NIL Case Syllabi (Until Sec. 23)

Negotiable Instruments Law Case Outlines
FUNCTIONS AND IMPORTANCE OF

NEGOTIABLE INSRUMENTS
A. SUBSTITUTE FOR MONEY BUT NOT
LEGAL TEDER
1. MYRON C. PAPA, Administrator of the
Testate Estate of Angela M. Butte,
petitioner, vs. A.U. VALENCIA and CO.,
INC., FELIX PEARROYO, SPS. ARSENIO
B. REYES & AMANDA SANTOS, and
DELFIN JAO, respondents.
Syllabi
Class :
Negotiable
Instruments|Actions|Checks|Presumptions|Obli
gations|Parties|Settlement of Estates
Syllabi:
1. Negotiable
Instruments; Checks; Presumptions; After
more than ten (10) years from the payment in
part by cash and in part by check, the
presumption is that the check had been
encashed.It is an undisputed fact that respondents
Valencia and Pearroyo had given petitioner
Myron C. Papa the amounts of Five Thousand
Pesos (P5,000.00) in cash on 24 May 1973,
and Forty Thousand Pesos (P40,000.00) in
check on 15 June 1973, in payment of the
purchase price of the subject lot. Petitioner
himself admits having received said amounts,
and
having
issued
receipts
therefor.
Petitioners assertion that he never encashed
the aforesaid check is not substantiated and is
at odds with his statement in his answer that
he can no longer recall the transaction which
is supposed to have happened 10 years ago.
After more than ten (10) years from the
payment in part by cash and in part by check,
the presumption is that the check had been
encashed. As already stated, he even waived
the presentation of oral evidence.
2. Negotiable Instruments; Checks; Failure
of a payee to encash a check for more than ten
(10) years undoubtedly resulted in the
impairment of the check through his
unreasonable and unexplained delay.Granting that petitioner had never encashed
the check, his failure to do so for more than ten
(10) years undoubtedly resulted in the
impairment of the check through his
unreasonable and unexplained delay.
3. Negotiable
Instruments; Checks; Obligations;
The acceptance of a check implies an
undertaking of due diligence in presenting it for
payment, and if he from whom it is received
sustains loss by want of such diligence, it will
be held to operate as actual payment of the
debt or obligation for which it was given.While it is true that the delivery of a check
produces the effect of payment only when it is
cashed, pursuant to Art. 1249 of the Civil
Code, the rule is otherwise if the debtor is
prejudiced by the creditors unreasonable
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delay in presentment. The acceptance of a

check implies an undertaking of due diligence
in presenting it for payment, and if he from
whom it is received sustains loss by want of
such diligence, it will be held to operate as
actual payment of the debt or obligation for
which it was given. It has, likewise, been held
that if no presentment is made at all, the
drawer cannot be held liable irrespective of
loss or injury unless presentment is otherwise
excused. This is in harmony with Article 1249
of the Civil Code under which payment by way
of check or other negotiable instrument is
conditioned on its being cashed, except when
through the fault of the creditor, the instrument
is impaired. The payee of a check would be a
creditor under this provision and if its nonpayment is caused by his negligence, payment
will be deemed effected and the obligation for
which the check was given as conditional
payment will be discharged.
4. Actions; Parties; Settlement
of
Estates; An executor or administrator may sue
or be sued without joining the party for whose
benefit the action is presented or defended.The estate of Angela M. Butte is not an
indispensable party. Under Section 3 of Rule 3
of the Rules of Court, an executor or
administrator may sue or be sued without
joining the party for whose benefit the action is
presented or defended.
Dispositive Portion:
WHEREFORE, the petition for review is hereby
DENIED and the Decision of the Court of
Appeals, dated 27 January 1992 is
AFFIRMED.
2. Case Title : CEBU INTERNATIONAL
FINANCE CORPORATION, petitioner, vs.
COURT OF APPEALS, VICENTE ALEGRE,
respondents.
Syllabi
Class :
Civil
Law|Commercial
Law|Loan|Check|Actions|Compromise
Agreement|Nature
of
Compromise
Agreement|Garnishment|Litis Pendentia|Res
Judicata
Syllabi:
1. Civil Law; Commercial Law; Loan; In a
money market transaction, the investor is a
lender who loans his money to a borrower
through a middleman or dealer.Considering the nature of a money market
transaction, the above-quoted provision should
be applied in the present controversy. As held
in Perez vs. Court of Appeals, a money
market is a market dealing in standardized
short-term credit instruments (involving large
amounts) where lenders and borrowers do not
deal directly with each other but through a
middle man or dealer in open market. In a
through a middleman or dealer.
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2. Civil
Law; Commercial
Law; Loan; Check; A check is not a legal
tender, and therefore cannot constitute valid
tender of payment.In a loan transaction, the obligation to pay a
sum certain in money may be paid in money,
which is the legal tender or, by the use of a
check. A check is not a legal tender, and
therefore cannot constitute valid tender of
payment. In the case of Philippine Airlines, Inc.
vs. Court of Appeals, this Court held: 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 (citation omitted). 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.
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 (Art. 1249, Civil Code, par.
3.)
3. Civil
Law; Actions; Compromise
Agreement; Nature
of
Compromise
Agreement; The
compromise
agreement
could not bind a party who did not sign the
compromise agreement nor avail of its
benefits.A compromise is a contract whereby the
parties, by making reciprocal concessions,
avoid a litigation or put an end to one already
commenced. It is an agreement between two
or more persons who, for preventing or putting
an end to a lawsuit, adjust their difficulties by
mutual consent in the manner which they
agree on, and which everyone of them prefers
in the hope of gaining, balanced by the danger
of losing. The compromise agreement could
not bind a party who did not sign the
compromise agreement nor avail of its
benefits. Thus, the stipulations in the
compromise agreement is unenforceable
against Vicente Alegre, not a party thereto. His
money could not be the subject of an
agreement between CIFC and BPI. Although
Alegres money was in custody of the bank, the
banks possession of it was not in the concept
of an owner. BPI cannot validly appropriate the
money as its own.
4. Civil
Law; Actions; Garnishment; Garnishment is
an attachment by means of which the plaintiff
seeks to subject to his claim the property of the
defendant in the hands of a third person or
money owed to such third person or a
garnishee to the defendant; 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.-
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BPIs confiscation of Alegres money

constitutes garnishment without the parties
going through a valid proceeding in court.
Garnishment is an attachment by means of
which the plaintiff seeks to subject to his claim
the property of the defendant in the hands of a
third person or money owed to such third
person or a garnishee to the defendant. The
garnishment procedure must be upon proper
order of RTC-Makati, Branch 62, the court who
had jurisdiction over the collection suit filed by
BPI against Alegre. In effect, CIFC has not yet
tendered a valid payment of its obligation to
the private respondent. 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. Tender of payment cannot be
presumed by a mere inference from
surrounding circumstances.
5. Civil
Law; Actions; Litis
Pendentia; Requisites for litis pendentia to be
a ground for the dismissal of an action.With regard to the third issue, for litis pendentia
to be a ground for the dismissal of an action,
the following requisites must concur: (a)
identity of parties or at least such as to
represent the same interest in both actions; (b)
identity of rights asserted and relief prayed for,
the relief being founded on the same acts; and
(c) the identity in the two cases should be such
that the judgment which may be rendered in
one would, regardless of which party is
successful, amount to res judicata in the other.
6. Civil Law; Actions; Res Judicata; The
general rule is that a compromise has upon the
parties the effect and authority of res judicata,
with respect to the matter definitely stated
therein, or which by implication from its terms
should be deemed to have been included
therein even if the agreement has not been
judicially approved.The compromise agreement between CIFC
and BPI, categorically provided that In case
plaintiff is adjudged liable to Vicente Alegre in
Civil Case No. 92-515 arising from the alleged
dishonor of BPI Check No. 513397, plaintiff
(CIFC) cannot go after the defendant (BPI);
otherwise stated, the defendant shall not be
liable to the plaintiff. Clearly, this stipulation
expressed that CIFC had already abandoned
any further claim against BPI with respect to
the value of BPI Check No. 513397. To ask
this Court to allow BPI to be a party in the case
at bar, would amount to res judicata and would
violate terms of the compromise agreement
between CIFC and BPI. The general rule is
that a compromise has upon the parties the
effect and authority of res judicata, with respect
to the matter definitely stated therein, or which
by implication from its terms should be deemed
to have been included therein. This holds true
even if the agreement has not been judicially
approved.
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WHEREFORE, the instant petition is hereby
DENIED. The Decision of the Court of Appeals
in CA-G.R. CV No. 44085 is AFFIRMED. Costs
against petitioner.
3. Case Title : JUAN A. RUEDA, JR.,

petitioner, vs. HONORABLE SANDIGANBAYAN and PEOPLE OF THE PHILIPPINES,
respondents.
Syllabi
Class :
Courts|Criminal
Law|Sandiganbayan|Evidence|Malversation|Pu
blic Officers|Words and Phrases|Presumption
of Innocence
Syllabi:
1. Courts; Sandiganbayan; Evidence; Gener
ally, the factual findings of the Sandiganbayan
are conclusive on the Supreme Court, but in
instances where the exceptions obtain, the
Supreme Court is bound to review the facts in
order to avoid a miscarriage of justice.Generally, the factual findings of the
Sandiganbayan are conclusive on the Court.
However, there are established exceptions to
that rule, such as, sans preclusion, when (1)
the conclusion is a finding grounded entirely on
speculation, surmise and conjecture; (2) the
inference made is manifestly an error or
founded on a mistake; (3) there is grave abuse
of discretion; (4) the judgment is based on
misapprehension of facts; and (5) the findings
of fact are premised on the absence of
evidence and are contradicted by evidence on
record. In these instances, this Court is bound
to review the facts in order to avoid a
miscarriage of justice. The instant case falls
within such exceptions.
2. Criminal
Law; Malversation; Public
Officers; The mere fact that a public officer
signed the report of cash examination is not an
admission of shortgagehis signature is only
evidence that he received a copy of the report;
When absence of funds was not due to
personal use, the presumption that the public
officer put public funds to personal use is
completely destroyed.After an assiduous scrutiny, we find petitioner
not guilty of malversation of public funds. The
Sandiganbayan found that petitioner admitted
his accountability and failed to have duly
forthcoming his cash shortage in the amount of
P107,299.02 with which he is chargeable, and
that he did not tender the required written
explanation as to why the shortage was
incurred. His failure to do so instantly created a
prima facie evidence pursuant to the last
paragraph of Article 217 of the Revised Penal
Code that he had put such missing funds to
personal use. We disagree. Petitioner did not
admit any shortage. The mere fact that he
signed the dorsal side of the report of cash
examination is not an admission of shortage.
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His signature was only evidence that he

received a copy of the report. Thus, it is
incorrect to say that petitioner admitted his
shortage when he signed the audit report
prepared by the audit team. For one thing, he
was made to sign it right away; for another, his
signature only meant an acknowledgment that
a demand from him to produce all his cash,
money and paid vouchers had been made. It
did not mean that he admitted any shortage. In
fact, subsequent events showed that he had
fully explained his accountability. Thus, he
satisfactorily explained the shortage. In other
words, there was no direct evidence or proof
that he put public funds to personal use. When
absence of funds was not due to personal use,
the presumption is completely destroyed. The
taking or conversion of public funds for
personal use must be affirmatively proved.
When there is no shortage, taking,
appropriation, conversion or loss, there is no
malversation.
3. Criminal Law; Malversation; Elements.The elements of malversation, essential for the
conviction of an accused, under the above
penal provision are that: (a) the offender is a
public officer; (b) he has the custody or control
of funds or property by reason of the duties of
his office; (c) the funds or property involved are
public funds or property for which he is
accountable; and (d) he has appropriated,
taken or misappropriated, or has consented to,
or through abandonment or negligence
permitted, the taking by another person of,
such funds or property.
4. Criminal Law; Malversation; Words and
Phrases; Standard text in accounting defines
Cash as consisting of those items that serve
as a medium of exchange and provide a basis
for accounting measurement, and to be
reported as cash, an item must be readily
available and not restricted for use in the
payment of current obligations.The auditors finding of a cash shortage is
definitely wrong. In fact and under accounting
principles, there is no cash shortage. The cash
and other valid cash items were produced by
petitioner and counted by the auditors in the
total amount of P170,195.26. The amount is
intact in cash. The assumed shortage of
P107,229.02 represented vales, chits and
disbursement vouchers considered as part of
the general fund. This is an auditing error. It is
a generally accepted auditing principle that
cash means cash on hand or in bank.
Standard text in accounting defines Cash as
consisting of those items that serve as a
medium of exchange and provide a basis for
accounting measurement. To be reported as
cash, an item must be readily available and
not restricted for use in the payment of current
obligations. A general guideline is whether an
item is acceptable for deposit at face value by
a bank or other financial institution. Items that
are classified as cash include coin and
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currency on hand, and unrestricted funds

available on deposit in a bank, which are often
called demand deposits since they can be
withdrawn upon demand. Petty cash funds or
change funds and negotiable instruments,
such as personal checks, travelers checks,
cashiers checks, bank drafts, and money
orders are also items commonly reported as
cash. The total of these items plus undeposited
coin and currency is sometimes called cash on
hand. Interest-bearing accounts, or time
deposits, also are usually classified as cash,
even though a bank legally can demand prior
notification before a withdrawal can be made.
In practice, banks generally do not exercise
this legal right.
5. Criminal Law; Malversation; It is a mistake
for auditors to include as cash items
collectibles in the form of vales and chits
and disbursement vouchers for legitimate
expenses of the municipality.There was no shortage on peti-tioners cash
accountability. Evidence of shortage is
necessary before there could be any taking,
appropriation, conversion, or loss of public
funds that would amount to malversation. The
law requires that the shortage must be clearly
established as a fact that over and above the
funds found by the auditors in the actual
possession of the accountable officers, there is
an additional amount which could not be
produced or accounted for at the time of audit.
In this case, there was absolutely no shortage
as to petitioners cash accountability. The
auditors mistakenly included as cash items
collectibles in the form of vales and chits
and disbursement vouchers for legitimate
expenses of the municipality.
6. Criminal Law; Malversation; To be held
accountable the public officer must receive the
money or property, and later fails to account
for it.An accountable officer under Article 217 of the
Revised Penal Code must receive money or
property of the government which he is bound
to account for. It is the nature of the duties of,
not the nomenclature used for, or the relative
significance of the title to, the position, which
controls in that determination. Based on this
definition, to be held accountable the public
officer must receive the money or property,
and later fails to account for it. When a public
officer is asked to account for the cash in his
accountability, this necessarily means that he
has to produce the cash in bills and coins and
other cash items that he received. It does not
include collectibles and receivables or even
promissory notes.
7. Criminal Law; Malversation; Words and
Phrases; Liquidation simply means the
settling of indebtednessit does not
necessarily signify payment, and to liquidate
an account, can mean to ascertain the balance
due, to whom it is due, and to whom it is
payable; hence, an account that has been
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liquidated can also mean that the item has

been made certain as to what, and how much,
is deemed to be owing.An important moiety in the instant case is that
petitioner did not grant the cash advances or
vales to the municipal officials. They took the
cash advances from the collections of the
municipal collectors. However, they restored or
liquidated the amounts prior to the conduct of
preliminary investigation before the office of
the Ombudsman. The liquidation was done,
not by petitioner, but by the respective debtors.
Liquidation simply means the settling of
indebtedness.
Liquidation
does
not
necessarily signify payment, and to liquidate
an account, can mean to ascertain the balance
due, to whom it is due, and to whom it is
payable; hence, an account that has been
liquidated can also mean that the item has
been made certain as to what, and how much,
is deemed to be owing.
8. Criminal Law; Malversation; Presumption
of Innocence; The prima facie evidence that
public funds have been put to the personal use
of a municipal treasurer is obliterated by the
fact that he did not receive the money; The
Court must not reject arbitrarily an explanation
consistent with the presumption of innocence.The prima facie evidence that public funds
have been put to the personal use of petitioner
has been obliterated by the fact that he did not
receive the money as municipal treasurer. In
Zambrano v. Sandiganbayan, we said that if
the accused did not receive the public funds,
there was no malversation. In Diaz vs.
Sandiganbayan, we held that when the
absence of funds is not due to the personal
use thereof by the accused, the presumption is
completely destroyed; in fact, the presumption
is deemed never to have existed at all. In
malversation, it is necessary to prove that the
accused received public funds, and that he
could not account for them and did not have
them in his possession and that he could not
give
a
reasonable
excuse
for
the
disappearance of the same. In this case, the
prosecution failed to establish this important
element of malversation. In fact, it did not really
exist. Petitioner gave a reasonable and
satisfactory
explanation
of
his
cash
accountability of public funds that were duly
liquidated. The Court must not reject arbitrarily
an explanation consistent with the presumption
of innocence.
9. Criminal
Law; Presumption
of
Innocence; In our criminal justice system, the
overriding consideration is not whether the
court doubts the innocence of the accused but
whether it entertains a reasonable doubt as to
his guilt.In our criminal justice system, the overriding
consideration is not whether the court doubts
the innocence of the accused but whether it
entertains a reasonable doubt as to his guilt.
This determinant, with the constitutional
Page 4
presumption of innocence which can be

overthrown only by the strength of the
prosecutions own evidence proving guilt
beyond reasonable doubt, irresistibly dictate an
exoneration in this case. The evidence against
petitioner is not enough to engender moral
certainty of his guilt. This moral certainty is that
which convinces and satisfies the conscience
of those who are to act upon it. Accordingly,
the presumption of innocence which the
Constitution guarantees the petitioner has
remained untarnished in this case for want of
proof to the contrary. It is safely entrenched in
our jurisprudence that unless the prosecution
discharges its burden to prove the guilt of an
accused beyond reasonable doubt, the latter
need not even offer evidence in his behalf.
WHEREFORE, the petition is GRANTED and
the decision of respondent SANDIGANBAYAN
promulgated on March 19, 1996 and the
resolution adopted on May 7, 1997 are
REVERSED and SET ASIDE. Petitioner JUAN
A. RUEDA, JR. is hereby ACQUITTED on
reasonable doubt of the charge of malversation
of public funds, defined and penalized under
Article 217 (4) of the Revised Penal Code. His
bail bond is ordered cancelled.
4. Case Title : PIO BARRETTO REALTY

DEVELOPMENT CORPORATION, petitioner,
vs.
COURT
OF
APPEALS,
JUDGE
PERFECTO A.S. LAGUIO, JR., RTC-Branch
18, Manila, and HONOR P. MOSLARES,
respondents.
Syllabi
Class :
Judgments|Negotiable
Instruments|Checks|Obligations|Laches|Estopp
el
Syllabi:
1. Judgments; Final and executory decisions,
more so with those already executed, may no
longer be amended except only to correct
errors which are clerical in nature
amendments or alterations which substantially
affect such judgments as well as the entire
proceedings held for that purpose are null and
void for lack of jurisdiction.Final and executory decisions, more so with
those already executed, may no longer be
amended except only to correct errors which
are clerical in nature. They become the law of
the case and are immutable and unalterable
regardless of any claim of error or
incorrectness. Amendments or alterations
which substantially affect such judgments as
well as the entire proceedings held for that
purpose are null and void for lack of
jurisdiction. The reason lies in the fact that
public policy dictates that litigations must be
terminated at some definite time and that the
prevailing party should not be denied the fruits
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of his victory by some subterfuge devised by

the losing party.
2. Negotiable
Instruments; Checks; Obligations; While
delivery of a check produces the effect of
payment only when it is encashed, the rule is
otherwise if the debtor was prejudiced by the
creditors
unreasonable
delay
in
presentmentsacceptance of a check implies
an undertaking of due diligence in presenting it
for payment.Clearly then respondent Judge Laguio no
longer had any jurisdiction whatsoever to act
on, much less grant, the motion for execution
and supplement thereto filed by Moslares on
17 September 1993 or more than three (3)
years later, claiming that he had already
bought the lots. The fact that the check paid to
him by Barretto Realty was never encashed
should not be invoked against the latter. As
already stated, Moslares never questioned the
tender done three (3) years earlier. Besides,
while delivery of a check produces the effect of
payment only when it is encashed, the rule is
otherwise if the debtor was prejudiced by the
creditors unreasonable delay in presentment.
Acceptance of a check implies an undertaking
of due diligence in presenting it for payment. If
no such presentment was made, the drawer
cannot be held liable irrespective of loss or
injury sustained by the payee. Payment will be
deemed effected and the obligation for which
the check was given as conditional payment
will be discharged.
3. Judgments; Laches; Estoppel; The
principle of laches does not attach when the
judgment is null and void for want of
jurisdiction; Estoppel, being an equitable
doctrine, cannot be invoked to perpetuate an
injustice.The principle of laches does not attach when
the judgment is null and void for want of
jurisdiction. The fact that petitioner invoked
par. 3 of the Order of 11 February 1994
praying that its P1,000,000.00 check still in
Moslares possession be considered sufficient
payment of the disputed lots, could not be cited
against it. For one thing, petitioner from the
very start had always consistently questioned
and assailed the jurisdiction of the trial court to
entertain respondents motion for execution
filed three (3) years after the case had in fact
been executed. Secondly, estoppel being an
equitable doctrine cannot be invoked to
perpetuate an injustice.
WHEREFORE, the questioned Decision and
Resolution of the Court of Appeals dated 30
June 1997 and 14 January 1998, respectively,
are REVERSED and SET ASIDE. The Order of
respondent Judge Perfecto A.S. Laguio, Jr.
dated 11 February 1994 in Civil Case No. 8427008, setting aside his earlier ruling of 7
December 1993 which had declared petitioner
Page 5
Pio Barretto Realty Develop- ment Corporation

as the absolute owner of the real properties in
question, and all subsequent proceedings
culminating in the Order of 12 October 1994
authorizing the Clerk of Court, RTC-Manila, to
execute a deed of conveyance over subject
properties in favor of respondent Honor P.
Moslares, are declared NULL and VOID for
want of jurisdiction.Consequently, petitioner
Pio Barretto Realty Development Corporation
is declared the absolute owner of the disputed
properties subject matter of the Compromise
Agreement dated 2 May 1986 as fully
implemented by the Deputy Sheriff, RTC-Br.
18, Manila, pursuant to the final and executory
Order dated 14 June 1990 of its Presiding
Judge Perfecto A.S. Laguio, Jr.
5. Case Title : BANK OF THE PHILIPPINE

ISLANDS,
petitioner,
vs.
SPOUSES
REYNALDO AND VICTORIA ROYECA,
respondents
Syllabi Class : Banks and Banking ; Payment
;
Syllabi:
1. Civil Procedure; Burden of Proof; 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.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. 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 defensei.e. an avoidance of
the claim.
2. Banks
and
Banking; Payment; 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 itcauses any
prejudice to the drawer.The Court cannot ignore what the
respondents have consistently raisedthat
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
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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. 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.
3. Laches; Laches cannot, as a rule, abate a
collection suit filed within the prescriptive
period mandated by the New Civil Code.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. 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.
4. Same; Promissory Notes; A promissory
note in the hands of the creditor is a proof of
indebtedness rather than proof of payment.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. A promissory
note in the hands of the creditor is a proof of
indebtedness rather than proof of payment. In
an action for replevin by a mortgagee, it is
prima facie evidence that the promissory note
has not been paid. Likewise, an uncanceled
mortgage in the possession of the mortgagee
gives rise to the presumption that the mortgage
debt is unpaid.
5. Same; A notice of dishonor is required only
to preserve the right of the payee to recover on
the check.It should be noted that thepetitioner, 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
Page 6
petitioner for not notifying them of the nonpayment of the checks because whatever
rights were transgressed by such omission
belonged only to the petitioner.
6. Same; Because of this failure of the
respondents to present sufficient proof of
payment, it was no longer necessary for the
petitioner to prove non-payment, particularly
proof that the checks were dishonored.Because of this failure of the respondents to
present sufficient proof of payment, it was no
longer necessary for the petitioner to prove
non-payment, 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.
7. Same; Settled is the rule that payment must
be made in legal tender.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. 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.
8. Payment; As a general rule, one who
pleads payment has the burden of proving it.In Jimenez v. National Labor Relations
Commission (NLRC), 256 SCRA 84 (1996),
cited by both the Regional Trial Court and the
Court of Appeals, 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 non-payment,
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 evidenceas distinct
from the general burden of proofshifts to the
creditor, who is then under a duty of producing
some evidence to show non-payment.
WHEREFORE, premises considered, the
petition is PARTIALLY GRANTED. The Court
of Appeals Decision dated July 12, 2006, and
Resolution dated February 13, 2007, are
REVERSED and SET ASIDE. The Decision of
Yza
the Regional Trial Court, dated August 11,

2005,
is
REINSTATED
with
the
MODIFICATION 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.
6. Case Title : EUMELIA R. MITRA,

petitioner,
vs.
PEOPLE
OF
THE
PHILIPPINES and FELICISIMO S. TARCELO,
respondents.
Syllabi Class : Criminal Law|Bouncing Checks
Law|Batas
Pambansa
Blg.
22|Checks|Elements
Syllabi:
1. Criminal
Law; Bouncing
Checks
Law; Batas
Pambansa
Blg.
22; Checks; Negotiable
Instruments; A
check is a negotiable instrument that serves as
a substitute for money and as a convenient
form of payment in financial transactions and
obligations.A check is a negotiable instrument that
serves as a substitute for money and as a
convenient form of payment in financial
transactions and obligations. The use of
checks as payment allows commercial and
banking transactions to proceed without the
actual handling of money, thus, doing away
with the need to physically count bills and
coins whenever payment is made. It permits
commercial and banking transactions to be
carried out quickly and efficiently. But the
convenience afforded by checks is damaged
by unfunded checks that adversely affect
confidence in our commercial and banking
activities, and ultimately injure public interest.
2. Same; Same; Same; Same; Elements.To reiterate the elements of a violation of BP
22 as contained in the above-quoted provision,
a violation exists where: 1. a person makes or
draws and issues a check to apply on account
or for value; 2. the person who makes or draws
and issues the check knows at the time of
issue that he does not have sufficient funds in
or credit with the drawee bank for the full
payment of the check upon its presentment;
and 3. the check is subsequently dishonored
by the drawee bank for insufficiency of funds or
credit, or would have been dishonored for the
same reason had not the drawer, without any
valid reason, ordered the bank to stop
payment.
3. Same; Same; Same; Same; The purpose
of Batas Pambansa Blg. 22 in declaring the
mere issuance of a bouncing check as malum
prohibitum is to punish the offender in order to
deter him and others from committing the
offense, to isolate him from society, to reform
and rehabilitate him, and to maintain social
order.-
Page 7
BP 22 or the Bouncing Checks Law was

enacted for the specific purpose of addressing
the problem of the continued issuance and
circulation of unfunded checks by irresponsible
persons. To stem the harm caused by these
bouncing checks to the community, BP 22
considers the mere act of issuing an unfunded
check as an offense not only against property
but also against public order. The purpose of
BP 22 in declaring the mere issuance of a
bouncing check as malum prohibitum is to
punish the offender in order to deter him and
others from committing the offense, to isolate
him from society, to reform and rehabilitate
him, and to maintain social order. The penalty
is stiff. BP 22 imposes the penalty of
imprisonment for at least 30 days or a fine of
up to double the amount of the check or both
imprisonment and fine.
WHEREFORE, the July 31, 2009 Decision and
the February 11, 2010 Resolution of the Court
of Appeals in CA-G.R. CR No. 31740 are
hereby AFFIRMED.
7. Case Title : DONNINA C. HALLEY,

petitioner,
vs.
PRINTWELL,
INC.,
respondent.
Case Nature : PETITION for review on
certiorari of a decision of the Court of Appeals.
Syllabi Class : Corporation Law|Trust Fund
Doctrine
Syllabi:
1. Judges; A trial or appellate judge may
occasionally view a partys memorandum or
brief as worthy of due consideration either
entirely or partly.It is to be observed in this connection that a
trial or appellate judge may occasionally view a
partys memorandum or brief as worthy of due
consideration either entirely or partly. When he
does so, the judge may adopt and incorporate
in his adjudication the memorandum or the
parts of it he deems suitable, and yet not be
guilty of the accusation of lifting or copying
from the memorandum. This is because of the
avowed objective of the memorandum to
contribute in the proper illumination and correct
determination of the controversy.
2. Same; The prevailing rule is that a
stockholder is personally liable for the financial
obligations of the corporation to the extent of
his unpaid subscription.The prevailing rule is that a stockholder is
personally liable for the financial obligations of
the corporation to the extent of his unpaid
subscription. In view of the petitioners unpaid
subscription being worth P262,500.00, she
was liable up to that amount.
3. Same; Trust Fund Doctrine; Under the
trust fund doctrine, a corporation has no legal
capacity to release an original subscriber to its
Yza
capital stock from the obligation of paying for

his shares, in whole or in part, without a
valuable consideration, or fraudulently, to the
prejudice of creditors.Under the trust fund doctrine, a corporation
has no legal capacity to release an original
subscriber to its capital stock from the
obligation of paying for his shares, in whole or
in part, without a valuable consideration, or
fraudulently, to the prejudice of creditors. The
creditor is allowed to maintain an action upon
any unpaid subscriptions and thereby steps
into the shoes of the corporation for the
satisfaction of its debt.
4. Corporation Law; Piercing the Veil of
Corporate
Fiction; The
corporate
personality may be disregarded, and the
individuals composing the corporation will
be treated as individuals, if the corporate
entity is being used as a cloak or cover for
fraud or illegality; as a justification for a
wrong;as an alter ego, an adjunct, or a
business conduit for the sole benefit of the
stockholders.Although a corporation has a personality
separate and distinct from those of its
stockholders, directors, or officers, such
separate and distinct personality is merely a
fiction created by law for the sake of
convenience and to promote the ends of
justice. The corporate personality may be
disregarded, and the individuals composing the
corporation will be treated as individuals, if the
corporate entity is being used as a cloak or
cover for fraud or illegality; as a justification for
a wrong; as an alter ego, an adjunct, or a
business conduit for the sole benefit of the
stockholders. As a general rule, a corporation
is looked upon as a legal entity, unless and
until sufficient reason to the contrary appears.
Thus, the courts always presume good faith,
and for that reason accord prime importance to
the separate personality of the corporation,
disregarding the corporate personality only
after the wrongdoing is first clearly and
convincingly established. It thus behooves the
courts to be careful in assessing the milieu
where the piercing of the corporate veil shall
be done.
ACCORDINGLY, we deny the petition for
review on certiorari; and affirm with
modification the decision promulgated on
August 14, 2002 by ordering the petitioner to
pay to Printwell, Inc. the sum of P262,500.00,
plus interest of 12% per annum to be
computed from February 8, 1990 until full
payment. The petitioner shall pay cost of suit in
this appeal.
Page 8
7. Case Title : Leonardo Bognot vs. RPI

Lending Corporation represented by its
General Manager, Dario J. Bernandez
Case Nature : petition for review on certiorari
filed by Leonardo Bognot (petitioner) assailing
the March 28, 2007 decision
ISSUE: Is a check a legal tender? Can it
constitute a valid tender of payment? What
is the effect of Art 1249, Par 2?
HELD: Article 1249, paragraph 2 of the Civil
Code provides:
xxxx
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. (Emphasis supplied)
Also, we held in Bank of the Philippine Islands
v. Spouses Royeca:
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. 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.(Emphasis supplied)
Although Article 1271 of the Civil Code
provides for a legal presumption of
renunciation of action (in cases where a private
document evidencing a credit was voluntarily
returned by the creditor to the debtor), this
presumption is merely prima facieand is not
conclusive; the presumption loses efficacy
when faced with evidence to the contrary.
Moreover, the cited provision merely raises a
presumption, not of payment, but of the
renunciation of the credit where more
convincing evidence would be required than
what normally would be called for to prove
payment.
Thus, reliance by the petitioner on the legal
presumption to prove payment is misplaced.
To reiterate, no cash payment was proven by
the petitioner. The cancellation and return of
the check dated April 1, 1997, simply
established his renewal of the loan - not the
fact of payment. Furthermore, it has been
Yza
established during trial, through repeated acts,

that the respondent cancelled and surrendered
the post-dated check previously issued
whenever the loan is renewed.
8.
Case
Title:
MANILA
MINING
CORPORATION VS LOWITO AMOR, ET. AL.
ISSUE: WHAT IS THE EFFECT OF THE
DISHONOR OF A CHECK USED FOR
PAYMENT OF APPEAL FEE WITH THE
NLRC?
HELD: SECTION 4. REQUISITES FOR
PERFECTION OF APPEAL. - (a) The Appeal
shall be filed within the reglementary period as
provided in Section 1 of this Rule; shall be
verified by appellant himself in accordance with
Section 4, Rule 7 of the Rules of Court, with
proof of payment of the required appeal fee
and the posting of a cash or surety bond as
provided in Section 6 of this Rule; shall be
accompanied by memorandum of appeal in
three (3) legibly typewritten copies which shall
state the grounds relied upon and the
arguments in support thereof; the relief prayed
for; and a statement of the date when the
appellant received the appealed decision,
resolution or order and a certificate of nonforum shopping with proof of service on the
other party of such appeal. A mere notice of
appeal without complying with the other
requisites aforestated shall not stop the
running of the period for perfecting an appeal.
(Italics supplied)
The fact that the check submitted by petitioner
was dishonored upon presentment for
payment, thereby rendering the tender thereof
ineffectual. Although the NLRC chose not to
address the issue of the perfection of the
appeal as well as the reduction of the bond in
its Resolution dated 25 April 2005, the record
shows that petitioner only manifested its
deposit of the funds for the check 24 days
before the resolution of its appeal or 116 days
after its right to appeal the Labor Arbiters
decision had expired. Having filed its motion
and memorandum on the very last day of the
reglementary period for appeal, moreover,
petitioner had no one but itself to blame for
failing to post the full amount pending the
NLRCs action on its motion for reduction of
the appeal bond. If redundancy be risked it
must be emphasized that the posting of a bond
is indispensable to the perfection of an appeal
in cases involving monetary awards from the
decision of the Labor Arbiter. Since it is the
posting of a cash or surety bond which confers
jurisdiction upon the NLRC,40 the rule is settled
Page 9
that non-compliance is fatal and has the effect

of rendering the award final and executory.41
Viewed in the light of the foregoing
considerations, the CA cannot be faulted for no
longer discussing the merits of petitioners
case.1avvphi1 Although appeal is an essential
part of our judicial process, it has been held,
time and again, that the right thereto is not a
natural right or a part of due process but is
merely a statutory privilege. Thus, the
perfection of an appeal in the manner and
within the period prescribed by law is not only
mandatory but also jurisdictional and failure of
a party to conform to the rules regarding
appeal will render the judgment final and
executory. Once a decision attains finality, it
becomes the law of the case and can no
longer be revised, reviewed, changed or
altered. The basic rule of finality of judgment is
grounded on the fundamental principle of
public policy and sound practice that, at the
risk of occasional error, the judgment of courts
and the award of quasi-judicial agencies must
become final at some definite date fixed by
law.
9. Case Title: GBMLT Manpower Services,
Inc. vs. Ma. Victoria H. Malinao
ISSUE: Can the NLRC accept the appeal
bond posted through a current-dated
check? What is the effect that the check
was deposited to the bank account of the
NLRC without incident?
HELD:
Petitioner's appeal was perfected on time.
According to respondent, the check issued by
petitioner for the appeal bond was presented
for payment only on the last day of the period
for appeal from the Decision of the labor
arbiter. Given that checks have the effect of
payment only when they have been encashed
- which takes three banking days from the time
they are presented for payment - the appeal
bond was actually posted beyond the
reglementary period for appeal. That being the
case, the appeal was not perfected, and the
labor arbiter's ruling attained finality. This
position was sustained by the CA.
Nonetheless, we find otherwise and rule that
petitioner has complied with the requirements
of the law with regard to the posting of the
appeal
bond.
The posting of a bond for the perfection of an
appeal from a decision of the labor arbiter is
required under Article 22898 of the Labor Code,
which
provides:
Yza
ARTICLE 228. Appeal. Decisions, awards,

or orders of the Labor Arbiter are final and
executory unless appealed to the Commission
by any or both parties within ten (10) calendar
days from receipt of such decisions, awards, or
orders.
x
In case of a judgment involving a monetary

award, an appeal by the employer may be
perfected only upon the posting of a cash
or surety bond issued by a reputable bonding
company
duly
accredited
by
the
Commission in the amount equivalent to the
monetary award in the judgment appealed
from. (Emphases supplied)
The requirement of an appeal bond is further
emphasized in Section 6,99 Rule VI of the 2011
NLRC Rules of Procedure. This provision
clarifies that damages and attorney's fees
awarded by the labor arbiter shall not be
included in the computation of the bond to be
posted.
In several pronouncements,100 this Court has
adopted a particular understanding of the word
"only" in the phrase "an appeal by the
employer may be perfected only upon the
posting of a cash or surety bond." It has
regarded the phrase as the legislative's
unequivocal declaration that the posting of a
cash or surety bond is the exclusive means by
which an employer's appeal from a labor
arbiter's
decision
may
be
perfected.
The reason for the requirement was also
enunciated by the Court in Viron Garments
Manufacturing, Co., Inc. v. NLRC,101 in which
we
said:chanRoblesvirtualLawlibrary
The requirement that the employer post a cash
or surety bond to perfect its/his appeal is
apparently intended to assure the workers that
if they prevail in the case, they will receive the
money judgment in their favor upon the
dismissal of the employer's appeal. It was
intended to discourage employers from using
an appeal to delay, or even evade, their
obligation to satisfy their employees' just and
lawful claims.102
Proceeding from this rationale, the intention of
the requirement is fulfilled when the employer
is able to deposit with the NLRC an amount
that is equivalent to the monetary award
adjudged by the labor arbiter in the employee's
favor, and that shall subsist until the final
resolution
of
the
appeal.
In People's Broadcasting v. Secretary of the
DOLE,103 we ruled that the Deed of
Assignment of savings made by the employer
in favor of the employee validly served the
Page 10
purpose of an appeal bond. We said that the

posting of the bond in this manner insured,
during the period of appeal, against any
occurrence that would defeat or diminish the
monetary judgment in favor of the employee if
the
judgment
is
eventually
affirmed.104chanrobleslaw
In this case, there is no question that the
NLRC accepted the appeal bond posted by
petitioner through a current-dated check, as
evidenced by Official Receipt No. 0701550
dated 20 April 2007.105That check was
deposited to the bank account of the NLRC on
23 April 2007 without incident.106Furthermore,
respondent has never disputed the sufficiency
of the bond posted or petitioner's manifestation
before us that "up to the present, the cash
bond posted x x x is still in effect and remains
in the coffers of the x x x NLRC and is
susceptible to execution in the unfortunate
event that this Petition fails."107chanrobleslaw
To our mind, the appeal of petitioner has been
perfected on time by virtue of its compliance
with the appeal bond requirement. We note
that its payment of the appeal bond through
the issuance of a check was not even an issue
before the NLRC. The latter had given due
course to petitioner's appeal without any
indication of having found any defect in the
appeal
bond
posted.
Nevertheless, we have had occasion to rule
that the appeal bond requirement for
judgments involving monetary awards may be
relaxed in meritorious cases,108 as in instances
when a liberal interpretation would serve the
desired objective of resolving controversies on
the merits.109 In the recent Balite v. SS
Ventures International, Inc.,110 we recognized
that there was a need "to strike a balance
between the constitutional obligation of the
state to afford protection to labor on the one
hand, and the opportunity afforded to the
employer to appeal on the other."111 In this kind
of undertaking, the Court is justified in giving
employers the amplest opportunity to pursue
their cause while ensuring that employees will
receive the money judgment should the case
be ultimately decided in their favor.
We do not see why the same liberality - if at all
needed - cannot be applied to this case in
particular, in which it is clear that respondent's
allegations of illegal dismissal and money
claims are unfounded. In fine, the CA
Yza
committed an error when it ascribed grave

abuse of discretion on the part of the NLRC
when the latter ruled in favor of petitioner.
WHEREFORE, the Court of Appeals Decision
dated 29 May 2009 and Resolution dated 24
August 2009 in CA-G.R. SP No. 107378
are REVERSED and SET
ASIDE.
The
Decision dated 30 July 2008 issued by the
National Labor Relations Commission in NLRC
CA
No.
052466-07
(5),
dismissing
respondent's complaint, is REINSTATED.
B. MEDIUM
OF
TRANSACTION
COMMECIAL
1. Case
Title :
PEOPLE
OF
THE
PHILIPPINES,
plaintiff-appellee,
vs.
ROBERTO TONGKO, accused-appellant.
Case Nature : APPEAL from a decision of the
Regional Trial Court of Pasig City, Br. 156.
Syllabi
Class :
Criminal
Law|Estafa|Checks|Penalties|Constitutional
Law|Cruel and Unusual Punishments
Syllabi:
1. Criminal Law; Estafa; Elements of Estafa
under Article 315, paragraph 2(d) of the
Revised Penal Code.Estafa, under Article 315, paragraph 2(d) of
the Revised Penal Code, as amended by
Republic Act No. 4885, has the following
elements: (1) postdating or issuance of a
check in payment of an obligation contracted at
the time the check was issued; (2) lack of
sufficiency of funds to cover the check; and (3)
damage to the payee thereof.
2. Same; Same; Same; Same; The legislature
was not thoughtless in imposing severe
penalties for violation of paragraph 2(d) of
Article 315 of the Revised Penal Code. The
history of the law will show that the severe
penalties were intended to stop the upsurge of
swindling by issuance of bouncing checks.The legislature was not thoughtless in
imposing severe penalties for violation of par.
2(d) of Article 315 of the Revised Penal Code.
The history of the law will show that the severe
penalties were intended to stop the upsurge of
swindling by issuance of bouncing checks. It
was felt that unless aborted, this kind of estafa
. . . would erode the peoples confidence in
the use of negotiable instruments as a medium
of commercial transaction and consequently
result in the retardation of trade and commerce
and the undermining of the banking system of
the country. The Court cannot impugn the
wisdom of Congress in setting this policy.
3. Same; Same; Same; Penalties; Constituti
onal
Law; Cruel
and
Unusual
Page 11
Punishments; The prohibition of cruel and

unusual punishments is generally aimed at the
form or character of the punishment rather
than its severity in respect of duration or
amount, and apply to punishments which never
existed in America or which public sentiment
has regarded as cruel or obsolete.Appellant contends that the penalty of twenty
seven (27) years of reclusion perpetua is too
harsh and out of proportion to the crime he
committed. He submits that his sentence
violates Section 19(1), Article III of the
Constitution which prohibits the infliction of
cruel, degrading or inhuman punishment. We
are not persuaded. In People v. de la Cruz, we
held that x x x the prohibition of cruel and
unusual punishments is generally aimed at the
form or character of the punishment rather
than its severity in respect of duration or
amount, and apply to punishments which never
existed in America or which public sentiment
has regarded as cruel or obsolete x x x for
instance those inflicted at the whipping post, or
in the pillory, burning at the stake, breaking on
the wheel, disemboweling, and the like. . .
4. Same; Same; Checks; The postdating of
checks simply means that on the date
indicated the checks would be properly funded,
not that the checks should be deemed as
issued only then.There is likewise no merit to the submission
of appellant that his postdated checks were in
payment of a pre-existing obligation. Again, we
note appellants change of theory in foisting
this argument. In the trial court, appellant
testified that he issued the postdated checks,
thru Bo-ot, a day or two after he obtained the
P100,000.00 loan from Santos. The falsity of
the uncorroborated claim, however, it too
obvious and the trial court correctly rejected it.
The claim cannot succeed in light of Santos
testimony that the issuance of said checks
persuaded her to grant the loans. A look at the
two promissory notes will show that they bear
the date August 20, 1993 and they referred to
the postdated checks issued by the appellant.
There could be no reference to the postdated
checks if they were issued a day or two after
the loans. In this appeal, however, appellant
offers the new thesis that since the checks
were postdated December 1993, ergo, they
were issued in payment of the P100,000.00 he
got from Santos on August 20, 1993. The
postdating of the checks to December 1993
simply means that on said date the checks
would be properly funded. It does not mean
that the checks should be deemed as issued
only on December 1993.
Yza
2. Case
Title:
Carlos
L.
Tenenggee vs. People of the Philippines
ISSUE: Does a promissory note facilitate
credit transactions? Does a check used as
a means of payment in business in lieu of
money for convenience in business
transactions? How about a cashiers
check?
Held: Elements of falsification of commercial

documents established.
Falsification of documents under paragraph 1,
Article 172 in relation to Article 171 of the
Revised Penal Code (RPC) refers to
falsification by a private individual or a public
officer or employee, who did not take
advantage of his official position, of public,
private or commercial document. The elements
of falsification of documents under paragraph
1, Article 172 of the RPC are: (1) that the
offender is a private individual or a public
officer or employee who did not take
advantage of his official position; (2) that he
committed any of the acts of falsification
enumerated in Article 171 of the RPC;33 and,
(3) that the falsification was committed in a
public, official or commercial document.
All the above-mentioned elements were
established in this case. First, petitioner is a
private individual. Second, the acts of
falsification consisted in petitioners (1)
counterfeiting or imitating the handwriting or
signature of Tan and causing it to appear that
the same is true and genuine in all respects;
and (2) causing it to appear that Tan has
participated in an act or proceeding when he
did not in fact so participate. Third, the
falsification was committed in promissory notes
and checks which are commercial documents.
Commercial documents are, in general,
documents or instruments which are "used by
merchants or businessmen to promote or
facilitate
trade
or
credit
transactions."34 Promissory notes facilitate
credit transactions while a check is a means of
payment used in business in lieu of money for
convenience in business transactions. A
cashiers check necessarily facilitates bank
transactions for it allows the person whose
name and signature appear thereon to encash
the check and withdraw the amount indicated
therein.
IN VIEW WHEREOF, the Decision dated
January 16, 1996 of the RTC of Pasig City, Br.
156 in Criminal Case No. 106614 convicting
appellant is affirmed. Costs against appellant.
Page 12
3. GE Money Bank, Inc. (formerly Keppel

Philippines, Inc.) vs Spouses Victorino
M. Dizon and Rosalina L. Dizon
Issue: IS a check a medium of payment in
commercial transaction? Yes
Held: In Tolentino v. Court of Appeals, 39 the
certificate of sale was registered with the
Register of Deeds on April 2, 1969. On March
31, 1970, the mortgagor consigned to the city
sheriff a crossed check as payment for the
redemption price. The following day, however,
the mortgagor issued a stop-payment order
against the crossed check purportedly to
protect her rights and to prevent the bank from
encashing the check without returning all the
properties which it foreclosed and purchased.
We upheld the mortgagors right to redeem,
opining that when the action to redeem was
filed, a simultaneous deposit of the redemption
money was tendered to the sheriff, which was
allowed under the Rules of Court; that the
check, as a medium of payment in commercial
transactions, is too firmly established by
usage; and that it was not clearly shown that
the stop-payment order was made in bad faith.
C. MEDIUM OF CREDIT TRANSACTION

(EVIDENCE OF INDEBTEDNESS)
NOTE: A check is evidence of
indebtedness of either th drawer or the
payee or the holder. The check
happens to be in the hands of the
person who wants to prove the
indebtedness of another. If the check
was used to prove the indebtedness of
the drawer, the check is in the hands of
the oayee or holder for it was
presumably returned to the payee or
holder if it was dishonored by the
drawee bank. If the check was used to
prove the indebtedness of the payee,
the check that is in the hands os of the
drawer because when deposited, the
check was honored and so returned to
the drawer by the drawee bank. A
promissory note is evidence of
indebtedness of the maker(Section 60
NIL). Can it be an evidence of
indebtedness of the holder or payee?
Yza
1. Case Title : ERNESTO T. PACHECO and

VIRGINIA O. PACHECO, petitioners, vs.
HON. COURT OF APPEALS and
PEOPLE
OF
THE
PHILIPPINES,
respondents.
Syllabi
Class :
Criminal
Law|Estafa
(Swindling)|Bouncing
Checks|Negotiable
Instruments|Words and Phrases|Evidence
Syllabi:
1. Criminal
Law; Estafa
(Swindling); Bouncing Checks; Elements.The essential elements in order to sustain a
conviction under the above paragraph are: 1.
that the offender postdated or issued a check
in payment of an obligation contracted at the
time the check was issued; 2. that such
postdating or issuing a check was done when
the offender had no funds in the bank, or his
funds deposited therein were not sufficient to
cover the amount of the check; 3. deceit or
damage to the payee thereof.
2. Criminal
Law; Estafa
(Swindling); Bouncing Checks; Negotiable
Instruments; Words and Phrases; A check
has the character of negotiability and at the
same time it constitutes an evidence of
indebtedness; A drawer who issues a check as
security or evidence of investment is not liable
for estafa.The first and third elements are not present in
this case. A check has the character of
negotiability and at the same time it constitutes
an evidence of indebtedness. By mutual
agreement of the parties, the negotiable
character of a check may be waived and the
instrument may be treated simply as proof of
an obligation. There cannot be deceit on the
part of the obligor, petitioners herein, because
they agreed with the obligee at the time of the
issuance and postdating of the checks that the
same shall not be encashed or presented to
the banks. As per assurance of the lender, the
checks are nothing but evidence of the loan or
security thereof in lieu of and for the same
purpose as a promissory note. By their own
covenant, therefore, the checks became mere
evidence of indebtedness. It has been ruled
that a drawer who issues a check as security
or evidence of investment is not liable for
estafa.
3. Criminal
Law; Estafa
Instruments; In the absence of the essential
element of deceit, no estafa is committed.Mrs. Vicencio could not have been deceived
nor defrauded by petitioners in order to obtain
the loans because she was informed that they
no longer have funds in their RCBC accounts.
In 1992, when the Vicencio family asked
Virginia to place a date on the check, the latter
again informed Mrs. Vicencio that their account
with RCBC was already closed as early as
Page 13
August 1989. With the assurance, however,

that the check will only stand as a firm
evidence of indebtedness, Virginia placed a
date on the check. Under these circumstances,
Mrs. Vicencio cannot claim that she was
deceived or defrauded by petitioners in
obtaining the loan. In the absence of the
essential element of deceit, no estafa was
committed by petitioners.
4. Criminal
Law; Estafa
Instruments; A person in possession of a
check has prima facie authority to complete it
by filling up the blanks therein.Both courts below relied so much on the fact
that Mrs. Vicencios husband is a former Judge
who knows the law. He should have known,
then, that he need not even ask the petitioners
to place a date on the check, because as
holder of the check, he could have inserted the
date pursuant to Section 13 of the Negotiable
Instruments Law (NIL). Moreover, as stated in
Section 14 thereof, complainant, as the person
in possession of the check, has prima facie
authority to complete it by filling up the blanks
therein. Besides, pursuant to Section 12 of the
same law, a negotiable instrument is not
rendered invalid by reason only that it is
antedated or postdated.
5. Criminal
Law; Estafa
Instruments; Where the complainant knows
that the drawer does not have sufficient funds
in the bank at the time the check was issued to
him, there is no estafa through bouncing
checks.The allegation of Mrs. Vicencio that the date to
be placed by Virginia was necessary so as to
make the check evidence of indebtedness is
nothing but a ploy. Petitioners openly disclosed
and never hid the fact that they no longer have
funds in the bank as their bank account was
already closed. Knowledge by the complainant
that the drawer does not have sufficient funds
in the bank at the time it was issued to him
does not give rise to a case for estafa through
bouncing checks.
6. Criminal
Law; Estafa
Instruments; A check must be presented
within a reasonable time from issue.A check must be presented within a
reasonable time from issue. By current banking
practice, a check becomes stale after more
than six (6) months. In fact a check long
overdue for more than two and one-half years
is considered stale. In this case, the checks
were issued more than three years prior to
their
presentment.
In
his
complaint,
complainant alleged that petitioners bought
jewelry from him and that he would not have
parted with his jewelry had not petitioners
issued the checks. The evidence on record,
however, does not support the theory of the
crime.
Yza
7. Criminal
Law; Estafa
(Swindling); Bouncing Checks; Awareness
by the complainant of the fictitious nature of
the pretense cannot give rise to estafa by
means of deceit.Following complainants theory that he would
not have sold the jewelries had not petitioners
issued postdated checks, still no estafa can
be imputed to petitioners. It is clear that the
checks were not intended for encashment with
the bank, but were delivered as mere security
for the payment of the loan and under an
agreement that the checks would be redeemed
with cash as they fell due. Hence, the checks
were not intended by the parties to be modes
of payment but only as promissory notes.
Since complainant and his wife were well
aware of that fact, they cannot now complain
there was deception on the part of petitioners.
Awareness by the complainant of the fictitious
nature of the pretense cannot give rise to
estafa by means of deceit. When the payee
was informed by the drawer that the checks
are not covered by adequate funds it does not
give rise to bad faith or estafa.
8. Criminal
Law; Estafa
(Swindling); Bouncing Checks; Persons are
presumed to have taken care of their
business.Complainants allegations that the two subject
checks were issued in 1992 as payment for the
jewelry he allegedly sold to petitioners is belied
by the evidence on record. First, com-plainant
is not engaged in the sale of jewelry. Neither
are petitioners. If the pieces of jewelry were
important to complainant considering that they
were with him for more than twenty-five years
already, he would not have easily parted with
them in consideration for unfunded personal
checks in favor of persons whose means of
living or source of income were unknown to
him. Applicable here is the legal precept that
persons are presumed to have taken care of
their business.
9. Criminal
Law; Estafa
(Swindling); Bouncing
Checks; Evidence; Factual findings of the trial
court bind the Supreme Court; Exceptions.The rule that factual findings of the trial court
bind this court is not absolute but admits of
exceptions such as when the conclusion is a
finding grounded on speculation, surmise, and
conjecture and when the findings of the lower
court is premised on the absence of evidence
and is contradicted by the evidence on record.
Based on the foregoing discussions, this Court
is constrained to depart from the general rule.
Equally applicable is what Vice-Chancellor Van
Fleet once said: Evidence to be believed must
not only proceed from the mouth of a credible
witness but must be credible in itselfsuch as
the common experience and observation of
mankind can approve as probable under the
circumstances. We have no test of the truth of
human testimony, except its conformity to our
Page 14
knowledge, observation and experience.

