the mere satisfaction of the judgment obligation. Thus, petitioner's
motion for the issuance of a certificate of satisfaction of judgment is clearly
meritorious and the respondent Judge gravely abused his discretion in not
granting the same under the circumstances.
In view of the conclusion reached in this instance, We find no more need to
discuss the ground relied in the petition.
It is also contended by the private respondent that Appeal and not a special
civil action for certiorari is the proper remedy in this case, and that since the
period to appeal from the decision of the respondent Judge has already
expired, then, the present petition has been filed out of time. The contention
is untenable. The decision of the respondent Judge in Civil Case No. 250
(166) has long become final and executory and so, the same is not being

questioned herein. The subject of the petition at bar as having been issued in
grave abuse of discretion is the order dated August 28, 1975 of the
respondent Judge which was merely issued in execution of the said decision.
Thus, even granting that appeal is open to the petitioner, the same is not an
adequate and speedy remedy for the respondent Judge had already issued a
writ of execution. 14
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
1. Declaring as null and void the order of the respondent Judge dated August
28, 1975;
2. Declaring as null and void the auction sale conducted on January 16, 1975
and the certificate of sale issued pursuant thereto;
3. Ordering the private respondent to accept the sum of P63,130.00 under
deposit as payment of the judgment obligation in his favor;
4. Ordering the respondent Judge and respondent Ex-Officio Sheriff to release
the levied properties to the herein petitioner.
The temporary restraining order issued is hereby made permanent.
Costs against the private respondent.
SO ORDERED.
Barredo (Chairman), Aquino, Abad Santos and De Castro, JJ., concur.

Footnotes
l Civil Case No. 250 (1669), Court of First Instance, Zamboanga
City, entitled "Ricardo A. Tong, Plaintiff, versus New Pacific
Timber and Supply, Co., Inc., Defendant."
2 pp. 14-15, rollo.
3 p. 16, rollo.
4 Exhibit "D".

5 p. 4, rollo.
6 pp. 5-6, rollo.
7 p. 6, rollo.
8 Exhibit "C", see Decision, p. 19, rollo.
9 p. 35, t.s.n., May 24, 1975.
10 Gregorio Araneta, Inc. vs. Paz Tuazon de Paterno and Jose
Vidal, L-2886, August 22, 1952, 49 O.G. No. 1, p. 59.
11 Section 187. Certification of check; effect of. Where a check
is certified by the bank on which it is drawn, the certification is
equivalent to acceptance. (Negotiable Instruments Law)
12 PNB vs. Nat. City Bank of New York, 63 Phil. 711, 718-719.
13 PNB vs, Nat. City Bank of New York, supra, 711-717; Sec. 189.
When check operates as an assignment. A cheek 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 orcertifies it. (Negotiable
Instruments Law) [Emphasis supplied]
14 Matute vs. Court of Appeals, 26 SCRA 799, citing Vda. de
Saludes vs. Pajarillo, 78 Phil. 754, Woodcraft Works, Ltd. vs.
Moscoso, 92 Phil. 1021 and Liwanag vs. Castillo, 106 Phil. 375

G.R. No. 72110. November 16, 1990.*

ROMAN CATHOLIC BISHOP OF MALOLOS, INC., petitioner, vs.
INTERMEDIATE APPELLATE COURT, and ROBES-FRANCISCO REALTY
AND DEVELOPMENT CORPORATION, respondents.
PETITION for certiorari to review the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Rodrigo Law Office for petitioner.

Antonio P. Barredo and Napoleon M. Malinas for private respondent.

SARMIENTO, J.:

This is a petition for review on certiorari which seeks the reversal and setting
aside of the decision1 of the Court of Appeals,2 the dispositive portion of
which reads:
WHEREFORE, the decision appealed from is hereby reversed
2 AC-G.R. CV No. 69626, Robes-Francisco Realty & Development Corporation
vs. Roman Catholic Bishop of Malolos, Inc. and set aside and another one
entered for the plaintiff ordering the defendant-appellee Roman Catholic
Bishop of Malolos, Inc. to accept the balance of P124,000.00 being paid by
plaintiff-appellant and thereafter to execute in favor of Robes-Francisco
Realty Corporation a registerable Deed of Absolute Sale over 20,655 square
meters portion of that parcel of land situated in San Jose del Monte, Bulacan
described in OCT No. 575 (now Transfer Certificates of Title Nos. T-169493,
169494, 169495 and 169496) of the Register of Deeds of Bulacan. In case of
refusal of the defendant to execute the Deed of Final Sale, the clerk of court
is directed to execute the said document. Without pronouncement as to
damages and attorneys fees. Costs against the defendant-appellee.3

The case at bar arose from a complaint filed by the private respondent, then
plaintiff, against the petitioner, then defendant, in the Court of First Instance
(now Regional Trial Court) of Bulacan, at Sta. Maria, Bulacan,4 for specific
performance with damages, based on a contract5 executed on July 7, 1971.

The property subject matter of the contract consists of a 20,655 sq.m.portion, out of the 30,655 sq.m. total area, of a parcel of land covered by
Original Certificate of Title No. 575 of the Province of Bulacan, issued and
registered in the name of the petitioner which it sold to the private
respondent for and in consideration of P123,930.00.
The crux of the instant controversy lies in the compliance or noncompliance by the private respondent with the provision for
payment to the petitioner of the principal balance of P100,000.00
and the accrued interest of P24,000.00 within the grace period.
A chronological narration of the antecedent facts is as follows:

