Republic of the Philippines

Supreme Court
The facts as borne by the records are as follows:
Manila

THIRD DIVISION
Respondents-Spouses Erlando and Norma Rodriguez were clients of

petitioner Philippine National Bank (PNB), Amelia Avenue

PHILIPPINE NATIONAL BANK, G.R. No. 170325
Petitioner, Branch, Cebu City. They maintained savings and demand/checking
Present:
accounts, namely, PNBig Demand Deposits (Checking/Current Account No.
YNARES-SANTIAGO, J.,
Ch 810624-6 under the account name Erlando and/or Norma Rodriguez), and
airperson,
- versus - AUSTRIA-MARTINEZ, PNBig Demand Deposit (Checking/Current Account No. 810480-4 under the
CHICO-NAZARIO,
account name Erlando T. Rodriguez).
NACHURA, and
REYES, JJ.

ERLANDO T. RODRIGUEZ Promulgated: The spouses were engaged in the informal lending business. In line
and NORMA RODRIGUEZ, with their business, they had a discounting[3] arrangement with the Philnabank
Respondents. September 26, 2008
x--------------------------------------------------x Employees Savings and Loan Association (PEMSLA), an association

DECISION of PNB employees. Naturally, PEMSLA was likewise a client of PNB Amelia

Avenue Branch. The association maintained current and savings accounts

REYES, R.T., J.: with petitioner bank.

PEMSLA regularly granted loans to its members. Spouses Rodriguez

WHEN the payee of the check is not intended to be the true recipient of its
would rediscount the postdated checks issued to members whenever the
proceeds, is it payable to order or bearer? What is the fictitious-payee rule
association was short of funds. As was customary, the spouses would replace
and who is liable under it?Is there any exception?
the postdated checks with their own checks issued in the name of the

members.
These questions seek answers in this petition for review on certiorari of

the Amended Decision[1] of the Court of Appeals (CA) which affirmed with
It was PEMSLAs policy not to approve applications for loans of
modification that of the Regional Trial Court (RTC).[2]
members with outstanding debts. To subvert this policy, some PEMSLA officers
devised a scheme to obtain additional loans despite their outstanding loan

accounts. They took out loans in the names of unknowing members, without

the knowledge or consent of the latter. The PEMSLA checks issued for these
The Facts
loans were then given to the spouses for rediscounting. The officers carried this Alarmed over the unexpected turn of events, the spouses Rodriguez

out by forging the indorsement of the named payees in the checks. filed a civil complaint for damages against PEMSLA, the Multi-Purpose

Cooperative of Philnabankers (MCP), and petitioner PNB. They sought to

In return, the spouses issued their personal checks (Rodriguez checks) recover the value of their checks that were deposited to the PEMSLA savings

in the name of the members and delivered the checks to an officer of account amounting to P2,345,804.00. The spouses contended that

PEMSLA. The PEMSLA checks, on the other hand, were deposited by the because PNB credited the checks to the PEMSLA account even without

spouses to their account. indorsements, PNB violated its contractual obligation to them as

depositors. PNBpaid the wrong payees, hence, it should bear the loss.

Meanwhile, the Rodriguez checks were deposited directly by PEMSLA

to its savings account without any indorsement from the named payees. This PNB moved to dismiss the complaint on the ground of lack of cause of

was an irregular procedure made possible through the facilitation of Edmundo action. PNB argued that the claim for damages should come from the payees

Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. It appears of the checks, and not from spouses Rodriguez. Since there was no demand

that this became the usual practice for the parties. from the said payees, the obligation should be considered as discharged.

For the period November 1998 to February 1999, the spouses issued In an Order dated January 12, 2000, the RTC denied PNBs motion to dismiss.

sixty nine (69) checks, in the total amount of P2,345,804.00. These were

payable to forty seven (47) individual payees who were all members of In its Answer,[5] PNB claimed it is not liable for the checks which it paid

PEMSLA.[4] to the PEMSLA account without any indorsement from the payees. The bank

contended that spouses Rodriguez, the makers, actually did not intend for the

Petitioner PNB eventually found out about these fraudulent acts. To named payees to receive the proceeds of the checks. Consequently, the

put a stop to this scheme, PNB closed the current account of PEMSLA. As a payees were considered as fictitious payees as defined under the Negotiable

result, the PEMSLA checks deposited by the spouses were returned or Instruments Law (NIL). Being checks made to fictitious payees which are

dishonored for the reason Account Closed. The corresponding Rodriguez bearer instruments, the checks were negotiable by mere delivery. PNBs

checks, however, were deposited as usual to the PEMSLA savings Answer included its cross-claim against its co-defendants PEMSLA and the

account. The amounts were duly debited from the Rodriguez account. Thus, MCP, praying that in the event that judgment is rendered against the

because the PEMSLA checks given as payment were returned, spouses bank, the cross-defendants should be ordered to reimburse PNB the amount it
Rodriguez incurred losses from the rediscounting transactions. shall pay.

RTC Disposition After trial, the RTC rendered judgment in favor of spouses Rodriguez

(plaintiffs). It ruled that PNB (defendant) is liable to return the value of the
checks. All counterclaims and cross-claims were dismissed. The dispositive

portion of the RTC decision reads:

CA Disposition
WHEREFORE, in view of the foregoing, the Court
hereby renders judgment, as follows:
PNB appealed the decision of the trial court to the CA on the
1. Defendant is hereby ordered to pay the plaintiffs the total
amount of P2,345,804.00 or reinstate or restore the principal ground that the disputed checks should be considered as payable
amount of P775,337.00 in the PNBig Demand Deposit
to bearer and not to order.
Checking/Current Account No. 810480-4 of Erlando T.
Rodriguez, and the amount of P1,570,467.00 in the
PNBig Demand Deposit, Checking/Current Account
No. 810624-6 of Erlando T. Rodriguez and/or Norma In a Decision[7] dated July 22, 2004, the CA reversed and set aside
Rodriguez, plus legal rate of interest thereon to be
the RTC disposition. The CA concluded that the checks were obviously meant
computed from the filing of this complaint until fully
paid; by the spouses to be really paid to PEMSLA. The court a quo declared:

2. The defendant PNB is hereby ordered to pay the plaintiffs

the following reasonable amount of damages We are not swayed by the contention of the
suffered by them taking into consideration the plaintiffs-appellees (Spouses Rodriguez) that their cause of
standing of the plaintiffs being sugarcane planters, action arose from the alleged breach of contract by the
realtors, residential subdivision owners, and other defendant-appellant (PNB) when it paid the value of the
businesses: checks to PEMSLA despite the checks being payable to
order. Rather, we are more convinced by the strong and
(a) Consequential damages, unearned credible evidence for the defendant-appellant with regard to
income in the amount of P4,000,000.00, the plaintiffs-appellees and PEMSLAs business arrangement
as a result of their having incurred great that the value of the rediscounted checks of the plaintiffs-
dificulty (sic) especially in the residential appellees would be deposited in PEMSLAs account for
subdivision business, which was not payment of the loans it has approved in exchange for
pushed through and the contractor PEMSLAs checks with the full value of the said loans. This is the
even threatened to file a case against only obvious explanation as to why all the disputed sixty-nine
the plaintiffs; (69) checks were in the possession of PEMSLAs errand boy for
presentment to the defendant-appellant that led to this
(b) Moral damages in the amount present controversy. It also appears that the teller who
of P1,000,000.00; accepted the said checks was PEMSLAs officer, and that
such was a regular practice by the parties until the
(c) Exemplary damages in the amount defendant-appellant discovered the scam. The logical
of P500,000.00; conclusion, therefore, is that the checks were never meant to
be paid to order, but instead, to PEMSLA. We thus find no
(d) Attorneys fees in the amount breach of contract on the part of the defendant-appellant.
of P150,000.00 considering that this case
does not involve very complicated According to plaintiff-appellee Erlando Rodriguez
issues; and for the testimony, PEMSLA allegedly issued post-dated checks to its
qualified members who had applied for loans. However,
(e) Costs of suit. because of PEMSLAs insufficiency of funds, PEMSLA
approached the plaintiffs-appellees for the latter to issue
3. Other claims and counterclaims are hereby dismissed.[6] rediscounted checks in favor of said applicant
 members. Based on the investigation of the defendant-
appellant, meanwhile, this arrangement allowed the
plaintiffs-appellees to make a profit by issuing rediscounted
checks, while the officers of PEMSLA and other members
would be able to claim their loans, despite the fact that they
were disqualified for one reason or another. They were able
to achieve this conspiracy by using other members who had
loaned lesser amounts of money or had not applied at all. x x
x.[8] (Emphasis added)
The CA found that the checks were bearer instruments, thus they do not
require indorsement for negotiation; and that spouses Rodriguez and PEMSLA
conspired with each other to accomplish this money-making scheme. The
payees in the checks were fictitious payees because they were not the
intended payees at all.
The spouses Rodriguez moved for reconsideration. They argued, inter
alia, that the checks on their faces were unquestionably payable to order;
and that PNB committed a breach of contract when it paid the value of the
checks to PEMSLA without indorsement from the payees. They also argued
that their cause of action is not only against PEMSLA but also against PNB to
recover the value of the checks.
On October 11, 2005, the CA reversed itself via an Amended
Decision, the last paragraph and fallo of which read:
In sum, we rule that the defendant-appellant PNB is
liable to the plaintiffs-appellees Sps. Rodriguez for the
following:
1. Actual damages in the amount
of P2,345,804 with interest at 6% per
annum from 14 May 1999 until fully paid;
2. Moral damages in the amount
of P200,000;
3. Attorneys fees in the amount
of P100,000; and
4. Costs of suit.
WHEREFORE, in view of the foregoing premises,
judgment is hereby rendered by Us AFFIRMING WITH
MODIFICATION the assailed decision rendered in Civil Case
No. 99-10892, as set forth in the immediately next preceding
paragraph hereof, and SETTING ASIDE Our original decision
promulgated in this case on 22 July 2004.
SO ORDERED.[9]
The CA ruled that the checks were payable to order. According to
the appellate court, PNB failed to present sufficient proof to defeat the claim
of the spouses Rodriguez that they really intended the checks to be received
by the specified payees. Thus, PNB is liable for the value of the checks which it
paid to PEMSLA without indorsements from the named payees. The award for
damages was deemed appropriate in view of the failure of PNB to treat the
Rodriguez account with the highest degree of care considering the fiduciary
nature of their relationship, which constrained respondents to seek legal
action.
Hence, the present recourse under Rule 45.
Issues
The issues may be compressed to whether the subject checks are
payable to order or to bearer and who bears the loss?
PNB argues anew that when the spouses Rodriguez issued the
disputed checks, they did not intend for the named payees to receive the
proceeds. Thus, they are bearer instruments that could be validly negotiated
by mere delivery. Further, testimonial and documentary evidence presented (a) A payee who is not maker, drawer, or drawee;
during trial amply proved that spouses Rodriguez and the officers of PEMSLA or
(b) The drawer or maker; or
conspired with each other to defraud the bank. (c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
Our Ruling (f) The holder of an office for the time being.

Where the instrument is payable to order, the payee

must be named or otherwise indicated therein with
Prefatorily, amendment of decisions is more acceptable than an
reasonable certainty.
erroneous judgment attaining finality to the prejudice of innocent parties. A
SEC. 9. When payable to bearer. The instrument is
court discovering an erroneous judgment before it becomes final may, motu payable to bearer
proprio or upon motion of the parties, correct its judgment with the singular
(a) When it is expressed to be so payable; or
objective of achieving justice for the litigants.[10] (b) When it is payable to a person named therein
or bearer; or
(c) When it is payable to the order of a fictitious or
However, a word of caution to lower courts, the CA in Cebu in this non-existing person, and such fact is known to
the person making it so payable; or
particular case, is in order. The Court does not sanction careless disposition of (d) When the name of the payee does not purport
to be the name of any person; or
cases by courts of justice.The highest degree of diligence must go into the
(e) Where the only or last indorsement is an
study of every controversy submitted for decision by litigants. Every issue and indorsement in blank.[12] (Underscoring supplied)

factual detail must be closely scrutinized and analyzed, and all the applicable

laws judiciously studied, before the promulgation of every judgment by the The distinction between bearer and order instruments lies in their

court. Only in this manner will errors in judgments be avoided. 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

Now to the core of the petition. negotiated. A bearer instrument, on the other hand, does not require an

indorsement to be validly negotiated. It is negotiable by mere delivery. The

As a rule, when the payee is fictitious or not intended to be the true provision reads:

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. [11] It is
either an order or a bearer instrument. Sections 8 and 9 of the NIL states:
SEC. 8. When payable to order. The instrument is
payable to order where it is drawn payable to the order of a
specified person or to him or his order. It may be drawn
payable to the order of
SEC. 30. What constitutes 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.
 A check that is payable to a specified payee is an order negotiated by mere delivery. Thus, in case of controversy, the drawer of the

instrument. However, under Section 9(c) of the NIL, a check payable to a check will bear the loss. This rule is justified for otherwise, it will be most

specified payee may nevertheless be considered as a bearer instrument if it is convenient for the maker who desires to escape payment of the check to

payable to the order of a fictitious or non-existing person, and such fact is always deny the validity of the indorsement. This despite the fact that the

known to the person making it so payable. Thus, checks issued to Prinsipe fictitious payee was purposely named without any intention that the payee

Abante or Si Malakas at si Maganda, who are well-known characters in should receive the proceeds of the check.[15]

Philippine mythology, are bearer instruments because the named payees are

fictitious and non-existent. The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty

Insurance Bank.[16] In the said case, the corporation Mueller & Martin was

We have yet to discuss a broader meaning of the term fictitious as defrauded by George L. Martin, one of its authorized signatories. Martin drew

used in the NIL. It is for this reason that We look elsewhere for guidance. Court seven checks payable to the German Savings Fund Company Building

rulings in the United States are a logical starting point since our law on Association (GSFCBA) amounting to $2,972.50 against the account of the

negotiable instruments was directly lifted from the Uniform Negotiable corporation without authority from the latter. Martin was also an officer of the

Instruments Law of the United States.[13] GSFCBA but did not have signing authority. At the back of the checks, Martin

placed the rubber stamp of the GSFCBA and signed his own name as

A review of US jurisprudence yields that an actual, existing, and living indorsement. He then successfully drew the funds from Liberty Insurance Bank

payee may also be fictitious if the maker of the check did not intend for the for his own personal profit. When the corporation filed an action against the

payee to in fact receive the proceeds of the check. This usually occurs when bank to recover the amount of the checks, the claim was denied.

the maker places a name of an existing payee on the check for convenience

or to cover up an illegal activity.[14] Thus, a check made expressly payable to The US Supreme Court held in Mueller that when the person making

a non-fictitious and existing person is not necessarily an order instrument. If the the check so payable did not intend for the specified payee to have any part

payee is not the intended recipient of the proceeds of the check, the payee is in the transactions, the payee is considered as a fictitious payee. The check is

considered a fictitious payee and the check is a bearer instrument. then considered as a bearer instrument to be validly negotiated by mere

delivery. Thus, the US Supreme Court held that Liberty Insurance Bank, as

In a fictitious-payee situation, the drawee bank is absolved from drawee, was authorized to make payment to the bearer of the check,

liability and the drawer bears the loss. When faced with a check payable to a regardless of whether prior indorsements were genuine or not.[17]
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 The more recent Getty Petroleum Corp. v. American Express Travel

negotiate the check by placing his indorsement thereon. And since the maker Related Services Company, Inc.[18] upheld the fictitious-payee rule. The rule

knew this limitation, he must have intended for the instrument to be protects the depositary bank and assigns the loss to the drawer of the check
who was in a better position to prevent the loss in the first place. Due care is What remains to be determined is if the payees, though existing

not even required from the drawee or depositary bank in accepting and persons, were fictitious in its broader context.

paying the checks. The effect is that a showing of negligence on the part of

the depositary bank will not defeat the protection that is derived from this rule. 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

However, there is a commercial bad faith exception to the fictitious- transaction involving the checks. At most, the banks thesis shows that the

payee rule. A showing of commercial bad faith on the part of the drawee payees did not have knowledge of the existence of the checks. This lack of

bank, or any transfereeof the check for that matter, will work to strip it of this knowledge on the part of the payees, however, was not tantamount to a lack

defense. The exception will cause it to bear the loss. Commercial bad faith is of intention on the part of respondents-spouses that the payees would not

present if the transferee of the check acts dishonestly, and is a party to the receive the checks proceeds. Considering that respondents-spouses were

fraudulent scheme. Said the US Supreme Court in Getty: 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
Consequently, a transferees lapse of wary vigilance,
disregard of suspicious circumstances which might have well payees would be receiving the checks.
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
Verily, the subject checks are presumed order instruments. This is
acts dishonestly where it has actual knowledge of facts and
circumstances that amount to bad faith, thus itself becoming because, as found by both lower courts, PNB failed to present sufficient
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 evidence to defeat the claim of respondents-spouses that the named payees
care requirement from UCC 3-405 but imposes on all parties
were the intended recipients of the checks proceeds. The bank failed to
an obligation to act with honesty in fact. x x x[19] (Emphasis
added) satisfy a requisite condition of a fictitious-payee situation that the maker of the

check intended for the payee to have no interest in the transaction.

Getty also laid the principle that the fictitious-payee rule extends protection

even to non-bank transferees of the checks. 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
In the case under review, the Rodriguez checks were payable to be deemed payable to order. Consequently, the drawee bank bears the
specified payees. It is unrefuted that the 69 checks were payable to specific loss.[20]
persons. Likewise, it is uncontroverted that the payees were actual, existing,

and living persons who were members of PEMSLA that had a rediscounting PNB was remiss in its duty as the drawee bank. It does not dispute the
arrangement with spouses Rodriguez. 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 the checks not to the named payees or their order, but to PEMSLA, a third

indorsement. party to the transaction between the drawers and the payees.

A bank that regularly processes checks that are neither payable to Moreover, PNB was negligent in the selection and supervision of its

the customer nor duly indorsed by the payee is apparently grossly negligent in employees. The trustworthiness of bank employees is indispensable to maintain

its operations.[21] This Court has recognized the unique public interest the stability of the banking industry. Thus, banks are enjoined to be extra

possessed by the banking industry and the need for the people to have full vigilant in the management and supervision of their employees. In Bank of the

trust and confidence in their banks.[22] For this reason, banks are minded to Philippine Islands v. Court of Appeals,[25]this Court cautioned thus:

treat their customers accounts with utmost care, confidence, and honesty.[23]
Banks handle daily transactions involving millions of
pesos. By the very nature of their work the degree of
In a checking transaction, the drawee bank has the duty to verify the responsibility, care and trustworthiness expected of their
employees and officials is far greater
genuineness of the signature of the drawer and to pay the check strictly in than those of ordinary clerks and employees. For obvious
reasons, the banks are expected to exercise the highest
accordance with the drawers instructions, i.e., to the named payee in the
degree of diligence in the selection and supervision of their
check. It should charge to the drawers accounts only the payables authorized employees.[26]

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 PNBs tellers and officers, in violation of banking rules of procedure,

account.[24] permitted the invalid deposits of checks to the PEMSLA account. Indeed,

when it is the gross negligence of the bank employees that caused the loss,

In the case at bar, respondents-spouses were the banks depositors. the bank should be held liable.[27]

The checks were drawn against respondents-spouses accounts. PNB, as the

drawee bank, had the responsibility to ascertain the regularity of the PNBs argument that there is no loss to compensate since no demand

indorsements, and the genuineness of the signatures on the checks before for payment has been made by the payees must also fail. Damage was

accepting them for deposit. Lastly, PNB was obligated to pay the checks in caused to respondents-spouses when the PEMSLA checks they deposited

strict accordance with the instructions of the drawers. Petitioner miserably were returned for the reason Account Closed. These PEMSLA checks were the

failed to discharge this burden. corresponding payments to the Rodriguez checks. Since they could not

encash the PEMSLA checks, respondents-spouses were unable to collect

The checks were presented to PNB for deposit by a representative of payments for the amounts they had advanced.