Whatever is repugnant to these belongs to the
miraculous, and is outside of judicial
cognizance.
10. Criminal
Law; Estafa
(Swindling); Bouncing Checks; An accused
acquitted of a criminal charge may
nevertheless be held civilly liable in the same
case where the facts established by the
evidence so warrant.Petitioners, however, are not without liability.
An accused acquitted of a criminal charge may
nevertheless be held civilly liable in the same
case where the facts established by the
evidence so warrant. Based on the records,
they still have an outstanding obligation of
P15,000.00 in favor of Mrs. Vicencio. There
was mention that the loan shall earn interests.
However, an agreement as to payment of
interest must be in writing, otherwise it cannot
be valid, although there was actual payment of
interests by virtue of the advance deductions
from the loan. Once the judgment becomes
final and executory, the amount due is deemed
equivalent to a forbearance of credit during the
interim period from the finality of judgment until
full payment, in which case it shall earn legal
interest at the rate of twelve percent (12%) per
annum pursuant to Central Bank (CB) Circular
No. 416.
WHEREFORE, the assailed Decision is
REVERSED and SET ASIDE. Petitioners are
ACQUITTED of the charge of estafa but they
are ORDERED to pay Mrs. Vicencio the
amount of P15,000.00 without interest.
However, from the time this judgment becomes
final and executory, the amount due shall earn
legal interest of twelve percent (12%) per
annum until full payment.
2. Case Title : BENNY GO, petitioner, vs.

ELIODORO BACARON, respondent.
certiorari of the decision and resolution of the
Court of Appeals.
Syllabi
Class :
Civil
Law|Evidence|Mortgages|Loans|Sales|Words
and Phrases|Checks
Syllabi:
1. Civil
Law; Mortgages; Loans; Sales; Article 1602
of the Civil Code cites instances in which a
contract of sale is presumed to be an equitable
mortgage.The instances in which a contract of sale is
presumed to be an equitable mortgage are
enumerated in Article 1602 of the Civil Code as
follows: Art. 1602. The contract shall be
presumed to be an equitable mortgage, in any
of the following cases: (1) When the price of a
sale with right to repurchase is unusually
Yza
inadequate; (2) When the vendor remains in

possession as lessee or otherwise; (3) When
upon or after the expiration of the right to
repurchase another instrument extending the
period of redemption or granting a new period
is executed; (4) When the purchaser retains for
himself a part of the purchase price; (5) When
the vendor binds himself to pay the taxes on
the thing sold; (6) In any other case where it
may be fairly inferred that the real intention of
the parties is that the transaction shall secure
the payment of a debt or the performance of
any other obligation. In any of the foregoing
cases, any money, fruits, or other benefit to be
received by the vendee as rent or otherwise
shall be considered as interest which shall be
subject to the usury laws.
2. Civil Law; Mortgages; Loans; Sales; That
the parties intended to enter into an equitable
mortgage is bolstered by respondents
continued payment of the real property taxes
subsequent to the alleged sale.That the parties intended to enter into an
equitable
mortgage
is
bolstered
by
respondents continued payment of the real
property taxes subsequent to the alleged sale.
Payment of those taxes is a usual burden
attached to ownership. Coupled with
continuous possession of the property, it
constitutes evidence of great weight that a
person under whose name the realty taxes
were declared has a valid and rightful claim
over the land.
3. Civil
Law; Mortgages; Loans; Sales; Words and
Phrases; An equitable mortgage has been
defined as one which although lacking in
some formality, or form or words, or other
requisites
demanded
by
a
statute,
nevertheless reveals the intention of the
parties to charge real property as security for a
debt, and contains nothing impossible or
contrary to law.An equitable mortgage has been defined as
one which although lacking in some formality,
or form or words, or other requisites demanded
by a statute, nevertheless reveals the intention
of the parties to charge real property as
security for a debt, and contains nothing
impossible or contrary to law.
4. Evidence; Checks; Checks presented by
petitioner may indeed evince respondents
indebtedness to him in the amounts stated on
the faces of those instruments.Checks have the character of negotiability. At
the same time, they may constitute evidence of
indebtedness. Those presented by petitioner
may indeed evince respondents indebtedness
to him in the amounts stated on the faces of
those
instruments.
He,
however,
acknowledges (1) that respondent paid some
of the obligations through the coprax delivered
to petitioners father; and (2) that petitioner
owed and subsequently paid respondent
P214,000.
Page 15
WHEREFORE, the Petition is hereby
DENIED,and the assailed Decision and
Resolution AFFIRMED.
3. Case Title : SPOUSES ANTONIO and
LOLITA
TAN,
petitioners,
vs.
CARMELITO VILLAPAZ, respondent.
Syllabi
Class :
Obligations
and
Contracts|Statute
of
Frauds|Negotiable
Instruments|Checks
Syllabi:
1. Obligations and Contracts; Statute of
Frauds; Negotiable Instruments; Checks; A
check, the entries of which are no doubt in
writing, could prove a loan transaction.As for petitioners reliance on Art. 1358 of the
Civil Code, the same is misplaced for the
requirement that contracts where the amount
involved exceeds P500.00 must appear in
writing is only for convenience. At all events, a
check, the entries of which are no doubt in
writing, could prove a loan transaction.
WHEREFORE, the present petition is DENIED.
4. Case Title: CONCEPCION CHUA GAW,

petitioner, vs. SUY BEN CHUA and
FELISA CHUA, respondents.
Remedial Law; Evidence; Adverse Witnesses;
The rule is that the plaintiff must rely on the
strength of his own evidence and not upon the
weakness of the defendants evidence;
Preponderance of evidence is determined by
considering all the facts and circumstances of
the case, culled from the evidence regardless
of who actually presented it.The delineation
of a piece of evidence as part of the evidence
of one party or the other is only significant in
determining whether the party on whose
shoulders lies the burden of proof was able to
meet the quantum of evidence needed to
discharge the burden. In civil cases, that
burden devolves upon the plaintiff who must
establish her case by preponderance of
evidence. The rule is that the plaintiff must rely
on the strength of his own evidence and not
upon the weakness of the defendants
evidence. Thus, it barely matters who with a
piece of evidence is credited. In the end, the
court will have to consider the entirety of the
evidence
presented
by
both
parties.
Preponderance of evidence is then determined
by considering all the facts and circumstances
of the case, culled from the evidence,
regardless of who actually presented it.
Yza
Same; Same; Same; Under a rule permitting

the impeachment of an adverse witness,
although the calling party does not vouch for
the witness veracity, he is nonetheless bound
by his testimony if it is not contradicted or
remains unrebutted.That the witness is the
adverse party does not necessarily mean that
the calling party will not be bound by the
formers testimony. The fact remains that it
was at his instance that his adversary was put
on the witness stand. Unlike an ordinary
witness, the calling party may impeach an
adverse witness in all respects as if he had
been called by the adverse party, except by
evidence of his bad character. Under a rule
permitting the impeachment of an adverse
witness, although the calling party does not
vouch for the witness veracity, he is
nonetheless bound by his testimony if it is not
contradicted or remains unrebutted.
Same; Same; Same; A party who calls his
adversary as a witness is not bound by the
latters testimony only in the sense that he may
contradict him by introducing other evidence to
prove a state of facts contrary to what the
witness testifies on.A party who calls his
adversary as a witness is, therefore, not bound
by the latters testimony only in the sense that
he may contradict him by introducing other
evidence to prove a state of facts contrary to
what the witness testifies on. A rule that
provides that the party calling an adverse
witness shall not be bound by his testimony
does not mean that such testimony may not be
given its proper weight, but merely that the
calling party shall not be precluded from
rebutting his testimony or from impeaching
him. This, the petitioner failed to do.
Same; Same; Best Evidence Rule; A notarized
document carries evidentiary weight as to its
due execution and documents acknowledged
before a notary public have in their favor the
presumption of regularity.It is also worthy to
note that both the Deed of Partition and the
Deed of Sale were acknowledged before a
Notary Public. The notarization of a private
document converts it into a public document,
and makes it admissible in court without further
proof of its authenticity. It is entitled to full faith
and credit upon its face. A notarized document
carries evidentiary weight as to its due
execution, and documents acknowledged
before a notary public have in their favor the
presumption of regularity. Such a document
must be given full force and effect absent a
strong, complete and conclusive proof of its
falsity or nullity on account of some flaws or
defects recognized by law. A public document
executed and attested through the intervention
of a notary public is, generally, evidence of the
facts therein express in clear unequivocal
manner.
Same; Same; Same; The best evidence rule
as encapsulated in Rule 130, Section 3 of the
Revised Rules of Civil Procedure applies only
Page 16
when the content of such document is the

subject of the inquiry.The best evidence
rule as encapsulated in Rule 130, Section 3,
of the Revised Rules of Civil Procedure applies
only when the content of such document is the
subject of the inquiry. Where the issue is only
as to whether such document was actually
executed, or exists, or on the circumstances
relevant to or surrounding its execution, the
best evidence rule does not apply and
testimonial evidence is admissible. Any other
substitutionary evidence is likewise admissible
without need to account for the original.
Moreover, production of the original may be
dispensed with, in the trial courts discretion,
whenever the opponent does not bona fide
dispute the contents of the document and no
other useful purpose will be served by
requiring production. [Gaw vs. Chua, 551
SCRA 505(2008)]
5. Case Title : LAND BANK OF THE

PHILIPPINES, petitioner, vs. MONETS
EXPORT AND MANUFACTURING CORP.,
VICENTE V. TAGLE, SR. and MA.
CONSUELO G. TAGLE, respondents.
Court of Appeals.
Syllabi Class : Evidence|Banks and Banking
Syllabi:
1. Evidence; Documentary Evidence; Entries
in the course of business are accorded
unusual reliability because their regularity and
continuity are calculated to discipline record
keepers in the habit of precision.Under Section 43, Rule 130 of the Rules of
Court, entries prepared in the regular course of
business are prima facie evidence of the truth
of what they state. The billing statement
reconciles the transaction entries entered in
the bank records in the regular course of
business and shows the net result of such
transactions. Entries in the course of business
are accorded unusual reliability because their
regularity and continuity are calculated to
discipline record keepers in the habit of
precision. If the entries are financial, the
records are routinely balanced and audited. In
actual experience, the whole of the business
world function in reliance of such kind of
records.
2. Same; Banks and Banking; The bank does
not have to present all the receipts of payment
it issued to all its clients during the entire year.The bank does not have to present all the
receipts of payment it issued to all its clients
during the entire year, thousands of them,
merely to establish the fact that only five of
them, rather than ten, pertains to the borrower.
The original documents need not be presented
in evidence when it is numerous, cannot be
examined in court without great loss of time,
Yza
and the fact sought to be established from

them is only the general result.
WHEREFORE, the Court GRANTS the
petition, SETS ASIDE the Court of Appeals
decision in CA-G.R. CV 88782 dated May 30,
2008 and resolution dated October 10, 2008
and the Regional Trial Court order in Civil
Case 93-64350 dated October 30, 2006,
REMANDS the case to the same Regional
Trial Court of Manila for the reception of such
evidence as may be needed to determine the
actual amount of indebtedness of respondents
Monets Export and Manufacturing Corp. and
the spouses Vicente V. Tagle, Sr. and Ma.
Consuelo G. Tagle and adjudicate petitioner
Land Bank of the Philippines claims as such
evidence may warrant.
6. Case Title : EMILIA LIM VS MINDANAO

WINES AND LIQUOR GALLERIA
Issue: Can a check, the entries of whick are
in writing, prove a loan transaction? If
Emilia was acquitted of violations of BP 22,
can she be required to pay the debt she
owes?
Held: It is well to remember that a check may
be evidence of indebtedness. A check, the
entries of which are in writing, could prove a
loan transaction. While Emilia is acquitted of
violations of BP 22, she should nevertheless
pay the debt she owes.
7. TingTing Pua vs Spouses Benito Lo Bun
Tiong and Caroline Siok Ching Teng
Issue: Can
transaction?
check
prove
loan
HELD: In Pacheco v. Court of Appeals,46 this

Court has expressly recognized that a check
"constitutes
an
evidence
of
47
indebtedness" and is a veritable "proof of an
obligation."48 Hence, it can be used "in lieu of
and for the same purpose as a promissory
note."49 In fact, in the seminal case of Lozano
v. Martinez,50 We pointed out that a check
functions more than a promissory note since it
not only contains an undertaking to pay an
amount of money but is an "order addressed to
a bank and partakes of a representation that
the drawer has funds on deposit against which
the check is drawn, sufficient to ensure
payment upon its presentation to the
bank."51 This Court reiterated this rule in the
relatively recent Lim v. Mindanao Wines and
Liquour Galleria stating that "a check, the
entries of which are in writing, could prove a
loan transaction."52 This very same principle
Page 17
underpins Section 24
Instruments Law (NIL):
of
the
Negotiable
Section 24. Presumption of consideration.

Every negotiable instrument is deemed prima
facie to have been issued for a valuable
consideration; and every person whose
signature appears thereon to have become a
party for value.
Consequently, the 17 original checks,
completed and delivered to petitioner, are
sufficient by themselves to prove the existence
of the loan obligation of the respondents to
petitioner. Note that respondent Caroline had
not denied the genuineness of these
checks.53 Instead, respondents argue that they
were given to various other persons and
petitioner had simply collected all these 17
checks from them in order to damage
respondents reputation.54This account is not
only incredible; it runs counter to human
experience, as enshrined in Sec. 16 of the NIL
which provides that when an instrument is no
longer in the possession of the person who
signed it and it is complete in its terms "a valid
and intentional delivery by him is presumed
until the contrary is proved."
8. Niel Aguilar and Ruben Calimbas vs
Lightbringers Credit Cooperative
Issue: Was a check sufficient evidence of
loan transaction?
HELD: The Court agrees with the findings of
fact of the MCTC and the RTC that a check
was a sufficient evidence of a loan transaction.
The findings of fact of the trial court, its
calibration of the testimonies of the witnesses
and its assessment of the probative weight
thereof, as well as its conclusions anchored on
the findings are accorded high respect, if not
conclusive effect.40chanRoblesvirtualLawlibrary
The case of Pua v. Spouses Lo Bun
Tiong41 discussed the weight of a check as an
evidence of a loan:
In Pacheco v. Court of Appeals, this Court has
expressly recognized that a check constitutes
an evidence of indebtedness and is a veritable
proof of an obligation. Hence, it can be used in
lieu of and for the same purpose as a
promissory note. In fact, in the seminal case
of Lozano v. Martinez, We pointed out that a
check functions more than a promissory note
since it not only contains an undertaking to pay
an amount of money but is an "order
addressed to a bank and partakes of a
representation that the drawer has funds on
deposit against which the check is drawn,
sufficient to ensure payment upon its
Yza
presentation to the bank." This Court reiterated

this rule in the relatively recentLim v. Mindanao
Wines and Liquour Galleria stating that a
check, the entries of which are in writing, could
prove a loan transaction.42
There is no dispute that the signatures of the
petitioners were present on both the PNB
checks and the cash disbursement vouchers.
The checks were also made payable to the
order of the petitioners. Hence, respondent can
properly demand that they pay the amounts
borrowed. If the petitioners believe that there is
some other bogus scheme afoot, then they
must institute a separate action against the
responsible personalities. Otherwise, the
Court can only rule on the evidence on record
in the case at bench, applying the appropriate
laws and jurisprudence.
D. IT IS A SPECIE OF PROPERTY
1. Gemma Jacinto vs People
Related to Criminal Law on IMPOSSIBLE
CRIME
Issue: Are checks, by itself personal
property? May it be subject to theft even if
it han no value (Bounced check)?
The prosecution tried to establish the following
pieces of evidence to constitute the elements
of the crime of qualified theft defined under
Article 308, in relation to Article 310, both of
the Revised Penal Code: (1) the taking of
personal property - as shown by the fact that
petitioner, as collector for Mega Foam, did not
remit the customer's check payment to her
employer and, instead, appropriated it for
herself; (2) said property belonged to
another the check belonged to Baby Aquino,
as it was her payment for purchases she
made; (3) the taking was done with intent to
gain this is presumed from the act of unlawful
taking and further shown by the fact that the
check was deposited to the bank account of
petitioner's brother-in-law; (4) it was done
without the owners consent petitioner hid the
fact that she had received the check payment
from her employer's customer by not remitting
the check to the company; (5) it was
accomplished without the use of violence or
intimidation against persons, nor of force upon
things the check was voluntarily handed to
petitioner by the customer, as she was known
to be a collector for the company; and (6) it
was done with grave abuse of confidence
Page 18
petitioner is admittedly entrusted with the

collection of payments from customers.
However, as may be gleaned from the
aforementioned Articles of the Revised Penal
Code, the personal property subject of the theft
must have some value, as the intention of the
accused is to gain from the thing stolen. This is
further bolstered by Article 309, where the law
provides that the penalty to be imposed on the
accused is dependent on the value of the thing
stolen.
In this case, petitioner unlawfully took the
postdated check belonging to Mega Foam, but
the same was apparently without value, as it
was subsequently dishonored. Thus, the
question arises on whether the crime of
qualified theft was actually produced.
2. People vs Bernard Mirto

property? May it be subject to theft or
qualified theft?
All of the foregoing elements for Qualified Theft
are present in this case.
First. The presence of the first and second
elements is abundantly clear. There can be no
quibble that the fund collections through
checks paymentsall issued payable to cashare
personal properties belonging to UCC. These
funds through checks were paid by UCC
clients for the deliveries of cement from
UCC. One with the courts a quo, We will not
belabor this point in the fifth argument raised
by accused-appellant.
Second. The third element is likewise
abundantly clear. The collected amounts
subject of the instant case belonged to UCC
and not to accused-appellant. When accusedappellant received them in the form of Pay to
Cash checks from UCC customers, he was
obliged to turn them over to UCC for he had no
right to retain them. That he kept the checks
and deposited them in his account and in the
accounts of Magno Lim knowing all the while
that these checks and their proceeds were not
his only proves the presence of unlawful
taking. xx
Yza
3. Anita Miranda vs People

property? May it be subject to theft or
qualified theft?
YES
4. Fernando M. Espino vs People

Issue: Is a check considered personal
property for purposes of complying with
the elements of estafa under Art. 315 1(b) of
RPC?
The crime charged was estafa under
Article 315, paragraph 1(b) of the
Revised Penal Code. Its elements are as
follows: (1) that money, goods, or other
personal properties are 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 is a misappropriation or
conversion of such money or property by
the offender or a denial of the receipt
thereof; (3) that the misappropriation or
conversion or denial is to the prejudice of
another; and (4) that there is a demand
made by the offended party on the
offender.
Paragraph 1(b) provides liability
for estafa committed by misappropriating
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 that obligation be
totally or partially guaranteed by a bond;
or by denying having received such
money, goods, or other property. This at
least, is very clearly shown by the factual
allegations
of
the
Informations.
First, personal property in the form of
the checks was received by the offender
in trust or on commission, with the duty
to deliver it to Mr. Banaag. Even though
the
accused
misrepresented
the
existence of a deliverable commission, it
is a fact that he was obliged by KN Inc.,
the injured party, to deliver the check
and account for it. Second, the accused
rediscounted the checks to his aunt-inlaw. Third, this rediscounting resulted in
the wrongful encashment of the checks
by someone who was not the payee and
therefore not lawfully authorized to do
so. Finally, this wrongful encashment
Page 19
prejudiced KN Inc., which lost the

proceeds of the check. When accounting
was demanded from the accused, he
could not conjure any justifiable excuse.
Yza
checksTaguinod issued and respondent

received speak volumes of this
convenient, albeit unethical, arrangement.
Section 2 (e), Canon III of the Code of
Conduct was crafted precisely to punish
court personnel who engage in such
practices.
E. PROOF OF PAYMENT
1. Francisco Taguinod vs Deputy Sherif
Ronaldo Tomas, RTC Branch 21,
Santiago City
Issue: Are checksproof of payment and so
proof of violation of Sec. 2(e), Canon III of
the Code of Conduct? YES
Respondents defense that he never

demanded any money or any rebate
from Taguinod does not spare him from
liability. Section 5 not only prohibits local
court personnel from demanding pay-offs,
it also bars receipt of such pay-offs.
Respondent will take himself out of the
ambit of Section 5 only if he did neither.
By accepting pay-offs from Taguinod,
respondent also violated Section 2(e),
Canon III of the Code of Conduct,
mandating that Court personnel shall not
Solicit or accept any gift, loan,
gratuity, discount, favor, hospitality
or service under circumstances
from which it could reasonably be
inferred that a major purpose of the
donor is to influence the court
personnel in performing official
duties. (Emphasis supplied)
Respondents violation of Section 5 of PD

1079 and Section 2(e), Canon III of the
Code of Conduct constitutes grave
misconduct or corrupt conduct in flagrant
disregard
of
well-known
legal
10
rules. Respondent, who entered the
judiciary in 1996, ought to know these
provisions; his multiple transactions
with Taguinod show flagrant disregard of
their proscriptions.
2. Spouses Ricardo and Elena Golez vs
Meleton Nemeno
Issue: What is the effect of the possession
of the respondent of the PN evidencing his
debt to the Petitioner? Is it a prima facie
evidence of payment as provided in Sec
3(h) of R131 ROC?
Since the promissory note is in the
possession of respondent, the debtor, it
can be presumed that it has already
been paid.
As correctly ruled by the trial and
appellate courts, the possession of
respondent of the promissory note
evidencing his debt to petitioners
is prima facie evidence of the payment of
the same as provided in Section 3(h) of
Rule 131 of the Rules of Court which
reads:
cralawlawl ibrary
From March to November, 1996

when City Star published judicial notices
from Branch 21, for which respondent
accepted 10 checks from Taguinod,
respondent controlled the distribution of
Branch 21s judicial notices among
Santiago Citys publishers because Madrid
delegated this task to respondent (in
violation of Section 2 of PD 1079
requiring distribution of notices by
raffle).9 It was in Taguinods interest,
therefore, to give discounts to respondent
to influence respondent to keep assigning
judicial notices to City Star. The 10
SEC. 3. Disputable presumptions. - The

following presumptions are satisfactory if
uncontradicted, but may be contradicted
and overcome by other evidence:
chanRoblesvirtualLawl ibrary
(h) That an obligation delivered up to the

debtor
has
been
paid;
Chan RoblesV irtualaw library
chanrobleslaw
Unfortunately
for
petitioners,
the
evidence they presented failed to
contradict the above presumption as
Page 20
they did not conclusively show that

respondent's obligation to them remains
outstanding.
To the Court's mind, the letters of
respondent were written to demand the
surrender
of
the
three
previous
promissory notes he executed before
they
were
consolidated
into
one
promissory note with the amount of
P11,000.00. Thus, they cannot prove
that respondent acknowledges that his
obligation remains outstanding. This
being the case, the presumption still
stands.
Yza
Indeed, 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 defense to the claim of
the creditor.24 The debtor has the burden of
showing with legal certainty that the obligation
has been discharged by payment.25
G. GUARANTEE
PERFORMANCE
OBLIGATION
FOR
OF A
THE
FUTURE
1. San Miguel Corpn vs Helen Kalalo
F. EVICENCE OF INDEBTEDNESS
1. Westmont Investment Corpn vs Amos
Francia
Issue: Can checks be only for payment of a

pre-existing obligation? May the checks be
likewise issued as a guarantee for the
performance of a future obligation? Is it
possible that the dishonored checks were
issued
merely
to
guarantee
the
performance of a future obligation?
Issue: Are PN evidence of indebtedness?

YES, such that if there is no promissory note
validly and duly executed by Pearlbank, there
will be nothing that will serve as evidence of
the said borrowing.
2. Spouses Agner vs BPI Family Savings
Issue: Does the possession of the PN with
Chattel Mortgage strongly buttress the
claim that the obligation has not been
extinguished?
Jurisprudence abounds that, in civil cases, one

who pleads payment has the burden of proving
it; the burden rests on the defendant to prove
payment, rather than on the plaintiff to prove
non-payment.20 When the creditor is in
possession of the document of credit, proof of
non-payment is not needed for it is
presumed.21 Respondent's possession of the
Promissory Note with Chattel Mortgage
strongly buttresses its claim that the obligation
has not been extinguished. As held in Bank of
the Philippine Islands v. Spouses Royeca:22
In any event, we cannot allow SMC to recover

the amount of 921,215 from respondent, as it
failed to prove the existence of the purported
indebtedness. The records are bereft of any
evidence, other than the dishonored checks,
establishing the existence of that obligation.
Checks, however, are not issued merely for the
payment of a preexisting obligation. They may
likewise be issued as a guarantee for the
performance of a future obligation. In this case,
it was sufficiently established that the
dishonored checks were issued merely to
guarantee the performance of a future
obligation; that is, the payment of the net value
of the goods after the value of the empty
bottles and beer cases returned to petitioner
were deducted from the gross value of the
goods delivered to respondent.
x x x The creditor's possession of the evidence

of debt is proof that the debt has not been
discharged by payment. A promissory note in
the hands of the creditor is a proof of
indebtedness rather than proof of payment. In
an action for replevin by a mortgagee, it is
prima facie evidence that the promissory note
has not been paid. Likewise, an uncanceled
mortgage in the possession of the mortgagee
gives rise to the presumption that the mortgage
debt is unpaid.23
Page 21
SECTION 1, NIL
1. Case Title : TRADERS ROYAL BANK,
petitioner, vs. COURT OF APPEALS,
FILRITERS
GUARANTY
ASSURANCE
CORPORATION and CENTRAL BANK of the
PHILIPPINES, respondents.
Syllabi
Class :
Loans|Corporation
Law|Sales|Negotiable Instruments|Certificates
of
Indebtedness|Bonds|Words
and
Phrases|Piercing the Veil of Corporate Fiction
Syllabi:
1. Loans; Negotiable
Instruments; Certificates
of
Indebtedness; Bonds; Words
and
Phrases; A certificate of indebtedness which
pertains to certificates for the creation and
maintenance of a permanent improvement
revolving fund, is similar to a bond.Properly
understood,
a
certificate
of
indebtedness pertains to certificates for the
creation and maintenance of a permanent
improvement revolving fund, and is similar to a
bond, (82 Minn. 202). Being equivalent to a
bond, it is properly understood as an
acknowledgment of an obligation to pay a fixed
sum of money. It is usually used for the
purpose of long term loans.
2. Loans; Negotiable
Instruments; Certificates
of
Indebtedness; The language of negotiability
which characterizes a negotiable paper as a
credit instrument is its freedom to circulate as a
substitute for money.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 touchstone 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 of indebtedness as it merely
acknowledges to pay a sum of money to a
specified person or entity for a period of time.
Corporate Fiction; Piercing 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 distinguishes one
corporation from a seemingly separate one,
were it not for the existing corporate fiction.Petitioner cannot put up the excuse of piercing
the veil of corporate entity, as this is 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
Yza
conduit of a person. Piercing 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 distinguishes 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.
Corporate Fiction; 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.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, in the absence of such
grounds, the general rule must be upheld. The
fact that Philfinance 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, 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.
Corporate Fiction; 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.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. 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.
6. Sales; Where the sale from one person to
another was fictitious, as there was no
consideration, and therefore void and
inexistent, the latter has no title to convey to
third persons.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,
Page 22
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 petitioners
cause, for then, Philfinance had no title over
the subject certificate to convey to Traders
Royal Bank. Nemo potest nisi quod de jure
potestno man can do anything except what
he can do lawfully.
Yza
3. Case Title : ASTRO ELECTRONICS

CORP. and PETER ROXAS, petitioners, vs.
PHILIPPINE EXPORT AND FOREIGN LOAN
GUARANTEE CORPORATION, respondent.
Syllabi:
1. Commercial Law; Banks and Banking; A
bank is under obligation to treat the accounts
of its depositors with meticulous care, whether
such account consists only of a few hundred
pesos or of millions of pesos.A bank is under obligation to treat the accounts
of its depositors with meticulous care, whether
such account consists only of a few hundred
pesos or of millions of pesos. The fact that the
other withdrawal slips were honored and paid
by respondent bank was no license for
Citibank to presume that subsequent slips
would be honored and paid immediately. By
doing so, it failed in its fiduciary duty to treat
the accounts of its clients with the highest
degree of care.

Syllabi Class : Negotiable Instruments
Law|Civil
Law|Promissory
Note|Parties|Maker|Obligations|Subrogation|Le
gal Subrogation
Syllabi:
1. Negotiable Instruments Law; Promissory
Note; Parties; Maker; Persons writing their
names on face of promissory notes are
makers.Under the Negotiable Instruments Law,
persons who write their names on the face of
promissory notes are makers, promising that
they will pay to the order of the payee or any
holder according to its tenor.
2. Civil
Law; Obligations; Subrogation; Legal
Subrogation; Legal subrogation is that which
takes place by operation of law.Subrogation is the transfer of all the rights of
the creditor to a third person, who substitutes
him in all his rights. It may either be legal or
conventional. Legal subrogation is that which
takes place without agreement but by
operation of law because of certain acts.
Instances of legal subrogation are those
provided in Article 1302 of the Civil Code.
Conventional subrogation, on the other hand,
is that which takes place by agreement of the
parties.
3. Civil
Law; Obligations; Subrogation; Legal
Subrogation; Knowledge of debtor not
necessary.Roxas acquiescence is not necessary for
subrogation to take place because the instant
case is one of legal subrogation that occurs by
operation of law, and without need of the
debtors knowledge.
WHEREFORE, the petition is DENIED and the
decision of the Court of Appeals in CA-G.R.
CV No. 29546 is AFFIRMED. Costs against
petitioner.
WHEREFORE, finding no error with the
decision of the Court of Appeals dated
December 10, 1998, the same is hereby
AFFIRMED in toto.
ACCORDINGLY, the petition is DISMISSED
and the decision appealed from dated January
29, 1990 is hereby AFFIRMED.
2. Case Title : FIRESTONE TIRE & RUBBER

COMPANY OF THE PHILIPPINES, petitioner,
vs. COURT OF APPEALS and LUZON
DEVELOPMENT BANK, respondents.
Syllabi Class : Commercial Law|Banks and
Banking
Page 23
4. Case Title : ROMEO

petitioner, vs. DIONISIO
respondent.
C. GARCIA,
V. LLAMAS,

Court of Appeals.
Syllabi
Class :
Civil
Law|Commercial
Law|Actions|Obligations|Extinguishment|Novati
on|Kinds|Elements|Proof|Negotiable
Instruments
Law|Promissory
Notes|Accommodation Party|Pleadings and
Practice|Summary Judgment|Judgment on the
Pleadings
Syllabi:
1. Civil
Law; Obligations; Extinguishment; Novatio
n; Definition.Novation is a mode of extinguishing an
obligation by changing its objects or principal
obligations, by substituting a new debtor in
place of the old one, or by subrogating a third
person to the rights of the creditor. Article 1293
of the Civil Code defines novation.
2. Civil
n; Kinds; In general, there are two (2) modes
of substituting the person of the debtor: (1)
expromision and (2) delegacion.In general, there are two modes of substituting
the person of the debtor: (1) expromision and
(2) delegacion. In expromision, the initiative for
the change does not come fromand may
even be made without the knowledge ofthe
debtor, since it consists of a third persons
assumption of the obligation. As such, it
logically requires the consent of the third
person and the creditor. In delegacion, the
debtor offers, and the creditor accepts, a third
person who consents to the substitution and
assumes the obligation; thus, the consent of
these three persons are necessary. Both
modes of substitution by the debtor require the
consent of the creditor.
3. Civil
n; Kinds; Novation may also be extinctive and
modificatory.Novation may also be extinctive or
modificatory. It is extinctive when an old
obligation is terminated by the creation of a
new one that takes the place of the former. It is
merely modificatory when the old obligation
subsists to the extent that it remains
compatible with the amendatory agreement.
Whether extinctive or modificatory, novation is
made either by changing the object or the
principal conditions, referred to as objective or
real novation; or by substituting the person of
the debtor or subrogating a third person to the
rights of the creditor, an act known as
subjective or personal novation.
4. Civil
Yza
n; Kinds; Elements; For novation to take

place, the following requisites must concur.For novation to take place, the following
requisites must concur: 1) There must be a
previous valid obligation. 2) The parties
concerned must agree to a new contract. 3)
The old contract must be extinguished. 4)
There must be a valid new contract.
5. Civil
n; Kinds; Novation may also be express or
implied.Novation may also be express or implied. It is
express when the new obligation declares in
unequivocal terms that the old obligation is
extinguished. It is implied when the new
obligation is incompatible with the old one on
every point. The test of incompatibility is
whether the two obligations can stand
together, each one with its own independent
existence.
6. Civil
n; Proof; Well-settled is the rule that nova-tion
is never presumed.Well-settled is the rule that novation is never
presumed. Consequently, that which arises
from a purported change in the person of the
debtor must be clear and express.
7. Commercial Law; Negotiable Instruments
Law; Promissory Notes; As the note was
made payable to a specific person, it is
covered by the general provisions of the Civil
Code, not the NIL.By its terms, the note was made payable to a
specific person rather than to bearer or to
ordera requisite for negotiability under Act
2031, the Negotiable Instruments Law (NIL).
Hence, petitioner cannot avail himself of the
NILs provisions on the liabilities and defenses
of an accommodation party. Besides, a nonnegotiable note is merely a simple contract in
writing and is evidence of such intangible rights
as may have been created by the assent of the
parties. The promissory note is thus covered
by the general provisions of the Civil Code, not
by the NIL.
Law; Promissory
Notes; Accommodation
Party; Under Article 29 of Act 2031, an
accommodation party is liable for the
instrument to a holder for value.Under Article 29 of Act 2031, an
accommodation party is liable for the
instrument to a holder for value even if, at the
time of its taking, the latter knew the former to
be only an accommodation party. The relation
between an accommodation party and the
party accommodated is, in effect, one of
principal and suretythe accommodation party
being the surety. It is a settled rule that a
surety is bound equally and absolutely with the
principal and is deemed an original promissor
and debtor from the beginning. The liability is
immediate and direct.
Page 24
9. Actions; Pleadings
and
Practice; Summary Judgment; A summary
judgment is a procedural device designed for
the prompt disposition of actions in which the
pleadings raise only a legal, not a genuine,
issue regarding any material fact.Under Section 3 of Rule 35 of the Rules of
Court, a summary judgment may be rendered
after a summary hearing if the pleadings,
supporting
affidavits,
depositions
and
admissions on file show that (1) except as to
the amount of damages, there is no genuine
issue regarding any material fact; and (2) the
moving party is entitled to a judgment as a
matter of law. A summary judgment is a
procedural device designed for the prompt
disposition of actions in which the pleadings
raise only a legal, not a genuine, issue
regarding any material fact. Consequently,
facts are asserted in the complaint regarding
which there is yet no admission, disavowal or
qualification; or specific denials or affirmative
defenses are set forth in the answer, but the
issues are fictitious as shown by the pleadings,
depositions or admissions. A summary
judgment may be applied for by either a
claimant or a defending party.
10. Actions; Pleadings
and
Practice; Judgment on the Pleadings; A
judgment on the pleadings is proper when an
answer fails to render an issue or otherwise
admits the material allegations of the adverse
partys pleading.On the other hand, under Section 1 of Rule 34
of the Rules of Court, a judgment on the
pleadings is proper when an answer fails to
render an issue or otherwise admits the
material allegations of the adverse partys
pleading. The essential question is whether
there are issues generated by the pleadings. A
judgment on the pleadings may be sought only
by a claimant, who is the party seeking to
recover upon a claim, counterclaim or crossclaim; or to obtain a declaratory relief.
WHEREFORE, this Petition is hereby DENIED
and the assailed Decision AFFIRMED. Costs
against petitioner.
Yza
5. Case Title : TRANSFIELD PHILIPPINES,

INC., petitioner, vs. LUZON HYDRO
CORPORATION, AUSTRALIA and NEW
ZEALAND BANKING GROUP LIMITED and
SECURITY
BANK
CORPORATION,
respondents.
Syllabi
Class :
Commercial
Law|Actions|Banks and Banking|Letters of
Credit|Standby
Credits|Words
and
Phrases|Uniform Customs and Practice (UCP)
for
Documentary
Credits|Independence
Principle|Guarantee|Contracts|Injunction|Requ
isites|Actions|Appeals|Pleadings
and
Practice|Obligations and Contracts|Forum
Shopping
Syllabi:
1. Commercial
Law; Banks
and
Banking; Letters
of
Credit; Standby
Credits; Words and Phrases; In commercial
transactions, a letter of credit is a financial
device developed by merchants as a
convenient and relatively safe mode of dealing
with sales of goods to satisfy the seemingly
irreconcilable interests of a seller, who refuses
to part with his goods before he is paid, and a
buyer, who wants to have control of the goods
before paying; Generally, credits in non-sale
settings have come to be known as standby
credits.The letter of credit evolved as a mercantile
specialty, and the only way to understand all its
facets is to recognize that it is an entity unto
itself. The relationship between the beneficiary
and the issuer of a letter of credit is not strictly
contractual, because both privity and a
meeting of the minds are lacking, yet strict
compliance with its terms is an enforceable
right. Nor is it a third-party beneficiary contract,
because the issuer must honor drafts drawn
against a letter regardless of problems
subsequently arising in the underlying contract.
Since the banks customer cannot draw on the
letter, it does not function as an assignment by
the customer to the beneficiary. Nor, if properly
used, is it a contract of suretyship or
guarantee, because it entails a primary liability
following a default. Finally, it is not in itself a
negotiable instrument, because it is not
payable to order or bearer and is generally
conditional, yet the draft presented under it is
often negotiable. In commercial transactions, a
letter of credit is a financial device developed
by merchants as a convenient and relatively
safe mode of dealing with sales of goods to
satisfy the seemingly irreconcilable interests of
a seller, who refuses to part with his goods
before he is paid, and a buyer, who wants to
have control of the goods before paying. The
use of credits in commercial transactions
serves to reduce the risk of nonpayment of the
purchase price under the contract for the sale
of goods. However, credits are also used in
Page 25
non-sale settings where they serve to reduce

the risk of nonperformance. Generally, credits
in the non-sale settings have come to be
known as standby credits.
2. Commercial
Law; Banks
and
Banking; Letters
of
Credit; Standby
Credits; Commercial Credits and Standby
Credits, Distinguished.There are three significant differences between
commercial and standby credits. First,
commercial credits involve the payment of
money under a contract of sale. Such credits
become payable upon the presentation by the
seller-beneficiary of documents that show he
has taken affirmative steps to comply with the
sales agreement. In the standby type, the
credit is payable upon certification of a partys
nonperformance of the agreement. The
documents that accompany the beneficiarys
draft tend to show that the applicant has not
performed. The beneficiary of a commercial
credit must demonstrate by documents that he
has performed his contract. The beneficiary of
the standby credit must certify that his obligor
has not performed the contract.
3. Commercial
Law; Banks
and
Banking; Letters of Credit; A letter of credit
changes its nature as different transactions
occur and if carried through to completion ends
up as a binding contract between the issuing
and honoring banks without any regard or
relation to the underlying contract or disputes
between the parties thereto.By definition, a letter of credit is a written
instrument whereby the writer requests or
authorizes the addressee to pay money or
deliver goods to a third person and assumes
responsibility for payment of debt therefor to
the addressee. A letter of credit, however,
changes its nature as different transactions
occur and if carried through to completion ends
up as a binding contract between the issuing
and honoring banks without any regard or
relation to the underlying contract or disputes
between the parties thereto.
4. Commercial
Law; Banks
and
Banking; Letters
of
Credit; Uniform
Customs
and
Practice
(UCP)
for
Documentary Credits; Since letters of credit
have
gained
general
acceptability
in
international
trade
transactions,
the
International Chamber of Commerce (ICC) has
published from time to time updates on the
Uniform
Customs
and
Practice
for
Documentary Credits to standardize practices
in the letter of credit area; The observance of
the UCP is justified by Article 2 of the Code of
Commerce which provides that in the absence
of any particular provision in the Code of
Commerce, commercial transactions shall be
governed by usages and customs generally
observed.Since letters of credit have gained general
acceptability in international trade transactions,
the ICC has published from time to time
Yza
updates on the Uniform Customs and Practice