On July 7, 1971, the subject contract over the land in question was executed
between the petitioner as vendor and the private respondent through its
then president, Mr. Carlos F. Robes, as vendee, stipulating for a
downpayment of P23,930.00 and the balance of P100,000.00 plus 12%
interest per annum to be paid within four (4) years from execution of the
contract, that is, on or before July 7, 1975. The contract likewise provides for
cancellation, forfeiture of previous payments, and reconveyance of the land
in question in case the private respondent would fail to complete payment
within the said period.
On March 12, 1973, the private respondent, through its new president, Atty.
Adalia Francisco, addressed a letter6 to Father Vasquez, parish priest of San
Jose Del Monte, Bulacan, requesting to be furnished with a copy of the
subject contract and the supporting documents.
On July 17, 1975, admittedly after the expiration of the stipulated period for
payment, the same Atty. Francisco wrote the petitioner a formal request7
that her company be allowed to pay the principal amount of P100,000.00 in
three (3) equal installments of six (6) months each with the first installment
and the accrued interest of P24,000.00 to be paid immediately upon
approval of the said request.
On July 29, 1975, the petitioner, through its counsel, Atty. Carmelo
Fernandez, formally denied the said request of the private respondent, but
granted the latter a grace period of five (5) days from the receipt of the
denial8 to pay the total balance of P124,000.00, otherwise, the provisions of
the contract regarding cancellation, forfeiture, and reconveyance would be
implemented.
On August 4, 1975, the private respondent, through its president, Atty.
Francisco, wrote9 the counsel of the petitioner requesting an extension of 30
days from said date to fully settle its account. The counsel for the petitioner,
Atty. Fernandez, received the said letter on the same day. Upon consultation
with the petitioner in Malolos, Bulacan, Atty. Fernandez, as instructed, wrote
the private respondent a letter10 dated August.
Consequently, Atty. Francisco, the private respondents president, wrote a
letter11 dated August 22, 1975, directly addressed to the petitioner,
protesting the alleged refusal of the latter to accept tender of payment
purportedly made by the former on August 5, 1975, the last day of the grace
period. In the same letter of August 22, 1975, received on the following day
by the petitioner, the private respondent demanded the execution of a deed
of absolute sale over the land in question and after which it would pay its
account in full, otherwise, judicial action would be resorted to.
On August 27, 1975, the petitioners counsel, Atty. Fernandez, wrote a
reply12 to the private respondent stating the refusal of his client to execute
the deed of absolute sale due to its (private respondents) failure to pay its

full obligation. Moreover, the petitioner denied that the private respondent
had made any tender of payment whatsoever within the grace period. In
view of this alleged breach of contract, the petitioner cancelled the contract
and considered all previous payments forfeited and the land as ipso facto
reconveyed.

From a perusal of the foregoing facts, we find that both the contending
parties have conflicting versions on the main question of tender of payment.
The trial court, in its ratiocination, preferred not to give credence to the
evidence presented by the private respondent. According to the trial court:
x x x What made Atty. Francisco suddenly decide to pay plaintiffs obligation
on August 5, 1975, go to defendants office at Malolos, and there tender her
payment, when her request of August 4, 1975 had not yet been acted upon
until August 7, 1975? If Atty. Francisco had decided to pay the obligation and
had available funds for the purpose on August 5, 1975, then there would
have been no need for her to write defendant on August 4, 1975 to request
an extension of time. Indeed, Atty. Franciscos claim that she made a tender
of payment on August 5, 1975such alleged act, considered in relation to
the circumstances both antecedent and subsequent thereto, being not in
accord with the normal pattern of human conductis not worthy of
credence.13
bp
The trial court likewise noted the inconsistency in the testimony of Atty.
Francisco, president of the private respondent, who earlier testified that a
certain Mila Policarpio accompanied her on August 5, 1975 to the office of
the petitioner. Another person, however, named Aurora Oracion, was
presented to testify as the secretary-companion of Atty. Francisco on that
same occasion.
Furthermore, the trial court considered as fatal the failure of Atty.
Francisco to present in court the certified personal check allegedly
tendered as payment or, at least, its xerox copy, or even bank
records thereof. Finally, the trial court found that the private respondent
had insufficient funds available to fulfill the entire obligation considering that
the latter, through its president, Atty. Francisco, only had a savings account
deposit of P64,840.00, and although the latter had a money-market
placement of P300,000.00. the same was to mature only after the expiration
of the 5-day grace period.
Based on the above considerations, the trial court rendered a decision in
favor of the petitioner, the dispositive portion of which reads:

WHEREFORE, finding plaintiff to have failed to make out its case, the court
hereby declares the subject contract cancelled and plaintiffs down payment
of P23,930.00 forfeited in favor of defendant, and hereby dismisses the
complaint; and on the counterclaim, the Court orders plaintiff to pay
defendant.
(1) Attorneys fees of P10,000.00;
(2) Litigation expenses of P2,000.00; and
(3) Judicial costs.

SO ORDERED.14
Not satisfied with the said decision, the private respondent appealed to the
respondent Intermediate Appellate Court (now Court of Appeals) assigning
as reversible errors, among others, the findings of the trial court that the
available funds of the private respondent were insufficient and that the latter
did not effect a valid tender of payment and consignation.
The respondent court, in reversing the decision of the trial court, essentially
relies on the following findings:
x x x We are convinced from the testimony of Atty. Adalia Francisco and her
witnesses that in behalf of the plaintiff-appellant they have a total available
sum of P364,840.00 at her and at the plaintiffs disposal on or before August
4, 1975 to answer for the obligation of the plaintiff-appellant. It was not
correct for the trial court to conclude that the plaintiff-appellant had only
about P64,840.00 in savings deposit on or before August 5, 1975, a sum not
enough to pay the outstanding account of P124,000.00. The plaintiffappellant, through Atty. Francisco proved and the trial court even
acknowledged that Atty. Adalia Francisco had about P300,000.00 in money
market placement. The error of the trial court lies in concluding that the
money market placement of P300,000.00 was out of reach of Atty. Francisco.
But as testified to by Mr. Catalino Estrella, a representative of the Insular
Bank of Asia and America, Atty. Francisco could withdraw anytime her money
market placement and place it at her disposal, thus proving her financial
capability of meeting more than the whole of P124,000.00 then due per
contract. This situation, We believe, proves the truth that Atty. Francisco
apprehensive that her request for a 30-day grace period would be denied,
she tendered payment on August 4, 1975 which offer defendant through its
representative and counsel refused to receive. x x x15 (Italics supplied)
In other words, the respondent court, finding that the private respondent had
sufficient available funds, ipso facto concluded that the latter had tendered

payment. Is such conclusion warranted by the facts proven? The petitioner

submits that it is not.
Hence, this petition.16
The petitioner presents the following issues for resolution:
A. Is a finding that private respondent had sufficient available funds on or
before the grace period for the payment of its obligation proof that it (private
respondent) did tender of (sic) payment for its said obligation within said
period?
xxx

xxx

xxx

B. Is it the legal obligation of the petitioner (as vendor) to execute a deed

of absolute sale in favor of the private respondent (as vendee) before the
latter has actually paid the complete consideration of the salewhere the
contract between and executed by the parties stipulates
That upon complete payment of the agreed consideration by the herein
VENDEE, the VENDOR shall cause the execution of a Deed of Absolute Sale in
favor of the VENDEE.
xxx

xxx

xxx

C. Is an offer of a check a valid tender of payment of an obligation under a

contract which stipulates that the consideration of the sale is in Philippine
Currency?17
We find the petition impressed with merit.
With respect to the first issue, we agree with the petitioner that a finding
that the private respondent had sufficient available funds on or before the
grace period for the payment of its obligation does not constitute proof of
tender of payment by the latter for its obligation within the said period.
Tender of payment involves a positive and unconditional act by the obligor of
offering legal tender currency as payment to the obligee for the formers
obligation and demanding that the latter accept the same. Thus, tender of
payment cannot be presumed by a mere inference from surrounding
circumstances. At most, sufficiency of available funds is only affirmative of
the capacity or ability of the obligor to fulfill his part of the bargain. But
whether or not the obligor avails himself of such funds to settle his
outstanding account remains to be proven by independent and credible
evidence. Tender of payment presupposes not only that the obligor is able,
ready, and willing, but more so, in the act of performing his obligation. Ab
posse ad actu non vale illatio. A proof that an act could have been done is
no proof that it was actually done.