PEMSLA absent any type of indorsement, forged or otherwise. The facts clearly

show that the bank did not pay the checks in strict accordance with the A bank that has been remiss in its duty must suffer the consequences

instructions of the drawers, respondents-spouses. Instead, it paid the values of of its negligence. Being issued to named payees, PNB was duty-bound by law

and by banking rules and procedure to require that the checks be properly
indorsed before accepting them for deposit and payment. In fine, PNB should
be held liable for the amounts of the checks.
One Last Note
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 cross-claim of PNB. The Rules expressly provide that
failure to file an answer is a ground for a declaration that defendant
is in default.[28] 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.
To PNBs credit, it became involved in the controversial transaction not of its
own volition but due to the actions of some of its employees. Considering that
moral damages must be understood to be in concept of grants, not punitive
or corrective in nature, We resolve to reduce the award of moral damages
to P50,000.00.[29]
WHEREFORE, the appealed Amended Decision is AFFIRMED with the
MODIFICATION that the award for moral damages is reduced to P50,000.00,
and that this is without prejudice to whatever civil, criminal, or administrative
action PNB might take against PEMSLA, MPC, and the employees involved.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 157943 September 4, 2013
PEOPLE OF THE PHILIPPINES, PLAINTIFF-APPELLEE,
vs.
GILBERT REYES WAGAS, ACCUSED-APPELLANT.
DECISION
BERSAMIN, J.:
The Bill of Rights guarantees the right of an accused to be presumed innocent
until the contrary is proved. In order to overcome the presumption of
innocence, the Prosecution is required to adduce against him nothing less
than proof beyond reasonable doubt. Such proof is not only in relation to the
elements of the offense, but also in relation to the identity of the offender. If
the Prosecution fails to discharge its heavy burden, then it is not only the right
of the accused to be freed, it becomes the Courts constitutional duty to
acquit him.
The Case
Gilbert R. Wagas appeals his conviction for estafa under the decision
rendered on July 11, 2002 by the Regional Trial Court, Branch 58, in Cebu City
(RTC), meting on him the indeterminate penalty of 12 years of prision mayor,
as minimum, to 30 years of reclusion perpetua, as maximum.
Antecedents
Wagas was charged with estafa under the information that reads:
That on or about the 30th day of April, 1997, and for sometime prior and
subsequent thereto, in the City of Cebu, Philippines, and within the jurisdiction
of this Honorable Court, the said accused, with deliberate intent, with intent to
gain and by means of false pretenses or fraudulent acts executed prior to or
simultaneously with the commission of the fraud, to wit: knowing that he did
not have sufficient funds deposited with the Bank of Philippine Islands, and
without informing Alberto Ligaray of that circumstance, with intent to defraud
the latter, did then and there issue Bank of the Philippine Islands Check No.
0011003, dated May 08, 1997 in the amount of 200,000.00, which check was
issued in payment of an obligation, but which check when presented for
encashment with the bank, was dishonored for the reason "drawn against
insufficient funds" and inspite of notice and several demands made upon said
accused to make good said check or replace the same with cash, he had
failed and refused and up to the present time still fails and refuses to do so, to
the damage and prejudice of Alberto Ligaray in the amount aforestated.
CONTRARY TO LAW.1
After Wagas entered a plea of not guilty,2 the pre-trial was held, during which
the Defense admitted that the check alleged in the information had been
dishonored due to insufficient funds.3 On its part, the Prosecution made no
admission.4
At the trial, the Prosecution presented complainant Alberto Ligaray as its lone
witness. Ligaray testified that on April 30, 1997, Wagas placed an order for 200
bags of rice over the telephone; that he and his wife would not agree at first
to the proposed payment of the order by postdated check, but because of
Wagas assurance that he would not disappoint them and that he had the
means to pay them because he had a lending business and money in the
bank, they relented and accepted the order; that he released the goods to
Wagas on April 30, 1997 and at the same time received Bank of the Philippine
Islands (BPI) Check No. 0011003 for 200,000.00 payable to cash and
postdated May 8, 1997; that he later deposited the check with Solid Bank, his
depository bank, but the check was dishonored due to insufficiency of
funds;5 that he called Wagas about the matter, and the latter told him that he
would pay upon his return to Cebu; and that despite repeated demands,
Wagas did not pay him.6
On cross-examination, Ligaray admitted that he did not personally meet
Wagas because they transacted through telephone only; that he released
the 200 bags of rice directly to Robert Caada, the brother-in-law of Wagas,
who signed the delivery receipt upon receiving the rice.7
After Ligaray testified, the Prosecution formally offered the following: (a) BPI
Check No. 0011003 in the amount of 200,000.00 payable to "cash;" (b) the
return slip dated May 13, 1997 issued by Solid Bank; (c) Ligarays affidavit; and
(d) the delivery receipt signed by Caada. After the RTC admitted the
exhibits, the Prosecution then rested its case.8
In his defense, Wagas himself testified. He admitted having issued BPI Check
No. 0011003 to Caada, his brother-in-law, not to Ligaray. He denied having
any telephone conversation or any dealings with Ligaray. He explained that
the check was intended as payment for a portion of Caadas property that
he wanted to buy, but when the sale did not push through, he did not
anymore fund the check.9
On cross-examination, the Prosecution confronted Wagas with a letter dated
July 3, 1997 apparently signed by him and addressed to Ligarays counsel,
wherein he admitted owing Ligaray 200,000.00 for goods received, to wit:
This is to acknowledge receipt of your letter dated June 23, 1997 which is self-
explanatory. It is worthy also to discuss with you the environmental facts of the
case for your consideration, to wit:
It is true that I obtained goods from your client worth 200,000.00 and I
promised to settle the same last May 10, 1997, but to no avail. On this point, let
me inform you that I sold my real property to a buyer in Manila, and promised
to pay the consideration on the same date as I promised with your client.
Unfortunately, said buyer likewise failed to make good with such obligation.
Hence, I failed to fulfill my promise resultant thereof. (sic)
Again, I made another promise to settle said obligation on or before June 15,
1997, but still to no avail attributable to the same reason as aforementioned.
(sic)
To arrest this problem, we decided to source some funds using the subject
property as collateral. This other means is resorted to for the purpose of settling
the herein obligation. And as to its status, said funds will be rele[a]sed within
thirty (30) days from today.
In view of the foregoing, it is my sincere request and promise to settle said
obligation on or before August 15, 1997.
Lastly, I would like to manifest that it is not my intention to shy away from any
financial obligation.
xxxx
Respectfully yours,
(SGD.)
GILBERT R. WAGAS10
Wagas admitted the letter, but insisted that it was Caada who had
transacted with Ligaray, and that he had signed the letter only because his
sister and her husband (Caada) had begged him to assume the
responsibility.11 On redirect examination, Wagas declared that Caada, a
seafarer, was then out of the country; that he signed the letter only to
accommodate the pleas of his sister and Caada, and to avoid jeopardizing
Caadas application for overseas employment.12 The Prosecution
subsequently offered and the RTC admitted the letter as rebuttal evidence. 13
 Decision of the RTC
As stated, the RTC convicted Wagas of estafa on July 11, 2002, viz:
WHEREFORE, premises considered, the Court finds the accused GUILTY beyond
reasonable doubt as charged and he is hereby sentenced as follows:
To suffer an indeterminate penalty of from twelve (12) years of pris[i]on mayor,
as minimum, to thirty (30) years of reclusion perpetua as maximum;
To indemnify the complainant, Albert[o] Ligaray in the sum of 200,000.00;
To pay said complainant the sum of 30,000.00 by way of attorneys fees; and
the costs of suit.
SO ORDERED.14
The RTC held that the Prosecution had proved beyond reasonable doubt all
the elements constituting the crime of estafa, namely: (a) that Wagas issued
the postdated check as payment for an obligation contracted at the time the
check was issued; (b) that he failed to deposit an amount sufficient to cover
the check despite having been informed that the check had been
dishonored; and (c) that Ligaray released the goods upon receipt of the
postdated check and upon Wagas assurance that the check would be
funded on its date.
Wagas filed a motion for new trial and/or reconsideration,15 arguing that the
Prosecution did not establish that it was he who had transacted with Ligaray
and who had negotiated the check to the latter; that the records showed
that Ligaray did not meet him at any time; and that Ligarays testimony on
their alleged telephone conversation was not reliable because it was not
shown that Ligaray had been familiar with his voice. Wagas also sought the
reopening of the case based on newly discovered evidence, specifically: (a)
the testimony of Caada who could not testify during the trial because he
was then out of the country, and (b) Ligarays testimony given against Wagas
in another criminal case for violation of Batas Pambansa Blg. 22.
On October 21, 2002, the RTC denied the motion for new trial and/or
reconsideration, opining that the evidence Wagas desired to present at a
new trial did not qualify as newly discovered, and that there was no
compelling ground to reverse its decision.16
Wagas appealed directly to this Court by notice of appeal.17
Prior to the elevation of the records to the Court, Wagas filed a petition for
admission to bail pending appeal. The RTC granted the petition and fixed
Wagas bond at 40,000.00.18 Wagas then posted bail for his provisional liberty
pending appeal.19
The resolution of this appeal was delayed by incidents bearing on the grant of
Wagas application for bail. On November 17, 2003, the Court required the
RTC Judge to explain why Wagas was out on bail.20 On January 15, 2004, the
RTC Judge submitted to the Court a so-called manifestation and compliance
which the Court referred to the Office of the Court Administrator (OCA) for
evaluation, report, and recommendation.21 On July 5, 2005, the Court, upon
the OCAs recommendation, directed the filing of an administrative complaint
for simple ignorance of the law against the RTC Judge.22 On September 12,
2006, the Court directed the OCA to comply with its July 5, 2005 directive, and
to cause the filing of the administrative complaint against the RTC Judge. The
Court also directed Wagas to explain why his bail should not be cancelled for
having been erroneously granted.23 Finally, in its memorandum dated
September 27, 2006, the OCA manifested to the Court that it had meanwhile
filed the administrative complaint against the RTC Judge.24
Issues
In this appeal, Wagas insists that he and Ligaray were neither friends nor
personally known to one other; that it was highly incredible that Ligaray, a
businessman, would have entered into a transaction with him involving a huge
amount of money only over the telephone; that on the contrary, the evidence
pointed to Caada as the person with whom Ligaray had transacted,
considering that the delivery receipt, which had been signed by Caada,
indicated that the goods had been "Ordered by ROBERT CAADA," that the
goods had been received by Caada in good order and condition, and that
there was no showing that Caada had been acting on behalf of Wagas;
that he had issued the check to Caada upon a different transaction; that
Caada had negotiated the check to Ligaray; and that the element of
deceit had not been established because it had not been proved with
certainty that it was him who had transacted with Ligaray over the telephone.
The circumstances beg the question: did the Prosecution establish beyond
reasonable doubt the existence of all the elements of the crime of estafa as
charged, as well as the identity of the perpetrator of the crime?
Ruling
The appeal is meritorious.
Article 315, paragraph 2(d) of the Revised Penal Code, as amended,
provides:
Article 315. Swindling (estafa). Any person who shall defraud another by Firstly, Ligaray expressly admitted that he did not personally meet the person
any of the means mentioned hereinbelow shall be punished by: with whom he was transacting over the telephone, thus:

xxxx Q:

2. By means of any of the following false pretenses or fraudulent acts On April 30, 1997, do you remember having a transaction with the accused in
executed prior to or simultaneously with the commission of the fraud: this case?

xxxx A:

(d) By postdating a check, or issuing a check in payment of an obligation Yes, sir. He purchased two hundred bags of rice from me.
when the offender had no funds in the bank, or his funds deposited therein
were not sufficient to cover the amount of the check. The failure of the drawer Q:
of the check to deposit the amount necessary to cover his check within three
(3) days from receipt of notice from the bank and/or the payee or holder that
How did this purchase of rice transaction started? (sic)
said check has been dishonored for lack or insufficiency of funds shall be
prima facie evidence of deceit constituting false pretense or fraudulent act.
A:
In order to constitute estafa under this statutory provision, the act of
postdating or issuing a check in payment of an obligation must be the He talked with me over the phone and told me that he would like to purchase
efficient cause of the defraudation. This means that the offender must be able two hundred bags of rice and he will just issue a check.29
to obtain money or property from the offended party by reason of the
issuance of the check, whether dated or postdated. In other words, the Even after the dishonor of the check, Ligaray did not personally see and meet
Prosecution must show that the person to whom the check was delivered whoever he had dealt with and to whom he had made the demand for
would not have parted with his money or property were it not for the issuance payment, and that he had talked with him only over the telephone, to wit:
of the check by the offender.25
Q:
The essential elements of the crime charged are that: (a) a check is
postdated or issued in payment of an obligation contracted at the time the After the check was (sic) bounced, what did you do next?
check is issued; (b) lack or insufficiency of funds to cover the check; and (c)
damage to the payee thereof.26 It is the criminal fraud or deceit in the
issuance of a check that is punishable, not the non-payment of a A:
debt.27 Prima facie evidence of deceit exists by law upon proof that the
drawer of the check failed to deposit the amount necessary to cover his I made a demand on them.
check within three days from receipt of the notice of dishonor.
Q:
The Prosecution established that Ligaray had released the goods to Caada
because of the postdated check the latter had given to him; and that the How did you make a demand?
check was dishonored when presented for payment because of the
insufficiency of funds.
A:

In every criminal prosecution, however, the identity of the offender, like the
I called him over the phone.
crime itself, must be established by proof beyond reasonable doubt.28 In that
regard, the Prosecution did not establish beyond reasonable doubt that it was
Wagas who had defrauded Ligaray by issuing the check. Q:
Who is that "him" that you are referring to?
A:
Gilbert Wagas.30
Secondly, 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 to Ligaray, but to somebody else like Caada, his brother-in-law,
who then negotiated it to Ligaray.1wphi1 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.
patterns, and other distinctive characteristics, and disclosure of knowledge of
facts known peculiarly to the caller.34
Verily, it is only fair that the caller be reliably identified first before a telephone
communication is accorded probative weight. The identity of the caller may
be established by direct or circumstantial evidence. According to one ruling
of the Kansas Supreme Court:
Communications by telephone are admissible in evidence where they are
relevant to the fact or facts in issue, and admissibility is governed by the same
rules of evidence concerning face-to-face conversations except the party
against whom the conversations are sought to be used must ordinarily be
identified. It is not necessary that the witness be able, at the time of the
conversation, to identify the person with whom the conversation was had,
provided subsequent identification is proved by direct or circumstantial
evidence somewhere in the development of the case. The mere statement of
his identity by the party calling is not in itself sufficient proof of such identity, in
the absence of corroborating circumstances so as to render the conversation
admissible. However, circumstances preceding or following the conversation
may serve to sufficiently identify the caller. The completeness of the
identification goes to the weight of the evidence rather than its admissibility,
and the responsibility lies in the first instance with the district court to determine
within its sound discretion whether the threshold of admissibility has been
met.35 (Bold emphasis supplied)

Thirdly, Ligaray admitted that it was Caada who received the rice from him
Yet, the Prosecution did not tender any plausible explanation or offer any
and who delivered the check to him. Considering that the records are bereft
proof to definitely establish that it had been Wagas whom Ligaray had
of any showing that Caada was then acting on behalf of Wagas, the RTC
conversed with on the telephone. The Prosecution did not show through
had no factual and legal bases to conclude and find that Caada had been
Ligaray during the trial as to how he had determined that his caller was
acting for Wagas. This lack of factual and legal bases for the RTC to infer so
Wagas. All that the Prosecution sought to elicit from him was whether he had
obtained despite Wagas being Caadas brother-in-law.
known and why he had known Wagas, and he answered as follows:

Finally, Ligarays declaration that it was Wagas who had transacted with him
Q:
over the telephone was not reliable because he did not explain how he
determined that the person with whom he had the telephone conversation
was really Wagas whom he had not yet met or known before then. We deem Do you know the accused in this case?
it essential for purposes of reliability and trustworthiness that a telephone
conversation like that one Ligaray supposedly had with the buyer of rice to be A:
first authenticated before it could be received in evidence. Among others,
the person with whom the witness conversed by telephone should be first Yes, sir.
satisfactorily identified by voice recognition or any other means.32 Without the
authentication, incriminating another person just by adverting to the
Q:
telephone conversation with him would be all too easy. In this respect, an
identification based on familiarity with the voice of the caller, or because of
clearly recognizable peculiarities of the caller would have sufficed.33 The If he is present inside the courtroom []
identity of the caller could also be established by the callers self-
identification, coupled with additional evidence, like the context and timing A:
of the telephone call, the contents of the statement challenged, internal
No, sir. He is not around. Q:

Q: But still through the telephone?

Why do you know him? A:

A: Yes, sir.

I know him as a resident of Compostela because he is an ex-mayor of Q:

Compostela.36
There was no instant (sic) that the accused went to see you personally
During cross-examination, Ligaray was allowed another opportunity to show regarding the 200 bags rice transaction?
how he had determined that his caller was Wagas, but he still failed to provide
a satisfactory showing, to wit: A:

Q: No. It was through telephone only.