(UCP) for Documentary Credits to standardize
practices in the letter of credit area. The vast
majority of letters of credit incorporate the
UCP. First published in 1933, the UCP for
Documentary Credits has undergone several
revisions, the latest of which was in 1993. In
Bank of the Philippine Islands v. De Reny
Fabric Industries, Inc., this Court ruled that the
observance of the UCP is justified by Article 2
of the Code of Commerce which provides that
in the absence of any particular provision in the
Code of Commerce, commercial transactions
shall be governed by usages and customs
generally observed. More recently, in Bank of
America, NT SA v. Court of Appeals, this Court
ruled that there being no specific provisions
which govern the legal complexities arising
from transactions involving letters of credit, not
only between or among banks themselves but
also between banks and the seller or the
buyer, as the case may be, the applicability of
the UCP is undeniable.
5. Commercial
Law; Banks
and
Banking; Letters of Credit; Independence
Principle; Under
the
independence
principle, banks assume no liability or
responsibility for the form, sufficiency,
accuracy, genuineness, falsification or legal
effect of any documents, or for the general
and/or particular conditions stipulated in the
documents or superimposed thereon, nor do
they assume any liability or responsibility for
the description, quantity, weight, quality,
condition, packing, delivery, value or existence
of the goods represented by any documents,
or for the good faith or acts and/or omissions,
solvency, performance or standing of the
consignor, the carriers, or the insurers of the
goods, or any other person whomsoever.Article 3 of the UCP provides that credits, by
their nature, are separate transactions from the
sales or other contract(s) on which they may
be based and banks are in no way concerned
with or bound by such contract(s), even if any
reference whatsoever to such contract(s) is
included in the credit. Consequently, the
undertaking of a bank to pay, accept and pay
draft(s) or negotiate and/or fulfill any other
obligation under the credit is not subject to
claims or defenses by the applicant resulting
from his relationships with the issuing bank or
the beneficiary. A beneficiary can in no case
avail himself of the contractual relationships
existing between the banks or between the
applicant and the issuing bank. Thus, the
engagement of the issuing bank is to pay the
seller or beneficiary of the credit once the draft
and the required documents are presented to
it. The so-called independence principle
assures the seller or the beneficiary of prompt
payment independent of any breach of the
main contract and precludes the issuing bank
from determining whether the main contract is
actually accomplished or not. Under this
Page 26
principle, banks assume no liability or

responsibility for the form, sufficiency,
accuracy, genuineness, falsification or legal
effect of any documents, or for the general
and/or particular conditions stipulated in the
documents or superimposed thereon, nor do
they assume any liability or responsibility for
the description, quantity, weight, quality,
condition, packing, delivery, value or existence
of the goods represented by any documents,
or for the good faith or acts and/or omissions,
solvency, performance or standing of the
consignor, the carriers, or the insurers of the
goods, or any other person whomsoever.
6. Commercial
Law; Banks
and
Principle; The independent nature of the
letter of credit may be: (a) independence in
toto where the credit is independent from the
justification aspect and is a separate obligation
from the underlying agreement; or (b)
independence may be only as to the
justification aspect, though in both cases the
payment may be enjoined if in the light of the
purpose of the credit the payment of the credit
would constitute fraudulent abuse of the
credit.The independent nature of the letter of credit
may be: (a) independence in toto where the
credit is independent from the justification
aspect and is a separate obligation from the
underlying agreement like for instance a typical
standby; or (b) independence may be only as
to the justification aspect like in a commercial
letter of credit or repayment standby, which is
identical with the same obligations under the
underlying agreement. In both cases the
payment may be enjoined if in the light of the
purpose of the credit the payment of the credit
would constitute fraudulent abuse of the credit.
7. Commercial
Law; Banks
and
Principle; The
independence
principle
liberates the issuing bank from the duty of
ascertaining compliance by the parties in the
main contract; As it is, the independence
doctrine works to the benefit of both the issuing
bank and the beneficiary.As discussed above, in a letter of credit
transaction, such as in this case, where the
credit is stipulated as irrevocable, there is a
definite undertaking by the issuing bank to pay
the beneficiary provided that the stipulated
documents are presented and the conditions of
the credit are complied with. Precisely, the
independence principle liberates the issuing
bank from the duty of ascertaining compliance
by the parties in the main contract. As the
principles nomenclature clearly suggests, the
obligation under the letter of credit is
independent of the related and originating
contract. In brief, the letter of credit is separate
and distinct from the underlying transaction.
Given the nature of letters of credit, petitioners
argumentthat it is only the issuing bank that
Yza
may invoke the independence principle on

letters of creditdoes not impress this Court.
To say that the independence principle may
only be invoked by the issuing banks would
render nugatory the purpose for which the
letters of credit are used in commercial
transactions. As it is, the independence
doctrine works to the benefit of both the issuing
bank and the beneficiary.
8. Commercial
Law; Banks
and
Principle; Guarantee;Jurisprudence has laid
down a clear distinction between a letter of
credit and a guarantee in that the settlement of
a dispute between the parties is not a
prerequisite for the release of funds under a
letter of credit.Petitioners argument that any dispute must
first be resolved by the parties, whether
through negotiations or arbitration, before the
beneficiary is entitled to call on the letter of
credit in essence would convert the letter of
credit into a mere guarantee. Jurisprudence
has laid down a clear distinction between a
letter of credit and a guarantee in that the
settlement of a dispute between the parties is
not a pre-requisite for the release of funds
under a letter of credit. In other words, the
argument is incompatible with the very nature
of the letter of credit. If a letter of credit is
drawable only after settlement of the dispute
on the contract entered into by the applicant
and the beneficiary, there would be no
practical and beneficial use for letters of credit
in commercial transactions.
9. Commercial
Law; Banks
and
Principle; Owing to the nature and purpose
of standby letters of credit, banks are left with
little or no alternative but to honor the credit or
the call for payment.While it is the bank which is bound to honor the
credit, it is the beneficiary who has the right to
ask the bank to honor the credit by allowing
him to draw thereon. The situation itself
emasculates petitioners posture that LHC
cannot invoke the independence principle and
highlights its puerility, more so in this case
where the banks concerned were impleaded
as parties by petitioner itself. Respondent
banks had squarely raised the independence
principle to justify their releases of the amounts
due under the Securities. Owing to the nature
and purpose of the standby letters of credit,
this Court rules that the respondent banks
were left with little or no alternative but to
honor the credit and both of them in fact
submitted that it was ministerial for them to
honor the call for payment.
10. Commercial
Law; Banks
and
Principle; Contracts; A
contract
once
perfected, binds the parties not only to the
fulfillment of what has been expressly
stipulated but also to all the consequences
Page 27
which according to their nature, may be in

keeping with good faith, usage, and law.A contract once perfected, binds the parties
not only to the fulfillment of what has been
expressly stipulated but also to all the
consequences which according to their nature,
may be in keeping with good faith, usage, and
law. A careful perusal of the Turnkey Contract
reveals the intention of the parties to make the
Securities answerable for the liquidated
damages occasioned by any delay on the part
of petitioner. The call upon the Securities,
while not an exclusive remedy on the part of
LHC, is certainly an alternative recourse
available to it upon the happening of the
contingency for which the Securities have been
proffered. Thus, even without the use of the
independence principle, the Turnkey Contract
itself bestows upon LHC the right to call on the
Securities in the event of default.
11. Commercial
Law; Banks
and
Principle; Injunction;Requisites; Most
writers agree that fraud is an exception to the
independence principle; The remedy for
fraudulent abuse is an injunction.Most writers agree that fraud is an exception to
the independence principle. Professor Dolan
opines that the untruthfulness of a certificate
accompanying a demand for payment under a
standby credit may qualify as fraud sufficient to
support an injunction against payment. The
remedy for fraudulent abuse is an injunction.
However, injunction should not be granted
unless: (a) there is clear proof of fraud; (b) the
fraud constitutes fraudulent abuse of the
independent purpose of the letter of credit and
not only fraud under the main agreement; and
(c) irreparable injury might follow if injunction is
not granted or the recovery of damages would
be seriously damaged.
12. Commercial
Law; Banks
and
Principle; Injunction; The issuance of the
writ of preliminary injunction as an ancillary or
preventive remedy to secure the rights of a
party in a pending case is entirely within the
discretion of the court taking cognizance of the
case, the only limitation being that this
discretion should be exercised based upon the
grounds and in the manner provided by law.Generally, injunction is a preservative remedy
for the protection of ones substantive right or
interest; it is not a cause of action in itself but
merely a provisional remedy, an adjunct to a
main suit. The issuance of the writ of
preliminary injunction as an ancillary or
preventive remedy to secure the rights of a
party in a pending case is entirely within the
discretion of the court taking cognizance of the
case, the only limitation being that this
discretion should be exercised based upon the
grounds and in the manner provided by law.
Before a writ of preliminary injunction may be
issued, there must be a clear showing by the
Yza
complaint that there exists a right to be

protected and that the acts against which the
writ is to be directed are violative of the said
right. It must be shown that the invasion of the
right sought to be protected is material and
substantial, that the right of complainant is
clear and unmistakable and that there is an
urgent and paramount necessity for the writ to
prevent serious damage. Moreover, an
injunctive remedy may only be resorted to
when there is a pressing necessity to avoid
injurious consequences which cannot be
remedied under any standard compensation.
13. Commercial
Law; Banks
and
Principle; It is premature and absurd to
conclude that the draws on the Securities were
outright fraudulent where the International
Chamber of Commerce and the Construction
Industry Authority Commission have not ruled
with finality on the existence of default.The pendency of the arbitration proceedings
would not per se make LHCs draws on the
Securities wrongful or fraudulent for there was
nothing in the Contract which would indicate
that the parties intended that all disputes
regarding delay should first be settled through
arbitration before LHC would be allowed to call
upon the Securities. It is therefore premature
and absurd to conclude that the draws on the
Securities were outright fraudulent given the
fact that the ICC and CIAC have not ruled with
finality on the existence of default.
14. Commercial
Law; Banks
and
Principle; Actions;Appeals; Pleadings and
Practice; Matters, theories or arguments not
brought out in the proceedings below will
ordinarily not be considered by a reviewing
court as they cannot be raised for the first time
on appeal.Nowhere in its complaint before the trial court
or in its pleadings filed before the appellate
court, did petitioner invoke the fraud exception
rule as a ground to justify the issuance of an
injunction. What petitioner did assert before the
courts below was the fact that LHCs draws on
the Securities would be premature and without
basis in view of the pending disputes between
them. Petitioner should not be allowed in this
instance to bring into play the fraud exception
rule to sustain its claim for the issuance of an
injunctive relief. Matters, theories or arguments
not brought out in the proceedings below will
ordinarily not be considered by a reviewing
court as they cannot be raised for the first time
on appeal. The lower courts could thus not be
faulted for not applying the fraud exception rule
not only because the existence of fraud was
fundamentally interwoven with the issue of
default still pending before the arbitral
tribunals, but more so, because petitioner
never raised it as an issue in its pleadings filed
in the courts below. At any rate, petitioner
utterly failed to show that it had a clear and
Page 28
unmistakable right to prevent LHCs call upon

the Securities.
15. Commercial
Law; Banks
and
Principle; Obligations
and
Contracts; Obligations arising from contracts
have the force of law between the contracting
parties and should be complied with in good
faith.Prudence should have impelled LHC to await
resolution of the pending issues before the
arbitral tribunals prior to taking action to
enforce the Securities. But, as earlier stated,
the Turnkey Contract did not require LHC to do
so and, therefore, it was merely enforcing its
rights in accordance with the tenor thereof.
Obligations arising from contracts have the
force of law between the contracting parties
and should be complied with in good faith.
More importantly, pursuant to the principle of
autonomy of contracts embodied in Article
1306 of the Civil Code, petitioner could have
incorporated in its Contract with LHC, a proviso
that only the final determination by the arbitral
tribunals that default had occurred would justify
the enforcement of the Securities. However,
the fact is petitioner did not do so; hence, it
would have to live with its inaction.
16. Actions; Injunction; Settled is the rule
that injunction would not lie where the acts
sought to be enjoined have already become
fait accompli or an accomplished or
consummated act.In a Manifestation, dated 30 March 2001, LHC
informed this Court that the subject letters of
credit had been fully drawn. This fact alone
would have been sufficient reason to dismiss
the instant petition. Settled is the rule that
injunction would not lie where the acts sought
to be enjoined have already become fait
accompli or an accomplished or consummated
act. In Ticzon v. Video Post Manila, Inc. this
Court ruled that where the period within which
the former employees were prohibited from
engaging in or working for an enterprise that
competed with their former employerthe very
purpose of the preliminary injunctionhas
expired, any declaration upholding the
propriety of the writ would be entirely useless
as there would be no actual case or
controversy between the parties insofar as the
preliminary injunction is concerned. In the
instant case, the consummation of the act
sought to be restrained had rendered the
instant petition mootfor any declaration by
this Court as to propriety or impropriety of the
non-issuance of injunctive relief could have no
practical effect on the existing controversy. The
other issues raised by petitioner particularly
with respect to its right to recover the amounts
wrongfully drawn on the Securities, according
to it, could properly be threshed out in a
separate proceeding.
17. Actions; Pleadings and Practice; Forum
Shopping; Considering the seriousness of the
Yza
charge of forum shopping and the severity of

the sanctions for its violation, the Court will
refrain from making any definitive ruling on the
issue until the party alleged to have committed
forum shopping has been given ample
opportunity to respond to the charge.Forum Shopping is a very serious charge. It
exists when a party repetitively avails of
several judicial remedies in different courts,
simultaneously
or
successively,
all
substantially founded on the same transactions
and
the
same
essential
facts
and
circumstances, and all raising substantially the
same issues either pending in, or already
resolved adversely, by some other court. It
may also consist in the act of a party against
whom an adverse judgment has been
rendered in one forum, of seeking another and
possibly favorable opinion in another forum
other than by appeal or special civil action of
certiorari, or the institution of two or more
actions or proceedings grounded on the same
cause on the supposition that one or the other
court might look with favor upon the other
party. To determine whether a party violated
the rule against forum shopping, the test
applied is whether the elements of litis
pendentia are present or whether a final
judgment in one case will amount to res
judicata in another. Forum
Shopping
constitutes improper conduct and may be
punished with summary dismissal of the
multiple petitions and direct contempt of court.
Considering the seriousness of the charge of
forum Shopping and the severity of the
sanctions for its violation, the Court will refrain
from making any definitive ruling on this issue
until after petitioner has been given ample
opportunity to respond to the charge.
WHEREFORE, the instant petition is DENIED,
with costs against petitioner.
6.
Case
Title :
PEOPLE
OF
THE
PHILIPPINES, appellee, vs. ALOMA REYES
and TRICHIA MAE REYES (AT LARGE),
accused. ALOMA REYES, appellant.
Regional Trial Court of Davao City, Br. 11.
Syllabi
Class :
Criminal
Law|Appeals|Estafa|Bouncing
Checks
Law|Banks
and
Banking|Words
and
Phrases|Presumption
of
Innocence|Evidence|Remand of Cases
Syllabi:
1. Criminal Law; Estafa; Bouncing Checks
Law; Elements.Under Article 315, paragraph 2(d) of the
Revised Penal Code, estafa is committed by
any person who shall defraud another by false
pretenses or fraudulent acts executed prior to
or simultaneously with the commission of the
fraud. It is committed with the following
Page 29
essential elements which must be proved to

sustain a conviction: 1. postdating or issuance
of a check in payment of an obligation
contracted at the time the check was issued; 2.
lack of sufficiency of funds to cover the check;
and 3.damage to the payee thereof.
Law; Banks and Banking; Words and
Phrases; Negotiable Order of Withdrawal
(NOW) Accounts are defined as interestbearing deposit accounts that combine the
payable on demand feature of checks and the
investment feature of savings accounts; The
fact that a NOW check shall be payable only to
a specific person, and not valid when payable
to BEARER or to CASH or when indorsed
by the payee to another person, is
inconsequential; Negotiability is not the
gravamen of the crime of estafa through
bouncing checksit is the fraud or deceit
employed by the accused in issuing a
worthless check that is penalized.Section X223 of the Manual of Regulations for
Banks defines Negotiable Order of Withdrawal
(NOW) Accounts as interest-bearing deposit
accounts that combine the payable on demand
feature of checks and the investment feature of
savings accounts. The fact that a NOW check
shall be payable only to a specific person, and
not valid when made payable to BEARER or
to CASH or when indorsed by the payee to
another person, is inconsequential. The same
restriction is produced when a check is
crossed: only the payee named in the check
may deposit it in his bank account. If a third
person accepts a cross check and pays cash
for its value despite the warning of the
crossing, he cannot be considered in good
faith and thus not a holder in due course. The
purpose of the crossing is to ensure that the
check will be encashed by the rightful payee
only. Yet, despite the restriction on the
negotiability of cross checks, we held that they
are negotiable instruments. To be sure,
negotiability is not the gravamen of the crime
of estafa through bouncing checks. It is the
fraud or deceit employed by the accused in
issuing a worthless check that is penalized.
Law; Deceit, to constitute estafa, should be the
efficient cause of defraudationa check
issued in payment of a preexisting obligation
does not constitute estafa even if there is no
fund in the bank to cover the amount of the
check.Deceit, to constitute estafa, should be the
efficient cause of defraudation. It must have
been committed either prior or simultaneous
with the defraudation complained of. There
must be concomitance: the issuance of a
check should be the means to obtain money or
property from the payee. Hence, a check
issued in payment of a pre-existing obligation
does not constitute estafa even if there is no
Yza
fund in the bank to cover the amount of the

check.
4. Appeals; The rule that findings of facts of
trial courts are accorded not only respect, but
at times, finality, admits of exceptions, as when
there is a misapprehension of facts.While findings of fact of trial courts are
accorded not only respect, but at times, finality,
this rule admits of exceptions, as when there is
a misappreciation of facts.
5. Criminal
Law; Estafa; Bouncing
Checks; There is no estafa through bouncing
checks when it is shown that private
complainant knew that the drawer did not have
sufficient funds in the bank at the time the
check was issued to him.We held in Pacheco v. Court of Appeals that
there is no estafa through bouncing checks
when it is shown that private complainant knew
that the drawer did not have sufficient funds in
the bank at the time the check was issued to
him. Such knowledge negates the element of
deceit and constitutes a defense in estafa
through bouncing checks.
6. Criminal
Checks; Presumption of Innocence; As a
matter of right, the constitutional presumption
of innocence of the accused must be favored
regardless of the inconsistencies in her
testimony or the weakness of her own
testimony.Despite the inconsistencies in the testimony of
appellant, these were minor and did not
destroy her credibility nor shatter the theory of
the defense. To be sure, the prosecution failed
to prove the guilt of appellant beyond
reasonable doubt. As a matter of right, the
constitutional presumption of innocence of
appellant must be favored regardless of the
inconsistencies in her testimony or the
weakness of her own defense.
7. Criminal
Checks; An accused acquitted of estafa may
be held civilly liable in the same case where
the facts established by the evidence so
warrant.Appellant, however, is not without liability. An
accused acquitted of estafa may be held civilly
liable in the same case where the facts
established by the evidence so warrant. In the
case at bar, the records lack sufficient
evidence to determine the amount of her
remaining obligation.
8. Appeals; Evidence; Remand
of
Cases; Where the evidence is not sufficient to
warrant a conclusion, the case should be
remanded to the court a quo for reception of
further evidence.This Court is not a trier of facts and where the
evidence on record is not sufficient to warrant
a conclusion, the case should be remanded to
the court a quo for reception of further
evidence.
Page 30
IN VIEW WHEREOF, appellant Aloma Reyes
is ACQUITTED of estafa under Article 315,
paragraph 2(d) of the Revised Penal Code, as
amended. The assailed Sentence of the
Regional Trial Court of Davao City, Branch 11,
dated March 13, 2002 is REVERSED and SET
ASIDE. The case is REMANDED to the court a
quo for the determination of appellants civil
liability. The Director of the Bureau of
Corrections is DIRECTED to release her
IMMEDIATELY unless she is being lawfully
held for another offense.
7. Case Title : NOE S. ANDAYA, petitioner,

vs. PEOPLE OF THE PHILIPPINES,
respondent.
Court of Appeals.
Syllabi Class : Criminal Procedure|Criminal
Law|Appeals|Falsification
of
Private
Documents|Falsification
of
Commercial
Documents|Criminal Procedure|Pleadings and
Practice|Disbursement Vouchers|Words and
Phrases|Presumption of Innocence|Right to be
Informed
Syllabi:
1. Criminal Procedure; Appeals; An appeal
in a criminal case opens the whole action for
review on any question including those not
raised by the parties.Time honored is the principle that an appeal
in a criminal case opens the whole action for
review on any question including those not
raised by the parties. After a careful and
thorough review of the records, we are
convinced that petitioner should be acquitted
based on reasonable doubt.
2. Criminal
Procedure; Pleadings
and
Practice; Public prosecutors must carefully
study the evidence on record before filing the
corresponding information in courts of law and
must be vigilant in identifying and rectifying
errors made.It is an opportune time to remind public
prosecutors of their important duty to carefully
study the evidence on record before filing the
corresponding information in our courts of law
and to be vigilant in identifying and rectifying
errors made. Mistakes in filing the proper
information and in the ensuing prosecution of
the case serve only to frustrate the States
interest in enforcing its criminal laws and
adversely affect the administration of justice.
3. Same; Same; Same; Falsification
of
Private Documents; Where the charge in the
information for falsification of private document
was causing damage to a financial entity
because the accused caused it to appear in
the disbursement voucher that a person was
entitled to a finders fee when in truth and in
fact the entity owed no such amount to said
person but the proof adduced during trial
Yza
showed that the acts of the accused were

designed to lower the tax base of another
person and aid the latter in evading payment of
taxes on the finders fee, the accused cannot
be convicted of falsifying the voucher with
criminal intent to cause damage to the
government.As in the Burgos case, the information in the
case at bar is valid, however, there is a
variance between the allegation in the
information and proof adduced during trial with
respect to the third essential element of
falsification of private document, i.e., the
falsification caused damage or was committed
with intent to cause damage to a third party. To
reiterate, petitioner was charged in the
information with causing damage to AFPSLAI
in the amount of P21,000.00 because he
caused it to appear in the disbursement
voucher that Guilas was entitled to a
P21,000.00 finders fee when in truth and in
fact AFPSLAI owed no such amount to Guilas.
However, he was convicted by the trial court of
falsifying the voucher with criminal intent to
cause damage to the government because the
trial court found that petitioners acts were
designed to lower the tax base of Hernandez
and aid the latter in evading payment of taxes
on the finders fee. We find this variance
material and prejudicial to petitioner which,
perforce, is fatal to his conviction in the instant
case. By the clear and unequivocal terms of
the information, the prosecution endeavored to
prove that the falsification of the voucher by
petitioner caused damage to AFPSLAI in the
amount of P21,000.00 and not that the
falsification of the voucher was done with intent
to cause damage to the government. It is
apparent that this variance not merely goes to
the identity of the third party but, more
importantly, to the nature and extent of the
damage done to the third party. Needless to
state, the defense applicable for each is
different.
4. Same; Same; Same; The main purpose of
requiring the various elements of a crime to
be set out in the information is to enable
the accused to suitably prepare his defense
because he is presumed to have no
independent knowledge of the facts that
constitute the offense; To convict an
accused of a ground not alleged while he is
concentrating his defense against the ground
alleged would plainly be unfair and
underhanded.It is fundamental that every element
constituting the offense must be alleged in the
information. The main purpose of requiring the
various elements of a crime to be set out in the
information is to enable the accused to suitably
prepare his defense because he is presumed
to have no independent knowledge of the facts
that constitute the offense. The allegations of
facts constituting the offense charged are
substantial matters and an accuseds right to
Page 31
question his conviction based on facts not

alleged in the information cannot be waived.
No matter how conclusive and convincing the
evidence of guilt may be, an accused cannot
be convicted of any offense unless it is
charged in the information on which he is tried
or is necessarily included therein. To convict
him of a ground not alleged while he is
concentrating his defense against the ground
alleged would plainly be unfair and
underhanded. The rule is that a variance
between the allegation in the information and
proof adduced during trial shall be fatal to the
criminal case if it is material and prejudicial to
the accused so much so that it affects his
substantial rights.
5. Same; Presumption of Innocence; Right
to be Informed; The prosecution has the duty
to prove each and every element of the crime
charged in the information to warrant a finding
of guilt for the said crime or for any other crime
necessarily included therein.In all criminal prosecutions, the burden of
proof is on the prosecution to establish the guilt
of the accused beyond reasonable doubt. It
has the duty to prove each and every element
of the crime charged in the information to
warrant a finding of guilt for the said crime or
for any other crime necessarily included
therein. However, in the case at bar, the
prosecution failed to prove the third essential
element of the crime charged in the
information. Thus, petitioner should be
acquitted due to insufficiency of evidence.
6. Same; Same; Same; Same; Disbursement
Vouchers; Words
and
Phrases; A
disbursement voucher is a private document
onlyit is not a commercial document because it is
not a document used by merchants or
businessmen to promote or facilitate trade or
credit transactions nor it is defined and
regulated by the Code of Commerce or other
commercial law; A private document is a deed
or instrument executed by a private person
without the intervention of a public notary or of
other person legally authorized, by which some
disposition or agreement is proved, evidenced
or set forth.The second element of the
offense charged in the information, i.e., the
falsification was committed in Disbursement
Voucher No. 58380, a private document, is
likewise present. It appears that the public
prosecutor erroneously characterized the
disbursement voucher as a commercial
document so that he designated the offense as
estafa through falsification of commercial
document in the preamble of the information.
However, as correctly ruled by the trial court,
the subject voucher is a private document only;
it is not a commercial document because it is
not a document used by merchants or
credit transactions nor is it defined and
Yza
commercial law. Rather, it is a private

document, which has been defined as a deed
or instrument executed by a private person
or set forth, because it acted as the
authorization for the release of the P21,000.00
finders fee to Guilas and as the receipt
evidencing the payment of this finders fee.
7. Same; Same; Falsification of Commercial
Documents; Criminal Procedure; Pleadings
and Practice;Although the public prosecutor
designated the offense charged in the
information as estafa through falsification of
commercial document, the accused could be
convicted of falsification of private document,
had it been proper, under the well-settled rule
that it is the allegations in the information that
determines the nature of the offense and not
the technical name given by the public
prosecutor in the preamble of the information.Although the public prosecutor designated
the offense charged in the information as
estafa through falsification of commercial
document, petitioner could be convicted of
falsification of private document, had it been
proper, under the well-settled rule that it is the
allegations in the information that determines
the nature of the offense and not the technical
name given by the public prosecutor in the
preamble of the information. We explained this
principle in the case of U.S. v. Lim San in this
wise: From a legal point of view, and in a very
real sense, it is of no concern to the accused
what is the technical name of the crime of
which he stands charged. It in no way aids him
in a defense on the merits. x x x That to which
his attention should be directed, and in which
he, above all things else, should be most
interested, are the facts alleged. The real
question is not did he commit a crime given in
the law some technical and specific name, but
did he perform the acts alleged in the body of
the information in the manner therein set forth.
x x x The real and important question to him is,
Did you perform the acts alleged in the
manner alleged? not, Did you commit a crime
named murder? If he performed the acts
alleged, in the manner stated, the law
determines what the name of the crime is and
fixes the penalty therefor. x x x If the accused
performed the acts alleged in the manner
alleged, then he ought to be punished and
punished adequately, whatever may be the
name of the crime which those acts constitute.
8. Criminal Law; Falsification of Private
Documents; Elements.The elements of falsification of private
document under Article 172, paragraph 2 in
relation to Article 171 of the Revised Penal
Code are: (1) the offender committed any of
the acts of falsification under Article 171 which,
in the case at bar, falls under paragraph 2 of
Article 171, i.e., causing it to appear that
Page 32
persons have participated in any act or

proceeding when they did not in fact so
participate; (2) the falsification was committed
on a private document; and (3) the falsification
caused damage or was committed with intent
to cause damage to a third party.
WHEREFORE, the petition is GRANTED. The
September 29, 2004 Decision and April 26,
2005 Resolution of the Court Appeals in CAG.R. CR No. 26556 are REVERSED and SET
ASIDE. Petitioner is ACQUITTED based on
reasonable doubt. The Bail Bond is
CANCELLED.
8. Case Title : LEONILA BATULANON,

petitioner,
vs.
PEOPLE
OF
THE
PHILIPPINES, respondent.
Court of Appeals.
Syllabi
Class :
Criminal
Law|Falsification|Estafa|Pleadings
and
Practice|Handwriting|Compromise|Words and
Phrases
Syllabi:
1. Criminal
Law; Falsification; Estafa; Pleadings
and
Practice; Although the offense charged in the
information is estafa through falsification of
commercial document, the accused could be
convicted of falsification of private document
under the well-settled rule that it is the
name given in the preamble of the
information.Although the offense charged in the
information is estafa through falsification of
commercial document, appellant could be
convicted of falsification of private document
under the well-settled rule that it is the
name given in the preamble of the information.
In Andaya v. People, 493 SCRA 539 (2006),
we held: From a legal point of view, and in a
very real sense, it is of no concern to the
accused what is the technical name of the
crime of which he stands charged. It in no way
aids him in a defense on the merits. x x x That
to which his attention should be directed, and
in which he, above all things else, should be
most interested, are the facts alleged. The real
question is not did he commit a crime given in
the law some technical and specific name, but
did he perform the acts alleged in the body of
the information in the manner therein set forth.
x x x The real and important question to him is,
Did you perform the acts alleged in the
manner alleged? not, Did you commit a crime
named murder? If he performed the acts
Yza
alleged, in the manner stated, the law

determines what the name of the crime is and
fixes the penalty therefor. x x x If the accused
performed the acts alleged in the manner
alleged, then he ought to be punished and
punished adequately, whatever may be the
name of the crime which those acts constitute.
2. Same; Same; Elements of Estafa Through
Conversion or Misappropriation.The elements of estafa through conversion
or misappropriation under Art. 315 (1) (b) of
the Revised Penal Code are: (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; (4) that there is a demand made by
the offended party on the offender. (Note: The
4th element is not necessary when there is
evidence of misappropriation of the goods by
the defendant)
3. Same; Same; The essence of falsification is
the act of making untruthful or false
statements.In Criminal Case No. 3627, the trial court
convicted petitioner Batulanon for falsifying
Dennis Batulanons signature in the cash
voucher based on the Information charging her
of signing the name of her 3 year old son,
Dennis. The records, however, reveal that in
Cash Voucher No. 374A, petitioner Batulanon
did not falsify the signature of Dennis. What
she did was to sign: by: lbatulanon to indicate
that she received the proceeds of the loan in
behalf of Dennis. Said act does not fall under
any of the modes of falsification under Article
171 because there in nothing untruthful about
the fact that she used the name of Dennis and
that as representative of the latter, obtained
the proceeds of the loan from PCCI. The
essence of falsification is the act of making
untruthful or false statements, which is not
attendant in this case. As to whether, such
representation involves fraud which caused
damage to PCCI is a different matter which will
make her liable for estafa, but not for
falsification. Hence, it was an error for the
courts below to hold that petitioner Batulanon
is also guilty of falsification of private document
with respect to Criminal Case No. 3627
involving the cash voucher of Dennis.
4. Same; Same; Estafa; There
is
no
complex
crime
of
estafa
through
falsification of private document;If the
falsification of a private document is
committed as a means to commit estafa,
the proper crime to be charged is
falsification; If the estafa can be committed
without the necessity of falsifying a document,
the proper crime to be charged is estafa.-
Page 33
As there is no complex crime of estafa

through falsification of private document, it is
important to ascertain whether the offender is
to be charged with falsification of a private
document or with estafa. If the falsification of a
private document is committed as a means to
commit estafa, the proper crime to be charged
is falsification. If the estafa can be committed
without the necessity of falsifying a document,
the proper crime to be charged is estafa. Thus,
in People v. Reyes, 56 Phil. 286 (1931), the
accused made it appear in the time book of the
Calamba Sugar Estate that a laborer, Ciriaco
Sario, worked 21 days during the month of
July, 1929, when in reality he had worked only
11 days, and then charged the offended party,
the Calamba Sugar Estate, the wages of the
laborer
for
21
days.
The
accused
misappropriated the wages during which the
laborer did not work for which he was
convicted of falsification of private document.
5. Same; Same; Words
and
Phrases; Vouchers are private documents
and not commercial documents because
they are not documents used by merchants
or businessmen to promote or facilitate
trade or credit transactions, nor are they
defined and regulated by the Code of
Commerce or other commercial law; Private
documents are deeds or instruments executed
by a private person without the intervention of
a public notary or of other person legally
authorized, by which some disposition or
agreement is proved, evidenced or set forth.The Court of Appeals correctly ruled that the
subject vouchers are private documents and
not commercial documents because they are
not documents used by merchants or
credit transactions nor are they defined and
commercial law. Rather, they are private
documents, which have been defined as deeds
or instruments executed by a private person
or set forth.
6. Same; Same; Compromise; In
criminal
cases, except those involving quasi-offenses
or criminal negligence or those allowed by law
to be compromised, an offer of compromise by
the accused may be received in evidence as
an implied admission of guilt.The claim that Batulanons letter to the
cooperative asking for a compromise was not
an admission of guilt is untenable. Section 27,
Rule 130 of the Rules of Court provides that in
criminal cases, except those involving quasioffenses or criminal negligence or those
allowed by law to be compromised, an offer of
compromise by the accused may be received
in evidence as an implied admission of guilt.
7. Same; Same; Handwriting; The
handwriting of a person may be proved by any
Yza
witness who believes it to be the handwriting of

such person because he has seen the person
write, or has seen writing purporting to be his
upon which the witness has acted or been
charged, and has thus acquired knowledge of
the handwriting of such person.Medallo categorically declared that she saw
Batulanon forge the signatures of Oracion and
Arroyo in the vouchers and made it appear that
the amounts stated therein were actually
received by these persons. As to the signature
of Arroyo, Medallos credible testimony and her
familiarity with the handwriting of Batulanon
proved that it was indeed the latter who signed
the name of Arroyo. Contrary to Batulanons
contention, the prosecution is not duty-bound
to present the persons whose signatures were
forged as Medallos eyewitness account of the
incident was sufficient. Moreover, under
Section 22, Rule 132 of the Rules of Court, the
handwriting of a person may be proved by any
witness who believes it to be the handwriting of
such person because he has seen the person
write, or has seen writing purporting to be his
upon which the witness has acted or been
charged, and has thus acquired knowledge of
the handwriting of such person.
8. Same; Same; Elements of Falsification of
Private Documents.The elements of falsification of private
document under Article 172, paragraph 2 of
the Revised Penal Code are: (1) that the
offender committed any of the acts of
falsification, except those in paragraph 7,
Article 171; (2) that the falsification was
committed in any private document; and (3)
that the falsification caused damage to a third
party or at least the falsification was committed
with intent to cause such damage.
WHEREFORE, the Decision appealed from is
AFFIRMED
with
the
following
MODIFICATIONS:
9. PENTECAPITAL INVESTMENT CORPN
VS MAKILITO MAHINAY
ISSUE: GIVE ANOTHER DEFINITION OF
PROMISSORY NOTE OTHER THAN SEC 1
AND SEC 184 NIL.
In Sierra v. Court of Appeals, we held
that:
Page 34
A promissory note is a
solemn acknowledgment of a
debt and a formal commitment
to repay it on the date and
under the conditions agreed
upon by the borrower and the
lender. A person who signs
such an instrument is bound to
honor it as a legitimate
obligation duly assumed by him
through the signature he affixes

thereto as a token of his good
faith. If he reneges on his
promise without cause, he
forfeits the sympathy and
assistance of this Court and
deserves instead its sharp
repudiation.
10. FIDELIZA
SANTIA
AGLIBOT
VS
INGERSOL
ISSUE: What is a check under sec 185?

What is a BOE under Sec 126?
Section 185 of the Negotiable
Instruments Law defines a check as a bill of
exchange drawn on a bank payable on
demand, while Section 126 of the said law
defines a bill of exchange as an unconditional
order in writinga ddressed by one person to
another, signed by the person giving it,
requiring the person to whom it is addressed to
pay on demand or at a fixed or determinable
future time a sum certain in money to order or
to bearer.
The appellate court ruled that by
issuing her own post-dated checks, Aglibot
thereby bound herself personally and solidarily
to pay Santia, and dismissed her claim that
she issued her said checks in her official
capacity as PLCCs manager merely to
guarantee the investment of Santia. It noted
that she could have issued PLCCs checks, but
instead she chose to issue her own checks,
drawn against her personal account with
Metrobank. It concluded that Aglibot intended
to personally assume the repayment of the
loan, pointing out that in her Counter-Affidavit,
she even admitted that she was personally
indebted to Santia, and only raised payment as
her defense, a clear admission of her liability
for the said loan. The appellate court refused
to give credence to Aglibot intended to
personally assume the repayment of the loan,
pointing out that in her Counter-Affidavit, she
even admitted that she was personally
indebted to Santia, and only raised payment as
her defense, a clear admission of her liability
for the said loan. The appellate court refused
to give credence to Aglibots claim that she had
an understanding with Santia that the checks
would not be presented to the bank for
payment, but were to be returned to her once
she had made cash payments for their face
values on maturity. It noted that Aglibot failed
to present any proof that she had indeed paid
cash on the above checks as she claimed.
This is precisely why Santia decided to deposit
the checks in order to obtain payment of his
loan. The facts below present a clear situation
where Aglibot, as the manager of PLCC,
agreed to accommodate its loan to Santia by
issuing her own post-dated checks in payment
thereof. She is what the Negotiable
Yza
Instruments Law calls an accommodation

party.23 Concerning the liability of an
accommodation party, Section 29 of the said
law provides: Sec. 29. Liability of an
accommodation party. An accommodation
party is one who has signed the instrument as
maker, drawer, acceptor, or indorser, without
receiving value therefor, and for the purpose of
lending his name to some other person. Such
a person is liable on the instrument to a holder
for value notwithstanding such holder at the
time of taking the instrument knew him to be
only an accommodation party. As elaborated in
The Phil. Bank of Commerce v. Aruego: 24 An
accommodation party is one who has signed
the instrument as maker, drawer, indorser,
without receiving value therefor and for the
purpose of lending his name to some other
person. Such person is liable on the instrument
to a holder for value, notwithstanding such
holder, at the time of the taking of the
instrument knew him to be only an
accommodation party. In lending his name to
the accommodated party, the accommodation
party is in effect a surety for the latter. He
lends his name to enable the accommodated
party to obtain credit or to raise money. He
receives no part of the consideration for the
instrument but assumes liability to the other
parties thereto because he wants to
accommodate another. x x x.25 (Citation
omitted)
The
relation
between
an
accommodation
party
and
the
party
accommodated is, in effect, one of principal
and surety the accommodation party being
the surety. It is a settled rule that a surety is
bound equally and absolutely with the principal
and is deemed an original promisor and debtor
from the beginning. The liability is immediate
and direct.26 It is not a valid defense that the
accommodation party did not receive any
valuable consideration when he executed the
instrument; nor is it correct to say that the
holder for value is not a holder in due course
merely because at the time he acquired the
instrument, he knew that the indorser was only
an accommodation party.27 Moreover, it was
held in Aruego that unlike in a contract of
suretyship, the liability of the accommodation
party remains not only primary but also
unconditional to a holder for value, such that
even if the accommodated party receives an
extension of the period for payment without the
consent of the accommodation party, the latter
is still liable for the whole obligation and such
extension does not release him because as far
as a holder for value is concerned, he is a
solidary co-debtor. The mere fact, then, that
Aglibot issued her own checks to Santia made
her personally liable to the latter on her checks
without the need for Santia to first go after
PLCC for the payment of its loan. 28 It would
have been otherwise had it been shown that
Aglibot was a mere guarantor, except that
since checks were issued ostensibly in
Page 35
payment for the loan, the provisions of the

Negotiable Instruments Law must take primacy
in application.
11. PHILACOR CREDIT CORPORATION VS
CIR
ISSUE: What is the meaning of acceptance
under Sec 132? Does acceptance refer
solely to a BOE? What is the object of
acceptance?
The persons primarily liable for the payment of
the DST are the person (1) making; (2) signing;
(3) issuing; (4) accepting; or (5) transferring the
taxable documents, instruments or papers.
Should these parties be exempted from paying
tax, the other party who is not exempt would
then be liable.
Philacor did not make, sign, issue,
accept or transfer the promissory notes. The
acts of making, signing, issuing and
transferring are unambiguous. The buyers of
the appliances made, signed and issued the
documents subject to tax, while the appliance
dealer transferred these documents to Philacor
which likewise indisputably received or
accepted them. Acceptance, however, is an
act that is not even applicable to promissory
notes, but only to bills of exchange. Under
Section 132 of the Negotiable Instruments Law
(which provides for how acceptance should be
made), the act of acceptance refers solely to
bills of exchange. Its object is to bind the
drawee of a bill and make him an actual and
bound party to the instrument. Further, in a
ruling adopted by the BIR as early as 1955,
acceptance has already been given a narrow
definition with respect to incoming foreign bills
of exchange, not the common usage of the
word accepting as in receiving:
The word accepting appearing in
Section 210 of the National Internal Revenue
Code has reference to incoming foreign bills of
exchange which are accepted in the
Philippines
by
the
drawees
thereof.
Accordingly, the documentary stamp tax on
freight receipts is due at the time the receipts
are issued and from the transportation
company issuing the same. The fact that the
transportation contractor issuing the freight
receipts shifts the burden of the tax to the
shipper does not make the latter primarily
liable to the payment of the tax.25 (underscore
ours)
This ruling, to our mind, further clarifies
that a party to a taxable transaction who
accepts any documents or instruments in the
plain and ordinary meaning of the act (such as
the shipper in the cited case) does not become
primarily liable for the tax. In the same way,
Philacor cannot be made primarily liable for the
DST on the issuance of the subject promissory
Yza
notes, just because it had accepted the

promissory notes in the plain and ordinary
meaning. In this regard, Section 173 of the
1997 NIRC assumes materiality as it
determines liability should the parties who are
primarily liable turn out to be exempted from
paying tax; the other party to the transaction
then becomes liable. Revenue Regulations No.
9-200026 interprets the law more widely so
that all parties to a transaction are primarily
liable for the DST, and not only the person
making, signing, issuing, accepting or
transferring the same becomes liable as the
law provides.
12. Rodrigo Rivera vs Spouse Salvador
Chua and Violeta Chua; Spouse Salvador
Chua and Violeta Chua vs Rodrigo Rivera
ISSUE: What are the elements that must
concur for an instrument to be negotiable?
Wat is a promissory note under Sec 184
NIL?
We agree that the subject promissory note is
not a negotiable instrument and the provisions
of the NIL do not apply to this case. Section 1
of the NIL requires the concurrence of the
following elements to be a negotiable
instrument:
(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.
On the other hand, Section 184 of the NIL
defines what negotiable promissory note is:
SECTION 184. Promissory Note, Defined. A
negotiable promissory note within the meaning
of this Act is an unconditional promise in
writing made by one person to another, signed
by the maker, engaging to pay on demand, or
at a fixed or determinable future time, a sum
certain in money to order or to bearer. Where a
note is drawn to the makers own order, it is
not complete until indorsed by him.
The Promissory Note in this case is made out
to specific persons, herein respondents, the
Spouses Chua, and not to order or to bearer,
or to the order of the Spouses Chua as
payees.
However, even if Riveras Promissory Note is
not a negotiable instrument and therefore
outside the coverage of Section 70 of the NIL
which provides that presentment for payment
Page 36
Yza
is not necessary to charge the person liable on

the instrument, Rivera is still liable under the
terms of the Promissory Note that he issued.
SECTION 1
(NIL AND TAX)
The Promissory Note is unequivocal about the

date when the obligation falls due and
becomes demandable31 December 1995.
As of 1 January 1996, Rivera had already
incurred in delay when he failed to pay the
amount of P120,000.00 due to the Spouses
Chua on 31 December 1995 under the
Promissory Note.
1. Case Title : BIBIANO V. BAAS, JR.,

AQUILINO T. LARIN, RODOLFO TUAZON
AND PROCOPIO TALON, respondents.
Syllabi
Class :
Appeals|Negotiable
Instruments
Law|Taxation|Actions|Evidence|Promissory
Notes|Words
and
Phrases|Tax
Amnesty|Statutory
Construction|Sales|Installment
Method|Although the proceed of a discounted
promissory note is not considered part of the
initial payment|it is still taxable income for the
year
it
was
converted
into
cash|Libel|Damages|Public Officers|Taxation
Syllabi:
1. Appeals; Evidence; Findings of fact by the
Court of Appeals especially if they affirm
factual findings of the trial court will not be
disturbed by the Supreme Court, unless these
findings are not supported by evidence.As repeatedly held, findings of fact by the
Court of Appeals especially if they affirm
factual findings of the trial court will not be
disturbed by this Court, unless these findings
are not supported by evidence. Similarly,
neither should we disturb a finding of the trial
court and appellate court that an allegation is
not supported by evidence on record. Thus, we
agree with the conclusion of respondent court
that herein private respondents, on the basis of
evidence, could not be held liable for extortion.
2. Negotiable Instruments Law; Promissory
Notes; Words and Phrases; Ordinarily, when
a bill is discounted, the lender (e.g. banks,
financial institution) charges or deducts a
certain percentage from the principal value as
its compensation.It will be recalled that petitioner entered into a
deed of sale purportedly on installment. On the
same day, he discounted the promissory note
covering the future installments. The
discounting seems questionable because
ordinarily, when a bill is discounted, the lender
(e.g. banks, financial institution) charges or
deducts a certain percentage from the principal
value as its compensation. Here, the
discounting was done by the buyer.
3. Taxation; Tax Amnesty; The mere filing of
tax amnesty return under Presidential Decrees
1740 and 1840 does not ipso facto shield the
taxpayer from immunity against prosecution
to avail of a tax amnesty granted by the
government, and to be immune from suit on its
delinquencies, the taxpayer must have
voluntarily disclosed his previously untaxed
income and must have paid the corresponding
tax on such previously untaxed income.-
12. Estanislao and Afria Sinamban vs China