The respondent court was therefore in error to have concluded from the
sheer proof of sufficient available funds on the part of the private respondent
to meet more than the total obligation within the grace period, the alleged
truth of tender of payment. The same is a classic case of non-sequitur.
On the contrary, the respondent court finds itself remiss in overlooking or
taking lightly the more important findings of fact made by the trial court
which we have earlier mentioned and which as a rule, are entitled to great
weight on appeal and should be accorded full consideration and respect and
should not be disturbed unless for strong and cogent reasons.18
While the Court is not a trier of facts, yet, when the findings of fact of the
Court of Appeals are at variance with those of the trial court,19 or when the
inference of the Court of Appeals from its findings of fact is manifestly
mistaken,20 the Court has to review the evidence in order to arrive at the
correct findings based on the record.
Apropos the second issue raised, although admittedly the documents for the
deed of absolute sale had not been prepared, the subject contract clearly
provides that the full payment by the private respondent is an a priori
condition for the execution of the said documents by the petitioner.
That upon complete payment of the agreed consideration by the herein
VENDEE, the VENDOR shall cause the execution of a Deed of Absolute Sale in
favor of the VENDEE.21
The private respondent is therefore in estoppel to claim otherwise as the
latter did in the testimony in cross-examination of its president, Atty.
Francisco, which reads:
Q Now, you mentioned, Atty. Francisco, that you wanted the defendant to
execute the final deed of sale before you would given (sic) the personal
certified check in payment of your balance, is that correct?
A Yes, sir.22
xxx

xxx

xxx

Art. 1159 of the Civil Code of the Philippines provides that obligations
arising from contracts have the force of law between the contracting parties
and should be complied with in good faith. And unless the stipulations in
said contract are contrary to law, morals, good customs, public order, or
public policy, the same are binding as between the parties.23
What the private respondent should have done if it was indeed desirous of
complying with its obligations would have been to pay the petitioner within
the grace period and obtain a receipt of such payment duly issued by the
latter. Thereafter, or, allowing a reasonable time, the private respondent
could have demanded from the petitioner the execution of the necessary

documents. In case the petitioner refused, the private respondent could have
had always resorted to judicial action for the legitimate enforcement of its
right. For the failure of the private respondent to undertake this more
judicious course of action, it alone shall suffer the consequences.
With regard to the third issue, granting arguendo that we would rule
affirmatively on the two preceding issues, the case of the private respondent
still can not succeed in view of the fact that the latter used a certified
personal check which is not legal tender nor the currency stipulated, and
therefore, can not constitute valid tender of payment. The first paragraph of
Art. 1249 of the Civil Code provides that the payment of debts in money
shall be made in the currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal tender in the Philippines.
The Court en banc in the recent case of Philippine Airlines v. Court of
Appeals,24 G.R. No. L-49188, stated thus:
Since a negotiable instrument is only a substitute for money and not money,
the delivery of such an instrument does not, by itself, operate as payment
(citing Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan
London Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21
R.C.L. 60, 61). A check, whether a managers check or ordinary check, is not
legal tender, and an offer of a check in payment of a debt is not a valid
tender of payment and may be refused receipt by the obligee or creditor.
Hence, where the tender of payment by the private respondent was not valid
for failure to comply with the requisite payment in legal tender or currency
stipulated within the grace period and as such, was validly refused receipt by
the petitioner, the subsequent consignation did not operate to discharge the
former from its obligation to the latter.

In view of the foregoing, the petitioner in the legitimate exercise of its rights
pursuant to the subject contract, did validly order therefore the cancellation
of the said contract, the forfeiture of the previous payment, and the
reconveyance ipso facto of the land in question.
WHEREFORE, the petition for review on certiorari is GRANTED and the
DECISION of the respondent court promulgated on April 25, 1985 is hereby
SET ASIDE and ANNULLED and the DECISION of the trial court dated May 25,
1981 is hereby REINSTATED. Costs against the private respondent.

G.R. No. 100290 June 4, 1993

NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, petitioners,

vs.
THE HONORABLE COURT OF APPEALS and EDEN TAN, respondents.

PADILLA, J.:
Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia, are before this
Court assailing the decision * of respondent appellate court dated 24 April
1991 in CA-G.R. SP No. 24164 denying their petition for certiorariprohibition,
and injunction which sought to annul the order of Judge Eutropio Migrio of
the Regional Trial Court, Branch 151, Pasig, Metro Manila in Civil Case No.
54863 entitled "Eden Tan vs. Sps. Norberto and Carmen Tibajia."
Stated briefly, the relevant facts are as follows:
Case No. 54863 was a suit for collection of a sum of money filed by Eden Tan
against the Tibajia spouses. A writ of attachment was issued by the trial
court on 17 August 1987 and on 17 September 1987, the Deputy Sheriff filed
a return stating that a deposit made by the Tibajia spouses in the Regional
Trial Court of Kalookan City in the amount of Four Hundred Forty Two
Thousand Seven Hundred and Fifty Pesos (P442,750.00) in another case, had
been garnished by him. On 10 March 1988, the Regional Trial Court, Branch
151 of Pasig, Metro Manila rendered its decision in Civil Case No. 54863 in
favor of the plaintiff Eden Tan, ordering the Tibajia spouses to pay her an
amount in excess of Three Hundred Thousand Pesos (P300,000.00). On
appeal, the Court of Appeals modified the decision by reducing the award of
moral and exemplary damages. The decision having become final, Eden Tan
filed the corresponding motion for execution and thereafter, the garnished
funds which by then were on deposit with the cashier of the Regional Trial
Court of Pasig, Metro Manila, were levied upon.
On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff
Eduardo Bolima the total money judgment in the following form:
Cashier's Check P262,750.00
Cash 135,733.70