Mr. Witness, you mentioned that you and the accused entered into [a] Q:
transaction of rice selling, particularly with these 200 sacks of rice subject of
this case, through telephone conversation?
In fact[,] you did not cause the delivery of these 200 bags of rice through the
accused himself?
A:
A:
Yes, sir.
Yes. It was through Robert.
Q:
Q:
But you cannot really ascertain that it was the accused whom you are talking
with?
So, after that phone call[,] you deliver[ed] th[ose] 200 sacks of rice through
somebody other than the accused?
A:
A:
I know it was him because I know him.
Yes, sir.37
Q:
Ligarays statement that he could tell that it was Wagas who had ordered the
Am I right to say [that] that was the first time that you had a transaction with rice because he "know[s]" him was still vague and unreliable for not assuring
the accused through telephone conversation, and as a consequence of that the certainty of the identification, and should not support a finding of Ligarays
alleged conversation with the accused through telephone he issued a check familiarity with Wagas as the caller by his voice. It was evident from Ligarays
in your favor? answers that Wagas was not even an acquaintance of Ligarays prior to the
transaction. Thus, the RTCs conclusion that Ligaray had transacted with
A: Wagas had no factual basis. Without that factual basis, the RTC was
speculating on a matter as decisive as the identification of the buyer to be
No. Before that call I had a talk[ ] with the accused. Wagas.
The letter of Wagas did not competently establish that he was the person who
had conversed with Ligaray by telephone to place the order for the rice. The
letter was admitted exclusively as the States rebuttal evidence to controvert
or impeach the denial of Wagas of entering into any transaction with Ligaray
on the rice; hence, it could be considered and appreciated only for that
purpose. Under the law of evidence, the court shall consider evidence solely
for the purpose for which it is offered,38 not for any other purpose.39 Fairness to
the adverse party demands such exclusivity. Moreover, the high plausibility of
the explanation of Wagas that he had signed the letter only because his sister
and her husband had pleaded with him to do so could not be taken for
granted.
It is a fundamental rule in criminal procedure that the State carries the onus
probandi in establishing the guilt of the accused beyond a reasonable doubt,
as a consequence of the tenet ei incumbit probation, qui dicit, non qui negat,
which means that he who asserts, not he who denies, must prove,40 and as a
means of respecting the presumption of innocence in favor of the man or
woman on the dock for a crime. Accordingly, the State has the burden of
proof to show: (1) the correct identification of the author of a crime, and (2)
the actuality of the commission of the offense with the participation of the
accused. All these facts must be proved by the State beyond reasonable
doubt on the strength of its evidence and without solace from the weakness
of the defense. That the defense the accused puts up may be weak is
inconsequential if, in the first place, the State has failed to discharge the onus
of his identity and culpability. The presumption of innocence dictates that it is
for the Prosecution to demonstrate the guilt and not for the accused to
establish innocence.41 Indeed, the accused, being presumed innocent,
carries no burden of proof on his or her shoulders. For this reason, the first duty
of the Prosecution is not to prove the crime but to prove the identity of the
criminal. For even if the commission of the crime can be established, without
competent proof of the identity of the accused beyond reasonable doubt,
there can be no conviction.42
There is no question that an identification that does not preclude a
reasonable possibility of mistake cannot be accorded any evidentiary
force.43 Thus, considering that the circumstances of the identification of
Wagas as the person who transacted on the rice did not preclude a
reasonable possibility of mistake, the proof of guilt did not measure up to the
standard of proof beyond reasonable doubt demanded in criminal cases.
Perforce, the accuseds constitutional right of presumption of innocence until
the contrary is proved is not overcome, and he is entitled to an
acquittal,44 even though his innocence may be doubted.45
Nevertheless, an accused, though acquitted of estafa, may still be held civilly
liable where the preponderance of the established facts so warrants.46 Wagas
as the admitted drawer of the check was legally liable to pay the amount of it
to Ligaray, a holder in due course.47 Consequently, we pronounce and hold
him fully liable to pay the amount of the dishonored check, plus legal interest
of 6% per annum from the finality of this decision.
WHEREFORE, the Court REVERSES and SETS ASIDE the decision rendered on July
11, 2002 by the Regional Trial Court, Branch 58, in Cebu City; and ACQUITS
Gilbert R. Wagas of the crime of estafa on the ground of reasonable doubt,
but ORDERS him to pay Alberto Ligaray the amount of 200,000.00 as actual
damages, plus interest of 6% per annum from the finality of this decision.
No pronouncement on costs of suit.
SO ORDERED.
THIRD DIVISION
[G.R. No. 75908. October 22, 1999]
FEDERICO O. BORROMEO, LOURDES O. BORROMEO and FEDERICO O.
BORROMEO, INC, petitioners vs. AMANCIO SUN and the COURT OF
APPEALS,respondents.
DECISION
PURISIMA, J.:
At bar is a Petition for review on Certiorari under Rule 45 of the Revised
Rules of Court seeking to set aside the Resolution of the then Intermediate
Appellate Court[1], dated March 13, 1986, in AC-G.R. CV NO. 67988, which
reversed its earlier Decision dated February 12, 1985, setting aside the Decision
of the former Court of the First Instance of Rizal, Branch X, in Civil Case No.
19466.
The antecedent facts are as follows:
Private respondent Amancio Sun brought before the then Court of the
First Instance of Rizal, Branch X, an action against Lourdes O. Borromeo (in her
capacity as corporate secretary), Federico O. Borromeo and Federico O.
Borromeo (F.O.B.), Inc., to compel the transfer to his name in the books of
F.O.B., Inc., 23,223 shares of stock registered in the name of Federico O.
Borromeo, as evidenced by a Deed of Assignment dated January 16, 1974.
Private respondent averred[2] that all the shares of stock of F.O.B. Inc.
registered in the name of Federico O. Borromeo belong to him, as the said
shares were placed in the name of Federico O. Borromeo only to give the
latter personality and importance in the business world.[3] According to the
private respondent, on January 16, 1974 Federico O. Borromeo executed in his
favor a Deed of Assignment with respect to the said 23,223 shares of stock.
On the other hand, petitioner Federico O. Borromeo disclaimed any
participation in the execution of the Deed of Assignment, theorizing that his
supposed signature thereon was forged.
After trial, the lower court of origin came out with a decision declaring
the questioned signature on subject Deed of Assignment, dated January 16,
1974, as the genuine signature of Federico O. Borromeo; ratiocinating thus:
After considering the testimonies of the two expert witnesses for the parties
and after a careful and judicious study and analysis of the questioned
signature as compared to the standard signatures, the Court is not in a
position to declare that the questioned signature in Exh. A is a forgery. On the
other hand, the Court is of the opinion that the questioned signature is the real
signature of Federico O. Borromeo between the years 1954 to 1957 but
definitely is not his signature in 1974 for by then he has changed his
signature. Consequently, to the mind of the Court Exhibit A was signed by
defendant Federico O. Borromeo between the years 1954 to 1957 although
the words in the blank were filled at a much later date. [4]
On appeal by petitioners, the Court of Appeals adjudged as forgery the
controverted signature of Federico O. Borromeo; disposing as follows:
WHEREFORE, the judgment of the Court a quo as to the second cause of
action dated March 12, 1980 is hereby reversed and set aside and a new
judgment is hereby rendered:
1. Ordering the dismissal of the complaint as to defendant-appellants;
2. Ordering plaintiff-appellee on appellants counterclaim to pay the latter:
a) P 20,000.00 as moral damages;
b) P 10,000.00 as exemplary damages;
c) P 10,000.00 as attorneys fees.
3. Ordering plaintiff-appellee to pay the costs.[5]
On March 29, 1985, Amancio Sun interposed a motion for reconsideration
of the said decision, contending that Segundo Tabayoyong, petitioners expert
witness, is not a credible witness as found and concluded in the following
disposition by this Court in Cesar vs. Sandigan Bayan[6]:
The testimony of Mr. Segundo Tabayoyong on March 5, 1980, part of which is
cited on pages 19-23 of the petition, shows admissions which are summarized
by the petitioner as follows:
He never finished any degree in Criminology. Neither did he obtain any
degree in physics or chemistry. He was a mere trainee in the NBI
laboratory. He said he had gone abroad only once-to Argentina which,
according to him is the only one country in the world that gives this degree (?)
People go there where they obtain this sort of degree (?) where they are
authorized to practice (sic) examination of questioned documents.
His civil service eligibility was second grade (general clerical). His present
position had to be re-classified confidential in order to qualify him to it. He
never passed any Board Examination.
He has never authored any book on the subject on which he claimed to be
an expert. Well, he did write a so-called pamphlet pretentiously called
Fundamentals of Questioned Documents Examination and Forgery Detection.
In that pamphlet, he mentioned some references (some) are Americans and
one I think is a British, sir, like in the case of Dr. Wilson Harrison, a British (he
repeated with emphasis). Many of the theories contained in his pamphlet
were lifted body and soul from those references, one of them being Albert
Osborn. His pamphlet has neither quotations nor footnotes, although he was
too aware of the crime committed by many an author called plagiarism. But
that did not deter him, nor bother him in the least. He has never been a
member of any professional organization of experts in his supposed field of
expertise, because he said there is none locally. Neither is he on an
international level.[7]
Acting on the aforesaid motion for reconsideration, the Court of Appeals
reconsidered its decision of February 12, 1985 aforementioned. Thereafter, the
parties agreed to have subject Deed of Assignment examined by the
Philippine Constabulary (PC) Crime Laboratory, which submitted a Report on
January 9, 1986, the pertinent portion of which, stated:
1. Comparative examination and analysis of the questioned and the
standard signature reveal significant similarities in the freedom of
movement, good quality of lines, skills and individual handwriting
characteristics.
2. By process of interpolation the questioned signature fits in and
can be bracketed in time with the standard signatures written in
the years between 1956 to 1959. Microscopic examination of the
ink used in the questioned signature and the standard signature
in document dated 30 July 1959 marked Exh. E indicate
gallotanic ink.
xxx
 1. The questioned signature FEDERICO O. BORROMEO marked Q
appearing in the original Deed of Assignment dated 16 January
1974 and the submitted standard signatures of Federico O.
Borromeo marked S-1 to S-49 inclusive were written BY ONE AND
THE SAME PERSON.
2. The questioned signature FEDERICO O. BORROMEO marked Q
COULD HAVE BEEN SIGNED IN THE YEARS BETWEEN 1950-1957.[8]
After hearing the arguments the lawyers of record advanced on the said
Report of the PC Crime Laboratory, the Court of Appeals resolved:
"xxx
1) to ADMIT the Report dated Jan. 9, 1986 of the PC Crime
Laboratory on the Deed of Assignment in evidence, without
prejudice to the parties assailing the credibility of said Report;
2) to GIVE both parties a non-extendible period of FIVE (5) DAYS
from February 27, 1986, within which to file simultaneous
memoranda.[9]
On March 13, 1986, the Court of Appeals reversed its decision of February
12, 1985, which affirmed in toto the decision of the trial court of origin;
resolving thus:
WHEREFORE, finding the Motion for Reconsideration meritorious, We hereby set
aside our Decision, dated February 12, 1985 and in its stead a new judgment is
hereby rendered affirming in toto the decision of the trial Court, dated March
12, 1980, without pronouncement as to costs.
SO ORDERED.[10]
Therefrom, petitioners found their way to this court via the present Petition;
theorizing that:
I.
THE RESPONDENT COURT ERRED IN HOLDING THAT WHEN PETITIONER AGREED
TO THE SUGGESTION OF RESPONDENT COURT TO HAVE THE QUESTIONED
DOCUMENT EXAMINED BY THE PC CRIME LABORATORY THEY COULD NO
LONGER QUESTION THE COMPETENCY OF THE DOCUMENT.
II
THE COURT OF APPEALS ERRED IN HOLDING THAT THE QUESTIONED DOCUMENT
WAS SIGNED IN 1954 BUT WAS DATED IN 1974.
III
THE COURT OF APPEALS ERRED IN HOLDING THAT THE SIGNATURE OF FEDERICO
O. BORROMEO IN THE DEED OF ASSIGNMENT (EXHIBIT A ) IS A GENUINE
SIGNATURE CIRCA 1954-1957.
The Petition is barren of merit.
Well-settled is the rule that factual finding of the Court of Appeals are
conclusive on the parties and not reviewable by the Supreme Court and they
carry even more weight when the Court of Appeals affirms the factual findings
of the trial court. [11]
In the present case, the trial court found that the signature in question is
the genuine signature of Federico O. Borromeo between the years 1954 to
1957 although the words in the blank space of the document in question were
written on a much later date. The same conclusion was arrived at by the
Court of Appeals on the basis of the Report of the PC crime Laboratory
corroborating the findings of Col. Jose Fernandez that the signature under
controversy is genuine.
It is significant to note that Mr. Tabayoyong, petitioners expert witness,
limited his comparison of the questioned signature with the 1974 standard
signature of Federico O. Borromeo. No comparison of the subject signature
with the 1950 - 1957 standard signature was ever made by Mr. Tabayoyong
despite his awareness that the expert witness of private respondent, Col. Jose
Fernandez, made a comparison of said signatures and notwithstanding his
(Tabayoyongs) access to such signatures as they were all submitted to the
lower Court. As correctly ratiocinated[12] by the Court of origin, the only
conceivable reason why Mr. Tabayoyong avoided making such a comparison
must have been, that even to the naked eye, the questioned signature
affixed to the Deed of Assignment, dated January 16, 1974, is strikingly similar
to the 1950 to 1954 standard signature of Federico O. Borromeo, such that if a
comparison thereof was made by Mr. Tabayoyong, he would have found the
questioned signature genuine.
That the Deed of Assignment is dated January 16, 1974 while the
questioned signature was found to be circa 1954-1957, and not that of 1974, is
of no moment. It does not necessarily mean, that the deed is a
forgery. Pertinent records reveal that the subject Deed of Assignment is
embodied in a blank form for the assignment of shares with authority to
transfer such shares in the books of the corporation. It was clearly intended to
be signed in blank to facilitate the assignment of shares from one person to
another at any future time. This is similar to Section 14 of the Negotiable
Instruments Law where the blanks may be filled up by the holder, the signing in
blank being with the assumed authority to do so. Indeed, as the shares were
registered in the name of Federico O. Borromeo just to give him personality
and standing in the business community, private respondent had to have a
counter evidence of ownership of the shares involve. Thus the execution of the
deed of assignment in blank, to be filled up whenever needed. The same
explains the discrepancy between the date of the deed of assignment and
the date when the signature was affixed thereto.
 While it is true that the 1974 standard signature of Federico O. Borromeo is DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner,
to the naked eye dissimilar to his questioned signature circa 1954-1957, which vs.
could have been caused by sheer lapse of time, Col. Jose Fernandez, SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG, ASIAN
respondents expert witness, found the said signatures similar to each other INDUSTRIAL PLASTIC CORPORATION and PRODUCERS BANK OF THE
after subjecting the same to stereomicroscopic examination and analysis PHILIPPINES, defendants-respondents.
because the intrinsic and natural characteristic of Federico O. Borromeos
handwriting were present in all the exemplar signatures used by both Segundo Yngson & Associates for petitioner.
Tabayoyong and Col. Jose Fernandez.

It is therefore beyond cavil that the findings of the Court of origin affirmed Henry A. Reyes & Associates for Samso Tung & Asian Industrial Plastic
by the Court of Appeals on the basis of the corroborative findings of the Corporation.
Philippine Constabulary Crime Laboratory confirmed the genuineness of the
signature of Federico O. Borromeo in the Deed of Assignment dated January Eduardo G. Castelo for Sima Wei.
16, 1974.

Petitioners, however, question the Report of the document examiner on Monsod, Tamargo & Associates for Producers Bank.
the ground that they were not given an opportunity to cross-examine the
Philippine Constabulary document examiner; arguing that they never waived Rafael S. Santayana for Mary Cheng Uy.
their right to question the competency of the examiner concerned. While the
Court finds merit in the contention of petitioners, that they did not actually
waived their right to cross-examine on any aspect of subject Report of the
Philippine Constabulary Crime Laboratory, the Court discerns no proper basis
CAMPOS, JR., J.:
for deviating from the findings of the Court of Appeals on the matter. It is
worthy to stress that courts may place whatever weight due on the testimony
of an expert witness.[13] Conformably, in giving credence and probative value On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity)
to the said Report of the Philippine Constabulary Crime Laboratory, filed a complaint for a sum of money against respondents Sima Wei and/or
corroborating the findings of the trial Court, the Court of Appeals merely Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial Plastic
exercised its discretion. There being no grave abuse in the exercise of such Corporation (Plastic Corporation for short) and the Producers Bank of the
judicial discretion, the findings by the Court of Appeals should not be Philippines, on two causes of action:
disturbed on appeal.
(1) To enforce payment of the balance of P1,032,450.02 on a
Premises studiedly considered, the Court is of the irresistible conclusion,
promissory note executed by respondent Sima Wei on June 9,
and so holds, that the respondent court erred not in affirming the decision of
1983; and
the Regional Trial Court a quo in Civil Case No. 19466.

WHEREFORE, the Petition is DISMISSED for lack of merit and the assailed (2) To enforce payment of two checks executed by Sima Wei,
Resolution, dated March 13, 1986, AFFIRMED. No pronouncement as to costs. payable to petitioner, and drawn against the China Banking
Corporation, to pay the balance due on the promissory note.
SO ORDERED.

Except for Lee Kian Huat, defendants filed their separate Motions to Dismiss
Republic of the Philippines
alleging a common ground that the complaint states no cause of action. The
SUPREME COURT
trial court granted the defendants' Motions to Dismiss. The Court of Appeals
Manila
affirmed this decision, * to which the petitioner Bank, represented by its Legal
Liquidator, filed this Petition for Review by Certiorari, assigning the following as
SECOND DIVISION the alleged errors of the Court of Appeals:1

(1) THE COURT OF APPEALS ERRED IN HOLDING THAT THE

PLAINTIFF-PETITIONER HAS NO CAUSE OF ACTION AGAINST
G.R. No. 85419 March 9, 1993 DEFENDANTS-RESPONDENTS HEREIN.
 (2) THE COURT OF APPEALS ERRED IN HOLDING THAT SECTION
13, RULE 3 OF THE REVISED RULES OF COURT ON ALTERNATIVE
DEFENDANTS IS NOT APPLICABLE TO HEREIN DEFENDANTS-
RESPONDENTS.
The antecedent facts of this case are as follows:
In consideration for a loan extended by petitioner Bank to respondent Sima
Wei, the latter executed and delivered to the former a promissory note,
engaging to pay the petitioner Bank or order the amount of P1,820,000.00 on
or before June 24, 1983 with interest at 32% per annum. Sima Wei made partial
payments on the note, leaving a balance of P1,032,450.02. On November 18,
1983, Sima Wei issued two crossed checks payable to petitioner Bank drawn
against China Banking Corporation, bearing respectively the serial numbers
384934, for the amount of P550,000.00 and 384935, for the amount of
P500,000.00. The said checks were allegedly issued in full settlement of the
drawer's account evidenced by the promissory note. These two checks were
not delivered to the petitioner-payee or to any of its authorized
representatives. For reasons not shown, these checks came into the possession
of respondent Lee Kian Huat, who deposited the checks without the
petitioner-payee's indorsement (forged or otherwise) to the account of
respondent Plastic Corporation, at the Balintawak branch, Caloocan City, of
the Producers Bank. Cheng Uy, Branch Manager of the Balintawak branch of
Producers Bank, relying on the assurance of respondent Samson Tung,
President of Plastic Corporation, that the transaction was legal and regular,
instructed the cashier of Producers Bank to accept the checks for deposit and
to credit them to the account of said Plastic Corporation, inspite of the fact
that the checks were crossed and payable to petitioner Bank and bore no
indorsement of the latter. Hence, petitioner filed the complaint as aforestated.
The main issue before Us is whether petitioner Bank has a cause of action
against any or all of the defendants, in the alternative or otherwise.
A cause of action is defined as an act or omission of one party in violation of
the legal right or rights of another. The essential elements are: (1) legal right of
the plaintiff; (2) correlative obligation of the defendant; and (3) an act or
omission of the defendant in violation of said legal right.2
The normal parties to a check are the drawer, the payee and the drawee
bank. Courts have long recognized the business custom of using printed
checks where blanks are provided for the date of issuance, the name of the
payee, the amount payable and the drawer's signature. All the drawer has to
do when he wishes to issue a check is to properly fill up the blanks and sign it.
However, the mere fact that he has done these does not give rise to any
liability on his part, until and unless the check is delivered to the payee or his
representative. A negotiable instrument, of which a check is, is not only a
written evidence of a contract right but is also a species of property. Just as a
deed to a piece of land must be delivered in order to convey title to the
grantee, so must a negotiable instrument be delivered to the payee in order
to evidence its existence as a binding contract. Section 16 of the Negotiable
Instruments Law, which governs checks, provides in part:
Every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of
giving effect thereto. . . .
Thus, the payee of a negotiable instrument acquires no interest with respect
thereto until its delivery to him.3Delivery of an instrument means transfer of
possession, actual or constructive, from one person to another.4 Without the
initial delivery of the instrument from the drawer to the payee, there can be
no liability on the instrument. Moreover, such delivery must be intended to
give effect to the instrument.
The allegations of the petitioner in the original complaint show that the two (2)
China Bank checks, numbered 384934 and 384935, were not delivered to the
payee, the petitioner herein. Without the delivery of said checks to petitioner-
payee, the former did not acquire any right or interest therein and cannot
therefore assert any cause of action, founded on said checks, whether
against the drawer Sima Wei or against the Producers Bank or any of the other
respondents.
In the original complaint, petitioner Bank, as plaintiff, sued respondent Sima
Wei on the promissory note, and the alternative defendants, including Sima
Wei, on the two checks. On appeal from the orders of dismissal of the
Regional Trial Court, petitioner Bank alleged that its cause of action was not
based on collecting the sum of money evidenced by the negotiable
instruments stated but on quasi-delict a claim for damages on the ground
of fraudulent acts and evident bad faith of the alternative respondents. This
was clearly an attempt by the petitioner Bank to change not only the theory
of its case but the basis of his cause of action. It is well-settled that a party
cannot change his theory on appeal, as this would in effect deprive the other
party of his day in court.5
Notwithstanding the above, it does not necessarily follow that the drawer Sima
Wei is freed from liability to petitioner Bank under the loan evidenced by the
promissory note agreed to by her. Her allegation that she has paid the
balance of her loan with the two checks payable to petitioner Bank has no
merit for, as We have earlier explained, these checks were never delivered to
petitioner Bank. And even granting, without admitting, that there was delivery
to petitioner Bank, the delivery of checks in payment of an obligation does
not constitute payment unless they are cashed or their value is impaired
through the fault of the creditor.6 None of these exceptions were alleged by
respondent Sima Wei.
Therefore, unless respondent Sima Wei proves that she has been relieved from HON. JOSE P. BURGOS, Presiding Judge, RTC, Br. XVII, Cebu City, and RAUL H.
liability on the promissory note by some other cause, petitioner Bank has a SESBREO, respondents.
right of action against her for the balance due thereon.

However, insofar as the other respondents are concerned, petitioner Bank has
no privity with them. Since petitioner Bank never received the checks on BELLOSILLO, J.:
which it based its action against said respondents, it never owned them (the
checks) nor did it acquire any interest therein. Thus, anything which the
RAUL H. SESBREO filed a complaint for damages against Assistant City Fiscals
respondents may have done with respect to said checks could not have
Bienvenido N. Mabanto, Jr., and Dario D. Rama, Jr., before the Regional Trial
prejudiced petitioner Bank. It had no right or interest in the checks which
Court of Cebu City. After trial judgment was rendered ordering the
could have been violated by said respondents. Petitioner Bank has therefore
defendants to pay P11,000.00 to the plaintiff, private respondent herein. The
no cause of action against said respondents, in the alternative or otherwise. If
decision having become final and executory, on motion of the latter, the trial
at all, it is Sima Wei, the drawer, who would have a cause of action against
court ordered its execution. This order was questioned by the defendants
her
before the Court of Appeals. However, on 15 January 1992 a writ of execution
co-respondents, if the allegations in the complaint are found to be true.
was issued.

With respect to the second assignment of error raised by petitioner Bank

regarding the applicability of Section 13, Rule 3 of the Rules of Court, We find it
unnecessary to discuss the same in view of Our finding that the petitioner Bank
did not acquire any right or interest in the checks due to lack of delivery. It
therefore has no cause of action against the respondents, in the alternative or
otherwise.
In the light of the foregoing, the judgment of the Court of Appeals dismissing
the petitioner's complaint is AFFIRMED insofar as the second cause of action is
concerned. On the first cause of action, the case is REMANDED to the trial
court for a trial on the merits, consistent with this decision, in order to
determine whether respondent Sima Wei is liable to the Development Bank of
Rizal for any amount under the promissory note allegedly signed by her.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 111190 June 27, 1995
On 4 February 1992 a notice of garnishment was served on petitioner Loreto D.
de la Victoria as City Fiscal of Mandaue City where defendant Mabanto, Jr.,
was then detailed. The notice directed petitioner not to disburse, transfer,
release or convey to any other person except to the deputy sheriff concerned
the salary checks or other checks, monies, or cash due or belonging to
Mabanto, Jr., under penalty of law. 1 On 10 March 1992 private respondent
filed a motion before the trial court for examination of the garnishees.
On 25 May 1992 the petition pending before the Court of Appeals was
dismissed. Thus the trial court, finding no more legal obstacle to act on the
motion for examination of the garnishees, directed petitioner on 4 November
1992 to submit his report showing the amount of the garnished salaries of
Mabanto, Jr., within fifteen (15) days from receipt 2 taking into consideration
the provisions of Sec. 12, pars. (f) and (i), Rule 39 of the Rules of Court.
On 24 November 1992 private respondent filed a motion to require petitioner
to explain why he should not be cited in contempt of court for failing to
comply with the order of 4 November 1992.
On the other hand, on 19 January 1993 petitioner moved to quash the notice
of garnishment claiming that he was not in possession of any money, funds,
credit, property or anything of value belonging to Mabanto, Jr., except his
salary and RATA checks, but that said checks were not yet properties of
Mabanto, Jr., until delivered to him. He further claimed that, as such, they
were still public funds which could not be subject to garnishment.

LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in his personal On 9 March 1993 the trial court denied both motions and ordered petitioner to
capacity as garnishee, petitioner, immediately comply with its order of 4 November 1992. 3 It opined that the
vs. checks of Mabanto, Jr., had already been released through petitioner by the
Department of Justice duly signed by the officer concerned. Upon service of
the writ of garnishment, petitioner as custodian of the checks was under
obligation to hold them for the judgment creditor. Petitioner became a virtual
party to, or a forced intervenor in, the case and the trial court thereby
acquired jurisdiction to bind him to its orders and processes with a view to the
complete satisfaction of the judgment. Additionally, there was no sufficient
reason for petitioner to hold the checks because they were no longer
government funds and presumably delivered to the payee, conformably with
the last sentence of Sec. 16 of the Negotiable Instruments Law.
With regard to the contempt charge, the trial court was not morally
convinced of petitioner's guilt. For, while his explanation suffered from
procedural infirmities nevertheless he took pains in enlightening the court by
sending a written explanation dated 22 July 1992 requesting for the lifting of
the notice of garnishment on the ground that the notice should have been
sent to the Finance Officer of the Department of Justice. Petitioner insists that
he had no authority to segregate a portion of the salary of Mabanto, Jr. The
explanation however was not submitted to the trial court for action since the
stenographic reporter failed to attach it to the record. 4
On 20 April 1993 the motion for reconsideration was denied. The trial court
explained that it was not the duty of the garnishee to inquire or judge for
himself whether the issuance of the order of execution, writ of execution and
notice of garnishment was justified. His only duty was to turn over the
garnished checks to the trial court which issued the order of execution. 5
Petitioner raises the following relevant issues: (1) whether a check still in the
hands of the maker or its duly authorized representative is owned by the
payee before physical delivery to the latter: and, (2) whether the salary check
of a government official or employee funded with public funds can be subject
to garnishment.
Petitioner reiterates his position that the salary checks were not owned by
Mabanto, Jr., because they were not yet delivered to him, and that petitioner
as garnishee has no legal obligation to hold and deliver them to the trial court
to be applied to Mabanto, Jr.'s judgment debt. The thesis of petitioner is that
the salary checks still formed part of public funds and therefore beyond the
reach of garnishment proceedings.
Petitioner has well argued his case.
Garnishment is considered as a species of attachment for reaching credits
belonging to the judgment debtor owing to him from a stranger to the
litigation. 6 Emphasis is laid on the phrase "belonging to the judgment debtor"
since it is the focal point in resolving the issues raised.
As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds.
He receives his compensation in the form of checks from the Department of
Justice through petitioner as City Fiscal of Mandaue City and head of office.
Under Sec. 16 of the Negotiable Instruments Law, every contract on a
negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As ordinarily understood,
delivery means the transfer of the possession of the instrument by the maker or
drawer with intent to transfer title to the payee and recognize him as the
holder thereof.7
According to the trial court, the checks of Mabanto, Jr., were already
released by the Department of Justice duly signed by the officer concerned
through petitioner and upon service of the writ of garnishment by the sheriff
petitioner was under obligation to hold them for the judgment creditor. It
recognized the role of petitioner as custodian of the checks. At the same time
however it considered the checks as no longer government funds and
presumed delivered to the payee based on the last sentence of Sec. 16 of the
Negotiable Instruments Law which states: "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." Yet, the presumption is not
conclusive because the last portion of the provision says "until the contrary is
proved." However this phrase was deleted by the trial court for no apparent
reason. Proof to the contrary is its own finding that the checks were in the
custody of petitioner. Inasmuch as said checks had not yet been delivered to
Mabanto, Jr., they did not belong to him and still had the character of public
funds. In Tiro v. Hontanosas 8 we ruled that
The salary check of a government officer or employee such
as a teacher does not belong to him before it is physically
delivered to him. Until that time the check belongs to the
government. Accordingly, before there is actual delivery of
the check, the payee has no power over it; he cannot assign
it without the consent of the Government.
As a necessary consequence of being public fund, the checks may not be
garnished to satisfy the judgment. 9 The rationale behind this doctrine is
obvious consideration of public policy. The Court succinctly stated
in Commissioner of Public Highways v. San Diego 10 that
The functions and public services rendered by the State
cannot be allowed to be paralyzed or disrupted by the
diversion of public funds from their legitimate and specific
objects, as appropriated by law.
In denying petitioner's motion for reconsideration, the trial court expressed the
additional ratiocination that it was not the duty of the garnishee to inquire or
judge for himself whether the issuance of the order of execution, the writ of
execution, and the notice of garnishment was justified, citing our ruling
in Philippine Commercial Industrial Bank v. Court of Appeals. 11 Our precise
ruling in that case was that "[I]t is not incumbent upon the garnishee to inquire
or to judge for itself whether or not the order for the advance execution of a
judgment is valid." But that is invoking only the general rule. We have also
established therein the compelling reasons, as exceptions thereto, which were
not taken into account by the trial court, e.g., a defect on the face of the writ
or actual knowledge by the garnishee of lack of entitlement on the part of the
garnisher. It is worth to note that the ruling referred to the validity of advance
execution of judgments, but a careful scrutiny of that case and similar cases
reveals that it was applicable to a notice of garnishment as well. In the case
at bench, it was incumbent upon petitioner to inquire into the validity of the
notice of garnishment as he had actual knowledge of the non-entitlement of
private respondent to the checks in question. Consequently, we find no
difficulty concluding that the trial court exceeded its jurisdiction in issuing the
notice of garnishment concerning the salary checks of Mabanto, Jr., in the
possession of petitioner.
WHEREFORE, the petition is GRANTED. The orders of 9 March 1993 and 20 April
1993 of the Regional Trial Court of Cebu City, Br. 17, subject of the petition are
SET ASIDE. The notice of garnishment served on petitioner dated 3 February
1992 is ordered DISCHARGED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 107898 December 19, 1995
MANUEL LIM and ROSITA LIM, petitioners,
vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
BELLOSILLO, J.:
MANUEL LIM and ROSITA LIM, spouses, were charged before the Regional Trial
Court of Malabon with estafa on three (3) counts under Art. 315, par. 2 (d),
of The Revised Penal Code, docketed as Crim. Cases Nos. 1696-MN to 1698-
MN. The Informations substantially alleged that Manuel and Rosita, conspiring
together, purchased goods from Linton Commercial Company, Inc. (LINTON),
and with deceit issued seven Consolidated Bank and Trust Company
(SOLIDBANK) checks simultaneously with the delivery as payment therefor.
When presented to the drawee bank for payment the checks were
dishonored as payment on the checks had been stopped and/or for
insufficiency of funds to cover the amounts. Despite repeated notice and
demand the Lim spouses failed and refused to pay the checks or the value of
the goods.
On the basis of the same checks, Manuel and Rosita Lim were also charged
with seven (7) counts of violation of B.P. Blg. 22, otherwise known as
the Bouncing Checks Law, docketed as Crim. Cases Nos. 1699-MN to 1705-
MN. In substance, the Informations alleged that the Lims issued the checks
with knowledge that they did not have sufficient funds or credit with the
drawee bank for payment in full of such checks upon presentment. When
presented for payment within ninety (90) days from date thereof the checks
were dishonored by the drawee bank for insufficiency of funds. Despite
receipt of notices of such dishonor the Lims failed to pay the amounts of the
checks or to make arrangements for full payment within five (5) banking days.
Manuel Lim and Rosita Lim are the president and treasurer, respectively, of Rigi
Bilt Industries, Inc. (RIGI). RIGI had been transacting business with LINTON for
years, the latter supplying the former with steel plates, steel bars, flat bars and
purlin sticks which it uses in the fabrication, installation and building of steel
structures. As officers of RIGI the Lim spouses were allowed 30, 60 and
sometimes even up to 90 days credit.
On 27 May 1983 the Lims ordered 100 pieces of mild steel plates worth
P51,815.00 from LINTON which were delivered on the same day at their place
of business at 666 7th Avenue, 8th Street, Kalookan City. To pay LINTON for the
delivery the Lims issued SOLIDBANK Check No. 027700 postdated 3 September
1983 in the amount of P51,800.00.1
On 30 May 1983 the Lims ordered another 65 pieces of mild steel plates worth
P63,455.00 from LINTON which were delivered at their place of business on the
same day. They issued as payment SOLIDBANK Check No. 027699 in the
amount of P63,455.00 postdated 20 August 1983.2
The Lim spouses also ordered 2,600 "Z" purlins worth P241,800.00 which were
delivered to them on various dates, to wit: 15 and 22 April 1983; 11, 14, 20, 23,
25, 28 and 30 May 1983; and, 2 and 9 June 1983. To pay for the deliveries, they
issued seven SOLIDBANK checks, five of which were
Check No. Date of Issue Amount
027683 16 July 1983 P27,900.003
027684 23 July 1983 P27,900.004
027719 6 Aug. 1983 P32,550.005
 027720 13 Aug. 1983 P27,900.006
027721 27 Aug. 1983 P37,200.007
William Yu Bin, Vice President and Sales Manager of LINTON, testified that
when those seven (7) checks were deposited with the Rizal Commercial
Banking Corporation they were dishonored for "insufficiency of funds" with the
additional notation "payment stopped" stamped thereon. Despite demand
Manuel and Rosita refused to make good the checks or pay the value of the
deliveries.
Salvador Alfonso, signature verifier of SOLIDBANK, Grace Park Branch,
Kalookan City, where the Lim spouses maintained an account, testified on the
following transactions with respect to the seven (7) checks:
CHECK NO. DATE PRESENTED REASON FOR DISHONOR
027683 22 July 1983 Payment Stopped (PS)8
027684 23 July 1983 PS and Drawn Against
Insufficient Fund (DAIF)9
027699 24 Aug. 1983 PS and DAIF10
027700 5 Sept. 1983 PS and DAIF11
027719 9 Aug. 1983 DAIF 12
027720 16 Aug. 1983 PS and DAIF13
027721 30 Aug. 1983 PS and DAIF14
Manuel Lim admitted having issued the seven (7) checks in question to pay for
deliveries made by LINTON but denied that his company's account had
insufficient funds to cover the amounts of the checks. He presented the bank
ledger showing a balance of P65,752.75. Also, he claimed that he ordered
SOLIDBANK to stop payment because the supplies delivered by LINTON were
not in accordance with the specifications in the purchase orders.
Rosita Lim was not presented to testify because her statements would only be
corroborative.
On the basis of the evidence thus presented the trial court held both accused
guilty of estafa and violation of B.P. Blg. 22 in its decision dated 25 January
1989. In Crim. Case No. 1696-MN they were sentenced to an indeterminate
penalty of six (6) years and one (1) day of prision mayor as minimum to twelve
(12) years and one (1) day of reclusion temporal as maximum plus one (1)
year for each additional P10,000.00 with all the accessory penalties provided
for by law, and to pay the costs. They were also ordered to indemnify LINTON
in the amount of P241,800.00. Similarly sentences were imposed in Crim. Cases
Nos. 1697-MN and 1698-MN except as to the indemnities awarded, which
were P63,455.00 and P51,800.00, respectively.
In Crim. Case No. 1699-MN the trial court sentenced both accused to a
straight penalty of one (1) year imprisonment with all the accessory penalties
provided for by law and to pay the costs. In addition, they were ordered to
indemnify LINTON in the amount of P27,900.00. Again, similar sentences were
imposed in Crim. Cases Nos. 1700-MN to 1705-MN except for the indemnities
awarded, which were P32,550.00, P27,900.00, P27,900.00, P63,455.00,
P51,800.00 and P37,200.00 respectively.15
On appeal, the accused assailed the decision as they imputed error to the
trial court as follows: (a) the regional Trial Court of malabon had no jurisdiction
over the cases because the offenses charged ere committed outside its
territory; (b) they could not be held liable for estafa because the seven (7)
checks were issued by them several weeks after the deliveries of the goods;
and, (c) neither could they be held liable for violating B.P. Blg. 22 as they
ordered payment of the checks to be stopped because the goods delivered
were not those specified by them, besides they had sufficient funds to pay the
checks.
In the decision of 18 September 199216 respondent Court of Appeals
acquitted accused-appellants of estafa on the ground that indeed the
checks were not made in payment of an obligation contracted at the time of
their issuance. However it affirmed the finding of the trial court that they were
guilty of having violated B.P. Blg. 22.17 On 6 November 1992 their motion for
reconsideration was denied.18
In the case at bench petitioners maintain that the prosecution failed to prove
that any of the essential elements of the crime punishable under B.P. Blg. 22
was committed within the jurisdiction of the Regional Trial Court of Malabon.
They claim that what was proved was that all the elements of the offense
were committed in Kalookan City. The checks were issued at their place of
business, received by a collector of LINTON, and dishonored by the drawee
bank, all in Kalookan City. Furthermore, no evidence whatsoever supports the
proposition that they knew that their checks were insufficiently funded. In fact,
some of the checks were funded at the time of presentment but dishonored
nonetheless upon their instruction to the bank to stop payment. In fine,
considering that the checks were all issued, delivered, and dishonored in
Kalookan City, the trial court of Malabon exceeded its jurisdiction when it tried
the case and rendered judgment thereon.
The petition has no merit. Section 1, par. 1, of B.P. Blg. 22 punishes "[a]ny
person who makes or draws and issues any check to apply on account or for
value, knowing at the time of issue that he does not have sufficient funds in or
credit with the drawee bank for the payment of such check in full upon its
presentment, which check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit or would have been dishonored for the same
reason had not the drawer, without any valid reason, ordered the bank to
stop payment . . ." The gravamen of the offense is knowingly issuing a worthless
check.19 Thus, a fundamental element is knowledge on the part of the drawer
of the insufficiency of his funds in20 or credit with the drawee bank for the
payment of such check in full upon presentment. Another essential element is
subsequent dishonor of the check 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.21
It is settled that venue in criminal cases is a vital ingredient of
jurisdiction.22 Section 14, par. (a), Rule 110, of the Revised Rules of Court, which
has been carried over in Sec. 15, par. (a), Rule 110 of the 1985 Rules on
Criminal Procedure, specifically provides:
Sec. 14. Place where action is to be instituted. (a) In all
criminal prosecutions the action shall be instituted and tried in
the court of the municipality or province wherein the offense
was committed or anyone of the essential ingredients thereof
took place.
If all the acts material and essential to the crime and requisite of its
consummation occurred in one municipality or territory, the court therein has
the sole jurisdiction to try the case.23 There are certain crimes in which some
acts material and essential to the crimes and requisite to their consummation
occur in one municipality or territory and some in another, in which event, the
court of either has jurisdiction to try the cases, it being understood that the first
court taking cognizance of the case excludes the other.24 These are the so-
called transitory or continuing crimes under which violation of B.P. Blg. 22 is
categorized. In other words, a person charged with a transitory crime may be
validly tried in any municipality or territory where the offense was in part
committed.25
In determining proper venue in these cases, the following acts material and
essential to each crime and requisite to its consummation must be considered:
(a) the seven (7) checks were issued to LINTON at its place of business in Balut,
Navotas; b) they were delivered to LINTON at the same place; (c) they were
dishonored in Kalookan City; and, (d) petitioners had knowledge of the
insufficiency of their funds in SOLIDBANK at the time the checks were issued.
Since there is no dispute that the checks were dishonored in Kalookan City, it is
no longer necessary to discuss where the checks were dishonored.
Under Sec. 191 of the Negotiable Instruments Law the term "issue" means the
first delivery of the instrument complete in form to a person who takes it as a
holder. On the other hand, the term "holder" refers to the payee or indorsee of
a bill or note who is in possession of it or the bearer thereof. In People
v. Yabut26 this Court explained
. . . The place where the bills were written, signed, or dated
does not necessarily fix or determine the place where they
were executed. What is of decisive importance is the delivery
thereof. The delivery of the instrument is the final
act essential to its consummation as an obligation. An
undelivered bill or note is inoperative. Until delivery, the
contract is revocable. And the issuance as well as the
delivery of the check must be to a person who takes it as
a holder, which means "(t)he payee or indorsee of a bill or
note, who is in possession of it, or the bearer thereof." Delivery
of the check signifies transfer of possession, whether actual or
constructive, from one person to another with intent
to transfer titlethereto . . .
Although LINTON sent a collector who received the checks from petitioners at
their place of business in Kalookan City, they were actually issued and
delivered to LINTON at its place of business in Balut, Navotas. The receipt of
the checks by the collector of LINTON is not the issuance and delivery to the
payee in contemplation of law. The collector was not the person who could
take the checks as a holder, i.e., as a payee or indorsee thereof, with the
intent to transfer title thereto. Neither could the collector be deemed an
agent of LINTON with respect to the checks because he was a mere
employee. As this Court further explained in People v. Yabut27
Modesto Yambao's receipt of the bad checks from Cecilia
Que Yabut or Geminiano Yabut, Jr., in Caloocan City cannot,
contrary to the holding of the respondent Judges, be licitly
taken as delivery of the checks to the complainant Alicia P.
Andan at Caloocan City to fix the venue there. He did not
take delivery of the checks as holder, i.e., as "payee" or
"indorsee." And there appears to be no contract of agency
between Yambao and Andan so as to bind the latter for the
acts of the former. Alicia P. Andan declared in that sworn
testimony before the investigating fiscal that Yambao is but
her "messenger" or "part-time employee." There was
no special fiduciary relationship that permeated their
dealings. For a contract of agency to exist, the consent of
both parties is essential. The principal consents that the other
party, the agent, shall act on his behalf, and the agent
consents so as to act. It must exist as afact. The law makes no
presumption thereof. The person alleging it has the burden of
proof to show, not only the fact of its existence, but also its
nature and extent . . .
Section 2 of B.P. Blg. 22 establishes a prima facie evidence of knowledge of
insufficient funds as follows
The making, drawing and issuance of a check payment of
which is refused by the bank because of insufficient funds in
 or credit with such bank, when presented within ninety (90)
days from the date of the check, shall be prima
facie evidence of knowledge of such insufficiency of funds or
credit unless such maker or drawer pays the holder thereof
the amount due thereon, or makes arrangement for payment
in full by the drawee of such check within five (5) banking
days after receiving notice that such check has not been
paid by the drawee.
The prima facie evidence has not been overcome by petitioners in the cases
before us because they did not pay LINTON the amounts due on the checks;
neither did they make arrangements for payment in full by the drawee bank
within five (5) banking days after receiving notices that the checks had not
been paid by the drawee bank. In People v. Grospe28 citing People
v. Manzanilla29 we held that ". . . knowledge on the part of the maker or
drawer of the check of the insufficiency of his funds is by itself a continuing
eventuality, whether the accused be within one territory or another."
Consequently, venue or jurisdiction lies either in the Regional Trial Court of
Kalookan City or Malabon. Moreover, we ruled in the
same Grospe and Manzanilla cases as reiterated in Lim v. Rodrigo30 that
venue or jurisdiction is determined by the allegations in the Information. The
Informations in the cases under consideration allege that the offenses were
committed in the Municipality of Navotas which is controlling and sufficient to
vest jurisdiction upon the Regional Trial Court of Malabon.31
We therefore sustain likewise the conviction of petitioners by the Regional Trial
Court of Malabon for violation of B.P. Blg. 22 thus
Accused-appellants claim that they ordered payment of the
checks to be stopped because the goods delivered were not
those specified by them. They maintain that they had
sufficient funds to cover the amount of the checks. The
records of the bank, however, reveal otherwise. The two
letters (Exhs. 21 and 22) dated July 23, and August 10, 1983
which they claim they sent to Linton Commercial,
complaining against the quality of the goods delivered by the
latter, did not refer to the delivery of mild steel plates (6mm x
4 x 8) and "Z" purlins (16 x 7 x 2-1/2 mts) for which the checks in
question were issued. Rather, the letters referred to B.1. Lally
columns (Sch. #20), which were the subject of other purchase
orders.
It is true, as accused-appellants point out, that in a case
brought by them against the complainant in the Regional Trial
Court of Kalookan City (Civil Case No. C-10921) the
complainant was held liable for actual damages because of
the delivery of goods of inferior quality (Exh. 23). But the
supplies involved in that case were those of B.I. pipes, while
the purchases made by accused-appellants, for which they
issued the checks in question, were purchases of mild steel
plates and "Z" purlins.
Indeed, the only question here is whether accused-appellants
maintained funds sufficient to cover the amounts of their
checks at the time of issuance and presentment of such
checks. Section 3 of B.P. Blg. 22 provides that
"notwithstanding receipt of an order to stop payment, the
drawee bank shall state in the notice of dishonor that there
were no sufficient funds in or credit with such bank for the
payment in full of the check, if such be the fact."
The purpose of this provision is precisely to preclude the
maker or drawer of a worthless check from ordering the
payment of the check to be stopped as a pretext for the lack
of sufficient funds to cover the check.
In the case at bar, the notice of dishonor issued by the
drawee bank, indicates not only that payment of the check
was stopped but also that the reason for such order was that
the maker or drawer did not have sufficient funds with which
to cover the checks. . . . Moreover, the bank ledger of
accused-appellants' account in Consolidated Bank shows
that at the time the checks were presented for encashment,
the balance of accused-appellants' account was
inadequate to cover the amounts of the checks.32 . . .
WHEREFORE, the decision of the Court of Appeals dated 18 September 1992
affirming the conviction of petitioners Manuel Lim and Rosita Lim
In CA-G.R. CR No. 07277 (RTC Crim. Case No. 1699-MN); CA-
G.R. CR No. 07278 (RTC Crim. Case No. 1700-MN); CA-G.R. CR
No. 07279 (RTC Crim. Case No. 1701-MN); CA-G.R. CR No.
07280 (RTC Crim. Case No. 1702-MN); CA-G.R. CR No. 07281
(RTC Crim. Case No. 1703-MN); CA-G.R. CA No. 07282 (RTC
Crim. Case No. 1704-MN); and CA-G.R. CR No. 07283 (RTC
Crim Case No. 1705-MN), the Court finds the accused-
appellants
MANUEL LIM and ROSITA LIM guilty beyond reasonable doubt
of violation of Batas Pambansa Bilang 22 and are hereby
sentenced to suffer a STRAIGHT PENALTY OF ONE (1) YEAR
IMPRISONMENT in each case, together with all the accessory
penalties provided by law, and to pay the costs.
 In CA-G.R. CR No. 07277 (RTC Crim. Case No. 1699-MN), both BRION,
accused-appellants are hereby ordered to indemnify the PEREZ,
offended party in the sum of P27,900.00. HI-TRI DEVELOPMENT CORPORATION and LUZ R. SERENO, and
BAKUNAWA, REYES, JJ.
In CA-G.R. CR No. 07278 (RTC Crim. Case No. 1700-MN) both Respondents.
accused-appellants are hereby ordered to indemnify the Promulgated:
offended party in the sum of P32,550.00.
June 13, 2012
In CA-G.R. CR No. 07278 (RTC Crim. Case No. 1701-MN) both
accused-appellants are hereby ordered to indemnify the
offended party in the sum of P27,900.00.
x--------------------------------------------------x
In CA-G.R. CR No. 07280 (RTC Crim. Case No. 1702-MN) both
accused-appellants are hereby ordered to indemnify the
DECISION
offended party in the sum of P27,900.00.

In CA-G.R. CR No. 07281 (RTC Crim. Case No. 1703-MN) both SERENO, J.:
accused are hereby ordered to indemnify the offended party
in the sum of P63,455.00.

In CA-G.R CR No. 07282 (RTC Crim. Case No. 1704-MN) both Before the Court is a Rule 45 Petition for Review on Certiorari filed by
accused-appellants are hereby ordered to indemnify the
offended party in the sum of P51,800.00, and petitioner Rizal Commercial Banking Corporation (RCBC) against respondents

Hi-Tri Development Corporation (Hi-Tri) and Luz R. Bakunawa (Bakunawa).