Banking Corporation
ISSUE: What is a promissory note?
"A
promissory
note
is
a
solemn
acknowledgment of a debt and a formal
commitment to repay it on the date and under
the conditions agreed upon by the borrower
and the lender. A person who signs such an
instrument is bound to honor it as a legitimate
obligation duly assumed by him through the
signature he affixes thereto as a token of his
good faith. If he reneges on his promise
without cause, he forfeits the sympathy and
assistance of this Court and deserves instead
its sharp repudiation."
Page 37
On July 2, 1981, two weeks after the filing of

the tax evasion complaint against him by
respondent Larin on June 17, 1981, petitioner
availed of the tax amnesty under P.D. No.
1740. His amended tax return for the years
1974-1979 was filed with the BIR office of
Valenzuela, Bulacan, instead of Manila where
the petitioners principal office was located. He
again availed of the tax amnesty under P.D.
No. 1840. His disclosure, however, did not
include the income from his sale of land to
AYALA on cash basis. Instead he insisted that
such sale was on installment. He did not
amend his income tax return. He did not pay
the tax which was considerably increased by
the income derived from the discounting. He
did not meet the twin requirements of P.D.
1740 and 1840, declaration of his untaxed
income and full payment of tax due thereon.
Clearly, the petitioner is not entitled to the
benefits of P.D. Nos. 1740 and 1840. The
mere filing of tax amnesty return under P.D.
1740 and 1840 does not ipso facto shield him
from immunity against prosecution. Tax
amnesty is a general pardon to taxpayers who
want to start a clean tax slate. It also gives the
government a chance to collect uncollected tax
from tax evaders without having to go through
the tedious process of a tax case. To avail of a
tax amnesty granted by the government, and
to be immune from suit on its delinquencies,
the taxpayer must have voluntarily disclosed
his previously untaxed income and must have
paid the corresponding tax on such previously
untaxed income.
4. Taxation; Tax
Amnesty; Statutory
Construction; A tax amnesty, much like a tax
exemption, is never favored nor presumed in
law and if granted by statute, the terms of the
amnesty like that of a tax exemption must be
construed strictly against the taxpayer and
liberally in favor of the taxing authority.It also bears noting that a tax amnesty much
like a tax exemption, is never favored nor
presumed in law and if granted by statute, the
terms of the amnesty like that of a tax
exemption must be construed strictly against
the taxpayer and liberally in favor of the taxing
authority. Hence, on this matter, it is our view
that petitioners claim of immunity from
prosecution under the shield of availing tax
amnesty is untenable.
5. Taxation; Sales; Installment
Method; Words and Phrases; Initial payment
under Section 43 of the 1977 National Internal
Revenue Code and Section 175 of Revenue
Regulation No. 2 means the payment received
in cash or property excluding evidences of
indebtedness due and payable in subsequent
years, like promissory notes or mortgages,
given of the purchaser during the taxable year
of saleit does not include amounts received
by the vendor in the year of sale from the
disposition to a third person of notes given by
Yza
the vendee as part of the purchase price which

are due and payable in subsequent years.Section 43 and Sec. 175 says that among the
entities who may use the above-mentioned
installment method is a seller of real property
who disposes his property on installment,
provided that the initial payment does not
exceed 25% of the selling price. They also
state what may be regarded as installment
payment and what constitutes initial payment.
Initial payment means the payment received in
cash or property excluding evidences of
indebtedness due and payable in subsequent
years, like promissory notes or mortgages,
given of the purchaser during the taxable year
of sale. Initial payment does not include
amounts received by the vendor in the year of
sale from the disposition to a third person of
notes given by the vendee as part of the
purchase price which are due and payable in
subsequent years. Such disposition or
discounting of receivable is material only as to
the computation of the initial payment. If the
initial payment is within 25% of total contract
price, exclusive of the proceeds of discounted
notes, the sale qualifies as an installment sale,
otherwise it is a deferred sale.
Method; Although the proceed of a
discounted promissory note is not
considered part of the initial payment, it is
still taxable income for the year it was
converted into cash;If the seller disposes the
entire installment obligation by discounting the
bill or the promissory note, he necessarily must
report the balance of the income from the
discounting not only income from the initial
install-ment paymentAlthough the proceed of a discounted
promissory note is not considered part of the
initial payment, it is still taxable income for the
year it was converted into cash. The
subsequent payments or liquidation of
certificates of indebtedness is reported using
the installment method in computing the
proportionate income to be returned, during the
respective year it was realized. Non-dealer
sales of real or personal property may be
reported as income under the installment
method provided that the obligation is still
outstanding at the close of that year. If the
seller disposes the entire installment obligation
by discounting the bill or the promissory note,
he necessarily must report the balance of the
income from the discounting not only income
from the initial installment payment.
Method; Where the seller has the promissory
notes covering the succeeding installment
payments of the land issued by the buyer,
discounted by said buyer itself, on the same
day of the sale, he loses entitlement to report
the sale as a sale on installment since a
taxable disposition results and the seller is
Page 38
required by law to report in his returns the

income derived from the discounting.Where an installment obligation is discounted
at a bank or finance company, a taxable
disposition results, even if the seller
guarantees its payment, continues to collect on
the installment obligation, or handles
repossession of merchandise in case of
default. This rule prevails in the United States.
Since our income tax laws are of American
origin, interpretations by American courts on
our parallel tax laws have persuasive effect on
the interpretation of these laws. Thus, by
analogy, all the more would a taxable
disposition result when the discounting of the
promissory note is done by the seller himself.
Clearly, the indebtedness of the buyer is
discharged, while the seller acquires money for
the settlement of his receivables. Logically
then, the income should be reported at the
time of the actual gain. For income tax
purposes, income is an actual gain or an actual
increase of wealth. Although the proceeds of a
discounted promissory note is not considered
initial payment, still it must be included as
taxable income on the year it was converted to
cash. When petitioner had the promissory
notes covering the succeeding installment
payments of the land issued by AYALA,
discounted by AYALA itself, on the same day
of the sale, he lost entitlement to report the
sale as a sale on installment since, a taxable
disposition resulted and petitioner was required
by law to report in his returns the income
derived from the discounting. What petitioner
did is tantamount to an attempt to circumvent
the rule on payment of income taxes gained
from the sale of the land to AYALA for the year
1976.
8. Actions; Libel; Damages; Actual damages
cannot be allowed unless supported by
evidence on the recordthe court cannot rely
on speculation, conjectures or guesswork as to
the fact and amount of damages.The records of the case contain no statement
whatsoever of the amount of the actual
damages sustained by the respondents. Actual
damages cannot be allowed unless supported
by evidence on the record. The court cannot
rely on speculation, conjectures or guesswork
as to the fact and amount of damages. To
justify a grant of actual or compensatory
damages, it is necessary to prove with a
reasonable degree of certainty, the actual
amount of loss. Since we have no basis with
which to assess, with certainty, the actual or
compensatory damages counter-claimed by
respondent Larin, the award of such damages
should be deleted.
9. Actions; Libel; Damages; Public
Officers; As a rule, a public official may not
recover damages for charges of falsehood
related to his official conduct unless he proves
that the statement was made with actual
malice.-
Yza
Moral damages may be recovered in cases

involving acts referred to in Article 21 of the
Civil Code. As a rule, a public official may not
recover damages for charges of falsehood
related to his official conduct unless he proves
that the statement was made with actual
malice. In Babst, et al. vs. National Intelligence
Board, et al., 132 SCRA 316, 330 (1984), we
reiterated the test for actual malice as set forth
in the landmark American case of New York
Times vs. Sullivan, which we have long
adopted, in defamation and libel cases, viz.: . .
. with knowledge that it was false or with
reckless disregard of whether it was false or
not.
Officers; Taxation; There is sufficient basis
for the award of moral and exemplary
damages in favor of a Bureau of Internal
Revenue official where he suffered anxiety and
humiliation because of a baseless prosecution
by a taxpayer.We appreciate petitioners claim that he filed
his 1976 return in good faith and that he had
honestly believed that the law allowed him to
declare the sale of the land, in installment. We
can further grant that the pertinent tax laws
needed construction, as we have earlier done.
That petitioner was offended by the headlines
alluding to him as tax evader is also fully
understandable. All these, however, do not
justify what amounted to a baseless
prosecution of respondent Larin. Petitioner
presented no evidence to prove Larin extorted
money from him. He even admitted that he
never met nor talked to respondent Larin.
When the tax investigation against the
petitioner started, Larin was not yet the
Regional Director of BIR Region IV-A, Manila.
On respondent Larins instruction, petitioners
tax assessment was considered one involving
a sale of capital asset, the income from which
was subjected to only fifty percent (50%)
assessment, thus reducing the original tax
assessment by half. These circumstances may
be taken to show that Larins involvement in
extortion was not indubitable. Yet, petitioner
went on to file the extortion cases against Larin
in different fora. This is where actual malice
could attach on petitioners part. Significantly,
the trial court did not err in dismissing
petitioners complaints, a ruling affirmed by the
Court of Appeals. Keeping all these in mind,
we are constrained to agree that there is
sufficient basis for the award of moral and
exemplary damages in favor of respondent
Larin. The appellate court believed respondent
Larin when he said he suffered anxiety and
humiliation because of the unfounded charges
against him. Petitioners actions against Larin
were found unwarranted and baseless, and
the criminal charges filed against him in the
Tanodbayan and City Fiscals Office were all
dismissed. Hence, there is adequate support
Page 39
for respondent courts conclusion that moral

damages have been proved.
Officers; Considering that in the instant case
the award is in favor of a government official in
connection with his official function, it is with
caution that the Supreme Court affirms
granting moral damages, for it might open the
floodgates for government officials counterclaiming damages in suits filed against them in
connection with their functions.It will be noted that in above cases, the parties
who were awarded moral damages were not
public officials. Considering that here, the
award is in favor of a government official in
connection with his official function, it is with
caution that we affirm granting moral damages,
for it might open the floodgates for government
officials counter-claiming damages in suits filed
against them in connection with their functions.
Moreover, we must be careful lest the amounts
awarded make citizens hesitate to expose
corruption in the government, for fear of
lawsuits from vindictive government officials.
Thus, conformably with our declaration that
moral damages are not intended to enrich
anyone, we hereby reduce the moral damages
award in this case from two hundred thousand
(P200,000.00) pesos to seventy five thousand
(P75,000.00) pesos, while the exemplary
damage is set at P25,000.00 only.
12. Actions; Libel; Damages; The law allows
the award of attorneys fees when exemplary
damages are awarded, and when the party to
a suit was compelled to incur expenses to
protect his interest.The law allows the award of attorneys fees
when exemplary damages are awarded, and
when the party to a suit was compelled to incur
expenses to protect his interest. Though
government officers are usually represented by
the Solicitor General in cases connected with
the performance of official functions,
considering the nature of the charges, herein
respondent Larin was compelled to hire a
private lawyer for the conduct of his defense as
well as the successful pursuit of his
counterclaims. In our view, given the
circumstances of this case, there is ample
ground to award in his favor P50,000.00 as
reasonable attorneys fees.
WHEREFORE, the assailed decision of the
Court of Appeals dated November 29, 1991, is
hereby AFFIRMED with MODIFICATION so
that the award of actual damages are deleted;
and that petitioner is hereby ORDERED to pay
to respondent Larin moral damages in the
amount of P75,000.00, exemplary damages in
the amount of P25,000.00, and attorneys fees
in the amount of P50,000.00 only.
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2. BPI FAMILY BANK versus COURT OF

APPEALS, COURT OF TAX APPEALS AND
COMMISSIONER OF INTERNAL REVENUE
ISSUE: Are T-Bills and CB-Billa promissory
notes or deposit substitutes such that it is
exempt from DST? What is the difference
between deposit substitutes and certificate
of indebtedness? What is the difference
between certificate of indebtedness and
promissory notes?
The tax court and the appellate court,
however, held that T-bills and Central Bank
bills, under its governing laws, Republic Act
No. 245, as amended by Presidential Decree
No.
142,[9] and
R.A.
No.
265,[10] are
denominated as evidence of indebtedness,
hence, are deemed the same as certificates of
obligations
or
certificates
of
indebtedness. They added that the issuance
of said government securities falls within the
purview of Sections 222 (now Section 173) and
223 (now Section 174), while its sale, transfer
or conveyance is under Section 225 (now
Section 176) of the NIRC.
We agree with the ruling of both the tax
and appellate courts.
It bears stressing that the main issue
raised before us is: Are confirmations of sale of
the subject government securities, between
herein
petitioner
and
private
individuals/entities, subject to documentary
stamp tax?
A perusal of Section 225[11] shows that on
all sales, or agreements to sell, or memoranda
of sales, or deliveries, or transfer of certificates
of obligation, in any association, company, or
corporation; or transfer of such securities by
delivery, or by any paper, or agreement, or
memorandum or other evidences of transfer or
sale whether entitling the holder in any manner
to the benefit of such certificates of obligation,
there shall be collected a documentary stamp
tax. In this case, we have to inquire whether
the T-bills and Central Bank bills are covered
by the said provision.
Under Section 1[12] of Republic Act No.
245, as amended by P.D. No. 142, Treasury
bills are evidence of indebtedness, issued by
the National Government on a discount basis
and offered for sale either at auction on
competitive or non-competitive basis, payable
at any date not later than one year from the
date of issue. Central Bank bills are also
evidence of indebtedness issued by the
Central Bank conformably with Section 98 [13] of
R.A. No. 265, which authorizes the Central
Bank to issue and negotiate Central Bank
obligations, and to place, buy, and sell freely
its negotiable evidence of indebtedness.
Contrary to petitioner's argument, a
certificate of indebtedness is different from
Page 40
ordinary debt instruments such as promissory

notes and deposit substitutes. A certificate of
indebtedness includes only instruments having
the general character of investment securities
as distinguished from instruments evidencing
debts arising in ordinary transactions between
individuals.[14] As
distinguished
from
a
promissory note which is an unconditional
promise in writing made by one person to
another, signed by the maker, engaging to pay
on demand, or at a fixed or determinable future
time, a sum certain in money, to order or
bearer,[15] T-bills and Central Bank bills are
investment securities of a public character,
issued by the Philippine Government, thru the
Central Bank of the Philippines.
On the other hand, the chief feature of a
deposit substitute is borrowing.[16] In this case,
petitioner sells government securities to private
individuals/entities, in which its confirmations of
sale are being subjected to documentary
stamp tax. There is no borrowing or debt
instrument involved in this case. Here, the
petitioner, as the seller, simply conveys
through sale, specific government securities to
the buyer, who thereby acquires title thereto,
including the plenary right of disposal. As
there is no borrowing, there is no debt with
respect to which the seller can be primarily
bound. Nor is the seller subsidiarily bound to
respond in case the issuer of the said
securities defaults, hypothetically assuming
that the Philippine Government, as issuer of
the securities sold, could default. Precisely,
the sale of said government securities is
always "without recourse."
Both the respondent courts correctly held
that whether T-bills and Central Bank bills are
denominated as certificates of obligations,
certificates of indebtedness or evidence of
indebtedness,
they
bear
the
same
meaning. Section 225 is clear. On all sales, or
agreements to sell, or memoranda of sales, or
deliveries, or transfer of certificates of
obligation in any association, company, or
corporation; or transfer of such securities by
delivery, or by any paper, or agreement, or
memorandum or other evidences of transfer or
sale whether entitling the holder in any manner
to the benefit of such certificates of obligation,
there shall be collected a documentary stamp
tax. The nomenclatures, i.e., evidence of
indebtedness, certificate of obligation and
certificate of indebtedness, bear the same
meaning
and
although
their
various
appellations are used interchangeably by law,
they all refer to the subject securities, i.e., Tbills and Central Bank bills.
Rules and regulations issued by the
administrative officials to implement a law
cannot go beyond the terms and provisions of
the latter.[17] While the interpretation placed
upon a law by the executive officers is entitled
to great respect by the courts, nevertheless, it
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is not conclusive and will be ignored if judicially

found to be erroneous. Administrative rulings
have been aptly described as follows: "They
are the best guess of the moment and
incidentally often contain such well considered
and sound law; but the courts have held that
they do not prevent an entire change of front at
any time and are merely advisory - sort of an
information
service
to
the
taxpayer." Moreover, administrative rulings of
previous Commissioners are not conclusive
and binding upon their successors [18] if the
latter become convinced that a law warrants a
different construction. Therefore, courts will
not countenance administrative rulings that are
not consistent and in harmony with the law
they seek to apply and implement. Therefore,
the confirmations of sale of government
securities made by the petitioner to private
individuals/entities are subject to documentary
stamp tax pursuant to Section 225 of the
NIRC.
We see no need to rule on the procedural
issues, since the Court of Appeals, despite
pronouncement of the alleged procedural
defects, nevertheless, ruled on the merits of
the case.
ISLANDS, petitioner, vs. COMMISSIONER
OF INTERNAL REVENUE, respondent.
Syllabi Class : Documentary Stamp Tax|Bills
of Exchange|Letters of Credit|Taxation|Excise
Tax|Negotiable Instruments Law (Act No.
2031|Word and Phrases|Documentary Stamp
Tax|Draft and Bank Draft| Explained|Words
and Phrases;|Interests
Syllabi:
1. Documentary Stamp Tax; Section 195
(now Section 182) of the National Internal
Revenue
Code
(NIRC)
imposes
a
documentary stamp tax on (1) foreign bills of
exchange, (2) letters of credit, and (3) orders,
by telegraph or otherwise, for the payment of
money issued by express or steamship
companies or by any person or persons.The first issue raised by the petitioner is
whether BPI is liable for documentary stamp
taxes in connection with its sale of foreign
exchange to the Central Bank in 1986 under
Section 195 (now Section 182) of the NIRC,
quoted hereunder: Sec. 182. Stamp tax on
foreign bills of exchange and letters of credit.
On all foreign bills of exchange and letters of
credit (including orders, by telegraph or
otherwise, for the payment of money issued by
express or steamship companies or by any
person or persons) drawn in but payable out of
the Philippines in a set of three or more
according to the custom of merchants and
bankers, there shall be collected a
documentary stamp tax of thirty centavos on
Page 41
each two hundred pesos, or fractional part

thereof, of the face value of such bill of
exchange or letter of credit, or the Philippine
equivalent of such face value, if expressed in
foreign country. To determine what is being
taxed under this section, a discussion on the
nature of the acts covered by Section 195 (now
Section 182) of the NIRC is indispensable.
This section imposes a documentary stamp tax
on (1) foreign bills of exchange, (2) letters of
credit, and (3) orders, by telegraph or
otherwise, for the payment of money issued by
express or steamship companies or by any
person or persons. This enumeration is further
limited by the qualification that they should be
drawn in the Philippines and payable outside of
the Philippines.
2. Same; Collecting charges incident to tax
delinquency is mandatory.Based on established doctrine, these
charges
incident
to
delinquency
are
compensatory in nature and are imposed for
the taxpayers use of the funds at the time
when the State should have control of said
funds. Collecting such charges is mandatory.
Therefore, the Decision of the Court of Appeals
imposing a 20% delinquency interest over the
assessment reduced by the CTA was justified
and in accordance with Section 249(c)(3) of
the NIRC.
3. Taxation; Interests; Even
if
an
assessment is later reduced by the courts,
a delinquency interest should still be
imposed from the time demand was made
by
the
Commissioner
of
Internal
Revenue;The intention of the law is precisely
to discourage delay in the payment of taxes
due to the State and, in this sense, the
surcharge and interest charged are not penal
but compensatory in naturethey are compensation to the State for the
delay in payment, or for the concomitant use of
the funds by the taxpayer beyond the date he
is supposed to have paid them to the State.
In the case of Philippine Refining Company v.
Court of Appeals, 256 SCRA 667 (1996), this
Court categorically ruled that even if an
assessment was later reduced by the courts, a
delinquency interest should still be imposed
from the time demand was made by the CIR.
As correctly pointed out by the Solicitor
General, the deficiency tax assessment in this
case, which was the subject of the demand
letter of respondent Commissioner dated April
11, 1989, should have been paid within thirty
(30) days from receipt thereof. By reason of
petitioners default thereon, the delinquency
penalties of 25% surcharge and interest of
20% accrued from April 11, 1989. The fact that
petitioner appealed
4. Excise Tax; The power to levy an excise
upon the performance of an act or the
engaging in an occupation does not depend
upon the domicile of the person subject to
the excise, nor upon the physical location
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of the property and in connection with the

act or occupation taxed, but depends upon
the place in which the act is performed or
occupation engaged in; Section 195 (now
Section 182) of the NIRC would be rendered
invalid if the fact that the payment was made
outside of the country can be used as a basis
for nonpayment of the tax.BPI argues that the foreign exchange sold
was deposited and
5. Bills of Exchange; Draft and Bank
Draft, Explained; Words and Phrases; In
the case of a bill of exchange, the funds
may belong to the drawer and need not be
advanced by the drawee, as in the case of a
check or a draft; A draft is a form of a bill of
exchange used mainly in transactions between
persons physically remote from each other, an
order made by one person, say the buyer of
goods, addressed to a person having in his
possession funds of such buyer ordering the
addressee to pay the purchase price to the
seller of the goods, and where the order is
made by one bank to another, it is referred to
as a bank draft.The fact that the funds belong to BPI and
were not advanced by the correspondent bank
will not remove the transaction from the
coverage of Section 195 (now Section 182) of
the NIRC. There are transactions covered by
this section wherein funds belonging to the
drawer are used for payment. A bill of
exchange, when drawn in the Philippines but
payable in another country, would surely be
covered by this section. And in the case of a
bill of exchange, the funds may belong to the
drawer and need not be advanced by the
drawee, as in the case of a check or a draft. In
the description of a draft provided hereunder,
the drawee is in possession of funds belonging
to the drawer of the bill: A draft is a form of a
bill of exchange used mainly in transactions
between persons physically remote from each
other. It is an order made by one person, say
the buyer of goods, addressed to a person
having in his possession funds of such buyer
ordering the addressee to pay the purchase
price to the seller of the goods. Where the
order is made by one bank to another, it is
referred to as a bank draft.
6. Same; Same; Credit and Deposit,
Defined; Words
and
Phrases; By
the
definition of credit being equated with the
term deposits, BPIs deposit account with its
correspondent bank is much the same as the
credit referred to in Section 51 of Regulations
No. 26the fact that the funds transferred to the
Central Banks account with the Federal
Reserve Bank are from BPIs deposit account
with the correspondent bank can only
underline that the present case is the same
situation described under Section 51 of
Regulations No. 26.BPI further alleges that
since the funds transferred to the Federal
Page 42
Reserve Bank were taken from BPIs account

with the correspondent bank, this is not the
transaction contemplated under Section 51 of
Regulations No. 26. BPI argues that Section
51 of Regulations No. 26, in using the phrase
with which local bank has credit, involves
transactions wherein the drawee bank pays
with its own funds and excludes from the
coverage of the law situations wherein the
funds paid out by the correspondent bank are
owned by the drawer. In the case of Republic
of the Philippines v. Philippine National Bank, 3
SCRA 851 (1961), the Court equated credit
with the term deposits, and identified the
depositor as the creditor and the bank as the
debtor. And as correctly stated by the trial
court, the term credit in its usual meaning is a
sum credited on the books of a company to a
person who appears to be entitled to it. It
presupposes a creditordebtor relationship, and
may be said to imply ability, by reason of
property or estates, to make a promised
payment. It is the correlative to debt or
indebtedness, and that which is due to any
person, as distinguished from that which he
owes. The same is true with the term
deposits in banks where the relationship
created between the depositor and the bank is
that of creditor and debtor. By this definition of
credit, BPIs deposit account with its
correspondent bank is much the same as the
credit referred to in Section 51 of Regulations
No. 26. Thus, the fact that the funds
transferred to the Central Banks account with
the Federal Reserve Bank are from BPIs
deposit account with the correspondent bank
can only underline that the present case is the
same situation described under Section 51 of
Regulations No. 26.
7. Same; What is being taxed is the facility that
allows a party to draw the draft or make the
order to pay within the Philippines and have
the payment made in another country.BPI alleges that the assailed decision must
be reversed since the sale between BPI and
the Central Bank of foreign exchange, as
distinguished from foreign bills of exchange, is
not subject to the documentary stamp taxes
prescribed in Section 195 (now Section 182) of
the NIRC. This argument leaves much to be
desired. In this case, it is not the sale of foreign
exchange per se that is being taxed under
Section 195 of the NIRC. This section refers to
a documentary stamp tax, which is an excise
upon the facilities used in the transaction of the
business separate and apart from the business
itself. It is not a tax upon the business itself
which is so transacted, but it is a duty upon the
facilities made use of and actually employed in
the transaction of the business, and separate
and apart from the business itself. Section 195
(now Section 182) of the NIRC covers foreign
bills of exchange, letters of credit, and orders
of payment for money, drawn in Philippines,
but payable outside the Philippines. From this
Yza
enumeration, two common elements need to

be present: (1) drawing the instrument or
ordering a drawee, within the Philippines; and
(2) ordering that drawee to pay another person
a specified amount of money outside the
Philippines. What is being taxed is the facility
that allows a party to draw the draft or make
the order to pay within the Philippines and
have the payment made in another country.
8. Taxation; Documentary Stamp Tax; The
phrase orders, by telegraph or otherwise, for
the payment of money used in reference to
documentary stamp taxes may be found in an
earlier documentary tax provision, Section
1449(i) of the Administrative Code of 1917,
which was substantially reproduced in Section
195 (now Section 182) of the NIRC.The phrase orders, by telegraph or
otherwise, for the payment of money used in
reference to documentary stamp taxes may be
found in an earlier documentary tax provision,
Section 1449(i) of the Administrative Code of
1917, which was substantially reproduced in
Section 195 (now Section 182) of the NIRC.
Regulations No. 26, which provided the rules
and guidelines for the documentary stamp tax
imposed under the Administrative Code of
1917, contains an explanation for the phrase
orders, by telegraph or otherwise, for the
payment of money: What may be regarded as
telegraphic transfer.A local bank cables to a
certain bank in a foreign country with which
bank said local bank has a credit, and directs
that foreign bank to pay to another bank or
person in the same locality a certain sum of
money, the document for and in respect such
transaction will be regarded as a telegraphic
transfer, taxable under the provisions of
Section 1449(i) of the Administrative Code.
9. Letters of Credit; Word and Phrases; A
letter of credit is one whereby one person
requests some other person to advance money
or give credit to a third person, and promises
that he will repay the same to the person
making the advancement, or accept the bill
drawn upon himself for the like amount.The Code of Commerce loosely defines a
letter of credit and provides for its essential
conditions, thus: Art. 567. Letters of credit are
those issued by one merchant to another or for
the purpose of attending to a commercial
transaction. Art. 568. The essential conditions
of letters of credit shall be: 1. To be issued in
favor of a definite person and not to order. 2.
To be limited to a fixed and specified amount,
or to one or more undetermined amounts, but
within a maximum the limits of which has to be
stated exactly. A more explicit definition of a
letter of credit can be found in the
commentaries: A letter of credit is one whereby
one person requests some other person to
advance money or give credit to a third person,
and promises that he will repay the same to
the person making the advancement, or accept
the bills drawn upon himself for the like
Page 43
amount. A bill of exchange and a letter of credit

may differ as to their negotiability, and as to
who owns the funds used for the payment at
the time payment is made. However, in both
bills of exchange and letters of credit, a person
orders another to pay money to a third person.
10. Same; A foreign bill of exchange may be
drawn outside the Philippines, payable outside
the Philippines, or both drawn and payable
outside of the Philippines.Section 129 of the same law classifies bills
of exchange as inland and foreign, the
distinction is laid down by where the bills are
drawn and paid. Thus, a foreign bill of
exchange may be drawn outside the
Philippines, payable outside the Philippines, or
both drawn and payable outside of the
Philippines. Sec. 129. Inland and foreign bills
of exchange.An inland bill of exchange is a
bill which is, or on its face purports to be, both
drawn and payable within the Philippines. Any
other bill is a foreign bill. x x x
11. Bills
of
Exchange; Negotiable
Instruments Law (Act No. 2031); Words and
Phrases; Bills of Exchange, Defined.A definition of a bill of exchange is provided
by Section 39 of Regulations No. 26, the rules
governing documentary taxes promulgated by
the Bureau of Internal Revenue (BIR) in 1924:
Sec. 39. Definition of bill of exchange. The
term bill of exchange denotes checks, drafts,
and all
WHEREFORE, premises considered, this
Court DENIES this petition and AFFIRMS the
Decision of the Court of Appeals in CA-G.R.
SP No. 57362 dated 14 August 1998, ordering
that petitioner Bank of the Philippine Islands to
pay Respondent Commissioner of Internal
Revenue the deficiency documentary stamp
tax in the amount of P690,030.00 inclusive of
surcharge and compromise penalty, plus 20%
annual interest from 7 June 1990 until fully
paid. Costs against the petitioner.
4.
Case
Title :
SECURITY
BANK
CORPORATION (formerly SECURITY BANK
AND TRUST COMPANY), petitioner, vs. THE
COMMISSIONER OF INTERNAL REVENUE,
respondent.
Syllabi Class : Taxation|Documentary Stamp
Tax (DST)|Administrative Law|Court of Tax
Appeals|Compromise Agreements|Words and
Phrases|The issue of DST assessment on
sales
of
securities
with
repurchase
agreement|which was the subject of the
reassessment being questioned in this case|is
definitely not within the scope of the
compromise agreement|being limited as it is to
DST on promissory notesthe Court simply
cannot agree with the petitioner that securities
Yza
and promissory notes for purposes of the

subject Compromise Agreement are one and
the thing|The BIR Commissioner has the sole
power and authority to compromise taxes
Syllabi:
1. Taxation; Documentary
Stamp
Tax
(DST); It is clear from the plain language of the
law that all sales of securities, without making
any distinction as to the nature or type of the
sale, i.e., whether it be with a repurchase
agreement or not, are taxable.The NIRC levies DST upon documents,
instruments and papers as follows: SEC. 173.
Stamp taxes upon documents, instruments,
and papersUpon documents, instruments,
and
papers,
and
upon
acceptances,
assignments, sales, and transfers of the
obligation, right, or property incident thereto,
there shall be levied, collected and paid for,
and in respect of the transaction so had or
accomplished, the corresponding documentary
stamp taxes prescribed in the following
sections of this Title, by the person making,
signing, issuing, accepting, or transferring the
same, and at the same time such act is done
or transaction had: Provided,That whenever
one party to the taxable document enjoys
exemption from the tax herein imposed, the
other party to thereto who is not exempt shall
be the one directly liable for the tax. (Emphasis
supplied.) Particularly covering sales of
securities, which SBC has been assessed by
the BIR in this case, and the corresponding
DST rates due thereon at the time the said tax
accrued, the former Section 225 (now Section
176) of the NIRC provides: It is clear from the
plain language of the law that all sales of
securities, without making any distinction as to
the nature or type of the sale, i.e., whether it be
with a repurchase agreement or not, are
taxable. On the other hand, all securities
consisting of bonds, due-bills, certificates of
obligation, or shares or certificates of stock in
any association, company or corporation, of
whatever type or nature are within the scope of
this section.
2. Same; Same; Same; The
BIR
Commissioner has the sole power and
authority to compromise taxes;Ultra vires
acts of revenue officials cannot have any valid
and binding legal effect upon the BIR so as to
proscribe the latter from issuing reassessment
of unpaid DST on the sales of securities.As regards SBCs contention that the BIR,
through its various officials, accepted its offer
to settle its entire DST deficiency assessment
for 1983 which included the DST assessment
for securities with repurchase agreement in the
tax base for purposes of the computation of the
DST due and collectible, suffice it to say that
such acceptance and approval were not made
by the BIR Commissioner himself, who, under
Section 204 of the NIRC, has the sole power
and authority to compromise taxes. Neither
was there any showing that the BIR
Page 44
Commissioner specifically authorized those

revenue officials, who purportedly accepted
and approved SBCs offer of payment, to
compromise the DST on sale of securities,
which, to stress, were not included in the
Compromise Agreement of August 15, 1988 by
delegating his power to compromise said DST
assessment on securities. This ultra vires act
of those revenue officials cannot have any
valid and binding legal effect upon the BIR, so
as to proscribe the latter from issuing the
assailed reassessment of unpaid DST on the
sales of securities under repurchase
agreements for the year 1983.
3. Same; Same; Compromise
Agreements; Words and Phrases; The issue
of DST assessment on sales of securities with
repurchase agreement, which was the subject
of the reassessment being questioned in this
case, is definitely not within the scope of the
compromise agreement, being limited as it is to
DST on promissory notesthe Court simply cannot agree with the
petitioner that securities and promissory notes
for purposes of the subject Compromise
Agreement are one and the same thing; The
term promissory note has a definite meaning
under the negotiable instruments law, which
does not include securities.The issue of
DST assessment on sales of securities with
repurchase agreement, which was the subject
of the reassessment being questioned in this
case, is definitely not within the scope of the
compromise agreement, being limited as it is to
DST on promissory notes issued prior to
October 15, 1984. The DST assessed on the
former arises from the act of selling securities
(presently taxed under Section 176), while the
DST assessed in the latter is on the act of
issuing promissory notes (taxed under
Section 180). It is evident from the separate
provisions governing the two that the law treats
these two instruments differently. This Court
simply cannot agree with SBC that securities
and promissory notes for purposes of the
subject Compromise Agreement are one and
the same thing. Besides, even assuming, in
gratia argumenti, that promissory notes may be
included under the generic term securities,
securities cannot be included under the
specific term promissory notes so as to be
deemed within the scope of the same
compromise agreement. To be sure, the term
promissory note has a definite meaning
under the negotiable instruments law, which
does not include securities, and this definite
meaning is what is deemed incorporated in the
compromise agreement entered into by and
between SBC and the BIR, unless a different
definition is therein expressly agreed upon,
which is not the case.
4. Same; Same; Court of Tax Appeals; As a
matter of principle, the Supreme Court will not
set aside the conclusion reached by the Court
of Tax Appeals which is, by the very nature of
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its function, dedicated exclusively to the study

and consideration of tax problems and has
necessarily developed an expertise on the
subject unless there has been an abuse or
improvident exercise of authority.The Court has no basis to rule in the present
petition for review on certiorari, which by its
very nature is limited to questions of law and
not of facts, whether the securities subject of
the tax assessment in this case in fact fall
within the ambit of said revenue memorandum
circulars. This Court is bound by the factual
findings by the CTA, which did not rule that the
subject securities, because of what type these
were, fall under Section 229 (now Section 180)
instead of 225 (now Section 176) of the NIRC.
In Commissioner of Internal Revenue v. Court
of Appeals, the Court ruled: x x x the Court of
Tax Appeals is a highly specialized body
specifically created for the purpose of
reviewing tax cases. Through its expertise, it is
undeniably competent to determine the issue
of whether. x x x Consequently, as a matter of
principle, this Court will not set aside the
conclusion reached by the Court of Tax
Appeals which is, by the very nature of its
function, dedicated exclusively to the study and
consideration of tax problems and has
necessarily developed an expertise on the
subject unless there has been an abuse or
improvident exercise of authority. This point
becomes more evident in the case before us
where the unanimous findings and conclusions
of both the Court of Tax Appeals and the Court
of Appeals appear untainted by any abuse of
authority, much less grave abuse of discretion.
5. Same; Same; Administrative
Law; BIR
circulars and rulings cannot prevail over the
clear and plain language of the Tax Code.SBC contends, however, that the sales of
securities being levied upon are not covered by
Section 225 (now Section 176), but instead fall
under Section 229 (now Section 180) of the
Tax Code. In this respect, SBC invokes
Revenue Memorandum Circulars No. 13-87
and No. 33-86 and BIR Ruling No. 119-91. We
are not persuaded for the simple reason that
the BIR circulars and ruling relied upon were
all issued after 1983, the tax period involved in
this case. Those circulars and ruling cannot
prevail over the clear and plain language of the
Tax Code.
WHEREFORE, the petition is DENIED and the
assailed CA Decision dated August 29, 1997 is
AFFIRMED in toto.
Page 45
5. Case Title : INTERNATIONAL EXCHANGE

BANK, petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE, respondent.
certiorari of a decision of the Court of Tax
Appeals.
Syllabi Class : Taxation|Documentary Stamp
Tax (DST)|Banks and Banking|Words and
Phrases|Tax Avoidance
Syllabi:
1. Taxation; Documentary
Stamp
Tax
(DST); Banks and Banking; A passbook
representing an interest earning deposit
account issued by a bank qualifies as a
certificate of deposit drawing interest.As correctly found by the CTA En Banc, a
passbook representing an interest earning
deposit account issued by a bank qualifies as a
certificate of deposit drawing interest. A
document to be deemed a certificate of deposit
requires no specific form as long as there is
some written memorandum that the bank
accepted a deposit of a sum of money from a
depositor. What is important and controlling is
the nature or meaning conveyed by the
passbook and not the particular label or
nomenclature attached to it, inasmuch as
substance, not form, is paramount.
2. Same; Same; Same; Tax
Avoidance; While tax avoidance schemes and
arrangements are not prohibited, tax laws
cannot be circumvented in order to evade
payment of just taxes.While tax avoidance schemes and
arrangements are not prohibited, tax laws
cannot be circumvented in order to evade
payment of just taxes.To claim that time
deposits evidenced by passbooks should not
be subject to DST is a clear evasion of the rule
on equality and uniformity in taxation that
requires the imposition of DST on documents
evidencing transactions of the same kind, in
this particular case, on all certificates of
deposits drawing interest.
3. Same; Same; Same; Words
and
Phrases; The Documentary Stamp Tax (DST)
is levied on the exercise by persons of certain
privileges conferred by law for the creation,
revision, or termination of specific legal
relationships through the execution of specific
instruments.It bears emphasis that DST is levied on the
exercise by persons of certain privileges
conferred by law for the creation, revision, or
termination of specific legal relationships
through the execution of specific instruments. It
is an excise upon the privilege, opportunity or
facility offered at exchanges for the transaction
of the business.
4. Same; Same; Same; A Fixed Savings
Deposit (FSD), like a time deposit, provides
for a higher interest rate when the deposit
is not withdrawn within the required fixed
period, otherwise, it earns interest
pertaining
to
a
regular
savings
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deposit; Having a fixed term and the reduction

of interest rate in case of pre-termination are
essential features of a time deposit.As for petitioners argument that its FSD is
similar to a regular savings deposit because it
is evidenced by a passbook, and that based on
the legislative deliberations on the bill which
was to become R.A. 9243 which amended
Section 180 of the NIRC (which is to a large
extent the same as Section 180 of the Tax
Code, as amended by R.A. 7660), Congress
admitted
that
deposits
evidenced
by
passbooks which have features akin to time
deposits are not subject to DST, the same
does not lie. The FSD, like a time deposit,
provides for a higher interest rate when the
deposit is not withdrawn within the required
fixed period; otherwise, it earns interest
pertaining to a regular savings deposit. Having
a fixed term and the reduction of interest rates
in case of pre-termination are essential
features of a time deposit.
5. Same; Same; Same; A regular savings
account with a passbook which is withdrawable
at any time is not subject to Documentary
Stamp Tax (DST), unlike a time deposit which
is payable on a fixed maturity date.Orders for the payment of sum of money
payable at sight or on demand are of course
explicitly exempted from the payment of DST.
Thus, a regular savings account with a
passbook which is withdrawable at any time is
not subject to DST, unlike a time deposit which
is payable on a fixed maturity date.
6. Same; Same; Same; A certificate of deposit
may or may not be negotiablea certificate of deposit may be payable to the
depositor, to the order of the depositor, or to
some other person or his order; The negotiable
character of any and all documents under
Section 180 of the National Internal Revenue
Code (NIRC).Contrary to petitioners claim,
not all certificates of deposit are negotiable. A
certificate of deposit may or may not be
negotiable as gathered from the use of the
conjunction or, instead of and, in its definition.
A certificate of deposit may be payable to the
depositor, to the order of the depositor, or to
some other person or his order. In any event,
the negotiable character of any and all
documents under Section 180 is immaterial for
purposes of imposing DST.
WHEREFORE, the petition is DENIED.
Page 46
SECTION 2
1.
Case Title :
NEW SAMPAGUITA
BUILDERS CONSTRUCTION, INC. (NSBCI)
and Spouses EDUARDO R. DEE and
ARCELITA M. DEE, petitioners, vs.
PHILIPPINE NATIONAL BANK, respondent.
Syllabi Class : Actions|Obligations and
Contracts|Mortgages|Appeals|Loans|Promissor
y
Notes|Interest
Rates|Escalation
Clauses|Principle
of
Mutuality
of
Contracts|Usury
Law|Banks
and
Banking|Words
and
Phrases|Credit
Lines|Contract
Clause|Disclosure
Statements|Truth
in
Lending
Act|Damages|Novation|Attorneys
Fees|Notarial Law|Legal Ethics|Act 496 has
repealed
the
Spanish
Notarial
Law|Evidence|Entries
in
Ledgers|Presumptions|Foreclosure
of
Mortgage
Syllabi:
1. Actions; Appeals; As a rule, questions of
fact cannot be the subject of a petition for
review on certiorari, but as an exception,
factual findings of the Court of Appeals may be
reviewed on appeal when, inter alia, the factual
inferences are manifestly mistaken, the
judgment is based on a misapprehension of
facts, or the Court of Appeals manifestly
overlooked certain relevant and undisputed
facts that, if properly considered, would justify
a different legal conclusion.It must be stressed that only questions of law
may be raised in a petition for review on
certiorari under Rule 45 of the Rules of Court.
As a rule, questions of fact cannot be the
subject of this mode of appeal, for [t]he
Supreme Court is not a trier of facts. As
exceptions to this rule, however, factual
findings of the CA may be reviewed on
appealwhen, inter alia, the factual inferences
are manifestly mistaken;the judgment is based
on a misapprehension of facts; or the CA
manifestly overlooked certain relevant and
undisputed facts that, if properly considered,
would justify a different legal conclusion. In the
present case, these exceptions exist in various
instances, thus prompting us to take
cognizance of factual issues and to decide
upon them in the interest of justice and in the
exercise of our sound discretion. Indeed,
Petitioner NSBCIs loan accounts with
respondent appear to be bloated with some
iniquitous imposition of interests, penalties,
other charges and attorneys fees. To
demonstrate this point, the Court shall take up
one by one the promissory notes, the credit
agreements and the disclosure statements.
2. Obligations
and
Contracts; Loans; Promissory
Notes; Interest
Rates; Escalation
Clauses; Principle
of
Mutuality
of
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Contracts; A borrowers accessory duty to pay

interest does not give the lender unrestrained
freedom to charge any rate other than that
which was agreed uponit would be the zenith
of farcicality to specify and agree upon rates
that could be subsequently upgraded at whim
by only one party to the agreement; The
unilateral determination and imposition of
increased rate is violative of the principle of
mutuality of contracts ordained in Article 1308
of the Civil Code.In each drawdown, the Promissory Notes
specified the interest rate to be charged: 19.5
percent in the first, and 21.5 percent in the
second and again in the third. However, a
uniform clause therein permitted respondent to
increase the rate within the limits allowed by
law at any time depending on whatever policy
it may adopt in the future x x x, without even
giving prior notice to petitioners. The Court
holds that petitioners accessory duty to pay
interest did not give respondent unrestrained
freedom to charge any rate other than that
which was agreed upon. No interest shall be
due, unless expressly stipulated in writing. It
would be the zenith of farcicality to specify and
agree upon rates that could be subsequently
upgraded at whim by only one party to the
agreement. The unilateral determination and
impositionof increased rates is violative of the
principle of mutuality of contracts ordained in
Article 1308 of the Civil Code. One-sided
impositions do not have the force of law
between the parties, because such impositions
are not based on the parties essential equality.
3. Obligations
and
Notes; Interest
Rates; Escalation
Clauses; Principle
of
Mutuality
of
Contracts; Although escalation clauses are
valid in maintaining fiscal stability and retaining
the value of money on long-term contracts,
giving the lender an unbridled right to adjust
the interest independently and upwardly would
completely take away from the borrower the
right to assent to an important modification in
their agreement and would also negate the
element of mutuality in their contracts.Although escalation clauses are valid in
maintaining fiscal stability and retaining the
value of money on long-term contracts, giving
respondent an unbridled right to adjust the
interest independently and upwardly would
completely take away from petitioners the
right to assent to an important modification in
their agreement and would also negate the
element of mutuality in their contracts. The
clause cited earlier made the fulfillment of the
contracts dependent exclusively upon the
uncontrolled will of respondent and was
therefore void. Besides, the pro forma
promissory notes have the character of a
contract dadhsion, where the parties do not
bargain on equal footing, the weaker partys
Page 47
[the debtors] participation being reduced to the

alternative to take it or leave it.
4. Obligations
and
Notes; Interest
Rates; Escalation
Clauses; Usury Law;While the Usury Law
ceiling on interest rates was lifted by Central
Bank Circular No. 905, nothing in the said
Circular grants lenders carte blanche authority
to raise interest rates to levels which will either
enslave their borrowers or lead to a
hemorrhaging of their assets.While the Usury Law ceiling on interest rates
was lifted by [Central Bank] Circular No. 905,
nothing in the said Circular grants lenders
carte blanche authority to raise interest rates to
levels which will either enslave their borrowers
or lead to a hemorrhaging of their assets. In
fact, we have declared nearly ten years ago
that neither this Circular nor PD 1684, which
further amended the Usury Law, authorized
either party to unilaterally raise the interest rate
without the others consent.
5. Obligations
and
Notes; Interest
Rates; Escalation
Clauses; Usury Law;Rates found to be
iniquitous or unconscionable are void, as if
there were no express contract thereon.A similar case eight years ago pointed out to
the same respondent (PNB) that borrowing
signified a capital transfusion from lending
institutions to businesses and industries and
was done for the purpose of stimulating their
growth; yet respondents continued unilateral
and lopsided policy of increasing interest rates
without the prior assent of the borrower not
only defeats this purpose, but also deviates
from this pronouncement. Although such
increases are not usurious, since the Usury
Law is now legally inexistentthe interest
ranging from 26 percent to 35 percent in the
statements of accountmust be equitably
reduced for being iniquitous, unconscionable
and exorbitant. Rates found to be iniquitous or
unconscionable are void, as if it there were no
express contract thereon. Above all, it is
undoubtedly against public policy to charge
excessively for the use of money.
6. Obligations
and
Notes; Interest
Rates; Escalation
Clauses; A
borrowers
request
for
restructuring does not indicate any agreement
to an interest increasethere can be no
implied waiver of a right when there is no clear,
unequivocal and decisive act showing such
purpose; No one receiving a proposal to
modify a loan contract, especially interesta
vital componentis obliged to answer the
proposal.It cannot be argued that assent to the
increases can be implied either from the June
18, 1991 request of petitioners for loan
restructuring or from their lack of response to
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the statements of account sent by respondent.