Total P398,483.70

Private respondent, Eden Tan, refused to accept the payment made by the
Tibajia spouses and instead insisted that the garnished funds deposited with
the cashier of the Regional Trial Court of Pasig, Metro Manila be withdrawn to
satisfy the judgment obligation. On 15 January 1991, defendant spouses
(petitioners) filed a motion to lift the writ of execution on the ground that the
judgment debt had already been paid. On 29 January 1991, the motion was
denied by the trial court on the ground that payment in cashier's check is
not payment in legal tender and that payment was made by a third party
other than the defendant. A motion for reconsideration was denied on 8
February 1991. Thereafter, the spouses Tibajia filed a petition for certiorari,
prohibition and injunction in the Court of Appeals. The appellate court
dismissed the petition on 24 April 1991 holding that payment by cashier's
check is not payment in legal tender as required by Republic Act No. 529.
The motion for reconsideration was denied on 27 May 1991.
In this petition for review, the Tibajia spouses raise the following issues:
I WHETHER OR NOT THE BPI CASHIER'S CHECK NO. 014021 IN
THE AMOUNT OF P262,750.00 TENDERED BY PETITIONERS FOR
PAYMENT OF THE JUDGMENT DEBT, IS "LEGAL TENDER".
II WHETHER OR NOT THE PRIVATE RESPONDENT MAY VALIDLY
REFUSE THE TENDER OF PAYMENT PARTLY IN CHECK AND PARTLY
IN CASH MADE BY PETITIONERS, THRU AURORA VITO AND
COUNSEL, FOR THE SATISFACTION OF THE MONETARY
OBLIGATION OF PETITIONERS-SPOUSES. 1
The only issue to be resolved in this case is whether or not payment by
means of check (even by cashier's check) is considered payment in legal
tender as required by the Civil Code, Republic Act No. 529, and the Central
Bank Act.
It is contended by the petitioners that the check, which was a cashier's check
of the Bank of the Philippine Islands, undoubtedly a bank of good standing
and reputation, and which was a crossed check marked "For Payee's Account
Only" and payable to private respondent Eden Tan, is considered legal
tender, payment with which operates to discharge their monetary
obligation. 2 Petitioners, to support their contention, cite the case of New
Pacific Timber and Supply Co., Inc. v. Seeris 3 where this Court held through
Mr. Justice Hermogenes Concepcion, Jr. that "It is a well-known and accepted
practice in the business sector that a cashier's check is deemed as cash".

The provisions of law applicable to the case at bar are the following:
a. Article 1249 of the Civil Code which provides:
Art. 1249. The payment of debts in money shall be made
in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is legal
tender in the Philippines.
The delivery of promissory notes payable to order, or bills
of exchange or other mercantile documents shall produce
the effect of payment only when they have been cashed,
or when through the fault of the creditor they have been
impaired.
In the meantime, the action derived from the original
obligation shall be held in abeyance.;
b. Section 1 of Republic Act No. 529, as amended, which provides:
Sec. 1. Every provision contained in, or made with respect to,
any obligation which purports to give the obligee the right to
require payment in gold or in any particular kind of coin or
currency other than Philippine currency or in an amount of
money of the Philippines measured thereby, shall be as it is
hereby declared against public policy null and void, and of no
effect, and no such provision shall be contained in, or made with
respect to, any obligation thereafter incurred. Every obligation
heretofore and hereafter incurred, whether or not any such
provision as to payment is contained therein or made with
respect thereto, shall be discharged upon payment in any coin or
currency which at the time of payment is legal tender for public
and private debts.
c. Section 63 of Republic Act No. 265, as amended (Central Bank Act) which
provides:
Sec. 63. Legal character Checks representing deposit money
do not have legal tender power and their acceptance in the
payment of debts, both public and private, is at the option of the
creditor: Provided, however, that 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.
From the aforequoted provisions of law, it is clear that this petition must fail.
In the recent cases of Philippine Airlines, Inc. vs. Court of
Appeals 4 and Roman Catholic Bishop of Malolos, Inc. vs. Intermediate
Appellate Court, 5 this Court held that
A check, whether a manager's check or ordinary check, is not
legal tender, and an offer of a check in payment of a debt is not
a valid tender of payment and may be refused receipt by the
obligee or creditor.
The ruling in these two (2) cases merely applies the statutory
provisions which lay down the rule that a check is not legal tender
and that a creditor may validly refuse payment by check, whether it
be a manager's, cashier's or personal check.
Petitioners erroneously rely on one of the dissenting opinions in
the Philippine Airlines case 6 to support their cause. The dissenting opinion
however does not in any way support the contention that a check is legal
tender but, on the contrary, states that "If the PAL checks in question had
not been encashed by Sheriff Reyes, there would be no payment by PAL and,
consequently, no discharge or satisfaction of its judgment
obligation." 7 Moreover, the circumstances in the Philippine Airlinescase are
quite different from those in the case at bar for in that case the checks
issued by the judgment debtor were made payable to the sheriff, Emilio Z.
Reyes, who encashed the checks but failed to deliver the proceeds of said
encashment to the judgment creditor.
In the more recent case of Fortunado vs. Court of Appeals, 8 this Court
stressed that, "We are not, by this decision, sanctioning the use of a check
for the payment of obligations over the objection of the creditor."
WHEREFORE, the petition is DENIED. The appealed decision is hereby
AFFIRMED, with costs against the petitioners.

G.R. No. 93397 March 3, 1997

TRADERS ROYAL BANK, petitioner,
vs.
COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE
CORPORATION and CENTRAL BANK of the PHILIPPINES, respondents.

TORRES, JR., J.:

Assailed in this Petition for Review on Certiorari is the Decision of the
respondent Court of Appeals dated January 29, 1990, 1 affirming the nullity of
the transfer of Central Bank Certificate of Indebtedness (CBCI) No.
D891, 2 with a face value of P500,000.00, from the Philippine Underwriters
Finance Corporation (Philfinance) to the petitioner Trader's Royal Bank (TRB),
under a Repurchase Agreement 3 dated February 4, 1981, and a Detached
Assignment 4 dated April 27, 1981.
Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila,
Branch 32, the action was originally filed as a Petition for Mandamus 5 under
Rule 65 of the Rules of Court, to compel the Central Bank of the Philippines
to register the transfer of the subject CBCI to petitioner Traders Royal Bank
(TRB).
In the said petition, TRB stated that:
3. On November 27, 1979, Filriters Guaranty Assurance
Corporation (Filriters) executed a "Detached Assignment" . . .,
whereby Filriters, as registered owner, sold, transferred, assigned
and delivered unto Philippine Underwriters Finance Corporation
(Philfinance) all its rights and title to Central Bank Certificates of
Indebtedness of PESOS: FIVE HUNDRED THOUSAND (P500,000)
and having an aggregate value of PESOS: THREE MILLION FIVE
HUNDRED THOUSAND (P3,500,000.00);
4. The aforesaid Detached Assignment (Annex "A") contains an
express authorization executed by the transferor intended to
complete the assignment through the registration of the transfer
in the name of PhilFinance, which authorization is specifically
phrased as follows: '(Filriters) hereby irrevocably authorized the