In CA-G.R. CR No. 07283 (RTC Crim. Case No. 1705-MN) both
accused-appellants are hereby ordered to indemnify the
Petitioner seeks to appeal from the 26 November 2009 Decision and 27 May
offended party in the sum of P37,200.00 33
2010 Resolution of the Court of Appeals (CA),[1] which reversed and set aside
as well as its resolution of 6 November 1992 denying reconsideration
thereof, is AFFIRMED. Costs against petitioners. the 19 May 2008 Decision and 3 November 2008 Order of the Makati City

SO ORDERED. Regional Trial Court (RTC) in Civil Case No. 06-244.[2] The case before the RTC

involved the Complaint for Escheat filed by the Republic of the Philippines
Republic of the Philippines
Supreme Court (Republic) pursuant to Act No. 3936, as amended by Presidential Decree No.
Manila
679 (P.D. 679), against certain deposits, credits, and unclaimed balances held
SECOND DIVISION
by the branches of various banks in the Philippines. The trial court declared the

RIZAL COMMERCIAL BANKING CORPORATION, G.R. No. 192413 amounts, subject of the special proceedings, escheated to the Republic and
Petitioner,
Present: ordered them deposited with the Treasurer of the Philippines (Treasurer) and

versus CARPIO, J., Chairperson, credited in favor of the Republic.[3] The assailed RTC judgments included an

unclaimed balance in the amount of 1,019,514.29, maintained by RCBC in its
Ermita Business Center branch.
We quote the narration of facts of the CA[4] as follows:
x x x Luz [R.] Bakunawa and her husband Manuel,
now deceased (Spouses Bakunawa) are registered owners of
six (6) parcels of land covered by TCT Nos. 324985 and 324986
of the Quezon City Register of Deeds, and TCT Nos. 103724,
98827, 98828 and 98829 of the Marikina Register of Deeds.
These lots were sequestered by the Presidential Commission
on Good Government [(PCGG)].
Sometime in 1990, a certain Teresita Millan (Millan),
through her representative, Jerry Montemayor, offered to buy
said lots for 6,724,085.71, with the promise that she will take
care of clearing whatever preliminary obstacles there
may[]be to effect a completion of the sale. The Spouses
Bakunawa gave to Millan the Owners Copies of said TCTs and
in turn, Millan made a down[]payment of 1,019,514.29 for
the intended purchase. However, for one reason or another,
Millan was not able to clear said obstacles. As a result, the
Spouses Bakunawa rescinded the sale and offered to return
to Millan her down[]payment of 1,019,514.29. However,
Millan refused to accept back the 1,019,514.29
down[]payment. Consequently, the Spouses Bakunawa,
through their company, the Hi-Tri Development Corporation
(Hi-Tri) took out on October 28, 1991, a Managers Check from
RCBC-Ermita in the amount of 1,019,514.29, payable to
Millans company Rosmil Realty and Development
Corporation (Rosmil) c/o Teresita Millan and used this as one
of their basis for a complaint against Millan and Montemayor
which they filed with the Regional Trial Court of Quezon City,
Branch 99, docketed as Civil Case No. Q-91-10719 [in 1991],
praying that:
1. That the defendants Teresita Mil[l]an
and Jerry Montemayor may be ordered
to return to plaintiffs spouses the Owners
Copies of Transfer Certificates of Title
Nos. 324985, 324986, 103724, 98827,
98828 and 98829;
2. That the defendant Teresita Mil[l]an be
correspondingly ordered to receive the
amount of One Million Nineteen
Thousand Five Hundred Fourteen Pesos
and Twenty Nine Centavos
(1,019,514.29);
3. That the defendants be ordered to pay
to plaintiffs spouses moral damages in
the amount of 2,000,000.00; and
4. That the defendants be ordered to pay
plaintiffs attorneys fees in the amount of
50,000.00.
Being part and parcel of said complaint, and
consistent with their prayer in Civil Case No. Q-91-10719 that
Teresita Mil[l]an be correspondingly ordered to receive the
amount of One Million Nineteen Thousand Five Hundred
Fourteen Pesos and Twenty Nine [Centavos] (1,019,514.29)[],
the Spouses Bakunawa, upon advice of their counsel,
retained custody of RCBC Managers Check No. ER 034469
and refrained from canceling or negotiating it.
All throughout the proceedings in Civil Case No. Q-
91-10719, especially during negotiations for a possible
settlement of the case, Millan was informed that the
Managers Check was available for her withdrawal, she being
the payee.
On January 31, 2003, during the pendency of the
abovementioned case and without the knowledge of [Hi-Tri
and Spouses Bakunawa], x x x RCBC reported the
1,019,514.29-credit existing in favor of Rosmil to the Bureau of
Treasury as among its unclaimed balances as of January 31,
2003. Allegedly, a copy of the Sworn Statement executed by
Florentino N. Mendoza, Manager and Head of RCBCs Asset
Management, Disbursement & Sundry Department (AMDSD)
was posted within the premises of RCBC-Ermita.
On December 14, 2006, x x x Republic, through the
[Office of the Solicitor General (OSG)], filed with the RTC the
action below for Escheat [(Civil Case No. 06-244)].
On April 30, 2008, [Spouses Bakunawa] settled
amicably their dispute with Rosmil and Millan. Instead of only
the amount of 1,019,514.29, [Spouses Bakunawa] agreed to
pay Rosmil and Millan the amount of 3,000,000.00, [which is]
inclusive [of] the amount of []1,019,514.29. But during
negotiations and evidently prior to said settlement, [Manuel
Bakunawa, through Hi-Tri] inquired from RCBC-Ermita the
availability of the 1,019,514.29 under RCBC Managers Check
No. ER 034469. [Hi-Tri and Spouses Bakunawa] were however
dismayed when they were informed that the amount was
already subject of the escheat proceedings before the RTC.
On April 17, 2008, [Manuel Bakunawa, through Hi-Tri]
wrote x x x RCBC, viz:
We understand that the deposit
corresponding to the amount of Php
1,019,514.29 stated in the Managers Check is
currently the subject of escheat proceedings
pending before Branch 150 of the Makati
Regional Trial Court.
Please note that it was our impression that
the deposit would be taken from [Hi-Tris]
RCBC bank account once an order to debit
is issued upon the payees presentation of the
Managers Check. Since the payee rejected
the negotiated Managers Check,
presentation of the Managers Check was
never made.
Consequently, the deposit that was
supposed to be allocated for the payment of
the Managers Check was supposed to
remain part of the Corporation[s] RCBC bank
account, which, thereafter, continued to be
actively maintained and operated. For this
reason, We hereby demand your
confirmation that the amount of Php
1,019,514.29 continues to form part of the
funds in the Corporations RCBC bank
account, since pay-out of said amount was
never ordered. We wish to point out that if
there was any attempt on the part of RCBC
to consider the amount indicated in the
Managers Check separate from the
Corporations bank account, RCBC would
have issued a statement to that effect, and
repeatedly reminded the Corporation that
the deposit would be considered dormant
absent any fund movement. Since the
Corporation never received any statements
of account from RCBC to that effect, and
more importantly, never received any single
letter from RCBC noting the absence of fund
movement and advising the Corporation
that the deposit would be treated as
dormant.
On April 28, 2008, [Manuel Bakunawa] sent another
letter to x x x RCBC reiterating their position as above-quoted.
In a letter dated May 19, 2008, x x x RCBC replied and
informed [Hi-Tri and Spouses Bakunawa] that:
The Banks Ermita BC informed Hi-Tri and/or its
principals regarding the inclusion of
Managers Check No. ER034469 in the
escheat proceedings docketed as Civil Case
No. 06-244, as well as the status thereof,
between 28 January 2008 and 1 February
2008.
xxx xxx xxx
Contrary to what Hi-Tri hopes for, the funds
covered by the Managers Check No.
ER034469 does not form part of the Banks
own account. By simple operation of law, the
funds covered by the managers check in
issue became a deposit/credit susceptible
for inclusion in the escheat case initiated by
the OSG and/or Bureau of Treasury.
xxx xxx xxx
Granting arguendo that the Bank was duty-
bound to make good the check, the Banks
obligation to do so prescribed as early as
October 2001.
(Emphases, citations, and annotations were omitted.)
The RTC Ruling
The escheat proceedings before the Makati City RTC continued. On 19 May compliance with the requirements of publication and notice, which served as

2008, the trial court rendered its assailed Decision declaring the deposits, notice to all those who may be affected and prejudiced by the Complaint for

credits, and unclaimed balances subject of Civil Case No. 06-244 escheated Escheat. The RTC also found that the motion failed to point out the findings

to the Republic. Among those included in the order of forfeiture was the and conclusions that were not supported by the law or the evidence

amount of 1,019,514.29 held by RCBC as allocated funds intended for the presented, as required by Rule 37 of the Rules of Court. Finally, it ruled that the

payment of the Managers Check issued in favor of Rosmil. The trial court alternative prayer to intervene was filed out of time.

ordered the deposit of the escheated balances with the Treasurer and

credited in favor of the Republic. Respondents claim that they were not able
The CA Ruling
to participate in the trial, as they were not informed of the ongoing escheat

proceedings.

On 26 November 2009, the CA issued its assailed Decision reversing

the 19 May 2008 Decision and 3 November 2008 Order of the RTC. According
Consequently, respondents filed an Omnibus Motion dated 11 June
to the appellate court,[6] RCBC failed to prove that the latter had
2008, seeking the partial reconsideration of the RTC Decision insofar as it
communicated with the purchaser of the Managers Check (Hi-Tri and/or
escheated the fund allocated for the payment of the Managers Check. They
Spouses Bakunawa) or the designated payee (Rosmil) immediately before the
asked that they be included as party-defendants or, in the alternative,
bank filed its Sworn Statement on the dormant accounts held therein. The CA
allowed to intervene in the case and their motion considered as an answer-in-
ruled that the banks failure to notify respondents deprived them of an
intervention. Respondents argued that they had meritorious grounds to ask
opportunity to intervene in the escheat proceedings and to present evidence
reconsideration of the Decision or, alternatively, to seek intervention in the
to substantiate their claim, in violation of their right to due process.
case. They alleged that the deposit was subject of an ongoing dispute (Civil
Furthermore, the CA pronounced that the Makati City RTC Clerk of Court
Case No. Q-91-10719) between them and Rosmil since 1991, and that they
failed to issue individual notices directed to all persons claiming interest in the
were interested parties to that case.[5]
unclaimed balances, as well as to require them to appear after publication

and show cause why the unclaimed balances should not be deposited with

On 3 November 2008, the RTC issued an Order denying the motion of the Treasurer of the Philippines. It explained that the jurisdictional requirement

respondents. The trial court explained that the Republic had proven of individual notice by personal service was distinct from the requirement of
notice by publication. Consequently, the CA held that the Decision and Order
of the RTC were void for want of jurisdiction.
Issue
After a perusal of the arguments presented by the parties, we cull the
main issues as follows:
I. Whether the Decision and Order of the RTC were void for
failure to send separate notices to respondents by personal
service
II. Whether petitioner had the obligation to notify respondents
immediately before it filed its Sworn Statement with the
Treasurer
III. Whether or not the allocated funds may be escheated in
favor of the Republic
Discussion
Petitioner bank assails[7] the CA judgments insofar as they ruled that
notice by personal service upon respondents is a jurisdictional requirement in
escheat proceedings. Petitioner contends that respondents were not the
owners of the unclaimed balances and were thus not entitled to notice from
the RTC Clerk of Court. It hinges its claim on the theory that the funds
represented by the Managers Check were deemed transferred to the credit
of the payee or holder upon its issuance.
We quote the pertinent provision of Act No. 3936, as amended, on
the rule on service of processes, to wit:
Sec. 3. Whenever the Solicitor General shall be informed of
such unclaimed balances, he shall commence an action or
actions in the name of the People of the Republic of the
Philippinesin the Court of First Instance of the province or city
where the bank, building and loan association or trust
corporation is located, in which shall be joined as parties the
bank, building and loan association or trust
corporation and all such creditors or depositors. All or any of
such creditors or depositors or banks, building and loan
association or trust corporations may be included in one
action. Service of process in such action or actions shall
be made by delivery of a copy of the complaint and
summons to the president, cashier, or managing officer of
each defendant bank, building and loan association or trust
corporation and by publication of a copy of such summons in
a newspaper of general circulation, either in English, in
Filipino, or in a local dialect, published in the locality where
the bank, building and loan association or trust corporation is
situated, if there be any, and in case there is none, in the City
of Manila, at such time as the court may order. Upon the trial,
the court must hear all parties who have appeared therein,
and if it be determined that such unclaimed balances in any
defendant bank, building and loan association or trust
corporation are unclaimed as hereinbefore stated, then the
court shall render judgment in favor of the Government of the
Republic of the Philippines, declaring that said unclaimed
balances have escheated to the Government of the
Republic of the Philippines and commanding said bank,
building and loan association or trust corporation to forthwith
deposit the same with the Treasurer of the Philippines to credit
of the Government of the Republic of the Philippines to be
used as the National Assembly may direct.
 At the time of issuing summons in the action above provided
for, the clerk of court shall also issue a notice signed by him, directing and requiring all persons who may claim any interest in the
giving the title and number of said action, and referring to the
complaint therein, and directed to all persons, other than unclaimed balances to appear before the court and show cause why the
those named as defendants therein, claiming any interest in
any unclaimed balance mentioned in said complaint, dormant accounts should not be deposited with the Treasurer.
and requiring them to appear within sixty days after the
publication or first publication, if there are several, of such
summons, and show cause, if they have any, why the
unclaimed balances involved in said action should not be Accordingly, the CA committed reversible error when it ruled that the
deposited with the Treasurer of the Philippines as in this Act
provided and notifying them that if they do not appear and issuance of individual notices upon respondents was a jurisdictional
show cause, the Government of the Republic of the
Philippines will apply to the court for the relief demanded in requirement, and that failure to effect personal service on them rendered the
the complaint. A copy of said notice shall be attached to,
and published with the copy of, said summons required to be Decision and the Order of the RTC void for want of jurisdiction. Escheat
published as above, and at the end of the copy of such
notice so published, there shall be a statement of the date of proceedings are actions in rem,[10] whereby an action is brought against the
publication, or first publication, if there are several, of said
summons and notice. Any person interested may appear in thing itself instead of the person.[11] Thus, an action may be instituted and
said action and become a party thereto. Upon the
publication or the completion of the publication, if there are carried to judgment without personal service upon the depositors or other
several, of the summons and notice, and the service of the
summons on the defendant banks, building and loan claimants.[12] Jurisdiction is secured by the power of the court over
associations or trust corporations, the court shall have full and
the res.[13] Consequently, a judgment of escheat is conclusive upon persons
complete jurisdiction in the Republic of the Philippines over
the said unclaimed balances and over the persons having or
notified by advertisement, as publication is considered a general and
claiming any interest in the said unclaimed balances, or any
of them, and shall have full and complete jurisdiction to hear constructive notice to all persons interested.[14]
and determine the issues herein, and render the appropriate
judgment thereon. (Emphasis supplied.)

Nevertheless, we find sufficient grounds to affirm the CA on the

Hence, insofar as banks are concerned, service of processes is made exclusion of the funds allocated for the payment of the Managers Check in

by delivery of a copy of the complaint and summons upon the president, the escheat proceedings.

cashier, or managing officer of the defendant bank.[8] On the other hand, as

to depositors or other claimants of the unclaimed balances, service is made

by publication of a copy of the summons in a newspaper of general
circulation in the locality where the institution is situated. [9]
forthcoming escheat proceedings must also be issued and published,
Escheat proceedings refer to the judicial process in which the state,
by virtue of its sovereignty, steps in and claims abandoned, left vacant, or
A notice about the
unclaimed property, without there being an interested person having a legal
claim thereto.[15] In the case of dormant accounts, the state inquires into the

status, custody, and ownership of the unclaimed balance to determine
whether the inactivity was brought about by the fact of death or absence of
or abandonment by the depositor.[16] If after the proceedings the property
remains without a lawful owner interested to claim it, the property shall be
reverted to the state to forestall an open invitation to self-service by the first
comers.[17] However, if interested parties have come forward and lain claim to
the property, the courts shall determine whether the credit or deposit should
pass to the claimants or be forfeited in favor of the state. [18] We emphasize
that escheat is not a proceeding to penalize depositors for failing to deposit to
or withdraw from their accounts. It is a proceeding whereby the state compels
the surrender to it of unclaimed deposit balances when there is substantial
ground for a belief that they have been abandoned, forgotten, or without an
owner.[19]
Act No. 3936, as amended, outlines the proper procedure to be
followed by banks and other similar institutions in filing a sworn statement with
the Treasurer concerning dormant accounts:
Sec. 2. Immediately after the taking effect of this Act and
within the month of January of every odd year, all banks,
building and loan associations, and trust corporations shall
forward to the Treasurer of the Philippines a statement, under
oath, of their respective managing officers, of all credits and
deposits held by them in favor of persons known to be dead,
or who have not made further deposits or withdrawals during
the preceding ten years or more, arranged in alphabetical
order according to the names of creditors and depositors,
and showing:
for notifying depositors of unclaimed balances. This notification is meant to
(a) The names and last known place of residence or post
office addresses of the persons in whose favor such
unclaimed balances stand;
(b) The amount and the date of the outstanding
unclaimed balance and whether the same is in money
or in security, and if the latter, the nature of the same;
(c) The date when the person in whose favor the
unclaimed balance stands died, if known, or the date
when he made his last deposit or withdrawal; and
(d) The interest due on such unclaimed balance, if any, and
the amount thereof.
A copy of the above sworn statement shall be posted in a
conspicuous place in the premises of the bank, building and
loan association, or trust corporation concerned for at least
sixty days from the date of filing thereof: Provided,
That immediately before filing the above sworn statement,
the bank, building and loan association, and trust
corporation shall communicate with the person in whose
favor the unclaimed balance stands at his last known place
of residence or post office address.
It shall be the duty of the Treasurer of the Philippines to inform
the Solicitor General from time to time the existence of
unclaimed balances held by banks, building and loan
associations, and trust corporations. (Emphasis supplied.)
As seen in the afore-quoted provision, the law sets a detailed system
inform them that their deposit could be escheated if left unclaimed. Managers Check. It explains that, pursuant to the law, only those whose favor

Accordingly, before filing a sworn statement, banks and other similar such unclaimed balances stand are entitled to receive notices. Petitioner

institutions are under obligation to communicate with owners of dormant argues that, since the funds represented by the Managers Check were

accounts. The purpose of this initial notice is for a bank to determine whether deemed transferred to the credit of the payee upon issuance of the check,

an inactive account has indeed been unclaimed, abandoned, forgotten, or the proper party entitled to the notices was the payee Rosmil and not

left without an owner. If the depositor simply does not wish to touch the funds respondents. Petitioner then contends that, in any event, it is not liable for

in the meantime, but still asserts ownership and dominion over the dormant failing to send a separate notice to the payee, because it did not have the

account, then the bank is no longer obligated to include the account in its address of Rosmil. Petitioner avers that it was not under any obligation to

sworn statement.[20] It is not the intent of the law to force depositors into record the address of the payee of a Managers Check.

unnecessary litigation and defense of their rights, as the state is only interested

in escheating balances that have been abandoned and left without an

In contrast, respondents Hi-Tri and Bakunawa allege[23] that they have
owner.
a legal interest in the fund allocated for the payment of the Managers Check.