Such request does not indicate any agreement
to an interest increase; there can be no implied
waiver of a right when there is no clear,
unequivocal and decisive act showing such
purpose. Besides, the statements were not
letters of information sent to secure their
conformity; and even if we were to presume
these as an offer, there was no acceptance.
No one receiving a proposal to modify a loan
contract,
especially
interesta
vital
componentis obliged to answer the
proposal.
7. Obligations
and
Notes; Banks and Banking; Words and
Phrases; Credit Lines; Revolving Credit
Line, Explained.Banks give credit lines to businessmen in order
to assist them in the operation of their
business. A fixed limit or ceiling may be placed
on the account, provided its balance does not
exceed such stipulated limit or ceiling. The
balance may perhaps never be cleared, since
the credit revolves round and round; hence,
the title revolving credit. Miranda, Essentials
of Money, Credit and Banking (5th rev. ed.,
1981), pp. 96-99. Moreover, a revolving credit
line is a formal commitment by a bank to lend
a borrower up to a specified amount of money
over a given period of time. The actual notes
evidencing the debt are short-term; but the
borrower may renew them up to a specified
maximum throughout the duration of such
commitment. The bank, in turn, is legally
bound under the loan agreement to have funds
available whenever money is borrowed. At the
maturity of the commitment, borrowings then
owing can be converted into a term loan. Van
Horne, Financial Management and Policy (5th
ed., 1980), pp. 520-521. Thus, when a
borrower needs money, it makes a drawdown
or availment on the credit line in the form of a
note or promise to pay a certain principal
amount. The balance of all unpaid principals,
otherwise known as outstanding drawdowns or
availments, at any given time, should not
exceed the ceiling or limit. After due payment
of any drawdown or availment, the borrower
can make succeeding drawdowns or
availments within the maximum amount
committed, provided the line has not yet
expired.
8. Obligations
and
Notes; Banks and Banking; Words and
Phrases; Gross or Intermediation Spread,
Explained.The difference between the interest and other
service fees charged by a bank to its
borrowers and clients and the interest it pays
to its depositors and other suppliers of funds is
the gross or intermediation spread. IBON
Databank Phils., Inc., The Philippine Financial
SystemA Primer (1983), p. 36.
Page 48
9. Obligations
and
Notes; Banks and Banking; Where the
disclosure statements, as well as the credit
agreements, do not provide for any increase in
the specified interest rates, none would be
permitted.In sum, the three disclosure statements, as
well as the two credit agreements considered
by this Court, did not provide for any increase
in the specified interest rates. Thus, none
would now be permitted. When crossexamined, Julia Ang-Lopez, Finance Account
Analyst II of PNB, Dagupan Branch, even
testified that the bases for computing such
rates were those sent by the head office from
time to time, and not those indicated in the
notes or disclosure statements.
10. Obligations
and
Notes; Banks
and
Banking; Contract
Clause; The sole purpose of the impairment
clause of the Constitution is to safeguard the
integrity of valid contractual agreements
against unwarranted interference by the State
in the form of lawsprivate individuals
intrusions on interest rates is governed by
statutory enactments like the Civil Code.In addition to the preceding discussion, it is
then useless to belabor the point that the
increase in rates violates the impairment
clause of the Constitution, because the sole
purpose of this provision is to safeguard the
integrity of valid contractual agreements
against unwarranted interference by the State
in the form of laws. Private individuals
intrusions on interest rates is governed by
statutory enactments like the Civil Code.
11. Obligations
and
Notes; Banks
and
Banking; Disclosure
Statements;Truth in Lending Act; The effect,
when the borrower is not clearly informed of
the Disclosure Statementsprior to the
consummation of the availment or drawdown
is that the lender will have no right to collect
upon such charge or increases thereof, even if
stipulated in the Notes; The time is now ripe to
give teeth to the often ignored forty-one-year
old Truth in Lending Act and thus transform it
from a snivelling paper tiger to a growling
financial watchdog of hapless borrowers.No penalty charges or increases thereof
appear either in the Disclosure Statements or
in any of the clauses in the second and the
third Credit Agreements earlier discussed.
While a standard penalty charge of 6 percent
per annum has been imposed on the amounts
stated in all three Promissory Notes still
remaining unpaid or unrenewed when they fell
due, there is no stipulation therein that would
justify any increase in that charges. The effect,
therefore, when the borrower is not clearly
informed of the Disclosure Statementsprior
to the consummation of the availment or
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drawdownis that the lender will have no right

to collect upon such charge or increases
thereof, even if stipulated in the Notes. The
time is now ripe to give teeth to the often
ignored forty-one-year old Truth in Lending
Act and thus transform it from a snivelling
paper tiger to a growling financial watchdog of
hapless borrowers.
12. Obligations
and
Notes; Banks
and
Banking; Disclosure
Statements;Damages; Liquidated damages
intended as penalty shall be equitably reduced
to zilch where iniquitous or unconscionable.We have earlier said that the Notes are
contracts of adhesion; although not invalid per
se, any apparent ambiguity in the loan
contractstaken as a wholeshall be strictly
construed against respondent who caused it.
Worse, in the statements of account, the
penalty rate has again been unilaterally
increased by respondent to 36 percent without
petitioners consent. As a result of its move,
such liquidated damages intended as a penalty
shall be equitably reduced by the Court to zilch
for being iniquitous or unconscionable.
13. Obligations
and
Notes; Banks
and
Banking; Disclosure
Statements;Novation; Novation can never be
presumed, and the animus novandi must
appear by express agreement of the parties, or
by their acts that are too clear and unequivocal
to be mistaken.Although the first Disclosure Statement was
furnished Petitioner NSBCI prior to the
execution of the transaction, it is not a contract
that can be modified by the related Promissory
Note, but a mere statement in writing that
reflects the true and effective cost of loans
from respondent. Novation can never be
presumed, and the animus novandi must
appear by express agreement of the parties, or
by their acts that are too clear and unequivocal
to be mistaken. To allow novation will surely
flout the policy of the State to protect its
citizens from a lack of awareness of the true
cost of credit.
14. Obligations
and
Notes; Attorneys Fees; Attorneys fees are
not an integral part of the cost of borrowing,
but arise only when collecting upon the Notes
becomes necessary.We affirm the equitable reduction in attorneys
fees. These are not an integral part of the cost
of borrowing, but arise only when collecting
upon the Notes becomes necessary. The
purpose of these fees is not to give respondent
a larger compensation for the loan than the law
already allows, but to protect it against any
future loss or damage by being compelled to
retain counselin-house or notto institute
judicial proceedings for the collection of its
credit. Courts have has the power to determine
Page 49
their reasonableness based on quantum meruit

and to reduce the amount thereof if excessive.
15. Obligations
and
Notes; Attorneys Fees; Notarial Law; Legal
Ethics;Act 496 has repealed the Spanish
Notarial Law; A partys engagement of his
counsel in another capacity concurrent with the
practice of law is not prohibited, so long as the
roles being assumed by such counsel is made
clear to the client.The disqualification argument in the Affidavit of
Publication raised by petitioners no longer
holds water, inasmuch as Act 496 has
repealed the Spanish Notarial Law.In the same
vein, their engagement of their counsel in
another capacity concurrent with the practice
of law is not prohibited, so long as the roles
being assumed by such counsel is made clear
to the client. The only reason for this
clarification requirement is that certain ethical
considerations operative in one profession may
not be so in the other.
16. Obligations
and
Contracts; Loans; Evidence; Entries
in
Ledgers; Presumptions; Without a doubt, the
subsidiary ledgers in a manual accounting
system are mere private documents that
support and are controlled by the general
ledger; We go by the presumption that the
recording of private transactions has been fair
and regular, and that the ordinary course of
business has been followed.Contrary to petitioners assertions, the
subsidiary ledgers of respondent properly
reflected all entries pertaining to Petitioner
NSBCIs loan accounts. In accordance with the
Generally Accepted Accounting Principles
(GAAP) for the Banking Industry, all interests
accrued or earned on such loans, except those
that were restructured and non-accruing, have
been periodically taken into income. Without a
doubt, the subsidiary ledgers in a manual
accounting
system
are
mere
private
documents that support and are controlled by
the general ledger. Such ledgers are neither
foolproof nor standard in format, but are
periodically subject to audit. Besides, we go by
the presumption that the recording of private
transactions has been fair and regular, and
that the ordinary course of business has been
followed.
17. Obligations
and
Contracts; Loans; Evidence; Words
and
Phrases; General Ledgers, and Subsidiary
Ledgers, Explained.A general ledger, on the one hand, is a
summary or repository of accounts to which
debits and credits resulting from financial
transactions are posted from journals or books
of original entry; a subsidiary ledger, on the
other, is a special type of ledger confined
chiefly to a particular account.
18. Mortgages; Foreclosure of Mortgage; No
personal notice is required in an extrajudicial
Yza
foreclosure since such action is in rem,

requiring only notice by publication and
posting, in order to bind parties interested in
the foreclosed property.In the accessory contract of real mortgage, in
which immovable property or real rights thereto
are used as security for the fulfillment of the
principal loan obligation,the bid price may be
lower than the propertys fair market value. In
fact, the loan value itself is only 70 percent of
the appraised value. As correctly emphasized
by the appellate court, a low bid price will make
it easier for the owner to effect redemption by
subsequently reacquiring the property or by
selling the right to redeem and thus recover
alleged losses. Besides, the public auction sale
has been regularly and fairly conducted, there
has been ample authority to effect the sale,and
the Certificates of Title can be relied upon. No
personal notice is even required, because an
extrajudicial foreclosure is an action in rem,
requiring only notice by publication and
posting, in order to bind parties interested in
the foreclosed property.
WHEREFORE, this Petition is hereby PARTLY
GRANTED. The Decision of the Court of
Appeals
is
AFFIRMED,
with
the
MODIFICATION that PNB is ORDERED to
refund the sum of P3,686,101.52 representing
the overcollection computed above, plus
interest thereon at the legal rate of six percent
(6%) per annum from the filing of the
Complaint until the finality of this Decision.
After this Decision becomes final and
executory, the applicable rate shall be twelve
percent (12%) per annum until its satisfaction.
No costs.

ISLANDS, INC., petitioner, vs. SPS.
NORMAN
AND ANGELINA YU and
TUANSON
BUILDERS
CORPORATION
represented by PRES. NORMAN YU,
respondents.
Syllabi Class : Loans|Penalty Charges
Syllabi:
1. Remedial Law; Civil Procedure; Summary
Judgments; A summary judgment is apt when
the essential facts of the case are uncontested
or the parties do not raise any genuine issue of
fact.A summary judgment is apt when the
essential facts of the case are uncontested or
the parties do not raise any genuine issue of
fact. Here, to resolve the issue of the
excessive charges allegedly incorporated into
the auction bid price, the RTC simply had to
look at a) the pleadingsof the parties; b) the
loan agreements, the promissory note, and the
real estate mortgages between them; c) the
Page 50
foreclosure and bidding documents; and d) the

admissions and other disclosures between the
parties during pre-trial. Since the parties
admitted not only the existence, authenticity,
and genuine execution of these documents but
also what they stated, the trial court did not
need to hold a trial for the reception of the
evidence of the parties.
2. Same; Penalty
Charges; Courts
have
authority to reduce penalty charges when
these are unreasonable and iniquitous.Nonetheless, the courts have authority to
reduce penalty charges when these are
unreasonable and iniquitous. Considering that
BPI had already received over P2.7 million in
interest and that it seeks to impose the penalty
charge of 3% per month or 36% per annum on
the total amount dueprincipal plus interest,
with interest not paid when due added to and
becoming part of the principal and also bearing
interest at the same ratethe Court finds the
ruling of the RTC in its original decision
reasonable and fair. Thus, the penalty charge
of 12% per annum or 1% per month is
imposed.
3. Same; Same; Penalty charges stipulated in
the promissory notes declared valid.The ruling that is more in point is that laid
down in The Consolidated Bank and Trust
Corporation v. Court of Appeals, 246 SCRA
193 (1995) a case cited in New Sampaguita.
The Consolidated Bank ruling declared valid
the penalty charges that were stipulated in the
promissory notes. What the Court disallowed in
that case was the collection of a handling
charge that the promissory notes did not
contain.
4. Same; Promissory Notes; A promissory
note is an acknowledgment of a debt and
commitment to repay it on the date and
under the conditions that the parties agreed
on; It is a valid contract absent proof of acts
which might have vitiated consent.In this case, although BPI failed to state the
penalty charges in the disclosure statement,
the promissory note that the Yus signed, on
the same date as the disclosure statement,
contained a penalty clause that said: I/We
jointly and severally, promise to further pay a
late payment charge on any overdue amount
herein at the rate of 3% per month. The
promissory note is an acknowledgment of a
debt and commitment to repay it on the date
and under the conditions that the parties
agreed on. It is a valid contract absent proof of
acts which might have vitiated consent.
5. Loans; Words and Phrases; Finance
Charge; A finance charge represents the
amount to be paid by the debtor incident to the
extension of credit.Penalty charge, which is liquidated damages
resulting from a breach, falls under item (6) or
finance charge. A finance charge represents
the amount to be paid by the debtor incident to
the extension of credit. The lender may
Yza
provide for a penalty clause so long as

amount or rate of the charge and
conditions under which it is to be paid
disclosed to the borrower before he enters
the credit agreement.
the
the
are
into
3. UNION BANK VS SPOUSES ROFOLFO

AND VICTORIA TIU
ISSUE: Is the stipulation that the
promissory note payabe in dollars
prohibited? Trace the history of the rule on
payment using foreign denomination from
Art. 1249 of the CC to RA 8183 of July 1,
1996.
We disagree with the finding of the
Court of Appeals that the testimony of Lila
Gutierrez, which merely attests to the fact that
the spouses Tiu received the peso equivalent
of their dollar loan, proves the intention of the
parties that such loans should be paid in
pesos. If such had been the intention of the
parties, the promissory notes could have easily
indicated the same.
Such stipulation of payment in dollars
is not prohibited by any prevailing law or
jurisprudence at the time the loans were taken.
In this regard, Article 1249 of the Civil Code
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 thePhilippines.
Although the Civil Code took effect on August
30, 1950, jurisprudence had upheld[57] the
continued effectivity of Republic Act No. 529,
which took effect earlier on June 16,
1950. Pursuant to Section 1[58] of Republic Act
No. 529, any agreement to pay an obligation in
a currency other than the Philippine currency is
void; the most that could be demanded is to
pay said obligation in Philippine currency to be
measured in the prevailing rate of exchange at
the
time
the
obligation
was
incurred.[59] On June 19, 1964, Republic Act
No. 4100 took effect, modifying Republic Act
No. 529 by providing for several exceptions to
the nullity of agreements to pay in foreign
currency.[60]
On April 13, 1993, Central Bank
Circular No. 1389[61] was issued, lifting foreign
exchange restrictions and liberalizing trade in
foreign currency. In cases of foreign borrowings
and foreign currency loans, however, prior
Bangko
Sentral
approval
was
required. On July 5, 1996, Republic Act No.
8183
took
effect,[62] expressly
repealing
Republic
Act
No.
529
in
Section
2[63] thereof. The same statute also explicitly
provided that parties may agree that the
obligation or transaction shall be settled in a
Page 51
currency other than Philippine currency at the

time of payment.[64]
Although the Credit Line Agreement
between the spouses Tiu and Union Bank was
entered into on November 21, 1995,[65] when
the agreement to pay in foreign currency was
still considered void under Republic Act No.
529, the actual loans,[66] as shown in the
promissory
notes,
were
taken
out
from September 22, 1997 to March 26, 1998,
during which time Republic Act No. 8183 was
already in effect. In United Coconut Planters
Bank v. Beluso,[67] we held that:
[O]pening a credit line does not create
a credit transaction of loan or mutuum, since
the former is merely a preparatory contract to
the contract of loan or mutuum. Under such
credit line, the bank is merely obliged, for the
considerations specified therefor, to lend to the
other party amounts not exceeding the limit
provided. The credit transaction thus occurred
not when the credit line was opened, but rather
when the credit line was availed of. x x x.[68]
Having established that Union Bank and
the spouses Tiu validly entered into dollar
loans, the conclusion of the Court of Appeals
that there were no dollar loans to novate into
peso loans must necessarily fail.
4. ELEANOR DE LEON LLENADO VS

PEOPLE AND EDITHA FLORES
ISSUE: When does the 12% interest rate
(should there be no stipulation) commence
to run?
Conforming to prevailing jurisprudence, we find
the need to modify the ruling of the CA with
regard to the imposition of interest on the
judgment. It has been established that in the
absence of stipulation, the rate of interest shall
be 12% per annum to be computed from
default, that is, from judicial or extrajudicial
demand under and subject to the provisions of
Article 1169 of the Civil Code.[9] In Ongson v.
People,[10] we held that interest began to run
from the time of the extrajudicial demand, as
duly proved by the creditor. Thus, petitioner
should also be held liable for the amount of the
dishonored check, which is 1,500,000, plus
12% legal interest covering the period from the
date of the receipt of the demand letter on 14
May 1999 to the finality of this Decision. The
total amount due in the dispositive portion of
the CAs Decision, inclusive of interest, shall
further earn 12% interest per annum from the
finality of this Decision until fully paid.
Yza
5. ASIATRUST DEVELOPMENT BANK VS.

CARMELO H. TUBLE
ISSUE: What is a dragnet clause? What is
monetary interest? What is Compensatory
Interest?
The Dragnet Clause In any event, assuming
that the Real Estate Mortgage Contract
subsists, we rule that the dragnet clause
therein does not justify the imposition of an
18% annual interest on the redemption price.
This Court has recognized that, through
a dragnet clause, a real estate mortgage
contract may exceptionally secure future loans
or advancements. But an obligation is not
secured by a mortgage, unless, that mortgage
comes fairly within the terms of the mortgage
contract.
We have also emphasized that the
mortgage agreement, being a contract of
adhesion, is to be carefully scrutinized and
strictly construed against the bank, the party
that prepared the agreement.
Here, after reviewing the entire deed,
this Court finds that there is no specific
mention of interest to be added in case of
either default or redemption. The Real Estate
Mortgage Contract itself is silent on the
computation of the redemption price. Although
it refers to the Promissory Notes as constitutive
of Tubles secured obligations, the said
contract does not state that the interest to be
charged in case of redemption should be what
is specified in the Promissory Notes.
In Philippine Banking Communications
v. Court of Appeals, 34 we have construed
such silence or omission of additional charges
strictly against the bank. In that case, we
affirmed the findings of the courts a quo that
penalties and charges are not due for want of
stipulation in the mortgage contract.
Worse, when petitioner invites us to
look at the Promissory Notes in determining
the interest, these loan agreements offer
different interest charges: Promissory Note No.
0142, which corresponds exactly to the real
estate loan, contains no stipulation on interest;
while Promissory Note No. 0143, which in turn
corresponds to the consumption loan, provides
a charge of 18% interest per annum. Thus, an
ambiguity results as to which interest shall be
applied, for to apply an 18% interest per
annum based on Promissory Note No. 0143
will negate the existence of the 0% interest
charged by Promissory Note No. 0142.
Notably, it is this latter Promissory Note that
refers to the principal agreement to which the
security attaches. In resolving this ambiguity,
we refer to a basic principle in the law of
contracts: [A]ny ambiguity is to be taken
contra proferent[e]m, that is, construed against
the party who caused the ambiguity which
could have avoided it by the exercise of a little
more care.35 Therefore, the ambiguity in the
Page 52
mortgage deed whose terms are susceptible of

different interpretations must be read against
the bank that drafted it. Consequently, we
cannot impute grave error on the part of the
courts a quo for not appreciating a charge of
18% interest per annum. Furthermore, this
Court refuses to be blindsided by the dragnet
clause in the Real Estate Mortgage Contract to
automatically include the consumption loan,
and its corresponding interest, in computing
the redemption price. As we have held in
Prudential Bank v. Alviar, 36 in the absence of
clear and supportive evidence of a contrary
intention, a mortgage containing a dragnet
clause will not be extended to cover future
advances, unless the document evidencing the
subsequent advance refers to the mortgage as
providing security therefor.
In this regard, this Court adopted the
reliance on the security test used in the
above-mentioned cases, Prudential Bank37
and Philippine Bank of Communications. 38 In
these Decisions, we elucidated the test as
follows:
x x x [A] mortgage with a dragnet clause is an
offer by the mortgagor to the bank to provide
the security of the mortgage for advances of
and when they were made. Thus, it was
concluded that the offer was not accepted by
the bank when a subsequent advance was
made because (1) the second note was
secured by a chattel mortgage on certain
vehicles, and the clause therein stated that the
note was secured by such chattel mortgage;
(2) there was no reference in the second note
or chattel mortgage indicating a connection
between the real estate mortgage and the
advance; (3) the mortgagor signed the real
estate mortgage by her name alone, whereas
the second note and chattel mortgage were
signed by the mortgagor doing business under
an assumed name; and (4) there was no
allegation by the bank, and apparently no
proof, that it relied on the security of the real
estate mortgage in making the advance.39
(Emphasis supplied)
Here, the second loan agreement, or
Promissory Note No. 0143, referring to the
consumption loan makes no reference to the
earlier loan with a real estate mortgage.
Neither does the bank make any allegation that
it relied on the security of the real estate
mortgage in issuing the consumption loan to
Tuble.
It must be remembered that Tuble was
petitioners previous vicepresident. Hence, as
one of the senior officers, the consumption
loan was given to him not as an ordinary loan,
but as a form of accommodation or privilege.40
The banks grant of the salary loan to Tuble
was apparently not motivated by the creation
of a security in favor of the bank, but by the
fact the he was a top executive of petitioner.
Thus, the bank cannot claim that it
relied on the previous security in granting the
Yza
consumption loan to Tuble. For this reason, the

dragnet clause will not be extended to cover
the consumption loan. It follows, therefore, that
its corresponding interest 18% per annum
is inapplicable. Consequently, the courts a quo
did not gravely abuse their discretion in
refusing to apply an annual interest of 18% in
computing the redemption price. A finding of
grave abuse of discretion necessitates that the
judgment must have been exercised arbitrarily
and without basis in fact and in law.41
6. ARTHUR
BERMUDEZ
MECHAVEZ
VS
MARLYN
ISSUE: Is the stipulated interest of 3% per

month and higher considered excessive,
iniquitous, exorbitant and unconscionable?
Castro v. Tan21 is instructive.
Petitioners in that case also argued that lender
and borrower could validly agree on any
interest rate for loans, and that the parties had
voluntarily agreed upon the stipulated rate of
interest. The Court held in Castro:
While we agree with petitioners that
parties to a loan agreement have wide latitude
to stipulate on any interest rate in view of the
Central Bank Circular No. 905 s. 1982 which
suspended the Usury Law ceiling on interest
effective January 1, 1983, it is also worth
stressing that interest rates whenever
unconscionable may still be declared illegal.
There is certainly nothing in said circular which
grants lenders carte blanche authority to raise
interest rates to levels which either enslave
their borrowers or lead to a hemorrhaging of
their assets.22
The Court, in said case, tagged the 5%
monthly interest rate agreed upon as
excessive, iniquitous, unconscionable and
exorbitant, contrary to morals, and the law.23
And instead of allowing recovery at the
stipulated rate, the Court, in Castro, imposed
the legal interest of 12% per annum. We need
not unsettle the principle we had affirmed in a
plethora of cases that stipulated interest rates
of 3% per month and higher are excessive,
iniquitous, unconscionable, and exorbitant.24
In the present case, the CA scrutinized
the Statement of Account25 prepared by
petitioner, wherein it showed that respondent
had already paid PhP 925,000, or PhP
425,000 over the PhP 500,000 loan, and
treated it as an admission by petitioner. The
original obligation of PhP 500,000 had already
been satisfied, and the PhP 425,000 would be
treated as interest paid, even at the iniquitous
rate of 60% per annum.
Page 53
7. SPOUSES IGNACIO AND ALICE JUICO

VS CHINA BANKING CORPORATION
ISSUE: Must modification in the rate of
interest for the loans pursuant to an
escalation clause result of an agreement
between the parties? Is it binding in the
absence of consent on the part o the
petitioners? How did the court consider the
interest rate in excess of 15% as the rate
charged for the first year?
Escalation clauses refer to stipulations allowing
an increase in the interest rate agreed upon by
the contracting parties. This Court has long
recognized that there is nothing inherently
wrong with escalation clauses which are valid
stipulations in commercial contracts to
maintain fiscal stability and to retain the value
of money in long term contracts.22 Hence,
such stipulations are not void per se.
Nevertheless, an escalation clause
which grants the creditor an unbridled right to
adjust the interest independently and upwardly,
completely depriving the debtor of the right to
assent to an important modification in the
agreement is void. A stipulation of such nature
violates the principle of mutuality of
contracts.24 Thus, this Court has previously
nullified the unilateral determination and
imposition by creditor banks of increases in the
rate of interest provided in loan contracts.
In Banco Filipino Savings & Mortgage
Bank v. Navarro, 26 the escalation clause
stated: I/We hereby authorize Banco Filipino
to correspondingly increase the interest rate
stipulated in this contract without advance
notice to me/us in the event a law should be
enacted increasing the lawful rates of interest
that may be charged on this particular kind of
loan. While escalation clauses in general are
considered valid, we ruled that Banco Filipino
may not increase the interest on respondent
borrowers loan, pursuant to Circular No. 494
issued by the Monetary Board on January 2,
1976, because said circular is not a law
although it has the force and effect of law and
the escalation clause has no provision for
reduction of the stipulated interest in the event
that the applicable maximum rate of interest is
reduced by law or by the Monetary Board (deescalation clause).
Subsequently, in Insular Bank of Asia
and America v. Spouses Salazar27 we
reiterated that escalation clauses are valid
stipulations but their enforceability are subject
to certain conditions. The increase of interest
rate from 19% to 21% per annum made by
petitioner bank was disallowed because it did
not comply with the guidelines adopted by the
Monetary Board to govern interest rate
adjustments by banks and non-banks
performing quasi-banking functions.
In the 1991 case of Philippine National
Bank v. Court of Appeals, 28 the promissory
Yza
notes authorized PNB to increase the

stipulated interest per annum within the limits
allowed by law at any time depending on
whatever policy [PNB] may adopt in the future;
Provided, that, the interest rate on this note
shall be correspondingly decreased in the
event that the applicable maximum interest
rate is reduced by law or by the Monetary
Board. This Court declared the increases
(from 18% to 32%, then to 41% and then to
48%) unilaterally imposed by PNB to be in
violation of the principle of mutuality essential
in contracts.
In the more recent case of Philippine
Savings Bank v. Castillo, 32 we sustained the
CA in declaring as unreasonable the following
escalation clause: The rate of interest and/or
bank charges herein stipulated, during the
terms of this promissory note, its extensions,
renewals or other modifications, may be
increased, decreased or otherwise changed
from time to time within the rate of interest and
charges allowed under present or future law(s)
and/or government regulation(s) as the
[PSBank] may prescribe for its debtors.
Clearly, the increase or decrease of interest
rates under such clause hinges solely on the
discretion of petitioner as it does not require
the conformity of the maker before a new
interest rate could be enforced. We also said
that respondents assent to the modifications in
the interest rates cannot be implied from their
lack of response to the memos sent by
petitioner, informing them of the amendments,
nor from the letters requesting for reduction of
the rates. Thus: the validity of the escalation
clause did not give petitioner the unbridled
right to unilaterally adjust interest rates. The
adjustment should have still been subjected to
the mutual agreement of the contracting
parties. In light of the absence of consent on
the part of respondents to the modifications in
the interest rates, the adjusted rates cannot
bind them notwithstanding the inclusion of a
de-escalation clause in the loan agreement.
It is now settled that an escalation
clause is void where the creditor unilaterally
determines and imposes an increase in the
stipulated rate of interest without the express
conformity of the debtor. Such unbridled right
given to creditors to adjust the interest
independently and upwardly would completely
take away from the debtors the right to assent
to an important modification in their agreement
and would also negate the element of mutuality
in their contracts.34 While a ceiling on interest
rates under the Usury Law was already lifted
under Central Bank Circular No. 905, nothing
therein grants lenders carte blanche authority
to raise interest rates to levels which will either
enslave their borrowers or lead to a
hemorrhaging of their assets.
Page 54
8. CARLOS LIM, ET AL. VS. DEVELOPMENT

BANK OF THE PHILIPPINES
ISSUE: Can the imposition of additional
interest and penalties not stipulated in the
promissory note be allowed?
Penalties and interest rates should be
expressly stipulated in writing. As to the
imposition of additional interest and penalties
not stipulated in the Promissory Notes, this
should not be allowed. Article 1956 of the Civil
Code specifically states that no interest shall
be due unless it has been expressly stipulated
in writing. Thus, the payment of interest and
penalties in loans is allowed only if the parties
agreed to it and reduced their agreement in
writing.
In this case, petitioners never agreed to
pay additional interest and penalties. Hence,
we agree with the RTC that these are illegal,
and thus, void. Quoted below are the findings
of the RTC on the matter, to wit:
Moreover, in its various statements of
account,
[respondent]
Bank
charged
[petitioners] for additional interests and
penalties which were not stipulated in the
promissory notes.
Consequently, this case should be
remanded to the RTC for the proper
determination of petitioners total loan
obligation based on the interest and penalties
stipulated in the Promissory Notes.
Yza
SECTION 7
1. Case Title : THE INTERNATIONAL
CORPORATE BANK (now UNION BANK OF
THE PHILIPPINES), petitioner, vs. SPS.
FRANCIS S. GUECO and MA. LUZ E.
GUECO, respondents.
Syllabi Class : Appeals|Obligations and
Contracts|Banks
and
Banking|Evidence|Fraud|Words
and
Phrases|Checks|Negotiable Instruments
Syllabi:
1. Appeals; Evidence; It is well settled that
the findings of fact of the lower court,
especially when affirmed by the Court of
Appeals, are binding upon the Supreme
Court.As to the first issue, we find for the
respondents. The issue as to what constitutes
the terms of the oral compromise or any
subsequent novation is a question of fact that
was resolved by the Regional Trial Court and
the Court of Appeals in favor of respondents. It
is well settled that the findings of fact of the
lower court, especially when affirmed by the
Court of Appeals, are binding upon this Court.
While there are exceptions to this rule, the
present case does not fall under any one of
them, the petitioners claim to the contrary,
notwithstanding.
2. Obligations and Contracts; Fraud; Words
and Phrases; Fraud is the deliberate intention
to cause damage or prejudice, the voluntary
execution of a wrongful act, or a willful
omission, knowing and intending the effects
which naturally and necessarily arise from
such act or omission; The fraud referred to in
Article 1170 of the Civil Code is the deliberate
and intentional evasion of the normal fulfillment
of an obligation.Fraud has been defined as the deliberate
intention to cause damage or prejudice. It is
the voluntary execution of a wrongful act, or a
willful omission, knowing and intending the
effects which naturally and necessarily arise
from such act or omission; the fraud referred to
in Article 1170 of the Civil Code is the
deliberate and intentional evasion of the
normal fulfillment of obligation. We fail to see
how the act of the petitioner bank in requiring
the respondent to sign the joint motion to
dismiss could constitute as fraud. True,
petitioner may have been remiss in informing
Dr. Gueco that the signing of a joint motion to
dismiss is a standard operating procedure of
petitioner bank. However, this cannot in
anyway have prejudiced Dr. Gueco. The
motion to dismiss was in fact also for the
benefit of Dr. Gueco, as the case filed by
petitioner against it before the lower court
would be dismissed with prejudice. The whole
point of the parties entering into the
compromise agreement was in order that Dr.
Page 55
Gueco would pay his outstanding account and

in return petitioner would return the car and
drop the case for money and replevin before
the Metropolitan Trial Court. The joint motion to
dismiss was but a natural consequence of the
compromise agreement and simply stated that
Dr. Gueco had fully settled his obligation,
hence, the dismissal of the case. Petitioners
act of requiring Dr. Gueco to sign the joint
motion to dismiss cannot be said to be a
deliberate attempt on the part of petitioner to
renege on the compromise agreement of the
parties. It should, likewise, be noted that in
cases of breach of contract, moral damages
may only be awarded when the breach was
attended by fraud or bad faith. The law
presumes good faith.
3. Banks and Banking; Checks; Negotiable
Instruments; Words and Phrases; A stale
check is one which has not been presented for
payment within a reasonable time after its
issue.A stale check is one which has not been
presented for payment within a reasonable
time after its issue. It is valueless and,
therefore, should not be paid. Under the
negotiable instruments law, an instrument not
payable on demand must be presented for
payment on the day it falls due. When the
instrument is payable on demand, presentment
must be made within a reasonable time after
its issue. In the case of a bill of exchange,
presentment is sufficient if made within a
reasonable time after the last negotiation
thereof.
Instruments; A check must be presented for
payment within a reasonable time after its
issue, and in determining what is a reasonable
time, regard is to be had to the nature of the
instrument, the usage of trade or business with
respect to such instruments, and the facts of
the particular case.A check must be presented for payment within
a reasonable time after its issue, and in
determining what is a reasonable time,
regard is to be had to the nature of the
instrument, the usage of trade or business with
respect to such instruments, and the facts of
the particular case. The test is whether the
payee employed such diligence as a prudent
man exercises in his own affairs. This is
because the nature and theory behind the use
of a check points to its immediate use and
payability. In a case, a check payable on
demand which was long overdue by about two
and a half (2-1/2) years was considered a stale
check. Failure of a payee to encash a check
for more than ten (10) years undoubtedly
resulted in the check becoming stale. Thus,
even a delay of one (1) week or two (2) days,
under the specific circumstances of the cited
cases constituted unreasonable time as a
matter of law.
Yza

Instruments; Words
and
Phrases; A
managers check is one drawn by the banks
manager upon the bank itself, and it is similar
to a cashiers check both as to effect and use.
A cashiers check is a check of the banks
cashier on his own or another checkit is a bill
of exchange drawn by the cashier of a bank
upon the bank itself, and accepted in advance
by the act of its issuance.In the case at bar, however, the check involved
is not an ordinary bill of exchange but a
managers check. A managers check is one
drawn by the banks manager upon the bank
itself. It is similar to a cashiers check both as
to effect and use. A cashiers check is a check
of the banks cashier on his own or another
check. In effect, it is a bill of exchange drawn
by the cashier of a bank upon the bank itself,
and accepted in advance by the act of its
issuance. It is really the banks own check and
may be treated as a promissory note with the
bank as a maker. The check becomes the
primary obligation of the bank which issues it
and constitutes its written promise to pay upon
demand. The mere issuance of it is considered
an acceptance thereof. If treated as promissory
note, the drawer would be the maker and in
which case the holder need not prove
presentment for payment or present the bill to
the drawee for acceptance.
Instruments; Even
assuming
that
presentment is needed, failure to present a
managers check for payment within a
reasonable time will result to the discharge of
the drawer only to the extent of the loss
caused by the delay.Even assuming that presentment is needed,
failure to present for payment within a
reasonable time will result to the discharge of
the drawer only to the extent of the loss
caused by the delay. Failure to present on
time, thus, does not totally wipe out all liability.
In fact, the legal situation amounts to an
acknowledgment of liability in the sum stated in
the check. In this case, the Gueco spouses
have not alleged, much less shown that they or
the bank which issued the managers check
has suffered damage or loss caused by the
delay or non-presentment. Definitely, the
original obligation to pay certainly has not been
erased.
petition for review is given due course. The
decision of the Court of Appeals affirming the
decision of the Regional Trial Court is SET
ASIDE. Respondents are further ordered to
pay the original obligation amounting to
P150,000.00 to the petitioner upon surrender
or cancellation of the managers check in the
latters possession, afterwhich, petitioner is to
Page 56
return the subject motor vehicle in good

working condition.
SECTION 9
(BEARER INSTRUMENTS)
1. Case Title : TERESITA L. VERTUDES,
petitioner, vs. JULIE BUENAFLOR and
BUREAU OF IMMIGRATION, respondents.
Court of Appeals.
Syllabi Class : Constitutional Law|Remedial
Law|Due
Process|Right
to
Crossexamination|Certiorari
Syllabi:
1. Constitutional Law; Due Process; Right
to Cross-examination; Where a party has
had the opportunity to cross-examine a witness
but failed to avail himself of it, he necessarily
forfeits the right to cross-examine and the
testimony given on direct examination of the
witness will be received or allowed to remain in
the record.We have explained the meaning of the right to
cross-examination as a vital element of due
process as follows: The right of a party to
confront
and
cross-examine
opposing
witnesses in a judicial litigation, be it criminal or
civil in nature, or in proceedings before
administrative tribunals with quasi-judicial
powers, is a fundamental right which is part of
due process. However, the right is a personal
one which may be waived expressly or
impliedly by conduct amounting to a
renunciation of the right of cross-examination.
Thus, where a party has had the opportunity to
cross-examine a witness but failed to avail
himself of it, he necessarily forfeits the right to
cross-examine and the testimony given on
direct examination of the witness will be
received or allowed to remain in the record.
2. Constitutional Law; Due Process; It is
well-settled that the essence of due process in
administrative proceedings is an opportunity to
explain ones side or an opportunity to seek
reconsideration of the action or ruling
complained of.It is well-settled that the essence of due
process in administrative proceedings is an
opportunity to explain ones side or an
opportunity to seek reconsideration of the
action or ruling complained of. This was clearly
satisfied in the case at bar. Records show that
petitioner not only gave her sworn written
explanation of the charges against her during
the initial stage of the investigation, she also
submitted: a) a sworn counter-affidavit refuting
the charges against her, with all the attached
annexes as evidence; b) a Motion to Re-open
the case with the BI; c) a Motion for
Reconsideration and/or New Trial with the BI;
Yza
d) an Appeal to the CSC; e) a Motion for

Reconsideration with the CSC; f) an Appeal to
the CA; g) a Motion for Reconsideration with
the CA; and h) the instant petition for review.
3. Constitutional Law; Due Process; What
due process demands is for the chief of the
bureau to personally weigh and assess the
evidence which the subordinate has gathered
and not merely to rely on the recommendation
of said investigating officer.There is nothing essentially wrong in the head
of a bureau adopting the recommendation of a
subordinate. Section 47, Book V of the
Administrative Code of 1987 gives the chief of
bureau or office or department the power to
delegate the task of investigating a case to a
subordinate. What due process demands is for
the chief of the bureau to personally weigh and
assess the evidence which the subordinate
has gathered and not merely to rely on the
recommendation of said investigating officer.
4. Remedial Law; Certiorari; It is settled that
only questions of law are entertained in
petitions for review on certiorari under Rule 45
of the Rules of Court; Findings of fact of quasijudicial agencies, like the Bureau of
Immigration (BI) and the Civil Service
Commission (CSC), are accorded not only
respect but even finality if such findings are
supported by substantial evidence.It is settled that only questions of law are
entertained in petitions for review on certiorari
under Rule 45 of the Rules of Court. It is not
the function of this Court, in a petition under
Rule 45, to scrutinize, weigh and analyze
evidence all over again. Well-settled is the rule
that the findings of fact of quasi-judicial
agencies, like the BI and the CSC, are
accorded not only respect but even finality if
such findings are supported by substantial
evidence. Substantial evidence is such amount
of relevant evidence which a reasonable mind
might accept as adequate to support a
conclusion, even if other equally reasonable
minds might conceivably opine otherwise.
IN VIEW WHEREOF, the petition is DENIED.
The Court of Appeals Decision dated February
12, 2002 and Resolution dated April 16, 2002
in CA-G.R. SP No. 58766 are AFFIRMED.
Page 57
2. PHILIPPINE NATIONAL BANK, petitioner,

vs. ERLANDO T. RODRIGUEZ and NORMA
RODRIGUEZ, respondents.
ISSUE: Can an actual, existing, living payee
be considered fictitious? Who bears the
loss in a fictitious payee situation the
drawee or the drawer? What is the fictitious
drawee rule? What is the commercial bad
faith exception to the fictitious drawee rule?
Courts;
Judgments;
Amendment
of
decisions is more acceptable than an
erroneous judgment attaining finality to the
prejudice of innocent parties; The Court
does not sanction careless disposition of
cases by courts of justicethe highest
degree of diligence must go into the study of
every controversy submitted for decision by
litigants.Prefatorily, amendment of decisions
is more acceptable than an erroneous
judgment attaining finality to the prejudice of
innocent parties. A court discovering an
erroneous judgment before it becomes final
may, motu proprio or upon motion of the
parties, correct its judgment with the singular
objective of achieving justice for the litigants.
However, a word of caution to lower courts, the
CA in Cebu in this particular case, is in order.
The Court does not sanction careless
disposition of cases by courts of justice. The
highest degree of diligence must go into the
study of every controversy submitted for
decision by litigants. Every issue and factual
detail must be closely scrutinized and
analyzed, and all the applicable laws
judiciously studied, before the promulgation of
every judgment by the court. Only in this
manner will errors in judgments be avoided.
Negotiable Instruments Law; Checks;
Fictitious Payee Rule; As a rule, when the
payee is fictitious or not intended to be the
true recipient of the proceeds, the check is
considered as a bearer instrument.As a
rule, when the payee is fictitious or not
intended to be the true recipient of the
proceeds, the check is considered as a bearer
instrument. A check is a bill of exchange
drawn on a bank payable on demand. It is
either an order or a bearer instrument.
Same; Same; Same; Bearer and Order
Instruments; Words and Phrases; An order
instrument requires an indorsement from
the payee or holder before it may be validly
negotiated while a bearer instrument is
negotiable by mere delivery.The distinction
between bearer and order instruments lies in
their manner of negotiation. Under Section 30
of the NIL, an order instrument requires an
indorsement from the payee or holder before it
may be validly negotiated. A bearer instrument,
on the other hand, does not require an
indorsement to be validly negotiated. It is
negotiable by mere delivery. The provision
reads:
SEC.
30.
What
constitutes
Yza
negotiation.An instrument is negotiated

when it is transferred from one person to
another in such manner as to constitute the
transferee the holder thereof. If payable to
bearer, it is negotiated by delivery; if payable to
order, it is negotiated by the indorsement of the
holder completed by delivery.
Same; Same; Same; Same; Under Section
9(c) of the Negotiable Instruments Law
(NIL), a check payable to a specified payee
may nevertheless be considered as a
bearer instrument if it is payable to the
order of a fictitious or non-existing person,
and such fact is known to the person
making it so payable.A check that is
payable to a specified payee is an order
instrument. However, under Section 9(c) of the
NIL, a check payable to a specified payee may
nevertheless be considered as a bearer
instrument if it is payable to the order of a
fictitious or non-existing person, and such fact
is known to the person making it so payable.
Thus, checks issued to Prinsipe Abante or Si
Malakas at si Maganda, who are well-known
characters in Philippine mythology, are bearer
instruments because the named payees are
fictitious and non-existent.
Same; Same; Same; Same; Words and
Phrases; Legal Research; In discussing the
broader meaning of the term fictitious as
used in the Negotiable Instruments Law
(NIL), court rulings in the United States are
a logical starting point since our law on
negotiable instruments was directly lifted
from the Uniform Negotiable Instruments
Law of the United States; A review of US
jurisprudence yields that an actual,
existing, and living payee may also be
fictitious if the maker of the check did not
intend for the payee to in fact receive the
proceeds of the checkif the payee is not
the intended recipient of the proceeds of the
check, the payee is considered a fictitious
payee and the check is a bearer instrument; In
a fictitious-payee situation, the drawee bank is
absolved from liability and the drawer bears
the loss, the underlying theory being that one
cannot expect a fictitious payee to negotiate
the check by placing his indorsement
thereon.We have yet to discuss a broader
meaning of the term fictitious as used in the
NIL. It is for this reason that We look
elsewhere for guidance. Court rulings in the
United States are a logical starting point since
our law on negotiable instruments was directly
lifted from the Uniform Negotiable Instruments
Law of the United States. A review of US
jurisprudence yields that an actual, existing,
and living payee may also be fictitious if the
maker of the check did not intend for the payee
to in fact receive the proceeds of the check.
This usually occurs when the maker places a
name of an existing payee on the check for
convenience or to cover up an illegal activity.
Thus, a check made expressly payable to a
Page 58
non-fictitious and existing person is not

necessarily an order instrument. If the payee is
not the intended recipient of the proceeds of
the check, the payee is considered a fictitious
payee and the check is a bearer instrument. In
a fictitious-payee situation, the drawee bank is
absolved from liability and the drawer bears
the loss. When faced with a check payable to a
fictitious payee, it is treated as a bearer
instrument that can be negotiated by delivery.
The underlying theory is that one cannot
expect a fictitious payee to negotiate the check
by placing his indorsement thereon. And since
the maker knew this limitation, he must have
intended for the instrument to be negotiated by
mere delivery. Thus, in case of controversy,
the drawer of the check will bear the loss. This
rule is justified for otherwise, it will be most
convenient for the maker who desires to
escape payment of the check to always deny
the validity of the indorsement. This despite the
fact that the fictitious payee was purposely
named without any intention that the payee
should receive the proceeds of the check.
Same; Same; Same; Under the commercial
bad faith exception to the fictitious-payee rule,
a showing of commercial bad faith on the part
of the drawee bank, or any transferee of the
check for that matter, will work to strip it of this
defense.There is a commercial bad faith
exception to the fictitious-payee rule. A
showing of commercial bad faith on the part of
the drawee bank, or any transferee of the
check for that matter, will work to strip it of this
defense. The exception will cause it to bear the
loss. Commercial bad faith is present if the
transferee of the check acts dishonestly, and is
a party to the fraudulent scheme. Said the US
Supreme Court in Getty: Consequently, a
transferees lapse of wary vigilance, disregard
of suspicious circumstances which might have
well induced a prudent banker to investigate
and other permutations of negligence are not
relevant considerations under Section 3-405
x x x. Rather, there is a commercial bad faith
exception to UCC 3-405, applicable when the
transferee acts dishonestlywhere it has
actual knowledge of facts and circumstances
that amount to bad faith, thus itself becoming a
participant in a fraudulent scheme. x x x Such
a test finds support in the text of the Code,
which omits a standard of care requirement
from UCC 3-405 but imposes on all parties an
obligation to act with honesty in fact. x x x
Same; Same; Same; For the fictitious-payee
rule to be available as a defense, the bank
must show that the maker did not intend for the
named payees to be part of the transaction
involving the checksmere lack of knowledge
on the part of the payees of the existence of
the checks is not tantamount to a lack of
intention on the part of maker that the payees
would not receive the checks proceeds; It is a
requisite condition of a fictitious-payee
situation that the maker of the check intended
Yza
for the payee to have no interest in the

transaction.For the fictitious-payee rule to be
available as a defense, PNB must show that
the makers did not intend for the named
payees to be part of the transaction involving
the checks. At most, the banks thesis shows
that the payees did not have knowledge of the
existence of the checks. This lack of
knowledge on the part of the payees, however,
was not tantamount to a lack of intention on
the part of respondents-spouses that the
payees would not receive the checks
proceeds. Considering that respondentsspouses were transacting with PEMSLA and
not the individual payees, it is understandable
that they relied on the information given by the
officers of PEMSLA that the payees would be
receiving the checks. Verily, the subject checks
are presumed order instruments. This is
because, as found by both lower courts, PNB
failed to present sufficient evidence to defeat
the claim of respondents-spouses that the
named payees were the intended recipients of
the checks proceeds. The bank failed to
satisfy a requisite condition of a fictitious-payee
situationthat the maker of the check intended
for the payee to have no interest in the
transaction. Because of a failure to show that
the payees were fictitious in its broader
sense, the fictitious-payee rule does not apply.
Thus, the checks are to be deemed payable to
order. Consequently, the drawee bank bears
the loss.
Same; Same; Same; Banks and Banking; A
bank that regularly processes checks that are
neither payable to the customer nor duly
indorsed by the payee is apparently grossly
negligent in its operations.PNB was remiss
in its duty as the drawee bank. It does not
dispute the fact that its teller or tellers accepted
the 69 checks for deposit to the PEMSLA
account even without any indorsement from
the named payees. It bears stressing that
order instruments can only be negotiated with
a valid indorsement. A bank that regularly
processes checks that are neither payable to
the customer nor duly indorsed by the payee is
apparently grossly negligent in its operations.
This Court has recognized the unique public
interest possessed by the banking industry and
the need for the people to have full trust and
confidence in their banks. For this reason,
banks are minded to treat their customers
accounts with utmost care, confidence, and
honesty.
Same; Same; Same; Same; In a checking
transaction, the drawee bank has the duty
to verify the genuineness of the signature
of the drawer and to pay the check strictly
in
accordance
with
the
drawers
instructions, i.e., to the named payee in the
check.In a checking transaction, the drawee
bank has the duty to verify the genuineness of
the signature of the drawer and to pay the
check strictly in accordance with the drawers
Page 59
instructions, i.e., to the named payee in the

check. It should charge to the drawers
accounts only the payables authorized by the
latter. Otherwise, the drawee will be violating
the instructions of the drawer and it shall be
liable for the amount charged to the drawers
account.
Banks and Banking; The trustworthiness of
bank employees is indispensable to
maintain the stability of the banking
industrybanks are enjoined to be extra
vigilant in the management and supervision
of their employees.PNB was negligent in
the selection and supervision of its employees.
The trustworthiness of bank employees is
indispensable to maintain the stability of the
banking industry. Thus, banks are enjoined to
be extra vigilant in the management and
supervision of their employees. In Bank of the
Philippine Islands v. Court of Appeals, 216
SCRA 51 (1992), this Court cautioned thus:
Banks handle daily transactions involving
millions of pesos. By the very nature of their
work the degree of responsibility, care and
trustworthiness expected of their employees
and officials is far greater than those of
ordinary clerks and employees. For obvious
reasons, the banks are expected to exercise
the highest degree of diligence in the selection
and supervision of their employees.
Actions; Default; Failure to file an answer is
a ground for a declaration that defendant is
in default.We note that the RTC failed to
thresh out the merits of PNBs cross-claim
against its co-defendants PEMSLA and MPC.
The records are bereft of any pleading filed by
these two defendants in answer to the
complaint of respondents-spouses and crossclaim of PNB. The Rules expressly provide that
failure to file an answer is a ground for a
declaration that defendant is in default. Yet, the
RTC failed to sanction the failure of both
PEMSLA and MPC to file responsive
pleadings. Verily, the RTC dismissal of PNBs
cross-claim has no basis. Thus, this judgment
shall be without prejudice to whatever action
the bank might take against its co-defendants
in the trial court. [Philippine National Bank vs.
Rodriguez, 566 SCRA 513(2008)]
3. PEOPLE VS GILBERT REYES WAGAS