said issuer (Central Bank) to transfer the said bond/certificates

on the books of its fiscal agent;
5. On February 4, 1981, petitioner entered into a Repurchase
Agreement with PhilFinance . . ., whereby, for and in
consideration of the sum of PESOS: FIVE HUNDRED THOUSAND
(P500,000.00), PhilFinance sold, transferred and delivered to
petitioner CBCI 4-year, 8th series, Serial No. D891 with a face
value of P500,000.00 . . ., which CBCI was among those
previously acquired by PhilFinance from Filriters as averred in
paragraph 3 of the Petition;
6. Pursuant to the aforesaid Repurchase Agreement (Annex "B"),
Philfinance agreed to repurchase CBCI Serial No. D891 (Annex
"C"), at the stipulated price of PESOS: FIVE HUNDRED NINETEEN
THOUSAND THREE HUNDRED SIXTY-ONE & 11/100 (P519,361.11)
on April 27, 1981;
7. PhilFinance failed to repurchase the CBCI on the agreed date
of maturity, April 27, 1981, when the checks it issued in favor of
petitioner were dishonored for insufficient funds;
8. Owing to the default of PhilFinance, it executed a Detached
Assignment in favor of the Petitioner to enable the latter to have
its title completed and registered in the books of the respondent.
And by means of said Detachment, Philfinance transferred and
assigned all, its rights and title in the said CBCI (Annex "C") to
petitioner and, furthermore, it did thereby "irrevocably authorize
the said issuer (respondent herein) to transfer the said
bond/certificate on the books of its fiscal agent." . . .
9. Petitioner presented the CBCI (Annex "C"), together with the
two (2) aforementioned Detached Assignments (Annexes "B" and
"D"), to the Securities Servicing Department of the respondent,
and requested the latter to effect the transfer of the CBCI on its
books and to issue a new certificate in the name of petitioner as
absolute owner thereof;
10. Respondent failed and refused to register the transfer as
requested, and continues to do so notwithstanding petitioner's
valid and just title over the same and despite repeated demands

in writing, the latest of which is hereto attached as Annex "E"

and made an integral part hereof;
11. The express provisions governing the transfer of the CBCI
were substantially complied with the petitioner's request for
registration, to wit:
"No transfer thereof shall be valid unless made at
said office (where the Certificate has been
registered) by the registered owner hereof, in person
or by his attorney duly authorized in writing, and
similarly noted hereon, and upon payment of a
nominal transfer fee which may be required, a new
Certificate shall be issued to the transferee of the
registered holder thereof."
and, without a doubt, the Detached Assignments presented to
respondent were sufficient authorizations in writing executed by
the registered owner, Filriters, and its transferee, PhilFinance, as
required by the above-quoted provision;
12. Upon such compliance with the aforesaid requirements, the
ministerial duties of registering a transfer of ownership over the
CBCI and issuing a new certificate to the transferee devolves
upon the respondent;
Upon these assertions, TRB prayed for the registration by the Central Bank of
the subject CBCI in its name.
On December 4, 1984, the Regional Trial Court the case took cognizance of
the defendant Central Bank of the Philippines' Motion for Admission of
Amended Answer with Counter Claim for Interpleader 6 thereby calling to fore
the respondent Filriters Guaranty Assurance Corporation (Filriters), the
registered owner of the subject CBCI as respondent.
For its part, Filriters interjected as Special Defenses the following:
11. Respondent is the registered owner of CBCI No. 891;

12. The CBCI constitutes part of the reserve investment against

liabilities required of respondent as an insurance company under
the Insurance Code;
13. Without any consideration or benefit whatsoever to Filriters,
in violation of law and the trust fund doctrine and to the
prejudice of policyholders and to all who have present or future
claim against policies issued by Filriters, Alfredo Banaria, then
Senior Vice-President-Treasury of Filriters, without any board
resolution, knowledge or consent of the board of directors of
Filriters, and without any clearance or authorization from the
Insurance Commissioner, executed a detached assignment
purportedly assigning CBCI No. 891 to Philfinance;
xxx xxx xxx
14. Subsequently, Alberto Fabella, Senior Vice-PresidentComptroller are Pilar Jacobe, Vice-President-Treasury of Filriters
(both of whom were holding the same positions in Philfinance),
without any consideration or benefit redounding to Filriters and
to the grave prejudice of Filriters, its policy holders and all who
have present or future claims against its policies, executed
similar detached assignment forms transferring the CBCI to
plaintiff;
xxx xxx xxx
15. The detached assignment is patently void and inoperative
because the assignment is without the knowledge and consent of
directors of Filriters, and not duly authorized in writing by the
Board, as requiring by Article V, Section 3 of CB Circular No. 769;
16. The assignment of the CBCI to Philfinance is a personal act of
Alfredo Banaria and not the corporate act of Filriters and such
null and void;
a) The assignment was executed without consideration and for
that reason, the assignment is void from the beginning (Article
1409, Civil Code);

b) The assignment was executed without any knowledge and

consent of the board of directors of Filriters;
c) The CBCI constitutes reserve investment of Filriters against
liabilities, which is a requirement under the Insurance Code for
its existence as an insurance company and the pursuit of its
business operations. The assignment of the CBCI is illegal act in
the sense of malum in se or malum prohibitum, for anyone to
make, either as corporate or personal act;
d) The transfer of dimunition of reserve investments of Filriters is
expressly prohibited by law, is immoral and against public policy;
e) The assignment of the CBCI has resulted in the capital
impairment and in the solvency deficiency of Filriters (and has in
fact helped in placing Filriters under conservatorship), an
inevitable result known to the officer who executed assignment.
17. Plaintiff had acted in bad faith and with knowledge of the
illegality and invalidity of the assignment.
a) The CBCI No. 891 is not a negotiable instrument and as a
certificate of indebtedness is not payable to bearer but is a
registered in the name of Filriters;
b) The provision on transfer of the CBCIs provides that the
Central Bank shall treat the registered owner as the absolute
owner and that the value of the registered certificates shall be
payable only to the registered owner; a sufficient notice to
plaintiff that the assignments do not give them the registered
owner's right as absolute owner of the CBCI's;
c) CB Circular 769, Series of 1980 (Rules and Regulations
Governing CBCIs) provides that the registered certificates are
payable only to the registered owner (Article II, Section 1).
18. Plaintiff knew full well that the assignment by Philfinance of
CBCI No. 891 by Filriters is not a regular transaction made in the
usual of ordinary course of business;