They reason that, since the funds were part of the Compromise Agreement
In case the bank complies with the provisions of the law and
between respondents and Rosmil in a separate civil case, the approval and
the unclaimed balances are eventually escheated to the Republic, the bank
eventual execution of the agreement effectively reverted the fund to the
shall not thereafter be liable to any person for the same and any action which
credit of respondents. Respondents further posit that their ownership of the
may be brought by any person against in any bank xxx for unclaimed
funds was evidenced by their continued custody of the Managers Check.
balances so deposited xxx shall be defended by the Solicitor General without

cost to such bank.[21] Otherwise, should it fail to comply with the legally

outlined procedure to the prejudice of the depositor, the bank may not raise An ordinary check refers to a bill of exchange drawn by a depositor

the defense provided under Section 5 of Act No. 3936, as amended. (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

Petitioner asserts[22] that the CA committed a reversible error when it
assignment of any part of the funds in the bank to the credit of the
required RCBC to send prior notices to respondents about the forthcoming
drawer.[26] Here, the bank becomes liable only after it accepts or certifies the
escheat proceedings involving the funds allocated for the payment of 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 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 Hi-Tri.[32] When Rosmil did not accept the
Managers Check offered by respondents, the latter retained custody of the
instrument 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.
WHEREFORE the Petition is DENIED. The 26 November 2009 Decision
and 27 May 2010 Resolution of the Court of Appeals in CA-G.R. SP No. 107261
are hereby AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
G.R. Nos. L-25836-37 January 31, 1981
THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,
vs.
JOSE M. ARUEGO, defendant-appellant.
FERNANDEZ, J.:
The defendant, Jose M. Aruego, appealed to the Court of Appeals from the
order of the Court of First Instance of Manila, Branch XIII, in Civil Case No.
42066 denying his motion to set aside the order declaring him in default, 1 and
from the order of said court in the same case denying his motion to set aside
the judgment rendered after he was declared in default. 2 These two appeals
of the defendant were docketed as CA-G.R. NO. 27734-R and CA-G.R. NO.
27940-R, respectively.
Upon motion of the defendant on July 25, 1960, 3 he was allowed by the Court
of Appeals to file one consolidated record on appeal of CA-G.R. NO. 27734-R
and CA-G.R. NO. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court of Appeals, First
Division, certified the consolidated appeal to the Supreme Court on the
ground that only questions of law are involved. 5
On December 1, 1959, the Philippine Bank of Commerce instituted against
Jose M. Aruego Civil Case No. 42066 for the recovery of the total sum of about
P35,000.00 with daily interest thereon from November 17, 1959 until fully paid
and commission equivalent to 3/8% for every thirty (30) days or fraction
thereof plus attorney's fees equivalent to 10% of the total amount due and
costs. 6 The complaint filed by the Philippine Bank of Commerce contains
twenty-two (22) causes of action referring to twenty-two (22) transactions
entered into by the said Bank and Aruego on different dates covering the
period from August 28, 1950 to March 14, 1951. 7 The sum sought to be
recovered represents the cost of the printing of "World Current Events," a
periodical published by the defendant. To facilitate the payment of the
printing the defendant obtained a credit accommodation from the plaintiff.
Thus, for every printing of the "World Current Events," the printer, Encal Press
and Photo Engraving, collected the cost of printing by drawing a draft against
the plaintiff, said draft being sent later to the defendant for acceptance. As
an added security for the payment of the amounts advanced to Encal Press
and Photo-Engraving, the plaintiff bank also required defendant Aruego to
execute a trust receipt in favor of said bank wherein said defendant
undertook to hold in trust for plaintiff the periodicals and to sell the same with
the promise to turn over to the plaintiff the proceeds of the sale of said
publication to answer for the payment of all obligations arising from the
draft. 8
Aruego received a copy of the complaint together with the summons on
December 2, 1959. 9 On December 14, 1959 defendant filed an urgent motion
for extension of time to plead, and set the hearing on December 16, 1959. 10At
the hearing, the court denied defendant's motion for extension. Whereupon,
the defendant filed a motion to dismiss the complaint on December 17, 1959
on the ground that the complaint states no cause of action because:
a) When the various bills of exchange were presented to the defendant as
drawee for acceptance, the amounts thereof had already been paid by the
plaintiff to the drawer (Encal Press and Photo Engraving), without knowledge
or consent of the defendant drawee.
b) In the case of a bill of exchange, like those involved in the case at bar, the
defendant drawee is an accommodating party only for the drawer (Encal
Press and Photo-Engraving) and win be liable in the event that the
accommodating party (drawer) fails to pay its obligation to the plaintiff. 11
The complaint was dismissed in an order dated December 22, 1959, copy of
which was received by the defendant on December 24, 1959. 12
On January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On
March 7, 1960, acting upon the motion for reconsideration filed by the
plaintiff, the trial court set aside its order dismissing the complaint and set the
case for hearing on March 15, 1960 at 8:00 in the morning. 14 A copy of the
order setting aside the order of dismissal was received by the defendant on
March 11, 1960 at 5:00 o'clock in the afternoon according to the affidavit of
the deputy sheriff of Manila, Mamerto de la Cruz. On the following day, March
12, 1960, the defendant filed a motion to postpone the trial of the case on the
ground that there having been no answer as yet, the issues had not yet been
joined. 15 On the same date, the defendant filed his answer to the complaint
interposing the following defenses: That he signed the document upon which
the plaintiff sues in his capacity as President of the Philippine Education
Foundation; that his liability is only secondary; and that he believed that he
was signing only as an accommodation party. 16
On March 15, 1960, the plaintiff filed an ex parte motion to declare the
defendant in default on the ground that the defendant should have filed his
answer on March 11, 1960. He contends that by filing his answer on March 12,
1960, defendant was one day late. 17 On March 19, 1960 the trial court
declared the defendant in default. 18 The defendant learned of the order
declaring him in default on March 21, 1960. On March 22, 1960 the defendant
filed a motion to set aside the order of default alleging that although the
order of the court dated March 7, 1960 was received on March 11, 1960 at
5:00 in the afternoon, it could not have been reasonably expected of the
defendant to file his answer on the last day of the reglementary period, March
11, 1960, within office hours, especially because the order of the court dated
March 7, 1960 was brought to the attention of counsel only in the early hours
of March 12, 1960. The defendant also alleged that he has a good and
substantial defense. Attached to the motion are the affidavits of deputy sheriff
Mamerto de la Cruz that he served the order of the court dated March 7, 1960
on March 11, 1960, at 5:00 o'clock in the afternoon and the affidavit of the
defendant Aruego that he has a good and substantial defense. 19 The trial
court denied the defendant's motion on March 25, 1960. 20 On May 6, 1960,
the trial court rendered judgment sentencing the defendant to pay to the
plaintiff the sum of P35,444.35 representing the total amount of his obligation
to the said plaintiff under the twenty-two (22) causes of action alleged in the
complaint as of November 15, 1957 and the sum of P10,000.00 as attorney's
fees. 21
On May 9, 1960 the defendant filed a notice of appeal from the order dated
March 25, 1961 denying his motion to set aside the order declaring him in
default, an appeal bond in the amount of P60.00, and his record on appeal.
The plaintiff filed his opposition to the approval of defendant's record on
appeal on May 13, 1960. The following day, May 14, 1960, the lower court
dismissed defendant's appeal from the order dated March 25, 1960 denying
his motion to set aside the order of default. 22 On May 19, 1960, the defendant
filed a motion for reconsideration of the trial court's order dismissing his
appeal. 23 The plaintiff, on May 20, 1960, opposed the defendant's motion for
reconsideration of the order dismissing appeal. 24 On May 21, 1960, the trial
court reconsidered its previous order dismissing the appeal and approved the
defendant's record on appeal. 25 On May 30, 1960, the defendant received a
copy of a notice from the Clerk of Court dated May 26, 1960, informing the
defendant that the record on appeal filed ed by the defendant was
forwarded to the Clerk of Court of Appeals. 26
On June 1, 1960 Aruego filed a motion to set aside the judgment rendered
after he was declared in default reiterating the same ground previously
advanced by him in his motion for relief from the order of default. 27 Upon
opposition of the plaintiff filed on June 3, 1960, 28 the trial court denied the
defendant's motion to set aside the judgment by default in an order of June
11, 1960. 29 On June 20, 1960, the defendant filed his notice of appeal from the
order of the court denying his motion to set aside the judgment by default, his
appeal bond, and his record on appeal. The defendant's record on appeal
was approved by the trial court on June 25, 1960. 30 Thus, the defendant had
two appeals with the Court of Appeals: (1) Appeal from the order of the lower
court denying his motion to set aside the order of default docketed as CA-
G.R. NO. 27734-R; (2) Appeal from the order denying his motion to set aside
the judgment by default docketed as CA-G.R. NO. 27940-R.
In his brief, the defendant-appellant assigned the following errors:
I meritorious defense. The defendant does not have a good and substantial
THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT
WAS IN DEFAULT.
II
THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO
DECLARE DEFENDANT IN DEFAULT ALTHOUGH AT THE TIME
THERE WAS ALREADY ON FILE AN ANSWER BY HIM WITHOUT
FIRST DISPOSING OF SAID ANSWER IN AN APPROPRIATE
ACTION.
III
THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION
FOR RELIEF OF ORDER OF DEFAULT AND FROM JUDGMENT BY
DEFAULT AGAINST DEFENDANT. 31
It has been held that to entitle a party to relief from a judgment taken against
him through his mistake, inadvertence, surprise or excusable neglect, he must
show to the court that he has a meritorious defense. 32 In other words, in order
to set aside the order of default, the defendant must not only show that his
failure to answer was due to fraud, accident, mistake or excusable
negligence but also that he has a meritorious defense.
The record discloses that Aruego received a copy of the complaint together
with the summons on December 2, 1960; that on December 17, 1960, the last
day for filing his answer, Aruego filed a motion to dismiss; that on December
22, 1960 the lower court dismissed the complaint; that on January 23, 1960, the
plaintiff filed a motion for reconsideration and on March 7, 1960, acting upon
the motion for reconsideration, the trial court issued an order setting aside the
order of dismissal; that a copy of the order was received by the defendant on
March 11, 1960 at 5:00 o'clock in the afternoon as shown in the affidavit of the
deputy sheriff; and that on the following day, March 12, 1960, the defendant
filed his answer to the complaint.
The failure then of the defendant to file his answer on the last day for pleading
is excusable. The order setting aside the dismissal of the complaint was
received at 5:00 o'clock in the afternoon. It was therefore impossible for him to
have filed his answer on that same day because the courts then held office
only up to 5:00 o'clock in the afternoon. Moreover, the defendant
immediately filed his answer on the following day.
However, while the defendant successfully proved that his failure to answer
was due to excusable negligence, he has failed to show that he has a
defense.
Defendant Aruego's defenses consist of the following:
a) The defendant signed the bills of exchange referred to in the plaintiff's
complaint in a representative capacity, as the then President of the Philippine
Education Foundation Company, publisher of "World Current Events and
Decision Law Journal," printed by Encal Press and Photo-Engraving, drawer of
the said bills of exchange in favor of the plaintiff bank;
b) The defendant signed these bills of exchange not as principal obligor, but
as accommodation or additional party obligor, to add to the security of said
plaintiff bank. The reason for this statement is that unlike real bills of exchange,
where payment of the face value is advanced to the drawer only upon
acceptance of the same by the drawee, in the case in question, payment for
the supposed bills of exchange were made before acceptance; so that in
effect, although these documents are labelled bills of exchange, legally they
are not bills of exchange but mere instruments evidencing indebtedness of
the drawee who received the face value thereof, with the defendant as only
additional security of the same. 33
The first defense of the defendant is that he signed the supposed bills of
exchange as an agent of the Philippine Education Foundation Company
where he is president. Section 20 of the Negotiable Instruments Law provides
that "Where the instrument contains or a person adds to his signature words
indicating that he signs for or on behalf of a principal or in a representative
capacity, he is not liable on the instrument if he was duly authorized; but the
mere addition of words describing him as an agent or as filing a representative
character, without disclosing his principal, does not exempt him from personal
liability."
An inspection of the drafts accepted by the defendant shows that nowhere
has he disclosed that he was signing as a representative of the Philippine
Education Foundation Company. 34 He merely signed as follows: "JOSE
ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For failure to disclose his principal,
Aruego is personally liable for the drafts he accepted.
The defendant also contends that he signed the drafts only as an
accommodation party and as such, should be made liable only after a
showing that the drawer is incapable of paying. This contention is also without
merit.
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.35 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. In the instant case, the defendant signed as
a drawee/acceptor. Under the Negotiable Instrument Law, a drawee is
primarily liable. Thus, if the defendant who is a lawyer, he should not have
signed as an acceptor/drawee. In doing so, he became primarily and
personally liable for the drafts.
The defendant also contends that the drafts signed by him were not really bills
of exchange but mere pieces of evidence of indebtedness because
payments were made before acceptance. This is also without merit. Under the
Negotiable Instruments Law, a bill of exchange is an unconditional order in
writting addressed 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. 36 As
long as a commercial paper conforms with the definition of a bill of
exchange, that paper is considered a bill of exchange. The nature of
acceptance is important only in the determination of the kind of liabilities of
the parties involved, but not in the determination of whether a commercial
paper is a bill of exchange or not.
It is evident then that the defendant's appeal can not prosper. To grant the
defendant's prayer will result in a new trial which will serve no purpose and will
just waste the time of the courts as well as of the parties because the defense
is nil or ineffective. 37
WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court of
First Instance of Manila denying the petition for relief from the judgment
rendered in said case is hereby affirmed, without pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 107382/G.R. No. 107612 January 31, 1996
ASSOCIATED BANK, petitioner,
vs.
HON. COURT OF APPEALS, PROVINCE OF TARLAC and PHILIPPINE NATIONAL
BANK, respondents.
xxxxxxxxxxxxxxxxxxxxx
G.R. No. 107612 January 31, 1996
PHILIPPINE NATIONAL BANK, petitioner,
vs.
HONORABLE COURT OF APPEALS, PROVINCE OF TARLAC, and ASSOCIATED
BANK, respondents.
DECISION
ROMERO, J.:
Where thirty checks bearing forged endorsements are paid, who bears the
loss, the drawer, the drawee bank or the collecting bank?
This is the main issue in these consolidated petitions for review assailing the
decision of the Court of Appeals in "Province of Tarlac v. Philippine National
Bank v. Associated Bank v. Fausto Pangilinan, et. al." (CA-G.R. No. CV No.
17962). 1
The facts of the case are as follows:
The Province of Tarlac maintains a current account with the Philippine
National Bank (PNB) Tarlac Branch where the provincial funds are deposited.
Checks issued by the Province are signed by the Provincial Treasurer and
countersigned by the Provincial Auditor or the Secretary of the Sangguniang
Bayan.
A portion of the funds of the province is allocated to the Concepcion
Emergency Hospital. 2 The allotment checks for said government hospital are
drawn to the order of "Concepcion Emergency Hospital, Concepcion, Tarlac"
or "The Chief, Concepcion Emergency Hospital, Concepcion, Tarlac." The
checks are released by the Office of the Provincial Treasurer and received for
the hospital by its administrative officer and cashier.
In January 1981, the books of account of the Provincial Treasurer were post-
audited by the Provincial Auditor. It was then discovered that the hospital did
not receive several allotment checks drawn by the Province.
On February 19, 1981, the Provincial Treasurer requested the manager of the
PNB to return all of its cleared checks which were issued from 1977 to 1980 in
order to verify the regularity of their encashment. After the checks were
examined, the Provincial Treasurer learned that 30 checks amounting to
P203,300.00 were encashed by one Fausto Pangilinan, with the Associated
Bank acting as collecting bank.
It turned out that Fausto Pangilinan, who was the administrative officer and
cashier of payee hospital until his retirement on February 28, 1978, collected
the questioned checks from the office of the Provincial Treasurer. He claimed
to be assisting or helping the hospital follow up the release of the checks and
had official receipts. 3Pangilinan sought to encash the first check 4 with
Associated Bank. However, the manager of Associated Bank refused and
suggested that Pangilinan deposit the check in his personal savings account
with the same bank. Pangilinan was able to withdraw the money when the
check was cleared and paid by the drawee bank, PNB.
After forging the signature of Dr. Adena Canlas who was chief of the payee
hospital, Pangilinan followed the same procedure for the second check, in the
amount of P5,000.00 and dated April 20, 1978, 5 as well as for twenty-eight
other checks of various amounts and on various dates. The last check
negotiated by Pangilinan was for f8,000.00 and dated February 10, 1981. 6 All
the checks bore the stamp of Associated Bank which reads "All prior
endorsements guaranteed ASSOCIATED BANK."
Jesus David, the manager of Associated Bank testified that Pangilinan made it
appear that the checks were paid to him for certain projects with the
hospital. 7 He did not find as irregular the fact that the checks were not
payable to Pangilinan but to the Concepcion Emergency Hospital. While he
admitted that his wife and Pangilinan's wife are first cousins, the manager
denied having given Pangilinan preferential treatment on this account. 8
On February 26, 1981, the Provincial Treasurer wrote the manager of the PNB
seeking the restoration of the various amounts debited from the current
account of the Province. 9
In turn, the PNB manager demanded reimbursement from the Associated
Bank on May 15, 1981. 10
As both banks resisted payment, the Province of Tarlac brought suit against
PNB which, in turn, impleaded Associated Bank as third-party defendant. The
latter then filed a fourth-party complaint against Adena Canlas and Fausto
Pangilinan. 11
After trial on the merits, the lower court rendered its decision on March 21,
1988, disposing as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. On the basic complaint, in favor of plaintiff Province of Tarlac and
against defendant Philippine National Bank (PNB), ordering the latter
to pay to the former, the sum of Two Hundred Three Thousand Three
Hundred (P203,300.00) Pesos with legal interest thereon from March
20, 1981 until fully paid;
2. On the third-party complaint, in favor of defendant/third-party
plaintiff Philippine National Bank (PNB) and against third-party
defendant/fourth-party plaintiff Associated Bank ordering the latter to
reimburse to the former the amount of Two Hundred Three Thousand
Three Hundred (P203,300.00) Pesos with legal interests thereon from
March 20, 1981 until fully paid;.
3. On the fourth-party complaint, the same is hereby ordered
dismissed for lack of cause of action as against fourth-party
defendant Adena Canlas and lack of jurisdiction over the person of
fourth-party defendant Fausto Pangilinan as against the latter.
4. On the counterclaims on the complaint, third-party complaint and
fourth-party complaint, the same are hereby ordered dismissed for
lack of merit.
SO ORDERED. 12
PNB and Associated Bank appealed to the Court of Appeals. 13 Respondent
court affirmed the trial court's decision in toto on September 30, 1992.
Hence these consolidated petitions which seek a reversal of respondent
appellate court's decision.
PNB assigned two errors. First, the bank contends that respondent court erred
in exempting the Province of Tarlac from liability when, in fact, the latter was
negligent because it delivered and released the questioned checks to Fausto
Pangilinan who was then already retired as the hospital's cashier and
administrative officer. PNB also maintains its innocence and alleges that as
between two innocent persons, the one whose act was the cause of the loss,
in this case the Province of Tarlac, bears the loss.
Next, PNB asserts that it was error for the court to order it to pay the province
and then seek reimbursement from Associated Bank. According to petitioner
bank, respondent appellate Court should have directed Associated Bank to
pay the adjudged liability directly to the Province of Tarlac to avoid circuity. 14
Associated Bank, on the other hand, argues that the order of liability should
be totally reversed, with the drawee bank (PNB) solely and ultimately bearing
the loss.
Respondent court allegedly erred in applying Section 23 of the Philippine
Clearing House Rules instead of Central Bank Circular No. 580, which, being an
administrative regulation issued pursuant to law, has the force and effect of
law. 15 The PCHC Rules are merely contractual stipulations among and
between member-banks. As such, they cannot prevail over the aforesaid CB
Circular.
It likewise contends that PNB, the drawee bank, is estopped from asserting the
defense of guarantee of prior indorsements against Associated Bank, the
collecting bank. In stamping the guarantee (for all prior indorsements), it
merely followed a mandatory requirement for clearing and had no choice
but to place the stamp of guarantee; otherwise, there would be no clearing.
The bank will be in a "no-win" situation and will always bear the loss as against
the drawee bank. 16
Associated Bank also claims that since PNB already cleared and paid the
value of the forged checks in question, it is now estopped from asserting the
defense that Associated Bank guaranteed prior indorsements. The drawee
bank allegedly has the primary duty to verify the genuineness of payee's
indorsement before paying the check. 17
While both banks are innocent of the forgery, Associated Bank claims that PNB
was at fault and should solely bear the loss because it cleared and paid the
forged checks.
xxx xxx xxx
The case at bench concerns checks payable to the order of Concepcion
Emergency Hospital or its Chief. They were properly issued and bear the
genuine signatures of the drawer, the Province of Tarlac. The infirmity in the
questioned checks lies in the payee's (Concepcion Emergency Hospital)
indorsements which are forgeries. At the time of their indorsement, the checks
were order instruments.
Checks having forged indorsements should be differentiated from forged
checks or checks bearing the forged signature of the drawer.
Section 23 of the Negotiable Instruments Law (NIL) provides:
Sec. 23. FORGED SIGNATURE, EFFECT OF. 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.
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. 18 Section 23 does not avoid the instrument but only the forged
signature. 19 Thus, a forged indorsement does not operate as the payee's
indorsement.
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. 20
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. 21
The checks involved in this case are order instruments, hence, the following
discussion is made with reference to the effects of a forged indorsement on
an instrument payable to order.
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 holder's
indorsement is forged, all parties prior to the forgery may raise the real defense
of forgery against all parties subsequent thereto. 22
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." 23 He cannot interpose the defense that
signatures prior to him are forged.
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's 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.
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 drawer's
instructions are reflected on the face and by the terms of the check. Payment
under a forged indorsement is not to the drawer's order. When the drawee
bank pays a person other than the payee, it does not comply with the terms
of the check and violates its duty to charge its customer's (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. 24 The general rule then is that the drawee
bank may not debit the drawer's account and is not entitled to
indemnification from the drawer. 25 The risk of loss must perforce fall on the
drawee bank.
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.
If at the same time the drawee bank was also negligent to the point of
substantially contributing to the loss, then such loss from the forgery can be
apportioned between the negligent drawer and the negligent bank. 26
In cases involving a forged check, where the drawer's signature is forged, the
drawer can recover from the drawee bank. No drawee bank has a right to
pay a forged check. If it does, it shall have to recredit the amount of the
check to the account of the drawer. The liability chain ends with the drawee
bank whose responsibility it is to know the drawer's signature since the latter is
its customer. 27
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. 28 In other words, the drawee bank