ISSUE: Where a check is made payable to
cash, is it payable to bearer? Can it be
negotiated
without
the
need
of
indorsement?
The check delivered to Ligaray was made
payable to cash. Under the Negotiable
Instruments Law, this type of check was
payable to the bearer and could be negotiated
by mere delivery without the need of an
indorsement.31 This rendered it highly
probable that Wagas had issued the check not
Yza
to Ligaray, but to somebody else like Caada,

his brother-in-law, who then negotiated it to
Ligaray. Relevantly, Ligaray confirmed that he
did not himself see or meet Wagas at the time
of the transaction and thereafter, and expressly
stated that the person who signed for and
received the stocks of rice was Caada.
It bears stressing that the accused, to
be guilty of estafa as charged, must have used
the check in order to defraud the complainant.
What the law punishes is the fraud or deceit,
not the mere issuance of the worthless check.
Wagas could not be held guilty of estafa simply
because he had issued the check used to
defraud Ligaray. The proof of guilt must still
clearly show that it had been Wagas as the
drawer who had defrauded Ligaray by means
of the check.
SECTION 12
1.
Case
Title :
SAN
MIGUEL
CORPORATION,
petitioner,
vs.
BARTOLOME PUZON, JR., respondent.
Court of Appeals.
Syllabi Class : Criminal Law|Theft|Negotiable
Instruments Law|Checks|Words and Phrases
Syllabi:
1. Criminal
Procedure; Preliminary
Investigation; Probable
Cause; The
determination of the existence or absence of
probable cause lies within the discretion of the
prosecuting officers after conducting a
preliminary investigation upon complaint of an
offended party.Probable cause is defined as such facts and
circumstances that will engender a wellfounded belief that a crime has been
committed and that the respondent is probably
guilty thereof and should be held for trial. On
the fine points of the determination of probable
cause, Reyes v. Pearlbank Securities, Inc.
(560 SCRA 518 [2008]) comprehensively
elaborated that: The determination of [the
existence or absence of probable cause] lies
within the discretion of the prosecuting officers
after conducting a preliminary investigation
upon complaint of an offended party. Thus, the
decision whether to dismiss a complaint or not
is dependent upon the sound discretion of the
prosecuting fiscal. He may dismiss the
complaint forthwith, if he finds the charge
insufficient in form or substance or without any
ground. Or he may proceed with the
investigation if the complaint in his view is
sufficient and in proper form. To emphasize,
the determination of probable cause for the
filing of information in court is an executive
function, one that properly pertains at the first
Page 60
instance to the public prosecutor and,

ultimately, to the Secretary of Justice, who may
direct the filing of the corresponding
information or move for the dismissal of the
case. Ultimately, whether or not a complaint
will be dismissed is dependent on the sound
discretion of the Secretary of Justice. And
unless made with grave abuse of discretion,
findings of the Secretary of Justice are not
subject to review. For this reason, the Court
considers it sound judicial policy to refrain from
interfering in the conduct of preliminary
investigations and to leave the Department of
Justice ample latitude of discretion in the
determination of what constitutes sufficient
evidence to establish probable cause for the
prosecution of supposed offenders. Consistent
with this policy, courts do not reverse the
Secretary of Justices findings and conclusions
on the matter of probable cause except in clear
cases of grave abuse of discretion.
2. Same; Same; Negotiable
Instruments
Law; Checks; Words and Phrases; Delivery
as the term is used in Section 12 of the
Negotiable Instruments Law means that the
party delivering did so for the purpose of giving
effect thereto.Considering that the second element is that
the thing taken belongs to another, it is
relevant to determine whether ownership of the
subject check was transferred to petitioner. On
this point the Negotiable Instruments Law
provides: Sec. 12. Antedated and postdated.
The instrument is not invalid for the reason
only that it is antedated or postdated, provided
this is not done for an illegal or fraudulent
purpose. The person to whom an instrument
so dated is delivered acquires the title thereto
as of the date of delivery. (Underscoring
supplied.) Note however that delivery as the
term is used in the aforementioned provision
means that the party delivering did so for the
purpose of giving effect thereto. Otherwise, it
cannot be said that there has been delivery of
the negotiable instrument. Once there is
delivery, the person to whom the instrument is
delivered gets the title to the instrument
completely and irrevocably. If the subject
check was given by Puzon to SMC in payment
of the obligation, the purpose of giving effect to
the instrument is evident thus title to or
ownership of the check was transferred upon
delivery. However, if the check was not given
as payment, there being no intent to give effect
to the instrument, then ownership of the check
was not transferred to SMC.
3. Criminal Law; Theft; Elements.[T]he essential elements of the crime of
theft are the following: (1) that there be a
taking of personal property; (2) that said
property belongs to another; (3) that the taking
be done with intent to gain; (4) that the taking
be done without the consent of the owner; and
(5) that the taking be accomplished without the
Yza
use of violence or intimidation against persons

or force upon things.
WHEREFORE, the petition is DENIED. The
December 21, 2004 Decision and March 28,
2005 Resolution of the Court of Appeals in CAG.R. SP. No. 83905 are AFFIRMED.
SECTIONS 14, 15, AND 16
1. Case Title : FEDERICO O. BORROMEO,

LOURDES O. BORROMEO and FEDERICO
O. BORROMEO, INC, petitioners, vs.
AMANCIO SUN and the COURT OF
APPEALS, respondents.
certiorari of a resolution of the then
Intermediate Appellate Court.
Syllabi
Class :
Courts|Evidence|Evidence|Handwritings|Assig
nments|Negotiable Instruments Law|Expert
Witnesses
Syllabi:
1. Courts; Evidence; Appeals.Well-settled is the rule that factual findings of
the Court of Appeals are conclusive on the
parties and not reviewable by the Supreme
Courtand they carry even more weight when
the Court of Appeals affirms the factual
findings of the trial court.
2. Evidence; Handwritings; Assignments; N
egotiable Instruments Law; The fact that a
Deed of Assignment is dated January 16, 1974
while the questioned signature was found to be
circa 1954-1957, and not that of 1974, does
not necessarily mean that the deed is a
forgery, as where it was clearly intended to be
signed in blank to facilitate the assignment of
shares from one person to another at any
future time, 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.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
Page 61
Yza
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
involved. 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.
3. Evidence; Handwritings; Expert
Witnesses; Courts may place whatever weight
is due on the testimony of an expert witness.Petitioners, however, question the Report of
the document examiner on the ground that
they were not given an opportunity to crossexamine 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 waive their right to crossexamine 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 is due on the
testimony of an expert witness. 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.
The Civil Code provides that an action upon a

written contract, an obligation created by law,
and a judgment must be brought within ten
years from the time the right of action accrues.
x x x Prescription of actions is interrupted when
they are filed before the court, when there is a
written extrajudicial demand by the creditors,
and
when,
there
is
any
written
acknowledgment of the debt by the debtor.
2. Remedial Law; Actions; Prescription; A
mortgage action prescribes after ten years
from the time the right of action accrued.With respect to the first to the fifth causes of
action, as gleaned from the complaint, the
Bank seeks the recovery of the deficient
amount of the obligation after the foreclosure
of the mortgage. Such suit is in the nature of a
mortgage action because its purpose is
precisely to enforce the mortgage contract. A
mortgage action prescribes after ten years
from the time the right of action accrued.
WHEREFORE, the Petition is DISMISSED for
lack of merit and the assailed Resolution,
dated March 13, 1986, AFFIRMED. No
pronouncement as to costs.
The allegation of the spouses that Security

Bank and Trust Company Check No. 027836
was delivered to Orbeta in blank except for the
signature of Milagros Ojeda and the amount of
P10,000 annotated at the back of the check,
and their contention that they cannot be held
liable for the face value of the check since
Milagros Ojeda was not the one who filled up
the date, name of the payee and the amount
appearing on the check, are questions of fact
that require us to re-examine the evidence
presented by the contending parties during
trial. This cannot be done in a petition for
review. Under Rule 45, only questions of law
may be raised in a petition for review, except in
very few specified instances, e.g. where there
is variance in the factual findings of the trial
and appellate courts. Since both the Regional
Trial Court and the Court of Appeals agree on
the cited facts, we are bound by their factual
findings.
2. Case Title : QUIRINO GONZALES

LOGGING CONCESSIONAIRE, QUIRINO
GONZALES and EUFEMIA GONZALES,
petitioners, vs. THE COURT OF APPEALS
(CA) and REPUBLIC PLANTERS BANK,
respondents.
Syllabi
Class :
Remedial
Law|Actions|Prescription
Syllabi:
1. Remedial
Law; Actions; Prescription; Prescription
of
actions is interrupted when they are filed
before the court, when there is a written
extrajudicial demand by the creditors, and
when, there is any written acknowledgment of
the debt by the debtor.-
WHEREFORE, the CA Decision is hereby
AFFIRMED with MODIFICATION.Republic
Banks Complaint with respect to its first to
sixth causes of action is hereby DISMISSED.
Its complaint with respect to its seventh to
ninth causes of action is REMANDED to the
court of origin, the Manila Regional Trial Court,
Branch 36, for it to determine the amounts due
the Bank thereunder.
3.
SPS.
SERGIO
AND
MILAGROS
OJEDA versus ANDRELINA ORBETA
ISSUE: What is the effect of a blank check
that was delivered?
In any event, the spouses do not deny that the

check was delivered to Orbeta and that the
signature appearing on the check belongs to
Page 62
Milagros Ojeda. Even if the check was

delivered to Orbeta in blank, we must stress
that the presumption is that the latter
had prima facie authority to complete the
check by filling up the same. Here, the
provision of Section 14 of the Negotiable
Instruments Law is pertinent:
SEC. 14. Blanks; when may be filled. - Where
the instrument is wanting in any material
particular, the person in possession thereof
has a prima facie authority to complete it by
filling up the blanks therein. And a signature
on a blank paper delivered by the person
making the signature in order that the paper
may be converted into a negotiable instrument
operates as a prima facie authority to fill it up
as such for any amount. In order, however,
that any such instrument, when completed may
be enforced against any person who became a
party thereto prior to its completion, it must be
filled up strictly in accordance with the authority
given and within a reasonable time. But if any
such
instrument,
after
completion,
is
negotiated to a holder in due course, it is valid
and effectual for all purposes in his hands, and
he may enforce it as if it had been filled up
strictly in accordance with the authority given
and within a reasonable time. (Emphasis
supplied.)
The law merely requires that the instrument be
in the possession of a person other than the
drawer or maker, and from such possession,
together with the fact that the instrument is
wanting in a material particular, the law
presumes agency to fill up the blanks.
Because of the presumption of authority, the
burden of proving that there was no authority
or that the authority granted was exceeded is
placed on the person questioning such
authority. There is nothing on record to show
that the prima facie presumption created by the
afore-quoted section was successfully refuted
by the spouses. Therefore, the couple's stance
that they cannot be held liable for the check
because they were not the ones who wrote the
date, the name of the payee and the amount,
is untenable.
Yza
4. Case Title : SAMSON CHING, petitioner,

vs. CLARITA NICDAO and HON. COURT OF
APPEALS, respondents.
Syllabi
Class :
Actions|Burden
of
Proof|Interests|Criminal
Procedure|Civil
Liability|Appeals|Estoppel
Syllabi:
1. Actions; Criminal
Procedure; Civil
Liability; The
civil
liability
is
not
extinguished by acquittal: (a) where the
acquittal is based on reasonable doubt; (b)
where the court expressly declares that the
liability of the accused is not criminal but
only civil in nature; and (c) where the civil
liability is not derived from or based on the
criminal act of which the accused is acquitted.In Sapiera v. Court of Appeals, 314 SCRA
370 (1999), the Court enunciated that the civil
liability is not extinguished by acquittal: (a)
where the acquittal is based on reasonable
doubt; (b) where the court expressly declares
that the liability of the accused is not criminal
but only civil in nature; and (c) where the civil
liability is not derived from or based on the
criminal act of which the accused is acquitted.
Thus, under Article 29 of the Civil CodeART.
29. When the accused in a criminal
prosecution is acquitted on the ground that his
guilt has not been proved beyond reasonable
doubt, a civil action for damages for the same
act or omission may be instituted. Such action
requires only a preponderance of evidence.
Upon motion of the defendant, the court may
require the plaintiff to file a bond to answer for
damages in case the complaint should be
found to be malicious. If in a criminal case the
judgment of acquittal is based upon
reasonable doubt, the court shall so declare. In
the absence of any declaration to that effect, it
may be inferred from the text of the decision
whether or not the acquittal is due to that
ground.
2. Same; Estoppel; Estoppel cannot give
validity to an act that is prohibited by law or
one that is against public policyclearly, the collection of interests without any
stipulation therefor in writing is prohibited by
law.Neither could respondent Nicdao be
considered to be estopped from denying the
validity of these interests. Estoppel cannot give
validity to an act that is prohibited by law or
one that is against public policy. Clearly, the
collection of interests without any stipulation
therefor in writing is prohibited by law.
Consequently, the daily payments made by
respondent
Nicdao
amounting
to
P5,780,000.00 were properly considered by
the CA as applying to the principal amount of
her loan obligations.
3. Interests; Under Article 1956 of the Civil
Code, no interest shall be due unless it has
been expressly stipulated in writing.-
Page 63
The Court agrees with the CA that the daily

payments made by respondent Nicdao
amounting to P5,780,000.00 cannot be
considered as interest payments only. Even
respondent Nicdao testified that the daily
payments that she made to Nuguid were for
the interests due. However, as correctly ruled
by the CA, no interests could be properly
collected in the loan transactions between
petitioner Ching and respondent Nicdao
because there was no stipulation therefor in
writing. To reiterate, under Article 1956 of the
Civil Code, no interest shall be due unless it
has been expressly stipulated in writing.
4. Burden of Proof; It is a basic rule in
evidence that the burden of proof lies on the
party who makes the allegationset incumbit probatio, qui dicit, non qui negat;
cum per rerum naturam factum negantis
probatio nulla sit (The proof lies upon him who
affirms, not upon him who denies; since, by the
nature of things, he who denies a fact cannot
produce any proof).It is a basic rule in
evidence that the burden of proof lies on the
party who makes the allegationsEt incumbit
probatio, qui dicit, non qui negat; cum per
rerum naturam factum negantis probatio nulla
sit (The proof lies upon him who affirms, not
upon him who denies; since, by the nature of
things, he who denies a fact cannot produce
any proof). In civil cases, the party having the
burden of proof must establish his case by a
preponderance of evidence. Preponderance of
evidence is the weight, credit, and value of the
aggregate evidence on either side and is
usually considered to be synonymous with the
term greater weight of evidence or greater
weight
of
the
credible
evidence.
Preponderance of evidence is a phrase which,
in the last analysis, means probability of the
truth. It is evidence which is more convincing to
the court as worthy of belief than that which is
offered in opposition thereto. Section 1, Rule
133 of the Revised Rules of Court offers the
guidelines in determining preponderance of
evidence: SEC. 1. Preponderance of evidence,
how determined.In civil cases, the party
having the burden of proof must establish his
case by a preponderance of evidence. In
determining where the preponderance or
superior weight of evidence on the issues
involved lies, the court may consider all the
facts and circumstances of the case, the
witnesses manner of testifying,
their
intelligence, their means and opportunity of
knowing the facts to which they are testifying,
the nature of the facts to which they testify, the
probability or improbability of their testimony,
their interest or want of interest, and also their
personal credibility so far as the same may
legitimately appear upon the trial. The court
may also consider the number of witnesses,
though the preponderance is not necessarily
with the greater number.
Yza
5. Same; Same; Same; Appeals; The appeal

period accorded to the accused should also be
available to the offended party who seeks
redress of the civil aspect of the decisionthe period to appeal granted to the offended
party is the same as that granted to the
accused.Following the long recognized rule
that the appeal period accorded to the
accused should also be available to the
offended party who seeks redress of the civil
aspect of the decision, the period to appeal
granted to petitioner Ching is the same as that
granted to the accused. With petitioner Chings
timely filing of the instant petition for review of
the civil aspect of the CAs decision, the Court
thus has the jurisdiction and authority to
determine the civil liability of respondent
Nicdao notwithstanding her acquittal. In order
for the petition to prosper, however, it must
establish that the judgment of the CA
acquitting respondent Nicdao falls under any of
the three categories enumerated in Salazar
and Sapiera, to wit: (a) where the acquittal is
based on reasonable doubt as only
preponderance of evidence is required; (b)
where the court declared that the liability of the
accused is only civil; and (c) where the civil
liability of the accused does not arise from or is
not based upon the crime of which the accused
is acquitted.
WHEREFORE, premises considered,
Petition is DENIED for lack of merit.
the
5. Case Title : RAFAEL P. LUNARIA,

petitioner,
vs.
PEOPLE
OF
THE
PHILIPPINES, respondent
Court of Appeals.
Syllabi Class : Criminal Law ; Bouncing
Checks Law ; Checks ; Penalties ;
Syllabi:
1. Remedial Law; Appeals; Certiorari; The
jurisdiction of the Supreme Court is confined to
reviews of errors of law ascribed to the Court
of Appeals (CA).At the outset, the first and second grounds
raised by petitioner are essentially factual in
nature, impugning the finding of guilt by both
the CA and the RTC. Petitioner would have
this court re-evaluate and re-assess the facts,
when it is beyond cavil that in an appeal by
certiorari, the jurisdiction of this Court is
confined to reviews of errors of law ascribed to
the CA. This Court is not a trier of facts, and
the findings of fact by the CA are conclusive,
more so when it concurs with the factual
findings of the RTC. Absent any showing that
such findings are devoid of any substantiation
on record, the finding of guilt is conclusive on
us.
Page 64
2. Same; Same; Same; Penalties; Supreme

Court Administrative Circular No. 12-2000,
authorizing the non-imposition of the
penalty of imprisonment in B.P. 22
cases; Court has not decriminalized B.P. 22
violations, nor have removed imprisonment as
an alternative penalty.Since 1998, this Court has held that it would
best serve the ends of criminal justice if, in
fixing the penalty to be imposed for violation of
B.P. 22, the same philosophy underlying the
Indeterminate Sentence Law be observed, i.e.,
that of redeeming valuable human material and
preventing
unnecessary
deprivation
of
personal liberty and economic usefulness with
due regard to the protection of the social order.
This policy was embodied in Supreme Court
Administrative
Circular
No.
12-2000,
authorizing the non-imposition of the penalty of
imprisonment in B.P. 22 cases. We also
clarified in Administrative Circular No. 13-2001,
as explained in Tan v. Mendez, 383 SCRA 202
(2002), that we are not decriminalizing B.P. 22
violations, nor have we removed imprisonment
as an alternative penalty. Needless to say, the
determination of whether the circumstances
warrant the imposition of a fine alone rests
solely upon the judge. Should the judge decide
that imprisonment is the more appropriate
penalty, Administrative Circular No. 12-2000
ought not to be deemed a hindrance.
3. Same; Same; Checks; The
lack
of
criminal intent on the part of the accused is
irrelevant; The law has made the mere act
of issuing a worthless check a malum
prohibitum; The gravamen of the offense
under this law is the act of issuing a worthless
check or a check that is dishonored upon its
presentment for payment, not the nonpayment
of the obligation.It bears repeating that the lack of criminal
intent on the part of the accused is irrelevant.
The law has made the mere act of issuing a
worthless check a malum prohibitum, an act
proscribed by legislature for being deemed
pernicious and inimical to public welfare. In
fact, even in cases where there had been
payment, through compensation or some other
means, there could still be prosecution for
violation of B.P. 22. The gravamen of the
offense under this law is the act of issuing a
worthless check or a check that is dishonored
upon its presentment for payment, not the
nonpayment of the obligation.
4. Criminal
Law; Bouncing
Checks
Law; Elements of the Crime. We have gone over the records and find no
error in the decision ofthe appellate court
holding that the elements of the crime have
been established by the prosecution, i.e., (1)
the making, drawing, and issuance of any
check to apply for account or for value; (2) the
knowledge of the maker, drawer, or issuer that
at the time of issue he does not have sufficient
funds in or credit with the drawee bank for the
Yza
payment of the check in full upon its

presentment; and (3) the subsequent dishonor
of the check by the drawee bank for
insufficiency of funds or credit or dishonor for
the same reason had not the drawer, without
any valid cause, ordered the bank to stop
payment.
IN VIEW WHEREOF, the petition is DENIED
and the Decision of the Court of Appeals in
CA-G.R. CR No. 20343 is AFFIRMED with
MODIFICATION. Petitioner is ordered to
indemnify Nemesio Artaiz in the amount of
P844,000.00 and the cost of suit, with legal
interest from date of judicial demand. The
sentence of imprisonment of one (1) year is
SET ASIDE and, in lieu thereof, a FINE in the
amount of P200,000.00 is imposed upon
petitioner, with subsidiary imprisonment not to
exceed six months in case of insolvency or
nonpayment.
6. Case Title : JOHN DY, petitioner, vs.
PEOPLE OF THE PHILIPPINES and The
HONORABLE
COURT
OF
APPEALS,
respondents.
Court of Appeals.
Syllabi Class : Criminal Law ; Estafa (Art. 315,
2[d]) ; Penalties ;
Syllabi:
1. Estafa; Bouncing
Checks
Law; Negotiable Instruments Law; Words
and Phrases; Elements of Estafa under Art.
315, par. 2(d) of the Rev. Penal
Code; Section 191 of the Negotiable
Instruments Law defines issue as the first
delivery of an instrument, complete in form,
to a person who takes it as a
holder; Delivery denotes physical transfer of
the instrument by the maker or drawer coupled
with an intention to convey title to the payee
and recognize him as a holder.Before an accused can be held liable for
estafa under Article 315, paragraph 2(d) of the
Revised Penal Code, as amended by Republic
Act No. 4885, the following elements must
concur: (1) postdating or issuance of a check
in payment of an obligation contracted at the
time the check was issued; (2) insufficiency of
funds to cover the check; and (3) damage to
the payee thereof. These elements are present
in the instant case. Section 191 of the
Negotiable Instruments Law defines issue as
the first delivery of an instrument, complete in
form, to a person who takes it as a holder.
Significantly, delivery is the final act essential
to the negotiability of an instrument. Delivery
denotes physical transfer of the instrument by
the maker or drawer coupled with an intention
to convey title to the payee and recognize him
as a holder. It means more than handing over
Page 65
to another; it imports such transfer of the

instrument to another as to enable the latter to
hold it for himself.
2. Criminal
Law; Estafa
(Art.
315,
2[d]); Penalties; If the amount of the fraud
exceeds 22,000, the penalty of reclusin
temporal is imposed in its maximum period,
adding one year for each additional P10,000
but the total penalty shall not exceed thirty (30)
years, which shall be termed reclusin
perpetua, merely to describe the penalty
actually imposed on account of the amount of
the fraud involved.Under Section 1 of P.D. No. 818, if the
amount of the fraud exceeds P22,000, the
penalty of reclusin temporal is imposed in its
maximum period, adding one year for each
additional P10,000 but the total penalty shall
not exceed thirty (30) years, which shall be
termed reclusin perpetua. Reclusin perpetua
is not the prescribed penalty for the offense,
but merely describes the penalty actually
imposed on account of the amount of the fraud
involved.
3. Same; Same; Like Article 315 of the
Revised Penal Code, B.P. Blg. 22 also speaks
only of insufficiency of funds and does not treat
of uncollected deposits.Like Article 315 of the Revised Penal Code,
B.P. Blg. 22 also speaks only of insufficiency of
funds and does not treat of uncollected
deposits. To repeat, we cannot interpret the
law in such a way as to expand its provision to
encompass the situation of uncollected
deposits because it would make the law more
onerous on the part of the accused. Again,
criminal statutes are strictly construed against
the Government and liberally in favor of the
accused.
4. Same; Same; To be liable under Section 1
of B.P. Blg. 22, the check must be dishonored
by the drawee bank for insufficiency of funds or
credit or dishonored for the same reason had
not the drawer, without any valid cause,
ordered the bank to stop payment.In Tan v. People, 349 SCRA 777 (2001), this
Court acquitted the petitioner therein who was
indicted under B.P. Blg. 22, upon a check
which was dishonored for the reason DAUD,
among others. We observed that: In the
second place, even without relying on the
credit line, petitioners bank account covered
the check she issued because even though
there were some deposits that were still
uncollected the deposits became good and
the bank certified that the check was funded.
To be liable under Section 1 of B.P. Blg. 22,
the check must be dishonored by the drawee
bank for insufficiency of funds or credit or
dishonored for the same reason had not the
drawer, without any valid cause, ordered the
bank to stop payment.
5. Same; Same; Estafa; What
the
law
punishes is simply the issuance of a bouncing
check and not the purpose for which it was
Yza
issued nor the terms and conditions relating

theretothe only valid query, then, is whether the law
has been breached, i.e., by the mere act of
issuing a bad check, without so much regard
as to the criminal intent of the issuer.During
the joint pre-trial conference of this case, Dy
admitted that he issued the checks, and that
the signatures appearing on them were his.
The facts reveal that the checks were issued in
blank because of the uncertainty of the volume
of products to be retrieved, the discount that
can be availed of, and the deduction for bad
orders. Nevertheless, we must stress that what
the law punishes is simply the issuance of a
bouncing check and not the purpose for which
it was issued nor the terms and conditions
relating thereto. If inquiry into the reason for
which the checks are issued, or the terms and
conditions of their issuance is required, the
publics faith in the stability and commercial
value of checks as currency substitutes will
certainly erode. Moreover, the gravamen of the
offense under B.P. Blg. 22 is the act of making
or issuing a worthless check or a check that is
dishonored upon presentment for payment.
The act effectively declares the offense to be
one of malum prohibitum. The only valid query,
then, is whether the law has been breached,
i.e., by the mere act of issuing a bad check,
without so much regard as to the criminal
intent of the issuer. Indeed, non-fulfillment of
the obligation is immaterial. Thus, petitioners
defense of failure of consideration must
likewise fall. This is especially so since as
stated above, Dy has acknowledged receipt of
the goods.
6. Batas Pambansa Blg. 22; Bouncing
Checks Law; Elements.The elements of the offense penalized under
B.P. Blg. 22 are as follows: (1) the making,
drawing and issuance of any check to apply to
account or for value; (2) the knowledge of the
maker, drawer or issuer that at the time of
issue he does not have sufficient funds in or
credit with the drawee bank for the payment of
such check in full upon its presentment; and
(3) subsequent dishonor of the check by the
drawee bank for insufficiency of funds or credit
or dishonor for the same reason had not the
drawer, without any valid cause, ordered the
bank to stop payment. The case at bar
satisfies all these elements.
7. Same; Same; Same; Uncollected deposits
are not the same as insufficient fundsthe prima facie presumption of deceit arises
only when a check has been dishonored for
lack or insufficiency of funds; Clearly, the
estafa punished under Article 315, paragraph
2(d) of the Revised Penal Code is committed
when a check is dishonored for being drawn
against insufficient funds or closed account,
and not against uncollected deposit.The
same, however, does not hold true with
respect to FEBTC Check No. 553602 for
Page 66
P106,579.60. This check was dishonored for

the reason that it was drawn against
uncollected
deposit.
Petitioner
had
P160,659.39 in his savings deposit account
ledger as of July 22, 1992. We disagree with
the conclusion of the RTC that since the
balance included a regional clearing check
worth P55,000 deposited on July 20, 1992,
which cleared only five (5) days later, then
petitioner had inadequate funds in this
instance. Since petitioner technically and
retroactively had sufficient funds at the time
Check No. 553602 was presented for payment
then the second element (insufficiency of funds
to cover the check) of the crime is absent. Also
there is no prima facie evidence of deceit in
this instance because the check was not
dishonored for lack or insufficiency of funds.
Uncollected deposits are not the same as
insufficient funds. The prima facie presumption
of deceit arises only when a check has been
dishonored for lack or insufficiency of funds.
Notably, the law speaks of insufficiency of
funds but not of uncollected deposits.
Jurisprudence teaches that criminal laws are
strictly construed against the Government and
liberally in favor of the accused. Hence, in the
instant case, the law cannot be interpreted or
applied in such a way as to expand its
provision to encompass the situation of
uncollected deposits because it would make
the law more onerous on the part of the
accused. Clearly, the estafa punished under
Article 315, paragraph 2(d) of the Revised
Penal Code is committed when a check is
dishonored for being drawn against insufficient
funds or closed account, and not against
uncollected deposit. Corollarily, the issuer of
the check is not liable for estafa if the
remaining balance and the uncollected deposit,
which was duly collected, could satisfy the
amount of the check when presented for
payment.
8. Same; Same; Same; Words
and
Phrases; Deceit as an element of estafa is a
specie of fraudit is actual fraud which consists in any
misrepresentation or contrivance where a
person deludes another, to his hurt.We are
not swayed by petitioners arguments that the
single incident of dishonor and his absence
when the checks were delivered belie fraud.
Indeed damage and deceit are essential
elements of the offense and must be
established with satisfactory proof to warrant
conviction. Deceit as an element of estafa is a
specie of fraud. It is actual fraud which consists
in any misrepresentation or contrivance where
a person deludes another, to his hurt. There is
deceit when one is misledby guile, trickery or
by other meansto believe as true what is
really false.
9. Same; Same; Same; Even if the checks
were given to the payee in blank, this alone did
not make their issuance invalid.-
Yza
In this case, even if the checks were given to

W.L. Foods in blank, this alone did not make
its issuance invalid. When the checks were
delivered to Lim, through his employee, he
became a holder with prima facie authority to
fill the blanks. This was, in fact, accomplished
by Lims accountant. The pertinent provisions
of Section 14 of the Negotiable Instruments
Law are instructive: SEC. 14. Blanks; when
may be filled.Where the instrument is
wanting in any material particular, the person
in possession thereof has a prima facie
authority to complete it by filling up the blanks
therein. And a signature on a blank paper
delivered by the person making the signature
in order that the paper may be converted into a
negotiable instrument operates as a prima
facie authority to fill it up as such for any
amount. . (Emphasis supplied.) Hence, the
law merely requires that the instrument be in
the possession of a person other than the
drawer or maker. From such possession,
together with the fact that the instrument is
wanting in a material particular, the law
presumes agency to fill up the blanks. Because
of this, the burden of proving want of authority
or that the authority granted was exceeded, is
placed on the person questioning such
authority. Petitioner failed to fulfill this
requirement.
Notes.B.P. Blg. 22 does not appear to
concern itself with what might actually be
envisioned by the parties, its primordial
intention being to instead ensure the stability
and commercial value of checks as being vital
substitutes for currency. (Meriz vs. People, 368
SCRA 524 [2001]) Conviction for violation of
B.P. Blg. 22 imports deceit and certainly
relates to and affects the good moral character
of a persona drawer who issues an
unfunded check deliberately reneges on his
private duties he owes his fellow men or
society in a manner contrary to accepted and
customary rule of right and duty, justice,
honesty or good morals. (Villaber vs.
Commission on Elections, 369 SCRA 126
[2001])
Page 67
7. Case Title : BANK OF AMERICA NT & SA,

petitioner, vs. PHILIPPINE RACING CLUB,
respondent.
Court of Appeals.
Syllabi Class : Attorneys Fees
Syllabi:
1. Banks
and
Banking; Negotiable
Instruments Law; If the signatures are
genuine, the bank has the unavoidable legal
and contractual duty to pay.Petitioner insists that it merely fulfilled its
obligation under law and contract when it
encashed the aforesaid checks. Invoking
Sections 126 and 185 of the Negotiable
Instruments Law (NIL), petitioner claims that its
duty as a drawee bank to a drawer-client
maintaining a checking account with it is to pay
orders for checks bearing the drawer-clients
genuine signatures. The genuine signatures of
the clients duly authorized signatories affixed
on the checks signify the order for payment.
Thus, pursuant to the said obligation, the
drawee bank has the duty to determine
whether the signatures appearing on the check
are the drawer-clients or its duly authorized
signatories. If the signatures are genuine, the
bank has the unavoidable legal and contractual
duty to pay. If the signatures are forged and
falsified, the drawee bank has the corollary, but
equally unavoidable legal and contractual, duty
not to pay.
2. Attorneys Fees; An adverse decision does
not ipso facto justify an award of attorneys
fees to the winning party.We find that the awards of attorneys fees
and litigation expenses in favor of respondent
are not justified under the circumstances and,
thus, must be deleted. The power of the court
to award attorneys fees and litigation
expenses under Article 2208 of the NCC
demands factual, legal, and equitable
justification. An adverse decision does not ipso
facto justify an award of attorneys fees to the
winning party. Even when a claimant is
compelled to litigate with third persons or to
incur expenses to protect his rights, still
attorneys fees may not be awarded where no
sufficient showing of bad faith could be
reflected in a partys persistence in a case
other than an erroneous conviction of the
righteousness of his cause.
3. Damages; Following
established
jurisprudential precedents, we believe the
allocation of sixty percent (60%) of the actual
damages, involved in this case (represented by
the amount of the checks with legal interest) to
petitioner is proper under the premises.Following
established
jurisprudential
precedents, we believe the allocation of sixty
percent (60%) of the actual damages involved
in this case (represented by the amount of the
checks with legal interest) to petitioner is
proper under the premises. Respondent
Yza
should, in light of its contributory negligence,

bear forty percent (40%) of its own loss.
4. Same; Doctrine of Last Clear Chance; In
instances where both parties are at fault, this
Court has consistently applied the doctrine of
last clear chance in order to assign liability.Even if we assume that both parties were
guilty of negligent acts that led to the loss,
petitioner will still emerge as the party foremost
liable in this case. In instances where both
parties are at fault, this Court has consistently
applied the doctrine of last clear chance in
order to assign liability. In Westmont Bank v.
Ong, 375 SCRA 212 (2002), we ruled: [I]t is
petitioner [bank] which had the last clear
chance to stop the fraudulent encashment of
the subject checks had it exercised due
diligence and followed the proper and regular
banking procedures in clearing checks. As we
had earlier ruled, the one who had a last clear
opportunity to avoid the impending harm but
failed to do so is chargeable with the
consequences thereof.
5. Same; Every client should be treated
equally by a banking institution regardless of
the amount of his deposits and each client has
the right to expect that every centavo he
entrusts to a bank would be handled with the
same degree of care as the accounts of other
clients.Taking this with the testimony of petitioners
operations manager that in case of an
irregularity on the face of the check (such as
when blanks were not properly filled out) the
bank may or may not call the client depending
on how busy the bank is on a particular day,
we are even more convinced that petitioners
safeguards to protect clients from check fraud
are arbitrary and subjective. Every client
should be treated equally by a banking
institution regardless of the amount of his
deposits and each client has the right to expect
that every centavo he entrusts to a bank would
be handled with the same degree of care as
the accounts of other clients. Perforce, we find
that petitioner plainly failed to adhere to the
high standard of diligence expected of it as a
banking institution.
6. Same; It is well-settled that banks are
engaged in a business impressed with public
interest, and it is their duty to protect in return
their many clients and depositors who transact
business with them.It is well-settled that banks are engaged in a
business impressed with public interest, and it
is their duty to protect in return their many
clients and depositors who transact business
with them. They have the obligation to treat
their clients account meticulously and with the
highest degree of care, considering the
fiduciary nature of their relationship. The
diligence required of banks, therefore, is more
than that of a good father of a family.
7. Same; Same; A material alteration is
defined in Section 125 of the Negotiable
Page 68
Instruments Law (NIL) to be one which

changes the date, the sum payable, the time or
place of payment, the number or relations of
the parties, the currency in which payment is to
be made or one which adds a place of
payment where no place of payment is
specified, or any change or addition which
alters the effect of the instrument in any
respect.Petitioner maintains that there exists a duty
on the drawee bank to inquire from the drawer
before encashing a check only when the check
bears a material alteration. A material
alteration is defined in Section 125 of the NIL
to be one which changes the date, the sum
payable, the time or place of payment, the
number or relations of the parties, the currency
in which payment is to be made or one which
adds a place of payment where no place of
payment is specified, or any other change or
addition which alters the effect of the
instrument in any respect. With respect to the
checks at issue, petitioner points out that they
do not contain any material alteration. This is a
fact which was affirmed by the trial court itself.
WHEREFORE, the Decision of the Court of
Appeals dated July 16, 2001 and its Resolution
dated September 28, 2001 are AFFIRMED
with the following MODIFICATIONS: (a)
petitioner Bank of America NT & SA shall pay
to respondent Philippine Racing Club sixty
percent (60%) of the sum of Two Hundred
Twenty Thousand Pesos (P220,000.00) with
legal interest as awarded by the trial court and
(b) the awards of attorneys fees and litigation
expenses in favor of respondent are deleted.
Proportionate costs.
8.
RIZAL
COMMERCIAL
BANKING
CORPORATION VS HI-TRI DEVELOPMENT
CORPORATION AND LUZ BAKUNAWA
ISSUE: When are instruments considered
delivered under Section 16?
An ordinary check refers to a bill of
exchange drawn by a depositor (drawer) on a
bank (drawee),[24] requesting the latter to pay a
person named therein (payee) or to the order
of the payee or to the bearer, a named sum of
money.[25] The issuance of the check does not
of itself operate as an assignment of any part
of the funds in the bank to the credit of the
drawer.[26] Here, the bank becomes liable only
after it accepts or certifies the check.[27] After
the check is accepted for payment, the bank
would then debit the amount to be paid to the
holder of the check from the account of the
depositor-drawer.
There are checks of a special type
called managers or cashiers checks. These
are bills of exchange drawn by the banks
Yza
manager or cashier, in the name of the bank,

against the bank itself.[28] Typically, a
managers or a cashiers check is procured from
the bank by allocating a particular amount of
funds to be debited from the depositors
account or by directly paying or depositing to
the bank the value of the check to be drawn.
Since the bank issues the check in its name,
with itself as the drawee, the check is deemed
accepted in advance.[29] Ordinarily, the check
becomes the primary obligation of the issuing
bank and constitutes its written promise to pay
upon demand.[30]
Nevertheless, the mere issuance of a
managers check does not ipso facto work as
an automatic transfer of funds to the account of
the payee. In case the procurer of the
managers or cashiers check retains custody of
the instrument, does not tender it to the
intended payee, or fails to make an effective
delivery, we find the following provision on
undelivered instruments under the Negotiable
Instruments Law applicable:[31]
Sec. 16. Delivery; when
effectual;
when
presumed. Every contract on a
negotiable
instrument
is incomplete and revocable
until
delivery
of
the
instrument for the purpose of
giving
effect
thereto. As
between immediate parties and
as regards a remote party other
than a holder in due course,
the delivery, in order to be
effectual, must be made either
by or under the authority of
the party making, drawing,
accepting, or indorsing, as the
case may be; and, in such case,
the delivery may be shown to
have been conditional, or for a
special purpose only, and not
for the purpose of transferring
the property in the instrument.
But where the instrument is in
the hands of a holder in due
course, a valid delivery thereof
by all parties prior to him so as
to make them liable to him is
conclusively presumed. And
where the instrument is no
longer in the possession of a
party whose signature appears
thereon, a valid and intentional
delivery by him is presumed
until the contrary is proved.
(Emphasis supplied.)
Petitioner acknowledges that the Managers
Check was procured by respondents, and that
the amount to be paid for the check would be
sourced from the deposit account of HiTri.[32] When Rosmil did not accept the
Managers Check offered by respondents, the
latter retained custody of the instrument
Page 69
instead of cancelling it. As the Managers

Check neither went to the hands of Rosmil nor
was it further negotiated to other persons, the
instrument remained undelivered. Petitioner
does not dispute the fact that respondents
retained custody of the instrument.[33]
Since
there
was
no
delivery,
presentment of the check to the bank for
payment did not occur. An order to debit the
account of respondents was never made. In
fact, petitioner confirms that the Managers
Check was never negotiated or presented for
payment to its Ermita Branch, and that the
allocated fund is still held by the bank.[34] As a
result, the assigned fund is deemed to remain
part of the account of Hi-Tri, which procured
the Managers Check. The doctrine that the
deposit represented by a managers check
automatically passes to the payee is
inapplicable, because the instrument although
accepted in advance remains undelivered.
Hence, respondents should have been
informed that the deposit had been left inactive
for more than 10 years, and that it may be
subjected to escheat proceedings if left
unclaimed.
After a careful review of the RTC
records, we find that it is no longer necessary
to remand the case for hearing to determine
whether the claim of respondents was valid.
There was no contention that they were the
procurers of the Managers Check. It is
undisputed that there was no effective delivery
of the check, rendering the instrument
incomplete. In addition, we have already
settled that respondents retained ownership of
the funds. As it is obvious from their foregoing
actions that they have not abandoned their
claim over the fund, we rule that the allocated
deposit, subject of the Managers Check,
should be excluded from the escheat
proceedings. We reiterate our pronouncement
that the objective of escheat proceedings is
state forfeiture of unclaimed balances. We
further note that there is nothing in the records
that would show that the OSG appealed the
assailed CA judgments. We take this failure to
appeal as an indication of disinterest in
pursuing the escheat proceedings in favor of
the Republic.
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SECTION 17
1.
Case
Title :
PEOPLE
OF THE
PHILIPPINES, plaintiff-appellee, vs. MARTIN
L. ROMERO and ERNESTO C. RODRIGUEZ,
accused-appellants.
Regional Trial Court of Butuan City, Br. 2.
Syllabi Class : Criminal Law|Estafa
Syllabi:
1. Criminal Law; Estafa; Elements of Estafa.Under paragraph 2 (d) of Article 315, as
amended by R.A. 4885, the elements of estafa
are: (1) a check was postdated or issued in
payment of an obligation contracted at the time
it was issued; (2) lack or insufficiency of funds
to cover the check; (3) damage to the payee
thereof. The prosecution has satisfactorily
established all these elements.
2. Criminal Law; Estafa; What fraud deem to
comprise.Fraud, in its general sense, is deemed to
comprise anything calculated to deceive,
including all acts, omissions, and concealment
involving a breach of legal or equitable duty,
trust, or confidences justly reposed, resulting in
damage to another, or by which an undue and
unconscientious advantage is taken of another.
It is a generic term embracing all multifarious
means which human ingenuity can device, and
which are resorted to by one individual to
secure an advantage over another by false
suggestions or by suppression of truth and
includes
all
surprise,
trick,
cunning,
dissembling and any unfair way by which
another is cheated.
3. Criminal Law; Estafa; There is deceit when
one is misled, either by guide or trickery or by
other means, to believe to be true what is
really false.Deceit is a specie of fraud. It is actual fraud,
and consists in any false representation or
contrivance whereby one person overreaches
and misleads another, to his hurt. Deceit
excludes the idea of mistake. There is deceit
when one is misled, either by guide or trickery
or by other means, to believe to be true what is
really false. In this case, there was deception
when accused fraudulently represented to
complainant that his investment with the
corporation would have an 800% return in 15
or 21 days.
4. Criminal Law; Estafa; Failure to cover the
amount of the check within three days after
notice creates a rebuttable presumption of
fraud.Even assuming for the sake of argument that
the check was dishonored without any
fraudulent pretense or fraudulent act of the
drawer, the latters failure to cover the amount
within three days after notice creates a
rebuttable presumption of fraud.
Page 70
WHEREFORE, the Court hereby AFFIRMS

WITH MODIFICATION the appealed judgment.
The Court hereby sentences accusedappellant Martin Romero to suffer an
indeterminate penalty of ten (10) years and
one (1) day of prision mayor, as minimum, to
sixteen (16) years and one (1) day of reclusion
temporal, as maximum, to indemnify Ernesto
A. Ruiz in the amount of one hundred fifty
thousand pesos (P150,000.00) with interest
thereon at six (6%) per centum per annum
from September 14, 1989, until fully paid, to
pay twenty thousand pesos (P20,000.00) as
moral damages and fifteen thousand pesos
(P15,000.00), as exemplary damages, and the
costs.
2. Case Title : REMEDIOS NOTA SAPIERA,

petitioner, vs. COURT OF APPEALS and
RAMON SUA, respondents.
Syllabi Class : Actions|Negotiable Instruments
Law|Criminal
Law|Damages|Criminal
Procedure|Criminal Law|Estafa
Syllabi:
1. Actions; Damages; Criminal
Procedure; The
civil
liability
is
not
extinguished by acquittal where: (a) the
acquittal is based on reasonable doubt; (b)
where the court expressly declares that the
liability of the accused is not criminal but only
civil in nature; and, (c) where the civil liability is
not derived from or based on the criminal act of
which the accused is acquitted.The judgment of acquittal extinguishes the
liability of the accused for damages only when
it includes a declaration that the fact from
which the civil liability might arise did not exist.
Thus, the civil liability is not extinguished by
acquittal where: (a) the acquittal is based on
reasonable doubt; (b) where the court
expressly declares that the liability of the
accused is not criminal but only civil in nature;
and, (c) where the civil liability is not derived
from or based on the criminal act of which the
accused is acquitted.
2. Negotiable Instruments Law; Where a
signature is so placed upon the instrument that
it is not clear in what capacity the person
making the same intended to sign, he is
deemed an indorser.We affirm the findings of the Court of Appeals
that despite the conflicting versions of the
parties, it is undisputed that the four (4) checks
issued by de Guzman were signed by
petitioner at the back without any indication as
to how she should be bound thereby and,
therefore, she is deemed to be an indorser
thereof. The Negotiable Instruments Law
clearly providesSec. 17. Construction where
instrument
is
ambiguous.Where
the
language of the instrument is ambiguous, or
there are admissions therein, the following
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rules of construction apply: x x x x (f) Where a

signature is so placed upon the instrument that
it is not clear in what capacity the person
making the same intended to sign, he is
deemed an indorser. x x x x
3. Negotiable
Instruments
Law; Damages; Criminal
Law; Estafa; An
accused acquitted of estafa may nevertheless
be held civilly liable where the facts
established by the evidence so warrantshe
may be adjudged liable for the unpaid value of
the checks signed by her in favor of the
complainant.The dismissal of the criminal cases against
petitioner did not erase her civil liability since
the dismissal was due to insufficiency of
evidence and not from a declaration from the
court that the fact from which the civil action
might arise did not exist. An accused acquitted
of estafa may nevertheless be held civilly liable
where the facts established by the evidence so
warrant. The accused should be adjudged
liable for the unpaid value of the checks signed
by her in favor of the complainant.
4. Criminal Law; Damages; Rationale behind
the award of civil indemnity despite a judgment
of acquittal when evidence is sufficient to
sustain the award.The rationale behind the award of civil
indemnity despite a judgment of acquittal when
evidence is sufficient to sustain the award was
explained by the Code Commission in
connection with Art. 29 of the Civil Code, to wit:
The old rule that the acquittal of the accused in
a criminal case also releases him from civil
liability is one of the most serious flaws in the
Philippine legal system. It has given rise to
numberless instances of miscarriage of justice,
where the acquittal was due to a reasonable
doubt in the mind of the court as to the guilt of
the accused. The reasoning followed is that
inasmuch as the civil responsibility is derived
from the criminal offense, when the latter is not
proved, civil liability cannot be demanded. This
is one of those cases where confused thinking
leads
to
unfortunate
and
deplorable
consequences. Such reasoning fails to draw a
clear line of demarcation between criminal
liability and civil responsibility, and to
determine the logical result of the distinction.
The two liabilities are separate and distinct
from each other. One affects the social order
and the other private rights. One is for
punishment or correction of the offender while
the other is for reparation of damages suffered
by the aggrieved party x x x x It is just and
proper that for the purposes of imprisonment of
or fine upon the accused, the offense should
be proved beyond reasonable doubt. But for
the purpose of indemnifying the complaining
party, why should the offense also be proved
beyond reasonable doubt? Is not the invasion
or violation of every private right to be proved
only by preponderance of evidence? Is the
right of the aggrieved person any less private
Page 71
because the wrongful act is also punishable by

the criminal law?
WHEREFORE, the petition is DENIED. The
Decision of the Court of Appeals dated 22
January 1996 as amended by its Resolution
dated 19 March 1997 ordering petitioner
Remedios Nota Sapiera to pay private
respondent Ramon Sua the remaining amount
of P210,150.00 as civil liability, is AFFIRMED.
Costs against petitioners.
3. Case Title : SPOUSES EDUARDO B.