a) The CBCI constitutes part of the reserve investments of

Filriters against liabilities requires by the Insurance Code and its
assignment or transfer is expressly prohibited by law. There was
no attempt to get any clearance or authorization from the
Insurance Commissioner;
b) The assignment by Filriters of the CBCI is clearly not a
transaction in the usual or regular course of its business;
c) The CBCI involved substantial amount and its assignment
clearly constitutes disposition of "all or substantially all" of the
assets of Filriters, which requires the affirmative action of the
stockholders (Section 40, Corporation [sic] Code. 7
In its Decision 8 dated April 29, 1988, the Regional Trial Court of Manila,
Branch XXXIII found the assignment of CBCI No. D891 in favor of Philfinance,
and the subsequent assignment of the same CBCI by Philfinance in favor of
Traders Royal Bank null and void and of no force and effect. The dispositive
portion of the decision reads:
ACCORDINGLY, judgment is hereby rendered in favor of the
respondent Filriters Guaranty Assurance Corporation and against
the plaintiff Traders Royal Bank:
(a) Declaring the assignment of CBCI No. 891 in favor of
PhilFinance, and the subsequent assignment of CBCI by
PhilFinance in favor of the plaintiff Traders Royal Bank as null and
void and of no force and effect;
(b) Ordering the respondent Central Bank of the Philippines to
disregard the said assignment and to pay the value of the
proceeds of the CBCI No. D891 to the Filriters Guaranty
Assurance Corporation;
(c) Ordering the plaintiff Traders Royal Bank to pay respondent
Filriters Guaranty Assurance Corp. The sum of P10,000 as
attorney's fees; and
(d) to pay the costs.
SO ORDERED. 9

The petitioner assailed the decision of the trial court in the Court of
Appeals 10, but their appeals likewise failed. The findings of the fact of the
said court are hereby reproduced:
The records reveal that defendant Filriters is the registered owner
of CBCI No. D891. Under a deed of assignment dated November
27, 1971, Filriters transferred CBCI No. D891 to Philippine
Underwriters Finance Corporation (Philfinance). Subsequently,
Philfinance transferred CBCI No. D891, which was still registered
in the name of Filriters, to appellant Traders Royal Bank (TRB).
The transfer was made under a repurchase agreement dated
February 4, 1981, granting Philfinance the right to repurchase
the instrument on or before April 27, 1981. When Philfinance
failed to buy back the note on maturity date, it executed a deed
of assignment, dated April 27, 1981, conveying to appellant TRB
all its right and the title to CBCI No. D891.
Armed with the deed of assignment, TRB then sought the
transfer and registration of CBCI No. D891 in its name before the
Security and Servicing Department of the Central Bank (CB).
Central Bank, however, refused to effect the transfer and
registration in view of an adverse claim filed by defendant
Filriters.
Left with no other recourse, TRB filed a special civil action
for mandamus against the Central Bank in the Regional Trial
Court of Manila. The suit, however, was subsequently treated by
the lower court as a case of interpleader when CB prayed in its
amended answer that Filriters be impleaded as a respondent and
the court adjudge which of them is entitled to the ownership of
CBCI No. D891. Failing to get a favorable judgment. TRB now
comes to this Court on appeal. 11
In the appellate court, petitioner argued that the subject CBCI was a
negotiable instrument, and having acquired the said certificate from
Philfinance as a holder in due course, its possession of the same is thus free
fro any defect of title of prior parties and from any defense available to prior
parties among themselves, and it may thus, enforce payment of the
instrument for the full amount thereof against all parties liable thereon. 12

In ignoring said argument, the appellate court that the CBCI is not a
negotiable instrument, since the instrument clearly stated that it was
payable to Filriters, the registered owner, whose name was inscribed
thereon, and that the certificate lacked the words of negotiability which
serve as an expression of consent that the instrument may be transferred by
negotiation.
Obviously, the assignment of the certificate from Filriters to Philfinance was
fictitious, having made without consideration, and did not conform to Central
Bank Circular No. 769, series of 1980, better known as the "Rules and
Regulations Governing Central Bank Certificates of Indebtedness", which
provided that any "assignment of registered certificates shall not be valid
unless made . . . by the registered owner thereof in person or by his
representative duly authorized in writing."
Petitioner's claimed interest has no basis, since it was derived from
Philfinance whose interest was inexistent, having acquired the certificate
through simulation. What happened was Philfinance merely borrowed CBCI
No. D891 from Filriters, a sister corporation, to guarantee its financing
operations.
Said the Court:
In the case at bar, Alfredo O. Banaria, who signed the deed of
assignment purportedly for and on behalf of Filriters, did not
have the necessary written authorization from the Board of
Directors of Filriters to act for the latter. For lack of such
authority, the assignment did not therefore bind Filriters and
violated as the same time Central Bank Circular No. 769 which
has the force and effect of a law, resulting in the nullity of the
transfer (People v. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc.
vs. Commissioner of Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No.
D891 which it could assign or transfer to Traders Royal Bank and
which the latter can register with the Central Bank.
WHEREFORE, the judgment appealed from is AFFIRMED, with
costs against plaintiff-appellant.
SO ORDERED.

13

Petitioner's present position rests solely on the argument that Philfinance

owns 90% of Filriters equity and the two corporations have identical
corporate officers, thus demanding the application of the doctrine or piercing
the veil of corporate fiction, as to give validity to the transfer of the CBCI
from registered owner to petitioner TRB. 14 This renders the payment by TRB
to Philfinance of CBCI, as actual payment to Filriters. Thus, there is no merit
to the lower court's ruling that the transfer of the CBCI from Filriters to
Philfinance was null and void for lack of consideration.
Admittedly, the subject CBCI is not a negotiable instrument in the absence of
words of negotiability within the meaning of the negotiable instruments law
(Act 2031).
The pertinent portions of the subject CBCI read:
xxx xxx xxx
The Central Bank of the Philippines (the Bank) for value received,
hereby promises to pay bearer, of if this Certificate of
indebtedness be registered, to FILRITERS GUARANTY ASSURANCE
CORPORATION, the registered owner hereof, the principal sum of
FIVE HUNDRED THOUSAND PESOS.
xxx xxx xxx
Properly understood, a certificate of indebtedness pertains to certificates for
the creation and maintenance of a permanent improvement revolving fund,
is similar to a "bond," (82 Minn. 202). Being equivalent to a bond, it is
properly understood as acknowledgment of an obligation to pay a fixed sum
of money. It is usually used for the purpose of long term loans.
The appellate court ruled that the subject CBCI is not a negotiable
instrument, stating that:
As worded, the instrument provides a promise "to pay Filriters
Guaranty Assurance Corporation, the registered owner hereof."
Very clearly, the instrument is payable only to Filriters, the
registered owner, whose name is inscribed thereon. It lacks the
words of negotiability which should have served as an expression
of consent that the instrument may be transferred by
negotiation. 15