canseek reimbursement or a return of the amount it paid from the presentor
bank or person. 29 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.
In this case, the checks were indorsed by the collecting bank (Associated
Bank) to the drawee bank (PNB). The former will necessarily be liable to the
latter for the checks bearing forged indorsements. If the forgery is that of the
payee's or holder's indorsement, the collecting bank is held liable, without
prejudice to the latter proceeding against the forger.
Since a forged indorsement is inoperative, the collecting bank had no right to
be paid by the drawee bank. The former must necessarily return the money
paid by the latter because it was paid wrongfully. 30
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 indorsement and presents it to the drawee
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. 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 endorser
generally suffers the loss because it has the duty to ascertain the genuineness
of all prior endorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the presentment
has done its duty to ascertain the genuineness of the endorsements." 31
The drawee bank is not similarly situated as the collecting bank because the
former makes no warranty as to the genuineness. of any indorsement. 32 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.
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. 33
Applying these rules to the case at bench, PNB, the drawee bank, cannot
debit the current account of the Province of Tarlac because it paid checks
which bore forged indorsements. However, if the Province of Tarlac as drawer
was negligent to the point of substantially contributing to the loss, then the
drawee bank PNB can charge its account. If both drawee bank-PNB and
drawer-Province of Tarlac were negligent, the loss should be properly
apportioned between them.
The loss incurred by drawee bank-PNB can be passed on to the collecting
bank-Associated Bank which presented and indorsed the checks to it.
Associated Bank can, in turn, hold the forger, Fausto Pangilinan, liable.
If PNB negligently delayed in informing Associated Bank of the forgery, thus
depriving the latter of the opportunity to recover from the forger, it forfeits its
right to reimbursement and will be made to bear the loss.
After careful examination of the records, the Court finds that the Province of
Tarlac was equally negligent and should, therefore, share the burden of loss
from the checks bearing a forged indorsement.
The Province of Tarlac permitted Fausto Pangilinan to collect the checks when
the latter, having already retired from government service, was no longer
connected with the hospital. With the exception of the first check (dated
January 17, 1978), all the checks were issued and released after Pangilinan's
retirement on February 28, 1978. After nearly three years, the Treasurer's office
was still releasing the checks to the retired cashier. In addition, some of the aid
allotment checks were released to Pangilinan and the others to Elizabeth
Juco, the new cashier. The fact that there were now two persons collecting
the checks for the hospital is an unmistakable sign of an irregularity which
should have alerted employees in the Treasurer's office of the fraud being
committed. There is also evidence indicating that the provincial employees
were aware of Pangilinan's retirement and consequent dissociation from the
hospital. Jose Meru, the Provincial Treasurer, testified:.
ATTY. MORGA:
Q Now, is it true that for a given month there were two releases of
checks, one went to Mr. Pangilinan and one went to Miss Juco?
JOSE MERU:
A Yes, sir.
Q Will you please tell us how at the time (sic) when the authorized
representative of Concepcion Emergency Hospital is and was
supposed to be Miss Juco?
A Well, as far as my investigation show (sic) the assistant cashier told
me that Pangilinan represented himself as also authorized to help in
the release of these checks and we were apparently misled because
they accepted the representation of Pangilinan that he was helping
them in the release of the checks and besides according to them
they were, Pangilinan, like the rest, was able to present an official
receipt to acknowledge these receipts and according to them since
this is a government check and believed that it will eventually go to
the hospital following the standard procedure of negotiating
government checks, they released the checks to Pangilinan aside
from Miss Juco.34
The failure of the Province of Tarlac to exercise due care contributed to a
significant degree to the loss tantamount to negligence. Hence, the Province
of Tarlac should be liable for part of the total amount paid on the questioned
checks.
The drawee bank PNB also breached its duty to pay only according to the
terms of the check. Hence, it cannot escape liability and should also bear part
of the loss.
As earlier stated, PNB can recover from the collecting bank.
In the case of Associated Bank v. CA, 35 six crossed checks with forged
indorsements were deposited in the forger's account with the collecting bank
and were later paid by four different drawee banks. The Court found the
collecting bank (Associated) to be negligent and held:
The Bank should have first verified his right to endorse the crossed
checks, of which he was not the payee, and to deposit the proceeds
of the checks to his own account. The Bank was by reason of the
nature of the checks put upon notice that they were issued for
deposit only to the private respondent's account. . . .
The situation in the case at bench is analogous to the above case, for it was
not the payee who deposited the checks with the collecting bank. Here, the
checks were all payable to Concepcion Emergency Hospital but it was Fausto
Pangilinan who deposited the checks in his personal savings account.
Although Associated Bank claims that the guarantee stamped on the checks
(All prior and/or lack of endorsements guaranteed) is merely a requirement
forced upon it by clearing house rules, it cannot but remain liable. The stamp
guaranteeing prior indorsements is not an empty rubric which a bank must
fulfill for the sake of convenience. A bank is not required to accept all the
checks negotiated to it. It is within the bank's discretion to receive a check for
no banking institution would consciously or deliberately accept a check
bearing a forged indorsement. When a check is deposited with the collecting
bank, it takes a risk on its depositor. It is only logical that this bank be held
accountable for checks deposited by its customers.
A delay in informing the collecting bank (Associated Bank) of the forgery,
which deprives it of the opportunity to go after the forger, signifies negligence
on the part of the drawee bank (PNB) and will preclude it from claiming
reimbursement.
It is here that Associated Bank's assignment of error concerning C.B. Circular
No. 580 and Section 23 of the Philippine Clearing House Corporation Rules
comes to fore. Under Section 4(c) of CB Circular No. 580, items bearing a
forged endorsement shall be returned within twenty-Sour (24) hours after
discovery of the forgery but in no event beyond the period fixed or provided
by law for filing of a legal action by the returning bank. Section 23 of the
PCHC Rules deleted the requirement that items bearing a forged
endorsement should be returned within twenty-four hours. Associated Bank
now argues that the aforementioned Central Bank Circular is applicable.
Since PNB did not return the questioned checks within twenty-four hours, but
several days later, Associated Bank alleges that PNB should be considered
negligent and not entitled to reimbursement of the amount it paid on the
checks.
The Court deems it unnecessary to discuss Associated Bank's assertions that CB
Circular No. 580 is an administrative regulation issued pursuant to law and as
such, must prevail over the PCHC rule. The Central Bank circular was in force
for all banks until June 1980 when the Philippine Clearing House Corporation
(PCHC) was set up and commenced operations. Banks in Metro Manila were
covered by the PCHC while banks located elsewhere still had to go through
Central Bank Clearing. In any event, the twenty-four-hour return rule was
adopted by the PCHC until it was changed in 1982. The contending banks
herein, which are both branches in Tarlac province, are therefore not covered
by PCHC Rules but by CB Circular No. 580. Clearly then, the CB circular was
applicable when the forgery of the checks was discovered in 1981.
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 maybe prejudiced
and lose the opportunity to go after its depositor.
The Court finds that even if PNB did not return the questioned checks to
Associated Bank within twenty-four hours, as mandated by the rule, PNB did
not commit negligent delay. Under the circumstances, PNB gave prompt
notice to Associated Bank and the latter bank was not prejudiced in going
after Fausto Pangilinan. After the Province of Tarlac informed PNB of the
forgeries, PNB necessarily had to inspect the checks and conduct its own
investigation. Thereafter, it requested the Provincial Treasurer's office on March
31, 1981 to return the checks for verification. The Province of Tarlac returned
the checks only on April 22, 1981. Two days later, Associated Bank received
the checks from PNB. 36
Associated Bank was also furnished a copy of the Province's letter of demand
to PNB dated March 20, 1981, thus giving it notice of the forgeries. At this time,
however, Pangilinan's account with Associated had only P24.63 in it. 37Had
Associated Bank decided to debit Pangilinan's account, it could not have
recovered the amounts paid on the questioned checks. In addition, while
Associated Bank filed a fourth-party complaint against Fausto Pangilinan, it
did not present evidence against Pangilinan and even presented him as its
rebuttal witness. 38 Hence, Associated Bank was not prejudiced by PNB's failure
to comply with the twenty-four-hour return rule.
Next, Associated Bank contends that PNB is estopped from requiring
reimbursement because the latter paid and cleared the checks. The Court
finds this contention unmeritorious. Even if PNB cleared and paid the checks, it
can still recover from Associated Bank. This is true even if the payee's Chief
Officer who was supposed to have indorsed the checks is also a customer of
the drawee bank. 39 PNB's duty was to verify the genuineness of the drawer's
signature and not the genuineness of payee's indorsement. Associated Bank,
as the collecting bank, is the entity with the duty to verify the genuineness of
the payee's indorsement.
PNB also avers that respondent court erred in adjudging circuitous liability by
directing PNB to return to the Province of Tarlac the amount of the checks and
then directing Associated Bank to reimburse PNB. The Court finds nothing
wrong with the mode of the award. The drawer, Province of Tarlac, is a
clientor customer of the PNB, not of Associated Bank. There is no privity of
contract between the drawer and the collecting bank.
The trial court made PNB and Associated Bank liable with legal interest from
March 20, 1981, the date of extrajudicial demand made by the Province of
Tarlac on PNB. The payments to be made in this case stem from the deposits
of the Province of Tarlac in its current account with the PNB. Bank deposits are
considered under the law as loans. 40 Central Bank Circular No. 416 prescribes
a twelve percent (12%) interest per annum for loans, forebearance of money,
goods or credits in the absence of express stipulation. Normally, current
accounts are likewise interest-bearing, by express contract, thus excluding
them from the coverage of CB Circular No. 416. In this case, however, the
actual interest rate, if any, for the current account opened by the Province of
Tarlac with PNB was not given in evidence. Hence, the Court deems it wise to
affirm the trial court's use of the legal interest rate, or six percent (6%) per
annum. The interest rate shall be computed from the date of default, or the
date of judicial or extrajudicial demand. 41 The trial court did not err in granting
legal interest from March 20, 1981, the date of extrajudicial demand.
The Court finds as reasonable, the proportionate sharing of fifty percent - fifty
percent (50%-50%). Due to the negligence of the Province of Tarlac in
releasing the checks to an unauthorized person (Fausto Pangilinan), in
allowing the retired hospital cashier to receive the checks for the payee
hospital for a period close to three years and in not properly ascertaining why
the retired hospital cashier was collecting checks for the payee hospital in
addition to the hospital's real cashier, respondent Province contributed to the
loss amounting to P203,300.00 and shall be liable to the PNB for fifty (50%)
percent thereof. In effect, the Province of Tarlac can only recover fifty percent
(50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%)
percent of P203,300.00. It is liable on its warranties as indorser of the checks
which were deposited by Fausto Pangilinan, having guaranteed the
genuineness of all prior indorsements, including that of the chief of the payee
hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to
ascertain the genuineness of the payee's indorsement.
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.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 116320 November 29, 1999
ADALIA FRANCISCO, petitioner,
vs.
COURT OF APPEALS, HERBY COMMERCIAL & CONSTRUCTION CORPORATION
AND JAIME C. ONG, respondents.
GONZAGA-REYES, J.:
Assailed in this petition for review on certiorari is the decision 1 of the Court of
Appeals affirming the decision 2rendered by Branch 168 of the Regional Trial
Court of Pasig in Civil Case No. 35231 in favor of private respondents.
The controversy before this Court finds its origins in a Land Development and
Construction Contract which was entered into on June 23, 1977 by A.
Francisco Realty & Development Corporation (AFRDC), of which petitioner
Adalia Francisco (Francisco) is the president, and private respondent Herby
Commercial & Construction Corporation (HCCC), represented by its President
and General Manager private respondent Jaime C. Ong (Ong), pursuant to a
housing project of AFRDC at San Jose del Monte, Bulacan, financed by the
Government Service Insurance System (GSIS). Under the contract, HCCC
agreed to undertake the construction of 35 housing units and the
development of 35 hectares of land. The payment of HCCC for its services
was on a turn-key basis, that is, HCCC was to be paid on the basis of the
completed houses and developed lands delivered to and accepted by
AFRDC and the GSIS. To facilitate payment, AFRDC executed a Deed of
Assignment in favor of HCCC to enable the latter to collect payments directly
from the GSIS. Furthermore, the GSIS and AFRDC put up an Executive
Committee Account with the Insular Bank of Asia & America (IBAA) in the
amount of P4,000,000.00 from which checks would be issued and co-signed
by petitioner Francisco and the GSIS Vice-President Armando Diaz (Diaz).
On February 10, 1978, HCCC filed a complaint 3 with the Regional Trial Court of
Quezon City against Francisco, AFRDC and the GSIS for the collection of the
unpaid balance under the Land Development and Construction Contract in
the amount of P515,493.89 for completed and delivered housing units and
land development. However, the parties eventually arrived at an amicable
settlement of their differences, which was embodied in a Memorandum
Agreement executed by HCCC and AFRDC on July 21, 1978. Under the
agreement, the parties stipulated that HCCC had turned over 83 housing units
which have been accepted and paid for by the GSIS. The GSIS
acknowledged that it still owed HCCC P520,177.50 representing incomplete
construction of housing units, incomplete land development and 5% retention,
which amount will be discharged when the defects and deficiencies are
finally completed by HCCC. It was also provided that HCCC was indebted to
AFRDC in the amount of P180,234.91 which the former agreed would be paid
out of the proceeds from the 40 housing units still to be turned over by HCCC
or from any amount due to HCCC from the GSIS. Consequently, the trial court
dismissed the case upon the filing by the parties of a joint motion to dismiss.
Sometime in 1979, after an examination of the records of the GSIS, Ong
discovered that Diaz and Francisco had executed and signed seven
checks 4 , of various dates and amounts, drawn against the IBAA and payable
to HCCC for completed and delivered work under the contract. Ong,
however, claims that these checks were never delivered to HCCC. Upon
inquiry with Diaz, Ong learned that the GSIS gave Francisco custody of the
checks since she promised that she would deliver the same to HCCC. Instead,
Francisco forged the signature of Ong, without his knowledge or consent, at
the dorsal portion of the said checks to make it appear that HCCC had
indorsed the checks; Francisco then indorsed the checks for a second time by
signing her name at the back of the checks and deposited the checks in her
IBAA savings account. IBAA credited Francisco's account with the amount of
the checks and the latter withdrew the amount so credited.
On June 7, 1979, Ong filed complaints with the office of the city fiscal of
Quezon City, charging Francisco with estafa thru falsification of commercial
documents. Francisco denied having forged Ong's signature on the checks,
claiming that Ong himself indorsed the seven checks in behalf of HCCC and
delivered the same to Francisco in payment of the loans extended by
Francisco to HCCC. According to Francisco, she agreed to grant HCCC the
loans in the total amount of P585,000.00 and covered by eighteen promissory
notes in order to obviate the risk of the non-completion of the project. As a
means of repayment, Ong allegedly issued a Certification authorizing
Francisco to collect HCCC's receivables from the GSIS. Assistant City Fiscal
Ramon M. Gerona gave credence to Francisco's claims and accordingly,
dismissed the complaints, which dismissal was affirmed by the Minister of
Justice in a resolution issued on June 5, 1981.
The present case was brought by private respondents on November 19, 1979
against Francisco and IBAA for the recovery of P370,475.00, representing the
total value of the seven checks, and for damages, attorney's fees, expenses
of litigation and costs. After trial on the merits, the trial court rendered its
decision in favor of private respondents, the dispositive portion of which
provides
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiffs and against the defendants
INSULAR BANK OF ASIA & AMERICA and ATTY. ADALIA
FRANCISCO, to jointly and severally pay the plaintiffs the
amount of P370.475.00 plus interest thereon at the rate of
12% per annum from the date of the filing of the complaint
until the full amount is paid; moral damages to plaintiff Jaime
Ong in the sum of P50,000.00; exemplary damages of
P50,000.00; litigation expenses of P5,000.00; and attorney's
fees of P50,000.00.
With respect to the cross-claim of the defendant IBAA against
its co-defendant Atty. Adalia Francisco, the latter is ordered
to reimburse the former for the sums that the Bank shall pay to
the plaintiff on the forged checks including the interests paid
thereon.
Further, the defendants are ordered to pay the costs.
Based upon the findings of handwriting experts from the National Bureau of
Investigation (NBI), the trial court held that Francisco had indeed forged the
signature of Ong to make it appear that he had indorsed the checks. Also, the
court ruled that there were no loans extended, reasoning that it was
unbelievable that HCCC was experiencing financial difficulties so as to
compel it to obtain the loans from AFRDC in view of the fact that the GSIS had
issued checks in favor of HCCC at about the same time that the alleged
advances were made. The trial court stated that it was plausible that
Francisco concealed the fact of issuance of the checks from private
respondents in order to make it appear as if she were accommodating
private respondents, when in truth she was lending HCCC its own money.
With regards to the Memorandum Agreement entered into between AFRDC
and HCCC in Civil Case No. Q-24628, the trial court held that the same did not
make any mention of the forged checks since private respondents were as of
yet unaware of their existence, that fact having been effectively concealed
by Francisco, until private respondents acquired knowledge of Francisco's
misdeeds in 1979.
IBAA was held liable to private respondents for having honored the checks
despite such obvious irregularities as the lack of initials to validate the
alterations made on the check, the absence of the signature of a co-
signatory in the corporate checks of HCCC and the deposit of the checks on
a second indorsement in the savings account of Francisco. However, the trial
court allowed IBAA recourse against Francisco, who was ordered to reimburse
the IBAA for any sums it shall have to pay to private respondents. 5
Both Francisco and IBAA appealed the trial court's decision, but the Court of
Appeals dismissed IBAA's appeal for its failure to file its brief within the 45-day
extension granted by the appellate court. IBAA's motion for reconsideration
and petition for review on certiorari filed with this Court were also similarly
denied. On November 21, 1989, IBAA and HCCC entered into a Compromise
Agreement which was approved by the trial court, wherein HCCC
acknowledged receipt of the amount of P370,475.00 in full satisfaction of its
claims against IBAA, without prejudice to the right of the latter to pursue its
claims against Francisco.
On June 29, 1992, the Court of Appeals affirmed the trial court's ruling, hence
this petition for review on certiorarifiled by petitioner, assigning the following
errors to the appealed decision
1. The respondent Court of Appeals erred in
concluding that private respondents did not
owe Petitioner the sum covered by the
Promissory Notes Exh. 2-2-A-2-P (FRANCISCO).
Such conclusion was based mainly on
conjectures, surmises and speculation
 contrary to the unrebutted pleadings and
evidence presented by petitioner.
2. The respondent Court of Appeals erred in
holding that Petitioner falsified the signature
of private respondent ONG on the checks in
question without any authority therefor which
is patently contradictory to the unrebutted
pleading and evidence that petitioner was
expressly authorized by respondent HERBY
thru ONG to collect all receivables of HERBY
from GSIS to pay the loans extended to
them. (Exhibit 3).
3. That respondent Court of Appeals erred in
holding that the seven checks in question
were not taken up in the liquidation and
reconciliation of all outstanding account
between AFRDC and HERBY as
acknowledged by the parties in
Memorandum Agreement (Exh. 5) is a pure
conjecture, surmise and speculation contrary
to the unrebutted evidence presented by
petitioners. It is an inference made which is
manifestly mistaken.
4. The respondent Court of Appeals erred in
affirming the decision of the lower court and
dismissing the appeal. 6
The pivotal issue in this case is whether or not Francisco forged the signature of
Ong on the seven checks. In this connection, we uphold the lower courts'
finding that the subject matter of the present case, specifically the seven
checks, drawn by GSIS and AFRDC, dated between October to November
1977, in the total amount of P370,475.00 and payable to HCCC, was not
included in the Memorandum Agreement executed by HCCC and AFRDC in
Civil Case No. Q-24628. As observed by the trial court, aside from there being
absolutely no mention of the checks in the said agreement, the amounts
represented by said checks could not have been included in the
Memorandum Agreement executed in 1978 because private respondents
only discovered Francisco's acts of forgery in 1979. The lower courts found that
Francisco was able to easily conceal from private respondents even the fact
of the issuance of the checks since she was a co-signatory thereof. 7 We also
note that Francisco had custody of the checks, as proven by the check
vouchers bearing her uncontested signature, 8 by which she, in effect,
acknowledged having received the checks intended for HCCC. This
contradicts Francisco's claims that the checks were issued to Ong who
delivered them to Francisco already indorsed. 9
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. 10 Other than petitioner's self-serving denials, there is nothing in the
records to rebut the NBI's 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, 11 as it is in the
case at bench.
Petitioner claims that she was, in any event, authorized to sign Ong's name on
the checks 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. 12 Petitioner's 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. 13 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. 14 Even assuming that Francisco was authorized by HCCC to sign Ong's
name, still, Francisco did not indorse the instrument in accordance with law.
Instead of signing Ong's 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.
Every person who, contrary to law, wilfully or negligently causes damage to
another, shall indemnify the latter for the same. 15 Due to her forgery of Ong's
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
court's 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; 16 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. This is in accordance with the doctrine enunciated
in Eastern Shipping Lines, Inc. vs.Court of Appeals, et al., 17 which was
reiterated in Philippine National Bank vs. Court of Appeals, 18 Philippine
Airlines, Inc. vs. Court of Appeals 19 and in Keng Hua Paper Products
Co., Inc. vs. Court of Appeals, 20 which provides that
1. When an obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed
at the discretion of the court at the rate of six percent (6%) per annum. No
interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be twelve percent (12%) per
annum from such finality until its satisfaction, this interim period being deemed
to be by then an equivalent to a forbearance of credit.
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
petitioner's 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 attorney's fees in the amount of P50,000.00, and the award of
P5,000.00 for litigation
expenses. 21
The appellate court's 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. 22 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 fiscal's office of Quezon City which
disrupted HCCC's business operations. 23
WHEREFORE, we AFFIRM the respondent court's 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.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 92244 February 9, 1993
NATIVIDAD GEMPESAW, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.
L.B. Camins for petitioner.
Angara, Abello, Concepcion, Regals & Cruz for private respondent
CAMPOS, JR., J.:
From the adverse decision * of the Court of Appeals (CA-G.R. CV No. 16447),
petitioner, Natividad Gempesaw, appealed to this Court in a Petition for
Review, on the issue of the right of the drawer to recover from the drawee
bank who pays a check with a forged indorsement of the payee, debiting the
same against the drawer's account.
The records show that on January 23, 1985, petitioner filed a Complaint
against the private respondent Philippine Bank of Communications
(respondent drawee Bank) for recovery of the money value of eighty-two (82)
checks charged against the petitioner's account with the respondent drawee