EVANGELISTA
and
EPIFANIA
C.
EVANGELISTA, petitioners, vs. MERCATOR
FINANCE CORP., LYDIA P. SALAZAR,
LAMECS REALTY AND DEVELOPMENT
CORP. and the REGISTER OF DEEDS OF
BULACAN, respondents.
Syllabi
Class :
Civil
Procedure|Civil
Law|Motions|Summary
Judgment|Genuine
Issue|Contracts|Suretyship|Liability
Syllabi:
1. Civil
Procedure; Motions; Summary
Judgment; The crucial question in a motion
for summary judgment is where the issues
raised in the pleadings are genuine or
fictitious.Summary judgment is a procedural technique
aimed at weeding out sham claims or defenses
at an early stage of the litigation. The crucial
question in a motion for summary judgment is
whether the issues raised in the pleadings are
genuine or fictitious, as shown by affidavits,
depositions or admissions accompanying the
motion.
2. Civil
Procedure; Motions; Summary
Judgment; Genuine Issue; The proper
inquiry would therefore be whether the
affirmative defenses offered by petitioners
constitute genuine issue of fact requiring a fullblown trial.A genuine issue means an issue of fact which
calls for the presentation of evidence, as
distinguished from an issue which is fictitious
or contrived so as not to constitute a genuine
issue for trial. To forestall summary judgment,
it is essential for the non-moving party to
confirm the existence of genuine issues where
he has substantial, plausible and fairly
arguable defense, i.e., issues of fact calling for
the presentation of evidence upon which a
reasonable finding of fact could return a verdict
for the non-moving party. The proper inquiry
would therefore be whether the affirmative
defenses offered by petitioners constitute
genuine issue of fact requiring a full-blown trial.
3. Civil
Law; Contracts; Suretyship; Liability; A
surety is bound by the same consideration that
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makes the contract effective between the

parties thereto.A surety is one who is solidarily liable with the
principal. Petitioners cannot claim that they did
not personally receive any consideration for
the contract for well-entrenched is the rule that
the consideration necessary to support a
surety obligation need not pass directly to the
surety, a consideration moving to the principal
alone being sufficient. A surety is bound by the
same consideration that makes the contract
effective between the principal parties thereto.
IN VIEW WHEREOF, the petition is dismissed.
Treble costs against the petitioners.
SECTONS 19, 20, 44 AND 69
1. Case Title: Adalia Francisco vs. CA

Syllabi Class : Remedial Law|Negotiable
Instruments
Law|Civil
Law|Evidence|Indorsement|Damages
Syllabi:
1. Remedial Law; Evidence; Well-entrenched
is the rule that findings of trial courts which are
factual in nature, especially when affirmed by
the Court of Appeals, deserve to be respected
and affirmed by the Supreme Court, provided it
is supported by substantial evidence on
record.As regards the forgery, we concur with the
lower courts finding that Francisco forged the
signature of Ong on the checks to make it
appear as if Ong had indorsed said checks and
that, after indorsing the checks for a second
time by signing her name at the back of the
checks, Francisco deposited said checks in her
savings account with IBAA. The forgery was
satisfactorily established in the trial court upon
the strength of the findings of the NBI
handwriting expert. Other than petitioners selfserving denials, there is nothing in the records
to rebut the NBIs findings. Well-entrenched is
the rule that findings of trial courts which are
factual in nature, especially when affirmed by
the Court of Appeals, deserve to be respected
and affirmed by the Supreme Court, provided it
is supported by substantial evidence on record,
as it is in the case at bench.
2. Negotiable
Instruments
Law; Indorsement; The
Negotiable
Instruments Law provides that where any
person is under obligation to indorse in a
representative capacity, he may indorse in
such terms as to negative personal liability.Petitioner claims that she was, in any event,
authorized to sign Ongs name on the checks
Page 72
by virtue of the Certification executed by Ong

in her favor giving her the authority to collect all
the receivables of HCCC from the GSIS,
including the questioned checks. Petitioners
alternative defense must similarly fail. The
Negotiable Instruments Law provides that
where any person is under obligation to
indorse in a representative capacity, he may
indorse in such terms as to negative personal
liability. An agent, when so signing, should
indicate that he is merely signing in behalf of
the principal and must disclose the name of his
principal; otherwise he shall be held personally
liable. Even assuming that Francisco was
authorized by HCCC to sign Ongs name, still,
Fran- cisco did not indorse the instrument in
accordance with law. Instead of signing Ongs
name, Francisco should have signed her own
name and expressly indicated that she was
signing as an agent of HCCC. Thus, the
Certification cannot be used by Francisco to
validate her act of forgery.
3. Civil Law; Damages; Every person who,
contrary to law, wilfully or negligently causes
damage to another, shall indemnify the latter
for the same.Every person who, contrary to law, wilfully or
negligently causes damage to another, shall
indemnify the latter for the same.Due to her
forgery of Ongs signature which enabled her
to deposit the checks in her own account,
Francisco deprived HCCC of the money due it
from the GSIS pursuant to the Land
Development and Construction Contract. Thus,
we affirm respondent courts award of
compensatory damages in the amount of
P370,475.00, but with a modification as to the
interest rate which shall be six percent (6%)
per annum, to be computed from the date of
the filing of the complaint since the amount of
damages
was
alleged
in
the
complaint;however, the rate of interest shall be
twelve percent (12%) per annum from the time
the judgment in this case becomes final and
executory until its satisfaction and the basis for
the computation of this twelve percent (12%)
rate of interest shall be the amount of
P370,475.00.
4. Civil Law; Damages; Court sustains the
award of exemplary damages in the amount of
P50,000.00.We also sustain the award of exemplary
damages in the amount of P50,000.00. Under
Article 2229 of the Civil Code, exemplary
damages are imposed by way of example or
correction for the public good, in addition to the
moral, temperate, liquidated or compensatory
damages. Considering petitioners fraudulent
act, we hold that an award of P50,000.00
would be adequate, fair and reasonable. The
grant of exemplary damages justifies the
award of attorneys fees in the amount of
P50,000.00, and the award of P5,000.00 for
litigation expenses.
Yza
5. Civil Law; Damages; Appellate courts

award of P50,000.00 in moral damages is
warranted.The appellate courts award of P50,000.00 in
moral damages is warranted. Under Article
2217 of the Civil Code, moral damages may be
granted upon proof of physical suffering,
mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings,
moral shock, social humiliation and similar
injury. Ong testitified that he suffered sleepless
nights, embarrassment, humiliation and anxiety
upon discovering that the checks due his
company were forged by petitioner and that
petitioner had filed baseless criminal
complaints against him before the fiscals office
of Quezon City which disrupted HCCCs
business operations.
WHEREFORE, we AFFIRM the respondent
courts decision promulgated on June 29,
1992, upholding the February 16, 1988
decision of the trial court in favor of private
respondents, with the modification that the
interest upon the actual damages awarded
shall be at six percent (6%) per annum, which
interest rate shall be computed from the time of
the filing of the complaint on November 19,
1979. However, the interest rate shall be
twelve percent (12%) per annum from the time
the judgment in this case becomes final and
executory and until such amount is fully paid.
The basis for computation of the six percent
and twelve percent rates of interest shall be
the
amount
of
P370,475.00.
No
pronouncement as to costs.
2. Case Title : SOLIDBANK CORPORATION,

petitioner, vs. MINDANAO FERROALLOY
CORPORATION,
Spouses
JONG-WON
HONG and SOO-OK KIM HONG, TERESITA
CU, and RICARDO P. GUEVARA and
Spouse, respondents.
Court of Appeals.
Syllabi
Class :
Corporation
Law|Civil
Law|Piercing
the
Veil
of
Corporate
Fiction|Obligations
and
Contracts|Damages|Fraud|Malicious
Prosecution|Attorneys Fees
Syllabi:
1. Corporation Law; Corporate officers cannot
be held personally liable for the consequences
of their acts, for as long as these are for and
on behalf of the corporation, within the scope
of their authority and in good faith.Basic is the principle that a corporation is
vested by law with a personality separate and
distinct from that of each person composing or
representing it. Equally fundamental is the
general rule that corporate officers cannot be
held personally liable for the consequences of
Page 73
their acts, for as long as these are for and on

behalf of the corporation, within the scope of
their authority and in good faith. The separate
corporate personality is a shield against the
personal liability of corporate officers, whose
acts are properly attributed to the corporation.
Corporate Fiction; To disregard the separate
juridical personality of a corporation, the
wrongdoing must be clearly and convincingly
established; it cannot be presumed.Under certain circumstances, courts may treat
a corporation as a mere aggroupment of
persons, to whom liability will directly attach.
The distinct and separate corporate personality
may be disregarded, inter alia, when the
corporate identity is used to defeat public
convenience, justify a wrong, protect a fraud,
or defend a crime. Likewise, the corporate veil
may be pierced when the corporation acts as a
mere alter ego or business conduit of a person,
or when it is so organized and controlled and
its affairs so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of
another corporation. But to disregard the
separate juridical personality of a corporation,
the wrongdoing must be clearly and
convincingly established; it cannot be
presumed.
3. Civil Law; Obligations and Contracts; It is
axiomatic that solidary liability cannot be lightly
inferred.It is axiomatic that solidary liability cannot be
lightly inferred. Under Article 1207 of the Civil
Code, there is a solidary liability only when the
obligation expressly so states, or when the law
or the nature of the obligation requires
solidarity. Since solidary liability is not clearly
expressed in the Promissory Note and is not
required by law or the nature of the obligation
in this case, no conclusion of solidary liability
can be made.
4. Civil Law; Damages; Fraud; Fraud must
be established by clear and convincing
evidence, mere preponderance of evidence is
not adequate.Fraud must be established by clear and
convincing evidence; mere preponderance of
evidence is not adequate. Bad faith, on the
other hand, imports a dishonest purpose or
some moral obliquity and conscious doing of a
wrong, not simply bad judgment or negligence.
It is synonymous with fraud, in that it involves a
design to mislead or deceive another.
5. Civil Law; Damages; The exercise of a
right, though legal by itself, must nonetheless
be done in accordance with the proper norm;
When the right is exercised arbitrarily, unjustly
or excessively and results in damage to
another, a legal wrong is committed for which
the wrongdoer must be held responsible.Article 19 of the Civil Code expresses the
fundamental principle of law on human conduct
that a person must, in the exercise of his
rights and in the performance of his duties, act
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with justice, give every one his due, and

observe honesty and good faith. Under this
basic postulate, the exercise of a right, though
legal by itself, must nonetheless be done in
accordance with the proper norm. When the
right is exercised arbitrarily, unjustly or
excessively and results in damage to another,
a legal wrong is committed for which the
wrongdoer must be held responsible.
6. Civil Law; Damages; Elements to be Liable
under the Abuse-of-Rights Principle.To be liable under the abuse-of-rights principle,
three elements must concur: a) a legal right or
duty, b) its exercise in bad faith, and c) the sole
intent of prejudicing or injuring another.
Needless to say, absence of good faith must
be sufficiently established.
7. Civil
Law; Damages; Malicious
Prosecution; To justify an award of damages
for malicious prosecution, one must prove two
elements: malice or sinister design to vex or
humiliate and want of probable cause.For damages to be properly awarded under the
above provisions, it is necessary to
demonstrate by clear and convincing evidence
that the action instituted by petitioner was
clearly so unfounded and untenable as to
amount to gross and evident bad faith. To
justify an award of damages for malicious
prosecution, one must prove two elements:
malice or sinister design to vex or humiliate
and want of probable cause.
8. Civil Law; Damages; Attorneys Fees; In
the absence of a stipulation, attorneys fees
cannot be recovered, exceptions.For the same reason, attorneys fees cannot
be granted. Article 2208 of the Civil Code
states that in the absence of a stipulation,
attorneys fees cannot be recovered, except in
any of the following circumstances: (1) When
exemplary damages are awarded; (2) When
the defendants act or omission has compelled
the plaintiff to litigate with third persons or to
incur expenses to protect his interest; (3) In
criminal cases of malicious prosecution against
the plaintiff; (4) In case of a clearly unfounded
civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and
evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just and demandable
claim; (6) In actions for legal support; (7) In
actions for the recovery of wages of household
helpers, laborers and skilled workers; (8) In
actions for indemnity under workmens
compensation and employers liability laws; (9)
In a separate civil action to recover civil liability
arising from a crime; (10) When at least double
judicial costs are awarded; (11) In any other
case where the court deems it just and
equitable that attorneys fees and expenses of
litigation should be recovered.
WHEREFORE, this Petition is PARTIALLY
GRANTED. The assailed Decision is
Page 74
AFFIRMED, but the award of moral and

exemplary damages as well as attorneys fees
is DELETED. No costs.
SECTION 22
1. Case Title : ATRIUM MANAGEMENT
CORPORATION, petitioner, vs. COURT OF
APPEALS, E.T. HENRY AND CO., LOURDES
VICTORIA M. DE LEON, RAFAEL DE LEON,
JR., AND HI-CEMENT CORPORATION,
respondents., LOURDES M. DE LEON,
ATRIUM MANAGEMENT CORPORATION,
AND
HI-CEMENT
CORPORATION,
respondents.
Syllabi Class : Corporation Law|Negotiable
Instrument Law|Ultra Vires Acts|Checks|Words
and Phrases
Syllabi:
1. Corporation
Law; Ultra
Vires
Acts; Checks; The act of issuing checks for
the purpose of securing a loan to finance the
activities of the corporation is well within the
ambit of a valid corporate act, hence, not an
ultra vires act.Hi-Cement, however, maintains that the
checks were not issued for consideration and
that Lourdes and E.T. Henry engaged in a
kiting operation to raise funds for E.T. Henry,
who admittedly was in need of financial
assistance. The Court finds that there was no
sufficient evidence to show that such is the
case. Lourdes M. de Leon is the treasurer of
the corporation and is authorized to sign
checks for the corporation. At the time of the
issuance of the checks, there were sufficient
funds in the bank to cover payment of the
amount of P2 million pesos. It is, however, our
view that there is basis to rule that the act of
issuing the checks was well within the ambit of
a valid corporate act, for it was for securing a
loan to finance the activities of the corporation,
hence, not an ultra vires act.
2. Corporation Law; Ultra Vires Acts; Words
and Phrases; Ultra Vires Acts, Explained.An ultra vires act is one committed outside the
object for which a corporation is created as
defined by the law of its organization and
therefore beyond the power conferred upon it
by law. The term ultra vires is distinguished
from an illegal act for the former is merely
voidable which may be enforced by
performance, ratification, or estoppel, while the
latter is void and cannot be validated.
3. Corporation
Law; Ultra
Vires
Acts; Instances when personal liability of
corporate directors, trustees or officers may
validly attach.-
Yza
The next question to determine is whether

Lourdes M. de Leon and Antonio de las Alas
were personally liable for the checks issued as
corporate officers and authorized signatories of
the check. Personal liability of a corporate
director, trustee or officer along (although not
necessarily) with the corporation may so validly
attach, as a rule, only when: 1. He assents (a)
to a patently unlawful act of the corporation, or
(b) for bad faith or gross negligence in directing
its affairs, or (c) for conflict of interest, resulting
in damages to the corporation, its stockholders
or other persons; 2. He consents to the
issuance of watered down stocks or who,
having knowledge thereof, does not forthwith
file with the corporate secretary his written
objection thereto; 3. He agrees to hold himself
personally and solidarily liable with the
corporation; or 4. He is made, by a specific
provision of law, to personally answer for his
corporate action.
4. Corporation
Law; Ultra
Vires
Acts; Checks; A treasurer of a corporation
whose negligence in signing a confirmation
letter for rediscounting of crossed checks,
knowing fully well that the checks were strictly
endorsed for deposit only to the payees
account and not to be further negotiated,
resulting in damage to the corporation may be
personally liable therefor.In the case at bar, Lourdes M. de Leon and
Antonio de las Alas as treasurer and Chairman
of HiCement were authorized to issue the
checks. However, Ms. de Leon was negligent
when she signed the confirmation letter
requested by Mr. Yap of Atrium and Mr. Henry
of E.T. Henry for the rediscounting of the
crossed checks issued in favor of E.T. Henry.
She was aware that the checks were strictly
endorsed for deposit only to the payees
account and not to be further negotiated. What
is more, the confirmation letter contained a
clause that was not true, that is, that the
checks issued to E.T. Henry were in payment
of Hydro oil bought by Hi-Cement from E.T.
Henry. Her negligence resulted in damage to
the corporation. Hence, Ms. de Leon may be
held personally liable therefor.
5. Negotiable
Instrument
Law; Checks; Words and Phrases; Holder
in Due Course, Explained.The next issue is whether or not petitioner
Atrium was a holder of the checks in due
course. The Negotiable Instruments Law,
Section 52 defines a holder in due course,
thus: A holder in due course is a holder who
has taken the instrument under the following
conditions: (a) That it is complete and regular
upon its face; (b) That he became the holder of
it before it was overdue, and without notice that
it had been previously dishonored, if such was
the fact; (c) That he took it in good faith and for
value; (d) That at the time it was negotiated to
him he had no notice of any infirmity in the
Page 75
instrument or defect in the title of the person

negotiating it.
6. Negotiable Instrument Law; Checks; A
person to whom a crossed check was
endorsed by the payee of said check could not
be considered a holder in due course.In the instant case, the checks were crossed
checks and specifically indorsed for deposit to
payees account only. From the beginning,
Atrium was aware of the fact that the checks
were all for deposit only to payees account,
meaning E.T. Henry. Clearly, then, Atrium
could not be considered a holder in due
course.
7. Negotiable Instrument Law; Checks; A
holder not in due course may still recover on
the instrument.It does not follow as a legal proposition that
simply because petitioner Atrium was not a
holder in due course for having taken the
instruments in question with notice that the
same was for deposit only to the account of
payee E.T. Henry that it was altogether
precluded from recovering on the instrument.
The Negotiable Instruments Law does not
provide that a holder not in due course can not
recover on the instrument.
8. Negotiable Instrument Law; Checks; The
disadvantage of a holder not in due course is
that the negotiable instrument is subject to
defenses as if it were non-negotiable, such as
absence or failure of consideration.The disadvantage of Atrium in not being a
holder in due course is that the negotiable
instrument is subject to defenses as if it were
non-negotiable. One such defense is absence
or failure of consideration.
WHEREFORE, the petitions are hereby
DENIED. The decision and resolution of the
Court of Appeals in CA-G.R. CV No. 26686,
are hereby AFFIRMED in toto.
Yza
SECTION 23
(FORGERY)
1. Case Title : ASSOCIATED BANK,

petitioner, vs. HON. COURT OF APPEALS,
PROVINCE OF TARLAC and PHILIPPINE
NATIONAL BANK, respondents.,
AND
PHILIPPINE NATIONAL BANK, petitioner,
vs. HONORABLE COURT OF APPEALS,
PROVINCE OF TARLAC, and ASSOCIATED
BANK, respondents.
Case Nature : PETITIONS for review of a
decision of the Court of Appeals.
Syllabi Class : Commercial Law|Negotiable
Instruments Law|Forgery
Syllabi:
Law; Forgery; A person whose signature to
an instrument was forged was never a party
and never consented to the contract which
allegedly gave rise to such instrument.A forged signature, whether it be that of the
drawer or the payee, is wholly inoperative and
no one can gain title to the instrument through
it. A person whose signature to an instrument
was forged was never a party and never
consented to the contract which allegedly gave
rise to such instrument. Section 23 does not
avoid the instrument but only the forged
signature. Thus, a forged indorsement does
not operate as the payees indorsement.
2. Same; Same; Same; Rule mandates that
the checks be returned within twenty-four
hours after discovery of the forgery but in no
event beyond the period fixed by law for filing a
legal action.The rule mandates that the checks be
returned within twenty-four hours after
discovery of the forgery but in no event beyond
the period fixed by law for filing a legal action.
The rationale of the rule is to give the collecting
bank (which indorsed the check) adequate
opportunity to proceed against the forger. If
prompt notice is not given, the collecting bank
may be prejudiced and lose the opportunity to
go after its depositor.
3. Same; Same; Same; Drawee bank has the
duty to promptly inform the presentor of the
forgery upon discovery.Hence, the drawee bank can recover the
amount paid on the check bearing a forged
indorsement from the collecting bank.
However, a drawee bank has the duty to
promptly inform the presentor of the forgery
upon discovery. If the drawee bank delays in
informing the presentor of the forgery, thereby
depriving said presentor of the right to recover
from the forger, the former is deemed negligent
and can no longer recover from the presentor.
4. Same; Same; Same; Drawee banks not
similarly situated as the collecting bank.-
Page 76
The drawee bank is not similarly situated as

the collecting bank because the former makes
no warranty as to the genuineness of any
indorsement. The drawee banks duty is but to
verify the genuineness of the drawers
signature and not of the indorsement because
the drawer is its client.
5. Same; Same; Same; A collecting bank
which indorses a check bearing a forged
indorsement and presents it to the drawee
bank guarantees all prior indorsements
including the forged indorsement.More importantly, by reason of the statutory
warranty of a general indorser in Section 66 of
the Negotiable Instruments Law, a collecting
bank which indorses a check bearing a forged
bank guarantees all prior indorsements,
including the forged indorsement. It warrants
that the instrument is genuine, and that it is
valid and subsisting at the time of his
indorsement. Because the indorsement is a
forgery, the collecting bank commits a breach
of this warranty and will be accountable to the
drawee bank.
6. Same; Same; Same; Drawee bank can
seek reimbursement or a return of the amount
it paid from the presentor bank or person.In cases involving checks with forged
indorsements, such as the present petition, the
chain of liability does not end with the drawee
bank. The drawee bank may not debit the
account of the drawer but may generally pass
liability back through the collection chain to the
party who took from the forger and, of course,
to the forger himself, if available. In other
words, the drawee bank can seek
reimbursement or a return of the amount it paid
from the presentor bank or person.
Theoretically,
the
latter
can
demand
reimbursement from the person who indorsed
the check to it and so on. The loss falls on the
party who took the check from the forger, or on
the forger himself.
7. Same; Same; Same; Drawer is precluded
from asserting forgery where the drawee bank
can prove a failure by the customer/drawer to
exercise ordinary care that substantially
contributed to the making of the forged
signature.However, if the drawee bank can prove a
failure by the customer/drawer to exercise
ordinary care that substantially contributed to
the making of the forged signature, the drawer
is precluded from asserting the forgery.
8. Same; Same; Same; Payment under a
forged indorsement is not to the drawers
order.The bank on which a check is drawn, known
as the drawee bank, is under strict liability to
pay the check to the order of the payee. The
drawers instructions are reflected on the face
and by the terms of the check. Payment under
a forged indorsement is not to the drawers
order. When the drawee bank pays a person
Yza
other than the payee, it does not comply with

the terms of the check and violates its duty to
charge its customers (the drawer) account
only for properly payable items. Since the
drawee bank did not pay a holder or other
person entitled to receive payment, it has no
right to reimbursement from the drawer. The
general rule then is that the drawee bank may
not debit the drawers account and is not
entitled to indemnification from the drawer. The
risk of loss must perforce fall on the drawee
bank.
9. Same; Same; Same; A collecting bank
where a check is deposited and which indorses
the check upon presentment with the drawee
bank is such an indorser.A collecting bank where a check is deposited
and which indorses the check upon
presentment with the drawee bank, is such an
indorser. So even if the indorsement on the
check deposited by the banks client is forged,
the collecting bank is bound by his warranties
as an indorser and cannot set up the defense
of forgery as against the drawee bank.
10. Same; Same; Same; Indorser
cannot
interpose the defense that signatures prior to
him are forged.An indorser of an order instrument warrants
that the instrument is genuine and in all
respects what it purports to be; that he has a
good title to it; that all prior parties had capacity
to contract; and that the instrument is at the
time of his indorsement valid and subsisting.
He cannot interpose the defense that
signatures prior to him are forged.
11. Same; Same; Same; When the holders
indorsement is forged, all parties prior to the
forgery may raise the real defense of forgery
against all parties subsequent thereto.Where the instrument is payable to order at
the time of the forgery, such as the checks in
this case, the signature of its rightful holder
(here, the payee hospital) is essential to
transfer title to the same instrument. When the
holders indorsement is forged, all parties prior
to the forgery may raise the real defense of
forgery against all parties subsequent thereto.
12. Same; Same; Same; When
the
indorsement is a forgery, only the person
whose signature is forged can raise the
defense of forgery against a holder in due
course.In bearer instruments, the signature of the
payee or holder is unnecessary to pass title to
the instrument. Hence, when the indorsement
is a forgery, only the person whose signature is
forged can raise the defense of forgery against
a holder in due course.
13. Same; Same; Same; Parties who warrant
or admit the genuineness of the signature in
question and those who, by their acts, silence
or negligence are estopped from setting up the
defense of forgery, are precluded from using
this defense.-
Page 77
The exception to the general rule in Section

23 is where a party against whom it is sought
to enforce a right is precluded from setting up
the forgery or want of authority. Parties who
warrant or admit the genuineness of the
signature in question and those who, by their
acts, silence or negligence are estopped from
setting up the defense of forgery, are
precluded from using this defense. Indorsers,
persons negotiating by delivery and acceptors
are warrantors of the genuineness of the
signatures on the instrument.
IN VIEW OF THE FOREGOING, the petition
for review filed by the Philippine National Bank
(G.R. No. 107612) is hereby PARTIALLY
GRANTED. The petition for review filed by the
Associated Bank (G.R. No. 107382) is hereby
DENIED. The decision of the trial court is
MODIFIED. The Philippine National Bank shall
pay fifty percent (50%) of P203,300.00 to the
Province of Tarlac, with legal interest from
March 20, 1981 until the payment thereof.
Associated Bank shall pay fifty percent (50%)
of P203,300.00 to the Philippine National
Bank, likewise, with legal interest from March
20, 1981 until payment is made.
2. SPS. FRANCISCO S. ANTONIO, et al.

vs. SPS. TEODORICO C. OMNES, et al.
ISSUE: Are the Antonios precluded from
recovering from standard chartered bank
due to negligence?
The Court of Appeals correctly observed that
the failure of Mr. Antonio for over three years
to detect the repeated commission of fraud
within his business, which he claims eventually
involved the total amount of P4,720,600.00,
despite the fact that respondent bank sent
monthly statements to Rarecrafts, is indicative
of his extreme negligence. It appears that Mr.
Antonio completely left to Mrs. Omnes the
management of such an important aspect of
his business. While the general rule is that a
drawee bank which clears a forged check for
payment should reimburse the drawer, this
does not apply when the failure of the latter to
exercise ordinary care made the loss possible.
Hence, even is the signatures in the checks
were forged, petitioners have no right of
recourse against respondent bank. (Associated
Bank v. Court of Appeals, 252 SCRA 620
(1996))
Yza
3. MBTC vs. SANVAR DEVT CORP.

ISSUE: WHETHER Sanvars complaint
states a cause of action against Metrobank,
the collecting bank, as to the two checks?
Who bears the loss in case of forges
indorsements?
Section 23 of the Negotiable Instruments Law
provides that when a signature is forged or
made without authority of the person whose
signature it purports to be, it is wholly
inoperative and no right to retain the
instrument or to give a discharge therefor or to
enforce payment thereof against any party
thereto can be acquired through or under such
signature unless the party against whom it is
sought to enforce such right is precluded from
setting up the forgery or want of authority. In
this case, it appears that Isabela State
University issued two checks to "Sanvar c/o
Engineer Jesus Urrea" which were later
entrusted to Eduardo Talaue by Engr. Jesus
Urrea. Eduardo Talaue, however, forged the
indorsements of Engr. Urrea which allowed the
former to deposit the checks to the account of
Lily Ballesteros. The checks were then
indorsed by petitioner Metrobank (as collecting
bank) to DBP, as drawee bank. Petitioner
acted as a general indorser when it stamped
"all prior indorsements and/or lack of
indorsements guaranteed" because it thereby
warranted the genuineness of all prior
indorsenients. Petitioner is thus liable to DBP
for the two checks as a forged indorsement
does not operate as the payee's indorsement.
The
appellate
court
correctly
relied
on Associated Bank v. Court of Appeals, 252
SCRA 620 (1996) in which it was held:
By reason of the statutory warranty of a
general indorser in Section 66 of the
Negotiable Instruments Law, a collecting bank
including the forged indorsement. It warrants
that the instrument is genuine, and that it is
valid and subsisting at the time of his
indorsement. Because the indorsement is a
forgery, the collecting bank commits a breach
of this warranty and will be accountable to the
drawee bank. This liability scheme operates
without regard to fault on the part of the
collecting/presenting bank. Even if the latter
bank was not negligent, it would still be liable
to the drawee bank because of its
indorsement.
The Court has consistently ruled that "the
collecting bank or last indorser generally
suffers the loss because it has the duty to
ascertain the genuineness of all prior
indorsements considering that the act of
presenting the check for payment to the
drawee is an assertion that the party making
Page 78
the presentment had done its duty to ascertain

the genuineness of the indorsements."
The drawee bank is not similarly situated as
the collecting bank because the former makes
no warranty as to the genuineness of any
indorsement. The drawee bank's duty is but to
verify the genuineness of the drawer's
signature and not of the indorsement because
the drawer is its client.
Moreover, the collecting bank is made liable
because it is privy to the depositor who
negotiated the check. The bank knows him, his
address and history because he is a client. It
has taken a risk on his deposit. The bank is
also in a better position to detect forgery, fraud
or irregularity in the indorsement.
Petitioner alleges that the foregoing ruling does
not apply where, as in this case, DBP, the
drawee bank, failed to return the checks with
the forged indorsements within the 24-hour
clearing period. By reason thereof, petitioner
should be absolved from liability pursuant to
4(c) of Central Bank Circular No. 9. The
argument, however, is a matter of defense
which is better threshed out in the proceedings
before the trial court.
4. Case Title : WESTMONT BANK (formerly
ASSOCIATED BANKING CORP.), petitioner,
vs. EUGENE ONG, respondent.
Syllabi Class : Remedial Law|Banks and
Banking|Civil Law|Action|Definition of a cause
of action|Laches
Syllabi:
1. Remedial Law; Action; Definition of a
cause of action; Essential elements of a
cause of action.As defined, a cause of action is the act or
omission by which a party violates a right of
another. The essential elements of a cause of
action are: (a) a legal right or rights of the
plaintiff, (b) a correlative obligation of the
defendant, and (c) an act or omission of the
defendant in violation of said legal right.
2. Banks and Banking; The collecting bank is
liable to the payee and must bear the loss
because it is its legal duty to ascertain that the
payees endorsement was genuine before the
check.The collecting bank is liable to the payee and
must bear the loss because it is its legal duty
to ascertain that the payees endorsement was
genuine before cashing the check. As a
general rule, a bank or corporation who has
obtained possession of a check upon an
unauthorized or forged indorsement of the
payees signature and who collects the amount
of the check other from the drawee, is liable for
the proceeds thereof to the payee or other
owner, notwithstanding that the amount has
been paid to the person from whom the check
was obtained.
Yza
3. Banks and Banking; The position of the

bank taking the check on the forged or
unauthorized indorsement is the same as if it
had taken the check and collected the money
without indorsement at all and the act of the
bank amounts to conversion of the check.The theory of the rule is that the possession of
the check on the forged or unauthorized
indorsement is wrongful, and when the money
had been collected on the check, the bank or
other person or corporation can be held as for
moneys had and received, and the proceeds
are held for the rightful owners who may
recover them. The position of the bank taking
the check on the forged or unauthorized
indorsement is the same as if it had taken the
check and collected the money without
indorsement at all and the act of the bank
amounts to conversion of the check.
4. Banks and Banking; Banks are engaged in
a business impressed with public interest, and
it is their duty to protect in return their many
clients and depositors who transact business
with them.Admittedly, respondent Eugene Ong at the
time the fraudulent transaction took place was
a depositor petitioner bank. Banks are
engaged in a business impressed with public
interest, and it is their duty to protect in return
their many clients and depositors who transact
business with them. They have the obligation
to treat their clients account meticulously and
with the highest degree of care, considering
the fiduciary nature of their relationship. The
diligence required of banks, therefore, is more
than that of a good father of a family.
5. Civil Law; Laches; Laches is negligence or
omission to assert a right within a reasonable
time, warranting a presumption that the party
entitled thereto has either abandoned or
declined to assert it.Laches may be defined as the failure or
neglect for an unreasonable and unexplained
length of time, to do that which, by exercising
due diligence, could or should have been done
earlier. It is negligence or omission to assert a
right within a reasonable time, warranting a
presumption that the party entitled thereto has
either abandoned or declined to assert it. It
concerns itself with whether or not by reason of
long inaction or inexcusable neglect, a person
claiming a right should be barred from
asserting the same, because to allow him to do
so would be unjust to the person against whom
such right is sought to be enforced.
WHEREFORE, the instant petition is DENIED
for lack of merit. The assailed decision of the
Court of Appeals, sustaining the judgment of
the Regional Trial Court of Manila, is
AFFIRMED.
Page 79
5. Case Title : TRADERS ROYAL BANK,

petitioner,
vs.
RADIO
PHILIPPINES
NETWORK,
INC.,
INTERCONTINENTAL
BROADCASTING
CORPORATION
and
BANAHAW
BROADCASTING
CORPORATION, through the BOARD OF
ADMINISTRATORS, and SECURITY BANK
AND TRUST COMPANY, respondents.
Syllabi Class : Banks and Banking|Negotiable
Instruments|Checks|Crossed
Checks|The
crossing of a check should put a bank on
guard
Syllabi:
1. Banks
and
Banking; Negotiable
Instruments; Checks; When a bank pays a
forged check, it must be considered as paying
out of its funds and cannot charge the amount
so paid to the account of the depositor.When a signature is forged or made without
the authority of the person whose signature it
purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a
discharge therefor, or to enforce payment
thereof against any party thereto, can be
acquired through or under such signature.
Consequently, if a bank pays a forged check, it
must be considered as paying out of its funds
and cannot charge the amount so paid to the
account of the depositor.
2. Banks
and
Banking; Negotiable
Instruments; Checks; Where a check is
drawn payable to the order of one person and
is presented for payment by another and
purports upon its face to have been duly
indorsed by the payee of the check, it is the
primary duty of the bank to know that the
check was duly indorsed by the original payee
and, where it pays the amount of the check to
a third person who has forged the signature of
the payee, the loss falls on such bank who
cashed the check.In the instant case, the 3 checks were payable
to the BIR. It was established, however, that
said checks were never delivered or paid to the
payee BIR but were in fact presented for
payment by some unknown persons who, in
order to receive payment therefor, forged the
name of the payee. Despite this fraud,
petitioner TRB paid the 3 checks in the total
amount of P9,790,716.87. Petitioner ought to
have known that, where a check is drawn
payable to the order of one person and is
presented for payment by another and purports
upon its face to have been duly indorsed by
the payee of the check, it is the primary duty of
petitioner to know that the check was duly
indorsed by the original payee and, where it
pays the amount of the check to a third person
who has forged the signature of the payee, the
loss falls upon petitioner who cashed the
check. Its only remedy is against the person to
whom it paid the money.
Yza
3. Banks
and
Banking; Negotiable
Instruments; Checks; Crossed Checks; The
crossing of a check should put a bank on
guard; The effects of a crossed check are that
(a) the check may not be encashed but only
deposited in the bank, (b) the check may be
negotiated only once to one who has an
account with a bank, and, (c) the act of
crossing the check serves as a warning to the
holder that the check has been issued for a
definite purpose so that he must inquire if he
has received the check pursuant to that
purpose, otherwise, he is not a holder in due
course.It should be noted further that one of the
subject checks was crossed. The crossing of
one of the subject checks should have put
petitioner on guard; it was duty-bound to
ascertain the indorsers title to the check or the
nature of his possession. Petitioner should
have known the effects of a crossed check: (a)
the check may not be encashed but only
deposited in the bank; (b) the check may be
negotiated only once to one who has an
account with a bank and (c) the act of crossing
the check serves as a warning to the holder
that the check has been issued for a definite
purpose so that he must inquire if he has
received the check pursuant to that purpose,
otherwise, he is not a holder in due course. By
encashing in favor of unknown persons checks
which were on their face payable to the BIR, a
government agency which can only act only
through its agents, petitioner did so at its peril
and must suffer the consequences of the
unauthorized or wrongful endorsement. In this
light, petitioner TRB cannot exculpate itself
from liability by claiming that respondent
networks were themselves negligent.
4. Banks
and
Banking; Negotiable
Instruments; Checks; A bank is engaged in a
business impressed with public interest and it
is its duty to protect its many clients and
depositors who transact business with it.A bank is engaged in a business impressed
with public interest and it is its duty to protect
its many clients and depositors who transact
business with it. It is under the obligation to
treat the accounts of the depositors and clients
with meticulous care, whether such accounts
consist only of a few hundreds or millions of
pesos.
5. Banks
and
Banking; Negotiable
Instruments; Checks; A collecting bank which
indorses a check bearing a forged indorsement
and presents it to the drawee bank guarantees
all prior indorsements, including the forged
indorsement itself, and ultimately should be
held liable therefor.A collecting bank which indorses a check
bearing a forged indorsement and presents it
to the drawee bank guarantees all prior
indorsements,
including
the
forged
held liable therefor. However, it is doubtful if
Page 80
the subject checks were ever presented to and

accepted by SBTC so as to hold it liable as a
collecting bank, as held by the Court of
Appeals.
6. Banks
and
Banking; Negotiable
Instruments; Checks; A bank who did not pay
the rightful holder or other person or entity
entitled to receive payment has no right to
reimbursement.Since TRB did not pay the rightful holder or
other person or entity entitled to receive
payment, it has no right to reimbursement.
Petitioner TRB was remiss in its duty and
obligation, and must therefore suffer the
consequences of its own negligence and
disregard of established banking rules and
procedures.
WHEREFORE, the appealed decision is
MODIFIED by deleting the award of exemplary
damages. Further, respondent networks are
granted the amount of P100,000 as attorneys
fees. In all other respects, the Court of
Appeals decision is hereby AFFIRMED.
6. Case Title : RAMON K. ILUSORIO,

petitioner, vs. HON. COURT OF APPEALS,
and
THE
MANILA
BANKING
CORPORATION, respondents.
Syllabi
Class :
Civil
Law|Damages|Negligence|Criminal
Law|Forgery|Estoppel
Syllabi:
1. Civil Law; Damages; Negligence; To be
entitled to damages, petitioner has the burden
of proving negligence on the part of the bank
for failure to detect the discrepancy in the
signatures on the checks.On the first issue, we find that petitioner has no
cause of action against Manila Bank. To be
entitled to damages, petitioner has the burden
of proving negligence on the part of the bank
for failure to detect the discrepancy in the
signatures on the checks. It is incumbent upon
petitioner to establish the fact of forgery, i.e.,
by submitting his specimen signatures and
comparing them with those on the questioned
checks. Curiously though, petitioner failed to
submit additional specimen signatures as
requested by the National Bureau of
Investigation from which to draw a conclusive
finding regarding forgery. The Court of Appeals
found that petitioner, by his own inaction, was
precluded from setting up forgery.
2. Civil
Law; Damages; Negligence; Negligence
is
the omission to do something which a
reasonable
man,
guided
by
those
considerations which ordinarily regulate the
conduct of human affairs would do, or the
Yza
doing of something which a prudent and

reasonable man would do.As borne by the records, it was petitioner, not
the bank, who was negligent. Negligence is the
omission to do something which a reasonable
man, guided by those considerations which
ordinarily regulate the conduct of human
affairs, would do, or the doing of something
which a prudent and reasonable man would
do.In the present case, it appears that
petitioner accorded his secretary unusual
degree of trust and unrestricted access to his
credit cards, passbooks, check books, bank
statements, including custody and possession
of cancelled checks and reconciliation of
accounts.
3. Civil
Law; Damages; Negligence; Petitioners
failure to examine his bank statements
appears as the proximate cause of his own
damage; Proximate Cause Defined.Petitioners failure to examine his bank
statements appears as the proximate cause of
his own damage. Proximate cause is that
cause, which, in natural and continuous
sequence,
unbroken
by any efficient
intervening cause, produces the injury, and
without which the result would not have
occurred. In the instant case, the bank was not
shown to be remiss in its duty of sending
monthly bank statements to petitioner so that
any error or discrepancy in the entries therein
could be brought to the banks attention at the
earliest opportunity. But, petitioner failed to
examine these bank statements not because
he was prevented by some cause in not doing
so, but because he did not pay sufficient
attention to the matter. Had he done so, he
could have been alerted to any anomaly
committed against him.
4. Civil Law; Criminal Law; Forgery; When a
signature is forged or made without the
authority of the person whose signature it
purports to be, the check is wholly inoperative
unless the party against whom it is sought to
enforce such right is precluded from setting up
the forgery or want of authority.True, it is a rule that when a signature is forged
or made without the authority of the person
whose signature it purports to be, the check is
wholly inoperative. No right to retain the
instrument, or to give a discharge therefor, or
to enforce payment thereof against any party,
can be acquired through or under such
signature. However, the rule does provide for
an exception, namely: unless the party against
whom it is sought to enforce such right is
precluded from setting up the forgery or want
of authority. In the instant case, it is the
exception that applies. In our view, petitioner is
precluded from setting up the forgery,
assuming there is forgery, due to his own
negligence in entrusting to his secretary his
credit cards and checkbook including the
verification of his statements of account.
Page 81
5. Civil Law; Estoppel; Petitioner cannot hold

private respondent in estoppel for the latter is
not the actual party to the criminal action.On the second issue, the fact that Manila Bank
had filed a case for estafa against Eugenio
would not estop it from asserting the fact that
forgery has not been clearly established.
Petitioner cannot hold private respondent in
estoppel for the latter is not the actual party to
the criminal action. In a criminal action, the
State is the plaintiff, for the commission of a
felony is an offense against the State. Thus,
under Section 2, Rule 110 of the Rules of
Court the complaint or information filed in court
is required to be brought in the name of the
People of the Philippines.
WHEREFORE, the instant petition is DENIED
for lack of merit. The assailed decision of the
Court of Appeals dated January 28, 1999 in
CA-G.R. CV No. 47942, is AFFIRMED.
7. Case Title : MICHAEL A. OSMEA,
petitioner,
vs.
CITIBANK,
N.A.,
ASSOCIATED BANK and FRANK TAN,
respondents.
Syllabi Class : Commercial Law|Banks and
Banking|Negotiable Instruments Law
Syllabi:
1. Commercial
Law; Banks
and
Banking; Negotiable Instruments Law; The
Negotiable Instruments Law was enacted for
the purpose of facilitating, not hindering or
hampering transactions in commercial paper.The petitioner cites the ruling of the Court in
Associated Bank v. Court of Appeals, in which
we outlined the respective responsibilities and
liabilities of a drawee bank, such as the
respondent Citibank, and a collecting bank,
such as the defendant Associated Bank, in the
event that payment of a check to a person not
designated as the payee, or who is not a
holder in due course, had been made.
However, the ruling of the Court therein does
not apply to the present case for, as has been
amply demonstrated, the petitioner failed to
establish that the proceeds of the check was
indeed wrongfully paid by the respondents
Banks to a person other than the intended
payee. In addition, the Negotiable Instruments
Law was enacted for the purpose of facilitating,
not hindering or hampering transactions in
commercial paper. Thus, the said statute
should not be tampered with haphazardly or
lightly. Nor should it be brushed aside in order
to meet the necessities in a single case.
IN LIGHT OF ALL THE FOREGOING, the
petition is DENIED. The Decision dated
November 26, 1999 of the Court of Appeals in
Yza
CA-G.R. CV No. 49529 is hereby AFFIRMED.

Costs against the petitioner.