A reading of the subject CBCI indicates that the same is payable to

FILRITERS GUARANTY ASSURANCE CORPORATION, and to no one else, thus,
discounting the petitioner's submission that the same is a negotiable
instrument, and that it is a holder in due course of the certificate.
The language of negotiability which characterize a negotiable paper as a
credit instrument is its freedom to circulate as a substitute for money.
Hence, freedom of negotiability is the touchtone relating to the protection of
holders in due course, and the freedom of negotiability is the foundation for
the protection which the law throws around a holder in due course (11 Am.
Jur. 2d, 32). This freedom in negotiability is totally absent in a
certificate indebtedness as it merely to pay a sum of money to a
specified person or entity for a period of time.
As held in Caltex (Philippines), Inc. v. Court of Appeals,

16

The accepted rule is that the negotiability or non-negotiability of

an instrument is determined from the writing, that is, from the
face of the instrument itself. In the construction of a bill or note,
the intention of the parties is to control, if it can be legally
ascertained. While the writing may be read in the light of
surrounding circumstance in order to more perfectly understand
the intent and meaning of the parties, yet as they have
constituted the writing to be the only outward and visible
expression of their meaning, no other words are to be added to it
or substituted in its stead. The duty of the court in such case is to
ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express, but what is
the meaning of the words they have used. What the parties
meant must be determined by what they said.
Thus, the transfer of the instrument from Philfinance to TRB was merely an
assignment, and is not governed by the negotiable instruments law. The
pertinent question then is, was the transfer of the CBCI from Filriters to
Philfinance and subsequently from Philfinance to TRB, in accord with existing
law, so as to entitle TRB to have the CBCI registered in its name with the
Central Bank?
The following are the appellate court's pronouncements on the matter:

Clearly shown in the record is the fact that Philfinance's title over
CBCI No. D891 is defective since it acquired the instrument from
Filriters fictitiously. Although the deed of assignment stated that
the transfer was for "value received", there was really no
consideration involved. What happened was Philfinance merely
borrowed CBCI No. D891 from Filriters, a sister corporation. Thus,
for lack of any consideration, the assignment made is a complete
nullity.
What is more, We find that the transfer made by Filriters to
Philfinance did not conform to Central Bank Circular No. 769,
series of 1980, otherwise known as the "Rules and Regulations
Governing Central Bank Certificates of Indebtedness", under
which the note was issued. Published in the Official Gazette on
November 19, 1980, Section 3 thereof provides that any
assignment of registered certificates shall not be valid unless
made . . . by the registered owner thereof in person or by his
representative duly authorized in writing.
In the case at bar, Alfredo O. Banaria, who signed the deed of
assignment purportedly for and on behalf of Filriters, did not
have the necessary written authorization from the Board of
Directors of Filriters to act for the latter. For lack of such
authority, the assignment did not therefore bind Filriters and
violated at the same time Central Bank Circular No. 769 which
has the force and effect of a law, resulting in the nullity of the
transfer (People vs. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc.
vs. Commissioner of Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No.
D891 which it could assign or transfer to Traders Royal Bank and
which the latter can register with the Central Bank
Petitioner now argues that the transfer of the subject CBCI to TRB must
upheld, as the respondent Filriters and Philfinance, though separate
corporate entities on paper, have used their corporate fiction to defraud TRB
into purchasing the subject CBCI, which purchase now is refused registration
by the Central Bank.
Says the petitioner;

Since Philfinance own about 90% of Filriters and the two

companies have the same corporate officers, if the principle of
piercing the veil of corporate entity were to be applied in this
case, then TRB's payment to Philfinance for the CBCI purchased
by it could just as well be considered a payment to Filriters, the
registered owner of the CBCI as to bar the latter from claiming,
as it has, that it never received any payment for that CBCI sold
and that said CBCI was sold without its authority.
xxx xxx xxx
We respectfully submit that, considering that the Court of
Appeals has held that the CBCI was merely borrowed by
Philfinance from Filriters, a sister corporation, to guarantee its
(Philfinance's) financing operations, if it were to be consistent
therewith, on the issued raised by TRB that there was a piercing
a veil of corporate entity, the Court of Appeals should have ruled
that such veil of corporate entity was, in fact, pierced, and the
payment by TRB to Philfinance should be construed as payment
to Filriters. 17
We disagree with Petitioner.
Petitioner cannot put up the excuse of piercing the veil of corporate entity, as
this merely an equitable remedy, and may be awarded only in cases when
the corporate fiction is used to defeat public convenience, justify wrong,
protect fraud or defend crime or where a corporation is a mere alter ego or
business conduit of a person. 18
Peiercing the veil of corporate entity requires the court to see through the
protective shroud which exempts its stockholders from liabilities that
ordinarily, they could be subject to, or distinguished one corporation from a
seemingly separate one, were it not for the existing corporate fiction. But to
do this, the court must be sure that the corporate fiction was misused, to
such an extent that injustice, fraud, or crime was committed upon another,
disregarding, thus, his, her, or its rights. It is the protection of the interests of
innocent third persons dealing with the corporate entity which the law aims
to protect by this doctrine.
The corporate separateness between Filriters and Philfinance remains,
despite the petitioners insistence on the contrary. For one, other than the