Bank on the ground that the payees' indorsements were forgeries. The
Regional Trial Court, Branch CXXVIII of Caloocan City, which tried the case,
rendered a decision on November 17, 1987 dismissing the complaint as well as
the respondent drawee Bank's counterclaim. On appeal, the Court of
Appeals in a decision rendered on February 22, 1990, affirmed the decision of
the RTC on two grounds, namely (1) that the plaintiff's (petitioner herein) gross
negligence in issuing the checks was the proximate cause of the loss and (2)
assuming that the bank was also negligent, the loss must nevertheless be
borne by the party whose negligence was the proximate cause of the loss. On
March 5, 1990, the petitioner filed this petition under Rule 45 of the Rules of
Court setting forth the following as the alleged errors of the respondent Court:1
I reposed full and implicit trust and confidence on her bookkeeper. The
THE RESPONDENT COURT OF APPEALS ERRED IN RULING THAT
THE NEGLIGENCE OF THE DRAWER IS THE PROXIMATE CAUSE
OF THE RESULTING INJURY TO THE DRAWEE BANK, AND THE
DRAWER IS PRECLUDED FROM SETTING UP THE FORGERY OR
WANT OF AUTHORITY.
II
THE RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT
FINDING AND RULING THAT IT IS THE GROSS AND INEXCUSABLE
NEGLIGENCE AND FRAUDULENT ACTS OF THE OFFICIALS AND
EMPLOYEES OF THE RESPONDENT BANK IN FORGING THE
SIGNATURE OF THE PAYEES AND THE WRONG AND/OR ILLEGAL
PAYMENTS MADE TO PERSONS, OTHER THAN TO THE INTENDED
PAYEES SPECIFIED IN THE CHECKS, IS THE DIRECT AND
PROXIMATE CAUSE OF THE DAMAGE TO PETITIONER WHOSE
SAVING (SIC) ACCOUNT WAS DEBITED.
III
THE RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT
ORDERING THE RESPONDENT BANK TO RESTORE OR RE-CREDIT
THE CHECKING ACCOUNT OF THE PETITIONER IN THE
CALOOCAN CITY BRANCH BY THE VALUE OF THE EIGHTY-TWO
(82) CHECKS WHICH IS IN THE AMOUNT OF P1,208,606.89 WITH
LEGAL INTEREST.
From the records, the relevant facts are as follows:
Petitioner Natividad O. Gempesaw (petitioner) owns and operates four
grocery stores located at Rizal Avenue Extension and at Second Avenue,
Caloocan City. Among these groceries are D.G. Shopper's Mart and D.G.
Whole Sale Mart. Petitioner maintains a checking account numbered 13-
00038-1 with the Caloocan City Branch of the respondent drawee Bank. To
facilitate payment of debts to her suppliers, petitioner draws checks against
her checking account with the respondent bank as drawee. Her customary
practice of issuing checks in payment of her suppliers was as follows: the
checks were prepared and filled up as to all material particulars by her trusted
bookkeeper, Alicia Galang, an employee for more than eight (8) years. After
the bookkeeper prepared the checks, the completed checks were submitted
to the petitioner for her signature, together with the corresponding invoice
receipts which indicate the correct obligations due and payable to her
suppliers. Petitioner signed each and every check without bothering to verify
the accuracy of the checks against the corresponding invoices because she
issuance and delivery of the checks to the payees named therein were left to
the bookkeeper. Petitioner admitted that she did not make any verification as
to whether or not the checks were delivered to their respective payees.
Although the respondent drawee Bank notified her of all checks presented to
and paid by the bank, petitioner did not verify he correctness of the returned
checks, much less check if the payees actually received the checks in
payment for the supplies she received. In the course of her business operations
covering a period of two years, petitioner issued, following her usual practice
stated above, a total of eighty-two (82) checks in favor of several suppliers.
These checks were all presented by the indorsees as holders thereof to, and
honored by, the respondent drawee Bank. Respondent drawee Bank
correspondingly debited the amounts thereof against petitioner's checking
account numbered 30-00038-1. Most of the aforementioned checks were for
amounts in excess of her actual obligations to the various payees as shown in
their corresponding invoices. To mention a few:
. . . 1) in Check No. 621127, dated June 27, 1984 in the
amount of P11,895.23 in favor of Kawsek Inc. (Exh. A-60),
appellant's actual obligation to said payee was only P895.33
(Exh. A-83); (2) in Check No. 652282 issued on September 18,
1984 in favor of Senson Enterprises in the amount of P11,041.20
(Exh. A-67) appellant's actual obligation to said payee was
only P1,041.20 (Exh. 7); (3) in Check No. 589092 dated April 7,
1984 for the amount of P11,672.47 in favor of Marchem (Exh.
A-61) appellant's obligation was only P1,672.47 (Exh. B); (4) in
Check No. 620450 dated May 10, 1984 in favor of Knotberry
for P11,677.10 (Exh. A-31) her actual obligation was only
P677.10 (Exhs. C and C-1); (5) in Check No. 651862 dated
August 9, 1984 in favor of Malinta Exchange Mart for
P11,107.16 (Exh. A-62), her obligation was only P1,107.16 (Exh.
D-2); (6) in Check No. 651863 dated August 11, 1984 in favor
of Grocer's International Food Corp. in the amount of
P11,335.60 (Exh. A-66), her obligation was only P1,335.60 (Exh.
E and E-1); (7) in Check No. 589019 dated March 17, 1984 in
 favor of Sophy Products in the amount of P11,648.00 (Exh. A-
78), her obligation was only P648.00 (Exh. G); (8) in Check No.
589028 dated March 10, 1984 for the amount of P11,520.00 in
favor of the Yakult Philippines (Exh. A-73), the latter's invoice
was only P520.00 (Exh. H-2); (9) in Check No. 62033 dated May
23, 1984 in the amount of P11,504.00 in favor of Monde
Denmark Biscuit (Exh. A-34), her obligation was only P504.00
(Exhs. I-1 and I-2).2
Practically, all the checks issued and honored by the respondent drawee
bank were crossed checks.3 Aside from the daily notice given to the petitioner
by the respondent drawee Bank, the latter also furnished her with a monthly
statement of her transactions, attaching thereto all the cancelled checks she
had issued and which were debited against her current account. It was only
after the lapse of more two (2) years that petitioner found out about the
fraudulent manipulations of her bookkeeper.
All the eighty-two (82) checks with forged signatures of the payees were
brought to Ernest L. Boon, Chief Accountant of respondent drawee Bank at
the Buendia branch, who, without authority therefor, accepted them all for
deposit at the Buendia branch to the credit and/or in the accounts of Alfredo
Y. Romero and Benito Lam. Ernest L. Boon was a very close friend of Alfredo Y.
Romero. Sixty-three (63) out of the eighty-two (82) checks were deposited in
Savings Account No. 00844-5 of Alfredo Y. Romero at the respondent drawee
Bank's Buendia branch, and four (4) checks in his Savings Account No. 32-81-9
at its Ongpin branch. The rest of the checks were deposited in Account No.
0443-4, under the name of Benito Lam at the Elcao branch of the respondent
drawee Bank.
About thirty (30) of the payees whose names were specifically written on the
checks testified that they did not receive nor even see the subject checks and
that the indorsements appearing at the back of the checks were not theirs.
The team of auditors from the main office of the respondent drawee Bank
which conducted periodic inspection of the branches' operations failed to
discover, check or stop the unauthorized acts of Ernest L. Boon. Under the rules
of the respondent drawee Bank, only a Branch Manager and no other official
of the respondent drawee bank, may accept a second indorsement on a
check for deposit. In the case at bar, all the deposit slips of the eighty-two (82)
checks in question were initialed and/or approved for deposit by Ernest L.
Boon. The Branch Managers of the Ongpin and Elcao branches accepted
the deposits made in the Buendia branch and credited the accounts of
Alfredo Y. Romero and Benito Lam in their respective branches.
On November 7, 1984, petitioner made a written demand on respondent
drawee Bank to credit her account with the money value of the eighty-two
(82) checks totalling P1,208.606.89 for having been wrongfully charged
against her account. Respondent drawee Bank refused to grant petitioner's
demand. On January 23, 1985, petitioner filed the complaint with the Regional
Trial Court.
This is not a suit by the party whose signature was forged on a check drawn
against the drawee bank. The payees are not parties to the case. Rather, it is
the drawer, whose signature is genuine, who instituted this action to recover
from the drawee bank the money value of eighty-two (82) checks paid out by
the drawee bank to holders of those checks where the indorsements of the
payees were forged. How and by whom the forgeries were committed are
not established on the record, but the respective payees admitted that they
did not receive those checks and therefore never indorsed the same. The
applicable law is the Negotiable Instruments Law4 (heretofore referred to as
the NIL). Section 23 of the NIL provides:
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, unless the party against whom it is sought to
enforce such right is precluded from setting up the forgery or
want of authority.
Under the aforecited provision, forgery is a real or absolute defense
by the party whose signature is forged. A party whose signature to an
instrument was forged was never a party and never gave his consent
to the contract which gave rise to the instrument. Since his signature
does not appear in the instrument, he cannot be held liable thereon
by anyone, not even by a holder in due course. Thus, if a person's
signature is forged as a maker of a promissory note, he cannot be
made to pay because he never made the promise to pay. Or where
a person's signature as a drawer of a check is forged, the drawee
bank cannot charge the amount thereof against the drawer's
account because he never gave the bank the order to pay. And said
section does not refer only to the forged signature of the maker of a
promissory note and of the drawer of a check. It covers also a forged
indorsement, i.e., the forged signature of the payee or indorsee of a
note or check. Since under said provision a forged signature is "wholly
inoperative", no one can gain title to the instrument through such
forged indorsement. Such an indorsement prevents any subsequent
party from acquiring any right as against any party whose name
appears prior to the forgery. Although rights may exist between and
among parties subsequent to the forged indorsement, not one of
them can acquire rights against parties prior to the forgery. Such
forged indorsement cuts off the rights of all subsequent parties as
against parties prior to the forgery. However, the law makes an
 exception to these rules where a party is precluded from setting up
forgery as a defense.
As a matter of practical significance, problems arising from forged
indorsements of checks may generally be broken into two types of cases: (1)
where forgery was accomplished by a person not associated with the drawer
for example a mail robbery; and (2) where the indorsement was forged by
an agent of the drawer. This difference in situations would determine the
effect of the drawer's negligence with respect to forged indorsements. While
there is no duty resting on the depositor to look for forged indorsements on his
cancelled checks in contrast to a duty imposed upon him to look for forgeries
of his own name, a depositor is under a duty to set up an accounting system
and a business procedure as are reasonably calculated to prevent or render
difficult the forgery of indorsements, particularly by the depositor's own
employees. And if the drawer (depositor) learns that a check drawn by him
has been paid under a forged indorsement, the drawer is under duty promptly
to report such fact to the drawee bank.5For his negligence or failure either to
discover or to report promptly the fact of such forgery to the drawee, the
drawer loses his right against the drawee who has debited his account under
a forged indorsement.6 In other words, he is precluded from using forgery as a
basis for his claim for re-crediting of his account.
In the case at bar, petitioner admitted that the checks were filled up and
completed by her trusted employee, Alicia Galang, and were given to her for
her signature. Her signing the checks made the negotiable instrument
complete. Prior to signing the checks, there was no valid contract yet.
Every contract on a negotiable instrument is incomplete and revocable until
delivery of the instrument to the payee for the purpose of giving effect
thereto.7 The first delivery of the instrument, complete in form, to the payee
who takes it as a holder, is called issuance of the instrument.8 Without the initial
delivery of the instrument from the drawer of the check to the payee, there
can be no valid and binding contract and no liability on the instrument.
Petitioner completed the checks by signing them as drawer and thereafter
authorized her employee Alicia Galang to deliver the eighty-two (82) checks
to their respective payees. Instead of issuing the checks to the payees as
named in the checks, Alicia Galang delivered them to the Chief Accountant
of the Buendia branch of the respondent drawee Bank, a certain Ernest L.
Boon. It was established that the signatures of the payees as first indorsers
were forged. The record fails to show the identity of the party who made the
forged signatures. The checks were then indorsed for the second time with the
names of Alfredo Y. Romero and Benito Lam, and were deposited in the
latter's accounts as earlier noted. The second indorsements were all genuine
signatures of the alleged holders. All the eighty-two (82) checks bearing the
forged indorsements of the payees and the genuine second indorsements of
Alfredo Y. Romero and Benito Lam were accepted for deposit at the Buendia
branch of respondent drawee Bank to the credit of their respective savings
accounts in the Buendia, Ongpin and Elcao branches of the same bank. The
total amount of P1,208,606.89, represented by eighty-two (82) checks, were
credited and paid out by respondent drawee Bank to Alfredo Y. Romero and
Benito Lam, and debited against petitioner's checking account No. 13-00038-
1, Caloocan branch.
As a rule, a drawee bank who has paid a check on which an indorsement has
been forged cannot charge the drawer's account for the amount of said
check. An exception to this rule is where the drawer is guilty of such
negligence which causes the bank to honor such a check or checks. If a
check is stolen from the payee, it is quite obvious that the drawer cannot
possibly discover the forged indorsement by mere examination of his
cancelled check. This accounts for the rule that although a depositor owes a
duty to his drawee bank to examine his cancelled checks for forgery of his
own signature, he has no similar duty as to forged indorsements. A different
situation arises where the indorsement was forged by an employee or agent
of the drawer, or done with the active participation of the latter. Most of the
cases involving forgery by an agent or employee deal with the payee's
indorsement. The drawer and the payee often time shave business relations of
long standing. The continued occurrence of business transactions of the same
nature provides the opportunity for the agent/employee to commit the fraud
after having developed familiarity with the signatures of the parties. However,
sooner or later, some leak will show on the drawer's books. It will then be just a
question of time until the fraud is discovered. This is specially true when the
agent perpetrates a series of forgeries as in the case at bar.
The negligence of a depositor which will prevent recovery of an unauthorized
payment is based on failure of the depositor to act as a prudent businessman
would under the circumstances. In the case at bar, the petitioner relied
implicitly upon the honesty and loyalty of her bookkeeper, and did not even
verify the accuracy of amounts of the checks she signed against the invoices
attached thereto. Furthermore, although she regularly received her bank
statements, she apparently did not carefully examine the same nor the check
stubs and the returned checks, and did not compare them with the same
invoices. Otherwise, she could have easily discovered the discrepancies
between the checks and the documents serving as bases for the checks. With
such discovery, the subsequent forgeries would not have been accomplished.
It was not until two years after the bookkeeper commenced her fraudulent
scheme that petitioner discovered that eighty-two (82) checks were
wrongfully charged to her account, at which she notified the respondent
drawee bank.
It is highly improbable that in a period of two years, not one of Petitioner's
suppliers complained of non-payment. Assuming that even one single
complaint had been made, petitioner would have been duty-bound, as far as
the respondent drawee Bank was concerned, to make an adequate
investigation on the matter. Had this been done, the discrepancies would
have been discovered, sooner or later. Petitioner's failure to make such
adequate inquiry constituted negligence which resulted in the bank's
honoring of the subsequent checks with forged indorsements. On the other
hand, since the record mentions nothing about such a complaint, the
possibility exists that the checks in question covered inexistent sales. But even
in such a case, considering the length of a period of two (2) years, it is hard to
believe that petitioner did not know or realize that she was paying more than
she should for the supplies she was actually getting. A depositor may not sit
idly by, after knowledge has come to her that her funds seem to be
disappearing or that there may be a leak in her business, and refrain from
taking the steps that a careful and prudent businessman would take in such
circumstances and if taken, would result in stopping the continuance of the
fraudulent scheme. If she fails to take steps, the facts may establish her
negligence, and in that event, she would be estopped from recovering from
the bank.9
One thing is clear from the records that the petitioner failed to examine her
records with reasonable diligence whether before she signed the checks or
after receiving her bank statements. Had the petitioner examined her records
more carefully, particularly the invoice receipts, cancelled checks, check
book stubs, and had she compared the sums written as amounts payable in
the eighty-two (82) checks with the pertinent sales invoices, she would have
easily discovered that in some checks, the amounts did not tally with those
appearing in the sales invoices. Had she noticed these discrepancies, she
should not have signed those checks, and should have conducted an inquiry
as to the reason for the irregular entries. Likewise had petitioner been more
vigilant in going over her current account by taking careful note of the daily
reports made by respondent drawee Bank in her issued checks, or at least
made random scrutiny of cancelled checks returned by respondent drawee
Bank at the close of each month, she could have easily discovered the fraud
being perpetrated by Alicia Galang, and could have reported the matter to
the respondent drawee Bank. The respondent drawee Bank then could have
taken immediate steps to prevent further commission of such fraud. Thus,
petitioner's negligence was the proximate cause of her loss. And since it was
her negligence which caused the respondent drawee Bank to honor the
forged checks or prevented it from recovering the amount it had already
paid on the checks, petitioner cannot now complain should the bank refuse
to recredit her account with the amount of such checks. 10 Under Section 23
of the NIL, she is now precluded from using the forgery to prevent the bank's
debiting of her account.
The doctrine in the case of Great Eastern Life Insurance Co. vs. Hongkong &
Shanghai Bank 11 is not applicable to the case at bar because in said case,
the check was fraudulently taken and the signature of the payee was forged
not by an agent or employee of the drawer. The drawer was not found to be
negligent in the handling of its business affairs and the theft of the check by a
total stranger was not attributable to negligence of the drawer; neither was
the forging of the payee's indorsement due to the drawer's negligence. Since
the drawer was not negligent, the drawee was duty-bound to restore to the
drawer's account the amount theretofore paid under the check with a forged
payee's indorsement because the drawee did not pay as ordered by the
drawer.
Petitioner argues that respondent drawee Bank should not have honored the
checks because they were crossed checks. Issuing a crossed check imposes
no legal obligation on the drawee not to honor such a check. It is more of a
warning to the holder that the check cannot be presented to the drawee
bank for payment in cash. Instead, the check can only be deposited with the
payee's bank which in turn must present it for payment against the drawee
bank in the course of normal banking transactions between banks. The
crossed check cannot be presented for payment but it can only be deposited
and the drawee bank may only pay to another bank in the payee's or
indorser's account.
Petitioner likewise contends that banking rules prohibit the drawee bank from
having checks with more than one indorsement. The banking rule banning
acceptance of checks for deposit or cash payment with more than one
indorsement unless cleared by some bank officials does not invalidate the
instrument; neither does it invalidate the negotiation or transfer of the said
check. In effect, this rule destroys the negotiability of bills/checks by limiting
their negotiation by indorsement of only the payee. Under the NIL, the only
kind of indorsement which stops the further negotiation of an instrument is a
restrictive indorsement which prohibits the further negotiation thereof.
Sec. 36. When indorsement restrictive. An indorsement is
restrictive which either
(a) Prohibits further negotiation of the instrument; or
xxx xxx xxx
In this kind of restrictive indorsement, the prohibition to transfer or negotiate
must be written in express words at the back of the instrument, so that any
subsequent party may be forewarned that ceases to be negotiable. However,
the restrictive indorsee acquires the right to receive payment and bring any
action thereon as any indorser, but he can no longer transfer his rights as such
indorsee where the form of the indorsement does not authorize him to do
so. 12
Although the holder of a check cannot compel a drawee bank to honor it
because there is no privity between them, as far as the drawer-depositor is
concerned, such bank may not legally refuse to honor a negotiable bill of
exchange or a check drawn against it with more than one indorsement if
there is nothing irregular with the bill or check and the drawer has sufficient
funds. The drawee cannot be compelled to accept or pay the check by the
drawer or any holder because as a drawee, he incurs no liability on the check
unless he accepts it. But the drawee will make itself liable to a suit for
damages at the instance of the drawer for wrongful dishonor of the bill or
check.
Thus, it is clear that under the NIL, petitioner is precluded from raising the
defense of forgery by reason of her gross negligence. But under Section 196 of
the NIL, any case not provided for in the Act shall be governed by the
provisions of existing legislation. Under the laws of quasi-delict, she cannot
point to the negligence of the respondent drawee Bank in the selection and
supervision of its employees as being the cause of the loss because
negligence is the proximate cause thereof and under Article 2179 of the Civil
Code, she may not be awarded damages. However, under Article 1170 of the
same Code the respondent drawee Bank may be held liable for damages.
The article provides
Those who in the performance of their obligations are guilty of
fraud, negligence or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
There is no question that there is a contractual relation between petitioner as
depositor (obligee) and the respondent drawee bank as the obligor. In the
performance of its obligation, the drawee bank is bound by its internal
banking rules and regulations which form part of any contract it enters into
with any of its depositors. When it violated its internal rules that second
endorsements are not to be accepted without the approval of its branch
managers and it did accept the same upon the mere approval of Boon, a
chief accountant, it contravened the tenor of its obligation at the very least, if
it were not actually guilty of fraud or negligence.
Furthermore, the fact that the respondent drawee Bank did not discover the
irregularity with respect to the acceptance of checks with second
indorsement for deposit even without the approval of the branch manager
despite periodic inspection conducted by a team of auditors from the main
office constitutes negligence on the part of the bank in carrying out its
obligations to its depositors. Article 1173 provides
The fault or negligence of the obligor consists in the omission
of that diligence which is required by the nature of the
obligation and corresponds with the circumstance of the
persons, of the time and of the place. . . .
We hold that banking business is so impressed with public interest where the
trust and confidence of the public in general is of paramount importance
such that the appropriate standard of diligence must be a high degree of
diligence, if not the utmost diligence. Surely, respondent drawee Bank cannot
claim it exercised such a degree of diligence that is required of it. There is no
way We can allow it now to escape liability for such negligence. Its liability as
obligor is not merely vicarious but primary wherein the defense of exercise of
due diligence in the selection and supervision of its employees is of no
moment.
Premises considered, respondent drawee Bank is adjudged liable to share the
loss with the petitioner on a fifty-fifty ratio in accordance with Article 172 which
provides:
Responsibility arising from negligence in the performance of
every kind of obligation is also demandable, but such liability
may be regulated by the courts according to the
circumstances.
With the foregoing provisions of the Civil Code being relied upon, it is being
made clear that the decision to hold the drawee bank liable is based on law
and substantial justice and not on mere equity. And although the case was
brought before the court not on breach of contractual obligations, the courts
are not precluded from applying to the circumstances of the case the laws
pertinent thereto. Thus, the fact that petitioner's negligence was found to be
the proximate cause of her loss does not preclude her from recovering
damages. The reason why the decision dealt on a discussion on proximate
cause is due to the error pointed out by petitioner as allegedly committed by
the respondent court. And in breaches of contract under Article 1173, due
diligence on the part of the defendant is not a defense.
PREMISES CONSIDERED, the case is hereby ordered REMANDED to the trial
court for the reception of evidence to determine the exact amount of loss
suffered by the petitioner, considering that she partly benefited from the
issuance of the questioned checks since the obligation for which she issued
them were apparently extinguished, such that only the excess amount over
and above the total of these actual obligations must be considered as loss of
which one half must be paid by respondent drawee bank to herein petitioner.
SO ORDERED.