ISLANDS,
petitioner,
vs.
CASA
MONTESSORI
INTERNATIONALE
and
LEONARDO T. YABUT, respondents.,
and
CASA MONTESSORI INTERNATIONALE,
petitioner, vs. BANK OF THE PHILIPPINE
ISLANDS, respondents.
Court of Appeals.
Law|Administrative Investigations|Banks and
Banking|Accountants
and
Auditors|Damages|Rights of Suspects|SelfIncrimination|Bill
of
Rights|Checks|Evidence|Best
Evidence
Rule|Audit Procedures|Estoppel|Words and
Phrases|Proximate
Cause|Negligence|Forgery|Negligence is not
presumed|but proven by whoever alleges
it|Attorneys Fees|Interest Rates|Negotiable
Instruments Law|Code of Commerce
Syllabi:
1. Negotiable Instruments Law; A forged
signature is a real or absolute defense, and a
person whose signature on a negotiable
instrument is forged is deemed to have never
become a party thereto and to have never
consented to the contract that allegedly gave
rise to it.Section 23 of the NIL provides: Section 23.
Forged signature; effect of.When a signature
is forged or made without the authority of the
person whose signature it purports to be, it is
wholly inoperative, and no right x x x to enforce
payment thereof against any party thereto, can
be acquired through or under such signature,
unless the party against whom it is sought to
enforce such right is precluded from setting up
the forgery or want of authority. Under this
provision, a forged signature is a real or
absolute defense, and a person whose
signature on a negotiable instrument is forged
is deemed to have never become a party
thereto and to have never consented to the
contract that allegedly gave rise to it. The
counterfeiting of any writing, consisting in the
signing of anothers name with intent to
defraud, is forgery.
2. Administrative Investigations; Rights of
Suspects; The mantle of protection under
Section 12 of Article III of the 1987 Constitution
covers only the period from the time a person
is taken into custody for investigation of his
possible participation in the commission of a
crime or from the time he is singled out as a
suspect in the commission of a crime although
not yet in custodyto fall within the ambit of
Section 12, there must be an arrest or a
deprivation of freedom, with questions
Page 82
propounded on him by the police authorities for

the
purpose
of
eliciting
admissions,
confessions, or any information.In the first place, he was not under custodial
investigation. His Affidavit was executed in
private and before private individuals. The
mantle of protection under Section 12 of Article
III of the 1987 Constitution covers only the
period from the time a person is taken into
custody for investigation of his possible
participation in the commission of a crime or
from the time he is singled out as a suspect in
the commission of a crime although not yet in
custody. Therefore, to fall within the ambit of
Section 12, quoted above, there must be an
arrest or a deprivation of freedom, with
questions propounded on him by the police
authorities for the purpose of eliciting
admissions, confessions, or any information.
The said constitutional provision does not
apply to spontaneous statements made in a
voluntary manner whereby an individual orally
admits to authorship of a crime. What the
Constitution proscribes is the compulsory or
coercive disclosure of incriminating facts.
3. Administrative
Investigations; SelfIncrimination; The
right
against
selfincrimination, which is ordinarily available only
in criminal prosecutions, extends to all other
government
proceedingsincluding
civil
actions,
legislative
investigations,
and
administrative proceedings that possess a
criminal or penal aspectbut not to private
investigations done by private individuals.The right against self-incrimination under
Section 17 of Article III of the Constitution,
which is ordinarily available only in criminal
prosecutions, extends to all other government
proceedingsincluding civil actions, legislative
investigations, and administrative proceedings
that possess a criminal or penal aspectbut
not to private investigations done by private
individuals. Even in such government
proceedings, this right may be waived,
provided the waiver is certain; unequivocal;
and intelligently, understanding and willingly
made. If in these government proceedings
waiver is allowed, all the more is it so in private
investigations. It is of no moment that no
criminal case has yet been filed against Yabut.
The filing thereof is entirely up to the
appropriate authorities or to the private
individuals upon whom damage has been
caused. As we shall also explain later, it is not
mandatory for CASAthe plaintiff belowto
implead Yabut in the civil case before the lower
court.
4. Administrative
Investigations; Bill
of
Rights; The Bill of Rights does not concern
itself with the relation between a private
individual and another individualthe Bill of
Rights is a charter of liberties for the individual
and a limitation upon the power of the State.Under these two constitutional provisions,
[t]he Bill of Rights does not concern itself with
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the relation between a private individual and

another individual. It governs the relationship
between the individual and the State.
Moreover, the Bill of Rights is a charter of
liberties for the individual and a limitation upon
the power of the [S]tate. These rights are
guaranteed to preclude the slightest coercion
by the State that may lead the accused to
admit something false, not prevent him from
freely and voluntarily telling the truth.
5. Negotiable
Instruments
Law; Checks; Evidence; Best
Evidence
Rule; Under the best evidence rule as applied
to documentary evidence, like the checks in
question,
no
secondary
evidence
or
substitutionary evidence may inceptively be
introduced, as the original writing itself must be
produced in court, but when, without bad faith
on the part of the offeror, the original checks
have already been destroyed or cannot be
produced in court, secondary evidence, like
microfilm copies, may be produced.Forgery cannot be presumed. It must be
established by clear, positive and convincing
evidence. Under the best evidence rule as
applied to documentary evidence like the
checks in question, no secondary or
substitutionary evidence may inceptively be
introduced, as the original writing itself must be
produced in court. But when, without bad faith
on the part of the offeror, the original checks
have already been destroyed or cannot be
produced in court, secondary evidence may be
produced. Without bad faith on its part, CASA
proved the loss or destruction of the original
checks through the Affidavit of the one person
who knew of that factYabut. He clearly
admitted to discarding the paid checks to cover
up his misdeed. In such a situation, secondary
evidence like microfilm copies may be
introduced in court.
6. Negotiable
Instruments
Evidence
Rule; Even with respect to documentary
evidence, the best evidence rule applies only
when the contents of the documentsuch as
the drawers signature on a checkis the
subject of inquiry.Even with respect to documentary evidence,
the best evidence rule applies only when the
contents of a documentsuch as the drawers
signature on a checkis the subject of inquiry.
As to whether the document has been actually
executed, this rule does not apply; and
testimonial as well as any other secondary
evidence is admissible. Carina Lebron herself,
the drawers authorized signatory, testified
many times that she had never signed those
checks. Her testimonial evidence is admissible;
the checks have not been actually executed.
The genuineness of her handwriting is proved,
not only through the courts comparison of the
questioned hand-writings and admittedly
genuine specimens thereof, but above all by
her.
Page 83
7. Negotiable
Instruments
Evidence
Rule; Of no consequence is the fact that the
depositor did not present the signature card
containing the signatures with which those on
the checks were comparedspecimens of
standard signatures are not limited to such a
card.The failure of CASA to produce the original
checks neither gives rise to the presumption of
suppression of evidence nor creates an
unfavorable inference against it. Such failure
merely authorizes the introduction of
secondary evidence in the form of microfilm
copies. Of no consequence is the fact that
CASA did not present the signature card
containing the signatures with which those on
the checks were compared. Specimens of
standard signatures are not limited to such a
card. Considering that it was not produced in
evidence, other documents that bear the
drawers authentic signature may be resorted
to. Besides, that card was in the possession of
BPIthe adverse party.
8. Banks and Banking; Checks; Since the
banking business is impressed with public
interest, of paramount importance thereto is
the trust and confidence of the public in
generalthe highest degree of diligence is
expected, and high standards of integrity and
performance are even required of it; A bank is
bound to know the signatures of its customers,
and if it pays a forged check, it must be
considered as making the payment out of its
own funds, and cannot ordinarily charge the
amount so paid to the account of the depositor
whose name was forged.We have repeatedly emphasized that, since
the banking business is impressed with public
interest, of paramount importance thereto is
the trust and confidence of the public in
general. Consequently, the highest degree of
diligence is expected, and high standards of
integrity and performance are even required, of
it. By the nature of its functions, a bank is
under obligation to treat the accounts of its
depositors with meticulous care, always having
in mind the fiduciary nature of their
relationship. BPI contends that it has a
signature verification procedure, in which
checks are honored only when the signatures
therein are verified to be the same with or
similar to the specimen signatures on the
signature cards. Nonetheless, it still failed to
detect the eight instances of forgery. Its
negligence consisted in the omission of that
degree of diligence required of a bank. It
cannot now feign ignorance, for very early on
we have already ruled that a bank is bound to
know the signatures of its customers; and if it
pays a forged check, it must be considered as
making the payment out of its own funds, and
cannot ordinarily charge the amount so paid to
the account of the depositor whose name was
forged. In fact, BPI was the same bank
Yza
involved when we issued this ruling seventy

years ago.
9. Banks
and
Banking; Checks; Audit
Procedures; The notice in the monthly
statements issued by the bank that if no error
is reported in ten (10) days, the account will be
correct cannot be considered a waiver, even if
the depositor failed to report the error, and
neither is it estopped from questioning the
mistake after the lapse of the ten-day period
such notice is a simple confirmation or
circularization,in accounting parlance, that
requests client-depositors to affirm the
accuracy of items recorded by the banks.The monthly statements issued by BPI to its
clients contain a notice worded as follows: If
no error is reported in ten (10) days, account
will be correct. Such notice cannot be
considered a waiver, even if CASA failed to
report the error. Neither is it estopped from
questioning the mistake after the lapse of the
ten-day period. This notice is a simple
confirmation or circularizationin accounting
parlancethat requests client-depositors to
affirm the accuracy of items recorded by the
banks. Its purpose is to obtain from the
depositors a direct corroboration of the
correctness of their account balances with their
respective banks. Internal or external auditors
of a bank use it as a basic audit procedure
the results of which its client-depositors are
neither interested in nor privy toto test the
details of transactions and balances in the
banks records. Evidential matter obtained from
independent sources outside a bank only
serves to provide greater assurance of
reliability than that obtained solely within it for
purposes of an audit of its own financial
statements, not those of its client-depositors.
10. Banks
and
Procedures; Banks have no right to impose a
condition unilaterally and thereafter consider
failure to meet such condition a waiver, and
neither may a depositor renounce a right it
never possessed.There is always the audit risk that errors would
not be detected for various reasons. One,
materiality is a consideration in audit planning;
and two, the information obtained from such a
substantive test is merely presumptive and
cannot be the basis of a valid waiver. BPI has
no right to impose a condition unilaterally and
thereafter consider failure to meet such
condition a waiver. Neither may CASA
renounce a right it has never possessed.
11. Banks
and
Procedures; Every right has subjectsactive
and passive, the active subject being entitled
to demand its enforcement while the passive
one being duty-bound to suffer such
enforcement; The bank could not have been
an active subject, because it could not have
demanded from the depositor a response to its
notice, while, on the other hand, the depositor
Page 84
could not have been a passive subject

because it had no obligation to respond.Every right has subjectsactive and passive.
While the active subject is entitled to demand
its enforcement, the passive one is duty-bound
to suffer such enforcement. On the one hand,
BPI could not have been an active subject,
because it could not have demanded from
CASA a response to its notice. Besides, the
notice was a measly request worded as
follows: Please examine x x x and report x x
x. CASA, on the other hand, could not have
been a passive subject, either, because it had
no obligation to respond. It couldas it did
choose not to respond.
12. Banks
and
Banking; Checks; Estoppel; Words
and
Phrases; Estoppel precludes individuals from
denying or asserting, by their own deed or
representation, anything contrary to that
established as the truth, in legal contemplation;
Estoppel will not arise from a conduct due to
ignorance founded upon an innocent mistake.Estoppel precludes individuals from denying or
asserting, by their own deed or representation,
anything contrary to that established as the
truth, in legal contemplation. Our rules on
evidence even make a juris et de jure
presumption that whenever one has, by ones
own act or omission, intentionally and
deliberately led another to believe a particular
thing to be true and to act upon that belief, one
cannotin any litigation arising from such act
or omissionbe permitted to falsify that
supposed truth. In the instant case, CASA
never made any deed or representation that
misled BPI. The formers omission, if any, may
only be deemed an innocent mistake oblivious
to the procedures and consequences of
periodic audits. Since its conduct was due to
such ignorance founded upon an innocent
mistake, estoppel will not arise. A person who
has no knowledge of or consent to a
transaction may not be estopped by it.
Estoppel cannot be sustained by mere
argument or doubtful inference x x x. CASA is
not barred from questioning BPIs error even
after the lapse of the period given in the notice.
13. Banks
and
Banking; Checks; For
allowing payment on the checks to a wrongful
and fictitious payee, the drawee bank becomes
liable to its depositor-drawer.For allowing payment on the checks to a
wrongful and fictitious payee, BPIthe drawee
bankbecomes liable to its depositor-drawer.
Since the encashing bank is one of its
branches, BPI can easily go after it and hold it
liable for reimbursement. It may not debit the
drawers account and is not entitled to
indemnification from the drawer. In both law
and equity, when one of two innocent persons
must suffer by the wrongful act of a third
person, the loss must be borne by the one
whose negligence was the proximate cause of
Yza
the loss or who put it into the power of the third

person to perpetrate the wrong.
14. Banks and Banking; Checks; Proximate
Cause; Words
and
Phrases; Proximate
cause is that cause which, in natural and
continuous sequence, unbroken by any
efficient intervening cause, produces the injury,
and without which the result would not have
occurred.Proximate cause is determined by the facts of
the case. It is that cause which, in natural and
continuous sequence, unbroken by any
efficient intervening cause, produces the injury,
and without which the result would not have
occurred. Pursuant to its prime duty to
ascertain well the genuineness of the
signatures of its client-depositors on checks
being encashed, BPI is expected to use
reasonable business prudence. In the
performance of that obligation, it is bound by
its internal banking rules and regulations that
form part of the contract it enters into with its
depositors.
15. Banks and Banking; Checks; Proximate
Cause; Negligence; Forgery; In
this
jurisdiction, the negligence of the party
invoking forgery is recognized as an exception
to the general rule that a forged signature is
wholly inoperative.In this jurisdiction, the negligence of the party
invoking forgery is recognized as an exception
to the general rule that a forged signature is
wholly inoperative. Contrary to BPIs claim,
however, we do not find CASA negligent in
handling its financial affairs. CASA, we
stress, is not precluded from setting up forgery
as a real defense.
16. Accountants and Auditors; The major
purpose of an independent audit is to
investigate and determine objectively if the
financial statements submitted for audit by a
corporation have been prepared in accordance
with the appropriate financial reporting
practices of private entities.The major purpose of an independent audit is
to investigate and determine objectively if the
financial statements submitted for audit by a
corporation have been prepared in accordance
with the appropriate financial reporting
practices of private entities. The relationship
that arises therefrom is both legal and moral. It
begins with the execution of the engagement
letter that embodies the terms and conditions
of the audit and ends with the fulfilled
expectation of the auditors ethical and
competent performance in all aspects of the
audit.
The
financial
statements
are
representations of the client; but it is the
auditor who has the responsibility for the
accuracy in the recording of data that underlies
their preparation, their form of presentation,
and the opinion expressed therein. The auditor
does not assume the role of employee or of
management in the clients conduct of
Page 85
operations and is never under the control or

supervision of the client.
17. Accountants
and
Auditors; Negligence; Nothing could be more
horrible to a client than to discover later on that
the person tasked to detect fraud was the
same one who perpetrated it.Yabut was an independent auditor hired by
CASA. He handled its monthly bank
reconciliations and had access to all relevant
documents and checkbooks. In him was
reposed the clients trust and confidence that
he would perform precisely those functions and
apply
the
appropriate
procedures
in
accordance with generally accepted auditing
standards. Yet he did not meet these
expectations. Nothing could be more horrible
to a client than to discover later on that the
person tasked to detect fraud was the same
one who perpetrated it.
18. Accountants
and
Auditors; Negligence; Awareness
is
not
equipollent with discernment.It is a non sequitur to say that the person who
receives the monthly bank statements,
together with the cancelled checks and other
debit/credit memoranda, shall examine the
contents and give notice of any discrepancies
within a reasonable time. Awareness is not
equipollent with discernment.
19. Accountants
and
Auditors; Negligence; A preschool teacher
charged with molding the minds of the youth
cannot be burdened with the intricacies or
complexities of corporate existence.Moreover, there was a time gap between the
period covered by the bank statement and the
date of its actual receipt. Lebron personally
received the December 1990 bank statement
only in January 1991when she was also
informed of the forgery for the first time, after
which she immediately requested a stop
payment order. She cannot be faulted for the
late detection of the forged December check.
After all, the bank account with BPI was not
personal but corporate, and she could not be
expected to monitor closely all its finances. A
preschool teacher charged with molding the
minds of the youth cannot be burdened with
the intricacies or complexities of corporate
existence.
20. Accountants
and
Auditors; Negligence; The depositor could
only be blamed, if at all, for its unintelligent
choice in the selection and appointment of an
auditora fault that is not tantamount to
negligence.There is also a cutoff period such that checks
issued during a given month, but not presented
for payment within that period, will not be
reflected therein. An experienced auditor with
intent to defraud can easily conceal any
devious scheme from a client unwary of the
accounting processes involved by manipulating
the cash balances on recordespecially when
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bank transactions are numerous, large and

frequent. CASA could only be blamed, if at all,
for its unintelligent choice in the selection and
appointment of an auditora fault that is not
tantamount to negligence.
21. Accountants
and
Auditors; Negligence; Negligence is not
presumed, but proven by whoever alleges
it; The Professional Regulation Commission,
through the Board of Accountancy, now
requires not only accreditation for the practice
of public accountancy, but also the registration
of firms in the practice thereof.Negligence is not presumed, but proven by
whoever alleges it. Its mere existence is not
sufficient without proof that it, and no other
cause, has given rise to damages. In addition,
this fault is common to, if not prevalent among,
small and medium-sized business entities, thus
leading
the
Professional
Regulation
Commission (PRC), through the Board of
Accountancy (BOA), to require today not only
accreditation for the practice of public
accountancy, but also the registration of firms
in the practice thereof. In fact, among the
attachments now required upon registration
are the code of good governance and a sworn
statement on adequate and effective training.
22. Accountants
and
Auditors; Negligence; If auditors may be held
liable for breach of contract and negligence,
with all the more reason may they be charged
with the perpetration of fraud upon an
unsuspecting client.Clearly then, Yabut was able to perpetrate the
wrongful act through no fault of CAS A. If
auditors may be held liable for breach of
contract and negligence, with all the more
reason may they be charged with the
perpetration of fraud upon an unsuspecting
client. CASA had the discretion to pursue BPI
alone under the NIL, by reason of expediency
or munificence or both. Money paid under a
mistake may rightfully be recovered, and under
such terms as the injured party may choose.
23. Damages; The adverse result of an action
does not per se make the action wrongful, or
the party liable for it.In the absence of a wrongful act or omission,
or of fraud or bad faith, moral damages cannot
be awarded. The adverse result of an action
does not per se make the action wrongful, or
the party liable for it. One may err, but error
alone is not a ground for granting such
damages. While no proof of pecuniary loss is
necessary thereforwith the amount to be
awarded left to the courts discretionthe
claimant must nonetheless satisfactorily prove
the existence of its factual basis and causal
relation to the claimants act or omission.
24. Damages; As a general rule, a corporation
is not entitled to moral damages because it
cannot experience physical suffering and
mental anguish, but, for breach of the fiduciary
duty required of a bank, a corporate client may
Page 86
claim such damages when its good reputation

is besmirched by such breach, and social
humiliation results therefrom.As a general rule, a corporationbeing an
artificial person without feelings, emotions and
senses, and having existence only in legal
contemplationis not entitled to moral
damages, because it cannot experience
physical suffering and mental anguish.
However, for breach of the fiduciary duty
required of a bank, a corporate client may
claim such damages when its good reputation
is besmirched by such breach, and social
humiliation results therefrom. CASA was
unable to prove that BPI had debased the
good reputation of, and consequently caused
incalculable embarrassment to, the former.
CASAs mere allegation or supposition thereof,
without any sufficient evidence on record, is
not enough.
25. Damages; Attorneys Fees; When the act
or omission of the defendant has compelled
the plaintiff to incur expenses to protect the
latters interest, or where the court deems it
just and equitable, attorneys fees may be
recovered.Although it is a sound policy not to set a
premium on the right to litigate, we find that
CASA is entitled to reasonable attorneys fees
based on factual, legal, and equitable
justification. When the act or omission of the
defendant has compelled the plaintiff to incur
expenses to protect the latters interest, or
where the court deems it just and equitable,
attorneys fees may be recovered. In the
present case, BPI persistently denied the claim
of CASA under the NIL to recredit the latters
account for the value of the forged checks.
This denial constrained CASA to incur
expenses and exert effort for more than ten
years in order to protect its corporate interest
in its bank account. Besides, we have already
cautioned BPI on a similar act of negligence it
had committed seventy years ago, but it has
remained unrelenting. Therefore, the Court
deems it just and equitable to grant ten percent
(10%) of the total value adjudged to CASA as
attorneys fees.
26. Damages; Interest Rates; Since a court
judgment is not a loan or a forbearance of
recovery, the legal interest shall be at six
percent (6%) per annum.For the failure of BPI to pay CASA upon
demand and for compelling the latter to resort
to the courts to obtain payment, legal interest
may be adjudicated at the discretion of the
Court, the same to run from the filing of the
Complaint. Since a court judgment is not a
loan or a forbearance of recovery, the legal
interest shall be at six percent (6%) per
annum. If the obligation consists in the
payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall
be the payment of x x x legal interest, which is
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six percent per annum. The actual base for its

computation shall be on the amount finally
adjudged, compounded annually to make up
for the cost of money already lost to CASA.
27. Damages; Negotiable
Instruments
Law; Code of Commerce; Under Section 196
of the NIL, any case not provided for shall be
governed by the provisions of existing
legislation or, in default thereof, by the rules of
the law merchant, and, since damages are not
provided for in the NIL, resort is had to the
Code of Commerce and the Civil Code.Moreover, the failure of the CA to award
interest does not prevent us from granting it
upon damages awarded for breach of contract.
Because BPI evidently breached its contract of
deposit with CASA, we award interest in
addition to the total amount adjudged. Under
Section 196 of the NIL, any case not provided
for shall be governed by the provisions of
existing legislation or, in default thereof, by the
rules of the law merchant. Damages are not
provided for in the NIL. Thus, we resort to the
Code of Commerce and the Civil Code. Under
Article 2 of the Code of Commerce, acts of
commerce shall be governed by its provisions
and, in their absence, by the usages of
commerce generally observed in each place;
and in the absence of both rules, by those of
the civil law. This law being silent, we look at
Article 18 of the Civil Code, which states: In
matters which are governed by the Code of
Commerce and special laws, their deficiency
shall be supplied by its provisions. A perusal
of these three statutes unmistakably shows
that the award of interest under our civil law is
justified.
WHEREFORE, the Petition in G.R. No. 149454
is hereby DENIED, and that in G.R. No.
149507 PARTLY GRANTED. The assailed
Decision of the Court of Appeals is AFFIRMED
with modification: BPI is held liable for
P547,115, the total value of the forged checks
less the amount already recovered by CASA
from Leonardo T. Yabut, plus interest at the
legal rate of six percent (6%) per annum
compounded annually, from the filing of the
complaint until paid in full; and attorneys fees
of ten percent (10%) thereof, subject to
reimbursement from Respondent Yabut for the
entire amount, excepting attorneys fees. Let a
copy of this Decision be furnished the Board of
Accountancy of the Professional Regulation
Commission for such action as it may deem
appropriate against Respondent Yabut. No
costs.
Page 87
9. Case Title : SAMSUNG CONSTRUCTION

COMPANY PHILIPPINES, INC., petitioner,
vs. FAR EAST BANK AND TRUST
COMPANY AND COURT OF APPEALS,
respondents.
Law|Checks|Forgery|Negligence
Syllabi:
1. Negotiable Instruments Law; Checks; A
forged signature is wholly inoperative and
payment made through or under such
signature is ineffectual or does not discharge
the instrument.The general rule is to the effect that a forged
signature is wholly inoperative, and payment
made through or under such signature is
ineffectual or does not discharge the
instrument. If payment is made, the drawee
cannot charge it to the drawers account. The
traditional justification for the result is that the
drawee is in a superior position to detect a
forgery because he has the makers signature
and is expected to know and compare it. The
rule has a healthy cautionary effect on banks
by encouraging care in the comparison of the
signatures against those on the signature
cards they have on file. Moreover, the very
opportunity of the drawee to insure and to
distribute the cost among its customers who
use checks makes the drawee an ideal party to
spread the risk to insurance.
2. Negotiable
Instruments
Law; Checks; Forgery; Forgery is a real or
absolute defense by the party whose signature
is forged.Under Section 23 of the Negotiable
Instruments Law, forgery is a real or absolute
defense by the party whose signature is
forged. On the premise that Jongs signature
was indeed forged, FEBTC is liable for the loss
since it authorized the discharge of the forged
check. Such liability attaches even if the bank
exerts due diligence and care in preventing
such faulty discharge. Forgeries often deceive
the eye of the most cautious experts; and
when a bank has been so deceived, it is a
harsh rule which compels it to suffer although
no one has suffered by its being deceived. The
forgery may be so near like the genuine as to
defy detection by the depositor himself, and yet
the bank is liable to the depositor if it pays the
check.
3. Negotiable
Instruments
Law; Checks; Forgery; A document formally
presented is presumed to be genuine until it is
proved to be fraudulent.Thus, the first matter of inquiry is into whether
the check was indeed forged. A document
formally presented is presumed to be genuine
until it is proved to be fraudulent. In a forgery
trial, this presumption must be overcome but
this can only be done by convincing testimony
and effective illustrations.
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4. Negotiable
Instruments
Law; Checks; Forgery; Bare fact that the
forgery was committed by an employee of the
party whose signature was forged cannot
necessarily imply that such partys negligence
was the cause for the forgery.The bare fact that the forgery was committed
by an employee of the party whose signature
was forged cannot necessarily imply that such
partys negligence was the cause for the
forgery. Employers do not possess the
preternatural gift of cognition as to the evil that
may lurk within the hearts and minds of their
employees.
5. Negotiable
Instruments
Law; Checks; Forgery; If a bank pays a
forged check, it must be considered as paying
out of its funds and cannot charge the amount
so paid to the account of the depositor.Still, even if the bank performed with utmost
diligence, the drawer whose signature was
forged may still recover from the bank as long
as he or she is not precluded from setting up
the defense of forgery. After all, Section 23 of
the Negotiable Instruments Law plainly states
that no right to enforce the payment of a check
can arise out of a forged signature. Since the
drawer, Samsung Construction, is not
precluded by negligence from setting up the
forgery, the general rule should apply.
Consequently, if a bank pays a forged check, it
must be considered as paying out of its funds
and cannot charge the amount so paid to the
account of the depositor. A bank is liable,
irrespective of its good faith, in paying a forged
check.
6. Negotiable
Instruments
Law; Checks; Forgery; Negligence; The
presumption remains that every person takes
ordinary care of his concerns, and that the
ordinary course of business has been followed;
Negligence is not presumed but must be
proven by him who alleges it.Still, in the absence of evidence to the
contrary, we can conclude that there was no
negligence on Samsung Constructions part.
The presumption remains that every person
takes ordinary care of his concerns, and that
the ordinary course of business has been
followed. Negligence is not presumed, but
must be proven by him who alleges it. While
the complaint was lodged at the instance of
Samsung Construction, the matter it had to
prove was the claim it had allegedwhether
the check was forged. It cannot be required as
well to prove that it was not negligent, because
the legal presumption remains that ordinary
care was employed.
WHEREFORE, the Petition is GRANTED. The
Decision of the Court of Appeals dated 28
November 1996 is REVERSED, and the
Decision of the Regional Trial Court of Manila,
Page 88
Branch 9, dated 25 April 1994

REINSTATED. Costs against respondent.
is
10. Case Title : BPI FAMILY BANK,

petitioner, vs. EDGARDO BUENAVENTURA,
MYRNA LIZARDO and YOLANDA TICA,
respondents., EDGARDO BUENAVENTURA,
MYRNA LIZARDO and YOLANDA TICA,
petitioners, vs. BPI FAMILY BANK,
respondent.
Case Nature : PETITIONS for review on
Court of Appeals.
Syllabi
Class :
Remedial
Law|Civil
Law|Actions|Party-in-Interest|Banks|Forgery
Syllabi:
1. Remedial
Law; Actions; Party-inInterest; It is elementary that it is only in the
name of a real party-in-interest that a civil suit
may be prosecuted; To qualify a person to be a
real party-in-interest in whose name an action
must be prosecuted, he must appear to be the
present real owner of the right sought to be
enforced.It is elementary that it is only in the name of a
real party-in-interest that a civil suit may be
prosecuted. Under Section 2, Rule 3 of the
Rules of Civil Procedure, a real party-ininterest is the party who stands to be benefited
or injured by the judgment in the suit, or the
party entitled to the avails of the suit. Interest
within the meaning of the rule means material
interest, an interest in issue and to be affected
by the decree, as distinguished from mere
interest in the question involved, or a mere
incidental interest. One having no right or
interest to protect cannot invoke the jurisdiction
of the court as a party plaintiff in an action. To
qualify a person to be a real party-in-interest in
whose name an action must be prosecuted, he
must appear to be the present real owner of
the right sought to be enforced. Since a
contract may be violated only by the parties
thereto as against each other, in an action
upon that contract, the real parties-in-interest,
either as plaintiff or as defendant, must be
parties to the said contract.
2. Remedial Law; Actions; A court may grant
relief to a party even if the party awarded did
not pray for it in his pleadings.There is no merit to the claim that the CA erred
in affirming the RTCs order directing BPI-FB to
pay the balance of their account plus interest
although the prayer was only to reinstate their
Current Account. The complaint does contain a
general prayer for such other relief as may be
just and equitable in the premises. And this
general prayer is broad enough to justify
extension of a remedy different from or
together with the specific remedy sought.
Indeed, a court may grant relief to a party,
even if the party awarded did not pray for it in
his pleadings.
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3. Civil Law; Banks; The contract between a

bank and its depositors is governed by the
provisions of the Civil Code on simple loan.The contract between a bank and its depositor
is governed by the provisions of the Civil Code
on simple loan. Thus, there is a debtor-creditor
relationship between a bank and its depositor.
The bank is the debtor and the depositor is the
creditor. The depositor lends the bank money
and the bank agrees to pay the depositor on
demand. The savings or current deposit
agreement between the bank and the
depositor is the contract that determines the
rights and obligations of the parties.
4. Civil
Law; Banks; Forgery; Unless
a
forgery or alteration is attributable to the fault
or negligence of the drawer himself, the
remedy of the drawee bank that negligently
clears a forged and/or altered check for
payment is against the party responsible for
the forgery or alteration, otherwise it bears the
loss.Every bank that issues checks for the use of its
customers should know whether or not the
drawers signature thereon is genuine, whether
there are sufficient funds in the drawers
account to cover checks issued, and it should
be able to detect alterations, erasures,
superimpositions or intercalations thereon, for
these instruments are prepared, printed and
issued by itself, it has control of the drawers
account, and it is supposed to be familiar with
the drawers signature. It should possess
appropriate detecting devices for uncovering
forgeries
and/or
alterations
on
these
instruments. Unless a forgery or alteration is
attributable to the fault or negligence of the
drawer himself, the remedy of the drawee bank
that negligently clears a forged and/or altered
check for payment is against the party
responsible for the forgery or alteration,
otherwise, it bears the loss.
WHEREFORE, the petition in G.R. No. 148196
is DENIED and the petition in G.R. No. 148259
is GRANTED. The assailed Decision dated
November 27, 2000 and Resolution dated May
3, 2001 of the Court of Appeals in CA-G.R. CV
No. 53962, which affirmed with modification
the Decision rendered by the Regional Trial
Court, Branch 25, Manila, dated August 11,
1995 in Civil Case No. 90-53154, are hereby
AFFIRMED with the MODIFICATION that BPI
Family Bank is directed to pay Buenaventura,
et al. the amount of P50,000.00 as exemplary
damages. Costs against BPI Family Bank.
Page 89
11.
Case
Title :
ALLIED
BANKING
CORPORATION, petitioner, vs. LIM SIO
WAN, METROPOLITAN BANK AND TRUST
CO., and PRODUCERS BANK, respondents
Syllabi Class :Banks and Banking ; Unjust
Enrichment ; Words and Phrases ;
decision appealed from is MODIFIED.
Judgment is rendered ordering and sentencing
defendant-appellant
Allied
Banking
Corporation to pay sixty (60%) percent and
defendant-appellee Metropolitan Bank and
Trust Company forty (40%) of the amount of
P1,158,648.49 plus 12% interest per annum
from March 16, 1984 until fully paid. The moral
damages, attorneys fees and costs of suit
adjudged shall likewise be paid by defendantappellant Allied Banking Corporation and
Trust Company in the same proportion of 6040. Except as thus modified, the decision
appealed from is AFFIRMED.
Banks and Banking; Fundamental and familiar
is the doctrine that the relationship between a
bank and a client is one of debtor-creditor.As
to the liability of the parties, we find that Allied
is liable to Lim Sio Wan. Fundamental and
familiar is the doctrine that the relationship
between a bank and a client is one of debtorcreditor. Articles 1953 and 1980 of the Civil
Code provide: Art. 1953. A person who
receives a loan of money or any other fungible
thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount
of the same kind and quality. Art. 1980. Fixed,
savings, and current deposits of money in
banks and similar institutions shall be
governed by the provisions concerning simple
loan.
Same; Money Market Transactions; Words and
Phrases; A money market is a market dealing
in standardized short-term credit instruments
(involving large amounts) where lenders and
borrowers do not deal directly with each other
but through a middle man or dealer in open
marketin a money market transaction, the
investor is a lender who loans his money to a
borrower through a middleman or dealer; The
creditor of the bank for her money market
placement is entitled to payment upon her
request, or upon the maturity of the placement,
or until the bank is released from its obligation
as debtor.We have ruled in a line of cases
that a bank deposit is in the nature of a simple
loan or mutuum. More succinctly, in Citibank,
N.A. (Formerly First National City Bank) v.
Sabeniano, 504 SCRA 378 (2006), this Court
ruled that a money market placement is a
simple loan or mutuum. Further, we defined a
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money market in Cebu International Finance

Corporation v. Court of Appeals, 316 SCRA
488 (1999), as follows: [A] money market is a
market dealing in standardized short-term
credit instruments (involving large amounts)
where lenders and borrowers do not deal
directly with each other but through a middle
man or dealer in open market. In a money
market transaction, the investor is a lender
who loans his money to a borrower through a
middleman or dealer. In the case at bar, the
money market transaction between the
petitioner and the private respondent is in the
nature of a loan. Lim Sio Wan, as creditor of
the bank for her money market placement, is
entitled to payment upon her request, or upon
maturity of the placement, or until the bank is
released from its obligation as debtor. Until any
such event, the obligation of Allied to Lim Sio
Wan remains unextinguished.
Same; Same; Payment made by the debtor to
a wrong party does not extinguish the
obligation as to the creditor, if there is no fault
or negligence which can be imputed to the
latter.From the factual findings of the trial
and appellate courts that Lim Sio Wan did not
authorize the release of her money market
placement to Santos and the bank had been
negligent in so doing, there is no question that
the obligation of Allied to pay Lim Sio Wan had
not been extinguished. Art. 1240 of the Code
states that payment shall be made to the
person in whose favor the obligation has been
constituted, or his successor in interest, or any
person authorized to receive it. As
commented by Arturo Tolentino: Payment
made by the debtor to a wrong party does not
extinguish the obligation as to the creditor, if
there is no fault or negligence which can be
imputed to the latter. Even when the debtor
acted in utmost good faith and by mistake as to
the person of his creditor, or through error
induced by the fraud of a third person, the
payment to one who is not in fact his creditor,
or authorized to receive such payment, is void,
except as provided in Article 1241. Such
payment does not prejudice the creditor, and
accrual of interest is not suspended by it.
(Emphasis supplied.)
Same; Proximate Cause; Words and Phrases;
Proximate cause is that cause, which, in
natural and continuous sequence, unbroken by
any efficient intervening cause, produces the
injury and without which the result would not
have occurred; To determine the proximate
cause of a controversy, the question that
needs to be asked is: If the event did not
happen, would the injury have resulted? If the
answer is NO, then the event is the proximate
cause.Proximate cause is that cause,
which, in natural and continuous sequence,
unbroken by any efficient intervening cause,
produces the injury and without which the
result would not have occurred. Thus, there is
an efficient supervening event if the event
Page 90
breaks the sequence leading from the cause to

the ultimate result. To determine the proximate
cause of a controversy, the question that
needs to be asked is: If the event did not
happen, would the injury have resulted? If the
answer is NO, then the event is the proximate
cause.
Same; Negotiable Instruments; Checks; An
exception to the rule that the collecting bank
including the forged indorsement itself, and
ultimately should be held liable therefor is
when the issuance of the check itself was
attended with negligence.The warranty that
the instrument is genuine and in all respects
what it purports to be covers all the defects in
the instrument affecting the validity thereof,
including a forged indorsement. Thus, the last
indorser will be liable for the amount indicated
in the negotiable instrument even if a previous
indorsement was forged. We held in a line of
cases that a collecting bank which indorses a
check bearing a forged indorsement and
presents it to the drawee bank guarantees all
prior indorsements, including the forged
held liable therefor. However, this general rule
is subject to exceptions. One such exception is
when the issuance of the check itself was
attended with negligence. Thus, in the cases
cited above where the collecting bank is
generally held liable, in two of the cases where
the checks were negligently issued, this Court
held the institution issuing the check just as
liable as or more liable than the collecting
bank.
Same; Same; Same; Given the relative
participation of two banks to the instant case,
both banks cannot be adjudged as equally
liablehence, the 60:40 ratio of the
liabilities.In the instant case, the trial court
correctly found Allied negligent in issuing the
managers check and in transmitting it to
Santos without even a written authorization. In
fact, Allied did not even ask for the certificate
evidencing the money market placement or call
up Lim Sio Wan at her residence or office to
confirm her instructions. Both actions could
have prevented the whole fraudulent
transaction from unfolding. Allieds negligence
must be considered as the proximate cause of
the resulting loss. To reiterate, had Allied
exercised the diligence due from a financial
institution, the check would not have been
issued and no loss of funds would have
resulted. In fact, there would have been no
issuance of indorsement had there been no
check in the first place. The liability of Allied,
however, is concurrent with that of Metrobank
as the last indorser of the check. When
Metrobank indorsed the check in compliance
with the PCHC Rules and Regulations without
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verifying the authenticity of Lim Sio Wans

indorsement and when it accepted the check
despite the fact that it was cross-checked
payable to payees account only, its negligent
and cavalier indorsement contributed to the
easier release of Lim Sio Wans money and
perpetuation of the fraud. Given the relative
participation of Allied and Metrobank to the
instant case, both banks cannot be adjudged
as equally liable. Hence, the 60:40 ratio of the
liabilities of Allied and Metrobank, as ruled by
the CA, must be upheld.
Same; Quasi-Delicts; Art. 2180 of the Civil
Code pertains to the vicarious liability of an
employer for quasi-delicts that an employee
has committedsuch provision of law does not
apply to civil liability arising from delict.As to
Producers Bank, Allied Banks argument that
Producers Bank must be held liable as
employer of Santos under Art. 2180 of the Civil
Code is erroneous. Art. 2180 pertains to the
vicarious liability of an employer for quasidelicts that an employee has committed. Such
provision of law does not apply to civil liability
arising from delict. One also cannot apply the
principle of subsidiary liability in Art. 103 of the
Revised Penal Code in the instant case. Such
liability on the part of the employer for the civil
aspect of the criminal act of the employee is
based on the conviction of the employee for a
crime. Here, there has been no conviction for
any crime.
Same; Unjust Enrichment; Words and
Phrases; There is unjust enrichment when a
person unjustly retains a benefit to the loss of
another, or when a person retains money or
property of another against the fundamental
principles of justice, equity and good
conscience.As to the claim that there was
unjust enrichment on the part of Producers
Bank, the same is correct. Allied correctly
claims in its petition that Producers Bank
should reimburse Allied for whatever judgment
that may be rendered against it pursuant to Art.
22 of the Civil Code, which provides: Every
person who through an act of performance by
another, or any other means, acquires or
comes into possession of something at the
expense of the latter without just cause or legal
ground, shall return the same to him. The
above provision of law was clarified in Reyes v.
Lim, 408 SCRA 560 (2003), where we ruled
that [t]here is unjust enrichment when a
person unjustly retains a benefit to the loss of
another, or when a person retains money or
property of another against the fundamental
principles of justice, equity and good
conscience. In Tamio v. Ticson, 443 SCRA 44
(2004), we further clarified the principle of
unjust enrichment, thus: Under Article 22 of
the Civil Code, there is unjust enrichment when
(1) a person is unjustly benefited, and (2) such
benefit is derived at the expense of or with
damages to another. [Allied Banking
Page 91
Corporation vs. Lim Sio Wan, 549 SCRA

504(2008)]
Excerpt : 1. SCRA 360 [2007]) o0o
G.R. No. 133179. March 27, 2008.
[*] ALLIED BANKING CORPORATION,
petitioner, vs . LIM SIO WAN ,
METROPOLITAN BANK AND TRUST CO.,
and PRODUCERS BANK, respondents. Banks
and Banking ; Fundamental and familiar is the
doctrine that the relationship between a bank
and a client is one of debtor-creditor.As to
the liability of the parties, we find that Allied is
liable to Lim Sio Wan . Fundamental and
familiar is the doctrine that the relationship
between a bank and a client is one of debtorcreditor. Articles 1953 and 1980 of the Civil
Code provide: Art. 1953. A person who
receives a loan of money or any other fungible
thing acquires the ownership thereof, and is
bound to pay
2. middle man or dealer in open market. In a
through a middleman or dealer. In the case at
bar, the money market transaction between the
petitioner and the private respondent is in the
nature of a loan. Lim Sio Wan , as creditor of
the bank for her money market placement, is
entitled to payment upon her request, or upon
maturity of the placement, or until the bank is
released from its obligation as debtor. Until any
such
event,
the
obligation
of Allied to Lim Sio Wan remains
unextinguished. Same; Same; Payment made
by the debtor to a wrong party does not
there is no
3. fault or negligence which can be imputed to
the latter.From the factual findings of the trial
and appellate courts that Lim Sio Wan did not
authorize the release of her money market
placement to Santos and the bank had been
negligent in so doing, there is no question that
the obligation of Allied to pay Lim Sio Wan had
not been extinguished. Art. 1240 of the Code
states that payment shall be made to the
person in whose favor the obligation has been
constituted, or his successor in interest, or any
person authorized to receive it. As
commented by Arturo Tolentino: Payment
made by the debtor to a wrong party does not
there is no fault or
4. ...Page Edit Line Top SO ORDERED.
Quisumbing (Chairperson), Carpio-Morales,
Chico-Nazario and Velasco, Jr., JJ., concur.
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Judgment
modified.
Notes.Prosecutors
designated by the COMELEC to prosecute the
cases act as its deputies. They derive their
authority from it and not from their offices.
(Commission on Elections vs . Silva, Jr., 286
SCRA 177 [1998]) It is a jurisprudential rule
that the testimony of a self-confessed
accomplice or co-conspirator imputing the
blame to or implicating his co-accused cannot,
by itself and without corroboration, be regarded
as proof with a moral certainty that the latter
committed or participated in the commission of
the crime. (People vs . Farjardo, Jr., 512
5. request, or upon the maturity of the
placement, or until the bank is released from
its obligation as debtor.We have ruled in a
line of cases that a bank deposit is in the
nature of a simple loan or mutuum. More
succinctly, in Citibank, N.A. (Formerly First
National City Bank) v. Sabeniano, 504 SCRA
378 (2006), this Court ruled that a money
market placement is a simple loan or mutuum.
Further, we defined a money market in Cebu
International FinanceCorporation v. Court of
Appeals, 316 SCRA 488 (1999), as follows: [A]
money market is a market dealing in
standardized short-term credit instruments
(involving large amounts) where lenders and
borrowers do not deal directly with each other
but through a
6. The above provision of law was clarified in
Reyes v. Lim , where we ruled that [t]here is
unjust enrichment when a person unjustly
retains a benefit to the loss of another, or when
a person retains money or property of another
against the fundamental principles of justice,
equity and good conscience. [58] In Tamio v.
Ticson, we further clarified the principle of
unjust enrichment, thus: Under Article 22 of
the Civil Code, there is unjust enrichment when
(1) a person is unjustly benefited, and (2) such
benefit is derived at the expense of or with
damages to another. [59] In the instant
case, Lim Sio Wan s money market placement
in Allied Bank
was
pre-terminated
and
withdrawn without her
7. consent. Moreover, the proceeds of the
placement were deposited in Producers Banks
account in Metrobank without any justification.
In other words, there is no reason that the
proceeds of Lim Sio Wans placement should
be deposited in FCCs account purportedly as
payment for FCCs money market placement
and interest in Producers Bank. With such
payment, Producers Banks indebtedness to
FCC was extinguished, thereby benefitting the
former. Clearly, Producers Bank was unjustly
Page 92
enriched at the expense of Lim Sio Wan .

Based on the facts and circumstances of the
case,
Producers
Bank
should
reimburse Allied and
Metrobank
for the
amounts the two latter banks are ordered to
pay Lim Sio Wan . It cannot be
8. jurisdiction over her. [60] We, therefore,
cannot ascribe to her liability in the instant
case. Clearly, Producers Bank must be held
liable to Allied and Metrobank for the amount
of the check plus 12% interest per annum,
moral damages, attorneys fees, and costs of
suit which Allied and Metrobank are adjudged
to pay Lim Sio Wan based on a proportion of
60:40. WHEREFORE, the petition is PARTLY
GRANTED. The March 18, 1998 CA Decision
in CA-G.R. CV No. 46290 and the November
15, 1993 RTC Decision in Civil Case No. 6757
are AFFIRMED with MODIFICATION. Thus,
the CA Decision is AFFIRMED, the fallo of
which
is
reproduced,
as
follows:
decision appealed from is MODIFIED
9. . Judgment is rendered ordering and
sentencing
defendantappellant Allied Banking Corporation to
pay
sixty (60%) percent and defendant-appellee
Metropolitan Bank and Trust Company forty
(40%) of the amount of P1,158,648.49 plus
12% interest per annum from March 16, 1984
until fully paid. The moral damages, attorneys
fees and costs of suit adjudged shall likewise
be
paid
by
defendantappellant Allied Banking Corporation and
Trust Company in the same proportion of 6040. Except as thus modified, the decision
appealed from is AFFIRMED. SO ORDERED.
Additionally and by way of MODIFICATION,
Producers Bank is hereby ordered to
pay Allied and Metrobank the
10. aforementioned amounts. The liabilities of
the parties are concurrent and independent of
each other. SO ORDERED. Quisumbing
(Chairperson), Carpio-Morales, Tinga and
Chico-Nazario, [**] JJ., concur. Petition partly
granted, judgment affirmed with modification.
Notes.A money market transaction partakes
of the nature of a loan and nonpayment thereof
would not give rise to criminal liability for estafa
through misappropriation or conversion.
(Sesbreno vs . Court of Appeals, 240 SCRA
606 [1995]) The quasi-contract of solutio
indebiti harks back to the ancient principle that
no one shall enrich himself unjustly at the
expense of another. (Moreo-Lentfer vs .
Wolff, 441 SCRA 584 [2004])
Yza
12. EXECUTIVE JUDGE HENEDINO P.

EDUARTE VS ELIZABETH IBAY, CLERK II
ISSUE: Is forgery of a check ground for
administrative liability?
In the absence of substantial defense to refute the
charges against her, we hold Ibay liable for the loss of
the check and the forgery of De Ocampos signature,
leading to the checks encashment. The case against
Ibay is bolstered by the fact that Judge Eduarte found
striking similarities between her handwriting in the
inventory of cases and the forged endorsement in the
check. Ibay even confirmed the same in her comment,
where she admitted that her handwriting in the
inventory bears similarities to that of the endorser of
the check.
In fine, we find that there is substantial evidence to
support Ibays dismissal on the ground of dishonesty.
In Filoteo v. Calago,12 we held that stealing a check
and en cashing it is considered gross dishonesty. We
defined dishonesty as the disposition to lie, cheat,
deceive or defraud; untrustworthiness; lack of integrity;
lack of honesty, probity or integrity in principle; and
lack of fairness and straightforwardness.13
Section 52(A) (1) of the Revised Uniform Rules on
Administrative Cases in the Civil Service provides that
dishonesty is a grave offense punishable by dismissal
from the service even when committed for the first
time. In Office of he Court Administrator v. Ibay,14 we
found Ibay guilty of dishonesty for stealing and
encashing a check of Magpantay. We suspended her
for seven months without benefits, considering that
she admitted the offense and she was not
administratively charged in the past. Since this is no
longer Ibay's first offense and we already warned her
before that a similar act would warrant a more severe
penalty, we now find it imperative to impose upon her
the extreme penalty of dismissal from the service.
Time and again, we held that persons involved in the
dispensation of justice, from the highest official to the
lowest clerk, must live up to the strictest standards of
integrity, probity, uprightness, honesty and diligence in
the public service.15 This Court will not tolerate
dishonesty, for the judiciary deserves the best from all
its employees.
Page 93
A river cuts through rock, not because of its

power, but because of its persistence.
Jim Watkins

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Negotiable Instruments Law Case Outlines

FUNCTIONS AND IMPORTANCE OF

delay in presentment. The acceptance of a

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BPIs confiscation of Alegres money

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currency on hand, and unrestricted funds

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August 1989. With the assurance, however,

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knowledge, observation and experience.

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when the content of such document is the

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