allegation that Filriters is 90% owned by Philfinance, and the identity of one
shall be maintained as to the other, there is nothing else which could lead
the court under circumstance to disregard their corporate personalities.
Though it is true that when valid reasons exist, the legal fiction that a
corporation is an entity with a juridical personality separate from its
stockholders and from other corporations may be disregarded, 19 in the
absence of such grounds, the general rule must upheld. The fact that
Filfinance owns majority shares in Filriters is not by itself a ground to
disregard the independent corporate status of Filriters. In Liddel &
Co., Inc. vs. Collector of Internal Revenue, 20 the mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock
of a corporation is not of itself a sufficient reason for disregarding the fiction
of separate corporate personalities.
In the case at bar, there is sufficient showing that the petitioner was not
defrauded at all when it acquired the subject certificate of indebtedness from
Philfinance.
On its face the subject certificates states that it is registered in the name of
Filriters. This should have put the petitioner on notice, and prompted it to
inquire from Filriters as to Philfinance's title over the same or its authority to
assign the certificate. As it is, there is no showing to the effect that petitioner
had any dealings whatsoever with Filriters, nor did it make inquiries as to the
ownership of the certificate.
The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus:
TRANSFER. This Certificate shall pass by delivery unless it is
registered in the owner's name at any office of the Bank or any
agency duly authorized by the Bank, and such registration is
noted hereon. After such registration no transfer thereof shall be
valid unless made at said office (where the Certificates has been
registered) by the registered owner hereof, in person, or by his
attorney, duly authorized in writing and similarly noted hereon
and upon payment of a nominal transfer fee which may be
required, a new Certificate shall be issued to the transferee of
the registered owner thereof. The bank or any agency duly
authorized by the Bank may deem and treat the bearer of this
Certificate, or if this Certificate is registered as herein authorized,
the person in whose name the same is registered as the absolute

owner of this Certificate, for the purpose of receiving payment

hereof, or on account hereof, and for all other purpose whether
or not this Certificate shall be overdue.
This is notice to petitioner to secure from Filriters a written authorization for
the transfer or to require Philfinance to submit such an authorization from
Filriters.
Petitioner knew that Philfinance is not registered owner of the CBCI No. D891.
The fact that a non-owner was disposing of the registered CBCI owned by
another entity was a good reason for petitioner to verify of inquire as to the
title Philfinance to dispose to the CBCI.
Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of
1990 21, known as the Rules and Regulations Governing Central Bank
Certificates of Indebtedness, Section 3, Article V of which provides that:
Sec. 3. Assignment of Registered Certificates. Assignment of
registered certificates shall not be valid unless made at the office
where the same have been issued and registered or at the
Securities Servicing Department, Central Bank of the Philippines,
and by the registered owner thereof, in person or by his
representative, duly authorized in writing. For this purpose, the
transferee may be designated as the representative of the
registered owner.
Petitioner, being a commercial bank, cannot feign ignorance of Central Bank
Circular 769, and its requirements. An entity which deals with corporate
agents within circumstances showing that the agents are acting in excess of
corporate authority, may not hold the corporation liable. 22 This is only fair,
as everyone must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and
good faith. 23
The transfer made by Filriters to Philfinance did not conform to the said.
Central Bank Circular, which for all intents, is considered part of the law. As
found by the courts a quo, Alfredo O. Banaria, who had signed the deed of
assignment from Filriters to Philfinance, purportedly for and in favor of
Filriters, did not have the necessary written authorization from the Board of
Directors of Filriters to act for the latter. As it is, the sale from Filriters to
Philfinance was fictitious, and therefore void and inexistent, as there was no

consideration for the same. This is fatal to the petitioner's cause, for then,
Philfinance had no title over the subject certificate to convey the Traders
Royal Bank.Nemo potest nisi quod de jure potest no man can do anything
except what he can do lawfully.
Concededly, the subject CBCI was acquired by Filriters to form part of its
legal and capital reserves, which are required by law 24 to be maintained at a
mandated level. This was pointed out by Elias Garcia, Manager-in-Charge of
respondent Filriters, in his testimony given before the court on May 30, 1986.
Q Do you know this Central Bank Certificate of
Indebtedness, in short, CBCI No. D891 in the face
value of P5000,000.00 subject of this case?
A Yes, sir.
Q Why do you know this?
A Well, this was CBCI of the company sought to be
examined by the Insurance Commission sometime in
early 1981 and this CBCI No. 891 was among the
CBCI's that were found to be missing.
Q Let me take you back further before 1981. Did you
have the knowledge of this CBCI No. 891 before
1981?
A Yes, sir. This CBCI is an investment of Filriters
required by the Insurance Commission as legal
reserve of the company.
Q Legal reserve for the purpose of what?
A Well, you see, the Insurance companies are
required to put up legal reserves under Section 213
of the Insurance Code equivalent to 40 percent of the
premiums receipt and further, the Insurance
Commission requires this reserve to be invested
preferably in government securities or government
binds. This is how this CBCI came to be purchased by
the company.

It cannot, therefore, be taken out of the said funds, without violating the
requirements of the law. Thus, the anauthorized use or distribution of the
same by a corporate officer of Filriters cannot bind the said corporation, not
without the approval of its Board of Directors, and the maintenance of the
required reserve fund.
Consequently, the title of Filriters over the subject certificate of indebtedness
must be upheld over the claimed interest of Traders Royal Bank.
ACCORDINGLY, the petition is DISMISSED and the decision appealed from
dated January 29, 1990 is hereby AFFIRMED.
SO ORDERED.
Regalado, Romero and Mendoza, JJ., concur.
Puno, J., took no part.
Footnotes
1 Justice Ricardo L. Pronove, Jr., ponente; concurred in by Justices
Alfredo L. Benipayo and Serafain V.C. Guingona, p. 18, Rollo.
2 P. 143, Record.
3 Ibid. at p. 146.
4 Ibid., at p. 148.
5 P. 1, Record.
6 P. 75, Record.
7 Answer, p. 97, Record.
8 P. 315, Record.
9 Pp. 16-17, RTC Decision, p. 330, Rollo.
10 Annex "A". Petition, supra.
11 Court of Appeals Decision, pp. 18-19, Rollo.

12 Section 57. Negotiable Instruments Law.

13 Petition, Annex "A", pp. 21-22, Rollo.
14 Ibid.
15 Campos and Campos, Negotiable Instruments Law, p. 38,
1971 ed.
16 G.R. No. 97753, August 10, 1992, 212 SCRA 448.
17 Petition
18 Yu vs. National Labor Relations Commission 245 SCRA 134.
19 Guatson International Travel and Tours, Inc. vs. National Labor
Relations Commission, 230 SCRA 815.
20 2 SCRA 632.
21 Official Gazette 9370.
22 See Article 1883, Civil Code.
23 See Article 19, Civil Code.
24 Sec. 213 Every insurance company, other than life, shall
maintain a reserve fro unearned premiums on its policies in
force, which shall be charged as a liability in any determination
of its financial condition. Such reserve shall be equal to forty per
centum of the gross permiums, less returns and cancellations,
received on policies or risks having more than a year to
run; Provided That for marine cargo risks, the reserve shall be
equal to forty per centum of the premiums written in the policies
upon yearly risks, and the full amount of premiums written
during the last two months of the calendar year upon all other
marine risks not terminated. Presidential Decree No. 612 (The
Insurance Code of the Philippines).